S.2(15) : Charitable purpose – For providing training charging fees – Such activity does not amount to services in relation to trade, commerce and industry it amounts to imparting education
Assessee institution engaged in imparting higher and specialized education in field of communication including advertising and its related subjects. Training given to individual as well as to persons sent by companies to meet needs of Indian industry and commerce. Held, such activity does not amount to services in relation to trade, commerce and industry it amounts to imparting education, it will still be held that the institution exist solely for educational purpose.
Mudra Foundation for Communications Research & Education v. CCIT (2016) 237 Taxman 139 (Guj.)(HC
S.2(24) : Income – Capital or revenue – Receipt representing compensation for loss of source of income would be treated as capital receipt
Assessee was a journalist by profession and was appointed as the foreign correspondent in India of a German news magazine. German publisher paid a lump sum amount upon termination as sign off compensation for association of past 23 years and loss of work space. Assessing Officer treated the compensation received to be revenue in nature and chargeable to tax under Income- tax Act, 1961.
High Court noted that the receipt in the hands of the Assessee was compensation for loss of an income generating asset. Termination of contract had fatally injured the
appellant’s only source of income for the last 23 years. The mere fact that the Assessee was free to earn through other sources would not make a difference. High Court relied on Supreme Court ruling in Kettlewell Bullen and Co. Ltd (53 ITR 261) and Oberoi Hotel Pvt. Ltd. v. CIT (236 ITR 903) wherein the court held that if receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the Assessee continues to be in receipt of income from its other similar operations. Accordingly the Court ruled in favour of the Assessee and treated the receipt as capital receipt. (AY. 1994-95)
CIT v. Sharda Sinha (2016) 237 Taxman 111 (Delhi)(HC)
S.4 : Charge of income-tax -Mutuality – The contributions made by the members to the assessee cannot be a subject matter of tax merely because the part of its excess of income over expenditure is invested in mutual funds
The contributions made by the members to the assessee cannot be a subject matter of tax merely because the part of its excess of income over expenditure is invested in mutual funds. The concept of Mutual concerns not being subject to tax is based on the principle of no man can profit out of itself. Therefore the test to be satisfied before an association can be classified as a Mutual concern are complete identity between the members i.e. contributors and the participants, the action of the mutual concern must be in furtherance of its objectives and there must be no scope of profiteering by the contributors from a fund. (ITA No. 2455 of 2013, dt. 31-3-2016)
CIT v. Air Cargo Agents Association of India (Bom.)(HC);
S.4 : Charge of income-tax -Accrual of income
– Mercantile system of accounting – Waiver of income recoverable from person facing financial difficulties
Even in mercantile system of accounting an item would be regarded as accrued income only if there is certainty of receiving it and not when it has been waived, therefore non recognition of income on the ground that the income had not really accrued as the realisability of the principal outstanding itself was doubtful, is legally correct under the mercantile system of accounting, when the same is in accordance with ASI notified by the Government and the provisions of Section 145(1) are subject to, inter alia, mandate of ASI which also prescribes that
"˜Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting
policies.’ In the name of compliance with Section 145(1), it cannot be open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the assessee was justified in following the policy of not recognising these interest revenues till the point of time when the uncertainty to realise the revenues vanished. The Tribunal further referred to the fact that the various resolutions which decision rendered by the Tribunal in the impugned order is a decision on facts and nothing has been shown to us which would warrant interference by this Court on account of any finding being perverse or arbitrary.
(ITA Nos. 2251 of 2013 with 2360 of 2013, dt. 5-4-2016)
CIT v. Neon Solutions Pvt. Ltd. (Bom.)(HC);
S.4 : Charge of income-tax – Capital or revenue – Money to be used in purchase of plant and machinery temporarily placed in fixed deposits – Inextricably linked with setting up of plant – Interest on fixed deposits – Capital receipt
Held, the test that is required to be employed is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the business. The findings of fact had been returned by the Commissioner (Appeals) and had been confirmed by the Tribunal to the effect that the funds were inextricably connected with the setting up of the power plant of the assessee. The Revenue had also not been able to point out any perversity in such finding and, therefore, interest earned by the assessee from fixed deposits in the pre-commencement period. (AY. 2009-10)
PCIT v. Facor Power Ltd. (2016) 380 ITR 474/237 Taxman 613/ 283 CTR 141 (Delhi) (HC)
S.14A : Disallowance of expenditure – Exempt income – The disallowance of expenditure cannot exceed the amount of tax – Free dividend
Dismissing the appeal of revenue the Court held that; in the present case, when the assessee claimed that it had not made any expenditure on earning exempt income, the Assessing Officer in terms of sub-section (2) of Section 14A of the Act was required to collect such material evidence to determine expenditure if any incurred by the assessee in relation to earning of exempt income. The income from dividend had been shown at
Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule 8D of the Rules worked out by the Assessing Officer came to
Rs. 4,09,675/-. Thus, the Assessing Officer disallowed the entire tax exempt income which is not permissible as per settled position of law. The window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure"incurred by the assessee in relation to the tax exempt
income". The disallowance under section 14A read with Rule 8D as worked out by the Assessing Officer is not in accordance with law and as such working is not sustainable. The view adopted by the Tribunal being a plausible view based on factual position and the relevant case law on the point, does not warrant any interference by this Court. (ITA No. 415 of 2015, dt. 12-1-2016) (AY. 2009-10)
Pr. CIT v. Empire Package Pvt. Ltd. (P & H) (HC);
S.14A : Disallowance of expenditure – Exempt income-Appellate authorities finding ten per cent of income earned could be apportioned towards expenses for earning dividend – Finding not perverse
The Commissioner (Appeals) took into account the words of rule 8D and found that the figures as derived by the Assessing Officer could not be taken into consideration. Disallowance of expenses can be made which are incurred for earning dividend. For that purpose, the figures under the head "Investment" could be taken and some charges apportioned for the purpose of computing the expenses. The Commissioner (Appeals) found from such figures, that only 10% of the income earned could be apportioned towards expenses for earning the dividend. Held, Rule had been applied correctly. (AY. 2008-09)
CIT v. India Advantage Securities Ltd. (2016) 380 ITR 471 (Bom.) (HC)
S.14A : Disallowance of expenditure – Exempt income – Interest on borrowed capital -Investment was from own funds – Disallowance was held to be not justified
The ITAT passed an order in HDFC Bank Limited v. DCIT ( 2015) 173 TTJ 810 (Mum)(Trib.) in which it held that the presumption laid down in HDFC Bank 366 ITR 505 (Bom.) and Reliance Utilities 313 ITR 340 (Bom.) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom). On a Writ Petition filed by the assessee, Order of Tribunal is reversed on the ground that it is "Judicial Indiscipline" leading to complete chaos and anarchy in the administration of law. (AY. 2008-09)
HDFC Bank Ltd. v. DCIT (2016) 132 DTR 89 (Bom.)(HC)
S.14A : Disallowance of expenditure – Exempt income – Disallowance of interest expenditure would not be tenable where AO failed to establish a nexus between interest bearing funds and investment made
Assessee was a State Government undertaking engaged in financing industrial units. It had made investment in securities on which it earned tax-free dividend income. The AO observed that though 75 per cent of investments were made through funds given by State Government, 25 per cent of investments were made out of mixed pool of funds and, therefore, 25 per cent of interest expenditure was taken as indirect expenditure liable for disallowance under section 14A, r.w. rule 8D. As amount of disallowance exceeded amount of exempt income itself, AO adopted a sum of 5 per cent of indirect expenditure together with 0.5 per cent of average investments under rule 8D(2)(iii) as disallowance under section 14A, read with rule 8D.
On appeal, the CIT(A) deleted the additions made by the AO on the ground that the AO failed to establish direct nexus between borrowed funds and tax-free investments. The Tribunal affirmed the order of the CIT(A).
The High Court held that as the disallowance was made on an ad hoc percentage without any basis or assigning any reason whatsoever, the disallowance was rightly set aside by the appellate authorities. The court observed that the AO had been unable to establish a nexus between the interest bearing funds and the investments made. Accordingly, the High Court dismissed the
Revenue’s appeal. (AY. 2009-10)
CIT v. Karnataka State Industrial & Infrastructure Development Corpn. Ltd. (2016) 237 Taxman 240 (Karn.)(HC)
S.17(3) : Profits in lieu of salary – Amount paid by employer to employee in order to put an end to litigation which was related to
employee’s termination of service was not in nature of"profit in lieu of
Assessee, an individual, was an employee of company 'G'. He was discharged from service under the relevant Service Rules after giving three months' pay. Further, the assessee was also paid certain amount as ex-gratia compensation on premature cessation of his services. The assessee treated the said ex-gratia payment as a capital receipt and consequently did not offer it to tax. The AO took a view that compensation so received was to be taxed u/s. 17(3) as 'profits in lieu of salary'. The Tribunal confirmed the order passed by AO.
On appeal, the HC held that the assessee's services came to be terminated under the relevant service rules after giving three months' pay. Therefore, insofar as the obligation of the employer to pay any amount to the assessee in relation to the termination of his services, the same came to an end in view of the discharge of his services under relevant rule. The amount in question was paid only in terms of the settlement, without there being any obligation on the part of the employer to pay any further amount to the assessee in terms of the services rules. The employer, voluntarily at its discretion, agreed to pay the amount in question to the assessee with a view to bring an end to the litigation. There was no obligation cast upon the employer to make such payment and, therefore, the same would not be taxable as 'profits in lieu of salary' as envisaged u/s. 17(3)(i). (A.Y. 1994-95)
Arunbhai R. Naik v. ITO (2016) 131 DTR 402 (Guj. HC)
S.17(3) : Profits in lieu of salary – Amount received from his employer on retirement is profits in lieu of salary and not non-compete fees – Liable to tax
At the time of retirement, the assessee received various retirement benefits from the company. Further, the assessee was also paid certain amount as compensation which was claimed as non-compete fees, not chargeable to taxable. However, the AO re-characterised the nature of payment to be “profits in lieu of salary’ as the assessee failed to provide explanation the manner in which the compensation was computed and negotiated with the company. The CIT(A) and Tribunal upheld the order of the AO.
On appeal, the HC held that the assessee has worked with the company for more than 33 years and received handsome retirement package and would not compete with his former employer. Hence, the payment shown as non-compete fees is a camouflage transaction to reduce tax implication. (AY. 2003-04)
B.L. Shah v. ACIT (2016) 131 DTR 265 (Bom) HC)
S.24 : Income from house property – Deduction – Interest paid on loan taken over while acquiring mortgaged property would be deductible under section 24(1)(vi) against rental income from said property
The assessee was having rental income and claimed deduction of interest from the said income under section 24(1)(vi). The Assessing Officer disallowed the said deduction as the assessee had not purchased/constructed any building from the funds on which the interest was paid. On appeal, the Commissioner (Appeals) upheld the disallowance. On Second Appeal, the Tribunal allowed deduction under section 24(1)(vi) to assessee by recording finding that said loan liability was undertaken by assessee for acquiring its mortgaged property.
The High Court held that Section 24(1)(vi) of the Act at the relevant time provided that where the property had been acquired, constructed, repaired, renewed or re-constructed with borrowed capital, the amount of interest payable on such capital was a permissible deduction from income from house property. Thus, it would be required to be seen in the present case whether the deduction of interest paid by the assessee on the borrowed funds satisfied the requirements of clause (vi) of sub-section (1) of Section 24 of the Act. The Court further observed that the Tribunal had come to a finding that there was a nexus between the loan taken and the acquisition of the property. The Revenue was unable to show any perversity in the findings of the Tribunal and accordingly the High Court dismissed the Revenue's appeal. (AY. 1997-98)
CIT v. Haryana Television Ltd. (2016) 237 Taxman 247 (P&H)(HC)
S.32 : Depreciation – Sale and lease back – Lessee not claiming depreciation – Entitled depreciation
The assessee claimed 100 per cent depreciation on energy measuring devices purchased from Haryana State Electricity Board. After purchase they were leased back to the Board under a lease agreement. The Assessing Officer held that purchase and lease back transaction was in fact and in substance a finance lease agreement. He disallowed the depreciation relying on Circular No. 20 of 2001 dt. 9th February, 2001. CIT(A) and Tribunal allowed the claim of depreciation. On appeal by revenue, dismissing the appeal the Court held that the transaction was genuine and the assessee is entitled to depreciation. Relied on I.C.D.S. Ltd v. CIT ( 2013) 350 ITR 527 (SC)& West Coast Paper Mills Ltd. (2010) 322 ITR 9 (SC)(St.)(AY. 1996-97)
CIT v. Apollo Fine Vest (I) Ltd (2016) 382 ITR 33 (Bom)(HC)
S.32 : Depreciation – Additional depreciation allowed on manufacture/production of ‘article or thing’ – Depreciation is allowable on assets kept ready for use
Assessee was engaged in the business of FM radio broadcasting and was granted permission for operating FM Radio Broadcasting channels. In its return of income, Assessee claimed additional depreciation under section 32(1)(iia) of the Act, on new plant and machinery acquired for production of radio programmes. Assessing Officer did not concur with the Assessee and did not consider production of radio programmes as production of article or thing. On appeal the Tribunal held that Assessee was eligible for claiming additional depreciation under section 32(1)(iia) of the Act. Aggrieved by the Tribunal judgement, Revenue preferred an appeal before the High Court.
The High Court observed that production of radio programmes involved process of recording, editing and making copies prior to broadcasting, there comes into existence a
"˜thing’ which is tangible and which can be transmitted and even sold by making copies. High Court placed reliance on Gramophone Co. India Ltd v. Collector of Customs (1 SCC 549)(SC) and Collector of Central Excise v. Rajasthan State Chemical Works (4 SCC 473)(SC). Thus it was held that Assessee had acquired and installed plant and machinery for manufacture of ‘article or thing’ and it is entitled to claim additional depreciation under section 32(1)(iia) of the Act.
For the year under consideration Assessing Officer had disallowed Assessee claim for depreciation on licence fee for radio station as the same were not used during the year. Contrary to the Assessing
Officer’s claim, radio stations were ready-to-use and had started trial runs. High Court relied upon Refrigeration & Allied Ind. Ltd (247 ITR 12)(Del.) where it was held that an asset can be said to be
"˜used’ when it is kept ‘ready to use’ and Capital Bus Service Pvt. Ltd. (123 ITR 404)(Del.) where similar view was taken. As a result it was held that Assessee would be entitled to claim depreciation on licence fee as the same were kept ready-to-use for the year under consideration. (AY. 2008-09)
CIT v. Radio Today Broadcasting Ltd. (2016) 382 ITR 42 / 237 Taxman 126 (Delhi)(HC)
S.37(1) : Business expenditure – Capital or revenue – Expenditure in respect of a project which did not materialise has to be treated as revenue expenditure as no capital asset comes into existence
On the question has to whether if the project does not materialise and an asset is not created, expenditure on steps in that direction must be treated as capital expenditure or revenue expenditure, the Supreme Court in Commissioner of Income Tax v. Madras Auto Service (P) Ltd., reported at (1998) 233 ITR 468 clinches the controversy. There while considering the issue, the Court finds that the assessee could not have claimed it as capital expenditure, as there was no capital asset generated by spending said amount. The expenditure has been held rightly classified as revenue expenditure. (ITR No. 150 of 1993, dt. 11-2-2016)
CIT v. Manganese Ore India Ltd. (Bom.)(HC);
S.37(1) : Business expenditure -Capital or revenue – Expenditure on "application software" is revenue expenditure
Allowing the appeal of assessee the Court held that; Expenditure on "application software" is revenue as it allows efficient carrying on of business and requires to be constantly updated due to rapid advancements in technology and increasing complexity of the features. (ITA No. 278 of 2007, dt. 18-3-2016) (AY. 1997-98 )
Indian Aluminium Co. v. CIT (Cal.)(HC);
S.37(1) : Business expenditure – Allowability of travel expenditure
– Where foreign buyer of assessee was situated in Singapore, expenditure incurred for travel to meet buyer in Singapore could only be allowed; and expenses incurred on travel to countries other than Singapore were to be disallowed
The assessee, an export-oriented unit, claimed deduction of foreign travel expenditure of its president and directors for purpose of marketing and selling its goods. Assessing Officer found that president and directors of company had not only travelled to Singapore where associated enterprise was situated but also to other countries and therefore, disallowed expenses incurred by assessee on travel to countries other than Singapore. The CIT(A) and Tribunal confirmed order of Assessing Officer. In appeal, the High court held that the view taken by Tribunal to restrict the expenses of travel only to Singapore visit where the foreign buyer of the appellant was situated, could not be said to be perverse. (AY. 2003-04)
Advance Power Display Systems Ltd. v. CIT (2016) 237 Taxman 16 (Bom.)(HC)
S.37(1) : Business expenditure – Deferred revenue expenditure – Decision to abandon project, balance deferred revenue expenditure relating to said project would be deemed to arise in relevant year
The assessee was running a project which was not making profits. Therefore, it was abandoned and entire expenses, including balance deferred revenue expenditure were written off during the year. The Assessing Officer disallowed the balance deferred revenue expenditure as it was not related to current year's income. The CIT(A) allowed the claim of assessee, which was affirmed by the Tribunal. On appeal, the High Court held that since the project was abandoned in the assessment year 1995-96 and the entire expenses was written off during the said assessment year. It can be safely concluded that the expenditure arose in the relevant year. (AYs. 1995-96, 1996-97)
CIT v. Alcove Industries Ltd. (2016) 237 Taxman 226 (Cal.)(HC)
S. 37(1) : Business expenditure – Royalty paid to director for use of IPR of the director
– Held, assessee company is a separate juristic entity – Payment made as royalty is an allowable expenditure
Director of the assessee company, had invented the technology through which ringtones could be created. He carried on the business in the name and style of
"˜phoneytunes.com’ as a sole proprietor. Assessee company entered into an agreement with the director for using the brand name in lieu of payment of royalty. The AO and CIT(A) held that the director cannot enter into an agreement with the company as they are the same person. High Court held that, assessee company is a separate juristic entity and therefore, can enter into the said agreement. Further, it was held that the director had obtained copyright in the artistic work comprised in the name
"˜phoneytunes.com’ and registration thereof was not compulsory. Further, it constituted the trademark of the director. Held, therefore, the assessee was entitled to use the trademark as a licensee and the payment of royalty made was allowable as a deduction. (AYs. 2006-07 to 2008-09)
CIT v. Mobisoft Tele Solutions (P.) Ltd. (2016) 237 Taxman 221 (P&H)(HC)
S.37(1) : Business expenditure – Payment of damages to compensate the loss suffered by other, is compensatory in nature and hence, allowable
The assessee had taken on lease a plot of land from the Calcutta Port Trust. It had encroached some of land belonging to the trust, for which the trust asked the assessee to pay damages before proposal of the assessee for grant of a long-term lease in respect of the encroached land. The assessee made the said payment and claimed it as revenue expenditure u/s. 37(1).
The AO treated the impugned payment as capital in nature on the ground that it was expended to obtain a long-term lease. He also held that the encroachment amounted to an infraction of law. The CIT(A) and Tribunal concurred with the view of the AO.
On appeal, the HC held that the impugned payment was made to compensate the loss suffered by the Trust and for benefit already received by the assessee as a user of land. Therefore, payment is not in the nature of penalty. Further, the impugned payment was also held to be not a capital expenditure as prayer for lease of encroached land could not have been examined before payment of the compensation. (AY. 2001-02)
Mundial Export Import Finance (P) Ltd. v. CIT (2016) 131 DTR 195 (Cal.) (HC)
S.40(a)(ia) : Amounts not deductible – Deduction at source
– Non-resident – Commission – Services rendered outside India – Order of Tribunal was set aside for reconsideration [S. 195]
The Tribunal took the view (Sesa Resources v. ACIT) that in view of the retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India, commission to non-resident agents for services rendered outside India is liable for TDS u/s. 195 and has to suffer disallowance u/s. 40(a)(ia). In appeal before the High Court, the assessee contended that the Tribunal has misconstrued Explanation 2 to Section 195 of the Finance Act, 2012 while coming to the conclusion that even in case in which the income of the non-resident is not chargeable to tax in India, the deduction at source would have to be made by the assessee. It was pointed out that the Explanation was not itself relevant to the facts of the case as it is not the case of the department that the commission paid to the non-resident was not chargeable to tax in India. The assessee relied upon the Judgment in the case of CIT v. Gujarat Reclaim & Rubber Products Ltd (ITA No. 169/2014 dated 8-12-2015). HELD by the High Court:
In Gujarat Reclaim & Rubber Products Ltd. it has been, inter alia, held that before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of the Income-tax Act. This aspect has not been considered by the Tribunal while concluding that the Appellant has committed a default in not deducting the tax at source. As the said learned Division Bench Judgment was not available while passing the impugned order by the learned Tribunal, we find it appropriate, in the interest of justice, to quash and set aside the impugned order of the learned Tribunal to the extent it holds that the Appellant has defaulted in not deducting tax at source and remand the matter to the Tribunal to examine the said aspect afresh in the light of the judgment of this Court after hearing the parties in accordance with law. All contentions on that count are kept open. (TA. No. 11 of 2016, dt. 7-3-2016)(AY. 2009-10)
Sesa Resoureces Ltd. v. DCIT (Bom.)(HC);
S.45 : Capital gains – Accrual -Deferred consideration dependent on a contingency does not accrue unless the contingency has occurred and is not liable to capital gains tax in year of transfer
Dismissing the appeal of revenue the Court held that; The Tribunal held that what amount has to be brought to tax is the amount which has been received and/or accrued to the assessee and not any notional or hypothetical income as the revenue is seeking to tax the assessee in the subject assessment year 2006-07"¦ learned counsel for the Revenue urged that in terms of section 45(1) of the Act that transfer of capital asset would attract the capital gains tax. It is further submitted that the amount to be taxed under section 45(1) is not dependent upon the receipt of the consideration. In support of the above he invites our attention to Section 45(1)(A) and section 45(5) of the Act which in contrast brings to tax capital gains on amount
received"¦ in the subject assessment year no right to claim any particular amount gets vested in the hands of the assessee. Therefore, entire amount of
Rs. 20 crores which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the assessee. The test of accrual is whether there is a right to receive the amount though later and such right is legally
enforceable"¦ contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-07 as the same has not accrued during the year. (ITA No.2348 of 2013, dt. 29-3-2016) (AY. 2006-07)
CIT v. Hemal Raju Shete (Mrs.) (Bom.)(HC);
S.45 : Capital gains – Business income – Sale of shares and mutual funds held as investment – Maintenance of two separate accounts in respect of shares held in trading portfolio and investment portfolio – Gains arising on sale of shares held in investment portfolio to be treated as capital gains
The assessee held two separate accounts in respect of dealing in shares and mutual funds under trading portfolio and under investment portfolio. During the year under consideration, the assessee sold shares and mutual funds in investment portfolio and returned long term capital gain on the same. The Assessing Officer held that the gains arising out of the same has to be treated as business income as he is a trader in shares for the reason that the assessee held the shares of the same company both under investment portfolio and trading portfolio and the assessee has the discretion to decide which scrip is to be held under investment portfolio and which one under trading portfolio. On appeal, the CIT(A) upheld the order of the Assessing Officer, which was subsequently reversed by the Tribunal. On appeal by the Revenue, the High Court held that the tests applied by the Assessing Officer is not correct relying upon Circular No. 4 of 2007 dated
15-6-2007 which gives the discretion to the assessee to treat a particular scrip either as investment or as stock-in-trade. Further, also following the principle of consistency as it was held that the gain is to be assessed as capital gain in the preceding previous year, it was held that the gain arising on the sale of shares and mutual funds is to be assessed as capital gain in the year under consideration. (AY. 2006-07)
CIT v. IHP Finvest Ltd. (2016) 236 Taxman 64 (Bom.)(HC)
S.45 : Capital Gains – Sale of business of firm as a going concern to a company for consideration of paid-up capital does not amount to transfer liable as tax as capital gains – Conversion of capital asset into stock-in-trade – Distribution of capital assets necessary to invoke the provisions of the section
The assessee was a firm and was having a shopping centre and land which was non business asset and hence was kept out of the Balance Sheet. During the year under appeal, the said asset was brought into the stock of the business and corresponding credit was given to the respective capital accounts of the partners in their profit sharing ratio. The firm was converted into a joint stock company with the same objects to deal in land, building and construction. The Assessing Officer noticed that the asset i.e. is the shopping centre was introduced for the first time in the books and thus charged this receipt of income. Alternatively, the Assessing Officer observed that in this transaction the assessee has transferred an asset where the cost of acquisition is nil for a consideration of
Rs. 1,16,40,000/- for shopping centre and for the land which had acquisition value of
Rs. 12,00,000/- for a consideration of
Rs. 65,00,000/- The Assessing Officer treated the same as short term capital gain as the asset had been brought for the first time in its books of account and added it to the income of the assessee.
Before the CIT(A) the assessee contended that the provisions of section 28(iv) of the Act were not applicable as neither the Act of bringing an asset into the books nor revaluation thereof would amount to benefit or perquisite because the asset was already owned by the assessee, though not reflected in its books. The fact that the asset had been brought into its books did not amount to obtaining any benefit by the assessee. It was further contended that no capital gains had occurred when it had converted the firm into a joint stock company as in view of the provisions of Chapter IV of the Companies Act, the act of declaring a firm as a company did not amount to transfer. It was contended that if the property is transferred from an individual to himself, then no profit or gain accrues to such person.
The CIT(A) held that a transfer of assets by a partnership firm to a company comprising only of shareholders who were earlier partners of the firm attracts liability under section 45 of the Act and directed the Assessing Officer to compute the capital gains as per the provisions of section 48 read with section 55 of the Act. The Tribunal held that capital gains can be brought to assessment only, if the full value of the consideration is received by or accrues to the transferor. The consideration in the instant case is stated to be allotment of shares though the shares were issued by the company not to the firm but to its partners. Even if it was considered that the shares somehow represented the consideration, the firm would not be liable to tax.
After going through the various submissions and contentions of both the parties and relying on various judicial precedents the High Court (including decision of Bombay High Court in case of Texspin Engineering and Manufacturing Works (263 ITR 345) (Bom.) and held that impugned transaction is not chargeable to tax under sections 28(iv), 45 and 45(4) of the Act. Accordingly
department’s appeal was dismissed. (AY. 1996-97)
Dy. CIT v. R. L. Kalathia and Co. (2016) 381 ITR 180/ 237 Taxman 621 (Guj.)(HC)
S.45(4) : Capital gains -Distribution of capital asset – Conversion of firm to a company – When a partnership firm is transformed into a limited company with no change in the number of partners and extent of property, there is no transfer of assets involved and hence, there is no liability to pay tax on capital gains
The assessee, erstwhile registered firm, was engaged in the business of training and trading of software. It consisted of only two partners, who were holding equal stakes in the firm. Subsequently, the assessee firm revalued its assets and the partnership business was converted into the business of Private Limited Company as a going concern and all the assets of the firm got vested as assets of the Private Limited Company, in which, the same partners were interested.
The Assessing Officer opined that the transfer of business assets of the assessee firm to the Private Limited Company would constitute distribution of assets and would attract capital gains as contemplated under section 45(4) and that
the assessee was liable to pay tax on 'capital gains'.
The Commissioner (Appeals) allowed the appeal holding that when a partnership firm was transformed into a private limited company, there was no transfer of capital assets as contemplated under section 45(4).
The Tribunal again held that the transfer of assets of a partnership firm, without dissolution, to a private limited company fell within the expression 'otherwise' as contemplated under section 45(4) and, therefore, the assessee was liable to pay tax.
The High Court held that before a levy on the capital gain can be imposed, it is a must to ensure that, such a gain has arisen from the disposal of the asset, by any one of the mode, referred to in the definition of the term 'transfer' in section 2(47). It was well settled that when a partnership firm is transformed into a private limited company, there is no distribution of assets and as such, there was no transfer and therefore, the assessee was not liable to pay any tax on capital gains. There was no case law supporting the proposition that even in cases of subsisting Partners of a partnership firm transferring assets to a private limited company, there would be a transfer, covered under the expression 'otherwise'. So far as this case is concerned, there is no transfer of asset as (a) no consideration was received or accrued on transfer of assets from the firm to the company; (b) the firm has only revalued its assets which will not amount to transfer; (c) the provision of section 45(4) of the Act is applicable only when the firm is dissolved. In the instant case, there is no distribution of asset, but only taking over of the assets from the firm to the company. Therefore, it is clear that the vesting of the property in the private limited company is not consequent or incidental to a transfer. There is no transfer of a capital assets as contemplated by section 45(1). ((AY. 1992-93)
CADD Centre v. ACIT (2016) 237 Taxman 401 (Mad.)(HC)
S.50C : Capital gains – Full value of consideration
– Stamp valuation – Value ascertained by the DVO lesser than the value adopted by the State Stamp Duty authority
– Held, value ascertained by DVO to be taken as full value of consideration
Assessee sold the property for a total consideration of
Rs. 47 lakh. Sub-Registrar of the Stamp Duty valued the asset at
Rs. 3.4 crores. The assessee carried the said valuation in appeal before the Deputy Collector, Stamp Duties who valued the property at
Rs. 1.33 crores. AO adopted the latter value as the full value of consideration. CIT(A) called for the valuation report from DVO, who in turn valued the property at
Rs. 71.98 lakh. The said value was adopted by the CIT(A) as full value of consideration. Held, as per the provisions of section 50C, where the value ascertained by the DVO is lesser than the value adopted by the State Stamp Duty authority, then the earlier one is to be taken as full value of consideration. (AY. 2007-08)
PCIT v. Rajabhai Lumbhabhai Hadiya (2016) 237 Taxman 528 (Guj.)(HC)
S.50C : Capital gains – Full value of consideration
– Stamp valuation – Agreement was entered in 2001 and part consideration was received and later sale deed was executed in April 2003, transfer of property could be said to have taken place in 2001, when provision of section 50C was not in existence hence same was not applicable
The provisions of section 50C are not applicable in the case where the agreement for sale is entered into prior to the introduction of section 50C, i.e. AY. 2003-04 and sale deed is entered into after the introduction of Section 50C. The moment the agreement for sale is entered into, transfer is said to have taken place for the purpose of section 50C and relying upon the decision of the Supreme Court in the case of Sanjeev Lal v. CIT  365 ITR 389 wherein it was held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished, it was held that the transfer in the instant case took place in 2001 i.e. the year in which the agreement for sale was entered into and as provisions of section 50C were not in the statute then, there was no case of application of section 50C of the Act. (AYs. 2003-04, 2004-05)
CIT v. Shimbhu Mehra (2016) 236 Taxman 561 (All.)(HC)
S.54F : Capital gains – Investment in a residential house
– Amount invested in new asset need not be entirely sourced from capital gain
The assessee claimed benefit of section 54F, however, he did not entirely source the amount invested in his new asset from capital gain receipts and therefore AO made an addition to the income of the assessee. The CIT(A) upheld the addition made by the AO. The Tribunal reversed order of the CIT(A) holding that section 54F did not put any restriction whether the investment was made out of loan amount or from the sale consideration and, therefore, for availing the benefit of section 54F amount invested in the new asset need not be entirely sourced from capital gain.
The High Court upheld the order of the Tribunal and held that, no provision had been made in the statute that in order to avail benefit of section 54F, the assessee had to utilise the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is so, the assessee was entitled for benefit under section 54F. (AY. 2009-10)
CIT v. Kapil Kumar Agarwal (2016) 382 ITR 56 / 237 Taxman 555 / 284 CTR 75/131 DTR 87 (P&H)(HC)
S.57 : Income from other sources – Write off of interest and lease charges which were earlier offered to tax under section 56 cannot be claimed as a deduction under section 57(iii) or under section 36(1)(vii)
Assessee had given loans to its subsidiary and had also leased out its machineries and was entitled to receive interest on loans and rental income for lease of machines. Interest and rental income which had accrued were shown as income from other sources under Section 56 in the return of income. As the subsidiary was incurring losses, the assessee wrote off the interest and lease charges and claimed the same as deduction. AO denied the claim under section 57(iii). High Court held that where income has been offered to tax under the head Income from other sources, the claim for deduction can be considered only under section 57. High Court denied the
assessee’s claim for write off of interest and lease charges as the requisites under section 57(iii) were not satisfied. High Court further held that deduction cannot also be claimed under section 36(1)(vii) as the same can be availed only where the income is offered under the head Profits and gains from business or profession. (AY. 2008-09)
Malankara Plantations Ltd. v. ACIT (2016) 236 Taxman 61 (Kerala)(HC)
S.68 : Cash credits – Onus on the assessee is to only prove creditworthiness and genuineness of the source from which it has received loan
– No onus to prove genuineness of source
For the year under consideration, Assessee had received loan from Tom Investments Limited of
Rs. 38 lakh. During assessment proceedings of Assessee, authorised representative of Tom Investments Limited attended the proceedings to substantiate the genuineness of loan transaction and Tom Investment Limited intimated that the amount lent to Assessee was had in turn borrowed from M/s Tuq Credits Limited. The Tom Investments Limited was unable to furnish the information to prove genuineness and credibility of Tuq Credits Limited. Therefore the Assessing Officer concluded that Tuq Credits Limited is not a genuine party and the entire chain of lending and borrowing was bogus. Hence the loan received was treated as unexplained income and entire interest expenditure was disallowed to the Assessee.
High Court while deciding the case in favour of the Assessee, relied on Guwahati High Court decision in case of Nemi Chand Kothari (264 ITR 254) wherein it was held that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor it is the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. In the present case the Assessee has indeed discharged its onus of proving the creditworthiness and gaminess of the lender (TIL), hence the HC held that no disallowance or addition could be made under section 68 of the Act. (AY. 1994-95)
CIT v. Shiv Dhoot Pearls & Investment Limited (2016) 237 Taxman 104 (Delhi)(HC)
S.69 : Unexplained investments – Search carried on at the premises of third party
– Merely on the basis of third party statement addition cannot be made
A search was conducted upon one 'S' and certain agreements to sell were seized from his possession, which indicated that the assessee had entered into agreement with 'S' to purchase various plots of land. Further, statement of
"˜S’ was also recorded u/s. 131. 'S' clarified that the plots referred to in the agreement to sell were disputed and could not be transferred due to pending civil suits. In place of those plots, other plots which were in the same vicinity were transferred to the person specified by the assessee and the entire consideration in terms of the agreement to sell had been paid by a person/representative of the assessee. Thereupon the Assessing Officer made additions in crores of rupees under section 69 to the income of the assessee in relation to the assessment years 2005-06 to 2008-09. The Tribunal upon appreciation of the evidence on record held that insofar as assessment year 2005-06 was concerned, the agreement proved that
Rs. 11 lakh had been paid by the assessee. It, accordingly, partly allowed the appeal in relation to assessment year 2005-06 by upholding the addition to the extent of
Rs. 11 lakh and allowed the assessee’s appeals in relation to assessment years 2006-07 and 2007-08. On analysis of the various documents, the High Court held that revenue had failed to bring on record any reliable material to prove that the assessee had made actual investment in crores in the previous years relevant to assessment years 2005-06, 2006-07 and 2007-08 except for the payment of
Rs. 11 lakh. Held no addition u/s. 69 justified. (AYs. 2005-06 to 2007-08)
PCIT v. Vivek Prahladbhai Patel (2016) 237 Taxman 331 (Guj.)(HC)
S.80-IA : Industrial undertaking – Deduction is allowable without setting off losses / unabsorbed depreciation which were set off earlier years against other business income
The High Court had to consider whether the assessee is entitled to deduction under Section 80-IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s. Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP. Civil No. 33475 of 2012. HELD by the High Court dismissing the appeal:
(i) On the basis of the decision in Velayudhaswamy Spinning Mills (340 ITR 477), the Central Board of Direct Taxes has issued Circular No. 1/ 2016 dated 15-2-2016. The CBDT has clarified that an assessee who is eligible to claim deduction u/s. 80-IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s. 80-IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfilment of conditions prescribed in the section. Hence, the term
"˜initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s. 80-IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.
(ii) We cannot resist our temptation to record one more fact. If an issue is covered by the judgment of the High Court, it is always open to the Department to take it on appeal to the Supreme Court and get the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which, a circular has been issued. The Department shall take note of this for future guidance.( TCA No. 176 of 2016, dt. 1-3-2016) (AY. 2010-11)
CIT v. G.R.T. Jewellers (India) Pvt. Ltd. (Mad.)(HC);
S.92C : Transfer pricing – Adjustment arising out of
Arm’s Length Price is to be restricted to only international transactions
During the year under consideration the Assessee had international transactions with associated enterprises over and above transactions with independent third parties. The Tribunal by its impugned order negate the contention of the Revenue that adjustment arising out of
Arm’s Length Price has to be made to the entire turnover of the Assessee, as same is contrary to the clear mandate for section 92 of the Act, which permits adjustment only of income arising from International Transactions having regard to its
Arm’s Length Price.
High Court held that transactions with parties other than the International Transactions with associated enterprise or in respect of specified domestic transactions are not within the ambit of Chapter X of the Act. Similar view was taken in Tara Jewels Exports Pvt Ltd. ((2016) 381 ITR 404 (Bom)(HC) and Keihin Panalfa Ltd. (2016) 381 ITR 407 (Delhi)(HC).
Revenue’s appeal was dismissed. (AY. 2007-08)
CIT v. Ratilal Becharlal & Sons (2016) 237 Taxman 71 (Bom.)(HC)
S.92C : Transfer pricing – Arm's length price
– Adjustment only in respect of transactions with its associated enterprises
– Not in respect of transactions entered in to by assessee with independent third parties
Transfer Pricing Officer has made adjustment on account of enhancement of profit margin on all transactions of the assessee. Tribunal held that only transactions entered into by the assessee with its associated enterprises were subjected to transfer pricing adjustment and not others. On appeal by department the Court held that in terms of Chapter X of the Act, redetermination of the consideration was to be done only with regard to income arising from international transactions on determination of
arm’s length price. The adjustment which was mandated was only in respect of international transaction and not transactions entered into by the assessee with independent unrelated third parties. There was no issue of avoidance of tax requiring adjustment in valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Department if allowed would result in increasing the profit in respect of transactions entered into with enterprises other than associated enterprises and thus the adjustment was beyond the
scope and ambit of Chapter X of the Act. (AY. 2007-08)
CIT v. Thyssen Krupp Industries India P. Ltd. (2016) 381 ITR 413 (Bom.)(HC)
S.92C : Transfer pricing – Arm's length price
– Adjustments – AMP expenses – Since the revenue sharing model of the assessee was duly supported by relevant documents the TPOs alteration to the sharing ratio was to be set aside
During relevant year, assessee entered into international transactions with its AE. In terms of agreement, assessee retained 75 per cent of revenue and paid 25 per cent of revenue to its subsidiaries for marketing and administrative support services provided by them. The TPO fixed remuneration sharing model of 15 per cent in cases where customers entered into contracts directly with assessee and thus made certain addition to assessee's ALP. The CIT(A) and the Tribunal set aside said addition noting that TPO in principle had accepted remuneration model of 25 per cent revenue sharing and same had been substantiated and justified by documents submitted before him. Further the department had not doubted the genuineness of the documents relied upon by the assessee. Accordingly the High Court dismissed the
department’s appeal. (AY. 2006-07)
CIT v. ITC, Infotech India Ltd. (2016) 237 Taxman 476 (Cal.)(HC)
S.92C : Transfer pricing -Companies with large turnover like Infosys & Wipro are not comparable to companies with smaller turnover and should be excluded from the list of comparables
(a) For transfer pricing purposes, the Tribunal did not accept three companies as comparable by stating as follows:
HCL Comnet Systems & Services Ltd: We find force in the submission of the learned AR that this company cannot be a comparable as the turnover of this company is 260.18 crores while in the case of the Assessee, the turnover is around
Rs. 11 crores only. While making the selection of comparables, the turnover filter, in our opinion, has to be the basis for selection. A company having turnover of
Rs. 11 crores cannot be compared with a company which is having turnover of
Rs. 260 crores which is more than 23 times the turnover of the Assessee. This company cannot be regarded to be in equal size to the Assessee. We, accordingly, direct the AO to exclude this company out of the comparables.
Infosys BPO Ltd: In this case also we noted the turnover in respect of this company is
Rs. 649.56 crores while the turnover of the Asseessee company is around
Rs. 11 crores which is much more than 65 times of the
Assessee’s turnover. We, therefore, do not find any illegality or infirmity in the order of CIT(A) in excluding this company out of the comparables.
– The turnover reported in the case of Wipro Ltd. is
Rs. 939.78 crores while in the case of the Asseessee the turnover is around
Rs. 11 crores. Therefore, on the basis of the turnover filter itself this company cannot be regarded to be comparable to the Assessee.
(b) The said findings of the Tribunal in respect of the said three companies are on the basis of appreciation of evidence on record. We find no infirmity in the said findings of the Tribunal on that count. In fact, the Tribunal has endorsed the views of the CIT Appeals whilst coming to such conclusions. The concurrent findings of facts arrived at by the Authorities below, cannot be reappreciated by this Court in the present Appeal as held by the Apex Court in the Judgment reported in 2011(1) SCC 673 in the case of Vijay Kumar Talwar v. CIT.
(c) The said companies are no doubt large and distinct companies where the area of development of subject services are different and as such the profit earned therefrom cannot be a bench-marked or equated with the assessee. The learned Counsel has rightly relied upon the Judgment of the Delhi High Court reported in (2013) 36 taxmann.com 289 (Delhi) in the case of Commissioner of Income-tax vs. Agnity India Technologies (P.) Ltd. learned Counsel has also brought to our notice the Order of the Income Tax Appellate Tribunal whilst examining similar circumstances for the assessment year 2005-06. He has taken us through the findings therein to point out that the conclusions arrived at are based on a comparison that the condition in any uncontrolled transaction between an independent enterprises for the purpose of such comparison, economically relevant characteristics must be sufficiently comparable if two parties are to be placed in a similar situation. Learned Counsel as such submitted that it is not open for the appellant to now contend a different criteria to ascertain the comparability. In fact the Tribunal whilst passing the impugned Order has considered the said principles whilst coming to the conclusion that the said three companies cannot be treated to be comparable to the Assessee company. The turnover is obviously a relevant factor to consider the comparability. (TA. No. 18 of 2015,
dt. 16-9-2015) (AY. 2007-08)
CIT v. Pentair Water India Pvt. Ltd. (Bom.)(HC);
S.92C : Transfer pricing – Arm's length price
– AMP expenses – No adjustment could be made where on account of AMP expenses, where there was no international transaction with AEs for promoting the brand of the AE
The assessee-company was engaged in the business of manufacturing and trading of soft contact lenses and eye care solutions. In transfer pricing proceedings, the TPO noted that the assessee had entered into an agreement with its AE, B&L USA, for distribution of the product manufactured by its group companies, in terms of which the assessee was required to promote the B&L brand and to develop marketing intangibles for B&L products in India by incurring expenditure on AMP. The TPO opined that the AMP expenses did not benefit the assessee as it had incurred a loss in assessment year 2006-07. The TPO noted that the Assessee did not receive any reimbursement from its AE for the AMP expenses. The TPO concluded that the Assessee had developed marketing intangibles for its AE and was in the process of making the intangible even more valuable by incurring huge AMP expenses, bearing risks and using both its tangible assets and skilled, trained manpower. TPO, applied 10 per cent markup on AMP expenses and made addition to assessee's ALP. The adjustment was confirmed by the DRP.
The High Court held that the mere fact that B&L, USA through B&L, South Asia, Inc held 99.9% of the share of the Assessee would not ipso facto lead to the conclusion that AMP expenditure by the Assessee involved an international transaction with B&L, USA. The Court further held that merely because there was an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. The revenue had been unable to show the existence of an international transaction involving AMP expenses between the assessee and its AE and accordingly no adjustment could be made. (AYs. 2006-07 to 2009-10)
Bausch & Lomb Eyecare (India) (P.) Ltd. v. ACIT (2016) 381 ITR 227 / 237 Taxman 24 / 283 CTR 296 (Delhi)(HC)
S.115JB : Book profit – Sale of land – Profit directly credited to capital reserve
– Audit report qualified to this extent – Held, no power to embark upon a fresh enquiry in regard to the entries made in the books of account once the accounts are audited and approved by the company in general body meeting and thereafter filed before the Registrar of Companies
– Held, no adjustment of Book Profit required
Assessee sold the land and credited the capital gain arising out of the sale of the land directly to capital reserve and not to profit and loss account. The auditor's report certified with a qualification that the profit and loss account and balance sheet referred to in the report complied with substantially in all material respects with the applicable accounting standards referred to in section 211(3C) of the Companies Act except that the land and building was sold during the year and the capital gain had been transferred directly to capital reserve account instead of crediting to profit and loss account. The AO held that, as per Clauses 3(XII)(b) and (c) of Part II of Schedule VI and as per the accounting standards applicable, the capital gain should be routed through Profit and Loss account. Further, even the
auditors’ report was qualified and therefore, the AO held that the amount of capital gain should have been credited to profit and loss account. High Court, after considering the judgment in case of Apollo Tyres Ltd. v. CIT  255 ITR 273(SC), held that AO had no power to embark upon a fresh enquiry in regard to the entries made in the books of account. It was also held that AO had no power to recompute the book profit and had to rely upon the authentic statements of accounts of the company, the accounts being scrutinised and certified by the statutory auditors though with a qualification, approved by the company in general body meeting and thereafter filed before the Registrar of Companies, who had a statutory obligation to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. (AY. 2002-03)
Sri Hariram Hotels (P.) Ltd. v. CIT (2016) 237 Taxman 564 (Karn.)(HC)
S.132B : Application of seized or requisitioned assets
– Application filed for release of asset – Disposed of by the AO after more than 1 year
– Held, not valid and the cash ordered to be released along with interest
On 25-3-2014, certain cash was seized by the competent authority. Application was filed by the assessee on 17-4-2014 for release of such cash. Despite repeated reminders, the authority failed to dispose of such application and it was disposed of, denying such release, only on 20-7-2015 i.e. after the expiry of more than 1 year. High Court held that if an application is made under first proviso to section 132B(1)(i) then the same should be disposed of within the time limit given in the second proviso which is 120 days from the date on which of the last of the authorisations for the search was executed. Second proviso though speaks of releasing the assets as referred to in first proviso within the time limit prescribed, still the question of not releasing the asset would arise only upon the decision on the application is taken by the AO. If no decision is taken within the time limit, then the releasing of assets becomes imminent. Further, it was held that such time limit cannot be said to be directory in nature.
Nadim Dilip Bhai Panjvani v. ITO (2016) 237 Taxman 480 (Guj.)(HC)
S.147 : Reassessment – Though assessee claims that she is a non-resident & that onus is on the revenue to show that the money in the HSBC Geneva account is taxable in India, the non-co-operation with the Revenue by signing the consent waiver form shows that she has something to hide and makes it an unfit case for exercise of writ jurisdiction
Dismissing the petition the Court held that:
During the course of the hearing of the Reply of the Revenue it was pointed out to us that despite the
Revenue’s request, the Petitioner had failed to sign a Consent Waiver Form ("œthe
Waiver") which would have enabled HSBC to provide information about the Account. According to the petitioner the Waiver was sought only on 30th October, 2015 i.e. much after the issue of the impugned notice on 31st March, 2015 and also after filing of this Petition in Court on 30th October, 2015. In any case, we asked the Petitioner whether she is now ready to sign the Waiver. At the time of the rejoinder we were informed that the Petitioner is willing to sign the Consent Waiver Form with a modification
– namely as alleged beneficiary rather than holder or beneficiary of the account in HSBC, Geneva.
However, on enquiry by the Revenue from HSBC, Geneva, it was learnt that a modified Consent Waiver Form would not enable the bank to give copies of the bank statement of A/c. No. 5091404580 since the Waiver would have to be provided without modifications.
We notice that the principal contention of the Petitioner before us has been that she is non-resident and it is only her income which is received or accrued or arising in India which can be brought to tax under the Act. Thus, it is submitted that it is for the Revenue to establish that the income had accrued or arisen in India which was lying on 26th March, 2006 in A/c. No. 5091404580 in HSBC, Geneva. We find that the Petitioner and/or her uncle
– Dilip Mehta i.e. Executor of the Estate of late Ramniklal N. Mehta who could probably amongst others be able to produce copies of the bank statement either by giving a Consent Waiver Form to the Income Tax Department or in the alternative Mr. Dilip Mehta could instruct the Director of M/s. White Cedar to apply for and furnish to him copies of the bank statement in A/c. No. 5091404580 of HSBC, Geneva. The fact that it is within the authority/power of Mr. Dilip Mehta to instruct M/s. White Cedar is evident from the letter dated 14th August, 2014 addressed by HSBC Bank, Geneva to M/s. Red Oak Operation Ltd. which has been taken on record and marked X for identification. This bank statement if obtained from HSBC, Geneva, would reveal and/or possibly give clues as to the source of amounts deposited in the Account No. 5091404580 of HSBC. Neither the Petitioner nor her uncle i.e. Executor of the Estate of late Ramniklal N. Mehta is ready to obtain the necessary statement either directly or through M/s. White Cedar from HSBC, Geneva in respect of A/c. No. 5091404580 by exercising or causing to be exercised the limited authority to instruct White Cedar to
apply for and obtain the requisite information.
In the normal course of human conduct if a person has nothing to hide and serious allegations/questions are being raised about the funds a person would make available the documents which would put to rest all questions which seem to arise in the mind of the Authorities. The conduct on the part of the Petitioner and her uncle, in not being forthcoming, to our mind leads us to the conclusion that this is not a fit case where we should exercise our extraordinary writ jurisdiction and/or interfere with the orders passed by the authorities under the Act. If a person has nothing to hide, we believe the person would have co-operated in obtaining the Bank Statements. (WP (L) No. 3172 of 2015, dt. 5-4-2016)(AY.2006-07)
Soignee R. Kothari v. DCIT (Bom.)(HC);
S.147 : Reassessment – Non- disposal of objections
– Providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note & remedy
This passing of the draft Assessment order on 30th March, 2015 was in the face of the decision of the Supreme Court in GKN Driveshafts (India)Ltd v. Income Tax Officer and Others reported in 259 ITR 19 (SC), wherein it has been laid down that whenever a reopening notice is issued under Section 148 of the Act, the Assessing Officer was to make available to the assessee, on request, a copy of the reasons recorded while issuing the notice for reopening the Assessment. The assessee is then entitled to file its objection to the grounds in support of the reopening notice and the Assessing Officer is required to dispose of the
assessee’s objection to the reasons recorded by a speaking order. It is only if the Assessing Officer rejects the objection that he can proceed with the assessment proceedings of the reopened assessments.
In the present case, as the issue involves the provisions with regard to transfer pricing cases, the period of limitation to dispose of an assessment consequent to reopening notice as provided in 4th proviso to sub-section (2) of Section 153 of the Act is two years from the end of the financial year in which the reopening notice was served. In this case, the impugned reopening notice was issued on 6th February, 2013 and the reasons in support were supplied only on 19th March, 2015. This when the Revenue was aware at all times that the period to pass an order of reassessment on the impugned reopening notice dated 6th February 2013 would expire on 31st March, 2015. However, there is no reason forthcoming on the part of the Revenue to satisfactorily explain the delay. The only reason made out in the affidavit dated 3rd September, 2015 by the Assessing Officer was that the issue was pending before the Transfer Pricing Officer (TPO) and it was only after the TPO had passed his order on transfer pricing were the reasons for reopening provided to the Petitioner. We are unable to understand how the TPO could at all exercise jurisdiction and enter upon enquiry on the reopening notice before the same is upheld by an order of the Assessing Officer passed on objections. Besides the recording of reasons for issuing the reopening notice is to be on the basis of the Assessing
Officer’s reasons. The TPO’s reasons on merits much after the issue of the reopening notice does not have any bearing on serving the reasons recorded upon the party whose assessment is being sought to be reopened.
One more peculiar fact to note is that in the affidavit dated 10th July, 2015 filed by one Prabhakar Ranjan on behalf of the Revenue it is stated that the Assessing Officer was under a bona fide impression that the TPO would pass an order in favour of the assessee. In fact, if that be so, we are unable to understand how the Assessing Officer could have any reason to believe that income chargeable to tax has escaped assessment. Be that as it may, this petition was adjourned from time-to-time to enable the Revenue to file the necessary affidavits explaining their contention.
In fact, on 23rd December, 2015 the Revenue again sought time. At that stage, we indicated that in view of the gross facts of this case, the Principal Commissioner of Income Tax would take serious note of the above and after examining the facts, if necessary, take appropriate remedial action to ensure that an assessee is not made to suffer for no fault on its part. This is particularly so as almost the entire period of two years from the end of the financial year in which the notice is issued was consumed by the Assessing Officer in failing to give reasons recorded in support of the impugned notice. Nevertheless, the Assessing Officer proceeds to pass a draft assessment order without dealing with the objections filed by the Petitioner. We could have on that date or even earlier passed an order setting aside the draft assessment order dated 30th March, 2015 as it was passed without disposing of the objections. Thus, clearly without jurisdiction. However, we were of the view that although this appears to be a gross case of harassing an Assessee, the Principal Commissioner would take note and adopt remedial action/proceedings.(AY. 2007-08)
Bayer Material Science Pvt. Ltd. v. DCIT (2016) 133 DTR 53 (Bom.)(HC)
S.147 : Reassessment – Reason to believe – It is open to the assessee to challenge a notice issued u/s. 148 as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by Intimation u/s. 143(1) of the Act
The assessee filed a Writ Petition to challenge a notice issued u/s. 148 in a case where only an intimation u/s. 143(1) had been passed. The Department contended that the Writ Petition was not maintainable in view of the judgment of the Supreme Court in Dy. CIT v. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661 where the order of the Bombay High Court in Zuari Estate Development Co. Ltd. v. Dy. CIT x 271 ITR 269 had been set aside. The Supreme Court held that where the original Return has been accepted by Intimation under Section 143(1) of the Act, there could be no change of opinion. Further, it was contended that the Supreme Court impliedly held that in such cases where assessment is completed by Intimation under Section 143(1) of the Act, there is no requirement for the Assessing Officer to have reason to believe that income chargeable to tax has escaped assessment, so as to exercise jurisdiction under Section 148 of the Act. HELD by the Bombay High Court:
The Apex Court in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of the Act. In the above case, the Apex Court held that a Notice for reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This decision of the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion.
The Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra) has not dealt with the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment has been completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because the Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra) has set aside the order of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Apex Court had come to the conclusion that reason to believe was not necessary for issuing reassessment Notices where the regular assessment was completed under Section 143(1) of the Act. As rightly pointed out by Mr. Pardiwalla, it can equally be inferred that the Apex Court in the above case had come to the conclusion that there is reason to believe that income had escaped assessment and consequently restored the issue to the Tribunal to decide the reassessment proceedings on merits.
It is settled position in law that the decision of the Court has to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court in Ambica Quarry Works v. State of Gujarat, 1987(1) SCC 213. The Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra) not having dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where regular assessment was completed by Intimation under Section 143(1) of the Act, it would not be wise for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by Intimation under Section 143(1) of the Act. The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and the same would continue to apply and be binding upon us. Thus, even in cases where no assessment order is passed and assessment is completed by Intimation under Section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the Assessment has been completed earlier by Intimation under Section 143(1) of the Act.(WP. No. 3027 of 2015, dt. 10-2-2016) (AY. 2010-11)
Khubchandani Healthparks Pvt. Ltd. v. ITO (Bom.)(HC);
S.147. Reassessment – Limitation – ITO who is not the Assessing Officer of the assessee, not empowered to reopen the assessment
The time limit for reopening of the assessment under section 147 of the Act in the
assessee’s case was 31st March, 2012. The extended period of limitation in terms of section 149(1)(b) of the Act was 31st March, 2014 (i.e. 6 years from end of the assessment year). The DCIT
– Circle 39(1) was the Assessing Officer of the Assessee and had the jurisdiction over this case. However on 14th March, 2014 the ITO Ward 39(2) issued a notice to the assessee under section 148 of the Act. The notice of reopening was issued by ITO Ward 39(2) who was not the Assessing Officer of the assessee and this single fact in itself vitiates the reopening of the assessment. Realising the mistake the Assessing Officer (who had the jurisdiction over the Assessee) issued a notice dated 23rd June, 2014 under section 148 of the Act but it was beyond the deadline of 31st March, 2014 under section 149(1)(b) of the Act.
One of the main points urged in the present petition is that the reopening of the assessment sought to be made under Section 148 of the Act is bad in law since the notice had been issued and the reasons for reopening had been recorded by the ITO Ward 39(20, who was not the Assessing Officer as far as petitioner is concerned.
The High Court held that it was only the Assessing Officer who has issued the original assessment order dated 13th April, 2009 for AY 2007-08 under Section 143(3) of the was empowered to exercise powers under Section 147/148 to reopen the assessment. This was because he alone would be in a position to form reasons to believe that some income of that particular AY had escaped assessment. Further provisions of section 151 of the Act required prior approval of CIT if he feels that the assessment order is prejudicial to the interest of Revenue. However in any event ITO who has not passed the original order cannot reopen the assessment.
Thus the writ petition filed by the Assessee is allowed. (AY. 2007-08)
Dushyant Kumar Jain v. CIT (2016) 237 Taxman 646 (Delhi)(HC)
S.147 : Reassessment – Jurisdiction – Participated in the proceedings
– Writ is not maintainable
If the assessee responds to the Ss. 142(1)/143(2) notices, it means that he has submitted to the AO's jurisdiction and is estopped for filing a Writ Petition to challenge the same. The fact that the jurisdiction is challenged while participating in the proceedings is irrelevant. Petition of the assessee was dismissed.. (WP No. 787 of 2016, dt. 20-4-2016)
Amaya Infrastructure Pvt. Ltd. v. ITO (Bom.)(HC) ;
S.153 : Assessment – Reassessment – Limitation
– Limitation for the purpose of section 153 shall start from the end of the year in which the notice is served on the assessee and not from the end of year in which it is issued
A notice u/s. 148 for AY 1959-60 dated 23-1-1965 was issued to the assessee. The said notice was served on the assessee only in September 1965. The provisions of section 153(2) at the relevant time prescribed limitation of four years for making assessment from the end of assessment year in which notice u/s. 148 was served upon assessee. The assessment order came to be passed on 18-3-1970. Held, time limit for completion of assessment was four years from the end of the year in which notice was served and not the year in which it was issued. Accordingly, reassessment held to be valid.) (AY. 1959-60)
R. B. Shreeram Durgaprasad v. CIT (2016) 237 Taxman 189 (Bom.)(HC)
S.153A : Assessment – Search – No incriminating materials for the relevant years
– Addition cannot be made
Assessment cannot be made for the AYs in which incriminating material is not recovered even though incriminating material may be recovered for other years in the block of 6 years.( ITA No. 274/2016, dt. 29-4-2016)
Pr. CIT v. Lata Jain (Delhi)(HC);
S.153A : Assessment – Search – Accounts which were duly verified during regular assessment of assessee could not be re-appreciated merely because further a search was conducted in premises of assessee as same would amount to reopening of concluded assessment
Assessments had been completed under section 143(3) and under section 143(1). Thereafter, a search was conducted in the premises of the assessee. The AO made certain additions after holding that the accounts of the assessee did not tally with the corresponding accounts of the creditors and debtors. The CIT(A) allowed the
assessee’s appeal, after concluding that no incriminating documents were found during the course of search, on the basis of which additions had been made by the AO. This finding was upheld by the Tribunal.
On appeal, the High Court observed that there were specific findings of fact recorded by both the CIT(A) and the Tribunal that there were no incriminating documents found during the course of search, on the basis of which the additions had been made by the AO and that the accounts were submitted by the assessee at the time of regular assessment which were duly verified and accepted by the AO. In the absence of any incriminating documents having been found, if the assessment was allowed to be reopened the same would amount to the revenue getting a second opportunity to reopen a concluded assessment, which is not permissible. The High Court held that, merely because a search was conducted in the premises of the assessee, would not entitle the revenue to initiate the process of reassessment, for which there was a separate procedure prescribed in the statute. It was only when the conditions prescribed for reassessment were fulfilled that a concluded assessment could be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, could not be reappreciated by the AO merely because a search had been conducted in the premises of the assessee. (AYs. 2005-06 to 2008-09)
CIT v. Lancy Constructions (2016) 237 Taxman 728 (Karn.)(HC)
S.172 : Shipping business – Non-resident – Shipping companies assessed u/s. 172 are not subject to deduction at source obligations u/s 195
– Demurrages charges paid by Indian company to foreign company was held to be not liable to deduct tax at source
As a Division Bench of the Bombay High Court was unable to agree with the view taken in Commissioner of Income-tax v. Orient (Goa) Private Limited 325 ITR 554, the Full Bench had to consider the question" Whether, while dealing with the allowability of expenditure under section 40(a)(i) of the Income-tax Act, 1961, the status of a person making the expenditure has to be a non-resident before the provision to section 172 of the Act can be
invoked?" HELD by the Full Bench overruling CIT v. Orient (Goa) Private Limited 325 ITR 554:
A bare perusal of s. 44BB indicates as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7% of the aggregate Â½ of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head"Profits and Gains of Business or
Profession". It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The amounts which are paid or payable whether in or out of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at a port in India and the amount received was deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India shall be deemed to be the profits and gains. On that the tax is payable by virtue of sub-section (1) of section 172. That has to be levied and recovered in terms of the sub-sections of section 172 of the Income- tax Act. Once section 172 falls in Chapter XV titled as Liability in Special Cases
– Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in Chapter XVII for collection and recovery of the tax and its deduction at source vide section 195.
To our mind, the Division Bench judgment in Commissioner of Income-tax v. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business.
The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income-tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the
recipient’s position and the perspective in which the recipient’s income would be taxed will have to be borne in mind. The non-resident shipping company in respect of its income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian/foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a position to rely upon section 172 but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot be avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else.(AY. 1999-2000)
CIT v. V. S. Dempo & Co. Pvt. Ltd. (2016) 381 ITR 303 (FB) (Bom.)(HC)
S.201 : Deduction at source -Limitation – Amendment is prospective in nature
– Can be challenged in a writ petition Failure to deduct or pay, the amendment to s. 201(3) by FA 2014 to extend the time limit for passing s. 201 orders is prospective and does not apply to cases which are already time-barred. A
show-cause notice involving a pure point of law can be challenged in a Writ Petition. (A.Ys. 2007-08, 2008-09)
Tata Teleservice v. UOI (2016) 132 DTR 1 (Guj.)(HC)
S.206C : Collection at source – Scrap – The words
"˜waste and scrap’ in clause (b) to Explanation to section 206C of the Act is a singular item
– Assessee was not required to collect tax at source on mere scrap as the same was not covered by clause (b) of the Explanation to section 206C
The Assessee had made sales of scrap, however no tax was collected at source on sale of scrap by the Assessee. Therefore the Assessing Officer held that as a consequence of non-compliance of provisions of section 206C of the Act, the Assessee was liable to pay tax and interest under section 206C(7) of the Act.
The Tribunal noted that the Assessee is engaged in ship breaking activity and the items in question are finished products obtained from the activity and constitute sizeable chunk of production done by ship breakers. Tribunal ruled in favour of the Assessee treating the sale of scrap out of the scope of section 206C and hence it was not required to collect tax at source. It was held that"waste and
scrap" must be from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, ware and to other reasons. The word"is" as used in the definition of Scrap, in explanation to section 206C, is meant for singular term i.e."waste and
scrap" and hence sale of scrap, which is not part of manufacturing activities would not be regarded as
"˜waste and scrap’ and thereby not liable for tax collection at source. Aggrieved the Revenue filed an appeal before the High Court.
The High Court noted that the products may be commercially known as
"˜scrap’ they are definitely not "˜waste and scrap’, as such items are usable as such and therefore do not fall within the definition of scrap as envisaged in the Explanation to section 206C(1) of the Act. From plain reading of the explanation it is evident that any material which is usable as such would not fall within the ambit of the expression
"scrap" as envisaged under the clause. High Court upheld the order of the Tribunal and dismissed the appeal filed by the Revenue. (AY. 2005-06)
CIT v. Priya Blue Industries Pvt. Ltd. (2016) 381 ITR 210 / 237 Taxman 1 (Guj.)(HC)
S.220 : Collection and recovery – Assessee deemed in default
– Department was directed to redeposit moneys collected illegally by attachment of
assessee’s bank account during pendency of stay application. A order passed on a stay application must give reasons for the refusal to stay the demand
On writ the Court directed the department to redeposit moneys collected illegally by attachment of
assessee’s bank account during pendency of stay application. A order passed on a stay application must give reasons for the refusal to stay the demand. (WP. No. 710 of 2016, dt. 17-3-2016) (AY. 2009-10)
Khandelwal Laboratories Pvt. Ltd. v. DCIT (Bom.)(HC);
S.220 : Collection and recovery – Assessee deemed in default
-Stay – Strictures passed against high-handed and unfair approach of AO (IRS Officer) in refusing to give an acknowledgement of stay application. Chief CIT directed to ensure such behaviour is not repeated. Department is directed to nominate another AO to hear stay application
Allowing the petition the Court held that:
We find this conduct on the part of the Assessing Officer to accept a stay application and not immediately give acknowledgement of its receipt is unacceptable. The least that is expected of a civil servant is to be fair and civil. In the absence of the above, his conduct is not one becoming of an Officer belonging to the prestigious Indian Revenue Service. The least that is expected of an Officer is that when a person files an application / letter, which is accepted by him, an acknowledgement should be forthwith given to the party filing the application or letter. In case he refuses to accept the letter he should endorse on the letter / application the reason why it is not being accepted with a line or two for the refusal to accept. In case he does accept it and give an acknowledgment he can deal with the applications/ letters as is appropriate in accordance with law. We believe that what has happened in this case is an aberration. However, the Chief Commissioner of Income Tax would ensure that his Officers do not behave in such an high handed and unfair manner, not expected of civil servants.
Be that as it may, the stay application is still pending decision. Normally, we would have let the Assessing Officer decide the same. However, looking at the manner in which the petitioner has been dealt with by the Assessing Officer in regard to its stay application dated 17th February, 2016, it would be in the interest of justice that the application for stay filed by the petitioner be heard by another Officer different from the Assessing Officer i.e. respondent No.1 herein. The Officer to deal with the
petitioner’s stay application dated 17th July, 2016 is to be selected / nominated by the Revenue. (WP. No. 526 of 2016, dt. 17-3.2016) (AY. 2012-13)
Pirmal Fund Management Pvt. Ltd. v. DCIT (Bom.)(HC);
S.254(1) : Appellate Tribunal -Adjournment
– Failure by ITAT to grant an adjournment requested due to bereavement results in breach of principles of natural justice
– Matter was set aside
In the peculiar facts and circumstances of the case and in the interest of justice, the learned Tribunal could have given an opportunity of hearing to the appellant for the subsequent date. Having failed to grant a short adjournment has resulted in passing the impugned order in breach of the principle of natural justice which calls for the interference of this Court. The substantial question of law is answered accordingly. (Tax Appeal Nos. 79 to 82 of 2015, dt. 16-2-2016)
Zuari Global Ltd. v. Pr. CIT (Bom.)(HC);
S.254(1) : Appellate Tribunal -Non-consideration by the ITAT of a judgment of the co-ordinate Bench makes the order a non-speaking one and breaches the principles of natural justice
– Order of Tribunal was set aside
Allowing the appeal, the Court held that; In fact the impugned order of the Tribunal in paragraph 6 thereof does record the
appellant’s reliance upon the decision of the Court of its coordinate Bench in J. K. Investors (Bombay) Ltd vs. Assistant Commissioner of Income Tax (ITA No.7858/MUM/2011) decided on 13th March, 2013. However, thereafter the impugned order does not deal with the
appellant’s reliance upon the decision of the Tribunal in J. K. Investors (supra) while dismissing the appellant-assessee’s appeal before it. In fact the impugned order of the Tribunal ought to have dealt with its decision in J. K. Investors (supra) and considered its applicability to the present facts. In view of the fact that the impugned order of the Tribunal does not deal with its decision in J. K. Investors (supra) relied upon by the appellant-assessee.in support of its submission as recorded in the impugned order itself makes the impugned order a non-speaking order and, therefore, in breach of principles of natural justice. The substantial question of law is answered in the affirmative i.e. in favour of the appellant assessee and against the revenue. However, the issue of applicability of Rule 8D of the Rules or otherwise has yet to be determined by the Tribunal. In these circumstances, we set aside the impugned order dated 10th July, 2013 passed by the Tribunal and restore the entire appeal to the Tribunal for fresh disposal in accordance with law. All contentions of both sides left open. (ITA No. 2342 of 2013, dt. 8-3-2016)
DSP Investment Pvt. Ltd. v. ACIT (Bom.)(HC);
S.254(1) : Appellate Tribunal -Precedent – Binding nature
-Jurisdictional High Court – Law declared by the decision of the High Court will be binding upon all authorities and Tribunals functioning with in State
Law declared by the decisions of the High Court will be binding upon all authorities and Tribunals functioning within State; when an appeal is not entertained then the order of the Tribunal holds the filed and the
Co-ordinate benches of Tribunal are obliged to follow the same. (AY. 2008-09)
HDFC Bank Ltd. v. DCIT (2016) 132 DTR 89 (Bom.)(HC)
S.254(1) : Appellate Tribunal – Additional evidence
– CIT(A) ought to have given opportunity to Assessing Officer before admitting additional evidence
A best judgment assessment was passed under section 144 of the Act by Assessing Officer, disallowing deductions under section 10A of the Act. On appeal, CIT(A) set aside the assessment order after considering the documents furnished and the evidence placed on record by the Assessee. Aggrieved the Revenue appealed against the CIT(A) order before the Tribunal.
Tribunal dismissed the
revenue’s appeal and held that there is no requirement in law that the CIT(A) should invariably consult or confront the Assessing Officer every time additional evidence is obtained by CIT(A) on its own motion. Also in cases wherein the additional evidence is in nature of clinching evidence, leaving no further room for any doubt or controversy, in such case no useful purpose would be served in performing the ritual or forwarding the evidence to the Assessing Officer and in obtaining his report.
Revenue preferred appeal before the High Court against the impugned order. High Court noted that the Tribunal had failed to note that Rule 46A(3) requires the Assessing Officer to be given an opportunity to examine the documents produced by the assessee for the first time before the CIT(A). This mandate of Rule 46A(3) could not have been dispend with, as it is a statutorily prescribed rule of natural justice. High Court held that Rule 46A(3), cannot be whittled down or brushed aside as performing a ritual. While sub-rule (4) confers power on the First Appellate Authority to cause production of documents, justice and fair play would require the Assessing Officer to be given the opportunity to examine such documents and put forth his objections. Accordingly, the High Court held that the document which the Assessee intends to place before the Appellate Authority, cannot be entertained by CIT(A) except on fulfilment of the following conditions:- (1) recording reasons in writing for receiving such evidence; and (2) giving the assessing authority an opportunity to examine the documents.
As a result High Court set aside the CIT(A) order and directed to pass a fresh order after giving the Assessing Officer opportunity of being heard. (AY. 2010-11)
CIT v. NE Technologies India (P) Ltd. (2016) 237 Taxman 151 (AP)(HC)
S.254(1): Appellate Tribunal -Right of respondent in an appeal before Tribunal
– The respondent cannot assail the finding of the CIT(A) without filing an appeal
– Rule 27 would not permit the respondent to expand the scope of an appeal and argue on issues which are not subject matter of appeal
Pursuant to a search and seizure action, the AO invoked the provisions of S. 153A of the Act and completed the assessment by bringing to tax share application money as unexplained u/s. 68 of the Act.
The CIT(A) held that addition u/s. 68 was beyond the scope of S. 153A, however, upheld the addition on merits. The Tribunal though allowed the revenue to assail the finding of the CIT(A) on scope of Sec. 153A, reversed the assessment order.
Against the order of the Tribunal, the Revenue preferred an appeal before the HC wherein it was held that, the issue whether the additions made by the AO were outside the scope of s.153A, had been decided by the CIT(A) in favour of assessee, against which no appeal was preferred by the Revenue before the Tribunal and thus, had attained the finality. In absence of any appeal, the Tribunal could not have disturbed the said findings. Further, the Revenue cannot take recourse to Rule 27 of the ITAT (Rules), 1963 as it would not extend to permitting the respondent to expand the scope of an appeal and assail the decision on issues, which are not subject matter of the appeal. (AY. 2008-09)
CIT v. Divine Infracon (P) Ltd. (2016) 131 DTR 395 (Delhi) (HC)
S.254 : Appellate Tribunal – Rectification of mistake
– Order dismissing Revenue appeal for want of Committee on Disputes ("˜COD’) approval was an order passed u/s. 254(1). Therefore, limitation provided u/s. 254(2) is applicable to the said order
Against the order of the Commissioner (Appeals), the revenue filed an appeal before the Tribunal in the prescribed form. The Tribunal by order dated 6th November, 2007 dismissed the appeal on the ground that the revenue had not obtained approval of the Committee on Disputes (COD) to prosecute a dispute with the assessee, a public sector company, which was required in view of the decision of the Supreme Court in the case of ONGC v. CCE  6 SCC 437. Thereafter, the Supreme Court in the case of Electronics Corpn. of India Ltd. v. Union of India  332 ITR 58 held that the approval of COD was no longer required to prosecute a dispute amongst the departments of the Government and Public Sector undertakings inter se. Consequently, in the year 2012 the revenue filed a Miscellaneous application ("˜MA’) before the Tribunal for recall of the order dated 6 November 2007.
The Tribunal dismissed the MA on the ground that the said Application was filed beyond the period of limitation provided in s. 254(2).
On appeal to HC, the Revenue contended that the appeal was dismissed by Tribunal under Rule 12 of the ITAT Rules, 1963 i.e. memorandum of appeal was rejected for want of Committee on Disputes ("˜COD’) approval. Further, the period of limitation as envisaged u/s. 254(2) only applies to order passed u/s. 254(1).
The HC held that Rule 12 cannot apply in instant case as the memorandum of appeal was filed in the prescribed format which made it list for hearing before a Division Bench of the Tribunal. Consequently, leading to passing of an order of even date u/s. 254(1). Furthermore, the order was an appealable order u/s. 260A. Hence, the order dated 6th November, 2007 of the Tribunal has been passed u/s. 254(1) and not Rule 12 of the ITAT Rules, 1963. Hence, period of limitation provided u/s. 254(2) is applicable to the Tribunal order. (AY. 2000-01)
CIT v. Air India Ltd. (2016) 131 DTR 81, 237 Taxman 639 (Bom.) (HC)
S.260A : Appeal – High Court – Revenue should be deprecated for filing frivolous appeal. When a question of law is already covered by earlier orders of the Court, the Court may be constrained to impose cost on AO & CIT
The Revenue had raised various questions of law which were either covered by earlier orders of Tribunal in
assessee’s own case and are accepted by Revenue by not filing an appeal to HC; or which already been concluded by Supreme Court against the Revenue.
In such a scenario, the HC held that a question of law which is already settled and accepted by Revenue in earlier years in
assessee’s own case, cannot be again challenged before the Court. However, the Revenue can challenge the ground on a different valid point provided the same is mentioned in the memo of appeal or is filed before the hearing by way of an affidavit. Otherwise, the Court may be constrained to impose costs on the AO concerned
and CIT heading the Commissionerate. (AY. 2003-04)
CIT v. Goodlas Nerolac Paints Ltd. (2016) 131 DTR 57 (Bom.) (HC)
S.260A : Appeal – High Court -Substantial question of law raised for the first time which is based on records and does not require any investigation of any facts can be admitted in appeal before the High court
The issue before the HC was that whether the AO was justified passing an assessment order without serving a notice u/s. 143(2) within the stipulated period as prescribed under the Act. The HC held that the jurisdiction of AO starts only if the notice u/s. 143(2) is issued within the prescribed time. It has nothing to do with service of the notice which is contemplated u/s. 292BB. Therefore, the order of the Tribunal, First Appellate Authority and the assessment order cannot be sustained and are to be quashed. Further, the assessee had raised the aforesaid question for the first time before the HC to which the Revenue raised objection for admission. The HC held that a substantial question of law which is based on records and does not require any investigation of any facts can be entertained in appeal before the HC even if the same is not taken before the lower authorities. (AY. 1997-98)
U P Hotels Ltd. v. CIT(2016) 131 DTR 99 (All) (HC)
S.260A : Appeal – High Court – Where the Tribunal has made decision on a legal issue by following its earlier order which has been accepted by Revenue, appeal is not maintainable before the HC for its subsequent years unless a different argument is raised
The Tribunal had allowed
assessee’s appeal following the decision of Tribunal in the case of ACIT v. Bright Star Investment Pvt. Ltd. (2009) 120 TTJ 498 which was accepted by Revenue as no appeal was filed before HC. However, an appeal was filed before HC in
The HC, while dismissing the appeal held that once a
Tribunal’s view on a legal issue is accepted in a particular case, the same legal point cannot be challenged now before HC in respect of another
assessee’s case. This is for the reason that the basic feature of rule of law is certainty of law and its uniform application among all the assessees. However, the Revenue can challenge the ground on a different valid point provided the same is mentioned in the memo of appeal or is filed before the hearing by way of an affidavit. (AY. 2004-05)
CIT v. Synchem Chemicals (I) Ltd. (2016) 131 DTR 51 (Bom. HC)
S.263 : Commissioner – Revision of orders prejudicial to Revenue
– Lease rental – Capital or revenue – Revision was not justified as the Commissioner failed to record as to how and in what manner order was erroneous and prejudicial to revenue
The Assessee Company had claimed a deduction on account of lease rental paid for motor car taken on finance lease and the same was allowed in the assessment. The Commissioner being of the view that the lease rentals were required to be treated as capital expenditure, thus directed the Assessing Officer to examine the same.
Tribunal was of the view that the Assessing Officer (while passing the order under section 143(3) of the Act) had requisite details and evidences and on being satisfied of such details and evidences, he had allowed the claim to the assessee. Therefore the assessment order passed by the Assessing Officer was not erroneous and prejudicial to the revenue. Aggrieved by the order, the revenue preferred an appeal before the High Court.
The High Court followed the earlier year orders, wherein DRP had ruled in the favour of the Assessee and had allowed deductions on account of lease rental payment. High Court also noted that the Commissioner had simply directed the Assessing Officer to examine the matter without recording as to why the order passed by the Assessing Officer was prejudicial to the interest of the revenue and erroneous.
High Court held that the Assessing Officer had adopted one of the courses permissible by law and the factors relevant for exercise of power under section 263 were absent and the order passed does not record how and in what manner the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. Accordingly High Court dismissed the
revenue’s appeal. (AY. 2007-08)
CIT v. Philips India Ltd. (2016) 237 Taxman 538 (Cal.)(HC)
S.263 : Commissioner – Revision of orders prejudicial to revenue
– Order passed without complying with the direction of Tribunal would be erroneous and prejudicial to interests of Revenue. Therefore, CIT has power to exercise revisional powers to set aside the assessment
The Tribunal had remanded matter to the AO after issuing certain directions. However, the AO passed the order without complying with the directions of the Tribunal. Thereafter, the CIT exercised revisional powers u/s. 263 in setting aside the assessment order and remanded it to AO.
Appeal was filed before the HC challenging the jurisdiction of CIT u/s. 263. The HC held that assessment order passed without complying with the directions of the Tribunal (remand order) is erroneous and prejudicial to the interest of Revenue and thus CIT has power to revise the assessment order u/s. 263. (AYs. 1990-91 to 1994-95)
U.P. Forest Corporation v. CIT (2016) 131 DTR 274 (All HC)
S.271(1)(c) : Penalty – Concealment – Survey
– Capital gains on sale of shares – Penalty is not leviable on income declared during survey and offered in return
– A mere change of head of income does not attract penalty
Dismissing the appeal of revenue the Court held that; We find that the CIT(A) during the penalty proceedings had again examined the issue whether the claim of capital gain made in the regular return of income to the extent of
Rs. 1.62 crores with the particulars in support of the same. On examination, the CIT(A) reaches a prima facie conclusion that the income could be regarded as long term capital gain. Once the aforesaid conclusion has been reached coupled with two further facts viz. the authorities have rendered a finding of fact that the Respondent-assessee had not concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of income, the view taken to delete the penalty is a possible view. In the present fact, the view taken by the CIT(A) as well as the Tribunal is a reasonable and possible view. Nothing has been shown to us to hold that the findings of the CIT(A) and Tribunal was perverse and/or arbitrary warranting any interference by this Court. It may be pointed out that even in the Memo of Appeal, it is not urged by the Revenue that the finding of the CIT(A) and Tribunal are in any manner perverse. The reliance by the Revenue upon the decision of the Apex Court in Mak Data P. Ltd. 358 ITR 593 (SC) to contend that the justification of having deleted and accepted the amount of
Rs. 1.62 crores as business income, to buy peace is not available (ITA No. 2331 of 2013, dt. 9-2-2016) (AY. 2006-07)
CIT v. Hiralal Doshi (Bom.)(HC);
S.271(1)(c) : Penalty – Concealment – Disallowance of claim, effect of
– Business loss was shown in e-return, software atomically reflected loss returned as carry forward loss
– The assessee had in subsequent assessment year had not claimed carry forward loss was evidence of fact that there was no intent to furnish inaccurate particulars of income
The assessee filed its return of income claiming deduction of certain expenditure which resulted in business loss. The Assessing Officer disallowed the expenditure as the business had not commenced and added the same to the income of the assessee. The AO disallowed the carry forward loss as claimed in the return of income as it was filed beyond the due date. The AO also passed a penalty order under section 271(1)(c) on ground that assessee had deliberately furnished inaccurate particulars of income relating to carry forward loss.
The CIT(A) as well as the Tribunal set aside the penalty order holding that even when assessee declared net loss in its e-return, it was automatically reflected as carry forward loss. It was also found that return of income filed for the subsequent assessment year prior to the order of the subject assessment year also indicated that the assessee had not claimed any set off or loss carried forward from the earlier assessment years.
The High Court dismissed the
Revenue’s appeal holding that, the CIT(A) and the Tribunal have concurrently reached a finding of fact that the assessee had not claimed any carry forward loss either in the return which it has filed for the subject assessment year or in the subsequent assessment years. In the subject assessment year, once a loss was shown in the e-return, the software suo motu reflected the loss returned as carry forward loss. The assessee has not fed in the entry of carried forward loss while filing its return of income in the e-return. The fact that assessee had in the subsequent assessment year not claimed carry forward loss was evidence of the fact that there was no intent to furnish inaccurate particulars of income or conceal income. In any case, both the Commissioner (Appeals) as well as the Tribunal had concurrently reached a finding of fact that there was no intent on the part of the assessee to evade tax. This finding is not shown to be arbitrary. Therefore, the Tribunal was justified in setting aside impugned penalty order. (AY. 2008-09)
CIT v. First Data (India) (P.) Ltd. (2016) 237 Taxman 543 (Bom.)(HC)
S.275 : Penalty – Bar of limitation – During the pendency of appeal before ITAT, penalty u/s. 271(1)(c) cannot be levied on the assessee
Certain addition was made to assessee's income in reassessment proceedings. First Appellate Authority had disposed of the appeal and further appeal of assessee before the Tribunal was pending. In the meantime, the AO levied penalty on the assessee u/s. 271(1)(c). Held, order imposing penalty cannot be passed if the appeal against basic order of assessment is pending before the competent superior authority. Held, notices initiating penalty, could not have been issued before the order of the ITAT. (AY. 1959-60)
R. B. Shreeram Durgaprasad v. CIT (2016) 237 Taxman 189 (Bom.)(HC)