1. S. 4 : Charge of income-tax – Compensation awarded by Motor Accident Claims Tribunal – Interest on compensation awarded up to date of order of Tribunal or Court is held to be not taxable – Provision for deduction at source is not charging section.
    [S. 56(2)(viii) 145A(b), 194A, Motor Vehicles Act, 1988, S. 171]

    Petitioner when he was 8 years old while crossing the was road knocked down by a speeding vehicle. He was in coma for six months. Compensation was determined after 36 years after the accident. Motor Accident Tribunal awarded compensation within three months and the rate of interest payable was 12 per cent per annum on the unpaid amount. The insurance company before depositing the tax deducted the tax at source at 10 per cent on interest component. The petitioner filed the return and claimed the refund on the ground that the tax was wrongly deducted. The petitioner moved the petition challenging the vires of sections 194A(3)(ix), and (ixa) as also section 145A(b) and 56(2) (viii) of the Act. When the petition was pending the AO has passed the order. The petition was amended accordingly. Allowing the petition the Court held that awarding interest for delayed computation of compensation is therefore an integral part of this exercise. Interest awarded in motor accident claims cases is, thus, compensatory in nature and forms part of the compensation itself hence not taxable. Court also held that clause (viii) of sub-section (2) of section 56 by itself would not make the receipt of interest on compensation chargeable to tax as income from other sources, if such receipt is not income. Clause (b) of section 145A of the Act does not make interest on compensation or enhanced compensation taxable if it is otherwise not exigible to tax. It merely provides for the point of time when it would be subject to tax if otherwise taxable. The provision for deduction of tax at source is not a charging provision. It only provides for deduction of tax at source on payment of a sum, which, in the hands of the payee, is income. If the payee has no liability to tax on such income, the liability to deduct tax at source in the hands of the payer cannot be fastened. The provision for deducting tax at source cannot govern the taxability of the amount which is being paid. Accordingly the question of deduction of tax at source would arise only if the payment is in the nature of income of the payee. (AY. 2016-17)

    Rupesh Rashmikant Shah. v. UOI (2019) 417 ITR 169 (Bom) (HC)

  2. S. 9(1) : Income deemed to accrue or arise in India – Business connection – Royalty – Broadcasting services –Subscription – TV channel operator from customers – Receipt was not for transfer of any copyright in literary, artistic or scientific work – Can not be categorized as royalty income- International taxation – DTAA- India – Singapore [S.9(1) (vii), Copyright Act 1957, S.2(y), 14, 37 Art 5, 12]

    Assessee is a Singapore based company and operated TV channels through different agencies. Assessee received a part of subscription charges paid by customers which enable customers to view channels operated by assessee. Dismissing the appeal of the revenue the Court held that this was not a case where payment for any copyright in literary, artistic or scientific work was being made, nor assessee was parting with any copyrights therefore payment could not be categorized as royalty.
    (Followed Set Satellite (Singapore) P. Ltd. (2008) 307 ITR 205) (Bom) (HC) Dy.CIT v. Set India (P) Ltd (ITA No. 4372 /Mum/ 2004 dt. 25-4-2012)

    CIT v. MSM Satellite (Singapore) Pte. Ltd. (2019) 265 Taxman 376 (Bom) (HC)

  3. S. 10(23C) : Educational institution – Withdrawal of exemption – Collection of capitation fee – Notice of withdrawal containing unspecified allegation – Notice and consequent order is held to be not valid. [S.10 (23C) (vi) S. 132]

    A writ petition against the order was dismissed. On appeal against the single judge order allowing the appeal the Court held that, in the notice for withdrawal of exemption except stating that there was a raid on December 16, 2015 and documents were seized from the premises and that a considerable part of the amount belonging to the assessee-trust had been misused for personal use of the trustees, no other details were forthcoming. The Revenue had not given reasonable opportunity to the assessee to put forth its case effectively. In the circumstances, the notice dated November 28, 2017 was unsustainable in law. The consequent order of withdrawal of exemption was also not valid. Court also observed that a notice to be valid in law, should be clear and precise so as to give the party concerned adequate information of the case he has to meet. The adequacy of notice is a relative term and must be decided with reference to each case. The test of adequacy of the notice will be whether it gives sufficient information so as to enable the person concerned to put up an effective defence. If a notice is vague or it contains unspecified or unintelligible allegations, it would imply a denial of proper opportunity of being heard. Natural justice is not only a requirement of proper legal procedure but also a vital element of good administration.

    Navodaya Education Trust. v. UOI (2019) 417 ITR 157 (Karn)(HC)

    Editorial : Decision in Navodya Education Trust v. UOI (2018) 405 ITR 30 / 253 Taxman 412 / 302 CTR 381 / 165 DTR 16 (Karn.)(HC) is reversed.

  4. S. 10A : Free trade zone – Disallowance of expenses – Enhanced profit due to statutory disallowances – Entitle to deduction. [S.40(a)(ia)]

    Tribunal held that disallowance made under section 40(a)(ia) would not affect assessee’s liability to tax because even if said amount was disallowed and added to income, same would be exempted under section 10A. High Court upheld Tribunal’s order. (Followed CIT v Gem Plus Jewellery India Ltd. (2011) 330 ITR 175 ( Bom) (HC) (AY. 2006-07) (Supreme Court followed CIT v. HCL Technologies Ltd 2018 (6) SCALE 524)

    PCIT v. BMC Software India (P.) Ltd. (2019) 109 taxmann.com 277 / 266 Taxman 179 (Bom)(HC)

    Editorial: SLP of revenue is dismissed, PCIT v. BMC Software India (P.) Ltd. (2019) 266 Taxman 178 (SC)

  5. S. 10B: Export oriented undertakings – Derived from – Dividend income, profits on sale of fixed assets, profits on sale of investments, excess provision return back, duty drawback and interest income could be said to have direct nexus with the income of the business of the undertaking – Eligible for deduction. [S.10A, 10B(4)]

    Dismissing the appeal of the revenue the Court held that, the dividend income, profits on sale of fixed assets, profits on sale of investments, excess provision return back, duty drawback and interest income could be said to have direct nexus with the income of the business of the undertaking. Although they might not partake of the character of profits and gains from the sale of articles, they could be termed income derived from the consideration realised by the export articles. In view of the definition of “income from profits and gains” incorporated in sub-section (4), the Tribunal committed no error in granting the benefit of exemption under section 10B. (AY. 2006-07)

    PCIT v. Dishman Pharmaceuticals and Chemicals Ltd. (2019) 417 ITR 373 (Guj) (HC)

  6. S. 11 : Property held for charitable purposes – Charitable activities results in a surplus does not mean that assessee exists for profit- If the surplus is ploughed back into the same charitable activities, the assessee cannot be said to be carrying out commercial activities in the nature of trade, commerce or business – Entitle to exemption. [S.2(15) 12, 12AA]

    The question raised before the High Court was “Whether the Hon’ble ITAT has erred in not taking cognizance of the latest amendment in the nature of the proviso to section 2(15) of the I.T. Act inserted with effect from
    1-4-2009?” After considering the provisions and case laws the High Court held that, the fact that the carrying on of charitable activities results in a surplus does not mean that assessee exists for profit. “Profit” means that owners have a right to withdraw the surplus for any purpose including personal purpose. However, if the surplus is ploughed back into the same charitable activities, the assessee cannot be said to be carrying out commercial activities in the nature of trade, commerce or business. The fact that the assessee has dealings with, & share of profits from, BCCI (a commercial entity) does not affect its charitable status. (C/TAXAP/268/2012 dt. 27-9-2019)

    DIT(E) v. Gujarat cricket Association (2019) 183 DTR 367 (Guj)(HC),www.itatonline.org

  7. S. 11 : Property held for charitable purposes – Application of income – Adjustment of excess expenditure of earlier years against income of current year amounts to application of income – Entitled to exemption. [S.2(15) 11(1) (a)]

    Dismissing the appeal of the revenue the Court held that adjustment of excess expenditure of earlier years against income of current year amounts to application of income – Entitled to exemption. Followed CIT (E) Ohio University Christ College ( 2018)408 ITR 352 (Karn) (HC) (AY. 2012-13)

    CIT (E) v. Agastya International Foundation. (2019) 417 ITR 539 (Karn) (HC)

  8. S. 12A : Registration – Trust or institution – providing basic services of domain name registration charging annual subscription fees and connectivity charges – Incidental to main objects of assessee – Entitled to exemption [S.2(15) 10(23C)(iv), 260A, Companies Act, 1956, S.25]

    Dismissing the appeal of the revenue the Court held that the the assessee had been incorporated without any profit motive. The services provided by the assessee were of general public utility and were towards membership and connectivity charges and were incidental to its main objects. The assessee (though not a statutory body) carried on regulatory work. Both the appellate authorities had concluded that the assessee’s objects were charitable and that it provided basic services by way of domain name registration, for which, it charged subscription fee on an annual basis and also collected connectivity charges. No question of law arose. (AY. 2009-10)

    CIT (E) v. National Internet Exchange of India. (2019) 417 ITR 436 (Delhi) (HC)

    Editorial: SLP is granted to the revenue, CIT (E) v. National Internet Exchange of India. (2019) 412 ITR 41 (St)

  9. S. 12AA : Procedure for registration – Trust or institution – Mere resolution of governing body to benefit followers of a particular religion – Cancellation of registration is not justified.

    The assessee is an educational institution which was granted registration under section 12AA in April, 1985. A notice to cancel the registration was issued in August, 2011 and the registration was cancelled by the Commissioner and this was confirmed by the Tribunal. On appeal to the High Court held that the ground for cancellation of registration was that in some of the subsequent governing body meetings some resolutions were passed in benefit of the Christian community. The order of cancellation had been passed by the Commissioner without recording any satisfaction, either on the issue of the activities of the school being not genuine or that they were not being carried out in accordance with the objects for which the institution had been set up. The order of cancellation of registration was not valid.

    St. Michaels Educational Association v. CIT (2019) 417 ITR 469 (Patna) (HC)

  10. S. 28(i) : Business income – Income from house property –Leasing of shops in a mall along with various other facilities – Assessable as business income and not as income from house property. [S.22]

    Assessee-company is engaged in business of leasing out shop space in shopping malls. Assessee has shown income received from leasing out of shops and other commercial establishments as business income. AO assessed the income as income from house property. Tribunal held that the assessee is providing various facilities and amenities apart from giving shopping space on lease accordingly assessable as business income. Dismissing the appeal of the revenue the Court held that since it was not a case of giving shops on rent simplicitor rather assessee desired to enter into a business of renting out commercial space to interested individuals and business houses, amount in question was rightly brought to tax as business income. (AY 2008-09)

    (Editorial : Raj Dadarkar & Associates (2017) 394 ITR 592 (SC) is distinguished)

    PCIT v. Krome Planet Interiors (P.) Ltd. (2019) 265 Taxman 308 (Bom) (HC)

  11. S.28(i) : Business income – Client code modification – (CCM) – Shifting of profits – Addition as income on the basis of alleged doubtful transaction is held to be not valid – Deletion of addition the Tribunal is affirmed. [S.69, 143(3)]

    The assessee is a member of Multi Commodity Exchange of India Ltd. (MCX) and National Commodity and Derivative s Exchange of India. The assessee is carrying on trading activities both on derivatives and delivery based transactions on its own account as well as on behalf of various clients. AO has added the entire amount of doubtful transactions by way of assessee’s additional income on the basis of clients code modification. CIT(A) deleted the addition on the ground that all the clients are having PAN and regularly filing their returns and profits were taxed in their hands. Clients are not related parties. Modification was around 3% of the total transactions. All of them were complied with KYC norms. Tribunal affirmed the order of CIT(A). On appeal by the revenue, dismissing the appeal the Court held that, even if the Revenue’s theory of the assessee having enabled the clients to claim contrived losses is correct, the Revenue had to bring on record some evidence of the income earned by the assessee in the process, be it in the nature of commission or otherwise. Adding the entire amount of doubtful transactions by way of assessee’s additional income is wholly impermissible. The fate of the individual investors in whose cases the Revenue could have questioned the artificial losses is not known. Accordingly the appeal of the revenue is dismissed. (ITA No. 1257 of 2016, dt. 15-1-2019) (AY. 2006-07)

    (Editorial: Order of Mumbai Tribunal in ITO v. Pat Commodity Services P. Ltd (ITA No 3498 /3499/Mum/ 2012 dt 7-8-2015) (AYs. 2006-07, 2007-08) is affirmed.

    PCIT v. Pat Commodity Service Pvt. Ltd. (Bom)(HC), www.itatonline.org

  12. S.32: Depreciation – Installation of windmill – 80% depreciation allowed on Civil Construction, electrical and other non-integral part of installations – Held to be allowable.

    Revenue contended that the depreciation is allowable at 15% and not 80% claimed by the assessee. Dismissing the appeal of the revenue the Court held that windmill was erected in the desert area of Rajasthan which required special foundation of reinforced cement concrete and that said reinforced cement concreate formed integral part of windmill. Referred CIT v. Herdilla Chemicals Ltd. (1995) 216 ITR 742 (Bom) (HC). Court followed ITA NO 1326 of 2010 dt 14-6-2017. (ITA No. 1769 of 2016 dt. 30-1-2019)

    PCIT v. Mahalaxmi Infra Projects Ltd ( Bom) (HC) www.itatonline.org.

  13. S. 36(1)(iii) : Interest on borrowed capital – Commercial expediency – Inter – corporate deposits – Lower rate charged on inter – corporate deposits than that paid – No disallowances can be made. [S.37(1)]

    Dismissing the appeal of the revenue the Court held that due to commercial expediency charging of lower rate of interest on inter corporate deposits than that paid by assessee is held to be justified. There cannot be any universal rate or rule in this regard. No question of law arises. (AY. 1994-95)

    CIT v. Apollo Tyres Ltd. (No. 2) (2019) 219 ITR 546 (Ker) (HC)

  14. S. 36(1)(iii) : Interest on borrowed capital – Production of milk – Loan for setting up joint venture company with Central Government Agency and State Government entity – Allowable as deduction.

    Dismissing the appeal of the revenue the Court held that, the setting up of a joint venture company with a Central Government agency and a State Government entity was not beyond the purview of the business operations of the assessee. In such circumstances, the interest paid in respect of the funds borrowed by the assessee had to be regarded as a payment made for the purpose of the business of the assessee and a permissible deduction under S. 36(1)(iii) of the Act. (AY. 2000-01, 2003-04)

    CIT v. Keventer Agro Ltd. (2019) 416 ITR 482 (Cal) (HC)

  15. S. 37(1) : Business expenditure –Scientific research – The direction of the State Government for payment of contribution came just before the end of the financial year, entire expenditure is allowable on accrual basis – Claim cannot be disallowed under S. 35(1)(ii) as assessee did not claim weighted deduction.
    [S. 35(1) (ii)]

    Held by High Court that, though the contribution made to the Institute of Road Transport was paid after the end of the financial year, since the liability was incurred during the financial year relevant to 1992-93, the same is allowable under s. 37(1) on the basis of mercantile system and there was no question of disallowance by invoking S. 35(1)(ii) since no weighted deduction was claimed by assessee. (AY. 1991-92, 1992-93)

    CIT.v. Tamil Nadu State Transport Corporation (Madurai) Ltd (2019) 179 DTR 161 (Mad)(HC)

  16. S. 37(1) : Business expenditure – Accounts – Rejection –Apportionment of proportionate expenditure between two units – Each of the expenses allocated by the assessee has been rightly reflected in the books of account of both the units – AO was not justified in computing profits of both the units on the basis of allocation of proportionate expenditures, in the ratio of their respective turnover to the combined turnover. [S. 10B(7), 145]

    Held by the High Court that:

    1) Tribunal found that the AO has not pointed out any specific defect or mistake in the books of account so as to justify invocation of S. 145 of the Act.

    2) Activity of non-EOU unit is largely trading, whereas in the case of EOU unit, it is manufacturing and production. Each of the expenses allocated by the assessee has been rightly reflected in the books of account of both the units, hence the AO was not justified in computing profits of both the units on the basis of allocation of proportionate expenditures, in the ratio of their respective turnover to the combined turnover. (AYs. 2005-06, 2006-07)

    CIT v. Mineral Enterprises Ltd. (2019) 310 CTR 612/174 DTR 256 (Karn)(HC)

  17. S.37(1) : Business expenditure – Contribution to recognized provident fund – Payment of pension to retired employees –As per scheme approved by the Government which had statutory force, hence, it would fall within the general deductions under
    S. 37(1) and cannot be brought under S. 36(1)(iv) and (v) of the Act [S. 36(1)(iv), 36(1) (v)]

    Held by the High Court that:

    1) Payment of pension to retired employees was made as per scheme (Employees Retirement Regulations) approved and notified by the Government of India, which has statutory force and the assessee is bound by the terms and conditions contained in the regulations, any infraction or violation will result in various other civil consequences. Hence, the nature of deduction claimed in respect of the payments made in terms of the statutory regulation would fall within the general deductions under s. 37 and cannot be brought under ss. 36(1)(iv) and (v);

    2) Further, assessee having been granted similar benefit for earlier years, the same cannot be denied for the subsequent years, especially when, the nature of payment is in the same fashion in terms of a statutory regulation. (AYs. 2010-11, 2012-13)

    CIT v. V. O. Chidambaranar Port Trust (2019) 311 CTR 227 / 180 DTR 329 / 266 Taxman 141 (Mad)(HC)

  18. S. 37(1) : Business expenditure – Setting up of business and starting commercial activities – Commencement of research and development and construction of factory – Business is set up Entitled to deduction of operating expenses, financial expenses and depreciation – Appellate Tribunal – Power. [S.28(i), 32, 254(1)]

    Court held that once the business is setup the assessee is entitled to deduction of operating expenses, financial expenses and depreciation. Court also held that when there was no dispute with regard to the date on which the assessee had set up its business the Tribunal had no jurisdiction to unsettle the finding of the date on which the business of the assessee was set up. (AY. 2010-11)

    Daimler India Commercial Vehicles P. Ltd. v. DCIT (2019) 416 ITR 343 (Mad)(HC)

  19. S.40(a)(ia) : Amounts not deductible – Deduction at source – Amendment to S. 40A(ia) by Finance Act, 2010 permitting deposit of tax deducted at source till due date for filing return is retrospective in operation.
    [S 139(1), 260A]

    Dismissing the appeal of the revenue the Court held that the amendment to S. 40(a)(ia) by the Finance Act, 2010 was retrospective in operation with effect from April 1, 2005. The various High Courts had taken the view that the provision being a machinery provision, retrospective effect being given to it was appropriate. There was no reason as to why such view should be departed from. No question of law arose. Followed CIT v. Naresh Kumar (2014)362 ITR 256 (Delhi) (HC), CIT v. Omprakash R. Chaudhary (2014)3 ITR –OL 282 (Guj) (HC) CIT v. Sri Scorpio Engineering Ltd (2016) 388 ITR 266 (Karn) (HC), CIT v. Virgin Creations (ITA No 302 of 2011 dt 23-11-2011) (Cal) (HC) (AY. 2009-10)

    CIT v. Shraddha and S. S. Kale, Joint Venture. (2019) 417 ITR 439 (Bom) (HC)

  20. S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Waiver of loan Cannot be assessed as cessation of liability or as business income.[S.28(iv)]

    Dismissing the appeal of the revenue the Court held that argument of Revenue that loan taken from agents/dealers is on revenue account or that on waiver of the loan, its character undergoes a change and it becomes on revenue account is not correct. Ss. 28(iv) & 41(1) cannot apply if the loan is on capital account and the assessee has never claimed any deduction therefor in the past (Solid Containers Ltd. v. Dy CIT (2009) 308 ITR 417 (Bom) (HC) distinguished, CIT v. Mahindra and Mahindra Ltd. (2018) 404 ITR 1 (SC) followed). (ITA No. 896 of 2017,
    dt. 25-9-2019) (AY. 2009-10)

    PCIT v. Colour Roof (India) Ltd.(Bom)(HC), www.itatonline.org

  21. S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Old unpaid liability for sundry creditors – Exhaustion of period of limitation may prevent filing of recovery proceedings in a Court of law, nevertheless it cannot be stated by itself that the liability to repay the amount had ceased – Addition cannot be made.

    Dismissing the appeal of the revenue the Court held that, it is well settled through series of judgments that merely because a debt has not been repaid for over three years, would not automatically imply cessation of liability. Exhaustion of period of limitation may prevent filing of recovery proceedings in a Court of law, nevertheless it cannot be stated by itself that the liability to repay the amount had ceased. Such liability cannot be termed as bogus. (ITA No. 1288 of 2016, dt. 4-1-2019) ( AY. 2010-11)

    PCIT v. Pukhraj S. Jain (Bom)(HC), www.itatonline.org

  22. S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Merely because period of three years expired from arising of the liability would not automatically mean that the liability has ceased – Order of Tribunal is affirmed.

    Dismissing the appeal of the revenue the Court held that merely because period of three years expired from arising of the liability would not automatically mean that the liability has ceased. Order of Tribunal is affirmed. (ITA No. 1769 of 2016 dt 30-1-2019)

    PCIT v. Mahalaxmi Infra Projects Ltd. (Bom) (HC) www.itatonline.org.

  23. S. 45 : Capital gains – Transfer – Allotment letter – Long term – Short term – Assessee in possession of sheds since date of allotment – Assessee Paying Amounts Due Under Agreement – Sale deed executed on 11-1-1996 – Transfer of sheds in same year – Assessable as long-term capital gains [S.2(42A) 2(47)(v)]

    Allowing the appeal the Court held that the agreement between the Corporation and the assessee referred to the assessee as the “lessee purchaser”. The agreement specifically stated that the price of the sheds had been tentatively fixed by the Corporation and part of this had already been paid by the assessee and the balance amount was agreed to be paid in installments. Further, the agreement stated that the Corporation had transferred the property to the assessee by way of lease for the time being with the ultimate object of selling the property to the lessee purchaser, but on the fulfilment of the terms and conditions laid down therein. There was no allegation that the assessee had flouted the terms and conditions laid down by the Corporation. Considering the totality of the factual matrix, it was to be held that the assessee had been holding the property ever since the date of allotment, i.e., August 11, 1988. It should be treated as a long-term capital asset and the gains arising therefrom should be assessed at low tax effect.
    (AY. 1997-98)

    South India Minerals Corporation. v. ACIT (2019) 417 ITR 306 (Mad) (HC)

  24. S. 64 : Clubbing of income – Minor child – Provision coming into force with effect from 1-4-1976 cannot be given retrospectivity and be made applicable to previous accounting year 1975-76 corresponding to assessment year 1976-77 [S. 64 (1)(iii)]

    Question before the larger Bench was “whether the Tribunal was correct in holding that the share income of the minor sons of the assessees from the partnership was to be computed in the hands of their father in the assessment year 1976-77, under section 64(1)(iii) when the accounting year of the assessees had come to an end on August 10, 1975 and on December 31, 1975 respectively”

    Court held that for deciding the liability under a particular provision of the Act, the date of accrual of the income would be relevant. If the provision comes into force in a particular financial year, it would apply to the assessment for that year but cannot be made applicable in respect of assessment for a previous year.

    Section 64(1)(iii) was introduced with effect from April 1, 1976. The tax liability under the provision could therefore be charged on the assessee, in the assessment which was to be made for that accounting year, i.e., 1976-77, which would be done in the assessment year 1977-78. The Amending Act introducing a new tax liability which came into force with effect from April 1, 1976 could not be given retrospectivity and be made applicable to the previous accounting year, i.e., 1975-76 corresponding to the assessment year, i.e., 1976-77. Matter was remanded to division Bench for disposing the matter. (AY. 1976-77) (Editorial: Judgement in Badri Prasad v. CIT (1990) 185 ITR 307 (Patna) (HC) is overruled.

    Loknath Goenka v. CIT (2019) 417 ITR 521(FB) (Patna) (HC)

    Narmada Devi v. CIT (2019) 417 ITR 521(FB) (Patna) (HC)

  25. S. 68 : Cash credits – Bank deposits – Bank statement was produced before appellate authorities – Deletion of addition is held to be valid.

    Dismissing the appeal of the revenue the Court held that bank statements were produced before appellate authority authenticity of which was not in question or doubt. Accordingly the order of Tribunal is affirmed.

    Dy. CIT v. Pushpak Merchants (P) Ltd. (2019) 108 taxmann.com 174/ 265 Taxman 433 (Chhatisgarh) (HC)

    Editorial : SLP of revenue is dismissed, DCIT v. Godavari TIE UP (P.) Ltd. (2019) 265 Taxman 432 (SC)

  26. S.69 : Income from undisclosed sources – Penny stock – Return of 491% – Bogus long term capital gains – Stock Exchange has identified Cressanda Solutions Ltd as penny stock being used for obtaining bogus long term capital gains – No evidence of actual sale except contract notes issued by share Broker were produced – Denial of exemption is held to be justified. [S.10(38), 45]

    Appellant booked Long Term Capital gain (LTCG) of ₹ 73,77,806/- and sought exemption under S. 10 (38) of the Act. AO denied the exemption. AO found transaction pertaining to purchase of shares by Appellant of Smartchamps IT and Infra Ltd., which was merged with Cressanda Solutions Ltd., to be bogus transaction by holding that Cressanda Solutions Ltd. was penny stock. CIT(A) and Appellate Tribunal also confirmed the order of AO. On appeal it was submitted that the Appellant had made cheque payment for purchase of 1500 shares of Smartchamps IT and Infra Ltd. in assessment year 2012-13, and that investment was accepted by department. It was further submited that Appellant had produced all relevant materials before Assessing Officer, namely, documentation relating to opening of DMAT account; purchase of shares of Smartchamps IT and Infra Ltd., contract notes, and other relevant documents. Dismissing the appeal of the assessee the Court held that, the analysis of balance sheet and P&L account of the Co. shows that astronomical increase in share price which led to returns of 491% for assessee was completely unjustified. The EPS & other financials parameters cannot justify price at which assessee claims to have sold shares to obtain Long term capital gains. It is not explained as to why anyone would purchase said shares at such high price. Accordingly the order of Tribunal is affirmed. High Court also observed that Bombay Stock Exchange has identified Cressanda Solutions Ltd. as penny stock being used for obtaining bogus long term capital gains and no evidence of actual sale except contract notes issued by share Broker were produced. Accordingly no question of law. (ITA 841/2019, dt. 17-9-2019) (AY. 2014-15).

    Suman Poddar v. ITO (Delhi)(HC), www.Itatonline.org

    Editorial: SLP of assessee is dismissed Suman Poddar v. ITO (SLP No 26864/2009 dt 22-11-2019

  27. S. 80IA : Industrial undertakings – Two manufacturing units – Deduction at 30% of eligible business – Not on total income. [S. 80AB]

    Dismissing the appeal of the revenue the Court held that the understanding of the Department with regard to the scope of section 80AB to enable them to reckon the deduction at 30 per cent, confining it to the lower extent of the total income from all sources, instead of reckoning it as 30 per cent. of the business profits from the eligible business, was wrong and misconceived. No question of law. (AY. 1995-96)

    CIT v. Apollo Tyres Ltd. (No. 5) (2019) 416 ITR 571 (Ker) (HC)

  28. S. 80IB(10) : Housing projects – Condition that completion certificate must be obtained within four years from local authority – Amendment is not retrospective – Not applicable prior to 1-4-2005 – Order of Tribunal quashing the reassessment is held to be valid. [S.147, 148]

    Dismissing the appeal of the revenue the Court held that prior to April 1, 2005, section 80-IB(10) of the Income-tax Act, 1961 provided only three conditions for the eligibility for the deduction. There was no such condition that the project in question should be completed and completion certificate obtained within the period of four years. The condition was imposed by the amendment with effect from April 1, 2005. The condition will be applicable prospectively and not retrospectively. Accordingly once it had come on record by the fact finding authority that there was no such condition to have the completion certificate within four years from the local authority granting approval of the projects, the reassessment proceedings taken against the assessee were held to be bad in law. (Followed CIT v. Brahma Associates (2011) 333 ITR 289 (Bom) (HC), CIT v. Sarkar Builders (2015) 375 ITR 392 (SC)) (AY. 2005-06, 2007-08).

    PCIT v. Sahara States, Gorakhpur. (2019) 418 ITR 168/ 310 CTR 457 (All) (HC)

  29. S. 80IB (11A) : Undertaking – Business of processing, preservation and packaging of fruits or vegetables – Business of manufacturing and exporting honey is eligible to claim deduction.

    The assessee firm which is engaged in the business of manufacturing and exporting honey. It claimed deduction under S. 80-IB(11A) in respect of benefit received under Vishesh Krishi and Gram Udyog Yojana (VKGUY). AO denied the deduction om the ground that the VKGUY scheme is part of Foreign Trade Policy 2009-14 framed by the Government of India, Ministry of Commerce and Industry. Tribunal also up held the view of the AO. On appeal High Court held that perusal of the scheme would suggest that the objective of the scheme was to promote export of agricultural produce and their value added products, minor forest produce and their value added variants, Gram Udyog products, forest based products and other produces as maybe notified. In relation to exports of such products, benefits in the form of incentives would be granted at the prescribed rate. The objective behind granting such benefit was in order to compensate high transport cost and to offset other disadvantages. In clear terms, thus, the Government of India realized that the products such as agricultural produce, minor forest produce and Gram Udyog products as also forest based products would have high transport cost and would be accompanied by various other disadvantages. In order to make the export of such products viable, the Government of India decided to grant certain incentives under the said scheme. The clear objective behind the scheme was, thus, to reduce the cost of its procurements and to neutralize certain inherent disadvantages attached to such products. Accordingly the court held that the assessee’s claim of deduction under section 80IB(11A) in relation to the benefits received by the assessee under VKGUY scheme upon the export of its agro products was to be allowed.
    (AY. 2009-10)

    Pioneer Foods & Agro Industries. v. ITO (2019) 265 Taxman 53 (Mag) (Bom) (HC)

  30. S. 92C : Transfer pricing – Guarantee commission – Comparison can be made between guarantees issued by commercial Banks as against a corporate guarantee issued by a holding company to benefit of its Associated enterprises – Bench mark fixed by TPO at 3 per cent is held to be correct. [S. 92CA (3), R.10B]

    SLP was granted to the revenue. Glenmark Pharmaceuticals Ltd. (2017) 397 ITR 30(St)/ 250 Taxman 391 (SC). Dismissing the appeal of the revenue the Court held that Benchmark fixed by TPO at 3 per cent on account of guarantee commission is held to be correct. Comparison can be made between guarantees issued by commercial banks as against a corporate guarantee issued by a holding company to benefit of its Associated enterprises.
    (AY. 2008-09)

    (Note: Order of Tribunal in Glenmark Pharmaceuticals Ltd. v. Add. CIT (2014) 43 taxmann.com 191/ 62 SOT 79 (URO) (Mum) (Trib) is affirmed.)

    CIT (LTU) v. Glenmark Pharmaceuticals Ltd. (2019) 265 Taxman 237 (SC)

    Editorial: Order in CIT (LTU) v. Glenmark Pharmaceuticals Ltd. (2017) 398 ITR 439/85 taxmann.com 349 (Bom.)(HC) is affirmed partly.

  31. S. 115O : Domestic companies – Tax on distributed profits – Charging section – No need for issuance of notice before making a demand – Profits distributed to shareholders is deemed to be dividend – Reduction on share capital can be effected by buying back shares – Advance Ruling cannot be given if an enquiry is pending against the assessee – Writ will not normally be issued if there is alternative remedy [S.2(22) 245R, Art. 226]

    Dismissing the petition the Court held that section 115-O had been issued to the assessee and it had been given sufficient opportunity to be heard. Prima facie the buy-back of shares pursuant to the order of the company court would not give rise to capital gains and had to be treated as dividend. The assessee had an alternate remedy of filing an appeal against the order. A writ would not issue to quash the order.

    Cognizant Technology Solutions India P. Ltd. v. DCIT, LTU (2019) 416 ITR 462 (Mad) (HC)

  32. S. 115O : Domestic companies – Tax on distributed profits – Charging section – No need for issuance of notice before making a demand – Profits distributed to share holders is deemed to be dividend – Reduction on share capital can be effected by buying back shares – Advance Ruling cannot be given if an enquiry is pending against the assessee – Writ will not normally be issued if there is alternative remedy – Liberty is given to file an appeal. [S.2(22), 245R, 246A, Art. 226 Companies Act, 1956, S.391, 393]

    Dismissing the petition against single judge order the Court held that appeal against AO’s Order holding that the transactions made pursuant to the buy back agreement in consequence to the approval of the scheme under sections 391 to 393 of the Companies Act requires to be taxed under S. 115-O on the premise that it would constitute dividend and not capital gain is maintainable. Court also held that single Judge, though rightly dismissed the writ on the ground that alternate remedy is available, was not correct in going into the merits of the case, at this stage, while granting liberty to file an appeal. (WP. No. 2063 of 2019 dt. 6-9-2019)

    Cognizant Technology Solutions India (P) Ltd. v. DCIT (2019) 418 ITR 576/310 CTR 515/181 DTR 371 (Mad.)(HC)

    Editorial: Order of single Judge in Cognizant Technology Solutions India (P) Ltd. v. DCIT (2019) 416 ITR 462 (Mad.) (HC) is partly affirmed.

  33. S. 119 : Central Board of Direct Taxes – Refund claims and carry forward the losses – Delay in filing of return – Refusal to condone the delay would cause genuine hardship to assessee – Rendering substantial justice is the paramount consideration of the Courts as well as the authorities rather than deciding on hyper technicalities. [S.139(9)]

    Court held that upon being properly advised, the assessee filed the correct return of income in the correct form for the assessment year 2009-10 on March 24, 2015 declaring a loss of ₹ 7,91,66,338. Thus, it was because of circumstances beyond its control that the assessee could not file the return of income under section 139(9) of the Act within the specified time. The assessee had made out a case of genuine hardship for admitting the claim after the expiry of the period specified under the Act. The Board ought to have exercised its powers under clause (b) of sub-section (1) of section 119 of the Act and condoned the delay in filing the return of income. The order dated May 30, 2018 passed by the Board under section 119(2)(b) was liable to be quashed. Circular No. 9 of 2015 dt. 9-6-2015) Court also observed that rendering substantial justice is the paramount consideration of the Courts as well as the authorities rather than deciding on hyper technicalities. (2015) 374 ITR 25 (St).
    (AY. 2009-10)

    Surendranagar District Co-operative Bank Ltd. v. DCIT (2019) 416 ITR 294 (Guj) (HC)

    Editorial: SLP of revenue is dismissed DCIT v. Surendranagar District Co-operative Bank Ltd. (2019) 416 ITR 296 (SC).

  34. S. 132A : Powers – Requisition of seized assets – Cash seized under guidelines issued by Election Commission – Election commission finding that seizure was not valid – Income-Tax Authorities had no jurisdiction to requisition such cash [S.132, Art. 226]

    The assessee was a proprietorship concern engaged in wholesale trading of ready-made garments. A flying squad entered his business premises claiming knowledge about huge cash lying with the assessee which according to them was meant for use in elections for influencing voters in violation of the election laws and guidelines. No notice had been received by him in this regard and thus, the authority of the flying squad was unknown. The proprietor of the assessee handed over the cash which was a collection of payments received from different customers and meant for different purposes. The cash was not even counted by the flying squad, who simply collected the cash, prepared a seizure list and left the business premises. The Committee constituted under the guidelines of the Election Commission concluded that the seized cash had no connection with the election. Meanwhile the cash was requisitioned under a warrant of authorisation issued under section 132A of the Income-tax Act, 1961. On a writ the Court held that the proceeding was an outcome of a raid conducted under the guidelines of the Election Commission of India and the seizure was not a consequence of a raid made by the Income-tax authorities under section 132 of the Act, nor could any order be passed in purported exercise of jurisdiction under section 226(3) of the Act. Even otherwise, the seizure itself was without sanction of law which was apparent from the fact that no first information report or complaint was instituted as provided under clause 4 of the Guidelines nor was the case submitted to the court of competent jurisdiction within 24 hours nor did the Committee constituted under the Guidelines take any decision to order seizure of the cash, in the absence of any first information report/complaint instituted in terms of clause 16(i). The order of requisition was not valid.

    Indian Traders. v. State of Bihar (2019) 417 ITR 95 (Pat) (HC)

  35. S.143(2) : Assessment – Notice – Non service of notice with in limitation period – Order is bad in law – Provision of S.292BB cannot be invoked since assessee neither appeared nor co-operated in inquiry during assessment proceedings as the order was passed u/s. 144 of the Act – [S.144, 292BB, Art 226]

    Assessee had filed the return of income, notice under section 143(2) dated 24-8-2017 served on 19-12-2017. The assessment was completed u/s. 144 on 19-12-2018. The assessee filed the writ petition on the ground that the notice was served beyond limitation period hence the order is bad in law. Revenue submitted that notice dated 24-8-2017 was dispatched to address of assessee and copy of speed post acknowledgment was placed on record for having dispatched same. It was also submitted that e-Portal of department showing date of service as 19-12-2017 could not be considered as service date by ignoring service of notice made through speed post by department. It was found that the copy of speed post acknowledgment neither bore signature of assessee nor indicated date of dispatch/service and, thus it was a vague and inchoate document. Further, copy of e-portal showing date of service of notice as 19-12-2017 could not be disputed by department on ground that there was some technical error in e-Portal maintained by department. As regards applicability of section 292BB, since assessee neither appeared nor co-operated in inquiry during assessment proceedings, provisions of said section would not apply. Accordingly the assessment order based on invalid notice, could not survive and same was liable to be quashed. (AY. 2016-2017)

    Nittur Vasanth Kumar Mahesh v. ACIT (2019) 265 Taxman 277 (Karn) (HC)

  36. S. 143(2) : Assessment – Notice – Issue of notice beyond period prescribed in proviso to S.143(2) – Assessment is barred by limitation.

    For relevant year, assessee filed its return on 30-9-2004. Six months period prescribed in proviso to section 143(2) would end on 30-9-2005. Notice under section 143(2), read with section 142(1) was issued on 8-8-2006. In the petition the Court held that in view of proviso to section 143(2), notice was issued after expiry of prescribed time period and, thus, same was clearly hit by limitation. Accordingly entire proceedings including assessment order passed by Assessing Officer under section 143(3) was quashed. (AY. 2004-05)

    Bihar Police Building Construction Corporation (P.) Ltd. v. P CIT (2019) 265 Taxman 373 (Patna) (HC)

  37. S. 145 : Method of accounting – Stock valuation of gold – LIFO method of valuation – Recognised in law – No substantial question of law. [S.260A]

    Assessee is engaged in business of manufacturing and selling of gold ornaments who followed LIFO method of valuation. AO held that assessee undervalued stock which was below average cost price of gold and made certain addition to assessee’s income. Tribunal having accepted assessee’s explanation, deleted addition made by AO. High Court affirmed the order of Tribunal. (AY. 2010-11)

    CIT v. Sharad Mohanlal Shah ( 2019) 108 taxmann.com 35 (Guj) (HC)

    Editorial: SLP of revenue is dismissed, CIT v. Sharad Mohanlal Shah (2019) 265 Taxman 539 (SC)

  38. S. 145 : Method of accounting – Stock valuation – Cash credit limits – Discrepancy in stock as per books of account of assessee and that shown in bank statements – Deletion of addition is held to be justified.

    AO made addition to assessee’s income on account of discrepancy in stock as per books of account of assessee and that shown in bank statements. Tribunal deleted said addition by taking a view that assessee had tendency to show higher value of stock in bank statements in order to enjoy higher cash credit limit. High Court upheld order passed by Tribunal.

    PCIT v. Janam Steel and Alloys (2019) 108 taxmann.com 349 / 265 Taxman 552 (Guj) (HC)

    Editorial: SLP is granted to the revenue; PCIT v. Janam Steel and Alloys (2019) 265 Taxman 551 (SC)

  39. S. 145 : Method of accounting – Valuation of stock – Goods ready for shipment had not been transferred – Declaration made in accordance with provision of sales tax is not relevant for the purpose of income-tax Act – Valuation of stock at cost or market price at the option of assessee – Held to be valid.

    Tribunal took a view that since title of goods ready for shipment had not been transferred to foreign buyers, value of those goods could be included in stock in hand at cost or market price, at option and as per regular practice of assessee. Revenue raised a plea that for sales tax purpose value of goods lying at port was taken at invoice value and, thus, same value was to be adopted for tax purposes. High Court rejected revenue’s plea by holding that sales tax computation and declaration would be made in accordance with provisions of Sales-tax Act and same would not make any difference for valuation of stock under provisions of Act.

    PCIT v. Jindal Stainless Ltd. (2019) 109 taxmann.com 144/ 266 Taxman 188 (Delhi) (HC)

    Editorial: SLP of revenue is dismissed; PCIT v. Jindal Stainless Ltd. (2019) 266 Taxman 187 (SC)

  40. S. 147 : Reassessment – After the expiry of four years – Shah Commission’s report – Merely on basis of Shah Commission’s Report opining that there was under – invoicing of export price by iron ore miners and exporters, reassessment could not be initiated when there was nothing to indicate that any particular income had accrued to anyone as a result of price difference – Notice based on report of Commission is held to be not valid [S.148]

    The petitioner was carrying on business of mining and export of iron ore. After scrutiny, assessment order under section 143(3) was passed. Reassessment proceedings were initiated after the expiry of four years on basis of information of Shah Commission Report that there was under invoicing of export by exporters of iron ore, Assessing Officer initiated reassessment. The reasons for reopening the assessment was as under (i) There was under invoicing of exports by the assessee, (ii) alternatively, mining activity being illegal, income arising from it ought to be assessed as inform other sources and (iii) escapement of income from assessment was on account of failure on the part of the assessee to disclose wholly and truly all material facts necessary for the assessment. On writ allowing the petition the Court held that since under-invoicing was nothing but a matter of expression of opinion by Commission, Assessing Officer could not follow same as primary for reopening assessment. As Assessing Officer had not applied his mind to this aspect of matter, reassessment order was to be quashed as there was nothing to indicate that any particular income has accrued to anyone as a result of such difference in prices. As regards the allegation of illegality the Court held that when the income from the activity of mining and exporting ore arose also when it was assessed to tax there was nothing to suggest that the activity was illegal. Accordingly the notice of reassessment was held to be invalid. Ratio in Raymond Woollen Mills Ltd. v. ITO (1996) 236 ITR 34 (SC) is distinguished. (AY. 2008-09)

    Sesa Sterlite Ltd v. ACIT (2019) 417 ITR 334 / 107 taxmann.com 338 (Bom)

  41. S. 147 : Reassessment – Export business – No new material – Notice under direction of Commissioner – Reassessment is held to be not valid. [S80HHC, 148]

    The AO allowed the claim u/s. 80HHC after considering the submission of the assessee. Despite a strong reply to the audit objection, the AO upon requiring him to take “remedial action forthwith”, had issued notice dated February 17, 2000, i.e., on the very next day, under section 148 of the Act, seeking to reopen the assessment. Tribunal quashed the reassessment proceedings. On appeal by the revenue dismissing the appeal the Court held that the material on record indicated that there was no independent application of mind on the part of the Assessing Officer. The notice was not valid. Distinguished IPCA Laboratories Ltd. v. Dy. CIT (2001) 251 ITR 420 (Bom) (HC) (AY. 1995-96)

    CIT v. Narcissus Investments P. Ltd. (2019) 417 ITR 512 (Bom)(HC)

  42. S. 147 : Reassessment – With in four years – Transfer of leasehold rights – Allegation that the transaction is not genuine – No new material – Reassessment is held to be not valid. [S. 45, 56, 148]

    Allowing the petition the Court held that undisputedly, the assessee had disclosed the transaction of having received a sum of ₹ 40.51 crore from Morarji Textiles Ltd. under a deed evidencing transfer of leasehold rights in the land. Not only in the return, but during the assessment also, the assessee had made such disclosures. This transaction was also examined by the Assessing Officer during assessment. In the reasons recorded itself, the Assessing Officer had referred to this transaction as emerging from the assessment records. Thus, in clear terms, the assessee had offered such receipt to tax. In the notice for reassessment the Assessing Officer held that the leasehold rights belonged to Morarji Textiles Ltd. itself and therefore, Morarji Textiles Ltd was wrong in claiming that it had purchased such rights from the assessee. He recorded the satisfaction that the income of the assessee to the tune of ₹ 40.51 crore chargeable to tax had escaped assessment. The entire issue had been examined by the Assessing Officer during the original scrutiny assessment. No material outside of the assessment records was shown to have been brought to the notice of the Assessing Officer. He only referred to the order of the assessment passed by the Assessing Officer of Morarji Textiles Ltd such assessment was based on the documents which were already part of the assessment in the case of the assessee. The notice of reassessment was not valid. (Distinguished Kalyani Maviji and Co. v. CIT (1976) 102 ITR 287 (SC), and Phool Chand Bajrang Lal v. ITO ( 1993) 203 ITR 456 (SC))
    (AY. 2013-14)

    Integra Garments And Textiles Ltd. v. ITO (2019) 418 ITR 139 / 310 CTR 570(Bom) (HC)

  43. S. 147 : Reassessment – Within four years – Change of opinion Interest income – Income from other sources – Adjustment of interest income against interest expenditure and remaining amount was transferred to work-in-progress account –Reassessment is held to be not valid. [S.56, 148]

    Assessee was engaged in business of development of real estate projects. Assessee filed its return wherein it adjusted interest income against interest expenditure and remaining amount was transferred to work-in-progress account. Assessing Officer completed assessment under section 143(3) accepting assessee’s treatment of interest income. Subsequently, Assessing Officer initiated reassessment proceedings taking a view that interest income earned by assessee had to be taxed as income from other sources. On writ allowing the petition the Court held that since entire question of taxing assessee’s interest income was minutely scrutinized by Assessing Officer during original assessment proceedings, in such a case, in absence of any new material, reopening of assessment would be based on mere change of opinion. Accordingly the reassessment proceeding was quashed. (AY. 2013-14)

    Rubix Trading (P.) Ltd. v. ITO. (2019) 108 taxmann.com 176 /265 Taxman 424 (Bom) (HC)

    Editorial: SLP of revenue is dismissed, CIT v. Rubix Trading (P.) Ltd. (2019) 265 Taxman 423 (SC)

  44. S.147 : Reassessment – Survey – Merely on the basis of statement of partner addition cannot be made in respect of difference between stamp valuation and sale price of property on basis of such offering made by partner – Reassessment was quashed. [S.43C, 45, 133A. 148]

    AO reopened the completed assessment. On writ the Court held that the assessee did not make voluntary surrender of any additional income. Partner never admitted that flats were sold at a price higher than what was reflected in documents. Court held that the entire approach of the Assessing Officer is wholly incorrect. As is well known, section 50C would enable the revenue to bring to tax by way of deemed capital gain difference between the stamp valuation and the sale price of a capital asset. For obvious reasons, this provision of section 50C would not apply in case of a builder for whom immovable property is in nature of stock-in-trade and not capital asset. To overcome this difficulty, the legislature had inserted section 43CA under Finance Act, 2013 with effect from 1-4-2014. This provision would enable the revenue to tax the income arising out of sale of stock by a deeming fiction where subject to certain conditions, stamp valuation of such stock would substitute the actual receipt thereof. In absence of any such statutory provisions, giving rise to the deeming fiction, the revenue cannot tax any amount which has not been received by a seller of an immovable property at the time of sale. In plain terms, in this statement, the partner never admitted that the flats were sold at a price higher than what was reflected in the document. However, in absence of voluntary surrender by the assessee of any additional income, it was simply not possible for the revenue to make any addition on the ground of the difference between the stamp valuation and the sale price of the property in question. As noted, section 43CA was inserted with effect from 1-4-2014 and therefore, had no applicability to the assessment year in question. The attempt on the part of the Assessing Officer to make the addition with the aid of the statement of the partner of the assessee and reference to the correct stamp valuation, is simply invalid. What the Assessing Officer wishes to do is to adopt a stamp valuation for the properties in question, superimpose the statement of the partner of the assessee of the declaration of certain additional income and extrapolate such statement to fit within the scheme of section 43CA. Accordingly the notice of reopening of assessment is set aside. Consequently, the order of assessment is rendered invalid.
    (AY. 2013-14)

    Zain Constructions. v. ITO (2019) 265 Taxman 82 (Mag) (Bom) (HC)

  45. S. 147 : Reassessment – Within four years – Change of opinion – Write off of foreign receivable debts – Pending for approval – Reassessment is held to be not valid. [S. 36(1(vii), 148]

    Assessee company was engaged in business of manufacturing pharmaceutical machineries. Assessment was completed u/s. 143(3) wherein the AO allowed the claim for bad debts. Subsequently, AO initiated reassessment proceedings on ground that assessee did not obtain permission from RBI for writing off of foreign receivables as bad debts and, thus, such claim of bad debts could not be allowed. On writ allowing the petition the Court held that as regards foreign debts, assessee had explained that application for permission to write off bad debts was already made to RBI and AO had accepted assessee’s contention that upon application of RBI pending final approval, debts could be written off. Accordingly there was no failure on part of assessee to disclose all material facts at time of assessment, initiation of reassessment proceedings merely on basis of change of opinion was not justified. (AY. 2013-2014)

    Chamunda Pharma Machinery (P.) Ltd. v. ACIT (2019) 265 Taxman 83 (Mag (Guj)(HC)

  46. S. 147 : Reassessment – Reasons for issue of notice must be given – Objections must considered by passing speaking order – Reassessment is held to be not valid – Existence of alternative remedy would not bar issue of writ [S. 148, Art. 226]

    Allowing the petition the Court held that the reasons for re-opening the assessments had not been furnished to the assessee. The orders of reassessment had been passed without hearing the assessee and a consequent demand notice had also been issued. There had been a breach of the principles of natural justice and the procedure required to be adopted for passing assessment orders on reassessment and demand orders had not been followed. Therefore, an exceptional case had been made out for invoking power under Article 226 of the Constitution of India. Both the orders being unsustainable the assessment and demand orders were liable to be quashed. (AYs. 2012-13 to 2016-17)

    North Eastern Electric Power Corporation v. PCIT (2019) 416 ITR 425 (Meghalaya) (HC)

  47. S.147 : Reassessment – Notice –Order passed without disposing of objections raised by assessee – Reassessment Order is set aside to consider the objections.
    [S.148]

    Allowing the petition the Court held that, the AO passed a reassessment order under S. 147 of the Act, pursuant to the notice issued under S. 148 without disposing of the objections filed by the assessee against the reopening of the assessment. Accordingly the reassessment order was to be set aside. The AO was to consider the objections raised by the assessee to the reopening of the assessment under S. 147 and dispose of those objections by a reasoned order. (AY. 2011-12)

    Surendra Kumar Jain. v. CIT (2019) 416 ITR 340 (Delhi) (HC)

  48. S.147 : Reassessment –Amalgamation of companies – Change of previous year allowed by AO – Reassessment proceedings on ground that AO was not aware of amalgamation of companies – Held to be not valid [S.148]

    Court held that the documents produced by the Department made it clear that the Assessing Officer was in the know of the amalgamation proceedings. The request for change of previous year specifically indicated that the amalgamation process was on and that the companies expected the order of the High Court approving the scheme of amalgamation, shortly. In such circumstances, there was no warrant to assume that the assessment order was passed without knowledge of the amalgamation. The reassessment proceedings were not valid.
    (AYs. 1983-84 to 1985-86)

    CIT v. Harrisons Malayalam Ltd. (2019) 416 ITR 509 (Ker) (HC)

  49. S. 147 : Reassessment – Survey – Retraction – Notice based solely on statement recorded during survey – Held to be not valid.
    [S. 132 (4), 133A (iii), 148]

    Allowing the petition the Court held that the utility of a statement recorded in the course of survey is limited to the extent to which it is useful or relevant to any proceeding under the Act. A statement recorded in the course of survey can, at best, support a proceeding for reassessment. It cannot be the sole basis for reassessment. Accordingly, as the department had yielded no tangible incriminating material reassessment based solely upon the sworn statement recorded under section 133A from one of the partners which he had retracted later. The notice of reassessment was not valid. (AY. 2013-14 to 2015-16)

    A. Thangavel Nadir Stores v. ITO (2019) 417 ITR 50 (Mad) (HC)

  50. S. 147 : Reassessment – Failure to follow the procedure laid down in GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) and to pass a separate order to deal with the objections – Renders the assumption of jurisdiction by the Assessing Officer ultra vires.
    [S. 148]

    The AO without making any order disposing of the objections filed by the Appellants, proceeded to make an assessment order dated 26th March, 2004. Tribunal affirmed the order of the AO. High Court admitted the following substantial question of law. “Whether on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal ought to have held that since the respondent did not furnish to the appellant the reasons recorded for reopening of the assessment for the assessment year 1997-98 and did not comply with the mandatory preconditions laid down by the Hon’ble Supreme Court in GKN Driveshaft (India) Ltd. v. ITO (2003) 259 ITR page 19, the reassessment order was bad in law as being opposed to the principles of natural justice ?”

    Allowing the appeal the Court held that, it is mandatory for the AO to follow the procedure laid down in GKN Driveshafts (India Ltd. v. ITO (2003) 259 ITR 19 (SC) and to pass a separate order to deal with the objections. The disposal of the objections in the assessment order is not sufficient compliance with the procedure. The failure to follow the procedure renders the assumption of jurisdiction by the Assessing Officer ultra vires (Bayer Material Science (P) Ltd. v. Dy. CIT (2010)382 ITR 333 (Bom) (HC) & KSS Petron Pvt. Ltd. v. ACIT (Bom)(HC) (ITXA No. 224 of 2014 dt 20-03-2017 www.itatonline.org followed). (TA No. 63 of 2007, dt. 30-08-2019) (AY. 1997-98)

    Fomento Resorts & Hotels Ltd. v. ACIT (Bom)(HC)(Goa Bnech), www.itatonline.org

  51. S. 147 : Reassessment – Export business – No new material – Notice under direction of Commissioner – Reassessment is held to be not valid. [S80HHC, 148]

    The AO allowed the claim u/s. 80HHC after considering the submission of the assessee. Despite a strong reply to the audit objection, the AO upon requiring him to take “remedial action forthwith”, had issued notice dated February 17, 2000, i.e., on the very next day, under section 148 of the Act, seeking to reopen the assessment. Tribunal quashed the reassessment proceedings. On appeal by the revenue dismissing the appeal the Court held that the material on record indicated that there was no independent application of mind on the part of the Assessing Officer. The notice was not valid. Distinguished IPCA Laboratories Ltd. v. Dy. CIT (2001) 251 ITR 420 (Bom) (HC) (AY.1995-96)

    CIT v. Narcissus Investments P. Ltd. (2019) 417 ITR 512 (Bom)(HC)

  52. S. 147 : Reassessment – Change of opinion – Export receivables could be written off during the pendency of the application for approval from the Reserve Bank of India – Claim of bad debt was allowed after scrutiny – Reassessment is held to be not valid. [S. 36(1)(vii), 148]

    Allowing the petition the Court held that the notice of reassessment was based on the ground that the allowance for bad debt was erroneous. During the original assessment proceedings, the Assessing Officer had considered the claim of the assessee in detail. The assessee had submitted all the required details called for by the Assessing Officer in respect of the claim of bad debts written off including the bad debts written off pertaining to export receivables. The Assessing Officer had formed an opinion that the bad debts from export receivables could be written off during the pendency of the application for approval from the Reserve Bank of India and he could not have formed a different opinion that income had escaped assessment because the assessee did not have permission from the Reserve Bank of India to write off the bad debts from the export receivables. The notice was not valid. (AY. 2013-14)

    Chamunda Pharma Machinery Pvt. Ltd. v. ACIT (2019) 417 ITR 671 (Guj) (HC)

  53. S. 147 : Reassessment – Bogus purchases – Manufacture of diamonds – Information received from Director (Inv) – Statement of searched party – Not discharging the burden –Natural justice – No prayer was made by the assessee before the Assessing Officer to summon Pravin Jain for his cross-examination – Reassessment is held to be valid – On merit the Tribunal confirmed the addition of 15% of alleged bogus purchases. [S.10AA, 132(4), 148]

    Dismissing the appeal the Court held that the view taken by the Tribunal was based on the facts proved by the statement under section 132(4) of Pravin Jain, the party in respect of whom the search was conducted. The assessee despite being provided opportunity failed to prove the genuineness of the transactions and to produce the parties from whom such transactions were made with their books of account for verification. Indisputably, the Assessing Officer at the subsequent stage had relied upon the statement of Pravin Jain recorded under section 132(4) based on which he had called upon the assessee to prove the genuineness of the transactions. As regards the contention of the assessee that it was not provided opportunity to cross examine Pravin Jain the party who had given the statement, firstly, the Assessing Officer himself had required the assessee to produce the representative of the concerned parties along with their books of account and he had failed to produce them. Secondly, no such prayer was ever made by the assessee before the Assessing Officer to summon Pravin Jain for his cross-examination. No question of law arose. On merit the Tribunal confirmed the addition of 15% of alleged bogus purchases. (AY. 2007-08)

    Goenka Jewellers. v. CIT (2019) 417 ITR 686 (Raj)(HC)

    Editorial: SLP of assessee is dismissed Goenka Jewellers v. CIT (2019) 416 ITR 77 (St)

  54. S.147: Reassessment – Change of opinion – Information was furnished in the original assessment proceedings –Reopening of assessment on same issue amounts to change of opinion hence untenable – Amounts to Change of Opinion and untenable. [S. 148]

    Allowing the petition the Court held that the reopening of the assessment is nothing but a change of opinion. The then Assessing Officer, upon due consideration of all the necessary details and information furnished by the assessee had not made any addition in respect of the transaction of receipt of ₹ 6 crore or the repayment of that amount while he made the assessment under section 143(3). The action of reopening of the assessment merely based on change of opinion was untenable. The notice issued under section 148 was to be quashed and set aside. (AY. 2011-12)

    Rajendra Suganchand Shah. v. ACIT (2019) 417 ITR 583 (Guj) (HC)

  55. S. 148 : Reassessment – Notice issued to deceased person – Legal Representative of such person not waiving right to notice – Notice is held to be invalid. [S. 147, 292B]

    Allowing the petition the Court held that a notice under section 148 is a jurisdictional notice and existence of a valid notice under section 148 is a condition precedent for exercise of jurisdiction by the Assessing Officer to assess or reassess under section 147 of the Act. Notice issued to deceased person and when the legal Representative of such person not waiving right to notice. Notice is held to be invalid and consequently, the provisions of section 292B of the Act would not be attracted. (AY. 2012-13)

    Nanduben Ratilal Patel. v. DCIT (2019) 417 ITR 31 (Guj) (HC)

  56. S. 148 : Reassessment – The officer recording the reasons and the officer issuing notice has to be the same person – Any inherent defect therein cannot be cured – The fact that the assessee participated in the proceedings is irrelevant. [S.147, 148(2), 292B]

    Allowing the petition the Court held that the officer recording the reasons u/s. 148(2) for reopening the assessment & the officer issuing notice u/s 148(1) has to be the same person – If the reasons are recorded by the DCIT but the notice is issued by the ITO, the reassessment proceedings are invalid. The s. 148 notice is a jurisdictional notice. Any inherent defect therein cannot be cured u/s. 292B. The fact that the assessee participated in the proceedings is irrelevant. Accordingly the notice issued u/s. 148 and all proceedings pursuant thereto including the assessment order are quashed. (CA. No. 230 of 2019, dt. 09-04-2019) (AY. 2011-12))

    Pankajbhai Jaysukhlal Shah v. ACIT (Guj)(HC), www.itatonline.org

  57. S. 151 : Reassessment – Sanction for issue of notice – Sanction by CIT instead JCIT – Reassessment is held to be bad in law. [S.147, 151]

    Dismissing the appeal of the revenue the Court held that as the Act provides for sanction by the JCIT, the sanction by the CIT does not meet the requirement of the Act and the reopening notice is without jurisdiction. The fact that the sanction is granted by a superior officer is not relevant. Followed Ghanshyam K. Khabrani v. ACIT (2012) 346 ITR 443 (Bom) (HC) (ITA No. 1035 of 2017,
    dt. 11-05-2019) (AY. 2008-09)

    PCIT v. Khushbu Industries (Bom)(HC), www.itatonline.org

  58. S. 153C : Assessment – Income of any other person – Search prior to 1-6-2015 – S.153C as amended w.e.f. 1-6-2015 is not applicable – Limitation – Notice issued for the assessment years beyond six assessment years would be beyond jurisdiction –Writ is maintainable. [S.132, 153A, 153B Art. 226]

    Allowing the petition the Court held that the search was conducted in all the cases on a date prior to June 1, 2015. Therefore, on the date of the search, the Assessing Officer of the person in respect of whom the search was conducted could only have recorded satisfaction to the effect that the seized material or belonged to the other person. The hard disc containing the information relating to the assessees admittedly did not belong to them, therefore, as on the date of the search, the essential jurisdictional requirement to justify assumption of jurisdiction under section 153C in case of the assessees, did not exist. The notices under section 153C were not valid. As regards alternative remedy the Court held that the assessees had responded to the notices under section 153C of the Act and after receipt of the satisfaction notice, objected to the jurisdiction of the Assessing Officers in issuing such notices. The Assessing Officers, in majority of the cases had rejected the objections and it was at this stage that the assessees had approached the court challenging the notices. When the proceedings were claimed to be wholly without jurisdiction, the alternative remedy would not operate as a bar to a writ petition. The writ petition was maintainable. As regards the limitation the Court held that, section 153B provides for the limitation for completion of assessment and neither provides for nor imposes any restrictions or conditions on the period of limitation for preparation of the satisfaction note under section 153C of the Act and consequent issuance of notice to the other person. Admittedly, such satisfaction had not been recorded at the time of or along with the initiation of proceedings against the person in respect of whom the search was conducted under section 153A of the Act. Accordingly the relevant date for computation of the six assessment years in respect of which notice was required to be issued was the immediately preceding assessment year relevant to the previous year in which such search was conducted or requisition was made. If notices under section 153C of the Act had been issued for assessment years beyond these six assessment years they would be beyond jurisdiction. (AYs. 2008-09 to 2014-15)

    Anilkumar Gopikishan Agrawal v. CIT (2019) 418 ITR 25 (Guj) (HC)

  59. S. 153C : Assessment – Income of any other person – Search – Search took place prior to date of amendment – Burden is on department to prove seized documents belonged to assessee – Statement of searched party containing information relating to assessee – Documents are not belonging assessee – Wrongly assumed jurisdiction – No question of law. [S. 68, 132(4)]

    Dismissing the appeal of the revenue the Court held that the search and the issuance of notice under section 153C pertained to the period prior to June 1, 2015 and section 153C as it stood at the relevant time applied. The change brought about prospectively with effect from June 1, 2015 by the amended section 153C(1) did not apply. Therefore, the onus was on the Department to show that the incriminating material or documents recovered at the time of search belonged to the assessee. It was not enough for the Department to show that the documents either pertained to the assessee or contained information that related to the assessee. The Department had relied on three documents to justify the assumption of jurisdiction under section 153C against the assessee. Two of them, viz., the licence issued to the assessee by the Director, Town and Country Planning and the letter issued by him permitting the assessee to transfer such licence, had no relevance for the purposes of determining escapement of income of the assessee for the assessment year 2005-06. Consequently, even if those two documents could be said to have belonged to the assessee they were not documents on the basis of which jurisdiction could be assumed by the Assessing Officer under section 153C. The third document, the statement made by the searched party during the search and survey proceedings, was not a document that “belonged” to the assessee. While it contained information that “related” to the assessee, it could not be said to be a document that “belonged” to the assessee. Therefore, the jurisdictional requirement of section 153C as it stood at the relevant time, was not met. No question of law arose. (AY. 2005-06)

    CIT v. Dreamcity Buildwell P. Ltd. (2019) 417 ITR 617 (Delhi) (HC)

  60. S. 154 : Rectification of mistake – An order of rectification, on the basis of the law declared by the Supreme Court or the High Court is permissible – Non-resident – Shipping business – option to assessee – Interest can be levied.
    [S.172, 234B, 234C]

    The assessee was a non-resident shipping company, represented by its agent at that point of time, who filed an option under section 172(7) to be assessed regularly under the provisions of the Act, before the expiry of the assessment year. The order of assessment was passed levying interest under section 234A, but not levying interest under sections 234B and 234C. Thereafter, noticing Circular No. 9 of 2001 dated July 9, 2001, a rectification order was passed levying interest under sections 234B and 234C. The order of rectification was set aside by the Commissioner (Appeals) and this was confirmed by the Tribunal. On appeal the Court held that the rectification was made on the basis of a decision of the Supreme Court which was the declared law even when the original order which was rectified was passed. Circular No. 730 dated December 14, 1995 had lost its significance and validity, on the Supreme Court authoritatively speaking on the provision under section 172(7) and the effect of the option exercised, in A. S. Glittre D/5 I/S Garonne v. CIT (1997) 225 ITR 739 (SC). There was hence an error apparent on the face of the record. The order of rectification was valid. (AY. 1996-97)

    CIT v. Norasia Lines (Malta) Ltd. (2019) 416 ITR 271 (Ker)(HC)

  61. S. 179 : Private company – Liability of directors – There was nothing on record to suggest that tax dues could not be recovered from company and same could be attributed to any gross neglect, misfeasance or breach of duty on part of assessee in relation to affairs of company, impugned recovery proceedings deserved to be quashed

    Assessee was a director of the company. For relevant year, Assessing Officer completed assessment in case of said company giving rise to certain tax demand, During pendency of appellate proceedings, AO issued a notice to assessee under S. 179 seeking to recover tax dues of company. The Assessee raised a plea that there was nothing on record to suggest that tax dues could not be recovered from the company and same could be attributed to any gross neglect, misfeasance or breach of duty on part of assessee in relation to affairs of company. AO rejected the application of the assessee. On writ the Court held that in order to apply provisions of sub-section (1) of section 179, first requirement is that tax dues cannot be recovered from private company and even in such a case, it is open for concerned director to prove that such non-recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to affairs of company, since aforesaid requirements were not satisfied in assessee’s case, impugned order passed by AO was set aside. (AY. 2015-16)

    Vanraj V. Shah. v. DCIT (2019) 266 Taxman 137 (Bom) (HC)

  62. S. 220 : Collection and recovery – Assessee deemed in default – Stay – Rejection of stay application and directing to pay 20 per cent of demand, without application of mind is held to be bad in law. [Art. 226]

    Court held that rejection of stay application for stay on demand and directed assessee to pay 20 per cent of amount demanded by relying wholly on CBDT Instruction No. 1914 dated 2-2-1993, impugned order being passed without application of mind was to be set aside. Directed to pay only 10 per cent of demand. (AY. 2012-13)

    Zinzuwadia and Sons. v. DCIT (2019) 265 Taxman 261 (Guj) (HC)

  63. S. 220 : Collection and recovery – Assessee deemed in default – Pendency of appeal before CIT(A) – Stay of demand – The power of the AO to review the situation every six months, would not authorize him to lift the stay previously granted after full consideration and insist on full payment of tax without the assessee being responsible for delay in disposal of the appeal or any other such similar material change in circumstances. [S.220(6), 254(2A)]

    The AO stayed the recovery proceedings when the appeal was pending before the CIT( A) on payment of 15% of tax in disputes. Thereafter he lifted the stay granted earlier relying on the judgement of Supreme Court in Asian Resurfing of Road Agency v. CBI (AIR 2018 SC 2039) and directed to pay all pending demands within seven days. The petitioner approached PCIT. PCIT also rejected the application for stay. The petitioner fled writ petition challenging the order of PCIT & AO. While passing the ad interim order of stay the Court held that the Dept. is not right in relying upon the decision of the Supreme Court in Asian Resurfing of Road Agency Pvt Ltd v. CBI (AIR 2018 SC 2039) to contend that any stay against recovery granted would automatically lapse after six months. This is neither the purport of the judgment of the Supreme Court, nor the observations made in the said judgment in the context of civil and criminal litigation can be imported in present set of quasi judicial proceedings. The power of the AO to review the situation every six months, would not authorize him to lift the stay previously granted after full consideration and insist on full payment of tax without the assessee being responsible for delay in disposal of the appeal or any other such similar material change in circumstances. By way of ad interim relief, the impugned orders dated 22.1.2019 and 11-2-2019 are stayed. The respondents are prevented from carrying out any further recoveries pursuant to the order of assessment in respect of the petitioner for assessment year 2013-14. (WP No. 542 of 2019, dt. 28-02-2019) (AY. 2013-14)

    Editorial : It seems the department has accepted the order of High Court. Accordingly the final order was passed on 4-4-2019 which reads as under “Learned counsel for the petitioner stated that on instructions that the issues in the present petition have been resolved. He therefore does not press this petition. Disposed as not pressed. Interim relief, if any, stands vacated.”

    Oracle Financial Services Software Ltd. v. DCIT (Bom)(HC), www.itatonline.org

  64. S. 222 : Collection and recovery – Certificate to Tax Recovery Officer – Warrant of arrest – Issue of warrant of arrest without issuing show cause notice did not fulfil requirements prescribed under Rule 73(1) of Schedule II of Act – Held to be ultra vires and quashed. [Schedule II, rule 73(1)]

    The assessee filed petition to quash issue of warrant of arrest which was issued by TRO, Debts Recovery Tribunal. Without show cause notice being warrant of arrest was procedurally ultra vires. Allowing the petition the Court held that considering the the provisions of rule 73(1) of Second Schedule of the Act it is evident that no order for the arrest and detention in civil prison of a defaulter shall be made unless the Tax Recovery Officer has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause as to why he should not be committed to civil prison, unless the Tax Recovery Officer is satisfied for the reasons which are mentioned in clauses (a) and (b) of sub-rule (1) of rule 73 of Schedule II of the Act. In the instant case, the impunged notice does not fulfil the requirements prescribed under rule 73(1) of Schedule II of the Act, inasmuch as, no specific show-cause notice has been given to the assessee asking him to show cause as to why he should not be detained in civil prison. Accordingly order is procedurally ultra vires hence quashed and set aside.

    Lalith Kumar Ramani v. Recovery Officer (2019) 265 Taxman 305 (Karn)(HC)

  65. S. 226 : Collection and recovery – Modes of recovery – Joint savings account with husband- TRO cannot issue notice to bank for marking said bank account for lien towards arrears of tax liability of her husband, without issuing a notice to assessee.
    [S. 226(3)(iii), Art. 226]

    The petitioner was holding joint account with her husband. The TRO issued notice to the bank account of the petitioner for lien towards the arrears of tax liability of the husband of the petitioner. On writ the petitioner contended that no notice was served on the petitioner in terms of S. 226(3)(iii) of the Act. Allowing the petition the Court held that issue of notice under sub-section (3)(iii) of section 226 which is sine qua non for recovery of tax hence the notice was quashed. (AY. 1999-00 to 2006-07) (Single Judge Order dt. 18-07-2019)

    Beena Muralidhar (Mrs.) v. TRO (2019) 266 Taxman 219 (Karn) (HC)

  66. S. 244A : Refund – Interest on refunds – Claim was made first time before Tribunal – Claim was allowed in remand proceedings by CIT (A) – Refund order was not delayed for any period attributable to assessee, Tribunal is justified in allowing interest to assessee. [S. 244A(1)]

    Assessee had not claimed certain expenditure before Assessing Officer but eventually raised claim before Tribunal. In remand proceedings CIT(A) granted additional benefit claimed by assessee which resulted in refund. Tribunal held that delay could not be attributed to assessee and therefore, directed payment of interest. On appeal revenue contended that by virtue of section 244A(2), since delay in proceedings resulting in refund was attributable to assessee, assessee would not be entitled to such interest. The Court held that there was no allegation or material on record to suggest that any proceedings were delayed on accounts of reasons attributable to assessee. Accordingly the order of Tribunal is affirmed.

    CIT v. Melstar Information Technologies Ltd. (2019) 106 taxmann.com 142/ 265 Taxman 50 (Mag) (Bom)(HC)

  67. S. 245C : Settlement Commission – Settlement of cases – Conditions – Pendency of the assessment – An assessment would be pending till such time as the assessment order is served upon the assessee – Rejection of petition is held to be not valid. [S. 245A (b), 245(C) (1), 245D(1)]

    Writ petition has been filed against the order of the Settlement Commission rejecting an application for settlement filed by the petitioner primarily on the ground that no proceedings were pending on the day. Allowing the petition the Court held that for purposes of making an application for settlement, a case i.e. an assessment would be pending till such time as the assessment order is served upon the assessee. The assessee is entitled to proceed on the basis that till the service of the assessment order, the case continues to be pending with the AO. Therefore, it was open to him to invoke the provisions of Chapter XIXA of the Act (CIT v. ITSC (2015) 375 ITR 483 /58 taxmann.com 264 (Bom) (HC) & Yashovardhan Birla v. Dy. CIT (2016) 73 Taxmann.com 5 / 289 CTR 482 (Bom) (HC) followed, V.R.A. Cotton Mills (P) Ltd. v. UOI ( 2013) 359 ITR 495/33 taxmann.com 675 (P&H) (HC) & Shlibhadra Developers v. Secretary 2016 10 TMI 778 (Guj) (HC) distinguished). The application for settlement is restored to the file of the Commission at the stage of S. 245D(1) of the Act. The period of 14 days as provided in S. 245D(1) of the Act, will run from the date this order is first communicated by either of the parties to the Commission.” Consequently, order dated 14-02-2019 is set aside. Petition stands disposed of. (CWP No. 5307 of 2019 (O&M), dt. 22-10-2019)

    M3M India Holding Pvt. Ltd. v. ITSC (P &H) (HC), www.itatonline.org

  68. S. 250 : Appeal – Commissioner (Appeals) – Procedure – It is statutorily imperative to give a personal hearing while disposing of an appeal – Ex-parte order passed by CIT(A) confirming the addition is set aside. [Art. 226]

    CIT(A) confirmed assessment order however while disposing of its appeal, opportunity of personal hearing was not granted. On writ the Court held that it is statutorily imperative to give a personal hearing while disposing of an appeal. Since, in instant case notice of hearing sent to assessee had returned unserved, in interest of justice, it was appropriate to give another opportunity of personal hearing to assessee. Accordingly the matter remanded. (AYs. 2008-09, 2009-10)

    Gemini Film Circuit v. CIT (2019) 266 Taxman 216 (Mad) (HC)

  69. S. 252 : Appellate Tribunal – Members – Qualification – Appointment – Process of selecting only few applicants for purposes of interview, while rejecting others without any intelligible differential being applied in classification was not discriminatory and violative of article 14 of Constitution [Income-Tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963, R.4]

    Committee resolved to call for interview 24 most experienced applicants from profession i.e., practicing advocates and others (from list prepared in decreasing number of experience) belonging to unreserved category against 9 unreserved posts. Petitioner filed petition challenging selection process for post of Member of Tribunal on the ground that process of selecting only few applicants for purposes of interview, while rejecting others without any intelligible differential being applied in classification was discriminatory and violative of Article 14 of Constitution. Dismissing the petition the Court held that Rule 4A of 1963 Rules empowers Selection Board to evolve its own procedure and aforesaid rule is not subject matter of challenge before Court therefore, decision of Committee to shortlist candidates was reasonable and not arbitrary.

    Puneet Sharma. v. UOI (2019) 265 Taxman 311 (Delhi) (HC)

  70. S. 254(1) : Appellate Tribunal – Powers – Claim for deduction which is not made in return or revised return – Tribunal has power to allow deduction. [S. 139(1), 139(5)]

    Dismissing the appeal of the revenue the Court held that since the time to file the revised return had lapsed , for claiming that the incentive subsidies be treated as capital receipts instead of revenue receipts as claimed in the return following the decision in CIT v. Britannia Industries Ltd. (2007) 386 ITR 677 (Cal), Tribunal is justified in allowing the claim though no revised return under S. 139(5) was filed before the AO. (AY. 2010-11)

    CIT v. Ankit Metal and Power Ltd. (2019) 416 ITR 591 (Cal) (HC)

  71. S. 254(1) : Appellate Tribunal –Duties – The Tribunal should not make general observations that there are “contrary decisions” – Tribunal to be specific about the decisions and make a mention of the citation in the order and not make general observations.

    Court held that the Tribunal should not make general observations. This statement led us to direct counsel to examine the law and bring to our attention any decision contrary to the view taken by the Supreme Court in Mahalaxmi Sugar Mills 123 ITR 429 etc. We are now informed by Counsel that there are no contrary decisions. All this effort and time would have been saved if the Tribunal had made specific reference to contrary decisions or not stated so in the absence of referring to the citations. We request the Tribunal to be specific about the decisions and make a mention of the citation in the order and not make general observations. (ITA No. 809 of 2017, dt. 27.08.2019) (AY. 2007-08)

    PCIT v. M. J. Export Pvt. Ltd. (Bom)(HC), www.itatonline.org

  72. S. 254(1) : Appellate Tribunal – Duties – When any concession is made by the Authorised representatives on behalf of the assessee the Tribunal should take an affidavit from assessee and counsel on behalf of assessee or at least a written endorsement made on record of case duly signed by them – Court also stated that the order to be circulated to all the members of the ITAT and also new members to be appointed.

    Court held that when any concession is made by the authorised representatives on behalf of the assessee the Tribunal should take an affidavit from assessee and counsel on behalf of assessee or at least a written endorsement made on record of case duly signed by them. Copy of the order is sent to the President ITAT for circulation to all the Benches and also directed Secretary the Ministry of Law and Justice to bring to the notice of all the new members to be appointed. Copy (AY. 2006-07)

    Ramesh, V. v. ACIT (2019) 177 DTR 105/ 104 taxmann.com 292 (Mad.)(HC)

    Ramu, S. v. ACIT (2019) 177 DTR 105 (Mad.)(HC)

  73. S. 254(2): Appellate Tribunal – Rectification of mistake apparent from the record – Substantial justice – High Court has the power to condone the delay in filing of miscellaneous petition – Matter remanded to Tribunal to decide on merit. [S.254(1), 271(1)(c) Art. 226]

    The assessee filed the miscellaneous petition mainly on the ground that the assessee was under the impression that the appeal was partly allowed by the Appellate Tribunal; the assessee did not realise that substantial relief was not granted by the Tribunal and only a consequential order was passed following the order of the respondent. The assessee had realised that he was entitled to substantial relief in view of the dictum of the court in the case of CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Karn) (HC)) to the effect that the notice under section 274 should specifically state the grounds mentioned in section 271(1)(c) , i.e., whether it was for the concealment of income or furnishing of inaccurate particulars of income and mere notice sent in a printed form without mentioning the grounds would not satisfy the requirement of law. The assessee’s case fell under the exceptional category for exercising power under Articles 226 and 227 of the Constitution of India to interfere with the order passed by the Tribunal dismissing the miscellaneous petition only on the ground of delay. The delay had to be condoned.
    (AY. 2007-08)

    Muninaga Reddy. v. ACIT (2019) 417 ITR 699 (Karn)(HC)

  74. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Grounds raised and not given up remains undecided – Tribunal to either adjudicate on or to direct the AO to consider the additional evidence – Judgment of the Tribunal gives rise to an error on the face of the record, which is rectifiable. [S.254(1)]

    Where the assessee’s application for additional evidence was admitted by the Tribunal, it was duty bound to either adjudicate on the basis of such additional evidence itself or direct the AO to consider the additions on the basis of such additional evidence. Not following either of these two routes amounts to a mistake apparent from record. Order of the Tribunal set aside. (AY. 2012-13)

    Rolls Royce Marine India (P) Ltd. v. ITAT (2019) 178 DTR 358/ 107 taxmann.com 26 (Bom.)(HC)

  75. S. 254(2) : Appellate Tribunal –Rectification of mistake apparent from the record – Duties – Dismissal of the appeal for non-prosecution has resulted in failure of justice – Order requires to be rectified – Delay of 497 days in filing the miscellaneous application was condoned, though the Tribunal has no power to condone the delay beyond six months – Cost of  5,000 is imposed on the assessee. [S. 254(1) Art. 226, 227]

    Allowing the petition The Court held, dismissal of the appeal for non prosecution has resulted in failure of justice accordingly the order requires to be rectified. Court condoned the delay of 497 days in filing the miscellaneous application, though the Tribunal has no power to condone the delay beyond six months. Cost of ₹ 5,000 is imposed on the assessee. Order of Tribunal is set aside and restored to the file of the Tribunal. Followed Practice Strategic Communications India (P) Ltd v. CST ILR 2016 Kar 4493. (AY. 2011-12)

    Karuturi Global Ltd v. Dy. CIT (2019) 310 CTR 146/ 181 DTR 14 (Karn) (HC)

  76. S. 254(2A): Appellate Tribunal – Stay – Power – Tribunal has the power to modify the stay order – Dismissal of stay application is held to be not justified on the ground that the Tribunal has no power to modify the stay order as the order is not passed u/s 254(1) – On facts only a part of interest amount has still remain unpaid. Rejection of application is held to be not justified. [S.254(1), 254(2)]

    Assessee filed an application for stay of demand. The Tribunal directed the assessee to pay ₹ 7 crore per month. The assessee filed the petition to modify the order of stay and early hearing of appeal. The Tribunal dismissed the petition on the ground that there was no error pointed out in the order of the Tribunal and the stay order is not being passed under S.254(1) of the Act, the petition for modification/rectification u/s 254(2) would not lie. After referring the judgement in ITO v. M. K. Mohammed Kunhi (1969) 71 ITR 815 (SC) the Court held that the Tribunal has the power to consider the relief sought by the assessee. However considering subsequent events in view of fact that demand of tax and interest was substantial and, assessee had complied with direction issued by Tribunal in respect of payment of tax, stay application could not be dismissed merely on ground that a part of interest amount still remained unpaid. (AYs. 2008 -09 to 2014-15 )

    Royal Sundaram General Insurance Co. Ltd. v. DCIT (2019) 266 Taxman 298 (Mad) (HC)

  77. S. 254(2A) : Appellate Tribunal – Stay – In cases where there is stay of recovery of demand of tax, the Tribunal should deal with the appeals pending before it on a higher priority. The Tribunal should consider forming a separate list of such cases which should be heard on priority after arranging the cases on the basis of their seniority as well as the quantum involved in the stay. [S.254(1)]

    Court held that, in cases where there is stay of recovery of demand of tax, the Tribunal should deal with the appeals pending before it on a higher priority. The Tribunal should consider forming a separate list of such cases which should be heard on priority after arranging the cases on the basis of their seniority as well as the quantum involved in the stay. (ITA 916/2019, dt. 21-10-2019)

    PCIT v. Nokia Solutions & Networks India Pvt. Ltd. (Delhi)(HC), www.itatonline.org

  78. S. 260A : Appeal – High Court – Pendency of petition for rectification before Tribunal is not relevant to decide the maintainable of appeal before High Court. [S.254(2)]

    Court held that while deciding the appeal under S. 260A of the Act wherein, the Court on being prima facie satisfied that there were substantial questions of law to be decided, had admitted the appeal, by order dated December 21, 2018. In such circumstances, the pendency of a petition for rectification under section 254(2) could have no impact on the appeal. The appeal was maintainable. (AY. 2010-11)

    Daimler India Commercial Vehicles P. Ltd. v. DCIT (2019) 416 ITR 343 (Mad)(HC)

  79. S. 260A : Appeal – High Court – Open remand – Remanding matter to AO without recording any finding – No question of law. [S.35D, 254(1)]

    Dismissing the appeal of the revenue the Court held that no finding had been arrived at by the Tribunal and it was only an “open remand”. No prejudice was caused in any manner and it was possible for the Department to raise the relevant contentions and question of law before the Assessing Officer even with reference to section 35D. That apart insofar as no finding had been rendered by the Tribunal as to the applicability of section 35D the appeal did not involve any “substantial question of law” so as to call for interference of the court in exercise of power under section 260A. (AY. 1994-95)

    CIT v. Apollo Tyres Ltd. (No. 1) (2019) 416 ITR 519 (Ker) (HC)

  80. S. 260A : Appeal – High Court – Jurisdiction – Bombay High Court does not have jurisdiction to entertain appeals in respect of order passed by the Bangalore Bench of the Tribunal, notwithstanding the fact that an order was passed under S.127 transferring the assessee’s case from AO at Bangalore to AO at Pune. [S. 116, 124, 127]

    High Court held that, since Tribunals and High Courts are not listed under S.116 of the Act, Sections 124 and 127 will have no bearing in deciding the jurisdiction of the High Courts which will have jurisdiction over the orders of Tribunal. Jurisdiction of the Court to which the appeal would lie under the Act would be decided by the seat of the Tribunal (i.e., in which State it is), hence Bombay High Court does not have jurisdiction to entertain appeals under S. 260A in respect of order passed by the Bangalore Bench of the Tribunal, notwithstanding the fact that an order was passed under S.127 transferring the assessee’s case from AO at Bangalore to AO at Pune (ITA No. 1142 of 2016 dt. 26-02-2019) (AY. 2008-09)

    PCIT v. Sungard Solutions (I) (P) Ltd. (2019) 308 CTR 22 / 176 DTR 57 (Bom)(HC)

  81. S. 264 : Commissioner – Revision of other orders – Revision petition seeking rectification of return accepted by department in respect of which intimation is sent under section 143(1) is maintainable –DTAA – India Spain [S. 9(1)(i), 143(1), 154 Art. 12, 13]

    The petitioner earned service fees for providing management related services to a foreign company EIPL and submitted that income being in the nature of Fees For Technical Services (FTS) was taxable at rate of 20 per cent under Article 13 of the DTAA between India and Spain. The Assessing Officer by an intimation under section 143(1) processed the return of income. Thereafter, the assessee it realised that while referring to article 13 of the DTAA it had failed to refer to clause 7 of the Protocol appended to the DTAA in terms of which if a further concessional rate of tax was charged in terms of the agreement between India and another member of the OECD, by India after 1-1-1990, wherein India limits its taxation at source on FTS to a rate lower than that provided in Article 13 of the DTAA, then the said rate shall apply under the DTAA to the petitioner as well. Consequently, the petitioner filed the revision petition under section 264 before the Commissioner seeking to revise the order under section 143(1) claiming it to be prejudicial to the petitioner’s interest. The Commissioner (IT) held that no amount was payable by the assessee in terms of the intimation under section 143(1) and, therefore, no prejudice was caused to the assessee in terms thereof and that if the assessee was of the view that its income was chargeable to tax at 10 per cent ‘it should have mentioned the same in its return of income or should have subsequently filed revised return’. It was held that section 264 cannot be invoked to rectify the assessee’s mistake, if any.

    It was contended that for the purposes of section 264, a revision petition seeking rectification of the return accepted by the department in respect of which intimation is sent under section 143(1) is maintainable. Court held that the intimation under section 143(1) was prejudicial to the interest of the assessee. It must be noted here that although the tax calculated as payable in the return filed and accepted by the department by sending intimation under section 143(1) is nil, it cannot be said that no prejudice is caused to the assessee. The assessee has voluntarily paid tax at the rate of 20 per cent in terms of the Indo-Spain DTAA as tax on FTS and, therefore, there was no further tax to be paid at the time of filing of the return. However, it is not even denied by the department that the assessee committed a mistake and should have paid tax at 10 per cent, even though, this extra 10 per cent paid by the assessee was of its own volition, it was indeed prejudicial to the assessee. Consequently, all the ingredients of section 264 stand attracted. Accordingly, a revision petition under section 264 by the assessee before the Commissioner against the intimation under section 143(1) is maintainable. (AY. 2014-15)

    EPCOS Electronic Components S.A v. UOI (2019) 266 Taxman 23 (Delhi) (HC)

  82. S. 271(1)(c) : Penalty – Concealment – Recording of satisfaction – In applicable portions are not struck off – Levy of penalty is held to be not valid

    Dismissing the appeal of the revenue the Court held that Levy of penalty u/s. 271(1)(c) is not valid if (i) there is no record of satisfaction by the AO that there was any concealment of income or that any inaccurate particulars were furnished by the assessee or (ii) If the notice is issued in the printed form and the inapplicable portions are not struck off. Followed, CIT v. Samson Perinchery (2017) 392 ITR 4 (Bom)(HC) & PCIT v. New Era Sova Mine (ITA No. 70 of 2018 dt 18-06-2019)[2019 SCC OnLine Bom 1032(Bom) (HC)]. Distinguished, Mak Data v. CIT (2013) 358 ITR 593 (SC) (TA No. 24 of 2019, dt. 11-11-2019)

    PCIT v. Goa Coastal Resosts & Recreation Pvt. Ltd.(Bom)(HC), www.itatonline.org

  83. S. 271(1)(c) : Penalty – Concealment – Legal representative – After initiation of penalty proceedings death of the assessee – Penalty proceedings cannot be continued against his legal representatives. [S.159]

    Dismissing the appeal of the Revenue the Court held that, since the provisions of section 271(1)(c) of the Income-tax Act, 1961 depend upon the guilty animus or mens rea on the part of the assessee, the legal representative cannot be held liable to defend those penalty proceedings or be held guilty of any mens rea. Therefore, unless the penalty proceedings are concluded against a living assessee, the legal heirs cannot be held liable to face those proceedings or pay any sum determined as penalty payable under section 271(1)(c).

    CIT v. S. Gowri ( Smt ) (2019) 417 ITR 45 (Mad) (HC)

    Editorial: SLP of revenue is dismissed CIT v. S. Gowri (Smt) (2019) 417 ITR 45 (SC)

  84. S. 271B : Penalty – Failure to get accounts audited – Audit report was available with AO on date of completion of assessment – Reasonable cause – Penalty not warranted. [S.273B]

    Allowing the appeal the Court held that the explanation offered by the assessee could be taken as reasonable cause for his failure to file the audit report within time. The reasons assigned by the assessee for the delay in filing the audit report were not found to be false or with any mala fide intention. It was a technical breach. The audit report was very much available with the Assessing Officer on March 29, 2015, the date of completion of the assessment under section 143(3). This was not a fit case for imposing penalty under section 271B. (AY. 2012-13)

    P. Senthil Kumar v. CIT (2019) 416 ITR 336 (Mad) (HC)

  85. S. 271D : Penalty – Takes or accepts any loan or deposit – Otherwise than by account payee cheque or account payee bank draft – Journal entries – Transaction bona fide – Not liable penalty. [S.269SS, 269 T]

    Dismissing the appeal of the revenue the Court held that even though liability recorded in books of account by way of journal entries i.e. crediting amount of party to whom monies payable and debiting account of a party from whom monies were receivable in books of account was in contravention of provisions of section 269T, yet in that case penalty was not leviable for reason that transaction was bona fide and was not to evade taxes.

    PCIT v. Shakti Foundation. (2019) 107 taxmann.com 459/ 265Taxman 243 ( Raj) (HC)

    Editorial: SLP is granted to the revenue , PCIT v. Shakti Foundation (2019) 265 Taxman 242 (SC)

  86. S. 275: Penalty – Concealment – Limitation – Appeal effect order having been passed by AO on 22nd May, 2001 – The six month period of limitation will begin to run from that date – Penalty order passed by AO on 26th April, 2018, passed beyond six months, was barred by limitation. [S.271(1)(c), 275 (1)(a)]

    Allowing the Writ, the High Court held that the appeal effect order having been passed by AO on 22nd May, 2017, the six-month period of limitation under S. 275(1)(a) of the Act will begin to run from that date (not from the date of 31st Oct., 2017 as claimed to have been received by ITO, Judicial-II), hence penalty order passed by AO on 26th April, 2018, passed beyond six months, was barred by limitation under
    S. 275(1)(a). (AYs. 2002-03 to 2006-07)

    GE Energy Parts Inc. v. DCIT (2019) 310 CTR 729 / 181 DTR 337 (Delhi) (HC)

  87. S. 277 : Offences and prosecutions – False statement – Verification – Search – Additions made in block assessment based on discrepancy in stocks – Prosecution is not valid. [S. 132, 136, 158BC, 276C (1), 278B, CRPC, 1973, S. 482,
    IPC 193]

    The assessee had filed returns for the assessment years 1993-94, 1994-95, 1995-96 and 1996-97 which were accepted. There was a search action in December, 1995. Proceedings were initiated under S. 158BC. Additions were made on the basis of excess stock discovered. Complaints were filed under S. 276C(1) and 277 read with
    S. 278B. On a writ the Court held that the order of block assessment referred to difference in stock found during the course of search. The assessee had an explanation for it which was rejected. On the facts of this case, it could not be said that with mala fide intention and to evade tax, stock in the stock book was not shown by the assessee. Accordingly the criminal complaint was quashed. (AY. 1993-94 to 1996-97)

    N. R. Agarwal Industries Ltd. v. JCIT (2019) 416 ITR 578/ 306 CTR 153 (Guj) (HC)

  88. S. 279 : Offences and prosecutions – Sanction – Chief Commissioner – Wilful attempt to evade tax – Non-technical offence – False statement in verification – Reduction of penalty by CIT (A) – Prosecution cannot proceed – Compounding of offences – Application for compounding to be considered by committee specified in circular – DGIT has no jurisdiction to reject the application. [S. 119, 120, 276C(1), 273B, 277, 279(IA), 279(2) Art. 141]

    The assessee was alleged to have concealed the declaration of endowment in a foreign country in his return of income filed for the assessment year 2002-03 and thereby wilfully attempted to evade tax, penalty and interest and prosecution was launched against him for offences under sections 276C(1) and 277. The assessee filed an application for compounding of the offences. Meanwhile the penalty imposed on him was reduced by the Commissioner (Appeals) and this was confirmed by the Tribunal. The application for compounding was rejected by the Director General of Income-tax. On a writ petition to quash the order the Court held that even if the Director General of Income-tax was of the view that the application was required to be rejected in the preliminary stage itself, there was a duty cast on him to forward such a compounding application to the committee, who was vested with the jurisdiction to handle the application and not assume such powers on himself. Likewise, when one among the two offences, namely, section 276C(1) had been classified as a non-technical offence, for the compounding of which powers were vested with the committee, the Director General of Income-tax would have no powers to go into the merits of the compounding application. The Director General of Income-tax had exceeded his jurisdiction in taking up the assessee’s compounding application. Just because the order reducing the penalty had been put under challenge in appeals, it could not be said that the order reducing the penalty itself had been kept under abeyance. In this background, it could only be said that the assessee would be entitled to the benefit of section 279(1A) of the Act and the mere challenge to the order reducing the penalty may not suffice to deny such a benefit. The rejection of the application for compounding was not justified. (Followed Prem Dass v. ITO (1999) 236 ITR 683 (SC)/(1999) 5 SCC 241 (Order of single Judge dt. 28-8-2019) (AY. 2002-03)

    K. M. Mammen v. DIT (2019) 418 ITR 157 (Mad) (HC)

    Wealth-tax Act, 1957

  89. S. 2(ea)(v): Urban Land – Appeal – Maintainability – Low tax effect – Question of law has now been settled by the Supreme Court – Repeated instances of such question of law arising does not arise at all, since the WT Act is no more in force – In such circumstances though the question of law has to be answered in favour of the Revenue, there need be no recovery steps taken for reason of the appeals being below the monetary limits. [S.260A, 268A]

    On appeal and considering the Department’s contentions, (a) that even though the monetary limits of appeals may be less, the tax authorities have the discretion to file appeals, ignoring the tax effect, if there is a substantial question of law which is repeatedly arising and (b) issue is already settled in favour of Revenue by Supreme Court’s decision, Giridhar G. Yadalam v. CWT (2016) 384 ITR 52 (SC), it was held that by High Court that:

    1) In all the assessment years question of law has now been settled by the Supreme Court hence repeated instances of such question of law arising does not arise at all, also because of the fact that WT Act is no more in force.

    2) Though the question of law has to be answered in favour of the Revenue (following binding precedent of SC), there need be no recovery steps taken for reason of the appeals being below the monetary limit at the time of filing of the appeals itself and in such circumstances present appeal is not therefore maintainable. (WT Nos. 105, 107, 138, 143, 164, 167, 183 of 2009 dt. 15-2-2019).

    CWT v. Meera Jacob (Smt) (Decd.) (2019) 180 DTR 94 (Ker)(HC)

  90. S. 18(1)(c) : Penalty – Concealment – In the absence of any proof to show that there was an attempt on the part of the assessee to conceal the particulars or to furnish inaccurate particulars, the levy of penalty was not justified by invoking the deeming provision of Expln. 3 to S. 18(1)

    Dismissing the appeal of the High Court that in the absence of any specific finding of the AO or the CIT(A) that no reasonable cause has been shown by the assessee for not filing voluntary return, levy of penalty under S. 18(1)(c) was not justified by invoking the deeming provision of Expln. 3 to S. 18(1). Order in Shanti Ramanand Sagar v. CIT (2017) 88 Taxmann.com 72 (Bom) (HC) is distinguished. (AY. 1997-98, 1998-99)

    CIT v. Rajwanti Properties (P) Ltd (2019) 310 CTR 113 / 181 DTR 1 (Mad)(HC)

Comments are closed.