1. S. 2(22)(e) : Deemed dividend – Deeming provision should be construed strictly – Advances given for purely temporary financial accommodation for business purposes does not attract the deeming fiction.

Allowing the appeal of the assessee, the Tribunal held that the section uses the expression “by way of advances or loans” which shows that all payments received from the sister company cannot be treated as deemed dividend but only payments which bear the characteristics of loans and advances. Under the law, all loans and advances are debts, but all debts are not loans and advances. The term ‘loans and advances’ is not defined & has to be understood in the commercial sense. Advances given for purely temporary financial accommodation for business purposes does not attract the deeming fiction. (ITA.No.5188/Del./2019 dt.24-06-2020) (AY. 2013-14)

Exotica Housing & Infrastructure Company Pvt. Ltd. v. ITO (Delhi) (Trib) www.itatonline.org

  1. S. 10(38) : Long term capital gains from equities – Penny stocks – Produced contract notes, demat statements etc. & discharged the onus of proving that the shares were bought and sold – Merely relying upon the statement of investigation wing, the transaction cannot be treated as bogus – Denial of exemption is held to be not valid – Reassessment is held to be valid. [S. 45, 68, 147, 148]

    Allowing the appeal of the assessee the Tribunal held that, the assessee has produced contract notes, demat statements etc. & discharged the onus of proving that he bought & sold the shares. The AO has only relied upon the report of the investigation wing alleging the transaction to be bogus. He ought to have examined a number of issues such as online trading, statement of the parties were not provided, shares of the company are still traded in the stock exchange etc. The AO has simply relied upon the report of the investigation wing. The capital gains are genuine and exempt from tax, however the reassessment is held to be valid. (ITA No. 8703/Del/2019 dt. 29-06-2020) (AY. 2011-12)

    Suresh Kumar Agarwal v. ACIT (2020) 117 taxmann.com 678 (Delhi)(Trib) www.itatonline.org

  2. S. 15 : Salaries – Director Of Company – Assessable on accrual basis and not on receipt basis – Even if higher salary proposed by employer Not approved By Central Government – AO to examine factually if what is claimed by employer as deduction has been offered to tax by Director.

    On appeal, the Tribunal held that, any salary due from an employer or a former employer to an assessee is taxable on accrual basis whether the salary is paid or not. Though a higher amount of salary was approved by the Company, the salary was not paid to the director as the necessary approval from the Central Government was not received. Hence, no such excess salary can be subject to tax merely because a higher amount was paid in the earlier years as that did not lead to the presumption that the same amount should have been paid in the succeeding year also. If the company had claimed salary of ₹ 2,10,00,004 only as deduction, there was no reason to tax any amount in excess of such amount. However, this factual aspect required verification by the Assessing Officer. Accordingly, for the limited purposes of verification of the aspect, the issue was restored to the Assessing Officer. (AY.2011-12)

    DCIT v. Villoo Zareer Morawala Patel (Smt.) (2020) 78 ITR 17 (SN.) (Bang.)(Trib)

  3. S. 28(i) Business Income – Benefit or amenity arising from business – Remission or cessation of trading liability – Assessee introducing gold left behind by his father into his business and showing trade liability in his name and in name of other family as a whole or individual legal heir – AO accepting purchase of gold and approving trading results – Not a case of Assessee introducing unaccounted or unexplained money into capital or of a trade liability ceasing to exist. [S.41(1)]

    On appeal, the Tribunal held that the assessee introduced the gold left behind by his father into his business and showed the trade liability in his own name and / or in the name of other family members as a whole or individual legal heir. Such an act could not be termed either as introduction of unaccounted or unexplained money into the capital nor could the trade liability be said to have ceased to exist. Further, unless the benefit accrued to the assessee is in nature of cash or money, S. 28(i) of the Act had no application and in the absence of cessation of liability, S. 41(1) had no application. Thus the addition under S. 28(i) of the Act read with Section 41 of the Act could not be sustained. (AY. 2012-13)

    Deepak Garg v. ITO (2020) 78 ITR 40 (SN) (Delhi)(Trib)

  4. S. 37(1) : Business expenditure – Expenses prohibited by law – Grants – Assessee receiving grants on annual basis and grants used in accordance with directions of Government – AO allowing salary expenses in preceding year – AO should not have taken a different stand in current year – Salary paid to all old employees who worked for Assessee and expenses genuine – Expenses wholly and exclusively for purpose of business, hence expenses are deductible.

    On appeal, the Tribunal held that, the assessee received grants from the Ministry of Science and Technology. The grants were to be used in accordance with the directions issued by the Ministry. In the preceding AY, the Assessing Officer had accepted Assessee’s claim without any objection. Hence, when the same policy had been followed by the assessee and accepted by the Assessing Officer, he should not have taken a different stand in the year under review. Further, the assessee had made it very clear that salary was paid to all old employees who had worked for the assessee and the expenses were genuine. Tax had been deducted on the salary and paid to the Government. All the employees had worked for the assessee. No case was made out by the Assessing Officer that making salary payment was an offence or something prohibited by law. Therefore, Explanation 1 to S. 37 of the Act, would not be attracted in the present case. (AY. 2011-12, 2012-13)

    Addl CIT v. National Research Development Corporation (2020) 78 ITR 56 (SN)(Delhi)(Trib)

  5. S. 40(a)(ia) : Amounts not deductible – Deduction at source – The amendment to S. 40(a)(ia) by the Finance (No.2) Act, 2015 w.e.f. 01.04.2015, which restricts the disallowance for failure to deduct TDS to 30% of the expenditure instead of 100%, is curative in nature and should be applied retrospectively [S. 194H]

    The assessee is an individual who is engaged in the business of trading in fabric and job work. The AO disallowed the commission, incentives paid to employees and other for failure to deduct tax at source. Order of the AO is affirmed by the CIT(A). On appeal the Tribunal held that The amendment to s. 40(a)(ia) by the Finance (No.2) Act, 2015 w.e.f. 01.04.2015, which restricts the disallowance for failure to deduct TDS to 30% of the expenditure instead of 100%, is curative in nature and should be applied retrospectively. (ITA No. 114 /Del/2019 dt. 18-06-2020) (AY. 2014-15)

    Muradul Haque v. ITO www.itatonline.org (Delhi)(Trib.)

  6. S. 45(3) : Capital gains – Transfer of capital asset to firm – Transfer of capital asset by Partner to Firm as capital contribution – Amount recorded in books of account of Firm deemed to be full value of consideration – One deeming provision cannot be extended by importing another deeming provision [S. 48, 50C]

    On appeal, the Tribunal held that S. 45(3) of the Act comes into operation only in special cases of transfer between a partnership and its partners and in such circumstances, the amount recorded in the books of account of the firm shall be taken as full value of consideration, since the Act provides for deeming consideration to be adopted for the purpose of S. 48 i.e. S. 45(3). Accordingly in case of transfer from partner to partnership firm), another deeming fiction provided by way of S. 50C of the Act cannot be extended to compute the deemed full value of consideration. (AY. 2010-11, 2014-15)

    ACIT v. Amartara P. Ltd. (2020) 78 ITR 46 (SN)(Mum.)(Trib)

  7. S. 56 : Income from other sources – Consideration for issue of shares – Excess of the face value of shares – Market value – Method of valuation – The Assessee has the choice to choose a prescribed method for ascertaining the market value of the shares transferred – If the assessee has chosen one method of valuation provided under Rule 11UA (i.e. DCF method), the AO has no power or jurisdiction to change that method to another method – Addition is deleted. [S. 56(2)(viib), R. 11UA]

    The CIT(A) has upheld that order of the AO wherein the AO held that the share premium received from the shareholders on issue of equity shares and preference shares as income for the year under consideration is taxable u/s. 56(2)(viib) of the Income-tax Act. The issue before the Appellate Tribunal was whether the the premium of ₹ 3,96,54,531/- received from shareholders via-a-vis issue of equity shares and preference shares as income u/s. 56(2)(viib) of the Income-tax Act, 1961. Allowing the appeal of the assessee the Tribunal held that, the assessee has the choice to choose a prescribed method for ascertaining the market value of the shares transferred. If the assessee has chosen one method of valuation provided under Rule 11UA (i.e. DCF method), the AO has no power or jurisdiction to change that method to another method. Addition is deleted. (ITA No.3955/Mum/2018 dt.28-07-2020) (AY. 2014-15)

    Karmic Labs Pvt. Ltd v. ITO www.itatonline.org (Mum.)(Trib)

  8. S. 68 : Cash credits – Unsecured loans – Lenders either directors or relatives of directors of Assessee – Assessee furnishing PAN, bank statements, confirmations and copies of income-tax returns of lenders – None of lenders were entry providers – No cash deposited in lenders’ account prior to issuing cheques – Assessee not purchasing cheque by paying cash – Addition unsustainable.

    On appeal, the Tribunal held that, all the lenders were either directors or relatives of the directors. The assessee had furnished PANs, bank statements, confirmations and copies of income-tax returns of the lenders. None of the lenders was alleged to be an entry provider. They have given loans to the assessee out of their available balances and it was not the case of the Department that prior to issuing cheques, there was a deposit of cash in the lender’s bank account. Therefore, the assessee had not purchased cheques by paying cash and hence no addition can be made under S. 68 of the Act. (AY. 2011-12)

    R. G. Consultants P. Ltd. v. DCIT (2020) 78 ITR 37 (SN)(Delhi) (Trib)

  9. S. 68: Cash credits – Survey –Demonetization – Purchase of gold from sale proceeds – Sales cannot be assessed as undisclosed income – Only profit thereon could be taxed as income – Entire sales cannot be assessed as undisclosed income – Provision of section 115BBE is cannot be made retrospectively – For the assessment year 2017-18 only net profit was directed to be taxed. [S. 115BBE, 132, 133A]

    The assessee is an individual carrying on business of trading. In the course of search and survey the amount was surrendered and the taxes were paid. The Assessee suffered the loss in the undisclosed business and set off the same against the undisclosed income. The AO disallowed the loss. On appeal the CIT(A) confirmed the order of the AO and assessed the income u/s. 115E of the Act. On appeal the Tribunal held that the present appeal is against the order of Ld. CIT(A) filed by department as well as by the assessee. Amended provisions are applicable from 01-04-2017 only and cannot be applied retrospectively. As regards the addition the deletion of addition made by the CIT(A) was affirmed. Tribunal also held that It is evident from entries found in cash book and from statement recorded from assessee in course of survey that assessee purchased gold in period of demonetization which was obviously for sale to persons on receiving cash from them as the same is normal practice of gold trade. The gold purchased in period of demonetization was towards agreed sale to persons on receiving amount therefor from those persons. Thus the source of payment for purchase of gold is out of amount received from its sales and so it is to be treated as properly explained. It is only profit on sale of said purchased gold which is income of assessee which was undisclosed income of assessee and the same could only be subjected to tax. It is settled law that in case of unaccounted sales only profit therefrom could only be taxed as income of assessee As regards undisclosed income only profit can be taxed the Tribunal relied on following case laws Dr. T. A. Quereshi v. CIT (2006) 287 ITR 547 (SC), CIT v. Piara Singh (1980) 124 ITR 40 (SC), CIT v. S. C. Kothari (1971) 82 ITR 794 (SC) (AY. 2015 to 2017-18) (ITA No. 1256, 1257 & 1258/JP/2019 dt. 15-9-2020)

    Shri Nawal Kishore Soni v. ACIT (Jaipur)(Trib) www.itatonline.org

  10. S. 68 : Cash credits – Capital gains – Penny stocks – Transactions were genuine and duly supported by various documentary evidences – Opportunity of cross examination was not provided – The AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition – Addition as cash credit and addition of 2% as commission was deleted – Assessed as long term capital gains and exemption is allowed [S. 10(38), 45, 69]

    The assessee had made investment in 62500 Equity Shares of an entity namely Santoshima Trade Link Ltd (STL) during the month of September 2011. The face value of the share was ₹ 10 per share with premium of ₹ 10 per share, accordingly the assessee has paid ₹ 12.50 lacs to acquire the said shares. The shares were allotted and were received in physical form. The shares were dematerialised during March 2012. Meanwhile STL got merged with another entity namely Sunrise Asian Ltd. (SAL) pursuant of scheme of Amalgamation u/s. 391 to 394 of the Companies Act, 1956 which was duly approved by the Honourable Bombay High Court. In the month of June 2013 SAL was a public limited Company and its shares were traded at Bombay Stock Exchange. The Assessee sold the shares in the month of March 2014. Since the Shares were held more than one year the shares were sold through broker by paying Securities Transactions Tax (STT). The assessee earned the long term capital gains of ₹ 293-38 lacs. The Assessee has shown long term capital gains on sale of shares and claimed exemption under section 10(38) of the Act. The AO has doubted the transactions and held that SAL was merely a paper company engaged in providing accommodation entries to various beneficiaries. The search was conducted on the assessee on 5-11-2014. Applying the ratio of judgement in Sumati Dayal v. CIT (1995) 214 ITR 801 (SC), the AO assessed the long term as cash credits and also made addition of 2% commission thereon as explained u/s 69C of the Act. Order of AO is affirmed by the CIT(A). On appeal allowing the appeal the Tribunal held that the AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. (Referred Andaman Industries Ltd. v. CCE (2015) 127 DTR 241 / 281 CTR 241 (SC), Kishanchand Chellaram v. CIT v. CIT (1980) 125 ITR 713 (SC) ITA. No. 7648/Mum/2019 dt. 11-8-2020 and Ors. (AY. 2014-15)

    Dipesh Ramesh Vardhan v. DCIT (Mum.)(Trib) www.itatonline.org

  11. S. 69 : Unexplained investments – Undisclosed cash – Money changer – Business requirements – Cash bundles carrying tag of another bank – Common practice – Cash books written day-to-day basis but in practice always a time gap between book entries – No defect pointed out by Assessing Officer in books of account of assessee – addition on basis of suspicion and surmises not justified.

    On appeal, the Tribunal held that, the assessee was an authorized money changer. This line of business required availability of cash in huge amounts as persons give dollars to be exchanged in Indian currency. The fact that the cash bundles carried the tag of PNB should not be given weightage as it was a common practice amongst all banks to issue currency bundles as received by them. Though the cash books were written on day-to-day basis, in practice there was always a time gap between the book entries. Further, not a single defect had been pointed out by the Assessing Officer in the books of account of the assessee when produced during assessment proceedings. The entire addition had been made on the basis of suspicions and surmises and such addition could not be sustained. (AY. 2011-12)

    R. G. Consultants P. Ltd. v. DCIT (2020) 78 ITR 37 (SN)(Delhi) (Trib)

  12. S. 69 : Unexplained investments – Cash credits – Sole beneficiary of trust – The sum of  196 crore held by HSBC Pvt Bank, Switzerland, in the name of Tharani Family Trust, of which the assessee was a beneficiary, is assessable as the undisclosed income of the assessee. [S. 68]

    The assessee is an individual. The assessee had filed her income tax return, on 29th July 2006, disclosing an income of ₹ 1,70,800 for the relevant previous year, but subsequently the investigation wing of the income tax department, received information that the assessee is having a bank account with HSBC Private Bank (Suisse) SA Geneva. Based on this information, was reopened for fresh assessment was made. The assessee denied having any bank account. The AO made the addition of ₹ 196 crore held by HSBC Pvt. Bank, Switzerland, in the name of Tharani Family Trust, of which the assessee was a beneficiary, is assessable as the undisclosed income of the assessee. Order of the AO is affirmed by the CIT(A). On appeal affirming the view of the lower authorities the Tribunal observed that the assessee is not a public personality like Mother Terresa that some unknown person, with complete anonymity, will settle a trust to give her US $ 4 million, and in any case, Cayman Islands is not known for philanthropists operating from there; if Cayman Islands is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering. HSBC Pvt Bank has also been indicted by several Governments worldwide and how it has even confessed to be being involved in money laundering. (ITA No. 2333/Mum/2018 dt. 16-07-2020 (B.I.)(AY. 2006-07)

    Renu T. Tharani (Ms) v. Dy. CIT (IT) (Mum.)(Trib) www.itatonline.org

  13. S. 80P: Co-operative Society – Interest earned from scheduled bank – Not deductible – Net interest from deposits with scheduled bank to be excluded from deduction – Interest earned from Co-operative bank or society – Deduction allowable on net interest – Receipt by society from its members towards form fee –Attributable to and arising from Assessee’s day-to-day activities – Deductible – Standard deduction allowable. [S. 80P(2)(a), 80P(2)(c), 80P(2)(d)]

    On appeal, the Tribunal held that, the assessee was not entitled to deduction of interest from scheduled bank under Section 80P(2)(a)(i) of the Act and the Assessing Officer has to work out the net interest earned from the deposits with the scheduled bank to exclude that amount from the computation of deduction claimed under Section 80P(2)(a)(i) of the Act. The interest earned from co-operative bank or society would qualify for grant of deduction under Section 80P(2)(d) of the Act and the net amount of such interest income should be considered for grant of deduction under Section 80P(2)(d) of the Act. State Bank of India v. CIT (2016) 389 ITR 578 (Guj) (HC) relied on. The assessee received amount from its members towards form fee, was attributable to and arose from the assessee’s day-to-day activities. Therefore, the claim of the assessee was allowable under Section 80P of the Act. The standard deduction of ₹ 50,000 claimed by the assessee under Section 80P(2)(c) of the Act being a statutory deduction, the assessee would be entitled to such deduction. The Assessing Officer was directed to allow such claim in accordance with the law. (AY.2014-15)

    Balasinor Vikas Co-Operative Credit Society Ltd. and Shri Jalaram Mahila Co-Operative Credit Society Ltd. and Anand Catholic Co-Operative Credit Society Ltd. v DCIT (2020) 78 ITR 15 (SN)(Ahd) (Trib)

  14. S. 80JJAA : Employment of new workmen – Provisions as existing before 1-4-2016 applicable to earlier years – AO to apply provisions as applicable to each of the earlier years

    On appeal, the Tribunal held that, S. 80JJAA(3) of the Act as amended by the Finance Act, 2016 makes it clear that the provisions that existed before April 1, 2016 shall apply to the earlier years, meaning thereby the provisions, which are applicable to a particular year, should be applied for determining the eligibility of the assessee to claim this deduction. The Assessing Officer was directed to apply the provisions of Section 80JJAA of the Act as applicable to the respective year(s). (AY. 2012-13, 2013-14)

    Century Link Technologies India Pvt. Ltd. v. DCIT (2020) 78 ITR 71 (SN)(Bang.)(Trib)

  15. S. 115JB : Book profit – Waiver of loan – Loss or depreciation – Reduction of lower of loss or depreciation of the past years is allowable even where the same did not appear in the books of the current years on being absorbed against the credits not otherwise liable to tax in the past years – Matter remanded to CIT(A) for on a short point that the aspect of the adjustments had not been delved upon. [S. 32, 72]

    The Tribunal permitted the assessee for set-off of amount of the lower of loss or depreciation, pertaining to A.Y. 2010-11 as per books of accounts and allowed the deduction of the amount credited to Profit & Loss Account of AY. 2011-12 on account of waiver of loans and other payables and also disregarded the reduction made in the accumulated debit balance of Profit & Loss Account through the Restructuring Account. The Tribunal held that the debit balance of Profit & Loss A/c., through absorbed and wiped off in books, now positive was deemed to have survived for set-off in a later year in computing book profit. The matter is remanded to the CIT(A) on a short point that the aspect of the adjustments had not been delved upon. (ITA No. 2709 & 4696/M/2019 and ITA No. 2710 & 4697/M/2019 dt. 28-05-2020) (AY. 2013-14, 2014-15)

    Windsor Machine Ltd. v. DCIT (Mum.)(Trib.)(UR)

  16. S. 145A : Accounting – Valuation of stock – Change in method – Assessee changing method of valuation – Cost or market value whichever is lower method – Changed method consistent with mandatory AS 2 – No need to apply changed method to opening stock of finished goods – Changed method valuation to be applied to all components of inventory

    On appeal, the Tribunal held that, valuing finished goods at cost or market value whichever is lower, was in accordance with the mandatory Accounting Standard (AS) – 2 and thus it could be said that change in method of valuing finished stock was bona fide. This would satisfy the mandate of S. 145A of the Act. Once, change of method is proven to be bonafide and genuine, then, if the changed method was applied to opening stock also, there would be taxing of the same income twice, hence, there was no need to apply the changed method to value the opening stock and it could be continued to be valued as per the old method. If the assessee had to change the method of valuing inventory in compliance with AS 2, the changed method of valuation had to be applied to all the components of inventory as prescribed under AS 2. The assessee was directed to prove that these differential methods were consistent with AS 2 and there was no intent to reduce tax by applying the new method of valuing finished goods.

    ACIT v. Thiagarajar Mills Ltd. (2020) 78 ITR 8 (SN)(Chennai)(Trib)

  17. S. 143(3) : Assessment – Limited scrutiny cannot be taken for complete scrutiny unless the AO forms a reasonable view that there is a possibility of under assessment of income – Approval by the PCIT in a mechanical manner is not valid – S. 292BB does not save the infirmity – Order is quashed as a nullity. [S. 292BB]

    Allowing the appeal of the assessee the Tribunal held that, under CBDT Instruction No. 5/2016, a case earmarked for ‘Limited Scrutiny’ cannot be taken for ‘Complete Scrutiny’ unless the AO forms a “reasonable view” that there is a possibility of under assessment of income. The objective of the instruction is to (i) prevent fishing and roving enquiries; (ii) ensure maximum objectivity; and (iii) enforce checks and balances upon the powers of the AO. On facts, there is not an iota of cogent material shown by the AO for the conversion from limited scrutiny to complete scrutiny. The PCIT has also accorded approval in a mechanical manner. S. 292BB does not save the infirmity. The assessment order has to be quashed as a nullity (ITA No. 6767/Del/2019 dt. 12-06-2020 (AY. 2015-16)

    Dev Milk Foods Pvt. Ltd. v. Dy. CIT (Delhi)(Trib) www.itatonline.org

  18. S. 147: Reassessment – Non-Resident – information from investigation wing of the income tax department – Return the asseeee has shown as resident – Reassessment is held to be valid [S. 6(1), 9(1), 148]

    The assessee is an individual. The assessee had filed her income tax return, on 29th July 2006, disclosing an income of ₹ 1,70,800 for the relevant previous year, but subsequently the investigation wing of the income tax department, received information that the assessee is having a bank account with HSBC Private Bank (Suisse) SA Geneva. Based on this information, was reopened for fresh assessment was made. Assessee challenged the reassessment on the ground that the assessee was non-resident for the relevant assessment year hence the department has no jurisdiction to question the alleged deposit in other countries. The Tribunal up held that reassessment on the ground that in the return of income filed by her she has shown as resident. As the prima facie belief of the AO that the asseseee was resident is held to be valid. Accordingly the ground of reopening of assessment is up held by the Tribunal. (ITA No. 2333/Mum/2018 dt. 16-07-2020 (B.I.) (AY. 2006-07)

    Renu T. Tharani (Ms) v. Dy. CIT (IT) (Mum.)(Trib) www.itatonline.org

  19. S. 148 : Reassessment – Notice – Validity – Amalgamation of companies – Effect – Amalgamating company ceases to exist – Factum of amalgamation brought to notice of AO – Reassessment proceedings against amalgamating company – Not valid [S. 147]

    On appeal, the Tribunal held that the CIT(A) had given a categorical observation that the reassessment was initiated based on the audit objection. Even, on the date of such audit objection, the erstwhile assessee was not in existence pursuant to the amalgamation. Further, despite various intimations given, during penalty proceedings, the Assessing Officer proceeded to frame the re-assessment in the name of the amalgamating company, which was declared void ab initio by the CIT(A). Given this, the reassessment was liable to be set aside. (AY. 2008-09)

    DCIT v. Palm Tech India Ltd. (2020) 78 ITR 4 (SN)(Mum.)(Trib)

  20. S. 206AA : Requirement to furnish Permanent Account Number (PAN) – Provision for deduction at higher rate where recipient fails to provide PAN – Provision cannot override beneficial provisions of DTAAs – Assessee not liable to deduct tax at higher rates in spite of failure by non-resident to furnish PAN

    On appeal, the Tribunal held that the non obstante clause contained in the machinery provision of Section 206AA of the Act has to be assigned restrictive meaning and cannot be read so as to override beneficial provisions of DTAAs, which override even the charging provisions of the Act by virtue of Section 90(2) of the Act. Therefore, an assessee cannot be held liable to deduct tax at higher rates prescribed in S. 206AA of the Act for payments made to non-residents having taxable income in India in spite of their failure to furnish PAN. (AY.2010-11)

    ACIT v. Wipro Ltd. (2020) 78 ITR 70 (SN)(Bang.)(Trib)

  21. S. 254(2A): Appellate Tribunal – Stay – Special Bench –Amendment in first proviso to s. 254(2A) by the Finance Act 2020 – Whether directory or mandatory – Reference to special Bench. [S. 253]

    Honourable President of the Appellate Tribunal to consider whether a Special Bench should be constituted to decide two very significant aspects relating to the powers of the Appellate tribunal to grant unconditional stay of demand after the amendment in first proviso to S. 254(2A) by the Finance Act 2020, namely, (i) The legal impact, if any, of the amendment on the powers of the Tribunal u/s. 254(1) to grant stay; and, (ii) if the amendment is held to have any impact on the powers of the Tribunal u/s 254(1),- (a) whether the amendment is directory in nature or is mandatory in nature; (b) whether the said amendment affects the cases in which appeals were filed prior to the date on which the amendment came into force; (c) whether, with respect to the manner in which, and nature of which, security is to be offered by the assessee, under first proviso to S. 254(2A), what are broad considerations and in what reasonable manner, such a discretion must essentially be exercised, while granting the stay, by the Tribunal. (SA Nos. 147 and 148/Mum/2020, arising out of ITA Nos. 1423 and 1424/Mum/2018 dt. 17-06-2020) (AY. 2011-12, 2012-13)

    Tata Education and Development Trust v. ACIT (2020) 117 taxmann.com 500 (Mum.)(Trib) www.itatonline.org

  22. S. 271(1)(c) : Penalty – Concealment – Furnishing inaccurate particulars of income – Sufficient interest-free funds available with Assessee – Interest expenses not disallowable – Mere wrong claim does not tantamount to furnishing of inaccurate particulars of income or concealment of income – Penalty not leviable in such cases.

    On appeal, the Tribunal held that sufficient interest-free funds were available with the assessee against which it had advanced a meagre amount on which it had not charged interest. Hence, interest was not disallowable. Moreover, it was only a case of opinion on the part of the Assessing Officer that assessee had diverted interest bearing funds to interest-free advances ignoring the fact that the assessee had huge interest-free reserves. The penalty was imposed by calculating notional interest on interest-free advances. The assessee had not concealed any particulars of income. Mere wrong claim could not amount to furnishing of inaccurate particulars of income or concealment of income, hence, levy of penalty was not sustainable. (AY. 2011-12)

    Deem Roll-Tech Ltd. v. DCIT (2020) 78 ITR 45 (SN)(Ahd.)(Trib)

  1. S.2(14)(iii): Capital asset – Agricultural land – Land in Village within Municipality – Village having population less than specified ten thousand – Land was agricultural – Profits from sale of land is exempt [S. 2(14)(iii)(a), 45]

    Dismissing the appeal of the revenue the Court held that the land which was sold was situated in a village. Late collection of tax by the Municipal Corporation or mentioning or recording in the revenue record that the village continued to be a separate entity till May 31, 2011 would not make any material difference to the legal position that the village became part of the larger urban area on and from July 3, 2009. However, the Tribunal returned a finding of fact that at the time of sale, the land in question was situated at village the population of which was 5,912 which was less than the statutory requirement of 10,000. Accordingly the profit from sale of the land was not assessable as capital gains. (AY. 2011-12)

    PCIT v. Anthony John Pereira (2020) 425 ITR 134 (Bom.)(HC)

  2. S. 9(1((i) : Income deemed to accrue or arise in India – Business connection – Fees for professional or technical services – Deduction at source – Amount paid to surveyors to settle the amount on cost to cost basis – No permanent Establishment in India – Not liable to deduct tax at source – DTAA-India-UK. [S. 9(1)(vii), 90, 194J]

    Dismissing the appeal of the revenue the Court held that the payments made to the U. K. company to settle the amounts of surveyors on cost-to-cost basis and the surveyors did not make available any technical knowledge which could be independently applied by the assessee and hence the payment made by the assessee would not be taxable as fees for technical services in the hands of the recipient. In the absence of a permanent establishment, the income in the hands of the recipient was not taxable in India. The Tribunal was right in holding that the assessee was not liable to deduct tax at source on the survey fees paid. (AY.2005-06 to 2010-11)

    CIT v. Royal Sundaram Alliance Insurance Co. Ltd. (2020) 423 ITR 122 (Mad.)(HC)

  3. S. 10(17A) : Awards and rewards in cash or kind –Award for meritorious service in Public Interest – Approval of State Government or Central Government is not mandatory – Approval is implied.

    The assessee had been recognised by the Central Government on several occasions for meritorious and distinguished services and from the information available in the public domain, it could be seen that he was awarded the Jammu and Kashmir Medal, Counter Insurgency Medal, Police Medal for Meritorious Service (1993) and the President’s Police Medal for Distinguished Service (1999). Specifically for his role in nabbing Veerapan, he was awarded the President’s Police Medal for Gallantry on the eve of Independence Day, 2005. The assessee was entitled to exemption on the awards received from the State Government. Court held that, approval of State Government or Central Government is not mandatory. Approval is implied.

    K. Vijaya Kumar v. PCIT (2020) 422 ITR 304 / 107 CCH 0467 (Mad.)(HC)

  4. S. 10A : Free trade zone –Export oriented undertakings – Remission or cessation of trading liability – Profits derived from export – Reversal of the entry with regard to the stock option given to the employees was in the nature of export income – Entitled to exemption. [S. 10B, 41(1)]

    The assessee reversed the entry with regard to the stock option given to the employees and claimed exemption treating the said the income was in the nature of export income. The Tribunal decided against the assessee. On appeal the Court held that the income brought to tax under S. 41 by reversal of the entry with regard to the stock option given to the employees was in the nature of export income and therefore, the assessee was entitled to exemption under S. 10A / 10B of the Act.

    California Software Co. Ltd. v. CIT (2020) 422 ITR 514 / 107 CCH 0458 (Mad)(HC)

  5. S. 11 : Property held for charitable purposes – Charging certain goods and services – Not commercial activities – Onus on department to prove profit motive – No change in nature of activities from earlier years – Principle of consistency is applicable – Entitle to exemption [S. 2(15), 12, 13, 80G(5)(v)]

    The primary aim and objective of the assessee according to its memorandum of association, inter alia, was to promote the habitat concept. The AO held that since the assessee did not maintain separate books of account, its income could not be bifurcated under the principle of mutuality. The AO taxed the entire surplus in the income and expenditure account. The CIT(A) allowed the appeal relying upon the judgment of the court in the assessee’s own case for the assessment years 1988-89 to 2006-07. The Tribunal held that there was no material change in the fundamental facts for several years and the income of the assessee was to be computed under sections 11, 12 and 13 and dismissed the appeal filed by the Department. On appeal dismissing the appeal of the revenue the Court held that, it was imperative for the Department to establish that there was an element of profit motive in the activities of the assessee, to deny the benefit. If any surpluses had been generated on account of some of the activities of the assessee, it would not ipso facto be determinative of the fact that there was an element of profit motive. No error had been pointed out by the Department with respect to such finding of fact which would disentitle the assessee the benefit under S. 2(15) of the Act. (AY. 2012-13)

    CIT (E) v. India Habitat Centre (2020) 424 ITR 325 (Delhi)(HC)

  6. S. 11 : Property held for charitable purposes – First proviso – Event of Garba organised to raise money – Amount earned entitled to exemption [S. 2(15), 12]

    Dismissing the appeal of the revenue the Court held that the main object of the assessee could not be said to be organising the event of Garba. The assessee had been supporting 120 non-Government organisations. The assessee was into health and human services for the purpose of improving the quality of life in society. All its objects were charitable. The activities like organising the event of Garba including the sale of tickets and issue of passes, etc., cannot be termed as business. The two authorities had taken the view that the profit making was not the driving force or the objective of the assessee. The assessee was entitled to exemption under S. 11 and 12. (AY. 2014-15)

    CIT(E) v. United Way of Baroda (2020) 423 ITR 596 (Guj.)(HC)

  7. S. 11 : Property held for charitable purposes – Imparting spiritual education through lectures and congregation and on television channels – Established a temple to Hindu gods and goddesses for the general public. [S. 2(15), 12A, 13(1)(c)(ii)]

    Dismissing the appeal of the revenue the Court held that, imparting spiritual education through lectures and congregation and on television channels is charitable in nature. Established a temple to Hindu gods and goddesses for the general public the activities undertaken by the assessee could be included in the broad conspectus of religious activities and in the context of the Hindu religion, such activities could not be confined to activities incidental to a place of worship such as a temple. The observations of the Tribunal vis-à-vis disallowances of one third expenditure for telecast of samagams, were reasonable and they did not warrant any interference. Court also held that there was no evidence on record to construe that the founder had derived any personal benefit which would justify the Revenue to invoke the provisions of section 13(1)(c)(ii) to deny the assessee the benefit of the expenditure. Referred CIT(E) v. Bhagwan Shree Laxmi Naraindham Trust (2015) 378 ITR 222 (Delhi)(HC) (AY. 2011-12)

    CIT v. Bhagwan Shree Laxmi Narain (2019) 106 CCH 0176 / (2020) 421 ITR 476 (Delhi)(HC)

  8. S. 12AA : Procedure for registration – Trust or institution – Charitable purpose – Trust would be hit by proviso to Section 2(15) cannot be the ground for cancellation of registration [S. 2(15), 12AA(3)]

    Dismissing the appeal of the revenue the Court held that the view that the assessee was directly hit by the proviso to S. 2(15) of the Act may lead to denial of exemption to the assessee in the assessment proceeding for the relevant assessment year but could not be a ground for cancellation of registration under S. 12AA(3) of the Act. The competent authority must be satisfied that the activities of the trust are not genuine or that the activities are not being carried out in accordance with the objects of the trust or the institution. Such satisfaction must be recorded as a matter of fact on the basis of specific materials on record. The cancellation of registration was not valid. (AY. 2009-10)

    CIT(E) v. Mumbai Metropolitan Region Development Authority (2020) 425 ITR 166 (Bom.)(HC)

  9. S. 28(i) : Business income – Income from house property – Main business is let out of property – Income assessable as business income [S. 22]

    The issue before the high Court was whether rental income can be assessed as income from business or income from house property. Court held that it will depend upon the facts of each case and whether such income is earned by the assessee by way of utilisation of its business assets in the form of property in question or as an idle property which could yield rental income. Even the amended definition under section 22 of the Income-tax Act, 1961 intends to tax the notional income from the self occupied portion of the property to run the assessee’s own business therein as business income. Considering the facts of the case the case the Court held that it was not in dispute that the exclusive and main source of income of the assessee was only the rentals and lease money received from the lessees. The income received was assessable as business income. (AY. 1999-2000, 2000-01, 2001-02, 2005-06)

    PSTS Heavy Lift and Shift Ltd. v. Dy. CIT (2020) 422 ITR 497 / 107 CCH 0454 (Mad.)(HC)

  10. S. 28(iv) : Business income – Value of any benefit or perquisites – Converted in to money or not – Waiver of loan cannot be assessed as benefit or perquisites [S. 4]

    Loan given by Government of Karnataka was subsequently waived. The AO assessed the waiver of loan as value of benefit or perquisite assessable u/s. 28(iv) of the Act .CIT (A) deleted the addition. On appeal by the revenue the Tribunal held that the AO had correctly made the addition considering the waiver of loan as revenue receipt of the assessee. On appeal High Court held that waiver of loan cannot be assessed as benefit or perquisite. Followed CIT v. Mahindra and Mahindra Ltd. (2018) 404 ITR 1 (SC), distinguished, Protos Engineering Company P. Ltd. v. CIT, (1995) 211 ITR 919 (Bom.)(HC) is held to be not good law. (ITA No. 201 of (AY. 1984-85)

    Essar Shipping Ltd. v CIT (Bom.)(HC) www.itatonline.org

  11. S. 32 : Depreciation – Rate of depreciation – Hiring out construction Equipment – Crane depreciation allowable at 30% – It cannot be reduced to 15% – Res Judicata – Not strictly applicable but consistency essential.

    The assessee is engaged in the business of hiring, operation and maintenance of construction equipment. It claimed depreciation at the rate of 30 per cent. On various types of cranes, viz., telescopic cranes, rail for tower cranes, tower cranes, mobile tower cranes, crawler cranes, tower crane masts and hydra cranes for the assessment year 2011-12. The Assessing Officer took the view that hiring out construction equipment was an ancillary activity of the assessee and there was every possibility that the cranes were used for the assessee’s own construction business. Accordingly disallowance restricting the depreciation to 15 per cent. On appeal the CIT(A) held that only the hydra cranes can be termed as “motor cranes” and accordingly allowed depreciation at the rate of 30 per cent. The Commissioner (Appeals), however, confirmed the disallowance on all other types of cranes. This was confirmed by the Tribunal. The Court held that a similar issue had cropped up in the assessment year 2007-08, and after due consideration of all the relevant aspects of the matter, the Assessing Officer had granted depreciation at the rate of 30 per cent. The very same cranes were involved in the present tax appeal which were the subject matter of consideration in the assessment year 2007-08. Registration under the provisions of the Motor Vehicles Act was not a sine qua non for claiming depreciation. There was evidence on record to indicate that the assessee was involved in the business of hiring cranes. It might be using the cranes for personal construction business too, but that would not disentitle the assessee to claim higher depreciation once it is was shown that the assessee was in the business of hiring the cranes. The assessee was entitled to depreciation at the rate of 30 per cent on the various types of cranes. Court also held that although the doctrine of res judicata does not strictly apply to Income-tax proceedings, yet in order to maintain consistency, the Revenue cannot be permitted to rake up stale issues again merely because the scope of appeal is wider than the scope of reference. (AY. 2011-12)

    Prasad Multi Services Private Ltd. v. Dy. CIT (2020) 423 ITR 542 (Guj.)(HC)

  12. S. 32 : Depreciation –Uninterrupted power supply system for Computers – Entitled to depreciation at 60 per cent.

    Dismissing the appeal of the revenue the Court held that, uninterrupted power supply system was part of the computer and entitled to 60 per cent depreciation.

    CIT v. Royal Sundaram Alliance Insurance Co. Ltd. (2020) 423 ITR 122 (Mad.)(HC)

  13. S. 36(1)(iii) : Interest on borrowed capital – Real estate business – Amount borrowed to purchase shares to expand business – Controlling interest – Interest allowable as deduction [S. 37(1), 57(iii)]

    Allowing the appeal of the assessee the Court held that, the assessee is in the business of real estate. The assessee had borrowed the capital to purchase shares so as to have effective control in order to expand its real estate business. Thus, the investment in shares was nothing but expansion of business of the assessee. Therefore, all the conditions necessary for deduction under s. 36(1)(iii) were prima facie satisfied by the assessee. The dominant purpose of the assessee to borrow the capital was to acquire the shares to have effective control over so as to expand the business of the assessee. In that view of the matter, the CIT (A) was not justified in granting deduction of interest paid by the assessee under S. 57(iii) of the Act. The assessee was entitled to deduction of interest paid on capital borrowed for investment in the shares of for the purpose of expansion for its business under S. 36(1)(iii). (AY. 1996-97, 1997-98)

    B. Nanji and Co. v. Dy. CIT (2020) 425 ITR 286 (Guj)(HC)

  14. S. 36(1)(iii) : Interest on borrowed capital – Amount borrowed advanced at lower interest – Revenue authorities cannot substitute their own wisdom or notion about the rate of interest agreed to between the parties – Interest is deductible.

    Dismissing the appeal of the revenue the court held that it is not for the Revenue authorities to substitute their own wisdom or notion about the rate of interest agreed to between the parties, including group companies and as such, the finding of fact about commercial expediency or absence thereof is a finding of fact, out of which no substantial question of law can be said to arise. (AY. 2013-14)

    CIT v. Shriram Investments (2019) 104 CCH 0737 / (2020) 422 ITR 528 (Mad.)(HC)

  15. S. 36(1)(vii) : Bad Debts – Lottery and financing business – Advance of money – Amounts written off in accounts – Held to be allowable. [S. 36(1), 36(2)]

    The AO disallowed the bad debts written off by the assessee on the ground that it was carrying on only lottery business. This was upheld by the Tribunal. On appeal, the Court held that a cumulative consideration of all the documents made it clear that the assessee was in the business of not only lottery agency, but also financing. Therefore, the business of the assessee-firm was distribution of lottery tickets and financing. The advance was not out of borrowed funds, but out of surplus income of the assessee-firm. Therefore, the case of the assessee would squarely fall within the ambit of S. 36(1)(vii). The assessee had written off the bad debt as irrecoverable in its accounts thereby fulfilling the statutory requirement. The assessee was entitled to deduction of the bad debt. (AY. 2001-02)

    Deccan Agency v. Dy. CIT (2020) 423 ITR 418 (Mad.)(HC)

  16. S. 36(1)(vii) : Bad debt – Inter corporate deposits in respect of purchase of vehicles and plant and machinery – Mere wrote off is sufficient – It is not necessary for the assessee to establish or prove that the debt has in fact become irrecoverable but it would be sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. [S. 28(i)]

    The assessee is a company engaged in the business of providing finance in the field of lease and higher purchase transaction, management consultancy services etc. The assessee claimed as bad debt in respect of intercorporate deposits in respect of purchase of vehicles or plant and machinery. AO took the view that unless there was an admitted debt it could not be allowed as bad debt when it is written off. Besides, the debt must be incidental to the business or profession of the assessee. The AO rejected the claim of the assessee which was affirmed by the CIT (A). On appeal the Tribunal allowed the claim of the assessee. On appeal by the revenue the Court held that, it is a settled position in law that after 1.4.1989, it is not necessary for the assessee to establish or prove that the debt has in fact become irrecoverable but it would be sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. Followed TRF Ltd. v. CIT (2010) 323 ITR 397 (SC) CIT v. Shreyas S. Morakhia (Bom.) (HC) [2012] 342 ITR 285 (Bom.)(HC) (ITA No 1265 of 2017 & 1469 of 2017 dt. 11-02-2020) (AY. 2001-02, 2003-04)

    PCIT v. Hybrid Financial Services Ltd. (Formerly known as Mafatlal Finance Ltd.) (Bom.)(HC) www.itatonline.org

  17. S. 37(1) : Business expenditure –Termination of lease and licence – Deletion of expenditure is held to be justified.

    Dismissing the appeal of the revenue the Court held that the amount deducted by the lessor towards compensation for premature termination of lease and licence agreement by the assessee in respect of two warehouses held to be deductible

    PCIT v. Lee and Muirhead Pvt. Ltd. (2020) 423 ITR 167 (Bom.) (HC)

  18. S. 37(1) : Business expenditure – Capital or revenue Computer software expenses – Legal expenses incurred in connection with sale of capital assets – Held to be revenue expenditure.

    Dismissing the appeal of the revenue the Court held that computer software expenses and legal expenses incurred in connection with sale of capital assets is held to be revenue expenditure. (AY. 2009-10)

    PCIT v. Aker Powergas Pvt. Ltd. (2020) 423 ITR 536 (Bom.)(HC)

  19. S. 37(1) : Business expenditure – Wholly and exclusively for the purposes of business – Donations made under Corporate Social Responsibility – Held to be deductible – Res Judicata – Not strictly applicable in Income-Tax proceedings – Consistency essential.

    The assessee-company is engaged in the business of manufacturing, sale and trading of chemical fertilizers and chemical industrial products. The assesse claimed expenditure of ₹ 1,75,036,756 in respect of contributions made to various institutions. The Assessing Officer disallowed the claim. Appellate Tribunal allowed the claim of the appellant Company. On appeal by the revenue dismissing the appeal the Court held that the assessee-company was a polluting company. The assessee-company was conscious of its social obligations towards society at large. The assessee-company was a Government undertaking and, therefore, obliged to ensure fulfilment of all the protective principles of State policy as enshrined in the Constitution of India. The moneys had been spent for various purposes and could not be regarded as outside the ambit of the business concerns of the assessee. The order passed by the Appellate Tribunal was just and proper and needed no interference in the present appeal. Such disabling provision as long as the expenses, even in discharge of corporate social responsibility on voluntary basis, can be said to be “wholly and exclusively for the purposes of business”.

    Court also held that although the doctrine of res judicata is not applicable to Income-tax proceedings since each assessment year is independent of the other, where an issue has been considered and decided consistently in a number of earlier years in a particular manner the same view should continue to prevail in the subsequent years unless there is some material change in the facts. (AY. 2010-11)

    PCIT v. Gujarat Narmada Valley Fertilizer and Chemicals Ltd. (2019) 105 CCH 0504 / (2020) 422 ITR 164 (Guj.)(HC)

  20. S. 37(1): Business expenditure – Payment to consultant – Statement made in the course of search was retracted – Disallowance is held to be not justified. [S. 132(4)]

    Dismissing the appeal of the revenue the Court held that disallowance of commission cannot be made merely on the basis of statement made during the search which was retracted, without bringing on any independent material on record.

    CIT (LTU) v. Reliance Industries Ltd. (2019) 104 CCH 0730 / (2020) 421 ITR 686 (Bom.)(HC)

    Editorial: SLP is granted to the revenue CIT v. Reliance Industries Ltd. [2019] 418 ITR 13 (St)(SC)

  21. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Recipient has declared the income – No loss to revenue – No disallowances can be made – Amendment with effect from 1-4-2013 is declarative and curative in nature. [S. 271C]

    Court held that the provisions of section 40(a)(ia), as they existed prior to insertion of the second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee’s tax withholding lapses did not result in any loss to the exchequer. In order to cure these shortcomings of the provision, and thus obviate the unintended hardships, an amendment in law, was made. In view of the well-settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically, the insertion of the second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. The insertion of the second proviso to section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from April 1, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. Accordingly it was not disputed that the payments made by the assessee to the sub-contractors had been offered to tax in their respective returns of income, uncontroverted by the authorities. There was no actual loss of revenue. Hence S. 40(a)(ia) was not applicable. (AY. 2005-06)

    CIT v. S. M. Anand (2019) 105 CCH 0508 / (2020) 422 ITR 209 (Karn.)(HC)

  22. S. 40(a)(ii) : Amounts not deductible – Any rate or tax levied – Education cess is held to be deductible. [S. 246A, 254(1) Indian Income-tax Act, 1922, S 10(4)]

    Court held that in the Indian Income-tax Act, 1922 , S. 10(4) had banned allowance of any sum paid on account of “any cess, rate or tax levied on the profits or gains of any business or profession”. In the corresponding section 40(a)(ii) of the Income-tax Act, 1961 the expression “cess” is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in Parliament. However, the Select Committee recommended the omission of expression “cess” and consequently, this expression finds no place in the final text of the provision in section 40(a)(ii) of the Act. The effect of such omission is that the provision in section 40(a)(ii) does not include, “cess” and consequently, “cess” whenever paid in relation to business, is allowable as deductible expenditure. This is also the view of the Central Board of Direct Taxes as reflected in Circular No. F. No. 91/58/66-ITJ(19), dated May 18, 1967. The Central Board of Direct Taxes Circular, is binding upon the authorities under the Act like the Assessing Officer and the appellate authority. Accordingly the, education cess is held to be deductible. Though the claim to deduction of education cess and higher and secondary education cess was not raised in the original return or by filing a revised return, the assessee had addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner (Appeals) or the Appellate Tribunal, before whom such deduction was specifically claimed, was duty bound to consider such claim. Followed CIT v. Orient (Goa) P Ltd. [2010] 325 ITR 554 (Bom.)(HC) (AY. 2008-09, 2009-10)

    Sesa Goa Ltd. v. JCIT (2020) 423 ITR 426 (Bom.)(HC)

  23. S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Commission claimed as expenditure – Write off of loan- cannot be treated as revenue receipts.

    Dismissing the appeal the Court held that the loan utilised by the assessee was for the capital purposes and the loan was given by the National Dairy Development Board. The assessee continued to remain liable to repay those amounts. The State instead of fully writing off the amounts had imposed a condition that they would be utilised only for capital or rehabilitation purposes. This was therefore a significant factor, i.e., the writing off was conditional upon use of the amount in the hands of the assessee which was for the purpose of capital. (AY. 2004-05)

    PCIT v. Rajasthan Co-operative Dairy Federation Ltd. (2020) 423 ITR 89 (Raj.)(HC)

  24. S. 45 : Capital gains – Income from other sources – Transfer of rights in property – Assessable as capital gains and not as income from other sources [S. 54EC, 56]

    Allowing the appeal of the assessee the Court held that there was nothing to show that the memorandum of understanding was fabricated or ante-dated. The property in question was disclosed in all the returns of income by the transferee CCPL starting from the assessment year 1993-94 to the assessment year 2009-10. The property was also reflected in the returns of the assessee in all those assessment years. The property in question was under the occupation of the tenant, i.e., the assessee. Since the finding returned by the Tribunal had not been challenged by the Department, the stand taken by the Department in respect of the land in question, vis-a-vis, the tenancy of the assessee was not justified. The assessee had disclosed the amount of ₹ 50 lakhs received for the settlement of its claim to the property and had further disclosed that such amount was invested in capital bonds. The Tribunal was not justified in confirming the addition of the amount made under the head “income from other sources”. (AY. 2009-10)

    Amol C. Shah (HUF) v. ITO (2020) 423 ITR 408 (Bom.)(HC)

  25. S. 54 : Capital gains – Profit on sale of property used for residence – Construction of new residential house need not begin after sale of original house – Booking the flat under construction is considered as construction of house – Deletion of addition made for alleged receipt of maintenance charges was held to be justified. [S. 4, 45]

    The assessee disclosed capital gains but claimed deduction under S. 54 of the Act. The AO disallowed the deduction on the ground that the assessee had entered into an agreement dated February 10, 2006 and the date of the agreement was to be treated as the date of acquisition, which fell beyond the one year period provided under S. 54 and was also prior to the date of transfer. The Commissioner (Appeals) held that the assessee had booked a semi-furnished flat and was to make payments in instalments and the builder was to construct the unfinished bare shell of a flat. Under these circumstances, the Commissioner (Appeals) considered the agreement to be a case of construction of new residential house and not purchase of a flat. He observed that since the construction has been completed within three years of the sale of original asset, the assessee was entitled to relief. Tribunal affirmed the order of the CIT(A). On appeal by the revenue the Court held that Section 54 of the Income-tax Act, 1961, requires an assessee to purchase a residential house property either one year before or within two years after the date of transfer of long-term capital asset; or construct a residential house. It is not stipulated or indicated in the section that the construction must begin after the date of sale of the original or old asset. As regards alleged addition of maintenance charges the court held that consistent factual finding arrived at by the Commissioner (Appeals) and the Tribunal did not give rise to any question of law. (AY. 2012-13)

    PCIT v. Akshay Sobti (2020) 423 ITR 321 (Delhi)(HC)

  26. S. 54F : Capital gains – Investment in a residential house – The usage of the property has to be considered – Several independent residential units in the same building have to be treated as one residential unit and there is no impediment to allowance of exemption u/s. 54F(1) [S. 45]

    The assessee sold the shares and invested the capital gains for purchase of residential house and claimed exemption u/s. 54F of the Act. The AO held that the assessee owns nine residential flats in his name and that he is deriving the income from the residential flats and declared the same under the head income from house property during AY 006-07 and is therefore, not eligible to claim exemption by invoking proviso (a)(i) and (b) to Section 54F (1). The assessing officer further recorded a finding that properties owned by the appellant are residential apartments. Accordingly, exemption under S. 54F of the Act was denied. Order of the AO is up held by the CIT (A) and Tribunal. On appeal the High Court held that in determining whether the assessee owns more than one residential property, the usage of the property has to be considered. If an apartment is sanctioned for residential purposes but is in fact being used for commercial purposes as a serviced apartment, it has to be treated as commercial property. Alternatively, several independent residential units in the same building have to be treated as one residential unit and there is no impediment to allowance of exemption u/s. 54F(1) (ITA 320 of 2011
    dt. 20-06-2020) (AY. 2006-07)

    Navin Jolly v. ITO (2020) 424 ITR 462 (Karn.)(HC) www.itatonline.org

  27. S. 68 : Cash credits – Commission business – Accommodation entries – Failure to explain the source of deposits in the bank – Addition cannot be made as cash credits – Estimation of commission income by the Tribunal is held go be justified. [S. 132]

    The assessee was in the business of providing accommodation entries. The assessee was charging commission of 0.15%. The AO made entire credit in the bank as cash credits u/s. 68 of the Act as unexplained cash credits. On appeal CIT(A) directed the AO to adopt only 0.15% as income of the total credits. Tribunal also affirmed the view of the CIT(A). On appeal to the High Court the revenue contended that in view of the judgement of the Supreme Court in PCIT v. NRA Iron & Steel Ltd. (2019) 412 ITR 161 (SC) entire credit of ₹ ______________ the total cash deposits of ₹ 4,78,94,000.00 was too added to the total income of the assessee as unexplained income from undisclosed sources under S.68 of the Act. Dismissing the appeal of the revenue the Court held that decision of PCIT v. NRA Iron and Steel Ltd. (supra) is not applicable to the facts of the assessee. Accordingly the order of the Tribunal is affirmed. (ITA 1512 of 2017 dt. 12-06-2020) (AY. 2003-04)

    PCIT v. Alag Securities Pvt. Ltd. (Formerly known as Mahasagar Securities and Richmond Securities Pvt. Ltd.) (Bom) (HC) www.itatonline.org

  28. S. 69 : Unexplained investments – Income from undisclosed sources – Addition is held to be not justified merely on the basis of statement made by partner before Custom authorities. [Customs Act, 1962, S. 108]

    The AO made addition on account of unaccounted investment and unaccounted purchases on the basis of statement made before Custom Authorities. On appeal the CIT (A) held that the AO did not make further inquiries and that the only evidence with the AO was in the form of confessional statement of the partner of the assessee recorded on oath under section 108 of the Customs Act, 1962 and that in the absence of any corroborative evidence or finding, no addition could be made merely on the basis of the admission statement. The Tribunal found that the addition was made based on the show-cause notice issued by the Revenue Intelligence, that the statement was retracted by the partner and that the Customs Excise and Service Tax Appellate Tribunal had dropped the proceeding initiated against the assessee. The Tribunal held that in the absence of any documentary evidence no addition could be made on the action of a third party, i.e., the Directorate of Revenue Intelligence. On appeal by the revenue dismissing the appeal the Court held that the Tribunal was correct in holding that no addition could be made on the basis of the action of the third party, i.e., the Directorate of Revenue Intelligence. The Department could not start with the confessional statement of the assessee. The confessional statement had to be corroborated with other material on record. The appellate authorities had concurrently recorded a finding that except the statement of the partner recorded under section 108 of the 1962 Act there was no other evidence. Relied on Bannalal Jat Constructions (P.) Ltd. v. Asst. CIT [2019] 106 taxmann.com 128 (SC) (AY. 2007-08)

    PCIT v. Nageshwar Enterprises (2020) 421 ITR 388 / 107 CCH 0418 (Guj)(HC)

  29. S. 69A : Unexplained money – Hundi business – Addition cannot be made solely on statement of party against whom search conducted – No cogent material produced by the revenue – Deletion of addition is held to be proper. [S. 132, 143(3), 147 153C]

    Dismissing the appeal of the revenue the Court held that on the facts and the concurrent findings given by the Commissioner (Appeals) and the Tribunal, it was evident that the Department had not been able to produce any cogent material which could fasten the liability on the assessee. The Commissioner (Appeals) had also examined the assessment record and had observed that the Assessing Officer did not make any further inquiry or investigation on the information passed on by the Dy. Commissioner with respect to the party in respect of whom the search was conducted. No attempt or effort was made to gather or corroborate evidence in respect of the addition made under section 69A by the Assessing Officer. Order of the Appellate Tribunal is affirmed. (AY. 2002-03)

    CIT v. Sant Lal (2020) 423 ITR 1 (Delhi)(HC)

  30. S. 69C : Unexplained expenditure – Bogus purchases – Information from Sales-Tax Authority – Neither independent enquiry conducted by Assessing Officer nor due opportunity given to assessee Deletion of addition is held to be justified.

    The Assessing Officer held that the purchases made by the assessee from two sellers were bogus according to information received from the Sales Tax Department, Government of Maharashtra that those two sellers had not actually sold any material to the assessee. Accordingly, he issued show-cause notice to the assessee in response to which the assessee furnished copies of the bills and entries made in its books of account in respect of such purchases. However, the Assessing Officer in his order made disallowances under section 69C. The Commissioner (Appeals) deleted the disallowances. According to the Tribunal the Assessing Officer had merely relied upon the information received from the Sales Tax Department, Government of Maharashtra but had not carried out any independent enquiry. The Tribunal recorded a finding that the Assessing Officer failed to show that the purchased materials were bogus whereas the assessee produced materials to show the genuineness of the purchases and held that there was no justification to doubt the genuineness of the purchases made by the assessee. Dismissing the appeal of the revenue the Court held that the Tribunal was justified in deleting the addition made under S. 69C on the ground of bogus purchases. Merely on suspicion based on the information received from another authority, the Assessing Officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the assessee to controvert the statements made by the sellers before the other authority. (AY. 2010-11)

    PCIT v. Shapoorji Pallonji and Co. Ltd. (2020) 423 ITR 220 (Bom)(HC)

  31. S. 69C : Unexplained expenditure – Bogus purchases – Failure to produce lorry receipts and movement of goods –Mere reliance by the AO on information obtained from the Sales Tax department or the statements of two persons made before the Sales Tax Department would not be sufficient to treat the purchases as bogus – Burden is on revenue to prove that the transaction is not genuine –Deletion of addition is held to be justified. [S. 133(6)]

    The assessee is in the business of sale of furniture and allied items on whole sale basis. AO on the basis of information received from the office of DIG (Inv), Mumbai and from the Sales Tax Department that in the list of bogus sales parties the names of the aforesaid two parties were included which rendered the purchase transaction doubtful. Show cause notice was issued by the AO to the assessee to show cause as to why the aforesaid amount should not be treated as unexplained expenditure and added back to the income of the assessee. The assessee submitted the detailed reply. AO has doubted the purchases from impex Trading Co and Victor Intertrade Pvt. Ltd. on the grounds that the assessee has not produced the lorry receipts and other related documents relating to movement of goods, accordingly disallowed the entire purchase amount paid to parties as unexplained expenditure u/s 69C of the Act. On appeal CIT(A) deleted the addition. Order of CIT(A) was affirmed by the Tribunal. On appeal by the revenue, dismissing the appeal the High Court held that m ere reliance by the AO on information obtained from the Sales Tax Department or the statements of two persons made before the Sales Tax Department would not be sufficient to treat the purchases as bogus and thereafter to make addition u/s. 69C followed CIT v. Nikunj Eximp Enterprises (P) Ltd. (2015) 372 ITR 619 (Bom) (HC) Krishna Textiles v. CIT (2009) 310 ITR 227 (Guj) (HC) (Arising from ITA No. 794/Mum/2015 dt. 16-12-2016 (ITA No. 1940 of 2017 dt. 29-01-2020) (AY. 2010-11)

    PCIT v. Vaman International Pvt. Ltd. (2020) 422 ITR 520 / 118 taxmann.com 406 (Bom.)(HC) www.itatonline.org

  32. S. 80IA : Industrial undertakings – Infrastructure development –Telecommunications Services – Change in shareholding – Losses which have lapsed cannot be taken into account for purposes of computation of deduction. [S. 72(b), 79, 80IA(4), 80IA(5)(2)]

    The assessee-company, established in the year 1997-98, was in the business of providing cellular telecommunications services in the State of Gujarat. During the previous year relevant to the assessment year 200102, there was a change in the shareholding of the assessee, as a result of which the provisions of section 79 was made applicable and the accumulated losses from the assessment years 1997-98 to 2001-02 lapsed. The assessee therefore, made a claim for deduction under S. 80IA for the first time for the assessment year 2005-06. In the return of income, the assessee had shown total income of ₹ 191,59,84,008 and claimed the entire amount as deduction under S. 80IA(4)(ii). According to the Assessing Officer, the quantum of deduction available to the assessee under S. 80IA(4)(ii) of the Act, 1961 was to be computed in accordance with the provisions of S. 80IA(5) of the Act, without the application of the provisions of section 79. This was upheld by the Commissioner (Appeals) and the Tribunal. On appeals Court held that, the assessment year 2005-06 was opted as the first year in the block of 10 consecutive assessment years for claiming deduction under S. 80IA(1). This fact of the option exercised by the assessee was not disputed by the Assessing Officer. Therefore, the assessment year 2005-06 was the initial assessment year and Circular No. 1 of 2016 ([2016] 381 ITR (St.) 1) would be applicable to the facts of the case. The Assessing Officer, the Commissioner (Appeals) and the Tribunal were not justified in applying S. 80IA(5) so as to ignore the losses which had already lapsed by operation of section 79. (AY. 2005-06, 2006-07)

    Vodafone Essar Gujarat Ltd. v. ACIT (2020) 424 ITR 498 (Guj)(HC)

  33. S. 80IA : Industrial undertakings – Production of power – Energy – Power would Include steam – Steam produced can be termed as power and would qualify for the benefits. [S. 80IA(4)]

    The assessee had claimed deduction under S. 80 IA(4) on account of the operation of the captive power plant. The AO held that “vapour” would not fall within the meaning of “power”. The CIT (A) and the Tribunal upheld the assessee’s claim. On appeal dismissing the appeal of the revenue the Court held that S. 80IA(4) of the Act, provides for special deduction to industrial undertakings engaged in the production of power. The word “power” should be understood in common parlance as “energy”. “Energy” can be in any form, mechanical, electricity, wind or thermal. In such circumstances, “steam” produced by an assessee can be termed as power and would qualify for the benefits available under S. 80IA(4) of the Act. (AY. 2011-12)

    PCIT v. Jay Chemical Industries Ltd. (2020) 422 ITR 449 / 107 CCH 0459 (Guj.)(HC)

  34. S. 80IA : Industrial undertakings – Generation of Power – Captive Consumption – Valuation of profits to be taken at rate distribution companies allowed to supply electricity to consumers.

    Dismissing the appeal of the revenue the Court held that, the appropriate rate for valuation of the electricity supplied captively would be the rate at which the electricity distribution companies were allowed to supply electricity to consumers. Followed CIT v. Godawari Power and Ispat Ltd. [2014] 42 taxmann.com 551 (Chhattisgarh)(HC), PCIT v. Gujarat Alkalies and Chemicals Ltd. [2017] 395 ITR 247 (Guj.)(HC)

    CIT (LTU) v. Reliance Industries Ltd. (2019) 104 CCH 0730 / (2020) 421 ITR 686 (Bom.)(HC)

    Editorial: SLP is granted to the revenue CIT v. Reliance Industries Ltd. [2019] 418 ITR 13 (St)(SC)

  35. S. 80IA : Industrial undertakings – Business income – Income from other sources – Interest on deposit of margin money and interest on belated payments by customers is assessable as business profits – Entitle to deduction. [S. 28(i), 56]

    The assessee is engaged in the business of marketing cinematographic sensitised material or picture positives in its industrial undertakings situated at Pondicherry. The Assessing Officer held that in computing the deduction interest received by the assessee from the banks on the margin money deposits or interest received from customers on belated payment of invoices was not includible and this was upheld by the Tribunal. On appeal the court held that the interest earned by the assessee on margin money deposits with the bank and interest on short-term loans and advances in the form of belated payments made by customers was very much profits and gains of the business of the assessee and therefore, the assessee is entitled to deduction under section 80IA of the Act. (AY. 1994-95, 1995-96)

    Avm Cine Products v. Dy. CIT (2020) 421 ITR 431 (Mad.)(HC)

  36. S. 80IB: Industrial undertakings – Manufacture – Making of poultry feed amounts to manufacture – Commercially different and distinct as a commodity – Entitle to deduction [S. 2(29BA)]

    Dismissing the appeal of the revenue the Court held that the poultry feed was not merely rice bran or maize or vitamins or minerals but a mixture of all in calculated proportions through a process involving mills and manufacturing by the use of machinery which ran on electricity and where the end product being the pellet was wholly different from each of the ingredients and resulted in a product which was commercially different and distinct as a commodity so that it could not be considered as any of the original commodities which were used as ingredients. The assessee which was producing poultry feed was entitled to the special deduction. (AY. 2009-10, 2010-11, 2012-13, 2013-14)

    PCIT v. Sona Vets Pvt. Ltd. (2020) 424 ITR 387 (Cal.)(HC)

  37. S. 80JJA : Bio-degradable waste – Collecting and processing – Deduction allowed for four consecutive years – Deduction cannot be denied for fifth year.

    The AO held that the deduction was allowable up to the assessment year 2004-05 being the fifth and last year for the claim. The year under consideration was the eight year from the year in which the business eligible for deduction under section 80JJA was commenced. In such circumstances, the deduction claimed under section 80JJA came to be disallowed and was added to the total income of the assessee. The Appellate Tribunal took into consideration that fact that the first year in which section 80JJA deduction was claimed was the assessment year 2004-05 and during the course of the scrutiny assessment proceedings, the AO had specifically called upon the assessee to show that the deduction under S. 80JJA was allowable during the year under consideration and no such deduction was claimed in the earlier years. The Appellate Tribunal also held that the AO had duly accepted it as the first year of claim. Considering the fact, the Appellate Tribunal took the view that the current year was the fifth and the final year. Hence the claim was admissible. On appeal by the revenue dismissing the appeal the Court held that when the Department thought it fit to grant the deduction for four consecutive years, there was no reason to raise any objection with regard to admissibility of such deduction under S. 80JJA for the fifth and the final assessment year 2008-09. (AY. 2008-09)

    CIT v. Maps Enzymes Ltd. (2020) 422 ITR 554 (Guj.)(HC)

  38. S. 92C : Transfer pricing – Arm’s length price – The OECD guidelines recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them – The examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises – adoption of TNMM as the Most Appropriate Method of arriving at ALP cannot be termed as perverse or contrary to the evidence on record – Difference of opinion as to the appropriateness of one or the other method cannot be gone into in an appeal [S. 92CA, 260A]

    Dismissing the appeal of the revenue the Court held that, the OECD guidelines recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them. The examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. The guidelines discourage restructuring of legitimate business transactions (ii) The finding by the Tribunal regarding the adoption of TNMM as the Most Appropriate Method of arriving at ALP cannot be termed as perverse or contrary to the evidence on record. Difference of opinion as to the appropriateness of one or the other method cannot be gone into in an appeal under S. 260A of the Act. (AY. 2007-08, 2008-09) (TA Nos. 751/ 752 /753 of 2019 dt. 3-2 2020)

    PCIT v. Gulbrandsen Chemicals Pvt. Ltd. (Guj.)(HC) www.itatonline.org

  39. S. 133A : Power of survey – Rejection of books of account and estimation of income – Accommodation entries –Statement of director recorded two Thousand days after survey and not under oath – Merely on the basis of statement addition is held to be not valid [S. 144]

    Dismissing the appeals of the revenue the Court held that the statement recorded under S. 133A not being recorded on oath could not have any evidentiary value and no addition could be made on the basis of such statement. The Tribunal had found that the assessee had discharged the onus to prove that the transactions were genuine by furnishing the relevant documents, such as, copies of bank statements, ledger copies of various purchases, xerox copies of purchase invoices, relevant copies of daily stock register, confirmation letters, etc. The order of the Tribunal holding that on the basis of the statement given by a director of the assessee the Assessing Officer could not have concluded that the assessee had issued accommodation bills and rejected the books of account, was justified. (AY. 2008-09, 2009-10)

    PCIT v. Sunshine Import and Export Pvt. Ltd. (2020) 424 ITR 195 (Bom.)(HC)

  40. S. 143(2) : Assessment – Notice – Defective return – Rectification of defects relates back to date of original return – Original return was filed on 10-09-1996 – Defects removed on July 7, 2017 – Notice u/s. 143(2) was issued on August 9, 2018 – Barred by limitation [S. 139(1), 139(9), 143(3)]

    The assessee filed its return of income under sub-section (1) of section 139 on September 10, 2016. Since the return was defective, the assessee was called upon to remove such defects, which came to be removed on July 7, 2017, that is, within the time allowed by the Assessing Officer. Therefore, upon such defects being removed, the return would relate back to the date of filing of the original return, that is September 10, 2016 and consequently, the limitation for issuance of notice under sub-section (2) of section 143 of the Act would be September 30, 2017, viz., six months from the end of the financial year in which the return under sub-section (1) of section 139 was filed. The notice under sub-section (2) of section 143 of the Act had been issued on August 9, 2018, which was much beyond the period of limitation for issuance of such notice as envisaged under that sub-section. The notice, therefore, was barred by limitation and could not be sustained. Court held that the action of removal of the defects would relate back to the filing of the original return of income and accordingly, it is the date of filing of the original return which has to be considered for the purpose of computing the period of limitation under sub-section (2) of section 143 of the Act and not the date on which the defects actually came to be removed. Relied on Dhampur Sugar Mills Ltd. v. CIT [1973] 90 ITR 236 (All) (HC). (AY. 2016-17)

    Kunal Structure (India) Pvt. Ltd. v. Dy. CIT (2020) 422 ITR 482 / 269 taxman 440 (Guj.)(HC)

  41. S. 144: Best judgment assessment – Bogus purchases – Hawala entries – Sales tax department –Income from undisclosed sources – Estimate of profits at 5% of bogus based is held to be justified [S. 142(1)]

    The AO disallowed the entire purchases on the ground that the assessee has obtained bogus purchase bills from entry provider on the basis of information from sales tax department. On appeal the CIT(A) has confirmed addition of two per cent of the purchase amount as profit. On appeal the Tribunal directed the Assessing Officer to make a further addition of three per cent. On appeal by the revenue dismissing the appeal the Court held that the Tribunal has observed that the assessee’s gross profit varied from five per cent to 8.77 per cent. Since the purchases were made from the grey market, the corresponding profit element would be little higher. Therefore, the Tribunal directed the Assessing Officer to make a further addition of three per cent on the bogus purchases and to estimate the income on such basis. There was no error or infirmity in the order of the Tribunal. (AY. 2010-11)

    PCIT v. Rishabhdev Technocable Ltd. (2020) 424 ITR 338 (Bom.)(HC)

  42. S. 144C : Reference to dispute resolution panel – Draft assessment order – Natural justice – Appellate Tribunal – Admission of additional evidence is held to be justified on question of law – When the Tribunal set aside the proceedings on the ground of violation of the principles of natural justice, the first exercise was void and without jurisdiction – Nothing remained on the record, including the draft assessment order – Issuance of a draft assessment order was necessary – Proceedings were to be started afresh on remand – Non-issuance of the draft assessment order thus vitiated the final assessment order. [S. 92C, 254(1)]

    The assessee filed its return of income declaring a loss. The assessment order was passed under section 143(3). On the basis of the order passed by the Transfer Pricing Officer under S. 92CA(3). The assessee filed its objection before the Dispute Resolution Panel. The Panel directed the Assessing Officer to modify the order. The Assessing Officer passed an order giving effect to the revised transfer pricing adjustment. The assessee filed an appeal before the Tribunal against the order passed by the Assessing Officer under section 144C(13). Since the Transfer Pricing Officer had changed in the meanwhile, the Tribunal held that the new Transfer Pricing Officer should have given hearing to the assessee and by an order set aside the assessment order. An appeal to the Commissioner (Appeals) was partly allowed. On further appeal to the Tribunal, the assessee raised the additional ground that after the remand, a fresh draft assessment order had not been passed. The Tribunal allowed the additional ground and held that the assessment was not valid. On appeal, the Court held that a draft assessment order was an essential requirement of the scheme of section 144C and in view of the admitted factual position, the Tribunal was not in error in admitting the additional ground of appeal. Court also held that the Tribunal set aside the entire exercise and the matter was relegated to the Assessing Officer. Once the matter was sent back to be decided afresh it went back to the stage of section 144C(1) of the Act. Since the Tribunal set aside the proceedings on the ground of violation of the principles of natural justice, the first exercise was void and without jurisdiction. Therefore, nothing remained on the record, including the draft assessment order. Therefore, issuance of a draft assessment order was necessary. Proceedings were to be started afresh on remand. Non-issuance of the draft assessment order thus vitiated the final assessment order.

    PCIT v. Andrew Telecommunications P. Ltd. (2020) 423 ITR 503 (Bom.)(HC)

  43. S. 144C : Reference to dispute resolution panel – Provision Applicable From Assessment Year 2011-12 – Insertion of S. 144C By Finance (No. 2) Act Of 2009 – Provision applicable from assessment Year 2011-12 – Circular In 2013 stating that provision would be applicable from October 2009 is held to be not valid.

    Court held that circulars and instructions issued by the Board are, no doubt, binding in law on the authorities, they are not binding upon the courts. The explanatory circular made it clear that the scheme of assessment under S. 144C will apply in relation to the assessment year 2010-11 and subsequent assessment years only. However a circular issued in 2013 stated that section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after October 1, 2009 irrespective of the assessment year to which it pertains. The right that has enured to the parties in 2009 cannot be modified by a clarification issued by the Board, three years thereafter. This circular will not bind the Assessing Officer, particularly when it does not lay down the correct position of law. (AY. 2007-08)

    Vedanta Ltd. v. ACIT (2019) 106 CCH 0430 / (2020) 422 ITR 262 (Mad.)(HC)

  44. S. 145 : Method of accounting – Completed contract method – Consistently followed and accepted by revenue – Method cannot be rejected.

    Dismissing the appeal of the revenue the Court held that the assessee was following the mercantile system of accounting and in accordance with the notes to the accounts, the assessee was following completed contract method of accounting for contracts. The method of assessment had been accepted by the Department in the past and therefore, in view of the law laid down by the Supreme Court in CIT v. Bilahari Investments Pvt. Ltd. (2008) 299 ITR 1 (SC) the Commissioner (Appeals) and the Tribunal had rightly held that there was no justification on the part of the Assessing Officer to change the earlier method adopted by the assessee and to determine the income on estimate basis. (AY. 1997-98)

    CIT v. Banjara Developers and Constructions Pvt. Ltd. (2020) 425 ITR 673 (Karn.)(HC)

  45. S. 147 : Reassessment – After the expiry of four years – Bogus capital gains – Penny stocks – Information was received from the Investigation Wing of the Income Tax Department – The assessee disclosed the primary facts to the AO & also explained the queries put by the AO – It cannot be said that the assessee did not disclose fully and truly all material facts necessary for the assessment – Reassessment is held to be not valid [S. 45, 148]

    Allowing the petition the Court held that, the Dept’s argument that though the assessee disclosed details of the transactions pertaining to purchase and sale of shares, it did not disclose the real colour / true character of the transactions and, therefore, did not make a full and true disclosure of all material facts which was also overlooked by the AO, is not correct. The assessee disclosed the primary facts to the AO & also explained the queries put by the AO. It cannot be said that the assessee did not disclose fully and truly all material facts necessary for the assessment. Reassessment notice is held to be bad in law. (WP. N0 2518 of 2019 dt. 11-03-2020) (AY. 2012-13)

    Gateway Leasing Pvt. Ltd. v. ACIT (2020) 272 Taxman 255 (Bom.)(HC) www.itatonline.org

  46. S. 147 : Reassessment – After the expiry of four years – Year of chargeability – Reassessment is held to be bad in law – No failure to disclose material facts [S. 45(1), 45(2), 143(3), 143(1), 148, Art. 226]

    The assessee filed the return of income showing the income from business and capital gains u/s. 45(2) of the Income-tax Act. In the course of the assessment proceedings the petitioner furnished all the relevant details including the nature of the activities undertaken, details of the flats sold and the closing stock. The assessment was completed u/s. 143(3) of the Act. The AO reopened the assessment on the ground that the closing stock should have been valued on the basis of market price, capital gain was valued at taking higher value as cost of acquisition. Allowing the petition the Court held that the Capital gains are chargeable to tax when individual flats are sold and not when the land is transferred to the co-operative society formed by the flat purchasers. The flat purchasers, by purchasing the flats, had certainly acquired a right or interest in the proportionate share of the land but its realisation is deferred till formation of the co-operative society by the owners of the flats and eventual transfer of the entire property to the co-operative society. Accordingly considering an overall consideration of the entire matter, it is quite evident that there was no basis or justification for respondent to reopen the assessment. The reasons rendered could not have led to formation of any belief that income had escaped assessment within the meaning of the aforesaid provision. Accordingly the reassessment notices were quashed. (WP No 788 of 2001 dt. 12-06-2020) (AY. 1992-93, 1993-94, 1994-95, 1995-96)

    J. S. & M. F. Builders v. A. K. Chauhan (2020) 272 Taxman 359 (Bom.)(HC) www.itatonline.org

  47. S. 147 : Reassessment –Amalgamation – Notice issued against transferor – Amalgamating entity ceases to have existence – Notice and subsequent proceedings unsustainable [S. 148, Art. 226]

    Allowing the petition the Court held that, notice issued against Transferor Company, amalgamating entity ceases to have existence hence the notice and subsequent proceedings unsustainable. Accordingly, the notice and all the proceedings taken pursuant thereto, were to be quashed and set aside. (AY. 2012-13)

    Gayatri Microns Ltd. v. ACIT (2020) 424 ITR 288 (Guj.)(HC)

  48. S. 147 : Reassessment – Notice issued in name of dead person – Notice and proceedings invalid [S. 131(IA), 148, 159, 292A, Art. 226]

    Allowing the petition the Court held that the petitioner at the first point of time had objected to the issuance of notice under section 148 in the name of his deceased father (assessee) and had not participated or filed any return pursuant to the notice. Therefore, the legal representatives not having waived the requirement of notice and not having submitted to the jurisdiction of the Assessing Officer pursuant thereto, the provisions of S. 292A would not be attracted and hence the notice had to be treated as invalid. Even prior to the issuance of such notice, the Department was aware about the death of the petitioner’s father (assessee) since in response to the summons issued under S. 131(1A) the petitioner had intimated the Department about the death of the assessee. Therefore, the Department could not say that it was not aware of the death of the petitioner’s father (assessee) and could have belatedly served the notice under S. 159 upon the legal representatives of the deceased-assessee. The notice dated March 28, 2018 issued in the name of the deceased-assessee by the Assessing Officer under S. 148 as well as further proceedings thereto were to be quashed and set aside. (AY. 2011-12)

    Durlabhai Kanubhai Rajpara v. ITO (2020) 424 ITR 428 (Guj.)(HC)

  49. S. 147 : Reassessment – Book profit – Provision for bad and doubtful debt – Oder of the AO was in accordance with the judgement of the Supreme Court – Subsequent retrospective amendment withdrawing deduction – Notice based on amendment is held to be not valid [S. 115JA, 115JB, 148]

    Dismissing the appeal of the revenue the court held that, when the AO passed the assessment order provision for bad and doubtful debt was clearly a deductible amount for the purpose of section 115JA of the Act. [CIT v. HCL Comnet Systems and Services Ltd. (2008) 305 ITR 409 (SC)] Parliament amended Explanation 1 to section 115JB by the Finance (No. 2) Act, 2009 [(2009) 314 ITR (St.) 57]. The amendment had retrospective effect from April 1, 2001. However, the reassessment notice was issued on March 31, 2008 and on that date, the judgment of the Supreme Court referred above which was delivered on September 23, 2008 was holding the field. The relevant particulars and details on the basis of which the claim for deduction was made by the assessing authority for the assessment year 2003-04 were very much available at the time of original assessment order passed by the assessing authority on March 10, 2006. The notice of reassessment to withdraw the deduction was not valid. (AY. 2003-04)

    CIT v. Saint Gobain Glass India Ltd. (2020) 422 ITR 417 (Mad.)(HC)

  50. S. 147 : Reassessment – Officer recording reasons and issuing notice must be the jurisdictional Assessing Officer – Reasons recorded by jurisdictional Assessing Officer – E-assessment Scheme – Notice issued by officer who did not have jurisdiction over assessee – Defect not curable – Notice and consequential proceedings and order invalid [S. 148, 292B]

    An order 43(1) was passed u/s. 143(1) of the Act. A notice dated March 29, 2018 under section 148 was issued to reopen the assessment. The assessee submitted that the original return filed by him be treated as the return filed in response to the notice under S. 148 and requested the Assessing Officer to supply a copy of the reasons recorded for reopening the assessment. The assessee participated in the assessment proceedings and raised objections against the initiation of proceedings under S. 147 on the ground that the assumption of jurisdiction on the part of the Assessing Officer by issuance of notice under S. 148 was invalid contending that the notice was issued by the ITO, Ward No. 2(2), whereas the reasons were recorded by the Dy. CIT, Circle 2. The Department contended that issuance of the notice by the ITO was a procedural lapse which had happened on account of the mandate of e-assessment scheme and non-migration of the permanent account number of the assessee in time and that such defect was covered under the provisions of S. 292B and therefore, the notice issued could not be said to be invalid. On writ allowing the petition the Court held that while the reasons for reopening the assessment had been recorded by the jurisdictional Assessing Officer, viz., the Deputy Commissioner, Circle 2, the notice under section 148(1) had been issued by the ITO, Ward 2(2), who had no jurisdiction over the assessee, and hence, such a notice was bad on the count of having been issued by an Officer who had no authority to issue such notice. It was the Officer recording the reasons who had to issue the notice under S. 148(1) whereas the reasons had been recorded by the jurisdictional Assessing Officer and the notice had been issued by an Officer who did not have jurisdiction over the assessee. Accordingly no proceedings could have been taken under S. 147 in pursuance of such invalid notice. The notice under S. 148(1) and all the proceedings taken pursuant thereto could not be sustained. (AY. 2011-12)

    Pankajbhai Jaysukhlal Shah v. ACIT (2020) 425 ITR 70 / 185 DTR 306 / 312 CTR 300 (Guj.)(HC)

  51. S. 148 : Reassessment – Notice – Reasons not recorded – Notice is held to be not valid [S. 147]

    Dismissing the appeal of the revenue the Court held that, it is incumbent upon the assessing authority to record the reasons on record, while invoking these powers of reassessment and only then issue formal notice under section 148 requiring the assessee to file fresh returns in accordance with law. Notice issued without recording the reasons is held to be bad in law. (AY. 1997-98)

    Dy. CIT v. Gay Travels P. Ltd. (2020) 424 ITR 376 (Mad.)(HC)

  52. S. 148: Reassessment – Notice –Pendency of assessment – Issue of notice for reassessment is not permissible [S. 124(3), 142(1), 143(3), 147]

    Dismissing the appeal of the revenue the Court held that ,the income could not be said to have escaped assessment under section 147 when the assessment proceedings were pending. If the notice had already been issued under S. 142(1) and the proceedings were pending, a return under S. 148 could not be called for. S. 124(3) which stipulates a bar to any contention about lack of jurisdiction of an Assessing Officer would not save the illegality of the assessment in the assessee’s case. Followed Trustees of H. E. H. The Nizam’s Supplemental Family Trust v. CIT [2000] 242 ITR 381 (SC) Nilofer Hameed (Smt.) v. ITO [1999] 235 ITR 161 (Ker.)(HC) a CIT v. Sayed Rafiqur Rahman [1991] 189 ITR 476 (Patna)(HC) (AY. 2011-12)

    PCIT v. Govind Gopal Goyal (2020) 423 ITR 106 (Guj.)(HC)

  53. S. 179 : Private company – Liability of directors – Inability to recover dues from company – Revenue should establish inability to recover due from the Company. [Art. 226]

    On writ the court held that the notice was totally silent as regards the satisfaction of the condition precedent for taking action under section 179, viz., that the tax dues could not be recovered from the company. The notice was not valid.

    [However in the peculiar facts and circumstances of the case and more particularly, when it had been indicated before the court by way of any additional affidavit-in-reply as regards the steps taken against the company for the recovery of dues, a chance was to be given to the Department to undertake a fresh exercise under S. 179] (AY. 2011-12 to 2014-15)

    Sonal Nimish Patel v. ACIT (2020) 422 ITR 275 / 107 CCH 0449 (Guj.)(HC)

  54. S. 179 : Private company – Liability of directors – Recovery of tax – Attachment and sale of property – Properties settled on trust for grandchildren – Recovery proceedings Against son –Properties settled on Trust cannot be attached.

    The properties were settled for the benefit of grand children. The petitioner was one of the trustees, in the year 1986 joined the assessee-company as a managing director and resigned from the company in the year 1993. In 1990 the Department carried out a survey action in the case of the company. Orders of assessment were passed for the assessment years 1988-89, 1989-90 and 1990-91. The liability of the managing director was quantified. For realisation of the liability, by separate attachment orders, the Tax Recovery Officer attached three properties belonging to the trust on the premise that the three properties belonged to the petitioner in his individual capacity. On a writ the Court held that the properties belonged to the trust which was settled by will by S before initiation of recovery proceedings by the Revenue against the petitioner. The properties did not belong to the petitioner in his individual capacity or his legal heirs or representatives. The trust had been formed in the year 1978 and the will of the mother was made in 1985 much before initiation of recovery proceedings. There was no question of the properties being diverted to the trust to evade payment of due tax. That being the position, the attachment orders were liable to be quashed. (AY. 1988-89, 1989-90, 1990-91)

    Rajesh T. Shah v. Tax Recovery Officer (2020) 425 ITR 443 (Bom.) (HC)

  55. S. 194H : Deduction at source – Commission on reinsurance premium – Not liable to deduct tax at source.

    Dismissing the appeal of the revenue the Court held that as a matter of industrial practice the payment was termed “commission on reinsurance premium received” but in substance it was discount on reinsurance premium received by an insurance company from another insurance company, accordingly not liable to deduct tax at source.

    CIT v. Royal Sundaram Alliance Insurance Co. Ltd. (2020) 423 ITR 122 (Mad.)(HC)

  56. S. 226 : Collection and recovery – Stay – Appeal pending before Commissioner (Appeals) – Request to keep the demand in abeyance – Assessing Officer refusing and directing to pay 20 Per Cent of demand – Held to be not proper – Commissioner (Appeals) was directed to hear the appeal expeditiously [S. 246A]

    Court held that if the demand was under dispute and subject to the appellate proceedings, then, the right of appeal vested in the assessee by virtue of the statute would be rendered illusory and nugatory by the communication from the Assessing Officer. If the amount as directed by the communication was not brought in, the assessee might not have an opportunity to even argue his appeal on the merits or the appeal might become infructuous, if the demand was enforced and executed during its pendency. In that event, the right to seek protection against collection and recovery pending appeal by making an application for stay would also be defeated and frustrated. Such was not the mandate of law. Once it was an appealable order and the appeal had been filed and it was pending, the assessee should have been given either an opportunity to seek a stay during the pendency of the appeal, which power was conferred admittedly on the Commissioner or the Assessing Officer should have kept the demand in abeyance as prayed for by the assessee.

    The court directed that the appellate authority should conclude the hearing of the appeals as expeditiously as possible, that during the pendency of the appeals before the Commissioner (Appeals), the attachment, if any, of the assessee’s bank account should be lifted and that the assessee should not be called upon to make payment of any sum, much less to the extent of 20 per cent under the assessment order or confirmed demand. (AY. 2015-16)

    Bhupendra Murji Shah v. Dy. CIT (2020) 423 ITR 300 (Bom.)(HC)

  57. S. 251 : Appeal – Commissioner (Appeals) – Powers – Powers of Appellate Authorities – Appellate Authorities can consider claim not raised before Assessing Officer Education cess is held to be deductible. [S. 40(a)(ii), 254(1)]

    Court held that though the claim to deduction of education cess and higher and secondary education cess was not raised in the original return or by filing a revised return, the assessee had addressed a letter claiming such deduction before the assessment could be completed. However, even if we proceed on the basis that there was no obligation on the Assessing Officer to consider the claim for deduction in such letter, the Commissioner (Appeals) or the Appellate Tribunal, before whom such deduction was specifically claimed, was duty bound to consider such claim. Followed CIT v. Orient (Goa) P. Ltd. [2010] 325 ITR 554 (Bom.) (HC) (AY. 2008-09, 2009-10)

    Sesa Goa Ltd. v. JCIT (2020) 423 ITR 426 (Bom.)(HC)

  58. S. 244A : Refund – Interest on refunds – Retention of impounded cash – Delay of more than three years after finalisation of assessment in refunding amount seized – Entitled to interest from date of order passed by Assessing Officer till date of payment – Right to property – Retention of impounded cash without any authority of Law is violation of Article 300A of Constitution. [132B(4), 153A, 263, Art. 300A]

    Allowing the petition the Court held that the assessee was entitled to interest under section 244A for the period from January 22, 2014 till the date of payment. The contention of the Department that the amount was relinquished under section 132A and hence interest only according to the provision under section 132B(4) could be granted, was not tenable. Section 132B(4) provides for interest to be paid after 120 days of the date of last authorisation till the date of completion of assessment under section 153A or Chapter XIV-B. This provision could not be read in isolation in the facts of the assessee’s case where in spite of completion of the assessment on January 21, 2014, the amount was not refunded till July 4, 2017. The assessee was entitled to interest under section 244A(1)(b) from the date of the assessment order passed by the Assessing Officer till the date of payment of the seized amount.

    Court also held that to deprive the assessee of his property without authority of law violated article 300A of the Constitution of India. In the absence of any legal backing non-refund of the seized amount to the assessee, the assessee was entitled to interest even under the general law. (AY. 2012-13)

    Jiwan Kumar v. PCIT (2020) 424 ITR 296 (P&H)(HC)

  59. S. 254(1) : Appellate Tribunal – Duties – Additional evidence –Failure by Appellate Tribunal to exercise jurisdiction vested in it – Matter Remanded to Appellate Tribunal [S. 69C, 260A, ATR, 1963, R. 29]

    Allowing the appeal of the assessee the Court held that the Appellate Tribunal had not considered the assessee’s application seeking leave to produce additional evidence at the stage of appeal by it. This amounted to failure to exercise jurisdiction which was vested in the Tribunal by virtue of the provisions in Rule 29 of the 1963 Rules. Upon exercise of such jurisdiction, thereafter, it was open to the Tribunal to examine whether the application made by the assessee fulfilled the parameters of rule 29 of the Rules, 1963 or whether something was required to be said as regards the documents that were sought to be produced at the appellate stage. There was no discussion on whether such material could be admitted in evidence at the appellate stage and thereafter considered. The order of the Tribunal was to be set aside and the matter was to be remanded to the Tribunal for consideration of the assessee’s application seeking leave to produce additional evidence before the Tribunal. Matter remanded.

    Braganza Construction Pvt. Ltd. v. ACIT (2020) 425 ITR 115 (Panaji )(Bom.)(HC)

  60. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Duty of Tribunal to decide on merits – Appeal dismissed ex-parte for non prosecution – Granted liberty for recall of order – Application for recalling the order rejected on ground of limitation – Date of communication or knowledge, actual or constructive, of the orders sought to be rectified or amended under S. 254(2) of the Act becomes critical and determinative for the commencement of the period of limitation – Rejection of rectification is held to be not valid. [S. 254(1), Appellate Tribunal) Rules, 1963, R. 24, 35]

    Allowing the petition the Court held that the appeal had been dismissed ex parte for non-prosecution. At the same time, the assessee was granted liberty to approach the Appellate Tribunal for recall of the order if it was able to show a reasonable cause for non-appearance. Thus, there was no adjudication on the merits of the appeal. The dismissal of the application for recall of the order on the ground of limitation was not valid. Court considered the Rule 24 and 35 of the Appellate Tribunal Rules 1963. As per Rule 24 no limitation is prescribed. Rule 35 also requires that the orders are required to be communicated to the parties. The section and the rule mandates the communication of the order to the parties. Thus, the date of communication or knowledge, actual or constructive, of the orders sought to be rectified or amended under S. 254(2) of the Act becomes critical and determinative for the commencement of the period of limitation. (AY. 2006-07)

    Golden Times Services Pvt. Ltd. v. Dy. CIT (2020) 422 ITR 102 / 107 CCH 0016 (Delhi)(HC)

  61. S. 260A : Appeal – High Court – Question of law – Can be entertained by the High Court on the issue of jurisdiction even if the same was not raised before the Tribunal – The question relating to non-striking off of the inapplicable portion in the s. 271(1)(c) show-cause notice goes to the root of the lis & is a jurisdictional issue. [S. 271(1)(c), 274]

    High court held that question of law which was not raised before the Tribunal can be raised before the High Court. Non striking of relevant portion of the penalty notice whether penalty cab be levied or not being question of law, the high Court entertained the question of law raised by the assessee. (Referred CIT v. Jhabua Power Ltd. (2013) 37 taxmann.com 162 / 217 Taxman 399 (SC), Ashis Estates & Properties (P) Ltd. v. CIT (2018) 96 taxmann.com 305 / 257 Taxman 585 (Bom.)(HC)(ITA No. 958 of 2017 dt. 12-06-2020 (AY. 2003 -04)

    Ventura Textiles Ltd. v. CIT (2020) 117 taxmann.com 182 (Bom.) (HC) www.itatonline.org

  62. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Revaluation of land and building – Capital gains on sale of land –Two possible views – Revision is held to be bad in law [S. 45]

    The assessee had revalued the land during the financial year 2010-11 and computation of indexed cost of acquisition for the purpose of working of capital gains, started with the revalued amount. The only income of the assessee for the assessment year was capital gains arising on the sale of the land. Though the Assessing Officer had not passed a detailed order, he had accepted the returns filed by the assessee. The present shareholders of the assessee-company paid capital gains tax considering the market value of the landed property. The Assessing Officer had accepted the claim of the assessee that the calculation from the revised value was correct. The Assessing Officer had accepted the returns filed by the assessee-company and the assessee-company had also given reasons for adopting the revised value and pointed out that except the property, the company had no other property for income, that the entire shares had been transferred and that the value of the land were revised and revalued and that capital gains tax also paid. Dismissing the appeal of the revenue the Court held that the order of revision setting aside the assessment order was not justified. (AY. 2014-15)

    CIT v. A. R. Builders and Developers P. Ltd. (2020) 425 ITR 272 (Mad.)(HC)

  63. S. 263 : Commissioner – Revision of orders prejudicial to revenue Assessing Officer making enquiries pertaining to remuneration of partners and expenses and receipts – Order is neither erroneous nor prejudicial to interests of revenue.

    Dismissing the appeal of the revenue the Court held that the assessment order indicated that the Assessing Officer had made enquiries that pertained to the issues of the remuneration of the partners and other expenses and receipts and the assessee had submitted details therefor. He had enhanced the returned income of the assessee making additions out of various expenses. Accordingly there was no infirmity in the order passed by the Tribunal reversing the revision order of the PCIT and restoring the assessment order passed by the Assessing Officer. (AY. 2011-12)

    PCIT v. Hari Om Stones (2020) 423 ITR 198 (Raj.)(HC)

  64. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Export business – Every loss of revenue as a consequence often order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue –Revision is held to be not valid. S. 80HHC]

    Dismissing the appeal of the revenue the Court held that there was no infirmity in the calculations made by the AO while computing the deductions and hence the view of the Commissioner that the AO committed an error while passing the respective assessment orders which resulted in loss of revenue prejudicial to interests of the Revenue could not be sustained. Consequently, the direction in the order of the Commissioner to the AO to compute deduction under S. 80HHC was without any basis. The Commissioner had erred in invoking the revisional powers under S. 263 in the facts of the present cases. Followed Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) (AY. 1998-99, 2003-04)

    CIT v. Madura Coats Ltd. (2019) 106 CCH 0431 / (2020) 422 ITR 390 (Mad.)(HC)

  65. S. 271(1)(c) : Penalty – Concealment – Survey – Before due date of filing of return –Amount disclosed in the return – Return accepted without additions – Levy of penalty is held to be not valid [S. 132, 133A, 139(1)]

    Dismissing the appeal of the revenue the Court held that the Tribunal proceeded on the principle of law that when the assessee had disclosed the amount during the survey action under S. 133A and the amount was disclosed in the return of income filed under section 139(1), there could not be any order of penalty under section 271(1)(c). (AY. 2012-13)

    PCIT v. Yamunaji Corporation (2020) 424 ITR 369 (Guj.)(HC)

  66. S. 271(1)(c) : Penalty – Concealment – Inadvertent error – Failure to disallow the unpaid interest – Levy of penalty is held to be not justified. [S. 43B(e)]

    The assessee has not disallowed the unpaid interest under S. 43B of the Act. In response to penalty notice the assessee submitted that it had returned a loss and had substantial carry forward losses also and consequently, the assessee had no benefit, interest or intention in making an unsupportable claim to enhance the loss. However the AO levied the penalty. On appeal the CIT (A) Deleted the penalty, which was affirmed by the Appellate Tribunal on the ground that the omission to make suo motu disallowance under section 43B(e) was an inadvertent error and not with an intention to understate the income. On appeal by revenue dismissing the appeal the Court held that the conduct of the assessee established that the omission to make suo motu disallowance under section 43B(e) was an inadvertent error and not with an intention to understate its income by furnishing inaccurate particulars and could not be stated to be a contumacious conduct on the part of the assessee with an intention to understate its income. (MAK DATA P. LTD. v. CIT (2013) 358 ITR 593 distinguished, followed Price Waterhouse Coopers Pvt. Ltd. v. CIT (2012) 348 ITR 306 (SC) (AY. 2012-13)

    CIT v. Celebrity Fashions Ltd. (2019) 105 CCH 0499 / (2020) 421 ITR 458 (Mad.)(HC)

  67. S. 271(1)(c) : Penalty – Concealment – Business expenditure – Full particulars were declared in the return – Merely because disallowance of expense, levy of penalty is held to be not justified on merit – Not sticking of inapplicable portion in the notice – In assessment order it was clearly mentioned that penalty proceedings u/s. 271(1)(c) had been initiated separately for furnishing inaccurate particulars of income – Penalty cannot be quashed only on technical ground not sticking of inapplicable portion in the notice [S. 37(1), 274]

    Court held that it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off, the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings u/s 271(1)(c) had been initiated separately for furnishing inaccurate particulars of income, (iv) Penalty cannot be imposed for alleged breach of one limb of s. 271(1)(c) of the Act while proceedings were initiated for breach of the other limb of s. 271(1)(c). This vitiates the order of penalty, (v) Threat of penalty cannot become a gag and / or haunt an assessee for making a claim which may be erroneous or wrong Concealment of particulars of income was not the charge against the appellant, the charge being furnishing inaccurate particulars of income. It is trite that penalty cannot be imposed for alleged breach of one limb of Section 271(1)(c) of the Act while penalty proceedings were initiated for breach of the other limb of Section 271(1)(c). This has certainly vitiated the order of penalty. Followed CIT v. Reliance Petroproducts Ltd. (2010) 322 ITR 158 (SC) (Referred CIT v. SSA’s Emerald Meadows, (2016) 73 Taxmann.com 248(SC) / 242 Taxman 180 (SC); CIT v. SSA’s Emerald Meadows, (2016) 73 Taxmann.com 241 (Karn.)(HC) CIT v. Manjunath Cotton and Ginning Factory 359 ITR 565 (Karn.)(HC), CIT v. Samson Pernchery, (2017) 98 CCH 39 (Bombay); PCIT v. New Era Sova Mine, (2019) SCC OnLine Bom 1032; PCIT v. Goa Coastal Resorts & Recreation Pvt. Ltd., (2019) 106CCH 0183 (2020) 113 taxmann.com 574 (Bom.)(HC); PCIT v. Shri Hafeez S. Contractor, ITA Nos. 796 and 872 of 2016 dt. 11.12.2018. (ITA No. 958 of 2017 dt.
    12-06 2020)
     (AY. 2003-04)

    Ventura Textiles Ltd. v. CIT (2020) 117 taxmann.com 182 (Bom.) (HC) www.itatonline.org

  68. S. 276 : Offences and prosecutions – Concealment – Appeal against assessment pending before appellate authority – Criminal proceedings to be kept in abeyance till decision by appellate authority. [S. 276(1), Art. 226, 227]

    A complaint was filed against the assessee-company and its managing director by the Asst. Commissioner alleging wilful attempt to evade tax punishable under S. 276C(1) of the Act. On a writ petition, by the assessees contending that they had filed an appeal before the statutory authority challenging the assessment and that the criminal proceedings pending against them might be kept in abeyance till disposal of the statutory appeal, allowing the petition the Court held that there was force in the contention of the assessees that the appeal before the statutory appellate authority regarding the assessment and the computation of the tax would have a bearing on the prosecution against the assessees for wilful attempt to evade tax. The Additional Chief Judicial Magistrate (Economic Offences) was directed to keep in abeyance all further proceedings against the assessees.

    Beaver Estates Pvt. Ltd. v. CIT (2020) 425 ITR 99 (Ker.)(HC)

  69. S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Compounding of offences – Compounding fees to be computed on basis of tax evaded and not income sought to be evaded [S. 132, 271, 276(1), 278, 278B]

    The Assessing Officer passed orders for the assessment years 1983-84, 1984-85 and 1985-86 making additions on account of cash credits and bogus purchases. Thereafter, in the year 1987, complaints under sections 276C(1), 271, 278B and 278 for those assessment years were filed against the assessee before the Additional Chief Metropolitan Magistrate. The assessee filed applications for compounding of the offences according to the guidelines issued by the Central Board of Direct Taxes for compounding of offences under the Direct Tax Laws, 2014. The Assessing Officer calculated the compounding fees on the basis of the concealed income and communicated this to the assessee with the approval of the Chief Commissioner. On writ the Court held that the compounding of offence under S. 276C(1) would be permissible on payment of 100 per cent of the tax sought to be evaded and not 100 per cent of the amount sought to be evaded by the assessee. The assessee was therefore required to pay 100 per cent of the tax sought to be evaded for compounding of offence under S. 276C(1) of the Act. (AY. 1983-84 to 1985-86)

    Mehta Laboratories v. PCIT (2020) 424 ITR 405 (Guj.)(HC)

  70. S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Concealment of income – Appeal – Failure to produce documents to prove there was no willful default –Additional evidence – Appellate Court has the power to admit additional evidence in the interest of justice. [S. 271(1)(c), 278B(3), Criminal Procedure Code, 1973, S. 190, 200, 391]

    The assessee-company was a textile manufacturer. It was represented by its managing director, the first petitioner and the executive director, the second petitioner. The ACIT filed a complaint before the Judicial Magistrate under S. 200 and 190(1) of the Criminal Procedure Code against the petitioners for offences under S. 276C(2) read with S. 278B(3) of the Act, for the assessment year 2012-13 for wilful default in payment of penalty levied under S. 271(1)(c) for concealment of income on account of capital gains that arose by way of sale of certain immovable properties. The petitioners contended that the trial court had failed to take into consideration the necessity and requirement for marking the documents adduced by way of additional evidence. On a criminal revision petition allowing the petition the Court held that according to section 391 of the Code, if the appellate court opined that additional evidence was necessary, shall record its reasons and take such evidence itself. The petitioners had been charged under sections 276C(2) read with section 278B(3) of the Act for having wilfully failed to pay the penalty and having deliberately failed to admit the capital gains that arose from the sale transactions done by the assessee. The criminal revision petition under section 391 of the Code had been filed by the petitioners even at the time of presentation of the appeal. The documents sought to be marked as additional evidence were not new documents and they were documents relating to filing of returns with the Department in respect of the earlier assessment years, copies of which were also available with the Department. By marking these documents, the nature or course of the case would not be altered. The documents had not been produced before the trial court due to inefficiency or inadvertence of the person who had conducted the case. Where documents were left out to be marked due to carelessness and ignorance, they could be allowed to be marked for elucidation of truth, in the interest of justice, by exercising powers under section 391 of the Code. The petitioners should be allowed to let in additional evidence subject to the provisions of Chapter XXIII of the Code in the presence of the complainant and his counsel. (AY. 2012-13)

    Gangothri Textiles Ltd. v. ACIT (2020) 423 ITR 382 / 189 DTR 380 / 314 CTR 776 / 269 Taxman 282 (Mad.)(HC)

  71. S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Penalty deleted – Launching of prosecution is held to be not valid [S. 277]

    Court held that the act of concealment of income is the main constituent for the charge under S. 276C and 277 of the Act, once the Commissioner (Appeals) concluded that there was no concealment of income on the part of the assessee, the very foundation of the charge would not survive. (AY. 1990-91)

    System India Castings v. PCIT (2020) 425 ITR 158 (Chhattisgarh)(HC)

  72. S. 276CC : Offences and prosecutions – Failure to furnish return of income – Finding that delay was not wilful – Conviction is held to be not valid. [S. 132, 153A]

    Dismissing the appeal of the revenue the court held that the copies of certain documents were provided to the representatives of the assessee. However, it was not disputed that copies of all material documents seized during the search and seizure operations were not provided to the assessee. Admittedly, the assessee was also not provided the copy of the panchnama in respect of the documents seized from the premises occupied by his brother. More importantly, it was not disputed that the assessee had not sent several letters, seeking copies of the documents for the purpose of filing the returns. But copies of all the documents seized had not been provided to the assessee. It also had to be noted that the returns were filed in due course. Hence, the conviction under section 276CC was not valid. (AY. 2008-09)

    ACIT v. V. K. Gupta (2020) 424 ITR 602 / 187 DTR 30 / 313 CTR 249 (Delhi)(HC)

  1. S. 9(1)(i) : Income deemed to accrue or arise in India – Business connection – Income attributable to permanent establishment – Project office in India cannot be construed as fixed place hence cannot be considered as permanent establishment – Deletion of addition by the High Court is affirmed – DTAA-India-Republic of Korea [Art. 5(1), 7]

The assessee, a Korea based company, entered into a contract with O.N.G.C. and L&T as consortium partners. The Assessee set up a Project Office in Mumbai, India, which, as per the Assessee, was to act as “a communication channel” between the Assessee and ONGC in respect of the Project. Pre-engineering, survey, engineering, procurement and fabrication activities which took place abroad, all took place in the year 2006. Commencing from November, 2007, these platforms were then brought outside Mumbai to be installed at the Vasai East Development Project. The Project was to be completed by 26.07.2009. The AO held that the work relating to fabrication and procurement of material was very much a part of the contract for execution of work assigned by ONGC. The work was wholly executed by PE in India and it would be absurd to suggest that PE in India was not associated with the designing or fabrication of materials. Accordingly attributed 25% of gross receipts of the assessee outside India was attributable to the business carried out by the Project Office of the assessee revenue. The DRP and also Appellate Tribunal confirmed the order of the AO. On appeal by the assessee the High Court held that the question as to whether the Project Office opened at Mumbai cannot be said to be a “permanent establishment” within the meaning of Article 5 of the DTAA would be of no consequence. The High Court then held that there was no finding that 25% of the gross revenue of the Assessee outside India was attributable to the business carried out by the Project Office of the Assessee. According to the High Court, neither the AO nor the ITAT made any effort to bring on record any evidence to justify this figure. Accordingly the appeal of the assessee was allowed. On appeal by the revenue the Court held that, Project office in India cannot be construed as fixed place hence cannot be considered as permanent establishment. The condition precedent for applicability of “fixed place” permanent establishments under Article 5(1) of the Double Taxation Avoidance Treaties is that it should be an establishment “through which the business of an enterprise” is wholly or partly carried on. Further, the profits of the foreign enterprise are taxable only where the said enterprise carries on its core business through a permanent establishment. The maintenance of a fixed place of business which is of a preparatory or auxiliary character in the trade or business of the enterprise would not be considered to be a permanent establishment under Article 5. Also, it is only so much of the profits of the enterprise that may be taxed in the other State as is attributable to that permanent establishment (CA No. 12183 of 2016 dt. 24-07-2020 (AY. 2007-08)

DIT (IT) v. Samsung Heavy Industries Co. Ltd. (2020) 117 Taxman 870 (SC) www.itatonline.org

Editorial: Samsung Heavy Industries Co. Ltd. v. DIT (IT) & Anr. (2014) 221 Taxman 315 / 265 CTR 109 / 98 DTR 89 (Uttarakhand)(HC), affirmed.

  1. S. 28(ii)(a) : Business income – Compensation – Capital or revenue – Capital gains – Restrictive covenant as to non-competition – Held to be not taxable – Prior to assessment year 2013-14 [S. 2 (47), 4, 28(va)]

    By a memorandum of understanding dt. 13.04.1994, made between the appellant and three group Signature of Shaw Wallace Company Group, consideration of the sum of ₹ 6,00,00,000 (Rupees Six crores only) was paid by Shaw Wallace Company Group to the assessee as an advance against the non-competition fee. As per the understanding the covenant shall remain in full force and effect for a period of 10 years from the date of these presents and this covenant will be absolutely and irrevocably binding on the assessee. The AO held that the deed of covenant was held to be a colourable device to evade tax that is payable under Section 28(ii)(a) of the Act hence taxable as revenue receipt. Order of the AO was affirmed by the CIT(A). On appeal the Appellate Tribunal allowed the appeal of assessee by a majority of 2:1 of the honourable members. On appeal by the revenue the High Court held that ₹ 6.60 crores paid was for as consideration for sale of shares, rather than a payment under Section 28(ii)(a) of the Act accordingly taxable as capital gains. On appeal by the assessee the Court held that, there is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The compensation received for the loss of agency is a revenue receipt whereas the compensation attributable to a negative/ restrictive covenant is a capital receipt. Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till AY 2003-2004. It is only w.e.f. 1-4-2003 that the said capital receipt is now made taxable u/s. 28(va). It is well settled that a liability cannot be created retrospectively (CA No. 12044 of 2016 dt.
    23-06-2020 (AY. 1995-96)

    Shivraj Gupta v. CIT [2020] 117 taxmann.com 871 (SC) www.itatonline.org

    Editorial : CIT v. Shiv Raj Gupta (2014) 52 taxmann.com 425 / [2015] 372 ITR 337 / 273 CTR 353 (Delhi) (HC) reversed. Followed Guffic Chem (P.) Ltd. v. CIT (2011) (2011) 332 ITR 602 / 239 CTR 225 / 52 DTR 289 / 198 Taxman 78 / 225 Taxation 383 (SC) / 4 SCC 254.

  2. S. 37(1) : Business expenditure – Business income – Income from other sources – Interest income – Assessable as business income – Real income theory – Disbursements of grants was held to be core business of appellant expenditure incurred in course of business and for purpose of business is allowable as deduction. A Committee of legal experts presided by a retired Judge can give its imprimatur to the settlement – A vibrant system of Advance Ruling can go a long way in reducing taxation litigation – This is true even of disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity – A council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward. [S. 4, 28(i), 56]

    Dismissing the appeal of the revenue the, court held that to decide whether a particular source is business income, one has to look to the notions of what is the business activity. The activity must have a set purpose. The fact that the assessee does not carry on business activity for profit motive is not material as profit making is not an essential ingredient. The Act requires determination of ‘real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, permissible expenses are required to be set off. Every application of income towards business objective of the assessee is a business expenditure and nothing else. Accordingly the disbursements of grants was held to be core business of appellant expenditure incurred in course of business and for purpose of business is allowable as deduction. Court also suggested that an mediation inter se the Government authorities or Government departments is an efficacious remedy. A Committee of legal experts presided by a retired Judge can give its imprimatur to the settlement. A vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is true even of disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity. Court suggested that the aim of any properly framed advance ruling system ought to be a dialogue between taxpayers and revenue authorities to fulfil the mutually beneficial purpose for taxpayers and revenue authorities of bolstering tax compliance and boosting tax morale. This mechanism should not become another stage in the litigation process. Court also recommended the Central Government to consider the efficacy of the advance tax ruling system and make it more comprehensive as a tool for settlement of disputes rather than battling it through different tiers, whether private or public sectors are involved. A council for Advance Tax Ruling based on the Swedish model and the New Zealand system may be a possible way forward. (AY. 1976-77) (CA Nos. 5105-5107 of 2009 dt. 11-9-2020)

    National Co-Operative Development Corporation v. CIT (SC) [2020] 119 taxmann.com 137 (SC) www.itatonline.org

  3. S. 40(a)(ia): Amounts not deductible – Deduction at source – Failure to deduct tax at source – Payment exceeding  20,000 to each truck owners – Contract with a cement factory to transport cement with truck owners is a sub-contractor – Disallowance is not limited only to amount outstanding and this provision equally applies in relation to expenses that had already been incurred and paid by assessee – S. 40(a)(ia) as introduced by Finance (No. 2) Act, 2004 with effect from 1-4-2005 is applicable to and from assessment year 2005-06 – Disallowance is held to be justified. [S. 40A(3), 194C]

    The appellant is a partnership firm, had entered into contract with Aditya Cement Limited for transporting cement to various places in India. As the appellant was not having the transport vehicles of its own, it had engaged the services of other transporters for the purpose. On verifying the record the AO observed that while making payment to the truck operators/owners, the appellant had not deducted tax at source even if the net payment exceeded
    ₹ 20,000/-. The appellant contended, inter alia, that the trucks hired were belonging to different operators/owners who were not the sub-contractors or contractors; that they came from different parts of India and mostly required cash payment for diesel and other running expenses; that the appellant had no liability to deduct tax at source because it had not made payments exceeding ₹ 20,000/- in a single transaction; and that the provisions of Section 40(a)(ia) were not applicable to the appellant. The AO held that the payments to different truck operators/owners were made directly by the appellant firm and not the consignor company; that the appellant firm was responsible for transportation of goods of the company as per the contract for which, the appellant received payment from the company after tax being deducted at source therefrom. The AO also held that the appellant firm paid freight charges to the truck operators/owners from the income so earned; and the remaining amount was shown as commission. AO held that looking to the nature of dealings of the parties where the single payment exceeded the sum of ₹ 20,000 the amount was disallowed by applying the provision of S. 40(a)(ia) of the Act. Order of the AO is affirmed by the CIT(A), Tribunal and also High Court. On appeal affirming the decision of High Court, the Court held that, disallowance u/s. 40(a)(ia), 40A(3) etc. are intended to enforce due compliance of the requirement of other provisions of the Act and to ensure proper collection of tax as also transparency in dealings. The interest of a bonafide assessee who had made the deduction as required and had paid the same to the revenue is safeguarded. No question about prejudice or hardship arises (ii) Payment made for hiring vehicles for the business of transportation of goods attracts TDS u/s. 194C, (iii) Disallowance u/s. 40(a)(ia) is not limited to the amount outstanding (“payable”) but also to expenses that had already been incurred and “paid” by the assessee, (iv) Disallowance u/s. 40(a)(ia) as introduced by the Finance (No. 2) Act, 2004 w.e.f. 01.04.2005 is applicable to AY 2005-2006, (v) Benefit of amendment made in the year 2014 to s. 40(a)(ia) is not available to the facts of the appellant as the appellant has neither deducted the tax at source nor deposited the tax before filing of the return. (CA No. 7865 of 2009 dt. 29-07-2020) (AY. 2005-06)

    Shree Choudhary Transport Company v. ITO (2020) 118 taxmann.com 47 (SC) www.itatonline.org

    Editorial: Affirmed the order in Shree Choudhary Transport Company v. ITO [2009] 225 CTR 125 (Raj.) (HC) (ITA No. 117/JU/2008 dt. 29-08-2008) followed, Palam Gas Service v. CIT (2017) 394 ITR 300 (SC) Distinguished CIT v. Hardarshan Singh [2013] 350 ITR 427 / 216 Taxman 283 / 263 CTR 466 (Delhi) (HC) PIU Ghosh v. Dy. CIT [2016] 386 ITR 322 / 73 taxmann.com 226 / (2017) 295 CTR 340 (Cal.) (HC), CIT v. Calcutta Export Company [2018] 404 ITR 654/ 255 Taxman 293 / 302 CTR 201 (SC)

  4. S. 45 : Capital gains – Accrual – Protective assessment – Completion of transfer with vesting of land in the Government essentially correlates with taking over of possession of the land under acquisition by the Government – However, where possession is taken over before arriving of the relevant stage for such taking over, capital gains shall be deemed to have accrued upon arrival of the relevant stage and not before – To be more specific, in such cases, capital gains shall be deemed to have accrued: (a) upon making of the award, in the case of ordinary acquisition referable to Section 16; and (b) after expiration of fifteen days from the publication of the notice mentioned in Section 9 (1), in the case of urgency acquisition under Section 17 [Land Acquisition Act, 1984, S. 4, 6, 16, 17]

    Asset of assessee were taken up by way of notification dated 15-5-1968 and award of compensation was made on 29-9-1970 – But, at time of issuance of initial notification for acquisition, subject land was already in possession of beneficiary college under a lease even after expiry of lease on 31-8-1967 – Assessee contended that transfer, leading to capital gains, took place on very date of preliminary notification (15-5-1968) because, possession of land in question was already with beneficiary College. Revenue contended that transfer reached its completion, resulting in capital gains, only on date of award (29-9-1970). Court held that instant case, assessee continued to carry its status as owner of land in question and that status was not lost only because a part of land remained in possession of College, accordingly the contention that land vested in Government on date of initial notification remains totally baseless and was to be rejected. Further, neither on date of notification i.e.,
    15-5-1968 nor until date of award, Government took over possession of land in question and if at all possession of College was to result in vesting of land in Government, such vesting happened only on date of award i.e., 29-9-1970 and not before, therefore, transfer of capital asset (land in question), for purposes of S. 45 of Act was complete only date of award and not on date of notification for acquisition under section 4 of Act of 1894. Accordingly the AO had rightly assessed tax liability of assessee on long-term capital gains arising on account of acquisition, on basis of amount of compensation allowed in award dated 29-9-1970 as also enhanced amount of compensation accrued finally to assessee; and as regards interest income, had rightly made protective assessment on accrual basis (CA No. 2416 of 2010 dt. 25-08-2020) (AY. 1971-72)

    Rajpal Singh v. CIT (2020) 118 taxmann.com 508 (SC) www.itatonline.org

  5. S. 115QA : Tax on distributed income to share holders – Buy back of shares – Remittances to non-residents – Appeal pending before Supreme Court – Department agreeing to treat communication as show-cause notice – Direction to assessee to file reply thereto and further directions as to continuance of interim orders. [S. 2(22)(a), 2(22)(d), 115O, 245Q]

    The assessee filed a writ appeal whereupon the Division Bench observed that the single judge after having found the writ petition not maintainable, ought not to have gone into the merits. As regards the nature of the communication dated March 22, 2018 and maintainability of an appeal challenging it, it observed that order was a final one, and that the further question whether the order under challenge violated the principles of natural justice or requisite procedure contemplated under the Act was a matter for consideration by the appellate authority. On appeal the Court held that, the Department having agreed before the court that the communication dated March 22, 2018 could be treated as a show-cause notice and the Department permitted to conclude the issue within a reasonable time, provided the interim order passed by the single judge of the High Court was continued, and this course having been accepted by the assessee and an appropriate affidavit of undertaking to withdraw the proceedings initiated before the Authority for Advance Rulings having been filed by the assessee, the court in the peculiar facts of the case, directed that the communication dated March 22, 2018 shall be treated as a show-cause notice calling upon the assessee to respond with regard to the aspects adverted to in the communication, that the assessee shall be entitled to put in its reply and place such material, on which it sought to place reliance, within ten days, that the assessee shall thereafter be afforded oral hearing in the matter, and that the matter shall be decided on the merits by the concerned authority within two months, and that pending such consideration, as also till the period to prefer an appeal from the decision on the merits was over, the interim order passed by the single judge of the High Court shall continue to be in operation. The court directed that the amount deposited towards payment of tax and the amounts which stood deposited and invested in the form of fixed deposit receipts shall be subject to the decision to be taken by the authority on the merits or to such directions as may be issued by the appellate authority. The court directed that the merits of the matter shall be gone into independently by the authorities without being influenced, in any way, by any of the observations made by the court. (AY. 2016-17) [Refer Cognizant Technology Solutions India P. Ltd. v. Dy. CIT (LTU) (2019] 416 ITR 462 (Mad.)(HC)]

    Cognizant Technology Solutions India Pvt. Ltd. v. Dy. CIT (Large Taxpayer Unit) (2020) 424 ITR 302 / 187 DTR 369 / 313 CTR 510 (SC)

  6. S. 147 : Reassessment – Change of opinion – AO had raised a very issue in the original assessment proceedings and reply was filed – Issue of notice on same issue is change of opinion hence without jurisdiction [S. 148]

    Dismissing the appeal of the revenue the Court held that, the reasons in support of the s. 148 notice is the very issue in respect of which the AO had raised a query during the assessment proceedings and the Petitioner had responded justifying its stand. The non-rejection of the explanation in the Assessment Order amounts to the AO accepting the view of the assessee, thus taking a view/forming an opinion. In these circumstances, the reasons in support of the notice proceed on a mere change of opinion and would be completely without jurisdiction. [SLP(C) No. 7367/2020 dt. 1-06-2020) (AY. 2014 -15)

    ACIT v. Marico Ltd. (2020) 117 taxmann.com 244 (SC) www.itatonline.org

    Editorial : Marico Ltd. v. ACIT (Bom.)(HC) is affirmed (WP No. 1917 of 2019 21-08-2019)

  7. S. 260A : Appeal – High Court – High court shall formulate question and may then pronounce judgment either by answering question in affirmative or negative – If High Court wishes to hear appeal on any other substantial question of law not formulated by it, it may, for reasons to be recorded, formulate and hear such questions if it is satisfied that case involves such question. [S. 4, 28(ii)(a), Code of Civil Procedure 1908, S. 100]

    On appeal by the assessee, the Court observed that the substantial question of law that was raised by the High Court did not contain any question as to whether the non-compete fee could be taxed under any provision other than Section 28(ii)(a) of the Act. Without giving an opportunity to the parties followed by reasons for framing any other substantial question of law as to the taxability of such amount as a capital receipt in the hands of the assessee, the High Court answered the substantial question of law, without any recorded reasons and without framing any substantial question of law on whether the said amount could be taxed under any other provision of the Income-tax Act, the High Court went ahead and held that the amount of INR 6.6 crores received by the assessee was received as part of the full value of sale consideration paid for transfer of shares. Court held that high court shall formulate question and may then pronounce judgment either by answering question in affirmative or negative or by stating that case at hand does not involve any such question. If High Court wishes to hear appeal on any other substantial question of law not formulated by it, it may, for reasons to be recorded, formulate and hear such questions if it is satisfied that case involves such question (CA No. 12044 of 2016 dt. 23-06-2020 (AY. 1995-96)

    Shivraj Gupta v. CIT [2020] 117 taxmann.com 871 (SC) www.itatonline.org

    Editorial : CIT v. Shiv Raj Gupta (2014) 52 taxmann.com 425 / [2015] 372 ITR 337 / 273 CTR 353 (Delhi) (HC) reversed. Followed Guffic Chem (P.) Ltd. v. CIT (2011) 332 ITR 602 / 239 CTR 225 / 52 DTR 289 / 198 Taxman 78 / 225 Taxation 383 (SC) / 4 SCC 254.

  8. Covid-19 – Extension of limitation period due to Covid-19 Lock down – Service of all notices, summons and exchange of pleadings may be effected by e-mail, FAX, WhatsApp, Telegram, Signal, etc. in addition to service of the same document by e-mail simultaneously on the same date – The Reserve Bank of India may consider whether the validity period of a cheque under the Negotiable Instruments Act should be extended or not [Arbitration and Conciliation Act, 1996 S. 23(4), 29A, Banking Regulation Act, 1949, S. 35A, Commercial Courts Act, 2015, S. 12A Constitution of India, 1949, Art. 141, Negotiable Instruments Act, 1881, S. 46 Limitation Act 1908, S. 5]

    On Suo Moto Writ petition in Re Cognizance for extension of limitation the court observed that service of all notices, summons and exchange of pleadings Service of notices, summons and exchange of pleadings/documents, is a requirement of virtually every legal proceeding. Service of notices, summons and pleadings etc. have not been possible during the period of lockdown because this involves visits to post offices, courier companies or physical delivery of notices, summons and pleadings. Accordingly the Court held that it is appropriate to direct that such services of all the above may be effected by e-mail, FAX, commonly used instant messaging services, such as WhatsApp, Telegram, Signal etc. However, if a party intends to effect service by means of said instant messaging services, the Court directed that in addition thereto, the party must also effect service of the same document/documents by e-mail, simultaneously on the same date. Accordingly the extension of validity of Negotiable Instruments Act, 1881 for implement is allowed. As regards with reference to the prayer, that the period of validity of a cheque be extended, the court held that the said period has not been prescribed by any Statute but it is a period prescribed by the Reserve Bank of India under Section 35-A of the Banking Regulation Act, 1949. Accordingly the Court directed the Reserve Bank of India may in its discretion, alter such period as it thinks fit. (Suo Moto Writ petition (c) No. 3/2020 dt. 19-07-2020)

    In Re Cognizance for extension of limitation v. Ors. (SC) www.itatonline.org

RULINGS OF ADVANCE RULING AUTHORITIES

  1. Construction of houses

Facts : The applicant is a non-governmental organization, registered as a charitable society, providing services in the field of construction of residences and affordable housing, architectural advisory services, execution of government contracts etc with special focus on environment friendly construction. M/s. Sri Sathya Sai Trust, Kerala a charitable organisation engaged in various charitable activities across Kerala has awarded a rehabilitation project to the applicant for providing affordable shelter to the 2018 flood victims.

The applicant has sought advance ruling on the following;

  1. Whether the services provided by the applicant to Sri Sathya Sai Trust for construction of low cost housing units for flood-affected individuals in Kerala fall within the ambit of Serial number (i), (v) or (va) of Notification No.11/2017-CT(R) dated 28.06.2017 as amended by Notification No. 03/2019 – CT (R) dated 29.03.2019.

  2. Whether services by the applicant are otherwise exempt from whole or part of GST leviable thereon by Notification 12/2017- CT (R) dated 28.06.2017 as amended.

Observations & Findings : On a conjoint reading of the provisions of the CGST Act, and relevant Notifications issued there under, it is evident that the activity undertaken by the applicant for Sri Sathya Sai Trust as per the agreement cannot by any stretch of imagination be construed as construction of affordable residential apartments by a promoter in a residential real estate project intended for sale to a buyer and hence the rate of GST prescribed under Sl No. 3 (i) of the Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 03/2019 Central Tax (Rate) dated 29.03.2019 is not applicable in respect of the activity. The activity undertaken by the applicant is construction of 45 individual residential houses at different locations on the land belonging to the individual beneficiaries and the activity squarely falls within the scope of works contract as defined in Section 2 (119) of the CGST Act, 2017.

Ruling : The services provided by the applicant to Sri Sathya Sai Trust for construction of low cost housing units falls within the ambit of Sl No.3 (v) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 as amended and is liable to GST at the rate of 12%. The services by the applicant are not exempt from whole or part of GST leviable thereon by Notification 12/2017- CT (R) dated 28.06.2017 as amended.

[2020 (8) TMI 529 – AAR, Kerala – Hebitat Technology Group]

  1. Educational services

Facts : The Applicant is an institute imparting education to students to facilitate them in obtaining qualifications like Chartered Accountancy, Cost Accountancy, Company Secretary, Certified Management Accountant, Certified Public Accountant, Association of Chartered Certified Accountant etc. Apart from others, the applicant requested advance ruling on the following important issue. :

Whether the education programme and training being offered by the applicant is exempted from GST as imparting of education since the applicant is giving lecture classes and notes including printed books published by Govt.-recognized institutes, on the basis of the specific syllabus (curriculum) published by the very same institutes formed under Acts of Parliament and also facilitating the students to appear for the examinations conducted by the same institutes.

Observations & Findings : The applicant is not approved / recognised by the Institute of Chartered Accountants of India or Institute of Cost Accountants of India or Institute of Company Secretaries of India or Universities to conduct coaching/ training of students as per the syllabus / curriculum prescribed by them to obtain the qualifications / certificates granted by the institutes / universities. Therefore, the applicant is not covered under the definition of “educational institution” in Para 2 (y) of the exemption Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and hence the services provided by the applicant is not exempted from GST.

Ruling : The applicant is not covered under the definition of “educational institution” in Para 2 (y) of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 and hence the services provided by the applicant is not exempted from GST.

[2020 (8) TMI 680 – AAR, Kerala – Logic Management Training Institutes P Ltd.]

ORDERS OF APPELLATE ADVANCE RULING AUTHORITIES

  1. Valuation of supply

Facts : The Appellant is engaged in the business of operation and maintenance of International Tech Park, Bangalore which includes operation and maintenance of electrical systems at common areas, building and civil repairs, maintenance of lifts etc. In addition, the appellant also arranges for the transport of its staff and employees of the corporate clients in the Tech Park who are the tenants of the business park.

For the purpose of arranging the transport facility, the Appellant has entered into a contract with Bangalore Metropolitan Transport Corporation (BMTC) whereby BMTC allots 1 bus to the Appellant for every 50 passes purchased. The Appellant receives the following types of bus passes from BMTC for distribution, Non AC regular BMTC bus pass; and Combo bus pass which can be used for Non-AC and AC buses.

BMTC does not charge GST for the non-AC bus passes since the same is exempt from GST vide Entry No. 15 of Notification No. 12/2017-CT(R) dated June 28,2017. However, for Combo bus pass (i.e. which can be used for non-AC and AC buses), BMTC charges GST at 5% as per Entry No. 8(ii) of Notification No. 8/2017- IT (R) dated June 28, 2017.

On an application for Ruling the AAR, Karnataka has given ruling holding that the value of the bus passes distributed by the applicant to the commuters and the facilitation charges is to be included in the value of services provided by the applicant. Regarding the second question of “whether the supply of service in the hands of the applicant could be classified merely a supply of facilitation service between BMTC and the commuters”, the answer is in the “negative”.

Aggrieved by the above ruling the Appellant is before Appellate AAR, Karnataka.

Observations & Findings : The bus passes procured by the Appellant from BMTC are issued by them to the commuters as part of the service provided by them on their own account. If they were merely facilitating the service or acting as an intermediary, as claimed by them, the bus passes would have been issued by BMTC to the commuters. In the light of the above discussions, we agree with the ruling given by the lower Authority and hold that the service provided by the Appellant in arranging the transportation of the employees is not rendered in the capacity of an intermediary and is not a facilitation service between BMTC and the commuters. The service of transporting the employees of the corporate clients of the International Tech Park is rendered by the Appellant on his own account on a principal to principal basis for a consideration.

It is amply clear that those instruments which satisfy the conditions of being accepted as consideration/part consideration against purchase of specified goods and the identities of the potential suppliers are indicated in the instruments are to be considered as ‘Vouchers’ for the purposes of GST. Vouchers are neither money nor actionable claim. It is not a claim to a debt nor does it give a beneficial interest in any movable property to the bearer of the voucher. Similarly, in the instant case, the bus passes are purchased by the commuters on paying a value in money. The commuter produces the bus pass for purchasing the service of transportation. The bus pass only give the commuter the right to travel. If the commuter does not use the bus pass within the duration for which it is valid or loses the bus pass, it becomes invalid and cannot be used to procure the service of transportation. The bus pass is only a contract of carriage. A contract is not property, but only a promise supported by consideration. Thus, the bus pass is not an actionable claim as defined under Transfer of Property Act. It is only an instrument accepted as consideration/part consideration while purchasing the service from the Appellant. Therefore, we do not agree with the claim of the Appellant that the bus pass is an actionable claim not liable to GST. We agree with the ruling given by the lower Authority and hold that by virtue of Section 15 of the CGST Act, the value of the service supplied by the Appellants will include the value of the bus.

Order : We uphold the ruling of the lower Authorities and dismiss the appeal filed on all counts.

[2020 (8) TMI 525 – Appellate AAR, Karnataka – Ascendas Services (India) P Ltd.]

  1. Intermediary services

Facts : The Appellant is an individual stated to be an employee of an overseas company engaged in business of manufacturing and selling various categories of distribution transformer components and accessories. The Appellant is required to make a presentation of the various categories of distribution transformer components and accessories offered by the company. The company specifies the presentation and the technical details of the products. The customers approached by the Appellant place their orders for the products with the Company and make payments to the Company’s account. The Appellant does not raise any invoice for the products ordered by the said customers. The Appellant is paid a lump-sum compensation monthly for the aforementioned services. In addition to the aforementioned compensation, the Company provides a credit card (that has been issued in the name of the company) for the purpose of reimbursing reasonable travel expenses, office needs and other business expenses incurred by the applicant in performing the said services.

On the application for Ruling, the AAR, Karnataka has issued ruling that the services provided by the applicant result in the supply of services classifiable under HSN 9983.11 under the description “Other professional, technical and business services”. The applicant is required to be registered under the Central Goods and Services Tax Act, 2017 and is liable to pay GST @ 18%.

Aggrieved by the above ruling the Appellant is before Appellate AAR, Karnataka.

Observations & Findings : The argument of the Appellant that they fall within the exclusion clause of the definition of intermediary is not a correct interpretation of the law. The language of the exclusion clause is such that it is applicable to those persons who supply such goods or service (or both) on their own account. If a person either ‘facilitates’ or alternately ‘arranges’ any supply of goods or service (or both), between two or more persons, and does not supply such goods or service (or both) on his own account, he would be regarded as an ‘intermediary’. At the risk of being repetitive, the Appellant is clearly facilitating the supply of the products of overseas Companies directly to the latter’s customers and is not supplying such goods on his own account. Therefore, the Appellant does not fall within the ambit of the exclusion.

In view of the above, the service of sales belongs to overseas Companies is classifiable as “Other professional, technical and business services” under Service Code 9983.11 and the same is being rendered as an ‘intermediary service’ as defined under section 2(13) of the IGST Act.

Order : We also uphold the other findings of the lower Authority with regard to liability to register, the rate of tax and the time and value of supply and dismiss the appeal on all counts.

[[2020] 119 taxmann.com 51 (AAAR-KARNATAKA) – Rajendran Santhosh]

HIGH COURTS

DELHI HIGH COURT

Gaurav Yadav & Anr.

v.

Union of India & Ors.

[D.N. Patel, CJ & Prateek Jalan, J]

W.P 5222 of 2020

Date of Decision: August 13, 2020

GST Rate—Essential commodities—Masks and sanitizers—Rate reduced by bringing the said goods under ‘Essential Commodities’ vide notification dated March 2020 – Notification to be in force till June 2020—No extension given—Held mere feeling of petitioner that GST rate is excessive cannot be a reason to reduce it beyond that period—No argument given regarding the tax being confiscatory in nature—writ dismissed.

During the initial pandemic period, the GST rate applicable on masks and sanitizers was regulated by including them in Essential Commodities under the Essential commodities Act, 1955 vide notification dated march 2020 which was in force till June 2020.

The petitioner has sought reduction in GST rate applicable on these commodities.

The Hon’ble Court has held that rate of tax cannot be challenged in a court of law unless it is abundantly confiscatory in nature and it has not been argued if it is confiscatory in any way. Merely feeling that GST rate applied on masks and sanitizers is excessive, cannot be a reason to direct the respondents to reduce tax on the said commodities.

MADRAS HIGH COURT

TV. Sri Ganea Granites

v.

The State Officer Krishnagiri Assessment Circle

[Dr. Anita Sumanth, J]

WP No 30725 of 2019 and
WMP No 30811 of 2019

Date of Decision: August 4, 2020

Period of limitation—Assessment—For assessment year 2011-12, assessment order passed dated April 2019—Assessment Order set aside by Honble high court as no reasonable opportunity was afforded to hear the appellant—Assessment Proceedings reinitiated pursuant thereto—Writ filed invoking bar of limitation—Assessment order ought to have been passed within six years of deemed assessment—first notice served in February 2019 for framing original assessment itself was challenged on grounds of limitation—Writ allowed

For the Assessment Year 2011-12 a pre-assessment notice was issued in 2019 which culminated into an assessment order dated April, 2019. The petitioner challenged it on the grounds of violation of Principal of Natural Justice as well as on the bar of statutory limitations. The Hon’ble High Court set aside the assessment order pursuant to which the authorities again proceeded by issuing notice in July, 2019.

The petitioner contends that the original assessment should have been completed on 30.06.2018 as the period of limitation for completing assessment expires in six years from the date of deemed assessment. The pre-assessment notice issued earlier had already been challenged on grounds of bar of limitation.

Held, assessment in Sec.9(2) includes reference to deemed assessment and the time lines set out for the bar of limitation under the VAT Act would apply in matters of CST as well. Therefore, the writ is allowed.

KERALA HIGH COURT

Faisludeen P.M.

v.

Assistant State Tax Officer

[A.K. Jayasankaran Nambiar, J]

WP No. 16357 of 2020

Date of Decision : August 11, 2020

Detention of goods—Absence of Original Invoice—goods detained for absence of original invoice and variation in goods under transport than described in invoice—Goods ordered to be released on furnishing of bank gurantee pursuant to which matter to be adjudicated u/s 130 of GST Act, 2017

The goods in transit were detained as the consignment was not supported by original invoice and there was variation detected in the goods being transported from those described in the invoice. A writ is filed.

It is held that the respondents will permit the petitioner to clear the goods on furnishing of bank guarantee and thereafter, shall adjudicate the dispute under Sec.130 of the GST Act after hearing the petitioner.

KERALA HIGH COURT

ABCDO Trades (P) Ltd.

v.

The Assistant State Tax Officer

[A.K. Jayasankaran Nambiar, J]

WP(C). No. 17377 of 2020

Date of Decision : August 08, 2020

Detention of goods—Consignee shown as unregistered in E-way bill—Allegedly CGST and SGST collected in delivery challan used for stock transfer—contention by petitioner that invoice bore the GSTIN number of consignee—mentioning of tax applicable on delivery challan was by mistake—Held reasons shown for detention not sufficient to attract section 129 of GST Act—writ allowed.

The goods were in transit were detained on the ground that the consignee was shown as an unregistered person in the e-way bill. Also that the petitioner had collected CGST and SGST in the delivery challan that was used for stock transfer of the goods there by giving rise to suspicion regarding nature of transaction.

The petitioner contends that the GSTIN number was duly mentioned in invoice. Moreover, tax applicable in delivery challan was by mistake.

Held, the contentions of the respondents are not enough to detain the goods under Sec.129 of the GST Act. Therefore, the writ is allowed directing the first respondent to enable release of goods.

KERALA HIGH COURT

K.U. Niyas

v.

Assistant Commissioner State Goods and Service Tax Department

[A.K. Jayasankaran Nambiar, J]

W.P. NO.13647 OF 2020

Date of Decision : August 20, 2020

Assessment order—Communication of—Validity of mode of communication—Assessment order served on common portal of department—Returns filed pursuant to issuance of demand notice i.e after a month of service of assessment order—Held no benefit of withdrawal of assessment orders is permitted as contemplated u/s 62 as the assessment order served on portal are a valid way of communication in terms of section 169 of GST Act—no relief can be given ignoring the fact that said orders were brought to notice on the given dates of uploading itself.

It is the case of the petitioner that no assessment order were served on him but after the demand notices were issued it immediately took steps and filed returns for the assessment years within 30 days in order to get the benefit of withdrawal of assessment orders as contemplated U/s 62 of the GST Act.

The department contends that the assessment orders were uploaded on the web portal on the given dates and the petitioner did not file returns for the period covered by the said orders within 30 days to avail the benefit of withdrawal of assessment orders.

Held, as per Sec. 169 (c) and (d) of the GST Act, the service of any communication to the e-mail address given by assessee at the time of registration, and also making available on the common portal of the department, is to be treated as effective communication under the statute. No benefit of withdrawal of assessment orders can be given to the petitioner. The recovery proceedings under the assessment orders shall be kept in abeyance for period of 6 weeks to enable the petitioner to move the appellate authority through appeals.

KERALA HIGH COURT

Krishna Kumar

v.

The Assistant State Tax Officer

[A.K. Jayasankaran Nambiar, J]

W.P. NO. 16961 OF 2020

Date of Decision : August 19, 2020

Detention of goods—Absence of tax payable on e way bill—Rule 138 A of the rules envisages no such requirement to show tax payable on e-way bill—tax payable shown in invoice undisputedly—writ allowed

The goods in transit were detained as the IGST payable was not mentioned in the e-way bill accompanying the goods. Held, as per SGST Act and Rule 138A of the Rules there is no requirement to mention the details of the Tax payment in the e-way bill copy. It is undisputed that the tax paid was shown in invoice in the present case. Therefore, writ is allowed and the goods are ordered to be released.

MADRAS HIGH COURT

TVL Sarathas

v.

The Assistant Commissioner (ST)

[GR Swaminathan, J]

WP No 7858 of 2020

Date of Decision: July 30,2020

Penalty—Mensrea—Non filing of returns—Goods imported for renovation purpose—Entry tax paid readily on being pointed out—Returns not filed—Penalty imposed—Held non filing of returns not important since goods imported not for trade—Omission to pay entry tax observed but payment done readily on being checked—Mensrea not indicated in impugned order—No personal hearing given to petitioner before passing order—Impugned order set aside

The petitioner had imported some material for renovation of business premises after paying Entry tax of 3%. However, on inspection it was pointed out to pay another 7% in addition thereto which it readily paid. It imported the said goods thrice in two assessment years for which a pre assessment notice was issued. Penalty on the grounds of non filing of returns is levied. A writ is filed invoking section 10 of Tamil Nadu Tax on Entry of Goods Into Local Area Act, 2001. It is held that the petitioner is not a regular importer of these goods hence non filing may not really matter in this case. Though it has omitted making declaration at relevant time, but had paid balance entry tax immediately after being pointed out. Nothing is there to show in impugned order that there was mens rea on part of petitioner. Moreover, no personal hearing has been afforded to petitioner before passing the order. Hence, impugned order is quashed and writ is accepted.

MADRAS HIGH COURT

Madurai Power Corporation Ltd

v.

The Assistant Commissioner

[C. Saravanan, J]

WP 34583 to 34585 of 2015

Date of Decision: February 10, 2020

Penalty—Low Sulphur Heavy Stock Furnace oil –‘Low Sulphur Heavy Stock Furnace oil’ used for power generation—Specifically included only after amendment of RC in 2012—Absence of specific mention of said commodity for period prior thereto leading to penalty—Writ filed— ‘Furnace oil’ and ‘oil’ observed to be specifically mentioned in RC for disputed assessment years—Hence oil of every type could be procured for power generation—Penalty deleted

The petitioner is a power generating company. It obtained registration in 2020 under which it was entitled to procure furnace oil. On amendment of RC, in 2001, it was permitted to procure oil w.e.f. 2000. In 2012, Low Sulphur Heavy Stock Furnace oil was specifically included. The respondent contends that the petitioner company was not permitted to procure Low Sulphur Heavy Stock Furnace oil before the period of 2012 as the said commodity is specifically included in the year 2012 only and hence penalty is imposed. A writ is filed in this regard.

It is held that the petitioner was entitled to procure oil of every description as long as it was meant for generating electricity. The oil specified in the RC includes Low Sulphur Heavy Stock Furnace Oil. It is undisputed that the said oil was used for generating electricity and power. Therefore, writ is allowed and the impugned orders are set aside.

MADRAS HIGH COURT

The State of Tamil Nadu

v.

Chola Textiles Ltd.

[Dr. Justice Vineet Kothari & R. Suresh Kumar, JJ]

W.P. NO. 35797 OF 2004

Date of Decision: February 11, 2020

Penalty—Goods not covered by Registration Certificate—Mensrea being absent and honestly believing the goods to be covered by the RC, no penalty can be imposed u/s 10A of the CST Act for purchasing the goods against C forms

The Tribunal had allowed the appeal of the assessee and held that no penalty could be imposed under section 10-A r/w Section 10(b) of the CST Act for purchase of diesel for the generator set against the C-Forms at concessional rates, even though the said goods weren’t mentioned in the RC of the Assessee. The revenue has filed a writ in this regard. It is held that for imposition of penalty mens rea is required. If the registered honestly believed that any particular goods are embraced by the RC and believing that makes a representation, he cannot be held guilty under Section 10(b) of the Act and no penalty can be imposed u/s 10A of the Act. Therefore, the judgment of the Tribunal is upheld as no mens rea can be attributed to the assessee for purchase of the fuel against C-Forms even though it is not separately included in the RC.

UTTARAKHAND HIGH COURT

Commissioner of Commercial Taxes

v.

Raja Biscuit Industries

[Ravi Malimath, ACJ & N.S. Dhanik, J.]

CTR No.16 of 2010

Date of Date: August 18, 2020

Penalty—Misuse of C forms— Penalty imposed for s. 10A and 10(b) of CST Act—Conclusion by Appellate authority that the assessee bonafidely believed that articles imported by it were used for manufacturing purpose—Penalty reduced, not deleted—On Revision held once assessing authority concluded the mistake was due to bonafide belief of assessee, complete relief should be given—Limited relief inappropriate—Order of first Appellate authority set aside.

The assessee who is manufacturing biscuits was issued a notice by the Commissioner for misusing C Forms and consequently penalty was imposed U/s 10A r/w 10(b) of the CST Act. An appeal was partly accepted and penalty was reduced. The second appeal before Tribunal was dismissed. Hence a revision is filed before the Hon’ble High Court.

It is held that the First Appellate Authority concluded that the assessee bonafidely believed that the articles imported by it are used for purpose of manufacturing and were covered under the C Form. In such a situation absolute relief should have been granted and complete waiver of penalty would have been appropriate. The Tribunal was not justified in affirming the penalty order while affirming the finding of fact that the goods purchased against C Forms were used according to the provision of Section 8(3)(b) of the CST Act. Therefore penalty imposed by the First Appellate Authority is set aside.

KERALA HIGH COURT

SAMS Property Developers & Hotels

v.

State of Kerala

[K. Vinod Chandran & T.R. Ravi, JJ]

S.T. (Rev.) Nos. 25/2019, 22/2019, 23/2019, 24/2019 & 1/2020

Date of Decision: June 25, 2020

Estimation of Turnover—validity of—the assessing officer has no rational basis to reject books of accounts and estimation made has no nexus to the nature of transaction carried out in the two licenced premises of the assessee where liquor is sold—nothing to rely to suggest that any of the brands were sold at a higher rate than that disclosed in invoices—purchase value cannot be a reference to decide sale price—Revision allowed

The assessee sells foreign liquor through an AC Bar and ordinary one. The billing of liquor sold in the former is at higher rate than that sold in ordinary one. The Assessing Officer has taken the highest gross profit of a brand as available in the invoices of the ordinarily bar and that in the AC Bar and computed an average and estimated the GP percentage. The assessee has filed a revision contending that it is against the basic principle of best judgment assessment and there is no reason to reject books of accounts and gross profit as shown by books.

Held, the Assessing Officer has not adopted a rational basis for estimating. The purchase value cannot be a reference to decide the sale price as the Assessee offers premises to the customer to consume alcohol. The assessee also sells the same brand at different prices in different premises. It is not open to the authorities to prescribe the price for selling liquor. There is nothing to rely on to suggest that assessee had sold any of the brands at a higher rate than that disclosed in invoices. Therefore, there is no rational basis to reject account books and the estimation made has no nexus to the nature of business and transaction carried out in the two premises. Therefore, revisions are allowed.

KERALA HIGH COURT

Pee Bee Enterprises

v.

Asst. Commissioner of the State Goods and Service Tax Dept

[AK Jayasankaran Nambiar, J]

WP No 14376 of 2020

Date of Decision: August 17, 2020

Assessment order—validity of mode of service—Assessment order on best judgment basis served through web portal within time—Such service is statutorily prescribed and hence valid—Petitioner cannot claim benefit of withdrawal of the order contemplated u/s 62 of the SGST ACT on the grounds of non service or delayed service

The petitioner contends that the assessment orders were not served on him till much later and within a period of 30 days after the date of receipt of the orders it had filed returns as permitted u/s 62 of SGST Act. Therefore, the assessment orders should be treated as withdrawn by virtue of section 62 of the Act.

The Hon’ble High Court has held that the assessment orders were published on the web portal. The service of an order through the web portal is one of the methods of service statutorily prescribed. The petitioner cannot deny service of order to claim the benefit of withdrawal contemplated u/s 62 of the Act.

MADHYA PRADESH HIGH COURT

Smt Kanishka Matta

v.

Union of India & Ors.

[S.C. SHARMA AND SHAILENDRA SHUKLA, JJ]

WRIT PETITION NO. 8204/2020

Date of Decision: August 26, 2020

Search and seizure—scope of section 67(2) of CGST Act, 2017—cash seized by authorities on search of premises– writ filed contenting cash not included in ‘things’ under section 67(2) of the Act, 2017-Held conjoint reading of sec 2(17), 2(31), 2(75) and section 67(2) makes it clear that money can be seized—intent and purpose of sections to be unlocked in applying provisions of the Act—reference to black’s Law Dictionary in interpreting meaning of ‘things’—cash rightly confiscated

After a search was conducted suspecting illicit supply goods without invoices and without payment of GST, cash amount was seized. The petitioner contends that the word “money” is not included in Sec.67(2) and it cannot be seized. The court has observed that it is important to unlock the intent and purpose of various sections and expressions used when the provisions are put to implementation. Sec.2(17) defines “Business” and Sec.2(31) defines ”consideration”. A conjoint reading of the Sections and 67(2) makes it clear that money can also be seized by authorized officer. Therefore, in interpreting the word “thing”, money is included. The word “thing” has to be given wide meaning as per Black’s Law Dictionary according to which any subject matter of ownership within the spear of proprietary or valuable right would come under the definition of ‘thing’. Hence, writ is disallowed.

KERELA HIGH COURT

Hydrolic Corporation Kerala

v.

The Assistant State Tax Officer

[A.K. Jayasankaran Nambiar, J]

WP No.16384 of 2020

Date of Decision: August 11, 2020

Detention of goods—section 129 of GST Act—Goods detained on grounds of difference given in description in invoice than those found on inspection—Detention held to be justified—Goods to be released on furnishing of bank guarantee.

The goods in transit were detained as it was allegedly that the description of goods on invoice was different than those found on inspection. The court has held that Detention cannot be said to be unjustified. Goods are permitted to be released on furnishing of bank guarantee.

KERALA HIGH COURT

Steel and Pipes

v.

Asst State Tax Officer

[A.K. Jayasankaran Nambiar, J]

W.P. No. 16356 of 2020

Date of Decision: August 12, 2020

E-way bill—Discrepancy of—Detention notice—e-way bill accompanying the goods in transportation short of mentioning tax amount—Writ allowed as no such requirement is given in provision of the Act—E-way bill form nowhere indicates any field to be filled in respect of tax amount thereby implying that there is no such requirement by law—Detention notices quashed

A writ is filed against the detention notices served on the petitioner. The goods in question were detained on the grounds that the e-way bill accompanying the goods fell short of mentioning tax amounts and hence it was alleged to be invalid.

It is held that the power of detention u/s 129 of the GST Act is exercised only where transportation of goods is in contravention of the Act or Rules and not because the document relevant for assessment is short of detail of tax payment. Moreover, there is no field in the form of e-way bill which indicates that tax is required to be filled in. Therefore, non -mentioning of the tax amount cannot be seen as contravention of the provisions of the Act. Thus writ is allowed and notices are quashed.

KERELA HIGH COURT

Ambady Enterprises

v.

The State of Kerela

[K.Vinod Chandran and T.R. Ravi, JJ]

O.T. Revision No. 67 and 69 of 2017

Date of Decision: July 30, 2020

Delayed claim of refund of ITC – Assessing officer contends delay could be condoned only by Deputy Commissioner u/s 20A of VAT Act – Held that Rule 47 specifically empowers an assessing officer to condone – section 20A is only an enabling provision for purpose of empowering an officer where no other officer is given the power to condone

The assessee, an exporter, made a delayed application for claim of ITC u/s 13. The assessing officer found that delay could be condoned only by the Deputy Commissioner u/s 20A of the KVAT Act. The First appellate authority and the Tribunal affirmed the decision of the Assessing officer against which a revision is filed before the Hon’ble High Court. It is held that section 20A of VAT Act is an enabling provision applicable only in cases where no other officer has been conferred the power to condone the delay in filing of refund. Rule 47 of the Rules specifically empowers the assessing officer to condone the delay and deputy commissioner can’t usurp the power of the officer Therefore, the question of law is answered in favour of assessee.

PUNJAB AND HARYANA HIGH COURT

Ranjit Singh

v.

State of Haryana

[G.S. Sandhawalia, J]

CRM-M14856-2020

Date of Decision: August 21, 2020

Bail—Condition of deposit of outstanding liability—Condition to pay huge amount of surety and outstanding liability for grant of bail imposed— Inability to comply with—Condition held to be onerous being violative of Article 21 of Constitution of India—liberty not to be deprived—Investigation completed and document in possession of prosecution, therefore, petitioner not to be detained merely because bail order in form of recovery proceedings is passed—Bail order modified—

A petition is filed seeking quashing of the condition given in order passed by Addl. Sessions Judge whereby bail is granted to the petitioner subject to furnishing of bail bonds of ₹ 50 lacs and to pay the outstanding liability of almost 2 crores along with interest. It is contended that the petitioner is not in a position to pay the outstanding amount. It is held that the condition is onerous and liable to be set aside. The petitioner has already undergone a period of 1 year punishment out of the maximum five years which can be awarded. The onerous condition violates article 21 of the constitution of India as the liberty of the petitioner is being deprived. The investigation and inquiry are complete and the relevant documents are in possession of the prosecution. Therefore, the petitioner cannot be detained merely for the fact that a bail order in the form of recovery proceedings is passed. Hence the impugned order is modified by reducing the amount of surety and setting aside the condition of outstanding liability.

DELHI HIGH COURT

Amit Joshi

v.

Commissioner of CEST &ST, CGST (EAST) AND ANR

[Brijesh Sethi, J]

W.P. (CRL) 766/2020

Date of Decision: March 20, 2020

Investigation—Presence of lawyer prayed for—Apprehension that the petitioner might be treated ruthlessly and tortured during investigation by GST officers—Presence of lawyer prayed for during investigation—Held following the order of Supreme court in Pool Pandi’s case , no requirement of lawyer during investigation—No officer can use method disapproved by law for extracting information from suspect—Prayer refused

A writ is filed praying for permission of presence of a lawyer during the course of investigation. The petitioner contents that it was detained for three days by the officers under GST Act and coerced to write incriminating statements and was beaten up ruthlessly. It is held that presence of a Lawyer is not required during the examination of the petitioner in law laid down by Supreme Court, in Pool Pandi’s case. No investigating officer can use a method to extract information from the suspect by using ways not approved by law. Therefore, no grounds are made out to allow the prayer.

TELANGANA HIGH COURT

R.C.C. Sales P. Ltd

v.

The Annual Commissioner ST

[M.S. Ramachandra Rao & T. Amarnath Goud, J.]

WP No. 12043 of 2020

Date of Decision: August 13, 2020

Stay of Recovery—Principles of natural justice—Suo moto revision of assessment order—Tax levied consequently on sales earlier exempted—Stay of recovery applied for till pendency of appeal—Application dismissed—Writ filed—Held grounds urged by petitioner not considered by authorities—Failure to provide opportunity of hearing observed—Background facts wrongly mentioned by the officer—Writ allowed with a direction to hear the assessee’s contentions

After the assessment order was passed, a suo motto revision of the said order was taken up by the Respondent, thereby withdrawing the exemption granted on a turnover relating to stock transfers treating it to be local sale and thus imposed tax. The petitioner filed a stay application against recovery of disputed tax till pendency of the appeal before Tribunal. The stay application was dismissed, hence a writ is filed.

The Court has held that it has not been explained why the background facts relating to the filing of the stay petition were incorrectly mentioned in the impugned order and that none of the grounds mentioned by petitioner are even considered. The observation that the petitioner did not avail the opportunity of personal hearing is factually correct. When dealing with substantial rights, the respondent cannot mention wrong facts or ignore grounds taken by petitioner or dismiss the stay application without giving any valid reasons. The writ is thus allowed. The respondent shall permit a personal hearing and consider the contentions of the assessee.

GUJARAT HIGH COURT

Synpol Products (P) Ltd.

v.

Union of India

[J.B. Pardiwala & Bhargav D. Karia, JJ]

Civil Application NO.21744 of 2019

Date of Decision: February 27, 2020

Redemption and Confiscation fine—Whether waiver of covered under Sabka Vishwas Scheme, 2019—Held yes, said fines are not excluded under the exclusion list given u/s 125 of Finance Act, therefore considered inclusive—Intent and Object of the scheme observed—Redemption fine not to be treated separately than other amount of duty while determining arrears u/s 121 of the scheme—Clarification given by govt that only fines u/s 9 of Central Excise Act 1948 to be included and not under section 34 is unacceptable—Writ allowed

The declaration made by the petitioner under the “Sab Ka Vishwas Scheme 2019” was rejected on the ground that the case of the petitioner was involved confiscation and redemption fine which was not covered under the Scheme. A letter/clarification issued by the Designated Committee allowed waiver of ₹fine’ under Sec.9 of Central Excise Act 1948 and not redemption fine under Sec.34 of the Act. Hence a writ is filed.

It is held that the scheme relates to ‘redemption fine’ also because no other fine is contemplated under the Act. Also the exclusion list as given in Sec.125 of the Finance Act does not contain confiscation/fine under it which means that redemption and confiscation are covered under the Scheme. The contention of excluding fine under Sec.34 cannot be accepted considering over all intent and object of the scheme. To determine the amount in arrears U/s 121 of the Scheme, both the amount of duty as well as the amount of redemption fine is to be ascertained. The redemption fine cannot be treated separately than the amount of duty under the Scheme. Therefore, allowing the petition the respondents are directed to issue discharge certificate under Sec.129 to the petitioners subject to fulfillment of all other conditions as per the scheme.

PATNA HIGH COURT

Sanyog Construction (P) Ltd.

v.

State of Bihar & Ors.

[Hon’ble Chief Justice & S. Kumar, J]

Civil Writ Jurisdiction Case No.7202 of 20200

Date of Decision: August 27, 2020

Statutory appeal u/s 107 of GST Act—Permission to upload—Permission granted to upload the appeal under S.107 of GST Act subject to payment of tax, interest , penalty admitted in addition to 10% of disputed amount of tax—

In this petition it is prayed that the petitioner be permitted to file the statutory appeal against the assessment order on the GST Portal under Sec.107 of the Act of 2017 It is held if the petitioner deposits the tax, interest, penalty admitted by him and also a sum equal to 10% of the disputed tax, the authority will allow for uploading statutory appeal. The petition stands disposed of.

TELANGANA HIGH COURT

CSK Relators Ltd.

v.

Assistant Commissioner ST

[M.S. Ramachandra Rao & T. Amarnath Goud, JJ]

W.P. NO.11843 OF 2020

Date of Decision: August 13, 2020

Principles of natural justice—show cause notice served—objections filed in addition to specific request of personal hearing—impugned order passed without opportunity of personal hearing—order set aside on grounds of violation of principles of natural justice

In response to the show cause notice issued, the petitioner had filed detailed objections and sought for a personal hearing before the respondent. However, the respondent did not afford a personal hearing to the petitioner and passed the impugned assessment order. A writ is filed in this regard. It is held that a personal hearing ought to have been provided as it was specifically requested for and it is a violation of principle of natural justice on part of the respondent. Therefore, writ is allowed and the impugned order is set aside.

ORISSA HIGH COURT

Prasanna Kumar Bisoi

v.

Union of India & Ors.

[S. Panda & K.R. Mohapatra, JJ.]

W.P. (C) No. 13190 of 2020

Date of Decision: 21.08.2020

Interest—delayed payment of tax—Interest demanded u/s 50 of CGST Act for delayed filing of returns and availing ITC—Held No interest to be charged on ITC set off as per the 39th meeting of GST council

The returns were filed at belated stage and ITC was availed at the time of filing GSTR-3B returns. Interest u/s 50(1) of the CGST Act was demanded on the head that demand of interest is payable on ITC set off. It is held that as per the 39th meeting of the GST Counsel held in 20.3.2020 it was decided that interest for delayed payment of GST is to be charged on net cash tax liability but not on the ITC. The writ petition is disposed of accordingly.

KERALA HIGH COURT

Pazhayidom Food Ventures

v.

Superintendent Commercial Taxes

[A.K. Jayasankaran Nambiar, J]

WP (C) No.14275 of 2020 (H)

Date of Decision: July 24, 2020

Payment of arrears in installments—Permission sought to pay arrears of tax in monthly installments alongwith interest and late fee thereon due to problem in business for the reason of pandemic — Bonafides proved by paying certain amount of liability – Permission granted by High court— Petitioner to lose benefit of the permission in case of a default- writ allowed

The petitioner had requested to pay the arrears of tax for the assessment year in installments on account of the COVID pandemic situation which is prohibiting him to generate the funds for making a lump sum payment. On refusal to grant permission, a writ is filed contending that the petitioner would pay tax alongwith interest on each installment. It is held that the petitioner does not dispute its liability and has established its bonafides by paying a certain amount towards tax liability. Therefore, the respondents are directed to accept the belated return for the period Nov. 2018 to March, 2019 and permit it to discharge its balance liability including interest and late fee thereon in equal monthly installments commencing from 25.8.2020 culminating on 25.3.2021. However, if the petitioner defaults he will lose the benefit of the judgment.

KERALA HIGH COURT

Suresh Kumar P.P. & Anr.

v.

The Deputy Director & Ors.

[K. Vinod Chandran, J]

W.A. No.943 of 2020

Date of Decision: August 14, 2020

Search and seizure—Validity of proceedings—search and seizure conducted—cash seized—validity of said proceedings challenged—Held absence of DIN No. not a ground as search conducted in presence of petitioner raising no suspicion—Investigation brings with it necessary discomfort which cannot be termed as harassment—simultaneous proceedings conducted while audit was in progress—no infirmity found as section 65 is a routine procedure and section 67 is an onerous one—collection of tax through cheques held to be valid in view of Rule 87(3) as the officer has the authority to collect deposits without requiring forms— no extortion concluded since payment is made voluntarily—opportunity of hearing before attachment cannot be done as it defeats the purpose of procedure- proceedings u/s 67 held to be valid

The petitioner has challenged the validity of search and seizure conducted U/s 67 of the CGST Act in its premises during which ₹ 1 Crore was seized. The argument of absence of DIN No. on the relevant documents does not survive as the seizure order was issued in the presence of the appellants and no suspicion is raised about its issuance.

The petitioner has contended that there was harassment and high handedness by the respondents in respect of which the Court has held that inconvenience caused to the persons under investigation cannot be termed to a detention pursuance of arrest. Such investigations necessarily brings with it discomfort. The petitioner has challenged the simultaneous proceedings conducted when audit was already in progress. The court has rejected this argument in view of Sec.65 which is a routine procedure independent of any investigation under Sec.67 which is more onerous. No infirmity is opined in this regard. The petitioner has challenged the collection of cheques when tax was not determined under Section 49 and 50 and no forms were generated. The court has observed that during the investigation Rule 87(3) authorizes the officer to collect deposit of any amounts without requiring forms. No extortions can be concluded since there is a voluntarily payment made though under protest. Lastly, taking the ground of violation of principle of natural justice, the petitioner contends that no attachment could be made without hearing it. The court has considered the argument and held that if notice is issued before attachment then the account holder could withdraw the amounts kept in such accounts defeating the purpose of investigation. Therefore, proceedings u/s 67 is proper, legal and not arbitrary in any way. The writ is dismissed.

GUJARAT HIGH COURT

IHI Corporation

v.

State of Gujarat & Other(s)

[Vikrant Nath & J.B. Pardiwala, JJ]

R/Special Civil Application No. 8116 of 2020

Date of Decision: August 17, 2020

Alternative Remedy—Whether writ is maintainable against the penalty order under VAT Act—Held that an appeal should be filed against the order of Deputy Commissioner of Tax—complete machinery is provided by VAT Act to challenge the impugned order— a statute creating a right or liability also gives a special remedy for enforcing it which should be availed of—Writ is maintainable when there is violation of principles of natural justice or fundamental principles of judiciary or failure to act as per law by authority concerned—writ not entertained

A writ is filed by the petitioner against the penalty order passed by the Deputy Commissioner under the VAT Act. The question arose whether writ is maintainable. The Hon’ble Court held that the Gujarat VAT Act, 2003 provides for a complete machinery to challenge the assessment order under the Act and not by a writ under Article 226 of the Constitution of India. Where a right or liability is created by a statute its give a special remedy for enforcing it and it must be availed of. A writ is maintainable if the authority has not acted in accordance with provisions or against fundamental principles of judicial procedure or against the principle of natural justice. Therefore, the petitioner is relegated to avail the alternative remedy of filing an appeal u/s 73 of the GVAT Act 2003.

GUJARAT HIGH COURT

State of Gujarat

v.

Advanced Systek (P) Ltd.

[J.B. Pardiwala & Bhargav D. Karia, JJ]

R/Tax Appeal No.652 of 2017

With

R/Special Civil Application No.8391 of 2019

Date of Decision: July 24, 2020

Refund of excess tax paid —sale of machinery agreed at fixed price irrespective of rate of tax to be paid by company as per contract—No C forms issued by recipient consequently—Tax paid @ 10-12.5% by company mistakenly instead of 4%— excess tax forfeited by respondent—Held by Hon’ble High Court that section 8A of CST Act is attracted to calculate turnover—it is not the case where the company collected excess tax and passed it over to buyer—Sale was done at fixed price as per contract—rate of 4% is applicable—No provision in CST to respondents to forfeit the refund—Therefore, refund to be granted

A purchase order was received by the assessee – company for delivery of goods at fixed prices irrespective of tax payable or any cost incurred by the company. The seller company was not supposed to reflect the component of tax on the invoice separately. The recipient did not issue Form-C though there was an interstate transaction since fixed price was to be paid. The assessee without considering the amendment in Sec.8(2) of the CST Act mistakenly considered the applicable rate at 10-12.5% instead of the correct of rate of 4% while making reverse working in its sales invoices. The assessee deposited excess tax with returns. The authorities impounded the return amount under Sec.9(2) of the Act. The Tribunal allowed the appeal against which the revenue has filed an appeal before the Hon’ble High Court.

The Court has observed that in the instant case the turnover is to be calculated as per the Formula given in Sec.8A of the CST Act and rate of 4% tax is to be applied. It cannot be said that the assessee has collected excess amount of CST from the buyer. It received fixed price only and it cannot be said that a CST of 10% or 12.5% was collected in view of the contract of fixed price. Therefore, there is no question of passing over the same to its buyer. Also the provisions of CST Act do not contemplate any power to forfeiture of refund by the revenue. In absence of any power to forfeit excess tax, the assessee is entitled to refund of the same. Hence the appeal is dismissed and answered in favour of assessee company.

BRIEF BACKGROUND

India is moving one step further towards the aim of achieving digital control in meticulous operation of GST through implementation of e-Invoicing at least for large businesses to start with. The Hon’ble Prime Minister of India Shri Narender Modi Ji has always promoted and guided us towards a ‘Digital India’ thereby moving towards automation which is certainly very-very useful as is proved in the present difficult time of COVID pandemic, otherwise it would have been impossible for many businesses to run and exist. Even Government could function due to the Information Technology transformation extensively adopted in the last few years. Many changes have been introduced in the taxation system as well, whether it be Indirect or Direct Taxation like face-less assessments etc.

In this journey towards the digital age, the GST Council in its 37th meeting held on 20th Sept 2019 has approved the scheme of e-Invoice under GST, giving effect to the same Government has issued Notification No. 68/2019-CT to 72/2019-CT dated 13 Dec 2019 which laid the roadmap for implementing E-Invoicing mandatorily from 1st April 2020. This was followed by Notification No.- 61/2020-CT dated 30th July 2020 wherein the applicability of the E-Invoice along with the revised limits and New Format launched for implanting the same from 1st Oct 2020.

This compilation here under discuss the updated law regarding the e-Invoicing as on date taking effect of all the amendments at different points along with the addition, deletion as well as the key areas of focus in the FORM GST INV-01.

LEGAL BACKGROUND

1. Tax Invoice has been dealt under Section 31 of the Central Goods & Service Tax 2017 (hereinafter referred to as “CGST Act 2017”). Wherein Section 31(1) deals with supply of Goods and Section 31(2) deals with Supply of Service. Both the sub-sections vide their proviso empowers Government who may with recommendation of the GST Council issue Notification for special category of taxpayers who would require issuing tax invoice in such manner and such time as may be prescribed.

2. Although the applicability of the e-Invoicing provision was made from 1st April 2020, but the provisions stated in Section 31 was amended through the Finance Act 2020, as the same was not empowering the Government to notify e-Invoicing provisions in respect of Supply of Service. A comparative table in this regard, is stated hereunder to understand the essence of amendment or need for such changes:

BEFORE AMENDMENT

AFTER AMENDMENT

ANALYSIS OF AMENDMENT

Proviso to Section 31 (2)

Provided that the Government may, on the recommendations of the Council, by notification, subject to the condition mentioned therein, specify the categories of services in respect of which

(i) any other document issued in relation to the supply shall be deemed to be a tax invoice; or

(ii) tax invoice may not be issued]

Proviso to Section 31 (2)

Provided that the Government may, on the recommendations of the Council, by notification,

(a) specify the categories of services or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed;

(b) subject to the condition mentioned therein, specify the categories of services in respect of which

(i) any other document issued in relation to the supply shall be deemed to be a tax invoice; or

(ii) tax invoice may not be issued]

This clause (a) in the proviso to Section (2) was inserted by Finance Act 2020, this amendment was done to give empower the government to frame rules & issue guidelines for implementing e-Invoicing Provisions in relation to supply of Service. Rule 48(4) was Notified on 13-12-2019, but at that time Government do not have the power to implement e-Invoicing provision in respect of Supply of Service. It was a very clever move, which was not noticed by many professionals and this amendment was analysed as pass on amendment in line with provisions stated in Section 31(1), although had a deep implication.

3. The Government exercising the power vested in proviso to Section 31(1) & 31(2) has introduced the concept of e-Invoicing through Rule 48 of the CGST Rules 2017. Various notifications have been issued which is also amended time to time thereby extending the time limit for its applicability. The flow and series of notification issued in this regard along with the summarised analysis of the same is discussed hereunder in tabular manner:

S. No.

Notification No.

Dated

Summarised Content

1

NN-68/2019-CT

13-12-2019

Amendment made in Rule 48 of CGST Rules 2017, thereby inserting Sub-Rule (4), (5), (6):

1. Class of registered persons to be notified

2. Invoice shall contain particulars mentioned in FORMGST INV-01

3. An Invoice Reference Number (IRN) shall be obtained from Common Goods and Services Tax Electronic Portal (to be notified)

4. Any other Invoice issued by a person on whom Rule 48(4) shall not be treated as an invoice i.e. it is mandatorily to be complied with.

5. The obligation to issue triplicate invoice (in case of goods) and duplicate invoice (in case of services) shall not apply to a person on whom E-invoicing is applicable.

2

NN-69/2019-CT

13-12-2019

List of Common Goods and Services Tax Electronic Portal notified on which unique IRN need to be generated for each E-Invoice

(i) www.einvoice1.gst.gov.in;

(ii) www.einvoice2.gst.gov.in;

(iii) www.einvoice3.gst.gov.in;

(iv) www.einvoice4.gst.gov.in;

(v) www.einvoice5.gst.gov.in;

(vi) www.einvoice6.gst.gov.in;

(vii) www.einvoice7.gst.gov.in;

(viii) www.einvoice8.gst.gov.in;

(ix) www.einvoice9.gst.gov.in;

(x) www.einvoice10.gst.gov.in.

3

NN-70/2019-CT

13-12-2019

Registered Person having Aggregate Turnover >100 Cr. shall issue E-Invoice from 1st April 2020 (This NN is Superseded by NN-13/2020-CT dated 21-03-2020)

4

NN-71/2019-CT

13-12-2019

In Rule 46 of the CGST Rules 2017, Sixth Proviso inserted by Finance by CGST (Fourth Amendment) Rules 2019 shall be applicable from 1st April 2020 i.e. QR code provision shall be applicable from 1st April 2020

5

NN-72/2019-CT

13-12-2019

1. Registered Person having Aggregate Turnover >500 Cr. shall issue an E-Invoice to unregistered person having QR code on the same i.e. On B2C supply QR code is mandatory if turnover is exceeding 500 Cr.

2. Also, Dynamic Quick Response (QR) code made available for payment cross-reference shall be deemed to be having Quick Response (QR) code. (This NN is Superseded by NN-14/2020-CT dated 21-03-2020)

6

NN-13/2020-CT

21-03-2020

1. This NN has Superseded the NN-70/2020-CT dated 13-12-2019.

2. Registered Person except Insurance Company, Banking Company Financial Institution, NBFC, GTA, Person Providing Passenger Transportation Services & Person selling Movie Tickets in multiplex

3. Aggregate Turnover >100 Cr. shall issue E-Invoice

4. Effective Date- 1st October 2020

7

NN-14/2020-CT

21-03-2020

1. This NN has Superseded the NN-72/2020-CT dated 13-12-2019.

2. Registered Person except Insurance Company, Banking Company Financial Institution, NBFC, GTA, Person Providing Passenger Transportation Services, Person selling Movie Tickets in multiplex as mentioned in Rule 54 (2) (3) (4) (4A) CGST Rules 2017 & OIDAR Service Provider as defined under Section 14 of Integrated GST Act 2017 (hereinafter referred as IGST Act 2017)

3. Recipient is Unregistered Dealer i.e. on B2C Supplies

4. Aggregate Turnover >100 Cr. shall generate QR code on the issued E-Invoice for B2C supplies

5. Effective Date- 1st October 2020

8

NN-60/2020-CT

30-07-2020

Revised FORM GST INV-1 issued in place of earlier FORM GST INV-1

9

NN-61/2020-CT

30-07-2020

1. This NN has amended NN-13/2020-CT dated 21-03-2020 and extended the exemption to SEZ unit thereby increasing the limit to 500Cr.

2. Registered Person except SEZ Unit, Insurance Company, Banking Company Financial Institution, NBFC, GTA, Person Providing Passenger Transportation Services & Person selling Movie Tickets in multiplex

3. Aggregate Turnover >500 Cr. shall issue E-Invoice

4. Effective Date- 1st October 2020

PROCESS FOR GENERATING E-INVOICE & UPLOADING DATA ON GST & E-WAY PORTAL

This new system of e-Invoice is quite useful and advantageous to curb the black economy as well as the circular trading and fake invoice racket running in the economy, although having an inherent limitation of cost and extensive IT support requirement. In this juncture the process or the flow in which e-Invoice generation, registration and receipt of confirmation works is discussed hereunder:

A. Generation of Invoice Reference Number (in Short “IRN”) & Uploading on Invoice Registration Portal (in short “IRP”):

1. The taxpayers who is mandatorily required to issue E-invoice under Rule 48(4) of the CGST Rules 2017 shall issue the Tax Invoice as defined in Section 31 of the CGST Act 2017 having all the mandatory field as mentioned in FORM INV-01 using its ERP Software say SAP, Tally, Busy, Oracle etc.

2. E-invoice does not mandate businesses to issue the invoice on central portal of tax department, they need to issue it on their internal systems only, the government has only specified the invoice schema and standard for uniformity.

3. The supplier needs to generate a Json file of the E-invoice having all the required fields and information. Supplier has the option to either generate a Unique IRN called a hash at its own facility and then register on the IRP which would validate the hash so generated and becomes the unique IRN number or Supplier may upload the Json file of the E-invoice at IRP and then IRP would generate a Unique IRN which shall become the final IRN number.

4. This final IRN number whether generated by IRP or validated by IRP shall be unique to each invoice with unique identity for entire financial year in the entire GST System for a taxpayer.

5. The Hash algorithm mentioned above is based on a popular algorithm SHA256. This Hash algorithm constitutes 3 dimensions for generating the IRN i.e. Supplier’s GSTIN, Supplier’s invoice number and Financial year (YYYY-YY).

6. The uploading of the JSON of the e-invoice to be done by supplier on IRP can be done through following modes

a. Web based

b. API based

c. SMS based

d. Mobile app based

e. Offline tool based

f. GSP based

7. For the purpose of uploading the Json by supplier the government vide NN-69/2019-CT dated 13th Dec 2019 has notified a list of websites on which these E-Invoice can be Uploaded for validating or generating of IRN & QR Code.

8. The QR code as mentioned above would be generated containing GSTIN of seller and buyer, Invoice number & date, number of line items, HSN details as per value of commodity and hash etc.

9. For facilitating the E-invoice culture the government has taken following measures i.e.

a. Asked all accounting and billing software companies adopt the E-invoice standard to facilitate JSON generation & uploading by the user.

b. Although the E-Invoicing is mandatory for large concerns but still for small taxpayers can us 8 accounting/billing software issued and available at GSTN.

c. Further GSTN will provide Offline Tool for generating and uploading the JSON file

d. Furthermore, many companies have come up with their E-invoicing solution so the taxpayers can use this commercially available accounting/billing software’s.

B. Updating details by IRP to GST Portal & E-Way Portal

1. The E-Invoice data as uploaded on IRP would be transmitted to GST portal which would facilitate in auto populating relevant parts GST Returns.

2. In case of the current return filling regime i.e. GSTR-1 of the supplier and GSTR-2A of the recipient shall get auto populated and for the new proposed system the annexure ANX-1 of the supplier and ANX-2 of the recipient shall get auto populated , which in turn will determine liability and ITC.

3. Further the E-Way bill portal shall auto fill the Part-A of e-way bill by using this data and only the vehicle details need to be filled in Part-B of the e-way bill.

DECODING OF THE FORM INV-01

With regards to the notified FORM INV-01, which has been drastically changed vide NN-60/2020-CT dated 30-07-2020, and a new E-invoice scheme is being launched in the public domain applicable from 01st Oct 2020. This new format consists of sections ranging from 1 to 12 which is marked as mandatory & optional wherein fields are being defined in each section which is further marked as Mandatory & optional. Amongst some fields reference has been made to annexures having further details of that particular fields. To be precise there are 12 sections having approx. 131 fields and, in some fields, reference is made to annexure which is 5 in number. An effort has been made to define the references and headings of each sections and bifurcating the same into mandatory & optional fields and sections in the tables below to have a bird eye view of the form. The description in these fields are general description comprising of all the clauses of Rule 46 of the CGST Rules 2017 and based on general trade practise.

Statement Showing breakup of Mandatory Sections of Form INV-01 along with annexure reference

S.No.
(As per INV-01)

Heading (As per INV-01)

Total Fields

Mandatory Fields

Optional Fields

Annexure Reference

1

Basic Details

8

5

3

4

Supplier’s Information

10

6

4

5

Recipient’s Information

12

6

6

8

Invoice items details {Except Batch Details (Sr. No.-A 1.2.5) & Product Attribute Details (Sr. No.-A 1.2.30)}

28

8

20

A 1.2

9

Document Total

13

2

11

A 1.3

Total

71

27

44

Note: In Mandatory Section, the fields are of two types i.e. Mandatory & Optional Fields. Wherein optional fields may be left blank

Statement Showing breakup of Optional Sections of Form INV-01 along with annexure reference

S.No.
(As per INV-01)

Heading (As per INV-01)

Total Fields

Mandatory Fields

Optional Fields

Annexure Reference

2

Document Period

2

2

0

3

3.1. Preceding Document Reference

3

2

1

3.2. Receipts/Contract Reference

8

0

8

6

Payee Information

0

0

9

7

7.1. Ship to Details

8

5

3

A 1.0

7.2. Dispatch from Details

6

5

1

A 1.1

8

Invoice items details-Batch Details (Sr. No.-A 1.2.5)

3

1

2

A 1.4

Invoice items details-Product Attribute Details (Sr. No.-A 1.2.30)

2

0

2

A 1.5

10

Extra Information

8

1

7

11

Additional Supporting Documents

3

0

3

12

E-way Bill Details

14

7

7

Total

57

23

43

Note: In Optional Section, the fields are of two types i.e. Mandatory & Optional Fields. Wherein Mandatory fields must be filled.

IS THE ‘E-INVOICE’ ACTUALLY THE NEED OF THE HOUR?

Having Glimpse over the roadmap of the applicability of e-Invoice and legal provisions in this regards it is utmost important to understand whether it was the need of the hour or not.

1. GST portal since implementation of GST has faced a lot of technical glitches thereby troubling the taxpayers as well as the department. Wherein as on date as well disputes and hardship to taxpayers are not being resolved and pending before various Courts.

2. Return filling process which was considered the backbone of this Digital Taxation system, is not at all robust right form the beginning till date and wherein in the name of ‘One Nation One Tax’ different due dates based on turnover and states are being introduced in staggering manner to deal with the technical glitches.

3. The new return system which was to be brought into the picture a while ago is even not clear on account of the dates on which the same shall be implemented in the system.

4. IRP is the facility to be provided by the Government which needs additional funds and IT facility. In a situation where states are even not being given the compensation as per the GST law, how the funds would be allocated for the same.

5. Further the IT facility, as of now is not able to cater the existing facility on the portal and putting an additional load might go very adverse.

6. The industry as well after standing back only partially from the COVID-19 outbreak with lack of manpower and funds need to plug additional working capital and human resources for this new e-Invoicing regime.

In nutshell if not properly catered it would again lead to a flop show, which would definitely impact the industry to a large extent.

CONCLUSION

To conclude the law relating to the e-Invoicing have been created very cleverly in the manner which would definitely provide an assistance to the Government to track the fake Invoicing and malpractices continuously going in the country. This new system will certainty control the menace of large number of GST Frauds, but to really control GST frauds the Government should reduce the minimum turnover limit for applicability of E-invoice to ₹ 50 Crores of a supplier for adopting e-Invoice as was originally envisaged.

If e-Invoicing system is properly implemented it would definitely assist the industry for automation in filling of GST Returns and in E-Way Bill generation, it will be a great benefit to a fully complied and honest taxpayer. It shall certainly be a better tracking system in place for the Government. The economy of the country has full right to avail each and every benefit of automation and Information Technology. But at the same time emphasis need to be placed over its proper execution and transition as industry would definitely not ready for another set of technical glitches & consequential difficulties.

Vide Finance Bill, 2020 sub-section (1H) was proposed to be inserted in section 206C of the Income Tax Act providing for tax collection at source (TCS) w.e.f. 01.04.2020 by a Seller having turnover exceeding ₹ 10 Crores from a buyer on receipt of sale consideration exceeding ₹ 50 lacs in any previous year. Rate of TCS was proposed @ 0.1% of sale consideration exceeding ₹ 50 lacs. Proposed amendment was further modified to provide that section will not apply to transactions of goods to be exported out of India and to person importing the goods into India. It was also provided that section will come in force w.e.f. 01.10.2020. Sub-section (1H) as has been inserted in section 206C reads as under:

(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods being exported out of India or goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakh rupees as income-tax:

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent.”, the words “one per cent.” had been substituted:

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Explanation. – For the purposes of this sub-section, –

(a) “buyer” means a person who purchases any goods, but does not include, –

(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

(B) a local authority as defined in the Explanation to clause (20) of section 10; or

(C) a person importing goods into India or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;

(b) “seller” means a person whose total sales, gross receipts or turnover

from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.’;

Broad features / scope of the Section

– Section is applicable only in case of seller whose total sales, gross receipt or turnover from the business carried on by him exceeds ₹ 10 crores during the financial year immediately preceding financial year in which sale is carried out. In other words to be liable to collect TCS in Current financial year (FY 2020-21) total turnover of the seller should be more than ₹ 10 crores in F.Y.2019-20.

– TCS is required to be collected from the buyer whose aggregate purchases exceed ₹50 lacs in any previous year.

– TCS is required to be collected only on sale consideration exceeding ₹ 50 lacs. In other words, TCS on first ₹ 50 lacs is not required to be collected.

– Rate of TCS provided in the section is 0.1% of sale consideration. Vide Press Release dated 13.05.2020 rate of tax has been reduced for the current financial year to 0.075%. In case, buyer does not provide PAN or Aadhar number to the seller rate of TCS shall be 1%. It may be added that this rate has not been reduced for current financial year as per above Press Release.

– Provisions of sub-section (1H) are not applicable in case seller is liable to collect TCS under any other provision of section 206C of the Act.

– Section is also not applicable in the cases where buyer is liable to deduct tax at source under any other provisions of the Act if the buyer has deducted the tax.

– Section is also not applicable in respect of sales made to Central Government, State Government or to a local authority. The section is also not applicable in respect of sales made to Embassy, High Commission, Consulate or a trade representation of foreign state.

– Section is also not applicable in respect of goods being exported out of India or in case of a person importing goods into India.

– As per the section Central Government has also power to specify any other seller or buyer who shall not be subject to provisions of above sub-section.

Whether Section is warranted?

The section is applicable only in case of big assesses having turnover of more than ₹ 10 crores and in case of buyers making purchase during the year exceeding ₹ 50 lacs. Rate of TCS as mentioned in the section is 0.1% which has been further reduced for current year to 0.075%. In other words, amount of TCS to be collected is a very small amount, say, in case of sale of ₹ 1 crore to one single buyer amount of TCS at normal rate on amount of sale exceeding ₹ 50 lacs would be only ₹ 50,000/-. Therefore, the intention in inserting the provisions of sub-section (1H) of section 206C of the Act is not to collect tax on the amount of income earned by the seller or by the buyer, but the intention appears to be to monitor the sales / purchases in such cases and / or to bring in tax net any such person, who might not be filing return of income. It is stated in this regard that it is very unlikely that a seller or a buyer of the level provided in the section will not be filing return of income or would not be having PAN number. It is also important to note that presently PAN is compulsory for many transactions, including for opening a bank account, making a deposit, purchase of a car, sale and purchase of goods exceeding ₹ 2 lacs etc.. Purchase consideration cannot be paid by the buyer in cash as per provisions of section 40A(3) exceeding 10,000/-. Similarly, buyer cannot accept payment in excess of ₹ 2 lacs otherwise than though banking system as per section 269ST of the Act. Further, transaction of sale in cash is also required to be reported by the seller as per provisions of section 286BA r.w.r 114E. Moreover, under Goods and Service Tax any dealer having turnover exceeding ₹40 lacs is required to be registered and data of sales and purchases made by a registered dealer is duly available on the system. Therefore, it is emphatically stated that provisions of sub-section (1H) of section 206C are not going to effectively serve any purpose whereas, it is going to raise number of difficulties and issues in implementing the provision and establishing due compliance by the sellers.

Issues in complying with the provision

Implementing the provision and complying with the requirement of TCS is going to raise many issues. Same are being stated hereunder alongwith with possible view to be taken: –

Sl. No.

Issue

Remarks / Possible view

1.

Whether TCS is to be collected in the invoice to be raised or at the time of receipt of sale consideration.

Though the section uses the wordings receipt of consideration for sale of any goods, it will be practically difficult to raise demand against the buyer subsequently, if not raised in the invoice and collect TCS from buyer and make payment to the government. Therefore, TCS should be charged in the invoice to be raised for sale of goods.

2.

Whether TCS is to be paid within the prescribed time with reference to invoice for sale or same is to be paid with reference to receipt of sale consideration against the invoice.

In case, practice of making payment on the basis of receipt of sale consideration is adopted, it will be difficult to match amount of receipt and TCS with invoice value in the cases where part payments are received against the invoice or in the cases of running account where lump sum payments are received from time to time. Hence, payment of TCS should be made with reference to invoice for sale consideration.

3.

Whether TCS is to be collected on total sale consideration or only on the amount in excess of ₹50 lacs.

As per the language of the section TCS is to be collected and deposited only on the amount of sale consideration exceeding ₹ 50 lacs and TCS is not to be collected and deposited upto sale consideration of ₹ 50 lacs.

4.

Whether sale for the full current financial year (2020-21) is to be considered or only the sales made after 01.10.2020 are to be considered.

Sale consideration for the full financial year is to be considered for deciding whether Buyer is covered for TCS or not. TCS, however, is to be collected and paid only on the sales made after 01.10.2020 to the extent same are in excess of ₹ 50 lacs.

5.

In order to decide liability of the seller to collect TCS qualifying turnover of ₹ 10 crores is to be considered for current year or of the previous year.

As per the wordings of the section seller is liable to collect and deposit TCS during a financial year only if, his gross receipt or turnover of preceding financial year was in excess of ₹ 10 crores. In other words, in case, sales / turnover of seller in the preceding year was less than ₹ 10 crores he will not be liable to collect TCS in following year.

6.

Whether TCS under sub-section (1H) is to be collected and deposited in addition to TCS to be collected and deposited as per other provisions of section 206C of the Act.

In case TCS is to be collected and deposited under any other provision of section 206C, TCS is not to be collected and deposited in terms of sub-section (1H) of section 206C.

7.

Whether TCS is to be collected on value of goods where the seller is using the goods in executing a contract and buyer / contractee is liable to deduct TDS on total contract value, including cost of material.

Section provides that TCS is not to be collected where buyer is liable to deduct TDS and has deducted TDS on value of goods. Hence, in this case TCS is not to be collected.

8.

Whether TCS is to be collected on value of goods in a case where contract of sale of goods is independent of providing services by the Seller to Buyer and buyer is liable to deduct TDS on value of services only.

Since in this case TDS is not to be deducted on value of goods, Seller will be liable to collect TCS on value of goods.

9.

Whether sales made to public sector companies which are substantially or wholly owned by the central government or state government, are subject to TCS.

As per the section exemption has been granted only in respect of sales made to central government or state government. Companies owned wholly or substantially by the government are not exempt. Therefore, TCS is to be collected in such cases.

10.

Whether TCS is to be collected on advance against sale received from the buyer.

Since, advance payment cannot be said to be consideration received against the sale, TCS need not be collected and deposited at the stage of receipt of advance payment. TCS will be charged in the invoice and is to deposited within the prescribed time with reference to date of invoice.

11.

In case of multi-units company sales are made from different units and there is no centralized system to determine total amount of sales by the company to a particular buyer, is it possible to apply limit of ₹ 50 lacs provided in the section separately for each of the unit / division separately.

As per the section in case a seller is making sales to a buyer exceeding ₹ 50 lacs, it is liable to collect and deposit TCS. Therefore, such companies have to develop their system to determine total sale to a particular buyer from all the units. In case for any reason it is not possible for the seller to develop any such system it may be advisable to obtain a certificate from major buyers that their total purchases from all the units / divisions of the company are within the limit of ₹50 lacs and in the absence of such confirmation TCS may be collected and deposited.

12.

Whether in case of a individual person having multiple proprietorship concerns sales made to all the concerns have to be clubbed for the purpose of determining the limit of ₹ 50 lacs or each proprietorship concern can be considered separately, though PAN will be same.

Since, the person is the same and having one single PAN, sales made to all his proprietorship concerns have to be clubbed together for the purpose of determining the liability for collection and deposit of TCS. It is understood that accounting systems, such as SAP, being used by the companies are having control with name of concerns and not on the basis of PAN and therefore, it will be difficult to aggregate sales against one PAN, if names of concerns are different. It is a practical problem to be solved by modifying control in the program.

13.

Whether TCS is also to be collected on the amount of GST included in the invoice.

GST will also be part of sale consideration and therefore, TCS is to be collected on total amount of invoice including GST.

14.

Whether transportation charges to be recovered from buyer through the invoice raised for sale of goods will be subject to TCS.

Since, transportation charge, as per the arrangement between the buyer and seller are payable by the buyer in addition to sale consideration, same cannot be part of sale consideration and, therefore, same can be excluded. However, since the element of TCS will be very small with reference to transportation charges, in order to avoid any accounting adjustment etc. TCS may be collected and deposited on total value of the invoice.

15

Whether export of goods is to be made by the seller himself or it can be through any other buyer being export house or a person actually exporting the goods, for being out of the scope of TCS.

The section exempts from liability for collection of TCS “goods being exported out of India”. It does not specifically require that export should be by the seller himself. Therefore, TCS is not to be collected in case buyer provides a certificate with necessary evidence to the effect that goods are being exported out of India.

16.

Whether goods imported in India will be exempt from TCS even in a case where initial importer sell the goods to any other person on high sea sale basis.

As per the section buyer excludes “a person importing goods into India”. A person to whom sale has been made on high sea sale basis will, in fact be getting the goods cleared from custom and accordingly, he will attain the status of person importing the goods into India. Therefore, no TCS will be chargeable in respect of high sea sale made by the original importer.

CBDT to clarify the issues

Since there are many issues in complying with the provisions of Sub-section (1H) of section 206C of the Act, some of which are discussed above whereas same may not serve any effective purpose, it is suggested that the provision should be withdrawn.

In the alternative, CBDT should clarify in regard to stage at which TCS is to collected and deposited, whether at the stage of raising invoice or at the stage of receipt of sale consideration. In case TCS is collected at the stage of Invoice, how the adjustment of sales returns, cancellation, discount, credit notes etc. it to be made, otherwise figure of sale will not match with actual figure of sale and purchase entered in the accounts of seller and buyer, which will be after adjustments. In case TCS is collected and deposited with reference to receipt of sale consideration and debit to buyer is not made vide invoice, it will be difficult to collect TCS separately at the time of receipt. Further, against one invoice, seller may be receiving payments in stages and it will be difficult to reconcile the same will sale invoice. In the statement to be filed for TCS in Form No. 27E value of purchase / sale is also to be given against TCS collected and deposited and date of depositing the same.

In any case, CBDT should clarify on the issues arising in complying with the provision and clarifications should be given considering practical and accounting aspects as well.

A. INTRODUCTION

1. Chapter XXI of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) enacts provisions for the levy, imposition and collection of penalty. Without such a sanction, there is a danger of evasion of tax. Thus, provisions for levy and collection of penalties for contravening their requirement, has become an integral part of such enactment and one of their purposes.

2. The provisions of section 271(1)(c) of the Act states that penalty shall be levied in case a person either “conceals the particulars of his income” or “furnishes inaccurate particulars of his income”. Satisfaction of the Tax Officer as to whether the penalty is for concealment of income or for furnishing inaccurate particulars of income is an integral clog in the initiation and levy of penalty. Non satisfaction or incorrect satisfaction of the Tax Officer is challenged by the Assessee as being contrary to the law and the same has resulted into substantial litigation over the years.

3. Though, a new penalty regime has come into the force from Assessment Year 2017-18 and a new section 270A for levy of penalty in cases of underreporting of income and misreporting of income has been introduced, there are still innumerable cases of dispute under section 271(1)(c) of the Act are pending at various judicial fora.

B. WHERE DOES THE CONTROVERSY LIE?

4. The provision of section 271(1) of the Act, where the major dispute subsides, is reproduced as under:

271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfiedthat any person—

..

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or

..

he may direct that such person shall pay by way of penalty, —”

Elements essential for initiation of penalty proceedings u/s 271(1)(c) of the Act

On a bare reading of the provisions of section 271(1)(c) of the Act, it is apparent that the following conditions are precedent for initiation of penalty proceedings under the said section:

• Satisfaction of the relevant Taxing Authority, which is arrived at during the course of any proceedings under this Act, and

• Satisfaction to the effect whether the Assessee has either

Concealed particulars of his income

OR

Furnished inaccurate particulars of such income

5. Clause (c) of section 271(1) of the Act contains two key expressions i.e. concealment of particulars of income and furnishing inaccurate particulars of income. These are the two eventualities which comprise the two limbs for imposition of penalty u/s 271(1)(c) of the Act. Therefore, to levy penalty u/s 271(1)(c) of the Act, the person must have either ‘concealed particulars of his income’ or ‘furnished inaccurate particulars of income’. These two terms have two distinctive meanings. They carry different connotations and cannot be interchanged or interpreted for one another, as has been held in the following cases:

a) Shri T. Ashok Pai v. CIT [2007] 292 ITR 11 (SC)

22. ‘Concealment of income’ and ‘furnishing of inaccurate particulars’ carry different connotations. Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi.

b) Dilip N Shroff v. JCIT 291 ITR 519 (SC)

43. The expression “conceal” is of great importance. According to Law Lexicon, the word “conceal” means:

“to hide or keep secret. The word “conceal” is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income tax authorities.”

In Webster’s Dictionary, “inaccurate” has been defined as: “not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.”

44. It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars.”

Satisfaction of the relevant Taxing Authority

6. As both the limbs i.e. concealment of income and furnishing inaccurate particulars of income carry different connotations, it is a must that the relevant Taxing Authority must be satisfied before initiation of penalty proceedings that the case of the assessee falls either under the first limb or the second limb. The necessity of the satisfaction of the Tax Officer before initiating the penalty proceedings has been affirmed by the courts.

Reliance is placed on the following judicial precedents

a) CIT v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC)

The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c) before the proceedings are concluded.”

b) D.M. Manasvi v. CIT [1973 AIR 22] (SC)

What is contemplated by clause (1) of section 271 is that the Income Tax Officer or the Appellate Assistant Commissioner should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clauses of that sub-section.”

c) CIT v. Manjunatha Cotton and Ginning Factory [359 ITR 565] [Karnataka High Court]

Therefore, this provision makes it abundantly clear that the satisfaction of the Assessing Officer before initiation of penalty proceedings is a must. The satisfaction should be that he has concealed particulars of his income or furnished inaccurate particulars of such income”

C. RECORDING OF SATISFACTION OF THE RELEVANT TAXING AUTHORITY

7. Further, such satisfaction of the relevant Taxing Authority is conventionally indicated by striking off the inapplicable portion in the notice u/s 274 r.w.s. 271(1)(c) of the Act. It is a general practice of the department to issue notice u/s 274 r.w.s. 271(1)(c) of the Act in a standard proforma wherein all the clauses/ offences, for which penalty is leviable, are mentioned. Therefore, the relevant Taxing Authority records their satisfaction by striking off the portion that is inapplicable in the particular case. Alternatively, the Assessing Officers have also been recording their satisfaction by an endorsement at the foot of the assessment order such as ‘penalty proceedings u/s 271(1)(c) of the Act has been initiated for concealment of income (or furnishing inaccurate particulars of income, as the case maybe)’.

8. While it is an undisputed fact supported by various judicial precedents that satisfaction of the relevant Taxing Authority is essential before initiation of penalty proceedings, however, it has been a matter of conflict as to whether recording of such satisfaction of the relevant Taxing Authority is a condition essential for initiation of penalty proceedings.

9. Revenue’s contention:

The Income Tax Department have held the view that no separate satisfaction is required to be recorded before initiating penalty proceedings. In this regard reliance has been placed on the following judicial precedents by the Income Tax Department:

a) CIT v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC)

Satisfaction before the conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction.”

b) Becker Gray And Company (1930) Ltd. v. ITO [112 ITR 503 (1977)] [Calcutta High Court]

It is true that the Income-tax Officer should be prima facie satisfied before the penalty notice is issued, but it does not mean that he is required to record such satisfaction in writing in every case.”

c) Shyam Biri Works Pvt. Ltd. v. CIT [259 ITR 625 (2002)] [Allahabad High Court]

We are, therefore, of the opinion that although the Assessing Officer must have satisfaction as required under section 273 of the Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under section 273 of the Act.”

10. Taxpayer’s contention:

On the contrary, it is the taxpayer’s contention that in the absence of any finding or recording of satisfaction regarding the particular charge u/s 271(1)(c) of the Act i.e. concealment of income or furnishing inaccurate particulars of income, the initiation of penalty proceedings is not valid. Some of the judicial precedents on which reliance can be placed by the taxpayer:

a) D.M. Manasvi v. CIT [1973 AIR 22] (SC)

Clause (c) of sub-section (1) of section 271 shows that occasion for taking proceedings for payment of penalty arises if the Income Tax Officer or the Appellate Assistant Commissioner is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It has also to be shown that the Income Tax Officer or the Appellate Assistant Commissioner was so satisfied in the course of proceedings under the Act.

b) CIT v. Ram Commercial Enterprises Limited [246 ITR 568 (2000)] [Delhi High Court]

A bare reading of the provisions of Section 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority.”

c) Diwan Enterprises v. CIT [246 ITR 571 (2000)] [Delhi High Court]

Satisfaction has to be before the issue of notice or initiation of any step for imposing penalty. In the case at hand we find the assessing officer having nowhere recorded till the conclusion of the assessment proceedings his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. This is a jurisdictional defect which cannot be cured.”

D. INSERTION OF SUB-SECTION (1B) TO SECTION 271 OF THE ACT VIDE FINANCE ACT, 2008

11. In view of the above contrary views adopted by various judicial pronouncements and in order to put an end to the incessant litigation, a new sub-section (1B) in section 271 of the Act was inserted vide Finance Act, 2008 with retrospective effect from 1st April, 1989. The provisions contained in section 271(1B) of the Act are as under:

Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).”

12. Legislative intent behind the amendment as stated in Notes on Clauses of Finance Bill, 2008 is as under:

Clause 48 seeks to amend section 271 of the Income-tax Act, which relates to failure to furnish returns, comply with notices, concealment of income, etc.

Under the existing provisions contained in Chapter XXI the Assessing Officer is required to be satisfied during the course of penalty proceedings. Legislative intent was that such a satisfaction was required to be recorded only at the time of levy of penalty and not at the time of initiation of penalty. However, some of the judicial interpretations on this issue are favouring the view that satisfaction has to be recorded at the time of initiation of penalty proceedings also.

It is therefore proposed to insert a new sub-section (1B) in section 271 of the Income-tax Act so as to provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and if such order contains a direction for initiation of penalty proceedings under sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under sub-section (1).

This amendment will take effect retrospectively from 1st April, 1989.”

13. As is clear from the Memorandum to the Finance Act 2008, the new section 271(1B) was inserted with the intention to give validity to the satisfaction made by the Assessing Officer at any point of time during the penalty proceedings. The constitutionality of the above amendment was challenged in the Hon’ble Delhi High Court in the case of Madhushree Gupta v. UOI [WP (C) No. 5059 of 2008]. While contemplating the constitutionality of the said amendment the Hon’ble High Court interpreted the provisions of section 271(1B) read in conjunction with section 271(1) and held that –

The contra-submission of the learned ASG that prima facie satisfaction of the Assessing Officer need not be reflected at the stage of initiation but only at the stage of imposition of penalty is in the teeth of Section 271(1)(c) of the Act. Section 271(1)(c) has to be read in consonance of Section 271(1B). The presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact which cannot be wished away as the provision stands even today, i.e., post amendment. If an interpretation such as the one proposed by the Revenue is accepted then, in our view, the impugned provision will fall foul of Article 14 of the Constitution as it will then be impregnated with the vice of arbitrariness. The Assessing Officer would in such a situation be in a position to pick a case for initiation of penalty merely because there is an addition or disallowance without arriving at a prima facie satisfaction with respect to infraction by the assessee of clause (c) of sub-section (1) of Section 271 of the Act. A requirement which is mandated by the provision itself.

15.7 Learned ASG also sought to place reliance on the Memorandum as well as Clause 48 of the Notes on Clauses appended to the Finance Act, 2008. Even though both the Memorandum as well as Notes On Clauses refers to the conflict in judicial opinion and gives that, as the reason for insertion of the impugned provision, in our opinion, in sub- section (1B) of Section 271 does not do away with the principle that the prima facie satisfaction of the Assessing officer must be discernible from the order passed by the Assessing Officer during the course of assessment proceedings pending before him.”

14. Accordingly, in view of the above judgment of the Hon’ble Delhi High Court, it has been clearly set out that mere direction of the Assessing Officer in his Assessment Order stating that ‘penalty provisions are initiated separately’, would not be sufficient to attract the provisions of subsection (1B) of section 271 of the Act. In order to qualify for deem satisfaction, the Assessing officer has to also mention as to which limb of subsection (c) of section 271 of the Act has been charged on the Assessee in order to satisfy the provisions of section 271(1B).

15. The above ratio has also been adopted by the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory (359 ITR 565). The following conclusions can be inferred from the above order in relation to satisfaction of Taxing Officer for initiation of penalty proceedings:

• The relevant Taxing Authority must record a categorical finding regarding the charge alleged against the assessee i.e. concealment of income or furnishing of inaccurate particulars of income in the assessment orders passed by him. This is sufficient to initiate penalty proceedings.

• In the absence of such categorical finding, the facts contemplated in Explanation 1 to section 271(1) of the Act must be discernable from the assessment order so that deeming provision in the said Explanation is attracted and income is deemed to have been concealed and penalty proceedings can be initiated.

• If the relevant Taxing Authority is Assessing Officer and if in the order passed by him there is neither any categorical finding nor the facts contemplated in Explanation (1) are discernable, then the order must contain direction for initiation of penalty proceedings u/s 271(1)(c) of the Act to attract the deeming provisions in section 271(1B) of the Act.

• The direction to initiate penalty u/s 271(1B) of the Act must be clear and without any ambiguity. Merely mentioning that penalty proceedings u/s 271(1)(c) of the Act are initiated separately will not satisfy the requirement of the law.

• Section 271(1B) is applicable only for assessment orders passed by Assessing Officer and not for orders passed by Commissioner (Appeals) or Commissioner.

16. Further, the Hon’ble Karnataka High Court in its later decision in the case of CIT v. MWP Ltd. [ITA No. 332 of 2007] held that phrases like ‘penalty proceedings are being initiated separately’ or ‘penalty proceedings u/s 271(1)(c) are initiated separately’ do not comply with the meaning of the word direction as contemplated in amended section 271(1B) of the Act.

17. In view of the above judicial pronouncements, both pre and post amendment, it can be concluded that for initiation of penalty proceedings, the order of the relevant Taxing Authority must categorically record the specific charge alleged against the assessee and in the absence of such categorical recording in the assessment order passed by the Assessing Officer, the charge alleged against the assessee must be discernable from the facts stated therein.

E. VALIDITY OF PENALTY PROCEEDINGS SANS STRIKE OFF IN PENALTY NOTICE

18. As discussed earlier, it is a regular practice of the Taxing Officer to strike off the inapplicable limb in the penalty notice u/s 274 r.w.s. 271(1)(c) of the Act in order to satisfy himself and also in order to inform the charge to the Taxpayer. Alternatively, as discussed above, the Taxing Officer could also specifically mention the limb under which the penalty is being initiated in the Assessment Order. However, in cases where both such satisfactions are not recorded, the courts have held the penalty to be invalid. Some such cases are discussed below:

a) PCIT v. Goa Coastal Resorts and Recreation Pvt Ltd [Tax Appeal No 24 of 2019] [High Court of Bombay at Goa]

5. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such petition, the two authorities have quite correctly ordered the dropping of penalty proceedings against the petitioner.

6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine(supra), the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in matter of initiation of penalty proceedings.

7. In the present case, as well if the notice dated 30/09/2016 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine(supra) and therefore, warrant no interference.”

b) PCIT v. Shri Hafeez S Contractor [ITA No. 796 with 872 of 2016] [Bombay High Court]

3. It is admitted position that the facts and the law applicable in both the assessment years are identical. The impugned order of the Tribunal allowed the respondent’s appeals. This on holding that no penalty is imposable under Section 271(1)(c) of the Act for the reason that at the time of initiating penalty proceedings or even at the time of issuing show-cause notices for imposition of penalty, the Assessing Officer had not specified whether the penalty proceedings are on account of concealment of particulars or furnishing incorrect details / particulars. In the absence of the same being specified, the entire proceedings were held to be without jurisdiction.”

c) Manu Engineering v. CIT [122 ITR 306] [Gujarat High Court]

We find from the order of the IAC in the penalty proceedings, that is, the final conclusion as expressed in para. 4 of the order : “I am of the opinion that it well have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income”. Now, the language of “and/or” may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi- criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the IAC was liable to be struck down.”

d) CIT v. Manjunatha Cotton and Ginning Factory [359 ITR 565] [Karnataka High Court]

d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271.

e) The existence of such conditions should be discernable from the Assessment order or order of the Appellate Authority or Revisional Authority.

.

(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing incorrect particulars of income.

(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of the law.”

e) Pr.CIT v. New Era Sova Mine [Tax Appeal No. 70 of 2018] [Bombay High Court]

f) Mrs. Indrani Sunil Pillai v. ACIT (ITA No. 1339/Mum/2016) (ITAT Mumbai)

g) Vidyavardhini v. ACIT (ITA No. 3730/Mum/2014) (ITAT Mumbai)

h) Uttam Value Steels Ltd. v. ACIT (ITA No. 3622/Mum/2016) (ITAT Mumbai)

i) Uma Shankar Agarwal v. DCIT (ITA No.s 1831 to 1835/Kol/2009) (ITAT Kolkata)

19. Further, even in cases where satisfaction was categorically recorded in the Assessment Order, but since there was no strike off of the inapplicable clause in the penalty notice, some courts held the penalty proceedings to be invalid:

a) CTI v. SSA Emerald Meadows [ITA No. 380 of 2015] [Karnataka High Court]

The following substantial question of law pertaining to validity of notice u/s 274 of the Act and thus, the validity of penalty proceedings was raised by the Revenue before the Hon’ble High Court:

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) in bad in law and invalid despite the amendment of section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?

(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeal against the Revenue on the basis of notice under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income?

The Hon’ble Karnataka High Court upheld the order of the Hon’ble Tribunal wherein after placing reliance on the decision of the jurisdiction High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory (359 ITR 565) it was held that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act was bad in law as it did not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated for. Subsequently, the SLP filed by the revenue against the said order of the Hon’ble High Court was dismissed by the Hon’ble Supreme Court.

b) Meherjee Cassinath Holdings P. Ltd. v. ACIT (ITA No. 2555/Mum/2012) (ITAT Mumbai)

c) M/s Orbit Enterprises v. ITO (ITA No. 1596/Mum/2014) (ITAT Mumbai)

d) Dr. Sarita Milind Davare v. ACIT (ITA No. 2187/Mum/2014) (ITAT Mumbai)

e) Sachin Arora v. ITO (ITA No 118/Agra/2015) (ITAT Agra)

F. LATEST BOMBAY HIGH COURT JUDGMENT CHANGES THE PARADIGM

20. Recently, the Hon’ble Bombay High Court in the case of Ventura Textiles Ltd v. CIT [Income Tax Appeal No. 958 of 2017] has changed the paradigm which was more or less settled and has given rise to new avenues in relation to penalty provisions in general and specifically in respect to satisfaction of the Taxing Officer.

21. Brief Facts of the case

• The assessment proceedings for AY 2003-04 concluded vide Assessment Order passed u/s 143(3) on 28.02.2006 wherein an addition of Rs. 62,47,460/- was made, which was claimed as bad debt u/s 36(1)(vii) by the assessee in the return of income, by holding that the amount was not a debt and it was further held that the amount was not admissible u/s 37(1) as well. The above addition was also confirmed by CIT(A).

• In the said assessment order, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) by categorically stating that the assessee had furnished inaccurate particulars of income. Further, the Assessing Officer issued a show cause notice u/s 274 r.w.s. 271(1)(c) on the same date i.e. 28.02.2006, however, the Assessing Officer did not strike off the inapplicable portion in the said notice.

• By penalty order dated 14.02.2014, Assessing Officer held that by making an improper and unsubstantiated claim of bad debt of Rs. 62,47,460.00/-, the assessee had wilfully reduced its incidence of taxation, thereby concealing its income as well as furnishing inaccurate particulars of income. Therefore, invoking Section 271(1)(c) of the Act, the Assessing Officer imposed the minimum penalty, being 100% of the amount of tax. Such imposition of penalty was upheld by the CIT(Appeal) as well as the Hon’ble ITAT. Hence, the assessee preferred an appeal before the Hon’ble High Court.

22. Arguments of the Assessee on the validity of satisfaction of the Assessing Officer:

One of the contentions raised by the appellant before the Hon’ble High Court was that the non-striking of the inapplicable portion in the notice u/s 274 r.w.s. 271(1)(c) of the Act vitiated the penalty proceedings. The learned counsel for the appellant submitted that at the outset, the notice issued to the petitioner under Section 274 read with Section 271 of the Act proposing to impose penalty was in printed format but the inapplicable portion therein was not struck off. Consequently, whether penalty was sought to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of such income was not indicated in the notice. Since, penalty proceeding is initiated by the show cause notice, non-striking off the inapplicable portion in the notice reflects non-application of mind and vitiates penalty proceedings.

23. Interesting observations made by the Hon’ble High Court:

• If the Assessing Officer proposes to invoke the first limb, then the notice has to be appropriately marked. Similarly, if the Assessing Officer wants to invoke the second limb then the notice has also to be appropriately marked. If there is no striking off of the inapplicable portion in the notice which is in printed format, it would lead to an inference as to non-application of mind. In such a case, penalty would not be sustainable. [Para 17]

• It is noticed that the Assessing Officer had ordered that since the assessee had furnished inaccurate particulars of income, penalty proceedings under Section 271(1)(c) were also initiated separately. Therefore, it was apparent that penalty proceedings were initiated for furnishing inaccurate particulars of income. Further in the statutory show-cause notice under Section 274 read with Section 271 of the Act proposing to impose penalty was issued, though at the bottom of the notice it was mentioned ‘delete inappropriate words and paragraphs’, unfortunately, the Assessing Officer omitted to strike off the inapplicable portion in the notice i.e., whether the penalty was sought to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of such income. Such omission certainly reflects a mechanical approach and non-application of mind on the part of the Assessing Officer. [Para 22 and 23]

• On the basis of the facts of the case, it was observed that the penalty proceedings were initiated for furnishing of inaccurate particulars of income and on analysis it was held that the assessee had declared full facts and there was no furnishing of inaccurate particulars of income. Accordingly, the penalty was deleted on this ground. [Para 35 and 36]

24. Observation on the issue of validity of show cause notice

Addressing the above contention, the Hon’ble High Court held that if the assessment order and the show cause notice for penalty, both issued on the same date i.e., on 28.02.2006, are read in conjunction, a view can reasonably be taken that notwithstanding the defective notice, assessee was fully aware of the reason as to why the Assessing Officer sought to impose penalty. The purpose of a notice is to make the noticee aware of the ground(s) of notice and that it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off, the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings under Section 271(1)(c) of the Act had been initiated separately for furnishing inaccurate particulars of income.

25. Further, the judgement held that,

26. Reverting back to the facts of the present case, if the assessment order and the show cause notice, both issued on the same date i.e., on 28.02.2006, are read in conjunction, a view can reasonably be taken that notwithstanding the defective notice, assessee was fully aware of the reason as to why the Assessing Officer sought to impose penalty. It was quite clear that for breach of the second limb of Section 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income that the penalty proceedings were initiated.”

G. WHAT CONSTITUTES ASSESSEE BEING AWARE?

26. The Hon’ble Bombay High Court in the case of Ventura Textiles Ltd v. CIT (supra) deliberated over the question of whether the assessee had notice as to why the penalty was sought to be imposed on it. For answering the above question, the Hon’ble Bench interpreted the meaning of the term ‘notice’ by adverting to different definitions and Supreme Court judgments and concluded that “The purpose of a notice is to make the noticee aware of the grounds of notice.”

27. Accordingly, the Hon’ble Bombay High Court held the non-striking off of the inapplicable portion in the penalty show cause notice to not be invalid by stating that the assessee was aware of the allegation of penalty against him as he had notice of why the charge was being levied. This observation by the Hon’ble Bombay High Court, even though is very case specific, raises a moot question,

What constitutes that the assessee is aware of the charge?’

28. Interestingly, this very question was examined and answered extensively by the Hon’ble Andhra Pradesh High Court in the case of CIT v. Chandulal [(1985) 152 ITR 238], wherein numerous instances were enumerated which would lead to an assumption that the assessee was aware of the allegations against him. The relevant extract is as under:

So long as the object of putting the assessee in the awareness and knowledge of the initiation of the penalty proceedings is accomplished by the issuance of a notice, the question of invalidity does not arise on account of either inappropriate language in the notice or on account of any inappropriate portions of the notice not being stuck off. There was no offence to any of the rules prescribed in as much as the notice is given to secure the assessee’s explanation to fulfil the requirement of natural justice. It is not in dispute that the assessee did not entertain any doubt in his mind when he received the notice issued by the ITO under s. 274. If the assessee was under a mistaken view about the real intent and effect of the notice issued, he could have asked the ITO to clarify whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of such income.In the present case, it is not denied that in the explanation given to the ITO in response to the notice issued under s. 274, the assessee did not raise any objection on the ground that the notice did not convey the nature of offence committed by him. No objection was also taken regarding the validity of the notice on that ground.It is, therefore, clear that the assessee was not under any misapprehension about the offence alleged against him. There was proper understanding and indeed, in the explanation filed, the assessee dealt with the reasons for contending that no penalty could be levied under s. 271(1)(c). It was not shown to us that any prejudice was caused to the assessee on account of the assessee not being put in the knowledge of the nature of offence committed by him.The contention regarding the validity of the notice was urged only during the course of the appeal before the Tribunal and it seems to us that the explanation was only an after-thought. The assessee certainly understood the offence alleged against him and showed cause to the ITO by pointing of s. 274 would apply not only to concealment of income but also for furnishing inaccurate particulars of such income and where the offence is two-fold, there is no need on the part of the ITO to strike off any inappropriate portions.”

H. ANALYSIS OF VALIDITY/ LEGALITY OF PENALTY PROCEEDINGS UNDER DIFFERENT CIRCUMSTANCES:

Sr. No.

Scenario

Analysis

1.

Specific charge u/s 271(1)(c) of the Act is mentioned in the assessment order and inapplicable portion is struck off in notice u/s 274 r.w.s. 271(1)(c) of the Act

Penalty proceedings shall be valid.

2.

Specific charge u/s 271(1)(c) of the Act is not mentioned in the assessment order and inapplicable portion is not struck off in notice u/s 274 r.w.s. 271(1)(c) of the Act:

Generally, the conclusion in such a scenario is that the assessee is not aware about the charge alleged against him which would impair his rights of reasonable opportunity of being heard as the assessee is rendered incapable of defending himself without knowing the clear allegations against him. Further, as discussed above it is well settled by various judicial precedents that no penalty can be levied when there is neither any specific charge u/s 271(1)(c) of the Act mentioned in the assessment order nor the inapplicable portion has been struck off in notice u/s 274 r.w.s. 271(1)(c) of the Act. Therefore, the penalty proceedings shall be invalid.

[Refer cases in Paragraph 18 above]

3.

Specific charge u/s 271(1)(c) of the Act is not mentioned in the assessment order and inapplicable portion is struck off in notice u/s 274 r.w.s. 271(1)(c) of the Act:

Even though the specific charge is not mentioned in the Assessment order, the striking off the inapplicable portion in the penalty show cause notice would infer that the Taxing Officer is satisfied and the assessee has been made aware of the charge levied on him. Therefore, the penalty proceedings shall be valid.

4.

Specific charge u/s 271(1)(c) of the Act is mentioned in the assessment order and inapplicable portion is not struck off in notice u/s 274 r.w.s. 271(1)(c) of the Act:

If specific charge u/s 271(1)(c) of the Act is mentioned in the assessment order and inapplicable portion is not struck off in notice u/s 274 r.w.s. 271(1)(c) of the Act, then while deciding the validity of the penalty proceedings, the following cases may emerge:

Case A

Whether penalty notice u/s 274 r.w.s. 271(1)(c) of the Act was issued after the date of issue of assessment order?

While contemplating the validity of penalty proceedings vis-à-vis the requirements of law regarding notice u/s 274 of the Act, the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory (359 ITR 565) noted that if the order passed by the relevant Authority categorically records a finding regarding the specific charge against the assessee u/s 271(1)(c) of the Act and then the penalty proceedings are initiated, then the notice to be issued u/s 274 of the Act could conveniently refer to the above order which contains the satisfaction of the relevant Authority passing such order. Accordingly, in such cases, penalty proceedings shall be valid.

Case B

Whether penalty notice u/s 274 r.w.s. 271(1)(c) of the Act was issued before the completion of the assessment proceedings?

The Hon’ble Bombay High Court in the case of CIT v. Smt Kaushalya Devi [(1995) 216 ITR 660] (Bom HC), held that the vagueness and the ambiguity in the notice prejudiced the right of reasonable opportunity of being heard of the assessee and quashed the penalty proceedings. Accordingly, in such cases, penalty proceedings shall be invalid.

Case C

Whether assessment order and penalty notice u/s 274 r.w.s. 271(1)(c) of the Act were issued on the same date?

If the answer to the above question is in the affirmative, then following the decision of the Hon’ble Bombay High Court in the case of Ventura Textiles Ltd v. CIT [Supra], it can be concluded that the penalty proceedings shall not be vitiated by reason of non-striking off of inapplicable portion in notice u/s 274 r.w.s. 271(1)(c) of the Act, if specific charge is mentioned in the assessment order.

Contrary Judgements with identical facts in the case of Meherjee Cassinath Holdings P. Ltd v. ACIT (ITA No. 2555/Mum/2012) and M/s Orbit Enterprises v. ITO (ITA No. 1596/Mum/2014) held the penalty proceedings to be invalid. However, the same have been now superseded by the Hon’ble Bombay High Court case of Ventura Textiles Ltd. (supra). Accordingly, in such cases, penalty proceedings shall be valid.

APPLICABILITY OF PRINCIPLES IN NEW PROVISION

29. As stated earlier, the provisions of section 271 of the Act have been replaced by section 270A of the Act from AY 2017-18. The offences for which penalty is leviable u/s 270A of the Act are under reporting of income and under reporting of income in consequence of misreporting thereof. Similar to quondam provision of section 271 of the Act, the new section 270A of the Act also confers discretionary power on the relevant Taxing Authority to levy penalty i.e. levy of penalty is not automatic u/s 270A of the Act which is evident from the wordings of the section “The Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner may, during the course of any proceedings under this Act, direct that any person…” The implication of such a discretionary power is that the relevant Taxing Authority will be required to prima facie satisfy himself that an offence, as provided in section 270A of the Act i.e. either under-reporting of income or under-reporting of income in consequence of misreporting thereof has been committed, to initiate penalty proceedings under the said section. Accordingly, the principles laid down by various judicial precedents relevant to section 271 of the Act as discussed above in so far as giving ‘direction’ for penalty and recording of satisfaction of the relevant Taxing Authority is concerned, shall equally apply to the new section 270A of the Act.

What is taxable under the Income Tax Act is “income” or “profits” or “gains” as they accrue to a person in his dealings with other party or parties that do not share the same identity with the assessee. For income, there is an underlying exchange of a commercial nature between two different entities.1

The principle that no one can make profit of himself is true enough but may in its application, easily lead to confusion.2

Taxes on income are taxes on moneys or profits generated by a person in their transactions with others. No assessee can generate real income out of himself, which can be taxed. The doctrine of mutuality postulates that when transactions are carried out between people in mutual association with each other, i.e. where they contribute to a common fund for the betterment of the contributors and generate returns there-from, such returns are not taxable. The exemption granted to a mutual concern is premised on the assumption that the concern is being run for the mutual benefit of the contributors and the contributions made by the members ought to be directed in that direction.3 The contributions to the mutual concern are held in trust for the benefit of the contributors, and required to be spent accordingly.

It may be noted that the doctrine of mutuality bestows a special status that enables the concern to qualify for exemption from tax. In tandem with the recent trend of interpreting tax exemptions very strictly4, the Supreme Court in Yum! Restaurants (Marketing) (P) Ltd.5 has cast the burden on the assessee to prove that it meets the conditions for applicability of the doctrine. Resultantly, the importance of appreciating the contours of the doctrine, the various circumstances in which it can be used and the various factors that prevent the assessee from seeking exemption under the doctrine, cannot be understated.

The quotes in the beginning of the paper, one from a most recent Supreme Court judgment, and the other from one of the earliest cases on the principle of mutuality, express the basic foundations of taxation of income and also the difficulties in applying the principle to the facts of the case. This paper seeks to explore the various constituents of the doctrine of mutuality in the context of income tax law.6

A) Principle of Mutuality – A Historical Backdrop

Amongst the first cases to have applied the principle of mutuality is the House of Lords decision in New York Life Insurance Co. v. Styles (Surveyor of Taxes)7. In Styles, the assessee company issued life insurance policies of two kinds namely, participating and non-participating policies. There were no shareholders of the company in the ordinary sense of term, but each holder of a participating policy, ipso facto became a member of the company; each holder of a participating policy was entitled to a share in the assets and liable for a share in the losses. The company calculated the probable death rate amongst its members along with the probable expenses liability and thereafter required its members to contribute premia. At the end of the year, accounts were drawn up. Greater part of the surplus of premia over the expenditure referable to the policies was returned to the members while the balance was carried forward as a fund to the credit of the general body of members. While considering the question whether the surplus returned was liable to be taxed, the majority of the Law Lords held that the members of the assessee company had merely associated themselves together for insuring each other’s life on the principal of the mutual assurance and the returns were, therefore, not liable to tax.

The House of Lords further explained the principle in Municipal Mutual Insurance Ltd. v. Hills8. In this case, the assessee was established to extend fire insurance to its members, who alone were entitled to participate in the surplus assets on winding up of the company. With the passage of time, the assessee expanded its business to offer employers liability and miscellaneous insurance, both to its members as also non-members. With respect to the fire insurance business, the revenue admitted that it was carried out for mutual benefit and was not taxable. In so far as employers’ liability and miscellaneous insurance business done with the non-members was concerned, the assessee admitted it to be taxable. The dispute was in respect of the employers’ liability and miscellaneous insurance business done with holders of insurance policy against fire who were also members of the assessee. Lord Macmillan laid down the test that has been universally applied by Courts in the last century:

The cardinal requirement is that all contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund; in other words, there must be complete identity between the contributors and the participators. If this requirement is satisfied, the particular form which the association takes is immaterial.”9

Styles’ (supra) was examined and explained in English and Scottish Joint Co-operative Wholesale Societies Ltd. v. Commissioner of Agricultural Income-tax, Assam10, in which the Privy Council, speaking through Lord Norman, summarized the grounds of the decision in Style as follows:

“…it appears that the exemption was based on (1) identity of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders in other words, as an instrument obedient to their mandate and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.”

The Supreme Court elaborated on the doctrine of mutuality in Royal Western India Turf Club India Ltd. v. Commissioner of Income Tax11, observing:

Thus a railway company which earns profits by carrying passengers may also make a profit by carrying its shareholders or a trading company may make a profit out of its trading with its members besides the profit it makes from the general public which deals with it but that profit belongs to the members as shareholders and does not come back to them as persons who had contributed them. Where a company collects money from its members and applies it for their benefit not as shareholders but as persons who put the fund, the company makes no profit. In such cases where there is identity in the character of those who contribute and of those who participate in the surplus, the fact of incorporation may be immaterial and the incorporated company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves.”

The Supreme Court, while explaining the doctrine of mutuality in CIT v. Bankipur Club Ltd.12 relied upon Simon’s Taxes13 to observe as under:

“……it is settled law that if the persons carrying on a trade so in such a way that they and the customers are the same persons, no profits or gains are yielded by the trade for tax purposes and therefore, no assessment in respect of the trade can be made. Any surplus resulting from this form of trading represents only the extent to which the contributions of the participators have proved to be in excess of requirements. Such a surplus is regarded as their own money and returnable to them. In order that this exempting element of mutuality should exist it is essential that the profits should be capable of coming back at some time and in some form to the persons to whom the goods were sold or the services rendered…..”

A conspectus of these judgments make it abundantly clear that for the doctrine of mutuality to apply, the assessee has to demonstrate complete identity between the contributors to a fund and the participants in the surplus of that fund, and that business is not being conducted from a commercial perspective but to benefit its members.14

B. Dissecting Mutuality – Yum! Restaurants (Marketing) (P) Ltd.

The above mentioned tests were recently exhaustively considered and explained by the Supreme Court in Yum! Restaurants (Marketing) (P) Ltd. (supra). In Yum! Restaurants (Marketing) (P) Ltd., the assessee was a wholly owned subsidiary of Yum Restaurants India Pvt. Ltd (parent company). It entered into a tripartite agreement with its parent company and the franchisees of its parent company where-under, it received 5% of the gross sales of each franchisee as contribution for undertaking advertising, marketing and promotional activities for the mutual benefit of the parent company and its franchisees. The parent company was under no obligation to contribute any money to the assessee. Pepsi Foods Ltd., whose products were sold by the franchisees but was not itself a franchisee, also contributed to the assessee’s funds. The assessee claimed exemption from payment of income tax on the ground of mutuality.

The assessing authority rejected the plea by observing that the parent company of the assessee was under no obligation to contribute any funds to the assessee. The Commissioner (Appeals) upheld the denial of exemption, but on the ground that the activities of the assessee were tainted by commerciality. The Income Tax Appellate Tribunal observed that the parent company and Pepsi Foods Ltd. had also contributed to the assessee despite the parent company being under no obligation to contribute to the common fund and Pepsi Foods Ltd. was neither a franchisee nor a beneficiary. The Tribunal held that the essential requirement of the principle of mutuality that the contributors to the common fund also participate in the surplus was missing. The High Court also denied the exemption, leading to an appeal before the Supreme Court.

The Court expounded the following three conditions to prove the existence of mutuality:15

(i) Identity of the contributors to the fund and the recipients from the fund;

(ii) Treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, as an instrument obedient to their mandate; and

(iii) Impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.

i) Common/Completeness of Identity

Succintly put, and as held earlier by Lord Macmillan in Hills (supra), this test implies that those who contribute to the fund should be the same as those who eventually benefit from its surplus. In Yum Marketing (supra), the Supreme Court explained the test as follows:16

a) no person ought to contribute to the common fund without having the entitlement to participate as a beneficiary in the surplus thereof. Conversely, no person ought to participate as a beneficiary without being a contributor or a member of the class of contributors to the common fund.

b) the class of members should stay intact as the transaction progresses from the stage of contributions to that of returns/surplus. It must manifest uniformity in the class of participants in the transaction.

c) the inclusion or exclusion of new members is not prohibited. However, the infusion of a participant in the transaction who does not become a ‘member’ of the common fund, at par with other members, and yet participates in either the contribution or the surplus without subjecting itself to mutual rights and obligations, is prohibited.

d) Any one-dimensional alteration in the nature of participation in the common fund as the transaction fructifies is prohibited.

e) The moment such a transaction opens itself to non-members, either in the contribution or the surplus, the uniformity of identity is impaired and the transaction gets tainted by commerciality.

The importance of the completeness of the identity between the contributors and participators was emphasized as follows:17

The theory of completeness of identity presupposes the contributors and participators to be two separate classes, but there is oneness or equality in the matter of sharing of surplus/profits. This is to ensure that there is no interference of any alien commercial entity in the transaction. With the interference of any alien entity, the idea of conducting business with oneself is defeated and any profits or gains accruing therefrom become subject to tax liability.”

The Supreme Court thus equated the inclusion of a non-member in the affairs of the mutual concern as introducing the taint of commerciality in its dealings, thereby knocking off the foundations of the principle of mutuality. This is so because non-members have no concern with the affairs of a mutual concern and derive benefit or make contributions in a capacity different from that of the members.18

Applying these principles, the Court found that as Pepsi Foods did not become a part of the tripartite mutual agreement and there being no franchisee agreement with Pepsi Foods, the amounts received from Pepsi Foods could not be viewed as contributions from a member of the mutual undertaking. The Court thus held that the assessee was realizing money both from members and non-members. It also noted that Pepsi Foods, while becoming a contributor to the common pool of funds, did not participate in the surplus as a beneficiary. This singular feature was sufficient to negate the principle of mutuality.19 The Court further observed that even if any remote of indirect benefit was being reaped by Pepsi Foods, the same could not be said to be in lieu of it being a member of the purported mutual concern. Non-members like Pepsi Foods Ltd., stood on a different footing as they have no proximate connection with the affairs of the mutual concern.

ii) Treatment of the company as an instrument obedient to the mandate of members

For appreciating whether the company/society/firm is only being used as an instrument to further the objects of the mutual concern and does not have a commercial character, the actual working of the company/society/firm is to be examined. The form of the structure – whether it is a company/society/firm is immaterial. The authorities will go behind the formal structure of the organization, and closely examine its actual functioning to determine its mutual character, even undertaking an examination akin to the lifting of the veil in order to discern the real nature of the organization.20

While examining the functional framework of the assessee, the Court found that its parent company (Yum Restaurant India Pvt Ltd.) had no mandatory obligation to contribute to the funds of the assessee. The parent company reaped the benefits of the arrangement, without any corresponding obligation to contribute, thus putting it at a higher pedestal than the other franchisees who were obliged to contribute 5% of their revenues. This feature was against mutuality, which pre-supposes that all members of the undertaking are bestowed with similar obligations and reap similar advantages. The Supreme Court observed:21

That members of a financial concern exercise mutual control over its management without the scope of prejudicial exercise of power by one class of members over the others is the quintessence for the existence of mutual concern. The word “mutual” offers guidance to this effect. Literally understood the word “mutual” points towards reciprocity and a mutual arrangement is one in which the members/parties have reciprocal rights or understanding or arrangement. An arrangement wherein one member is subjected to the absolute discretion of another, in such a manner that the entire liability may fall upon one whereas benefits are reaped by all is antithesis to the mutual character in the eyes of law.”

While dealing with the submission that it is not mandatory for every member of the mutual concern to contribute to the common pool, the Court distinguished between non-contribution by some members in certain situations with the complete non-contribution by a member or a class of members at all times and in all circumstances. Complete non-contribution by a member or a class of members would give an all-pervasive overriding position to that member or class of members and negate mutuality. The Court emphasized the fine line of distinction between the absence of obligation and presence of overriding discretion, and emphasized that the real essence of mutuality is whether members contribute for the mutual benefit of all and not of one at the cost of others.22

iii) Refund of Surplus & Impossibility of Profits

The third test requires that the mutual operations must be marked by an impossibility of profits. That, however, does not mean that there cannot be any surplus with the assessee at the end of the year. However, there is no absolute right of the members to get a share in the surplus and insist on its distribution. Additionally, in case of distribution of surplus of a mutual concern, the reason is not a redistribution of profits as in the case of a company or firm (as no profits arise in a mutual concern). The raison d’etre behind refunding the surplus to the contributors or mandatory utilization of the same in the subsequent assessment year is to reduce their burden or contribution proportionately in the next year.23

In Yum Marketing (supra), the Supreme Court held that the nature of the agreement may result in a situation where the parent company would not contribute even a single penny to the common pool and yet be able to derive profits in the form of royalties, created by the fixed 5 percent contribution made by the franchisees. This would be nothing short of derivation of gains out of inputs supplied by others. This, the Court found to violate the basic essence of mutuality, which entails that there should not be any profit earning motive, directly or indirectly. The Court also found that under the agreement, the assessee had no specific obligation to spend the amounts received from the franchisees for their benefit. The net result was that the assessee company did not hold the contributed amount under any implied trust for the franchisees, which itself was anti-thetical to mutuality.24

C. Statutory Erosion of the Doctrine of Mutuality

The general principles regarding non-taxability of mutual income are however, subject to statutory carve-outs. Nothing prevents the legislature from taxing incomes of certain mutual concerns by specifically amending the Income Tax Act. With effect from 01.04.1993, the Income Tax Act introduced Section 2(24)(vii), which specifically provides that the profits and gains of any insurance business carried out by a mutual insurance company or by a co-operative society to be taxable. Section 2(24)(viia), with effect from 01.04.2007, made taxable the profits and gains of any business of banking carried out by a co-operative society. Furthermore, Section 28(3) of the Income Tax Act provides that income derived by a trader, profession or similar association from specific services performed by its members is income chargeable to tax under the head profits and gains or business or profession.

D. Concluding Thoughts

The essence of mutuality lies in the return for what one has contributed to a common fund. In order to claim exemption based on the doctrine, the fund has to fulfill the foremost requirement that all its contributors must be entitled to participate in the surplus and that all the participants in the surplus should be contributors to the common fund. There has to be complete identity between the contributors to the fund and the participators in the surplus.

In the case of clubs, their profits are exempted from tax liability because of the underlying notion that they operate for the common benefit of the members wishing to enter into a social exchange with no commercial intent. Furthermore, all the members of the club generally not only have a common identity in the concern but also stand on an equal footing in terms of their rights. However, such parity of rights was missing in Yum Marketing (supra). The Court found that the purported mutual concern was a commercial venture wherein contributions were accepted from members as well as non-members, and one member (the parent company) had been vested with a myriad set of powers to control the functioning and interests of other members (the franchisees).

Even in the case of a mutual association, it is not necessary that every activity of the association is exempted from tax. An association may engage in activities which can be described as mutual those that are not.25 As noticed in Styles (supra) and Municipal Mutual Insurance Ltd. (supra), mutuality is not destroyed by the presence of transactions which are non-mutual in character and mutuality can be confined in such cases to transactions with members. The two activities in appropriate cases can be separated and the profits derived from non-members, can be taxed.26

The decision of the Supreme Court in Royal Western India Turf Club India Ltd. (supra)27 laid down the broad proposition that if the object of the assessee is to carry on a particular business and funds are realized both from the members and from non-members, for the same consideration by giving the same or similar facilities to all alike in respect of the same business, and the dealings as a whole disclose the same profit-earning motive, the activities of the asseessee are tainted with commerciality and cannot claim exemption by relying upon mutuality. The Supreme Court, in Yum Marketing (supra), does opine by relying upon Royal Western India Turf Club Ltd. (supra) and The English and Scottish Joint Co-operative Wholesale Society Ltd. (supra), that inclusion of non-members in the affairs of the mutual concern introduces an element of commerciality.28 However, a careful reading of the judgment would indicate that it is the context where there is no activity of the assessee from which the non-member parent company can be excluded, and the bifurcation of mutual and non-mutual activities of the assessee is not possible.


 

* Advocate, Allahabad High Court.

** B.A. LL.B. (Hons.) (3rd year), Maharashtra National Law University, Nagpur.

The authors gratefully acknowledge the assistance of Mr. Madhav Goel, LL.B. (2nd Year), Campus Law Centre, Faculty of Law, University of Delhi. The errors are the authors’ alone.

1. Yum! Restaurants (Marketing) (P) Ltd. v. CIT Delhi [2020] 116 Taxmann.com 374 (SC) para 14.

2. Dublin Corporation v. M’Adam (1887) 2 Tax Cas 387.

3. Supra note 1, para 30.

4. Commissioner of Customs (Import) v. Dilip Kumar & Co. (2018) 9 SCC 1 (5j).

5. [2020] 116 Taxmann.com 374 (SC).

6. Doctrine of mutuality also applies in indirect tax law. Applying the principle that no person can sell goods to himself, the turnover of sales of clubs, societies etc. has been held exempt from the purview of indirect tax laws. See the judgments in State of West Bengal v. Calcutta Club Ltd., Civil Appeal No. 4184 of 2009 decided on October 3, 2019 and CTO v. Young Men’s Indian Association (1970) 1 SCC 462 (5j).

7. (1889) 2 Tax Cas 460.

8. (1932) 16 Tax Cas 430.

9. Ibid., p. 447.

10. [1948] AC 405; 16 ITR 270.

11. [1953] 24 ITR 551 (SC).

12. [1997] 92 Taxmann.com 278 (SC).

13. Vol. B Third Edition, paragraphs B 1.218 and B 1.222.

14. The underlying foundation of the principle of mutuality, and its essential characteristics, were also noted by the Andhra Pradesh High Court in CIT. v. Merchant Navy Club [1974] 96 ITR 261(AP) paras 9-11, where the exposition of origin and development of the law in paragraph 79 of Gunn’s Commonwealth Income Tax Law and Practice, and paragraph 1-417 of Wheat-croft’s Law of Income Tax was extracted.

15. The Court, in para 16, relied upon The English and Scottish Joint Co-operative Wholesale Society Ltd. (supra) and the Royal Western India Turf Club Ltd. (supra) to expound these tests.

16. Supra note 1, para 17.

17. Ibid., para 18.

18. Ibid., para 22.

19. Ibid., para 19.

20. Ibid., para 18.

21. Ibid., para 25.

22. Ibid., para 26.

23. Ibid., para 28.

24. Ibid., para 30.

25. CIT v. Common Effluent Treatment Plant, (Thane-Belapur) Association [2010] 328 ITR 362 (Bom).

26. CIT v. I.T.I. Employees Death & Superannuation Relief Fund [1998] 234 ITR 308, 318 (Karn.).

27. See also CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241 (SC) and Fletcher v. ITC (1971) 3 All ER 1185 (PC).

28. Supra note 18.

Dear members,

Greetings to all.

Virtual address by Chairman CBDT

On 12th and 13th September 2020 the members of the Federation with many other professional colleagues were enrolled for the first virtual NTC by AIFTP. Shri Bhaskar Patel, Chairman of WZ and his team worked extra miles to make this mega event a grand success. The star attraction was the key note address by Hon’ble Shri P. C. Mody, Chairman Central Board of Direct Taxes. The faceless assessment system and tax payers charter were explained in lucid terms. The Hon’ble Chairman was candid enough to say that they would be open to any suggestions for betterment of taxpayers and tax administrators. Many of the doubts generally raised were dispelled by him including the confirmation that accountability of the tax administrator would also be major harp to make this system successful. The panelist Shri Mukesh Patel along with Sr. Adv. Shri Ganesh Purohitji were ready with 30 pertinent questions to be answered by Dr. Pushpinder Puniha, Principal Chief Commissioner Of Income Tax, National e-Assessment Centre and Shri Kamlesh Varshney, Joint Secretary, Tax Policy and Legislature Government of India.

The interesting discussion which continued for three hours thereafter has cleared majority of doubts about the faceless Assessment scheme. My compliments to Shri Mukesh Patel, international Tax expert and Renowned Advocate from Gujarat for planning, designing and executing the entire session and making it a history. Sr. Advocate Shri Ganesh Purohit, our Past President as usual was at his best. We were able to witness the brighter side of our Secretary General Shri Samir Jani, who raised queries. He has proved to be a valuable asset and left no stone unturned to perfect this occasion with minute details .

Not to miss, the quick, frank and to the point answers given by two top officials that showcased their sharp intellect and expertise on the subject.

The speech and response by all the three Government dignitaries have created a higher level of confidence and faith amongst all the stake holders.

My hearty Congratulations to all connected with the program, including the Chairman of Virtual conference Shri Narendra Sonawane, and other co-organisers namely : Shri Raj Shah, (President GSTPAM), Shri Sharad Suryawanshi (President WMTPA) and Shri Kaushik Vaidya (President CGCTC) and their respective teams. I am informed that around 2574 delegates registered and the program was seen live on Facebook by about 6000 persons.

The rest of the sessions were of great importance to the members practicing the Direct and Indirect Taxes. My sincere thanks to all the fantastic speakers. The Chairman of the respective session added value to their respective session. The YouTube link of each session is available on our website, the members who could not join can take benefit of the same. We have also made available PPT, wherever made available to us by speakers, on our website. I am happy to inform that for the first time e-souvenir was released in the inaugural session of this NTC. Pl read the detailed report in AIFTP times.

Second virtual NTC by Northern Zone

On 2nd and 3rd October, we would be witnessing one more historic event. It would be golden moment for each member as we would be having as Chief Guest and Guests of Honour, the Hon’ble Judges, who have been real Gems of the Federation. After being active in AIFTP, they are elevated as judges of Respective High Courts. Chief Guest Hon’ble Justice Shri Rajesh Bindalji, Jammu and Kashmir High Court was closely associated with the Federation for many years, before his elevation as Judge Punjab and Haryana high Court. The Guest Of Honour Hon’ble Ms. Justice Anita Sumanth, Judge, Madras High Court had been an active Zone Chairman of South zone. Hon’ble Shri Justice Piyush Agarwal, Judge Allahabad High Court has been one of the active NEC member of North Zone. The rest three Hon’ble Guests of Honour are all from the East zone. Hon’ble Shri Justice Ujjal Bhuyanji. A Senior Judge of Bombay High Court is basically from Gauhati. Hon’ble Shri Justice Bhuyanji has participated in many programs Of AIFTP by now. Similarly, Hon’ble Shri Justice Kalyan Rai Surana, Judge Gauhati High Court and Hon’ble Shri Justice Soumitra Saikia, Judge Gauhati High Court have been members of our esteem Association. It would be great pleasure to have them all at one place in a virtual platform It would be an event of legal luminaries and judicial luminaries being present on the same platform. Shri Asim Zafar, North Zone Chairman and Shri Sanjay Kumar, Advocate from Allahabad, the Chairman of the Conference, are on their toes to make this event another historic event. I invite each and every member to participate in the virtual NTC and make it a Grand success.

Felicitation of Advocate Pankaj Ghiya of Central Zone

Shri Pankaj Ghiya, renowned Advocate from Jaipur is pioneer in bringing the webinar culture in AIFTP. I must admit, my first lessons of the webinar are learnt from Shri Pankaj Ghiya. In the first virtual National Tax Conference, the Federation was crossing the magic number 100 webinars, we thought it fit and proper to put on record our appreciation by felicitating him in the First Virtual Conference. But for him it would not have been possible for the Federation to reach out to the thousands of tax consultants in remotest areas of the Country. My Congratulations to him. I am sure he would take the federation to greater heights in the days to come.

Release of the second e-publication

The Federation has team of Seniors and enthusiastic contributors, who have decided to publish a second e-publication containing 151 landmark judgments of the Supreme Court under Direct, Indirect and Allied laws. This e-publication is in the final stage of completion under the able guidance of our past president Senior Advocate Dr. K. Shivaram. This e-publication would be released at the inauguration of the second Virtual National Tax Conference by North Zone. The publication is to celebrate completion of 150th birth Anniversary of Mahatma Gandhiji. I am sure, this publication is going to be of immense help to all the consultants of Income Tax and GST. On account of current pandemic situation, we may be withholding the print publication. This publication is dedicated to late Justice Dr. B. P. Saraf former Chief Justice of Jammu and Kashmir High Court.

Expanding the horizon of tax Professionals

Laws relating to direct and Indirect taxes are much more complicated then it should be. Moreover, each act refers to provisions and interpretation under different Acts. It therefore is incumbent on the part of the tax professionals to know in detail each of such laws. Yes, I am talking about allied laws like Evidence act, Information and technology act, Law and procedure of Insolvency and bankruptcy code 2016, Contract act, Hindu law, will and succession act and procedures, Law of writs, Interpretation of Statues, Benami act, law of limitation, Customs act, prevention of Money laundering act, Unjust enrichment and Promissory estoppel, law of affidavits, law of precedents, law of torts, Transfer of Property act, RERA, Consumer Protection act, the facets of natural justice etc. We all know little bit of everything, but now the time has come to go deeper in each of the subjects as also to find applicability and implication of each of these laws under Direct and indirect taxes. We would be having the main sessions by seniors in respective fields and implications under direct and indirect taxes would be discussed by the experts in the field. We intend to have at least 2 hrs sessions on every Saturday/Sunday Morning. I am sure these series would not only enrich the knowledge of members but would also open up new areas of practice.

Representation on Direct & Indirect Tax

The Federation has been persistently representing about the extension of time on account of pandemic. The major compliances under the Income Tax and GST Act involves audit of the accounts under the respective Acts. Although the Government has now been lenient in opening up the lockdown to a great extent, the end of the Covid-19 era is nowhere to be seen. Majority of the cities including the metropolitan cities are reeling under the ever-increasing number of corona infection. The public transport is scarcely available. The local trains and metros are open only for the officials of the government. Under such unprecedented circumstances, the Hon’ble Finance Minister ought to have extended the time for audits at least up to 31st December 2020. Unfortunately, although the Centre has been lenient in giving the relief to the MSME sector as also the common men in the lower strata of the society, I regret to say that there is no relief to the people of middle class and tax professionals. The assessees are still fumbling to gather the data with the limited availability of staff, pressurizing timely compliance may result in incomplete compliance. The Hon’ble Finance Minister ought to have realized the stress under which assesses are trying to recover economically. It would not be wise to further suppress the oppressed. The Federation has been continuously making representation; unfortunately, there is no positive response from the Ministry. The extension of deadline for various compliances under GST Act is equally important. Unfortunately, the recent amendment does not show acceptance of our representation especially for due date of compliances.

An interesting issue which may arise on account of the Supreme Court judgment on suo moto application on 23rd March 2020. The Hon’ble SC has in this suo moto order extended the limitation for all legal compliances. This judgment should squarely apply to the compliances under the Direct Tax. Although the Income Tax Act and GST Act are governed by special law, the Hon’ble Finance Minister must consider the present exceptional circumstances and extend all the compliances dates at least up to 31st Dec 2020. We look forward to having positive and timely response from the Government in this regard.

Kindly visit our website www.aiftponline.org for information about future activities. Please invite your professional friends to become member of AIFTP before the subscription increases.

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Stay safe, Stay Healthy and Stay Connected

Nikita R. Badheka
National President, AIFTP