Research Team

205. S.4: Sales tax subsidy from State Government –capital or revenue- Assessee maintained that the sale tax subsidy received was a capital receipt not subjected to tax – AO and CIT(A) held it to be of revenue nature – ITAT allowed the assessee’s appeal – while the Revenue’s appeal was pending before the High Court, the State Government revoked the

Assessee received Sales Tax subsidy from State Government in AY 1993-94. The AO held the same as revenue receipt which was confirmed by CIT(A). The ITAT held the receipt to be capital receipt. Subsequently, the Hon’ble High Court of Andhra Pradesh held that assessee was not entitled to subsidy and directed the assessee to refund the amount. This order was also confirmed by Hon’ble Supreme Court. Upon such refund, the assessee claimed a deduction of the amount so refunded in AY 2002-03, which was rejected by the AO and confirmed by the CIT(A). The ITAT held that assessee was entitled for deduction and the order of the ITAT attained finality. In light of the facts of the case, High Court held that it was not required to decide on the correctness of the order of ITAT treating the receipts as capital receipt. Further, the High Court held that the ITAT’s order treating the receipts as capital in nature need not be given effect to and the order of CIT(A) was restored.

CIT v. ITC Bhadrachalam Paper Boards Ltd. [2023] 293 Taxman 59 (Calcutta)(HC)

206. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty Non- Resident – Import of licensed software under exclusive licences – Not liable to deduct tax at source. [S. 195, 201(1))]

Allowing the appeal the Court held that the Tribunal was not correct in holding that the assessee was to be treated as an assessee-in- default under section 201(1) of the Act holding that payments made by the assessee were in the nature of “royalty payments” as defined under Explanation 2 to section 9(1)(vi) of the Act and under the applicable Double TaxatioAvoidance Agreements.(AY . 2007-08 to 2012-13)

Wipro Ltd. v. Add. CIT (2023) 453 ITR 796 (Karn) (HC)

Editorial: Add. CIT v. Wipro Ltd (2023) 453 ITR 799 (SC)

207. S. 10 (23C):Educational institution – Scope Of Section 10(23C)(vi) – Institution should exist solely for purposes of education – American Trust set up in India supported by organisation set up in USA – American organisation incurring expenses in support of Indian trust and repatriating amounts to it – Income earned and expenditure incurred outside India by any person or entity does not concern Income-tax Department – Amounts received, utilised for purposes of education in India – Assessee entitled to exemption under section 10(23C)(vi).

The petitioners were the trustees of the American School of Bombay Education Trust (ASB), which was constituted under the Indian Trusts Act, 1882. The Trust was set up after the embassy of the United States of America was granted specific permission by the Ministry of External Affairs, New Delhi. The Trust was set up solely for the purpose of education and not for the purpose of profit. During the years relating to AY.s 2002-03 to 2005-06, the Trust was supported by the South Asia International and Educational Services Foundation (SAIESF) which was set up in 1996 in the United State of America wholly and exclusively for charitable and educational purposes within the meaning of section 501(c)(3) of the Internal Revenue Code of the United States of America. The Foundation was a non-profit organization subject to scrutiny by the

U. S. Government and exempted from tax by U. S. Federal Government under section 501(c)(3) of the Internal Revenue Code. The accounts of the Foundation were subject to detailed scrutiny by the Internal Revenue Service.

The Foundation would incur various expenses in support of in support of ASB i.e. school material and freight, salaries of teachers and administrators, education grants, etc. The surplus if any, arising from time to time was entirely repatriated to the trustees in India and, thereafter, invested by them in accordance with the provisions of section 11(5) of the Act.

The department’s main contention was that exemption under section 10(23C)(vi) applies to institutions where it is possible to examine the accounts properly to ensure that the income is properly applied for educational purposes and the funds are invested in the prescribed manner. In the present case, it is impossible to conduct verification since it involved examination of law and practice of another country and consequently it was not possible to check what amounts were received outside India and how they were spent. In this background, the department had denied the exemption to the petitioners.

Held, that the Department could be concerned only with the application of income in the hands of the Trust or the trustees once received in India. This was because the Trust or the trustees were not transferring or repatriating any money outside India to any person or entity. Furthermore it was not the case of the Department that having received the monies in India, the Trust or the trustees had not utilized the funds in accordance with the objects for which it was founded. The Department had not substantiated their bald statement that the Trust or the trustees had not invested the surplus money in accordance with law which in any event would not be a criteria at the initial stage of approval. The Foundation was an entity which repatriated money into India and did not receive any repatriation from India. Therefore, the money earned and expenses made by the Foundation in the U. S. A. should not and not ought to concern the Income-tax Department in India. There was absolutely no requirement to certify the correctness of the accounts of the Foundation. As a matter of record, the Department had granted the Trust or the trustees exemption under sections 10(22) and 10(23C)(vi) of the Act since the AY.s 1999- 2000 to 2002-03 and the AY.s 2006-07 to 2026-27. It was therefore substantiated that the Trust only existed for educational purposes and not for profit. Once it was established that the Trust or the trustees existed to provide education and not for profit, the exemption could not be denied, for the AY.s 2002-03 to 2005-06.( WRIT PETITION NOS. 8518 AND 9265 OF 2009 dt. 08.03.2023) ( A.Y.: 2002-03 to 2005-06)

Laura Entwistle and Ors. v. UOI and Ors. (2023)454 ITR 345 (Bom)

208. S. 10(23C): Educational institution (Profit motive) – For claiming benefit/ exemption under section 10(23C) (iiiab) which is pari materia to section 10(23C)(vi), activity of assessee must be solely for educational purposes and if ultimately it is found that activity is for profit, assessee would not be entitled to exemption under section 10(23C)(vi) – Where Commissioner, while considering application of assessee for grant of exemption under section 10(23C)(vi) specifically observed that assessee’s activity could not be said to be solely for imparting education and that assessee was indulging in profits and was thus not entitled to exemption under section 10(23C)(vi) – the order of the Commissioner was to be upheld.

The assessee trust claimed to be engaged in the activity of imparting education and claimed the exemption under section 10(23C) (vi) by submitting an application before the Jurisdictional Commissioner. The Commissioner on appreciation of evidence and considering the material on record found that the assessee had been earning systematic profits year after year and, in the year in question, earned profit to the extent of 67.81 per cent without depreciation and therefore, the Commissioner was of the opinion that the activity of the assessee could not be said to be solely for imparting the education and, it was thus, not entitled to the benefit/exemption under section 10(23C)(vi) and consequently dismissed the said application. On writ petition, the High Court set aside the order passed by the Commissioner denying the exemption under section 10(23C)(vi).

On appeal, the Supreme Court held that the decisions of this Court in the case of Queen’s Educational Society (supra) fell for consideration before the Supreme Court in the recent decision in the case of New Noble Educational Society v. CCIT [2022] 143 taxmann.com 276/[2023] 290 Taxman 206/[2022] 448 ITR 594/2022 SCC OnLine 1458 wherein a three-Judge Bench has not approved the decision of this Court in the case of Queen’s Educational Society (supra) on ground that the interpretation adopted as to the meaning of the expression ‘solely’ are erroneous. The trust or educational institution, which seeks approval or exemption, should solely be concerned with education, or education related activities. Applying the law laid down by the Supreme Court in the case of New Noble Educational Society (supra) referred to hereinabove to the facts of the case on hand, the impugned judgment and order passed by the High Court is unsustainable.

At this stage, it is required to be noted that taking into consideration the entire material on record, in fact, the Commissioner, while considering the application of the assessee for grant of exemption under section 10(23C) (vi) specifically observed and held that the activity of the The finding of fact recorded by the Commissioner, as such, not been upset by the High Court in the impugned judgment and order. In view of the above and for the reasons stated above, the present appeal succeeds. The impugned judgment and order passed by the High Court quashed and set aside.

UOI v. Baba Banda Singh Bahadur Education Trust (454 ITR 273) (SC).

209. S. 10(38) : Long term capital gains from equities – Sale of shares – Capital gains – Income from other sources – Question of fact. [S. 45, 56]

Dismissing the appeal of the Revenue the Court held that the Tribunal had given a finding that the assessee had produced all the documentary evidence to establish the genuineness of the share transaction and that the Assessing Officer had failed to produce contrary material evidence to rebut the claim and documents produced by the assessee. Order of Tribunal is affirmed. (AY. 2014-15)

PCIT v. Ritu Agarwal Shreeram Bhawan (2023)453 ITR 520 (Raj) (HC)

Editorial: SLP of Department is dismissed, PCIT v. Ritu Agarwal Shreeram Bhawan (2023) 452 ITR 412(St)(SC)

210. S. 11: Property held for charitable purposes – Res Judicata – Rule of consistency – Benefits granted in earlier years – Order of Tribunal affirmed. [S. 12, 260A]

Dismissing the appeal of the Revenue the Court held that in the absence of any change in the law and of any fresh facts shown to be involved in the AY. 2014-15, the Tribunal had not committed any error in following the rule of consistency and in taking the same view as in the assessee’s own case for the AY. 2010-11. No question of law arose. (AY. 2014-15)

CIT v. Swami Omkarananda Saraswati Charitable Trust (2023) 453 ITR 245 (All)( HC)

211. S. 11: Property held for charitable purposes – Registration u/s. 12AA of the Act does not ipso facto entitle the assessee to claim exemption – other conditions under sections 11 to 13 of the Act also have to be evaluated

High Court held that grant of registration under section 12AA of the Act in favour of the assessee does not ipso facto entitle it to claim exemption under section 11 and 12 of the Act. High Court observed that the AO has to carry out independent examination and ought to be satisfied of other conditions and relevant provisions of law before granting exemption. High Court held that the direction given by the Tribunal to the AO to grant exemption to the assessee under sections 11 and 12 of the Act merely on the basis of the registration obtained by the assessee under section 12AA was not correct. High Court remitted the matter to

CIT v. Chennai Port Trust (2023) 454 ITR 674 (Mad)

212. S. 12AAA : Where Commissioner invoked his power under section 263 and held that assessee –charitable trust was not entitled for exemption under section 11 as registration granted to assessee under section 12AA was cancelled by invoking section 12AA(3) retrospectively with effect from assessment year 2009-10.

Assessee-charitable trust filed return of income declaring nil income. The Assessing Officer passed a reassessment order granting exemption under section 11 and determined total income of assessee at NIL. The Commissioner of Income-tax invoked his power under section 263 and held that assessee was not entitled to get benefit of exemption under section 11 as registration granted to assessee under section 12AA was cancelled vide order dated 11-12- 2015 retrospectively with effect from assessment year 2009-10 by invoking section 12AA(3) and hence impugned assessment order passed was erroneous and prejudicial to interest of revenue. On appeal, the Tribunal held that the Circular No. 1 of 2011, dated 6-4-2011 clarified that the provisions of section 12AA (3) would be applicable from assessment year 2011-12 and thus, revisionary order would be bad in law. On appeal by the Revenue, the High Court dismissed the appeal holding that no substantial question of law arises.

CIT (E) v. Sarlaben Bhansali Charities Trust (2023) 454 ITR 44 (Cal.) (ITAT No. 176 of 2018) (A.Y. 2011-12) [refer CIT (Exemptions) v. Sarlaben Bhansali Charities Trust (2023) 454 ITR 46 (SC)]

213. S.14A : Disallowance of expenditure – Exempt income – Only Investments yielding income can only be taken into account – CBDT Circular dated 11-2-2014(2014) 361 ITR 94 (St), cannot override provisions of Section 14A and Rule 8D.[S. 119, R.8D (2)(iii)]

Allowing the appeal of the assessee, the Court held that The Central Board of Direct Taxes circular dated February 11, 2014 ([2014] 361 ITR (St.) 94) cannot override the express provisions of section 14A read with rule 8D . The circular does not refer to rule 8D(1) of the Rules at all but only refers to the word ”includible” occurring in the title to rule 8D as well as the title to section 14A . The circular concludes that it is not necessary that exempt income should necessarily be included in a particular year’s income for the disallowance to be attracted. Hence where dividends are earned in calculating the disallowance under section 14A only those investments are to be considered for computing the average value of investments which yielded exempt income during the relevant .(ITA No. 5944/Delhi/2016 dt. 31-7 -2019) (AY. 2013 -14)

Cargo Motors Pvt. Ltd. v. Dy. CIT (2023)453 ITR 554 / 291 Taxman 208 (Delhi)(HC)

214. S. 14A r.w. Rule 8D – AO did not record his satisfaction u/s 14A(2) of the Act and computed disallowance applying Rule 8D(2)(ii) – However,

Dismissing the appeal of the Revenue, the High Court held that the Tribunal after taking note of the factual position found that there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without doing so, he has invoked Rule 8D(2)(ii) which is not allowed in law. Furthermore, the Tribunal also found that the assessee had sufficient own funds which are several times more than the investments made by the assessee and hence it can be concluded that the borrowed funds have not been utilised for the purpose of making investments. Based on such factual position, the Tribunal has rightly held that the AO could not have invoked Rule 8D(2)(ii) of the Income-tax Rules in the present case (AY 2008-09).

PCIT v. Century Enka Ltd (2023) 293 Taxman 471 (Calcutta)(HC)

215. S. 28(i): Business loss – Write- Off of Loss – Investment made in subsidiary abroad – Commercial expediency – Transfer pricing adjustment – Book profit – Provision for doubtful debts – Remanded to the Assessing Officer – Question of facts. [S. 37(1), 92C, 115JB, 260A]

Dismissing the appeal of the Revenue the Court held that the assessee had made investment in its subsidiary company in order to expand its business with a view to earn higher profit and therefore, the investment was driven by business expediency. Loss is allowable followed, PCIT v. Vaibhav Global Ltd (I. T. A. No. 53 of 2021 dated 15-12-2021) (Raj)(HC). The assessee had written back the provisions and then written it off and had held that therefore, for the year under consideration, this amount should not have been added back for computing the income under the provisions of section 115JB since it would amount to double disallowance. Followed CIT v. Vodafone Essar Gujarat ltd (2017) 397 ITR 55 (Guj) (HC). On the issue of disallowance out of provision for doubtful loans to the assessee’s subsidiary the Tribunal had only remanded the matter to the Assessing Officer and decisions have also been rendered on such remand and therefore, no question of law arose.(AY. 2009-10)

PCIT v. Vaibhav Global Ltd. (2023)453 ITR 24 (Raj) (HC)

Editorial: SLP of Revenue is dismissed, PCIT v. Vaibhav Global Ltd. (2023) 453 ITR 31(SC)

216. S. 28(i) : Business income – Capital or Revenue Receipt – Interest earned on unutilised funds that were received in the form of Capital Subsidy, Debt And Equity for undertaking a project was in the nature of capital receipt till the time of completion of the project

Assessee received funds in the form of capital subsidy, debt and equity for carrying out integrated Petrochemical Complex at Assam. Unutilized funds, while the project was being undertaken, from all the above three sources were placed in short-term deposits with the banks and interest earned thereupon was treated as being of a capital nature by the assessee. AO held that the income under these heads was in the nature of revenue receipts and was liable to tax.

Pr. CIT v. Brahmaputra Cracker And Polymer Ltd. (2023) 454 ITR 202 (Gauhati) / [2023] 151 taxmann.com 320 (Gauhati)

217. S. 36(1)(vii) :Bad debt – Trading loss – Stock in trade – No evidence to demonstrate nature of business advances – Question of fact – Disallowance of claim was affirmed. [S. 28(i), 36(2), 260A]

Dismissing the appeal the court held that the submission of the aassessee was vague and general in nature in respect of five entries, in respect of the remaining entries there was lack of clarity as to the nature of the transaction. Order of lower Authorities was affirmed. (AY. 2001-02)

Katti Ma v. Dy. CIT (2023)453 ITR 258 / 293 Taxman 77 (Mad)(HC)

Editorial: Decision of Delhi High Court, affirmed, CIT v. Mansarovar Commercial Pvt. Ltd (Delhi)(HC) (2016) 134 DTR 105 / 287 CTR 28 (Delhi)(HC)

218. S. 36(1)(va) r.w.s 43B : Any sum received from employees – No deduction is available to employer in respect of deposit of employees’ contribution of PF and ESI beyond due date prescribed in the relevant Funds

Dismissing the appeal of the Assessee, the High Court held that in view of the law emerging from the decision of the Hon’ble SC in the case of Checkmate Services (P.) Ltd, the contentions raised by the appellant that, once contribution amount was paid, even if with delay, the same cannot be charged as income of assessee since amount was not retained by assessee for its benefit, could be said to be no longer res integra. The present law is against the assessee hence appeal dismissed. (AY 2019-20)

Diversified Services v. ITO (2023) 293 Taxman 48 (Gujarat)

219. S. 36(1)(vii): Bad Debts – Debts taken over from sister concern under an agreement of assignment and subsequently, written off by the assessee – Bad debts written off allowable as deduction

Assessee entered into agreements with its sister concern Elgi Finance Ltd. and took over certain book debts. During the year under consideration, assessee wrote off certain debts which were taken over as bad debts and claimed deduction in respect of the same under section 36(1)(vii) r.w.s. 36(2) of the Act. High Court held that the issue had been decided in assessee’s favour by the High Court in another year where the bad debt claim was allowed taking note of the fact that the Tribunal had noted that the Memorandum and Articles of Association permitted the assessee to carry on the business of money lending and that the transaction in question was held to be in the realm of business activity. (AY.: 2004-05)

CIT v. Elgi Equipments Ltd. (2023) 454 ITR 11 (Mad)

220. S. 36(1)(vii): Bad debt – No evidence to justify transaction – deduction not allowed.

The Assessee had written off advances as bad debts and claimed a deduction for the same. However, both the Commissioner of Income-tax (Appeal) and the Tribunal reviewed the debtor account as it appeared in the Assessee’s books of account and determined that the Assessee’s claim of bad debts was not sustainable. They noted that the Assessee had not provided any evidence to demonstrate the nature of the business transaction between the Assessee and the debtor, nor had they presented any evidence to establish that these amounts represented trading losses incurred during the relevant accounting period. Consequently, The High Court held that whether a debt is a bad debt is a question of fact. Therefore, it declined to interfere with the concurrent findings of the lower authorities.

Katti Ma v. Dy. CIT [2023] 293 Taxman 77 / 453 ITR 258 (Madras)(HC)

221. S. 36(1)(vii): Bad debt – takeover of certain bad debts – Money lending within business activity – Bad debts allowable.

The Assessee had entered into agreements/ transactions with a company for the takeover and assignment of certain book debts. The High Court held that the Memorandum and Articles of Association permitted the Assessee to carry out money lending business. Further, the transactions are within the business activity, and no dispute was raised on this factual position. The Supreme Court concluded that there was no ground to interfere with the impugned order passed by the High Court.

CIT-I v. Elgi Equipments Ltd. [2023] 151 taxmann. com 428 (SC)/[2023] 293 Taxman 504 (SC)/[2023] 454 ITR 14 (SC)

222. S. 37(1): Business expenditure – Capital or revenue expenditure -current repairs – revenue expenditure – no capital asset or enduring benefit.

The Assessee, a steel rolling mill, incurred expenditure on the purchase of steel rolls for the mill and claimed a deduction of the same as revenue expenditure. The Assessee argued that the rolls needed frequent replacement, and the expenditure should be classified as Revenue rather than capital expenditure.

Accepting the Assessee’s contention, the High Court held that the Assessee’s business required frequent placement of rolls, and the expenditure incurred would undoubtedly fall in the nature of current repairs. The classification by the Tribunal was appropriate because such expenditure did not lead to the creation of capital assets or provide benefits of an enduring nature.

CIT v. Jindal India Ltd. [2023] 293 Taxman 478 (Calcutta)

223. S. 37(1): Business expenditure – difference between contingent and ascertained expenditure –premium payment on redemption of shares which has not been quantified – if certain and estimable with reasonable certainty – is revenue expenditure

The company entered into a debenture subscription and share purchase agreement. The dispute arose regarding the deductibility of the premium paid or payable on the redemption of preference shares, which was treated as capital expenditure by the Assessing Officer. The Assessing Officer contended that the expenditure was contingent upon the issue of an initial public offering (IPO) and therefore disallowed it. The Commissioner (Appeals) disagreed with the Assessing Officer and allowed the deduction. The Tribunal also felt that the change in the agreement’s terms was not supported by evidence and was merely a “make-believe” story to claim the deduction.

The High Court opined that The adverse finding recorded by the Tribunal that the parties had changed the agreement to suit their convenience and that it was a ”make-believe” story was not supported by any cogent reason nor material on record and therefore, was untenable. The premium payable quantified on redemption of debentures was deductible as revenue expenditure. (IT APPEAL NO. 210 OF 2017 dt.02.08.2022)(AY. 2011-12).

Nitesh Housing Developers Pvt. Ltd. v. Dy. CIT (2023) 454 ITR 770 (Kar)

224. S. 45 : Capital Gains – Exemption under section 10(38) cannot be denied – Finding of fact by Tribunal that assessee provided all details of purchase and sales of shares to AO along with contract notes for purchase and sale, DEMAT account and bank statement – No incriminating material found during survey – (How under this sections)

The question urged by the Revenue Department before the High Court was “whether after making certain statements in the survey the Assessee not claiming exemption under section 10(38) of the Income-tax Act, 1961 at the stage of the assessment proceedings, could be the Assessee turned around and make such claim of wanting to cross-examine persons make adverse statements against the Assessee at the stage of the appeal before the ITAT?”

The Appellante Authorities were satisfied that the purchase of liquid shares have been made through Account Payee Cheques and the shares themselves were held in Demat Account for more than 12 months and then sold through the recognized stock exchange after payment of security transaction tax. A reference was made to the CBDT circular which debarred the Revenue from obtaining admissions/ statements during the course of a survey. It was also held if an Assessee has wrongly offered an item of income or omitted to make a claim of deduction in the return, he was entitled to correct such a mistake by making a request to the AO to that effect. Another ground on which the ITAT found fault with the additions made by the AO was that reliance was placed on statement of ‘so called entry operator’ to justify the additions under sections 68 and 69 of the IT Act and that the statements were recorded on various dates in some other proceedings not connected with the Assessee. Further, the statements were recorded much before the date of the survey conducted on the Assessee. The Department also had not granted the Assessee an opportunity to challenge such statements or cross- examine the so-called entry providers.

The High Court, while dismissing the appeal, held that for both the grounds viz., the claim for benefit of section 10(38) of the Act and denial of an opportunity to cross examine the entry providers, turned on facts and that ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter.

Principal Commissioner of Income-tax v. Dipansu Mohapatra (2023) 293 Taxman 173 (Ori)

225. S. 50B: Capital gains – Slump sale – Sale of each asset – No liability was transferred – Not aSlump sale – Question of fact. [S. 2(19AA), 2(42C), 45, 260A]

Dismissing the appeal of the Revenue the Court held that the Tribunal had examined the documents made available before it. The Tribunal after going through the agreement and the addendum to the agreement, found that the unit itself was never sold or transferred as a going concern in toto but assets of the unit were sold and transferred to the purchaser at a pre-determined and agreed price for each type of asset being sold and transferred, and that the consideration fixed for all the assets was not in lump sum. The Tribunal found that the price had been received by the assessee by different account payee cheques during the previous year relevant to the A.Y. 2009-10 and that on the date of transfer apart from the assets which were sold and transferred, the chemical unit had several other assets which were never sold nor transferred to the purchaser and none of the liabilities were transferred to the purchaser and these continued to be the liabilities of the assessee to be discharged and were discharged by the assessee. Order of Tribunal was affirmed. Relied on Kwality Ice Creams (India) Ltd. v. CIT (2011) 336 ITR 100 (Cal)(HC). (AY. 2009-10)

PCIT v. Hindustan Engineering and Industries Ltd. (2023)453 ITR 758 (Cal)(HC)

Editorial: SLP of Revenue dismissed, PCIT v. Hindusthan Engineering and Industries Ltd. (2023) 453 ITR 763 (SC)

226. S. 50C: Capital gains – Section 50C will not apply in case of compulsory acquisition of asset by the Government as the intention of the provision is to apply to transactions where the actual sale consideration is suppressed in the sale deed

Assessee received compensation of Rs.4,47,17,396/- in respect of its land which was compulsorily acquired by National Highways Authority of India (NHAI). The stamp valuation authority of such land was Rs.9,95,60,980/-. The Assessing Officer invoked provisions of section 50C for determining the amount of capital gains. High Court noted that the transfer of land in the instant case was not on account of agreement between the parties but was as a result of compulsory acquisition by NHAI. High Court observed that the intention behind enactment of section 50C was to control the transactions where the correct market value is not mentioned and there is suppression of the correct value by the parties to the transactions. High Court held that the provisions of section 50C cannot be invoked in case of compulsory acquisition of land by the Government as in such a case there is no room for suppressing the actual consideration received. High Court further held that the term ‘transfer’ used in section 50C has to be given a restrictive meaning and will only cover transfer of capital assets effected upon payment of stamp duty and not the present case of compulsory acquisition of land where property vests by operation of Statute. (AY.: 2015-16)

Pr. CIT v. Durgapur Projects Ltd. (2023) 454 ITR 367 (Cal) / [2023] 148 taxmann.com 50 (Calcutta)

227. S. 68: Cash credits – Purchase and sale – Genuineness of the Transactions was established – Order of Tribunal deleting the addition was affirmed. [S. 37(1), 260A]

Dismissing the appeal of the Revenue the Court held that the ssessee had produced all the relevant documentary evidence to establish the genuineness of the transaction and there was no contrary evidence to doubt the correctness of the evidence produced by the assessee. Therefore, treating the transaction of purchase and sale as sham was not justified. No question of law arose. (AY. 2014-15)

PCIT v. Gaurav Bagaria (2023) 453 ITR 513 (Raj) (HC)

Editorial: SLP of Revenue is dismissed, PCIT v. Gaurav Bagaria (2023) 452 ITR 412 (St)(SC)

228. S. 68: Cash credits – Huge cash deposits found in bank account of assessee during search operation and Since issue required investigation into facts the matter was beyond the realm jurisdiction of Writ and assessee should file appeal against assessment order before appellate authority.

Dismissing the Writ of the Assessee, the High Court observed that the assessee has without filing a return of income and pursuant to search conducted has merely put forth an explanation by way of a vague statement that cash deposits were made in the course of usual business transaction. Further, the High Court held that the issue required investigation into facts which was beyond the realm of jurisdiction under Article 226 of Constitution of India, hence the assessee should file appeal against assessment order before appellate authority and the Writ was rightly rejected by Single Judge (AY 2012- 13).

B. Ramamoorthy v. Assessment Officer (2023) 293 Taxman 67/ 150 taxmann.com 312 (Madras)

229. S. 68: No addition by SEBI against Assessee – Cash Credits – Capital gains earned on the sale of shares declared as Penny Stock by the revenue [S. 10(38), 45]

In the return of income, the assessee had declared long-term capital gains on the sale of shares of Ramkrishna Fincap Ltd. and had also claimed exemption under section 10(38) of the Act. The assessee had purchased this scrip at 3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share.

Hon’ble High Court dismissed the appeal of the department by observing that the Assessee had made transactions in the alleged penny stock through the broker. Independent enquiry was made against the said broker, however, the purchase, as well as the sale of shares, were made on the floor of the Kolkata stock exchange. Shares were held for more than a year. The payment for acquiring the shares and receipt on sale of shares were transacted through banking channels. The said broker had raised invoices/ contract notes for sale/ purchase. The shares were transferred in/from the Demat account. Thus, the Tribunal had rightly upheld the order of the Ld. CIT(A) and deleted the addition made under section 68 of the Act.

The Court further observed that as as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT(A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same.

Pr. CIT v. Indravadan Jain HUF, ITA 454 of 2018, Order dated 12.07.2023, (Bombay)(HC)

230. S.68: Cash Credit – Unexplained – Loss claimed by assessee of 99.055 Kgs. of gold – Loss claimed to be only 0.047 per cent of total transaction – Assessee failed to substantiate with no credible evidences before lower authorities – Primary onus not discharged – Order of Tribunal set aside

Assessee-company was engaged in manufacturing and export of gold and diamond jewellery both in domestic and overseas market. A search was conducted under section 132 in assessee’s premises and an assessment order was passed under section 153A determining a total income by making an addition on account of loss of 99.055 kgs. Gold. Tribunal allowed loss of gold. In an appeal before the High Court, revenue contended that the Tribunal erred in setting aside addition made by AO even though assessee had not been able to substantiate loss of gold nor produced any proof to show that there was loss. It further contended that Tribunal had allowed assessee’s appeal on this aspect on premise that loss of gold accounted for only 0.047 per cent of total gold transactions which was without any rationale. The High Court noted from reasons recorded by Tribunal that it had given no logical explanation as to why loss of 0.047 per cent must be allowed. It was further noted that assessee’s explanation at first instance before AO was that gold was misappropriated and before First Appellate Authority explanation was that it did not know about loss till conducting annual inventory. If both explanations were not supported by any evidence and if 99.055 Kgs gold were to be misappropriated, management of any prudent company would take necessary action such as filing a police complaint, etc. Second explanation that

PCIT v. Rajesh Exports Ltd. [2023] 293 Taxman 94 (Karn)(HC)

231. S.68: Cash credit (Non-genuine purchases) – Where assessee was involved in execution of civil works and it had shown purchases from twelve parties even if assessee failed to produce said parties for verification, Assessing Officer could not have treated entire purchases as non- genuine purchases but only profit element on such purchases and thus, Appellate Authorities were justified in restricting addition by estimating profit of 12.5 per cent on total purchases.

Assessee was involved in execution of civil works. It had shown purchases of construction material from twelve parties. The Assessing Officer asked assessee to produce twelve parties to prove the genuineness of the purchases made. As assessee failed to produce twelve parties for verification, Assessing Officer treated purchase bills as bogus and held entire purchases as non-genuine purchases and added amount to income of assessee. The Commissioner (Appeals) held that purchases per se were not in dispute but parties from whom purchases were shown to have been made were disputed only profit element on such purchases to be considered for addition. He, thus, restricted addition by estimating profit of 12.5 per cent on total purchases. The Tribunal upheld order of Commissioner (Appeals) noting that if entire purchases were to be held as non-genuine purchases then it would not be possible to justify as to how works allotted to assessee for execution by semi Government Agencies could be completed. On appeal, the High Court dismissed the appeal filed by the Revenue holding that the order passed by the Tribunal was legally valid warranting no interference.

PCIT v. Ram Builders (2023) 454 ITR 444 (Bom.) (ITA NO. 398 of 2018) (A.Y. 2010-11)

232. S. 69: Unexplained investments – Statements submitted to the Bank – Cannot be the basis of addition – remand report provided all details – No addition.

The Assessee declared a higher stock value to the bank than recorded in their accounting books. The Assessee explained that submitting stock statements to the bank was a routine practice, and the stock value declared to the bank was merely an estimate. The bank, relying on these stock statements, granted a cash credit facility without physically verifying the stock. However, the AO discovered that the stock value declared to the bank was greater than recorded in the accounting books.

Consequently, the AO made additions to the Assessee’s income, alleging undisclosed investment in stock. The legal question is whether the Assessee can be taxed based on the inflated stock value provided in the stock statement submitted to the bank.

The High Court held that the responsibility for proving that the Assessee had undisclosed income lies with the revenue authorities. This burden cannot be met solely by referencing a statement provided by the Assessee to a third party as part of a transaction unrelated to the assessment process. Relying solely on such a statement as the basis for concluding that the Assessee deliberately concealed income was not considered valid. The CIT(A) had requested a remand report that presented all the relevant facts and included an inspection report submitted by the bank containing accurate details. The lower authorities erred in not accepting this information. As a result, the Assessee could not be taxed based on the inflated stock value presented in the stock statement submitted to the bank to obtain a cash credit limit.

Chitta Ranjan Bera v. ITO [2023] 150 taxmann.com 277 (Calcutta)/[2023] 293 Taxman 408 (Calcutta) (HC)

233. S. 69A : Unexplained money – Bogus Purchase / Sales – AO made addition on account of undisclosed purchases/sales – Commissioner (Appeals) granted partial relief by reducing percentage of undisclosed purchases/sales – Tribunal further reduced addition to 10 per cent – The High Court held entire matter to be factual No ground made out for interfering with order passed by Tribunal – Appeal dismissed.

For AY2001-02, assessment was sought to be reopened by issuance of notice under section 148. Assessee did not seek for reasons for reopening nor filed any objection to reopening, but submitted that the original return of income filed be treated as return of income pursuant to notice issued under section 148. Thereafter, AO proceeded with the assessment by resorting to scrutiny procedure. From order passed by the AO, it was found that detailed factual aspects had been dealt with and assessment was completed. CIT(A) granted partial relief to assessee by reducing percentage of undisclosed purchases / sales. On appeal, the Tribunal further reduced addition to 10 per cent towards purchase on undisclosed sales. The High Court held that the entire matter was factual and there was no error in decision making process adopted by Tribunal or by CIT (A). The assessee not having made out any ground for interfering with order passed by Tribunal, appeal filed by assessee was dismissed.

Durgesh Chandra Sarkar v. CIT [2023] 293 Taxman 91 (Cal)

234. S. 69C: Unexplained expenditure – Information provided by the Assessee – absence of statement recorded by the sales tax department – transactions are genuine and not fictitious sales.

The Assessee was involved in civil construction contracts and had made various purchases from different parties in the course of its business. The AO requested the Assessee to provide a list of individuals or entities from whom these purchases had been made. After submitting the requested list, the AO identified 21 dealers from that list whom he deemed as ‘suspicious dealers.’ These dealers were suspected of issuing fictitious bills without actually providing goods or materials in exchange for a commission, as indicated on the official websites of the Sales Tax department. Subsequently, the AO issued notices under section 133(6) to these 21 suppliers. However, these suppliers failed to respond to the notices. The tax department inquired about these 21 suppliers, revealing that no business activities were conducted. Consequently, the AO treated the amounts related to the purchases made from these suppliers as the Assessee’s income and imposed taxes on them, categorizing them as unexplained expenditures under section 69C.

The High Court held that the AO had accepted both the gross profit and net profit figures reported by the Assessee. Additionally, since no book entries were rejected, the significant additions made by the AO were not legally tenable. Consequently, the consequences of the disallowance should only lead to unrealistic gross profit. Further, the absence of copies of the statements recorded by the Sales Tax department, which would have allowed the Assessee to cross-examine the suppliers, meant that the AO could not reasonably treat the purchases as unexplained expenditures. Upon reviewing the Assessee’s bank statements and confirming that payments were made via account payee cheques, with corresponding credits to the suppliers’ bank accounts, it was concluded that the Assessee had sufficiently demonstrated that these payments were genuine and not fictitious sales. The Assessee had also disclosed the addresses of all the supplier parties and had provided this information.

The mere presence of these parties’ names on the official website of the Sales Tax department was insufficient to prove that the transactions were bogus. Therefore, the provisions of section 69C required the AO to establish his satisfaction based on the evidence provided by the Assessee. The AO could not rely on unverified statements recorded by another authority, such as the Sales Tax department, especially when such statements were not presented to the Assessee during the assessment proceedings.

Pr. CIT v. Sanjay Dhokad [2023] 293 Taxman 482 / 456 ITR 77 (Bombay)(HC)

235. S. 92CA r.w.s. 147 & 148: Reference to the TPO u/s. 92CA of the Act – only after selecting the case for scrutiny assessment

An Assessing Officer can make reference to the TPO u/s. 92CA of the Act only after selecting the case for scrutiny assessment. The instructions of CBDT is also a pointer to the legislative import that the reference to the TPO for determining the arm’s length price in relation to an international transaction is envisaged only in the course of the assessment proceedings, which is the only process known to the Act, whereby the assessment of total income is done. Therefore, the Tribunal was correct to hold that when reference was made to the TPO by the Assessing Officer for determination of arm’s length price in relation to the international transaction, no assessment proceedings were pending and hence it was invalid reference. Consequently, the subsequent order passed by the TPO determining the assessment to the international transaction was a nullity in law and void ab initio.

Pr. CIT v. Kimberly Clark Lever Private Limited [ITA No.123 of 2018, Dated: 07/06/2023, A.Y. 2007- 08. (Bom.) (HC).

236. S. 115JB r.w.s 154: Book profit – Issue of allowing of book loss or unabsorbed depreciation while computing book profit u/s 115JB, being a debatable issue, same could not be subject matter of proceedings u/s 154 of the Act.

Dismissing Revenue’s appeal, the High Court held that the Tribunal has rightly held that the issue of allowing of book loss or unabsorbed depreciation while computing book profit under section 115JB, was a debatable issue and thus same could not be subject matter of proceedings under section 154 of the Act by the AO on the ground that his action of nullifying assessee’s claim of set off of book loss or unabsorbed depreciation beyond particular year was not permitted under the provisions of law and it was a mistake apparent on face of record arising out of books of account of assessee (AY 2013-14).

PCIT v. Lanshree Products & Services Ltd. (2023) 293 Taxman53/ 150 taxmann.com 389 (Calcutta)

237. S. 119: Central Board of Direct Taxes – Instructions (Condonation of delay) – Assessee’ case would fall within the meaning of phrase ‘genuine hardship’ used in S/ 119(2)(b) of the Act as assessee’s CA filed affidavit that there was failure on her part to file return before due date, hence delay to be condoned.

Allowing the Writ of the assessee, the High Court held that assessee filed loss return after delay of 36 days and sought condonation of delay. PCIT rejected application for condonation of delay. The CA of assessee had filed affidavit before PCIT stating that she was discharging her family obligations (sister’s marriage) and had taken responsibility mentioning that there was failure on her part to file return before due date. Hence, the case of assessee fell within sweep of phrase ‘genuine hardship’ used in Section 119(2) (b) of the Act and hence delay in filing return is to be condoned (AY 2020-21)

ADCC Infocom (P.) Ltd. v. PCIT (2023) 293 Taxman 379 (Bombay)(HC)

238. S. 119 : Central Board of Direct Taxes- Instructions – Return Of Income – Condonation Of Delay – Refusal – Assessee Aware Of Process Of Filing Return Of Income – Order Passed After Considering Assesee’s Submissions And Giving Opportunity Of Hearing Obtaining Due Sanction – No Violation Of Principles Of Natural Justice – Order Sustainable [Ss. 119(2) (B), 237]

This is a case involving a foreign citizen with overseas citizen of India status challenging an order passed under section 119(2)(b) of the Income-tax Act, 1961, seeking a direction for condoning the delay in filing a return of income and granting a refund under section 237.

The court held that ignorance of the law is not a valid excuse for non-compliance especially when the assessee had filed the return of income for the assessment year 2011-12 within the prescribed time limit demonstrated that they were aware of the process for filing the return. The court agreed with the department argument that there was no genuine hardship or reasonable cause for the late filing of the return. The order was considered clear and well- reasoned and had received the approval and sanction of the Principal Chief Commissioner.

The court also concluded that there was no violation of principles of natural justice because the assessee’s contentions had been duly considered, and they were given an opportunity to be heard.(W.P.(C) NO. 12478 OF 2022 dt. 30.08.2022)

Note: SLP dismissed against order of High Court in case of Puneet Rastogi v. PCCIT [2023] 454 ITR 39 (SC)[10-02-2023]

Puneet Rastogi v. Pr. Chief CIT (International Taxation) and Anr. (2023) 454 ITR 37 (Del)

239. S. 127 : Power to transfer cases – Kolkata to Delhi – Search and seizure – Survey – Opportunity of hearing was given – Transfer for purposes of Co- Ordinated and detailed Investigation – Order of transfer was valid – The assessee has no right to be assessed under the Income- tax Act, 1961 in a particular area or locality – An order of transfer is purely in the nature of an administrative order passed for consideration of convenience of the Department and no possible prejudice can be involved when the cases have been transferred. [S. 127(2), 132, 133A Art.226]

Held, dismissing the appeal the Court held that in the writ petition elaborately considered the facts and had upheld the order of transfer of case under section 127. The assessee was precluded from stating that the notice was coloured on facts. The notice dated January 11, 2022 issued by the Department disclosed the reasons for proposed transfer of case and the assessee had submitted his response as to how those reasons were not germane for exercise of jurisdiction under section 127. The assessee had been afforded effective opportunity to place all materials including an opportunity of personal hearing which had been availed of. After considering the response given by the assessee, the Principal Commissioner had passed the order of transfer dated February 23, 2022 with elaborate reference to all the factual details of the seized documents, recorded statements of parties indicating that unaccounted money was transferred from the assessee’s official residence at Delhi. The source of such money was required to be properly established and could only be identified by proper investigation and assessment. Further the claim of the assessee that such transactions were not linked to his personal income account could not be taken at face value without proper investigation and assessment. Therefore, the authority had opined that the Assessing Officer entrusted with the assessment of all other parties involved in the unaccounted money transactions was the most suitable Assessing Officer to complete the assessment as he was aware of the whole picture of the case and could do justice to the Revenue as well as to the assessee. Upon appreciation of the facts, the onus on the Department to justify the order of transfer had been proved.

The factual details which were set out in the court’s order were to justify the order of dismissal of the writ petition and could at best be construed to be reasons for refusing to exercise jurisdiction to interfere with the order of transfer and nothing more. The findings rendered therein were only prima facie findings and they could never cause any dent upon the ultimate decision which the Assessing Officer would take after considering the relevant facts and documents furnished by the assessee.

There was no material on record to hold that the assessee was only a witness, and such a contention, being self-serving was rejected. On account of the facts that the assessee in the writ petition had sought to justify his contention on the reasons recorded, this had necessitated the Department to bring facts on record and the assessee having invited such a response could not raise any complaint in this regard. The court was required only to consider as to whether there were grounds for transfer as emanating from the reasons recorded and there were adequate reasons. The facts that had emerged had showed that there were sufficient reasons assigned in the order of transfer of case. The sufficiency or insufficiency of such reasons were beyond the pale of adjudication in the present litigation, lest it might prejudice the assessee. There was no challenge to the decision-making process. The plea of mala fides had not been pleaded or proved. The plea of inconvenience had been found to be not tenable. Therefore, there was no good ground to interfere with the administrative order of transfer which was upheld. The Court also observed that the assessee has no right to be assessed under the Income-tax Act, 1961 in a particular area or locality. An order of transfer is purely in the nature of an administrative order passed for consideration of convenience of the Department and no possible prejudice can be involved when the cases have been transferred under section 127. Relied on Pannalal Binjraj v. UOI (1957) 31 ITR 565 (SC), Kashiram Aggarwalla v. UOI (1865) 56 ITR 14 (SC). (M.A.T.No.40 of 2023 and C.A.Noo. 1 of 2023 dt. 10-2-2023)

Kamal Nath v. PCIT (No. 3) (2023)453 ITR 604 / 292 Taxman 295/ 331 CTR 306/ 223 DTR 73 (Cal) (HC)

Editorial: Decision of the Single Judge is affirmed, Kamal Nath v. PCIT (NO. 2) (2023)453 ITR 588/ 291 Taxman 532/ 330 CTR 345/ 221 DTR 313 (Cal) (HC) .SLP of assessee is dismissed, Kamal Nath v. PCIT (2023)453 ITR 748/ 292 Taxman 240 (SC)

240. S. 127: Power to transfer cases – Kolkata to Delhi – Natural justice – Failure to give anopportunity – Order was set aside. [S. 127(2), 132, 133A, Art. 226]

Allowing the petition the Court held that the order dated February 18, 2021 of transfer of the assessee’s case under section 127(2) from Kolkata to Delhi having been passed by the Principal Commissioner without giving opportunity of hearing to the assessee and without recording the reasons for not giving opportunity of hearing before passing such order and without considering and disposing of the objections to the notice was illegal, invalid and not sustainable in law and therefore, quashed. The respondents were directed to send back the case of the assessee from Delhi to Kolkata immediately after receipt of communication of this order. Quashing of the order of transfer of the case would not prevent the Principal Commissioner from taking action for transfer of the case in future if it was found that there was cogent material for transferring the case complying with the statutory provisions and by observing the statutory requirements under section 127(2). (W.P. A .No. 11901 of 2021 dt.27-9-2021) (SJ)

Kamal Nath v. PCIT (NO. 1) (2023)453 ITR 583 (Cal) (HC)

241. S. 127: Power to transfer cases – Kolkata to Delhi – opportunity of hearing was given – transfer for purposes of co-ordinated and detailed investigation – order of transfer was valid. [S. 127(2), 132, 133A, Art.226]

Dismissing the petition the Court held that the requirements under section 127(2) were fulfilled as proper opportunity had been granted to the assessee to represent his case and a reasoned order had been communicated. Upon perusal of the records it was clear that the Principal Commissioner had clearly delineated the reasons of the transfer under section 127 of the Act in the order for a detailed and co-ordinated investigation of the assessee. One could not say that the present transfer was based only on surmises and conjectures as it was evident that the name of the assessee had been taken by some persons on whom investigation, search and survey was carried out. Furthermore, the statement of certain persons also indicated that there was transfer of cash to the tune of almost Rs. 20 crores from the residence of the assessee at Delhi. It was clear that the present transfer was based on cogent material that required further investigation by the tax authorities. The argument of the assessee that he was willing to co-operate in the investigation, thereby negating the requirement of the transfer, was of no relevance as the officer conducting the co- ordinated search was best suited to investigate and carry out the assessment of the assessee. At the stage of passing an order under section 127, after considering objections of the assessee, the authorities are not required to give out the entire case of the tax authorities. Furthermore, though the assessments of some of the involved persons were complete, that could not itself be a bar for a transfer order under section 127 of the assessee’s assessment. Nor could the fact that he had not been subjected to any search or seizure be a bar to transfer. There was enough material garnered from other persons to establish a concrete nexus. The order of transfer was valid. (W.P.No. 3868 of 2022 dt. 6-1-2023 (SJ)

Kamal Nath v. PCIT (NO. 2) (2023)453 ITR 588/ 291 Taxman 532/ 330 CTR 345/ 221 DTR 313 (Cal) (HC)

242. S. 132(4): Search and seizure – Statement on oath – Undisclosed investment – Retraction of statement – Opportunity of cross-examination was not given – Merely on the basis of statement addition is not justified. [S. 69, 132, 260A]

Dismissing the appeal of the Revenue the Court held that merely on the basis retracted statement addition was not justified. Order of Tribunal affirmed.

PCIT v. Sanjay Chhabra (2023) 453 ITR 516 (Raj.) (HC)

243. S. 132B: Application of seized or requisitioned assets – Failure to deal with application for release of seized articles – Direction by High Court to consider application. [S. 132, Art.226]

The assessee filed an application on October 26, 2020 before the Assistant Director and Principal Director (Investigation) seeking release of the seized gold ornaments on the ground that it was stock-in-trade and they could not seize the gold ornaments and could only be inventoried. The assessee made an application under section 132B (1)(i) of the Act to the Income-tax Officer on March 10, 2021 requesting for release of the seized gold ornaments. However, no reply to the said application was received. On a writ petition to direct the Assistant Commissioner to release the seized gold ornaments weighing 3230.550 grams (including beads weighing 30.280 gms.) of the assessee, the assessee also challenged the unresponsiveness of the Income-tax Officer and the Assistant Commissioner to the application of the assessee made under section 132B of the Act to release the seized gold ornaments. On writ High Court the officer concerned had to decide the assessee’s application within period of two weeks from the date of receipt of this order.

Yogeshbhai Chandrakant Pala v. ITO (2023)453 ITR 263 / 292 Taxman 370 (Guj)(HC)

244. S. 143(3): Assessment – Order passed contrary to the principles of natural justice – Assessment order quashed and set aside

The Assessee received a show-cause notice that directed them to submit specific details and produce the mentioned documents. In response, the Assessee requested a two-week extension to provide the required information, citing the voluminous nature of the documents and records requested. Despite the Assessee’s specific request, the AO proceeded to pass the assessment orders without providing any reasons for not granting the additional time.

The High Court observed that the department had violated the principles of natural justice by not considering the Assessee’s request for an extension and not providing adequate reasons for the denial. As a result, the assessment orders were deemed invalid, and the matters were to be remanded back to the department for fresh consideration.

KPL Assets LLP v. ACIT [2023] 293 Taxman 474 (Madras)(HC)

245. S. 144: Best judgment assessment – order passed without granting an opportunity of hearing – breach of principles of natural justice – order set aside and remitted back.

No notice under section 142(1) was served upon the Assessee prior to the assessment. Where assessment under section 153C read with section 144 had been done by the AO without issuing notice and giving the Assessee an opportunity to be heard, within the meaning of section 144, orders were liable to be set aside on the ground of not giving of opportunity and resultant breach of principles of natural justice. Further, the Court remitted the case to the AO to proceed from the notice issuance stage.

Manishkumar Tulsidas Kaneriya v. ACIT [2023] 293 Taxman 127 / 454 ITR 153 (Gujarat) (HC)

246. S.144B: Faceless assessment – Validity – Effect of section 144B – Variations in income returned by assessee – Notice must be issued to assessee – Violation Of Principles Of Natural Justice – Powers Of High Court – Existence Of Alternate Remedy – Not An Absolute Bar For Issue Of Writ [Constitution Of India, Art. 226]

Section 144B of the Income-tax Act, 1961, deals with faceless assessment. In terms of the provisions, the assessment unit after taking into account all the relevant material available on record, has two options, namely, (a) to prepare in writing an income or loss determination proposal, where no variation prejudicial to the assessee is proposed and send a copy of such income or loss determination proposal to the National Faceless Assessment Centre. The second alternative as mentioned in clause (b) is to issue a show-cause notice stating the variations prejudicial to the interests of the assessee proposed to be made to the income of the assessee and calling upon him to submit why the proposed variation should not be made and serve such show-cause notice on the assessee through the National Faceless Assessment Centre. The provisions mandate that a show-cause notice stating the variations prejudicial to the interests of the assessee, has to be served. In the absence of such a show-cause notice, the assessment order has to be held in violation of principles of natural justice and in violation of the statutory provision and therefore, non est.

The High Court has discretion to entertain or not to entertain a writ petition and one of the exceptions to the rule of alternate remedy is in cases where there has been violation of principles of natural justice.

Held, allowing the appeal, that the challenge to the assessment order was primarily on the ground of violation principles of natural justice inasmuch as the Assessing Officer had failed to issue notice as required to be issued under section 144B(1)(xii)(b) of the Act. The assessment order dated September 8, 2022 had to be quashed. (M.A.T NO.1737 OF 2022; I.A. NO.CAN 1 OF 2022 dt. 16.11.2022) (AY. 2021-22)

Magadh Sugar and Energy Ltd. and Anr. v ITO, National Faceless Assessment Centre and Anr. (2023) 454 ITR 405 (Cal)

247. S. 144B : Faceless Assessment – Writ – Territorial Jurisdiction of Court – Doctrine of forum non convenience – Assessment order – Cause of action – Situs of Assessing Officer would be determinative of Jurisdiction of High Court – Complexity of Legal issues- Matter referred to larger Bench.[S. 143(3), 144B(1)(xxxii), 156, 271AACC- (1)),Art. 226]

Writ petitions were filed challenging assessment orders passed under section 143(3) read with section 144B of the Act, 1961 , notices of demand under section 156 and notices for initiation of penalty proceedings under section 271AAC(1). The Department raised a primary objection that the writ petitions could not be entertained by the Court as the situs of the jurisdictional Assessing Officers were outside the National Capital Territory of Delhi and hence beyond the territorial limits of the court. The issue being complexity of legal issues, the matter referred to larger Bench on following questions:

Whether the Delhi High Court had the territorial jurisdiction under article 226 of the Constitution of India to entertain the writ petitions when the permanent account number Assessing Officer/ jurisdictional Assessing Officer was located outside the National Capital Territory of Delhi,

1. Whether the court, assuming it had jurisdiction, should refuse to exercise jurisdiction under article 226 applying the doctrine of forum non convenience if the permanent account number Assessing Officer/jurisdictional Assessing Officer was located outside the National Capital Territory of Delhi,
2. Whether the presence of National Faceless Assessment Centre in Delhi would be a sufficient “cause of action” to confer jurisdiction on this court to entertain a writ petition under article 226 ignoring the location of the permanent account number Assessing Officer/jurisdictional Assessing Officer and any other relevant factors,
3. Whether when a part of cause of action arose within one or more High Courts, the petitioner being dominus litus would have the right to choose his forum,
4. Whether applying the principles of the Full Bench decision in the case of Sterling Agro Industries Ltd. v. UOI ( 2011) 10 GSTR 20 / 166 Comp Cas 115/ 43 VST 375 (Delhi) (HC) (FB), this court should entertain the writ petitions or refuse to exercise discretion to entertain on the ground that the permanent account number Assessing Officer/jurisdictional Assessing Officer was located outside the jurisdiction of this court,
5. Whether the principle of res judicata was attracted, were required to be settled and decided by way of an authoritative pronouncement by a larger Bench of the court. (AY. 2018-19)

GPL-Rktcpl JV v. NFAC (2023)453 ITR 384 / 291 Taxman 409/ 330 CTR 362/ 221 DTR 272 (Delhi) (HC)

Pharmachol Chemicals Pvt Ltd v. NFAC (2023)453 ITR 384 / 291 Taxman 409/ 330 CTR 362/ 221 DTR 272 (Delhi)(HC) RKKR Foundation v. NFAC (2023)453 ITR 384 / 291 Taxman 409/ 330 CTR 362/ 221 DTR 272 (Delhi)(HC)

248. S. 144B: Draft Order – No opportunity to be heard – No time to respond – Against the principle of Natural Justice.

The AO issued a show cause notice-cum-draft assessment order, directing the Assessee to respond within 12 hours. Subsequently, the AO passed a fresh assessment order, accompanied by a demand. It is not disputed that the time provided to the Assessee for presenting their case was exceptionally less.

The High Court held that the order was passed in gross violation of the principles of natural justice. The order cannot be considered in compliance with the statutory provisions or alignment with the objectives of newly introduced provisions. Therefore, the order and all consequential actions and notices were quashed and set aside. The Revenue can initiate action from the stage at which it was previously halted.

Dipak Natwarlal Dholakiya v. Additional/Joint/ Deputy/Assistant Commissioner of Income-tax [2023] 149 taxmann.com 151 (Gujarat)/ [2023] 293 Taxman 192 (Gujarat)

249. S.144B: Faceless Assessment – Mandatory Condition – Issue Of Draft Assessment Order – Condition Not Complied With – Final Assessment Order to be Quashed And Set Aside – Reassessment – Notice After Four Years – Sanction For Issue Of Notice

Held, allowing the petition, that there had been breach of the provisions of section 144B(1)(xvi) of the Income-tax Act, 1961 since no draft assessment order was issued to the assessee. The notice dated March 31, 2021 issued under section 148 after four years for the AY. 2015-16.

The final assessment order dated March 25, 2022 passed in violation of the provisions of section 144B was also quashed and set aside. (WRIT PETITION NO. 2199 OF 2022 dt. 23.08.2022)(AY.: 2015-16)

Rinku R. Rai v. ITO and Anr. (2023)454 ITR 33 (Bom)

250. S.144B: Faceless Assessment – Failure to issue draft assessment order or show cause notice – Serious flaw in implementing statutory provisions which resulted into breach of principle of natural justice – Assessment order passed deserved to be set-aside – AO directed to initiate process from the stage it was left – Matter Remanded

Assessment order was passed under section 143(3) read with Section 144B. No final show- cause notice along with the draft assessment order as mandated under section 144B was issued to the assessee. The revenue argued that the assessee showed the causes on all the issues of additions made in the assessment order in response to notices under section 142(1) and therefore, there is no serious prejudice cause on account of non-issue of show cause notice with draft assessment order. on writ, the High Court held:

Failure to issue either draft assessment order or the show-cause notice is a serious flaw in implementing the statutory provisions and also results into the breach of the principle of natural justice. Consequently, the assessment order quashed and the tax authorities directed to initiate the proceedings from the stage it was left by furnishing the draft assessment order along with the show-cause notice within four weeks. Matter remanded to the AO.

Shrenik Ltd. v. Additional/Joint/Deputy/Assistant Commissioner of Income-tax/Income-tax Officer [2023] 293 Taxman 397 (Gujarat)

251. S. 144B: Faceless Assessment – Condition Precedent – Opportunity Of Requested Personal Hearing – Draft Assessment Order Not Prepared But Only Income Or Loss Determination Proposal – Condition Applicable – Assessment Order Set Aside And Directions Issued To Assessing Officer Accordingly

According to clause (viii) of sub-section (6) of section 144B of the Income-tax Act, 1961, once a request for personal hearing is made by the assessee opportunity of personal hearing has to be accorded by the Department through the National Faceless Assessment Centre.

Held, that the provisions of section 144B(6) (vii) and (viii) would apply notwithstanding the fact that the draft order was not prepared but only income or loss determination proposal was made. The assessment order was set aside giving liberty to the Assessing Officer to conduct the proceedings de novo, after according personal hearing to the assessee. Upon the income or loss determination proposal being served on the assessee, the assessee would have liberty to respond and the personal earning would be carried out according to the procedure prescribed in sub-clause (viii) of section 144B(6). ( W.P.(C) NO. 477 OF 2023 dt. 27.02.2023) (A.Y. 2021-22)

Shubhank Garg v. ITO and Anr. (2023)454 ITR 107 (Del)

252. S. 144B: Faceless assessment – faceless assessment – validity – proposed variation in income – time granted to assessee to explain insufficient – violation of principles of natural justice – assessment order set aside [constitution of India, Art. 226]

On a writ petition challenging the assessment order on the ground that the assessee was given only 13 hours’ time in the night hours to reply to the show-cause notice on the proposed variation in income and this was in violation of principles of natural justice:

Held, allowing the petition, that the second show-cause notice in respect of the proposed variation in income was issued to the assessee on March 27, 2023 at 19.10.33 p.m. and the assessee was given time to reply till 9.00 a. m. on March 28, 2023 which was in clear violation of principles of natural justice. The assessment order dated March 30 , 2023 passed by the assessment unit was set aside. The matter was remanded back for fresh consideration providing an opportunity to the assessee and thereafter pass an appropriate order.( W.P. NO. 11529 OF 2023 dt. 18.04.2023)(AY. 2018-19)

Sundaresan Suresh Kumar v. Asst. Unit, Income- Tax Department and Anr. (2023)454 ITR 454 (Mad)

253. S. 147: Reassessment – Notice after six years – Sanction – Notice dated 30- 3-2021 issued under old provision after coming into effect of new provision from 1-4-2021 – UOI v. Ashish Agarwal (2022) 444 ITR 1 (SC) – Notice and subsequent orders and proceedings are quashed. [S. 148, 151, Art. 226]

Allowing the petition the Court held that in view of the judgments in Union of India v. Ashish Agarwal (supra) and Ambika Iron and Steel Pvt. Ltd. v. PCIT (2023) 452 ITR 285 (Orissa)(HC) the notice under section 148 which was issued on March 30, 2021, i.e., Consequently, all the subsequent orders and proceedings were also quashed.( AY 2015-16)

Salu Agarwal v. ITO (2023)453 ITR 784 (Orissa) (HC)

Editorial: SLP of revenue dismissed, ITO v. Salu Agarwal (2023) 433 ITR 786 (SC)

254. S. 147: Reassessment – After the expiry of four years – Information received from Investigation Wing – Assessee’s own statement during survey- Search of third party – Disputed question of fact- Alternative remedy – Writ petition was dismissed. [S. 132, 133A, 143(1), 148, 151(1) Art.226]

Dismissing the petitions the Court held that the extraordinary jurisdiction under article 226 could not be exercised at the initial stage of issue of notice under section 148 by interrupting the process of the assessing authority for reopening the assessment under section 147. It is trite law that if the facts are in dispute and clouded by some suspicion, they have to be left open for the appropriate competent authority to examine and extraordinary jurisdiction could not be exercised to usurp such discretion of the competent authority from being adjudicated upon. The assessing authority while disposing of the objections against reopening of the assessment under section 147 had examined not only the sauda chitthi of the land in which the assessee had purportedly made investments but also certain admissions and statements made by the assessee during the survey pursuant to the search under section 132 and incidental material. Only upon such critical analysis of the material on record vested jurisdiction was exercised. The notice under section 148 had been issued after the period of four years obtaining sanction under section 151(1) from the Principal Commissioner who was the appropriate authority and therefore, was not without jurisdiction. The information received from the Investigation Wing could not be denied and they were prepared after conducting search and seizure operation under section 132, inquiry, recording of the statements and collection of evidence and such material was sufficient to arrive at a conclusion. The sufficiency of the material would be good enough for the authority to assume the jurisdiction for commencement of reassessment proceedings. However, the sufficiency or correctness of the material would not be in the realm of consideration at this stage and the correctness or otherwise of the reasoning recorded for reopening of the assessment would not be in the realm of adjudication by going into the merits of reasoning. If such reasons were not perverse and it was not mere change of opinion but sufficient material or reason to believe there was escapement of income it would suffice for the authorities to proceed to reopen the assessment subject to other prescribed criteria also having been satisfied. Under the Act the assessee had the remedy by way of efficacious redressal mechanism under various provisions and at this stage of proceedings to invoke extraordinary jurisdiction would not be just and proper.( AY. 2011-12, 2012-13, 2013-14)

Pavan Kishanchand Tulsiani v. UOI (2023) 453 ITR 284 / 226 DTR 225 (Guj)(HC)

255. S.147: Reassessment – Notice after the expiry of four years – Failure to disclose material facts necessary for assessment –Reopening notice based on same material available on record was a clear case of change of opinion which was not permissible

Notice dated 19th March 2021 was issued under section 148 of the Act as applicable prior to the amendment by the Finance Act, 2021 for the assessment year 2015-16. Reasons for reopening recorded that a sum of Rs.4,65,87,479/- being in the nature of short term capital gains earned on sale of property had escaped assessment. High Court observed that the criteria for reopening after a period of four years was no longer res integra in view of the decision in Ananta Landmark Pvt. Ltd. v. DCIT (439 ITR 168). High Court further observed that the Assessing Officer in the present case had relied upon the same information available from assessment records and there was no new tangible material available on record to conclude that income had escaped assessment. High Court further observed that it was a clear case of change of opinion. High Court quashed and set aside the notice issued under section 148 and the order rejecting the assessee’s objections. (AY. 2015-16) A And J Associates and Anr. v. ACIT and Ors. (2023) 454 ITR 590 (Bom)

256. S. 147 : Reassessment – With in four years – Assessing Officer should have reason to believe that income has escaped assessment – Notice bad in law where the same is issued based on audit objection and the Assessing Officer was of the view that the audit objection was invalid.

Notice dated 21st March 2021 was issued by the Assessing Officer under section 148 of the Act. During the original assessment proceedings, detailed scrutiny was carried out by the Assessing Officer who then passed the assessment order accepting the returned loss. High Court noticed that the audit party had raised certain objections with respect to deduction claimed by the assessee on expenses incurred towards corporate social responsibility and had directed the Assessing Officer to take appropriate remedial action. High Court noted that the Assessing Officer had clearly stated that the objections raised by the audit party were not found to be acceptable but still proceeded to issue a notice under section 148 of the Act. High Court quashed the notice issued under section 148 of the Act on the basis that the Assessing Officer had no subjective satisfaction that income had escaped assessment while issuing the notice under section 148 of the Act and, therefore, the reassessment proceedings were bad in law. (AY.: 2017-18)

Adani Power Maharashtra Ltd. v. Asst. CIT (2023) 454 ITR 720 (Guj) / [2023] 147 taxmann.com 583 (Gujarat)

257. S.147: Reassessment – After the expiry of four years – All information available during assessment proceedings – Reasons cannot be altered or substituted by an affidavit – No failure to disclose on the part of the Assessee – No Live Link – Change of opinion

The Assessee was engaged in the business of stockbroking services. The AO raised specific queries about various transactions, including presenting evidence that reflected the trading account of delivery-based/non-delivery-based share transactions and derivative transactions. The Assessee provided various items of evidence in response, and subsequently, the AO passed an assessment order under section 143(3), accepting the disclosed income. Subsequently, the AO issued a notice under section 148, seeking to reopen the assessment. This action was prompted by alleged new information suggesting that the Assessee had also engaged in the sale/purchase of equity shares with or without actual delivery on the recognized stock exchange. The Assessee challenged the reassessment proceedings before the Court.

The High Court noted that the validity of reassessment proceedings must be evaluated based on the reasons recorded by the AO. These reasons cannot be altered or substituted by an affidavit. The recorded reasons do not allege any failure on the part of the Assessee to fully and truly disclose all material facts necessary for assessment during the original assessment proceedings. Therefore, the jurisdictional aspect has not been satisfied by the AO. Further, the material referred to in the recorded reasons does not indicate that the said material was unavailable to the AO during the scrutiny assessment proceedings. When an assessment order under section 143(3) has been passed after considering the information provided by the Assessee, it must be presumed that the AO, while passing the order, had considered all issues related to the raised queries.

In conclusion, it was held that the AO, in his recorded reasons, has failed to establish a live link between the information he received and the formation of his belief that income had escaped assessment. The reassessment seems to be nothing more than a change of opinion. Consequently, reopening the assessment on this issue after four years is invalid.

Vibrant Securities (P.) Ltd. v. ITO [2023] 293 Taxman 115 / 455 ITR 58 (Bombay)(HC)

258. S.147: Reassessment – After the expiry of four years – information available during assessment proceedings – change of opinion.

The Assessee is involved in the investment business and issued rights shares to existing shareholders to raise further share capital. An assessment order was previously passed under section 143(3). However, the AO issued a notice under section 148, alleging that income chargeable to tax under section 56(2)(viib) had escaped assessment.

The High Court observed that upon reviewing the impugned order, it became apparent that the Revenue had merely reproduced the figures that had already been considered in the earlier assessment order, which had been passed following a thorough scrutiny process. During that scrutiny, the Assessee responded to a questionnaire and provided a detailed explanation about the conversion of investments into stock-in-trade. The Assessee had also submitted a valuation report from JGA, which had been duly considered and accepted in the assessment.

The reasons for reopening the assessment clearly indicated a change of opinion on the same material that had been before the earlier AO and formed the basis for the initial assessment order after scrutiny. This approach was impermissible under section 147. Moreover, the notice under section 148 seemed to reflect a lack of application of mind by the Revenue as it fails to consider all the documents submitted by the Assessee, including its objections to the reopening notice, which contained the valuation report and details of calculations and disclosures made during the previous scrutiny proceedings.

The impugned notice under section 148 did not address any of the Assessee’s objections, nor did it reference any of the facts or documents mentioned in the objections. Additionally, the order rejecting the objections failed to acknowledge the valuation report submitted by the Assessee during the earlier assessment proceedings or the method used by the Assessee for valuation. Consequently, it appeared that the sole reason for issuing the notice under section 148 was that the AO had formed a different opinion regarding the valuation compared to the one adopted by the Assessee, despite the previous acceptance of the Assessee’s approach in the earlier assessment order.

Lakshdeep Investments & Finance (P.) Ltd. v. ACIT [2023] 293 Taxman 369 / [2023] 455 ITR 639 (Bombay)(HC)

259. S.147: Reassessment – After the expiry of four years – Issue raised during assessment – Reply filed – Reassessment based on change of opinion.

The Assessee purchased certain redeemable preference shares of a company at Rs. 75 lacs and made the payment through the banking channel. Subsequently, it sold the shares to another party at Rs. 75 lacs and received the sale consideration through the banking channel. All these transactions were recorded in the account books, financial statements and tax audit report for the assessment year 2012-13. After considering the Assessee’s reply on the sale of shares, the AO passed the assessment order under section 143(3). The AO issued a notice under section 148 to reopen the assessment. The reasons cited for reopening were related to certain companies deemed to exist only on paper, and their bank accounts were allegedly used for layering funds. The AO claimed to have identified the Assessee as one of the beneficiaries of this scheme, leading him to believe that income chargeable to tax for the relevant assessment year had escaped assessment, as per the provisions of section 147.

The High Court emphasized that the validity of reassessment proceedings must be determined by examining the reasons recorded for such reassessment. These reasons cannot be altered or substituted subsequently, whether through additional information or reply affidavits. After reviewing the recorded reasons, it became evident that there was no failure on the part of the Assessee to fully and truly disclose all material facts that were necessary for the assessment. Consequently, the AO had not satisfied the jurisdictional conditions required to exercise the power of reassessment under section 147 beyond four years. The High Court also pointed out that an order under section 143(3) had been issued following a query raised during the assessment process, which the Assessee had duly responded to. In such circumstances, it should be presumed that the impugned order considered all relevant issues, even if they were not explicitly mentioned in the assessment order.

Kandoi Fabrics (P.) Ltd. v. ACIT [2023] 293 Taxman 202 (Bombay)(HC)

260. S.147: Reassessment – After the expiry of four years – No failure to disclose as the assessee had disclosed all the primary details in the course of scrutiny assessment

Assessee’s case was selected for scrutiny assessment wherein detailed questions were asked and which were responded to by the assessee along with supporting documents. Thereafter, assessment order was passed u/s 143(3). The Assessing Officer, then, issued a notice under section 148 of the Act on 9th March 2015. High Court observed that the jurisdictional conditions for invoking section 147 of the Income-tax Act, 1961 were not satisfied since there was no failure by the assessee to disclose material facts fully and truly. High Court noticed that the reasons recorded nowhere stated that the primary facts had not been disclosed. High Court observed that the assessee by production of bank statements and supporting documents had shown that the reasonable belief of the AO was unfounded and consequently the presumption that the assessee was one of the beneficiaries of the accommodation entries based on the statement of the third party was disproved. High Court then observed that the onus would then be on the Assessing Officer to provide reasons to disbelieve the bank statements and supporting documents for reopening the assessment. High Court held that there was no tangible material mentioned in the recorded reasons to conclude that income had escaped assessment and further the nature of information was also not disclosed. High Court quashed the notice issued under section 148 of the Act. (AY.: 2008-09)

Aditi Constructions v. Dy. CIT and Ors. (2023)454 ITR 456 / 293 Taxman 710 (Bombay)(HC)

261. S.147: Reassessment – After the expiry of four years – Notice issued under section 148 of the Act without furnishing a copy of reasons recorded for reopening was liable to be quashed; more so when the Assessing Officer in a subsequent notice issued u/s. 143(2) had stated that reasons for reopening were ‘null’ – Rule of alternate remedy is not an absolute bar and Court can exercise its writ jurisdiction in certain exceptional circumstances

Assessee’s return of income for assessment year 2015-16 was processed under section 143(1) of the Act and an intimation was issued to the assessee. Thereafter, a notice was issued under section 148 of the Act dated 31st March 2021 seeking to reopen the assessment for assessment year 2015-16. Assessee requested for reasons for reopening the assessment which were not provided. Assessing Officer then issued a notice u/s. 143(2) r/w section 147 of the Act asking the assessee to furnish documents in support of his submission. The said notice recorded – “… Issues as per reasons recorded for reopening null”. Thereafter, information was sought about an alleged receipt of Rs. 85 lakhs by the assessee from a party ‘Evergreen Enterprises’. Assessing Officer then passed the assessment order u/s. 147 r.w.s. 144B of the Act. High Court observed that the legality of the reassessment proceedings had to be tested on the touch stone of the reasons recorded by the AO for reopening the assessment. High Court noted that no reasons were furnished to the assessee even when he asked for it which was contrary to the principle laid down in GKN Driveshafts (India) Ltd. v. ITO. Court further observed that the AO in his notice u/s. 143(2) of the Act had recorded the reasons as ‘null’ which meant that there were no reasons at all with the AO to support his belief that income had escaped assessment. High Court rejected the contention of the Department that a writ petition ought not to be entertained as the assessment order had been passed and there was an alternate remedy of filing an appeal before the CIT(A). Court observed that the principle of alternate remedy has been held to be a matter of self imposed convenience and not as a matter of rule and the exceptions to the rule of alternate remedy were where statutory authority has not acted in accordance with the provisions of an enactment in question, or has acted in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in violation of the principles of natural justice. Court allowed the writ petition and quashed the notice issued under section 148 of the Act and the consequential assessment order, demand and penalty notices. (AY 2015-16)

Ajay Ajit Tanna v. UOI and Ors. [2023] 454 ITR 754 (Bombay)(HC)

262. S. 147 : Reassessment – Notice After Four Years – Nothing to indicate any failure on part of assessee to disclose material facts necessary for assessment –Assessee in scrutiny assessment disclosed all material facts in respect of share transactions and also paid taxes on additions made by the AO – No new tangible material with Assessing Officer to reopen the assessment

Assessee’s return of income for AY 2014-15 was picked up for scrutiny assessment and an assessment order was passed wherein the AO made an addition of Rs. 1,07,18,922 on account of withdrawal of exemption claimed by the assessee u/s. 10(38) of the Act. Assessee paid tax on the addition so made. Thereafter, a notice was issued u/s 148 of the Act dated 26th March 2021 i.e. after a period of four years from the end of the assessment year. High Court noticed that the reasons recorded showed that they were premised on ‘seen from the assessment records’. Court further observed that there was nothing to indicate any failure on the part of the assessee to disclose any material fact but it noticed that the AO had considered those very transactions on which the Petitioner had already paid the tax and the entire process was triggered on a change of opinion as to the calculation of tax payable by the assessee. Court held that it is well settled judicial principal that, the true test of income chargeable to tax escaping assessment is whether there exists fresh “tangible material” on the basis of which appropriate conclusion is reached. In the absence of such material the reassessment proceedings would be invalid. (AY. 2014-15)

Chanchal Bhagwatilal Gokhru v. UOI [2023] 152 taxmann.com 214 (Bombay)/ [2023] 294 Taxman 107 (Bombay)/ [2023] 454 ITR 451 (Bombay)

263. S. 147 : Reassessment – Notice After Four Years – Scrutiny assessment after considering books of account and other material furnished by assessee – Reopening notice bad in law in the absence of any new tangible material – Further, notice did not even state that there was any failure on the part of the assessee

Assessee’s return of income for assessment year 2014 – 15 was picked up for scrutiny wherein the Assessing Officer made enquiries about the low net profit. AO after examining the book of accounts and considering the assessee’s explanation passed an assessment order under section 143(3) of the Act and raised a demand of Rs. 21,070/-. AO issued a notice dated 30th March 2021 under section 148 of the Act after a period of four years from the end of the assessment year seeking to reopen the assessment because of the reason that the assessee had not deducted tax on vehicle hiring charges paid to the service provider. High Court firstly noted that the AO in the original assessment proceedings had specifically enquired about low net profit and had also verified the total claim of expenses and had made an adhoc disallowance of 10% of the expenses as the assessee had not furnished the relevant bills/ vouchers. Court then observed that the reasons for reopening the assessment stated that the same were simply based on “information available on record” and there was no indication that there was any failure by the assessee to make a full and true disclosure of all the material particulars. High Court also observed that the notice mechanically stated that the AO had reasons to believe that income chargeable to tax has escaped assessment and there was no reference to any new and tangible material forming the basis for the belief about escapement of income from tax. High Court further observed that notwithstanding explanation to section 147 of the Act that production of books of accounts by itself will not amount to a full disclosure, the reasons communicated should still indicate that there was a failure to make a full disclosure although the accounts were produced before the AO. Accordingly, High Court quashed the notice issued under section 148 of the Act. (AY.: 2014-15)

Anil Raj Tuli v ITO (2023) 454 ITR 411 (Ori)(HC)

264. S. 147 : Reassessment – Order passed under section 148A(d) of the Act and the notice issued under section 148 of the Act quashed and set aside and matter remanded for fresh consideration as the AO had failed to consider assessee’s replies to the show cause notice issued under section 148A(b) of the Act

Assessee filed a writ petition challenging an order dated 21st July 2022 passed under section 148A(d) and notice of the same date issued under section 148 of the Income-tax Act, 1961 for the assessment year 2015-16 contending that the impugned order wrongly stated that the assessee claimed long term capital gain of Rs. 56,04,000/- even though no such claim was made by the assessee in the return of income. Assessee further contended that the order passed under section 148A(d) of the Act wrongly stated that the assessee failed to file reply in response to the notice issued under section 148A(b) of the Act even though the assessee had filed detailed submission on three occasions which were not considered by the AO before passing the impugned order. High Court quashed the order passed under section 148A(d) of the Act and the notice issued under section 148 of the Act as the AO had not considered the assessee’s reply and remanded the matter back to the AO for a fresh decision to be given in accordance with law. (AY.: 2015-16)

Anu Gupta v. ITO (2023) 454 ITR 785 (Del)(HC)

256. S. 147: Reassessment – Assessee must be furnished material on the basis of which notice was issued under section 148A (b) of the Act and mere furnishing the information was not sufficient

Assessee’s return of income for the assessment year 2018 – 19 was processed under section 143(1) of the Act. A show cause notice dated 8th March 2022 was issued under section 148A(b) of the Act by the AO stating that the AO was contemplating issuing notice under section 148 of the Act as he had received information from credible sources that a Search/Survey Action u/s 132 of the Act was carried out on Antariksh Group and it was seen that the assessee had purchased a warehouse from BGR Construction LLP for Rs. 70,00,000/- as per sale list seized impounded during the course of search. Assessee was asked to show cause about the source of cash of Rs. 70 lakh paid for purchase of the said warehouse. In response, assessee denied any transaction with BGR Construction LLP and submitted that no warehouse had been booked or payment made to the said entity. AO issued a further clarification and asked the assessee to furnish details of a conveyance deed executed with Meet Spaces LLP. AO passed the order u/s. 148A(d) of the Act and issued a notice u/s. 148 which was challenged by the assessee before the High Court. High Court held that the reassessment proceedings were unsustainable on the ground of violation of the procedure prescribed under section 148A(b) of the Act as the assessing officer had failed to provide the requisite material along with the information in terms of the section 148A(b) of the Act. Court observed that providing information to the Petitioner without furnishing the material based upon which the information is provided was meaningless as assessee could not in such a case submit an effective reply to the show cause notice, thereby rendering the purpose and spirit of section 148A(b) of the Act illusive and ephemeral. (AY. 2018-19)

Anurag Gupta v. ITO and Ors. (2023)454 ITR 326 (Bom)

266. S. 147: Reassessment – Notice based on information received from Investigation Wing that assessee was beneficiary of bogus accommodation entries – Transaction in question accepted by assessee – No interference in Writ Proceedings as the case does not fall under any exceptional ground on which a writ jurisdiction of the High Court can be invoked

Show Cause Notice was issued under section 148A(b) of the Act by the Assessing Officer wherein it was stated that a search was conducted by the Investigation Wing on Tradenext Securities Ltd. which was involved in providing accommodation entries through the modus operandi set out in the notice. It was stated that Tradenext Securities Ltd. operated several dummy demat accounts to provide accommodation entries and one such account was of Mridul Securities Private Ltd. It was further stated that the assessee had received 32,000 shares of TVS Motor Company Ltd. worth Rs. 94,81,600/- from the dummy demat account of Mridul Securities. The assessee in its reply denied any transaction with Tradenext Securities Ltd. but admitted holding a trading account with Mridul Securities in the past years through which it had undertaken regular trading in the share market. Assessee further admitted that it had purchased 32,000 shares of TVS Motors of Rs. 94,81,600 from Mridul Securities. Assessee further submitted that the said shares were thereafter transferred to a separate demat account and were sold and short term capital gains earned thereon were offered to tax. After considering the reply, AO held that the present was a fit case for issuing notice under section 148 of the Act. The said notice u/s. 148 was challenged by way of writ petition in the High Court. Court observed that in light of the information which forms the basis for initiation of the inquiry and in view of the fact that the transactions with Mridul Securities are admitted by the assessee, there was no case for interfering in the writ proceedings. Court observed that the assessee had not brought on record anything to suggest that the reassessment proceedings were being undertaken in an arbitrary manner. Court held that the present case does not fall under the exceptional ground on which a writ jurisdiction of the High Court can be invoked and further that the facts in the present case were disputed questions of facts which could not be adjudicated by a writ court exercising jurisdiction under Article 226 of the Constitution. With respect to the contention that the notice issued was beyond limitation, Court observed that the same had already been rejected in Touchstone Holdings (P.) Ltd. v. ITO [2022] 142 taxmann.com 336. (AY. 2016-17)

Ajay Gupta (HUF) v. ITO (2023) 454 ITR 787 (Del) (HC)

267. S. 147: Reassessment – Request for opportunity of personal hearing mechanically rejected – Matter remanded to the Assessing Officer for fresh consideration after taking into account documents to be produced by the assessee during personal hearing

Assessment orders were passed in the reassessment proceedings initiated in the case of assessee without considering the assessee’s request for personal hearing through video conferencing and personal hearing request was mechanically rejected. High Court set aside and remanded the matter back to the Assessing Officer for fresh consideration permitting the assessee to appear before the Assessing Officer and produce all the necessary documents. (AY.: 2003-04 to 2006-07)

Chennai Port Authority v. Dy. CIT and Anr. (2023) 454 ITR 692 (Mad) / [2023] 151 taxmann.com 492 (Madras)

268. S.147/148: Reassessment – Less than four years – Reassessment proceedings on the basis of a change of opinion – In original assessment proceedings, AO after examining the outstanding Rural Development (RD) cess amount shown as liability in balance sheet did not make any addition – Subsequently, rectification proceedings also dropped on the same issue – Held, AO took a plausible view out of two views possible – Reassessment proceedings were invalid

Rural Development (RD) cess had remained unpaid and was shown as liability in balance sheet of the assessee. A list of creditors, which included the liability to pay RD Cess, was called for and submitted during the assessment proceedings. The AO did not make any addition in this regard. Subsequently, AO issued rectification notice seeking to rectify assessment order on the ground that the RD cess amount was to be disallowed and added back to the total income of the assessee. After considering the objections from the assessee that the said amount was not claimed as expenditure, rectification proceedings initiated under section 154 were dropped. Thereafter, a notice under section 148 was issued within four years. An order was passed under section 143(3) read with section 147 adding the amount of RD cess to the total income of the assessee. The reassessment was upheld by the ITAT on the ground that the reopening notice was issued within four years and income chargeable to tax had escaped assessment. On assessee’s appeal, the High Court held:

In cases of mistake resulting in escapement of income, which is the area where both the provisions of rectification and reopening would become relevant, the AO will have to consider whether he would reopen the assessment or merely rectify the mistake. Since in the present case, the had initiated rectification proceedings and on finding that there was no mistake warranting rectification, he had taken a plausible view out of two views possible. Reopening entirely on account of change of opinion, and it was not open to the AO to resort to the provisions of section 147 arbitrarily or wantonly where the process of rectification under section 154 fails on the merits.

Mallikarjuna Rice Industries v. ITO [2023] 293 Taxman 400 (Telangana)

269. S. 147/148: Reassessment: Beyond four years, but less than six years – Assessment reopening on the ground that the assessee was a beneficiary of accommodation entries – During the course of assessment, AO examined the infusion of share capital and assessee had furnished relevant information sought for– Reopening not permitted on the basis of change of opinion – AO did not record in the reasons that there was any failure on the part of the assessee to disclose, truly and fully, all material facts necessary for carrying out assessment – Notice invalid.

During original assessment proceedings, information with regard to the share application money was sought, and upon making enquiries with regard to the identity, genuineness and credit worthiness of the applicants, an assessment order was passed by the AO. He had examined the records of the applicant shareholders and even recorded the statements. Reassessment proceedings were initiated after four years based on information received from the investigation wing that assessee had received accommodation entries.

He initiated reassessment proceedings merely based on the directions of the Investigation Wing and failed to apply his mind independently. The High Court therefore upheld the order of the ITAT and observed that it was correct in holding that reassessment was on account of change of opinion and that the pre-requisites for reassessment were not fulfilled. Therefore, the reassessment proceedings initiated by the AO set aside by the High Court.

PCIT v. South Delhi Promoters Ltd. [2023] 293 Taxman 123 (Delhi)

270. S. 148 r.w.s 263/10(38)/68 : Reassessment – Notice – AO issued notice for re-opening for the reason that assessee had claimed bogus LTCG u/s 10(38) on penny stock transaction – Since reasons recorded in file for reopening and reasons supplied to assessee were different, impugned reassessment proceedings became invalid.

Dismissing the Revenue’s appeal, the High Court observed that AO had issued notice u/s 148 for reason that assessee had claimed bogus LTCG u/s 10(38) on penny stock transaction. Subsequently, PCIT passed revision order u/s 263 directing AO to add entire amount of such capital gains u/s 68 of the Act. The High Court observed that Tribunal on the issue of validity of reopening of assessment rightly concluded that since reasons for reopening recorded in file for reopening and reasons supplied to assessee were different, reassessment proceedings became invalid. It was further held that since original reassessment order itself was not validly passed, then subsequent revisional order by PCIT was required to be held invalid as well (AY 2013-14).

PCIT v. Badal Prakash Jindal (2023) 293 Taxman 350 / 150 taxmann.com 483 (Orissa)

271. S. 148: Where notice under section 148 was issued to assessee and there was material on record, indicative of fact that assessee had communicated to Assessing Officer that its original return be treated as a return in response to notice issued under section 148, since record showed that assessee’s return was in place, Assessing Officer was required to issue a notice under section 143(2) and then proceed further in matter; recourse to section 144 was completely uncalled for.

Where notice under section 148 was issued to assessee and there was material on record, indicative of fact that assessee had communicated to Assessing Officer that its original return be treated as a return in response to notice issued under section 148. Since a response was on record, Assessing Officer was required to issue a notice under section 143(2) and then proceed further in matter. Since no notice under section 143(2) was issued, assessment had been made without Assessing Officer validly assuming jurisdiction. Accordingly, the High Court passed an order dismissing the appeal of the Department.

PCIT v. S.G. Portfolio (P.) Ltd. (454 ITR 761) (Del.) (ITA NO. 107 of 2023) (A.Y. 2009-10)

272. S. 148 : Reassessment – Notice – Notice After Four Years – Condition Precedent – Assessee Disclosing All Material Facts In Respect Of Sale Of Immovable Property – No New Tangible Material With Assessing Officer – Reopening On Mere Change Of Opinion – Impermissible – Notice And All Subsequent Proceedings Quashed And Set Aside [S. 147]

According to the proviso to section 147 of the Income-tax Act, 1961, reassessment proceedings after the expiry of four years from the end of the relevant AY. can be initiated only when there is tangible material with the Assessing Officer to show that the assessee had in the original assessment failed to fully and truly disclose all material facts necessary for his assessment for that AY..

On a writ petition, the Hon’ble High Court held, allowing the petition, that the reassessment proceedings under section 147 had been resorted to only on account of “change of opinion” of the Assessing Officer without there being any fresh tangible evidence for reopening the assessment proceedings. The phraseology used in the reasons recorded by the Income-tax Officer that the income for the AY. 2013-14 had escaped assessment because of failure on the part of the assessee to disclose fully and truly material facts necessary for assessment was unfounded and self contradictory. All the facts pertaining to the sale of immovable property by the assessee were unquestionably disclosed and under consideration of the Income-tax Officer who had issued the notice dated June 17, 2021 under section 143(2) read with section 147 . Hence, the reasoning assigned by the Income-tax Officer for reopening the proceedings on the ground that the material facts were not fully and truly disclosed by the assessee and therefore, income had escaped assessment was unfounded.

The notice under section 148 was time barred and unsustainable. All proceedings undertaken in pursuance thereof were quashed and set aside.(D.B. CIVIL WRIT PETITION NO. 9022/2021 dt. 01.12.2023)(AY.: 2013-14)

Rampal Samdani v. UOI, Ministry Of Finance Through Additional CIT, National E-Assessment Centre And Others (2023) 454 ITR 380 (Raj)

273. S. 148: Reassessment – Second notice issued under section 148 of the Act for the very same assessment year where reassessment pursuant to first notice under section 148 of the Act had culminated in an assessment order is liable to be quashed

Notice dated 19th March 2018 was issued to the assessee under section 148 of the Act seeking to reopen assessment for AY 2012-13 on the ground that the assessee had sold equity shares of Alpha Graphics to earn long term capital gain of Rs.71,87,000/- which was claimed as exempt under section 10(38) of the Act. The assessee filed a writ petition before the High Court challenging the said notice. The assessee, subsequently, withdrew the writ petition and the AO proceeded to pass an assessment order. AO issued a second notice dated 30th March 2019 under section 148 of the Act on the ground that the assessee had sold its equity shares to M/s. Tilak Finance Ltd. and entered into transaction of Rs. 1,04,85,475/- to claim exemption under section 10(38) of the Act. High Court quashed the second notice dated 30th March 2019 by placing reliance on the decision in the case of Aditya Medisales Ltd. v. Dy. CIT [2016] 73 taxmann.com 197/242 Taxman 228 where the High Court had held that as long as the assessment was at large by virtue of the first notice of reopening, the question of issuing second notice for the same purpose would not arise. (AY.: 2012-13)

Bharatkumar Jayantibhai Patel v. Asst. CIT (2023) 454 ITR 749 (Guj.)

274. S. 148: Reassessment – Notice – issued to the non-existing company – notice to be quashed.

Where a notice was issued in the name of a company that had previously amalgamated with the Assessee, and the Assessee had already informed the tax department about this amalgamation before the issuance of the reopening notice, the High Court held that the issuance of a show-cause notice in the name of a non-existing entity (the amalgamated company) that had lost its legal existence was without jurisdiction. Consequently, the High Court ruled that the notice should be quashed.

Kunvarji Fincorp (P.) Ltd. v. Dy. CIT [2023] 293 Taxman 183 / 455 ITR 419 (Gujarat)(HC)

275. S. 148 r.w.s. 151 : Reopening of assessment – Consistency – order passed under section 148A(d) of the Act holding the case of the assessee fit for issuing the notice under section 148 of the Act on the identical ground on which reopening proceedings for subsequent Assessment Year dropped – unjustified.

The AO issued notice dated 26.05.2022 under section 148A(b) of the Act. On the ground that during the year relevant to the assessment year 2015-16, the assessee was one of the beneficiaries of accommodation entries to the tune of Rs. 13,71,00,000/-. The AO had issued an identical notice dated 25.07.2022 to the assessee for the Assessment Year 2016-17 as well. The assessee submitted replies dated 10.06.2022 and 21.07.2022 to the said show cause notice and denied any transaction.

The AO passed an order dated 28.07.2022 under section 148A(d) of the Act accepting the contention of the assessee and dropped the proceedings pertaining to the assessment year 2016- 17. However, for the impugned assessment year 2015-16, the AO had passed an order dated 31.07.2022 under section 148A(d) of the Act rejecting the contention of the assessee by observing that there is escapement of income during the assessment year 2015-16, and accordingly held that it is a fit case for issuance of notice under Section 148 of the Act.

The department contended that the sanctioning authorities for the two assessment years in question were two different authorities, who took two different stands, thereby directing the AO to act differently in the interest of revenue. Hence, there is no illegality in the impugned order.

Hon’ble Delhi High Court allowed the writ petition filed by the assessee by observing that of lack of consistency in the decision making. There is nothing wrong if in the impugned order dated 31.07.2022 the ACIT concerned had taken a view different from the view taken in order dated 28.07.2022, provided the diversion was supported by way of cogent reasoning, mentioned above, consistency does not mean putting iron fetters on the subsequent decision making; it only means expecting that a deviation from the previous decision in similar set of circumstances is explained by way of cogent and rational reasons. In the present case, the decision taken first in point of time (order dated 28.07.2022) was a reasoned decision, based on the analysis of material on record, but the decision taken subsequently (order dated 31.07.2022) not just took a view completely inconsistent with the previous view but even without an iota of reason.

The Hon’ble Delhi High Court held that as far as revenue’s argument of two different sanctioning authorities is concerned, no doubt order dated 28.07.2022 was issued with the approval of Principal Commissioner Income Tax- 10 and order dated 31.07.2022 was issued with the approval of Principal Chief Commissioner of Income Tax, but the satisfaction recorded in both orders was of same Assistant Commissioner of Income Tax. There is nothing on record to suggest even feebly that the latter sanctioning authority was apprised of the earlier view taken in order dated 28.07.2022. An assessee, deals with the income tax department as a whole, like a body and not its individual organs, especially where left hand does not know what right had sanctioned. (AY 2015-16)

Prem Kumar Chopra v. ACIT & Ors. [W.P.(C) 12104/2022 order dated May 25, 2023] (Delhi High Court).

276. S. 148A r.w.s. 148 – Conducting inquiry, providing opportunity before issue of notice – A company is amalgamated with assessee company by an approved scheme of amalgamation and such fact is communicated to AO – Order passed u/s.148A(d) and subsequent issue of notice under section 148 against such amalgamating company which ceased to exist were to be quashed.

Allowing the Writ of the Assessee, the High Court observed that although, from the record, it appears that after issuance of the notice u/s.148A(b) of the Act, the petitioner, in the objections to the reopening, did not specifically highlight the fact of amalgamation which led to the passing of the order u/s 148A(d) of the Act and subsequent notice u/s 148 of the Act. Based on such observation, the High Court held that this fact would not preclude the petitioner- assessee from challenging the validity of the notice u/s 148 on the aforementioned ground, keeping in view the ratio of the judgment in the case of Maruti Suzuki India Ltd [265 Taxman 515 (SC)] that participation in the proceedings would not operate as an estoppel against law. Hence, relying on the settled legal principle that the amalgamating entity had ceased to exist upon the scheme of amalgamation being approved, the re-opening needs to be quashed (AY 2013-14).

Pico Capital (P.) Ltd. v. DCIT (2023) 293 Taxman 347 (Bombay)(HC)

277. S. 148 r.w.s 32: Reassessment – Notice – Transactions of sale and lease back of machinery on which depreciation at rate of 100% was claimed was disclosed with enough details and there was no allegation of non-disclosure of primary facts on part of assessee, then reopening of such assessment after 4 years was not allowed.

Allowing the Writ of the assessee, the High Court observed that the assessee-company entered into two transactions with two entities being sale and lease back transactions of machinery, on which it had claimed depreciation at rate of 100 per cent and such claim was allowed. Subsequently, after four years, AO issued a reassessment notice u/s 148 for making disallowance of such depreciation on ground that during the preceding year ie AY 1996-97 similar transactions on which assessee claimed 100 per cent depreciation were found to be a paper transaction. It was noted that reassessment proceedings for preceding AY was quashed and set aside by Tribunal for reason that two transactions of sale and lease back had been disclosed with enough details and were considered in past assessments leaving no room for reassessment proceedings. Since similar claim of depreciation had been claimed and allowed in earlier assessment year by Tribunal and the assessee had disclosed all material facts during original assessment and there was neither any allegation in reopening notice about non-disclosure of primary facts by assessee nor of some new material giving a reasonable belief that there was escapement of income of assessee. Based on such observations, it was held by High Court that impugned reopening notice was clearly without jurisdiction and same was to be set aside (AY 1997-98).

Milton Plastics Ltd. v. Mudit Nagpal. (2023) 293 Taxman 357 (Bombay)(HC)

278. S. 148 : Reassessment – Notice – Notice After Four Years – Validityj – Facts Necessary For Assessment Disclosed And Assessment Completed Under Section 143(3) – Notice Of Reassessment To Compute Income Applying Different Method Of Computation is a mere change of opinion. [S. 147]

The petitioner is an investment holding company incorporated in Singapore. The ultimate holding company of the petitioner, LehmanBrothers Holdings Inc. (“LBHI”) filed for bankruptcy. The petitioner was placed into Creditors’ Voluntary Liquidation from 24th October 2008. The petitioner did not conduct any business activity and laid off the entire staff. Hence, the petitioner had no business transaction during the A.Y. 2015-16. During the year under consideration, there was a Court order allowing the petitioner for capital reduction of equity shares held by the petitioner in Lehman Brothers Capital Private Limited (“LBCPL”).

The petitioner filed its return of income declaring Capital Gains along with detailed working and method of arriving at the capital gain/loss including the details of dates of the purchase and sale of shares and the conversion of amounts in foreign currency. The petitioner declared capital gain u/s. 45 of the Act r.w. the first proviso to Section 48 of the Act after setting off loss for A.Y. 2014-15 and paid taxes at 20% u/s. 112(1)(i)(c)(ii) of the Act which is after giving effect to the first and second provisos of section 48(indexation). The case was selected for scrutiny and after considering the aspect of capital reduction, order u/s 143(3) was passed.

Thereafter a notice u/s 148 was issued on the ground that capital gain tax was wrongly paid under section 112(1)(c)(ii) as against section 112(1)(c)(iii) wherein section 112(1)(c)(iii) is a special provision which will override the general provisions provided under section 48. Consequently Held, that the entire emphasis on the assessee not truly and fully disclosing facts was baseless inasmuch as there was only one transaction which was under consideration for the Department. The entire transaction had been considered by the Assessing Officer and had culminated in the order under section 143(3). As apparent from the reasons there were no new tangible material in the hands of the Assessing Officer. Once the assessment was concluded, it was deemed to have been concluded with application of mind by the Assessing Officer from all perspectives legal and factual. The reopening of the assessment based on a different method of computation or application of the section was nothing else but a change of opinion, which was impermissible in law. The notice u/s 148 and all consequential actions taken by the respondents in furtherance thereof had to be quashed. (WRIT PETITION NOS. 2000 AND 2011 OF 2022 dt. 08.03.2023) (AY.: 2014-15, 2015-16)

Lehman Brothers Investments Pte. Ltd. v. Asst. CIT (International Taxation) and Ors. (2023)454 ITR 331 (Bom)

279. S. 148 : Reassessment – Notice – Notice – Validity – Amalgamation – Assessee Merged With Another Entity Pursuant To Order Of National Company Law Tribunal – Merger Of Assessee Within Knowledge Of Department – Even participation by the assessee in reassessment proceedings would not operate as an estoppel – Notice Against Non-Existent Assessee – Unsustainable [S. 147]

The amalgamating entity ceases to exist upon the approved scheme of amalgamation. Even participation by the assessee in reassessment proceedings under section 147 of the Income- tax Act, 1961 would not operate as an estoppel against such a legal principle.

On a writ petition contending that the notice under section 148 was issued in the name of non-existent assessee which since had merged with another entity under the order passed by the National Company Law Tribunal and therefore null and void:

Held, allowing the petition, thatThe Principal Commissioner had even issued a notification transferring the assessment jurisdiction from the Assessing Officer in Chennai to the Assessing Officer in Hyderabad following the merger prior to the issuance of notice under section 148. Consequently the notice was quashed and set aside.(WRIT PETITION NO. 22308 OF 2021 dt.28.02.2023) (AY.: 2014-15)

Virtusa Consulting Services Pvt. Ltd. v. UOI and UOI and Anr. (2023) 454 ITR 363 (Telangana)(HC)

280. S. 148: Reassessment – S. 148A – Procedure – Order under section 148A(d) was passed disregarding the details furnished by assessee – Breach of principles of natural justice – Matter sent back to concerned officer from stage where serious error in not complying with statutory requirements was committed [S. 56]

Allowing the petition, the High Court quashed and set aside the order passed under section 148A (d) for reopening the assessment for the AY 2015-16 on the ground that the said order was disposed of in complete disregard to the details furnished and thus, amounted to breach of principles of natural justice. Accordingly, the matter was sent back to the AO from the stage where he has committed serious error in not complying with the statutory requirements.

Pawan Girishbhai Batavia v. ITO (2023) 293 Taxman 179 (Guj.)

281. S.148: Reassessment – S. 148 A – Procedure – Assessment reopened on the ground that assessee was a very old institution and was holding fixed deposits of several crores of rupees – Not a valid ground for reopening assessment – In respect of subsequent AYs, Revenue had granted exemption of section 10(23C) (iiiab) to the assessee institution – Reopening invalid. [S. 10(23C)]

Where assessee was a very old institution, holding fixed deposits running to several crores of rupees could not be a ground for reopening assessment that too when revenue themselves had treated assessee institution as a section 10(23C) (iiiab) institution entitled for exemption in respect of subsequent Assessment years 2016-17, 2017-18 and 2018-19. The High Court accordingly held that the impugned order dated 30-3-2022 passed under section148A(d) of the Income-tax Act, 1961 and the consequential notice dated 31-3-2022 have to be quashed and the writ petition will have to be allowed (AY 15-16)

Avinashilingam Institute for Home Science and Higher Education for Women v. ACIT (Exemptions) (2023) 293 Taxman 195 (Madras) (HC)

282. S. 148A: Reassessment – Conducting inquiry, providing opportunity before issue of notice – Natural justice – Opportunity of hearing requested but not afforded -Opportunity of cross examination was to be granted – Order and notice was set aside – Matter remanded to Assessing Officer. [S. 147, 148, 148A(d), Art.226]

Single judge dismissed the petition. On appeal allowing the petition the Court held that the stand taken by the Assessing Officer to deny an opportunity of personal hearing was not tenable. If credible information was available with the Department such information that the proprietorship concern of the assessee possessed a current account with the Burrabazar branch and the account number was also furnished in which high value transactions were reported it had to be disclosed to the assessee so as to afford it an effective opportunity of submitting a reply. Having not done so, the proceeding was in violation of principles of natural justice. Accordingly the order passed under section 148A(d) was set aside and the matter was restored to the Assessing Officer who should afford an opportunity of personal hearing to the assessee and all relevant and credible information to enable the assessee to put forth his defence in an effective manner. The assessee would be entitled to reagitate the request for cross-examination of those two named persons and to raise the plea of limitation. Thereafter, the Assessing Officer should pass a reasoned order on the merits and in accordance with law. Matter remanded. (AY. 2014-15)

Dinesh Kumar Goyal v. UOI (2023) 453 ITR 535 (Cal)(HC)

283. S. 148A: Reassessment –Conducting inquiry, providing opportunity before issue of notice – Alternative remedy – Writ petition against show cause notice is not maintainable – Writ petition was dismissed. S. 147, 148 148A (d), 246A, Art. 226]

On a writ petition challenging the legality, validity and propriety of the notice under section 148A(b) of the Income-tax Act, 1961, the Central Board of Direct Taxes Instruction dated May 11, 2022 ([2022] 444 ITR (St.) 43), the order passed section 148A(d) and the consequent notice issued under unamended section 148. Dismissing the petition, the Court held that The assessee had an efficacious alternative remedy to challenge the order under section 148A(d) or notice under section 148 in appeal under section 246A before the appellate authority and the ground raised by him with respect to jurisdiction of the authorities could be considered by the authorities. The court would not interfere with the order passed under section 148A(d) and notices issued under section 148A(b) and section 148 since they were issued in pursuance of the judgment of the Supreme Court in UOI v. Ashish Agarwal(2022) 444 ITR 1 (SC) Referred, UOI v. Kunisetty Satyanarayana (2006) 12SCC 28.

Harinder Singh Bedi v. UOI (2023) 453 ITR 145 (MP)(HC)

284. S. 148A: Reassessment – Conducting inquiry, providing opportunity before issue of notice – Limitation – Decision of Supreme Court is binding – Grievances on merits to be agitated in reassessment proceedings before the Assessing Officer – Writ petition was dismissed. [S.147, 148, 148A(b), 148A(d), Art. 226]

On writ petitions challenging the notices under section 148A(b) of the Income-tax Act, 1961 and the consequential orders under section 148A(d) for issuing notices under section 148 on the grounds of limitation, not considering the objections filed, not providing a personal hearing, non-application of mind to the facts of each case and several other grounds. Dismissing the petition the Court held that the contentions of limitation, not considering the objections filed, not providing a personal hearing, non- application of mind to the facts of each case and all other grounds could be raised at a stage when an order was passed under section 147 in the reassessment proceedings and challenged by the assessees if warranted. At that point not only would all the grounds urged before the court be available to the assessees but all other grounds which were not urged before the court would be found necessary to be urged in accordance with law. The authority was to pass orders under section 147 in accordance with law. Decision of Supreme Court is binding. Followed Anshhual Jain v. PCIT (2022) 449 ITR 256 (SC)

Kailash Kedia v. ITO (2023) 453 ITR 540 (Orissa) (HC)

285. S. 148A: Reassessment – Conducting inquiry, providing opportunity before issue of notice – Statutory duty cast upon Assessing Officer – Court cannot interfere at stage of notice – Writ petition was dismissed. [S. 147, 148, 148A(b), 148A(d), Art.226]

Dismissing the petition the Court held that there was no reason to interfere at this stage of notice under section 148. The court should not venture into the merits of the controversy when the Assessing Officer was yet to make the reassessment in discharge of the statutory duty cast upon him under section 147.(AY. 2018-19)

Midland Microfin Ltd. v. UOI (2023)453 ITR 150 (P&H)(HC)

286. S. 148A: Reassessment – Conducting inquiry, providing opportunity before issue of notice – Alternative remedy – Writ petition was dismissed. [S. 147, 148, 148A(b), 148A(b), 148A(d), Art. 226]

Dismissing the petition the Court held that the order passed under section 148A (d) need not be interfered with. The assessee could raise all grounds available including that the order was time barred and was on a mere change of opinion before the Assessing Officer at the appropriate stage.

Shiv Mettalicks Pvt. Ltd. v. PCIT (2023) 453 ITR 544 (Orissa)(HC)

287. S. 148A: Reassessment – Conducting inquiry, providing opportunity before issue of notice – Typographical errors – will not invalidate notice – Writ petition was dismissed. [S. 147, 148, 148A (d), 151 Art. 226]

Dismissing the petition, the Court held that section 148A is a codified mechanism for the benefit of the assessee. As regards the letter of the Additional Commissioner to the Principal Commissioner, it was an inter- office communication where the Additional Commissioner had opined that it was not a fit case to issue notice under section 148. The Principal Chief Commissioner who admittedly was the “specified authority” within the meaning of section 148A(d) read with section 151 had clearly opined that it was a fit case for issuing notice under section 148. The order under section 148A(d) and the subsequent notice under section 148 need not be interfered with.( AY. 2014-15)

V. S. Dhandapani and Son v. ITO (2023) 453 ITR 277/ 292 Taxman 364 / 222 DTR 337 (Mad)(HC)

288. S. 148A r.w.s. 148 – Conducting inquiry, providing opportunity before issue of notice – Department in its order passed u/s 148A(d) observed that assessee’s submissions would require further verification and hence no conclusion could have been reached that assessee’s case was a fit one for reassessment

Allowing the Writ of the Assessee, the High Court observed that on petitioner-company being issued notice u/s 148A(b) of the Act and in response it submitted detailed reply raising various objections such as limitation, change of opinion, etc., along with details pertaining to computation of capital gains tax paid on sale of property and thereafter the Department found petitioner’s submissions unacceptable and Department passed order u/s 148A(d) and issued notice u/s 148 of the Act. However, the

Hence, it was held that the impugned order and notice were to be set aside and matter was to be remanded back to pass a fresh order in accordance with law after giving an opportunity of personal hearing to assessee (AY 2016-17).

Crescent EPC Projects and Technical Services Ltd v. DCIT (2023) 293 Taxman 462 (Telangana)

289. S. 148A: Reassessment – Notice – incorrect information – notice and order set aside

The difference between the amounts that had escaped assessment between the information received from inside the portal and what was noted in the notice issued under section 148A(b) shows a lack of application of mind by the AO. Hence, the order under section 148A (d) and its consequential notice were to be set aside.

Rahul Aggarwal v. ITO [2023] 150 taxmann.com 391 (Delhi)/[2023] 293 Taxman 57 (Delhi)

290. S. 151 : Reassessment – After the expiry of four years –Sanction for issue of notice – Sanction of approval by Joint Commissioner and Not by Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner – Notice and order on objections set aside.[S. 147, 148, Art. 226, Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020]

Allowing the petition the Court held that the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 would not apply since four years had expired from the end of the relevant A.Y. 2015-16 as provided under section 151(1) of the Income-tax Act, 1961 and it was only the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner who could have accorded the approval for issue of notice under section 148 to reopen the assessment under section 147 and not the Joint Commissioner. Consequently, the notice and the order passed against the objections of the assessee were quashed and set aside. Followed J.M.Financial and Investment Consultancy Services Pvt Ltd v. ACIT (2023) 453 ITR 205 (Bpm)(HC)(AY. 2015-16)

Sidhmicro Equities Pvt. Ltd. v. Dy. CIT (2023)453 ITR 33 (Bom)(HC)

Editorial: SLP of Revenue dismissed, Dy.CIT v. Sidhmicro Equities Pvt. Ltd (2023) 453 ITR 35 (SC)

291. S. 153A : Assessment – Search or requisition – Assessment In Search Cases – General Principles – No Incriminating Material Found During Search – Completed Assessment cannot be disturbed by making any additions pursuant to search when no incriminating material is found. [S. 132]

Pursuant to a search and seizure conducted under section 132 of the Income-tax Act, 1961 in the residential premises of the assessee, the Assessing Officer issued notice under section 153A. The CIT(A) having recorded that no incriminating material was found during the search and allowed assessee’s appeal. The Tribunal allowed the Department’s appeal against such order. On appeal :

The Honourable Court, relying upon Kabul Chawla [2016] 380 ITR 573 (Delhi) and other decisions held, allowing the appeal, that the Tribunal was not justified in reversing the order of the Commissioner (Appeals) setting aside the order under section 153A when there did not exist any incriminating material found during the search under section 132 for issuing notice under section 153A. Hence the order of the Tribunal was set aside and the order of the Commissioner (Appeals) was restored.(IT APPEAL NO. 155 OF 2017 dt. 02.08.2022) (A.Y. 2006-07)

S. M. Kamal Pasha v. Dy. CIT (2023)454 ITR 157 (Kar)

292. S.153C: Search and seizure – Assessment of income of any other person (Recording of satisfaction) – Assessment year 2011-12 – Period of 6 years stipulated in section 153C has to be construed with reference to date of handing over documents to Assessing Officer of assessee and not year of search. Recording of satisfaction note is prerequisite and same must be prepared by Assessing Officer before he transmits record to other Assessing Officer who has jurisdiction over such other person under section 153C.

A search was conducted on 25-10-2010 under section 132 in case of one ‘K’ wherein some documents belonging to the assessee were found and seized. Consequently, the Assessing Officer of the searched persons recorded the satisfaction note in the case of assessee and issued notice under section 153C for the assessment years 2005-06 to 2010-11. The Assessing Officer completed proceedings under section 153C for the assessment years 2005-06 to 2010-11 and under section 153D for the assessment year 2011-12. On appeal, the Commissioner (Appeals) confirmed the order passed by the Assessing Officer for the year under consideration and for search assessment orders. On appeal, the Tribunal held that there was no satisfaction recorded by the Assessing Officer of the searched person and mere recording of satisfaction in the file of the assessee would not suffice. The Tribunal, thus, quashed the assessment orders.

On appeal, The High Court held that in the facts of the instant case, the satisfaction note was recorded on 14-12-2012 and therefore, the six years previous to the year in which handing over of documents took place would be assessment years 2007-08 to 2012-13. Thus, the relevant assessment year 2011-12 would fall within the purview of section 153C. Since it is an admitted position that the satisfaction note was not recorded by the Assessing Officer of the searched person, the Tribunal’s order quashing the assessment on account of lack of jurisdiction to proceed against the assessee under section 153C does not suffer from any infirmity.

PCIT v. Gali Janardhan Reddy (454 ITR 467) (Kar.) (ITA NO. 704 of 2018) (A. Y. 2011-12)

293. S. 153D: Where assessment orders passed in case of assessee were totally silent about Assessing Officer having written to Additional Commissioner seeking his approval or of Additional Commissioner having granted such approval, Tribunal was correct in holding that in present cases such approval was granted mechanically without application of mind by Additional Commissioner resulting in vitiating assessment orders.

A search and seizure operation under section 132 was conducted in the case of the assessee and various persons and concerns of the assessee. Notice under section 153A was served on the assessee. Notices under section 142 (1) and reminders were also issued. On 30-12-2010, the Assessing Officer passed assessment orders under section 143(3)/144/153A making various additions/disallowances to income of assessee. On appeal before Commissioner (Appeals), one of the grounds for challenge was the non- compliance with section 153D which requires prior approval of the Additional Commissioner. The Commissioner (Appeals) partly allowed the appeals holding that it was not necessary that the fact of approval of the Additional Commissioner was required to be mentioned in the body of the assessment order. The Commissioner (Appeals) observed that there was a consolidated approval order given by the Additional Commissioner for assessment years 2003-04 to 2009-10 and therefore, this ground had no merit. On appeal before Commissioner (Appeals), one of the grounds for challenge was the non-compliance with section 153D which requires prior approval of the Additional Commissioner. The Commissioner (Appeals) partly allowed the appeals holding that it was not necessary that the fact of approval of the Additional Commissioner was required to be mentioned in the body of the assessment order. On further appeal, the Tribunal come to the conclusion that the approving authority did not apply his mind to the relevant assessment records or to the draft assessment orders prior to granting approval to the Assessing Officer under sections 143(3)/144/153A. The assessment orders were accordingly set aside.

On appeal by the Revenue, the High Court held that a plain reading of section 153D itself makes it abundantly clear that the legislative intent was obtaining of ‘prior approval’ by the Assessing Officer when he is below the rank of a Joint Commissioner, before he passes an assessment order or reassessment order under section 153A(1)(b) or 153B(2)(b). That such an approval of a superior officer cannot be a mechanical exercise has been emphasized in several decisions. Illustratively, in the context of section 142 (2-A) which empowers an Assessing Officer to direct a special audit. The obtaining of the prior approval was held to be mandatory. It is therefore not correct on the part of the revenue to contend that the approval itself is not justiciable. Where the approval is granted mechanically, it would vitiate the assessment order itself.

As rightly pointed out by the assessee there is not even a token mention of the draft orders having been perused by the Additional Commissioner. The letter simply grants approval. In other words, even the bare minimum requirement of the approving authority having to indicate what thought process was involved is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained, the mere repeating of the words of the statute, or mere ‘rubber stamping’ of the letter seeking sanction by using similar words like ‘see’ or ‘approved’ will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of section 158BG, it would equally apply to section 153D. There are three or four requirements that are mandated therein, (i) the Assessing Officer should submit the draft assessment order ‘well in time’. Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind; (ii) the final approval must be in writing; (iii) The fact that approval has been obtained, should be mentioned in the body of the assessment order.

In the instant case, it is an admitted position that the assessment orders are totally silent about the Assessing Officer having written to the Additional Commissioner seeking his approval or of the Additional Commissioner having granted such approval. Interestingly, the assessment orders were passed on 30-12-2010 without mentioning the above fact. These two orders were therefore not in compliance with the requirement spelt out in para 9 of the Manual of Official Procedure.

ACIT v. Serajuddin & Co. (2023) 454 ITR 312 (Orissa) (ITA No. 39 to 45 of 2022)

294. S. 154(1A) & 154(7) : Rectification of mistake – Limitation period – Order giving effect to Appellate order – Issue sought to be rectified not subject matter of appeal – period of limitation will be reckoned from the date of original assessment order in respect of points not subjected to appellate jurisdiction

It is settled position in law that the AO, while giving effect to the ITAT’s order cannot go beyond the directions of the ITAT and since in this case, the issue of calculation of book profit qua diminution in the value of an asset was not the subject matter of the appeal, the Revenue was not justified in contending that the order is within the time limit. Because u/s. 154(1A) of the Act, the AO can rectify the order in respect of a matter other than the matter which has been considered and decided by the appellate/ revisional authority. In the instant case, since the issue of diminution in value of an asset for calculating book profit was not a subject matter of appeal or revision, the original order u/s. 143(3) of the Act dated 27/02/2004 is the order which can be rectified by the AO and since the order passed in 2004 cannot be rectified after a period of 4 years, the order passed u/s. 154 of the Act dated 29/03/2014 is barred by Section 154(7) of the Act.

Pr. CIT v. M/s. Godrej Industries Ltd [ITA No. 409 of 2018, Dated: 28/06/2023, A.Y. 2001-02. (Bom.) (HC)

295. S. 156 : Notice of demand – Bogus accommodation entries – lacked bona fides – Refund of money transferred to bank account in which Department had Lien for tax dues of company – Question of facts – Single judge held that the assessee should approach appropriate Forum or Civil Court [Art. 226]

Dismissing the appeal against the order of single judge Court held that the prayer made by the petitioner could not be acceded on the ground that since the single judge on the petitioner’s earlier writ petition on similar contentions had held that the petitioner’s contentions lacked bona fides and highly disputed questions of fact had been raised. That order having attained finality, the petitioner should have taken steps to agitate its claim before the appropriate forum or civil court. Accordingly writ petition seeking a direction to the Commissioner to refund the amount wrongly credited in the account of respondent No. 4 which was frozen to recover tax dues under section 156 of the Income-tax Act, 1961 in respondent No. 2-bank in the account of the petitioner with respondent No. 3-bank and restraining the Commissioner from appropriating the amount due towards Income- tax:

Garhwal Logistics Ltd. v. ITO (2023)453 ITR 527 (Delhi)(HC)

Editorial: Order single judge, Garwal Logistics Ltd. v. CIT (2023)453 ITR 524 (Delhi)(HC)

296. S. 156 : Notice of demand – Bogus accommodation entries – lacked bona fides – Refund of money transferred to bank account in which Department had Lien for tax dues of company – Question of facts – The assessee was directed to approach appropriate Forum or Civil Court for recovery of its claim. [Art. 226]

Dismissing the petition the Court held that on the facts the contentions of the petition lacked complete bona fides. Other than a bald claim that the amount had been transferred by an error there was nothing on record to show any error committed by it. No material was placed on record to show any intention or liability on its part to transfer funds to P. The bald plea that by oversight and mistake, the amount was inadvertently transferred to the account of respondent No. 4 could not be accepted. The observation of the Commissioner (Appeals) that respondent No. 4 was an entry provider cast further doubt on the averment made by the petitioner. Given the fact that there were disputed questions of fact, liberty was granted to the petitioner to take steps in accordance with law for recovery of the alleged claims before an appropriate forum or an appropriate civil court. (SJ)

Garwal Logistics Ltd. v. CIT (2023) 453 ITR 524 (Delhi)(HC)

Editorial: Order of single judge is affirmed, Garhwal Logistics Ltd. v. ITO (2023)453 ITR 527 (Delhi) (HC)

297. S.158BF : Block assessment – Non levy of interests and penalties – Offences And Prosecution – Wilful Attempt To Evade Tax – Search And Seizure – Block Assessment For AY.s Prior To 1-1-1997 – Law Applicable – Effect Of Introduction Of Sections 158BFA, 158BC(A)(Ii) And 276CCC, With Effect From 1-1-1997 – No Provision For Prosecution Prior To That Date [Ss. 276C(1), 277 r.w.s. 278B]

On a criminal revision petition to quash a prosecution for alleged offences under sections 276C(1) and 277 read with section 278B of the Income-tax Act, 1961, in respect of block assessment for the period April 1, 1985 to January 5, 1996 :

Held, that the court in N. R. AGARWAL INDUSTRIES LTD. v. JOINT. CIT [2019] 416 ITR 578 (Guj) held that upon introduction of section 158BFA and section 158BC(a)(ii) and section 276CCC from January 1, 1997, the Legislature had envisaged prosecution for wilful failure to furnish return of income in search cases, and in the absence of a specific provision between the period from July 1, 1995 to January 1, 1997, it could be inferred that the Legislature had intended to grant immunity in such type of cases. Essentially what had been emphasized is the lack of any provisions to prosecute an assessee during the period between July 1, 1995 to January 1, 1997. The issue involved in the present group of applications and N. R. AGARWAL INDUSTRIES LTD. v. JOINT. CIT [2019] 416 ITR 578 (Guj) appeared to be substantially similar and under such circumstances, the law laid down by the court would also cover the issue in question in the present group of applications. The court had held that there being no provision existing at the relevant point of time whereby the Income- tax Department could launch a prosecution as regards income disclosed in block assessments for the period between July 1, 1995 to January 1, 1997, automatically and as a direct consequence, quashing of prosecution was the only necessary corollary. Consequently, the criminal complaints pending in the court of the Chief Judicial Magistrate were hereby quashed and set aside. (R/Criminal Misc.Application Nos. 3438 TO 3441 OF 2004 dt.17.03.2023)(AY.: 1-4-1985 to 5-1-1996)

Suman Paper and Boards Ltd. and Ors. v. Jt CIT and Ors. (2023) 454 ITR 296 (Guj)

298. S. 197: Deduction at source – Certificate for lower rate – Non- Resident – Payments under distributor agreement –Certificate for withholding tax at rate of 9.99 Per Cent- Order set aside- Precedent – Supreme Court – Binding on Authorities. [S. 195, Rule 28AA, Art. 226]

On writ against the order under section 197 of the Act , the Court held, that the Assessing Officer had bypassed the judgment of the Supreme Court in Engineering Analysis Centre of Excellence P. Ltd. v. CIT (2021) 432 ITR 471 (SC). The Court directed the Assessing Officer to examine the application, in the background of the parameters set forth in rule 28AA. (AY. 2022-23)(AY. 2023-24)

Milestone Systems A/S v. Dy. CIT (No. 1) (2023)453 ITR 250 (Delhi)(HC) Milestone Systems A/S v. Dy. CIT (NO. 2) (2023) 453 ITR 255 (Delhi) (HC)

299. S. 201 : Deduction at source – Failure to deduct or pay – Order Deeming Payer to be “Assessee- In- Default” – Limitation for Order – No Statutory Period of Limitation – General Principle that in Absence of Statutory Provisions, Orders must be Passed Within Reasonable Time – Power of High Court Under Article 226 to Fix Reasonable Period of Limitation – Limitation Prescribed for Deduction of Tax at Source on Payments to Residents Applicable to Payments to Non-Residents as well

Section 201 of the Income-tax Act, 1961 , as it originally stood did not prescribe any limitation for passing an order under section 201 of the Act. By the Finance (No. 2) Act, 2009, with effect from April 1, 2010 sub-section (3) to section 201 of the Act was inserted thereby providing limitation for passing an order under section 201(1) of the Act deeming a person to be an “assessee-in-default” for failure to deduct tax at source in respect of payments to residents. No limitation was however prescribed in so far as passing orders under section 201(1) of the Act deeming a person to be an “assessee-in- default” for failure to deduct tax at source in respect of payments to non-residents. The object behind deduction of tax at source is common for payments to residents and non-residents. It is to secure the taxes or a portion thereof at the earliest. The object of tax deduction at source being common for payments both to residents and non-residents, limitation prescribed by the Legislature to pass orders under section 201(1) of the Act, deeming a person to be an “assessee- in-default” for failure to deduct tax at source in respect of payments to residents should be applied in respect of passing orders deeming a person to be an “assessee-in-default” for failure to deduct tax at source even in respect of payments to non-residents. The period prescribed under section 201(3) of the Act with regard to residents would constitute reasonable period inasmuch as there is a presumption of reasonableness with regard to legislative action.

Parliament after providing the limitation at four years for passing orders under section 201(1) of the Act deeming a person to be an “assessee- in-default” for failure to deduct tax at source in respect of payments to residents has, on realizing the inadequacy of the period, extended the limitation to six years and thereafter to seven years. The limitation for passing orders under section 201(1) of the Act deeming a person to be an “assessee-in-default” for failure to deduct tax at source on payments to residents has been extended in view of the inadequacy of the original period of limitation which was fixed at four years as a result of trial and error. The above legislative action providing and extending the limitation for passing orders under section 201(1) of the Act with regard to residents is instructive and serves as a guide in determining the “reasonable period” for passing orders under section 201(1) of the Act deeming a person to be an “assessee-in-default” for failure to deduct tax at source on payments to non-residents. The limitation for passing orders under section 201(1) of the Act deeming a person to be an “assessee-in-default” for failure to deduct tax at source on payments to residents must thus be adopted and treated as constituting “reasonable period” for the purpose of passing orders under section 201(1) of the Act deeming a person to be an “assessee-in- default” for failure to deduct tax at source on payments to non-residents. The extended period of limitation of seven years would be available for passing orders under section 201(1) of the Act deeming a person to be an “assessee-in- default” for failure to deduct taxes in respect of payments to residents. The sequitur is that the “reasonable period” for passing orders under section 201(1) of the Act deeming a person to be an “assessee-in-default” for failure to deduct taxes in respect of payments to non-residents shall also be seven years from the end of the financial year in which the payment is made or credit given with effect from April 1, 2010.( AY.: 2010-11 to 2015-16)

Vedanta Limited v. Dy. CIT (International Taxation) and Anr. (2023) 454 ITR 545 (Mad)

300. S. 206C: Where assessee was engaged in trading of timber sawn into logs of different dimensions and shapes which was imported from other countries and not obtained from forest, timber sold by assessee would not amount to forest produce and, thus, provisions of section 206C(1) were not applicable.

An order dated 28th March, 2011 was passed against the respondent/assessee under section 206C(6)/206C(7)of the Act on the ground that the assessee did not collect any tax on the sale of timber obtained by any other mode other than forest lease in terms of section 206C(1) of the Act. The CIT(A) reversed the order of the Assessing Officer and granted relief to the assessee. The Tribunal upheld the order of the CIT(A). On appeal, the High Court held that section 206C introduced by the Finance Act, 1988 was intended to levy and collect presumptive tax in the case of trading in certain goods to remove hardship. The trades mentioned therein are alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under forest lease and any other forest produce not being timber, at different rates. The object of introduction of the new provisions for working out the profits on presumptive basis was to get over the problems faced in assessing the income and recovering the tax in the case of persons trading in these items. The provisions were brought into the statute not only to estimate the profits on presumptive basis but also to collect the tax on such transactions at specified rates mentioned in section 206C of the Act. What has to be borne in mind is that, the presumptive tax is collectible on a forest produce. Therefore, the test is whether the assessee had dealt with a forest produce. Basically, forest produce is the produce grown spontaneously. The High Court accordingly dismissed the Department appeals holding that if timber was being sized, sawn into logs of different dimensions and shapes in activities carried out in saw mills authorised by the Government, it would amount to a different produce. Even in respect of timbers which are procured as described in the table, if it is used in the process of manufacturing, the provisions of section 206C(1) of the Act would not be applicable due to the fact that the product ceased to be a forest produce. Section 206C was not applicable to the assessee.

Pr. CIT (TDS) v. Nirmal Kumar Kejriwal (2023) 454 ITR 777 (Cal) (ITAT No. 376 of 2016 (A.Y. 2005-06 to 2009-10)

301. S. 220: Collection and recovery – Assessee deemed in default – stay application – Financial hardship – Stay subject to deposit of 10 per cent of disputed demand.

The Assessee, a company wholly owned by the State Government, reported a loss in its tax return. Subsequently, the AO issued an assessment order and raised a demand. The Assessee then applied for a stay of the demand, which the AO rejected due to the Assessee’s failure to pay 20 per cent of the disputed demand. The High Court observed that the AO had denied the Assessee’s stay application solely based on the Assessee’s failure to deposit 20 per cent of the disputed demand. Taking into account the financial difficulties faced by the Assessee, the High Court ruled that a stay should be granted, subject to the Assessee depositing 10 per cent of the disputed demand.

Goa Forest Development Corporation v. Pr. CIT [2023] 150 taxmann.com 309 (Bombay)/[2023] 293 Taxman 62 (Bombay)(HC)

302. S. 245C : Settlement Commission – Settlement of cases – Conditions – Application For Settlement – Maintainability – Condition Precedent – Remittance of entire tax on admitted additional income – Assessee misled by communication from department but depositing shortfall in remittance when brought to knowledge through report under section 245D(2b) – Sufficient compliance with statutory condition – application restored to Settlement Commission. [S. 245D(2b)]

Pursuant to a search and seizure conducted under section 132 of the Income-tax Act, 1961 in the office of the assessee and residential premises of the assessee’s members, assessments were made for the AY.s 2011-12 to 2017-18. The assessee filed an application for settlement under section 245C. The assessee remitted an amount towards tax due on the additional income offered and sought adjustment from out of the cash seized during the search. This position was accepted by the Settlement Commission. However, the report under section 245D (2B) showed a difference of an amount which was deposited by the assessee and the Settlement Commission rejected the application as not maintainable on the ground that the admitted tax was not remitted in full at the time of filing of the application under section 245C. On a writ petition:

Held, that the shortfall in the remittance of the admitted tax came to the assessee’s knowledge from the report under section 245D(2B) and the assessee had immediately remitted the sum of Rs. 1.5 crores which constituted substantial and adequate compliance with the statutory condition under section 245C of the remittance of the entire admitted tax at the time of filing the application. The assessee had proceeded in line with the contents of the Department’s letter. The confusion and the error, if at all, arose only from the contents of the letter. The unambiguous impression that it conveyed was that the entirety of the credit determined as balance in the personal deposit account enured to the benefit of the assessee. The settlement application was restored to the Settlement Commission (Interim Board).(W.P.NO. 10707 OF 2019 dt. 11.10.2022) (AY.: 2011-12 to 2017-18)

Sri Lakshmi Ammal Educational Trust v. Income- Tax Settlement Commissioner and Anr. (2023) 454 ITR 804 (Mad)(HC)

303. S. 260A: Appeal To High Court – Delay – Where Assessing Officer who framed assessment in case of assessee was located in Gurugram, in such circumstances, Revenue would be provided liberty to withdraw appeals filed before Delhi High Court and file same before appropriate Court having territorial jurisdiction in matter.

Revenue filed applications for seeking condonation of delay in refiling appeals. The Revenue contended that since Assessing Officer who framed assessment was located in Gurugram, in terms of judgment of Supreme Court rendered in Pr. CIT v. ABC Papers Ltd. [2022] 141 taxmann.com 332/289 Taxman 150/447 ITR 1, instant appeals would not lie in present High Court. Accordingly, liberty was sought to withdraw appeals and file same before Court which would have territorial jurisdiction in matter. The High Court passed an order giving eight weeks to file appeals before appropriate court and held that the time to file appeals would commence from date of receipt of a copy of order.

CIT v. Posco Engineering and Construction Company (2023) 454 ITR 201 (ITA No. 552,553 of 2022)

304. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Commissioner holding view different from that of Assessing Officer on a particular issue – Revision is not justified – High Court cannot set aside finding of Appellate Tribunal unless finding is perverse.[S. 260A]

Dismissing the appeal of the Revenue the Court held that every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law. Unless and until the order passed by the Tribunal suffers from any perversity or ignores any vital fact in an appeal under section 260A of the Act, the High Court cannot interfere with such an order. Order of Tribunal is affirmed. (AY. 2016-17)

PCIT v. Britannia Industries Ltd. (2023)453 ITR 576/ 330 CTR 435 (Cal)(HC)

Editorial: Order in Britannia Industries Ltd v. PCIT (2023) 102 ITR 513 (Kol)(Trib), is affirmed.

305. S. 263: Where revenue received copy of DVAC report which revealed that certain lands were not reflected in ITR of assessee but such report was not acted upon by Revenue either by issuing reassessment notice or by exercising revisionary powers and Assessee

Individual was subjected to a best-judgment assessment for relevant year, whereafter revenue received copy of DVAC report which revealed that certain lands were not reflected in the Income-tax Return of assessee but such report was not acted upon by revenue either by issuing reassessment notice or by exercising revisionary powers. Upon assessee’s appeal against assessment order, Commissioner (Appeals) remanded case back to revenue tredo assessment in light of 3 specific issues (Depreciation on vehicles, disallowance of loss and disallowance of agricultural income). The Revenue passed assessment order without considering information contained in DVAC report which was held to be erroneous and prejudicial to revenue’s interest under revisionary proceedings and accordingly, a third assessment order was passed determining a total income of Rs. 1.34 crores as against originally admitted income of Rs. 24 lakhs. On appeal, the Tribunal quashed revisionary order passed under section 263 holding that DVAC report could not be considered a ‘record’ and no error was committed by revenue by not considering report. On appeal by revenue to High Court, it was observed that appeal was in continuation of original proceedings. It was noted that Commissioner (Appeals) had remanded case, considering that assessee had furnished documents/information sought during assessment proceedings subsequently- Further, it was noted that information furnished to revenue by DVAC was not brought to notice of Commissioner (Appeals), thus, Commissioner (Appeals) order directing remand on 3 issues could not be considered as limiting scope of remand, order had to be construed as an interlocutory order. As an Appellate authority, it was incumbent on part of Commissioner (Appeals) to have taken note of laches and mistakes committed by Assessing Officer while passing assessment order, before remanding case for passing a fresh assessment order. Therefore, remand order of Commissioner (Appeals) was not binding on Appellate Tribunal in appeal filed before it; Appellate Tribunal was free to arrive at its own decision on question of liability of assessee. The High Court also held that equally, the Appellate Tribunal was at fault while passing impugned order; it ought to have seen mistakes committed by Assessing Officer which resulted in an erroneous order being passed in favour of assessee which was prejudicial to interest of revenue.

CIT v. N. Sasikala (2023) 454 ITR 387 (Mad.) (TCA No. 739 of 2008) (A.Y. 1994-95)

306. S. 263. r.w.s 68: Commissioner – Revision of orders prejudicial to revenue – PCIT in exercise of itsjurisdiction u/s 263 directed AO to pass fresh assessment order by looking into share capital/premium collected by assessee ignoring the fact that in reassessment order u/s 153A no adverse inference was drawn against share capital/premium collected by assessee – Order passed by PCIT was rightly quashed by the Tribunal

Dismissing the appeal of the Revenue, the High Court observed that when the Tribunal set aside order passed u/s 263 and remanded matter back to PCIT for a fresh decision and while such matter was pending, the AO completed assessment pursuant to search and seizure operation u/s 153A. The High Court further observed that the Tribunal rightly held that the PCIT while exercising his jurisdiction u/s. 263 was bound to look into subsequent action of AO i.e. reassessment order under section 153A, wherein no adverse inference was drawn against share capital/ premium collected by assessee and same had been accepted after enquiry. Further, u/s 263, PCIT had to examine all records pertaining to relevant AY at the time of examination by him, which included, post-search assessment proceedings and thereafter only if he can reach to a finding that the order passed by AO on any issue was erroneous insofar as it was prejudicial to interest of Revenue then only can the PCIT interfere by enhancing / modifying / cancelling the assessment order (AY 2009-10).

PCIT v. Techno Tracom (P.) Ltd. (2023) 293 Taxman 392 (Calcutta)(HC)

307. S. 263 – Revision – interest u/s 244A on excess refund – Two views possible:

As per this provision if the proceedings resulting in the refund are delayed for the reasons attributable to the assessee, the period of delay so attributable to the assessee shall be excluded from the period for which interest is payable. There is nothing in the findings of the CIT as to how respondent delayed the proceedings that resulted in the refund or what the reasons that could be attributable to respondent were. Therefore it cannot be stated that proceedings resulting in the refund were delayed for reasons attributable to respondent wholly or in part.

Held that where two views are possible and the Assessing Officer takes one of the possible views, the CIT could not have exercised revisional jurisdiction u/s. 263 of the Act.

Pr. CIT v. Bank of Baroda [ITA NO. 100 OF 2018, Dated: 07/06/2023, A.Y. 2007-08, (Bom.) (HC)]

308. S. 263 – Revision – PCIT revised assessment order – Allegation – AO failed to enquire into and verify job work charges – Mere failure to issue notice under section 133(6) did not warrant exercise of revisional jurisdiction – PCIT not concluded job work charges as bogus, non-genuine or inflated –Reappreciation of material placed before AO – Approach of AO not flawed with – Revisional order set aside [S.133, 143]

PCIT, invoking section 263, setting aside assessment order on ground that AO failed to enquire into and verify job work charges claimed by assessee. The Tribunal set aside order passed under section 263. It noted that the AO raised specific query with regard to job work charges and assessee had also filed party-wise details concerning relevant bills and vouchers including payment made through account payee cheques, withholding of tax and confirmation from concerned parties. On appeal, the High Court held:

Inquiry under section 133(6) is not possible in case of migrant job workers, more so when scrutiny proceedings started after gap of 3 years. Since PCIT had not concluded that said charges were bogus, non-genuine or inflated but only attempted a reappreciation of material on record, AO’s approach could not have been found flawed with and, therefore, order passed by Tribunal could not be interfered with.

PCIT v. R.K. Jain Infra Projects (P.) Ltd. (2023) 293 Taxman 465 (Del)

309. S. 263 : Where PCIT failed to provide bare minimum requirement of serving notice on assessee, who was in judicial custody, and, thus, impugned order passed under section 263 was liable to be quashed.

The Principal Commissioner issued a notice under section 263 of the Income-tax Act, 1961 proposing revision of an order passed under section 153C read with section 143(3) accepting the income returned, on the ground that the order was erroneous and prejudicial to the Revenue. The notice was sent to the last known address of the assessee. Before the Principal Commissioner purportedly a member of the staff of the assessee appeared and informed him that the assessee was in judicial custody. The Principal Commissioner treated the appearance of the employee as sufficient service of notice on the assessee in terms of section 292BB and passed a revision order under section 263 making additions on account of unexplained receipts. The Tribunal held that the employee was not an authorized representative of the assessee and that despite being informed that the assessee was in judicial custody.

On appeal, the High Court, dismissing the appeal, held that despite being informed that the assessee was in judicial custody the Principal Commissioner did not make efforts to serve the notice upon him through the Superintendent of the jail. Any officer of the Government including a Principal Commissioner should be conscious that once information was received that a person to whom notice had to be served was in judicial custody, an appropriate order should have been passed requiring service of notice on such person through the Superintendent of the jail. This was the bare minimum requirement in law. With the Principal Commissioner having failed to do so, the Department could not contend that mere appearance of a staff of the assessee in judicial custody should be taken to be the appearance by the assessee himself. Notice under section 263 by speed post to the last known address of the assessee did not amount to valid service. No question of law arose. (AY.2009-10 to 2015-16)

Pr. CIT v. Narayan Kumar Khaitan (2023) 454 ITR 766 (Ori) (ITA NO. 77 of 2022) (A.Y. 2010-11)

310. S. 268A: Appeal – Instructions – Monetary Limits – Audit objection was not on the issue in the appeal – Appeal was dismissed in Limine. [S. 143(3) 260A, 263]

Held, dismissing the appeal, the audit objection was in respect of excess allowance of business loss and not in respect of retention money deposit and security deposit. Not only was the tax effect involved was much below the monetary limit as enumerated in Circular No. 3 of 2018, dated July 11, 2018 read with Circular No. 17 of 2019 dated August 8, 2019 but none of the exception clauses much less the audit objection was involved. Appeal of the Revenue was dismissed. (AY. 2012-13)

PCIT v. Urmila Rcp Projects Pvt. Ltd. (No. 2) (2023)453 ITR 43 / 293 Taxman 210/ 331 CTR 579/ 223 DTR 376 (Jharkhand) (HC)

311. S. 271(1)(c) : Penalty – Concealment – Furnishing of inaccurate particulars – Section 271AAB – Assessment Year 2014-15 – Search initiated under section 132(1) on or after 1st July 2012 – Penalty, if any, to be levied under section 271AAB and not under section 271(1)(c) as case falls under specified previous year – Appeal of Revenue dismissed

A search and seizure operation under section 132 was carried out on 3-9-2014 at business and residential premises of a group of company in which assessee was one of members. Assessee initially declared certain loss for relevant year but when AO, confronted assessee with audited financial statements for concerned period, assessee revised its return and declared certain profits. AO therefore, imposed penalty under section 271(1)(c) on assessee for concealing particular of its income and for furnishing inaccurate particulars of such income. On appeal, CIT(A) held that no penalty could have been imposed on assessee under section 271(1)(c) as penalty on assessee could have been imposed under section 271AAB. On further appeal, Tribunal sustained order of CIT(A). On appeal at the instance of the Revenue, the High Court held:

Where a search under section 132(1) was initiated on or after 1-7-2012, penalty would be leviable on undisclosed income at rate and conditions specified under section 271AAB(1). The said provision excludes applicability of section 271(1)(c), if undisclosed income pertains to specified previous year. The case of assessee was squarely covered by section 271AAB as search was conducted on 3-9-2014 i.e., Therefore, order passed by CIT(A) was in accordance with law and Tribunal rightly affirmed same.

PCIT v. Jai Maa Jagdamba Flour (P.) Ltd. [2023] 293 Taxman 102 (Jharkhand)

312. S. 270AA. Immunity from imposition of penalty, etc. – application by assessee –opportunity of hearing must be given before rejecting application

Under the proviso to sub-section (4) of section 270AA of the Income-tax Act, 1961 the assessee must be given an opportunity of being heard before an application is rejected.

Concededly, the said application was filed after the delay of 48 days. The petitioner claimed that the delay in filing of the application under section 270AA of the Act was on account of some technical glitches in the portal which prevented the said application from being uploaded within time.

The Assessing Officer rejected the assessee’s application under section 270AA(2) for immunity from penalty under section 270A on the ground that it was barred by limitation. Petitioner submited that there was a valid explanation for the delay and the impugned order is liable to be set aside on the ground that the petitioner had not been afforded an opportunity of being heard.

Held, that the order rejecting the assessee’s application under section 270AA(2) was set aside for non-compliance with

The matter was remanded to the Assessing Officer for reconsideration after hearing the assessee. [Matter remanded.](W.P.(C) NO. 3059 OF 2023 dt. 14.03.2023) (AY. 2020-21)

Rohit Kapur v. Pr. CIT and Anr. (2023)454 ITR 198 (Del)

313. S. 271(1)(c) : Penalty – Concealment – No opportunity to be heard – penalty notice quashed – opportunity to be heard.

The Penalty notice was issued under section 274, in conjunction with section 271(1)(c), on 28- 11-2022 at 2:40 p.m., requesting the Assessee to appear in person or through a duly authorized representative the very next day, i.e., on 29-11- 2022. Due to the impracticality of appearing in person within 24 hours, an adjournment was requested. However, the AO passed a penalty order under section 271(1)(c) of the Act and issued the demand notice under section 156, levying the penalty. The sole ground for challenge is the violation of the principles of natural justice.

The Court held that there was a serious flaw in providing the opportunity for a hearing to the Assessee, leading to the imposition of a substantial penalty, without giving due consideration to the adjournment request. As a result, the Court quashed the order and directed the AO to provide an opportunity for a hearing.

Checkmate Services (P.) Ltd. v. ACIT [2023] 293 Taxman 189 (Gujarat)(HC)

314. S. 276B: Offences and prosecutions – Criminal proceedings quashed where assessee had deposited TDS along with interest before initiation of prosecution more so where the delay to deposit and the amount of TDS was not substantial

High Court quashed the criminal proceedings initiated against the assessee under sections 276B and 278B of the Act. High Court took into account the fact that though there was some delay in depositing TDS, apart from one or two cases, the deducted amounts were not more than Rs. 50,000. High Court further noted that TDS amounts in all these cases were deposited by the assessee along with interest. High Court further took into consideration Instruction F. No. 255/339/79-IT(Inv.) dated May 28, 1980, issued by the Central Board of Direct Taxes which states that prosecution under section 276B of the Act shall not normally be proposed when the amount of tax deducted at source involved or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of the Government. High Court observed that continuation of proceedings would amount to an abuse of the process of the Court. (AY.: 2017-18)

Dev Multicom Pvt. Ltd. and Anr. v. State of Jharkhand and Anr. (2023) 454 ITR 48 (Jhar) – (SLP filed by the department against this judgment has been dismissed by the Supreme Court (454 ITR 59))

315. S. 276B, r.w.s 278B: Offences and prosecutions – Failure to pay the t tax deducted at source – AO lodged a complaint against directors of a company alleging that they had committed default by failing to pay TDS collected from parties and said default amounted to an offence punishable u/s 276B r.w.s 278B and Magistrate passed an order issuing process against directors then no interference can be called for by High Court in such order of issuance of process.

Dismissing the Writ of the assessee, the High Court observed that the AO has lodged a complaint against assessee-director and others alleging that above persons being responsible for paying TDS collected had committed a default by failing to pay TDS, without reasonable cause, from payments made to parties and said default amounted to an offence punishable under section 276B read with section 278B. Subsequently, Magistrate passed an order issuing process against assessee and others. The High Court based on above observations, held that, since sanction order and CIT’s order indicated prima facie application of mind by statutory authorities before initiation of complaint and AO had made out a sufficient case for proceeding against assessee no interference was called for in order of issuance of such process. (AY 2017-18)

Petrus Lambertus Maria Hermans v. ACIT (TDS) (2023) 293 Taxman 176 (Bombay)(HC)

316. S. 292B rws 143/144C/147: – AO passed final assessment order without DIN

Dismissing the appeal of the Revenue, the High Court held that the object and purpose of the issuance of the Circular No. 19/2019 dated 14.8.2019, as indicated hereinabove, inter alia, was to create an audit trail. Therefore, the communication relating to assessments, appeals, orders, etc which find mention in paragraph 2 of such Circular, albeit without DIN, can have no standing in law having regard to the provisions of para 4 of the such Circular. Further, the Court observed that no recourse can be taken to Section 292B of the Act, having regard to the phraseology used in paragraph 4 of such Circular (AY 2011-12).

CIT (IT) v. Brandix Mauritius Holdings Ltd (2022) 293 Taxman 385 (Delhi)(HC)

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

317. S. 10(1):Undisclosed Foreign Income or Assets – No Evidence of undisclosed Foreign income – – High Court can quash a notice if issued without jurisdiction – Interpretation of Taxing Statutes – Strict Interpretation [S. 8(1), 8(2), Income-tax Act, S. 132, 232(4), 153A, Art. 226 Constitution of India)

Held, that a charge/set aside by a judicial forum cannot be reopened in parallel proceedings. The authority under the 2015 Act had alleged several transactions listed therein as illegal transactions. A careful perusal of the notice clearly indicated that the authority under the Act had prejudged and formed an opinion that the petitioner was the beneficial owner of Romulus Assets Ltd (RAL) This contention of the Revenue had not been accepted by the Tribunal which held that the Assessing Officer had not discharged the burden to prove that the petitioner was the beneficial owner of RAL.

(Jitendra Virwaani v. Dy .CIT (2022)28 ITR (Trib) -OL 435 (Bang.) At least a portion of the notice was based on the allegations set aside by the Tribunal. Therefore, the notice was not valid. Strict rules of interpretation will have to be followed while dealing with fiscal statutes. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of tax Act, 2015 has been enacted to deal with the problem of undisclosed foreign income and assets. Penalties defined in Chapter IV and the punishments described in Chapter V, entail serious consequences. It is settled that when a citizen is called upon to answer a statutory notice, such notice must be clear and unambiguous; describe the violation committed by the noticee, the material relied upon by the statutory authority, to enable the noticee to submit his defence. (AY. 2022-23)

Jitendra Virwani v. Jt.CIT (NO. 2) (2023)453 ITR 342 / 330 CTR 34/ 220 DTR 433 (Karn)( HC)

Editorial : Jitendra Virwani v. JTCIT (NO. 1) (2023)453 ITR 323 / 330 CTR 747/ 220 DTR 445 (Karn)(HC). Decision of the single judge reversed.

318. S. 10(1):Undisclosed Foreign Income or Assets – Interpretation – Fiscal statutes and in determining the tax liability, strict rules of interpretation – Notice issued beyond 30 Days of receiving information- Search and seizure – Response not filed – Enquiry cannot be truncated at stage of issue of notice – Guidelines issued by Central Board Of Direct Taxes – Information and Intelligence – Notice is valid – Writ petition is dismissed.[S. 8(1), 8(2), Income-tax Act, S. 132, 232(4), 153A, Art. 226]

Against the issue of notice under section 10(1) of the Act, the assessee filed the writ petition. Dismissing the petition the Court held that, the settled proposition is that in construing fiscal statutes and in determining the tax liability, strict rules of interpretation will have to be followed without adding or importing significance beyond the language used in such statutes. In view of the scheme under section 10 and the express provisions of section 8(2) the contention of the assessee that the provisions of section 8 of the 2015 Act would indicate a distinct and separate enquiry on the “jurisdictional fact” from an enquiry contemplated under section 10 of the 2015 Act would be a contrived reading. Therefore, the Assessing Officer must necessarily decide on the “jurisdictional fact” whether the assessee could be called a beneficial owner of the specified undisclosed asset considering the material that the assessee produced and there would be sufficient opportunity to the assessee to produce further documents. That the question of issuance of notice under section 10(1) of the 2015 Act being beyond the period of thirty days, and therefore the need for approval from the concerned authority would have to be decided on the basis of paragraph 6 of the guidelines issued by the Central Board of Direct Taxes which made a distinction between information and intelligence. In so far as information is concerned, the guideline is categorical that it could be information received from other law enforcing agency (which would include the Income-tax authorities) unearthed during search or survey or other investigation. The notice was categorical that information in the assessee’s case was received on a reference by the Joint Commissioner. The contention that the Assessing Officer should be presumed to have had information of the transaction could not be drawn at this stage to truncate the enquiry. Therefore, it could not be opined that the notice was issued beyond thirty days from the date of information and therefore prior approval ought to have been obtained. It was a detailed notice and there were multiple references to different transactions between and amongst Romulus Assets Ltd (RAL) and other entities. The notice also referred to certain minutes of meetings and instances of payments with necessary documents illustrated. The transactions were multi-fold and when the assessee was yet to file a response and produce documents, accounts and evidence and the Assessing Officer was yet to consider those materials it could not be held that the notice lacked in material details or did not consider material circumstances, including the orders of the Tribunal. The notice under section 10(1) of the 2015 Act was sustainable. (AY 2022-23)

Jitendra Virwani v. JTCIT (NO. 1) (2023)453 ITR 323 / 330 CTR 747/ 220 DTR 445 (Karn)(HC)

Editorial : Jitendra Virwani v. Jt.CIT (NO. 2) (2023)453 ITR 342 / 330 CTR 34/ 220 DTR 433 (Karn)( HC), order of single judge reversed.

 

The Kar Vivad Samadhan Scheme, 1998 (Chapter IV of the Finance (No. 2) Act,1998)

319. S. 88: Settlement of tax payable – Notice of demand – Petition against notice of demand – –Summary dismissal – No dues – Certificate under Kar Vivad Samadhan Scheme – Order of High Court not stating facts or adverting to contentions of parties – Order set aside. [S. 92, ITACT, S. 156, Art. 136, Art. 226]

High Court dismissed the assessee’s writ petition, against the demand raised by the Revenue. On a petition for special leave to appeal to the Supreme Court claiming that the assessee had taken the benefit of the Kar Vivad Samadhan Scheme, 1998 which was accepted by the Department and a “no dues” certificate was issued for the relevant period, but that nevertheless the Department sought to reopen the same issues, and that therefore he had filed the writ petition. High Court dismissed the petition. The Court held that no reply or counter affidavit was filed in the writ petition. The order barely contained any reason much less the facts or advertence to the contentions of the parties. The order was accordingly set aside. The High Court shall proceed to hear and dispose of the writ petitions on the merits expeditiously.

R. P. Gupta v. CIT (2023) 453 ITR 739 (SC)

Editorial: Order in R. P. Gupta v. CIT (All)(HC) (WT No. 888 of 2018, WT No.889 of 2018 dt. 25-7- 2018) set aside.

320. Interpretation of taxing statutes – Interpretation which effectuates object and purpose of statute preferred. Amendment by substitution – Rule against retrospectivity. [S. 153C]

Court held that while interpreting machinery provisions of a taxing statute, the court must give effect to its manifest purpose by construing it in such a manner as to effectuate the object and purpose of the statute. Once the primary intention is ascertained and the object and purpose of the legislation is known, it becomes the duty of the court to give the statute a purposeful or a functional interpretation. The ascertainment of the legislative intent is a basic rule of statutory construction and a construction should be preferred which advances the purpose and object of a legislation.

ITO v. Vikram Sujitkumar Bhatia (2023) 453 ITR 417/ 293 Taxman 4/ 332 CTR 1/ 224 DTR 217 (SC)

Benami Transactions (Prohibition) Act, 1988

321. S.2(9): Benami Property Transactions – Amendment of Act in 2016 Provisions are substantive – Not applicable with retrospective effect – The amendments to the Prohibition of Benami Property Transactions Act, 1988 brought by the Benami Transactions (Prohibition) Amendment Act, 2016 do not have retrospective effect.[S. 2(9)(A) (2(9)(C), Art, 20, 136, 226]

On a petition for special leave to appeal from the decision of the High Court holding that section 2(9)(A) and (C) of the Benami Transactions (Prohibition) Act, 1988 as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 can only have effect prospectively, and that the Central Government having notified the date of coming into force of the Amendment Act of 2016 as November 1, 2016, these two provisions could not be applied to a transaction which took place prior to November 1, 2016. The Court held that the amendments to the Prohibition of Benami Property Transactions Act, 1988 brought by the Benami Transactions (Prohibition) Amendment Act, 2016 do not have retrospective effect. Followed, UOI v. Ganpati Dealcom Pvt Ltd. (2022) 447 ITR 1008 (SC)

ACIT v. Nexus Feeds Ltd (2023)453 ITR 459 (SC)

Editorial: Nexus Feeds Ltd v. ACIT (2022) 444 ITR 261 (Telangana) (HC), affirmed.

322. S. 5: Property held benami liable to confiscation – Benami property – Benami transactions – Benami Transactions – Attachment, adjudication and confiscation – Sections 3 and 5 which deal with criminal offences applicable effective only from 25-10-2016- Provisions are prospective. [S.2 (8), 2(9), 3, 24]

Held that Supreme Court in UOI v. Ganpati Dealcom Pvt. Ltd. [2022] 447 ITR 108 (SC) has laid down certain guidelines on the applicability of the Benami Transactions (Prohibition) Amendment Act, 2016. By the Amendment Act of 2016, a criminal offence was introduced in the form of section 3 and section 5 of the Act. The Supreme Court held that the amendment would be effective only from October 25, 2016.Accordingly, that in view of the undisputed fact that the transactions in question in these cases were of a period prior to 2016, the amendment to the Act made in the year 2016 would not be applicable. Therefore, the notices under section 24 of the Benami Transactions (Prohibition) Act, 1988 were not sustainable in law hence quashed.

Banamali Das v. Dy. CIT (2023)453 ITR 569 (Gauhati)(HC) Ganesh Chandra Das v. Dy. CIT (2023)453 ITR 569 (Gauhati)(HC) Ganesh Chandra Das. v. Dy. CIT (2023)453 ITR 565 (Gauhati)(HC) Salien Das v. Dy. CIT (2023)453 ITR 569 (Gauhati) (HC)

323. S. 24: Notice and attachment of property involved in benami transaction – Benami Transactions – Change in Law – Transactions Relating to Financial Year 2014-15 Prior to Amendment on 25-10-2016 – Amendment To Have Effect Only Prospectively – Notices, Orders For Provisional Attachment And Adjudicating Orders Unsustainable – [Prohibition of Benami Property Transactions Act, 1988; S, (4)(A)(I), 26(3)]

The decision of the Supreme Court in UNION OF INDIA v. GANPATI DEALCOM PVT. LTD. [2022] 447 ITR 108 (SC) is binding on all courts, Tribunals and authorities throughout the country. The question, which was considered by the Supreme Court was whether the Prohibition of Benami Property Transactions Act, 1988 as amended by the Benami Transactions (Prohibition) Amendment Act, 2016 has a prospective effect. The Supreme Court held that section 3 (criminal provision), section 2(a) (definition clause) and section 5 (confiscation proceedings) are overly broad, disproportionately harsh and without adequate safeguards. Though such provisions were in a dormant condition, the Supreme Court declared sections 3 and 5 as unconstitutional from the inception and observed that once sections 3 and 5 were declared as unconstitutional, it would mean that the Amendment Act of 2016 would in effect create new provisions and new offences as the offences under section 3(1) for the transactions entered into between September 5, 1988 (when the original Act received the Presidential assent) and October 25, 2016 (when the Amendment Act of 2016 was notified), the law cannot retroactively invigorate a still-born criminal offence. Thereafter, it was held that the Amendment Act of 2016 containing criminal provisions would be applicable only prospectively. The Supreme Court has declared that the Amendment Act of 2016 is not merely procedural but prescribes substantive provisions. Therefore, the authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Amendment Act, i. e., October 25, 2016. As a consequence, all such transactions or confiscation proceedings shall stand quashed. The Supreme Court has also clarified that in rem forfeiture provision under section 5 of the Amendment Act of 2016 being punitive in nature can only be applied prospectively and not retroactively.

On writ petitions challenging notices issued and the order passed by respective authorities in respect of the fixed assets accrued during the financial year 2014-15 prior to October 25, 2016, the Honourable Court held, allowing the petitions, that in view of the finality of the law declared by the Supreme Court, the notices issued under section 24(1) of the 1988 Act, the provisional attachment orders and the adjudicating orders under section 26(3) and under section 24(4)(b)(i) passed by the various authorities under the 1988 Act as amended by the Amendment Act of 2016 were unsustainable accordingly quashed and set aside.(W.P. NOS. 33191, 33195 & 33198 OF 2022 & OTHERS dt.13.09.2022)(AY.: 2015-16)

[Note: SLP dismissed against impugned order of High Court in ACIT v. Neopride Pharmaceuticals Ltd. [2023] 454 ITR 580 (SC) (21-04-2023)]

Neopride Pharmaceuticals Ltd. v. Adjudicating Authority and Ors. (2023)454 ITR 571 (Telangana)

Direct Tax Vivad Se Vishwas Act, 2020

324. Vivad Se Vishwas – Legacy Dispute Resolution – Declaration under Scheme – Time For payment of tax – Entire tax not paid within stipulated time though certain amounts were paid – Part of tax already paid neither forfeited nor adjusted towards any outstanding demand – Benefit of Scheme cannot be denied – Department to give credit to tax already paid and issue fresh Form 3 – Assessee entitled to refund if any.

The assessee with a view to seek benefit under the Income Declaration Scheme, 2016, filed form 1 for the AY. 2016-17 disclosing undisclosed income of Rs. 15,50,000. The assessee was issued an acknowledgment in form 2 requiring the assessee to pay an amount of Rs. 6,97,500. The assessee deposited Rs. 3,48,752 but could not deposit the balance amount. A notice dated March 30, 2018 under section 148 of the Income- tax Act, 1961 for the AY. 2016-17 was issued pursuant to which an order of assessment was passed. The assessee applied for credit of the taxes paid but the same was not given by the department. On a writ petition:

Held, allowing the petition, that the amount deposited by the assessee under the 2016 Scheme could not have been forfeited as it had neither been refunded nor adjusted. It was not a case where the assessee had failed to make the payment within the time prescribed under the 2020 Act which would result in denying the benefit of the Scheme but a case where the money which was lying in the corpus of the Department had only to be adjusted by way of a mathematical exercise and benefit accorded to the assessee under the 2020 Act. After adjusting the amount earlier deposited, the assessee would be entitled to refund which would accordingly be considered for payment. .

The respondents were to issue a fresh form 3, after giving to the assessee credit of the amount paid under the 2016 Scheme and the balance amount, if any, be refunded. (Writ Petition No. 4119 OF 2022 Dt.04.05.2023)(AY.: 2016-17)

Sunil Wamanrao Sakore v. UOI and Ors. (2023) 454 ITR 659 (Bom)

325. S. 5 r.w.s 4 of the Direct Tax Vivad Se Vishwas Act, 2020: Time and manner of payment – Assessee submitted Forms 1 and 2 under the DTVSV Act, however balance tax paid by assessee was short by Rs. 300 – Since short payment was an inadvertent error on part of assessee, the PCIT was directed to accept balance payment and issue Form 5.

Allowing the Writ of the assessee, the High Court held that since payment which was required to be paid in terms of Form 3 was short only by Rs 300, this clearly appeared to be an inadvertent error on part of assessee which was neither deliberate nor intentional, hence PCIT is directed to accept balance payment of Rs 300 with interest and issue Form 5 in terms of Scheme (AY 2013-14).

Kartik Pravinchandra Mehta v. PCIT (2023) 293 Taxman 81 (Bombay)(HC)