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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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