- S. 32: Depreciation – Allowance (Owner) – payment of lease amount to its holding company in respect of certain assets taken on lease, since the lessor had shown lease rent as income under head ‘business income, lease payment made by the assessee to be allowed as deduction.The issue involved was the payment of the lease amount to its holding company, in respect of whether certain assets taken on lease are allowable or not.
The Assessing Officer held that it was not eligible for deduction of lease rentals since the assessee was the real owner of assets and it was a finance lease which was towards the cost of asset and interest thereon. The tribunal allowed the claim of the assessee on the ground that the lessor had shown lease rent as income under the head ‘business income’ and the issue had been consistently decided that assets were owned by the lessor. The High Court while deciding the issue observed that coordinate bench in Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2013] 356 ITR 460 (Guj.)(HC) had held lessor to be the owner of assets, thus, eligible for depreciation. Hence, the High Court in the present case held that lease payment made by the assessee to its holding company to be allowed as a deduction. CIT v. Narmada Chematur Petrochemicals Ltd. Tax Appeal No. 1037 of 2013, dt.28/01/2014, (Guj)(HC)
The Revenue filed SLP, and the Honourable Supreme Court dismissed the same stating that, once the lessors are held to be the owners and are entitled to depreciation, the Revenue thereafter cannot be permitted with respect to the same transaction, the Assessee being the lessee are the owners and are entitled to depreciation.
CIT v. Narmada Chematur Petrochemicals Ltd. SLP (C) NO(S). 25547 of 2014, 20/01/2023 [2023] 292 Taxman 2 (SC).
- S. 37: Business Expenditure – failed to prove the claim of commission payment, disallowance of business expenditure rightly disallowed.The controversy involved was that, during the Assessment, the Assessing Officer disallowed commission expenditure stating that the commission paid was comparatively higher than normal trade and parties to whom the commission was paid, failed to appear before the Assessing Officer for verification and inquiry. The appeal before the CIT(A) and ITAT was also rejected. Before the High Court the Assessee submitted that, in all the previous years, especially in the last three years, similar commission expenditure was claimed and though the disallowance was made, it was only marginal. The foundation for disallowance of 100% in respect of the commission paid to ten parties, was entirely arbitrary, since all the relevant documents, such as ITR, the amount paid as well as the documentary evidence pertaining to each party were made available. The mere circumstance that three parties sent their representatives, despite repeated summons to ten of them and that small discrepancies were found in the explanation and documents given by such three parties, is tenuous and arbitrary. Material on record showed that the discharged the burden of showing that the payments were made to its agents through banking channels, and as such, the presumption of regularity attached to them.
The Court observed and held that the issue of disallowance has been consistently and concurrently ruled against the assessee. The assessee did not produce a single witness. Summons were issued to ten witnesses under section 131. Three parties from the list replied. None of these individuals, in fact, appeared before the Assessing Officer for verification and inquiry. Even the replies by the three parties were unsatisfactory. The commission claimed, was not supportable in law and therefore, disallowed the deduction claimed, the only ground on which the court could, if at all entertain the appeal is that the basis for such disallowance was entirely non-existent. The rule of consistency did not bar the revenue authorities from carrying out their task independently and they did discharge in respect of the assessment in question. Shree Govind Buildneed (P.) Ltd. vs. ACIT, ITA No. 24 of 2019 dt.16/07/2019 (Rajasthan)(HC)
The Assessee filed SLP, and the Honourable Supreme Court dismissed the same stating that the petitioner has been unsuccessful in proving the commission of which the disallowance was claimed.
Shree Govind Buildneed (P.) Ltd. v. ACIT, SLP (C) No (S). 1297 of 2023 [2023] 452 ITR 212 (SC)
- S.54: Capital gain – Profit on sale of property used for residence – not only the cost of construction of new property incurred after the sale of the old property would be eligible for exemption, also the cost of land on which new property was constructed, even if such land had been purchased three years prior to the sale of the old property also eligible.The assessee purchased the property with superstructure thereon, thereafter the assessee sold a residential house property and earned a capital gain on the sale of said property. The assessee thereafter demolished the existing superstructure on purchased land and constructed a new residential house within a period of three year from the date of sale of the old property. Thus, the assessee claimed the entire long-term capital gain as an exemption from tax under section 54. The view of the Assessing Officer was only construction expenditure incurred after the sale of the original asset would be eligible for exemption under section 54 not cost of land and thus, cost of construction incurred after the sale of the original asset was allowed as relief under section 54. The commissioner appeals and Tribunal also confirmed the same. The High Court observed that, what has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour, and any other cost relatable to the acquisition and/or construction of the residential house. Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of a new residential house. And held that cost of a new residential house would necessarily include the cost of land, the cost of materials used in construction, the cost of labour, and any other cost relatable to the acquisition and construction of a residential house. Therefore, not only the cost of construction of new property would be eligible for exemption but also the cost of land, even if such land was purchased three years prior to the sale of the old property. C. Aryama Sundaram v. CIT, Tax Case (Appeal) No. 520 of 2017, 06/08/2018 [2018] 407 ITR 1 (Madras)(HC)
The revenue filed SLP, the Honourable Supreme Court dismissed the same due to low tax effect. Hence, the view of the High Court for merits is concerned stands affirmed that is cost of construction of new property after sale of old property as well as cost of land on which new property was constructed, even if such land had been purchased three years prior to the sale of an old property is eligible for exemption under section 54(1).
CIT v. C. Aryama Sundaram, SLP (C) No (S). 5998 of 2019 dt.24/01/2023 [2023] 292 Taxman 71 (SC)
- S. 80HHC: Deduction cannot be reduced to the extent when it has already been allowed under section 80 – IB.The issue before the high court was assessee had claimed a deduction under sections 80HHC and 80-IB and said the claim was allowed accordingly by the assessing authority. However, the CIT (A) noted that deduction under section 80HHC was allowed without reducing therefrom deduction u/s. 80-IB as per section 80-IB (13) and 80-IA (9) and invoking the provisions of section 263 he directed the Assessing Officer to re-compute the total income of the assessee keeping in view the provisions of section 80-IB (13) read with section 80-IA (9). The Tribunal also confirms the order of the CIT (A). The High Court held that, when provisions of section 80-IB (13) are read in conjunction with section 80 – IA (9), it becomes clear that deduction under section 80HHC is to be computed on the eligible business profits only after reducing therefrom the portion of the profit on which deduction has already been availed by the assessee under this section i.e. 80- IB. In other words, if an assessee has claimed a deduction of profit or gains under section 80-IB, a deduction to that extent is not to be allowed under section 80HHC. Broadway Overseas Ltd. v. CIT, [2014] 223 Taxman 218 (Punjab & Haryana) (MAG)(HC)
The Assessee filed SLP, and the Honourable Supreme Court dismissed the same stating that if an Assessee has claimed a deduction of profit or gains under section 80-IB, deduction to that extent is not to be allowed under section 80HHC.
Broadways Overseas Ltd. v. CIT, SLP (C) No (S). 16293 of 2015 dt.20/01/2023, [2023] 292 Taxman 33 (SC)
- S. 147: In the absence of new facts coming to the knowledge of the Assessing Officer subsequent to original assessment proceedings, reopening of assessment based on the same materials was a change of opinion, and reassessments quashed.The controversy involved was that the assessment for the year under consideration was completed under section 143(2). Subsequently, a reopening notice was issued against assessee to reconsider issues of allowability of deduction of mark-to-market loss on restatement of outstanding forward contracts, disallowance of repair and maintenance pertaining to computer software, ‘computation of long-term capital loss’ to be carried forward for future set-off, and deduction of unrealized short-term capital gains. During the reassessment proceedings, the assessee submitted objections for reopening notice but the Assessing Officer dismissed the same. On the said issue assessee filed a writ before High Court, but the Single Bench dismissed the petition on the ground that if the reasons furnished for the reopening of the assessment provided any new information or material based on a different dimension, which was not considered by the original authority, then the reopening of assessment was permissible. Against the said decision of the single bench, the Assessee filed a writ petition before the division bench. The division bench observed that, the finding rendered by the Single Bench does not reflect the correct legal position.
By referring to the decision of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 wherein, it has been held that one needs to give a schematic interpretation to the words “reason to believe”, failing which, section 147 of the Act would give arbitrary powers to the Assessing Officer to reopen the assessment on the basis of mere “change of opinion”, which cannot be per se reason to reopen. The legal position that can be culled out from those decisions is that “reason to believe” shall be supported by new material facts, which come to the attention of the Assessing Officer, and shall not be a re- appreciation of the facts already available at the time of passing the original Assessment Order. The High Court observed that while disposing of the objections did not examine any of these aspects, but merely observed that the Assessing Officer nowhere left the traces for verification of the issues and, therefore, it does not tantamount to a change of opinion. The finding given by the Assessing Officer is wholly unsustainable. Held that grounds on which the assessment reopened had been verified by Assessing Officer, while completing the assessment under section 143(3) and no new material came to the knowledge of the Assessing Officer subsequent to original assessment proceedings, reopening on the same set of facts, this is a case of change of opinion and, therefore, not permissible. Cognizant Technology Solutions India (P.) Ltd. vs. ACIT, [2021] 439 ITR 571 (Mad)(HC)
The revenue filed an SLP, the Honourable Supreme Court dismissed the same stating that, a reopening notice was issued on assessee on the issue of allowability of deduction of mark- to-market loss on restatement of outstanding forward contracts since the said issue was already verified by the Assessing Officer while completing assessment under section 143(3) and no new material came to the knowledge of Assessing Officer subsequent to original assessment proceedings, such reopening based on the same set of facts which were available during the regular assessment, this is being a clear case of change of opinion, hence not permissible in law.
Jt. CIT v. Cognizant Technology Solutions India (P.) Ltd. SLP (C) NO(S). 92 of 2023 dt.03/01/2023. [2023] 452 ITR 224 (SC)
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