1. S. 2(7): Assessee – Financial Company – revenues’ failure to explain under which clause the assessee is a financial company.

Where the Ld. AO held that the assessee company was a financial company as per section 2(5B) of the Act. The Revenue did not set out as to which sub clause is attracted in the case of the assessee. Matter remanded back.

Dadha Pharma (P) Ltd. v. Income-tax Officer [2022] 442 ITR 93 (Mad)

2. S. 2(15) : Charitable purpose

– Merely because assessee- association earned revenue from testing automobile parts and consultancy services, it could not be said that it was not charitable in nature

Dismissing the appeal of the Revenue, the High Court held that though the AO has held that the assessee-association has various source of income from commercial activities, yet this Court finds that Appellate Authorities i.e. CIT(A) and ITAT have held that the assessee- association has not been earning any profit as the main object of the assessee-association is to improve the public transport system in the country and the road safety standards. Undoubtedly, the activities of laboratory testing and consultancy are bringing revenue to the assessee-association but the intent of such activities is not to earn profit for its shareholders / owners. Consequently, this Court is in agreement with the findings of the CIT(A) and ITAT that the assessee-association does not carry on any business, trade or commerce with the intent of earning profit.

(ITA No. 154 of 2021, dt. 30-09-2021) (AY 2009- 10)

CIT (Exemptions), Delhi v. Association of State Road Transport Undertakings (2021) 132 taxmann.com120 (Del) (HC)

3. S. 2(15) r.w.s 11 : Charitable purpose – Property held for charitable purposes – Assessee, a non-profit entity, being awarded a contract by RBI to construct a museum and by SMC to build 5 galleries on textiles, astronomy, space, etc, can be said to have disseminated knowledge in the process of building such museum and 5 galleries and hence such activities amounted to imparting “education” within the meaning of Sec. 2(15) of the Act.

Allowing Assessee’s appeal it was held by the High Court that:

-the Tribunal ought to have looked into the main objects of the Assessee-Company which is a non-profit entity established under the Ministry of Culture, Government of India, rather than straightaway proceeding to take note of the objects incidental or ancillary to the main objects. It is elementary principle that anything incidental or ancillary to main object has to be read along with and in conjunction with main object and incidental objects cannot be read in

-In present case, the RBI proposed to establish a museum and financial

literary center in Kolkata to explain the development of the monetary system and to exhibit its collection of ‘arte facts’. The same would be also for the project which was conceived by the Surat Municipal Corporation (SMC) proposing to build 5 galleries for astronomy, space, etc. Hence, the finding of lower authorities as well as the Tribunal is erroneous as the museum is conceptualised by the Assessee and all necessary inputs including training of personnel who are to man the museum or to function as a curator are all the task assigned to the Assessee. All these would clearly fall within the objects of the Assessee-company. (ITAT No. 19 of 2021, IA No. GA/1/2021, dt. 10-02-2022) (AY 2013-14 to AY 2015-16)

Creative Museum Designers v. ITO, Exemptions (2022) 139 taxmann.com 451 / 443 ITR 173 (Cal) (HC)

4. S. 4 : Charge of income-tax – Unutilized funds of project were invested by Assessee-Government Company in fixed deposits and mutual funds as per directions of Government – Since interest accrued therefrom had to be utilized only for purpose of Scheme, it could not be counted as income of Assessee and could not be considered as revenue receipt.

On appeal, the High Court held that the

Assessee had received funds during the year for project from Government and the unutilized funds of project, before commencement of functional operation of project were to be invested by Assessee in fixed deposits and mutual funds as per directions of Government vide Government Order dated 25-03-2008. Such order stated that the income generated out

of earlier release of State Government for its project would have to be converted into State’s equity towards the project and the same cannot be counted as income of BMRCL. Thus, there is no profit motive as the entire fund entrusted and the interest accrued therefrom has to be utilized only for the purpose of scheme. Thus, it has to be capitalized and cannot be considered as revenue receipts and therefore could not be counted as income of Assessee. (ITA Nos. 117 and 118 of 2015, dt. 23-11-2021) (AY 2007-08 and AY 2008-09).

CIT v. Bangalore Metro Rail Corpn. Ltd. (2022) 135 taxmann.com 268 /285 Taxman 491 / 441 ITR 113 (Kar) (HC)

5. S. 5: Scope of total income – accrual – retention money – reopening of assessment on the ground of excess deduction of retention money on work-in- progress by assessee – justified. [Section 147]

In the present case, the Hon’ble court held that the reasons furnished for reopening of the assessment was on identification of incorrect claim and reduced income and also the issue of retention money was not considered by the Assessing Officer in the original assessment order. Further, once the Department could able to establish that reopening of assessment is made based on the new materials or with reference to the information which were not truly and correctly provided by the assessee at the time of original assessment, then power under section 147 of the IT Act can be invoked. Amended provision of section 147 of the IT Act provides wider power to the Assessing Officer to reopen the assessment. Only when the adjudicated issues are sought to be reopened, then alone the Court can form an opinion that the case would fall under change of opinion and not otherwise (A.Y. 2011-12)

Note: This decision is reversed by the division bench of the Hon’ble Kerala High Court in (2021) 439 ITR 600 (Mad)

M/s. S. Subrahmanyan Constructions Company Private Limited (Rep., by its Director, R. Sankar) Vs. Assistant Commissioner of Income Tax (2022) 324 CTR 0282 (Mad), (2021) 439 ITR 589 (Mad)

6. S. 5: Scope of total income – Method of accounting.

Assessee, engaged in the business of running chits offered its income on a completed contract basis under the mercantile system of accounting, i.e., at the end of every chit. The AO opined that the assessee gets a right to receive its income at the time of auction and, therefore, income should be taxed on a proportionate contract basis. Held that the assessee was right in offering its income on a completed contract basis as per Accounting Standard 9 as it cannot claim its commission at the time of auction until the expenses have been incurred. It was further held that the entire transaction was in any event, tax neutral. (A.Y. 1991-92)

Shriram Chits and Investments (P.) Ltd. v. Assistant Commissioner of Income-tax and others (2022) 442 ITR 54 (Mad)

7. S. 10(5) : Travel concession or assistance – Exemption confined to amount of Air economy fare by shortest route by National carrier – Exemption not available in respect of travel to Foreign country as part of journey to destination in India.[S. 133A,182, 201(1), 201(1A), R. 2B]

Dismissing the appeal the Court held that exemption confined to amount of Air economy fare by shortest route by National carrier. Exemption not available in respect of travel to foreign country as part of journey to destination in India. For failure to deduct ta at source the assessee is treated as assessee in default and held liable for interest. (AY.2011-12, 2012-13, 2013-14)

State Bank of India v. ACIT (TDS) (2022)442 ITR 363 (Karn)(HC)

8. S. 10(5) : Travel concession or assistance – Leave with a foreign leg.

Exemption is available only when the employee goes on a leave to any place in India. Where there is a foreign leg in the overall leave, no exemption could be granted. (A.Y. 2012-13 and 2013-14)

State Bank of India v. Assistant Commissioner ofIncome-tax (TDS) (2022) 442 ITR 363 (Karn)

9. S. 10B : The taxpayer engaged in purchasing different varieties of tea and blending and packing the same for export cannot be considered activities undertaken that would amount to manufacture and hence would not be entitled to claim exemption u/s. 10B.

The taxpayer, a 100% export oriented unit was engaged in purchasing tea of different varieties in bulk and cleaning, testing, blending and then packing the same for export. Such activities of blending the tea, etc. would not amount to manufacture and the taxpayer would not be entitled to claim exemption u/s. 10B. (ITA No.129 of 2016, IA No.GA/1/2016) (AY. 2002-03 to 2005-06)

PCIT vs. V. N. Enterprises Ltd. (2021) 439 ITR 624/ 284 Taxman 612 / 211 DTR 25 (Cal.)(HC)

10. S. 10(10B) : CompensationWorkman – Retrenchment

compensation v. VRS – The monetary-benefits under special package scheme (approved by Central Govt) given to employees of Government company, which is under winding up, would be in the nature of retrenchment compensation u/s 10(10B) even though it was styled as VRS.

The High Court affirmed the view taken by the Ld Single judge by stating that this Court has no hesitation to hold that the package having been received by the workmen as compensation pursuant to the decision taken by the Central Government to offer special protection to the employees of HPF, the same stands exempted from deduction to income tax as the compensation which is received by the workmen would fall within the definition of compensation found in Explanation to Section 10 (10B) of the Act. (W.A. Nos. 741 to 746 of 2018

C.M.P. Nos. 7139 to 7143 of 2018, dt. 01-07-2021)

CIT(TDS), Chennai v. Hindustan Photo Film Workers’ Welfare Centre (CITU) (2021) 129taxmann.com 356 /282 Taxman 186 / 441 ITR 661 (Mad) (HC)

11. S. 11 : Property held for charitable purposes – When the Assessee- trust has received donations for specific purposes with specific directions by donors along with signatures of such donors, then such receipts are to be treated towards corpus donations.

Dismissing the appeal of the Revenue, the High Court held that it can be seen that the CIT(A) and the Tribunal after detailed examinations had come to the conclusion that the Assessee-trust was maintaining separate receipts for corpus donations and for the donations received for general purposes. The receipt maintained for corpus donations shows the directions issued by the donors for the use of the fund for specific purposes. Such receipts also contain signatures of the donors. It was therefore concluded that such donations cannot be said to be not used for specific directions of the donor towards corpus funds and accordingly such corpus donations cannot be treated as revenue receipts. In view of such facts, we find no error in the views of CIT (Appeals) and Tribunal. No question of law arises. (Income Tax Appeal No. 2/2022, dt. 01- 02-2022) (AY 2016-17)

CIT v. Shri Jain Shwetamber Nakoda Parshwanth Tirth (2022) 211 DTR 310 / 325 CTR 550 (Raj) (HC)

12. S. 11 : Property held for charitable purposes – Trust not registered – Corpus fund in form of voluntary contributions made with specific direction – Liable to tax as income

– Equity and taxation cannot co- exist [S. 2(24)(iia)) 11(1)(d),12A, 12AA, 56 (2)(v)]

The amendment brought in section 12A by the Finance Act, 2014, with effect from October 1, 2014 by way of insertion of first proviso to section 12A(2) is significant to establish the need for registration of a trust to claim exemption under section 11. Registration of the trust is mandatory. The intention of the amendment is to confer the benefits of exemption under section 11 on genuine trusts which are registered under section 12AA. The conditions laid down under sections 11 and 12 shall apply even to trusts, which are not registered under section 12AA.

On the questions whether the corpus donations in the form of voluntary contributions made with a specific direction that they would form part of the corpus of the trust were exempted under section 11(1)(d) in the absence of registration of the trust under section 12AA. Dismissing the appeals the Court held that the

contributions towards the corpus fund with specific directions could be treated as income of the assessee under section 2(24)(iia) since the assessee was not a registered charitable trust under section 12AA though the assessee did not claim exemption under section 11 . Donations to the non-registered assessee could be treated as income under section 56(2)(v).(AY.2007-08, 2008-09, 2009-10)

Rasipuram Rotary Club Trust v. ITO (2022)442 ITR 185 (Mad) (HC)

Rasipuram Kannda Sainigar Samuga Pradama Sangam Educational Trust v. ITO (2022)442 ITR 185 (Mad) (HC)

13. S. 12A : Registration – Trust or institution – Since there was no document or material available with CIT(E) to hold that Assessee had given donation to Research Trust during the year, whose managing-trustee had given a statement basis which Assessee- trust was in the list of bogus donors, the order cancelling registration was to be set aside.

Dismissing the appeal of the Revenue, the High Court observed that in absence of any material to hold that Assessee-trust had given donation to said Education and Research Trust during the year, allegations against Assessee- trust based on which registration was cancelled were all bald allegations with nothing specific against Assessee-trust and order for cancellation of registration was to be set aside. [ITAT No. 21/2018, IA No. GA/1/2018 (Old No. GA/457/2018), dt. 19-01-2022]

CIT (Exemptions) v. Vidya Bharati Society for Educational & Scientific Advancement. (2022) 136taxmann.com 88 / 285 Taxman 659 (Cal) (HC)

14. S. 12AA : Procedure for registration – Trust or institution

– Registration granted to Assessee- trust cannot be cancelled u/s 12AA on grounds which were other than or not contained in show cause notice issued by CIT for cancellation of registration.

Dismissing the appeal of the Revenue, the High Court observed that the show cause notice issued by CIT for cancellation of registration (for AY 2006-07), stated that Assessee-trust has accepted donation which has been shown as box collection and such donation is an anonymous donation within the meaning of Section 115BBC of the Act. The Assessee-trust submitted that it received certain amounts as box collection and same was considered as donation. Further, provisions of Section 115BBC of the Act are applicable only with effect from AY 2007-08. The CIT while proceeding to pass the order cancelling the registration took into account certain issues which were not subject matter of the allegations in the show cause notice. The High Court held that the Tribunal rightly took note of the facts and pointed out that the CIT exceeded his jurisdiction by making certain observations, which were not subject matter of allegations in the show cause notice and accordingly set aside the order for cancellation. [ITA No.270 of 2009, IA No.GA/1/2009 (Old No. GA/2658/2009), dt. 17 01-2022] (AY 2006-07)

CIT v. Guru Nanak Educational Trust (2022) 136 taxmann.com 306 / 286 Taxman 350 (Cal) (HC)

15. S. 12AA: Procedure for registration –Trust or institution – cancellation of registration giving reasons – remedy lies with the appellate authority and not writ jurisdiction.

It has been held by the Hon’ble High Court that the order cancelling the registration of the

assessee is speaking order. There is nothing to demonstrate why the assessee did not upload the registration certificate issued under section 12AA of the Income Tax Act in spite of adequate ample and multiple opportunities being provided. The order of cancellation of registration under section 12AA is revisable under section 264 of the Act as well as appealable under section 246A of the Act. Thus, there is an effective and efficacious alternative remedy even against cancellation order.

Muvendar Trust v. ITO And Another [2022] 441 ITR 31 (Mad)

16. S.13. r.w.s. 11 : Denial of exemption – Trust or institution

-Investment restrictions – Revenue cannot sit in arm-chair of Assessee and decide pattern of working, methodology to be adopted for whole administration of educational trust and cannot manage or control managerial affairs of educational trust and hence impugned denial of exemption by making reference to Sec. 13(1)(c) of the Act was unjustified

Dismissing the appeal of the Revenue, the High Court held that the ground on which violation of Section 13(1)(c) of the Act has been alleged is based mainly on the fact that salary/remuneration paid to two trustees is disproportionate to the services rendered by them. It is well settled position that the Revenue cannot sit in the armchair of an Assessee and decide the pattern of working, methodology to be adopted for whole administration of the educational trust including the payment structure of salary/remuneration to be paid to the professors/administrative staffs. These aspects would not come within the purview

of the Authorities to decide the income-tax liability merely on suspicion that the Assessee- trust is claiming huge expenditures to get the corresponding benefits of allowable deductions. The Tribunal has rightly rejected the plea of the Revenue as bereft of merit. The alleged breach of Section 13(1)(c) of the Act based on these factors is baseless, wholly untenable. (ITA No. 230 and 231 OF 2016, dt. 20-09-2021) (AY 2009-10 and AY 2010-11)

CIT (Exem) v. Krupanidhi Education Trust (2022) 138 taxmann.com 339 / 441 ITR 154 (Kar) (HC)

17. S.14A : Tribunal dismissed the appeal on disallowance u/s. 14A. Since the Tribunal recorded findings only on the interpretation of the contents of the Circular No. 5/2014 dealing with disallowance u/s. 14A, the said findings cannot be regarded as the Tribunal declaring the CBDT Circular No. 5/2014 either as illegal or ultra vires. (r.w. CBDT Circular – Low tax effect)

The Revenue filed an appeal to the High Court

against the order passed by the Tribunal on the issue of deletion of disallowance u/s. 14A on the ground that the same was against the CBDT’s Circular No. 5/2014. The Revenue argued that the case would fall within the exceptions provided in clause 10(b) of the Circular No. 17/2019 on low tax effect. The High Court held that the instant case did not fall within the said exception since the Tribunal has nowhere declared the Circular No. 5/2014 as illegal or ultra vires and hence dismissed the appeal since the tax effect was much less than the prescribed limit. (ITA No. 2 of 2021) (AY. 2015-16)

PCIT v. Hyrcon Electronics (2022) 209 DTR 61 /324 CTR 614 (HP)(HC)

18. S. 32: Depreciation – Disallowed

– no evidence to explain the genuineness of

The assessee could not produce even a single piece of evidence that how the software was developed as it was customized software. The assessee could not produce the technical person who was associated with the development of the software. Therefore, depreciation was rightly disallowed

Fiitjee Ltd. v. Principal Commissioner of Income- tax-2 (2022) 442 ITR 212 (Del)(HC)

19. S. 32 : Depreciation – Unabsorbed depreciation – Unabsorbed depreciation for AY 1997-98 could be allowed to be carried forward and set-off after a period of eight years, in view of amended Section 32(2) of the Act.

Dismissing the appeal of the Revenue, the High Court held that the unabsorbed depreciation pertaining to AY 1997-98 could be allowed to be carried forward and set-off after a period of eight years without any limit whatsoever in accordance with Section 32(2) of the Act as amended by Finance Act, 2001 (T.C.A. No. 804 of 2016, dt. 18-08-2021) (A.Y.2006-07)

CIT v. Venkateshwara Leather (P.) Ltd. (2022) 137 taxmann.com 145 / 441 ITR 198 (Mad) (HC)

20. S. 36(1)(iii) – Interest on borrowed capital – Foreign exchange fluctuation loss

The assessee claimed an amount towards the foreign exchange fluctuation loss. The Assessing Officer disallowed the same holding that the assessee had not established the nexus for utilization of the funds raised in FNCR are used for the business purposes. It was assumed by the Assessing Officer that the loan had been used for certain investments into share capital of various companies. Tribunal held that the same was used for Working Capital. The view of the Assessing Officer and Commissioner was held to be without any basis.

Pr. CIT v. United Spirits Ltd. [2022] 442 ITR 451 (Kar)(HC)

21. S. 36(1)(iii) – Interest on borrowed capital – Foreign exchange fluctuation loss

The assessee claimed an amount towards the foreign exchange fluctuation loss. The Assessing Officer disallowed the same holding that the assessee had not established the nexus for utilization of the funds raised in FNCR are used for the business purposes. It was assumed by the Assessing Officer that the loan had been used for certain investments into share capital of various companies. Tribunal held that the same was used for Working Capital. The view of the Assessing Officer and Commissioner was held to be without any basis.

Pr. CIT v. United Spirits Ltd. [2022] 442 ITR 451 (Kar)(HC)

22. S.36 (1)(vii): Bad debt – Required to debit profit and loss account and also to simultaneously reduce loans of debtors in balance sheet – Matter remanded. [S.254 (1)]

Court held that for allowability of bad debt the assessee is required to debit profit and loss account and also to simultaneously reduce loans of debtors in balance sheet however none of the authorities had examined the issue in this angle in deciding the matter. Matter remanded to Tribunal. Referred Vijaya Bank v. CIT (2010) 323 ITR 166 (SC)

PCIT . v. United Spirits Ltd (2022) 284 Taxman 568/442 ITR 451 (Karn) (HC)

PCIT v. Mcdowell and Co. Ltd. (2022) 284 Taxman 568 /442 ITR 451 (Karn) (HC)

23. S. 37 : Deduction of business expenses incurred – Expenses incurred by pharmaceutical companies by awarding freebies to doctors not deductible as business expenditure

Where the assessee provides freebies to doctors and such expenditure is expressly prohibited by statute and CBDT Circular, then such expenditure is prohibited by law and is hit by Explanation 1 to Section 37 of the Act. [Civil Appeal No. 1554/2022 (Arising out of Special Leave Petition (Civil) No. 23207 of 2019 decided on 22.2.2022)

Apex Laboratories Pvt. Ltd. v. Dy. CIT [2022] 442ITR 1 (SC)

24. S. 37(1): Business expenditure – expenditure incurred between setting up and commencement of business – is eligible to be claimed as business expenditure.

Where the assessee did all that, which was necessary, to set up the insurance broking business, however, the IRDA took more than a year in dealing with the assessee’s application for issuance of a license, expenditure incurred between setting up and commencement of business is to be allowed as business expenditure. (A.Y. 2012-13)

Maruti Insurance Broking Pvt. Ltd. v. DCIT (2021) 203 DTR 0225 (Del), (2022) 324 CTR 0344 (Del),

(2021) 435 ITR 0034 (Delhi), (2021) 281 Taxman0139 (Delhi)

25. S.37(1): Business expenditure – expenses incurred on medical practitioners – MCI Guidelines

– CBDT Circular no. 5 of 2012 is prospective and does not apply to AY 2010-11

Assessee-company was engaged in the business of manufacturing and trading of medicines. During AY 2010-11, it had incurred expenses towards tour and travel expenses on medical practitioners to enable them to attend various conferences held in different parts of world. Assessing officer disallowed proportionate expenditure. The question of applicability of Circular No. 5 of 2012 as well as regulations framed by the Medical Council of India being the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 as amended on 10-12-2009 was required to be considered by the Court. The Court held that Circular no. 5 of 2012 cannot be given retrospective effect and it should apply from 01-08-2012 onwards only. On this limited point the issue was decided in favour of the Assessee, other contentions left open.

(IT Appeal No.41 of 2019, order dated 14-01- 2022) (AY 2010-2011)

Pr. CIT v. Goldline Pharmaceuticals (P.) Ltd. [2022] 136 taxmann.com 367(Bombay) / [2022] 441 ITR543 (Bom)

26. S.37(1) – Business Expenditure – capital work-in-progress written off for abandoned projects – Since the expenses incurred were salary, professional fees etc which were in nature of revenue expense and did not result in any asset, disallowance deleted.

Assessee-company had claimed a deduction on account of capital work-in-progress written off in computation of its income. It had initiated many projects to enrich its website with an intention to add new features to the website and to enhance its existing products to keep its website updated. However, to conserve cash flow during recession, some of the projects were abandoned. The expenditure incurred on such projects were salary, professional fees,

etc. which were revenue in nature. Assessing officer disallowed the expenditure by holding that the same were incurred for creation of new projects and these projects were capital assets of its business which were to yield enduring benefit. It was held that where an expenditure is incurred for doing business in a more convenient and profitable manner and has not resulted in bringing any new asset into existence, such expenditure is allowable as business expenditure. It was further held that where expenses were incurred in connection with existing business and admittedly were of routine nature like salary, professional fees, etc. and these expenses were otherwise clearly of revenue in nature, same would be allowed as business expenditure. (IT Appeal no.651 of 2017, order dated 29-09-2021)

Pr. CIT v. Rediff.com India Ltd. [2021] 132 taxmann.com 71 (Bombay) / 283 Taxman 552 /[2022] 441 ITR 195 (Bom)

27. S.37(1): Business Expenditure – for the purposes of business

Assessee was a registered co-operative society and was engaged in business of banking. Assessee had made contributions towards various funds in accordance with the bye-laws of the assessee. Court observed that the funds contributed by the Assessee neither remained with the apex co-operative bank nor had come back to the assessee-bank in any other form, and these amounts had been spent only out of statutory obligation. The Court further observed that the case of the department was not that the contribution made by the assessee to the fund was capital expenditure or was in the nature of personal expenses or expenditure described in any other sections of Chapter IV of the Act. Since the expenditure was incurred for the purposes of business, it was an admissible expenditure u/s 37 of the Act. (ITA No.516 of 2016, order dated 05-07-2021) (AY 2007-08)

Pr. CIT v. Karnataka State Co-operative Apex Bank Ltd. [2022] 441 ITR 312 (Kar)

28. S.37(1) : Business expenditure – Loss on account of fluctuations in rate of Foreign exchange – Deductible.

Foreign exchange loss on account of fluctuations in rate of foreign exchange is allowable as deduction. Followed. CIT v. Woodward Governor India (P.) Ltd (2009) 312 ITR 254 (SC).(AY.2005-06, 2008-09)

PCIT v. United Spirits Ltd (2022) 442 ITR 451 /284 Taxman 568 (Karn) (HC)

PCIT v. Mcdowell and Co. Ltd. (2022) 442 ITR 451 284 Taxman 568 (Karn) (HC)

29. S.37 (1): Business expenditure

– Wholly and exclusively- And Expenditure benefitting third person – Incurred for the purpose of business – Allowable as

The assessee incurred the expenditure made towards Navodaya Grama Vikasa Charitable Trust with a description”animator salary” under the directions of their controlling authority, i. e., NABARD. The Assessing Officer disallowed the expenditure. On extensive analysis of the factual aspects, the Tribunal arrived at a conclusion that though the assessee was promoting the formation of self-help groups in the districts of Dakshina Kannada and Udupi, and the loans were given to such self-help groups for home industries like candle-making, soap-making and such other activities, the income generated by such self-help groups came back to the assessee as deposits. The commercial exigency being established under the provisions of section 37(1) of the Act, the expenditure was allowed as deduction. On appeal to the High Court affirmed the order of Tribunal. Referred Sasoon

J. David and Co. P. Ltd. v. CIT (1979) 118 ITR 261(SC). (AY.2012-13)

PCIT v. South Canara District Central Co-Operative Bank Ltd. (2022)442 ITR 338 (Karn) (HC)

30. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Purchase of raw skin & hide – payments exceeding Rs. 20,000 – Covered under Rule 6DD(e) – No disallowance.

It was held that the provisions of section 40A(3) of the Act read with rule 6DD of the Rules are intended to regulate business transaction and to prevent the use of unaccounted money. Further, it has been laid down that it is always open to the assessee to furnish documents to prove that the payment in the manner prescribed under section 40A (3) of the Act was not practicable or would have caused genuine difficulty to the payee. In the case on hand, the tribunal has noted the fact and also taken a note of the contemporaneous documents produced by the assessee, namely, the sales tax bills, transport permits and other Government records to prove the genuineness of the transaction. Apart from that, the day-to-day stock register were also maintained which is noted in the tax audit report. Furthermore, the payments were made to the suppliers of the hides and skins and considering the nature of the trade, the CIT(A) and the tribunal agreed with stand taken by the assessee that payments would be exempted from disallowance under section 40A(3) of the Act.

Pr. CIT v. Standard Leather (P.) Ltd. [2022] 442 ITR 177 (Cal)(HC)

31. S. 40(A)(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits

– Since purchase of shrimps made by Assessee-Company fell within the scope of Rule 6DD(1)

(iii) as fish or fish products, no disallowance under S/ 40A(3) of the Act was to be made

The Assessee-company being engaged in trading of shrimp feed had incurred expenses on purchase of shrimp products in cash and had claimed said expenses as deduction and no disallowance u/s 40A(3) of the Act was to be made as the Assessee-company fell within scope of Rule 6DD(f)(iii) as fish or fish products. (T.C.A No. 438 of 2010, dt. 02-08-2021) (AY 2002-03)

CIT, Chennai v. Ayshwarya Sea Food (P.) Ltd. (2021) 130 taxmann.com 487 / 441 ITR 171 (Mad) (HC)

32. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Raw hides and skins purchased from trader – Disallowance is not valid. [S.133 (6), R. 6DD (e)]

The Tribunal held that merely because some of the notices were returned with such endorsement it could not be inferred that the purchases were not made from producers and affirmed the order of the Commissioner (Appeals). On appeal dismissing the appeal, that the Tribunal was correct in holding that the assessee was entitled to deduction in respect of raw hide purchases made in cash exceeding Rs.20,000 under section 40A(3) and that the purchases were made from the persons covered by the provisions of rule 6DD(e) . The payments were made to the suppliers of the hides and skins and considering the nature of the trade, the Commissioner (Appeals) and the Tribunal had accepted the contention of the assessee. The Tribunal was right in affirming the order passed by the Commissioner (Appeals). There was no ground to interfere with the order of the Tribunal.(AY.2010-11)

PCIT v. Standard Leather Pvt. Ltd. (2022) 442 ITR 177 (Cal) (HC)

33. S. 43B: Certain deductions only on actual payment – Assessee is not entitled to claim deduction under section 43B of the Act with respect to the Income Tax paid under the Kerala Agricultural Income Tax Act, 1991. [Rule 7 of the Income Tax Rules, 1962].

In this case Hon’ble Kerala High Court has held that the tax paid under Kerala Agricultural Income Tax Act, 1991 on the apportioned agricultural income as per Rule 7 of the Income Tax Rules, 1962 cannot overlap into the business income as tax payable by the assessee for earning business income. Therefore, the assessee is not entitled to claim deduction under section 43B of the Act with respect to the tax paid under Kerala Agricultural Income Tax Act, 1991. (A.Y. 2005-06 & 2007-08).

M/s. Oil Palm India Ltd. v. The Deputy Commissioner of Income Tax (Rep, by The Chief Secretary to Government, Secretariat, Thiruvananthapuram) (2021) 208 DTR 0345 (Ker),(2022) 324 CTR 0171 (Ker)

34. S. 44 : Surplus available both in policy holders account and shareholders account is to be consolidated and only net surplus is to be taxed as income from insurance business. The taxpayer in entitled for carry forward of losses arising out of pension fund. (r.e.s.10)

The first issue of taxing the surplus on net basis is covered by another decision of the same Court wherein it has been held that Rule 2 to the First Schedule of section 44 is applicable to the business of life insurance and not Rule 5 of Part B with the First Schedule of the Act.

Section 44 starts with a non-obstante clause and overrides the other provisions f the Act relating

to computation of income under various heads of income including income under the head profits and gains of business of insurance. The provisions of section 28 to 43 of the Act would not be applicable to the taxpayer. Thus, the High Court held that the Tribunal was correct in relying on the decision of the Bombay High Court in the case of Life Insurance Corporation of India Ltd. and thereby allowed loss incurred by the pension fund to be eligible for set-off and carry forward.(ITA Nos. 112 & 118 of 2020) (AY. 2012-13 & 2014-15)

PCIT v. Exide Life Insurance Company Ltd. (2022) 209 DTR 391 / 324 CTR 514 (Kar.)(HC)

35. S. 44: Surplus available both in policy holders’ account and shareholders account is to be consolidated and only net surplus is to be taxed as income from insurance business. The taxpayer in entitled for carry forward of losses arising out of pension fund.

Explanatory notes to the provisions of the Finance (No. 2) Act 2009 relating to Taxation of investment / loss of non-life insurance business indicates that profits and gains from non-life insurance business is computed u/s. 44 r.w. Rule 5 of the First Schedule. However, admittedly the taxpayer is engaged in the life insurance business and the Bombay High Court in the case of ICICI Prudential Insurance Company Ltd. has held that shareholders’ amount has to be considered as income arising out of insurance business. It has been held that Rule 2 to the First Schedule of section 44 is applicable to the business of life insurance and not Rule 5 of Part B with the First Schedule of the Act. (ITA Nos. 128/ 2018, 181/2017 & 436/2018) (AY. 2011-12, 2012-13 & 2013-14)

PCIT v. PNB Metlife India Insurance Company Ltd. (2022) 209 DTR 383 / 324 CTR 506 (Kar.)(HC)

36. S. 44BB: Mineral oils – Computation –Receipts from activities inextricably linked to be considered. [S. 9(1)(vi) and 115A]

Income from hire charges of tugs and barges for moving machinery which will be used in prospecting or extraction of mineral oils is to be considered under section 44BB and not to be taxed as royalty under section 9(1)(vi) read with section 115A of the Act as there is a specific exclusion under clause (iva) of Explanation 2 to section 9(1)(vi). Income of a sub-contractor is also covered under section 44BB.

Larsen & Toubro Ltd. v. DIT (IT) and Others (2022) 442 ITR 217 (Bom)

37. S.44BB : Mineral oils – Computation Presumptive Tax — In connection with

-Transportation of equipment from assessee’s yard to offshore site, Inextricably connected with prospecting, extraction or production of mineral oils — Hire charges paid for tugs and barges to transport integral part of execution of contract — Payments taxable on presumptive basis. [S.9(1)(vi), 195, 264, Art. 226]

On writ allowing the petition, that the view of the Assessing Officer that the benefit of section 44BB would be admissible only to the person directly using the services or plant and machinery for exploring, extracting or producing mineral oils and not to the entity which had executed the contract for such person was not in consonance with the text of section 44BB. The service provider being a non-resident, under section 195 , the assessee was enjoined to deduct tax thereon at source at the applicable rates. Moreover, the assessee had grossed up the profits by 10 per cent. and

had paid the taxes. The scope of work under the contract was comprehensive from survey to the commissioning of entire facilities on turn-key basis at the offshore site. The platform in question was to be used in maintaining and enhancing the production or extraction capacity of mineral oil. The tugs hired by the assessee were used for towing the compression module of platform, from the assessee’s yard to the offshore platform. In connection with the execution of the contract, the Director General of Hydro Carbons had issued an essentiality certificate to import the cargo (barge) for the petroleum operations. The assessee had entered into a contract with the Corporation on turn- key basis for enhancing the exploration or production capacity of the platform at the offshore site and for such purpose the assessee had hired the tugs and barges from non- residents. The authorities were not justified concluding that the use of the tugs and barges was in the nature of a mere transportation facility. On the facts, the Director (IT) had recorded that the tugs were hired by the assessee to transport the compressor module, which was an integral part of the execution of the contract by the assessee from the yard to the offshore platform. Considering the object of special dispensation and the proximate use to which the facility or service or plant and machinery was put, the hire of the tugs and barges to transport an integral part of the equipment to enhance the exploration or production capacity, was inextricably connected with the extraction and production of mineral oil. Therefore, the payments made by the assessee to the non-residents in the execution of the contract with the Corporation was assessable under the provisions of section 44BB . The order passed by the Director (International Taxation) under section 264 and the order passed by the Deputy Director (IT) under section 195 were quashed and set aside.

Larsen & Toubro Ltd. v. Girish Dave DIT(IT) (2022) 442 ITR 217 / 212 DTR 433/ 326 CTR 194/ 286Taxman 267 (Bom) (HC)

38. S. 45: Taxpayer has transferred a land in its firm as capital contribution and it was shown as current asset in the firm’s balance sheet. Thereafter, firm converted its stock into fixed assets and then revalued its assets and transferred the amount of revaluation to partner’s capital account in their profit sharing ratio. Since the transfer of land by the taxpayer was at cost and the partners did not make any withdrawal from the capital account, no income was liable to be taxed as capital gains in the hands of the taxpayer.

A land (owned by the taxpayer and other two

companies who were partners in a partnership firm) was transferred by the taxpayer in the firm as its capital contribution. The said land shown as capital work in progress under current assets in the balance sheet of the firm was later converted into fixed assets and the firm also revalued its assets. The revaluation amount was credited to the respective partners’ capital accounts in their profit sharing ratio. The Assessing Officer initiated re-assessment proceedings and held that the revaluation amount credited to the partners’ capital account is chargeable to tax as short-term capital gains u/s. 45(3) and hence passed a re-assessment order holding that the aforesaid income has escaped assessment. On further appeal, the Tribunal held that if at all any income accrued or arose owing to such revaluation; it was an issue to be dealt with in the assessment of the firm and not the partners. Further, it held that as there were no withdrawals by partners from capital accounts, there could not be any income liable to be taxed in the hands of the taxpayer and hence the re-assessment proceedings were quashed. On a further appeal by the Revenue, the High Court held that the issue has been the CIT(A) and the Tribunal has conducted thorough examination of the factual position and dismissed the appeal by stating that no substantial question of law arises for consideration.(ITAT Nos. 164, 239 & 250 of 2017, IA No. GA/1/2017) (AY. 2008-09)

PCIT v. Blue Heaven Griha Nirman Pvt. Ltd. (2022) 441 ITR 621 / 285 Taxman 663 / 211 DTR 375 /326 CTR 74 (Cal.)(HC)

39. S.45(3): Capital gains – Transfer of capital asset to firm – Revaluation and credit to partner’s account

– Amount not withdrawn by partners – Transaction was to bring assets to market value and cannot be treated as colourable device – addition

The Assessee company along with three other companies was a partner in a partnership firm under the name M/s Salapuria Soft Zone. It transferred a land in the firm in which they were partners as their capital contributions, wherein the firm accounted the same as ‘current assets’ in its balance sheet. Later, firm converted its inventory to fixed assets and revalued its assets and credited revaluation amount in partner’s current account in their profit sharing ratio. Assessing officer reopened the assessment with a view that revaluation amount credited in partners account had escaped assessment and same was income chargeable to tax as short-term capital gain u/s 45(3). Assessee contended that since transfer of land was at cost there was no profit in hands of partners thereupon and hence provision of section 45(3) was inapplicable. With regards to development of the area, as to how there was a steep rise in the value of the properties and the State government revised the guideline value for the purpose of stamp duty several times between 2004-07 and after noting the price rise the Tribunal held notwithstanding the fact in accordance with the accounting principles the land held as

inventory was shown at its cost and therefore it cannot be said that under-valuation was done as alleged by AO. The Court further observed that after conversion of inventory into fixed asset the firm revalued the developed land including construction thereon in order to bring it in line with current market value to justify the business assistance secured by the firm from the banks and hence revaluation was not a colourable device. The Court further found that there was no withdrawal by the partners from capital accounts and therefore there cannot be any income liable to tax in the hands of the partners. Thus, the impugned additions made by Assessing Officer treating such amount credited as short term capital gains u/s 45(3) was to be deleted. The Department appeals were dismissed as no substantial question of law arose from the order of Tribunal.

(ITAT Nos. 164, 239 & 250 of 2017, IA No. GA/1/2017, order dt.18-01-2022)(AY 2008-09)

Pr. CIT v. (1) Blue Heaven Griha Nirman Pvt. Ltd.(2) Wellgrowth Grihanirman Pvt. Ltd. (3) Orchid Griha Nirman Pvt. Ltd. [2022] 441 ITR 621 (Cal)/ 135 Taxmann.com 3 (Calcutta) / 285 Taxman 663 (Cal) (HC)

40. S. 48 : Capital gains – Computation – Full value of consideration – Adoption of fair market value based on guidelines issued by Government is justified [S. 45, 50D]

The assessee entered into a joint development agreement with contractors for development of 84 cents of land. Under the joint development agreement dated October 21, 2010, the assessee was entitled to 30 per cent of the total saleable super built up area. In the supplementary joint development agreement dated May 26, 2011 the sharing ratio was revised to 26.89 per cent. and 73.11 per cent. between the assessee and the developer. For the assessment year under 2011-12 the Assessing Officer brought to tax

Rs. 5,68,19,443 as capital gains by adopting the cost of construction as sale consideration based on the joint development agreement between the assessee and the contractors. The assessee preferred an appeal before the Commissioner (Appeals) which was allowed directing the Assessing Officer to adopt the fair market value based on the Government records as deemed consideration for the purpose of calculation of capital gains. The Revenue preferred an appeal before the Tribunal. The Tribunal, upholding the order of the Commissioner (Appeals), held that the variation of the capital gains should be appropriate to the adopt fair market value as deemed consideration, but not the cost of construction. On appeal to the High Court dismissing the appeal, the court held that the entire issue was revenue neutral. The Tribunal observed that even if any capital gains accrued in favour of the assessee after receiving possession of the property that would also be subject to capital gains tax. It was thus clear that in the event the assessee were to dispose of the built up area, or any part thereof, after receipt thereof from the developer, it would have to necessarily pay tax on the capital gains in the year of such sale and the cost of such built up area was to be reckoned for the purpose of indexation which would be proportionate to the fair market value of land.

The Court also held that the Assessing Officer had adopted the rate of Rs. 1600 per square feet merely based on the letter given by the developer which was not supported by any particulars. Determination of the full value of consideration by the Assessing Officer based on the letter of the developer was not be appropriate. Section 50D was inserted by the Finance Act, 2012, with effect from April 1, 2013. Though section 50D had come into effect from April 1, 2013, it threw some light on the mode of computation under section 48. In the circumstances the guidance value of the land or the guidance value of the building would the appropriate mode to determine the full value of consideration. Referred CIT v.

George Henderson and Co Ltd (1967) 66 ITR 622(SC). (AY.2011-12)

PCIT v. Sarojini M. Kushe (Smt)(2022) 442 ITR 327/ 210 DTR 172/ 286 Taxman 253 (Karn)(HC)

41. S. 49 : Capital gains – Previous owner – Cost of acquisition – Capital asset acquired by will – Indexation – Cost of acquisition to be calculated taking into account cost of acquisition of previous owner of asset. [S. 2(29A), 2(42A), 45, 48, 55(1)(b)(2)(ii), Art. 226]

One DJ held an undivided half share in a piece of land. She expired in June 1982. Probate of her will was granted by the High Court on November 5, 2004. Under the will, she bequeathed her share in the property to her aunt RRF and her brother MN in equal shares. Accordingly, the undivided one-fourth share in the property vested in RRF from the year 1982. RRF expired on May 12, 1992 leaving a will dated June 3, 1977, where under she bequeathed all her estate including the one- fourth share in the property to her husband RF. RF expired on September 17, 2006 leaving behind two sons as his legal heirs namely, SRF and PRF. Under a will of dated February 19, 2006, RF bequeathed his estate including his one-fourth share in the property to his two sons in equal shares. Though no probate was granted in respect of the wills of RRF and RF, their only sons – SRF and PRF accepted the wills and acted upon them. Accordingly, PRF became the owner of one-eighth share in the property. The assessee decided to buy that one-eighth share. An order directed the assessee to deduct tax of Rs. 28,74,100 and the assessee deposited this amount of Rs. 28,74,100 with the Revenue even though it was the assessee’s case that the amount directed to be deducted as tax at source had been incorrectly calculated and only a sum of Rs. 74,523 was the tax that had to be deducted. On a writ petition it was claimed that

indexation of the cost of acquisition under the second proviso to section 48 should be available from the financial year 1981-82 although the transfer of the property to the assessee had taken place in the financial year 2010-11 .Court held that the cost of acquisition of the property in the hands of the seller was deemed to be the cost for which the property was acquired by late DJG and the period of holding of lDJG, RRF and RF had also to be included in the period of holding of the seller for ascertaining the period for which the property was held by the seller. Based on the scheme of the Act, as provided in section 49(1)(ii), clauses (29A) and (42A) of section 2 and section 55(2)(b)(ii) of the Act, indexation of the cost of acquisition under the second proviso to section 48 would be available from the financial year 1981-82.

Rohan Developers Pvt. Ltd. v. ITO (IT)(2022) 442 ITR 404 / 211 DTR 164/ 325 CTR 395 (Bom) (HC)

42. S. 49 : Capital gains – Previous owner – Cost of acquisition – Indexed cost of acquisition and period of holding of the previous owner to be considered in the case of inheritance. [S. 2(29A)]

Where certain property was bequeathed on the seller by way of a will and the previous owner had also acquired the property through inheritance, both, the period of holding and the indexed cost of acquisition had to be considered with reference to the original purchaser of the property. (A.Y. 2011-12)

Rohan Developers Pvt. Ltd. v. Income-tax Officer (IT) AND Others (2022) 442 ITR 404 (Bom)

43. S. 50C : Capital gains – Full value of consideration – Stamp valuation – Joint Development Agreement – consideration not ascertainable – guidance value would be appropriate. [S. 48, 50D]

Where the full value of consideration for transfer of a capital asset was not ascertainable, it was held that the guidance value of the land or the guidance value of the building would be appropriate mode to determine the full value of consideration in the case of a transfer where consideration for the transfer of a capital asset is not attributable or determinable.

Pr. CIT v. Smt. Sarojini M. Kushe P.V.S. Beedies (P.) Ltd. [2022] 442 ITR 327 (Kar)(HC)

44. S. 50C: Guidance value of land and of building would be appropriate mode to determine the full value of consideration in a case where the consideration for transfer of asset was not attributable or determinable when the asset is transferred under a joint development agreement. (r.w.s.48 & 50D)

The taxpayer entered into a Joint Development Agreement (‘JDA’) for development of land and as per JDA, the taxpayer was entitled to 30% of total saleable super built up area. In the supplementary JDA, the ratio was revised to 26.89%. The Assessing Officer by adopting cost of construction as sales consideration based on JDA, brought to tax an amount of Rs. 5.68 crores as capital gains. The CIT(A) directed the Assessing Officer to adopt the fair market value based on the Government records as deemed consideration. On appeal by revenue, the Tribunal held that variation of capital gain should be appropriate to adopt fair market value as deemed consideration but not the cost of construction thereby affirming the order of the CIT(A).

On a further appeal by Revenue to High Court, it was observed that Assessing Officer adopted the consideration merely based on the letter given by the developer which is not supported with any particulars and

hence such basis adopted for determining the consideration cannot be appropriate. Even in terms of section 50D inserted w.e.f. 01.04.2013, cost of construction would not be the appropriate method to arrive at the full market value of consideration. It was opined that guidance value of land or the building would be appropriate to determine the full market value of consideration in the case of transfer of asset where consideration is not attributable or determinable. Hence, the High Court held that the guidance value adopted by the Tribunal cannot be faulted with. It further held that Tribunal having exercised its discretionary power adopted the guidance value of the land as the mode for determination of full value of consideration cannot be considered as perverse or arbitrary. (ITA No. 475 of 2018) (AY.2011-12)

PCIT v. Smt. Sarojini M. Kushe (PVS Beedies Pvt. Ltd.) (2022) 442 ITR 327 / 286 Taxman 253 / 210DTR 172 (Kar.)(HC)

45. S. 54 : Capital gains – Profit on sale of property used for residence – Residential property standing in name of wife cannot be considered to be owned by assessee- Difference between section. 54 and section. 54F – Specified Bonds – Assessee can claim exemption under Section 54 as well as section 54EC. [S. 27, 45, 54EC, 54F, Hindu Succession Act 1956, S. 14]

Court held that the property in Domlur was standing in the name of the assessee’s wife by registered sale deed dated December 8, 2011. For all practical purposes, and even as per section 14 of the Hindu Succession Act, 1956, the property standing in the name of a female heir becomes her absolute property. Notwithstanding that the property standing in the name of the assessee’s wife was held to be

eligible for exemption under section 54 of the Act, while considering the exemption under section 54F of the Act, the residential house purchased in the name of the assessee’s wife could not be construed as property owned by the assessee. Excluding this property standing in the name of the assessee’s wife, the property at Bangalore bequeathed to the wife and son of the assessee being considered as justifiable by the Commissioner (Appeals) which had attained finality, what was owned by the assessee on the date of transfer of the original asset – land, i. e., April 10, 2012, was the residential property in Kerala which was subsequently sold on October 8, 2012. The assessee was entitled to exemption under section 54F (AY.2013-14)

Antony Parakal Kurian v. ACIT (2022) 442 ITR 38 (Karn) (HC)

46. S. 68 : Cash credits – Share Capital of Assessee-company had been routed through two companies which remained only on paper and enquries conducted by AO showed that huge amounts were brought in Assessee’s books as share application money through such companies by shareholders, who could not properly explain their source and hence Section 68 got attracted and additions made by AO are justified.

Allowing the appeal of the Revenue, the High

Court held that:

-On going through the factual position as recorded by the AO and reappreciated by the CIT(A), it is clear that the Assessee has not established the creditworthiness and genuineness of the transaction to the satisfaction of the

-Though the Tribunal agreed that the AO made an in-depth enquiry, which was well within his powers, yet by a cryptic order, the Tribunal reversed the well- considered order passed by both the lower

For these reasons, the impugned order passed by the Tribunal calls for interference and the order passed by AO and affirmed by the CIT(A) is restored and order of Tribunal is set aside confirming the additions made by AO u/s 68 of the Act. (T.C.A. No. 97 of 2015, dt 25 08-2021)(AY 2003 04)

CIT, Central-II, Chennai v. Midas Golden Distelleries (P.) Ltd. (2021) 130 taxmann.com 206/283 Taxman 395 / 441 ITR 293 (Mad) (HC)

47. S.68 r.w. S.153C – Cash credits

– Assessment – Income of any other person – Since Assessing officer had not made use of any seized documents while making additions and instead used enquiries made by Investigation wing, addition to be

A search and seizure operation was carried out in case of ‘Raj Darbar’(“RD”) group and certain incriminating documents belonging to assessee-company were seized and thereafter proceedings u/s 153C were initiated against Assessee. Department claimed that during post- search enquiries and assessment proceedings, it was gathered that 25 companies had applied for allotment of shares of assessee-company and later family members/companies of RD group bought back shares at a much lower price. Basis above, Assessing Officer treated amount received from companies as unexplained cash credit u/s 68 and added the same back to the income of assessee-company. The Court observed that Assessing officer had not made use of any seized documents while making additions to the total income of assessee and

on other hand, had used extensive enquiries made by Investigation wing. Hence the addition was to be deleted. Department appeal was dismissed. The Court followed decision in case of CIT v. Kabul Chawla (2015) 61 taxmann.com 412/ 234 Taxman 300 / (2016) 380 ITR 573 (Del)(IT Appeal No. 112 of 2020, CM Appl. No. 6464 of 2020, order dated 15-12-2021)

Pr.CIT of Income-tax v. Vikas Telecom Ltd. [2022] 135 taxmann.com 362 (Delhi) / (2022) 209 DTR0373 (Del) / (2022) 324 CTR 0341 (Del) / 286Taxman 238 (Del) (HC)

48. S.68 r.w S.147 – Cash credits – Re-assessment on the basis of information received during search and seizure – Addition made on suspicion devoid of any rational – additions deleted.

Notice u/s 148 was issued to the Assessee on the information received that search and seizure action conducted in the Venus group of company had led to seizure of various incriminating materials which showed that amount of Rs. 4 crores had been received by the assessee-company from ‘S’ builders of Venus group through banking channel against corresponding payment of unaccounted cash by assessee to ‘S’ builders. The Assessing Officer considered the same as sham transaction being an accommodation entry against payment of unaccounted income by relying upon statement of accountant of Venus group and made addition u/s 68. Assessee submitted that builders had repaid Rs. 4 crores through banking channel in discharge of its existing outstanding liability. The Court observed that CIT(A) as well as Tribunal had reached to a conclusion holding that the additions were made without any legally supported documents. The Court observed that Tribunal had noted from material which had been placed before it that there was an opening receivable by the Assessee from ‘S’ builder given as loan in advance by Assessee. Another advance was also given in May 2008 against which in very year ‘S’ builders had repaid back the temporary loan in part. Balance was remaining outstanding as on 31-03-2009. An addition by the AO was based on suspicion, and devoid of any rational. Department appeal dismissed. (R/Tax Appeal No.251 of 2021, order dated 22-11-2021) (AY 2011-12)

Pr. CIT (Central) Ahd. v. Ganesh Plantation Ltd.

[2022] 134 taxmann.com 149 (Gujarat) / [2022] 441ITR 123 (Guj)

49. S. 68 : Cash credits – the transaction recorded in books of account in regular course of business is to be accepted as true and correct unless there is a strong evidence to rebut same and burden of proof that transaction is not genuine is on a person who alleges so.

Assessing officer made additions to the income of the assessee by treating transactions with ‘S’ as bogus. The Tribunal had held that the transaction recorded in books of account in regular course of business is to be accepted as true and correct unless there is a strong evidence to rebut same and burden of proof that transaction is not genuine is on a person who alleges so. It further held that the transaction between assessee and ‘S’ was clearly evident from documentary evidence produced by Assessee. The Assessing officer without bringing any adverse evidence on record, simply on assumptions and presumptions was not justified in holding that transaction of assessee with ‘S’ was bogus. The High Court concurred with the findings of the Tribunal and dismissed department’s appeal. (ITA No.22 of 2021, order dated 15-11-2021) (AY 2012-2013)

Pr. CIT v. Manoj Kumar Vipin Kumar [2022] 138 taxmann.com 103 (Rajasthan) / [2022] 441 ITR 632 (Raj)

50. S.68 – Cash credits – post demonetization

In Assessment year 2017-18, i.e. post- demonetization, assessee deposited cash amounting to Rs. 180.53 crore in its bank accounts. Assessing officer held that cash deposits made by assessee represented unaccounted income and accordingly made additions. Tribunal analyzed data pertaining to cash sales and cash deposits made in relevant assessment year as against two earlier assessment years and noted that in year of demonetization, percentage increase in sales was less than earlier year. Thus it held that since growth in sales compared to earlier two years showed similar trend, it could not be said that assessee had booked non-existing sales in its books post-demonetization. Furthermore, revenue made no allegation that assessee had backdated its entries. Thus it was held that since assessee placed material on record that cash deposits made with banks more or less corresponded with cash sales, it can only be concluded that there was growth in assessee’s business and hence impugned addition was to be deleted. (IT Appeal Nos. 68 to 73 of 2021, order dated 19-01-2022) (AY 2012-13 to 2017-18)

Pr.CIT of Income-tax v. Agson Global (P.) Ltd. [2022] 134 taxmann.com 256 (Delhi) / 441 ITR 550 (Del) (HC)

51. S.68 : Cash credits – Unexplained expenditure – Share Capital and Share premium – burden discharged by placing sufficient documentary evidence – addition deleted. (r. w. s. 69C)

Assessee company engaged in the business of selling dry fruits. It had received share capital and share premium money from several investors. Assessing officer made addition of the same on account of unaccounted income u/s 68 on basis of recorded statement of managing director of assessee-company. Held that since assessee had placed sufficient documentary evidence to establish that money which assessee had paid to investors was routed back to it in the form of share capital/share premium and identity, creditworthiness and genuiness of investors was proved, there was no justification to make addition u/s 68. (IT Appeal Nos. 68 to 73 of 2021, order dated 19-01-2022) (AY 2012-13 to 2017-18)

Pr. CIT v. Agson Global (P.) Ltd. [2022] 134 taxmann.com 256 (Delhi) / 441 ITR 550 (Del) (HC)

52. S.69A : Cash deposits during demonetisation- Assessment order and notice of demand issued- Petitioner relegated to alternative remedy of filing appeal. [S.246A]

Where an assessment order is passed and penalty notice issued, the petitioner having invoked writ jurisdiction and not having availed the alternate remedy of appeal must be relegated to the alternative remedy of appeal. (W.P. (MD) No. 2387 of 2020 and W.M.P. (MD) No. 2043 of 2020 decided on 4.1.2022)(A.Y: 2017- 2018)

Amjathkhan Sharmila Siraj v. ITO [2022] 441 ITR 1 (Mad)

53. S.69C : Unexplained expenditure

– Bogus purchases – addition made on the basis of statement recorded during search – AO had not placed any material on record to justify disallowances – Disallowance without carrying out any inquiry or investigation

– addition deleted.

Assessee Company engaged in the business of selling dry fruits. Assessing officer on the basis of statement of director of assessee-company which was recorded during search held that assessee booked bogus purchases in its books

of account to inflate expenses and to reduce its taxable profits and accordingly made an addition at rate of 25 per cent of such purchases. It was noted that said additions were made without conducting any enquiry. Furthermore, entire purchase and sale transactions were duly recorded in regular books of account and were routed through regular banking channels. Also, in original assessments, all these details were verified and assessments were framed u/s 143(3). Since no incriminating evidences were found, impugned addition was to be deleted. (IT Appeal Nos. 68 to 73 of 2021, order dated 19-01-2022) (AY 2012-13 to 2017-18)

Pr. CIT v. Agson Global (P.) Ltd. [2022] 134 taxmann.com 256 (Delhi) / 441 ITR 550 (Del) (HC)

54. 69C – Unexplained expenditure Assessee-company was carrying on business of real estate and pursuant to search action conducted in premises of assessee-company, some incriminating materials were seized from premises of assessee. Assessing officer noted that assessee-company had paid a certain sum to its sister concern for development work carried out by it but accounts of sister concern did not show said receipt from assessee-company for said project and he thus made addition u/s 69C treating said expenditure as bogus expenditure. The Court observed that Assessee had not claimed any deduction of the amounts paid to sister concern in any assessment year comprising the block period and as such entire exercise made by Revenue to consider development charges as bogus expenditure was wholly imaginary. Tribunal had given a finding that assessee-company had placed material evidence by producing necessary documents as per profit and loss account of assessee and profit and loss accounts of sister concern with break- up figures, hence addition was to be deleted. (IT Appeal No. 471 of 2017, order dated 27-09-2021) (Block Period 1991-92 to 24-01-2001)

Pr. CIT v. Janson Investments (P.) Ltd. [2022] 138 taxmann.com 194 (Karnataka) / [2022] 441 ITR 162 (Kar)

55. S. 80HHC : Export business – Since Assessee-company had maintained separate books of accounts with respect to its export unit and trading division, deduction claimed u/s 80HHC of the Act on profit of export unit alone, ignoring losses of trading division was to be allowed.

Dismissing the Revenue’s appeal, the High Court relying on the decision in the case of Chamundi Textiles (Silk Mills) Ltd. v. CIT [2012] 20 taxmann.com 514 / 341 ITR 488 (Mad.) held that such decision would clearly apply to the facts and circumstances of the present case as the AO has not disputed that the Assessee- company had separate books of account with respect to its export unit and trading division and hence the deduction claimed u/s 80HHC of the Act on profit of export unit alone, ignoring losses of trading division was to be allowed.

CIT, Chennai v. Ayshwarya Sea Food (P.) Ltd. (2021) 130 taxmann.com 487 / 441 ITR 171 (Mad) (HC)

56. S. 80IA : Industrial undertakings

– Infrastructure development – Scope of S/80-IA(5) is limited to determine the quantum of deduction u/s 80-IA(1) by treating ‘eligible business’ as ‘only source of income’ and same cannot be pressed into service for reading a limitation of deduction under sub-section (1) only to ‘business income’.

Dismissing the appeal of the Revenue, the Supreme Court held that since there is neither any discussion about Section 80IA(5) by the CIT(A) nor the Tribunal and the High Court. However, the submissions on behalf of the Revenue have been heard, as it has a bearing

on the interpretation of Section 80IA(1). It is held that the scope of sub-section (5) of Section 80-IA is limited to determination of quantum of deduction under sub-section (1) of Section 80-IA by treating ‘eligible business’ as the ‘only source of income’. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section

(1) only to ‘business income’. Hence, the appeal is dismissed qua the issue of the extent of deduction under Section 80-IA. (Civil Appeal Nos. 2537 of 2016, 1327 to 1329, 1408, 1508 & 1509 of 2021, dt. 28-04-2021) (AY 2002-03).

CIT-I v. Reliance Energy Ltd. (2021) 127 taxmann. com 69/ (2022) 441 ITR 346 (SC).

57. S. 80IA: Industrial undertakings

– Infrastructure development- exclusive right to maintain a facility for storage, loading and unloading – within the definition of “Port”.

The assessee is a company engaged in a business of terminal port operation including development, operation and maintenance thereof, logistic solutions provider and agency work. The assessee company had claimed deduction under section 80-IA for operating and maintaining multipurpose Berth at Haldia Dock Complex, the right granted to the assessee was an exclusive right to maintain the facility and undoubtedly the facility is meant for storage, loading and unloading and would fall within the definition “of port” and thereby would be eligible for deduction under section 80IA of the Act.

Pr. CIT v. T.M. International Logistic Ltd. [2022] 442 ITR 87 (Cal)(HC)

58. S. 80IA: Industrial undertakings

– Infrastructure development – Operation and maintenance of Multi-Purpose berth in Port –

Letter issued and agreement with Port authorities would satisfy requirement of law. [S. 119]

Dismissing the appeal the Court held that the letter from the port authorities and the agreement which were produced by the assessee were to be treated as a certificate issued by the port authorities and would satisfy the requirement in Circular No. 10 of 2005, dated December 16, 2005 ([2006] 280 ITR (St.) 1)

issued by the Central Board of Direct Taxes. The Tribunal had rightly rejected the Department’s appeal and confirmed the order passed by the Commissioner (Appeals) allowing deduction under section 80IA to the assessee.( AY.2004-05, 2005-06)

PCIT v. T. M. International Logistic Ltd. (2022)442 ITR 87 / 211 DTR 281/ 325 CTR 462/ 286 Taxman101 (Cal) (HC)

59. S. 80-IA : Since the concerned port authority issued a certificate stating that multipurpose berth at dock complex was granted to the taxpayer on leave and license basis, the same would be an exclusive right granted to the taxpayer to maintain the said facility for storage, loading and unloading and would fall within definition “of port”. Hence, the taxpayer was eligible to claim deduction u/s. 80-IA for expenses towards repair and maintenance of said multipurpose berth at a dock complex

The taxpayer was engaged in the business of terminal port operations. It claimed deduction u/s. 80-IA for expenses towards repair and maintenance of multipurpose berth at a dock complex. The Assessing Officer denied the said claim on ground that letter issued by

the port authorities to the taxpayer did not specifically state that the berth was a part of port at said dock complex. Since the concerned port authority issued a certificate stating that the berth at dock complex was granted to the taxpayer on leave and license basis, same would be an exclusive right granted to the taxpayer to maintain the facility for storage, loading and unloading, it would fall within the definition “of port”. As per the Circular No. 10, dated 16-12- 2005, the business activity of the taxpayer would fall within meaning of ‘port’ as per section 80- IA(I)(c) and it entitled to and allowed deduction u/s. 80-IA. (ITA No. 231 & 362 of 2017) (AY. 2004-05 & 2005-06)

PCIT v. T. M. International Logistic Ltd. (2022) 442 ITR 87 / 286 Taxman 101 / 211 DTR 281 /325 CTR462 (Cal.)(HC)

60. S.68 : Taxpayer who received share capital/ premium from various investors was able to demonstrate through sufficient documentary evidence about the identity, credit worthiness and genuineness of investors, no addition u/s. 68 is called for. Additions on account of bogus purchases were made on the basis of the statement of the MD of the taxpayer which were recorded during the search, however, since the entire sales and purchase transactions were duly verified and then original assessment orders were passed u/s. 143(3) and also since no incriminating material were found during search, such addition of bogus purchases was to be deleted. (r.w.s.69C)

The Assessing Officer made addition u/s. 68 in respect of share capital and share premium received on the basis of the recorded statement of the MD of the taxpayer during search. However, since taxpayer placed sufficient documentary evidence to establish that money which it had paid to investors was routed back to it in form of share capital/share premium and identity, credit worthiness and genuineness of investors was proved, there was no justification to make addition u/s. 68. Similarly, the Assessing Officer also made addition at the rate of 25% of the purchases by holding that the taxpayer booked bogus purchases to inflate expenses and to reduce its profits. Since, the entire sale and purchase transactions were duly recorded in the books of the taxpayer and were routed through regular banking channels and also all these details were verified during the original assessment proceedings and no incriminating material was found, the said addition was deleted.

The Assessing Officer also held that the cash deposits made by the taxpayer represented unaccounted income and made additions u/s.68 The Tribunal examined the data pertaining to cash sales and cash deposits made in relevant assessment year as against two earlier assessment years and noted that in year of demonetization percentage increase in sales was less than earlier year and hence held that growth in sales compared to earlier two years showed similar trend, and it could not be said that taxpayer had booked non-existing sales in its books post-demonetization. Thus, since the taxpayer placed material on record that cash deposits made with banks corresponded with cash sales, it could only be concluded that there was growth in taxpayer’s business and hence the impugned addition u/s. 68 was deleted.(ITA 68 to 73 of 2021) (AY. 2012-13 to 2017-18)

PCIT vs. Agson Global Pvt. Ltd. (2022) 441 ITR 550 (Delhi)(HC)

61. S. 80P : Co-operative societies

– Interest earned from deposits in other Co-Operative Banks – Entitled to deduction – Interest on deposits in Treasury – Not entitled to deduction [S.80P(2) (a) (i ), 80P(2)(d)]

Held that interest earned from deposits in other Co-Operative Banks is entitled to deduction and interest on deposits in Treasury is not entitled to deduction. Referred Mavilayi Service Co-Operative Bank Ltd. v. CIT (2021) 431 ITR 1 (SC) (AY.2011- 12, 2013-14, 2014-15)

PCIT v. Peroorkada Service Co-Operative Bank Ltd (2022)442 ITR 141 (Ker) (HC)

PCIT v. Vilappil Service Co-Operative Bank Ltd. (2022) 442 ITR 141 (Ker) (HC)

62. S. 115JB: Provisions of section 11JB will not apply to the taxpayer being a corporation established under Damodar Valley Corporation Act, 1948.

The provisions of section 115JB would be applicable only to entities registered and recognised to be companies under the Companies Act, 1956. Thus, in the case of taxpayer being a corporation established under Damodar Valley Corporation Act, 1948 and not registered under the Companies Act, 1948, the provisions of section 115JB would not apply. Explanation 3 to section 115JB inserted by the Finance Act, 2012 w.e.f. 01.04.2013 has prospective effect and thus would apply only from A.Y. 2013-14 onwards and not for the year under consideration. (ITAT No.12 of 2021, IA No. GA/1/2021) (AY. 2010-11)

PCIT v. Damodar Valley Corporation (2022) 209 DTR 401 / 324 CTR 462 (Cal.)(HC)

63. S. 132: Search and seizure- Statement recorded under Section132(4) during search is evidence and subsequent retraction must be supported by definite evidence showing duress and coercion

A search was conducted at the premises of the assessee on 7.12.1984 and 8.12.1984 in the course of which cash, jewellery etc. were seized. Held that, the statement corroborating the items found during search was evidence and there was nothing supporting the retraction of the statement namely that such statement was made due to coercion or under duress. Also, the retraction was belated. The burden of proving the statement retracted is false is on the person making it. Addition upheld.(T.C.A 23/2009 decided on 19.1.2022)(A.Y. 1995-1996)

A.J. Ramesh Kumar v. Dy. CIT [2022] 441 ITR 495 (Mad)

64. S. 132: Search and Seizure – Right to livelihood – Issuance of look out Circular on mere suspicion that assessee had bank accounts and investments in other countries – Cannot be basis for holding that assessee being allowed to travel abroad would be detrimental to the economic interests of India – Absence of proceedings under any penal law being initiated against assessee at relevant point of time – Indefinite continuance of look out circular on mere suspicion – Infringement of right to livelihood [Black Money (Undisclosed Foreign Income and Assets) and Imposition of tax Act, 2015 and the Prevention of Money-Laundering Act, 2002. TheIndian Penal Code, 1860, Art. 21226]

The assessee was a director in two companies which exported garments and had their registered offices in Delhi. On the basis of a warrant of authorization issued on February 5, 2019 under section 132(1) of the Income-tax Act, 1961 against a third party group a search was conducted at the assessee’s residence from February 6, 2019 to February 9, 2019. During this search, besides some loose papers, a hard disk, a digital video recorder, a key to a bank locker was seized and the statements of the assessee and his wife were recorded. Thereafter, a warrant of authorisation was issued on February 12, 2019 against the assessee and his wife for a search of the bank locker from wherein jewellery was seized. On February 25, 2019, a look out circular was issued against the assessee on the grounds that he had undisclosed foreign assets and interests in foreign entities liable for penalty and prosecution under the 1961 Act, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of tax Act, 2015 and the Prevention of Money- Laundering Act, 2002 . In the meanwhile, on April 4, 2019 the search operation at the assessee’s residence resumed under the initial warrant of authorisation issued on February 5, 2019, and continued till April 5, 2019, when after recording the assessee’s statement, a final panchnama was drawn up. The assessee’s requests for being provided with copies of the seized documents and the statements recorded during the search were not acceded to. On April 20, 2019, proceedings under the 1961 Act for the assessment for the financial years 2018-19 and 2019-20 were initiated against the assessee which culminated in two orders by which additional income was assessed against which appeals of the assessee were pending. The writ petition filed by the assessee challenging the search conducted in his residence and bank locker was dismissed by the court holding that the search actions conducted at the assessee’s residence and locker were justified. Upon learning about

the issuance of the look out circular against him, the assessee sought withdrawal thereof through representations and also submitted an affidavit, deposing therein that neither he nor any of his family members held any foreign accounts or any undisclosed assets and enclosed supporting certificates issued by the Government of Dubai. Thereafter, on August 6, 2019 the assessee filed an application before the Additional Chief Metropolitan Magistrate seeking to quash the look out circular. The Additional Chief Metropolitan Magistrate suspended the operation of the look out circular, subject to certain conditions and granted permission to the assessee to travel abroad except to the United Arab Emirates. Against this order, the respondents filed a revision petition before the Additional District Judge and the petition was allowed holding that since the assessee was neither a complainant nor an accused nor a witness in any matter pending before the Additional Chief Metropolitan Magistrate, the order suspending the look out circular was without jurisdiction. On a writ petition

,allowing the petition, the Court held that merely because the office memorandum dated December 5, 2017 permitted the issuance of a look out circular, in exceptional circumstances, even when the individual was not involved in any cognizable offence under the Indian Penal Code, 1860 or any other penal law, such power was meant to be used in exceptional circumstances and not as a matter of routine. It must therefore, be interpreted in a manner that indicated an offence of such a magnitude so as to significantly affect the economic interests of the country. Mere suspicion of a person opening bank accounts in other countries and of investing in a foreign company could not be the basis for holding that the assessee being allowed to travel abroad would be “detrimental to the economic interests of India”, when it was undisputed that this suspicion had remained a suspicion for almost three years. In the light of the adverse effects that the issuance of a look out circular could have on the individual’s life, the respondents’ plea that the court in its jurisdiction under article 226 should not examine the legality of the look out circular and review the decision to issue the look out circular could not be accepted. The continuance of the look out circular for almost three years without any cogent reasons forthcoming from them, was impermissible, and the respondents were not entitled to continue placing fetters on the assessee’s right to travel abroad in such a routine and mechanical manner without due consideration of the fact that even after almost three years there was still no sufficient evidence to charge the assessee under any penal law. The assessee earned his livelihood through export business and an integral part of such business was overseas travel. The look out circular not only curtailed his right to personal liberty but also his right to livelihood, as enshrined in article 21 . Therefore, the issuance of a look out circular against the assessee without any end in sight would definitely cause irreparable and considerable damage to the business interests of the assessee. The look out circular and the extension thereof were quashed, with a direction to the assessee to intimate respondent No. 3 as and when he departed from or entered the country for the next one year.

Vikas Chaudhary v. UOI (2022) 442 ITR 119 (Delhi) (HC)

65. S. 143 : Time limit granted by the Assessing Officer vide show cause notice should commence from the date of receipt of such receipt and thus completing the assessment before the time limit granted by the Assessing Officer was in violation of principles of natural justice. Matter remanded to the Assessing Officer.

Notice dt. 06.09.2021 issued by the Assessing Officer was received by the taxpayer only on

11.09.2021. The said Notice granted the taxpayer a period of 7 days for filing a reply to the draft assessment order. The Assessing Officer passed the assessment order on 08.09.2021 and raised demand by imposing penalty. On a writ petition, the High Court held that having granted a final opportunity of fixing a time limit, the time limit should commence to run from the date of the receipt of the notice and hence the date should be computed from 11.09.2021 and would expire on 17.09.2021. Thus, completing the assessment on 08.09.2021 i.e. well before the expiry of the said time limit is not sustainable and is in violation of principles of natural justice. The matter was remanded to the Assessing Officer for granting fresh opportunity to the taxpayer for filing reply/ objection to the draft assessment order and thereafter to take a decision on the merits of the case. (MAT No.1245 of 2021 and IA No. CAN 1 of 2021)

Pradip Kumar Sahu v. Union of India (2022) 442 ITR 231 / 210 DTR 190 / 325 CTR 110 (Cal.)(HC)

66. S. 143(3): Assessment – adequate opportunity of hearing provided but not availed by the assessee

– no violation of principles of natural justice – assessment order is valid.

It has been held by the Hon’ble High Court that adequate and ample opportunities of hearing was provided but the assessee had not availed of them. In the light of alternative remedy of appeal before the Ld. CIT(A) under section 246A of the Act being not only efficacious and effective but also tenable option owing to 25% of the demand under section 156 having been already deposited the assessee was relegated to the alternative remedy. There is no reason to interfere in writ jurisdiction with the assessment order and demand notice. (A.Y. 2017-18)

Mrs. Amjathkhan Sharmila Siraj v. ITO and Another [2022] 441 ITR 1 (Mad)

67. S. 143: Failure of the Assessing Officer in issuing a notice within the period of limitation u/s. 143(2)

i.e. the notice giving jurisdiction to the Assessing Officer to frame assessment cannot be condoned by referring to section 292BB.

Notice issued u/s. 143(2) giving the jurisdiction to the Assessing Officer to conduct assessment on the taxpayer was issued beyond the limitation period. The Tribunal quashed the assessment order and appellate order on this ground by holding that since the notice u/s. 143(2) is time barred, the consequent the assumption of jurisdiction of the Assessing Officer to frame assessment is invalid. On further appeal to the High Court, the Revenue argued that the said defect was curable u/s. 292BB. Dismissing the appeal of the Revenue, the High Court held that infirmities in the manner of service of notice would be amenable u/s. 292BB but not complete absence of notice itself. Notice beyond the limitation period would partake the character of a absence of a Notice itself in the eyes of law and as such 292BB would not come to the rescue of the Revenue. (ITA No. 282 of 2018) (AY. 2012-13)

PCIT v. Cherian Abraham (2022) 210 DTR 152(Kar.)/ (2022) 324 CTR 624 (Kar.)

68. S. 143(3): Assessment – Permanent account number – Draft assessment order – Amalgamation

– Observation made by single judge is vacated – Assessee relegated to statutory remedy of appeal to be decided on merits. [S.139A(5) 144C, Art. 226]

Dismissing the appeal against single judge in Mando Automotive India Pvt. Ltd. v. Dy. CIT (NO. 1) (2022)442 ITR 433 (Mad) (HC) held that in response to the notice under section 142(1) the assessee had twice brought to the knowledge of

the Assessing Officer about the amalgamation, the shareholding pattern and certain other details and therefore, the assessee was entitled to contend that the assessment could not be done on a non-existing person. This issue was a mixed question of law and fact. Therefore, the issue as to whether the assessment could have been completed by passing a draft assessment order on a “non-existing entity” was a matter to be decided before the authorities under the Act and not before a court. While dismissing the writ petition filed by the assessee the court had made certain observations which might affect the assessee when it availed of the remedies under the Act and such findings rendered by the court were vacated in their entirety and the assessee was granted liberty to avail of the alternative remedy before whichever authority provided under the provisions of the Act. (AY.2013-14)

Mando Automotive India Pvt. Ltd. v Dy.CIT (NO. 2) (2022) 442 ITR 443 (Mad) (HC)

Editorial: Mando Automotive India Pvt. Ltd. v Dy. CIT (NO. 1) (2022)442 ITR 433 (Mad) (HC) orderof single judge is affirmed with deleting observationson merits.

69. S. 144: Best judgment assessment

– Names struck off from Register of Companies – Grant of time to respondents to file counter – Affidavits – Assessment order [S. 147, Art, 226]

On a writ petition challenging the assessment order passed by respondent No. 2 under section 144 / 147 of the Income-tax Act, 1961 on the ground that it was issued in the name of a dissolved or struck off company and in the alternative seeking directions to respondent No. 3 to amend the Faceless Appeal Scheme, 2020 and make a provision for those entities against whom assessment had been made, despite being “struck off from the register of companies”, to be able to access and utilize their statutory right

of appeal and also requesting for an opportunity of hearing . The court, on the request of the respondents, stayed the assessment order and granted time to file their counter-affidavits.

Kaushik Kumar Gupta v. ITO (2022)442 ITR 449 (Delhi)(HC)

70. S.144B: Faceless Assessment – Where the show cause notice to be issued with the draft order is not uploaded and final assessment order passed, the assessment order is required to be quashed and set aside.

If the provisions of Section 144B of the Act have not been complied with and no notice along with the draft assessment order is issued, the assessment order is required to be quashed since the impugned assessment order is hit by the provisions of Section 144B of the Act.(R/Special Civil Application No. 7662 of 2021 decided on 5.10.2021)(A.Y: 2018-2019)

Gandhi Realty (India) Private Limited v. ACIT[2022] 441 ITR 316(Guj)(HC)

71. S.144B: Faceless Assessment – Where the order of assessment is passed without adhering to the principles of natural justice the order is to be quashed.

Where the order of assessment is passed because the petitioner was not responding to the notices issued to it, the order of assessment is to be quashed since the Department is undergoing a transitional phase with new provisions of faceless assessment and admittedly there were technical glitches on the portal at the time. Hence, a fresh opportunity of hearing is to be given.(WP (C) No. 19218 of 2021 decided on 23.12.2021)(A.Y: 2017-2018)

Bhima Jewels v. Pr. CIT [2022] 443 ITR 403(Ker)

72. S. 144B: Opportunity of personal hearing – Personal hearing is required to be given to the assessee when demanded.

The word ‘may’ used in Section 144B(viii) of the Act is to be construed as ‘shall’ and therefore an opportunity of personal hearing is mandatory while framing assessment order under section 144B of the Act. A personal hearing has to be given to the assessee when it asks for it.(W.P. (C) 14528/2021 and CM Appl. 45702/2021 decided on 14.1.2022)(A.Y: 2018-2019)

Bharat Aluminium Company Ltd. v. UOI [2022] 442 ITR 101(Delhi)

73. S. 144B : Faceless Assessment

– final assessment order passed without considering the reply filed and request for personal hearing –

It has been held by the Hon’ble Court that the final assessment order passed is an exact reproduction of draft assessment order without considering the replies filed and request for personal hearing. Thus, the impugned assessment order is not passed in accordance with procedure laid down under section 144B (9) and hence, the same has to be set aside.

Note: Departments SLP is pending before the Hon’ble Supreme Court for final adjudication. [SLP (C) No. 4906 of 2022]

Provisions of section 144B (9) has been omitted w.r.e.f. 01.04.2021 by Finance Act, 2022.

Mantra Industries Ltd. v. National Faceless Assessment Centre (NFAC or NEAC) and others [2021] 131 taxmann.com 165 (Bombay) / [2021]

283 Taxman 459 (Bombay) / [2022] 441 ITR 467(Bombay)

74. S. 144B: Faceless Assessment –

final assessment order is an exactreproduction of draft assessment order without considering the replies filed and request for personal hearing – invalid

Hon’ble Bombay High Court has again taken a similar view and quashed the assessment order passed in violation of principles of natural justice. Hon’ble court has also levied cost of Rs.10,000/- on the concerned assessing officer.

Milestone Brandcom Pvt. Ltd. v. National Faceless Assessment Centre and Another [2022] 441 ITR 470 (Bom)

75. S. 144B : Faceless Assessment – no specific request for personal hearing – assessment order passed without granting the personal hearing – valid. [S. 144B(7)]

Hon’ble High Court has held that where assessee did not make any specific express demand for a personal hearing, non-grant of personal hearing by Assessing Officer cannot lead to a case of breach of principles of natural justice (audi alteram partem) thereby enabling assessee to directly approach High Court under article 226 of Constitution especially in face of pending statutory appeal under section 246A of the Act.

Metharam Pinjani v. Income Tax Department (2022) 211 DTR 0185 (MP), (2022) 325 CTR 0346 (MP)

76. S. 144B : Faceless assessment – Assessment order passed without serving the show-cause notice and / or the draft assessment order, as contemplated under Section 144B(1)(xvi)(b) of the Act is contrary to the provisions of faceless assessment, hence assessment order set-aside with a direction to serve draft assessmentorder along with show cause notice to Assessee and complete the assessment proceedings.

Allowing the Writ Petition, the High Court held that the faceless scheme of statutory provision is incorporated with a purpose and is a facet of the principal of natural justice incorporated into the statue. When a variation to the return of income submitted by the petitioner was carried out, the same was made without issuing the draft assessment order or show-cause notice. The provision of Section 144B requires the draft assessment order and the show-cause notice to be furnished to the Assessee, eliciting his explanation. The impugned order of assessment has varied the alleged return filed by the petitioner. Since the assessment order falls foul of the principal of natural justice and hence is liable to be set aside. Consequently, penalty order under Section 274 shall also stand set aside. (W.P. No. 11389 of 2021, dt. 12-06-2021) (AY 2018-19)

Corpus Christi Educational Society v. AdditionalCIT & Ors. (2022) 325 CTR 230 (Ker) (HC)

77. S. 144B : Faceless assessment – (Personal hearing) – Assessment order passed without affording opportunity of hearing to Assessee though Assessee had sought for a personal hearing was remanded back to AO, who would grant an opportunity of hearing to Assessee and thereafter pass a reasoned order in accordance with law.

Allowing the Writ Petition of the Assessee, the High Court observed that Section 144B(7) of the Act provides for a personal hearing and hence it was incumbent upon the Revenue to accord a personal hearing to the Petitioner. Further, the Court observed that several requests had been made for personal hearing by the

Petitioner, none of which were dealt with by the Revenue. Hence, the impugned orders are set aside accordingly. (W.P.(C) No. 4989 of 2021, dt. 08-09-2021) (AY 2018-19)

Dar Housing Ltd. v. National E Assessment Centre Delhi (2021) 132 taxmann.com 29/ 284 Taxman 55/441 ITR 685 (Del) (HC)

78. S. 144B : Faceless assessment – Assessment order passed without serving the show-cause notice and / or the draft assessment order, as contemplated under Section 144B(1)(xvi)(b) of the Act is contrary to the provisions of faceless assessment, hence assessment order set-aside with a direction to serve draft assessment order along with show cause notice to Assessee and complete the assessment proceedings.

Allowing the Writ Petition, the High Court held

that the faceless scheme of statutory provision is incorporated with a purpose and is a facet of the principal of natural justice incorporated into the statue. When a variation to the return of income submitted by the petitioner was carried out, the same was made without issuing the draft assessment order or show-cause notice. The provision of Section 144B requires the draft assessment order and the show-cause notice to be furnished to the Assessee, eliciting his explanation. The impugned order of assessment has varied the alleged return filed by the petitioner. Since the assessment order falls foul of the principal of natural justice and hence is liable to be set aside. Consequently, penalty order under Section 274 shall also stand set aside. (W.P. No. 11389 of 2021, dt. 12-06-2021)

(AY 2018-19)Corpus Christi Educational Society v. Additional

CIT & Ors. (2022) 325 CTR 230 (Ker) (HC)

79. S. 144B : Faceless assessment – (Personal hearing) – Assessment order passed without affording opportunity of hearing to Assessee though Assessee had sought for a personal hearing was remanded back to AO, who would grant an opportunity of hearing to Assessee and thereafter pass a reasoned order in accordance with law.

Allowing the Writ Petition of the Assessee, the High Court observed that Section 144B(7) of the Act provides for a personal hearing and hence it was incumbent upon the Revenue to accord a personal hearing to the Petitioner. Further, the Court observed that several requests had been made for personal hearing by the Petitioner, none of which were dealt with by the Revenue. Hence, the impugned orders are set aside accordingly. (W.P.(C) No. 4989 of 2021, dt. 08-09-2021) (AY 2018-19)

Dar Housing Ltd. v. National E Assessment Centre Delhi (2021) 132 taxmann.com 29/ 284 Taxman 55/

441 ITR 685 (Del) (HC)

80. S. 144B: Faceless Assessment – Mandatory Draft order not passed

– violation of procedure – matter

Sub-section 9 of section 144B of the Act renders assessment under section 144 non est, if it is not made in accordance with the procedure laid down in the said section. Reading of sub-section 9 of section 144B of the Act clarifies that the procedure laid down under section 144B of the Act about breach of principles of natural justice is mandatory as sub-section 9 provides for consequences of rendering assessment in case of breach of procedure laid down in said section. Order quashed and set aside. Matter remanded back to the Ld. AO.

Golden Tobacco Ltd. v. National Faceless Assessment Centre (2022) 442 ITR 204 (Bom)(HC)

81. S. 144B: Faceless assessment – No draft assessment order.

Held that the provisions of section 144B of the Act are mandatory. Wherever an order prejudicial to an assessee is to be passed, it should be preceded by a draft assessment order. Where such an order was not passed and straight away a final assessment order was passed, such an order would be non-est and the Revenue will be at liberty to take fresh actions in accordance with the law.

Multiplier Brand Solutions Pvt. Ltd. v. Income-tax Officer and Others (2022) 442 ITR 202 (Bom)(HC)

82. S. 144B: Faceless Assessment – Request for video conference not provided – Violation of Principles of Natural Justice.

Where the Petitioner responded to the SCN and it also sought for a personal hearing, denial of the same is in violation of Principles of Natural Justice. Order set aside and remanded for de novo consideration.

Estra Enterprises (P.) Ltd. v. Additional/Joint/ Deputy/Assistant Commissioner of Income-tax/ Income-tax Officer, National Faceless Assessment Centre Delhi (2022) 442 ITR 112 (Mad)(HC)

83. S. 144B : Non-consideration of the reply given by the taxpayer in response to the show cause notice, the assessment order set- aside since the same has been passed without granting proper and meaningful opportunity to the taxpayer.

The taxpayer responded to the show cause notice much prior to the passing of the assessment order passed u/s. 143(3) r.w.s. 144B. There was no consideration of the reply filed by the taxpayer in response to the show

cause notice issued. On a writ petition to the High Court, it was held that the assessment order has been passed without giving proper and meaningful opportunity to the taxpayer to respond to show cause notice. The assessment order was set-aside to the National e-Assessment Centre for fresh consideration in accordance with law after giving due opportunity of hearing to the taxpayer. (WP No. 1927 of 2021 dt. 19.01.2022)

Pankaj v. National e-Assessment Centre (2022) 441 ITR 502 / 286 Taxman 228 / 211 DTR 313 / 325CTR 567 (Bom)(HC)

84. S. 144B : Non-issuance of show cause notice cum draft assessment order in Faceless Assessment proceedings tantamount to violation of principles of natural justice and consequently the assessment order, notice of demand and notice for initiation of penalty notice were set-aside. (r.w.s. 143(3))

Assessment Order along with the Notice of demand and the notice for initiation of penalty was passed/ issued under the Faceless Assessment proceedings without issuing the show cause notice and the draft assessment order. The High Court held that this tantamount to violation of the principles of natural justice and also the mandatory procedure prescribed by the Faceless Assessment Scheme. The Assessment Order, the notice of demand and notice for initiation of penalty were set aside and the matter was remanded back to the Assessing Officer to issue a draft assessment order and thereafter pass a reasoned order in accordance with law.(WP No. 7785 of 2021 dt. 05.08.2021)

Pardesi Developers Pvt. Ltd. v. National Faceless Assessment Centre (2022) 441 ITR 696 (Delhi)(HC)

85. S. 144B : Faceless Assessment – Opportunity of personal hearing not granted and reply of assessee is not considered – Violation of principle of natural justice – The word may in section 144B(7)(viii) should be read as must or shall and requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory- Matter remanded [S. 142(1), 143(3) 156, Art. 226]

Court held that an assessee had a vested right

to personal hearing and it ought to have been given, if the assessee had asked for it. No opportunity of personal hearing was given despite a specific request made by the assessee. The right to personal hearing could not depend upon the facts of each case. Despite “nil” variation proposed in the notice, additions had been made to the assessed income in the draft assessment order and the final assessment order. No notice, as mandatorily required by section 144B(1)(xvi), had been served upon the assessee with respect to the variations made in the income. The draft assessment order had also been issued without considering the reply which was submitted by the assessee in time in response to the notice issued under section 142(1). The classification made by the Department by way of the Circular dated November 23, 2020 issued by the Central Board of Direct Taxes was not founded on intelligible differentia and the differentia had no rational relation to the object of section 144B . The final assessment order and the notice of demand were set aside and the matter was remanded back to the Assessing Officer to issue notice and a draft assessment order and thereafter pass a reasoned order in accordance with law. Matter remanded. Relied on Raghunath Thakur v. State of Bihar [1989] 1 SCC 229, Gautam (C. B.) v. UOI (1993) 199 ITR 530 (SC) and Sahara India (Firm)v.CIT (2008) 300 ITR 403 (SC). The word may in section 144B (7)(viii) should be read as must or shall and requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory. (AY.2018-19)

Bharat Aluminium Co. Ltd. v. UOI (2022) 442 ITR 101/ 285 Taxman 447/ 211 DTR 10/ 325 CTR 252(Delhi)( HC)

86. S. 144B: Faceless Assessment – Violation of principle of natural justice – Adequate opportunity of hearing not given – Order of assessment is not valid – Order is set aside. [Art. 226]

On writ the assessment order was set aside solely on the ground of non-adherence to statutorily ingrained principles of natural justice.(SJ)

Estra Enterprises Pvt. Ltd. v. NFACA (2022)442 ITR 112 (Mad) (HC)

87. S. 144B : Faceless Assessment

– Final order passed without issuing draft assessment order – Assessment order and subsequent demand notice is set [S.143(3), 144B(vii), 156, Art. 226]

On writ allowing the petition the Court held that the draft assessment order was not served on the assessee. The variation proposed in the draft assessment order was prejudicial to the assessee’s interest. Notice to the assessee in the form of a draft assessment order was not issued and a second demand was raised. The order passed under section 143(3) read with section 144B and the notices of demand under section 156 were unsustainable. The matter was remanded to the National Faceless Assessment Centre to complete the assessment proceedings by following the procedure as prescribed under section 144B. Matter remanded.( AY.2018-19)

Golden Tobacco Ltd. v. NFACE (2022)442 ITR 204/ 284 Taxman 292 (Bom) (HC)

88. S. 144B : Faceless Assessment

–Final order passed without issuing draft assessment order

– Matter remanded [S. 144B(1) (xvib), 156, Art. 226]

The assessment order was passed without issuing the draft assessment order as required under section 144B(1)(xvi)(b). According to the affiant, under section 144B(1)(xvi)(b) it was not mandatory and it was not indicated by the risk unit since the issue of draft assessment order fell within the purview of the risk unit. On a writ the Court held that there had been non-compliance with the mandatory procedure laid down under section 144B and hence the assessment order was non est. Therefore, the assessment order and the consequent demand and penalty notices were quashed and set aside. The matter was remitted back to act in accordance with law. Matter remanded.

Multiplier Brand Solutions Pvt. Ltd. v. ITO (2022) 442 ITR 202 (Bom.) (HC)

89. 144B : Faceless Assessment – Violation of Principles of natural justice – Order set aside – Matter remanded. [S. 143(3), 156, Art. 226] Allowing the petition the Court held that completing the assessment before the time granted to respond to the notice was not sustainable and was in violation of principles of natural justice. Having granted a final opportunity and fixing a time limit, the time limit should commence to run from the date of the receipt of the notice by the assessee and the time granted should be computed from September 11, 2021 and thus expired on September 17, 2021. The assessment order dated September 8, 2021 and the consequent demand notice under section 156 and the notice for initiating penalty proceedings were quashed. The matter was remanded to the respondents for granting fresh opportunity to the assessee for filing reply or objection to the draft assessment order-cum-notice and thereafter take a decision. Matter remanded.

Pradip Kumar Saha v. UOI (2022) 442 ITR 231 / 210 DTR 190 / 325 CTR 110 (Cal) (HC)

90. S. 144C : Reference to dispute resolution panel – Assessment Proceedings on remand – Procedure must be followed- Order is held to be not valid. [S. 92CA(4)]

Court held that pursuant to an order of remand, the respondent had passed the order dated March 6, 2017 for the assessment years 2010-11 and 2011-12 without passing draft assessment orders. The orders were not valid.( AY.2010-11 and 2011-12)

Volex Interconnect (India) Pvt. Ltd. v. ACIT (2022) 442 ITR 425 (Mad) (HC)

91. S. 144C : Reference to dispute resolution panel – Order passed on non-existent entity.

The assessee challenged a draft assessment order passed in the name of the amalgamating company after it had ceased to exist by way of a writ petition. Held that the assessee should challenge the same in the regular appellate proceedings as the assessee had not clearly intimated the Assessing Officer of the fact of amalgamation. (A.Y. 2013-14)

Mando Automotive India Pvt. Ltd. v. Deputy Commissioner of Income-tax (No. 1) (2022) 442 ITR433 (Mad)(HC)

92. S. 144C: Reference to dispute resolution panel – No draft assessment order.

Where, pursuant to the remand by the Tribunal, the AO had passed a final assessment order without first passing a draft assessment order, the same is in violation of section 144C of the

Act and the matter was remanded back to the AO to first pass the draft assessment order and then proceed in accordance with the law. (A.Y. 2010-11 and 2011-12)

Volex Interconnect (India) Pvt. Ltd. v. Office of the Assistant Commissioner of Income-tax (2022) 442ITR 425 Mad)

93. S.145 : Method of accounting

– Business expenditure – Advertisement expenditure – Allowable as revenue expenditure

– Method of accounting – v Proportionate completion method

– Profits Accounted for chit discount on completed contract method – Revenue neutral- Method of accounting justified [S.37(1), Chit Funds Act, 1982, 21(1(b)]

Allowing the appeals the Court held that given the rights of the subscriber, when section 21 of the 1982 Act provides for 5 per cent. of the chit amount to be given to the assessee as foreman which was stated therein as commission, remuneration or for meeting the expenses of running the chits, and when the dividend to the assessee as foreman had to come only from out of the discount, the Department was not justified in contending that the assessee could not adopt the completed contract method for income recognition. The assessee was justified in adopting the completed contract method to arrive at the real income. The assessee’s expenditure was related both to the administrative costs and to the advertisement costs. The expenses could not be viewed as relatable to the particular series alone, but as relating to the running of the business and were revenue expenditure of the relevant assessment year in which it was incurred. The fact that the advertisement referred to the beginning of a new series, per se, would not mean that it was

relatable to the conduct of the business of the assessee in general. The advertisement was more in the nature of information as to the business of the assessee and for its promotion. The plea of the Department that the change in the method of accounting was not bona fide was taken without any material. Except for the issue on mutuality relating to the assessment years 1988- 89 to 1995-96 and 1999-2000 the findings of the Tribunal to the extent regarding the method of accounting were set aside.( AY.1987-88 to 1995- 96, 1999-2000)

Shriram Chits and Investments (P.) Ltd. v. ACIT(2013) 85 DTR 144/ 85 Taman 356/ (2022) 442 ITR54 (Mad)(HC)

94. S. 147 : Reassessment – Concept of ‘change of opinion’ is in-built test to check the abuse of power by the AO – Hence, the initiation of the re-assessment proceedings on account of ‘change of opinion’ is not permissible in law.

Dismissing the appeal of the Revenue, the High Court observed that from the assessment order, it is evident that the AO, on perusal of the record available with him, came to a different conclusion and therefore, he cannot be permitted to change his opinion. The High Court held that it is settled law that the concept of ‘change of opinion’ is in-built test to check the abuse of power by the AO. Hence, the initiation of the re-assessment proceedings on account of ‘change of opinion’ is not permissible in law as the AO had examined all the relevant material furnished by the Assessee and had accepted the claim of the Assessee and the substantial question of law is answered in the negative and against the Revenue. (I.T.A. No.433 of 2011, dt 11-08-2021) (AY 2005-06)

CIT And Anr. v. Bharatiya Reserve Bank NoteMudran Pvt. Ltd., (2021) 2017 DTR 0283 / (2022)324 CTR 0311 (Kar) (HC)

95. S. 147 : Reassessment – Since the appeal filed by Assessee- bank challenging the re-opening and the consequent additions made by the AO on ground that an amount of loan repaid by Government to Assessee-bank on behalf of farmers under debt waiver scheme was to be added to income of Assessee-bank as same was already allowed as bad debt, involved mixed questions of fact and law as to validity of reopening and taxability of amount received under debt waiver scheme, the High Court was not a proper forum to decide such mixed question and matter was to be remanded back to AO.

The Assessee being a nationalized bank had

claimed deduction u/s 36(1)(viia) of the Act on account of provision for bad and doubtful debts which was allowed in original assessment order passed u/s 143(3) of the Act. The AO thereafter issued a reopening notice against Assessee-bank on ground that an amount of loan repaid by Government to Assessee- bank on behalf of farmers under debt waiver scheme was liable to be brought to tax as said amount was already allowed as bad debt, and hence AO passed a reassessment order making addition on account of such amount of loan. Assessee-bank contended that such amount being reimbursed by Government was only repayment of loan paid by Government instead of farmers and same could never be treated as income of Assessee-bank, hence, there was no new tangible material based on which assessment was reopened by AO. The CIT(A) and Tribunal however referred the matter back to AO. The High Court considering the above facts remanded the matter to the AO, stating that the Income-tax Act is a self-

contained Act and this Court u/s 260A of the Act in its appellate jurisdiction, is not the proper forum for deciding mixed questions of fact and law, with a direction to AO to consider all the issues raised by the Assessee-bank, without being influenced by any of the observations made by the Tribunal, and pass orders afresh, after providing reasonable opportunity to the Assessee-bank. (T.C.A. No. 61 of 2022, dt. 21-02- 2022) (AY 2011-12)

Indian Overseas Bank v. ACIT (2022) 138 taxmann. com 501 (Mad) (HC)

96. S. 147 : Reassessment –With in four years- Findings of the TPO are deemed to be in active consideration of the AO and reopening on the basis of said findings would amount to change of opinion.

Where the assessment was selected for scrutiny to verify outward remittances, reference was made to the TPO and the TPO had made certain observations regarding the transaction of reimbursement of employees cost, it would be deemed that the said transaction was in the active consideration of the AO and reopening the assessment to disallow such reimbursement would amount to a change of opinion. An assessment cannot be reopened simply on the basis of the assessment order passed in a subsequent assessment year. (A.Y. 2014-15)

Oracle Financial Services Software Ltd. v. Dy. CIT (2022) 442 ITR 160 (Bom)(HC)

97. S.147: Reassessment – Failure to disclose fully and truly all material facts necessary for assessment – If assessee has not disclosed facts or there is subsequent information reassessment is valid. [S.148]

Where the assessee did not disclose fully and truly all material facts during assessment and there was subsequent information with the Assessing Officer for reopening the assessment which was not disclosed during assessment proceedings, and the procedure in GKN Driveshafts was fully complied with, the reopening was valid. W.P. No. 24688 of 2017 and W.M.P. No. 26050 of 2017 decided on 2.7.2021) (A.Y: 2010-2011)

Chennai Network Infrastructure Ltd. v. ACIT [2022] 441 ITR 535 (Mad)

98. S.147: Reassessment – After the expiry of four years – Order passed after pursuing details furnished – Reassessment notice is not valid [S. 143(3), 148]

Dismissing the appeal, that it could not be said that there was any suppression on the part of the assessee in disclosing true and correct facts. The reassessment proceedings were initiated beyond the period of four years. Under the circumstances, the High Court was absolutely justified in quashing the reassessment proceedings and the notice under section 148 of the Act.( AY.2012-13)

ITO v. Kayathwal Estate P. Ltd. (2022) 442 ITR 507/ 213 DTR 209/ 326 CTR 494 (SC)

Editorial: Decision in Kayathwal Estate P. Ltd v.ITO (2022) 442 ITR 498 ( Guj) (HC) is affirmed.

99. S. 147 : Reassessment –With in four years – All relevant material in respect of employee costs reimbursed to overseas subsidiaries furnished in the course of original assessment proceedings – Change of opinion

– Reassessment notice is not [S. 92CA, 148, Art. 226]

Allowing the petition the Court held that all relevant material in respect of employee costs reimbursed to overseas subsidiaries furnished in the course of original assessment proceedings. Once a query is raised during the assessment proceedings and the assessee has furnished a reply thereto, it implies that the query so raised was a subject matter of consideration of the assessing authority. It is not an immutable rule that an assessment order should contain reference or discussion on such query. Reassessment notice is not valid. Relied on Aroni Commercials Ltd. v. Dy. CIT (2014) 362 ITR 403 (Bom)(HC)(AY.2014-15)

Oracle Financial Services Software Ltd. v. Dy. CIT (2022) 442 ITR 160/ 286 Taxman 469 (Bom)(HC)

100. S. 148: Reassessment – Notice

– intimation passed under section 143(1) is not an order of assessment e.f. 01-06-1999 – Thus, reassessment of income, in the absence of an order passed under section 143(3), does not arise.

The effect of deletion of Explanation to section 143 by Finance Act, 1999 is that intimation under section 143(1) of the Act ceases to be an order for the purposes of Section 264 of the Act. In the present case, no original assessment order under section 143(3) was passed and it was only an intimation under section 143(1) of the Act, which cannot be treated to be an order. Therefore, the question of reassessment of the income of the assessee by the Assessing Officer does not arise. (A.Y. 2007-08)

The Karnataka State Co-Operative Apex Bank Limited (Rep. By Its Secretary Sri C N Devaraj) v. Deputy Commissioner of Income Tax (2022) 211 DTR 63 (Kar), (2022) 325 CTR 212 (Kar), (2021)283 Taxman 98 (Karnataka)

101. S. 148 : Reassessment – Notice issued after four years from the end of the relevant assessment year – no allegation of any failure on part of assessee to disclose full particulars during the course of original assessment proceedings – reopening notice unjustified. [S. 5, S. 145]

In the present case Hon’ble High Court has held that reopening notice is issued to tax the retention money receivable by assessee from customers on completion of project by assessee on accrual basis. However, there is no allegation against the assessee on any failure on his part to disclose full particulars at the time of original assessment, nor there is any fresh tangible material brought out by the Assessing Officer on record justifying his exercise of power under section 147 of the Act. Therefore, the reopening proceeding is bad in law. (A.Y.2011-12)

M/s. Subrahmanyan Constructions Company Pvt. Ltd. v. Assistant Commissioner of Income Tax (2022) 324 CTR 0274 (Mad), (2021) 439 ITR 600 (Mad)

102. S. 148: Reassessment – Notice

– insolvency resolution approved by adjudicating authority – statutory dues not part of resolution plan – claim extinguished – reassessment proceedings

It has been held by the Hon’ble High Court that even a claim in respect of dues arising under any law for the time being in force including a claim under the Income Tax Act which is payable to the Central Government or the State Government would come within the ambit of operational creditors. The claim of operational creditors will include a claim of statutory authority such as the income tax department on account of money receivable pursuant to an imposition by a statute. On the date of approval of the resolution plan by the adjudicating authority, all such claims which

are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the resolution plan. The expression that no person will be entitled to initiate any proceedings would include proceedings in the nature of notice issued under section 148 of the Act.

Murli Industries Ltd. v. ACIT And Others [2022] 441 ITR 8 (Bom)

103. S.148: Reassessment – Change of opinion – Notice quashed

Assessee an individual was running a proprietorship concern, dealing with retail sales of IMFL, mobile phone” recharge vouchers business in the name of M/s Sandeep Enterprises and execution of works contract in the name of R.D Constructions. For AY 2009-10, the AO passed the assessment order on 22-11-2011 under s. 143(3) of the IT Act computing the taxable income at Rs.19,68,310, as against returned income of Rs.15,30,040/-. On 16-09-2013 department issued reopening notice u/s 148, which was challenged before the High Court. The Court observed that re-assessment has to be based on fulfillment of certain precondition and if the concept of ‘change of opinion’ is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. The Court held that AO has no power to review; he has the power to reassess. One must treat, the concept of ‘change of opinion’ as an inbuilt test to check abuse, of power by the AO. The meaning of the expression, ‘reason to believe’ had been explained in a number of Court rulings in the past and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen past assessments on mere change of opinion. Notice u/s 148 was quashed. (WP No.13480 of 2014, order dated 10-11-2021) (AY 2009-10)

Rama Devi Sabat v. Deputy Commissioner of IncomeTax & Ors. [2022] 324 CTR 241 (Ori) / 209 DTR0196 (Ori)

S.148- Notice before reopening of assessment- If there is information and tangible material reopening permissible- There is a failure to disclose fully and truly all material facts. [S.147]

If there is subsequent information with the Assessing Officer that the disclosure made by the assessee during assessment proceedings is not full and true, the assessing officer may reopen the assessment even if the reopening is done after four years.(R/Special Civil Application No. 7743 of 2021 decided on 19.8.2021)(A.Y: 2013-2014)

Bharatkumar Kalubhai Ghadiya v. ACIT [2021] 438 ITR 443 (Guj)

104. S.148 : Reopening of assessment

– Reasons to believe – If there are no reasons to believe income chargeable to tax has escaped assessment no reopening is [S.147]

The Assessing Officer must have reasons to believe income chargeable to tax has escaped assessment and approval/sanction for issuing notice wrongly taken cannot be said to be on account of human error and condonable. Reopening is therefore not valid. (R/Special Civil Application No. 17709 of 2018 decided on 19.3.2021)(A.Y: 2011-2012)

Bharatkumar Nihalchand Shah v. ACIT [2021] 434 ITR 621 (Guj)

105. S. 148 : True and Full disclosure

– beyond 4 years – reassessment not

Where Assessee during the year under consideration and the Assessee furnished the details as asked for and thereafter, after perusing the details so furnished by the Assessee, the Assessing Officer passed an order under section 143(3) of the Act. Therefore, it cannot be said that there was any suppression on the part of

the Assessee in not disclosing true and correct facts. The re-assessment proceeding initiated beyond the period of four years and under the circumstances, the High Court is absolutely justified in quashing the re-assessment proceedings and the notice under section 148 of the Income tax Act.

ITO v. Kayathwal Estate P. Ltd. (2022) 442 ITR 507 (SC)

106. S. 148: Failure to serve a copy of the Notice issued u/s. 148 before passing the re-assessment order would render the order as infructuous. Appeal filed by Revenue dismissed since no substantial question of law arise. Section 292BB was inserted in the Act in 2008 and cannot be given retrospective effect. (r.w.s.292BB)

Tribunal came to a factual finding that before passing the re-assessment order, notice of re- opening of the assessment was never served on the taxpayer or its authorised representative. This factual finding given by the Tribunal is not controverted and hence High Court held that no substantial question of law arose. The High Court further held that the Tribunal was correct in holding that section 292BB cannot be given a retrospective effect since the same was introduced in the Act in 2008. (IT Appeal No. 47 of 2020) (AY. 2007-08)

PCIT v. Mahla Real Estate Pvt. Ltd. (2022) 210 DTR 182 / 324 CTR 614 (Raj.)(HC)

107. S.148A : Inquiry before issuance of reassessment notice – notice under section 148 of the Act issued without complying with the provisions of section 148A of the Act – invalid. [Section 148]

It has been held by the Hon’ble High Court that reassessment notice issued under section148 on or after 01.04.2021 without complying with substituted provisions of section 148A which came into force on 01.04.2021 as per amended Finance Act, 2021 is void ab initio and the same has to be quashed.

Manoj Jain v. Union of India and others [2022] 441 ITR 418 (Cal)

108. S. 148A: Inquiry before issuance of reassessment notice – notice issued under section 148 without complying with the amended provisions of section 148A – invalid. [S. 3 of The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLRA)]

Hon’ble Delhi High Court has held that by virtue of section 3(1) of TOLRA Act, 2020, Central Government is empowered to issue notification for extending time limits for completion of actions laid down in specified Acts but is not empowered to postpone applicability of provisions enacted by legislature. Thus, Explanation A(a)(ii)/A(b) to Notification No.20/2021, dated 31.03.2021 and Notification No. 38/2021, dated 27.04.2021 to extend the applicability of erstwhile sections 147 to 151 beyond 31.03.2021 and defer operation of substituted provisions enacted by Finance Act, 2021 till 30.06.2021 are beyond the authoritative power of the Central Government. Hence, the same are ultra vires and consequently, null and void.

Mon Mohan Kohli v. Assistant Commissioner Of Income Tax & Anr. (2022) 209 DTR 0065 (Del),(2022) 324 CTR 0028 (Del), (2022) 441 ITR 0207(Delhi)

109. S.153C : Whether notice under section 143(2) to be issued

pursuant to section 153C notice- Principles of natural justice have to be complied with [S. 143(2)]

When a section 153C notice is issued to the assessee, a section 143(2) notice need not be issued but at the same time the principles of natural justice must be complied with which includes issuing a section 143(2) notice or issuing a section 142(1) notice which was done in the present case.(W.P. Nos. 3023, 3031, 3032,

3033, 3036, 3037 of 2020, W.M.P. Nos. 3540,

3547, 3545, 3550, 3546 and 3549 of 2020 decided

on 9.4.2021)(A.Y: 2012-2013;2013-2014;2014-

2015;2015-2016;2016-2017;2017-2018)

B. Kubendran v. Dy. CIT [2021] 434 ITR 161 (Mad)

110. S.154: Rectification of mistake apparent from record – Tribunal did not deal with assessee grounds – Appropriate remedy lies before the tribunal

Where the Tribunal did not deal with the assessee’s submissions and proceeded to dispose of the appeal, the correct approach would be to file an application before the tribunal for correction and if the tribunal passes an adverse order it is open to the assessee to take all remedies available in law.(I.T.A. No. 129 of 2021 and C.M. Appl. No. 19266 of 2021 decided on 10.12.2021)

Betoking Ltd. v. CIT [2022] 441 ITR 46 (Delhi)

111. S.158BB : In terms of section 158BB, the Assessing Officer has the authority to compute undisclosed income falling within the block period and if the books of accounts are not available or destroyed or where there is a suppression of sales, the Assessing Officer can estimate

the income of the taxpayer. When the taxpayer has placed material evidence viz. its profit & loss account and also of the sister concern with break-up of the figures, disallowance u/s. 69C cannot be sustained. (S.69C)

The taxpayer was carrying on real estate business. Pursuant to a search conducted in its premises, some incriminating materials were seized and the Assessing Officer found that the taxpayer had paid a certain sum to its sister concern for development work carried out by it but the accounts of the sister concern did not show the said receipt from the taxpayer for the said project and hence he made addition u/s. 69C treating the said expenditure as bogus expenditure. The Tribunal observed that the taxpayer had placed material evidences by producing the necessary documents as per its profit & loss account and also the profit & loss account of the sister concern with break- up figures and having considered these facts, the Tribunal allowed the appeal filed by the taxpayer. Hence the Revenue appeal was dismissed by the High Court stating that no substantial question of law arises. (ITA No. 471 of 2017) (Block period AY. 1991-92 to 24.01.2001)

PCIT v. Janson Investments Pvt. Ltd. (2022) 441 ITR 162 / 208 DTR 105 / 324 CTR 203 (Kar.)(HC)

112. S.158BB: Block assessment

– Computation – Undisclosed income – Even in the event, if the books are not available or are destroyed or there was a suppression of actual sales, it is open to the Assessing authority to estimate income, taking into consideration the totality of the circumstances – Departmentappeal dismissed for want of cross-examination.

Assessee Company was carrying on the business of real estate. Pursuant to search operation, proceedings were initiated u/s 158BC. The AO observed that the registered sale deeds and agreements to sell with respect to certain land was not recorded in the books and made an addition by extrapolating the rate from the agreement to sell and further applied the same to balance lands. AO also relied on statements of some of the farmers. The Tribunal restored back to AO and directed it to grant opportunity to cross – examine the farmers whose statement was relied. However, the AO in the second round confirmed the addition. The Court observed that u/s 158BB, the Assessing authority has to compute the undisclosed income falling within the block period, is not expected to assess the undisclosed income. Even in the event, if the books are not available or are destroyed or there was a suppression of actual sales, it is open to the Assessing authority to estimate income, taking into consideration the totality of the circumstances. The Court dismissed department’s appeal.

(IT Appeal No. 471 of 2017, order dated 27-09- 2021) (Block Period 1991-92 to 24-01-2001)

Pr. CIT v. Janson Investments (P.) Ltd. [2022] 138 taxmann.com 194 (Karnataka) / [2022] 441 ITR 162 (Kar)

113. S. 158BD: Block assessment

– Undisclosed income of any other person – agreements with the distributors conferring distribution rights of film – entire amount received prior to release of the film – entire amount is liable to be offered for tax. [Section 158BC]

In this case it has been held by the Hon’ble High Court that the contention of the assessee that it

did not receive entire amount as part of it had been waived as movie failed at box office is contrary to the fact as the assessee had already received entire amount from distributors much before release of film. Hence, addition of balance amount as undisclosed income under section 158BC is justified. (Block period 1-4-1987 to 17-3-1997)

M/s. Pyramid Films International v. Deputy Commissioner of Income Tax (Inv.) (2022) 211 DTR 0137 (Mad)

114. S.158BD : Block assessment – Undisclosed income of any other person – in examination of ledger accounts seized during search had come to a conclusion that assessee-partnership firm had already received entire amount from distributors much before release of film and therefore question of waiver would not arise. Appeal dismissed. (r.w. s.158BC)

Assessee-partnership firm was engaged in

production of feature films. It had entered into agreements with third parties for conferring on them distribution rights of film ‘Love birds’. Search operation was conducted on the Assessee. Assessing officer noticed that firm had not disclosed entire amounts received under agreements for assessment and hence treated the corresponding amount as undisclosed income for block period. Assessee contended that it did not receive balance amount as it had been waived as movie failed at box office and hence, it should not be treated as a concealed income. The Tribunal on examination of ledger accounts seized during search had come to a conclusion that assessee-partnership firm had already received entire amount from distributors much before release of film and therefore question of waiver would not arise. The Tribunal confirmed

the addition of balance amount as undisclosed income assessable u/s 158BC. The Court concurred with the findings of the Tribunal and Assessee appeal was dismissed. (Tax case Appeal no.1976 of 2008, order dated 19-01-2022) (Block period 01-04-1987 to 17-03-1997)

Pyramid Films International v. Deputy Commissioner of Income-tax [2022] 137 taxmann.com 413 (Madras) / [2022] 441 ITR 387 (Mad)

115. S. 192 : Deduction at source

– Salary -Failure to deduct ta at source – Plea of bona fide belief based on circular issued by employer for its own use — No clarification by Income-Tax Authorities – Levy of interest is valid [S.10(5), 133A, 201(1), 201(1A), 2B]

The assessee, the State Bank of India provided benefit of leave travel concession to its employees and while deducting tax at source from the salary of the employees, leave travel concession was considered exempted under section 10(5) of the Act read with rule 2B of the Income-tax Rules, 1962. A survey under section 133A of the Act was conducted in the business premises of the assessee’s head office and it was noticed that the assessee has given exemption under section 10(5) of the Act towards reimbursement of leave travel concession or leave fare concession for travel outside India and travel by long circuitous routes to the destination. The same practice was followed by all the branches of the bank. Proceedings under section 201(1) and (1A) of the Act were initiated by issuing show- cause notices. The Assessing Officer rejected the explanation offered by the assessee and considered the assessee an “assessee in default” under section 201 of the Act for making short deduction under section 192 of the Act and liable to pay the defaulted amount. This order

was confirmed by the Commissioner (Appeals) and the Tribunal. On appeals to the High Court Dismissing the appeals, the Court held that the service conditions and circulars issued by the Indian Banks’ Association is not a statutory circular and would not govern the Income- tax Department. The employees had directly travelled abroad and in the return journey, had visited places in India. The itinerary confirmed this. The charges towards the tour received by the tour operator demonstrated that it was the consolidated charges for the entire journey. In such circumstances, they could not be split up to avail of the benefit of leave travel concession or leave fare concession by the employees. That the plea of bona fide belief by the assessee placing reliance on the circular issued by the Indian Banks’ Association was untenable since no clarification from the Department was sought by the assessee on this aspect. The bona fide belief pleaded by the assessee was without any legal basis. Considering these aspects, the authorities had rightly held that the assessee was an “assessee in default” under section 201(1).(AY.2011-12, 2012-13, 2013-14)

State Bank of India v. ACIT (TDS) (2022) 442 ITR 363 (Karn)(HC)

116. S. 194A: Deduction at source – Interest other than interest on securities – Payments to statutory authorities.

Agra Development Authority is a statutory body constituted under UP Urban Planning and Development Act, 1973 and was covered by Notification No. S.O. 3489, dated 22-10-1970 and consequently the assessee was not required to deduct tax at source while making payments of interest. (A.Ys. 2012-13 and 2013-14)

Union Bank of India v. Additional Commissioner ofIncome-tax (TDS) (2022) 442 ITR 194 (SC)

117. S. 197 : Deduction at source –

Certificate for lower rate – Order

passed u/s 197 by the AO rejecting Assessee-Petitioner’s application for lower TDS being an order not discussing / containing applicability of relevant Articles of DTAA, etc. is required to be remanded back to AO for passing de-novo and well-reasoned Order.

The Petitioner in its application for certificate u/s 197 describes itself as an e-platform operator. In the later part of the same application the petitioner claims itself to be a university for the purposes of Article 12(5)

(c) of the DTAA between India and USA. The AO, in the impugned order holds the Petitioner is not eligible for the benefit of Article 12(5) (c) of the However, such order does not contain any reasoning or discussion on the applicability or otherwise of various sub- Articles of the DTAA to the factual position of the case. Consequently, the impugned order is hereby set aside with a direction to the AO to pass a de novo reasoned order after taking into account the amendments made to the provisions of Section 10(50) of the Act w.e.f. 01.04.2021. (W.P.(C) 14714/2021 & CM APPL. 46330-31/2021, dt. 22-12-2021) (AY 2021-22)

Coursera Inc. v. ITO, TDS and Ors (2022) 210 DTR 101 / 325 CTR 237 / 285 Taxman 06 (Del) (HC)

118. S. 201: Deduction at source – Failure to deduct or pay – assessee made ad-hoc provisions of expenses in respect of various services received to facilitate closing of the books without reference to any particular party

– No deduction towards the expenditure was claimed under these provisions – proceedings under section 201 / 201(1A) [S. 40(a)(ia)]

The assessee created head wise provisions of expenses on adhoc basis in respect of various services received to facilitate closing of its books without reference to any particular party. Such excess amounts of provisions created got reversed subsequently. No tax deduction at source was made in respect of such provisions. The Income Tax Officer initiated proceedings under Section 201(1)/201(1A) of the Act considering the assessee to be ‘an assessee in default’ in respect of the amount of tax which was not deducted at source on such provisions. On appeal CIT(A) and Appellate Tribunal upheld the action of the Income Tax Officer.

On further appeal by the assessee, Hon’ble Karnataka High Court held that non- identification of the payees in the provisions and the disallowance of deduction expenditure under Section 40(a)(ia) of the Act has not been rightly appreciated by the Tribunal. Further, if the deduction is not claimed for the expenditures made in the provision even in the return submitted and the same is offered to tax in the subsequent year after reversing the entries pursuant to the receipt of the bills/invoices by the payees, the matter has to be analysed having regard to, whether income has accrued to the payees to deduct tax at source. (A.Y. 2012-13 & 2013-14)

M/s. Volvo India Pvt. Ltd. (Rep by its Managing Director Sri Kamal Bali) v. Income Tax Officer (TDS) (2022) 210 DTR 299 (Kar)

119. S. 215 : Interest chargeable pursuant to order of assessment- Order of Deputy Commissioner not challenged – Benefit must be given accordingly [Rule 40/S. 215(4)]

If the Deputy Commissioner (AO) charges interest under Section 215 of the Act and the Deputy Commissioner (AO) on an application made by the assessee waives the interest

partially, and the same is not challenged, the assessee would have to comply with the order of the deputy commissioner and would have to pay interest accordingly. (Income Tax Appeal No. 100 of 2002 decided on 20.12.2021)

Bennett Coleman & Co. Ltd. v. Dy. CIT [2022] 441 ITR 25(Bom)

120. S. 220 : Collection and recovery

– Assessee deemed in default – Adjustment of refund in excess of 20 Per Cent of tax in dispute

-Held to be not valid – Directed to refund adjustment made in excess of 20 per cent – Stay granted till disposal of appeal by CIT(A) [S.156, 220(6), 245, Art. 226]

On writ the Court held that the refunds had been adjusted against outstanding tax demands by the Assessing Officer without mentioning that the assessee fell in the category mentioned in paragraph 4(B) of the office memorandum dated February 29, 2016. Without any order under section 245 having been passed the assessee was entitled to refund of adjustments made in excess of 20 per cent of the disputed tax demands for the assessment year 2016-17. The restrictive stay order dated February 11, 2019 issued by the Assistant Commissioner granting stay to the assessee only till December 31, 2019 was in violation of the directions of the Central Board of Direct Taxes and earlier orders of court wherein it had been held that the Assessing Officer must grant stay till the disposal of the appeal before the Commissioner (Appeals). (AY.2016-17)

Aditi Infrabuild and Services Ltd. v. A CIT(2022)442 ITR 50 (Delhi) (HC)

121. S.226(3) : Garnishee notice – Amounts taken pursuant to garnishee notice when no liabilityto pay income tax dues are liable to be refunded

When garnishee proceedings are initiated by the Revenue, any amounts collected without notice to the assessee are liable to be refunded if there is no obligation to make payment of taxes since the assessment order is set aside in appeal.(Writ Appeal No. 830 of 2014 decided on 4.10.2021)

ACIT v. Suntec Business Solutions (P) Ltd. and Ors. (2022) 324 CTR (Ker) 444

122. S. 237 : Refunds – Refunds due but issue pending appeal in the Apex Court – Refund allowed [S.240]

Refunds due to the assessee are bound to be made with interest even if the issue on the basis of which the refund is due is not settled and is pending before the Supreme Court. However, the refund will be subject to the orders of the Supreme Court.(W.P. (C) 14295/2021 decided on 15.12.2021)(A.Y. 1996-1997-2016-2017)

Amadeus IT Group SA vs. ACIT (2022) 325 CTR (Del) 246

123. S. 237: Refunds – No limitation prescribed under the section for granting refund.

The assessee had not filed a return of income under section 139(1) or (4). However, according to the assessee, it was entitled to certain refund of tax. Consequently, it filed an application under section 119 for condonation of delay in filing a return and claimed the refund. The Revenue rejected such application as it was filed beyond the period prescribed in section 139 and Circular no. 9 of 2015. Held that section 237 does not prescribe any time limit in claiming refund of excess tax paid. The right course of action for the Revenue upon receiving the application for condonation of delay was to issue a notice under section 148 of the Act to determine whether any refund was due. Accordingly, matter remanded back to the AO. (A.Y. 2011-12)

R. Pannerselvam v. Principal Commissioner ofIncome-tax (2022) 442 ITR 376 (Mad)

124. S.237 : Refunds – Reassessment –

Failure to file returns within time

– Notice of reassessment must be issued – Procedure laid down in Income-Tax Act must be followed by Income-Tax Authorities- Directed to examine the claim of refund within a period of three months. [S. 119, 147, 148, Art. 226]

Court held that where no return was filed, it was incumbent on the part of the Assistant Commissioner or the jurisdictional Assessing Officer to have issued a notice under section 148 of the Act to the assessee within the time prescribed under the Act, in which case, the question of the assessee filing an application before the Principal Commissioner under section 119 of the Act would not have arisen at all. Where the law mandates a particular thing to be done in a particular manner, it is incumbent on the part of the Income-tax authorities to follow such procedure. Failure to issue a notice under section 148 of the Income-tax Act, 1961 cannot be to the prejudice of the assessee, if ultimately it is found that the assessee was entitled to a refund. The respondents were directed to examine the refund claim independently and pass appropriate orders within a period of three months from the date of receipt of a copy of this order. (SJ) ( AY.2011-12)

R. Pannerselvam v. PCIT (2022) 442 ITR 376 (Mad) (HC)

125. S. 244A : Refund – Interest on refunds – Deduction of tax at source – Excess deduction – Interest payable to deductor –Interest to be calculated from payment of tax [S. 195(2)]

Held that where the payment of tax made by a depositor is in excess and the Department chooses to refund the excess payment of tax to the depositor, interest requires to be paid on such refunds. The case does not fall either under clause (a) or clause (b) of section 244A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the first of April of the assessment year. Simultaneously, since the said payment is not made pursuant to a notice issued under section 156 of the Act, the Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically refer to “as in any other case”, the interest is payable from the date of payment of tax. The deductor is entitled not only to refund of tax deposited under section 195(2) of the Act, but it has to be refunded with interest from the date of payment of such tax. Accordingly the interest had to be paid at the rate prescribed under section 244A(1)(b) for the period from the date of payment of tax, e., January 7, 2011.

Rohan Developers Pvt. Ltd. v. ITO (IT) (2022) 442 ITR 404 / 211 DTR 164 / 325 CTR 395 (Bom) (HC)

126. S. 245 : Refund – Set off of refunds against tax remaining payable – Opportunity of hearing not provided before adjustment

-Entitled to refund of adjustments in excess of 20 Per Cent.[S. 156, 220, 227, Art. 226]

On a writ petition seeking refund of the amount in excess of 20 per cent. of the total disputed tax demand for the assessment year 2013-14 adjusted against the refunds due for various assessment years. Allowing the petition, that in view of the mandate of law and the fact that refunds had been adjusted against outstanding tax demand by the authority without invoking section 245 and without following the due

procedure prescribed under the section inasmuch as no notice or opportunity of predecisional hearing had been provided to the assessee prior to such adjustment of refund, the assessee was entitled to refund of adjustments made in excess of 20 per cent. of the disputed tax demands.( AY.2013-14)

Ramesth Constructions Pvt. Ltd. v. Dy. CIT (2022) 442 ITR 181 / 209 DTR 462 / 324 CTR 337 (Delhi) (HC)

127. S. 245A : Settlement Commission

– Reference of pending applications to the Interim

Where petitions had been filed to challenge constitutional validity of amendments to section 245A and other related sections to discontinue the settlement commission w.e.f. 1-4-2021 on the ground that such amendment was arbitrary, illegal and void and infringing fundamental rights, thus unenforceable and unconstitutional, however, during pendency of writ petitions, CBDT came out with a press release, directing to admit all applications filed after 31-1-2021 and before 30-9-2021 and treat such applications as valid and process them as pending applications for consideration by Interim Board, writ petitions were to be disposed of with a direction to the Revenue to send applications for consideration by Interim Board.

Pichai Rajagopal Shiva Kumaar v. Union of India and Others (2022) 442 ITR 33 (Mad)

128. S. 245A : Settlement Commission

– Cessation of Settlement Commission – Pendency of proceedings as on 31-1-2021 – Constitutional validity of provision – Directions are issued to consider the applications by the Interim Board would be if theproceedings were pending as on January 31, 2021.[S. 245C, Art. 14,19(1)(g), 20(2), 21, 226]

Writ petitions were filed challenging the constitutional validity of the amendments to the 1961 Act in section 245A by inserting sub- clauses (da), (ea) and (eb), and sections 245B, 245BC, 245BD, proviso to sections 245C, 245D, 245DD, 245F, 245G, 245H and insertion of new sections 245AA and 245M by way of sections 54 to 65 of the Finance Act, 2021 with retrospective effect from February 1, 2021, on the ground that such amendments were arbitrary, illegal and void and infringed fundamental rights conferred under articles 14, 19(1)(g), 20(2) and 21 of the Constitution. In view of the order dated September 28, 2021 passed by the Central Board of Direct Taxes the assessees had no objection if their writ petitions were disposed of with a direction to consider the applications which were submitted on or before September 30, 2021, but they sought a clarification that consideration of the applications would be made treating the pendency of the proceedings as on January 31, 2021. It was stated by the Department that if a notice under section 148 for reopening the assessment or a notice under section 143 of the 1961 Act was given on or after February 1, 2021, then a direction for consideration of the application might not be given, to which objections were raised by the assessees referring to Explanation (iv) to section 245A(b) .The court observed that it had been agreed by the parties that the issue would be governed by Explanation (iv) to section 245A(b) and directed the respondents to send applications for consideration by the Interim Board, if submitted before September 30, 2021. The consideration of applications by the Interim Board would be if the proceedings were pending as on January 31, 2021.

Pitchai Rajagopal Shiva Kumaar v. UOI (2022) 442 ITR 33/ 212 DTR 401/ 326 CTR 219 (Mad)(HC)

129. S. 245C : Settlement Commission

– Settlement of cases – Conditions

– Order passed beyond period of limitation – stands vacated.

It was held that the Settlement Commission must fulfil its mandatory statutory duty in disposing of such applications as are referred to in section 245D(4A)(i) by the date specified therein except where prevented from doing so due to any reason attributable on the part of the applicant, and that an application in respect of which the Settlement Commission has been prevented from fulfilling the aforesaid mandatory statutory duty due to any reasons attributable on the part of the applicant shall abate on the specified date under section 245HA(1)(iv).

CIT (Central) v. RNS Infrastructure Ltd. [2022] 442 ITR 417 (Kar)(HC)

130. S. 245C : Settlement Commission

– Settlement of cases – Conditions

– Opportunity of being heard.

Where the Settlement Commission decided a matter by increasing the turnover/income and also the rate of profit only basis a Rule 9 report, without granting the assessee an opportunity to rebut any of the averments made in such report, the order was to be quashed and the matter was remanded to the AO to carry out assessment in accordance with the law.

Swamina International Pvt. Ltd. and Another v. Income-tax Settlement Commission (IT&WT) and Others (2022) 442 ITR 343 (Cal)

131. S. 245D : Settlement Commission

– Violation of principle of natural justice – No opportunity is given to raise objections to order – Order of Settlement Commission is set a side [S. 245C, 245D(3), 245D(4), Art, 226].

Allowing the petition the Court held that the report dated December 27, 2013 had been filed only on January 15, 2014, the date on which the application was heard by the Commissioner and orders were reserved. The procedural violation went to the root of the matter rendering the order of the Commission wholly unsustainable, in violation of the provisions of the Act and causing grave prejudice to the assessee. The consequence would be that the order had to be treated as an order in violation of principles of natural justice and to a certain extent beyond jurisdiction. Those were all grounds very much available to a court exercising jurisdiction under article 226 to interfere with the order. The order of the Settlement Commission rejecting the application of the assessee was not valid. Referred Jyotendrasinhji v. S. I. TripathI (1993) 201 ITR 611 (SC)

Swamina International Pvt. Ltd. v. ITSC (2022) 442 ITR 343 / 286 Taxman 26 (Cal) (HC)

132. S. 245D: Settlement Commission

– Limitation – Delay in passing order not due to assessee – Delay could be [S.245D (4), 245HA (1)(iv)]

During the pendency of scrutiny assessment proceedings, the assessee preferred an application before the Settlement Commission offering additional income. The Settlement Commission passed an order dated May 27, 2016 under section 245D(4) of the Act, and determined the total income and computed the tax liability. The assessee filed an application for rectification of the order before the Settlement Commission which came to be rejected. The assessee challenged the orders of the Settlement Commission which was allowed by the Single judge . On appeal division Bench dismissing, the appeal that the judgment in the case of Star Television News Ltd v. UOI (2009) 317 ITR 66 (Bom)(HC), UOI v. Star Television News Ltd (2015) 373 ITR 528 (SC) was not applicable to the applications filed subsequent to June 1, 2007. The single judge had meticulously arrived at a decision on marshalling the facts of the case vis-a-vis the ruling of Star Television News Ltd. with the relevant provisions applicable to the facts of the present case. The order was justified. (AY.2006-07 to 2012-13)

CIT v. RNS Infrastructure Ltd. (2022) 442 ITR 417/ 286 Taxman 509 (Karn) (HC)

133. S.246A : Appeal to CIT(A)- Petition to be dismissed if alternative remedy available

In a challenge to an assessment order under section 143(3) of the Act by way of a writ petition, it was held that since there is an alternative remedy by way of appeal to CIT(A) and even the delay can be condoned, the petitioner is not justified in invoking writ jurisdiction. (W.P. (MD) No. 20928 of 2021 and

W.M.P. (MD) No. 17533 of 2021 decided on 25.11.2021)(AY: 2017-2018)

Arunachalam Nadar Muthuraj v. ITO [2022] 441 ITR 107 (Mad)

134. S. 254(2A) : Appellate Tribunal – Stay – Delay in proceedings not attributable to assessee – Tribunal has the power to grant stay even beyond period of 365 days. [S.254 (1))]

Dismissing the appeal of the revenue the Court held that when the delay in proceedings not attributable to assessee, the Tribunal has the power to grant stay even beyond period of 365 days. Referred, DY. CIT v. Pepsi Foods Ltd (2021) 433 ITR 295 (SC). (AY.2009-10)

PCIT v. Michelin India Pvt. Ltd. (2022) 442 ITR 268 (Mad)(HC)

135. S. 254(2A) : Appellate Tribunal– Stay – Vacation after statutoryperiod – only if delay attributable to the assessee.

The question of law involved is whether the Tribunal is correct in law in allowing stay beyond a period of 365 days in contravention to the provision of Act stipulated in section 254(2A) of the Act read with the provision thereto? Relying on the decision of Dy. CIT v. Pepsi Foods Ltd. 433 ITR 295 (SC) it was held that any order of stay shall stand vacated after the expiry of the period mentioned in the section 254(2A) of the Act, only if the delay in disposing of the appeal is attributable to the assessee.

Pr. CIT v. Michelin India Pvt. Ltd. (2022) 442 ITR 268 (Mad)(HC)

136. S. 253 : Appeal to Appellate Tribunal – Monetary Limits for appeals by Department – Exceptions where appeal filed by special order of Board

Tribunal had rejected department appeals on ground of low tax effect. The department filed miscellaneous application for rectification of mistakes on the ground that the department appeals fell within the exception as the issue related to penny stocks. The miscellaneous application was rejected which was challenged by the Department before the High Court. The Court held that Circular No. 23 of 2019 dated September 6, 2019 {[2019] 417 ITR (St.) 4} read with the office memorandum dated September 16, 2019 cannot be held to be retrospective in nature. Since appeal was not filed in terms of special order of Board, the Tribunal order dismissing due to low tax effect was confirmed. Court followed the decision in case of Pr. CIT vs Anand Natwarlal Sharda (2022) 19 ITR-OL 38 (Guj)

(R/Special Civil application no.13610 of 2021, order dated 04-01-2022)

Pr. CIT v. Harish Keshavlal Patel [2022] 441 ITR 431 (Guj)

137. S. 263 : Commissioner – Revision of orders prejudicial to revenue

– Issue examined by the AO, revision not [S. 10A] Assessee, engaged in the business of software development claimed deduction under section 10A of the Act. The AO disagreed with the assessee’s computation and reworked the deduction. PCIT revised the assessment by alleging that the profit margin of the 10A unit was higher than the other units and that the AO had granted the deduction without applying his mind. Held that the AO had called for several details and made certain adjustments to the computation of deduction under section 10A, therefore, it could not be said that he had not applied his mind to the same. Accordingly, the order was not susceptible to revision. (A.Y. 2010-11)

Virtusa Consulting Services (P.) Ltd. v. Deputy Commissioner of Income Tax, Chennai (2022) 442 ITR 385 (Mad)(HC)

138. S. 263: Commissioner – Revision of orders prejudicial to revenue

– Tribunal to grant stay – qua demand only – not in cases of [S. 253]

Where the Petitioner filed an appeal against an order under section 263 of the Act and a Writ to keep the order of revision in abeyance until the order of the Tribunal, it was held that A careful perusal of section 253(7) of the Act makes it clear that power of ITAT to grant stay is qua a demand. Further, the order of revision kept in abeyance for 12 weeks and the Petitioner to move to ITAT for expeditious disposal of appeal.

Cognizant Technology Solutions India (P.) Ltd. v.ITAT, Chennai [2022] 442 ITR 352 (Mad)(HC)

139. S. 263 : Commissioner – Revision of orders prejudicial to revenue

– Order passed after enquiry – Order not erroneous – Free trade zone – Not necessary to maintain separate books of accounting for export unit – Circular and instructions – Binding on Income- Tax Authorities [S. 10A, 119]

Allowing the appeal the Court held that the circulars and instructions of the Central Board of Direct Taxes are binding on the Department the conclusion of the Principal Commissioner that it was necessary to maintain separate books of account was not sustainable. The finding of the Principal Commissioner that the Assessing Officer had not made any enquiry was absolutely vague. It was clear from the assessment order under section 143(3) that the Assessing Officer did conduct an enquiry and call for details, that the details were produced and that thereafter, the assessment was completed. Therefore, the finding of the Principal Commissioner in that regard was erroneous, and consequently, assumption of jurisdiction under section 263 of the Act was not sustainable. The Tribunal while testing the correctness of the order passed by the Principal Commissioner had also not dealt with the issues, which were specifically pleaded by the assessee. Therefore, the order passed by the Tribunal was also erroneous. The order of revision was not valid. The Central Board of Direct Taxes by Circular No. 1 of 2013, dated January 17, 2013 ([2013] 350 ITR (St.) 34), (AY.2010-11)

Virtusa Consulting Services Pvt. Ltd. v. Dy CIT(2022) 442 ITR 385 (Mad) (HC))

140. S. 264 : Commissioner – Revision of other orders – Binding precedent – Subordinate Authority to follow the ruing of Higher Authority – Rejection of revision petition on ground thatappeal pending in High Court on similar issue against order of Tribunal – Held to be not proper

– Matter remanded for de novo consideration. [S.260, Art.226]

The Commissioner rejected the petition on the grounds that though the Tribunal had deleted the addition made by the Assessing Officer on account of interest earned from fixed deposit by the assessee for the assessment years 2012- 13 to 2015-16 the Department had not accepted the decision of the Tribunal and had filed an appeal before the High Court and that various courts had held that interest earned under similar circumstances and facts to be of revenue in nature and liable to tax. On a writ petition the Court held, that unless there was a stay by a competent court of the operation of the order of the Tribunal, the Principal Commissioner should give effect to the order and pass an order in accordance with law. The order of the Tribunal or the operation of the order had not been suspended by any court. The Principal Commissioner should grant a personal hearing to the assessee and provide an opportunity to rely on or distinguish any judgments or order passed by any court or Tribunal and consider the assessee’s submissions in the assessment order. The order rejecting the assessee’s petition under section 264 read with section 260 was set aside and the matter was remanded for de novo consideration. Matter remanded. Referred UOIv. Kamlakshi Finance Corporation Ltd. [1992] Supp(1) SCC 443 (AY.2012-13 to 2015-16)

Karanja Terminal and Logistic Pvt. Ltd. v. PCIT (2022)442 ITR 400/ 211 DTR 161/ 325 CTR 392 (Bom) (HC)

141. 264 : Commissioner – Revision of other orders – Order of Higher Authority not followed by Lower Authority.

Where the Commissioner rejected revision on the ground that in the subsequent years the

Department has preferred an appeal against the order of the Tribunal. It was held that the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department and is the subject matter of an appeal cannot be a ground for not following it unless its operation has been suspended by a competent Court.

Karanja Terminal and Logistic Pvt. Ltd. v. Pr. CIT (2022) 442 ITR 400 (Bom)(HC)

142. S. 271(1)(c) : Penalty – Inaccurate Particulars – Faceless Penalty Scheme, 2021 – Opportunity of being heard.

An order was passed under section 271(1)(c) levying penalty for furnishing inaccurate particulars of income. In terms of the Faceless Penalty Scheme, 2021, the AO had to consider the assessee’s request for a personal hearing. Held that in the present case, since the penalty order was passed without deciding on the assessee’s request for personal hearing, the matter was to be remanded back to the AO to consider such request and then pass the order. (A.Y. 2016-17)

Ramco Cements Ltd. v. National Faceless Assessment Centre and another (2022) 442 ITR 279 (Mad)

143. S. 271(1)(c) : Penalty levied u/s. 271(1)(c) for the reason that while making transfer pricing adjustment, capacity utilisation as claimed by the assessee was denied could not tantamount to filing of the return of income without good faith and due diligence so as to attract penalty u/s. 271(1)(c)

The taxpayer was engaged in the business of rendering software development services and also in development of smart card related applications. The Transfer Pricing Officer made adjustments on account of provision of software development services and purchase of raw materials for SIM card assembling on which the Assessing Officer levied penalty u/s. 271(1)(c). The Tribunal deleting the said penalty observed that the reason for making the said adjustments was denial of capacity utilisation claimed by the taxpayer and held that the same could not tantamount to filing of return of income without good faith and due diligence so as to attract the levy of penalty u/s. 271(1)(c). On further appeal by the Revenue, the High Court held that there was no infirmity in the order passed by the Tribunal and dismissed the appeal since no substantial question of law arose in the appeal filed by the Revenue. (ITA No. 141 of 2020) (AY. 2007-08)

PCIT v. Giesecks & Devrient India Pvt. Ltd. (2022) 285 Taxman 408 / 210 DTR 197 / 325 CTR 117(Delhi)(HC)

144. S. 271(1)(c) r.w.s. 32(1)(iia) –

Penalty – Additional depreciation claimed on the basis of audit report – penalty deleted.

During the year Assessee-company had commenced the production and prior to said year, he was not engaged in the business of manufacturing. Assessee claimed additional depreciation for plant and machinery u/s 32(1) (iia) on strength of Tax Audit Report. However, Assessing officer disallowed claim on ground that production had been started in current year by assessee and therefore it could not be said to have been already engaged in business of manufacturing. He further levied penalty u/s 271(1)(c) on ground of concealment of income. The Court observed that Assessee had made a claim of depreciation on the strength of Tax Audit Report, and necessary declaration were made, and merely because the claim on merit was not granted, penalty could not be levied. Department appeal was dismissed. (R/Tax Appeal No. 248 of 2021, order dated 11-10-2021) (AY 2011-2012)

Pr. CIT v. Intas Pharma Ltd. [2022] 138 taxmann. com 474 (Gujarat)/ [2022] 441 ITR 141 (Guj)

145. S. 271(1)(c) : Penalty – Concealment – Faceless penalty scheme – rejection of request for personal hearing – Order set aside [S. 144B, 274, Art. 226]

Allowing the petition the Court held that the assessee had asked for a personal hearing of its objections. This personal hearing was not a matter of right but was at the discretion of the Chief Commissioner or the Director General in charge of the Regional Faceless Penalty Centre. The order did not say anything about whether the request for personal hearing was acceded to or not. The order was not valid. (The order passed by the first respondent was set aside solely on the ground that a decision regarding the assessee’s request for personal hearing had not been decided one way or the other in accordance with the Scheme.)(The Faceless Penalty Scheme, 2021 [2021] 430 ITR (St.) 2) (AY.2016-17)

Ramco Cements Ltd. v. NFAC (2022)442 ITR 279 (Mad)(HC)

146. S. 271C : Penalty – Failure to deduct at source- Interest on fixed deposits – Agra Development Authority – Statutory Body- Not liable to deduct tax at source – Levy of penalty is not valid [S. 194A(3)(iii)(f), Uttar Pradesh Urban Planning And Development Act, 1973]

The assessee-bank had various fixed deposits of the Agra Development Authority, a statutory

body constituted under the provisions of the Uttar Pradesh Urban Planning and Development Act, 1973, under different identifications for many years. For the assessment years 2012- 13 and 2013-14, penalty under section 271C of the Income-tax Act, 1961 was imposed on the bank for failure to deduct tax at source on payments of interest on these deposits to the Authority. The Tribunal and the High Court affirmed these orders. On appeal to the Supreme Court :allowing the appeals, that the Agra Development Authority had been constituted under the Uttar Pradesh Urban Planning and Development Act, 1973 and was covered by notification dated October 22, 1970 (Notification No. S. O. 3489 Dated October 22, 1970.) Issued under section 194A(3)(iii)(f) of the Income-tax Act, 1961, notifying payments to “any corporation established by a Central, State or Provincial Act” to be exempted from the requirement of tax deduction at source. The orders levying penalty were liable to be set aside.(AY.2012-13, 2013-14)

Union Bank of India v. Add. CIT (TDS) (2022) 442 ITR 194/ 211 DTR 308/ 325 CTR 505/ 286 Taxman 353 (SC)

147. S. 271G : Penalty – Documents

– International transaction – Transfer pricing – Conduct of Assessee can be considered as a reasonable act of an organization acting with prudence under normal circumstances without negligence or inaction or want of bonafides, hence no penalty u/s 271G can be invoked.

The conduct of the Assessee in complying with 12 items out of 16 items as called for by the TPO can be considered as a reasonable act of organization acting with prudence under normal circumstances without negligence or inaction or want of bonafides. There is no finding recorded

by the AO that the conduct of the Assessee lacks bonafide or there was supine indifference on the part of the Assessee in not producing the records called for by the TPO, despite notice and despite fixing time frame and not furnishing all the details was on account of inaction leading to failure on the part of the Assessee to invoke Section 271G of the Act. Therefore, we are of the view that on facts, the Tribunal rightly held in favour of the Assessee by affirming the order passed by the CIT(A). (T.C.A.No.776 of 2014, dt. 05-08-2021) (AY 2006-07)

CIT v. M/s SSL-TTK Ltd. (2022) 209 DTR 331 (Mad) (HC)

148. S. 276C : Offences and prosecutions – Willful attempt to evade tax.

Mere non-payment of tax will not attract prosecution under section 276C. It has to be shown by the Revenue that non-payment was willful. In the present case, the assessee had subsequently made further payments of tax in 40 installments. Further, the property of the assessee was also attached but the same was not sold. The conduct of the assessee would show that there was no attempt at willful evasion of tax. In such circumstances, prosecution could not be sustained. (A.Y. 2013-14)

S. P. Velayutham v. Assistant Commissioner ofIncome-tax (2022) 442 ITR 74 (Mad)

149. S. 276C: Offences and prosecutions – Wilful attempt to evade tax – Self assessment – Default in payment of tax on time

– paying tax in instalments – No mala fide intention to evade tax. [S.140A(3) 226, 276(2)]

On a revision petition allowing the petition the Court held that on the facts and the nature of the complaint there was no intention or wilful attempt made by the assessee to evade

the payment of tax. Though the Explanation to section 276C is an inclusive one it was not the case of the Department that the assessee had made any false entry in the statements or documents or omitted to make any such entry in the books of account or other document or acted in any other manner to avoid payment of tax. From the inception there was no suppression and even in the reply to the notice the assessee had clearly stated the circumstances which had forced him to such default. If the intention of the assessee to evade the payment of tax was present from the very inception, he would not have made further payments. The statements filed by the Department also indicated that he had continuously paid the taxes in instalments. The assessee’s conduct itself showed that there was no wilful attempt to evade the payment of tax. The payment of tax in instalments probabilised his reply given to the notice but had not been considered by the Department. The criminal proceedings were quashed. (SJ) (AY.2013-14)

S. P. Velayutham v. ACIT (2022) 442 ITR 74 (Mad) (HC)

150. S. 281B : Provisional attachment

– Power must not be exercised in an arbitrary manner – Recovery proceedings against assignee of Partner’s Share in firm – Provisional Attachment Of Property Of Firm is not valid – Interpretation of taxing statute – The golden rule of interpretation of statutes is that the statute has to be construed according to its plain, literal and grammatical meaning, unless it leads to [Indian Partnership Act, 1932, S. 29]

In proceedings against an individual AS, to whom one of the partners of the assessee-firm

had assigned part of her interest in the firm, property standing in the name of the assessee- firm was provisionally attached on the ground that AS had paid cash consideration to the partner and thereby, derived 2.5 per cent. share in the profit from the partner. On a writ petition to quash the order of provisional attachment the Court held that the case on hand indisputably was not one of a sub-partnership though in view of section 29(1) of the Partnership Act, as an assignee may become entitled to receive the assigned share in the profits from the firm, not as a sub-partner because no sub-partnership came into existence, but as an assignee to the share of profit of the assignor-partner. The subject land not being the property of AS, was not open to provisional attachment. Even if the Department’s case that there was some interest of AS involved in the land in question, that would not make the subject land of the ownership of AS. The provisional attachment of the subject land under section 281B of the Act at the instance of the Revenue was not sustainable in law. A fine distinction was drawn by the Supreme Court in the case of Sunil J. Kinariwala (2003 ) 259 ITR 10 ( SC) between a case where a partner of a firm assigns his or her share in favour of a third person and a case where a partner constitutes a sub-partnership with his or her share in the main partnership. Whereas in the former case, in view of section 29(1) of the Partnership Act, the assignee gets no right or interest in the main partnership except to receive that part of the profits of the firm referable to the assignment and to the assets in the event of dissolution of the firm, in the latter case, the sub-partnership acquires a special interest in the main partnership. The golden rule of interpretation of statutes is that the statute has to be construed according to its plain , literal and grammatical meaning ,unless it leads to absurdity. (AY.2014-15 to 2019-20)

Raghunandan Enterprise v. ACIT (2022) 442 ITR 460 / 211 DTR 345 (Guj) (HC)

Salary to income-tax employees – General Principles – State a model Employer, is required to act fairly – State is under a constitutional obligation to ensure that equal pay is paid for equal work.

The CBDT issued instructions to all Chief Commissioners of Income-tax/Directors General of Income-tax by order dated May 9, 2013 under the provisions of which the post of peon and watchman (group D) were declared as dying cadre and therefore, the work for the post of peon and watchman should be taken by casual workers through outsourcing agency. The respondents were discharging their duties as peon and watchman respectively, but, they were not being paid the minimum wages. Similarly situated persons, those who were engaged directly by the Department, were being paid the minimum wages. Further those daily wagers, who were engaged prior to the year 2013, were being paid minimum wages and were getting an amount of Rs.16,300 per month, whereas, the respondents, who were engaged by the Department directly, were getting approximately Rs. 7,000 per month, less than the minimum wages. The Directorate of Income-tax, New Delhi had issued instructions dated October 23, 2018, whereby, Office Order dated May 13, 2013 was withdrawn and all Chief Commissioners of Income-tax/Directors General of Income- tax were directed to ensure compliance with the order dated October 23, 2018 immediately. In view of the instructions dated October 23, 2018, the Department started to engage the respondents through outsourcing agencies ignoring the fact that the respondents were directly engaged by the Department as casual workers. The respondents, who were engaged by the Department directly, were not being paid minimum wages, whereas, similarly situated casual workers were being paid the minimum wages. On writ petitions filed by the employees/ workers, the single judge observed that the daily wagers were engaged in 2013 and some casual workers were engaged prior to 2013 directly by

the Department, and therefore, merely on the ground that the daily wagers were engaged in 2013, the criteria of payment of minimum wages could not be changed. The single judge disposed of the three writ petitions with a direction to the Department to continue the daily wagers as casual workers in the Department as they were directly engaged by the Department and they should be paid minimum wages as were being paid to similarly engaged daily wagers who were engaged prior to 2013. The Appellate Court placed reliance on the decision in case of Sabha Shanker Dube v. Divisional Forest officer (2019) 1 Apex Court Journal 447, wherein Supreme Court had held that temporary employees are entitled to draw wages at the minimum of the pay scales which are applicable to the regular employees holding the same post. The Appellate Court thus was of the view that Single Judge had not erred in passing the judgment. The Court did not find any perversity and infirmity in the judgement warranting interference. Hence the decision was confirmed.

(Special Appeal No.88, 90 & 91 of 2021, order dated 08-03-2021)

Pr. CIT v. (1) Pankaj Singh Brijwal and Others / (2) Narendra Singh Bisht and Others / (3) Amar Ram and Others [2022] 441 ITR 713 (Uttarakhand)

151. Rule 58 Schedule II: Recovery of amount on sale of immoveable property – Amount deposited to be forfeited to government

If the amount of purchase money is not fully paid pursuant to sale of property during auction then the deposit of 25% would have to be forfeited to the government and cannot be claimed as credit of taxes to the assessee who has opted for Vivaad Se Vishwas Scheme, 2020. (CWP-5921-2021 (O&M) decided on 14.7.2021) (A.Y: 2009-2010)

Ashwani Kumar v. ITO [2021] 282 Taxman 470 (P&H)(HC)

Direct Tax Vivad se Vishwas Act, 2020

152. Vivad se Vishwas Scheme 2020 – Condonation of delay before the Tribunal – CBDT circular dated 04-12-2020

Assessee is an individual engaged in the business of manufacturing and trading of textile articles and also in business of shares and derivative trading. For AY 2014-15, the Department was of the opinion that Assessee’s speculative and non-speculative transactions were required to be calculated separately and further the turnover of the assessee was more than threshold limit for compulsory audit. This culminated into levy of penalty u/s 271B. CIT(A) appeal for AY 2014-15 was dismissed in 07-05-2019, against which he preferred an appeal before the ITAT on 09-12-2020 and the delay in filing this appeal was condoned by the ITAT on 28-01-2021. In the meantime, Assessee had filed an application under VsV scheme on 09-09- 2020 which was rejected by order dated 19-12-2020. Subsequently another application was filed on 25-02-2021 on delay being condoned by the ITAT which was also rejected on 22-03-2021 on the ground that the appeal filed by assessee before the Hon’ble ITAT is not covered by the circular issued by CBDT dated 04-12-2020 as the appeal in this case has been filed after the issuance of this circular. The High Court referring to FAQ 59 of CBDT circular dated 04-12-2020 as well as the clarifications observed that if the time period for filing appeal has already expired before 31-01-2020, but an application for condonation of delay was already been filed before the date of issuance of this circular, and order of condonation of delay was made by the competent forum, appeal shall be deemed to be pending as on 31-01-2020. In this context the question arose whether the specification of filing of application for condonation before the date of the circular is sacrosanct as to destroy the right of assessee to apply for settlement even if all other conditions are specified. Reliance was placed on the Telangana HC ruling in Boddu

Ramesh vs Designated Authority (2021) 6 TMI 1054 and the Gujarat HC ruling Maheshbhai Shantilal Patel v. PCIT (2021) 9 TMI 1237. The Court held that that the stand taken by the Department stand is not sustainable. The resolution of disputed taxes was the prime purpose of enactment of the Act and hence High Court adopted an interpretation which would further this intention instead of restricting its scope. If the CBDT circular is not read down as to remove the rigors of the cut off date by holding that the same is not sacrosanct the same may suffer from vice of arbitrariness.

(D.B. Civil Writ Petition No. 4178/2021, 4201/2021 & 4199/2021, order dated 17-02-2022) (AY 2014-15)

Rakesh Garg v. Pr. CIT & CBDT (2022) 211 DTR 0265 (Raj) / (2022) 325 CTR 0440 (Raj) / (2022)443 ITR 0137 (Raj)

153. S. 4 : Appeal filed along with application for condonation of delay – Tribunal condoned the delay – assessee is eligible to opt for the benefit under VSV Act. (r.w.s. 2)

In the present case the assessee had filed an appeal along with an application to condone the delay on 14.12.2020 and Tribunal condoned delay by order dated 23.02.2021. the Assessee filed declaration on 27.02.2021 for availing the benefit under the Direct Tax Vivad Se Vishwas, Scheme. However, declaration was rejected on ground that appeal with application for condonation of delay was filed only on 14.12.2020 and thus, appeal could not be deemed to be pending as on 31.01.2020 or extended date of 04.12.2020.

The assessee challenged the rejection order before the Hon’ble Gujarat High Court. Hon’ble court allowed the petition of the assessee by observing that Condonation of delay whenever is accepted by the Appellate Authority, the same would relate back to the original date of filing of the appeal, as if the appeal is filed within the time period given under the statute. Further, since time for filing declaration under the VSV scheme was extended upto 31.03.2021 by Notification No. 9/2021, dated 26.02.2021, it has to be construed that appeal filed by assessee was pending as on date of filing of declaration on 27.02.2021 and assessee would be entitled to opt for Vivad Se Vishwas Scheme. (A.Y. 1991-92 to 1994-95)

Maheshbhai Shantilal Patel v. Pr. CIT (2022) 210 DTR 0008 (Guj), (2022) 325 CTR 0075 (Guj),

(2021) 439 ITR 112 (Guj), (2022) 284 Taxman 694(Gujarat)

154. S. 4 & 2 : Appeal filed by the assessee before CIT(A) with a request for condonation of delay

– appeal dismissed by CIT(A) on 12.2020 by not condoning the delay – subsequently Tribunal condoned the delay vide order dt. 24.02.2021– appeals pending on the specified date i.e. 31.01.2020 – declaration filed under VSV Act was valid.

Assessment Order(s) passed on 12.01.2019 for five years. Taxpayer filed appeal(s) with CIT(A) on 07.04.2019 with an application to condone the delay of 84 days for filing the appeal(s). The applications for condonation of delay were rejected by the CIT(A) vide Order(s) dt. 28.12.2020. On further appeal, Tribunal vide Order dt. 24.02.2021 condoned the delay and set aside the Order(s) passed by the CIT(A). Declaration filed by the taxpayer under VSV Act, 2020 was rejected by the CIT by relying on CBDT Circular No. 21/2020. On a writ petition to the High Court, it was held that the appeals challenging assessment orders were pending on the specified date i.e. 31.01.2020 in terms of the decision of this High Court in the case of Karan

Ventakeshwara Associates v. ITO (WP No. 1999 of 2021) and hence the CIT could not have rejected the declaration filed by the taxpayer (WP No. 2058 of 2021 dt. 01.12.2021) (AY. 2011-12 to 2013-

14, 2015-16 & 2017-18)

Om Shivam Buildcon Pvt. Ltd. v. UOI (2022) 441 ITR 655 (Bom)(HC)

155. S.5 : VSV Act- Rejection of applications/declaration of the petitioner- Whether declaration is valid since appeal is pending before CIT(A) but delay has not been condoned for filing appeal[S. 246A]

Where the declaration filed by the assessee was not accepted by the Department because though an appeal had been filed, the delay had not been condoned, the department was directed to accept the declaration since an appeal pending before the CIT(A) would entitle the petitioner to be termed as an ‘appellant’ under the VSV Act even if the delay had not been condoned. (Special Civil Appln. No. 11847 of 2021 decided on 21.9.2021)(A.Y: 2014-2015)

Bhaskar Manubhai Mehta v. Designated Authority [2022] 441 ITR 186 (Guj)

156. S.3 TOLA Act – Whether notices issued after 1.4.2021 under unamended law are valid- Reassessment notices quashed. [S.148 Income Tax Act, 196]

Explanations A(a)(ii)/A(b) of Notification No. 20 [S.O. 1432 (E) dated 31st March, 2021 and Notification No. 38 [S.O. 1703 (E)] dated 27th April, 2021 are declared to be ultra vires the Relaxation Act, 2021 and are therefore bad in law and null and void. The reassessment notices are quashed with liberty to issue fresh notices as per the Finance Act, 2021.(W.P.O. Nos. 244 of 2021 decided on 17.1.2022)

Bagaria Properties and Investment Pvt. Ltd. andOrs. v. UOI [2022] 441 ITR 359 (Cal)

Interest-tax Act, 1974

157. 2(5B) : Charge of tax — Financial company – Transfer of distribution business to a new company – Matter remanded – Interpretation of taxing statute

– Charging provision must be construed strictly . [ S. 2(7 )]

Court held that the appellate authorities had failed to mention the sub-clause of section 2(5B) of the Act under which the assessee fell. The expression “financial company” as defined under section 2(5B) of the Act means “a company” carrying on activities as enumerated in sub-clauses (iv) to (v) thereof. The assessing authority had proceeded on the premise that the assessee fell within the meaning of “residuary non-banking financial company” whereas, the Commissioner (Appeals) confirmed the order of the assessing authority, treating the assessee as “any other financial company” and his order was affirmed by the Tribunal merely extracting his findings. These courses adopted by the appellate authorities were not correct. The aspect relating to identifying the “taxable person” is an essential criterion for the charge to get attracted. The order of the Tribunal was set aside and the matter was remanded to the Tribunal to examine the facts as regards the activity of the assessee, and set out under which sub-clause of the definition of “financial company” under section 2(5B) of the Act the assessee would fall so as to attract charge under the 1974 Act and thereafter pass appropriate orders. Referred CWT v. Ellis Bridge Gymkhana (1998) 229 ITR 1 (SC) “the rule of construction of a charging section is that before taxing any person , it must be shown that he falls within the ambit of the charging section by clear words used in the section and no one can be taxed by implication “(AY.1997-98 to 2000-01)

Dadha Pharma (P.) Ltd. v. ITO (2022) 442 ITR 93 (Mad) (HC)

Income Declaration Scheme, 2016.

158. 191 : Tax paid under the Scheme shall not be refunded – Paid two instalments – Default in paying final instalment – Seeking extension of time to pay third instalment – Request rejected by High Court – Direction that assessee be given benefit of amounts deposited towards first two instalments while reckoning tax liability of assessee after revised assessment. [S. 183, 185 Art, 226]

In pursuance of the Income Declaration Scheme,

2016 the assessee declared undisclosed income and out of the three instalments in which the amount could be paid under the Scheme, the assessee paid two instalments. The request of the assessee seeking extension of time to pay the third instalment to continue to avail of the benefit under the Scheme was rejected by the High Court. On appeal seeking adjustment of the amounts deposited towards the first two instalments so that in the tax liability computed by the Department after revised assessment, appropriate relief could be granted. The court on the facts directed that the assessee be given benefit of the amounts deposited towards first two instalments while reckoning the tax liability of the assessee after revised assessment.

Yogesh Roshanlal Gupta v. CBDT (2022)442 ITR 31/ 212 DTR 313/ 326 CTR 34/ 286 Taxman 95 (SC)Editorial : Order of Gujarat High Court is modified,Yogesh Roshanlal Gupta v .CBDT (2021) 432 ITR 91 /199 DTR 81/ 319 CTR 389 / 280 Taxman 278 (Guj) (HC)

159. Income Declaration Scheme, 2016 – S.263 – Commissioner – Revision of orders prejudicial to revenue.

Assessee is an individual filed return for AY 2014-15 which was picked up for scrutiny and accepted vide order u/s 143(3). Thereafter Assessee availed benefit under Income Declaration Scheme, 2016 and offered further income. The Principal CIT vide order u/s 263 set aside the order and directed AO to make certain additions. On appeal, the Tribunal held that once the income offered and the declaration under Income Declaration Scheme is accepted by the Department, the assessment order passed under section 143(3) of the Act cannot be revised as the items of addition in question directed by the Pr.CITof Income-tax was part of Income Declaration Scheme application and not part of the order passed under section 143(3) of the Act. Further, the Tribunal observed that once a person has availed of the benefit of the Income Declaration Scheme and paid tax, the Pr.CITof Income-tax cannot revise the assessment order under section 263 of the Act as it would be against the spirit of the Scheme. This order was challenged before the High Court. The Court observed that under the Scheme the competent authority has been vested with the power to accept the declaration made by the assessee and such power to be exercised only upon being satisfied with such disclosure. It was also open to such authority not to accept such declaration. But once accepted, it attains finality and the scheme does not empower or authorise the competent authority to reopen or revise a decision taken on such declaration. The Court observed that the Principal CIT had invoked his power under section 263 in respect of an item of income which was declared in terms of the Scheme, whereas all particulars were available before the Pr.CIT in respect of such income and the Pr.CIT upon being satisfied, had accepted such declaration. Therefore, the assumption of jurisdiction by the Pr.CIT under section 263 of the Act was wholly without jurisdiction.

(ITAT No.96 of 2021, IA No. G.A.1 and 2 of 2021, order dated 11-02-2022) (AY 2014-15)

Pr. CIT v. Manju Osatwal [2022] 443 ITR 107 (Cal)/ 211 DTR 0216 (Cal) / 325 CTR 0450 (Cal)

Prohibition of Benami Property Transaction Act, 1988

160. 5: Benami Transaction Limitation – Order passed within time limit – Delay in communication – Order not barred by limitation – Alternative remedy – Writ is not maintainable.[S.24(1), 24(3), 24(5), 26(3), 26(7), 46, 114 Art. 226]

On appeal by the revenue against the order of single judge Advance Infradevelopers Pvt. Ltd. v. Adjudicating Authority (2022)442 ITR 477 (Mad) (HC). The Division Bench held that the single judge was not correct in entertaining the writ petition, when there was an efficacious appeal remedy under section 46 of the Prohibition of Benami Property Transaction Act. Court also held that even on the merits the order under section 26 had been passed on September 26/27/28, 2019 within the period as mentioned under sub-section (7) of section 26, which was duly recorded in the register maintained by the authority as “order is passed accordingly”. The time taken for preparation of certified copies of the order, after getting notarisation from the Administrative Officer-cum-Registrar, on September 4, 2019 and September 11, 2019 and being booked for despatch on September 12, 2019 and September 13, 2019 to the respondents, were only procedural lapses and could not be understood as postponing the date of making the orders validly passed by the adjudicating authority, so as to invalidate the order. This was not a single case, but a batch of 69 cases with each order running to hundreds of pages. The period of 15 days from the date of passing of the orders to the date of dispatch (which period

was consumed for preparation of certified copies in triplicate), would certainly appear to be a reasonable period. The order passed under section 26 was not barred by limitation.

Adjudicating Authority v. Anuttam Academic Institutions (2022)442 ITR 509 (Mad)(HC)

Editorial : Decision of single judge reversed; Advance Infradevelopers Pvt. Ltd. v. Adjudicating Authority (2022)442 ITR 477 (Mad) (HC) (SJ)

161. Article 32 : Suo Motu cognisance- Extension of Limitation on account of Covid 19 Pandemic

In view of the COVID-19 pandemic the period from 15.3.2020-28.2.2022 will stand excluded for the purposes of limitation with respect to all judicial and quasi-judicial proceedings. Also, the balance period of limitation existing as on 3.10.2021 can be utilised on 1.3.2022. Also, in all cases where the limitation would have expired between 15.3.2020-28.2.2022, a 90 day period would be available from 1.3.2022 in all cases, however, if the limitation otherwise available is greater, the longer period will apply. Also, the period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing the periods prescribed Under Sections 23(4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.(Miscellaneous Application No. 21 of 2022 in Miscellaneous Application No. 665 of 2021 in Suo Motu Writ Petition (C) No. 3 of 2020 and Miscellaneous Application No. 29 of 2022 in Miscellaneous Application No. 665 of 2021 in Suo Motu Writ Petition (C) No. 3 of 2020 decided on 10.1.2022)

In Re: Cognizance for Extension of Limitation [2022] 441 ITR 722 (SC)