Statement under section 132(4) can be retracted
CIT initiated the revision proceedings u/s. 263 of the Income Tax Act on the ground that the Assessing Officer has accepted the retraction of the statement without verification of investment made in the agricultural land at Boribel, Malad, Tal. Daund, Distt. Pune. In the order u/s. 263 the CIT directed the Assessing Officer to make enquiry on the issue of undisclosed investment made in acquisition and development of agricultural land on account of which the director of the assessee has made declaration of undisclosed income. There is nothing on record to suggest that any evidence was found in the course of search action or post search enquiries to the effect that the assessee has made any investment over and above sale price detailed above with regards to agricultural land transaction in question. There is also nothing on record to suggest that any enquiry has been made by Revenue authorities to establish the nexus of disclosure with purchase of agricultural land in question. Revenue authorities have made no effort whether respective persons have disclosed purchase of agricultural land in their books of accounts in respective years which is not justified. Further, Revenue authorities have not bothered to look into the issue when assessee has submitted valuation report according to which value of land was stated to be Rs. 34,46,667/- at relevant point of time which is close to total value of land i.e., Rs. 34,51,575/-. Such clinching evidence should not be brushed aside by Revenue authorities. It amounts to violation of principles of natural justice because assessee was not provided due opportunity of hearing on issue. Moreover, Revenue authorities have not been able to establish nexus between unrecorded sale with investment in agricultural land. There is no cogent reasoning for reaching conclusion of undisclosed income in question.
The case of the assessee is that the statement/admission was made under the mistaken belief of law that Rs. 50 lakhs represents the sale value of stock found short was undisclosed income of the assessee instead of the correct legal position that the gross profit on suppressed sale is the income of the assessee. The assessee has tried to explain his mistake in the statement recorded on behalf of it. The assessee has accounted for the suppressed sales by way of declaration of gross profit on account of the suppressed sales. Assessee tried to clarify his stand immediately after the receipt of the statement recorded u/s. 132(4) on 20-05-02 and after realizing that there has been mistake in the statement. Such factual retraction should not be brushed aside without verifying the facts and circumstances of same. The addition in question is not justified while assessee has already declared gross proceeds on unaccounted sales as discussed above. The Assessing Officer is directed accordingly.
IN THE ITAT PUNE BENCH 'A'
Jyotichand Bhaichand Saraf & Sons (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle 11(1)
IT APPEAL NO. 08 (PN) OF 2011
[BLOCK PERIOD 1996-97 TO 2002-03]
JULY 27, 2012
ORDER
Shailendra Kumar Yadav, Judicial Member – This appeal filed by the assessee is directed against the order of CIT(A) dated 30-03-2010 relating to Block Period 1996-97 to 2002-03 on following grounds :
"1. On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income Tax (Appeal) erred in confirming addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the facts of the case in the proper perspective. The Hon'ble CIT(A) failed to appreciate the fact that no evidence in respect of additional investment in the agricultural land was found during the course of search action. The appellant prays that the disallowance may please be deleted.
2. On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income Tax (Appeal) erred in not considering the valuation report in proper perspective.
3. The Hon'ble CIT(A) directed the assessing officer to add gross profit of Rs. 4,73,262/- after giving a opportunity to assessee of being heard. The direction by the CIT (Appeals) amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence, exceeded his jurisdiction. The directions issued by the Hon'ble CIT (Appeals) to the assessing officer is bad in law. The appellant hereby requests that the direction may please be quashed".
2. Facts of the case, in brief, are that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune, under name and style Jyotichand B Saraf & Sons Pvt. Ltd., hereinafter called JBS in short. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. In the course of search action, physical inventory of stock was taken by the Income Tax Department. Stock of gold ornaments and jewellery as per physical inventory was 95,056 grams as against stock of 1,10,870 grams as per books of accounts of the assessee indicating a deficit of stock by 13,514 grams (After accounting for stock of 2300 grams on account of theft). Explaining the reason for deficit in stock Mr. Shantikumar Shah, Director of the assessee company in his statement recorded on 06-11-2001 u/s. 132(4) of the Income Tax Act, 1961 stated that there have been unrecorded sales which were not reflected in books of account and further stated that proceeds out of such sales were invested in purchase of agricultural land at Malad, Tal : Daund, District Pune and towards development of the said land and declared unaccounted income of Rs. 50,00,000/-. However, in a letter failed on 21-06-2002, assessee retracted from the statement given by Mr. Shantikumar Shah u/s. 132(4) in the course of search stating that the said admission was made under mistaken belief of law and fact. In fact he intended to declare profit earned out of the unrecorded sales and not the total amount of unrecorded sales. Assessee also retracted from the statement made by Mr. Shantikumar Shah that the sale proceeds out of the unrecorded sales were invested in purchase of agricultural land and instead contended that said investment was in fact shown as an advance of respective members of the family by company. Accordingly in the return filed on 23-07-2002 in response to notice issued u/s. 158BC, assessee declared undisclosed income of Rs. 4,01,321/- which included gross profit of Rs. 3,80,518/- on account of unaccounted sales relatable to shortage of gold ornaments. Assessing Officer accepted the contention of the assessee and assessed undisclosed income of Rs. 4,01,321/- as disclosed by assessee in the return filed. Subsequently the CIT (Central), Pune set aside the assessment order passed by the Assessing Officer u/s. 158BC dated 25-07-2003 vide his order u/s. 263 dated 14-03-2006 on the ground that said order of the Assessing Officer was erroneous and prejudicial to the interest of revenue in so far as Assessing Officer accepted the retraction of statement made u/s. 132(4) by Mr. Shantikumar Shah without verifying investment made in purchase of agricultural land at Malad, Tal: Daund, Distt. Pune and development expenses incurred to the tune of Rs. 50,00,000/- which was admitted by Mr. Shantikumar Shah as out of proceeds of unrecorded sales in the above said statement. The CIT also observed that prevailing value of the gold at the time of search was Rs. 4,601.80 per 10 grams as on the date of search. In the return filed value adopted by assessee was only 3,700/- per 10 gram, thus declaring gross profit of Rs. 3,80,518/- as against Rs. 4,19,055/- ought to have been declared as per then prevailing value. Consequently, concern Assessing Officer initiated assessment proceedings wherein he refused to accept retraction made by assessee from declaration of undisclosed income of Rs. 50,00,000/- made at the time of search stating that statement recorded u/s. 132(4) at the time of search has evidentiary value at par with material found in the course of search. Accordingly, the Assessing Officer proceeded to assess investment made in agricultural land of Rs. 50,00,000/- as undisclosed income of the assessee for block period. Further Assessing Officer observed that value of deficit stock totalling to Rs. 11426.97 grams noticed at the time of search was done @ Rs. 4601.80 per 10 gram, the value of which comes to Rs. 52,58,463/- and the gross profit on the same @ 9% works out to Rs. 4,73,262/-. However, assessee in the block return filed offered gross profit to the extent of Rs. 3,80,518/- only resulting in under declaration of gross profit to the tune of Rs. 92,744/-. Accordingly the said amount was added to the undisclosed income of the assessee. In the meantime, assessee approached the Tribunal against the order of the CIT (Central) passed u/s. 263 of the Income Tax Act, 1961 and though ITAT upheld the assumption of jurisdiction by CIT u/s. 263 it was observed by the Tribunal that CIT was justified in giving direction in his order u/s. 263 that certain amounts needed to be assessed as undisclosed income of the assessee. Modifying the order of CIT passed u/s. 263 the Tribunal directed the Assessing Officer to examine and verify the issue raised by CIT in his order passed u/s. 263. Consequently fresh assessment proceedings were initiated by the Assessing Officer.
3. Stand of the assessee before the Assessing Officer at this stage was that the unrecorded sales of assessee cannot be assessed as undisclosed income merely because assessee could not correlate/identify corresponding purchases. It was further contended that the shortage of stock itself indicate that all the purchases were accounted for properly but only sales were not accounted for. Therefore in respect of such unaccounted sales only gross profit ought to have been added instead of adding the entire unrecorded sales because investment in agricultural land was found at the time of search. Moreover the development expenses in respect of said land were incurred through crossed cheque by various family members/shareholders which are duly reflected in their respective books. Without prejudice to the above, it was contended that in case the Assessing Officer proceeds to assess the entire undisclosed sale of Rs. 50,00,000/- as undisclosed income same should be reduced by Rs. 4,01,321/- being gross profit already disclosed by assessee on the said unrecorded sales. However, the Assessing Officer refused to accept the retraction of statement made by Director of the company u/s. 132(4) at the time of search offering to declared undisclosed investments of Rs. 50,00,000/- holding that such retraction is clearly an afterthought as assessee failed to prove by leading evidence that said statement during search was given under threat or coercion. Accordingly retraction made by assessee vide his letter dated 21-10-2002 was rejected and entire amount of Rs. 50 lakhs declared in the assessment recorded u/s. 132(4) was drawn as undisclosed income of the assessee for block period under consideration. Since the entire unrecorded sale were assessed as undisclosed income no separate addition on account of suppressed gross profit in respect of such unrecorded sales were considered by the Assessing Officer.
4. Matter was carried before the first appellate authority who after considering the various statements put forward on behalf of the assessee dismissed the appeal by observing that Assessing Officer was justified in treating the amount of Rs. 50 lakhs as undisclosed income for the block period. Accordingly addition made on this account was justified and Assessing Officer was also directed to assess the gross profit of Rs. 4,73,262/- separately after giving opportunity of being head to the assessee.
5. Before us, stand of the assessee is that CIT(A) erred in confirming the addition of Rs. 50,00,000/- as undisclosed income on account of declaration of income during the course of search action on account of shortage of stock of gold without appreciating the facts of the case in the proper perspective. The CIT(A) failed to appreciate the fact that no evidence in respect of additional investment in the agricultural land was found during the course of search action and CIT(A) also erred in considering the valuation report in proper perspective. The direction to assessing officer to add gross profit of Rs. 4,73,262/- amounted to enhancement of assessment without giving an opportunity to the appellant in terms of section 251(2) of the I.T. Act and hence exceeded the jurisdiction. The directions issued by CIT(A) to Assessing Officer are bad in law. Accordingly the learned Authorised Representative requested to delete the addition in question and quash the direction given to Assessing Officer.
6. On the other hand, learned Departmental Representative submitted that CIT(A) was justified in confirming the addition of Rs. 50 lakhs on account of declaration of income during the course of search actions on account of shortage of the stock of gold. Assessing Officer was justified in rejecting the retraction of the statement made by Director of the company u/s. 132(4) at the time of search offering to declare undisclosed investment of Rs. 50 lakhs by holding that such retraction is clearly an afterthought as assessee has failed to prove by cogent reasoning that said statement was given under threat or coercion. The retraction made by assessee vide his letter dated 21-06-2002 was rightly rejected by the Assessing Officer and entire amount of Rs. 50 lakhs declared in statement recorded u/s. 132(4) was rightly held as undisclosed income of the assessee for block period under consideration. It was also submitted that CIT(A) was justified to direct the Assessing Officer to assess the gross profit of Rs. 4,73,263 separately after giving opportunity of being heard to the assessee. Accordingly the appeal filed by the assessee should be dismissed.
7. After going through rival submissions and material on record, we find that the assessee is a private limited company and is engaged in business of dealing in gold ornaments and jewellery at Baramati, District Pune. A search and seizure action under section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee situated at Jayashree Complex, Station Road, Pune on 06-11-2001. During the course of search action physical inventory of gold ornaments was taken by the search party. The stock of gold ornaments as per physical inventory was 95,056 grams as compared to stock of 1,10,870 grams as per books of account. Therefore, the actual stock found was short by 15,814 grams as compared to stock as per books of account. Mr. Shantikumar Shah, the Director of the assessee brought to the notice of search party that there was theft in shop premises about 6 months back and gold weighing 2,300 grams was stolen for which an FIR has been lodged with Baramati Police Station. Same was brought to the notice of search party. Therefore, the actual shortage of stock was 13,514 grams (15816-2300 grams) the value of which was arrived at Rs. 50,00,000/- considering the market rate of gold Rs. 370 per gram.
8. During the course of search action, statement of Mr. Shantikumar Shah, the Director of the assessee was recorded under section 132(4) of the Income Tax Act, 1961 on 6th November 2001. In response to question No. 27 of the statement, Mr. Shantikumar Shah agreed to declare the unaccounted income of Rs. 50,00,000/- equivalent to sale value of shortage of stock and he further stated that the cash generated from unaccounted sales was invested in purchase of agricultural land at Malad, Tal: Daund, Distt. Pune.
9. The assessee was given copies of the statement recorded under section 132(4) of the I.T. Act, 1961 on 20th May 2002. On receipt of the copy of the statement the assessee realized that there was a mistake in the declaration of income. The assessee instead of declaring gross profit on unaccounted sale represented by shortage of gold had wrongly declared the entire sale proceeds as unaccounted/undisclosed income. The assessee submitted a letter clarifying the mistake on 21st June 2002 to the Assessing Officer, placed at page 16 & 17 of paper book certified to be filed before authorities below, relevant portion of same reads as under:
"Subject: Mistake in the Statement Recorded Under Section 132(4) of the Act
Honourable Sir,
A search and seizure action u/s. 132 of the Income Tax Act, 1961 was carried out on the registered office of the company as stated above on 6th November 2001. During the course of search action statement of one of the Director of the company Mr. Shantikumar Shah was recorded on 6th November 2001 u/s. 132(4) of the Income Tax Act, 1961. The company in receipt of the notice under section 158BC(c) of the Act to file the return for the Block Period. We have received the copy of the statement of Mr. Shantikumar Shah on or about 20th May 2002.
During the course of search action jewelry/gold ornaments found as per physical inventory was 95,069.96 Grams (Net) whereas jewellery/gold ornaments as per books of account were 110870.75 Grams (Net). Thus there was short fall of 15,214.28 grams. Mr. Shantikumar Shah was asked the explanation for shortage of jewelry/gold ornaments. Mr. Shantikumar Shah brought to the notice of search party that there was theft in the shop and jewellery weighing 2,300 grams was stolen and FIR was lodged with the concerned Police Station. Therefore, there was actual shortage of jewellery to the tune of 13,514.28 grams. Mr. Shantikumar Shah in reply to question No. 27 of his statement stated that the shortage was due to unrecorded sales that is sale without bills. The total amount of unrecorded sale was arrived at Rs. 50,00,000 by applying gold rate of Rs. 3,700 per 10 grams to the shortage of 13514.28 grams. Mr. Shantikumar Shah further stated that the amount of unrecorded sale was invested in purchase and development of land at Malad, Tal Daund, Distt. Pune. He further agreed to declare the amount of unrecorded sale Rs. 50,00,000 as undisclosed income in the hands of company i.e. J.B. Saraf & Sons Pvt. Ltd. In this connection it humbly submitted as follows
(1) We have gone through the Statement of the director Mr. Shantikumar Shah and Panchanama of the jewellery found. In the Panchanama there are several mistake in physical verification of the jewellery. Similarly the valuer has, without application of the mind, determined gross weight and respective net weight of the jewellery. For example jewellery item "Thusi" is a pure gold item and it does not contain any alloys. However, the valuer has considered the net weight at 50% of the gross weight. (Please refer item no.29 page no.2 of the Panchanama). There are several other instances also. Similarly, the gold items in lying in silver section of the shop was not considered in valuing gold jewelelry summery. Such differences in jewellery weight are to the tune of 2,087 grams. The details of difference in gross weight and net weight and jewellery lying in silver section are given on separate sheets enclosed herewith. Therefore, actual shortage is 11426.97 grams as follows:
| a. | Shortage | 13,514.28 | |
| b. | Excess weight considered by search party | 1,637.31 | |
| c. | Gold lying in silver section not considered | 450.00 | |
| | 11,426.97 |
(2) Mr. Shantikumar Shah in statement agreed to declare the total sale proceeds of the unrecorded sale as undisclosed income. However, he intended to declare profit earned from unrecorded sale and the not the amount of total sale as undisclosed income. Your honour may kindly appreciate that the shortage in stock cannot be undisclosed income. What can be taxed is reasonable profit earned from such unrecorded sales. Therefore, the gross profit of about 9% percent on the unrecorded sale of Rs. 42,27,978 (11,426.97 Grams × Rs. 3,700/- per 10 Grams) i.e. Rs. 3,80,000/- may be the undisclosed income of the company.
(3) Your honour may kindly appreciate that during the course of search action no evidence was found indicating the undisclosed investment in agricultural lands at Malad Tal Daund Distt. Pune. Similarly, the development expenses are properly recorded in the books of account. There is no undisclosed investment in the land or the development of the land at Malad. The statement was given only with the intention of declaring unrecorded sale proceeds and profit arising from such sale. There was no intention to declare Rs. 50,00,000 as undisclosed income which may kindly be noted.
Your honour is requested to consider the mistake in the statement of Mr. Shantikumar Shah. Therefore, considering the above factual position the company declines to abide by the declaration made the director Mr. Shantikumar Shah and refuses to declare the undisclosed income of Rs. 50,00,000 (Rs. Fifty Lacs only) as agreed by Mr. Shantikumar Shah.
Kindly take note of the above and oblige.
Thanking you,
Yours faithfully,
For J.B.S & Sons Pvt. Ltd.
Sd/-
Director"
Subsequently the assessee submitted return of income declaring undisclosed income at Rs. 4,01,321/-. The undisclosed income was unaccounted profit on gold found short at the time of search action treating it as suppressed sale. The Assessing Officer completed assessment at Rs. 4,01,321/- on 25th September 2003 u/s. 158BC(c) r.w.s. 143(3) of the I.T. Act, in its first round.
10. The CIT set aside the assessment order vide his Order under section 263 of the I.T. Act dated 14th March 2006 on the ground that the said order was erroneous in so far as it was prejudicial to the interest of revenue. According to CIT the Assessing Officer accepted the retraction of the admission in routine manner without applying his mind. The CIT directed the Assessing Officer to make enquiry in respect of investment in purchase of agricultural land and expenses incurred on development of agricultural land at Malad Tal : Daund, Dist. Pune, because the assessee during search action had admitted that the cash generated out of unaccounted sale was invested in the said agricultural lands.
11. Concern Assessing Officer in set aside proceedings instead of verifying investment in agricultural land and development thereof, made various presumptions and made additions of Rs. 50,00,000/-as undisclosed income in addition to the gross profit of Rs. 4,01,321/- declared by the assessee in the return. Similarly, the Assessing Officer made addition of Rs. 92,744/- being difference in the gross profit worked out by the assessee on the cost instead of selling price. The Assessing Officer completed the assessment u/s. 158BC (c) r.w.s. 263 on 12th December 2006.
12. The assessee preferred the appeal before concern CIT(A) against assessment order. Meanwhile the assessee challenged jurisdiction of CIT to pass the revisionary order under section 263 before the ITAT Pune Bench, Pune, wherein ITAT, Pune Bench upheld the order of the CIT vide its order No. ITA 614/PN/2006 dated 31st July 2007 but with the modification as under:
"11. However, the CIT's that part of the order whereby he has given a finding or direction or has made an observation to assess certain amount as undisclosed income of the assessee is found to be not justified without making further enquiry or either by the A.O. or by the CIT himself. We, therefore, modify the order of the CIT by holding that the assessment order is to be set aside to the file of the A.O. to verify the issues dealt with by the CIT in his order, with a further direction to the A.O. to examine and verify these issues dealt with by the CIT in his order and take his own decision as per the law after examining and verifying all the materials and particulars available on record and after affording reasonable opportunity of being heard to the assessee.
12. In light of discussion made above, the order of the CIT under section 263 is upheld with the modification and observations made by us hereinabove."
Thus the assessment order was set aside to the file of the Assessing Officer to examine and verify the issue dealt with by the CIT in his order and pass order afresh.
13. The Assessing Officer initiated the assessment proceedings afresh in pursuance of the directions of the ITAT, Pune, as discussed above. The concern Assessing Officer asked the assessee vide letter dated 5th December 2008 to explain as to why Rs. 50,00,000/- should not be added as undisclosed income. Same was replied vide letter dated 18th December 2008. The assessee also submitted the valuation report of the approved valuer dated 20th December 2008 along with sale instance inter alia, the Government approved valuer Mr. Chintamani T. Ganpule certified the value of the agricultural land for the year 2001 at Rs. 34,46,667/-. Same is placed at page 71 of paper book which reads as under:
"This is to certified that, the undersigned has visited the village Madlad-Patas, Tal Daund, Distt. Pune for valuation of Agricultural land situated in Gat No.678/1 to 678/15, 662, 664, 311 admeasuring 37 Hector and 82 R i.e., 94 Acres and 22 guntha of Shri Shantikumar Jambukumar Shah and others 11, As per Index II 2001 which is enclosed here with the total valuation of Agricultural land for the year 2001 is of Rs. 34,46,667/- (i.e. Thirty Four Lacs Fourty Six Thousand Six Hundred and Sixty Seven only). To the best of my knowledge the valuation of above agricultural land is correct.
Sd/-
Shri C.T.Ganpule
Govt. Approved
Agrl. Land Valuer
Regd. No.CAT/II/427
of 1997″
In this background it was stated on behalf of assessee that the valuation report in respect of agricultural lands revealed that the assessee did not make any undisclosed investment in the agricultural land. In fact the assessee had acquired the agricultural land for the consideration of Rs. 34,51,575/- in the calendar year 2000 as detailed on page 72 of paper book same is reproduced below:
| Sr. | Date of Document | Type of Documents | Identification | Shiwar | Area under Documents in Hectors | Consideration | Name |
| 1. | 25.05.00 | Sale Deed | 678/11 & 12 | Malad | 03.03 & 03-02 | 375000 | Padamkumar J Shah & Sushma Shah |
| 2. | 25.05.00 | Sale Deed | 311 | Malad | 1.23 | 490000 | Padamkumar J Shah & Sushma Shah Sirishkumar J Shah & 7 Shah members |
| 3. | 25.05.00 | Sale Deed | 678/13 | Malad | 2.01 | 280325 | Padamkumar J Shah & Sushma Shah Sirishkumar & Mangal Shah |
| 4. | 25.05.00 | Sale Deed | 678/05 & 6 | Malad | 01.53 & 01.34 | 350000 | Swapnil Shah, Kaushal Shah Shatikumar, Shobha S Shah, Rohit Shah |
| 5. | 25.05.00 | Sale Deed | 678/07, 8, 9, 10 | Malad | 1.34 | 325000 | Sheetal Shah Sirishkumar, Manjal Shah, Swapnil & Kausar S.Shah |
| 6. | 25.05.00 | Sale Deed | 678/03 & 04 | Malad | 1.54 & 1.53 | 270000 | Sirishkumar, Manjal Shah, Swapnil & Kausar S.Shah |
| 7. | 25.05.00 | Sale Deed | 678/01 & 2 | Malad | 1.54 | 490000 | Smt. Swapnil Shah, Padmakumar Jambukar Shah, Shri Shital Shantikumar Shah |
| 8. | 20.01.00 | Sale Deed | 664 | Malad | 2.4 | 165000 | Shantikumar J. Shah, Sheetal Shah, Rohit Shah, Shobha Shah |
| 9. | 25.05.00 | Sale Deed | 678/14 & 15 662 | Malad | 5.19 | 300000 | |
| 10. | 05.09.00 | Sale Deed | 664 | Malad | 2.46 | 93750 | Srimati Archana Kausal Shah |
| 11. | 05.09.00 | Sale Deed | 664 | Malad | 2.45 | 93750 | Shital S Shah |
| 12. | 10.11.00 | Sale Deed | 284/06 | Malad | 0.03 | 75000 3307825 | Shantikumar J Shah |
| 13. | 05.09.00 | Sale Deed | 664 | Malad | 2.45 | 93750 | Rohit J Shah & Mrs. Tina R Shah |
| 14. | 10.11.00 | Sale Deed | 664 | Malad | 8.81 | 50000 | Shantikumar J Shah |
| 3451575 |
14. The Assessing Officer did not agree with the contention of the appellant and assessed the undisclosed income at Rs. 50,00,000/-being the sale value of gold jewellery found short. The Assessing Officer held that the gross profit of Rs. 4,73,262/- (Declared by the assessee in the block) is included in the undisclosed income of Rs. 50,00,000/- and hence, a separate addition on this account would amount to double taxation of the undisclosed income. Therefore, he restricted the total addition of Rs. 50,00,000/-.
15. The assessee preferred appeal before the CIT(A) against the order of the Assessing Officer who confirmed the addition of Rs. 50,00,000/- as the undisclosed income. The shortage of gold stock found at the time of search/survey action as compared to the stock as per books of account, the presumption is about unaccounted sale of difference between the actual stock found on physical verification and the stock as per book of accounts. The entire unaccounted sale price should not be treated as an undisclosed income. It is the gross profit embedded in the suppressed or unaccounted sale which should be added. The Assessing Officer has made addition of entire unaccounted/suppressed sales without appreciating the fact that the entire sales could not be added as the income of the assessee but the addition could be made only to the extent of gross profit earned on the unaccounted/suppressed sales. Hon'ble Gujarat High Court in CIT v. President Industries [2002] 258 ITR 654/124 Taxman 654 held that Tribunal was justified in holding that entire undisclosed sale could not be added as income of assessee. Addition could be made only to the extent of estimated profit embedded in sale for which net profit was to be adopted. Similar view was taken by ITAT Pune Bench in Janta Tiles v. Asstt. CIT [2000] 66 TTJ 695 (Pune). The Jodhpur ITAT Bench in Asstt. CIT v. Rasana Industries [2008] 114 TTJ 283 (JD) has held that when the stock is found short the addition could be made to the extent of GP involved therein. Only profit element can be subjected to tax and not the entire sales.
16. Addition of Rs. 50,00,000/- has been made solely on the basis of statement of the director of the assessee company Mr. Shantikumar J Shah without corroborating the same with the material unearthed by search. We find force in the submission of the Ld. Counsel for the assessee that the statement was given under the mistaken belief of law that suppressed sale is undisclosed income instead of the gross profit earned from the suppressed sales. The department has not brought on record any corroborative evidence so as to establish undisclosed income having been invested in agricultural land. Statement of the assessee cannot be sole basis without any cogent and corroborative evidence. This is the reason that the mistake in the statement is immediately clarified on the receipt of the statement by the appellant as stated above. Moreover, no material/evidence was found during the course of search action indicating on money payment or any undisclosed investment in agricultural land at Malad. The assessee has clarified the mistake in the statement immediately on receipt of the statement. Thus the statement has been retracted on realization of the mistake. The assessee has also submitted valuation report of agricultural land (along with sale instance) which certified the Fair Market Value at Rs. 34,46,667/- for the year 2001 when the agricultural lands under consideration were acquired (2000). The assessee has acquired the said land for the consideration of Rs. 34,51,575/- as indicated above. The Assessing Officer as well as CIT(A) have brushed aside the above mentioned valuation report as well as details of purchase of agricultural land at Malad by various family members as detailed above.
17. The Revenue authorities have heavily relied on the evidentiary value of the statement recorded u/s. 132(4) during the course of search action without appreciating the fact that the statement was given under mistaken belief of law that the suppressed sale is unaccounted/undisclosed income instead of correct legal position that the gross profit arising from unaccounted sale is the undisclosed income. It is a settled position that admission made by the assessee u/s. 132(4) is an important piece of evidence but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and the same is given under mistaken belief of fact or law. Statement of Mr. Shantikumar Shah indicate that he was not mentally composed at relevant point of time. There is nothing on record to suggest that said undisclosed income declared on behalf of assessee has nexus with undisclosed investment in the said agricultural land. Amritsar ITAT Bench in Asstt. CIT v. Janak Raj Chauhan [2006] 102 TTJ 316, observed that admission made at the time of search action is an important piece of evidence, but the same is not conclusive. It is open to the assessee who made the admission to show that it is incorrect and same was made under mistaken belief of law and fact. Jodhpur ITAT Bench in Maheshwari Industries v. Asstt. CIT [2005] 148 Taxman 74 (Jodh) (Mag.) has held that additions should be considered on merits rather than on the basis of the fact that the amount was surrendered by the assessee. It is settled legal position that unless the provision of statute warrant or there is a necessary implication on reading of section that the principles of natural justice are excluded, the provision of section should be construed in manner incorporating principles of natural justice and quasi judicial bodies should generally read in the provision relevant section a requirement of giving a reasonable opportunity of being heard before an order is made which will have adverse civil consequences for parties effected.
18. The Revenue authorities have relied heavily on the proposition that once the assessee makes admission he cannot go back from his own stand unless any evidence is furnished to show that the admission was obtained under coercion or threat or pressure. Hon'ble Allahabad High Court in case of Dr. SC Gupta v. CIT [2001] 248 ITR 782/118 Taxman 252 wherein assessee surrendered additional income in the statement recorded during the course of survey action but retracted later from the same. It was the contention of the assessee that Assessing Officer should have independently come to the conclusion that there was additional income and there was no material to indicate that there was no such income. The Hon'ble Allahabad High Court held that the burden lay on the assessee to establish that the admission made in the said statement was wrong and in fact there was no additional income. In the said case assessee did not make any attempt to discharge this burden. The Tribunal's finding was that no pressure or duress was exercised on the assessee when he made the statement and it was a finding of fact. So the ratio of Dr. S.C. Gupta (supra) is not applicable to facts of present case. Decision of Hon'ble Kerala High Court in the case of Mahesh B Shah v. Asstt. CIT [1999] 238 ITR 130/103 Taxman 91 has also been relied by Revenue authorities. In this case assessee agreed to treat certain expenditure as a capital expenditure both before ITO and CIT. No evidence was furnished to show that the assessee was coerced to make concession. The allegation of compulsion or coercion cannot be accepted on a mere statement of the assessee. The assessee cannot be allowed to go back on his own stand before the authorities below. The case of the assessee before us is that the statement has been made under mistaken belief of law and fact and there has been wrong interpretation of his admission to mean that the assessee has made declaration of income at Rs. 50,00,000/-being suppressed sales and not the gross profit arising thereof. The assessee before us has tried to discharge the burden that the statement was incorrect since it was given under mistaken belief of the fact and law. The assessee tried to clarify the mistake in the statement immediately on receipt of the same so it can be inferred that assessee has retracted from his statement on realizing the mistake in the statement soon after receiving the same as stated above.
19. We also find that the assessee in assessment proceedings has produced all evidences in respect of investment in agricultural land. The assessee has also produced the valuation report issued by Government approved valuer in respect of the fair market value of the agricultural land at Boribei, Malad, Tal : Daund, Distt. Pune on or about the year 2000 in which the said agricultural land was purchased by the shareholders/members of JBS. According to said valuation cost of agricultural land has been stated to be Rs. 34,46,667/- which is close to total value of agricultural land purchased by members of family. The case of the assessee is that the statement has been given under the mistaken belief of law appeals to common sense.
20. The concern CIT initiated the revision proceedings u/s. 263 of the Income Tax Act on the ground that the Assessing Officer has accepted the retraction of the statement without verification of investment made in the agricultural land at Boribel, Malad, Tal. Daund, Distt. Pune. In the order u/s. 263 the CIT directed the Assessing Officer to make enquiry on the issue of undisclosed investment made in acquisition and development of agricultural land on account of which the director of the assessee has made declaration of undisclosed income. There is nothing on record to suggest that any evidence was found in the course of search action or post search enquiries to the effect that the assessee has made any investment over and above sale price detailed above with regards to agricultural land transaction in question. There is also nothing on record to suggest that any enquiry has been made by Revenue authorities to establish the nexus of disclosure with purchase of agricultural land in question. Revenue authorities have made no effort whether respective persons have disclosed purchase of agricultural land in their books of accounts in respective years which is not justified. Further, Revenue authorities have not bothered to look into the issue when assessee has submitted valuation report according to which value of land was stated to be Rs. 34,46,667/- at relevant point of time which is close to total value of land i.e., Rs. 34,51,575/-. Such clinching evidence should not be brushed aside by Revenue authorities. It amounts to violation of principles of natural justice because assessee was not provided due opportunity of hearing on issue. Moreover, Revenue authorities have not been able to establish nexus between unrecorded sale with investment in agricultural land. There is no cogent reasoning for reaching conclusion of undisclosed income in question. The case of the assessee is that the statement/admission was made under the mistaken belief of law that Rs. 50 lakhs represents the sale value of stock found short was undisclosed income of the assessee instead of the correct legal position that the gross profit on suppressed sale is the income of the assessee. The assessee has tried to explain his mistake in the statement recorded on behalf of it. The assessee has accounted for the suppressed sales by way of declaration of gross profit on account of the suppressed sales. Assessee tried to clarify his stand immediately after the receipt of the statement recorded u/s. 132(4) on 20-05-02 and after realizing that there has been mistake in the statement. Such factual retraction should not be brushed aside without verifying the facts and circumstances of same. The addition in question is not justified while assessee has already declared gross proceeds on unaccounted sales as discussed above. The Assessing Officer is directed accordingly.
21. In the result, the appeal is allowed.
IT : Jurisdiction to issue notice - Only Joint Commissioner or Additional Commissioner could grant approval
■■■
[2012] 26 taxmann.com 260 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'G'
Sunint Investment & Technologies (P.) Ltd.
v.
Assistant Commissioner of Income-tax, Circle 9(1), New Delhi*
U.B.S. Bedi, Judicial Member
And S.V. Mehrotra, Accountant Member
IT Appeal No. 2582 (Delhi) of 2011
[Assessment year 2001-02]
August 30, 2012
Section 151 of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice - Assessment year 2001-02 - Reassessment proceedings were initiated after lapse of four years - Assessing Officer was to take sanction of Joint Commissioner to initiate reassessment but he had approached Commissioner for sanction - Delhi High Court in CIT v. SPL's Siddhartha Ltd. [2012] 345 ITR 223/17 taxmann.com 138/204 Taxman 115 (Delhi) (Mag.) has held that only Joint Commissioner or Additional Commissioner could grant approval for issue of notice under section 148 - Whether, following said decision, reassessment proceedings were to be quashed [Para 9] - Held, yes [In favour of assessee]
FACTS
Facts
• The assessee's return was processed under section 143(1) on 15-5-2002. Thereafter, the case was reopened by serving notice under section 148 on 28-3-2008.
• Before the Commissioner (Appeals), the assessee assailed the initiation of proceedings on the ground that assessment was initiated without obtaining prior sanction as required under section 151.
• Commissioner (Appeals) observed that since assessee did not raise any objection on this issue and submitted to the jurisdiction of the Assessing Officer, the same could not be raised later on.
Argument of assessee
• As per section 151(2), the Assessing Officer was required to obtain sanction of the Joint Commissioner and that it is purely a legal issue going to the root of the matter and, therefore, can be raised at any stage of proceedings.
Argument of revenue
• The revenue submitted that Assessing Officer took the approval of Commissioner in order to be more cautious.
Issue involved
• Whether only Joint Commissioner can assign proper jurisdiction to the Assessing Officer and if such sanction was not obtained, the Assessing Officer lacked the jurisdiction to complete the reassessment proceedings ?
HELD
• Admittedly, the return was processed under section 143(1), as per the assessment order, on 15-5-2002 and the notice under section 148 was issued on 28-3-2008. Therefore, as per section 151, the Assessing Officer was required to obtain the sanction of Joint Commissioner as four years had lapsed from the end of the relevant assessment year.
• The sanction by competent authority, as mentioned in section 151 only, can assign proper jurisdiction to the Assessing Officer and if such sanction was not obtained, the Assessing Officer lacked the jurisdiction to complete the reassessment proceedings. When the legislature has specifically assigned jurisdiction to a particular authority under the Act to grant sanction, then if all other conditions are fulfilled, the sanction has to be granted by that very authority. This function cannot be delegated to any other authority. It is the legal duty cast upon that authority to perform the said function. If that authority fails in performing his legal functions and the same is performed by the other authority, then it goes to the very root of proper assumption of jurisdiction by the authority which was required to take that sanction. This is purely legal issue and can be raised at any stage of proceeding. [Para 8]
• Therefore, the reassessment proceedings are to be quashed. [Para 9]
CASE REVIEW
CIT v. SPL's Siddhartha Ltd. [2012] 345 ITR 223/17 taxmann.com 138/204 Taxman 115 (Delhi) (Mag.) (para 9) followed.
CASES REFERRED TO
CIT v. SPL's Siddhartha Ltd. [2012] 345 ITR 223/17 taxmann.com 138/204 Taxman 115 (Delhi) (Mag.) (para 4).
Amit Goel for the Appellant. Smt. Surjani Mohanty for the Respondent.
ORDER
S.V. Mehrotra, Accountant Member - This appeal filed by the assessee is against the order dated 25-02-2011 of the Ld. CIT(A)-XII, New Delhi for AY 2001-02.
2. Brief facts of the case are that the assessee filed its return of income on 31.10.2001 declaring total income of Rs.12,87,140/-. The Assessing Officer has observed that this return was processed u/s 143(1) of the Income Tax Act, 1961 on 15.05.2002. Thereafter, the case was reopened by serving notice u/s 148 of the Income Tax Act, 1961 on 28.03.2008. The assessee asked for the reasons for reopening the case and the same were supplied to the assessee vide letter dated 11.07.2008. The Assessing Officer has observed that on 23.12.2008, the assessee company filed an objection that the approval of CIT was taken in the name of "M/s Sun Ind Investments Technologies Pvt. Ltd." and not in the name of assessee's name which is M/s Sunint Investments & Technologies Pvt. Ltd. The Assessing Officer pointed out that this technical objection was not raised earlier when the hearing took place on 05.08.2008, 18.08.2008 and 12.08.2008. He further pointed out that the details of the case re-opened pertained to assessee and hence on mere typographical error, the assessee cannot take objection. He also referred section 292B and pointed out that no notice can be invalid merely by reason of any mistake, defect or omissions. On merits, the Assessing Officer observed that Sh. Mukesh Gupta, the main person and authorized signatory of M/s Rajkar Electricals & Electronics Pvt. Ltd. in whose account No. CA51276 maintained with Corporation Bank, Paschim Vihar, New Delhi-110063, the money was deposited in two amounts of Rs. 5,00,000/- each on 01.03.2008 and on the same date a demand draft of Rs. 10,00,000/- was purchased and given to the assessee company. He, therefore, made an addition of Rs. 10,00,000/- to the assessee's income.
3. Before Ld. CIT(A), the assessee assailed the initiation of proceedings u/s 148, inter alia, on the ground that assessment was initiated u/s 147 without obtaining prior sanction as required u/s 151 of the Act. Ld. CIT(A) observed that since assessee did not raise any objection on this issue and submitted to the Jurisdiction of the Assessing Officer, the same cannot be challenged later on. On merits, Ld. CIT(A) upheld the Assessing Officer's action. Being aggrieved, the assessee is in appeal before us.
4. Ld. Counsel submitted that as per section 151(2), since the assessment was completed u/s 143(1), the Assessing Officer was required to obtain sanction of the Joint Commissioner of Income Tax and not of CIT. Ld. Counsel further submitted that it is purely a legal issue going to the root of the matter and, therefore, can be raised at any stage of proceedings. Ld. Counsel relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT v. SPL'S Siddhartha Ltd. [2012] 345 ITR 223/204 Taxman 115 (Delhi)(Mag.)/17 taxmann.com 138 (Delhi) wherein it was held that u/s 151 of the Act, it was only the Joint Commissioner or Additional Commissioner who could grant the approval of issue of notice u/s 148. Where the approval was not granted by the Joint Commissioner but by Commissioner of Income Tax, this is not irregularity curable u/s 292B. It was held that the notice was not valid.
5. Ld. DR submitted that in the case of SPL'S Siddhartha Ltd., the facts were different. She submitted that in the said case, the matter was routed through the Additional Commissioner of Income tax but in the present case, it was not so routed. On 25.07.2012, when the case was taken up for hearing, Ld. DR was directed to call for assessment records along with approval for issuing notice u/s 148. Ld. DR produced the said approval on the date of hearing i.e 26.07.2010 which reads as under :-
No. ITO/Ward 9(3)/Asstt./2007-08/27
Office of the
Income Tax Officer,
Ward 9(3), Room No-180,
C.R. Building, I.P. Estate,
New Delhi-110002.
Dated 28/03/2008
To,
The Commissioner of Income Tax,
Delhi-III,
New Delhi.
(Through Proper Channel)
Sir,
Sub:-Approval of Issue of Notice u/s 148 of the I.T. Act, 1961 in the case of M/s Sun Ind Investments & Technologies Pvt. Ltd. for the A.Y 2001-02 reg.
Kindly refer to the above.
Please find enclosed herewith proposal in triplicate form duly recorded the reasons alongwith annexure 'A' for initiating proceeding u/s 148 for the A.Y 2001-02.
Since the Assessment record in these cases are not readily available. Now it is presumed for the safer side that the assessment were completed in these cases u/s 143(3) for the A.Y 2001-02, hence your kind approval for issue of notice u/s 148 is solicited u/s 151(1) of the I.T. Act.
Submitted for your kind approval.
Yours faithfully
Encls.: Proposal in one cases in triplicate.
(A.N. Verma)
Income Tax Officer
Ward 9(3), New Delhi.
Form for recording the reasons for initiating proceedings u/s 148 and for obtaining the approval of the Commissioner of Income Tax, Delhi-III, Delhi
| 1. | Name and address of the Assessee | Sun Ind Investments and Technologies Pvt. Ltd A-1/B, DDA Flat, Munirika, New Delhi. | |||
| 2. | PAN | ------------ | |||
| 3. | Status | Company | |||
| 4. | Circle/Ward | Ward 9(3) | |||
| 5. | Assessment Year in respect of which it is proposed to Issue notice u/s 148 | 2001-02 | |||
| 6. | The Quantum of income Which has escaped assessment | Rs. 10,00,000/- | |||
| 7. | Whether the assessment is proposed to be made for the first time, if the reply is in the affirmative, please state | No. | |||
| (a) whether any voluntary return had already been filed. (b) If so, date of filing of the Said return. | |||||
| 8. | If the answer to item 7 is in the negative. Please state (a) The income originally Assessed | Assessment record in this case is not readily available. Now it is presumed for the safer side that the assessment was completed u/s 143(3) for the AY 2001-02. | |||
| (b) Whether it is a case of Under assessment, Assessment at low rate, Assessment which has been made subject depreciation. | Not covered under these reasons. | ||||
| 9. | Reasons for the belief that Income has escaped Assessment | As per Annexure 'A' | |||
| (Income Tax Officer) Ward 9(3), New Delhi | |||||
| 10. | Whether the Commissioner of Income tax is satisfied on the reasons recorded by the ITO Ward 9(3) that it is a fit-case for issue of notice u/s 148. | ||||
| Date: | Commissioner of Income Tax Delhi-III, New Delhi. | ||||
Issue of notice u/s 148 of the I.T. Act, 1961 in the case of M/s Sun Ind Investments and Technologies Pvt. Ltd. (now as per confirmation from the bank beneficiaries name is M/s Sunint Investments and Technologies Pvt. Ltd) for the A.Y 2001-02-reg..
Information about entry operators and their beneficiaries of Delhi has been received from the DIT (Investigation)-I, New Delhi through the Addl. Commissioner of Income Tax, Range-9, New Delhi vide letter No. Addl. CIT/Range-9/2005-06/2134 dated 13.03.2006 alongwith lists such entry operators and beneficiaries. After making inquiries the Directorate of Investigation in their report has established large amount of tax evasion in the transactions between entry operators and the beneficiaries. It is revealed from the CD information that the assessee company M/s Sun Ind Investments & Technologies Pvt. Ltd., (termed as beneficiary) during the previous year 2000-01 relevant to Assessment Year 2001-02 had taken accommodation entries from M/s Rajkar Electricals and Electronic Pvt. Ltd. (termed as entry operator). The detail of which is mentioned below:
| Beneficiary's Name | Beneficiary Bank Name | Beneficiary Bank Branch | Value of Entry taken | Instrument No. by which entry taken | |
| Sun Ind Investments & Technologies Pvt. Ltd. | Canara Bank | Munirika | 10,00,000 | 895047 | |
| Date on which entry taken | Name of A/CIT(A) holder of Entry giving A/CIT(A) | Bank from which entry given | Branch of entry giving bank | A/CIT(A) No. Entry giving A/c | |
| 1/3/2001 | Rajkar Electricals & Electronics Pvt. Ltd. | Corpn. Bank | Paschim Vihar | 51276 |
Quantum of amount of such entries received by the assessee company M/s Sun Ind Investments & Technologies Pvt. Ltd. from M/s Rajkar Electricals & Electronics Pvt. Ltd. as per details mentioned above received from the Directorate of Investigation, New Delhi is Rs.10,00,000/-. This accommodation entry taken by M/s Sun Ind Investments & Technologies Pvt. Ltd. is also confirmed on the basis of the statement of Shri Rajan Jassal, S/o Shri Surinder Kumar Jassal, R/o-WZ-134, Plot No-170, Vishnu Garden, New Delhi recorded on 4/2/2004, statement of Shri Surinder Pal Singh, S/o-Late Shri Malik Singh, R/o-A-4/181, Sector-17, Rohini, New Delhi-85, recorded on 24/12/2003, 30/12/2003 & 5/1/2005 and statement of Shri Mukesh Gupta, S/o-Shri R.D. Gupta, R/o-WZ-414, Naraina Village, New Delhi recorded on 16/1/2004, revealed that these persons after receiving cash from clients and deposited in various companies bank account's and cheques are issued to the assessee company who gave the cash.
In view of facts stated herein above it is clear that the assessee company managed the above said transactions of accommodation entries out of its income from undisclosed sources. Assessment record in this is not readily available.
In view of above, I have reason to believe that income of Rs. 10,00,000/- escaped assessment within meanings of the provisions of section 14 of the Income Tax Act, 1961, therefore, a Notice u/s 148 of the Income Tax Act, 1961 is required to be issued and served on the assessee company to assess the income escaped as stated hereinabove.
(A.N. Verma)
Income Tax Officer
Ward 9(3), New Delhi
6. With reference to aforementioned documents, she submitted that Assessing Officer took the approval of Ld. CIT in order to be more cautious.
7. Ld. Counsel submitted that since it is admitted that assessment records were not available with Assessing Officer, it is not clear as to how Assessing Officer acquired the requisite belief regarding escapement of income. He further submitted that in the case of SPL'S Siddhartha ltd. (supra), the objection was not raised before the Assessing Officer.
8. We have considered the submissions of both the parties and have perused the records of the case. Admittedly, the return was processed u/s 143(1), as per the assessment order, on 15.05.2002 and the notice u/s 148 was issued on 28.03.2008. Therefore, as per section 151, the Assessing Officer was required to obtain the sanction of Joint Commissioner of Income tax as four years had lapsed from the end of relevant assessment year. The department's contention is that assessee did not raise any objection before the Assessing Officer on this issue and the only objection raised was in regard to the name of assessee which was duly dealt by the Assessing Officer. The contention is that once the assessee had submitted to the Jurisdiction of Assessing Officer then subsequently the objection with reference to jurisdiction cannot be raised. In this regard, reliance has been placed on section 124. We do not find any substance in the submission of Ld. DR because section 124 primarily deals with the territorial jurisdiction of Assessing Officer. Section 151 deals with sanction for issue of notice u/s 148 and it nowhere refers to section 124. The sanction by competent authority, as mentioned in section 151 only, can assign proper jurisdiction to the Assessing Officer and if such sanction was not obtained, the Assessing Officer lacked the jurisdiction to complete the reassessment proceedings. When the legislature has specifically assigned jurisdiction to a particular authority under the Act to grant sanction then, if all other conditions are fulfilled, the sanction has to be granted by that very authority. This function cannot be delegated to any other authority. It is the legal duty cost upon that authority to perform the said function. If that authority fails in performing his legal functions and the same is performed by the other authority then it goes to the very root of proper assumption of jurisdiction by the authority which was required to take that sanction. This is purely legal issue and can be raised at any stage of proceeding.
9. Hon'ble Delhi High Court in the case of SPL'S Siddhartha Ltd. (supra) has quashed the reassessment proceedings for want of sanction of Joint Commissioner of Income tax when it was so required as per section 151(2), observing as under :-
"As per the aforesaid provision, it is only the Joint Commissioner or the Additional Commissioner, which can grant the approval. The argument of the assessee before the Tribunal was that the approval was not granted by the Joint Commissioner. Instead, it was taken from the Commissioner of Income-tax, Delhi-III, New Delhi, who was not competent to approve even when he was a higher authority inasmuch as section 151 of the Act specifically mentions Joint Commissioner as the competent authority. This contention of the respondent-assessee has been accepted by the Tribunal thereby quashing the assessment proceedings. The contention of the Revenue that it was merely an irregularity committed by the Assessing Officer and was rectifiable under section 292B of the Act, has not been found convincing by the Tribunal.
| ** | ** | ** |
Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorized under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now sell-settled. In Sheo Narain Jaiswal v ITO [1989] 176 ITR 352 (Patna), it was held:
"Where the Assessing Officer does not himself exercise his jurisdiction under section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the conditions precedent."
The Apex Court in the case of Anirudhsinhji Karansinhji Jadeja v. State of Gujarat [1995] 5 SCC 302 has held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authorities instruction, then it will be a case of failure to exercise discretion altogether.
We are, therefore, of the opinion that the Tribunal has rightly decided the legal aspect, keeping in view well-established principles of law laid down in a catena of judgments including that of the Supreme Court."
10. Respectfully, following the decision of Hon'ble Jurisdictional High Court, the reassessment proceedings are quashed. As we have quashed the reassessment proceedings, the adjudication of merits of the case will be academic only.
11. In the result, the assessee's appeal is allowed.
IT : Where requirement of filing Form No. 24Q was new one being first year of filing such return and, moreover, tax had been duly deducted by assessee, penalty could not be levied under section 272A for delay in filing E-TDS returns
■■■
[2012] 26 taxmann.com 347 (Agra - Trib.)
IN THE ITAT AGRA BENCH
The Manager, Union Bank of India
v.
Additional Commissioner of Income-tax, Range -3, Mathura*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT Appeal No. 122 (AgrA) of 2012
[Assessment year 2006-07]
SEPTEMBER 14, 2012
Section 272A of the Income-tax Act, 1961 - Penalty - For failure to answer question, sign statements - E-TDS return - Assessment year 2006-07 - Whether there is no provision for issuing separate notice for levy of penalty for late or non-filing of From nos. 24Q and 26Q as in case of failure to file these forms penalty is leviable under section 272A(2) - Held, yes - For relevant assessment year, assessee did not file E-TDS returns within specified time - Assessing Officer, thus, levied penalty under section 272A(2) - Whether since requirement of filing Form No. 24Q was new one being first year of filing such return and, moreover, tax had been duly deducted by assessee, in such a case, impugned penalty order was not sustainable - Held, yes [Para 6] [In favour of assessee]
FACTS
• For the relevant assessment year, the assessee did not file E-TDS returns within the specified time and, thus, Assessing Officer levied penalty under section 272A(2).
• The Commissioner (Appeals) confirmed the penalty for late filing of quarterly return in Form No. 24Q for second quarter which was delayed by 77 days, Form No. 24Q for third quarter which was delayed by 16 days whereas Form No. 24Q for fourth quarter was not filed.
• On second appeal:
HELD
• Firstly, the contention of the assessee that there is mistake in notice as regards mentioning of clause (2) of section 272A, is covered by section 292BB which provides that where an assessee has appeared in any proceeding or co-operated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such case shall be precluded from taking any objection in any proceeding or enquiry under this Act that the notice was not served upon him; or not served upon him in time; or served upon him in an improper manner. In the light of the fact, the order of the Commissioner (Appeals) is confirmed on this ground. [Para 4]
• As regards the contention of the assessee that the Assessing Officer should issue separate notices for levy of penalty for late or non-filing of form nos. 24Q and 26Q, there is no provision in the Act for issuing separate notice as in case of failure to file these forms penalty is leviable under section 272A(2). [Para 5]
• Coming to the merits of the case, the contention of the assessee was that there was reasonable cause for delay in filing of returns or for not filing of the returns as new system of e-filing of quarterly returns have been introduced. The penalty in the case under consideration has been levied for late filing of Form No. 24Q in respect of second and third quarter ended 15-10-2005 & 15-1-2006 and non-filing of fourth quarter ended 11-6-2006. The requirement of filing quarterly Form No. 24Q has been inserted by the Income Tax (10th Amendment) Rules, 2005 with effect from 30-3-2005. The ITAT Mumbai Bench in the case of Royal Metal Printers (P.) Ltd. v. Asstt. CIT[2010] 37 SOT 139 held that it is well settled that ordinarily an assessee is duty bound to know the provisions of statute but in the event of making a claim of ignorance of law it is for the revenue to examine the plea judiciously keeping in mind the fact that assessee who has deducted tax and deposited the same within the stipulated time could have normally been said to be a law abiding citizen/assessee and the delay, under such circumstances, cannot ordinarily be attributable to wanton negligence, particularly when the penalty leviable can be equivalent to the tax deducted or deductible. The delay in filing the returns, even if they are characterized as negligence on the part of the assessee, can only be considered as a technical or venial breach of law for which penalty should not be levied automatically. In the case under consideration, the requirement of filing Form No. 24Q was new one for the assessee being the first year of filing such return and, moreover, there was no dispute about the fact that the tax had been deducted by the assessee. As held by the ITAT Mumbai Bench in the case of Royal Metal Printers (P.) Ltd. (supra), that for such technical or venial breach supported by reasonable cause, penalty under section 272A(2) is not leviable. The facts of the case under consideration are similar to the facts of the case decided by ITAT Mumbai Bench in the case of Royal Metal Printers (P.) Ltd. (supra). Following the same, the impugned penalty order is cancelled. [Para 6]
• In the result, appeal filed by the assessee is allowed. [Para 7]
CASE REVIEW
Royal Metal Printers (P.) Ltd. v. Asstt. CIT [2010] 37 SOT 139 (para 6) followed.
CASES REFERRED TO
Royal Metal Printers (P.) Ltd. v. Asstt. CIT [2010] 37 SOT 139 (Mum.) (para 6).
M.M. Agarwal for the Appellant. Km. Anuradha for the Respondent.
ORDER
A.L. Gehlot, Accountant Member - This is an appeal filed by the assessee against the order dated 14.10.2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2006-07 on the following grounds:-
"1. BECAUSE, on a due consideration of facts of the case and submissions made before him, learned 'CIT (Appeals)' erred in holding that penal proceedings were valid overruling the objection that there was 'no notice' issued to the 'appellant' for default under section 272A(2)(k) of the 'Act' and the impugned order could not be held to be valid on the strength of notice(s) specifically issued for proceedings under section 272A(2)(c) of the 'Act'.
2. BECAUSE, learned CIT (Appeals) has while upholding validity of impugned proceedings on the strength of notice issued under section 272A(2)(c) of the 'Act', grossly erred in holding that it was a typographical error, whereas such a plea has never raised, pleaded or substantiated by the 'AO'.
3. BECAUSE, learned CIT (Appeals) has erred in not cancelling the impugned order on the ground that the 'AO' should have issued separate notices and separate notice of demand in respect of alleged default for each statement.
4. BECAUSE, on due consideration of the facts and circumstances of the case, submissions made and material placed on record, learned 'CIT(Appeals)' has erred in not deleting the penalty as imposed by the 'AO' under section 272A(2) of the 'Act' in its entirety."
2. The brief facts of the case are that the assessee is a Public Sector Bank, Union Bank of India, Mathura. This is the second round of litigation. In earlier round of litigation the appeal filed by the assessee before the I.T.A.T. in ITA No.707/Agr/2008 order dated 31.05.2011 the matter was sent back to the file of CIT(A). It was the contention before the I.T.A.T. that the requisite E-TDS returns were not filed or were late filed and the A.O. levied the penalty and CIT(A) confirmed the same under section 272A(2) of the Act without providing reasonable opportunity of hearing to the assessee. The assessee did not put his presence before the A.O. and no compliance was made to the show cause notice issue by the A.O. On the direction of the I.T.A.T., the CIT(A) provided opportunity of hearing to the assessee. The assessee furnished submissions. The CIT(A) called for the remand report from the A.O. The CIT(A) rejected the assessee's contention in respect of defects pointed out in initiating penalty proceedings by issuing notice as under :- (paragraph nos.5.3 & 5.4)
"5.3 In view of the above notice issued by the Addl. CIT(OSD), Range-3, Mathura, the Addl. CIT, Range-3, Mathura has further issued a notice on 07/08/2007 before levying of a penalty in which reference of the notice dated 18.04.2007 issued by Addl. CIT(OSD), Mathura has also been given. Therefore, it cannot be said that the appellant was not aware as to for what default, the notice was issued to him and there was no confusion because of wrong mentioning of the section. Considering the above mistake in the notice in which instead of clause (k), clause (c) was printed, it can be very well said that it was a typographical error because in the body of the notice, default committed by the appellant was clearly mentioned as being not filing of quarterly return for all the four quarters as mentioned in the impugned notice. In my considered opinion, such mistake are very much curable under the provision of section 292B because it has been clearly provided under the provision of this section such notice cannot be held to be invalid merely by reason of any mistake, defect or omission, if such notice is in substance and effect in inconformity with or according to the intent and purpose of Income Tax Act 1961. Since in the body of the notice, default committed by the appellant has been clearly mentioned, there is no ambiguity in the issue of notice that it was issued to give a show cause notice to the appellant to explain the reason for not filing of quarterly return and as to why for such default, a penalty should not be levied on him. Therefore, I find that the notice issued before levying of penalty u/s 272A(2)(k) is in substance and effect is in conformity with the Income Tax Act, 1961 and the clause (c) typed in the notice instead of clause (k) is just a typographic error.
5.4 I have also considered all the case laws cited by the Ld. AR and I find that these case laws would not apply in the present case as the fact of the case of the appellant in the instant case is different than the fact of all the cases mentioned by the Ld. AR because in case of the appellant in the notice issued to him, the default committed by him has been clearly mentioned in the notice and just because a clause of the concerned section under which the penalty was proposed to be levied is mentioned wrongly because of a typographical error, such notice cannot become invalid. Same was not the case in all the case laws referred by the Ld. AR. Therefore, objection taken by the Ld. AR on technical ground arguing that the impugned order was bad in law and hence, to be cancelled, is not found to be tenable and therefore, the technical objection taken by the Ld. AR is dismissed."
3. On merit, the CIT(A) confirmed the penalty for late filing of quarterly return Form 24Q for second quarter which was delayed by 77 days, 24Q for third quarter was delayed by 16 days and Form 24Q for fourth quarter was not filed. The relevant finding of CIT(A) is reproduced as below :- (paragraph no.6)
"6. With regard to levy of penalty for late filing of form no.24Q, the present AO has given revised computation of the amount of penalty u/s 272A(2)(k), the total of which comes to Rs. 27,300/- (Rs. 7,700/- for second quarter, Rs. 1,600/- for third quarter and Rs. 18,000/- for fourth quarter). With regard to the computation of this amount, the Ld. AR in his rejoinder filed on 12.10.2011 has stated that with regard to form no.24Q, the Ld. ITO(TDS) has not disputed the submission except for calculation of period of delay pointing delay of two more days, but has calculated quantum of penalty with regard to actual amount tax deducted. As such, facts are not disputed. Considering this submission made by the Ld. AR in the rejoinder, I find that there is no dispute on the computation of penalty u/s 272A(2)(k) for late filing of form 24Q. While going through the remand report of the AO, I also find that though there is delay in filing of quarterly return for second and third quarter but for fourth quarter, the quarterly return has not at all been filed. In this regard, the Ld. AR in his rejoinder has stated that the appellant is at much loss to explain as to why the fourth quarter salary statement was not filed at all. He has further explained by showing the payment made to the concerned CA that the service of this CA was taken for depositing of TDS and filing of quarterly return. It has been pleaded that there was no willful negligence or malafide on the part of the appellant in the matter of compliance, despite the fact that due to passage of considerable time, the appellant is unable to explain that whether form no.24Q for fourth quarter was in fact filed or not and if not why? As far as quantum of penalty is concerned, for delay in filing of form no.24Q/not filing of form 24Q is concerned, there is no dispute and the amount has been found as correctly determined by the AO at Rs. 27,300/-. Now the question is that whether for such default, there was any reasonable cause. In this regard, I find that in the submission of the Ld. AR itself, it has been admitted that there is no explanation of not filing of form no. 24Q for the fourth quarter and hence, I find that the appellant is liable for penalty of Rs. 18,000/- for not filing of quarterly return of fourth quarter. As far as the default relating to late filing of form no.24Q for second quarter and third quarter amounting to Rs. 7,700/- and Rs. 1,600/- are concerned, it has been tried to explain that such default has occurred due to change in law and it was first year when filing of quarterly statement was prescribed. In support of this contention, some case laws was also referred. There are two orders which were earlier passed by me also in which penalty was deleted after findings that such default has occurred for first time. I have gone through these case laws and as well as my earlier orders and I find that in those case laws and in my earlier orders, there was delay in filing of quarterly return but later, it has been found that the appellant started filing quarterly return in time. However, in the present case, quarterly return for earlier two quarters were filed late but for the last quarter, the quarterly return has not at all been filed for which, the appellant has no explanation and this shows the casual attitude of the appellant in complying with the statutory law. Had the appellant been careful and he would have checked in time, whether quarterly returns are being filed or not, the default of not filing of quarterly return in 4th quarter would have not happened. It has been held by the Hon'ble Rajasthan High Court in the case of CIT v. Superintending Engineer, Udaipur [2003] 260 ITR 641 that in case of negligence, it would be an exercise of discretion to inflict minimum or nominal penalty but in case of inadvertent office mistake, it would not be a sound exercise of judicial or quasi-judicial power to inflict a penalty on the head of the public office. Here, in the present case, I find that there is negligence on the part of the Manager of Union Bank of India to ensure after necessary checking whether the relevant law with regard to filing of quarterly return for fourth quarter are being complied with or not, which resulted into not filing of quarterly return and therefore, in my considered opinion, the appellant is liable for minimum penalty of Rs. 27,300/- computed as per the provisions of the relevant section. Therefore, I confirm levying of penalty u/s 272A(2)(k) for default of the appellant in late filing of quarterly return/not filing of quarterly return."
4. We have heard the ld. Representatives of the parties and records perused. The ld. Authorised Representative reiterated the submissions which were made before the CIT(A). The ground nos.1 & 2 has already been rejected by the CIT(A) after detailed discussion. Even otherwise also the contention of the assessee that there is mistake in notice as regards mentioning of clause (2) of section 272A of the Act is covered by section 292BB which provides that where an assessee has appeared in any proceeding or co-operated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such case shall be precluded from taking any objection in any proceeding or enquiry under this Act that the notice was not served upon him; or not served upon him in time; or served upon him in an improper manner. In the light of the fact, we confirm the order of the CIT(A) on these ground nos.1 & 2.
5. As regards to ground no.3 where the contention of the assessee is that the A.O. should issue separate notices for levy of penalty for late or non-filing of form 24Q and 26Q, we do not find such a provision in the Act for issuing separate notice as failure to file these forms penalty is leviable under section 272A(2) of the Act. In the light of the fact, we confirm the order of the CIT(A) and reject ground no.3 of the appeal.
6. Now the issue to be examined whether under the facts and circumstances there was reasonable cause or not. In this regard, the contention of the assessee that there was reasonable cause for delay in filing of returns or for not filing of the returns as new system of e-filing of quarterly returns have been introduced. The penalty in the case under consideration has been levied for late filing of Form No.24Q in respect of second and third quarter ended 15.10.2005 & 15.01.2006 and non-filing of fourth quarter ended 11.06.2006. The requirement of filing quarterly 24Q has been inserted by the Income Tax (10th Amendment) Rules, 2005 w.e.f. 30.03.2005. The I.T.A.T., Mumbai Bench in the case of Royal Metal Printers (P.) Ltd. v. Asstt. CIT [2010] 37 SOT 139 (Mum.) held that it is well settled that ordinarily an assessee is duty bound to know the provisions of statute but in the event of making a claim of ignorance of law it is for the Revenue to examine the plea judiciously keeping in mind the fact that assessee who has deducted tax and deposited the same within the stipulated time could have normally been said to be a law abiding citizen/assessee and the delay, under such circumstances, cannot ordinarily be attributable to wanton negligence, particularly when the penalty leviable can be equivalent to the tax deducted or deductible. The delay in filing the returns, even if they are characterized as negligence on the part of the assessee, can only be considered as a technical or venial breach of law for which penalty should not be levied automatically. In the case under consideration, we notice that the requirement of filing form 24Q was new one for the assessee and as being the first year of filing such return, there is no dispute about the fact that the tax has been deducted by the assessee. As held by the I.T.A.T., Mumbai Bench in the case of Royal Metal Printers (P.) Ltd. (supra), that for such technical or venial breach supported by reasonable cause, penalty under section 272A(2) is not leviable. The facts of the case under consideration are similar to the facts of the case decided by I.T.A.T., Mumbai Bench in the case of Royal Metal Printers (P.) Ltd. (supra). We follow the same and in the light of that the penalty of Rs. 27,300/- is cancelled.
7. In the result, appeal filed by the assessee is allowed as indicated above.
[1998] 229 ITR 383 (SC)
SUPREME COURT OF INDIA
National Thermal Power Co. Ltd.
v.
Commissioner of Income-tax
A.M. AHMADI, C.J.I K. RAMASWAMY AND MRS. SUJATA V. MANOHAR, JJ
TAX REFERENCE CASE NO. 4 OF 1988
DECEMBER 4, 1996
Section 254 of the Income-tax Act, 1961 – Appellate Tribunal – Powers of – Assessment year 1978-79 – Whether Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier –Held, no – Whether, therefore, Tribunal had jurisdiction to examine a question of law which thought not arose before lower authorities but arose before it from facts as found by lower authorities and having a bearing on tax liability of assessee – Held, yes
FACTS
The assessee company had deposited its funds which were not immediately required, on short-term deposits with banks. Interest received on such deposits was offered by the assessee for tax assessment and the assessment was completed on that basis. Before the Commissioner (Appeals), a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of the interest amount was matter challenged by assessee nor considered by the Commissioner (Appeals). The inclusion of aforesaid amount was not challenged in the grounds of appeal as originally filed before the Tribunal. However, the assessee challenged the same in a forwarding letter. The Tribunal declined to entertain the additional grounds.
On reference :
HELD
Under section 254, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner (Appeals). Both the assessee as well as the department have a right to file an appeal/cross objections before the Tribunal. There is no reason why the. Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.
The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) takes too narrow a view of the powers of the Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
In the instant case, therefore, the Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the lower authorities and having a bearing on the tax liability of the assessee.
Note: The case has been decided in favour of the assessee.
CASE REVIEW :
The cases CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi), CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj.)(FB) and CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj.) disapproved.
Jute Corpn of India Ltd. v. CIT [1991] 187 ITR 688 (SC).
K.P. Bhatnagar, S. Rajappa, S.R. Gera and R.C. Misra for the Appellant.
Dr. R.R. Misra, Ms. Lakshmi Iyengar and V.K. Verma for the Respondent.
JUDGMENT
The assessee carries on the business, inter alia, of construction, generation, operation and maintenance of thermal power stations and associated transmission network.
During the assessment year 1978-79, the assessee had deposited its funds which were not immediately required, on short-term deposits with banks. Interest received on such deposits during the previous year relevant to the assessment year 1978-79 amounted to Rs. 22,84,994. This was offered by the assessee for tax assessment and the assessment was completed on that basis. Before the Commissioner of Income-tax (Appeals), a number of grounds were taken by the assessee challenging the assessment. However, the inclusion of this amount of Rs. 22,84,994 was neither challenged by the assessee nor considered by the Commissioner of Income-tax (Appeals). From the order of the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Tribunal. The inclusion of the said amount of Rs. 22,84,994 was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, by a forwarding letter dated July 16, 1983, the following additional grounds were sought to be raised by the assessee:
1.The sum of Rs. 22,84,994 deducted from "Statement of expenditure during construction" cannot be included in the total income.
2.It is contended that on admission (erroneous), no income (the sum of Rs. 22,84,994) can be included in the total income.
3.The authorities below have erred and failed in their duty in not adjudicating the facts and evidence on record and mechanically including Rs. 22,84,994 in the total income.
The assessee contended that on account of two orders of Special Benches of the Tribunal in the cases of Arasan Aluminium Industries ( P.) Ltd. and Nagarjuna Steels Ltd., the assessee learnt that the interest earned in this manner before the setting up of business is not taxable as income and it goes to reduce the capital cost of the plant. On learning about this legal position, the assessee sought to include the above three grounds in its grounds of appeal. The Tribunal has declined to entertain these additional grounds.
The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on the merits, we do not propose to answer the questions relating to the merits of those contentions. We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows:
"Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?"
Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.
In the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.
The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi), CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj) [FB]). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
The reframed question, therefore, is answered in the affirmative, i.e. , the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits.
IT : Builders receiving undisclosed income in course of its business, is entitled to benefit of deduction under section 80-IB
■■■
[2012] 25 taxmann.com 173 (Bom.)
HIGH COURT OF BOMBAY
Commissioner of Income-tax, Central II
v.
Sheth Developers (P) Ltd.*
S.J. VAZIFDAR AND M.S. SANKLECHA, JJ.
IT APPEAL NO. 3724 OF 2010 †
JULY 27, 2012
Section 80-IB, read with sections 69A and 158BB of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Block period 1-4-1995 to 21-2-2002 - As a result of search, assessee-builder declared undisclosed income which was received in course of carrying out business activities - Assessee claimed deduction under section 80-IB(10) while computing undisclosed income - Whether in view of amendment made in Explanation (a) to section 158BB(1) by Finance Act, 2002, with retrospective effect from 1-7-1995, while computing undisclosed income for block period assessee was entitled to claim deduction from its income under section 80-IB - Held, yes - Whether plea of revenue that in view of section 69A benefit of deduction under section 80-IB(10) would not be available to assessee was not well founded - Held, yes [In favour of assessee]
FACTS
The assessee-company carried on business as a builder. The authorized officer carried out a search under section 132 upon the assessee on 21-2-2002. Thereupon the assessee declared the undisclosed income at Rs. 7 crores for the block period 1-4-1995 to 21-2-2002. The undisclosed income was received by the assessee in the course of carrying out its business activities as a builder. However, in the return filed for the block period 1-4-1995 to 21-1-2002, the assessee showed its undisclosed income at Rs. 3.50 crores on the plea that the undisclosed income was declared at Rs. 7 crores only because at the time of making the statement it was unaware that deduction under section 80-IB would be available in respect of its housing projects. The Assessing Officer did not agree with the assessee and computed the undisclosed income for the block period at Rs. 7.68 crores. He accepted the explanation of the assessee that undisclosed income was in fact received in the course of carrying out its business activities as a builder.
On appeal, the Commissioner (Appeals) held that the assessee was entitled to the benefit of Section 80-IB. He accordingly directed the Assessing Officer to recompute the tax payable for the block period 1-4-1995 to 21-2-2002 under section 158BB after giving the benefit of section 80-IB.
On second appeal, the Tribunal upheld the order of the Commissioner (Appeals).
On appeal to High Court:
HELD
From a reading of the Explanation (a) to sub-section (1) of section 158BB, as amended by the Finance Act, 2002, with retrospective effect from 1-7-1995, it would be pertinent to note that the words 'this act' in parenthesis were substituted by the Finance Act, 2002 with retrospective effect from 1-7-1995. Prior to the above amendment the words were 'Chapter IV'. Further the proviso was also added to the Explanation (a) by the Finance Act, 2002. [Para 9]
Chapter XIV-B of the Act provides for special procedure for assessment of search cases and is contained in sections 158B to 158BI. Further this chapter applies only in cases of search initiated before 31-5-2003. In the instant case, the search took place in the year 2002 and, therefore, the instant case is governed by Chapter XIV-B. Section 158BB of Chapter XIV-B deals with computation of undisclosed income of the block period. The Explanation (a) to sub section (1) of section 158BB was amended by the Finance Act, 2002 with retrospective effect from 1-7-1995. Prior to the amendment, according to the Explanation the total income or loss was to be computed in accordance with Chapter IV of the Act. Consequent to the amendment by the Finance Act, 2002 with retrospective effect from 1-7-1995 the total income or loss has to be computed in accordance with the provisions of this Act, i.e ., the said Act. Consequently with effect from 1-7-1995 the total income/loss for the block period has to be computed in accordance with the provisions of the said Act and the same would include Chapter VI-A of the said Act. Section 80-IB of the Act is a part of Chapter VI-A. In view of the above, while computing the undisclosed income for the block period the assessee is entitled to claim deduction from its income under section 80-IB. [Para 10]
The further case of the revenue that in view of section 69A the benefit of deduction under Chapter VI-A would not be available to the assessee is not well founded. It is not the case of the revenue that the money found in possession of the assessee could not be explained and/or its source could not be explained to the satisfaction of the Assessing Officer. In the instant case, undisclosed income found in the form of cash was explained as having been acquired while carrying on business as a builder and this explanation was accepted by the Assessing Officer by having assessed the undisclosed income for the block period as income from profits and gains of business or profession. Further in the instant case, no question of application of sections 68, 69 and 69A, 69B and 69C arises as the same has not been invoked by the revenue. It is an admitted position that undisclosed income was in fact received by the assessee in the course of carrying out its business activities as a builder. The same was returned as income arising from profits and gains of business or profession and the same was accepted by the Assessing Officer. [Para 11]
Therefore, the order of the Tribunal deserved to be upheld. [Para 12]
EDITOR'S NOTE
In view of the decision of the Bombay High Court rendered in the case of CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 23 taxmann.com 23 the Tribunal was justified in allowing the claim of deduction under section 80-IB(10) when no such claim was made by the assessee in the return of income for the block period. [Para 2]
CASE REVIEW
Anbu Textiles v. Asstt. CIT [2003] 262 ITR 684 /[2004] 138 Taxman 227 (Mad.) (para 10), CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 23 taxmann.com 23 (Bom.) (para 5) and Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11 (Guj.) (para 11) distinguished.
CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 23 taxmann.com 23 (Bom.) (para 5), Anbu Textiles v. Asstt. CIT [2003] 262 ITR 684/[2004] 138 Taxman 227 (Mad.) (para 6) and Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290 /[2002] 120 Taxman 11 (Guj.) (para 7).
Vimal Gupta and Ms. Padma Divakar for the Appellant. Percy Pardiwalla and Atul Jasani for the Respondent.
JUDGMENT
M.S. Sanklecha, J. - This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "said Act") challenges the order dated 12/10/2009 of the Income Tax Appellate Tribunal (hereinafter referred to as the said Tribunal) relating to assessment for the block period 1/4/1995 to 21/2/2002.
2. The appellant has formulated the following questions of law for consideration of this court.
(1) Whether on the facts and circumstances of the case and in law the Tribunal was justified in holding that deductions u/s. 80IB (10) has to be allowed from the income computed as undisclosed income u/s. 69A of the Income Tax Act, 1961?
(2) Whether on the facts and circumstances of the case and in law the Tribunal was justified in allowing the claim of deduction u/s. 80IB(10) where no such claim is made by the assessee in the return of income for the block period?
3. The appeal is admitted on Question (1) and (2).
4. At the instance of the Advocates for the appellant and the respondent the appeal is taken up for final disposal.
5. So far as Question (2) is concerned, it is an admitted position between the parties that the same stands covered in favour of the respondent-assessee and against the appellant revenue by virtue of the order of this court in CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 23 taxmann.com 23. In the above case it has been held that a fresh claim could be urged before the Appellate authorities even if the claim was not made in the return of income filed before the Assessing officer.
6. The facts relevant for the purpose of question (1) are briefly as under:
(a) The respondent-assessee carries on business as builders in Mumbai and Thane. On 21/2/2002, the Income Tax Department carried out search operation under Section 132 of the said Act covering the residential and business premises belonging to the respondent-assessee's group. During the course of the search proceedings the respondent's Director declared the undisclosed income of the group at Rs. 7.00 crores for the block period. However, in the return filed for the block period 1/4/1995 to 21/1/2002, the respondent showed its undisclosed income at Rs. 3.50 crores. The Assessing officer while assessing the respondent for the block period by order dated 30/4/2004 computed the undisclosed income for the block period at Rs. 7.68 crores.
(b) In appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as the "CIT(A)") the respondent contended that the undisclosed income was declared at Rs. 7.00 crores only because at the time of making the statement the Director of respondent was unaware that deduction under Section 80IB would be available in respect of respondent's housing projects. The CIT(A) by order dated 17/8/2004 found on facts that the respondent was entitled to benefit of Section 80IB of the said Act. Further, CIT(A) held that in terms of clause (a) of the explanation to Section 158(BB)(1) of the said Act provides that undisclosed income for the block period is to be computed after applying the relevant provisions of the said Act. This would include the provisions of Chapter VIA of the said Act. Section 80IB is a part of Chapter VIA of the said Act. On examination of the evidence the CIT(A) held that the respondent was entitled to the benefit of Section 80IB of the said Act and directed the Assessing officer to recompute the tax payable for the block period 1/4/1995 to 21/2/2002 under Section 158BB of the said Act after giving the benefit of Section 80IB of the said Act.
(c) On appeal by the revenue the Tribunal by order dated 12/10/2009 upheld the order of the CIT(A).On merits, the Tribunal held that the benefit of deduction under Section 80IB of the said Act would be available in respect of undisclosed income which is being offered to tax for block period under Chapter XIVB of the said Act in view of retrospective amendment to the explanation to sub section (1) of Section 158BB of the said Act. The Tribunal relied upon the decision of the Madras High Court in the matter of Anbu Textiles v. Asstt. CIT [2003] 262 ITR 684 /[2004] 138 Taxman 227 .
7. Mr. Vimal Gupta, counsel for the appellant submits that the order of the Tribunal is unsustainable as benefit of the deduction under Chapter VIA of the Act cannot be extended to an assessee who has not originally disclosed his income but seeks its benefit while filing a block return under Chapter XIV B of the said Act subsequent to the search under the said Act. In support of the above reliance was placed upon the decision of the Gujrat High Court in the matter of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290 /[2002] 120 Taxman 11. In the above case unexplained gold valued at Rs. 48.72 lacs found in possession of the party was added to the party's income under Section 69, 69A, 69B and 69C of the Act. As the unexplained gold was confiscated the assessee sought a deduction on account of confiscation of gold as a loss. The Court held that such undisclosed /unexplained amounts did not fall under the head of profits and gains of business or profession and therefore, no deduction is available. On the basis of the above decision, it is the contention of Mr. Gupta that no deduction under Section 80IB of the said Act can be made available to the respondent while computing the tax payable under Chapter XIVB of the said Act for the block period 1/4/1995 to 21/2/2002.
8. As against the above, Mr. Pardiwala, Senior Counsel for the respondent states that the decision of the Gujrat High Court in the matter of Fakir Mohmed Haji Hasan (supra) is inapplicable to the present facts. In the present facts no question of application of Section 68, 69 and 69A 69B and 69C of the said Act arises as the same has not been invoked by the appellant- revenue. Further the amount of undisclosed income was neither in the nature of unexplained investment nor unexplained money, expenses or investment which were not fully disclosed. It is an admitted position between the parties as reflected even in the order the Assessing officer that undisclosed income was in fact received by the respondent in the course of carrying on its business activities as a builder. The same was returned by the respondent as income arising from profits and gains of business or profession and the same was accepted by the department. It was further submitted that the Tribunal was correct in holding that in view of the retrospective amendment to the Explanation to Section 158BB(1) of the said Act, the deduction under Section 80IBof the said Act (which is admittedly a part of Chapter VIB of the said Act) is to be allowed for determining the undisclosed income under Chapter XIVB of the said Act.
9. Before considering the rival submissions, it would be convenient to reproduce the amended Explanation to sub section (1) of Section 158BB of the said Act which reads as under:
"Explanation- For the purposes of determination of undisclosed income-
(a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of [this Act] without giving effect to set off brought forward losses under Chapter-VI or unabsorbed depreciation under sub-section (2) of Section 32;
[Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32;]"
It would be pertinent to note that the words "this Act" in parenthesis were substituted by the Finance Act of 2002 with retrospective effect from 1/7/1975. Prior to the above amendment the words were "Chapter IV". Further the proviso was also added to the explanation by the Finance Act 2002.
10. Chapter XIVB of the said Act provides for special procedure for assessment of search cases and is contained in Section 158B to Section 158BI of the said Act. Further, this chapter applies only in cases of search initiated before 31/5/2003.In this case, the search took place in 2002 and therefore, the present case is governed by Chapter XIVB of the said Act. Section 158BB of Chapter XIVB of the Act deals with computation of undisclosed income of the block period. The above explanation to sub section (1) of Section 158BB of the Act was amended by the Finance Act, 2002 with retrospective effect from 1/7/1995. Prior to the amendment, according to the explanation the total income or loss was to be computed in accordance with Chapter IV of the said Act. Consequent to the amendment by Finance Act, 2002 with retrospective effect from 1/7/1995 the total income or loss has to be computed in accordance with the provisions of this Act i.e. the said Act. Consequently, with effect from 1/7/1995 the total income/loss for the block period has to be computed in accordance with the provisions of the said Act and the same would include Chapter VI-A of the said Act. Section 80IB of the said Act is a part of Chapter VIA of the Act. In view of the above, while computing the undisclosed income for the block period the respondent-assessee is entitled to claim deduction from its income under Section 80IB of the Act. In fact, to the same effect is the decision of the Madras High Court in the matter of Anbu Textiles (supra).
11. The further case of the appellant-revenue that in view of section 69A of the said Act the benefit of deduction under Chapter VIA of the said Act would not be available to the respondent-assessee is not well founded. In the present facts it is not the case of the revenue that the money found in possession of the respondent assessee could not be explained and/or its source could not be explained to the satisfaction of the Assessing Officer. In the present case undisclosed income found in the form of cash was explained as having been acquired while carrying on business as a builder and this explanation was accepted by the Assessing officer by having assessed the undisclosed income for the block period as income from profits and gains of business or profession. Therefore, the reliance by the revenue upon the decision of the Gujrat High Court in the matter of Fakir Mohmed Haji Hasan (supra) is not correct as the facts of that case are completely distinguishable from the present facts. In the present case, no question of application of section 68,69 and 69A, 69B and 69C of the said Act arises as the same has not been invoked by the Department. It is an admitted position between the parties as reflected even in the order the Assessing officer that undisclosed income was in fact received by the respondent in the course of carrying out its business activities as a builder. The same was returned by the respondent as income arising from profits and gains of business or profession and the same was accepted by the department unlike in the matter of Fakir Mohmad Haji Hasan (supra).
12. In view of the above the order dated 12/10/2009 of the Tribunal cannot be faulted. Therefore, question (1) above is answered in the affirmative in favour of the respondent-assessee and against the appellant-revenue. Question (2) is answered in the affirmative in favour of the respondent-assessee and against the appellant-revenue.
The appeal is, therefore, dismissed. No order as to costs.
IT : Where assessee bank claimed depreciation on 'investments' contending that same were held as stock-in-trade
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[2012] 26 taxmann.com 355 (Delhi)
HIGH COURT OF DELHI
Punjab & Sind Bank
v.
Commissioner of Income-tax*
SURESH KAIT, J.
IT APPEAL NOS. 634 & 660 OF 2009
SEPTEMBER 12, 2012
Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of - Assets entitled to depreciation - Assessment years 1996-97 and 1997-98 - Assessee claimed deduction on account of depreciation on 'investments' - Assessee's case was that being an authorized bank, it was governed by Banking Regulation Act and balance sheet was required to be maintained in statutory format - According to assessee, current investments were shown in balance sheet as 'investments', whereas these were in nature of 'stock-in-trade' - Tribunal rejected assesssee's claim taking a view that securities in question were in nature of permanent investment and not stock-in-trade and, thus, depreciation could not be allowed on said securities - Whether on facts, matter was to be remanded back to Assessing Officer to determine as to whether securities in question were 'investment' or 'stock-in-trade' in light of order passed by Supreme Court in case of United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 - Held, yes [Para 16] [Matter remanded]
FACTS
• The assessee claimed deduction for relevant assessment years on account of depreciation on 'investments'. It was submitted by the assessee that being an authorized bank, it was governed by the Banking Regulation Act and the balance sheet was required to be maintained in the statutory format. The current investments were shown in the balance sheet as 'investments', whereas these were in the nature of 'stock-in-trade' as it was open to the applicant to value to the same at cost or market value, whichever was lower.
• The Assessing Officer as well as the Commissioner made disallowance on ground that it was a case of notional loss.
• The Tribunal also rejected the assessee's claim taking a view that securities in question were in nature of permanent investment and not stock-in-trade and, thus, depreciation could not be allowed on said securities.
• On appeal :
HELD
• In the instant case, so far as the books of account are concerned, namely, the balance sheet, the assessee was supposed to follow the mandate of the Reserve Bank of India and, therefore, that by itself would not be a ground to label the securities as 'investment'. One will have to see the real nature of these securities. [Para 12]
• Significantly, the Assessing Officer has not held that security shown as 'investment' are not 'stock-in-trade'. The disallowance is made on the ground that it is notional loss. Case of the assessee is that Tribunal has proceeded on the presumption that depreciation is claimed on 'permanent investments' whereas claim of deduction was towards depreciation on 'current (trading) investments'. However, as per the revenue, under section 6 of the Banking Regulation Act, 1949, a bank is entitled to hold securities either as 'stock-in-trade' or as 'investment' and there is no bar against trading by the bank. It was further argued by the revenue that fluctuation in valuation of investments cannot be allowed as deduction for computing business income and that the onus to establish that the said securities were held as 'stock-in-trade' was on the assessee which has not been discharged inasmuch as no trading account has been maintained by the assessee and value of opening and closing stock of securities etc., did not find place in income and expenditure account. The assessee, however stressed that the balance sheet is maintained in the statutory format to meet the requirements of the Banking Regulation Act, and, therefore it was binding on the assessee. [Para 13]
• Further, the assessee had relied upon the judgment of the Supreme Court in United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601, a reading whereof will show that the Court held as under :
'(1) That for valuing the stock, it is open to the assessee to value it at the cost or market value, whichever is lower;
(2) In the balance sheet, if the securities and shares are valued at cost, no firm conclusion can be drawn therefrom. A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price;
(3) A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation;
(4) The concept of real income is certainly applicable in judging whether there has been income or not, but in every case, it must be applied with care and within their recognized limits;
(5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the situation;
(6) Under section 145 in a case where accounts are correct and complete but the method employed is such that in the opinion of the ITO, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the ITO may determine.' [Para 15]
• The matter needs to be examined from the aforesaid perspective. However, there is no determination in this manner by any of the authorities. Thus, matter needs to be remanded back to the Assessing Officer to ascertain the true character of the securities on the basis of material produced to arrive at a finding as to whether this can be treated as 'investment' or 'stock-in-trade'. [Para 16]
CASE REVIEW
United Commercial Bank v. CIT 106 Taxman 601 (SC) (para 16) followed.
CASES REFERRED TO
United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC) (para 6), CIT v. Nadungadi Bank Ltd. [2003] 264 ITR 545/130 Taxman 93 (Ker.) (para 8) and Southeru Technologies Ltd. v. Jt. CIT [2010] 187 Taxman 346 (SC) (para 10).
Salil Kapoor for the Appellant. Abhishek Maratha for the Respondent.
ORDER
1. The appellant is a statutory banking corporation, a wholly owned Government of India undertaking. It had filed its income tax return for the assessment year 1996-97 declaring a loss of Rs.53,69,87,409/-. The assessment was completed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide orders dated 29th January, 1999 at a total income of Rs. 13,59,89,900/-. In the process, the Assessing Officer (AO) had made various disallowances and also certain additions which included the following:
(a) The AO disallowed the claim of Rs. 36,65,55,222/- on account of depreciation on investment. The assessee had claimed deduction on account of depreciation of current (trading) investments. The depreciation to the aforesaid extent was not allowed on the ground that these 'investments' were held as 'stock in trade'.
(b) The AO also disallowed a sum of Rs. 63,34,793/- on account of amortization of premium paid on purchase of securities. This amount was claimed on the ground that these were permanent securities which were intended to be held till maturity. However, the AO was of the view that it was a notional loss and was, therefore, not allowable.
(c) The AO also made an addition of Rs. 15.61 Crores on account of reverse entry made of interest paid to sellers of securities for the period 1.4.1993 to 31.3.1994. However, thereafter order was passed under Section 154 of the Act reducing the addition on account of reverse entry by Rs. 13.52 Crores giving disallowance to the extent of Rs. 2.09 Crores.
The aforesaid three disallowances and additions have been maintained by the Commission of Income Tax (Appeal) as well as Income Tax Appellate Authority in the impugned order. The assessee has, therefore, filed ITA No. 634/2009 challenging the orders dated 28th September, 2007 passed by the ITAT.
2. Second appeal, i.e. ITA No. 660/2009 raises the identical issues which pertain to the assessment year 1997-98, only the amounts are different. In fact, the decision of the ITA is common in respect of both the appeals. This will show that the issues in both the appeals perhaps are also common and for this reason, following two common questions of law were framed vide orders dated 27th August, 2010:
"(i) Whether the Tribunal is right in not allowing the deduction on account of depreciation of investments valued at the close of the year and held as stock in trade?
(ii) Whether the Tribunal is correct in not allowing the deduction on account amortization of premium paid towards purchase of securities, shown as permanent investments, spread over the remaining period of securities, particularly when the income and interest from such securities is assessed as Business Income?
In ITA 634/2009: Additional question
(iii) Whether the Tribunal is correct in not allowing the deduction of Rs. 2.09 Crores wrongly added by the A.O. when the amount debited to the Profit and Loss Account is Rs. 13.52 Crores and not Rs. 15.61 Crores?"
3. We have heard Mr. Salil Kapoor, advocate for the assessee and Mr. Abhishek Maratha, advocate for the revenue. We have also gone through the records and the orders of the authorities below. We now proceed to decide these questions of law.
Re Question No. 1
4. In so far as this question is concerned, as already pointed out above, the assessee had claimed deduction for assessment years 1996-97 and 1997-98 on account of depreciation on 'investments'. It was submitted by the assessee that being an authorized bank, the appellant is governed by the Banking Regulation Act and the balance sheet is required to be maintained in the statutory format. The current investments are shown in the balance sheet as 'investments', whereas these are in the nature of 'stock in trade' and it is open to the applicant to value to the same at cost or market value, whichever is lower. It was the case of the assessee that depreciation on investment was denoted by net depreciation in the value of current investments of the bank. This was represented by difference between the surplus and the deficit of other approved securities as per the statement of market value or securities enclosed with return. The AO has not held that securities shown as 'investments' are not 'stock in trade'. The disallowance has been made on the ground that it is notional loss. While dealing with the case for the Assessment Year 1995-96, the Tribunal held as under:
"We have perused the aforesaid order of the Tribunal. In that year, the issue before the Tribunal was whether the assessee was entitled to claim the loss resulting on account of the valuation of securities as on the last date of accounting year on the basis of cost or market value, whichever is lower. The Tribunal decided the issue in favour of the assessee. In our view, the argument of the learned counsel has to be accepted in so much that the principle to be applied for the present dispute will be the same. In that case, the loss arising on account of depreciation on investments was allowed by the Tribunal. In the present case, the premium paid by the assessee has been amortized over the remaining period of the securities. We see no difference between the two situations and therefore, delete the addition of Rs. 1,54,31,255/-. It may be noted that the assessee is not claiming the premium in a single year but in amortizing the same over the remaining period which in our opinion is quite fair and reasonable."
5. Therefore, the moot question is as to whether the securities are 'investments' or these are to be treated as 'stock in trade'. As per the assessee, the real nature of the securities is 'stock in trade' and these are shown as 'investment' due to the format of balance sheet prescribed by the Reserve Bank of India which is mandatorily followed but that should not be a determinative factor and while deciding the issue, it is the provisions of the Act which are to be taken into consideration.
6. The submission of Mr. Kapoor, learned counsel appearing for the assessee was that ITAT was not correct in holding these securities are held as 'investment' and not as 'stock in trade'. According to him, the admitted fact was that income from sale of such securities on sale or on its maturity had been assessed as "business income". It was also pointed out that the Tribunal while deciding the issue of "broken period interest" in para 9 has clearly held that income from the securities is to be assessed as 'business income'. These admitted facts clinchly prove that the securities were 'stock in trade'. Reliance was placed on the judgment of the Supreme Court in the case of United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC) to support this submission.
7. Learned counsel additionally pointed out that in the earlier assessment years, the revenue had accepted these securities as 'stock in trade' and the loss, if any, on account of depreciation in the value of such security is allowable loss. For this purpose, he referred to the ITAT order for the assessment year 1975-76 and 1986-87. So much so, the Committee on Dispute (COD) did not even allow the revenue to challenge these very findings recorded in respect of Assessment Year 2005-06.
8. Learned counsel also relied upon the judgment of CIT v. Nedungadi Bank Ltd. [2003] 264 ITR 545/130 Taxman 93 (Ker.) in which the High Court, after following various judgments of the Supreme Court, held that securities held by the bank constituted their 'stock in trade' and consequently the notional loss claimed by the assessee bank on valuation of such securities at the close of the year is allowable deduction. Learned counsel also submitted that the special leave petition filed against the aforesaid decision was dismissed by the Supreme Court.
9. Learned counsel for the revenue, on the other hand, justified the decision of the ITAT on the ground that while treating these securities as 'investment' the Tribunal had followed its own decision in the preceding year, i.e. Assessment Year 1995-96 and no appeal could be filed by the bank thereagainst as COD declined the approval to the assessee.
10. He also submitted that in so far as order of the ITAT in respect of Assessment Year 1975-76 is concerned, the Tribunal had only held that change in the method of accounting to comply with the RBI directives was bona fide. Therefore, mere fact that income arising from securities held by the assessee are being assessed as 'business income' would be of no consequence. To support this plea, reliance was placed on the judgment of the Supreme Court in the case of Southern Technologies Ltd. v. Jt. CIT [2010] 187 Taxman 346.
11. We have considered the respective submissions of the learned counsel for the parties. From the facts noted above, it becomes clear that in the year 1975-76, the Tribunal had approved the method of accounting adopted by the assessee to comply with the RBI directives as bona fide. It is also interesting that when in the earlier assessment years, deduction was allowed treating these investments as 'stock in trade', COD had not granted permission to the revenue to file appeals whereas for the year 1995-96 when the Tribunal held these securities to be 'investment', it is the assessee bank which was denied permission by the COD to file the appeal. In the years in question, the ITAT has simply relied upon its own order in respect of Assessment Year 1995-96. In such a situation, we are of the opinion that it becomes an open question to be examined viz. the true nature of these securities, more particularly when in this year, even the COD has granted permission to the assessee to file the appeal thereby implying that the issue needs consideration.
12. In the instant case, we would like to convey that in so far as the books of account are concerned, namely, the balance sheet, the assessee was supposed to follow the mandate of the Reserve Bank of India and, therefore, that by itself would not be a ground to label the securities as 'investment'. One will have to see the real nature of these securities. In Southern Technologies Ltd. (supra), the assessee which was a non banking financial corporation (NBFC) had claimed deduction of certain amount under Section 36(1)(vii) of the Act being provision for NPAs in terms of NBFC's Prudential Norms (Reserve Bank) Directions, 1998 on the ground that it had to debit the said amount to Profit and Loss Account in terms of para 9(4) of the said RBI directions reducing its profits, contending it to be write off. It was the contention of the assessee that it was bound to follow the method of accounting prescribed by the RBI and as per the method followed, provisions for NPAs actually represented depreciation in the value of assets and consequently, it was deductible under Section 37(1) of the Act. The Supreme Court did not accept this contention holding that directions issued by the Reserve Bank deal only with the presentation of NPAs provisions in the balance sheet of NBFC and they had nothing to do with the computation or taxability of provisions under the Act and no deduction under the Act could be allowed on that basis. Thus, irrespective of the treatment given to this transaction in the balance sheet by virtue of RBI directions, one is to discern the true character of the securities.
13. Significantly, the AO has not held that security shown as 'investment' are not 'stock in trade'. The disallowance is made on the ground that it is notional loss. Case of the assessee is that Tribunal has proceeded on the presumption that depreciation is claimed on "permanent investments" whereas claim of deduction was towards depreciation on "current (trading) investments". However, as per the Revenue, under Section 6 of the Banking Regulation Act, 1949, a bank is entitled to hold securities either as 'stock in trade' or as 'investment' and there is no bar against trading by the bank. It was further argued by the Revenue that fluctuation in valuation of investments cannot be allowed as deduction for computing business income and that the onus to establish that the said securities were held as 'stock in trade' was on the assessee which has not been discharged inasmuch as no trading account has been maintained by the assessee and value of opening and closing stock of securities etc. did not find place in income and expenditure account. The learned counsel also stressed that the admitted case of the assessee is that the balance sheet is maintained in the statutory format to meet the requirements of the Banking Regulation Act and, therefore, it was binding on the assessee.
14. In so far as ITAT is concerned, it has held the securities to be 'investment' by observing as under:
"We have heard both the parties and perused the material available on record. The issue for consideration relates to allowance of depreciation on investments kept in permanent category. These investments are held till the maturity date. Therefore, the investments are not held by the bank as stock-in-trade which should be valued as per market price or cost price. The assessee has valued the permanent investments at a lower price as per guidelines issued by RBI. The investment held not as stock in trade cannot be valued at the year end for the purposes of income tax. When the investments are sold whatever may be capital or loss will be determined as per the provisions of Income Tax Act. Hon'ble Madras High Court in the case of TN Power Financial & Infrastructure Development Corporation Ltd. v. Joint CIT 280 ITR 491 held that RBI guidelines cannot over-ride statutory provisions of Income Tax Act, 1961. Therefore, contention of assessee that assessee's cases is covered by ITAT order for assessment year 1975-76 is no longer applicable. Moreover, in assessment year 1975-76 it was held that change in the method of valuation of stock and security to comply with the directive of the Reserve Bank of India could not be said that the change was not bonafide. The valuation of stocks and securities held as stock in trade has to be valued on market price or cost price which ever is lower. However, where stocks & securities are held as investments, the valuation cannot be made for the purposes of income tax as per RBI guidelines."
15. The assessee has countered the aforesaid reasoning by relying upon the judgment of the Supreme Court in United Commercial Bank (supra), a reading whereof will show that the Court held as under:
"(1) That for valuing the stock, it is open to the assessee to value it at the cost or market value, whichever is lower;
(2) In the balance sheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn. A taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price;
(3) A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation;
(4) The concept of real income is certainly applicable in judging whether there has been income or not, but in every case, it must be applied with care and within their recognized limits;
(5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the situation;
(6) Under s. 145 in a case where accounts are correct and complete but the method employed is such that in the opinion of the ITO, the income cannot be properly reduced therefrom, the computation shall be made in such manner and on such basis as the ITO may determine."
16. The matter needs to be examined from the aforesaid perspective. However, there is no determination in this manner by any of the authorities. We, thus, are of the opinion that matter needs to be remanded back to the AO to ascertain the true character of the securities on the basis of material produced to arrive at a finding as to whether this can be treated as 'investment' or 'stock in trade'.
Re Question No. 2
17. The assessee had claimed amortization of expense incurred in respect of premium paid by the assessee in purchase of securities. This was disallowed on the ground that the securities are held as 'investment' and, therefore, whenever such securities are transferred, the profit or loss arising therefrom would be computed after taking into account the cost of the acquisition. Since we have remanded the issue about nature and character of securities to the AO and the outcome of this issue would depend upon the said determination, this issue also stands remanded back to the AO.
Re Question No. 3
18. Out of the total disallowance made by the AO originally on account of interest paid to sellers for the period from 1.4.1990 to 31.3.1994 was subsequently reduced to Rs. 2.10 crores. The entry made by the assessee for Rs. 15.61 crores as on 31.3.1996 in terms of RBI directives was reversed by debiting provisions in contingency and crediting investments. The CIT (Appeals) confirmed the disallowance of Rs. 2.10 crores on the ground that the assessee had offered for taxation an amount of Rs. 13.52 crores and accordingly the same was disallowed to the above extent. In absence of any arguments by the assessee, disallowance was confirmed. The order passed by the CIT (Appeals) was further upheld on the ground that interest paid to sellers on purchase of investment was a capital expenditure which was capitalized by the assessee itself. The argument of Mr. Kapoor, learned counsel for the assessee, was that the entire order proceeded on the fact which was factually incorrect. According to him, in fact Rs. 15.61 crores was debited in PLL account and not Rs. 13.52 crores and the matter can be examined by the AO in this behalf. Learned counsel for the respondent, during arguments, himself suggested that this can be verified by the AO. For this reason, this issue is also remanded to the AO and the deduction shall be allowed subject to verification.
19. The appeals are disposed of in the aforesaid terms with no order as to costs.
IT : Percentage completion method - Developer following percentage completion method would also be entitled to deduction under section 80-IB(10)
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[2012] 26 taxmann.com 259 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'A'
Keerthi Estates (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle-2(1), Hyderabad *
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SAKTIJIT DEY, JUDICIAL MEMBER
IT Appeal No. 478 (Hyd.) of 2011
[Assessment year 2007-08]
SEPTEMBER 21, 2012
Section 80-IB of the Income tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings - Assessment year 2007-08 - Whether deduction under section 80-IB(10) is not only restricted to a developer who follows project completion method but it is extended to developer following percentage completion method also - Held, yes - Whether in such case if revenue is taxing profit in particular year on ground that assessee is adopting 'Percentage Completion Method' then natural corollary should be that connected deduction ought to be granted simultaneously in that year - Held, yes [In favour of assessee]
Interpretation of statutes : Liberal Rule of interpretation
Circulars and Notifications : Instruction No. 4 of 2009, dated 30-6-2009
Words and Phrases : 'Date of completion' as appearing in Explanation (ii) to clause (a) to section 80-IB of Income-tax Act, 1961
FACTS
Facts
• The assessee was engaged in construction of residential buildings and sales of flats.
• One of housing project of assessee situated at Bangalore was approved by local authority on 1-4-2004 and due date for completion of the project was 31-3-2008.
• The assessee claimed deduction under section 80-IB(10) in respect of said project.
• Lower authorities denied deduction for non-production of completion certificate of the project.
Arguments of assessee
• The non-production of completion certificate, which is technical in nature, cannot be a reason for denying deduction under section 80-IB(10). Section 80-IB(10) is a beneficial provision and while granting deduction under section 80-IB(10), a liberal view has to be taken.
• The project was completed which was evident from the property assessment tax, water connection document, pollution control permission issued by the competent authority.
Arguments of department
• The assessee cannot abdicate its statutory obligation to produce a completion certificate for obtaining the benefit provided in section 80-IB by placing indirect circumstantial evidence.
Issue for consideration
• Whether deduction was rightly denied for want of completion certificate?
HELD
Liberal approach to be adopted while granting deduction under section 80-IB(10)
• In the instant case the assessee's project is approved by local authority on 1-4-2004 and there is no dispute regarding this. However, the only dispute for denying deduction under section 80-IB(10) is that there is no completion certificate furnished by the assessee for which its claim was denied. The meaning of 'date of completion' has been given in Explanation (ii) to clause (a) to section 80-IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction under section 80-IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction under section 80-IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee's claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole.
• Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption under section 80-IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted under section 80-IB(10) for the earlier years if it is not so produced. A provision in the taxing statutes granting incentives for promoting growth and development of the nation should be considered liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate.
• Clause (a) of section 80-IB(10) specifies that the development and construction of the project has to start on or before1-4-2004 and the project has to be completed within four years from the end of the financial year in which approval for project was received from the local authority. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80-IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention of legislation is that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit, revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer cannot insist on the completion certificate in the impugned year. This view has also been taken by CBDT in its Instruction No. 4 of 2009, dated 30-6-2009,paras 2 to 4 of which are reproduced hereunder. [Para 12]
Undisputed facts of case
• In the instant case, there is no dispute that the assessee has been following percentage completion method and also the assessee furnished the evidence in the form of property assessment document, water connection documents, pollution control permission etc. On an examination of the notices issued by the Bangalore Mahanagar Palike (Municipal Corporation) in respect of 141 flat owners in the assessee's housing project, it is seen that in the notices dated 17-1-2007 in response to the flat owners applications dated 1-12-2006 requesting for assessment and allotment of municipal numbers, the Municipal Corporation had issued notices for payment of the required taxes for the initial assessment.
• The proof of payment of taxes in certain cases has also been produced. From the above, it would appear that the applicants, being flat owners, had individually filed application before the Municipal Corporation for allotment of municipal numbers and assessment. The notice, as above, clearly indicates that the municipal numbers were being allotted in respect of newly constructed residential apartments. [Para 13]
Objection relating to non-production of completion certificate
• Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction under section 80-IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction under section 80-IB(10) has to be granted only to a taxpayer who follows only 'Project Completion Method' is accepted then it would lead to an absurd situation as the developer who is following Percentage Completion Method would not be entitled for deduction under section 80-IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project.
• If the stand of the revenue is accepted then only on completion of project an assessee would be entitled for deduction under section 80-IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year, i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in that year or the other method of computation is that the revenue must not tax the profit of the project yearly on the basis of 'Percentage Completion Method' but tax the entire profit on completion of the project by applying 'Project Completion Method'. [Para 14]
Conclusion
• In view of the foregoing discussion, the Assessing Officer is directed to allow deduction under section 80-IB(10) [Para 15]
CASE REVIEW
Hiranandani Akruti JV v. Dy. CIT [2010] 39 SOT 498(Mum.) (para 15) followed.
CASES REFERRED TO
Guru Charan Singh v. Kamla Singh [1976] 2 SCC 152 (para 5), Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 (SC) (para 6), Hiranandani Akruti JV v. Dy. CIT [2010] 39 SOT 498 (Mum.) (para 7) and Saroj Sales Organisation v. ITO [2008] 115 TTJ 485 (Mum.) (para 7).
V. Siva Kumar for the Appellant. M.S. Rao for the Respondent.
ORDER
Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT(A), Vijayawada dated 31.1.2011 for assessment year 2007-08.
2. The grievance of the assessee in this appeal is with regard to denial to deduction u/s. 80IB(10) of the Act for want of completion certificate.
3. Brief facts of the issue are that the assessee claimed deduction u/s. 80IB(10) of Income-tax Act, 1961 at Rs. 1,99,35,869 and it was denied by the lower authorities for non-production of completion certificate of the project.
4. The learned AR submitted that there is no dispute regarding the fact that the assessee is engaged in construction of residential buildings and sale of flats. The housing project under the name of Keerthi Riviera situated at Bangalore at an area of more than one acre of land. The project was approved by the local authority on 1.4.2004 and due date for completion of the project was 31.3.2008. According to the Assessing Officer, the project is said to be completed on the date on which certificate of completion is issued by local authority. He submitted that the project was completed which is evident from the property assessment tax, water connection document, pollution control permission issued by the competent authority. He submitted that the Municipal Corporation of Bangalore has given distinctive number for each flat and all the flats were assessed to municipal tax. This is evidenced by the information furnished by 141 individual flat owners in assessee's housing project. According to the AR non-production of completion certificate, which is technical in nature, cannot be a reason for denying deduction u/s. 80IB(10) of the Act. He submitted that section 80IB(10) is a beneficial provision and while granting deduction u/s. 80IB(10) a liberal view has to be taken.
5. He relied on the judgement of Supreme Court in the case of Guru Charan Singh v. Kamla Singh [1976] 2 SCC 152 wherein the apex court held that "it is well settled canon of construction that in construing the provisions of beneficial legislation, the court adopt constriction which advances, fulfils and furthers the object of the legislation rather than the one which would defeat the same and render the benefit illusory.
6. Further he relied on the judgement of Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 wherein it was held that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. Since the provisions intended for promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the section and not to frustrate it.
7. Further he relied on the decision of Tribunal Mumbai Bench in the case of Hiranandani Akruti JV v. Dy. CIT [2010] 39 SOT 498. In this case the assessee submitted a proposal for slum rehabilitation and permission for carrying out development was accorded on 17-11-2003 and the project was completed in the A.Y. 2006-07. Assessee, following project completion method of accounting, claimed deduction under section 80-IB(10) from gross total income accrued from project. The Assessing Officer denied the deduction because as per provisions of section 80IB(10)(d) as applicable with effect from 1-4-2005, limit for having commercial space in housing projects was 5 per cent of total built-up area or 2,000 sq. ft., whichever was less and in the case of the assessee, total built-up area of commercial space in housing project exceeded 2.000 sq. ft. The Tribunal held that in view of decision in Saroj Sales Organisation v. ITO [2008] 115 TTJ 485 (Mum) law as it existed in assessment year 2004-05, when assessee submitted its proposal for slum rehabilitation and permission for carrying out development was accorded was to be applied.
8. On the other hand, the learned DR submitted that the only issue for adjudication is whether the assessee had completed the construction within the stipulated time and had filed the completion certificate as required under the relevant section. It is evident from the record that the Addl. CIT had concluded that the assessee had completed the housing project after examining the documentation placed before him. The same documentation has been produced during the appeal proceedings. The evidences include property assessment document, water connection documents, pollution control permission etc. On an examination of the notices issued by the Bangalore Mahanagar Palike (Municipal Corporation) in respect of 141 flat owners in the assessee's housing project, it is seen that in the notices dated 17.1.2007 in response to the flat owners applications dated 1.12.2006 requesting for assessment and allotment of municipal numbers, the Municipal Corporation had issued notices for payment of the required taxes for the initial assessment. The relevant notice reads as under:
"with reference to the above Sri (applicant / flat owner) hereby informed that the Zonal Commissioner (east), Bangalore Mahanagara Palike, Bangalore, has approved the allotment of Municipal Numbers and Assessment in respect of newly constructed, Residential Apartment at Property No. 184 as detailed below ..."
9. The DR submitted that proof of payment of taxes in certain cases has also been produced. From the above, it would appear that the applicants, being flat owners, had individually filed application before the Municipal Corporation for allotment of municipal numbers and assessment. The notice, as above, clearly indicates that the municipal numbers were being allotted in respect of newly constructed residential apartments.
10. The DR submitted that it is the claim of the learned Authorised Representative that the failure to file the completion certificate being purely technical in nature, should not be held against the assessee as the evidence produced clearly indicates that the project was completed within the stipulated time as per Sec. 80IB. While such an argument may be persuasive in nature, it may be stated that there is no dispute over the fact that the condition prescribed u/s. 80IB(10) has not been fulfilled by the assessee. Even though the argument that the assessee cannot be penalized for either the delay or non-issue of the completion certificate by the local authority appears to be reasonable, the assessee has not been able to produce any evidence that steps have been initiated by it to obtain the completion certificate from the competent authority. The assessee cannot abdicate its statutory obligation to produce a completion certificate for obtaining the benefit provided in Sec. 80IB by placing indirect circumstantial evidence. In such circumstances the specific provisions of Sec. 80IB(10) have not been complied with on account of non-furnishing of the completion certificate, the DR is of the view that rejection of assessee's claim u/s. 80IB(10) by the Assessing Officer was not only but justified.
11. We have heard the rival submissions. As per provisions of section 80IB(10) Income-tax Act, 1961 an undertaking which develops and builds housing projects approved before 31.3.2007 by a local authority is eligible for deduction u/s. 80IB(10) subject to the following conditions:
(i) In a case where the housing project has been approved by the Local Authority before 01-04-2004, the construction should be completed on or before 31-03-2008. In a case where the approval from Local Authority is obtained on or after 01-04-2004, the construction should be completed within 4 years from the end of the financial year in which the housing project is approved by the Local Authority.
(ii) The housing project is constructed on a plot of land which has a minimum area of 1 acre.
(iii) The residential units constructed in the housing project have a maximum built up area of 1500 sq. ft. where such units are situated in places other than Delhi or Mumbai.
(iv) The built-up area of shops and other commercial establishments included in the housing projects does not exceed 5% of the aggregate built-up area of the housing project or 2000 sq. ft., whichever is less.
12. In the present case the assessee's project is approved by local authority on 1.4.2004 and there is no dispute regarding this. However, the only dispute for denying deduction u/s. 80IB(10) is that there is no completion certificate furnished by the assessee for which its claim was denied. The meaning of "date of completion" has been given in Explanation (ii) to clause (a) to section 80IB(10). Date of completion of construction would mean date on which completion certificate in respect of housing project was issued by the local authority. To grant deduction u/s. 80IB(10) it is mandatory to furnish the completion certificate of the housing project but the persistent question here is whether for giving benefit of deduction u/s. 80IB(10), where an assessee is following the percentage completion method is it necessary to obtain such completion certificate for each year of assessee's claim or it is sufficient that certificate is obtained on the completion of the housing project as a whole. Stipulation for obtaining completion certificate should not be so interpreted to mean that an assessee can claim exemption u/s. 80IB(10) only in the year of completion of whole of the housing project, even where the project stretches over a number of years and assessee returns its income based on percentage completion method. It would only mean that the assessee has to obtain such certificate on completion of the housing project, least it would lose the deduction already granted u/s. 80IB(10) for the earlier years if it is not so produced. As held by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. (supra) a provision in the taxing statutes granting incentives for promoting growth and development of the nation should be construed liberally. When such liberal interpretation is to be given, the restriction placed in such provision granting the incentives also has to be considered so as to advance the objectives of the provisions and not to frustrate. Clause (a) of section 80IB(10) specifies that the development and construction of the project has to start on or before 1.4.2004 and the project has to be completed within four years from the end of the financial year in which approval for project was received from the local authority. Thus, a project can have a span of not more than 4 years from the end of the financial year it has received approval. Explanation under clause (a) only specified how to reckon the day of approval and date of completion. It would not mean that the assessee can have the benefit of section 80IB(10) only in the year of completion of the project, especially so, for an assessee not following project completion method for accounting its income. If otherwise interpreted, it would be equivalent to forcing an assessee to follow a particular method of accounting, which would never have been the intention of legislation. Intention would only have been that for the project as a whole, there should be certification from the relevant authority proving the commencement and completion, and not that a completion certificate should be there in every year of the project span. The certifications are for ensuring that the project span does not exceed the prescribed period and nothing more. Of course if such period exceeded the prescribed limit, Revenue would be well within its rights to withdraw the claims already allowed, following the procedure prescribed under the Act. Thus, the Assessing Officer cannot insist on the completion certificate in the impugned year. This view has also been taken by CBDT in its Instruction No. 4 of 2009 dt. 30.6.2009, paras 2 to 4 of which are reproduced hereunder:
"2. Clarifications have been sought by various Chief CITs on the issue whether the deduction under s. 80IB(10) would be available on a year-to-year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the project under s. 80-IB(10).
3. The above issue has been considered by the Board and it is clarified as under :
(a) The deduction can be claimed on a year-to-year basis where the assessee is showing profit from partial completion of the project in every year.
(b) In case it is late and it is found that the condition of completing the project within the specified time-limit of 4 years as stated in s. 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn.
4. The above instruction will override earlier clarification on this issue contained in Member (R.)'s D.O. Letter No. 58/Misc/2008/CIT (IT & CT), dt. 29th April, 2008 and Member (IT)'s D.O. Letter No. 279/Misc/46/ 2008-ITJ dt. 2nd May, 2008."
13. In the instant case, there is no dispute that the assessee has been following percentage completion method and also the assessee furnished the evidence in the form of property assessment document, water connection documents, pollution control permission etc. On an examination of the notices issued by the Bangalore Mahanagar Palike (Municipal Corporation) in respect of 141 flat owners in the assessee's housing project, it is seen that in the notices dated 17.1.2007 in response to the flat owners applications dated 1.12.2006 requesting for assessment and allotment of municipal numbers, the Municipal Corporation had issued notices for payment of the required taxes for the initial assessment. The relevant notice reads as under:
"with reference to the above Sri (applicant / flat owner) hereby informed that the Zonal Commissioner (east), Bangalore Mahanagara Palike, Bangalore, has approved the allotment of Municipal Numbers and Assessment in respect of newly constructed, Residential Apartment at Property No. 184 as detailed below ..."
The proof of payment of taxes in certain cases has also been produced. From the above, it would appear that the applicants, being flat owners, had individually filed application before the Municipal Corporation for allotment of municipal numbers and assessment. The notice, as above, clearly indicates that the municipal numbers were being allotted in respect of newly constructed residential apartments.
14. Now the objection of the Department is that the assessee has not produced the completion certificate. The assessee is following Percentage Completion Method. This method is recognised by the Income-tax Act for disclosing the profit in the case of a builder. The purpose of granting deduction u/s. 80IB(10) is to promote housing projects. If we accept the proposition of the Department that the deduction u/s. 80IB(10) has to be granted only a tax payer who follows only "Project Completion Method" it leads to an absurd situation as the developer who is following Percentage Completion Method is not entitled for deduction u/s. 80IB(10) of the Act though all other requirements of the section being fulfilled. It would tantamount to denial of valid exemption for which an assessee is entitled. No one can pass such a anomalous dictum while dealing with a legal problem. The Tribunal being final fact finding authority shall keep in mind an overall situation, factual as well as legal, so thereupon brings a dictum ought to be legally sustainable in the eyes of law. In the present situation, the Revenue is taxing the profit on Percentage Completion Method but suggesting to grant deduction only on completion of the project. If the stand of the Revenue is accepted then only on completion of project an assessee would be entitled for deduction u/s. 80IB(10), then undisputedly an anomaly shall arise as to how and when the tax should be charged. This is not the scheme of the Act, to first tax an income in a particular year and grant deduction on that very income in a different later year i.e., on completion of the project as was canvassed by the Department. The accepted principle is that the year of the assessment of income and connected deduction shall fall in the same assessment year. If the Revenue is taxing the profit in the year under consideration on the ground that the assessee is adopting "Percentage Completion Method" then the natural corollary should be that the connected deduction ought to be granted simultaneously in this year or the other method of computation is that the Revenue must not tax the profit of the project yearly on the basis of "Percentage Completion Method" but tax the entire profit on completion of the project by applying "Project Completion Method".
15. In view of the foregoing discussion, we direct the Assessing Officer to allow deduction u/s. 80IB(10) of the Act in the light of the order of the Tribunal in Hiranandani Akruti JV (supra).
16. In the result, assessee's appeal is allowed
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