INCOME TAX REPORTS (ITR)
Business expenditure --Contingent or ascertained liability--Liability on account of wage revision--Liability certain--Liability deductible--Income-tax Act, 1961, s. 37-- CIT v. Bharat Heavy Electricals Ltd . (Delhi) . . . 88
----Donation for charitable institutions which would benefit assessee's employees--No details furnished regarding donations--Donations not deductible under section 37--Income-tax Act, 1961, s. 37-- CIT v. Bharat Heavy Electricals Ltd .
(Delhi) . . . 88
(Delhi) . . . 88
----Fines and penalties--Assessee taking business decision not to honour its commitment of fulfilling export entitlement in view of losses--Encashment of bank guarantee by Export Promotion Council--Payment recorded as penalty in assessee's books and claimed as deduction--No contravention of any provisions of law--Compensatory in nature--Allowable--Income-tax Act, 1961, s. 37(1)-- CIT v . Regalia Apparels Pvt. Ltd. (Bom) . . . 71
Exemption --Interest on tax-free bonds--Scope of section 10(15)--Interest for period between application for allotment and actual allotment--Entitled to exemption--Income-tax Act, 1961, s. 10(15)-- CIT v. Bharat Heavy Electricals Ltd .
(Delhi) . . . 88
(Delhi) . . . 88
Export --Special deduction--Computation--Miscellaneous income--Is part of total turnover for purposes of deduction--Income-tax Act, 1961, s. 80HHC-- CIT v . Infosys Technologies Ltd . (Karn) . . . 74
----Special deduction--Cut and polished marble blocks--Extent of cutting and polishing not prescribed--Process should add value--Assessee eligible for deduction--Income-tax Act, 1961, s. 80HHC, Sch. XII, entry (x)--Circular No. 693 dated 17-11-1994-- CIT v . Arihant Tiles and Marbles Pvt. Ltd . (Raj) . . . 20
----Special deduction--Dividend and interest receipts--Ninety per cent. of net receipts, included in profits, and not of gross receipts for arriving at profits--Income-tax Act, 1961, s. 80HHC-- CIT v . Infosys Technologies Ltd . (Karn) . . . 74
Export of computer software --Special deduction--Computation of profits--Expenditure incurred in foreign exchange by providing technical services outside India--Whether to be reduced from export turnover and total turnover--Matter remanded--Income-tax Act, 1961, s. 80HHE-- CIT v . Infosys Technologies Ltd .
(Karn) . . . 74
(Karn) . . . 74
Income --Non-banking financial company--Mercantile system--Interest on non-performing assets--Provision for non-performing assets--Characterisation as non-performing assets alone not sufficient--Uncertainty in realization of income or interest to be proved--Nothing to indicate interest non-recoverable--Whether uncertainty of interest accrued--Matter remanded to Assessing Officer to decide issue afresh--Income-tax Act, 1961-- CIT v . Sakthi Finance Ltd . (Mad) . . . 102
Income from house property --Income from business--Construction business--Rental income from unsold flats--Assessable as income from house property--Income-tax Act, 1961, ss. 14, 22-- Azimganj Estate Pvt. Ltd. v. CIT (Cal) . . . 82
Interest on borrowed capital --Assessee allowing its directors and family members to use its funds for their personal benefits--No attempt by directors to repay loan--No evidence showing loan without interest given for business purposes--Interest not allowable--Income-tax Act, 1961, s. 36(1)(iii)-- CIT v. Sahu Enterprises Pvt. Ltd .
(All) . . . 8
(All) . . . 8
Offences and prosecution --Compounding of offences--Revised guidelines--Condition that compounding cannot be done in cases where order of conviction has been passed--Assessee to show sufficient cause or reason to support request for compounding of offence--Direction to consider application on the merits--Income-tax Act, 1961, s. 276CC-- V. G. Paneerdas and Co. P. Ltd . v. Secretary, Central Board of Direct Taxes (Mad) . . . 77
Penalty --Concealment of income--Failure to furnish accurate particulars--Disallowance of claim and imposition of penalty on basis of subsequent Supreme Court decision--Not furnishing of inaccurate particulars--Penalty levied not justified--Income-tax Act, 1961, s. 271(1)(c)-- CIT v . Celetronix Power India P. Ltd . (Bom) . . . 70
----Concealment of income--Survey--Surrender of income without explanation--Not voluntary disclosure--Furnishing inaccurate particulars--Penalty justified--Income-tax Act, 1961, s. 271(1)(c), Expln. 1(A) -- CIT v. Mak Data Ltd . (Delhi) . . . 1
Projects outside India --Special deduction under section 80HHB--Computation of special deduction--Loss in one unit not to be set off against profits in another unit--Income-tax Act, 1961, s. 80HHB-- CIT v . Bharat Heavy Electricals Ltd.
(Delhi) . . . 88
(Delhi) . . . 88
Reassessment --Notice after four years--Authority for Advance Rulings in assessee's case ruling that profits arising from realization of portfolio investments in India be treated as part of business profits of assessee--Claim of loss on sale of shares accepted on basis of ruling--Reopening of assessment on ground earlier ruling not correct in view of subsequent ruling--No failure on part of assessee to disclose fully and truly all material facts necessary for assessment--High Court holding that advance ruling in assessee's case will continue to govern assessee's assessments--Notice not valid--Income-tax Act, 1961, ss. 147, 148-- DIT v. Prudential Assurance Co. Ltd. (Bom) . . . 66
Transfer of case --Assessee must be given opportunity to be heard--Assessee submitted objections to transfer of case to New Delhi and stating hardships that would be caused if such transfer effected--Furnishing personal hearing necessary--Income-tax Act, 1961, s. 127(1)-- Aamby Valley Ltd . v . CIT (Bom) . . . 48
----Assessee must be given opportunity to be heard--Failure to inform assessee of reasons for transfer--Impossible for assessee to put forth its case--Objections of assessee to be considered before taking any decision to confirm or drop notice--Income-tax Act, 1961, s. 127-- Shikshana Prasaraka Mandali v . CIT (Bom) . . . 53
----Transfer from one city to another--Assessee must be given opportunity to be heard--Assessee requesting personal hearing but not afforded one--Order of transfer--Not valid--Income-tax Act, 1961, s. 127-- Sahara Hospitality Ltd . v . CIT
(Bom) . . . 38
(Bom) . . . 38
Voluntary disclosure of income --Existence of stock, cash and amount of sundry debtors accepted in previous years--Presumption that stock, cash and amount of sundry debtors continued for a short period--Voluntary disclosure not rendered invalid--Voluntary Disclosure of Income Scheme, 1997--Finance Act, 1997, s. 64(2)(ii)-- Jainsons v. ITAT
(Jharkhand) . . . 28
(Jharkhand) . . . 28
S. 64(2)(ii) --Voluntary disclosure of income--Existence of stock, cash and amount of sundry debtors accepted in previous years--Presumption that stock, cash and amount of sundry debtors continued for a short period--Voluntary disclosure not rendered invalid-- Jainsons v. ITAT (Jharkhand) . . . 28
S. 10(15) --Exemption--Interest on tax-free bonds--Scope of section 10(15)--Interest for period between application for allotment and actual allotment--Entitled to exemption-- CIT v. Bharat Heavy Electricals Ltd . (Delhi) . . . 88
S. 14 --Income from house property--Income from business--Construction business--Rental income from unsold flats--Assessable as income from house property-- Azimganj Estate Pvt. Ltd. v. CIT (Cal) . . . 82
S. 22 --Income from house property--Income from business--Construction business--Rental income from unsold flats--Assessable as income from house property-- Azimganj Estate Pvt. Ltd. v. CIT (Cal) . . . 82
S. 36(1)(iii) --Interest on borrowed capital--Assessee allowing its directors and family members to use its funds for their personal benefits--No attempt by directors to repay loan--No evidence showing loan without interest given for business purposes--Interest not allowable-- CIT v. Sahu Enterprises Pvt. Ltd . (All) . . . 8
S. 37 --Business expenditure--Contingent or ascertained liability--Liability on account of wage revision--Liability certain--Liability deductible-- CIT v. Bharat Heavy Electricals Ltd . (Delhi) . . . 88
----Business expenditure--Donation for charitable institutions which would benefit assessee's employees--No details furnished regarding donations--Donations not deductible under section 37-- CIT v. Bharat Heavy Electricals Ltd .
(Delhi) . . . 88
(Delhi) . . . 88
S. 37(1) --Business expenditure--Fines and penalties--Assessee taking business decision not to honour its commitment of fulfilling export entitlement in view of losses--Encashment of bank guarantee by Export Promotion Council--Payment recorded as penalty in assessee's books and claimed as deduction--No contravention of any provisions of law--Compensatory in nature--Allowable-- CIT v . Regalia Apparels Pvt. Ltd.
(Bom) . . . 71
(Bom) . . . 71
S. 80HHB --Projects outside India--Special deduction under section 80HHB--Computation of special deduction--Loss in one unit not to be set off against profits in another unit-- CIT v . Bharat Heavy Electricals Ltd. (Delhi) . . . 88
S. 80HHC --Export--Special deduction--Computation--Miscellaneous income--Is part of total turnover for purposes of deduction-- CIT v . Infosys Technologies Ltd .
(Karn) . . . 74
(Karn) . . . 74
----Export--Special deduction--Dividend and interest receipts--Ninety per cent. of net receipts, included in profits, and not of gross receipts for arriving at profits-- CIT v . Infosys Technologies Ltd . (Karn) . . . 74
S. 80HHC, Sch. XII, entry (x) --Export--Special deduction--Cut and polished marble blocks--Extent of cutting and polishing not prescribed--Process should add value--Assessee eligible for deduction--Circular No. 693 dated 17-11-1994-- CIT v . Arihant Tiles and Marbles Pvt. Ltd . (Raj) . . . 20
S. 80HHE --Export of computer software--Special deduction--Computation of profits--Expenditure incurred in foreign exchange by providing technical services outside India--Whether to be reduced from export turnover and total turnover--Matter remanded-- CIT v . Infosys Technologies Ltd . (Karn) . . . 74
S. 127 --Transfer of case--Assessee must be given opportunity to be heard--Failure to inform assessee of reasons for transfer--Impossible for assessee to put forth its case--Objections of assessee to be considered before taking any decision to confirm or drop notice-- Shikshana Prasaraka Mandali v . CIT (Bom) . . . 53
----Transfer of case--Transfer from one city to another--Assessee must be given opportunity to be heard--Assessee requesting personal hearing but not afforded one--Order of transfer--Not valid-- Sahara Hospitality Ltd . v . CIT (Bom) . . . 38
S. 127(1) --Transfer of case--Assessee must be given opportunity to be heard--Assessee submitted objections to transfer of case to New Delhi and stating hardships that would be caused if such transfer effected--Furnishing personal hearing necessary-- Aamby Valley Ltd . v . CIT (Bom) . . . 48
S. 147 --Reassessment--Notice after four years--Authority for Advance Rulings in assessee's case ruling that profits arising from realization of portfolio investments in India be treated as part of business profits of assessee--Claim of loss on sale of shares accepted on basis of ruling--Reopening of assessment on ground earlier ruling not correct in view of subsequent ruling--No failure on part of assessee to disclose fully and truly all material facts necessary for assessment--High Court holding that advance ruling in assessee's case will continue to govern assessee's assessments--Notice not valid-- DIT v. Prudential Assurance Co. Ltd. (Bom) . . . 66
S. 148 --Reassessment--Notice after four years--Authority for Advance Rulings in assessee's case ruling that profits arising from realization of portfolio investments in India be treated as part of business profits of assessee--Claim of loss on sale of shares accepted on basis of ruling--Reopening of assessment on ground earlier ruling not correct in view of subsequent ruling--No failure on part of assessee to disclose fully and truly all material facts necessary for assessment--High Court holding that advance ruling in assessee's case will continue to govern assessee's assessments--Notice not valid-- DIT v. Prudential Assurance Co. Ltd. (Bom) . . . 66
S. 271(1)(c) --Penalty--Concealment of income--Failure to furnish accurate particulars--Disallowance of claim and imposition of penalty on basis of subsequent Supreme Court decision--Not furnishing of inaccurate particulars--Penalty levied not justified-- CIT v . Celetronix Power India P. Ltd . (Bom) . . . 70
S. 271(1)(c), Expln. 1(A) --Penalty--Concealment of income--Survey--Surrender of income without explanation--Not voluntary disclosure--Furnishing inaccurate particulars--Penalty justified-- CIT v. Mak Data Ltd . (Delhi) . . . 1
S. 276CC --Offences and prosecution--Compounding of offences--Revised guidelines--Condition that compounding cannot be done in cases where order of conviction has been passed--Assessee to show sufficient cause or reason to support request for compounding of offence--Direction to consider application on the merits-- V. G. Paneerdas and Co. P. Ltd . v. Secretary, Central Board of Direct Taxes (Mad) . . . 77
ADMISSION OF ADDITIONAL EVIDENCE BY THE CIT(A)- BACK TO SQUARE ONE AT TRIBUNAL STAGE
Introduction
1. The first appellate authority viz., CIT(A) enjoys wide powers under the statute.Though he sits in appeal preferred by the assessee against the order of assessment framed by the AO., his powers are plenary and coterminous with that of the assessing officer (AO.). He can do what the AO. could do and can also direct him to do what he has failed to do. Thus his powers are not akin to the powers possessed by a court of appeal under the Code Of Civil Procedure. An aggrieved assessee filing an appeal before the CIT(A) may be taken aback when he chooses to enhance the assessment made by the A O. (such power has been specifically conferred by the statute upon him.) rather than addressing the grievance of the assessee.
But surprisingly, when it comes to granting relief to the assessee by admitting evidence which could not be produced before the A O. at the time of assessment proceedings, he does not enjoy unbridled power.
CIT(A)'s right to take additional evidence- not unfettered
2. Lawmakers perhaps thought that the unfettered powers of the CIT(A) to admit additional evidence would lead to leakage of revenue. Therefore, clause (mm) was introduced in section 295(2) to empower the rule making authority to prescribe the circumstances in which, the conditions subject to which and the manner in which, the CIT(A) may permit an appellant to produce evidence which could not be produced before the AO. Armed by the said power, CBDT framed rule 46A in the Income tax Rules, 1962 w.e.f 1.4.1993. Under the said rule, CIT(A) was permitted to admit fresh evidence only under the following circumstances-
(a) where the Income-tax Officer has refused to admit evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Income-tax Officer; or
(c) where the appellant was prevented by sufficient cause from producing before the Income-tax Officer any evidence which is relevant to any ground of appeal;
(d) where the Income-tax Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal."
Under sub rule (3) to rule 46A, a condition was imposed that such evidence shall not be taken into account by the CIT(A) unless the AO. was confronted with the same.
Rule 46A-whether ultra vires the Act.
3. The validity to rule 46A was under challenge before the Allahabad High Court in Smt Mohindar Kaur vs. Central Govt (1976) 104ITR 120.
The Court analysed the provisions of section 250(4) and section 250(5) of the Act and observed that no part of Rule 46A whittles down or impairs the power to make further inquiry conferred upon the first appellate authority by section 250(4).
Similarly, section 250(5) confers power upon CIT(A) to permit the appellant to raise a fresh point which has not been even touched by rule 46A The Court finally held that rule 46A is not ultra vires section 250 or 251 of the Act. On the contrary, it gives a right to the appellant to produce additional evidence which was earlier not available to him.
Notice of hearing to A.O.-whether is tantamount to compliance under Rule 46A.
4. As per section 250(1), the CIT(A) has to give notice of hearing to the AO.against whose order appeal is preferred. When such a notice is given, often a plea is raised on behalf of the assessee that there is sufficient compliance of rule 46A as the A O. has been given opportunity of being heard and such an opportunity may also be construed to be an opportunity to rebut the additional evidence produced by the assessee. This view has not found favour with the courts. The Gujarat High Court in CIT vs. Valimohmed Ahmedbhai (1982) 134 ITR 214 (Guj.) held that by the admittance of additional evidence, something adverse to the ITO is sought to be done in the course of appeal by way of augmenting the record. Therefore, ITO need to be heard for the purpose and be given an opportunity to meet with the additional material by way of cross examination, counter evidence and urging submissions in the context of the augmented record. Any order admitting additional evidence behind the back of the ITO is the order passed in violation of the principles of natural justice.
Violation of Rule 46A-consequences
5. Any order passed by the CIT(A) granting relief to the appellant by admitting additional evidence but without giving a specific opportunity of being heard to the A O. to rebut the same is in contravention of rule 46A(3). Such orders are liable to be set aside and the matters are normally restored back 'to the file of the AO. for fresh examination.
Materials clarificatory in nature-whether amounts to additional evidence
6. Courts have held that clarificatory nature of materials are not additional evidence. This issue arose before the Karnataka High Court in Sri Shankar Khandasari Sugar Mills vs. CIT (1992) 193 ITR 669. The issue before the court, in brief, was that the ITO framed the best judgement assessment U/S 144 relying upon the material from the Commercial Tax Department relating to the turnover of the assessee.Before the CIT(A), the assessee produced S.T. assessment order for the first time who refused to look into the same on the pretext of additional evidence. Holding the action of the CIT(A) to be unjustified, the court observed-
"The appellate authority should have accepted the material produced by the assessee as clarificatory in nature and considered the same to test the fairness and propriety of the estimate of income made by the Income-tax Officer. Though it was belated production of very relevant material, no prejudice (in its legal sense) would have resulted to the Revenue by considering the material produced by the assessee"
"In the absence of any prejudice to the Revenue, and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." (emphasis supplied)
Recently, in a Third Member case before the Gauhati Bench of the Tribunal in DCIT vs. New Manas Tea Estate (P) Ltd 73 ITD 157, the relevant facts were that the assessee had purchased tea leaves from 'A' Ltd. under an agreement pursuant to which certain amount was debited in the purchase and expenses account at a certain rate plus 0.50p in respect of the cess imposed by the Government. At the end of the year, it was found that a certain amount of cess remained payable to 'A' Ltd. The AO. disallowed the same under section 43B. Before the CIT(A) for the first time the assessee produced a letter issued by 'A' Ltd. stating therein that it had deposited cess in full.
The Third Member on appreciation of these facts held that the evidence in the form of the letter could not be considered an additional evidence. The CIT(A) has rightly stated that this letter was only clarificatory in nature. He further held that even this clarification was not needed because the main and the only relevant evidence viz., agreement with 'A' Ltd. was already on the file of the AO.
Evidence received pursuant to an enquiry-whether rule 46A attracted
7. Section 250(4) gives wide discretion to the CIT(A) to make such further inquiry as he thinks fit or to direct the AO. to make further inquiry and report the result to him. Even, rule 46A(4) clarifies that nothing contained in rule 46A shall affect the CIT(A)'s power to direct the production of any document or the examination of any witness to enable him to dispose of the appeal. Even circular no. 108 dated 20.3.1973 explaining the amendment pertaining to introduction of rule 46A echoes the same view. Therefore, additional evidences produced before the CIT(A) pursuant to his direction stand on a different footing than the new evidences produced before him suo motu by the assessee. Needless to say, in the former case, rule 46A shall not be applicable and there shall not be any necessity on the part of the CIT(A) to get them subjected to scrutiny by the AO.
The distinctive features of the two situations were appreciated by the Allahabad High Court in Smt. Mohindar Kaur vs. Central Govt. 104 ITR 120 (All.) which prompted the Hon'ble Court to uphold the validity of rule 46A Before coming to the said conclusion the High Court held that prior to enactment of rule 46A, the appellant had no right to adduce additional evidence. The CIT(A) could permit the production of additional evidence if he thought it was necessary to enable him to dispose of the appeal or if he thought it fit to make further inquiry, but under rule 46A(I), the appellant has a right to produce additional evidence in the circumstances mentioned in its various sub-clauses (see paragraph 2 above).
Smt. Prabhadevi S.Shah's case-giving a new dimension
8. The Bombay High Court in Smt. Prabhavati SShah 's case (1998) 231 ITR 1has given a new dimension to the provisions relating to admission of new evidence before the CIT(A). The interesting facts in this case were that loans taken by the assessee were added as undisclosed income U/S 68. Before the CIT(A), the assessee wanted to produce additional evidences in the form of xerox copies of cheques, a certificate from the bank and copies of the bank statements which were not accepted by him holding that he was not obliged to accept additional evidences as the assessee's case did not fall in any of the four exceptions set out in rule 46A(l). The Bombay High Court negatived the contention of the CIT(A) and held that under section 250(4), he was empowered to make such further inquiry as he thinks fit and such power being quasi judicial power , it was incumbent on him to exercise the same if the facts and circumstances justify. It further held that if the first appellate authority failed to exercise his discretion judicially and arbitrarily refused to make inquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority.
In other words, the message from the Bombay High Court is that if prima facie an information! evidence is necessary to examine the claim of the assessee, the CIT(A) should consider the necessary evidence in exercise of powers u/s 250(4) even if the case of the assessee does not fall within the four comers of the circumstances enumerated in rule 46A(l).
Following the Smt. Prabhavati SShah's case (supra), some benches of the Tribunal have rejected the technical objection raised by the Revenue in regard to the admission of additional evidence.
In a case before the Cuttack Bench in DCIT vs. Pradeep Oxygen (P) Ltd (2001) 71 TTJ 662, the facts were that a Board Resolution in support of reimbursement of medical expenses to its managing director was produced for the first time before the CIT(A). The revenue raised the technical objection of admission by the CIT(A) of fresh evidence in violation of rule 46A. Tribunal dismissed the revenue's appeal following Smt. Prabhavati SShah's case (supra) holding that the CIT(A) was fully justified in examining the circumstances in which the medical reimbursement was made more particularly when disallowance was made without giving any opportunity of hearing to the assessee on that aspect of the matter.
In ITO vs. Bajoria Foundation (2001) 71 TTJ 343, the Calcutta Bench of the Tribunal once again followed Smt. Prabhavati S Shah's case (supra) to reject the technical objection of the revenue and held that CIT(A) could consider the necessary evidence in exercise of his powers under section 250(4) if prima facie an information is necessary to examine the claim of the assessee.
Concluding Remarks
9. In a number of cases, CIT(A) grants relief to the assessee by admitting additional evidence in violation of rule 46A i.e., without giving an opportunity to the AO to rebut the evidences produced by the assessee. Even in cases where he is admitting additional evidences pursuant to inquiries made by him, such facts are not properly brought on record or in his order.Therefore, the relief granted to the assessee by him remains on paper only inasmuch as the revenue invariably challenges such orders before the Tribunal taking the ground of violation of rule 46A The Tribunal in such cases has no option but to restore the issues back to the AO's file for examination. The assessee is a great sufferer in such cases not only in terms of cost but also because it becomes difficult for him to substantiate the evidences after a time lag. And all this happens to him for no fault on his part. IT: Where assessee for assessment year 2005-06 claimed deduction under section 80-IB(10) in respect of construction of a housing project and did not furnish completion certificate issued by local authority certifying completion of housing project, it was not entitled to deduction
IT: Where assessee incurred certain expenditure and claimed same to be allowed as business expenditure, in absence of any details furnished by assessee 5 per cent of total expenditure were liable to be disallowed
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[2013] 32 taxmann.com 7 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'A'
Sainath Estates (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SAKTIJIT DEY, JUDICIAL MEMBER
AND SAKTIJIT DEY, JUDICIAL MEMBER
IT Appeal Nos. 299, 300, 379 & 380 (Hyd.) of 2012
[ASSESSMENT YEARS 2003-04 TO 2006-07]
[ASSESSMENT YEARS 2003-04 TO 2006-07]
FEBRUARY 8, 2013
I. Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Housing Projects] - Assessment year 2005-06 - For assessment year 2005-06 assessee claimed deduction under section 80-IA(10) in respect of construction of a housing project - It did not furnish completion certificate issued by local authority - Whether assessee was not entitled to deduction under section 80-IB(10), as completion certificate issued by local authority certifying completion of project had not been submitted by it - Held, yes [Para 14] [In favour of revenue]
II. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Burden of proof] - Assessment year 2005-06 - Assessee incurred certain expenditure and claimed same to be allowed as business expenditure - Assessing Officer had disallowed 10 per cent of expenditure on ground that assessee did not produce necessary details along with supporting evidence in respect of expenditure claimed - Commissioner (Appeals) deleted disallowance made by Assessing Officer holding that Assessing Officer had not pointed out any specific defect - Whether in facts and circumstances of case disallowance of 5 per cent of expenditure would be justified - Held, yes [Para 36] [Partly in favour of assessee]
Circulars & Notifications : Circular No. 5/2005, dated 15-7-2005
Words and Phrases : The word 'shall' used in Explanation (ii) to clause (a) of section 80-IB(10)
FACTS
Facts
| ■ | The assessee-company was engaged in the business of construction of residential complexes. For the assessment year 2005-06 it claimed deduction under section 80-IB(10) in respect of construction of a housing project. | |
| ■ | The Assessing Officer allowed the claim of deduction and passed the assessment order under section 143(3). | |
| ■ | Subsequently the authorised officer conducted a search under section 132 upon the assessee. Thereupon the Assessing Officer issued on the assessee a notice under section 153A calling for a return of income for the aforesaid assessment year 2005-06. | |
| ■ | In response to the notice under section 153A the assessee filed the return of income claiming deduction under section 80-IB(10). | |
| ■ | The Assessing Officer disallowed the claim of deduction on the ground that the assessee had failed to furnish the completion certificate issued by the local authority in terms with the Explanation to clause (a) of section 80-IB(10). | |
| ■ | On appeal, the assessee contended that there was no prescribed format for completion certificate. It had submitted municipal assessment of individual flat owners claiming that the housing project was completed. | |
| ■ | The Commissioner (Appeals) held that as per the amendment brought into section 80-IB(10) by the Finance (No. 2) Act, 2004, with effect from 01-04-2005 there was a material change to the provision by introducing new eligibility criteria. As per the amended provision, one of the condition was that the date of completion of the housing project shall be the date on which the completion certificate was issued by the local authority. The purpose of introducing the condition of production of completion certificate issued by local authority was to ensure that every housing project had been constructed with all permissions and followed the bye-laws and allowed setbacks as prescribed in the sanction order issued by the competent authority. Therefore, without such completion certificate issued by the competent authority the housing project could not be said to be completed in all respects. | |
| ■ | Mere filing of house tax assessment of individual flat owners did not prove that the housing project was constructed with all permissions and without any violation. | |
| ■ | The assessee having failed to submit the completion certificate issued by the local authority deduction under section 80-IB(10) could not be allowed. |
Assessee's arguments
| ■ | There was no practice of issue of completion certificate by the concerned authority in respect of the buildings approved by it and the Act had also not prescribed any format of completion certificate. | |
| ■ | It had fulfilled all the preconditions as required for claiming deduction under section 80-IB(10). |
Revenue's arguments
| ■ | The provision as contained under section 80-IB(10) was amended by the Finance (No. 2) Act, 2004, with effect from 1-4-2005 substituting the provision as was there earlier. | |
| ■ | When there was no ambiguity in the provision of section 80-IB(10), it could not be interpreted in a different manner to confer benefit on the assessee. |
Issue involved
| ■ | Whether the assessee was entitled for deduction under section 80-IB(10)? |
HELD
| ■ | A reading of the provision of section 80-IB(10), as amended by the Finance (No. 2) Act, 2004, with effect from 1-4-2005, makes it clear that an assessee will be entitled to claim deduction under the said provision if he fulfils all the conditions mentioned therein. Sub-clause (ii) of clause (a) of section 80-IB(10) provides that in a case where housing project has been approved by the local authority on or after 1-4-2004 and has been completed within 4 years from the end of the financial year in which the housing project has been approved by the local authority would be entitled for deduction. Explanation (ii) to clause (a) of section 80-IB(10), however, puts a rider that the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority. | |
| ■ | Therefore, it is apparent that deduction under section 80-IB(10) in respect of a housing project shall be available to the assessee, provided the project is approved by the local authority after 1-4-2004 and has been completed within a period of 4 years and such completion has been certified by the local authority. The use of the word 'shall' in Explanation (ii) makes the furnishing of completion certificate issued by the local authority mandatory to prove that the development and construction of the housing project is complete in all respects. | |
| ■ | The requirement of completion certificate assumes importance for removing the possibility of deviation from the sanctioned plan and to see that the project has been constructed in accordance with the sanctioned approval. | |
| ■ | If the furnishing of the completion certificate to prove the completion of the project is not to be insisted upon then the purpose for bringing such a provision to the statute becomes redundant. If the furnishing of completion certificate from the local authority is to be considered as not mandatory then in every case the assessee will come up with one plea or the other for not furnishing the completion certificate while claiming deduction under section 80-IB(10). In that event, the intent and purpose of enacting such a provision will not be fulfilled. | |
| ■ | Similarly the municipal assessment of the individual flat owners or sale of flats cannot be a substitute for the completion certificate issued by the local authority. These facts does not conclusively prove that the entire project was complete in all respects. These documents certainly cannot be considered to be in compliance with the statutory provision. [Para 13] | |
| ■ | Therefore, the assessee was not entitled to deduction under section 80-IB(10), as the completion certificate issued by the local authority certifying the completion of the project had not been submitted by it. [Para 14] |
CASE REVIEW
Gopal Lal Bhadruka v. Dy. CIT [2012] 346 ITR 106/27 taxmann.com 167 (AP) (para 14) followed. CIT v. Tarnetar Corpn. [2012] 210 Taxman 206 (Guj.) (Mag.)/26 taxmann.com 180 (Guj.); ITO v. Mahaveer Calyx [2012] 26 taxmann.com 181/54 SOT 263 (Bang.) and Brahma Associates v. Jt. CIT [2009] 30 SOT 155 (Pune)(SB) (para 14) distinguished.
CASES REFERRED
Petron Engg. Construction (P.) Ltd. v. CBDT [1989] 175 ITR 523/[1988] 41 Taxman 294 (SC) (para 8), Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) (para 8), CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312 (SC) (para 8), Union of India v. Wood Papers Ltd. [1991] 83 STC 251 (SC) (para 8), SJR Builders v. Asstt. CIT [2010] 3 ITR (Trib) 569 (Bang.) (para 8), Arun Excello Foundations (P.) Ltd. v. Asstt. CIT [2008] 166 Taxman 53 (Cehnnai) (Mag.) (para 8), Brahma Associates v. Jt. CIT [2009] 30 SOT 155 (Pune) (SB) (para 8), Ramsukh Properties v. Dy. CIT [2012] 25 Taxmann.com 558 (Pune) (para 8), ITO v. Mahaveer Calyx [2012] 26 taxmann.com 181/54 SOT 263 (Bang) (para 8), Bengal Immunity Company Ltd. v. State of Bihar [1955] 6 STC 446 (SC) (para 10), CIT v. Orissa Cement Ltd. [2002] 254 ITR 24/122 Taxman 353 (Delhi) (para 10), Commissioner of Agricultural Income Tax v. Plantation Corporation of Kerala Ltd. [2001] 247 ITR 155/114 Taxman 103 (SC) (para 10), IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 544 (SC) (para 11), Indian Rayon Corpn. Ltd. v. CIT [1998] 231 ITR 26/97 Taxman 501 (Bom.) (para 11), CIT v. Tarnetar Corpn. [2012] 210 Taxman 206 (Guj.) (Mag.)/26 taxmann.com 180 (Guj.) (para 14) and Gopal Lal Bhadruka v. Dy. CIT [2012] 346 ITR 106/27 taxmann.com 167 (AP) (para 14).
V. Sridhar for the Appellant. M. Ravindra Sai for the Respondent.
ORDER
Saktijit Dey, Judicial Member - Appeals being ITA No. 299 & 300/Hyd/12 filed by the assessee and appeals being ITA No. 379 & 380/Hyd/12 by the Department are directed against separate orders of CIT(A). As identical issues are involved in these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of conveyance.
2. We will first deal with assessee's appeal in ITA No. 299/Hyd/2012 pertaining to assessment years 2005-06.
3. Ground No. 1 is general in nature, hence, no adjudication is required.
4. In Ground No. 2,3 & 4 the assessee has challenged the disallowance of deduction claimed u/s 80IB(10) of the IT Act, by the Assessing Officer and sustained by the CIT(A).
5. Briefly the facts of the issue are that the assessee a pvt. Ltd. company is engaged in the business of construction of residential complexes. For the assessment year in dispute the assessee had filed its return on 01/11/2005 declaring total income of Rs. 3,85,000/- after claiming deduction u/s 80IB(10) of an amount of Rs. 86,84,567/-. Initially the assessment was completed u/s 143(3) of the Act accepting assessee's claim of deduction u/s 80IB(10) vide assessment order dated 28/12/2007. A search and seizure operation u/s 132 of the Act was conducted in the business premises of the assessee on 17/03/2009. Consequent upon the search operation, a notice was issued u/s 153A of the Act on 03/12/2009 calling for a return of income. In response to the notice u/s 153A of the Act, the assessee submitted its return on 01/02/2010 by admitting total income of Rs. 3,85,000/- after claiming deduction u/s 80IB(10) of the Act, as was done in the original return filed by it. In course of the assessment proceedings, which ensued in response to notice u/s 153A of the Act, the Assessing Officer noticed that the assessee has claimed deduction u/s 80IB(10) of the Act in respect of construction of a housing project in the name and style of "Manasa Sarover Heights - II". In a note given in the return of income, the assessee had stated that the housing project has been built on a total area of land of 4 acres and the maximum area of each flat is between 1200 to 1500 sq.ft. The Assessing Officer was of the view that the deduction u/s 80IB(10) can be availed if all the preconditions mentioned therein are fulfilled. The Assessing Officer however had observed in the assessment order that the assessee did not furnish any information called for to show that the preconditions mentioned in sec. 80IB(10) have been fulfilled. The Assessing Officer found that the assessee had neither obtained and submitted a certificate in the prescribed form( Form No. 10CCB) from its auditor nor a completion certificate from the local authority had been submitted. The Assessing Officer came to a conclusion that as the assessee is not the owner of land and has not fulfilled the preconditions laid down in section 80IB(10) of the Act, claim of deduction u/s 80IB(10) cannot be allowed. The assessee being aggrieved of the disallowance of deduction claimed u/s 80IB(10) preferred an appeal before the CIT(A).
6. In course of hearing of the appeal before the CIT(A), the assessee contended that it had fulfilled all the preconditions as laid down u/s 80IB(10) for claiming deduction. The assessee further contended that it is not a requirement under the provision that the assessee must be owner of the land. The only requirement being the assessee must be engaged in developing and building the housing project subject to the conditions laid down in the said project. It was further contended by the assessee that during the year under consideration, the assessee had only one project, which is Manasa Saorver Heights - II. It was contended that for this project permission was granted in June 2004 and the land on which the project was built was to the extent of 4 acre and the maximum built up area of each unit is within 1500 sft. It was further contended that there is no prescribed format of completion certificate, however, Municipal assessment of individual flat owners was submitted claiming that the housing project was completed. The CIT(A) after considering the submissions of the assessee and examining materials on record noticed that as per the amendment brought into to section 80IB(10) by Finance Act, 2004 with effect from 01/04/2005 there is a material change to the provision by introducing new eligibility criteria. As per the amended provision, one of the condition is the date of completion of the housing project shall be the date on which the completion certificate is issued by the local authority. The CIT(A) was of the opinion that the purpose of introducing the condition of production of completion certificate issued by local authority is to ensure that every housing project has been constructed with all permissions and followed the bye-laws and allowed setbacks as prescribed in the sanction order issued by the competent authority. Therefore, mere filing of house tax assessment of individual flat owners does not prove that the housing project was constructed with all permissions and without any violation. The CIT(A) observed that it is the responsibility of the municipal authority to ensure the housing projects which come up in the towns and cities are as per norms for better living conditions and not to encroach on the public property and to ensure that a design and construction in tune with the notifications issued by the competent authority from time to time. The CIT(A) came to a conclusion that special deductions as contemplated in the Income-tax Act are to be allowed after strict compliance of eligibility criteria only. Therefore, without such completion certificate issued by the competent authority the housing project cannot be said to be complete in all respects. The CIT(A) held that for claiming deduction u/s 80IB(10), the assessee has to produce the completion certificate from the local authority and the individual house tax assessments cannot substitute the substantial condition imposed as per law. The assessee having failed to submit the completion certificate, deduction u/s 80IB(10) cannot be allowed. On the aforesaid conclusion, the CIT(A) sustained the disallowance.
7. Still aggrieved, the assessee is in appeal before us.
8. The learned AR through his submissions made orally at the time of hearing as well as in the writing filed before us has more or less reiterated the stand taken before the CIT(A). The learned AR submitted before us that the entire issue of claim of deduction u/s 80IB(10) was examined during the assessment proceedings u/s 143(3) and after duly verifying all the facts and materials the Assessing Officer had allowed the deduction claimed u/s 80IB(10). The learned AR submitted that the proceedings u/s 153A are beneficial to the revenue just like the provisions of section 147 and are aimed at gathering escaped income of the assessee and the same cannot be allowed to be converted as 'revisional' or 'review' proceedings. The learned AR relying upon various judicial pronouncements submitted before us that when the claim of the assessee has been examined and accepted u/s 143(3) and assessments have been concluded the Assessing Officer in the proceedings u/s 153A cannot again require the assessee to submit audit report and certificate of the Accountant in Form 10CCB, so as to reexamine the claim of the assessee with regard to deduction u/s 80IB(10). The learned AR submitted that therefore the only issue before the Assessing Officer for considering the claim of allowability of deduction u/s 80IB(10) is in respect of furnishing of completion certificate from the concerned authority. The learned AR submitted that there is no practice of issue of completion certificate by the concerned authorities in respect of the buildings approved by it and the IT Act has also not prescribed any format of completion certificate for 80IB(10). The learned AR submitted that the assessee has fulfilled all the preconditions as required for claiming deduction u/s 80IB(10). The project is on a land measuring more than 3 acres, the assessee is the owner of the land and the individual residential unit are less than 1500 sft. that besides housing project was approved in the June, 2004 by the competent authority and the project was completed within the prescribed period is evident from the fact that municipal tax assessments in case of individual flat owners have been completed. This proves the fact that the project was complete during the relevant financial year and within the prescribed time. In support of such contentions, the learned AR drew our attention to page 94 to 103 of the paper book. The learned AR submitted that the turnover of each of the project disclosed in the return of income would also support the fact that the project has been completed. The learned AR submitted that section 80IB(10) is a beneficial provision of tax incentive and should be interpreted liberally so as to confer the benefit keeping in view the intention of the legislature and object behind the introduction of the provision. In this context, the learned AR relied upon the CBDT Circular No. 5/2005, dated 15/07/2005 explaining the amendment to section 80IB(10). In support of his contention, the learned AR relied upon the following decisions:
| 1. | Petron Engg. Construction (P) Ltd. v. CBDT [1989] 175 ITR 523/[1988] 41 Taxman 294 (SC) | |
| 2. | Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) | |
| 3. | CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312 (SC). | |
| 4. | Union of India v. Wood Papers Ltd. [1991] 83 STC 251 (SC) | |
| 5. | SJR Builders v. Asstt. CIT [2010] 3 ITR (Trib) 569 (Bang.) | |
| 6. | ArunExcello Foundations (P) Ltd. v. Asstt. CIT [2008] 166 Taxman 53 (Cehnnai) (Mag.) | |
| 7. | Brahma Associates v. Jt. CIT [2009] 30 SOT 155 (Pune)(SB). | |
| 8. | Ramsukh Properties v. Dy. CIT [2012] 25 taxmann.com 558 (Pune) | |
| 9. | ITO v. Mahaveer Calyx [2012] 26 taxmann.com 181/54 SOT 263 (Bang). |
9. The learned AR drawing support from the ratio laid down in the aforesaid decisions submitted that the intention of the legislature behind the explanation requiring to submit completion certificate is that the project should be completed within the time. The learned AR submitted that as explained in CBDT Circular the intention of the benefit provided u/s 80IB(10) is to encourage housing projects with a view to bridge the gap between the demand and supply of the houses and, therefore, the completion of the project meeting the stated objective of the legislature in the form of delivery of houses to the end users is intended compliance of section which has been proved with the municipal assessments of the individual flat owners. These municipal assessments would not be possible unless the project is complete and occupied by the end users. The learned AR also drew our attention to a completion certificate issued by the licensed architect in support of the contention that the project was complete by 03/10/2006.
10. The learned Departmental Representative, countering the submissions of the learned AR, submitted that when the statute provides that a particular deduction has to be allowed on fulfillment of certain conditions then it has to be interpreted strictly and in accordance with statutory language. The learned Departmental Representative submitted that the provision as contained u/s 80IB(10) was amended by the Finance Act, 2004 with effect from 01/04/2005 substituting the provision as was there earlier. As per the amended provision the deduction under the provision is to be allowed if such undertaking has commenced or commences development and construction of the housing project after the 1st day of October, 1998 and completes such construction within 4 years from the date of approval of the housing project as approved by the local authority. The explanation to the above said clause makes it mandatory that the date of completion of the housing project shall be the date on which the completion certificate in respect of such housing project is issued by the local authority. The learned Departmental Representative submitted that an Explanation once enacted as part of existing provision becomes part and parcel of such provision from the date of the provision itself. The learned Departmental Representative submitted that the true import and scope of an explanation is to remove obscurity or vagueness and to provide additional support to the dominant object and to fill in gaps. The object of the explanation is to interpret the true purpose and intent of the enactment. The learned Departmental Representative in this context relied upon the following decisions:
| 1. | Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446 (SC). | |
| 2. | CIT v. Orissa Cement Ltd. [2002] 254 ITR 24/122 Taxman 353 (Delhi) | |
| 3. | Commissioner of Agricultural Income Tax v. Plantation Corpn. of Kerala Ltd. [2001] 247 ITR 155/114 Taxman 103 (SC). |
11. The learned Departmental Representative referring to the object behind the introduction of the Explanation to clause (a) of section 80IB(10) submitted that the date of approval of the local authority and date of completion as certified by the local authority is used to stress that the project should be in accordance with the regulations in force. The learned Departmental Representative submitted that, thus, there is a specific purpose for which approval and certification of local authority is insisted and this being intent of legislature, no other interpretation is possible. The learned Departmental Representative submitted that when there is no ambiguity in the provisions of statute it cannot be interpreted in a different manner to confer benefit on the assessee. For such proposition the learned Departmental Representative relied upon the decision of the Hon'ble Supreme Court in case of IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 594. The learned Departmental Representative submitted that the principle of beneficial interpretation would apply only in a case where the court is in doubt about true scope and ambit of the provision. When a meaning of the word is clear and unambiguous the court has to give effect to it whatever be the consequences. In this context, the learned Departmental Representative relied upon the decision in the case of Indian Rayon Corpn. Ltd. v. CIT [1998] 231 ITR 26/97 Taxman 501 (Bom.).
12. We have considered the rival submissions of the parties and perused the material on record. We have carefully applied our mind to the decisions relied upon by the parties. Undisputed fact are that the assessee for the assessment year under dispute has claimed deduction u/s 80IB(10) of the Act towards housing project, namely, Manasa Sarover Heights - II, developed and constructed by it. The deduction claimed has been disallowed by the Assessing Officer and such disallowance was sustained by the CIT(A) on the ground that the assessee has failed to furnish the completion certificate issued by the local authority in terms with the Explanation to Clause (a) of section 80IB(10). Before going into the merits of the disallowance, it will be necessary, at this stage, to look into the provision contained u/s 80IB(10) as existed during the relevant assessment year:
"10) The amount of deduction in the case of an undertaking developing and building housing projects approved before the 31st day of March, [2008] by a local authority shall be hundred per cent of the profits derived in the previous year relevant to any assessment year from such housing project if,-
| (a) | such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998 and completes such construction,- |
| (i) | in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008; | |
| (ii) | in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 [but not later than the 31st day of March, 2005], within four years from the end of the financial year in which the housing project is approved by the local authority; | |
| [(iii) | in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.] | |
| Explanation.-For the purposes of this clause,- |
| (i) | in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority; | |
| (ii) | the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority; |
| (b) | the project is on the size of a plot of land which has a minimum area of one acre: | |
| Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf; | ||
| (c) | the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place; [***] | |
| (d) | the built-up area of the shops and other commercial establishments included in the housing project does not exceed [three] per cent of the aggregate built-up area of the housing project or [five thousand square feet, whichever is higher];] | |
| (e) | not more than one residential unit in the housing project is allotted to any person not being an individual; and | |
| (f) | in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:- |
| (i) | the individual or the spouse or the minor children of such individual, | |
| (ii) | the Hindu undivided family in which such individual is the karta, | |
| (iii) | any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.] |
[Explanation.-For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).]"
13. A reading of the aforesaid provision makes it clear that an assessee will be entitled to claim deduction under the said provision if he fulfills all the conditions mentioned therein. Clause (a)(ii) of the aforesaid provision, which is relevant for our purpose, provides that in a case where housing project has been approved by the local authority on or after the 1st day of April, 2004 and has been completed within 4 years from the end of the financial year in which the housing project has been approved by the local authority would be entitled for deduction. Explanation-II to the aforesaid clause however puts a rider that the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority. Therefore, it is apparent that as per clause (a), deduction u/s 80IB(10) in respect of a housing project shall be available to the assessee, provided the project is approved by the local authority after 01/04/2004 and has been completed within a period of 4 years and such completion has been certified by the local authority. The use of the word 'shall' in Explanation-II makes the furnishing of completion certificate issued by the local authority mandatory to prove that the development and construction of the Housing Project is complete in all respects. It is the contention of the learned AR that the Explanation - II should not be interpreted strictly but a liberal interpretation has to be given to achieve the object of the provision. It has further been contended that if other evidences produced indicate completion of the project then deduction cannot be disallowed only because of non-furnishing of completion certificate issued by the local authority. Such contention of the learned AR cannot be accepted in view of the clear language employed in the statutory provision. As has already been stated herein before the aforesaid amended provision was introduced to the statute by the Finance Act, 2004 with effect from 01/04/2005. Earlier to it, the provision as contained u/s 80IB(10) did not require furnishing of a completion certificate issued by the local authority. Therefore, the intention of the legislature in bringing such a provision requiring production of completion certificate issued by the local authority cannot be overlooked or brushed aside for conferring a benefit upon the assessee only for the sake of liberal interpretation. The requirement of completion certificate assumes importance for removing the possibility of deviation from the sanctioned plan and to see to it that the project has been constructed in accordance with the sanctioned approval. It is settled principle of law that when the language of a provision is clear and unambiguous then there is little scope to interpret it in a different manner. The Hon'ble Supreme court in case of IPCA Laboratories Ltd. (supra) has held that even though a liberal interpretation has to be given, the interpretation has to be as per wording of the section. If the wordings of section are clear, then benefits, which are not available under section, cannot be conferred by ignoring or misinterpreting words in the section. The Hon'ble Supreme Court in case of Petron Engg. Construction (P.) Ltd. (supra) held that liberal interpretation of an incentive provision can be resorted to only when it is possible without impairing the legislative requirement and the spirit of the provision. Where the phraseology of a particular provision takes within its sweep the transactions which are taxable, it is not for the courts to strain and stress the language so as to enable the taxpayer to escape the tax. The Hon'ble Supreme Court, again in case of Pandian Chemicals Ltd. (supra) observed that Rules of interpretation would come into play only if there is any doubt with regard to the express language used in the provision. Where the words are unequivocal, there is no scope for importing the rule of liberal interpretation of an incentive provision. The Hon'ble Supreme Court in case of N.C. Budharaja & Co. (supra) held that liberal interpretation of an incentive provision should not do violence to plain language. The object of an enactment should be gathered from a reasonable interpretation of the language used therein. Considered in the light of the aforesaid principle of law, the language used in Clause (a) of section 80IB(10) is clear and unambiguous enough to leave any scope for interpreting it in a different manner to confer benefit upon the assessee. To a specific query from the Bench in course of hearing of appeal with regard to obtaining completion certificate from the local authority, the learned AR only submitted a copy of the application made for occupancy certificate and a certificate of the licensed architect. These documents, however, does not prove the completion of the housing project. The learned AR also could not explain the reasons for non-issuance of completion certificate by the local authority. If the furnishing of the completion certificate to prove the completion of the project is not to be insisted upon then the purpose for bringing such a provision to the statute becomes redundant. If the furnishing of completion certificate from the local authority is to be considered as not mandatory then in every case the assessee will come up with one plea or the other for not furnishing the completion certificate while claiming deduction u/s 80IB(10) of the Act. In that event, the intent and purpose of enacting such a provision will not be fulfilled. Similarly, the municipal assessment of the individual flat owners or sale of flats cannot be a substitute for the completion certificate issued by the local authority. These facts does not conclusively prove that the entire project was complete in all respects. These documents certainly cannot be considered to be in compliance with the statutory provision.
14. The decision of the Hon'ble Gujarat High Court in case of CIT v. Tarnetar Corpn. [2012] 210 Taxman 206 (Guj.) (Mag.)/26 taxmann.com 180 (Guj.) relied upon by the assessee is not applicable to the facts of the present case as in that case there was no doubt with regard to completion of the project whereas in the appeal before us the assessee has failed to prove conclusively that the housing project was complete in all respects for entitling it to claim deduction u/s 80IB(10). The other decisions relied upon by the assessee in this context are also found to be factually distinguishable. In case of Mahaveer Calyx (supra) the Income-tax Appellate Tribunal Bangalore Bench has not at all considered the applicability of explanation to clause (a) of 80IB(10). In fact in case of Brahma Associates (supra) has held that the conditions laid down in the amended provision of section 80IB(10) would apply prospectively from the AY 2005-06. In our view, the decisions relied upon by the assessee are of not much help to it if considered in the light of the principles laid down by the Hon'ble Supreme Court as discussed herein before. So far as the assessee's contention to the effect that the entire issue of claim of deduction u/s 80IB(10) was considered in the original assessment completed u/s 143(3) is concerned, though the learned AR did not pursue this issue seriously at the time of hearing, suffice it to say such contention is not acceptable in view of the decision of the Hon'ble Jurisdictional high Court in the case of Mr. Gopal Lal Bhadruka v. Dy. CIT [2012] 346 ITR 106/27 taxmann.com 167 (AP) wherein it was held that for the purpose of computing income u/s 153A/153C of the Act, the Assessing Officer is not required to confine himself only to the material found during the course of search operation. Considering the totality of the facts and circumstances in the light of the judicial pronouncements and keeping in view the relevant statutory provision as contained u/s 80IB(10), we are of the view that the assessee is not entitled to claim deduction under the said provision as the completion certificate issued by the local authority certifying the completion of the project has not been submitted by the assessee. Accordingly, we sustain the order of the CIT(A). The grounds raised by the assessee are dismissed.
ITA No. 300/Hyd/2011 for AY 2006-07 - assessee's appeal
15. Ground No. 1 is general in nature. Ground Nos. 2, 3 & 4 wherein the assessee has challenged the disallowance of deduction claimed u/s 80IB(10) of the Act are identical to ground Nos. 2 & 3 in assessee's appeal No. 299/Hyd/12 (supra). In view of our decision in said appeal No. 299/Hyd/12, we hold that the assessee is not entitled to claim of deduction u/s 80IB(10) of the Act. Accordingly, the order of the CIT(A) on this issue is confirmed and the ground Nos. 2, 3 & 4 are dismissed.
16. Ground No. 5 relates to the determination of income from house property at Rs. 2,10,39,214/- by the Assessing Officer.
17. Briefly the facts of the issue are that in course of the assessment proceedings the Assessing Officer noticed that the assessee had disclosed income under the head 'house property' of an amount of Rs. 5,95,000/- on account of property leased out to M/s Bhagyanagar Hotel Pvt. Ltd. for Rs. 12.00 lakhs per year. The Assessing Officer was of the view that the said building is palatial club in the heart of the city by name 'Chiran Court Club' at Begumpet. The Assessing Officer observing that in the assessment order dated 19/12/2008 passed u/s 143(3) the net house property income was estimated at Rs. 2,10,39,214/-, held that the net annual value of the property as quantified at Rs. 2,10,39,214/- in the assessment order u/s 143(3) should be added back to the total income while completing the assessment u/s 153A also. The assessee challenged the addition made on account of ALV of the house property before the CIT(A).
18. The CIT(A) while disposing of the assessee's appeal on this issue held that since the addition was made in the original assessment completed u/s 143(3), the Assessing Officer is not correct in making fresh addition in the proceedings u/s 153A of the Act.
19. After hearing the submissions of the parties on this issue, we fully agree with the conclusion of the CIT(A). The same addition having already been made in the original assessment completed u/s 143(3) it cannot be added once again in the assessment completed u/s 153A of the Act. So far as legality/validity of the addition made in the assessment order passed u/s 143(3) is concerned, since the same is not in dispute before us, we cannot adjudicate on the issue. Since the CIT(A) has categorically held that the addition of Rs. 2,10,39,214/- cannot be made in the assessment completed u/s 153A of the Act, the ground raised by the assessee is misconceived and not maintainable. Accordingly, this ground is dismissed.
ITA No. 379/Hyd/12 for AY 2003-04 - appeal by the revenue
20. The only issue arising out of the grounds raised by the revenue is with regard to CIT(A) allowing assessee's claim of deduction u/s 80IB(10) of the Act.
21. Briefly the facts are that during the relevant FY the assessee had developed a housing project, namely, Manasasarover Heights - I. In the return of income filed for the assessment year under dispute the assessee declared total income of Rs. 6,30,000/- after claiming deduction u/s 80IB(10) of the Act. Initially, the assessment was completed u/s 143(1) and thereafter the assessment was reopened twice u/s 147 of the Act and assessment orders were passed u/s 143(3) read with section 147 on 20/04/2006 and 09/05/2007. Subsequently a search and seizure operation was carried out in the business premises of the assessee on 17/03/2009. As a result of search operation, a notice was issued u/s 153A of the Act. In response to the notice, the assessee filed the return of income admitting the total income as per the original return filed by it after claiming deduction u/s 80IB(10) of the Act. In course of the assessment proceedings pursuant to notice u/s 153A, the Assessing Officer disallowed the claim of exemption by observing that inspite of repeated show cause notice the assessee has not furnished any details regarding the housing project, the assessee has not furnished any information regarding fulfillment of conditions stipulated in section 80IB(10), the assessee has not furnished the completion certificate/occupancy certificate to claim the deduction. It was further observed by the Assessing Officer that the assessee has not obtained the certificate in Form 10CCB from its auditor for fulfilling the conditions prescribed in the Act. The Assessing Officer was further of the opinion that the assessee being only a builder and not the owner of the housing project, it is not entitled to avail deduction u/s 80IB(10).
22. The assessee being aggrieved of the disallowance of deduction u/s 80IB(10), preferred an appeal before the CIT(A).
23. The CIT(A) after considering the submissions of the assessee and examining the material placed before him came to a conclusion that the provision contained u/s 80IB(10) as it stood during the relevant assessment year did not require furnishing of a completion certificate from the local authority. The CIT(A) further observed that the assessee has fulfilled all the conditions of section 80IB(10) as it existed in the statute book at the relevant time which are, i) the development and construction of the project was started after 1st October, 1998, ii) the project is on plot of land of more than 1 acre, and iii) the residential units are having built up area of less than 1,500 sq.ft. The CIT(A) further observed that the provision contained u/s 80IB(10) nowhere prescribed that for availing deduction u/s 80IB(10) the undertaking must be the owner of the land. So far as the allegation of the Assessing Officer that the assessee has not furnished the auditor's report, the CIT(A) observed that in the original scrutiny assessment the issue was verified and the claim of deduction was allowed by the Assessing Officer. On the basis of the aforesaid findings, the CIT(A) allowed the claim of deduction u/s 80IB(10).
24. The learned Departmental Representative supporting the grounds raised before us submitted that as the assessee did not submit the audit report in form 10CCB before the Assessing Officer the disallowance made by the Assessing Officer should have been sustained by the CIT(A).
25. The learned AR, on the other hand, strongly supported the order of the CIT(A).
26. We have heard the rival submissions and perused the material on record. As is evident from the assessment order the Assessing Officer has disallowed the claim of deduction u/s 80IB(10) on the ground that the assessee has not submitted the audit report in form no. 10CCB, the assessee has not submitted the completion certificate from the municipality and the assessee has not furnished information with regard to fulfillment of the condition u/s 80IB(10). The conditions for claiming deduction u/s 80IB(10) as it existed during the relevant assessment year are that the housing project should be approved by the local authorities before 31st March, 2005 and undertaking has commenced the development and construction of the housing project after 1st day of October, 98, the project is on a plot of land which has a minimum area of 1 acre and residential unit has a maximum built up area of 1500 sft. As would be clear from the aforesaid conditions there was no requirement for furnishing a completion certificate from the municipal authority. In that view of the matter, the claim of deduction u/s 80IB(10) cannot be denied for not submitting the completion certificate from the local authority. Similarly, it is not a requirement under the Statute that the undertaking must be owner of the land for claiming deduction u/s 80IB(10). However, it is a fact that the Assessing Officer has rejected the claim of deduction u/s 80IB(10) by alleging that the assessee has not furnished any information or evidence with regard to the housing project and whether the conditions for claiming deduction u/s 80IB(10) have been fulfilled. The Assessing Officer had further alleged that the assessee had not submitted and not obtained auditor's certificate in Form No. 10CCB. Though, it is seen from the assessment order dated 09/05/2001 passed u/s 143(3) read with section 147 for the impugned assessment year there is a recording of fact by the Assessing Officer that the assessee had produced the auditor's certificate in Form 10CCB. If the assessee is in possession of the auditor's certificate in Form 10CCB, then, the same could have been produced before the Assessing Officer in course of assessment proceeding u/s 153A of the Act. The CIT(A), as it appears from his order has not accepted the Assessing Officer's allegation with regard to non furnishing of information and evidence towards fulfillment of the conditions u/s 80IB(10) by observing that the issue has been verified in the original scrutiny assessment proceedings. IN our opinion, that cannot be a ground for not furnishing the required information and evidence as called for by the Assessing Officer during the proceeding u/s 153A of the Act. In the aforesaid view of the matter, we deem it fit and proper to remit the matter back to the file of the Assessing Officer who shall consider the claim of deduction u/s 80IB(10) afresh after affording a reasonable opportunity of being heard to the assessee. It is open for the assessee to produce all the information and evidence in support of its claim of deduction u/s 80IB(10). The Assessing Officer shall consider all the information and evidences that may be produced by the assessee and decide the issue keeping in view the observations made by us hereinabove. The grounds raised by the department are allowed for statistical purposes.
ITA No. 380/Hyd/12 for AY 2004-05 - appeal by the revenue
27. Ground Nos. 1 & 2 wherein the Department has challenged the order of the CIT(A) in allowing assessee's claim of deduction u/s 80IB(10). As the issue raised in the grounds and the facts involved are identical to the issues and facts involved in grounds raised in revenue's appeal for AY 2003-04 (supra), following our decision in revenue's appeal NO. 379/Hyd/12 on this issue (supra) we remit the matter for this year also to the file of the Assessing Officer for fresh determination keeping in view our direction in ITA No. 379/Hyd/12 and after affording reasonable opportunity of being heard to the assessee. Accordingly, the grounds raised are allowed for statistical purposes.
28. Ground Nos. 3 & 4 relate to the action of the CIT(A) in directing the Assessing Officer to determine the income from house property by applying the rate of 7% on the investment of the assessee subject to cost inflation index.
29. Briefly the facts are that in course of assessment proceedings the Assessing Officer noticed that the assessee has disclosed income from house property at Rs. 6,59,811/- on account of property leased out to M/s Bhagyanagar Hotel Pvt. Ltd. for Rs. 9,00,000/- per year. The Assessing Officer found that the property consisted of 14,940 sq. yards of land situated in the heart of the city with palatial building. Considering this fact the Assessing Officer came to a conclusion that the income from house property admitted by the assessee in the return of income is very meager. The Assessing Officer therefore following the conclusion arrived at by him in the assessment order passed u/s 143(3) read with section 147 dated 24/03/2006 for the AY 2003-04 determined the income from house property at Rs. 1,46,97,893/-. The Assessee challenged the determination of the house property income filed an appeal before the CIT(A).
30. The CIT(A) following the order passed by the Income-tax Appellate Tribunal, Hyderabad Bench on identical issue for the assessment years 2003-04, 2004-05 and 2005-06, directed the Assessing Officer to determine the income under the head income from house property by applying the rate of 7% on the investment of the assessee subject to cost inflation index and also further investments made by the assessee on the property during the year under consideration.
31. Aggrieved, the revenue is in appeal before us.
32. We have heard the arguments of both the parties and perused the record. It is quite evident from the assessment order that the Assessing Officer has determined the income from house property by following the market rate method as per the assessment order passed u/s 143(3) read with section 147 dated 24/03/2006 for the assessment year 2003-04. It is a fact on record that the said assessment order passed for the assessment year 2003-04 along with assessment orders passed on similar lines for the assessment year 2002-03 and 2005-06 were subject matter of appeal before the Income-tax Appellate Tribunal, Hyderabad Bench in ITA Nos. 1182 and 1183/Hyd/2008 and 1713/Hyd/08. The Tribunal in its order dated 23rd October, 2009 directed the Assessing Officer to recompute the income from house property by following the return on investment method, applying the rate of 7% on the assessee's investment in the property as enhanced by applying the cost inflation index applied for the respective years to arrive at the ALV for the relevant assessment year. The facts being identical, since the CIT(A) has followed the direction of the Income-tax Appellate Tribunal while directing the Assessing Officer to recompute the income from house property, we do not find any reason to interfere with the same. The order of the CIT(A) on this issue is sustained. The grounds raised are dismissed.
33. In ground No. 5, the department has challenged the action of the CIT(A) in deleting the addition made by the Assessing Officer on account of disallowance of 10% of the expenditure.
34. Briefly the facts are that in course of assessment proceedings, the Assessing Officer noticed that the assessee had debited a sum of Rs. 1,44,67,342/- as construction expenses and a further sum of Rs. 41,45,172/- as administrative and general expenses. Since the assessee failed to furnish the details of the expenditure claimed with supporting evidence in-spite of several opportunities being given the Assessing Officer disallowed 10% of the total expenditure claimed under both the heads which amounted to a sum of Rs. 18,61,251/-.
35. The first appellate authority after considering the submissions of the assessee was of the view that the Assessing Officer has rejected the claim of the assessee purely on a hypothetical basis without pointing out any specific discrepancy in the claim of the assessee. The CIT(A) observing that the assessee has maintained proper books of account and the same were audited by an accountant and in absence of any specific defects pointed out by the Assessing Officer, no disallowance of expenditure can be made.
36. We have heard the submissions of the parties on the issue and perused the relevant material on record. It is a fact on record that the Assessing Officer has disallowed 10% of the expenditure claimed since the assessee did not produce the necessary details along with supporting evidence in respect of the expenses claimed. The CIT(A) has deleted the addition made by observing that the Assessing Officer has not pointed out any specific defect. When the assessee has not submitted the details called for by the Assessing Officer, he was left with no option but to disallow part of the expenses on ad-hoc basis. Therefore, the CIT(A) was not justified in allowing the expenditure claimed by the assessee in toto. Considering the totality of the facts and circumstances, we are of the view that a disallowance of 5% of the expenditure under both the heads would serve the purpose. We order accordingly. The ground raised by the department is partly allowed.
37. In the result, appeals filed by the assessee being ITA Nos. 299 & 300/Hyd/12 are dismissed and appeals filed by the revenue being ITA No. 379/Hyd/12 is allowed for statistical purposes and the appeal being ITA No. 380/Hyd/12 by the revenue is partly allowed.
IT : 'Escape route' from levy of penalty as provided by clause (2) to Explanation 5 to section 271(1)(c) is available, when assessee, in his statement not only offers or surrenders to tax amount in question which is later assessed, but also complies with other conditions of having filed return
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[2013] 30 taxmann.com 10 (Delhi)
HIGH COURT OF DELHI
Shourya Towers (P.) Ltd.
v.
Deputy Commissioner of Income-tax*
S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
IT Appeal No. 170 OF 2012†
DECEMBER 12, 2012
Section 271(1)(c), read with sections 139and 153A, of the Income-tax Act, 1961 - Penalty - For concealment of income - Explanation 5 - Assessment years 2005-06 and 2006-07 - Whether 'escape route' from levy of penalty, as provided by clause (2) to Explanation 5 to section 271(1)(c), is available, when assessee, in his statement not only offers or surrenders to tax amount in question, which is later assessed, but also complies with other conditions of having filed return - Held, yes - After filing of return under section 139(1), search was conducted - In statement recorded under section 132(4), assessee admitted benami share investment - On being issued with notice under section 153A, assessee did not file any return and by a letter, requested that its return, filed under section 139(1) prior to search and seizure be treated as its return filed in response to notice under section 153A - It was only when assessment proceedings were taken up for consideration, did assessee seek to revise its computation - Whether it could be said that assessee did not include amount in return pursuant to notice issued, and instead chose to merely reiterate its return originally filed - Held, yes - Whether 'escape route', provided by clause (2) to Explanation 5 to section 271(1)(c) in this case, was not available to assessee, and it would be liable to penalty for concealment, as a return filed under section 153A can never be assumed to be covered as one under section 139(1) - Held, yes [Paras 13 & 14] [In favour of revenue]
FACTS
Facts
| • | Search and seizure operations revealed introduction of unaccounted money as share capital by assessee-company. | |
| • | The assessee furnished statement showing benami share investments. | |
| • | Notice under section 153A was issued to the assessee. | |
| • | In response, the assessee stated that return filed under section 139(1) prior to search may be treated as return filed under section 153A. | |
| • | The assessment under section 153A, read with section 143(3) was completed, in which the surrendered amount of Rs. 121 lakh was deducted from the loss of Rs. 19,08,840 shown in the return. Thus, the total income was computed at Rs. 1,01,91,160. | |
| • | Penalty proceedings were initiated under section 271(1)(c) as the income had not been declared in the original return or the letter in response to notice under section 153A. | |
| • | Both the Commissioner (Appeals) and the Tribunal rejected the assessee's appeals. |
Arguments of assessee
| • | The assessee had surrendered the income during search. | |
| • | The department had not established that the assessee had concealed income. | |
| • | Thus, imposition of penalty on the assessee is bad in law. |
Arguments of Revenue
| • | The assessee had, neither in the original return nor in the letter in response to the notice under section 153A, had declared the income. Such a conduct amounted to conceal even the income surrendered under section 132(4) from the purview of taxation. | |
| • | It is only in the course of proceedings under section 153A that the assessee filed a revised computation of income in which the surrendered income has been taken into account. Such computation cannot be taken to be revised return. | |
| • | The assessee was taken chance prior to filing the statement and if specific query had not been made, even the surrendered income would have escaped income. |
Issues involved
| • | Whether the ITAT erred in not applying clause (2) to Explanation 5 to section 271(1)(c) in the facts and circumstances of the present case? |
HELD
| • | Three conditions have to be satisfied by the assessee for claiming immunity from payment of penalty under clause (2) of Explanation 5 to section 271(1)(c): |
| (i) | The assessee must make a statement under section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which have not been disclosed in the return of income to be furnished before expiry of time specified in section 139(1). | |
| (ii) | The assessee should specify, in his statement under section 132(4), the manner in which such income was earned. | |
| (iii) | He should pay the tax together with interest, if any, in respect of such undisclosed income. [Para 12] |
| • | After the search and the statement recorded under section 132(4), the assessee, on being issued with notice under section 153A did not file any return. The notice under section 153A was issued on 20-7-2006. It was only when assessment proceedings were taken up for consideration, did the assessee, by letter dated 14-8-2007, request that its return, filed on 31-10-2005, be treated as its return filed in response to the notice under section 153A. Much later, it sought to revise its computation, on 14-12-2007. Therefore, the 'escape route', provided by clause (2) to Explanation (5) in this case, was not available to the assessee. It has to be reiterated that the said provision is available, not merely when the assessee, in his statement offers or surrenders, to tax the amount in question which is later assessed, but also complies with the other conditions, of having filed the return. | |
| • | The allusion to section 139(1) is significant in this regard, because a notice and consequent search assessment pursuant to section 153A stands excluded altogether, by virtue of the non obstante clause to the latter (section 153A) provision. Even if the other view, more favourable to the assessee were to be taken, and for a moment, a return under section 153A were to, for sake of argument, be assumed to be covered as one under section 139(1), the fact remains, that in this case, the assessee did not include it, pursuant to the notice issued, and instead chose to merely reiterate its return originally filed on 31-10-2005. [Para 13] | |
| • | A plain reading of clause(2) to Explanation (5) to section 271(1)(c) altogether excludes its application to cases where returns are filed under section 139(1). This clause, in the opinion of the Court, extends to those cases, falling in clause (b) of the excepted part, i.e., where the return of year is yet to be filed, in respect of a previous year, during which the search took place. This is because of the expression 'in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139..". If Parliament had intended clause (2) (to Explanation 5 to cover all other categories, then, having regard to the structure and placement of the main provision, which is specially intended to cover search assessments, such intention would have been manifest if there were no reference to section 139(1) and instead. Section 153A were to be used. That this is the correct position is also evident from the non obstante clause under section 153A, which was resorted to by the Assessing Officer in this case. [Para 14] | |
| • | It is held that the Tribunal did not commit any error of law. The appeal, being devoid of merits, is consequently dismissed. [Para 15] |
CASES REFERRED TO
CIT v. Chhabra Emporium [2003] 264 ITR 249/130 Taxman 818 (Delhi) (para 4), Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC) (para 5), T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340 (SC) (para 6), CCE v. Pepsi Foods Ltd. 2010 (260) ELT 481 (SC) (para 6), Dy. CIT v. S. Kumar [2009] 120 ITD 201 (Bang.) (para 8) and CIT v. S.D.V. Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.) (para 8).
Anoop Sharma for the Appellant. Sanjeev Sabharwal and Puneet Gupta for the Respondent.
ORDER
S. Ravindra Bhat, J. - This is an assessee's appeal under Section 260-A of the Income Tax Act 1961 ("the Act") assailing the order of the Income Tax Appellate Tribunal, Delhi Bench (ITAT) dated 25-3-2011 in ITA No. 701/D/09. The assessee urges that the substantial question which arises in this case, is that the ITAT erred in not applying clause (2) to Explanation 5 to Section 271 (1) (c) of the Act, in the facts and circumstances of the present case.
2. The facts of the case are that the assessee filed a return of income on 31.10.2005 declaring total loss of Rs. 19,08,840/-. Thereafter, search and seizure operations were conducted in the Nitishree Group, and survey was also conducted at the business premises of the assessee. In the course of search, the statement of Mr. Anil Jain was recorded on oath under Section 132(4) of the Act on 17.02.2006. It was inter alia deposed that unaccounted income of various years was invested, benami in the share capital of some companies. Shri Kahshinath Shukla, Director of the assessee company, also introduced unaccounted money benami name as share capital. The details of these were not known to him on the date of search. However, the total amount was quantified at Rs. 15 crores. These details were furnished on 31.07.2006.
3. According to the statement, the assessee's benami share investment for the two years, i.e., assessment years 2005-06 and 2006-07, were shown at Rs. 121 lakhs and Rs. 521.95 lakhs respectively. The total unaccounted income for seven assesses of the group was shown as Rs. 1522.98 lakh. Subsequent to the searches, a notice under Section 153A of the Act was issued to the assessee. In response, it was stated that the return filed under Section 139(1) may be treated as return under Section 153A. Assessment under Section 153A read with section 143(3) was completed on 31.12.2007, in which the surrendered amount of Rs. 121 lakh was deducted from the loss of Rs. 19,08,840/- shown in the return. Thus, the total income was computed at Rs. 1,01,91,160/-. Penalty proceedings were initiated under Section 271(1)(c) of the Act. These proceedings were completed on 30.06.2008 by levying minimum penalty of Rs. 44,27,692/-. The Assessing officer, in his order, stated that neither in the original return nor in the letter in response to notice under Section 153A, was the income has declared. Such a conduct was with the aim of concealing income that was surrendered under Section 132(4) from the purview of taxation. It is only in the course of proceedings u/s 153A that the assessee has filed a revised computation of income in which the surrendered income has been taken to be revised return. Thus, if no specific query had been made, even the surrendered income would have escaped assessment. The CIT (A) and the ITAT successively rejected the assessee's appeals.
4. The primary contention of the assessee is that the case falls under Explanation 5(a)(1) to Section 271(1)(c) of the Act as the income mentioned therein or transactions were recorded in the books in the form of share capital of other concerns of the groups. The counsel for the assessee has relied on the case of CIT v. Chhabra Emporium [2003] 264 ITR 249/130 Taxman 818 (Delhi). In that case, it was held that when surrender of the asset has been made on the date of search and when such surrender falls within the Explanation 5 to section 271(1)(c) of the Act, the penalty was bound to be cancelled.
5. The assessee argued that since the undisclosed income was admitted in the statement given on 17.02.2006, i.e., the date of search, the same could not be included in the return which was filed on 12.01.2005 which was prior to the search. Moreover, no return was filed pursuant to the notice u/s 153A. Therefore, there is no question of retracting from the statement made on oath under section 132(4) and thus, no concealment of income is there. Thus, no penalty should be imposed on the assessee. Further, reliance has been placed on the judgment of Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A wherein the Supreme Court has held that it is the duty of the Tribunal to consider the facts and evidence with due care and caution. However, the counsel for the assessee has contended that the assessee disclosed the income during search. However, the department has erroneously levied penalty on the assessee, when assessee made all efforts to buy peace by surrendering the amount of income while search.
6. The assessee also contended that since penalty is in quasi-criminal form, it is the duty of the department to establish that the assessee has concealed income. Reliance has been placed on the judgment of T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340 (SC). Thus, the revenue has not established that the assessee has deliberately concealed income. On the other hand, the assessee has surrendered the income. Thus, imposition of penalty on the assessee is bad in law. The assessee placed reliance on the judgment of CCE v. Pepsi Foods Ltd. 2010 (260) ELT 481 (SC) where the Court held that it is essential to establish mens rea for purposes of levying penalty. In the instant case, the assessee has no motive to conceal income, nor has any intention to escape income from assessment. The same can be stated based on the fact that the assessee has disclosed and surrendered income on oath u/s 132(4) of the Act. Thus, there is no way that the assessee intended to conceal income which should attract penalty u/s 271(1)(c) of the Act.
7. The revenue contended that it is clear that, the assessee has, neither in the original return nor in the letter in response to the notice u/s 153A, has declared the income. Such a conduct amounted to conceal even the income surrendered under Section 132(4) from the purview of taxation. It is only in the course of proceedings under 153A on 14.02.2007 that the assessee filed a revised computation of income in which the surrendered income has been taken into account. Such computation cannot be taken to be revised return. Therefore, the assessee was taken chance prior to filing the statement and if specific query had not been made, even the surrendered income would have escaped income.
8. The Respondent relied on Dy. CIT v. S. Kumar [2009] 120 ITD 201 (Bang.) where it was held that if the assessee surrenders undisclosed income and the assessee files return and pays taxes on it, then the penalty is not leviable. However, in the instant case, the assessee has not filed returns declaring the undisclosed income. The return filed under Section 139(1) did not include any such income, neither did the assessee file the returns after notice u/s 153A. Thus, it is not incorrect on the part of the Revenue to levy penalty on the assessee. It was also contended that immunity under Explanation 5 of Section 271(1) (c) cannot be availed by the assessee. Relying on the decision of CIT v. S.D.V. Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.), the Respondent argues that it is necessary for the assessee to declare the mode in which the income was acquired. In the instant case, leaving aside the mode of acquisition of income, even the return was not filed of the entire income before the search was made. Thus, immunity under this explanation cannot be granted to the assessee.
9. The Respondent also relied on the judgment in S. Kumar (supra) on the issue of benami transaction. It is clear that the facts are distinguishable as the benami investments, do not stand recorded in the books of the assessee, and the surrender was withdrawn on deemed filing of the return. Further, the income from which benami investments were made, had not been surrendered. What was surrendered are the assets found in the possession of the assessee. Thus, the respondent is of the view that no immunity is available under Explanation 5 for the assessee.
10. The Respondent has argued, moreover, that the surrender made by the assessee was retracted, and the mode and manner of earning the income has not been disclosed at any stage. Although, income was offered to tax on 14.12.2007, yet, that cannot obliterate the act of concealment, committed twice in filing return under Sections 139(1) and return u/s 153A for the reason that the assessee has used dilatory tactics in payment of tax and interest. Thus, no immunity accrues on the assessee from the liability. It is highlighted that the assessee in fact did not file any return, and only chose to revise the return originally filed, only on 14-12-2007, after declaring that its original return (of 31-10-2005) be treated as its response to the notice under Section 153A. In the facts of this case, the provision of clause (2) of Explanation 5 to Section 271 (1) (c) did not apply.
11. Before a further discussion, it would necessary to extract the relevant provision, i.e. Explanation 5 to Section 271 (1) (c); it is as follows:
"Section 271. Failure to Furnish Returns, comply with notices, Concealment of Income, etc.
(1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person -
| (a) | Omitted | |
| (b) | Has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142; or | |
| (c) | Has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, - |
| ** | ** | ** |
Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act, -
(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or
(B) Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.
| ** | ** | ** |
Explanation 5 : Where in the course of a search under section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income, -
| (a) | For any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date, or, where such return has been furnished before the said date, such income has not been declared therein; or | |
| (b) | for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, |
he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income,
Unless, -
(1) Such income is, or the transactions resulting in such income are recorded, -
| (i) | In a case falling under clause (a), before the date of the search; and | |
| (ii) | In a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or |
(2) He, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income."
12. Explanation 5- to Section 271 (1) (c) is a deeming provision. It enacts that where, in the course of search under Section 132, the assessee is found to be the owner of unaccounted assets and the assessee claims that such assets have been acquired by him by utilizing, wholly or partly, his income for any previous year which has ended before the date of search or which is to end on or after the date of search, then, in such a situation, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall be deemed to have concealed the particulars of his income for the purposes of imposition of penalty under Section 271(1)(c). The only exceptions to such a deeming provision or to such presumption of concealment are given in sub-clauses (1) and (2) of Explanation 5. The assessee here argues that it is covered by clause (2) of Explanation 5. Three conditions have to be satisfied by the assessee for claiming immunity from payment of penalty under clause (2) of Explanation 5 to Section 271(1)(c):
| (i) | the assessee must make a statement under Section 132(4) in the course of search stating that the unaccounted assets and incriminating documents found from his possession during the search have been acquired out of his income, which have not been disclosed in the return of income to be furnished before expiry of time specified in Section 139(1). | |
| (ii) | the assessee should specify, in his statement under Section 132(4), the manner in which such income was earned. | |
| (iii) | the should pay the tax together with interest, if any, in respect of such undisclosed income. |
13. From the record, this Court notices that after the search, and the statement recorded under Section 132 (4), the assessee, on being issued with notice under Section 153A did not file any return. The notice under Section 153A was issued on 20-7-2006. It was only when assessment proceedings were taken up for consideration, did the assessee, by letter dated 14-8-2007, request, that its return, filed on 31-10-2005, be treated as its return filed in response to the notice under Section 153A. Much later, it sought to revise its computation, on 14-12-2007. Therefore, this Court is of the opinion that the "escape route", provided by Clause (2) to Explanation 5 in this case, was not available to the assessee. It has to be reiterated that the said provision is available, not merely when the assessee, in his statement offers or surrenders, to tax the amount in question which is later assessed, but also complies with the other conditions, of having filed the return. The allusion to Section 139 (1) is significant in this regard, because a notice and consequent search assessment pursuant to Section 153A stands excluded, altogether, by virtue of the non obstante clause to the latter (Section 153A) provision. Even if the other view, more favourable to the assessee were to be taken, and for a moment, a return under Section 153A were to, arguendeo be assumed to be covered as one under Section 139 (1), the fact remains, that in this case, the assessee did not include it, pursuant to the notice issued, and instead chose to merely reiterate its return originally filed on 31-10-2005.
14. This Court is also of the opinion that a plain reading of Clause (2) to Explanation 5 (to Section 271 (1) (c)) altogether excludes its application to cases where returns are filed under Section 139 (1). This clause, in the opinion of the Court, extends to those cases, falling in clause (b) of the excepted part, i.e. where the return of year is yet to be filed, in respect of a previous year, during which the search took place. This is because of the expression "in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139..". If Parliament had intended clause (2) (to Explanation 5) to cover all other categories, then, having regard to the structure and placement of the main provision, which is specially intended to cover search assessments, such intention would have been manifest if there were no reference to Section 139 (1) and instead, Section 153 A were to be used. That this is the correct position is also evident from the non obstante clause under Section 153A, which was resorted to by the AO in this case.
15. In view of the above discussion, it is held that the Tribunal did not commit any error of law; no substantial question of law arises for consideration. The appeal, being devoid of merits, is consequently dismissed.
IT : Where assessee did not produce any evidence as to nature and source of amount received as share capital, creditworthiness of applicants and genuineness of transactions and simply surrendered amount in question allegedly to buy peace, penalty was leviable under section 271(1)(c)
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[2013] 31 taxmann.com 35 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income tax
v.
Mak Data Ltd.*
BADAR DURREZ AHMED AND R.V. EASWAR, JJ.
IT Appeal NO. 415 OF 2012
JANUARY 22, 2013
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Surrender of income, effect of - Assessment year 2004-05 - During survey some documents pertaining to assessee were found and impounded - Documents belonged to certain entities who had applied for shares in assessee-company - When Assessing Officer required assessee to produce evidence as to nature and source of amount received as share capital, creditworthiness of applicants and genuineness of transactions, assessee simply surrendered certain amount - Assessing Officer made addition of said amount and also levied penalty under section 271(1)(c) - Whether in absence of any explanation in respect of surrendered income, first part of clause (A) of Explanation 1 to section 271(1)(c) was attracted and, therefore, levy of penalty was justified - Held, yes [Para 7] [In favour of revenue]
FACTS
Facts
| • | During a survey, some documents pertaining to the assessee were found and impounded. The documents belonged to certain entities who had applied for shares in the assessee-company. | |
| • | The Assessing Officer required the assessee to prove the nature and source of the monies received as share capital, the creditworthiness of the applicants and the genuineness of the transactions. | |
| • | The assessee stated that it had received share application money from different entities during the past three years. However, it, with a view to avoid litigation and buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the Income-tax department, surrendered certain amount as income from other sources. | |
| • | The Assessing Officer completed assessment by adding aforesaid amount and also levied penalty under section 271(1)(c). | |
| • | On appeal, the Commissioner (Appeals) confirmed the penalty. On second appeal, the Tribunal deleted the penalty holding that the offer was made in a spirit of settlement of the dispute with the revenue and no investigation was carried out by the Assessing Officer to prove concealment. |
Assessee's arguments
| • | Surrender of income was made suo motu before any investigation; that there was no other evidence in the possession of the income-tax authorities except the surrender; and that the levy of penalty without recording any finding on the merits of the assessee's plea was untenable. |
Revenue's arguments
| • | There was no explanation from assessee in respect of amount in question and, therefore, levy of penalty was justified. |
Issue involved
| • | Whether Tribunal was justified in cancelling the penalty. |
HELD
| • | There was absolutely no explanation from the assessee in respect of the amount surrendered. When the Assessing Officer called upon the assessee to produce the evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions, the assessee simply folded up and surrendered a sum. The assessee merely stated that with a view to avoid litigation and buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the Income tax department, it surrendered the income under the head 'income from other sources'. | |
| • | In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation to section 271(1)(c) is attracted. It cannot be denied that the nature and source of the amount surrendered are facts material to the computation of the total income of the assessee. The revenue is entitled to know the same and if the nature and source of the amount is not explained, it is entitled to draw the inference that the amount represents the assessee's taxable income. Though this principle was originally confined to the assessment proceedings, the Explanation has extended it to penalty proceedings also, presumably on the assumption that the furnishing of an explanation regarding the nature and source would have compromised the assessee's position. | |
| • | It is the assessee who has received the monies and is in the knowledge of all the facts relevant and material in relation to the receipt. Therefore, it should be in a position to offer an explanation and disclose the material facts regarding the same. | |
| • | The absence of any explanation is statutorily considered as amounting to concealment of income. In the absence of any explanation regarding the receipt of the money, which is in the exclusive knowledge of the assessee, an adverse inference is to be drawn against the assessee under the first part of clause (A) of the said Explanation. This appears to be somewhat in the lines of section 106 of the Evidence Act, the principle behind which has been extended to the provisions of sction 271(1)(c). [Para 7] | |
| • | The Tribunal fell into error in setting aside the penalty imposed by the Assessing Officer and upheld by the Commissioner (Appeals). |
Sanjeev Sabharwal for the Petitioner.
JUDGMENT
R.V. Easwar, J. - The following substantial question of law was framed by this Court on 11th October, 2012:-
"Whether the Tribunal fell into error in setting aside the order of penalty imposed by the AO and upheld by the CIT (A)?"
2. This is an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ('Act' for short) and it pertains to the assessment year 2004-05. An assessment was completed upon the assessee under Section 143(3) of the Act in which an addition of Rs. 40,74,700/- was made in the following circumstances. There was a survey under Section 133A on 16th December, 2003 in the course of which some documents pertaining to the assessee were found and were impounded. These documents consisted of blank transfer deeds for shares duly signed, affidavits, share application forms, copies of bank accounts, income tax returns and assessment orders of certain other companies. Those documents were forwarded to the AO assessing the present assessee who called upon the assessee to explain the contents of the documents and the genuineness of the transactions represented by them. It appears that the documents belonged to certain entities who had applied for shares in the assessee company. What the AO wanted the assessee to do was to prove the nature and source of the monies received as share capital, the creditworthiness of the applicants and the genuineness of the transactions.
3. In response to the above notice which was issued on 26th October, 2006, the assessee stated as under:-
"It has been stated that the company had received share application money from different entities aggregating to a sum of Rs. 239 lacs during the past 3 years as:
| Assessment Year | Amount | |
| 2002 - 2003 | 12,00,000 | |
| 2003 - 2004 | 1,06,50,000 | |
| 2004 - 2005 | 1,20,50,000 | |
| 2,39,00,000 |
The company with a view to avoid litigation and buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the Income Tax Department offers to surrender a sum of Rs. 56.49 lacs as income from other sources.
In this context we also wish to bring on record the fact that Sh. V. K. Aggarwal, Promoter Director of the company had offered a sum of Rs. 1,82,51,000/- for taxation as "income from other sources" in the hands of the partnership firm M/s. Marketing Services. Sh. V.K. Aggarwal is the partner of M/s. Marketing Services and the firm is being assessed with the CIT XI, New Delhi, this income of Rs. 1,82,51,000/- was duly subjected to tax by CIT XI in the following manner:
| Assessment Year | Amount | |
| 2001 - 2002 | Rs. 48,97,000/- | |
| 2002 - 2003 | Rs.40,68,000/- | |
| 2003 - 2004 | Rs.92,86,000/- | |
| Rs.1,82,51,000/- |
It has also been stated that Sh. V.K. Aggarwal, Promoter- Director of the assessee company has utilized this offered sum of Rs. 1,82.51 lacs for inducting funds into the books of the assessee company as share application money. It has been stated further that the additional fund flow to the extent of Rs.56.49 lacs (239 lacs - 182.51 lacs) which remain unexplained is now being offered for taxation by the company as its income from other sources. Subject to the condition that the offer of the surrender is by way of voluntary disclosure without admitting any concealment whatsoever or any intention to conceal and subject to non initiation of penalty proceedings and prosecution."
It appears that thereafter the assessee filed an application before the Addl. Commissioner of Income Tax under Section 144A soliciting directions for expediting the assessment proceedings and therein it indicated its willingness to be assessed on an amount of Rs. 56.49 lacs as its income under the head "income from other sources". It may be noticed that this figure represents the difference between the amount of Rs. 239 lacs and Rs. 1,82,51,000/-. After certain correspondence between the AO and the Addl. CIT, a letter was issued on 27th December, 2006 containing the directions of the Addl. CIT. The entire directions are reproduced in the assessment order and is, therefore, not reproduced here for the sake of brevity. It suffices to note that before the Add. CIT the assessee would appear to have scaled down the offer from Rs. 56.49 lacs to Rs. 40.74 lacs on the ground that the peak investment should be taken at Rs. 2,19,50,000/- instead of Rs. 239 lacs as calculated earlier. The AO, on the basis of the directions of the Addl. CIT called upon the assessee to furnish the relevant documents and information regarding the fresh offer of Rs. 40,74,000/-. The purpose appears to be merely to verify the reconciliation between the earlier offer of Rs. 56.49 lacs and the revised offer of Rs. 40.74 lacs. After having carried out the verification the amount of Rs. 40.74 lacs was added as "income from other sources" with the following narration "As per direction of the Addl. CIT Range-6 and further discussion with the assessee's A.R. a sum of Rs. 40,74,000/- is treated as income from other sources"
4. There was no appeal against the aforesaid addition by the assessee. The addition of Rs. 40,74,000/- thus became final.
5. Subsequently the AO initiated penalty proceedings for furnishing inaccurate particulars of its income under Section 271(1)(c) of the Act. The gist of the assessee's reply was that the amount was offered as income only to buy peace and avoid protracted litigation and with the condition that no penalty or prosecution proceedings would be launched. It was further stated that the offer was made before any investigation was carried out into the matter and, therefore, was voluntary. Several authorities were relied upon in support of the submission. However, the submissions were rejected by the AO who, by the order dated 23.4.2007, imposed the minimum penalty of Rs.14,16,600/- for furnishing inaccurate particulars of income to the extent of Rs. 40,74,000/-. The ultimate findings of the AO on the basis of which the penalty was imposed were as follows:-
"23. The reply furnished by the assessee has been considered & found to be unsatisfactory because of the following: -
| (a) | In the return filed by the assessee the assessee has not offered the amount of Rs. 40.74 lacs for taxation voluntarily. | |
| (b) | The assessee has surrendered the above amount of Rs. 40.74 lacs during course of assessment proceeding when the impounded material was confronted to the assessee which was impounded during course of survey u/s 133A of the IT Act, 1961 on 16.12.2003 at the business premise of Marketing Services. | |
| (c) | The assessee has furnished inaccurate particulars of its income in the return of income filed on 27.10.2004 for the year under consideration. | |
| (d) | The satisfaction was recorded at the time completing assessment proceedings u/s 143(3) of the I.T. Act, 1961. | |
| (e) | The assessee has itself surrendered for tax, the addition sum of Rs. 40,74,000/- which it was asked to explain the source of share application money. Moreover, admitted facts need not to be proved by the Assessing Officer, as in this case, the assessee itself admitted the concealment of income to the extent of Rs. 40,74,000/- by offering the amount for tax. |
In view of the above facts and circumstances of the case, I am satisfied that it is a fit case for imposition of penalty u/s 271(1)(c) read with section 274 of the IT Act, 1961."
6. The assessee preferred an appeal to the CIT(Appeals) who rejected the submissions of the assessee and confirmed the penalty. A further appeal was preferred by the assessee to the Income Tax Appellate Tribunal ('Tribunal' for short) in ITA No.1896/Del/2010. The levy of the penalty was opposed on the ground that the surrender of income was made suo moto before any investigation, that there was no other evidence in the possession of the income tax authorities except the surrender, and that the levy of penalty without recording any finding on the merits of the assessee's plea was untenable. The Tribunal on examination of the facts and the rival contentions cancelled the penalty recording the following findings:-
| (a) | It was only after the directions of the Addl.CIT issued under Section 144A that the assessee's offer was accepted and the assessment was finalized; | |
| (b) | There was no material against the assessee to show any concealment and this fact has been admitted by the AO himself; there is not even any indication in the penalty order as to the particular credit in respect of which the penalty was being imposed; | |
| (c) | The fact that the assessee surrendered the income only when it was confronted with the documents found in the survey does not adversely affect its case. | |
| (d) | The assessee did not admit that it had concealed the income to the extent of Rs. 40,74,000/-; it had made it clear in the letter dated 22.11.2006 that the surrender was made without any admission of concealment or intention to conceal. | |
| (e) | The offer was made in a spirit of settlement of the dispute with the revenue and no investigation was carried out by the AO to prove concealment. |
In support of the aforesaid findings the Tribunal referred to several authorities.
7. The contention of the revenue before us is that the Tribunal failed to appreciate the provisions of Explanation-1 to Section 271(1)(c) of the Act. We think that there is force in the contention. Section 271(1)(c) provides for levy of penalty for concealing the particulars of income or furnishing inaccurate particulars of the income. Explanation-1 is as below:-
"Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,--
| (A) | Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or | |
| (B) | Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." |
In the case before us the revenue is right in contending that there was absolutely no explanation from the assessee in respect of the amount of Rs. 40,74,000/-; when the AO called upon the assessee to produce the evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions the assessee simply folded up and surrendered a sum of Rs. 56.49 lacs in its hands initially, which was later scaled down to Rs. 40,74,000/-. The assessee merely stated that with a view to avoid litigation and buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department, it surrendered the income under the head "income from other sources". In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation 1 is attracted. It cannot be denied that the nature and source of the amount surrendered are facts material to the computation of the total income of the assessee. The Revenue is entitled to know the same and if the nature and source of the amount are not explained, it is entitled to draw the inference that the amount represents the assessee's taxable income. Though this principle was originally confined to the assessment proceedings, the Explanation has extended it to penalty proceedings also, presumably on the assumption that the furnishing of an explanation regarding the nature and source would have compromised the assessee's position. It is the assessee who has received the monies and is in the knowledge of all the facts relevant and material in relation to the receipt. Therefore, it should be in a position to offer an explanation and disclose the material facts regarding the same. The absence of any explanation is statutorily considered as amounting to concealment of income. In the absence of any explanation regarding the receipt of the money, which is in the exclusive knowledge of the assessee, an adverse inference is sought to be drawn against the assessee under the first part of clause (A) of the said Explanation. This appears to be somewhat in the lines of Section 106 of the Evidence Act, the principle behind which has been extended to the provisions of Section 271(1)(c) of the Act.
8. We are satisfied that the Tribunal fell into error in setting aside the penalty imposed by the AO and upheld by the CIT(Appeals). We accordingly answer the substantial question of law in the affirmative, against the assessee and in favour of the revenue. The appeal of the revenue is allowed with no order as to costs.--
IT : Explanation (5) - Income disclosed by assessee pursuant to search in someone else's premises would warrant levy of penalty under section 271(1)(c)
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[2012] 26 taxmann.com 132 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Smt. Meera Devi*
S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
IT APPEAL NOS. 995, 997, 1217, 1219 TO 1221, 1231 & 1233 OF 2010
AUGUST 23, 2012
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income - Pursuant to a search conducted at premises of one 'K' documents pertaining to assessees were found and seized - Assessing Officer issued notice under section 153C to assessee - On receipt of these notices, assessees filed returns for block period - In these returns, they disclosed substantially higher income adding other sources, i.e. rent from house property and income from other sources - Assessing Officer therefore, held that this action of assessee amounted to concealment of income on part of assessees and accordingly, levied penalty under section 271(1)(c) - Whether conduct of assessees in filing returns without full particulars fell within mischief of section 271(1)(c) and they would also not be entitled to claim benefit of exception, carved out in Explanation 5 to section 271(1)(c) - Held, yes [In favour of revenue]
Words and Phrases : Phrase 'books of account' as appearing in Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961
FACTS
Facts
• A search operation under section 132 was conducted in the residential premises of one 'K'.
• During course of conduct of that search documents pertaining to assessees, i.e. 'K' and 'M' were found and seized . Despite notices, they did not respond. Ultimately the Assessing Officer had to issue notices under section 153C. It was on receipt of these notices that both the assessees approached the Assessing Officer and filed returns for the block period.
• In these returns, they disclosed substantially higher income - Adding other sources, i.e. rent from house property and income from other sources.
• The Assessing Officer, therefore, held that this action of assessees amounted to concealment of income on part of assessee and accordingly, levied penalty under section 271(1)(c)
• The assessees appealed to the Commissioner (Appeals) which were dismissed.
• On further appeal, Tribunal in connected cases of some other persons deleted the penalty and held that the Assessing Officer had wrongly invoked the provisions of Explanation 5 to impose penalty under section 271(1)(c).
• The Tribunal on the basis of above reasoning deleted the penalty in case of one of the assessee 'M' but upheld the same in the case of 'K'.
Argument of assessee
• The assessee contended that the principle of consistency and judicial discipline demanded that appeal of 'K' ought to have been allowed having regard to the order of the Tribunal in connected cases.
Argument of revenue
• The revenue argued that the approach of the Tribunal could not be faulted, in dismissing 'V' appeal of 'K'. However, the revenue submitted that the decision in 'M''s case on the other hand suffered from the infirmity as it did not discuss the individual facts and why fifth Explanation to section 271 (1)(c) was attracted.
Issue for consideration
• Whether assessee by filing returns without full particulars would claim benefit of exception provided in Explanation 5 to section 271(1)(c)
HELD
Conduct of assessees in filing returns without full particulars fell within the mischief of section 271(1)(c)
• Section 271(1)(c ) empowers the Assessing Officer to impose penalties wherever the assessee does not furnish accurate particulars, in the form of returns, such as concealing the sources of income, or withholding true and full information. This duty was spelt out by the Supreme Court as one cast on the assessee to disclose all facts, including every potential income. If one keeps the above duty (on the part of each assessee in perspective, the question of whether the particulars furnished were inaccurate, or there was a deliberate withholding of information has to be viewed in the context of facts of every case. In the present case, both assessees had not furnished the particulars or sources of income which they ultimately disclosed (after being called upon to do so, by the Assessing Officer through notice under section 153(C) when they filed their returns. This clearly amounted to non-disclosure of relevant particulars. The facts subsequently disclosed by them were pursuant to the search in someone else's premises. Had the research not taken place, they would have kept quiet, thus, allowing that part of income to remain outside fold of taxation. Clearly, therefore, their conduct in filing returns without full particulars fell within the mischief of section 271(1)(c ). The question then is whether they were entitled to claim the benefit of the exception, carved out from the main Explanation to that provision. [Para 16]
Explanation 5 to section 271(1)(c) creates a legal fiction
• This Court is conscious of the fact that taxing statutes have to be construed in their own terms, and there is no question of equity playing any role in that function. If that perspective is kept in mind, it is apparent that the Explanation 5 to section 271(1)(c) is premised on search of the assessee. The main part of the Explanation creates a legal fiction, (i.e. the assessee shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars). The assessee can, in limited circumstances, avail the benefit of the exceptions ("unless") if
○ (1) for any previous year which has ended before the date of the search, (but for which the return of income for such year has not been furnished before that) or, where such return has been furnished before the said date, it has not been declared in it, he satisfies that such income is, or the transactions resulting in such income are recorded before the date of the search or
○ (2) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless he satisfies that on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date (i.e. the date of search) or
○ (3) The assessee, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income. [Para 17]
• The structure of the provision, and the Explanation make it clear that the first part, i.e., concealment of income, or furnishing of inaccurate particulars, results in the presumption, that it is liable for penalty. The onus is upon the assessee, whose premises are subjected to search, and from where the books of account pertaining to the undisclosed particulars are found, to show that he falls within the two exceptions, carved out of the Explanation. In other words, the Explanation enacts a presumption that where undisclosed particulars are found in the course of a search, in the form of assets, or from books of account, the two exceptions are attracted. These exceptions are qualified, and in turn are premised on disclosures at specified points of time. [Para 18]
Factual scenario of case
• The assessees did not disclose the income or the assets anytime in the returns filed by them. Furthermore, the search conducted was not in their premises; it was in the premises of someone else. Having regard to the restricted nature of the phrase 'books of account' the particulars found in the premises of someone else could not be said to have been 'in the course of search', because the present assessees' premises were not searched. Nor did they make any disclosure or statement, or surrender their income, during the course of search. They filed a return, which for the first time, disclosed the hitherto concealed income. Their explanations were not of the kind which therefore, fell within the exception to Explanation 5 of section 271(1)(c). The court is merely construing the Parliamentary purpose for the fifth Explanation, and also interpreting the nature of the exceptions which allow the assessee the benefit. Clearly, the assessees in this case cannot claim any such benefit. [Para 21]
Conclusion
• For the above reasons, the penalty in question is to be upheld. [Para 22]
CASE REVIEW
CIT v. Chhabra Emporium [2003] 264 ITR 249 / 130 Taxman 818 (Delhi) and P.R. Metrani v. CIT [2006] 287 ITR 209/ 157 Taxman 325 (SC) (para 21) distinguished.
Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 (SC) (para 9), CIT v. Chhabra Emporium [2003] 264 ITR 249 / 130 Taxman 818 (Delhi) (para 10), P.R. Metrani v. CIT [2006] 287 ITR 209/ 157 Taxman 325 (SC) (para 10), CIT v. Anwar Ali [1970] 76 ITR 696 (SC) (para 10), CIT v. Jalaram Oil Mills [2002] 253 ITR 192 / 121 Taxman 682 (Guj.) (para 10), Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372 (para 16) and Sheraton Apparels v. Asstt. CIT [2002] 123 Taxman 238 (Bom.) (para 19).
N.P. Sahni for the Appellant. S. Krishnan for the Respondent.
ORDER
S. Ravindra Bhat, J. - This judgment will dispose of 8 appeals which involve appreciation of common questions of fact and similar questions of law.
2. The question of law framed in respect of ITA 1217/2010, 1219/2010, 1221/2010, 1231/2010 and 1233/2010 reads as follows :
"Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal can uphold the penalty by invoking the main provision of Section 271(1)(c) of the Act when the charge in the initiation of proceedings and levy of penalty was under Explanation 5 of Section 271(1)(c) of the Act?"
The question of law framed in ITA Nos. 995 and 997/2010 was as follows:
"Whether the ITAT was justified in not going into the merits of the case?"
3. The first batch of appeals i.e. ITAT 1217/2010, 1219/2010, 1221/2010, 1231/2010 and 1233/2010 are hereby referred to as "Kiran Devi's case" and the second batch of appeals i.e. ITA 995 & 997/2010 are hereby referred as "Meera Devi's case". In the latter i.e. Meera Devi's case, the Commissioner of Income Tax is in appeal; and in Kiran Devi's case the Assessee is in appeal.
4. The brief facts necessary for disposal of the cases before this Court are that on 13.01.2004 a search operation under Section 132 of the Income Tax Act was conducted in the residential premises of one K.N. Mehrotra, an employee of M/s Prabhat Zarda Group. During the course of search, several loose papers, bank statements, documents etc. were found and seized. The said individual K.N. Mehrotra submitted that those papers, documents etc pertained to Smt. Meera Devi and also to Kiran Devi. These and several other documents were included in Annexure 8. Subsequently both Meera Devi and Kiran Devi were asked to explain the source of deposits by summons dated 03.03.2006, by AC-IT (Central Circle XIV). Initially no one appeared on behalf of the two assessees. Later the AO issued notice under Section 153C to both the assessees, asking them to file return of income for the years under consideration. In response to this, the assessees filed their return on 28.03.2006. These returns were later assessed and explanations sought from the individuals. In Meera Devi's case, the additional income disclosed in response to the notice under Section 153C was Rs. 3,52,200/- (1999-2000); Rs. 5,30,471/- (2000-2001); Rs. 23,77,110/- (2001-2002); Rs. 25,39,730/- (2002-2003); and Rs. 19,47,220/- (2003-2004). Similarly in the case of Kiran Devi after summons were issued a return was filed showing considerable higher income on 28.03.2006. In the case of Kiran Devi the additional income disclosed under Section 153C was Rs. 3,57,410/- (1999-2000), Rs. 37,12,580/- (2000-2001); Rs. 55,31,900/- (2001-2002), Rs. 8,76,740/- (2002-2003); Rs. 18,67,320/- (2003-2004). For the last year the Assessing Officer found that the income liable to be taxed was Rs. 20,05,584/- on account of an addition of Rs. 7,02,964/- made under Section 68 of the Income Tax Act for unproved cash credit.
5. The Assessing Officer had also initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 for concealment of income. After completion of assessment the penalty orders were made. The assessees appealed to the Commissioner (Appeals). The appeals of Meeri Devi were dismissed on 28.11.2007. Kiran Devi's appeals were also dismissed on 14.12.2007.
6. Being aggrieved by the orders the said assessees approached the Tribunal. Apparently in the case of Meeri Devi three appeals were dismissed by the CIT (Appeals).
7. In the meanwhile some other individuals i.e. Ashok Kumar and Shravan Kumar were issued with similar notices and called upon to furnish returns. The assessments were completed on the basis of the revised returns filed by them which did not disclose any additions. In other cases, however, the orders of the Assessing Officer and Commissioner CIT (Appeals) concurrently imposing and affirming penalty were taken in appeal to the ITAT which on 14.03.2008 allowed them holding as follows:
"The language of provisions of Explanation 5 to Section 271(1)(c) is plain and clear. As per the Explanation 5 as stood at the relevant time, if at the time of search assets which are not recorded in the books of accounts are found, the assessee is liable to penalty u/s 271 (c) for concealment even if he declares the full value of those assets as his income in the return filed after the search. In the instant cases, the assessees were not found to be the owner of any money, bullion, jewellery or other valuable articles or things during the course of search which was not disclosed in the returns of income or books of account maintained by them. Since this very condition that the assets were not found in the possession of assessees is not satisfied, the provision of Explanation 5 could not be resorted to for levy of penalty u/s 271(1)(c) of the Act. The language of Explanation 5 to Section 271(1)(c) being plain and simple, in our considered view, the AO was not justified in taking recourse to the Explanation for imposition of penalty. Moreover, the assessees being salaried persons were not required to maintain the books of account in respect of salary income. The salary income has suffered tax at source. Likewise the income from house property is also disclosed to the department. Penalty u/s 271(1)(c) can be imposed for furnishing of inaccurate particulars of income or if the assessee fails to offer an explanation that is not substantiated and assessee fails to prove that such explanation was bonafide. The AO has wrongly invoked the provisions of Explanation 5 to impose penalty u/s 271(1)(c). Since the provisions of Explanation 5 are not attracted in the case of both the assessee, penalties imposed by the AO and confirmed by the Ld. CIT(A) deserves to be deleted in all the appeals. We order accordingly."
8. In these circumstances, when Meera Devi's appeals (ITA 564-568/Del/2008) were taken up for hearing, the Tribunal on the basis of the above reasoning (in its previous order dated 14.03.2008), allowed the appeals. Three appeals were filed by the Revenue, however, they were not considered by this Court on the ground that the tax effect was less than the prescribed amount. It is in these circumstances the two surviving appeals of Meera Devi, are being considered. In the case of Kiran Devi by a subsequent order dated 07.08.2009, another Bench of the ITAT dismissed the assessee's appeal.
9. Counsel for the assessee in both cases i.e. Kiran Devi and Meera Devi urged that the Tribunal fell into an error in not taking into consideration the fact that penalty proceedings were completely unwarranted in these cases. It was submitted that having regard to the 5th Explanation to Section 271(1)(c) of the Income Tax Act and the fact that the assessees had promptly responded and filed the returns after receipt of notices consequent upon the search, it could not be said that there was any intention on their part to conceal the income or that they had furnished false or inaccurate particulars in their original returns filed under Section 139 of the Act. Counsel highlighted the fact that the principle of consistency and judicial discipline demanded that Kiran Devi's appeals ought to have been allowed having regard to the order of the Tribunal in ITA 272,273 & 318/Del/2007 and connected cases, decided on 14.03.2008. That interpretation was by a co-ordinate Bench of the Tribunal. In case another Bench felt that interpretation was incorrect judicial discipline demanded, that the latter Bench should have referred the appeals for consideration by a larger or special Bench. In support of this contention, learned counsel relied upon the decision reported as Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 (SC).
10. It was urged by virtue of several decisions of the various High Courts and the Supreme Court, it is an established rule of law that search proceedings and returns filed pursuant to them to be viewed strictly in accordance with the special provisions connected with it. It was submitted that the presumption which the Revenue can resort under Section 132(4A) and Section 132 (5) is discretionary and also limited and cannot be mechanically drawn but has to be supported by the facts and reasons. In this case, counsel relied upon the judgment reported as CIT v. Chhabra Emporium [2003] 264 ITR 249/ 130 Taxman 818 (Delhi) to say that during the course of search, statement of the assessee is recorded under Section 132(4) in respect of any cash, amount, stock or jewellery etc. that individual is entitled to claim immunity by virtue of fifth Explanation to Section 271(1)(c) of the Act. The decision in P.R. Metrani v. CIT [2006] 287 ITR 209/ 157 Taxman 325 (SC) was relied upon for the proposition that presumptions under the Income tax Act are to be narrowly construed and cannot be resorted for purposes of framing regular assessment. It was also emphasized - by relying upon the ruling in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) and in CIT v. Jalaram Oil Mills [2002] 253 ITR 192/ 121 Taxman 682 (Guj.), that the mere fact that explanation of an assessee, in assessment proceedings is rejected by itself is not a ground for levying penalty against him or her in connection with the assessment year.
11. Learned counsel on behalf of the Revenue argued that the approach of the Tribunal cannot be faulted, in dismissing Kiran Devi's appeals. It was contended that as opposed to the previous order of 14.03.2008 which mechanically accepted the appeals by the assessees, and was applied without looking into individual facts and circumstances, the subsequent order in Kiran Devi's case is an elaborate one. Counsel for the Revenue submitted that the decision in Meera Devi's on the other hand suffers from the same infirmity as it does not discuss the individual facts and why fifth Explanation (to Section 271(1)(c)) was attracted.
12. It was highlighted by the counsel for the Revenue that the search in this case took place in a third party's premises. During the course of conduct of that search, documents pertaining to these two assessees, i.e. Kiran Devi and Meera Devi were found and seized. Despite notices, they did not respond. Ultimately the Assessing Officer had to issue notices under Section 153C. It was on receipt of these notices that both the assessees approached the Assessing Officer and filed returns for the block period. These returns showed substantial increase as compared with the original (regular) returns of income which had originally been filed under Section 139. In both cases there was no explanation why the income which was subsequently disclosed under Section 153C had been omitted. In these cases the income claimed was in respect of house property or income from other source or agricultural income. The Assessing Officer brought to tax the amounts and in one assessment year alone he added certain amount under Section 68 in Meera Devi's case. These clearly reflected that but for the search and seizure and subsequent proceedings, the two assessees had no intention of disclosing the income and had in fact indulged in concealing their income and amounts which had to be taxed in their original returns. This omission clearly amounted to conduct that attracted Section 271(1)(c).
13. It was urged that the Tribunal fell into an error in Meera Devi's case in not showing that fifth Explanation by itself does not come to the aid of the assessee but the situations which carve out exceptions to a limited extent aid the assessee to disclose the income or source of income within the time limit specified. Learned counsel submitted in this regard that while issuing a show cause notice what was required by the Assessing Officer was to merely state as to how and what constituted inaccurate particulars. In all cases it is for the assessee to show that the limited exceptions spelt out in the fifth Explanation applied. In this case, clearly, the conduct of the assessees was such that the exception to the Explanation was not attracted.
14. It can be seen from the above discussion that the assessees in this case were asked to respond to notices issued by the income tax authorities, pursuant to documents recovered during search of one K.N. Mehrotra, an employee of M/s Prabhat Zarda Group. He stated that the documents, papers and bank account particulars pertained to the assessees. It is not in dispute that even though the assessees did not initially respond to the notice, yet, when they received notices under Section 153C, both filed returns. In these returns, they disclosed substantially higher income - adding other sources, i.e. rent from house property and income from other sources. The assessees argue that they cannot be penalized, since the fifth Explanation to Section 271(c) - which applies to search cases - is attracted. They also argue that the Tribunal's previous order in the connected cases bound it and the doctrine of precedent as well as judicial discipline constrained it to follow that previous order. In case it wished to re-visit the reasoning, the proper course should have been to refer the matter to a larger Bench.
15. There is some authority for the assessees' argument that a Bench of a Tribunal should not depart from an earlier view expressed by it, in the interests of consistency and stability in the administration of law. The Court is also aware that the Tribunal is a quasi-judicial authority, and is not a court of record. There are important exceptions to the doctrine of precedent, which reinforce the public interest in proper administration of justice. The first is that a decision is an authority for what it says, in the context of the facts. The second is that if the previous decision is per incuriam, the Tribunal, or court is not bound to consider it as a binding precedent.
16. In this context, it would be necessary to notice that Section 271(1)(c) empowers the Assessing Officer to impose penalties wherever the assessee does not furnish accurate particulars, in the form of returns, such as concealing the sources of income, or withholding true and full information. This duty was spelt out by the Supreme Court as one cast on the assessee to disclose all facts, including every potential income. In Calcutta Discount Co. Ltd. v. ITO AIR 1961 SC 372 the Supreme Court underlined this duty in the following terms:
"a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his Possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise-the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.
There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee."
If one keeps the above duty (on the part of each assessee) in perspective, the question of whether the particulars furnished were inaccurate, or there was a deliberate withholding of information has to be viewed in the context of facts of every case. In the present case, both assessees had not furnished the particulars or sources of income which they ultimately disclosed (after being called upon to do so, by the A.O., through notice under Section 153C) when they filed their returns. This clearly amounted to non-disclosure of relevant particulars. The facts subsequently disclosed by them were pursuant to the search in someone else's premises. Had the search not taken place, they would have kept quiet, thus allowing that part of the income to remain outside the fold of taxation. Clearly, therefore, their conduct in filing returns without full particulars fell within the mischief of Section 271(1)(c). The question then is whether they were entitled to claim the benefit of the exception, carved out from the main Explanation to that provision.
17. This Court is conscious of the fact that taxing statutes have to be construed in their own terms, and there is no question of equity playing any role in that function. If that perspective is kept in mind, it is apparent that the Explanation 5 to Section 271(1)(c) is premised on search of the assessee. The main part of the Explanation creates a legal fiction, (i.e. the assessee shall, for the purposes of imposition of a penalty under cl. (c) of sub-s. (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars). The assessee can, in limited circumstances, avail the benefit of the exceptions ("unless") if
(1) for any previous year which has ended before the date of the search, (but for which the return of income for such year has not been furnished before that) or, where such return has been furnished before the said date, it has not been declared in it, he satisfies that such income is, or the transactions resulting in such income are recorded before the date of the search or
(2) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income unless he satisfies that on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date (i.e. the date of search) or
(3) The assessee, in the course of the search, makes a statement under sub-section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section(1) of Section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.
18. The structure of the provision, and the Explanation make it clear that the first part, i.e. concealment of income, or furnishing of inaccurate particulars, results in the presumption, that it is liable for penalty. The onus is upon the assessee, whose premises are subjected to search, and from where the books of account pertaining to the undisclosed particulars are found, to show that he falls within the two exceptions, carved out of the Explanation. In other words, the Explanation enacts a presumption that where undisclosed particulars are found in the course of a search, in the form of assets, or from books of account, the two exceptions are attracted. These exceptions are qualified, and in turn are premised on disclosures at specified points of time.
19. It would be relevant, in this context, to notice the decision of the Bombay High Court in Sheraton Apparels v. Asstt. CIT [2002] 123 Taxman 238 where the Explanation was considered and interpreted. The court emphasized the expression "books of account" and held that:
"31. The income-tax legislation has been using the term "book" or "books of account" right from its inception. But, these terms are defined in the Act for the first time by the Finance Act, 2001, with effect from June 1, 2001. Section 2(12A) defines the said terms to mean :
"(12A) 'books or books of account' includes ledgers, day-books, cash books, account books, and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electromagnetic data storage device."
32. Then above definition appears to have been framed by the Legislature keeping in view the development of computer technology. If the newly inserted definition of books of account inserted in the Income-tax Act is examined in contrast to the definition given under Section 34 of the Evidence Act, it will be clear that the stringent requirements of Section 34 are not to be found in the said definition. Obviously, for the simple reason that the purpose of both the legislations are different. So far as the cases at hand are concerned, they relate to the assessment years 1984-85 to 1988-89 ; much prior to the period of introduction of the definition which was introduced for the first time under the Finance Act, 2001.
33. In order to appreciate the submissions keeping in view the facts of the present cases, one has to concentrate not only on the bare term "books of account" but also on the words in whose company the said term is appearing. The extracted sub-clause appearing hereinbelow will have to be understood properly and appropriate meaning will have to be assigned keeping in mind the backdrop in which the concept of "books of account" is referred to in Sub-clause (1) of Clause (b) of Explanation 5. The words used are :
"such income is, or the transactions resulting in such income are recorded . . . in the books of account, if any, maintained by him for any source of income .. . before the said date."
34. The term "books of account" referred to in Sub-clause (1) of Explanation 5 to Section 271(1)(c) means books of account which have been maintained for determining any source of income. The term "source of income" as understood in the Income-tax Act is to identify or classify income so as to determine under which head, out of the various heads of income referred to in Section 14 of the Act, it would fall for the purposes of computation of the total income for charging income-tax thereon. Thus, the term "books of account" referred to in this relevant sub-clause of Explanation 5 would mean those books of account whose main object is to provide credible data and information to file the tax returns. A credible accounting record provides the best foundation for filing returns of both direct and indirect taxes. Accounting is called a language of business. Its aim is to communicate financial information about the financial results. This is not possible unless the main objectives of the books of account are to maintain a record of business : to calculate profit earned or loss suffered during the period of time, to depict the financial position of the business ; to portray the liquidity position ; to provide up to date information of assets and liabilities with a view to derive information so as to prepare a profit and loss account and draw a balance-sheet to determine income and source thereof. Thus, the term "books of account" referred to in Explanation 5 must answer the above qualifications. It cannot be understood to mean compilation or collections of sheets in one volume. The books of account referred to are those books of account which are maintained for the purposes of the Income-tax Act and not diaries which are maintained merely as a man's private record ; prepared by him as may be in accordance with his pleasure or convenience to secretly record secret, unaccounted clandestine transactions not meant for the purposes of the Income-tax Act, but with specific intention or desire on the part of the assessee to hide or conceal income so as to avoid imposition of tax thereon.
35. The words in Explanation 5 "books of account, if any, maintained by him for any source of income" are important words signifying the legislative intent embodied in the Explanation warranting grant of immunity from penalty. The legislative intent is to admit only those books of account maintained by the assessee on his own behalf as by their very nature and circumstances are maintained for the purposes of drawing the source of income. Therefore, when books of account are tendered for claiming the benefit of Explanation 5 to Section 271(1)(c) of the Act, it must be shown to be a book, that book must be a book of account, and on the top of it that must be one maintained for the purposes of drawing the source of income under the Income-tax Act. These essential requirements must be carefully observed while implementing tax legislation in the country where secret and parallel accounts based on frauds and forgery are extremely common and responsibility of keeping and maintaining accounts for the purposes of the tax legislation is honoured in the breach rather than the observance.
36. Now, turning to the facts of the cases in hand, private diaries may have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to draw the source of income or for the computation of total income to offer income calculated therefrom for the purposes of taxation. Such books or diaries can hardly be designed or accepted as books of account for the purposes of Explanation 5 of Section 271(1)(c) of the Act, so as to afford immunity from penalty. None of the cases cited by the appellants were close to the facts found herein, hence no reference thereto in our opinion, is necessary."
20. In these cases, it would be relevant to notice the reasoning of the Tribunal in the Kiran Devi batch of cases. The extracts of its order are reproduced below:
"12.1 In assessment order for assessment year 1999-2000, after recording sequence of events leading to search at residential premises of Shri K.N. Mehrotra and refusal of the assessee to attend to summons under Section 131 and action taken under Section 153C and the return filed by the assessee, the Assessing Officer as per para 5 has observed as under :
"Since the assessee has filed the return of income after the date of search, it is a fit case to initiate penalty proceedings as per the Explanation 5 to Section 271(1)(c) of the Income Tax Act, 1961 because the assessee has concealed her income and furnished inaccurate particulars of income. Hence, penalty proceedings under Expln. 5 to Section 271(1)(c) of the Act are initiated."
12.2 Similarly, other assessment order has been passed. A clear finding that assessee has concealed his income and furnished inaccurate particulars of income has been recorded in the assessment order. Penalty proceeding has been initiated in terms of Explanation 5 to Section 271(1)(c) of the IT Act. In the said Explanation it is provided as under :
"Explanation 5 : Where in the course of a [search initiated under Section 132 before the 1st day of June, 2007], the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,—
(a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or
(b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under cl. (c) of sub-s. (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, [unless,—
(1) such income is, or the transactions resulting in such income are recorded,—
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner] before the said date; or
(2) he, in the course of the search, makes a statement under sub-section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section(1) of Section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.]"
12.3 The exceptions provided in the Explanation have no application here and are not relevant. The highlighted (italicised in print) portion is required to be read in the assessment order in the light of reference to Explanation 5. There is, therefore, a clear finding fully supported by facts that assessee concealed income in the returns originally filed under Section 139, notwithstanding that such income was disclosed after search and after detection of the concealed income in returns in response to notices under Section 153C. These facts are clearly emerging from the assessment orders leading to valid initiation of penalty proceeding and penalty orders. In the light of unassailable facts, no prejudice has even been alleged or claimed by the assessee."
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"16. We have carefully considered submissions of assessee relating to invoking/application/non-application of Explanation 5 to Section 271(1)(c) of the IT Act. If free and without judicial constraint to follow the decision of a Coordinate Bench, we would have perhaps agreed with the view taken by learned CIT(A) to Explanation 5. The said Explanation does not mention that search should be of the assessee and copy of bank statement found in search can be treated as evidence of assessee's ownership of "money" or "other valuable article". Therefore, to examine import of Explanation 5 with reference to finding recorded by learned CIT(A), the issue could be referred for consideration. However, the finding of the Co-ordinate Benches that Explanation 5 to Section 271(1)(c) is not applicable, in our opinion, is not material for disposal of appeal. There is, therefore, no need to refer the matter to the Special Bench. This is, however, without prejudice and subject to clear and established facts on record which are not even in dispute. In the light of above facts, we are to examine the question whether assessee is liable to be penalized under Section 271(1)(c) of the IT Act.
16.1 The main contention advanced on behalf of the assessee is that penalty proceeding was initiated by invoking Explanation 5 to Section 271(1)(c) and, therefore, question has to be strictly examined in the light of above Explanation. Even main provision of Section 271(1)(c) cannot be considered or applied to uphold the levy of penalty. Other Benches of the Tribunal did not go beyond considering Explanation 5 and held that said Explanation is not applicable and thereby cancelled the penalty. In our considered opinion, above contentions of the assessee based upon Explanation 5 are to be rejected. Various Explanations to Section 271(1)(c) being part of the section, need not be invoked while initiating penalty proceeding. The penalty is to be imposed if conditions prescribed by Section 271(1)(c) are satisfied. The said section is to the following effects:"
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"16.7 It is further to be understood that Explanations deal with cases of "deemed concealment" and not of actual concealment fully established. Even if burden is taken to be on the Revenue, the same is also discharged in this case. We, therefore, fail to appreciate why penalty for concealment of income under main Section 271(1)(c) cannot be imposed or upheld for not disclosing "income" in the returns originally filed under Section 139 of the IT Act. Income withheld and not shown in those returns was the concealed income which was detected by the Revenue in the search in these cases. Why assessee should not pay penalty on such concealed income is beyond our comprehension.
16.8 In our considered opinion, it was totally unnecessary on the facts of these cases for the AO to invoke (allegedly) Explanation 5 to Section 271(1)(c) of the IT Act as income not disclosed in the return under Section 139 but detected subsequently and established to be assessee's income and assessed accordingly is concealed and fully covered by Section 271(1)(c) of the IT Act. There was absolutely no need to try and bring the cases under Explanation 5 of section. It has been referred by the AO out of abundant precaution to make clear to the assessee that subsequent disclosure of income under Section 153C would not alter her default under Section 271(1)(c) of the Act committed in returns filed under Section 139 (before the search). Factual matrix is not in dispute. It is immaterial that above Explanation has been referred in the assessment order. On facts, application of Section 271(1)(c) is not affected. The proposition that assessee has an obligation to show correct income under Section139 and if it is not done, Revenue is entitled to invoke provision to Section 271(1)(c) notwithstanding that correct income is shown in response to notice under Section 148 of the IT Act or in some other proceedings is well established and is beyond doubt. For the purpose of present proceeding, there is no material difference whether the returns were filed in response to notice under Section 148 or under Section 153C of the IT Act. The legal position on the issue is more than clear."
21. The above extracts would show that the assessees did not disclose the income or the assets any time in the returns filed by them. Furthermore, the search conducted was not in their premises; it was in the premises of someone else. Having regard to the restricted nature of the phrase "books of account" the particulars found in the premises of someone else could not be said to have been "in the course of search", because the present assessees' premises were not searched. Nor did they make any disclosure or statement, or surrender their income, during the course of search. They filed a return, which for the first time, disclosed the hitherto concealed income. Their explanations were not of the kind which therefore, fell within the exception to Explanation 5 of Section 271 (1) (c). The reliance placed by the assessees on the judgment of this court in Chhabra Emporium's case (supra) is in apposite, because in that case, the assessee surrendered the amount during, or immediately after the search. P.R. Mitrani's case (supra) does not help the assessees, because this Court is not holding that the presumption which has to be taken under the provision is irrebuttable, or sweeping. The court is merely construing the Parliamentary purpose for the fifth Explanation, and also interpreting the nature of the exceptions which allow the assessee the benefit. Clearly, the assessees in this case cannot claim any such benefit.
22. For the above reasons, the question of law in ITA Nos. 1217/2010, 1219/2010, 1221/2010, 1231/2010 and 1233/2010 is answered in favour of the revenue and against the appellant. The said appeals are, consequently, dismissed. For the same reasons, the questions of law in ITA Nos. 995/2010 and 997/2010 are answered in favour of the revenue. The said two appeals are consequently, allowed.--
IT : Levy of penalty under section 271(1)(c) merely on basis of disallowance of expenses under section 40(a)(i) not justified
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[2012] 18 taxmann.com 144 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
AT & T Communication Services India (P.) Ltd.*
SANJIV KHANNA AND R.V. EASWAR, JJ.
IT APPEAL NO. 526 OF 2011 †
JANUARY 19, 2012
Section 271(1)(c), read with section 40(a)(i) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 2000-01 - Assessing Officer disallowed certain amount payable by assessee outside India to a foreign company by invoking provisions of section 40(a)(i) - Appellate authorities upheld order of Assessing Officer - Assessing Officer also levied penalty under section 271(1)(c) upon assessee on account of disallowance of aforesaid amount - Tribunal deleted levy of penalty upon assessee holding that disallowance of aforesaid amount by invoking provisions of section 40(a)(i) could not be a ground to levy penalty under section 271(1)(c) upon assessee - Whether, on facts and in circumstances of case, order of Tribunal was justified - Held, yes [In favour of assessee]
FACTS
The assessee-company in its books of account had credited a certain amount on 31-3-2001 in the account of a foreign company, namely, 'A' situated in Singapore for the services, which had been rendered by 'A' to the assessee. Further, the assessee, in the assessment year 2001-02, claimed deduction of the said amount payable outside India to 'A'. The Assessing Officer having found (i) that the bill raised by 'A' on the assessee for the aforesaid amount was dated 23-11-2001, (ii) that the said bill was entered by the assessee in its books of account for the year ending on 31-3-2001 at the time of finalization of audit, i.e., on 23-11-2001, and (iii) that the tax on the aforesaid amount was deducted and paid by the assessee on 23-11-2001, held that as the assessee had deducted and paid tax in respect of amount payable outside India to 'A' in the subsequent year relevant to the assessment year 2002-03, it was not entitled to claim deduction for the said amount in the year under consideration as per specific provisions contained in section 40(a)(i ). He, therefore, disallowed the deduction claimed by the assessee and added the said amount to its income. Both the first appellate authority and the Tribunal upheld the order of the Assessing Officer. In the meantime, the Assessing Officer also levied the penalty under section 271(1)(c) upon the assessee on account of disallowance of aforesaid amount.
On appeal, the Commissioner (Appeals) upheld the penalty levied upon the assessee.
On second appeal, the Tribunal held that the disallowance of the aforesaid amount by invoking provisions of section 40(a)( i) could not be a ground to levy the penalty under section 271(1)(c) upon the assessee. It, therefore, deleted the penalty levied upon the assessee.
On appeal to High Court:
HELD
Sub-clause (i) of section 40(a) was amended by the Finance Act, 2003 with effect from 1-4-2004. It is possible to submit that the amendment which came in sub-clause (i ) of section 40(a) with effect from 1-4-2004 was clarificatory in nature, but this is different from stating and holding that the assessee could not have raised the said plea or argued that the disallowance under the pre-amended section 40(a )(i) was not justified or mandatory. Admittedly, in the instant case TDS has been deducted and paid. The payment of TDS was made in the next assessment year. The question was whether the assessee can claim deduction of the amount payable to 'A' in the assessment year 2001-02 or in the next assessment year 2002-03. If this amount is allowed in the assessment year 2002-03, income for the said year will be proportionately reduced. There is no evidence or material to show that the assessee wanted to claim deduction of the aforesaid amount payable to 'A' in the assessment year 2001-02, as it did not have taxable income in the next assessment year 2002-03. [Para 11]
In view of the aforesaid facts and findings recorded by the Tribunal, no substantial question of law arises for consideration. Therefore, the instant appeal was liable to be dismissed. [Para 12]
CIT v. Nestle India Ltd. [2005] 275 ITR 1 / 145 Taxman 235 (Delhi) (para 8) and CIT v. Oracle Software India Ltd. [2007] 164 Taxman 478/ 293 ITR 353 (Delhi) (para 8).
Abhishek Maratha and Ms. Anshul Sharma for the Appellant. Jayant K. Mehta and Sukant Vikram for the Respondent.
JUDGMENT
Sanjiv Khanna, J. - The Revenue is aggrieved by the order of the Income Tax Appellate Tribunal (for short 'the Tribunal') dated 19th February, 2010 in ITA No. 2788/Del/2006 deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act'). It pertains to the Assessment Year 2000-01.
2. The Assessing Officer had imposed penalty under the said section on three accounts:-
(i) Rs. 1,31,58,290/- on account of disallowance of expenses claimed respect of payment made to AT&T, Singapore;
(ii) Rs. 33,333/- being disallowance of expenses paid to the Registrar of Companies (ROC); and
(iii) Rs. 3,98,36,108/- being amount received from Birla AT&T.
3. At the outset, we may note that the third addition has been set aside for fresh adjudication by the Tribunal in the quantum appeal. The Revenue, therefore, has not raised this issue in the present appeal. The question therefore is whether the Tribunal was justified in deleting the penalty under Section 271(1)(c) of the Act in respect of additions/disallowance (i) and (ii).
4. Learned counsel for the appellant/Revenue has drawn our attention to the order dated 3rd October, 2008 passed by the Tribunal in the quantum proceedings and submits that there is contradiction in this order and the order now passed by the Tribunal in the penalty proceedings. He further submits that the question of malafides is irrelevant and cannot be a ground to quash the penalty. The assessee had accepted disallowance of Rs. 33,333/-, which was paid to the ROC and did not file any appeal against the order of the Assessing Officer.
5. The question whether a particular expenditure is capital or revenue in nature is always debatable and two views are possible. It is an admitted position that the assessee had made payment of Rs. 1 lakh to the ROC and had amortized the said amount. 1/3rd of this amount was claimed as a revenue deduction in this year. It was held by the Assessing Officer that the payment to ROC was capital expenditure and not revenue expenditure. The tribunal has accepted the plea and explanation of the respondent-assessee that they genuinely believed that 1/3rd of the amount paid to the ROC could be treated as revenue expense in view of the legal advice offered. The tribunal has noticed that identical claim for the assessment year 2000-01 was allowed by the Assessing Officer. Keeping in view the total quantum of income offered for taxation, the exiguous amount involved and the explanation offered, we do not think that it will be appropriate to admit the present appeal on the said issue.
6. Rs. 1,31,58,290/- was disallowed under Section 40(a)(i). It is relevant to refer to certain facts and the explanation given by the assessee, which has been accepted. The aforesaid payment was for services rendered by AT&T Singapore. There is no dispute that the payment has been made and TDS on the said amount was paid to the Government on 23rd November, 2001 i.e. after the end of the previous year relevant to the assessment year 31st March, 2001. The respondent/assessee had received a bill from AT&T Singapore on 23rd November, 2001. Quantum and genuineness of the expenditure is not disputed.
7. The Tribunal in the quantum proceedings had examined the said aspect including the contention of the respondent/assessee that AT&T Singapore had rendered services during the period relevant to the assessment year in question and the assessee had also earned the income as a result of the said services during the period relevant to the assessment year. It was held as under:-
"It is no doubt true that the relevant bill was raised by AT&T, Singapore on the assessee company only in the month of November, 2001. However, it is also true that the said bill was raised for the services which had been rendered by AT&T, Singapore to the assessee company in terms of an agreement already entered into which was in force throughout the year under consideration. A perusal of the copy of the bill raised by AT&T, Singapore on the assessee company placed at page No.93 of the assessee's paper book also shows that the narration/description given therein was "charges towards remote end support and network charges for period April, 2000 to 31st March, 2001 as per clause (1) of agreement effective 1st April, 2000". This description given in the relevant bill clearly shows that not only the services charged for in the said bill were rendered by AT&T, Singapore to the assessee company in terms of an agreement which was effective from 1.4.2000 but even the charges for the said services were quantified as per the terms and conditions of the said agreement. The liability for the said services thus had not only arisen during the year under consideration in terms of the agreement which was very much in force but even the quantification thereof was possible with reasonable certainty in that year. In our opinion, the said liability thus had crystallized during the year under consideration itself irrespective of the fact that the relevant bill was raised by AT&T Services in the month of November, 2001." [Emphasis supplied]
8. Thereafter, the Tribunal examined the provisions of Section 40(a)(i) and referred to the decision relied upon by the respondent-assessee in CIT v. Nestle India Ltd. [2005] 275 ITR 1/ 145 Taxman 235 (Delhi) and CIT v. Oracle Software India Ltd. [2007] 164 Taxman 478/ 293 ITR 353 (Delhi). However, it was held that the tax had been deposited only in November, 2001, and therefore, in view of Section 40(a)(i), the deduction as an expense would be available in the next assessment year and not in the assessment year in question. Accordingly, the addition made by the Assessing Officer was upheld.
9. After referring to the factual matrix of the present case, the Tribunal in the impugned order in the penalty proceedings went into the question of whether or not the assessee has been able to justify and discharge the onus under Explanation 1 to Section 271(1)(c) of the Act. It may be noted here that the respondent-assessee had contended that Section 40(a)(i) was not applicable as the words used were 'tax has been paid or deducted'. The contention of the respondent was that they had deducted the TDS on 31st March, 2001, but the same was paid on 23rd November, 2001. Accordingly, it was submitted that Section 40(a)(i) was not applicable. The said contention was rejected upholding that the words 'paid or deducted' cannot be interpreted in the manner as suggested by the respondent assessee.
10. Section 40(a)(i) during the relevant assessment year was as under:
"40. Amounts not deductible.–Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",-
(a) in the case of any assessee-
(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B:
Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted.
Explanation.-For the purposes of this sub-clause,-
(A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of Section 9;
(B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of Section 9;"
The said section was amended w.e.f. 1.4.2004 by the Finance Act, 2003 and after amendment the sub-clause (i) of section 40(a) was modified as under:-
"40. Amounts not deductible.–Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",-
(a) in the case of any assessee-
(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,-
(A) outside India; or
(B) in India to a non-resident, not being a company or to a foreign company,
on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200:
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of Section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
Explanation.-For the purposes of this sub-clause,-
(A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of Section 9;
(B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of Section 9;"
11. It is possible to submit that the amendment which came in 2004 was clarificatory in nature, but this is different from stating and holding that the assessee could not have raised the said plea or argued that the disallowance under the pre amended Section 40(a)(i) was not justified or mandatory. We may also note that in the present case TDS has been deducted and paid. The payment was made in the next assessment year. The question was whether the respondent-assessee can claim deduction of the amount paid to AT&T Singapore in the assessment year 2001-02 or in the assessment year 2002-03. If this expense is allowed in the assessment year 2002-03, income for the said year will be proportionately reduced. There is no evidence or material to show that the assessee wanted to claim the amount paid to AT&T Singapore in the assessment year 2001-02 as the respondent-assessee did not have taxable income in the assessment year 2002-03. The plea and interpretation propounded by the respondent-assessee was rejected in the quantum proceedings but the assessee can in the penalty proceeding show and explain that interpretation was plausible and had merit, though was not accepted.
12. Keeping in view the aforesaid facts and the findings recorded by the tribunal, we do not think that any substantial question of law arises for consideration. Accordingly, the present appeal is dismissed. No costsMs. Parvinder S Behuria, IRS appointed as Member of CBDT
THE Office Order No. 57/2013 dated 06.03.13, appointing Ms. Parvinder S Behuria, IRS (IT:77038) as Member of the Central Board of Direct Taxes (CBDT) in the Department of Revenue, Ministry of Finance, was kept in abeyance till further order as per the directions dated 28.03.2013 of the High Court of Gujarat, Ahmedabad in SCA No. 3627/2013 filed by Shri Dileep Shivpuri.
Now the Supreme Court of India has stayed the order of High Court for a period of three months. Hence, now she is appointed as Member, subject to final outcome of cases pending in Supreme Court, High Court and CAT.
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Regards,
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Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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