| અક્ષ્રરનાદ | ||||
૨ | આત્મધર્મ | ||||
૩ | આનંદ-આશ્રમ | ||||
૪ | ક્રાંતિકારી પુસ્તકાલય -ઋષિ ચિંતન | ||||
૫ | ગદ્યસૂર | ||||
૬ | જાનકી | ||||
૭ | જીવનશૈલી | ||||
૮ | જૈન ઈ-લાઈબ્રેરી | ||||
૯ | દાદા ભગવાન | ||||
૧૦ | દાવતે ઇસ્લામી | ||||
૧૧ | પુસ્તકાલય | ||||
૧૨ | ભજનામૃતવાણી | ||||
૧૩ | માવજીભાઈ | ||||
૧૪ | રામકબીર | ||||
૧૫ | રીડ ગુજરાતી | ||||
૧૬ | વીતરાગ-વાણી | ||||
૧૭ | શબ્દપ્રીત ઈ-પુસ્તકાલય | ||||
૧૮ | શાળા સેતુ | ||||
૧૯ | સબરસગુજરાતી | ||||
૨૦ | સ્વર્ગારોહણ | ||||
૨૧ | સ્વામી સચ્ચિદાનંદજી | ||||
IT : It is production of flour/rice through flour mill/rice mill which
is barrred from entitlement under section 80-IC, and, it is immaterial
whether flour mill producing flour is an ordinary chakki or a roller
flour mill
■■■
[2013] 33 taxmann.com 30 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Pooja Industries
v.
Income-tax Officer, Ward - 1, Solan*
T.R. SOOD, ACCOUNTANT MEMBER
AND Ms. Sushma Chowla, JUDICIAL MEMBER
IT Appeal No. 11 (Chd.) of 2012
[ASSESSMENT YEAR 2007-08]
JANUARY 14, 2013
Section 80-IC of the Income-tax Act, 1961 - Deductions - Special
provisions in respect of certain undertakings or enterprises in
certain special category States - Assessment year 2007-08 - Whether
what is prohibited by virtue of Schedule XIII, Part B is
production/manufacturing of specified articles or things - Held, yes -
Whether accordingly, it is production of flour/rice through flour
mill/rice mill which is barred from entitlement under section 80-IC by
virtue of Schedule XIII and thus, it is immaterial whether flour mill
producing flour is an ordinary chakki or a roller flour mill - Held,
yes - Whether clarification issued by Government of Himachal Pradesh
wherein it has been clarified that 'roller flour mill' is different
from flour mill vide letter no. Ind (A)(F) 6-16/94, dated 1-7-1994
deals with sales tax etc. which is a State subject and that
clarification cannot negates intention of Parliament given in Part B
of Schedule XIII - Held, yes [Paras 9 and 12] [In favour of revenue]
FACTS
■ The assessee claimed deduction under section 80-IC. Earlier, it
was claiming deduction under section 80-IB.
■ During the assessment proceedings, the Assessing Officer noticed
that the assessee had claimed deduction under section 80-IC on the
basis of expansion in flour mill. He further noticed that deduction
under section 80-IC was not available as flour mill finds mention in
Schedule XIII, Part B containing list of article or things which are
not entitled for deduction.
■ The assessee submitted that it was running a 'roller flour mill'
which is distinct from 'flour mill' and in that regard reference was
made to the sales tax exemption given by the Government of Himachal
Pradesh wherein it has been clarified that 'roller flour mill' is
different from flour mill vide letter no. Ind(A)(F)6-16/94, dated
1-7-1994. It was further submitted that since roller flour mill is not
mentioned in Part B of Schedule XIII, the assessee was eligible for
deduction under section 80IC.
■ The Assessing Officer, however, rejected the submissions of the
assessee because the assessee was running basically a flour mill and
main item manufactured was atta/flour. He also observed that
interpretation by the Government of Himachal Pradesh under Sales tax
laws could not be applied to the Income-tax. However, he allowed the
deduction under section 80-IB(4) at the rate of 25 per cent.
■ The Commissioner (Appeals) confirmed the order of the Assessing Officer.
HELD
■ Deduction under section 80-IC is available whenever the assessee
undertakes a substantial expansion. The issue relating to substantial
expansion has not been disputed by the Assessing Officer. However,
sub-section (2) further requires that deduction is available only to
such undertaking which begins to manufacture or produce any article or
thing which are not mentioned in Schedule XIII, Part B. Thus, it is
clear as observed by the Commissioner (Appeals) the deduction is not
denied on a particular type of mill but it is denied on a particular
type of article or thing which is mentioned therein.
■ It should be emphasized that part B of Schedule XIII, Item 8
talks of flour mill under the head 'activity or article or thing' but
that has been further clarified in the Schedule itself by way of
excise classification as well as sub-clause under National Industries
Classification (N.I.C) 1988.
■ The Commissioner (Appeals) has further observed that Central
excise tariff classification code 11.01 of Central Excise Act makes it
clear that it is a broad heading which covers various products of the
milling industry.
■ This classification under various NIC standards has been issued
by Ministry of Statistics and Programme Implementation, Government of
India. Code 15311 has been mentioned in Part B of Schedule XIII at
Col. 8. Since this Division pertain to Food and Brewages and only one
item in respect of Flour Milling is there, it becomes clear that the
Parliament was clear in its intention that activity of Flour Milling
would not be entitled to deduction under section 80-IC and that is why
the same has been placed in Schedule XIII along with Excise
classification Code 11.01 as well as National Industries
classification under Division 15 at Sl No. 15311.
■ Therefore, the activity of Flour milling or article or thing
under which can be called 'Flour' is not eligible for deduction under
section 80-IC by virtue of its entry in the negative list in Part B of
Schedule XIII. [Para 9]
■ The assessee though argued that this item should be interpreted
on the basis of a trade name but no Trade Journal or any other
material was produced to show that in the trade parlance 'Flour Mill'
is distinct from 'Roller Flour Mill'.
■ In any case the assessee itself has been shown to be running a
Flour Mill as per the Tax Audit Report which deals with the nature of
business, the same has been shown as 'Flour Mill'. [Para 10]
■ From the quantitative details of principle items of raw material
and finished products it is clear that principle activities remain
milling of flour and 79.64 per cent wheat crushed results into milling
of flour and maida and suzi is only at 11.39 per cent which can be
called a bi-product. Thus, it is clear that main activity of the
assessee is milling and by doing the activity listed in the negative
list in Part B of Schedule XIII, deduction under section 80-IC, is not
available. [Para 11]
■ The assessee had put up lot of stress on the clarification of
legal exemption granted by the Government of Himachal Pradesh. The
Commissioner (Appeals) has correctly brushed aside this clarification
because it deals with the sales tax etc. which is a State subject and
this clarification cannot negates the intention of the Parliament
given in Part B of Schedule XIII which is a negative list for
deduction under section 80-IC.
■ In these circumstances, the assessee by virtue of being placed in
part B of Schedule XIII, is not entitled to deduction under section
80-IC.
■ The Assessing Officer has been more than reasonable for granting
deduction under section 80-IB at the rate of 25 per cent.
■ In these circumstances the order of the Commissioner (Appeals) is
to be confirmed. [Para 12]
■ In the result, appeal of the assessee is dismissed. [Para 13]
Surinder Babbar for the Appellant. N.K. Saini for the Respondent.
ORDER
T.R. Sood, Accountant Member - This appeal is directed against the
order passed by the ld. CIT(A), Shimla dated 31.10.2011.
2. In this appeal the assessee has raised the following grounds:
"1 On the facts and circumstances of the case, the ld. CIT(A) has
grossly erred in concurring with the ITO in rejecting the valid claim
of the assessee u/s 80IC of the Act.
2. On the facts and circumstances of the case, the ld. CIT(A) has
grossly erred in upholding the rejection of claim of Rs. 1,12,94,962/-
in concurrence with the ITO by holding that there is no distinction
between a "Flour Mill" and a "Roller Flour Mill".
3. Brief facts of the case are that the assessee filed return
declaring income of Rs. 82,760/-. This income was after claim of
deduction amounting to Rs. 1,12,94,962/- u/s 80IC of the Act. Earlier
the assessee was claiming deduction u/s 80IB of the Act and in the
present year it was claimed that the assessee had made substantial
expansion and therefore, was entitled to deduction u/s 80IC of the
Act. During the assessment proceedings the Assessing Officer noticed
that the assessee has claimed deduction u/s 80IC on the basis of
expansion in Flour Mill. He further noticed that deduction u/s 80IC is
not available in view of sub-section (8) of section 80IC which
prescribed that deduction is not available under this provision on
manufacture of article or thing specified in Schedule XIII, Part B.
Since part B of Schedule XIII specifically mentioned Floor Mill at
Item 8, the deduction was not available. The assessee was confronted
with this situation by way of show cause notice vide order sheet dated
26.11.2010 and following points were raised:
(i) "Being 6th year of production deduction u/s 80IB is allowable
25% instead of 100% claimed by you.
(ii) As per thirteenth schedule, deduction u/s 80IC is not allowable
to flour mills.
(iii) In nutshell,, you are requested to explain why deduction
claimed at 100% may not be reduced to 25% of total profits."
The assessee submitted detailed reply in which it was contended that
substantial expansion has been carried out as investment in the plant
and machinery during the year was more than 50% of the book value.
Further the assessee was running a "Roller Flour Mill" which is
distinct from the "Flour Mill" and in this regard reference was made
to the sales tax exemption given by the Government of Himachal Pradesh
wherein it was clarified that "Roller Flour Mills" is different from
"Flour Mill" vide letter No. Ind (A)(F) 6-16/94 darted 1.7.1994. Since
"Roller Flour Mill" is not mentioned in part B of Schedule XIII,
therefore, the assessee was eligible for deduction u/s 80IC. The
Assessing Officer after considering the reply rejected the same
because the assessee was running basically a Flour Mill and the main
item manufactured was Atta/Flour. He also observed that interpretation
by the Government of Himachal Pradesh under Sales tax Laws could not
be applied to the income-tax. However, he allowed the deduction u/s
80IB (4) @ 25%.
4. On appeal before the ld. CIT(A) the submissions made before the
Assessing Officer were reiterated. It was again emphasized that the
Roller Flour Mill is different from Flour Mill and in this regard
reference was also made to the Registration Certificate issued by the
Department of Industries. It was further submitted that in a Flour
Mill only atta and chokkar are the end products whereas in Roller
Flour Mill in addition to atta and chokkar, maida and suzi are also
produced. The Flour Mill is practically a "Chakki" made out of stone
wheels whereas Roller Flour Mill is made of Roll Bodies which is
entirely different from a flour mill. The clarification given by the
Government of Himachal Pradesh regarding exemption in sales-tax was
also reiterated.
5. The ld. CIT(A) after considering the submissions did not find force
in the same and rejected the claim of the assessee.
6. Before us, the ld. counsel of the assessee reiterated the
submissions made before the lower authorities and emphasized that
Flour Mill is different from Roller Flour Mill. Firstly the Flour Mill
can produce only flour and choker whereas Roller Flour mill also
produces in addition to flour and choker, maida and suzi. Secondly the
flour mill machinery is very simple and a small single floor building
is required to install the same whereas in case of Roller flour mill
five storey building is required along with sophisticated machinery.
Thirdly the Government of Himachal Pradesh has clarified vide letter
dated 1.7.1994 (copy placed at page 55 of paper book) written by
D.C-cum-Secretary to Industries to the Director of Industries that
Roller Mill are not covered under Sr No. 1 of Annexure III. That since
Roller Flour Mill are different from Flour Mill and therefore, same is
eligible for sales tax exemption. Thus it is clear that Flour Mill is
different from Roller Flour Mill. He submitted that the Assessing
Officer has not disputed that the assessee has carried out substantial
expansion during the year and deduction stands denied u/s 80IC mainly
on the basis that Flour Mill finds mention in schedule XIII, Part B
containing list of article or things which are not entitled for
deduction. Since Roller Flour Mill does not find mention in schedule
XIII, Part B and item 8 by the schedule only refers to the Flour Mill
/ Rice Mills which are different from the Roller Flour Mill, the
assessee is eligible for deduction u/s 80IC. The ld. counsel of the
assessee further submitted that the ld. CIT(A) in para 5.4 of her
order uses the definition given in the dictionary which is not correct
because it has been held by the various decisions that if an item in
schedule is to be interpreted that the same should be interpreted on
the basis of trade names given by the trade.
7. On the other hand, the ld. DR for the revenue referred to page 12
of the paper book which is a copy of Form 3 CD of Tax Audit Report and
invited our attention to Col No. 8. Against the nature of business tax
auditor has clearly mentioned "Flour Mill" which itself shows that the
assessee was running a Flour Mill. He referred to pg 24 of the paper
book and pointed out that opening stock of maida and suzi which
clearly shows that the assessee was earlier also producing maida and
suzi which has been produced now. He referred to pg 33 to 38 of the
paper book which is a copy of letter addressed to the Assessing
Officer and pointed out that claim regarding distinction between Flour
mill and Roller Flour Mill was sought to be arranged for the first
time on 9.12.2010 by this letter i.e. after three years.
8. In the rejoinder the ld. counsel of the assessee submitted that
distinction between Flour Mill and Roller Flour Mill was brought to
the knowledge of the Assessing Officer only when the issue raised by
the Assessing Officer for denial of deduction u/s 80IC. Further merely
because the assessee was manufacturing maida and suzi earlier also
only proves that the assessee was running a Roller Flour Mill right
from the beginning.
9. We have heard the rival submissions carefully. We find that the ld.
CIT(A) has discussed the issue in detail and in this regard we would
like to produce para 4 to 4.4 of her order which are as under:
"4 The rival submissions have been considered. The entry at Sr No. 8
in Schedule XIII, Part B reads "Flour Mill/Rice Mill". On the fact of
it, the entry makes it clear that all types of flour mills and rice
mills are covered by this entry. It does not elaborate the categories
or types of flour mills and rice mills. The heading of the XIII
schedule reads "List of Article or thing". Therefore, it is clear that
what is prohibited by virtue of XIII schedule is the
production/manufacturing of the specified articles or things.
Accordingly, it is the production of flour/rice through flour
mill/rice mill which is barred from entitlement u/s 80IC of the
Income-tax Act, 1961 by virtue of Schedule XIII. Thus the prohibition
is in respect of the production of flour, and it is immaterial whether
the flour mill producing the flour is an ordinary chakki or a roller
flour mill. In fact, logically speaking, the provisions of section
80IC read with schedule XIII would hardly be relevant in the case of
an ordinary chakki which does not involve so much of investment, what
to talk of substantial expansion and such other things. Further flour
mills can be of various types, such as stone mill, hammer mill, plate
mill, pin mill, roller mill etc. The equipment used in these mills can
be powered by hand, water, animals, electricity or diesel engine. The
only difference between various milling processes is that of technique
and speed. Flour is a common product in all kinds of milling
processes. Therefore, it can not be said that what is intended by
entry No.8 in part B of schedule XIII is only a stone mill and not a
hammer mill or a plate mill or a pin mill or a Roller Flour Mill.
Putting such an interpretation would reduce the entry to a farce.
4.1 Further, the relevant entry of "flour mill/rice mills" in schedule
XIII also mentions an excise classification of 11.01 against it. This
classification code refers to classification of products under the
Central Excise Tariff Act, which deals with products of the milling
industry. There is no distinction made in this chapter between goods
produced by roller flour mills or by any other type of flour mill.
Various products are classified as per the starch content and ash
content. The code 11.01 refers to wheat flour and there is no
distinction made as to whether the wheat flour is made by a roller
mill or by any other mill.
4.2 Certain decisions under the Central Excise Tariff Act also make it
clear that the classification code 11.01 is a broad heading which
covers various productions of the milling industry. In the case of
Bhagyalaxmi Poha Industries v. Commissioner [2007] 215 ELT 458 (Trib
Bangalore), it was held that rice flakes or poha are prime facie
classifiable under heading 11.01 of the Central Excise Tafiff. In
another case of Mahavir Food Products v. Commissioner [2007] 211 ELT
29 (Trib LB), it has been held that makai poha i.e. corn boiled and
flattened between rollers, is classifiable under the heading 11.01 of
the Central Excise Tariff Act.
4.3 The assessee's contention that the State Government of Himachal
Pradesh has accepted the distinction between flour mill and roller
flour mill is of no relevant. The scheme of sales tax incentives which
was in force in the State in 1994 was entirely a separate scheme
notified by the State Government. That scheme has no relevance or
connection with the tax holiday comprised in section 80IC, which was
enacted by the Finance Act, 2003 as a part of the new industrial
policy of the Central Government announced in 2003 for States like
H.P. This becomes further clear by the fact that the list of
ineligible industries contained in schedule XIII is almost entirely
different in content from the list of units declared to be ineligible
for sales tax incentives by the State Government. For the purpose of
the Income-tax Act, the entry in schedule XIII has to be understood in
its normal sense and not in terms of any clarifications issued by the
State Government under an entirely different scheme.
4.4 A statute is the edict of the legislature. The language employed
in a statute is the determinative factor of the legislative intent.
The first and primary rule of construction is that one must go by the
intention of the legislation itself as held in Padmasundra Rao v.
State of TN 255 ITR 147 (SC); CGT v. Laxmi Devi 220 ITR 50, CIT v.
Deep Chand , 2547 ITR 756. It was also held by Hon'ble Supreme Court
in the case of Vikrant Tyres v. First ITO , 247 ITR 821 (SC) that
unless there is an intention to the contrary, the words in a statute
should be given their ordinary grammatical or natural meaning
(Emphasis supplied)."
The relevant portion of Section 80IC reads as under:
"80-IC. (1) Where the gross total income of an assessee includes any
profits and gains derived by an undertaking or an enterprise from any
business referred to in sub-section (2), there shall, in accordance
with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction from such
profits and gains, as specified in sub-section (3).
(2) This section applies to any undertaking or enterprise,—
(a) which has begun or begins to manufacture or produce any article or
thing, not being any article or thing specified in the Thirteenth
Schedule, or which manufactures or produces any article or thing, not
being any article or thing specified in the Thirteenth Schedule and
undertakes substantial expansion during the period beginning—
THE THIRTEENTH SCHEDULE
(See sections 80IB(4) and 80IC(2))
LIST OF ARTICLES OR THINGS
PART A
FOR THE STATE OF SIKKIM
SCHEDULE XIII - LIST OF ARTICLES OR THINGS
PART B
FOR THE STATE OF HIMACHAL PRADESH AND
THE STATE OF UTTARANCHAL
S. No. Activity or article or thing Excise classification
Sub-class under National Industrial Classification (NIC) 1998
1 Tobacco and tobacco products including cigarettes and pan masala
24.01 to 24.04 and 21.06 1600
2 Thermal Power Plant (Coal/ oil based) 40102 or 40103
3 Coal washeries/dry coal processing
4 Inoroganic chemicals excluding medicinal grade oxygen (2804.11),
memdicinal grade hydrogen peroxide (2847.11), compressed air (2851.30)
Chapter 28
5 Organic chemicals excluding provitamins/vitamins, Hormones (29.36),
Glycosides (29.39), sugar (29.40) Chapter 29 24117
6 Tanningand dyeing extracts, tannins and their derivatives, dyes,
colours, paints and varnishes, putty, fillers and other mastics, inks
Chapter 32 24113 or 24114
7 Marble and mineral substances nor classified elsewhere 25.04
25.05 14106 or
4107
8 Flour mills/r ice mills 11.01 15311
9 TO 20 ……………………"
From the above it is clear that deduction u/s 80IC is available
whenever the assessee undertakes a substantial expansion. The issue
relating to substantial expansion has not been disputed by the
Assessing Officer. However, Sub-sec (2) further requires that
deduction is available only to such undertaking which begins to
manufacture or produce any article or thing which are not mentioned in
schedule XIII, Part B. Thus it is clear as observed by the ld. CIT(A)
the deduction is not denied on a particular type of mill but it is
denied on a particular type of article or thing which is mentioned
therein. It should be emphasized that part B of Schedule XIII, item 8
talks of Flour mill under the head "activity or article or thing" but
that has been further clarified in the schedule itself by way of
excise classification as well as sub-clause under National Industries
Classification (N.I.C) 1998. The ld. CIT(A) has further observed that
Central excise tariff classification code 11.01 of Central excise Act
makes it clear that it is a broad heading which covers various
products of the milling industry. Further N.I.C. 1998 gives various
categories of products under various heads known as "Divisions".
Division 15 reads as under:
DIVISION 15
"Manufacture of food products of brewages
15311 Flour Milling"
This classification under various NIC standards has been issued by
Ministry of Statistics and Programme Implementation, Government of
India. Code 15311 has been mentioned in Part B of Schedule XIII at
Col. 8. Since this Division pertain to Food and Brewages and only one
item in respect of Flour Milling is there, it becomes clear that the
Parliament was clear in its intention that activity of Flour Milling
would not be entitled to deduction u/s 80IC and that is why the same
has been placed in Schedule XIII along with Excise classification Code
11.01 as well as National Industries classification under Division 15
at Sl No. 15311. Therefore, the activity of Flour milling or article
or thing under which can be called "Flour" is not eligible for
deduction u/s 80IC by virtue of its entry in the negative list in Part
B of Schedule XIII.
10. The ld. counsel of the assessee though argued that this item
should be interpreted on the basis of a trade name but no Trade
Journal or any other material was produced to show that in the trade
parlance "Flour Mill" is distinct from "Roller Flour Mill". In any
case the assessee itself has been shown to be running a Flour Mill as
per the Tax Audit Report (copy of which is available at pg 12 to 20 at
Sl No. 8 which deals with the nature of business, the same has been
shown as "Flour Mill".
11.We have also perused page 25 of the paper book which is an annexure
giving quantitative details of principle items of raw material and
finished products has been followed.
ANNEXURE IV
QUANTITATIVE DETAILS OF PRINCIPAL ITEMS OF RAW MATERIAL
Item wheat (in Qtls)
Opening Stock 14345.66
Purchases during the previous year 140348.50
Consumption during the previous year 149102.62
Sales during the previous year Nil
Closing stock 5591.54
Yield of finished products Flour 118746 Maida/ Suzi 16984.45 Choker 16586.46
%age of yield 79.64% 11.39% 11.12%
Shortage/excess, if any Process Gain(Qtls) = (3214.29) 2.15%
From the above it is clear that principle activities remain milling of
flour and 79.64% wheat crushed results into milling of flour and maida
and suzi is only at 11.39% which can be called as bi-product. Thus it
is clear that main activity of the assessee is milling and by doing
the activity listed in the negative list in Part B of Schedule XIII,
deduction u/s 80IC, is not available.
12. The ld. counsel of the assessee had put up lot of stress on the
clarification of legal exemption granted by the Government of Himachal
Pradesh. Relevant letter is extracted below:
"Ind(A)(F)6-16/94
Government of Himachal Pradesh
Industries Department
The D.C-cum-Secretary (Industries) to the Government of Himachal Pradesh
To
The Director of Industries
Himachal Pradesh, Shimla-1
Dated, Shimla-2
1.7.1994
June 1994
Sub: Sales Tax Exemption to Roller Flour Mills, Clarification thereof
Sir,
I am directed to reply to your letter No. In/Dev., F.19-18/91-IB dated
20.4.94 in the above cited subject and to say that the matter has been
examined in consultation with Law Department. According to rule 11.1
(d) of the Revised Rules Regarding grant of incentives to Industrial
Units in Himachal Pradesh, all Industrial Units re eligible for sales
tax incentives which are registered as appellate authority dealer
under the H.P. General Sales Tax Act, 1968/Central Sales Tax Act, 1956
and comply with its Provisions, except for the industries notified in
Annexure-III or as notified by the State Government from time to time.
According to Sl No. 1 of Annexure III of the said rules, Flour Mills
are not eligible for sales tax incentives. In other words, the Roller
Flour Mills are not covered under Sl No. 1 of Annexure III and hence
are eligible for sales tax incentives subject to fulfillment of other
requirements.
Yours faithfully
Sd/-
Joint Secretary (Industries) to the
Government of Himachal Pradesh"
In our opinion, the ld. CIT(A) has correctly brushed aside this
clarification because it deals with the sales tax etc. which is a
State subject and this clarification can not negates the intention of
the Parliament given in Part B of Schedule XIII which is a negative
list for deduction u/s 80IC. In these circumstances, we are of the
opinion that the assessee by virtue of being placed in Part B of
Schedule XIII, is not entitled to deduction u/s 80IC. The Assessing
Officer has been more than reasonable for granting deduction u/s 80IB
@ 25%. In these circumstances we find nothing wrong with the order of
ld. CIT(A) and confirm the same.
13. In the result, appeal of the assessee is dismissed.
is barrred from entitlement under section 80-IC, and, it is immaterial
whether flour mill producing flour is an ordinary chakki or a roller
flour mill
■■■
[2013] 33 taxmann.com 30 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Pooja Industries
v.
Income-tax Officer, Ward - 1, Solan*
T.R. SOOD, ACCOUNTANT MEMBER
AND Ms. Sushma Chowla, JUDICIAL MEMBER
IT Appeal No. 11 (Chd.) of 2012
[ASSESSMENT YEAR 2007-08]
JANUARY 14, 2013
Section 80-IC of the Income-tax Act, 1961 - Deductions - Special
provisions in respect of certain undertakings or enterprises in
certain special category States - Assessment year 2007-08 - Whether
what is prohibited by virtue of Schedule XIII, Part B is
production/manufacturing of specified articles or things - Held, yes -
Whether accordingly, it is production of flour/rice through flour
mill/rice mill which is barred from entitlement under section 80-IC by
virtue of Schedule XIII and thus, it is immaterial whether flour mill
producing flour is an ordinary chakki or a roller flour mill - Held,
yes - Whether clarification issued by Government of Himachal Pradesh
wherein it has been clarified that 'roller flour mill' is different
from flour mill vide letter no. Ind (A)(F) 6-16/94, dated 1-7-1994
deals with sales tax etc. which is a State subject and that
clarification cannot negates intention of Parliament given in Part B
of Schedule XIII - Held, yes [Paras 9 and 12] [In favour of revenue]
FACTS
■ The assessee claimed deduction under section 80-IC. Earlier, it
was claiming deduction under section 80-IB.
■ During the assessment proceedings, the Assessing Officer noticed
that the assessee had claimed deduction under section 80-IC on the
basis of expansion in flour mill. He further noticed that deduction
under section 80-IC was not available as flour mill finds mention in
Schedule XIII, Part B containing list of article or things which are
not entitled for deduction.
■ The assessee submitted that it was running a 'roller flour mill'
which is distinct from 'flour mill' and in that regard reference was
made to the sales tax exemption given by the Government of Himachal
Pradesh wherein it has been clarified that 'roller flour mill' is
different from flour mill vide letter no. Ind(A)(F)6-16/94, dated
1-7-1994. It was further submitted that since roller flour mill is not
mentioned in Part B of Schedule XIII, the assessee was eligible for
deduction under section 80IC.
■ The Assessing Officer, however, rejected the submissions of the
assessee because the assessee was running basically a flour mill and
main item manufactured was atta/flour. He also observed that
interpretation by the Government of Himachal Pradesh under Sales tax
laws could not be applied to the Income-tax. However, he allowed the
deduction under section 80-IB(4) at the rate of 25 per cent.
■ The Commissioner (Appeals) confirmed the order of the Assessing Officer.
HELD
■ Deduction under section 80-IC is available whenever the assessee
undertakes a substantial expansion. The issue relating to substantial
expansion has not been disputed by the Assessing Officer. However,
sub-section (2) further requires that deduction is available only to
such undertaking which begins to manufacture or produce any article or
thing which are not mentioned in Schedule XIII, Part B. Thus, it is
clear as observed by the Commissioner (Appeals) the deduction is not
denied on a particular type of mill but it is denied on a particular
type of article or thing which is mentioned therein.
■ It should be emphasized that part B of Schedule XIII, Item 8
talks of flour mill under the head 'activity or article or thing' but
that has been further clarified in the Schedule itself by way of
excise classification as well as sub-clause under National Industries
Classification (N.I.C) 1988.
■ The Commissioner (Appeals) has further observed that Central
excise tariff classification code 11.01 of Central Excise Act makes it
clear that it is a broad heading which covers various products of the
milling industry.
■ This classification under various NIC standards has been issued
by Ministry of Statistics and Programme Implementation, Government of
India. Code 15311 has been mentioned in Part B of Schedule XIII at
Col. 8. Since this Division pertain to Food and Brewages and only one
item in respect of Flour Milling is there, it becomes clear that the
Parliament was clear in its intention that activity of Flour Milling
would not be entitled to deduction under section 80-IC and that is why
the same has been placed in Schedule XIII along with Excise
classification Code 11.01 as well as National Industries
classification under Division 15 at Sl No. 15311.
■ Therefore, the activity of Flour milling or article or thing
under which can be called 'Flour' is not eligible for deduction under
section 80-IC by virtue of its entry in the negative list in Part B of
Schedule XIII. [Para 9]
■ The assessee though argued that this item should be interpreted
on the basis of a trade name but no Trade Journal or any other
material was produced to show that in the trade parlance 'Flour Mill'
is distinct from 'Roller Flour Mill'.
■ In any case the assessee itself has been shown to be running a
Flour Mill as per the Tax Audit Report which deals with the nature of
business, the same has been shown as 'Flour Mill'. [Para 10]
■ From the quantitative details of principle items of raw material
and finished products it is clear that principle activities remain
milling of flour and 79.64 per cent wheat crushed results into milling
of flour and maida and suzi is only at 11.39 per cent which can be
called a bi-product. Thus, it is clear that main activity of the
assessee is milling and by doing the activity listed in the negative
list in Part B of Schedule XIII, deduction under section 80-IC, is not
available. [Para 11]
■ The assessee had put up lot of stress on the clarification of
legal exemption granted by the Government of Himachal Pradesh. The
Commissioner (Appeals) has correctly brushed aside this clarification
because it deals with the sales tax etc. which is a State subject and
this clarification cannot negates the intention of the Parliament
given in Part B of Schedule XIII which is a negative list for
deduction under section 80-IC.
■ In these circumstances, the assessee by virtue of being placed in
part B of Schedule XIII, is not entitled to deduction under section
80-IC.
■ The Assessing Officer has been more than reasonable for granting
deduction under section 80-IB at the rate of 25 per cent.
■ In these circumstances the order of the Commissioner (Appeals) is
to be confirmed. [Para 12]
■ In the result, appeal of the assessee is dismissed. [Para 13]
Surinder Babbar for the Appellant. N.K. Saini for the Respondent.
ORDER
T.R. Sood, Accountant Member - This appeal is directed against the
order passed by the ld. CIT(A), Shimla dated 31.10.2011.
2. In this appeal the assessee has raised the following grounds:
"1 On the facts and circumstances of the case, the ld. CIT(A) has
grossly erred in concurring with the ITO in rejecting the valid claim
of the assessee u/s 80IC of the Act.
2. On the facts and circumstances of the case, the ld. CIT(A) has
grossly erred in upholding the rejection of claim of Rs. 1,12,94,962/-
in concurrence with the ITO by holding that there is no distinction
between a "Flour Mill" and a "Roller Flour Mill".
3. Brief facts of the case are that the assessee filed return
declaring income of Rs. 82,760/-. This income was after claim of
deduction amounting to Rs. 1,12,94,962/- u/s 80IC of the Act. Earlier
the assessee was claiming deduction u/s 80IB of the Act and in the
present year it was claimed that the assessee had made substantial
expansion and therefore, was entitled to deduction u/s 80IC of the
Act. During the assessment proceedings the Assessing Officer noticed
that the assessee has claimed deduction u/s 80IC on the basis of
expansion in Flour Mill. He further noticed that deduction u/s 80IC is
not available in view of sub-section (8) of section 80IC which
prescribed that deduction is not available under this provision on
manufacture of article or thing specified in Schedule XIII, Part B.
Since part B of Schedule XIII specifically mentioned Floor Mill at
Item 8, the deduction was not available. The assessee was confronted
with this situation by way of show cause notice vide order sheet dated
26.11.2010 and following points were raised:
(i) "Being 6th year of production deduction u/s 80IB is allowable
25% instead of 100% claimed by you.
(ii) As per thirteenth schedule, deduction u/s 80IC is not allowable
to flour mills.
(iii) In nutshell,, you are requested to explain why deduction
claimed at 100% may not be reduced to 25% of total profits."
The assessee submitted detailed reply in which it was contended that
substantial expansion has been carried out as investment in the plant
and machinery during the year was more than 50% of the book value.
Further the assessee was running a "Roller Flour Mill" which is
distinct from the "Flour Mill" and in this regard reference was made
to the sales tax exemption given by the Government of Himachal Pradesh
wherein it was clarified that "Roller Flour Mills" is different from
"Flour Mill" vide letter No. Ind (A)(F) 6-16/94 darted 1.7.1994. Since
"Roller Flour Mill" is not mentioned in part B of Schedule XIII,
therefore, the assessee was eligible for deduction u/s 80IC. The
Assessing Officer after considering the reply rejected the same
because the assessee was running basically a Flour Mill and the main
item manufactured was Atta/Flour. He also observed that interpretation
by the Government of Himachal Pradesh under Sales tax Laws could not
be applied to the income-tax. However, he allowed the deduction u/s
80IB (4) @ 25%.
4. On appeal before the ld. CIT(A) the submissions made before the
Assessing Officer were reiterated. It was again emphasized that the
Roller Flour Mill is different from Flour Mill and in this regard
reference was also made to the Registration Certificate issued by the
Department of Industries. It was further submitted that in a Flour
Mill only atta and chokkar are the end products whereas in Roller
Flour Mill in addition to atta and chokkar, maida and suzi are also
produced. The Flour Mill is practically a "Chakki" made out of stone
wheels whereas Roller Flour Mill is made of Roll Bodies which is
entirely different from a flour mill. The clarification given by the
Government of Himachal Pradesh regarding exemption in sales-tax was
also reiterated.
5. The ld. CIT(A) after considering the submissions did not find force
in the same and rejected the claim of the assessee.
6. Before us, the ld. counsel of the assessee reiterated the
submissions made before the lower authorities and emphasized that
Flour Mill is different from Roller Flour Mill. Firstly the Flour Mill
can produce only flour and choker whereas Roller Flour mill also
produces in addition to flour and choker, maida and suzi. Secondly the
flour mill machinery is very simple and a small single floor building
is required to install the same whereas in case of Roller flour mill
five storey building is required along with sophisticated machinery.
Thirdly the Government of Himachal Pradesh has clarified vide letter
dated 1.7.1994 (copy placed at page 55 of paper book) written by
D.C-cum-Secretary to Industries to the Director of Industries that
Roller Mill are not covered under Sr No. 1 of Annexure III. That since
Roller Flour Mill are different from Flour Mill and therefore, same is
eligible for sales tax exemption. Thus it is clear that Flour Mill is
different from Roller Flour Mill. He submitted that the Assessing
Officer has not disputed that the assessee has carried out substantial
expansion during the year and deduction stands denied u/s 80IC mainly
on the basis that Flour Mill finds mention in schedule XIII, Part B
containing list of article or things which are not entitled for
deduction. Since Roller Flour Mill does not find mention in schedule
XIII, Part B and item 8 by the schedule only refers to the Flour Mill
/ Rice Mills which are different from the Roller Flour Mill, the
assessee is eligible for deduction u/s 80IC. The ld. counsel of the
assessee further submitted that the ld. CIT(A) in para 5.4 of her
order uses the definition given in the dictionary which is not correct
because it has been held by the various decisions that if an item in
schedule is to be interpreted that the same should be interpreted on
the basis of trade names given by the trade.
7. On the other hand, the ld. DR for the revenue referred to page 12
of the paper book which is a copy of Form 3 CD of Tax Audit Report and
invited our attention to Col No. 8. Against the nature of business tax
auditor has clearly mentioned "Flour Mill" which itself shows that the
assessee was running a Flour Mill. He referred to pg 24 of the paper
book and pointed out that opening stock of maida and suzi which
clearly shows that the assessee was earlier also producing maida and
suzi which has been produced now. He referred to pg 33 to 38 of the
paper book which is a copy of letter addressed to the Assessing
Officer and pointed out that claim regarding distinction between Flour
mill and Roller Flour Mill was sought to be arranged for the first
time on 9.12.2010 by this letter i.e. after three years.
8. In the rejoinder the ld. counsel of the assessee submitted that
distinction between Flour Mill and Roller Flour Mill was brought to
the knowledge of the Assessing Officer only when the issue raised by
the Assessing Officer for denial of deduction u/s 80IC. Further merely
because the assessee was manufacturing maida and suzi earlier also
only proves that the assessee was running a Roller Flour Mill right
from the beginning.
9. We have heard the rival submissions carefully. We find that the ld.
CIT(A) has discussed the issue in detail and in this regard we would
like to produce para 4 to 4.4 of her order which are as under:
"4 The rival submissions have been considered. The entry at Sr No. 8
in Schedule XIII, Part B reads "Flour Mill/Rice Mill". On the fact of
it, the entry makes it clear that all types of flour mills and rice
mills are covered by this entry. It does not elaborate the categories
or types of flour mills and rice mills. The heading of the XIII
schedule reads "List of Article or thing". Therefore, it is clear that
what is prohibited by virtue of XIII schedule is the
production/manufacturing of the specified articles or things.
Accordingly, it is the production of flour/rice through flour
mill/rice mill which is barred from entitlement u/s 80IC of the
Income-tax Act, 1961 by virtue of Schedule XIII. Thus the prohibition
is in respect of the production of flour, and it is immaterial whether
the flour mill producing the flour is an ordinary chakki or a roller
flour mill. In fact, logically speaking, the provisions of section
80IC read with schedule XIII would hardly be relevant in the case of
an ordinary chakki which does not involve so much of investment, what
to talk of substantial expansion and such other things. Further flour
mills can be of various types, such as stone mill, hammer mill, plate
mill, pin mill, roller mill etc. The equipment used in these mills can
be powered by hand, water, animals, electricity or diesel engine. The
only difference between various milling processes is that of technique
and speed. Flour is a common product in all kinds of milling
processes. Therefore, it can not be said that what is intended by
entry No.8 in part B of schedule XIII is only a stone mill and not a
hammer mill or a plate mill or a pin mill or a Roller Flour Mill.
Putting such an interpretation would reduce the entry to a farce.
4.1 Further, the relevant entry of "flour mill/rice mills" in schedule
XIII also mentions an excise classification of 11.01 against it. This
classification code refers to classification of products under the
Central Excise Tariff Act, which deals with products of the milling
industry. There is no distinction made in this chapter between goods
produced by roller flour mills or by any other type of flour mill.
Various products are classified as per the starch content and ash
content. The code 11.01 refers to wheat flour and there is no
distinction made as to whether the wheat flour is made by a roller
mill or by any other mill.
4.2 Certain decisions under the Central Excise Tariff Act also make it
clear that the classification code 11.01 is a broad heading which
covers various productions of the milling industry. In the case of
Bhagyalaxmi Poha Industries v. Commissioner [2007] 215 ELT 458 (Trib
Bangalore), it was held that rice flakes or poha are prime facie
classifiable under heading 11.01 of the Central Excise Tafiff. In
another case of Mahavir Food Products v. Commissioner [2007] 211 ELT
29 (Trib LB), it has been held that makai poha i.e. corn boiled and
flattened between rollers, is classifiable under the heading 11.01 of
the Central Excise Tariff Act.
4.3 The assessee's contention that the State Government of Himachal
Pradesh has accepted the distinction between flour mill and roller
flour mill is of no relevant. The scheme of sales tax incentives which
was in force in the State in 1994 was entirely a separate scheme
notified by the State Government. That scheme has no relevance or
connection with the tax holiday comprised in section 80IC, which was
enacted by the Finance Act, 2003 as a part of the new industrial
policy of the Central Government announced in 2003 for States like
H.P. This becomes further clear by the fact that the list of
ineligible industries contained in schedule XIII is almost entirely
different in content from the list of units declared to be ineligible
for sales tax incentives by the State Government. For the purpose of
the Income-tax Act, the entry in schedule XIII has to be understood in
its normal sense and not in terms of any clarifications issued by the
State Government under an entirely different scheme.
4.4 A statute is the edict of the legislature. The language employed
in a statute is the determinative factor of the legislative intent.
The first and primary rule of construction is that one must go by the
intention of the legislation itself as held in Padmasundra Rao v.
State of TN 255 ITR 147 (SC); CGT v. Laxmi Devi 220 ITR 50, CIT v.
Deep Chand , 2547 ITR 756. It was also held by Hon'ble Supreme Court
in the case of Vikrant Tyres v. First ITO , 247 ITR 821 (SC) that
unless there is an intention to the contrary, the words in a statute
should be given their ordinary grammatical or natural meaning
(Emphasis supplied)."
The relevant portion of Section 80IC reads as under:
"80-IC. (1) Where the gross total income of an assessee includes any
profits and gains derived by an undertaking or an enterprise from any
business referred to in sub-section (2), there shall, in accordance
with and subject to the provisions of this section, be allowed, in
computing the total income of the assessee, a deduction from such
profits and gains, as specified in sub-section (3).
(2) This section applies to any undertaking or enterprise,—
(a) which has begun or begins to manufacture or produce any article or
thing, not being any article or thing specified in the Thirteenth
Schedule, or which manufactures or produces any article or thing, not
being any article or thing specified in the Thirteenth Schedule and
undertakes substantial expansion during the period beginning—
THE THIRTEENTH SCHEDULE
(See sections 80IB(4) and 80IC(2))
LIST OF ARTICLES OR THINGS
PART A
FOR THE STATE OF SIKKIM
SCHEDULE XIII - LIST OF ARTICLES OR THINGS
PART B
FOR THE STATE OF HIMACHAL PRADESH AND
THE STATE OF UTTARANCHAL
S. No. Activity or article or thing Excise classification
Sub-class under National Industrial Classification (NIC) 1998
1 Tobacco and tobacco products including cigarettes and pan masala
24.01 to 24.04 and 21.06 1600
2 Thermal Power Plant (Coal/ oil based) 40102 or 40103
3 Coal washeries/dry coal processing
4 Inoroganic chemicals excluding medicinal grade oxygen (2804.11),
memdicinal grade hydrogen peroxide (2847.11), compressed air (2851.30)
Chapter 28
5 Organic chemicals excluding provitamins/vitamins, Hormones (29.36),
Glycosides (29.39), sugar (29.40) Chapter 29 24117
6 Tanningand dyeing extracts, tannins and their derivatives, dyes,
colours, paints and varnishes, putty, fillers and other mastics, inks
Chapter 32 24113 or 24114
7 Marble and mineral substances nor classified elsewhere 25.04
25.05 14106 or
4107
8 Flour mills/r ice mills 11.01 15311
9 TO 20 ……………………"
From the above it is clear that deduction u/s 80IC is available
whenever the assessee undertakes a substantial expansion. The issue
relating to substantial expansion has not been disputed by the
Assessing Officer. However, Sub-sec (2) further requires that
deduction is available only to such undertaking which begins to
manufacture or produce any article or thing which are not mentioned in
schedule XIII, Part B. Thus it is clear as observed by the ld. CIT(A)
the deduction is not denied on a particular type of mill but it is
denied on a particular type of article or thing which is mentioned
therein. It should be emphasized that part B of Schedule XIII, item 8
talks of Flour mill under the head "activity or article or thing" but
that has been further clarified in the schedule itself by way of
excise classification as well as sub-clause under National Industries
Classification (N.I.C) 1998. The ld. CIT(A) has further observed that
Central excise tariff classification code 11.01 of Central excise Act
makes it clear that it is a broad heading which covers various
products of the milling industry. Further N.I.C. 1998 gives various
categories of products under various heads known as "Divisions".
Division 15 reads as under:
DIVISION 15
"Manufacture of food products of brewages
15311 Flour Milling"
This classification under various NIC standards has been issued by
Ministry of Statistics and Programme Implementation, Government of
India. Code 15311 has been mentioned in Part B of Schedule XIII at
Col. 8. Since this Division pertain to Food and Brewages and only one
item in respect of Flour Milling is there, it becomes clear that the
Parliament was clear in its intention that activity of Flour Milling
would not be entitled to deduction u/s 80IC and that is why the same
has been placed in Schedule XIII along with Excise classification Code
11.01 as well as National Industries classification under Division 15
at Sl No. 15311. Therefore, the activity of Flour milling or article
or thing under which can be called "Flour" is not eligible for
deduction u/s 80IC by virtue of its entry in the negative list in Part
B of Schedule XIII.
10. The ld. counsel of the assessee though argued that this item
should be interpreted on the basis of a trade name but no Trade
Journal or any other material was produced to show that in the trade
parlance "Flour Mill" is distinct from "Roller Flour Mill". In any
case the assessee itself has been shown to be running a Flour Mill as
per the Tax Audit Report (copy of which is available at pg 12 to 20 at
Sl No. 8 which deals with the nature of business, the same has been
shown as "Flour Mill".
11.We have also perused page 25 of the paper book which is an annexure
giving quantitative details of principle items of raw material and
finished products has been followed.
ANNEXURE IV
QUANTITATIVE DETAILS OF PRINCIPAL ITEMS OF RAW MATERIAL
Item wheat (in Qtls)
Opening Stock 14345.66
Purchases during the previous year 140348.50
Consumption during the previous year 149102.62
Sales during the previous year Nil
Closing stock 5591.54
Yield of finished products Flour 118746 Maida/ Suzi 16984.45 Choker 16586.46
%age of yield 79.64% 11.39% 11.12%
Shortage/excess, if any Process Gain(Qtls) = (3214.29) 2.15%
From the above it is clear that principle activities remain milling of
flour and 79.64% wheat crushed results into milling of flour and maida
and suzi is only at 11.39% which can be called as bi-product. Thus it
is clear that main activity of the assessee is milling and by doing
the activity listed in the negative list in Part B of Schedule XIII,
deduction u/s 80IC, is not available.
12. The ld. counsel of the assessee had put up lot of stress on the
clarification of legal exemption granted by the Government of Himachal
Pradesh. Relevant letter is extracted below:
"Ind(A)(F)6-16/94
Government of Himachal Pradesh
Industries Department
The D.C-cum-Secretary (Industries) to the Government of Himachal Pradesh
To
The Director of Industries
Himachal Pradesh, Shimla-1
Dated, Shimla-2
1.7.1994
June 1994
Sub: Sales Tax Exemption to Roller Flour Mills, Clarification thereof
Sir,
I am directed to reply to your letter No. In/Dev., F.19-18/91-IB dated
20.4.94 in the above cited subject and to say that the matter has been
examined in consultation with Law Department. According to rule 11.1
(d) of the Revised Rules Regarding grant of incentives to Industrial
Units in Himachal Pradesh, all Industrial Units re eligible for sales
tax incentives which are registered as appellate authority dealer
under the H.P. General Sales Tax Act, 1968/Central Sales Tax Act, 1956
and comply with its Provisions, except for the industries notified in
Annexure-III or as notified by the State Government from time to time.
According to Sl No. 1 of Annexure III of the said rules, Flour Mills
are not eligible for sales tax incentives. In other words, the Roller
Flour Mills are not covered under Sl No. 1 of Annexure III and hence
are eligible for sales tax incentives subject to fulfillment of other
requirements.
Yours faithfully
Sd/-
Joint Secretary (Industries) to the
Government of Himachal Pradesh"
In our opinion, the ld. CIT(A) has correctly brushed aside this
clarification because it deals with the sales tax etc. which is a
State subject and this clarification can not negates the intention of
the Parliament given in Part B of Schedule XIII which is a negative
list for deduction u/s 80IC. In these circumstances, we are of the
opinion that the assessee by virtue of being placed in Part B of
Schedule XIII, is not entitled to deduction u/s 80IC. The Assessing
Officer has been more than reasonable for granting deduction u/s 80IB
@ 25%. In these circumstances we find nothing wrong with the order of
ld. CIT(A) and confirm the same.
13. In the result, appeal of the assessee is dismissed.
IT : Where tax effect involved in appeal filed by revenue was below
monetary limit prescribed by Board in Instruction No. 3/2011, dated
9-2-2011, impugned appeal was not maintainable
■■■
[2013] 33 taxmann.com 45 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax -II
v.
Sherno Ltd.*
AKIL KURESHI AND Ms. SONIA GOKANI, JJ.
TAX APPEAL NO. 129 OF 2013†
MARCH 28, 2013
Section 260A, read with section 268A of the Income-tax Act, 1961 -
High Court - Appeal to [Monetary limit] - Tribunal held that assessee
was entitled to interest under section 244A - Against order of
Tribunal, revenue filed appeal before High Court - Tax effect involved
in appeal was below monetary limit prescribed by Board in Instruction
No. 3/2011, dated 9-2-2011 - Revenue urged before High Court that
decision of Tribunal was palpably erroneous - Whether submission of
revenue would not enable it to ignore conditions of instruction dated
9-2-2011 and file appeal which was otherwise not envisaged in said
instruction - Held, yes - Whether, therefore, impugned appeal was not
maintainable - Held, yes [Para 5] [In favour of assessee]
Circulars and Notifications : Instruction No. 3/2011 [F. No. 279/Misc.
142/2007 - ITJ], dated 9-2-2011
CASE REVIEW
CIT v. Concord Pharmaceuticals [2009] 317 ITR 395/[2008] 174 Taxman
529 (Guj.) (para 5) followed.
CASES REFERRED TO
CIT v. Concord Pharmaceuticals [2009] 317 ITR 395/[2008] 174 Taxman
529 (Guj.) (para 5).
K.M. Parikh for the Appellant.
ORDER
Akil Kureshi, J. - Revenue has filed this appeal challenging judgment
of the Income-tax Appellate Tribunal dated 27.7.2012. Following
questions have been presented for our consideration :
"(1) Whether the Income-tax Appellate Tribunal was justified in
holding that the assessee is entitled to interest under section 244A
on payment of taxed under section 140A without appreciating the fact
that the newly added provisions of the Act in section 244A apparently
reveal that there is a liability to pay interest on the delayed
payment of refund amount but they do not provide for payment of any
interest on interest, even though there is delay in payment of such
interest to the assessee which also gets support from the ITAT,
Ahmedabad's decision in the case of Nirma Chemical Works Ltd. v. Joint
CIT [2009] 125 TTJ (Ahd.)(TM) 487?
(2) Although the tax effect involved is below the monetary limit
prescribed by Board vide Instruction No.3/2011 dated 09.02.2011, case
falls in the exception laid down in clause (a) of Para.8 of the above
instruction wherein the Constitutional validity of the provisions of
an Act or Rule are under challenge, therefore, the appeal may kindly
be admitted.?"
2. In view of admitted fact that tax appeal involves monetary effect
which is below the minimum prescribed by CBEC in its circular dated
9.2.2011, permitting the Revenue to file appeal in High Court, we have
not considered the question No.(1) on merits at all. Instead we have
heard learned counsel Shri Parikh for the Revenue on question No.2,
which touches the aspect of entertaining this appeal even on the face
of low tax effect.
3. The question itself suggests that according to the Revenue the
appeal falls in one of the exceptions envisaged under the circular
itself. We may reproduce the exception carved out in the said circular
subject to which a tax appeal even though involving tax effect lower
than that prescribed in the circular, Revenue could carry the matter
further in appeal. Such exceptions read as follows :
"8. Adverse judgments relating to the following issues should be
contested on merits notwithstanding that the tax effect entailed is
less than the monetary limits specified in para 3 above or there is no
tax effect.
(a) Where the Constitutional validity of the provisions of an Act or
Rule are under challenge, or
(b) Where Board's order, Notification, Instruction or Circular has
been held to be illegal or ultra vires, or
(c) Where Revenue Audit objection in the case has been accepted by
the Department."
4. Revenue's case as can be discerned from question No. 2 noted above
is that since Constitutional validity of the provisions of the Act ore
the Rule are under challenge the appeal may be entertained. Learned
counsel Shri Parikh for the Revenue was at a loss to explain in what
manner the validity of statutory provision is involved in the present
appeal. Admittedly vires of statutory provision is nowhere in
question. He however, strenuously urged that decision of the Tribunal
is palpably erroneous.
5. This in our view would not enable the Revenue to ignore the
conditions of the circular dated 9.2.2011 and file appeal which is
other-wise not envisaged in the said circular. This Court in case of
CIT v. Concord Pharmaceuticals [2009] 317 ITR 395/[2008] 174 Taxman
529 (Guj.) held that the instructions issued in the said circular
dated 9.2.2011 are binding on the department. In other words, an
appeal which is filed ignoring said directives would not be
maintainable. Such is the view taken by various High Courts. Reference
to all judgments is therefore, not necessary.
6. In the result, tax appeal is dismissed only on this ground.
monetary limit prescribed by Board in Instruction No. 3/2011, dated
9-2-2011, impugned appeal was not maintainable
■■■
[2013] 33 taxmann.com 45 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax -II
v.
Sherno Ltd.*
AKIL KURESHI AND Ms. SONIA GOKANI, JJ.
TAX APPEAL NO. 129 OF 2013†
MARCH 28, 2013
Section 260A, read with section 268A of the Income-tax Act, 1961 -
High Court - Appeal to [Monetary limit] - Tribunal held that assessee
was entitled to interest under section 244A - Against order of
Tribunal, revenue filed appeal before High Court - Tax effect involved
in appeal was below monetary limit prescribed by Board in Instruction
No. 3/2011, dated 9-2-2011 - Revenue urged before High Court that
decision of Tribunal was palpably erroneous - Whether submission of
revenue would not enable it to ignore conditions of instruction dated
9-2-2011 and file appeal which was otherwise not envisaged in said
instruction - Held, yes - Whether, therefore, impugned appeal was not
maintainable - Held, yes [Para 5] [In favour of assessee]
Circulars and Notifications : Instruction No. 3/2011 [F. No. 279/Misc.
142/2007 - ITJ], dated 9-2-2011
CASE REVIEW
CIT v. Concord Pharmaceuticals [2009] 317 ITR 395/[2008] 174 Taxman
529 (Guj.) (para 5) followed.
CASES REFERRED TO
CIT v. Concord Pharmaceuticals [2009] 317 ITR 395/[2008] 174 Taxman
529 (Guj.) (para 5).
K.M. Parikh for the Appellant.
ORDER
Akil Kureshi, J. - Revenue has filed this appeal challenging judgment
of the Income-tax Appellate Tribunal dated 27.7.2012. Following
questions have been presented for our consideration :
"(1) Whether the Income-tax Appellate Tribunal was justified in
holding that the assessee is entitled to interest under section 244A
on payment of taxed under section 140A without appreciating the fact
that the newly added provisions of the Act in section 244A apparently
reveal that there is a liability to pay interest on the delayed
payment of refund amount but they do not provide for payment of any
interest on interest, even though there is delay in payment of such
interest to the assessee which also gets support from the ITAT,
Ahmedabad's decision in the case of Nirma Chemical Works Ltd. v. Joint
CIT [2009] 125 TTJ (Ahd.)(TM) 487?
(2) Although the tax effect involved is below the monetary limit
prescribed by Board vide Instruction No.3/2011 dated 09.02.2011, case
falls in the exception laid down in clause (a) of Para.8 of the above
instruction wherein the Constitutional validity of the provisions of
an Act or Rule are under challenge, therefore, the appeal may kindly
be admitted.?"
2. In view of admitted fact that tax appeal involves monetary effect
which is below the minimum prescribed by CBEC in its circular dated
9.2.2011, permitting the Revenue to file appeal in High Court, we have
not considered the question No.(1) on merits at all. Instead we have
heard learned counsel Shri Parikh for the Revenue on question No.2,
which touches the aspect of entertaining this appeal even on the face
of low tax effect.
3. The question itself suggests that according to the Revenue the
appeal falls in one of the exceptions envisaged under the circular
itself. We may reproduce the exception carved out in the said circular
subject to which a tax appeal even though involving tax effect lower
than that prescribed in the circular, Revenue could carry the matter
further in appeal. Such exceptions read as follows :
"8. Adverse judgments relating to the following issues should be
contested on merits notwithstanding that the tax effect entailed is
less than the monetary limits specified in para 3 above or there is no
tax effect.
(a) Where the Constitutional validity of the provisions of an Act or
Rule are under challenge, or
(b) Where Board's order, Notification, Instruction or Circular has
been held to be illegal or ultra vires, or
(c) Where Revenue Audit objection in the case has been accepted by
the Department."
4. Revenue's case as can be discerned from question No. 2 noted above
is that since Constitutional validity of the provisions of the Act ore
the Rule are under challenge the appeal may be entertained. Learned
counsel Shri Parikh for the Revenue was at a loss to explain in what
manner the validity of statutory provision is involved in the present
appeal. Admittedly vires of statutory provision is nowhere in
question. He however, strenuously urged that decision of the Tribunal
is palpably erroneous.
5. This in our view would not enable the Revenue to ignore the
conditions of the circular dated 9.2.2011 and file appeal which is
other-wise not envisaged in the said circular. This Court in case of
CIT v. Concord Pharmaceuticals [2009] 317 ITR 395/[2008] 174 Taxman
529 (Guj.) held that the instructions issued in the said circular
dated 9.2.2011 are binding on the department. In other words, an
appeal which is filed ignoring said directives would not be
maintainable. Such is the view taken by various High Courts. Reference
to all judgments is therefore, not necessary.
6. In the result, tax appeal is dismissed only on this ground.
IT : Addition under section 68 can be made even for an unexplained
credit amount on account of supply of goods, and not necessarily only
for a cash credit
■■■
[2013] 33 taxmann.com 64 (Karnataka)
HIGH COURT OF KARNATAKA
Smt. Rekha KrishnaRaj
v.
Income-tax Officer, Ward-I, Hospet*
N. KUMAR AND B. Manohar, JJ.
IT Appeal No. 811 of 2009†
MARCH 13, 2013
Section 68 of the Income-tax Act, 1961 - Cash credits [Scope of
provision] - Assessment year 1997-98 - Whether only a cash credit can
be added to income under section 68, and not an unexplained credit
representing value of supplies made by suppliers on credit cannot be
added - Held, no [Para 8] [In favour of revenue]
FACTS
■ The Assessing Officer on noticing that the credit balances as
shown by the assessee were more than the amounts shown by the
creditors as receivable, asked assessee to reconcile the difference.
On receiving no response, addition under section 68 on account of cash
credits, was made.
■ On appeal, the Commissioner (Appeals) partly deleted the addition.
■ On second appeal, the assessee contended that section 68 was
applicable only when there was a credit in the books of account and
had no application to a case of credit being shown for the supply
received by assessee and payments made to creditors for such supplies.
The Tribunal dismissed assessee's appeal.
■ On further appeal by assessee:
HELD
■ The weight which should be attached to the heading (Cash credits)
of section 68 is to be considered in the present case. A heading is to
be regarded as giving the key to the interpretation of the clauses
arranged under it, unless the wording is inconsistent with such
interpretation. The headings might be treated as preambles to the
provisions following them. Though the Court is entitled to look at the
headings in an Act of Parliament to resolve any doubt that they may
have as to ambiguous words, the law is clear that those headings
cannot be used to give a different effect to clear words in the
section where there cannot be any doubt as to the ordinary meaning of
the words. The title of a chapter cannot be legitimately used to
restrict the plain terms of an enactment. The headings prefixed to
sections or entries cannot control the plain words of the provision;
they cannot also be referred to for the purpose of construing the
provisions when the words used in the provision are clear and
unambiguous; nor can they be used for cutting down the plain meaning
of the words in the provision. Only in the case of ambiguity or doubt,
the heading or sub-heading may be referred to as an aid in construing
the provision but even in such a case it could not be used for cutting
down the wide application of the clear words used in the provision.
Those headings are not meant to control the operation of enacting the
words and it may be wrong to permit them to do so. [Para 7]
■ It is in this background, that the above provision, in particular
the opening words of the section, are to be considered. What is
referred to is 'where any sum is found credited in the books of an
assessee' and in the end what is mentioned is 'the sum so credited may
be charged to income-tax'. Therefore, in the body of the section, the
word used is either found credited or so credited. There is no
indication in the section that such a credit should be a cash credit.
It may be a cash credit or it may be a credit representing the value
of the supplies made by the suppliers on credit. The essence is that
the credit should be shown in the account and that would satisfy the
requirement of section 68. Once the credit so mentioned in the section
is found to be not supported by any acceptable evidence, then the sum
so credited may be charged to income-tax as the income of the assessee
of that previous year. This is precisely what can be done in the
instant case. [Para 8]
■ In that view of the matter, the orders passed by the authorities
are legal, valid and call for no interference. Hence, the substantial
question of law is answered in favour of the Revenue and against the
assessee.
■ The appeal is dismissed accordingly. [Para 9]
Manian for the Appellant. K.V. Aravind for the Respondent.
JUDGMENT
N. Kumar, J. - The assessee has preferred this appeal challenging the
order passed by the Tribunal dismissing her appeal negativing her
contentions that section 68 of the Income-tax Act, 1961 (for short
hereinafter referred to as the 'Act') is not attracted to the facts of
the case.
2. The assessee is the proprietix of M/s.Krishna Hardware, Hospet,
which was started from April, 1996. The capital investment was of Rs.
50,000. A survey under section 133A of the Act was conducted on 29th
October, 1997. Thereafter the assessee filed return of income for the
assessment year on the same day. During the course of scrutiny
proceedings, the Assessing Officer obtained the copy of account of the
assessee as appearing in the books of the creditors and noticed that
the balance at the end of the year as shown by the assessee was
different from the balance shown by the parties. The assessee was
required to reconcile the difference in the accounts of the creditors.
In response to the query, the authorized representative of the
assessee who was appearing before the Assessing Officer stated that
the assessee and her husband were both absconding. After verifying the
facts, the Assessing Authority completed the assessment under section
144 of the Act. The discrepancies in the accounts of the creditors
were added to the income of the assessee because the credit balance as
shown by the assessee were more than the amounts shown by the
creditors as receivable. Besides this addition, some other additions
were also made by the Assessing Officer vide order dated 5th January,
2000. Aggrieved by the same, the assessee preferred an appeal to the
Commissioner for Income-tax (Appeals). The Appellate Authority allowed
the appeal in part giving relief in respect of dis-allowance of
telephone expenses and travelling expenses. In respect of unexplained
difference of excess creditors shown in the balance sheet, the
Appellate Authority granted a relief only to the extent of 1,50,700.
Before the Appellate Authority, the assessee tried to Explain the
difference by stating that the stock was utilized for paying the
amount to the creditors, which plea was not accepted. Yet another
plea, which was raised before the Appellate Authority, was that the
assessee is a benami of her husband, who was doing the business in the
name of his wife and addition cannot be made in the hands of the
assessee. This plea was also rejected. Aggrieved by the order of
rejection, the assessee preferred an appeal before the Tribunal. The
Tribunal by its order dated 9th September, 2005 restored the addition
of Rs. 19,67,702/- to the file of Assessing Officer, which represented
unexplained difference in account of creditors. Similarly trading the
addition of Rs. 25,000/- was restored back to the file of the
Assessing Officer. During the course of fresh assessment proceedings,
the assessee moved an application under section 144A of the Act
contending that she has not maintained the books of account properly,
which has been recorded in the assessment order. She has not recorded
sales amounting to Rs. 19,67,702/-, which was available for payment to
the sundry creditors. If the gross profit was included, cost of goods
sold amounts to Rs. 18,00,000/-. The assessee being a benami be
absolved of all demands and the husband of the assessee should be made
liable. The Additional CIT vide his directions under section 144A held
that the question of benami and concept of non-maintenance of books
properly does not arise. The return was accompanied with auditor
report under section 44AB of the Act and therefore it cannot be
accepted that the stock was sold and the amount realized was available
for Explaining the creditors. The concept of benami was also rejected
on the ground that the assessee has filed the return and has not
adduced any evidence to show that she was benami of her husband.
Therefore, the assessment was completed vide order dated 29th
December, 2006 and addition on account of unexplained difference in
credits were also made to the extent of Rs. 19,67,702/- and trading
addition of Rs. 25,000/- was made. An appeal preferred against the
said order came to be dismissed by the Commissioner of Income-tax.
Aggrieved by the said order, the assessee preferred an appeal to the
Tribunal. Before the Tribunal, it was contended that section 68 of the
Act is applicable when there is a credit in the books of account. It
has no application to a case of credit being shown for the supply
received by the assessee and the payments were made to the suppliers
for such supplies. The Assessing Officer could have exercised the
power under section 131 of the Act to summon and enforce the
attendance of witness/creditors, which he has not done. The inability
to verify the Explanation offered by the Assessing Officer cannot be a
ground for rejection of the contention of the assessee and therefore
the impugned order passed requires to be set aside. The Tribunal
re-appreciated the entire evidence on record and took note of the
particulars given by the various creditors and held that the assessee
cannot be believed and her contentions are without any substance.
Therefore, it dismissed the appeal. Aggrieved by the said order, the
present appeal is filed.
3. The substantial question of law that arises for consideration in
this appeal is as under:
"Whether section 68 of the Act applies only to cash credit?"
4. Learned counsel for the assessee contends that it is clear from the
heading of section 68 of the Act. Where any sum is found credited in
the books, it necessarily means a cash credit and it has no
application to a credit given on account of supply of goods. In the
instant case, the said sum is credited to the account of suppliers,
who had supplied the materials and even if those supplies held to be
not true, the case would not fall under section 68 of the Act and
therefore the entire proceedings, which are purported to have been
initiated and additions made under section 68 of the Act require to be
set aside.
5. Per contra, learned counsel for the Revenue submitted that though
the heading of section 68 of the Act mentioned the word cash credits,
but in the body of the section what is mentioned is a credit for
supply of goods. Such a narrow and limited interpretation on the said
provision is not permissible in law and the Authorities were justified
in making the additions under section 68 of the Act.
6. In order to appreciate the said contentions, it is necessary to
look at the section 68 of the Act as under:
"Cash credits.
68. Where any sum is found credited in the books of an assessee
maintained for any previous year, and the assessee offers no
Explanation about the nature and source there of or the Explanation
offered by him not, in the opinion of the [Assessing] Office.
satisfactory, the sum so credited may be charged to income-tax as the
income of the assessee of that previous year."
7. What is the weight which should be attached to the heading (Cash
credits) of section 68 of the Act? A heading is to be regarded as
giving the key to the interpretation of the clauses ranged under it,
unless the wording is inconsistent with such interpretation. The
headings might be treated as preambles to the provisions following
them. Though the Court is entitled to look at the headings in an Act
of Parliament to resolve any doubt, they may have as to ambiguous
words, the law is clear that those headings cannot be used to give a
different effect to clear words in the section where there cannot be
any doubt as to the ordinary meaning of the words. The title of a
chapter be legitimately used to restrict the plain terms of an
enactment. The headings prefixed to sections or entries cannot control
the plain words of the provision; they cannot also be referred to for
the purpose of construing the provision when the words used in the
provision are clear and unambigious; nor can they be used for cutting
down the plain meaning of the words in the provision. Only in the case
of ambiguity or doubt the heading or sub-heading may be referred to as
an aid in construing the provision but even in such a case it could
not be used for cutting down the wide application of the clear words
used in the provision. Those headings are not meant to control the
operation of enacting the words and it may be a wrong to permit them
to do so.
8. It is in this background, we have to look at the above provision in
particular opening words of the section. What is referred to is where
any sum is found credited in the books of an assessee and in the ends
what is mentioned is the sum so credited may be charged to income-tax.
Therefore, in the body of the section, the word used is either found
credited or so credited, there is no indication in the Section that
such a credit should be a cash credit. It may be a cash credit or it
may be a credit representing the value of the supplies made by the
suppliers on credit. The essence is that the credit should be shown in
the account and that would satisfy the requirement of section 68 of
the Act. Once the credit so mentioned in the section is found to be
not supported by any acceptable evidence, then the sum so credited may
be charged to income-tax as the income of the assessee of that
previous year. This is precisely what can be done in the instant case.
9. In that view of the matter, the orders passed by the Authorities
are legal, valid and call for no interference. Hence, the substantial
question of law is answered in favour of the Revenue and against the
assessee.
10. The appeal is dismissed accordingly.
credit amount on account of supply of goods, and not necessarily only
for a cash credit
■■■
[2013] 33 taxmann.com 64 (Karnataka)
HIGH COURT OF KARNATAKA
Smt. Rekha KrishnaRaj
v.
Income-tax Officer, Ward-I, Hospet*
N. KUMAR AND B. Manohar, JJ.
IT Appeal No. 811 of 2009†
MARCH 13, 2013
Section 68 of the Income-tax Act, 1961 - Cash credits [Scope of
provision] - Assessment year 1997-98 - Whether only a cash credit can
be added to income under section 68, and not an unexplained credit
representing value of supplies made by suppliers on credit cannot be
added - Held, no [Para 8] [In favour of revenue]
FACTS
■ The Assessing Officer on noticing that the credit balances as
shown by the assessee were more than the amounts shown by the
creditors as receivable, asked assessee to reconcile the difference.
On receiving no response, addition under section 68 on account of cash
credits, was made.
■ On appeal, the Commissioner (Appeals) partly deleted the addition.
■ On second appeal, the assessee contended that section 68 was
applicable only when there was a credit in the books of account and
had no application to a case of credit being shown for the supply
received by assessee and payments made to creditors for such supplies.
The Tribunal dismissed assessee's appeal.
■ On further appeal by assessee:
HELD
■ The weight which should be attached to the heading (Cash credits)
of section 68 is to be considered in the present case. A heading is to
be regarded as giving the key to the interpretation of the clauses
arranged under it, unless the wording is inconsistent with such
interpretation. The headings might be treated as preambles to the
provisions following them. Though the Court is entitled to look at the
headings in an Act of Parliament to resolve any doubt that they may
have as to ambiguous words, the law is clear that those headings
cannot be used to give a different effect to clear words in the
section where there cannot be any doubt as to the ordinary meaning of
the words. The title of a chapter cannot be legitimately used to
restrict the plain terms of an enactment. The headings prefixed to
sections or entries cannot control the plain words of the provision;
they cannot also be referred to for the purpose of construing the
provisions when the words used in the provision are clear and
unambiguous; nor can they be used for cutting down the plain meaning
of the words in the provision. Only in the case of ambiguity or doubt,
the heading or sub-heading may be referred to as an aid in construing
the provision but even in such a case it could not be used for cutting
down the wide application of the clear words used in the provision.
Those headings are not meant to control the operation of enacting the
words and it may be wrong to permit them to do so. [Para 7]
■ It is in this background, that the above provision, in particular
the opening words of the section, are to be considered. What is
referred to is 'where any sum is found credited in the books of an
assessee' and in the end what is mentioned is 'the sum so credited may
be charged to income-tax'. Therefore, in the body of the section, the
word used is either found credited or so credited. There is no
indication in the section that such a credit should be a cash credit.
It may be a cash credit or it may be a credit representing the value
of the supplies made by the suppliers on credit. The essence is that
the credit should be shown in the account and that would satisfy the
requirement of section 68. Once the credit so mentioned in the section
is found to be not supported by any acceptable evidence, then the sum
so credited may be charged to income-tax as the income of the assessee
of that previous year. This is precisely what can be done in the
instant case. [Para 8]
■ In that view of the matter, the orders passed by the authorities
are legal, valid and call for no interference. Hence, the substantial
question of law is answered in favour of the Revenue and against the
assessee.
■ The appeal is dismissed accordingly. [Para 9]
Manian for the Appellant. K.V. Aravind for the Respondent.
JUDGMENT
N. Kumar, J. - The assessee has preferred this appeal challenging the
order passed by the Tribunal dismissing her appeal negativing her
contentions that section 68 of the Income-tax Act, 1961 (for short
hereinafter referred to as the 'Act') is not attracted to the facts of
the case.
2. The assessee is the proprietix of M/s.Krishna Hardware, Hospet,
which was started from April, 1996. The capital investment was of Rs.
50,000. A survey under section 133A of the Act was conducted on 29th
October, 1997. Thereafter the assessee filed return of income for the
assessment year on the same day. During the course of scrutiny
proceedings, the Assessing Officer obtained the copy of account of the
assessee as appearing in the books of the creditors and noticed that
the balance at the end of the year as shown by the assessee was
different from the balance shown by the parties. The assessee was
required to reconcile the difference in the accounts of the creditors.
In response to the query, the authorized representative of the
assessee who was appearing before the Assessing Officer stated that
the assessee and her husband were both absconding. After verifying the
facts, the Assessing Authority completed the assessment under section
144 of the Act. The discrepancies in the accounts of the creditors
were added to the income of the assessee because the credit balance as
shown by the assessee were more than the amounts shown by the
creditors as receivable. Besides this addition, some other additions
were also made by the Assessing Officer vide order dated 5th January,
2000. Aggrieved by the same, the assessee preferred an appeal to the
Commissioner for Income-tax (Appeals). The Appellate Authority allowed
the appeal in part giving relief in respect of dis-allowance of
telephone expenses and travelling expenses. In respect of unexplained
difference of excess creditors shown in the balance sheet, the
Appellate Authority granted a relief only to the extent of 1,50,700.
Before the Appellate Authority, the assessee tried to Explain the
difference by stating that the stock was utilized for paying the
amount to the creditors, which plea was not accepted. Yet another
plea, which was raised before the Appellate Authority, was that the
assessee is a benami of her husband, who was doing the business in the
name of his wife and addition cannot be made in the hands of the
assessee. This plea was also rejected. Aggrieved by the order of
rejection, the assessee preferred an appeal before the Tribunal. The
Tribunal by its order dated 9th September, 2005 restored the addition
of Rs. 19,67,702/- to the file of Assessing Officer, which represented
unexplained difference in account of creditors. Similarly trading the
addition of Rs. 25,000/- was restored back to the file of the
Assessing Officer. During the course of fresh assessment proceedings,
the assessee moved an application under section 144A of the Act
contending that she has not maintained the books of account properly,
which has been recorded in the assessment order. She has not recorded
sales amounting to Rs. 19,67,702/-, which was available for payment to
the sundry creditors. If the gross profit was included, cost of goods
sold amounts to Rs. 18,00,000/-. The assessee being a benami be
absolved of all demands and the husband of the assessee should be made
liable. The Additional CIT vide his directions under section 144A held
that the question of benami and concept of non-maintenance of books
properly does not arise. The return was accompanied with auditor
report under section 44AB of the Act and therefore it cannot be
accepted that the stock was sold and the amount realized was available
for Explaining the creditors. The concept of benami was also rejected
on the ground that the assessee has filed the return and has not
adduced any evidence to show that she was benami of her husband.
Therefore, the assessment was completed vide order dated 29th
December, 2006 and addition on account of unexplained difference in
credits were also made to the extent of Rs. 19,67,702/- and trading
addition of Rs. 25,000/- was made. An appeal preferred against the
said order came to be dismissed by the Commissioner of Income-tax.
Aggrieved by the said order, the assessee preferred an appeal to the
Tribunal. Before the Tribunal, it was contended that section 68 of the
Act is applicable when there is a credit in the books of account. It
has no application to a case of credit being shown for the supply
received by the assessee and the payments were made to the suppliers
for such supplies. The Assessing Officer could have exercised the
power under section 131 of the Act to summon and enforce the
attendance of witness/creditors, which he has not done. The inability
to verify the Explanation offered by the Assessing Officer cannot be a
ground for rejection of the contention of the assessee and therefore
the impugned order passed requires to be set aside. The Tribunal
re-appreciated the entire evidence on record and took note of the
particulars given by the various creditors and held that the assessee
cannot be believed and her contentions are without any substance.
Therefore, it dismissed the appeal. Aggrieved by the said order, the
present appeal is filed.
3. The substantial question of law that arises for consideration in
this appeal is as under:
"Whether section 68 of the Act applies only to cash credit?"
4. Learned counsel for the assessee contends that it is clear from the
heading of section 68 of the Act. Where any sum is found credited in
the books, it necessarily means a cash credit and it has no
application to a credit given on account of supply of goods. In the
instant case, the said sum is credited to the account of suppliers,
who had supplied the materials and even if those supplies held to be
not true, the case would not fall under section 68 of the Act and
therefore the entire proceedings, which are purported to have been
initiated and additions made under section 68 of the Act require to be
set aside.
5. Per contra, learned counsel for the Revenue submitted that though
the heading of section 68 of the Act mentioned the word cash credits,
but in the body of the section what is mentioned is a credit for
supply of goods. Such a narrow and limited interpretation on the said
provision is not permissible in law and the Authorities were justified
in making the additions under section 68 of the Act.
6. In order to appreciate the said contentions, it is necessary to
look at the section 68 of the Act as under:
"Cash credits.
68. Where any sum is found credited in the books of an assessee
maintained for any previous year, and the assessee offers no
Explanation about the nature and source there of or the Explanation
offered by him not, in the opinion of the [Assessing] Office.
satisfactory, the sum so credited may be charged to income-tax as the
income of the assessee of that previous year."
7. What is the weight which should be attached to the heading (Cash
credits) of section 68 of the Act? A heading is to be regarded as
giving the key to the interpretation of the clauses ranged under it,
unless the wording is inconsistent with such interpretation. The
headings might be treated as preambles to the provisions following
them. Though the Court is entitled to look at the headings in an Act
of Parliament to resolve any doubt, they may have as to ambiguous
words, the law is clear that those headings cannot be used to give a
different effect to clear words in the section where there cannot be
any doubt as to the ordinary meaning of the words. The title of a
chapter be legitimately used to restrict the plain terms of an
enactment. The headings prefixed to sections or entries cannot control
the plain words of the provision; they cannot also be referred to for
the purpose of construing the provision when the words used in the
provision are clear and unambigious; nor can they be used for cutting
down the plain meaning of the words in the provision. Only in the case
of ambiguity or doubt the heading or sub-heading may be referred to as
an aid in construing the provision but even in such a case it could
not be used for cutting down the wide application of the clear words
used in the provision. Those headings are not meant to control the
operation of enacting the words and it may be a wrong to permit them
to do so.
8. It is in this background, we have to look at the above provision in
particular opening words of the section. What is referred to is where
any sum is found credited in the books of an assessee and in the ends
what is mentioned is the sum so credited may be charged to income-tax.
Therefore, in the body of the section, the word used is either found
credited or so credited, there is no indication in the Section that
such a credit should be a cash credit. It may be a cash credit or it
may be a credit representing the value of the supplies made by the
suppliers on credit. The essence is that the credit should be shown in
the account and that would satisfy the requirement of section 68 of
the Act. Once the credit so mentioned in the section is found to be
not supported by any acceptable evidence, then the sum so credited may
be charged to income-tax as the income of the assessee of that
previous year. This is precisely what can be done in the instant case.
9. In that view of the matter, the orders passed by the Authorities
are legal, valid and call for no interference. Hence, the substantial
question of law is answered in favour of the Revenue and against the
assessee.
10. The appeal is dismissed accordingly.
IT: Where assessee in course of assessment proceedings, declared that
profit on sale of land was wrongly considered as capital gain instead
of business income and revenue authorities having accepted said
declaration, completed assessment, assessee's case did not fall within
ambit of Explanation 1 to section 271(1)(c) so as to pass a penalty
order
■■■
[2013] 33 taxmann.com 51 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'D'
Shailesh D. Patel
v.
Income-tax Officer, Ward 2(5), Baroda*
MUKUL KR. SHRAWAT, JUDICIAL MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
IT Appeal No. 489 (Ahd.) of 2012
[ASSESSMENT YEAR 2003-04]
JULY 13, 2012
Section 271(1)(c), read with sections 28(i) and 45, of the Income-tax
Act, 1961 - Penalty - For concealment of income [Wrong claim, effect
of] - Assessment year 2003-04 - Assessee during assessment proceedings
informed Assessing Officer that by mistake in return of income, profit
from sale of land was wrongly considered as capital gain instead of
business income - In assessment order passed under section 143(3),
Assessing Officer taxed profit on sale of land as business income as
offered by assessee without making any changes to amount of gains - He
also passed penalty order taking a view that assessee had deliberately
concealed particulars of income - It was apparent from records that
explanation of assessee was not found to be false by revenue
authorities because computation as submitted by assessee was accepted
- Whether in view of fact that assessee offered an explanation and
also substantiated it, its case did not fall within ambit of
Explanation 1 to section 271(1)(c) and, consequently, no penalty could
be levied - Held, yes [Para 6] [In favour of assessee]
Bhavin Marfatia for the Appellant. B.L. Yadav for the Respondent.
ORDER
Anil Chaturvedi, Accountant Member - This appeal is filed by the
assessee against the order of Ld. CIT(A)-V, Baroda dated 23-12-2011
for the assessment year 2003-04.
2. The only effective ground raised by the assessee reads as under:
"The LD. CIT(A) erred in fact and in law in confirming the action of
A.O. for levying penalty on an amount of Rs. 11,12,642/- u/s. 271
(1)(c) of the Income Tax Act, 1961."
3. Brief facts of the case are that the assessee is an individual
engaged in the construction business. He filed his return of income on
30-11-2003 declaring total income of Rs.3,14,660/-.The case was taken
up for scrutiny. During the course of assessment proceedings the
assessee vide his letter dated 22-3-2006 submitted that the long term
capital gain shown in the return of income was in fact "business
income" and the same has been wrongly shown as "capital gains" instead
of "business income". He therefore, requested that it be treated as
"business income" and the working of which was as under:
Sale consideration receivable From M/s. Janki Developers Land area sq.
ft. 40780 @ Rs.151/- Rs. 61,57,780/-
Less: Cost of purchase Sq.ft. 40780 @ Rs.81/- Rs. 33,03,180/-
Total Profit. Rs. 28,54,600/-
50% share of profit Rs.28,54,600/- as per banakhat. Rs. 14,27,300/-
The assessment u/s. 143(3) was finalized vide order dated 31-3-2006
after considering the income of Rs.14,27,300/- as "business income".
4. The A.O. levied penalty u/s. 271(1)(c) for the reason that the
assessee had shown long term capital gain in the return of income
amounting to Rs.3,14,658/- but the same was subsequently offered as
business income amounting to Rs.14,27,300/-. The A.O. was of the view
that by this action of assessee, the assessee has furnished inaccurate
particulars of income. Further, the act of the assessee of declaring
business profit on sale of land as capital gains was considered by
A.O. to be a deliberate default on the part of the assessee. He
accordingly levied a penalty on the concealed income of Rs.11,12,642/-
(Rs.14,27,300 - 3,14,658). Aggrieved by the action of the A.O.
assessee preferred appeal before the CIT (A). CIT (A) upheld the
action of the A.O. for the reason that during the course of penalty
proceedings no submissions were made by the assessee. He therefore
concluded that the assessee was agreeable to levy of penalty on this
issue. He accordingly confirmed the penalty levied by the A.O.
5. Aggrieved by the action of CIT (A) the assessee is in appeal before
us. Before us the Ld. A.R. submitted that due to mistake the assessee
had in the return of income considered the income under the head
"capital gain" and offered it to tax. However, during the course of
assessment proceedings, on realising the mistake, and before being
pointed out by A.O. the assessee suo moto informed the A.O. and
rectified the mistake by offering it as business income. The A.O.
while passing assessment order, taxed the profit on sale of land as
offered by assessee as business income. The Ld. A.R. further submitted
that the assessee had furnished all the necessary particulars and
explanation during the course of assessment proceedings and the
explanation offered by him was not found to be false by the A.O. He
thus urged that the penalty levied by the A.O. be deleted. On the
other hand the Ld. D. R. submitted that the assessee had intended to
conceal his business profits of Rs.14,27,300/- earned on sale of land
by merely showing long term capital gains of Rs.3,14,658/-. Had the
case of the assessee not been selected for scrutiny and had the
assessee not been asked to explain the true nature of his income, the
profits would have remained concealed in the grab of long term capital
gain which the assessee had declared in his return of income. The act
of assessee was therefore a deliberate act on the part of assessee and
therefore the penalty u/s. 271(1)(c) was rightly levied.
6. We have heard the rival contentions and perused the material on
record. The factual position is that in the return of income filed on
30-11-2003, the profit on sale of land was offered as capital gain
instead of business income. During the course of assessment
proceedings, the assessee on realizing the mistake had suo moto
offered the income as business income. The A.O. had also taxed the
profit as business income as offered by assessee without any change.
The Act of the assessee of declaring the profit on sale of land as
capital gains instead of business profits was considered by A.O. to be
a deliberate default on the part of the assessee and therefore liable
for penalty u/s. 271(1)(c). In the present case we are thus required
to examine as to whether on the aforesaid facts penalty provisions can
be invoked in the case of the assessee and whether the assessee's case
falls within the ambit of the Explanation to section 271(1)(c) so as
to levy penalty. Explanation 1 to section 271(1)(c) reads as under:-
"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 A.O. or CIT(A) 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."
From the above explanation, it is evident that the explanation is a
deeming provision and if the assessee's case falls within the ambit of
circumstances provided in Part A or B of the Explanation, it will be
deemed that the amount added or disallowed in computing total income
of the assessee represents the income of which particulars have been
concealed.
The first Clause (A) contemplates failure to offer an explanation or
offer of an explanation which is found to be false. The second
situation covered by Clause (B) relates to a position that the
assessee is not able to substantiate the explanation offered by him.
Thus the two situations are independent and separate.
Part-A of the Explanation would be applicable when (i) where a person
fails to offer an explanation; or (ii) where a person offers an
explanation which is found by the A.O. or CIT (A) to be false.
Part (B) of the explanation would be applicable when (i) where a
person offers an explanation but he is unable to substantiate the
same; (ii) and he fails to prove that such explanation is bonafide and
that all the facts relating to the same which are material to the
computation of total income have been disclosed by him.
Part-B of the explanation would be applicable only if both the above
conditions are satisfied i.e. where the assessee is unable to
substantiate his explanation and also unable to prove that the
explanation is bonafide. If the assessee is able to prove that the
explanation is bonafide and all the facts relating to the same have
been disclosed the assessee's case will not fall within Part-B of the
Explanation even if it he is unable to substantiate the explanation.
Seen in the light of above, the facts of the present case, are that
the assessee, suomoto, during the assessment proceedings informed the
A.O. that by mistake in the return of income, profit from sale of land
has wrongly been considered as capital gain instead of business
income. The assessee submitted the details, its computation and
offered it as business income. In the assessment order passed u/s.
143(3) the A.O. taxed the profit on sale of land as business income as
offered by assessee without making any changes to the amount of gains.
From these facts it is clear that the assessee had offered explanation
by furnishing necessary details and also substantiated it. The
explanation of the assessee was not found to be false by Revenue in
view of the fact that the computation as submitted by assessee was
accepted by Revenue. Thus, it is clear that no material was found by
Revenue to hold that the explanation offered by assessee was false.
Therefore, assessee's case does not fall within the ambit of Part-A of
Explanation. So far as Part-B is concerned, we find that assessee
offered an explanation and also substantiated it. Therefore, Part-B is
also not applicable. In view of above, we are of the view that
assessee's case does not fall within the ambit of Explanation 1 to
Sec. 271(1) (c) and no penalty can be levied by merely disbelieving
explanation given by the assessee.
7. In the result, penalty confirmed by the CIT (A) cannot be upheld,
we accordingly cancel the penalty.
8. In the result, appeal of the assessee is allowed.
profit on sale of land was wrongly considered as capital gain instead
of business income and revenue authorities having accepted said
declaration, completed assessment, assessee's case did not fall within
ambit of Explanation 1 to section 271(1)(c) so as to pass a penalty
order
■■■
[2013] 33 taxmann.com 51 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'D'
Shailesh D. Patel
v.
Income-tax Officer, Ward 2(5), Baroda*
MUKUL KR. SHRAWAT, JUDICIAL MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
IT Appeal No. 489 (Ahd.) of 2012
[ASSESSMENT YEAR 2003-04]
JULY 13, 2012
Section 271(1)(c), read with sections 28(i) and 45, of the Income-tax
Act, 1961 - Penalty - For concealment of income [Wrong claim, effect
of] - Assessment year 2003-04 - Assessee during assessment proceedings
informed Assessing Officer that by mistake in return of income, profit
from sale of land was wrongly considered as capital gain instead of
business income - In assessment order passed under section 143(3),
Assessing Officer taxed profit on sale of land as business income as
offered by assessee without making any changes to amount of gains - He
also passed penalty order taking a view that assessee had deliberately
concealed particulars of income - It was apparent from records that
explanation of assessee was not found to be false by revenue
authorities because computation as submitted by assessee was accepted
- Whether in view of fact that assessee offered an explanation and
also substantiated it, its case did not fall within ambit of
Explanation 1 to section 271(1)(c) and, consequently, no penalty could
be levied - Held, yes [Para 6] [In favour of assessee]
Bhavin Marfatia for the Appellant. B.L. Yadav for the Respondent.
ORDER
Anil Chaturvedi, Accountant Member - This appeal is filed by the
assessee against the order of Ld. CIT(A)-V, Baroda dated 23-12-2011
for the assessment year 2003-04.
2. The only effective ground raised by the assessee reads as under:
"The LD. CIT(A) erred in fact and in law in confirming the action of
A.O. for levying penalty on an amount of Rs. 11,12,642/- u/s. 271
(1)(c) of the Income Tax Act, 1961."
3. Brief facts of the case are that the assessee is an individual
engaged in the construction business. He filed his return of income on
30-11-2003 declaring total income of Rs.3,14,660/-.The case was taken
up for scrutiny. During the course of assessment proceedings the
assessee vide his letter dated 22-3-2006 submitted that the long term
capital gain shown in the return of income was in fact "business
income" and the same has been wrongly shown as "capital gains" instead
of "business income". He therefore, requested that it be treated as
"business income" and the working of which was as under:
Sale consideration receivable From M/s. Janki Developers Land area sq.
ft. 40780 @ Rs.151/- Rs. 61,57,780/-
Less: Cost of purchase Sq.ft. 40780 @ Rs.81/- Rs. 33,03,180/-
Total Profit. Rs. 28,54,600/-
50% share of profit Rs.28,54,600/- as per banakhat. Rs. 14,27,300/-
The assessment u/s. 143(3) was finalized vide order dated 31-3-2006
after considering the income of Rs.14,27,300/- as "business income".
4. The A.O. levied penalty u/s. 271(1)(c) for the reason that the
assessee had shown long term capital gain in the return of income
amounting to Rs.3,14,658/- but the same was subsequently offered as
business income amounting to Rs.14,27,300/-. The A.O. was of the view
that by this action of assessee, the assessee has furnished inaccurate
particulars of income. Further, the act of the assessee of declaring
business profit on sale of land as capital gains was considered by
A.O. to be a deliberate default on the part of the assessee. He
accordingly levied a penalty on the concealed income of Rs.11,12,642/-
(Rs.14,27,300 - 3,14,658). Aggrieved by the action of the A.O.
assessee preferred appeal before the CIT (A). CIT (A) upheld the
action of the A.O. for the reason that during the course of penalty
proceedings no submissions were made by the assessee. He therefore
concluded that the assessee was agreeable to levy of penalty on this
issue. He accordingly confirmed the penalty levied by the A.O.
5. Aggrieved by the action of CIT (A) the assessee is in appeal before
us. Before us the Ld. A.R. submitted that due to mistake the assessee
had in the return of income considered the income under the head
"capital gain" and offered it to tax. However, during the course of
assessment proceedings, on realising the mistake, and before being
pointed out by A.O. the assessee suo moto informed the A.O. and
rectified the mistake by offering it as business income. The A.O.
while passing assessment order, taxed the profit on sale of land as
offered by assessee as business income. The Ld. A.R. further submitted
that the assessee had furnished all the necessary particulars and
explanation during the course of assessment proceedings and the
explanation offered by him was not found to be false by the A.O. He
thus urged that the penalty levied by the A.O. be deleted. On the
other hand the Ld. D. R. submitted that the assessee had intended to
conceal his business profits of Rs.14,27,300/- earned on sale of land
by merely showing long term capital gains of Rs.3,14,658/-. Had the
case of the assessee not been selected for scrutiny and had the
assessee not been asked to explain the true nature of his income, the
profits would have remained concealed in the grab of long term capital
gain which the assessee had declared in his return of income. The act
of assessee was therefore a deliberate act on the part of assessee and
therefore the penalty u/s. 271(1)(c) was rightly levied.
6. We have heard the rival contentions and perused the material on
record. The factual position is that in the return of income filed on
30-11-2003, the profit on sale of land was offered as capital gain
instead of business income. During the course of assessment
proceedings, the assessee on realizing the mistake had suo moto
offered the income as business income. The A.O. had also taxed the
profit as business income as offered by assessee without any change.
The Act of the assessee of declaring the profit on sale of land as
capital gains instead of business profits was considered by A.O. to be
a deliberate default on the part of the assessee and therefore liable
for penalty u/s. 271(1)(c). In the present case we are thus required
to examine as to whether on the aforesaid facts penalty provisions can
be invoked in the case of the assessee and whether the assessee's case
falls within the ambit of the Explanation to section 271(1)(c) so as
to levy penalty. Explanation 1 to section 271(1)(c) reads as under:-
"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 A.O. or CIT(A) 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."
From the above explanation, it is evident that the explanation is a
deeming provision and if the assessee's case falls within the ambit of
circumstances provided in Part A or B of the Explanation, it will be
deemed that the amount added or disallowed in computing total income
of the assessee represents the income of which particulars have been
concealed.
The first Clause (A) contemplates failure to offer an explanation or
offer of an explanation which is found to be false. The second
situation covered by Clause (B) relates to a position that the
assessee is not able to substantiate the explanation offered by him.
Thus the two situations are independent and separate.
Part-A of the Explanation would be applicable when (i) where a person
fails to offer an explanation; or (ii) where a person offers an
explanation which is found by the A.O. or CIT (A) to be false.
Part (B) of the explanation would be applicable when (i) where a
person offers an explanation but he is unable to substantiate the
same; (ii) and he fails to prove that such explanation is bonafide and
that all the facts relating to the same which are material to the
computation of total income have been disclosed by him.
Part-B of the explanation would be applicable only if both the above
conditions are satisfied i.e. where the assessee is unable to
substantiate his explanation and also unable to prove that the
explanation is bonafide. If the assessee is able to prove that the
explanation is bonafide and all the facts relating to the same have
been disclosed the assessee's case will not fall within Part-B of the
Explanation even if it he is unable to substantiate the explanation.
Seen in the light of above, the facts of the present case, are that
the assessee, suomoto, during the assessment proceedings informed the
A.O. that by mistake in the return of income, profit from sale of land
has wrongly been considered as capital gain instead of business
income. The assessee submitted the details, its computation and
offered it as business income. In the assessment order passed u/s.
143(3) the A.O. taxed the profit on sale of land as business income as
offered by assessee without making any changes to the amount of gains.
From these facts it is clear that the assessee had offered explanation
by furnishing necessary details and also substantiated it. The
explanation of the assessee was not found to be false by Revenue in
view of the fact that the computation as submitted by assessee was
accepted by Revenue. Thus, it is clear that no material was found by
Revenue to hold that the explanation offered by assessee was false.
Therefore, assessee's case does not fall within the ambit of Part-A of
Explanation. So far as Part-B is concerned, we find that assessee
offered an explanation and also substantiated it. Therefore, Part-B is
also not applicable. In view of above, we are of the view that
assessee's case does not fall within the ambit of Explanation 1 to
Sec. 271(1) (c) and no penalty can be levied by merely disbelieving
explanation given by the assessee.
7. In the result, penalty confirmed by the CIT (A) cannot be upheld,
we accordingly cancel the penalty.
8. In the result, appeal of the assessee is allowed.
IT: Interest on seized cash is payable at rate of 12 per cent for
period commencing from date of completion of assessment till date of
actual release of seized assets
■■■
[2013] 33 taxmann.com 36 (Delhi)
HIGH COURT OF DELHI
S.K. Jain
v.
Commissioner of Income-tax XI, New Delhi*
BADAR DURREZ AHMED AND R.V.EASWAR, JJ.
W.P.(C) NO. 7551 of 2012
MARCH 12, 2013
Section 132B of the Income-tax Act, 1961 - Search and Seizure -
Retained assets, application of [Interest] - Assessment year 2005-06 -
Whether assessee would be entitled to interest at rate of 12 per cent
on cash seized from date next following date of completion of
assessment till date of release of such cash to assessee - Held, yes
[Para 12][In favour of assessee]
FACTS
■ Cash was seized during search conducted at the residential
premises of the assessee and assessment was made. However, in the
appellate proceedings before the Tribunal it was held that cash found
during search did not belong to the assessee, resulting in nil tax
demand. Subsequently, the cash seized was released to the assessee.
■ The assessee claimed interest on the seized cash from period from
the date of seizure to the date of release of the cash. However, the
revenue contended that the assessee was entitled to interest on the
seized cash from the date on which assessment was completed till the
date it was actually released to him. Further question arose in
respect of rate of interest.
HELD
■ In case of G.L. Jain v. CIT [2012] 26 taxmann.com 184 (Delhi)
this Court, applying the ratio of the judgment of the Supreme Court in
the case of Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591
and the judgment of a Division Bench in Ajay Gupta v. CIT [2008] 297
ITR 125/[2007] 162 Taxman 296 (Delhi), directed that it would be
reasonable and equitable to order interest to be paid at the rate of
12 per cent on the cash seized, in respect of the period beyond the
date on which the assessment was completed. [Para 8]
■ Section 132B provides for the application of seized or
requisitioned assets. Under sub-section (3), any assets or proceeds
thereof which remain after the liabilities of the assessee are
discharged, shall have to be 'forthwith made over or paid to the
persons from whose custody the assets were seized'. Sub-section (4)
provides for the payment of simple interest at the rate of half per
cent every month or part thereof on the amount by which the aggregate
amount of money seized under section 132, as reduced by the amount of
money released to the assessee and the amount of the proceeds, if any,
of the assets towards the discharge of the existing liability of the
assessee, exceeds the aggregate of the amount required to meet the
liabilities of the assessee. This interest is to be paid to the
assessee without any demand from him.
■ In the assessee's case, there is no dispute that he is entitled
to this interest. The dispute is only whether the petitioner is
entitled to any interest on the seized cash from the date on which the
assessment was completed under section 153A till it was actually
released to him and if so, at what rate.
■ In an identical situation, this Court in its order in GL Jain v.
CIT [2012] 26 taxmann.com 184 (Delhi) has directed the revenue to
grant interest at the rate of 12 per cent. However, so far as the
period for which the interest was payable to the petitioner it was
held that it should be paid from the day next following the day on
which the assessment was completed till the amount was actually
released to the petitioner. Interest was directed to be paid at the
rate of 12 per cent in respect of this period. [Para 10]
■ In the result, it was held that the assessee was entitled to be
paid interest at the rate of 12 per cent in respect of the amount
seized for the period from the date on which assessment was completed
till date it was actually released to him. [Para 12]
CASE REVIEW
GL Jain v. CIT [2012] 26 taxmann.com 184 (Delhi) (para 8) followed.
CASES REFERRED TO
G.L. Jain v. CIT [2012] 26 taxmann.com 184 (Delhi) (para 8), Sandvik
Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591 (para 8), Ajay
Gupta v. CIT [2008] 297 ITR 125/[2007] 162 Taxman 296 (Delhi) (para 8)
and CIT v. Gujarat Flouro Chemicals [2012] 210 Taxman 583/24
taxmann.com 338 (SC) (para 11).
Mukesh Gupta for the Appellant. Ms. Suruchi Aggarwal and Ms. Archana
Gaur for the Respondent.
JUDGMENT
R.V. Easwar, J. - The writ petition is admitted to hearing and with
the consent of the counsel for both sides the matter was heard finally
for disposal.
2. The petitioner is assessed to income tax. On 16.02.2005 a search
under section 132(1) of the Income Tax Act, 1961 (hereinafter referred
to as 'the Act') was conducted at his residential premises in the
course of which cash amounting to Rs. 8,83,800/- was found. Out of the
cash found an amount of Rs. 6,33,800/- was seized. The petitioner
attempted to explain the source of the cash found in his letters to
the income tax authorities. The returns filed on 08.09.2006 for the
assessment years 1999-2000 to 2004-05 were accepted and assessments
were completed under section 153A of the Act. There was no tax
liability pursuant to the assessments.
3. The petitioner again wrote to the assessing officer reminding him
about the application filed earlier and sought release of the cash
seized on the ground that it was disclosed to the income tax
department. This reminder was rejected by the assessing officer by
order dated 21.09.2006 in which he held that till the finalisation of
the proceedings under section 153A of the Act, it was not possible to
ascertain whether the cash seized was out of disclosed cash or
otherwise.
4. On 30.10.2005 the petitioner filed his return of income for the
assessment year 2005-06. An assessment was completed under section
143(3) on 26.12.2006 in which the cash of Rs. 8,83,800/- found during
the search was held unexplained. Thereupon the petitioner wrote to the
assessing officer/CIT, New Delhi to adjust the cash seized against the
existing tax liability as envisaged by the provisions of 132B of the
Act. However, the request of the petitioner was not accepted.
5. The petitioner had filed an appeal to the CIT (Appeals) against the
assessment order for the assessment year 2005-06. By order dated
10.04.2008, the CIT (Appeals) confirmed the addition of the cash
found. The petitioner preferred a further appeal to the Income Tax
Appellate Tribunal. By order dated 21.03.2005 the Tribunal held that
the cash found from the possession of the assessee actually belonged
to M/s. S. K. Industries Pvt. Ltd. The assessing officer gave effect
to the order of the Tribunal and revised the assessment which resulted
in a nil tax demand.
6. After the aforesaid order passed by the assessing officer, the
petitioner made further requests to the CIT seeking release of the
cash seized since there was no demand outstanding against him. While
these letters were pending, the appeal preferred by the revenue
against the order of the Tribunal was dismissed by this Court by order
dated 23.05.2011 passed in ITA No.79/2011.
7. It appears that on the very next day i.e. 24.05.2011, the seized
amount of Rs. 6,33,800/- was released to the petitioner. Thereafter,
the petitioner wrote letters to the CIT on various dates from May,
2011 to April, 2012 asking for interest on the seized cash as per law
for the inordinate delay in releasing the amount under section 132B(3)
of the Act. Since these requests have not borne fruit the petitioner
has moved the present writ petition seeking the following reliefs: -
"(i) Issue a writ of mandamus or any other writ/ direction or order
to grant the interest for inordinate delay in releasing the amount
amounting to Rs. 6,33,800/- u/s 132B(3) of the Act seized during the
course of search u/s 132(1) of the Act on 17.2.2005 as per the
provisions of Sec. 132B(4)(a)(b) & 244A(1)(b) or under any other
relevant provisions of the law along with interest on interest due
till the date of payment.
(ii) Pass such other order or orders, as this Hon'ble Court may deem
fit and proper in the circumstances of the case."
8. The mainstay of the argument of the learned counsel for the
petitioner is an order passed by a Division Bench of this Court in
G.L. Jain v. CIT [2012] 26 taxmann.com 184 (Delhi), which is stated to
be the case of the assessee's brother. In that case, this Court,
applying the ratio of the judgment of the Supreme Court in the case of
Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591 and the
judgment of a Division Bench in Ajay Gupta v. CIT [2008] 297 ITR
125/[2007] 162 Taxman 296 (Delhi), directed that it would be
reasonable and equitable to order interest to be paid at the rate of
12% on the cash seized, in respect of the period beyond the date on
which the assessment was completed.
9. Section 132B provides for the application of seized or
requisitioned assets. Under sub-section (3), any assets or proceeds
thereof which remain after the liabilities of the assessee are
discharged, shall have to be "forthwith made over or paid to the
persons from whose custody the assets were seized". Sub-section (4)
provides for the payment of simple interest at the rate of half
percent every month or part thereof on the amount by which the
aggregate amount of money seized under section 132, as reduced by the
amount of money released to the assessee and the amount of the
proceeds, if any, of the assets towards the discharge of the existing
liability of the assessee, exceeds the aggregate of the amount
required to meet the liabilities of the assessee. The interest shall
run from the date immediately following the expiry of the period of
120 days from the date on which the last of the authorisations for the
search was executed, to the date of completion of the assessment under
section 153A of the Act. This interest is to be paid to the assessee
without any demand from him. In the petitioner's case, there is no
dispute that he is entitled to this interest. The dispute is only
whether the petitioner is entitled to any interest on the seized cash
of Rs. 6,63,800/- from the date on which the assessment was completed
under section 153A of the Act i.e. 26.12.2006 till it was actually
released to him on 24.05.2011, and if so, at what rate. It is common
ground that in respect of this period, that is, from the day next
following the completion of the assessment till the cash was actually
released to the petitioner, no interest has been provided under
section 132B(4) of the Act.
10. In an identical situation, this Court in its order dated
28.08.2012 in W.P. (C) No.876/2012 (supra) has directed the revenue to
grant interest @ 12%. In that case certain amounts had been returned
to the petitioner (in that case) and accordingly adjustments were
directed to be made in respect of those payments while quantifying the
amount on which the interest was directed to be paid. However, so far
as the period for which the interest was payable to the petitioner in
that case is concerned, there is no dispute that the direction of this
Court was that it should be paid from the day next following the day
on which the assessment was completed till the amount was actually
released to the petitioner. Interest was directed to be paid @ 12% in
respect of this period on varying amounts as quantified in paragraph
19 of the order.
11. The only argument of the revenue was that the judgment of the
Supreme Court in the course of Sandvik Asia Ltd. (supra) has been
doubted in a later case before the Supreme Court in CIT v. Gujarat
Flouro Chemicals [2012] 210 Taxman 583/24 taxmann.com 338 and the
matter has been directed to be placed before the Chief Justice of
India on the administrative side for appropriate orders. A copy of the
above order of the Supreme Court passed on 23.08.2012 was filed before
us. However, the judgment of the Supreme Court in Sandvik Asia Ltd.
(supra) holds the field as of now. It was this judgment which was
applied by a Division Bench of this Court in the case of Ajay Gupta
(supra) that was invoked by the Division Bench of this Court in the
case of G.L. Jain (supra). We, therefore, do not see any reason to
take a view different from the one taken by this Court in the case of
G.L. Jain (supra).
12. In the result, we hold that the petitioner is entitled to be paid
interest @ 12% in respect of the amount of Rs. 6,33,800/- for the
period from 27.12.2006 to 24.05.2011 and a writ of mandamus directing
the payment of the interest is accordingly issued. The respondent
shall pay the interest within a period of six weeks from today. The
writ petition is allowed in the above terms. No costs.
period commencing from date of completion of assessment till date of
actual release of seized assets
■■■
[2013] 33 taxmann.com 36 (Delhi)
HIGH COURT OF DELHI
S.K. Jain
v.
Commissioner of Income-tax XI, New Delhi*
BADAR DURREZ AHMED AND R.V.EASWAR, JJ.
W.P.(C) NO. 7551 of 2012
MARCH 12, 2013
Section 132B of the Income-tax Act, 1961 - Search and Seizure -
Retained assets, application of [Interest] - Assessment year 2005-06 -
Whether assessee would be entitled to interest at rate of 12 per cent
on cash seized from date next following date of completion of
assessment till date of release of such cash to assessee - Held, yes
[Para 12][In favour of assessee]
FACTS
■ Cash was seized during search conducted at the residential
premises of the assessee and assessment was made. However, in the
appellate proceedings before the Tribunal it was held that cash found
during search did not belong to the assessee, resulting in nil tax
demand. Subsequently, the cash seized was released to the assessee.
■ The assessee claimed interest on the seized cash from period from
the date of seizure to the date of release of the cash. However, the
revenue contended that the assessee was entitled to interest on the
seized cash from the date on which assessment was completed till the
date it was actually released to him. Further question arose in
respect of rate of interest.
HELD
■ In case of G.L. Jain v. CIT [2012] 26 taxmann.com 184 (Delhi)
this Court, applying the ratio of the judgment of the Supreme Court in
the case of Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591
and the judgment of a Division Bench in Ajay Gupta v. CIT [2008] 297
ITR 125/[2007] 162 Taxman 296 (Delhi), directed that it would be
reasonable and equitable to order interest to be paid at the rate of
12 per cent on the cash seized, in respect of the period beyond the
date on which the assessment was completed. [Para 8]
■ Section 132B provides for the application of seized or
requisitioned assets. Under sub-section (3), any assets or proceeds
thereof which remain after the liabilities of the assessee are
discharged, shall have to be 'forthwith made over or paid to the
persons from whose custody the assets were seized'. Sub-section (4)
provides for the payment of simple interest at the rate of half per
cent every month or part thereof on the amount by which the aggregate
amount of money seized under section 132, as reduced by the amount of
money released to the assessee and the amount of the proceeds, if any,
of the assets towards the discharge of the existing liability of the
assessee, exceeds the aggregate of the amount required to meet the
liabilities of the assessee. This interest is to be paid to the
assessee without any demand from him.
■ In the assessee's case, there is no dispute that he is entitled
to this interest. The dispute is only whether the petitioner is
entitled to any interest on the seized cash from the date on which the
assessment was completed under section 153A till it was actually
released to him and if so, at what rate.
■ In an identical situation, this Court in its order in GL Jain v.
CIT [2012] 26 taxmann.com 184 (Delhi) has directed the revenue to
grant interest at the rate of 12 per cent. However, so far as the
period for which the interest was payable to the petitioner it was
held that it should be paid from the day next following the day on
which the assessment was completed till the amount was actually
released to the petitioner. Interest was directed to be paid at the
rate of 12 per cent in respect of this period. [Para 10]
■ In the result, it was held that the assessee was entitled to be
paid interest at the rate of 12 per cent in respect of the amount
seized for the period from the date on which assessment was completed
till date it was actually released to him. [Para 12]
CASE REVIEW
GL Jain v. CIT [2012] 26 taxmann.com 184 (Delhi) (para 8) followed.
CASES REFERRED TO
G.L. Jain v. CIT [2012] 26 taxmann.com 184 (Delhi) (para 8), Sandvik
Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591 (para 8), Ajay
Gupta v. CIT [2008] 297 ITR 125/[2007] 162 Taxman 296 (Delhi) (para 8)
and CIT v. Gujarat Flouro Chemicals [2012] 210 Taxman 583/24
taxmann.com 338 (SC) (para 11).
Mukesh Gupta for the Appellant. Ms. Suruchi Aggarwal and Ms. Archana
Gaur for the Respondent.
JUDGMENT
R.V. Easwar, J. - The writ petition is admitted to hearing and with
the consent of the counsel for both sides the matter was heard finally
for disposal.
2. The petitioner is assessed to income tax. On 16.02.2005 a search
under section 132(1) of the Income Tax Act, 1961 (hereinafter referred
to as 'the Act') was conducted at his residential premises in the
course of which cash amounting to Rs. 8,83,800/- was found. Out of the
cash found an amount of Rs. 6,33,800/- was seized. The petitioner
attempted to explain the source of the cash found in his letters to
the income tax authorities. The returns filed on 08.09.2006 for the
assessment years 1999-2000 to 2004-05 were accepted and assessments
were completed under section 153A of the Act. There was no tax
liability pursuant to the assessments.
3. The petitioner again wrote to the assessing officer reminding him
about the application filed earlier and sought release of the cash
seized on the ground that it was disclosed to the income tax
department. This reminder was rejected by the assessing officer by
order dated 21.09.2006 in which he held that till the finalisation of
the proceedings under section 153A of the Act, it was not possible to
ascertain whether the cash seized was out of disclosed cash or
otherwise.
4. On 30.10.2005 the petitioner filed his return of income for the
assessment year 2005-06. An assessment was completed under section
143(3) on 26.12.2006 in which the cash of Rs. 8,83,800/- found during
the search was held unexplained. Thereupon the petitioner wrote to the
assessing officer/CIT, New Delhi to adjust the cash seized against the
existing tax liability as envisaged by the provisions of 132B of the
Act. However, the request of the petitioner was not accepted.
5. The petitioner had filed an appeal to the CIT (Appeals) against the
assessment order for the assessment year 2005-06. By order dated
10.04.2008, the CIT (Appeals) confirmed the addition of the cash
found. The petitioner preferred a further appeal to the Income Tax
Appellate Tribunal. By order dated 21.03.2005 the Tribunal held that
the cash found from the possession of the assessee actually belonged
to M/s. S. K. Industries Pvt. Ltd. The assessing officer gave effect
to the order of the Tribunal and revised the assessment which resulted
in a nil tax demand.
6. After the aforesaid order passed by the assessing officer, the
petitioner made further requests to the CIT seeking release of the
cash seized since there was no demand outstanding against him. While
these letters were pending, the appeal preferred by the revenue
against the order of the Tribunal was dismissed by this Court by order
dated 23.05.2011 passed in ITA No.79/2011.
7. It appears that on the very next day i.e. 24.05.2011, the seized
amount of Rs. 6,33,800/- was released to the petitioner. Thereafter,
the petitioner wrote letters to the CIT on various dates from May,
2011 to April, 2012 asking for interest on the seized cash as per law
for the inordinate delay in releasing the amount under section 132B(3)
of the Act. Since these requests have not borne fruit the petitioner
has moved the present writ petition seeking the following reliefs: -
"(i) Issue a writ of mandamus or any other writ/ direction or order
to grant the interest for inordinate delay in releasing the amount
amounting to Rs. 6,33,800/- u/s 132B(3) of the Act seized during the
course of search u/s 132(1) of the Act on 17.2.2005 as per the
provisions of Sec. 132B(4)(a)(b) & 244A(1)(b) or under any other
relevant provisions of the law along with interest on interest due
till the date of payment.
(ii) Pass such other order or orders, as this Hon'ble Court may deem
fit and proper in the circumstances of the case."
8. The mainstay of the argument of the learned counsel for the
petitioner is an order passed by a Division Bench of this Court in
G.L. Jain v. CIT [2012] 26 taxmann.com 184 (Delhi), which is stated to
be the case of the assessee's brother. In that case, this Court,
applying the ratio of the judgment of the Supreme Court in the case of
Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643/150 Taxman 591 and the
judgment of a Division Bench in Ajay Gupta v. CIT [2008] 297 ITR
125/[2007] 162 Taxman 296 (Delhi), directed that it would be
reasonable and equitable to order interest to be paid at the rate of
12% on the cash seized, in respect of the period beyond the date on
which the assessment was completed.
9. Section 132B provides for the application of seized or
requisitioned assets. Under sub-section (3), any assets or proceeds
thereof which remain after the liabilities of the assessee are
discharged, shall have to be "forthwith made over or paid to the
persons from whose custody the assets were seized". Sub-section (4)
provides for the payment of simple interest at the rate of half
percent every month or part thereof on the amount by which the
aggregate amount of money seized under section 132, as reduced by the
amount of money released to the assessee and the amount of the
proceeds, if any, of the assets towards the discharge of the existing
liability of the assessee, exceeds the aggregate of the amount
required to meet the liabilities of the assessee. The interest shall
run from the date immediately following the expiry of the period of
120 days from the date on which the last of the authorisations for the
search was executed, to the date of completion of the assessment under
section 153A of the Act. This interest is to be paid to the assessee
without any demand from him. In the petitioner's case, there is no
dispute that he is entitled to this interest. The dispute is only
whether the petitioner is entitled to any interest on the seized cash
of Rs. 6,63,800/- from the date on which the assessment was completed
under section 153A of the Act i.e. 26.12.2006 till it was actually
released to him on 24.05.2011, and if so, at what rate. It is common
ground that in respect of this period, that is, from the day next
following the completion of the assessment till the cash was actually
released to the petitioner, no interest has been provided under
section 132B(4) of the Act.
10. In an identical situation, this Court in its order dated
28.08.2012 in W.P. (C) No.876/2012 (supra) has directed the revenue to
grant interest @ 12%. In that case certain amounts had been returned
to the petitioner (in that case) and accordingly adjustments were
directed to be made in respect of those payments while quantifying the
amount on which the interest was directed to be paid. However, so far
as the period for which the interest was payable to the petitioner in
that case is concerned, there is no dispute that the direction of this
Court was that it should be paid from the day next following the day
on which the assessment was completed till the amount was actually
released to the petitioner. Interest was directed to be paid @ 12% in
respect of this period on varying amounts as quantified in paragraph
19 of the order.
11. The only argument of the revenue was that the judgment of the
Supreme Court in the course of Sandvik Asia Ltd. (supra) has been
doubted in a later case before the Supreme Court in CIT v. Gujarat
Flouro Chemicals [2012] 210 Taxman 583/24 taxmann.com 338 and the
matter has been directed to be placed before the Chief Justice of
India on the administrative side for appropriate orders. A copy of the
above order of the Supreme Court passed on 23.08.2012 was filed before
us. However, the judgment of the Supreme Court in Sandvik Asia Ltd.
(supra) holds the field as of now. It was this judgment which was
applied by a Division Bench of this Court in the case of Ajay Gupta
(supra) that was invoked by the Division Bench of this Court in the
case of G.L. Jain (supra). We, therefore, do not see any reason to
take a view different from the one taken by this Court in the case of
G.L. Jain (supra).
12. In the result, we hold that the petitioner is entitled to be paid
interest @ 12% in respect of the amount of Rs. 6,33,800/- for the
period from 27.12.2006 to 24.05.2011 and a writ of mandamus directing
the payment of the interest is accordingly issued. The respondent
shall pay the interest within a period of six weeks from today. The
writ petition is allowed in the above terms. No costs.
IT: Where assessee received on money while selling properties and
Tribunal substantially accepting contention of assessee that not
entire on money received but only profit element could be taxed in its
hands and sustained addition at rate of 15 per cent of on money
received by assessee, appeal by assessee against order of Tribunal did
not survive
■■■
[2013] 33 taxmann.com 62 (Gujarat)
HIGH COURT OF GUJARAT
Jay Builder
v.
Assistant Commissioner of Income-tax, Circle 6 (2)*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 255 of 2012†
DECEMBER 11, 2012
Section 253, read with section 69A, of the Income-tax Act, 1961 -
Appellate Tribunal - Appealable Orders [Aggrieved party] - Assessee, a
builder, received on money while selling properties constructed by it
- Assessing Officer taxed entire on money received by assessee -
Assessee contended before Tribunal that not entire on money received
but only profit element could be taxed in its hands - Tribunal
substantially accepted contention and sustained addition at rate of 15
per cent of on money received by assessee - Whether when assessee's
sole contention before Tribunal was substantially accepted, appeal of
assessee did not survive - Held, yes [Para 3][In favour of revenue]
HELD
■ When the Tribunal accepted the contention of the assessee to a
larger extent and limited the addition to 15 per cent of the on money
receipts, no further examination at the end of the assessee is called
for. It is, of course, true that the assessee had suggested addition
of 10 per cent. Not accepting such suggestion would hardly give any
rise to a question of law. When the assessee's sole contention before
the Tribunal was substantially accepted, there is no purpose for
surviving the appeal. [Para 3]
S.N. Soparkar , B.S. Soparkar and Mrs. Swati Soparkar for the
Appellant. Ms. Paurami Sheth for the Respondent.
ORDER
Akil Kureshi, J. - Assessee has filed this appeal against the judgment
of the Income Tax Appellate Tribunal (for short 'the Tribunal') dated
17th September 2010 and further order in Miscellaneous Application
passed by the Tribunal on 06th January 2012. The following questions
have been presented for our consideration :
"(i) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in confirming the order of CIT
(A) that the assessment of the assessee was to be done on July to June
basis instead of financial year basis ?
(ii) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in not taking into account the
plea of the assessee that in the completed assessment of A.Y. 1983-84,
the assessee was taxed on financial year basis ?
(iii) Whether, in the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in law in upholding the
observation of CIT(A) by estimating the cash receipts from cellar and
ground floor at Rs. 11,60,658/- and Rs.30,76,009/- respectively and
the cheque receipt at Rs.7,34,918/- and Rs.20,78,916/- respectively ?
(iv) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in upholding the view of both
the lower authority thereby charging interest under Section 139 of
Rs.7,97,324/- and interest under Section 215 of Rs.54,07,935/- inspite
of the facts that there was no mention thereof in the assessment order
or that these are re assessment proceedings ?
(v) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in upholding the decision of
CIT(A) whereby stating that the Rs. 2,87,387/- being 10% of gross
profit on cheque receipt and in taxing the entire cash money of Rs.
42,36,667/- making a total of Rs. 45,18,054/- as income from
construction business ?
(vi) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in not allowing the deduction
of Rs. 32 lakhs which were expended for vacating the Occupants/
tenants from the land on which the building was constructed ?
(vii) Whether, in the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in law in not taking into
consideration that action and order u/s 147 were without jurisdiction
?
(viii) Whether, in the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in law in confirming the order
of CIT(A) that additions under section 68, 69 and 69A etc are to be
made in the year of search if cannot be held that they are respect of
A.Y. 1985-86 ?"
2. Though multiple questions have been framed, the centre issue
pertains to additions sustained by the Tribunal at the rate of 15% of
the 'on money' received by the assessee. The learned counsel for the
appellant pointed out that before the Tribunal the assessee had
canvassed that not the entire 'on money' received but only the profit
element could be taxed in the hands of the assessee. The contention of
the assessee was substantially accepted by the Tribunal. The additions
were limited to 15% of the 'on money' receipts.
3. From the impugned orders, we notice that before the Tribunal at the
time of hearing of the appeal, the assessee had confined the
contentions to one noted above and had not raised any other
substantives grounds. That being the position, when the Tribunal
accepted the contention of the Tribunal to a larger extent and limited
the additions to 15% of the 'on money' receipts, in our opinion, no
further examination at the end of the assessee is called for. It is,
of course, true that the assessee had suggested addition of 10%.
However, not accepting such suggestion would hardly give any rise to a
question of law. We are also conscious that the decision of the
Tribunal is called in question by the Revenue and the Tax Appeal is
admitted. However, when the assessee's sole contention before the
Tribunal was substantially accepted, we do not see any purpose for
surviving this appeal. The appeal is dismissed.
Tribunal substantially accepting contention of assessee that not
entire on money received but only profit element could be taxed in its
hands and sustained addition at rate of 15 per cent of on money
received by assessee, appeal by assessee against order of Tribunal did
not survive
■■■
[2013] 33 taxmann.com 62 (Gujarat)
HIGH COURT OF GUJARAT
Jay Builder
v.
Assistant Commissioner of Income-tax, Circle 6 (2)*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 255 of 2012†
DECEMBER 11, 2012
Section 253, read with section 69A, of the Income-tax Act, 1961 -
Appellate Tribunal - Appealable Orders [Aggrieved party] - Assessee, a
builder, received on money while selling properties constructed by it
- Assessing Officer taxed entire on money received by assessee -
Assessee contended before Tribunal that not entire on money received
but only profit element could be taxed in its hands - Tribunal
substantially accepted contention and sustained addition at rate of 15
per cent of on money received by assessee - Whether when assessee's
sole contention before Tribunal was substantially accepted, appeal of
assessee did not survive - Held, yes [Para 3][In favour of revenue]
HELD
■ When the Tribunal accepted the contention of the assessee to a
larger extent and limited the addition to 15 per cent of the on money
receipts, no further examination at the end of the assessee is called
for. It is, of course, true that the assessee had suggested addition
of 10 per cent. Not accepting such suggestion would hardly give any
rise to a question of law. When the assessee's sole contention before
the Tribunal was substantially accepted, there is no purpose for
surviving the appeal. [Para 3]
S.N. Soparkar , B.S. Soparkar and Mrs. Swati Soparkar for the
Appellant. Ms. Paurami Sheth for the Respondent.
ORDER
Akil Kureshi, J. - Assessee has filed this appeal against the judgment
of the Income Tax Appellate Tribunal (for short 'the Tribunal') dated
17th September 2010 and further order in Miscellaneous Application
passed by the Tribunal on 06th January 2012. The following questions
have been presented for our consideration :
"(i) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in confirming the order of CIT
(A) that the assessment of the assessee was to be done on July to June
basis instead of financial year basis ?
(ii) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in not taking into account the
plea of the assessee that in the completed assessment of A.Y. 1983-84,
the assessee was taxed on financial year basis ?
(iii) Whether, in the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in law in upholding the
observation of CIT(A) by estimating the cash receipts from cellar and
ground floor at Rs. 11,60,658/- and Rs.30,76,009/- respectively and
the cheque receipt at Rs.7,34,918/- and Rs.20,78,916/- respectively ?
(iv) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in upholding the view of both
the lower authority thereby charging interest under Section 139 of
Rs.7,97,324/- and interest under Section 215 of Rs.54,07,935/- inspite
of the facts that there was no mention thereof in the assessment order
or that these are re assessment proceedings ?
(v) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in upholding the decision of
CIT(A) whereby stating that the Rs. 2,87,387/- being 10% of gross
profit on cheque receipt and in taxing the entire cash money of Rs.
42,36,667/- making a total of Rs. 45,18,054/- as income from
construction business ?
(vi) Whether, in the facts and circumstances of the case, the Income
Tax Appellate Tribunal was right in law in not allowing the deduction
of Rs. 32 lakhs which were expended for vacating the Occupants/
tenants from the land on which the building was constructed ?
(vii) Whether, in the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in law in not taking into
consideration that action and order u/s 147 were without jurisdiction
?
(viii) Whether, in the facts and circumstances of the case, the
Income Tax Appellate Tribunal was right in law in confirming the order
of CIT(A) that additions under section 68, 69 and 69A etc are to be
made in the year of search if cannot be held that they are respect of
A.Y. 1985-86 ?"
2. Though multiple questions have been framed, the centre issue
pertains to additions sustained by the Tribunal at the rate of 15% of
the 'on money' received by the assessee. The learned counsel for the
appellant pointed out that before the Tribunal the assessee had
canvassed that not the entire 'on money' received but only the profit
element could be taxed in the hands of the assessee. The contention of
the assessee was substantially accepted by the Tribunal. The additions
were limited to 15% of the 'on money' receipts.
3. From the impugned orders, we notice that before the Tribunal at the
time of hearing of the appeal, the assessee had confined the
contentions to one noted above and had not raised any other
substantives grounds. That being the position, when the Tribunal
accepted the contention of the Tribunal to a larger extent and limited
the additions to 15% of the 'on money' receipts, in our opinion, no
further examination at the end of the assessee is called for. It is,
of course, true that the assessee had suggested addition of 10%.
However, not accepting such suggestion would hardly give any rise to a
question of law. We are also conscious that the decision of the
Tribunal is called in question by the Revenue and the Tax Appeal is
admitted. However, when the assessee's sole contention before the
Tribunal was substantially accepted, we do not see any purpose for
surviving this appeal. The appeal is dismissed.
IT: Where there was clerical mistake in e-return, Assessing Officer
should rectify such mistake
■■■
[2013] 33 taxmann.com 25 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'E'
Sumanchandra G. Mehta
v.
Income-tax Officer -21(2)(2)*
I.P. BANSAL, JUDICIAL MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
IT Appeal Nos. 564 & 565 (Mum.) of 2012
[ASSESSMENT YEAR 2009-10]
JANUARY 24, 2013
Section 139 of the Income-tax Act, 1961 - Return of income - General
[Clerical error in e-return] - Assessment year 2009-10 - While filing
e-return, assessee had shown interest income earned as well as
interest paid under head 'income from other sources' - When this
return was processed, negative figure of interest paid was rejected
and assessed income was computed under section 143(1) by taking
positive figure of interest received - Whether there was no reason why
such error should not be rectified by Assessing Officer - Held, yes -
Whether therefore, matter was to be remanded back to Assessing Officer
to deduct interest paid from interest received - Held, yes [Paras 8 &
9][In favour of assessee]
CASE REVIEW
Srikant Real Estate (P.) Ltd. v. ITO [2013] 140 ITD 155/[2012] 26
taxmann.com 265 (Mum.) (para 10) followed.
CASES REFERRED TO
Srikant Real Estate (P.) Ltd. v. ITO [2013] 140 ITD 155/[2012] 26
taxmann.com 265 (Mum.) (para 10).
Apurva R. Shah for the Appellant. Rajarshi Dwivedy for the Respondent.
ORDER
N.K. Billaiya, Accountant Member - These two appeals by two different
assessees are directed against two separate orders of Ld. CIT(A)-28,
Mumbai dt. 25.11.2011 pertaining to assessment year 2009-10. As both
these appeals of different assessees have common ground and common
issues involved, they were heard together and are disposed by this
common order for the sake of convenience.
2. The grievance of the assessee in both these appeals relate to the
adjustment made while processing the e-return. First we will take up
the facts of ITA No. 564/M/2012.
3. In this case while filing the e-return, the assessee has shown
interest received as income under the head "income from other sources"
at Rs. 3,38,345/- and at the same time under the very same head has
shown interest paid as Rs. - 2,33,535/-. When this return was
processed the negative figure of interest paid was rejected and the
assessed income was computed u/s. 143(1) by taking the positive figure
of interest received at Rs. 3,38,345/-. It is the say of the assessee
that net interest income of Rs. 1,04,810/- should have been assessed
u/s. 143(1) of the Act.
4. When this matter was agitated before the Ld. CIT(A), the CIT(A) was
of the opinion that it was an incorrect claim on account of the
assessee, failing to reflect the correct details in the return of
income, as per computerized processing programme, the AO has rightly
made adjustments for this incorrect claim for deduction and held that
there is no mistake in the processing of return and further concluded
that no appeal lies against such processing where adjustments have
been correctly made during processing as per Sec. 143(1)(a)(ii) of the
Act.
5. Aggrieved by this finding of Ld. CIT(A), assessee is before us.
CBDT, assuming powers, under delegated legislation came out with
"dictate" and made it mandatory for all corporate assessees to file
their returns in electronic form. Meaning thereby that henceforth
return of income will be paperless returns. Thereafter, the CBDT
included partnership firms and all assessee which were subject to tax
audit within this ambit. The filing of e-return was further enhanced
to include all assessees whose taxable income is more than 10 lakhs.
To facilitate the taxpayers, the CBDT has provided free downloaded
softwares/schema enabling the taxpayers to prepare e-returns and
convert such returns into an XML file. Private payers also jumped into
the band-wagon and came out with softwares for preparing e-returns and
also enabling the taxpayers to upload returns electronically.
6. In this foray, no one cared to educate the taxpayers about the
nuances of preparing an e-return vis-à-vis filing details in the
return forms. This has resulted into many clerical errors because of
the ignorance of the taxpayers in acclimatizing themselves with the
latest technology.
7. The present case is a perfect example of such ignorance. The
assessee has shown interest income earned as well as interest paid
under the head "income from other sources". Not realizing that a
negative figure is not accepted by the server and therefore the
interest paid shown as Rs. 2,33,535/- was rejected by the server while
processing the return.
8. No doubt the CBDT has the powers to frame the rules but, at the
same time, it cannot benefit from the ignorance of the taxpayers using
the latest technology. We do not find any reason why such error should
not be rectified by the AO. This is not ignorance of law but ignorance
of the usage of the latest technology.
9. Therefore in the interest of justice and fair play to the taxpayer,
we restore this issue back to the files of AO. The AO is directed to
examine the claim of the assessee of interest paid at Rs. 2,33,535/-
and if satisfied with the claim, the AO is directed to deduct the same
from the positive interest figure of Rs. 3,38,345/- meaning thereby
that only Rs. 1,04,810/-should be added to the taxable income.
10. Before parting, a similar issue came up for hearing before the
Tribunal in the case of Srikant Real Estate (P.) Ltd. v. ITO [2013]
140 ITD 155/[2012] 26 taxmann.com 265 (Mum.) wherein one of us (AM) is
the author of the decision where also the Tribunal has taken a similar
view and directed the AO to rectify the error. Drawing support from
the findings given in the aforesaid case, this appeal is also restored
back to the files of the AO with the above direction.
11. In the result, the appeal filed by the assessee is allowed for
statistical purposes.
ITA No. 565/Mum/2012
The issues involved are identical with the issue in ITA No. 564/M/12,
though quantum may differ, therefore, on similar lines, similar
reasons, the appeal filed by the assessee in ITA No. 565/M/12 for
assessment year 2009-2010 is also allowed for statistical purposes.
should rectify such mistake
■■■
[2013] 33 taxmann.com 25 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'E'
Sumanchandra G. Mehta
v.
Income-tax Officer -21(2)(2)*
I.P. BANSAL, JUDICIAL MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
IT Appeal Nos. 564 & 565 (Mum.) of 2012
[ASSESSMENT YEAR 2009-10]
JANUARY 24, 2013
Section 139 of the Income-tax Act, 1961 - Return of income - General
[Clerical error in e-return] - Assessment year 2009-10 - While filing
e-return, assessee had shown interest income earned as well as
interest paid under head 'income from other sources' - When this
return was processed, negative figure of interest paid was rejected
and assessed income was computed under section 143(1) by taking
positive figure of interest received - Whether there was no reason why
such error should not be rectified by Assessing Officer - Held, yes -
Whether therefore, matter was to be remanded back to Assessing Officer
to deduct interest paid from interest received - Held, yes [Paras 8 &
9][In favour of assessee]
CASE REVIEW
Srikant Real Estate (P.) Ltd. v. ITO [2013] 140 ITD 155/[2012] 26
taxmann.com 265 (Mum.) (para 10) followed.
CASES REFERRED TO
Srikant Real Estate (P.) Ltd. v. ITO [2013] 140 ITD 155/[2012] 26
taxmann.com 265 (Mum.) (para 10).
Apurva R. Shah for the Appellant. Rajarshi Dwivedy for the Respondent.
ORDER
N.K. Billaiya, Accountant Member - These two appeals by two different
assessees are directed against two separate orders of Ld. CIT(A)-28,
Mumbai dt. 25.11.2011 pertaining to assessment year 2009-10. As both
these appeals of different assessees have common ground and common
issues involved, they were heard together and are disposed by this
common order for the sake of convenience.
2. The grievance of the assessee in both these appeals relate to the
adjustment made while processing the e-return. First we will take up
the facts of ITA No. 564/M/2012.
3. In this case while filing the e-return, the assessee has shown
interest received as income under the head "income from other sources"
at Rs. 3,38,345/- and at the same time under the very same head has
shown interest paid as Rs. - 2,33,535/-. When this return was
processed the negative figure of interest paid was rejected and the
assessed income was computed u/s. 143(1) by taking the positive figure
of interest received at Rs. 3,38,345/-. It is the say of the assessee
that net interest income of Rs. 1,04,810/- should have been assessed
u/s. 143(1) of the Act.
4. When this matter was agitated before the Ld. CIT(A), the CIT(A) was
of the opinion that it was an incorrect claim on account of the
assessee, failing to reflect the correct details in the return of
income, as per computerized processing programme, the AO has rightly
made adjustments for this incorrect claim for deduction and held that
there is no mistake in the processing of return and further concluded
that no appeal lies against such processing where adjustments have
been correctly made during processing as per Sec. 143(1)(a)(ii) of the
Act.
5. Aggrieved by this finding of Ld. CIT(A), assessee is before us.
CBDT, assuming powers, under delegated legislation came out with
"dictate" and made it mandatory for all corporate assessees to file
their returns in electronic form. Meaning thereby that henceforth
return of income will be paperless returns. Thereafter, the CBDT
included partnership firms and all assessee which were subject to tax
audit within this ambit. The filing of e-return was further enhanced
to include all assessees whose taxable income is more than 10 lakhs.
To facilitate the taxpayers, the CBDT has provided free downloaded
softwares/schema enabling the taxpayers to prepare e-returns and
convert such returns into an XML file. Private payers also jumped into
the band-wagon and came out with softwares for preparing e-returns and
also enabling the taxpayers to upload returns electronically.
6. In this foray, no one cared to educate the taxpayers about the
nuances of preparing an e-return vis-à-vis filing details in the
return forms. This has resulted into many clerical errors because of
the ignorance of the taxpayers in acclimatizing themselves with the
latest technology.
7. The present case is a perfect example of such ignorance. The
assessee has shown interest income earned as well as interest paid
under the head "income from other sources". Not realizing that a
negative figure is not accepted by the server and therefore the
interest paid shown as Rs. 2,33,535/- was rejected by the server while
processing the return.
8. No doubt the CBDT has the powers to frame the rules but, at the
same time, it cannot benefit from the ignorance of the taxpayers using
the latest technology. We do not find any reason why such error should
not be rectified by the AO. This is not ignorance of law but ignorance
of the usage of the latest technology.
9. Therefore in the interest of justice and fair play to the taxpayer,
we restore this issue back to the files of AO. The AO is directed to
examine the claim of the assessee of interest paid at Rs. 2,33,535/-
and if satisfied with the claim, the AO is directed to deduct the same
from the positive interest figure of Rs. 3,38,345/- meaning thereby
that only Rs. 1,04,810/-should be added to the taxable income.
10. Before parting, a similar issue came up for hearing before the
Tribunal in the case of Srikant Real Estate (P.) Ltd. v. ITO [2013]
140 ITD 155/[2012] 26 taxmann.com 265 (Mum.) wherein one of us (AM) is
the author of the decision where also the Tribunal has taken a similar
view and directed the AO to rectify the error. Drawing support from
the findings given in the aforesaid case, this appeal is also restored
back to the files of the AO with the above direction.
11. In the result, the appeal filed by the assessee is allowed for
statistical purposes.
ITA No. 565/Mum/2012
The issues involved are identical with the issue in ITA No. 564/M/12,
though quantum may differ, therefore, on similar lines, similar
reasons, the appeal filed by the assessee in ITA No. 565/M/12 for
assessment year 2009-2010 is also allowed for statistical purposes.
Taxation of Gift- Under Income Tax
Receipts without consideration [ Sec. 56(2)] [Applicable from AY 2005-06 onward]
Four categories chargeable to tax
A receipt of sum of money or property* without consideration chargeable to tax under S. 56(2)(VII) if the following condition are satisfied.
1. Individual or HUF
2. Received on or after 01.10.2009
3. Sum of money or property falls in any of the following category
4. It does not fall under exempted category
Category
| Categories | Tax Treatment | For ceiling of Rs. 50000 single transaction or all transaction of the Previous Year will be considered. |
| 1. Any sum of money [ gift in cash, cheque or draft] | Aggregate amount of sum of money from one or more persons during the PY exceeding Rs. 50000 shall be chargeable to tax | All transaction |
| 2. Immovable property without consideration | Any immovable property is received without any consideration , the stamp duty value of which exceeds Rs. 50000 ,will be chargeable to tax . If however an immovable property is purchased or acquired for consideration which is lower than stamp duty value , nothing will be taxable in hand of purchaser/ recipient . Even if the difference between the stamp duty value and the consideration paid/ payable is more than Rs. 50000 | Single transaction |
| 3. Movable property** without consideration | If aggregate fair market value of the movable properties received without consideration during PY exceeds Rs. 50000 whole market value shall be chargeable to tax. | All transaction |
| 4. Movable property for consideration which is less than the market value | If the consideration is less than the fair market value of the property by an amount exceeding Rs. 50000 , then difference is chargeable to tax. | All transaction |
• Property** property for this purpose means the following capital assets of the assessee i.e. recipient : immovable property being land or building or both, shares and securities, jewellery, Archaeological collection, drawings , painting, sculpture, any art of work or bullion.
Exempted Category
1. Money or property received from relative
2. Money or property received on the occasion of marriage
3. Money or property received by way of will or inheritance
4. Money or property received on contemplation of death
5. Money or property received from local authority
6. Money or property received from any fund, foundation, university, other educational institute, hospital, medical institution, any trust or institution referred in Sec. 10[23C].
7. Money or property received from any charitable institute registered under section 12AA.
Relative means ;
| List of Male Donors | List of Female Donors |
| Father (Papa or Pitaji) | Mother (Maa or Mummy) |
| Brother (Bhai) | Sister (Bahin) |
| Son (Beta or Putra) | Daughter (Beti or Putri) |
| Grand Son (Pota or Potra) | Grand Daughter (Poti or Potri) |
| Husband (Pati) | Wife (Patni) |
| Sister's Husband (Jija) | Brother's Wife (Bhabhi) |
| Wife's Brother (Sala) | Wife's Sister (Sali) |
| Husband's Brother (Dewar) | Husband's Sister (Nanad) |
| Mother's Brother (Mama) | Mother's Sister (Mausi) |
| Mother's Sister Husband (Mausa) | Wife's brother's wife (Sala Heli) |
| Father's Brother (Chaha or Tau) | Father's Brother's Wife (Chachi or Tai) |
| Father's Sister's Husband(Fufa) | Father's Sister (Bua) |
| Grand Father (Dada) | Grand Mother (Dadi) |
| Great Grand Father (Pardada) | Great Grand Mother (Pardadi) |
| Daughter's Husband (Jawai) | Son's Wife (Bahu or Putra Vadhu) |
| Wife's Father (Sasur) | Wife's Mother (Sas) |
| Husband's Father (Sasur) | Husband's Mother (Sas) |
| Wife's Grand Father (Dada Sasur) | Husband's Grand Mother (DadiSas) |
| Husband's Grand Father (Dada Sasur) | Wife's Grand Mother (Dadi Sas) |
| Wife's Great Grand Father(Bada Dada Sasur) | Husband's Great Grand Mother (Badi Dadi Sas) |
| Husband's Great Grand Father(Bada Dada Sasur) | Wife's Great Grand Mother (Badi Dadi Sas) |
| Brother's Wife(Bhabhi) | Mother's Brother's Wife (Mami) |
| Husband's Brother's Wife(Devrani or Jithani) |
Other relevant points :
1. In the case of movable property value to be considered shall be fair market value as on the date of receipt.
2. In case of immovable property, the value of the property shall be stamp duty value of the property.
3. Gift received by HUF from its member shall be treated as gift received from relative.
4. The provision is applicable whether recipient/ Donor is resident or non resident.
5. Gift of agriculture land situated in rural area in India , is not chargeable to tax in the hand of recipient as the agriculture land is not capital assets under Section 2[14].
VALUATION RULES -
| Properties | Valuation |
| Immovable property | Stamp duty value |
| Jewellery, Archaeological collection, drawings , painting, sculpture, any art of work or bullion |
|
| Quoted shares and securities through transaction in recognized stock exchange | Value as recorded in stock exchange. |
| Quoted shares and securities [ not being received through transaction in recognized stock exchange] | Lowest price of such shares traded in any recognized stock exchange in India. |
| Unquoted equity shares | =Net worth*paid up value one share/total amount of paid up equity shares capital as shown in the balance sheet. |
| Other unquoted shares and securities | Market value shall be the price it would fetch if sold in the open market on the valuation date and the assessee may get report from category -1 Merchant Banker or Chartered Accountants in respect of such valuation |
Some Examples :
| Question | Answer |
| 1. On June 1,2011, X get gift of House property in Delhi of Rs. 50 lacs [ Stamp duty value same]. from Y and property valuing Rs. 50000 in Nagpur from Z. | X will be taxed for Delhi property of Rs. 50 lacs under the head "income from other sources" though the Nagpur property will not be taxed as it does not exceed Rs. 50000. In the hand of Y and Z, nothing will be tax as capital gain as gift is not treated a transfer under sec. 47[iii] and section 50C has no role to play |
| 2. A purchased property on 23.5.2011 from X in Delhi for Rs. 30 lacs stamp duty value of the property is Rs.50 lacs. What is chargeability of the same under S. 56(2). | Nothing will be chargeable in the hand of A under the head "income from other sources". Cost of acquisition of property for A shall be Rs. 30 lacs for further sale and capital gain . In the hand X, value of property sold shall be Rs. 50 lacs under S. 50C. for capital gain purpose. |
| 3. Immovable property received as gift in Stock in trade by A from X of the value of Rs. 50 lacs. | Section 56[2][viii] shall be applicable only when property is received as capital assets. Since house property in the hand of A is as stock in trade , nothing shall be taxable. |
| 4. Motor car received as gift. | Nothing is taxable under S. 56[2][vii]. |
| 5. X receive property under will . | Not taxable. |
Receipt of shares by a Firm or a closely held company
Clause (viia) has been inserted in section 56(2) with effect from 1.6.2010 . this is applicable if the following conditions are satisfied -
1. Recipient is form or closely held company[ company in which the public are not substantially interested.
2. The assets which is received is in the form of share in closely held company.
3. These shares are received from any person.
4. Such shares are received on or after 1.6.2010.
5. Such shares are received without consideration or for inadequate consideration.
6. Such shares are not received by way of transaction referred to in Sec. 47[via]/[vic]/[vicb]/[vid]/[vii].
Consequences if these conditions are satisfied.
| Situations | Taxabiity |
| 1.shares are received without consideration and aggregate value of shares does not exceed Rs. 50000. | Nothing is taxable. |
| 2.shares are received without consideration and aggregate value of shares exceed Rs. 50000. | Aggregate fair value of shares shall be taxable in the hand of recipient. |
| 3.shares are received for consideration which is less than the fair market value and the aggregate difference does not exceed Rs. 50000. | Nothing is taxable |
| 4. shares are received for consideration which is less than the fair market value and the aggregate difference exceed Rs. 50000. | Aggregate fair market value minus the aggregate consideration will be taxable in the hand of the recipient. |
Share premium in excess of fair market value [ S.56(2)(viib)
Applicable from assessment year 2013-14.
Where a company [ not being company in which the public are substantially interested] received in any previous year from any resident person, any consideration for issue of shares . If the consideration for issue of shares exceed the face value of such shares, the aggregate of consideration exceeding the market value of shares shall be taxable in the hand of recipient company under the head ' income from other sources"
• The fair market value of the shares shall be the higher of the value:
a] as may be determined in accordance with the prescribed method; or
b] as may be substantiated by company to the satisfaction of the assessing officer, based on the value of its assets, including tangible assets, being goodwill, know how, patent, copyright, trademark, licences, franchises, or any other business or commercial right of similar nature.
• This provision is not applicable in the following two cases:
a. Where the consideration is being received by venture capital undertaking from venture capital company or venture capital fund ; or
b. Where the consideration for issue of shares is received by company from a class or classes of person as notified by the Central Government.
We are of the considered opinion that the transaction in respect of the share trading was duly disclosed at the time of filing of the return. Some of the income was shown as long-tern capital gain and part of the income was also shown as speculative business in shares/scripts trading. As per the annexures, the assessee has disclosed the names of the companies, description of the shares, date of transfer of shares, sale consideration, cost of acquisition and the index cost. On the basis of the said calculation, the assessee has considered that the gain was long-term capital gain. However, that explanation of the assessee was not found satisfactory by the AO, therefore treated the same as speculative business. But the fact remained that there was no allegation of concealment of facts or dealing in sham transaction. Even this fact has also not been denied that some part of the trading in scripts/shares was disclosed by the assessee itself as speculative transaction. Meaning thereby the addition was made merely because of change in the head of income. On this issue, there are several decisions in favour of the assessee, as cited supra, wherein it was held that in the absence of any inaccuracy in the particulars of income or concealment of facts the penalty must not be levied. Respectfully following these decisions, we hereby reverse the findings of the authorities below and direct to delete the penalty.
ITAT "D" BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr.SHRAWAT, JUDICIAL MEMBER And
SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
I.T.A. No.2768/Ahd/2012
Assessment Year: 2008-09
Assessment Year: 2008-09
M/s.Crown Tradelink Pvt. Ltd.
Vs.
The Asst. CIT (OSD)
Date of Hearing : 31/01/13
Date of Pronouncement: 31/01/13
Date of Pronouncement: 31/01/13
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER:
This is an appeal filed by the Assessee arising from the order of ld.CIT(A)-XXI, Ahmedabad dated 23/10/2012 passed for A.Y. 2008-09 against the confirmation of penalty levied u/s.271(1)(c) of the IT Act of Rs. 1,63,093/-.
2. Facts in brief as emerged from the corresponding penalty order passed u/s.271(1)(c) of the IT Act dated 28/04/2011 and the assessment order made u/s.143(3) of the Act dated 31/10/2010 were that the assessee-company is in the business of trading of shares and securities. The assessee has furnished the return declaring loss of Rs.(-)18,72,866/-. The assessee had disclosed long-term capital loss at Rs.(-)10,56,605/-. This loss was disclosed after taking the benefit of indexation. Without claim of indexation benefit, the loss as per AO was at Rs.5,61,019/-. Therefore, loss on sale of shares was treated as speculation business. Further, in respect of trading of scripts; loss from speculative business was assessed by the AO. Finally, the assessment was competed by determining a total loss at Rs.(-) 12,56,620/- after treating the long-term capital gain and trading in scripts as speculative business loss. On account of the impugned addition, the AO has levied a penalty of Rs. 1,63,093/-. When the matter was carried before the First Appellate Authority, the ld.CIT(A) has held that the appellant had furnished inaccurate particulars of income, therefore the AO had correctly imposed the penalty, relevant portion is reproduced below:-
"4.1.3. I have carefully gone through the penalty order u/s.271(1)(c) of the I.T.Act passed by the AO and the submissions made by the appellant in this regard. The AO has pointed out that no further appeal against the order u/s.143(3) of the Act has been preferred by the appellant. The AO has elaborately brought out the fact that the appellant has furnished inaccurate particulars of its income on which additional taxes were levied vide order u/s.143(3) of the Act. Regarding argument of the appellant that mens-rea was absent in his case and his case was not that of willful concealment, it may be pointed out that mens-rea is no longer essential for imposition of penalty u/s.271(1)(c) of the I. T.Act. It is also noticeable that appellant's case is outside the ambit of CIT Vs. Reliance Petro Products Pvt.Ltd. (2010) (322 ITR 158) (SC), as this decision of the Hon 'ble Apex Court deals with statutory deductions. Considerign the facts and circumstances of the case and the discussion as above, I am of the view that the AO has correctly imposed the penalty of Rs.1,63,093/- u/s.271(1)(c) of the I. T.Act. The same is accordingly confirmed."
3. On the date of hearing from the side of the assessee, ld.AR Ms.Arti N.Shah appeared and from the side of the Revenue ld.Sr.DR Mr.T.Shankar appeared who has placed reliance on the decision of ITAT "B" Bench Ahmedabad in ITA Nos.951 & 952/Ahd/2010 for A.Ys.2003- 04 & 2004-05 titled as "The ACIT vs. Kevin Process Technologies Pvt.Ltd." order dated 14/12/2012. Ld.AR has informed that the complete information bout the share transactions was duly placed on record by filing return of income along with the annexures disclosing the facts and figures of the share transaction. The ld.AR Ms.Arthi N.Shah has drawn our attention on the return filed and the annexures of the said return. She has contested that there was change in the head of income but there was no allegation of sham transaction. For this legal proposition, she placed reliance on the following decisions:-(i) Pradeep Agarwal Joint Venture vs. ITO [39 DTR (Del)(Trib) 202]
(ii)CIT v. Shyam Tex International Ltd. [43 DTR (Del) 19]
(iii) Pfizer Pharmaceuticals Ltd. Vs. DCIT [49 DTR (Mum)(Tri) 16]
4. Having heard the submissions of both the sides and on due consideration of the facts of the case, we are of the considered opinion that the transaction in respect of the share trading was duly disclosed at the time of filing of the return. Some of the income was shown as long-tern capital gain and part of the income was also shown as speculative business in shares/scripts trading. As per the annexures, the assessee has disclosed the names of the companies, description of the shares, date of transfer of shares, sale consideration, cost of acquisition and the index cost. On the basis of the said calculation, the assessee has considered that the gain was long-term capital gain. However, that explanation of the assessee was not found satisfactory by the AO, therefore treated the same as speculative business. But the fact remained that there was no allegation of concealment of facts or dealing in sham transaction. Even this fact has also not been denied that some part of the trading in scripts/shares was disclosed by the assessee itself as speculative transaction. Meaning thereby the addition was made merely because of change in the head of income. On this issue, there are several decisions in favour of the assessee, as cited supra, wherein it was held that in the absence of any inaccuracy in the particulars of income or concealment of facts the penalty must not be levied. Respectfully following these decisions, we hereby reverse the findings of the authorities below and direct to delete the penalty.
5. In the result, Assessee's appeal is allowed.
Exemption u/s. 10(23C)(vi) can be claimed without applying for registration u/s. 12A
In our considered opinion, exemption under Section 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration under Section 12A of the Act as it is not required to fulfil the conditions mentioned under Section 11 of the Act while claiming exemption under Section 10(23C) (vi) of the Act. Further in the order passed by the Commissioner of Income Tax, there is no whisper that the assessee has not fulfilled any of the conditions of the Section 11 of the Act for claiming it to be a charitable institution. He had solely relied on the order of the Chief Commissioner of Income Tax passed under Section 10(23C) (vi) of the Act while denying the exemption under the aforesaid sub-section. We are, therefore, of the considered opinion that the Tribunal had rightly restored the registration on the ground that in the Assessment Years 2004-05 and 2006-07 benefit of exemption/deduction under Section 11 of the Act was allowed to the respondent-assessee.
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax
v.
Jeevan Deep Charitable Trust
IT Appeal No. 471 of 2011
Date of pronouncement – 29.10.2012
ORDER
1. The present appeal has been filed under Section 260-A of the Income-tax Act, 1961, hereinafter referred to as "the Act" against the order dated 08.12.2009 passed by the Income Tax Appellate Tribunal, Allahabad. The Revenue has proposed the following three substantial questions of law said to be arisen out of the order of the Tribunal.
"(1) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in coming to the conclusion that registration granted to the assessee has been cancelled u/s 12-AA(3) of the Act merely on the ground that approval u/s 10(23C) (vi) of the Act had been denied to the assessee by completely overlooking and ignoring the fact that the CIT had cancelled the registration after having satisfied himself that the activities of the assessee society were not charitable in nature?
(2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the assessee is eligible for continued registration despite the fact that the assessee does not fulfill the requirement of being a charitable institution?
(3) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in not taking into consideration the decisions relied upon by the CIT in his order u/s 12-AA (3) of the Act while cancelling the registration of the assessee society?"
2. Briefly stated that the facts giving rise to the present appeal are as follows:
The respondent-assessee was granted registration under Section 12A of the Act being a charitable institution. It claimed exemption under Section 10(23C)(vi) of the Act on the ground that the income earned by it is relating to educational institution as the institution is solely for the educational purposes. The claim of exemption under Section 10(23C)(vi) of the Act was disallowed by the Chief Commissioner of Income Tax, Varanasi vide order dated 25th February, 2009 on the ground that in the objects of the institution there are certain other objects, which proves that the institution has not solely been established for educational purposes. Relying on the said order proceeding under Section 12AA(3) of the Act was initiated and vide order dated 12th October, 2009, the Commissioner of Income Tax, Varanasi cancelled the registration granted to the respondent-assessee under Section 12A of the Act. Feeling aggrieved by the order dated 12th October, 2009 cancelling the registration granted under Section 12A of the Act, the respondent-assessee preferred an appeal before the Income Tax Appellate Tribunal, Allahabad which was registered as I.T.A. No.252(Alld)09. The Tribunal vide impugned order dated 8th December, 2009 had allowed the appeal and set aside the order of the Commissioner of Income Tax dated 12th October, 2009 and the registration had been restored. The Tribunal had come to the conclusion that the proceeding under Section 10(23C) (vi) of the Act is an independent proceeding and cannot be made the sole ground for cancellation of the registration granted under Section 12A of the Act. It further found that the deduction under Section 11 of the Act has been allowed to the respondent-assessee herein for the Assessment Year 2006-07 and in the assessment order passed for the Assessment Year 2004-05 exemption under Section 11 of the Act was disallowed, which order was reversed in appeal by the Commissioner of Income Tax (Appeal), Varanasi, allowing the deduction under Section 11 of the Act vide order dated 3.10.2007, which order has been accepted by the Revenue as no second appeal was preferred against the said order.
3. We have heard Sri Dhananjay Awasthi, learned Standing Counsel for the Revenue and Sri Kunal Ravi Singh, learned counsel appearing for the respondent-assessee.
4. Sri Awasthi, learned counsel, submitted that as the institution has been established solely for the educational purposes and is a profit earning institution exemption under Section 10(23C) (vi) of the Act having been rightly denied to it as it ceased to be a charitable institution., therefore, the Tribunal has erred in restoring the registration. The submission is wholly misconceived. Admittedly, one of the objects of the trust was for running educational institutions and imparting education. The trust , however, has other objects also, which are reproduced below:
"(i) Development of Scientific Education amongst Indian Children.
(ii) Modern Education with moral duty and character building in accordance with Indian culture as well as development of educational atmosphere.
(iii) To provide as well as arrange commercial and practical education to children.
(iv) Development as well as publicize the Indian culture and arts.
(v) To establish the school and management thereof from Primary education to Intermediate Education.
(vi) To publicize as well as to educate and propagate the Cottage Industries as well as industries based on village amongst the youth so that they may lead their life independently and freely."
5. In our considered opinion, exemption under Section 10(23C)(vi) of the Act can be claimed by an assessee without applying for registration under Section 12A of the Act as it is not required to fulfil the conditions mentioned under Section 11 of the Act while claiming exemption under Section 10(23C) (vi) of the Act. Further in the order passed by the Commissioner of Income Tax, there is no whisper that the assessee has not fulfilled any of the conditions of the Section 11 of the Act for claiming it to be a charitable institution. He had solely relied on the order of the Chief Commissioner of Income Tax passed under Section 10(23C) (vi) of the Act while denying the exemption under the aforesaid sub-section. We are, therefore, of the considered opinion that the Tribunal had rightly restored the registration on the ground that in the Assessment Years 2004-05 and 2006-07 benefit of exemption/deduction under Section 11 of the Act was allowed to the respondent-assessee.
6. In view of the foregoing discussion, we do not find any error in the impugned order passed by the Income Tax Appellant Tribunal, Allahabad. The appeal fails and is dismissed.
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CENVAT credit written off on surrender of Excise Registration Certificate is allowable as deduction u/s 37
In the facts of the present case, the assessee had paid CENVAT on purchase of raw material which was deposited in its PLA account for claiming the benefit of set off against the excise duty payable on the manufactured items i.e. branded yearn. The assessee was paying higher rate of excise duty on the raw material purchased by it as against the rate of excise duty applicable on the manufactured items, consequently credit of excise duty was available with the assessee. The said excise duty paid from year to year was not claimed as an expenditure but was carried forward from year to year to be adjusted against the excise duty payable by the assessee on its manufactured items. However, during the year under consideration the assessee closed down its manufacturing unit and consequently the benefit of the CENVAT credit remained unadjusted. Once the manufacturing unit of the assessee is closed down, admittedly the benefit of CENVAT credit not availed of against the excise duty payable on manufactured items, cannot be utilized by the assessee and the said write off of CENVA T credit, is allowable as an expenditure in the year under consideration on the closure of the business. The write off of CENVAT credit by the assessee in its books of account is thus allowable as business expenditure under the provisions of section 37(1) of the Act relatable to the year, in which the manufacturing activities are closed down by the assessee. Accordingly, we direct the Assessing Officer to allow the claim of the assessee in respect of write off of CENVAT credit.
ITAT " D " BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr.SHRAWAT, JUDICIAL MEMBER AND
SHRI T.R. MEENA, ACCOUNTANT MEMBER
SHRI T.R. MEENA, ACCOUNTANT MEMBER
I.T.A. No.1936/Ahd/2010
(Assessment Year : 2006-07)
(Assessment Year : 2006-07)
ACIT Vs. M/s.Rangoli Industries Pvt.Ltd.
Date of Hearing : 07/01/2013
Date of Pronouncement: 11/1/13
Date of Pronouncement: 11/1/13
O R D E R
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal filed by the Revenue arising from the order of Ld. CIT(A)-IV, Surat dated 22.02.2010 passed for A.Y. 2006-07 and the ground raised is as follows:-
1. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-IV, Surat has erred in allowing the excise duty written-off of Rs.65,24,121/-, disallowed by the AO treating the same as wrong claim.
2. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) r.w.s. 147 dated 22.12.2009 were that the assesseecompany is following the 'Mercantile" system of accounting. It was noted by the Assessing Officer that for the year under consideration an amount of Rs.65,24,121/- was written off by debiting the profit & loss account pertaining to Excise Duty. According to him, Government had declared the scheme wherein the assessee has been given an option to continue with the present rate of Excise Duty or to avail a route of exemption. After going through the submissions of the assessee, the Assessing Officer was not convinced and held that there was no evidence from the Excise Department through which the assessee could establish that the assessee was entitled to write off the amount in the year under consideration. When the matter was carried before the first appellate authority, the Learned CIT(Appeals) has allowed the claim of the assessee by observing as under:-
"1. have considered the findings of the AO and the submissions made by the appellant. From the facts of the case, it is evident that the appellant has opted for the exemption route without availing Cenvat Credit and therefore, unutilized Cenvat Credit of Rs.60,24,121/- as availed on the inputs, was written off in the regular books of accounts by the assessee which is evident from RG-23A Part-II register as produced before the AO. The fact that the CENVAT Credit is pertaining to the inputs and that the purchase cost of the input has been debited net of CENVAT credit in the P&L account is not under dispute at all. Accordingly, I am inclined to agree with the assessee that the Cenvat Credit attributable to inputs remaining un-utilised on account of exemption of excise duty on the finished goods is allowable revenue expenditure since, the cost of the inputs i.e. the raw materials has been debited in the P & L account net off the Cenvat claim. Further, CENVAT credit / Excise duty on inputs has been written off in the year under consideration, is not capital in nature or a personal expenditure but is in respect of the raw materials and thus, the claim of the appellant is undoubtedly wholly and exclusively for the purpose of its business pertaining to the year under consideration and hence, fully satisfies the conditions as laid down in section 37 of the IT Act. The argument of the AO that the impugned deduction is allowable against the future expenses has no force since the assessee has already surrendered its license under the Excise Act and opted for the exemption route and hence, there is no question of setting off the said expenditure in future. Further, the same view has also been taken in the cases of ACIT Vs. Naffar Chandra Jute Mills Ltd. (2004) 90 TTJ (Cal) 934, Honda Seil Power Products Ltd. Vs. DCIT (2000) 69 TTJ (Del) 97 and DCIT Vs. M/s.Jay Laxmi Mart Pvt.Ltd. in ITA No.2 64/A hd/2007 and thus the appellant's case is covered by these decisions."
3. From the side of the Revenue, ld.Sr.DR Mr.T.Shankar appeared and placed reliance on the findings of the A.O. On the other hand, from the side of the respondent-assessee, ld.AR Mr.Mehul R.Shah appeared and placed reliance on the following cases:-
(i) decision of ITAT Bench "B" Chandigarh in the case of M/s.Mohan Spinning Mills vs. ACIT (ITA No.1212/Chd/20 11 – A.Y. 2006-07 order dtd.25 .4.12)
(ii) decision of ITAT Bench "A" Ahmedabad in the case of Girdhar Fibres Pvt.Ltd. vs. ACIT (iii) (In ITA No.2027/Ahd/2009– A.Y. 2006-07 order dtd.12.10.12) 4. Having heard the submissions of both the sides and considering the facts of the case as narrated before the lower authorities, it was observed that the aforesaid amount of the Excise Duty was written off at the time of surrender of Excise Registration Certificate. On this issue, the Respected Coordinate Bench Chandigarh in the case of M/s.Mohan Spinning Mills (supra) has opined as under:-
"7. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in respect of the deduction claimed on account of CENVAT amounting to Rs.35,94,577. The assessee was engaged in the business of manufacturing and trading of yarn and fibre. The yarn manufactured by the assessee was an excisable item. The assessee was paying excise duty on the raw material purchased i.e. acrylic yarn/fibre and polyester yarn/fibre. In turn, assessee was liable to pay duty on its manufactured items. The rate of excise duty payable on the raw material was higher and the assessee was depositing the excise duty in PLA account which in turn was adjustable against the excise duty payable on the finished products. The excise duty payable on the finished products was on the lower side and consequently over the period of years the assessee had credit of excise duty resulting in accumulation of CENVAT."
"10. Various tests have been laid down by various High Courts and the Apex Court in relation to the allowability of expenditure under section 37(1) of the Act while computing the income from profits and gains of business or profession. In the facts of the present case, the assessee had paid CENVAT on purchase of raw material which was deposited in its PLA account for claiming the benefit of set off against the excise duty payable on the manufactured items i.e. branded yearn. The assessee was paying higher rate of excise duty on the raw material purchased by it as against the rate of excise duty applicable on the manufactured items, consequently credit of excise duty was available with the assessee. The said excise duty paid from year to year was not claimed as an expenditure but was carried forward from year to year to be adjusted against the excise duty payable by the assessee on its manufactured items. However, during the year under consideration the assessee closed down its manufacturing unit and consequently the benefit of the CENVAT credit remained unadjusted. Once the manufacturing unit of the assessee is closed down, admittedly the benefit of CENVAT credit not availed of against the excise duty payable on manufactured items, cannot be utilized by the assessee and the said write off of CENVA T credit, is allowable as an expenditure in the year under consideration on the closure of the business. The write off of CENVAT credit by the assessee in its books of account is thus allowable as business expenditure under the provisions of section 37(1) of the Act relatable to the year, in which the manufacturing activities are closed down by the assessee. Accordingly, we direct the Assessing Officer to allow the claim of the assessee in respect of write off of CENVAT credit of Rs.35,94,577/-. Ground No.1 raised by the assessee is thus allowed."
4.1. We have also noted that Respected Coordinate Bench "A" Ahmedabad in the case of Girdhar Fibres Pvt.Ltd. (supra) has also opined as under:-
"9. We heard both the sides. Before us, Form E.R.1, i.e. Return of Excisable goods and availment of CENVAT credit has been placed. The explanation of the assessee was that the impugned two amounts were part of the duty which was paid by the assessee at the time of purchase of raw-material, however, the assessee had maintained exclusive system of accounting, therefore the duty paid was not debited as a part of the purchases but a separate account was maintained and carried to the balance-sheet. The AED and NCCD were applicable on POY, i.e. raw-material. When the finished goods, i.e. texturised yarn is manufactured, the excise is levied in the form of basic duty. The assessee has adopted exclusive method of accounting, therefore debited the net purchases and those were separately recorded in the books of accounts. We find force in this argument of the assessee because while maintaining the exclusive method of accounting the assessee had a choice to increase the value of the purchases in respect of the duty paid in the form of AED & NCCD. In other words, an expenditure was incurred but that expenditure could not be adjusted against the CENVAT Rules because on the finished goods, i.e. texturised yarn only the basic duty is leviable. We, therefore, hold that the amount which is now written off being part of the business expenditure, hence allowable under the provisions of the Act. In the result, we hereby reverse the findings of the authorities below and allow the ground raised by the Assessee."
5. In the light of the above decisions, once on identical facts, a view has already been taken in favour of the assessee on this issue, therefore respectfully following that view, we hereby hold that ld.CIT(A) has rightly allowed the claim. In the result, ground raised by the Revenue is hereby dismissed.
6. As a result, Revenue's appeal is dismissed.
Tribunal may recall its order passed ex-party if Assessee gives sufficient reasons for the same
Clause (i) of sub-section (2) of section 36 of the Act itself provides that the claim for deduction as bad debt would not be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. It is not the case of the revenue that such condition was not satisfied.
Counsel for the revenue did contend that the Tribunal having previously ruled against the assessee, could not have changed its decision. It is undoubtedly true that while exercising powers of rectification, the Tribunal does not enjoy power of review. In the present case, however, the original order of the Tribunal was passed in absence of the assessee. He had thereupon sought recall of the order showing sufficient ground justifying his absence. Such request for recall of the order was allowed. Such order of the Tribunal was never questioned. The Tribunal, therefore, while deciding the appeal afresh, it enjoyed full power and was not hindered by any limitation.
HIGH COURT OF GUJARAT
Deputy Commissioner of Income-tax
v.
Hindustan MI Swaco Ltd.
TAX APPEAL NO. 98 OF 2012
NOVEMBER 6, 2012
ORDER
1. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 5.8.2011 raising following questions for our consideration :
"[i] Whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 65,00,000/-, being the loan written off by the assessee as bad debt, which is not allowable, since the assessee is not in the business of banking or money lending?
[ii] Whether on the facts and in the circumstances of the case, the Tribunal was right in law in applying the ratio of the Apex Court's decision in the case of TRF Ltd. v. CIT [2010] 323 ITR 397 when the facts of the instant case are entirely different in so much as the loan was not offered as income, as required u/s 36(1)(vii) of the Income Tax Act, 1961?
[iii] Whether on the facts and in the circumstances of the case, the Tribunal was right in law in taking a contrary view, when an earlier coordinate Bench in this case, had already vide its order bearing ITA No.3774/Ahd/2008 dated 03/04/2009, decided that the condition contained in section 26(1)(vii) is clearly not satisfied in the instant case inasmuch as neither the debt has been taken into account in computing the income of the assessee in the year under consideration or in earlier years nor it represents money lent in the ordinary course of business of banking or money lending?"
2. Though multiple questions are framed, the issue is common, namely, of the claim of the assessee of writing off a certain amount of Rs.65 lakhs by way of bad debt. Previously, the issue had reached upto the Tribunal. The Tribunal by an ex-parte order dated 3.4.2009, held against the assessee. Subsequently however, the assessee applied by an application for recall of such an order since he was not present. Such order was granted in favour of the assessee. On 4.1.2010, the Tribunal thereupon proceeded to hear and decide the appeal afresh. In such exercise, the Tribunal ruled in favour of the assessee holding that the claim of bad debt was justified. The Tribunal noted that the Assessing Officer had two objections to allowing such claim of bad debt, namely, that the debt has not become bad and doubtful. This objection the Tribunal overruled by referring to and relying upon the decision of the Apex Court in case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397. The other objection of the Assessing Officer recorded by the Tribunal was that the assessee was not in the business of money lending and he was, therefore, not eligible for deduction as bad debt, but the principal amount of loan given by the assessee. This objection also the Tribunal overruled relying on the decision of the Madras High Court in case of CIT v. City Motor Service Ltd. [1966] 61 ITR 418.
3. We are of the opinion that the Tribunal committed no error. The assessee put-forth a case of written off an advance of Rs. 65 lakhs on the ground that despite filing a suit, the sum was not recoverable. The fact that the assessee had written off such an amount was not seriously in issue. In that view of the matter, the decision of the Supreme Court in the case of T.R.F. Ltd. (supra) would apply. In such decision, the Supreme Court has observed as under:
"4. This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off."
4. The other additional condition that the assessee had to fulfill to claim bad debt under section 36(1)(vii) of the Act was to satisfy clause (i) of sub-section (2) of section 36 of the Act, which reads as under :
36. Other deductions. – (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply -
(i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;"
5. Clause (i) of sub-section (2) of section 36 of the Act itself provides that the claim for deduction as bad debt would not be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. It is not the case of the revenue that such condition was not satisfied.
6. Counsel for the revenue did contend that the Tribunal having previously ruled against the assessee, could not have changed its decision. It is undoubtedly true that while exercising powers of rectification, the Tribunal does not enjoy power of review. In the present case, however, the original order of the Tribunal was passed in absence of the assessee. He had thereupon sought recall of the order showing sufficient ground justifying his absence. Such request for recall of the order was allowed. Such order of the Tribunal was never questioned. The Tribunal, therefore, while deciding the appeal afresh, it enjoyed full power and was not hindered by any limitation.
7. In the result, no question of law arises. Tax Appeal is, therefore, dismissed
Pawan Singla
BA (Hon's), LLB
Audit Officer
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