I-T - Whether assessee can be denied exemption merely because he himself did not cultivate agricultural land - NO: HC
By TIOL News Service
-- By TIOL News Service
AHMEDABAD, MAY 02, 2013: THE issues before the Bench are - Whether assessee can be denied exemption merely because he himself did not cultivate the agricultural land; Whether the concept of personal cultivation also recognizes, cultivation of a land through hired labourer or through member of one's family and Whether the exemption u/s 10(37) can be denied merely on the basis that the assessee was not residing close to the land or was also pursuing some other business and thus the land was not used for agricultural purposes by the assessee. And the verdict goes in favour of the assessee.
Facts of the case
Assessee, an individual had filed ROI for the AY 2008-09. During assessment, AO noticed that the assessee was owner of 1/4th of a property acquired by the State, for which under the order of the Court, an additional compensation of Rs.4,47,98,432/- was paid and therefore, was entitled to 1/4th additional compensation of Rs.1,11,99,608/. The assessee contended that in view of provisions of section 10(37) read with section 45(5), no capital gain tax was payable. The AO, however, rejected such contention on the ground that the land in question was situated within the municipal limits of Gandhinagar, which had population of more than 10000. Section 10(37) therefore, does not apply to the assessee. On appeal, CIT(A) had dismissed the appeal. He agreed with the assessee that exemption u/s 10(37) would be available also to agricultural land situated in urban area, but he held that such exemption would be subject to fulfillment of certain conditions. One of them being that such land, during the period two years immediately preceding the date of transfer was used for agricultural purpose by such Hindu undivided family or individual or his parent. In the present case, he was of the opinion that though the land was agricultural land, used for agricultural purposes, but not by the assessee himself. He noted that the assessee was involved in business activities and was staying far away from the location of the agricultural land. On further appeal, Tribunal had allowed the assessee's appeal on the ground that section 10(37)(ii) does not suggest that there was such requirement that assessee himself should carry out the agricultural activities on these lands. Only requirement is that such land, during the period of two years immediately preceding the date of transfer, was used for agricultural purposes by the assessee or his parent. About this there was no dispute in this case as the Revenue had not disputed the fact that agricultural income had been regularly declared by the assessee in the returns of income in respect of agricultural activities on these lands and the same were accepted by the Revenue. The assessee had also furnished evidence in which the crop grown by the assessee on the lands were also mentioned. Thus, it was decided by the Tribunal that assessee had fulfilled the condition as laid down for claiming exemption u/s 10(37) on enhanced compensation received by him during the year under appeal on compulsorily acquisition of urban agricultural lands, the order passed by the lower authorities were set aside and the AO was directed to grant exemption as claimed by the assessee u/s 10(37).
Held that,
++ the Revenue contended that the assessee would not be entitled to the exemption since the agricultural land was not cultivated by the assessee himself. We may recall that the CIT (A) was himself convinced that such exemption would be available even in case of a land situated in the municipal area. But that the other conditions, namely of the cultivation of such land by the assessee would be crucial. We cannot dispute this proposition of the Revenue. The question is can it be stated that the assessee did not fulfill such condition. We may recall that the only ground on which the CIT (A) held against the assessee was that he was staying away from the agricultural land and that he was otherwise engaged in a business. In our opinion, neither of these two facts, either in isolation or cumulatively, would be sufficient to hold that such land was not being used for agricultural purposes by the assessee. The concept of personal cultivation as accepted in agricultural land tenancy laws also recognizes, as can be seen from the statutory provisions contained in the Bombay Tenancy and Agricultural Lands Act, 1948, cultivation of a land through hired labourer or through member of one's family. Merely because the assessee was not residing close to the land or was also pursuing some other business would not by itself be sufficient to hold that the land was not used for agricultural purposes by the assessee. The Tribunal recorded that in the earlier years, the assessee had declared agricultural income, which was also accepted by the Revenue. Under the circumstances, in our opinion, the Tribunal correctly ruled in favour of the assessee. No question of law arises. The tax appeal is dismissed.
(See 2013-TIOL-344-HC-AHM-IT)
Tribunal cannot dismiss appeal only for want of prosecution without same being decided on merit
Rule 24 of the Income Tax Rules, 1963 makes it abundantly clear that the Tribunal cannot dismiss the appeal without adverting to the merits. Even on the day on which the hearing is adjourned, the appellant chose not to appear in person or through an authorised representative. It isincumbent upon the Tribunal to dispose of the appeal on merits after hearing the respondent and afterwards if the appellant appears and satisfy the Tribunal, sufficient cause for its non-appearance on the date of hearing, the Tribunal can set aside the ex parte order and restore the appeal. However, reliance of the Tribunal on the decision of the Delhi Bench in the case of Multiplan India (P.) Ltd. (supra) is erroneous and, therefore, requires to be set aside. In the instant case, it can be noted from the letters addressed by the present appellant to the Tribunal that it was awaiting transfer of both the appeals of 1998-99 and 1999-2000 since CIT (Appeals) had relied upon such orders of earlier years.
If the record of these appeals were necessary for proceedings with the appeals, which were pending of the year 2001 to 2002, 2002-03, in the instant case, it was a matter of transfer from Mumbai Bench to the Ahmedabad Bench of these appeals and the present appellant has made out sufficient cause indicating from the material placed on record that it had never abandoned the cause. On the contrary, it had consistently pursued the matters as it was having a direct bearing on the appeals of subsequent years. Even otherwise, what is the requirement of the law is of adjudication on merit even when either side or both the sides choose not to contest. In view of the aforesaid, we are of the considered view that the Tribunal erred in dismissing the appeal only on the ground of non-prosecution without adverting to the merits of the matter and, therefore, we set aside the order impugned dated 4.8.2006 passed by the Tribunal and also remand the matter to the Tribunal to adjudicate the same on merits. Appeal is allowed accordingly.
HIGH COURT OF GUJARAT
Sanket Estate & Finance (P.) Ltd.
v.
Commissioner of Income-tax
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NOs. 133 & 134 of 2012†
DECEMBER 4, 2012
ORDER
Ms. Sonia Gokani, J. – The appellant, aggrieved by the order of the Income Tax Appellate Tribunal dated 4.8.2006, filed the present appeal under Section 260A of the Income Tax Act (for short "the Act"), raising following substantial question of law for our consideration:-
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in dismissing the appeal preferred by the present appellant as not maintainable in view of the decision of the Income-tax Appellate Tribunal, Delhi Bench, in the case of CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320?"
2. It is the say of the appellant that he filed the appeal before the Income Tax Appellate Tribunal being ITA No.2963/AHD/2003 for the assessment year 1999-2000 yet another appeal being ITA No.2962/Ahd/2003 was filed by the petitioner for assessment year 1998-99. These appeals were legally competent and they were consolidated. Then they were required to be decided by the Tribunal in accordance with law on merits. Instead of relying on the decision of Income TaxAppellate Tribunal, Delhi Bench in the case of CIT v. Multiplan India (P.) Ltd. [1991] 38 ITD 320, the Tribunal chose to dismiss the same summarily for want of prosecution.
3. Learned advocate Mr. Vijay Ranjan appear ing for the appellant has fervently submitted before this Court that the order of the Tribunal is patently erroneous and in post 1987 period, theamendment in Rule 24 makes it incumbunt upon the Tribunal to decide the appeal on merits. He further urged that even in the absence of the appellant, the Tribunal cannot dismiss the appeal for default in prosecution. He also submitted that the impugned order of the Tribunal though is passed on 4.8.2006, these appeals are preferred on 10.2.2012, as the order impugned was never served upon the appellant. Only on obtaining a copy of the said order on 12.12.2011, the present appeal came to be filed. He has taken us to the paper book indicating the communication addressed to the Tribunal. He sought to rely upon following decisions of the Apex Court:-
(a) CIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41(SC).
(b) Anil Kumar Agrahari v. CIT [2010] 323 ITR 260(MP).
(c) Tribhuwan kumar v. CIT [2007] 294 ITR 401(Raj).
(d) Rajendra Prasad Borah v. ITAT [2008] 302 ITR 243.
5. Per contra, learned advocate Ms. Paurami Sheth appearing for the Revenue has contested this petition on the ground that delay in filing the appeal itself is vital for there being no sufficient grounds having been made out by the appellant.
6. She further urged that if the appellant was attempting to pursue his cause after 2008, he could have enquired about the pendency of the appeals. On having failed to so do it, this appeal itself is not maintainable.
7. Upon thus hearing both the sides, and on closely examining the material on the record with the assistance of the learned counsels, this appeal is being decided answering the question in favour of the appellant assessee.
8. Undisputed facts as have emerged in this case of the appellant assessee, are that the appellant filed the return of income for the assessment year 1998-99 and 1999-2000 respectively on 30.11.1998 and 28.12.1999 along with audited Statement of Accounts and Tax Audit Report.
9. The Assessing Officer on scrutiny assessment in both the years, determined the total income bydetailed adjudication.
10. Aggrieved by these assessments, the same were challenged before the CIT(Appeals), Mumbai, which partly allowed these appeals. Further aggrieved by the same, the appellant challenged these orders by preferring the appeals for the year 1998-99 and 1999-2000 being ITA NO.2962, 2963 AHD.2003.
11. The appeals for the assessment years 1998-99 and 1999 to 2000 were originally filed by the appellant assessee before the Mumbai Tribunal, which were eventually transferred to Ahmedabad.
12. One can note communication of the present appellant addressed to the Tribunal on 20.10.2008, 4.11.2008, 16.4.2009, 29.9.2009, 8.4.2010 and 25.10.2010.
13. It appears that at the time of hearing of appeals of assessment year 2001-02 and 2002-03, the Tribunal required information regarding the status of appeals for assessment years 1998-99, 1999-2000, since CIT(Appeals) relied upon earlier years for deciding subsequent years' appeals. Letter dated 25.10.2010 indicates that on enquiring from the Assistant Registrar, Ahmedabad the appeals were shown to have been transferred to Ahmedabad, which reached the Registry on 12.6.2006. Accordingly, the matter was requested to be fixed on 26.10.2010 with a further request to tag those later years' appeals with the earlier appeals of Assessment Years 1998-99 and 1999-2000.
14. Letter from Assistant Registrar to the Chief Commissioner of Income-tax dated 9.8.2005 is indicative of transfer of ITA NO.2962 and 2963 for the assessment year 1998-99 and 1999-2000 respectively in the case of the present appellant to the Ahmedabad Bench.
15. Request for clubbing appeals on 27.10.2010 addressed to Vice-President also reiterates these facts. It appears from the communication dated 23.9.2011 addressed to the Assistant Registrar by the present appellant that oblivious of such transfer and dismisal in limine the appellants' case for the assessment year 2001-02, 2002-03 had been fixed for hearing on 3.11.2011.
Both the appeals No.2962 and 2963, which were transferred from Mumbai were already decided on 4.8.2006. Copy of the order since was not available, this appeal could not be filed earlier. It appears that the copies had been supplied to the appellant in December, 2011.
16. The last communication from the appellant dated 20.12.2011 also reiterates these facts and thus the senario that emerges is that the Tribunal dismissed the appeals on account of non-appearance of the appellant's representative on 4.8.2006. These appeals of 1998-99, 1999-2000 which were transferred from Mumbai were followed by CIT(Appeals) in the subsequent years appeals of the very same assessee and those appeals of 2001-2002 and 2002-2003 when were fixed for hearing before the Ahmedabad Bench, Appeals of 1998-99 and 1999-2000 were awaited since 2008. However, the order impugned is indicative that the notice was sent through RPAD which had been received back from the postal authority with a remark that it was not claimed and as none was present, the Tribunal decided it ex parte and dismissed the same for want of prosecution.
It would be apt to reproduce the order of the Tribunal as under:
"These are appeals filed by the assessee and are directed against two separate orders of CIT(A) dated 28.01.2003 & 30.01.2003 for Asst. Years 1998-99 and 1999-2000 respectively.
2. Notice of hearing was sent through RPAD which has been received back from the postal authorities with the remark "N/C". However, none was present on behalf of assessee on the fixed date of hearing. Therefore, in the circumstances we presume that assessee is not interested in prosecuting its appeals. Hence we dismiss the appeals filed by the assessee in-limine for want of prosecution following the decision of Tribunal in the case of CIT v. Multiplan India (P.) Ltd. 38 ITD 320 (Delhi)."
17. The question, therefore, would be as to whether the Tribunal was justified in so doing it. Apart from the facts that the present appellant continuously and persistently followed the said issue, it appears that these appeals came to be dismissed without the same being decided on merits.
18. It would be profitable, at this stage, to refer to Rules 19, 20 and 24 of the Income-tax Rules, which read as follows:
"Rules 19, 20 and 24 of the Income-tax (Appellate Tribunal) Rules, 1963, read as thus:-
"19.(1) The Tribunal shall notify to the parties specifying the date and place of hearing of the appeal and send a copy of the memorandum of appeal to the respondent either before or with such notice.
(2) The issue of the notice referred to in sub-rule (1) shall not by itself be deemed to mean that the appeal has been admitted.
** ** **
Rule 20. In an appeal under sub-section(1) of Section 253, in fixing the date for the respondent to appear and answer to the appeal, a reasonable time shall be allowed for the necessary communication with the Commissioner through the proper channel and for the issue of instructions to an authorised representative to appear and answer on behalf of the respondent.
1** ** **
Rule 24. Where, on the day fixed for hearing or any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorized representative when the appeal is on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent:
Provided that where an appeal has been disposed of as provided above and the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance, when the appeal was called on for hearing, the Tribunal shall make an order setting aside the ex parteorder and restoring the appeal."
19. The Apex Court in the case of S. Chenniappa Mudaliar (supra), prior to the amendment of Rule 24 (1946 Rules) was deciding this very question as to whether the Tribunal is bound to give proper reasons of question of fact as well as law on merits and whether it can dismiss the appeal on the default of appearance. It was also deciding as to whether Rule 24 of 1946 Rules, which provided for dismissal of appeal for failure of appellant to appear is ultra vires as being in conflict with the provision of Section 33(4) of 1922 Act. It is answered in affirmation.
20. In the case of Rajendra Prasad Borah (supra), while interpreting Rule 24 of Income Tax Rules, 1963, Gauhati High Court has held that per se, it does not empower the Tribunal to dismiss the appeal for default in absence of appellant in the following words:-
"After hearing learned counsel for the parties and on a perusal of the provisions of law referred to hereinabove, it is more than apparent that the course adopted by the learned Tribunal in disposing of the assessee's appeals in the manner as delineated in the impugned order, cannot be sustained. Apart from the fact that, section 254(earlier section 33) of the Act makes it incumbent on the learned Tribunal to dispose of the appeals on merits as has been enunciated by the apex court inCIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41, rule 24 as it stands, per se does not empower the learned Tribunal to dismiss an appeal for default in the absence of the appellant. The learned Tribunal's reliance on the decision of the Income-tax Appellate Tribunal, Delhi, rendered in CIT v.Multiplan India (P.) Ltd. [1991] 38 ITD 320, is apparently misplaced in the teeth of the decision of the apex court in CIT v. S. Chenniappa Mudaliar [1969] 74 ITR 41."
21. In the case of Tribhuwan kumar (supra), the Rajasthan High Court while interpreting Rules 19,20 and 24 of 1963 Rules also examined the decision of Delhi Bench rendered in the case of Multiplan India (P.) Ltd. (supra) by holding thus:-
"6. Having considered the aforesaid three provisions, we are unable to comprehend the view of the Tribunal that the assessee's appeal was not maintainable in view of rules 19 and 20 of the Rules. Surely the appeal preferred by the assessee was competent under section 253 of the Income-tax Act. How, in the circumstances the Tribunal could hold that the assessee's appeal from the order of the Commissioner of Income-tax (Appeals) was not maintainable when the appeal lay from the said order. The Tribunal misread and misapplied rules 19 and 20 of the Rules of 1963, in holding that the assessee's appeal was not maintainable. If for any reason, the assessee was not being represented on the date of hearing, the Tribunal could have proceeded for hearing of the appeal ex parte provided in rule 24 but that was not done. The appeal has not been heard on the merits and the Tribunal erroneously held that the assessee's appeal is not maintainable in law."
22. In the case of Anil Kumar Agrahari (supra), the Madhya Pradesh High Court was examining the dismissal for non-prosecution of appeal by the Tribunal and it held categorically that the Tribunal could not have dismissed the appeal without going into the merits of the case, by rejecting the adjournment application filed by the counsel. And, the matter was remanded back to the Tribunal for adjudication on merits. It also took note of decision rendered in Rajendra Prasad Borah (supra) as also the decision rendered by the Apex Court in S. Chenniappa MudaliarI (supra) so also the decision of the Tribhuwan kumar (supra), and held that the Tribunal could not have dismissed the appeal without adverting to the merits of the case and on the line of the decisions of Gauhati and Rajasthan High Courts, it set aside the order of Tribunal dismissing the appeal for want of prosecution.
23. In the instant case, as could be noted from the order impugned, that the Tribunal has chosen to dismiss the appeal on the ground of non-prosecution. It also noted that RPAD was sent and the same had returned with the remark of the postal department as none having claimed the same. Instead of deciding the matter on merits, it chose to dismiss the same for want of prosecution and this order in our opinion is contrary to the provision of law.
24. When the Supreme Court decided the case of S. Chenniappa Mudaliar (supra), no amendment in Rule in the Income-tax Appellate Tribunal Rules was made as yet. Rule 24 of the Income Tax Rules, 1963 makes it abundantly clear that the Tribunal cannot dismiss the appeal without adverting to the merits. Even on the day on which the hearing is adjourned, the appellant chose not to appear in person or through an authorised representative. It is incumbent upon the Tribunal to dispose of the appeal on merits after hearing the respondent and afterwards if the appellant appears and satisfy the Tribunal, sufficient cause for its non-appearance on the date of hearing, the Tribunal can set aside the ex parte order and restore the appeal. However, reliance of the Tribunal on the decision of the Delhi Bench in the case of Multiplan India (P.) Ltd. (supra) is erroneous and, therefore, requires to be set aside. In the instant case, it can be noted from the letters addressed by the present appellant to the Tribunal that it was awaiting transfer of both the appeals of 1998-99 and 1999-2000 since CIT (Appeals) had relied upon such orders of earlier years.
25. If the record of these appeals were necessary for proceedings with the appeals, which were pending of the year 2001 to 2002, 2002-03, in the instant case, it was a matter of transfer from Mumbai Bench to the Ahmedabad Bench of these appeals and the present appellant has made out sufficient cause indicating from the material placed on record that it had never abandoned the cause. On the contrary, it had consistently pursued the matters as it was having a direct bearing on the appeals of subsequent years. Even otherwise, what is the requirement of the law is of adjudication on merit even when either side or both the sides choose not to contest. In view of the aforesaid, we are of the considered view that the Tribunal erred in dismissing the appeal only on the ground of non-prosecution without adverting to the merits of the matter and, therefore, we set aside the order impugned dated 4.8.2006 passed by the Tribunal and also remand the matter to the Tribunal to adjudicate the same on merits. Appeal is allowed accordingly.
Difference in income as per TDS certificates & ROI not necessarily leads to income escapement
In this case there is nothing in the reasons to indicate that there is an escapement of income, but, at the most, need to verify that the reasons of discrepancy between income fromprofession as per return of income vis-à-vis as per the certificates of tax deduction at source. A variation in these two figures does not necessarily lead to escapement of income, because, forexample, when income is booked on mercantile basis, the aggregate of such amounts, on which taxes have been deducted at source during the relevant previous year, will not necessarily tally with the income figure. There is thus no cause and effect relationship between the aggregate of payments, in respect of which taxes have been deducted at source, being more than relevant income having been booked in the profit loss account, and the income escaping assessment. In other words, just because the aggregate of such payments is more than income booked in the profit and loss account, as is the situation in the case before us, there is no valid reason to indicate that income has escaped assessment. All that the Assessing Officer records is the fact that these two figures are different, but then this fact does not necessarily lead to the inference that the income has escaped assessment, and, therefore, the Assessing Officer himself refers to the need to verify the matter by observing that "the discrepancy may be verified". So far so good, but then the fallacy creeps in when the Assessing Officer concludes that, for the said reason, "this is a fit case for reopening the assessment". As Hon'ble Bombay High Court has observed, in the case of Hindustan Lever Ltd. (supra), the reasons should provide link between evidence and the conclusion. The evidence is that the figures of professional receipts as per TDS certificates and as shown in theprofit and loss account vary, but then this does not lead to the conclusion that the income has escaped assessment. As a matter of fact, as we will see in paragraph 15 of this order a little later, on the same date and vide identical reasons recorded, the Assessing Officer has also reopened theassessment for subsequent assessment year as well, in which professional income as per profit and loss account was far more than the aggregate of figure of payments as per tax deduction at source certificates. It is thus the difference per se and not the professional income as per profit and loss account being less than the figure as per tax deduction at source certificates which is proximate cause of reopening the assessment. In any event, the difference between receipt and income is too significant to be ignored. There may be need to verify but that mere need to verify does not bring the matter within the scope of cases in which reassessment proceedings can be validly initiated. What is needed, to successfully invoke the reassessment proceedings, is the reasons to believe that income has escaped assessment. No doubt, even a prima facie reason for believing that income has escaped assessment is sufficient to invoke the reassessment proceedings, but there is a subtle, though significant, distinction between reasons to believe and reasons to suspect. While the former is good enough to hold that income has escaped assessmentand initiate suitable remedial measures in respect thereof, the latter can at best be the ground enough to verify and examine the matter further. The mere fact that matter needs to verified and deserves to examined further can, in our humble understanding, never be a reason good enough to believe, even if it is a good reason to suspect so, that income has escaped assessment, and therefore, a reason good enough to invoke the reassessment proceedings. An Assessing Officer may have a hunch that here is a case in which some income may have escaped assessment but that hunch or suspicion, howsoever legitimate, cannot be a reason to "believe" that income has escaped assessment. The condition precedent for invoking section 147 is, thus, far from satisfied. In this view of the matter, in our considered view, the very initiation of reassessment proceedings on the facts of this case was devoid of legally sustainable merits. We, therefore, quash the reassessment proceedings. As the reassessment proceeding itself is quashed, we see no need to deal with the matter on merits and dismiss the related grievances, raised by the assessee on merits of the case, as infructuous.
In the result, the appeal for the assessment year 2005-06 is allowed in the terms indicated above.
IN THE ITAT KOLKATA BENCH 'B'
Meheria Reid & Co.
v.
Income-tax Officer, Ward 5(4) Kolkata
IT APPEAL NOS. 53 & 54 (KOL.) OF 2010
[Assessment yearS 2005-06 & 2006-07]
DECEMBER 28, 2012
ORDER
Pramod Kumar, Accountant Member – This is second round of proceedings, in these cases, before this Tribunal. Originally, all these appeals, along with revenue's appeal for the assessmentyear 2006-07 i.e. ITA No. 119/Kol/2010, were disposed of vide order dated 24th February, 2012 by a bench consisting of brothers Shri N Vijaykumaran, Judicial Member (as he then was), and Shri C D Rao, Accountant Member (as he then was). However, aggrieved by the order so passed by the Tribunal, assessee carried the matter in further appeal before the Hon'ble Calcutta High Court, and Their Lordships were pleased to remit the matter back to this Tribunal vide judgment dated 1st August, 2012 wherein Their Lordships have, inter alia, observed as follows:
"After going through the impugned judgment and order of the learned Tribunal, we have noticed that the learned Tribunal has not decided the question of jurisdiction at all. There was no discussion or reason. The question of jurisdiction admittedly goes to the very root of the matter. We feel, as has rightly been pointed out by Mr Khaitan, that this question has to be decided first. After deciding the said question first, if the learned Tribunal feels that the matter may be decided on merit, the Tribunal can do so.
We have examined the aspect of merit, and noticed that the relevant materials placed before the learned Tribunal which were not at all considered or discussed. Therefore, on merits also, this requires reconsideration. Accordingly, we set aside the impugned judgment and order of the learned Tribunal, and remand the matter for fresh hearing on the question of jurisdiction first, with reasons. If the question of jurisdiction is decided against the assessee, then the Tribunal will decide the matter on merits taking into consideration all the material placed before it earlier as well as material which might be placed afresh before the Tribunal.
Let the hearing on remand be completed within a period of three months from the date of communication of this order"
2. The matter is now placed before this quorum vide directions contained in Hon'ble Vice-President's note dated 14th November, 2011. That's how we have come to be in seisin of these appeals.
3. We will take up the assessment year 2005-06, i.e. ITA No. 53/Kol/2010, first.
4. This appeal is directed against the order dated 12th January, 2009 passed by the learned Commissioner (Appeals) in the matter of assessment under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2005-06. Grievance of the assessee, on the question of jurisdiction, is as follows:
That in the absence of any valid reasons to believe that income of the assessee has escapedassessment, within meanings of section 147 of the Income-tax Act, 1961, the notice issued by the Assessing Officer under section 148 was without jurisdiction, and, therefore, the impugnedassessment order passed on 15th December, 2008, in pursuance to such notice, is liable to be annulled.
5. Briefly stated, the relevant material facts are like this. The assessment in this case was completed under section 143(1) of the Act, but subsequently, the assessment was reopened for the following reasons recorded by the Assessing Officer-copies placed before us at pages 20 and 21 of the paper-book:
12.2.2008
The assessee (has) shown professional income in the P & L account Rs. 16,74,352 but on verification of TDS certificates, it is seen that on Rs. 18,63,234. TDS deducted for Rs. 96,861.
Hence, the discrepancy may be verified. This is a fit case for reopen(ing) the assessment under section 147. Issue notice under section 148.
Sd/xx (illegible)
Certified to be true copy
Sd/xx (illegible)
Income Tax Officer
Ward 54(4), Kolkata
6. Vide letter dated 27th February, 2008 also, a copy of which was placed before us at page 19 of the paper-book, the Assessing Officer has advised the assessee the reasons of reopening the assessment as follows:
"In response to your letter dated 22.2.2008, this is to inform you that the revenue audit has pointed out that your professional income shown, and totalling of TDS certificate, differs. Hence, re-opening of your assessment for the assessment year 2005-06″
7. In substance thus, it is an undisputed position that the assessment has been reopened on the ground that the discrepancy between professional income declared by the assessee and the professional income as per tax deduction at source certificates is at variance, and it, therefore, requires verification to find out whether any taxable income has escaped assessment. There is a categorical mention in the reasons recorded for reopening the assessment that "the discrepancy may be verified". The short question we are required to adjudicate is whether, on these undisputed material facts, the reassessment proceedings so initiated can be said to be sustainable in law.
8. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.
9. We have taken due note of the fact that the original assessment proceedings were completed under section 143(1) of the Act and that the reassessment proceedings are initiated within four years but that does not, as is the settled legal position, does not imply, as has been indirectly suggested by the learned Departmental Representative, that assessment proceedings can be revisited even in the absence of legally sustainable reasons for formation of prima facie belief that income has escaped assessment. In other words, irrespective of whether or not the original assessment has been completed under scrutiny assessment or summary assessment, it is necessary that conditions precedent for invoking section 147 have to be satisfied. Hon'ble Bombay High Court, in the case of Prashant S Joshi v. ITO [2010] 324 ITR 154 had an occasion to deal with this question and also consider the scope of Hon'ble Supreme Court's judgment in the case ofAsstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd [2007] 291 ITR 500 in this regard. After elaborately considering Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokes (P.) Ltd. (supra), Their Lordships of Hon'ble Bombay High Court have observed that "Hon'ble Supreme Court held that so long as the ingredients of section147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147, and that the failure to take steps under section 143(3) will not render him powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued". " In other words", according to Hon'ble Bombay High Court, "when an intimation has been issued under section 143(1), the Assessing Officer is competent to initiate reassessment proceedings provided that the requirements of section 147 are fulfilled". It is thus concluded that " In such a case [i.e. when the reopening is within four years and the income tax return is processed under section 143(1)] as well, the touchstone to be applied is as to whether there was reason to believe that income had escaped assessment". It is thus clear that even when the original assessment is under section 143(1) and even when reassessment proceedings are initiated within a period of four years, it is still necessary that there should be reasons to believe that income had escaped assessment and such reasons are subject to judicial scrutiny. No doubt that at the stage of initiating reassessment proceedings, it is not necessary to establish that there has been an escapement of income, but essentially there have to be valid reasons to believe that income has escaped assessment and these reasons, on stand-alone basis, must be considered appropriate for arriving at the conclusion arrived at by the Officer recording the reasons. The mere fact that the assessment has been completed under section 143(1) per se cannot be a good ground to reopen the assessment, without satisfying the conditions precedent for invoking section 147 i.e. reasons for forming opinion that income has escaped the assessment. Elaborating upon this aspect of the matter, Hon'ble Shri R V Easwar, the then Senior Vice-President of this Tribunal, has, in the Third Member decision in the case of Telco Dadajee Shackjee Ltd. v. Dy. CIT [IT Appeal No. 4613/Mum/2005, dated 12-5-2010] in his inimitable words, observed as follows:
"…..it needs to be remembered that section 147 applies both to section 143(1) as well as section 143(3), and, therefore, except to the extent that the reassessment notice under section 143(1) cannot be challenged on the ground of a mere change of opinion, still it is open to the assessee to challenge the notice on the ground that there is no reason to believe that income chargeable to tax has escaped assessment. The reason to believe must have a live link to formation of belief that income chargeable to tax had escaped assessment when the return was processed and accepted under section 143(1). To hold that in every case where a return was processed and accepted under section 143(1), the Assessing Officer will be free to reopen the same under section 148 even in the absence of a live link between the reasons recorded and the formation of belief, would be to make the conditions of section 147 and 148 otiose as regards notices of reopening issued in the cases where the return was originally processed under section 143(1)….."
10. The true test for validity of reassessment proceedings, even in the cases in which original assessment has been completed under section 143(1), must, therefore, lie in whether or not the reasons recorded for reopening the assessment can be held to be sustainable in law.
11. It is also well settled in law, as has been held by Hon'ble Bombay High Court in the case ofHindustan Lever Ltd. v. R B Wadkar [2004] 268 ITR 332 as well, that "……….It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reasons not recorded. It is for the AO to disclose and open his mind through the reasons recorded by him. He has to speak through the reasons." Their Lordships added that "The reasons recorded should be self explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence….". When we examine the facts of this case in the light of the above legal position that there is nothing in the reasons to indicate that there is an escapement of income, but, at the most, need to verify that the reasons of discrepancy between income from profession as per return of income vis-à-vis as per the certificates of tax deduction at source. A variation in these two figures does not necessarily lead to escapement of income, because, for example, when income is booked on mercantile basis, the aggregate of such amounts, on which taxes have been deducted at source during the relevant previous year, will not necessarily tally with the income figure. There is thus no cause and effect relationship between the aggregate of payments, in respect of which taxes have been deducted at source, being more than relevant income having been booked in the profit loss account, and the income escaping assessment. In other words, just because the aggregate of such payments is more than income booked in the profit and loss account, as is the situation in the case before us, there is no valid reason to indicate that income has escaped assessment. All that the Assessing Officer records is the fact that these two figures are different, but then this fact does not necessarily lead to the inference that the income has escaped assessment, and, therefore, the Assessing Officer himself refers to the need to verify the matter by observing that "the discrepancy may be verified". So far so good, but then the fallacy creeps in when the Assessing Officer concludes that, for the said reason, "this is a fit case for reopening the assessment". As Hon'ble Bombay High Court has observed, in the case of Hindustan Lever Ltd. (supra), the reasons should provide link between evidence and the conclusion. The evidence is that the figures of professional receipts as per TDS certificates and as shown in the profit and loss account vary, but then this does not lead to the conclusion that the income has escaped assessment. As a matter of fact, as we will see in paragraph 15 of this order a little later, on the same date and vide identical reasons recorded, the Assessing Officer has also reopened the assessment for subsequent assessment year as well, in which professional income as per profit and loss account was far more than the aggregate of figure of payments as per tax deduction at source certificates. It is thus the difference per se and not the professional income as per profit and loss account being less than the figure as per tax deduction at source certificates which is proximate cause of reopening the assessment. In any event, the difference between receipt and income is too significant to be ignored. There may be need to verify but that mere need to verify does not bring the matter within the scope of cases in which reassessment proceedings can be validly initiated. What is needed, to successfully invoke the reassessment proceedings, is the reasons to believe that income has escaped assessment. No doubt, even a prima facie reason for believing that income has escaped assessment is sufficient to invoke the reassessment proceedings, but there is a subtle, though significant, distinction between reasons to believe and reasons to suspect. While the former is good enough to hold that income has escaped assessment and initiate suitable remedial measures in respect thereof, the latter can at best be the ground enough to verify and examine the matter further. The mere fact that matter needs to verified and deserves to examined further can, in our humble understanding, never be a reason good enough to believe, even if it is a good reason to suspect so, that income has escaped assessment, and therefore, a reason good enough to invoke the reassessment proceedings. An Assessing Officer may have a hunch that here is a case in which some income may have escaped assessment but that hunch or suspicion, howsoever legitimate, cannot be a reason to "believe" that income has escaped assessment. The condition precedent for invoking section 147 is, thus, far from satisfied. In this view of the matter, in our considered view, the very initiation of reassessment proceedings on the facts of this case was devoid of legally sustainable merits. We, therefore, quash the reassessment proceedings. As the reassessment proceeding itself is quashed, we see no need to deal with the matter on merits and dismiss the related grievances, raised by the assessee on merits of the case, as infructuous.
12. In the result, the appeal for the assessment year 2005-06 is allowed in the terms indicated above.
13. That takes us to the assessee's appeal for the assessment year 2006-07 i.e. ITA No. 54/Kol/2012.
14. This appeal is directed against the order dated 12th January, 2009 passed by the learned Commissioner (Appeals) in the matter of assessment under section 143(3) r.w.s. 147 of the Income-tax Act, 1961, for the assessment year 2005-06. Grievance of the assessee, on the question of jurisdiction, is as follows:
That in the absence of any valid reasons to believe that income of the assessee has escaped assessment, within meanings of Section 147 of the Income-tax Act, 1961, the notice issued by the Assessing Officer under section 148 was without jurisdiction, and, therefore, the impugned assessment order passed on 15th December, 2008, in pursuance to such notice, is liable to be annulled.
15. The relevant facts of the case are materially similar with the facts of the assessment year 2005-06 which we have dealt with above. The assessment in this case also was completed under section 143(1) of the Act, but subsequently, the assessment was reopened for the following reasons recorded by the Assessing Officer-copies placed before us at pages 23 and 24 of the paper-book
12.2.2008
The assessee (has) shown professional income in the P & L account Rs. 28,99,380 but on verification of TDS certificates, it is seen that TDS deducted for Rs. 74,094 on an amount of Rs. 14,01,497
Hence, the discrepancy may be verified. This is a fit case for reopen(ing) the assessment under section 147. Issue notice under section 148.
Sd/xx (illegible)
Certified to be true copy
Sd/xx (illegible)
Income Tax Officer
Ward 54(4), Kolkata
16. Vide letter dated 27th February, 2008 also, a copy of which was placed before us at page 22 of the paper-book, the Assessing Officer has advised the assessee the reasons of reopening the assessment as follows:
"In response to your letter dated 22.2.2008, this is to inform you that the revenue audit has pointed out that your professional income shown, and totalling of TDS certificate, differs. Hence, reopening of your assessment for the assessment year 2006-07″
17. In substance thus, it is an undisputed position that the assessment has been reopened on the ground that the discrepancy between professional income declared by the assessee and the professional income as per tax deduction at source certificates is at variance, and it, therefore, requires verification to find out whether any taxable income has escaped assessment. There is a categorical mention in the reasons recorded for reopening the assessment that "the discrepancy may be verified". The short question that we are required to adjudicate is whether, on these undisputed material facts, the initiation of reassessment proceedings can be held to be legally sustainable.
18. We have heard the rival contentions, perused the material on record, and duly considered factual matrix of the case as also the applicable legal position.
19. We have noted in the present year, the professional receipts as per the profit and loss account were far more than aggregate of professional receipts as per tax deduction at source certificates. In this view of the matter, it is difficult to understand as to how can anyone form belief, or even a suspicion, that an income has escaped assessment. The income which is offered to tax is clearly more than the income as per the tax deduction at source certificates. It is, therefore, a clear case of non-application on this aspect of the matter and, in any case, the reassessment proceedings have been initiated on the short ground of need for verification of which, as we have noted earlier in this order, cannot be a legally sustainable reason for reopening a completed assessment even under section 143(1). The observations we have made in paragraph numbers 9 to 11, for the assessment year 2005-06, are applicable, with equal force, for this assessment year as well. Accordingly, for all these reasons, we quash the reassessment proceedings for the assessment year 2006-07 also. As the reassessment proceeding itself is quashed, we see no need to deal with the matter on merits and dismiss the related grievances, raised by the assessee on merits of the case, as infructuous.
20. In the result, the appeal for the assessment year 2006-07 is also allowed in the terms indicated in this order.
21. To sum up, both the appeals filed by the assessee are allowed in the terms indicated above
Assessment cannot be reopened for excess credit of TDS
Turning now to the validity of the reasons recorded, that credit for TDS of Rs. 2,11,16,426/- was wrongly allowed to the petitioner, counsel for the petitioner is right in his submission that Section 147 of the Act can be invoked only "if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for anyassessment year" and that there is no authority given by the section enabling the Assessing Officer to reopen theassessment on the ground that credit for TDS was wrongly allowed in the originalassessment. In the reasons recorded, reference has been made to Explanation 2 to Section 147. We are not reproducing the said Explanation as the same has been reproduced in the reasons recorded, which have been quoted earlier. In our opinion, none of the three clauses of the Explanation applies to the present case. Clause (a) speaks of no return having been filed; that is not the case here. Clause (b) speaks of a return having been filed without an assessment being made and the assessee had understated the income or has claimed excessive loss, deduction, allowance or relief in the return. This also is not the case here. Clause (c) has several sub-clauses and none of the situations applies to the petitioner's case. Reference is then made to Section 155(14) of the Act in the reasons recorded. A careful reading thereof shows that it is intended for the benefit of the assessee who had omitted to file the TDS certificate along with the return of income but subsequently produces the same before the Assessing Officer within two years from the end of the assessment year in which the income relevant to the TDS is assessable, in which case the Assessing Officer can amend the assessmentorder and grant the relief, invoking the powers under Section 154 of the Act. The proviso to Section 155(14), however, places a condition, namely that the credit for TDS can be given by the Assessing only if the corresponding income is disclosed by the assessee in the return of income. What perhaps the respondent in the present case had in mind – we are only surmising – is that the assessee has not disclosed the income corresponding to the TDS of Rs. 2,11,16,426/-; and whencredit was given for the same by the order passed on 26.06.2006 under Section 154 of the Act, the petitioner was allowed "excessive relief" within the meaning of clause (b) of Explanation 2 to Section 147 of the Act. We are just assuming that this was in the mind of the Assessing Officer though in the reasons recorded it has not been so articulated. Even assuming this was the basis for issuing the notice, it cannot be validated for several reasons. The first assumption we have to make is that the petitioner claimed the relief in the return of income. Factually this is not so in the present case. No claim for the TDS of Rs. 2,11,16,426/- was made by the petitioner "in the return" nor was anycredit given in the demand notice for any TDS. This is clear from the income tax computation form dated 26.03.2006 placed at pages 68 – 69 of the writ petition. The petitioner had filed the TDS certificates with the respondent on 18.05.2005 which is obviously in the course of the originalassessment proceedings. Despite this, and despite rejecting the assessee's claim that its income was not taxable in India and thereby bringing to tax the sum of Rs. 64,99,26,627/- in theassessment order passed on 27.03.2006, the respondent did not allow credit for the TDS of Rs. 2,11,16,426/-. It was because of this – not giving credit for TDS despite assessing the income – that the petitioner was compelled to move an application for rectification of the assessment under Section 154 of the Act on 12.05.2006. The claim was accepted by the Assessing Officer and an order under Section 154 of the Act was passed on 26.06.2006 wherein credit for the TDS was allowed (income tax computation form placed at pages 83-84 of Annexure-G to the writ petition). The petitioner thus claimed the relief for TDS not in the return of income but by means of a separate application under Section 154 after the passing of the assessment order. Obviously it was the stand of the petitioner that if the income is in fact assessed, though according to it the same is not assessable, the corresponding credit has to be given for the related TDS. This is the purport and object of Section 155(14) of the Act. The order passed by the respondent on 27.06.2006 is traceable to Section 155(14) read with Section 154 of the Act and by claiming credit for TDS the petitioner cannot be said to have furnished untrue or incorrect particulars of its income; nor can it be said that by allowing credit for the TDS the Assessing Officer has given excessive relief. The other assumption which we have to make is that the relief was allowed to the petitioner in the originalassessment order, which would be an erroneous assumption since no credit for TDS was allowed in the original assessment order dated 27.03.2006. The credit given for TDS in an order passed under Section 155(14) read with Section 154 cannot be construed as a relief given in the originalassessment order. Section 155 of the Act provides for various situations under which an order can be amended because of developments taking place subsequent to the date on which the order was originally passed. It was this power of amendment which was invoked by the petitioner; thereby the petitioner was not claiming any relief in the return. Lastly, if we were to uphold the reasoning of the respondent we have to make a further assumption that claiming credit for TDS amounts to claiming excessive loss, deduction, allowance or relief. The respondent has not demonstrated in the reasons recorded as to how such an assumption can be validly made. Explanation 2 to Section 147 of the Act cannot travel beyond the main provision. The main provision empowers the Assessing Officer to reopen the assessment if he has reason to believe that any income chargeable to tax has escapedassessment for any assessment year. Explanation 2 merely enumerates cases which are deemed to be cases where "income chargeable to tax has escaped assessment". Therefore, the cases enumerated in the Explanation should also be cases where income chargeable to tax had escapedassessment. It cannot be so construed as to rope in cases where credit for TDS, which is a creditgiven against the tax payable and is not any allowance or deduction or loss or relief against the income chargeable to tax was erroneously given. There is, therefore, no merit in the reasons recorded by the respondent for reopening the assessment.
HIGH COURT OF DELHI
Asia Satellite Telecommunications Co. Ltd.
v.
Assistant Director of Income-tax, International Taxation
W.P.(C) NO. 8852 OF 2011
AUGUST 23, 2012
JUDGMENT
R.V. Easwar, J. - This writ petition has been filed by Asia Satellite Telecommunication Company Limited (hereinafter referred to as 'petitioner') under Articles 226 & 227 of the Constitution of India praying for issue of a writ of certiorari or any other writ, order or direction quashing the order dated 02.12.2011 as amended by order dated 12.12.2011 passed by the respondent, who is the Assistant Director of Income Tax, International Taxation, Circle-I (1), New Delhi. It is also prayed that the notice issued by the first respondent on 31.03.2010 under Section 148 of the Income Tax Act, 1961 ('the Act') and all further proceedings taken pursuant thereto may be quashed.
2. The petitioner is a non-resident company, based in Hong Kong. In respect of the assessmentyear 2003-04, it filed a return of income declaring "nil" income. An assessment was made under Section 143(3) of the Act by order dated 27.03.2006. In the assessment order the taxable income of the petitioner was determined at Rs. 64,99,26,627/- and a tax demand (including interest) of Rs. 33,98,99,070/- was raised. The petitioner owns and operates satellites and it provides satellite transponder capacity to its customers. The satellite is located in the geo-stationary orbit, 36000 km. above the equator. In making the assessment for the assessment year 2003-04 the Assessing Officer referred to an order of the Income Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal') dated 01.11.2002 in the assessee's own case for the assessment year 1997-98. In this order certain directions had been given to the Assessing Officer as to how the income of the petitioner should be computed. It would appear that the Tribunal did not accept the contention of the petitioner that no part of its income can be brought to tax in India and therefore proceeded to give certain directions to the Assessing Officer to compute the income of the petitioner. The respondent while completing the assessment of the petitioner for the assessment year 2003-04 noticed that the facts of the petitioner's case were the same as in the assessment year 1997-98 in respect of which year the Tribunal had rejected the petitioner's claim that it was not assessable in India. In this view of the matter he proceeded to determine the income of the petitioner. To be more precise, the Assessing Officer held that the fees received by the petitioner from its customers for provision of satellite transmission services were exigible to tax in India as "royalty" as defined in Section 9(1)(vi) of the Act.
3. The assessee preferred an appeal against the assessment order to the CIT (Appeals). The CIT (Appeals) passed a consolidated appellate order on 29.02.2008 for the assessment years 1998-99 to 2005-06 holding, inter alia, that the income of the petitioner earned from its customers for providing satellite services was chargeable to tax in India as "royalty" as per the provisions of clause (iii) read with clause (vi) of Explanation 2 to Section 9(1)(vi) of the Act. The petitioner preferred further appeal against the order passed by the CIT (Appeals) to the Tribunal. While the appeal before the Tribunal was pending, the Assessing Officer on 17.07.2008 passed an order to give effect to the order passed by the CIT (Appeals) on 29.02.2008 and recomputed the taxable income of the petitioner at Rs. 61,19,71,423/- and raised a demand of tax and interest aggregating to Rs. 8,73,14,913/-. In arriving at the final tax liability as per the order passed on 17.07.2008, the Assessing officer allowed credit for tax deducted at source amounting to Rs. 2,11,16,426/-. The credit was given on the basis of the TDS certificates filed by the petitioner on 18.05.2005 in the course of the assessment proceedings under Section 143(3) of the Act which had been accepted by the respondent in an order passed under Section 154 of the Act on 26.06.2006.
4. On 16.10.2009, a Special Bench of the Tribunal passed an order in the case of New Skies Satellite N.V. v. Asstt. DIT [2009] 121 ITD 1 (Delhi) (SB) in which an identical controversy was involved. The petitioner had intervened in this matter. The Special Bench held, inter alia, that payments received by the assessees from their customers under circumstances similar to the petitioner's case were taxable in India as "royalty" within the meaning of Section 9(1)(vi) of the Act.
5. When the appeals of the petitioner for the assessment years 1998-99 to 2005-06, which had been filed by the petitioner before the Tribunal, came up for hearing, the order of the Special Bench (supra) had already been passed and since the facts of the petitioner's case were identical, the Tribunal passed orders on 23.03.2010 in the petitioner's case holding that the receipts were taxable in India as "royalty" as held by the Special Bench.
6. On 31.03.2010 the respondent issued notice under Section 148 of the Act for the assessment year 2003-04 calling upon the petitioner to file the return of income on the ground that income chargeable to tax had escaped assessment. In response to the notice, the petitioner addressed a letter to the respondent on 05.05.2010 stating that the return earlier filed on 30.10.2003 may be treated as return filed in response to the notice of reopening. The petitioner also requested the respondent to supply the reasons recorded for reopening the assessment. The respondent supplied the reasons for reopening the assessment which are as follows: -
"Reasons recorded for issue of notice u/s 148 of the Income tax Act, 1961 in the case of M/s ASIA Satellite Telecommunication Co. Ltd. – For A.Y. 2003-04 29.03.2010
Asia Satellite Telecommunications Company Limited, Hongkong is a company incorporated in Hong Kong and is listed on the Hong Kong and New York stock exchanges. The assessee had filed the Income Tax return at 'Nil' income for the assessment year 2003-04 and had claimed credit for tax deducted at source of Rs. 2,40,46,661/- on estimated basis as TDS certificates of this amount were not available with the assessee at the time of filing return. During assessment u/s 143(3), royalty income from Indian concerns was determined and TDS of Rs. 2,11,16,426/- was allowed by the assessing officer. However, as the above income was not disclosed in the income tax return, TDS credit against this income should not have been allowed.
Section 155(14) of the Income Tax Act, 1961, provides that
Wherein the assessment for any previous year or in any intimation or deemed intimation under sub-section (1) of section 143 for any previous year, credit for tax deducted (..) in accordance with the provisions of section 199 (….) has not been given on the ground that the certificate furnished under section 203 (…) was not filed with the return and subsequently such certificate is produced before the assessing officer within two years from the end of the assessment year in which such income is assessable, the assessing officer shall amend the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143, as the case may be …..
Provided that nothing contained in this sub-section shall apply unless the income from which the tax has been deducted (…..) has been disclosed in the return of income filed by the assessee for the relevant assessment year.
This office believes that in the light of the above facts the prerequisite condition stated under Explanation 2 to section 147 are satisfied. Relevant portion of section 147 of the Act reads as below:
"Explanation 2: For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: -
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(c) Where an assessment has been made, but income chargeable to tax has been underassessed or
(ii) Such income has been assessed at too low a rate; or
(iii) Such income has been made the subject of excessive relief under this Act; or
In view of the above, I have reason to believe that the income of the assessee for A.Y. 2003-04 chargeable to tax has escaped assessment. In this case, not more than six years have elapsed from the end of the relevant Asstt. Year (i.e. A.Y. 2003-04) and income of more than 1 lakh has escaped assessment, therefore, the notice u/s 148 r.w.s. 147 of the I.T. Act, 1961 satisfies the limit for issue of notice as provided in Section 149 of the Act.
As required by section 151 of the Income Tax, 1961, the reasons are hereby put up for the kind perusal of recording of satisfaction.
Sd/-
(Alok Malviya)
ADIT, Cir-1(1), Intl. Taxation
New Delhi
The Addl. DIT, R-1, Intl. Taxation, N. Delhi
On the basis of the facts discussed by the AO I am satisfied on the reasons recorded by the AO that it is a fit case for issue of notice u/s 148 of the I.T. Act, Since, four years have expired for the end of the relevant assessment, your kind approval is solicited as under section 151 of the I.T. Act.
Sd/-
SUSHIL KUMAR
(ADDL DIT R-1)
DIT – INT. TAX, NEW DELHI
On the basis of the facts discussed by the AO I am satisfied on the reasons recorded by the AO that it is a fit case for issue of notice u/s 148 of the I.T. Act.
Sd/-
GOPAL KAMAL
(DIT-I, INTL. TAX, DELHI)"
7. On receipt of the reasons for reopening the assessment, the petitioner submitted its objections to the same as envisaged by the Supreme Court in G. K. N. Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. The respondent passed an order on the objections on 02.12.2011, which is the impugned order which was modified later by issuance of a corrigendum on 12.12.2011 which is also impugned in the present writ petition. Briefly speaking, the respondent took the following position vis-à-vis the objections filed by the petitioner: -
(a) Even when the petitioner filed its return of income on 30.10.2003, declaring "nil" income, the Tribunal had already pronounced its order on 01.11.2002 for the assessment year 1997-98 holding that the receipts earned from satellite transmission services fall within the ambit of royalty. This order should have been followed and the return of income should have been filed by the petitioner on that basis.
(b) Mere filing of an appeal against the order of the Tribunal to the High Court on 28.07.2010, which was a much later event, does not operate as the stay of the Tribunal's order.
(c) The petitioner was bound by the Tribunal's order but still preferred not to disclose its income on the basis of the Tribunal's order, which amounted to failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment.
(d) The petitioner failed to furnish the TDS certificates along with the return of income, and they were filed only on 18.05.2005. No credit could have been given to the tax deducted at source in view of Section 155(14) of the Act since the petitioner had not declared the income corresponding to the TDS certificates.
(e) So far as the tax deduction certificates are concerned, clause (c) to Explanation 2 to Section 147 of the Act covers a situation where the income of the assessee is assessed at too low a rate, without involving any change in the taxable income and even in such a case a notice to reopen the assessment on the ground of escapement of income can be issued. Therefore, the petitioner's contention that no income chargeable to tax had escaped assessment and that the mere giving credit for TDS certificates does not result in escapement of income is not correct.
8. The above is the gist of reasons given by the respondent for rejecting the objections raised by the petitioner. In the order dated 02.12.2011 rejecting the petitioner's objections, the respondent had erroneously mentioned the date of the assessment order as 27.03.2005. This error was corrected in the corrigendum issued on 12.12.2011, to 27.03.2006. It was admitted by the respondent in the corrigendum that the petitioner had filed the TDS certificates claiming credit for Rs. 2,11,16,426/- even during the assessment proceedings. He further adverted to the fact that since no credit was given in the assessment order, the petitioner filed an application under Section 154 on 12.05.2006 asking for rectification of the assessment order by giving credit for the TDS amount on the basis of certificates filed prior to the passing of the assessment order. The respondent accepted the application for rectification and passed an order under Section 154 of the Act on 26.06.2006. These facts were brought out in the corrigendum issued by the respondent. The respondent, however, refuted the allegations of the petitioner that the reassessment notice was prompted by a mere change of opinion. He observed that no opinion had been formed by him in the course of the original assessment proceedings on the issue of TDS credit allowable, and it was for the first time an opinion was formed as to the allowability of the TDS credit on 26.06.2006 when the rectification order was passed. Thus the substance of the corrigendum was that there was no change of opinion on the part of the assessing officer resulting in the issue of notice under Section 148 of the Act.
9. The contention of the petitioner is that this Court has pronounced orders in ITA Nos.131/2003 and 134/2003 pertaining to the assessment year 1997-98 on 31.01.2011 holding that the income of the petitioner is not taxable in India under the provisions of Section 9(1)(vi) of the Act. It was also pointed out that relying on this order, this Court has also taken a similar view in the petitioner's appeals for the assessment year 1998-99 to 2005-06 and held that the petitioner is not assessable in respect of the receipts from its customers in India on the footing that they represented "royalty" income within the meaning of Explanation 2 to Section 9(1)(vi) of the Act. It was also urged that the notice under Section 148 of the Act has been issued after a period of four years from the end of the assessment year 2003-04 and, therefore, it was incumbent upon the respondent to demonstrate in the reasons recorded that there was failure on the part of the petitioner to furnish fully and truly all material facts necessary for its assessment. According to the counsel, the reasons recorded do not contain any such allegation. It was further urged that the reference, in the reasons recorded, to allowance of credit for TDS of Rs. 2,11,16,426/- was wholly irrelevant and cannot be the basis for reopening the assessment as it had nothing to do with escapement of "income" chargeable to tax. According to the counsel for the petitioner, Section 147 of the Act comes into operation only where "income" chargeable to tax has escaped assessment and it cannot be invoked, in the absence of any specific provision authorising the same, on the ground that credit for TDS was erroneously given.
10. We think there is good deal of force in the contentions of the counsel for the petitioner. We are concerned with the assessment year 2003-04. The notice under Section 148 of the Act was issued on 31.03.2010, after a lapse of four years from the end of the assessment year. It is, therefore, a case where the first proviso to Section 147 of the Act applies. In a case to which the proviso applies and notice is issued after a period of four years from the end of the assessment year, it is for the Assessing Officer to allege and demonstrate that the assessee had either failed to file the return of income under Section 139 or Section 142(1) or Section 148 of the Act or "to disclose fully and truly all material facts necessary for his assessment, for that assessment year". Explanation 1 says that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. A perusal of the return of income filed by the petitioner on 30.10.2003 (Annexure-D to the writ petition) and the statement of total income filed along with the return, which is also part of the annexure, reveals that the petitioner had taken the position that since all its operations are carried out in Hongkong and it did not have any office or branch or subsidiary in India nor did it receive any amount in India, it was not assessable to tax in India. In the notes to the statement of total income it was pointed out that the satellites of the petitioner are located in the orbit at a height of 36000 km above Moscow to Auckland and from Cyprus to Tokio. This is in Note No.4 to the statement of total income. On this basis it was claimed that the petitioner was not liable to tax in India as per the provisions of the Act and, therefore, the return was being filed showing "nil" income. Note No.6 to the statement of total income is important since in the order rejecting the objections the respondent has taken the plea that the petitioner, by filing a nil return of income despite the order of the Tribunal in its own case by the assessment year 1997-98 holding that the assessee was liable to tax in India, failed to furnish full and true material facts and, therefore, the notice under Section 148 of the Act was valid.
11. Two aspects fall for consideration on this issue: firstly, whether it is legally permissible for the AO to improve upon the reasons recorded for reopening the assessment in his order rejecting the petitioner's objections and secondly, whether the allegation is factually correct. Taking the second aspect first, we find that the allegation is factually incorrect. Note No.6 to the statement of total income filed along with the return of income on 30.10.2003 reads as under: -
"8. The return is filed without prejudice to the claim that the assessee is not liable to tax in India. It is submitted that in the order of the Tribunal for the assessment year 1997-98, the assessee's income has been held to be in the nature of "royalty" as defined in section 9(1)(vi) of the Income-tax Act.
It is submitted that the assessee's income is not in the nature of "royalty" as defined in Explanation 2 to section 9(1)(vi) of the Income-tax Act and does not fall within the definition of "royalty" even after the insertion of clause (iva) therein because there is no user of the transponder by the customer. Without prejudice, it is further submitted that the provisions of section 9(1)(vi)(c) are not applicable to the assessee as the conditions in sub-clause (c) are not satisfied. The assessee has filed an appeal before the High Court on the issue as to whether the assessee's income is in the nature of "royalty" as defined in Explanation 2 to section 9(1)(vi) and whether the assessee's non-resident customers are carrying on business in India or have a source of income in India. As regards the applicability of clause (iva), the Tribunal has held that a transponder is not "equipment" and that the assessee's case is not covered under clause (iva). Against the finding of the Tribunal regarding clause (iva), the Income-tax Department has filed appeal before the High Court. Both appeals have been admitted."
12. It is thus seen that not only has the petitioner drawn the attention of the Assessing Officer to the fact that in the assessment year 1997-98 the Tribunal has held that its receipts were in the nature of "royalty" as defined in Section 9(1)(vi) of the Act, but the petitioner has also stated that it has not accepted the order of the Tribunal and has filed an appeal to the High Court and that notwithstanding the adverse order of the Tribunal, it is still keeping its claim alive. Thus the material fact that for an earlier assessment year there was an adverse order of the Tribunal has been brought to the attention of the respondent in the return of income itself. As far as the legal aspect is concerned, there are several authorities to the effect that the reasons recorded prior to the issue of notice under Section 148 cannot be improved upon and the gaps cannot be supplied later. The validity of the reasons has to be judged only on the basis of what was originally recorded under Section 148(2): InSignature Hotels (P.) Ltd. v. ITO [2011] 338 ITR 51 a Division Bench of this Court, speaking through Sanjiv Khanna, J. observed as follows: -
"The reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148."
It has been held in the following cases that the reasons cannot be added or improved upon subsequently and the validity of the reopening of the assessment must be judged only with reference to or on the basis of the reasons recorded by the Assessing Officer under Section 148(2) prior to the issue of the notice: -
(a) CIT v. Agarwalla Brothers [1991] 189 ITR 786 (Pat.)
(b) East Coast Commercial Co. Ltd. v. ITO [1981] 128 ITR 326 (Cal.)
(c) Equitable Investment Co. (P.) Ltd. v. ITO [1988] 174 ITR 714 (Cal.)
(d) Jamna Lal Kabra v. ITO [1967] 69 ITR 461 (All.)
(e) H.A. Nanji & Co. v. ITO [1979] 120 ITR 593 (Cal.)
(f) C.M. Rajgharia v. ITO [1975] 98 ITR 486 (Pat.)
(g) Saradbhai M. Lakhani v. ITO [1998] 231 ITR 779 (Guj.)
13. In the present case we have searched in vain the reasons recorded by the Assessing Officer for the allegation that the petitioner did not bring to the notice of the Assessing Officer the fact that for the assessment year 1997-98 there was an adverse order of the Tribunal.
14. Turning now to the validity of the reasons recorded, that credit for TDS of Rs. 2,11,16,426/- was wrongly allowed to the petitioner, counsel for the petitioner is right in his submission that Section 147 of the Act can be invoked only "if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year" and that there is no authority given by the section enabling the Assessing Officer to reopen the assessment on the ground that credit for TDS was wrongly allowed in the original assessment. In the reasons recorded, reference has been made to Explanation 2 to Section 147. We are not reproducing the said Explanation as the same has been reproduced in the reasons recorded, which have been quoted earlier. In our opinion, none of the three clauses of the Explanation applies to the present case. Clause (a) speaks of no return having been filed; that is not the case here. Clause (b) speaks of a return having been filed without an assessment being made and the assessee had understated the income or has claimed excessive loss, deduction, allowance or relief in the return. This also is not the case here. Clause (c) has several sub-clauses and none of the situations applies to the petitioner's case. Reference is then made to Section 155(14) of the Act in the reasons recorded. A careful reading thereof shows that it is intended for the benefit of the assessee who had omitted to file the TDS certificate along with the return of income but subsequently produces the same before the Assessing Officer within two years from the end of the assessment year in which the income relevant to the TDS is assessable, in which case the Assessing Officer can amend the assessment order and grant the relief, invoking the powers under Section 154 of the Act. The proviso to Section 155(14), however, places a condition, namely that the credit for TDS can be given by the Assessing only if the corresponding income is disclosed by the assessee in the return of income. What perhaps the respondent in the present case had in mind – we are only surmising – is that the assessee has not disclosed the income corresponding to the TDS of Rs. 2,11,16,426/-; and when credit was given for the same by the order passed on 26.06.2006 under Section 154 of the Act, the petitioner was allowed "excessive relief" within the meaning of clause (b) of Explanation 2 to Section 147 of the Act. We are just assuming that this was in the mind of the Assessing Officer though in the reasons recorded it has not been so articulated. Even assuming this was the basis for issuing the notice, it cannot be validated for several reasons. The first assumption we have to make is that the petitioner claimed the relief in the return of income. Factually this is not so in the present case. No claim for the TDS of Rs. 2,11,16,426/- was made by the petitioner "in the return" nor was any credit given in the demand notice for any TDS. This is clear from the income tax computation form dated 26.03.2006 placed at pages 68 – 69 of the writ petition. The petitioner had filed the TDS certificates with the respondent on 18.05.2005 which is obviously in the course of the original assessment proceedings. Despite this, and despite rejecting the assessee's claim that its income was not taxable in India and thereby bringing to tax the sum of Rs. 64,99,26,627/- in the assessment order passed on 27.03.2006, the respondent did not allow credit for the TDS of Rs. 2,11,16,426/-. It was because of this – not giving credit for TDS despite assessing the income – that the petitioner was compelled to move an application for rectification of the assessment under Section 154 of the Act on 12.05.2006. The claim was accepted by the Assessing Officer and an order under Section 154 of the Act was passed on 26.06.2006 wherein credit for the TDS was allowed (income tax computation form placed at pages 83-84 of Annexure-G to the writ petition). The petitioner thus claimed the relief for TDS not in the return of income but by means of a separate application under Section 154 after the passing of the assessment order. Obviously it was the stand of the petitioner that if the income is in fact assessed, though according to it the same is not assessable, the corresponding credit has to be given for the related TDS. This is the purport and object of Section 155(14) of the Act. The order passed by the respondent on 27.06.2006 is traceable to Section 155(14) read with Section 154 of the Act and by claiming credit for TDS the petitioner cannot be said to have furnished untrue or incorrect particulars of its income; nor can it be said that by allowing credit for the TDS the Assessing Officer has given excessive relief. The other assumption which we have to make is that the relief was allowed to the petitioner in the original assessment order, which would be an erroneous assumption since no credit for TDS was allowed in the original assessment order dated 27.03.2006. The credit given for TDS in an order passed under Section 155(14) read with Section 154 cannot be construed as a relief given in the original assessment order. Section 155 of the Act provides for various situations under which an order can be amended because of developments taking place subsequent to the date on which the order was originally passed. It was this power of amendment which was invoked by the petitioner; thereby the petitioner was not claiming any relief in the return. Lastly, if we were to uphold the reasoning of the respondent we have to make a further assumption that claiming credit for TDS amounts to claiming excessive loss, deduction, allowance or relief. The respondent has not demonstrated in the reasons recorded as to how such an assumption can be validly made. Explanation 2 to Section 147 of the Act cannot travel beyond the main provision. The main provision empowers the Assessing Officer to reopen the assessment if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Explanation 2 merely enumerates cases which are deemed to be cases where "income chargeable to tax has escaped assessment". Therefore, the cases enumerated in the Explanation should also be cases where income chargeable to tax had escaped assessment. It cannot be so construed as to rope in cases where credit for TDS, which is a credit given against the tax payable and is not any allowance or deduction or loss or relief against the income chargeable to tax was erroneously given. There is, therefore, no merit in the reasons recorded by the respondent for reopening the assessment.
15. For the aforesaid reasons, we quash the impugned notice issued by the respondent under Section 148 of the Act on 30.03.2010 and all proceedings consequent thereto and allow the writ petition with no order as to costs.
FINANCE BILL, 2013 - CLARIFICATION ON AMENDMENT TO SECTION 206-C OF INCOME-TAX ACT DEALING WITH TAX COLLECTION AT SOURCE (TCS) ON SALE OF BULLION OR JEWELLERY IN CASH
PRESS RELEASE, DATED 1-5-2013
Currently, sale in cash of bullion (excluding coin or any other article weighing 10 grams or less) in excess of Rs. 2 lakh or jewellery in excess of Rs. 5 lakh is subject to Tax Collection at Source (TCS) @ 1%. As coins were neither included in bullion nor in jewellery, therefore, coins, even when amounting to more than Rs. 2 lakh in value, were being sold in cash without TCS.
The Finance Bill, 2013 proposes to delete exclusion of coins/articles weighing 10 grams or less from bullion. Hence, the sale of bullion (including coins/articles) in cash in excess of Rs. 2 lakh shall be subject to TCS @1%. Similarly, sale of jewellery in cash in excess of Rs. 5 lakh shall be subject to TCS @1%.
It is not a new levy of tax but continuation of old levy except withdrawal of exemption in the case of coins/articles weighing 10 grams or less.
ST : Circular No. 967/01/2013-CX, dated 1-1-2013 on subject of recovery of dues in terms of appellate/adjudication orders is within competence of power of Board to issue Circulars
ST : Sl. Nos. 3, 6 and 9 of para 2 of Circular No. 967/01/2013-CX were read down so that recovery can be made pending stay application only if it remained pending for reasons attributed to assessee; further, Sl. No. 10 was read down to permit reasonable time to assessee to seek protection from appellate forum
ST : Even pending final disposal of stay application, it would be within jurisdiction of appellate forum to impose some condition on assessee to safeguard interest of revenue
ST : Circular No. 925/15/2010-CX., dated 26-5-2010, which interpreted provisions of section 35C(2A) of Central Excise Act, 1944 dealing with recovery where stay granted by Tribunal is deemed to be vacated, has not been withdrawn by Circular No. 967/01/2013-CX, dated 1-1-2013
■■■
[2013] 32 taxmann.com 355 (Gujarat)
HIGH COURT OF GUJARAT
Gujarat State Fertilizer Co. Ltd.
v.
Union of India*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NOS. 1124 OF 2013 & OTHERS
MARCH 11, 2013
I. Section 83 of the Finance Act, 1994, read with section 37B of the Central Excise Act, 1944 - Application of certain provisions of Excise Act - Instructions to Central Excise Officers - Circular No. 967/01/2013-CX, dated 1-1-2013 on subject of recovery of dues in terms of appellate/adjudication orders is within competence of power of Board to issue Circulars - Such Circular is within powers of Board in view of sections 151A of Customs Act, 1962 and section 37(2)(xx) of Central Excise Act, 1944, read with rule 31 of Central Excise Rules, 2002 [Paras 11 to 13] [In favour of revenue]
II. Section 87 of the Finance Act, 1994 - Recovery of any amount due to Central Government - Sl. Nos. 1, 2, 4, 5, 7 and 8 of para 2 of Circular No. 967/01/2013-CX, dated 1-1-2013 proposing recovery of dues when no stay application was filed within prescribed period were valid - Sl. Nos. 3, 6 and 9 were unreasonable and to avoid them being unconstitutional under article 14 of Constitution, they were to be read down so that recovery officer can initiate recovery proceedings pending appeal and stay application only when it is found that application remained pending beyond 30 days for reasons of delay which can be attributed to assessee and assessees, in their own interest, would be duty bound to supply requisite details being called for by revenue to arrive at proper finding - Sl. No. 10 insofar as it provides for immediate recovery as soon as order is passed in appeal was read down so as to permit reasonable time to assessee to seek protection from appellate forum - Sl. No. 11 was valid, as appeals before High Court and Supreme Court lie only on limited grounds and such courts can provide immediate hearing if there is urgency and when matter has been decided up to stage of Tribunal/High Court, Revenue cannot be asked to stay its hands off for full period of limitation [Paras 14, 15, 26, 28 and 29] [Partly in favour of assessee]
III. Section 83 of the Finance Act, 1994, read with section 35F of the Central Excise Act, 1944 - Application of certain provisions of Excise Act - Deposit, pending appeal, of duty demanded or penalty levied - Since protecting interest of revenue is of due importance, it is highly desirable that appellate Commissioner and Tribunal bestow their utmost consideration to application for pre-deposit waiver and dispose of them as quickly as possible - Further, while granting any stay or waiving fully or partly any pre-deposit, appellate authority must take into account revenue's concern that some condition be imposed on assessee so that demand if confirmed in future, recovery does not become illusory - Even pending final disposal of stay application, it would be within jurisdiction of appellate forum to impose some condition on assessee to safeguard interest of revenue [Para 30] [In favour of revenue]
IV. Section 86 of the Finance Act, 1994, read with section 35C of the Central Excise Act, 1944 - Appellate Tribunal - Appeals to - Circular No. 925/15/2010-CX., dated 26-5-2010, which interpreted provisions of section 35C(2A) of Central Excise Act, 1944 dealing with recovery where stay granted by Tribunal is deemed to be vacated, has not been withdrawn by Circular No. 967/01/2013-CX, dated 1-1-2013 - Accordingly, as per Circular No. 925/15/2010-CX., dated 26-5-2010, nothing prevents Tribunal from granting stay beyond six months, but, extension of stay has to be applied for by party - Wherever stay period is over and final decision has not been pronounced, Department may by a simple letter ask party to pay and party would be at liberty to go back to Tribunal for seeking extension of stay - Coercive measures, without giving an opportunity to party to seek further extension of stay should be avoided [Para 32] [In favour of assessee]
Circulars and Notifications : Circular No. 967/01/2013-CX, dated 1-1-2013, and 925/15/2010-CX., dated 26-5-2010
FACTS
Facts
| ■ | Assessee's appeal along with stay application was pending before High Court. | |
| ■ | Pending stay application, Department initiated recovery proceedings in pursuance of CESTAT order in favour of revenue. | |
| ■ | Such action was taken in accordance with Circular No. 967/01/2013-CX, dated 1-1-2013. | |
| ■ | Assessee argued that CBEC had no power to issue such Circular and, in any event, Sl. Nos. 3, 6, 9, 10 and 11 of para 2 of Circular were invalid. |
Issue Involved
| ■ | Whether recovery proceedings were valid in law ? |
HELD
A. Board has power to instructions such as those issued in impugned Circular :
| ■ | Power under Customs Act comes from section 151A : Insofar as section 151A of the Customs Act is concerned, it is worded widely and includes power of the Board to issue instructions, orders and directions for the purpose of uniformity in classification of goods or with respect to levy of duty thereon or for the implementation of any other provisions of the Act or any other law for the time being in force insofar as they relate to any prohibition, restriction or procedure for import or exports of goods. The power of the Board, therefore, to issue any orders, instructions, or directions for the implementation of the provisions of the Act if the Board considers it necessary and expedient to do so cannot be questioned. Recovery of customs duty with or without interest and penalty would certainly arise out of the provisions made in the Customs Act, 1962 and the Rules made thereunder. For example, section 142 of the Customs Act pertains to recovery of sums to the Government. The Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 provides for the procedure for such recoveries. In that view of the matter, power of the Board to issue such instructions for recovery of customs duty would flow from section 151A of the Customs Act, 1962. [Para 11] | |
| ■ | Section 37B of Excise Act does not directly empower issuance of such Circular : Section 37B of the Central Excise Act, 1944, however, is not so widely worded. It empowers the Board, if it considers necessary and expedient to do so for the purpose of uniformity in classification of excisable goods or with respect to levy of duty of excise on such goods, to issue orders, instructions and directions to the Central Excise Officers as deemed fit. The powers of the Board, therefore, can be exercised for the purpose of uniformity in classification of goods or with respect to levy of duty of excise on such goods. When read in conjunction, both the elements touching the powers of the Board would have a bearing on the question of classification of the goods or with the levy of duty of excise on such goods. It is highly questionable whether recovery of excise duty along with interest and penalty can form part of matter of any instructions the Board may issue in exercise of powers under section 37B of the Central Excise Act. However, this issue was not examined in view of provisions of rule 31 of Central Excise Rules, 2002. [Para 12] | |
| ■ | Rule 31 of Central Excise Rules, 2002 empowers issuance of this Circular : Section 37 of the Central Excise Act, 1944 is a rule making power of the Government. Sub-section (1) of section 37 provides that the Central Government may make rules to carry into effect the purposes of the Act. As per clause (xx) of section 37(2), Central Government may make Rules to authorise the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 or Commissioners of Central Excise appointed for the purpose of Act to provide, by written instructions, for supplemental matters arising out of any rule made by the Central Government under this section. In exercise of such rule making powers, the Central Excise Rules, 2002 has been framed. Rule 31 thereof empowers the Board to issue written instructions providing for any incidental or supplementary matters consistent with the provisions of the Act and the Rules. Thus, under rule 31 of the Central Excise Rules, 2002, the Board has sufficiently wide powers for issuing instructions which may provide for any incidental or supplementary matters, only limiting condition being that such instruction must be consistent with the provisions of the Act and the Central Excise Rules, 2002. Issuing guidelines for the purpose of uniformity in recovery procedure would certainly fall within incidental or supplementary matters. In that view of the matter, we cannot accept the contention of the petitioners that the Board lacked power to issue the instructions in question. [Para 13] |
B. Recovery can be made, if no stay application preferred within time period before appropriate authority - Sl. Nos. 1, 2, 4, 5, 7 and 8 of para 2 of Circular were valid :
| ■ | First category of cases was where no appeal has been preferred against the order in original till the expiry of the period of limitation prescribed or where such appeal has been preferred, but no stay application has been filed. These cases would be covered under clauses 1, 2, 4, 5, 7 and 8. [Para 14] | |
| ■ | In this category, there is hardly any debate possible. In cases where despite availability of appellate remedy, if the assessee does not file appeal within the period of limitation prescribed or if any such appeal is filed but is not accompanied by any application for stay, it is provided that in such a situation, recovery would be initiated either at the end of the statutory period of limitation or without waiting for such period if no stay is sought. Obviously, an assessee who either does not prefer an appeal or who though prefers an appeal, does not ask for stay from the appellate authority can hardly avoid recovery of the confirmed demand. [Para 15] |
C. Sl. Nos. 3, 6 and 9 of para 2 of Circular were contrary to Article 14 of Constitution and were read down so that recovery could be made only if delay in disposal of stay application was attributable to assessee :
| ■ | Contents of Sl. No. 3 : Sl. No. 3 pertains to a situation where the adjudicating authority has confirmed certain duty demand first appeal is available and filed along with stay application before the Commissioner (Appeals). The guidelines provide that in such a case, recovery shall be initiated after 30 days of the filing of the appeal, if no stay is granted or after disposal of the stay application whichever is earlier. It is this clause 'whichever is earlier' which causes serious concern. [Para 18] | |
| ■ | Contents of Sl. No. 6 : Likewise, Sl. No. 6 governs a situation where an appeal lies before the Tribunal against an order in original issued by the Commissioner. Such appeal is filed along with stay application. Here also, it is provided that recovery should be initiated after 30 days of filing of the appeal, if no stay is granted or after disposal of the stay petition, whichever is earlier. [Para 18] | |
| ■ | Contents of Sl. No. 9 : Sl. No. 9 covers a situation where a second appeal against an order of the appellate Commissioner confirming the demand for the first time is filed. In essence, therefore, the appeal before the Tribunal is a second appeal. Insofar as the assessee is concerned, it happens to be a first challenge to the appellate order which would have reversed the order of the adjudicating authority. In such a situation also, it is provided that recovery would be initiated after 30 days of filing of appeal or disposal of the stay application whichever is earlier. | |
| ■ | Two common things in these clauses : In clauses 3, 6 and 9, two things were common - |
| ○ | Firstly, the appeal that the assessee files either before the Commissioner or the Tribunal is the first appeal at the hands of the assessee though, in essence, it may be a second appeal before the Tribunal. | |
| ○ | Second commonality is that the circular itself recognizes that in such a situation, recovery should not be initiated till filing of appeal (of course subject to the outer limit of the limitation prescribed) and for a further period of 30 days enabling the assessee to obtain stay from the appellate forum. [Para 19] |
| ■ | Recovery can be made if delay in disposing stay application is attributable to assessee : There can be large number of reasons why even after the assessee prefers an appeal within the period of limitation along with stay application, it is not possible to dispose of such application within 30 days of filing. Such reasons may be attributable to the assessee or the Department or may be completely independent reasons. Of course, if it is found that the assessee has delayed the disposal of stay application, and has sought unreasonable adjournments leading to the appellate forum not being able to decide the application for stay, it would be open for the Revenue, in an appropriate case, to seek recovery of the confirmed demand even pending appeal and stay application. [Para 19] | |
| ■ | No recovery can be made if delay in disposing appeal is other than due to assessee : However, surely, if the non-disposal of the stay application has nothing to do with the conduct of the assessee, Revenue cannot contend that recovery must be permitted in such a situation also. Accepting any such contention of the Revenue would lead to drastic and sometimes absurd situation. For example, before the appellate forum, if the Revenue is unable to present full facts and is, therefore, compelled to seek adjournments repeatedly and thereby making it impossible for the appellate forum to dispose of the stay application of the assessee, could the Revenue contend that it can take advantage of its own wrong and go ahead with the recovery of demand though the appellate forum is seized of the appeal and stay application ? Surely, the answer has to be in the negative. [Para 19] | |
| ■ | Various reasons of delay beyond control of assessee and revenue, where, allowing recovery would be unjust : There are various reasons which may be completely beyond the control of the assessee as well as the revenue which may lead to non-disposal of the stay application. |
| ○ | It is not unknown that because of paucity of time either the appellate Commissioners or the Tribunal are unable to dispose of stay applications within a short time. To expect such appellate forum to invariably to do so within 30 days of filing of such proceedings would, under the prevailing conditions, be quite impossible. | |
| ○ | In some cases, the authority grants date of first hearing after several months of the filing of the appeal and the stay applications. On many such dates, either due to non-availability of the authority or non-availability of time with the authority, such applications could not be heard. | |
| ○ | In large number of cases, the authority could not grant first date of hearing within 30 days of filing of the appeal with the stay application. | |
| ○ | Ordinarily, Tribunal fixes the date of hearing of stay application which normally would not be within 30 days of filing. If the assessee has some urgency, he would have to move an application for taking up stay application on early basis. Such application when granted the Tribunal would advance date of hearing of the stay application. | |
| ○ | In number of cases, quite apart from the non-availability of time with the Tribunal due to heavy pressure of work, the Tribunal was not fully functional as only one member was posted. | |
| ○ | In certain cases, due to personal reasons of the concerned member, the appeals were ordered to be posted before some other Bench. Since no second Bench would be available, necessarily, such appeals would have to be transferred to some other bench of the Tribunal outside the State. [Para 20] |
| ■ | In all such cases, if the Revenue were to be permitted to continue with coercive recovery, in our opinion, the same would lead to grossly unjust situation and would not be conducive to the interest of justice. [Para 21] | |
| ■ | Circular provides uniformity and predictability in recovery : While issuing guidelines by the impugned circular, the Board has superceded the previous circulars on the issue. Such guidelines provide uniformity and predictability as also in most cases permit reasonable time to the assessee to avail of the remedy of appeal. These guidelines, therefore, supply to a large degree uniformity and predictability in recoveries of confirmed demands. In absence of such guidelines, different recovery authorities may adopt different yardstick and standards. [Para 25] | |
| ■ | Circular violates discretion of appellate authorities in granting waiver of pre-deposit : Section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962 provide for partial or complete waiver of predeposit requirement which is within the sole domain of the discretionary jurisdiction of the appellate forum, be it Commissioner (Appeals) or the Tribunal. It is that authority alone which, on the basis of relevant consideration of undue hardship to the assessee and with a view to safeguard the interest of the Revenue may either refuse totally or grant fully or partially waiver of predeposit. Once, therefore, an appeal is presented before such a forum, within the period of limitation prescribed along with stay application, even the CBEC circular recognizes that reasonable time should be allowed to the assessee to pursue such stay application. In that background, once the CBEC recognizes such leverage to an assessee, to abandon the course midway and to insist that irrespective of the reasons why such application could not be concluded, recovery must be commenced 30 days after filing of such an application and be completed cannot be countenanced. Such procedure would be wholly unreasonable and arbitrary for the following reasons : |
| (i) | That the CBEC itself having recognized that an assessee should be provided with reasonable opportunity to question an adverse decision before going ahead with the recovery thereof cannot, thereafter, put an unreasonable condition that the entire onus would be on the assessee to obtain stay from the higher forum or the Tribunal within 30 days from the filing of the application. | |
| (ii) | The instruction completely ignores the possibility that such application may not be heard and disposed of within such short time permitted for variety of reasons which may not be attributable to the assessee. | |
| (iii) | The instruction ignores a situation where the stay application may not be heard due to the reasons entirely attributable to the revenue. In such a situation to permit recovery would be allowing the revenue to take advantage of its own wrong. | |
| (iv) | The instruction also fails to recognize the hard realities. In majority of the cases, the reasons for non-disposal of stay applications, before the appellate Commissioner or the Tribunal are that the appellate forum was either not available or because of heavy workload was unable to take up hearing of such application within 30 days. [Para 25] |
| ■ | Sl. Nos. 3, 6 and 9 need to be read down to avoid violation of Article 14 of Constitution : Therefore, condition Nos.3, 6 and 9, if read rigidly, fail to clear the test of reasonableness and, thus, fall foul to Article 14 of the Constitution. Therefore, the court preferred to read down such conditions and recognize that there would be situations where for no fault of the assessee a stay application filed before the appellate forum may not be disposed of within 30 days of its filing. In such a situation, the said conditions would not require the recovery officer to initiate recovery proceedings. However, if after filing of stay application, it is found that the assessee is prolonging the hearing thereof or for some such similar reasons attributable to the assessee stay application is lingering, surely it would be open for the revenue to proceed with the recovery irrespective of pendency of appeal and the stay application. [Para 26] | |
| ■ | Mere filing of appeal does not provide stay : Assessee's contention that once appeal and stay application are filed, any attempt on part of the authorities to recover the duty would be encroachment on the power of the appellate body was rejected. Mere filing of the proceedings cannot be equated with stay and if such proceedings are not pursued by the assessee with seriousness, he cannot claim immunity from recovery. [Para 26] | |
| ■ | Conclusion : Condition Nos.3, 6 and 9 are read down as to requiring the recovery officer to initiate recovery proceedings pending appeal and stay application only when it is found that the application remained pending beyond 30 days for the reasons of delay which can be attributed to the assessee. This would have to be necessarily judged by the Revenue authorities before initiating the proceedings. While doing so, if the authorities required any details from the assessee, such as the date of filing of the appeal and the stay application, the stage at which such proceedings are pending and the reasons for non-disposal of such proceedings, the assessees in their own interest would be duty bound to supply the same. [Para 26] |
D. In case of second appeal at hands of assessee, recovery could be made after passage of reasonable time - Sl. No. 10 read down differently :
| ■ | Contents of Sl. No. 10 : Sl. No. 10 pertains to a second appeal before the Tribunal at the instance of the assessee which appeal is directed against the order of the appellate Commissioner confirming the order of the adjudicating authority. In such a situation, it is provided that recovery should be initiated immediately on issue of the order by the appellate authority. [Para 18] | |
| ■ | Sl. No. 10 stands on a different footing : It envisages a second appeal before the Tribunal at the hands of the assessee. Such a situation would arise when a demand is confirmed by the adjudicating authority and the assessee's appeal is also rejected by the appellate Commissioner. Having lost at two stages, and when the assessee is in second appeal before the Tribunal, CBEC circular distinguishes such a case from other similar appeals before the Tribunal covered under condition Nos. 3, 6 and 9. Such distinction is not unreasonable. [Para 27] | |
| ■ | Recovery cannot be made immediately after passing of order by Commissioner (Appeals) : The requirement that in such a case the revenue must wait for the full period of limitation to see whether the assessee files the appeal with stay application, is not drastically incorrect or improper. However, to provide that recovery should commence immediately after the order is passed by the appellate Commissioner would not be permissible for the following reasons : |
| ○ | The hard realities are that the Tribunal as a machinery, may not always be available to an assessee to knock at the doors of justice at a shortest possible notice. It is noticed that Tribunal has never functioned at its full strength. Sometimes, Division Bench of the Tribunal is not functional, as only one member is appointed. An assessee who requires an urgent consideration of appeal and stay application in such a situation would be rendered without any protection whatsoever. | |
| ○ | In a given situation, if one of the members of the functional Bench for his personal reasons is unable to hear the appeal of a particular assessee, the entire proceedings would have to be transferred outside the State. | |
| ○ | Such being the vagaries of the tribunalization of justice, such Tribunals could not be equated with the functioning of a court of law. For example, it would be unimaginable that a litigant would be left without hearing for any period of time in the High Court. If extraordinary urgency is shown, a litigant can knock at the doors of justice at midnight. If a particular Judge or a Bench is not available, the pre-decided guidelines issued by the Chief Justice from time to time always provide an alternative forum of hearing before another Judge or Bench. If a particular Judge cannot take up a matter, it is also decided who else in his substitution will take up such a petition. | |
| ○ | In that view of the matter, to provide that as soon as the order is passed by the Commissioner confirming the duty demand made by the adjudicating authority, the order should be executed without any leverage would give rise to large number of cases which would travel to the High Court at such an interim stage. Such a situation where such unnecessary litigation would arise could not be accepted. [Para 27] |
| ■ | Recovery can be made only after allowing "reasonable period" of time, which may not necessarily be full period of limitation : Sl. No. 10 insofar as it provides for immediate recovery as soon as the order is passed in appeal also needs to be read down as to permitting reasonable time to the assessee to seek protection from the appellate forum. This period of reasonable time must be judged in the facts of each case and cannot be equated with full period of limitation. [Para 28] |
E. In case of appeal before Supreme Court and High Court, recovery proceedings could be initiated - Sl. No. 11 held valid :
| ■ | Sl. No. 11 stands on a different footing : It covers a case where decision is rendered by the Tribunal or the High Court and further appeal is available either before the High Court or the Supreme Court. In such a situation, the circular envisages immediate recovery if no stay is in operation. [Para 29] |
| ○ | Such condition was valid - Revenue cannot be asked to wait till expiry of period of limitation : Sl. No. 11 was valid for following reasons: | |
| ○ | Situation covered in condition No.11 would arise only once either the Tribunal in first or second appeal or the High Court in second or third appeal has decided against the assessee. The order of the Tribunal would be appealable either before the High Court or the Supreme Court depending on the subject matter of the issue under appeal. Such appeal would be available only on a substantial question of law, the Tribunal being the final fact finding authority. | |
| ○ | If the High Court has already decided such an appeal, there would be no further statutory appeal before the Supreme Court, but only special leave petition under article 136 of the Constitution which also would be an extraordinary remedy. | |
| ○ | In such a situation, to expect the revenue to stay its hands off either for the full period of limitation and then after watching the outcome of the stay application, would be an unreasonable expectation. | |
| ○ | Such appeals would be filed before the High Court which would be able to grant immediate hearing if there is urgency. | |
| ○ | Additionally, such appeal is available only on limited grounds, once all questions of facts are thrashed out at the level of the Tribunal. The period of limitation prescribed for filing such appeal is 180 days. The Central Excise Act or the Customs Act nowhere envisages that for the entire period of full 180 days of limitation, even at the stage of third appellate stage, the Revenue must stay its hand off. [Para 29] |
| ■ | Conclusion : Hence, condition No.11 was upheld without any modification. [Para 29] |
F. Certain peripheral aspects :
| ■ | Interest of revenue cannot be lost sight of - Stay applications to be disposed of quickly : Despite observations and conclusions with respect to condition Nos. 3, 6, 9 and 10 noted above, protecting interest of the revenue is also of equal importance. It would, therefore, be highly desirable that the appellate Commissioner and the Tribunal bestow their utmost consideration to the application for pre-deposit waiver and dispose of them as quickly as possible. [Para 30] | |
| ■ | Revenue's concern to be taken into consideration while granting stay - Conditions must be imposed to safeguard revenue so that recovery does not become illusory : While considering the question of waiver of pre-deposit, it is within the jurisdiction of the appellate forum to impose such conditions as deemed fit to safeguard the interest of the revenue. While, therefore, granting any stay or waiving fully or partly any predeposit, it is open and in fact incumbent upon such appellate authority to take into account the revenue's concern that some condition be imposed on the assessee so that the demand if confirmed in future, recovery does not become illusory. Such consideration can also weigh with the appellate forum at an ad-interim stage. In other words, even pending the final disposal of the stay application, it would be within the jurisdiction of the appellate forum to impose some condition on the assessee to safeguard the interest of the revenue. This would take care of the anxiety of the revenue that under the protection of the appellate authorities, ultimately, when the duty demand is confirmed, by virtue of the developments during the pendency of such proceedings, actual recovery becomes impossible. [Para 30] | |
| ■ | Assessee may siphon off property to avoid recovery - Provisions of Customs (Attachment of property of Defaulters for Recovery of Government Dues) Rules, 1995 not examined : |
| ○ | Recovery is carried out by the authorities under the Customs (Attachment of property of Defaulters for Recovery of Government Dues) Rules, 1995 (hereinafter referred to as "the said Rules of 1995"). Rule 3 envisages issuance of certificate by the competent authority where the Government dues are not paid by any defaulter. Rule 4 provides for issuance of notice calling upon the said defaulter to pay up the amount within seven days from the date of service of the notice. The rules envisage coercive recovery through attachment and sale of the property of the defaulter. In particular rule 9(i) provides that where a notice has been served on a defaulter under rule 4, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the Proper Officer. | |
| ○ | A situation may arise where an assessee during the period of limitation for filing appeal after a duty demand has been confirmed, may be found to be siphoning away its movable and immovable properties even before filing of appeal. Question in such a situation would arise, whether by virtue of the provisions contained in circular dated 1-1-2013, the revenue would be defenceless and would be able to take steps only once the entire period of limitation is over or the Recovery Officer can initiate recovery and travel up to the stage of rule 4 for service of notice of demand and then take recourse to rule 9 prohibiting any transfer of property thereafter. | |
| ○ | Since the Court, in present petitions, was not faced with such a situation therefore, no conclusive observations in this regard were made leaving it open to be judged in a case if and when same comes up. [Para 31] |
| ■ | In case of stay vacated matters before Tribunal, recovery can be only as per Circular No. 925/15/2010-CX., dated 26-5-2010, which is not withdrawn by Circular No. 967/01/2013-CX, dated 1-1-2013 : | |
| ■ | Section 35C(2A) of Central Excise Act, 1944 requires the Tribunal, as far as it is possible, to hear and decide every appeal within three years. Proviso thereto requires the Tribunal to dispose of the appeal within 180 days wherever any order of stay is granted in the proceedings. Further proviso provides that if such appeal is not disposed of within the specified period, stay order shall on the expiry of the said period stand vacated. |
| ○ | In the Circular No. 925/15/2010-CX., dated 26-5-2010, CBEC provided that while the Tribunals are expected to dispose of cases as stipulated in the above section, nothing prevents them from granting stay beyond six months. However, the extension of stay has to be applied for by the party. Thus, wherever stay period is over and the final decision has not been pronounced, the Department may by a simple letter ask the party to pay and the party would be at liberty to go back to the Tribunal for seeking extension of stay. Coercive measures, without giving an opportunity to the party to seek further extension of stay should be avoided. | |
| ○ | None of the clauses of present circular dated 1-1-2013 cover such a situation where having granted stay, the Tribunal could not dispose of the appeal within the period of 180 days and ,therefore, stay would be vacated. This circular is also not part of the specifically rescinded circulars mentioned in para 1 of the impugned circular. It would also not be covered under the description of any other circular, instruction or letter contrary to the said circular. In that view of the matter, the said circular dated 26-5-2010 would continue to operate in the limited field occupied by the said circular irrespective of the fresh guidelines dated 1-1-2013.[Para 32] |
| ■ | Technology must be used for tracking every appeal : In the present day of advanced technology, the Department should not be grouping for latest information and current status of assessees further appeal proceedings. Surely, with proper interdepartmental co-operation and computerization and utilization of such technology, the Department should be in a position to track every appeal before the appellate Commissioner or the Tribunal and the precise stage at which such proceedings are pending, including the reason for such pendency. This, of course, is an issue which the Department needs to address itself internally. [Para 33] | |
| ■ | Copies of present judgment to be circulated : The Department was directed to circulate copies of this judgment to all the Chief Commissioners of the State for proper and uniform implementation of the decision. [Para 35] |
EDITOR'S NOTE
This judgment seeks to balance assessee's rights vis-à-vis department's rights. This judgment shows that intervention of Supreme Court is required to finally adjudicate the issue vis-à-vis precedents and recent judgments of various High Courts on Circular No. 967/01/2013-CX, dated 1-1-2013, foremost of which are Larsen & Toubro Ltd. v. Union of India [2013] 30 taxmann.com 363/38 STT 684 (Bom.) and PML Industries Ltd. v. CCE[2013] 31 taxmann.com 382 (Punj. & Har.)
CASES REFERRED TO
CCE v. Gujarat State Fertilizers & Chem. Ltd. 2008 (229) ELT 9 (SC) (para 2), CCE v. Gujarat Narmada Fertilizers Co. Ltd. [2009] 22 STT 46 (SC) (para 2), Mark Auto Industries Ltd. v. Union of India 1998 (102) ELT 542 (Delhi) (para 7.1), Charak Pharmaceuticals v. Union of India2004 (163) ELT 300 (Kar.) (para 7.1), Vidhya Ply & Board (P.) Ltd. v. Union of India 1992 (61) ELT 231 (All.) (para 7.1), Acquguard Plastics & Polymers (P.) Ltd. v. Union of India 2000 (121) ELT 29 (Guj) (para 7.1), Larsen & Toubro Ltd v. Union of India [2013] 38 STT 684/30 taxmann.com 363 (para 7.1), Collector of Customs v. Krishna Sales (P) Ltd., 1994 (73) ELT 519 (SC) (para 8), Benara Valves Ltd v. CCE 2006 (204) ELT 513 (SC) (para 8), Omega Cables Ltd. v. Dy. Commissioner [Writ Petition No. 1749 of 2006, dated 31-1-2006] (para 9), Areva T & D India Ltd. v. Asstt. CCE 2011 (271) ELT 21 (Mad.) (para 9), J & J Plast v. Union of India 2010 (258) ELT 341 (Guj.)(para 9), State of A.P. v. McDowell & Co. [1996] 3 SCC 709 (para 9) and Khoday Distilleries Ltd. v. State of Karnataka [1996] 10 SCC 304 (para 9) and D.C.W. Limitedv. Commissioner (Appeals) 1997 (2) GLR 913 (para 30).
K.S. Nanavati, Kunal Nanavati, Kamal Trivedi, Bijal Chatrapati, Paresh M. Dave, Paritosh Gupta, A.P. Nainawati, Uday M. Joshi, S.N. Thakkar, Dhaval Shah, Hardik Modh, Nikhil S. Kariel and D.K. Trivedi for the Petitioner. P.S. Champaneri, R.J. Oza, Y.N. Ravani, Ms. Manisha Lavkumar, Gaurang Bhatt and Mrs. V.D. Nanavati for the Respondent.
JUDGMENT
Akil Kureshi, J. - In this group of petitions, the petitioners have challenged various recovery notices issued by the Customs and Central Excise Department on the basis of the revised guidelines issued by the Central Board of Excise and Customs (CBEC for short) dated 1.1.2013. The petitioners have challenged such circular dated 1.1.13 as also the individual demand notices issued by the respondents. For the purpose of this judgment, basic facts may be noted from Special Civil Application No.1124 of 2013.
2. Petitioner is a company registered under the Companies Act. The petitioner is engaged in the business of manufacturing of fertilizers and other products. For manufacture of such products, the petitioner purchases inputs without payment of duty. Once the manufacturing process is over, the petitioner would be in a position to ascertain the quantity of input used for manufacture of products which are exempt from payment of duty and which are not. There is ongoing dispute between the petitioner and the Department with respect to Cenvat credit availed by the petitioner in the process. The Department contends that such credit was availed by the petitioner in breach of Cenvat Credit Rules. It is the case of the petitioner that such disputes started way back in the year 1998 and went up the Supreme Court and in the case of CCE v. Gujarat State Fertilizers & Chem. Ltd., 2008 (229) ELT 9 (SC) , the issue was settled in favour of the petitioner-assessee. Despite such decision, the Department raised fresh demands against the petitioner on the very same grounds relying on a later decision in the case of CCE v. Gujarat Narmada Fertilizers Co. Ltd. [2009] 22 STT 46 (SC). Ultimately, the Assessing Officer passed the order in original dated 26.11.2010 confirming the duty demand. The petitioner's appeal came to be rejected by the Tribunal, against which the petitioner has preferred Tax Appeal No.793 of 2012 which is pending before this Court along with stay application, in which the High Court has issued notice to the respondents.
3. At that stage, the respondents issued the impugned notice dated 17.1.13 to the petitioner and conveyed as under :
"With reference to order No.A/1273/WZB/AHD/2012 dated 13.08.2012/29.08.2012 passed by CESTAT, Ahmedabad read with OIO No.2229/DEMAND/COMMR-1/2010 DATED 26.11.2010 for demand of duty amounting to Rs.34,36,60,312/- which includes
| (i) | duty Rs.343660312/- | |
| (ii) | interest on Rs.31362988/- under section 11AB | |
| (iii) | interest on Rs.312297324/- under section 11AA |
The CESTAT has upheld the OIO passed by the Commissioner confirming the above mentioned demand.
Now a notice is, hereby given to you under section 11 of Central Excise Act, 1944 read with CBEC Circular No.967/01/2013-CX dated 01.01.2013 (Serial No.11) to pay the duty amount along with interest in Government exchequer within seven days from the receipt of this notice, failing which will initiate action against you under section-11 of Central Excise Act, 1944, such as attachment and sale of your excisable goods to recover the govt. dues."
It is this notice which the petitioner has challenged in this petition along with the CBEC Circular dated 1.1.2013. From the perusal of the notice, it emerges that recovery of the Departmental dues is initiated on the strength of the CBEC circular dated 1.1.2013.
4. In all the petitions recoveries are founded on the CBEC circular dated 1.1.13. The impugned circular dated 1.1.13 reads as under:
"Subject - Recovery of confirmed demand during pendency of stay application regarding
I am directed to bring your attention to the following circulars issued from time to time on the above issue and to state that it has been decided to rescind these circulars with immediate effect.
| | Sr. No. | Date | Circular no and File number of CX-6 |
| 1 | 18-11-88 | 80/88 and 208/31/88 | |
| 2 | 2-3-90 | 7/90 and 208/107/89 | |
| 3 | 21-12-90 | 23/90 and 209/107/89 | |
| 4 | 12-11-92 | 16/92 and 208/59/92 | |
| 5 | 3-8-94 | 47/47/94 and 208/33/94 | |
| 6 | 2-6-98 | 396/29/98 and 201/04/98 | |
| 7 | 25-2-2004 | 788/21/2004 and 208/41/2003 |
(2) Henceforth, recovery proceedings shall be initiated against a confirmed demand in terms of the following order —
| Sr. No. | Appellate Authority | Situation | Directions regarding recovery | |
| 1 | NIL | No appeal filed against a confirmatory order in original against which appeal lies with Commissioner(Appeals) | Recovery to be initiated after expiry of statutory period of 60 days for filing appeal | |
| 2 | Commissioner (Appeals) | Appeal filed without stay application against a confirmatory order in original | Recovery to be initiated after such an appeal has been filed, without waiting for the statutory 60 days period to be exhausted. | |
| 3 | Commissioner (Appeals) | Appeal filed with a stay application against an order in original | Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any specified, whichever is earlier. | |
| 4 | NIL | No appeal filed against an Order in Original issued by the Commissioner. | Recovery to be initiated after expiry of statutory period of 90 days for filing appeal from the date of communication of order. | |
| 5 | CESTAT | Appeal filed without stay application against an Order in Original issued by the Commissioner. | Recovery to be initiated on filing of such an appeal, without waiting for the statutory 90 days period to be exhausted. | |
| 6 | CESTAT | Appeal filed with a stay application against an Order in Original issued by the Commissioner | Recovery to be initiated 30 days after the filing of appeal. If no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any, whichever is earlier. | |
| 7 | NIL | No appeal filed against an Order in Appeal issued by a Commissioner (Appeals) confirming the demand for the first time | Recovery to be initiated after expiry of statutory period of 90 days for filing appeal from the date of communication of order. | |
| 8 | CESTAT | Appeal filed without stay application against an Order in Appeal confirming the demand for the first time | Recovery to be initiated on filing of such an appeal in the CESTAT, without waiting for the statutory 90 days period to be exhausted. | |
| 9 | CESTAT | Appeal filed with a stay application against an Order in Appeal confirming the demand for the first time | Recovery to be initiated 30 days after the filing of appeal, if no stay is granted or after the disposal of stay petition in accordance with the conditions of stay, if any, whichever is earlier. | |
| 10 | CESTAT | All the cases where Commissioner (Appeals) confirms demand in the Order in Original | Recovery to be initiated immediately on this issue of Order in Appeal. | |
| 11 | High Court or Supreme Court | Tribunal or High Court confirms the demand. | Recovery to be initiated immediately on the issue of order by the Tribunal or the High Court, if no stay is in operation. |
(3) It may be noted that a confirmed demand remains an order in operation till it is stayed. Mere preferment of appeal itself does not operate as a stay. Hon'ble Supreme Court in case of Collector of Customs, Bombay v. Krishna Sales(P) Ltd. [1994 (73) ELT 519(SC)] has observed that "As is well known, mere filing of an Appeal does not operate as a stay or suspension of the Order appealed against". Accordingly, the above directions are hereby issued for initiating recovery of the confirmed demands.
(4) Instructions in CBEC's Excise Manual of Supplementary instructions on the above subject or any other circular, instruction or letter contrary to this circular stand amended accordingly."
5. A perusal of the impugned circular would disclose that in supersession of various previous circulars, the CBEC laid down fresh guidelines for initiation of recovery proceedings against confirmed demand of the departmental dues against the assessee. Para 1 of the circular, specifically rescinds as many as 7 previous circulars of the Board on the issue. Para 4 of the impugned circular further provides that instructions contained in Excise Manual of Supplementary instructions on the subject or any other circular, instruction or letter contrary to the said circular would stand amended accordingly. The revised guidelines contained in the said circular envisage initiation of recovery proceedings in different situations at different points of time. We would advert to these different eventualities at a later stage. At this stage, we may notice that in addition to questioning the very powers of the Board to issue such guidelines, the petitioners have alternatively also questioned the instructions contained in clauses 3, 6, 9, 10 and 11 of para 2 of the circular. These clauses essentially put a burden on the assessee to obtain a stay order from higher forum and envisage initiation of recovery proceedings either after expiry of the period provided in such guidelines or forthwith, as the case may be. Central contention of the petitioners is that an assessee can beyond filing an appeal with stay application and pursuing such appeal without any laxity, has no control when such appeal or stay application may be heard by the Departmental Appellate Authority, the Tribunal or the Court and to insist that in the meantime the demand which has not yet achieved finality be recovered would be grossly unjust.
6. Appearing for the petitioners, leading the challenge, learned senior counsel Shri K.S. Nanavati, raised following contentions:
| (i) | That the CBEC did not have power to issue such guidelines. That section 37B of the Central Excise Act, 1944, did not vest such powers in the Board. He also argued that no such powers can be traced in rule 31 of the Central Excise Rules, 2002. | |
| (ii) | With respect to various situations provided in the impugned circular, the counsel attacked those contained in clauses 3, 6, 9, 10 and 11 of para 2. It was contended that the demand which is not yet finalized cannot be recovered. When appeal is pending along with stay application, to permit the Departmental Authorities to proceed with recovery proceedings would be wholly unjust, arbitrary and therefore violative of Article 14 of the Constitution. | |
| (iii) | It was next contended that set-up of appellate Commissioner as well as the Tribunal is maintained and provided by the Government. In numerous cases, appeals and stay applications are not heard by such fora for non-availability of members. In such a situation, an assessee would be rendered defenceless if on one hand his appeal or stay application is not heard and on the other hand, the Department continues with the recovery proceedings. | |
| (iv) | It was contended that vesting any such power in the Departmental authorities to recover the dues when the appellate forum is seized of the appeal proceedings would amount to interfering with the exercise of judicial discretion of such appellate authority. Drawing our attention to the relevant statutory provisions in the Central Excise Act, 1944 and the Customs Act, 1962, the counsel would contend that the appellate authority and the Tribunal exercise discretionary powers of waiving pre-deposit, if grounds are so made out. Once the recovery is effected, question of waiver of pre-deposit becomes redundant. When, therefore, once the appellate authority is seized of the appeal along with the request for waiver of pre-deposit, the Departmental authorities cannot recover such dues. |
7. Adopting such contentions of the counsel, learned advocate Shri P.M. Dave, further contended that earlier instructions of the CBEC took into consideration various aspects of the matter and provided a balanced formula for recovery after permitting the assessee to avail remedy of appeals. Such procedure stood the test of time. It was, therefore, not necessary to make drastic changes in such procedure. He contended that once appeal is filed by an assessee against any order confirming the duty demand, such duty would cease to be a confirmed demand and any recovery thereof would not be permissible.
7.1 In support of his contentions, counsel relied on the following decisions :
| (i) | In the case of Mark Auto Industries Ltd. v. Union of India, 1998 (102) ELT 542 (Delhi) wherein a Division Bench of the Delhi High Court observed as under : | |
| "6. It is pointed out by the learned counsel for the petitioner that at the end of Para 2, the affidavit does not set out the decision of the respondent in the matter of recovery pending hearing on the application for stay and pre-deposit before Commissioner (Appeals) where the quantum involved is above 5 lacs of rupees. We see no reason why a different standard can be adopted in those cases. The policy decision taken by the respondents not to effect recovery till date of decision on application for stay cum pre-deposit under Section 35F of Central Excise & Salt Act or Section 129E of Customs Act should be applicable to such cases also." | ||
| The said decision, however, was rendered in the backdrop of the then prevailing instructions which distinguished between appeals involving quantum of more than Rs.5 lacs and less than Rs.5 lacs. Such decision, in our opinion, therefore would not have any bearing on the present controversy. | ||
| (ii) | In the case of Charak Pharmaceuticals v. Union of India, 2004 (163) ELT 300 (Kar.) wherein a Division Bench of the Karnataka High Court stated thus: | |
| "2. We have heard learned counsel for the appellant and the learned counsel for the respondents and in our judgment, it is not permissible for the Assistant Commissioner to commence the recovery proceedings even while the stay application filed by the appellant is pending before respondent No.2 and is not disposed of. The appellate authority cannot decline to consider the stay application and thereby permitting respondent No.3 to proceed with the enforcement of the order of adjudication. It is, therefore, necessary to direct that the respondent No.3 shall not proceed with the recovery in pursuance of the adjudication order as long as respondent No.2 has not disposed of the stay application." | ||
| (iii) | In the case of Thermo Plastic Industries v. Union of India, 1991 (51) ELT 629 (Bom.) wherein learned Single Judge of the Bombay High Court while examining the validity of recovery proceedings initiated pending appeal and stay application, on facts of the case, proceeded to grant waiver of pre-deposit finding that the case was fit for such consideration. This decision, therefore, was rendered in the special facts of the case. | |
| (iv) | In the case of Vidhya Ply & Board (P.) Ltd. v. Union of India, 1992 (61) ELT 231 (All.) wherein a Division Bench of the Allahabad High Court held and observed as under: | |
| "4. Now section 35F of the Act under certain circumstances makes it mandatory on the person desirous of appealing against a decision or order under the Act to deposit with the adjudicating authority the duty demanded or penalty levied by the decision appealed against. Under the proviso the appellate authority is conferred with the discretion to dispense with such deposit on such condition as it may deem fit to impose, where the appellate authority is of the opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such a person. Thus a statutory obligation is cast on the appellate authority where its powers under the proviso are invoked by the person appealing to it, to make such order as it may think fit as regards the payment of duty or penalty which is the subject matter of appeal before it. The inaction on the part of the appellate authority to pass an appropriate order on the application under the proviso, filed before it and in the meanwhile permitting the recovery of disputed dues would amount to a refusal to exercise the discretion when called upon and would frustrate the very purpose and object with which the powers were conferred on the appellate authority to dispense the making of deposit of the disputed dues in an appropriate case. To put it differently, the inaction on the part of the appellate authority in such a situation would not only defeat the spirit of proviso but will also result in deprivation of as valuable right to which an appellant is entitled under the proviso to section 35F aforesaid. This certainly cannot be permitted to happen." (underline supplied by us). | ||
| (v) | In the case of Acquguard Plastics & Polymers (P.) Ltd. v. Union of India 2000 (121) ELT 29 (Guj) wherein a Division Bench of this Court in the peculiar facts of the case, gave certain directions in which it was observed as under: | |
| "3. Learned advocate Mr. Dave appearing for the petitioner has, seriously criticized the approach of the respondent authority in employing coercive recovery proceedings even when the stay application pending appeal was yet not heard and that this Court in many such cases has stayed the coercive measures until the stay application is decided. It was, therefore, stated that the petitioner would like to move the appropriate authority for release of the goods attached on payment of duties. In view of the peculiar facts and the fact that the goods are required to be used for irrigation and allied programmes in drought affected areas, the authority concerned shall decide such application within a period of one week from the date of receipt of the application." | ||
| It can thus be seen that the Court gave certain directions in peculiar facts of the case. | ||
| (vi) | Validity of the circular came up for consideration before the Bombay High Court in the case of Larsen & Toubro Ltd v. Union of India[2013] 38 STT 684/30 taxmann.com 363. Para 13 of the said judgment reads as under: | |
| "13. The decision of the Supreme Court and the situation which led to the decisions of the Delhi High Court and of this Court take due notice of the fact that the delay in the disposal of an appeal by an assessee or for that matter the delay in the disposal of a stay application may take place for reasons which lie outside the control of the assessee. Where the failure of the Appellate Authority to dispose of the appeal or the application for stay arises without any default on the part of the assessee, and without the assessee having resorted to any dilatory tactics, there would , in our view, be no reason or justification to penalize the assessee by recovering the demand in the meantime. Undoubtedly, where the assessee has been responsible for the delay in the disposal of the stay application, such an assessee cannot be heard to complain if the Revenue were to initiate steps for recovery. But the vice of the circular of the Board dated 1 January 2013 is that it mandates that steps for recovery must be initiated thirty days after the filing of the appeal if no stay is granted. Counsel appearing on behalf of the Revenue submits that the Board has directed that a period of thirty days should be allowed to lapse after the filing of the appeal allowing the assessee time to move the Appellate Authority for the disposal of the stay application. The reason why the submission cannot be accepted is because, in a situation where the Commissioner (Appeals) or as the case may be, the CESTAT are unable to decide the application for stay within a period of thirty days of the filing of the appeal, it would be completely arbitrary to take recourse to coercive proceedings for the recovery of the demand until the application for stay is disposed of. Administrative reasons including the lack of adequate infrastructure, the unavailability of the officer concerned before whom the stay application has been filed, the absence of a Bench before the CESTAT for the decision of an application for stay or the sheer volume of work are some of the causes due to which applications for stay remain pending. In such a situation, where an assessee has done everything within his control by moving an application for stay and which remains pending because of the inability of the Commissioner (Appeals) or the CESTAT to dispose of the application within thirty days, it would, to our mind, be a travesty of justice if recovery proceedings are allowed to be initiated in the meantime. The protection of the revenue has to be necessarily balanced with fairness to the assessee. That was why, even though a specific statutory provision came to be introduced by Parliament in Section 35C(2A) to the effect that an order of stay would stand vacated where the appeal before the Tribunal was not disposed within 180 days, the Supreme Court held that this would not apply to a situation where the appeal had remained pending for reasons not attributable to the assessee. |
8. On the other hand, learned counsel Shri RJ Oza and Shri YN Ravani for the Department opposed the petitions raising following contentions :
| (i) | The order passed by the competent departmental authority or the court becomes immediately executable unless stayed by higher forum. Reliance in this respect was placed on a decision of the Supreme Court in the case of Collector of Customs v. Krishna Sales (P) Ltd.,1994 (73) ELT 519 (SC). | |
| The said decision was, however, rendered in the background of the facts that the assessee had succeeded before the appellate Tribunal on certain issue whether the machinery imported was Bevel Gear Generator or Bevel Gear Planer. Despite such success, the decision of the Tribunal was not implemented on the ground that the Customs Authorities had decided to go in appeal against the decision of the Tribunal. It was in this background, the Supreme Court had observed that if the authorities were of the opinion that goods were not to be released pending the appeal, the course open for them is to obtain an order of stay or other appropriate direction from the Tribunal or the Supreme Court, as the case may be, and without obtaining such order, they cannot refuse to implement the order under appeal. On this background, it was observed that mere filing of appeal does not operate as a stay or suspension of the order appealed against. | ||
| (ii) | Once a duty is confirmed by the adjudicating authority, appeal would be competent only if the entire amount with penalty and interest is deposited with the Revenue. Only if the appellate forum waives pre-deposit, the appeal can be pursued without satisfying such demand. It was contended that what is required for waiver of pre-deposit is undue hardship which has been explained by the Supreme Court in various decisions including in the case of Benara Valves Ltd v. CCE 2006 (204) ELT 513 (SC). | |
| (iii) | Drawing our attention to various provisions contained in Central Excise and Customs Act, it was contended that there is clear manifestation of legislative intent that even pending appeal proceedings, Revenue cannot be precluded from carrying out recovery of duty. | |
| (iv) | It was also contended that the procedure provided in the impugned circular dated 1.1.13 is reasonable and balances between safeguarding the interest of the assessees permitting them reasonable time to prefer appeals and obtain stay from appellate forum and at the same time safeguards the interest of the Revenue. It was contended that the revised guidelines were issued to prevent revenue pilferage where in some cases, the assessees would be in the guise of availing appellate remedy transfer immovable and movable properties making recovery of the Government dues impossible. |
9. In support of such contentions, counsel relied on the following decisions :
| (i) | In the case of Omega Cables Ltd. v. Dy. Commissioner [Writ Petition No. 1749 of 2006, dated 31-1-2006] wherein learned Single Judge of the Madras High Court refused to stay recovery on the ground that against the order confirming the duty, no stay was operating. | |
| (ii) | In the case of Areva T & D India Ltd. v. Asstt. CCE 2011 (271) ELT 21 (Mad.) wherein also learned Single Judge of the Madras High Court recorded that when the stay application was listed before the Tribunal, the Department was ready to contest the case, but the counsel for the petitioner sought long adjournment. It was on this background that stay against recovery pending appeal was turned down. | |
| (iii) | In the case of J & J Plast v. Union of India, 2010 (258) ELT 341 (Guj.) wherein request of the petitioner therein to stay recovery on the strength of the circular of the Board was turned down observing that it was not possible to read a sentence of the circular out of context. | |
| (iv) | Decision in the case of State of A.P. v. McDowell & Co. [1996] 3 SCC 709 was cited to canvass that the guidelines contained in the impugned circular are not arbitrary. We may, however, notice that the observations made by the Supreme Court in the said case were in the background of challenge to the vires of the statutory provisions. It was in this background examined as to what extent the ground of arbitrariness can be the basis for striking down a statutory provision as being violation of Article 14 of the Constitution. In the present case, however, we are not concerned with the vires of any statute. | |
| (v) | Decision in the case of Khoday Distilleries Ltd. v. State of Karnataka, [1996] 10 SCC 304 was pressed in service for the same purpose. Here also, we notice that the decision was rendered by the Supreme Court in the background of challenge to a statutory rule as being violative of Article l4 of the Constitution on the ground of arbitrariness. |
10. We may record that in the context of challenge to the circular, the petitioners have, in addition to joining the Departmental authorities, also joined CBEC. In number of matters, CBEC was duly served, but there was no representation on behalf of the Board. We have, looking to the fact that number of petitions have cropped up only on the issue of recoveries initiated on the basis of the impugned circular, heard the learned counsel for the parties for final disposal of the petition at this stage itself.
11. We may first deal with the challenge to the very power of the CBEC to issue the circular. Section 37B of the Central Excise Act, 1944 pertains to instructions to the Central Excise Officers and reads as under:
"37-B. Instructions to Central Excise Officers - The Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963), may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods, issue such orders, instructions and directions to the Central Excise Officers as it may deem fit, and such officers and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the said Board :
Provided that no such orders, instructions or directions shall be issued—
| (a) | so as to require any Central Excise Officer to make a particular assessment or to dispose of a particular case in a particular manner; or | |
| (b) | so as to interfere with the discretion of the Commissioner of Central Excise (Appeals) in the exercise of his appellate functions." |
Likewise, section 151A of the Customs Act, 1962 pertains to instructions to the officers of Customs and reads as under:
"151A. Instructions to officers of customs - The Board may, if it considers it necessary or expedient so to do for the purpose of uniformity in the classification of goods or with respect to the levy of duty thereon or for the implementation of any other provisions of this Act or of any other law for the time being in force, insofar as they relate to any prohibition, restriction or procedure for import or export of goods issue such orders, instructions and directions to officers of customs as it may deem fit and such officers of customs and all the other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board:
Provided that no such orders, instructions or directions shall be issued -
| (a) | so as to require any such officer or customs to make a particular assessment or to dispose of a particular case in a particular manner; or | |
| (b) | so as to interfere with the discretion of the Collector of Customs (Appeals) in the exercise of his appellate functions." |
Insofar as section 151A of the Customs Act is concerned, it is worded widely and includes power of the Board to issue instructions, orders and directions for the purpose of uniformity in classification of goods or with respect to levy of duty thereon or for the implementation of any other provisions of the Act or any other law for the time being in force insofar as they relate to any prohibition, restriction or procedure for import or exports of goods. The power of the Board, therefore, to issue any orders, instructions, or directions for the implementation of the provisions of the Act if the Board considers it necessary and expedient to do so cannot be questioned. Recovery of customs duty with or without interest and penalty would certainly arise out of the provisions made in the Customs Act, 1962 and the Rules made thereunder. For example, section 142 of the Customs Act pertains to recovery of sums to the Government. The Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules 1995 provides for the procedure for such recoveries. In that view of the matter, power of the Board to issue such instructions for recovery of customs duty would flow from section 151A of the Customs Act, 1962.
12. Section 37B of the Central Excise Act, 1944, however, is not so widely worded. It empowers the Board, if it considers necessary and expedient to do so for the purpose of uniformity in classification of excisable goods or with respect to levy of duty of excise on such goods, to issue orders, instructions and directions to the Central Excise Officers as deemed fit. The powers of the Board, therefore, can be exercised for the purpose of uniformity in classification of goods or with respect to levy of duty of excise on such goods. When read in conjunction, both the elements touching the powers of the Board would have a bearing on the question of classification of the goods or with the levy of duty of excise on such goods. It is highly questionable whether recovery of excise duty along with interest and penalty can form part of matter of any instructions the Board may issue in exercise of powers under section 37B of the Central Excise Act. Had this been the only source of power, we would have examined the question further and given finality to the issue at our stage. We, however, notice that rule 31 of the Central Excise Rules, 2002 also has a significant bearing on the question of power of the Board. The said rule reads as under:
"31. Power to issue supplementary instructions - (1) The Board or the Chief Commissioner or the Commissioner, may issue written instructions providing for any incidental or supplemental matters, consistent with the provisions of the Act and these rules."
13. Section 37 of the Central Excise Act, 1944 is a rule making power of the Government. Sub-section (1) of section 37 provides that the Central Government may make rules to carry into effect the purposes of the Act. Sub-section (2) of section 37 provides that in particular and without prejudice to the generality of the foregoing power such rules may provide for various issues contained in clauses (i) to (xxviii) of the said sub-section. Clause (xx) which is relevant for our purpose reads as under:
"(xx) authorise the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) or Commissioners of Central Excise appointed for the purpose of Act to provide, by written instructions, for supplemental matters arising out of any rule made by the Central Government under this section;"
In exercise of such rule making powers, the Central Excise Rules 2002 has been framed. Rule 31 thereof empowers the Board to issue written instructions providing for any incidental or supplementary matters consistent with the provisions of the Act and the Rules. Thus, under rule 31 of the Central Excise Rules, 2002, the Board has sufficiently wide powers for issuing instructions which may provide for any incidental or supplementary matters, only limiting condition being that such instruction must be consistent with the provisions of the Act and the Central Excise Rules, 2002. Issuing guidelines for the purpose of uniformity in recovery procedure would certainly fall within incidental or supplementary matters. In that view of the matter, we cannot accept the contention of the petitioners that the Board lacked power to issue the instructions in question.
14. This brings us to the validity of different instructions contained in the impugned circular. In this context, we may recall that the petitioners did not take any objection with respect to the conditions contained in clauses 1, 2, 4, 5, 7 and 8. They however, opposed the legality of the instructions contained in clauses 3, 6, 9, 10 and 11 of para 2 of the said circular.
15. Various instructions contained in said para 2 can be broadly clubbed in three different segments. The first category of cases would be where no appeal has been preferred against the order in original till the expiry of the period of limitation prescribed or where such appeal has been preferred, but no stay application has been filed. These cases would be covered under clauses 1, 2, 4, 5, 7 and 8. The second category of cases would be where an appeal is envisaged before the appellate Commissioner or the Tribunal, such appeal is filed within the period of limitation along with stay application, but no decision is rendered on such stay application. These cases would be covered under clauses 3, 6, 9 and 10 of the impugned circular. The third category of cases calling under clause 11 would be where the Tribunal has rendered its decision and further appeal would be available either before the High Court or the Supreme Court or where the High Court has rendered its decision.
16. We may examine the validity of the circular in the background of different situations noted above. Insofar as the first category of cases is concerned, there is hardly any debate possible. In cases where despite availability of appellate remedy, if the assessee does not file appeal within the period of limitation prescribed or if any such appeal is filed but is not accompanied by any application for stay, it is provided that in such a situation, recovery would be initiated either at the end of the statutory period of limitation or without waiting for such period if no stay is sought. Obviously, an assessee who either does not prefer an appeal or who though prefers an appeal, does not ask for stay from the appellate authority can hardly avoid recovery of the confirmed demand.
17. The real question is with respect to the reasonableness of the guidelines contained in clauses 3, 6, 9 and 10 of the circular. We may take detailed note of these provisions.
18. Clause 3 pertains to a situation where the adjudicating authority has confirmed certain duty demand first appeal is available and filed along with stay application before the Commissioner (Appeals). The guidelines provide that in such a case, recovery shall be initiated after 30 days of the filing of the appeal, if no stay is granted or after disposal of the stay application whichever is earlier. It is this clause "whichever is earlier" which causes serious concern. Likewise, clause 6 governs a situation where an appeal lies before the Tribunal against an order in original issued by the Commissioner. Such appeal is filed along with stay application. Here also, it is provided that recovery should be initiated after 30 days of filing of the appeal, if no stay is granted or after disposal of the stay petition, whichever is earlier. Clause 9 covers a situation where a second appeal against an order of the appellate Commissioner confirming the demand for the first time is filed. In essence, therefore, the appeal before the Tribunal is a second appeal. Insofar as the assessee is concerned, it happens to be a first challenge to the appellate order which would have reversed the order of the adjudicating authority. In such a situation also, it is provided that recovery would be initiated after 30 days of filing of appeal or disposal of the stay application whichever is earlier. Clause 10 pertains to a second appeal before the Tribunal at the instance of the assessee which appeal is directed against the order of the appellate Commissioner confirming the order of the adjudicating authority. In such a situation, it is provided that recovery should be initiated immediately on issue of the order by the appellate authority.
19. We may club clauses 3, 6 and 9 for common consideration and treat clause 10 separately. In these clauses, two things are common. Firstly, the appeal that the assessee files either before the Commissioner or the Tribunal is the first appeal at the hands of the assessee though, in essence, it may be a second appeal before the Tribunal. Second commonality is that the circular itself recognizes that in such a situation, recovery should not be initiated till filing of appeal (of course subject to the outer limit of the limitation prescribed) and for a further period of 30 days enabling the assessee to obtain stay from the appellate forum. The question is, should recovery be initiated in all cases if within 30 days of the period so prescribed, the assessee fails to obtain stay from the appellate forum? We must recognize that there can be large number of reasons why even after the assessee prefers an appeal within the period of limitation along with stay application, it is not possible to dispose of such application within 30 days of filing. Such reasons may be attributable to the assessee or the Department or may be completely independent reasons. Of course, if it is found that the assessee has delayed the disposal of stay application, and has sought unreasonable adjournments leading to the appellate forum not being able to decide the application for stay, it would be open for the Revenue, in an appropriate case, to seek recovery of the confirmed demand even pending appeal and stay application. However, surely, if the non-disposal of the stay application has nothing to do with the conduct of the assessee, Revenue cannot contend that recovery must be permitted in such a situation also. Accepting any such contention of the Revenue would lead to drastic and sometimes absurd situation. For example, before the appellate forum, if the Revenue is unable to present full facts and is therefore compelled to seek adjournments repeatedly and thereby making it impossible for the appellant forum to dispose of the stay application of the assessee, could the Revenue contend that it can take advantage of its own wrong and go ahead with the recovery of demand though the appellate forum is seized of the appeal and stay application? Surely, the answer has to be in the negative.
20. We may also presently address the various reasons which may be completely beyond the control of the assessee as well as the Revenue which may lead to non-disposal of the stay application. In fact, in majority of the cases which have arisen in these petitions, such reasons can be traced. It is not unknown that because of paucity of time either the appellate Commissioners or the Tribunal are unable to dispose of stay applications within a short time. To expect such appellate forum to invariably to do so within 30 days of filing of such proceedings would, under the prevailing conditions, be quite impossible. Before us, large number of cases have come in the present group for recovery where the petitioners have preferred their appeals either before the appellate authority or the Tribunal. Such appeals are filed within the period of limitation. Such appeals are accompanied by stay applications. Such stay applications have not been taken up for hearing by the Commissioner or the Tribunal simply because of want of time. In some cases, the Commissioner has granted date of first hearing after several months of the filing of the appeal and the stay applications. On many such dates, either due to non-availability of the Commissioner or non-availability of time with the Commissioner, such applications could not be heard. Similar situation obtains before the Tribunal also. In large number of cases, the Tribunal simply could not grant first date of hearing within 30 days of filing of the appeal with the stay application. We are informed that ordinarily, the Tribunal fixes the date of hearing of stay application which normally would not be within 30 days of filing. If the assessee has some urgency, he would have to move an application for taking up stay application on early basis. Such application when granted the Tribunal would advance date of hearing of the stay application. In number of cases, quite apart from the non-availability of time with the Tribunal due to heavy pressure of work, we are informed that the Tribunal was not fully functional as only one member was posted. In certain cases, due to personal reasons of the concerned member, the appeals were ordered to be posted before some other Bench. Since no second Bench would be available, necessarily, such appeals would have to be transferred to some other bench of the Tribunal outside the State.
21. We do not mean to list exhaustively all the reasons which would be simply beyond the control of the assessee due to which despite the best efforts, stay application filed along appeal well within the period of limitation would not be disposed of within 30 days of filing. In all such cases, if the Revenue were to be permitted to continue with coercive recovery, in our opinion, the same would lead to grossly unjust situation and would not be conducive to the interest of justice.
22. Section 35 of the Central Excise Act pertains to appeals to the Commissioner (Appeals). It permits any person aggrieved by an order passed by the adjudicating authority to prefer appeal to the appellate commissioner within 60 days from the date of communication of such decision to him. Section 35B of the Central Excise Act, 1944 pertains to appeal to the appellate Tribunal. Sub-section (1) thereof essentially enables a person aggrieved by an order of the Commissioner of Central Excise or the appellate Commissioner to prefer appeal before the Tribunal.
23. Section 35F of the Central Excise Act, 1944 pertains to pre-deposit pending an appeal of duty demanded or penalty levied. It provides, inter alia, that where any appeal is filed against the decision or a order which relates to any duty demanded in respect of goods which are not under the control of the Central Excise authorities or penalty levied under the Central Excise Act, the person desirous of appealing against such a decision pending appeal shall deposit with the adjudicating authority the duty demanded or the penalty levied. Proviso to section 35F of the Act provides that the Commissioner (Appeals) or the Tribunal is of the opinion that deposit of duty or penalty would cause undue hardship to such a person, may dispense with such deposit subject to such conditions as may be deemed fit so as to safeguard the interest of the Revenue. Further proviso to section 35F provides that where an application is filed before the Commissioner (Appeals) for dispensing with the deposit, the Commissioner (Appeals) shall where it is possible to do so, decide such application within 30 days from the date of its filing. Similar provisions have also been made under the Customs Act, 1962 pertaining to pre-deposit pending appeal either before the Commissioner (Appeals) or the Tribunal and its waiver at the discretion of the appellate forum on the ground of undue hardship. Provisions of Section 129E of the Customs Act, 1962 are peri materia with the provisions of section 35F of the Central Excise Act, 1944.
24. From the above provisions, it can be seen that pending appeal either before the Commissioner (Appeals) or the Tribunal, ordinarily an assessee would have to deposit the entire amount of duty demand or even penalty. The appellate forum, however, would have discretion to waive such pre-deposit either partially or fully. Such waiver would be passed on consideration of undue hardship to the assessee, as interpreted by various judicial pronouncements. Significantly, dispensation of pre-deposit may be subject to such conditions as the appellate forum may impose so as to safeguard the interest of the Revenue.
25. While issuing guidelines by the impugned circular, the Board has superceded the previous circulars on the issue. Such guidelines being issued from time to time and now holding the field by virtue of the impugned circular provide uniformity and predictability as also in most cases permit reasonable time to the assessee to avail of the remedy of appeal. These guidelines, therefore, supply to a large degree uniformity and predictability in recoveries of confirmed demands. In absence of such guidelines, different recovery authorities may adopt different yardstick and standards. While judging the guidelines in the backdrop of these considerations, we cannot lose sight of two important aspects. Firstly, that as section 35F of the Central Excise Act, 1944 or section 129E of the Customs Act, 1962 provide for partial or complete waiver of pre-deposit requirement which is within the sole domain of the discretionary jurisdiction of the appellate forum, be it Commissioner (Appeals) or the Tribunal. It is that authority alone which, on the basis of relevant consideration of undue hardship to the assessee and with a view to safeguard the interest of the Revenue may either refuse totally or grant fully or partially waiver of pre-deposit. Once, therefore, an appeal is presented before such a forum, within the period of limitation prescribed along with stay application, even the CBEC circular recognizes that reasonable time should be allowed to the assessee to pursue such stay application. In that background, once the CBEC recognizes such leverage to an assessee, to abandon the course mid-way and to insist that irrespective of the reasons why such application could not be concluded, recovery must be commenced 30 days after filing of such an application and be completed cannot be countenanced. In our opinion, such procedure would be wholly unreasonable and arbitrary for the following reasons:
| (i) | That the CBEC itself having recognized that an assessee should be provided with reasonable opportunity to question an adverse decision before going ahead with the recovery thereof cannot thereafter put an unreasonable condition that the entire onus would be on the assessee to obtain stay from the higher forum or the Tribunal within 30 days from the filing of the application. | |
| (ii) | The instruction completely ignores the possibility that such application may not be heard and disposed of within such short time permitted for variety of reasons which may not be attributable to the assessee. | |
| (iii) | The instruction ignores a situation where the stay application may not be heard due to the reasons entirely attributable to the Revenue. In such a situation to permit recovery would be allowing the Revenue to take advantage of its own wrong. | |
| (iv) | The instruction also fails to recognize the hard realities. As already noted, in majority of the cases which have traveled before this Court in this group of petitions, the reasons for non-disposal of stay applications, before the appellate Commissioner or the Tribunal are that the appellate forum was either not available or because of heavy workload was unable to take up hearing of such application within 30 days. |
26. In our opinion, therefore, condition Nos.3, 6 and 9, if read rigidly, fail to clear the test of reasonableness and thus fall foul to Article 14 of the Constitution. We, therefore, prefer to read down such conditions and recognize that there would be situations where for no fault of the assessee a stay application filed before the appellate forum may not be disposed of within 30 days of its filing. In such a situation, the said conditions would not require the recovery officer to initiate recovery proceedings. However, if after filing of stay application, it is found that the assessee is prolonging the hearing thereof or for some such similar reasons attributable to the assessee stay application is lingering, surely it would be open for the Revenue to proceed with the recovery irrespective of pendency of appeal and the stay application. In this context we are unable to uphold the contention of Shri Nanavati that once appeal and stay application are filed, any attempt on part of the authorities to recover the duty would be encroachment on the power of the appellate body. Mere filing of the proceedings cannot be equated with stay and if such proceedings are not pursued by the assessee with seriousness, he cannot claim immunity from recovery. In the conclusion, condition Nos.3, 6 and 9 are read down as to requiring the recovery officer to initiate recovery proceedings pending appeal and stay application only when it is found that the application remained pending beyond 30 days for the reasons of delay which can be attributed to the assessee. This would have to be necessarily judged by the Revenue authorities before initiating the proceedings. While doing so, if the authorities required any details from the assessee, such as the date of filing of the appeal and the stay application, the stage at which such proceedings are pending and the reasons for non-disposal of such proceedings, the assessees in their own interest would be duty bound to supply the same.
27. Condition No.10, however, stands on a different footing. It envisages a second appeal before the Tribunal at the hands of the assessee. Such a situation would arise when a demand is confirmed by the adjudicating authority and the assessee's appeal is also rejected by the appellate Commissioner. Having lost at two stages, and when the assessee is in second appeal before the Tribunal, CBEC circular distinguishes such a case from other similar appeals before the Tribunal covered under condition Nos.3, 6 and 9. We also do not find that such distinction is not reasonable. Therefore, the requirement that in such a case the Revenue must wait for the full period of limitation to see whether the assessee files the appeal with stay application, is not provided, in such a situation, we do not think it is drastically incorrect or improper. However, to provide that recovery should commence immediately after the order is passed by the appellate Commissioner, in our view, would not be permissible. We say so for the following reasons:
| (i) | Appeal in such a situation is before the Tribunal. We cannot shut our eyes to the hard realities that the Tribunal as a machinery, may not always be available to an assessee to knock at the doors of justice at a shortest possible notice. It was brought to the notice that against the sanctioned strength of four members of the Tribunal, the Tribunal has never functioned at its full strength. Barring a short period, where three members were posted, the Tribunal has mostly functioned with two members and at times with only one member. We are informed that in the recent past, only one member was appointed and the Division Bench of the Tribunal was therefore not functional. An assessee who requires an urgent consideration of appeal and stay application in such a situation would be rendered without any protection whatsoever. In a given situation, if one of the members of the functional Bench for his personal reasons is unable to hear the appeal of a particular assessee, the entire proceedings would have to be transferred outside the State. Such being the vagaries of the tribunalization of justice, we cannot equate such Tribunals with the functioning of a court of law. For example, it would be unimaginable that a litigant would be left without hearing for any period of time in the High Court. If extraordinary urgency is shown, a litigant can knock at the doors of justice at midnight. If a particular judge or a Bench is not available, the pre-decided guidelines issued by the Chief Justice from time to time always provide an alternative forum of hearing before another Judge or Bench. If a particular Judge cannot take up a matter, it is also decided who else in his substitution will take up such a petition. In that view of the matter, to provide that as soon as the order is passed by the Commissioner confirming the duty demand made by the adjudicating authority, the order should be executed without any leverage would give rise to large number of cases which would travel to the High Court at such an interim stage. We are not inclined to accept a situation where such unnecessary litigation would arise. |
28. Culmination of the discussion in the preceding paragraph would be that condition No.10 insofar as it provides for immediate recovery as soon as the order is passed in appeal also needs to be read down as to permitting reasonable time to the assessee to seek protection from the appellate forum. This period of reasonable time must be judged in the facts of each case and cannot be equated with full period of limitation.
29. Condition No.11, however, stands on a different footing. It covers a case where decision is rendered by the Tribunal or the High Court and further appeal is available either before the High Court or the Supreme Court. In such a situation, the circular envisages immediate recovery if no stay is in operation. We are inclined to uphold this condition for the following reasons:
| (i) | Situation covered in condition No.11 would arise only once either the Tribunal in first or second appeal or the High Court in second or third appeal has decided against the assessee. The order of the Tribunal would be appealable either before the High Court or the Supreme Court depending on the subject matter of the issue under appeal. Such appeal would be available only on a substantial question of law, the Tribunal being the final fact finding authority. If the High Court has already decided such an appeal, there would be no further statutory appeal before the Supreme Court, but only special leave petition under Article 136 of the Constitution which also would be an extraordinary remedy. In such a situation, to expect the Revenue to stay its hands off either for the full period of limitation and then after watching the outcome of the stay application, in our opinion, would be an unreasonable expectation. Such appeals would be filed before the High Court which, as we noticed, would be able to grant immediate hearing if there is urgency. Additionally, such appeal is available only on limited grounds, once all questions of facts are thrashed out at the level of the Tribunal. The period of limitation prescribed for filing such appeal is 180 days. The Central Excise Act or the Customs Act nowhere envisages that for the entire period of full 180 days of limitation, even at the stage of third appellate stage, the Revenue must stay its hand off. We, therefore, uphold condition No.11 without any modification. |
30. Before adverting to individual cases, we may touch on a few peripheral aspects. First, despite our observations and conclusions with respect to condition Nos.3, 6, 9 and 10 noted above, we cannot lose sight of the fact that protecting interest of the Revenue is also of equal importance. It would, therefore, be highly desirable that the appellate Commissioner and the Tribunal bestow their utmost consideration to the application for pre-deposit waiver and dispose of them as quickly as possible. While considering the question of waiver of pre-deposit, it is within the jurisdiction of the appellate forum to impose such conditions as deemed fit to safeguard the interest of the Revenue. While, therefore, granting any stay or waiving fully or partly any pre-deposit, it is open and in fact incumbent upon such appellate authority to take into account the Revenue's concern that some condition be imposed on the assessee so that the demand if confirmed in future, recovery does not become illusory. Such consideration can also weigh with the appellate forum at an ad-interim stage. In other words, even pending the final disposal of the stay application, it would be within the jurisdiction of the appellate forum to impose some condition on the assessee to safeguard the interest of the Revenue. This, in our opinion, would take care of the anxiety of the Revenue that under the protection of the appellate authorities, ultimately, when the duty demand is confirmed, by virtue of the developments during the pendency of such proceedings, actual recovery becomes impossible. We may remind the appellate fora of the observations made by the Division Bench of this Court in the case of D.C.W. Ltd. v. Commissioner (Appeals), 1997 (2) GLR 913.
"16. Having regard to the all these circumstances, we find that the appellate authorities are required to be directed that whenever such applications for stay and/or waiver of condition of pre-deposit are made, they shall hear expeditiously and pass appropriate orders expeditiously and preferably within a month and if it is not possible to pass final orders on such applications, it can pass appropriate ad-interim orders subject to such conditions as may be necessary at that stage so as to see that interest of both the sides are taken care and the litigant does not carry a feeling that his request did not receive timely attention by the judicial forum.
17. If the authorities fail to discharge their statutory functions, the High Court will be unnecessarily burdened with the hearing of the cases which are required to be heard by the statutory authorities constituted under the relevant Statutes, and the Legislative intention may be frustrated.
18. We, therefore, direct that the appellate authorities shall pass appropriate orders on the stay applications expeditiously and preferably within four weeks of such application.
19. If the Appellate Authority does not decide the stay applications the parties have to rush to the High Court; and the High Court may have to pass orders in such cases and give directions to hear stay application and may stay the recovery till the stay applications are decided. It would, therefore, be in the interest of every one as well as in the interest of judicial administration that this kind of unnecessary litigation and multiplicity of litigation is avoided."
31. We may notice that recovery is carried out by the authorities under the Customs (Attachment of property of Defaulters for Recovery of Government Dues) Rules, 1995 (hereinafter referred to as "the said Rules of 1995"). Rule 3 envisages issuance of certificate by the competent authority where the Government dues are not paid by any defaulter. Rule 4 provides for issuance of notice calling upon the said defaulter to pay up the amount within seven days from the date of service of the notice. The rules envisage coercive recovery through attachment and sale of the property of the defaulter. In particular 9(i) provides that where a notice has been served on a defaulter under rule 4, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the Proper Officer. A situation may arise where an assessee during the period of limitation for filing appeal after a duty demand has been confirmed, may be found to be siphoning away its movable and immovable properties even before filing of appeal. Question in such a situation would arise, whether by virtue of the provisions contained in circular date 1.1.2013, the Revenue would be defenceless and would be able to take steps only once the entire period of limitation is over or the Recovery Officer can initiate recovery and travel upto the stage of rule 4 for service of notice of demand and then take recourse to rule 9 prohibiting any transfer of property thereafter. We are not faced with such a situation and would therefore not like to make any conclusive observations in this regard leaving it open to be judged in a case if and when same comes up before us.
32. Lastly, we may notice that sub-section (2-A) of section 35-C provides as under:
"(2-A) The Appellate Tribunal shall, where it is possible to do so, hear and decide every appeal within a period of three years from the date on which such appeal is filed:
Provided that where an order of stay is made in any proceedings relating to an appeal filed under sub-section (1) of section 35-B, the Appellate Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such order:
Provided further that if such appeal is not disposed of within the period specified in the first proviso, the stay order shall, on the expiry of that period, stand vacated."
Sub-section (2A) of section 35C thus requires the Tribunal, as far as it is possible, to hear and decide every appeal within three years. Proviso thereto requires the Tribunal to dispose of the appeal within 180 days wherever any order of stay is granted in the proceedings. Further proviso provides that if such appeal is not disposed of within the specified period, stay order shall on the expiry of the said period stand vacated. In the circular dated 26.5.2010, CBEC in this context provided that :
"4. A harmonious reading of the statutory provision and judicial pronouncements in the matter would mean that while the Tribunals are expected to dispose of cases as stipulated in the above section, nothing prevents them from granting stay beyond six months. However, the extension of stay has to be applied for by the party. Thus, the outcome of the above interpretation would be that, wherever stay period is over and the final decision has not been pronounced, the Department may by a simple letter ask the party to pay and the party would be at liberty to go back to the Tribunal for seeking extension of stay. Coercive measures, without giving an opportunity to the party to seek further extension of stay should be avoided. This is not to say that applications filed for extension should not be contested. Also, in a case where the Commissionerate feels aggrieved by an order of the Tribunal granting stay indefinitely till disposal of appeal, the said Tribunal order could be challenged before the jurisdictional High Court, citing the amended provisions."
None of the clauses of circular dated 1.1.2013 cover such a situation where having granted stay, the Tribunal could not dispose of the appeal within the period of 180 days and therefore, stay would be vacated. This circular is also not part of the specifically rescinded circulars mentioned in para 1 of the impugned circular. In our view, it would also not be covered under the description of any other circular, instruction or letter contrary to the said circular. In that view of the matter, the said circular dated 26.5.2010 would continue to operate in the limited field occupied by the said circular irrespective of the fresh guidelines dated 1.1.2013. We needed to clarify this aspect because under the mistaken belief that the circular dated 1.1.2013 would cover such a situation also, in some of the cases before us recovery proceedings have been initiated upon stay previously granted by the Tribunal having lapsed after 180 days period though applications filed by the assessees for extension of stay were pending before the Tribunal.
33. Before addressing individual petitions, we may touch upon one more aspect. We wonder why in the present day of advanced technology, the Department should be groping for latest information and current status of assessees further appeal proceedings. Surely, with proper inter-departmental cooperation and computerization and utilization of such technology, the Department should be in a position to track every appeal before the appellate Commissioner or the Tribunal and the precise stage at which such proceedings are pending, including the reason for such pendency. This, of course, is an issue which the Department needs to address itself internally and we leave it to them.
34. We may now advert to individual cases.
| (1) | In Special Civil Application No.1124 of 2013, as we have noticed, the petition is filed by the Gujarat State Fertilizer Co. Ltd. Tax Appeal is pending before the High Court. In the stay application, notice is also issued. Previously, the entire issue was decided in favour of the petitioner right upto the stage of the Supreme Court. Subsequently, depending on a later decision of the Supreme Court where certain observations were made, the entire issue is reopened by the Revenue. Considering such special facts, we are inclined to stay the further recovery till the High Court disposes of the stay application. Under the circumstances, the impugned notice for recovery is quashed. | |
| (2) | In Special Civil Application No.977 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 16.1.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 14.10.2010 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: One of the members of the Tribunal recused himself. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (3) | In Special Civil Application No.1024 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 16.1.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 16.2.2012 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal | |
| 4. | Appeal filed within limitation and accompanied by stay application: | |
| | Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: One of the members of the Tribunal recused himself. | |
| | Applying the above principles, the impugned recovery notice is quashed. |
| (4) | In Special Civil Application No.1236 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: January 2013. | |
| 2. | Date/(s) of order/(s)-in-original : July 2010 and March 2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Stay application is not heard though the petitioner has never prayed for any adjournment. |
| Applying the above principles, the impugned recovery notices are quashed. | ||
| (5) | In Special Civil Application No.1273 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 21.1.2013 | |
| 2. | Date/(s) of order/(s)-in-original : January 2010 to September | |
| | 2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: No hearing has been granted by the Commissioner (Appeals). The petitioner, however, has not prayed for any adjournment. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (6) | In Special Civil Application No.1390 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 17.1.13 and 29.1.13. | |
| 2. | Date/(s) of order/(s)-in-original : (i) 1.9.2010, (ii) 5.4.2011, (iii) 16.2.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal files within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: No hearing has been granted by the Commissioner though the petitioner has not prayed for time. |
| Applying the above principles, the impugned recovery notices are quashed. | ||
| (7) | In Special Civil Application No.1511 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 8.1.13 and 21.1.13. | |
| 2. | Date/(s) of order/(s)-in-original : 28.11.2008. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal |
| The Tribunal had already granted stay on condition to deposit 50% of the amount. Such condition was also fulfilled by the petitioner. However, since the Tribunal could not dispose of the appeal within six months as envisaged in section 35C(2A) of the Central Excise Act, 1944, the stay would stand vacated. The Department is therefore proceeding with the recovery. It is pointed out that the petitioner has already filed an application for extension of stay before the Tribunal which is not yet heard for no fault of the petitioner. | ||
| Applying the above principles, the impugned recovery notices are quashed. | ||
| (8) | In Special Civil Application No.1580 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 30.1.2013 | |
| 2. | Date/(s) of order/(s)-in-original :15.6.2012, 27.4.2011, 14.12.2011. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: No hearing has been granted by the Commissioner (Appeals) though the petitioner has not prayed for time. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (9) | In Special Civil Application No.1609 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 08.02.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 30.8.2012 and 25.4.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal. | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Non-availability of the Division Bench of the Tribunal. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (10) | In Special Civil Application No.1644 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 22.1.2013. | |
| 2. | Date/(s) of order/(s)-in-original : 29.8.2011. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Notice of hearing not yet received by the petitioner. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (11) | In Special Civil Application No.1732 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 7.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 1.10.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal. | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: The Tribunal was not available on the date of hearing of the appeal. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (12) | In Special Civil Application No.1816 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: January 2013 and February 2013. | |
| 2. | Date/(s) of order/(s)-in-original : In 22 matters ranging from 31.3.2009 to 23.11.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals) & Central Government. | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Either pending or heard the application for stay, but no final order is passed. | |
| 6. | If pending, the reasons why: Commissioner (Appeals) has not passed final order though no adjournment was sought by the petitioner. |
| Applying the above principles, the impugned recovery notices are quashed. | ||
| (13) | In Special Civil Application Nos.1818 and 1978 of 2013, following details arise: | |
| Both these petitions involve various demands confirmed by the adjudicating authorities. Issue however, is common. In all such proceedings, appeals along with stay applications are pending before the appellate fora. Final decision on such application are not available. There is nothing to suggest that the petitioners had delayed such proceedings. We are informed that in one of the proceedings, the petitioners had not attended on one occasion, but a fresh hearing is now fixed. In all other proceedings, the petitioners had been attending regularly. | ||
| Under the circumstances, applying the above principles, the impugned recovery notices in both these petitions are quashed. | ||
| (14) | In Special Civil Application No.2096 of 2013, following details arise: | |
| In this petition, recovery notices have been issued on 13.2.2013. Appeals against the orders passed by the adjudicating authorities are pending before the Commissioner (Appeals). Such appeals have been filed with application for stay within the period of limitation prescribed. Majority of such proceedings are pending without any hearing by the Commissioner (Appeals). In three of the cases, hearing has been concluded in February 2013, but no final order has been passed and at that stage, the respondents have issued the impugned notices for recovery. | ||
| For the above reasons, applying principles laid down hereinabove, the impugned recovery notice is quashed. | ||
| (15) | In Special Civil Application No.2098 of 2013, following details arise: | |
| In this petition, recovery notices have been issued on 13.2.2013. Appeals against the orders passed by the adjudicating authorities are pending before the Commissioner (Appeals). Such appeals have been filed with application for stay within the period of limitation prescribed. Majority of such proceedings are pending without any hearing by the Commissioner (Appeals). In two of the cases, hearing has been concluded in February 2013, but no final order has been passed and at that stage, the respondents have issued the impugned notices for recovery. | ||
| For the above reasons, applying principles laid down hereinabove, the impugned recovery notices are quashed. | ||
| (16) | In Special Civil Application No.2148 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 19.2.2013 | |
| 2. | Date/(s) of order/(s)-in original : 27.3.2012 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Non-availability of the Division Bench of the Tribunal. |
| Applying the above principles, the impugned recovery notices are quashed. | ||
| (17) | In Special Civil Application No.2213 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 17.1.2013 and 7.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 3.2.2012 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals) | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Not yet decided by the Commissioner. |
| Applying the above principles, the impugned recovery notices are quashed. | ||
| (18) | In Special Civil Application No.2236 of 2013, following details arise: | |
| In this petition, the petitioner has challenged the recovery notice dated 6.2.2013, which refers to several separate orders confirming the duty demands. Some of these proceedings are pending before the Commissioner (Appeals) while some are pending before the Tribunal. It was pointed out that in the proceedings before the Commissioner (Appeals), though the appeals were filed within time along with stay applications, no decision is yet available on such proceedings. Out of the four proceedings pending before the Tribunal, in three cases, the Tribunal also granted stay on suitable conditions. However, since the Tribunal could not dispose of the appeals within six months, the stay is deemed to have expired. The petitioner has also preferred application for extension of such stay. In the fourth case, the Tribunal has not yet disposed of the stay application. It is stated that in all cases, the petitioner has not delayed the proceedings and has not prayed for any adjournments. | ||
| Therefore, applying the above principles, the impugned recovery notice is quashed. | ||
| (19) | In Special Civil Application No.2268 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 22.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 29.3.2012 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals) | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Decided OIA dated 27.12.2012 without insisting any further pre-deposit. |
| Against the order of the Commissioner (Appeals), appeal was preferred before the Tribunal along with stay application within limitation prescribed and hearing of the stay application was fixed on 7.3.3013, despite which notice for recovery was issued on 22.2.2013. It was pointed out that during the pendency of the appeal proceedings before the Tribunal, no pre-deposit was insisted. | ||
| Considering the above, the impugned recovery notice is quashed. | ||
| (20) | In Special Civil Application No.2316 of 2013, following details arise: | |
| In this case, the petitioner has challenged the demand notice dated 20.2.2013. The petitioner filed appeal along with stay application before the Tribunal against the order of the Commissioner (Appeals). Hearing of such application was fixed on 5.2.2013. Due to non-availability of the Bench, hearing could not take place. At that stage, the recovery notice was issued. | ||
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (21) | In Special Civil Application No.2422, 2424 and 2434 of 2013, following details arise: | |
| The petitioner has challenged the action of recoveries initiated by the respondents. Against different orders passed by the Additional Commissioner of Service Tax, the petitioner has preferred appeals before the Commissioner (Appeals) within the period of limitation along with stay application. Such proceedings were fixed for hearing on 22.2.2013. At that stage, the respondents attached the bank account of the petitioner and also withdrew unilaterally an amount of Rs. 54,88,000/-. We notice that the petitioner has not prayed for any time before the appellate authority on the date of hearing. It is stated that the petitioner's representative had made his submissions. It appears that stay application along with appeal could not be disposed of immediately. We are seriously concerned with the manner in which the respondents not only attached the bank account of the petitioner but unilaterally recovered a hefty sum from such account. | ||
| Under the circumstances, following the ratio laid down hereinabove, recovery proceedings are quashed and the amount of Rs.54,88,000/- withdrawn from the Bank account shall be returned to the petitioner by the respondents. | ||
| (22) | In Special Civil Application No.2423 of 2013, following details arise: | |
| Facts in this petition are slightly different from the rest. The petitioner has challenged the recovery notice dated 16.1.2013. The order in original was passed on 31.1.2011 confirming demand of recovery of amount of Rs.13,82,211/- with interest. Against such order, the petitioner preferred appeal before the Commissioner (Appeals). The appeal was dismissed on 20.12.11. Against such order, the petitioner preferred further appeal before the Tribunal. The Tribunal, however, transferred such appeal on 28.8.12 to the revisional authority holding that appeal was not maintainable. | ||
| It can thus be seen that the petitioner had preferred appeal before a wrong forum. Thereupon the appeal had to be transferred to the revisional authority. This also was done as far back in August 2012. The petitioner cannot expect the respondents to wait indefinitely for recovering the amount arising out of the order in original which is also upheld by the appellate authority. However, since no such recovery has been so far, we grant one month's time to the petitioner to persuade the revisional authority. It is clarified that if no stay is granted latest by 15th April 2013, it would be open for the respondents to proceed further with the recovery in connection with the impugned notice. The petition is disposed of accordingly. | ||
| (23) | In Special Civil Application No.2461 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 4.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 30.9.11. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals) | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Stay application was listed on 20.2.2013. The Commissioner (Appeals) was not present. Thereafter, stay application was listed for hearing on 26.2.2013 and the application was heard and reserved for orders. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (24) | In Special Civil Application No.2473 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 20.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 22.8.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal. | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: No-availability of Division Bench of the Tribunal. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (25) | In Special Civil Application No.2475 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 15.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 6.3.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Though hearing has been concluded on 13.12.2012, no order has been passed in the matter. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (26) | In Special Civil Application No.2478 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 12.2.2013. | |
| 2. | Date/(s) of order/(s)-in-original : 3.1.2012 and 14.5.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Decided vide OIA No.169/2012(AHD-III)SKS/Commr/(A)/AHD/dated 31.10.12 and OIA No.205/2012(Ahd-II) SKS/Commr.(A)Ahd. Dated 31.12.12. | |
| 6. | Give details of further proceedings(Second Appeal/Revision/Writ, etc.) : (i) Appeal and stay application against OIA No.169/2012 (AHD-III)SKS/Commr/(A)/AHD/ dated 31.10.12 (issued on 9.11.2012) filed on 28.12.2012, (ii) Appeal and stay application have been filed within limitation and (iii) No date of hearing has been given for the stay application. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (27) | In Special Civil Application No.2531 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 16.1.2013 and 14.2.2013. | |
| 2. | Date/(s) of order/(s)-in-original : 20.7.2011. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Hearing attended on 26.02.2012 and order awaited. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (28) | In Special Civil Application Nos.2541 to 2547 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 26.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 26.9.2012 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal. | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeals and stay applications : Pending | |
| 6. | If pending, the reasons why: Due to non-availability of Bench at the Tribunal. |
| Applying the above principles, the impugned recovery notices are quashed in all these petitions. | ||
| (29) | In Special Civil Application No.2576 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 18.2.2013 | |
| 2. | Date/(s) of order/(s)-in-original : 6.1.2012 | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Commissioner (Appeals). | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: No further date of hearing has been granted in the stay application and the appeal. |
| Applying the above principles, the impugned recovery notice is quashed. | ||
| (30) | In Special Civil Application No.2603 of 2013, following details arise: |
| 1. | Date/(s) of impugned notice of recovery: 22.1.2013 and 15.2.2013. | |
| 2. | Date/(s) of order/(s)-in-original : 6.6.2012. | |
| 3. | First Appeal, whether before (Commissioner (Appeals)/Tribunal: Tribunal. | |
| 4. | Appeal filed within limitation and accompanied by stay application: Yes. | |
| 5. | Status of such appeal and stay application : Pending | |
| 6. | If pending, the reasons why: Before the Tribunal, hearing was fixed on 27.1.13 where the advocate for the petitioner prayed for adjournment. Hearing was thereafter fixed on 7.2.2013, but the Bench was not available. Now the date of hearing fixed is 20.3.2013. | |
| Applying the above principles, the impugned recovery notice is quashed. |
35. The respondents shall circulate copies of this judgment to all the Chief Commissioners of the State for proper and uniform implementation of the decision. All the petitions are disposed of in above terms
IT : Provisions of section 74(1), as amended by Finance Act, 2002, will apply only to unabsorbed capital loss for assessment year 2003-04 and onwards and will not apply to unabsorbed capital losses relating to assessment years prior to assessment year 2003-04
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[2012] 24 taxmann.com 100 (Mum.) (SB)
IN THE ITAT MUMBAI BENCH 'A' (SPECIAL BENCH)
Kotak Mahindra Capital Co. Ltd.
v.
Assistant Commissioner of Income-tax, Range 3(2)*
G.E. VEERABHADRAPPA, PRESIDENT I.P. BANSAL, JUDICIAL MEMBER AND P.M. JAGTAP, ACCOUNTANT MEMBER
IT APPEAL NO. 521 (MUM.) OF 2007
[ASSESSMENT YEAR 2003-04]
AUGUST 10, 2012
Section 74 of the Income-tax Act, 1961 - Losses - Under head 'capital gains' - Assessment year 2003-04 - Whether provisions of section 74(1) as amended with effect from 1-4-2003, would apply only to long-term capital loss relating to assessment year 2003-04 and onwards - Held, yes - Whether, therefore, restriction imposed therein in terms of setting off long-term capital loss only against long-term capital gain and not against short-term capital gain is applicable only in relation to long-term capital loss incurred by assessee in assessment year 2003-04 and subsequent years and same is not applicable to long-term capital loss relating to and brought forward from period prior to assessment year 2003-04 which shall be governed by provisions of section 74(1) as stood prior to amendment made with effect from 1-4-2003 - Held, yes [In favour of assessee]
Interpretation of Statute : 'Golden rule of construction'
FACTS
In the year under consideration, the assessee declared the short-term capital gain and the brought forward long-term capital loss relating to assessment year 2001-02 to the extent was set off by it against the said short-term capital gain. The claim of the assessee for such set off was disallowed by the Assessing Offier as well as by the Commissioner (Appeals) relying on the provisions of section 74(1) as amended by the Finance Act, 2002 with effect from 1-4-2003 on the ground that by virtue of the said amended provisions, the assessee was entitled to set off the brought forward long-term capital loss relating to assessment year 2001-02 only against long term capital gain and not against short-term capital gain.
On appeal:
HELD
Referring to the provisions of section 74 as it stood prior to amendment, the revenue has contended that the analysis of the said provisions clearly shows that the assessee gets right to carry forward in the year of loss if it is not set off fully in the year of loss. It is contended that such carry forward loss has been dealt with two ways; Firstly, it would be set off against the income under the head 'capital gains' in the following assessment year and if not, it would be carried forward. It was contended that the pre-amended provisions of section 74(1), thus, provide for both carry forward and set off in the immediately succeeding year but in so far as the year following the succeeding year is concerned, the said section provides only for carry forward and not for set off. There is no merit in this contention of revenue. The expression 'and so on' used in clause (b) of section 74(1). as existed prior to amendment made with effect from 1-4-2003, is sufficient to clarify that if the long-term capital loss cannot be wholly set off against long-term capital gain of the immediately succeeding year, the same shall be carried forward to the year following such succeeding assessment year and shall be set off against income if any under the head 'capital gain' assessable for that assessment year. It appears that the revenue while analysing the provisions of section 74(1), as existed prior to amendment made with effect from 1-4-2003, has ignored the important words 'and so on' to contend that the said provisions are silent on set off in so far as the year following the succeeding assessment year is concerned and finding no merit in this contention of the revenue, the same is rejected. [Para 30]
The first and most elementary rule of construction is that it has to be assumed that the words and phrases of 'technical legislation' should be used in their technical meaning if they have acquired one, and, otherwise, in their ordinary meaning the phrases and sentences are to be construed according to the rules of grammar. It is well settled that fiscal laws must be strictly construed, words must say what they mean, nothing should be presumed or implied. The true test must always be language used. Primarily the language employed is the determining factor of the intention of the legislature. The intention of the legislature must be found in the words used by the legislature itself. One has to look at the language employed by the legislature because no canon of construction can be said to be more firmly established than this that the legislature uses appropriate language to manifest its intention. [Para 31]
As already noted, the provisions of section 74(1) as amended with effect from 1-4-2003, going by the plain language and grammatical construction used therein, make it very clear that the same would apply only to the long-term capital loss relating to assessment year 2003-04 and onwards and govern the carry forward and set off of such loss. In other words, the restriction imposed therein in terms of setting off the long-term capital loss only against long-term capital gain and not against the short-term capital gain is applicable only in relation to the long-term capital loss incurred by the assessee in assessment year 2003-04 and subsequent years and the same is not applicable to the long-term capital loss relating to and brought forward from the period prior to assessment year 2003-04 which shall be governed by the provisions of section 74(1) as stood prior to amendment made with effect from 1-4-2003. The words used in the amended provisions of section 74(1) clearly indicate this position and it appears to be the intention of the legislature. If that was not the intention of the legislature, nothing would have prevented the legislature from employing the appropriate language. Having regard to the language used in the provisions of section 74(1) amended with effect from 1-4-2003, it seems clear that the intention was that the said provisions would deal with the carry forward and set off of long-term capital loss relating to assessment year 2003-04 and onwards. [Para 32]
As a result of aforesaid discussion, it follows that the assessee is entitled to claim set off of any brought forward long-term capital loss relating to assessment year 2001-02 against short-term capital gain. This is because the carry forward and set off of long-term capital loss relating to assessment year 2001-02 would be governed by the provisions of section 74(1) as existed prior to 1-4-2003. [Para 33]
In the present case, the provisions of section 74(1) as amended with effect from 1-4-2003 have been relied upon by the revenue authorities to disallow the assessee's claim for set off of long-term capital loss relating to assessment year 2001-02 against short-term capital gain of the year under consideration. However, as already noted the plain grammatical construction of the language of section 74(1) as amended with effect from 1-4-2003 makes it clear that the same are applicable and deal with carry forward and set off of loss under the head 'capital gain' incurred in assessment year 2003-04 and subsequent years. The right accrued to the assessee by virtue of section 74(1) as it stood prior to the amendment made with effect from 1-4-2003 thus has not been taken away either expressly by the provisions of section 74(1) as amended with effect from 1-4-2003 or even by implication. [Para 40]
In view of the above discussion, it is held that the provisions of section 74 which deal with carry forward and set off of losses under the head 'capital gains' as amended by Finance Act, 2002, will apply only to the unabsorbed capital loss for the assessment year 2003-04 and onwards and will not apply to the unabsorbed capital losses relating to the assessment years prior to the assessment year 2003-04. Accordingly, assessee was entitled to set off long-term capital loss incurred in assessment year 2001-02 against short-term capital gain made by it in assessment year 2003-04. [Para 46]
EDITOR'S NOTE
1. Following order passed by Madras High Court in case of Smt. B. Seshamma v. CIT [1979] 119 ITR 314, it was to be held that the Assessing Officer was justified in assessing the interest received by the assessee on income-tax refund as income from other sources and not as business income as claimed by the assessee. [Para 47]
2. Where assessment year involved was assessment year 2003-04 and since the proceedings in respect of the said year had been completed on 30-11-2005, it was opined that the assessee was liable to pay an interest under section 234D as per Explanation 2 to section 234D inserted by the Finance Act, 2012 with retrospective effect from 1.6.2003. [Para 48]
CASE REVIEW
Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921 / 2 Taxman 417 (SC) (para 36) distinguished.
CIT v. Shah Shadiq & Sons [1987] 166 ITR 102 / 31 Taxman 498 (SC) (para 3), Krishna Chandra Dutta (Cookme) (P.) Ltd. v. CIT [1993] 204 ITR 23(Cal.) (para 3), Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921/ 2 Taxman 417 (SC) (para 4), Komaf Financial Services Ltd. v. ITO [2010] 131 TTJ (Mum.) 359 (para 5), Geetanjali Trading Ltd. v. ITO [IT Appeal No. 5428 (Mum.) of 2007, dated 12-2009], Dy. CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (Mum.) (SB) (para 7), Virendra Kumar Jam v. ACIT [IT Appeal No. 1009 (Mum.) of 2000, dated 31-5-2010] (para 10), Gloria Securities (P.) Ltd.v. ITO [IT Appeal No. 680 (Mum.) of 2010, dated 31-8-2010] (para 11), CIT v. S.S.C. Shoes Ltd. [2003] 259 ITR 674/ 127 taxman 174 (Mad.) (para 12),Govinddas v. ITO [1976] 103 ITR 123 (SC) (para 13), General Finance Co. v. Asstt. CIT [2002] 257 ITR 338 / 124 taxman 432 (SC) (para 21), New Piece Goods Bazar Co. Ltd. v. CIT [1950] 18 ITR 516 (SC) (para 31), Maharaja Chintamani Saran Nath v. State of Bihar AIR 1999 SC 3609 (para 41),Reliance Jute Mills Co. Ltd. v. CIT [1972] 86 ITR 570 (Cal.) (para 42) and Smt. B. Seshamma v. CIT [1979] 119 ITR 314 (Mad.) (para 47).
F.V. Irani for the Appellant. Pavan Ved for the Respondent.
ORDER
Per Bench - This Special Bench has been constituted by the Hon'ble President to dispose off the appeal filed by the assessee in this case against the order of ld. CIT(A) III dated 09/11/2006 and to decide the following question of law arising from ground no.2 raised in the said appeal:
"Whether the provisions of section 74 which deal with carry forward and set off of losses under the head "capital gains" as amended by Finance Act, 2002 will apply only to the unabsorbed capital loss for the assessment year 2003-04 and onwards or will also apply to the unabsorbed capital losses relating to the assessment years prior to the assessment year 2003-04."
2. The assessee in the present case is a company which is engaged in the business of investment banking and dealing in Government securities. The return of income for the year under consideration was filed by it on 20.11.2003 declaring total income of Rs. 45,80,01,886/-. In the said return, short-term capital gain of Rs. 2,21,91,307/- earned during the year under consideration was declared by the assessee and the same was set off against brought forward long-term capital loss to the extent of Rs. 42,91,526/- relating to A.Y. 2001-02. According to the A.O., the assessee was entitled to set off the brought forward long-term capital loss only against long-term capital gain and not against short-term capital gain by virtue of the provisions of sec.74(1) as amended w.e.f. 01.04.2003. He held that since the said provisions amended w.e.f. 1.4.2003 were applicable to the year under consideration i.e. A.Y. 2003-04, the assessee was not entitled to claim the set off of brought forward long-term capital loss relating to A.Y. 2001-02 against short-term capital gain for the year under consideration i.e. A.Y. 2003-04. He, therefore, disallowed the claim of the assessee for set off of long-term capital loss brought forward from A.Y. 2001-02 against short-term capital gain for the year under consideration in the assessment completed u/s.143(3) vide an order dated 30.11.2005.
3. Against the order passed by the A.O. u/s.143(3), an appeal was preferred by the assessee before the Ld. CIT (A) challenging therein inter alia the action of the A.O. in disallowing its claim for set off of brought forward long-term capital loss relating to A.Y. 2001-02 against short-term capital gain for the year under consideration. It was submitted on behalf of the assessee before the Ld. CIT (A) that there was no restriction on the setting off of long-term capital loss against short-term capital gain and vice-versa prior to 2003-04 and such restriction came only from A.Y. 2003-04. It was contended that long-term capital loss of Rs. 42,91,526/- was determined in the case of the assessee for the first time in A.Y. 2001-02 and by virtue of pre-amended provisions of sec.74(1), the assessee had got the right to carry forward and set off the said long-term capital loss against short-term capital gain of any subsequent year/s. It was contended that the said right had accrued and vested in the assessee as per the provisions of sec.74(1) prevalent at the relevant time and the same could not be taken away by the amendment made subsequently to sec.74(1). In support of this contention, reliance was placed on behalf of the assessee on the decision of Hon'ble Supreme Court in the case of CIT v. Shah Sadiq & Sons [1987] 166 ITR 102/ 31 Taxman 498 wherein it was held that the repeal of a particular provision shall not affect the right / privilege of the assessee in view of the protection granted in sec.6(c) of the General Clauses Act. Reliance was also placed on behalf of the assessee on the decision of Hon'ble Calcutta High Court in the case of Krishna Chandra Dutta (Cookme) (P.) Ltd. v. CIT [1993] 204 ITR 23 wherein it was held that a restriction in setting off the loss could be applicable only prospectively and not retrospectively.
4. The Ld. CIT (A) did not find merit in the submissions made on behalf of the assessee on this issue. According to him, the assessee had an option to set off the long-term capital loss against short-term capital gain only up to A.Y. 2002-03 and as per the amendment made in the provisions of sec.74(1) w.e.f. 1.4.2003 applicable to A.Y. 2003-04 onwards, brought forward long-term capital loss could be set off only against long-term capital gain. For this conclusion, he relied on the decision of Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921 / 2 Taxman 417 wherein it was held that assessment for one assessment year cannot be affected by the law in force in another assessment year in the absence of a contrary provision specifically made. He held that the right claimed by the assessee under the law in force in a particular assessment year thus was available only in relation to the proceedings pertaining to that year. He noted that the amendment made in sec.74(1) w.e.f. 1.4.2003 restricted the set off of the long-term capital loss only against long-term capital gain and since the said amendment was applicable to the year under consideration i.e. A.Y. 2003-04, the assessee was not entitled for the set off of brought forward long-term capital loss relating to A.Y. 2001-02 of Rs. 42,91,526/- against short-term capital gain of Rs. 2,21,91,308/- for the year under consideration i.e. A.Y 2003-04. Accordingly, the action of the A.O. in disallowing the assessee's claim for such set off was upheld by the Ld. CIT (A). Aggrieved by the order of the Ld. CIT (A), the assessee has preferred this appeal before the Tribunal.
5. This appeal filed before the Tribunal initially came up for hearing before the Division Bench which took note of the fact that there were contrary views taken by the co-ordinate Benches on the issue involved in ground no. 2 relating to the assessee's claim for set off of brought forward LTCL relating to A.Y. 2001-02 against STCG for A.Y. 2003-04. In the case of Komaf Financial Services Ltd. v. ITO [2010] 131 TTJ (Mum.) 359, the Mumbai Bench had taken a view that amended provisions of sec.74(1) will apply to the losses under the head "capital gain" for any assessment year and not only to the losses relating to the assessment year 2003-04 onwards. A contrary view, however, was taken by another Division Bench at Mumbai in the case of Geetanjali Trading Ltd. v. ITO [IT Appeal No.5428 (Mum.) of 2007 dated December, 2009], wherein it was held that the amended provisions of sec.74(1) will apply only in respect of losses for assessment year 2003-04 and onwards. Taking note of these two contrary decisions of the co-ordinate Benches as well as for the other reasons given in the referral order, the Division Bench made a reference to the Hon'ble President, ITAT for constituting a Special Bench. Accordingly, this Special Bench has been constituted by the Hon'ble President, ITAT u/s. 255(3) of the Income-tax Act, 1961 to dispose of this appeal as well as to decide the important question of law as involved in ground no.2 of this appeal.
6. The learned counsel for the assessee Shri Farrokh Irani submitted that the case of the assessee on the issue under consideration is that the amendment in Section 74 of the Act applies only to LTCL made in AY 2003-04 and subsequent years and does not have the effect of denying it the right to set off LTCL made prior to AY 2003-04 against STCG of subsequent years. He submitted that he has three propositions to put forth in support of the case of the assessee which are without prejudice to each other. As a first proposition, he submitted that a bare construction of Section 74, as amended by the Finance Act, 2002, itself makes it clear that it disqualifies only LTCL made in AYs 2003-04 and onwards from set off against STCG of subsequent years. In this context, he invited our attention to the provisions of section 74, as amended by the Finance Act, 2002, which read as under:
"Losses under the head "Capital gains"
Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and
(a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset;
(b) in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset;
(c) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on;"
7. Shri Farrokh Irani contended that the language used in the amended provisions especially the highlighted words used therein leave no doubt that the amended Section 74 does not affect LTCL for assessment years prior to AY 2003-04 and that it applies only to LTCL made in AY 2003-04 and subsequent years. In support of this contention, he relied on the decision of the Special bench of the Tribunal in the case of Dy. CIT v. Times Guaranty Ltd. [2010] 40 SOT 14 (MUM)(SB) and submitted that the issue before the Special Bench was whether unabsorbed depreciation for AYs 1997-98 to 1999-2000 (when there were restrictions on set off of unabsorbed depreciation) could be set off without any restriction in AY 2003-04 and 2004-05 (when such restrictions were removed). He submitted that the issue involved in the said case thus was of a similar nature as involved in the present case and while deciding the same, it was held by the Special Bench that the liberalized provisions introduced w.e.f. AY 2002-03 applied only to unabsorbed depreciation computed for AY 2002-03 and subsequent years and did not apply to unabsorbed depreciation for the earlier years where there were restrictions on the setting off of unabsorbed depreciation. He submitted that this conclusion was arrived at by the Special Bench on the basis of the wording of Section 32(2) of the Act and drawing support from Section 74 of the Act which is the relevant provision in the present case.
8. Shri Farrokh Irani took us through the relevant portion of the order Special Bench in the case of Time Guaranty Ltd. ( supra) and specifically pointed out the following observations recorded by the Special Bench based on the wording of Section 32(2) of the Act to arrive at a conclusion that the liberalized provisions applied only from AY 2002-03 (when such liberalized provisions were introduced) and not to earlier years :
"24. ………… First thing in sub-section (2) is the reference to the assessment of the assessee in which full effect "cannot be" given to any allowance under sub-section (1) in any previous year. Later part of the provision provides that the allowance or part of the allowance to which effect "has not been" given, shall be added to the amount of allowance for depreciation in the succeeding years. At both the places present tense has been used in negative terms while referring to the allowance to which effect 'cannot be' and 'has not been' given. So the starting point of sub-section (2) is the assessment of the assessee and the allowance u/s. 32(1) to which full effect cannot be given. Section 32(1) deals with depreciation allowance for the current year. It implies that it is only when the assessment of the assessee from A. Y. 2002-2003 onwards is made in which depreciation allowance for the current year u/s. 32(1) cannot be given full effect to owing to the inadeguacu of the profit, that the directive of the deeming provision u/s. 32(2) shall apply. The mention of the words "cannot be" and 'has not been' indicates that it speaks of the deprecation allowance u/s. 32(1) for the current year. ............... In the like manner, other sections such as 74 and 74A etc., to the extent the talk of loss for the current year, refer to "cannot be" and "has not been" set off. On going through these sections it is palpable that wherever there is mention to loss under a particular head for the current year which is sought to be set off against the income under the same head or other heads of the income for that very year, the set of words 'cannot be' and 'has not been' have been brought into play. . ............... In order to make reference to such losses of earlier years, the words used have been 'could not be set off'. Thus it is manifest that the words "cannot be" as used in section 32(2) in the third period, refer only to the current year's depreciation, which is parallel to section 75 before substitution. The brought forward unabsorbed depreciation of earlier years cannot be included within the scope of section 32(2). If the intention of the legislature had been to allow such b/fd unabsorbed depreciation respecting the second period also at par with the depreciation for the year u/s 32(1) in third period, then sub section would have been differently worded somewhat like "where in the assessment of the assessee full effect could not be given to any allowance or ................... "employing the expression 'could not be' akin to that used in the post-substituted sec. 75. Since subsection (2) of sec. 32 has been worded in present and not in past or past prefect tense and this being a deeming provision, the brought forward unabsorbed depreciation of the second period cannot be brought within its purview."
9. Shri Farrokh Irani submitted that the above observations of the Special bench directly support the assessee's case and, on the basis thereof, it must be held that the restrictive provisions of Section 74 of the Act apply only to LTCL made in AY 2003-04 and subsequent years just as the Special Bench in the above case held that the liberalizing provisions of Section 32(2) of the Act applied only to unabsorbed depreciation for AY 2002-03 and subsequent years.
10. Shri Farrokh Irani also relied on the decision of division bench of this Tribunal in the case of Virendra Kumar Jam v. ACIT [IT Appeal No. 1009 (Mum.) of 2000, dated 31/05/2010] wherein the issue was whether the amendment to Section 73 of the Act restricting the period for carrying forward and setting off of speculation loss from the earlier period of 8 years to a restricted period of 4 years, applied to speculation losses made in AYs prior to the amendment. He submitted that the ITAT held for the following reasons given in paragraph 6 of its order that the wording of Section 74 showed that it did not affect earlier unabsorbed speculation losses :
"6. It is also significant, as rightly pointed out on behalf of the assessee, that sub-section (4) of section 73 refers only to the loss to be carried forward to the subsequent years. It does not say anything about the set off of the speculation loss brought forward from the earlier years. There is a distinction between a loss brought forward from the earlier years and a loss to be carried forward to the subsequent years. The sub-section deals only with the speculation loss to be carried forward to the subsequent years and in the very nature of things it cannot apply to speculation loss quantified in any assessment year before the assessment year 2006-07. . ....... Herein we are concerned with the assessee's right to set off the brought forward speculation losses against the speculation profits for the assessment year 2006-07. Sub-section (4) of section 73 does not deal with this situation. Hence, it has no application."
11. Shri Farrokh Irani submitted that the above decision of the Tribunal clearly supports the assessee's case that the amended provisions of Section 74 of the Act do not adversely affect the set off of brought forward LTCLs of AY 2001-02 against STCG of AY 2003-04. He submitted that the said decision has also been followed by the ITAT in the case of Gloria Securities (P.) Ltd. v. ITO [IT Appeal No. 680 (Mum.) of 2010, dated 31/08/2010]. He reiterated that a bare construction of Section 74 of the Act, as amended by the Finance Act, 2002, itself thus makes it clear that the set off of LTCL made in AY 2001-02 against STCG made by it in AY 2003-04, is not affected.
12. As a second and independent proposition, Shri. Irani submitted that the vested right, which the assessee had for setting off the LTCL made by it in AY 2001-02 against STCG, is not affected by the amendment to Section 74 of the Act. He submitted that it is well settled that a vested right acquired by the assessee cannot be negated except by a clear and specific legislative provision. In this connection, he relied upon the decision of the Madras High Court in the case of CIT v. S.S.C.Shoes Ltd. [2003] 259 ITR 674/ 127 taxman 174 wherein the assessee had claimed deduction under Section 80HHC of the Act which was allowed only partially on account of the provisions of Section 80VVA of the Act which placed a limit on the quantum of Chapter VIA deductions which could be claimed by the assessee in any particular assessment year. Section 80VVA provided that the Chapter VIA deductions not allowed in any particular assessment year could be claimed in a subsequent assessment year. The claim of the assessee for deduction under Section 80HHC of the Act for AYs 1987-88 and 1988-89 was limited by virtue of Section 80VVA of the Act and the disallowed portion of its Section 80HHC deduction was carried to AY 1989-90 when it was claimed by the assessee. However, Section 80VVA was deleted w.e.f. 1st April, 1988 and, on the basis of such deletion, the Revenue Authorities denied the assessee its claim for the allowance in AY 1989-90. The Hon'ble Tribunal and the Madras High Court held that the assessee had acquired a vested right to carry forward and claim the balance unabsorbed Section 80HHC deduction and that this could not be defeated even though Section 80VVA of the Act was deleted. He invited our attention on the following observations of the Madras High Court being relevant in the present context :
"Though the Supreme Court was dealing with a case of repeal of an. enactment, the principle laid down by the Supreme Court would apply to carry forward the deduction provided under section 80VVA(4) of the Act. Hence, we are of the view that it is not necessary to consider the larger question that section 6 of the General Clauses Act does not apply to the omission of a provision and the omission of a provision is different from "repeal" as held by the Supreme Court in Rayala Corporation P. Ltd. and M.R. Pratap v. Director of Enforcement (1969) 2 SCC 412; AIR 1970 SC 494 and Kolhapur Canesugar Works Ltd. v. Union of India, AIR 2000 SC 811; (2000) 2 SCC 536, as the assessee had secured a right to carry forward the unabsorbed deduction deeming the same as the deduction of the next following assessment year when section 80VVA was in existence and in full force, which was not taken away by the omission of the provision from the statute book. Following the principle laid down by the Supreme Court, we hold that the Appellate Tribunal was correct in holding that a vested right had accrued to the assessee to treat the deduction disallowed as a part of deduction for the next assessment year to be allowed in the computation of the total income for the next following assessment year and the assessee is entitled to carry forward the deduction for the subsequent assessment years, if not allowed, as the deduction disallowed would join the main stream of deduction".
Shri Farrokh Irani submitted that it is important to note that the Madras High Court decided the issue in favour of the assessee de-hors Section 6 of the General Clauses Act but on the general principle that vested rights could not be affected.
13. Shri Farrokh Irani also relied on the decision of three Judge Bench of the Hon'ble Supreme Court in Govinddas. v. ITO [1976] 103 ITR 123 and submitted that a similar view has been taken by the Hon'ble Supreme Court in the said case as is evident from the following observations recorded at page no. 132 of the report:
"Now, it is a well-settled rule of interpretation allowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in volume 36 of the Laws of England (third edition) and reiterated in several decisions of this court as well as English courts is that "all statutes other than those which are merely declaratory or which relate only to matters of procedures or evidence are prima facie prospective' and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only…………….."
14. Shri Farrokh Irani submitted that the above decision of the Supreme Court has been applied and followed by the Tribunal in the case of Geetanjali Trading Ltd. (supra) decided in December 2009) where the controversy was identical to the assessee's case. He invited our attention to paragraphs 10 and 11 on pages 56 and 57 of the case law paper book which are reproduced below:
"10. The issue before us is whether the law that has come into effect with effect from 01.04.2003, can be applied to the long term capital losses that have been incurred by the assessee prior to 01-04-2003. In our humble opinion, the new law cannot be made applicable. The law as amended by Finance Act, 2002 is applicable to computation of loss under the head "Capital Gains" for the assessment year 2003-04 and after. If the net result of computation was a loss under the head "Capital Gains" in an earlier assessment year, the law as it stood then, gave a vested right of set off to the assessee, against future capital gains income. There is nothing in the amended Act 2002, which withdrew this vested right of the assessee.
11. Coming to the case laws, the Hon'ble Supreme Court in the case of Govinddas and others (supra), held that it is a well settled rule of interpretation, that unless the term of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matter of procedure. If the enactment is ambiguous in language, which is fairly capable of either interpretation, it ought to be construed as prospective only".
15. As a third proposition, Shri Farrokh Irani submitted that the Department's attempt to apply the amended provisions of Section 74 to deny the assessee a set off of the LTCL relating to A.Y. 2001-02 against the STCG for A.Y. 2003-04 would amount to giving retrospective effect to Section 74 of the Act which is impermissible without a clear and specific legislative indication to that effect. He contended that this proposition is also supported by the decision of the Supreme Court in Govinddas's case (supra) and relied upon the relevant observations recorded by the Hon'ble Apex Court in this regard which have been reproduced above. He contended that the assessee thus is entitled to claim the set off of brought forward LTCL relating to A.Y. 2001-02 against STCG for A.Y. 2003-04.
16. Regarding the adverse decision of the Tribunal in the case of Komaf Financial Services Ltd. (supra), Shri. Irani submitted that the view taken therein by the division bench, with due respect, is not correct. He submitted that first of all the first proposition now raised by him before this special bench based on the bare interpretation of Section 74 of the Act has not been considered by the Tribunal in the case of Komaf Financial Services Ltd. (supra). Secondly, Shri Irani submitted that the said decision of the Tribunal proceeds on the principle of vested rights only with reference to Section 6(c) of the General Clauses Act and ignores the fact, as recognized by the Madras High Court in the case of S.S.C. Shoes Ltd. (supra) and by the Supreme Court in the case of Govinddas ( supra) that there is a well recognized legal concept of vested right even de-hors Section 6(c) of the General Clauses Act. He contended that all these relevant and vital aspects however were not brought to the notice of the division bench of this Tribunal in the case of Komaf Financial Services Ltd. (supra) which had no occasion to consider that same. He contended that the decision of the ITAT in the case of Komaf Financial Services Ltd. (supra), with respect, thus does not lay down the correct legal position. He contended that even the preponderance of judicial opinion on this issue is in favour of the assessee.
17. In reply, the learned CIT DR Shri Pawan Ved submitted that the assessee in the present case has claimed the set off of brought forward Long term capital loss relating to AY 2001-02 against short term capital gain for AY 2003-04. He submitted that the Law relating to set off of long term capital loss however is different for these two years. He submitted that the contention of the assessee is that such set off should be allowed as per law for AY 2001-02, while the contention of the Revenue is that such set off should not be allowed as per the amended law applicable for AY 2003-04.
18. Shri Pawan Ved invited our attention to the relevant provisions of section 74(1) as stood prior to 01.04.2003 and as amended from 01.04.2003 and submitted that the comparative analysis of these provisions clearly shows that the assessee gets right of carry forward in the year of loss, if it is not set off fully in the year of loss. He submitted that the long term capital loss carried forward thus has to be dealt with in two way i.e. it would be set off under the head 'Capital Gains' in the following assessment year and if not, it would be carried forward with no provision dealing specifically with set off. He contended that the relevant provisions of section 74 thus provide for both carry forward and set off in the immediately succeeding year; but the section provides only for carry forward and not for set off for the assessment year following the succeeding assessment year.
19. Shri Pawan Ved contended that it is settled law that no assessee has any vested right against the State and / or Parliament. Parliament can legislate both prospectively and retrospectively. Therefore it cannot be said that the current law would not apply to the assessee because of past vested right. Without prejudice to this main contention, he submitted that even if it is assumed that the assessee gets vested rights as per the provisions of section 74(1), it is only with respect to carry forward and not with respect to set off. He contended that by virtue of clause (a) of section 74(1), the assessee gets right of set off but not the manner of set off, because the section only provides for set off and not for the manner of set off. He contended that similarly clause (b) of section 74(1) provides only for carry forward and it is totally silent regarding set off. He contended that since the case of the assessee falls under clause (b) of section 74(1), there is absolutely no vested right of the assessee of set off as per the provisions of the Act.
20. Shri. Pawan Ved submitted that this issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd.(supra). In that case, the assessee had right, in the year in which loss was incurred, to carry forward loss for any number of years. Later on, Law was amended providing for carry forward only for 8 assessment years. Thereafter, the assessee sought set off of loss. In the year in which set off was requested, the period of 8 years had already passed. The plea of the assessee was that such set off should be given because he had vested right of set off for any number of years as per the law of the year in which the loss was incurred. The Hon'ble Supreme Court did not agree and it was held that law as on the 1st day of the assessment year should be applied. Accordingly, loss for the period prior to 8 years was denied set off.
21. As regards the decision of Hon'ble Supreme Court in the case of Govind Das (supra) relied upon by the learned counsel for the assessee, Shr. Pawn Ved submitted that the said decision is based on interpretation of the provisions of Section 297(2)(d) of IT Act 1961. The Hon'ble Supreme Court has held that because of the relevant provisions of Section 297(2)(d), vested right of 1922 Act had been saved. He contended that similar is the position as regards the decision of Hon'ble Supreme Court in the case of Shah Sadiq & Sons (supra) which also was based on the interpretation of provisions of section 297 of the I.T. Act, 1961. According to him, both these decisions referred to a situation where accrued rights were under 1922 Act and they were held to have been saved because of repeal of old legislature. He contended that the decision relied upon by him in support of the revenue's case in the case of Reliance Jute & Industries Ltd. (supra), on the other hand, has nothing to do with the situation of repeal of whole Act and the same therefore should be held to hold the field. He also relied on the decision of Hon'ble Supreme Court in the case of General Finance Co. v. Asstt. CIT [2002] 257 ITR 338 / 124 taxman 432 . In this case, the issue was regarding continuance of prosecution initiated u/s. 276DD after omission of section 276DD from the Act. The Hon'ble Supreme Court held that once section is omitted, prosecution cannot continue. It means, new provisions should take over the old provisions. Finally, prosecution was quashed. Shri. Ved contended that the Hon'ble Supreme Court in this decision has explained the implication of omission of provisions and repeal of provision.
22. In the rejoinder, Shri. Irani submitted that in the decision of the Supreme Court in the case of General Finance Co. ( supra) cited by the learned DR, it was held that Section 6 of the General Clauses Act does not apply to amendments but only to repeals. He contended that the principle of vested right, however, has been recognized de-hors Section 6 of the General Clauses Act by the Hon'ble Madras High Court in the case of S.S.C. Shoes Ltd. (supra) and even by the Hon'ble Supreme Court in the case of Govind Das (supra). As regards the argument of learned DR that Section 74 does not speak of set off, Shri. Irani contended that a bare reading of Section 74 itself shows that it speaks not only of carry forward but also of set off. As regards the contention of the learned DR that the law as on the 1st day of April, 2003 is to be applied, Shri. Irani submitted that even if the same is accepted, it does not affect the right of the assessee to set off the LTCL of AY 2001-02 against the STCG of AY 2003-04 because there is nothing in Section 74, as it stood on 1st April, 2003, which denies such right. He contended that a bare interpretation of Section 74, as it stood on 1st April, 2003, clearly shows that it applies only to LTCL made in AY 2003-04 and onwards as already explained by him in detail and does not in any way affect LTCL made in earlier years.
23. We have considered the rival submissions and also perused the relevant material on record. In the year under consideration, the assessee declared the short-term capital gain of Rs. 2,21,91,307/- and the brought forward long-term capital loss relating to AY 2001-02 to the extent of Rs. 42,91,526/- was set off by it against the said short-term capital gain. The claim of the assessee for such set off was disallowed by the AO as well as by the Ld. CIT (A) relying on the provisions of sec.74(1) as amended by the Finance Act, 2002 w.e.f. 1.4.2003 on the ground that by virtue of the said amended provisions, the assessee was entitled to set off the brought forward long-term capital loss relating to AY 2001-02 only against long term capital gain and not against short-term capital gain. While challenging this action of the authorities below in disallowing the assessee's claim for set off of long-term capital loss relating to AY 2001-02 against the short-term capital gain of the year under consideration i.e. 2003-04, the Ld. Counsel for the assessee has mainly raised three contentions in support of the assessee's case.
24. The first contention raised by the Ld. Counsel for the assessee is that the provisions of sec.74(1) as amended by the Finance Act, 2002 w.e.f. 01.04.2003 are applicable only in respect of long-term capital loss made in AY 2003-04 and subsequent years and the same cannot be relied upon to deny the claim of the assessee for set off of long-term capital loss made prior to AY 2003-04 against short-term capital gains of subsequent years as was permissible by virtue of the provisions of sec. 74(1) prior to its amendment made w.e.f. 01.04.2003. In support of this contention, he has mainly relied on the language used in sec. 74(1) as amended w.e.f. 01.04.2003 which reads as under:
"Losses under the head "Capital gains"
Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and
(a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset;
(b) in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset;
(c) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on;"
25. Referring to the highlighted words "is", "carried forward" and "cannot be", the Ld. Counsel for the assessee has submitted that the provisions of sec.74(1) as amended w.e.f. 01.04.2003 apply only to the long-term capital loss made in AY 2003-04 and subsequent years. In support of this contention, he has mainly relied on the decision of Mumbai Special Bench of the ITAT in the case of Time Guarantee Ltd. (supra).
26. In the case of Time Guaranty Ltd. (supra) relied upon by the Ld. Counsel for the assessee, a similar issue arose in the context of amendment made in the provisions of sec.32(2) which was substituted by the Finance Act, 2001 w.e.f. 01.04.2002. The substituted provisions of sec.32(2) read as under:
"Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years."
27. After dissecting the aforesaid provisions and taking the note of the highlighted words used therein, the Special Bench of this Tribunal held that present tense has been used while referring to the allowance to which the effect cannot be and has not been given. It was held that the mention of the words "cannot be" and "has not been" indicate that the relevant provisions speak of the depreciation allowance for the current year. The Special Bench also took note of the language used in sec.71 dealing with the carry forward and set off of losses from house property, sec.72(1) dealing with carry forward and set off of business losses to hold that the present tense used therein in negative was to represent loss under the head "income from house property" or business loss of the current year. The Special Bench held that it is thus palpable that wherever there is a mention of the loss under the particular head in the current year which has sought to be set off, the present tense has been brought into play. It was held that the necessary corollary which therefore followed is that the engaging the same set of words in sec.32(1) fairly suggested that the reference to depreciation allowance u/s.32(1) which could not be adjusted due to inadequacy of profit, was for the current year alone starting from assessment year 2002-03 onwards. To further support this conclusion, the Special Bench referred to the provisions of sec.75 as substituted by the Finance Act, 1992 w.e.f. 01.04.1993 dealing with losses of funds and providing that where the assessee is a firm, any loss in relation to the assessment year commencing on or before 01.04.1992, which could not be set off against any other income of the firm and which had been apportioned to the partner of the firm, and, "could not be" set off by such partner prior to the assessment year commencing from 01.04.1993, then, such loss shall be allowed to be set off against the income of the firm subject to certain conditions. The Special Bench also referred to the pre-amended provisions of sec.75, which provided that where the assessee is a registered firm and any loss which can be set off against any other income of the firm shall be apportioned between the partners of the firm and they alone shall entitled to have the amount of the loss set off and carried forward for set off. The Special Bench held that a conjoint reading of pre-amended provisions of sec.74 made it clear that when the reference was made to unabsorbed loss of firm for a current year getting apportioned between the partners of the firm, the words used were "cannot be" set off and when the reference was made to such losses of earlier years, the words used were "could not be set off". It was held by the special Bench that the words "cannot be" as used in sec.32(2) thus referred only to the current years depreciation and the brought forward unabsorbed depreciation of the earlier years cannot be included in sec.32(2). It was held that if the intention of the Legislature had been to allow such brought forward unabsorbed depreciation also at par with the deprecation of the current year, then sub-section would have been differently worded using the words "could not be given….".
28. In the present case, we are concerned with the provisions of sec.74(1) as substituted w.e.f. 01.04.2003 and as already noted on the basis of highlighted words, the present tense has been used, which, in our opinion, refers to the long-term capital loss of the current year. The said provisions thus are applicable to the long-term capital loss of AY 2003-04 onwards and not to the long-term capital loss relating to the period prior to AY 2003-04. We are therefore of the view that the provisions of sec.74(1) as substituted w.e.f. 01.04.2003 are not applicable to the long-term capital loss relating to the period prior to AY 2003-04 and set off of such loss is therefore governed by the provisions of sec.74(1) as stood prior to the amendment made by the Finance Act, 2002 w.e.f. 01.04.2003.
29. At the time of hearing before us, the Ld. DR has referred to section 74 as it stood prior to amendment made w.e.f. 01.04.2003 which read as under:
"(1) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and—
(a) it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year ; and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year, and so on."
30. Referring to the above provisions, the Ld. DR has contended that the analysis of the said provisions clearly shows that the assessee gets write off carry forward in the year of loss if it is not set off fully in the year of loss. He has contended that such carry forward loss has been dealt with two ways; Firstly, it would be set off against the income under the head "capital gains" in the following assessment year and if not, it would be carried forward. He has contended that the pre-amended provisions of sec.74(1) thus provide for both carry forward and set off in the immediately succeeding year but in so far as the year following the succeeding year is concerned, the said section provides only for carry forward and not for set off. We find no merit in this contention of Ld. DR. In our opinion, the expression "and so on" used in clause (b) of section 74(1). as existed prior to amendment made w.e.f. 01.04.2003, is sufficient to clarify that if the long-term capital loss cannot be wholly set off against long-term capital gain of the immediately succeeding year, the same shall be carried forward to the year following such succeeding assessment year and shall be set off against income if any under the head "capital gain" assessable for that assessment year. It appears that the Ld. DR while analysing the provisions of section 74(1), as existed prior to amendment made w.e.f. 01.04.2003, has ignored the important words "and so on" to contend that the said provisions are silent on set off in so far as the year following the succeeding assessment year is concerned and finding no merit in this contention of the Ld. DR, we reject the same.
31. The first and most elementary rule of construction is that it has to be assumed that the words and phrases of 'technical legislation' should be used in their technical meaning if they have acquired one, and, otherwise, in their ordinary meaning the phrases and sentences are to be construed according to the rules of grammar. It is well settled that fiscal laws must be strictly construed, words must say what they mean, nothing should be presumed or implied. The true test must always be language used. Primarily the language employed is the determining factor of the intention of the legislature. The intention of the legislature must be found in the words used by the legislature itself. One has to look at the language employed by the legislature because no canon of construction can be said to be more firmly established than this that the legislature uses appropriate language to manifest its intention. It is a well settled rule of construction that, in the first instance, the grammatical sense of the words is to be adhered to and as held by the Hon'ble Supreme Court in the case of New Piece Goods Bazar Co. Ltd. v. CIT [1950] 18 ITR 516 , the elementary rule is that the words used in a section must be given their plain grammatical meaning.
32. As already noted by us, the provisions of sec.74(1) as amended w.e.f. 1.4.2003, going by the plain language and grammatical construction used therein, make it very clear that the same would apply only to the long-term capital loss relating to AY 2003-04 and onwards and govern the carry forward and set off of such loss. In other words, the restriction imposed therein in terms of setting off the long-term capital loss only against long-term capital gain and not against the short-term capital gain is applicable only in relation to the long-term capital loss incurred by the assessee in AY 2003-04 and subsequent years and the same is not applicable to the long-term capital loss relating to and brought forward from the period prior to AY 2003-04 which shall be governed by the provisions of sec.74(1) as stood prior to amendment made w.e.f. 1.4.2003. The words used in the amended provisions of sec.74(1) clearly indicate this position and it appears to be the intention of the legislature. If that was not the intention of the legislature, nothing would have prevented the legislature from employing the appropriate language. Having regard to the language used in the provisions of sec.74(1) amended w.e.f. 1.4.2003, it seems clear that the intention was that the said provisions would deal with the carry forward and set off of long-term capital loss relating to AY 2003-04 and onwards.
33. Having accepted the first contention of the Ld. Counsel for the assessee that the provisions of sec.74(1) as amended w.e.f. 01.04.2003 apply only in respect of long-term capital loss of AY 2003-04 onwards and not in respect of long-term capital loss relating to the period prior to 2003-04, the carry forward and set off of which is governed by the pre-amended provisions of sec.74(1), it follows that the assessee is entitled to claim set off of any brought forward long-term capital loss relating to AY 2001-02 against short-term capital gain. This is because the carry forward and set off long-term capital loss relating to AY 2001-02 would be governed by the provisions of sec.74(1) as existed prior to 01.04.2003. The assessee therefore succeeds as a result of acceptance of the first contention itself on the issue under consideration and it is really not necessary or expedient to consider the other contentions raised by the Ld. Counsel in support of the assessee's case on this issue which have become more of a academic nature. However, keeping in view that we have already heard the elaborate submissions made by both the sides, we may touch upon the remaining aspects also for the sake of completeness.
34. The other contention raised by the Ld. Counsel in support of the assessee's case on this issue is that the assessee was entitled to set off the long-term capital loss relating to AY 2001-02 against income of any subsequent year / years under the head "capital gains" as per the provisions of sec.74(1) prevalent at the relevant time. He has contended that the assessee thus had a vested right to set off the long-term capital loss relating to AY 2001-02 against short-term capital gain of any subsequent year including AY 2003-04 and such vested right acquired by the assessee cannot be negated or taken away except by a clear and specific legislative provision. In support of this contention, he has relied on various judicial pronouncements which we shall consider at appropriate stage. The Ld. DR, on the other hand, has contended that the assessee cannot have any vested right against the State and /or Parliament and the parliament has the power to legislate both prospectively and retrospectively. In support of this contention, he has relied mainly on the decision of Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd. (supra) to contend that a similar plea of the assessee that it had a vested right to carry forward and set off the business loss for any number of years as per the law applicable to the year in which the loss was actually incurred and that the same could not be taken away by the amendment made in the relevant provisions restricting the carry forward and set off only for eight assessment years, was not accepted by the Hon'ble Supreme court and the claim of the assessee for set off was disallowed by the Hon'ble Supreme Court holding that the law as on 1st day of the relevant assessment year was applicable.
35. We have carefully gone through the judgment of Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd. (supra) cited by the Ld. DR in support of the revenue's case on this issue. In the said case, the unabsorbed business loss of AY 1950-51 was set off by the assessee against the business income of the assessment year 1960-61 which claim was disallowed by the AO relying on the provisions of section 24(2)(iii) of the Indian Income-tax Act, 1922 as amended w.e.f. April 1, 1957 restricting carry forward and set off of unabsorbed business loss only for 8 years. The stand of the assessee was that by virtue of section 24(2)(iii) of 1922 Act as it stood before its amendment w.e.f. April 1, 1957, it had acquired a vested right to have the unabsorbed loss carried from year to year until it was completely set off and the subsequent amendment limiting the period for carry forward the loss to 8 years can not divest the assessee from vested right which was thus accrued to him. It was pointed out by the assessee that the amendment effected in 1957 was not retrospective in operation. Hon'ble Supreme Court did not find any substance in this claim of the assessee observing that there was no question of the assessee possessing any vested right under the law as it stood before the amendment. It was held by the Hon'ble Supreme Court that right claimed by the assessee under the law in force in a particular assessment year is ordinarily available only in relation to the proceedings pertaining to that year. It was held by the Hon'ble Supreme Court the provisions of sec.24(1) as amended in 1957 would govern the assessment for the assessment year 1960-61 and the unabsorbed loss of the assessment year 1950-51 could not be carried forward for more than 8 years. The Hon'ble Supreme Court thus held that the law as prevalent on the 1st day of the relevant assessment year would be applicable to the proceedings pertaining to that year and the assessment for one assessment year cannot, in the absence of a contrary provision, be effected by the law in force in another assessment year.
36. The issue involved in the present case, in our opinion, however is different inasmuch as there is no dispute about the fact that the provisions of sec.74(1) as amended w.e.f. 1.4.2003 are applicable to the assessment year under consideration that is AY 2003-04. The dispute however is that, having regard to the language used in the said provisions, whether section 74(1) as amended w.e.f. 1.4.2003 deal with carry forward and long-term capital loss for AY 2003-04 onwards or it governs the carry forward and set off of carry forward of such loss relevant to the period prior to AY 2003-04. In this regard, we have already held that going by the language used in the amended provisions of sec.74(1), the same are applicable only in respect of carry forward and set off of long term capital loss relating to AY 2003-04 and onwards and the carry forward and set off of such loss relating to the period prior to 2003-04 continued to govern by sec.74(1) as it stood prior to the amendment made w.e.f. 1.4.2003. In our opinion, this issue involved in the present case is more similar to the issue involved in the case of Govind Das(supra) decided by the Hon'ble Supreme Court and relied upon by the Ld. Counsel for the assessee in support of the assessee's case. It is pertinent to note here that the said decision was rendered by the bench of three judges of Supreme Court and that too on 18th December, 1975 that is well before the decision rendered by the Bench of two judges of Hon'ble apex Court in the case of Reliance Jute & Industries Ltd. (supra) on October 10, 1979.
37. In the case of Govinddas (supra), the HUF was a partner in the export firm and in the mining firm. During the course of assessment proceedings for the AY 1957-58, the claim was made on behalf of the members of the HUF that they had effected the partial partition of their immovable property on 15th November, 1955. This claim was accepted by the AO after due enquiry and finding was recorded by him in the order of assessment. Consequent to its partial partition, the HUF ceased to be a partner in the export firm and the mining firm and two Members of the HUF namely Gulabdas and his son Govinddas continued to be partners in these two firms in their individual capacity. The result was that from and after the assessment year 1957-58, no part of the income of the Export Firm or the Mining Firm was included in the assessment of the Hindu Undivided Family. The assessments of the Export Firm and the Mining Firm for assessment years 1950-51 to 1956-57 were reopened after the new Act came into force and reassessments were made enhancing the assessable income of the two firms in accordance with the procedure provided in the new Act. Consequent upon the reassessments, notices were issued to HUF for assessments of its income for assessment years 1950-51 to 1956-57 since it was a partner in these two firms during those years. The Income-tax Officer after following the requisite procedure passed an order of reassessment for each of the assessment years 1950-51 to 1956-57 enhancing the assessable income of the HUF. Consequent to the enhancement of assessable income of the HUF, the ITO determined the several liability of the members of the HUF u/s.171(7) of the New Act by apportioning the tax assessed on the HUF for assessment years 1950-51 to 1956-57. This lead to the filing of the petition by each of the Members of the HUF in the Bombay High Court. The Petitioner did not object to the recovery of tax liability of the HUF from out of the joint family property which had come to their hands on the partial partition. Their argument however was that they were not jointly or severally liable for the tax liability and the ITO was not entitled to proceed against them personally for recovery of any share of the tax liability as per the provisions and sub-sec.(6) and sub-sec.(7) of sec.171 of the New Act. The principle contention of the Petitioners was that the said provisions of the New Act had no application where the assessment of the HUF was made under the provisions of the Old Act of 1922 and at the time when tax was sought to be recovered, the family had already effected the partial partition. This contention was rejected by the Hon'ble Bombay High Court. The Hon'ble Supreme Court, however, accepted the claim of the assessee and held that the assessments of the HUF for the assessment years 1950-51 to 1956-57 having been completed in accordance with the provisions of the Old Act which included sec.25A, the AO was not entitled to avail the provisions enacted in sub-sec. (6) and sub-sec.(7) of sec.121 of the New Act for the purpose of recovery of the tax or any part thereof personally form any members of the joint family including the petitioner.
38. At the time of hearing before us, the Ld. DR has contended that the decision of Hon'ble Supreme Court in the case of Govinddas (supra) was rendered on the interpretation of the provisions of sec.297(2)(d)(ii) of 1961 Act and relying on these specific provisions, the Hon'ble Supreme Court held that the right vested in the assessee as per 1922 Act had been saved. He has contended that in the situation as obtained in the case of Govind Das (supra) the rights were accrued under 1922 Act and they were held to have been saved because of repeal of old Legislature keeping in view the specific provisions contained in sec.297(2)(d)(ii).
39. After having perused carefully the entire text of the judgment of the Hon'ble Supreme Court in the case of Govinddas ( supra), we are unable to agree with this contention of Ld. DR. It is observed that the entire discussion in the case of Govinddas (supra) was made by the Hon'ble Supreme Court without referring to the provisions of sec.297(2)(d) and even the issue was decided in favour of the assessee without any reference to the said provision as is evident from page no.133 of the report. It was only after deciding the issue in favour of the assessee that their Lordships of Supreme Court proceeded to deal with and discuss the contention raised by the revenue relying on the provisions of sec.297(2)(d) of 1961 Act. The contention of the Ld. DR that the decision in the case of Govinddas ( supra) was decided by the Hon'ble Supreme Court on interpretation of provisions of sec.297(2)(d) of 1967 Act thus is devoid of any merit and the same cannot be accepted. As a matter of fact, the issue was decided by the Hon'ble Supreme Court on the basis of a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right otherwise than as regards the matters of procedure. After referring this well settled rule on page no.132 of the report, the Hon'ble Supreme Court also made a reference to a general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Ed.) and reiterated in several decisions of the Supreme Court as well as English Courts that "all statutes other than those which are merely declaratory or which relate only to the matters of procedure or of evidence are prima facie prospective" and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. Applying this principle of interpretation, Hon'ble Supreme Court held that it is clear that Sub-section (6) of Section 171 applied only to a situation where the assessment of a Hindu undivided family is completed under Section 143 or Section 144 of the new Act and it could not have any application where the assessment of a HUF was completed under the corresponding provisions of the old Act. It was held that such a case would be governed by sec.25 of the old Act which did not impose any personal liability on the Members in case of partial partition and to construe sec.171(6) as applicable in such case with consequential effect of casting on the members personal liability which did not exist under sec.25A, would be to give retrospective operation to the said provision which is not warranted either by the express language of that provision or by necessary implication.
40. In the present case, the provisions of sec.74(1) as amended w.e.f. 1.4.2003 have been relied upon by the revenue authorities to disallow the assessee's claim for set off of long-term capital loss relating to AY 2001-02 against short-term capital gain of the year under consideration and as already noted by us, the plain grammatical construction of the language of sec.74(1) as amended w.e.f. 1.4.2003 makes it clear that the same are applicable and deal with carry forward and set off of loss under the head "capital gain" incurred in AY 2003-04 and subsequent years. The right accrued to the assessee by virtue of sec.74(1) as it stood prior to the amendment made w.e.f.1.4.2003 thus has not been taken away either expressly by the provisions of sec. 74(1) as amended w.e.f. 1.4.2003 or even by implication.
41. The golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed. After referring to this golden rule in its judgment in the case of Maharaja Chintamani Saran Nath v. State of Bihar AIR 1999 SC 3609, the Hon'ble Supreme Court also referred to Francis Benion's Statutory Interpretation, 2nd Edn. wherein the learned author commented that the essential idea of a legal system is that current law should govern current activities. If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow's backward adjustment of it. Such is the nature of law and the true principle is that lex prospicit non respicit which means law looks forward and not back. As Willes, J. said, retrospective legislation is 'contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.
42. In the case of Shah Sadiq & Sons (supra), a similar issue again arose for the consideration of Hon'ble Supreme Court. In the said case, the assessee, a partnership firm, had claimed the set off of the speculation losses suffered in the assessment years 1960-61 and 1961-62 against the speculation profit of the previous year 1962-63 by virtue of sec.24(1) of the 1922 Act which gave a right to the assessee to carry forward the unabsorbed speculation losses to be set off against speculation profits of the future years. The claim of the assessee for such set off was disallowed by the ITO relying on the provisions of sec.75 of the 1961 Act which provided an entirely new scheme as follows:
"sec.75 - losses of registered firms"
(i) where the assessee is a registered firm, any loss which it cannot be set off against any other income of the firm shall be apportioned between the partners of the firm and the alone shall be entitled to have the amount of the loss set off and carry forward for set off u/s.70,71, 72,73, 74 & 74A.
(ii) nothing contained in sub-section (1) of sec.72, sub-sec.(2) of sec.73, sub-sec.(1) of sec.74 and sub-sec.(3) of sec.74A shall entitled any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections.
The matter was carried by the assessee in an appeal before the Tribunal which held that the assessee was entitled to set off the speculation losses suffered in the assessment years 1960-61 and 1961-62 against the speculation profits of the previous year 1962-63. The Hon'ble Allahabad High Court upheld the decision of the Tribunal and while disposing off the appeal filed by the revenue against the order of the Hon'ble Allahabad High Court, the Hon'ble Supreme Court held that under the Income-tax Act, 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against the profit made from that business in future years. It was held that the fact that right created by operation of sec.24(2) was a vested right could not be disputed and such a right which had accrued and had become vested continued to be capable of being enforced notwithstanding the repeal of the statute under which that right accrued unless the repealing statute took away such right expressly. It is worthwhile to note here that in the case of Shah Sadiq & Sons (supra), reliance was placed on behalf of the revenue in support of its case on the decision of the Hon'ble Calcutta High Court in the case of Reliance Jute Mills Co. Ltd. v. CIT [1972] 86 ITR 570 which was affirmed by the Hon'ble Supreme Court in Reliance Jutes Industries Ltd. (supra) and it was opined by the Hon'ble Supreme Court that the principles enunciated therein will have no application to the controversy involved in the case of Shah Sadiq & Sons (supra).
43. It is no doubt true that the decision in the case of Shah Sadiq & Sons (supra) was rendered by the Hon'ble Supreme court on the basis of section 6 of the General Clauses Act of 1897 as well as sec.297(2) of the Income-tax Act, 1961 as submitted by the Ld. DR. However, as already noted by us, the decision in the case of Govinddas ( supra) which is a decision of the Bench of three Judges of Hon'ble Supreme court was rendered on this issue on the basis of well settled rule of interpretation hallowed by time and sanctified by judicial decisions that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or to impose a new liability otherwise than as regards matters of procedure.
44. It is observed that the decision of Hon'ble Madras High Court in the case of SSC Shoes Ltd. (supra) cited by the Ld. Counsel for the assessee further clinches this issue. In that case, the assessee had claimed set off of depreciation carried forward from AY 1987-88 and 1988-89 in the assessment year 1989-90 by virtue of the provisions of sec.80VVA. The said provisions had imposed certain restrictions on the allowability of certain deductions specified in sub-sec.(2) and the deductions were restricted in the sense that the same were granted to the extent of 70% of the amount of profits as computed u/s.80VVA(2). Sub-sec.(4) of sec.80VVA provided that where the deduction was not granted in respect of any provision specified in sub-sec.(2) by virtue of the restrictions, the amount remaining unallowed shall be added to the amount to be allowed in the next financial year and shall be deemed to be a part of the deduction admissible to the assessee under the said provision for that year. Sec.80VV(a) further provided that the deduction not be allowed shall be added to the deduction for the succeeding assessment years. Sec.80VVA was deleted by the Finance Act, 1987 w.e.f. April 1, 1988 and as a result of the said deletion, the AO held that the assessee was not entitled to carry forward and set off the deduction u/s.80HHC relating to AY 1987-88 and 1988-89 in the assessment year 1989-90. The Ld. CIT (A) confirmed the view taken by the AO. The Tribunal however took a different view that a vested right had accrued to the assessee to carry forward and set off the unabsorbed deduction u/s.80HHC to which it was entitled to during the subsequent years. The Hon'ble Madras High Court upheld the decision of the Tribunal holding that a vested right u/s.80VVA(4) of the Act had accrued in favour of the assessee and that right was not taken away either expressly or by necessary implication by deletion of sec.80VVA of the Act. For this conclusion, the Hon'ble Madras High Court relied on the decision of Hon'ble Supreme Court in the case of Shah Sadiq & Sons (supra). It was noted by the Hon'ble Madras High Court that the decision in the case of Shah Sadiq & Sons (supra) was rendered by the Hon'ble Supreme Court with reference to sec.6 of General Clauses Act and it was held by Hon'ble Madras High Court that though the Supreme Court was dealing with a case of repeal of enactment, the principles laid down in the case of Shah Sadiq & Sons (supra) would apply to carry forward of deduction provided u/s.80VVA(4) of the Act. It was held that there was no necessity to consider the larger question that sec.6 of General Clauses Act does not apply to the omission of a provision and the omission of a provision is different from "repeal" as the assessee had acquired a right to carry forward the unabsorbed depreciation deeming the same as deduction of the next following assessment year when sec.80VVA was in existence and in full force, which was not taken away by omission of the provision from statute book.
45. In our opinion, the position in the present case is similar to the one involved in the case of S.S.C. Shoes Ltd. ( supra) inasmuch as provisions of sec.74(1) as amended w.e.f. 1.4.2003, going by the language used therein, expressly provide for and deal with carry forward and set off of loss under the head "capital gains" for assessment year 2003-04 and subsequent years and the right accrued to the assessee by virtue of sec.74(1) as it stood prior to the amendment made w.e.f. 1.4.2003 to set off brought forward long-term capital loss relating to the period prior to AY 2003-04 against short-term capital gain of subsequent year/s has not been taken away by the provisions of sec.74(1) substituted w.e.f. 1.4.2003.
46. In view of the above discussion, we are of the view that the provisions of sec.74 which deal with carry forward and set off of losses under the head "capital gains" as amended by Finance Act, 2002, will apply only to the unabsorbed capital loss for the assessment year 2003-04 and onwards and will not apply to the unabsorbed capital losses relating to the assessment years prior to the assessment year 2003-04. Accordingly, we answer the question referred to this Special Bench in favour of the assessee holding that the assessee is entitled to set off the long-term capital loss incurred in AY 2001-02 against the short-term capital gain made by it in AY 2003-04. Ground no.2 of the assessee's appeal is accordingly allowed.
47. As regards ground no. 1, it is observed that the issue involved therein relating to the head of income under which interest received by the assessee u/s 244A on income tax refund is chargeable to tax is covered against the assessee by the decision of Hon'ble Madras High Court in the case of Smt. B. Seshamma v. CIT[1979] 119 ITR 314 wherein it was held that the interest paid being a statutory obligation with respect to an amount found refundable, it would be assessable under the head "Income from other sources". Following the said decision of Hon'ble Madras High Court, the coordinate bench of this Tribunal at Pune in the case ofSalgaocar Mining Industries Ltd. v. Dy. CIT [1997] 61 ITD 105 held that once the income-tax has been paid by the assessee, it ceases to be the money of the assessee and whatever refund is issued after final adjustment it would be a general debt due to the assessee arising under the statute. It was held that the interest arising on such debt cannot be said to have any connection with the business activities carried on by the assessee and therefore such interest is assessable as income from other sources. Keeping in view these judicial pronouncements, we uphold the impugned order of the Ld. CIT (A) confirming the action of the AO in assessing the interest received by the assessee on income-tax refund as income from other sources and not as business income as claimed by the assessee. Ground no.1 of the assessee's appeal is accordingly dismissed.
48. As regards the issue involved in ground no.3 relating to levy of interest u/s.234D, it is observed that Explanation 2 has been inserted in sec.234D by the Finance Act, 2012 with retrospective effect from 1.6.2003 clarifying that the provisions of sec.234D shall also apply to the assessment year commencing before the first day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. In the present case the assessment year involved is AY 2003-04 and since the proceedings in respect of the said year has been completed on 30.11.2005, we are of the view that the assessee is liable to pay an interest u/s.234D as per Explanation 2 to sec.234D inserted by the Finance Act, 2012 with retrospective effect from 1.6.2003. In that view of the matter we uphold the impugned order of the Ld. CIT (A) confirming the interest charged by the AO u/s.234D and dismiss ground no.3 of the assessee's appeal.
49. In the result, appeal of the assessee is partly allowed.
---------- Forwarded message ----------
From: Pavan Singla <singlapavan@gmail.com>
Date: 2 May 2013 13:27
Subject: IT : Where Commissioner took revisional proceedings against assessee and remanded proceedings before Assessing Officer for full enquiry and fresh consideration without giving any specific directions and Tribunal upheld action of Commissioner, no question of law arises for consideration
To:
--
From: Pavan Singla <singlapavan@gmail.com>
Date: 2 May 2013 13:27
Subject: IT : Where Commissioner took revisional proceedings against assessee and remanded proceedings before Assessing Officer for full enquiry and fresh consideration without giving any specific directions and Tribunal upheld action of Commissioner, no question of law arises for consideration
To:
IT : Where Commissioner took revisional proceedings against assessee and remanded proceedings before Assessing Officer for full enquiry and fresh consideration without giving any specific directions and Tribunal upheld action of Commissioner, no question of law arises for consideration
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[2013] 32 taxmann.com 356 (Gujarat)
HIGH COURT OF GUJARAT
Adani Agro (P.) Ltd.
v.
Deputy Commissioner of Income-tax - Circle-1*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 254 OF 2012†
DECEMBER 10, 2012
Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue [Re-adjudication] - Assessment year 2006-07 - Assessee claimed set off of certain gain on sale of shares against unabsorbed speculation loss - Assessing Officer allowed such claim - Subsequently Commissioner having found that Assessing Officer had allowed assessee's claim without proper enquiry took revisional proceedings under section 263 and remanded proceedings to Assessing Officer for verification of certain details before accepting assessee's claim - Tribunal dismissed appeal of assessee on plea that Commissioner's order was not erroneous - It clarified that Assessing Officer shall not draw any adverse inference from order of Commissioner, but pass appropriate order as per law and merit - Whether any question of law arose for consideration from order of Tribunal - Held, no [Para 4] [In favour of revenue]
HELD
| ■ | The Commissioner after recording cogent reasons found that the order passed by the Assessing Officer was erroneous and also prejudicial to the interest of the revenue. He was, therefore, entitled to exercise revisional powers under section 263. While doing so, he remanded the proceedings before the Assessing Officer for full inquiry and fresh consideration. He had not given any specific directions to consider the issue in particular manner. In any case, the Tribunal further clarified this issue in the impugned order. Therefore, no question of law arises for consideration. [Para 4] |
Saurabh N. Soparkar, Bandish S. Soparkar and Mrs. Swati Soparkar for the Appellant.
ORDER
Akil Kureshi, J. - This appeal is filed by the assessee against the decision of Income Tax Appellate Tribunal ("the Tribunal" for short) dated 21.11.2011 as ordered to be corrected by corrigendum dated 10.1.2012.
2. For the assessment years 2006-2007, the assessee had claimed set off of certain gain on sale of shares against unabsorbed speculation loss. The Assessing Officer had granted such claim, according to the Commissioner, without proper inquiry. The Commissioner therefore, took the order of the assessment under revision under section 263 of the Income Tax Act. After giving an opportunity of hearing to the assessee, the Commissioner remanded the proceedings to the Assessing Officer for verification of certain details before accepting the assessee's claim as noted above. He observed as under:
"7. In view of the above referred facts and legal position it is held that the assessment order u/s 143(3) dated 31.12.2008 passed by the Assessing Officer for the A.Y. 2006-07 in the case of the assessee is erroneous and prejudicial to the interest of Revenue. In the interest of justice the above referred issue needs to be set aside to the file of the Assessing Officer for re-adjudication. Accordingly, the above referred assessment order dated 31.12.2008 is set aside with direction that the Assessing Officer should verify whether the assessee is eligible to avail set off brought forward speculation loss pertaining to the A.Y. 2001-02 from the profit earned this year in view of the amended provisions of Sub-section(4) of Sec. 73 of the I.T. Act, 1961. Further, regarding the issue of sale of shares as per para-5 to be treated as Short Term Capital Gain, is also set aside to the file of the Assessing Officer for re-adjudication, as the details and explanations submitted by the assessee during the course of proceedings u/s 263 of the Act were not adjudicated by the Assessing Officer.
8. Accordingly, the above referred assessment order u/s143(3) dated 31.12.2008 is set aside to the Assessing Officer who will adjudicate on the issues of allowance of set off brought forward speculation loss pertaining to A.Y. 2001-02 against the speculation profit earned this year and whether the profit earned by the assessee on sale of shares of Adani Wilmar and Independent News Services P. Ltd. is Long Term Capital Gain or not, afresh and decide the same as per law. The Assessing Officer will provide sufficient opportunities to the assessee of being heard."
3. Aggrieved by such order of the Commissioner, the assessee approached the Tribunal. Tribunal dismissed the assessee's appeal holding that the order was not erroneous and further clarifying as under :
"However we make it clear that the Assessing Officer shall not draw any adverse inference from the order of the ld. CIT, but pass appropriate order as per law and merit after considering all the submissions and materials produced by the assessee and also after taking into consideration of all the relevant case laws cited. It is ordered accordingly."
4. Having heard learned senior counsel Shri S.N. Soparkar for the appellant, we do not find any question of law arises. The Commissioner after recording cogent reasons found that the order passed by the Assessing Officer was erroneous and also prejudicial to the interest of the Revenue. He was therefore, on facts of the case entitled to exercise revisional powers under section 263 of the Act. While doing so, he remanded the proceedings before the Assessing Officer for full inquiry and fresh consideration. He had not given any specific directions to consider the issue in particular manner. In any case, the Tribunal further clarified this issue in the impugned order as can be seen from the noted portion of the order itself.
5. In the result, Tax Appeal is dismissed.
IT-I : Standardization and pasteurisation of milk cannot be considered as a manufacture or production activity
IT-II : Where Assessing Officer in view of order passed by Special Bench of Tribunal in another case, reopened assessment to consider assessee's claim for additional depreciation on machinery installed for standardisation and pasteurisation of milk afresh, validity of said proceedings was to be upheld
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[2012] 27 taxmann.com 237 (Hyd.)
IN THE ITAT HYDERABAD BENCH 'B'
Creamline Dairy Products Ltd.
v.
Deputy Commissioner of Income-tax, Circle 1(2), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER AND SAKTIJIT DEY, JUDICIAL MEMBER
IT APPEAL NOS. 20 (HYD.) OF 2012 AND 1828 (HYD.) OF 2011
[ASSESSMENT YEARS 2005-06 AND 2008-09]
OCTOBER 5, 2012
Section 32 of the Income-tax Act, 1961 - Depreciation - Additional depreciation - Manufacture/Production - Assessment year 2005-06 - Whether standardization and pasteurisation of milk cannot be considered as a manufacture or production activity and, therefore, additional depreciation under section 32(1)(iia) is not available to machinery installed for purpose of standardization and pasteurisation of milk - Held, yes [Para 8] [In favour of revenue]
Section 147, read with section 32, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts - Section 32 cases - Assessment year 2005-06 - Original assessment was completed under section 143(3) - Subsequently, Assessing Officer initiated reassessment proceedings on ground that additional depreciation on machinery installed at milk chilling plant/processing centre, sales outlet, etc., claimed by assessee company was not allowable as assessee company was not engaged in manufacturing of any article or thing - Whether in view of fact that Assessing Officer reopened assessment on basis of order passed by Special Bench in case of B.G. Chitale v. Dy. CIT [2008] 115 ITD 97 / 23 SOT 189 (Pune) (SB), validity of reassessment proceedings was to be upheld - Held, yes [Para 8] [In favour of revenue]
FACTS
Facts
• The original assessment was completed under section 143(3). Later a notice under section 148 was issued and duly served on the assessee. The reason for reopening of assessment was that the additional depreciation on machinery installed at milk chilling plant/processing centre, sales outlet, etc., claimed by the assessee company was not allowable as the assessee company was not engaged in manufacturing of any article or thing.
• In response to the notice issued under section 148 the assessee replied that the return already filed might be treated as having been filed in response to the notice issued under section 148.
• The Assessing Officer being not convinced with the reply of the assessee disallowed the additional depreciation i.e., sum equal to 20 per cent of the actual cost of such machinery/plant as enumerated under section 32(1)(iiia) and added back the same to the income of the assessee.
• The Commissioner (Appeals) confirmed reopening of assessment as well as the addition made by the Assessing Officer.
Assessee's contentions
• As regards reopening of assessment, the assessee submitted that at the time of completing assessment all the information was available to the Assessing Officer and he had duly considered all the material facts for the purpose of assessment and allowed the claim of the assessee with regard to additional depreciation and the same could not be considered subsequently, by issuing notice under section 148 as there was no fresh tangible material which came to the knowledge of the Assessing Officer for the purpose of reopening of assessment.
• On merits, the assessee contended that the Assessing Officer was not correct in observing that machinery installed at milk chilling/processing centre, sales outlet were nothing to do with the manufacture of curd or ghee, etc. He submitted that curd and ghee could be manufactured only after pasteurisation and standardization of milk. Thus, the machinery or plant installed at milk chilling plant/processing centre had direct nexus with the manufacturing of curd and ghee, etc.
Revenue's contentions
• According to revenue, it came to notice of Assessing Officer subsequently, that the assessee claimed additional depreciation on machinery installed at milk chilling/processing centres, sales outlets and also on plant and machinery installed at milk powder factory which according to him did not amount to the plant and machinery used for the manufacture of an article or thing as per the provisions of section 32(1)(iia). According to Assessing Officer, resulted in underassessment which was rightly reopened under section 147.
Issue involved
• Whether on the facts and circumstances of case, the Assessing Officer was justified in initiating reassessment proceedings.
• Whether the authorities below were justified in holding that the assessee was not entitled to additional depreciation in respect of machinery installed at milk chilling plant/processing centre.
HELD
Whether reopening of assessment for reconsideration of additional depreciation granted on machinery was justified
• Reopening of assessment was for the purpose of reconsideration of additional depreciation granted on machinery installed at milk chilling plant/processing centre/sales outlet on the reason that additional depreciation was not allowable as the assessee was not engaged in manufacture of article or thing. The Assessing Officer came to the conclusion on the basis of the order of the Tribunal Pune Special Bench in the case of B.G. Chitale v. Dy. CIT [2008] 23 SOT 189 wherein it was held that pasteurisation and standardization of milk does not amount to production and the assessee is not entitled for deduction under section 80-I. In view of this, the assessee is not entitled for additional depreciation in terms of provisions of section 32(1)(iia) as the machinery installed at milk chilling/processing centre, sales outlet and plant and machinery installed at milk powder centre are directly relatable to the milk processing which does not amount to manufacture [Para 8].
Allowability of additional depreciation machinery installed for standardisation and pasteurisation of milk
• Therefore, as per the provisions of section 32(1)(iia) the additional depreciation cannot be granted. The reason recorded by the Assessing Officer is a valid basis for re-assessment proceedings by issuing notice under section 148 of the Act. The additional depreciation is not available to that part of the machinery installed for the purpose of standardization and pasteurisation of milk. The activities of standardization and pasteurisation of milk are different from manufacturing of curd, ghee and other products. Standardization and pasteurisation of milk cannot be equated with manufacturing of curd and ghee or other milk products. The new machinery which was installed for the purpose of manufacturing of production of any article or thing is entitled for additional depreciation not otherwise and not on the machinery installed in any other way by the assessee.
• As it was already decided by the Tribunal Pune Special Bench in the case of B.G. Chitale (supra), standardization and pasteurisation cannot be considered as a manufacture or production activity. The plant and machinery installed for the purpose of standardization and pasteurisation of milk cannot be considered for additional depreciation. Being so, reopening of assessment is valid. Consequently, the assessee not entitled for additional depreciation on merit also. The assessee might have used the standardized or pasteurised milk for the purpose of production of curd and ghee but there is no necessity of using standardized or pasteurised milk for the purpose of production of curd and ghee or other milk products. Because the assessee used standardized or pasteurized milk, one cannot be in a position to hold that the assessee is entitled for additional depreciation under section 32(1)(iia ) of the Act.
• The plant and machinery used in the production and manufacture of curd and ghee must have a direct and immediate nexus with the assessee's business. Although milk is required for the purpose of manufacturing of curd and ghee, standardized and pasteurised milk for the purpose of production of curd and ghee is a step removed from the business of production of curd and ghee. The curd and ghee could have been produced by the assessee from the milk without standardization and pasteurisation. Usage of pasteurized condensed milk is not necessary for the purpose of production of ghee and curd. Because the assessee used the standardized and pasteurized milk, one cannot grant the additional depreciation on the plant and machinery which are used for the purpose of standardization and pasteurisation of milk. Accordingly, even on merit the issue is decided against the assessee. [Para 8]
EDITOR'S NOTE
• Where assessee's claim in respect of foreign travel expenditure was allowed to the extent of 1/3rd of expenditure incurred, in view of assessee's request, matter was remanded back to Assessing Officer for disposal afresh after getting bifurcation of expenditure as attributable to business trips and pleasure trips. [Para 11]
B.G. Chitale v. Dy. CIT [2008] 23 SOT 189 (Pune) (SB) (para 3), G.S. Prabhakar v. Asstt. CIT [IT Appeal No. 1154 (Hyd.) of 2010, dated 30-11-2010] (para 3), Lee Pharma (P.) Ltd. [IT Appeal No. 1236 (Hyd.) of 2010, dated 8-6-2012] (para 3), CIT v. Kelvinator of India [2002] 256 ITR 1 / 123 Taxman 433 (Delhi) (para 3), CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/ 187 Taxman 312 and Indian Hotels Co. Ltd. v. ITO [2000] 145 ITR 538/ 112 Taxman 46 (SC) (para 5).
K.A. Sai Prasad for the Appellant. K. Gnana Prakash for the Respondent.
ORDER
Chandra Poojari, Accountant Member - These two appeals by the assessee are directed against different orders of the CIT(A)-II, Hyderabad dated 2.12.2011 and 23.9.2011 for assessment years 2005-06 and 2008-09, respectively.
2. First we will take up ITA No. 20/Hyd/2012 for assessment year 2005-06. The first ground in this appeal is with regard to reopening of assessment. Brief facts of the issue are that the original assessment was completed u/s. 143(3) of the Act on 26.12.2007. Later a notice u/s. 148 dated 24.3.2009 was issued and duly served on the assessee. The reason for reopening of assessment was that the additional depreciation on machinery installed at milk chilling plant/processing centre, sales outlet, etc., claimed by the assessee company is not allowable as the assessee company is not engaged in manufacturing of any article or thing. In response to the notice issued u/s. 148 of the Act, the assessee replied that "the return already filed may please be treated as having been filed in response to the notice issued u/s. 148 of the IT Act". The Assessing Officer being not convinced with the reply of the assessee disallowed the additional depreciation i.e., sum equal to 20% of the actual cost of such machinery/plant as enumerated u/s. 32(1)(iiia) of the Act worked out at Rs. 83,53,108 and added back the same to the income of the assessee. On appeal, the CIT(A) confirmed reopening of assessment as well as the addition made by the Assessing Officer.
3. Regarding reopening of assessment the learned AR submitted that at the time of completing assessment all the information was available to the Assessing Officer and he has duly considered all the material facts for the purpose of assessment and allowed the claim of the assessee with regard to additional depreciation and the same cannot be considered now by issuing notice u/s. 148 of the Act as there is no fresh tangible material which came to the knowledge of the Assessing Officer for the purpose of reopening of assessment. According to the AR it is only change of opinion and making roving enquiry. He relied on the order of the Tribunal Pune Special Bench in the case of B.G. Chitale v. Dy. CIT [2008] 115 ITD 97 / 23 SOT 189 (Pune) (SB) wherein it was held that if the assessee makes curd, ghee or other products after process, that amounts to manufacture or production of article or thing and the assessee is entitled for deduction u/s. 80I/80HHA of the Act. Thus, he submitted that the assessee is engaged in production of curd and ghee and other milk products and this is manufactured after pasteurisation and standardisation of milk. The same machinery installed for pasteurisation and standardisation was actively used for the purpose of production of curd and ghee. According to him, the Assessing Officer is not correct in observing that machinery installed at milk chilling/processing centre, sales outlet are nothing to do with the manufacture of curd or ghee, etc. He submitted that curd and ghee could be manufactured only after pasteurisation and standardisation of milk. Thus the machinery or plant installed at milk chilling plant/processing centre have direct nexus with the manufacturing of curd and ghee, etc. Further he relied on the order of the Tribunal in the case of G.S. Prabhakar v. Asstt. CIT dated 30th November, 2010 in ITA No. 1154/ Hyd/2010 for assessment year 2005-06 wherein the Tribunal held that reopening of assessment is bad in law. For similar proposition he also relied on the order of the Tribunal in the case of Lee Pharma Pvt. Ltd. dated 8th June, 2012 in ITA No. 1236/Hyd/2010 wherein the Tribunal held that reopening of assessment is bad in law by relying on the judgement of Delhi High Court in the case of CIT v. Kelvinator of India [2002] 256 ITR 1 / 123 Taxman 433 and also on the judgement of Supreme Court in the same case reported in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 / 187 Taxman 312 .
4. On the other hand, the learned DR submitted that the Assessing Officer has called for routine details and after verification of the same, the assessment was completed without making any disallowances. But, however, subsequently it has come to his notice that the assessee claimed additional depreciation on Machinery installed at Milk chilling/processing centres, sales outlets and also on plant and machinery installed at Milk Powder Factory which according to him do not amount to the Plant & Machinery used for the manufacture of an article or thing as per the provisions of Sec. 32(1)(iia). Omitted to do so, resulted in under assessment and accordingly re-opened the assessment u/s. 147 of the IT Act. The assessee's contention that the re-opening proceedings amount to the change of opinion and therefore the proceedings u/s. 147 should be annulled is not acceptable, in view of the following judicial authorities:
(1) Praful Chunilal Patel v. ACIT [1999] 236 ITR 832 : Re-assessment wherein held that on a proper interpretation of section 47 of the Act, it would appear that the power to make assessment or re-assessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or raw that has been discovered or found out justifying the belief required to initiate me proceedings. The words, "escaped assessment" where the return is filed are apt to cover the case of a discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration. or, caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based. In cases where the assessing officer had over-looked something at the first assessment, there can be no question of any change of opinion when the income which was chargeable to tax is actually taxed as it ought to have been under the law but was not, due to an error committed at the first assessment.
(2) Jawand & Sons v. CIT (Appeals) 326 ITR 39 : (P&H) : Reassessment - Reason to believe - Deduction wrongly allowed to assessee where duty drawback and DEPB incentives were treated as "profits derived from industrial undertaking" and assessee was allowed deduction under section 80-IB, in original assessment, thus, to correct the wrong deduction allowed to assessee under section 80-IB, re-opening of assessment was justified. It has been held that under Section 147 of the Act, after its amendment w.e.f. 1.4.1989, wide power has been given to the assessing officer even to cover the cases where the assessee had fully disclosed the material facts. The only condition for action is that the assessing officer should have reason to believe that the income chargeable to tax had escaped assessment. Such belief can be reached in any manner and is not qualified by a precondition of full and true disclosure of material facts by the assessee as contemplated in the pre-amended section 147(a) of the Act.
5. The DR also relied on the judgement of Supreme Court in the case of Indian Hotels Co. Ltd. v. ITO [2000] 245 ITR 538/ 112 Taxman 46 wherein it was held as under:
"In order to get special deduction under section 80J of the Income-tax Act, 1961 or investment allowance under section 32A the requirement is: the assessee-company must be engaged in the business of manufacture or production of any article or thing. In the case of preparing food packages or selling the same or preparing foodstuffs for serving in the hotel there is no question of manufacture or production. The raw material is at the most processed so as to make it eatable. The word "manufacture" has various shades of meaning but unless defined under the Act, it is to be interpreted in the context of the object and the language used in the sections. In the context of the provisions which deal with grant of investment allowance or deduction under section 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. It would not be applicable in cases where only processing activity is carried out. Further, such production activity must be by an industrial undertaking and not by the assessee having mainly trading activity.
A statute cannot always be construed with the dictionary in one hand and the statute in the other; regard must also be had to the scheme, context and to the legislative history of the provision.
The foodstuff prepared by cooking or by any other process from raw materials such as cereals, pulses, vegetables, meat or the like cannot be regarded as a commercially distinct commodity and it cannot be held that such foodstuff is manufactured or produced.
Further, the Legislature has differentiated between an industrial undertaking and trading activity of the assessee who deals in business of hotel, by making different provisions. The business of hotel and that of industrial undertaking are considered to be distinct and separate for the purpose of grant of investment allowance under section 32A or for grant of deduction under section 80J. Under proviso (c) to section 32A deduction of investment allowance is not to be made in respect of any ship, machinery or plant to which the deduction of development rebate is allowable under section 33. For the machinery and plant installed by an assessee being an Indian company in premises used by it as a hotel, specific provision for grant of deduction of development rebate is made under section 33(1)(b)(B)(ii). Similarly, under section 80J for the business of hotel and for industrial undertaking separate provisions are prescribed, mainly, sub-sections (4) and (6). The conditions which are required to be satisfied by such assessees are different. Therefore, an assessee who is carrying on a trading activity of business of a hotel cannot claim the benefit granted to an industrial undertaking by contending that it also produces foodstuff or food packets.
6. Regarding the merit of allowability of depreciation, the learned AR submitted that the assessee is entitled for additional depreciation as the Tribunal held that the manufacture of butter milk and cream amounts to manufacturing activity and, therefore, the assessee is entitled for deduction u/s. 80I of the Act. Further it was submitted that in the process of production of these items from raw milk the entire plant and machinery were exploited and, therefore, additional depreciation u/s. 32(1)(iia) on plant and machinery installed by the assessee is entitled for depreciation.
7. The DR opposed the argument of the AR.
8. We have heard both the parties on both the issues. Reopening of assessment for the purpose of reconsideration of additional depreciation granted on machinery installed at milk chilling plant/ processing centre/sales outlet on the reason that additional depreciation is not allowable as the assessee is not engaged in manufacture of article or thing. The Assessing Officer came to the conclusion on the basis of the order of the Tribunal Pune Special Bench in the case of B.G. Chitale (supra) wherein it was held that pasteurisation and standardisation of milk does not amount to production and the assessee is not entitled for deduction u/s. 80I. In view of this, the assessee is not entitled for additional depreciation in terms of provisions of section 32(1)(iia) as the machinery installed at milk chilling/processing centre, sales outlet and plant and machinery installed at milk powder centre are directly relatable to the milk processing which does not amount to manufacture. Therefore, as per the provisions of section 32(1)(iia) the additional depreciation cannot be granted. In our opinion, the reason recorded by the Assessing Officer is a valid basis for re-assessment proceedings by issuing notice u/s. 148 of the Act. In our opinion, additional depreciation is not available to that part of the machinery installed for the purpose of standardisation and pasteurisation of milk. The activities of standardisation and pasteurisation of milk are different from manufacturing of curd, ghee and other products. Standardisation and pasteurisation of milk cannot be equated with manufacturing of curd and ghee or other milk products. The new machinery which was installed for the purpose of manufacturing of production of any article or thing is entitled for additional depreciation not otherwise and not on the machinery installed in any other way by the assessee. As it was already decided by the Tribunal Pune Special Bench in the case of B.G. Chitale (supra), standardisation and pasteurisation cannot be considered as a manufacture or production activity. The plant and machinery installed for the purpose of standardisation and pasteurisation of milk cannot be considered for additional depreciation. Being so, reopening of assessment is valid. Consequently, the assessee not entitled for additional depreciation on merit also. The assessee might have used the standardised or pasteurised milk for the purpose of production of curd and ghee and there is no necessity of using standardised or pasteurised milk for the purpose of production of curd and ghee or other milk products. Because the assessee used standardised or pasteurised milk, we cannot be in a position to hold that the assessee is entitled for additional depreciation u/s. 32(1)(iia) of the Act. The plant and machinery used in the production and manufacture of curd and ghee must have a direct and immediate nexus with the assessee's business. Although milk is required for the purpose of manufacturing of curd and ghee, standardised and pasteurised milk for the purpose of production of curd and ghee is a step removed from the business of production of curd and ghee. The curd and ghee could have been produced by the assessee from the milk without standardisation and pasteurisation. Usage of pasteurised condensed milk is not necessary for the purpose of production of ghee and curd. Because the assessee used the standardised and pasteurised milk, we cannot grant the additional depreciation on the plant and machinery which are used for the purpose of standardisation and pasteurisation of milk. Accordingly, even on merit we decide the issue against the assessee. The various case-law relied on by the assessee-company are delivered on their own context and cannot be applied to the facts of the present case.
9. The other ground is relating to levy of interest u/s. 234B and 234C of the Act which is consequential and mandatory in the nature. Accordingly this ground is dismissed. Appeal of the assessee in ITA No. 20/Hyd/2012 is dismissed.
10. Now coming to ITA No. 1820/Hyd/2011. The main issue is with regard to allowability of foreign travel expenditure. The assessee claimed foreign travel expenditure at Rs. 20,35,971. As the assessee not furnished details of expenditure relating to business and pleasure trips, the Assessing Officer disallowed 80% of foreign travel expenses at Rs. 16,28,777. On appeal, the CIT(A) directed the Assessing Officer to allow 1/3rd of the expenditure instead of 1/5th of the expenditure. Against this the assessee is in appeal before us.
11. We have heard both the parties and perused the material on record. Before the lower authorities, the assessee not furnished bifurcation of expenditure as related to business and pleasure trips. Being so, the CIT(A) directed the Assessing Officer to disallow 2/3 of expenditure. Before us also nothing has been furnished. However, the AR made as plea that the assessee could furnish details of foreign travel as relating to business trips as well as pleasure trips. Considering the request of the assessee's counsel, we remit the entire issue to the file of the Assessing Officer with a direction to get bifurcation of expenditure as attributable to business trips and pleasure trips. On obtaining the information, the Assessing Officer is directed to disallow the expenditure relating to pleasure trips. If the assessee fails to furnish the same the Assessing Officer shall pass consequential order in terms of the CIT(A) order. The appeal of the assessee is partly allowed for statistical purposes.
12. In the result, ITA No. 20/Hyd/2012 is dismissed and ITA No. 1828/Hyd/2011 is partly allowed for statistical purposes.
2013-TIOL-334-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
AT AHMEDABAD
Special Civil Application No. 357 of 2013
TRANSWIND INFRASTRUCTURE PVT LTD
Vs
INCOME TAX OFFICER-WARD 8 (1)
Akil Kureshi And Sonia Gokani, JJ
Dated : April 16, 2013
Appellant Rep. by : Mr S N Soparkar, Sr Adv with Mr B S Soparkar, Adv
Respondent Rep. by : Ms. Paurami B Sheth, Adv
Respondent Rep. by : Ms. Paurami B Sheth, Adv
Income Tax - Sections 40(a)(ia), 143(2), 147, 148 - reassessment - TDS - labour charges - contractor - Whether when the assessee has not deducted TDS on labour charges, even though statutorily required under the Act, the assessing authority can deduct TDS on adhoc basis - Whether in such a case re-examination of facts by means of reopening is tenable in law - Whether during reassessment proceedings, an assessing authority has the power to review - Whether when once a claim is fully examined, power of reopening is also available.
Assessee, an indian company had filed ROI for AY 2007-08 declaring total income of Rs. 36,27,970/- and had claimed labour expenditure of Rs. 9.48 crores. As per the petitioner, on the balance labour payment of Rs. 3.05 crores, provision of TDS was not applicable and, therefore, no TDS was made. During assessment, AO had discarded petitioner's contention that TDS was not applicable for the remaining labour charges. AO made ad-hoc disallowance of Rs. 25,60,000/- at 8% of the total payments in his order of assessment. On appeal, CIT(A) had deleted such additions on the ground that TDS provision was not applicable. The Revenue had filed appeal against such order of CIT(A) which was pending before the Tribunal. On 30.12.2012, the AO had issued notice u/s 148 on the ground that it was noticed that the assessee was engaged in the business of contractor with different agencies. On verification of the P & L account, it was noticed that the assessee had incurred total labour payment expenditure of Rs. 9,48,23,819/- out of which the assessee had deducted TDS on labour payment of Rs. 6,48,55,517/- and the balance labour payment amounting to Rs. 3,05,68,302/- was paid to other labour on which TDS was not deducted. Therefore as per section 40(a)(ia) the expenditure would be allowed as deduction from the taxable income, only if tax is deducted and paid in to government account. Therefore the payments amounting to Rs. 3,05,68,302/- paid on work contract section 40(a)(ia) which required to be disallowed as assessee company had not deducted tax and paid to the government account. The reasons for reopening was also provided to the assessee. Failure to do so resulted in under assessment of Rs. 3,05,68,302/-. AO therefore had every reason to believe that by reason of omission on the part of the assessee to disclose fully and truly all material relevant for the assessment, the income of the assessee has escaped assessment within the meaning of section 147. Objections filed by assessee were rejected by the Tribunal.
Held that,
++ it is not as if that the AO framing scrutiny assessment had overlooked this aspect of the matter but, having enquired with the assessee and having concluded that tax at source though required, was not deducted, made disallowance on ad-hoc basis which, according to the revenue, was not in order. Entire amount should have been disallowed from the claim of expenditure. From the arguments mentioned, it can be seen that the AO was acutely conscious about the petitioner not having deducted tax on labour payment charges of Rs. 3.05 crores and the petitioner's contention that it was so done because provision for TDS was not applicable. He was not convinced by such explanation. He, however, for some strange reasons did not apply the provision of Section 40(a)(ia) instead made ad-hoc disallowance of Rs. 25,60,000/- @ 8% of the total labour payment charges. Whatever be the legality of such assessment, fact remains that, in the scrutiny assessment, the AO had thoroughly and fully scrutinized the assessee's claim of deduction of labour expenditure. To the extent he was inclined to disallow the same, he did so. By no stretch of imagination it can be stated that the issue was not at large before the AO in the original scrutiny assessment. Any reexamination of such a question at this stage would only amount to change of opinion. Remedy of reopening the assessment, therefore, was simply not available;
++ in the decision of the SC in case of CIT Vs. Kelvinator of India Ltd. (2010-TIOL-06-SC-IT) the Apex Court observed that on going through the changes, quoted above, made to Section 147, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in section 147 [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the AO to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The AO has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the AO. If the Revenue was of the opinion that the AO erroneouly and to the prejudice of the interest of the Revenue allowed certain claim, in a given situation, it would have been open for the appropriate authority to exercise revisional powers. However, once the claim was fully examined, power of reopening was simply not available. In the result, impugned noticed dated 30.03.2012 is quashed. Petition is allowed and disposed of accordingly.
Assessee's appeal allowed
Case followed:
CIT Vs. Kelvinator of India Ltd. (2010-TIOL-06-SC-IT)
JUDGEMENT
Per : Akil Kureshi, J :
1. Heard learned counsel for the parties for final disposal of the petition. Petitioner has challenged a notice dated 30.03.2012 as at Annexure A to the petition issued by the respondent-Assessing Officer under Section 148 of the Income Tax Act,1961.
2. Petitioner is a company registered under the Companies Act. For the assessment year 2007-2008, petitioner filed its return of income on 29.10.2007 declaring total income of Rs. 36,27,970/-. In such return, the petitioner had claimed labour expenditure of Rs. 9.48 crores (rounded off). As per the petitioner, on the balance labour payment of Rs. 3.05 crores (rounded off), provision of TDS was not applicable and, therefore, no tax was deducted at source.
3. Assessing Officer framed scrutiny assessment under Section 143(2) of the Act. He discarded petitioner's contention that TDS was not applicable for the remaining labour charges. He made ad-hoc disallowance of Rs. 25,60,000/- at 8% of the total payments in his order of assessment dated 30.12.2009.
4. Petitioner challenged the said disallowance before the CIT(A), who, by his order dated 15.12.2010, deleted such additions on the ground that TDS provision was not applicable. We are informed that the Revenue has filed appeal against such order of CIT(A) which is pending before the Tribunal.
5. On 30.12.2012, the respondent issued impugned notice. The petitioner was supplied reasons recorded for issuance of such notice which read as under:
"In this case on verification of case record it is noticed that the assessee is engaged in the business of contractor with different agencies. On verification of the P & L account it is notice that the assessee has incurred total labour payment expenditure of Rs. 9,48,23,819/- out of which the assessee had deducted TDS on labour payment of Rs. 6,48,55,517/- and the balance labour payment amounting to Rs. 3,05,68,302/- was paid to other labour on which TDS was not deducted. Therefore as per section40(a)(ia) of the IT Act the expenditure would be allowed as deduction from the taxable income, only if tax is deducted and paid in to government account. Therefore the payments amounting to Rs. 3,05,68,302/- paid on work contract section 40(a)(ia) of the IT Act which required to be disallowed as assessee company has not deducted tax and paid to the government account.Failure to do so resulted in under assessment of Rs. 3,05,68,302/-. In view of the above, escapement of Rs. 3,05,68,302/-. I have therefore, every reason to believe that by reason of omission on the part of the assessee to disclose fully and truly all material relevant for the assessment, the income of the assessee has escaped assessment within the meaning of section 147 of the I.T. Act, for the A.Y. 2007-08."
6. Petitioner thereupon raised objections under communication dated 21.05.2012 to the notice of reopening. Such objections were, however, rejected by the respondent by an order dated 26.12.2012. Hence, the petition.
7. From the record and from the submissions of the counsel for the parties we notice that the only ground indicated in the reasons recorded by the Assessing Officer is that on the labour payment charges of Rs. 3.05 crores, though required, TDS was not deducted. Therefore, under Section 40(a)(ia) of the Act, entire expenditure had to be disallowed. He, therefore recorded that "failure to do so resulted in under assessment of Rs. 3,05,68,302/-".
8. From the tenor of the reasons itself, we gather that it is not as if that the Assessing Officer framing scrutiny assessment had overlooked this aspect of the matter but, having enquired with the assessee and having concluded that tax at source though required, was not deducted, made disallowance on ad-hoc basis which, according to the revenue, was not in order. Entire amount should have been disallowed from the claim of expenditure.
9. In addition to the above conclusions, we also notice that in the assessment order itself, the Assessing Officer had discussed this issue in following manner:
"6. Disallowance out of labour payments:During the year under consideration, the assessee had incurred total labour payment expenditure of Rs. 9,48,23,819/-. Out of this expenditure the assessee has deducted TDS on labour payment of Rs. 6,42,55,517/- and the balance labour payment of Rs. 3,05,68,302/- has been paid to the other labourers on which the provision of TDS is not applicable.As per order sheet entry dated 24.12.2009, the assessee was asked to file the details regarding the labour payments on which no TDS has been deducted which are supported only by self made vouchers. The authorized representative of the assessee company attended on 29.12.2009 and filed a reply to the show cause. The reply has been considered but is not found to be fully accpetable.The assessee has incurred expenditure of Rs. 3,05,68,302/- in respect of labour payments on which the TDS has not been deducted. The assessee has only submitted the self made vouchers in support of its claim. As the assessee has not filed any other evidence regarding the labour payment but looking at nature of business of the assessee company a lump sum addition of Rs. 25,60,000/- @ 8% of the toatl labour payment is made to the assessee company.(Total disallowance of Rs. 25,60,000/-)"
10. From the above, it can be seen that the Assessing Officer was acutely conscious about the petitioner not having deducted tax on labour payment charges of Rs. 3.05 crores and the petitioner's contention that it was so done because provision for TDS was not applicable. He was not convinced by such explanation. He, however, for some strange reasons did not apply the provision of Section 40(a)(ia) of the Act instead made ad-hoc disallowance of Rs. 25,60,000/- @ 8% of the total labour payment charges.
11. Whatever be the legality of such assessment, fact remains that, in the scrutiny assessment, the Assessing Officer had thoroughly and fully scrutinized the assessee's claim of deduction of labour expenditure. To the extent he was inclined to disallow the same, he did so. By no stretch of imagination it can be stated that the issue was not at large before the Assessing Officer in the original scrutiny assessment. Any reexamination of such a question at this stage would only amount to change of opinion. Remedy of reopening the assessment, therefore, was simply not available. In the decision of the Supreme Court in case ofCommissioner of Income Tax Vs. Kelvinator of India Ltd. reported in [2010] 320 ITR 561 (SC)= (2010-TIOL-06-SC-IT) the Apex Court observed as under:
"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer."
12. If the Revenue was of the opinion that the Assessing Officer erroneouly and to the prejudice of the interest of the Revenue allowed certain claim, in a given situation, it would have been open for the appropriate authority to exercise revisional powers. However, once the claim was fully examined, power of reopening was simply not available.
13. In the result, impugned noticed dated 30.03.2012 is quashed. Petition is allowed and disposed of accordingly.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
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