SERVICE TAX-Belated appeal can't be rejected without considering reasons behind such delay
ST : Appeal cannot not be thrown at threshold to convert meritorious appeal into de-meritorious without considering reasons of delay in filing it; application for condonation must be decided reasonably and in accordance with law
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[2013] 33 taxmann.com 124 (New Delhi - CESTAT)
CESTAT, NEW DELHI BENCH
Shakeel Haider Engineers & Contractors
v.
Commissioner of Central Excise, Lucknow*
D.N. PANDA, JUDICIAL MEMBER
AND RAKESH KUMAR, TECHNICAL MEMBER
AND RAKESH KUMAR, TECHNICAL MEMBER
FINAL ORDER NO. 55570 OF 2013
APPLICATION NO. ST/STAY/2029 OF 2012
APPEAL NO. 815 OF 2012
APPLICATION NO. ST/STAY/2029 OF 2012
APPEAL NO. 815 OF 2012
FEBRUARY 13, 2013
Section 85 of the Finance Act, 1994 - Commissioner (Appeals) - Condonation of delay - There was delay of 50 days in filing appeal before Commissioner (Appeals) as against permissible period of condonation of 3 months - Commissioner (Appeals) dismissed appeal as time-barred - HELD : In an extra-ordinary circumstance, where there is delay but reason exists against such delay, law permits condonation of delay - Difficulties are unforeseen and not forecasted - Appeal may not be thrown at threshold to convert meritorious appeal into de-meritorious without considering reasons of delay - Hence, matter was remanded back to Commissioner (Appeals) to hear reasons of delay afresh and make decision reasonably and in accordance with law [Paras 2 & 3] [In favour of assessee]
Nagesh Pathak for the Respondent.
ORDER
D.N. Panda, Judicial Member - None present for the appellant nor there is any adjournment application. Perusal of the first appeal order throws light that there was only 50 days delay and that was not beyond 180 days, which is within the discretionary period of condonation by learned Commissioner (Appeals) under Finance Act, 1994. No doubt the appeal is to be filed within 90 days. But in an extra-ordinary circumstance where there was no such filing duly but reason exists against such delay law permits to condone the delay, if appeal is filed beyond 90 days but within further 90 days order thereof.
2. The reason stated in the impugned order which did not appeal the learned Commissioner (Appeals) needs a further reconsideration for the very good reason that the difficulties are unforeseen and not forecasted. Therefore, we remand the matter to learned Commissioner (Appeals) to issue notice to the appellant to avail an opportunity to Explain its case on time bar to meet the end of justice.
3. It may be stated that the appeal may not be thrown at the threshold to convert meritorious appeal into de-meritorious without considering reasons of delay afresh. By saying this, we do not oust the power of the learned Commissioner (Appeals) to exercise reasonably. We only direct that the process of decision making should be in accordance with law and the decision reasonable. Accordingly, both stay application and appeal are disposed in the manner indicated above.
Vineet *In favour of assessee.
INCOME TAX- Capital gain from sale of property held in name of partner in all phases will be taxable in his hands only
IT: Where registered deed showed that property was purchased, held and sold by a partner of assessee-firm as sole owner of property, capital gains arising thereof could not be taxed in hands of partner
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[2013] 33 taxmann.com 46 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
Raja Fertilizers
v.
Income-tax Officer, Ward IV (1), Tiruchirapali*
Dr. O.K. Narayanan, VICE-PRESIDENT
AND S.S. GODARA, JUDICIAL MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
IT Appeal No. 292 (Mds.) of 2010
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
JANUARY 7, 2013
Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as [In case of firm/partner] - Assessment year 2006-07 - Whether where property in question was purchased in individual name of partner of assessee-firm and such property was sold by such partner as owner of property, there being no mention of assessee-firm in either purchase deed or sale deed, long term capital gains arising out of sale of property could not be brought in hands of assessee-firm - Held, yes [Paras 13 & 14] [In favour of assessee]
FACTS
| ■ | One of partners of assessee-firm, namely 'I' purchased a piece of land in his personal name and later on said property was sold. The capital gains arising on the sale of land was shown in personal assessment of 'I'. | |
| ■ | Since said property was reflected in the balance sheet of the assessee, the Assessing Officer held that property was owned by assessee-firm and accordingly he brought long-term capital gains to taxation in the hands of the assessee-firm. | |
| ■ | The Commissioner (Appeals) confirmed the order of the Assessing Officer on this point. | |
| ■ | On second appeal : |
HELD
| ■ | The purchase document was registered in the name of 'I' one of the partners of the firm. The document was executed in his personal capacity and in his individual name. There is no recital in the purchase deed that the property was being purchased for and on behalf of the firm. Likewise, the property was sold by a sale deed executed by 'I' individually and in his independent capacity as the owner of the property. There is also no mention that the property belonged to the assessee-firm and the firm was actually selling the property. Even though the books of account of the assessee-firm contained entries regarding the purchase and sale of the property and the balance-sheet of the assessee-firm showed for some time the property as its own asset, such things cannot change the legal character of the transactions. | |
| ■ | The accounting entries reflected in the books of account of the assessee-firm cannot undo the rule of law or the law of land. In order to bring the property into the ownership of the assessee-firm, it was necessary to have a conveyance deed registered in the name of the assessee-firm. As no such document is available, no such conveyance can be presumed and as such it is not possible to hold that the property was ever owned by the assessee-firm. The consequence is that the firm cannot be implicated in the sale of the property as well. This is because, the property was never owned by the assessee-firm. The ownership of the property cannot be assigned to the assessee-firm only on the basis of the accounting entries and entries in the balance-sheet. Matters relating to acquiring right in immovable properties and releasing right in immovable properties, etc. need to be strictly construed in the light of Indian Registration Act and the Transfer of Property Act. In the present case, the registered deed always showed that the property was purchased, held and sold by 'I' as the sole owner of the property. [Para 13] | |
| ■ | Thus, the lower authorities have erred in assessing the long-term capital gains in the hands of the assessee-firm. [Para 14] |
CASE REVIEW
CIT v. Dadha and Co. [1983] 142 ITR 792/14 Taxman 219 (Mad.) and CIT v. S. Rajamani and Thangarajan Industries [2000] 241 ITR 668 (Mad.) (para 13) followed.
CASES REFERRED TO
CIT v. S. Rajamani and Thangarajan Industries [2000] 241 ITR 668 (Mad.) (para 7) and CIT v. Dadha and Co. [1983] 142 ITR 792/14 Taxman 219 (Mad.) (para 7).
V.D. Gopal for the Appellant. T.N. Betgeri for the Respondent.
ORDER
Dr. O.K. Narayanan, Vice-President - This appeal filed by the assessee relates to the assessment year 2006-07. The appeal is directed against the order of the Commissioner of Income-tax (Appeals) at Tiruchirapalli, dated 10-2-2010. The appeal arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961.
2. The assessee is a firm engaged in the business of trading in fertilizers. On 17-6-1999, Mr. Irudayaraj, one of the partners of the assessee firm, had purchased a piece of land. The property was purchased at a cost of Rs. 1,71,030/-. The purchase deed was registered in the name of Mr. Irudayaraj in his personal name. Mr. Irudayaraj had also withdrawn money from the assessee-firm to finance the purchase of the above stated property. In the books of account of the assessee firm the purchase of the land was shown as an asset. As per the accounts of the assessee-firm, it is seen that the property was purchased by the firm. Accordingly, this landed property was reflected in the balance-sheet of the assessee firm. Mr.Irudayaraj sold this property on 17-6-2005 to a third person. The sale document was executed by Mr. Irudayaraj in his personal capacity. Mr. Irudayaraj also purchased another property entitled for claiming deduction under section 54F of the Act in respect of the capital gains arising out of the sale of the property, which was purchased on 17-6-1999.
3. In the above circumstances, the assessee firm did not disclose any capital gains arising in its hands. On the other hand, Mr.Irudayaraj offered the long-term capital gains in his personal assessment alongwith his claim.
4. But, the assessing authority did not accept the position as explained by the assessee-firm. The assessee-firm had explained before the Assessing Officer that the property was in fact purchased and sold by Mr. Irudayaraj in his personal capacity and the firm had nothing to do with those transactions. It was the explanation of the assessee-firm that bringing the landed property into the accounts of the assessee-firm was a mistake made by its accountant. The Assessing Officer held that the funds necessary for purchasing the property were withdrawn by one of the partners of the assessee-firm from the partnership fund and on sale of the property also the funds were brought back to the assessee firm and during all the relevant period, the property was shown in the balance-sheet of the assessee-firm as its own property and in such circumstances it was not possible to hold that the property belonged to Mr. Irudayaraj in his personal capacity. The Assessing Officer held that the property was owned by the assessee firm and accordingly he brought the long-term capital gains to taxation in the hands of the assessee-firm.
5. This matter was taken in first appeal before the Commissioner of Income-tax(Appeals). The Commissioner of Income-tax(Appeals) confirmed the order of the Assessing Officer on this point. The assessee is aggrieved and, therefore, the second appeal before us.
6. The only issue raised in the present appeal is whether the assessee is liable for long-term capital gains taxation on sale of land on 17-6-2005, which was purchased on 17-6-1999.
7. We heard Shri V.D. Gopal, the learned counsel appearing for the assessee. The learned counsel relied on the decision of the Hon'ble Madras High Court rendered in the case of CIT v. S. Rajamani and Thangarajan Industries [2000] 241 ITR 668. He explained that the facts relating to the above case are exactly similar to the facts of the present case and as such the said decision of the Hon'ble Madras High Court is applicable to the assessee's case and accordingly the firm should not have been assessed to long-term capital gains. The learned counsel also relied on the judgment of the Hon'ble Madras High Court rendered in the case of CIT v. Dadha and Co. [1983] 142 ITR 792/14 Taxman 219, to bring home the point that in order to hold and enjoy an immovable property, there must be a registered deed of conveyance. The learned counsel explained that whatever may be the entries made in the books of account maintained in the course of the business, the ownership of the immovable property cannot be assigned to the firm only on the basis of those accounting entries, but, on the other hand, it is mandatory to have a registered document of conveyance transferring the property to the firm. The learned counsel explained that in the present case, even though the property was shown as the asset of the assessee-firm in its balance-sheet, the document was never executed in the name of the assessee-firm. The property always remained in the name of Mr. Irudayaraj, one of the partners of the assessee-firm. The ownership of the immovable property is always reckoned with the registered deed of conveyance and as such in the present case the ownership of the land cannot be assigned to the assessee-firm. The learned counsel therefore submitted that the assessment of long-term capital gains made in the hands of the assessee-firm may be deleted.
8. Shri T.N. Betgeri, the learned Commissioner of Income-tax appearing for the Revenue, on the other hand, contended that the facts of the present case clearly established that the property was purchased by using the funds of the assessee-firm and the sale proceeds of the property was again brought back to the assessee-firm and the property was always shown as one of the assets of the assessee-firm and, therefore, in such circumstances the facts speak for themselves and there is no basis for Mr. Irudayaraj in claiming the property as his individual property. The learned Commissioner of Income-tax explained that the decisions cited by the learned counsel for the assessee are delivered on different set of facts and circumstances and in the present case it is a clear case of purchase and sale of property by the assessee-firm and therefore the Assessing Officer has rightly assessed the long-term capital gains in the hands of the assessee firm.
9. We heard both sides in detail. Regarding the facts of the case, absolutely there is no dispute. The property was purchased in the personal name of Mr. Irudayaraj, who is one of the partners of the assessee-firm. The purchase document was executed in his personal name. No mention is available in the deed of purchase that the property was purchased for and on behalf of the assessee-firm. It is true that the property was shown as the property of the assessee-firm in the books of account and the property was being reflected in the balance-sheet of the assessee-firm. Again, it is true that the property was sold by way of sale deed executed by Shri Irudayaraj in his personal capacity without any mention of the partnership firm. It is also true that the sale proceeds were brought back to the assessee-firm. There is no dispute regarding these basic facts.
10. But the dispute is regarding the conclusion that should come out of the above stated facts. The Hon'ble Madras High Court in the case of Dadha and Co. (supra) has examined a similar question as to whether the entries made in the books of account maintained by a firm would be sufficient to hold that an immovable property is owned by the firm or not. In that case the assessee-firm was a registered firm carrying on business in pharmaceuticals, chemicals, drugs and money-lending. For the assessment year 1971-72, corresponding to the previous year ended on October 30, 1970, the firm filed a return showing an income of Rs. 1,22,180/-. While going through the accounts of the assessee, the Assessing Officer found that the capital account of the partners showed a credit of 1/3rd share of sale proceeds of the house property Nos.161 and 162, Nyniappa Naicken Street, Madras. Those properties were purchased on June 14, 1948 and February 1, 1950 by the firm and the income from the properties were being assessed in the hands of the firm until the assessment year 1964-65. During the accounting year ended November 4, 1964, entries had been made in the books of the firm removing these properties from the partnership assets and showing them as the individual properties of the partners. Thereafter the income from the properties was shown by the partners in their individual returns. This was accepted by the Revenue for some years. The properties were sold to a third party for Rs. 2 lakhs on October 15, 1970. The sale deed was executed by two of the partners of the firm and the legal representative of another deceased partner. The purchase price as well as the interest received from the purchaser were credited to the accounts of the two partners and the legal representative of the deceased partner. On these facts, the Assessing Officer came to the conclusion that though the sale deed was executed by the individuals, it should be treated as a sale on behalf of the firm and if so treated, the capital gains arising out of the transaction as well as the income from the property and the interest on unpaid purchase price were all to be assessed in the hands of the firm. The Assessing Officer also computed the capital gains to be Rs. 1,80,500/- and added the same along with the income of Rs. 9,500/- and the interest of Rs. 4,390/- to the profit under section 41(2) and ultimately determined the total income of the year at Rs. 1,97,260/-.
11. After examining the case, the court held that the properties were originally owned by a firm of three partners. Subsequently, the properties were divided in severalty by means of book entries. Section 17(b) of the Indian Registration Act, 1908 provides that any non-testamentary instrument, which purport or operate to create, declare, assign, limit or extinguish any right, title or interest in the immovable property of the value of Rs. 100/- and upwards shall be registered. Even if the transaction by which the common property becomes the separate property of each of the partners in severalty, it clearly amounts to a release and counter release of their respective interest in the common property. Even on that basis the transfer should be by a release deed. The court held that the book entries made showing the common properties of the partners as the separate properties of each of the partners cannot have any effect without there being any instrument evidencing the said transfer of a common interest into a separate and individual interest. The court held that without a registered deed of conveyance, the immovable properties cannot be transferred from the firm to its partners.
12. The above judgment has been relied upon by the Hon'ble Madras High Court while delivering the judgment in the case of S. Rajamani and Thangarajan Industries (supra). In that case also the Hon'ble Madras High Court held that there cannot be a transfer of immovable property without there being a registered instrument of conveyance.
13. When we examine the present case in the light of the legal principles explained by the Hon'ble Madras High Court in the above mentioned cases, we find that the capital gains cannot be assessed in the hands of the assessee-firm. This is because the purchase document was registered in the name of Shri Irudayaraj, one of the partners of the firm. The document was executed in his personal capacity and in his individual name. There is no recital in the purchase deed that the property was being purchased for and on behalf of the firm. Likewise, the property was sold by a sale deed executed by Shri Irudayaraj individually and in his independent capacity as the owner of the property. There is also no mention that the property belonged to the assessee-firm and the firm was actually selling the property. Even though the books of account of the assessee-firm contained entries regarding the purchase and sale of the property and the balance-sheet of the assessee-firm showed for some time the property as its own asset, such things cannot change the legal character of the transactions. The accounting entries reflected in the books of account of the assessee-firm cannot undo the rule of law or the law of land. In order to bring the property into the ownership of the assessee-firm, it was necessary to have a conveyance deed registered in the name of the assessee-firm. As no such document is available, no such conveyance can be presumed and as such it is not possible to hold that the property was ever owned by the assessee-firm. The consequence is that the firm cannot be implicated in the sale of the property as well. This is because, the property was never owned by the assessee firm. The ownership of the property cannot be assigned to the assessee-firm only on the basis of the accounting entries and entries in the balance-sheet. Matters relating to acquiring right in immovable properties and releasing right in immovable properties, etc. need to be strictly construed in the light of Indian Registration Act and the Transfer of Property Act. In the present case, the registered deed always showed that the property was purchased, held and sold by Shri Irudayaraj as the sole owner of the property.
14. In the facts and circumstances of the case, following the judgments of the Hon'ble Madras High Court referred to above, we hold that the lower authorities have erred in assessing the long-term capital gains in the hands of the assessee-firm. We, therefore, delete the addition of long-term capital gains made by the assessing authority in the income computation of the assessee-firm. The assessee is successful in its appeal.
15. As a consequence, it is Shri Irudayaraj, one of the partners of the assessee-firm, who is bound to account for the long-term capital gains arising from the impugned transaction. Therefore, the Assessing Officer may process the return of income filed by him in accordance with law.
16. In result, this appeal filed by the assessee is allowed.
USP *In favour of assessee.
INCOME TAX-Developer entitled to sec. 80-IB relief for construction of housing project even if on behalf of someone else
IT : Where assessee claimed deduction under section 80-IB(10) on development of a housing project, it was entitled to get deduction though it did not own land
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[2013] 33 taxmann.com 127 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - IV
v.
Shree Ram Construction*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 430 of 2012†
DECEMBER 10, 2012
Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Housing project] - Assessee claimed deduction under section 80-IB(10) on development of a housing project - Assessing Officer disallowed claim of deduction on ground that assessee was not owner of land and it had developed housing project for and on behalf of some other person - Tribunal relying on its own decision rendered in case of Radhe Developers v. ITO [2008] 23 SOT 420 (Ahd. - Trib.) allowed claim of deduction - Whether Tribunal was justified in its view - Held, yes [Para 2] [In favour of assessee]
HELD
| ■ | The decision of the Tribunal in the case of Radhe Developers v. ITO [2008] 23 SOT 420 (Ahd. - Trib.) was challenged by the revenue before the Gujarat High Court. In the judgment in case of CIT v. Radhe Developers [2012] 341 ITR 403/204 Taxman 543/17 taxmann.com 156 (Guj.), the High Court had rejected the revenue's appeals. It is informed that the said decision was challenged before the Supreme Court in the case of ITO v. Shree Gokul Corpn. and SLP came to be dismissed by order dated 27-7-2012. Therefore, the appeal of the revenue was liable to be dismissed. [Paras 2 to 4] |
CASE REVIEW
CIT v. Radhe Developers [2012] 341 ITR 403/204 Taxman 543/17 taxmann.com 156 (Guj.) (para 2) followed.
Radhe Developers v. ITO [2008] 23 SOT 420 (Ahd. - Trib.)approved.
CASES REFERRED TO
Radhe Developers v. ITO [2008] 23 SOT 420 (Ahd.) and CIT v. Radhe Developers [2012] 341 ITR 403/204 Taxman 543/17 taxmann.com 156 (Guj.) (para 2).
Varun K. Patel for the Appellant.
ORDER
Akil Kureshi, J. - Revenue is in appeal against judgement of the Income Tax Appellate Tribunal dated 30.12.2011. Following questions have been presented for our consideration :
| "(i) | Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in law by deleting the disallowance of deduction of Rs.33.99.602/- under section 80IB(10) of the Income Tax Act, 1961? | |
| (ii) | Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal has erred in law in holding that the assessee is entitled to get deduction of Rs. 33,99,602/- under section 80IB(10) of the Income Tax Act, 1961 though the assessee did not own the land and the name of the assessee does not appear in the permission for development granted by local authority? | |
| (iii) | Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in law in deleting the disallowance of expenses of Rs. 33,99,602/- by enlarging/relaxing the section 80IB(10) of the Income Tax Act, 1961 by laying down the concept of "Investment Risk" and "Dominant Control"?" |
2. Having perused the orders on record with the assistance of learned counsel for the Revenue, we notice that the issue pertains to deduction under section 80IB(10) of the Act. The assessee had claimed to have developed housing project and claimed such deduction. Revenue however, held belief that assessee was not the owner of the land and had developed the housing project for and on behalf of some other person. Tribunal relied on its own previous decision in case of Radhe Developers v. ITO [2008] 23 SOT 420 (Ahd.) and ruled in favour of the assessee. Such decision of the Tribunal was challenged by the Revenue before this Court. In the judgement in case of CIT v. Radhe Developers [2012] 341 ITR 403/204 Taxman 543/17 taxmann.com 156 (Guj.), the High Court had rejected the Revenue's appeals making following observations:
"36. We have noted at some length, the relevant terms and conditions of the development agreements between the assessees and the land owners in case of Radhe Developers. We also noted the terms of the agreement of sale entered into between the parties. Such conditions would immediately reveal that the owner of the land had received part of sale consideration. In lieu thereof he had granted development permission to the assessee. He had also parted with the possession of the land. The development of the land was to be done entirely by the assessee by constructing residential units thereon as per the plans approved by the local authority. It was specified that the assessee would bring in technical knowledge and skill required for execution of such project. The assessee had to pay the fees to the Architects and Engineers. Additionally, assessee was also authorized to appoint any other Architect or Engineer, legal adviser and other professionals. He would appoint Sub-contractor or labour contractor for execution of the work. The assessee was authorized to admit the persons willing to join the scheme. The assessee was authorised to receive the contributions and other deposits and also raise demands from the members for dues and execute such demands through legal procedure. In case, for some reason, the member already admitted is deleted, the assessee would have the full right to include new member in place of outgoing member. He had to make necessary financial arrangements for which purpose he could raise funds from the financial institutions, banks etc. The land owners agreed to give necessary signatures, agreements, and even power of attorney to facilitate the work of the developer. In short, the assessee had undertaken the entire task of development, construction and sale of the housing units to be located on the land belonging to the original land owners. It was also agreed between the parties that the assessee would be entitled to use the the full FSI as per the existing rules and regulations. However, in future, rules be amended and additional FSI be available, the assessee would have the full right to use the same also. The sale proceeds of the units allotted by the assessee in favour of the members enrolled would be appropriated towards the land price. Eventually after paying off the land owner and the erstwhile proposed purchasers, the surplus amount would remain with the assessee. Such terms and conditions under which the assessee undertook the development project and took over the possession of the land from the original owner, leaves little doubt in our mind that the assessee had total and complete control over the land in question. The assessee could put the land to use as agreed between the parties. The assessee had full authority and also responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. Most significantly, the risk element was entirely that of the assessee. The land owner agreed to accept only a fixed price for the land in question. The assessee agreed to pay off the land owner first before appropriating any part of the sale consideration of the housing units for his benefit. In short, assessee took the full risk of executing the housing project and thereby making profit or loss as the case may be. The assessee invested its own funds in the cost of construction and engagement of several agencies. Land owner would receive a fix predetermined amount towards the price of land and was thus insulated against any risk."
3.We are informed that such decision of this Court was challenged before the Supreme Court in case of ITO v. Shree Gokul Corporation and SLP came to be dismissed by order dated 27.7.2012.
4. Under the circumstances, this Tax Appeal is also dismissed.
SKJ 2013-TIOL-392-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Special Civil Application No. 17184 of 2012
ADANI PORTS AND SPECIAL ECONOMIC ZONE LTD
Vs
DEPUTY COMMISSIONER OF INCOME TAX
Akil Kureshi And Sonia Gokani, JJ
Dated : May 7, 2013
Appellant Rep. by : Mr B S Soparkar, Adv
Respondent Rep. by : Mrs Mauna M Bhatt, Adv
Respondent Rep. by : Mrs Mauna M Bhatt, Adv
Income Tax - Sections 44AB, 143(3), 147, 148, 151 - Whether in case of issue of notice for reopening assessment u/s 147, after the normal time period of four years, satisfaction of Chief Commissioner or commissioner is a necessary pre-condition - Whether the satisfaction as referred, can be borrowed or dictated from any other, even any superior, authority - Whether in case such approval was not taken, perusal of audit party's recommendations by the commissioner, can be considered as a sufficient compliance under the Act.
Assessee, an Indian company, has challenged a notice dated 21st March 2012 issued u/s 148. For the AY 2005-06, it had filed its ROI declaring "NIL" income, which was accompanied by documents, such as Tax Audit report, etc. After making initial assessment u/s 143(3), AO desired to reopen the same u/s 147 on the basis that during the previous year, assesseecompany had purchased one Ship/Tug valued at Rs. 20,66,76,400/-. On verification of the invoice bill and Customs Bill of entry, it was revealed that bill of entry was presented to Customs authority on 11.11.2004 for clearance of Tug and the relevant customs duty was debited in the DFCLC Lie No. 0810042703 dated 12.10.2004. This clearly indicates thatassessee got custody to Tug in November 2004 and thereafter, it was put to use for business. Thus, the assessee was eligible to get 50% depreciation [12.5%] on Tug which was cleared from Customs authority in November 2004. This has resulted in excess allowance of depreciation of Rs 2,58,34,550/-. Upon receipt of the reasons, the petitioner under a communication dated 8th November 2012, raised detailed objections before the AO, which were dismissed. Hence the assessee had filed the present civil petition.
Before HC, the assessee's counsel had contended that there was no failure on the part of theassessee to declare truly and fully all material facts. The notice for reopening issued beyond the period of four years from the end of the relevant AY was therefore without jurisdiction. The AO was acting under the directions of the audit party. The notice for reopening was issued at the instance of audit party, and therefore also, the same was bad in law. It was also contended that in terms of proviso to subsection (1) of Section 151, the AO had not obtained approval from the CCIT or CIT before issuing the notice, and therefore also, notice was invalid. On the other hand, the revenue's counsel had contended that there was no true and full disclosure on the part of the petitioner with respect to purchase of the Ship/Tug, particularly in context of the petitioner's claim for full depreciation of Rs. 5,16,69,100/- @ 25% of the total value. It was pointed out that from the Invoice bills from the Customs Department, it was revealed that the bill of entry was presented on 11th November 2004 for the clearance of Tug and the relevant customs duty was debited on 12th October 2004, which would indicate that the petitioner got the custody of Tug only in the month of November 2004 and that therefore, full depreciation @ 25% could not have been claimed during the year under consideration. It was further submitted that these facts were not emerging from the return or other documents produced during assessment. The AO having independently examined the issue was convinced that the assessment was required to be reopened. Merely because certain aspects of the matters were brought to his notice by the audit party would not per se mean that he was acting under the directions of the audit party.
Held that,
++ present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to subsection (1) of Section 151 would apply. In such a case, irrespective of the level of AO issuing notice for reopening, a precondition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice must be satisfied. This additional safeguard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the AO, and such satisfaction should be that it is a fit case for issuance of the notice. Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement;
++ we are afraid, such a contention cannot be accepted. Subsection (1) of Section 151 is an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. Proviso to subsection (1) of Section 151 is applicable, where such notice is issued after expiry of four years from the end of relevant assessment year. In such a case, the requirement of satisfaction to be recorded is that of the Chief Commissioner or Commissioner. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice u/s 148. Delhi HC in case of CIT v. SPL's Siddhartha Limited (2011-TIOL-810-HC-DEL-IT) held that if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now well settled. In Sheo NarainJaiswal v. Income-tax Officer [1989] 176 ITR 352 (Patna), it was held that where the AO does not himself exercise his jurisdiction u/s 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non satisfaction of the condition precedent. Under the circumstances, only on this ground, impugned notice dated 21st March 2012 is quashed. We express no opinion on the other two contentions of the petitioner.
Assessee's petition allowed
Cases followed:
CIT v. SPL's Siddhartha Limited ( 2011-TIOL-810-HC-DEL-IT )
Sheo Narain Jaiswal v. ITO [1989] 176 ITR 352 (Patna)
JUDGEMENT
Per : Akil Kureshi, J :
Heard learned counsel for the parties for final disposal of the petition.
Petitioner has challenged a notice dated 21st March 2012 [Annexure "A" to the petition] issued by the respondent Assessing Officer under Section 148 of the Income-tax Act, 1961 ["Act" for short]. The petition arises in the following background.
The petitioner is a company registered under the Companies Act, 1956. For the Assessment Year 2005-06, the petitioner had filed its return of income on 30th October 2005 declaring its total income at "NIL". Such return was accompanied by documents, such as Tax Audit report under section 44AB of the Act, etc.
Such return was taken by the Assessing Officer in scrutiny. He framed scrutiny assessment under section 143 (3) of the Act on 2nd April 2007. It is this scrutiny assessment which the respondent desires to reopen beyond the period of four years from the end of relevant assessment year.
At the request of the petition, respondent supplied the reasons recorded by him for issuing such a notice. Such reasons read as under :-"It is also noticed that during the previous year the assessee company has purchased one Ship/Tug called "MV Dolphin" valued at Rs. 20,66,76,400/= and Rs. 5,16,69,100/= [@ 25% on Rs. 206676400/=]. On verification of the invoice bill and Customs Bill of entry no. 468 dated 11.11.2004. It has revealed that bill of entry was presented to Customs authority on 11.11.2004 for clearance of Tug and the relevant customs duty was debited in the DFCLC Lie No. 0810042703 dated 12.10.2004. This clearly indicates that th assessee company got custody to Tug in November 2004 and thereafter, it was put to use for business. Thus, the assessee was eligible to get 50% depreciation [12.5%] on Tug which was cleared from Customs authority in November 2004. This has resulted in excess allowance of depreciation of Rs. 25834550/= [50% of 51669100/=]."
Upon receipt of the reasons, the petitioner under a communication dated 8th November 2012, raised detailed objections before the Assessing Officer. Such objections were, however, dismissed by an order dated 19th November 2012. Hence, this petition.
Learned counsel for the petitioner raised following contentions :
[i] that there was no failure on the part of the assessee to declare truly and fully all material facts. The notice for reopening issued beyond the period of four years from the end of the relevant assessment year was therefore without jurisdiction.[ii] The Assessing Officer was acting under the directions of the audit party. The notice for reopening was issued at the instance of audit party, and therefore also, the same was bad in law;[iii] He lastly contended that in terms of proviso to subsection (1) of Section 151 of the Act, the Assessing Officer had not obtained approval from the Chief Commissioner or Commissioner before issuing the notice, and therefore also, notice was invalid.
On the other hand, learned counsel Ms. Mauna Bhatt appearing for the Department opposed the petition and raised the following contentions :
[i] There was no true and full disclosure on the part of the petitioner with respect to purchase of the Ship/Tug called "M.V Dolphin" particularly in context of the petitioner's claim for full depreciation of Rs. 5,16,69,100/= @ 25% of the total value.[ii] She pointed out that from the Invoice bills from the Customs Department, it was revealed that the bill of entry was presented on 11th November 2004 for the clearance of Tug and the relevant customs duty was debited on 12th October 2004, which would indicate that the petitioner got the custody of Tug only in the month of November 2004 and that therefore, full depreciation @ 25% could not have been claimed during the year under consideration. She submitted that these facts were not emerging from the return or other documents produced during the course of assessment. The Assessing Officer having independently examined the issue was convinced that the assessment was required to be reopened. Merely because certain aspects of the matters were brought to his notice by the audit party would not per se mean that he was acting under the directions of the audit party.[iii] The suggestions of the audit party with respect to the remedial measures that could be taken, was perused and approved by the Commissioner. It was thereupon that the Assessing Officer, after recording his reasons, issued a notice for reopening. She, therefore, submitted that the foundational grounds for issuing the notice for reopening being common, the action of the Commissioner in approving the proposal for reopening the assessment should be seen as substantial compliance of the requirement of Section 151 [1] of the Act.
In the present case, we are inclined to decide only the question of necessary approval to be obtained for issuance of notice. Section 151 [1] of the Act pertains to sanction for issuance of notice and reads as under :-
"151. Sanction for issue of notice - (1) In a case where an assessment under subsection (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice :Provided that after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.(2) In a case other than a case falling under subsection (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, under the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
Sub-section (1) of Section 151; as can be seen, requires that in a case where the assessment under section 143 (3) or section 147 has been made for a particular assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issuance of such notice. Proviso to subsection (1) requires that no such notice, after the expiry of period of four years from the end of relevant assessment year, shall be issued unless the Chief Commissioner or the Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.
The present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to subsection (1) of Section 151 would apply. In such a case, irrespective of the level of Assessing Officer issuing notice for reopening, a precondition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice must be satisfied. This additional safeguard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the Assessing Officer, and such satisfaction should be that it is a fit case for issuance of the notice.
Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement.
We are afraid, such a contention cannot be accepted. Subsection (1) of Section 151 of the Act is an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. Proviso to subsection (1) of Section 151 is applicable, where such notice is issued after expiry of four years from the end of relevant assessment year. In such a case, the requirement of satisfaction to be recorded is that of the Chief Commissioner or Commissioner. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice under section 148 of the Act. Delhi High Court in case of Commissioner of Income-tax v. SPL's Siddhartha Limited, reported in [2012] 345 ITR 223 (Delhi) = (2011-TIOL-810-HC-DEL-IT)held and observed as under : -
"Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now wellsettled. In Sheo Narain Jaiswal v. Income-tax Officer [1989] 176 ITR 352 (Patna), it was held :"Where the Assessing Officer does not himself exercise his jurisdiction under section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for nonsatisfaction of the condition precedent."
Under the circumstances, only on this ground, impugned notice dated 21st March 2012 is quashed. We express no opinion on the other two contentions of the petitioner.
Petition stands disposed of accordingly.
2013-TIOL-349-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Tax Appeal No.607 of 2012
COMMISSIONER OF INCOME TAX-III
Vs
SATHYANARAYAN P RATHI
Akil Kureshi and Sonia Gokani, JJ.
Dated: January 28, 2013
Appellant Rep by: Mr K M Parikh, Adv.
Respondent Rep by:
Respondent Rep by:
Income Tax - bogus trade - profit element - reasonable estimation - Whether in case of bogus purchases made by an assessee, entire purchase consideration can be added as an undisclosed income - Whether only the profit element from such purchase made through undisclosed sources can be added to the income of an assessee.
Assessee, an individual is in the business of trading in iron and steel. During assessment for AY 2003-2004, it was found that the purchases worth Rs. 61.40 lacs were not supported by sufficient evidence. The assessee's claim of having purchased such goods from various suppliers was verified, but was not found genuine. It was found that such parties had never supplied the goods as named by the assessee. On such basis, the AO had made addition of entire amount of purchase of Rs.61.40Lacs. On appeal, CIT(A) had partly allowed the appeal and found that though the purchases were not made from the parties from whom the assessee claimed, there was complete quantitative tally of material purchased and sold. Thus, CIT(A) was of the view that such materials were purchased from the open market incurring cash payment and bills were procured from various sources. Resultantly, CIT(A) added only profit element and not the entire amount of the said purchase, for the limited addition to 30% of the total amount and reduced the same to Rs.18.42 Lacs. On further appeal, Tribunal gave further relief to the assessee and refused addition to the level of 12½ % in pursuance of the various purchases. Revenue' appeal before Tribunal, was dismissed.
Held that,
++ we are of the opinion that the revenue ought to have preferred two appeals if the revenue was aggrieved by the Tribunal's verdict of not only rejecting its appeal but of allowing assessee. However, when we are not inclined to interfere with the Tribunal's order on merits, we do not insist on the revenue's filing a separate appeal. From the record, we noticed that the CIT(A) as well as the Tribunal found that the purchase of raw-material, in which the assessee was trading, were only made, but not from the disclosed sources. In other words, the case against the assessee was that the purchases were made in the grey market through cash payment and some entries were obtained from certain suppliers who had not sold such goods;
++ the present case, thus, being one of only purchase but not from disclosed sources, it would be only profit element embodied in such purchase which could be added in the income of the assessee and thus, rightly so done by the CIT(A) and the Tribunal. If this be our conclusion, only question arises whether such profit element should be estimated at the rate of 30% or 12½%. Whenever such a question arises, some reasonable estimation is always permissible. Hardly any question of law on such aspect would arise. Merely, it is pointed out that the assessee was a trader and that the Tribunal retained 12½% of the purchase towards its possible profit, we do not find any reason to entertain the appeal. In the result, Tax Appeal is dismissed.
Revenue's appeal dismissed
JUDGEMENT
Per: Akil Kureshi:
1. Revenue is in appeal against the judgment and order of the Tribunal dated 10.02.2012. Following question has been raised for our consideration:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in restricting the disallowance to the extent of 12.5% of the addition on account of bogus purchase, without appreciating the factual aspect and by ignoring the manifest evidence relied upon by the Assessing Officer and overlooking the ratio laid down by the Hon'ble High Court in the case of Pawanraj B. Bokadia in Tax Appeal No.3245 of 2009 dated 29/09/2011"
2. Issue pertains to bogus trade made by the respondent-assessee. Assessee is in the business of trading in iron and steel. For the Assessment Year 2003-2004, during the reassessment proceedings, it was found that the purchases worth Rs. 61.40Lacs (rounded off) were not supported by sufficient evidence. The assessee's claim of having purchased such goods from various suppliers was verified, but was not found genuine. It was found that such parties had never supplied the goods as named by the assessee. On such basis, the Assessing Officer made addition of entire amount of purchase of Rs.61.40Lacs (rounded off). The assessee carried the matter in appeal and CIT(Appeals) partly allowed the appeal. It was found that though the purchases were not made from the parties from whom the assessee claimed, there was complete quantitative tally of material purchased and sold. In that view of the matter, CIT(Appeals) was of the view that such materials were purchased from the open market incurring cash payment and bills were procured from various sources. Resultantly, Commissioner(Appeals) added only profit element and not the entire amount of the said purchase, for the limited addition to 30% of the total amount and reduced the same to Rs.18.42Lacs (rounded off).
3. Assessee carried the issue in further appeal before the Tribunal. The revenue also preferred appeal against the order of Commissioner(Appeals). Both these appeals came to be decided by the Tribunal by the impugned judgment. The Tribunal gave further relief to the assessee and refused addition to the level of 12½ % in pursuance of the various purchases. Revenue' appeal was dismissed.
4. We are of the opinion that the revenue ought to have preferred two appeals if the revenue was aggrieved by the Tribunal's verdict of not only rejecting its appeal but of allowing assessee. However, when we are not inclined to interfere with the Tribunal's order on merits, we do not insist on the revenue's filing a separate appeal.
5. From the record, we noticed that the Commissioner (Appeals) as well as the Tribunal found that the purchase of raw-material, in which the assessee was trading, were only made, but not from the disclosed sources. In other words, the case against the assessee was that the purchases were made in the grey market through cash payment and some entries were obtained from certain suppliers who had not sold such goods.
6. The present case, thus, being one of only purchase but not from disclosed sources, it would be only profit element embodied in such purchase which could be added in the income of the assessee and thus, rightly so done by the Commissioner(Appeals) and the Tribunal.
7. If this be our conclusion, only question arises whether such profit element should be estimated at the rate of 30% or 12½%. Whenever such a question arises, some reasonable estimation is always permissible. Hardly any question of law on such aspect would arise. Merely, it is pointed out that the assessee was a trader and that the Tribunal retained 12½% of the purchase towards its possible profit, we do not find any reason to entertain the appeal. In the result, Tax Appeal is dismissed.
--
Regards,
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
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