[aaykarbhavan] Fw: [Gzb_CA Group -CA. VINAY MITTAL] Cuttack Bench ITAT in case of Invalid reopening on basis of Vague Tax Evasion Petition (TEP) No concealment penalty for reopening return accepted income; Trade Margin No TDS u/s 194H; Section 54F Capital Gains Exemption commercial property not includible in ONE house property; Charitable trust in publication of books not BUSINESS! Director Commission TDS secion 192 more near & non TDS no disallowance u/s 40(a)(ia)

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From: Kapil Goel <advocatekapilgoel@gmail.com>
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Sent: Tuesday, 18 June 2013 3:44 AM
Subject: [Gzb_CA Group -CA. VINAY MITTAL] Cuttack Bench ITAT in case of Invalid reopening on basis of Vague Tax Evasion Petition (TEP) No concealment penalty for reopening return accepted income; Trade Margin No TDS u/s 194H; Section 54F Capital Gains Exemption commercial property not includible in ONE house property; Charitable trust in publication of books not BUSINESS! Director Commission TDS secion 192 more near & non TDS no disallowance u/s 40(a)(ia)

 

 

Included in this update:

 

a)      Cuttack bench ITAT on INVALID reopening on basis of VAGUE Tax Evasion Petition;

b)      Cuttack bench ITAT on NO concealment penalty in accepted reassessment as per 148/Reopening notice

c)      Cuttack bench ITAT on Trade Margin vs Commission u/s 194H for TDS

d)      Chennai bench ITAT on Capital Gains exemption u/s 54F (for considering one residential house commercial property to be excluded)

e)      Chennai bench ITAT on valid charitable trust (To publish books to emulate high values of spiritual life / vedhatriam : No business)

f)        Kol bench ITAT on Non TDS on commission to director FALLS u/s 192 which do not call for disallowance u/s 40(a)(ia)

 

 

 

IN THE INCOME TAX APPELLATE TRIBUNAL: CUTTACK BENCH: CUTTTACK ITA Nos. 227 to 229/CTK/2013 & ITA Nos. 292 to 294/CTK/2013 Sajal Kr. Roy &  ITA Nos. 230-232/CTK/2012 Ila Roy AYs 2006-07 to & 2008-09 Date of pronouncement: 10th June, 2013

 

We have heard the rival submissions. For a better understanding of the issue at hand, the reasons as recorded by the AO on 29.03.2010 are extracted herein below:

"In pursuance to a Tax Evasion Petition in this case, necessary enquiries

have been conducted and it is found that the assessee along with her spouse, as statedin her petition, constructed a colossal building at Kumarmunda, Rourkela with large amount of investment the rental income per month from which is Rs.80,000/-.

Although the "A" with an intention to explain away the source of huge

investment in the impugned building claims joint ownership with her spouse, but it is

clear from the Form No. 165 issued by Adhunik Metalliks Ltd. the tenant, it is cledar

that the 'A' is the sole owner of this building. On verification it came out that the 'A' has never disclosed the rental income derived from Adhunik Metalliks Ltd. nor claimed credit for the TDS affected amounting to Rs.1,08,768/-. Not only that, the 'A' has never disclosed her income by way of salary earned by her in the capacity of Principal, City English Medium School. In view of the above, I have reason to believe that income chargeable to tax amounting to Rs.24,00,000/- (Rs. 12 lac rental income + Rs.12 lac salary income) has escaped assessment.

Hence, issue notice u/s. 148."

 

A perusal of the reasons shows that three issues have been raised for the purpose of reopening. The first issue admittedly, is the cost of construction of the building at Rourkela, the second issue is the rental income of the property and the third issue is salary earned by her in her capacity as Principal, City English Medium School, which is said to have never been disclosed. Admittedly, the AO says he has conducted necessary enquiries. What is the necessary enquiries is not coming out of the records. The AO does not refer to having sent the said property for valuation to the

DVO nor is there any discussion why he feels that the value as disclosed by the assessee along with her spouse is not adequate. In respect of the second issue, the AO says that on verification, it is noticed that the assessee has never disclosed the rental income but in the assessment order there is no addition made on the said count over and above what has been disclosed by the assessee. In short, the AO for AY 2008-09 had accepted the income from house property as disclosed by the assessee.

In regard to the next issue being the salary earned by her in the capacity of Principal, the AO says that the assessee has never disclosed her income, which, however, is again erroneous as the AO himself accepts that in the original returns filed the assessee has disclosed income from salary and income from other sources. Thus, evidently, the reasons recorded are not on the basis of any evidence or material which has come to the knowledge of the AO. The reasons have been recorded purely on presumptions and assumptions, which is not proper. In the circumstances, we are of

the view that the reasons recorded for the purpose of reopening the assessments in the case of the assessee are without legal backing and is not supported by any evidence or material on record and consequently, the same are liable to be quashed and we do so. Consequently, the consequential notice issued u/s. 148 of the Act and the

assessments done as a consequence of the said notice u/s. 148 of the Act also stand quashed. As we have quashed the assessments on account of the quashing of the reopening of the assessments and the issuance of notice u/s. 148, we are not going into the merits of the additions challenged in the appeals. In the result, appeals of the assessee are partly allowed.

 

 

 

IN THE INCOME TAX APPELLATE TRIBUNAL: CUTTACK BENCH: CUTTTACK  ITA No. 07&08/CTK/2013 & CONo.9&10/CTK/2013

& ITA Nos. 339 to 342/CTK/2013 Orissa State Police

Housing & Welfare Corpn. Ltd. AYs 2004-05 & 2005-06 Date of pronouncement: 10th June, 2013

 Admittedly, by the time the assessee had received the report of the CAG, the statutory time for filing the revised return for both the assessment years had expired. Further, a perusal of the assessment order clearly shows that the income returned by the assessee in its return in response

to the notice u/s. 148 of the Act has also been accepted by the AO without any tinkering thereto. In the circumstances, it cannot be said that the assessee has concealed any particulars of its income or has furnished any inaccurate particulars of income. Further, a perusal of the penalty order passed u/s. 271(1)(c) of the Act clearly shows that the assessee has given a detailed explanation for the variation in its income insofar as the original return had been filed on the basis of the provisional accounts and the return in response to notice u/s. 148 of the Act was filed on the basis of the CAG audited accounts. This submission of the assessee has

also not been shown to be false or impossible explanation. The fact that the AO has accepted the returned income as per the return filed in response to the notice u/s. 148 of the Act further fortifies the explanation given by the assessee and even on this ground the penalty u/s. 271(1)(c) of the Act cancelled by the Ld. CIT(A) is on a

right footing and does not call for any interference.

 

IN THE INCOME TAX APPELLATE TRIBUNAL: CUTTACK BENCH: CUTTTACK ITA Nos. 295 to 298/CTK/2013 Neelachal

Ispat Nigam Ltd. AY: 2006-07 – 2009-10 Date of pronouncement: 10th June, 2013 Under these circumstances, as we are of the view

that the transactions between the assessee and MMTC is one of the purchase and sale. We are of the view that the 3% guaranteed profits more so called as the trade margin by MMTC is not in the nature of commission but the profit margin of MMTC which is not liable for deduction of TDS u/s. 194H of the Act. Under these circumstances, we are of the view that the assessee being not liable for deduction of TDS u/s. 194H of the Act on the trade margin of 3% debited by MMTC on the sales

made in respect of the goods manufactured by the assessee. We are of the view that the assessee cannot be held to be an assessee in default for the purpose of levying u/s. 201(1) and consequently interest u/s 201(1A) of the Act.

 

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "B", KOLKATA Assessment Year : 2006-07 ITA No.1691/Kol/2011 5_(__ _0 ___4_/Date of Pronouncement : 11.06.2013.

 

The brief facts of the case are that according to the AO there was remuneration/commission paid/payable to director amounting to Rs.11,94,000/- on which no tax was deducted at source. He disallowed the said amount u/s 40(a)(ia) of the Act. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. The undisputed facts of the case are that the AO disallowed deduction for remuneration/commission paid/payable to director amounting to Rs.11,94,000/- by invoking the provision of section 40(a)(ia) of the Act as the assesse had not deducted tax at source from such payments. On appeal the ld. CIT(A) deleted the disallowance and in doing so he observed as under :-"5. I have considered the facts of the case. The assessing officer has invoked provisions of sec.40(a)(ia) on the premise that commission to director (wrongly mentioned as partner by the A.O.) is in nature of commission or brokerage mentioned the Sec.194H. However commission paid to director is nothing but part of salary/remuneration. It is a common practice that companies, in additions to fixed salary, also pay a variable component termed incentive/commission etc. to the directors. In fact clause (iv) of Sec.17(1) clearly provides that salary includes commission paid in addition to salary or business. Commission paid in director in pursuance of the terms of employment is nothing but part of salary. Therefore this does not fall under the purview of sec.194H or 194J as held by the jurisdictional bench of tribunal in the case of Jahangir Biri Factory (P) Ltd vs D.C.I.T. 126 TTJ (Kol) 567. It is true that tax is deductible on such commission at the rate prescribed u/s 192, since such commission is nothing but part of salary and the appellant has failed to deduct such tax. However, this sec.40(a)(ia) does not cover tax deductible u/s 192 in its preview. Therefore I held that disallowance made u/s 40(a)(ia) in respect of commission paid to director is not sustainable. The same is accordingly deleted."

 

6.1. We find that the ld. CIT(A) has deleted the disallowance for

remuneration/commission paid to the director of Rs.11,94,000/-, which was

disallowed by the AO u/s 40(a)(ia) of the Act on the ground that no tax was deducted at source from such payments, by following the decision of the Kolkata Bench of the Tribunal in the case of Jahangir Biri Factory (P) Ltd. vs DCIT (supra). The ld. DR could not bring any material on record to show that the decision of the Kolkata Bench of the Tribunal relied upon by the ld. CIT(A) while deleting the disallowance of remuneration/commission payment to the director was varied in appeal by any higher forum. No distinguishable facts could also be pointed out by the ld. DR. Therefore we do not find any infirmity in the order of the ld. CIT(A) which is confirmed and the grounds of appeal of the Revenue are dismissed.

 

IN THE INCOME TAX APPELLATE TRIBUNAL

"B" BENCH, CHENNAI  Date of Pronouncement : 28.05.2013 I.T.A. No. 638/Mds/2013 We have perused the order of CIT and heard the rival

submissions. Objects of the assessee were as under:-

(1) The Trust was started with file 'AIMS' of educating the

Students by establishing Schools, Colleges etc.,

(2) To help poor destitutes / differently abled persons.

(3) To improve moral values of all human beings by Teaching them

Dhyana & Vedhatriam.

(4) To promote WORLD PEACE in consonance with the help from

State / Central Governments.

(5) To provide Medical Aids to poor and needy.

(6) To publish books to emulate high values of spiritual life /

vedhatriam.

(7) To provide Wedding Aids to poor and needy people. (8) To uplift the standards of life of Rural / Village people, provide

all helps, under PUBLIC WELFARE WORKS Schemes.

(9) To conduct Seminars / Meetings on National Integrity, join

hands with like minded organizations promote music, dance,

drama and Research institutions and to provide all possible

helps during Natural disasters Accidents, Poor living and

provide medical assistances.

(10) To augment funds to execute aims of the trust, collect

Donations / raise Corpus Funds, borrow monies from Banks/

individuals.

(11) In the field of agriculture with approvals from Government

raise loans / get grants from Government. What can be seen is that publishing of books comes under clause

(vi). Such publication of books was to emulate high values of

vedhatriam. There is nothing to show that publication of books was

being done as business. Just because the trustees are husband,

wife and daughter, a trust cannot be treated as a private trust. When

the beneficiaries are general public, the trust is a public trust.

Trustees were holding the trust property for benefit of beneficiaries.

Relationship inter se between trustees cannot be a reason for

denying registration under Section 12AA of the Act. In our opinion,

the CIT fell in error in denying such registration. The order of CIT is

quashed and he is directed to grant registration under Section 12AA

 REFER:

23rd January, 2012. IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH "A", PUNEBharati Vidyapeeth ITA No. 916 /PN/2010 (Asstt. Year: 1999-2000) In the present case, the first reason that no schedules to the balance sheet was submitted with income and expenditure account and the balance sheet filed with the return, in our view, is not sufficient to come to a conclusion or form a reasonable belief that there was escapement of assessment of income. In our view, at the most, it was a subject for making enquiries. Thus it can not be a basis for reopening of the assessment.  The A.O noted that the assessee has earned rent of Rs.9,78,10,785/-. He observed that the object of the assessee is to run the Educational Institutions and

not to give properties on rent. Therefore, the rental income is to be taxed as

income from house property/business income separately Considering the above submission, we find substance therein in the contention of the Ld. A.R. as there is no prohibition in Section 11 that a Charitable Trust cannot give its properties on rent. For example, if a Charitable Trust has rental income from a number of properties and such rental income is spent on charitable activity, this income would be exempt u/s. 11 of the Act. We thus concor with the contentions of the Ld. A.R. that A.O was not justified in holding a reason that there is an  escapement of income because its rental income was high. We are also of the view that the A.O was not justified in holding that the rental income is to be assessed as income from house property/business income in the hands of the assessee since in our view, in the case of a Charitable Trust u/s. 11, it is an

established proposition of law that income is to be computed as per the  commercial principles and not under the various heads of income prescribed in the Act. In this regard, we find support from the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Institute of Banking Personnel Selection (Supra) relied upon by the Ld. A.R. holding that income of the Trust is required to be computed u/s. 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. Besides, such rental income has already been shown by the assessee in its income and expenditure account and hence, it is not a case of escapement of income. We thus find that the reason(b) shown by the A.O for escapement of assessment of income was not having live link with formation of belief that rental income has escaped assessment. The next reason shown by the A.O is that the assessee is earning income from sale of books and printing press. The contention of the Ld A.R. on this reason remained that assessee is having students in lakhs. Thus, it has to make arrangements for providing books, exercise books, examination papers and syllabus, study material etc., to the students. It is for that purpose the assessee is having a press and is also having income from sale of books. Thus, this activity is incidental to the object of the Trust. We thus find no substance in this reason (c ) as well to form a reason to belief that there was escapement of assessment of income earned from sale of books and printing press to justify the re-opening in this regard by the A.O. students. The contention of the Ld. A.R  that the business was carried on in the course of the actual carrying out of the primary purpose of the Trust i.e. imparting of education, as , in the last number of years, the A.O has been granting exemption on such income, has not been rebutted by the revenue before the Tribunal. Besides, the income in question has been included by the assessee in the income and expenditure account and such income is also exempt u/s. 11 of the Act.

 

Under these circumstances, when the Department has been accepting a similar donation in past and future years, the reopening of the assessment on the basis that the said donation remained to be taxed for the A.Y. under consideration i.e. under 1999-2000 is nothing but mere change of opinion, which is not allowed as a basis for initiating re-opening proceedings. In this regard, we find strength from the decisions of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (Supra) and from the decision of Hon'ble jurisdictional Bombay High Court in the case of Vijaykumar M. Hirakhanwala (HUF) Vs. ITO (Supra). To examine the validity of the existence of reason it is to be seen that the reason must be of an honest and prudent person based upon reasonable grounds and should not be based upon mere suspicion, gossip or rumour. In our view sufficiency of reasons follows validity of existence of the reasons. So far as sufficiency of reasons is concerned, we fully agree with the contention of Ld. D.R. that we are not supposed to examine the same as even a prima facie believe as of a prudent person under the circumstances of a case regarding escapement of assessable income is sufficient to initiate reopening proceedings.

 

Under these circumstances, we concur with the contention of the Ld. A.R that there was no reasons to believe on the part of the A.O during the year that some taxable income has escaped assessment, as discussed above. We thus hold that the A.O was not justified in invoking the provisions of Section 147 of the Act to initiate re-opening proceedings in the present case. In consequence, the initiation of re-opening proceedings is not valid and assessment made u/s. 147 read with Section 143(3) of the Act in furtherance thereto is also not valid. It is ordered accordingly. We would like to mention over here that principle of Res judicata is not applicable in the cases of Income Tax Act but consistency in approach on a similar issue under similar facts is required to be maintained by the revenue.

 

IN THE INCOME TAX APPELLATE TRIBUNAL

'C' BENCH, CHENNAI ITA No.232/Mds/2013

(Assessment Year : 2009-10) Mr. I.Ifthiqar Ashiq Date of Pronouncement : 11th June, 2013 During the course of

assessment, the assessee disclosed that apart from property

purchased at Kodaikanal for ` 1,14,88,000/- , the assessee

owns residential house at Sidharth Heights and commercial

property at Raahat Plaza, Chennai. The assessee had

purchased property at Kodaikanal from the sale proceeds

received from sale of land measuring 16.96 cents at Kazura

Garden, 1st Main Road, Nilankarai. The Assessing Officer

rejected the claim of the assessee under section 54F, on the

ground that the assessee is owner of two properties one

residential house property at Sidharth Heights and another

commercial property at Raahat Plaza. learned counsel for the assessee has placed

before us copies of rent agreements between the assessee

and his various tenants in respect of property owned by him

at Raahat Plaza, NSK Salai (Arcot Road) Vadapalani,

Chennai. The counsel has also placed on record bills raised

by the Chennai Metropolitan Water Supply and Sewerage Board, wherein it has been mentioned that the charges levied

are non-domestic. The documents placed on record clearly

shows that the property is being used for commercial purpose

only.

9. From the documents on record and facts of the case,

we are of the considered opinion that the property situated

at Raahat Plaza, Arcot Road, Chennai is a commercial

property. The impugned order passed by the Commissioner

of Income Tax (Appeals) is set aside and the deduction

claimed by the assessee under section 54F of the Act on

account of investment in new residential house at Kodaikanal is allowed.

10. In the result, the appeal of the assessee is allowed

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