IT : Where additional ground of grievance against Assessing Officer's order was not raised before Commissioner (Appeals) raising of same before Tribunal was not sustainable
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[2013] 34 taxmann.com 220 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Farrukhabad Investment India Ltd.
v.
Assistant Commissioner of Income-tax, 2(1), Farrukhabad*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 207 (AGRA) OF 2005
[ASSESSMENT YEAR 1997-98]
[ASSESSMENT YEAR 1997-98]
SEPTEMBER 7, 2012
Section 254, read with section 246A, of the Income-tax Act, 1961 - Appellate Tribunal - Powers of [Power to admit additional ground] - Assessment year 1997-98 - Assessee filed a miscellaneous application for admission of additional ground before Tribunal against Assessing Officer's order which was not raised before Commissioner (Appeals) - However, Tribunal passed its final order, neither admitting application of assessee nor dismissing it - Assessee again filed appeal before Tribunal for admission of additional ground - Whether, where additional ground of grievance against Assessing Officer's order was not raised before Commissioner (Appeals) and cross-appeals before Tribunal were dismissed in final order, raising of additional ground before Tribunal was not sustainable -Held, yes [Para 4] [In favour of revenue]
FACTS
| ■ | The Assessing Officer passed an ex parte assessment order by making certain additions. Thereafter, considering the totality of the facts, he passed a rectification order in which he did not allow carry forward of loss computed by the assessee and determined the income at NIL. | |
| ■ | On first appeal, the Commissioner (Appeals) partly allowed the assessee's appeal by deleting certain additions. | |
| ■ | On cross-appeals before the Tribunal, the assessee also filed a miscellaneous application for admission of an additional ground regarding disallowance of carry forward of loss in rectification order by Assessing Officer resulting into NIL income. | |
| ■ | However, the Tribunal dismissed both the appeals of revenue and assessee by an order dated 29-8-2008. | |
| ■ | The assessee further filed an appeal before the Tribunal on ground that the miscellaneous application moved for admission of additional ground was neither admitted nor dismissed by the Tribunal in its final order. Therefore, it was a mistake on record. | |
| ■ | The revenue contended that when final order had been passed by Tribunal, it would amount to disposal of additional ground. | |
| ■ | However, the appeal of the assessee was allowed for hearing for limited purpose of disposal of application filed by the assessee for admission of additional ground. |
HELD
| ■ | It is not in dispute that the appeal of the assessee has been dismissed by the Tribunal vide order dated 29-8-2008. The additional ground so raised clearly spell out that the assessee has shown grievance in the additional ground against the assessment order passed by the Assessing Officer in disallowing the loss and estimating the income at nil. The assessee had not shown any grievance against the impugned order of the Commissioner (Appeals). Section 246A provides, the appeals would be maintainable before the Commissioner (Appeals) when the assessee was aggrieved against the order passed by the Assessing Officer. | |
| ■ | Therefore, if the assessee was having any grievance against the order of the Assessing Officer, he should have preferred appeal before the Commissioner (Appeals) under section 246A. No direct appeal against the assessment order is provided under the Act before the Tribunal. According to section 253, if the assessee is aggrieved against the order of the Commissioner (Appeals), he should have preferred the appeals before the ITAT. Thus, no direct appeal is provided under the scheme of the IT Act from the assessment order to the Appellate Tribunal. In the additional ground of appeal so raised, the assessee has not shown any grievance against the order of the Commissioner (Appeals). No reasons have been explained why the above additional ground showing grievance against the order of the Assessing Officer was not raised before the Commissioner (Appeals). It is, therefore, clear that the above additional ground is not arising out of the impugned order passed by the Commissioner (Appeals). Since, it is admitted fact that the appeal of the assessee and the Revenue have reached finality on dismissal of respective appeals by the Tribunal, therefore, such additional ground could not be raised at this stage, otherwise it would amount to interfere with the order of the Tribunal dated 29-8-2008. | |
| ■ | It is well settled law that all interim applications shall have to be decided before passing of the final order. In the aforesaid case, both the cross-appeals have already been decided finally, therefore, no interim application raising additional ground could be entertained at this stage. The Tribunal had become functus officio after passing the final order in this case on 29-8-2008 and as such has no jurisdiction to entertain application for admission of additional ground after disposal of the main appeal. Even with regard to the estimation of income at Nil by the Assessing Officer, the Assessing Officer had referred to the order passed under section 154 for taking such a view against the assessee. | |
| ■ | Therefore, it is a different order which had to be taken care of before taking any step in the matter. Therefore, it is a factual matter to be considered on merits only after deliberations and further probing into the matter, which is not permissible at this stage. | |
| ■ | Further, for seeking relief in computation of income, the assessee could have availed to remedies under section 154 but it appears that the assessee did not take any step deliberately before the Assessing Officer as per section 154. It may also be noted here that the Tribunal had not admitted the additional ground of appeal above, before finally deciding the appeals. | |
| ■ | Therefore, the request of the assessee could not be considered legally at this stage. Considering the above discussion in the light of the fact that the appeal of the assessee has already been dismissed on merits, it is not inclined to admit the additional ground of appeal so raised above. In the result, the application for admission of additional ground is dismissed. [Para 4] |
Anurag Sinha for the Appellant. Waseem Arshad for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - This appeal by the assessee is directed against the order of ld. CIT(A)-II, Agra dated 29.03.2005 for the assessment year 2007-08.
2. Before proceeding further, it would be relevant to mention that the present appeal has been re-fixed by the office as per directions issued in M.A. No. 109/Agra/2008 dated 30.11.2010 for limited purpose of disposal of application of the assessee filed for admission of additional ground. The background of this case had been that the AO passed exparte assessment order u/s. 144/147 of the IT Act dated 17.02.2004. The AO made the following additions:
| (i) Interest disallowed | Rs. 1,18,21,350/- |
| (ii) Commission disallowed | Rs. 38,14,947/- |
| (iii) Investment in hotel building | Rs. 1,74,04,718/- |
The AO thereafter noted that considering the totality of the facts, the loss claimed by the assessee is ignored. This resulted into addition of Rs.4,59,81,800/-, i.e., residue loss after order u/s. 154 dated 25.10.1999. Accordingly, the assessment is made at Nil income. The assessee preferred appeal before the ld. CIT(A), which was decided vide order dated 29.03.2005 and the appeal of the assessee was partly allowed reducing the addition of interest to Rs.11,82,135/-. The addition of Rs.38,14,947/- on commission was confirmed. The addition on account of investment in hotel building in a sum of Rs.1,74,04,718/- was deleted. The assessee as well as the Revenue preferred appeals before the ITAT, Agra in ITA No. 207/Agra/2005 and 258/Agra/2005 and vide order dated 29.08.2008, the Tribunal dismissed both the appeals of the assessee as well as the Revenue. The assessee filed M.A. No. 109/Agra/2009 before the Tribunal in appeal of the assessee in ITA No. 207/Agra/2005 stating therein that the assessee requested for admission of the additional ground vide letter filed before the Tribunal on 29.05.2007 in which following additional ground was raised:
"Because the Assessing Officer has erred in disallowing the loss and estimating the income at "nil" without any material on record."
The assessee's M.A. was considered by the Tribunal. The assessee submitted that the Tribunal neither rejected the application to raise the additional ground nor granted and appeal of the assessee has been disposed of. Therefore, there is mistake on record. The ld. DR, however, contended that when the order has been passed by the Tribunal, it would amount to disposal of the additional ground. The Tribunal, however, allowed the M.A. of the assessee vide order dated 30.11.2010. The findings given in paras 3, 4 & 5 of this order are reproduced as under:
3. We have carefully considered the rival submissions and perused the material on record. We have also gone through the application, which has been filed by the assessee on 29.05.2007 before the Registry and the order of this Tribunal dated 29.08.2008. We noted that in this application, the assessee has requested the Bench to permit it to raise the following additional ground of appeal:
"Because the Assessing Officer has erred in disallowing the loss and estimating the income at "Nil" without any material on record."
4. We noted that even though the Tribunal has passed the order dated 29.08.2008 disposing of the appeal of the assessee but did not pass any order on the application moved by the assessee for permission to raise additional ground in appeal. The original application, although available on file, but the Tribunal neither admitted the application nor dismissed the same. Thus, in our opinion, there has been a mistake apparent on record in the order of this Tribunal dated 29.08.2008. We, therefore, recall the order of this Tribunal dated 29.08.2008 only for the purpose of disposing of the application of the assessee filed by him before the Registry on 29.05.2007 requesting the Tribunal to grant permission to the assessee to raise the following additional ground:
"Because the Assessing Officer has erred in disallowing the loss and estimating the income at "Nil" without any material on record."
5. Thus, the miscellaneous application filed by the assessee is allowed.
The office accordingly re-fixed the appeal of the assessee in ITA No. 207/Agra/2005 for hearing for limited purpose of disposal of application of assessee for admission of additional ground above.
3. The ld. counsel for the assessee submitted that the AO instead of allowing carry forward loss as computed, determined the income as Nil. Due to inadvertence, no specific ground was raised in respect of determination of income at Nil. He had submitted that no reasons have been given by the AO in the assessment order for disallowance of resultant loss, which has been done purely on adhoc basis. He had, therefore, submitted that the assessee may be allowed to raise the above additional ground. The ld. counsel for the assessee, however, could not explain whether this additional ground was argued before the Tribunal at the time of original hearing because he was not the counsel in this case at that time. The ld. counsel for the assessee also could not explain as to how interim application could be agitated after disposal of appeal of the assessee in ITA No. 207/Agra/2005 vide order dated 29.08.2008. The ld. DR has submitted that since the appeal of the assessee has already been disposed of, therefore, the assessee cannot be permitted to raise additional ground of appeal. Therefore, the application of the assessee is not maintainable.
4. We have considered the rival submissions and the material on record. It is not in dispute that the appeal of the assessee has been dismissed by the Tribunal in ITA No. 207/Agra/2005 vide order dated 29.08.2008. The additional ground so raised clearly spell out that the assessee has shown grievance in the additional ground against the assessment order passed by the AO in disallowing the loss and estimating the income at nil. The assessee has not shown any grievance against the impugned order of the ld. CIT(A). Section 246A provides, the appeals would be maintainable before the ld. CIT(A) when the assessee was aggrieved against the order passed by the Assessing Officer. Therefore, if the assessee was having any grievance against the order of the AO, he should have preferred appeal before the ld. CIT(A) u/s. 246A of the IT Act. No direct appeal against the assessment order is provided under the Act before the Tribunal. According to section 253, if the assessee is aggrieved against the order of the Commissioner (Appeals), he should have preferred the appeals before the ITAT. Thus, no direct appeal is provided under the scheme of the IT Act from the assessment order to the Appellate Tribunal. In the additional ground of appeal so raised, the assessee has not shown any grievance against the order of the ld. CIT(A). No reasons have been explained why the above additional ground showing grievance against the order of the AO was not raised before the ld. CIT(A). It is, therefore, clear that the above additional ground is not arising out of the impugned order passed by the ld. CIT(A). Since, it is admitted fact that the appeal of the assessee and the Revenue have reached finality on dismissal of respective appeals by the Tribunal, therefore, such additional ground could not be raised at this stage, otherwise it would amount to interfere with the order of the Tribunal dated 29.08.2008. It is well settled law that all interim applications shall have to be decided before passing of the final order. In the aforesaid case, both the cross appeals have already been decided finally, therefore, no interim application raising additional ground could be entertained at this stage. The Tribunal has become functus officio after passing the final order in this case on 29.08.2008 and as such has no jurisdiction to entertain application for admission of additional ground after disposal of the main appeal. Even with regard to the estimation of income at Nil by the AO, the AO has referred to the order passed u/s. 154 dated 25.10.1999 for taking such a view against the assessee. Therefore, it is a different order dated 25.10.1999, which has to be taken care of before taking any step in the matter. Therefore, it is a factual matter to be considered on merits only after deliberations and further probing into the matter, which is not permissible at this stage. Further, for seeking relief in computation of income, the assessee could have availed to remedies u/s. 154 of the IT Act, but it appears that the assessee did not take any step deliberately before the AO as per section 154 of the IT Act. It may also be noted here that the Tribunal has not admitted the additional ground of appeal above, before finally deciding the appeals. Therefore, the request of the assessee could not be considered legally at this stage. Considering the above discussion in the light of the fact that the appeal of the assessee has already been dismissed on merits, we are not inclined to admit the additional ground of appeal so raised above. In the result, the application for admission of additional ground is dismissed.
5. In the result, the appeal of the assessee to the above extent also is dismissed.
ISHAIT : Once a transaction is genuine and traded at proper valuation, even if entered with a motive to avoid tax, would not become coloruable device subject to any disqualification
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[2013] 33 taxmann.com 463 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-II
v.
Special Prints Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 332 OF 2013†
APRIL 15, 2013
Section 4, read with section 70, of the Income-tax Act, 1961 - Tax Planning [Genuine transactions] - Assessment year 2001-02 - Assessee-company on one hand sold plant and machinery and earned short term capital gains while on other, sold cumulative convertible preference shares and incurred capital loss - Assessee set off loss against capital gains earned - Since both capital gains and loss co-existed during same period, Assessing Officer concluded that assessee had adopted colourable device for tax avoidance - Whether since both transactions were genuine and traded at proper valuation, even if same had been entered with a motive to avoid tax, same would not become colourable device subject to any disqualification - Held, yes [Paras 7 and 9] [In favour of assessee]
FACTS
■ The assessee-company sold its plant & machinery to its group company and earned a short-term capital gain of Rs. 6.37 crore.
■ During the relevant year the assessee also sold 12,00,000 1 per cent cumulative convertible preference shares of a company at the price of Rs. 6.25 per share adopting price as per valuation report of the valuer. The assessee had acquired these shares at Rs. 45 per share and had, thus, incurred a long-term capital loss of Rs. 6.43 crore. It had set off this loss against capital gain of Rs. 6.37 crore earned on account of sale of plant and machinery.
■ The Assessing Officer doubted the valuation report. He found that the assessee had entered into a colourable device for tax avoidance and disallowed the entire loss of Rs. 6.43 crore towards sale of CCPS.
■ The Commissioner (Appeals) as well as the Tribunal held that the valuation report did not suffer from any infirmity and reversed the order of the Assessing Officer.
On appeal:
HELD
■ The appellate Commissioner as well as the Tribunal having examined all aspects of the matter and in particular the valuation report and having come to the conclusion that such report did not suffer from any legal infirmities. [Para 6]
■ The Assessing Officer was concerned about the assessee having sold sizeable number of cumulative convertible preference shares inviting considerable loss during the same period, when the assessee had sold certain assets and earned capital gain. Surely, merely because the assessee claimed set off of capital loss against the capital gain incurred during the same period by itself cannot be branded as a colourable device or method for tax avoidance. If both the transactions are genuine and also traded at proper valuation, merely because the period co-existed or permitted the assessee to set off its capital loss against some capital gain, by itself would not give rise to the presumption that the transaction was in the nature of colourable device. Even if the assessee consciously entered into the transaction with an object of earning set off, may be a case of tax planning but as long as such tax planning is achieved through legitimate means, the revenue surely cannot object to the same. [Para 7]
■ The fact that the assessee sold only 12 lakh shares out of more than 15 lakh shares of a certain scrip held by it again by itself can hardly be a factor to brand the assessee of colourable device. It may be one of the factors to set the Assessing Officer thinking, without there being anything additional in the form of the valuation itself being artificial, the revenue cannot object to the assessee selling part of its shareholding. [Para 7.1]
■ In the present case therefore, what essentially boils down to is whether the shares were sold at a correct price or at the price which was artificially arrived at to inflate the loss. In this respect, it was noticed that the Commissioner (Appeals) as well as the Tribunal both had gone to the factual findings pertaining to the methodology adopted by the valuer in valuing the shares. It was also noticed that the Assessing Officer; except for doubting such valuation, on the basis of circumstances, did not have anything concrete at hand to hold that the price of Rs. 6.25 per share was not the correct price. [Para 8]
■ In case of Porrits & Spencer (Asia) Ltd. v. CIT , 190 Taxman 174 (Punj. & Har.), the Punjab & Haryana High Court had somewhat similar situation to tackle with. Referring to and relying on the decision of the Apex Court in case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) and the decision of this Court in case of Banyan & Berry v. CIT [1996] 222 ITR 831/84 Taxman 515 (Guj), it was observed that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become colourable device, earning any disqualification. [Para 9]
CASE REVIEW
Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) (para 9) and Banyan & Berry v. CIT [1996] 222 ITR 831/84 Taxman 515 (Guj.) (para 9) followed.
CASES REFERRED TO
McDowell & Co. Limited v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC) (para 2.3), Porrits & Spencer (Asia) Ltd. v. CIT [2010] 190 Taxman 174 (Punj. & Har.), Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) (para 9), Banyan & Berry v. CIT [1996] 222 ITR 831/84 Taxman 515 (Guj.) (para 9).
Sudhir M. Mehta for the Appellant. J.P. Shah and Manish J. Shah for the Respondent.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad ["Tribunal" for short] dated 26th October, 2010, raising following questions for our consideration :-
A) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 6,43,81,967/= by not taking into consideration the tax exploitative scheme adopted by the assessee to defraud the revenue ?"
(B) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in not appreciating the fact that there was no commercial purpose of the transaction of Cumulative Convertible Preference Shares other than avoidance by setting off the short term capital gain into long term capital loss?"
2. These questions arise in the following factual background.
2.1 Respondent-assessee is a limited company. During the previous year relevant to A.Y 2001-02, the assessee had sold its plant and machinery to a group company viz., M/s. Garden Silk Mills Limited for a consideration of Rs. 8.95 crores [rounded off] against the written down value of Rs. 2.58 crore [rounded off] and had thus earned short term capital gain of Rs. 6.37 crore [rounded off]. During the same period, the assessee company had also entered into another transaction with another group company viz.,SPS Silks Limited, to whom the assessee had sold 12,00,000 1% Cumulative Convertible Preference shares of M/s. Garden Finmark Limited at Rs. 6.25 per share. These shares were allotted to the assessee by M/s. Garden Finmark Limited on 21st March, 1997 at the rate of Rs. 45/= per share; which included Rs. 10/= as Face value and Rs. 35/= as Premium. In the process of this transaction of sale of CCPS, the assessee-company had incurred long term capital loss of Rs. 6.34 crore [rounded off]. This loss, the assessee had set off against capital gain of Rs. 6.37 crore earned on account of sale of plant and machinery.
2.2 During the assessment, the Assessing Officer inquired into this capital loss. Assessee pointed out the reason for sale of the shares as also the basis of the valuation. It was pointed out that the price was adopted as per the valuation report of the valuer - M/s. CC Chokshi & Company, who had recommended the price band of Rs. 6 to Rs. 6.50 per share.
2.3 The Assessing Officer, however, found that the assessee had entered into a colourable device for tax avoidance. Relying on and referring to the decision in case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC), he disallowed the entire loss of Rs. 6.43 crore towards sale of CCPS.
2.4 Assessee carried the matter in appeal. CIT (A), by his detailed judgment, reversed the decision of the Assessing Officer and held that the transactions would fall within the legitimate tax planning and would not amount to colourable device for tax avoidance. He found that the assessee had relied on the report of the valuer, who had adopted correct parameters. The assessee had sufficient justification for sale of these shares.
2.5 The decision of CIT (A) was carried in appeal by the Revenue. The Tribunal, by the impugned judgment, dismissed Revenue's appeal. The Tribunal held that the valuation report was on the basis of consideration of relevant factors and did not suffer from any infirmity. Against such judgment of the Tribunal, Revenue has preferred the present Tax Appeal.
2.6 Learned advocate Shri Sudhir Mehta appearing for the Revenue vehemently contended that the Assessing Officer had pointed out several defects in the valuation of shares adopted by the assessee. He submitted that the assessee had acquired such shares less than five years back at a high cost of Rs. 45/= per share and such shares were sold at a heavy loss during the period when the assessee had earned substantial capital gain. There was no justification for sale of shares and the only motive was to avoid tax for which such a colourable device was adopted.
3. On the other hand, learned advocate Shri Shah for the respondent, appearing on Caveat, supported the decisions of CIT (A) and the Tribunal. He submitted that the Assessing Officer had rejected the valuation report without any basis. He had neither examined the valuer nor called for independent valuation of the shares. Only on the basis of suspicion, he had disallowed the entire loss incurred by the assessee in the process of selling the shares.
4. Having thus heard learned counsel for the parties and having perused the documents on record, we find that the CIT as well as the Tribunal both had concurrently come to the conclusion that the shares were sold on the basis of the valuation report, which did not suffer from any infirmity. We notice that the Assessing Officer had doubted the valuation report, however, did not chose to obtain any independent valuation. Additionally, the entire transaction was seen as colourable device for tax avoidance on the following grounds :-
(1) Assessee did not produce minutes register and therefore, according to him, it was not possible to ascertain the correct sequence of events of the transactions in question;
(2) The assessee had sold only 12,00,000 shares out of total holding of 15.36 lakh shares. The sale proceeds of which was sufficient to set off short term capital gain;
(3) According to him, the assessee did not suffer from any liquidity crisis since from the balance sheet of the assessee-company, it could be seen that the assessee had cash and bank balance of Rs. 2.22 crore.
4.1 On the basis of such factors, the Assessing Officer came to the following conclusion :-
"Findings :
(1) It is pertinent to note that the Garden Finmark Limited had itself valued its preference shares at Rs. 35/= premium to its price of Rs. 10/= in the year 1996-97. The company has consistent track record of making profit in every year thereafter. Therefore, it is hard to believe that Rs. 45 1-word of share is valued at Rs. 6.25 1-in a span of 5 years inspite of the company making substantial and consistent profit.
(2) The assessee after knowing at what rate shares could be sold did not brought to the notice of the public about its intention to sale these shares. The assessee did not call for the highest bid for the shares. Had the intention of the assessee was bona fide, the assessee would have had given public notice and invited offers from the public. The assessee did not do this. Instead, the assessee completed the deal in camera with SPS.
If there was nothing to conceal on the part of the assessee, then as a prudent businessman, the assessee should have had call for offer from the public at large in order to get maximum.
(3) This is not a case of simply sale of 1% Cumulative Convertible Preference Share of Garden Finmark Limited but this is a case of sale of those shares putting the purchasers into controlling power on Garden Finmark Limited as these 12,00,000/= shares are going to be converted into equity shares before 20.03.2007 which is fast approaching.
The plan of the Garden Group is so deliberate, that it did not allow outsider to come into controlling power of Garden Finmark Limited which again is holding huge number of equity shares of Garden Silk Mills Limited and thereby in a controlling capacity.
It is clear in this case that the assessee has carried out transaction which has no commercial (business) purpose apart from the avoidance of liability of tax as held in the case of Dawson. This inserted step is to be disregarded and the Court is to look at the end-result of the taxing it in accordance with the 'provisions of taxing statutes.
In the result, I assessment satisfied that to sell the 1% Cumulative Convertible Preference share of SPS Silk Limited is colourable device of the assessee to defeat the interest of the revenue and such device deserves to be rejected. Accordingly, the claim of long term capital loss of Rs. 6,36,92,624/- is disallowed."
5. CIT (A), however, dealt with each individual objection of the Assessing Officer and found that - (i) the valuation report was based on proper considerations and the valuer had advised the company to sell the shares in the range of Rs. 6 to Rs. 6.50 per share; (ii) the assertion that the assessee was not suffering from liquidity crisis was not correct. He accepted the assessee's explanation that though the assessee had a balance of Rs. 2.22 crore; out of it, a sum of Rs. 1.34 crore comprised of fixed deposit in the form Excise Duty margin, lying with the Bank of Baroda and a sum of Rs. 69 lakh had to be kept aside as per the order of the High Court; and a sum of Rs. 80 lakh represented non-refundable deposits. It was also found that the entire transaction was entered into after obtaining appropriate report from the valuer. In other words, merely because certain minor details viz., minutes of meetings were not produced, would not be fatal.
5.1 In his judgment, the appellate Commissioner had paid sufficient attention on the valuation method adopted by the valuer. He noticed that such valuation was arrived at after taking into account the profit earnings as well as net asset value.
5.2 It was this decision of the CIT (A) which the Tribunal confirmed by the impugned judgment. The Tribunal also examined the method of valuation adopted by the valuer for fixing the range of Rs. 6 to Rs. 6.50 per share. In this regard, the Tribunal noted as under :-
"It has been observed that they have adopted two types of methods to arrive at such a conclusion, namely;
(i) Net Assets value methods (Book value & Intrinsic value):
They have computed the value of the equity share of GFL, on a diluted basis, based on the book value of its assets and liabilities as at 31st March, 2000. On this basis the value per equity share of Rs. 10/= worked out to Rs. 46.27 per share. After adjusting the net assets value as on 31st May, 2000 on account of the diminution in the value of investments in the equity shares of Garden Silk Mills Limited [based on the weighted average market price of the share for the last six months ended 31.5.2000] the value per share of Rs. 10/= fully paid up based on the intrinsic worth of net assets works to Rs. 7.79.
It has been further mentioned that if one were to give a 75% weightage to the value based on intrinsic worth of net assets and a 25% weightage to the value based on book value of net assets, the value per equity share of GFL based on net assets would work out to Rs. 17.41.
(ii) Profit earnings method
Under this method, value of shares of a company is arrived at by capitalizing its future maintainable profits by an appropriate Price Earning Ratio. In the present circumstances, as the past profits of the company as tabulated have shown a declining trend they have considered it reasonable to apply weights of 1, 2 and 3 to the profits for the years 1997-98, 1998-99 and 1999-2000 respectively to arrive at the future maintainable profits.
Considering all the relevant facts in respect of the business, past track record of revenues and profits, nature of business and industry, quality of the assets and so on, in our opinion, it would be appropriate and reasonable to apply a capitalization rate of 20% corresponding to a PE ratio of 5, in the present case. Applying the PE ratio of 5 to the weighted average profits for the three years ended 31.3.2000, the value per share of Rs. 10/= fully paid up works out to Rs. 5.92.
4.29 In consonance with the ruling of the Hon'ble Supreme Court in the case of Hindustan Lever Employees' Union v. Hindustan Lever Limited [1995) 83 Com. Cases 30, in the present case, the valuer had considered it appropriate to apply a weightage of 75% to the value as per the profit earning capacity method and 25% to the value based on net assets method, resulting in the value of the equity shares of GFL, working out to Rs. 8.79/= per share. The valuer had further reasoned that although the CCPS carry an option to convert them into equity shares, their holders do not enjoy the same rights as holders of equity shares of the Company. Hence the value of the equity share of GFL would have to be appropriately discounted to arrive at the value of CCPS.
4.30 In conformity with the ruling of the Hon'ble Supreme Court in the case of A.R Krishnamurthy & Anr. v. CIT [1989] 176 ITR 417 (SC), the valuer had concluded in its valuation report as under :
"On consideration of the above factors and issues, in our opinion, SPL can sell the 15236650 1% Cumulative Convertible Preference Shares of Rs. 10/= each fully paid up of Garden Finmark Limited, at a price in the range of Rs. 6/= (Rupees Six only) to Rs. 6.50 (Rupees Six and paise Fifty] per share".
4.31 After due consideration of the facts and legal aspects of the issues involved and as per our above observation discussions we do not have any hesitation to confirm the order of the learned CIT (A). It is ordered accordingly."
6. We are of the opinion that the appellate Commissioner as well as the Tribunal having examined all aspects of the matter and in particular the valuation report and having come to the conclusion that such report did not suffer from any legal infirmities, no interference is called for.
7. If one peruses the order of the Assessing Officer as a whole, primarily, he was concerned about the assessee having sold sizeable number of shares inviting considerable loss during the same period, when the assessee had sold certain assets and earned capital gain. Surely, merely because the assessee claimed set off of capital loss against the capital gain incurred during the same period by itself cannot be branded as a colourable device or method for tax avoidance. If both the transactions are genuine and also traded at proper valuation, merely because the period co-existed or permitted the assessee to set off its capital loss against some capital gain, by itself would not give rise to the presumption that the transaction was in the nature of colourable device. Even if the assessee consciously entered into the transaction with an object of earning set off, may be a case of tax planning but as long as such tax planning is achieved through legitimate means, the revenue surely cannot object to the same.
7.1 The fact that the assessee sold only 12 lakh shares out of more than 15 lakh shares of a certain scrip held by it again by itself can hardly be a factor to brand the assessee of colourable device. It may be one of the factors to set the Assessing Officer thinking, without there being anything additional in the form of the valuation itself being artificial, the Revenue cannot object to the assessee selling part of its shareholding.
8. In the present case therefore, what essentially boils down to is whether the shares were sold at a correct price or at the price which was artificially arrived at to inflate the loss. In this respect, we have already noticed that the CIT [A] as well as the Tribunal both had gone to the factual findings pertaining to the methodology adopted by the valuer in valuing the shares. We have also noticed that the Assessing Officer; except for doubting such valuation, on the basis of circumstances, did not have anything concrete at hand to hold that the price of Rs. 6.25 per share was not the correct price. In the circumstances, we do not find that the Tribunal had committed any error.
9. Before closing, we may notice that in case of Porrits & Spencer (Asia) Ltd. v. CIT [2010] 231 190 Taxman 174, the Punjab & Haryana High Court had somewhat similar situation to tackle with. Referring to and relying on the decision of the Apex Court in case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) and the decision of this Court in case of Banyan & Berry v. CIT, [1996] 222 ITR 831/84 Taxman 515 (Guj)], it was observed that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become colourable device, earning any disqualification. It was observed as under :
"18. The aforesaid discussion would show that once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification. Hon'ble the Supreme Court in the concluding paras of its judgment in Azadi Bachao Andolan (supra) has rejected the submission that an act, which is otherwise valid in law, cannot be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest as per the perception of the Revenue. The aforesaid view looks to be the correct view. It has ready support from the Division Bench judgment of this Court rendered in the case of Satya Nand Munjal (Supra) and the Division Bench judgment of Orissa High Court in the case of Industrial Development Corporation of Orissa Limited (supra) and various other judgments of Delhi and Madras High Courts (supra)."
10. In the result, no question of law arises. Tax Appeal is, therefore, dismissed.
IT : Where in preceding year disallowances were deleted, same could be followed in current year, facts being same
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[2013] 34 taxmann.com 218 (Rajasthan)
HIGH COURT OF RAJASTHAN
Commissioner of Income-tax, Udaipur
v.
Dr. Suresn Sharma*
DINESH MAHESHWARI AND ARUN BHANSALI, JJ.
D.B. IT APPEAL NO. 45 OF 2012†
JANUARY 14, 2013
Section 37(1) read with sections 133A and 143, of the Income-tax Act, 1961 - Business expenditure - Allowability of [Res judicata] - Assessment year 2004-05 - Assessee was engaged in running nursing home and also owned a marble cutting plant - Assessing Officer on basis of material found during survey disallowed certain hospital and factory expenses - In preceding year on same facts, Commissioner (Appeals) deleted disallowance on ground that trading additions had already been made in original assessment which was confirmed by Tribunal - Whether, where all relevant and material aspects equally applied to present appeal, following aforesaid decision in same terms, this appeal would also stand dismissed - Held, yes [Para 5][In favour of assessee]
FACTS
■ The assessee was engaged in running nursing home and also owned a marble cutting plant. It filed original return deduction NIL income.
■ A survey was conducted at the business premises of assessee. The assessing officer on the basis of material found during the course of survey completed the assessment by making certain additions.
■ On first appeal, the Commissioner (Appeals) deleted certain additions after analyzing the material on second and on finding that certain trading additions had already been made in original assessment.
■ On appeal by the revenue, the Tribunal confirmed the order of CIT(A).
■ On further appeal :
HELD
■ This Court while considering the appeal filed by the revenue for the assessment year 2002-03 being CIT v. Dr. Suresh Sharma [D.B. IT Appeal No. 47 of 2012] has held that the grounds as urged and the questions as suggested essentially related to the matters of appreciation of evidence for factual enquiry and rendering findings on facts about the expenditure on purchase of medicines, receipt of consultation fees and expenditure at factory and hospital. Though the Assessing Officer made the additions with reference to his opinion on the material found and impounded during the course of survey proceedings, however, the Commissioner (Appeals) disagreed with the findings of the Assessing Officer after thoroughly analyzing the material on record and after referring to the inconsistencies in the assessment order on accounting aspects and the fact that the trading additions had already been made in the original assessment. Thereafter, the Tribunal found no reason to interfere while scrutinizing the findings recorded by the Commissioner (Appeals) on relevant considerations.
■ Therefore, the reasons foregoing, on all the relevant and material aspects, equally apply to the present appeal too, which is based on self-same grounds. Thus, following the decision aforesaid and in the same terms, this appeal also stands dismissed summarily. [Para 5]
CASE REVIEW
CIT v. Dr. Suresh Sharma [D.B. IT Appeal No. 47 of 2012] (para 5) followed.
CASES REFERRED TO
CIT v. Dr. Suresh Sharma [D.B. IT Appeal No. 47 of 2012] (para 5).
K.K. Bissa for the Appellant.
ORDER
Arun Bhansali, J. - The present appeal under Section 260A of the Income Tax Act, 1961 ['the Act'] has been filed by the Revenue seeking to question the order dated 09.12.2011 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ['the Tribunal'] in ITA No.653/JODH/08 and C.O.No.27/JODH/2009 for the assessment year 2004-2005, whereby, the Tribunal has affirmed the order dated 17.09.2008 passed by the Commissioner of Income Tax (Appeals), Udaipur ['the CIT(A)'] partly allowing the appeal preferred by the assessee and deleting the additions of Rs.6,71,668/- on account of unaccounted factory expenses, Rs.60,438/- on account of expense of M/s Suresh Grenite, Rs.1,01,292/- on account of expense of M/s Sharma Nursing Home, Rs.50,070/- on account of low GP Rate of M/s Sharma Nursing Home, and Rs.5,05,682/- on account of income from undisclosed sources and allowing the cross objection filed by the assessee and deleting disallowance of depreciation of Rs.1,76,003/- as made by the Assessing Officer ['the AO'] in the assessment order dated 29.12.2006.
2. Having heard the learned counsel for the appellant and having perused the material placed on record, we are clearly of the view that the present appeal essentially raises issues relating to appreciation of evidence resulting in finding on facts; and no substantial question of law is involved.
3. The facts of the case may be noted thus: The assessee runs a nursing home and also owns a marble cutting plant. The assessee filed his original return of income for the assessment year 2004-2005 on 02.08.2004 declaring NIL income besides an agricultural income of Rs.64,800/-. It appears that a survey under Section 133A of the Act was undertaken on 29.11.2006 at the business premises of the assessee and on the basis of material found during the course of survey, while notice under Section 148 of the Act was issued relating to assessment years 2002-2003 and 2003-2004 and for the said assessment years assessments were completed under Section 143(3)/148 of the Act and assessment for the year 2004-2005 was completed under Section 143(3) of the Act. The AO, inter alia, made the additions, few of which were deleted by the CIT(A) as noticed hereinbefore. The appeals arising out of assessment years 2002-2003 to 2006-2007 filed by revenue were decided by the Tribunal by a common order.
4. For the assessment year 2004-2005 the Tribunal has observed as under:-
(i) Addition on account of unaccounted factory expenses:
"We have considered the findings given by the authorities below. We have already considered the similar issue in the order for the assessment year 2002-03. We find that assessee has shown receipts in the name of Suresh Granite and there are transactions in the separate bank account of M/s Suresh Granite. Further the said note book no.18 also contains transactions relating to Suresh Granite. The return of income of the wife of Assessee Mrs. Sushma Sharma has been filed in time including the income from M/s Sushma Granite. The findings given by assessing officer are not correct and the expenditure incurred and the bank deposits made by the assessee from the regular sources of receipts shown by the assessee family from various concerns. Therefore, following the findings given by us for Assessment Year 2002-03 in respect of the similar noting of expenditure, we uphold the findings given by the CIT (A) and dismiss this ground of the departmental appeal."
(ii) Addition on account of unaccounted expense of M/s Suresh Granite :
"In such circumstances, when the over all receipts covers all these expenditures, no addition can be made on the basis of noting in the diary. We find that the issue is similar to ground no.1 dealt with above and the findings given by us in that respect will apply even in respect of this issue. We accordingly uphold the order of CIT (A) on this issue also and the ground of appeal is rejected."
(iii) Addition on account of unaccounted expense of M/s Sharma Nursing Home:
"In such circumstances, there are all possibilities of accounting overall expenditure in different heads, however, the overall payments noted in these diaries are not exceeding the overall receipts shown by the assessee in all the Profit and Loss accounts of the group concerns. Therefore, no addition in respect of the unaccounted expenditure on the basis of such noting can be made. We accordingly uphold the deletion of addition on account of unexplained salary expenditure. This ground of departmental appeal is also rejected."
(iv) Addition on account of low G.P. Rate of M/s Sharma Nursing Home:
"We have dealt up this issue in detail for the assessment year 2002-03 and in view of the findings given in that respect and the facts and circumstances of the case observed above, we hereby decline to interfere with the order of the CIT(A) on this ground also. The ground of appeal of the departmental appeal is rejected."
(v) Addition on account of income from undisclosed sources:
"After hearing the rival parties and the perusing the orders of authorities below and also the material available in the paper books filed by the assessee we are of the considered view that ld. AO was not justified in holding that the business of M/s Suresh Granites has been discontinued only on the basis of disconnection of power. The assessee has shown the availability of power from the D G Set of M/s Susham Granite the proprietorship concern of the wife of assessee which is operating in the same premises. Therefore, the addition made on this count cannot be upheld. We find no reason to interfere the findings given by the CIT (A) on this count. This ground of appeal of the departmental appeal is accordingly rejected."
(vi) In relation to cross objection of the assessee:
"The disallowance is made consequent to the finding that the business of M/s Suresh Granite had been discontinued. In view of our findings above in ground no. 5 of the departmental appeal, this ground of cross objection is allowed."
5. This Court while considering the appeal filed by the Revenue for the assessment year 2002-2003 being D.B. Income Tax Appeal No.47/2012 (CIT v. Dr. Suresh Sharma) has held as under:-
"In our view, the submissions do not make out any substantial question of law for consideration by this Court in this appeal. The grounds as urged and the questions as suggested essentially relate to the matters of appreciation of evidence for factual enquiry and rendering findings on facts about the expenditure on purchase of medicines, receipt of consultation fees and expenditure at factory and hospital. Though the AO made the additions with reference to his opinion on the material found and impounded during the course of survey proceedings, however, the CIT(A) disagreed with the findings of the AO after thoroughly analyzing the material on record and after referring to the inconsistencies in the assessment order on accounting aspects and the fact that the trading additions had already been made in the original assessment. Thereafter, the Tribunal found no reason to interfere while scrutinizing the findings recorded by the CIT(A) on relevant considerations.
In an overall view of the matter, we are satisfied that the findings on facts have been rendered by the two appellate authorities in accordance with law; and the orders impugned do not suffer from any perversity or wrong application of any principle of law so as to raise any substantial question of law.
Consequently and in view of the above, the appeal fails and the same is, therefore, dismissed summarily."
The reasons foregoing, on all the relevant and material aspects, equally apply to the present appeal too, which is based on self-same grounds. Thus, following the decision aforesaid and in the same terms, this appeal also stands dismissed summarily.
ISHA
IT: Provision made for warranty against goods would be entitled to deduction
■■■
[2013] 34 taxmann.com 238 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax
v.
Denso Kirloskar*
D.V. SHYLENDRA KUMAR AND B. SREENIVASE GOWDA, JJ.
IT APPEAL NO. 195 OF 2009†
FEBRUARY 19, 2013
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Warranty provision] - Assessment year 2004-05 - Assessee made provision towards warranty claim - Assessing Officer had disallowed said sum being of opinion that it did not represent any expenditure incurred by assessee - Whether following decision of Supreme Court in case of Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62/180 Taxman 422, provision made for warranty was to be allowed as deduction - Held, yes [Para 6] [Partly in favour of assessee]
CASE REVIEW
Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62/180 Taxman 422 (SC) (para 6) followed.
CASES REFERRED TO
Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62/180 Taxman 422 (SC) (para 6).
K.V. Aravind for the Appellant. A. Shankar and M. Lava for the Respondent.
JUDGMENT
1. This appeal by the Revenue under section 260-A of the Income Tax Act, 1961 [for short 'the Act'] posing the 'following two substantial questions of law for answer reading as under:
| "1. | Whether the Tribunal was correct in holding that the assessee is entitled for deduction of a provision made towards warranty which is not made on any scientific basis and past experience and made merely on estimate basis? | |
| 2. | Whether the Tribunal committed an error in not considering the actual expenditure on account of warranty charges was Rs. 39,788/- as against the provision made at Rs. 1,60,62,016/- by not examining the reasons for such wide variance in the provision made?" |
2. The assessee is a company and the assessment year is 2004-05. The questions relate to one of making a provision by the assessee towards warranty claims put forth by its customers in respect of its products sold by the assessee. For the accounting period relevant for the assessment year, the assessee claimed it had made a provision towards warranty claim in a sum of Rs. 1,60,62,016/- and out of this amount, had reversed the provision made for meeting warranty claims for earlier financial year, namely, 2001-02 in a sum of Rs.85,65,546/- and the Assessing Officer noticed that even after reversing that amount provision of Rs.74,56,682/- was an amount without any actual claim or expenditure.
3. The stand of the assessee was that the provision for warranty was made on the basis of estimating the same at 1.5% of the sales turnover of the year. From the amount of warranty provision made, the assessee would wait for two years against possible claims, meet the same if there are any and if there are none, balance amount will be taken as profit of the third year as warranty claim can arise only upto a period of two years from the date of sale.
4. The Assessing Officer had disallowed this amount of Rs. 74,56,682/- being of the opinion that it does not represent any expenditure incurred by the assessee. The Appellate Commissioner affirmed this view in the appeal of the assessee and in the further appeal of the assessee, the Tribunal reversed this finding and opined that the provision of this nature should be allowed as a revenue expenditure incurred during the financial year relevant for the assessment year.
5. It is against this order and on this aspect, the present appeal with the questions as indicated above.
6. Sri. K.V. Aravind, learned standing counsel appearing for the appellants - revenue submits that these questions are now covered by the Judgment of the Supreme Court in the case of Rotork Controls India (P.) Ltd v. CIT [2009] 314 ITR 62/180 Taxman 422 (SC) that the Tribunal did not have the benefit of this ruling as the Tribunal had passed orders on 21.11.2008 and therefore submits that the matter can be sent back to the Assessing Officer to determine afresh applying the tests and guidelines laid down by the Supreme Court in this case to the claim put forth by the assessee towards provision of' warranty claims and then proceed accordingly to finalize the same.
7. Sri. A. Shankar, learned counsel for the respondent - assessee while does not dispute the legal position as per the Judgment of the Supreme Court inRotork Controls' case (supra), points out that the second question as framed by the revenue in the memorandum of appeal, the figure of Rs. 1,60,62,016/- is not correct, but it should be only a sum of Rs. 74,56,682/-
8. Sri. K V Aravind, learned standing counsel appearing for the appellants - revenue has pointed out that the provision made for the year in question was, in fact, a sum of Rs. 1,60,62,016/- as is revealed in the assessment year, but the assessee itself having reversed from out of this upto the extent of Rs.85,65,546/- and having included that in the total income of the year in question, the authorities were required to consider the claim for provision of only a sum of Rs.74,56,682/-, but in fact the provision made was for Rs. 1,60,62,016/- and therefore the question is properly framed.
9. As the amount is actually claimed as a deduction and as the amount set apart for meeting possible warranty claims, this is an aspect which has to be looked into by the Assessing Officer and we do not want to preempt that examination in this order, but the facts are as noticed above.
10. In this view of the matter, while this appeal is allowed to the extent of setting aside the order of the Tribunal insofar as it related to allowing of the appeal of the assessee towards warranty provision, the matter is sent to the Assessing Officer for redetermination of the quantum that can be allowed as a provision towards warranty claims in the light of the Judgment of the Supreme Court in Rotork Controls' case (supra) and the guidelines contained in this Judgment.
11. With regard to the quantification and other aspects, it is open to the assessee to put forth its stand before the Assessing Officer. The matter being remanded, the questions are not answered in the way they are framed, but the Tribunal order is set aside by applying the ratio of the Judgment of the Supreme Court in Rotork Controls' case (supra)
CA seeks injunction on regional body meeting
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PUNE: Chartered accountant ArunAnandagiri has sought an injunction (compulsory relief) on the annual general meeting of the Western India Regional Council (WIRC) of Institute of Chartered Accountants of India (ICAI) scheduled to take place in Mumbai on Thursday.
Anandgiri has filed a case in the civil court senior division through his lawyers VinayakAbhyankar and GirishShinde to direct the institute and the WIRC to move two resolutions which he has submitted for deliberation in the forthcoming meeting.
Anandgiri has stated in his resolutions that the institute should create appropriate bench marks to invite, appoint, regulate and terminate faculty members for courses conducted by the institute or its regional councils.
He has also stated that the institute and the WIRC should maintain a register of contracts entered into by the WIRC and all its branches with regional council members, their relatives or their partners or relatives of such partners.
In his injunction application, he had submitted two resolutions making these demands through a letter to WIRC on 6 May 2013. He said that the WIRC has declined to admit his resolutions.
The civil court has listed the matter for urgent hearing on Wednesday.
When contacted, WIRC chairman Mangesh Kinare said, "The matter has been forwarded to ICAI head office in New Delhi."
Anandgiri has filed a case in the civil court senior division through his lawyers VinayakAbhyankar and GirishShinde to direct the institute and the WIRC to move two resolutions which he has submitted for deliberation in the forthcoming meeting.
Anandgiri has stated in his resolutions that the institute should create appropriate bench marks to invite, appoint, regulate and terminate faculty members for courses conducted by the institute or its regional councils.
He has also stated that the institute and the WIRC should maintain a register of contracts entered into by the WIRC and all its branches with regional council members, their relatives or their partners or relatives of such partners.
In his injunction application, he had submitted two resolutions making these demands through a letter to WIRC on 6 May 2013. He said that the WIRC has declined to admit his resolutions.
The civil court has listed the matter for urgent hearing on Wednesday.
When contacted, WIRC chairman Mangesh Kinare said, "The matter has been forwarded to ICAI head office in New Delhi."
IT : Lump sum receipts by spouse from her ex-husband for relinquishing her right of claiming monthly payments as per divorce agreement is a capital receipts, thus, sec. 56(2)(vi) would not be applicable
• In a recent ruling the ITAT examined the impugned transfer of alimony from ex-husband to ex-wife and decided that the said transfer was done pursuant to the divorce agreement executed by the parties, thus, not accruing as an income from other sources.
• The tribunal further held that the lump sum amount was received by the assessee as a consideration for relinquishing all her claims.
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[2013] 34 taxmann.com 297 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'E'
Assistant Commissioner of Income-tax, Circle - 32(1)
v.
Meenakshi Khanna
RAJPAL YADAV, JUDICIAL MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
AND T.S. KAPOOR, ACCOUNTANT MEMBER
IT APPEAL NO. 644 (DELHI) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JUNE 14, 2013
K. Sampath for the Appellant. A.S. Awasthi for the Respondent.
ORDER
T.S. Kapoor, Accountant Member - This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-XXV, New Delhi dated 17.11.2011 for the assessment year 2008-09. The grounds of appeal taken by Revenue are as under:
| "A. | Whether Ld. CIT (A) was justified in deleting addition of Rs.39,98,408/- made by the Assessing Officer u/s 56(2) (vi) when the amount received by the assessee was without consideration. | |
| B. | Whether Ld. CIT (A) was justified in deleting addition of Rs.39,98,408/- when provisions of section 56 (2) (vi) were clearly applicable in the case of the assessee. | |
| C. | Whether Ld. CIT (A) was justified in the deleting addition of Rs.39,98,408/- when the amount received was not from the relative (ex-spouse) of the assessee and hence falls in exceptions to charging of tax." |
2. The brief facts of the case are that the return of income was filed on 23.07.2008 disclosing a total income of Rs.8,15,050/-. The case of the assessee was selected for scrutiny.
3. During the assessment proceedings, the Assessing Officer observed from the bank statement of assessee that there was a credit of Rs.39,98,408.60 equal into Rs.99,093.15US$. The assessee was asked to submit explanation in respect of aforesaid credit entry to which the assessee replied that the amount was received as alimony due from her husband over a period of time and in support the assessee filed confirmation from Dr. Paul Dax, a national of Germany and ex-husband who has stated as under:
"MS. Meenakshi Khanna is my ex-wife and that I have sent her US $ 99,093 during the month of August, 2007."
4. The Assessing Officer show caused the assessee as to why not the amount received be added to the income of assessee as per provisions of section 56(2) (vi) of the Act. In response, assessee submitted her reply by letter dated 18.10.2010 stating as under:
"This is regarding the amount of 99,093 US $ received in our saving a/c from US. It is stated that the above said amount received from her ex-husband Dr. Paul Dax for which confirmation has been given earlier. This amount has been received as alimony from ex-husband as per divorce agreement in August 1990. It is also stated that assessee has never received any amount from her ex-husband earlier."
5. The Assessing Officer relying upon the provisions of section 56(2) (vi) held that the assessee was not covered under the definition of relative as provided in exceptions to section 56(2) (vi) and, therefore, held the amount received as income taxable under the provisions of section 56(2) (vi).
6. Dissatisfied with the order, the assessee filed appeal before the CIT (A) and submitted various submissions. The CIT (A) after going through the submissions of assessee deleted the addition by holding as under:
"The word consideration has not been defined under the Income Tax Act therefore we need to verify its meaning from the law which govern principles of contract. Consideration has been defined u/s 2(d) of Indian Contract Act which inter-alia reads:-
"That at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."
In Currie v. Misa [1875] LR 10 EX-153 the consideration was defined as
"A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other."
This definition has been considered by Hon'ble Supreme Court and compared with the definition given in section 2(d) of Contract Act and approved as being practically the same in Chidambara Iyer V. Renga Iyer (1966) 1 SCR 168.
Going by these definitions it cannot be said that the appellant received the money without consideration which is a prerequisite condition for invoking clause (vi) of sub-section (2) of section 56 of the Act because appellant in the facts received the amount against consideration of relinquishing her personal right of claiming monthly maintenance as provided under law. In view of the above of the fact that amount was received against consideration the addition made by Ld. Assessing Officer of the alimony received is deleted.
Proceeding further with the second question "who is spouse" of the individual? The word 'spouse' has not been defined under the Income Tax Act. The word 'spouse' as defined under law lexicon second edition (2001) means a wife or a husband or bride as the case may be. Since the amount was received by the appellant from the husband as condition of separation and the amount was paid by way of alimony only because they were husband and wife and the appellant was spouse person who has paid the amount therefore the payment received amounts to have been received from the spouse of the individual and hence falls within the exception clause of relative. Therefore also clause (vi) of sub-section (2) section 56 is not applicable and amount received will not amount to income u/s 2(24) of Act."
7. Aggrieved, the Revenue is in appeal before us. At the outset, the Ld. Departmental Representative submitted that payments in lieu of divorce were to be made in installments and there was no mention of lump-sum payment in the divorce agreement. He further argued that the divorce was executed in 1990 and the amount was received in the Financial Year 2007-08 in which year the assessee was not a wife of husband as the divorce had already taken place and, therefore, the amount received by her from him did not fit into the definition of relative as provided in explanation to section 56(2) (vi). Reliance in this respect was placed on the case law of Princes Maheshwari Devi v. CIT reported in 147 ITR 258 wherein it was held that monthly receipts of alimony were income taxable under the Act.
8. The Ld. AR on the other hand, argued that there was an agreement for custody, separation and divorce on 01.12.1989 and divorce finally took place on 20.04.1990 and till the date of divorce they were husband and wife and money was received pursuant to this agreement and the husband of assessee had agreed to pay this money in installments over a period of time which he did not honour and, therefore, the wife threatened for execution of divorce agreement and her husband, therefore, parted with the amount as full and final settlement in lieu of past monthly non payments and in lieu of future payments. It was further argued that the amount received was not without consideration and rather it contained consideration for extinguishing her right of living with her husband. It was further argued that the amount was a capital receipt and in this respect, the case law of Princes Maheshwari Devi of Pratapgarh v. CIT [1984] 147 ITR 258 was relied upon.
9. We have heard the rival parties and have gone through the material placed on record. We find that the divorce agreement was though entered in 1989-90 and monthly payments were promised to be paid to the assessee by husband, who did not pay the same and, therefore, the assessee threatened to take legal action against husband who therefore, paid a lump-sum amount for settlement of all her claims against the husband.
10. The Ld. CIT (A) has held that amount was paid by way of alimony only because they were husband and wife and appellant was spouse of the person who has paid the amount and, therefore, payment received from spouse did fall within the definition of relative. The Ld. CIT (A) has also held that the amount was received against consideration of relinquishing her personal right of claiming monthly payments as provided under the divorce agreement. In the case law of Princes Maheshwari Devi relied by both Ld. Departmental Representative and Ld. AR, the Bombay High Court had held monthly payments of alimony as taxable and lump-sum amount of alimony as tax free being capital receipt.
11. In the present case, though the assessee was to receive monthly alimony which was to be taxable in the each year from conclusion of divorce agreement but in this case monthly payments were not received and, therefore, were not offered tax. The receipt by the assessee represents accumulated monthly installments of alimony which has been received by the assessee as a consideration for relinquishing all her past and future claims. Therefore, we held that there was sufficient consideration in getting this amount and, therefore, section 56(2) (vi) is not applicable. Moreover, if the Revenue's arguments are to be accepted of it being monthly payments liable for tax as per Bombay High Court order, then also the amounts represented by past monthly payments can not be taxed in this year. Therefore, we held that amount was a capital receipt not liable to tax.
In view of the above facts and circumstances, we do not find any infirmity in the orders of CIT (A). Hence, the appeal filed by the Revenue is dismissed.
Court pulls up I-T staff for not acknowledging letters
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Mumbai, June 26:
The Bombay High Court has pulled up the Income-Tax office for the "casual approach" of its staff in not acknowledging letters received by them and their refusal to put therein the inward registration numbers.
Justice S.J. Kathawala, in a recent order, expressed unhappiness over this practice and asked the Income Tax authorities to take action against the erring clerks.
The judge also asked the department to forthwith issue a circular to the Commissioners of Income-Tax of all the wards making it compulsory for the clerks to sign and put a serial or registration number on copies of letters received by them before handing them over to the bearer of the original letter.
The court was hearing a complaint lodged by the official assignee of Mumbai on an insolvency petition filed by a person. The official assignee had forwarded a letter dated April 18 to Income Tax Officer of Ward 15 (2) (3) at Grant Road here. The letter was received by a clerk, who put a rubber stamp on the first page of the letter.
The deputy official assignee drew the attention of the court to the fact that despite the rubber stamp having been provided to give the registration number to the letter, the same is left blank by the concerned clerk. When he was asked to fill in the registration number and put his signature on the rubber stamp, he refused to do so.
"If such is the attitude of the clerk receiving mails of the ward offices of the Income-Tax Office, it would cause grave inconvenience to the persons addressing letters to the Ward Officer, more particularly, a common man, since he would not have the registration number qua the letter forwarded by him to the Income Tax authorities.
"He will also not have any particulars about the person who has received such a letter," the judge observed.
Pradeep Sharma, currently posted as Commissioner of Income-Tax in the same Ward, filed an affidavit regarding the practice being followed in the Department regarding receipt of correspondence. He said a person receiving such correspondence is required to put serial or registration number and then hand over the same to the bearer of the letter.
Sharma further said the receiving clerk is also required to enter the particulars of the letter serially in the Inward Dak Register, which is maintained date-wise for each particular year.
With regard to unsigned and non-serial letters available before the High Court, the Income-Tax Commissioner admitted that it was a mistake on the part of the receiving clerk, as he did not put his initial and serial number on the letter.
Thereupon, the court asked the authorities to take action against such erring clerks and forthwith issue a circular to all the offices directing the staff to sign and put a registration number on the letters received by them.
The judges also asked Prothonotary and Senior Master of the High Court to forward a copy of this order to the Commissioner of Income Tax (Judicial) who in turn was directed to forward the copy to all the Chief Commissioners, for being further forwarded to all the Commissioners of various wards for compliance.
(This article was published on June 26, 2013)
Keywords: income tax department, erring officials in income tax department, Your taxes are dear to the income tax department, but your returns are even dearer, so the department has ensured that they are kept in world-class safe keeping. Iron Mountain, the safe-keeper of the wills of Princess Diana, Charles Darwin, Bill Gates' Corbis photographic collection and the recordings of Frank Sinatra, makes sure that your tax returns are safe once they land with the department.
"Printed documents are bar-coded and then sent to the company's storage houses," said an income tax (IT) department official. Safe-keeping of records is a crucial part of the agreement with IT major Infosys, the contractor for the Central Processing Centre (CPC) in Delhi. The tax documents in double-sealed cartons are bar-coded and sent in GPS-enabled security vans to swanky storage centres with climate-controlled conditions.
The bar-coding ensures that no document reveals the identity to a normal eye, thereby ensuring its safety and security. The records will be kept for six years as the IT department can reopen an assessment for the past six years. After six years, the records will be destroyed, but according to well-documented global standards.
"Only the relevant records will be called for using the bar-codes and shredded in the presence of income tax officials, InfosysBSE 1.14 % officials and Iron Mountain in the presence of a video camera," the official added. Though the returns processed are e-filed, the paper records of verification forms and returns are still preserved.
At CPC, verification forms sent after the returns are filed for validation are scanned mechanically, matched with the e-filed returns and after processing, the advice for refund is sent out automatically to the refund banker to issue the refund to the taxpayer. The letters are printed and put in envelopes automatically and collected by India Post for despatch. CPC has processed more than 4.15 crore returns in the past three years of operations.
As against the average processing time of more than 12 months in the past, CPC has brought it down to 65 days, the official said. Faster processing of returns has also helped the department reduce the interest it had to pay on refunds: the interest rate on delayed refunds is down to 4.77% against an average rate of more than 17% in 2009-10.
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