IT : If agricultural land fell beyond 8 kms of municipal Limits on date of publication of relevant CBDT notification but fell within 8 kms on date of sale of land, it would still fall outside term 'capital asset'
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[2013] 34 taxmann.com 286 (Jaipur - Trib.)
IN THE ITAT JAIPUR BENCH
Smt. (Dr.) Subha Tripathi
v.
Deputy Commissioner of Income-tax, Circle - 6, Jaipur*
B.R. JAIN, ACCOUNTANT MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NO. 1129 (JP.) OF 2011
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
MAY 24, 2013
Section 2(14), read with section 54F, of the Income-tax Act, 1961 - Capital gains - Capital asset [Municipal limit] - Assessment year 2008-09 - Agricultural land in question though located beyond 8 kms. from municipal limits of Jaipur municipality as on date of impugned CBDT notification No. 9447 dated 6-1-1994 but subsequently it fell within distance of 8 kms from municipal limits due to expansion of municipal limits - Whether said land would still be regarded as agricultural land not falling in definition of capital asset in terms of section 2(14)(iii)(b) - Held, yes [Para 2.8] [In favour of assessee]
Circulars and Notifications : Notification No. 9447, dated 6-1-1994
FACTS
| ■ | During the assessment year, the assessee sold land and claimed the long-term capital gain arising from sale of the land as exempt as per section 2(14)(iii)(b), treating the land as agricultural in nature. | |
| ■ | The Assessing Officer held that the long-term capital gain was not exempt as the land was within a distance of 8 kms. from the municipal limits of Jaipur. However, the assessee contended that the land was not within distance of 8 kms. on date of publication of notification specifying such condition and the condition of 8 kms has to be considered as existing at the time of publication of said notification. The Assessing Officer, however, added the long-term capital gain on sale of land in question, which was confirmed by the Commissioner (Appeals). |
HELD
| ■ | The question arising for consideration is whether the land in question, though located beyond 8 kms. from the Municipal Limits of Jaipur municipality as on the date of notification dated 6-1-1994, but subsequently falling within the distance of 8 kms. from the Municipal Limits due to the expansion of the Municipal Limits, would still be regarded as agricultural land not falling in the definition of capital asset in terms of section 2(14)(iii)(b). There is no dispute that as on the date of said notification, the land in question was beyond 8 kms. from the Municipal Limits existing at that point of time. The dispute arose because of the expansion of Municipal Limits and thereby the said distance from the Municipal Limits as on the date of sale of the land in question was only 2 kms. The authorities below treated the land in question as not falling under the exclusion clause of section 2(140(iii)(b). | |
| ■ | There is no quarrel on the point that as per sub-clause (b) of clause (iii) of section 2(14), the notification of the Central Government is mandatory to bring the land in the definition of capital asset which is not located within the limits of the Municipality but located within the distance of 8 kms. from the local limits. So far, the agricultural land which was located in the limits of Municipal Limits, the same was to be treated as capital asset and no further requirement was to be examined. Since the land in question was located outside the local limits of Municipality, therefore, in order to determine whether the land in question fell under mischief of sub-clause (b) of section 2(14)(iii), the distance of 8 kms. had to be taken into account in terms of notification dated 6-1-1994. | |
| ■ | As per Explanation 2 of the said notification, dated 6-1-1994, the Municipal Limits is to be the Limits as existing on the date on which the notification is published in the Official Gazette. If the stand of the revenue is accepted that the distance of 8 kms. should be considered from the Municipal Limits existing as on the date of the sale of land, then it would render the notification issued by the Central Government as ineffective and unworkable. As it is made clear by Explanation 2 of the said notification that Municipal Limits is to be considered as existing on the date on which notification is published in the Official Gazette, therefore, the date of notification is relevant and material point to determine the distance of 8 kms. from Municipal Limits. There is no amendment or withdrawal of the said notification except a recent amendment that has been brought in the statute by the Finance Act, 2013 whereby the requirement of said notification has been dispensed with for invoking sub-clause (b) of clause (iii) of section 2(14) with effect from 1-4-2014. | |
| ■ | Accordingly, it is held that the land in question, which was located beyond 8 kms. from the Municipal Limits as on 6-1-1994, when the notification was published in the Official Gazette, the same would fall under the exclusion clause of the term 'Capital asset' as per provisions of sec. 2(14)(iii)(b). [Para 2.7] | |
| ■ | There are certain tests to be adopted for ascertaining whether a particular land is exempt from the purview of definition of expression 'asset' in terms of section 2(14)(iii). The most important aspect is the objects for exempting the agricultural land, which is to encourage cultivation and agricultural operation. Therefore, for the purpose of grating exemption, a restricted meaning has to be given to the expression 'agricultural land' as contemplated under section 2(14)(iii). It is settled proposition as held by the Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301, that what is really required to be shown is the connection with an agricultural purpose and user, and not the mere possibility of use of land, by some possible future owner or possessor for an agricultural purpose. It is not the mere potentiality but its actual condition and intended user which have to be seen for the purpose of exemption. The determination of character of land according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. [Para 2.8] | |
| ■ | In the case in hand, the issue has not been examined by the lower authorities by considering this aspect of actual use of the land in question by the assessee and the purchaser, because it has been treated as capital asset by invoking the provisions of sub-clause (b) of clause (iii) of section 2(14). Therefore, this issue is required to be examined after verification of the relevant facts. Since necessary relevant facts are not on record, therefore, this issue is set aside to the record of the Assessing Officer to verify relevant facts and records and then decide this aspect of the issue as per the guidelines laid down by the Supreme Court in the cases of Sarifabibi Mohmed Ibrahim (supra) and CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466. [Para 2.9] | |
| ■ | In the result, the appeal of the assessee is partly allowed for statistical purposes. [Para 3] |
CASE REVIEW
Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 (SC) (para 2.8) and CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) (para 2.9) followed.
CASES REFERRED TO
Karnail Singh v. State of haryana [2010] 326 ITR 501/[2009] 184 Taxman 257 (Punj & Har.) (para 2.2), CIT v. Satinder Pal Singh [2010] 229 CTR 82 (Punj & Har.) (para 2.2), Sant Ram v. Union of India [2010] 328 ITR 77 (Punj & Har.) (para 2.2), Lavleen Singhal v. Dy. CIT [2007] 111 TTJ 326 (Delhi) (para 2.2), Dy. CIT v. Capital Local Area Bank Ltd. [2009] 29 SOT 394 (ASR.) (para 2.2), Jasti Vayunandana Rao v.Department of Income-tax [IT Appeal No. 122 (Vizag.) of 2010, dated 29-10-2010] (para 2.4), Jasti Veera Sampuranamma v. Department of Income-tax [IT Appeal No. 260 and 261 (Vizag.) of 2011, dated 9-9-2011] (para 2.4), CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341 (Kar.) (para 2.4), Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 (SC) (para 2.8) and CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) (para 2.9).
Rajnish Agarwal for the Appellant. Subhash Chandra for the Respondent.
ORDER
Vijay Pal Rao, Judicial Member - This appeal by the assessee is directed against order of the ld. CIT(A)-II, Jaipur dated 12-10-2011 for the assessment year 2008-09 wherein the assessee has raised following grounds.
| (1) | The ld. AO and ld. CIT(A) erred in law and on facts in making an addition of Rs. 2,78,37,285/- as long term capital gain on transfer of agricultural land as against claim of its exemption being not a 'Capital Asset' as per Section 2(14)(iii)(b) of the I.T. Act. | |
| (2) | Without prejudice to Ground No. 1, the ld AO in law and on facts in substituting cost of improvement at Rs. 1,50,000/- relevant to the year 2000 in place of Rs. 3,46,775/- declared for the year 1992-93. | |
| (3) | Without prejudice to Ground No. 1 & 2, the ld. AO erred in law and on facts in not allowing deduction of Rs. 1,19,39,511/- u/s 54F invested in construction of new and independent residential house property. | |
| (4) | The ld. and ld. CIT(A) both erred in charging interest u/s 234B & 234C. |
2.1 The brief facts leading to the controversy are that during the assessment proceedings the AO noted that the assessee had purchased the land measuring 8 bigha for Rs. 64,000/- and 1 bigha 7 biswa at consideration of Rs. 29,700/- plus stamp duty. Both these adjoining lands were purchased by the assessee on 20-04-1990 and 4-07-1992 respectively. The land was situated at village Machwa, Tehsil Jaipur. The assessee sold the entire land through registered sale deed for a consideration of Rs. 2,80,85,000/- on 10-04-2007. The stamp valuation authority valued the land at Rs. 2,83,40,000/-. The assessee claimed the Long term capital gain arising from sale of the land as exempt income because the land in question is an agricultural land as per provision of Section 2(14)(iii)(b) of the Act. In order to confirm/ verify the location of the land, a notice u/s 133(6) of the Income Tax Act, 1961 was issued by the AO to the Tehsildar, Tehsil Jhotwara, District, Jaipur on 22-12-2010. The AO found from the information received from Tehsildar, Tehsil Jhotwara, District Jaipur on 24-12-2010 that land sold by the assessee was within the distance of 08 kms from the Municipal Limits of Jaipur Municipal Corporation (in short JMC). Therefore, the AO was of the view that in terms of the provisions of Section 2(14)(iii)(b) of the Act, the land sold by the assessee was not an agricultural land and Long term capital gain amounting to Rs. 2,81,76,361/- claimed by the assessee was not an exempt income. The AO proposed to tax the Long term capital gain to which the assessee has objected and submitted that as per CBDT Notification No.9447 dated 6-01-1994, the condition of 8 kms has to be considered as exists at the time of said notification and therefore, for determination of the location of an agricultural land the municipal limits exists as on the date on which notification is published in official Gazette shall be considered. The AO did not accept the contention of the assessee and assessed the tax on Long term capital gain arising from sale of land.
2.2 On appeal, the assessee has raised the similar contentions and also relied upon the Notification No.9447 dated 6-01-1994 as well as following decisions.
| 1. | Karnail Singh v. State of Haryana [2010] 326 ITR 501/[2009] 184 Taxman 257 (Punj & Har.) | |
| 2. | CIT v. Satinder Pal Singh [2010] 229 CTR 82 (Punj & Har.) | |
| 3. | Sant Ram v. Union of India [2010] 328 ITR 77 (Punj & Har.) | |
| 4. | Lavleen Singhal v. Dy. CIT [2007] 111 TTJ 326 (Delhi) | |
| 5. | Dy. CIT v. Capital Local Area Bank Ltd. [2009] 29 SOT 394 (ASR) |
2.3 The ld. CIT(A) did not agree with the contention of the assessee and held that position as on the date of sale of land is relevant and not the position as on the date of acquisition. Thus the ld. CIT(A) was of the view that it is irrelevant whether the land in question was beyond 8 kms from the local limits of the municipal body as on the date of Notification. The position of the land in question as on the date of sale of the land is relevant and since at the time of sale of the land, it was within the distance of 8 kms from the Municipal Limits because of the extension of the Municipal Limits, therefore, the land in question does not fall under the exclusion clause of Section 2(14) of the Act.
2.4 Before us, the ld. AR of the assessee has reiterated the contentions as raised before the authorities below. He has forcefully contended that as per provision of Section 2(14)(iii)(b) of the Act, the agricultural land in any area within the distance, not being more than 8 kms from the local limits of any municipality or cantonment board is excluded from the definition of the capital assets. He has further submitted that sub clause (b) mandates that Central Govt. after considering the scope of urbanization of a particular area specify this by notification in the official gazette. The notification in the official gazette in this regard is necessary to bring the agricultural land which does not fall under the jurisdiction of municipality but falling within 8 kms from the local Municipal Limits. The ld. AR has referred the explanation 2 to the Notification No. 9447 dated 6-01-1994 and submitted that it has been clarified in the notification itself that reference to the Municipal Limits or the limit of Cantonment Board in the Schedule to this Notification is to the limits as existing on the date on which the notification is published in the official gazette. Therefore, until and unless the said notification is amended or withdrawn, the Municipal limits as exists on the date of notification are relevant for the purpose of considering the distance of 8 kms. The ld. AR of the assessee has submitted that after the said notification, there is no amendment for changing Municipal Limits and therefore, the extension of the Municipal Limits will not effect the status of the assessee's land being beyond 8 kms from the limits as exist on the date of notification in the official gazette. In support of his contention, the ld. AR relied on the following decisions.
| 1. | Jasti Vayunandana Rao v. Department of Income Tax [IT Appeal No. 122 (Vizag.) of 2010 dated 29-10-2010] | |
| 2. | Jasti Veera Sampuranamma v. Department of Income Tax [IT Appeal Nos. 260 and 261 (Vizag.) 2011 dated 9-9-2011] | |
| 3. | CIT v. Madhukumar N. (HUF) [2012] 208 Taxman 394/23 taxmann.com 341 (Kar.) |
Thus the ld. AR of the assessee submitted that identical issue has been considered and decided by the ITAT Vishakhapatnam Bench wherein it has been held that to bring the land within the purview of clause (b) of Section 2(14)(iii) of the Act, the Central Govt. is required to issue a Notification in the official gazette and if the land was initially situated beyond 8 kms from the Municipal Limits but later on due to expansion of the limits, it falls within 8 kms and then in the absence of any notification as required u/s 2(14)(iii)(b) of the Act, it would not cease to be an agricultural land. The ld. AR has also referred to the Finance Act, 2013 wherein amendment has been brought in Section 2 (14) of the Act whereby earlier notification No. 9447 dated 6-01-1994 has been taken away and the conditions for exclusion of agricultural land from the purview of capital assets, and distance from Municipal Limits varies from 2 kms to 8 kms from the local limit of municipality or cantonment board depending upon population of the area of municipality or cantonment board. The ld. AR has also stressed that only by this amendment, the notification has been taken away which is effective from 01-04-2014 and prior to that this notification is applicable and the limits prescribed under the notification are applicable for the purpose of Section 2(14)(iii)(b) of the Act.
2.5 On the other hand, the ld. DR heavily relied upon the orders of the authorities below and submitted that provisions of section 2(14)(iii)(b), clearly provides the distance of 8 kms from the local limits of the municipality. It does not mention the limits of the municipality as on the date of notification because legislature has provided the limits of 8 kms having regard to the extent and scope for urbanization of the area and therefore, the legislature was very much conscious about the expansion of the Municipal Limits while fixing the distance of 8 kms from the local limits of the municipality or cantonment board. The notification dated 6-01-1994 provides the distance of 8 kms from the limits of municipality and the said limits cannot be reduced if subsequently the limits of municipality are extended.
2.6 He has further contended that in the present case, there is no dispute that the land of the assessee is within 2 kms from the Municipal Limits and therefore, this land does not fall under the exclusion clause of Section 2(14)(iii)(b). He has supported the findings of the ld. CIT(A) and submitted that the position as on the date of sale is relevant and not at the time of acquisition or at the time of notification. He submitted that at the time of sale when the land in question is within the limits as provided u/s 2(14)(iii)(b) then the same will be treated as capital asset.
2.7 We have considered the rival submissions as well as the materials on record. The question arises for our consideration and adjudication is whether the land in question though located beyond 8 kms from the Municipal Limits of Jaipur Municipality as on the date of notification dated 06-01-1994 but subsequently it falls within the distance of 8 kms from the Municipal Limits due to the expansion of the Municipal Limits would still be regarded as agricultural land not falling in the definition of capital asset in terms of Section 2(14)(iii)(b) of the Act. There is no dispute that Jaipur Municipality has been duly notified vide said notification dated 6-01-1994 and as on the date of said notification, the land in question was beyond 8 kms from the Municipal Limits exists at that point of time. The dispute arises because of the expansion of Municipal Limits and thereby the said distance from the Municipal Limits as on the date of sale of the land in question is only 2 kms and thereby the authorities below have treated the land in question as not falling under the exclusion clause of Section 2(14)(iii)(b) of the Act. There is no quarrel on the point that as per sub-clause (b) of clause (iii) of Section 2(14), the notification of the Central Govt. is mandatory to bring the land in the definition of capital asset which is not located within the limits of the Municipality but located within the distance of 8 kms from the local limits. So far, the agricultural land which is located in the limits of Municipal Limits, the same will be treated as capital asset and no further requirement is to be examined. Since the land in question is located outside the local limits of Municipality, therefore, in order to determine whether the land in question falls under mischief of sub-clause (b) of Section 2(14(iii) of the Act, the distance of 8 kms has to be taken into account in terms of notification dated 6-01-1994. As per explanation 2 of the said notification dated 6-01-1994, the Municipal Limits is to be the limits as existing on the date on which the notification is published in the official gazette. We quote the explanation 2 of the notification (supra) as under:-
"(2) The reference to the municipal limits or the limit of Cantonment Board in the Schedule to this notification is to the limits as existing on the date on which on which the notification is published in the official gazette."
If the stand of the Revenue is accepted that the distance of 8 kms should be considered from the Municipal Limit exists as on the date of the sale of land then it would render the notification issued by the Central Govt. as ineffective and unworkable/otios. As it is made clear by explanation 2 of the said notification that Municipal Limits is to be considered as existing on the date on which notification is published in the official gazette, therefore, the date of notification is relevant and material point to determine the distance of 8 kms from Municipal Limits. There is no amendment or withdrawal of the said notification except a recent amendment has been brought in the statute by the Finance Act 2013 whereby the requirement of said notification has been dispensed with for invoking sub-clause (b) of clause (iii) of Section 2(14) of the Act w.e.f. 01-04-2014. Thus it is discernible from the notification dated 06-01-1994 and the recent amendment in the statute whereby the said notification has been dispensed with that the distance of 8 kms has to be considered from the Municipal Limits as exists on the date of notification for the purpose of invoking sub-clause (b) of clause (iii) of Section 2(14) of the Act. Accordingly we hold that the land in question which was located beyond 8 kms from the Municipal Limits as on 6-01-1994 when the notification was published in the official gazette, the same would fall under the exclusion clause of the term 'capital asset' as per provisions of 2(14)(iii)(b) of the Act.
2.8 Since the authorities below have treated the land in question as capital asset by invoking sub-clause (b) of clause (iii) of Section 2(14) of the Act and it was accordingly held in threshold that the land in question falls within the distance of 8 kms from the Municipal Limits, therefore, the other aspect of the issue whether the land in question can be termed as an agricultural land and not falling under the definition of expression asset by reason of it continued as an agricultural land by satisfying all the requirements. There are certain tests to be adopted for ascertaining whether a particular land is exempt from the purview of definition of expression asset in terms of Section 2(14)(iii) of the Act. The most important aspect is the objects for exempting the agricultural land which is to encourage cultivation of land and agricultural operation. Therefore, for the purpose of granting exemption, a restricted meaning has to be given to the expression 'agricultural land' as contemplated u/s 2(14)(iii) of the Act. It is settled proposition as held by the Hon'ble Supreme Court in the case of Smt. Sarifabibi Mohmed Ibrahim v. CIT [1993] 204 ITR 631/70 Taxman 301 that what is really required to be shown is the connection with an agriculture purpose and user and not the mere possibility of user of land, by some possible future owner or possessor for an agriculture purpose. It is not the mere potentiality but its actual condition and intended user which have to be seen for the purpose of exemption. The determination of character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case.
2.9 In the case in hand, the issue has not been examined by the lower authorities by considering this aspect of actual use of the land in question by the assessee and the purchaser because it has been treated as capital asset by invoking the provisions of sub-clause (b) of clause (iii) of Section 2(14) of the Act. Therefore, this issue is required to be examined after verification of the relevant facts. Since necessary relevant facts are not on record, therefore, we set aside this issue to the record of the AO to verify relevant facts and records and then decide this aspect of the issue as per the guidelines laid down by the Hon'ble Supreme Court in the cases of Smt. Sarifabibi Mohmed Ibrahim (supra) and CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466.
2.10 The other grounds raised by the assessee in this appeal are consequential and depend on the outcome of the Ground No. 1 which we have set aside to the record of the AO. Therefore, the Ground No. 2 to 4 are also set aside to the record of the AO to decide after adjudication of Ground No. 1.
3. In the result, the appeal of the assessee is partly allowed for statistical purposes.
PROMITACST -Assessment orders u/s. 6A(1) 6A(2) & 6A(3) – Appellate Forum to be approached
K. V. Hari Babu, ACMA, CS
Central Sales Tax Act – Assessment orders under Sections 6A(1), 6A(2) and 6A(3) – Appellate Forum to be approachedThere is confusion in the minds of dealers/assessees as to the appellate forum to be approached in case of assessment orders passed under Sections 6A(1), 6A(2) and 6A(3) of the Central Sales Tax Act, 1956 (hereinafter referred to as "CST"). I wish to discuss on the subject in this article, with an intention to clarify the doubts in the minds of the dealers/assessees.
1. Introduction:
1.1. CST Act deals with taxation of inter-state sales made by the dealers. A sale which occasions movement of goods from one State to another or is effected by transfer of documents of tile to the goods during the movement from one State to another falls within the ambit of inter-state sale and liable for tax under the CST Act.
1.2. If the movement of the goods does not takes place as a result of sale, but effected by a dealer to his own place of business or to his agent or principal in another State, then there is no tax liability on the dealer, since there is no sale of goods, subject to establishment of movement of goods otherwise than as a result of sale. CST Act stipulates the conditions to be fulfilled by the dealer, to prove that the material movement has taken place not as a result of sale, but on account of stock transfer to his place of business or to his agent or principal in another State(s).
2. Conditions for granting exemption to stock transfers:
2.1. The dealer effecting stock transfer of goods from one State to his place of business or to his agent or principal in another State, shall obtain a declaration in Form 'F' signed by the authorised signatory in other State(s), issued by the VAT department in those State(s), indicating the details of stock transfers made on the declaration Form, such as stock transfer challan no., date, value of the materials, vehicle no., LR No., date etc. The dealer is also required provide proof evidencing dispatch of goods to his place of business or to his agent or principal in other State(s). If the dealer fails to furnish the Form 'F' declarations and prove movement of goods to another State other than by way of sale, then the stock transfers shall be treated as sales.
2.2. Rule 6A of the CST Act is reproduced hereunder for ready reference:
"6A. (1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of despatch of such goods and if the dealer fails to furnish such declaration, then the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale".
2.3. Rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules, 1957 (hereinafter referred to as "CST Rules") stipulates that the declaration referred to in sub-section (1) of Section 6A shall be in Form 'F'.
2.4. A single declaration form shall cover the stock transfers effected by the dealer during one calendar month.
2.5. In effect, a dealer, who effected stock transfer of goods to his place of business or agent or principal in another State shall obtain one Form 'F' for each of the months during the year. If there are stock transfers during all the twelve months in a year, the dealer is required to obtain twelve (12) 'F' Forms from his place of business or agent or principal in another State and submit to his assessing authority along with proof of dispatch of goods to get exemption.
2.6. The dealer has to submit forms obtained from his branch or agent or principal outside the State, within three months from the end of the month in which stock transfers took place.
2.7. In case the dealer fails to submit the 'F' Forms, the movement of goods shall be treated as a result of sale and CST shall be levied, as per Section 6A(1) of the CST Act.
3. Assessment of stock transfers:
3.1. The assessing authority is required to verify the Form 'F' declarations furnished by the dealer and proof of dispatch of goods other than by way of sale and if he is satisfied that the movement of the goods from one State to another State is not as a result of sale, he may pass assessment order, admitting the stock transfers and grant exemption from taxable turnover, since the movement of the goods has been occasioned otherwise than as a result of sale. Rule 6A(2) of the CST Act dealing with assessment is reproduced hereunder for ready reference:
"(2) If the assessing authority is satisfied that after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer under sub-section (1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall, subject to provisions of sub-section (3), be deemed for the purpose of this Act to have been occasioned otherwise than as a result of sale".
3.2. The rule stipulates that the assessing authority required to pass assessment order, treating the movement of goods otherwise than as a result of sale and exempt the transaction from CST, in case the assessing authority is satisfied that declarations and documentary evidence furnished by the dealer, in support of claim that goods are moved from one State to another State otherwise than as a result of sale, are true.
3.3. If the assessing authority after verification of the declaration forms and documentary evidence submitted by the dealer, in support of claim for stock transfers otherwise than as a result of sale, the assessing authority shall pass an order, rejecting the claim for stock transfers. In such a case, the movement of goods shall be treated as a result of sales and CST shall be levied on such transfers from one State to another.
4. Difference between orders under Section 6A(1) and 6A(2):
4.1. Order under Section 6A(1): The assessing authorities are required to pass orders under Section 6A(1) of the CST Act, in case the dealer failed to submit Form 'F' declarations. In this case, the claim for stock transfers is rejected for non-submission of 'F' Forms. Genuineness of the movement of goods otherwise than by way of sale is not decided in the orders passed under this Section. The order is purely on account of non-submission of 'F' Forms. Since 'F' Forms are not submitted, the claim from stock transfers otherwise by way of sale is rejected and tax is levied.
4.2. Order under Section 6A(2): Order under this Section is passed after verification of the 'F' Forms and documents in support of claim for inter-state movement of goods otherwise than by way of sale submitted by the dealer. The assessing authority may reject the claim of the dealer for exemption on stock transfers and levy CST on the such inter-state transfers treating the same as inter-state sales, if he is not satisfied about the movement of goods otherwise than by way of sale.
4.3. The basic difference between order under Section 6A(1) and 6A(2) is that in case of order under Section 6A(1) the demand is due to non-submission of 'F' Forms, while in case of order under Section 6A(2) the demand is due to levy of CST treating the movement of goods as a result of sale, rejecting the claim of the dealers that movement is otherwise than as a result of sale.
5. Appellate forum to be approached in case of orders under Section 6A(1) and 6A(2):
5.1. Orders passed for non-submission of 'F' Forms – Section 6A(1):
In case the order is passed under Section 6A(1) of the CST Act, rejecting the dealer's claim for stock transfers, for non-submission of the 'F' Forms, then the appeal lies before the next higher forum in the hierarchy of appellate forums. For ex., if the assessment order is passed by the Commercial/Sales Tax Officer/Asst. Commissioner, the appeal lies before the 1st appellate authority, who is generally Dy. Commissioner/Jt. Commissioner/Addl. Commissioner (Appeals) depending upon the designation of the 1st appellate authority. If the 1st appellate authority rejects the appeal, then the dealer has to file 2nd appeal before the 2nd appellate authority which is called Sales Tax Appellate Tribunal/Board or Tax Board etc., which is the highest appellate authority in the State.
5.2. The important point to be noted here is that once the assessment order is passed for non-submission of 'F' Forms, denying the claim for stock transfers, the appeal lies before the 1st appellate authority, whether the assessing authority clearly indicates that the order is passed under Section 6A(1) or not.
5.3. It is understood there is confusion or mis-conception as to the appellate authority to be approached in case of order under Section 6A(1) or order passed for non-submission of 'F' Forms. It is understood that VAT/Sales Tax authorities in some of the States have also advised the dealers that appeal lies before the highest appellate forum in the State i.e., Sales Tax Appellate Tribunal/Board, in case of orders passed for non-submission of 'F' Forms, citing the provisions of Section 18A of the CST Act.
5.4. Relevant provisions of Section 18A of the CST are reproduced hereunder for ready reference:
"18A. Appeals to highest appellate authority of State
(1) Notwithstanding anything contained in a State Act, any person aggrieved by an order made by the assessing authority under sub-section (2) of section 6A, or an order made under the provisions of sub-section (3) of that section, may, notwithstanding anything contained in the general sales tax law of the appropriate State, prefer an appeal to the highest appellate authority of the State against such order:
Provided that any incidental issues including the rate of tax, computation of assessable turnover and penalty may be raised in such appeal.
(2)……
(3)……
(4)……
(5)….
Explanation.— For the purposes of this section and sections 20, 21, 22 and 25 highest appellate authority of a State, with its grammatical variations, means any authority or tribunal or court, except the High Court, established or constituted under the general sales tax law of a State, by whatever name called."
5.5. It is very much clear from the provisions of Section 18 of CST Act that appeals to highest appellate authority of the State shall be preferred in case of orders passed under Section 6A(2) and 6A(3) of the CST Act.
5.6. Orders under Section 6A(2) are required to be passed by the assessing authority after verification of the Form 'F' declaration forms and documentary evidence in support of movement of goods otherwise than as a result of sale submitted by the dealer. Therefore, orders Section 6A(2) cannot be passed, if the declaration forms are not submitted by the dealer. In such a case, orders under Section 6A(1) can be passed.
5.7. Section 6A(3) deals with re-assessments by the assessing authority on discovery of new facts or by a higher authority on the ground that the findings of the assessing authority are contrary to the law. Evidently, Section 6A(3) covers re-assessments but not assessments. Therefore, original assessment orders passed by the assessing authorities are not covered by this Section.
5.8. In effect, Section 18A contemplates appeals to the highest appellate forum in the State in two cases:
(i) Original assessment orders passed by the assessing authority, wherein CST is charged on the materials moved from one State to another State, rejecting the claim of the assessee towards stock transfer of materials, after verification of the 'F' form declarations and documentary evidence submitted by the dealer in support of movement of goods.
(ii) Re-assessment orders passed by either the assessing authority or any higher authority.
5.9. The Section does not cover original assessment orders passed by the assessing authority for non-submission of 'F' forms, which are required to be passed under Section 6A(1) of the CST Act.
6. The ambiguity in the matter has been succinctly cleared by the judgment of the Hon 'ble Karnataka High Court in the case of Tropican Beverages Vs. State of Karnataka and Others [(2012) 54 VST 472 (Kar)]. It has been held by the Hon 'ble High Court that where the assessee could not produce Form 'F' to substantiate the exemption, then the question of conducting inquiry under Section 6A(2) does not arise at all. Consequently, the provisions of the Section 18A(1) of the CST Act do not get attracted in this case. Therefore, the appeal lies before the 1st appellate authority, but not before the highest appellate authority i.e., Appellate Tribunal. Dismissal of the appeals by the 1st appellate authority, on the ground that provisions of Section 18A(1) get attracted in this case and therefore appeal lies before the Karnataka Appellate Tribunal, is held to be invalid. The appellate authority is directed to decide the appeals as per the directions given by the High Court.
7. Conclusion:
(i) Dealers are advised to file appeals against the assessment orders passed for non-submission of 'F' forms before the 1st appellate authority, but not before the highest appellate forum in the State.
The assessment order is supposed to mention that the order is passed under Section 6A(1) of the CST Act. Even if the assessment order fails to mention that the order is passed under Section 6A(1) of the CST Act, the dealer is required to prefer appeal before the 1st appellate authority, but not before the highest appellate forum in the State.
(ii) Dealers are advised to file appeals before the highest appellate forum in the State i.e., Sales Tax Appellate Tribunal/Board or Tax Board, in case the order is passed either under Section 6A(2) or 6A(3) of the CST Act.
Order under Section 6A(2) relates to rejection of the claim for stock transfers after verifying the genuineness of the transactions. Re-assessment order is passed under Section 6A(3) by the assessing authority on discovery of new facts or by a higher authority on the ground that the findings of the assessing authority are contrary to the law.--
REI Agro Ltd vs. DCIT (ITAT Kolkata)
No s. 14A disallowance if satisfaction not recorded with reference to A/cs. Under Rule 8D(2)(ii) loans for specific business purposes cannot be included. Under Rule 8D(2)(ii) & (iii) investments which have not yielded income cannot be included
In AY 2008-09, the assessee invested Rs.103 crores in shares on which it earned tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds like capital and profits. It claimed that no expenditure had been incurred to earn the dividends and no disallowance u/s 14A could be made. The AO applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the CIT(A) reduced the disallowance to Rs. 26 lakh. On cross appeals, HELD by the Tribunal:
(i) When the AO does not accept the assessee's claim regarding the non-applicability/ quantum of disallowance u/s 14A, he has to record satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It has is to be done with regard to the accounts of the assessee. On facts, as there is no satisfaction by the AO, no disallowance u/s 14A can be made (Balarampur Chini Mills 140 TTJ (Kol) 73 (included in file) followed);
(ii) Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by way of interest which is not directly attributable to any particular income or receipt. This clearly means that interest expenditure which is directly relatable to any particular income or receipt is not to be considered under rule 8D(2)(ii). The AO has to show that the interest is not directly attributable to any particular income or receipt. In the assessee's case, the interest has been paid on loans taken from banks for business purpose. There is no allegation that the loan funds have been diverted for making investment in shares or for non-business purposes. The loans are for specific business purposes and no bank would permit the loan given for one purpose to be used for making any investment in shares. Also, the assessee has substantial capital & reserves. Accordingly, the interest on the loans cannot be included in Rule 8D(2)(ii);
(iii) Further, in Rule 8D(2)(ii), the words used in numerator B are "the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year". The AO was wrong in taking taken into consideration the investment of Rs.103 crores made during the year which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term "average of the value of investment" is used to take care of cases where there is the issue of dividend striping;
(iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in rule 8D(2)(ii). Thus, not all investments become the subject-matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income.
IT : Where notice under section 143(2) was dispatched to assessee only after dated fixed for hearing, there was denial of reasonable opportunity of hearing to assessee and, in such a case, impugned order passed by revenue authority was not sustainable as it violated principles of natural justice
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[2013] 34 taxmann.com 27 (Madras)
HIGH COURT OF MADRAS
Green Power Realtors (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle - II(2)*
V. DHANAPALAN, J.
W.P. NO. 9720 OF 2013
M.P. NO. 1 OF 2013
M.P. NO. 1 OF 2013
APRIL 23, 2013
Section 143 of the Income-tax Act, 1961 - Assessment - Issue of notice [Time of issue of notice] - Assessment year 2005-06 - Whether, revenue authority has to afford an opportunity of hearing to assessee in accordance with law, before proceeding to pass an assessment order - Held, yes - Whether, therefore, where notice under section 143(2) was dispatched to assessee only after date fixed for hearing, there was denial of reasonable opportunity of hearing to assessee and, in such a case, impugned order passed by revenue authority was not sustainable as it violated principles of natural justice - Held, yes [Para 8] [In favour of assessee]
FACTS
| ■ | The assessee-company was engaged in business of real estate development. For the relevant assessment year, the assessee did not file its return of income contending that it was not having any taxable income. | |
| ■ | The assessee received a notice under section 148 in compliance of which, the assessee filed return of income enclosing financial statements and connected documents. | |
| ■ | Subsequently, the assessee received another notice under section 143(2) to furnish some additional information in connection with return of income. | |
| ■ | In absence of any response from assessee, the assessment order was passed under section 143(2) read with section 147. | |
| ■ | The assessee filed instant writ petition raising a contention that since there was no timely service of notice issued under section 143(2), it did not get a proper opportunity of hearing in the assessment proceedings and in such a situation, impugned order deserved to be set aside as it violated the principles of natural justice. |
HELD
| ■ | From the material on record, it was found that there was no timely service of notice, dated 7-3-2013 because in said notice date of hearing was fixed as 14-3-2013 and due to over sight, it was stated to have been dispatched only on 16-3-2013 by the respondent, i.e., after the date of hearing and, therefore, there was denial of opportunity of hearing to the assessee before passing the impugned order, resulting in violation of principles of natural justice. It requires under law that the assessee should be heard in the matter before concluding the proceedings and, therefore, the revenue authority is bound to afford an opportunity of hearing to the assessee in accordance with law, before proceeding to pass an order. Hence, the impugned order passed by the respondent cannot be sustained and the same is liable to be set aside. [Para 8] |
Dr. Anita Sumanth for the Petitioner. T. Pramod Kumar Chopda for the Respondent.
ORDER
1. Heard Dr. Anita Sumanth, learned counsel for the petitioner and Mr. T. Pramod Kumar Chopda, learned Senior Standing Counsel appearing for the respondent.
2. The petitioner-Company calls in question the order dated 20.3.2013 passed by the respondent in PAN/GIR No.AABCG3714B, relating to Assessment Year 2005-06, seeking to quash the same.
3. Brief facts pleaded by the petitioner are as follows:
| (a) | The petitioner is a Company incorporated in 2000 and engaged in the business of Real Estate including development of the same. They entered into an agreement with M/s. Chaitanya Builders for sale of certain property. The purchase of the property was solely funded by an entity, namely M/s. Wescare (India) Ltd. The proposed purchaser M/s. Chaitanya Builders defaulted in effecting payments, resulting in filing of O.A.No.465 of 2004 before this Court and during the pendency of the proceedings, the parties came to a negotiated settlement and entered into a Deed of Compromise, whereby the proposed purchaser agreed to pay a demarcated sum of compensation. M/s. Wescare (India) Ltd. being the sole funder, the entire agreement including the receivable, comprising of monies including compensation, was assigned to M/s. Wescare (India) Ltd. The amount of compensation receivable by the petitioner, had been paid directly to the entity, namely M/s. Wescare (India) Ltd. which funded for the purchase of the land entirely. Accordingly, the transaction resulted in no profits or income accruing to the petitioner in terms of which it would be liable to tax. | |
| (b) | The petitioner maintains full and complete documentation, in which details of the above transaction were set out. All remittances in connection with the above transaction had been effected only through normal banking channels. Inasmuch as no income had accrued or arisen to the petitioner by means of the above transaction, the petitioner was advised that there was no liability to file a Return of Income in terms of the provisions of the Income Tax Act (for short, 'the I.T. Act'). Section 139 of the I.T. Act dealing with the furnishing of a Return, would come into play only in the event of Section 5 of the I.T. Act getting attracted. Section 5 being the charging Section, includes within the scope of total income, all income that has been received or was deemed to have been received in India or accrued or arisen or was deemed to have accrued or arisen outside India. The provisions of Section 5 are not attracted in respect of the petitioner's transaction. | |
| (c) | The petitioner received a notice of re assessment under Section 148 of the I.T. Act, dated 27.3.2012 in respect of the Assessment Year 2005-06, in compliance of which, the petitioner filed a Return of Income, dated 5.12.2012 enclosing complete financial statements and connected documents and the said Return of Income had been filed indicating the address of the Registered Office of the petitioner-Company, namely No.16, Cenatoph Road, Chennai-600 18. | |
| (d) | The petitioner thereafter received a notice under Section 143(2) of the I.T. Act, calling upon them to furnish some information in connection with the Return of Income and the authorised representative of the petitioner-Company appeared before the respondent and explained/clarified all the issues raised by the respondent. | |
| (e) | Subsequently, on 20.3.2013, the petitioner received another notice, dated 7.3.2013, addressed to No.7, 11th Avenue, Ashok Nagar, Chennai-83, when the respondent is aware of the address of the Registered Office of the petitioner-Company, i.e. No.16, Cenatoph Road, Chennai-18. The respondent on the earlier occasions, had been corresponding with the petitioner-Company only at the Registered Office address. The respondent deliberately corresponded with an erroneous address merely to deny the petitioner an opportunity of responding to the same. The Postal mark on the cover makes it clear that the cover itself was posted only on 16.3.2013, when the notice is dated 7.3.2013, fixing the date of hearing of the case as 14.3.2013. Immediately on receipt of this notice, the petitioner addressed a letter to the respondent on 20.3.2013 bringing it to their notice that the notice under Section 143(2), dated 7.3.2013, posting the matter for hearing on 14.3.2013, was received by the petitioner only on 20.3.2013 and this letter of the petitioner was received by the respondent on 21.3.2013 and the respondent admitted the position that the notice had been issued belatedly and that a fresh notice would be issued posting the matter for hearing afresh. | |
| (f) | The petitioner under the bona fide belief, was waiting for a notice of hearing and to their shock, they received an order of assessment passed under Section 143(3) read with Section 147 of the I.T. Act without reference to the specific request of the petitioner for grant of opportunity and the said order is passed in gross violation of the principles of natural justice and it is contrary to the provisions of law. | |
| (g) | The scheme of the I.T. Act provides that on filing of Return of Income in terms of Section 139, the same is to be proceeded in the manner set out in terms of Section 143, which deals with the procedures for assessment. A notice under Section 143(2) being a mandatory pre condition to the completion of an assessment under Section 142(3), is to be issued by the Assessing Officer in all situations where the Assessing Officer considers it necessary to ensure that the assessee has reported the correct income liable to tax and to afford an opportunity to the assessee to attend his office and produce evidence in respect of the issues arising in its Return of Income. Insofar as the notice issued subsequent to the date of hearing stated therein, the Assessing Officer deprived the assessee an opportunity required to be given prior to the framing of the assessment. Even assuming that the notice had been issued prior to the date of hearing, but had been received by the assessee subsequent thereto on account of postal or logistical delays, even then, the completion of assessment without granting an opportunity to the assessee, would amount to gross violation of the principles of natural justice. The respondent chosen to ignore the request of the petitioner seeking opportunity prior to completion of assessment and proceeded to complete the assessment, thereby, the basic requirement under the I.T. Act has not been fulfilled by the respondent. | |
| (h) | The impugned order of assessment for reopening of assessment on the basis of escapement of income, is contrary to law, insofar as the reasons for reopening the assessment have not been provided to the petitioner at any time during the assessment proceedings and the same are brought to the knowledge of the petitioner only on receipt of the impugned order of assessment. The petitioner has not been furnished with a copy of the Survey Report of the Deputy Director of Income Tax (Investigations) relied on by the respondent while passing the impugned order. | |
| (i) | The petitioner was incorporated as a Special Purchase Vehicle to pursue opportunities in Real Estate and owing to the paucity of funds which are required to engage in the business pursuits of purchase and sale of land and land development, M/s. Wescare (India) Ltd. solely financed them and the said M/s. Wescare (India) Ltd. was engaged primarily in the area of wind energy development and the operation and maintenance of wind farms and they availed of a term loan from Indian Renewable Energy Development Agency (IREDA) for the purpose of establishing a wind project in Andhra Pradesh. A security covenant in the term loan agreement with IREDA required M/s. Wescare (India) Ltd. to mortgage the acquisition of immovable property to IREDA by way of first mortgage. Though interested in pursuing Real Estate opportunities, there was an embargo on M/s. Wescare (India) Ltd. in pursuing the same; however, there was no prohibition on them in utilising their surplus funds in any manner that they chose and hence, they utilised their surplus funds in funding the business transactions of development of Real Estate with the petitioner. Pursuant to the compromise entered into duly by the parties and noted by this Court, M/s. Wescare (India) Ltd. was fully compensated by the petitioner in terms of the Memo of Compromise. | |
| (j) | The conclusions of the assessing authority are based on a misappreciation triggered by the fact that requisite opportunity was not provided to the petitioner to provide the necessary information and clarifications and the impugned order of assessment, dated 20.3.2013 has been received by the petitioner only on 3.4.2013 and it was despatched only on 30.3.2013, as seen from the Postal endorsement. The respondent is attempting to make it appear that the order of assessment has been despatched ten days prior to the date of actual despatch. The date of completion of assessment being 20.3.2013 is clearly an attempt to get over the petitioner's letter, dated 20.3.2013, duly received by the respondent and it highlights the lack of opportunity to the petitioner and it also lacks bona fide on their part. Hence, the petitioner has filed the Writ Petition challenging the impugned order of assessment, dated 20.3.2013 passed by the respondent. |
4. The learned counsel for the petitioner submitted that prior to completion of assessment, the respondent required certain information and for completion of their assessment, they issued notice, dated 7.3.2013 under Section 143(2) of the I.T. Act, fixing the date of hearing as 14.3.2013 and the said notice was despatched only on 16.3.2013 and it was duly received by the petitioner only on 20.3.2013, and thus it is clear that the despatch of notice itself is subsequent to the date of hearing and hence, the impugned order has been passed without affording an opportunity of hearing to the petitioner and therefore, it is contrary to law and passed in violation of the principles of natural justice.
5. Learned Senior Standing Counsel appearing for the respondent-Revenue, after getting necessary written instructions from the respondent, submitted that as there was no response from the petitioner-assessee, a notice dated 7.3.2013 under Section 143(2) of the I.T. Act was issued, fixing the date of hearing of the case as 14.3.2013 for clarifying certain issues. However, by over sight, the notice of hearing was despatched only on 16.3.2013, which fact was never brought to the notice of the undersigned therein, and therefore, the mistake is bona fide.
6. On the above background of pleadings, I have heard the learned counsel appearing for the parties and perused the material documents available on record.
7. It is seen that there was a notice dated 7.3.2013 issued by the respondent under Section 143(2) of the I.T. Act fixing the date of hearing of the case as 14.3.2013 for clarifying certain issues. It is admitted that the said notice was received by the petitioner only on 20.3.2013, i.e. after the date of hearing fixed on 14.3.2013. In this regard, the learned Senior Standing Counsel appearing for the respondent-Revenue produced a copy of the written instructions of the respondent, in PAN AABCG3714B/2005-06, dated 17.4.2013, wherein, it is stated as follows:
" .... .... .....
4. For the purpose of assessment proceedings, Shri Sivakumar, FCA and Authorised Representative of the assessee-company appeared and filed the various details called for. The Authorised Representative appeared on 27.12.2012. The case was posted for further hearing on 02.01.2013. The Authorised Representative appeared on 16.01.2013 and the case was adjourned to 21.01.2013. During the course of hearing, the Authorised Representative filed his written submissions along with necessary details and documents.
5. There was no response from the assessee company thereafter. A notice dated 07.03.2013 was issued u/s 143(2) of the Income-tax Act, 1961, posting the case for hearing on 14.03.2013, for clarifying certain issues. However, by oversight, the hearing notice was not despatched and was despatched only on 16.03.2013. This fact was never brought to the notice of the undersigned. The mistake thus is a bona fide mistake.
6. As per the hearing notice, the case was posted for hearing on 14th March 2013, at 11.30 AM. However, there was no response. Considering the fact that the assessment proceedings get time barred by 31.03.2013, the undersigned proceeded to complete the assessment and order dated 20.3.2013 was passed under Section 143(3) rws 147 of the Income-tax Act, 1961, raising a demand ....., after taking into consideration the details and documents available on record."
8. From the facts pleaded and on a perusal of the abovesaid written instructions, it is clear that as there was no timely service of notice, dated 7.3.2013 about the hearing dated 14.3.2013 and due to oversight, it was stated to have been despatched only on 16.3.2013 by the respondent, i.e. after the date of hearing, and therefore, there was denial of opportunity of hearing to the petitioner before passing the impugned order, resulting in violation of principles of natural justice. It requires under law that the assessee should be heard in the matter before concluding the proceedings and therefore, the authority is bound to afford an opportunity of hearing to the assessee in accordance with law, before proceeding to pass an order. Hence, the impugned order passed by the respondent cannot be sustained and the same is liable to be set aside and the matter should be remanded back to the respondent for fresh consideration.
9. At this stage, the learned Senior Standing Counsel appearing for the respondent-Income Tax Department submitted that the respondent should be safeguarded, since there is limitation period for passing orders on the assessment. Disputing this submission, the learned counsel for the petitioner submitted that when once the impugned order is set aside, the question of limitation does not arise.
10. Considering the above submissions of both the parties, it is observed that it is for the respective parties to adjudicate the matter in accordance with law, including the question of limitation.
11. With the above observations, the impugned order is set aside. The Writ Petition is allowed and the matter is remanded back to the respondent for fresh consideration and passing appropriate orders on merits and in accordance with law, after giving an opportunity of hearing to the petitioner and on following the procedures contemplated under Law. No costs. The Miscellaneous Petition is closed.
SUNILRegards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
IT : Even if benefit of trust is restricted to members of a particular religion, who are members of a particular church, it would be a charitable institution under section 2(15), eligible for registration under section 12A
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[2013] 34 taxmann.com 30 (Cochin - Trib.)
IN THE ITAT COCHIN BENCH
Fathima Matha Charitable Trust
v.
Commissioner of Income-tax, Kottayam*
N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT APPEAL NO. 30 (COCH.) OF 2012
MARCH 28, 2013
Section 2(15), read with sections 12A and 12AA, of the Income-tax Act, 1961 - Charitable purpose [Public, connotation of] - Whether for registration under section 12A, it is not necessary that object of trust should be to benefit whole of mankind or all persons in a country or State and it is sufficient if intention is to be benefit a section of public as distinguished from a specified individual - Held, yes - Whether, therefore, where benefit of assessee-trust was restricted to a particular religion, who were members of a particular church, trust would be a charitable institution under section 2(15), eligible for registration under section 12A - Held, yes - Whether, where assessee trust did not appear to do any charitable activity as it collected money from members of church, deposited it in bank and refunded it to lady members along with interest at time of marriage and details of collection and meeting of day-to-day expenses were not available, further examination was required before granting registration under section 12A - Held, yes [Para 10] [Matter remanded]
FACTS
| ■ | The assessee-trust sought registration under section 12AA. Since one of the objects of the trust restricted the benefits to members of a particular religion, that too to the members of a particular church, the Administrative Commissioner held that the activity of the trust was not of charitable nature and, thus, denied registration under section 12AA. | |
| ■ | On appeal, the assessee contended that though the assistance on occasion of marriage of girls was restricted only to the members of the parish/church, other charitable activities were extended to entire general public. |
HELD
| ■ | Admittedly, one of the objects of the assessee trust restricts the utilization of the funds to provide assistance to girls belonging to the Parish on the occasion of their marriage. As clarified by the assessee only members of the Parish are eligible for assistance on the occasion of marriage. The question that arises for consideration is where the benefit of the trust was restricted to a particular religion, who were members of a particular church, whether the institution would be a charitable institution within the meaning of section 2(15). [Para 5] | |
| ■ | Section 12AA empowers the Commissioner to grant or refuse registration after making necessary enquiry to satisfy about the genuineness of the activity of the trust or institution. Section 12AA(1)(a) also empowers the Commissioner to make such other enquiry as he may deem necessary to find out the genuineness of the activity of the trust or institution. In the present case, the Administrative Commissioner, in exercise of his powers found that the object of the trust was to provide assistance on the occasion of marriage of particular church members and not to the entire section of the people. Accordingly, the Commissioner doubted the genuineness of the activities of the trust. [Para 6] | |
| ■ | In the case before us, the judgment of the Apex Court in the case of Ahmedabad Rana Cast Association v. CIT [1971] 82 ITR 704 (SC) and the Allahabad High Court in the case of CIT v. Bharatiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 was not brought to the notice of the Administrative Commissioner while deciding the matter. From the impugned order of the Administrative Commissioner, it appears that an enquiry was conducted through the Additional Commissioner, who filed a report saying that money was collected from members of the church and the same was deposited in the assessee's bank account. At the time of marriage, the money was refunded to the respective lady member along with its interest. From the above, it appears that the taxpayer is not doing any charitable activity other than collecting money from the members of the church and depositing the same in the bank account of the assessee trust. At the time of marriage of the lady members it was refunded along with interest. Moreover, copy of the report said to be filed by the Additional Commissioner is not available on record. The details of collection of money and how it was deposited and how the taxpayer institution met its day to day affairs are not available on record. When the taxpayer collected money from the members of the church and deposited the same in the bank account and refunded the same alongwith interest, it is not known from where the assessee is getting money for meeting its day-to-day expenses. It is also not known whether the taxpayer is receiving any deposits or donation from third parties to meet the regular day-to-day activities. In the absence of any details, the matter needs to be re-examined by the Administrative Commissioner and bring on record the entire activity of the assessee trust. [Para 10] | |
| ■ | Accordingly, the impugned order of the Administrative Commissioner is set aside and the issue of registration under section 12AA is restored to the file of the Administrative Commissioner for reconsideration. The Administrative Commissioner shall re-examine the issue in the light of the judgment of the Apex Court and High Court referred (supra) and decide the same in accordance with law after providing reasonable opportunity of hearing to the assessee. [Para 11] | |
| ■ | In the result, the appeal of the taxpayer is allowed for statistical purpose. [Para 12] |
CASE REVIEW
CIT v. Bhartiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 (All) (para 7), Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) (para 8) and Shiya Dawoodi Bohra Jamat v. CIT [2011] 133 ITD 271/15 taxmann.com 154 (Ahd.) (para 9) followed.
CASES REFERRED TO
CIT v. Bhartiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 (All) (para 3), Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) (para 3), Shiya Dawoodi Bohra Jamat v. CIT [2011] 133 ITD 271/15 taxmann.com 154 (Ahd.) (para 3) and CIT v. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1) [1990] 186 ITR 728/53 Taxman 112 (All.) (para 7)
Jose Kappan for the Appellant. Smt. S. Vijayaprabha for the Respondent.
ORDER
N.R.S. Ganesan, Judicial Member - This appeal of the taxpayer is directed against the order of the Administrative Commissioner dated 25-01-2012 rejecting registration u/s 12AA of the Act.
2. Shri Jose Kappan, the ld. representative for the taxpayer submitted that the taxpayer trust was established with various objects. According to the ld. representative, one of the objects was to provide assistance on the occasion of marriage of girls belonging to Karikulam Parish. The ld. representative clarified that Karikulam is a place in the State of Kerala and 'parish' means the people attached to Karikulam church. According to the ld. representative, though the assistance on the occasion of marriage of girls is restricted to members of Karikulam Parish only, the other charitable activities are extended to entire general public. Therefore, according to the ld. representative, it cannot be said that the benefit of the trust was restricted to only a section of the people.
3. The ld. representative further submitted that the Allahabad High Court in CIT v. Bhartiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 (All) held that the benefit of the trust shall be to a section of the public and not to any specified individuals. The ld. representative has also placed reliance on the judgment of the Apex Court in Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) and submitted that it is not necessary that the object of the trust should be beneficial to the whole mankind or all persons in a state and it is sufficient if the object is for the benefit of a section of the public. It is sufficient that if the object is for the benefit of a section of public. The ld. representative has also placed reliance on the decision of the Allahabad Bench of this Tribunal in Shiya Dawoodi Bohra Jamat v. CIT [2011] 133 ITD 271/15 taxmann.com 154 (Ahd.) and submitted that when the benefit of the trust was available to a section of the public and not to some specified individuals registration u/s 12AA cannot be denied. According to the ld. representative, in the case of the taxpayer trust, the benefit of the trust was extended to entire members of the Karikulam Parish. Therefore, the Administrative Commissioner is not correct in rejecting the application for registration u/s 12AA of the Act.
4. On the contrary, Smt. S Vijayaprabha, the ld. DR submitted that one of the objects of the trust restricts the taxpayer to confine the benefits only to the members of Karikulam Parish. Therefore, it cannot be said that the benefits is be extended to a section of the public. According to the ld. representative, when the benefit of the trust was restricted to a particular religion, that too, to the members of a particular church, viz. Karikulam Parish, it cannot be said that the activity of the trust is of charitable nature.
5. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, one of the objects of the taxpayer trust restricts the utilisation of the funds to provide assistance to girls belonging to Karikulam Parish on the occasion of their marriage. As clarified by the ld. representative for the taxpayer, only members of the Karikulam Parish are eligible for assistance on the occasion of marriage. The question arises for consideration is when the benefit of the trust was restricted to a particular religion, who are members of a particular church, can we say that the institution would be a charitable institution within the meaning of section 2(15) of the Act?
6. We have also gone through the provisions of section 12AA of the Act. Section 12AA empowers the Commissioner of Income-tax to grant or refuse registration after making necessary enquiry to satisfy about the genuineness of the activity of the trust or institution. Section 12AA(1)(a) also empowers the Commissioner to make such other enquiry as he may deem necessary to find out the genuineness of the activity of the trust or institution. In the case before us, the Administrative Commissioner in exercise of his powers found that the object of the trust was to provide assistance on the occasion of marriage of particular church members and not to the entire section of the people. Accordingly, the Commissioner doubted the genuineness of the activities of the trust.
7. We have carefully gone through the judgment of the Allahabad High Court in Bhartiya Khatri Sewa Trust (supra). In the case before the Allahabad High Court, one of the objects of the trust was to spend money on the marriage of girls belonging to khatri community. The Allahabad High Court, after placing reliance on its earlier judgment in CIT v. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1) [1990] 186 ITR 728/53 Taxman 112 (All.)found that though marriage of children is considered as one of the obligatory actions of Hindus and is a religious duty of a high order; giving financial and other help on the occasion of marriage is regarded as a part of religious charitable activities. Therefore, the Allahabad High Court found that the taxpayer was eligible for registration as charitable institution.
8. We have also carefully gone through the judgment of the Apex Court in the case of Ahmedabad Rana Caste Association (supra). In the case before the Apex Court, the beneficiaries of the association were the members of the Rana caste or community, who are natives of Ahmedabad and other members of the community accepted by the caste according to its old custom and usage and staying in Ahmedabad. The Apex Court found that the mere fact that a person of Rane community, who was not an original native of Ahmedabad had to prove his credentials according to the custom and usage of that community to get admitted into that community did not introduce a personal element which would detract from the impersonal nature of the common quality. The Apex Court further found that to serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. Therefore, the Court further found that the section of the community sought to be benefited must be sufficiently definite and identifiable by some common quality of a public or impersonal nature. Accordingly, the Apex Court remanded back the matter to the file of the High Court for reconsideration.
9. We have also carefully gone through the decision of the Allahabad Bench of this Tribunal in Shiya Dawoodi Borha Jamat (supra). In the case before the Ahmedabad Bench, a charitable trust was established for the benefit of Shiya Dawoodi Bohra community. The Allahabad Bench of this Tribunal found that it could not be said that the taxpayer trust was established for private religious purpose. Accordingly, it was held that the trust was eligible for registration.
10. In the case before us, the judgment of the Apex Court and the Allahabad High Court was not brought to the notice of the Administrative Commissioner while deciding the matter. From the impugned order of the Administrative Commissioner, it appears that an enquiry was conducted through the Additional Commissioner, who filed a report saying that money was collected from members of the Karikulam church and the same was deposited in the taxpayer's bank account. At the time of marriage, the money was refunded to the respective lady member along with its interest. From the above, it appears that the taxpayer is not doing any charitable activity other than collecting money from the members of the Karikulam church and deposited the same in the bank account of the taxpayer trust. At the time of marriage of the lady members it was refunded along with interest. Moreover, copy of the report said to be filed by the Additional Commissioner is not available on record. The details of collection of money and how it was deposited and how the taxpayer institution meets its day to day affairs are not available on record. When the taxpayer collected money from the members of the Karikulam church and deposited the same in the bank account and refunded the same alongwith interest, where from the taxpayer is getting money for meeting its day-to-day expenses? It is also not known whether the taxpayer is receiving any deposits or donation from third parties to meet the regular day-to-day activities. In the absence of any details, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Administrative Commissioner and bring on record the entire activity of the taxpayer trust.
11. Accordingly, the impugned order of the Administrative Commissioner is set aside and the issue of registration u/s 12AA of the Act is restored to the file of the Administrative Commissioner for reconsideration. The Administrative Commissioner shall re-examine the issue in the light of the judgment of the Apex Court and High Court referred supra and decide the same in accordance with law after providing reasonable opportunity of hearing to the taxpayer.
12. In the result, the appeal of the taxpayer is allowed for statistical purpose.
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Implications in income-tax of purchases from suspicious dealers
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Jignesh R. Shah
B.Com., LL.B., F.C.A.
Advocate, High Court
1. Background and genesis of the burning issue
1.1 With the enactment of the Maharashtra Value Added Tax Act, 2002 ("MVAT Act") effective from 1 April 2005, there is now a multi-point levy of sales tax as opposed to the single-point levy of sales tax earlier. Under the new system sales tax or VAT is payable by each seller on the sale price charged by him (sections 3 and 4 of the MVAT Act). The primary liability to pay VAT is therefore that of the seller. However, under section 48 of the MVAT Act, the seller gets set-off of the VAT paid by the dealer from whom he has purchased the goods, upon fulfillment of the conditions laid down in section 48(2) of the MVAT Act. This is with a view to eliminate the cascading effect or double taxation. Effectively, the scheme of the law operates in such a manner that each dealer pays tax on the proportion of his own margin.
1.2 Under section 48(2) of the MVAT Act set-off of the VAT paid on the purchases made is granted to the dealer upon fulfillment of the following conditions: (a) the claimant dealer produces a tax invoice, containing a certificate that the registration certificate of the selling dealer was in force on the date of sale by him and the due tax, if any, payable on the sale has been paid or shall be paid; and (b) such certificate is signed by the selling dealer or a person duly authorized by him. Section 48(5) of the Act lays down, in effect, that the set-off shall not exceed the amount of tax actually paid. The Sales-tax Department has taken the stand that even if the dealer has produced a certificate to the above effect, if the person issuing the certificate has not actually paid the tax due, set-off will be denied to the purchasing dealer. Thus, instead of chasing the person who has not paid the tax due, the Sales-tax Department has chosen the easy route of denying the set-off and recovering the tax from the poor purchasing dealer, though he has fulfilled the conditions of section 48(2) by producing the requisite certificate. This view also finds favour with the Bombay High Court: Mahalaxmi Cotton Ginning Pressing and Oil Industries v The State of Maharashtra & Others (W. P. No. 33 of 2012—Order dated 11 May 2012) (SLP dismissed by the Supreme Court).
1.3 Owing to computerization in the Sales-tax Department, it was found out some time back that there were several mismatches between the input tax credit or set-off claimed by the purchasing dealers and the VAT actually paid by the dealers who sold goods to the claimant of the set-off. Thus, there were large amounts of set-off claimed by the purchasing dealers without there being corresponding actual payment of VAT by the concerned selling dealers. This unearthed a racket of bogus or hawala bills where the selling dealers have issued tax invoices but not paid the VAT. In effect, they have issued tax invoices without actually delivering the goods to the purchasing dealers. This has resulted in denial of the set-off claimed by the purchasing dealers and who are made liable to pay the difference, or, to put it differently, the tax liability of the dealer from whom they purchased the goods. The dealers are also made liable to pay interest under section 30 and, in some cases, penalty under section 29 of the MVAT Act. A list of some 2059 dealers who have issued tax invoices without actually paying the VAT has been displayed by the Sales-tax Department on its website mahavat.gov.in under the title "List of suspicious dealers who have issued false bills without delivery of goods".
1.4 On the basis of the information received from the Sales-tax Department, recently the Income-tax Department has started treating the purchases made by assessees from such dealers as "bogus purchases" and has started making disallowances in assessments under the Income-tax Act, 1961 ("the Act") in several cases involving crores of rupees. This has become a burning issue currently.
2. Basis of treatment of purchases as bogus; onus on the assessee and onus on the Department; evaluation of rival evidence
2.1 Several issues arise here in the context of the income-tax assessment:
(i) Can mere appearance of the name of the dealer on the website of the sales tax authorities be sufficient to treat purchases from him as bogus for income-tax purposes?
(ii) Can mere voluntary payment of differential VAT (and interest and penalty, if any, thereon) by the assessee by revising the VAT return and withdrawal/denial of the set-off under section 48 of the MVAT Act ipso facto tantamount to "admission" or "confession" of the purchases as bogus for income-tax purposes?
(iii) Would the position be different if, instead of the assessee voluntarily revising the VAT return, there is an assessment order by the Sales–tax Department denying the set-off and demanding the differential VAT and interest and penalty?
(iv) Can a copy of the statement made by such dealer before the sales tax authorities passed on to the AO be sufficient to hold purchases from such dealer as bogus in the assessee's hands for income-tax purposes?
(v) What defence can the assessee offer to any adverse statement by such a dealer? Is the AO duty-bound to provide a copy of the statement of the dealer made before the sales tax authorities to the assessee? Can the assessee ask for the cross-examination of the person making such statement? What if the AO does not provide a copy of the statement or an opportunity of cross-examination? [See, among others, Kishinchand Chellaram v CIT [1980] 125 ITR 713 (SC) and ITO v Permanand [2007] 107 TTJ (Jd) 395. See also CIT v Eastern Commercial Enterprise [1994] 210 ITR 103 (Cal).]
Going a step further, what if the person reiterates the adverse statement even in the cross-examination?
(vi) Is there an independent onus on the assessee otherwise also to prove the genuineness of the purchases? [See, among others, Indian Woollen Carpet Factory v ITAT [2003] 260 ITR 658 (Raj) and Asstt. CIT v Amar Mining Co. [2009] 121 ITD 273 (Ahd)(TM).]
(vii) What documents/evidence/details/workings should the assessee produce and what other steps should the assessee take to discharge the primary onus cast on him? When can the primary onus cast on him be said to be discharged?
(viii) Is it the responsibility of the assessee to produce the party from whom purchase has been made?
(ix) If the party does not appear, what can the assessee do? Can he ask the AO to issue a summons under section 131 of the Act? What if the summons issued by the AO is returned unserved with remarks such as "not found" or "left" or "not known"? Can this result in an inference adverse to the assessee?
Can the assessee absolve himself from the responsibility by contending that the purchases were made through a broker and hence the assessee did not know the supplier directly? Is, in such a case, the assessee supposed to produce the broker before the AO? In that event, should not the assessee have paid and debited brokerage expenses in his accounts?
(x) If the summons is served and accepted by the party but the party still does not appear, can it result in an adverse inference against the assessee?
(xi) Going a step further, if the party appears and makes a statement before the AO that the bills issued by him were bogus without actual delivery of goods, what would be the consequences?
(xii) If, on an enquiry into the bank account of the supplier, it is found that the supplier has withdrawn cash from his bank account immediately or shortly after the deposit of the assessee's cheque and has closed the bank account in a short time, what would be the impact?
(xiii) In order to prove the purchases as bogus is it necessary for the AO to prove that the supplier has paid back the cash to the assessee?
(xiv) Would the cancellation of the sales tax registration number of the supplier (at times retrospectively) (rightly or wrongly) by the Sales-tax Department have any bearing on the assessee's assessment?
(xv) Before treating the purchases as bogus and making disallowance/addition is it a precondition that the AO should reject the books of account under section 145(3)?
2.2 The above are only illustrative issues and not exhaustive. On a conjoint reading of several direct decisions on this issue—some in favour and some against—it is submitted that the issue boils down to weighing, appreciation and evaluation of the rival facts and evidence. It is observed practically that the weakest link in the chain of evidence is the non-appearance of the supplier before the AO in response to the summons issued under section 131 which is interpreted adversely. In this light, it is extremely important for the assessee to meticulously furnish all other documents, details, workings and evidence to prove the genuineness of the purchases.
2.3 While there are umpteen judicial decisions directly on this issue, a few are cited below as illustrations (and many more will be discussed in the meeting):
In favour of the assessee:
(i) CIT v Nikunj Eximp Enterprises Pvt. Ltd. (Bombay High Court) (ITXA No. 5604 of 2010—judgment dated 17 December 2012). (Corresponding ITAT decision ITA No. 8994/M/04—order dated 30 April 2010).
(ii) Babulal C. Borana v ITO [2006] 282 ITR 251 (Bom);
(iii) CIT v M. K. Bros. [1987] 163 ITR 249 (Guj);
(iv) CIT v Adinath Industries [2001] 252 ITR 476 (Guj) (Department's SLP dismissed by the Supreme Court—[2001] 247 ITR (St) 35);
(v) CIT v Hi Lux Automotive (P.) Ltd. [2009] 23 DTR (Del) 385;
(vi) Balaji Textile Industries (P.) Ltd. v ITO [1994] 49 ITD 177 (Mum);
(vii) ITO v Permanand [2007] 107 TTJ (Jd) 395;
(viii) ITO v Ghanshyam Steel Traders [1999] 107 Taman 126 (Ahd) (Mag);
(ix) G. G. Diamond International v Dy. CIT [2006] 104 TTJ (Mum) 809;
(x) Asstt. CIT v Kishan Lal Jewels (P.) Ltd. [2012] 147 TTJ (Del)
308;
(xi) Rajesh P. Soni v Asstt. CIT [2006] 100 TTJ (Ahd) 892;
(xii) Sagar Bros. v ITO [1996] 56 ITD 561 (Kol); and
(xiii) J. H. Metals v ITO [2001] 77 ITD 71 (Asr)(TM) (scrape purchase made in cash from kabadis on internal vouchers).
Against the assessee:
(i) CIT v La Medica [2001] 250 ITR 575 (Del);
(ii) Sri Ganesh Rice Mills v CIT [2007] 294 ITR 316 (All);
(iii) Indian Woollen Carpet Factory v ITAT [2003] 260 ITR 658 (Raj);
(iv) Vicky Foods Pvt. Ltd. v Asstt. CIT [2003] SOT 513 (Chd);
(v) Khandelwal Trading Co. v Asstt. CIT 55 TTJ (Jp) 261; and
(vi) Vijay Proteins Ltd. v Asstt. CIT [1996] 58 ITD 428 (Ahd).
3. Consequences of the purchases proved to be bogus
If the purchases are proved to be bogus, what disallowance/addition would follow? What could be the other consequences?
(i) Can the entire amount of purchases be disallowed, even if the corresponding sales and the closing stock are accepted as genuine? In case of a trading concern it is easier to establish a direct nexus between the purchases and sales, but what about a manufacturing concern where the goods purchased have lost identity due to consumption in the manufacturing process? This would also be so in case of builders/developers and infrastructure concerns. Further, what would be the implications when there is captive consumption of purchases for the production, erection and installation of a capital asset, such as a machine?
(ii) Can it result in addition to the gross profit rate? Which factors should be offered in defence by the assessee?
(iii) Can it result in addition as unexplained investment under section 69? If yes, addition of what amount—the entire amount of purchases or the peak balance? Would this not amount to making addition on presumptions?
(iv) Can it result in addition under section 69C as unexplained expenditure? If yes, addition of what amount—the entire amount or the peak balance?
(v) Can it attract disallowance under section 40A(3)?
(vi) Can it attract addition under section 68 as unexplained cash credit? See, for example, Indian Woollen Carpet Factory v ITAT [2003] 260 ITR 658 (Raj).
(vii) If purchases are treated as bogus, would the other related/incidental expenses be disallowed, such as, brokerage/commission, transportation/delivery charges, professional fees, etc.?
(viii) Can it attract disallowance under any other provision of the Act?
(ix) Charge of interest under various provisions of the Act.
(x) Imposition of penalty under section 271(1)(c).
(xi) Launching of prosecution under section 276C and/or section 277A.
(xii) Would the differential VAT paid by the assessee on denial of the set-off under section 48 of the MVAT Act be allowed as expenditure under section 37(1)? If yes, in which year—the year in which the purchases/sales made or the year in which the amount is actually paid, especially looking at section 43B?
(xiii) What about the deductibility of the interest and the penalty paid under the MVAT Act? Broadly speaking, interest which is of compensatory nature would be deductible as expenditure under section 37(1), but penalty, which is of penal nature, may not be deductible. For the principles in this regard, please see, among others, Prakash Cotton Mills P. Ltd. v CIT [1993] 201 ITR 684 (SC); CIT v Ahmedabad Cotton Mfg. Co. Ltd. [1994] 205 ITR 163 (SC) and CIT v N. M. Parthasarathy [1995] 212 ITR 105 (Mad).
4. Reopening of the concluded assessment based upon the information received from the Sales-tax Department
Can the AO reopen under section 147 of the Act the concluded assessments of the earlier years based upon the information received from the Sales-tax Department?
Section 147 postulates that the AO has to have a reason to believe that there is an escapement of income and he has to record reasons under section 148(2) before issuing a notice under section 148. Now, can the general statement made by a dealer before an altogether different authority, namely, the sales tax authority, to the effect that he indulges in supplying bogus bills without actually delivering goods, without specifically naming any assessee, constitute material to form a reason to believe for the AO for reopening assessment under section 147?
It is held that assessment cannot be made on the basis of material which is vague, general, non-specific and distant; that there has to be a live link or direct nexus between the material and the reasons recorded for reopening assessment under section 147. See, for example, the following decisions:
(i) ITO v Lakhmani Mewal Dass [1976] 103 ITR 437 (SC);
(ii) S. P. Agarwalla v ITO [1983] 140 ITR 1010 (Cal);
(iii) ITO v Dwarka Dass & Brothers [1981] 131 ITR 571 (Del);
(iv) Sarnath Services Co. P. Ltd. v ITO [2010] 329 ITR 110 (Del);
(v) CIT v SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Del); and
(vi) Signature Hotels P. Ltd. v ITO [2011] 338 ITR 51 (Del).
See also contrary/distinguishable decision in Phool Chand Bajrang Lal v ITO [1993] 203 ITR 456 (SC).
It is also held that reopening of assessment can be done on the basis of direct or circumstantial evidence but not on mere suspicion, gossip or rumour. See Sheo Nath Singh v Appellate Assistant Commissioner [1971] 82 ITR 147 (SC).
However, the moment the notice under section 148 for reopening of assessment under section 147 is received by an assessee, he should immediately ask for a copy of the reasons recorded for reopening, because the AO is obliged to give the same and also consider the objections raised by the assessee to the reopening. See, among others, GKN Driveshafts (India) Ltd. v ITO [2003] 259 ITR 19 (SC). If the AO fails to provide a copy of the reasons recorded till the completion of the assessment, though specifically asked for by the assessee, the reassessment order is invalid. See CIT v Videsh Sanchar Nigam Ltd. [2012] 340 ITR 66 (Bom).
5. Remedy for the assessee
(i) Appeal to the Commissioner of Income-tax (Appeals) under section 246A and thereafter to the Tribunal under section 253. Practically speaking, looking at the current atmosphere, the earliest forum before which an assessee can really hope to get some justice is the Tribunal.
(ii) Approaching the Settlement Commission under Chapter XIX-A of the Act.
(iii) Writ petition to the High Court under Article 226 of the Constitution challenging the validity of the notice for reopening of assessment.
(iv) In the event of prosecution, compounding of offences under section 279(2).
* * *
IT : Absence of notice under section 143(2) makes reassessment null and void
IT : Provisions of section 292BB are prospectively
■■■
[2013] 34 taxmann.com 211 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Income-tax Officer
v.
Aligarh Auto Centre*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 220 (AGRA) OF 2011
[ASSESSMENT YEAR 2001-02]
[ASSESSMENT YEAR 2001-02]
JANUARY 4, 2013
I. Section 147, read with section 143, of the Income-tax Act, 1961 - Income escaping assessment - General [Issue of notice under section 143(2)] - Assessment year 2001-02 - Whether where no notice under section 143(2) had been issued or served upon assessee, reassessment proceedings under section 147 would be null and void - Held, yes [Para 5] [In favour of assessee]
II. Section 292BB of the Income-tax Act, 1961 - Notice deemed to be valid in certain circumstances [Scope of provision] - Assessment year 2001-02 - Whether since provisions of section 292BB has been inserted by Finance Act, 2008 with effect from 1-4-2008, same would not apply prior to said date - Held, yes - Whether further, absence of notice is not curable under section 292BB - Held, yes [Para 5] [In favour of assessee]
CASE REVIEW-II
Kuber Tobacco Product (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273/28 SOT 292 (Delhi)(SB) and CIT v. Cebon India Ltd. [2012] 347 ITR 583/[2009] 184 Taxman 290 (Punj & Har) (para 5) followed.
CASES REFERRED TO
Areva T&D India Ltd. v. Asstt. CIT [2007] 294 ITR 233/165 Taxman 123 (Mad.) (para 4), Virendra Dev Dixit v. Asstt. CIT [2011] 331 ITR 483 (All.) (para 4), Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 4), CIT v. CPR Capital Services Ltd. [2011] 330 ITR 43/11 taxmann.com 150 (Delhi.) (para 4), CIT v. Cebon India Ltd. [2012] 347 ITR 583/[2009] 184 Taxman 290 (Punj & Har) (para 4), Dy. CITv. Mahi Valley Hotels & Resorts [2006] 287 ITR 360 (Guj.) (para 4), Sapthagiri Finance & Investments v. ITO [2012] 25 taxmann.com 341/210 Taxman 78 (Mad.) (Mag.) (para 4) and Kuber Tobacco Product (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273/28 SOT 292 (Delhi) (SB) (para 5).
K.K. Mishra for the Appellant. Akhilesh Kumar for the Respondent.
ORDER
Bhavnesh Saini, Judicial Member - This appeal by the Revenue is directed against the order of learned CIT(A), Ghaziabad, dt. 28th March, 2011 for the asst. yr. 2001-02 on the following grounds :
| "1. | Whether on the facts and circumstances of the case, the learned CIT(A) was right in holding that in absence of issuance of notice under s. 143(2), the assessment was null and void not appreciating provisions under s. 292BB of the IT Act, 1961 ? | |
| 2. | Whether on the facts and circumstances of the case, the learned CIT(A) was right in holding that issue of notice under s. 148 was without valid reasons and hence the assessment is a nullity ? | |
| 3. | The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 25,16,103 made under various heads like unexplained investment, loans raised and unexplained capital, when assessee failed to explain the same." |
2. We have heard the learned representatives of both the parties, perused the findings of authorities below and considered the material available on record.
3. On ground No. 1, the Revenue challenged the order of the learned CIT(A) in holding the assessment order to be null and void in absence of issuance of notice under s. 143(2) of the IT Act without appreciating the provisions of s. 292BB of the IT Act. The assessee-firm is engaged in the purchase and sale of motorcycles and spare parts. In this case, the return was filed declaring income of Rs. 1,6,203. Subsequently, notice under s. 148 was issued and the AO completed the reassessment proceedings under s. 143(3)/147 of the IT Act on 27th Dec, 2006 computing the total income of assessee at Rs. 26.22,306 by making additions. The assessee challenged the assessment order before the learned CIT(A) on the ground that since no notice under s. 143(2) has been issued in this case, therefore, reassessment proceedings are null and void. The comments of the AO were called for and in the remand report, the AO stated that on 9th Aug., 2006, Shri Manoj Kumar Agarwal, FCA appeared during the course of proceedings and stated that return already filed may be treated in response to notice under s. 148. The assessee similarly explained that since the original return was filed and in response to the notice under s. 148 of the IT Act, the assessee stated before the AO that the original return may be treated to have been filed in response to the notice under s. 148, therefore, there is compliance to the notice under s. 148. Copies of the acknowledgement of filing of the original return and intimation under s. 143(1) were also filed. The learned CIT(A), considering the explanation of the assessee and the material on record held that since no notice under s. 143(2) of the IT Act has been issued in the assessment proceedings, therefore, reassessment order is without jurisdiction and accordingly, reassessment order was set aside. The findings of the learned CIT(A) in para 7.1 of the impugned order are reproduced as under :
"7.1 On the issue of notice under s. 143(2):
This is now an undisputed fact that no notice under s. 143(2) was ever issued in this case.
The AO in remand report tries to justify this by arguing that as no details of return filed earlier, were furnished, so appellant's counsel simply stating that return already filed may be treated as return in response to notice under s. 148, was not enough. According to AO, there was no requirement of issue of notice under s. 143(2), because no return has been filed by the assessee.
I find that AO's stand tantamounts to distortion of fact. There is an order sheet entry dt. 9th Aug., 2006 in the assessment folder 'Shri Manoj Agarwal, FCA appeared and said that return already filed may be treated in response to the return already filed....'
Now, if AO wanted any specific details of return originally filed, he would have asked the counsel to furnish such details. Not asking anything clearly signals that AO was aware of the return filed earlier.
Further, the opening sentence of the assessment order itself accepts, without any doubt, that 'in this case, return was filed declaring income of Rs. 1,06,203'. The reference to income declared leaves no doubt that AO was in full knowledge of the original return of income.
Furthermore, had the AO been kept in dark about earlier return, the recording of satisfaction for notice under s. 148 (order sheet entry dt. 24th March, 2006) would have mentioned such fact of no return being on record.
And finally, if inspite of AO asking, counsel had not furnished the details regarding return originally filed, then such non-furnishing of details should have been mentioned in the assessment order, and assessment should have been completed under s. 144. In fact, while commenting in remand report, the AO has seemingly become aware of such anomaly, and has tried to underplay it by saying that s. 144 should have been mentioned in place of s. 143(3). But I find this only a face saving argument.
I find, all the facts and circumstances, considered together, establish that although appellant responded to notice under s. 148 by referring to original return, the AO made a serious legal error of not issuing any notice under s. 143(2) even till the time of completion of assessment under s. 143(3) r/w s. 147. This lapse has made the entire assessment liable to be quashed, as being null and void.
Following amendments and case law are relevant:
(i) Amendment:
Time-limit for issue of notice under s. 143(2) for the purposes of making assessment or reassessment under s. 147. Under the existing provisions of sub-s. (1) of s. 148 it has been provided that before making any assessment, reassessment or recomputation under s. 147, the AO shall serve a notice under s. 148, on the assessee, requiring him to furnish his return of income and the provisions of the Act shall apply as if the return furnished in response to such notice were a return required to be furnished under s. 139.
A proviso is inserted to sub-s. (1) so as to provide that where a return has been furnished during the period from 1st Oct., 1991 to 30th Sept., 2005, in response to a notice served under s. 148 and, subsequently a notice has been served under s. 143(2) after the expiry of twelve months specified in the proviso to sub-s. (2) of s. 143 as it stood immediately before the amendment of said sub-section by the Finance Act, 2002, but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in sub-s. (2) of s. 153, such notice shall be deemed to be valid notice.
Further, a proviso is inserted in the said sub-section so as to provide that where a return has been furnished during the period from 1st Oct., 1991 to 30th Sept., 2005 in response to a notice served under s. 148 and, subsequently a notice has been served under cl. (ii) of sub-s. (2) of s. 143 after the expiry of twelve months specified in the proviso to cl. (ii) of sub-s. (2) of s. 143, but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in sub-s. (2) of s. 153, such notice shall be deemed to be valid notice.
This amendment takes effect retrospectively from the 1st Oct., 1991.
(ii) Case of Punjab State Co-operative Supply & Marketing Federation Ltd. v. Union of India (2006) 206 CTR (P&H) 194 : (2007) 290 ITR 15 (P&H)
Proviso to s. 148 : Constitutional validity of proviso.
The proviso is applicable to particular period intended to validate notices. The proviso was necessitated by conflict in judicial opinion.
The proviso is valid.
IT Act, 1961, s. 148 (as amended by Finance Act, 2006, w.e.f. 1st Oct., 1991)
(iii) Case of CIT v. C. Palaniapan [2006] 284 ITR 257 (Mad.):
Notice under s. 148 was issued for reassessment.
However, notice under s. 143(2) was not issued within twelve months. It was held that the completion of reassessment proceedings was not valid.
In the case of a reopened assessment, issue of notice under s. 143(2) within twelve months is statutory.
(iv) Case of CWT v. HUF of H.H. Late J.M. Scindia [2008] 217 CTR (Bom.) 531 : [2008] 5 DTR (Bom.) 19 : [2008] 300 ITR 193 (Bom.)
Effect of s. 17 :
Procedure under ss. 14 to 16 applicable. Notice under s. 16(2) was issued beyond time-limit prescribed under provision of the Act. Reassessment was not valid. The crucial words in s. 17 of the WT Act, 1957, are 'and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under s. 14'. All the provisions of Chapter IV will have to be read in tandem so as to bring about a uniformity and certainty to an order of assessment.
The proviso to s. 16(2) is in the nature of an embargo on the AO, if the period has expired not to issue notice after that period. In other words, the AO is bound to accept the return as filed. Though the notice under s. 16(2) may be procedural, the proviso is not merely procedural but is in the nature of a limitation on the power of the AO not to proceed further in a case of reassessment under s. 17, the provisions of ss. 14 and 16 to the extent applicable, for the purpose of making an order of reassessment will have to be followed which will include the time-limit for notice under s. 16(2).
Once the language of s. 17 itself requires that the other provisions to be applicable considering the return as filed under s. 14, it contemplates that both procedural and substantive provisions will apply. Therefore, while invoking the powers under s. 17, the AO is bound by the mandate of the proviso to s. 16(2) and on failure the order of reassessment will be without jurisdiction and consequently the order of reassessment will have to be set aside."
4. The learned Departmental Representative in support of the grounds of appeal submitted that the learned CIT(A) failed to consider the provisions contained under s. 292BB of the IT Act. The learned Departmental Representative, however, admitted that no notice under s. 143(2) was ever issued in this case at reassessment proceedings. Copy of the order sheet is filed at p. 20 of the paper book. The learned Departmental Representative relied upon the decision of Hon'ble Madras High Court in case of Areva T&D India Ltd. v. Asstt. CIT [2007] 294 ITR 233/165 Taxman 123 (Mad.), in which it was held that when the assessee participated in reassessment proceedings—failure to consider the objections and failure to issue notice under s. 143(2)—reassessment order not void, but irregular and the matter was remanded to the AO to consider the issue afresh. On the other hand, the learned counsel for the assessee reiterated the submissions made before the authorities below and relied upon the following decisions:
| (i) | Decision of Allahabad High Court in the case of Virendra Dev Dixit v. Asstt. CIT [2011] 331 ITR 483, in which it was held that the AO must issue notice under s. 143(2) within the prescribed time-limit. The appeal of the assessee was allowed. | |
| (ii) | Decision of Hon'ble Supreme Court in the case of Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113, in which it was held that the issue of notice under s. 143(2) within prescribed time is mandatory. | |
| (iii) | Decision of Delhi High Court in the case of CIT v. CPR Capital Services Ltd. [2011] 330 ITR 43/11 taxmann.com 150, in which it was held as under : | |
| "Held, dismissing the appeal, that mere noting in the order sheet would not suffice and the copy of the notice issued under s. 143(2) of the Act was not available on record. Since the Department had failed to produce the copy of the notice under s. 143(2) of the Act, there was no option but to agree with the findings of the Tribunal that no such notice was prepared and served upon the assessee. In the absence of this mandatory requirement of issuing statutory notice under s. 143(2) of the Act, the Tribunal had rightly quashed the assessment as null andvoid." | ||
| (iv) | Decision of Punjab & Haryana High Court in the case of CIT v. Cebon India Ltd. [2012] 347 ITR 583/[2009] 184 Taxman 290 in which it was held as under : | |
| "CIT(A) as well as the Tribunal having recorded concurrent finding that the notice under s. 143(2) was not served on the assessee within the stipulated time, impugned assessment was not valid; absence of notice is not a curable defect under s. 292BB." | ||
| (v) | Decision of Gujarat High Court in the case of Dy. CIT v. Mahi Valley Hotels & Resorts [2006] 287 ITR 360 in which it was held— | |
| "Notice under s. 143(2) having been issued beyond the statutory period of one year from the end of the month in which the return was filed, CIT(A) and the Tribunal were correct in holding that the assessment was void ab initio; contention that the objection raised by the assessee was not maintainable as it was raised for the first time before the CIT(A) and that there was acquiescence and/or waiver on the part of the assessee as it had participated in the proceedings has no merit." | ||
| (vi) | Decision of Madras High Court in the case of Sapthagiri Finance & Investments v. ITO [2012] 25 taxmann.com 34l/210 Taxman 78 (Mag.), in which it was held that merely because the matter was discussed with the assessee and signature is affixed, it does not mean rest of procedure of notice under s. 143(2) stood complied with. |
5. We have considered the rival submissions and the material on record. It is not in dispute that the assessee filed original return of income and at the reassessment proceedings, the assessee contended before the AO that the original return filed earlier may be treated to have been filed in response to the notice under s. 148, which is also supported by order sheet entry dt. 9th Aug., 2006 (PB-20). It is also not in dispute that AO never issued any notice under s. 143(2) of the IT Act. The Revenue merely contended that the CIT(A) should have appreciated the provisions of s. 292BB of the IT Act. Sec. 292BB of the IT Act provides as under:
"292BB. Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, winch is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was—
| (a) | not served upon him; or | |
| (b) | not served upon him in time; or | |
| (c) | served upon him in an improper manner : | |
| provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment." |
The above provision has been inserted by the Finance Act, 2008 w.e.f. 1st April, 2008. Tribunal, Delhi Special Bench in the case of Kuber Tobacco Product (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273/28 SOT 292 (Delhi) held that s. 292BB has been inserted by Finance Act, 2008, has no retrospective effect and is to be construed prospectively. The assessment order under appeal is 2001-02. Therefore, the provision of s. 292BB of the IT Act would not apply in the case of the assessee. Further, no notice under s. 143(2) has been issued or served upon the assessee. Therefore, the decision of Hon'ble Punjab & Haryana High Court in the case of Cebon India Ltd. (supra) squarely applies against the Revenue. It was held in this case that absence of notice is not curable defect under s. 292BB of the IT Act. Considering the above discussion and the case law cited above, the sole objection of the Revenue is not maintainable. Therefore, the learned CIT(A) was justified in setting aside the entire assessment order. We, therefore, do not find any infirmity in the order of the learned CIT(A) for interference. Ground No. 1 of appeal of the Revenue is accordingly dismissed.
6. In view of the finding on ground No. 1 above, when entire reassessment order has been set aside and quashed by the learned CIT(A) and confirmed by us above, rest of the grounds in the Departmental appeal regarding reopening of assessment under s. 148 and deletion of addition on merits are left for academic discussion only. Therefore, we do not propose to decide the same at this stage, as no notice under s. 143(2) was issued in this case. Therefore, there would not be any valid reassessment proceedings under s. 147 of the IT Act and all resultant additions made in such reassessment order would stand deleted.
7. In the result, Departmental appeal fails and is dismissed.
[2013] 30 taxmann.com 277 (Article)
Events occurring after the end of account year vis-a-vis revised return
V.K. SUBRAMANI
CA
Introduction
1. Events occurring after the balance sheet date, i.e., after the end of the accounting year might confirm the state of affairs on the balance sheet date. Accounting Standard 4 (AS4) issued by the Institute of Chartered Accountants of India permits adjustment of assets and liabilities at the balance sheet date if the events occurring after that date confirm the conditions existing on the balance sheet date. However, events which do not relate to the conditions as at the balance sheet date cannot be adjusted and are non-adjustable events.
In the context of income-tax, when the return is filed and, subsequently, because of the events occurring after that date, if the books of account are revised and the returned income is also revised, whether the law permits such alteration of data having enormous significance on the income chargeable to tax vis-a-vis the tax liability discussed recently in Lok Housing & Construction Ltd. v. Asstt. CIT [2012] 27 taxmann.com 15 (Mum.)(Trib.). The host of issues in this case included : (i) validity of filing a revised return when there was no mistake or omission in the original return; (ii) revising the financial statements to give effect to the events occurring after the balance sheet date and derecognizing certain items of income which had not fructified in taxpayer's favour; and (iii) applicability of section 2(47) defining the term 'transfer' for immovable property held as stock-in-trade of the business of the assessee.
Factual matrix of the case
2. The assessee did not file its return of income for the assessment year 2007-08 till it was visited by a survey team in September, 2008. At the time of survey, the audited financial statements disclosed profit before tax of Rs. 142.45 crores. A statement was recorded from the Chairman and Managing Director of the company who agreed to file the return of income and to pay tax on the total income in consonance with the income recorded in the books of account of the company. A notice under section 142(1) was issued immediately and the assessee filed a return.
No tax was paid on the income admitted in the original return and a revised return was filed in January, 2009 declaring the total income as'nil' with revised annual accounts of the company. The reason for such revised return was stated as certain income recognized as per its accounting policy, viz, recognition of income from sale transactions on the basis of agreement of sale which were subject to execution of conveyance and compliance with applicable legal formalities, having become null and void had to be revised/reversed in the books of account.
The statutory auditors of the company qualified their report on the revision of accounts by stating that a company (being a public listed company) could not reopen and revise the accounts which were adopted at its annual general meeting. The Board of Directors revised the accounts based on the Circular of the Ministry of Finance and Company Affairs, dated 13-1-2003.
There were certain issues leading to part of the dispute, which were as follows:
| (i) | The Assessing Officer did not agree with the revised return which disclosed 'nil' income and, hence, completed the assessment by accepting the income admitted in the original return. The CIT (Appeals) held that the revised return of the assessee was non est,since the revised return could be filed only when the taxpayer 'discovers' any omission or wrong statement in the original return which was not known at the time of filing the original return. The revised return was filed in January, 2009 whereas the books of account were revised only in March, 2009. He, accordingly, held that the revision of accounts prompting revised return as not abona fide reason. | |
| (ii) | In the preceding years the assessee had carried out transactions such as tenements of housing projects which could be sold even after cancellation to some other party, whereas in the year under appeal the dispute was regarding transfer of land and rights therein. Cancellation of such transactions being mere agreement on paper had no commercial value upon cancellation and, hence, revision of accounts was resorted to by the assessee. | |
| (iii) | The Managing Director of the company accepted the audited financial statements and agreed to pay tax and file the return at the time of survey, i.e., 13-9-2008 and the return was originally filed on 23-9-2008 with a total income of Rs. 135.47 crores for the financial year ended 31-3-2007 without payment of tax on the admitted income. | |
| (iv) | The cancellation of sale contracts took place in November and December, 2008 and the revised return after derecognizing the incomes admitted earlier was filed in January, 2009. The books of account were, however, revised in March, 2009 much after the revised return was filed declaring 'nil' income. |
Validity of reversal of income
3. The Revenue argued that the transactions originally made in the financial year 2006-07 were sought to be reversed after two years, i.e.,in the financial year 2008-09 by revisiting and revising the books of account. It cited the Apex Court's decision in the case of CIT v. Shiv Prakash Janak Raj & Co. (P.) Ltd. [1996] 222 ITR 583/88 Taxman 536 in which the Apex Court discussed a classic decision in the case ofState Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 where interest on sticky loans was recognized in the books but was not transferred to revenue account and was held as chargeable to tax.
The assessee in this case had consistently been recognizing the cancellations in the respective years instead of giving their effect in the original year in which it was treated as income. It had done so in the financial years 2002-03 to 2005-06 by reducing cancellation of sale from its sales figure instead of altering the respective years' sales figure.
Validity of statement recorded at the time of survey
4. The accounting entries made by the assessee and statement of the Chairman and Managing Director to file the return of income was also one of the grounds for treating the original return as adequate for completing the assessment and ignoring the revised return filed subsequently. The statement of the Managing Director at the time of survey under section 133A was not binding on the taxpayer. There are so many decisions to hold that retraction of the statement recorded at the time of survey under section 133A as valid in law. This is because a statement recorded at the time of survey is not on oath and does not have evidentiary value [CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.) ; Paul Mathew & Sons v. CIT [2003] 129 Taxman 416 (Ker.)].
Dissecting the accounting policy
5. The assessee submitted that it had filed its original return relying on the first limb of the accounting policy, viz., recognizing revenue on the basis of agreement of sale and the revised return was based on the second limb of the same accounting policy, viz., 'subject to execution of conveyance and compliance of applicable legal formalities'.
The assessee submitted that when the parties had not acted upon the transactions/agreements and were cancelled by mutual agreement subsequent to filing of original return, it became aware of the wrong statement and, hence, was entitled to file a revised return under section 139(5).
Taxing real income and innocuous book entries
6. Cancellation of bookings at the end of the year could result in reversal of sale which could be given effect to in the books of account by revising the financial statements or even without such revision of books, the tax officers had to see substance over form which was a ticklish issue.
It is worth referring to the case of CIT v. Birla Gwalior (P) Ltd. [1973] 89 ITR 266 (SC) where the Apex Court referred to the famous case ofCIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 where the Apex Court observed as under:
"Income-tax is a levy on income. Though the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz. the accrual of income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account".
Similarly, hypothetical income, though recognized in the books of account, could not be subjected to tax was the dictum in Godhra Electricity Co. Ltd. v. CIT [1998] 225 ITR 746/[1997] 91 Taxman 351 (SC) where the increase in electricity tariff recognized in the books of account by the assessee-company was held as not chargeable to tax, since there was a long drawn out litigation and finally the assessee could not collect the same.
There was a definite substance in the argument of the assessee that events occurring after the balance sheet date when they confirm the state of affairs on the balance sheet date in spite of not giving effect in the books of account, the revenue must tax only the income and when the income had not resulted at all it could not be taxed merely on the basis of book entries.
Decision of the tribunal
7. The tribunal in Lok Housing & Construction Ltd. case held that income-tax is charged on the income, i.e., received or accrued or deemed have been received or deemed to have accrued in India to the taxpayer.
Such computation of income must be in accordance with the method of accounting regularly employed by the assessee. If the accounts are maintained under mercantile system it is necessary to see whether income has really accrued in favour of the assessee. When the agreements were cancelled it was necessary to decide whether income had really accrued to the assessee in that year?
It was held that the entries in the books of account were not conclusive of the matter. It cited the Apex Court's decision in Sutlej Cotton Mills' case (supra) where it was held that the assessee may by making entries which are not in conformity with the accounting principles, conceal profits or show loss but such entries cannot be regarded as conclusive in one way or the other. What is required is the true nature of the transaction and whether it has resulted in profit or loss to the assessee.
The objection of the Revenue as regards the entries in the books of account or revision of figures was held as not sustainable. It held that the five transactions in immovable property cancelled subsequent to filing of original return must be considered in the light of the true nature of the transactions and whether they have resulted in profit to the assessee. The bona fides of the cancellation of the agreement prompting reversal of revenue and income was not doubted or disputed and, hence, such argument was also negatived by it.
Section 2(47) not applicable to stock-in-trade
8. The last and final contentious issue was whether section 2(47) dealing with the term 'transfer' would cover 'agreement of sale' when the subject matter was stock-in-trade? The tribunal held that the agreements entered into by the assessee did not result in sale or transfer of properties which were stock-in-trade, as the title to the said properties did not pass on to the other parties and had remained with the assessee throughout.
The Madras High Court in R. Gopinath (HUF) v. Asstt. CIT [2010] 5 taxmann.com 80 held that sale/transfer of immovable property being stock-in-trade could not be equated with the transfer of capital asset and, hence, section 2(47) meant for transfer of capital asset could not be applied in the case of sale / transfer of stock-in-trade.
Conclusion
9. The decision of the tribunal discussing elaborately both concepts of accounting and tax law backed up by fund of legal decisions led one to the following conclusions:
| (a) | Section 2(47), having an elaborate definition of the term 'transfer', does not cover immovable property when it is forming part of stock-in-trade of the assessee. | |
| (b) | Entries in the books of account are not determinative of the taxability or otherwise of an item. When a transaction brings certain income, the eligibility for recognizing the same must be looked into before treating it as an income. When subject to certain conditions income could accrue in favour of the assessee satisfaction of those conditions becomes prerequisite for treating the same as income. | |
| (c) | Revision of books of account may be mandatory under some other law but under the Income-tax law, the books of account are indicative of the intention or underlying motive of the taxpayer. Regardless of such entries in the books of account taxability of a transaction is always based on the provisions of law, substance and other contextual factors. | |
| (d) | The statement recorded at the time of survey has no binding value. Hence, even after admitting to file the return at the time of survey, the assessee on valid grounds could retract the same and be taxed on the basis of the concept of real income. | |
| (e) | Legal embargo under some other law is not an impediment, so far as taxation of income and the substance of the event and transaction would decide accrual of income. Merely because the book results are adopted in the annual general meeting will not mean that the results are determined and no more variation is possible. | |
| (f) | This decision could be a trend setter for revising the book results, based on the events occurring after the balance sheet date, but such tendency would only reflect how nebulous our tax laws and the administrative procedures are. |
IT: Where assessee was in possession of a property and later on he sold right of possession to another person for a sum, it was necessary to decide first whether assessee's rights in property constituted a 'tenancy rights' within amended section 55(2)
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[2013] 34 taxmann.com 189 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'A'
Kishori Lal Basanti Lal Patodia
v.
Assistant Commissioner of Income-tax*
DINESH KUMAR AGARWAL, JUDICIAL MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
IT APPEAL NO. 8968 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
FEBRUARY 20, 2013
Section 55, read with section 45, of the Income-tax Act, 1961 - Capital gains - Cost of acquisition [Tenancy rights] - Assessment year 2007-08 -Assessee was in possession of a premise since 1975 and there was a lot of litigation about ownership of premise - NTC initiated legal proceedings for recovery of said premise and Estate officer passed an order directing occupants to pay a sum - Meanwhile NTC conducted a public auction of said property and 'A' was declared as successful bidder - By that time, assessee sold right of possession in property to one 'R' and claimed status of tenancy rights and computed gains in accordance with section 55(2) - Assessing Officer held that since assessee was never a tenant and he was occupying premises illegally, he did not have rights of tenancy - He, accordingly, brought income to tax under head 'income from other sources' - Whether since assessee sold 'right of possession' to 'R', revenue wrongly assumed that agreement was between 'A' and assessee - Held, yes - Whether since, 'tenancy rights' attained legal cognizance vide amended section 55(2), it was necessary to first decide if assessee's rights in property constituted a 'tenancy rights' within meaning of section 55(2) - Held, yes [Paras 8 to 10] [Matter remanded]
CASE REVIEW
Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 265/116 Taxman 77 (Bom.) (para 10) distinguished.
CASES REFERRED TO
Cadell Weaving Mill Co. (P.) Ltd. v. Asstt. CIT [1995] 55 ITD 135 (Bom.) (SB) (para 5) and Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 265/116 Taxman 77 (Bom.) (para 6).
Rakesh Joshi for the Appellant. Manoj Kumar for the Respondent.
ORDER
D. Karunakara Rao, Accountant Member - This appeal filed by the assessee on February 22, 2010 is against the order of the Commissioner of Income-tax (Appeals)-23 Mumbai, dated October 25, 2010 for the assessment year 2007-08.
2. In this appeal, the assessee raised the following grounds which read as under :
| "1. | The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in upholding the order passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961, which is illegal and bad in law. | |
| 2. | The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in concurring with the assessment of Rs. 85,00,000 received from surrender of tenancy/occupancy rights as 'income from other sources' instead of the declared head of income, i.e., 'long-term capital gain'. | |
| 3. | Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) ought to have held that the receipt is not taxable being consideration received for relinquishment of tenancy occupancy rights having no cost of acquisition. | |
| 4. | The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in sustaining the levy of interest under sections 234B, 234C and 234D of the Act." |
3. During the proceedings before us, at the outset, Shri Rakesh Joshi, learned counsel for the assessee mentioned that the above grounds revolve around one issue, i.e., whether the receipt of Rs. 85 lakhs received by the assessee is for surrender of tenancy/occupancy rights, it is taxable as "capital gains".
4. Ground No. 2 which is the core ground relates to the assessability of the sum of Rs. 85 lakhs receipts on account of surrender or transfer of tenancy/occupancy rights under the head "Income from other sources". In this regard, learned counsel mentioned that the assessee was an occupant of a premise i.e., "G-2" situated at 29, Nepean Sea Road, Mumbai. He is in possession of the said premises since 1975 and there was a lot of litigation about the ownership of the premises and initially Apollo Mills Ltd. claimed the ownership and subsequently National Textile Corporation (SM) Ltd. instituted legal proceedings for the recovery of the said premises. The Estate officer was appointed and an order dated October 25, 2004 was passed in this regard ordering the occupants to pay a sum of Rs. 91.56 crores. Meanwhile, National Textile Corporation (NTD) (SM) Ltd., conducted a public auction of the said property and M/s. Amur Real Estate Pvt. Ltd., was declared as successful bidder. By that time, the assessee sold the "right of possession" in the property to one Shri Rajan Kirtanlal Shah, 701, Landmark, Tagore Road, Santacruz (West), Mumbai -400 054 for a sum of Rs. 84 lakhs vide an unregistered agreement dated August 14, 2006 and claimed status of tenancy rights and computed capital gains in accordance with the provisions of amended section 55(2) of the Act. The assessee invested the gains in a residential house and claimed the benefits of section 54 of the Act. Finally, the assessee did not pay any tax on the receipt of Rs.84 lakhs. The Assessing Officer did not accept the said claim of the assessee and mentioned that the assessee was never a tenant, he was merely occupying the premises illegally and therefore, he does not have the rights of tenancy. Therefore, the rights sold by him are not tenancy rights, consequentially provisions of section 55(2) does not have any application to the present case. What is sold by the assessee is the "right of litigation" and the income was brought to tax under the head "Income from other sources". The assessee was not given a benefit of the provisions of section 54 in respect of residential house purchased by him at Vadala High.
5. During the first appellate proceedings, the assessee could not succeed and the Commissioner of Income-tax (Appeals) confirmed the views of the Assessing Officer and relevant discussion is given in para 2.3 of the impugned order. In support of his views, the Commissioner of Income-tax (Appeals) relied on the Special Bench decision of the Tribunal in the case of Cadell Weaving Mill Co. (P.) Ltd. v. Asstt. CIT [1995] 55 ITD 137 (Bom.) (SB) for the proposition that the tenancy right is merely a personal right and it is not a property right over the premises in such a case, there is no capital asset as per decision given to the capital asset in the Act. Relying on the said decision of the Tribunal, the Commissioner of Income-tax (Appeals) came to conclusion that the assessee being unauthorised occupant of the premises and who has merely a right to remain in possession the property, does not have any right of tenancy over the capital asset. The Commissioner of Income-tax (Appeals) confirmed the Assessing Officer's action in not treating the sum of Rs. 84 lakhs as income from the "capital gains" but also confirmed the taxability of the same under the head "Income from other sources" and consequent denial of deductions under section 54F of the Act. Aggrieved with the same, the assessee filed an appeal before the Tribunal with the above referred ground.
6. During the proceedings before us, learned counsel argued stating that the assessee has been in possession of the said property since 1975 and acquired the rights to remain in the property and transferred the said rights which constitutes tenancy rights to Shri Rajan Kirtanlal Shah for a sum of Rs. 84 lakhs vide agreement dated August 14, 2006 and these facts are undisputed. The Commissioner of Income-tax (Appeals) has also confirmed the fact that the assessee only has the right to remain in possession of the said property. Further, learned counsel brought to our notice that all the authorities, i.e., the Assessing Officer/Commissioner of Income-tax (Appeals) have not understood the transaction that yielded the sum of Rs.84 lakhs. They wrongly mentioned that the agreement was entered into between the assessee and M/s. Amur Real Estate Pvt. Ltd., which is not correct. Factually, the agreement was actually entered between the assessee and Shri Rajan Kirthanlal Shah as seen from page 1 of the paper. Further, he argued that the right of remain in possession of the property is also one of the rights relating to the capital assets therefore, such right cannot be considered as a personal right. Referring to the decision of the Special Bench decision in the case of Cadell Weaving Mill Co. (P.) Ltd. (supra), learned counsel mentioned that the said decision was reversed by the hon'ble Bombay High Court in the case of Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 265/116 Taxman 77 and mentioned that the surrender of tenancy rights could not be taxed as casual and non-recurring deposits under section the section 56 of the Act under the head "Income from other sources". Mentioning that the said judgment was pronounced by the hon'ble jurisdictional High Court in the context of the pre-amended provisions of section 55(2) of the Act, learned counsel submitted that the said provisions were subsequently amended. Consequentially, right to remain in possession being one of the different shades of tenancy right, constitutes a capital right in the asset and the same is liable to be taxed under the head "Capital gains" as per the amended provisions of section 55(2) of the Act. Further, he drew the analogy of the facts with that of the Cadell Weaving Mill Co. (P.) Ltd. (supra) and mentioned that this is also a case where the lease agreements were renewed after 1975 and the assessee continue to occupy the premises legally. That the assessee was also having a right to remain in possession and the hon'ble High Court in the absence of amended provisions of section 55(2) held it as a "personal right". It is a fact that the assessee never paid any rent since 1975.
7. Per contra, the learned Departmental representative heavily relied on the orders of the Assessing Officer as well as the Commissioner of Income-tax (Appeals). He has nothing to say with reference to the mistaken rights that the agreement dated August 14, 2006 was struck with M/s. Amur Real Estate Pvt. Ltd. Further, he argued that the said agreement is not be taken into account since the same is unregistered by the stamp duty authorities.
8. We have heard both parties, perused the orders of the Revenue and the judgments placed before us. The undisputed facts are that the assessee was a resident in the impugned property since 1975 and the ownership of the property was subject matter of litigation till the order was passed in the year 2004 and the assessee was to make specified payment to the owner as per the said order ; but the property in question was taken over by M/s. Amur Real Estate (P.) Ltd. through the process of auction. By this time, the assessee sold the rights to one Shri Rajan Kirthanlal Shah for sum of Rs. 84 lakhs vide the agreement in the year 2006 which is undisputedly named as a tenancy agreement. Unfortunately, the Revenue has not taken this fact into consideration and they erroneously assumed that the agreement is between the assessee and M/s. Amur Real Estate (P.) Ltd. This assumption of the Revenue is factually incorrect. The said sum of Rs. 84 lakhs was not received from M/s. Amur Real Estate (P.) Ltd., Shri Rajan Kirthanlal Shah is the payer of the said payment. In our opinion, the Assessing Officer and the Commissioner of Income-tax (Appeals) missed very important facts emanating from the said agreement dated August 14, 2006. Considering the above lacunae in the order of the Commissioner of Income-tax (Appeals), we find the matter must be set aside for readjudication by him after hearing the assessee and also after taking into consideration the contents of the above described agreement dated August 14, 2006. The Commissioner of Income-tax (Appeals) shall also consider the below mentioned discussion while passing a speaking order on the grounds extracted above.
9. We find from the facts narrated above that the assessee certainly earned some right in the property, legal or otherwise. The Assessing Officer names the same as the "right to remain in possession" or right to litigate, etc. As per the Assessing Officer, it does not constitute "tenancy rights" for the reasons that the assessee would never fit into the definition of a tenant. As per his order, any occupant to qualify the definition of a tenant, should have paid the rent vide a written or oral agreement and ideally, the landlord must receive the rent over the years or in cases of premises in litigation, which is the fact in this case, there must a Court order declaring the occupant as a tenant. The assessee has not furnished copies of the orders which contain the direction to the occupants of the premises to make payment to the landlord and there is no clarity on the nature of such payment. It is a fact that the said amount was not paid by the assessee to the landlord. There is need for perusal of the said orders/awards to determine the exact nature of the assessee if he is a tenant and earned tenancy rights. In the remand proceedings, the Commissioner of Income-tax (Appeals) shall also adjudicate how the "right to remain in possession of the premises or right to litigate" are different from "the right to tenancy" as both the rights allow the assessee to reside in the premises. Further, he shall also consider the fact that the sum of Rs. 84 lakhs was not paid by the landlord to qualify the normal practice in surrender of tenancy right. In this case, the assessee received sum from one Shri Rajan Kirthanlal Shah, who is undisputedly not the landlord. It is unknown if Shri Shah has surrendered the right in favour of the M/s. Amur Real Estate (P.) Ltd. In our opinion, the transaction between the assessee and the landlord is not the same qua the transaction between the assessee and Shri Rajan Kirthanlal Shah or M/s. Amur Real Estate (P.) Ltd. and the consideration received by the assessee shall have different treatments in sofaras the tax treatments are concerned. Considering the fact the lower authorities have not appreciated the facts properly in the adjudication, for want of basic facts, we are unable to provide conclusive adjudication here in this appeal.
10. Regarding the applicability of the judgment in the case of Cadell Weaving Mill Co. (P.) Ltd. (supra), we find that the said judgment belongs to the period prior to the amendment to section 55(2) of the Act and the tenancy rights are held "personal right" under the legal background of that period. It was held that the consideration received in that case is not chargeable to tax under the head "Income from other sources" as there was no law to call tenancy right as a capital right. The whole gamut of legal background is entirely different and in that sense, the said case is distinguishable. Therefore, there is need for interpreting the facts of the present case in the light of the amended law, where the "tenancy rights" attained legal cognizance vide the amended section 55(2) of the Act. As such there is need for first deciding if the assessee's rights in the property constitutes a "tenancy rights" within the meaning of section 55(2) of the Act. Further, the Commissioner of Income-tax (Appeals) shall consider the fact that the assessee transferred some right, whose exact nature is yet to be determined by the Revenue with the help of concrete basic facts to Sri Shah, who made a payment of Rs. 84 lakhs in lieu of such transfer. Thus, the Commissioner of Income-tax (Appeals) is directed to pass a speaking order in the lines narrated above after granting reasonable opportunity of being heard to the assessee. Accordingly, the grounds raised are set aside.
11. In the result, the appeal of the assessee is allowed for statistical purpose
IT : Absence of notice under section 143(2) makes reassessment null and void
IT : Provisions of section 292BB are prospectively
■■■
[2013] 34 taxmann.com 211 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Income-tax Officer
v.
Aligarh Auto Centre*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 220 (AGRA) OF 2011
[ASSESSMENT YEAR 2001-02]
[ASSESSMENT YEAR 2001-02]
JANUARY 4, 2013
I. Section 147, read with section 143, of the Income-tax Act, 1961 - Income escaping assessment - General [Issue of notice under section 143(2)] - Assessment year 2001-02 - Whether where no notice under section 143(2) had been issued or served upon assessee, reassessment proceedings under section 147 would be null and void - Held, yes [Para 5] [In favour of assessee]
II. Section 292BB of the Income-tax Act, 1961 - Notice deemed to be valid in certain circumstances [Scope of provision] - Assessment year 2001-02 - Whether since provisions of section 292BB has been inserted by Finance Act, 2008 with effect from 1-4-2008, same would not apply prior to said date - Held, yes - Whether further, absence of notice is not curable under section 292BB - Held, yes [Para 5] [In favour of assessee]
CASE REVIEW-II
Kuber Tobacco Product (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273/28 SOT 292 (Delhi)(SB) and CIT v. Cebon India Ltd. [2012] 347 ITR 583/[2009] 184 Taxman 290 (Punj & Har) (para 5) followed.
CASES REFERRED TO
Areva T&D India Ltd. v. Asstt. CIT [2007] 294 ITR 233/165 Taxman 123 (Mad.) (para 4), Virendra Dev Dixit v. Asstt. CIT [2011] 331 ITR 483 (All.) (para 4), Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 4), CIT v. CPR Capital Services Ltd. [2011] 330 ITR 43/11 taxmann.com 150 (Delhi.) (para 4), CIT v. Cebon India Ltd. [2012] 347 ITR 583/[2009] 184 Taxman 290 (Punj & Har) (para 4), Dy. CITv. Mahi Valley Hotels & Resorts [2006] 287 ITR 360 (Guj.) (para 4), Sapthagiri Finance & Investments v. ITO [2012] 25 taxmann.com 341/210 Taxman 78 (Mad.) (Mag.) (para 4) and Kuber Tobacco Product (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273/28 SOT 292 (Delhi) (SB) (para 5).
09839031710,0512-2302238,
0512-3296213
IT : Where assessee-HUF received a sum of Rs. seven lakh as gift from a relative of Karta of HUF, in terms of proviso to section 56(2)(v) amount so received could not be brought to tax
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[2013] 33 taxmann.com 483 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'C'
Harshadbhai Dahyalal Vaidhya (HUF)
v.
Income-tax Officer, Mehsana Ward - 4*
MUKUL KR. SHRAWAT, JUDICIAL MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
IT APPEAL NO. 1527 (AHD.) OF 2010
[ASSESSMENT YEAR 2005-06]
[ASSESSMENT YEAR 2005-06]
APRIL 26, 2013
Section 56 of the Income-tax Act, 1961 - Income from other sources - Chargeable as [Gift received by HUF] - Assessment year 2005-06 - Whether where assessee-HUF received a sum of Rs. seven lakh as gift from a relative of Karta of HUF, in terms of proviso to section 56(2)(v) amount so received could not be brought to tax - Held, yes [Para 7.5] [In favour of assessee]
Words and Phrases : Word 'relative' as occurring in proviso to clause (v) of section 56(2) of the Income-tax Act, 1961
FACTS
| ■ | The assessee in the capacity of HUF, received a sum of Rs. 7 lakh as gift from his uncle. | |
| ■ | The Assessing Officer brought said amount to tax under head 'income from other sources' by invoking provisions of section 56(2)(v). | |
| ■ | The Commissioner (Appeals) confirmed the order of Assessing Officer. | |
| ■ | On second appeal : |
HELD
| ■ | For the year under consideration i.e. assessment year 2005-06 the definition of "relative" was in respect of the relationship by an individual donee with close-relatives as defined therein. However, it is very pertinent to note that the operative section i.e., section 56(2)(v) was in respect of (i) individual, and (ii) Hindu Undivided Family (HUF). Meaning thereby the legislature has clear intention to include both i.e. individual as well as HUF within its scope. Thus, the section is applicable in respect of money exceeding Rs. 25,000 received without consideration either by an "individual" or by a "HUF". | |
| ■ | The proviso annexed to sub-section (v) states that the charging clause shall not apply to any sum of money received from any relative.Meaning thereby the proviso is applicable to both of them i.e., "individual" as well as "HUF". The donor "relative" can be either relative of "Individual" or "HUF", as the case may be. In other words, if an amount exceeding Rs. 25,000 is received as a gift either by 'individual' or by "HUF", then such an amount is chargeable to income under the head "Income from other sources" but an exception is provided in the first proviso that the said clause of charging the amount to tax should not apply to an amount received from any relative. | |
| ■ | Thus, the proviso prescribes that the charging of the gifted amount shall not apply to any sum of money received as a gift from a "relative"either by an "individual" or by "HUF".Naturally, the proviso annexed to clause (v) of section 56(2) does not restrict to an "individual" but it governs "individual" as well as a "HUF".With this understanding/interpretation of the main provisions, one has to examine the definition of "relative" given inExplanation annexed to this section. The position shall be absolutely clear that even in case of HUF, if a sum of money is received from any relative and that relative is as defined in Explanation then also the case would fall within the exception as prescribed in this section. [Para 7.1] | |
| ■ | In the instant case, since the assessee-HUF has undisputedly received a gift of Rs. 7 lakh from a relative who is an uncle of the Karta of this HUF,i.e. as per Explanation to sub-clause (iv); "brother or sister of either of the parents of the individual" hence fall within the category of the "relative" prescribed in the Act, therefore it would not be chargeable to tax in the hands of the assessee. [Para 7.5] | |
| ■ | In the result, assessee's appeal is allowed. [Para 8] |
CASE REVIEW
Vineetkumar Raghavjibhai Bhalodia v. ITO [2011] 46 SOT 97/11 taxmann.com 384 (Rajkot) (para 7.3) followed.
CASES REFERRED TO
Vineetkumar Raghavjibhai Bhalodia v. ITO [2011] 46 SOT 97/11 taxmann.com 384 (Rajkot) (para 4).
M.K. Patel for the Appellant. D.K. Singh for the Respondent.
ORDER
Mukul Kr. Shrawat, Judicial Member - This is an appeal filed by the Assessee arising from the order of ld. CIT (Appeals)-Gandhinagar dated passed for A.Y. 2005-06 and the grounds raised are reproduced below:-
| (1) | That on facts and in law, the learned CIT(A), has grievously erred in confirming addition of Rs. 7,00,000/- u/s.56(2) of the Act. | |
| (2) | That on facts and in law, it ought to have been held that the provisions of section 56(2) of the Act are not applicable. | |
| (3) | Without prejudice the learned CIT(A) has grievously erred in holding that the transfer of money from individual to HUF account is a gift. | |
| (4) | Without prejudice, it ought to have been held that the appellant's case is covered by the exception provided in section 56(2)(v) itself. |
2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) of the IT Act dated 30/03/2007 were that the assessee is assessed to tax under the status of "HUF". Further, it was noted by the AO that the HUF consists three coparcener. It was noted by the AO that an amount of Rs.7 lacs was introduced in the capital account. In support, the assessee has furnished a gift deed dated 1.10.2004 according to which, as per AO, one Shri Ishwarlal Ambalal Vaidhya made a gift of Rs.7 lacs to HUF. The AO's objection in this regard was as under:-
"Sub-section (v) to section 56(2) of the Income-tax Act, 1961 provides that any sum received without consideration by an Individual or HUF from any person on or after the 1st day of September, 2004 the income shall be chargeable to income tax under the head "Income from Other sources" and therefore, the amount is not an exempted income of the HUF. Definition appended below that section defines words "Relative" which clearly indicate that such relationship is applicable only in the case of individual and not to the HUF. Accordingly, gift accepted for and on behalf of HUF does not covered within the provision of that section. The assessee was therefore, requested to show cause vide letter dated 14/03/2007 as to why an amount of Rs.7,00,000 should not be treated in the hands of HUF as income from "Other sources u/s.56" of the Income-tax Act, 1961. Neither the assessee filed any written reply not his representative is attended to explain it. The assessee filed to avail this opportunity, it is therefore held that the assessee was not in a position to explain or filed his submission. I have, therefore, no alternative but to add an amount of Rs.7,00,000 as income from "Other Sources" u/s.56 of the Income-tax Act. Penalty proceedings u/s.271(1)(c) of the Income-tax Act initiated separately for furnishing inaccurate particulars of his income."
2.1 Finally, the said amount of Rs.7 lacs was taxed in the hands of the assessee-HUF. The matter was carried before the first appellate authority.
3. In the first round of appeal due to non-compliance, the ld. CIT(A) had passed an ex-parte order dated 24/1/2008 which was challenged before the Tribunal. The Respected Co-ordinate Bench "D" ITAT Ahmedabad vide an order dated 22/08/2008 in ITA No.1341/Ahd/2008 for AY 2005-06 has restored the issue back to the file of the CIT(A) with the direction to provide a reasonable opportunity to the assessee. In consequence thereupon, the appeal was then decided by ld. CIT(A) afresh on merits. It is worth to mention that the ld. CIT(A) has also called for a Remand Report from the AO. The assessee has explained that a gift was received from Ishwarlal Ambalal Vaidhya of Rs. 7 lacs on 1/10/2004 on behalf of the HUF. It was also claimed that there was a relationship between the donor and the donee as prescribed in the Explanation to section 56(2)(v) of the Act. The gift was received from the brother of parents, hence within the definition of "Relatives" as prescribed in the Explanation. There was a change in the stand on the part of the assessee that the gift was not made to Harshad D. Vaidhya-HUF but the gift was made to Harshad D. Vaidhya-individual. Because of the said change, the assessee has also revised the grounds of appeal before ld. CIT(A). As far as the transaction was concerned, it was informed that the said sum of Rs.7 lacs was gifted by the donor, namely Ishwarlal Ambalal Vaidhya vide cheque No.520601 of bank of Baroda which was given to Harshad D. Vaidhya and deposited by him in the individual account of BOB. It has also been explained that the HUF had received the said sum on 23/10/2004 vide cheque No. 3436 of Kheralu Nagarik Sahakari Bank Ltd. of Rs.7 lacs from the individual account of Harshadbhai Dahyabhai Vaidhya. There is a reference in the order of CIT(A) of a statement recorded on oath of Shri Ishwarlal Ambalal Vaidhya He has stated that he is a retired personand made a gift to his nephew (son of his elder brother) of Rs. 7 lacs i.e. to Shri Harshadbhai D. Vaidhya on 1.10.2004 vide cheque No.520601 of Bank of Baroda. He has also stated in the statement that a gift deed was prepared and the said amount was gifted to Harshadbhai in HUF capacity. Ld. CIT(A) has discussed various statements as also the remand report in detail. However, at the end, he has held that the transaction was hit by the provisions of section 56(2) of the Act and taxable in the hands of the assessee, for ready reference the relevant paragraph is reproduced below:-
"10. The definition of relative in section 56(2) is entirely in context of an individual. From the arrangement that the donor and appellant had undertaken once the gift had been made to Shri Harshad D. Vaidya in his individual capacity, the said money, though not taxable, had become the exclusive property of Shri Harshad D. Vaidya in his individual capacity. Any further transfer, therefore, has to be from Shri harshad D. Vaidya individual. Since section 56(2) is not recognizing any relative as far as an HUF is concerned, further transfer of the sum from the individual to his HUF is likely to hit by section 56(2). Like any other gift between two separate entities, the gift of a coparcener to his Karta has to have the same character, in as much as the coparcener looses his right over the property and some other individuals including the coparcener get the right over that but individual share is undefined. The amount goes to the common hotchpotch or the corpus. Therefore, the argument of the assessment wing that even if the revised statement and grounds are admitted, the appellant would still be hit by section 56(2) appears to be a sound proposition.
11. Therefore, keeping all the earlier referred proceedings in view as well as the factual and legal position, I hold that in the facts and circumstances, the gift in question is covered u/s.56(2) and therefore the same is liable to be added to the total income declared."
4. From the side of the assessee, ld. AR Mr. M.K. Patel appeared and placed reliance on the compilation containing pay-in-slips of Bank, photocopy of the cheques issued by the donor, Affidavit of the donor, statement recorded of the donor, etc. He has also argued that in one of the decision pronounced in the case of Vineetkumar Raghavjibhai Bhalodia v. ITO [2011] 46 SOT 97/11 taxmann.com 384 (Rajkot), for the legal proposition that the gift received by the assessee as a member of HUF, is a gift received from relatives; hence held not taxable u/s. 56(2)(vi) of the Act. He has also placed reliance on one of the observation of the Tribunal, i.e., quote "Therefore, the "relative" explained in Explanation to s.56(2)(vi) includes "relatives" and as the assessee received gift from his "HUF", which is "a group of relatives", the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the "relatives" therefore the same is not taxable under s. 56(2)(vi) includes "relatives" and as the assessee received gift from his "HUF", which is "a group of relatives", the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the "relatives" therefore the same is not taxable under s.56(2)(vi)." Unquote.
5. From the side or the Revenue, ld. Sr. DR Mr. D.K. Singh has supported the view taken by the authorities below.
6. Having heard both the sides at some length and perused the record available before us. We confine ourselves to the basic fact that the assessee HUF has received a gift of Rs. 7 lacs from one Shri Ishwarlal Ambalal Vaidhya. The objection of the AO was that as per the Explanation annexed to section 56(2)(v) the definition of relative do not include relationship viz-a-viz HUF, therefore the amount received from the donor by the HUF do not fall within the relationships as prescribed in the said Explanation.
6.1 At this juncture, it is worth to mention that Shri Ishwarlal Ambalal Vaidhya, the donor has gifted the said amount to the HUF of his nephew, namely, Harshadbhai Dahyalal Vaidhya (the appellant). This fact was clarified by the donor when his statement was recorded on oath during the proceedings. In his statement, he has stated that Shri Harshadbhai Dahyalal Vaidhya is son of his elder brother and an amount of Rs.7 lacs was given on 1/10/2004 to Harsahdbhai Dahyalal Vaidhya (Individual). He has also stated that the contents of the gift were duly recorded in the title gift-deed. Copy of the said gift-deed was made available to the Revenue Department. Later on, it was informed that the said gift-deed was revised on 25/10/2004. There was an another mention of a revised gift deed dated 28/03/2007. However, we consider it proper not to get confused by several statements recorded and supporting deeds were placed before the Revenue Authorities by the assessee on one hand and the donor on the other hand. We confine ourselves to the basic fact that the donor Shri Ishwarbhai Ambalal Vaidhya, a retired principal of Smt. M.A. Parikh Vidhyalaya has gifted a sum of Rs.7 lacs to his nephew, stated to be a M.D. (Gynecologist) doctor in Alka Hospital and accepted the gift as Karta of HUF. The undisputed fact is that Shri Harshadbhai D. Vaidhya has accepted the gift as a Karta of his HUF. The fundamental question on those facts, from the side of the Revenue Department is that the Explanation annexed to section 56(2)(v) is that the term "relative" as defined in Explanation is limited to the individuals or it can be extended in the cases of HUF receiving gift from a donor who otherwise fall within the list of the relatives as prescribed in Explanation.
7. A sub-section has been inserted by the Finance ((No.2) Act, 2004 w.e.f. 1.4.2005 and the relevant section reads as follows:-
Section 56
"(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
(2) In particular and without prejudice to the generality of the provisions of sub-section (1), the following income shall be chargeable to income-tax under the head "Income from other sources", namely :—
| ** | ** | ** |
[(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, [but before the 1st day of April, 2006,] the whole of such sum:
Provided that this clause shall not apply to any sum of money received—
| (a) | from any relative; or | |
| (b) | on the occasion of the marriage of the individual; or | |
| (c) | under a will or by way of inheritance; or | |
| (d) | in contemplation of death of the payer. | |
| [(e) | from any local authority as defined in the Explanation to clause (20) of section 10; or | |
| (f) | from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or | |
| (g) | from any trust or institution registered under section 12AA.] |
Explanation : For the purposes of this clause, "relative" means—
| (i) | spouse of the individual; | |
| (ii) | brother or sister of the individual; | |
| (iii) | brother or sister of the spouse of the individual; | |
| (iv) | brother or sister of either of the parents of the individual; | |
| (v) | any lineal ascendant or descendant of the individual; | |
| (vi) | any lineal ascendant or descendant of the spouse of the individual; | |
| (vii) | spouse of the persons referred to in clauses (ii) to (vi).]" |
7.1 For the year under consideration, i.e. AY 2005-06 the definition of "relative" was in respect of the relationship by an individual donee with close-relatives as defined therein. However, it is very pertinent to note that the operative section i.e. section 56(2)(v) was in respect of (i) individual, and (ii) Hindu Undivided Family (HUF). Meaning thereby the legislature has clear intention to include both the statuses i.e. Individual as well as HUF within its scope; as well as; within its operation. Thus, the Section is applicable in respect of money exceeding Rs.25,000/- received without consideration either by an "individual" or by a "HUF". Now we read the proviso annexed to sub-section (v) that the charging clause shall not apply to any sum of money received from any relative. Meaning thereby the proviso is applicable to both of them i.e. "individual" as well as "HUF". The donor-relative can be either relative of "Individual" or "HUF"; as the case may be. In other words, if an amount exceeding Rs.25,000/- is received as a gift either by "individual" or by "HUF", then such an amount is chargeable to income under the head "Income from other sources" but an exception is provided in the first proviso that the said clause of charging the amount to tax should not apply to an amount received from any relative. We hereby thus interpret that the proviso prescribes that the charging of the gifted amount shall not apply to any sum of money received as a gift from a "relative" either by an "individual" or by "HUF". Naturally, the proviso annexed to clause (v) of section 56(2) do not restrict to an "individual" but it governs "individual" as well as a "HUF". With this understanding/interpretation of the main provisions, we have to examine the definition of "relative" given in Explanation annexed to this section. The position shall be absolutely clear that even in case of HUF if a sum of money is received from any relative and that relative is as defined in Explanation, then also fall within the exception as prescribed in this section.
7.2 On our study, we have pondered upon the commentary of Sampath Iyengar "Law of Income Tax" 10th Edition - page 4611 and the comments are reproduced below:-
"Explanation to clause (v)
The Explanation to clause (v), which defines a relative, is wide enough to include spouse, brother or sister, their spouses, brother or sister of either parents of the individual and lineal ascendant or descendant of both the individual and his/her spouse and the spouse of any of the persons mentioned herein before. Hence, the definition covers only relatives of the individuals, so that the explanation seems to have overlooked the provision in the main section sparing liability for Hindu Undivided Family (HUF) in respect of gifts from relatives. Even the other exemption as for occasion on the marriage of individuals or inheritance could have not application to the HUF.
In the case of HUF, since the joint family refers to a group of persons, it either means that the exemption is available for gifts received by the HUF from any person related to the karta or any other family member or it may mean that since HUF cannot have relatives, all the gifts received by the HUF will be taxable. This inference does not obviously fall in line with the intent, because the provision does contemplate exemption of the gifts received by HUF, but has not indicated the relationship that is necessary for the purposes of HUF, because the definition of 'relative' in the Explanation refers to the relatives of the individual and not HUF, with the result that the exemption of gift from relatives is alive only to the extent of possible exemption for gifts by will or in contemplation of death."
7.3 Our above view gets support from an order of Respected Rajkot Bench pronounced in the case of Vineetkumar Raghavjibhai Bhalodia (supra). In that cited decision, an individual has received a gift from HUF. The AO was of the view that the HUF being not covered within the definition of "relative", therefore the gift received by the individual from the HUF was taxable. The Respected Bench has commented that as per the definition of "person" defined in section 2(31) includes "HUF". Therefore a HUF is distinctly assessable to tax as a person under the IT Act. The Bench has observed that, quote "Therefore, the expression "HUF" must be construed in the sense in which it is understood under the Hindu law as has been in the case ofSurjit Lal Chhabda v. CIT 1976 CTR (SC) 140 : (1975) 101 ITR 776 (SC). Actually an "HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of "relative" as provided in Explanation to cl. (vi) of s. 56(2) of the Act. The observation of the CIT(A) that HUF is as good as 'a BOI' and cannot be termed as "relative" is not acceptable. Rather, an HUF is 'a group of relatives'. Now having found that an HUF is 'a group of relatives', the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the 'group of relatives' from the HUF not exempt from taxation." Unquote.
7.4 The Respected Co-ordinate Bench has also examined the intention of the legislature and thereupon made an observation that, quote "11.2. Further, from a plain reading of s. 56(2)(vi) along with the Explanation to that section and on understanding the intention of the legislature from the section, we find that a gift received from "relative", irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of s.56(2)(vi) of the Act as a group of relatives also falls within the Explanation to s.56(2)(vi) of the Act. It is not expressly defined in the Explanation that the word "relative" represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case before us. In the case before us the assessee received gift from his HUF. The word "HUF", though sounds singular unit in its form and assessed as such for income-tax purposes, finally at the end a "HUF" is made up of "a group of relatives". Unquote.
7.5 The above observation has buttressed our view, however, in addition to the above observation of a Coordinate Bench, we have also noted that at some later stage, the legislature became conscious of the problem, therefore while drafting the analogous provisions of section 56(2)(vii), it was added in the definition of "relative" (ii) in case of a Hindu Undivided Family, any member thereof. This section is inserted by Finance (No.2) Act of 2009 w.e.f. 1./10/2009 which prescribes that where an individual or HUF receives in any previous year on or after 1st day of October-2009 any sum of money without consideration exceeding Rs.50,000/- the whole of the aggregate value of such sum shall be chargeable to income-tax. Provided that the charging clause shall not to apply to any sum of money received from any relative. As per this newly inserted clauses, (a) "relative" means in case of HUF any "member thereof". Although this subsequent change in the Act do not apply for the year under consideration being incorporated by Finance Act, 2009 but it appears that by insertion of these words Hon'ble Legislatures have visualized the difficulty, hence streamlined the provisions by removing the doubt. We therefore hold that since the assessee-HUF has undisputedly received a gift of Rs.7 lacs from a relative who is an uncle of the Karta of this HUF, i.e.; as per Explanation to sub-clause(iv); "brother or sister of either of the parents of the individual", hence fall within the category of the "Relative" prescribed in the Act, therefore not chargeable to tax in the hands of the assessee. Thus the Grounds raised are hereby allowed.
8. In the result, Assessee's appeal is allowed.
IT : Merely because some other persons are incidentally benefited from expenses incurred by assessee, same would not change character of expenses from being wholly and exclusively for purpose of business
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[2013] 34 taxmann.com 36 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - V
v.
Khambhatta Family Trust*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NOS. 257 & 258 OF 2013†
APRIL 4, 2013
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Advertising expenses] - Whether once it is found that expenditure has been incurred by assessee for publicity or advertisement, it is not for department to consider what commercial expediency justify such expenditure; mere fact that on account of expenditure incurred by assessee wholly and exclusively for its own business, incidentally some third party is also benefited is no ground to disallow any part of such expenditure - Held, yes - Assessee procured usage rights for brand "Rasna" for a valuable consideration and incurred advertisement expenses in respect of products manufactured by it under such brand name - Assessing Officer noted that by advertising said brand, other parties were also benefited and an intangible asset was created, which was not even owned by assessee and, therefore, expenses relatable thereto were not for business purpose of assessee but were capital in nature - He disallowed said claim - Whether since said expenditure was expended exclusively for assessee's business, merely because by virtue of such advertisements brand value of Rasna was enhanced and other manufacturers of brand were also indirectly benefited, it could not be said that expenditure incurred by assessee was not wholly and exclusively for its own business - Held, yes - Whether, therefore, disallowance was to be deleted - Held, yes [Para 9] [In favour of assessee]
FACTS
| ■ | The assessee procured usage rights for brand "Rasna" for a valuable consideration and incurred some advertisement expenses in respect of products manufactured by it under such brand name. It claimed deduction towards the said expenditure. | |
| ■ | The Assessing Officer noted that by advertising said brand, other parties were also benefited and an intangible asset was created, which was not even owned by the assessee and, therefore, the expenses relatable thereto were not for the business purpose of the assessee and in the alternative were capital in nature and he disallowed 30 per cent of said expenditure. | |
| ■ | However, the Commissioner (Appeals) allowed the assessee's claim. | |
| ■ | The Tribunal concurred with the Commissioner (Appeals). | |
| ■ | On further appeal: |
HELD
| ■ | It is apparent that while examining a claim for deduction under section 37, what has to be seen is whether the expenditure had been incurred wholly and exclusively for the purpose of the assessee's business and whether it falls under any of the exceptions carved out under sub-section(2B) thereof, and nothing more. Once it is found that the expenditure had been incurred by the assessee for publicity or advertisement, it is not for the department to consider what commercial expediency justified such expenditure. It is, therefore, not permissible for the Assessing Officer to scrutinize the claim any further to examine as to whether in the process any third party has also benefited. The mere fact that on account of the expenditure incurred by the assessee wholly and exclusively for its own business, incidentally some third party is also benefited is no ground to disallow any part of such expenditure. | |
| ■ | In the case at hand, the assessee procured usage rights for brand "Rasna" for a valuable consideration and incurred advertisement expenses in respect of products manufactured by it under such brand name. No part of the said expenditure was expended for any purpose other than for the assessee's business; merely because by virtue of such advertisements the brand value of Rasna is enhanced and other manufacturers of the brand are also indirectly benefited, it cannot be said that the expenditure incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, it is quite possible that such other manufacturers may also be benefited on account of such advertisements as the advertisements may enhance the value of the brand as a whole. In fact, such incidental benefits are bound to accrue to the owner of the brand as well as other users of the brand name when any of the users of such brand name advertises its products. However, merely because some other persons are incidentally benefited from the advertisements issued by the assessee, the same would not change the character of the expenses from being wholly and exclusively for the purpose of its business. Therefore, it is not a relevant circumstance for the purpose of considering allowability of expenditure under section 37. | |
| ■ | The Tribunal was, therefore, wholly justified in confirming the order of the Commissioner (Appeals) allowing such expenditure under section 37. There being no legal infirmity in the impugned order, the same does not give rise to any question of law, much less, a substantial question of law so as to warrant interference. [Para 2] |
M.R. Bhatt and Mrs. Mauna M. Bhatt for the Appellant.
ORDER
Akil Kureshi, J. - These Tax Appeals arise out of common judgment of the Income Tax Appellate Tribunal, Ahmedabad [" Tribunal " for short] dated 21st September, 2012. We may notice questions framed in Tax Appeal No. 257 of 2013, which read as under :-
(A) "Whether the Appellate Tribunal has substantially erred in deleting the disallowance of advertisement expenses amounting to Rs. 35,64,277/= [being 30% of advertisement expenses] ?"
(B) "Whether the Appellate Tribunal has substantially erred in totally overlooking the fact that marketing was not the responsibility of the assessee but of Rasna Private Limited and whether the Appellate Tribunal's decision is per verse ?"
(C) "Whether the Appellate Tribunal has substantially erred in not appreciating that by advertising Rasna Branch, an intangible asset was created, which was not even owned by the assessee and therefore, the expenses relatable thereto were not for the business purpose of the assessee and in the alternative were capital in nature ?"
(D) "Whether the Appellate Tribunal has substantially erred in not appreciating that the Brand "Rasna" was not owned by the assessee and any advertisement expenses incurred for augmenting the brand value cannot be considered to be wholly and exclusively for the purpose of its own business ?
(E) "Whether the order of the Appellate Tribunal is perverse on facts since it has not considered the fact that the Rasna Branch is not owned by the assessee ?"
2. From the judgment of the Tribunal under challenge, we noticed that the Tribunal relied on its earlier decision in case of this very assessee to rule in favour of the respondent. Learned counsel for the Revenue candidly pointed out that such earlier decision of the Tribunal was carried in appeal by the Revenue in Tax Appeal No. 352 of 2012, which was dismissed by Order dated 30th October, 2012, making following observations :-
"5. The facts are not in dispute. The assessee had claimed advertisement expenses incurred by it for promotion of its products under the Rasna brand name. It is not the case of the appellant that the assessee did not incur such expenditure for the purpose of its business. The case of the appellant is that as a consequence of such advertisements the Rasna brand name is built up, which is not owned by the assessee and that one Wave Foods Pvt. Ltd. with a larger turnover than the assessee does not incur any advertisement expenses but is benefited by the advertisements issued by the assessee and as such it cannot be said that the expenditure incurred by the assessee is wholly and exclusively for the purpose of its business. The question of allowability of expenditure incurred for advertising the products manufactured by the assessee, per se, is not in dispute. The department's case is that since other parties are also benefited through such advertisements, a certain portion of such expenses is required to be disallowed to that extent.
6. Sub-section (1) of section 37 of the Income Tax Act, 1961 lays down that any expenditure (not being in the nature of capital expenditure or personal expenses of an assessee) laid out or expended wholly and exclusively for the purposes of its business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business 37 lays down that notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. Thus, for expenditure to be allowable under section 37 of the Act it must have been (a) paid wholly and exclusively for the purpose of the business or profession and (b) must not be (i) capital expenditure, or (ii) personal expense. It must also not fall within any of the exceptions carved out under sub-section (2B) of section 37. I
7. Examining the facts of the present case in the light of the above statutory provision, insofar as the assessee is concerned it has paid the entire amount towards advertisement expenses incurred wholly and exclusively for its business. From the record of the case, it is apparent that the assessee has advertised only the products manufactured by it. Besides, it is not the case of the appellant that such expenditure is capital in nature or that it is in the nature of a personal expense, nor does it fall within any of the exceptions carved out under sub-section (2B) of the Act. Thus, the expenditure in question does satisfy the requirements of section 37 of the Act. Is it then permissible for the revenue to go beyond the statutory provision and say that such expenditure is not incurred wholly and exclusively for the purpose of the assessee's business merely because incidentally the owner of the brand and other manufacturers of products under the same brand name also obtain some benefit because of such advertisements?
8. At this juncture, it may be germane to refer to the decision of this court in Commissioner of Income Tax, Gujarat II v. Raipur Manufacturing Company Ltd., (supra) on which reliance has been placed by the learned counsel for the assessee. The facts of the said case were that the Raipur Mills Employees' Co-operative Credit Society Ltd., was established for the benefit of the employees of the assessee- company, Raipur Manufacturing Co. Ltd., and the members of the society were employees of the assessee-company. The managing committee of the society consisted of the officers of the assessee- company nominated by the assessee and some elected representatives of the members. In 1952, a sum of Rs. 2,35,268 was found to have been misappropriated from the funds of the society and one R, who was involved in this, was convicted and sentenced. The society went into liquidation. As the misappropriation had deprived the workers of the company of their hard earned savings lying with the society either in the form of share capital or deposits, there was great unrest among the workers. The situation was tense and there was likelihood of strike, violence and loss of life. Finally the matter was compromised with the consent of a majority of the members of the society in number and value, under a draft agreement between the liquidator, the company and three members of the managing committee of the society and the board of directors of the company passed a resolution on March 1, 1962, accepting the agreement, and on the same day a formal agreement was entered into between the company and the liquidator and the company paid to the liquidator an amount of Rs. 76,161 as per the agreement. The assessee-company claimed deduction of this amount of Rs. 76,161. The Income-tax Officer held that it was purely an ex gratia payment and rejected the claim of the assessee. On second appeal, the finding of the Appellate Tribunal was that the payment was made by the assessee- company to buy peace and to see that the employees were contented and that there was no disturbance in the smooth working of the factory because of strike, stoppage of work, or rowdyism in the mill premises and the Tribunal allowed the deduction. On a reference this High Court held thus:
"We may note that when the Tribunal dealt with the matter and allowed this deduction to the company it found that there was sufficient evidence on the record to show that the expenditure in question was incurred by the assessee-company not for any third party ' but only for itself with a view to preserve peace in its business. The Tribunal observed:
"Finally, we have also before us the board's resolution, dated March 1, 1962, and the agreement which was eventually arrived at between the concerned parties on that very date showing that the company had agreed to make the payment only to pacify the workers and to restore smooth working of its factory. It is thus very evident from all these materials that the payment in question was made not with a view to help the society nor out of any philanthrophical motives but purely from a business point of view. We find that there were two alternatives before the assessee-company, viz., one to stick to its legal rights and to resist all the demands of the workers to get reimbursement from the funds of the company, and thus to invite the possibility of a strike, stoppage of work and rowdyism in the mill premises and, as a result of this, a substantial loss in production. The second alternative was to make some sacrifice and thus to purchase peace so that the company could go on with its production and would thereby be able to make its usual profits with the co-operation of its workers. The company has obviously chosen the second alternative which to the best of its judgment was more conducive to its business interests. "
Thus, the finding of the Tribunal was that this payment was made by the assessee-company to buy peace and to see that the employees were contented and that there was no disturbance in the smooth working of its factory because of strike, stoppage of work or rowdyism in the mill premises.
There are a large number of decisions laying down as to what is "business expediency " and we need refer to only two cases , in thism connection The first case is of the Bombay High Court in Tata Sons Ltd. v. Commissioner of Income-tax , [1950] 18 ITR 460. There the assessee, a limited company, held the managing agency of another company. Under the managing agency agreement the assessee was to be paid a commission at a certain rate which was to be computed upon the net profits of the managed company. During the relent year the assessee paid voluntarily a certain sum as its share of the bonus which the managed company paid to some of its officers. The bonus paid by the managed company was not an unreasonable bonus and it was not such that a deduction could not be claimed by the managed company under section 10(2)(x) of the Indian Income-tax Act, 1922. The assess claimed that the payment made by it was a permissible deduction under section 10(2)(xv) of the Act of 1922 ; and the Bombay High Court held that looking at the payment from the point of view of commercial principles what the assess had done was something which had as its object increasing the profits of the managed company and thereby increasing its own share of the commission and, therefore, the sum claimed by the assessee was wholly and exclusively expended for the purposes of its business and was an allowable deduction under section 10(2)(xv) of the Act. Chagla C. J., delivering the judgment of the Division Bench, observed at page 467 of the report :
"Now, the decided cases show that one has not got to take an abstract or academic view of what is proper expenditure laid out or expended wholly and exclusively for the purposes of one's business. One has got to take into consideration questions of commercial expediency and the principles of ordinary commercial trading and the main consideration that has got to weigh with the Court is whether the expenditure was a part of the process of profit-making. If the expenditure helps or assists the assessee in making or increasing the profits, then, undoubtedly, that expenditure would be expended wholly and exclusively for the purposes of business. It has been urged that the payment made by the assessee was a voluntary payment. That is perfectly true, because there was no obligation whatever upon the assess to share the bonus with the managed company, and in sharing the bonus the assessee did an Act which it was under no obligation to do. But, even a voluntary Act if performed for commercial expediency would still be an expenditure falling within section 10(2)(xv) if it can be shown that it was intended for the purpose of making or increasing the profits of the assessee-company. It has also been urged that the payment has been made not to the employees of the assessee company but to the employees of the managed company, a different entity altogether. Here again, if it can be shown that there was a very important nexus between the assessee-company and the managed company which necessitated the assessee-company making the payment to the employees of the managed company, then again it would be possible for the assessee company to satisfy us that the expenditure was one which fell within the ambit of section 10(2)(xv). Now, it cannot be seriously disputed that the bonus was paid by the managed company to their employees in order to increase the efficiency of the working of the company. An increased efficiency of that company would incidentally result in higher and better profits, and the assessee-company would be as much interested in the working of the managed company being more efficient as the managed company itself. Whatever tended to increase the profits of the managed company would also tend to increase the income and profits of the assessee company. Therefore, it cannot be suggested that the assessee-company had an indirect or ulterior motive in making this payment. The only motive by which it was actuated was a purely commercial and pecuniary one and that was to see that more profits were made by the managed company so that its own commission should thereby be increased."
The other decision, which has a bearing on the point, is our own decision in J.R. Patel and Sons (P.) Ltd. v. Commissioner of Income-tax ,[1968] 69 ITR 782 (Guj.), and there we held that in deciding whether a payment was made for purposes of business, the correct approach would be to see whether it was made on grounds of commercial expediency for the ultimate benefit of the business. Whether that benefit is to accrue immediately or after a lapse of time and whether directly or indirectly is immaterial. At page 787, the following principles called out by a Division Bench of this High Court from the earlier reported cases were reproduced, with which we respectfully agreed:
"(1) One has not got to take an abstract or academic view of what was proper expenditure laid out or expended wholly and exclusively for the purposes of one's business but one has got to take into consideration questions of commercial expediency and the principles of ordinary commercial trading and the main consideration that has got to weigh with the Court is whether the expenditure was a part of the process of profit making.
(2) The test for the purpose of deciding whether a particular amount can be allowed as deductible allowance under section 12(2) of the Act is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertakings in order indirectly to facilitate the carrying on of its business. If the transaction had been entered into on the ground of commercial expediency in order even indirectly to facilitate the carrying on of the business of the assessee, it would attract the provisions of section 12(2) even though the transaction might have been voluntarily entered into.
(3) If the payment was made with an indirect or improper motive for some considerations aliunde the business or out of generosity, then the payment is not liable to be regarded as one covered by the provisions of section 10(2)(xv) : that the matter has to be viewed in the light of principles of commercial trading and commercial expediency and what is required is that the expenditure must be germane to the business of the assessee and not something which is de hors the business. "
| ** | ** | ** |
The first alternative was to refuse to make any payment and to stick to its strict rights; and the other alternative which was not altogether an imaginary one in the light of the events that had happened in the past was to invite strike, stoppage of work and rowdyism in the mill premises and thus suffer a substantial loss in production. If in order to avoid such consequences which might lead to loss to the assessee company, the assessee-company decided to purchase peace so that the company could go on with its production by securing the co-operation of its workers, and the company decided to make this payment, it cannot be said that the payment was not made out of commercial expediency. Just as in the case of Tata Sons Ltd. (supra) an attempt was made to secure the contented and satisfactory working of the officers of the managed company, in the instant case, the assessee-company has made an attempt to buy peace in order to see that the peaceful working of the factory of the assessee company was not disturbed in any way. It is true, as was the case in Tata Sons Ltd. case (supra), the assessee-company was not bound to make the payment ; and in that sense it was a voluntary payment ; but at the same time, the nexus between the payment by the assessee-company, and commercial expediency is very clear, viz., smooth working of the factory of the assessee-company being ensured by making of this payment, as unrest amongst the employees of the company would, to a certain extent, be eliminated by such a payment."
9. In the light of the principles propounded in the decisions referred to hereinabove, it is apparent that while examining a claim for deduction under section 37 of the Act, what has to be seen is whether the expenditure had been incurred wholly and exclusively for the purpose of the assessee's business and whether it falls under any of the exceptions carved out under sub-section (2B) thereof, and nothing more. Once it is found that the expenditure had been incurred by the assessee for publicity or advertisement, it is not for the department to consider what commercial expediency justified such expenditure. It is, therefore, not permissible for the Assessing Officer to scrutinize the claim any further to examine as to whether in the process any third party has also benefited. The mere fact that on account of the expenditure incurred by the assessee wholly and exclusively for its own business, incidentally some third party is also benefited is no ground to disallow any part of such expenditure. In the case at hand, the assessee procured usage rights for brand "Rasna" for a valuable consideration and incurred advertisement expenses in respect of products manufactured by it under such brand name. No part of the said expenditure was expended for any purpose other than for the assessee's business. Under the circumstances, merely because by virtue of such advertisements the brand value of Rasna is enhanced and other manufacturers of the brand are also indirectly benefited, it cannot be said that the expenditure incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, it is quite possible that such other manufacturers may also be benefited on account of such advertisements as the advertisements may enhance the value of the brand as a whole. In fact, such incidental benefits are bound to accrue to the owner of the brand as well as other users of the brand name when any of the users of such brand name advertises its products. However, merely because some other persons are incidentally benefited from the advertisements issued by the assessee, the same would not change the character of the expenses from being wholly and exclusively for the purpose of its business. Therefore, it is not a relevant circumstance for the purpose of considering allowability of expenditure under section 37 of the Act. As held by the Supreme Court inCommissioner of Income-tax, Bombay City I v. Maharashtra Sugar Mills Ltd., [1971] 82 ITR 452, to find out whether a deduction claimed in permissible under the Act or not, all that we have to do is to examine the relevant provisions of the Act. Equitable considerations are wholly out of place in construing the provisions of a taxing statute. We have to take the provisions of the statute as they stand. If the allowance claimed in permissible under the Act then the same has to be deducted from the gross profit.
10. The Tribunal was, therefore, wholly justified in confirming the order of the Commissioner (Appeals) allowing such expenditure under section 37 of the Act. There being no legal infirmity in the impugned order, the same does not give rise to any question of law, much less, a substantial question of law so as to warrant interference. The appeal is, accordingly, dismissed."
In the result, these Tax Appeals are also dismissed.
IT : Even if benefit of trust is restricted to members of a particular religion, who are members of a particular church, it would be a charitable institution under section 2(15), eligible for registration under section 12A
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[2013] 34 taxmann.com 30 (Cochin - Trib.)
IN THE ITAT COCHIN BENCH
Fathima Matha Charitable Trust
v.
Commissioner of Income-tax, Kottayam*
N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT APPEAL NO. 30 (COCH.) OF 2012
MARCH 28, 2013
Section 2(15), read with sections 12A and 12AA, of the Income-tax Act, 1961 - Charitable purpose [Public, connotation of] - Whether for registration under section 12A, it is not necessary that object of trust should be to benefit whole of mankind or all persons in a country or State and it is sufficient if intention is to be benefit a section of public as distinguished from a specified individual - Held, yes - Whether, therefore, where benefit of assessee-trust was restricted to a particular religion, who were members of a particular church, trust would be a charitable institution under section 2(15), eligible for registration under section 12A - Held, yes - Whether, where assessee trust did not appear to do any charitable activity as it collected money from members of church, deposited it in bank and refunded it to lady members along with interest at time of marriage and details of collection and meeting of day-to-day expenses were not available, further examination was required before granting registration under section 12A - Held, yes [Para 10] [Matter remanded]
FACTS
| ■ | The assessee-trust sought registration under section 12AA. Since one of the objects of the trust restricted the benefits to members of a particular religion, that too to the members of a particular church, the Administrative Commissioner held that the activity of the trust was not of charitable nature and, thus, denied registration under section 12AA. | |
| ■ | On appeal, the assessee contended that though the assistance on occasion of marriage of girls was restricted only to the members of the parish/church, other charitable activities were extended to entire general public. |
HELD
| ■ | Admittedly, one of the objects of the assessee trust restricts the utilization of the funds to provide assistance to girls belonging to the Parish on the occasion of their marriage. As clarified by the assessee only members of the Parish are eligible for assistance on the occasion of marriage. The question that arises for consideration is where the benefit of the trust was restricted to a particular religion, who were members of a particular church, whether the institution would be a charitable institution within the meaning of section 2(15). [Para 5] | |
| ■ | Section 12AA empowers the Commissioner to grant or refuse registration after making necessary enquiry to satisfy about the genuineness of the activity of the trust or institution. Section 12AA(1)(a) also empowers the Commissioner to make such other enquiry as he may deem necessary to find out the genuineness of the activity of the trust or institution. In the present case, the Administrative Commissioner, in exercise of his powers found that the object of the trust was to provide assistance on the occasion of marriage of particular church members and not to the entire section of the people. Accordingly, the Commissioner doubted the genuineness of the activities of the trust. [Para 6] | |
| ■ | In the case before us, the judgment of the Apex Court in the case of Ahmedabad Rana Cast Association v. CIT [1971] 82 ITR 704 (SC) and the Allahabad High Court in the case of CIT v. Bharatiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 was not brought to the notice of the Administrative Commissioner while deciding the matter. From the impugned order of the Administrative Commissioner, it appears that an enquiry was conducted through the Additional Commissioner, who filed a report saying that money was collected from members of the church and the same was deposited in the assessee's bank account. At the time of marriage, the money was refunded to the respective lady member along with its interest. From the above, it appears that the taxpayer is not doing any charitable activity other than collecting money from the members of the church and depositing the same in the bank account of the assessee trust. At the time of marriage of the lady members it was refunded along with interest. Moreover, copy of the report said to be filed by the Additional Commissioner is not available on record. The details of collection of money and how it was deposited and how the taxpayer institution met its day to day affairs are not available on record. When the taxpayer collected money from the members of the church and deposited the same in the bank account and refunded the same alongwith interest, it is not known from where the assessee is getting money for meeting its day-to-day expenses. It is also not known whether the taxpayer is receiving any deposits or donation from third parties to meet the regular day-to-day activities. In the absence of any details, the matter needs to be re-examined by the Administrative Commissioner and bring on record the entire activity of the assessee trust. [Para 10] | |
| ■ | Accordingly, the impugned order of the Administrative Commissioner is set aside and the issue of registration under section 12AA is restored to the file of the Administrative Commissioner for reconsideration. The Administrative Commissioner shall re-examine the issue in the light of the judgment of the Apex Court and High Court referred (supra) and decide the same in accordance with law after providing reasonable opportunity of hearing to the assessee. [Para 11] | |
| ■ | In the result, the appeal of the taxpayer is allowed for statistical purpose. [Para 12] |
CASE REVIEW
CIT v. Bhartiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 (All) (para 7), Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) (para 8) and Shiya Dawoodi Bohra Jamat v. CIT [2011] 133 ITD 271/15 taxmann.com 154 (Ahd.) (para 9) followed.
CASES REFERRED TO
CIT v. Bhartiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 (All) (para 3), Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) (para 3), Shiya Dawoodi Bohra Jamat v. CIT [2011] 133 ITD 271/15 taxmann.com 154 (Ahd.) (para 3) and CIT v. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1) [1990] 186 ITR 728/53 Taxman 112 (All.) (para 7)
Jose Kappan for the Appellant. Smt. S. Vijayaprabha for the Respondent.
ORDER
N.R.S. Ganesan, Judicial Member - This appeal of the taxpayer is directed against the order of the Administrative Commissioner dated 25-01-2012 rejecting registration u/s 12AA of the Act.
2. Shri Jose Kappan, the ld. representative for the taxpayer submitted that the taxpayer trust was established with various objects. According to the ld. representative, one of the objects was to provide assistance on the occasion of marriage of girls belonging to Karikulam Parish. The ld. representative clarified that Karikulam is a place in the State of Kerala and 'parish' means the people attached to Karikulam church. According to the ld. representative, though the assistance on the occasion of marriage of girls is restricted to members of Karikulam Parish only, the other charitable activities are extended to entire general public. Therefore, according to the ld. representative, it cannot be said that the benefit of the trust was restricted to only a section of the people.
3. The ld. representative further submitted that the Allahabad High Court in CIT v. Bhartiya Khatri Sewa Trust [1994] 205 ITR 96/[1992] 65 Taxman 531 (All) held that the benefit of the trust shall be to a section of the public and not to any specified individuals. The ld. representative has also placed reliance on the judgment of the Apex Court in Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) and submitted that it is not necessary that the object of the trust should be beneficial to the whole mankind or all persons in a state and it is sufficient if the object is for the benefit of a section of the public. It is sufficient that if the object is for the benefit of a section of public. The ld. representative has also placed reliance on the decision of the Allahabad Bench of this Tribunal in Shiya Dawoodi Bohra Jamat v. CIT [2011] 133 ITD 271/15 taxmann.com 154 (Ahd.) and submitted that when the benefit of the trust was available to a section of the public and not to some specified individuals registration u/s 12AA cannot be denied. According to the ld. representative, in the case of the taxpayer trust, the benefit of the trust was extended to entire members of the Karikulam Parish. Therefore, the Administrative Commissioner is not correct in rejecting the application for registration u/s 12AA of the Act.
4. On the contrary, Smt. S Vijayaprabha, the ld. DR submitted that one of the objects of the trust restricts the taxpayer to confine the benefits only to the members of Karikulam Parish. Therefore, it cannot be said that the benefits is be extended to a section of the public. According to the ld. representative, when the benefit of the trust was restricted to a particular religion, that too, to the members of a particular church, viz. Karikulam Parish, it cannot be said that the activity of the trust is of charitable nature.
5. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, one of the objects of the taxpayer trust restricts the utilisation of the funds to provide assistance to girls belonging to Karikulam Parish on the occasion of their marriage. As clarified by the ld. representative for the taxpayer, only members of the Karikulam Parish are eligible for assistance on the occasion of marriage. The question arises for consideration is when the benefit of the trust was restricted to a particular religion, who are members of a particular church, can we say that the institution would be a charitable institution within the meaning of section 2(15) of the Act?
6. We have also gone through the provisions of section 12AA of the Act. Section 12AA empowers the Commissioner of Income-tax to grant or refuse registration after making necessary enquiry to satisfy about the genuineness of the activity of the trust or institution. Section 12AA(1)(a) also empowers the Commissioner to make such other enquiry as he may deem necessary to find out the genuineness of the activity of the trust or institution. In the case before us, the Administrative Commissioner in exercise of his powers found that the object of the trust was to provide assistance on the occasion of marriage of particular church members and not to the entire section of the people. Accordingly, the Commissioner doubted the genuineness of the activities of the trust.
7. We have carefully gone through the judgment of the Allahabad High Court in Bhartiya Khatri Sewa Trust (supra). In the case before the Allahabad High Court, one of the objects of the trust was to spend money on the marriage of girls belonging to khatri community. The Allahabad High Court, after placing reliance on its earlier judgment in CIT v. Surji Devi Kunji Lal Jaipuria Charitable Trust (No.1) [1990] 186 ITR 728/53 Taxman 112 (All.)found that though marriage of children is considered as one of the obligatory actions of Hindus and is a religious duty of a high order; giving financial and other help on the occasion of marriage is regarded as a part of religious charitable activities. Therefore, the Allahabad High Court found that the taxpayer was eligible for registration as charitable institution.
8. We have also carefully gone through the judgment of the Apex Court in the case of Ahmedabad Rana Caste Association (supra). In the case before the Apex Court, the beneficiaries of the association were the members of the Rana caste or community, who are natives of Ahmedabad and other members of the community accepted by the caste according to its old custom and usage and staying in Ahmedabad. The Apex Court found that the mere fact that a person of Rane community, who was not an original native of Ahmedabad had to prove his credentials according to the custom and usage of that community to get admitted into that community did not introduce a personal element which would detract from the impersonal nature of the common quality. The Apex Court further found that to serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. Therefore, the Court further found that the section of the community sought to be benefited must be sufficiently definite and identifiable by some common quality of a public or impersonal nature. Accordingly, the Apex Court remanded back the matter to the file of the High Court for reconsideration.
9. We have also carefully gone through the decision of the Allahabad Bench of this Tribunal in Shiya Dawoodi Borha Jamat (supra). In the case before the Ahmedabad Bench, a charitable trust was established for the benefit of Shiya Dawoodi Bohra community. The Allahabad Bench of this Tribunal found that it could not be said that the taxpayer trust was established for private religious purpose. Accordingly, it was held that the trust was eligible for registration.
10. In the case before us, the judgment of the Apex Court and the Allahabad High Court was not brought to the notice of the Administrative Commissioner while deciding the matter. From the impugned order of the Administrative Commissioner, it appears that an enquiry was conducted through the Additional Commissioner, who filed a report saying that money was collected from members of the Karikulam church and the same was deposited in the taxpayer's bank account. At the time of marriage, the money was refunded to the respective lady member along with its interest. From the above, it appears that the taxpayer is not doing any charitable activity other than collecting money from the members of the Karikulam church and deposited the same in the bank account of the taxpayer trust. At the time of marriage of the lady members it was refunded along with interest. Moreover, copy of the report said to be filed by the Additional Commissioner is not available on record. The details of collection of money and how it was deposited and how the taxpayer institution meets its day to day affairs are not available on record. When the taxpayer collected money from the members of the Karikulam church and deposited the same in the bank account and refunded the same alongwith interest, where from the taxpayer is getting money for meeting its day-to-day expenses? It is also not known whether the taxpayer is receiving any deposits or donation from third parties to meet the regular day-to-day activities. In the absence of any details, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Administrative Commissioner and bring on record the entire activity of the taxpayer trust.
11. Accordingly, the impugned order of the Administrative Commissioner is set aside and the issue of registration u/s 12AA of the Act is restored to the file of the Administrative Commissioner for reconsideration. The Administrative Commissioner shall re-examine the issue in the light of the judgment of the Apex Court and High Court referred supra and decide the same in accordance with law after providing reasonable opportunity of hearing to the taxpayer.
12. In the result, the appeal of the taxpayer is allowed for statistical purpose.
De-facto boycott of a particular ITAT member by seeking adjournment is deemed 'contempt of court'
IT : CAs & lawyers can't seek adjournments on the ground that objectivity of ITAT member is not beyond doubt even if petition in that behalf is pending before the jurisdictional High Court. CA/Advocate seeking adjournment for the reason that he doesn't want to appear before a particular Bench/member of ITAT commits 'contempt of court' by 'forum shopping' or 'de facto boycott' of a judicial officer. It is not open to CA/Advocate/bar association/group of ARs to seek adjournments on the ground that they have issues against a particular ITAT member as this amounts to de facto boycott of a judicial officer. No adjournment of hearing by ITAT for the reason that CA/Advocate doesn't want to appear before a particular Bench/member
Held
(Per Judicial Member)
• I.T.A.T. is creation of Income Tax Act through section 252 and under section 252 the Central Government shall constitute an Appellate Tribunal to adjudicate the issues raised between the assessee and the Income-tax Department.
• The professionals either Advocates or Chartered Accountants can be engaged to prosecute the appeals on behalf of the assessees in a manner in which the assessee wants.
• Infact after filing the Power of Attorney, the professionals (Advocate or Chartered Accountant) will step into the shoes of the assessee and they will represent the case in a manner beneficial to the assessee.
• If a particular Advocate or a Chartered Accountant is not comfortable or has reservation with a particular judicial forum, it is his sweet will for making a representation before the said judicial forum; but for that reason the judicial forum cannot be forced to adjourn all the matters for an unlimited period where the stakes of the revenue are substantially involved.
• The I.T.A.T. is created to adjudicate the disputes amongst the Income-tax Department and the assessee.
• If a particular advocate has some reservation with a particular Bench, it is for him to take a decision in this regard.
• Similar is the position with regard to the assessee as he has to take a final decision with regard to the appointment of his advocate or representative to represent his case before the judicial authority.
• The judicial authority, be it may be the Tribunal are concerned about the material placed before them while adjudicating the issues involved irrespective of the personalities of the Advocates appearing before him representing the case of the parties.
• In the light of these facts, when the Judicial Member has already withdrawn his order of recusal from hearing of the cases being represented by Shri SKG, Advocate or Shri PKK, C. A., there is no valid reason for the adjournment on the ground that the Judicial Member has recused himself from hearing the cases of Shri SKG, Advocate and more so in the light of the facts that about 25% of the appeals pending before the Bench are being represented by Shri SKG, Advocate or Shri PKK, C. A.
• If Shri SKG, Advocate and Shri PKK, C. A. have any reservation with the Bench comprising of Judicial Member, they may take independent decision with regard to their representation before the Bench.
• But for the reason that they do not want to represent the cases, the hearing cannot be adjourned and assessee would be at liberty to make some other arrangement to prosecute his case in effective manner.
• In the instant case the Judicial Member has already withdrawn his recusal from hearing the case of Shri SKG, Advocate vide order dated 08/02/2013 passed in the case of Onkar Nagreeya Sahkari Bank Ltd. I.T.A. No.572/Lkw/2012.
• Therefore, the appeals being represented by Shri SKG, Advocate and Shri PKK, C. A. can be heard by the Bench comprising of the Judicial Member and the assessee would be at liberty to make some alternate arrange if Shri SKG, Advocate or Shri PKK, C. A. do not wish to appear before the said Bench.
• It is for the assessee to take a decision in this regard as through whom he wants to get his matter represented.
• There is no dearth of tax experts/Tax Advocates in our country more particularly in Lucknow and the assessee is at liberty to hire the services of any best professionals but for the reason that a particular Advocate or the Chartered Accountant does not want to appear before the Tribunal, the hearing of the appeal cannot be adjourned.
• Vide order dated 27-5-2013, it was made very clear to the assessee that since the matter has been received from Hon'ble High Court on remand for disposal within a period of six months, no further adjournment would be granted.
• Despite these facts, the assessee moved the application for adjournment.
• It is also pertinent to mention here that on receipt of the last order dated 27-5-2013 of the Tribunal, the assessee moved to the High Court for clarification through application dated 30th May, 2013.
• The Hon'ble High Court passed an order dated 5th March, 2013 and the assessee remained silent till 30th May, 2013.
• Once the Tribunal has taken a tough stand and adjourned the hearing with the last opportunity with the certain directions, the assessee moved an application to the High Court for clarification on 30th May, 2013.
• The clarification sought is only with regard to the words 'on merit on other points'. The assessee through its application requested the Hon'ble High Court to insert the word "and" between the words "on merit and on other points."
• No confusion was ever raised with regard to the interpretation of these words by the Tribunal but this application was made only to create the ground for seeking adjournment before the Tribunal.
• Therefore, it appears that the assessee is trying to seek adjournment for one reason or the other in order to delay the disposal of the appeal pursuant to the direction of Hon'ble High Court.
• In the light of these facts, there is no merit in the request of the adjournments moved by the assessee. Accordingly adjournment request rejected.
Per Accountant Member
• It is not open to even any bar association or other interest groups also, much less an individual lawyer or group of representatives – as is the case before us, to hold functioning of this Tribunal to ransom by seeking adjournments on the ground that they have some issues, howsoever legitimate as they might think these issues are, against a particular judicial officer.
• That is de facto boycott of a judicial officer and a strike against the judicial office he holds.
• As a matter of fact, as Hon'ble Supreme Court has observed, such boycotts or strikes are nothing but a contempt of court and a court itself also should not become privy to this by "adjourning the case on the ground that lawyers are on strike".
• The decisions to take whether or not a judicial officer should hear a particular case or not is to be taken by the judicial officer or by the well settled administrative guidelines and judicial traditions.
• Just because, for whatever reasons, a crisis situation has been deprived of an appropriate solution, no direct or indirect interference in judicial powers of a judicial officer can be justified. No short cuts are permissible for anyone – shorts cuts such as adjourning the cases on the board or causing adjournment of such cases, or short cuts resulting in compromising with independence and dignity of a judicial officer.
• The functioning of this Tribunal obviously cannot go on when a lawyer, or a group of lawyers, seeks an adjournment on the ground that objectivity of the judicial officer is not beyond doubt and that there is a petition to that effect is pending before higher authorities.
• No judicial institution can be allowed to function if these reasons are treated as good enough to grant adjournments.
• A judicial officer, when performing judicial duties, is not performing in a swaymvar; he is discharging solemn duties of rendering, impartially and fearlessly, justice pure and simple. '
• Representatives of taxpayers cannot be allowed to choose the judicial officers for adjudicating upon their grievances.
• A judicial officer need not bother about how representatives of the taxpayers will react to his judgments, or how will even his own colleague on multi member bench view his approach to the judicial work.
• There should be harmony in functioning but not at the cost of independence.
• There should be healthy respect for each other but not at the cost of betraying one's own conscious and commitment to the time-tested values.
• There should be brotherhood amongst all but not at the cost of damage to the public good.
Related case
Onkar Nagreeya Sahkari Bank Ltd. I.T.A. No.572/Lkw/2012.
■■■
[2013] 34 taxmann.com 296 (Lucknow - Trib.)
IN THE ITAT LUCKNOW BENCH 'A'
Kanpur Plastipack Ltd.
v.
Income -tax Officer, Range - 6(2), Kanpur
Sunil Kumar Yadav, JUDICIAL MEMBER
AND PRAMOD KUMAR, ACCOUNTANT MEMBER
AND PRAMOD KUMAR, ACCOUNTANT MEMBER
IT Appeal No. 1002 (Luck.) of 2006
[ASSESSMENT YEAR 1997-98]
[ASSESSMENT YEAR 1997-98]
JUNE 21, 2013
S.K. Garg and Pradeep Kumar Kapoor for the Appellant. K.M. Dixit for the Respondent.
ORDER
Sunil Kumar Yadav, Judicial Member - This appeal is preferred by the assessee against the order of CIT(A) pertaining to assessment year 1997-98, inter alia, on various grounds which are extracted as under:
"1. BECAUSE the learned "CIT (Appeals)" has erred in law and on facts in upholding the validity of initiation of proceedings under section 147 as also the reassessment order dated 29th March, 2004 (passed in pursuance thereof), by observing that there was escapement of income on various counts, each one of which was sufficient to confer requisite jurisdiction on the Assessing Officer.
1.2 BECAUSE as on the date of recording the "reasons" for the purposes of initiating proceedings under section 147, there existed merely a show cause notice issued by the Central Excise Authorities in pursuance of search carried out by them on 6.1.1998 at the business premises of the appellant and such a show cause notice by itself, could not have constituted the requisite material, for the purposes of initiating the proceedings under section 147.
1.3 BECAUSE even on the basis of said show-cause notice, it transpired that the appellant had already disclosed sales revenue of the order of Rs.89,30,133/- as per 3rd set of invoices, which were higher in volume than the sales revenue of Rs.72,51,612/- as had been worked out on the basis of 2nd set of invoices (which represented real invoices), and no inference about escapement of income could have been drawn on that count.
1.4 BECAUSE similarly the remaining part of the "reasons recorded" was also not relevant for the purposes of drawing an inference about escapement of income and initiation of proceedings under section 147 on such counts too is bad in law.
2. BECAUSE in view of the fact that the appellant's objection to the initiation of proceedings under section 147 on various grounds, remained unadjudicated upon by the learned Assessing Officer, the reassessment order dated 29.3.2004 passed under section 143 (3) read with section 147, was liable to be declared as null and void.
3.1 BECAUSE the jurisdiction notice under section 148 dated 28.5.2002 having been served on one Alok Saxena, who was neither the Principal Officer of the appellant company nor any one authorised in this behalf (by the Principal Officer), initiation of proceedings under section 147 stood vitiated and the Id. CIT (Appeals) on a due consideration of this aspect of the matter, should have quashed the very assessment proceedings as also the assessment order dated 29.3.2004 passed thereunder.
3.2 BECAUSE the appellant's contention about the invalidity of the "service of notice" was fully covered by the pronouncements made by the jurisdictional High Court, some of which had been specifically cited during the appellate proceedings for the assessment year 1996-97 (which were simultaneously going on) and the learned CIT (Appeals) has erred in not following the said case laws, and in deciding the overall issue against it (the appellant).
WITHOUT PREJUDICE TO THE AFORESAID
4. BECAUSE the learned CIT (Appeals) has erred in law and on facts in not accepting the appellants computation for relief under section 80 HHC.
5.1 BECAUSE the order passed by the Hon'ble Settlement Commission under Excise Laws has been wrongly applied for coming to the conclusion that there was suppression of sales of the value of Rs.72,51,612/- and on that basis in making/upholding the addition of the corresponding sum.
5.2 BECAUSE the order passed by the Hon'ble Settlement Commission under the Excise laws, was in an altogether different context and the same could not have been followed and applied for the purpose of making/sustaining the impugned addition of Rs.72,51,612/- under the Income-tax Act.
5.3 BECAUSE the sales in terms of quantity as had been effected by the appellant during the relevant financial year, were covered fully by the quantitative tally and in view of the fact that no production (over and above the figures mentioned in the quantitative tally) was either feasible or shown to have been carried out by the appellant, no inference about the removal of goods (other than what had been recorded in the books of account) could have been legitimately drawn.
6. BECAUSE the learned CIT (Appeals) himself, having found and held that "the appellant has not been able to prove that there was any purchase of extra material .......... " vide para 20 of the appellate order dated 6.7.2006 relating to assessment year 1996-97 (as has been applied in this year also) should have accepted the appellant's version of production and sale thereof and consequently the addition of Rs.72,51,612/- was liable to be deleted.
7. BECAUSE there being no evidence brought on record by the authorities below, which could go to show that the goods covered by the disputed invoices had reached the destination twice, no addition on account of alleged suppression of turnover could have been made.
8. BECAUSE in any case, the books of account having not been rejected, no inference about the unrecorded sales having been made by the appellant, could have been validly drawn and the addition of Rs. 72,51,612/- made/ sustained by the authorities below is wholly illegal.
9. BECAUSE wholly without prejudice to the grounds no. 5.1 to 8 above, the authorities below were not justified either on facts or in law to convert the entire sale aggregating Rs. 72,51,612/- into the income of the appellant and fastening tax liability on the said sum.
10. BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice."
2. This appeal came up for hearing on 31st May, 2013. The learned Counsel for the assessee Shri Praeep Kumar Kapoor, Chartered Accountant has moved two sets of applications for adjournment in his individual capacity and not on behalf of the assessee. In one application it is contended that Hon'ble High Court of Allahabad has restored the appeal to the Tribunal to decide the appeal expeditiously, preferably within a period of six months from the date of production of certified copy of this order. Therefore, the time limit would expire in the month of September, 2012. Against said judgment of Hon'ble High Court, a petition dated 30th May, 2013 has been moved before the Hon'ble High Court for certain clarification. Copy of the same was enclosed along with the application. It was further contended that looking to the general practice followed by the Tribunal, it is expected that the Hon'ble President would be pleased to constitue a Bench in the month of July 2013. In this application it was also contended by the learned Counsel for the assessee that the Judicial Member has recused himself from hearing of Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A., therefore, it would have been fitness of the things that the matter be referred to the Hon'ble President for constituting Bench for deciding the said appeals of which the Judicial Member is not a party. In the last para, it was also contended by Shri Pradeep Kumar Kapoor, C. A. that looking to the suggestions given by the Bench through order sheet dated 27th May, 2013 that Shri S. K. Garg, Advocate has no objection for engaging the other counsel by the assessee for which he undertakes to file no objection also from Shri S. K. Garg, Advocate if so needed. Through second set of application it has been stated that Shri S. K. Garg, Advocate has come back after attending the proceedings before the Settlement Commission. However, he could not make proper preparation of the case therefore, the matter be adjourned to July, 2013.
3. The learned Counsel for the assessee Shri S. K. Garg, Advocate further contended that since the contempt proceedings have been initiated by the Hon'ble High Court of Allahabad, Lucknow Bench against him and Shri Pradeep Kumar Kapoor, C. A. on reference made by the Judicial Member, the judicial proprietary demands that the matter represented through him should not be heard by the Bench constituting Judicial Member as a party of it. Therefore, in the interest of justice, the hearing may be adjourned.
4. The learned CIT, D.R., Shri K.M. Dixit strongly opposed the request of adjournment with the submission that Hon'ble High Court of Allahabad has restored the matter to the Tribunal with the direction to decide the appeal on merit within a period of six months. This order was passed in March, 2013, therefore, the time of six months would expire in first week of September, 2013. He also pointed out that the Lucknow Bench of the Tribunal is not regularly functioning. Now the Accountant Member has come on tour only for two weeks, therefore, the matter should be heard and disposed of within the prescribed period.
5. Having heard the rival submissions and from the careful perusal of the material available on record, we find that the Hon'ble High Court of Allahabad has restored the matter to the Tribunal with a direction to dispose of the appeal on merits on other points vide judgment dated 05/03/2013 within six months. Therefore, the time available with the Tribunal for the disposal of the appeal on merits is upto first week of September, 2013. It is pertinent to mention here that Lucknow Bench of the Tribunal is not regularly functioning since November, 2012 and thereafter the Accountant Member was only sent on tour in the month of March, 2013 for two weeks and 2nd time in the month of May, 2013 again for two weeks. In the light of these facts, it cannot be assumed or presumed that the Accountant Member may come on tour in the month of July, 2013. Therefore, it is in the fitness of things when the Accountant Member is on tour, this appeal should be heard and disposed of pursuant to the directions of Hon'ble High Court.
6. So far as issue of reclusal of the Judicial Member from hearing of the case of Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. is concerned, we would like to place certain facts on record in order to understand the real controversy arisen in this Bench.
7. On filing of copy of representation made by Shri S. K. Garg, Advocate to the Hon'ble President of I.T.A.T. in the case of Sumit Kumar Rastogi in I.T.A. No.472/Lkw/2011 and C.O. No.42/Lkw/2012 on 30th August, 2012 containing contemptuous and scurrilous allegations against the Judicial Member, the Judicial Member recused him from hearing of those cases which were being represented by Shri S. K. Garg, Advocate by passing a speaking order. Copies of the proceedings were duly sent to the Hon'ble President of the I.T.A.T. with a request to issue necessary instructions as to how to deal with the situation but the Hon'ble President instead of issuing necessary instructions in this regard, has chosen to remain salient on the subject. In order to maintain the dignity of the Institution, the Judicial Member took cognizance of the representation made by Shri S. K. Garg, Advocate to the Hon'ble President, I.T.A.T. and made a reference on 19/10/2012 for criminal contempt of court u/s 15(2) of the Contempt of Court Act, 1971 against Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. to the Hon'ble High Court of Allahabad and consequent thereto the Hon'ble High Court has taken a cognizance of the same and criminal contempt case against Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. was registered vide Contempt No. 310 of 2013 and now the matter is subjudice before the Hon'ble High Court Allahabad at Lucknow Bench in the case styled as State of U.P. v. Shri S. K. Garg, Advocate and Another.
8. It was brought to the notice of Judicial Member in the administrative capacity that almost 25% of the appeal pending before the I.T.A.T., Lucknow Bench are being represented by Shri S. K. Garg, Advocate, therefore, it would not be fair to keep all the appeals in abeyance as substantial amount of revenue is involved therein and Revenue is pressing hard for its fixation. Having realized these facts, the Judicial Member, in the administrative capacity, has directed the Registry to list all the appeal for hearing vide order dated 15/10/2012. Thereafter, one appeal in the case of Omkar Nagreeya Sahkari Bank Ltd. I.T.A. No.572/Lkw/2012 of Shri S. K. Garg, Advocate was listed before the Judicial Member, while hearing the SMC case and the learned Counsel for the assessee Shri Pradeep Kumar Kapoor, C. A. sought adjournment, which was strongly opposed by learned D.R. While disposing of this adjournment application, it was categorically observed by the Tribunal that the reclusal of the Judicial Member from hearing the case being represented by Shri S. K. Garg, Advocate was made in a peculiar circumstances. Later on a cognizance of the representation was taken and reference for criminal contempt of court was made against Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. to the Hon'ble High Court of Allahabad and the matter is subjudice before the Hon'ble High Court, therefore, the Judicial Member has no reservation in hearing the appeals of any assessee being represented by any Advocate/Chartered Accountant including Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. Thereafter, the appeal was argued by Shri Pradeep Kumar Kapoor, C. A. and the appeal was disposed of vide order dated 16/04/2013. The order passed by the Judicial Member in SMC has not been challenged by the assessee. Therefore, once it has been made clear by passing a judicial order vide order dated 08/02/103 in the case of Onkar Nagriya Sahkari Bank v. CIT in I.T.A. No. 572/Lkw/2012, that the Judicial Member has no reservation in hearing the appeals of any assessee being represented by Shri S. K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A. after making a reference of criminal contempt of court against Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. to the Hon'ble High Court, the controversy with regard to the reclusal of Judicial Member from hearing cases of Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. no longer subsists. For the sake of reference, the relevant order is extracted hereunder:
"08/02/2013
Present for the assessee : Shri Pradeep Kumar Kapoor, C. A.
Present for the Revenue : Smt. Ranu Biswas, D.R.
On the last date of hearing i.e. 5.2.2013 the assessee moved an application for adjournment having relied upon the order of the Tribunal dated 30.8.2012 passed in ITA No. 472/LKW/2011 and CO No.14/LKW/2012. Copy of this application was given to the Ld. D.R. The Ld. D.R. strongly opposed the request for adjournment of the appeal.
The Ld. counsel for the assessee, Shri. Pradeep Kumar Kapoor, C.A. has now agreed to argue the appeal before the Bench as he has received instruction from his client (assessee) to argue the case and he has no reservation with this Bench.
The aforesaid order dated 30.8.2012 in ITA No. 472/LKW/2011 and CO No.11/LKW/2012, through which I recused myself from the cases being represented by Shri. S. K. Garg, Advocate, was passed on receipt of the copy of representation addressed to the Hon'ble President, ITAT by Shri. S. K. Garg, Advocate. The said order was passed under the peculiar circumstances. Thereafter cognizance of the representation was taken and reference for criminal contempt of court against Shri. S. K. Garg, Advocate and Shri. Pradeep Kumar Kapoor, C.A. was made to the Hon'ble High Court of Allahabad and the matter is sub judice before the Hon'ble High Court of Allahabad.
Now under the changed circumstances, I have no reservation in hearing the appeal of any assessee being represented by any Advocate/C.A. including Shri. S. K. Garg, Advocate and Shri. Pradeep Kumar Kapoor, C.A. Decision in this regard is left upon the respective assessee. Accordingly, the arguments of both the parties to this appeal are heard and the order is reserved."
9. It is pertinent to mention here that I.T.A.T. is creation of Income Tax Act through section 252 of the I. T. Act and u/s 252 the Central Government shall constitute an Appellate Tribunal to adjudicate the issues raised between the assessee and the Income-tax Department. The professionals either Advocates or Chartered Accountants can be engaged to prosecute the appeals on behalf of the assessees in a manner in which the assessee wants. Infact after filing the Power of Attorney, the professionals (Advocate or Chartered Accountant) will step into the shoes of the assessee and they will represent the case in a manner beneficial to the assessee. If a particular Advocate or a Chartered Accountant is not comfortable or has reservation with a particular judicial forum, it is his sweet will for making a representation before the said judicial forum but for that reason the judicial forum cannot be forced to adjourn all the matters for an unlimited period where the stakes of the revenue are substantially involved. The I.T.A.T. is created to adjudicate the disputes amongst the Income-tax Department and the assessee. If a particular advocate has some reservation with a particular Bench, it is for him to take a decision in this regard. Similar is the position with regard to the assessee as he has to take a final decision with regard to the appointment of his advocate or representative to represent his case before the judicial authority. The judicial authority, be it may be the Tribunal are concerned about the material placed before them while adjudicating the issues involved irrespective of the personalities of the Advocates appearing before him representing the case of the parties. In the light of these facts, when the Judicial Member has already withdrawn his order of reclusal from hearing of the cases being represented by Shri S. K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A., there is no valid reason for the adjournment on the ground that the Judicial Member has recused himself from hearing the cases of Shri S. K. Garg, Advocate and more so in the light of the facts that about 25% of the appeals pending before the Bench are being represented by Shri S. K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A.
10. The conduct of the Advocates with regard to the representation on behalf of its clients was examined by the Apex Court in various judgments. In the case of Pandurang Dattatraya Khandekar v. Bar Council of Maharashtra Bombay & Others 1984 (2) SCC 556, their Lordships have observed that an advocate stands in a loco parentis towards the litigants. Therefore, he is expected to follow norms of professional ethics and try to protect the interests of his client in relation to whom he occupies a position of trust. Counsel's paramount duty is to the client. The client is entitled to receive disinterested, sincere and honest treatment. It was further observed that no advocate can take it for granted that he will appear in the court according to his whim or convenience. It would be against professional ethics for a lawyer to abstain from the court when the cause of his client is called for hearing or further proceedings.
11. In the case of Tahil Ram Issardas Sadarangani & Ors. v. Ramchand Issardas Sadarangani & Anr. 1993 Supp.(3) SCC 256, their Lordships have observed that by striking work, the lawyers fail in their contractual and professional duty to conduct the cases for which they are engaged and paid. In the case of Common Cause A Registration. Society v. Union of India & Ors. 1994 (5) SCC 557, it was further observed that since litigants have a fundamental right to speedy justice it is essential that cases must proceed when they appear on board and should not ordinarily be adjourned on account of the absence of the lawyers unless there are cogent reasons to do so. If cases get adjourned time and again due to cessation of work by lawyers it will be in the end result in erosion of faith in the justice delivery system which will harm the image and dignity of the court as well.
12. Noting casual and indifferent attitude of some of the lawyers and expecting improvement in quality of service the Hon'ble Apex court in the case of Sanjiv Datta, Deputy Secretary, Ministry of Information & Broadcasting, New Delhi etc. 1995 (3) SCC 619 held as under:
"Of late, we have been coming across several instances which can only be described as unfortunate both for the legal profession and the administration of justice. It becomes, therefore, our duty to bring it to the notice of the members of the profession that it is in their hand to improve the quality of the service they render both to the litigant-public and to the courts, and to brighten their image in the society. Some members of the profession have been adopting perceptibly casual approach to the practice of the profession as is evident from their absence when the matters are called out, the filing of incomplete and inaccurate pleadings - many time even illegible and without personal check and verification, the non-payment of court fees and process fees, the failure to remove office objections, the failure to take steps to serve the parties, et al. They do not realise the seriousness of these acts and omissions. They not only amount to the contempt of the court but do positive disservice to the litigants and create embarrassing situation in the court leading to avoidable unpleasantness and delay in the disposal of matters. This augurs ill for the health of our judicial system."
13. In the case of Brahma Prakash Sharma v. State of UP 1953 SCR 1169, a Constitution Bench of Hon'ble Supreme Court has held that a resolution passed by the Bar Association expressing want of confidence in the judicial officers amounted to scandalizing the court to undermine its authority which amounted to contempt of court.
14. In the case of Mahabir Prasad Singh v. Jacks Aviation Pvt. Ltd. 1999 (1) SCC 37, the Hon'ble Apex court has held; "Judicial function cannot and should not be permitted to be stonewalled by browbeating or bullying methodology, whether it is by litigants or by counsel. Judicial process must run its even course unbridled by any boycott call of the Bar or tactics of filibuster adopted by any member thereof." High Courts are duty bound to insulate judicial functionaries within their territory from being demoralized due to such onslaughts by giving full protection to them to discharge their duties without fear. But unfortunately this case reflects apathy on the part of the High Court in affording such protection to a judicial functionary who resisted, through legal means, a pressure strategy slammed on him in open court.
15. Their Lordships further held in the aforesaid cases that if any counsel does not want to appear in a particular court, that too for justifiable reasons, professional decorum and etiquett require him to give up his engagement in that court so that the party can engage another counsel. But retaining the brief of his client and at the same time abstaining from appearing in that court, that too not on any particular day on account of some personal inconvenience of the counsel but as a permanent feature, is unprofessional as also unbecoming of the status of an advocate. No court is obliged to adjourn a cause because of the strike call given by any association of advocates or a decision to boycott the courts either in general or any particular court. It is the solemn duty of every court to proceed with the judicial business during court hours. No court should yield to pressure tactics or boycott calls or any kind of browbeating.
16. In the case of Lt. Col. S. J. Chaudhary v. State (Delhi Admn) 1984 (1) SCC 722, it was held that it is the duty of every Advocate who accepts a brief to attend the trial and such duty cannot be overstressed. It was further reminded that having accepted the brief, he will be committing a breach of his professional duty, if he so fails to attend. A lawyer is under obligation to do nothing that shall detract from the dignity of the court of which he is himself a sworn officer and assistant. He should at all times pay differential respect to the judge and scrupulously observe the decorum of the courtroom.
17. In the case of Ramon Services Pvt. Ltd. v. Subhash Kapoor and Others, Appeal No. 6385 of 2000, vide judgment dated 14/11/2000, their Lordships of Apex Court have made a reference to Warvelle's Legal Ethics at page 182 where it has been stated "of course, it is not a unilateral affair. There is a reciprocal duty for the court also to be courteous to the members of the Bar and to make every endeavour for maintaining and protecting the respect which members of the Bar are entitled to have from their clients as well as from the litigant public. Both the Bench and the Bar are the two inextricable wings of the judicial forum and therefore the aforesaid mutual respect is the sine qua non for the efficient functioning of the solemn work carried on in courts of law. But that does not mean that any advocate or a group of them can boycott the courts or any particular court and ask the court to desist from discharging judicial functions. At any rate, no advocate can ask the court to avoid a case on the ground that he does not want to appear in that court."
18. In the case of Ramon Services Pvt. Ltd. (supra),their Lordships of Apex Court having examined various judgments on this aspect have concluded as under:
"Some courts might have conducted the cases even during the strike or boycott periods or adjourned due to helplessness for not being in a position to decide the lis in the absence of the counsel but majority of the courts in the country have been impliedly sympathisers by not rising to the occasion by taking positive stand for the preservation of the high traditions of law and for continued "restoration of the confidence of the common man in the institution of judiciary. It is not too late even now for the courts in the country to rise from the slumber and perform their duties without fear or favour particularly after the judgment of this Court in Mahabir Singh's case (supra). Inaction will surely contribute to the erosion of ethics and values in the legal profession. The defaulting courts may also be contributory to the contempt of this Court."
19. The issue of repeated adjournments on different grounds was examined by the Apex Court in the case of Shiv Cotex v. Tirgun Auto Plast P. Ltd. & Ors in Civil Appeal No. 7532 of 2011 reported at 2011 (9) SCC 678 and their Lordships have observed as under:
"What should the court do in such circumstances? Is the court obliged to give adjournment after adjournment merely because the stakes are high in the dispute? Should the court be a silent spectator and leave control of the case to a party to the ease who has decided not to take the case forward? It is sad, but true, that the litigants seek - and the courts grant -adjournments at the drop of the hat. In the cases where the judges are little pro-active and refuse to accede to the requests of unnecessary adjournments, the litigants deploy all sorts of methods in protracting the litigation. It is not surprising that civil disputes drag on and on. The misplaced sympathy and indulgence by the appellate and revisional courts compound the malady further. The case in hand is a case of such misplaced sympathy. It is high time that courts become sensitive to delays in justice delivery system and realize that adjournments do dent the efficacy of judicial process and if this menace is not controlled adequately, the litigant public may lose faith in the system sooner than later. The courts, particularly trial courts, must ensure that on every date of hearing, effective progress takes place in the suit.
16. No litigant has a right to abuse the procedure provided in the CPC. Adjournments have grown like cancer corroding the entire body of justice delivery system. It is true that cap on adjournments to a party during the hearing of the suit provided in proviso to Order XVII Rule 1 CPC is not mandatory and in a suitable case, on justifiable cause, the court may grant more than three adjournments to a party for its evidence but ordinarily the cap provided in the proviso to Order XVII Rule 1 CPC should be maintained. When we say 'justifiable cause' what we mean to say is, a cause which is not only 'sufficient cause' as contemplated in sub-rule (1) of Order XVII CPC but a cause which makes the request for adjournment by a party during the hearing of the suit beyond three adjournments unavoidable and sort of a compelling necessity like sudden illness of the litigant or the witness or the lawyer; death in the family of any one of them; natural calamity like floods, earthquake, etc. in the area where any of these persons reside; an accident involving the litigant or the witness or the lawyer on way to the court and such like cause. The list is only illustrative and not exhaustive. However, the absence of the lawyer or his non-availability because of professional work in other court or elsewhere or on the ground of strike call or the change of a lawyer or the continuous illness of the lawyer (the party whom he represents must then make alternative arrangement well in advance) or similar grounds will not justify more than three adjournments to a party during the hearing of the suit. The conduct of a party in the conduct of the proceedings is an important circumstance which the courts must keep in view whenever a request for adjournment is made. A party to the suit is not at liberty to proceed with the trial at its leisure and pleasure and has no right to determine when the evidence would be let in by it or the matter should be heard. The parties to a suit - whether plaintiff or defendant - must cooperate with the court in ensuring the effective work on the date of hearing for which the matter has been fixed. If they don't, they do so at their own peril. Insofar as present case is concerned, if the stakes were high, the plaintiff ought to have been more serious and vigilant in prosecuting the suit and producing its evidence. If despite three opportunities, no evidence was let in by the plaintiff, in our view, it deserved no sympathy in second appeal in exercise of power under Section 100 CPC. We find no justification at all for the High Court in upsetting the concurrent judgment of the courts below. The High Court was clearly in error in giving the plaintiff an opportunity to produce evidence when no justification for that course existed."
20. In the light of the aforesaid judicial pronouncements, we are of the considered view that if Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. have any reservation with the Bench comprising of Judicial Member, they may take independent decision with regard to their representation before the Bench. But for the reason that they do not want to represent the cases, the hearing cannot be adjourned and assessee would be at liberty to make some other arrangement to prosecute his case in effective manner. In the instant case the Judicial Member has already withdrawn his recusal from hearing the case of Shri S. K. Garg, Advocate vide order dated 08/02/2013 passed in the case of Onkar Nagreeya Sahkari Bank Ltd. I.T.A. No.572/Lkw/2012. Therefore, the appeals being represented by Shri S. K. Garg, Advocate and Shri Pradeep Kumar Kapoor, C. A. can be heard by the Bench comprising of the Judicial Member and the assessee would be at liberty to make some alternate arrange if Shri S.K. Garg, Advocate or Shri Pradeep Kumar Kapoor, C. A. do not wish to appear before the said Bench.
It is for the assessee to take a decision in this regard as through whom he wants to get his matter represented. There is no dearth of tax experts/Tax Advocates in our country more particularly in Lucknow and the assessee is at liberty to hire the services of any best professionals but for the reason that a particular Advocate or the Chartered Accountant does not want to appear before the Tribunal, the hearing of the appeal cannot be adjourned.
21. Vide order dated 27/05/2013, it has been made very clear to the assessee that since the matter has been received from Hon'ble High Court on remand for disposal within a period of six months, no further adjournment would be granted. Despite these facts, the assessee has moved the application for adjournment. It is also pertinent to mention here that on receipt of the last order dated 27/05/2013 of the Tribunal, the assessee has moved to the High Court for clarification through application dated 30th May, 2013. The Hon'ble High Court has passed an order dated 5th March, 2013 and the assessee remained salient till 30th May, 2013. Once the Tribunal has taken a tough stand and adjourned the hearing with the last opportunity with the certain directions, the assessee has moved an application to the High Court for clarification on 30th May, 2013. The clarification sought is only with regard to the words 'on merit on other points'. The assessee through its application requested the Hon'ble High Court to insert the word "and" between the words "on merit and on other points." No confusion was ever raised with regard to the interpretation of these words by the Tribunal but this application was made only to create the ground for seeking adjournment before the Tribunal. Therefore, it appears that the assessee is trying to seek adjournment for one reason or the other in order to delay the disposal of the appeal pursuant to the direction of Hon'ble High Court. In the light of these facts, we find no merit in the request of the adjournments moved by the assessee. We accordingly rejected the same and heard the appeal.
22. During the course of hearing of the appeal, the learned Counsel for the assessee Shri S. K. Garg, Advocate has invited our attention that while disposing of this appeal, the Tribunal has knocked down the reopening of the assessment on the ground that notice was issued by the ACIT and not by the Jt. CIT. Against this order of the Tribunal, an appeal was preferred before the Hon'ble High Court of Allahabad by the Department and while adjudicating the appeal their Lordships of Hon'ble Allahabad High Court have reversed the order of the Tribunal by holding that notice for reassessment was issued by the competent authority. The Hon'ble High Court of Allahabad has restored the matter to the Tribunal to decide the assessee's appeal on merits on other grounds, which means the other grounds including the grounds on which reopening was challenged. It was also challenged on the ground that the reasons recorded by the Assessing Officer were not supplied to the assessee despite his request. Therefore, the matter may be remanded to the Assessing Officer to adjudicate the issue after supplying the reasons for reopening and obtaining the comments of the assessee thereon. These facts of not supplying the reasons to the assessee were not disputed by the learned CIT, D.R., however, he objected to the remanding the matter back to the Assessing Officer.
23. Having given a thoughtful consideration to the rival submissions and material available on record, we find that Hon'ble High Court of Allahabad has held through its judgment that the notice was validly issued by the competent authority, therefore, on this ground the reopening cannot be challenged but with regard to the other grounds challenging the reopening of the assessment, no finding was given as it was not the subject matter of dispute before the Hon'ble High Court. The Tribunal has knocked down the assessment only on the ground that the notice was not issued by the competent authority. Except this ground, other grounds challenging the reopening of the assessment were not adjudicated by the Tribunal. Now while dealing with other grounds on merits, we are of the view that the assessee has raised the ground challenging the reopening of the assessment that the reasons recorded were not supplied to the assessee despite his request, therefore, he was deprived of from filing the objection to it. Since this factual aspect was not disputed by the Revenue, we are of the view this issue requires fresh adjudication by the Assessing Officer. We accordingly, following the judgment of Apex Court in the case of GKN Driveshaft v. Income Tax Officer [2003] 259 ITR 19 (SC) in which it has been held that Assessing Officer is bound to furnish reasons within a reasonable time and on receipt of reasons the noticee is entitled to file objection to issuance of notice and the Assessing Officer is bound to dispose the same by passing speaking order, set aside the order of CIT(A) and restore the matter to the file of the Assessing Officer with a direction to supply the copy of reasons recorded to the assessee and after obtaining the objection from the assessee, dispose of the same. When the matter is restored to the Assessing Officer, he may also examine the other objections raised for reopening of the assessment by the assessee before the Tribunal.
24. With regard to the quantum addition made on account of suppression of sale of the value at Rs. 72,51,612/- raised through ground No. 4 to 9, it was contended that entire order of the CIT(A) except the last para 7 was devoted to the controversy with regard to the validity of reopening and notice u/s 148 of the Act. In para 7, relying upon the appellate order for assessment year 1996-97, the CIT(A) confirmed the disallowance made by the Assessing Officer. It was also contended that while estimating unaccounted sales at Rs. 72,51,612/- the Assessing Officer has not applied his mind independently. He simply followed the order of the Settlement Commission and placed reliance upon the contentions raised before the Excise Authorities. Therefore, the matter may be restored to the Assessing Officer to adjudicate the issue independently after obtaining the comments of the assessee and also making necessary verification with different sets of invoices on the basis of which extra Excise Duty was worked out.
25. The learned D.R. Shri K. M. Dixit strongly opposed the request of the assessee for restoring the matter back to the Assessing Officer with the submissions that the Assessing Officer has worked out the unaccounted sales after verifying the material placed before him.
26. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the record, we find from the assessment order that the assessee was engaged in the business of plastic woven bags, paper reinforced bags and jute bags. A search was conducted on 06/01/98 by the Central Excise authorities on assessee and they found 47 sale invoices pertaining to the period 21/09/95 to 28/05/96. On scrutiny of these sale invoices found from the assessee revealed that the assessee was selling considerable quantity of goods to M/s Sunil Kumar Pawan Kumar, Kanpur, M/s Sanjay Kumar, Kanpur and M/s Deepak Trading Co., New Delhi. Such invoices were termed by the Excise authorities as first set of invoices. Out of these invoices 40 invoices were pertaining to financial year 96-97 relevant to assessment year 97-98. A comparison of these invoices with those obtained by Central Excise authorities from IFFO, Phoolpur, IFFCO, Bareilly, Rallis India Ltd., Visakhapatnam and Indo Gulf Fertilizers, Jagdishpur (all are purchasers of the assessee's product) revealed that a large number of invoices contained the same SI. No. and dates as those of first set of invoices. These invoices obtained from such aforesaid parties, were termed as second set of invoices. It was noticed that the first set of invoices and its corresponding second set of invoices bearing same SI. No. and dates were issued for same description and quantity of goods and also contained same debit entry numbers of RG-22A Part-II/PLA, but the assessable value of the goods as declared in the first set of invoices were much lower than the assessable value of the goods as declared in the second set of invoices. Though the assessee was collecting Excise Duty from the aforesaid parties as per second set of invoices but it was not being paid to the Government. Another set of invoices for the same period was also found from the assessee which was named as third set of invoices by the Excise Authorities. Scrutiny of these invoices by the Excise Authorities and its comparison with the first set of invoices, revealed that these invoices, too, contained the same SI.No., date and same quantity of goods. The parties mentioned in the third set of invoices were same as those in the second set of invoices. However, the amount of Excise Duty and the debit entry number in the third set of invoices were same as those in the first set of invoices. For better understanding, an invoice bearing No. 5 is described below in all the three sets along with all the common factors.
Common Factor in all sets of Invoices
| Inv. No. | Inv. Date | PLA/RG-23 So. No. | PLA/RG-23 Date | Qty. in pieces | Transporter's name | G.R. No./ Truck No. |
| 5 | 05/04/96 | 12 | 05/04/96 | 75,000 | T.C.C.I. | 501 UP70D8221 |
As described in 1st set of invoices
| Name of the party | Invoice value | Assessable value | Duty shown | Trade Tax/ Freight |
| M/s Deepak Trading Company | 1,42,219 | 1,11,000 | 27,750 | 3,469 |
As described in 2nd set of invoices
| Name of the party | Invoice value | Assessable value | Duty shown | Trade Tax/ Freight |
| M/s IFFCO Phoolpur | 6,78,045 | 5,26,808 | 1,31,702 | 19,535 |
As described in 3 set of invoices
| Name of the party | Invoice value | Assessable value | Duty shown | Trade Tax/ Freight |
| M/s IFFCO Phoolpur | 6,78,045 | 6,46,826 | 27,750 | 3,469 |
27. The above tables give an example of how invoice number 5 has been described in three different ways. There are in all 47 such invoices, out of which 33 invoices pertain to assessment year 96-97 and 14 invoices pertain to assessment year 97-98. The assessee has disclosed sales pertaining to the second set of invoices in the form of third set of invoices, the invoice value of the second set and the third set being the same. With a combined analysis of the three sets of invoices, the Central Excise Authorities were of the opinion that the assessee has made under payment of duty as per first set of invoices and also indulged in clandestine removing of goods as per second set of invoices. Accordingly, the assessee was made liable to pay the Excise Duty amounting to Rs. 43,49,076/- being the difference of duty as per first set of invoices and second set of invoices and also duty of Rs. 55,02,414/- being duty not paid as per second set of invoices, thereby total duty of Rs. 98,51,490/- was made chargeable on the assessee. The duty of Rs. 98,51,490/- represented the entire duty pertaining to the assessment year 96-97. The assessee contended before the Central Excise authorities that it has only under paid the duty and the charge of clandestine removal of goods was denied by claiming that the sales as per first set of invoices were not genuine and was done only to under pay the Excise Duty. However, the assessee took up the matter before Customs & Central Excise Settlement Commission and offered to pay the sum of Rs. 98,51,490/- in the spirit of settlement for settling the issue once for all. The Settlement Commission vide order dated 09/09/2002 settled the entire issue for an amount of Rs. 98,51,490/- and granted immunity to the assessee from interest and penalty. The assessee deposited Rs. 50,00,000/- immediately after the search and the balance was paid later on.
28. The Assessing Officer instead of making an independent enquiry in order to work out the unaccounted sales has solely relied upon the order of the Settlement Commission before whom the assessee has agreed to pay a sum of Rs. 98,51,490/- whereas the Assessing Officer was required to make independent enquiry with regard to the different set of invoices found after obtaining the comments of the assessee. Since the Assessing Officer has made the additions without making independent enquiry in this regard, we are of the view that this issue requires fresh adjudication by the Assessing Officer. Though the Hon'ble High Court has remanded the matter to the Tribunal for adjudicating the appeal on merits, but in the absence of cogent material it has become practically impossible for the Tribunal to adjudicate the issue on merit as the enquiry on factual aspect is required to be conducted by the Assessing Officer. We, therefore, are of the view that in the interest of justice, a fair opportunity should be afforded to the assessee with regard to the evidence collected by customs authorities and after obtaining the comments of the assessee, the Assessing Officer may make independent enquiry for determining the unaccounted sales of the assessee. We also direct the assessee to extend all sort of cooperation and to produce all relevant evidence on which he intends to rely before the Assessing Officer so that he may conclude the enquiry within a short period. Since the matter is old, we direct the Assessing Officer to complete the assessment within a period of six months from the date of receipt of this order of the Tribunal.
In the result, the appeal of the assessee is allowed for statistical purposes.
Per Pramod Kumar :
1. I have carefully perused the draft order proposed by my learned brother. While I agree with the conclusions arrived at by my learned brother, I would like to add my reasons for supporting one aspect of the stand taken by him.
2. To take a call on which case to hear and which case to adjourn is prerogative of the senior member. In the Conventions to be followed by the Members of this Tribunal (http://lawmin.nic.in/RTI/Conventions.pdf), it is inter alia stated as follows:
Conduct of Court Proceedings
4. The Senior Member of each Bench shall be the Presiding Officer, and will conduct the proceedings.
The Senior Member will decide and pass order of formal requests which are discretionary such as adjournment adjustments, etc.
The Senior Member shall open and close a case.
3. While it is true that we do in the courtroom is judicial work, it does not mean that in carrying out this work, well settled judicial traditions, which have been developed over a very long period of time, can be ignored. The division bench members cannot decide an adjournment request by independent application of judicial mind as they apply in the cases of judicial matters, such as appeals and other connected or incidental matters. A judicial convention, as much as any other convention, is a set of agreed, stipulated, or generally accepted standards, norms, or criteria, often taking the form of a custom which in turn is a source of law. It is a convention, followed by all benches in all judicial forums where more than one judicial officer are on bench, that decision whether a particular case listed before the bench is to be heard or not is a decision to be taken by the senior most judicial officer on the bench. I, therefore, bow before the decision taken by my brother, that the adjournment request is to be rejected, and the matter is to be proceeded on merits. To the extent that the adjournment request is to be rejected, I cannot question what my brother decides and do not want to venture into that aspect either. The matter, however, does not stop there. Learned brother has made detailed judicial observations on the issues relating to adjournment, judicial proceedings and conduct of benches.
4. Lest I may be misunderstood and seemed to be getting into adjudication on the issue of whether or not adjournment should be granted, I must clarify that it is only because of these judicial observations made by the learned brother, and with the consent and encouragement of my learned brother to add my thoughts on the same, that I am writing this note.
5. I think it is appropriate to set out the developments leading to this adjournment in little more detail. It all started on 25th August 2012 when, in a particular bar association meeting, a resolution was passed, which, inter alia, noted that in view of improper and indifferent attitude of a Member, "resulting in awkward and undesirable situation, at times embarrassing and humiliating, the association hereby requests Hon'ble President of the Income Tax Appellate Tribunal for immediate transfer of ……, and till such time all appeals and connected matters be adjourned". On the very next working day, i.e. 27th August 2012, this resolution was handed over to the Senior Member at the station and was sent to Hon'ble President as well. On that very date, an advocate, who happens to President of this bar association, moved an adjournment petition in one of the cases on the board. As to what transpired thereafter is evident from the following note sheet entries:
156/L/2010
27/08/2012
Present : Shri ……………., Advocate, for the assessee
Present : Shri ……………., CIT(DR), for the revenue
The learned counsel for the assessee has moved an application for adjournment with the submission that …………..(name of the bar association expunged by us) has moved a representation to Hon'ble President of the ITAT, with a request to adjourn the matters/ appeals related to the Members of the Bar, till the decision on the representation is taken by the Hon'ble President. The CIT(DR) objected to the adjournments sought by the learned counsel for the assessee. Since the Bar has expressed their reservations against the present combination of the bench, the judicial propriety demands that we should not hear the matters being represented by the Members of the…………. We, therefore, adjourn the hearing to 1st October, 2012.
| --- | Sd/xx | |
| AM | JM |
Per Accountant Member
It appears that some of the unscrupulous practiceoners before this Tribunal have joined hands in 'forum shopping'. The allegations stated in the application are motivated, false, frivolous and thus unacceptable. I, however, being the junior member on this bench, do not object to the discretion being used by the learned Senior Member in adjourning the hearing in such cases.
Sd/xx
AM
6. The functioning of the bench thus came to a virtual standstill. The matter, however, did not stop at that. Learned counsel appearing before us in this case, also filed a petition before the President, defending one of the Members on the bench and making serious allegations against the other Member. This bar association again wrote to Hon'ble President, vide letter dated 10th September 2012. This time not only one of the Members was attacked against, allegations were made against this particular counsel who tried to defend that Member and attack another Member on the bench, and this letter also justified superiority of this bar association over other associations at the station. There were thus communications for and against both the Members - one by this bar association and the other by another group of representatives.
7. Learned counsel appearing before us, and his associates, then sought adjournment on the ground that his petition against the conduct of another Member on the bench is pending before Hon'ble President. This time the bench, through its senior member, took cognizance of allegations made in the said letter and referred the matter to Hon'ble Chief Justice of Allahabad High Court for initiation of contempt proceedings. Hon'ble High Court has admitted the contempt petition and the case is now listed as State of Uttar Pradesh v S K Garg and another (Petition no. 310 of 2013) before Hon'ble Allahabad High Court at Lucknow benches.
8. Even though, for the reasons I will set out in a short while, it is not really relevant whether this particular bar association was justified in taking the stand that they did, it is important to take note of the fact that this bar association very candidly admitted, in the letter dated 10th September 2012, that the counsel before us "…. had spearheaded a campaign against the then learned Accountant Member ……… and had approached this very association (for supporting his fight against him. Being a fellow colleague, and despite the fact that he was not a Member of our association, our association took up his cause and stood by him." What is thus glaring is that the then office bearers of this bar association, even though the bar association, as a whole, did not perhaps entirely believe in the cause for campaign against a judicial officer, did espouse that cause and allowed its platform to be used for, what is now indicated by the them as, a malicious campaign by an individual lawyer.
9. This atmbodh and confession by this particular bar association comes a bit too late now. The judicial officer against whom this campaign was carried out, by the then office bearers of the bar association, has since retired. Either they are untruthful in this representation dated 10th September 2012, or they were untruthful in their representation against this former colleague, and either way it does not inspire any faith in their words today. As I say so, I am alive to the fact that when a reference is made to a bar association, it does not really mean anything against the bar association as a whole because, at the end of the day, it is run by only a few individuals and the decisions taken by the bar associations are sometimes decisions of that individual or group of individuals, who do not necessarily represent the will of all of its members.
10. In any case, the way these resolutions and communications have been issued- attacking one of the Members and defending the other Member by one interest group, and with a role reversal by the other interest group, this looks like a proxy war being fought by the Members through these people- something which could never have been intended by my distinguished colleagues. Unsolicited overenthusiasm by their respective support groups makes it an ugly sight and may be seen as a sad commentary on the functioning of division benches. I am sure it could never have been intention of the Members to use these forums for proxy war against each other, and, having watched functioning of the bar associations for over two and a half decade, I am also certain that no bar association worth its name can ever use these methods- howsoever noble be their goals. My thirteen years of experience in this august institution have also absolutely convinced me that none of my colleagues can ever be involved in such proxy fights- whatever be the provocation. However, unfortunately this is the impression given in this case. Nothing can be farther from the truth. All this, however, leads to vitiation of atmosphere and creates a situation which is alien to healthy judicial traditions.
11. Coming to the question whether learned counsel's request for adjournment, on the primary ground that he has reservations on objectivity of this bench- particularly in view of the admitted position that he has leveled allegations against one us, should be accepted, I find it is a little unusual situation inasmuch as on somewhat materially identical facts, one of us has taken a view that 'judicial propriety' demands that the bench should not hear the cases of those who have petitioned Hon'ble President against one of us. However, as noted by this very combination of members in the case of ICICI Ltd. v DCIT (ITA No. 668/Lkw/2011; order dated 6th June 2013), consistency in judicial decisions cannot be at the cost of ignoring judicial precedents. That was a case in which in the immediately preceding year, the issue was decided against the assessee. However, when the same issue came up again in assessee's own case and we noticed that the earlier decision was contrary to the settled legal position, this bench disregarded the earlier decision, even though one of us was author of the said decision and even as it was an ex parte decision qua the assessee. In doing so, it was observed thus:
10. The matter thus stands restored to the file of the Assessing Officer for fresh adjudication in accordance with the law and in the light of our observations above. While doing so, the Assessing Officer will give a due and fair opportunity of hearing to the assessee and dispose of the matter by way of a speaking order. We direct so. As we do so, we are alive to the fact that this decision is at variance with decision in assessee's own case for the immediately preceding assessment year, but then, in the name of consistency, it cannot be open to us to perpetuate an error and act contrary to the law laid down by Hon'ble Supreme Court and by Hon'ble jurisdictional High Court - particularly now that we have taken note of these decisions. These decisions had escaped our attention earlier, no did the learned counsel for the assessee, who had appeared in that year, invite our attention to the same. We, therefore, have no hesitation in deviating from the stand taken in the immediately preceding year in assessee's own case .
12. Justice Cardozo, in his classic book 'The Nature Of Judicial Process', (first published by Yale University Press, United States, in December 1921; also available online at http://www.constitution.org/cmt/cardozo/jud_proc.htm) had said, "I own that it is a good deal of a mystery to me how judges, of all persons in the world, should put their faith in dicta. A brief experience on the bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinions when picked up a few months after delivery, and reread with due contrition. The persuasion that one's own infallibility is a myth leads by easy stages and with somewhat greater satisfaction to a refusal to ascribe infallibility to others." That is equally true for many of us too. There is no heroism in perpetuating an error. Once we realize that our earlier decision was incorrect, there cannot be any justification in continuing to adopt the same approach. The earlier decision, therefore, need not detain us from applying the correct law as it exists. What is thus really important is whether such an adjournment can be granted in accordance with the settled legal position. While I have to proceed on the basis that everyone is aware of the law so settled by Their Lordships of Hon'ble Supreme Court from time to time, I consider it appropriate to reproduce a rather lengthy, though wholly relevant, extract from Hon'ble Supreme Court in the case of Harish Uppal v Union of India [(2003) 2 SCC 45]. This is as follows:
15. In the case of U.P. Sales Tax Service Association v. Taxation Bar Association reported in [1995] 5 SCC 716, the question was whether the High Court could issue a writ or direction prohibiting a statutory authority from discharging quasi judicial functions i.e. direct the State Government to withdraw all powers from it and transfer all pending cases before the officer to any other officer and whether advocates would be justified to go on strike as a pressure group. In that context this Court observed as follows:
"11. It is fundamental that if rule of law is to have any meaning and content, the authority of the court or a statutory authority and the confidence of the public in them should not be allowed to be shaken, diluted or undermined. The courts of justice and all tribunals exercising judicial functions from the highest to the lowest are by their constitution entrusted with functions directly connected with the administration of justice. It is that expectation and confidence of all those, who have or are likely to have business in that court or tribunal, which should be maintained so that the court/tribunal perform all their functions on a higher level of rectitude without fear or favour, affection or ill-will. Casting defamatory aspersions upon the character, ability or integrity of the judge/judicial officer/authority undermines the dignity of the court/authority and tends to create distrust in the popular mind and impedes the confidence of the people in the courts/tribunals which is of prime importance to the litigants in the protection of their rights and liberties. The protection to the judges/judicial officer/authority is not personal but accorded to protect the institution of the judiciary from undermining the public confidence in the efficacy of judicial process. The protection, therefore, is for fearless curial process. Any scurrilous, offensive, intimidatory or malicious attack on the judicial officer/authority beyond condonable limits, amounts to scandalising the court/tribunal amenable to not only conviction for its contempt but also liable to libel or defamation and damages personally or group libel. Maintenance of dignity of the court/judicial officer or quasi- judicial authority is, therefore, one of the cardinal principles of rule of law embedded in judicial review. Any uncalled for statement or allegation against the judicial officer/statutory authorities, casting aspersions of court's integrity or corruption would justify initiation of appropriate action for scandalising the court or tribunal or vindication of authority or majesty of the court/tribunal. The accusation of the judicial officer or authority or arbitrary and corrupt conduct undermines their authority and rudely shakes them and the public confidence in proper dispensation of justice. It is of necessity to protect dignity or authority of the judicial officer to maintain the stream of justice pure and unobstructed. The judicial officer/authority needs protection personally. Therefore, making wild allegations of corruption against the presiding officer amounts to scandalising the court/statutory authority. Imputation of motives of corruption to the judicial officer/authority by any person or group of persons is a serious inroad into the efficacy of judicial process and threat to judicial independence and needs to be dealt with the strong arm of law."
16. It was held that the High Court did not have power to issue a writ of direction prohibiting a statutory authority from discharging quasi judicial functions. The question whether lawyers had a right to strike was not gone into.
17. In the case of B. L. Wadehra v. State (NCT of Delhi) & Ors. reported in AIR [2000] Delhi 266, one of the questions was whether a direction should be issued to the lawyers to call off a strike. The Delhi High Court noted certain observations of this Court which are worth reproducing:
"In Indian Council of Legal Aid and Advice v. Bar Council of India reported in [1995] 1 SCC 732 : (AIR 1995 SC 691), the Supreme Court observed thus :
"It is generally believed that members of the legal profession have certain social obligations, e.g., to render "pro bono publico" service to the poor and the underprivileged. Since the duty of a lawyer is to assist the court in the administration of justice, the practice of law has a public utility flavour and, therefore, he must strictly and scrupulously abide by the Code of Conduct behoving the noble profession and must not indulge in any activity which may tend to lower the image of the profession in society. That is why the functions of the Bar Council include the laying down of standards of professional conduct and etiquette which advocates must follow to maintain the dignity and purity of the profession."
In Re: Sanjeev Datta, reported in [1995] 3 SCC 619 : (1995 AIR SCW 2203) the Supreme Court has stated thus:
"20. The legal profession is a solemn and serious occupation. It is a noble calling and all those who belong to it are its honourable members. Although the entry to the profession can be had by acquiring merely the qualification of technical competence, the honour as a professional has to be maintained by its members by their exemplary conduct both in and outside the Court. The legal profession is different from other professions in that what the lawyers do, affects not only an individual but the administration of justice which is the foundation of the civilised society. Both as a leading member of the intelligentsia of the society and as a responsible citizen, the lawyer has to conduct himself as a model for others both in his professional and in his private and public life. The society has a right to expect of him such ideal behaviour. It must not be forgotten that the legal profession has always been held in high esteem and its members have played an enviable role in public life. The regard for the legal and judicial systems in this country is in no small measure due to the tireless role played by the stalwarts in the profession to strengthen them. They took their profession seriously and practise it with dignity, deference and devotion. If the profession is to survive, the judicial system has to be vitalised. No service will be too small in making the system efficient, effective and credible."
The Delhi High Court then considered various other authorities of this Court, including some set out above, and concluded as follows:
"30. In the light of the above-mentioned views expressed by the Supreme Court, lawyers have no right to strike i.e. to abstain from appearing in Court in cases in which they hold vakalat for the parties, even if it is in response to or in compliance with a decision of any association or body of lawyers. In our view, in exercise of the right to protest, a lawyer may refuse to accept new engagements and may even refuse to appear in a case in which he had already been engaged, if he has been duly discharged from the case. But so long as a lawyer holds the vakalat for his client and has not been duly discharged, he has no right to abstain from appearing in Court even on the ground of a strike called by the Bar Association or any other body of lawyers. If he so abstains, he commits a professional misconduct, a breach of professional duty, a breach of contract and also a breach of trust and he will be liable to suffer all the consequences thereof. There is no fundamental right, either under Article 19 or under Article 21 of the Constitution, which permits or authorises a lawyer to abstain from appearing in Court in a case in which he holds the vakalat for a party in that case. On the other hand a litigant has a fundamental right for speedy trial of his case, because, speedy trial, as held by the Supreme Court in HussainaraKhatoon v. Home Secretary, State of Bihar, [1980] 1 SCC 81: (AIR 1979 SC 1360) is an integral and essential part of the fundamental right to life and liberty enshrined in article 21 of the Constitution. Strike by lawyers will infringe the above-mentioned fundamental right of the litigants and such infringement cannot be permitted. Assuming that the lawyers are trying to convey their feelings or sentiments and ideas through the strike in exercise of their fundamental right to freedom of speech and expression guaranteed by Article 19(1)(a) of the Constitution. We are of the view that the exercise of the right under Article 19(1)(a) will come to an end when such exercise threatens to infringe the fundamental right of another. Such a limitation is inherent in the exercise of the right under Article 19(1)(a). Hence the lawyers cannot go on strike infringing the fundamental right of the litigants for speedy trial. The right to practise any profession or to carry on any occupation guaranteed by Article 19(1)(g) may include the right to discontinue such profession or occupation but it will not include any right to abstain from appearing in Court while holding a vakalat in the case. Similarly, the exercise of the right to protest by the lawyers cannot be allowed to infract the litigant's fundamental right for speedy trial or to interfere with the administration of justice. The lawyer has a duty and obligation to cooperate with the Court in the orderly and pure administration of justice. Members of the legal profession have certain social obligations also and the practice of law has a public utility flavour. According to the Bar Council of India Rules, 1975 "an Advocate shall, at all times, comport himself in a manner befitting his status as an officer of the Court, a privileged member of the community and a gentleman, bearing in mind that what may be lawful and moral for a person who is not a member of the Bar or for a member of the Bar in his non-professional capacity, may still be improper for an Advocate". It is below the dignity, honour and status of the members of the noble profession of law to organize and participate in strike. It is unprofessional and unethical to do so. In view of the nobility and tradition of the legal profession, the status of the lawyer as an officer of the court and the fiduciary character of the relationship between a lawyer and his client and since strike interferes with the administration of justice and infringes the fundamental right of litigants for speedy trial of their cases, strike by lawyers cannot be approved as an acceptable mode of protest, irrespective of the gravity of the provocation and the genuineness of the cause. Lawyers should adopt other modes of protest which will not interrupt or disrupt court proceedings or adversely affect the interest of the litigant. Thereby lawyers can also set an example to other sections of the society in the matter of protest and agitations.
31. Every Court has a solemn duty to proceed with the judicial business during Court hours and the Court is not obliged to adjourn a case because of a strike call. The Court is under an obligation to hear and decide cases brought before it and it cannot shirk that obligation on the ground that the advocates are on strike. If the counsel or/and the party does not appear, the necessary consequences contemplated in law should follow. The Court should not become privy to the strike by adjourning the case on the ground that lawyers are on strike. Even in the Common Cause case the Supreme Court had asked the members of the legal profession to be alive to the possibility of Judges refusing adjournments merely on the ground of there being a strike call and insisting on proceeding with the cases. Strike infringes the litigant's fundamental right for speedy trial and the Court cannot remain a mute spectator or throw up its hands in helplessness on the face of such continued violation of the fundamental right.
32. Either in the name of a strike or otherwise, no lawyer has any right to obstruct or prevent another lawyer from discharging his professional duty of appearing in Court. If anyone does it, he commits a criminal offence and interferes with the administration of justice and commits contempt of Court and he is liable to be proceeded against on all these counts.
33. In the light of the above discussion we are of the view that the present strike by lawyers is illegal and unethical. Whatever might have been the compelling circumstances earlier, now there is absolutely no justification for the continuance of the strike in view of the appointment of the Commission of Inquiry and the directions being issued in this case."
18. In our view the conclusions reached are absolutely correct and the same need to be and are hereby approved.
19. Thereafter in the case of Roman Services Pvt. Ltd. v. Subhash Kapoor reported in [2001] 1 SCC 118, the question was whether a litigant should suffer a penalty because his advocate had boycotted the Court pursuant to a strike call made by the Association of which the advocate was a member. In answer to this question it has been held that when an advocate engaged by a party is on strike there is no obligation on the part of the Court to either wait or adjourn the case on that account. It was held that this Court has time and again set out that an advocate has no right to stall court proceedings on the ground that they have decided to go on a strike. In this case it was noted that in Mahabir Prasad's case (supra), it has been held that strikes and boycotts are illegal. That the lawyers and the Bar understood that they could not resort to strikes is clear from statement of Senior Counsel Shri. Krishnamani which this Court recorded. ……………
This Court thereafter directed the concerned advocate to pay the half the amount of the cost imposed on his client. The observations in this behalf are as follows:
"15. Therefore, we permit the appellant to realise half of the said amount of Rs. 5000 from the firm of advocates M/s B.C. Das Gupta & Co. or from any one of its partners. Initially we thought that the appellant could be permitted to realise the whole amount from the said firm of advocates. However, we are inclined to save the firm from bearing the costs partially since the Supreme Court is adopting such a measure for the first time and the counsel would not have been conscious of such a consequence befalling them. Nonetheless we put the profession to notice that in future the advocate would also be answerable for the consequence suffered by the party if the non-appearance was solely on the ground of a strike call. It is unjust and inequitable to cause the party alone to suffer for the self-imposed dereliction of his advocate. We may further add that the litigant who suffers entirely on account of his advocate's non-appearance in court, has also the remedy to sue the advocate for damages but that remedy would remain unaffected by the course adopted in this case. Even so, in situations like this, when the court mulcts the party with costs for the failure of his advocate to appear, we make it clear that the same court has power to permit the party to realise the costs from the advocate concerned. However, such direction can be passed only after affording an opportunity to the advocate. If he has any justifiable cause the court can certainly absolve him from such a liability. But the advocate cannot get absolved merely on the ground that he did not attend the court as he or his association was on a strike. If any advocate claims that his right to strike must be without any loss to him but the loss must only be for his innocent client such a claim is repugnant to any principle of fair play and canons of ethics. So when he opts to strike work or boycott the court he must as well be prepared to bear at least the pecuniary loss suffered by the litigant client who entrusted his brief to that advocate with all confidence that his cause would be safe in the hands of that advocate.
16. In all cases where the court is satisfied that the ex parte order (passed due to the absence of the advocate pursuant to any strike call) could be set aside on terms, the court can as well permit the party to realise the costs from the advocate concerned without driving such party to initiate another legal action against the advocate.
17. We may also observe that it is open to the court as an alternative course to permit the party (while setting aside the ex parte order or decree earlier passed in his favour) to realise the cost fixed by the court for the purpose, from the counsel of the other party whose absence caused the passing of such ex parte order, if the court is satisfied that such absence was due to that counsel boycotting the court or participating in a strike." (emphasis supplied)
20. Thus the law is already well settled. It is the duty of every Advocate who has accepted a brief to attend trial, even though it may go on day to day and for a prolonged period. It is also settled law that a lawyer who has accepted a brief cannot refuse to attend Court because a boycott call is given by the Bar Association. It is settled law that it is unprofessional as well as unbecoming for a lawyer who has accepted a brief to refuse to attend Court even in pursuance of a call for strike or boycott by the Bar Association or the Bar Council. It is settled law that Courts are under an obligation to hear and decide cases brought before it and cannot adjourn matters merely because lawyers are on strike. The law is that it is the duty and obligation of Courts to go on with matters or otherwise it would tantamount to becoming a privy to the strike. It is also settled law that if a resolution is passed by Bar Associations expressing want of confidence in judicial officers it would amount to scandalising the Courts to undermine its authority and thereby the Advocates will have committed contempt of Court. Lawyers have known, at least since Mahabir Singh's case (supra) that if they participate in a boycott or a strike, their action is ex-facie bad in view of the declaration of law by this Court. A lawyer's duty is to boldly ignore a call for strike or boycott of Court/s. Lawyers have also known, at least since Roman Services' case, that the Advocates would be answerable for the consequences suffered by their clients if the non-appearance was solely on grounds of a strike call.
(Emphasis by underlining supplied by us)
13. The views so expressed by the constitution bench were again reiterated by Their Lordships in the case of Common Cause v. Union of India [(2006) 9 SCC 295].
14. It is, therefore, not open to even any bar association or other interest groups also, much less an individual lawyer or group of representatives - as is the case before us, to hold functioning of this Tribunal to ransom by seeking adjournments on the ground that they have some issues, howsoever legitimate as they might think these issues are, against a particular judicial officer. That is de facto boycott of a judicial officer and a strike against the judicial office he holds. As a matter of fact, as Hon'ble Supreme Court has observed, such boycotts or strikes are nothing but a contempt of court and a court itself also should not become privy to this by "adjourning the case on the ground that lawyers are on strike". When a functionary of this Tribunal, in exercise of his howsoever legitimate rights and for howsoever well intentioned purpose, consciously facilitates court functioning being brought to halt, it would appear to us, that he also becomes privy to these unconstitutional and illegal manoeuvrings by the vested interests, and he runs the risk of being held as much guilty of contempt of court as much as the persons who initiate these evil manoeuvrings. While there should indeed be swift, proper and transparent administrative action dealing with allegation against a judiciary functionary, though naturally after providing him an opportunity of giving his version on the allegations, there cannot be any room for judicial officers being intimidated by anyone or for anyone consciously in the hands of the pressure groups engaged in an unlawful and unconstitutional activity. Of course, nothing prevents a judicial officer to seek a transfer from a place where he is uncomfortable with such allegations, if his conscious so permits, or from a judicial officer being transferred bonafide in public interest from such a place, if it can stand scrutiny of law, but any attempts to disturb or interfere with his judicial functioning as long as he continues to hold the officer are impermissible under the scheme of the law as visualized by Hon'ble Courts above. The decisions to take whether or not a judicial officer should hear a particular case or not is to be taken by the judicial officer or by the well settled administrative guidelines and judicial traditions. Just because, for whatever reasons, a crisis situation has been deprived of an appropriate solution, no direct or indirect interference in judicial powers of a judicial officer can be justified. No short cuts are permissible for anyone - shorts cuts such as adjourning the cases on the board or causing adjournment of such cases, or short cuts resulting in compromising with independence and dignity of a judicial officer.
15. Lawmakers, as also Hon'ble Courts above, are very well aware that the threat to the independent and fearless functioning of the judicial institutions is not only from outside but also from within, and that is what Hon'ble Supreme Court has also referred to when Their Lordships quoted, with approval, observed of Hon'ble Delhi High Court to the effect that, "(t)he Court should not become privy to the strike by adjourning the case on the ground that lawyers are on strike." This observation is as much applicable in the cases of protest by an individual lawyer as much as it is applicable on the groups of lawyers and representatives or even bar associations. The legislation providing protection against contempt of courts extends not only to the persons appearing before the courts but also to the persons manning these courts, and, by implication, everyone associated with functioning of courts.
16. Granting adjournment in such cases of manoeuvrings by the interest groups, or otherwise becoming party to bringing functioning of a court to halt by joining such forces, could land us in the dock, and we must, therefore, desist from the same. Section 16 (1) of the Contempt of Courts Act, 1971, provides that "subject to the provisions of any law for the time being in force, a judge, magistrate or other person acting judicially shall also be liable for contempt of his own court or of any other court in the same manner as any other individual is liable and the provisions of this Act shall, so far as may be, apply accordingly". Section 16(2), however, craves out an exception to the limited extent that nothing in Section 16 "shall apply to any observations or remarks made by a judge, magistrate or other person acting judicially, regarding a subordinate court in an appeal or revision pending before such judge, magistrate or other person against the order or judgment of the subordinate court". Section 16(2) thus excludes only such observations or remarks made by a judicial officer as he makes in the course of his judicial functions and regarding a subordinate court in an appeal or revision pending before him. In other words, everything that a judicial officer does on the bench, except for his observations or comments regarding the orders impugned in appeals or revisions before such judicial officer, is required to be kept within the framework of accepted judicial norms, and so as it does not (i) scandalizes or tends to scandalize, or lowers or tends to lower the authority of, any court, (ii) prejudices, or interferes or tends to interfere with the due course of any judicial proceeding , (iii) interferes or tends to interfere with, or obstructs or tends to obstruct, the administration of justice in any other manner. That is also the underlying principle for the respectful treatment to orders passed by the co-ordinate benches, and other judicial forums, and that, even when a coordinate bench does not agree with another coordinate bench, it does not use any words which may be seen as offending the judicial dignity. It is a well-accepted judicial convention to do so, and it is this convention perhaps, which is the source and inspiration of the statutory provision also. Hon'ble Courts have not been found wanting in punishing judicial officers for their contempt of court, and there are at least three such reported judicial precedents from Hon'ble High Courts and Hon'ble Supreme Court. It is, therefore, free from any doubt or any controversy that a judicial officer has a duty, much more than anyone else, to protect the dignity of the court, and that, all his actions, except for his comments and observations on the orders impugned in appeals or revisions before his court, must stand the scrutiny of tough tests as prescribed, in the law protecting contempt of courts, for everyone else. On a conceptual note, the responsibilities of judicial officers in this respect are much more demanding that the duties of the parties appearing before the Courts and Tribunals or the public at large.
17. What could attract the stringent provisions for contempt of court is defined in an inclusive manner and it is open ended inasmuch as Section 2(c) of the Contempt of Court Act 1971 defines criminal contempt as "publication (whether by words, spoken or written, or by signs, or by visible representation, or otherwise) of any matter or the doing of any other act whatsoever which- (i) Scandalizes or tends to scandalize, or lowers or tends to lower the authority of, any court, (ii) Prejudices, or interferes or tends to interfere with the due course of any judicial proceeding , (iii) Interferes or tends to interfere with, or obstructs or tends to obstruct, the administration of justice in any other manner".
(emphasis by underlining supplied by me).
These statutory provisions, though sparingly used as an exception rather than as a rule, are not merely of ornamental value. I would hold the view that all of us, i.e. judicial officers, departmental representatives and assessee's representatives, are like a large joint family, in pursuit of a common goal of the cause of justice, and all of us have an equal stake in well-being of this institution, and, therefore, whatever be the provocation, all of us should desist from invoking these extreme measures and in washing dirty linen in full public gaze. However, occasions do arise when politeness is taken as weakness and restraint is taken as timidity, making it impossible for a righteous person or institution to survive with dignity, self-respect and with a healthy distance from the troubles and trouble creators. When left with no other dignified choice, and howsoever reluctantly, sometimes these legal provisions are to be necessarily invoked. These statutory provisions are the weapons with which some public spirited stalwarts from legal profession, as also one of the most righteous person ever to grace the office of the President of this Tribunal, i.e. late Hon'ble Shri T V Rajgopala Rao, have fought legal battles to protect dignity of this institution at a time when even the most gracious conduct of one of our own former colleague, another outstanding legal luminary who later adorned the office of the President of this Tribunal and then elevated to Hon'ble High Court, was called into question. In the case of Income Tax Appellate Tribunal v V K Agarwal & Another [(1999) 1 SCC 16], Hon'ble Supreme Court did not condone what was ostensibly an administrative exercise of investigating a complaint by the then Law Secretary but was found to be "deliberate attempt on his part to question the judicial functioning of the Tribunal". Their Lordships condemned this attack on a judicial institution and, holding him guilty of criminal contempt of court within meanings of Section 2 (c), observed as follows:
…………Certainly, the language of the letter of 30th of December, 1997 is wholly unwarranted. Curiously, the statement in the letter that, the aforesaid circumstances disclose judicial impropriety of highest degree is reminiscent of the language used in the pseudonymous complaint. Instead of even waiting for an explanation, he has straightway asked the President to enquire into the matter and send a report to the Government, and that too peremptorily within ten days. All this is wholly unbecoming of a person holding the rank of the Law Secretary. …………... The entire tone of the letter is highly unwarranted, offensive and tends to undermine the dignity of the post of the President of the Appellate Tribunal. It is unbecoming of the Law Secretary to issue such "commands" to the President of the Income Tax Appellate Tribunal ordering him to send reports within a few days and threatening that adverse inferences would be drawn if the report is not so sent - and all this without even bothering to check whether the complaint received by him was a genuine complaint or not!
The first respondent, although he received the pseudonymous complaint of 15th of November, 1997, seems to have written a letter to the so-called sender of the complaint only on 12th of January, 1998, and that too asking only for a confirmation whether the complaint was made by that person. When he wrote the letter of 30th December, 1997, he had not even checked the veracity of the complaint. Thereafter, although the first respondent had not received any response to his letter of 12th of January, 1993, he did not hesitate to address the letter of 3rd of February, 1998 to the President of the Tribunal.
In our view this kind of conduct and that, too on the part of the Law Secretary, who is expected to maintain the Independence of the Income Tax Appellate Tribunal and not interfere with its judicial functioning, amounts to gross contempt of court. It is a deliberate attempt on his part to question the judicial functioning of the Tribunal coming as it does from a person of his rank. It is rightly perceived by the President as well as the two concerned Members of the Tribunal as a threat to their independent functioning in the course of deciding appeals coming up before them.
The first respondent has offered his apology to us. However, looking to all the circumstances of the present case we cannot accept the apology offered. He has travelled far beyond exercising administrative control over the Tribunal. He has tried to influence or question the decision-making process of the Tribunal. An apology, in these circumstances, cannot be accepted. We, therefore, hold the first respondent guilty of contempt of court.
18. The legal position is thus very clear and unambiguous. Anything which "interferes or tends to interfere with, or obstructs or tends to obstruct, the administration of justice in any other manner" is a contempt of court. As a corollary to this position and in the light of the law laid down by Their Lordship in Harish Uppal's case (supra), when even judicial or other officers allow such attacks on judicial offices going on unhindered, they also run the risk of becoming privy to the contempt of court. The functioning of this Tribunal obviously cannot go on when a lawyer, or a group of lawyers, seeks an adjournment on the ground that objectivity of the judicial officer is not beyond doubt and that there is a petition to that effect is pending before higher authorities. No judicial institution can be allowed to function if these reasons are treated as good enough to grant adjournments. Of course, larger public cause requires that these grievance petitions against judicial officers are appropriately dealt with and the matter is looked into in a fair, transparent and objective manner, but that is beside the point right now. That is something over which the judicial officer concerned will have no control. We are, and can only be, concerned with whether adjournment of a case can be granted only because the counsel representing an assessee, or even a body representing such a counsel, have a right to get adjournment when they have issues with any judicial officer forming part of the judicial forum. I would, in the light of the above discussions, hold the view that the adjournment requests, no matter howsoever legitimate and bonafide these requests may be claimed by the adjournment seekers, should be considered in the light of all the relevant factors, including larger interests of the society and the judicial decorum. Of course, the approach has to be uniform and approach has to be consistent. The majesty of law is that no matter how powerful and how mighty these persons may be, no person, in the eyes of a judicial forum, is above the law. If the law is to be followed consistently, as all of us are under obligation to follow, the adjournment requests received on account of a representative or a bar association's decision to boycott a bench, or request received from such sources to render judicial powers of a judicial officer redundant because he does not suit their interests should also be rejected with as much of a conviction as the conviction with which this adjournment petition is rejected. In my considered view, above all, it will go a long way in ensuring that the Members are allowed to work fearlessly, without any pressure and without bothering about level of popularity amongst the interest groups protecting interests of one set of parties, out of the two sets of parties appearing before this forum. I agree with my brother that this adjournment petition should be rejected and I also agree with him that no bullying tactics, either by an individual counsel or by a group representing any interests of any of the groups, should be allowed to interfere in the functioning of this judicial institution. There cannot be a bigger threat to the judicial system than judicial officers under pressure or judicial officers playing to the galleries- which invariably also include, no matter in which measure, narrow and vested interests as well. It is all the more important in the bar associations dealing with tax matters where they only represents of taxpayers and, sometimes in deviations with the healthy traditions developed by founding fathers and stalwarts of these bar associations, happily work against even the bonafide interests of the State - always the other party to every dispute before the Tribunal. The profession of law and accountancy, which had earned so much of well deserved respect and dignity for their outstanding contribution to the larger interests and good causes, cannot always be said to be absolutely beyond general decay in society. There are bar associations which have fought legal battles to protect independence of our institution and, in the process, have helped us earn, as indeed everyone associated with this Tribunal, the respect and credibility. Many of the learned representatives appearing before us, which included, for long decades, legendry and great lawyers like late Shri N A Palkivala, have helped us do our job in a more meaningful and satisfying manner, and have helped this institution emerge as an institution of distinction and eminence. Neither we can forget these contributions to laudable causes nor can we treat the entire bar associations, interest groups or professionals as dominated by of such public spirited characters. There are good people and there are not so good people everywhere and in all walks of life, and no part of this society is an exception - people on this side of the fence or people on the other side of the fence. None can proceed on the sweeping generalizations about any profession or any vocation. It will, therefore, be too divorced from the ground reality to proceed on the basis that all the lawyers, chartered accountants or groups representing their interests, are always righteous and ethical, and that all the things they are uncomfortable with are inappropriate and illegal. We can neither be so naïve nor so unrealistic. Gresham's law, we like it or not, has extended to many areas in life.
19. A judicial officer, when performing judicial duties, is not performing in a swaymvar; he is discharging solemn duties of rendering, impartially and fearlessly, justice pure and simple. I do not think representatives of taxpayers can be allowed to choose the judicial officers for adjudicating upon their grievances. A judicial officer need not bother about how representatives of the taxpayers will react to his judgments, or how will even his own colleague on multi member bench view his approach to the judicial work. There should be harmony in functioning but not at the cost of independence. There should be healthy respect for each other but not at the cost of betraying one's own conscious and commitment to the time-tested values. There should be brotherhood amongst all but not at the cost of damage to the public good. The working of this Tribunal, as indeed all our judicial institutions, in my humble understanding, is an outstanding example of how this can successfully be achieved, and as to how a judicial officer's answerability continues to be only to his conscious and to the majesty of law.
20. As long as a judicial officer comes with clean hands and open mind, he believes in what he is doing, and he is following the dictates of his conscious, his understanding of the words of law and, to the best of his ability, high standards of judicial traditions, he has to bother about nothing else. That is the freedom granted by the judicial independence in our country which has stood the test of time and promoted an independent, impartial and efficient judiciary. When allegations hurled at one of us are treated, by itself, as reason enough to adjourn the matters of the persons making these allegations, the persons making allegations are virtually allowed to decide that their matters should not be heard by a particular bench and to thereby demoralize judicial officers manning a judicial forum. I only hope that it was an inadvertent by-product of a momentary rush of blood which has resulted in the contemptuous action of the learned counsel, and that it must have been only because he could not find his way out of this cul-de-sac, without endangering his defence before the Hon'ble Courts above, that he has not apologized so far, but there has to be a visible sign of remorse, apology and regret in his conduct. I hope he expresses his remorse, apology or regret, if he really has that, sooner rather than later and I am sure that my brother will show his generosity by allowing the matter to come a decent close. There cannot be any room for bitterness forever, nor can any stage of life be too late a stage to change oneself. With the benefit of hindsight though, I would think that, in this sequence of events, only if the very first attempt to commit contempt of this Tribunal, by virtually boycotting court of a brother judicial officer, was thwarted with the same conviction and same force as it has been thwarted this time, this situation would not have arisen. While one has also to be alive to the fact even the bar associations or individuals resort to such confrontations generally, though not always, in a situation when softer options do not beget them fair solutions, but when call of duty requires us to be firm, we have to, howsoever reluctantly, take these tough decisions. I envy and admire my learned brother for the exemplary restraint he had shown in not initiating legal action at the first sign of trouble but these goodwill gestures did not get the results he would have aspired. The restraint at that point of time must have been bonafide and certainly befitting the conduct of a seasoned judicial officer, but since, as I said earlier, sometimes politeness is taken as weakness and restraint is taken as timidity, these goodwill gestures sometimes turn out to be counterproductive. We have learnt this lesson the hard way. The fact that a graceful solution to a crisis, for whatever reasons and for howsoever legitimate reasons, has proved to be elusive so far, does not mean that dignity of a judicial office is to be put on the altar. That will be destructive of the ideals an independent judiciary stands for. Let us not destroy, or become privy to destroying, this priceless heritage in our judicial independence, or allow anything to come in the way of the high traditions of our judiciary, and the sense of belongingness for all the stakeholders in this institution.
21. With these words, I concur with the conclusions arrived at by my learned brother. As my learned senior has stated in his signed order, the decision on this appeal was pronounced in the open court immediately upon conclusion of hearing.
Assessment --Scrutiny assessment--Appellate order--Must be given complete effect--Assessee filing return and declaring certain income--Appellate order deleting several disallowances--Assessment at a figure lower than returned income--No need to restrict to returned income--Income-tax Act, 1961-- CIT v . Milton Laminates Ltd .
(Guj) . . . 58
(Guj) . . . 58
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