IT : In terms of clause (iia) of section 32(1), additional depreciation is available in year in which machinery is new and first put to use and not for any succeeding year
■■■
[2013] 34 taxmann.com 123 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'D'
CRI Pumps (P.) Ltd.
v.
Assistant Commissioner of Income-tax, Company Circle - IV(2), Coimbatore*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
IT APPEAL NOS. 1824 & 1825 (MDS.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
APRIL 4, 2013
Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of [Additional depreciation] - Assessment year 2007-08 - Whether in terms of clause (iia) of section 32(1), additional depreciation is available in year in which machinery is new and first put to use and not for any succeeding year - Held, yes [Para 9] [In favour of revenue]
FACTS
| ■ | The assessee had claimed additional depreciation on certain machinery other than those which were acquired during the relevant previous year. | |
| ■ | The Assessing Officer opined that since additional depreciation on the machinery was allowed in the assessment years relevant to the previous year when it was installed, there was no question of any further additional depreciation being granted in any of the subsequent years, including the impugned assessment year. Accordingly, the assessee's claim was rejected. | |
| ■ | The Commissioner (Appeals) confirmed the order of Assessing Officer. | |
| ■ | On second appeal: |
HELD
| ■ | There is no dispute that the additional depreciation claimed by the assessee, for impugned assessment year, were on machinery already acquired during the earlier assessment years. Thus, in the relevant assessment year, the machinery were no more new. Claim of the assessee is that under Section 32(1)(iia), additional depreciation for new plant and machinery acquired was available in every year after its installation if such installation happened after 31-3-2005. [Para 8] | |
| ■ | First requirement for being eligible for the claim of additional depreciation is that it should be on a new machinery or plant. A machinery is new only when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which additional depreciation has been claimed, was already used in various preceding previous years. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, assessee's claim under section 32(1)(iia) cannot be allowed. | |
| ■ | Additional depreciation itself is only for a new machinery or plant. A claim of additional depreciation as made by the assessee, if allowed, will not be an allowance for a new machinery or plant. Intention of the Legislature was to give such additional depreciation in the year in which assets were put to use and not for any succeeding year. | |
| ■ | There is nothing in the statute which allows such claim of additional depreciation every year on machinery acquired in earlier year. There cannot be any presumption that unless a claim is specifically denied, it has to be allowed. [Para 9] | |
| ■ | When an allowance which is ordinarily not available under normal commercial principles of accounting, is made specifically allowable, through enactment of certain specific provisions of the Act, it is also a requirement that there should be similar specific provision which shows its applicability every year, unless the context strongly calls for such an interpretation. Thus, the Commissioner (Appeals) was justified in confirming the disallowance of additional depreciation. [Para 10] | |
| ■ | In the result, appeal filed by the assessee is dismissed. [Para 11] |
CASES REFERRED TO
Brakes India Ltd. v. Dy. CIT [IT Appeal No. 1069 (Mds.) of 2010, dated 6-1-2012] (para 6).
G. Stanly for the Appellant. Smt. Vidisha Kalra for the Respondent.
ORDER
Abraham P. George, Accountant Member - These are appeals filed by the respective assessees, directed against orders of CIT(Appeals) confirming the denial of claim of additional depreciation. Since the issue involved is similar, these appeals are disposed of by this common order.
2. Assessees' advocate Shri G. Stanly had filed an adjournment application for four appeals, namely, I.T.A. No. 1017/Mds/2012, I.T.A. No. 1246/Mds/2012, I.T.A. No. 1824/Mds/2010 and I.T.A. No. 1825/Mds/2010. The adjournment petition is common for all the above appeals and simply mentions that certain instructions and particulars had been sought from the assessees and they were awaited. A look at the order sheet entries show that the originally both these appeals were posted for hearing on 21.3.2011 and on the request of the assessees, adjournment was granted. Thereafter, it was posted for hearing on 24.3.2011, 2.6.2011, 18.8.2011, 2.11.2011, 18.1.2012, 19.1.2012 and 30.7.2012. In each of such occasion, adjournments were sought by assessee's counsel citing personal inconvenience and other trivial reasons. It is also noted that in none of the occasions, the learned D.R. had sought any adjournment. In such circumstances, we are not inclined to grant any further adjournment at least for these two appeals. Therefore, petition for adjournment insofar as these two appeals are concerned, stands rejected.
3. Facts apropos are that both the assessees had claimed additional depreciation on certain machinery other than those which were acquired during the relevant previous year. Argument of the assessees before Assessing Officer was that the additional depreciation claimed on machinery acquired during the periods 2002-03 to 2004-05 and 2005-06, was allowable in subsequent assessment years as well. Assessing Officer was of the opinion that since additional depreciation on the machinery was allowed in the assessment years relevant to the previous year when it was installed, there was no question of any further additional depreciation being granted in any of the subsequent years, including the impugned assessment year. Thus, the additional depreciation of Rs. 26,33,507/- claimed by the assessee M/s CRI Pumps (P) Limited and Rs. 86,99,846/- claimed by M/s Ransar Industries Ltd. were disallowed.
4. In their appeals before CIT(Appeals), argument taken by the assessees was that additional depreciation was admissible for machinery purchased in earlier years, since the law did not restrict admissibility of such depreciation to initial year of acquisition only. However, CIT(Appeals) was not impressed. According to him, Section 32(1)(iia) of Income-tax Act, 1961 (in short 'the Act') introduced by Finance Act, 2002 with effect from 1.4.2003 and amended by Finance Act, 2004 with effect from 1.4.2005 clearly showed that additional depreciation was allowable only on plant and machinery, which were newly purchased, in the year of purchase and installation. The benefit, as per ld. CIT(Appeals), was available only in the initial year and not in any subsequent year. Further, as per CIT(Appeals), intention of the Legislature for giving additional depreciation was to promote investment in new plant and machinery. In this view of the matter, he confirmed the disallowance made by the Assessing Officer.
5. Now before us, learned A.R., strongly assailing the orders of authorities below, submitted that Section 32(1)(iia) was amended with effect from 1.4.2005. According to him, the present requirement was only installation of the asset on which additional depreciation was claimed. Such additional depreciation was statutorily allowable once the assets were installed and in every year thereafter.
6. Per contra, learned D.R. strongly supported the order of CIT(Appeals). Reliance was also placed on the decision of coordinate Bench of this Tribunal in the case of Brakes India Ltd. v. Dy. CIT in I.T.A. No. 1069/Mds/2010 dated 6.1.2012.
7. In reply, learned A.R. submitted that the Tribunal had not considered the amended law in the said decision and therefore, reliance on such order of the Tribunal was misplaced.
8. We have perused the orders and heard the rival submissions. There is no dispute that the additional depreciation claimed by the assessees, for impugned assessment year, were on machinery already acquired during the years 2002-03 to 2004-05 and 2005-06. Thus, in the previous year relevant to impugned assessment year, the machinery were no more new. Claim of the assessees is that under Section 32(1)(iia) of the Act, additional depreciation for new plant and machinery acquired was available in every year after its installation if such installation happened after 31st March, 2005. Said clause (iia) of Section 32(1) is reproduced hereunder:-
"32 (1) In respect of depreciation of -
| (i) and (ii) | ** | ** |
(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture and production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):
Provided that no deduction shall be allowed in respect of -
| (A) | any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or | |
| (B) | any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or | |
| (C) | any office appliances or road transport vehicles; or | |
| (D) | any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;" |
9. First requirement for being eligible for the claim of additional depreciation is that it should be on a new machinery or plant. A machinery is new only when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which additional depreciation has been claimed, was already used in various preceding previous years. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1)(iia) cannot be allowed. Additional depreciation itself is only for a new machinery or plant. A claim of additional depreciation as made by the assessee, if allowed, will not be an allowance for a new machinery or plant. Intention of the Legislature was to give such additional depreciation in the year in which assets were put to use and not for any succeeding year. There is nothing in the statute which allows such claim of additional depreciation every year on machinery acquired in earlier year. There cannot be any presumption that unless a claim is specifically denied, it has to be allowed. In the case of Brakes India Ltd. (supra) where assessee claimed carry forward of additional depreciation, this Tribunal had held as under at para 15 of its order:-
"15. We have considered the rival submissions. A perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional depreciation is allowable on the plant and machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. In the assessee's case this took place in the assessment year 2005-06 and the assessee has also claimed the additional depreciation during that year and the same has also been allowed. Each assessment year is separate and independent assessment year. The provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any. In the circumstances, the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. Consequently, ground No.1 of the assessee's appeal stands dismissed."
10. When an allowance which is ordinarily not available under normal commercial principles of accounting, is made specifically allowable, through enactment of certain specific provisions of the Act, it is also a requirement that there should be similar specific provision which shows its applicability every year, unless the context strongly calls for such an interpretation. We are thus of the opinion that CIT(Appeals) was justified in confirming the disallowance of additional depreciation. No interference is warranted.
11. In the result, appeals filed by the assessees are dismissed.
2013-TIOL-558-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'D' AHMEDABAD
BENCH 'D' AHMEDABAD
ITA No.2100/Ahd/2010 (By Revenue)
C O No.218/Ahd/2010 (By Assessee)
ITA No.2100/Ahd/2010
Assessment Year: 2007-08
C O No.218/Ahd/2010 (By Assessee)
ITA No.2100/Ahd/2010
Assessment Year: 2007-08
DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-11, ROOM NO 118, NARAYAN CHAMBERS
BEHRU BRIDGE CORNER, ASHRAM ROAD, AHMEDABAD
CIRCLE-11, ROOM NO 118, NARAYAN CHAMBERS
BEHRU BRIDGE CORNER, ASHRAM ROAD, AHMEDABAD
Vs
SHRI BIRJMOHAN DEVKIANDAN CHIRIPAL
283 NEW CLOTH MARKET
OUTSIDE RAIPUR GATE, AHMEDABAD
PAN NO:AACPA7904K
283 NEW CLOTH MARKET
OUTSIDE RAIPUR GATE, AHMEDABAD
PAN NO:AACPA7904K
G C Gupta, VP and Anil Chaturvedi, AM
Dated: January 4, 2013
Appellant Rep by: Mr T Shankar, Sr. DR
Respondent Rep by: Mr P M Mehta
Respondent Rep by: Mr P M Mehta
Income Tax - Sections 47(iii), 49(ii), 49(2), 49(2C), 68 - Whether the CIT (A) erred in deleting a addition of Rs.55,45,500/- u/s. 68 on the ground that the case of the assessee falls u/s. 47(iii) and Sec. 49(ii) and not u/s.49(2) or 49(2C) and this finding of CIT (A) has not been disputed by the Revenue.
The assessee an Individual having income from salary and income from other sources.The A.O. was of the view that after amalgamation, the shares of amalgamated company (i.e. Chiripal Ind. Ltd.) came into existence and that the amalgamating Co.(Shanti Processors Ltd. ) lost its identity and existence therefore valuation of shares of Chiripal Ind. Ltd., received as gift has to be determined with reference to Sec. 49(2C). According to the A.O. the cost of acquisition of shares gifted by 4 persons should have been Rs.1,02,44,000/- (19,70,000 shares x Rs. 5.20) but since the assessee had credited its capital account by Rs.1,61,88,500/- he worked out the excess amount of Rs.59,41,500/- by applying the provisions of Sec. 68.He however concluded that since the addition of Rs.59,44,500/- arrived as per the provisions of Sec. 49(2C) was more realistic . The CIT (A) deleted the addition and held that the case of the assessee falls u/s. 47(iii) and Sec. 49(ii) and not u/s.49(2) or 49(2C) .
On Appeal before the Tribunal the D.R. supported the order of the A.O. The A.R. submitted that provisions of Sec.68 do not apply to the facts of the present case.
Having heard the parties, the Tribunal held that,
++ it is an undisputed fact that the assessee had received gift of Shares of Chiripal Industries Ltd., from 4 donors. It is also an undisputed fact that the shares received as gift have not been transferred in the year under appeal. The CIT (A) has held that the case of the assessee falls u/s. 47(iii) and Sec. 49(ii) and not u/s.49(2) or 49(2C). This finding of CIT (A) has not been disputed by the Revenue. The question of valuation of shares would therefore arise in the year of transfer. The above stated facts could not be controverted by Revenue by bringing any material on record. No reason to interfere with the order of CIT (A).
The assessee an Individual having income from salary and income from other sources.The A.O. was of the view that after amalgamation, the shares of amalgamated company (i.e. Chiripal Ind. Ltd.) came into existence and that the amalgamating Co.(Shanti Processors Ltd. ) lost its identity and existence therefore valuation of shares of Chiripal Ind. Ltd., received as gift has to be determined with reference to Sec. 49(2C). According to the A.O. the cost of acquisition of shares gifted by 4 persons should have been Rs.1,02,44,000/- (19,70,000 shares x Rs. 5.20) but since the assessee had credited its capital account by Rs.1,61,88,500/- he worked out the excess amount of Rs.59,41,500/- by applying the provisions of Sec. 68.He however concluded that since the addition of Rs.59,44,500/- arrived as per the provisions of Sec. 49(2C) was more realistic . The CIT (A) deleted the addition and held that the case of the assessee falls u/s. 47(iii) and Sec. 49(ii) and not u/s.49(2) or 49(2C) .
On Appeal before the Tribunal the D.R. supported the order of the A.O. The A.R. submitted that provisions of Sec.68 do not apply to the facts of the present case.
Having heard the parties, the Tribunal held that,
++ it is an undisputed fact that the assessee had received gift of Shares of Chiripal Industries Ltd., from 4 donors. It is also an undisputed fact that the shares received as gift have not been transferred in the year under appeal. The CIT (A) has held that the case of the assessee falls u/s. 47(iii) and Sec. 49(ii) and not u/s.49(2) or 49(2C). This finding of CIT (A) has not been disputed by the Revenue. The question of valuation of shares would therefore arise in the year of transfer. The above stated facts could not be controverted by Revenue by bringing any material on record. No reason to interfere with the order of CIT (A).
Revenue's appeal dismissed
ORDER
Per: Anil Chaturvedi:
This appeal is filed by the Revenue against the order of Ld. CIT (A)- XVI, Ahmedabad dated 7-4-2010 for the assessment year 2007-08. Assessee has also filed cross objection against the same order passed by the Ld. CIT (A)-XVI, Ahmedabad. The grounds of appeal raised by Revenue read as under:
"1. The Ld. CIT (A) erred in law and on facts in deleting a addition of Rs.55,45,500/- u/s. 68 of the Act.2. The Ld. CIT (A) erred in law and on facts in not appreciating the finding of A.O. that consequent to the scheme of amalgamation the assessee acquired the shares of amalgamating company in the name of gifts and A.O. has rightly calculated cost of acquisition of shares u/s. 49(2C) of the Act.3. The Ld. CIT (A) erred in law and on facts in not appreciating the finding of the A.O. that assessee has excess credited the amount of gifted shares I the books of accounts and accordingly, addition u/s. 68 of the Act has been rightly made."
2. The C.O. raised by the assessee reads as under:-
"1. On the facts and in the circumstances of the case, the CIT (A) should have further held that addition made u/s. 68 is wholly contrary to law addition for this reason also it deserves to be deleted.2. Without prejudice, on the facts and in the circumstances of the case, the CIT (A) should have also held that even for the valuation of shares received in gift provisions of Section 49(2C) were not at all attracted because it was not at all a case of demerger of companies and on the other hand it was a case of amalgamation.
3. The brief facts as culled out from the assessment orders are as under.
4. The assessee is an Individual having income from salary and income from other sources. He filed his return of income on 9-10-2007 declaring total income of Rs.27,62,620/-. The case was selected for scrutiny and thereafter the assessment was framed u/s.143(3) vide order dated 31-12- 2009.
5. On perusing the capital account filed by the assessee A.O. noticed that the assessee has shown receipt of 19,70,000 Equity shares of Chiripal Industries Ltd., as gift from relatives and credited capital account by Rs.1,61,88,500/- being the cost of shares in the hands of donors. The A.O. vide show cause notice asked the assessee to submit details of the gifts. After considering the reply of the assessee A.O. observed that assessee had received gift of shares from 4 relatives on 25-10-2009. These four relatives originally held shares of Shanti Processors Ltd. and Chiripal Twisters & Sizers Pvt.Ltd., which were acquired by them on various dates. By virtue of the scheme of amalgamation which was approved by the Hon'ble High Court of Gujarat vide order dated 31-3-2006 which became effective from 25-4-2006 with retrospective effect from 1-4-2005 Shanti Processors Ltd., merged with Chiripal Industries Ltd. As per the Scheme of amalgamation the shareholders of Shanti Processors were allotted 3 equity shares each of face value of Rs.10 of Chiripal Industries Ltd., for every two equity shares Rs.10 each held by the shareholders in Shanti Processors Ltd. Accordingly the four donors became the owners of shares of Chiripal Industries Ltd. and they gifted the shares to the assessee on 25-10-2006. A.O. was of the view that after amalgamation, the shares of amalgamated company (i.e. Chiripal Ind. Ltd.) came into existence and that the amalgamating Co.(Shanti Processors Ltd. ) lost its identity and existence therefore valuation of shares of Chiripal Ind. Ltd., received as gift has to be determined with reference to Sec. 49(2C) of the Act. He accordingly worked out the value of shares in the following manner:-
(i) Cost of one Share of Shanti Processors Ltd. = Rs.10/-(ii) Book value of shares of Shanti Processors Ltd.
| Paid up equity share capital. | Rs. 4,60,74,000/- |
| Share Premium. | Rs. 4,08,00,000/- |
| Book value. | Rs. 8,68,74,000/- |
(iii) The net worth of Shanti Processors Ltd. as on 31-03-2005:
| Assets | Amount (Rs.) | Liabilities | Amount (Rs.) |
| Fixed assets | 48,80,08,844 | Secured & Unsecured loans | 42,10,42,442 |
| Investments | 18,11,127 | Deferred Tax Liability | 4,01,55,134 |
| Current assets | 30,11,46,899 | Current liabilities | 16,56,95,986 |
| Total. | 79,09,66,870 (a) | Total. | 62,68,93,562 (b) |
Net Worth =(a-b) | =16,40,73,308 |
Cost of acquisition of shares of Resulting company i.e. Chiripal Processors Ltd. is
= Cost of one Share of SPL x Book Value of Shares of SPL Net worth of SPL |
| = Rs. 10/- X Rs.8,68,74,000 -------------------------------- Rs.16,40,73,308 |
| = Rs.5.2 per share. |
6. He thus determined the cost of acquisition of one share of Chiripal Industries at Rs.5.20 per share. A.O. observed that the assessee has credited the cost of acquisition of shares at Rs. 8.32 per share (being the average cost of share of Shanti Processors) and therefore according to the A.O. the assessee has credited each share of Chiripal Industries Ltd. by more than Rs.3.12 per share. According to the A.O. the cost of acquisition of shares gifted by 4 persons should have been Rs.1,02,44,000/- (19,70,000 shares x Rs. 5.20) but since the assessee had credited its capital account by Rs.1,61,88,500/- he worked out the excess amount of Rs.59,41,500/- (Rs.1,61,88,500 less 1,02,44,000) by applying the provisions of Sec. 68.
7. For making the addition u/s. 68 the A.O. also relied on the decision of CIT v/s. Mrs. Grace Collis & Others 248 ITR 323 (SC) = (2002-TIOL-773-SC-IT). Based on the working approved by Hon'ble Supreme Court in the case of Mrs. Grace Collis & Ors (supra) he also worked out the cost of acquisition of shares of Chiripal Industries Ltd., as under:-
| = 2 shares of Shanti Processors Ltd. X Rs.10 ----------------------------------------------------- |
3 Shares of Chiripal Industries Ltd. |
| = Rs.6.6 per share. |
8. Based on the aforesaid working, the A.O. was of the view that the cost of shares gifted by the 4 persons to the assessee should be Rs.1,30,02,000/- (19,70,000 shares x 6.60). He was therefore of the view that since the assessee had credited the capital account in respect of shares received at Rs.8.31 per share instead of Rs.6.6 per share by more than in the capital account. The source of which was not explained by the assessee and therefore the addition of Rs.31,85,500/- (Rs.1,61,88,500 less 1,30,02,000) should be made u/s. 68. He however concluded that since the addition of Rs.59,44,500/- arrived as per the provisions of Sec. 49(2C) of the Act was more realistic than the addition of Rs.31,85,500/- worked out on the basis of working approved by Hon'ble Supreme Court in the case of CIT vs. Mrs. Grace Collis & Ors.(supra) he made addition of Rs.59,54,500/- u/s. 68 of the Act. The assessee being aggrieved carried the matter before CIT (A).
9. CIT (A) after considering the submissions made by the assessee deleted the addition by holding as under:-
"5. I have considered the submissions of the appellant as per Statement of Facts. The appellant received gift of following shares of Chiripal Industries Ltd.
| Name of donor | No. of shares | Value shown by the appellant in his book. |
| Minor Ruchi Chiripal | 618750 | 45,90,000 |
| Priyaka B. Chiripal | 618750 | 45,90,000 |
| Minor Ronak B.Chiripal | 618750 | 63,70,000 |
| Pritidevi B.Chiripal | 113750 | 6,37,000 |
| TOTAL | 1970000 | 1,61,87,000 |
5.1 The average cost of shares of Chiripal Inds. Ltd., is shown by the appellant at Rs.8.31 per shares. According to the A.O. the above mentioned donors have held shares of Shanti Processors Ltd. and Chiripal Twister & Sizer Pvt. Ltd. who amalgamated with Chiripal Inds. Ltd. (CIL) w.e.f. 1-4-2005. As per the Scheme of Amalgamation 3 equity shares of Rs.10 each of Chiripal Inds. Ltd. were allotted against 2 equity shares of RS.10 each of Shanti Processors Ltd. The shares of Chiripal Inds. Ltd. were allotted to these persons under the scheme of amalgamation which have been gifted by these donors to the appellant on 25-10-2006.Though the shares of Chiripal Inds. Ltd., have been gifted to the appellant, the cost of acquisition of shares have been taken as the cost of acquisition of shares of Shanti Processors Ltd. The A.O. further observed that there is transfer of shares in the scheme of amalgamation as per decision of Hon'ble Supreme Court in the case of Mrs. Grace Thomas as mentioned above. He worked out the cost of shares of Chiripal Inds.Ltd. as under:-2 shares of Shanti Processors / 3 Shares of Chiripal Inds Ltd., x 10 = Rs.6.65.2. In my opinion, the A.O. has not properly appreciated the facts. There is no dispute that the appellant received shares of Chiripal Inds. Ltd., on 25-10-2006 from the 4 donors as mentioned above after amalgamation of Shanti Processors Pvt. Ltd., with Chiripal Inds. Ltd. w.e.f. 1-4-2005. In his balance sheet / capital a/c. the appellant has valued such shares as the cost in the hands of the donors. Since some of the donors have shares of Shanti Processors Pvt. Ltd. before amalgamation and in lieu of such shares they were allotted shares of Chiripal Industries Ltd., the appellant took the original cost of shares of Shanti Processors Pvt. Ltd., as per Sec. 47(iii) of the I.T. Act. In my opinion, it is immaterial as to what cost is shown by the appellant in his books of accounts because the appellant has received all the 19,70,000 equity shares shown by way of gift. In the hands of the appellant, its cost is Nil. But for the purpose of transfer of shares there are specific provisions like Sec. 47(iii) and 49(ii) sec. 47(iii) says that any transfer of a capital amount under a gift will not be regarded as transfer. Section 49(ii) says about the cost with reference to certain modes of acquisition. As per section 49(iii), if the capital asset became the property of the appellant under a gift or will then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets increased by the previous owner or the assessee, as the case may be. The case of the appellant falls under sec. 47(iii) & sec. 49(ii) of the Act and not u/s. 49(2) or 49 (2C) as applied by the appellant or by the A.O. As per sec. 47(iii) there is no transfer of shares gifted by the donors to the appellant. Section 49(ii) says that when the shares are transferred by the appellant to any other person then the cost of acquisition of such shares would be treated not as Nil but the cost in the hands of its previous owner. Since there is no transfer of shares by the appellant in this year under appeal, there is no question of valuation of shares at a particular price. It is relevant only when the shares are transferred by the appellant to some other persons.5.3. Roughly speaking the cost of gifted shares in the hands of the appellant is Nil. If for the purpose of accounting the appellant shows the value of each share of Rs.(X) say, then also it is immaterial because in the balance sheet, on the asset side the assets are in the form of shares and in the liability side the value of shares is show at x multiplied by number of shares. As long as the shares are not transferred or the appellant gets benefit out of these shares, the book entry of valuation of shares will have no meaning, whether x =1 or 1000, will not have any impact on the tax liability of the appellant. It is only at the time of transfer of shares when the cost of acquisition of shares is to be calculated. The treatment of valuation of shares shown by the appellant in his books is not relevant. What is relevant is what was the cost of share in the hands of the previous donor. That value alone will be taken to consideration for the purpose of calculating capital gain in the hands of the appellant at the time of transfer of shares. Till the time the shares are not transferred by the appellant, or any other benefit is derived out of the shares, in my opinion, the value of the shares in the hands of the appellant is Nil. Because whether the cost of share in the hands of previous owner is Rs.1000/- or Re.1/- per share and such shares are gifted to the appellant then also the appellant has not paid any consideration towards such shares. In either case no addition u/s. 68 can be made in the hands of the appellant unless it is proved that the gift is not genuine. Further the cost of share shown by the appellant in his books is irrelevant because only at the time of transfer of shares by the appellant, for the purpose of calculating capital gain, the cost of acquisition of the share would be taken as the cost of acquisition in the hands of its previous owner who donated the shares to the appellant. For example, if the cost of acquisition of shares in the hands of previous owners was Rs. (A) say and the appellant is showing the cost in his books of accounts at Rs.1,000/- (or Re.1/-) and he transfers the shares at Rs. B (say), then the capital gain would be computed at Rs. (B-A) and not at B-1000 (or B-1) as per books of accounts of the appellant. I therefore, have no hesitation in deleting the addition of Rs.59,44,500/- u/s. 68 of the Act."
10. Aggrieved by the order of CIT (A), the Revenue is now in appeal before us. The effective ground of Revenue is against the deletion of addition of Rs.59,45,500/- by CIT (A) and the Cross Objection basically are supporting the order of CIT (A).
11. Before us the Ld. D.R. supported the order of the A.O. On the other hand the Ld. A.R. submitted that provisions of Sec.68 do not apply to the facts of the present case. He submitted that provisions of Sec.68 are applicable when some money is credited in the books of accounts which is shown as receipt of cash. He submitted that the provision u/s. 68 covers monetary transaction and it does not cover the alleged under valuation of gifts received in kind. He thus submitted that provisions of Sec.68 were not at all applicable to the facts of the case. The Ld. A.R. further submitted that as a result of amalgamation of Shanti Processors Ltd. and Chiripal Twister & Sizer Pvt. Ltd. assessee received the shares of of Chiripal Ind. Ltd. in gift from 4 relatives. The value of shares were recorded in the books of accounts at Rs.1,61,87,000/- being the actual cost of shares in the hands of the donors. The shares received in gift by the assessee have not been transferred during the year and therefore the receipt of shares by way of gift in the year under appeal does not give rise to taxable event. The value of shares accounted for the assessee is as per the provisions of Sec. 49(2) r.w.s. 47(vii) of the Act. The provision of Sec. 49(2C) as applied by A.O. is not at all applicable to the facts of the case because Sec. 49 (2C) applies to case of demerger and not amalgamation. The question of computation of capital gain would arise only in the year of transfer of shares. He thus supported the order of CIT (A).
12. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the assessee had received gift of Shares of Chiripal Industries Ltd., from 4 donors. The donors were initially holding the shares of Shanti Processors Ltd., prior to its amalgamation with Chiripal Industries Ltd. On amalgamation of Shanti Processors Ltd., with Chiripal Industries Ltd., the shareholders of Shanti Processors Ltd., were allotted the shares of Chiripal Industries Ltd. It is also an undisputed fact that the shares received as gift have not been transferred in the year under appeal. CIT (A) has held that the case of the assessee falls u/s. 47(iii) and Sec. 49(ii) of the Act and not u/s.49(2) or 49(2C) of the Act. This finding of CIT (A) has not been disputed by the Revenue. Section 47(iii) states that any transfer of a capital amount under a gift will not be regarded as transfer. Sec. 49(iii) states that when the shares are transferred by a person to any other person then the cost of acquisition of such shares would not be treated as Rs. Nil but the cost of acquisition would be the cost in the hands of previous owner. The question of valuation of shares would therefore arise in the year of transfer. The above stated facts could not be controverted by Revenue by bringing any material on record. In view of these facts, we find no reason to interfere with the order of CIT (A). We thus uphold the order of CIT (A) and thus dismiss the appeal of the Revenue. Since the appeal of revenue is dismissed, the cross objection of the assessee has become infructuous and therefore the same is also dismissed.
13. Thus the appeal of Revenue and C.O. of assessee are dismissed.
(Order pronounced in Open Court on 4.1.2013.)
2013-TIOL-549-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'E' MUMBAI
BENCH 'E' MUMBAI
ITA Nos.6826/Mum/2010
Assessment Year: 2006-07
Assessment Year: 2006-07
SANKET FOOD PRODUCTS PVT LTD
A9/26 ADDL MIDC AREA
AURANGABAD ROAD
JALNA-431203
PAN NO:AAECS0131P
A9/26 ADDL MIDC AREA
AURANGABAD ROAD
JALNA-431203
PAN NO:AAECS0131P
Vs
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-11, MUMBAI
CENTRAL CIRCLE-11, MUMBAI
ITA No.6837/Mum/2010
Assessment Year: 2006-07
Assessment Year: 2006-07
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-11, MUMBAI
CENTRAL CIRCLE-11, MUMBAI
Vs
SANKET FOOD PRODUCTS PVT LTD
A9/26 ADDL MIDC AREA
AURANGABAD ROAD
JALNA-431203
PAN NO:AAECS0131P
A9/26 ADDL MIDC AREA
AURANGABAD ROAD
JALNA-431203
PAN NO:AAECS0131P
ITA Nos.6827/Mum/2010
Assessment Year: 2007-08
Assessment Year: 2007-08
SANKET FOOD PRODUCTS PVT LTD
A9/26 ADDL MIDC AREA
AURANGABAD ROAD
JALNA-431203
PAN NO:AAECS0131P
A9/26 ADDL MIDC AREA
AURANGABAD ROAD
JALNA-431203
PAN NO:AAECS0131P
Vs
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-11, MUMBAI
CENTRAL CIRCLE-11, MUMBAI
P M Jagtap, AM and Vijay Pal Rao, JM
Dated: February 8, 2013
Appellant Rep by: Shri Dharmesh Shah
Respondent Rep by: Shri Girjia Dayal
Respondent Rep by: Shri Girjia Dayal
Income Tax - Sections 41(1), 132, 142(1), 143(2), 144, 153A, 153C, 282, Rule 46A - additional evidence - mode of service - affixation - Whether when an order is not cahallenged by the Revenue during a particular year, the Revenue can be prevented from contesting against the same in any subsequent years - Whether the assessing authority's action of exclusive mode of service by affixation, is in accordance with the provisions of sec. 282 - Whether the assessment made on the basis of invalid service of notices, can be held as valid.
Assessee is a food manufacturing company. During search, it was pointed out that the assessee and its group were involved in unaccounted production and sale of products, suppressing the profits, generating unaccounted income, ploughing back their unaccounted income into the books by way of manoeuvring bogus/artificial shares transactions (long term capital gains) and also claiming benefit of tax at lower rate. Thus, the assessment was completed ex parte u/s 153C r.w. s 144. On appeal, assessee had filed additional evidence before the CIT(A), upon which the CIT(A) had issued a remand order inviting comments of the AO on the additional evidence filed by the assessee. Since the assessee had raised the issue of validity of the notice issues u/s 153A and u/s 142(1) by affixture only, the CIT(A) held that the AO had not followed the procedure as provided u/s 282 r.w. Rule 17 of Order V (Rule 20)of the Code of Civil Procedure, 1908 and accordingly, decided the issue of validity of notice in favour of the assessee. The revenue had challenged the order of the CIT(A) inter alia with respect to the finding that holding the notice not properly served. Both the assessee as well as the revenue had challenged the order of the CIT(A). It was to be noticed that the assessment had been framed exparte as the assessee did not appear. On appeal, the CIT(A) though issued remand order when the assessee filed additional evidence; however, the AO, in the remand report had objected against the admission of the additional evidence without examination/verification or giving any comments on the same.
Before Tribunal, DR had submitted that the CIT(A) had decided the issue without considering the relevant facts about the steps taken by the AO for service of notice u/s 153A and 142(1) through registered post and also served the notice to the official liquidator. He had referred the relevant part of the order of the CIT(A) and submitted that the CIT(A) had proceeded on the basis of the submissions of the assessee without going through and considering the relevant material on record which clearly shows that the AO prior to resorting to the service of notice by way of affixture had also sent the notice through registered post as well as served the notice to the official liquidator of the assessee company. The DR had filed copy of the registered post receipt. Thus, the DR had submitted that the finding of the CIT(A) was contrary to the material on record as well as the facts and therefore, was not sustainable. On the other hand, the AR had contended that for the AY 2001-02, the issue had been decided by the CIT(A) in favour of the assessee and the revenue had not challenged the finding of the CIT(A). Therefore, the revenue cannot challenge the order of the CIT(A) for the AY 2006-07 on the same issue when the finding of the CIT(A) had been accepted for the AY 2001-02.
Held that:
++ we do not agree with the contention of the AR that when the revenue has not challenged the order of the CIT(A) for the AY 2001-02, then the order of the CIT(A) for the AY 2006-07 cannot be challenged. It is settled proposition of law that principle of res-judicata cannot be applied in the matter of income tax. Every assessment year is a separate unit. Even if the revenue has not challenged the finding of the CIT(A) for the AY 2001-02, the same would not operate as a binding precedent for the AY 2006-07. There may be various reasons including tax effect for not challenging the order of the CIT(A) for the AY 2001-02. Therefore, we do not find any merit in the objection of the AR when both the assessee as well as the revenue are in appeal against the order of the CIT(A) on the other issue for the AY 2006-07. Further, the facts as brought before us were not considered by the CIT(A); therefore, the issue is required to be adjudicated after considering the relevant fact did exist on record;
++ the CIT(A) has observed that the AO should have been served the notice on the appellant company or on the official liquidator by post or as if it were summons issued by a Court under the CPC, 1908. He has further observed that the AO has not done his job in accordance with the sec 282. The CIT(A) has proceeded on the premises that the AO has not sent any notice by post or through process server; therefore, adopting mode of substituted service by way of affixation , the AO has not followed the order V, Rule 17 (20) of the CPC 1908 which mandates that the substituted service by affixation to be adopted only if the person refuses to sign the acknowledgement, or the servicing officer, after using all due and reasonable diligence, cannot find the defendant who is absent from his residence etc. He has further observed that in this case there is nothing on record to prove that the service of notice u/s 153A or u/s 142(1) was made by post or through process server. Accordingly, the CIT(A) has held that the AO's action of exclusive mode of service by affixation is not in accordance with the provisions of sec. 282 r.w.r 17 of order No.V of Code of Civil Procedure, 1908. Prima facie, it appears that the AO issued the notice to the assessee through registered post and also issued notice to the official liquidator of the assessee which has been duly acknowledged by the official liquidator. Thus, it is clear that the find of the CIT(A) on the issue of validity of the notice u/s 153A and u/s 142(1) is contrary to the facts as emerged from the record. There is nothing on record to show that the issue of validity of notice was remanded by the CIT(A) to the AO. Therefore, we do not see any reason to take an adverse inference against the AO when these facts are not mentioned in the remand report. In view of the above facts and circumstances of the case, we are of the considered opinion that the issue of validity of notice requires a proper examination and consideration of the relevant facts and records. Accordingly, we set aside this issue to the record of the CIT(A) to decide the same afresh after considering the relevant facts on record;
++ as it is clear from the order of the CIT(A) that the notice u/s 153A and u/s 142(1) served through affixation has been held as contrary to the procedure provided u/s 282 r.w.r 17 of order No.V of Code of Civil Procedure, 1908. Since the revenue has not challenged the order of the CIT(A) for the AY 2007-08; therefore, the appeal filed by the assessee has become infructuous when the notice issued u/s 153A and u/s 142(1) has been held as against the provisions of law and consequently assessment on the basis of the said invalid notices, would not survive. Therefore, the ground raised by the assessee for the AY 2007-08 are academic in nature when the finding of the CIT(A) on the validity of notice has not been challenged by the revenue. Accordingly, the appeal filed by the assessee for the AY 2007-08 is dismissed as become infructurous;
++ since the additional evidence was not examined by the AO; therefore, in the interest of justice and in view of the fact that the issue of validity of the notice has been set aside to the record of the CIT(A), we set aside the ground raised on merits by both the parties to the record of the CIT(A) to decide the same afresh after inviting a proper remand report from the AO on the additional evidence. In the result, the appeals filed by the assessee as well as the revenue for the AY 2006-07 are allowed for statistical purpose whereas the appeal filed by the assessee for the AY 2007-08 is dismissed.
Both Revenue's and Assessee's appeal partly allowed
ORDER
Per: Vijay Pal Rao:
For the Assessment Year 2006-07, cross appeals are filed against the order dated 2.7.2010 of the Commissioner of Income Tax(Appeals) whereas for the Assessment Year 2007-08, the assessee has filed the appeal against the order dated 2.7.2010 of the Commissioner of Income Tax(Appeals).
ITA Nos. 6826/Mum/2010 (by the assessee)
2. The assessee has raised the following grounds in this appeal:
"1.The Ld. CIT(A) having held that the notice u/s. 153A and notice u/s. 142(1) are not properly served hence on the facts and circumstances of the case and in law CIT(A) ought not to confirm the addition of Rs. 13,07,303/- as agitated in ground no. 6 before him.Without prejudice to the above2. On the Facts and circumstances of the case and in Law the Ld. Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs. 13,07,303/- u/s. 41(1) of Income Tax Act.3. On the Facts and circumstances of the case and in Law the Ld. ACIT as well as Commissioner of income Tax (A) erred in holding that the loose paper found from third party as per Annexure All pertaining to the appellant company and failed to appreciate the fact that nowhere in the said loose paper the name of the appellant company is appearing.4. On the Facts and circumstances of the case and in Law the Ld. ACIT as well Commissioner of Income Tax (A) erred in relying on the loose papers found from the third party and without recording any reasons, the Ld. ACIT erred in holding that the transactions appearing in the said loose papers is pertaining to the appellant.5. On the Facts and circumstances of the case and in Law the Ld. ACIT erred in making an assessment u/s. 153(C) whereas the original notice have been allegedly issued u/s. 153A.
ITA No. 6837/Mum/2010 (by the revenue)
2.1 The revenue has raised the following grounds in this appeal:
1) "On the facts and in circumstances and in Law, the Ld. CIT(A) erred in holding that the statutory notices were not served on the assesses when the said notices were duly served following the procedure laid down in law."2) "On the facts and in circumstances and in Law, the Ld. CIT(A) erred in admitting additional evidences adduced by the assessee without giving a clear finding that the rigorous tests laid down in Rule-46A(1) were satisfied in the case."3) "On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in ignoring the fact that sufficient opportunity had been given to the assessee and this fact was reiterated in the remand report by the Assessing Officer before proceeding to admit additional evidence which amounted to a fresh assessment in the case of the assessee."4) "On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in deleting the disallowance of Rs.65,56,126/- out of advertisement expenses incurred, Rs.31,14,289/- out of miscellaneous expenses without discussing merits of the additional evidence furnished before him and without giving the finding that the addition was not called for in view of the additional evidence furnished before him."5) "On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in deleting the addition of Rs.76,35,000/- on account of cash credits without discussing the merits of the additional evidence furnished before him and without giving a definite finding that the addition was not called for in view of the additional evidence furnished before him."6) "On the facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in deleting the addition of Rs.6,39,55,5781- towards unexplained sundry creditors without discussing merits of the additional evidence furnished before him and without giving a definite finding that the addition was not called for in view of the additional evidence furnished before him."
3. A search and seizure u/s 132 was carried out in the Shah Group of Jalna on 21.2.2007. The investigation wing has reported that the assessee and its group were involved in unaccounted production and sale of products, suppressing the profits, generating unaccounted income, ploughing back their unaccounted income into the books by way of manoeuvring bogus/artificial shares transactions (long term capital gains) and also claiming benefit of tax at lower rate. The assessment was completed exparte u/s 153C r.w. s 144 of the I T Act.
3.1 On appeal, the assessee filed additional evidence before the Commissioner of Income Tax(Appeals) upon which the Commissioner of Income Tax(Appeals) issued a remand order inviting comments of the Assessing Officer on the additional evidence filed by the assessee. Since the assessee raised the issue of validity of the notice issues u/s 153A and u/s 142(1) of the IT Act by affixture only, the Commissioner of Income Tax(Appeals) held that the Assessing Officer has not followed the procedure as provided u/s 282 of the I T Act r.w. Rule 17 of Order V (Rule 20)of the Code of Civil Procedure, 1908 and accordingly, decided the issue of validity of notice in favour of the assessee. The revenue has challenged the order of the Commissioner of Income Tax(Appeals) inter alia with respect to the finding that holding the notice not properly served in ground no.1.
4. Since the issue of validity of notice u/s 153A and u/s 142(1) goes to the root of the matter; therefore, we first take up this legal issue for consideration and adjudication.
5. The ld DR has submitted that the Commissioner of Income Tax(Appeals) has decided the issue without considering the relevant facts about the steps taken by the Assessing Officer for service of notice u/s 153A and 142(1) through registered post and also serve the notice to the official liquidator. He has referred the relevant part of the order of the Commissioner of Income Tax(Appeals) and submitted that the Commissioner of Income Tax(Appeals) has proceeded on the basis of the submissions of the assessee without going through and considering the relevant material on record which clearly shows that the Assessing Officer prior to resorting to the service of notice by way of affixture has also sent the notice through registered post as well as served the notice to the official liquidator of the assessee company. In support of his contention, the ld DR filed a copy of the notice dated 22.10.2008 issued to the official liquidator along with annexure, copy of the response of the official liquidator dated 11.12.2008, copy of notice u/s 143(2) dte13.8.2007 issued to the assessee through registered post. The ld DR has filed copy of the registered post receipt. Thus, the ld DR has submitted that the finding of the Commissioner of Income Tax(Appeals) is contrary to the material on record as well as the facts and therefore, is not sustainable.
5.1. On the other hand, the ld AR of the assessee has supported the order of the Commissioner of Income Tax(Appeals) and submitted that when the Commissioner of Income Tax(Appeals) has remanded the matter to the Assessing Officer and in the remand report, the Assessing Officer has not pointed out the issuance of notice either to the assessee or to the official liquidator prior to the service through affixture; therefore, the Commissioner of Income Tax(Appeals) was justified in deciding the issue on the basis of the remand report of the Assessing Officer. He has also contended that for the Assessment Year 2001-02, this issue has been decided by the Commissioner of Income Tax (Appeals) in favour of the assessee and the revenue has not challenged the finding of the Commissioner of Income Tax(Appeals). Therefore, the revenue cannot challenge the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2006-07 on the same issue when the finding of the Commissioner of Income Tax(Appeals) has been accepted for the AY 2001-02.
6. We have considered the rival submissions as well as the relevant material on record. We do not agree with the contention of the ld AR that when the revenue has not challenged the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2001-02, then the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2006-07 cannot be challenged. It is settled proposition of law that principle of res-judicata cannot be applied in the matter of income tax. Every assessment year is a separate unit. Even if the revenue has not challenged the finding of the ld Commissioner of Income Tax(Appeals) for the Assessment Year 2001-02, the same would not operate as a binding precedent for the Assessment Year 2006-07. There may be various reasons including tax effect for not challenging the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2001-02. Therefore, we do not find any merit in the objection of the ld AR when both the assessee as well as the revenue are in appeal against the order of the Commissioner of Income Tax(Appeals)on the other issue for the Assessment Year 2006-07. Further, the facts as brought before us were not considered by the Commissioner of Income Tax(Appeals); therefore, the issue is required to be adjudicated after considering the relevant fact did exist on record.
6.1 The Commissioner of Income Tax(Appeals) has observed in the impugned order that the Assessing Officer should have been served the notice on the appellant company or on the official liquidator by post or as if it were summons issued by a Court under the Code of Civil Procedure, 1908. He has further observed that the Assessing Officer has not done his job in accordance with the sec 282 of the Act. The Commissioner of Income Tax(Appeals) has proceeded on the premises that the Assessing Officer has not sent any notice by post or through process server; therefore, adopting mode of substituted service by way of affixation , the Assessing Officer has not followed the order V, Rule 17 (20)of the CPC 1908 which mandates that the substituted service by affixation to be adopted only if the person refuses to sign the acknowledgement, or the servicing officer, after using all due and reasonable diligence, cannot find the defendant who is absent from his residence etc. He has further observed that in this case there is nothing on record to prove that the service of notice u/s 153A or u/s 142(1) was made by post or through process server. Accordingly, the Commissioner of Income Tax(Appeals) has held that the Assessing Officer's action of exclusive mode of service by affixation is not in accordance with the provisions of sec. 282 r.w.r 17 of order No.V of Code of Civil Procedure, 1908.
6.2 The ld DR has produced before us the original records along with the copies of notice dated 13.8.2007 sent through registered post. He has also filed the notice dated 22.10.2008 sent to Shri S Ramakant, Official Liquidator of the assessee as well as the reply of the official liquidator of the assessee dated 11.12.2008 whereby the notice issued by the Assessing Officer u/s 142(1) has been duly acknowledged by the official liquidator.
6.3 Prima facie, it appears that the Assessing Officer issued the notice to the assessee through registered post and also issued notice to the official liquidator of the assessee which has been duly acknowledged by the official liquidator. Thus, it is clear that the find of the Commissioner of Income Tax(Appeals) on the issue of validity of the notice u/s 153A and u/s 142(1) is contrary to the facts as emerged from the record. There is nothing on record to show that the issue of validity of notice was remanded by the Commissioner of Income Tax(Appeals) to the Assessing Officer. Therefore, we do not see any reason to take an adverse inference against the Assessing Officer when these facts are not mentioned in the remand report.
7. In view of the above facts and circumstances of the case, we are of the considered opinion that the issue of validity of notice requires a proper examination and consideration of the relevant facts and records. Accordingly, we set aside this issue to the record of the Commissioner of Income Tax(Appeals) to decide the same afresh after considering the relevant facts on record.
8. Both the assessee as well as the revenue have challenged the order of the Commissioner of Income Tax(Appeals) on merits.
9. It is to be noticed that the assessment has been framed exparte as the assessee did not appear. On appeal, the Commissioner of Income Tax(Appeals) though issued remand order when the assessee filed additional evidence; however, the Assessing Officer, in the remand report has objected against the admission of the additional evidence without examination/verification or giving any comments on the same.
9.1 Since the additional evidence has not been examined by the Assessing Officer; therefore, in the interest of justice and in view of the fact that the issue of validity of the notice has been set aside to the record of the Commissioner of Income Tax(Appeals), we set aside the ground raised on merits by both the parties to the record of the Commissioner of Income Tax(Appeals) to decide the same afresh after inviting a proper remand report from the Assessing Officer on the additional evidence.
10. For the Assessment Year 2007-08 the assessee has raised the following grounds:
"1 The Ld. CIT(A) having held that the notice u/s. 153A and notice u/s. 142(1) are not properly served hence on the facts and circumstances of the case and in law CIT(A), ought not to confirm the addition of Rs.28,43,033/- as agitated in ground no.6 before him.Without prejudice to the above2. On the Facts and circumstances of the case and in Law the Ld. Commissioner of Income Tax (Appeal) erred in confirming the addition of Rs. 28,43,033 u/s. 41(1) of Income Tax Act.3. On the Facts and circumstances of the case and in Law the Ld. ACIT as well as Commissioner of Income Tax (A) erred in holding that the loose paper found from third party as per Annexure All pertaining to the appellant company and failed to appreciate the fact that nowhere in the said loose paper the name of the appellant company is appearing.4. On the Facts and circumstances of the case and in Law the Ld. ACIT as well Commissioner of Income Tax (A) erred in relying on the loose papers found from the third party and without recording any reasons, the Ld. ACIT erred in holding that the transactions appearing in the said loose papers is pertaining to the appellant
11. We have heard the ld AR as well as the ld DR and considered the relevant material on record. It is pertinent to note that the Commissioner of Income Tax(Appeals) has decided the issue of validity of notice u/s 153A and u/s 142(1) in favour of the assessee in para 4.2 as under:
"4.2 In ground of appeal No.3, the appellant has challenged the issue of service of notice u/s.153 and u/s 142(1) by affixture only. It is admitted by the Assessing Officer that no search and seizure action u/s.132(1) was carried out in the premises of appellant and hence notice u/s.153A was issued not in accordance with the provisions of law. To add it the service of said invalid notice u/s.153A exclusively by the affixture mode cannot be sustained. The Assessing Officer has not followed the provisions of Section 282 of the Act. He should have served the notice on the appellant company or on the official liquidator by post or as if it were summons issued by a Court under the Code of Civil Procedure, 1908 (V of 1908). Such notice should have been addressed by him to the official liquidator or to the person who manages or controls company's affairs. The Assessing Officer has not done his job in accordance with the Section 282 of the Act. In fact, he not sent any of the notices by post or through a process server. He has adopted only the mode of substituted service by way of affixture. Assessing Officer has also not followed order V, Rule 17 of the Code of Civil Procedure, 1908, which mandates that the substituted service by affixture to be adopted only if the person refuses to sign the acknowledgement, or the serving officer after using all due and reasonable diligence, cannot find the defendant who is absent from his residence etc. In this case there is nothing on record to prove that the service of notice u/s.153A or u/s.142(1) was made by post or through process server or after following the due procedure as explained in Section 282 read with Rule 17 of order V of the Code of Civil Procedure, 1908. Therefore, the Assessing Officer's action of exclusive mode of service by affixture is not in accordance with the provisions of Section 282 read with Rule 17 of order No.V of Code of Civil Procedure 1908. Ground NO.3 is allowed in the light of decision given in the case of World Wide Exports P Ltd vs ITO 272 ITR (AT) 162 (Del) = (2004-TIOL-82-ITAT-DEL)."
11.1 As it is clear from the order of the Commissioner of Income Tax(Appeals) that the notice u/s 153A and u/s 142(1) served through affixation has been held as contrary to the procedure provided u/s 282 r.w.r 17 of order No.V of Code of Civil Procedure, 1908. Since the revenue has not challenged the order of the Commissioner of Income Tax(Appeals) for the Assessment Year 2007-08; therefore, the appeal filed by the assessee has become infructuous when the notice issued u/s 153A and u/s 142(1) has been held as against the provisions of law and consequently assessment on the basis of the said invalid notices, would not survive. Therefore, the ground raised by the assessee for the Assessment Year 2007-08 are academic in nature when the finding of the Commissioner of Income Tax(Appeals) on the validity of notice has not been challenged by the revenue. Accordingly, the appeal filed by the assessee for the Assessment Year 2007-08 is dismissed as become infructurous.
12. In the result, the appeals filed by the assessee as well as the revenue for the Assessment Year 2006-07 are allowed for statistical purpose whereas the appeal filed by the assessee for the Assessment Year 2007-08 is dismissed.
(Order Pronouncement in the Open Court on this 8.2.2013)
Commercial or Industrial Construction Service - Explanation inserted in 2010 is applicable only prospectively: CESTAT
-- By TIOL News Service
NEW DELHI, JUNE 27, 2013: THE appellant undertook construction of a project known as World Trade Park, a commercial complex. The assessee received advance / application money from the persons desirous of purchasing the space/shop/office. Revenue, on the assumption that assessee is liable to remit service tax under the taxable head "commercial and industrial construction" defined under Section 66(25) (b) read with Section 65(105 )( zzq ) of the Act, issued a show cause notice culminating into the adjudication order.
The adjudicating authority concluded that though title to the property in the office/space/shop in the WTP had not passed to the prospective buyers, since advances were received and constructions made by the assessee (by employing a construction agency), the assessee must be held to have rendered, a taxable service, Commercial and industrial construction service.
The CESTAT observed:
+ An explanation was appended to Section 65(105 )( zzq ) by Finance Act 2010 with effect from 1.7.2010. This explanation reads:Explanation: For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorized by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorized by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force shall be deemed to be service provided by the builder to the buyer.+ The consequence of the 'explanation' fell for consideration by the Bombay High Court in Maharashtra Chamber of Housing Industry vs. UOI (2012-TIOL-78-HC-MUM-ST). The High Court proceeded to analyse the text and structure of the Explanation introduced by the Finance Act, 2010 and concluded that the Explanation was brought in to expand the scope of the existing taxable service; and that prior to the Explanation, the view taken was that since a mere agreement to sell does not create any interest in the property in favour of the prospective buyer and title to the property continues with the builder, no service was provided to the buyer and the service, if any, would be in the nature of a service rendered by the builder to himself.+ Since admittedly the transaction in issue in the present appeal falls during the period 4.7.05 to 30.6.2006 (prior to introduction of the Explanation to Section 65(105 )( zzq ) and the service offered by the assessee in relation to the construction of commercial or industrial complex in respect of WTP cannot be said to be service provided or to be provided to another person, the transaction falls outside the purview of the taxable service. As a consequence of this analysis and conclusion, the impugned adjudication order cannot be sustained and is accordingly quashed.(See 2013-TIOL-971-CESTAT-DEL)
In a startling revelation, the CBDT has reported that 97 per cent of Income Tax demand arrears, quantified over Rs 4.66 lakh crore, is "difficult" to be recovered.
The total arrears amount to be recovered, stuck because of a variety of reasons like litigation, companies in liquidation, sick companies and untraceable taxpayers, is Rs 4.82 lakh crore.
Alarmed by the "precarious" situation, the apex body of the I-T department has initiated a slew of measures to collect these taxes including attachment of bank accounts of defaulters and arrest of 'wilful' evaders under tax laws.
"Attention is drawn to the precarious situation arising out of comparison of total arrear demand outstanding and demand difficult to recover.
"Attention is drawn to the precarious situation arising out of comparison of total arrear demand outstanding and demand difficult to recover.
The situation is alarming and leaves only 3 per cent of the demand in the recoverable arena.
"Even more alarming is the situation that less than 5 per cent, Rs 2,39,95 crore, of the total arrear demand outstanding (Rs 4.82 crore) could be collected during the 2012-13 fiscal," the Central Board of Direct Taxes (CBDT) said in a recent communication to its top officers.
"The situation is surely not pleasant but the board and the I-T department are geared to pursue these cases vigorously.
The Parliamentary Standing Committee on Finance have time and again urged the Finance Ministry to minimise this revenue loss sector and steps are being taken. The results will soon show," a senior official who did not want to be named said.
The CBDT fears such huge arrears could "swamp" the I-T department and hence it has decided to track each one of the defaulting assessees and entities diligently to obtain the due taxes.
The board has tasked the special I-T recovery cell, created in 2010, to obtain more and more electronic data on people and assessees whose assets and properties are not traceable or have reported zero assets, from the Financial Intelligence Unit (suspicious transaction reports), CIBIL, National Stock Exchange, Registrar of Companies and get classified data on the financial transactions of evaders and defaulters.
The I-T, on the instructions of the board in this regard, has also started a Demand Management Fortnight to sort out more and more cases and get more revenue in the light of the fact that the government has asked the department to collect over Rs 6.68 lakh crore in direct taxes during 2013-14, up from Rs 5.65 lakh crore in the previous fiscal.
IT : Where assessee had disclosed certain amount during course of search and had paid tax thereon, filed return showing said income as business income and same had been accepted by Assessing Officer under head business income, penalty under section 271AAA was not leviable
■■■
[2013] 34 taxmann.com 62 (Nagpur - Trib.)
IN THE ITAT NAGPUR BENCH (E-COURT)
Concrete Developers
v.
Assistant Commissioner of Income-tax, C(C) - 2(2)*
R.K.GUPTA, JUDICIAL MEMBER
AND RAJENDRA, ACCOUNTANT MEMBER
AND RAJENDRA, ACCOUNTANT MEMBER
IT APPEAL NO.381 (NAG.) OF 2012
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
MARCH 20, 2013
Section 271AAA of the Income-tax Act, 1961 - Penalty - Where search has been initiated - Assessment year 2009-10 - Whether where during course of search assessee admitted undisclosed income, paid tax together with interest, filed return showing said income as business income and Assessing Officer had accepted same, it could not be said that assessee had not specified manner or could not substantiate manner in which income was derived - Held, yes - Whether, therefore, penalty under section 271AAA was not leviable as assessee's case fell under sub-section (2) of section 271AAA - Held, yes [Para 9] [In favour of assessee]
FACTS
Facts
| ■ | A search and seizure operation under section 132 was carried out at the business premises of the assessee-firm and residential premises of the partners of the firm. A statement under section 132(4) of 'N', partner of the assessee-firm, was recorded by which the assessee offered for taxation an amount of Rs. 67 lakhs as unexplained cash and additional income of Rs. 1.53 crore in the hands of the firm. | |
| ■ | The assessment was completed under section 143(3) and penalty proceedings under section 271AAA were initiated. | |
| ■ | During the penalty proceedings, the Assessing Officer held that the assessee could not specify the manner in which the undisclosed income had been derived and further could not substantiate the manner in which such income was derived. Accordingly, he levied penalty under section 271AAA. | |
| ■ | The Commissioner (Appeals) confirmed the order of the Assessing Officer for levying penalty. |
Issue involved
| ■ | Whether the assessee had satisfied conditions for not levying penalty under section 271AAA? |
HELD
| ■ | On a bare perusal of the provisions of section 271AAA, it is seen that these provisions are brought in place of section 271(1)(c). In sub-section (2), it has been provided that if in the statement under section 132(4), the assessee admits the undisclosed income and specifies the manner in which such income has been derived and also substantiates the manner in which the undisclosed income was derived and pays the tax, together with interest, if any, in respect of the undisclosed income. | |
| ■ | There is no dispute that the assessee has paid tax together with interest in respect of the amount disclosed during the course of search. The remaining condition that the assessee has to specify the manner and has to substantiate the manner in which the undisclosed income was derived, it has been stated by the assessee that this is undisclosed income of the firm which is doing only business. During the course of assessment proceeding also, the assessee has explained the nature of income which was not disclosed before the search. It was explained that the independent income is to be assessed under the head business income and the Assessing Officer has accepted this contention of the assessee as the assessment has been completed by taking the disclosed income under the head business income. | |
| ■ | Therefore, it cannot be said that the assessee has not specified the manner or could not substantiate the manner in which the income was derived as the assessee has explained that this is an unexplained income of the assessee relates to firm which was doing only business activities. | |
| ■ | In the last para of the statement, it has been stated that the disclosure is voluntarily given during the course of search proceeding under section 132(4). It is requested that no penalty proceeding be initiated and benefit of provision of section 271AAA may please be given to the assessee. It clearly shows that the assessee has requested to cover his case under the exception clause of sub-section (2) of section 271AAA. This part of the statement should be read as harmoniously and it should be taken that the assessee has satisfied the conditions for not levying the penalty under section 271AAA. [Para 9] | |
| ■ | The most significant contention is that the tax along with interest should have been paid, which has already been paid by the assessee and there is no dispute in that record. [Para 9.1] | |
| ■ | In view of the facts and circumstances of the case and in view of various case laws the penalty under section 271AAA is not leviable on the facts of the present case as the assessee's case falls under the sub-clause (2) of section 271AAA. Accordingly, the levy of penalty is to be cancelled. [Para 9.8] | |
| ■ | In the result, appeal of the assessee is allowed. [Para 10] |
CASE REVIEW
Dy. CIT v. Pioneer Marbles & Interiors (P.) Ltd. [2012] 50 SOT 571/19 taxmann.com 301 (Kol.) (para 9.3) followed.
CASES REFERRED TO
Dy. CIT v. Pioneer Marbles & Interiors (P.) Ltd. [2012] 50 SOT 571/19 taxmann.com 301 (Kol.) (para 9.2), CIT v. Mahendra C. Shah [2008] 299 ITR 305/172 Taxman 58 (Guj.) (para 9.2), Collector Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC) (para 9.4), Ashok Kumar Sharma v. Dy. CIT [2012] 77 DTR 241 (Ctk.) (para 9.5) and CIT v. Margaret's Hope Tea Co. Ltd. [1993] 201 ITR 747/71 Taxman 574 (Cal.)(para 9.7).
M. Mani for the Appellant. Dr. M. Bhusari for the Respondent.
ORDER
R.K. Gupta, Judicial Member - This appeal has been preferred by the assessee before the ITAT Nagpur Bench, Nagpur, against the order of learned CIT(A)-I, Nagpur (Maharashtra) relating to the assessment year 2009-10, which has been heard through E-Court, Mumbai.
2. The assessee is objecting the inaction on the part of the learned CIT(A) in upholding the penalty made by the AO under section 271AAA relating to the assessment year 2009-10 at Rs.22,10,000/-.
3. Brief facts of the case are that a search and seizure operation under section 132 of the Act was carried out on 13-01-2009 at the business premises of the assessee and residential premises of the partners of the assessee firm. During the course of search certain incriminating documents, jewellery and cash were found and seized. Return of income was filed u/s 139(1) on 26-09-2009 declaring total income of Rs. 2,79,43,762/-. The assessment was completed u/s 143(3) on 21-12-2010 and penalty was also initiated u/s 271AAA. During the search cash of Rs. 67 lakhs was found and seized. The assessee could not explain the source of cash found at the time of search. A statement u/s 132(4) of Shri Nitish Chordia, partner of Concrete Developers was recorded by which the assessee has offered for taxation an amount of Rs. 67 lakhs as unexplained cash and additional income of Rs. 1.53 crores in the hands of M/s Concrete Developers to cover up other discrepancies. Notice of penalty requiring assessee to show cause why penalty u/s 271AAA should not be levied was issued on 13-05-2011. During the penalty proceedings A.O. has held that the assessee could not specify the manner in which the undisclosed income has been derived and further could not substantiate the manner in which such income was derived. Therefore AO has levied penalty u/s 271AAA of Rs. 22,10,000/- being 10% of the undisclosed income of Rs. 2,21,00,000/- for AY 2009-10.
4. The assessee preferred appeal before the CIT(A), before whom the detail submissions were filed, which are recorded in the order of the CIT(A) in para 4. The submission filed on behalf of the assessee was forwarded to the AO for his remand report and remand report was received. Thereafter reply in response to remand report was also received from the assessee. The remand report as well as reply received from the assessee is also incorporated in the order of the learned CIT(A) in para 4 to 6 of his order. Reliance was placed on various case laws. After considering the submission and perusing the material on record, learned CIT(A) held that the assessee has not fulfilled the conditions for not levying the penalty, therefore, the AO was justified in levying the penalty. It was also submitted before the CIT(A) that to substantiate the disclosure no specific query was made, whereas, learned CIT(A) found that the query was made and in response to that, a reply was filed, however, that is not in consonance with the condition laid down under section 271AAA for not levying penalty. Accordingly, he confirmed the order of the AO for levying penalty.
5. Now, the assessee is in appeal here before the Tribunal.
6. The contentions raised before the lower authorities were reiterated here before the Tribunal by the learned AR of the assessee. The attention of the Bench was drawn on various details placed in the paper book. Copy of the statement recorded at the time of search is also placed on record. Reliance has been placed on various case laws, copies of which are placed in the compilation. It was further explained that a sum of Rs.67 lakhs in cash was found during the course of search and it was stated that this is unaccounted money earned by the firm. Regarding another sum of Rs.1.53 crore, it was stated that no material was found, however, just to buy peace and as there were certain discrepancy in the paper which could not be explained at the time of search, the amount was offered for taxation. It was stated that return of income was not due of the assessee and no material in response to income of Rs.1.53 crore was found, which was declared by the assessee just to avoid litigation, therefore, penalty is not leviable. It was further stated that during the assessment proceeding, it was explained before the AO that entire income offered for taxation is assessable under the head business income and, therefore, it has to be taken that the assessee has explained the source of income which was not disclosed before search party. The tax has already been paid on that amount. Accordingly, it has to be taken that the conditions are satisfied for not levying the penalty under section 271AAA of the Act. Further, reliance was placed in case 216 ITR 208 (sic).
7. On the other hand learned DR has placed reliance on the order of the learned CIT(A). Part of the order of the learned CIT(A) was also read. Attention of the Bench was drawn on pages 1 to 3 of the paper book, where a copy of the statement of the partner is placed.
8. Learned counsel of the assessee in rejoinder stated that copy of statement of the partner is placed at pages 1 to 3 of the paper book and in the statement the partner has categorically stated that he is offering the amount of Rs.2.21 crore conditionally as no penalty should be levied. Attention of the Bench was drawn on last para of the statement recorded.
9. We have heard the rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we found that the assessee deserves to succeed in its appeal. The provisions of Section 271AAA are new provisions, which are brought on the statute w.e.f. 1-4-2007. The provisions of Section 271AAA, read as under :-
271AAA. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year.
(2) Nothing contained in sub-section (1) shall apply if the assessee,-
| (i) | in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; | |
| (ii) | substantiates the manner in which the undisclosed income was derived; and | |
| (iii) | pays the tax, together with interest, if any, in respect of the undisclosed income. |
(3) No penalty under the provision of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1).
(4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section.
Explanation- For the purposes of this section,-
| (a) | "undisclosed income" means- |
| (i) | any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- |
| (A) | not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or | |
| (B) | otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or |
| (ii) | any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted; |
| (b) | "specified previous year" means the previous year- |
| (i) | which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or | |
| (ii) | in which search was conducted. |
On a bare perusal of the provisions of Section 271AAA, it is seen that these provisions are brought in place of Section 271(1)(c) of the Act. In sub-section (2), it has been provided that if in the statement under Section 132(4), the assessee admits the undisclosed income and specifies the manner in which such income has been derived and also substantiates the manner in which the undisclosed income was derived and pays the tax, together with interest, if any, in respect of the undisclosed income. There is no dispute that the assessee has paid tax together with interest in respect of the amount disclosed during the course of search. The remaining condition that the assessee has to specify the manner and has to substantiate the manner in which the undisclosed income was derived, it has been stated by the assessee that this is undisclosed income of the firm which is doing only business. During the course of assessment proceeding also, the assessee has explained the nature of income which was not disclosed before the search. It was explained that the independent income is to be assessed under the head business income and the AO has accepted this contention of the assessee as the assessment has been completed by taking the disclosed income under the head business income. Copy of the assessment order is placed on record. Therefore, it cannot be said that the assessee has not specified the manner or could not substantiate the manner in which the income was derived as the assessee has explained that this is an unexplained income of the assessee relates to firm which was doing only business activities. Except Rs.67 lakhs, no asset or material was found, however, the assessee has disclosed a sum of Rs.1.53 crores further for the reason that certain loose papers, which were found during the course of search and discrepancies in those papers could not be explained by the assessee, therefore, the assessee came forward to disclosed the total amount of Rs.2.21 crore, subject to non levy of penalty. Copy of the statement is placed at pages 1 to 3 and in the last para of the statement, it has been stated that the above disclosure is voluntarily given during the course of search proceeding under Section 132(4) of the Act. It is requested that no penalty proceeding be initiated and benefit of provision of Section 271AAA of the Act may please be given to the assessee. It clearly shows that the assessee has requested to cover his case under the exception clause of sub-section (2) of Section 271AAA of the Act. In our view, this part of the statement should be read as harmoniously and it should be taken that the assessee has satisfied the conditions for not levying the penalty under Section 271AAA.
9.1 The most significant contention is that the tax along with interest should have been paid, which has already been paid by the assessee and there is no dispute in that record.
9.2 The Kolkata Bench of the Tribunal in the case of Dy. CIT v. Pioneer Marbles & Interiors (P.) Ltd. [2012] 50 SOT 571/19 taxmann.com 301, has held that if the impugned tax is paid before completion of assessment, then the condition laid down under Section 271AAA should be treated as satisfied. While holding so, the direct decision of the Hon'ble Gujarat High Court in the case of CIT v. Mahendra C. Shah [2008] 299 ITR 305/172 Taxman 58was followed, whereby it was held that there is no prescription about the point of time when the tax had to be paid qua the amount of income declared in the statement under Section 132(4) of the Act.
9.3 In the present case also, the assessee has to specify the manner and substantiate the manner by which the undisclosed income was derived. During the assessment proceeding, the assessee has explained that the entire amount of disclosure should be treated as business income and the AO has accepted the same as the assessment has been completed by assessing the amount of Rs.2.21 crore under the head business income. Therefore, we are of the view that the ratio of the decision of the Kolkata Bench is applicable on the present facts of the case.
9.4 The Hon'ble Supreme Court in the case of Collector Land Acquisition v. Mst. Katiji [1987] 167 ITR 471, has held that "When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay." Though these observations were given by the Hon'ble Supreme Court in respect to condonation of delay in appeal, however, the substance of this judgment can be seen in the light of the facts of the present case. Suppose, the assessee technically could not explain the manner of earning of income and could not substantiate the manner of earning of undisclosed income but the substantial justice should not be defeated. Not substantiating the manner at the time of search is nothing but a technical default. The assessee has declared that this is undisclosed income and the same is disclosed under Section 132(4), subject to taking the condition for not levying the penalty under Section 271AAA are satisfied.
9.5 In case of Ashok Kumar Sharma v. Dy. CIT [2012] 77 DTR 241 (Ctk.), on similar facts, the penalty levied by the AO has been deleted by the Tribunal. The Tribunal has held that the assessee having disclosed the concealed income while giving statement under Section 132(4) during the course of search and paid the tax thereon and the income from business which has been accepted by the department, the penalty under Section 271AAA is not leviable. While holding so, the Tribunal has further held that the case of the assessee falls exactly within the purview of sub-section (2) of Section 271AAA. Accordingly, the penalty is not leviable.
9.6 In the present case, the facts are identical as the assessee has disclosed the amount of Rs.2.21 crore during the course of search and has paid tax thereon, filed return showing the same income as business income and the same has accepted by the AO under the head business income. Therefore, in our view, penalty on this amount is not leviable.
9.7 In case of CIT v. Margaret's Hope Tea Co. Ltd. [1993] 201 ITR 747/71 Taxman 574, the Hon'ble Calcutta High Court has held that cash credits found during the course of search were assessable under the head business income.
9.8 In the present case also, the cash of Rs.67 lakhs was offered for taxation. The entire amount has been assessed under the head business income. In view of these facts and circumstances of the case and in view of various case laws discussed above, we are of the view that the penalty under Section 271AAA is not leviable on the facts of the present case as the assessee's case falls under the sub-clause (2) of Section 271 AAA of the Act. Accordingly, we cancel the levy of penalty.
10. In the result, appeal of the assessee is allowed.
LATA IT : Interest is allowable to assessee on amount of cash seized for period commencing from closure of all appeals and issues till date of refund of cash seized
■■■
[2013] 34 taxmann.com 67 (Delhi)
HIGH COURT OF DELHI
Ram Kishan Gupta
v.
Union of India*
BADAR DURREZ AHMED AND R.V. EASWAR, JJ.
W.P.(C) NO. 16143 OF 2006
APRIL 11, 2013
Section 240, read with section 244A and section 132B of the Income-tax Act, 1961 - Refund - On appeal [Interest] - Assessment year 1986-87 - During search conducted at business premises of assessee cash was seized - Assessee made payment under Kar Vivad Scheme, 1988 resulting in closure of all issues and appeals arising out of search and subsequent assessment and, thereby, making entire amount seized during search immediately refundable - Due to delay in refund of amount seized, assessee claimed interest under section 240 or section 244A – Whether, where assessee's appeal was dismissed against previous assessment order as it had become infructuous due to closure of issues, section 240 dealing with provisions of refund on appeal could not be applied - Held, yes - Whether, since section 244A dealing with interest on refund was applicable after 1-4-1989, it could not be applied in case of assessee for assessment year 1986-87 - Held, yes – Whether, further where assets seized were not in excess of liabilities sought to be discharged, interest was not payable under section 132B(4) - Held, yes - Whether, however interest was allowable to assessee for period commencing from closure of all issues and appeals till date of refund of amount seized - Held, yes [Paras 9,10,13 & 14] [Partly in favour of assessee]
FACTS
| ■ | During search conducted at the business premises of the assessee, cash of Rs. 5.35 was seized. Thereafter, an order under section 132(5) was passed determining total amount of tax and interest payable at Rs. 31 lakhs. As the total tax and penalty was for in excess of the seized cash, the cash seized was retained. | |
| ■ | Thereafter, regular assessment was completed in respect of relevant assessment year and, accordingly, demand of Rs. 5.92 lakhs was raised including interest. | |
| ■ | The assessee claimed adjustment of cash seized against the demand raised, the same was not done by the revenue. Therefore, assessee filed appeal against the assessment order. | |
| ■ | However, during pendency of appeal, the assessee taking advantage of Kar Vivad Scheme, 1988 paid amount of Rs. 3.29 lakhs in February 1999 which resulted in closure of entire dispute regarding the relevant assessment year. | |
| ■ | Accordingly, the appeal filed by assessee was dismissed as it had become infructuous on closure of entire dispute and the cash amount seized was refunded in Feb 2000 without any interest thereon. The assessee claimed interest on the seized amount under section 240 or section 244A. | |
| ■ | However, the revenue contended that no interest was payable under section 240, section 244A or section 132B(4) since these sections were not applicable to the case of assessee. |
HELD
| ■ | The contention of the revenue that neither section 240 nor section 244A would apply in the facts and circumstances of the present case is agreeable. Section 240 would not apply because it deals with the provision of refund on an appeal. In the present case the assessee had not received any refund consequent upon an appeal. On the contrary, the assessee had opted for the Kar Vivad Samadhan Scheme, 1998 and had paid the amount under that scheme in February, 1999. The appeal was dismissed, as it had become infructuous. [Para 9] | |
| ■ | Insofar as the argument under section 244A is concerned, the provisions of sub-section (4) makes it clear that section 244A applied only in respect of assessment for the assessment year commencing on 1-4-1989 and subsequent assessment years. The assessment year in question is 1986-87. Therefore, Section 244A is clearly inapplicable in the case of the assessee. [Para 10] | |
| ■ | The contention of the revenue that no amount of interest would be payable to the assessee after the passing of the assessment order inasmuch as the demand raised under the said assessment order was to the extent of Rs. 5.92 lakh which exceeded the amount of cash which was retained by the department to the extent of Rs. 5.35 lakhs is also agreeable. [Para 11] | |
| ■ | Lastly, point raised by the revenue pertaining to interest under section 132B(4) of as it was then applicable. It was seen that in the present case the Income-tax Officer passed an order under section 132(5). It is also mentioned that in terms of the said order the total amount of tax and penalty came to Rs. 31.71 lakhs. As against this the income-tax officer retained the seized cash of Rs. 5.35 in terms of the provisions of Section 132(5). [Para 12] | |
| ■ | The question of payment of interest covered by the provisions of sub-section (4) of section 132B. The said sub-section (4) has two parts. Insofar as part (a) is concerned it is clear that interest would be payable only if the assets seized were in access of the aggregate amount required to meet the liabilities. It is noticed that the assets available for such application were not in excess of the liabilities which were sought to be discharged. Therefore, there was no question of any interest running under section 132B(4)(a). That being the position, the question of determining the date from which the interest was to run under section 132B(4) does not arise. Therefore, the submission made by the revenue no interest would be payable even under Section 132B(4) is agreed. [Para 13] | |
| ■ | However, for period commencing on February, 1999 when the assessee made the payment of Rs. 3.29 lakhs under the Kar Vivad Samadhan Scheme, 1998 all issues stood closed pertaining to the assessment year 1986-87 and the entire amount of Rs. 5,35,000 became immediately returnable to the assessee. However, that amount was returned a little later on February, 2000. Therefore, the said amount of Rs. 5,35,000 was retained by the department to the detriment of the assessee from February, 1999 to February, 2000 which is approximately one year. Therefore, assessee is entitled to interest on the said amount for one year. The writ petition is partly allowed. There shall be no order as to costs. [Para 14] |
Rajender Agarwal for the Petitioner. Pradeep K. Shukla, Ms. Saakshi Agrawal, Amol Sinha, Deepak Anand, Anshum Jain and Rahul Kochar for the Respondent.
JUDGMENT
Badar Durrez Ahmed, J. - By way of this petition, a writ of mandamus is sought against the respondents for release of the amount of interest on a sum of Rs. 5,35,000/- which was seized from the business premises of the petitioner during the search and seizure operation conducted on 17.03.1985. The said amount of Rs. 5,35,000/- was returned to the petitioner on 17.02.2000 but without any interest thereon. The petitioner furnished an application to the Central Board of Direct Taxes on 11.11.05 wherein he claimed that interest on the said amount of Rs. 5,35,000/- should be allowed to the petitioner. The prayer made in the said application was that interest be directed to be paid to the petitioner under Section 240 or Section 244A of the Income Tax Act, 1961 (hereinafter referred to as the said Act).
2. The said application was rejected by a communication dated 23.06.2006 by simply stating that the petitioner was not eligible to claim any interest for the assessment year 1986-87 under Section 240, 244A or under Section 132B(4) as per the report of the Commissioner of Income Tax, New Delhi. The said communication also stated that the grievance was treated as having been closed. Thereupon, the petitioner filed the present writ petition seeking a mandamus as indicated above as also the setting aside of the communication dated 23.06.2006.
3. The facts necessary for us to determine the issues raised by the petitioner need to be examined. A search and seizure operation was carried out in the business premises of the petitioner under Section 132 of the said Act on 23.07.1985. Cash, amounting to Rs. 5,35,000/-, as well as some jewellery were seized. Thereafter, an order under Section 132(5) of the said Act was passed on 20.11.1985 whereby the tax amount was determined to be Rs. 10,57,154 and the penalty amount, which was 200% of the tax amount, was determined at Rs. 21,14,308/-. As such, the total tax and penalty computed under the said order dated 20.11.1985 was of Rs. 31,71,462/- which was far in excess of the seized assets namely cash (Rs. 5,35,000/-) and jewellery valued at Rs. 80,808/-. To be clear, the value of the seized assets was only Rs. 6,15,808/- as against the tax and penalty liabilities of Rs. 31,71,462/-. As such, the seized assets were retained.
4. Thereafter, regular assessment in respect of the assessment year 1986-87 was completed and the assessment order was framed on 30.3.1989 whereby a demand was raised of Rs. 5,92,980/- including interest. The cash amount which was available with the department was Rs. 5,35,000/-. It is obvious that the demand as per the assessment order exceeded the cash available with the department.
5. It is an admitted position that the petitioner wrote a letter on the very next day, that is, on 31.3.1989, seeking adjustment of the cash against the demand raised in terms of the assessment order dated 30.3.1989. In fact, the petitioner wrote several other letters over the years for adjusting the said demand, which was not done by the revenue.
6. The petitioner being aggrieved by the assessment order dated 30.3.1989 filed an appeal against the same sometime in April 1989. During the pendency of the appeal, the Kar Vivad Samadhan Scheme, 1998 was introduced by virtue of Finance (2) Act, 1998. Taking advantage of the said scheme, the petitioner paid an amount of Rs. 3,29,670/- in February, 1999 and obtained a certificate under the said scheme. In other words, by payment of the said sum of Rs. 3,29,670/- the entire dispute with regard to the assessment year 1986-87 stood closed and no amounts were due from the petitioner from that day on. This meant that the sum of Rs. 5,35,000/- became returnable to the petitioner on that day itself. However, the same was returned on 17.2.2000. In the meanwhile, the appeal which had been filed by the petitioner against the assessment order dated 30.3.1989 was also dismissed as having become infructuous in view of the petitioner invoking the Kar Vivad Samadhan Scheme, 1998.
7. The petitioner's case is that since he had asked for adjustment at the very beginning, and the adjustment had not been given by the department, he should be paid interest on the said sum of Rs. 5,35,000/-.
8. We have heard the learned counsel for the parties at length on this issue. It is the case of the learned counsel for the respondent that no interest is payable to the petitioner. First of all, the learned counsel for the revenue submitted that no interest would be payable to the petitioner under Section 132B(4) of the said Act (as it was applicable at the relevant time). Secondly, the learned counsel for the revenue submitted that no interest was payable even after the assessment order dated 30.3.1989 inasmuch as the demand exceeded the amount of cash available with the department. Thirdly, it was contended by the learned counsel for the revenue that as the petitioner had approached the department under the Kar Vivad Samadhan Scheme, 1998, payment of Rs. 3,29,670/- by the petitioner in February, 1989 closed all issues with regard to the assessment year 1986-87 and therefore, no interest was payable in respect of that assessment year. He submitted that on 17.2.2000 the entire amount of Rs. 5,35,000/- was returned to the petitioner. The learned counsel for the respondent also placed reliance on the provisions of Section 244A of the said Act to indicate that the said provision came into effect in April, 1989. This is clear from sub-section (4) of Section 244A. Therefore, the learned counsel for the respondent submitted that no interest would be payable under Section 244A as claimed by the petitioner. He also submitted that Section 240 would also not apply as it was a provision dealing with appeals and, in the present, there was no 'refund' due on an appeal because, in the meanwhile, the petitioner had taken the benefit of the Kar Vivad Samadhan Scheme, 1998.
9. We may straightaway state that we are in agreement with the learned counsel for the respondent that neither Section 240 nor Section 244A would apply in the facts and circumstances of the present case. Section 240 of the said Act would not apply because it deals with the provision of refund on an appeal. In the present case the petitioner has not received any refund consequent upon an appeal. On the contrary, the petitioner had opted for the Kar Vivad Samadhan Scheme, 1998 and had paid the amount under that scheme in February, 1999. The appeal was dismissed, as it had become infructuous, subsequently on 30.3.1989.
10. Insofar as the argument under Section 244A of the said Act is concerned, the provisions of sub-section (4) makes it clear that Section 244A applied only in respect of assessment for the assessment year commencing on 1.4.1989 and subsequent assessment years. The assessment year with which we are concerned is 1986-87. Therefore, Section 244A is clearly inapplicable in the case of the petitioner.
11. We are also in agreement with the second submission made by the learned counsel for the revenue that no amount of interest would be payable to the petitioner after the passing of the assessment order dated 30.3.1989 inasmuch as the demand raised under the said assessment order was to the extent of Rs. 5,92,980/- which exceeded the amount of cash which was retained by the department to the extent of Rs. 5,35,000/-. We may also point out that, had the petitioner's request for adjustment been accepted immediately after the passing of the assessment order dated 30.3.1989, there would still have been an amount of Rs. 57,980/- due from the petitioner to the department. In other words, no interest could have been claimed by the petitioner at that point of time.
12. Lastly, we shall deal with the first point raised by the learned counsel for the revenue pertaining to interest under Section 132B(4) of the said Act as it was then applicable. Section 132B as it was applicable at the relevant time is as under :
"132B. Application of retained assets. - (1) The assets retained under sub-section (5) of section 132 may be dealt with in the following manner, namely:-
| (i) | The amount of the existing liability referred to in clause (iii) of the said sub-section and the amount of the liability determined on completion of the regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in clause (i) of that sub-section relates (including any penalty levied or interest payable in connection with such assessment or reassessment) and in respect of which he is in default or is deemed to be in default may be recovered out of such assets. | |
| (ii) | If the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied. | |
| (iii) | The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remain undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, Tax Recovery Officer under authorisation from the Chief Commissioner or Commissioner under sub-section (5) of section 226 and the Assessing Officer or, as the case may be, Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule. |
(2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act.
(3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.
(4) (a) The Central Government shall pay simple interest at the rate of fifteen per cent per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the asset sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.
(b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under sub-section (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments."
We may also notice the provisions of Section 132(5) as it was applicable at the relevant time which reads as under :
"(5) Where any money, bullion, jewellery or other valuable article or thing (hereinafter in this section and in sections 132A and 132B referred to as the assets) is seized under sub-section (1) or sub-section (1A), as a result of a search initiated or requisition made before the 1st day of July, 1995, the Income-tax Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within one hundred and twenty days of the seizure, make an order, with the previous approval of the Joint Commissioner, -
| (i) | estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him; | |
| (ii) | calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act; | |
| (iia) | determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment; | |
| (iii) | specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default, |
and retain in his custody such assets/or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized:
Provided that if, after taking into account the materials available with him, the Income tax Officer is of the view that it is not possible to ascertain to which particular previous year to years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly:
Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in clauses (ii), (iia) and (iii) or any part thereof, the income tax officer may, with the previous approval of the Chief Commissioner or Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case."
In the present case the Income Tax Officer passed an order under Section 132(5) on 20.11.1985. We have also mentioned that in terms of the said order the tax amount determined was Rs. 10,57,154/- and the penalty was also determined at Rs. 21,14,308/-. The total amount of tax and penalty came to Rs. 31,71,462/-. As against this the seized assets namely cash and jewellery totalled only Rs. 6,15,808/- and therefore the income tax officer retained the seized cash of Rs. 5,35,000/- in terms of the provisions of Section 132(5).
13. The question of payment of interest retained under Section 132 is covered by the provisions of sub-section (4) of Section 132B, which we have already set out above. The said sub-section (4) has two parts - (a) and (b). Insofar as part (a) is concerned it is clear that interest would be payable only if the assets seized were in access of the aggregate amount required to meet the liabilities referred to in clause (i) of sub-section (1). If we read sub-section (1) of sub-section 132B and more particularly clause (ii), it is apparent that where the assets consists solely of money and or partly of other assets the assessing officer may apply such money in the discharge of liabilities referred to in clause (i) and the assessee would be discharged of the said liability to the extent of money so applied. We have also noticed above that the assets available for such application were not in excess of the liabilities which were sought to be discharged. Therefore, there was no question of any interest running under Section 132B(4)(a) of the said Act. That being the position, the question of determining the rate of interest under Section 132B(4) or the date from which the interest was to run, does not arise. Therefore, we are in agreement with the submission made by the learned counsel for the respondent that no interest would be payable even under Section 132B(4) of the said Act.
14. We are however, left with one period which is yet not covered and that is the period commencing on February, 1999 when the petitioner made the payment of Rs. 3,29,670/- under the Kar Vivad Samadhan Scheme, 1998 and closed all issues pertaining to the assessment year 1986-87. Because all issues stood closed in February, 1999 the entire amount of Rs. 5,35,000/- became immediately returnable to the petitioner. However, that amount was returned a little later on 17.2.2000. Therefore, the said amount of Rs. 5,35,000/- was retained by the department to the detriment of the petitioner from February, 1999 to February, 2000 which is approximately one year. Therefore, we feel that the petitioner is entitled to interest on the said amount. We feel that the rate of interest that should be applied would be 10% simple interest which was close to the rate of interest which was being provided by banks on fixed deposits. The amount of interest payable by the department to the petitioner would, therefore, be Rs. 53,500/-. The said amount shall be paid by respondents to the petitioner within four weeks. The writ petition is partly allowed. There shall be no order as to costs.
ESHA
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
No comments:
Post a Comment