Sunday, July 21, 2013

[aaykarbhavan] JUdgments and I T R Tribunal





TR'S TRIBUNAL TAX REPORTS (ITR (TRIB))
Volume 17 : Part 2 (Issue dated : 16-07-2012)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Agricultural income --Fact of ownership of agricultural land not disputed--Claim for deduction of expenses for agriculture allowed--No evidence that agricultural operations were not performed--Income was agricultural--Income-tax Act, 1961, s. 10(1)-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

----Rose plants grown in green house--Mother plants grown in agricultural land using human labour --Income from rose flowers exempt as agricultural income--Income-tax Act, 1961, ss. 2(1), 10(1)--Circular No. 1, dated 27-3-2009-- CIT (Dy.) v. Best Roses Biotech P. Ltd. (Ahmedabad) . . . 211

Appeal to Appellate Tribunal --Powers of Tribunal--Power to admit additional ground of appeal--Question regarding limitation can be raised for first time before Tribunal--Income-tax Act, 1961-- Crompton Creaves Ltd. v. Dy. CIT (Mumbai) . . . 151

Business expenditure --Expenditure for purpose prohibited by law--Assessee exporting rice to Iraq under oil for food programme of United Nations--Paying commission to company for services in connection with export from procurement to final realisation of proceeds--Report by U. N. committee probing irregularities that company to which assessee paid commission was front company for Iraqi regime and payment used as kickback--Payment to Iraqi regime by agent not under assessee’s control--No denial that services rendered--No material to show assessee knew and was part of scheme to pay kickbacks to Iraqi regime--Payment deductible--Income-tax Act, 1961, s. 37, Expln. -- CIT (Dy.) v. Rajrani Exports P. Ltd. (Kolkata) . . . 239

Cash credits --Amounts repaid by debtors--Debtors not denying transaction--Amount not includible in assessee’s total income--Amount claimed to be advanced by sister--No evidence of such advance--Amount includible in total income of assessee--Income-tax Act, 1961, s. 68-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

Company --Book profits--Computation--Minimum alternate tax--Deduction from net profit on account of foreign exchange fluctuation--No adjustment available except as provided in Explanation --Reduction of amount while computing book profit--Not permissible--Income-tax Act, 1961, s. 115JB-- City Gold Media Ltd. v. ITO (Ahmedabad) . . . 192

Deduction of tax at source --Payment to non-resident--Failure to deduct tax at source--No assessment proceedings against non-resident for four years--Assessee cannot be treated as assessee in default under section 201--Income-tax Act, 1961, ss. 195, 201-- Crompton Creaves Ltd. v. Dy. CIT (Mumbai) . . . 151

Heads of income --Capital gains or business income--Proprietary concern of assessee taken over by company as going concern--Consideration for transfer is taxable as long-term capital gains--Assessee employed by company on salary and other terms of employment--Not a case of compensation for not engaging in similar business--Income-tax Act, 1961, ss. 28(va), 50B-- CIT (Asst.) v. Sangeeta Wij (Smt.) (Delhi) . . . 162

Income --Computation of income--Disallowance of expenditure relating to non-taxable income from firm--Borrowed amount invested as capital of firm--Interest relating to share of profit to be disallowed--Income-tax Act, 1961, s. 14A-- CIT (Asst.) v. Vinay Singal (Chandigarh) . . . 146

Penalty --Concealment of income--Capital gains--Claim for exemption--Investment of net consideration in residential property--Shortfall in amount invested due to wrong advice by counsel--No concealment of income--Penalty cannot be imposed --Income-tax Act, 1961, ss. 54, 271(1)(c)-- Majorjit Singh v. Asst. CIT (Chandigarh) . . . 183

----Failure to respond to notice under section 143(1) and (2)--Bona fide belief that income was non-taxable--Not reasonable explanation--Penalty imposable--Income-tax Act, 1961, s. 271(1)(b)-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

Rectification of mistakes --Depreciation--Withdrawal of deprecation on ground of non-user--Question debatable--Depreciation cannot be withdrawn in rectification proceedings--Income-tax Act, 1961, ss. 32, 154-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

Revision --Commissioner--Reassessment--
Financial charges paid on funds borrowed for purchase of property--Part of closing stock--No finding that Assessing Officer applied his mind to facts of case--Direction to Assessing Officer to examine issue--Proper--Income-tax Act, 1961, s. 263-- Devi Developers P. Ltd. v. CIT (Delhi) . . . 187

Transfer pricing --Depreciation--Method of computing depreciation--No difference in result as a result of applying any of methods--Income-tax Act, 1961, s. 92C-- Lason India P. Ltd. v. Asst. CIT (Chennai) . . . 203

----Draft assessment order incorporating proposals of Transfer Pricing Officer--Draft assessment order erroneously termed final order--Assessing Officer has power to issue corrigendum to correct error--Income-tax Act, 1961, s. 144C-- Lason India P. Ltd. v. Asst. CIT (Chennai) . . . 203

Unexplained expenditure --Addition based on statement of director recorded by Central excise authorities--Addition not supported by evidence--Addition not justified --Additions under section 69C set aside by Tribunal in assessment year 2004-05--No new facts in assessment year 2008-09--Addition not valid--Income-tax Act, 1961, s. 69C -- ITO v. Arora Alloys Ltd. (Chandigarh) . . . 133

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(1) --Agricultural income--Rose plants grown in green house--Mother plants grown in agricultural land using human labour --Income from rose flowers exempt as agricultural income--Circular No. 1, dated 27-3-2009-- Deputy CIT v. Best Roses Biotech P. Ltd. (Ahmedabad) . . . 211

S. 10(1) --Agricultural income--Fact of ownership of agricultural land not disputed--Claim for deduction of expenses for agriculture allowed--No evidence that agricultural operations were not performed--Income was agricultural-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

----Agricultural income--Rose plants grown in green house--Mother plants grown in agricultural land using human labour --Income from rose flowers exempt as agricultural income--Circular No. 1, dated 27-3-2009-- Deputy CIT v. Best Roses Biotech P. Ltd. (Ahmedabad) . . . 211

S. 14A --Income--Computation of income--Disallowance of expenditure relating to non-taxable income from firm--Borrowed amount invested as capital of firm--Interest relating to share of profit to be disallowed-- Asst. CIT v. Vinay Singal (Chandigarh) . . . 146

S. 28(va) --Heads of income--Capital gains or business income--Proprietary concern of assessee taken over by company as going concern--Consideration for transfer is taxable as long-term capital gains--Assessee employed by company on salary and other terms of employment--Not a case of compensation for not engaging in similar business-- Asst. CIT v. Sangeeta Wij (Smt.) (Delhi) . . . 162

S. 32 --Rectification of mistakes--Depreciation--Withdrawal of deprecation on ground of non-user--Question debatable--Depreciation cannot be withdrawn in rectification proceedings-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

S. 37, Expln .-- Business expenditure--Expenditure for purpose prohibited by law--Assessee exporting rice to Iraq under oil for food programme of United Nations--Paying commission to company for services in connection with export from procurement to final realisation of proceeds--Report by U. N. committee probing irregularities that company to which assessee paid commission was front company for Iraqi regime and payment used as kickback--Payment to Iraqi regime by agent not under assessee’s control--No denial that services rendered--No material to show assessee knew and was part of scheme to pay kickbacks to Iraqi regime--Payment deductible-- Deputy CIT v. Rajrani Exports P. Ltd. (Kolkata) . . . 239

S. 50B --Heads of income--Capital gains or business income--Proprietary concern of assessee taken over by company as going concern--Consideration for transfer is taxable as long-term capital gains--Assessee employed by company on salary and other terms of employment--Not a case of compensation for not engaging in similar business-- Asst. CIT v. Sangeeta Wij (Smt.) (Delhi) . . . 162

S. 54 --Penalty--Concealment of income--Capital gains--Claim for exemption--Investment of net consideration in residential property--Shortfall in amount invested due to wrong advice by counsel--No concealment of income--Penalty cannot be imposed-- Majorjit Singh v. Asst. CIT (Chandigarh) . . . 183

S. 68 --Cash credits--Amounts repaid by debtors--Debtors not denying transaction--Amount not includible in assessee’s total income--Amount claimed to be advanced by sister--No evidence of such advance--Amount includible in total income of assessee-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

S. 69C --Unexplained expenditure--Addition based on statement of director recorded by Central excise authorities--Addition not supported by evidence--Addition not justified--Additions under section 69C set aside by Tribunal in assessment year 2004-05--No new facts in assessment year 2008-09--Addition not valid-- ITO v. Arora Alloys Ltd. (Chandigarh) . . . 133

S. 92C --Transfer pricing--Depreciation--Method of computing depreciation--No difference in result as a result of applying any of methods-- Lason India P. Ltd. v. Asst. CIT (Chennai) . . . 203

S. 115JB --Company--Book profits--Computation--Minimum alternate tax--Deduction from net profit on account of foreign exchange fluctuation--No adjustment available except as provided in Explanation --Reduction of amount while computing book profit--Not permissible-- City Gold Media Ltd. v. ITO (Ahmedabad) . . . 192

S. 144C --Transfer pricing--Draft assessment order incorporating proposals of Transfer Pricing Officer--Draft assessment order erroneously termed final order--Assessing Officer has power to issue corrigendum to correct error-- Lason India P. Ltd. v. Asst. CIT (Chennai) . . . 203

S. 154 --Rectification of mistakes--Depreciation--Withdrawal of deprecation on ground of non-user--Question debatable--Depreciation cannot be withdrawn in rectification proceedings-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

S. 195 --Deduction of tax at source--Payment to non-resident--Failure to deduct tax at source--No assessment proceedings against non-resident for four years--Assessee cannot be treated as assessee in default under section 201-- Crompton Creaves Ltd. v. Deputy CIT (Mumbai) . . . 151

S. 201 --Deduction of tax at source--Payment to non-resident--Failure to deduct tax at source--No assessment proceedings against non-resident for four years--Assessee cannot be treated as assessee in default under section 201-- Crompton Creaves Ltd. v. Deputy CIT (Mumbai) . . . 151

S. 263 --Revision--Commissioner--Reassessment--Financial charges paid on funds borrowed for purchase of property--Part of closing stock--No finding that Assessing Officer applied his mind to facts of case--Direction to Assessing Officer to examine issue--Proper-- Devi Developers P. Ltd. v. CIT (Delhi) . . . 187

S. 271(1)(b) --Penalty--Failure to respond to notice under section 143(1) and (2)--Bona fide belief that income was non-taxable--Not reasonable explanation--Penalty imposable-- Thangamani Vinodhagan v. Asst. CIT (Chennai) . . . 230

S. 271(1)(c) --Penalty--Concealment of income--Capital gains--Claim for exemption--Investment of net consideration in residential property--Shortfall in amount invested due to wrong advice by counsel--No concealment of income--Penalty cannot be imposed-- Majorjit Singh v. Asst. CIT (Chandigarh) . . . 183

IT: Anticipated loss in outstanding repurchase transactions is actual and real and not a notional loss
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[2013] 35 taxmann.com 184 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'E'
Income-tax Officer 2(1)(1)
v.
SBI DHFL Ltd.*
R.S. SYAL, ACCOUNTANT MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
IT APPEAL NO. 9154 (MUM.) OF 2010
[ASSESSMENT YEAR 2004-05]
MAY  22, 2013 
Section 28(i) of the Income-tax Act, 1961 - Business loss/deductions - Allowable as [Repurchase Transactions] - Assessment year 2004-05 - Whether anticipated loss in outstanding repurchase transactions is actual and real and not a notional loss and is not dependant on happening or non-happening of a future event and, thus, cannot be said to be contingent in nature - Held, yes - Whether claim of loss on account of securities for outstanding repurchase transactions cannot be disallowed on ground that same was merely a provision and not an actual loss - Held, yes [Para 4] [In favour of assessee]
Ms. Girija Dayal for the Appellant. Devdatta S. Mainkar and Chaitanya D. Joshi for the Respondent.
ORDER
 
Sanjay Garg, Judicial Member - The present appeal has been filed by the revenue against the order of the learned CIT(A) dated 11.10.2010 relevant to A.Y. 2004-05. The only effective ground raised by the revenue read as under:
"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of loss of Rs.11.41 crores claimed on account of REPO price adjustments without appreciating that the loss on outstanding REPO transactions are purely in the nature of provisions and such loss neither accrued nor crystalised during the previous year."
2. The brief facts are that the assessee company in its profit and loss account debited an amount of Rs.11,41,98,610 making provision for loss on securities for outstanding repo transactions under the head "Repo Price Adjustment Account". The AO during assessment proceedings u/s. 143(3) of the Act disallowed the said loss observing that the loss in outstanding repo transactions is mere provision and not the actual loss accrued to the assessee during the relevant financial year. The relevant portion of his observations is reproduced as under:
"However, some securities sold under repo in the last few days for which the date of repurchase does not fall in the relevant accounting year but will accrue in the next accounting year only. The assessee company refers to this as cost of committed repurchase of securities. The assessee has rightly provided for this debit balance of the Repo Price Adjustment A/c. in the Profit and Loss A/c. as per the RBI guidelines. However, this loss will accrue and only crystallize in the next financial year and the resulting profit or loss would have to be reported or accounted for in the next financial year. This year this loss is only in the nature of provision as per accounting methodology of RBI guidelines and no provisions are allowed under the I.T.Act. In view of the above discussion, the loss of Rs.11,41,98,610.38 debited to Profit and Loss A/c. is clearly only a provision as per the RBI guidelines also and the same should be added back by the assessee to the total income."
2.1 The learned CIT(A) allowed the appeal of the assessee setting aside the disallowance made by the AO in this respect, observing as under:
"10. I have considered the submissions of the A.R. and I find that this issue has been considered by my predecessor who has allowed the claim of the appellant in following words:
"The ld. A.O. has misunderstood the word 'provision for outstanding repo' and treated it as contingent liability. The appellant company has to follow guidelines for accounting of repo/reverse repo transactions as mandated by RBI. The guidelines recognize repo transactions as outright sale/purchase and explain consequential effects thereof in the accounts. The seller in the repo transaction reduces security from its stock on conclusion of first leg of transaction and books the loss under the repo price adjustment account. The buyer is legal owner of the security transferred to him and entitled to interest receivable during the repo period. Thus, once legal character of repo transaction is defined as sale of security and accepted as such, loss incurred thereon is actual loss. The guidelines further prescribe for the disclosure of loss on outstanding repo transaction in the Profit and Loss A/c. and balance-sheet. The loss on outstanding repo transaction at balance-sheet is termed as 'provision for outstanding repo'. The nomenclature 'provision' has no relation to 'provision' as used in the accounts for booking estimated liability. In this case, the loss has actually incurred on sale and it is not notional loss and, therefore, the head under which it is debited to Profit and Loss A/c. is irrelevant. The scheme of entries submitted before me also reveals that it is incurred loss and not notional/estimate loss."
11. I find that the facts and circumstances in this year are similar. Hence, I direct the A.O. to allow the claim of the appellant as the loss claimed is actual loss and not estimated or provision for loss although in the books of account the word 'provision' was used. This ground of appeal is allowed."
The revenue is thus in appeal before us.
3. We have heard the learned representatives of the parties and have also gone through the record. The learned AR has relied upon certain guidelines issued by the Reserve Bank of India under the head "Guidelines for Uniform Accounting of Repo / Reverse Repo transactions vide Circular bearing No. IDMC.3810/11.08.10/2002-03 dated March 24, 2003, to stress the point that the assessee has rightly debited the anticipated loss making provision for outstanding repo transactions. Clause 'n' to Annexure 1 of the Circular is relevant which for the sake of convenience is reproduced as under:
"Recommended Accounting Methodology for Uniform Accounting of Repo/Reverse Repo transactions
  ******
n. Since the debit balances in the Repo Price Adjustment Account at the end of the accounting period represent losses not provided for in respect of securities offered in outstanding repo transactions, it will be necessary to make a provision therefor in the Profit & Loss Account.
  ******"
The learned DR however, has relied upon the assessment order.
4. It may be observed that the anticipated loss in outstanding repo transactions is virtually actual & real and not a notional loss and is not dependant on the happening or non-happening of a future event and, thus, cannot be said to be contingent in nature. Thus, the assessee has rightly debited the actual anticipated loss in its books of account as per RBI Guidelines. Moreover, the issue is squarely covered with the decision given by the co-ordinate Bench of this Tribunal, vide its order dated 11.02.2011, in ITA No.973/Mum/2009 for A.Y. 2004-05. When faced with almost similar issue before it, the learned Tribunal while upholding the order of the CIT(A) deleting the disallowance made by the AO on account of debited loss under the head "Provision for outstanding repo transactions" observing as under:
"15. We have considered the rival submissions made by both the parties, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also gone through the guidelines issued by the RBI for uniform accounting and reverse repo transactions dated 20.3.2004 copy of which is placed at pages 29 to 39 of the paper book. After going through the guidelines issued by the RBI for uniform accounting repo/reverse repo transaction, we find the assessee company has followed the guidelines issued by the RBI and accordingly debited the amount of Rs.109.69 lacs under the head provision for outstanding repo transaction. We find, the CIT(A) has correctly appreciated the facts of the case in the light of the guidelines issued by the RBI and has deleted the disallowance made by the Assessing Officer. The ld DR could not point out any distinguishable features or mistake in the order of the CIT(A). Since the order of the ld CIT(A) is in conformity with the guidelines issued by the RBI and in absence of any contrary material brought o our notice by the revenue, we do not find any infirmity in the order of the ld CIT(A) and uphold the same. Ground raised by the revenue is accordingly dismissed."
4.1 In agreement with and respectfully following the law laid down by the learned co-ordinate Bench of this Tribunal, we do not find any infirmity in the order of the learned CIT(A) and the same is hereby upheld.
5. In the result, the appeal of the revenue is hereby dismissed.
POOJA



AO can't refer to CPWD rates to compute construction cost unless such rates are in conformity with state PWD rates

IT: Unless there are similarities in rates of CPWD and State PWD, it is not proper to adopt CPWD rates for arriving at cost of construction
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[2013] 35 taxmann.com 179 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Coimbatore
v.
K. Jayakumar*
MRS.CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
TAX CASE (APPEAL) NO. 185 OF 2010
JUNE  4, 2013 
Section 69 of the Income-tax Act, 1961 - Unexplained investments [Immovable properties] - Assessment year 1998-99 - Assessee constructed a shopping cum residential complex - Assessing Officer on basis of valuation done by DVO, adopted CPWD rates and completed assessment, thereby making addition - Whether on considering geographical location, availability of work force and cost of materials, it is not proper to blindly go by CPWD rates for purpose of arriving at cost of construction unless there are similarities in rates of CPWD and State PWD - Held, yes - Whether, where DVO adopted CPWD rates for arriving at cost of construction of assessee's property and there was a substantial difference between CPWD rates and State PWD rates, matter was to be remitted back to Assessing Officer for working out cost of construction by taking State PWD rates - Held, yes [Para 4] [Matter remanded]
FACTS
 
 The assessee constructed a shopping cum residential complex in Coimbatore and claimed cost of construction to be Rs. 96 lakhs. However, the Assessing Officer referred the matter to the District Valuation Officer (DVO) under section 133(6) who by adopting CPWD rates arrived at the probable cost of construction at Rs. 1.40 crores, thus indicating a difference of Rs. 44 lakhs.
 The assessee objected to the Valuation done by the DVO. He also claimed raise of 20 per cent on account of own supervision, but the Assessing Officer adopted allowance of 10 per cent as against 7.5 per cent arrived at by the DVO.
 Aggrieved by the order of assessment, the assessee filed appeal before the Commissioner (Appeals). The Commissioner (Appeals) held that the Assessing Officer had no power to refer the valuation of assessee's property to the DVO under section 133(6) and also pointed out that there was a substantial difference between CPWD rate and State PWD rate.
 On revenue's appeal, the Tribunal held that since construction was done in a small town, CPWD rates could not have been applied. He, further accepting the plea of assessee directed the Assessing Officer to make an addition of Rs. 8 lakhs towards cost of construction.
 On further appeal by the revenue, it contended that the plea of the assessee accepted by the Tribunal, was without any basis.
HELD
 
 The contention of the Revenue that the order of the Tribunal is totally without any basis is agreeable. As rightly pointed out by the revenue, the construction of the shopping and residential complex is not in a small town, but a Corporation. A reading of the order of assessment shows that the Income Tax Officer had not agreed with the Valuation Officer's report as it is, particularly when he noted that the assessee himself had undertaken the supervision.
 Thus, the Assessing Officer partially agreed with the assessee and allowed the valuation at 10% instead of 7.5%, towards supervision charges. However, the basis of valuation as regards the cost of construction, nevertheless, was that of the District Valuation Officer, adopting CPWD rates. It is not denied by the Revenue that there is a variation between the CPWD rates and the State PWD rates. Considering the geographical location, the availability of work force and the cost of materials, unless there are similarities in the rates under CPWD and the State PWD, it is not proper to blindly go by CPWD rates for the purpose of arriving at the cost of construction.
 In the circumstances, while setting aside the order of the Tribunal, the matter is remitted back to the Assessing Officer for working out the cost of construction, to be distributed in assessment years 1997-98 and 1998-99 by taking State PWD rates and for passing orders in accordance with law, after giving the assessee an opportunity of hearing. [Para 4]
CASES REFERRED TO
 
Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407/130 Taxman 511 (SC) (para 2).
N.V. Balaji for the Appellant.
JUDGMENT
 
Mrs. Chitra Venkataraman, J. - In spite of service of notice on the assessee on 24.02.2010, there is no appearance on behalf of the assessee. Hence, after hearing the Revenue and going through the records, the present order is passed in this Tax Case Appeal relating to the assessment year 1998-99. The Revenue has filed this Tax Case Appeal raising the following substantial questions of law:
"(i)  Whether in the facts and circumstances of the case, the Tribunal was right in directing the Assessing Officer to restrict the addition to Rs. 8 lacs as offered by the assessee?
(ii)  Whether in the facts and circumstances of the case, the Tribunal was right in holding that the CPWD rates cannot be applied to the commercial cum residential complex constructed at Coimbatore on the ground that Coimbatore is a small town? "
2. It is seen from the facts herein that the assessee had constructed a shopping-cum-residential complex at 405, Rangai Gounder Street, Coimbatore, and the construction was completed in the previous year relevant to the assessment year 1998-99. The cost of construction was Rs. 96,22,000/-. The Assessing Officer, however, referred the matter to the District Valuation Officer under Section 133(6) of the Income Tax Act. He adopted the CPWD rates to arrive at the probable cost of construction at Rs. 1,40,37,000/-, thus indicating a difference of Rs. 44,15,000/-. The assessee objected to the valuation done by the District Valuation Officer. After considering the objections, as against the claim of 20% for own supervision and purchase of material, the Assessing Officer adopted an allowance of 10% as against 7.5% arrived at by the District Valuation Officer. Aggrieved by the order of assessment, the assessee went on appeal before the Commissioner of Income Tax (Appeals). The first appellate authority held that the Assessing Officer has no power to refer the valuation to the District Valuation Officer under Section 133(6) and under Section 142(2) or under Section 131 of the Income Tax Act, for valuing the appellant's property, by following the decisions of the Apex Court reported in Smt. Amiya Bala Paul v. CIT [2003] 262 ITR 407/130 Taxman 511. He nevertheless pointed out that there is a substantial difference between CPWD rate and State PWD rate. The Revenue went on appeal before the Income Tax Appellate Tribunal, wherein, it pointed out that the construction was done in a small town and hence, CPWD rates could not have been applied. It further pointed out that the construction was with reference to the shopping-cum-residential complex and that no wood work like provision of almirahs, doors and windows were required and that no decorative work were required. Since the assessee was an experienced hand in the construction line, a reduction was to be given on account of builder's profit. In the circumstances, the Tribunal accepted the plea of the assessee for an addition of Rs. 8 lakhs towards cost of construction returned by it. Thus, the Assessing Officer was directed to make an addition of a sum of Rs. 8 lakhs to be distributed in the assessment years 1997-98 and 1998-99. Aggrieved by this, the present appeal has been filed by the revenue, relating to the assessment year 1998-99.
3. Learned Standing Counsel appearing for the Revenue pointed out that while there could be a substantial difference in the rates between CPWD and the State PWD, yet, the Tribunal committed a serious error in accepting the plea of the assessee by adding a sum of Rs.8 lakhs without any basis. In the circumstances, he pleaded for setting aside the order of the Tribunal. He further pointed out that the construction is made in a big city, namely, Coimbatore, and that it is not a small city, as had been stated in the order.
4. We have perused the orders passed by the authorities below. We agree with the contention of the learned Standing Counsel appearing for the Revenue that the order of the Tribunal is totally without any basis. As rightly pointed out by the learned Standing Counsel, the construction of the shopping and residential complex is in Coimbatore, which is not a small town, but a Corporation. A reading of the order of assessment shows that the Income Tax Officer had not agreed with the Valuation Officer's report as it is, particularly when he noted that the assessee himself had undertaken the supervision. Thus, the Assessing Officer partially agreed with the assessee and allowed the valuation at 10% instead of 7.5%, towards supervision charges. The Assessing Officer also accepted the contention that water connection was already existing; apart from that, certain other concessions were given. However, the basis of valuation as regards the cost of construction, nevertheless, was that of the District Valuation Officer, adopting CPWD rates. It is not denied by the Revenue that there is a variation between the CPWD rates and the State PWD rates. Considering the geographical location, the availability of work force and the cost of materials, unless there are similarities in the rates under CPWD and the State PWD, we do not think, we can blindly go by CPWD rates for the purpose of arriving at the cost of construction. In the circumstances, while setting aside the order of the Tribunal, we remit back the matter to the Assessing Officer for working out the cost of construction, to be distributed in assessment years 1997-98 and 1998-99 by taking State PWD rates and for passing orders in accordance with law, after giving the assessee an opportunity of hearing.
The Tax Case Appeal stands disposed of accordingly. No costs.


IT: Even oral contract is sufficient for invoking TDS provisions
IT: Where Commissioner (Appeals) after verifying vouchers of expenses deleted addition on account of outstanding liability, same needed no interference
IT: Where expenses claimed by assessee were petty in nature for which supporting evidence were not readily available, ad hoc disallowance could not be sustained
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[2013] 35 taxmann.com 51 (Kolkata - Trib.)
IN THE ITAT KOLKATA BENCH 'B'
Income-tax Officer
v.
MGB Transport*
P.K. BANSAL, ACCOUNTANT MEMBER
AND MAHAVIR SINGH, JUDICIAL MEMBER
IT APPEAL NO. 2280 (KOL.) OF 2010
[ASSESSMENT YEAR 2007-08]
MARCH  15, 2013 
I. Section 40(a)(i), read with section 194C, of the Income-tax Act, 1961 - Business disallowance - Amount payable to a contractor or sub-contractor [Transport charges] - Assessment year 2007-08 - Whether, TDS provisions will apply, for purpose of invocation of provisions of section 40(a)(ia) only on amounts remained payable at end of financial year and not on paid amounts - Held, yes [Paras 5 & 8][Partly in favour of revenue]
II. Section 194C of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to - Assessment year 2007-08 - Assessing Officer disallowed transport charges for want of deduction of TDS - Commissioner (Appeals) deleted disallowance observing that there was no contractual agreement between assessee and transporters - Whether even oral contract is sufficient for invoking TDS provisions and therefore disallowance made by Assessing Officer was to be confirmed - Held, yes [Para 5] [In favour of revenue]
III. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Outstanding liabilities] - Assessment year 2007-08 - Assessing Officer disallowed outstanding liabilities in respect of sundry creditors - Commissioner (Appeals) after verifying vouchers deleted addition - Whether on facts, order of Commissioner (Appeals) was to be confirmed - Held, yes [Para 12][In favour of assessee]
IV. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Petty expenses] - Assessment year 2007-08 - Whether where expenses claimed by assessee were petty in nature for which supporting evidence were not readily available and incurring of such expenses were not doubted, ad hoc disallowance of such expenses could not be sustained - Held, yes [Para 14][In favour of assessee]
FACTS-I
 
 The Assessing Officer disallowed transport charges paid by the assessee for want of deduction of TDS.
 The Commissioner (Appeals) deleted the addition on the ground that there was no contractual agreement between the assessee and the dumper owners.
 On second appeal:
HELD-I
 
 The High Court in Smt. J. Rama v. CIT [2012] 344 ITR 608/[2010] 194 Taxman 37 (Kar.) held that the law does not stipulate the existence of a written contract as a condition precedent for invoking the provisions of section 194C with respect to payment of TDS. [Para 3]
 Accordingly, even oral contract is sufficient and admittedly the assessee has taken the dumpers on hire and he has paid charges for the same. Respectfully following the same, the disallowance made by the Assessing Officer is confirmed and the order of the Commissioner (Appeals) is reversed. [Para 5]
 However in view of decision of the Special Bench of Tribunal in Merilyn Shipping & Transports v. Addl. CIT [2012] 136 ITD 23/20 taxmann.com 244 (Visakhapatnam), TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia), only on the amounts remained payable at the end of the financial year and not on the paid amounts. Hence, the Assessing Officer is directed to recompute the disallowance accordingly. [Para 8]
CASE REVIEW-I
 
Smt. J. Rama v. CIT [2012] 344 ITR 608/[2010] 194 Taxman 37 (Kar.)(para 5); DyCIT v. Kamal Mukherjee & Co. (Shipping) (P.) Ltd. [2012] 51 SOT 73/20 taxmann.com 670 (Kol.) (URO) (para 5); Merilyn Shipping & Transports v. Addl. CIT [2012] 136 ITR 23/20 taxmann.com 244 (Visakhapatnam) (para 8), Pijush Kanti Chowdhury v. State of West Bengal [2007] 2 Cal LT 577 (Cal.) and Shree Chamudi Mopeds Ltd. v.Church of South India Trust Association AIR 1992 SC 1439 (para 8) followed.
CASES REFERRED TO
 
Samanwaya v. Asstt. CIT [2009] 34 SOT 332 (para 3), Smt. J. Rama v. CIT [2012] 344 ITR 608/[2010] 194 Taxman 37 (Kar.) (para 3), Dy. CITv. Kamal Mukherjee & Co. (Shipping) (P.)Ltd. [2012] 51 SOT 73 (URO)/20 taxmann.com 670 (Kol.) (para 4), Merilyn Shipping & Transports v.Addl. CIT [2012] 136 ITD 23/20 taxmann.com 244 (Visahakhapatnam) (SB) (para 5), Pijush Kanti Chowdhury v. State of West Bengal [2007] 2 Cal LT 577 (para 6) and Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association AIR 1992 SC 1439 (para 7).
K.N. Jana for the Appellant. Arvind Agarwal for the Respondent.
ORDER
 
1. This appeal by the Revenue is arising out of order of the Commissioner of Income-tax (Appeals), Asansol, in Appeal No. 182/CIT(A)/Asl/W-3(1)/ Asl/09-10 dated October 25, 2010. The assessment was framed by the Income-tax Officer, Ward-3(1), Asansol, under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for the assessment year 2007-08, vide his order dated December 31, 2009.
2. The first issue in this appeal of the Revenue is against the order of the Commissioner of Income-tax (Appeals) deleting the disallowance made by the Assessing Officer by invoking the provisions of section 40(a)(ia) of the Act in respect of transport charges paid without deducting tax. For this, the Revenue has raised following ground No. 1 :
"Whether, learned Commissioner of Income-tax (Appeals), Asansol, was justified in deleting the addition by the Assessing Officer under section 40(a)(ia) of the Income-tax Act, 1961 in view of the facts and circumstances of the case and material on record."
3. We have heard rival contentions and gone through facts and circumstances of the case. At the outset it is seen that the assessee has paid dumper hire charges amounting to Rs. 36,37,815 to ten different parties. According to the Assessing Officer no TDS has been deducted on these payments, though these were contractual/sub-contractual payment in nature under section 194C of the Act. According to the Assessing Officer since there is default in not deducting TDS, the payments made attract the provisions of section 40(a)(ia) of the Act. The assessee could not explain before the Assessing Officer as to why TDS was not deducted the Assessing Officer made the disallowance. Aggrieved, the assessee preferred appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) deleted the disallowance by following the decision of the Income-tax Appellate Tribunal, "A" Bench, Kolkata, in the case of Samanwaya v. Asstt. CIT [2009] 34 SOT 332 by stating that there was no contractual agreement between the assessee and the dumper owners as noted by the Assessing Officer in the remand report. We find that this issue is covered against the assessee by the decision of the hon'ble Karnataka High Court in the case of Smt. J. Rama v. CIT [2012] 344 ITR 608/[2010] 194 Taxman 37 wherein it is held that "law does not stipulate the existence of a written contract as a condition precedent for invoking the provisions of section 194C of the Act with respect to payment of TDS." The hon'ble Karnataka High Court concluded as under :
"In order to provide vehicles to a customer as per agreement, the assessee used to hire vehicles from others and hiring of vehicles by the assessee is in the nature of transport contract and hence, the disallowance under section 40(a)(ia) was justified when no tax was deducted at source from payments made to those persons."
4. Further, following Smt. J. Rama's case (supra) of the hon'ble Karnataka High Court, we have taken a decision dated February 17, 2012 of the Income-tax Appellate Tribunal, Kolkata Bench in I.T.A. No. 199/Kol/2010 in the case of Dy. CIT v. Kamal Mukherjee & Co. (Shipping) (P.) Ltd.[2012] 51 SOT 73 (URO)/20 taxmann.com 670 (Kol.), wherein it is held as under (from headnotes) :
. . . Undoubtedly, these decisions do indicate that there is a workman employer relationship between the dock workers and the stevedores like assessee when they employ those workers, but be that as it may, the fact remains that the assessee has made payments to the CDLB for supply of these workers. As long as the assessee has made payments to the CDLB for supply of labour, even when this labour may be treated as employed by the assessee for all practical purposes, the provisions of section 194C are clearly attracted. In such a situation, i.e., when labour hired by the assessee through CDLB is considered to be in assessee's employment, the payments made to CDLB cannot be treated as payments for any work, but nevertheless these payments could still be covered by the provisions of section 194C because these are payments made for supply of labour which are specifically covered by section 194C(1). CDLB is an agent of the stevedores like the assessee in the sense that the labour is recruited by the assessee through CDLB, but then this fact does not affect the nature of payment by the assessee to the CDLB which is admittedly in the nature of payment for supply of labour. The reasoning adopted by the Commissioner (Appeals), though somewhat impressive at first glance, is fallacious. There is no cause and effect relationship between workers assigned by the CDLB having employer workman relationship with the assessee, and the payments being made by the assessee to CDLB being not in the nature of 'payment for supply of labour'."
5. Since the facts and circumstances are exactly identical, what was before us in Kamal Mukherjee & Co. (Shipping) (P.) Ltd. (supra) (URO) and also that in the case of Smt. J. Rama (supra) of the hon'ble Karnataka High Court, respectfully following the same, we are of the view that even oral contract is sufficient and admittedly the assessee has taken the dumpers on hire and he has paid charges for the same. Respectfully following the same, we confirm the disallowance made by the Assessing Officer and reverse the order of the Commissioner of Income-tax (Appeals). However, as regard to alternative arguments made by learned counsel for the assessee regarding applicability of the decision of the Income-tax Appellate Tribunal, Special Bench, Vishakhapatnam in the case of Merilyn Shipping & Transports v. Addl. CIT [2012] 136 ITD 23/20 taxmann.com 244, wherein it is held that the disallowance will be restricted to the amount payable at the end of year and not on the amount already paid during the relevant year. Learned counsel for the assessee before us stated that this payment was made within the due date and nothing remains payable and he relied on the decision of the Special Bench of this Tribunal in the case of Merilyn Shipping & Transports (supra), wherein it is held that the TDS is to be deducted only in relation to payments which remains payable at the end of the year, i.e., 31st March of the relevant financial year. It was pointed out to learned counsel that the operation of the order of the Special Bench of this Tribunal in the case of Merilyn Shipping and Transports (supra), is stayed by the hon'ble Andhra Pradesh High Court in I.T.T.A.M.P. No. 908 of 2012 in I.T.T.A. No. 384 of 2012 wherein the hon'ble High Court observed, "Interim suspension notice" vide dated October 8, 2012.
6. On this, learned counsel for the assessee argued that effect of the order staying a pending appeal before any High Court does not amount to any declaration of law but is only binding upon the parties to that proceedings and such interim order does not destroy the binding effect of the principals as laid down in the order as a precedent because the interim order had no occasion to lay down any proposition of law. For this proposition, he relied on the case law of the hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury v. State of West Bengal [2007] 2 Cal LT 577 dated May 14, 2007 wherein, at paragraphs 10 and 13, it has been held as under :
"10. After hearing the learned counsel for the parties and after going through the aforesaid provision we find that the Supreme Court by those interim orders has no doubt stayed the operation of the order of the Division Bench of this court by directing the parties to maintain status quo and at the same time, even restrained the State from inducting third parties on the lands which were the subject-matters before the apex court. Such interim order is binding upon the parties to the proceedings but the law is equally settled that by mere passing of an interim order staying the operation of a judgment with certain further conditions, the existence of the said judgment is not wiped out and at the same time, for such interim orders inter parties, the authority of a decision as a precedent is never undermined. Unless a decision is set aside by the Superior Court, the said decision remains binding as a precedent though may not be binding upon the parties to the proceedings where the Superior Court has granted interim order. Moreover, once a provision has been declared ultra vires the Constitution of India, the State cannot invoke the said ultra vires proceeding against the citizens of the country simply because an interim order of stay of operation order declaring the provision as ultra vires has been passed in an appeal against such order. The object of granting interim order is to see that the relief claimed in the appeal may not become inappropriate or the appeal does not become infructuous for not granting such interim order ; but by mere grant of interim stay, the effect of a binding precedent is not destabilised. Over and above, the interim orders of the stay granted by the Supreme Court clearly indicate that the said court never intended that notwithstanding the decision of the High Court declaring a part of the provisions of vesting as ultra vires the State would nevertheless be free to proceed with the process of vesting during the pendency o the proceedings before the Supreme Court and that is why status quo as regards possession has been maintained and even, the State has been restrained from creating any third party interest in the lands in question.
13. Therefore, the effect of the order of stay in a pending appeal before the apex court does not amount to any declaration of law but is only binding upon the parties to the said proceedings and at the same time, such interim order does not destroy the binding effect of the judgment of the High Court as a precedent because while granting the interim order, the apex court had no occasion to lay down any proposition of law inconsistent with the one declared by the High Court which is impugned."
7. Even, the hon'ble Supreme Court in the case Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association AIR 1992 SC 1439 has analysed the difference between "stay of operation" of an order and "quashing of an order" and held that "stay of order" of an appellate authority/court by a higher court means that the order passed by the appellate authority/lower court still continues to exist in law in spite of the "stay" and its existence is not destroyed. But where the order of the appellate/ lower court is quashed and the matter is remanded back, it means that the appeal disposed of by the said order of the appellate authority/lower court would be restored and it can be said to be pending before the said authority/lower court.
8. In view of the above, particularly the decision of the hon'ble jurisdictional High court in the case of Pijush Kanti Chowdhury (supra), as also in obedience to decision of the hon'ble Supreme Court in the case of Shree Chamundi Mopeds Ltd. (supra), we are of the view that the decision of the Special Bench of this Tribunal in the case of Merilyn Shipping and Transports (supra) still holds ground and accordingly, TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia) of the Act, only on the amounts remained payable at the end of the financial year and not on the paid amounts. Hence, we direct the Assessing Officer to recompute the disallowance accordingly. The appeal of the assessee is partly allowed for statistical purposes.
9. The next issue in this appeal of the Revenue is against the order of the Commissioner of Income-tax (Appeals) deleting the addition being balance credit amount of Rs. 1,18,419 out of total sundry creditors of Rs. 3,96,280. For this, the Revenue has raised the following ground No. 2 :
"Whether, the Commissioner of Income-tax (Appeals), Asansol, was justified in deleting the addition made by the Assessing Officer on account of liability as sundry creditor to the tune of Rs. 3,96,280 in balance sheet as on March 31, 2009 in view of the facts and circumstances of the case and material on record."
10. However, in the ground, the amount disallowed is mentioned at Rs.3,96,280 and the disallowance is restricted to Rs. 1,18,419.
11. We have heard rival contentions and gone through the facts and circumstances of the case. We find that the outstanding details of sundry creditors and total claim made reads as under :


Outstanding as on 31.03.2007 Total claim
1.Labour charges payable 69,8903,15,890
2.Salary and wages 6,70044,400
3.Fooding expenses payable 10,23030,535
4.Travelling and conveyance 8,93022,780
5.Repairs and maintenance 22,6702,65,310
   1,18,420 
12. The assessee before us contented that it is following accounting system, which provides for outstanding expenses as on 31st March of every year and the assessee before the Assessing Officer as well as before the Commissioner of Income-tax (Appeals) produced ledger copies of the expenses and the amounts have been paid in the subsequent years and necessary evidence were also produced before the Commissioner of Income-tax (Appeals). The Assessing Officer made disallowance of the outstanding liabilities at Rs. 1,18,420 in the absence of vouchers. However, the Commissioner of Income-tax (Appeals) after verifying the vouchers deleted the addition and we confirm the deletion. This issue of the Revenue's appeal is dismissed.
13. The next issue in this appeal of the Revenue is with regard to ad hoc disallowance of Rs. 1,00,000. The total expenses claimed by the assessee reads as under :

Head of expenses Amount claimed (Rs.)
1.Repairs and maintenance 2,65,310
2.Rent 38,500
3.Road tax and permit 43,800
4.Insurance 54,000
5.Labour charges 3,15,890
6. Telephone expenses 7,819
14. Out of these, the Assessing Officer made disallowance of ad hoc expenses at Rs. 1,00,000. In the absence of proper vouchers the Commissioner of Income-tax (Appeals) deleted the addition by noting that the expenses are petty in nature for which supporting evidence were not readily available and the Assessing Officer has not doubted that these expenses have not actually been incurred. As there is no cogent basis, the Commissioner of Income-tax (Appeals) deleted the addition. Similarly, we also confirm the deletion. This issue of the Revenue's appeal is dismissed.
15. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.



IT: Assessing Officer can proceed under section 153A to find out source of income, even if seized goods were released for valid entry in stock books
■■■
[2013] 35 taxmann.com 85 (Allahabad)
HIGH COURT OF ALLAHABAD
Savesh Kumar Agarwal
v.
Union of India*
SUNIL AMBWANI AND K.N. PANDEY, JJ.
CIVIL MISC. WRIT PETITION NO. 692 OF 2011
NOVEMBER  25, 2011 
Section 153C, read with section 153A, of the Income-tax Act, 1961 - Search & seizure - Assessment in case of any other person [Application of provision] – Assessment year 2009-10 – Assessing Officer of assessee received a satisfaction note from another Assessing Officer who had conducted search on third party – Whether, even if assessing authority receiving satisfaction note had not found any thing adverse against assessee on examination of account books, and further seized goods had already been released, notice under section 153C could still be issued to assessee to file return of income – Held, yes – Whether, where bullion seized was released to assessee for having been validly entered in stock books, Assessing Officer on receiving satisfaction note could still proceed under section 153A against assessee to find out source of income – Held, yes [Paras 22 and 23][In favour of revenue]
FACTS
 
 The assessee was engaged in the business of purchase and sale of jewellery. In the regular course of business the assessee dispatched silver bullion through 'H' courier service. However, the entire bullion was seized.
 Subsequently, the assessee applied for the release of bullion. The assessing authority after examining the account books and after finding that the bullion in question was part of the stock in trade and was duly disclosed by the assessee, released the entire bullion seized.
 Later on a search was conducted on 'H' in which it was held that the bullion belonged to the assessee. However, the matter along with the satisfaction note under section 153C was referred to the Assessing Officer of the assessee. On receipt of the satisfaction note the Assessing Officer initiated assessment proceedings by directing the assessee to file the return.
 The assessee filed the writ petition against the initiation of the assessment proceedings under section 153A and contended that the action under section 132 was done against his courier and therefore, in absence of any fresh material, the notice for assessments was, arbitrary and unreasonable.
 He further contended that the power conferred under section 153A read with section 153C for necessary assessments could not be exercised without any material of undisclosed income.
HELD
 
 The Act has been amended introducing provisions of section 153A, 153B, 153C and 153D. The requirement of law is the same as have been spelled out in Manish Maheshwari's case. [Para 17]
 In the present case all the requirements of section 153C having been complied with. After making assessment of the person in whose hands the goods were found, the satisfaction note was recorded and sent to the Assessing Officer of the assessee.[Para 18]
 In Manish Maheshwari's case the Supreme Court observed that taxing statute must be constructed strictly. The Court, however, shall not interpret statutory provisions in such a manner, which would create an additional physical burden on a person. In case of any doubt or dispute, construction is to be made in favour of the taxpayer and against the revenue. [Para 19]
 In the present case, nothing is found wrong in the satisfaction note and the forwarding of the entire matter by the ITO, to the Assessing Officer of the assessee. All the requirements of section 153 (C) were complied with by the ITO. A search under section 132A was carried out and bullion was seized. The case was selected for compulsory scrutiny for six assessment years. It was established that the seized silver belongs to the assessee. The ownership and consignment of the assessee was also confirmed by the Assessing Officer of the assessee. The ITO did not commit any error in law, in recording the satisfaction note requesting the assessee's Assessing officer to proceed under section 153C. [Para 20]
 After the assessment of the person in respect of whom search action was carried out is completed, the officer under section 153C, where he find that seized articles belong to some other person, has to forward a satisfaction note to the Assessing Officer on such person. The satisfaction in such case is in respect of the material and disclosures of the person with which the articles or assets are found and not in respect of the person to whom they belong.[Para 21]
 The question which now calls for consideration is whether on receipt of satisfaction note, even if the assessing authority receiving satisfaction note has already examined account books, and has not found anything adverse against the assessee, and further seized goods have already been released in favour of the assessee, he is required to issue notice under section 153C to file returns for six years. [Para 22]
 The department has taken a stand that even if the books of account were examined by the Assessing Officer of the assessee, and the bullion having found validly entered in the stock books was released under section 132B, still the Assessing Officer can proceed under section 153A and assess the assessee to find out the source of income. [Para 23]
 Where there is power to act in a particular manner, unless it is shown that power has been exercised without jurisdiction and lacks bona fide, the statutory notice given in exercise of such powers, may not be set aside by the Court under Article 226 of the Constitution of India. The argument that the second assessment for the same year and of the previous years will amount to duplication and will be needless exercise of power, overlooks the fact that such power actually exists and if there is any reason to believe namely the satisfaction of the Assessing Authority to examine the source of income, the Court would not interfere to close such enquiry. [Para 24]
 If there is power to do something under the Act, the action taken in the fiscal matters cannot be set aside in exercise of writ jurisdiction on the ground that such power is to be exercised needlessly, without any purpose. The exercise of power in such case can only be challenged, if the power is being exercised with ulterior motive and mala fide intentions. It is not open for the assessee to contend before the writ court that the exercise of power, which admittedly exists in the authority, will expose the assessee to assessment for the same period on which assessing authority has already recorded satisfaction. [Para 25]
 The writ petition is dismissed. [Para 26]
CASES REFERRED TO
 
Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341/159 Taxman 258 (SC)(para 14), Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714 (para 16), J. Srinivasa Rao v. Government of Andhra Pradesh [2006] 12 SCC 607 (para 16) and Ispat Industries Ltd. v.Commisssioner of Customs [2006] 12 SCC 583 (para 16).
S.D. Singh for the Petitioner. Dhananjay Awasthi for the Respondent.
JUGDMENT
 
1. We have heard Shri S. D. Singh, learned counsel for the petitioner. Shri Dhananjay Awasthi appears for the respondents.
2. The petitioner is engaged in the business of purchase and sale of jewellery, etc. In the regular course of business the petitioner dispatched 69.900 kg. of silver bullion to M/s R. M. Silver, Rajkot and M/s. Subh Enterprises at their addresses at Rajkot for manufacturing silver ornaments through M/s. Harish Kumar Laxman Kumar, 225, Kacha Ghasiram, Chandni Chowk, New Delhi. The entire consignment of the bullion was seized from the custody of petitioner's courier by the Delhi Police.
3. The Deputy DIT (Inv), Unit-II (1), New Delhi, requisitioned the entire seized bullion by order dated June 17, 2008, under section 132A of the Income-tax Act, 1961 ("the Act"). Certain other courier service providers were also searched and seizures were carried out.
4. The petitioner applied for release of the bullion by making application dated July 3, 2008, under section 132B of the Act stating that the entire consignment was duly accounted for and recorded in his account books. He produced all the account books and final accounts for the period 2006-07, 2007-08 along with the stock register of 2008-09. The petitioner's statement was recorded on August 18, 2008. On November 30, 2009, the petitioner's assessing authority, namely, the Income-tax Officer, Unit-II (2), Bareilly, passed an order under section 132B, to release the entire quantity in favour of the petitioner, after examining his account books and all other relevant materials, and after recording findings that the silver bullion in question was part of the stock-in-trade, and was duly disclosed by the petitioner. The order has not been challenged and has attained finality. The entire seized silver bullion has been released to the petitioner.
5. On December 31, 2010, the assessment was completed under section 153B(1)(b) read with section 143(3) of the Act in the case of M/s. Harish Kumar Laxman Kumar, the courier, for the assessment year 2009-10 by Income-tax Officer Ward-III(2), Ahmedabad. He recorded all the facts and circumstances, and held that the silver bullion belongs to the petitioner. The assessment of M/s. Harish Kumar Laxman Kumar was converted at "Nil" income. He, however, referred the matter along with the satisfaction note dated February, 2009, under section 153C of the Act to the Assessing Officer of the petitioner.
6. On the receipt of the satisfaction note dated December 31, 2010, of the Income-tax Officer Ward III(2), Ahmedabad, the petitioner's Assessing Officer, namely, Income-tax Officer, Ward-II(2), Bareilly, acting under the provisions of section 153C of the Act has initiated assessment proceedings for seven assessment years (the assessment years 2003-04 to 2009-10) by issuing separate orders directing the petitioner to file return on the prescribed form, directing further that no extension of time for filing the return under section 153C will be allowed.
7. By this writ petition the petitioner is challenging the initiation of the assessment proceedings against the petitioner under section 153A read with section 153B for the assessment years 2003-04 to 2009-10, vide notice dated March 30, 2011, issued by the Income-tax Officer Ward-II(2), Bareilly. The petitioner has also challenged the vires of section 153A and 153C of the Act as against the basic spirit and structure of the Income-tax Act, 1961, providing for mandatory assessment or reassessment for six previous assessment years in advance on discovery of any undisclosed income of an assessee.
8. In the counter-affidavit of Shri Amit Kumar Chaudhary, Income-tax Inspector, Commissioner of Income-tax, Office, Bareilly, it is stated in para. 6 as follows :
"6. That the contents of paragraphs 3, 4, 5, 6, 7, 8, 9 and 10 of the writ petition it is averred that the silver taken into custody under section 132A on June 17, 2008, which was found to be in possession of M/s. Harish Kumar and Laxman Kumar the assessment under section 153B(1)(b) read with section 143(3) for the assessment year 2009-10 on December 13, 2010. The petitioner was issued notices and on the basis of notices produced the books of account which were examined and it was found that the bullion was duly recorded in the stock register, hence was released but though the silver was found register but the petitioner could not explain the source of funds for purchasing the silver/bullion, hence notices were issued and since the assessment of the petitioner was completed under section 143A it is necessary to investigate the source of investment in purchasing of silver and the assessment should be completed under section 153C read with section 153A. Rest of the facts stated are paragraph denied."
9. Before considering the submissions of learned counsel for the parties, it will be appropriate to quote the orders of the assessing authority of the petitioner dated November 30, 2009 ; the relevant portion of the order of the assessment of M/s. Harish Kumar Laxman Kumar for the assessment 2009-10 and the short satisfaction note as follows :
The assessment order of the petitioner under section 132B of the Act dated November 30, 2009
"Government of India
Department of Revenue
Office of the Income tax Officer-2(2) Bareilly
 Name and address of the assessee
Shri Sarvesh Kumar Agarwal
Prop : Sarvesh
Jewellers, Sahukara,
Bareilly
Order under section 132B of the Income-tax Act, 1961
Dated : 30-11-2009
The assessee has moved an application under section 132B of the Income-tax Act, 1961, on July 30, 2008, before the undersigned stating that the silver bullion weighing 69.900 kgs was sent through the courier, viz., M/s Harish Kumar Laxmi Kumar 225, Kuncha Ghasi Ram, Chandini chowk, Delhi, for sending to M/s. R. M. Silver, Shilp complex, Mandir Chowk, Rajkot and M/s. Subh Enterprises. Ranchar Nagar, Bhan Nagar Road, Opp. Tinko Rajkot for manufacturing of silver ornaments. While sending the same by the aforesaid courier to the concerned parties the police party seized the same from Railway Station, Delhi along with goods relating to other parties also. Thereafter, the Assistant Director of Income-tax (Inv.), Unit-II(3), A. R. A. Centre, Jhandewalan Extension, New Delhi, requisitioned the same under section 132A of the Income-tax Act, 1961, from the Police Department. Now, the above silver bullion is under the possession of ADIT (Inv.), Unit II (3) A. R. A. Centre, Jhandewalan Extension, New Delhi. Meanwhile, a letter F. No. DDIT (Inv.) Unit II(1), New Delhi, was also forwarded to me for my report. The necessary report was accordingly submitted, vide this office letter of even No. dated January 29, 2009, to the Commissioner of Income-tax, Bareilly, wherein inquiries conducted in this case were also reported to him.
I have gone through the details of the application furnished by the assessee and have also perused the relevant books of account, i.e., stock register, ledger and cash book. The silver bullion mentioned above has been found duly recorded in the stock register and necessary verification has also been made from the ledger and the cash book. The statement of the assessee, i.e., Shri Savesh Kumar Agarwal, S/o Shri Vishnu Kumar Agarwal, resident of Sahukara, Bareilly, was recorded on August 18, 2008. The careful study of the statement of Shri Savesh Kumar Agarwal recorded on oath revealed nothing adverse. The assessee is a income-tax payer and is regularly assessed to tax for a number of years. Since the application under section 132B is well within time and seized goods as mentioned above are part of the stock-in-trade and all the requirements mentioned under the provisions of section 132B are fulfilled, the silver bullion as mentioned above is released. The order has been passed after obtaining the approval of the learned Commissioner of Income-tax, Bareilly, vide order under section 132B of the Income-tax Act, 1961, dated November 24, 2009, circulated endorsement F. No. CIT.BLY/132B/Ser.Jew./2009-10, dated November 24, 2009.
(O. N. Misra)
Income-tax Officer-2 (2)
Bareilly
Copy to the assessee.
(O. N. Misra)
Income-tax Officer-2 (2)
Bareilly."
The relevant extract of the assessment order of M/s. Harish Kumar Laxman Kumar, the courier of the assessment year 2009-10 by Income-tax Officer, Ward-III (2), Ahmedabad, dated December 31, 2010.
"10. Considering the above facts, I am satisfied that the silver seized to the extent of 70.961 Kgs. from the employee of the assessee-firm belongs to M/s. Sarvesh Jewellers, Prop. Shri Sarvesh Kumar Agarwal, Shahukara, Bareilly, who is assessed to tax with PAN No. AETPA3062K Income-tax Officer, Ward 2(2), Bareilly. Since the above referred seized silver bullion belongs to M/s. Sarvesh Jewellers of Bareilly. So the information along with the satisfaction note, appraisal report and the seized documents/assets is being forwarded to the Income-tax Officer, Ward, 2(2), Bareilly, for necessary action under section 153C of the Income-tax Act. In view of the above, no additions has been made on account of the seized silver bullion in the case of the assessee.
Subject to the above discussion the income of the assessee is assessed at returned income of Rs. nil.
Assessed under section 153B(b) read with section 143(3) of the Income-tax Act, 1961. Give credit for prepaid taxes after due verification. This order is passed with the prior approval of the Joint CIT, Range-3, A'bad, conveyed, vide letter No. Jt. CIT/AR-3/HL/153A/ 2010-11, dated December 30, 2010."
Satisfaction note for proceedings under section 153C of the Income-tax Act, 1961.
Search action under section 132A was carried out by the ADIT (INV), Unit II (I), New Delhi, on June 17, 2008, in the case of M/s. Harishkumar Laxmankumar, Ahmedabad, and seizure of the silver bullion was made.
The case was selected for compulsory scrutiny and six assessment years from 2003-04 to 2008-09 was also selected for scrutiny under section 153A(1) of the Income-tax Act. During the proceedings, the assessee was asked to prove the ownership of the above seized materials. The assessee, vide his written reply dated December 13, 2010, stated and proved that the seized silver bullion belongs to M/s. Sarvesh Jewellers Prop. of Shri Sarvesh Agarwal, Bareilly.
The ownership of consignment in the case of Shri Sarvesh Agrawal, Prop. of M/s. Sarvesh Jewellers, PAN-AETPA3062K had been confirmed by his Assessing Officer, i.e., Income-tax Officer, Ward. 2(2), Bareilly. Hence, this person is required to be assessed under section 153C of the Income-tax Act. Accordingly, the Income-tax Officer, Ward-2(2), Bareilly, is requested to proceed under section 153C of the Income-tax Act in the case of Shri Sarvesh Agarwal Prop. of M/s Sarvesh Jewellers, PAN-AETPA3062K.
(K.T. Pandya)
Income-tax Officer
Ward-3(2), Ahmedabad.
Dated 31/12/2010."
10. Shri S. D. Singh, learned counsel for the petitioner, submits that there is no other material or evidence in any form that any undisclosed income was either received by or accrued to the petitioner during the assessment years 2003-04 to 2009-10. In the absence of any material there was no need or any justification to assess or reassess the petitioner for the earlier periods. All the disclosures made by the assessee have already been accepted by the assessing authority under section 143(1). Just because of the action under section 132 or 132A of the Act was initiated against his courier without any fresh material on record, the notice for assessments is ex facie, arbitrary and unreasonable.
11. Shri S. D. Singh further submits that the provisions of section 153A read with section 153C, in so far as they permit for the second assessment, which is already complete, is arbitrary, illegal, unless search and seizure operation under section 132 or section 132A, result into discovery of any undisclosed income, or any such material, which may justify assessments of last six years. The power conferred under section 153A read with section 153C for necessary assessments or reassessment for six years cannot be exercised mechanically without any material of undisclosed income. The notice has been given without any purpose. The exercise is mechanical, only to serve the statute.
12. Shri S. D. Singh submits that in the present case the petitioner's Assessing Officer after going through the relevant books of account, including stock register, ledger and cash book found that the silver bullion is duly recorded in the register and necessary verifications were made. The petitioner's statement was also recorded, which was carefully studied, and revealed nothing adverse. The petitioner is being assessed regularly for a number of years. On the satisfaction recorded by the petitioner's Assessing Officer the entire bullion was released in his favour and thus in the circumstances the second assessment on the satisfaction note for proceeding under section 153C without disclosing any adverse material is wholly without jurisdiction. The court should not permit the mechanical exercise for needless assessments, just to subserve the provisions of law.
13. Shri Dhananjay Awasthi, on the other hand, submits that though the petitioner's assessing authority did not find anything adverse and has allowed the application under section 132B and that nothing adverse was also reported in incomes' assessment of the courier on December 31, 2010, the authorities were duty bound to record satisfaction note for proceedings under section 153C and that in the proceedings of the second assessment the petitioner will be required to prove the source of income for purchase and dispatch of the bullion, which was seized and released to him.
14. In Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341/159 Taxman 258 (SC) the Supreme Court held that the condition precedent for invoking a block assessment is that a search has been conducted under section 132, or documents or assets have been requisitioned under section 132A. These provisions would apply in the case of any person in respect of whom search has been carried out under section 132 or documents or assets have been requisitioned under section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of section 158BC in respect of any other person, the conditions precedents wherefor are : (i) satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 of the Act ; (ii) the books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person ; and (iii) the Assessing Officer has proceeded under section 158BC against such other person.
15. The conditions precedent for invoking the provisions of section 158BD, thus, are required to be satisfied before the provisions of the said Chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under section 132A of the Act.
16. The Supreme Court further held that a taxing statute, as is well known, must be construed strictly and relied upon Sneh Enterprises v.Commissioner of Customs [2006] 7 SCC 714; J. Srinivasa Rao v. Government of Andhra Pradesh [2006] 12 SCC 607 and Ispat Industries Ltd.v. Commisssioner of Customs [2006] 12 SCC 583 in holding that where law is clear and explicit, the only question that arises is whether the notice satisfies the requirement of the law. The notice should record satisfaction under section 158BD on the part of the Assessing Officer, on which he gets jurisdiction over the matter, to transfer the case to the Assessing Officer.
17. The Act has been amended introducing the provisions of section 153A, 153B, 153C and 153D. The requirement of law is the same as have been spelled out in Manish Maheshwari's case (supra).
18. In the present case, all the requirements of section 153C having been complied with. After making assessment of the person in whose hands the goods were found, the satisfaction note was recorded and sent to the Assessing Officer of the petitioner.
19. In Manish Maheshwari's case (supra) the Supreme Court observed that taxing statute must be construed strictly. The court, however, shall not interpret the statutory provisions in such a manner, which would create an additional physical burden on a person. In case of any doubt or dispute, construction is to be made in favour of the taxpayer and against the Revenue.
20. In the present case, we do not find anything wrong in the satisfaction note and the forwarding of the entire matter by the Income-tax Officer, Ward-III(2), Ahmedabad, to the Assessing Officer of the petitioner at Bareilly. All the requirements of section 153C were complied with by the Income-tax Officer, Ward-III(2), Ahmedabad. A search under section 132A was carried out and bullion was seized. The case was selected for compulsory scrutiny for six assessment years. The assessee established that the seized silver belongs to M/s. Sarvesh Jewellers, Bareilly the petitioner. The ownership and consignment of the petitioner was also confirmed by the Assessing Officer of the petitioner at Bareilly. The Income-tax Officer, Ward-III(2), Ahmedabad, did not commit any error in law, in recording the satisfaction note requesting the petitioner's Assessing Officer to proceed under section 153C of the Income-tax Act.
21. After the assessment of the person in respect of whom search action was carried out is completed, the officer under section 153C, where he find that seized articles belong to some other person, has to forward a satisfaction note to the Assessing Officer on such person. The satisfaction in such case is in respect of the material and disclosures of the person with which the articles or assets are found and not in respect of the person to whom they belong.
22. The question which now calls for consideration is whether on receipt of satisfaction note, even if the assessing authority receiving satisfaction note has already examined account books, and has not found anything adverse against the assessee, and further seized goods have already been released in favour of the assessee, he is required to issue notice under section 153C of the Act to file returns for six years.
23. The Department has taken a stand that even if the books of account were examined by the Assessing Officer of the petitioner, and the bullion having found validly entered in the stock books was released under section 132B, still the Assessing Officer can proceed under section 153A and assess the petitioner to find out the source of income.
24. Where there is power to act in a particular manner, unless it is shown that power has been exercised without jurisdiction and lacks bona fide, the statutory notice given in exercise of such powers, may not be set aside by the court under article 226 of the Constitution of India. The argument that the second assessment for the same year and of the previous years will amount to duplication and will be needless exercise of power, overlooks the fact that such power actually exists and if there is any reason to believe, namely, the satisfaction of the assessing authority to examine the source of income, the court would not interfere to close such enquiry.
25. If there is power to do something under the Act, the action taken in the fiscal matters cannot be set aside in exercise of the writ jurisdiction on the ground that such power is to be exercised needlessly, without any purpose. The exercise of power in such case can only be challenged, if the power is being exercised with ulterior motive and mala fide intentions. It is not open for the petitioner to contend before the writ court that the exercise of power, which admittedly exists in the authority, will expose the petitioner to assessment for the same period on which assessing authority has already recorded satisfaction.
26. The writ petition is dismissed.
ESHA

IT: Immunity from penalty be granted where all relevant requirements of Explanation 5 to section 271 are satisfied
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[2013] 35 taxmann.com 66 (Calcutta)
HIGH COURT OF CALCUTTA
Commissioner of Income-tax, Central - I, Kolkata
v.
Amardeep Singh Dhanjal*
GIRISH CHANDRA GUPTA AND TARUN KUMAR DAS, JJ.
IT APPEAL NO. 39 OF 2010
JANUARY  11, 2013 
Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income [Explanation 5] - Tribunal granted assessee benefit of immunity from penalty as per clause (b) of Explanation 5 to section 271(1)(c) - Revenue opposed same on ground that assessee sought to defraud revenue by not disclosing income before search proceedings - Assessee submitted that statement contemplated by clause (b) of Explanation 5 was duly made in course of search and said statement was on record - It was further, submitted that manner in which income was derived had also been disclosed and thereafter tax and interest had been paid - Whether since assessee had complied with all requirements of Explanation 5 to section 271(1)(c), he was entitled to benefit of immunity from penalty under Explanation 5 to section 271(1)(c) - Held, yes [Para 8] [In favour of assessee]
CASES REFERRED TO
 
CIT v. S.D.V. Chandru [2004] 266 ITR 175/136 Taxman 537 (Mad.) (para 5), Gebilal Kanhaialal (HUF) v. Asstt. CIT [2004] 270 ITR 523/[2005] 143 Taxman 42 (Raj.) (para 6) and Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 7).
Ranjan Sinha and Md. Nizamuddin for the Appellant. N.K. Poddar and V. Tibrewal for the Respondent.
ORDER
 
1. The Court: This appeal is directed against a judgment and order dated 27th May, 2009 passed by the Income Tax Appellate Tribunal, Kolkata Bench upholding the decision of CIT (Appeal) that the Assessees are entitled to the benefit of immunity arising out of Explanation-5 to Section 271(1)(c ) of the Income Tax Act and the penalty levied by the Assessment Officer was unjustified. Aggrieved by the judgment and order of the Tribunal, the Revenue has come up in appeal.
2. Mr. Sinha, learned Advocate appearing in support of the appeal submitted that the Assessee would not have disclosed the income, had the search not taken place. Therefore, the fact that the Assessee has sought to defraud the Revenue is self evident, and therefore, the decision holding that the Assessee is immune from penal provision is altogether bad.
3. Mr. Poddar, learned Senior Advocate appearing for the Assessee respondent submitted that under Section 271 of the Income Tax Act penalty can be imposed provided the Assessee does not come within the exception clause beginning with the word 'Unless' in Clause (b) of Explanation-5. He drew our attention to the last clause in Explanation-5 which reads as follows:
"He, in the course of the search, makes a statement under sub-section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in […] sub-section (1) of section 139 and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income".]
4. Mr. Poddar drew our attention to Paragraph-4 of the judgment wherein it is recorded that "During the course of search, statement of Shri Tejinder Singh Saini was recorded under section 132(4) of the Income Tax Act". He further submitted that there is, as such, no doubt that the statement contemplated by the aforesaid clause of the Explanation was duly made in course of the search. The statement made by the Assessee is on the record and has also been referred to by the Tribunal in Paragraph-4 of the judgment. As a matter of fact, the relevant part of the statement made by the Assessee has been quoted by the Tribunal from which it appears that the disclosure was made and recorded in question and answer form.
5. The manner in which the income was derived has also been disclosed and the assessee has thereafter paid the tax and the applicable interest. Mr. Poddar, therefore, submitted that all the requirements for operation of the clause of Explanation-5 quoted above were fulfilled. Therefore, the Tribunal had no option but to allow the immunity provided for by the legislature from the penal provision under section 271 of the Income Tax Act. He also drew our attention to the division bench judgment of the Madras High Court in the case of CIT v. S.D.V Chandru [2004] 266 ITR 175/136 Taxman 537wherein following views were expressed.
"In cases where the assessee had not disclosed his income in the returns filed for the previous year which have ended prior to the date of the search and, in the statement given under section 132(4), the assessee admits the receipt of undisclosed income for those years and also specifies the manner in which such income had been derived, and thereafter pays the tax on that undisclosed income with interest, such undisclosed income would get immunised from the levy of penalty. The Tribunal, therefore, was right in holding that the penalty was not leviable."
6. Mr. Poddar submitted that the Rajasthan High Court in the case of Gebilal Kanhaialal (HUF) v. Asstt. CIT [2004] 270 ITR 523/[2005] 143 Taxman 42 held in this regard as follows:
"There is no dispute on the facts that search was continued till August 1, 1987, and on August 1, 1987, in the statement, the assessee has disclosed a particular concealed income and surrendered it for the tax and tax has been paid along with interest. In these circumstances, the Tribunal has committed error in restoring the penalty order of the Assessing Officer."
7. The learned Tribunal, it was pointed out by Mr. Poddar, has taken into consideration all the judgments on this subject. But the judgment in the case of G. Kanhaialal was not taken into consideration. Mr. Poddar also drew our attention to the judgement in the case of Union of India v. Dharmendra Textiles Processors [2008] 306 ITR 277/174 Taxman 571 (SC). He pointed out that this was a judgment with regard to penal provisions of the Excise Act and, therefore, had no manner of application and the point for decision was whether penalty could be imposed without an element of mens rea. He inter alia submitted that this judgment has no manner of application. The point which was arose for decision before the Tribunal or before this court was not even remotely touched by the aforesaid judgment.
8. We have considered the rival submissions advanced by the learned advocates appearing before us. Whether the assessee would have disclosed the income or would not have disclosed the income had the search not been conducted is not a question which falls for our determination. The question for determination is whether the Tribunal was right in allowing the immunity under Explanation-5 to section 271 of the Income Tax. All the requirements of the clause quoted above were met by the assessee and, therefore, the Tribunal took the correct view of the matter in allowing the immunity and upholding the view of the Commissioner of Income Tax appeals and setting aside the order of penalty passed by assessing officer.
9. The appeal is, therefore, dismissed.

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IT : Where assessee had not filed return of income timely, it could be prosecuted under section 276CC on presumption that there existed a culpable mental state as onus to prove that delay was not wilful was on assessee and not on department
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[2013] 35 taxmann.com 99 (Delhi)
HIGH COURT OF DELHI
Assistant Commissioner of Income-tax
v.
Nilofar Currimbhoy*
P.K. BHASIN, J.
CRL. M.C. NO. 2110 OF 2010
MARCH  13, 2013 
Section 276CC, read with section 278E, of the Income-tax Act, 1961 - Offence and prosecution - Failure to furnish return of income - Assessment year 1994-95 - Assessee filed return of income on 1-5-1995 for assessment year 1994-95 - Revenue initiated prosecution under section 276CC on ground that delay was wilful and no valid reasons were given by assessee for late filing of return - However, trial Court and Sessions Court discharged assessee on ground that revenue could not prove wilful failure of assessee - Revenue filed petition for reversal of orders of Courts - Whether, where assessee had not filed return timely, revenue could be permitted to raise a presumption regarding culpable mental state of assessee, and therefore, it would be for assessee to establish that failure was not wilful - Held, yes - Whether, therefore, where such presumption had not been taken into consideration by Courts, their orders were to be set aside and assessee was to be prosecuted under section 276CC - Held, yes [Paras 8 and 12] [In favour of revenue]
FACTS
 
 For the assessment year 1994-95 the assessee filed the return of income on 1-5-1995. The revenue's case was that inspite of several notices issued to assessee, she had filed the return of income beyond the statutory period. Therefore, delay in filing return was wilful and deliberate and thus, she was liable to be prosecuted and punished under section 276CC.
 However, the trial Court and the Sessions Court discharged the assessee.
 The revenue then filed the petition for reversal of orders of both the Courts and contended that the trial Court should have presumed the delay to be wilful on ground that no valid and cogent reasons had been rendered by assessee for filing the return after statutory period, instead of holding that in pre-charge evidence adduced by the department it had failed to establish that delay by assessee was wilful.
 On the other hand the assessee contended that she had applied for the compounding of the offence before filing of the complaint against her and the same had not been decided.
HELD
 
 After having considered the record of the trail Court and the submissions made by the Counsel for the parties it is viewed that the learned trial had wrongly discharged the assessee and the revisional Court also erred in affirming the trial Court's order. It is not in dispute that the assessee had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the revenue had required her to do so on it being found that she had not filed her return. The assessee had not even responded to the communications, as referred to in the complaint, sent to her by the revenue requiring her to file her return or to show the proof of filing if it had been filed within the prescribed time. So, the offence under Section 276CC stood committed by that time and for that offence the Department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court. After the complaint had been filed the trial Court had found a prima facie for taking cognizance of the said offence and so the assessee was summoned. In the pre-charge evidence adduced by the Department the aforesaid facts were reiterated by the departmental witnesses and the same were not challenged also during their cross-examination on behalf of the assessee. However, the trial Court on an erroneous view that it was for the complainant Department to show that failure to file the return within time discharged the assessee by holding that wilful default on the part of the assessee was not established. That conclusion was also erroneous and unsustainable as the learned trial Court conveniently ignored existence of section 278-E which permits raising of a presumption in favour of the Department regarding the existence of culpable mental state (mens rea) on the part of the assessee and non consideration of that provision of law led to the passing of a wrong order of discharge of the accused assessee. [Para 7]
 The decision of the Apex Court in case of Prakash Nath Khanna squarely applies to the facts of the case in hand. It would be for the respondent to establish during the trial that her failure to file her return was not wilful. The Courts below went wrong in going into the question as to whether the Explanation offered by the assessee in response to the show- cause notice given to her before the filing of the complaint in Court was rightly rejected or not. Once the complaint stood filed the trial Court was only required to examine whether cognizance should be taken or not and once it was decided to take cognizance and to summon the assessee the trial Court thereafter was required to examine whether in the pre-charge evidence the complainant had been able to show that the assessee had not filed her return for the assessment year in question within the prescribed period, which fact in the present case was not even disputed by the assessee. So, after raising the presumption under section 278-E the trial Court should have framed the charge against the assessee leaving it to him show during the trial thereafter that there was no wilful default on her part. [Para 8]
 Just because the assessee had applied for the compounding of the offence before the filing of the complaint against her in Court, as is was being claimed by her, and the same according to her had not been decided before the filing of the complaint it could not be said that the complaint was not maintainable, as was also the submission of the assessee not was the trial Court required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority competent to take the decision on her request for compounding she would have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department. [Para 10]
 The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trail Court and, therefore, its order also cannot be sustained. [Para 11]
 This petition and, is, accordingly, allowed. The impugned orders of the trial Court and the revisional Court are set aside. [Para 12]
CASE REVIEW
 
Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 (SC) (para 8) followed.
CASES REFERRED TO
 
Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 (SC) (para 5) and V.P. Punj v. Asstt. CIT 2001 VI AD (Delhi) 501 (para 5).
Tiger Singh for the Petitioner. H.R. Khan Suhel for the Respondent.
ORDER
 
1. - The respondent was discharged by the Court of Additional Chief Metropolitan Magistrate, Delhi vide order dated 22nd August, 2008 for the commission of the offence punishable under Section 276-CC of the Income-tax Act, 1961 on the ground that the complainant (Income-tax Department) had failed to establish in its pre-charge evidence adduced by it in its complaint case (being Complaint Case No. 35/1999) that her failure to submit the income tax return for the assessment year 1994-95 was wilful. That decision of the learned Additional Chief Metropolitan Magistrate was affirmed by the Sessions Court vide order dated 29th September, 2009 when it was challenged by the complainant by way of a revision petition (being Revision Petition No. 06/2008). The complainant felt aggrieved by the revisional Court's order also and so it filed the present petition under Section 482 of the Code of Criminal Procedure, 1973 and Article 227 of the Constitution of India for setting aside the orders of the trial Court as well as of the revisional Court.
2. The relevant facts stated in the complaint of the petitioner-complainant are as follows:-
"4. That for the assessment year 1994-1995, the accused was to file the Income Tax return by 31.10.1994 but it was found by scanning the relevant records of the Income tax Department that she had not furnished the Income Tax Returns and, therefore, a Caution Notice dated 7.11.1994 was sent to the accused-respondent and the same was duly served upon the assessee/accused through the process-server of the Income tax Department. The copy of the said Caution Notice is attached herewith and is marked as Annexure B. The said notice had made it clear that in case she (accused/Assessee) had filed the Income tax Returns else-where in that event the copy of the Income Tax Return alongwith the proof of filing of the said return should be furnished by 25.11.1994.
5. The said caution notice, however, was not complied withby the accused-respondent and no representation/reply was received. Another statutory notice u/s 142(1) of the Income Tax Act dated 9.1.1995 was duly served upon the Assessee/Accused/ respondent on 11.1.1995 by the Process-Server of the Income tax Department. By virtue of the service of the said notice, the Assessee/Accused was to file the Income Tax return within 30 days from the receipt of the said notice, but the said notice sent by the Income tax Department of the complainant was not complied with by the accused-assessee and no response of any nature whatsoever was received from the Assessee-accused respondent.
6. That the Assessee/accused filed the Income Tax return for the relevant Assessment year 1994-1995 only on 1st May, 1995 whereas the Assessee/Accused was required statutorily to file the said returns latest by 31st October, 1994 ..............................................................................
7. That a show-cause notice dated 21.8.1998 was served upon the Assessee/Accused seeking the explanation of the accused/Assessee for late filing of the returns............. The accused/Assessee had replied to the said show-cause notice vide his reply dated 4th September, 1998 ..........................................................................
8. That the accused/Assessee has not rendered any valid and cogent reasons for filing the Income Tax Return for the Assessment year, 1994-95 after the lapse of 7 months. The delay on the part of the accused/Assessee in filing the Return for the relevant Assessment years, mentioned hereinabove, is wilful, deliberate, malicious and the accused has not demonstrated any paucity of funds or any valid and cogent reasons beyond her control. It is pertinent to mention here that the accused/Assessee is a habitual defaulter in filing the late returns.
9. That the accused-respondent has, thus, committed the offence under Section 276-CC of the Income-tax Act, 1961, as amended upto date and she is liable to be prosecuted and punished for the same."
3. After examining the complaint the trial Court summoned the respondent vide order dated 11th February, 1999. However, after the respondent entered appearance before the trial Court and pre-charge evidence of the petitioner-complainant had been recorded the trial Court, as noticed already, discharged the respondent vide impugned order dated 22nd August, 2008 which was affirmed by the Sessions Court when challenged by the petitioner-complainant by way of a revision petition.
4. The present petition was then filed by the petitioner-complainant seeking reversal of the orders of both the Courts below.
5. Mr. Tiger Singh, learned counsel for the petitioner had submitted that there was admittedly long delay on part of the respondent herein in filing her income tax return for the assessment year 1994-95 and, therefore, the trial Court should have presumed the delay to be wilful relying upon the provisions of Section 278-E of the Income Tax Act instead of holding that in the pre-charge evidence adduced by the Department it had failed to establish that the delay was wilful and discharging the respondent. In support of his submission learned counsel placed reliance on one judgment of the Supreme Court in "Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 and one judgment of this Court in "V.P. Punj v. Asstt. CIT 2001 VI AD (Delhi) 501.
6. On the other hand it was submitted by Mr. H.R. Khan Suhel, the learned counsel appearing on behalf of the respondent that the Courts below had rightly discharged the respondent. It was also submitted that the Department having accepted the delayed return and penalty etc. for the delayed filing of the return and that too before the issuance of the final show-cause notice before launching her prosecution could not have subsequently proceeded to prosecute the respondent. It was also argued that the respondent's request for compounding of the offence was also arbitrarily rejected by the Department even though in routine such like offences were compounded by the Department almost in every case on payment of some penalty which the respondent was ready to pay even now.
7. After having considered the record of the trial Court and the submissions made by the counsel for the parties this Court is of the view that the learned trial had wrongly discharged the respondent and the revisional Court also erred in affirming the trial Court's order. It is not in dispute that the respondent had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the petitioner-complainant was required her to do so on it being found that she had not filed her return. The respondent had not even respondent to the communications, as referred to in the complaint, sent to her by the petitioner-complainant requiring her to file her return or to show the proof of filing if it had been filed within the prescribed time. So, the offence under Section 276 CC stood committed by that time and for that offence the Department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court. After the complaint had been filed the trial Court had found a prima facie for taking cognizance of the said offence and so the respondent was summoned. In the pre-charge evidence adduced by the Department the aforesaid facts were reiterated by the departmental witnesses and the same were not challenged also during their cross-examination on behalf of the respondent. However, the learned trial Court on an erroneous view that it was for the complainant Department to show that failure to file the return within time discharged the respondent by holding that wilful default on the part of the respondent was not established. That conclusion was also erroneous and unsustainable as the learned trial Court conveniently ignored existence of Section 278-E in the Income Tax Act which permits raising of a presumption in favour of the Department regarding the existence of culpable mental state (mens rea) on the part of the assessee and non-consideration of that provision of law led to the passing of a wrong order of discharge of the accused-assessee, respondent herein. Section 278-E was considered by the Supreme Court in the case of Prakash Nath (supra), which was cited by Mr. Tiger Singh, and the Supreme Court had observed as under:
"22. Whether there was wilful failure to furnish the return is a matter which is to be adjudicated factually by the Court which deals with the prosecution case. Section 278-E is relevant for this purpose and the same reads as follows:
'278-E: Presumption as to culpable mental state-
(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the Act charged as an offence in that prosecution.
Explanation : In this sub-section, "culpable mental state" includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability'
23. There is a statutory presumption prescribed in Section 278-E. The Court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged as an offence in the prosecution. Therefore, the factual aspects highlighted by the appellants were rightly not dealt with by the High Court. This is a matter for trial. It is certainly open to the appellants to plead absence of culpable mental state when the matter is taken up for trial."
8. This decision of the Apex Court squarely applies to the facts of the case in hand. It would be for the respondent to establish during the trial that her failure to file her return was not wilful. The Courts below went wrong in going into the question as to whether the Explanation offered by the respondent in response to the show-cause notice given to her before the filing of the complaint in Court was rightly rejected or not. Once the complaint stood filed the trial Court was only required to examine whether cognizance should be taken or not and once it was decided to take cognizance and to summon the respondent the trial Court thereafter was required to examine whether in the pre-charge evidence the complainant had been able to show that the respondent had not filed her return for the assessment year in question within the prescribed period, which fact in the present case was not even disputed by the respondent. So, after raising the presumption under Section 278-E the trial Court should have framed the charge against the respondent leaving it to him show during the trial thereafter that there was no wilful default on her part.
9. Section 278-E came to be considered by this Court also in V.P. Punj's case(supra), which was also relied upon by the learned counsel for the petitioner and the Single Judge bench had held that the sufficiency of the Explanation of the defaulter assessee is a question of fact regarding which no finding can be given at the stage of charge but the presumption of mens rea against the accused under Section 278-E has to be pressed into service by the Court at the charge stage.
10. Just because the respondent had applied for the compounding of the offence before the filing of the complaint against her in Court, as is was being claimed by her, and the same according to her had not been decided before the filing of the complaint it could not be said that the complaint was not maintainable, as was also the submission of the learned counsel for the respondent not was the trial Court required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority competent to take the decision on her request for compounding she should have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department.
11. The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trial Court and, therefore, its order also cannot be sustained.
12. This petition and, is, accordingly, allowed. The impugned orders of the trial Court and the revisional Court are set aside and the matter is now remanded back to the Court of the Additional Chief Metropolitan Magistrate with the direction for framing charge under Section 276-CC of the Income-tax Act against the respondent and to try her in accordance with law. It is however, clarified that nothing observed by this Court in this order shall be considered by the trial Court to be any final expression of opinion on the merits of the complainant's case or the respondent's Explanation which she had tendered in response to show-cause notice given to her before the filing of the complaint in Court by the Income-tax Department.
ESHA


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Amendment to Cenvat credit rule 6(6)(i) has retrospective effect from 10-9-2004

ST: Absence of reference to developers of SEZ in rule 6(6)(i) of CENVAT Credit rules, 2004 was inadvertent omission and amendment in said Rule by Notification No. 50/2008-CE (NT) corrects such mistake so as to ensure equality as per article 14 of Constitution; hence, such amendment is retrospective from 10-9-2004
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[2013] 35 taxmann.com 13 (Chhattisgarh)
HIGH COURT OF CHHATTISGARH
Union of India
v.
Steel Authority of India Ltd.*
YATINDRA SINGH, CJ 
AND PRITINKER DIWAKER, J.
TAX CASE NO. 68 OF 2012
APRIL  22, 2013 
I. Rule 6 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Obligation of a manufacturer or producer of final products and a provider of output service - Period from October to December 2008 - Assessee supplied goods without payment of duty to developers of Special Economic Zone (SEZ) and did not keep separate accounts therefor - Department sought payment under rule 6(3) of CENVAT Credit Rules, 2004 - HELD : In view of provisions of rule 6(6)(i), no reversal is required in respect of clearances of excisable goods without payment of duty to unit located in SEZ - In case of clearances without payment of duty to developers of SEZ also, no reversal is warranted under rule 6(3), as clearances to SEZ developers amount to 'export' as per section 2(m) of Special Economic Zones Act, 2005, which has overriding effect over other laws, and cannot be considered as 'exempted goods' - As per general principle and framework of Excise Act, there should not be any excise duty on anything which is supplied to a unit or developer of SEZ, hence, principle that is applicable to unit in SEZ should also apply to a developer as well - Further, SEZ Act treats unit as well as developer on same footing - Absence of reference to developers of SEZ in rule 6(6)(i) was inadvertent omission and amendment in said rule by Notification No. 50/2008-CE (NT), dated 31-12-2008 was aimed at correcting such mistake so as to ensure equality as per article 14 of Constitution; hence, such amendment should be treated as retrospective from 10-9-2004 - Demand under rule 6(3) was set aside accordingly [Paras 32 to 53] [In favour of assessee]
II. Article 14 of the Constitution of India - Equality before law - Under Special Economic Zones Act, 2005, position of developer of Special Economic Zone as well as unit located therein is one and same - Since they are in same class, they are entitled to same treatment as per Article 14 of Constitution [Paras 44 to 46] [In favour of assessee]
III. Section 66B of the Finance Act, 1994 - Charge of service tax - Essential characteristics of a tax as distinguished from other forms of imposition is that a 'tax' is a compulsory exaction of money by public authority for public purposes enforceable by law and is not for services rendered - It is without any reference to any special benefit to be conferred on payer of tax - Tax-imposed upon commodities, goods, financial transactions in contradistinction upon individuals is generally referred to as 'duty'; whereas, tax is levied also on tax payers, who could be individuals or legal entitles - Duty and tax have same connotation, same purpose, though duty is sub-specie of tax [Paras 17 to 20] [In favour of assessee]
Circulars and Notifications : Notification No. 50/2008-CE (NT), dated 31-12-2008
CASES REFERRED TO
 
Steel Authority of India Ltd. v. CCE [Final Order No. A/289/2012-EX (BR), dated 6-3-2012] (para 1), Commissioner Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC 282 (para 17), Ratilal Panachand Gandhi v. State of Bombay AIR 1954 SC 388 (para 17), Pratibha Processers v. Union of India [1996] 11 SCC 101 (para 17), Atlantix Smoke Shops Ltd. v. Colon & AG for Canada 1943 AC 558 (para 22) and Flint v. Stone Tracy Co. 31 Sct 342 (para 23).
Maneesh Sharma for the Appellant. Aditya Bhattacharya and Dr. Sourabh Kumar Pandey for the Respondent.
JUDGMENT
 
1. This tax appeal under section 35-G of the Central Excise Act 1944 (the Excise Act) is against the order of the Custom and Excise, Service Tax Appellate Tribunal, New Delhi (the Tribunal) dated 06.03.2012 Steel Authority of India Ltd. v. CCE [Final Order No. A/289/2012-EX (BR), dated 6-3-2012] allowing the appeal of M/s Steel Authority of India Limited (the Assessee) holding, that the substitution of sub-rule 6(i) in rule 6 {sub-rule 6(6)(i)} of the Cenvat Credit Rules, 2004 (the 2004-Rules) has retrospective effect and is applicable from the date of framing of the Rules.
2. The main question involved in this appeal is:
"Whether the benefit provided by the substituted sub-rule 6(6)(i) in the 2004-Rules can be availed on a date prior to its substitution in the 2004-Rules or in other words, whether the substituted sub-rule 6(6)(i) is retrospective or not'.
THE FACTS
3. Rule 6 of the 2004-Rules (see Appendix-1) imposes different obligations on a manufacturer of exempted and dutiable goods:
 Under sub-rule 2 of rule 6 (sub-rule 6(2)) of the 2004-Rules such a manufacturer is required to maintain separate accounts for the receipt, consumption, and inventory of input and input service meant for use in manufacture of dutiable goods;
 Under sub-rule 3 of rule 6 (Sub-rule 6(3)) of the 2004-Rules, it may not do so, but in that event, the manufacturer is required to pay certain amount of total price of the exempted goods;
 Sub-rule (6) of rule 6 (sub-rule 6(6)) of the 2004-Rules exempts the operation of sub-rules 6(1) to 6(4) of the 2004-Rules in certain contingencies.
4. Initially when the 2004-Rules were framed, sub-rule 6(6)(i) exempted the operation of sub-rules 6(1) to 6(4) to the goods cleared to the units in the Special Area Zone (SEZ) established under the Special Area Zone Act, 2005 (the SEZ-Act).
5. Later on, sub-rule 6(6)(i) was amended and new sub-rule 6(6)(i) was substituted by the Cenvat Credit (Third Amendment) Rules, 2008 the Amending-Rules (see Appendix-2). By the substituted sub-rule 6(6)(i) of the 2004-Rules not only clearance to a unit but clearance to a developer was also exempted from operation of sub-rules 6(1) to 6(4) of the 2004 - Rules.
6. The SEZs are being developed with the private enterprises at different parts of the country. One SEZ is at Kochi. M/s Mundra Port & Special Economic Zone, Mundra and M/s Bharat Petroleum Corporation Limited are its co-developers. One another SEZ is at Coimbatore Tidel Park and M/s Billimoria and Company Limited are its co-developers.
7. The Assessee is engaged in manufacture of various Iron & Steel Products falling under Chapter 72 and 73 of the Central Excise Tariff Act, 1985 (the Excise-Tariff Act). It manufactures dutiable goods as well as exempted goods and supplied them to the co-developers of SEZs at Kochi and Coimbatore from October, 2008 to December, 2008. However, it neither maintained separate accounts as mandated under sub-rule 6(2) nor did it pay 10% of the value of the exempted goods under sub-rule 6(3)(b) of the 2004-Rules.
8. The Adjudicating Officer issued two show-cause notices dated 19.11.2009 and 02.12.2009 to show cause as to why 10% of the total value of the exempted goods be not recovered from them under sub-rule 6(3)(b) of the 2004-Rules along with interest and penalty on the same.
9. The Assessee filed its objection against the same claiming that it had supplied the goods to the developers of the SEZ at Kochi and Coimbatore and under newly substituted sub-rule 6(6)(i) of the 2004-Rules, it was exempt from the operation of sub-rules 6(1) to 6(4) of the 2004-Rules.
10. The, Adjudicating Officer by his order 07.06.2011 rejected the objection of the Assessee holding that:
  At the relevant time, clearance of goods to the developers of SEZ was not covered by sub-rule 6(6)(i) of the 2004-Rules;
  The substituted sub-rule 6(6)(i) was prospective;
  The Assessee cannot take benefit of the same.
11. On the aforesaid finding, the Adjudicating Officer confirmed the demand of Rs. 72,28,050/- and imposed interest on the same as well as penalty of the same amount.
12. The Assessee filed appeal before the Tribunal. It was allowed on 06.03.2012 holding that substituted sub-rule 6(6)(i) of the 2004-Rules was retrospective. Hence, the present appeal by the Central Excise Department (the Department).
QUESTIONS INVOLVED
13. We have heard counsel for the parties. This case was admitted on 30.10.2012 on the following questions of law:
'(i)   Whether the Tribunal erred in holding the amendment Notification 50/2008 dated 31.12.2008 as retrospective, when admittedly the said Notification provides for they shall come into force on their publication in official gazette ?
(ii)  Whether the supplied made to SEZ developers prior to 31.12.2008 can also be treated as exempted goods for the purpose of Rule 6(3)(b) of the Cenvat Credit Rules and can further be treated as exports under Section 2(18) of the Customs Act as well as under Clause (V) of Rule 6(6) of Cenvat Credit Rules, 2004 ?'
However, the main point involved is, as mentioned in the second paragraph of the judgment.
THE DECISION
14. The counsel for the Department submits that:
 At the relevant time, sub-rule 6(6)(i) of the 2004-Rules did not include clearance to a developer in the SEZ. It was included by the Amending-Rules;
 Under sub-rule (2) of rule 1 {sub-rule1(2)} of the Amending-Rules, it came into force on the date of its publication in the official gazette;
 The Amending-Rules were published in the official gazette on 31.12.2008. They were not in force during the time when goods were cleared to the developers in SEZ;
 The Assessee is not entitled to claim benefit of the same.
15. Whereas, the counsel for the Assessee submits that:
 Excise duty is not levied or is remitted on the goods that are exported;
 The goods cleared to the units and developers of the SEZ are treated to be export under the law;
 The units and developers are on the same footing and are in the same class. The 2004-Rules as initially framed had not provided same treatment to them and were discriminatory as well as violative of Article 14 of the Constitution;
 The Amending-Rules have-given same treatment to the units as well as to developers and have put them in the same class. Now discrimination has been removed;
 The Amending-Rules are clarificatoty and its benefit is available from the date the 2004-Rules were framed.
16. In order to appreciate the submissions of the parties, it is necessary to consider the nature and historical background of Excise Duty.
Difference Between Tax and Duty
17. The essential characteristics of a tax as distinguished from other forms of imposition is that a 'tax' is a compulsory exaction of money by public authority for public purposes enforceable by law and is not for services rendered. It is without any reference to any special benefit to be conferred on the payer of the tax (see below for citations) Commissioner. Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur MuttAIR 1954 SC 282 Rati lal Panachand Gandhi v. State of Bombay AIR 1954 SC 388; Pratibha Processors v. Union of India [1996] 11 SCC 101.
18. The concept of tax can be best illustrated with the answer of Justice Holmes to his secretary. Justice Homes was fond of upholding taxing statutes. Once his secretary asked him the reason for the same. He answered that he liked to pay his taxes because he brought his civilisation with them. Taxes help the nation to build infrastructure and are necessary.
19. Black's Law Dictionary explains taxes and duties as follows:
  Tax is a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. Most broadly, the term embraces all governmental impositions on the person, property, privileges, occupations, and enjoyment of the people, and includes duties, imposts, and excises. Although a tax is often thought of as being pecuniary in nature, it is not necessarily payable in money;
 Duty is a tax imposed on a commodity or transaction, esp. on imports. A duty in this sense is imposed on things and not persons.
20. Thus, tax-imposed upon commodities, goods, financial transactions in contradistinction upon the individuals - is generally referred to as 'duty'; whereas, tax is levied also on the tax payers, who could be individuals or legal entitles. Duty and tax have same connotation, same purpose, though duty is sub-specie of the tax.
Nature of Excise and Customs Duties
21. Different kind of duties are imposed upon goods. Traditionally, two duties were imposed: one is customs and the other is excise. Though, of late, other kinds of duties, such as Countervailing Duty (CVD), Education Cess, Anti Dumping Duty, Safeguard Duty etc are also being imposed.
22. The word 'Excise' is said to be ambiguous. In Atlantix Smoke Shops Ltd v. Colon & AG for Canada 1943 AC 550, the Privy council observed,
'"Excise" is a word of vague and somewhat ambiguous meaning.... The word is usually (though by no means always) employed to indicate a duty imposed on home manufactured articles in the course of manufacture before they reach the consumer. So regarded, an excise duty is plainly indirect. A further difficulty in the way of the precise application of the word is that many miscellaneous taxes, at any rate in this country, are classed as "excise" merely because they are for convenience collected through the machinery of the Board of Excise - the tax on owning a dog, for example.'
23. Nonetheless, it is explained by other Commentators and decisions as duty on manufacture of goods to be consumed within the country (bold sub-paragraphs is ours):
  Sephen in his Commentaries on the Laws of England (1928) edition, Vol IV page 420 following Blackstone, says 'Excise duties are those duties which are imposed by Parliament upon commodities produced and consumed in this country;'
 In Flint v. Stone Tracy Co 31 Sct 342, 220 US 107, Am Ann Cas 1912B, 1312, 55 Led 389 , the US Supreme court observed '"Excises" are taxes laid upon the manufacture, sale, or consumption of commodities, within the country, upon licenses to pursue occupations and upon corporate privileges;'
 Halsbury laws of England 4th edition reissue volume 12(2) paragraph 1 explains it by saying 'Historically, duties of customs, or customs duties, in the strict sense are pecuniary charges or tolls imposed by the State and payable upon goods exported from or imported into the country; and they may be contrasted with excise duties, which are payable on goods produced and consumed within the country'.
24. Thus, excise duty is a duty imposed on the manufacture on the goods to be used within the country. Whereas, the customs duty is duty on the goods manufactured in the other countries and brought within a country to be used or taken out of the country to be used in the other countries.
25. We can say that they are a kind of sister duties. The statute imposing excise and customs duty in our country namely, the Excise Act and the Customs Act, 1962 (the Customs Act) also follow the same pattern as mentioned above.
Provisions of the Excise Act and the 2002 Rules
26. Section 3 of the Excise Act is the charging section and is titled 'Duties specified in the Schedule to the Central Excise Tariff Act, 1985 to be levied'. It provides charging of the duty on the manufacture of the products as specified in the Central Excise Tariff Act, 1985.
27. The Central Excise Rules, 2002 (the 2002 Rules) provides how excise duty is to be assessed and collected:
  Rule 4 is titled 'Duty payable on removal'. It provides excise duty to be payable on removal of goods;
  Rules 6 and 7 are titled 'Assessment of duty' and 'provisional assessment'. They provide as to how the assessment of the excise duty is required to be done;
  Rule 17, 18 and 19 are titled 'Removal of goods by a hundred percent. Export-Oriented Undertaking for Domestic Tariff Area', 'Rebate of duty', and 'Export without payment of duty' respectively. These three rules together conceive an arrangement by which if the goods are to be exported, then no custom duty is charged or remitted back to them on proof of export and in case 100% export oriented undertaking removes the goods to the domestic tariff area instead of export then it is liable to pay excise duty.
Provisions of the Customs Act
28. Section 2 of the Customs Act is titled as 'definitions'. Sub-section (11) of section 2 {sub-section 2(11)} explains what is 'customs area'. Sub-section (18) of section 2 {sub-section 2(18)} explains what is 'export'. Sub-section (23) of section 2 {sub-section 2(23)} explains what is 'import'. Sub-section (27) of section 2 {sub-section 2(27)} explains what is 'India'.
29. Section 12 of the Customs Act is titled 'dutiable goods' and is a charging section under the Customs Act. It provides for customs duty to be paid on the export as well as on the import of the goods as specified under the Customs Tariff Act, 1975 (the Customs-Tariff Act).
30. The principle envisaged in Excise Act and the 2002 Rules as well as the Customs Act is the same as traditionally how the excise and customs duties were understood. It is clear from their provisions that excise duty is payable on the manufacture of the goods but is to be paid only in respect of those goods that are to be consumed within the country, and not that are to be exported. In case, the goods are to be exported then, customs duty - if it is leviable under the Customs Act read with the Customs Tariff Act - is to be imposed.
31. With the aforesaid framework in the background, let us understand the purpose of the SEZ Act, clearance to units and developers in SEZ, and purpose of the newly substituted sub-rule 6(6) (i) of the 2004-Rules.
Purpose of SEZ and Clearance of Goods to SEZ is Export
32. The Government of India introduced a policy on 01.04.2000 for setting up of the Special Economic Zones (SEZ), with a view to provide an internationally competitive and hassle free environment for exports. The units could be set up in the SEZ for manufacture of goods and rendering services. They were to be net foreign exchange earner and were not to be subjected to any predetermined value addition or minimum export performance requirements.
33. Initially, in order to implement the aforesaid policy, the Customs Act was amended and Chapter XA with Sections 76A to 76H was inserted. Subsequently, the SEZ-Act was enacted and Chapter XA of the Customs Act was deleted.
34. Section 2 of the SEZ Act is titled 'definitions'. It provides as follows:
  Sub-section (g) of section 2 {sub-section 2(g)} of the SEZ-Act defines 'developer'. It means a person or a State, which is granted a letter of approval under sub-section (10) of section 3 {section 3(10)} of the SEZ Act by the Central Government and includes an authority and a co-developer;
 Sub-section (m) of section 2 {sub-section 2(m)} defines the word 'export'. It means supplying goods, or providing services, from the domestic tariff area to a unit or developer.
 Sub-section (zc) of section 2 {sub-section 2(zc)} defines the words 'existing unit' and 'unit', it means, a unit which has been set up by an entrepreneur in a SEZ and includes an existing unit.
35. Section 51 of the SEZ-Act is titled 'Act to have overriding effect'. It provides that the SEZ-Act will have effect notwithstanding anything contained in any other law for the time being in force or in any other instrument. It has overriding effects over any other law and in case of conflict, the SEZ Act is to prevail.
36. The SEZ-Act is within the territorial limits of the country; the goods supplied to the unit or to the developer in SEZ do not go outside the country, yet, in view of the definition in section 2 (m) of the SEZ Act, they are to be treated as export.
37. In the present case, the Assessee had supplied goods from the domestic tariff area to a developer and it is to be treated as an export in view of sub-section 2(m) of the SEZ Act. In case it is treated to be export then all benefits as given to export under any other law should be given.
38. In case, the general principle as well as the framework of the Customs Act or Excise Act is to be understood, in that event, there should not be any excise duty on anything which is supplied to a unit or developer. The principle that is applicable to the unit in the SEZ should also apply to a developer as well.
39. The SEZ Act treats the unit as well as the developer on the same footing. The obligations arising under the Excise-Act or the 2002-Rules or the 2004-Rules for a unit in SEZ should be same for a developer of SEZ; they should have same liabilities, same benefits. However, this was not so: there was some distinction in the 2004-Rules as they were initially framed.
40. The Assessee is a manufacturer of the goods that are taxable under the Excise-Tariff Act. Rule 6 of the 2004-Rules (see Appendix-1) is titled 'obligation of a manufacturer of dutiable and exempted goods and provider of taxable and exempted services'. It provides certain obligation on the manufacturer of such goods. The Assessee is one such manufacturer. It not only manufactures dutiable goods but exempted goods as well.
41. Rule 6(2) read with rule 6(3) of the 2004-Rules provide that separate accounts for dutiable goods be maintained or in the alternative 10% {this is the percentage under sub-rule 6(3)(b) of the 2004 Rules for the nature of goods manufactured by the Assessee} of the price of exempted goods be deposited. Admittedly, the Assessee has neither kept separate accounts for the dutiable goods as mandated under sub-rule 6(2) of the 2004-Rules nor it has deposited 10% as mentioned in sub-rule 6(3) of the 2004 - Rules.
42. Initially, sub-rule 6(6)(i) of the 2004-Rules (see Appendix 1) was as follows:
Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services:-
  ******
(6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-
(i) cleared to a unit in a special economic zone;
43. Initially, sub-rule 6(6)(i) provided that the provisions of sub-rules 6(1) to 6(4) of the 2004-Rules will not be applicable in case the excisable products are removed without payment of duty and cleared to a unit in a SEZ.
44. The relevant point to note is that the 2004-Rules as initially envisaged provided benefit to the goods cleared to a unit in SEZ only and not to the developer though under the SEZ Act the position of the developer as well as the unit was one and the same; they were in the same class, entitled to the same treatment. This appears to be an inadvertent omission.
45. It appears that the aforesaid mistake was realised by the Government and rule 6(6)(i) of the 2004-Rules was substituted by the following new sub-rule (see Appendix-2):
"(i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorised operations".
46. After substitution of rule 6(6)(i) by the Amended Rules, the discrimination between the developer and a unit in SEZ has been obliterated. Both stand in the same footing. It is now in consonance with the Article 14 of the Constitution of India.
47. Nevertheless, in case the submission of the Department-that the amended substituted sub-rule came into force from the date of its publication in the official gazette i.e., on 31.12.2008-is accepted, then the discrimination would be there prior to 31.12.2008 though after this date it would not be there.
48. The Central government is a state within the meaning of Article 12 of the Constitution. It is prohibited to discriminate under Article 14 of the Constitution. In case the submission of the Department is accepted, it would leave the Central government to the charge of discrimination. Could this be the intention; can this be presumed; should this be the result ?
49. In our opinion the emphatic answer to the aforesaid question is - NO.
50. It is clear from the nature of the excise duty as it has been traditionally understood to be duty only on the manufacture of those goods that are to be consumed within the country and not on the goods to be exported. This is also framework of the Excise Act. As the supply of the goods to a developer of SEZ is treated to be export, there appears to be no reason why this benefit was not there, except that it was due to a mistake or inadvertence that the word developer was not initially included in the sub-rule 6(6)(i) of the 2004-Rules and the developers and units were not given same treatment.
51. It is settled rule of interpretation that rule or Notification takes effect from the date it is issued and not from any prior date. However, Justice GP Singh in his book 'Principles of Statutory Interpretation' 12th Edition, 2010 at page 1021 observes,
'A rule, which is not in terms retrospective, may have retrospective operation because of the retrospective operation of the enactment in respect of which it is made.'
So is the case here. The substituted sub-rule 6(6)(i) of the 2004-Rules should have retrospectivity in order not to discriminate and to be in consonance with the nature of excise duty.
52. In our opinion, the rule is clarificatory, corrects an obvious mistake, removes discrimination, and provides correct legal principle. Its prospective enforcement would leave it to be suspect at the touchstone of Article 14 of the Constitution. Considering this aspect it is proper to hold that the substituted sub-rule 6(6)(i) is came into force from the date the 2004-Rules were enforced.
CONCLUSIONS
53. Our conclusions are as follows:
(a)  The Excise Duty is imposed on the manufacture of the product that is to be consumed in the country; whereas a customs duty is imposed on the product that is manufactured within the country but is to be used outside the country i.e. exported as well as manufactured outside the country and brought into the country for use i.e. imported;
(b)  The amended rule is merely clarificatory, corrects an obvious mistakes, removes discrimination between developers and units in special area zones. It merely clarifies or explains the existing law of providing non-imposition of excise duty on goods that are held to be export under the Special Area Zone Act;
(c)  The substituted sub-rule 6(6)(i) is enforced from the date the 2004-Rules came into force.
53. In view of above, both the substantial questions of law are decided against the Department. The appeal has no merit. It is dismissed.
Appendix-1
Rule 6 of the 2004-Rules as it was initially framed was as follows:
Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.-(1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or exempted services, except in the circumstances mentioned in sub-rule (2).
(Inserted by Notification No. 13/2005-C.E.(N.T.), dated 1.3.2005.) [Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule.]
(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, (Omitted by Notification No. 27/2005-C.E. (N.T.), dated 16.05.2005.) [* * *], and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for the receipt consumption and inventory of input and input service meant for use in the manufacture of dutiable final products or in providing output service and the quantity of input meant for use in the manufacture of dutiable goods or in providing output service on which service tax is payable.
(3) Notwithstanding anything contained in sub-rules (i) and (2), the manufacturer or the provider of output service, opting not to maintain separate accounts, shall follow either of the following conditions, as applicable to him, namely:-
(a)  if the exempted goods are-
(i)  goods falling within heading No. 22.04 of the First Schedule to the Excise Tariff Act (hereinafter in this rule referred to as the said First Schedule);
(ii)  Low Sulphur Heavy Stock (LSHS) falling within Chapter 27 of the said First Schedule used in the generation of electricity;
(iii)  Naphtha (RN) falling within Chapter 27 of the said First Schedule used in the manufacture of fertilizer;
(iv)  Naptha (RN) and furnace oil falling within Chapter 27 of the said First Schedule used for generation of electricity;
(v)  newsprint, in rolls or sheets, falling within heading No. 48.01 of the said First Schedule;
(vi)  final products falling within Chapters 50 to 63 of the said First Schedule;
(vii)  goods supplied to defence personnel or for defence projects or to the Ministry of Defence for official purposes, under any of the following Notifications of the Government of India in the Ministry of Finance (Department of Revenue), namely:-
(1)  No. 70/92-Central Excise, dated the 17th June, 1992, G.S.R. 505(E), dated the 17th June, 1992;
(2)  No. 62/95-Central Excise, dated the 16th March, 1995, G.S.R. 254(E), dated the 16th March, 1995.
(3)  No. 63/95-Central Excise, dated the 16th March, 1995, G.S.R. 255(E), dated the 16th March, 1995;
(4)  No. 64/95-Central Excise, dated the 16th March, 1995, G.S.R. 256 (E), dated the 16th March, 1995,
(viii)  Liquefied Petroleum Gases (LPG) falling under tariff items 2711 12 00, 2711 13 00 and 2711 19 00 of the said First Schedule]
(ix)  Kerosene falling within heading 2710 of the said First Schedule, for ultimate sale through public distribution system.]

 The manufacturer shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of such final products at the time for their clearance from the factory;
(b)  if the exempted goods are other than those described in condition the manufacturer shall pay an amount equal to ten per cent of the total price, excluding sales tax and other taxes, if any, paid on such goods, of the exempted final product charged by the manufacturer for the sale of such goods at the time of their clearance from the factory;
(c)  the provider of output service shall utilize credit only to extent of an amount not exceeding twenty per cent of the amount of service tax payable on taxable output service.

 Explanation I.- The amount mentioned in conditions (a) and (b) shall be paid by the manufacturer or provider of output service by debiting the CENVAT credit or otherwise.

 Explanation II.- If the manufacturer or provider of output service fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 14, for recovery of CENVAT credit wrongly taken.

 (Inserted by Notification No. 27/2005-C.E.(N.T.), dated 16.05.2005.) [Explanation III.-For the removal of doubts, it is hereby clarified that the credit shall not be allowed on inputs and inputs services used exclusively to the manufacture of exempted goods or exempted services.]
(4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any Notification where exemption is granted based upon the value or quantity of clearances made in a financial year.
(5) Notwithstanding anything contained in sub-rules (1), (2) and the credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacturer exempted goods or providing exempted services.
(6) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the excisable goods removed without payment of duty are either-
(i)  cleared to a unit in a special economic zone; or
(ii)  cleared to a hundred per cent export-oriented undertaking; or
(iii)  cleared to a unit in an Electronic Hardware Technology Park or Software Technology Park; or
(iv)  supplied to the United Nations or an international organization their organization their official use or supplied to projects funded by them on which exemption of duty is available under Notification of the Government of India in the Ministry of Finance (Department of revenue) No.108/95-Central Excise, dated the 28th August, 1995, number G.S.R. 602(E), dated the 28th August, 1995; or
(v)  cleared for export under bond in terms of the provisions of Central Excise Rules, 2002; or
(vi)  gold or silver falling within Chapter 71 of the said First Schedule arising in the course of manufacture of copper or [zinc by smelting; or
(Inserted by Notification No. 3/2005-C.E. (N.T.), dated 28.01.2005.) (vii) all goods which are exempt from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under section 3 of the said Customs Tariff Act when imported into India and supplied against International Competitive Bidding in terms of notification No. 6/2002-Central Excise dated the 1st March, 2002.]
Appendix-2
The Amending-Rules are as follows:
MINISTRY OF FINANCE
(DEPARTMENT OF REVENUE)
New Delhi
Dated: December 31, 2008
Notification No.50/2008-Central Excise (N.T.)
G.S.R. (E). - In exercise of the powers conferred by section 37 of the Central Excise Act, 1944 (1 of 1944) and section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the CENVAT Credit Rules, 2004, namely:-
1. (1) These rules may be called the CENVAT Credit (Third Amendment) Rules, 2008.
(2) They shall come into force on the date of their publication in the Official Gazette. (Emphasis supplied)
2. In the CENVAT Credit Rules, 2004, in rule 6, in sub-rule (6), for clause
(i), the following clause shall be substituted namely:
"(i) cleared to a unit in a special economic zone or to a developer of a special economic zone for their authorized operations; or".

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High Court thrash department. Ordered refund of tax which was collected within 7 days of passing of assessment order.

Some of the reasons stated by Departmrnt for collection of demand within 7 days instead of 30 days are - 

In respect of this ward there is a budget deficit, and to meet the budget deficit is requested to reduce the period of 30 days as per proviso to Section 220(1) of the IT Act, 1961. This should be viewed as need of Governmen t and should be termed as detrimental to Revenue
 
It is also discussed that the Anand Range, Anand is also running short of budget deficit, and to meet the budget deficit in a short span of time the every efforts is to be made by each of the Officers.
 
The assessee having rich cash flow and there is probability that if the period of 30 days is reduced to be payable before 31.03.2013, which may if paid by the assessee the budget deficit may be met and/or the target may achieved.

- Special Civil Application No. 6826 of 2013 (order attached herewith)



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a


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Regards,

Pawan Singla
BA (Hon's), LLB
Audit Officer
O/o The Principal Accountant General
Ahmedabad, Gujarat
M. No. 9825829075



Deduction can be claimed in respect of a crystallized liability

Though the questions are multiple, issue is single, namely, the deduction of Rs.61,08,500/- claimed by the assessee towards expenditure being part of development charges. The assessee had paid such sum to Surat MunicipalCorporation towards water connection charges. Assessee was engaged in the business of development of land. Assessing Officer disallowed such claim on the ground that the liability of the assessee had not crystalised during the year under consideration. The Assessing Officer noticed that there was some dispute between the assessee as a developer and one NFL as a contractor on whose behalf the land was being developed with respect to who should bear such charge. Such issue was clarified on 1.9.2005 and that therefore, according to the Assessing Officer liability to the assessee was crystalised only on that day and not earlier. For some reason, without any further reference, he also invoked section 43B of the Act and concluded that such expenditure was not allowable either under section 37 or under section 43B of the Act.
Both the lower appellate authorities allowed assessee's claim after recording factual findings that assessee had actually incurred the said expenditure. Liability in respect of the same had been crystallized during the relevant year and hence, the same cannot be termed as a contingent liability.Neither the contractee had reimbursed the assessee nor had the contractee claimed such amount by way of expenditure. The said view was upheld by the Hon'ble High Court also.
HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 932 of 2011
COMMISSIONER OF INCOME TAX-II 
Versus
M/S BHAGWATI CORPORATION 
Date : 15/10/2012
ORAL ORDER
(Per : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue is in appeal against judgement of the Income Tax Appellate Tribunal("the Tribunal" for short) raising following questions for our consideration :
"(A) Whether the Appellate Tribunal is right in law and on facts in holding that the disallowance made on account of ineligible contractual expenses claim was erroneous?
(B) Whether the Appellate Tribunal is right in law and on facts in dismissing relevant facts regarding contingent and uncertain nature of the claimed liabilities as collected during the assessment proceedings and placed on records?
(C) Whether the Appellate Tribunal is right in law and on facts in relying on theoretical premises, surmises, irrelevant material and  conjectures regarding the so called 'contractual obligation' of the assessee?
(D) Whether the Appellate Tribunal is right in law and on facts in making erroneous interpretation of relevant facts and improperly rejecting facts and evidence?"
2. Though the questions are multiple, issue is single, namely, the deduction of Rs.61,08,500/- claimed by the assessee towards expenditure being part of development charges. The assessee had paid such sum to Surat Municipal Corporation towards water connection charges. Assessee was engaged in the business of development of land. Assessing Officer disallowed such claim on the ground that the liability of the assessee had not crystalised during the year under consideration. The Assessing Officer noticed that there was some dispute between the assessee as a developer and one NFL as a contractor on whose behalf the land was being developed with respect to who should bear such charge. Such issue was clarified on 1.9.2005 and that therefore, according to the Assessing Officer liability to the assessee was crystalised only on that day and not earlier. For some reason, without any further reference, he also invoked section 43B of the Act and concluded that such expenditure was not allowable either under section 37 or under section 43B of the Act.
3. The assessee carried the matter in appeal. The Commissioner(Appeals) allowed the appeal making  following observations :
"I have gone through the details and the agreement between the appellant and the contractee. As per the development agreement the appellant developed 530000sq yds of land and the development cost was fixed at Rs.100/- per sq. yds. As per the clause-5 of the agreement the contractee MIL undertook payment of all fees and charges not exceeding Rs.100/- per sq yds and an additional cost over above the said amount would be borne by the contractor. It is also seen that the development work was completed in the year under appeal and the total gross receipts pertaining to the contract are credited in the P & L Account for the year. There was no further income in respect of this contract subsequent to the year under appeal and it is seen that expenditure of approximately Rs.70,000/- in the next year has not been claimed by the appellant since there was no income. The amount of water connection charges paid to the SMC as per mutual understanding between the contractor and the contractee was an ascertained liability as on 1.03.2005 which is relevant to not material that the contractor, i.e. the appellant was informed by the contractee regarding the liability after the expiry of thefinancial year since the contractor as such had no locus standi with the SMC and the SMC would raise the demand only on the owner of the land, i.e. the contractee. I am inclined to agree with the appellant that the liability crystallized as on 1.03.2005, the moment SMC raised the demand on the contractee since as per mutual agreement this amount was to be borne by the contractor. It is also seen that other expenditure for getting the land converted from agricultural to non¬agricultural land has been paid by the contractee as mutually agreed to by the two parties. This liability cannot be termed as a contingent liability or a liability u/s 43B of the IT Act. It is also not disputed by the AO that the said amount has been paid by the appellant and the same has not been reimbursed or claimed by the contractee as expenditure. I am inclined to agree with the appellant that the amount as per AS-7 and therefore the AO was not justified in  disallowing the expenditure claimed by the appellant in this respect. The addition therefore, is directed to be deleted."
4. Such issue was carried in appeal by the Revenue before the Tribunal. The Tribunal dismissed the appeal making following observations :
"In the impugned order, the learned Commissioner of Income Tax(Appeal) has merely relied on the development agreement executed on 23.01.2002 between the assessee and MIL. There is no supplementary agreement which is relied by the learned Commissioner of Income tax(Appeal) impugned order. Since clause3(e) (ix) of the agreement dated 23.01.2002 clearly indicates that development expenses only to the extent of not exceed Rs.100/- per sq yd. were to be borne by the contractee, namely MIL/NFL. Therefore, any amount in excess of Rs.100/- per sq yd. is to be borne by the assessee-firm. This amount has been paid by the assessee and this expense has not been claimed by the contractee, namely MIL/NFL. To sum up, the Assessing Officer made the addition on doubt and suspicion and the learned Commissioner ofIncome Tax (Appeal) has given cogent reason for deleting the same. We therefore, incline to uphold the order of Learned Commissioner of Income Tax(appeals) ."
5. Before us, learned counsel for the Revenue principally sought to place reliance on provisions contained in section 43B of the Act. We are however, of the opinion that CIT(Appeals) as well as Tribunal both having found that expenditure was actually incurred by the assessee, disallowance therefore, under section 43B would not be permissible. Revenue has not brought on record as to when such amount was actually paid by the assessee. Tribunal as noted   above, recorded that the liability had crystalized on 1.3.2005 when the assessee had raised demand and therefore, same cannot be termed a liability which is contingent. The Tribunal also recorded that the assessee had borne such expenditure and was not reimbursed by the contractee and nor the contractee has claimed such amount by way of expenditure. In our view, conclusion of the Tribunal is not required to be interfered. No question of law arises. Tax Appeal is dismissed.


Deduction u/s 80-IB(10) can't be denied merely because Assessee "Project completion method"

AO denied deduction u/s 80-IB(10) only on the ground that assessee engaged in business of construction had adopted'Project completion method' instead of 'Percentage completion method' as prescribed under AS-7 (Revised). The Hon'ble High Court observed that there was no allegation to the effect that on account of "Project completion method" adopted by the assessee, its profit for any particular year was distorted. Further, the assessee had followed the same system consistently for a long period of time. It was thus held that assessee must be allowed deduction u/s 80-IB(10).
HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No.1389 of 2011
COMMISSIONER OF INCOME TAX
Versus
SATADHAR ENTERPRISES
Date : 23/10/2012
ORAL ORDER
(Per : HONOURABLE MR. JUSTICE AKIL KURESHI)
1.  The assessee is in appeal against the judgment of the Income Tax Appellate Tribunal ('the Tribunal', for short) dated 27-5-2011. For the assessment year 2003-04, following question is presented for our consideration:-
"Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of Rs.28,84,378/- made by the Assessing Officer by adopting the 'Percentage Completion Method' instead of 'Project Completion Method' declared by the assessee, without considering the fact that every assessee, engaged in the construction business has to follow Percentage Completion Method, as per AS-7 [Revised]?"
2.   From the record, we notice that the respondent assessee is engaged in the business of construction. It had undertaken construction of housing project at an estimated cost of Rs.7,41,60,000/-. On the income derived from such project, it claimed deduction under section 80IB(10) of the Income Tax Act, 1961 ('the Act', for short). The revenue in this appeal objects to such claim only on the ground that the assessee had adopted the 'Project Completion Method'. The Assessing Officer was of the opinion that the assessee ought to have adopted 'Percentage Completion Method'. Ultimately, when the issue reached the Tribunal, the Tribunal followed decisions of other Tribunals and also referred to the decision of the Apex Court in case ofCommissioner of Income-Tax vs. Bilahari Investment P. Ltd. reported in (2008) 299 ITR 1 to hold that recognition of income is attainable by several methods of accounting. The Tribunal observed that Completed Construction Method is one such accounting method as much as the Percentage Completion Method. The Tribunal recorded that there was no finding of the Assessing Officer that the completed construction method adopted by the assessee distorted the profits for any year. The assessee had followed the same method of accounting year after year.3. We are of the opinion that the Tribunal committed no error. Completed Construction Method is one of the recognised methods for accounting particularly adopted in construction business. The Apex Court in case of Bilahari Investment P. Ltd. (supra) in the background of the assessee being a company subscribing to chit funds as a business activity held and observed that
"Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It maybe noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage of completion method is another such method.
Under the completed contract method, the revenue is not recognised until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract.
On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognised under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract.
As stated above, we are concerned with assessment years 1991-92 to 1997-98. In the past, the Department had accepted the completed contract method and because of such acceptance, the assessees, in these cases, have followed the same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from the completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court."
4. We may notice that in the present case, there is no allegation that on account of the particular method of accounting employed by the assessee, the assessee's profit for any particular year was distorted. It is also noteworthy that the assessee had followed the same system consistently for a long period of time.
5. In a recent decision of this court in case of Manan Corporation vs. Asstt. Commissioner of Income-Tax in Tax Appeal No.1053/2011, a Division Bench of this Court had noted as under:-
"25. Corollary to this is one more aspect that requires reference here. The Government of IndiaMinistry of Finance, Department of Revenue to all Chief Commissioners of Income-Tax and all Director Generals of Income-Tax issued Instruction No.4 of 2009 dated 30.6.2009 in respect of Section 80IB(10) of the Act would be available on year to year basis where the assessee is showing profit on partial completion or the same would be available on the year of completion of the project, which is clarified as under:-
"3. The above issue has been considered by the Board and it is clarified as under:-
(a)    The deduction can be claimed on a year to year basis where the assessee is showing profit from partial completion of the project in every year.
(b)     In a case it is late, found that the condition of completing the project within the specified time limit of 4 years as started in section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years should be withdrawn."
26. From the reading of the above instruction, it can be also said that the Government being aware of both the accounting methods has expected either of them to be followed in cases of individual assessee. However, in post amendment period, strict adherence to completion period of four years is insisted upon where project completion method is followed. This limitation of period did not exist prior to the amendment, what is vital to draw from this is that the amendment cannot discriminate those following project completion method if in the interregnum period, amendment is brought in the statute. The say of the assessee therefore gets further fortified when it says that only because it chose to follow the method of accounting of project completion basis, whose completion date falls after 1.4.2005, they can be denied the deduction on profits derived and those assessee who claim deduction on work­in-progress basis, they would be entitled to such deduction. However, it necessitated strict compliance of the provisions and completion of the same within the stipulated time period."
6.             In the result, we see no infirmity in the view of the Tribunal. The tax appeal is, therefore, dismissed

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IT : Interest from fixed deposit of spare fund cannot be excluded from book profit for purpose of determining allowable deduction of remuneration paid to partners
■■■
[2013] 35 taxmann.com 103 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - III
v.
J.J. Industries*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 316 OF 2013
APRIL  25, 2013 
Section 40(b) of the Income-tax Act, 1961 - Business disallowance - Interest, salary, etc. paid by firm to partner [Book profit] - Assessee-firm claimed to be engaged in seasonal business - Interest income was generated out of spare funds invested in fixed deposit and was declared as part of business income - Assessing Officer accepted same - Whether interest income earned by assessee-firm from fixed deposit receipts could not be ignored for purpose of working out book profit to ascertain ceiling of partners remuneration - Held, yes [Para 8] [In favour of assessee]
Circulars & Notifications : Instruction No. 3/2011, dated 9-2-2011
FACTS
 
 The assessment was as reopened under section 147 and question of remuneration paid by the assessee firm to the partners was examined.
 The Assessing Officer opined that ceiling of remuneration for claiming deduction had to be computed after ignoring the interest income of the assessee-firm earned on fixed deposits. He, thus, disallowed a part of partners remuneration.
 On appeal, the Commissioner (Appeals) affirmed the view of the Assessing Officer. However on second appeal, the Tribunal allowed the assessee's appeal.
 On revenue's appeal:
HELD
 
 The Tribunal has proceeded on the basis that for the purpose of ascertaining ceiling on the basis of book profit, the profit shall be in profit and loss account and is not to be classified in different heads of income under section 40 of the Act. The interest income, therefore cannot be excluded for purpose of determining the allowable deduction of remuneration paid to the partners under section 40B. [Para 7]
 The assessee had held out that it is in the business of purchasing raw cotton and ginning the same. It is a seasonal business. The interest income was generated out of spare funds invested in fixed deposit. Such income was declared as part of business income and that is how even the Assessing Officer had accepted the same. That being the position and the Assessing Officer in assessment taxed such income as business income, no question of law arises. [Para 8]
K.M. Parikh for the Appellant.
ORDER
 
Akil Kureshi, J. - The revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 07.09.2012 raising following question for our consideration:
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in taking view that whole income embedded in P & L account of assessee is to be taken into consideration for allowing deduction of remuneration paid to partners under section 40(b) without excluding interest income credited to P & L account even if it is not business income?"
2. The issue pertains to the ceiling of deduction on remuneration on a partnership firm which can be claimed in terms of Section 40 of the Income Tax Act, 1961 ('the Act' for short).
3. Brief facts are that;
3.1 The respondent-assessee is a partnership firm and is engaged in the business of purchasing raw cotton, ginning the same, making cotton beds and selling such cotton beds and cotton seeds. For the assessment year 2004-05, the assessee filed the return of income on 27.10.2004 declaring total income of Rs. 20.35 lacs (rounded off). The Assessing Officer framed a scrutiny assessment on 27.10.2006 determining the total income of Rs. 20.46 lacs (rounded off). Such assessment was subsequently reopened under Section 147 of the Act. During such reassessment proceedings, the Assessing Officer examined the question of remuneration paid by the firm to the partners. He was of the opinion that the ceiling of such remuneration for the purpose of claiming deduction had to be computed after ignoring the interest income of the assessee-firm earned on fixed deposits which came to Rs. 11.82 lacs (rounded off). He thus concluded that there was excess remuneration to the partners to the extent of Rs. 4.90 lacs (rounded off). He made disallowances accordingly.
3.2 The assessee carried the matter in appeal. CIT(A) rejected the assessee's appeal and confirmed the view of the Assessing Officer upon which, the assessee approached the Tribunal. The Tribunal, by the impugned judgment, reversed the decision of the revenue- authorities and allowed the assessee's appeal making following observations:
"9. We have heard the rival submissions and perused the material on record. It is an undisputed fact that assessee has earned interest of Rs. 22,23,006/- on F.D.'s and paid interest of Rs. 10,40,234/- on money borrowed. The net interest income of Rs. 11,82,769/- has been credited to P & L account and included in the net profit and the same has been considered as business income while framing assessment order u/s. 143(3). The co-ordinate Bench in the case of S.P. Equipment & Services (supra) after considering the various decisions has held as under:-
4. Section 40 of the Act pertains to amounts which are not deductible. Relevant portion of Section 40 reads as under :
"Notwithstanding anything to the contrary in [sections 30 to 38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",-
(a)  in the case of any assessee-
(b)   in the case of any firm assessable as such,-
(i)  any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as "remuneration") to any partner who is not a working partner; or
(ii)  any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorized by, or is not in accordance with, the terms of the partnership deed; or
(iii)  any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorized by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorized by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorization for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or
(iv)  any payment of interest to any partner which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of [twelve] per cent simple interest per annum; or
(v)  any payment of remuneration to any partner who is a working partner, which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:-
 (a) On the first Rs.3,00,000 of the book-profit or in case of a lossRs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more;
 (b) On the balance of the book-profit At the rate of 60 per cent
5. From the above provision it can be seen that where an assessee is a partnership firm, any payment of salary, bonus, commission or remuneration to its partners under certain circumstances, if it exceeds the limits set out in Clause B, deduction to the extent of excess cannot be claimed. In the present case, such ceiling is prescribed in two slabs. On the first Rs. 30 lacs on the book profit or in case of loss such ceiling is Rs. 1,50,000/- or 90% of the book profit which ever is more. On the balance of the book profit such ceiling prescribed is @ 60%.
6. The question, therefore, arises whether the interest income earned by the assessee-firm from the fixed deposit receipts should be ignored for the purpose of working-out the book profit to ascertain the ceiling of the partners' remuneration.
7. The Tribunal has proceeded on the basis that for the purpose of ascertaining such ceiling on the basis of book profit, the profit shall be in the profit and loss account and is not to be classified in the different heads of income under Section 40 of the Act. The interest income, therefore, cannot be excluded for the purposes of determining the allowable deduction of remuneration paid to the partners under Section 40B of the Act.
8. Counsel for the revenue vehemently contended that for the purpose of ascertaining the limit, only business income would be relevant and not any other income. In the present case, however, we need not enter into such controversy. The assessee had held out that it is in the business of purchasing raw cotton and ginning the same. It is a seasonal business. The interest income was generated out of spare funds invested in the fixed deposit. Such income was declared as part of the business income and that is how even the Assessing Officer had accepted the same. That being the position, and the Assessing Officer in the assessment taxed such income as business income, we do not see any question of law arising. The correctness of the Tribunal's view on the specific issue may be gone into in an appropriate case.
9. Before closing we may record that though the tax effect involve was below the minimum limit prescribed by the CBDT in its circular dated 09.02.2011, learned counsel for the revenue pointed out that the case falls under one of the exception namely that it was an appeal filed on the basis of audit objection.
Tax appeal is dismissed.
SB


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Regards,

Pawan Singla
BA (Hon's), LLB
Audit Officer


APPELLATE TRIBUNAL ORDERS

-->  Where non-resident not having PE in India, payment to non-resident outside India of advertisement expenditure in foreign currency not liable to tax : Sandoz P. Ltd. v. Addl. CIT (Mumbai) p. 100

-->  Interest on borrowed capital allowable as business expenditure : Sandoz P. Ltd. v. Addl. CIT (Mumbai) p. 100

-->  Method of accounting : Where closing stock increased on account of unutilised Modvat credit, corresponding opening stock of that year should also be increased : Sandoz P. Ltd. v. Addl. CIT (Mumbai) p. 100


    PRINT EDITION


    APPELLATE TRIBUNAL ORDERS

-->  Where non-resident company engaging consultants on retainership basis for its projects in India, such persons not eligible for retirement or superannuation or gratuity benefits, FBT not attracted : Joshi Technologies International Inc. v. Asst. DIT (International Taxation) (Ahd) p. 170

-->  Companies which have suffered merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs.200 crores not to be treated as comparables : Capital IQ Information Systems (India) P. Ltd. v. Dy. CIT (International Taxation) (Hyd.) p. 185

-->  International transactions : ALP : Foreign exchange fluctuation cannot be excluded in reckoning operating margin : Capital IQ Information Systems (India) P. Ltd. v. Dy. CIT (International Taxation) (Hyd.) p. 185

-->  Charitable purpose : Where building belonging to society and benefit going to society not managing trustee, no violation of section 13 : Shri Amol Chand Varshney Sewa Sansthan v. Addl. CIT (Agra) p. 211

-->  Exemption : Contributions to Lions Club : Lions Club is a social club, not social organisation to undertake social work as envisaged in study curriculum, exemption not allowable u/s. 10(23C)(iiiab) : Ganapathy Educational Trust v. Asst. DIT (Exemption) (Chennai) p. 231

-->  International transactions : Payment of royalty and technical fee to AE pursuant to deemed approval by RBI under automatic approval scheme, ALP cannot be computed at nil : ThyssenKrupp Industries India P. Ltd. v. Addl. CIT (Mumbai) p. 243

-->  Search and seizure : Matters finalised in proceedings following income-tax survey not to be considered in block assessment : Heatshrink Technologies Ltd. v. Asst. CIT (Mumbai) p. 269

-->  Search and seizure : Losses of block period from unaccounted transactions can be set off : Heatshrink Technologies Ltd. v. Asst. CIT (Mumbai) p. 269


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Posted By Rajkumar to ITR at 7/20/2013 08:06:00 PM


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