A brief on Input Tax Credit of VAT
Manufacturer will be entitled to credit of tax paid on inputs used by him in manufacture. A trader (dealer) will be entitled to get credit of tax on goods which he has purchased for re-sale
No credit is available in case of inter-state purchases.
Credit will be available of tax paid on capital goods purchased within the State. Credit will be available only in respect of capital goods used in manufacture or processing. The credit will be spread over three financial years and not in first year itself. There will be a negative list of capital goods . Some States allow credit at one go while some allow over a period of 12 months and so on.
Credit will be available as soon as inputs are purchased. It is not necessary to wait till these are utilised or sold [para 2.3 of White Paper on State-Level VAT).
No credit of CST paid : Credit of Central Sales Tax (CST) paid on inputs and capital goods purchased from other States will not be available
Non-availability of input credit in certain cases :
Credit of tax paid on inputs will be denied in following situations – No credit if final product is exempt – Credit of tax paid on inputs is available only if tax is paid on final products. Thus, when final product is exempt from tax, credit will not be availed. If availed, it will have to be reversed on pro-rata basis.
If the final products are transferred to another State as stock transfer or branch transfer, input credit availed will have to be reversed on pro-rata basis, which is in excess of 4%. In other words, in case of goods sent on stock transfer/branch transfer out of State, 4% tax on inputs will become payable e.g. if tax paid on inputs is 12.5%, credit of 8.5% is available. If tax paid on inputs is 4%, no credit is available. Thus, the VAT as introduced is State VAT and not a national VAT.
In following cases, the dealer is not entitled to input credit –
(a) Inputs used in exempted final products
(b) Final product not sold but given as free sample
(c) Inputs lost/damaged/stolen before use. If credit was availed, it will have to be reversed.
Generally, in following cases, credit is not available –
(a) Purchase of automobiles (except in case of purchase of automobiles by automobile dealers for re-sale)
(b) fuel.
There are variations between provisions of various States.
Certain sales are 'zero rated' i.e. tax is not payable on final product in certain specified circumstances. In such cases, credit will be available on the inputs i.e. credit will not have to be reversed. Distinction between 'zero rated sale' and 'exempt sale' is that in case of 'zero rated sale', credit is available on tax paid on inputs, while in case of exempt goods, credit of tax paid on inputs is not available.
Export sales are zero rated, i.e. though sales tax is not payable on export sales, credit will be available of tax paid on inputs. In respect of sale to EOU/SEZ, there will be either exemption of input tax or tax paid will be refunded to them within three months.
SOME MORE CLARIFICATION
Where Inputs Are Partly Used For Making Taxable Goods (Or Inter-State Sales) And Partly For Making Exempt Goods, The Tax Credit Shall Be Reduced Proportionately. To Illustrate, X Purchased Machinery For Rs. 10 Lakh And Paid A Tax Of Rs. 1,25,000 On It And Used It In The Manufacture Of Taxable As Well As Exempted Goods. At That Time, He Estimated That The Share Of Taxable Goods Made By The Machinery Would Be 80 Per Cent. In This Case, His Input Tax Credit Will Be Restricted Only To 80 Per Cent Of Rs. 125,000 Or Rs. 1,00,000.
There Is No Need For A `One To One Correlation Between Input Tax Credit And Output Tax. Quite A Number Of Small Businesses Are Under The Misconception That Input Tax Has To Be Adjusted Against Output Tax On A Bill To Bill Basis.
The Operation Of The Input Tax Mechanism Is Simple. The Dealer Will Be Eligible To Take Credit For The Eligible Input Tax In A Tax Period As Specified On The Entire Purchases. He Will Charge VAT At The Prescribed Rate As Is Done In The Present System For Levy Of Sales Tax. The VAT Or Output Tax Payable Is Compiled On A Monthly Basis As Is Done Now. The Dealer Can Adjust The Input Tax Eligible On The Entire Purchase In The Tax Period Against The Output Tax Payable Irrespective Of Whether The Entire Goods Purchased Are Sold Or Not. For Example, If The InputTax Credit In A Particular Month Is Rs. 1,000 And The Output Tax Payable Is Rs. 500, The Excess Input Tax Of Rs. 500 Can Be Carried Forward To The Next Tax Period.
Assuming No Further Input Tax Credit In The Following Month And That The Output Tax Payable Is Rs. 700 The Dealer Will Pay Rs. 200 Along With The Monthly Return.
Authority for advance ruling under State VAT Act cannot give clarifications under CST Act
Andhra Pradesh High court in Prathista Industries Limited vs Commercial tax Officer [2013] 61 VST 58 (AP) has held that Authority for advance ruling underState VAT Act cannot act as Authority for Advance Ruling under Central sales Tax Act, 1956.
The High Court held that provisions relating to the "Advance ruling" in StateAct are not applicable to proceedings forassessment, reassessment, collectionand enforcement of payment under CST Act, therefore authority for advance ruling constituted under State VAT Actcannot give clarifications as such authority under Central Saless Tax Act, 1956.
The Court dismissing the petition held as under:
" that the provisions for "advance ruling" was a mechanism introduced by the Legislature to ensure uniformity in orders of the assessment, appellate and revisional orders (other than a revisional order passed by the commissioner), with regard to classification of goods under different entries of the various Schedules to the Act or the rate of tax applicable to such goods, etc., thereby avoiding conflicting orders being passed by different assessing/appellate/revisional authorities. Such a mechanism could only be introduced by way of substantive provision in a statue and could not be imlpied. This view was also supported by the language of section 9 of the Central sales tax Act, 1956. Though the tax collected under the Central sales tax Act was ultimately assigned to the state in view of article 269 it did not follow therefrom or from section 9 of the CentralSales Tax Act that every provision of the VAT Act including provisions relating to "advance ruling" would apply to proceedings for assessment, reassessment, collection and enforcement of payment of tax in relation to inter-state sale transactions under the CentralSales Tax Act. Section 67 did not empower the concerned authority to issue clarifications or rulings in respect of implementation of statues such as Central Sales Tax Act(other thanVAT Act)"
The implications of the above judgment are that authority for advance ruling made under the provisions of the State VAT Act, cannot give advance ruling/clarifications on the maters connected with the CST Act.
Under Punjab VAT Act, 2005 Commissioner is such authority which has the power to determine disputed questions u/s 85. The above judgement makes it clear that Excise and Taxation Commissioner in Punjab can give clarifications or determine any disputed question u/s 85 of the Act only in matters connected with the Punjab VAT Act and cannot give such clarification in the matters covered under Central sales tax Act, 1956 .
Acceptance of return is general approach of government:
It can be said that acceptance of returns filed by assessee is general approach of the GOI. This is evident from the fact that majority of returns are accepted as per self assessment and they get finality once an intimation is prepared and accordingly tax is demanded or refund is issued.
In case of scrutiny assessments also experience of author is that in most of cases ultimately income assessed after disposal of appeals is near about returned income. In case of small additions the assessee do not file appeal to let his assessment be final. In case of substantial additions and disallowances clients are advised to file appeal. Experience from empirical study shows that in many cases ultimately the assessed income is lower than the returned income or ultimately determined loss is higher than the loss as per return. This is because many of additional claims made for consideration of the AO, either in the computation of income or during hearing, are allowed in due course of appeal. If a scrutiny assessment was not made, than such claims would not be allowed. Therefore, in such cases, in fact, scrutiny results benefit for assessee but at cost of harassment due to high pitched assessments made and the need to prefer and contest appeals.
Complexity of law:
At any time there can be several possible views on any particular issue. Different officers and courts can have different rulings. It is settled principal that a view which is favorable to the assessee should be adopted in tax matters. We have noticed that in some situations, even after ruling from the Supreme Court, different views may be possible even in respect of the ruling and the ruling can be applied differently due to some differences in facts and circumstances. It is generally seen that assessing authorities many times do not follow even binding judgments by saying that facts are different, though the facts are similar. Many times binding precedence is not followed, just to keep matter alive and to avoid burden on revenue to keep track of subsequent ruling and burdening assessee to be attentive to protect his own interest.
Scrutiny assessment and subsequent proceedings:
In case of scrutiny assessment, the AO makes enquiry and gathers evidences. Based on his enquiry he passes assessment order against which assessee can prefer an appeal before CIT(A) or a revision petition u/s 264 before CIT to seek further relief which has been denied by the AO or against additions and disallowances .
Proceedings by tax authorities:
In case it is noticed that the assessment order suffers from some mistakes or it is erroneous or prejudicial to interest of revenue or that there was escapement of income, the revenue can take remedial actions by way of rectification, revision or reassessment proceedings. All these proceedings have their own limitations as to jurisdiction, procedures and limitation of time within which proceeding can be initiated and / or completed. However, so far author knows, there is not monetary limit for initiation of such proceedings. Experience shows that such proceedings were initiated even on matters having revenue impact of meager amount below Rs. fifty thousand.
Reasonable and possible views:
Where assessing officer has taken a reasonable and possible view on the matter, there should not be any rectification, revision or reassessment proceedings. Because in such case it cannot be said that the assessment order contains mistake apparent from record, or that the assessment order is erroneous and prejudicial to the interest of revenue or that there was escapement of income.
Un-necessary litigation due to audit objections:
Ground reality is that audit objections are a major un-necessary source of litigation by revenue. It is experienced that Just to avoid exercises and explanations involved to clarify points raised by revenue audit party and also to avoid responsibility, the revenue authorities accept the audit objections and take some action by way of rectification, revision or reassessment, whichever is open or whichever is considered to be on comparatively better footing. From a sample study of cases it is noticed that most of such proceedings ultimately fail. On overall basis also the ratio of failure is likely to be in range of 80-85%. From reported judgments and also otherwise, we find that revision, rectification and reassessment proceedings initiated by revenue fails due to several reasons including lack of merit, lack of jurisdiction, and other limitations.
Small sums in context of revenue may be substantial for tax payer:
Small sums of tax impact of say up to Rs. five lakh in any case is negligible in the context of overall revenue of GOI from taxes. Therefore, GOI can avoid proceedings for such small cases. However, for a tax payer sum of Rs. five lakh can also be a big amount. Therefore, tax payer has to contest initiation of such proceedings. Experience shows that in case of even small tax impact cases of up to Rs. five lakh assessee has to contest the matter in appeals. When tax payer contest the matter, he has to incur costs and devote time. The revenue is also required to attend the litigation and in overall the proceedings are not fruitful for the revenue.
Monetary limits are desirable:
It has also been noticed that many times rectification, revision and reassessment proceedings are initiated even in small cases where revenue impact is not significant. In such cases usually litigation will take place for the reasons that the assessee faces sudden and unexpected tax liability, and burden of interest is also high. In most of such cases litigation up to second appeal before Tribunal can be expected. The impact of assessee may be significant, however, in overall context of revenue the gains to revenue is not very significant.
We find that in case of direct and indirect taxes limits for appeals by revenue are fixed and arerevised from time to time. However, there seem no such limits for proceedings like proceedings for rectification, revision and reassessment etc.
It is desirable that monetary limit for tax impact should be fixed for taking actions by way of rectification, revision and reassessment proceedings. The following limits are suggested:
Rectification | Revision | Reassessment |
| In case of point involving repetitive impact in many years (say more than four years)Rs. one lakh per year. | In case of point involving repetitive impact in many years (say more than four years)Rs. two lakh per year. | In case of point involving repetitive impact in many years (say more than four years)Rs. three lakh per year. |
| In case of point not involving repetitive impact in many years (say less than four years)Rs. two lakh. | In case of point not involving repetitive impact in many years (say less than four years)Rs. four lakh. | In case of point not involving repetitive impact in many years (say less than four years)Rs. four lakh. |
There should be clear guidelines to ensure that un-necessary proceedings should not be initiated which has not much revenue effect but just involves litigation and this aspect is well known to the authority concerned.
Explanations can be asked from assessee in case of audit objections:
Many times it happens that there is change in officer in charge in post of the AO. The new officer is not very much aware about the facts and circumstances. It may take lot of time to study and reply properly to the audit party.
Therefore, in case of audit objections, it may be made mandatory for the AO to provide a copy of the audit objection to the concerned assessee and ask him to furnish his explanation and file relevant details and basis of claim etc. The reply to audit party can be prepared after consideration of the explanation by assessee on the audit objection.
Government policy:
It can be said that the overall policy is to rely on assessment made by the assessee himself. For this reason, majority of returns are accepted. However, whenever there is a scrutiny, the revenue authorities do not follow the general policy and make high pitched assessments, which generally do not stand legal scrutiny, when the assessee challenge the order. It is matter of fact that majority of disallowances stand deleted. Therefore, there should be some checks and balances so that the assessing authorities do not make illegal, improper and unjust additions and disallowances.
Avoid source of harassment:
It is general feeling that scrutiny assessment, and proceedings by way of rectification, revision, and reassessment are a big source of litigation and also harassment. This becomes evident when we find that the additional demands raised in such proceedings are mostly vacated. Therefore, it is desirable that government should take suitable steps to put a check on unreasonable proceedings, and additions and disallowances.
Authority for advance ruling under State VAT Act cannot give clarifications under CST Act
Andhra Pradesh High court in Prathista Industries Limited vs Commercial tax Officer [2013] 61 VST 58 (AP) has held that Authority for advance ruling underState VAT Act cannot act as Authority for Advance Ruling under Central sales Tax Act, 1956.
The High Court held that provisions relating to the "Advance ruling" in StateAct are not applicable to proceedings forassessment, reassessment, collectionand enforcement of payment under CST Act, therefore authority for advance ruling constituted under State VAT Actcannot give clarifications as such authority under Central Saless Tax Act, 1956.
The Court dismissing the petition held as under:
" that the provisions for "advance ruling" was a mechanism introduced by the Legislature to ensure uniformity in orders of the assessment, appellate and revisional orders (other than a revisional order passed by the commissioner), with regard to classification of goods under different entries of the various Schedules to the Act or the rate of tax applicable to such goods, etc., thereby avoiding conflicting orders being passed by different assessing/appellate/revisional authorities. Such a mechanism could only be introduced by way of substantive provision in a statue and could not be imlpied. This view was also supported by the language of section 9 of the Central sales tax Act, 1956. Though the tax collected under the Central sales tax Act was ultimately assigned to the state in view of article 269 it did not follow therefrom or from section 9 of the CentralSales Tax Act that every provision of the VAT Act including provisions relating to "advance ruling" would apply to proceedings for assessment, reassessment, collection and enforcement of payment of tax in relation to inter-state sale transactions under the CentralSales Tax Act. Section 67 did not empower the concerned authority to issue clarifications or rulings in respect of implementation of statues such as Central Sales Tax Act(other thanVAT Act)"
The implications of the above judgment are that authority for advance ruling made under the provisions of the State VAT Act, cannot give advance ruling/clarifications on the maters connected with the CST Act.
Under Punjab VAT Act, 2005 Commissioner is such authority which has the power to determine disputed questions u/s 85. The above judgement makes it clear that Excise and Taxation Commissioner in Punjab can give clarifications or determine any disputed question u/s 85 of the Act only in matters connected with the Punjab VAT Act and cannot give such clarification in the matters covered under Central sales tax Act, 1956 .
IT: No penalty can be levied under section 271(1)(c) for concealment of income, where search was completed before end of relevant previous year
■■■
[2013] 35 taxmann.com 180 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'A'
Dineshkumar Ambalal Patel
v.
Assistant Commissioner of Income-tax, Circle -4(1)*
SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND B. RAMAKOTAIAH, ACCOUNTANT MEMBER
IT APPEAL NOS. 1429 & 1430 (HYD.) OF 2012
[ASSESSMENT YEARS 2008-09 & 2009-10]
[ASSESSMENT YEARS 2008-09 & 2009-10]
MAY 24, 2013
Section 271(1)(c), read with section 271AAA, of the Income-tax Act, 1961 - Penalty - For concealment of income [Explanation 5A] - Assessment years 2008-09 and 2009-10 - Whether, since Explanation 5A to section 271(1)(c) can be invoked where search ended after end of relevant previous year, penalty for concealment of income could not be levied where search occurred on 26-3-2008 for assessment year 2008-09, as previous year has not ended before date of search - Held, yes - Whether, therefore, where search ended before end of relevant previous year and was initiated on or after 1-6-2007 but before 1-7-2012, penalty was leviable under section 271AAA and not under section 271(1)(c) - Held, yes [Paras 9 and 12][Partly in favour of assessee]
FACTS
| ■ | A search was completed on the assessee on 26-3-2008 for the assessment year 2008-09, wherein cash was seized. The assessee filed return which was accepted, except for a small addition due to certain mistake. | |
| ■ | Thereafter, the Assessing Officer initiated proceedings under section 271(1)(c). The assessee contended that since it had filed the return consequent to the admission of the amount seized, and its admitted incomes had been accepted by the department, the case did not fall within the purview of section 271(1)(c). | |
| ■ | However, the Assessing Officer, not accepting the contentions of the assessee, invoked Explanation 5A to section 271(1)(c) and levied penalty at 300 per cent. | |
| ■ | On first appeal the assessee contended that Explanation 5A to section 271(1)(c) was not applicable. Relying on certain case laws, it admitted to levy of penalty under section 271AAA. The Commissioner (Appeals) however confirmed the penalty. | |
| ■ | On second appeal: |
HELD
| ■ | There is no dispute with reference to the fact that the amounts ultimately accepted by the Assessing Officer in the assessments were almost the same as that of the amounts admitted by the assessee in the returns, except for a small amount added in assessment year 2008-09. Coming to the issue of levy of penalty, assessee's contention that Explanation 5A does not apply to the facts of the case is correct. Where any search has been initiated under section 132 on or after 1-6-2007 but before 1-7-2012 and the impugned income pertained to any previous year which has ended before the date of search or where the assessee has not declared the impugned income in return filed before the date of search or due date for furnishing the return for the relevant previous year has expired and the assessee has not filed the return, then only Explanation 5A can be invoked. ThisExplanation applies to the assets or income which was found to be not declared or accounted pertaining to any year; the previous year ended before search and in the return it was not declared or return was not filed. As noted above, in the present case, the event relevant for assessment year 2008-09, leading to the seizure of cash occurred on 26-3-2008 during the year and the previous year has not ended, as it would end after the date of search, viz., on 31-3-2008, which is relevant for assessment year 2008-09. Therefore, for the assessment year 2008-09, search occurred during the accounting year. Explanation 5A does not apply as the situations specified therein are not applicable to the facts of this case. Likewise for the assessment year 2009-10 also, the seizure was within the financial year, which ended on 31-3-2009 and therefore, the provisions ofExplanation 5A do not apply, as the previous year has not ended before the date of search. The assessee's contention that provision ofExplanation 5A to section 271(1)(c) does not apply has to be accepted in view of the specific provisions of the said Explanation. [Para 9] | |
| ■ | On the contrary, the provision of section 271AAA, as contended by the assessee, are applicable. Having regard to Explanation to section 271AAA, the assessee's case is totally outside the purview of section 271(1)(c) and falls within the purview of provisions of section 271AAA. The same position was reiterated by the coordinate bench of the Tribunal in the case of Dy. CIT v. Satish M. Patel [IT Appeal No. 256 (Ahd.) of 2012, dated 20-7-2012] and the said decision relied upon by the assessee clearly applies to the facts of the present case. [Paras 10 and 11] | |
| ■ | Therefore having same opinion, that having seized cash during the previous years, which have not ended before the date of search, only provisions of section 271AAA will apply and not provisions of section 271(1)(c) Explanation 5A, as invoked by the Assessing Officer and confirmed by the Commissioner (Appeals). [Para 12] | |
| ■ | Keeping in view of the above discussion, it is opined that penalty under section 271(1)(c) is not warranted, more so at 300 per cent, when the admitted incomes were accepted in assessment for the years under appeal. Assessing Officer wrongly initiated proceedings under section 271(1)(c). In the course of proceedings before the Commissioner (Appeals) as well as before Tribunal, the assessee submitted that he has no objection, if the penalty is confirmed at 10 per cent under the provisions of section 271AAA even though no proceedings under that section were initiated, assessee would accept the penalty, if confirmed to that extent. [Para 13] | |
| ■ | Keeping in view all these facts, request of the assessee is accepted and the Assessing Officer is directed to modify the orders accordingly levying penalties under section 271AAA, working out the same at 10 per cent for each of the years under appeal, as per that provision. |
CASE REVIEW
Dy. CIT v. Satish M. Patel [IT Appeal No. 256 (Ahd) of 2012, dated 20-7-2012] (para 11) followed.
CASES REFERRED TO
Dy. CIT v. Satish M. Patel [IT Appeal No. 256 (Ahd.) of 2012, dated 20-7-2012] (para 11).
V. Siva Kumar for the Appellant. Dayasagar for the Respondent.
ORDER
B. Ramakotaiah, Accountant Member - These two appeals are by the assessee against the orders of the CIT(A) V, Hyderabad dated 31.7.2012 for the assessment years 2008-09 and 2009-10, levying penalties under S.271(1)(c) worked out at 300% by the Assessing Officer, confirmed by the CIT(A).
2. Briefly stated, the appellant is a resident of Kolwada Village in Vijapur Taluka of Mehsana District of Gujarat and is carrying on the 'Angadia' business. The employees of the assessee were detained by the Task Force of the Police, as they were carrying large amount of cash and the case was handed over to the IT department and searches were completed on 26.03.2008, wherein cash of Rs.24,04,000 was found with three persons stated to be employees of the assessee. Out of this amount, Rs.9,54,000 was claimed to belong to three persons, who were verified and monies were released. The balance cash of Rs.14,50,000 was seized vide Panchnama dated 26.3.2008. Subsequently, again on 30.04.2008, three employees of the assessee were detained by the police and cash of Rs.25,02,500 was retained to the extent of Rs.23,52,500 vide panchnama dated 30.4.2008. The DDIT(Inv) Unit II(2) recorded a statement from the assessee on 21.5.2008 and the CIT Gandhinagar notified the assessee's case to the Assessing Officer Range-4, Hyderabad, vide order dated 16.10.2008 under S.127(2) of the Income-tax Act, 1961. The assessee vide affidavit dated 16th day of February, 2008 placed before the IT authorities at Gujarat, requested for transfer of proceedings to Gujarat, as it would be undue burden to attend the proceedings at Hyderabad. The assessee also volunteered to initiate action under S.153C of the Act in respect of cash seized in the case of the deponent and requested to drop the formality of action under S.153A in the case of the assessee. He also vide letter dated 16.10.2008 addressed to Dy. Director of Income tax(Inv.) Unit II, Hyderabad, filed before the Assessing Officer at Mehsana requested the transfer of seized cash or appropriate the same towards taxes. The assessee filed returns for the assessment years 2008-09 and 2009-10, as the seizure of cash pertained to different assessment years and the assessments were finalized accepting the incomes admitted therein, except for making a small addition of Rs.31,770 for assessment year 2008-09 due to certain mistake.
3. The Assessing Officer initiated proceedings under S.271(1)(c) of the Act and in the proceedings issued show cause letter to the assessee. The assessee contested the same on the reason that S.271(1)(c) proceedings did not arise, as the assessee admitted incomes and filed returns consequent to seizure of the amount, and its admitted incomes have been accepted by the Department. It was submitted that the case does not fall within the purview of S.271(1)(c). However, the Assessing Officer did not accept the contentions of the assessee, and invoking Explanation 5A to S.271(1)(c) of the Act, levied penalty at 300% of Rs.13,15,200 for assessment year 2008-09 and Rs.20,75,940 for assessment year 2009-10.
4. Before the CIT(A), it was contended that Explanation 5A to the provisions of S.271(1)(c) do not apply to the facts of the case and relying on various case-law alternately admitted for levy of penalty under S.271AAA. The learned CIT(A) vide the detailed order for the assessment year 2008-09, however rejected the contentions of the assessee, and confirmed the penalty, ultimately stating as under-
"7.5 As if the aforementioned action of the department in seizing the cash and conducting investigations was not enough, the appellant still did not come out with truth. He stated that he had filed a return of income voluntarily and there was no concealment of income. He stated he had voluntarily filed returns of income through RPAD for AY 2008-09 on 02.03.2009 and for AY 2009-10 on 13.7.2009 declaring disclosed income well before the initiation of search asst. proceedings. This claim was also found to be incorrect as no return had ever been received by any income tax office pertaining to the above so called RPADs. Obviously, the appellant had never filed any returns of income as stated and had merely managed to obtain some RPAD numbers from somewhere to further hoodwink the revenue. This act of the appellant convincingly shows the working of his mind where he firstly organizes a well planned and elaborate unaccounted business and even after getting caught, does not admit to the truth but further tries to create a web of false evidence. It is to be noted that the search had taken place and the amount was seized on 26.3.2008 almost one year before the alleged returns are supposed to have been filed. Therefore, there is no question of any voluntariness as stated by the appellant.
7.6 From the above facts and circumstances and keeping in view the case-law discussed, I find that the case of the appellant is fit for imposition of penalty under section 271(l)(c) of the Act. The conduct of the appellant in keeping such a elaborate and deceitful system of unaccounted business coupled with his attempt to create further false evidence even after getting caught reveals an unrepentant mind and an undying attempt at falsity and tax evasion. This is definitely a case of fraud coupled with gross and willful tax evasion. This is a fit case for imposing a t1igher penalty than 100%. I full agree with the Assessing Officer that the maximum penalty should be imposed on a person who creates and sustains such a well planned activity of unaccounted and hawala business. The penalty imposed is accordingly confirmed."
5. The assessee field written submissions contesting the orders of the CIT(A) and the learned counsel reiterated the said submissions. It was submitted that the assessee was associated with Angadia business and his employees were detained in Hyderabad and cash was seized from them, which was admittedly belongs to the assessee. After return of the amount, for which there were claims, by the Department, the assessee owned up the rest of the amount, and filed returns accordingly. Countering the observation of the CIT(A) regarding filing of the returns, it was submitted that the assessee is a resident of Gujarat and filed letters before the authorities at Mehsana, affidavit with the IT authorities at Mehsana and further, sent the returns by post for which acknowledgements were placed on record. It was submitted that in the proceedings when the Assessing Officer did not receive any return, assessee filed the same copy, which was sent to the Assessing Officer by RPAD and referred to the copy of the return to submit that the verification as signed at Place Kolwada and date of verification was 2.3.2009, which was accepted by the Assessing Officer. Therefore, it was submitted that the observation of the CIT(A) that reliance cannot be placed on the so called sending of return by RPAD is not correct. Further, the learned counsel also explained the provisions of S.271(1)(c) and Explanation 5A invoked by the Assessing Officer to submit that this provision does not apply, whereas the case falls under S.271AAA of the Act. It was fairly submitted that as the assessee has waived the proceedings of assessment to be initiated directly under S.153C and also has not objected if penalty was confirmed under S.271AAA, the request which was made before the CIT(A) as well, which is not accepted.
6. The learned Departmental Representative however, relied on the orders of the Assessing Officer and the CIT(A) and reiterated the Revenue's stand.
7. We have considered the issue and the rival contentions. There is no dispute with reference to the fact that the amounts ultimately accepted by the Assessing Officer in the assessments were almost the same as that of the amounts admitted by the assessee in the returns, except for a small amount of Rs.31,770 added in assessment year 2008-09. It is also not in dispute that the assessee is a resident of Kolwada Village of Mehsana District in Gujarat and on seizure through his employees on respective dates, the assessee had to file the returns at Hyderabad, consequent to assigning the jurisdiction to the Assessing Officer at Hyderabad by the CIT Gujarat. It is also not in dispute that the assessee's returns were sent by post and has furnished evidence of dispatching them by post before the authorities.
8. Even though the acknowledgement given by the postal authorities in respect of the return for assessment year 2008-09 was dated 2.3.2009, and there were other acknowledgments also of various letters addressed to CIT, Ahmedabad, Director General of Income tax, Ahemdabad, Assitant Commissioner Aayakar Bhavan, Hyderabad etc. on the reason that there was overwriting on this acknowledgement, the learned CIT(A) in our opinion, came to a wrong conclusion that the despatch of return by that date as incorrect. If the returns were received, but have not been placed on record by the Assessing Officer, it is not the fault of the assessee, as the same Assessing Officer accepted the returns filed with the same date and completed the assessment proceedings, even though the date of the filing of the returns was stated to be 29.10.2010. Be that as it may, as seen from the sequence of events, the cash seizure was on 26.3.2008 and 30.4.2008 from the employees of the assessee and after returning an amount of Rs.9,54,000, the balance amounts were seized by the authorities. The assessee requested for jurisdiction of filing the returns in Gujarat, which was not accepted and were assigned to the Assessing Officer at Hyderabad. Therefore, in the given circumstances, explanation given by the assessee that he has sent the returns by RPAD waiving the right to be initiated correct proceedings, has to be accepted as genuine explanation. Subsequently also, there were no other additions, except for a small addition due to typographical error and the assessments were completed, with out any other addition. Therefore, assessee's explanation that returns were originally filed in March, 2009, which were again filed in October, 2010 can be accepted and to that extent, we are of the view that the finding of the CIT(A) is not correct. It is also to be noted that no enquiry was conducted by the CIT(A) for coming to the conclusion as stated in paras 7.5 quoted above.
9. Coming to the issue of levy of penalty, assessee's contention that Explanation (5A) does not apply to the facts of the case is correct. Explanation 5A to S.271(1)(c) reads as under-
"Explanation 5A.- Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of-
| (i) | any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or | |
| (ii) | any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, |
which has ended before the date of search and,-
| (a) | where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or | |
| (b) | the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, |
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income."
As can be seen from the above, where any search has been initiated under S.132 of the Act on or after 1.6.2007 but before 1.7.2012 and the impugned income pertained to any previous year which has ended before the date of search or where the assessee has not declared the impugned income in return filed before the date of search or due date for furnishing the return for the relevant previous year has expired and the assessee has not filed the return, then only Explanation 5A can be invoked. This explanation applies to the assets or income which was found to be not declared or accounted pertaining to an year the previous year ended before search and in the return it was not declared or return was not filed. As noted above, in the present case, the event relevant for assessment year 2008-09, leading to the seizure of cash occurred on 26.3.2008 during the year and the previous year has not ended, as it would end after the date of search, viz. on 31.3.2008, which is relevant for assessment year 2008-09. Therefore, for the assessment year 2008-09, search occurred during the accounting year. Explanation 5A does not apply as the situations specified there in are not applicable to the facts of this case. Likewise for the assessment year 2009-10 also, the seizure was within the financial year, which ended on 31.3.2009 and therefore, the provisions of Explanation 5A do not apply, as the previous year has not ended before the date of search. The assessee's contention that provision of Explanation 5A to S.271(1)(c) does not apply has to be accepted in view of the specific provisions of the said Explanation.
10. On the contrary, the provision of S.271AAA, as contended by the assessee, are applicable. The said provisions read as under-
"Penalty where search has been initiated.
| 271AAA. | (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007 but before the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. |
(2) Nothing contained in sub-section (1) shall apply if the assessee,-
| (i) | in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; | |
| (ii) | substantiates the manner in which the undisclosed income was derived; and | |
| (iii) | pays the tax, together with interest, if any, in respect of the undisclosed income. |
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1).
(4) The provisions of sections 274 and 275 shall, so far as may be, apply in relation to the penalty referred to in this section.
Explanation. For the purposes of this section,-
| (a) | "undisclosed income" means- |
| (i) | any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has- |
| (A) | not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or | |
| (B) | otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or |
| (ii) | any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted; |
| (b) | "specified previous year" means the previous year- |
| (i) | which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or | |
| (ii) | in which search was conducted." |
11. Having regard to the meaning of the terms 'undisclosed income', 'Specified previous year' as defined in Explanation to S.271AAA, the assessee's case is totally outside the purview of S.271(1)(c) and falls within the purview of provisions of S.271AAA. The same position was reiterated by the coordinate Bench of the Tribunal (Ahmedabad 'A' Bench) in the case of Dy. CIT v. Satish M. Patel in ITA No.256/Ahd/2012 vide order dated 20.07.2012, and the said decision relied upon by the assessee clearly applies to the facts of the present case. In that case also, the facts are that for assessment year 2009-10, the assessee admitted income of Rs.35,53,000 from purchase and sale of land consequent to search conducted on 24.09.2008, when the penalty was levied under S.271(1)(c), the learned CIT(A) deleted the penalty, and the same was confirmed by the Tribunal with the following observations-
"7. We have heard the learned DR and carefully perused the material on record. It is evident from the order of the learned AO that search was conducted on 24-09-2008. Looking at the provisions of section 271AAA of the Act it becomes abundantly clear that where search has been initiated u/s 132 of the Act, on or after 01-06-2007, section 271AAA comes into play while as section 271(1) ( c) is barred by virtue of section 271AAA sub section (3). Section 271AAA sub section (1) and (3) are reproduced herein below for reference:
Penalty where search has been initiated.
| 271AAA. | (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. |
(3) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1)."
8. It is clear from the above that the learned AO has not invoked the correct provisions of law for levying the penalty. In this case search was conducted in the premises of the assessee on 24-09-2008, thus the date of initiation of search was on 24-09-2008. From the provisions of Section 271AAA it is clear that in the case where action U/s 132 is initiated on or after 01/06/2007, penalty cannot be levied U/s 271 (1)(c)of the Act. Penalty can be levied only U/s. 271AAA of the Act when certain conditions stipulated therein is not complied. Therefore, we do not have any option than to confirm the order of the learned CIT(A) deleting the penalty levied by the learned AO."
12. Respectfully following the above proposition, we are also of the same opinion that having seized cash during the previous years, which have not ended before the date of search, only provisions of S.271AAA will apply and not provisions of S.271(1)(c) Explanation 5A, as invoked by the Assessing Officer and confirmed by the CIT(A).
13. Keeping in view the above discussion, we are of the opinion that penalty under S.271(1)(c) is not warranted, more so at 300%, when the admitted incomes were accepted in assessment for the years under appeal. Assessing officer wrongly initiated proceedings under 271(1)(c). In the course of proceedings before the CIT(A) as well as before us, the learned counsel submitted that assessee has no objection, if the penalty is confirmed at 10% under the provisions of S.217AAA even though no proceedings under that section were initiated, assessee would accept the penalty, if confirmed to that extent. Keeping in view the affidavit filed before the authorities, waiving his right to be initiated under S.153A/153C in the assessment proceedings, and also the submissions before us, we modify the penalties levied by the Assessing Officer under S.271(1)(c), as that of penalty under S.271AAA and direct the Assessing Officer to levy penalty at 10% of the amount of income brought to tax for both the years. This order, however, cannot be taken as a precedent in all the cases, and this modification is made, considering the express request of the assessee in order to curtail unnecessary proceedings, as he is not available in Hyderabad being a resident of Gujarat. Keeping in view all these facts, request of the assessee is accepted and the Assessing Officer is directed to modify the orders accordingly levying penalties under S.271AAA, working out the same at 10% for each of the years under appeal, as per that provision.
14. In the result, both the appeals of the assessee are treated as partly allowed.
A brief on Input Tax Credit of VAT
Manufacturer will be entitled to credit of tax paid on inputs used by him in manufacture. A trader (dealer) will be entitled to get credit of tax on goods which he has purchased for re-sale
No credit is available in case of inter-state purchases.
Credit will be available of tax paid on capital goods purchased within the State. Credit will be available only in respect of capital goods used in manufacture or processing. The credit will be spread over three financial years and not in first year itself. There will be a negative list of capital goods . Some States allow credit at one go while some allow over a period of 12 months and so on.
Credit will be available as soon as inputs are purchased. It is not necessary to wait till these are utilised or sold [para 2.3 of White Paper on State-Level VAT).
No credit of CST paid : Credit of Central Sales Tax (CST) paid on inputs and capital goods purchased from other States will not be available
Non-availability of input credit in certain cases :
Credit of tax paid on inputs will be denied in following situations – No credit if final product is exempt – Credit of tax paid on inputs is available only if tax is paid on final products. Thus, when final product is exempt from tax, credit will not be availed. If availed, it will have to be reversed on pro-rata basis.
If the final products are transferred to another State as stock transfer or branch transfer, input credit availed will have to be reversed on pro-rata basis, which is in excess of 4%. In other words, in case of goods sent on stock transfer/branch transfer out of State, 4% tax on inputs will become payable e.g. if tax paid on inputs is 12.5%, credit of 8.5% is available. If tax paid on inputs is 4%, no credit is available. Thus, the VAT as introduced is State VAT and not a national VAT.
In following cases, the dealer is not entitled to input credit –
(a) Inputs used in exempted final products
(b) Final product not sold but given as free sample
(c) Inputs lost/damaged/stolen before use. If credit was availed, it will have to be reversed.
Generally, in following cases, credit is not available –
(a) Purchase of automobiles (except in case of purchase of automobiles by automobile dealers for re-sale)
(b) fuel.
There are variations between provisions of various States.
Certain sales are 'zero rated' i.e. tax is not payable on final product in certain specified circumstances. In such cases, credit will be available on the inputs i.e. credit will not have to be reversed. Distinction between 'zero rated sale' and 'exempt sale' is that in case of 'zero rated sale', credit is available on tax paid on inputs, while in case of exempt goods, credit of tax paid on inputs is not available.
Export sales are zero rated, i.e. though sales tax is not payable on export sales, credit will be available of tax paid on inputs. In respect of sale to EOU/SEZ, there will be either exemption of input tax or tax paid will be refunded to them within three months.
SOME MORE CLARIFICATION
Where Inputs Are Partly Used For Making Taxable Goods (Or Inter-State Sales) And Partly For Making Exempt Goods, The Tax Credit Shall Be Reduced Proportionately. To Illustrate, X Purchased Machinery For Rs. 10 Lakh And Paid A Tax Of Rs. 1,25,000 On It And Used It In The Manufacture Of Taxable As Well As Exempted Goods. At That Time, He Estimated That The Share Of Taxable Goods Made By The Machinery Would Be 80 Per Cent. In This Case, His Input Tax Credit Will Be Restricted Only To 80 Per Cent Of Rs. 125,000 Or Rs. 1,00,000.
There Is No Need For A `One To One Correlation Between Input Tax Credit And Output Tax. Quite A Number Of Small Businesses Are Under The Misconception That Input Tax Has To Be Adjusted Against Output Tax On A Bill To Bill Basis.
The Operation Of The Input Tax Mechanism Is Simple. The Dealer Will Be Eligible To Take Credit For The Eligible Input Tax In A Tax Period As Specified On The Entire Purchases. He Will Charge VAT At The Prescribed Rate As Is Done In The Present System For Levy Of Sales Tax. The VAT Or Output Tax Payable Is Compiled On A Monthly Basis As Is Done Now. The Dealer Can Adjust The Input Tax Eligible On The Entire Purchase In The Tax Period Against The Output Tax Payable Irrespective Of Whether The Entire Goods Purchased Are Sold Or Not. For Example, If The InputTax Credit In A Particular Month Is Rs. 1,000 And The Output Tax Payable Is Rs. 500, The Excess Input Tax Of Rs. 500 Can Be Carried Forward To The Next Tax Period.
Assuming No Further Input Tax Credit In The Following Month And That The Output Tax Payable Is Rs. 700 The Dealer Will Pay Rs. 200 Along With The Monthly Return.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
No comments:
Post a Comment