IT: Where assessee, a transport contractor, engaged outside trucks and made payment towards hire charges without deduction of tax at source, though assessee submitted Form Nos. 15-I and 15J to Commissioner belatedly, due credit be given to claim of assessee in terms of said forms
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[2013] 36 taxmann.com 229 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Associated Roadways (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle-1(1)*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NO. 63 (HYD.) OF 2013
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
MAY 20, 2013
Section 194C, read with section 40(a)(ia), of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payments to [Transporters] - Assessment year 2009-10 - Assessee, a transport contractor, for carrying out business also engaged outside trucks - It paid an amount of Rs. 3.94 crores as hire charges to lorry owners and claimed deduction of same - On said amount, assessee did not deduct tax at source on ground that lorry owners had undertaken to submit Form No. 15-I - It received from lorry owners Form No. 15-I to extent of Rs. 3.06 crores only and submitted same along with Form No. 15J to Commissioner belatedly on 7-2-2011 - Assessing Officer held that as Form Nos. 15-I and 15J were filed by assessee after prescribed date and payment towards hire charges was made without having Form No. 15-I, there was a default under section 194C - He also examined correctness of Form No. 15-I and having noticed that same was not responded by concerned person disallowed entire payment of hire charges by applying provisions of section 40(a)(ia) - Commissioner (Appeals) held that Form No. 15-I to extent of Rs. 3.06 crores was complete in all respects, but he did not accept same on ground that assessee did not file Form No. 15J within prescribed time - Whether filing of Form No. 15J belatedly could not be a reason to deny deduction claimed by assessee - Held, yes - Whether since Form No. 15-I was duly filled in, due credit be given to claim of assessee in terms of Form Nos. 15-I and 15J filed by it - Held, yes [Paras 22 and 24] [In favour of assessee]
FACTS
| ■ | The assessee, a transport contractor, for carrying out business also engaged outside trucks. During the previous year relevant to the assessment year 2009-10, it paid an amount of Rs. 3.94 crores as hire charges to the lorry owners and claimed deduction of the same. On the said amount, the assessee did not deduct tax at source allegedly on the ground that the lorry owners had undertaken to submit Form No. 15-I. It received from the lorry owners Form No. 15-I to the extent of Rs. 3.06 crores only and submitted the same along with Form No. 15J to the Commissioner belatedly on 7-2-2011. | |
| ■ | The Assessing Officer held that as Form Nos. 15-I and 15J were filed by the assessee only after the prescribed date and the payment towards hire charges was made without having Form No. 15-I, there was a default under section 194C. He also examined the correctness of Form No. 15-I and having noticed that same was not responded by concerned person disallowed the entire payment of hire charges by applying the provisions of section 40(a)(ia) and added the said amount to the income of the assessee. | |
| ■ | On appeal, the Commissioner (Appeals) held that Form No. 15-I to the extent of Rs. 3.06 crores was complete in all respects, but he did not accept the same on the plea that the assessee did not file Form No. 15J within the prescribed time. He, therefore, confirmed the order of the Assessing Officer. | |
| ■ | On second appeal: |
HELD
| ■ | Filing of Form No. 15J belatedly cannot be a reason to deny the deduction claimed by the assessee. If the said form is duly filled with basic details, the same should be considered, as filing of the said form is only procedural in nature. [Para 22] | |
| ■ | Explanation III to sub-section (2) of section 194C is applicable to the assessment year under consideration, as the Explanation would be applicable prospectively from 1-7-1995, on which date it was introduced. In the instant case, the assessee made specific plea before the lower authorities that it has collected Form No. 15-I from the truck operators, but it could not produce the same before the Assessing Officer. However, the same was produced before the Commissioner. The fact of non-production of Form No. 15-I cannot be taken as default committed by the assessee and burdening the assessee for heavy taxable income. Since the assessee produced Form No. 15-I before the Commissioner and it was duly filled in, due credit be given. In the case of Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com 160 (Mum.), it was held that once the assessee has obtained Form No. 15-I from the sub-contractors, he is not liable to deduct TDS on the payment made to sub-contractors and no disallowance can be made under section 40(a)(ia). Belated furnishing of Form No. 15J to the Commissioner is an act of posterior in time to payments made to sub-contractors and, therefore, this cannot be itself undone the eligibility for exemption created in second proviso to section 194C(3) by virtue of submission of Form No. 15-I by sub-contractors. Accordingly, due credit be given to the claim of the assessee in terms of Form Nos. 15-I and 15J filed by it. [Para 24] |
CASE REVIEW
Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com 160 (Ahd.) (para 24) followed.
CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486 (Mad.) (para 24) distinguished.
CASES REFERRED TO
Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com. 160 (Ahd.) (para 4), Indian & Eastern Newspaper Societyv. CIT [1979] 119 ITR 996/2 Taxman 197 (SC) (para 7), CIT v. Steel Cast Corpn. [1977] 107 ITR 683 (Guj.) (para 7), Addl. CIT v.Chekka Ayyanna [1977] 106 ITR 313 (AP.) (para 7), CIT v. PVS Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294 (SC) (para 8),CIT v. First Leasing Co. of India Ltd. [2000] 241 ITR 248/[2001] 118 Taxman 181 (Mad.) (para 8), CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486 (Mad.) (para 11), CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 (SC) (para 12), Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 (SC) (para 12), Asstt. CIT v. Sri Sai Road Ways [IT Appeal Nos. 819 and 820 (Hyd.) of 2010, dated 30-11-2010] (para 16), ITO v. MGB Transport [2013] 35 taxmann.com 51 (Kol.) (para 17), ACI v.Mumbai Road Carriers [IT Appeal No. 800 (Mum.) of 2010, dated 30-9-2011] (para 18) and Shree Choudhary Transport Co. v. ITO[2010] 128 TTJ (Jodh.) 90 (para 24).
K.C. Devadas for the Appellant. Smt. Amish S. Gupt for the Respondent.
ORDER
Chandra Poojari, Accountant Member - This appeal preferred by the Assessee is directed against the order of the CIT(A)-II, Hyderabad dated 11/02/2012 for the assessment year 2009-10.
2. Ground No. 1 raised by the assessee in this appeal is pertaining to reopening of assessment u/s 147 read with section 148 of the IT Act. 2nd Ground is with regard to confirmation of disallowance of Rs. 3,94,28,546/- on the reason that the assessee has not obtained form 15-I and also had not filed Form No. 15-J, though provisions of section 40(a)(ia) are not applicable in the assessee's case.
3. Briefly the facts of the case are that the assessee company filed its return of income on 30/09/2009 declaring total income of Rs. 85,39,865/- for the AY 2009-10, which was processed u/s 143(1) of the IT Act. Subsequently, a notice u/s 148 was issued on 04/02/2011 and in response to this notice, the assessee filed a letter dated 12/03/2011 stating that the return of income already filed u/s 139(1) of the Act on 30/09/2009 may be treated as the one filed u/s 148 of the IT Act. The assessee is a transport contractor and received freight charges at Rs. 16.94 crores and on this the assessee declared income of Rs. 85.39 lakhs. For carrying out this business, the assessee owned trucks and also engaged outside trucks for which an amount of Rs. 13.89 crores was debited as hire charges and the same was claimed. The AO noted that in the tax audit report in Form No. 3CD, the tax auditor has made the following observations:
"The assessee has also incurred a total amount of Rs. 3,94,28,546/- as lorry freight payment to drivers who had undertaken to submit Form 15-I. However, on verification, it is observed that Form 15-1 was received to the extent of Rs. 3, 06, 79,523/- only, out of which in some cases, aggregating to Rs. 16, 76, 700/- the form is incomplete. In other cases wherever: TDS liability was there, the assessee has deducted tax at source and paid to the Government. In all cases where Form 15-I has been received by the Company, it has not filed the prescribed form 15-J to the Department.
As per provisions of Sec. 194-C of the Act, wherever the hire charges exceeds Rs. 50,000/- per party, the assessee was under obligation to deduct tax at source. However as observed by the tax auditor in Form 3CD, on an amount of Rs. 3,94,28,546/-, the assessee did not deduct tax at source allegedly on the ground that the lorry owners had undertaken to submit Form 15-I. The tax auditor further observed that the assessee had received Form15-1 to the extent of Rs. 3,06,79,523/- only out of which in some cases, aggregating into Rs. 16,76,700/- the forms are incomplete/defective. From the observation of the Tax auditor, it is clear that the assessee has not obtained form 15-1 before actual time of payment. In fact there is no evidence of obtaining the same even before the closure of accounting year. As per IT Rule 290, the assessee was under obligation to submit the Form 15-1 received by him along with Form 15-J to the Commissioner of Income Tax before 30th June of the following year, which in this case happens to be 30.6.2007. However, it is noticed that the assessee has not submitted the same to the CIT within the prescribed time limit or at least before the due date for filing of the return of income as required under the Law. The assessee submitted a bunch of copies of Forms 15-1 and Form 15-J to the CIT on 7-2-2011 only. It is relevant to note that the assessee had submitted the copies of Form 15-1 only after receipt of notice u/s148 of the Act. Since the due date fixed under the rules was 30.6.2007, the assessee should have filed the same before that date. Hence, in the eyes of law, there was no valid Form 15-I or Form 15-J."
4. When the assessee was questioned on the above report of the auditor, it was stated by the assessee that it was only a procedural lapse and it does not distinct the assessee to claim exemption as per the second proviso to section 194C(d) of the IT Act. For this proposition, the assessee relied on the decision of the ITAT, Ahmadabad in the case of Valibhai Khanbhai Mankad v. Dy. CIT [2011] 46 SOT 469/12 taxmann.com. 160. The AO did not agree with the contention of the assessee and held that it is not a mere procedural mistake as the assessee paid the hire charges without having a declaration in Form 15-I from the parties and thereafter the assessee has to file Form No. 15-J within the prescribed time limit before the concerned authorities. As the said forms were filed only after receipt of notice u/s 148 and the payments towards hire charges were made without having Form No. 15-I, there was a default u/s 194C of the IT Act, therefore, the AO disallowed the payment of hire charges to the extent of Rs. 3,94,28,546/- while passing assessment order u/s 143(3) read with section 148 of the IT Act. However, the AO was observed that out of Rs. 3,94,28,546/- the assessee had furnished 15-I form to the extent of Rs. 3,06,79,523/- and no Form 15-I filed remaining balance amount of Rs. 87,49,023/-, which warrants disallowance u/s 40(a)(ia) of the Act. Therefore, the AO disallowed an amount of Rs. 87,49,023/- u/s 87,49,023/-. In the course of the assessment, the AO also wanted to examine the correctness of the Form No. 15-I and sent letters to the parties named in the Form No. 15-I to the stated addresses. All the letters have returned by the postal department with remarks such as 'no such person', 'in sufficient address', 'unclaimed', 'incorrect address', etc. When it was put to the assessee, it was contended that in the business of transportation the lorries are purchased and sold frequently and it was quite possible that the person who transported goods may not be the owner of the lorry after some time and in such circumstances the confirmation from such lorry owners is practically impossible. Being so, it was not delivered to the concerned person to whom the letters were sent. Accordingly, the AO made the disallowance to the tune of Rs. 3,94,28,546/-.
5. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who confirmed the order of the AO.
6. Still aggrieved, the assessee is in appeal before us.
7. The learned counsel for the assessee before us submitted that though the assessee raised ground No. 1 relating to the reopening of assessment u/s 147/148 before the CIT(A), this ground was not adjudicated by the CIT(A), as such, this ground may be adjudicated by this Tribunal. The learned counsel relied on the decision in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996/2 Taxman 197 (SC) wherein it was held that opinion of the internal audit party on a point of law does not constitute 'information' for the purpose of section 147(b) of the IT Act, being so, reopening on that reason is bad in law. He also submitted that the assessee raised a ground before the CIT(A) regarding the issue of reopening, but, the CIT(A) failed to adjudicate the same, therefore, it should be inferred that the CIT(A) duly considered the ground and dismissed the same. For this proposition, the learned AR relied upon the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Steel Cast Corpn. [1977] 107 ITR 683 and also the judgment of the Hon'ble AP High Court in the case of Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313.
8. On the other hand, the learned DR submitted that assessment was reopened due to audit objection. The learned DR relied upon the judgment of the Hon'ble Supreme Court in the case of CIT v. PVS Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294. He also relied on the judgment of the Madras High Court in the case of CIT v. First Leasing Co. of India Ltd. [2000] 241 ITR 248/[2001] 118 Taxman 181.
9. We have heard both the parties on this issue. This ground was raised by the assessee before the CIT(A) as ground No. 1, which reads as follows:
"1. The order passed by the Hon'ble AO u/s 143(3) r.w.s. 47 of the Income-tax Act, 1961 for the assessment year 2009-10 is bad in law, contrary to the facts and circumstances of the case."
10. The CIT(A) had not at all adjudicated the said ground and decided the appeal on merits. Being so, it is proper to remit this reopening issue to the file of CIT(A) after considering the argument advanced by the parties. This ground is allowed for statistical purposes.
11. Coming to the merits of the issue raised, the learned counsel for the assessee submitted that provisions of section 194C(2) are not applicable to the assessee's case as the assessee took the vehicles on hire charges, therefore, the provisions of section 194C(2) do not attract to the case of the assessee. The provisions of section 194C are applicable to payments for carrying out any work, man power is the sine-qua-non and without manpower, it cannot be said that work has been carried out. U/s 194C of the Act 'carrying out any work' is the substance for making payment a payment relating to such work, liable for deduction of tax at source. The provisions of section 194C are attracted only where any sum is paid for carrying out any work including supply of labour for carrying out any work. According to the learned counsel, in the present case, the assessee only hired trucks for temporary period without manpower as there is no carrying out of any work cannot amount to carrying out of any work. He relied on the judgment of the Madras High Court in the case of CIT v.Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486 wherein it was held that hiring of ships for the purpose of using them in the assessee's business did not amount to a contract for carrying out any work as contemplated in s. 194C of the Act. As per the Explanation III to s. 194C of the Act, 'work' shall also include carrying out of goods or passengers by any mode of transportation other than railways. The learned AR submitted that in the case under consideration the assessee made payments for hiring of trucks and the assessee had taken temporary possession of the trucks, which does not fall in the provisions of section 194C and there is no question of deduction of TDS. He also submitted that there was an amendment to section 194-C(6) by the Finance Act, 2009 with effect from 01/10/2009 whereby, sub-section (6) to 194C has been introduced, which is as follows:
"No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum"
12. The learned AR submitted that this section would be considered as retrospective effect in view of the judgment of the Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 wherein it was held that "omission of second proviso to section 43B and the amendment of first proviso by Finance Act, 2003, bringing about uniformity in payment of tax, duty, cess and fee on one hand and contributions to employees welfare funds on the other are curative in nature and thus effective retrospectively with effect from 1988, i.e. the date of insertion of proviso." Further, the learned AR relied upon the decision of Hon'ble Supreme Court in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205.
13. Without prejudice to the above, the learned AR submitted that non-filing of Form No. 15-I is not fatal and if the assessee is able to file the same before the authorities by the time of assessment, which could be considered as due compliance of the IT Act. It is submitted that the assessee has duly filed these form 15-I before the AO and the CIT(A) and even after filing the said form finding errors, which are not material and form No. 15-J has to be accepted. It is submitted that what are the information required to grant relief to the assessee are very much available in the forms and the assessee's case to be considered for allowing of deduction claimed by the assessee.
14. The learned AR submitted that as soon as the assessee is in possession of the form No. 15-I received from the truck owners, the assessee not required to deduct tax from such payments. Once deductibility of tax depends upon submission or non-submission of Form 15-I from the truck owners to the assessee, then non compliance of third proviso becomes merely technical without affecting in substance the deductibility or non-deductibility of tax on payments made by the assessee to the truck owners. Therefore, non compliance of third proviso becomes merely a technical default, which even if, remained non complied would not affect the operation of section 40(a)(ia) of the Act.
15. According to the learned AR non-filing of form 15-J before the AO is only a procedural lapse and in no way take into eligibility of exemption to the assessee, which is provided in second proviso to section 194C(3) of the IT Act. For this purpose, he relied on the decision of the Ahmedabad Bench in the case of Valibhai Khanbhai Mankad (supra). Further, the learned AR submitted that as per the second proviso to section 194C(3) as applicable during the relevant AY, no deduction was required to be made for any paid amount paid to sub-contractor during the course of business of plying, hiring, leasing goods carriage, in case the sub-contractor makes a declaration in the prescribed form No. 15-I. According to the learned AR, the assessee made payments to lorry owners by not deducting tax at source since the assessee had collected declaration from the truck owners to whom the payments has been made in form No. 15-I. According to the learned AR, Form No. 15-I is a self-declaration from the truck owners and that information given in the declaration to be considered as complete and correct and the assessee has in no way required to verify the genuineness of the Form No. 15-I. If the assessee is in possession of Form No. 15-I, there is no necessity of deduction of TDS from the same.
16. The learned AR relied on the para 6 of the judgment of coordinate bench in the case of Asstt. CIT v. Sri Sai Road Ways in ITA Nos. 819 & 820/Hyd/2010 for AY 2005-06 dated 30/11/2010, which reads as under:
"6. We have considered the rival submissions and perused the material available on record. We find that in a sub contract, a prudent contractor would include all the liability clauses in the agreement entered into by him with the sub contractor. The assessee has also claimed before the tax authorities that the responsibility in the whole process lies with it only. Though the passing of liability is not the only criteria to decide about the existence of sub contract, yet this contention of the assessee read with the liability clauses of the work supports its submission that the individual vehicle owners are simple hirers of the vehicles. We find that the CIT(A) is correct in holding that in the instant case, there is no material to suggest that the other lorry owners involved themselves in carrying out any part of the work undertaken by the assessee by spending their time, energy and by taking the risks associated with the main contract work and the payment made to the lorry owners stands at par with the payments made towards salaries, rent, etc. We find that the reasoning of the assessing officer to hold that the payment made for hired vehicles is a sub contract payment is not correct and not based on relevant consideration and hence it cannot be said that the payments made for hired vehicles would fall in the category of payment towards sub contract with the lorry owners. In that case the assessee is not liable to deduct tax at source as per the provisions of section 194C (2) of the Act and consequently the provisions of section 40(a)(ia) shall not apply to such payments. After considering the facts and the circumstances of the case, we are of the opinion that the first appellate authority is perfectly justified in deleting the addition of Rs.10,42,038 made under section 40(a)(ia) of the Act by the assessing officer. Therefore, we are not inclined to accept the contentions of the learned Departmental Representative on this issue and uphold his finding. In view of the above, the ground raised by the revenue is dismissed."
17. He further relied on the order of ITAT, Kolkata in the case of ITO v. MGB Transport [2013] 35 taxmann.com 51 wherein it was held as follows:
'3. We have heard rival contentions and gone through the facts and circumstances of the case. At the outset it is seen that assessee has paid Dumper hire charges amounting to Rs. 36,37,815/- to ten different parties. According to the AO, no TDS has been deducted on these payments, thought these were contractual/sub-contractual payment in nature under section 194C of the Act. According to AO since there is default in not deducting TDS, the payments made attract provisions of section 40(a)(ia) of the Act. The assessee could not explain before AO as to why TDS was not deducted the AO made the disallowance. Aggrieved, the assessee preferred appeal before the CIT(A). CIT(A) deleted the disallowance by following the decision of ITAT, 'A' Bench, Kolkata in the case of M/s Samanwaya in ITA No. 484/Kol./2008 dated 23/04/2009 by stating that there was no contractual agreement between the assessee and the Dumper owners as noted by the AO 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 [2010] 236 CTR (Kar.) 105, 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'. Hon'ble Karnataka High Court concluded as under:
"In order to provide vehicles to a customer as per agreement, 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"
Further following Smt. J. Rama's case of Hon'ble Karnataka High Court (supra), we have taken a decision dated 17/02/2012 of ITAT, Kolkata Bench in ITA No. 199/Kol/2010 in the case of DCIT, Circle - 9 v. Kamal Mukherjee & Co. (Shipping) (P) Ltd. wherein it is held as under:
From Head Notes
…..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 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 when 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 (Appeal), 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."
4. Since the facts and circumstances are exactly identical, what was before us in Kamal Mukherjee & Co. (Shipping) P. Ltd. (supra) and also that in the case of Smt. J Rama of Hon'ble Karnataka High Court (supra), respectfully following the same, we are of the view that even oral contract is sufficient and admittedly the assessee has taken dumpers on hire and he has paid charges for the same. Respectfully following the same, we confirm the disallowance made by the AO and reverse the order of CIT(A). However, as regard to alternative arguments made by ld. Counsel for the assessee regarding applicability of the decision of ITAT, Special Bench, Visakhapatnam in the case of Merilyn Shipping & Transports v. Add. CIT (Visakhapatnam) (SB) reported in [2012] 136 ITD 23 (SB)wherein it is held that the disallowance will be restricted to the amount payable at the end of the year and not on the amount already paid during the relevant year. Ld. 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 Special Bench of this Tribunal in the case of Merilyn Shipping & Transports v. Addl. CIT (Visakhapatnam) (SB) reported in (2012) 136 ITD 23 (SB), 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 Ld. counsel that the operation of the order of Special Bench of this Tribunal in the case of Merilyn Shipping & Transports (Supra), is stayed by 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 Hon'ble High Court observed, "Interim suspension. Notice." Vide dated 8th October, 2012.
5. On this, the Ld. 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 Hon'ble Calcutta High Court in the case of Pijush Kanti Chowdhury v. State of West Bengal & Ors (2007) 2 CALLT 577 dated 14th May, 2007 wherein, at para 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 destabilized. 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 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."
6. Even, Hon'ble Supreme Court in the case Shree Chamund Mopeds Ltd. v. Church of South India Trust Association, Madras, AIR 1992 SC 1439, 1444 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 inspite 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.
7. 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 Chamund Mopeds Ltd. (supra), we are of the view that the decision of the special bench of this tribunal in the case of Merilyn Shipping & 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 financial year and not on the paid amounts. Hence, we direct the AO to recompute the disallowance accordingly. Appeal of assessee is partly allowed for statistical purposes.'
18. The learned AR further relied on the order of Mumbai Bench of ITAT in the case of ACI v. Mumbai Road Carriers in ITA No. 800/Mum/2010 for AY 2006-07 dated 30/09/2011.
19. The learned DR, on the other hand, relied upon the orders of the authorities below.
20. We have heard both the parties and perused the record. In this case, the assessee collected Form 15-I from the parties as follows:
"The learned CIT(A), Hyderabad failed to note that the sum of Rs. 3,94,28,546 comprised of:
| (i) Form - 15-I obtained but from 15-J not filed before CIT | - 2,90,02,826 | |
| (ii) Not obtaining of form 15-I | - 87,49,029 | |
| (iii) Defective form 15-I obtained | - 16,76,700 | |
| Total | - 3,94,28,546" |
21. Since the genuineness of the payment itself was at stake, the CIT(A) asked the AO to examine the issue as to the genuineness of the transaction and to submit a detailed remand report. The AO submitted his remand report vide letter dt. 29/11/2012, which was extracted by the CIT(A) in his order at pages 5 to 6 is reproduced as under:
"As directed by the CIT(A), enquiries were caused by me through the ITI. During the asst. proceedings, an amount of Rs. 3,94,28, 5461- was added to income returned uls 40(a)(ia) of the Act, as the Form 15-1 produced at the time of assessment, which was obtained from the owners of the trucks, by the assessee are defective and confirmation letters sent to the truck owners, were unserved or no replies were received.
I have verified the expenditure with regard to Form 15-J and Form 15-1. The assessee company is using specialized computer package for the transport companies called F-CUBE for recording receipts and expenditure with the details of consignment. Consignee, consignor, from and to, paid/to pay consignment and details of Lorry Receipts, Debit vouchers, Transport Challans and bills. Some of the transactions were verified randomly with the entries made in the computer package and found to tally with copies of Lorry Receipts, Debit Vouchers, Transport Challans, bills and the details of advance given, balance to be paid to the truck owners. Other expenditure incurred also was verified. Obtained copies of Debit Vouchers, Lorry Receipts, Transport Challans (containing details quantity transported; contents, loading and unloading points, lorry numbers, the freight charged; advance received, drivers name and signature etc.) and bills for 'paid consignment" and Money receipts for "to pay consignment" randomly and found no discrepancy.
When questioned about defective From 15-1, assessee replied that most of the drivers were uneducated and they doesn't know how to fill the form. Assessee was asked to produce some of the truck owners from where confirmation letters were returned back unserved or no confirmations were received. He has produced the following four truck owners form whom statement was recorded and obtained copies of certificate of registration of the truck, PAN card as identity proof and confirmation for the amount received towards hire charges from the assessee.
| S.No. | Name and address of truck owner | Truck No. | Amount received towards hire charges (Rs.) | Remarks | |
| 1. | K.K. Kemagullaiah 3017/43,5th Main Road, 2nd block, Nandini layout, Bangalore-96 | 1.KA01A8723 2.KA01 B2261 | 2,24,500/- 1,73,200/- | ||
| 2. | N.V. V.R. Satyanarayana 3-8, Pushpaleela Nagar, Thangellamudi (Post) Chintallapudi Road, Eluru-534005 | AP37Y4321 | 1,55,400/- | ||
| 3. | V Thirupathaiah 1-Julapally Village, 49/A, Thallakondapally-Mdl, Kalvakurthy-TO, Mahaboobnagar Dist. | AP12U8374 | 2,23,312/- | ||
| 4. | Syed Ahmed 17 -1-137/2B, Rain Bazar, Yakuthpura, Hyderabad | AP10T3068 Ap3otaa07 | 2,51,100 |
Sri K. K. Kempagullaiah, in whose case the letter was returned unserved, was asked as to why he did not accept the letter. In reply he stated that, while working in a transport firm, he purchased two trucks for which collateral surety was given by his employer and the employer's address was shown/stated in the RC book issued by Transport department. Subsequently, on closure of business by his employer, Sri K.K. Kempagullaiah was operating on is own from his residence. Hence he could not receive the letter. The address originally given at the time of registration was not the communication address of the self. Hence, the confirmation letters were not claimed by the address.
As the assessee company is maintaining every record with regard to receipts and expenditure on hire charges paid to the truck owners along with the details of debit vouchers, lorry receipts, Transport challans, Money receipts and bills, the expenditure incurred by the assessee-company in lorry hire charges can be said to be genuine and may be allowed.
Randomly obtained Xerox copies of Debit Vouchers, Lorry Receipts, Transport Challan, Bills raised by assessee-company are submitted herewith for kind perusal of the CIT(A)-I/, Hyderabad."
22. After going through the report, the CIT(A) observed that though the assessee received form 15-I to the extent of Rs. 3,06,79,523/-, which is complete in all respects not ready to accept the same as the assessee did not file Form No. 15-J and the same was filed belatedly on 07/03/2011. In our opinion, filing of the form 15-J belatedly cannot be a reason to deny the deduction claimed by the assessee. If these forms are duly filled with basic details, such as, full address, PAN, Father's Name, if assessed to tax and the Jurisdiction, Date & place of verification, and the same should be considered as filing of these forms only procedural in nature.
23. Coming to the other arguments of the assessee's counsel that provisions of section 194C is not applicable in view of the judgment of the Madras High Court in the case of CIT v. Poompuhar Shipping Corpn. Ltd. [2006] 282 ITR 3/153 Taxman 486, we have carefully gone through the Explanation III to sub-section (3)(c) to section 194C, which reads as follows:
"For the purpose of this section, the expression 'work' shall also include-
| (a) to (b)** | ** | ** |
(c) carriage of goods and passengers by any mode of transport other than by railways."
24. Being so, the above judgment of the Madras High Court cannot be applied. In our opinion, Explanation III to section 194C being applicable to the assessment year under consideration as the Explanation would be applicable prospectively from 01/07/1995, on which date it was introduced. In the present case, admittedly, the assessee made specific plea before the revenue authorities that assessee has collected form 15-I from the truck operators but he could not produce them before the AO, however, the same was produced before the CIT. The fact of non-production of Form 15-I cannot be taken as default committed by the assessee and burdening the assessee for heavy taxable income. Since the assessee produced Form 15-I before the CIT and it was duly filled in, therefore, due credit to be given. For this proposition, reliance is placed on the decision in the case of Shree Choudhary Transport Co. v. ITO [2010] 128 TTJ (Jodh.) 90. In the case of Valibhai Khanbhai Mankad (supra) it was held that once the assessee has obtained form No. 15-I from the sub-contractors, he is not liable to deduct TDS on the payment made to sub-contractors and no disallowance can be made u/s 40(a)(ia); belated furnishing of Form No. 15-J to the CIT is an act of posterior in time to payments made to sub-contractors and, therefore, this cannot be itself undone the eligibility for exemption created in second proviso to section 194C(3)(1) by virtue of submission of form 15-I by sub-contractors. Accordingly, we are of the opinion that due credit be given to the claim of the assessee in terms of form 15-I and 15-J filed by the assessee.
25. Even otherwise, in our opinion, the provisions of section 194C(6) is applicable to the assessee's case and this section has to be considered retrospectively in view of the judgment of the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra). This ground of the appeal is allowed.
26. In the result, appeal of the assessee is partly allowed.
IT : No depreciation can be allowed on machinery which has been used by assessee's sister concern for its business purpose
IT : Assessee cannot be compelled to value stock at cost price if market value of stock is less
■■■
[2013] 36 taxmann.com 111 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'D'
Defiance Clothing Company
v.
Assistant Commissioner of Income-tax, Circle 18(2), Mumbai*
R.S. SYAL, ACCOUNTANT MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
AND SANJAY GARG, JUDICIAL MEMBER
IT APPEAL NO. 6742 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
JUNE 26, 2013
I. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of [User of asset] - Assessment year 2007-08 - Whether an assessee is entitled to depreciation, in scheme of block of assets, on 'actual' or 'deemed user' - Held, yes - Assessee claimed depreciation on machinery, which was installed at business premises of its sister concern and was actually used by that concern for its own business purpose - Whether it was not a case of assessee having 'actually used' or 'deemed to have used' such asset for its business purpose and, therefore, assessee was not entitled to depreciation on machinery in question - Held, yes [Paras 6 & 7] [In favour of revenue]
II. Section 145 of the Income-tax Act, 1961 - Method of accounting - Valuation of stock [Defective stock] - Assessment year 2007-08 - Whether when assessee is following 'Cost or market price whichever is less' as method for valuation, then assessee cannot be compelled to value such stock at cost price, if market value of such stock is less - Held, yes - Whether where assessee claims that market value of closing stock is less than cost price, then burden is on him to prove so, and such a burden can be discharged either by substantiating such value with report of some approved valuer, or by showing that such stock was subsequently sold at a price close to such declared value - Held, yes - Assessee valued some items of stock at Rs. 8.33 per piece though cost per piece was Rs. 15 - Assessing Officer valued stock at Rs. 15 per piece and made addition - In appeal, assessee placed on record certain sale bills issued in succeeding year to show that defective stock of current year fetched a price much less than Rs. 8.33 per piece - Whether matter was to be remanded to Assessing Officer to verify assessee's contention - Held, yes [Para 11] [Matter remanded]
FACTS-I
| ■ | The assessee claimed depreciation on machinery which, though purchased by it, was installed in premises of its sister concern and was actually used by that concern for its business purpose. | |
| ■ | The Assessing Officer rejected the assessee's claim by holding that machinery was not used by the assessee for its business purpose but was utilized by its sister concern, for which the assessee did not get either rent or any sort of benefit. | |
| ■ | On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. |
HELD-I
| ■ | There is no dispute on the fact that the assessee purchased this machinery in the preceding year and recorded it in its books of account. Equally, there is no disagreement on the fact that such machinery was installed ab initio at the business premise of assessee's sister concern, for the business purpose of the sister concern. It is not a case that the machinery was simply installed at some other location but was utilized by the assessee for its business purpose. Under such circumstances, the question arises as to whether the assessee is lawfully entitled to depreciation allowance. [Para 4] | |
| ■ | It is a trite law that once an asset falling in a particular block is purchased by the assessee and put to use for its business purpose, then depreciation has to be allowed. In the scheme of block of assets, depreciation is allowed irrespective of the fact whether or not a particular asset forming part of a block is distinctly used. The rationale of allowing depreciation in a case of non-user of a particular asset is that the otherwise user of such asset forming part of the block, is not jeopardized in any manner to the assessee. Where an asset is 'actually used' by the assessee for its business purpose, it gives entitlement to depreciation, but if an asset is not actually used but is available for use, it amounts to 'deemed user' in the scheme of block of assets. An asset can be said to be 'deemed to have been used' in contrast to 'actually used' when it is acquired by the assessee for its business purpose but is not actually used for lack of requirement or otherwise, coupled with the fact that such asset remains at its disposal for actual user as and when required. It, therefore, follows that an assessee is entitled to depreciation, in the scheme of block of assets, on 'actual' or 'deemed user'. This position should be seen in contradistinction to a position in which an asset is not only not utilized by the assessee for its business purpose but is acquired for some third party and is also so used. A line of distinction needs to be drawn between a case in which an asset is acquired by the assessee for its business purpose and a case in which such asset is acquired by the assessee for a different entity for the business purpose of such entity. Whereas in the first situation, depreciation is to be allowed whether or not the asset is actually used, but there can be no question of allowing any depreciation in the second situation. Section 32 entitles an assessee to depreciation on the satisfaction of twin conditions. The first is that the asset should be owned by the assessee and the second is that it should be used for the business purpose. An assessee cannot claim depreciation by reason of mere acquisition of an asset. The second condition of section 32, being the 'user' of asset -whether 'actual' on one hand or 'deemed' on the other, in such a case would be wanting. That being the position, there can be no question of granting any depreciation in such a case. [Para 6] | |
| ■ | Adverting to the facts of the instant case, it is seen that the assessee purchased the asset but installed it at the premises of its sister-concern, which was utilized by the sister concern for its own business purpose. There is no benefit which the assessee derived from its sister concern as a quid pro quo for allowing the user of such asset. The mere fact that the assessee utilized its funds or obtained a loan in its own name for acquiring the asset and also showed it in its books of account, would not change the consequence of the non-granting of depreciation in any manner when the essential fact prevails that the asset was, in fact, utilized by the sister concern for its own business purpose. As it is not a case of the assessee having 'actually used' or 'deemed to have used' such asset for its business purpose, there can be no scope for allowing depreciation to the assessee on such asset. [Para 7] |
FACTS-II
| ■ | The assessee valued stock of undergarments at Rs. 8.33 per piece though cost per piece was Rs. 15. | |
| ■ | When the assessee was called upon to explain this, it stated that market value of such defective stock was not more than that shown. | |
| ■ | The Assessing Officer rejected the assessee's contention and valued the stock at Rs. 15 per piece and thereby making certain addition. | |
| ■ | On appeal, the Commissioner (Appeals) upheld the assessment order. | |
| ■ | On second appeal: |
HELD-II
| ■ | The assessee was following 'Cost or market price, whichever is less' as the method of its stock valuation. Under such a method, it is the market price of the stock, which is taken into consideration, if the same is less than the cost price. But where the assessee claims that the market value of closing stock is less than the cost price, then burden is on him to prove so. Such a burden can be discharged either by substantiating such value with the report of some approved valuer, or in some other reasonable but reliable manner. It can be possibly done by showing that such stock was subsequently sold at a price close to such declared value. [Para 10] | |
| ■ | In the instant case the assessee had total stock worth Rs. 2.36 crore, of which only Rs. 9.60 lakh was claimed as defective stock valued at below the cost price. The valuation of the good stock has been accepted by the Assessing Officer. The assessee placed on record certain sale bills issued in the succeeding year to show that the defective stock of the current year fetched a price much less than Rs. 8.33 per piece. On a pertinent query, it was conceded that such invoices showing the sale of defective goods at a lower price in succeeding year were not placed before the AO. In principle, when the assessee is following 'Cost or market price whichever is less' as method for valuation, then the assessee cannot be compelled to value such stock at the cost price, if the market value of such stock is less. In such circumstances, it is the market value which is required to be considered for determining the overall profit. Under these circumstances, it would be in the fitness of things, if the impugned order on this issue is set aside and the matter is remitted back to the file of the Assessing Officer to verify the assessee's contention of such stock having been sold at a price less than Rs. 8.33 per piece in the subsequent year. If this contention turns out to be correct, then there can be no question of sustaining any addition in this regard. In the otherwise circumstance, the Assessing Officer is obliged to decide the issue as per law after allowing a reasonable opportunity of being heard to the assessee. [Para 11] | |
| ■ | In the result, the appeal is partly allowed for statistical purposes. [Para 12] |
CASES REFERRED TO
E-City Entertainment (India) (P.) Ltd. v. Addl. CIT [IT Appeal No. 1382 (Mum.) of 2012, dated 26-3-2013] (para 5) and Punjab Bone Mills v. CIT [IT Appeal No. 596 of 2007, dated 10-7-2008] (para 5).
Sanjiv M. Shah for the Appellant. O.P. Meena for the Respondent.
ORDER
R.S. Syal, Accountant Member - This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals) on 30-07-2010 in relation to the assessment year 2007-2008.
2. The first ground is against the confirmation of denial of depreciation amounting to Rs. 47,16,988 on the plant and machinery.
3. Briefly stated the facts of the ground are that the assessee claimed depreciation totaling Rs. 81,82,786 on various assets including depreciation amounting to Rs. 47,16,998 on the machinery which was used by its sister concern, viz., M/s Defiance Knitting Industries Private Limited (DKIPL). This machinery was purchased by the assessee in the preceding year and the same was installed at the factory premises of DKIPL, which was actually used by the said sister-concern. The assessee was called upon to explain as to why the depreciation on such machinery be not disallowed as it was not utilized by it but the sister-concern. The assessee submitted that it was operating from rented premises and due to paucity of space, the machinery was installed at the business premises of DKIPL, which was located at a different place. The assessee claimed that it was a pure business decision and hence the allowance could not be denied. Not convinced with the assessee's submissions, the Assessing Officer rejected the assessee's claim by holding that the machinery was not used by the assessee for its business purpose but was utilized by DKIPL, for which the assessee did not get either rent or any sort of benefit. The learned CIT(A) echoed the action of the Assessing Officer on this score.
4. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee purchased this machinery in the preceding year and recorded it in its books of account. Equally, there is no disagreement on the fact that such machinery was installed ab initio at the business premise of DKIPL, for the business purpose of the sister-concern. It is not a case that the machinery was simply installed at some other location but was utilized by the assessee for its business purpose. Under such circumstances, the question arises as to whether the assessee is lawfully entitled to depreciation allowance.
5. In support of the entitlement to the depreciation, the learned AR relied on certain decisions to accentuate that once the machinery has entered into block of assets, then there can be no denial of depreciation under any circumstance. His main emphasis was on the order dated 26-3-2013 passed by the Mumbai Bench of the Tribunal in E-City Entertainment (India) (P.) Ltd v. Addl. CIT [ITA No. 1382/Mum/2012] entitling the assessee to depreciation on an asset forming part of block of asset notwithstanding the fact that it was not put to use during the relevant financial year. Per contra, the learned Departmental Representative relied on the judgment dated 10-07-2008 of the Hon'ble Punjab & Haryana High Court in Punjab Bone Mills v. CIT [ITA No. 596 of 2007], a copy of which has also been placed on record. In this judgment, the Hon'ble High Court noticed the fact that the boiler in respect of which benefit was claimed, was also used by the sister-concern. Their Lordships upheld the Tribunal order holding that deduction u/s 32 be restricted to a fair proportionate part thereof having regard to the user of the asset by the assessee for its business purpose.
6. It is a trite law that once an asset falling in a particular block is purchased by the assessee and put to use for its business purpose, then depreciation has to be allowed. In the scheme of block of assets, depreciation is allowed irrespective of the fact whether or not a particular asset forming part of a block is distinctly used. The rationale of allowing depreciation in a case of non-user of a particular asset is that the otherwise user of such asset forming part of the block, is not jeopardized in any manner to the assessee. Where an asset is 'actually used' by the assessee for its business purpose, it gives entitlement to depreciation, but if an asset is not actually used but is available for use, it amounts to 'deemed user' in the scheme of block of assets. An asset can be said to be 'deemed to have been used' in contrast to 'actually used' when it is acquired by the assessee for its business purpose but is not actually used for lack of requirement or otherwise, coupled with the fact that such asset remains at its disposal for actual user as and when required. It, therefore, follows that an assessee is entitled to depreciation, in the scheme of block of assets, on 'actual' or 'deemed user'. This position should be seen in contradistinction to a position in which an asset is not only not utilized by the assessee for its business purpose but is acquired for some third party and is also so used. A line of distinction needs to be drawn between a case in which an asset is acquired by the assessee for its business purpose and a case in which such asset is acquired by the assessee for a different entity for the business purpose of such entity. Whereas in the first situation, depreciation is to be allowed whether or not the asset is actually used, but there can be no question of allowing any depreciation in the second situation. Section 32 entitles an assessee to depreciation on the satisfaction of twin conditions. The first is that the asset should be owned by the assessee and the second is that it should be used for the business purpose. It is beyond our comprehension as to how an assessee can claim depreciation by reason of mere acquisition of an asset. The second condition of section 32, being the 'user' of asset - whether 'actual' on one hand or 'deemed' on the other, in such a case would be wanting. That being the position, there can be no question of granting any depreciation in such a case.
7. Adverting to the facts of the instant case, it is seen that the assessee purchased the asset but installed it at the premises of its sister-concern, which was utilized by the sister concern for their own business purpose. There is no benefit which the assessee derived from its sister-concern as a quid pro quo for allowing the user of such asset. The mere facts that the assessee utilized its funds or obtained a loan in its own name for acquiring the asset and also showed it in its books of account, would not change the consequence of the non- granting of depreciation in any manner when the essential fact prevails that the asset was, in fact, utilized by the sister concern for its own business purpose. As it is not a case of the assessee having 'actually used' or 'deemed to have used' such asset for its business purpose, there can be no scope for allowing depreciation to the assessee on such asset.
8. This case has another interesting dimension. The sister-concern, DKIPL, which actually used the asset was running into consistent losses. In the preceding year i.e. A.Y. 2006-2007, when the assessee purchased and recorded such asset in its books of account, DKIPL suffered loss of Rs. 1.23 crore making total of carry forward loss to the tune of Rs. 25.19 crore. It shows that the affairs of the group concerns were cooked up in such a way so as to reduce the incidence of tax by shifting the claim of depreciation in tax paying company rather than genuinely retaining it in a non-tax paying entity. This type of arrangement between the sister-concerns needs to be discouraged. The further argument of the ld. AR that the claim of depreciation was allowed to the assessee in the preceding year and hence the principle of consistency should be followed, is again devoid of merits. On a pointed query, it was candidly admitted that the return for the last year was processed u/s 143(1) in a summary manner and the case was not taken up for scrutiny assessment. Since in view of the detailed discussionsupra, it is manifest that the assessee is not entitled to depreciation as per law, we are disinclined to accept the argument of the ld. AR to follow the principle of consistency in the given circumstances as obviously there can be no estoppel against the provisions of the Act. The impugned order is upheld on this issue. This ground is not allowed.
9. The second ground is against the confirmation of addition of Rs. 9,60,000 on account of difference in valuation of closing stock of defective and rejected goods. The facts apropos this ground are that the assessee valued 1,44,000 pieces of undergarments at Rs. 8.33 per piece making total valuation of such stock at Rs. 12,00,000. It is pertinent to note that the assessee was subjected to survey action u/s 133A during the previous year relevant to the assessment year under consideration in which it was admitted that the cost per piece was Rs. 15. The assessee was called upon to explain as to why it valued some of the undergarments at Rs. 8.33 per piece as against Rs. 15, being its cost price. The assessee stated that the market value of such defective stock was not more than that shown. The Assessing Officer rejected the assessee's contention and valued the stock of 1,44,000 pieces at Rs. 15 per piece, thereby making an addition of Rs. 9,60,000. The learned CIT(A) upheld the assessment order on this point.
10. We have heard the rival submissions and perused the relevant material on record. From a copy of the tax audit report shown to us during the course of proceedings, it is noticed that the assessee was following 'Cost or market price, whichever is less' as the method of its stock valuation. Under such a method, it is the market price of the stock, which is taken into consideration, if the same is less than the cost price. But where the assessee claims that the market value of closing stock is less than the cost price, then burden is on him to prove so. Such a burden can be discharged either by substantiating such value with the report of some approved valuer, or in some other reasonable but reliable manner. It can be possibly done by showing that such stock was subsequently sold at a price close to such declared value.
11. Coming back to the facts of the extant case, it is seen that the assessee had total stock worth Rs. 2.36 crore, of which only Rs. 9.60 lakh was claimed as defective stock valued at below the cost price. The valuation of the good stock has been accepted by the AO. The learned AR placed on record certain sale bills issued in the succeeding year to show that the defective stock of the current year fetched a price much less than Rs. 8.33 per piece. On a pertinent query, it was conceded that such invoices showing the sale of defective goods at a lower price in succeeding year were not placed before the AO. In principle, we hold that when the assessee is following 'Cost or market price whichever is less' as method for valuation, then the assessee cannot be compelled to value such stock at the cost price, if the market value of such stock is less. In such circumstances, it is the market value which is required to be considered for determining the overall profit. Under these circumstances, we are of the considered opinion that it would be in the fitness of things if the impugned order on this issue is set aside and the matter is remitted to the file of A.O. We order accordingly and direct him to verify the assessee's contention of such stock of 1,44,000 pieces having been sold at a price less than Rs. 8.33 per piece in the subsequent year. If this contention turns out to be correct, then there can be no question of sustaining any addition in this regard. In the otherwise circumstance, the AO is obliged to decide the issue as per law after allowing a reasonable opportunity of being heard to the assessee.
12. In the result, the appeal is partly allowed for statistical purposes.
No Section 14A / Rule 8D Disallowance of Interest If Income Exceeds Expenditure
Issue – During the course ofassessment proceedings, Assessing Officer noticed that Assessee has madeinvestment in shares amounting to Rs. 95,45,400/-. Assessing Officer was of the view that the investment would generate exempt income and therefore provisions of section 14A becomes applicable. He accordingly applying the formula prescribed in Rule 8D of Income Tax Rules 1962 worked out disallowance under Section 14A of Rs. 15,63,883/-.
Held – We find that CIT(A) while granting relief to the Assessee has given a finding that no nexus has been established by the A.O. with the amount incurred by the Assessee for earning the tax free income. He has further noted that in the Assessee's case the interest income was more than interest expense and thus the Assessee was having net positive interest income and therefore the same cannot be considered for disallowance and for which he placed reliance on the decision of Kolkata Tribunal in the case of Trading Apartment Limited and the decision of Tribunal in the case Morgan Stanley India Securities Private Limited. He however considered the administrative expenses to be 0.5% of the average investments and disallowed the same.
Before us the Revenue could not bring any material on record to controvert the findings of CIT(A). We therefore find no reason to interfere the order of CIT(A). Thus this ground of the Revenue is dismissed.
INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD
(BEFORE SHRI MUKUL KR. SHRAWAT J.M. & SHRI ANIL CHATURVEDI, A.M.)
I.T. A. No. 2228/AHD/2012 (Assessment Year:2008-09)
The Income-tax Officer
Vs.
Karnavati Petrochmem Pvt. Ltd.
ORDER
Date of hearing : 12-06-2013
Date of Pronouncement : 05-07-2013
PER SHRI ANIL CHATURVEDI,A.M.
1. This appeal is filed by the Revenue against the order of CIT(A)- VIII, Ahmedabad dated 12.07.2012 for A.Y. 2008-09
2. The facts as culled out from the order of lower authorities are as under.
3. Assessee is a company engaged in the business of Finance. It electronically filed its return of income on 25.08.2008 declaring total income at Rs. NIL after set off of carry forward losses. The case was selected for scrutiny and thereafter assessment was framed under 143(3) vide order dated 25.10.2010 and the total income was assessed at Rs. 15,45,700/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) vide order dated 12.07.2012 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A) the Revenue is now in appeal before us and has raised the following effective ground:-
1. The Ld. CIT(A) has erred in law and on facts in deleting disallowance of Rs. 15,63,883/- made u/s. 14A of the Act, without appreciating the fact that there was no nexus that could be established with the amounts incurred by the assessee for earning the tax free income.
4. During the course of assessment proceedings, Assessing Officer noticed that Assessee has made investment in shares amounting to Rs. 95,45,400/-. Assessing Officer was of the view that theinvestment would generate exempt income and therefore provisions of section 14A becomes applicable. He accordingly applying the formula prescribed in Rule 8D of Income Tax Rules 1962 worked out disallowance under Section 14A of Rs. 15,63,883/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the Assessee granted partial relief by holding as under:-
4.3 I have gone through the assessment order and the submission of the appellant. During the course of Assessment proceeding, the Assessing officer noticed that the appellant had madeinvestment in shares amounting to Rs.95,45,400/- so that disallowance of expenses was required to be made in view of section 14A of the Act in respect of interest expenses and administrative expenses the AO has worked out the disallowance of Rs. 15,63,883/- as per Rule 8D. The appellant has submitted that he has claimed only Rs. 300 as exempt income i.e. Dividend Income and it is submitted that no direct/indirect expenditure has been incurred to earn the exempt income. The appellant has submitted that the dividend generally received through ECS and no specific expenditure incurred for collecting and depositing the said dividend in bank, therefore, no disallowance u/s 14A can be made for administrative expenses. The appellant has further submitted that he has incurred interest expenses of Rs. 1,83,02,724/- as against interest income of Rs. 1,86,81,762/- and thus it has surplus interest income of Rs. 3,79,038/- and on that ground no part of interest can be disallowed u/ 14A read with rule 8D on the basis of the decisions of Kolkatta Bench of IT AT in case of Trade Apartment Ltd and the decision of Mumbai Tribunal in case of Morgan Stanley India Securities Private Limited. The appellant has further submitted that AO has not pointed out any particular expenditure that incurred for earning exempt income and while proposing disallowance u/s 14A, AO has failed to establish a pre-requisite nexus between the expenditure disallowed and theinvestments made from which income earned is exempt from tax. The appellant submits that there cannot be any presumption that the borrowings were made for the purpose of making any investment, consequently, the proposed addition by the Id. Assessing Officer is uncalled for.
4.4. On the identical facts in assessee 's own case the Ld. ClT(A) Vlll in Appeal no. ClT(A)- VHl/lTO Wd-4(2)/657/09- 10 dated 25.01.2011 for the A. Y. 2007-08 has held in para 4.3.2 on page no. 17 as under:-
"In view of the details submissions of the appellant, it is categorically established that the interest expenditure has no direct nexus with the tax free investment. Secondly, the net interest expenditure is only Rs. 3,26,722/-.ln such a situation where appellant has net interest expenditure only of Rs. 3,26,722/- , the disallowance of gross interest is not justified. The case of Hero Cycles Ltd. (P & H) 323 ITR 22 supports this contention. In view of all the facts mentioned above the disallowance us/ 14A has calculated and submitted by the appellant above of Rs. 40769/- is confirmed. The remaining addition Rs. 494132/-is deleted."
Therefore, in light of the above discussion, I am of the opinion that there was no nexus that could be established with the amounts incurred by the assessee for earning the tax free income. The appellant is also having net positive interest income which cannot be part for the disallowance in view of the basis of the decisions of Kolkatta Bench of IT AT in case of Trade Apartment Ltd and the decision of Mumbai Tribunal in case of Morgan Stanley India Securities Private Limited. At the same time, the appellant is incurring administrative expenses to maintain the above investments. In view of the above, the amount of Rs. Rs. 4 7940/- which is 0.5% of average Investment of Rs. 94,45,400/- is taken as the disallowance u/s14A. In view of the facts of the case and the decision in the cases (supra) and following the decision of my predecessors, the disallowance made by the A.O. u/s 14A of the I. T. Act, 1961 cannot be fully sustained. In these circumstances, the A.O. is directed to delete the disallowance made by him of Rs. 15,08,803/-and Rs.7140/- on amount of interest under section 14A of the Act. The disallowance of Rs. 4 7940/- on administrative expenses is confirmed. The ground of appellant is partly allowed.
5. Aggrieved by the order of CIT(A) the Revenue is now in appeal before us.
6. Before us, the learned D.R. relied on the order of Assessing Officer. On the other hand the learned A.R. submitted that provisions of Section 14A are applicable only when Assessee earns an income which is exempt from tax and incurs some expenditure for earning the aforesaid income. He further submitted that the Assessing Officer has to establish nexus between the expenditure incurred and the source of exempt income. In the present case, no nexus has been established by the Assessing Officer and therefore no disallowance under 14A can be made. The learned A.R. further submitted that the Assessee has received dividend of Rs. 300 which has been received through ECS and no specific expense has been incurred for collecting and depositing the dividend. He thus supported the order of CIT(A).
7. We have heard the rival submissions and perused the material on record. We find that CIT(A) while granting relief to the Assessee has given a finding that no nexus has been established by the A.O. with the amount incurred by the Assessee for earning the tax free income. He has further noted that in the Assessee's case the interest income was more than interest expense and thus the Assessee was having net positive interest income and therefore the same cannot be considered for disallowance and for which he placed reliance on the decision of Kolkata Tribunal in the case of Trading Apartment Limited and the decision of Tribunal in the case Morgan Stanley India Securities Private Limited. He however considered the administrative expenses to be 0.5% of the average investments and disallowed the same.
8. Before us the Revenue could not bring any material on record to controvert the findings of CIT(A). We therefore find no reason to interfere the order of CIT(A). Thus this ground of the Revenue is dismissed.
9. In the result the appeal of the Revenue is dismissed.
10. Order pronounced in Open Court on 05 -07- 2013.
Deduction not claimed in Return U/s. 139(1) can be claimed in Return filed U/s.153A
ITAT CHENNAI BENCH 'A'
Assistant Commissioner of Income-tax
Versus
V.N. Devadoss
IT Appeal Nos. 1219 to 1223 (Mds.) of 2012
[ASSESSMENT YEARS 2008-09 TO 2010-11]
[ASSESSMENT YEARS 2008-09 TO 2010-11]
Date of Pronouncement – 04.02.2013
ORDER
Dr. O.K. Narayanan, Vice-President
This is a bunch of five appeals, all filed by the Revenue. The relevant assessment years are 2008-09, 2009-10 and 2010-11. The Revenue has filed two appeals in the case of Shri V.N. Devadoss in his individual case for the assessment years 2008-09 and 2009-10. The three remaining appeals are filed in the case of Shri V.N. Devadoss(HUF) for the assessment years 2008-09, 2009-10 and 2010-11.
2. The appeals in the case of Shri V.N. Devadoss in his individual case are directed against the common order passed by the Commissioner of Income-tax(Appeals)-I at Chennai, dated 26-3-2012. These two appeals arise out of the respective assessments completed under section 153A, read with section 143(3) of the Income-tax Act, 1961.
3. The remaining three appeals filed in respect of Shri V.N. Devadoss (HUF) are directed against the common order passed by the Commissioner of Income-tax(Appeals)-I at Chennai, dated 26-3-2012. In these cases the appeals for the assessment years 2008-09 and 2008-09 arise out of the assessments completed under section 153A, read with section 143(3) of the Income-tax Act, 1961. The appeal for the assessment year 2010-11 arises out of the regular assessment completed under section 143(3) of the Act.
4. The assessees herein are engaged in the business of developing and building of housing projects approved by local authorities. The assessees have not filed their returns of income for the impugnedassessment years within the due dates prescribed under section 139(1) of the Income-tax Act, 1961. Meanwhile, there was a search action under section 132 conducted on the business premises of the assessees on 6-8-2009 and 17-8-2009. In pursuance of the said search carried out under section 132, the Assessing Officer issued notices under section 153A, requiring the assessees to file their returns of income for the period relevant to six assessment years. The notices under section 153A were issued on 26-7-2011. As the assessment in the case of HUF for the assessment year 2010-11 was a regular assessment completed under section 143(3), there was no question of issuing notice under section 153A for the said assessment year 2010-11, in the case of the HUF.
5. Even though the assessees have not filed the returns of income before the due date prescribed under section 139(1) for the impugned assessment years, they had furnished their returns of income before the issue of notices under section 153A of the Act. In the individual case and in the HUF case returns were filed on 11-11-2010, after the due date prescribed under section 139(1) and after the search conducted, but before the issue of notice under section 153A. The return in the case of HUF for the assessment year 2010-11 was filed on 29-11-2011. Thereafter, the assessees again filed returns for the assessment years 2008-09 and 2009-10 on 23-9-2011, in response to the notices issued under section 153A of the Act.
6. It is in the above background that the story of these appeals begins. In the returns filed by the assessees, they claimed the deduction provided under section 80IB(10) of the Act. Section 80IB(10) provides for deduction in respect of profits and gains in the case of an undertaking developing andbuilding housing projects approved before the 31st day of March, 2008, by a local authority, of hundred per cent of the profits derived in the previous year relevant to the assessment year. It is how the assessees have claimed deduction under section 80IB(10).
7. There is another restrictive provision given in section 80AC of the Income-tax Act, 1961. The said section 80AC provides that where in computing the total income of an assessee of the previous year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80IA or section 80IAB or section 80IB or section 80IC or section 80ID or section 80IE, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.
8. In the course of assessment proceedings the Assessing Officer invoked the provision of law stated in section 80-AC on the ground that the assessees have not filed their returns of income on or before the due date specified under sub-section (1) of section 139 of the Act. Accordingly, he denied the claim of deduction made by the assessees under section 80IB(10) of the Act.
9. In first appeals, when this issue was agitated, the Commissioner of Income-tax (Appeals) recorded the following findings of fact:
1. The appellants had undertaken housing projects which are eligible for deduction under section 80IB(10).
2. All the mandatory conditions specified under section 80IB have been complied with.
3. There has been a delay in filing of returns within the time limit specified under section 139(1) of the Act.
4. As per section 80AC to be eligible for deduction under section 80IB, the returns should have been filed within the time stipulated under section 139(1).
10. In the light of the above findings of fact, the Commissioner of Income-tax(Appeals) framed twoquestions to be decided on the issue of deduction under section 80-IB(10):
(i) Whether section 80AC is directory or mandatory, and
(ii) Whether the returns filed in response to notices issued under section 153A can be taken as returns filed within the time limit stipulated under section 139(1) of the Act.
11. While adjudicating the issue as to whether section 80AC is directory or mandatory, the Commissioner of Income-tax (Appeals) has relied on the various principles of statutory interpretations. Relying on the doctrine of substantial compliance, the Commissioner of Income-tax (Appeals) pointed out that if an attempt is made in good faith to perform the statutory requirements, even if it does not precisely meet the terms of the statutory requirements, the performance will still be considered complete if the essential purpose is accomplished. The Commissioner of Income-tax (Appeals) also referred to similar provisions as well as the restrictions provided under chapter VI-A, where a claim for deduction should be supported by an audit report, etc. and the cases where in such circumstances the courts have held that filing of audit report is directory and not mandatory. The Commissioner of Income-tax (Appeals) also held that having considered the substantial compliance of statutory requirements made by the assessees, the principle of liberal interpretation should be adopted to decide whether the operation of section 80-AC is mandatory or directory.
12. Finally the Commissioner of Income-tax (Appeals) referred to the 4th proviso to section 10B, wherein similar restriction is provided in claiming the deduction under section 10B. section10B provides deduction of profits and gains as are derived by a hundred per cent export oriented undertaking from the export of articles or things or computer software for a period of ten consecutiveassessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be. The fourth proviso inserted under section 10B puts a rider that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139.
13. The Commissioner of Income-tax (Appeals) found that the wordings given in section 80-AC and in the fourth proviso to section 10B are similar and there are decisions in the context of the fourth proviso to section 10B that filing of return on or before the due date prescribed under section 139(1) is directory and not mandatory. In support of the above proposition, the Commissioner of Income-tax (Appeals) relied on the decision of the Income-tax Appellate Tribunal, Delhi, in the case of Asstt. CIT v. Dhir Global Industries (P.) Ltd. [2011] 43 SOT 640 and also on the decision of the jurisdictional Tribunal in the case of Asstt. CIT v. Polyhose India (P.) Ltd. in ITA No.122(Mds)/2011 dated 30-6-2011. The Commissioner of Income-tax (Appeals) also relied on the judgment of the Hon'ble Delhi High Court in the case of CIT v. Web Commerce (India) (P.) Ltd., [2009] 318 ITR 135.
14. In the light of the above, the Commissioner of Income-tax (Appeals) held that section 80-AC is directory and, therefore, the assessing authority was not justified in denying the assessees' claim for exemption under section 80IB(10) of the Act.
15. The Commissioner of Income-tax (Appeals) has also examined the issue whether the returns filed by the assessees in response to the notice issued under section 153A can be taken as returns filed within the time stipulated under section 139. He found that section 139 provides for filing of returns in different situations. Return of income has to be filed within the due date prescribed under section 139(1). Belated return is to be filed within the time allowed under section 139(4). Any return filed beyond the time limit prescribed either under section 139(1) or under section 139(4) would be non est in law and cannot be acted upon.
16. On the above principle the Commissioner of Income-tax (Appeals) held that in these cases the assessees having not filed any return under section 139(1) or under section 139(4), no valid return existed before the issue of notices under section 153A of the Act. Accordingly, he held that the only valid returns filed by the assessees herein are the returns filed by them in response to the notices issued under section 153A of the Act. Since the returns under section 153A have to be construed as returns filed under section 139, all provisions of the Act would apply including the provisions of Chapter VI-A, which deals with various deductions.
17. The Commissioner of Income-tax (Appeals) relied on the order of the Income-tax Appellate Tribunal, Mumbai Bench-F in the case of Faisal Abbas v. Dy. CIT ITA No. 3485 & 3487/Mum/2010, dated 25-10-2011 and the decision of the Income-tax Appellate Tribunal, Mumbai G-Bench, rendered in the case of Dy. CIT v. Eversmile Construction Co. (P.) Ltd. in ITA No.4238/Mum/2010, dated 30-8-2011. In the case of Mr. Faisal Abbas, the Assessing Officer had denied set off of brought forward losses in the assessment made under section 153A on the ground that such set off could not be given in the assessment under section 153A. The Tribunal held that once the return of income filed under section 153A was to be deemed to be a return of income filed under section 139, all other provisions would apply in view of the provisions of section 153A(1)(a) and, therefore, the brought forward losses were to be set off even in an assessment made under section 153A. Similarly, in the case of Eversmile Construction Co. (P.) Ltd. (supra) the assessee has claimed deduction of interest expenditure by way of a note appended to the return of income filed under section 153A. The said expenditure had earlier been disallowed by the Assessing Officer in the regular assessment, which the assessee has not appealed against. In view of the provisions of section 153A(1)(a) that all the provisions would apply to the return of income as if it was a return filed under section 139, the Tribunal directed the Assessing Officer to allow the interest expenditure in the assessment made under section 153A.
18. Relying on the above two decisions of the Tribunal and in the light of the detailed discussion made by him, the Commissioner of Income-tax(Appeals) accepted the alternate contention of the assessees that the returns filed under section 153A should be treated as returns filed under section 139(1) and, therefore, the assessees are entitled for the deduction available under section 80IB(10) of the Act.
19. Thus the Commissioner of Income-tax(Appeals) held that the assessee is entitled for the deduction under section 80IB(10) on both the grounds examined and adjudicated by him.
20. This is one of the common grounds raised by the Revenue in all these appeals before us. As the issue is common, the grounds raised by the Revenue in all the five appeals are also common as far as this issue of deduction under section 80IB(10) is concerned. It is the case of the Revenue that the Commissioner of Income-tax(Appeals) has erred in allowing the deduction under section 80IB(10) by accepting the main as well as the alternate grounds raised by the assessees. The Commissioner of Income-tax(Appeals) has failed to note that section 80AC was inserted by the Finance Act, 2006 to ensure compliance in furnishing the return of income by the due date under section 139(1). Although furnishing the return of income by the due date under section 139(1) is mandatory and a precondition for claiming deduction under section 80IB(10) as clearly brought out in para 10 of the circular issued by the CBDT in circular No.14/2006 dated 28-12-2006, the assessees failed to furnish their returns of income by the due date under section 139(1) and thereby failed to satisfy the conditions of section 80AC. In fact, the assessees have not filed any valid return of income under section 139 for the impugned assessment years. There is no provision in the Income-tax Act to waive the condition imposed under section 80AC. The concept of liberal interpretation, minor lapse, etc. are not applicable since the legislative intention is clear and unambiguous. It is also the case of the Revenue that the Commissioner of Income-tax(Appeals) has failed to note that the decision of the Income-tax Appellate Tribunal, D-Bench, Chennai, rendered in the case of Polyhose India (P.) Ltd. (supra) dated 30-6-2011 in ITA No.122(Mds)/2011, is not directly relevant, since that decision is applicable to the exemption provided under section 10B of the Act.
21. Shri Shaji P Jacob, the learned Commissioner of Income-tax appearing for the Revenue, contended that compliance of section 80AC is mandatory and not directory, as decided by the Commissioner of Income-tax (Appeals). The learned Commissioner of Income-tax explained that the Commissioner of Income-tax (Appeals) has relied on the decisions of the Tribunal in the case ofDhir Global Industries (P.) Ltd., (supra) and in the case of Polyhose India (P.) Ltd. (supra) rendered by Delhi Bench and Chennai Bench respectively. Those decisions were rendered in the context of the fourth proviso to section 10B. The wordings of the restriction provided in section 80AC are exactly the same as the wordings provided in the fourth proviso to section 10B. In both cases it is stated that no such deduction shall be allowed to an assessee unless return of income for the assessment year is filed on or before the due date specified in sub-section(1) of section 139.
22. The learned Commissioner of Income-tax further explained that the restrictions provided in the fourth proviso to section 10B and in section 80AC are in pari materia similar to the proviso under section 10A(1A). The proviso to section 10A(1A) provides that no deduction under section 10A shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section(1) of section 139. The Income-tax Appellate Tribunal, Rajkot Special Bench has examined the question whether the said stipulation in the proviso to section 10A(1A) is mandatory or directory. The Special Bench in the case of Saffire Garments v. ITO [2013] 40 ITD 6 (Rajkot) (SB) has held that the provisions of the proviso to section 10A(1A), which say that no deduction under section 10A shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under section 139(1), are mandatory and not directory. The requirement of filing the return of income is not a procedural aspect. The Special Bench held that when the consequences of not filing the return of income within the due date prescribed under section 139(1) of the Income-tax Act, 1961 are so grave, i.e., charging of interest under section 234A, the possibility of prosecution under section 276CC and denial of various deductions under sections 10A, 10B, 10BA and various sections under Chapter VI-A, it cannot be said that the requirement of filing the return of income is a procedural aspect.
23. The learned Commissioner of Income-tax, therefore, explained that in view of the above Special Bench decision of the Tribunal, the decisions of the Tribunal relied on by the Commissioner of Income-tax (Appeals) stand overruled. Regarding the decision of the Delhi High Court in the case ofWeb Commerce(India) (P.) Ltd. (supra) relied upon by the Commissioner of Income-tax (Appeals), the learned Commissioner of Income-tax stated that the said decision covers filing of audit report and not filing of return within the due date provided under section 139(1) . He, therefore, submitted that the Commissioner of Income-tax (Appeals) has erred in holding that the provision of law contained in section 80AC is directory and not mandatory.
24. We heard both sides in detail on this point. Ofcourse, the Commissioner of Income-tax (Appeals) has discussed in a profound manner the principles regarding substantial compliance in the rules regarding interpretation of statutory provisions, especially governing the provisions granting various deductions and reliefs to assessees. But, inspite of all these things, as of now, we are bound by the decision of the Income-tax Appellate Tribunal, Rajkot Special Bench, rendered in the case of Saffire Garments (supra).
25. The riders provided in the proviso to section 10A(1A); in the fourth proviso to section 10B and in section 80AC are similarly worded and analogous and pari materia conveying the very same statutory intention. In all these restrictive clauses, the rule is that no deduction under the respective provisions shall be allowed to an assessee unless the assessee furnishes the return of income for the said assessment year on or before the due date specified under sub-section(1) of section 139 of the Act. This rider was examined by the Income-tax Appellate Tribunal, Rajkot Special Bench in the case of Saffire Garments (supra). The Special Bench has held that the restriction provided by way of the proviso to section 10A(1A) is mandatory as the matter governs filing of the return of income within the due date provided under section 139(1). Therefore, we find that the said decision of the Special Bench applies not only to section 10A, but also to sections 10B and 80AC.
26. In the facts and circumstances of the case and in the light of the decision rendered by the Special Bench of the Income-tax Appellate Tribunal, Rajkot in the case Saffire Garments (supra), we hold that filing of return under section 139(1) within the due date prescribed under law is a mandatory provision. If the assessees want to claim deduction under section 80IB(10), it is necessary that the assessees must file their returns of income before the due date prescribed under section 139(1) of the Income-tax Act, 1961.
27. Accordingly, this issue is decided in favour of the Revenue and the finding of the Commissioner of Income-tax (Appeals) on this point is set aside.
28. Next we have to examine the decision of the Commissioner of Income-tax (Appeals) rendered on the alternate ground raised by the assessees before him. The alternate ground was whether the returns filed in response to notices issued under section 153A can be taken as returns filed within the time limit stipulated under section 139(1). The Commissioner of Income-tax (Appeals) has decided in favour of the assessees holding that the returns filed under section 153A are to be treated as returns filed under section 139(1) within the time allowed under the statute.
29. The learned Commissioner of Income-tax appearing for the Revenue argued at length that this finding of the Commissioner of Income-tax (Appeals) is erroneous and unsustainable in law. He has pointed out that section 153A(1)(a) provides that the return filed in pursuance of notice under section 153A will be treated as a return required to be furnished under section "139″ and it does not say that it will be treated as a return filed under section "139(1)". The learned Commissioner of Income-tax explained that the interpretation given by the Commissioner of Income-tax(Appeals) leads to absurdity. A person who did not file return before the date prescribed under section 139(1) will be denied the benefit of deduction under section 80IB(10) in view of section 80AC, but if the defaulter is subsequently searched under section 132 of the Act, he will be getting back his right to make claims for such deductions by filing a return consequent to notice issued under section 153A. This leads to a question as to whether a search under section 132 is conducted for the benefit of an assessee or department. The learned Commissioner of Income-tax argued that the decisions relied upon by the Commissioner of Income-tax(Appeals) in support of his finding on this point are not relevant, as the facts in those cases are different. He also argued that for the assessment years 2008-09 and 2009-10, even the reason given by the Commissioner of Income-tax(Appeals) is not applicable as the assessees did not file the returns in pursuance of issue of notices under section 153A within the time allowed by the assessing authority and the returns were filed within the extended period of time granted by the Assessing Officer. He, therefore, submitted that there is no justification in the finding of the Commissioner of Income-tax(Appeals) that the returns filed by the assessees in these cases in pursuance to notices issued under section 153A satisfy the requirement of filing of the returns within the due date prescribed under section 139(1).
30. We considered this issue in a detailed manner. In these cases, returns were not voluntarily filed by the assessees within the due date prescribed under section 139(1). Returns were filed by the assessees after search operation was conducted. But it was before the issue of notices under section153A. As such, those returns filed before the issue of notices under section 153A are non est. The assessees have filed returns in pursuance of the notices issued by the Assessing Officer under section 153A. It is to be seen that the returns filed by the assessees in response to the notices issued under section153A alone are valid returns sustainable in law.
31. The issue is to be examined in the above background. Valid returns sustainable in law are the returns filed by the assessees in response to notices issued by the Assessing Officer under section 153A of the Act, consequent to the search action carried out under section 132 of the Income-tax Act, 1961.
32. How the requirement of section 139(1) is satisfied by filing a return under section 153A? This is assumed in the light of section 153A(1)(a), where it is stated that where a search is initiated under section 132, the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years in the prescribed form and verified in the prescribed manner and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. It is because of the above provision of law stated in section 153A(1)(a) that a statutory presumption is made that a return filed under section 153A is a return required to be filed under section 139(1).
33. Where the law has declared that all the provisions of the Income-tax Act will apply to the returns filed by an assessee in response to a notice issued by the Assessing Officer under section 153A as if such return filed by the assessee was a return filed under section 139(1), there cannot be a clash of interpretation between the character of section 139(1) and section 139 adopted in section 153A(1)(a). It is to be seen that the law stated in section 153A starts with a non obstante clause. It overrides all other provisions stated in the Act in matters of filing of return of income consequent to a search. By declaring through a non obstante clause when section 153A adopts section 139 for the purpose of completing the assessment under section153A, there is no scope for drawing a dividing line between section 139 provided in section 153A and section 139(1) simpliciter.
34. The liability to file a return of income in response to a notice issued under section 153A is as much good as the liability of file a return under section 139(1). The liability to file return arises under section 139(1). All other sub-sections of section 139 are only derivatives thereof and explanations thereto. Therefore, the reference made to section 139 in section 153A(1)(a) is virtually the reference made to section 139(1).
35. It is suffice to mention section '139′ while stating the character of the return filed under section 153A. That is why, sub-section(1) of section 139 has not been more particularly provided in section 153A(1)(a).
36. Search under section 132 enables an Assessing Officer to issue notice to file returns under section 153A. Section 153A is a substantive provision to do the assessment for six assessment years. Section 153A, by way of adaptation, conveys the responsibility for filing of the return under section 139 Therefore, a return filed in pursuance of a notice issued under section 153A is as good as a return filed under section 139 and more particularly under section 139(1).
37. In the present case, the assessees being the builders, had the option to recognize their income either on percentage completion method or on project completion method. Therefore, it was not certain to hold that the assessees were liable at all to file returns under section 139(1). Whether the assessees had recognized their income for the impugned assessment years is also not clear. The returns were filed after search made under section 132 but before the issue of notice under section 153A. Those returns were belated returns. Therefore, those returns are non est in law. The emerging picture is that the assessees had filed returns for the first time only in response to notices issued under section 153A. They were filed within the time. Law has not prescribed any time limit for issue of notice under section 153A or for filing of the return in response to notice issued under section 153A. Law provides that an assessee shall file his return in pursuance of the notice issued under section 153A within the time stipulated in the notice. But it is also available in the hands of the Assessing Officer to extend the period of time to file the return. In these cases the assessees have filed returns within the extended time. Therefore, it is to be held that these returns were filed by the assessees under section 153A within the time. By way of a corollary stated earlier, these returns filed under section 153A within the time are necessarily to be treated as returns filed under section 139(1).
38. Where an assessee has filed his return of income as prescribed by law, even if as a consequence of search carried out under section 132 and in consequence of notice issued under section 153A, the assessee is obviously entitled for claiming corresponding deductions provided in law. The deduction claimed in a return filed under section 153A cannot be denied on the ground that the claim was not made earlier in a return filed under section 139(1).
39. In the present case, the returns were filed because of section 132, section 153A and consequently because of section 139. Income of the assessees had to be declared because of the event of search. At that time the assessees were equally entitled to claim lawful deductions available to them. A claim made by an assessee cannot be denied only on the ground that the return was filed in consequence of search.
40. The litmus test in the present case is whether the assessees have filed the returns in time, in response to the notices issued under section 153A. If the returns were filed within the time allowed under section 153A, it is as good as having the returns filed under section 139(1) within the due date.
41. It is in the light of the above discussion that we have to consider the two relevant decisions of the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal, F-Bench, Mumbai in the case of Faisal Abbas (supra) has held that the return of income filed under section 153A was to be deemed to be a return filed under section 139 and therefore all other provisions of the Act would apply in view of the provisions of law stated in section 153A(1)(a). The Tribunal, therefore, held that even if a return of income was filed under section 153A, the assessee was entitled for the benefit of brought forward losses to be set off against the assessable income. Section 139(3) provides that if any person who has sustained a loss in any previous year under the head 'Profits and gains of business or profession', the same could be carried forward and set off against future income only if the assessee has filed his return within the due date prescribed under section 139(1). It is exactly like the provisions of law stated in section 80AC. Inspite of that, the Tribunal in the above stated case of Faisal Abbas (supra) has held that the assessee is still entitled for carry forward and set off of business loss as the return filed by the assessee under section153A has to be treated as a return filed under section 139(1). The same principle has been followed by the Income-tax Appellate Tribunal, Mumbai G-Bench in the case of Eversmile Construction Co. (P.) Ltd. (supra).
42. In view of the above discussion and relying on the above mentioned decisions of the Income-tax Appellate Tribunal, Mumbai Benches, we hold that the returns filed by the assessees under section 153A are to be treated as returns filed under section 139(1) by virtue of the law stated in section 153A(1)(a). As such, the assessees are entitled for the deduction available under section 80IB(1). The rider provided in section 80AC does not apply to the present cases, as the returns filed by the assessees under section 153A have been considered as returns filed under section 139(1) within time.
43. Therefore, we uphold the decision of the Commissioner of Income-tax(Appeals) on the alternate ground raised by the assessee as to whether the returns filed in response to notices under section 153A can be taken as returns filed within the time stipulated under section 139(1). We hold that the returns filed under section 153A need to be treated as returns filed within the time limit stipulated under section 139(1). Therefore, the rider provided in section 80AC does not apply to these cases. Therefore, the assessees are entitled for claiming the benefit of deduction available under section 80IB(10) of the Act.
44. Thus the first common issue raised in all these appeals relating to deduction under section 80IB(10) is decided in favour of the assessees and the orders of the Commissioner of Income-tax(Appeals) on this issue is upheld on the ground that the returns filed under section 153A are returns filed under section 139(1).
45. The second common issue raised in all these appeals is regarding levy of interest under section 234A. The case of the Revenue is that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to charge interest under section 234A from the date of expiry of the notice period given in the notices under section 153A without noting that charging of interest under section 234A is compensatory and that as per the provisions of section 80AC, the assessees ought to have filed returns of income within the due date under section 139(1) and hence the provisions of section 234A(1) is applicable. It is also the case of the Revenue that the Commissioner of Income-tax (Appeals) has failed to note that the order of the Income-tax Appellate Tribunal, B-Bench, Chennai in the case of Dr. V. Jayakumar v. Asstt. CIT 46 SOT 68 (Chennai) (URO) is not applicable to these cases since the facts are distinguishable. In the case of Dr. V. Jayakumar (supra), the assessee had paid taxes much before filing the return, whereas in the present cases the assessees have paid taxes under section 140A. The returns of income filed by the assessees on 23-9-2011 cannot be equated with the returns of income required to be filed under section 139(1). It is the case of the Revenue that the assessees have committed default both under sections 234A(1) and 234A(3). It is true that the jurisdictional Tribunal at Chennai in its order rendered in the case of Dr. V. Jayakumar (supra) has held that interest is chargeable under section 234A from the date of expiry of the notice period given to the assessee under section 153A. It is because the return filed under section 153A would be deemed to be a return of income under section 139 as per the express language of the provisions of section 153A(1)(a) and therefore the return of income filed under section 153A also is to be processed under section 143(1) and the income determined thereof. These are all consequences of search conducted under section 132 and the issuance of notice under section 153A. Once a recomputation in the assessment order under section 153A is done, the interest chargeable under section 234A would have to be reckoned from the date of determination of income under section 143(1), read with section 153A to the date of the recomputation of income under section 153A, read with section 143(3). This position is in tune with the law stated in section 234A(3). Therefore we find that the Commissioner of Income-tax(Appeals) is justified in holding that the interest under section 234A is chargeable from the date of expiry of the notice period given under section 153A to the date of completing the assessment under section 143(3). This issue is decided in favour of the assessees.
46. The next common issue raised by the Revenue in all these appeals is that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to charge interest under section 234B from the date of determination of income under section 143(1), read with section 139, read with section 153A(1)(a) to the date of the assessment order under section 153A, read with section 143(3). It is to be seen that interest under section 234B is to be levied only on the additional tax levied on the enhanced income determined under section 153A, read with section 143 and therefore the period of charge should be from the date of determination of the income under section 143(1), read with section 153A to the determination of increased total income under section 153A, read with section 143(3). For the reasons already stated in the case of levy of interest under section 234A we hold that the decision of the Commissioner of Income-tax (Appeals) on the question of levy of interest under section 234B is also just and proper. This common ground is also rejected.
47. The next common issue raised by the Revenue is regarding the allocation of administrative expenses. This ground is not raised in appeal No.1221(Mds)/2012 relating to the assessment year 2009-10 in the case of Shri V.N. Devadoss in his individual file. The common ground of the Revenue is that the allocation of administrative expenses between 80IB and non 80IB units was without any basis. The assessee has not allocated the administrative expenses relating to the projects eligible for claiming the deduction under section 80IB and therefore the assessee should have allocated administrative expenses atleast 30% of the total administrative expenditure.
48. On going through the facts of the case the Commissioner of Income-tax (Appeals) has made a clear finding of fact that the assessees have already taken into account direct expenses as well as indirect expenses including the administrative expenses while computing the profits under section 80IB(10). As the assessees themselves have allocated the expenses including administrative expenses pertaining to eligible projects and other projects separately, there is no need of any estimate in the present case. We, therefore, uphold the order of the Commissioner of Income-tax(Appeals) on this point.
49. In result, these appeals filed by the Revenue are partly allowed.
IT: Where assessee had purchased a property for Rs. 22 lakhs and she had not discharged burden as regards source from which investment had been made, investment in property was an unexplained investment and same was rightly added to income of assessee
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[2013] 36 taxmann.com 231 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax
v.
R. Mallika*
MRS. CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
TAX CASE (APPEAL) NO. 20 OF 2010†
JUNE 17, 2013
Section 69, read with section 158BC, of the Income-tax Act, 1961 - Unexplained investments [Immovable property] - Block period 1-4-1996 to 21-2-2003 - Assessee had purchased one-third share of a property for a sum of Rs. 22 lakhs - As regards investment in said property, assessee stated that she had sold her jewellery for a sum of Rs. 5.70 lakhs through auction by one 'G' on 23-3-2002 and also taken loan of Rs. 15 lakhs from her son-in-law and balance was out of her salary income and cash in hand as on date of investment - She on being called upon to produce bill regarding salary and other details, except photocopies of Form No. 16 furnished no materials - Auctioneer 'G' appeared before Assessing Officer and he disclaimed sale or auction of assessee's jewellery through his concern - Assessee's son-in-law in respect of aforesaid amount of Rs. 15 lakhs stated that he had given said amount directly to vendor of assessee - There was no material to throw light on assessee's son-in-law parting with said sum for and on behalf of assessee - Whether assessee had not discharged burden as regards source from which investment had been made - Held, yes - Whether, therefore, investment in property was an unexplained investment and same was rightly added to income of assessee - Held, yes [Paras 14,16,17 and 18] [In favour of revenue]
FACTS
| ■ | The authorised officer conducted a search under section 132 upon one 'S' and his father 'R' on 21-2-2003 and seized certain documents from their possession. The documents seized indicated that on 'K' wife of 'R' had sold one-third share of her immovable property for a sum of Rs. 22 lakhs to the assessee. Thereafter the assessee, in response to notice issued under section 158BC, filed return for the block period 1-4-1996 to 21-2-2003. She stated before the Assessing Officer that she had purchased the property in the undivided share of 1/3rd for a sum of Rs. 22 lakhs. The other 2/3rd of the property was purchased by her daughter and her son-in-law 'J' for a sum of Rs. 44 lakhs. As regards the investment in the immovable property, the assessee stated that she had sold her jewellery for a sum of Rs. 5.70 lakhs through auction by one 'G' on 23-4-2012 and also taken loan of Rs. 15 lakhs from her son-in-law 'J' and the balance was out of her salary income and cash in hand as on the date of investment. | |
| ■ | The Assessing Officer issued summon to the auctioneer 'G', who stated that he could not give any information as regards the sale of jewellery, since he could not recollect whether he had dealt with the assessee or not. The Assessing Officer further pointed out that contrary to assertion of the assessee that she had received a sum of Rs. 5.70 lakhs by way of sale of jewellery, her son-in-law 'J' stated that the assessee had given her jewellery to her daughter worth Rs. 7 lakhs just before the registration, which was sold by him. Apart from the aforesaid, the assessee had been also given an explanation that as on 31-3-1996 she was in possession of jewellery worth about Rs. 2.86 lakhs and there were no silver articles. In the circumstances, the claim of the assessee on the sale of gold jewellery did not fit in with any of these explanations. The Assessing Officer also examined 'J', who made a statement to the effect that Rs. 15 lakhs was contributed by him at the time of registration. The demand draft had been taken directly in the name of the seller from his bank account on 24-4-2002. The sum of Rs. 15 lakhs given to the assessee was not a loan. Based on the above statement, the Assessing Officer verified the credit entries in the bank account of 'J' and found that pay orders/demand drafts had been taken for making deposit into the bank account of 'J' during the period 2-3-2002 to 18-3-2002. The credit entries had come from the parents, brothers, friends and employees of 'J'. The assessee had also made cash payments in bank account of 'J' by pay orders. Further 'J', on a specifically question as to whether the assessee had repaid the loan, had answered that the assessee had not repaid the loan. The Assessing Officer also issued notice to daughter of the assessee, who did not respond to the notice. The Assessing Officer further found that the assessee had gifted the share of the property to her daughter. In the background of these facts, the Assessing Officer treated the investment in the property as unexplained investment and added the same to the income of the assessee. | |
| ■ | On appeal, the Commissioner (Appeals) held that the assessee had produced materials explaining her source of investment and that there was no justification in making addition at the hands of the assessee. If at all any addition could be made, it could be done only at the hands of the son-in-law. He, therefore, set aside the assessment order. | |
| ■ | On second appeal, the Tribunal confirmed the order of the Commissioner (Appeals). | |
| ■ | On appeal to High Court: |
HELD
| ■ | The assessee was stated to be working as a teacher from the financial years 2001-02 to 2005-06. Although the assessee was called upon to produce bill regarding salary and other details, except photocopies of Form No. 16 no materials were furnished. Apart from this fact, the claim of the assessee that part of the consideration came from the sale of jewellery also appear to be not true. The assessee took the stand that she had sold her jewellery in auction through 'G'. However, the auctioneer disclaimed sale or auction through his concern. [Para 14] | |
| ■ | The assessee's son in law 'J' submitted that the assessee had given jewellery to her daughter worth Rs. 7 lakhs before registration. This is apart from the explanation given by the assessee that she was in possession of jewellery worth Rs. 2.86 lakhs. The claim of the assessee on the sale of gold jewellery does not fit in with any of these explanations. The view of the Tribunal based on the advertisement of the auction and the receipt given by the auctioneer 'G' by itself would not prove substantially the claim of the assessee as regards the sale of her jewellery. [Para 15] | |
| ■ | In so far as a sum of Rs. 15 lakhs said to have been given by the assessee's son-in-law directly to the vendor of the assessee is concerned, the details given in the assessment order raised serious doubt on payment of the said amount by 'J' on behalf of the assessee for purchase of the property. The reason being that on 13-3-2002 the assessee is stated to have deposited Rs. 45,000 each by way of three demand drafts separately into the account of 'J'. There is no explanation as regards this deposit by the assessee. Quite apart, the deposition recorded from the assessee's son-in-law also raised doubts regarding the payment. [Para 16] | |
| ■ | It may be seen that one of the questions posed to the son-in-law was that whether a sum of Rs. 15 lakhs was given as a loan. While originally he said no, immediately he changed it and stated that it might be considered loan without interest. On a specific question whether the loan was returned by the assessee to 'J', while stating that it was not returned, he continued that the assessee had returned the share of property and gifted it to her daughter. Thus the reading of the statement shows the unreliability of the claim made by the assessee as regards the receipt of money from her son-in-law. Even assuming that the assessee had gifted the property to her daughter, the fact remains that the nature of the transaction between the assessee and her son-in-law not being made clear, it is difficult to accept the case of the assessee that she had borrowed a sum of Rs. 15 lakhs from her son-in-law for the purpose of investing it in a property. There is absolutely no material to throw light on the assessee's son-in-law parting with the said sum for and on behalf of the assessee. [Para 17] | |
| ■ | Therefore, the assessee had not discharged the burden as regards the source from which the investment had been made. In the circumstances, the order of the Assessing Officer deserved to be sustained. [Para 18] |
T.R. Senthil Kumar for the Appellant. J. Ashokpathy for the Respondent.
JUDGMENT
Ms. Chitra Venkataraman, J. - The following substantial questions of law are raised by the Revenue in the present Tax Case Appeal filed as against the order of the Income Tax Appellate Tribunal, Chennai 'B' Bench dated 19.6.2009 in IT.(SS)A.No.79/Mds/2008.
"Whether on the facts and circumstances of the case, the Tribunal was right in finding that the assessee proved the source of deposit contrary to the law laid down in (2007) 292 ITR 682 (Commissioner of Income Tax v. K. Chinnathamban)?"
2. This is a case of block assessment covering the period 01.04.1996 to 21.02.2003. It is seen from the facts narrated in the orders of the authority below that a search was conducted under Section 132 of the Income Tax Act, 1961 in the case of one Shri. Singanamala Ramesh Babu and his father Shri. S. Sathya Ramamurthy on 21.02.2003. One of the documents seized during the search indicate that there was a sale of immovable property by one Kanakarathnamma, W/o. Shri S. Sathya Ramamurthy. The said S. Kanakarathnamma sold 1/3rd share of her immovable property for a sum of Rs.22 lakhs (Rupees Twenty Two Lakhs only) to the assessee herein viz., Mallika.
3. On receipt of the information, the Assistant Commissioner of Income Tax sought for information as regards the filing of the returns for the relevant assessment years. It was found that the assessee did not disclose sufficient income to make an investment to the extent of Rs.22 lakhs. Thus, notice under Section 158BC was issued for the period 01.04.1996 to 21.02.2003 on 09.11.2005.
4. In response to this notice, the assessee filed return of income for the block period. As regards the investment in immovable property at 41, Giri Road, T. Nagar, Chennai, it was submitted that the assessee had purchased the property in the undivided share of 1/3rd for a sum of Rs.22 lakhs. The other 2/3rd of the property was purchased by her daughter Smt. Hemalatha and her son-in-law Shri. J. Senthil Kumar, each of them investing Rs.22 lakhs each. The assessee contended that she had sold her jewellery for a sum of Rs.5,70,095/- and also taken loan from her son-in-law and the balance was out of her salary income and cash on hand as on the date of investment.
5. As regards the sale of jewellery, she had stated that the sale was through auction by Giri Auctioneers on 23.04.2002. The receipt given by M/s. Giri Auctioneers was submitted in support of the claim. On summons to the said auctioneers, it was deposed that he could not give any information since he could not recollect whether he had dealt with Mrs. Mallika, the assessee or not. Thus, the claim of the assessee as regards Rs.5,70,095/- stood unproved and that the assessee had not taken any steps to produce Sri Lalith Kumar, who was incharge of Giri Auctioneers nor any evidence let in regarding the genuineness of the auction said to have been conducted.
6. The Assessing Officer further pointed out that contrary to her assertion that she had given a sum of Rupees six lakhs by way of sale of jewellery, her son in law Senthil Kumar stated that the assessee had given her jewellery to her daughter worth Rs.7 lakhs just before the registration, which were sold by him. The assessee, however, submitted that as on 31.03.1996, she was in possession of jewellery worth about Rs.2,86,395/- and there were no silver articles. She also submitted a photo copy of daily viz.,. "Makkal Kural" dated 22.04.2002, where, there was an advertisement relating to auction of her jewellery and silver articles. The assessee was directed to produce other details so as to accept the genuineness of the auction. Even then, it was not forthcoming. Thus, a sum of Rs.5,70,095/- was added back to the total income of the assessee as on the date of investment made by her in the purchase of immovable property i.e., on 24.04.2002.
7. The assessee submitted that her son-in-law contributed Rs.15 lakhs towards her investment in purchase of her share of property. In this regard, a statement was recorded from her son-in-law, which may be usefully extracted herein for better understanding:-
" ......Rs.15 lakhs was contributed by me at the time of registration. It may be noted that the DD had been taken directly in the name of the seller from my IDBI SB Account No.005104000035033 on 24.04.2002. It may be noted that the sum of Rs.15 lakhs given to her is not a loan given by me to her. "
8. Based on the above statement, the Assessing Officer also caused verification on various accounts. On the verification of the credit entries in the IDBI and other banks, it was found that pay orders/DDs had been taken for making deposit into the bank accounts of J. Senthil Kumar during the period 02.03.2002 to 18.03.2002. The Assessing Officer pointed out that the credit entry have come from the parents, brothers, friends and employees of J. Senthil Kumar. A reading of the details given shows that the assessee had also made cash payment to J. Senthil Kumar's account by Pay Order Nos. 421800, 421799, 846154 all dated 13.03.2002 for a sum of Rs.45,000/- each, the first two from Karur Vysya Bank and other one from State Bank.
9. In response to the notice, the said Senthil Kumar appeared before the Officer and he was asked to explain the various credit entries. On a question specifically put to Senthil Kumar, whether he had repaid the loan, he had answered that he had not repaid the loan. In order to verify the financial transaction nature, notice was also issued to daughter of the assessee, who, however did not respond to the notice, except to say through a letter dated 14.11.2007 that she was unable to explain her stand for various reasons.
10. The Assessing Officer found that the assessee had gifted the share of the property to her daughter and that the son-in-law claimed that he had returned all the amounts too. In the background of these facts, the Income Tax Officer proposed to treat the investment in the property as unexplained. Thus, after hearing the assessee, the Officer passed the order of assessment apart from proposing penalty proceedings.
11. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who pointed out that the assessee had produced materials explaining her source of investment and that there could not be any addition at the hands of the assessee, viz., mother-in-law. Thus, on the evidence available before it, the Commissioner of Income Tax (Appeals) held that there is no justification in making addition at the hands of the assessee and if at all any addition could be made, it could be done only at the hands of the son-in-law. In so holding, the Commissioner of Income Tax (Appeals) set aside the assessment.
12. Aggrieved by the same, the Revenue went on further appeal before the Income Tax Appellate Tribunal, who had confirmed the view of the Commissioner of Income Tax (Appeals) pointed out that the said Senthil Kumar had invested Rs.22 lakhs directly and had provided loan to his mother-in-law for purchase of share in the property. There are credit entries in his accounts. Since Senthil Kumar was an assessee and also submitted before the Assessing Officer that the credits in his bank account had been offered before his Assessing Officer, nothing further was required to make addition at the hands of the assessee. Thus, the appeal filed by the assessee was allowed on this aspect.
13. As regards the possession of jewellery and the sale of it, the Tribunal confirmed the view of the Commissioner of Income Tax (Appeals) deleting the addition holding that the assessee had produced a copy of the advertisement of the auction and receipts of the auction, thus, the assessment at the hands of the assessee for Rs.22 lakhs was set aside. Aggrieved by this, the Revenue is before this Court.
14. Although the issue herein would appear to be a question of fact found by the Income Tax Appellate Tribunal, yet, going through the assessment order, we find that the issue does not appear to be a simple one. As already seen in the preceding paragraph, the assessee was stated to be working as a Teacher in International Maritime Academy from the financial year 2001-02 to 2005-06. Although the assessee was called upon to produce bill regarding salary and other details, except photocopies of Form 16, no materials were furnished. Apart from this fact, the claim of the assessee that part of the consideration came from the sale of jewellery also appear to be not true. The assessee took the stand that she had sold her jewellery in auction through M/s. Giri Auctioneers. There are no details that on 23.04.2002, auction was conducted. Notice was issued to the auctioneer in 2007, however, the auctioneer disclaimed sale or auction through their concern. The claim of the assessee in this regard merits to be tested on the specific question made on this.
15. The assessee's son-in-law submitted that the assessee had given jewellery to her daughter worth Rs.7 lakhs before Registration. This is apart from the explanation given by the assessee that she was in possession of jewellery worth Rs.2,86,395/-. The claim of the assessee on the sale of gold jewellery does not fit in with any of this explanation. The view of the Income Tax Appellate Tribunal based on the advertisement of the auction and the receipt given by the auctioneer, by itself, would not prove substantially the claim of the assessee as regards the sale of her jewellery.
16. As regards a sum of Rs.15 lakhs said to have been given by her son-in-law directly to the vendor of the assessee is concerned, there could be no inhibition on a person holding finance giving money to the vendor on behalf of the purchaser, yet, the details given in the assessment order, particularly, as regards the transactions of the son-in-law raised serious doubt on payment of the said amounts by the said Senthil Kumar on behalf of the Mallika for purchase of the property. The reason being that on 13.03.2002, the assessee herein viz., R. Mallika is stated to have deposited Rs.45,000/- each by way of three Demand Drafts separately into the account of Senthil Kumar. There is no explanation as regards this deposit by the assessee in the sworn statement for making such deposit. Quite apart, the deposition recorded from the assessee's son in law also raised doubts regarding the payment.
17. It may be seen that one of the questions posed to the son-in-law was that whether a sum of Rs.15 lakhs was given as a loan, while originally he said no, immediately, he changed it and stated that it might be considered loan without interest. On a specific question whether the loan was returned by the assessee to Senthil Kumar, while stating that it was not returned, he continued that the assessee had returned the share of property and gifted it to her daughter. Thus, the reading of the statement shows the unreliability of the claim made by the assessee as regards the receipt of money from her son-in-law. Even assuming that the mother had gifted the property to her daughter, the fact remains that the nature of the transaction between the assessee and her son-in-law, thus, not being made clear, we find it difficult to accept the case of the assessee that she had borrowed a sum of Rs.15 lakhs from son-in-law for the purpose of investing it in a property, which was later on returned to the son-in-law. There is absolutely no material to throw light on the assessee's son-in-law parting with the said sum for and on behalf of the assessee.
18. In the circumstances, we have no hesitation in holding that the assessee had not discharged the burden as regards the source from which the investment had been made. In the circumstances, on facts, we hold that the Income Tax Appellate Tribunal misdirected itself in accepting the case of the assessee, thereby confirming the order of the Commissioner of Income Tax (Appeals) that there are entries in the accounts of Senthil Kumar and that the credits in the accounts of Senthil Kumar were considered by the respective Assessing Officer to make any further addition at the hands of the assessee on the sum of Rs.15 lakhs. We do not think that such a line of reasoning will satisfy the requirements of law in the matter of substantiating the claim on the addition under the head of "Unexplained Investment". In the circumstances, we have no hesitation in disturbing the finding of fact by the Income Tax Appellate Tribunal as one not based on material and confirm the order of the Assessing Officer. Accordingly, the Tax Case Appeal stands allowed. No costs.
remember to charge interest u/s 220(2). A handsome amount can be recovered.
ST : In case of units availing area-based exemption in respect of excise duty, BED credit cannot be used for payment of EC & SHEC, as such restriction, though not provided by rule 3(4) and rule 3(7)(b) of CENVAT Credit Rules, 2004, is provided for by scheme of exemption notifications
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[2013] 36 taxmann.com 365 (New Delhi - CESTAT)
CESTAT, NEW DELHI BENCH
Commissioner of Central Excise, Jammu
v.
R.B. Jodhamal & Co. (P.) Ltd.*
AJIT BHARIHOKE, PRESIDENT
AND RAKESH KUMAR, TECHNICAL MEMBER
AND RAKESH KUMAR, TECHNICAL MEMBER
FINAL ORDER NOS. A/1175-1179/2012-EX (BR) (PB)
APPEAL NOS. E/764-768 OF 2009
APPEAL NOS. E/764-768 OF 2009
SEPTEMBER 19, 2012
Rule 3 of the Cenvat Credit Rules, 2004 - CENVAT Credit - Utilization of - Assessee was a unit located in Jammu and Kashmir and was exempt from excise duty, but not Education Cess and Secondary and Higher Education Cess (EC & SHEC), under area-based exemption Notification No. 56/2002-C.E. - Exemption was allowed by way of refund equal to 'Duty paid less Cenvat Credit to be first utilized for paying duty - Assessee used credit of Basic Excise Duty (BED) for paying EC and SHEC on such goods - Department argued that credit of BED could not be used for paying EC and SHEC on such goods because such use lead to impermissible increase in amount of refund - HELD : As per para 1A of Notification ibid, word 'duty' means only duties exempted under said notification and does not include EC and SHEC not so exempted - If EC and SHEC not so exempted is paid through Cenvat Credit before first using such credit for paying duty exempted under this notification, refund amount would increase to such extent and will result in refund of duty not covered by this exemption, which is not permissible - Even if BED payable by assessee exceeds BED credit, leftover BED credit cannot be used for payment of EC and SHEC because it distorts/increases quantum of refund; such leftover credit can only be taken to next month as per scheme of Notification No. 56/2002-CE - Though rule 3(4) and rule 3(7)(b) of CENVAT Credit Rules, 2004 do not restrict utilization of BED credit for paying EC and SHEC, however, scheme of Notification No. 56/2002-CE restricts such utilization - If such use is permitted, assessee would indirectly get refund of aforesaid cess which is not permissible under law [Paras 6 to 8] [In favour of revenue]
EDITOR'S NOTE
1. Example : An example would illustrate this judgment. Say, X Ltd. is a unit located in J&K and is eligible for exemption under Notification No. 56/2002-CE. The credit on inputs is Rs. 100 BED and Rs. 3 EC and SHEC, while duty payable is Rs. 250 BED and Rs. 7.5 EC and SHEC. The Notification provides exemption only in respect of BED and that too, to extent of duty paid in cash (i.e., Total Duty paid - Duty paid through Cenvat Credit). Notification also mandates that credit must first be used to pay duty and only balance can be paid using Cenvat Credit.
2. Solution as per Notification No. 56/2002-CE and Rule 3(4) and 3(7)(b) of CENVAT Credit Rules, 2004 : The manner of payment shall be —
| | BED [Exempted under Notification No. 56/2002-CE] | EC and SHEC [Not exempted] |
| Duty payable | 250 | 7.5 |
| Less : Credit | 100 [BED Credit] | 3 [EC & SHEC Credit] |
| Duty payable in cash | 150 | 4.5 |
| Refund under Notification ibid | 150 | No exemption/No refund |
| Net Payment in Cash after refund | - | 4.5 |
3. Assessee's claim : The assessee was claiming as follows —
| | BED [Exempted under Notification No. 56/2002-CE] | EC and SHEC [Not exempted] |
| Duty payable | 250 | 7.5 |
| Less : Credit utilization claimed by assessee | 95.5 [BED Credit] | 7.5 [EC & SHEC Credit Rs. 3 + BED Credit Rs. 4.5] |
| Duty payable in cash | 154.5 | NIL |
| Refund under Notification ibid | 154.5 | No exemption/No refund |
| Net Payment in Cash after refund | - | - |
4. As per judgment : The Tribunal disapproved of assessee's method, as this led to extra refund of Rs. 4.5, thereby, allowing indirect exemption in respect of EC/SHEC, which was not available under the Notification ibid.
5. View on merits : The judgment appears to have laid down correct law for the simple reason that when exemption was available only in respect of BED and not in respect of EC/SHEC, a person availing of such exemption should carry out mandate of exemption i.e., he should treat BED altogether separate.
CASE REVIEW
| ♦ | Union of India v. Modi Rubber Ltd. 1986 (25) ELT 849 (SC) (para 6.2) and | |
| ♦ | CCE v. Jindal Drugs Ltd. 2011 (267) ELT 653 (Tri. - Delhi) (para 6.2) relied on | |
| ♦ | CCE v. Dharampal Satyapal Ltd. [2011] 33 STT 7 (Mag.)/13 taxmann.com 12 (Gau.) (paras 6.2 & 7.1) followed. | |
| ♦ | CCE v. Prag Bosimi Synthetics Ltd. [Central Excise Reference Application No. 4 of 2008, dated 29-6-2011 - not followed being per incuriam (para 7). |
CASES REFERRED TO
CCE v. Jindal Drugs Ltd. 2011 (267) ELT 653 (Tri. - Delhi) (paras 1.1), Union of India v. Modi Rubber Ltd. 1986 (25) ELT 849 (SC) (paras 3), CC&CE v. Bharat Box Factory Ltd. (Unit No. 1) 2011 (265) ELT 366 (Tri. - Delhi) (para 3), Bharat Box Factory Ltd. v. CCE2007 (214) ELT 534 (Tri. - Delhi) (para 4), Cyrus Surfactants (P.) Ltd. v. CCE 2007 (215) ELT 55 (Tri. - Delhi) (para 4), CCE v. Prag Bosimi Synthetics Ltd. [Central Excise Reference Application No. 4 of 2008, dated on 29-6-2011] (paras 4), CCE v. Malwa Industries Ltd.2004 (171) ELT 67 (Tri. - Delhi) (para 4), CCE v. Balaji Industries 2008 (232) ELT 693 (Tri. - Ahd.) (para 4), Prag Bosimi Synthetics Ltd. v. CCE 2007 (216) ELT 254 (Tri. - Kol.) (para 4), Sun Pharmaceutical Industries v. CCE 2007 (207) ELT 673 (Tri. - Delhi) (para 4) and CC&CE v. Dharampal Satyapal Ltd. [2011] 33 STT 7 (Mag.)/13 taxmann.com 12 (Gau.) (para 6.2).
R.K. Verma for the Appellant. S.K. Malhotra for the Respondent.
ORDER
Rakesh Kumar, Technical Member - The respondents are units located in the State of Jammu & Kashmir and are availing exemption under Notification No. 56/2002-C.E. In all these cases, the respondents are liable to pay on the goods cleared by them, the basic excise duty leviable under Section 3(1) of the Central Excise Act, Education Cess leviable under Section 91 read with Section 93 of the Finance Act, 2004 and Secondary and Higher Education Cess (S & H Cess) leviable under Section 136 read with Section 138 of the Finance Act, 2007. The point of dispute in all these appeals is as to whether in terms of the scheme of Notification No. 56/2002-C.E., the respondent can pay education cess and S & H Cess by utilizing the Basic Excise Duty Credit (BED Credit). In these cases, the respondent had paid the education cess and S & H Cess by utilizing the BED Credit and as a result of which, they paid higher amount of basic excise duty through PLA and thus, claimed higher amount of refund in terms of Notification No. 56/2002-C.E. The Jurisdictional Assistant Commissioner in all these cases holding that an assessee availing of exemption under Notification No. 56/2002-C.E. cannot pay education cess and S & H through BED credit, as these cesses are not exempted under this notification and utilization of BED Credit for payment of education cess and S & H cess amounts to permitting refund of these cesses also under this notification, disallowed the refund of excess Basic Excise Duty paid through PLA on account of diversion of BED credit towards payment of education cess and S & H Cess. These orders of the Assistant Commissioner were set aside by the Commissioner (Appeals) vide order-in-appeal dated 23-12-2008 holding that in terms of Cenvat Credit Rules, 2004, there is no restriction on utilization of BED credit for payment of education cess and S & H Cess. Against the order of the Commissioner (Appeals), these appeals have been filed by the Revenue.
1.1 Though these appeals had been heard along with a group of other appeals and had been disposed of by a common Order Nos. 900A-1143A/2009-EX., dated 12-8-2009 by following the Tribunal's judgment in case of CCE v. Jindal Drugs Ltd. 2011 (267) ELT 653 (Tri. - Delhi), the respondent filed ROM Applications No. E/ROM/10-14/2010 in respect of Final Order dated 12-8-2009 on the ground that the Tribunal has wrongly decided these appeals along with other appeals, as while in these appeals the point of dispute is regarding utilization of BED credit for payment of education cess and S & H Cess, in the other appeals the dispute was whether Notification No. 56/2002-CE. exempts education cess and S & H Cess also and that all the appeals have been decided only by considering the 2nd issue by following the Tribunal's earlier judgment in the case of Jindal Drugs Ltd. (supra).
1.2 The applications for rectification of mistake were allowed by the Tribunal vide order dated 12-7-2012 and the appeal Nos. E/764-768/2009 earlier disposed of by the Final Order dated 12-8-2009 were restored to their original numbers. Accordingly, these appeals were heard afresh.
2. Heard both the sides on the issue involved in these appeals i.e. whether an assessee availing of exemption under Notification No. 56/2002-C.E. can pay education cess and S & H Cess through BED Credit.
3. Shri R.K. Verma, the learned Senior Departmental Representative assailed the impugned orders by reiterating the grounds of appeal in the Revenue's appeals and pleaded that —
| (a) | In terms of para (1A) of the notification, a manufacturer availing of this exemption, has to first utilize the whole of the Cenvat credit available at the end of the month for payment of duty on clearances made during the month and only the "balance amount of duty, if any, payable, is required to be paid through PLA and the word 'duty' in para (1A) of the notification refers only to the duties which are exempted in this notification, not the duties which are not covered by this exemption notification; | |
| (b) | Since education cess and S&H cess are not covered by Notification No. 56/2002-C.E. [Tribunal's judgment in case of Jindal Drugs Ltd. (supra) and Apex Court's judgment in case of Union of India v. Modi Rubber Ltd. 1986 (25) ELT 849, the BED credit cannot be used for payment of education cess. | |
| (c) | The education cess/S & H cess levied under Section 91 of Finance Act, 2004 and Section 136 of Finance Act, 2007 respectively is not duty of excise levied under Section 3(1) of Central Excise Act, 1944 and, hence, the same is not covered by this notification and, therefore, for the purpose of para (1A) of the Notification, BED credit cannot be utilized for payment of these education cess; and | |
| (d) | The issue involved in this group of cases stands decided in favour of the Department by the Tribunal's judgment in the case ofCC&CE v. Bharat Box Factory Ltd. (Unit No. 1) 2011 (265) ELT 366 (Tri. - Delhi) |
He, therefore, pleaded that the impugned orders passed by the CCE (Appeals) are not sustainable.
4. Shri S.K. Malhotra, Chartered Accountant, defending the impugned orders pleaded that the Notification No. 56/2002-C.E. exempts the education cess and S&H education cess also, that in this regard they rely upon judgments of the Tribunal in the cases of Bharat Box Factory Ltd. v. CCE 2007 (214) ELT 534 (Tri. - Delhi) and Cyrus Surfactant (P.) Ltd. v. CCE 2007 (215) ELT 55 (Tri. - Delhi); that when the education cess is a duty exempted under Notification No. 56/2002-C.E., and neither in Rule 3(4) nor in Rule 3(7)(b) of Cenvat Credit Rules, 2004 there is any restriction on the utilization of basic excise duty credit for payment of education cess, and S&H cess, these cesses payable by the Respondents could be paid through BED credit also, not necessarily through the education cess credit and S & H cess credit respectively; that Hon'ble Gauhati High Court in case of CCE v. Prag Bosimi Synthetics Ltd. [Central Excise Reference Application No. 4 of 2008] in its judgment dated 29-6-2011 has held that while NCCD is not exempt under Notification No. 32/99-C.E. (a Notification similar to Notification No. 56/2002-C.E.), a manufacturer availing of Notification No. 32/99-C.E. can pay NCCD through credit of basic excise duty; that Tribunal in case of CCE v. Malwa Industries Ltd. 2004 (171) ELT 67 (Tri. - Delhi) has held that BED or SED credit could be utilized for payment of AED (GSI); that the Tribunal in case of CCE v. Balaji Industries 2008 (232) ELT 693 (Tri. - Ahd.) has held that in terms of Rule 3(4) of Cenvat Credit Rules, 2004, education cess could be paid through BED credit and restrictions in Rule 3(7) cannot be extended for utilization of BED credit for payment of education cess; that same view has been taken by the Tribunal in the cases of Prag Bosimi Synthetics Ltd. v. CCE 2007 (216) ELT 254 (Tri. - Kol.) wherein it was held that BED credit could be utilized for payment of NCCD; that Tribunal in the case of Sun Pharmaceutical Industries v. CCE 2007 (207) ELT 673 (Tri. - Delhi) has held that there is no prohibition on use of BED credit for payment of education cess; that Tribunal's judgment in case of Bharat Box Factory Ltd. (Unit No. 1)(supra) is per incuriam and that in view of the above, there is no infirmity in the impugned orders passed by CCE (Appeals).
5. We have considered the rival submissions and perused the records. The point of dispute in these cases is as to whether a manufacturer availing of exemption under Notification No. 56/2002-C.E. and who for availing of this exemption, as per the condition of the exemption notification in para 1A, is required to first utilize the whole of the Cenvat credit available on the last day of the month for payment of duty on the goods cleared during the month, so that he pays only the balance amount of duty, if any payable, through PLA, can utilize BED credit for payment of education cess and S & H cess, before fully utilizing the BED credit available at the end of the month for payment of BED. Before going into the above question, it would be worthwhile having a look at —
| (a) | The relevant provisions of Notification No. 56/2002-C.E.; | |
| (b) | Provisions regarding levy of education cess and S & H cess; and | |
| (c) | Relevant provisions of Cenvat Credit Rules; |
5.1 Relevant portions of the exemption Notification No. 56/2002-C.E., as it existed during the period of dispute, read as under :—
"Notification No. 56/2002-C.E.
Exemption to all goods (except cigarettes, cigars, tobacco and its product and soft drinks and their air concentrates) produced in Jammu & Kashmir by units located in Industrial Growth Centre, Industrial Infrastructure Development Centre or Export Promotion Industrial Park; or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area.
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the First Schedule and the second schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than goods specified in Annexure-I appended hereto, and cleared from a unit located in the Industrial Growth Centre, Industrial Infrastructure Development Centre or Export Promotion Industrial Park; or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area as the case may be, leviable thereon under any of the said Acts as is equivalent to the amount of duty paid by the manufacturer of goods, other than the amount of duty paid by utilization of CENVAT credit under the CENVAT Credit Rules, 2002;
IA. In cases where all the goods produced by a manufacturer are eligible for exemption under this notification, the exemption contained in this notification shall be available subject to the condition that, the manufacturer first utilizes whole of the CENVAT credit available on the last day of the month under consideration for payment of duty of goods cleared during such month and pays only the balance amount in cash.
2. The exemption contained in this notification shall be given effect to in the following manner, namely :—
| (a) | The manufacturer shall submit a statement of the duty paid, other than by way of utilisation of CENVAT credit under the CENVAT Credit Rules, 2002 to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, by the 7th day of the next month to the month under consideration; | |
| (b) | the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, after such verification, as may be deemed necessary, shall refund the amount of duty, other than the amount of duty paid by utilization of CENVAT credit under he CENVAT Credit Rules, 2002, during the month under consideration to be manufacturer by the 15th day of the next month : | |
| Provided that in cases, where the exemption contained in this notification is not applicable to some of the goods produced by a manufacturer, such refund shall not exceed the amount of duty paid less the amount of the CENVAT Credit availed of, in respect of the duty paid on the inputs used in or in relation to the manufacture of goods cleared under this notification; | ||
| (c) | If there is likely to be any delay in the verification, the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall refund the amount on provisional basis by the 15th day of the next month to the month under consideration, and thereafter may adjust the amount of refund by such amount as may be necessary in the subsequent refunds admissible to the manufacturer. |
2A. Notwithstanding anything contained in paragraph 2, —
| (a) | the manufacturer at his own option, may take credit of the amount of duty paid during the month under consideration, other than by way of utilisation of CENVAT credit under the CENVAT Credit Rules, 2002, in his account current, maintained in terms of Part V of the Excise Manual of Supplementary Instruction issued by the Central Board of Excise and Customs. Such amount credited in the account current may be utilised by the manufacturer for payment of duty, in the manner specified under rule 8 of the Central Excise Rules, 2002, in subsequent months, and such payment should be deemed to be payment in cash : |
Provided that where the exemption contained in this notification is not applicable to some of the goods produced by a manufacturer, the amount of such credit shall not exceed the amount of duty paid less the amount of the CENVAT Credit availed of, in respect of the duty paid on the inputs used in or in relation to the manufacture of goods cleared under this notification;
| ** | ** | ** |
Explanation. - For the purposes of this notification, duty paid, by utilisation of the amount credited in the account current, shall be taken as payment of duty by way other than utilisation of CENVAT credit under the CENVAT Credit Rules, 2002."
3. The exemption contained in this notification shall apply only to the following kind of units namely :-
| ** | ** | **" |
5.2 Sections 91 and 93 of the Finance Act, 2004 are as under :—
"91. Education Cess. — (1) Without prejudice to the provisions of sub-section (11) of section 2, there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Education Cess, to fulfil the commitment of the Government to provide and finance universalised quality basic education.
(2) The Central Government may, after due appropriation made by Parliament by law in this behalf, utilise, such sums of money of the Education Cess levied under sub-section (11) of section 2 and this Chapter for the purposes specified in sub-section (1), as it may consider necessary.
| ** | ** | ** |
93. Education Cess on excisable goods. — (1) The Education Cess levied under section 91, in the case of goods specified in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), being goods manufactured or produced, shall be a duty of excise (in this section referred to as the Education Cess on excisable goods), at the rate of two per cent, calculated on the aggregate of all duties of excise (including special duty of excise or any other duty of excise but excluding Education Cess on excisable goods) which are levied and collected by the Central Government in the Ministry of Finance (Department of Revenue), under the provisions of the Central Excise Act, 1944 (1 of 1944) or under any other law for the time being in force.
(2) The Education Cess on excisable goods shall be in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 (1 of 1944) or any other law for the time being in force.
(3) The provisions of the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, including those relating to refunds and exemptions from duties and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Education Cess on excisable goods as they apply in relation to the levy and collection of the duties of excise on such goods under the Central Excise Act, 1944 or the rules, as the case may be."
5.2.1 The provision of Sections 136 and 138 of the Finance Act, 2007 regarding levy of S & H an identical to Sections 91 and 93 of the Finance Act, 2004 regarding levy of education cess except that the rate of cess is 1% of the aggregate of duties of excise.
5.3 The relevant portion of Rule 3(4) and 3(7)(b) of the Cenvat Credit Rules, 2004 are as under :—
"3(4) The CENVAT credit may be utilized for payment of -
| (a) | any duty of excise on any final product; or | |
| (b) | an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after being partially processed; or | |
| (c) | an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed as such; or | |
| (d) | an amount under sub-rule (2) of rule 16 of Central Excise Rules, 2002; or | |
| (e) | service tax on any output service : |
Provided that while paying duty of excise or service tax, as the case may be, the CENVAT credit shall be utilized only to the extent such credit is available on the last day of the month or quarter, as the case may be, for payment of duty or tax relating to that month or the quarter, as the case may be:
| ** | ** | ** |
Rule 3(7)(b) - CENVAT credit in respect of —
| (i) | the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); | |
| (ii) | the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); | |
| (iii) | the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 (23 of 2004); | |
| (iiia) | the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007); | |
| (iv) | the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under items (i), (ii) and (iii) above; | |
| (v) | the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); | |
| (vi) | the education cess on taxable services leviable under section 91 read with section 95 of the Finance (No. 2) Act, 2004 (23 of 2004); | |
| (via) | the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and | |
| (vii) | the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005), |
shall be utilised towards payment of duty of excise or as the case may be, of service tax leviable under the said Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 or the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001), or the education cess on excisable goods leviable under section 91 read with section 93 of the said Finance (No. 2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007) or the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003), or ; the education cess on taxable services leviable under section 91 read with section 95 of the said Finance (No. 2) Act, 2004 (23 of 2004), or the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007), or the additional duty of excise leviable under section 85 of the Finance Act, 2005 (18 of 2005) respectively, on any final products manufactured by the manufacturer or for payment of such duty on inputs themselves, if such inputs are removed as such or after being partially processed or on any output service :
Provided that the credit of the education cess on excisable goods and the education cess on taxable services can be utilized, either for payment of the education cess on excisable goods or for the payment of the education cess on taxable services :
Provided further that the credit of the Secondary and Higher Education Cess on excisable goods and the Secondary and Higher Education Cess on taxable services can be utilized, either for payment of the Secondary and Higher Education Cess on excisable goods or for the payment of the Secondary and Higher Education Cess on taxable services.
Explanation. — For the removal of doubts, it is hereby declared that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) paid on or after the 1st day of April, 2000, may be utilised towards payment of duty of excise leviable under the First Schedule or the Second Schedule to the Excise Tariff Act."
6. From a plain reading of the Notification No. 56/2002-C.E., it will be seen that —
"(1) this notification has been issued under Section 5A of Central Excise Act, 1944 read with Section 3(3) of AED (GSI) Act, 1957 and Section 3(3) of AED (T & TA) Act, 1978 and it exempts to the extent as mentioned in it, the duty of excise or Additional duty of Excise, as the case may be, le viable under any of these Acts on the goods covered by this notification and manufactured and cleared by the units located in areas as specified in Annexure-II to the notification and thus the duties exempted under this notification are -
| (a) | Basic Excise duty leviable under Section 3(1) of Central Excise Act, 1944 on the goods mentioned in the 1st schedule to the Central Excise Tariff Act, 1985; | |
| (b) | Special Excise duty leviable under Section 3(1) of Central Excise Act, 1944 on the goods covered by 2nd Schedule to the Central Excise Tariff Act, 1985; | |
| (c) | AED (GSI) leviable under AED (GSI) Act, 1957 and | |
| (d) | AED (T & TA) leviable under AED (T & TA) Act, 1978; |
(2) When all the goods manufactured by a unit are covered by the exemption, which is the case in all these appeals, the assessee for availing this exemption, is required to first utilize the whole of the Cenvat credit available to him on last day of the month under consideration for payment of duty on the goods cleared during such month and pays only the balance amount, if any payable, in cash (PLA);
(3) It is the amount so paid through PLA which is refunded or can be taken as self-credit by following the procedure as prescribed in paras 2 & 2A of the notification; and
(4) Thus this notification grants exemption in form of refund/self-credit in PLA of the duties levied under Central Excise Act, 1944, AED ; (GSI) Act, 1957 and AED (T & TA) Act, 1978 to the extent the same have been paid through PLA when the liability for excise duty and/or AED has been discharged in the manner prescribed in para 1A of the notification."
6.1 In our view, the expression - "first utilize the whole of Cenvat credit available on the last day of the month for the payment of duty on goods cleared during the month" in para 1A of the notification, implies that for availing this exemption, a manufacturer must first discharge the duty liability on the goods cleared by utilizing during the Cenvat credit available at the end of the month to the extent possible and the word, "duty' means only the duties exempted under this notification and not the duties which are not covered under this notification for exemption. The Cenvat credit available at the end of month cannot be utilized for payment of duty which is not covered for exemption under this notification, as doing so would distort the quantum of duty payable through PLA. If a particular duty not covered by this exemption is also paid through Cenvat credit before utilizing the Cenvat credit to the extent possible for payment of duties covered by this exemption, the payment through PLA of the duties covered by this exemption notification would increase to the extent the duty not covered by this exemption had been paid through Cenvat credit and will result in refund of the duty not covered by this exemption, which is not permissible. To illustrate, if all the goods manufactured by a manufacturer availing of Notification No. 56/2002-C.E. attract BED; education cess and S & H cess, and while Cenvat credit of BED available at the end of a month is 'C and his BED liability for the goods cleared during the month is 'B' (more than 'C') and he after fully utilizing the Cenvat credit to the extent possible, pays the balance amount of duty (B - C) through PLA, the quantum of refund available to him would be B - C. But if before fully utilizing the Cenvat credit (BED credit) for payment of BED, he utilizes credit amount - 'D' for payment of education cess, the credit available for payment of BED would be C - D and the duty payment through PLA and the quantum of refund would then be B - (C - D) i.e. (B - C) + D. Thus he will end up getting exemption in respect of education cess also. This would be permissible only if Notification No. 56/2002-C.E. also exempts education cess and S & H cess.
6.2 But education cess leviable under Section 91 of the Finance Act, 2004 and S & H cess leviable under Section 136 of Finance Act, 2007 are not covered by Notification No. 56/2002-C.E. as is clear from the language of para 1 of the notification. Apex Court in case of Modi Rubber Ltd. (supra) has held that the words 'duty of excise' in exemption Notification No. 123/74-C.E. and 27/81-C.E. issued under Rule 8(1) of Central Excise Rules, 1944 (now Section 5A of Central Excise Act, 1944) cover only the duty of excise leviable under Section 3(1) of the Central Excise Act, 1944 and do not cover special excise duty leviable under Finance Act, 1978 and AED (GSI) leviable under AED (GSI) Act, 1957. Relying upon this judgment of the Apex Court this Tribunal in case of Jindal Drugs Ltd. (supra) has held that Notification No. 56/2002-C.E. does not cover education cess leviable under Section 91 read with Section 93 of Finance Act, 2004 and S & H cess leviable under Section 136 read with Section 138 of the Finance Act, 1978. Same view has been taken by Hon'ble Gauhati High Court in case of CC&CE v. Dharampal Satyapal Ltd. [2011] 33 STT 7 (Mag.)/13 taxmann.com 12 (Gau.) wherein with regard to Notification No. 32/99-C.E., a notification similar to Notification No. 56/2002-C.E., it was held that the notification does not exempt education cess. Therefore, education cess leviable under Section 91 read with Section 93 of the Finance Act, 2004 and S & H cess leviable under Section 136 read with Section 138 of the Finance Act, 2007 is not covered by exemption Notification No. 56/2002-C.E.
6.3 Since these two education cess are not covered by Notification No. 56/2002-C.E., the same cannot be paid by the respondent in the manner they seek to pay the same i.e. by utilizing BED credit before utilizing the BED credit to the extent possible for payment of BED as doing so would result in refund of education cess also.
6.4 Normally the BED payable is more than the BED credit available at the end of the month and after utilizing the BED credit to the extent possible for payment of BED leviable, no BED credit would be left. But if due to some reason, after payment of duty on the goods cleared during the month by utilizing the BED credit to the extent possible, some credit is left, can the leftover BED credit be used for payment of education cess and S & H cess? Our answer to this would be in the negative, as unutilized BED credit of a particular month would be available next month for payment of BED and if this credit is utilized/diverted for payment of education cess and S & H cess, the payment of BED through PLA and, hence, the quantum of refund, during next month will get distorted i.e. will increase to that extent.
6.5 Therefore, in our view, a manufacturer availing of Notification No. 56/2002-C.E. cannot utilize BED credit for payment of education cess and S & H cess as, as demonstrated above, it will amount to the indirect refund of education cess and S & H cess, which is not permissible. The payment of education cess and S & H cess through BED credit is in conflict with the scheme of this exemption which does not exempt the education cess and S & H cess and which is available only in respect of the duties mentioned in it subject to following condition of para 1A of the notification.
7. The respondents citing the judgment dated 29-6-2011 of Hon'ble Guwahati High Court in case of Prag Bosimi Synthetics Ltd. (supra) and various judgment of Tribunal plead that in terms of the provisions of Rule 3(4) read with Rule 3(7)(b) of the Cenvat Credit Rules, 2004, there is no prohibition on use of the BED credit for payment of education cess and S & H cess. The above cited judgment of Guwahati High Court, in our respectful view is of no avail to the respondents for the reason that the Guwahati High Court has answered only to question of law namely, whether NCC duty is exempted under Notification No. 32/99-C.E. and if the answer to the first part is negative, then whether the Cenvat credit under Cenvat Credit Rules can be utilized for the payment of NCC duty. The High Court has answered the first question in negative. As regards the second question, the High Court has held that Cenvat credit of basic excise duty can be utilized by the assessee for payment of NCC duty. On perusal of the aforesaid judgment it is seen that Hon'ble High Court has not considered the scheme of refund admissible to the assessee under Notification No. 32/99-C.E. which is identical to the Notification No. 56/2002-C.E. which is subject-matter of these appeals.
7.1 A perusal of Rule 3(4) and Rule 3(7)(b) of the Cenvat Credit Rules, 2004, would show that while AED (T & TA) credit, NCCD credit, credit of education cess leviable under Section 91 read with Section 93 of Finance Act, 2004, credit of S & H cess leviable under Section 136 read with Section 138 of the Finance Act, 2007, and credit of AED leviable under Section 85 of the Finance Act, 2005 can be used only for payment of AED (T & TA), NCCD, education cess, S & H cess and AED leviable under Section 85 of Finance Act, 2005 respectively, the Cenvat credit from other sources i.e. BED credit, AED (GSI) credit etc. can be used for payment of any duty of excise including education cess and S & H cess. Thus, while the Cenvat credit of the various duties/taxes mentioned in Rule 3(7)(b) can be used only for payment of the respective duties/taxes, there is no such restriction for utilization of credit of other duties i.e. BED credit, AED (GSI) credit, etc. In our view, in case of a manufacturer availing of exemption under Notification No. 56/2002-C.E., while the restriction on utilisation of Cenvat credit of duties/taxes as mentioned in Rule 3(7)(b) would be applicable, there would be one more additional restriction on utilization of credit of duties/taxes other than those mentioned in Rule 3(7)(b), i.e. credit of BED, AED (GSI) etc. and this restriction is that this credit cannot be used for payment of duties not exempted under this notification as, as discussed above, if this is permitted, this would result in refund of duties like education cess, S & H cess, NCCD etc. which is not permitted under this notification, while it is well settled law that what is not permissible directly cannot be allowed indirectly. Therefore, in order to ensure that an assessee availing of exemption under this notification does not end up availing this exemption in respect of education cess and S & H cess also, he cannot be allowed to use BED credit for payment of education cess and S & H cess, though this may be permitted under the provision of Rule 3(4) of the Cenvat Credit Rules, 2004. The provisions of Rule 3(4) of the Cenvat Credit Rules are after all a facility and the extent to which the same are in conflict with the condition of Notification No. 56/2002-C.E., the same would not be applicable, as it is the condition of notification which would prevail. In our view, therefore, the question as to whether education cess and S & H cess can be paid by a manufacturer availing exemption under Notification No. 56/2002-C.E. by utilizing BED credit, has to be answered in the context of the conditions and the scheme of this notification and not by looking at the provisions of Cenvat Credit Rules, 2004 in isolation. It is pertinent to note that education cess and S & H cess have been levied vide Section 91 of Finance Act, 2004 and 136 of Finance Act, 2007 respectively and the object behind this levy is to generate fund to finance and provide infrastructure for promoting education in the country. If the argument of the respondents is accepted, then by adopting the practice of paying education cess and S & H cess from the Cenvat credit (BED) the assessee would indirectly get the refund of aforesaid cess which is not permissible under law as held by the Guwahati High Court in the matter of Dharampal Satyapal Ltd. (supra).
8. In view of the above discussion, we hold that —
| (a) | A unit availing of exemption under Notification No. 56/2002-C.E. cannot utilize BED credit for payment of education cess and S & H cess which are not exempted under this notification; and | |
| (b) | Extra BED paid through PLA on account of diversion of BED credit for payment of education cess and S & H cess would not be refundable under Notification No. 56/2002-C.E. |
8.1 The impugned orders holding to the contrary are therefore set aside and on this point, the orders passed by the original adjudicating authority are restored. The Revenue's appeals are thus allowed.
IT: Where assessment was reopened on ground that assessee had paid sales commission without deducting tax, but, in fact, no commission had been paid at all, entire basis for reopening would pack validity
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[2013] 36 taxmann.com 123 (Gujarat)
HIGH COURT OF GUJARAT
Atam Prakash Batra - Prop. of Guria Textiles
v.
Assistant Commissioner of Income-tax, Circle - 5*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NOS. 844,1639, 1643 & 1645 OF 2013
APRIL 15, 2013
Section 37(1), read with sections 143 and 147, of the Income-tax Act, 1961 - Business expenditure - Allowable as [Reassessment] - Assessment year 2005-06 - Assessee's return was accepted under section 143(1) - Later, notice was issued for reopening assessment under section 147, on ground that assessee had paid commission on sales without deducting tax at source, resulting in escapement of income - Assessee claimed that no commission was paid during relevant assessment year and therefore, no tax was required to be deducted - Whether, where revenue failed to prove that assessee had actually paid commission during relevant assessment year, entire basis for issuance of impugned notice lacked validity - Held, yes - Whether, therefore, even for reopening assessment which was previously accepted under section 143(1) without scrutiny, Assessing Officer should have valid reason to believe that income chargeable to tax had escaped assessment - Held, yes - Whether, therefore, impugned notice for reopening of assessment was to be quashed - Held, yes [Para 7] [In favour of assessee]
FACTS
| ■ | The assessee filed return of income for assessment year 2005-06, which was accepted under section 143(1). | |
| ■ | Later, a notice dated 30-3-2012 was issued to assessee for reopening of assessment on ground that assessee had paid commission at the rate of 12 per cent on sales without deducting tax at source, which resulted in escapement of income. | |
| ■ | The assessee's objections to the reasons for reopening assessment were rejected. The assessee also claimed that he had not paid any commission during the relevant assessment year, and therefore, requirement of deduction of tax at source did not arise at all. | |
| ■ | Instant petition is filed by assessee challenging issue of notice for reopening. |
HELD
| ■ | The assessee's contention from the outset was that no commission was paid during the previous year at all. Such contention had formed part of the objection raised by the assessee before the Assessing Officer also. Despite such stand of the assessee from the outset, the respondent totally failed in dislodging this clear and unequivocal factual assertion. Not only while issuing the notice, but thereafter also, the respondent was required to meet with this important factual aspect. [Para 6] | |
| ■ | Under the circumstances, there is no hesitation in believing and upholding the assessee's factual assertion that during the previous year relevant to the assessment year under consideration, the assessee had not paid any commission and therefore, there was no question of deducting tax at source. The entire basis for issuance of impugned notice thus lacks validity. In a recent judgment dated 9-4-2013, passed in Special Civil Application No. 2198 of 2013 in case of Ratna Trayi Reality Service (P.) Ltd., this Court observed in context of a notice for reopening issued by the Assessing Officer, where originally assessment was not framed after scrutiny, that revenue would enjoy far greater latitude to reopen and assess or reassess income chargeable to tax which the Assessing Officer had reason to believe had escaped assessment where no scrutiny assessment was framed. However, it is equally well settled that merely because an assessment was not previously framed after scrutiny, would not give unlimited right to the Assessing Officer to reopen by merely issuing a notice without valid reasons. In other words, validity of reason permitting the Assessing Officer to form a belief that income chargeable to tax had escaped assessment would be a relevant consideration even in cases, where the Court is examining challenge to a notice for reopening, where no scrutiny assessment was previously framed. | |
| ■ | In the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC), it was observed that even for reopening of an assessment which was accepted previously under section 143(1) without scrutiny, the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment. | |
| ■ | In the result, the impugned notices are quashed in all four petitions and the petitions are allowed and disposed of accordingly. [Para 7] |
CASE REVIEW
Ratna Trayi Reality Service (P.) Ltd. [Special Civil Application No. 2198 of 2013, dated 9-4-2013] [Para 7] and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) [Para 7] followed.
CASES REFERRED TO
Ratna Trayi Reality Service (P.) Ltd. [Special Civil Application No. 2198 of 2013, dated 9-4-2013] [Para 7].
Ketan H. Shah for the Petitioner. Manav A. Mehta for the Respondent.
ORDER
Akil Kureshi, J. - These petitions involve the same assessee and the department authorities. They also involve similar facts. They have been therefore, heard together and would be disposed of by this common order.
2. For the purpose of this judgment, we may record facts as arising in Special Civil Application No.844 of 2013.
2.1. The petitioner has challenged a notice dated 30.3.2012 as at Annexure C to the petition issued under section 148 of the Income Tax Act, 1961 ("the Act" for short) by the respondent.
2.2. By the said notice, the respondent desired to reopen assessment for the year 2005-06. The respondent supplied the reasons recorded by him for issuing such a notice to the petitioner. Such reasons read as under:
"In your case the, as per fact and material available on the record it came to notice that you are paying commission out of sale made to different parties. You are paying commission @ 12% on the overall sale made during the year. You have made turnover i.e. sale of Rs.19,42,94,234/- in the F.Y. 2004-05 relevant to A.Y. 2005-06. Out of this sale the you had paid commission of Rs.2,64,94,772/-. Out of this commission paid to different parties, you have to deduct TDS under the provisions of I.T. Act. But on perusal of records it came to notice that you are failed to deduct TDS on commission paid to different parties, which has to be this allowed under the provisions of the I.T. Act. This has resulted to the escapement of Income to the tune of Rs.11,67,713/-."
2.3 Upon receipt of the reasons, the petitioner raised objections to the notice for reopening under communication dated 10.7.2012. Such objections were, however, rejected by the respondent by order dated 21.1.2012. The petitioner has therefore, approached this Court challenging the notice of reopening.
2.4 We may notice that for the said Assessment Year 2005-06, the petitioner had filed return of income on 28.10.2005 declaring total income of Rs.19,64,172/-. Such return was accepted under section 143(1) of the Act without any scrutiny. It is this assessment that the respondent desired to reopen by issuing impugned notice.
3. Counsel for the petitioner submitted that the AO has, in the reasons recorded, alleged that the petitioner had made a commission payment at the rate of 12% on the overall sale made during the year under consideration. Thus, on a total turnover of sale of Rs.19.42 crore (rounded off), the petitioner had to pay commission of Rs.2.64 crore (rounded off). On such payment of commission, the petitioner had not deducted tax at source as required under the Income Tax Act, 1961. It is the only reason for which the notice for reassessment has been issued.
4. Counsel submitted that the AO has proceeded on totally incorrect premise. The petitioner had not paid any commission during the previous year relevant to the assessment year. Requirement of deducting tax at source therefore, did not arise at all. He therefore, submitted that the reasons recorded for issuing notice for reassessment lack validity. Notice may therefore, be quashed.
5. The learned counsel Mr. Manav Mehta for the respondent opposed the petition. On the crucial factual averment made by the petitioner, he, however, was not able to dispute. We had at the very outset while issuing notice in our order dated 11.2.2013, recorded as under:
| "1. | Counsel for the petitioner submitted that notice for reopening the assessment has been issued beyond the period of four years from the end of the relevant assessment year. He submitted that though the original assessment was not made after scrutiny, nevertheless there was no reason for the Assessing Officer to believe that income chargeable to tax had escaped assessment. He drew our attention to the reasons communicated for issuing the notice supplied to the assessee, which is produced at Annexure E, page 25 to the petition. He also relied on the documents at Annexure I, page 31, which is the xerox copy of the original reasons recorded by the Assessing Officer. He submitted that there was great degree of variance between the two documents. He further submitted that the entire reason is based on the allegation that the assessee, while making payment of commission, did not deduct tax at source whereas in the case of the assessee for the assessment year under consideration, no commission was ever paid. | |
| 2. | Notice returnable on 11.03.2013. Respondents are prevented from passing final order of assessment on the basis of impugned notice for reopening." |
6. From the above, it can be seen that the petitioner's contention has from the outset been that no commission was paid during the previous year at all. It was noticed by us even at the time of issuing notice to the respondent. Such contention had formed part of the objection raised by the petitioner before the AO also. Despite such stand of the petitioner from the outset, the respondent has totally failed in dislodging this clear and unequivocal factual assertion. We had not only while issuing the notice, thereafter also required the respondent to meet with this important factual aspect. Learned counsel Mr. Mehta for the respondent was previously also granted additional time for this purpose. Unfortunately, his instructing officer has left no worthwhile information to him to be able to dispute this aspect. We had, in fact, desired to gather full instructions in writing. Counsel having made efforts conveyed to us that he had failed to do so.
7. Under the circumstances, we have no hesitation in believing and upholding the petitioner's factual assertion that during the previous year relevant to the assessment year under consideration, the petitioner had not paid any commission and therefore, there was no question of deducting tax at source. The entire basis for issuance of impugned notice thus lack validity. In our recent judgment dated 9.4.2013 passed in Special Civil Application No.2198 of 2013 in case of Ratna Trayi Reality Service Pvt. Ltd., we made following observations in context of a notice for reopening issued by the AO, where originally assessment was not framed after scrutiny.
'11. Having thus heard learned counsel for the parties and having perused the documents on record, we need to examine the validity of the notice for reopening, in the context of reasons recorded, of course, bearing in mind that, in the present case, previously, no scrutiny assessment was framed. It is of course true that in such cases, revenue would enjoy far greater latitude to reopen and assess or reassess income chargeable to tax which the Assessing Officer had reason to believe had escaped assessment. So much is clearly emerging from the decisions of Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in[2007] 291 ITR 500. However, it is equally well settled that merely because an assessment was not previously framed after scrutiny, would not give unlimited right to the Assessing Officer to reopen by merely issuing a notice without valid reasons. In other words, validity of reason permitting the Assessing Officer to form a belief that income chargeable to tax had escaped assessment would be a relevant consideration even in cases, where the court is examining challenge to a notice for reopening where no scrutiny assessment was previously framed. Division Bench of this Court in case of Inductotherm (India) Pvt. Ltd. v. M. Gopalan, Dy. Commissioner of Income Tax or his successor in a judgement dated 06.08.2012 in Special Civil Application No. 858 of 2006 examined the assessee's following contentions:
"10. This brings us to the second limb of the petitioner's challenge namely, that the power under section 147 of the Act cannot be exercised to circumvent the proceedings under section 143(3) of the Act because the notice under section 143(2) of the Act has become time barred and further that in any case, reasons recorded would not permit the Assessing Officer to reopen the assessment."
12. In this context, referring to the decision of Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and other judgments, following observations were made:
"11. It is undoubtedly true that proviso to section 143(2) of the Act prescribes a time limit within which such notice could be issued. It is equally well settled that such notice is mandatory and in absence of notice under section 143(2) of the Act within the time permitted, scrutiny assessment under section 143(3) cannot be framed. However, merely because no such notice was issued, to contend that the assessment cannot be reopened, is not backed by any statutory provisions. Counsel for the petitioner did not even stretch his contention to that extent. The case of the petitioner as we understand is that in guise of reopening of an assessment, the Assessing Officer cannot try to scrutinize the return. This aspect substantially overlaps with the later contention of the petitioner that the reasons recorded by the Assessing Officer were not germane and were not sufficient to permit reopening.
16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.
17. If we accept such proposition, the petitioner's apprehension that the Assessing Officer would arbitrarily exercise powers under section 147 of the Act to circumvent the scrutiny proceedings which could not be framed in view of notice under section 143(2) having become time barred, would be taken care of. To reiterate, even for reopening of an assessment which was accepted previously under section 143(1) of the Act without scrutiny, the Assessing Officer should have reason to believe that income chargeable to tax has escaped assessment.'
In the result, the impugned notices are quashed in all four petitions and the petitions are allowed and disposed of accordingly.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
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