IT: Where estimation made by Assessing Officer was based on mathematical formula, an ad hoc addition would be justified
■■■
[2013] 37 taxmann.com 82 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Laxmi Narayan Shivhare
v.
Joint Commissioner of Income-tax-III, Gwalior*
BHAVNESH SAINI, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NOS. 419 & 442 (AGRA) OF 2012
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
MAY 24, 2013
I. Section 145, read with section 144, of the Income-tax Act, 1961 - Method of accounting - Estimation of income [Best judgment assessment] - Assessment year 2009-10 - Whether limits of power is an element of guess work in a best judgment, it shall not be a wild one but shall have reasonable nexus to available material and circumstances of each case - Held, yes - Assessee, a liquor contractor, filed its return but did not produce books of account - Assessing Officer noticed that sales of country liquor and IMFL beer were not bifurcated and quantity of purchase of country liquor were not disclosed correctly - Assessing Officer computed sales by applying 20 per cent on total cost of IMFL Beer and treated differential between sales disclosed by assessee and as estimated by him as suppressed income and made addition - Whether estimation of profit by Assessing Officer being based on mathematical formula, i.e., estimation of profit by estimating purchases, converting them into sales and then by applying gross profit rate estimating profit, was not justified - Held, yes - Whether considering totality of facts, an ad hoc addition would be just - Held, yes [Para 20] [Partly in favour of assessee]
II. Section 145, read with section 2(1A), of the Income-tax Act, 1961 - Method of accounting - Estimation of income [Agricultural income] - Assessment year 2009-10 - Assessee declared agricultural income but did not furnish any evidence in respect of said income - Assessing Officer treated 40 per cent of said amount as income from other sources and balance was accepted as agricultural income - In earlier assessment year, on similar facts, Assessing Officer himself had allowed 90 per cent of said income as agricultural income - Whether, to maintain consistency, Assessing Officer should follow same formula in year under consideration - Held, yes [Para 23] [In favour of assessee]
III. Section 68 of the Income-tax Act, 1961 - Cash credit [Loan] - Assessing Officer made addition to income of assessee on account of non-production of requisite details in respect of loan taken by it from two companies - Assessee submitted that assessee filed confirmation and copies of accounts of both parties and was having sufficient material to establish that loans were taken for business purposes - Whether since complete facts had not been brought on record, matter was to be remitted back for re-adjudication - Held, yes [Para 25] [Matter remanded]
FACTS-I
| ■ | The assessee, a liquor contractor, filed its return declaring G.P. rate of 7.37 per cent. But it did not produce its books of account to verify the expenditure before the Assessing Officer. | |
| ■ | The Assessing Officer noticed that sales of country liquor and IMFL Beer were not bifurcated. In absence of concerned books the Assessing Officer had made the addition of Rs. 7,14,40,512 on account of difference of suppressed income from liquor business taking the highest difference of suppressed sales which had been determined by applying 20 per cent G.P. rate over cost. He also calculated suppressed income after allowing relevant deduction. | |
| ■ | The Commissioner (Appeals) held that the policy approved by the Government mentioned G.P. rate of 10 per cent and, therefore, he deleted addition computed on basis of GP rate of 20 per cent and he confirmed lowest amount of suppressed sales and profit on which no further deduction was allowable. | |
| ■ | On second appeal: |
HELD-I
| ■ | Under section 145(1), the income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' has to be computed in accordance with the method of accounting regularly employed by the assessee, unless in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom or the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee. Under sub-section (3) of section 145 in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation has to be made upon such basis and in such manner as the Income-tax Officer may determine. However, if the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where no method of accounting has been regularly employed by the assessee, the Income-tax Officer may make the assessment in the manner provided in section 144. Section 145 is mandatory and the revenue is bound by the assessee's choice of a method regularly employed unless by that method the true income, profits and gains cannot be arrived at. In other words, section 145 enacts that for the purpose of section 28 (profits and gains of business, profession or vocation) and section 56 (income from other sources), income, profit and gains must be computed in accordance with the method of accounting regularly employed by the assessee. Therefore, if the assessee regularly employs a particular method of accounting and if no defects are found in the method or maintenance of accounts, the taxing authority is bound to compute the profits and gains of business or profession or vocation in accordance with the method employed by the assessee. Therefore, in case where the Income-tax Officer or the taxing authority finds that in maintaining accounts, the assessee has regularly employed a particular method and does not make any investigation to find or does not find any defect in the accounts and accept the accounts as they are, he is bound to compute the income in accordance with the accounts maintained by the assessee. Therefore, when the assessee represents to the taxing authority that its accounts are maintained by a method of accounting regularly employed, he expects the Income-tax Officer to act upon such method and compute the income accordingly. [Para 20.1] | |
| ■ | Section 145 provides that if assessee does not satisfy the condition of section 145 the Assessing Officer may make assessment in the manner provided under section 144. In the case under consideration, it is no doubt true that the assessee did not produce the books of accounts, and, therefore, the Assessing Officer is to make assessment under section 144. [Para 20.3] | |
| ■ | While making a best judgment assessment the Assessing Officer does not possess absolute arbitrary authority to assess any figure he likes and although he is not bound by strict judicial principle, but he should be guided by rules of justice, equity and good conscience. The limits of power is an element of guess work in a best judgment, it shall not be wild one but shall have reasonable nexus to available material and circumstances of each case. It is settled law that there is certain degree of guess work in best judgment assessment. [Para 20.4] | |
| ■ | The Assessing Officer and Commissioner (Appeals) both have estimated business profit on the basis of their own assumption and presumption. Estimation of profit by estimating purchases, then applying certain percentage of GP, then convert purchases into sale and then estimated profit by applying certain percentage of G.P. in both types of goods, IMFL and country liquor, such procedure is not accepted procedure. Therefore same is not acceptable. | |
| ■ | The assessee did not accept the purchases estimated by the Assessing Officer. [Para 20.5] | |
| ■ | The Commissioner (Appeals) also did not agree with the Assessing Officer. [Para 20.6] | |
| ■ | Thus, it is found that estimation made by Assessing Officer was based on mathematical formula and simply on mathematical formula income cannot be estimated. The Assessing Officer made the addition of entire/gross sale but entire sale proceeds of the assessee cannot be added to the income, only net profit is to be added. Thus, the Assessing Officer's finding is contrary. The Commissioner (Appeals), on one hand, rejected the working of estimation of the Assessing Officer and, on the other hand, he relied upon rejected working of the Assessing Officer and addition was sustained. Under the circumstances, both the orders of the Assessing Officer and Commissioner (Appeals) cannot be sustained. [Para 20.7] | |
| ■ | In the case under consideration, both Assessing Officer and Commissioner (Appeals) have ignored the past history of the assessee. [Para 20.8] | |
| ■ | On perusal of comparative chart, it was noticed that in the year under consideration the assessee has shown comparatively better result, as G.P. is 7.34 per cent and net profit 2.13 per cent. However, after considering totality of the facts and circumstances of the case, it will be fair and just if addition to the extent of Rs. 20,00,000 is sustained which will cover all deficiencies and lapses noticed by the Assessing Officer. Accordingly, the addition to the extent of Rs. 20,00,000 was confirmed and balance addition of Rs. 6,94,40,512 (7,14,40,512-20,00,000) made by the Assessing officer is deleted. [Para 20.9] |
CASES REFERRED TO
Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam) (para 20.2), State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC) (para 20.3), Ganga Prasad Sharma v. CIT [1981] 127 ITR 27/[1980] 4 Taxman 26 (M.P.) (para 20.4), CIT v. Badradas Ramrai Shop AIR 1937 PC 133 (para 20.4),Brij Bhushan Lal Parduman Kumar v. CIT AIR 1979 SC 209 (para 20.4), Man Mohan Sadani v. CIT [2008] 304 ITR 52 (M.P.) (para 20.7) andCIT v. Balchand Ajit Kumar [2003] 263 ITR 610/[2004] 135 Taxman 180 (M.P.) (para 20.7).
Rajendra Sharma for the Appellant. Waseem Arshad for the Respondent.
ORDER
A.L. Gehlot, Accountant Member - These are cross appeals filed by the assessee and Revenue against the order dated 29.06.2012 passed by the ld. CIT(A), Gwalior for the Assessment Year 2009-10.
2. The assessee has raised the following grounds of appeal :—
| "1. | That the Commissioner of Income-tax (Appeals) Gwalior has been arbitrary and unjust while sustaining the addition for Rs. 18654659/- towards the income of the appellant from liquor business, no addition is liable to be sustained, addition sustained by the CIT (Appeals) is liable to be deleted. | |
| 2. | That while sustaining the addition at Rs. 18654659/- the CIT(Appeals) has completely ignored the facts and submissions made by the appellant and also the past record and margin of profit shown by other assessee of same very trade, after taking into consideration the above, trading results shown by the assessee is liable to be accepted, addition made by the A.O. and sustained by the CIT (Appeals) is liable to be deleted. | |
| 3. | That learned CIT (Appeals) has been arbitrary and unjust while sustaining the addition at Rs. 484124/- made bay the AO while estimating the income from agriculture at Rs. 726186/- as against shown by the assessee at Rs. 1210310/-, income shown by the appellant is liable to be accepted, addition made on this score is liable to be deleted. | |
| 4. | That the learned CIT(Appeals) has been erred on facts and in law, while sustaining the addition for Rs. 3621887/- made by the AO u/s 68 of the Income-tax Act, no addition is liable to be sustained, same is liable to be deleted. | |
| 5. | That the appellate order of CIT(Appeals) dated 29.06.2012 is bad in law." |
3. The Revenue has raised the following grounds of appeal :—
"Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 5,27,85,853/- out of addition of Rs. 7,14,40,512/- made on account of disallowance for difference of suppressed income.
The appellant reserves his right to add, amend or alter the grounds of appeal on or before the date; the appeal is finally heard for disposal."
ITA No. 419/Agra/2012 by the assessee
4. The brief facts of the case are that the assessee is a liquor contractor and is deriving income from selling of liquor. The assessee did not produce books of account to verify the expenditure before the A.O. During the assessment proceedings, the A.O. noticed that the assessee declared gross receipt of Rs. 32,65,29,808/- showing G.P. @ 7.37% as against the last year's gross receipt of Rs. 33,75,06,175/- at G.P. rate of 5.61%. The A.O. further noticed that in A.Y. 2008-09 the assessee has declared additional income of Rs. 33,00,000/-.
5. In the absence of books of account, the A.O. on the basis of information available on record furnished by the assessee noticed that the assessee did not bifurcate the sale of Country Liquor - Masala & Plain and IMFL/Beer. The A.O. noticed that in order to work out the correct/suppressed income, it is essential to arrive at the profit from IMFL/Beer and country liquor separately. The A.O calculated the purchases of IMFL as under :— (Page No.5)
| Particulars | Basis of allocation | FL (amount) |
| Duty | As per licenses | 9,96,65,450 |
| Basic duty | In the duty ratio | 87,79,021.78 |
| Purchases | Actual | 6,75,54,240 |
| Freight | Equal (prorate basis) | 12,23,654.50 |
| Issue fee | Actual | 4800 |
| TOTAL | 17,72,27,166 |
6. The A.O. on the basis of Madhya Pradesh Gazette dated 15.01.2008 noticed that minimum selling rates of IMFL were not less than 10% of profit over the cost of liquor + excise duty + fee + transportation charges. By application of minimum selling rate of 10% profit over and above the cost of IMFL, the minimum sale amount and resultant Gross Profit has been calculated by the A.O. as under :- (Page No.6)
| "(i) | Total sale :- | ||
| 17,72,27,166 x 110/100 | = Rs. 19,49,49,882.60 | ||
| (ii) | Gross Profit at minimum selling price | = 1,77,22,716/- | |
| (Rs. 19,49,49,882.60 - Rs. 17,72,27,166)" |
7. Similarly, in respect of country liquor, the A.O. has separately calculated the sale and profit on the basis of detailed submission made by the assessee and on the basis of Country Liquor business in Madhya Pradesh State. The A.O. calculated the licence fee in respect of country liquor as under :- (Page no.6)
"It is pertinent to ascertain whether the above quantity is correct. In the case of Country Liquor business in MP State, the licence fee (Excise duty) is determined shop-wise and charged @ Rs. 105 per bulk litre in the case of Masala and Rs. 70/- per bulk litre in the case of plain. Applying this issue price, the total corresponding license fee chargeable with respect to above quantity in bulk litre will be as under :-
| Particulars | Bulk litre X Issue rate | License fee | |
| CL-Masala | 3,75,361.39 × 105 | 3,94,12,945.95 | |
| Plain | 7,34,547 × 70 | 5,14,18,290 | |
| TOTAL | 9,08,31,235.95" |
8. On perusal of the details, the A.O. noticed that in addition to the cost of fright Rs. 12,23,654/- (proportionate), sealing and bardana charges of Rs. 2,18,03,013/- and purchase cost of Rs. 25,04,809/- in respect of Dholpur licence shop, the assessee himself claimed total licence fee (Excise duty) on account of country liquor purchase in respect of DEOs in M.P. State amounting to Rs. 9,96,84,189/- (licence fee Rs. 9,16,14,348/- plus basic duty of Rs. 80,69,841/-). On the basis of Dholpur licence shop, the A.O. noticed that the assessee disclosed quantity of country liquor to the extent of licence fee of Rs. 9,08,31,235/- and the quantity of purchase with respect to the remaining difference of claim of Rs. 88,52,953/- which has not been disclosed by the assessee. The A.O. further noticed that the quantity relating to purchase cost of Rs. 25,04,809/- in respect of Dholpur shop has also not been included in the declared quantity. The A.O. accordingly calculated the total amount of Rs. 1,13,57,762/- (Rs. 88,52,953 + Rs. 25,04,809). On the basis of above calculation, the A.O. noticed that the assessee has not correctly disclosed the quantity of purchase of country liquor. The A.O. on the basis of his own calculation finally calculated suppressed income of Rs. 7,14,40,512/- as under :- (Page No.14)
'6(b). Sale of IMFL liquor: - The assessee was specifically asked vide para-9 of order sheet entry dated 14.12.2011 as under :-
"Please calculate the rates of IMFL/Beer by applying the actual selling rates worked out the difference by deducing disclosed sale and show cause as to why the difference should not be added as suppressed income".
The assessee has not furnished any quantitative details of brand-wise and IMFL, Beer despite repetitive requests made. As per the prevalent market practice, the rate of IMFL are charged at much higher rate than the prescribed minimum rate being 10% over and above the cost price. In certain cases, the market profit goes very high. Considering the entire facts of the case, it will be most logical, reasonable and justified to compute the sale by applying gross profit rate of 20% on the total cost of IMFL liquor as under :—
| = | Cost × 120 | ||
| 100 | |||
| = | Rs. 17,72,27,166 x 120 | ||
| 100 | |||
| = | Rs. 21,26,72,600/- |
The total sales of CL and IMFL are as under :-
Rs. 18,52,97,720 + Rs. 21,26,72,600 = Rs. 39,79,70,320/-
The assessee has disclosed total sales of Rs. 32,65,29,808/-. Based on the above, the difference of Rs. 7,14,40,512/- is treated as suppressed income and is added back to the total income of the assessee.
It is to reiterate here that the expenses claimed by the assessee are mostly to the Govt. department. In order to effect the total sales the assessee is not required to incur any additional expenses to effect the suppressed sales. Accordingly, the net difference of sales as referred to the above represents the total suppressed income which is being added to the total income'
9. During the assessment proceedings, the A.O. has also noticed that the assessee declared agricultural income of Rs. 12,10,310/-. In absence of details, the A.O. treated the agricultural income @ 40% of which calculation comes to Rs. 4,84,124/- and the same was treated as income from other sources and rest of the amount Rs. 7,26,186/- was accepted from the agricultural income.
10. The A.O. has also made addition of Rs. 36,21,887/- as the assessee has failed to produce evidence and confirmation in respect of following charges:- (Page No.15)
| "(i) M/s. Pooja Greh Nirman | Rs. 5,00,000/- | |
| (ii) Shri Harvinder Singh Bhatia | Rs. 31,21,887/-" |
11. The A.O. has made the addition under section 68 of the Act.
12. The CIT(A) restricted the addition to Rs. 1,86,54,659/- out of liquor business and allowed relief of Rs. 5,27,85,853/- as under :- (Paragraph No.3.5)
"3.5 From the perusal of assessment order, it is seen that AO has made the addition of Rs. 7,14,40,512/- on account of difference of suppressed income from liquor business taking the highest difference of suppressed sales which has been determined by applying 20% G.P. rate over cost whereas the policy approved by the State Government mentions it to be 10%. A.O. has determined suppressed sales & gross profit with various alternatives based on the rates adapted as per Govt. policy. AO has determined all these amounts very scientifically based on the prescribed rates except for the amount of Rs. 7,14,40,512/- which is found based on hypothetical and assumed profit rate of 20% of cost. Therefore, total addition of Rs. 7,14,40,512/- is not found sustainable as per facts on record. Determination of suppressed sales at Rs. 2,28,49,257/- is based on minimum rates and Rs. 5,37,17,794/- is based on rates given by DEO Shivpuri considering the sales determined based on 100% duty, including 8% basic duty, which has been objected to by the appellant but not found expressly excluded as per the Gazette. A.O. has also calculated suppressed income of Rs. 1,86,54,659/- after allowing deduction of freight of Rs. 12,53,654/- and after taking into account appellant's submissions. A.O. has arrived at various alternatives based on specific information. Appellant's submissions made during the course of appeal proceedings regarding declaration of highest gross profit rate as compared to preceding years and principle of consistency have also been considered. From perusal of preceding year's orders, it is seen that for A.Y. 2006-07 an ad hoc addition has been made by applying net profit rate of 5% on total sales determined as per rates given by DEO without invoking provisions of Sec. 145(3). Whereas during the year under appeal, no books of account have been produced, sale/gross profit have been determined scientifically based on specific information. Therefore, there is no consistency of the facts for both the years. Accordingly, principle of res judicata as well as rule of consistency don't apply to the issue under appeal.
Keeping in view facts and material on record, I am of the considered opinion that the lowest amount of suppressed sales and profit on which no further deduction is allowable, which comes to Rs. 1,86,54,659/- is found sustainable and hereby confirmed. Accordingly, the appellant gets relief of Rs. 5,27,85,853/- (Rs. 7,14,40,512 - 1,96,54,659) on this ground."
13. Since the CIT(A) has partly allowed the appeal, therefore, the assessee is in appeal through ground Nos. 1 & 2 where addition of Rs. 1,86,54,659/- has been confirmed by the CIT(A) and the Revenue is in appeal against the addition of Rs. 5,27,85,853/- deleted by the CIT(A).
14. The CIT(A) confirmed the order of A.O. in respect of agricultural income and in respect of addition under section 68 of the Act.
15. The ld. Authorised Representative submitted that the A.O. and CIT(A) both have estimated the income by applying the mathematical formula without considering all the relevant facts of the case. Ld. Authorised Representative submitted that the assessee is selling country liquor and IMFL/Beer at 40 shops of different places of Madhya Pradesh and Dholpur and more than 7 Districts in Rajasthan. Ld. Authorised Representative submitted that A.O. has wrongly relied upon the figures of one of the shop at Dholpur and estimated for the whole year which is unreasonable. Ld. Authorised Representative submitted that the A.O. has applied rates as informed by DEO of one shop at Shivpur but the A.O. did not mention whether the rates as informed by the DEO is for which period and whether same are relevant to the year under consideration. Ld. Authorised Representative submitted that looking to the nature of business of the assessee the rates are fluctuating considering various facts including climate and season. The ld. Authorised Representative submitted that the A.O. and CIT(A) both have estimated the income without considering the earlier years result wherein the department has accepted the final outcome of the assessment. Ld. Authorised Representative submitted that the A.O. has ignored the fact that against the basic licence fee at Rs. 80,69,841/- no purchases could be made, basic licence fee is not adjusted against the purchase made and moreover the contractor some time is not lifted the liquor against licence fee paid being there are no sales, thus the assessee can be entitled only for adjustment of liquor cost with licence fee and not with basic licence fee. Thus, licence fee paid at Rs. 9,96,84,189/- is correctly paid. The ld. Authorised Representative submitted that the assessee has only lifted the quantity as mentioned by the A.O. at page No.6 of the Assessment Order which is supported by the certificate from DEO. Ld. Authorised Representative further submitted that profit worked out on country liquor is incorrect because they have not added basic licence fee, freight in purchase while calculating all the amount of purchase for calculating of G.P. Ld. Authorised Representative submitted that the A.O. has wrongly calculated profit on IMFL on the cost which included basic licence fee and the same was not taken into consideration while calculating of the percentage of profit on purchase i.e. 10% which is even not applicable on these purchases as clarified in the gazette.
16. The ld. Authorised Representative drew our attention to page No.1 of Paper Book wherein comparative position of Gross Profit & Net Profit of different years have been placed.
17. The ld. Authorised Representative submitted that in A.Y. 2005-06 in assessee's own case the I.T.A.T. has accepted 1.2% profit rate, a copy of the order of I.T.A.T. has been placed at page No.38 of assessee's Paper Book. Ld. Authorised Representative further submitted that in A.Y. 2006-07 the I.T.A.T. has accepted 1.3% N.P. rate. He further submitted that in A.Y. 2007-08 the A.O. himself accepted 2.43% N.P. rate and in A.Y. 2008-09 the N.P. rate initially accepted is 3.3%.
18. The ld. Authorised Representative submitted that the estimation made by the A.O and sustained by the CIT(A) is excessive and on higher side. He accordingly held that necessary relief may be granted by accepting the income declared by the assessee.
19. The ld. Departmental Representative, on the other hand, relied upon the order of the A.O.
20. We have heard the Ld. Representatives of the parties and records perused. The admitted facts of the case are that the assessee did not produce books of account. To examine the issue, we would like to refer relevant provisions of section 145 of the Act which reads as under:-
'145. (1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income.
(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.'
20.1 It is to note that under section 145(1), the income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" has to be computed in accordance with the method of accounting regularly employed by the assessee, unless in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced therefrom or the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee. Under the sub-section (3) of section 145 in any case where the accounts are correct and complete to the satisfaction of the Income-tax Officer but the method employed is such that, in the opinion of the Income-tax Officer, the income cannot properly be deduced therefrom, then the computation has to be made upon such basis and in such manner as the Income-tax Officer may determine. However, if the Income-tax Officer is not satisfied about the correctness or completeness of the accounts of the assessee or where no method of accounting has been regularly employed by the assessee, the Income-tax Officer may make the assessment in the manner provided in section 144. Section 145 is mandatory and the Revenue is bound by the assessee's choice of a method regularly employed unless by that method the true income, profits and gains cannot be arrived at. In other words, section 145 enacts that for the purpose of section 28 (profits and gains of business, profession or vocation) and section 56 (income from other sources), income, profit and gains must be computed in accordance with the method of accounting regularly employed by the assessee. Therefore, if the assessee regularly employs a particular method of accounting and if no defects are found in the method or maintenance of accounts, the taxing authority is bound to compute the profits and gains of business or profession or vocation in accordance with the method employed by the assessee. Therefore, in case where the Income-tax Officer or the taxing authority finds that in maintaining accounts, the assessee has regularly employed a particular method and does not make any investigation to find or does not find any defect in the accounts and accept the accounts as they are, he is bound to compute the income in accordance with the accounts maintained by the assessee. Therefore, when the assessee represents to the taxing authority that its accounts are maintained by a method of accounting regularly employed, he expects the Income-tax Officer to act upon such method and compute the income accordingly.
20.2 In the case of Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam), the Court held as under:-
"It would appear that the accounts of the firm which had been produced in the case had been accepted and acted upon by the department and no serious challenge had been made to their genuineness or that they were kept regularly in the course of business. That being the case, the accounts are relevant and afford prima facie proof of the entries and the correctness thereof under section 34 of the Evidence Act"
20.3 Section 145 of the Act provides that if assessee does not satisfy the condition of section 145 of the Act, the A.O. may make assessment in the manner provided under section 144 of the Act. In the case under consideration, it is no doubt that the assessee did not produce the books of account; therefore, the A.O. is to make assessment under section 144 of the Act. The scope of best judgment has been examined by the Apex Court in the case of State of Kerala v. C. Velukutty [1966] 60 ITR 239 as under :-
'What is the scope of section 12(2)(b) of the Act ? The expression "to the best of his judgment" in the said clause is presumably borrowed from section 23(4) of the Income-tax Act. The said expression in the Income-tax Act was the subject of judicial scrutiny. The Privy Council inCommissioner of Income-tax v. Laxminarayan Badridas has considered those words. Therein it observed:
"He (the assessing authority) must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary."
The Privy Council, while recognizing that an assessment made by an officer to the best of his judgment involved some guess-work, emphasized that he must exercise his judgment after taking into consideration the relevant material. The view expressed by the Privy Council in the context of the Income-tax Act was followed when a similar question arose under the Sales Tax Act. A Division Bench of the Calcutta High Court in Jagadish Prosad Pannalal v. Member, Board of Revenue, West Bengal, confirmed the assessment made by the sales tax authorities, as in making the best judgment assessment the said authorities considered all the available materials and applied their mind and tried their best to come to a correct conclusion. So too, a Division Bench of the Patna High Court in Doma Sahu Kishun Lal Sao v. State of Bihar refused to interfere with the best judgment assessment of a Sales Tax Officer as he took every relevant material into consideration, namely, the situation of the shop, the rush of the customers and the stock in the shop and also the estimate made by the Assistant Commissioners in the previous quarters.
Under section 12(2)(b) of the Act, power is conferred on the assessing authority in the circumstances mentioned thereunder to assess the dealer to the best of his judgment. The limits of the power are implicit in the expression "best of his judgment". Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a "best judgment assessment", it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though sub-section (2) of section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material.
Can it be said that in the instant case the impugned assessment satisfied the said tests ? From the discovery of secret accounts in the head office, it does not necessarily follow that a corresponding set of secret accounts were maintained in the branch office, though it is probable that such accounts were maintained. But, as the accounts were secret, it is also not improbable that the branch office might not have kept parallel accounts, as duplication of false accounts would facilitate discovery of fraud and it would have been thought advisable to maintain only one set of false accounts in the head office. Be that as it may, the maintenance of secret accounts in the branch office cannot be assumed in the circumstances of the case. That apart, the maintenance of secret accounts in the branch office might lead to an inference that the accounts disclosed did not comprehend all the transactions of the branch office. But that does not establish or even probabilize the finding that 135% or 200% or 500% of the disclosed turnover was suppressed. That could have been ascertained from other materials. The branch office had dealings with other customers.
Their names were disclosed in the accounts. The accounts of those customers or their statements could have afforded a basis for the best judgment assessment. There must also have been other surrounding circumstances, such as those mentioned in the Privy Council's decision cited supra. But in this case there was no material before the assessing authority relevant to the assessment and the impugned assessments were arbitrarily made by applying a ratio between disclosed and concealed turnover in one shop to another shop of the assessee. It was only a capricious surmise unsupported by any relevant material. The High Court, therefore, rightly set aside the orders of the Tribunal.'
20.4 From above discussions, it is relevant to note that while making a best judgment assessment the A.O. does not possesses absolute arbitrary authority to assess any figure he likes and although he is not found by strict judicial principle he should be guided by rules of justice, equity and good conscience. The limits of power is an element of guess-work in a best judgment, it shall not be a wild one but shall have reasonable nexus to the available material and the circumstances of each case. It is settled law that there is certain degree of guess-work in best judgment assessment vide Ganga Prasad Sharma v. CIT [1981] 127 ITR 27/[1980] 4 Taxman 26 (M.P.), CIT v. Badradas Ramrai Shop AIR 1937 PC 133 and Brij Bhushan Lal Parduman Kumar v. CIT AIR 1979 SC 209. The A.O. and CIT(A) both have estimated business profit on the basis of their own assumption and presumption. Estimation of profit by estimating purchases, then applying certain percentage of G.P, then converted purchases into sale and then estimated profit by applying certain percentage of G.P. in both types of goods IMFL and country liquor, such procedure is not accepted procedure. Therefore same is not acceptable. A comparative position of purchases declared by the assessee and estimated by the A.O. are a under:—
| Purchases | ||
| As per assessee | As per A.O. | |
| 30,24,42,832 | 39,79,70,320 | |
20.5 The assessee did not accept the purchases estimated by the A.O. on following grounds:- (Page No.22 of CIT(A)
| "(i) | AO is not justified in mentioning that the appellant has not submitted the relevant details during the assessment proceedings when the AO himself has determined sales and profit on the basis of details submitted form time to time and as asked for by the A.O. | |
| (ii) | AO has considered the total duty, including basic duty of 8%, for the purpose of determination of sales. | |
| (iii) | AO has collected the information from DEO, Shivpuri, Ashok Nagar & Sheopur and has relied heavily on information of DEO, Ashok Nagar when the appellant has not carried out business in Ashok Nagar. | |
| (iv) | The appellant has carried on the same business since long. There is no change in the nature, line, modus opernadi of his business in the year under appeal as compared to earlier years. He has declared better gross profit during the year and his trading results should be accepted." |
20.6 The CIT(A) also did not agree with the A.O. The relevant observation of the CIT(A) are as under:- (Page Nos.22 & 23 CIT(A))
"3.4 It is an admitted fact that the appellant has not produced his books of account and relevant records for verification of sales with reference to quantity as well as rate at any stage of assessment or even appeal. Quantitative details, as given, are too not verifiable for total sales effected vis-à-vis sale rate. Both AO and the appellant have relied upon the excise policy of the State Govt. and referred to para 9.3 (reproduced supra) a of MP Gazette dated 15.01.2008 for charging of minimum rate of IMFL. As per State policy, minimum selling price of IMFL could not be less than 10% of profit over the cost of liquor plus excise duty plus transportation charges. The only dispute in this regard is consideration of 8% of basic duty. The relevant clause of the Gazette only mentions about duty without excluding the basic duty paid immediately after the draw. As per the published policy, IMFL could not be sold at less than the value determined applying 10% profit upon excise duty plus fee plus transportation charges and income tax. It nowhere excludes the basic duty. Therefore, the determination of sales by the AO considering the amount of duty paid is justified as the appellant has never produced his books of account and supporting documents/evidences, at any stage, for verification of declared sales of IMFL. The next question is of quantification of sales with reference to quantity and amount. So far quantity is concerned, there is no dispute. The only dispute is quantification with reference to amount. A.O. has quantified IMFL sales at Rs. 19,49,49,882/- by applying 10% profit over cost price of IMFL as per State Govt. policy and then has again assessed total sales at Rs. 21,26,72,600/- by applying 20% profit rate on total cost of IMFL presuming that as per prevailing market price, rate of IMFL is charged at much higher rate than the prescribed minimum rate. However, AO has not brought on record any material in his support either in form of comparable case(s) or any other evidence."
20.7 Thus, it is found that estimation made by the A.O. is based on mathematical formula and simply on mathematical formula income cannot be estimated. The A.O. made the addition of entire/gross sale whereas Hon'ble M.P. High Court in the case Man Mohan Sadani v. CIT [2008] 304 ITR 52 following CIT v. Balchand Ajit Kumar [2003] 263 ITR 610/[2004] 135 Taxman 180 held that entire sale proceeds of the assessee cannot be added to the income, only net profit is to be added. Thus, the A.O.'s finding is contrary to finding of judgment of Hon'ble M.P. High Court. The CIT(A) on one hand rejected the working of estimation of the A.O. and, on the other hand, he relied upon rejected working of the A.O. and addition was sustained. Under the circumstances, both the orders of the A.O. and CIT(A) connot be sustained.
20.8 As stated above that while making best judgment one should have reasonable nexus to the available material and circumstances. In the case under consideration, both A.O. and CIT(A) have ignored the past history of the assessee. A comparative trading result furnished by the assessee has been placed at page No. 1 of Paper Book, which is reproduced as under :-
Comparative Position of Trading results
| A.Y. | Sales | Gross Profit | G.P. Rate | After deduction of intt. & expenses related to the Liquor Business Net Profit | % N.P. | Finally assessed by AO or Hon'ble ITAT Agra Bench Agra |
| 05-06 | 293123139/- | 12220302/- | 4.16% | 3841464 1262894 2578570 | 0.87% | 1.2% by Hon'ble ITAT Agra Bench, Agra |
| 06-07 | 132265429/- | 4029612/- | 3.04% | 1475687 | 1.11% | Sales estimated and applied 1.3% N.P. income finally assessed at 2016917/- as against 1475687/- disclosed. |
| 07-08 | 253548344/- | 15142186/- | 5.97% | 3381657 | 1.49% | 6161656/- 2.43% accepted/assessed No appeal |
| 08-09 | 283394956/- | 18942906/- | 5.6% | 6138059 | 2.16% | 6138059+3300000=9438059 3.3% No appeal |
| 09-10* | 326529801/- | 24086975/- | 7.34% | 6955730 | 2.13% | (Under consideration) |
| *Note: That assessee has deducted the expenses under the Head Intt. at Rs. 8463304/- and also shown the intt. & other income at Rs. 4413591/- after adjustment of the income at Rs. 4413591/- with expenses of intt., net intt. claimed at Rs. 4049713/- being related to the Liquor Business. | ||||||
20.9 On perusal of above comparative chart, we notice that in the year under consideration the assessee has shown comparatively better result, as G.P. is 7.34% and not profit 2.13%. However, after considering totality of the facts and circumstances of the case, it will be fair and just if addition to the extent of Rs. 20,00,000/- is sustained which will cover all deficiencies and lapses noticed by the A.O. We accordingly confirm the addition to the extent of Rs. 20,00,000/- and balance addition of Rs. 6,94,40,512/- (7,14,40,512 - 20,00,000) made by the A.O. is deleted. Thus, ground Nos. 1 & 2 of the assessee's appeal are partly allowed.
21. Ground No.3 is in respect of estimation of agricultural income. The assessee declared agricultural income of Rs. 12,10,310/-. The assessee did not furnish any evidence. In absence of evidence, the A.O. taken 40% of the said amount of which calculation comes to Rs. 4,84,124/- and the same was treated as income from other sources. The balance amount of Rs. 7,26,186/- was accepted as agricultural income by the A.O. The CIT(A) confirmed the action of the A.O.
22. The ld. Authorised Representative submitted that in A.Y.2008-09 the A.O. himself accepted agricultural income as under:-
"3. Last year the assessee had declared agricultural income at Rs. 12,02,510/- out of which Rs. 1,35,416/- were treated as income from other sources. By application of same ratio this year Rs. 1,70,000/- is added back to the income of the assessee out of agricultural income, treating it as income from other than agricultural income."
23. We have heard the ld. Representatives of the parties and records perused. Since the A.O. himself has accepted the agricultural income in A.Y. 2008-09 and to maintain consistency the A.O. should follow the same formula in the year under consideration as followed in A.Y. 2008-09 since the land holding and other facts are similar. Therefore, the A.O. is directed to calculate the agricultural income in accordance with the income determined in A.Y. 2008-09.
24. The fourth ground is in respect of addition of Rs. 36,21,887/- under section 68 of the Act. The A.O. made addition of Rs. 36,21,887/- on account of loan taken from M/s. Pooja Greh Nirman Rs. 5,00,000/- and from Shri Harvinder Singh Bhatia Rs. 31,21,887/-. The A.O. made the addition as the assessee failed to furnish details including PAN etc. The CIT(A) confirmed the order of A.O. observing that the assessee has failed to file the requisite details.
25. We have heard the ld. Representatives of the parties and records perused. The ld. Authorised Representative submitted that the assessee filed confirmation and copies of accounts of both the parties. The assessee was having sufficient material to establish that the loans were taken during the course of business for the purpose of business. He further submitted that copy of PAN and other details were furnished. It was also submission of the ld. Authorised Representative that considering the nature of business of the assessee, some time such loans are necessary and assessee has sufficient material to prove the same. The alternate submission of the ld. Authorised Representative was that if any addition is to sustained, benefit of telescoping of addition sustained in trading result may also be allowed. After hearing the ld. Departmental Representative, we find it appropriate to send back this issue to the file of A.O. with the direction to decide the issue afresh as complete facts of the issue has not been brought on record considering the business expediency and nature of business of the assessee. The A.O. is directed to decide the issue in accordance with law. The A.O. may also consider the alternate contention of the ld. Authorised Representative for set off of addition, if any, against the addition sustained on account of profit as in the case under consideration which has been sustained by us at Rs. 20,00,000/-. The A.O. may decide the issue after providing reasonable opportunity of hearing to the assessee.
ITA No. 442/Agra/2012 by the Revenue
26. The sole ground raised in Revenue's appeal is in respect of deletion of addition of Rs. 5,27,85,853/- by the CIT(A). This is a common ground as raised in ground Nos.1 & 2 of assessee's appeal. These grounds i.e. ground Nos.1 & 2 of assessee's appeal have been decided after a detailed discussion and those grounds were partly allowed by us. In the light of the fact, this ground of Revenue's appeal is dismissed.
27. In the result, appeal of the assessee is partly allowed and partly allowed for statistical purposes and appeal of the Revenue is dismissed.
POOJASeptember 23rd, 2013
The CBDT has issued Instruction No. 14/2013 dated 23.09.2013 by which it has created a "Standard Operating Procedure for cases under Non-filers Monitoring System". The Instruction points out that the existing procedure for monitoring cases of 'Non-Filers of IT Returns' as identified by Director General of Incom Tax (System) results in Non-Filers not being uniformly monitored by the Assessing Officers due to lack of consistency in approach in dealing with such cases. In order to streamline the processing Of such cases and to ensure consistency in monitoring NMS cases by the Assessing Officers, the Board has laid down a detailed Standard Operating Procedure.
IT: Where assessee had sufficient interest free funds, it was presumed that advances were made out of same
IT: Where vehicles were purchased in name of director of assessee-company, assessee was entitled to depreciation if it was proved that such vehicles were utilized for business purposes
■■■
[2013] 37 taxmann.com 83 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'D'
Swagat Infrastructure Ltd.
v.
Joint Commissioner of Income-tax, Range-8*
PRAMOD KUMAR, ACCOUNTANT MEMBER
AND KUL BHARAT, JUDICIAL MEMBER
AND KUL BHARAT, JUDICIAL MEMBER
IT APPEAL NO. 2084 (AHD.) OF 2012
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
JUNE 28, 2013
I. Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital [Interest free loans to sister concern] - Assessment year 2009-10 - Assessee claimed interest expenses incurred on borrowed fund utilized for business purpose - Assessing Officer disallowed same on noting that certain non-interest bearing advances had been given out of borrowed interest bearing fund - Whether since at one hand, Assessing Officer as well as Commissioner (Appeals) had given a finding that non-interest bearing advances were given out of interest bearing fund and at other hand it was observed that assessee could not prove nexus between interest free fund and advances, reasoning for disallowance was self contradictory - held, yes - Whether since assessee had sufficient interest free funds available for such advances, disallowance made was not justified - Held, yes [Para 6][In favour of assessee]
II. Section 32, read with section 37(1), of the Income-tax Act, 1961 - Depreciation - Allowance/rate of [Vehicles] - Assessment year 2009-10 - Assessee claimed depreciation on vehicles and interest expenditure incurred on loan for such vehicles - Assessing Officer disallowed claim of assessee on ground that vehicles were registered in name of director - Whether assessee would be entitled for depreciation as well as interest expenditure if assessee was able to prove that vehicles were under dominion control of it and were utilized for its business purpose - Held, yes - Whether since assessee had shown such vehicles in its block of assets, addition made in respect of depreciation and interest expenditure deserved to be deleted - Held, yes [Para 8][In favour of assessee]
FACTS-I
| ■ | The assessee was engaged in the business of construction and property developers. It claimed interest expenses incurred on borrowed fund utilized for business purpose. | |
| ■ | The Assessing Officer noted that certain non-interest bearing advances had been given out of interest bearing fund and assessee could not prove any nexus between interest free funds and the advance. The Assessing Officer disallowed the interest expenses claimed by the assessee under section 36(1)(iii). | |
| ■ | The Assessing Officer further observed that since advances had been given for purchasing of land for future project, interest related to such loan should be capitalized. | |
| ■ | On appeal, the assessee submitted that it had sufficient interest free fund and only 61.53 per cent of interest free fund were utilized for such advances while balance 38.47 per cent had remained utilized for business purposes over and above the borrowed fund. The Commissioner (Appeals) however, confirmed the disallowance made by the Assessing Officer. | |
| ■ | On second appeal: |
HELD-I
| ■ | It is not disputed that assessee is not having sufficient interest free funds. The assessee has submitted that closing balance of loan and advances as on 31-3-2009 was at Rs. 18,45,70,483 opening balance loan and advances as on 1-4-2008 was at Rs. 18,55,36,411. Thus, there is a dilution of advances during the year of Rs. 9,65,958 and there is no new advance during the year. Before Commissioner (Appeals) it was submitted by the assessee that interest free funds available with assessee-company as on 31-3-2009 as per balance-sheet was at Rs. 29,95,44,221. Thus, the advances out of total interest free funds is at Rs. 61.53 per cent only, the balance 38.43 per cent has remained utilized for business purposes over and above, the funds borrowed during the year. | |
| ■ | The Commissioner (Appeals) has observed that Assessing Officer has disallowed the interest expenses incurred by the assessee on borrowings for the business as it was noted by him that certain non-interest bearing advances have been given out of interest bearing funds. It was held by him that assessee could not prove any nexus between interest free funds and the advances. It was further observed by the Assessing Officer that since the advances have been given for purchasing for land for future project, the interest related to such loan should be capitalized. Commissioner (Appeals) confirmed the disallowance on the basis that the Assessing Officer had given a finding that assessee could not give the fund flow position to establish its claim that advances were given from interest free fund. It did not submit the day-to-day fund flow for which the onus was on it to prove that the expenditure on interest was for the business purposes. | |
| ■ | The assessee is following the work completion method and capitalizing its interest work-in-progress the project which is completed is recognized for calculation of income and its corresponding cost adjusted against profit. The indirect expenses which includes interest expenses on borrowed funds and also get adjusted as the same were earlier capitalized in work-in-progress. Commissioner (Appeals) accepted the finding of the Assessing Officer that the assessee should capitalize the interest expenses corresponding to the amounts advances for future project on the account of that the project for which the advance has been given as each project is different and only the expenses corresponding to that project should be taken into account. He further observed that the claim of the assessee that borrowed funds were utilized for the business purposes could not be proved by as no funds flow statement was submitted before the Assessing Officer. Commissioner (Appeals) observed that the Assessing Officer has not disputed the allowability of the interest expenses but he has held that interest expenses should be capitalized. | |
| ■ | There is no merit into the logic given by the authorities below as both the Assessing Officer as well as Commissioner (Appeals) has not given a finding as to how the assessee is required to capitalize the interest expenses. At one hand, the Assessing Officer as well as Commissioner (Appeals) have given a finding that non-interest bearing advances were given out of interest bearing fund and it was also observed that assessee could not prove the nexus between the interest free funds and advances. The reasoning for disallowance is self-contradictory. Therefore in the facts of the present case, the disallowance made by the Assessing Officer and confirmed by Commissioner (Appeals) is not justified. In view of the fact that assessee has pointed out that it has sufficient interest free fund and this is not contradicted by the authorities below even before the Tribunal no material has been placed on record suggesting that the assessee was not having interest free funds available for such advances. In view of this, and respectfully following judgment of Supreme Court rendered in the case of Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 assessee's appeal was allowed and the Assessing Officer was directed to delete the disallowance of Rs. 92,17,379. [Para 6] |
FACTS -II
| ■ | The assessee was a limited company. It claimed depreciation on vehicles and interest expenditure incurred on bank loan for such vehicles amounting to Rs. 6.47 lakhs. | |
| ■ | The Assessing Officer disallowed the claim of the assessee on ground that the vehicles were registered in the name of the director. | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. | |
| ■ | On second appeal, the assessee submitted that vehicles were purchased in the name of director by the assessee-company and resolution to this effect was duly made and that such vehicles were utilized for the purposes of its business. |
HELD-II
| ■ | Before Commissioner (Appeals) the contention of assessee was also that such expenditure was allowed in earlier year. The factum that such expenditure was allowed in earlier year is not contradicted by the revenue. As per the section 32(1) depreciation is allowable if the machinery is owned wholly and partly by the assessee, however, the Supreme Court has further enlarged this scope of word 'own' in its judgment rendered in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166, wherein the Apex Court has held that the provisions should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It has been held that the terms 'owned' 'ownership' and 'own' are generic terms. They have wide and also narrow connotation. The meaning would depend on the context in which the term are used. | |
| ■ | In the instant case, the assessee has made submission that the cars were purchased in the name of the director and such cars are utilized for the purposes of its business. Therefore the assessee is entitled for depreciation and the interest expenditure. The assessee would be entitled for the allowance depreciation as well as interest expenditure if the assessee is able to prove that the vehicles were under the dominion control of the assessee-company and were utilized for its business purpose. The contention of the assessee is that the vehicles were utilized for business purpose and the assessee-company has shown it in block of assets. It is find that this contention of the assessee is not considered by the authorities below in the light of the ratio laid by Supreme Court rendered in the case of Mysore Minerals Ltd.(supra). Respectfully following the ratio laid by the Supreme Court in the case of Mysore Minerals Ltd. (supra) assessee's appeal was allowed and the Assessing Officer was directed to delete the addition. [Para 8] |
CASE REVIEW-I
Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 (SC) (para 6) followed.
CASE REVIEW-II
Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC) (para 8) followed.
CASES REFERRED TO
Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 (SC) (para 5) , CIT v. Sridev Enterprises [1991] 192 ITR 165/59 Taxman 439 (Kar.) (para 5) and Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC) (para 7).
J.P. Shah for the Appellant. T. Sankar for the Respondent.
ORDER
Kul Bharat, Judicial Member- This appeal by the assessee is directed against the order of Commissioner of Income-tax (Appeals)-XIV, Ahmedabad ('CIT(A)' for short) dated 31-07-2012 for the assessment year (AY) 2009-10. The assessee has raised following grounds of its appeal:—
| "1. | The CIT (Appeal ) erred in not allowing the claim of the assessee under sec.36(1)(iii) of Rs.92,17,379/-. | |
| 2. | The CIT (Appeals) further erred in upholding the disallowance of depreciation and interest on vehicles of Rs.6,47,061/- | |
| 3. | The CIT (Appeals) ought not to have disallowed an amount of Rs.60,000/- under sec. 40(a)(ia). | |
| 4. | The CIT (Appeals) further erred in disallowing an amount of Rs.24,190/- under sec.41(1) of the Act. | |
| 5. | The CIT (Appeals) erred in upholding the charging of interest under sec. 234A and 234B of the Act." |
2. At the outset, ground No. 3 and 4 are not pressed by Ld. counsel for the assessee and ground No.5 is consequential. Therefore, grounds No. 3 and 4 are dismissed as not pressed and ground No.5 being consequential in nature and does not require any adjudication.
3. Briefly stated facts are that assessee is a Limited Company is engaged in the business of construction and property developers. The case of assessee was picked up for scrutiny assessment and the assessment u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') was framed vide order dated 26-12-2011 thereby the Assessing Officer (AO) made disallowances u/s. 36(1)(iii) of Rs.1,88,76,020/-, disallowance of depreciation interest on vehicle of Rs.6,47,061/-, disallowance u/s. 40(a)(ia) of Rs.60,000/-, disallowance u/s. 41(1) of the Act of Rs.24,190/-.
4. Against this, assessee preferred appeal before Ld. CIT(A) who after considering the submission of assessee partly allowed the appeal. Ld. CIT(A) while partly allowing the appeal confirmed disallowance made us/36(1)(iii) of the Act, confirmed disallowance on depreciation of vehicle and interest expenditure confirmed disallowance made u/s. 40(a)(ia) of the Act and partly confirmed the disallowance made u/s. 41(1) of the Act. Now, assessee is in second appeal before the Tribunal.
5. First ground relates to confirmation of disallowance of the claim of assessee of Rs.92,17,379/-. Ld. AR of the assessee, Mr. J.P. Shah vehemently argued that the disallowance as well as confirmation is not justified. He submitted that the assessee has sufficient interest free funds to make advances. He further submitted that the advances were made for the purpose of business. He submitted that law is now well settled that if the assessee has sufficient interest free funds then it is presumed that the advances are made out of interest free funds. He placed reliance on the judgment of Hon'ble Supreme Court rendered in the case of Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 as well as judgment of Reliance Utility and the judgment of Hon'ble Karnataka High Court rendered in the case of CIT v. Sridev Enterprises[1991] 192 ITR 165/59 Taxman 439. Ld. AR reiterated the submission made before the authorities below. On the contrary, Ld. SR-DR of the Revenue strongly supported the orders of authorities below. He submitted that the disallowance as well as confirmation is justified. He submitted that Assessing Officer has observed that as per assessee's own submission loan and advances of Rs.18,44,12,800/- were given for purchasing of land for future project. He submitted that once the assessee is capitalizing all the expenses indirect expenses including interest in respect of ongoing project. There is no logic in not recognizing the interest cost relating to loan and advance given for purchased of land for future project. He submitted that as per the assessee's own accounting the interest related to such loan and advances which is related to future project needs to be disallowed which may be capitalized in the future project.
6. We have heard the rival submissions, perused the materials available on record and the case law cited by Ld. AR of the assessee. It is not disputed that assessee is not having sufficient interest free funds. We find that before authorities below the assessee has submitted that closing balance of loan and advances as on 31st March 2009 was at Rs.18,45,70,483/- opening balance loan and advances as on 1st April 2008 was at Rs.18,55,36,411/-. Thus, there is a dilution of advances during the year of Rs.9,65,958/- and there is no new advance during the year. Before Ld. CIT(A) it was submitted by the assessee that interest free funds available with assessee-company as on 31st March, 2009 as per balance-sheet was at Rs.29,95,44,221/-. Thus, the advances out of total interest free funds is at Rs.61.53% only, the balance 38.43% has remained utilized for business purposes over and above, the funds borrowed during the year. We find that the Ld. CIT(A) has observed that Assessing Officer has disallowed the interest expenses incurred by the assessee on borrowings for the business as it was noted by him that certain non-interest bearing advances have been given out of interest bearing funds. It was held by him that assessee could not prove any nexus between interest free funds and the advances. It was further observed by the AO that since the advances have been given for purchasing for land for future project, the interest related to such loan should be capitalized. Ld. CIT(A) confirmed the disallowance on the basis that the AO had given a finding that assessee could not give the fund flow position to establish its claim that advances were given from interest free funds. It did not submit the day-to-day fund flow for which the onus was on it to prove that the expenditure on interest was for the business purposes. The assessee is following the work completion method and capitalizing its interest work-in-progress the project which is completed is recognized for calculation of income and its corresponding cost adjusted against profit. The indirect expenses which includes interest expenses on borrowed funds and also get adjusted as the same were earlier capitalized in wok-in-progress. Ld. CIT(A) accepted the finding of the Assessing Officer that the assessee should capitalize the interest expenses corresponding to the amounts advances for future project on the account of that the project for which the advance has been given as each project is different and only the expenses corresponding to that project should be taken into account. He further observed that the claim of the assessee that borrowed funds were utilized for the business purposes could not be proved by as no funds flow statement was submitted before the AO. Ld. CIT(A) observed that the AO has not disputed the allowability of the interest expenses but he has held that interest expenses should be capitalized. The issue whether the expenses were to be treated as business expenses or not, which is not the issue in question. We do not find any merit into the logic given by the authorities below as both the AO as well as Ld. CIT(A) has not given a finding as to how the assessee is required to capitalize the interest expenses. At one hand, the AO as well as Ld. CIT(A) have given a finding that non-interest bearing advances were given out of interest bearing fund and it was also observed that assessee could not prove the nexus between the interest free funds and advances. The reasoning far disallowance is self-contradictory. Therefore the facts of the present case, we are of the considered view that the disallowance made by the Assessing Officer and confirmed by Ld. CIT(A) is not justified. In view of the fact that assessee has pointed out that it has sufficient interest free fund and this is not contradicted by the authorities below even before the Tribunal no material has been placed on record suggesting that the assessee was not having interest free funds available for such advances. In view of this, and respectfully following judgment of Hon'ble Supreme Court rendered in the case ofMunjal sales Corporation (supra) we allow this ground of assessee's appeal and direct the Assessing Officer to delete the disallowance of Rs.92,17,379/-.
7. Next ground is against the confirmation and depreciation interest on vehicle of Rs.6,47,061/-. Ld. AR of the assessee submitted that the disallowance is not justified on the ground that the vehicles were registered in the name of the Director. He submitted that the view taken by the authorities below is contrary to the ratio laid by the Hon'ble Supreme Court rendered in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166. He submitted that the vehicles were purchased in the name of Director by the assessee-company and resolution to this effect was duly made. He submitted that the consideration of vehicle were made out of the fund interest on bank loan was also made out of the assessee-company's account. The vehicles are used for the purpose of company's business. He submitted that the authorities below disallowed the claim on flimsy ground merely on the basis that assessee-company was not the owner of the vehicles registered in the name of Director. On the contrary, Ld. DR of the Revenue strongly supported the orders of authorities below and submitted that the disallowance was not made merely on the ground that assessee was not the owner but disallowance was also made on the basis that the assessee could not give details in support of its claim that the vehicles were utilized only for the purpose of assessee's business.
8. We have heard the rival submissions and perused the materials available on record. Before Ld. CIT(A) the contention of assessee was also that such expenditure was allowed in earlier year. The factum that such expenditure was allowed in earlier year is not contradicted by the Revenue. As per the Section 32(1) of the Act depreciation is allowable if the machinery is owned wholly and partly by the assessee, however, the Hon'ble Supreme Court has further enlarged this scope of word "own" in its judgment rendered in the case of Mysore Minerals Ltd.(supra), wherein the Hon'ble Apex court has held that the provisions should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It has been held that the terms "owned" "ownership" and "own" are generic terms. They have wide and also narrow connotation. The meaning would depend on the context in which the term are used. In the present case, the assessee has made submission that the cars were purchased in the name of the Director and such cars are utilized for the purposes of its business. Therefore the assessee is entitled for depreciation and the interest expenditure. We are of the considered opinion that the assessee would be entitled for the allowance depreciation as well as interest expenditure if the assessee is able to prove that the vehicles were under the dominion control of the assessee-company and were utilized for its business purpose. The contention of the assessee is that the vehicles were utilized for business purpose and the assessee-company has shown it in block of assets. We find that this contention of the assessee is not considered by the authorities below in the light of the ratio laid by Hon'ble Supreme Court rendered in the case of Mysore Minerals Ltd. (supra). Respectfully following the ratio laid by the Hon'ble Supreme Court in the case ofMysore Minerals Ltd. (supra) we allow this ground of assessee's appeal and direct the Assessing Officer to delete the addition. This ground of assessee's appeal is allowed.
9. In the result, appeal of assessee partly allowed.
RITESH ST : Loan syndication/arrangement fee paid to overseas banks for obtaining/arranging loan is, prima faice, liable to service tax under Banking and other Financial Services.
ST : If exercise of power of issuance of show-cause notice can be traced to a legitimate source, fact that same was purported to have been exercised under a different power does not vitiate show-cause notice itself.
ST : Withholding of information from department may tantamount to suppression of facts especially in context of a tax regime based on self-assessment and voluntary compliance.
■■■
[2013] 37 taxmann.com 87 (Mumbai - CESTAT)
CESTAT, MUMBAI BENCH
TATA Steel Ltd.
v.
Commissioner of Service Tax, Mumbai-I*
S.S. KANG, VICE-PRESIDENT
AND P.R. CHANDRASEKHARAN, TECHNICAL MEMBER
AND P.R. CHANDRASEKHARAN, TECHNICAL MEMBER
STAY ORDER NO. S/1169/2012-WZB/C-I(CSTB)
APPLICATION NO. ST/STAY/2029 OF 2011
APPEAL NO. ST/672 OF 2011
APPLICATION NO. ST/STAY/2029 OF 2011
APPEAL NO. ST/672 OF 2011
SEPTEMBER 20, 2012
I. Section 65(12), read with section 69A, of the Finance Act, 1994 - Banking and other financial services - Stay Order - Period from 1-10-2005 to 31-3-2007 - Assessee borrowed money by way of 'syndicated loans' from various overseas banks for international acquisitions and capital expansions - Such overseas Banks were appointed as Mandated Lead Arrangers (MLAs) and arrangement fees, agency fees, commitment fees or other fees was paid to procure lender/lender syndicate - Department sought service tax on arrangement fee under Banking and Other Financial Services under reverse charge - HELD : Out of total demand, demand for period prior to introduction of section 66A i.e., prior to 18-4-2006 was invalid in view of judgment in Indian National Shipowner's Association v. Union of India [2005] 18 STT 212 - Services received by assessee were 'lending services' falling under section 65(105)(zm) read with section 65(12) - Impugned services were not merely intermediary services but were lending services because out of 16 lenders of syndicated loan, 10 lenders had provided almost 95 per cent loan and had also acted as arrangers - Said 'arrangement' amounted to 'lending' as there was a close nexus between arranging for loan and actual lending of loan - Argument that service was of 'borrowing' and not of lending was also wrong because borrowing and lending are two sides of same coin and one cannot exist without other; a service rendered in relation to 'borrowing' can also be considered as a service in relation to 'lending' - Prima facie, therefore, services were taxable under Banking and Other Financial Services - Pre-deposit was ordered in part [Paras 5, 5.2 & 5.3] [Partly in favour of assessee]
II. Section 73 of the Finance Act, 1994 - Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded - Scope of show-cause notice - Assessee argued that show-cause notice did not refer to specific clause of section 65(12) read with section 65(105)(zm) relating to Banking and other financial services under which service tax was sought - HELD : In show-cause notice, it was clearly mentioned that arrangement fees, etc. were paid in course of providing services by way of raising funds/loan and were integral part of services provided by foreign financial institutions falling under Banking and Other Financial Services - Show-cause notice clearly listed activity undertaken to be "lending" which is a specified service under 'Banking and Financial Services' - Therefore, prima facie, assessee was put to notice with regard to activity undertaken by them and also linking activity undertaken by them with service tax law provisions - If exercise of a power can be traced to a legitimate source, fact that same was purported to have been exercised under a different power does not vitiate exercise of power in question - Hence, notice was, prima facie, valid [Para 5.1] [In favour of revenue]
III. Section 73 of the Finance Act, 1994 - Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded - Invocation of extended period of limitation - Where activities-in-question were not informed to department by assessee even though assessee had service tax registration for other purposes, extended period of limitation becomes, prima facie, invocable - If assessee has any doubt regarding liability to pay service tax on his activity, he should seek clarification from department - Withholding of information from department may tantamount to suppression of facts especially in context of a tax regime based on self-assessment and voluntary compliance [Para 5.4] [In favour of revenue]
IV. Section 83 of the Finance Act, 1994 read with section 35F of the Central Excise Act, 1944 - Application of certain provisions of Excise Act - Deposit, pending appeal, of duty demanded or penalty levied - Where assessee has not pleaded any financial hardship and prima facie case is in favour of revenue, balance of convenience lies in favour of revenue and pre-deposit has to be ordered [Paras 5.5 & 6] [In favour of revenue]
Words and Phrases : 'Lending', 'Borrowing', 'Arrangement of lending', as generally defined
EDITOR'S NOTE
It is opined in this judgment that withholding of information from department may tantamount to suppression of facts especially in context of a tax regime based on self-assessment and voluntary compliance. The use of word "might"/"may" is very remarkable because every case of withholding of information cannot be painted with charge of evasion; however, if material information is withheld, it may amount to suppression of facts. So far as law on merits is concerned, the taxability of loan syndication fee is not beyond doubt and the prima facie view appears to be correct.
CASE REVIEW
Indian National Shipowners Association v. Union of India [2005] 18 STT 212 (Bom.) (para 5), United Telecoms Ltd. v. CST [2011] 30 STT 305/9 taxmann.com 19 (Bang. Cestat) (para 5.1) distinguished.
J.K. Steel Ltd. v. Union of India [1969] 2 SCR 481 (para 5.1) and SQL Star International Ltd. v. CC 2012 (276) ELT 465 (AP) (para 5.5)relied on.
CASES REFERRED TO
United Telecoms Ltd. v. CST [2011] 30 STT 305/9 taxmann.com 19 (Bang.-Cestat) (para 3), Indian National Shipowners Association v. Union of India [2005] 18 STT 212 (Bom.) (para 5), J.K. Steel Ltd. v. Union of India [1969] 2 SCR 481 (para 5.1) and SQL Star International Ltd. v.CC 2012 (276) ELT 465 (AP) (para 5.5).
A.R. Krishnan for the Appellant. K.L. Goyal for the Respondent.
ORDER
P.R. Chandrasekharan, Technical Member - The appeal and stay application are directed against Original No. 09/STC-1/SKS/11-12, dated 19-9-2011 passed by the Commissioner of Service Tax, Mumbai-I. The stay application is being taken up for consideration.
2. The appellant M/s. Tata Steel Ltd. borrowed money by way of 'syndicated loans' from various overseas Banks for the purpose of international acquisitions and capital expansions. In order to procure a lender/lender syndicate, the appellant appointed various Banks abroad as Mandated Lead Arrangers (MLAs) and paid arrangement fee, which is the fee paid to procure lender/lender syndicate. The department was of the view that the appellant was liable to pay Service Tax on the fees paid to the MLAs and accordingly issued notice for recovery of Service Tax amounting to Rs. 8,05,24,006/- along with interest during the period 1-10-2005 to 31-3-2007 under the category of Banking and Financial Services under the reverse charge mechanism as provided for vide Section 66A of the Finance Act, 1994. The notice was adjudicated vide the impugned order and the demand was confirmed along with interest thereon and an equivalent amount of penalty was confirmed under Section 78 and a penalty was also imposed under Section 76 of the said Finance Act at the rate prescribed therein. Hence, the appellant is before us.
3. The learned Counsel for the appellant submits that in the show-cause notice issued to the appellant, the clause under which the above activity would come under taxable services of 'Banking and Financial Services' has not been specified and, therefore, in the absence of a proposal in the show-cause notice as to the liability of the assessee under the precise provisions of the Act, the demand is not sustainable and he relied on the decision of the Tribunal in the case of United Telecoms Ltd. v. CST [2011] 30 STT 305/9 taxmann.com 19 (Bang.-Cestat). The learned Counsel further argued that in the instant case, the arrangement fee was paid to the overseas bank in the capacity of arranger and not as lenders and all the lenders are not arrangers. The activities "arrangement" and "lending" are distinct and different. The arrangement service is an intermediary service for procuring lenders/lender syndicate to the appellant and the MLA services are provided to the borrower and not to the lender and hence it is in relation to 'borrowing' and not in relation to 'lending'.
3.1 He further submits that the demand is also barred by limitation of time inasmuch as there was no intention on part of the appellant to evade and avoid any tax and it was the appellant's bona fide belief that they are not liable to Service Tax in respect of the fees paid to the MLAs. The period of demand is from October, 2005 to March, 2007, whereas the show-cause notice has been issued only on 23-7-2009 and hence, the demand is time barred. In view of the above, learned Counsel for the appellant pleads that stay be granted.
4. The learned Commissioner (AR) appearing for the Revenue, on the other hand, strongly opposes the contentions of the appellant. He submits that even though the show-cause notice does not specify the clause under which the activity would come under the Banking and Financial Services, in para 4.3 of the show-cause notice, it has been clearly stated that the arrangement fees were paid for raising funds/loans on behalf of M/s. Tata Steel Ltd. and hence, these are an integral part of the above services provided by the foreign financial institutions. Thus, the show-cause notice has clearly dealt with that how and why the activity undertaken comes under the category of 'Banking and Financial Services'.
4.1 As regards the contention regarding the limitation of time, the learned AR submits that the appellant had never indicated to the department the fact of engaging the services of MLAs for obtaining loans from abroad. Once they did not disclose the activity to the department whether on bona fide belief or otherwise, the same would amount to suppression of facts. In case the appellant had any doubt in the matter, they could have contacted the department in the matter and sought clarification. Failure to do so, clearly shows the intention of the appellant to evade the payment of duty and, therefore, the extended period of time is rightly invocable in the present case. Accordingly, he submits that the appellant be put to terms.
5. We have carefully considered the rival submissions. The Service Tax liability in the case has been fastened on the appellant under Section 66A of the Finance Act, 1994 under the Reverse Charge Mechanism. Section 66A of the Finance Act, 1994 came into force w.e.f. 18-4-2006 and the Hon'ble Bombay High Court in the case of Indian National Shipowners Association v. Union of India [2009] 18 STT 212 held that Service Tax under Section 66A can be demanded only w.e.f. 18-4-2006 and the said decision was upheld by the Hon'ble Apex Court also. Therefore, for the period prior to 18-4-2006, the provisions of Section 66A will have not any application and out of demand of Rs. 8,05,24,006/-, an amount of Rs. 2,79,08,777/- pertains to the period prior to 18-4-2006 and this demand is obviously not sustainable. As regard the demand on or after 18-4-2006, it amounts to approximately Rs. 5.21 crores.
5.1 As regards the contention of the appellant that they were not put on notice, inasmuch as the show-cause notice did not specify the specific clause under the 'Banking and Financial Services' under which the activity undertaken by them would be leviable of Service Tax, prima faciewe do not find any force into this argument. In para 4.3 of the show-cause notice it has been clearly mentioned that the arrangement fees, agency fees, commitment fees or other fees as mentioned above are required to be paid under course of providing the above services for raising funds/loan on behalf of M/s. Tata Steel Ltd. Hence, these are integral part of the above services provided by the foreign financial institutions. Further, in para 4.2 of the said notice, it has been stated that "on going through the agreements for providing loan or fund, it is found that different foreign institutions have been providing different service to M/s. TATA in relation to the availment of loans or raising funds on behalf of M/s. TATA. The above service provided by them is classifiable under Banking and other Financial services and taxable under clause (zm) of Section 65(105). Therefore, on perusal of the show-cause notice it prima facie appears that the appellants have been put to notice with regard to the activity undertaken by them and also linking the activity undertaken by them with Service Tax law provisions. As regards the reliance placed by the appellant on the decision of this Tribunal in the case of United Telecom Ltd. (supra), we find that the ratio of the said decision might not be applicable since as discussed above, the show-cause notice clearly lists the activity undertaken to be "lending" which is one of the specified services under 'Banking and Financial Services'. The Hon'ble Apex Court in the case of J.K. Steel Ltd. v. Union of India [1969] 2 SCR 481 had held that :—
"If the exercise of a power can be traced to a legitimate source, the fact that the same was purported to have been exercised under a different power does not vitiate the exercise of power in question."
Applying this ratio to the facts of the present case, we are prima facie of the view that show-cause notice clearly spells out the rationale for classification of the service under 'Banking and Financial Services'.
5.2 As regards the contention that the arrangement of services is only intermediary services and is different from lending, we find that out of the 16 lenders who provided the syndicated loan, 10 lenders were also arrangers and these 10 lenders provided almost 95% of the loan to the appellant. In other words, the lenders themselves have acted as arrangers in bulk of the transactions and, therefore, it could not be stated that the 'arrangement' was different from 'lending' as there is a close nexus between the arranging for the loan and actual lending of the loan. Therefore, we are prima facie of the view that the activity undertaken by the appellant can be classified as 'Banking and Financial Services' as defined under Section 65(105) of the Finance Act, 1994.
5.3 As regards the argument that 'borrowing' is different from lending, and the service in the instant case has been rendered in relation to borrowing, borrowing and lending are two sides of the same coin and one cannot exist without the other. Hence a service rendered in relation to 'borrowing' could also be considered as a service in relation to 'lending'.
5.4 As regards the contention regarding time bar, the activities were not informed to the department by the appellant even though the appellant had Service Tax registration for the other purposes. If the appellant had any doubt regarding the liability to pay Service Tax on the activity of arranging, they should have sought clarification from the department in the matter. Therefore, withholding of information from the department on the part of the appellant might tantamount to suppression of facts especially in the context of a tax regime based on self-assessment and voluntary compliance.
5.5 The appellant has not pleaded any financial hardship. Therefore, as held by the Hon'ble High Court of Andhra Pradesh in the case of SQL Star International Ltd. v. CC 2012 (276) ELT 465, the balance of convenience lies in favour of Revenue.
6. In view of the foregoing, we are of the considered view that the appellant had not made out a prima facie case for complete waiver of pre- deposit of the dues adjudged against them. Accordingly, we direct the appellant to make a pre-deposit of Rs. 1 crore (rupees one crore only) towards the dues adjudged within a period of eight weeks and report compliance on 13-12-2012. On such compliance, pre-deposit of balance of dues adjudged shall stand waived and recovery thereof stayed during pendency of the appeal.
DGCEI raids premises of WWIL; suspects Rs 100 Cr Service Tax evasion; Rs 18 Cr deposited
By TIOL News Service
NEW DELHI, SEPT 23, 2013: THE DGCEI Hqs has conducted searches at the official and residential premises of M/s Wind World India Ltd. The company is engaged in manufacturing of Wind Turbine Generators (WTG) and providing services of erection, installation & commissioning and operation and maintenance of WTG.
The DGCEI sleuths conducted the operations on suspicion that the assessee has been allegedly evading service tax by not paying tax on the entire value of the above mentioned services on 17.09.2013. During the search, it was revealed that during the period April 2012 to May 2013, WWIL operated on a very novel modus operandi. They had allegedly charged and collected full amount of service tax from its clients through invoices towards providing "erection and commissioning" & "operation and maintenance services" in relation to WTG sold to them. However, for the purpose of payment of service tax, they re-worked the value of taxable services and discharged service tax on 30% value only. The amount of remaining 70% of service tax, charged and collected by them from their clients, was added by them in the value of the services in order to evade payment of such amount of service tax.
As per the DGCEI official Press Release it was also unearthed that one of their sister concerns had not paid any service tax on sale of "Development Rights" to WWIL, M/s. World Wind Resources Development Pvt. Ltd., a 100% subsidiary company of WWIL had started payment of service tax on "Development Rights" w.e.f. July 2012 while selling the same to the customer of WTG. The issue of nonpayment of service tax is under probe.
The DGCEI sleuths conducted the operations on suspicion that the assessee has been allegedly evading service tax by not paying tax on the entire value of the above mentioned services on 17.09.2013. During the search, it was revealed that during the period April 2012 to May 2013, WWIL operated on a very novel modus operandi. They had allegedly charged and collected full amount of service tax from its clients through invoices towards providing "erection and commissioning" & "operation and maintenance services" in relation to WTG sold to them. However, for the purpose of payment of service tax, they re-worked the value of taxable services and discharged service tax on 30% value only. The amount of remaining 70% of service tax, charged and collected by them from their clients, was added by them in the value of the services in order to evade payment of such amount of service tax.
As per the DGCEI official Press Release it was also unearthed that one of their sister concerns had not paid any service tax on sale of "Development Rights" to WWIL, M/s. World Wind Resources Development Pvt. Ltd., a 100% subsidiary company of WWIL had started payment of service tax on "Development Rights" w.e.f. July 2012 while selling the same to the customer of WTG. The issue of nonpayment of service tax is under probe.
The company has deposited Rs 18.25 Crores on the day of search itself towards their prima facie liability of Service Tax. Further the service tax evasion involved in this case appears to be about Rs. 100 Crore, the case is under investigation.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
No comments:
Post a Comment