Chartered Accountant Finance: [aaykarbhavan] (unknown) [1 Attachment]

London Star Diamond Company (I) P. Ltd vs. DCIT (ITAT Mumbai)

Loss on foreign exchange forward contracts is incidental to the exports business and not a "speculation loss". However, if the contract is prematurely cancelled, the assessee has to justify the loss

The assessee, an exporter of diamonds, entered into forward contracts with Banks to hedge the exchange loss, if any, in respect of the outstanding receivable in foreign currency. The assessee suffered a loss of Rs. 4.69 crore on account of the maturity & premature cancellation of the said forward contracts. The AO & CIT(A) held that the forward contracts constituted a "speculative transaction" u/s 43(5) and that the loss suffered thereon was a "speculation loss" which could not be set-off against the other income. On appeal by the assessee to the Tribunal HELD:

(i) Though a forward contract for purchase or sale of foreign currency falls in the definition of "speculation transaction" u/s 43(5) as it is settled otherwise than by the actual delivery or transfer of the commodity, it cannot be regarded as constituting a "speculation business" under Explanation 2 to s. 28. A forward contract, entered into with banks for hedging losses due to foreign exchange fluctuations on the export proceeds, is in the nature of a "hedging contract" and is integral or incidental to the export activity of the assessee and cannot be considered as an independent business activity. Therefore, the losses or gains constitute business loss or gains and do not arise from speculation activities. The fact that there is a premature cancellation of the forward contract does not alter the nature of the transaction. There is also no requirement in the law that there should be a 1:1 correlation between the forward contracts and the export invoices. So long as the total value of the forward contracts does not exceed the value of the invoices, the loss has to be treated as a business loss (Sooraj Mull Magarmull 129 ITR 169 (Cal), Badridas Gauridu 261 ITR 256 (Bom), Panchamahal Steel 215 Taxman 140 (Guj) and Friends and Friends Shipping (Guj) followed; contrary view in S. Vinodkumar Diamonds (ITAT Mum) referred);

(ii) On facts, the loss arising on cancellation of matured forward contracts is allowable as it is attributable to the genuine failure of the trade debtors to comply with the credit terms and conditions. As regards the loss arising on account of premature cancellation of the forward contracts, the assessee requires to explain the reason for the premature cancellation. The explanation that the maturity of date of some of such premature cancelled forward contracts fell during the week-end and therefore they were cancelled three days prior to the due date is acceptable and the loss is allowable. The explanation that some other forward contracts were prematurely cancelled due to business reasons and to avoid higher loss requires to be examined by the AO. The correspondence with the banks and the RBI guidelines on the issue as well as the accounting treatment by the banks also requires to be examined. The assessee's alternative argument that the said loss is "damages" payable to the banks for breach of contracts or settlement of the contracts also requires examination by the AO.

IT: Derivative transactions carried on through National Stock Exchange even prior to recognition of NSE as recognised Stock exchange are entitled to benefit under proviso (d) to section 43(5)

■■■

[2013] 38 taxmann.com 108 (Delhi)

HIGH COURT OF DELHI

Commissioner of Income-tax -V

Nasa Finelease (P.) Ltd.*

SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.

IT APPEAL NO. 647 OF 2012

SEPTEMBER 6, 2013

Section 43(5) of the Income-tax Act, 1961, read with rules 6DDA and 6DDB of the Income-tax Rules, 1962 - Speculative transaction [Proviso (d)] - Assessment year 2006-07 - Assessee carried on derivative transactions through NSE between July 2005 to September 2005 and incurred losses thereon - Assessing Officer, however, disallowed said derivative loss on ground that NSE was given status of recognized stock exchange vide Notification dated 25-1-2006, and thus, derivative loss incurred from transactions made prior thereto was not eligible under proviso (d) to section 43(5) - Tribunal allowed said derivative loss observing that delay in issuing said Notification could not nullify legislative mandate of enactment of proviso (d) to section 43(5) inserted by Finance Act, 2005 with effect from 1-4-2006 - Whether there was no ground to interfere with findings of Tribunal - Held, yes [Paras 7 & 10] [In favour of assessee]

Circulars and Notifications - Notification No. 2/2006, dated 25-1-2006

FACTS

■		The assessee was engaged in the business of dealing in securities and investment. During relevant previous years, the assessee incurred loss in derivative transactions conducted in National Stock Exchange (NSE).
■		The Assessing Officer held that loss was speculative loss and since NSE was notified as recognized stock exchange vide notification dated 25-1-2006, derivative loss incurred for transaction undertaken between July 2005 to September 2005 was not eligible for benefit under proviso (d) to section 43(5).
■		The Commissioner (Appeals) upheld the order of the Assessing Officer.
■		The Tribunal held that the assessee was entitled to benefit under section 43(5) proviso (d), even in respect of transactions carried out with effect from 1-4-2006 because the Parliament had enacted the provision with effect from the said date, and delay, if any, in the issue of rules and notification, cannot nullify the legislative mandate of the enactment.
■		On appeal:

HELD

■		Notification No. 2/2006, dated 25-1-2006 issued by the Central Board of Direct Taxes does not specify any particular date and simply notifies the National Stock Exchange India Ltd. and Bombay Stock Exchange, Mumbai under proviso (d) to clause (5) to section 43. The said proviso had become applicable with effect from 1-4-2006. Issue of notification obviously had to take some time as it involved processing and examination of applications etc. This was a matter relating to procedure and the delay in issue of notification or even framing of the rules was due to administrative constraints. [Para 7]
■		The Tribunal was right that the delay occasioned, as procedure and formalities have to be complied with and same should not disentitle and deprive an assessee, specially, when the transactions were carried through a notified stock exchange. The aforesaid delay is not attributable to the assessee. The notification, therefore, merits acceptance and should be given retrospective effect. Notification was procedural and necessary adjunct to section 43(5)(d) enforced with effect from 1-4-2006. The rule and notification issued in the present case effectuated the statutory and the legislative mandate. There is no good ground or reason why the notification in question should not be given effect from 1-4-2006. No reason or ground is alleged or argued to contend that National Stock Exchange India Ltd. could not and should not have been notified from 1-4-2006. [Para 7]
■		In view of the aforesaid, there is no ground or reason to interfere with the findings of the Tribunal. [Para 10]
■		As regards the question of applicability of section 73, since the Tribunal has not decided said issue, same to be remitted to the Tribunal for adjudication. [Para 12]

CASE REVIEW

S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC) (para 8) followed.

Udai Punj v. CIT [2012] 348 ITR 98/23 taxmann.com 148/209 Taxman 29 (Delhi) (para 9) distinguished.

CASES REFERRED TO

S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC) (para 8) and Udai Punj v. CIT [2012] 348 ITR 98/23 taxmann.com 148/209 Taxman 29 (Delhi) (para 9).

Sanjeev Rajpal for the Appellant. Nageshwar Rao and Sandeep S. Karhail for the Respondent.

ORDER

Sanjiv Khanna, J. - Revenue, by this appeal under Section 260A of the Income Tax Act 1961 (Act, for short), has raised a solitary issue relating to interpretation of clause (d) to Section 43(5) of the Act. For the purpose of record, we note that the appeal pertains to assessment year 2006-07.

2. The respondent-assessee is engaged in the business of dealing in securities and investment and was engaged by Kotak Mahindra Securities to manage their funds and earn income in nature of profits/gains or dividends from dealing with securities. The assessee had received management fee as per contract with Kotak Mahindra Securities.

3. The respondent-assessee had shown a loss of Rs.1,90,29,988/-in derivative transactions. The Assessing Officer held that the loss was speculative loss under Section 73 of the Act. Secondly, the derivative transactions were during the period July, 2005 to September, 2005 and proviso (d) to sub-section 5 to Section 43 was violated. The proviso (d) to section 43(5) inserted with effect from 1st April, 2006 stipulates that eligible transactions should have been conducted/carried out only in recognized stock exchange, to be notified. The said insertion was made by Finance Act, 2005. Rule 6 DDA and Rule DDB were subsequently enacted to prescribe conditions and procedure for notification of a recognized stock exchange. National Stock Exchange and Bombay Stock Exchange were notified vide notification dated 25th January, 2006. The transactions in question it is accepted and an admitted position were conducted in the National Stock Exchange.

4. Notification dated 25th January, 2006 does not state or specify the date from which the two stock exchanges were recognized. However, the memorandum stipulated that transactions in respect of trading in derivatives in the aforesaid two stock exchanges with effect from 25th January, 2006 shall not be deemed to be speculative transactions. The Assessing Officer relying upon the explanatory memorandum observed that the transactions undertaken between July, 2005 to September, 2005 were before 25th January, 2006 and, therefore, the derivative loss was not eligible under proviso (d) to Section 43 (5) of the Act. The loss was disallowed.

5. CIT (Appeals) observed that Section 43(5)(d) was operative in the assessment year 2006-07, but the Rule 6 DDA and Rule DDB were notified on 1st July, 2005 and subsequently the two stock exchanges i.e. National Stock Exchange and Bombay Stock Exchange were notified with effect from 25th January, 2006. Hence, the derivative transactions between July, 2005 to September, 2005 were not eligible. He also observed that explanation to Section 73 was not applicable as assessee was an investment company and accordingly the respondent-assessee was not entitled to set off the said loss from derivative transactions.

6. On further appeal before the Income Tax Appellate Tribunal (tribunal, for short), the respondent has succeeded on the first issue and it has been observed that they were entitled to benefit under Section 43(5) proviso (d), even in respect of transactions carried out with effect from 1st April, 2006. Tribunal observed that Parliament had enacted the provision with effect from the said date, and delay, if any, in the issue of Rules and notification, cannot nullify the legislative mandate of the enactment. Delay was attributable to the Central Board of Direct Taxes, who had failed to issue necessary notification within time.

7. The factual position is not in dispute. Notification No.2/2006 dated 25th January, 2006, issued by the Central Board of Direct Taxes does not specify any particular date and simply notifies the National Stock Exchange India Ltd. and Bombay Stock Exchange, Mumbai under proviso (d) to clause (5) to Section 43 of the Act. The said proviso had become applicable with effect from 1st April, 2006. Issue of notification obviously had to take some time as it involved processing and examination of applications etc. This was a matter relating to procedure and the delay in issue of notification or even framing of the Rules was due to administrative constraints. We agree with the tribunal that the delay occasioned, as procedure and formalities have to be complied with, should not disentitle and deprive an assessee, specially, when the transactions were carried through a notified stock exchange. The aforesaid delay is not attributable to the assessee. The notification, therefore, merits acceptance and should be given retrospective effect. Notification was procedural and necessary adjunct to the Section enforced with effect from 1st April, 2006. The rule and notification issued in the present case effectuate the statutory and the legislative mandate. There is no good ground or reason why the notification in question should not be given effect from 1st April, 2006. No reason or ground is alleged or argued to contend that National Stock Exchange India Ltd. could not and should not have been notified from 1st April, 2006.

8. A similar factual matrix had come up for examination before the Supreme Court in S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC). It was noticed that the rules were framed subsequently and on this ground it was submitted that the main provision itself should not be applied. The said contention was rejected by the majority decision recording as under:—

"The Attorney-General appearing on behalf of the Commissioner contended that to the fifth proviso to section 18A(6) no retrospective operation could effectively be given, because the rules, which alone could render the discretion operative, were from for the first time in December, 1953. We are unable to agree with that view. The legislature has expressly given operation to the fifth proviso to section 18A(6), from April 1, 1952. It is true that the proviso operates only in respect of cases and under circumstances as may be prescribed, but as soon as the rules were framed, which effectuate the purposes for which the proviso was enacted, the proviso and the rules became effective retrospectively from April 1, 1952."

9. Reliance placed upon by the Revenue on Udai Punj v. CIT [2012] 348 ITR 98/23 taxmann.com 148/209 Taxman 29 (Delhi) is not apposite as the factual matrix of the said case is entirely different. In the said case, transfer of shares was complete prior to 6th January, 2006 and the trading in the stock exchange had commenced only from 6th January, 2006. It was held that the transfer was not entitled to exemption under Section 10(38) as shares were not listed securities on the date of transfer. The "lapse" or "failure" was on the part of the company which had to get the shares listed after complying with the formalities and technical requirements. Further, there was no legal bar on sale of shares without listing and the question related to the rate of tax, which was lower on listed securities. The lapse in the present case was on account of delay on the part of the appellant in issuing the necessary notification, no act or cause is attributable to the respondent-assessee.

10. In view of the aforesaid, we do not think that there is any ground or reason to interfere with the findings of the tribunal.

11. However, during the course of hearing before us, learned counsel for the parties have accepted that the tribunal has not decided the other question i.e. applicability of Explanation to Section 73 of the Act. Counsel for the parties agree that this aspect should have been examined and decided by the tribunal. Recording their consent, we frame the following substantial question of law:—

"Whether the Income Tax Appellate Tribunal has erred in not deciding whether or not the loss suffered was speculative loss in view ofExplanation to Section 73 of the Income Tax Act, 1961?"

12. The said question is answered with an order of remit observing that the said issue should be decided and adjudicated by the tribunal. The parties will appear before the tribunal on 26th September, 2013, when a date of hearing will be fixed.

USP

*In favour of assessee.

--
Regards,

Pawan Singla

BA (Hon's), LLB

Audit Officer

O/o The Principal Accountant General

Ahmedabad, Gujarat

M. No. 9825829075

Reply, Reply All or Forward | More

Pavan Singla

To It_law_reported@yahoogroups.com

Nov 4 at 10:49 AM

IT: Derivative transactions carried on through National Stock Exchange even prior to recognition of NSE as recognised Stock exchange are entitled to benefit under proviso (d) to section 43(5)

■■■

[2013] 38 taxmann.com 108 (Delhi)

HIGH COURT OF DELHI

Commissioner of Income-tax -V

Nasa Finelease (P.) Ltd.*

SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.

IT APPEAL NO. 647 OF 2012

SEPTEMBER 6, 2013

Circulars and Notifications - Notification No. 2/2006, dated 25-1-2006

FACTS

■		The assessee was engaged in the business of dealing in securities and investment. During relevant previous years, the assessee incurred loss in derivative transactions conducted in National Stock Exchange (NSE).
■		The Assessing Officer held that loss was speculative loss and since NSE was notified as recognized stock exchange vide notification dated 25-1-2006, derivative loss incurred for transaction undertaken between July 2005 to September 2005 was not eligible for benefit under proviso (d) to section 43(5).
■		The Commissioner (Appeals) upheld the order of the Assessing Officer.
■		The Tribunal held that the assessee was entitled to benefit under section 43(5) proviso (d), even in respect of transactions carried out with effect from 1-4-2006 because the Parliament had enacted the provision with effect from the said date, and delay, if any, in the issue of rules and notification, cannot nullify the legislative mandate of the enactment.
■		On appeal:

HELD

■		Notification No. 2/2006, dated 25-1-2006 issued by the Central Board of Direct Taxes does not specify any particular date and simply notifies the National Stock Exchange India Ltd. and Bombay Stock Exchange, Mumbai under proviso (d) to clause (5) to section 43. The said proviso had become applicable with effect from 1-4-2006. Issue of notification obviously had to take some time as it involved processing and examination of applications etc. This was a matter relating to procedure and the delay in issue of notification or even framing of the rules was due to administrative constraints. [Para 7]
■		The Tribunal was right that the delay occasioned, as procedure and formalities have to be complied with and same should not disentitle and deprive an assessee, specially, when the transactions were carried through a notified stock exchange. The aforesaid delay is not attributable to the assessee. The notification, therefore, merits acceptance and should be given retrospective effect. Notification was procedural and necessary adjunct to section 43(5)(d) enforced with effect from 1-4-2006. The rule and notification issued in the present case effectuated the statutory and the legislative mandate. There is no good ground or reason why the notification in question should not be given effect from 1-4-2006. No reason or ground is alleged or argued to contend that National Stock Exchange India Ltd. could not and should not have been notified from 1-4-2006. [Para 7]
■		In view of the aforesaid, there is no ground or reason to interfere with the findings of the Tribunal. [Para 10]
■		As regards the question of applicability of section 73, since the Tribunal has not decided said issue, same to be remitted to the Tribunal for adjudication. [Para 12]

CASE REVIEW

S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC) (para 8) followed.

Udai Punj v. CIT [2012] 348 ITR 98/23 taxmann.com 148/209 Taxman 29 (Delhi) (para 9) distinguished.

CASES REFERRED TO

S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC) (para 8) and Udai Punj v. CIT [2012] 348 ITR 98/23 taxmann.com 148/209 Taxman 29 (Delhi) (para 9).

Sanjeev Rajpal for the Appellant. Nageshwar Rao and Sandeep S. Karhail for the Respondent.

ORDER

10. In view of the aforesaid, we do not think that there is any ground or reason to interfere with the findings of the tribunal.

"Whether the Income Tax Appellate Tribunal has erred in not deciding whether or not the loss suffered was speculative loss in view ofExplanation to Section 73 of the Income Tax Act, 1961?"

USP

*In favour of assessee.

IT: Deduction under section 80-IC could not be denied on ground that assessee procured raw material from other State

■■■

[2013] 38 taxmann.com 212 (Uttarakhand)

HIGH COURT OF UTTARAKHAND

Deputy Commissioner of Income-tax, Nainital

Natural Fragrances*

BARIN GHOSH, CJ
AND U.C. DHYANI, J.

IT APPEAL NO. 24 OF 2012†

DECEMBER 24, 2012

Section 80-IC of the Income-tax Act, 1961 - Deduction - Special provisions in respect of certain undertakings or enterprises in certain special category States - Assessee was engaged in manufacturing and sale of fragrance - In manufacturing process, flowers were purchased from Uttar Pradesh and distilled oil extracted from such flowers were brought to assessee's manufacturing unit at Uttarakhand - Assessing Officer having noticed that most important activity, namely, extraction of oil from flowers had taken place in Uttar Pradesh and not in Uttarakhand, assessee was not entitled to benefit of section 80-IC - Whether since after procuring distilled oil many a things were required to be mixed and then those were to be processed and steamed, distilled oil obtained by assessee from Uttar Pradesh did not remain distilled oil at time of sale of its product and same became a different product - Held, yes - Whether therefore, assessee was entitled to benefit of section 80-IC - Held, yes [Para 3] [In favour of assessee]

CASE REVIEW

Decision of Tribunal in Natural Fragrances v. Dy. CIT [2012] 51 SOT 261/19 taxmann.com 312 (Delhi) (para 3) affirmed.

Hari Mohan Bhatia for the Appellant. C.S. Aggarwal and P.R. Mullick for the Respondent.

ORDER

Barin Ghosh, CJ. - This appeal was filed, as claimed by the learned counsel for the assessee, by the Deputy Commissioner of Income Tax and as contended by the learned counsel for the appellant, by the Commissioner of Income Tax. Learned counsel for the appellant submitted that there was an inadvertent error on his part and, accordingly, the word "Deputy" was used as a prefix to Commissioner of Income Tax and this mistake occurred, inasmuch as, Sri Abhishek Kumar, Income Tax Inspector, who was authorized to affirm the affidavit in support of the appeal, was working in the office of Deputy Commissioner. Learned counsel for the respondent submitted that it could not be said to be a mistake, and that, the appeal was not by an incompetent authority. However, we give credence to the submission made by the counsel for the appellant, who has taken upon himself that it was his mistake, which has caused the word "Deputy" to be used as prefix to Commissioner. An application has been filed for removing the said mistake. We allow the amendment application (CLMA No. 12177 of 2012) and, thereby, the mistake is removed and the prefix "Deputy" is removed from "Commissioner of Income Tax".

2. Before the Tribunal, the question was, whether the respondent assessee is involved in manufacturing activities in Uttarakhand from its industrial unit situate therein? The Assessing Officer found that the assessee is involved in manufacture and sale of fragrance. The Assessing Officer found that in order to complete the said manufacturing activity, respondent assessee is required to procure flowers, which he does within the State of Uttar Pradesh. The Assessing Officer found that instead of bringing the flowers, thus purchased, on the basis of job work, assessee extracts the oil contents from the flowers at Uttar Pradesh and, thereafter, such oil is brought in the factory of the respondent assessee situate in Uttarakhand and with the help of the extracted oil, the essence is manufactured. The Assessing Officer felt that in the whole process, the most important part of the manufacturing activity is undertaken in the State of Uttar Pradesh and the minimal in the State of Uttarakhand and, as a result, respondent assessee is not entitled to the benefit of Section 80IC of the Income Tax Act, 1961.

3. There is no dispute that at the request of the Assessing Officer, respondent assessee produced before the Assessing Officer a flow-chart showing steps taken by the respondent assessee for producing the end product, which it sells. The flow-chart, thus produced, was not disputed by the Assessing Officer. On the other hand, he himself, on the basis of the flow-chart itself, came to the conclusion that the largest manufacturing activity takes place outside the State of Uttarakhand. A look at the flow-chart will clearly demonstrate that the basic ingredient for manufacturing the ultimate product sold by the assessee is distilled oil. There is no dispute that this distilled oil is obtained by the assessee from the State of Uttar Pradesh. At the same time, there is no dispute that the assessee does not purport to sell the distilled oil by purporting to show that the same is manufactured in its factory at Uttarakhand. There is no dispute that with the distilled oil, thus procured, many a things are required to be mixed. Then, those are to be processed, first by roasting and, then, by mixing with proportionate amount of water. The product, then available, is then required to be steamed distilled and the vapours are made to condense. The condensed vapour is absorbed in the oil and the process requires repetition for the purpose of reaching perfection. That, at its industrial unit situate within the State of Uttarakhand, assessee undertakes those steps to obtain the product it sells, is not disputed in the appeal. A look at the flow-chart would amply demonstrate that the distilled oil obtained by the assessee from Uttar Pradesh does not remain distilled oil at the time it sells its saleable product after carrying out the manufacturing activity shown in the flow-chart; the same becomes a different product. The distilled oil, which is used as a raw material in the processing unit of the assessee situate in Uttarakhand, is available in the market. To that, there is no dispute. Instead of buying the same from the market, assessee gets the same processed in the State of Uttar Pradesh. Because he has done so, the distilled oil, thus used by him as a raw material in the industrial unit at Uttarakhand, will not become a part of the manufacturing activity of the assessee in the State of Uttarakhand. This having been concluded, we find no scope of interference. The appeal fails and the same is dismissed.

USP

*In favour of assessee.

†Arising out of order of ITAT in [2012] 51 SOT 261 (Delhi)

2013-TIOL-917-ITAT-HYD

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' HYDERABAD

ITA No.251/Hyd/2013
Assessment Year: 2009-10

DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-16(1), HYDERABAD

M/s NEWS TODAY (P) LTD
HYDERABAD
PAN NO:AAACN7323G

B Ramakotaiah, AM And Saktijit Dey, JM

Date of Hearing: September 26, 2013
Date of Decision: October 4, 2013

Appellant Rep by: Smt Maya Maheswari
Respondent Rep by: Shri V Raghavendra Rao

Income tax - Sections 194C, 199 - News services - Advance payment - TDS - Accrued income - Business receipts - Whether when the assessee receives advance payment subjected to TDS, such receipt is includible in the income of the assessee in the current year or the year in which the advance payment is reconciled with the final bill.

The assessee is in the business of news services and reports catering to daily news papers, magazines & other publications and electronic media. During the assessment, the AO found that TDS was deducted by M/s Ushodaya Enterprises Ltd. on a payment of Rs. 1.50 cr. This sum was stated to be an advance payment, for which TDS was deducted at the time of payment whereas the same was not included in the receipts of the year as it was in the nature of advance payment. The AO did not agree and made addition for the reason that the amount was received for a particular service to be rendered by the assessee and there was no clause for advance payments in the agreement entered into. The AO upon observing that the assessee claimed TDS credit of Rs. 3,40,500/- deducted on the above amount and said the amount was includible as receipt in the year.

In appeal before the CIT(A), the assessee submitted that it had to get monthly remuneration from various print and TV divisions and accordingly, total receipts during the year was shown at Rs. 70,76,44,304/- but TDS was deducted on reimbursement and other expenses of Rs. 1,73,191/- and also on the advance. It was also further explained that advances were increased from Rs. 25,00,000/- in the immediately preceding year to Rs. 1.50 cr, during the year under consideration to Rs. 1.75 cr as on 31/03/2010 and Rs. 2.20 cr as on 31/03/2011, which was ultimately adjusted as on 31/03/2012. The CIT(A) held that the advance cannot be treated as income, and accordingly the addition was deleted.

Aggrieved Revenue filed an appeal before the Tribunal, and submitted that the CIT(A) order was legally not sustainable. Contending the argument of the Revenue, the counsel for the assessee submitted that the revenue can be said to have accured only when the services were actually rendered. In the present case, there was no evidence that the sum was received by the assessee for any particular services rendered so as to treat it as accrued income. Just because the amount was covered by the TDS as per the provisions of section 194C of the Act, the same cannot be considered as income. However, as per the provisions of section 199, the credit for the TDS can be given in the assessment year in which the income was shown to have been offered for assessment. Therefore, to the extent of giving credit for the amount of TDS claimed, the AO was free to examine and allow the credit in the year in which the advance got adjusted in the bills.

Having heard the parties, the tribunal held that,

++ the assessee was receiving advances from M/s Ushadaya Publication Pvt. Ltd as a part of services provided and these amounts were adjusted as and when bills were raised subsequently and, thus, at any point of time there was an advance available in the books of account of the assessee. Similar reconciliation was also done in AY 2003-04, which got adjusted in AY 2004-05. The advance amount cannot be considered as income as it does not accrue to the assessee since no services were rendered relating to that payment. As per the provisions of section 194C, TDS has to be deducted on the amounts paid by the deductor, but that does not mean that advance can be considered as income of the assessee. There is nothing on record to establish that assessee rendered any other service over and above the services which are being remunerated every month by a fixed amount, so as to treat the advance as income. It is already on record that every year there would be advances which were being adjusted in the later bills. Therefore, no reason is found to interfere with the order of the CIT(A);

++ however, no merits were seen in the grounds raised by the Revenue on the merits of addition made and accordingly, the same are dismissed, upholding the order of the CIT(A).

Revenue appeal dismissed

Cases followed:

CIT Vs. Dinesh Kumar Goel, [2010] 331 ITR 10,

Varsha G. Salunke Vs. DCIT, [2006] 98 ITD (Mum.) (TM)

ORDER

Per: B Ramakotaiah:

This appeal preferred by the Revenue is directed against the order of the CIT(A)-V, Hyderabad, dated 23/11/2012 for the assessment year 2009-10.

2. Revenue has raised the following grounds of appeal:

"2. The CIT(A) erred in law in granting relief to the assessee by deleting the amount of receipt of Rs.1,50,00,000/- treating the same as advance receipt when the assessee company is claiming credit for TDS on certain portion of the said alleged advance.

3. The CIT(A) ought to have appreciated the fact that the receipts of Rs. 1.50 crores has been correctly identified as not relating to advance and are total business receipts."

Ground Nos. 1 and 2 are general in nature.

3. Briefly stated facts are, Assessee company is in the business of news services and reports catering to daily news papers, magazines & other publications and electronic media. In the course of assessment, the AO sought reconciliation of TDS with amounts accounted and found that TDS was made by M/s Ushodaya Enterprises Ltd. on an amount of Rs. 1.50 crores. This amount was stated to be an advance payment, for which TDS was made at the time of payment whereas the same was not included in the receipts of the year as it was in the nature of advance payment. The AO however did not agree and made addition of Rs. 1.50 crores on the reason that the amount was received for a particular service to be rendered by the assessee and there is no clause for advance payments in the agreement entered into with M/s Ushodaya Publications Ltd. It was further noted by the AO that the assessee claimed TDS credit of Rs. 3,40,500/- deducted on the above amount, therefore, the said amount is includible as receipt in the year. Assessee submitted reconciliation of gross receipts, TDS and income as per P&L Account, which is as under:

Sl. No.	Particulars	Amount	Rate	TDS
	Business income
A)	Print Division
	Subscription Revenue from UEL - Publication	288000000	2.270	6537600
		4432555	2.270	100619
	Total	292432555		6638219
B)	TV Division
	Subscription Revenue from UEL - Television Division - Other channels Aprl 08 to Mar 09	378000000	2.266	8565480
	Subscription Revenue from UEPL - ETV (Telugu) Division (Apr 08 to Mar 09)	12000000	2.266	271920
	Amount received towards electronic expenses	25211749	2.266	571301
	Total	415211749		9408701
	Total Business income as per P&L A/c	707644304		16046920
	Reimbursement of other expenses	173191	2.266	3925
	Amounts recd. in advance	15000000	2.270	340500
		722817495		16391345
	Tax collected as source (TCS) on scrap sale	336	1.133	4
	Gross Receipts and TDS as per TDS certificates	722817831		16391349

It was explained that assessee has to get monthly remuneration from various print and TV divisions and accordingly, total receipts during the year was shown at Rs. 70,76,44,304/- but TDS was made on reimbursement and other expenses of Rs. 1,73,191/- and also on the advance. It was also further explained that advances have increased from Rs. 25,00,000/- in the immediately preceding year to Rs. 1.50 crores, during the year under consideration to Rs. 1.75 crores as on 31/03/2010 and Rs. 2.20 crores as on 31/03/2011, which was ultimately adjusted as on 31/03/2012.

4. The CIT(A) following the decision of his predecessor in AY 2003-04 on similar issue and also following the ITAT's order in that year dated 31/10/2011 (ITA No. 586/Hyd/2011) held that advance cannot be treated as income and accordingly the amount of Rs. 1.50 crores treated as income by the AO was deleted.

5. Revenue is aggrieved and is in appeal before us.

6. After considering the rival contentions and examining the paper book, we do not see any reason to interfere with the order of the learned CIT(A). It is an admitted fact that the assessee was receiving advances from M/s Ushodaya Publications Pvt. Ltd. as a part of services provided and these amounts were adjusted as and when bills were raised subsequently and, thus, at any point of time there was an advance available in the books of account of the assessee. Similar reconciliation was also done in AY 2003-04, which got adjusted in AY 2004-05. The advance amount cannot be considered as income as it does not accrue to the assessee since no services were rendered relating to that payment. As per the provisions of section 194C, TDS has to be deducted on the amounts paid by the deductor, but that does not mean that advance has considered as income of the assessee. There is nothing on record to establish that assessee rendered any other service over and above the services which are being remunerated every month by a fixed amount, so as to treat the advance as income. It is already on record that every year there would be advances which were being adjusted in the later bills. Therefore, we do not see any reason to interfere with the order of the CIT(A).

7. In the course of argument, the learned counsel for the assessee relying on the decision of Hon'ble Delhi High Court in case of CIT Vs. Dinesh Kumar Goel, [2010] 331 ITR 10 submitted that revenue is recognized only when the services are actually rendered. This principle will apply to the facts of the case under consideration as there is no evidence that the amount was received by the assessee for any particular services rendered so as to treat it as accrued income. As considered by the Coordinate bench of ITAT, Mumbai Bench in case of Smt. Varsha G. Salunke Vs. DCIT, [2006] 98 ITD (Mum.) (TM) = (2005-TIOL-225-ITAT-MUM-TM), just because the amount was covered by the TDS as per the provisions of section 194C of the Act, the same cannot be considered as income. However, as per the provisions of section 199, the credit for the TDS can be given in the assessment year in which the income is shown to have been offered for assessment. Therefore, to the extent of giving credit for the amount of TDS claimed, the AO is free to examine and allow the credit in the year in which the advance got adjusted in the bills and necessary credit can be given in that year as per the provisions of the Act. However, we do not see any merit in the grounds raised by the revenue on merits of addition made and accordingly, the same are dismissed, upholding the order of the CIT(A).

8. In the result, appeal of the Revenue is dismissed.

(Pronounced in the open court on 4.10.2013.)

--
Regards,

Pawan Singla

Companies Act 1956 v/s Companies Act 2013 (Accounts and Audit)

Posted In Company Law | Articles | No Comments »

Priyanka Gera

TOPICS COVERED

1. Accounts

– Books of Accounts (BOA) etc. to be kept by company

– Financial statement (FS)

– Extension of Financial year

– Financial statement , Board's Report etc.

– Authority on Accounting and Auditing Standard

– Role of Central Government

– Filing of Balance Sheet & Profit & Loss

– Re-opening or re-casting books of accounts

– Voluntary revision of financial statement or Board Report

– Filing with ROC

2. Audit and Auditors

– Auditors Appointment

– Failure to appoint an Auditor

– Intimation to Registrar of Companies (ROC)

– Rotation of Auditors

– Auditing standards

– Additional Services by auditors

– Fraud by Auditors

– Misleading information by auditors

– Disqualification

– Right/Obligation

– Internal Audit

– Cost Audit

Reasons for Zero Credit in Form 16B TDS Certificate on Sale of Immovable property

Posted In Income Tax | Articles | No Comments »

It has been observed that deductors are wrongly entering the tax amount deducted on sale of property in 'interest' or 'others' or 'fee' column while making the e-payment. Accordingly, zero TDS credit will appear in Form 16B.

Advise

The Deductor (Buyer) should fill the amount of tax in 'TDS Amount to be Paid' field and not in 'Interest' or 'Fee' field. Else, the seller will not get the credit of such tax.

Immunity From Penalty U/s. 271(1)(c) Available For Belated Returns

Posted In Income Tax Case Laws | Judiciary | No Comments »

In our considered opinion, once the legislature has not specified the "due date" as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended under section 139(4). In view of the above, we hold that the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the "due date" and, therefore, the penalty levied by the Assessing Officer cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the learned Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.

INCOME TAX APPELLATE TRIBUNAL, "G" BENCH, MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER

AND SHRI AMIT SHUKLA, JUDICIAL MEMBER

ITA no. 7737/Mum./2011 – Assessment Year: 2008-09)

Income Tax Officer (Central)

v/s

Mr. Gope M. Rochlani

Date of Order – 24.05.2013

ORDER

PER AMIT SHUKLA, J.M.

The present appeal is preferred by the Revenue challenging the impugned order dated 30^thAugust 2011, passed by the learned Commissioner (Appeals)-I, Mumbai, in relation to the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 2008-09. Following grounds have been raised by the Revenue:-

In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in cancelling the penalty levied by the AO.
In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the additional income declared during statement u/s.132(4), is on the basis of the assessee^,s own working of the WIP.
In the facts and circumstances of the case and in law, the Ld CIT(A)-I, Thane erred in deleting the penalty on the ground that the assessee^,s admission of additional income declared is on the basis of entries in the books of accounts, documents and transactions.
In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that as per explanation 5A (ii)(b) to section 271 (1)(c), the assessee has deemed to have concealed the particulars of his income for the purposes of imposition of penalty u/s. 271(1)(c).
In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the assessee did not file the return of income till the date of search which took place on 16- 10-2008, as the time for filing of return u/s.139(l) was 30-09- 2008. Due to which the additional income was detected otherwise the assessee would have concealed the additional income declared.
The Appellant prays that order of the CIT(A)-I, Thane on the grounds be set aside and that of the Assessing Officer be restored."

2. Facts in brief:- The assessee is a 50% partner in the FIRM m/S. Madhav Constructions, which is carrying out the business of housing development and builders in Kalyan. A search and seizure action under section 132(1) and simultaneously survey action under section 133A was carried out at the residential premises of main person / partners and business premises of Madhav Group on 15^th October 2008. During the course of search, statement on oath under section 132(4) was recorded on 17^th October 2008 of Mr. Gopi M. Rochlani, one of the partners wherein he declared an additional income of 1,25,00,000. This amount was also offered in the return of income filed for the assessment year 2008-09 on 31^st October 2008. This surrender was applicable to the assessee also wherein similar amount of 1,25,00,000 was offered for the assessment year 2008-09 and the return of income was filed on 31^st October 2008, wherein the income of 1,31,19,140 was shown which included the additional income offered during the course of search / survey action. The relevant statement on oath which has been reproduced in the assessment order as well as in the penalty order, for the sake of ready reference, is reproduced herein below:-

"During the course of survey proceedings in our office premises, we were asked to provide tentative trading account and WIP as on the date of survey, but due to laborious and time consuming work this is not possible. On going through the physical break up of work —in-progress with the books I would like to add that the balance sheet of Madhav sankalp for financial year 2007-09(A. Y.2008-09) reveal as under:

SALE	88.54 crores
Less:- Estimated Profit 40%	35.42 crores
Estimated overall expenditure	53.12 crores
Work-in-progress @ 62%	32.94 crores
FY 2007-08-Expenditure.. 14 cr
FY2008-09-Expenditure.. 14cr	28.00 crores
Estimated difference in expenditure	4.94 crores
	Say 5.00 crores

I would like to further add here that out of the estimated expenditure of Rs.5.0 crores, Rs.2,5 crores is for FY 2007-08 and Rs.2.5 crores is for FY 2008-09. this money has been in vested by both the F. Yrs, on which myself and my son Raja are ready to pay due taxes. We declare this additional income u/s. 132(4), over and above our regular income for F.Yrs. 2007-08 and 2008-09, @ Rs.1.25 crores each F.Yr under the head investment in Madhav construction (profit in land dealing).

3. In the assessment order passed under section 143(3) r/w section 153A, the assessment order was completed on the same income of ~ 1,31,19,140 vide order dated 31^st December 2010 on which return of income was filed. Thereafter, the Assessing Officer initiated the penalty proceedings under section 271(1)(c) and observed that, firstly, the income has been offered only as a consequence of search and seizure under section 132(1) and secondly, it was offered under the head "Income From Other Sources" for the assessment year 2008-09 in the return of income filed on 31^st October 2009, whereas the original due date of the return of income was 30^th September 2008, which has expired before the date of search. Thus, he held that the assessee's case is covered by Explanation 5A to section 271(1)(c).

4. The assessee, before the Assessing Officer, submitted that this additional income was offered voluntarily which was on estimate basis and and the same has been accepted in the assessment order as such, therefore, provisions of section 271(1)(c) is not applicable. The entire explanation of the assessee was rejected and finally, penalty was levied on the entire amount of 125 crores at 42,40,750.

5. Before the learned Commissioner (Appeals), the assessee made very detail submissions with regard to Explanation 5A to section 271(1)(c) and submitted that in view of clause (b) of Explanation 5A, penalty cannot be levied as the assessee filed return of income on the due date which can also be inferred as return of income filed under section 139(4). Further submissions were also made on merits as well as on the ground that no penalty can be levied on estimated income.6. The Learned Commissioner (Appeals), though did not accept the assessee's explanation on Explanation 5A to section 271(1)(c), but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, additional income offered by the assessee can neither be held to be concealed income or furnishing of inaccurate particulars of income. The relevant conclusion drawn by the learned Commissioner (Appeals) after detail discussion is reproduced herein below:-

"64. After considering the submissions of the A.R. and ratio laid down by various judicial authorities in the cases referred to above and particularly taking into consideration the findings of Hon^,ble ITAT Rajkot Bench in the case of Shabbir Alluddin Latiwala V/s. Deputy Commissioner of Income Tax and Shri Gopichand Rupchand Rajani (Supra) I am inclined to agree with the assessee that lnspite assessee^,s case not being covered by the immunity provided under explanation 5A to sec. 271(1)(c) I hold that even if the assessee is not in a position to establish conclusively that additional income was offered by him voluntarily but at the same time I find that A.0. has also not been able to identify the very foundation on the basis of which assessee had offered additional income. The A. 0. neither in the course of assessment proceedings nor in the penalty proceedings has been able to link declaration of additional income with any material found even In the course of search. Even the sale figure of Rs.88.54 Cr has been adopted purely on the basis. Profit is estimated at 40% to arrive at estimated expenditure. WIP up to date of survey Is estimated at 62%. I further find that the income has been offered only on estimate which Is clearly proved from the statement u/s. 132(4) where every figure has been mentioned on estimate to the extent of even rounding up of the figures and therefore in my considered view it can not be held that the additional income offered by the assessee was concealed income in respect of which Inaccurate particulars had been furnished. I accordingly hold that A.O. Is not justified in levying penalty u/s. 271(1)(c) of the IT Act 1961 in the assessee^,s case. The penalty levied is accordingly cancelled."

7. Before us, the learned Departmental Representative submitted that this is not a case of estimate made by the Assessing Officer in the regular assessment proceedings but it is a case of search and seizure, wherein the assessee has himself declared additional income in the statement recorded under section 132(4). Even if such surrender was based on estimate, then also it represents the undisclosed income which has been owned by the assessee. Thus, the penalty cannot be deleted on the pleading that penalty has been levied on estimate basis. In this case, Explanation 5A is clearly applicable. Under Explanation 5A to section 271(1)(c), in case of a search which has been conducted after 1^stJune 2007, if any undisclosed income has been found which has not been shown in the return of income either prior to the date of search or on the due date of filing of return of income, penalty has to be levied. This is evident from the plain language of Explanation 5A. Thus, the findings of the learned Commissioner (Appeals) for deleting the penalty purely on the ground that this was a case of estimate is wholly erroneous once he has come to a conclusion that the assessee is not getting the benefit of Explanation 5A.

8. Per contra, the learned Counsel submitted that the assessee offered the income for the assessment year 2008-09, for which the due date of filing the return of income under section 139(1) was 30^thSeptember 2009 and the due date of filing the return of income under section 139(4) was 31^stMarch 2010. In the present case, the assessee has filed his return of income on 31^stOctober 2009, which can be said to be filed under section 139(4). Clause (b) of Explanation 5A mentions the phrase "due date for filing the return of income". This "due date" can also be treated as due date of return of income filed under section 139(4) also. In support of this contention, he relied upon the judgment of Hon'ble Punjab & Haryana High Court in CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012, vide judgment dated 20^th March 2013 and the judgment of Gauahati High Court in CIT v/s Rajesh Kumar Jalan, [2006] 286 ITR 276 (Gau.). Relying on these case laws, he submitted that in these cases, the High Court, in the context of section 54(2) and 54F, wherein similar phrase has been used and in particular in section 54(2), the words mentioned is "time limit under section 139″, has been interpreted by the Hon'ble High Court to mean that the words "due date" means the return of income filed under section 139(1) or 139(4) because section 139(4) is the extended period only. If the requirements of the due date has been fulfilled within the time limit of section 139(4) then it meats the requirement of the law. He, thus, submitted that the assessee's income disclosed at the time of search has already been shown on the due date for filing of the return of income and, therefore, penalty cannot be levied by invoking the provisions of Explanation 5A of section 271(1)(c). He further reiterated his submissions as made before the learned Commissioner (Appeals) with regard to the levy of penalty on estimated income.

9. We have carefully considered the rival contentions and perused the relevant findings of the Assessing Officer and the learned Commissioner (Appeals). In this case, a search and seizure action was taken place after 1st June 2007 i.e., on 16^th October 2008. The assessee, during the course of statement recorded under section 132(4), has offered income of 1.25 crores as additional income for the previous year ending before the date of search i.e., year ending 31^st March 2008 relevant to the assessment year 2008-09. The due date for filing of the return of income under section 139(1) for assessment year 2008-09 was 30^th September 2009, whereas the assessee has filed the return of income on 31^st October 2009 i.e., after one month from the date of filing of the return of income as provided in section 139(1). The due date for filing of the return of income under section 139(4) for the assessment year 2008-09 was 31^st March 2010. Thus, the return of income filed by the assessee in this case was at best under section 139(4). The issue before us is whether the return of income filed under section 139(4) can be held to be the "due date" for filing the return of income for such previous year as mentioned in clause (b) of Explanation 5A to section 271(1)(c) and, if so, whether the penalty can be levied on the facts of the present case under the Explanation 5A. For better appreciation of the provisions of Explanation 5A, the same is reproduced herein below:-

[Explanation 5A. – Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of‑

(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or

(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and, -

(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or

(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income."

10. On a plain reading of the aforesaid Explanation, it is apparent that following conditions are essential for levy of penalty under section 271(1)(c):-

(i) this Explanation is applicable to an assessee in whose case search has been initiated under section 132 on/or after 1^stJune 2007;

further,

(ii) during the course of search, the assessee should be found to be the owner of -

(a) any money, bullion, jewellery, for other valuable article or thing to which and the assessee claims to have acquired such assets by utilizing his income for any previous year; or

(b) any income which is based on any entry in any books of account or other documents or transactions and claims that these represents income for any previous year which is ended before the date of search; and further,

(iii) if such asset or income which represents the income of any previous year, firstly, has not been shown in the return of income which has been furnished before the date of search i.e., such income has not been declared therein and secondly, the due date for filing the return of income had expired i.e., the assessee has not shown this income in the return of income filed on or before the due date;

(iv) then on such income declared by him in the return of income furnished on or after the date of search, he is liable for penalty under section 271(1)(c) and he is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income.

11. There are two saving clause in the aforesaid Explanation wherein penalty cannot be held to be leviable under section 271(1)(c), firstly, the assessee had shown such asset as mentioned in clause (i) or income as mentioned in clause (ii) in the return of income furnished before the date of search and, secondly, such asset and the income has been shown in the return of income filed on the due date. Thus, if any assessee falls under these saving clauses, Explanation 5A cannot be invoked.

12. For the purpose of the instant case, we have to see whether or not the assessee has shown the income in the return of income filed on the "due date". Provisions of section 139(1) provides for various types of assesses to file return of income before the due date and such due date has been provided in the Explanation 2, which varies from year-to-year. Whereas, provisions of section 139(4) provides for extension of period of "due date" in the circumstances mentioned therein and it enlarges the time limit provided in section 139(1). The operating line of sub-section 4 of section 139 provides that "any person who has not furnished the return within the time aIIowed" ~ here the time allowed means under section 139(1), then in such a case, the time limit has been extended. Wherever the legislature has specified the "due date" or has specified the date for any compliance, the same has been categorically specified in the Act. For e.g., under section 44AB where the assessee is required to get his accounts audited before the specified date and furnish by that date, the specified date has been specifically mentioned as the date provided in section 139(1). Similarly, in section 43B also, the "due date" has been specifically provided as the date mentioned in sub-section (1) of section 139. In the aforesaid Explanation 5A, the legislature has not specified the due date as provided in section 139(1) but has merely envisaged the words "due date". This "due date" can be very well inferred as due date of the filing of return of income filed under section 139, which includes section 139(4). Where the legislature has provided the consequences of filing of the return of income under section 139(4), then the same has also been specifically provided. For e.g., section 139(3), provides that for the purpose of carry forward losses under sections 72 to 74A, the return of income should be filed within the time limit provided under section 139(1), otherwise losses cannot be set-off. In absence of such a restriction, the limitation of time of "due date" cannot be strictly reckoned with section 139(1). Thus, the meaning of the words "due date", sans any limitation or restriction as given in clause (b) of Explanation 5A, cannot be read as "due date" as provided in section 139(1). The words "due date" therefore, can also mean date of filing of the return of income under section 139(4).

13. This proposition has been explained by the various High Courts also wherein in the context of sections 54F and 54(2), it has been interpreted that the due date of section 139 can be inferred as due date under section 139(4) also. This proposition has been elaborated in the following decisions:-

i) CIT v/s Rajesh Kumar Jalan, (20061 286 ITR 276 (Gau.). wherein it has been observed and held as under:-

'From a plain reading of sub-s. (2) of s. 54, it is clear that only s. 139 is mentioned in s. 54(2) in the context that the unutiised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139. Sec. 139 cannot be meant only as s. 139(1) but it means all sub-sections of s. 139. Under sub-s. (4) of s. 139, any person who has not furnished a return within the time allowed to him under sub-s. (1) of s. 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Such being the situation, it is the case of the assessee that the assessee could fulfill he requirement under s. 54 for exemption of the capital gain from being charged to income-tax on the sale of property used for residence upto 30th March, 1998, inasmuch as the return of income-tax for the asst. yr. 1996-97 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-s. (4) of s. 139. In the facts and circumstances of the case, the assessee was entitled to claim benefit under s. 54 on the entire amount received by him on account of sale of his house property.

ii) CIT v/s M/s. Jagriti Aggarwal, (20111 339 ITR 610 (P&H), wherein it has been observed and held as under:-

'6. Sec. 54 of the Act contemplates that the capital gain arises from the transfer of a long-term capital asset, but if the assessee within a period of one year before or two years after the date on which the transfer took place purchases residential house, then instead of the capital gain, the income would be charged in terms of provisions of sub-s. (1) of s. 54. As per sub-s. (2), if the amount of capital gains is not appropriated by the assessee towards the purchase of new asset within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139, the amount shall be deposited by him before furnishing such return not later than due date applicable in the case of assessee for furnishing the return of income under sub-s. (1) of s. 139 in an account in any such bank or institution as may be specified. Relevant sub-s. (2) of S. 54 of the Act reads as under:-

Xxx xxx xxx

7. The question which arises is; whether the return filed by the assessee before the expiry of the year ending with the assessment year is valid under s. 139(4) of the Act?

8. Learned counsel for the Revenue has argued that the assessee wasrequired to file return under sub-s. (1) of s. 139 of the Act in terms of sub-s. (2) of s. 54 of the Act. It is contended that sub-s. (4) is not applicable in respect of the assessee so as to avoid payment of long-term capital gain.

9. On the other hand, learned counsel for the respondent relies upon a Division Bench judgment of Karnataka High Court in Fathima Bal vs. ITO (2009) 32 DTR (Kar) 243 where in somewhat similar circumstances, it has been held that time-limit for deposit under scheme or utilisation can be made before the due date for filing of return under s. 139(4) of the Act. Learned counsel for the respondent also relies upon a Division Bench judgment of Gauhati High Court in CIT vs. Rajesh Kumar Jalan (2006) 206. CTR (Gau) 361 (2006) 286 ITR 274 (Gau).

10. Having heard learned counsel for the parties, we are of the opinion that sub-s. (4) of s. 139 of the Act is, in fact, a proviso to sub-s. (1) of s. 139 of the Act. Sec. 139 of the Act fixes the different dates for filing the returns for different assessee. In the case of assessee as the respondent, it is 31st day of July of the assessment year in terms of cI. (c) of the Expln. 2 to sub-s. (1) of s. 139 of the Act, whereas sub-s. (4) of s. 139 provides for extension in period of due date in certain circumstances. It reads as under: -11. A reading of the aforesaid sub-section would show that if a person has not furnished the return of the previous year within the time allowed under sub-s (1) i.e., before 31^st day of July of the assessment year, the assessee can file return before the expiry of one year from the end of the relevant assessment year."

iii) CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012, vide judgment dated 20^thMarch 2013 wherein it has been observed and held as under:-

'The provisions of Section 54F(4) of the Act are pari-materia with Section 54(2) of the Act. Section 54 deals with the profit on sale of a residential house, whereas Section 54F deals with the transfer of any long term capital assets not being a residential house.

A Division Bench of the Gauhati High Court in a case reported as Commissioner of Income Tax v. Rajesh Kumar Jalan (2006) 286 ITR 274, held that only Section 139 of the Act is mentioned in Section 54(2) of the Act in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income Tax under Section 139 of the Act and that it would include extended period to file return in terms of Sub Section 4 of Section 139 of the Act. It was held as under:-

'From a plain reading of sub-section (2) of Section 54 of the Income-tax Act, 1961, it is clear that only section 139 of the Income-tax Act, 1961, is mentioned in section 54(2) in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax under section 139 of the Income-tax Act. Section 139 of the Incometax Act, 1961, cannot be meant only section 139(1), but it means all sub-sections of section 139 of the Income-tax Act, 1961. Under subsection (4) of section 139 of the Income-tax Act any person who has not furnished a return within the time allowed to him under sub-section (1) of Section 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year whichever is earlier."

The said judgment was relied upon by a Division Bench of the Karnataka High Court in Fathima Bai v. ITO, ITA No.435 of 2004 Decided on 17th October 2008, wherein it was held to the following effect:-

"11. The extended due date under section 139(4) would be 31.3.1990. The assessee did not file the return within the extended due date, but filed the return on 27.2 .2000. However, the assessee had utilized the entire capital gains by purchase of a house property within the stipulated period of section 54(2) i.e., before the extended due date for return under section 139. The assessee technically may have defaulted in not filing the return under section 139(4). But, however, utilized the capital gains for purchase of property before the extended due date under section 139(4). The contention of the revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date is an untenable contention."

A Division Bench of this Court in which one of us (Hemant Gupta, J.) was a member, had an occasion to consider the provisions of Section 54(2) of the Act, wherein it has been held that subsection (4) of Section 139 of the Act is in fact a proviso to Section 139(1) of the Act. Therefore, since the assessee has invested the sale proceeds in a residential house within the extended period of limitation, the capital gain is not payable. The judgments in Rajesh Kumar Jalan^,s case and Fathima Bai^,s case (supra) were referred to. It has been held as under:-

"Having heard learned counsel for the parties, we are of the opinion that subsection (4) of Section 139 of the Act is, in act, a proviso to sub-section (1) of Section 139 of the Act. Section 139 of the Act fixes the different dates for filing the returns for different assesses. In the case of assessee as the respondent, it is 31st day of July, of the Assessment Year in terms of clause (c) of the Explanation 2 to sub-section 1 of Section 139 of the Act, whereas sub-section (4) of Section 139 provides for extension in period of due date in certain circumstances."

From the propositions laid down by the aforesaid decisions, it is absolutely clear that provisions of section 139(4) is actually the extension of the due date of section 139(1) and, therefore, the due date for filing of the return of income can also be reckoned with the date mentioned in section 139(4).

14. In our considered opinion, once the legislature has not specified the "due date" as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended under section 139(4). In view of the above, we hold that the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the "due date" and, therefore, the penalty levied by the Assessing Officer cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the learned Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.

15. In the result, Revenue's appeal is treated as dismissed.

Order pronounced in the open Court on ^24thMay 2013

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Chartered Accountant Finance

Tuesday, November 5, 2013

[aaykarbhavan] (unknown) [1 Attachment]

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