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IT : Re-opening of assessment for purpose of "verifying" or "verification" will be necessarily an action based on a mere change of opinion
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[2013] 40 taxmann.com 8 (Gujarat)
HIGH COURT OF GUJARAT
J.V. Agrawal
v.
Income-tax Officer*
VIJAY MANOHAR SAHAI AND N.V. ANJARIA, JJ.
SPECIAL CIVIL APPLICATION NO. 17885 OF 2011
AUGUST 9, 2012
Section 80-IA, read with section 147, of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure development undertakings [Reassessment] - Assessment year 2007-08 - Whether where necessary facts and material relating to claim for deduction by assessee under section 80-IA(4) made in return of income were considered by Assessing Officer and on basis of material before him he had applied his mind and granted deduction in assessment order, it was not permissible for him to exercise powers under section 147 on same material on ground that certain aspects were not considered or that they were remained to be verified - Held, yes - Whether re-opening of assessment for purpose of 'verifying' or 'verification' will be necessarily an action based on a mere change of opinion - Held, yes [Paras 6.3 & 7.4] [In favour of assessee]
FACTS
| ■ | The assessee, a consortium of companies, was engaged in the civil construction business which was in the nature of construction of infrastructure facilities. It claimed deduction under section 80-IA which was allowed in assessment completed under section 143(3). | |
| ■ | The Assessing Officer sought to reopen the assessment on the ground that during the assessment proceedings, it was remained to be verified whether the assessee was owner of the infrastructure facility for which the deduction under section 80-IA was claimed and whether expenses incurred by the assessee were liable to be disallowed under section 40A(ia). | |
| ■ | On writ petition: |
HELD
| ■ | From the materials on record, which was also before the Assessing Officer, it is evident that the necessary facts and material relating to the claim for deduction by the assessee under section 80-IA(4) made in the return of income were considered by the Assessing Officer. He applied his mind to those materials and allowed deduction as per his assessment order. It could neither be demonstrated, not it is revealed that the Assessing Officer had any tangible material with him so as to validly exercise the powers of reopening. Once the Assessing Officer on the basis of material before him had applied his mind and granted deduction in the assessment order, it was not permissible for him to exercise powers under section 147 on the same material on the ground that certain aspects were not considered. [Para 6.3] | |
| ■ | If the reasons recorded in the present case are attentively read, it is mentioned, 'during course of assessment it is remained to be verified, whether the assessee was the owner of the infrastructure facility or not… .'In the next also it was stated 'on verification of profit and loss account…. .' It was further stated 'during the assessment proceedings it is remained to be verified the expenses incurred….'. Thus, what can be figured out from the reasons recorded is that the Assessing Officer wanted to re-open the assessment as according to him certain aspects remained to be verified. It cannot be gainsaid that re-opening of assessment for the purpose of 'verifying' or 'verification' will be necessarily an action based on a mere change of opinion. The connotation of word 'to be verified', 'verification' is to re-examine the existing material. Verification is always with reference to the details already considered once. When one wants to verify his decision, it means that one reviews the decision. | |
| ■ | Re-assessment powers cannot be exercised to merely review the earlier assessment on the special ground that something was omitted from consideration or particular conclusion was imprecisely or wrongly arrived at. Formation of such belief by the Assessing Officer has to satisfy the requisite parameters which are, conditions precedent for examine of provision under section 147. The necessary conditions being satisfied. From the reasons recorded themselves, therefore, it was seen that the Assessing Officer proceeded to exercise the powers since he wanted to verify certain aspects the assessment already completed. [Para 7.4] | |
| ■ | The impugned notice for reopening is held to be illegal on the ground that it is based on a mere change of opinion and therefore, amounted to erroneous and illegal exercise of power under section 147. [Para 8] |
CASES REFERRED TO
Liberty India v. CIT [(2009) 317 ITR 218/183 Taxman 349 (SC) (para 4.1), CIT v. Kelvinator of India [2010] 320 ITR 561/187 Taxman 312 (SC)(para 7) and Gujarat Narmada Velly Fertilizers v. Dy. CIT [2009] 319 ITR 120 (Guj.) (para 7.1).
R.K. Patel for the Petitioner. Ms. Paurami B. Sheth for the Respondent.
JUDGMENT
N.V. Anjaria, J. - The challenge in the present petition under Article 226 is directed against notice dated 30.12.2010 of the respondent No.1-Income Tax Officer issued under Section 148 of the Income Tax Act, 1961 whereby respondent No.1 has sought to reopen the assessment in case of the petitioner for the Assessment Year 2007-08. The petitioner has prayed for a mandamus to get the said notice quashed and set aside. The petitioner has also prayed to set aside order dated 05.12.2011 whereby respondent No.1 rejected the objections of the petitioner to the reopening of the assessment.
2. Learned advocate Mr. R.K. Patel appears for the petitioner, and learned advocate Ms. Pauromi B. Sheth is for the respondents-Income Tax Authorities.
2.1 With consent of both the learned advocates, the petition is taken up for final hearing today. Therefore, Rule. Learned advocate Ms. Sheth waives service of notice of Rule on behalf of respondent Nos.1 and 2.
3. The facts involved in the case are as under:
3.1 The petitioner is a consortium of companies, which has come into existence due to Joint Venture of two companies. The petitioner is engaged in the business with the consortium of two companies. A separate agreement in the form of Joint Venture, which is entered into and share of profits are separately determined. In such capacity, the petitioner is engaged and undertakes the work of civil construction, viz. constructions of roads, bridges, canals, etc. The petitioner filed its return of income for the Assessment Year 2007-08 accompanied by relevant documents such as Profit and Loss Account, Balance-Sheet, Audited Report, etc. In the return of income, the petitioner-assessee claimed deduction under Section 80 IA(4)of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').
3.2 The Assessing Officer issued notice under Section 143(2) of the Act and thereupon scrutiny assessment was framed under Section 143(3) . The assessment was finalised under Section 139(1) by order dated 13.04.2009. By way of impugned notice, the said completed assessment was sought to be reopened by the Assessing Officer in exercise of powers under Section 147 of the Act.
3.3 The petitioner replied to the said notice on 13.01.2010 and also requested to furnish in writing the reasons recorded for reopening the case. The Income Tax Officer supplied the reasons by forwarding letter dated 22.11.2011. The assessee filed objections in detail on 29.11.2011, raising various contentions against re-opening of his assessment. The Assessing Officer disposed of the objections as per his order dated 05.12.2011, rejecting the same.
4. Learned advocate for the petitioner submitted with reference to the reasons recorded by the Assessing Officer for assessment that respondent No.1 while issuing the impugned notice under Section 148 of the Act, acted on a wrong premise inasmuch as it was mentioned in the reasons that the assessee's return of income for the Assessment Year in question showed that the Net Profit was Rs.02,43,21,076/-, which was not the correct figure and the Net Profit for the relevant Assessment Year [Rs.03,61,74,866/-. Therefore, it was submitted that re-opining was upon a misconception of facts. It was submitted that the Assessing Officer acted on the ground that deduction under Section 80 IA(4) was wrongly granted and that he wanted to verify the factum of ownership. Learned advocate further submitted that the deduction under the said provision was considered and the assessment order was passed. The same was passed after scrutiny assessment, thus the Assessing Officer closely verified the material before him.
4.1 Learned advocate submitted that the necessary details were disclosed in the Audit Report and after considering all the materials, the Assessing Officer was satisfied that the petitioner was entitled to deduction under Section 80 IA. It was submitted that no tangible material, muchless new material, was with the Assessing Officer for exercise of powers under Section 147 of the Act. It was submitted that the Assessing Officer exceeded his jurisdiction in re-opening of the assessment in absence of any material and that the action was based only on a mere change of opinion, which was impermissible in law. It was submitted also that the ground that whether assessee was the owner of the infrastructure facility or not, could not have been a valid ground for reopening, as the point has already been decided by the Hon'ble Supreme Court in Liberty India v. CIT [(2009) 317 ITR 218/183 Taxman 349 (SC)].
4.2 As against the above submissions on behalf of the petitioner, learned advocate for the respondents contend that with reference to the contents in the affidavit-in-reply filed on behalf of the respondents, that the re-opening was justified as it was noticed that members of Joint Venture had made claim under Section 80 IA(4) in their own cases including the income coming from their share from the business of the petitioner Joint Venture. It was submitted that the assessee had wrongly claimed deduction on insurance claim receipt, which was also a ground for reopening.
4.3 Learned advocate for the respondent submitted that the contention of the assessee that for the Assessment Year 2008-09, relief under Section 80 IA(iv) was granted by the Commissioner of Income Tax cannot be accepted because the Department has preferred Appeal against the order of the Appellate Commissioner. He further submitted that as per Section 80 IA(iv)(i) as amended with effect from 01st April, 2002, deduction can be allowed only to a person who makes investment and himself execute a development work. According to him, assessee was a civil contractor and he having not done any development work himself but carried out contract for National Highway Authority, he is not entitled to seek benefit under the said provision.
4.4 Learned advocate for the respondents submitted that as there was enough material with the Assessing Officer indicating that the income chargeable to tax had escaped, the Officer was justified in exercising his powers under Section 147 read with Section 148 of the Act. It was submitted that the re-opening was within four years and therefore, once it was discovered from the relevant material that there was an escapement of income, the action of re-opening could not be faulted.
5. At this stage, in order to properly appreciate the controversy and the contentions canvassed by the respective parties, it is useful to look into the reasons recorded by the Assessing Officer whereon he has sought to reopen the assessment. The Assessing Officer's reasons for re-opening, as reproduced, are as under:
| "Name of Assessee | Agrawal J.V. Near Lions Hall, Deesa | |
| Status | A.O.P. | |
| PAN | AAAAA 5696 F | |
| Assessment Year | 2007-08 |
07.04.2010 The assessee is an A.O.P has filed its return of income on 26.10.2007 declaring total income of Rs. NIL. As per profit and loss the assessee, It had declared the net profit of Rs.2,43,21,076/- and the same has been allocated amongst the members of the J.V. (Joint Venture) . The assessee engaged in Road Construction work and it had executed the work contract of the Government and had received the cost of work from the National Highway Authority of India.
It is further noted at the foot note of computation of total income that it has submitted the audit report u/s.80IA(4) form no.10CCB and it is also mentioned that this year there is eligible claim under this section, as the members of J.V. have made claim u/s.80IA(4) in its own cases including the income coming to their share as members of Agrawal J.V. are assessed with the ACIT, B.K. Circle, Palanpur and ACIT, Calcutta respectively. As per the above remarks, the profit have been taxed in the hands of members and members have claimed the deduction u/s.80IA(4) of the Act. The tax benefit was introduced for industrial modernization required a massive expansion and quantities improvement in infrastructure i.e. express ways, highways, airports, urban development and repaid rail transport systems. The provision of section 80IA(4) shall not apply to a person who execute a work contract entered into with the undertaking or enterprises referred to in that section.
Thus, when a person makes the investment and himself execute the development work will be eligible for tax benefit u/s.80IA(4). In this case, the assessee has executed the contract work with the National Highway Authority in India. The execution of work contract will not be eligible for the tax benefit u/s.80IA. Apart from this angle, other criteria in respect of the ownership of the development project etc. are requires to be verification.
During the course of assessment it is remained to be Verified, whether the assessee was the owner of the infrastructure facility or not. In case, the assessee is in operation and maintaining infrastructure facility, the assessee needs to secure operation as well as maintenance contract and concerned assets has to be transferred to the assessee for such purpose. The intention behind this provision was to give a fillip of deduction against the total income of the assessee derived from the infrastructure project as the entire cost of the infrastructure was being borne by the assessee.
On verification of the profit and loss account of Baroda Padra (GSHP-9A) accounts, the assessee has disclosed the insurance accounts of Rs.50,95,854/-. The assessee has claimed the deduction on the insurance claim receipt also. The same are also requires to be Verified the applicability of the deduction.
During the assessment proceedings it is remained to be Verified the expenses incurred by the A.O.P. which are liable for the TDS and disallowances u/s.40A(ia) for violation of provision of Chapter XVII of the Act.
Looking to the above circumstances, the order passed u/s.143(3) dated 13.4.2009, is prejudicial to the interest of revenue.
Therefore I have reason to believe the income chargeable to tax have been escaped assessment for A.Y.2007-08 within the meaning of section 147 of the I.T. Act.
I. T. O. "
5.1 The powers to reopen the assessment are derived by virtue of Section 147 of the Act, which reads as under:
"Section 147 - Income escaping assessment — If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1 — Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2 — For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:—
| (a) | Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; | |
| (b) | Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; | |
| (c) | Where an assessment has been made, but — |
| (i) | Income chargeable to tax has been underassessed; or | |
| (ii) | Such income has been assessed at too low a rate; or | |
| (iii) | Such income has been made the subject of excessive relief under this Act; or | |
| (iv) | Excessive loss or depreciation allowance or any other allowance under this Act has been computed." |
5.2 Since the reopening in the present case is within four years from the end of the relevant assessment period, the first part of Section 147 would apply. The essential conditions are firstly that the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment. Secondly, the fact that the income chargeable to tax escaped assessment has come to his notice subsequently. The third requirement could be, of course, that there is an escapement of income. The first Proviso deals with the cases wherein the assessment is sought to be re-opened after expiry of five years, in which cases further fetters are provided. However, as noted above, the Proviso part does not apply, since the impugned notice is within four years. It is well settled principle that exercise of reopening powers has to be on the basis of some tangible material becoming available with the Assessing Officer. There has to be a rational connection and a line link between the material discovered and the formation of belief by the Assessing Officer.
6. Considering in the context of the facts of the present case, the petitioner-assessee was engaged in the civil construction business which was in the nature of construction of infrastructure facilities. The provision of Section 80 IA of the Act deals with respect to deduction of profits and gains from industrial undertaking or enterprises engaged in infrastructure development. Sub-section (4) inter alia provides that the said Section applies to any enterprise carrying on business of developing or operating and maintaining infrastructure and fulfils the conditions mentioned in various sub-clauses of the said sub-section (4).
6.1 Now adverting to the material which the Assessing Officer had before him, firstly the return of income filed by the assessee was accompanied by Auditor's Report in Form No.3CA and 3CD. With reference to claim under Section 80 IA by the assessee, the Report mentioned as under:
"The Assessee Joint Venture (Consortium of Companies) is engaged in the business of Development of Infrastructure project and satisfy all the conditions laid down by the section 80IA of the Act. In order to take 100% Tax Exemption available for Development of Infrastructure facility u/s.80IA of the Income Tax Act, the Assessee maintained books of account for such eligible project as an independent entity and got audited its books of account as required by the said section & obtained audit report in Prescribed Form No.10CCB, from a firm of Chartered Accountants."
6.2 The Assessing Officer before finalizing the assessment, carried out the proceedings under Section 143 and scrutiny was undertaken. The assessment so culminated into the Assessment Order, in which the aspect of deduction in question was discussed and dealt with. The relevant parts from the Assessment Order dated 13.04.2009 are extracted hereinbelow.
"The A.R. Of the assessee has furnished the copy of audit report u/s.44AB and u/s.80IA(4) of the I.T. Act in Form No.3CB and 3CD of and 10CCB of the I. T. Rules duly, audit the books of account in both the set separately. The A R of the assessee and account are attends along with the books of account and relevant records for verification. He furnished the further details as called for.
The assessee derived income from Road construction work secured from the National High Way Authority. On scrutiny of the details, various issues have been raised and verified. During the year, the assessee has claimed the deduction u/s.80IA(4) of the Income-tax Act. During the year under consideration, the assessee has not received any new contract work.
The assessee is doing a business with construction of two companies with a separate agreements in the form of Joint Venture with the separate determined the share of profit in both the venture. Both the companies engaged in the business of civil contracts, i.e. in work of construction of roads, bridges, canals etc. During the year the assessee was engaged in the business activity of construction of infrastructure for Swaroopganj-Pindware of NH-14 in the state of Rajasthan and Vadodara - Padra -Jambusar Road, from the National Highway Authority of India, New Delhi and National Highway Circle, Vadodara respectively. The work was allotted by the Government authorities. The contention of the assessee is that all the construction work of the road and other facilities were infrastructure project and the assessee developed the same and therefore the assessee has claimed the deduction u/s.80IA(4) of the Income tax Act in respect of profit earned from the execution/development of civil work. The assessee has claimed the deduction in the preceding year on the same contact work. After discussion with the representative of the assessee, and replying on the decision of the jurisdictional ITAT, the deduction u/s.80IA(4)is allowed on the profit earned from the infrastructure work.
The assessee failed to furnish any supporting evidence, as it is financial institute and TDS provisions are not applicable. In view of the above, the interest payment of Rs.13,3 8,811/- has been disallowed u/s.40A(ia) and added to the total income of assessee out of interest payment. The disallowance so made will become the income derived from the infrastructure work, and relying on the decision of the jurisdictional ITAT, the deduction u/s.80IA(4) is allowed on the profit earned from the infrastructure work.
The assessee has claimed the deduction u/s.80IA(4) in respect of Insurance claim received of Rs.50,95,854/-. The assessee has furnished the evidence in support of its claim. The same evidence are found in order and accordingly no addition is made on this count.
After discussion and keeping in mind the submission of the assessee, total income is computed as under:
| Reg: Agrawal JV (AOP) Deesa A.Y. 2007-08. | ||
| Net profit as per statement | Rs . 3,68,91,167/- | |
| Add: Disallowance as discussed above out of interest exp. | Rs. 13,38,811/- | |
| Rs.3,82,29,978/- | ||
| Less: Deduction u/s.80IA(4) | Rs.3,82,29,978/- | |
| Total assessed income | Rs. NIL" |
6.3 From the above facts and material on record, which was also before the Assessing Officer, it is evident that the necessary facts and material relating to the claim for deduction by the assessee under Section 80IA(4) made in the return of income were considered by the Assessing Officer. He applied his mind to those materials and allowed deduction as per his Assessment Order. It could neither be demonstrated, nor it is revealed that the Assessing Officer had any tangible material with him so as to validly exercise the powers of reopening. Once the Assessing Officer on the basis of material before him had applied his mind and granted deduction in the Assessment Order, it was not permissible for him to exercise powers under Section 147 on the same material on the ground that certain aspects were not considered or that they were overlooked.
7. A change of opinion is no ground for exercise of powers under Section 147, as is reiterated and emphasized in the celebrated decision in CIT v.Kelvinator of India [2010] 320 ITR 561/187 Taxman 312 (SC), which held as under:
"The concept of change of opinion on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief."
7.1 In Gujarat Narmada Velly Fertilizers v. Dy. CIT [2009] 319 ITR 120 (Guj.) , it was observed that on a plain reading of Section 147 of the Act it becomes apparent that the Assessing Officer is vested with jurisdiction to re-open a completed assessment if he has reason to believe that any income chargeable to tax has escaped for assessment for any Assessment Year. It is held that the basic requirement is that there has to be material before the Assessing Officer at the time when reasons are recorded and it is shown from such material that income chargeable to tax has escaped assessment.
7.2 In other words, "the reason to believe" and the "opinion" to be formed by the Assessing Officer for the purpose of exercise of powers under Section 147 have to be guided by the tangible material available with him at the time of proceeding to re-open and to record reasons for re-opening and that such material was not with him when he undertook the original assessment.
7.3 It is further stated in the reasons recorded that what was remained to be verified was whether the assessee was owner of the infrastructure facility for which the deduction in question was claimed. Learned advocate for the petitioner rightly submitted that the issue is answered in Liberty India (supra) wherein it is held that in order to eligible for deduction of profits from industrial undertaking under Sections 80I, 80IA, 80IB of the Act itself generation of profits from infrastructural activity that attracts incentives under the said provisions, and not ownership in the business. The relevant observations are as under:[sic]
7.4 If the reasons recorded in the present case are attentively read, it is mentioned, "during course of assessment it is remained to be verified, whether the assessee was the owner of the infrastructure facility or not…." In the next also it was stated "on verification of profit and loss account…." It was further stated "during the assessment proceedings it is remained to be verified the expenses incurred …". Thus, what can be figured out from the reasons recorded is that the Assessing Officer wanted to re-open the assessment as according to him certain aspects remained to be verified. It cannot be gainsaid that re-opening of assessment for the purpose of "verifying" or "verification" will be necessarily an action based on a mere change of opinion. The connotation of word "to be verified", "verification" is to reexamine the existing material. Verification is always with reference to the details already considered once. When one wants to verify his decision, it means that one reviews the decision. Re-assessment powers cannot be exercised to merely review the earlier assessment on the special ground that something was omitted from consideration or particular conclusion was imprecisely or wrongly arrived at. Formation of such belief by the Assessing Officer has to satisfy the requisite parameters which are conditions precedent for examine of provision under Section 147. The necessary conditions being satisfied. From the reasons recorded themselves, therefore, it was seen that the Assessing Officer proceeded to exercise the powers since he wanted to verify certain aspects the assessment already completed.
8. It may be noted that in the subsequent Assessment Year 2008-09, similar claim was made by the assessee in its return of income. The Commissioner (Appeals) allowed the deduction for the same projects under Section 80 IA(4) as per order dated 13.10.2 011, which is on record of the petition. In the subsequent Financial Year 2009-10 the petitioner-assessee did not claim the deduction in view of amendment in Section 80 IA in the Finance Act, 2009. It is, however, stated in the Memorandum of Petition that the virus of amending Explanation to Section 80 IA retrospectively is under challenge before this Court in Special Civil Application No.12233 of 2009. The aforesaid facts are noted only because they are connected facts. The fact that the Appellate Authority has granted relief in the subsequent year is not taken into consideration for reaching conclusion in this petition. The impugned notice for reopening is held to be illegal on the ground that it is based on a mere change of opinion and therefore, amounted to erroneous and illegal exercise of power under Section 147 of the Act.
9. For the foregoing reasons and discussions, respondent No.1-Assessing Officer has clearly exceeded his jurisdiction under Section 147 of the Act in issuing the impugned notice. The impugned notice dated 30.12.2010 under Section 148 of the Income Tax Act, 1961 (Annexure-B to the petition) as well as the order dated 05.12.2011 of the Assessing Officer rejecting objections of the petitioner (Annexure-J to the petition) are set aside.
10. The petition is accordingly allowed. Rule is made absolute without any order as to the cost.
USP*In favour of assessee.
IT: Where deduction under section 80-IB was allowed on DEPB premiums and discount in scrutiny assessment under section 143(3), same could not be disallowed in proceedings under section 153A
IT: In proceedings under section 153A, already completed assessment order will not abate
IT: Where searched person declared undisclosed income and paid taxes thereon, such undisclosed income could not be added to assessee's income
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[2013] 39 taxmann.com 197 (Jodhpur - Trib.)
IN THE ITAT JODHPUR BENCH
Dinesh Tobacco Industries
v.
Deputy Commissioner of Income-tax*
HARI OM MARATHA, JUDICIAL MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
IT APPEAL NOS. 16, 184, 185 & 297 (JODH.) OF 2011
[ASSESSMENT YEARS 2004-05 TO 2007-08]
[ASSESSMENT YEARS 2004-05 TO 2007-08]
FEBRUARY 22, 2013
I. Section 80-IB, read with sections 143 and 153A, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Section 143(3) v. Section 153A] - Assessment year 2005-06 - Deduction under section 80-IB was allowed on DEPB premiums and discount in scrutiny assessment under section 143(3) - However, in proceedings under section 153A deduction under section 80-IB on above two amounts were disallowed - Whether in proceedings under section 153A, already completed assessment order would not abate - Held, yes - Whether, therefore, disallowance of deduction under section 80-IB on impugned incomes under section 153A was to be deleted - Held, yes [Para 7] [In favour of assessee]
II. Section 153A, read with section 143, of the Income-tax Act, 1961 - Search and seizure - Assessment in case of [Scope of provision] - Assessment years 2005-06 and 2007-08 - Whether in proceedings under section 153A, already completed assessment order will not abate - Held, yes [Para 7] [In favour of assessee]
III. Section 153A, read with section 69, of the Income-tax Act, 1961 - Search and seizure - Assessment in case of [Person assessable] - Assessment years 2005-06 and 2007-08 - In search proceedings, 'N' declared undisclosed income towards unaccounted transactions relating to import of beetle nuts - Said undisclosed income was assessed in hands of assessee-firm on basis of DRI's finding that said payments pertained to assessee -Whether since amount in question was surrendered by 'N' and he also paid taxes thereon, addition of said amount in hands of assessee was not valid - Held, yes [Para 12] [In favour of assessee]
CASES REFERRED TO
Anil Kumar Bhatia v. Asstt. CIT [2010] 1 ITR (Trib) 484 (Delhi) (para 5), LMJ International Ltd. v. Dy. CIT [2008] 22 SOT 315 (Kol.) (para 5),Dy. CIT v. Royal Marwar Tobacco Product (P.) Ltd. [2009] 29 SOT 53 (Ahd.)(URO) (para 5). Suncity Alloys (P.) Ltd. v. Asstt. CIT [2009] 124 TTJ (Jodh.) 674 (para 5), Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) (para 6) and CIT v. Sterling Foods [1999] 237 ITR 579/104 Taxman 204 (SC) (para 6).
Rajendra Jain for the Appellant. Deepak Sehgal for the Respondent.
ORDER
1. These appeals are directed against the common order of learned CIT(A) dt. 28th Feb., 2011 passed for the asst. yrs. 2005-06 and 2007-08.
2. Briefly stated, the facts of the case are that the assessee is a partnership firm. For the asst. yrs. 2005-06 and 2007-08 as a consequence of search conducted under s. 132 of the Act in the case of Shri Nand Kishore Malani and other members of his family and their business concerns generally known as 'Malani Group of cases of Jodhpur' on 12th Sept., 2007 wherein numerous incriminating documents were found and seized and assessment orders were completed under s. 153A r/w ss. 143(3) and 153B of the Act. In this search, incriminating evidences relating to other concerns namely, M/s Malani Ram Jeevan Jagannatah, Jodhpur and M/s D.C. Trading Company, Mumbai were also found and seized. The assessments were completed after due compliance of notice issued under s. 153A of the Act. Against various additions made, the assessee preferred appeals before learned CIT(A) who has granted part relief to the assessee before us namely M/s Dinesh Tobacco Industries, which is one of the group concerns and is the assessee in all these appeals. The learned CIT(A) has passed a common order for both assessment years against which the assessee as well as the Revenue have filed their respective appeals.
ITA No. 184/Jd/2011-Asst yr. 2005-06
3. This is an appeal of the assessee pertaining to asst. yr. 2005-06. In this appeal in as much as four grounds have been raised by the assessee/appellant. The Ground Nos. 1 and 2 were not pressed at the time of hearing by the Authorised Representative of the appellant namely, Shri Rajendra Jain, chartered accountant, therefore, Ground Nos. 1 and 2 of this appeal stand dismissed as "not pressed".
4. The Ground No. 3 is the only material ground which remains to be adjudicated by us because the other grounds are formal in nature. The facts apropos the Ground No. 3 of this appeal, which pertains to confirmed addition made by way of disallowance of Rs. 3,16,978 out of deduction claimed under s. 80-IB of the Act on the ground that this income is from other sources and not from the business activity of the assessee are that the AO found that the assessee has claimed deduction under s. 80-IB @ 25 per cent of profits of the business after deducting gross interest income and rental income. He also found that the gross total income included DEPB premium worth Rs. 16,06,081 repaid and discount worth Rs. 14,849. According to AO these incomes are liable to be excluded for calculating deduction under s. 80-IB because these are attributable to the business but are not derived from the business. Accordingly, he disallowed a sum of Rs. 3,16,978 in asst. yr. 2005-06 and a sum of Rs. 3,70,640 in asst. yr. 2007-08, out of total deduction claimed under s. 80-IB by excluding the receipts referred to above. The learned CIT(A) has also confirmed both these additions on the basis of similar reasoning. Before us, arguments have been reiterated from assessee's side and also from Revenue's side.
5. It was argued by learned Authorised Representative that in the assessment proceedings undertaken consequent upon search and under s. 153A of the Act, where the assessment for the year has already been concluded on the basis of return filed before the date of search, the AO is not empowered to make any addition/disallowance in the absence of any new material being found during the course of search proceedings to justify his stand. It was further argued that the proceedings under s. 153A are meant for assessing the undisclosed income relating to the period following the provisions of the said section detected as a result of search proceedings but does not give any blanket authority to the AO to make a de novo assessment after the assessment is completed under s. 143(3) as on the date of search. It was argued that the AO has reviewed his own assessment completed assessment without there being new fact finding and without bringing any new material on record and that the provisions of s. 153A are specifically so framed to address to search cases only. According to him this provision cannot be enlarged to give power of review to the AO in cases of completed assessment. To support the above submissions, learned Authorised Representative has relied on the various decisions, which are as under:
| (i) | Anil Kumar Bhatia v. Asstt. CIT [2010] 1 ITR (Trib.) 484 (Delhi); | |
| (ii) | LMJ International Ltd. v. Dy. CIT [2008] 22 SOT 315 (Kol.) | |
| (iii) | Dy. CIT v. Royal Marwar Tobacco Product (P.) Ltd. [2009] 29 SOT 53 (Ahd.)(URO); | |
| (iv) | Suncity Alloys (P.) Ltd. v. Asstt. CIT [2009] 124 TTJ (Jodh.) 674; |
6. On the other hand, the learned Departmental Representative has reiterated the reasoning given by AO and learned CIT(A) that both the above incomes are not derived from the business activities of the assessee although they may be attributable to assessee's business activities. Reliance made by AO and CIT(A) on the decisions of Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 andCIT v. Sterling Foods [1999] 237 ITR 579/104 Taxman 204 has been reiterated before us as well.
7. We have carefully circumspected the entire record in the light of the oral submissions and the related provisions and precedents on the issue. We are in agreement with the Department to the extent that both the above incomes viz. DEPB premiums and rebate/discount and interest are not incomes derived from the undertaking even if they may be attributable to assessee's business activities. But the learned CIT(A) has not answered the valid argument raised on behalf of the assessee that in proceedings under s. 153A, the already completed assessment order will not abate. In this case, undeniably the assessment order had been completed under s. 143(3) before the date of search. In that assessment order, both these incomes are included in deduction under s. 80-IB of the Act. The decisions relied upon before us include the decisions of various Tribunal Benches including the Jodhpur Bench rendered in the case of Suncity Alloys (P.) Ltd. (supra). On technical reasons, we are afraid that the finding of learned CIT(A) is not correct because he has refrained from answering this legal tangle which is fully covered by the jurisdictional Tribunal order. In respect to interest income, the finding of learned CIT(A) may be correct. Accordingly, in our opinion, the disallowances of Rs. 3,16,978 in asst. yr. 2005-06 and Rs. 3,70,644 in asst. yr. 2007-08 made by learned AO and confirmed by CIT(A) by disallowing (deduction under s. 80-IB of The Act on the impugned incomes under s. 153"A after regular assessment had been completed under s. 143(3) before the date of search have to be deleted and Ground No. 3 of these appeals is liable to the allowed. Therefore, in both the assessment years, the similar issues are allowed in assessee's favour. Accordingly, this appeal is partly allowed.
ITA No. 187/Jd/2011-Asst. yr. 2005-06
8. This is the cross-appeal of the Revenue. The first issue which has been raised vide Ground Nos. 1 to 3 pertains to purchases of beetle nuts and payment of underinvoiced amount in respect thereof.
9. The facts apropos this issue are that Shri Nand Kishore Malani declared undisclosed income aggregating to Rs. 3,75,00,000 during the asst. yrs. 2007-08 and 2008-09 as per return filed by him in compliance of the notice issued under s. 153A towards unaccounted payments made for the import of Supari (beetle nuts) for M/s Dinesh Tobacco Industries, during the financial years 2006-07 and 2007-08 as per pp. 33, 43 to 47 of Ext. 3 seized from his residence. The above documents were seized during the search from the residence of Shri Nand Kishore Malani. These pages contain the details of payments as well as dates on which the respective payments were made. In respect of these pages Shri Nand Kishore Malani stated that these related to unaccounted payments made towards import of Supari on the dates mentioned thereon. He also stated that wherever payment of Rs. 25 lakhs has been shown it is, in fact, a payment of Rs. 50 lakhs. He thus admitted that actual payments made on 30th Nov., 2006 and 8th Nov., 2006 shown as Rs. 25 lakhs which are Rs. 50 lakhs each. As per these pages, the total payments came to Rs. 3,25,00,000 but in view of the above admission the total payment came to Rs. 3,75,00,000. Shri Nand Kishore Malani admitted these payments to be out of books and the same were offered for taxation. The seized documents were vetted by the Director of Revenue Intelligence and it was found that these bills related to purchase of beetle nuts pertaining to asst. yrs. 2005-06 and 2007-08. The Director General of Revenue Intelligence levied and collected differential duty from the assessee and an order by the Settlement Commission was also passed in the case of this assessee. Thus, AO has finally concluded that the said transactions relate to purchase of beetle nuts by the assessee and not related to Shri Nand Kishore Malani in any manner. The DRI Intelligence also found that the total aggregate difference in the assessable value during the asst. yrs. 2005-06 and 2007-08 comes to Rs. 3,46,49,275. The AO proposed and assessed this income in the hands of the assessee on the basis of DRI's findings that the said on-money payments pertained to the assessee-firm and not Shri Nand Kishore Malani, as individual. The AO in the case of Shri Nand Kishore Malani and in the case of this assessee proposed to add a sum of Rs. 33,91,766 in the asst. yr. 2005-06 and Rs. 3,12,57,509 in the asst. yr. 2007-08. The assessee-firm objected to this proposed action of the AO by stating that this amount had been surrendered during the course of search proceedings by Shri Nand Kishore Malani on the basis of seized documents found from his residence and therefore, the same should be assessed in his hands only. It was also explained that this addition can be made on the basis of the seized documents and not on the basis of calculation made by the DRI regarding differential assessable value. However, the AO did not find any merit in the assessee's reply and instead of assessing Rs. 1,25,00,000, assessed at Rs. 2,50,00,000 surrendered by Shri Nand Kishore Malani in his hands in the asst. yr. 2007-08 and Rs. 1.25 lakhs (sic-crore) in the asst. yr. 2008-09. In the cases of actual payment he made substantial addition of Rs. 33,91,766 in asst. yr. 2005-06 and of Rs. 3,12,57,509 in asst. yr. 2007-08 on the basis of difference in the assessable value determined by the DRI. In asst. yr. 2008-09, there being no purchase of beetle nuts by the assessee-firm, the AO was of the opinion that because Shri Nand Kishore Malani had made payment of Rs. 3,75,00,000 as unaccounted money, the payment relatable to the purchase of beetle nuts by the assessee-firm comes to Rs. 3,46,49,275 and therefore, this excess actual payment of Rs. 28,50,726 can be added further in the case of the assessee-firm in asst. yr. 2008-09. Accordingly, the AO has assessed the unaccounted payment for purchase of beetle nuts-worth of Rs. 36,91,766 out of Rs. 3,12,57,509 in the hands of the assessee-firm in the asst. yr. 2005-06 and also made protective assessment of Rs. 3,75,00,000 in the hands of Shri Nand Kishore Malani who had made this surrender on the basis of the actual payments in asst. yrs. 2007-08 and 2008-09. The AO further made one more protective assessment of this amount in the hands of Dinesh Pouches Ltd. whose name was found written on the fax message found and seized during the course of search proceedings. He also noticed that this income was surrendered by Shri Nand Kishore Malani as business income but as per AO it has to be assessed as income from other sources and accordingly he made a substantial assessment of these income in the hands of the assessee by assessing it as a income from other sources.
10. The AO further found that during the year under consideration, the assessee had declared a turnover of Rs. 5,276.96 lakhs and gross profit of Rs. 2,672.17 lakhs, giving a GP rate of 50.64 per cent as compared to gross profit of Rs. 2,012.13 lakhs giving the GP rate of 49.34 per cent but at a total turnover of Rs. 4,078.49 lakhs in the immediate preceding year. On this basis, the AO found that in the event the assessee is found to have been indulging in underinvoicing of the imports of beetle nuts, its books of account cannot be treated as reliable and therefore, he invoked the provisions of s. 145(3) of the Act. After applying these provisions, he has estimated the turnover at Rs. 5,311.50 lakhs and has applied a GP rate of 51 per cent which has resulted into an addition of Rs. 36,69,785. But after giving a benefit of telescopy therefrom with respect to underinvoicing imports of beetle nuts worth Rs. 33,91,766, he has made an addition of Rs. 2,78,019 in the income of the assessee in the asst. yr. 2005-06. A similar trading addition has been made in asst. yr. 2007-08 amounting to Rs. 2,24,025 after giving set off of addition of unaccounted payment towards purchase of beetle nuts.
11. Aggrieved, the assessee preferred appeal before the CIT(A) and reiterated all the arguments which were taken before the AO. After considering the host of arguments reiterated before him, he has finally concluded that the on-money in question is to be considered in the hands of the firm and not in the hands of Shri Nand Kishore Malani. He also held that the additions are to be made in the year in which actual payments were made. Therefore, the addition of unaccounted cash payments made for underinvoiced purchases of beetle nuts made by the assessee-firm was held to be made in the hands of the assessee-firm and Rs. 3,00,000 in asst. yr. 2007-08 and Rs. 75,00,000 in the asst. yr. 2008-09. The learned CIT(A) deleted the protective additions made in the hands of Shri Nand Kishore Malani and in the hands of M/s Dinesh Pouches Ltd. and confirmed the substantial addition in the hands of the assessee-firm. In respect of the arguments that Shri Nand Kishore Malani has included the same income in his own returns and also paid taxes thereon, the assessee made approach to the competent authority as per due process of law for getting suitable remedial action. Regarding gross profit addition, the learned CIT(A) has also given telescoping effect and has not made any separate addition. But still both the parties are aggrieved.
12. We have heard the rival submissions and have carefully perused the entire record. Both the parties have reiterated the similar arguments which were taken before the lower authorities. After considering the entire material on record, we are of the considered opinion that during the course of search from the residence of Shri Nand Kishore Malani, the impugned incriminating documents were found and seized. On the basis of these papers, Shri Nand Kishore Malani had made a surrender of total amount of Rs. 3,75,00,000 to be taxed in two assessment years i.e., asst. yrs. 2005-06 and 2007-08. Shri Nand Kishore Malani also paid taxes thereon. In our considered opinion, no question of taxing this amount in the hands of the assessee-firm would arise in the given facts and circumstances of the case. The action of the AO is not justified because he has made substantial addition in the hands of the firm by taking into account the computation done by DRI and ignoring the surrender made by Shri Nand Kishore Malaini. In our opinion, the protective addition made in the hands of Shri Nand Kishore Malani and Dinesh Pouches Ltd. is also not justified. To that extent, the action of the learned CIT(A) is approved. But, in our considered opinion there is no scope for making the addition of Rs. 3,75,00,000, in the same manner as it was surrendered by Shri Nand Kishore Malani, in the hands of the assessee-firm when Shri Nand Kishore Malani has made a surrender of the entire money and he has also paid taxes thereon and has also disclosed this income in his return of income. There is no scope for making any addition either on substantive basis or on protective basis in the hands of the assessee-firm or in the hands of M/s Dinesh Pouches Ltd. Accordingly, we set aside the findings of the learned CIT(A) to that extent and order that this income has to be assessed in the hands of Shri Nand Kishore Malani, as individual. A sum of Rs. 2.5 crores out of the surrendered amount has to be considered in the asst. yr. 2005-06 and a sum of Rs. 1.25 crores in asst. yr. 2007-08. Accordingly, we order to delete the substantive addition made in the hands of the assessee-firm in both the years and therefore, cannot allow the grounds raised by the Revenue in this regard. Accordingly, Ground Nos. 1 to 3 of the Revenue's appeals stand dismissed in both the assessment years.
13. The next issue pertains to deletion of trading addition of Rs. 2,78,019 added by the AO after rejecting the books of account. As against the gross profit declared, the AO has found that there is a slight fall in GP rate in this year, thus, by adopting the GP rate of 37.66 per cent, the AO has made the impugned addition. The learned CIT(A) has reduced the same by adopting GP rate of 36 per cent by considering the increase in the turnover of the year resulting in sustained trading addition of Rs. 89,11,024. He has also given set off of telescoping of this trading addition, under the addition made on account of unaccounted investment in the purchase and has not made a separate addition. In our considered opinion, the finding of the learned CIT(A) does not require any interference at our ends because a logical and a correct decision has been taken by him in this regard. Accordingly, Ground No. 4 of this appeal stands dismissed. In the result, appeal of the Revenue stands dismissed.
ITA No. 185/Jd/2011-Asst. yr. 2007-08
14. In this appeal, all the grounds raised by the assessee namely, Ground Nos. 1 to 4 stand covered by the decision taken in the above appeals of the assessee for asst. yr. 2005-06. Accordingly, with similar arguments and reasoning, we allow the grounds of appeal.
ITA No. 188/Jd/'2011-Asst yr. 2007-08
15. The grounds raised by the Revenue in this appeal also stand covered under the reasoning given in respect of decision of appeal pertaining to asst. yr. 2005-06 and, therefore, with similar reasoning, we cannot allow the grounds raised in this year. Accordingly, the appeal is dismissed.
ITA No. 297/Jd/2011-Asst yr. 2006-07
16. This is an appeal of the assessee for asst. yr. 2006-07 which has been filed against the order of learned CIT(A) dt. 6th May, 2011. In this appeal following grounds have been raised :
| "(i) | That on the facts and in the circumstances, the AO erred in applying the provisions of s. 145(3) of the IT Act, 1961 which otherwise is not applicable for the asst. yr. 2006-07. | |
| (ii) | That the learned CIT(A) (Central), Jaipur on the facts and in the circumstances of the case, although reducing the trading addition made by the AO resulting in no addition because of allowance of telescopy in respect of other addition but he erred in estimating the gross profit at higher rate even if the same was not at all desirable. The exercise of estimation of gross profit at higher rate deserves to be quashed." |
17. Both the grounds stand covered by our above-mentioned decision in this year too. Accordingly, with the same reasoning we allow both these grounds and allow the appeal of the assessee.
ITA No. 16/Jd/2011-Asst yr. 2004-05 (heard on 5th Feb., 2013)
18. This appeal by the assessee is directed against the order of learned CIT(A) dt. 15th Nov., 2010 and pertains to asst. yr. 2004-05.
19. Following grounds have been raised in this appeal :
| "1. | That the order under s. 250 dt. 15th Nov., 2010 passed by the learned CIT(A) (Central), Jaipur, in the case of assessee for the asst. yr. 2004-05, is bad in law and on facts. | |
| 2. | That the learned CIT(A) (Central), Jaipur, on the facts and in the circumstances of the case, erred in confirming the addition to the extent of Rs. 1,86,471 on account of disallowance out of various expenses (telephone expenses Rs. 22,215, vehicle repairs and depreciation Rs. 1,08,399, travelling expenses Rs. 53,857 and miscellaneous expenses Rs. 2,000) without pointing out any cogent reasons for the same. The said addition on account of disallowance of expenses deserves to be fully deleted. | |
| 3. | That the learned CIT(A) (Central), Jaipur, on the facts and in the circumstances of the case, erred in confirming the addition of Rs. 78,468 out of deduction under s. 80-IB of the IT Act, 1961, considering the income out of business activities as income from other sources. The said disallowance deserves to be fully allowed. | |
| 4. | That the learned CIT(A) (Central), Jaipur, on the facts and in the circumstances of the case, erred in confirming the addition to the extent ; of Rs. 30,56,999 made by the learned AO by way of disallowance out of deduction claimed under s. 80HHC. The learned CIT(A) (Central), Jaipur has erred in confirming further disallowance made by learned AO to the extent that he has allowed calculation to be made on the gross interest instead of net interest. The said addition deserves to be deleted." |
21. Ground No. 1 was not pressed. Ground No. 2 pertains to certain ' disallowance on account of telephone, vehicle repairs and depreciation, travelling expenses and also miscellanceous expenses, as is mentioned in the ground itself.
22. The case of the assessee as put forth by learned Authorised Representative is that these expenses were allowed to a greatest extent and only the disallowance of Rs. 50,000 needs to be sustained. In support, reliance has been placed on various decisions including that of Royal Marwar Tobacco Product (P.) Ltd. (supra) and that of Jodhpur Bench of the Tribunal in the case of Suncity Alloys (P.) Ltd. (supra). It was pleaded in the light of the above submissions that in the original assessment order only Rs. 50,000 was disallowed out of total expenses claimed in respect of these accounts and as per law this amount can be sustained as addition. Per contra, learned Departmental Representative has relied on the orders of the authorities below.
22. After considering the rival stands, in continuation of our finding given in respect of assessment order completed prior to the date of search in the earlier orders, we agree with the submissions of the learned Authorised Representative and feel that justice will be done if total amount of Rs. 50,000 out of these expenses is sustained as addition. With the above observation, which is based on the direct decision of this very Bench in the case of Suncity Alloys (P.) Ltd. (supra), we order to delete all expenses so sustained except for a sum of Rs. 50,000. Accordingly, this ground is partly allowed.
23. The next ground is to be allowed in the same manner as we have allowed by following the same analogy that when original assessment order was completed before the date of search and any deduction was allowed therein and as thereafter no incriminating evidence was found in the search relatable to this issue, the disallowance in respect of DEPB/DDB cannot be made or for that matter disallowance can be reduced undertaken in proceedings under s. 153A of the Act. Therefore, by following the same decision as above, we allow this ground of appeal in favour of the assessee.
24. The fourth and last ground of this appeal is also based on similar facts because in the original assessment order completed under s. 143(3), s. 80HHC claim to the extent of Rs. 30,56,999 made by way of disallowance out of deduction claimed under s. 80HHC by rejecting the claim of netting of interest. Since we have already decided the similar issue in other appeals as above, we allow this ground of appeal to maintain parity of reasons. In the result, this appeal of the assessee is partly allowed.
ITA Nos. 302 and 303/Jd/2011-Asst yrs. 2005-06 & 2007-08
25. These are appeals by the Revenue against the same assessee namely, M/s Dinesh Tobacco Industries for the asst. yrs. 2005-06 and 2007-08.
26. The grounds raised in each appeals read as under :
ITA No. 302/Jd/2011 :
On the facts and circumstances of the case, learned CIT(A) has erred in law in :
| "1. | Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting addition of Rs. 33,91,766 made by the AO on protective basis on account of unaccounted payments made for import of beetle nuts as on the fax message found during the course of search operation it is clearly mentioned that on-money was paid by M/s Dinesh Pouches Ltd. and also the issue of substantive addition in the case of M/s Dinesh Tobacco Industries has not got finality ? | |
| 2. | Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in holding that there is no involvement of M/s Dinesh Pouches Ltd. in purchase of beetle nuts and also payment of underinvoiced amount against the purchase and also holding that no addition can be made in the hands of M/s Dinesh Pouches Ltd. despite the fact that during the course of search proceedings a fax message was found wherein the name of M/s Dinesh Pouches Ltd. was mentioned against the underinvoiced payments made ?" |
ITA No. 303/Jd/2011 :
On the facts and circumstances of the case, learned CIT(A) has erred in :
| "1. | Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in deleting addition of Rs. 3,12,57,509 made by the AO on protective basis on account of unaccounted payments made for import of beetle nuts as on the fax message found during the course of search operation it is clearly mentioned that on-money was paid by M/s Dinesh Pouches Ltd. and also the issue of substantive addition in the case of M/s Dinesh Tobacco Industries has not got finality ? | |
| 2. | Whether on the facts and circumstances of the case, the CIT(A) (Central), Jaipur has erred in law and on facts in holding that there is no involvement of M/s Dinesh Pouches Ltd. in purchase of beetle nuts and also payment of underinvoiced amount against the purchase and also - holding that no addition can be made in the hands of M/s Dinesh Pouches Ltd. despite the fact that during the course of search proceedings a fax message was found wherein the name of M/s Dinesh Pouches Ltd. was mentioned against the underinvoiced payments made ?" |
27. Since we have already taken a view that no protective assessment can be made in the hands of M/s Dinesh Pouches Ltd., we cannot allow these appeals of the Revenue and we dismiss them. In the result, both the appeals of the Revenue stand dismissed.
28. To sum up :
| (a) | The appeals of the assessee in ITA Nos. 184 and 185/Jd/2011 and 297/Jd/2011 are partly allowed and that of Revenue in ITA Nos. 187 and 188/Jd/2011 are dismissed and; | |
| (b) | Similarly, the appeals of the assessee in ITA No. 16/Jd/2011 for asst. yr. 2004-05 is partly allowed and that of the Revenue in ITA Nos. 302 and 303/Jd/2011 relating to asst. yrs. 2005-06 and 2007-08 stand dismissed. |
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
Comments invited on simplification of provisions relating to distribution of input service credit by Input Service Distributor in CENVAT Credit Amendment Rules
DRAFT CENVAT CREDIT AMENDMENT RULES
F. No. 354/246/2012-TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
Tax Research Unit
*****
153, North Block, 17th December, 2013
Subject: – Draft CENVAT Credit Amendment Rules, on simplification of provisions relating to distribution of input service credit by Input Service Distributor – reg
Subsequent to the amendment done to rule 7 of CENVAT Credit Rules, 2004 with effect from 01.04.2012 and 01.07.2012, it has been represented by the trade that procedural difficulties are being faced in distribution of input service credit by input service distributor (ISD) under rule 7 of the CENVAT Credit Rules, 2004. The same issue was raised in the forum for exchange of views between Industry Groups and Government chaired by the Adviser to Finance Minister.
2. The issue has been examined and is proposed to amend the rule in the following manner to address the concerns of the trade. [The proposed changes to the existing rule 7 of the CENVAT Credit Rules, 2004 are shown in Italic, bold with underlining or striking of the portion which is to be deleted].
"7. Manner of distribution of credit by input service distributor. — The input service distributor may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely :—
(a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon;
(b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed;
(c) credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and
(d) credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the total turnover of all its units sum total of the turnover of all the units to which the service relates during the same period.
Explanation 1. – For the purposes of this rule, "unit" includes the premises of a provider of output service and the premises of a manufacturer including the factory, whether registered or otherwise.
Explanation 2. – For the purposes of this rule, the total turnover shall be determined in the same manner as determined under rule 5."
[Existing Explanation 3, is proposed to be replaced by the following explanation.]
Explanation 3. – (a) The relevant period shall be the month previous to the month during which the CENVAT credit is distributed.
(b) In case if any of its unit pays tax or duty on quarterly basis as provided in rule 6 of Service Tax Rules, 1994 or rule 8 of Central Excise Rules, 2002 then the relevant period shall be the quarter previous to the quarter during which the CENVAT credit is distributed.
(c) In case of an assessee who does not have any total turnover in the said period, the input service distributor shall distribute any credit only after the end of such relevant period wherein the total turnover of its units is available.
"Explanation 3.– The 'relevant period' shall be:
(i) If the assessee has turnover in the 'financial year' preceding to the year during which credit is to be distributed for a month or quarter, as the case may be, the said financial year ; or
(ii) If the assessee does not have turnover for some or all the units in the preceding financial year then, the latest quarter, for which details of turnover of all the units are available, previous to the month or quarter for which credit is to be distributed."
3. Chambers, trade, industry and field formations are requested to go through the draft rules and offer their comments, views and suggestions. It is requested that comments, views and suggestions on the same may be forwarded to the undersigned on or before 27th December, 2013. The same may also be emailed to jayaprahasam@gmail.com.
4. The draft 'CENVAT Credit Amendment Rules' have been put up only to elicit public response. No final decision has been taken as yet by the Government / Board. Any decision in the matter will be finalized only after due examination of the response received.
(S.Jayaprahasam)
Technical Officer (TRU)
Regarding reduction of Government litigation – providing monetary limits for filing appeals by the Department before CESTAT/High Courts and Supreme court
F.No.390/Misc./163/2010-JC
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
*****
New Delhi 12th December, 2013
Sub:- Reduction of Government litigation – providing monetary limits for filing appeals by the Department before CESTAT/High Courts and Supreme court – Regarding.
The Instruction issued from F. No.390/Misc/ 163/2010-JC dated 20.10.2010 which was modified by Instruction of even number dated 17.08.2011 prescribed the monetary limits below which appeal shall not be filed by the Department in the Tribunal / Courts. Section 35R of the Central Excise Act, 1944 made applicable to the Finance Act, 1994 vide Section 83 of the said Act, and Section 131BA of the Customs Act, 1962 vest power with the Board to regulate filing of appeals in the Tribunal and the Courts by specifying monetary limit below which appeal need not be filed.
2. Sub-Section 3 of Section 35R and Section 131BA provides that if an appeal has not been filed by the Department following Instructions issued for not filing appeal below the monetary limit, no person, being a party in appeal, shall contend that the Department has acquiesced in the decision on the disputed issue by not filing appeal. In effect, the decisions / judgments accepted for reasons of monetary limit do not have precedent value.
3. Instances have come to the notice of the Board where while arguing on the legal effect of an order accepted on account of low amount, the Department has failed to emphasize the relevant provisions of Section 35R as above before the Courts / Tribunal. In a recent case, the Hon'ble High Court dismissed an order passed by the adjudicating authority and even quashed the Show Cause Notice on the ground that an earlier Tribunal order which had decided the issue was not challenged by the Department. The duty involved in the said case was below the threshold limit prescribed for filing appeal. The plea that non-filing of appeal against the said Tribunal order was on account of low amount and did not have any precedent value in the light of the provisions of Section 35R ibid and that the merits of the case are not finally settled, however, was not pleaded, resulting in two such judgments of the High Court.
3.1. It was further noticed that the issue involved in the said case was already before the Supreme Court in a Departmental appeal. As per the Board's extant Circular No. 162/73/95-CX dated 14.12.1995 relating to Call Book, Show Cause Notices in question should have been transferred to Call Book awaiting the decision of the higher appellate forum.
4. In view of the above, the Departmental Counsels and the DRs in the Tribunal must plead that a judgment accepted for reasons of low amount should not be relied upon by the appellate forum and that the Department is at liberty to agitate the issue in subsequent proceedings till the matter is settled on merits. The officers in the field formations are hereby directed to take note of the statutory provisions mentioned in the Para 1 & 2 above and prepare the grounds of appeal / defense in suitable cases quoting the relevant provisions.
(Sunil K. Sinha)
Director (Judicial Cell)
CBDT issues clarificatory circular on Section 40(a)(ia) -TDS Disallowance
CIRCULAR No 10/DV/2013 (Departmental View)
F. No. 279/Misc./M-61/2012-ITJ (Vol.-II)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, the December 16th 2013
Subject: Circular on Section 40(a)(ia) of the Income Tax Act, 1961-reg.
It has been brought to the notice of the Board that there are conflicting interpretations by judicial authorities regarding the applicability of the provisions of section 40(a)(ia) of the Income-tax Act, 1961 (`the Act') with regard to the amount not deductible in computing the income chargeable under the head 'Profits and gains of business or profession".
2. Section 40(a)(ia) of the Act reads as under:
" any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139…':
3. In the case of Merilyn Shipping & Transports v. Addl. CIT, it was held by Special Bench of ITAT, Vishakhapatnam, that the provisions of section 40(a)(ia) of the Act would apply only to the amount which remained payable at the end of the relevant financial year and could not be invoked to disallow the amount which had actually been paid during the previous year without deduction of tax at source. The order of the Special Bench has since been put under interim suspension by the Andhra Pradesh High Court.
3.1 The Hon'ble Calcutta High Court and Hon'ble Gujarat High Court in the case of Commissioner of Income-tax, Kolkata-XI v. Crescent Exports Syndicate and Commissioner of Income-tax-IV v. Sikandarkhan N Tunvar respectively, have held that section 40(a)(ia) of the Act would cover not only the amounts which are payable at the end of the previous year but also which are payable at any time during the year.
3.2 The Hon'ble High Courts have further held that the intention of the legislation was to disallow certain types of expense, subject to provisions of Chapter XVII-B, which are payable at any time during the year but no tax was deducted at source or if deducted was not paid within the stipulated time. There is no such condition that amount should remain payable at the end of the year.
3.3 The Hon'ble Allahabad High Court in CIT v. Vector Shipping Service (P) Ltd. has affirmed the decision of the Special Bench in Merilyn Shipping that for disallowance under section 40(a) (ia) of the Act, the amount should be payable and not which has been paid during the year. However, the decisions of the Hon'ble Gujarat and Calcutta High Courts (supra) were not brought to the attention of the Hon'ble Allahabad High Court.
3.4 In the case of ACIT, Circle 4(2), Mumbai v. Rishti Stock and Shares Pvt. Ltd. in ITA No. 112/Mum/2012, Hon'ble ITAT, Mumbai in its order dated 02-08-2013 has examined the decision of the Hon'ble Allahabad High Court (supra) as regards to section 40(a)(ia) of the Act and concluded that the same was an 'orbiter dicta' while the decisions of the Hon'ble Gujarat and Calcutta High Court (supra) were 'ratio decidendi'. The ITAT accordingly applied the view taken by the Hon'ble Gujarat and Calcutta High Court as ratio decidendi prevails over an orbiter dicta.
4. After careful examination of the issue, the Board is of the considered view that the provision of section 40(a) (ia) of the Act would cover not only the amounts which arc payable as on 31st March of a previous year but also amounts which are payable at any time during the year. The statutory provisions are amply clear and in the context of section 40(a) (ia) of the Act the term "payable" would include "amounts which are paid during the previous year".
5. Where any High Court decides an issue contrary to the 'Departmental View', the `Departmental View' thereon shall not be operative in the area falling in the jurisdiction of the relevant High Court. However, the CCIT concerned should immediately bring the judgement to the notice of the CTC. The CTC shall examine the said judgement on priority to decide as to whether filing of SLP to the Supreme Court will be adequate response for the time being or some legislative amendment is called for.
6. The above clarification may be brought to the notice of all officers.
(Priyanka Singh)
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