Service Tax
CENVAT – Sales Commission Services are not Input Services - If there is any conflict between jurisdictional High Court and CBEC circular, the decision of jurisdictional High Court is binding on department rather than CBEC circular: HC
THE Respondents had availed CENVAT Credit on Sales Commission Services obtained by them.
The adjudicating denied this credit but the Commissioner (A) allowed the appeal of the assessee accepting their contention that sales commission paid is an activity relating to their business incurred before the clearance of goods and that on the basis of orders procured by the commission agent, clearances are made.
In appeal before the CESTAT, the Revenue submitted that the 'sales commission services' cannot fit into the definition of 'Input service' u/r 2(l) of CCR, 2004 in view of the Gujarat High Court decision in the case of M/s. Cadila Healthcare Ltd. - 2013-TIOL-12-HC-AHM-ST.
IT : Where Assessing Officer in reassessment proceedings had disallowed assessee's various claims and also imposed penalty under section 271(1)(c) upon it, imposition of penalty in respect of disallowance of loss on sale of investments and vehicles and disallowance made under section 43B was justified, whereas imposition of penalty on wrong claim for depreciation on plant and machinery was not justified
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[2014] 42 taxmann.com 20 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax -III
v.
Arcotech Ltd.*
SANJIV KHANNA AND SANJEEV SACHDEVA, JJ.
IT APPEAL NO. 71 OF 2013†
SEPTEMBER 12, 2013
Section 271(1)(c), read with sections 28(i), 32 and 43B, of the Income-tax Act, 1961 - Penalty - For concealment of income [Disallowance of claim, effect of] - Assessment year 2003-04 - Assessee, a manufacturing company, filed original return of income declaring loss, which was accepted under section 143(1) - Subsequently Assessing Officer having noticed that (i) assessee had claimed depreciation on plant and machinery though no manufacturing activity was conducted during year, and (ii) it had wrongly claimed capital loss on sale of investments as business loss, issued on assessee a notice under section 148 - Assessee filed a reply stating that its earlier return should be treated as a return filed in response to said notice - During course of assessment proceedings, assessee filed a revised computation in which it accepted that loss on sale of investments was wrongly claimed as a revenue loss and it was, in fact, capital loss - It also accepted that unpaid interest charges should have been disallowed under section 43B and same had been wrongly accounted for in profit and loss account - It also admitted that it had erroneously accounted for certain amount due and payable on account of provident fund and ESI in profit and loss account, although this was contrary to section 43B - Assessing Officer disallowed depreciation claim - He also disallowed assessee's claim for loss on sale of vehicles, which was treated by assessee as revenue loss, observing that it was a capital loss - He, therefore, made various disallowances and added certain amount to income of assessee - He also imposed penalty under section 271(1)(c) upon assessee on account of concealment and/or furnishing of inaccurate particulars - Whether imposition of penalty under section 271(1)(c) in respect of disallowance of loss on sale of investments and vehicles and disallowance made under section 43B was justified - Held, yes - Whether imposition of penalty was not justified on wrong claim for depreciation on plant and machinery, as legal position on said claim was debatable - Held, yes [Para 23] [Partly in favour of revenue]
FACTS
| ■ | For the assessment year 2003-04, the assessee-company filed the original return of income on 31-10-2012 declaring loss, which was accepted under section 143(1). | |
| ■ | Subsequently the Assessing Officer having noticed that (i) the assessee had claimed depreciation of Rs. 89.95 lakhs on plant and machinery though no manufacturing activity was conducted during the year, and (ii) it had wrongly claimed capital loss on sale of investments amounting to Rs. 59.15 lakhs as business loss, issued on the assessee a notice under section 148. The assessee in response to the notice filed a reply dated 9-8-2007 stating that its earlier return should be treated as a return filed in response to the said notice. It also filed objections to the initiation of the reassessment proceedings and contested the notice under section 148. The Assessing Officer rejected the said objections vide order sheet entry dated 24-12-2007. | |
| ■ | During the course of assessment proceedings, the assessee filed a revised computation in which it accepted that Rs. 59.15 lakhs was wrongly claimed as a revenue loss and it was, in fact, capital loss. It also accepted that unpaid interest charges of Rs. 4.46 crores should have been disallowed under section 43B and same had been wrongly accounted for in the profit and loss account. It also admitted that it had erroneously accounted Rs. 12,610 and Rs. 4,715 [totalling Rs. 17,325] due and payable on account of provident fund and ESI in the profit and loss account, although this was not permissible and was contrary to section 43B. | |
| ■ | The Assessing Officer disallowed the depreciation claim of Rs. 89.95 lakhs . He also disallowed the assessee's claim for loss on sale of vehicles amounting to Rs. 1.27 lakhs, which was treated by the assessee as revenue loss, observing that it was a capital loss. Thus the Assessing Officer videorder dated 28-12-2007 passed under section 143(3)/147 made the following disallowances: | |
| Depreciation on plant and machinery : Rs. 89.95 lakhs | ||
| | Loss on sale of investments : Rs. 59.15 lakhs | |
| Loss on sale of vehicles : Rs. 1.27 lakhs | ||
| | Disallowance under section 43B : Rs. 17,325 | |
| Disallowance under section 43B : Rs. 4.46 crores | ||
| | He further added the said amount to the income of the assessee. | |
| ■ | The Assessing Officer also imposed the penalty under section 271(1)(c) upon the assessee on account of concealment and/or furnishing of inaccurate particulars. He rejected the contention of the assessee that the claims/entries were bona fide and lapse had occurred because it was without competent professional staff due to closure of running operations and that the return was filed by a junior accountant, who was not well versed with the tax laws. | |
| ■ | On appeal, the Commissioner (Appeals) upheld the penalty order. | |
| ■ | On second appeal, the Tribunal held that all details with regard to the loss suffered were filed along with the return of income and the change of head of income could not be considered as concealment or furnishing inaccurate particulars of income. The legal claim made by the assessee was not found to be allowable under the head 'business loss', but the same was allowed as a 'capital loss'. It, accordingly, deleted the penalty imposed upon the assessee. | |
| ■ | On appeal to High Court: |
HELD
| ■ | Mens rea is not required and necessary to impose penalty for concealment. [Para 15] | |
| ■ | The assessee's claim for depreciation on plant and machinery was a debatable issue. Passive use entitles an assessee to claim depreciation. No manufacturing activities were conducted during the assessment year in question, but the assessee had approached the Board of Financial Reconstruction for rehabilitation of the company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. Further the penalty imposed in the last year for same reason was deleted by the Tribunal. The real contest is with regard to loss on sale of investments and sale of vehicles of Rs. 59.15 lakhs and Rs. 1.27 lakhs respectively and disallowance under section 43B of Rs. 4.46 crores and Rs. 17,325 on account of interest charges and PF/ESI dues respectively. [Para 9] | |
| ■ | In the impugned order, the Tribunal has referred and stated that details were furnished by the assessee along with the return of income and observed that change of head of income cannot be considered as concealment of particulars or furnishing inaccurate particulars of income. The said statement as a ratio is broad and wide to be treated as universally true. It depends upon facts of a particular case whether the question was debatable or capable of only a singular view. One, therefore, cannot agree with the view expressed by the Tribunal that change of head under which income is to be assessed per se would justify cancellation of penalty for concealment for the reason that it is not a case of furnishing of inaccurate particulars. Furnishing of inaccurate particulars of income can have different connotations and may arise when income is enhanced, deduction denied or when head of income is changed resulting in a higher rate of tax or increase in income. The real question is application of Explanation 1 of section 271(1)(c). The Tribunal has also referred to the disallowance under section 43B and observed that ESI and PF deductions as claimed were a mistake and a case of not giving proper effect to profit and loss account. However, this cannot be read in isolation, as the assessee had not made disallowance under section 43B even in respect of interest payable but not paid to the financial institutions. [Para 10] | |
| ■ | Further the Tribunal recorded in the impugned order that the assessee was continuously loss making concern for last many years. Whether or not the assessee makes loss is not the relevant criteria or factor to determine whether penalty should be imposed under section 271(1)(c) or not. Of course, lack of or inability to engage a good professional tax consultant is a different matter, but there should be proof and basis to hold that the losses incurred prevented an assessee from getting proper tax advice and the issue in question was complicated or required professional advice of a highly expert nature. Further this is not the correct way of applying Explanation 1. The Tribunal also held that one cannot be oblivious to the explanation and justification given by the assessee. Indeed one has to take into consideration the explanation and the justification given by the assessee, but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation1 is on the assessee to prove the reason as to why a particular claim or deduction was made. The justification and cause shown should be bona fide and acceptable. Penalty cannot be deleted by merely recording the explanation, though not proved and established. [Para 11] | |
| ■ | The assessee has stated that the revised return was prepared by the chartered accountant but due to dispute with regard to payment of professional fee, the same was not furnished. This explanationhas been accepted by the Tribunal but is on the face of it contrary. The assessee had filed original return of income on 31-10-2002. The said return was supported by duly audited accounts. The accounts were audited by a chartered accountant on 30-8-2002. Subsequently after reassessment notice under section 148 was issued, the assessee filed a letter dated 9-8-2007, nearly four years after the date of filing of the original return, stating that the earlier return dated 31-10-2002 should be treated as the return filed pursuant to the reassessment notice. This was a chance given to the assessee to file a rectified return in case of error or mistake made. However, the assessee filed written objections dated 14-12-2007 to the reopening and contested. The assessment order records that on 20-12-2007 the assessee had tried to justify the claim of loss of Rs. 59.15 lakhs as business loss. The objections were considered and rejected on 24-12-2007. [Para 12] | |
| ■ | The aforesaid loss of Rs. 59.15 lakhs was loss suffered on sale of shares held as investment or as a capital asset. The assessee was not a trader in shares and the shares were not held as stock-in-trade. They were not part of the closing stock. It is only subsequently that the assessee filed a revised computation and accepted that the said loss was capital loss and not revenue loss. Revised computation was filed after contest and on being confronted by the Assessing Officer. The aforesaid reasoning will equally apply to the loss suffered on sale of vehicles. [Para 13] | |
| ■ | Section 271(1)(c) is invoked when an assessee furnishes inaccurate particulars or conceals his income. Explanation 1 to section 271(1)(c) can come to the rescue of the assessee in case he had offered an explanation but was unable to substantiate it, provided he is able to establish that theexplanation offered was bona fide and the facts relating to furnishing of inaccurate particulars and material for computation of total income were duly disclosed by him. In the instant case, the assessee had furnished inaccurate particulars of income and this is established beyond doubt. The assessment order passed under section 143(3)/147 was accepted by the assessee in which the aforesaid disallowances were made. In fact, the submission of the assessee before the court is that the aforesaid errors pointed out in the assessment order were conceded to and accepted by it during the course of the assessment proceedings by filing a revised computation. In these circumstances, the contradictory contention of the assessee that it had not furnished inaccurate particulars of its income is not acceptable. The moot question and issue is whether the assessee has discharged the burden under Explanation 1 to section 271(1)(c) or rather more precisely whether the Tribunal has correctly applied the said Explanation as mandated and required by the statute. [Para 14] | |
| ■ | The penalty under section 271(1)(c) is imposed when an assessee conceals his income or furnishes incorrect particulars. Explanation 1 to section 271(1)(c) has two clauses. Clause (A) ofExplanation 1 to section 271(1)(c) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, one has to examine two conditions: (1) whether the assessee has been able to show that his explanation was bona fide, (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. In case the assessee satisfies the twin condition, penalty should not be imposed. [Para 16] | |
| ■ | On the second aspect, which relates to addition on account of disallowance under section 43B, position remains the same. In the audited accounts, there is no mention or reference to the said section or that in the profit and loss account expenditure which has to be disallowed under section 43B has been debited and claimed. The fact that interest due and payable to the financial institution has not been paid but was treated as expenditure in the profit and loss account was not stated or adverted to. Thus full facts relating to the assessment of income were not stated. [Para 17] | |
| ■ | In the instant case, addition or disallowance has been made on account of wrong claim of revenue loss, which was in fact capital loss and disallowance under section 43B. From the reasoning given by the Tribunal, it is not possible to decipher and hold that the explanation given by the assessee shows that its claim was bona fide and justified. [Para 18] | |
| ■ | The assessee is a company and the accounts were audited by chartered accountant. Difference between 'capital loss' or 'revenue loss' in some cases may be marginal and debatable, but, in the instant case, the assessee, a manufacturing company, had sold shares held by it as investment or as a capital asset. There was and could not have been any debate or plausible claim that the loss was a capital loss. Any one remotely conversant with the provisions of the Act or accounts would know that loss on the sale of the investments cannot be booked and treated as a business loss, yet the assessee had booked the said loss as a business loss instead of a capital loss. This was contrary to elementary principles of accountancy and something which is very basic. The assessee has emphasized that the loss of Rs. 59.15 lakhs has not been disputed. Therefore, full facts were on record. This is partly correct but would not satisfy the requirements of Explanation 1. Explanation1 has two stipulations: firstly the assessee should have furnished facts and material relating to computation of his income, and secondly establish that the explanation furnished by him was bona fide. Furnishing of figures or non-interference with the figures would show only furnishing of facts and material but would not satisfy the second requirement. Similarly with regard to the disallowance made under section 43B, the law on the point and provision in question is well known and not capable of two interpretations. The assessee had not paid interest amounting to Rs. 4.46 crores and had defaulted and not paid PF/ESI instalment of Rs. 17,325, but had claimed them as an expenditure, contrary to the mandate of section 43B. The audit report was silent and this fact was not disclosed. Material and facts were not stated. [Para 19] | |
| ■ | The assessee has submitted that it became sick and, therefore, did not have funds to engage a proper accountant or tax consultant when the original return was filed. The return was filed by a junior accountant. In the guise of wrong or improper legal opinion, an assessee should not be permitted and allowed to escape penalty when the accounts are audited by a chartered accountant, when the provision and position in law is well known and well understood. In the instant case, the original return filed by the assessee was accepted under section 143(1). Subsequently noting discrepancies notice under section 148 was issued. Even at that time, the assessee did not accept the fault and in its letter dated 9-8-2007 stated that the original return may be treated as filed in response to the reassessment notice. Objections to reopening were raised and the stand and stance of the assessee changed when it was repeatedly confronted. It is not a case where the assessee suo motu on its own or on immediately noticing the wrong claim rectified or corrected the purported errors and understatements. It is only when the assessee was cornered and confronted by the Assessing Officer that the revised computation was filed. The revised computation was filed after the objections to the reopening were dismissed by the Assessing Officer. [Para 20] | |
| ■ | Whether an assessee has offered an explanation and whether the explanation was bona fide, when discussed and examined as stipulated in Explanation 1, is a question of fact and depends upon several factors, including whether the assessee is an individual or corporate assessee, literate or illiterate, the nature, character and quantum of the deduction, his past conduct relating to the same claim/deduction, the provision or section applicable, etc. [Para 22] | |
| ■ | In view of the aforesaid discussion, the imposition of penalty under section 271(1)(c) in respect of disallowance of loss on sale of investments and vehicles and disallowance made under section 43B deserved to be upheld. The claims were ex facie wrong being contrary to fundamental/basic principles of accounts and Act would not have escaped notice or missed. However, imposition of penalty was not justified and proper on the wrong claim for depreciation of plant and machinery, as the legal position on the said claim was debatable. [Para 23] |
CASE REVIEW
Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 15) followed.
Hindustan Steel Limited v. State of Orissa [1972] 83 ITR 26 (SC) (para 18); CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 18); CIT v. Hari Om Ashok Kumar Sugar Works [2007] 295 ITR 507/[2006] 157 Taxman 82 (All.) (para 22); CIT v. Somany Evergree Knits Ltd. [2013] 352 ITR 592/35 taxmann.com 529 (Bom.) (para 22); CIT v. Sania Mirza[2013] 259 CTR (AP) 386 (para 22) and Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306/211 Taxman 40/25 taxmann.com 400 (SC) (para 22) distinguished.
CASES REFERRED TO
CIT v. Geo Tech Construction Corpn. [2000] 244 ITR 452/112 Taxman 373 (Ker.) (para 9), CIT v.Refrigeration & Allied Industries Ltd. [2001] 247 ITR 12/[2000] 113 Taxman 103 (Delhi) (para 9),Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 15), Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (para 17), CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 17), Shervani Hospitalities Ltd. v. CIT [I.T. Appeal 804 of 2011, dated 28-5-2013] (para 17), Karan Raghav Exports v. CIT[2012] 349 ITR 112/21 taxmann.com 8/[2013] 212 Taxman 55 (Delhi)(Mag.) (para 17), CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510/191 Taxman 179 (Delhi) (para 17), CIT v. Hari Om Ashok Kumar Sugar Works [2007] 295 ITR 507/[2006] 157 Taxman 82 (All.) (para 21), CIT v.Sidhartha Enterprises [2010] 322 ITR 80/[2009] 184 Taxman 460 (Punj & Har.) (para 21), CIT v.Somany Evergree Knits Ltd. [2013] 352 ITR 592/35 taxmann.com 529 (Bom.) (para 21), CIT v. Sania Mirza [2013] 259 CTR (AP) 386 (para 21) and Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306/211 Taxman 40/25 taxmann.com 400 (SC) (para 21).
Sanjeev Rajpal for the Appellant. Gaurav Mitra, Saurabh Seth and Ms. Kanchan Yadav for the Respondent.
ORDER
Sanjiv Khanna, J. - In this appeal, which pertains to Assessment Year 2003-04 and arises out of order of the Income Tax Appellate Tribunal (tribunal, for short) dated 29th June, 2012, on the last date of hearing the following substantial question of law was framed:—
"Whether the tribunal was justified in deleting penalty on additions made on account of loss of sale of investment and vehicles, which was wrongly claimed as business loss and expenditure disallowed under Section 43B of the Income Tax Act, 1961?"
As is apparent from the question, tribunal has allowed the appeal of the respondent assessee and deleted penalty under Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short)
2. The respondent-assessee had filed its return of income declaring loss of Rs. 13,65,54,483/- duly supported by audited accounts and this return was processed under Section 143(1) of the Act. Subsequently, re-assessment notice was issued after noticing that the assessee had claimed depreciation on plant and machinery though no manufacturing activity was conducted during the year under consideration and had wrongly claimed capital loss on sale of investments amounting to Rs. 59,15,000/- as business loss.
3. In response to the notice under Section 148 of the Act, the respondent-assessee filed a letter dated 9th August, 2007 stating that their earlier return filed under Section 139 dated 31st October, 2002 should be treated as a return filed in response to the said notice. The assessee on receipt of reasons for reopening, filed objections to the initiation of the re-assessment proceedings and contested the notice under Section 148 of the Act. The said objections of the assessee were rejected vide order sheet entry dated 24th December, 2007.
4. During the course of assessment proceedings, the assessee filed a revised computation in which they accepted that Rs. 59,15,000/- was wrongly claimed as a revenue loss and was in fact capital loss. The assessee also accepted that unpaid interest charges of Rs. 4,46,13,877/-should have been disallowed under Section 43B cannot be accounted for in the profit and loss account. Similarly, the respondent had erroneously accounted Rs. 12,610/- and Rs. 4,715/-, due and payable on account of provident fund and ESI in the profit and loss account, although this was not permissible and was contrary to Section 43B of the Act. The Assessing Officer disallowed depreciation claim of Rs. 89,95,173/- and claim on account of loss on sale of vehicles, which was treated by the respondent as revenue loss of Rs. 1,27,930/-. This loss it was observed was a capital loss. On account of the aforesaid additions, total income of the assessee was assessed at loss of Rs. 7,66,79,891/-. Proceedings under Section 271(1)(c) of the Act were initiated.
5. The Assessing Officer imposed penalty of Rs. 2,13,75,229/- on account of concealment and/or furnishing of inaccurate particulars. He rejected the contention of the respondent that the claims/entries were bona fide and lapse had occurred because the respondent was without competent professional staff due to closure of running operations and that the return was filed by a junior accountant, who was not well versed with the tax laws.
6. Commissioner of Income Tax (Appeals) upheld the order imposing penalty.
7. Tribunal by the impugned order has deleted penalty, inter alia, recording that all details with regard to the loss suffered were filed along with the return of income and the change of head of income cannot be considered as concealment or furnishing inaccurate particulars of income. The legal claim made by the respondent-assessee was not found to be allowable under the head "business loss" but the same was allowed as a "capital loss". In order to appreciate the contention of the Revenue, we would like to reproduce the exact words and reasoning given by the tribunal to delete the penalty:—
"5. We have heard rival contentions and gone through the relevant material available on record. Apropos the issue of claim of depreciation, penalty imposed under similar facts and circumstances has been deleted by the ITAT in preceding year, as reproduced above. Respectfully following the same, the penalty qua the claim of depreciation is deleted.
5.1 Apropos long term capital gain on sale of investments and sale of vehicles, the fact that the assessee was allowed the claim of loss is not disputed. The only difference between assessee's claim and the assessed loss is the head of allowability of loss i.e. capital loss as against assessee's claim of business loss. In our view all the relevant details were filed by the assessee along with the return of income and a change in claim of head of income cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of such income. The assessee made a legal claim which was not found to be allowable by the Assessing Officer under the head business loss but the same was allowed as long term capital loss. In these facts and circumstances we are not inclined to hold that the assessee concealed any particulars or furnished inaccurate particulars in this behalf.
5.2 In respect of PF and ESI also the assessee had disclosed in its Chartered Accountant's report that these amounts were not deposited, therefore, assessee itself claimed them to be exfacie not allowable. The only mistake committed by the assessee is in not giving proper effect to P&L A/c. With these disclosure on record, the mistake can be held to be of technical or venial in nature and cannot be termed as amounting to concealing particulars of income or furnishing inaccurate particulars of such income.
5.3 Apropos 43B disallowance, assessee has given satisfactory explanation that revised return was prepared which was not filed by the Chartered Accountant due to dispute on payment of professional fees with the C.A are the same is indicated by the record. In our considered view the details having been furnished along with the return of income, the assessee's case is not liable to be visited with penalty u/s 271(1)(c).
5.4 Apropos ld. DR's reliance of ITAT order in the case of M/s Anand & Anand (supra), the facts and circumstances in that case are peculiarly different inasmuch as in this case assessee had earlier paid advance tax on a particular item of income and later on, in the guise of legal opinion, the same was claimed to be a capital receipt, it had no earlier history and was a profit making organization. In the present case, the facts are peculiarly different and it is a case of continuous loss making concern since past many years. Therefore, facts being distinguishable the decision in the case of M/s Anand & Anand cannot be applied to the facts of the present case.
5.5 In case of reduction of assessed loss, though technically penalty u/s 271(1)(c) is leviable, but one cannot be oblivious of the explanation and justification given by the assessee. In our view, assessee's explanation demonstrates justification for the stand taken in the return of income and reassessment proceedings. The explanation cannot be called to be false or bogus, therefore, we delete the penalty, keeping in view the judgment of Hon'ble Supreme Court in the case of Reliance Petroproducts (supra) and in the case of Hindustan Steels 83 ITR 26(SC)." (Emphasis supplied)
8. Before we examine the aforesaid observations and the contentions of the parties, for the sake of clarity, we would like to mention that during the re-assessment proceedings the respondent's loss was reduced by Rs. 5,98,74,592/- on account of the following additions/disallowances:—
| 1. | Depreciation on plant & machinery | Rs.89,95,173/- |
| 2. | Loss on sale of investments | Rs.59,15,000/- |
| 3. | Loss on sale of vehicles | Rs.1,27,900/- |
| 4. | Disallowance u/s 43B | Rs.17,325/- |
| 5. | Disallowance u/s 43B | Rs.4,48,19,194/- |
9. We are in agreement with the learned counsel for the respondent that as far as claim for depreciation of plant and machinery is concerned. Claim of depreciation was a debatable issue. Passive use entitles an assessee to claim depreciation (see CIT v. Geo Tech Construction Corpn. [2000] 244 ITR 452/112 Taxman 373 (Ker.) and CIT v. Refrigeration & Allied Industries Ltd. [2001] 247 ITR 12/[2000] 113 Taxman 103 (Delhi). No manufacturing activities were conducted during the assessment year in question but the assessee had approached Board of Financial Reconstruction for rehabilitation of the company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. We also notice that penalty imposed in the last year for same reason was deleted by the tribunal. The real contest is with regard to loss on sale of investments and sale of vehicles of Rs. 59,15,000/- and Rs. 1,27,930/- respectively and disallowance under Section 43B of Rs. 4,48,19,194/- and Rs.17,325/- on account of finance charges and PF/ESI dues respectively.
10. In paragraph 5.1 of the impugned order, the tribunal has referred and stated that details were furnished by the respondent along with the return of income and observed change of head of income cannot be considered as concealment of particulars or furnishing inaccurate particulars of income. The said statement as a ratio is broad and wide to be treated as universally true. It depends upon facts of a particular case and whether the question was debatable or capable of only a singular view. We, therefore, cannot agree with the view expressed by the tribunal that change of head under which income is to be assessed per se would justify cancellation of penalty for concealment for the reason that it is not a case of furnishing of inaccurate particulars. Furnishing of inaccurate particulars of income can have different connotations and may arise when income is enhanced, deduction denied or when head of income, is changed resulting in a higher rate of tax or increase in income. The real question is application of Explanation 1. Paragraphs 5.2 and 5.3 refer to the disallowance under Section 43B and observe that ESI and PF deductions as claimed were a mistake and a case of not giving proper effect to profit and loss account. However, this cannot be read in isolation as the assessee had not made disallowance under Section 43B even in respect of interest payable but not paid, to the financial institutions.
11. Paragraphs 5.4 and 5.5 record that the respondent was continuously loss making concern for last many years and, therefore, decision in another case was distinguishable. Whether or not the assessee makes loss is not the relevant criteria or factor to determine whether penalty should be imposed under Section 271(1)(c) or not. Of course, lack of or inability to engage a good professional tax consultant is a different matter but there should be proof and basis to hold that the losses incurred prevented an assessee from getting proper tax advice and the issue in question was complicated or required professional advice of a highly expert nature. Further, this is not the correct way of applying Explanation 1. In paragraph 5.5 it is recorded that one cannot be oblivious to the explanation and justification given by the assessee. Indeed one has to take into consideration the explanation and the justification given by the assessee but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation 1 is on the assessee to prove the reason as to why a particular claim or deduction was made. The justification and cause shown should be bona fide and acceptable. Penalty cannot be deleted by merely recording the explanation, though not proved and established. It is not for the Revenue to show that the explanation offered is not false or bogus.
12. Learned counsel for the respondent referred to paragraph 5.3 of the impugned order and has stated that the revised return was prepared by the Chartered Accountant but due to dispute with regard to payment of professional fee with them, the same was not furnished. This explanation given by the assessee has been accepted by the tribunal but is on the face of it contrary. In fact, the tribunal has not discussed the facts or basis for the said conclusion. The assessee had filed original return of income, as noticed above, on 31st October, 2002. Return was supported by duly audited accounts. Copy of the said audited accounts, auditor's report etc. have been filed on record before us by the respondent-assessee. The accounts were audited by a Chartered Accountant and the audit was dated 30th August, 2002. Subsequently, after re-assessment notice under Section 148 dated 7th July, 2008 was issued, the respondent-assessee filed a letter dated 9th August, 2007, nearly four years after the date of filing of the original return, that the earlier return dated 31st October, 2002 should be treated as the return filed pursuant to the reassessment notice. This was a chance given to the respondent to file a rectified return in case of error or mistake made. After the return of income was filed, the assessee was furnished with copy of the reasons to believe, which as already noticed above, recorded two reasons; (i) wrong claim of depreciation in spite of the fact that no manufacturing activity was conducted during the year under consideration and (ii) claim of loss on sale of investments was wrongly claimed as business loss as it was a capital loss. The respondent-assessee filed written objections dated 14th December, 2007 to the reopening and contested. The respondent-assessee tried to justify the claims made and treatment given in the accounts. The assessment order records that on 20th December, 2007, the assessee had tried to justify the claim of loss of Rs. 59,15,000/- as business loss stating as under:-
"The investment was made out of surplus funds available with the company. This was with a view to earn profits from business. Business activity or transaction necessarily implies the activity with an object to earn profit. Uncertainty about the return to be received from the investment and also the facing of many imponderables and even the risk of losing the amount invested are inherent in activity called business. Risk, uncertainty foresignhedness (sic) to visualise the imponderables and capacity to over come the unforeseen hurdles are the essential for business activity."
The objections were considered and rejected on 24th December, 2007.
13. For the sake of clarity, we record that the aforesaid loss was loss suffered on sale of shares held as investment or as a capital asset. The assessee was not a trader in shares and the shares were not held as stock-in-trade. They were not part of the closing stock. It is only subsequently that the respondent-assessee filed a revised computation and accepted that the said loss was capital loss and not revenue loss. Revised computation was filed after contest and on being confronted by the Assessing Officer. The aforesaid reasoning will equally apply to the loss suffered on sale of vehicles.
14. Section 271(1)(c) of the Act as applicable has been considered and interpreted in several judgments of the Supreme Court and the Delhi High Court. The said Section is invoked when an assessee furnishes inaccurate particulars or conceals his income. Explanation 1 can come to the rescue of the assessee in case he had offered an explanation but was unable to substantiate it, provided he is able to establish that the explanation offered was bona fide and the facts relating to furnishing of inaccurate particulars and material for computation of total income were duly disclosed by him. In the present case, the assessee had furnished inaccurate particulars of income and this is established beyond doubt. Assessment order passed under Section 143(3)/147 of the Act dated 28th December, 2007 was accepted by the respondent-assessee in which the aforesaid disallowance/additions were made. In fact, submission of the assessee before us is that the aforesaid errors pointed out in the assessment order were conceded to and accepted by the respondent-assessee during the course of the assessment proceedings by filing a revised computation. In these circumstances, the contradictory contention of the respondent-assessee that they had not furnished inaccurate particulars of their income is not acceptable. The moot question and issue is whether the assessee has discharged the burden under Explanation 1 to Section 271(1)(c) of the Act or rather more precisely whether the tribunal has correctly applied the said Explanation as mandated and required by the statute.
15. Mens rea is not required and necessary to impose penalty for concealment. In Union of India v.Dharmendra Textile Processors [2008] 306 ITR 277/174 Taxman 571, the Supreme Court examined Section 271(1)(c) of the Act and other provisions for imposition of penalty in different statutory enactments. It was held that penalty in such cases imposed for tax delinquency is a civil obligation, remedial and coercive in nature and is far different from penalty for crime or a fine or forfeiture as stipulated in criminal or penal laws. It refers to blameworthy conduct for contravention of the Act and it equally applies to tax delinquency cases. Mens rea or willful failure or conduct is not required to be proved and established. Mens rea is essential or sine-qua-non for criminal offences but is not an essential element for imposing penalty for breach of civil obligations or liabilities. It was accordingly observed as under:
"The Explanations appended to Section 272(1)(c) of the Income Tax Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N. Shroff's case [2007] 8 Scale 304 (SC) (3) has not considered the effect and relevance of Section 276C of the Income Tax Act. The object behind the enactment of Section 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the Income Tax Act."
16. Thus, penalty under Section 271(1)(c) is imposed when an assessee conceals his income or furnishes incorrect particulars. In terms of explanation I, we have to examine whether the case in question falls within the two limbs viz. clause (A) and (B) i.e. which of the two limbs and effect thereof. Clause (A) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, we have to examine two conditions: (1) Whether the assessee has been able to show that his explanation was bonafide; (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. Onus of establishing that the assessee satisfies the two conditions is on the assessee. Both the conditions have to be satisfied. In case the assessee satisfies the twin condition, penalty should not be imposed.
17. On the second aspect, which relates to addition on account of disallowance under Section 43B of the Act, position remains the same. In the audited accounts, there is no mention or reference to the said Section or that in the profit and loss account expenditure which has to be disallowed under Section 43B has been debited and claimed. The fact that interest due and payable to the financial institution has not been paid but was treated as expenditure in the profit and loss account was not stated or adverted to. Thus, full facts relating to the assessment of income were not stated.
18. In the present case, additions or disallowance has been made on account of wrong claim of revenue loss, which was in fact capital loss and disallowance under Section 43B. From the reasoning given by the tribunal, it is not possible to decipher and hold that the explanation given by the assessee shows as to why his claims were bona fide and justified. The onus of establishing the reasons for the claim made is on the assessee. Reference has been made to the judgment of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, which pertains to the earlier provision relating to penalty, which was worded differently. Decision in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) is relevant but would indicate that in the said case the assessee had given an explanation in respect of disallowance of expenditure under Section 14A. Full details of expenditure had been given in the return but the claim of the assessee was not accepted in view of the legal interpretation given to the statutory provision. Thus, merely making a claim, which was not sustainable in law should not result in penalization under Section 271(1)(c). Penalty should not be imposed provided the assessee has furnished full details with the return itself and the claim made was debatable or reasonably plausible or may have well been accepted. It is, in this context, that Delhi High Court deleted penalty in Shervani Hospitalities Ltd. v. CIT [[IT Appeal No. 804 of 2011, dated 28-5-2013], Karan Raghav Exports v. CIT [2012] 349 ITR 112/21 taxmann.com 8/[2013] 212 Taxman 55 (Delhi) (Mag.), CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510/191 Taxman 179 (Delhi). One cannot be oblivious to divergent views on legal interpretation of tax provisions and that uniformity and consistency of opinion on aspects of law may not be possible. Therefore, penalty cannot be imposed because an assessee has taken a particular legal stand. However, this does not mean that the assessees can claim wrong deductions or claim without any basis or foundation to justify the claim. False, spurious and mendacious claims do not fall in this class.
19. In the present case, the assessee is a company and the accounts were audited by Chartered Accountant. Difference between "capital loss" or "revenue loss" in some cases may be marginal and debatable, but in the present case, the assessee a manufacturing company had sold shares held by them as investment or as a capital asset. There was and could not have been any debate or plausible claim that the loss was a capital loss. Anyone remotely conversant with the provisions of the Act or accounts would know that loss on the sale of the investments cannot be booked and treated as a business loss, yet the respondent-assessee had booked the said loss as a business loss instead of a capital loss. This was contrary to elementary principles of accountancy and something which is very basic. Learned counsel for the respondent has emphasized that the figures, i.e., loss of Rs. 59,15,000/- has not been disputed. Therefore, full facts were on record. This is partly correct but would not satisfy the requirements of Explanation 1. Explanation 1 has two stipulations; firstly, the assessee should have furnished facts and material relating to computation of his income and secondly, establish that the explanation furnished by him was bona fide. Furnishing of figures or non-interference with the figures would show only furnishing of facts and material but would not satisfy the second requirement. Similarly, with regard to the disallowance made under Section 43B, the law on the point and the provision in question is well known and not capable of two interpretations. The assessee had not paid interest amounting to Rs. 4,48,19,194/- and had defaulted and not paid PF/ESI instalment of Rs. 17,325/-, but had claimed them as an expenditure, contrary to the mandate of Section 43B. The audit report was silent and this fact was not disclosed. Material and facts were not stated.
20. Learned counsel for the assessee has submitted that the respondent company became sick and, therefore, did not have funds to engage a proper accountant or tax consultant when the original return was filed. The return was filed by a junior accountant. Firstly, we find that this aspect has not been accepted by the tribunal. Secondly, the two set of additions in question were clearly contrary to law. As already noted above and are elementary and well-known, in the guise of wrong or improper legal opinion, an assessee should not be permitted and allowed to escape penalty when the accounts are audited by a Chartered Accountant, when the provision and position in law is well-known and well-understood. It is not a case of a debatable issue or a legal provision which could have escaped or missed notice or consideration of the Chartered Accountant or the accountant or the directors of the company. We cannot stretch the plea that the issue was debatable or there was wrong advice beyond the point to believe or accept contentions when the claim itself is impossible to accept and is contrary to fundamentals of tax or accountancy. Income tax returns are mostly accepted without scrutiny or regular assessment. Self and due compliance of tax provisions is required. In the present case, the original return filed by the respondent was accepted under Section 143(1) of the Act. Subsequently, noting discrepancies, notice under Section 148 of the Act was issued. Even at that time, the respondent-assessee did not accept the fault and in their letter dated 9th August, 2007 stated that the original return may be treated as filed in response to the reassessment notice. Objections to re-opening were raised and the stand and stance of the respondent-assessee changed when they were repeatedly confronted. It is not a case where the assessee suo motu on his own or on immediately noticing the wrong claim rectified or corrected the purported errors and understatements. It is only when the assessee was cornered and confronted by the Assessing Officer that the revised computation was filed. The revised computation was filed after the objections to the re-opening were dismissed by the Assessing Officer.
21. At this stage, we would like to notice and refer to the judgments relied by the counsel for the respondents in CIT v. Hari Om Ashok Kumar Sugar Works [2007] 295 ITR 507/[2006] 157 Taxman 82 (All.), CIT v. Sidhartha Enterprises [2010] 322 ITR 80/[2009] 184 Taxman 460 (Punj. & Har.),CIT v. Somany Evergree Knits Ltd. [2013] 352 ITR 592/35 taxmann.com 529 (Bom.) and CIT v.Sania Mirza [2013] 259 CTR (AP) 386 and Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306/211 Taxman 40/25 taxmann.com 400 (SC).
22. At the very outset, we observe that whether an assessee had offered an explanation and whether the explanation was bona fide when discussed and examined as stipulated in Explanation 1, is a question of fact and depends upon several factors, including whether the assessee is an individual or corporate assessee, literate or illiterate, the nature, character and quantum of the deduction, his past conduct relating to the same claim/deduction, the provision or section applicable etc. (Failure to apply Explanation 1, as per law would make it, mixed question of law and fact) It is not one fact but several factors which have to be taken into consideration to determine whether or not the claim or explanation of an assessee is bona fide. For example, in the case of Hari Om Ashok Kumar Sugar Works (supra) income taxable under Section 41(2) of the Act was made subject matter of penalty. In the said case, tribunal also accepted the contention that the assessee was under the belief that profit on sale of machinery etc. being capital goods was not taxable. He was ignorant about provisions of law. In the case of Sania Mirza (supra), awards received from the Government or other institutions were not included in her income and were disclosed in the return as a capital receipt. The amount received, on re-opening was voluntarily surrendered. In Somany Evergree Knits Ltd. (supra) the factual finding recorded was that the assessee had committed a mistake and they withdrew the claim of loss shown as revenue expenditure in the profit and loss account in the second/revised return of income. It was a case of bona fide mistake. In the case of Price Waterhouse Coopers (P.) Ltd. (supra), there was variation between the tax audit report and the income tax return. In the computation sheet with the income tax return disallowance under Section 40(a)(7) was not reflected. The Supreme Court observed that this was a clear case of error made by the assessee, who by mistake had overlooked the contents of the tax audit report. It was held that the inadvertent error was a bona fide mistake. In the present case, we do not think any of the aforesaid decisions are applicable rather it is one wherein the assessee had wrongly shown loss on sale of shares held as investments as business loss and had wrongly not excluded from expenditure/profit and loss account, interest which had not been to the financial institutions or PF/ESI amounts not paid contrary to Section 43B of the Act. The quantum of amount involved was Rs. 4,48,19,194/-.
23. In view of the aforesaid discussion, we answer the question of law in favour of the Revenue and against the respondent-assessee and uphold levy of penalty u/s 271(1)(c) of the Act in respect of loss on account of investments, vehicle and disallowance under Section 43B. The claims were ex facie wrong being contrary to fundamental/basic principles of accounts and Act, would not have escaped notice or missed. However, we do not think penalty was justified and proper on the wrong claim for depreciation of plant and machinery as the legal position on the said claim was debatable.
The appeal is disposed of. There will be no order as to costs.
IT : In case of loss, if notional tax effect is above limit prescribed by CBDT, appeal would be maintainable
■■■
[2014] 42 taxmann.com 7 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax-II, Lucknow
v.
Siddhartha Construction Co. (P.) Ltd.*
RAJIV SHARMA AND DR. SATISH CHANDRA, JJ.
IT APPEAL NO. 3 OF 2011†
SEPTEMBER 19, 2013
Section 268A, read with section 260A of the Income-tax Act, 1961 - Filing of appeal or application for reference by income-tax authorities [Loss returns] - Assessment year 1998-99 - Whether merely because income of assessee is computed at negative (i.e., loss), appeal before Tribunal would not be barred - Held, yes - Whether in such cases, if notional tax effect is found to be above limit prescribed by CBDT at relevant time, appeal would be maintainable - Held, yes [In favour of revenue]
Circulars And Notifications : Instruction Nos. 5/2008, dated 15-5-2008 and 3/2011, dated 9-2-2011.
FACTS
| ■ | The assessee-respondent filed its return declaring loss of Rs. 18.47 crore. | |
| ■ | The Assessing Officer passed an order under section 143(3) on the net loss of Rs. 16.17 crore. On appeal, the Commissioner (Appeals) partly allowed the appeal. | |
| ■ | On further appeal, the Tribunal dismissed appeal by observing that tax effect was less than Rs. 2,00,000 lacs and, therefore, the appeal of the revenue was not maintainable. | |
| ■ | On appeal: |
HELD
| ■ | The Tribunal has dismissed the departmental appeal by observing that the tax effect is less than the prescribed limit mentioned in the CBDT Circulars. | |
| ■ | It may be mentioned that in a loss return, where heavy amount is involved, the issue can be looked from a slightly different angle. In absence of the Board's circulars issued now covered under section 268A (inserted by Finance Act, 2008 with effect from 1-4-1999), there are no limitations on revenue carrying the issue in appeal either before the appellate Tribunal, the High Court, the Supreme Court. To hold that a particular appeal is not maintainable by virtue of the limitations imposed by the Board in its circular, such limitation must be traced in the circular itself. In other words unless and until the appeal is found to be opposed to the directives issued by the Board in its different circulars prevailing from time to time, such an appeal cannot be categorized as not maintainable. [Para 5] | |
| ■ | Circulars of the board nowhere provide that in case of return of loss automatically per seirrespective of difference in the Assessing Officer's perception and that of the Commissioner (Appeals) of the computation of loss, further appeal would be shut out. [Para 6] | |
| ■ | In the circular dated 15-5-2008, it is provided that in the case of loss, notional tax effect should be taken into account. This clarification is contained in circular dated 15-5-2008. Absence of any such clarification in the previous circulars, is of no consequence. Such a clause can, at the best, be seen as clarificatory declaration by the Board to put the controversy beyond any shadow of doubt or debate. It cannot, however, be stated that only on and from 15-5-2008, the Board desired that on the basis of notional tax effect in cases of loss the appeals should be filed. In the previous circulars to reiterate, no such intention emerges. Only because clarification came in the subsequent circular dated 15-5-2008, would not mean that previously the Board desired that such appeals should be filtered out. [Para 7] | |
| ■ | In the result, it is to be observed that merely because even as per the Assessing Officer's order, ultimately income of the assessee is negative, the revenue's appeal before the appellate Tribunal would not be barred by the Board's circular under section 268A. It is however, clarified that the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals. | |
| ■ | Therefore, the Tribunal had committed an error in dismissing the revenue's appeals as being not maintainable. [Para 8] | |
| ■ | The matter is remanded back to the Tribunal to decide the appeal on merits. [Para 9] |
D.D. Chopra for the Appellant. Namit Sharma for the Respondent.
ORDER
1. Present Appeal is filed by the department under Section 260-A of the Income Tax Act 1961, against the judgment and order dated 07.09.2010 passed by the Income Tax Appellate Tribunal, Lucknow in Appeal No.455/Luc/2010 for the assessment year 1998-99.
2. The brief facts of the case are that during the assessment year under consideration, the assessee - respondent has filed its return declaring loss of Rs. 18,47,71,360/-. On 27.03.2001, the A.O. has passed an order under Section 143 (3) of the Act on the net loss of Rs. 16,17,75,680/-. The CIT(A) vide its order dated 17.03.2010, partly allowed the appeal. Being aggrieved, the Department has filed an appeal before the Tribunal which was dismissed by observing that the tax effect being less than Rs.2,00,000/- lacs, the appeal of the Revenue was not maintainable in view of Instruction No.5 of 2008 dated 15.05.2008 of the CBDT and in view of the provisions of the Section 268A of the Act. Still not being satisfied, the department has filed the present appeal.
3. With this background, heard Sri Ghanshyam Chaudhary learned counsel for the department and Sri Namit Sharma, learned counsel for the assessee.
4. In the instant case, the Tribunal has dismissed the departmental appeal by observing that the tax effect is less than the prescribed limit mentioned in the CBDT Circulars.
5. It may be mentioned that in a loss return, where heavy amount is involved, the issue can be looked from a slightly different angle. In absence of the Board's circulars issued, which now can be stated to be covered under Section 268A of the Act, there are no limitations on Revenue carrying the issue in appeal either before the appellate Tribunal, the High Court, the Supreme Court. To hold that a particular appeal is not maintainable by virtue of the limitations imposed by the Board in its circular, such limitation must be traced into circular itself. In other words unless and until the appeal is found to be opposed to the directives issued by the Board in its different circulars prevailing from time to time, such an appeal cannot be categorized as not maintainable.
6. Circulars of the Board nowhere provide that in case of return of loss automatically per se irrespective of difference in the Assessing Officer's perception and that of the CIT (Appeals) of the computation of loss, further appeal would be shut out.
7. The contention that by virtue of subsequent clarifications contained in circulars dated 15.5.2008 and 9.2.2011, the position prevailing prior to such circulars gets amplified and that therefore in cases of loss returns the Board's instructions did not envisage further appeal also does not impress us. We may recall that in the circular dated 15.5.2008, it is provided that in the case of loss, notional tax effect should be taken into account. This clarification to our mind, contained in circular dated 15.5.2008 and absence of any such clarification in the previous circulars, is of no consequence. Such a clause can, at the best, be seen as clarificatory declaration by the Board to put the controversy beyond any shadow of doubt or debate. It cannot, however, be stated that only on and from 15.5.2008, the Board desired that on the basis of notional tax effect in cases of loss the appeals should be filed. In the previous circulars to reiterate, no such intention emerges. Only because clarification came in the subsequent circular dated 15.5.2008, would not mean that previously the Board desired that such appeals should be filtered out.
8. In the result, we observed that merely because even as per the Assessing Officer's order, ultimately income of the assessee is negative, the Revenue's appeal before the appellate Tribunal would not be barred by the Board's circular under Section 268A of the Act. It is, however, clarified that the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals. In all these cases since it is stated that the notional tax effect would be higher than the limits prescribed by the Board in different circulars, we are of the view that the Tribunal committed an error in dismissing the Revenue's appeals as being not maintainable. We may record that none of the appeals came to be decided by the Tribunal on merits.
9. Thus, the Judgment and order dated 07.09.2010 passed by the Income Tax Appellate Tribunal, Lucknow in Appeal No.455/Luc/2010 for the assessment year 1998-99 is quashed. The matter is remanded back to the Tribunal to decide the same strictly on merits but by providing reasonable opportunity to the assessee. As the matter is old one, hence it is expected that the Tribunal shall decide the same within a period of three months from the date of receipt of a certified copy of the present order.
10. In the result, the appeal filed by the department is allowed for statistical purposes.
SB †Arising out of IT Appeal No. 455/Luck./2010, dated 7-9-2010.
Regards,
Pawan Singla , LLB
M. No. 9825829075Section 234E of Income Tax Act, 1961 Cracked
Dinesh Aravindh
Of late this month we must have received lot of demands from CPC seeking demand for non remittance of 234E FEES (not Tax).
234E will not apply to cases where TDS payment is made beyond the time limit prescribed for payment of TDS u/s 200(3)
There are two reasons
Reason 1
Duty of person deducting tax.
200. [(1)] Any person deducting any sum in accordance with [the foregoing provisions of this Chapter] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.
[(2) Any person being an employer, referred to in sub-section (1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.]
[(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time,[prepare such statements for such period as may be prescribed] and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.]
–
Section 200(3) says we have to file our Quarterly return AFTER paying the TDS within the prescribed time.
If we pay the TDS amount to the credit of the CG after the due date for payment there is no requirement for us to file our TDS return at all as per section 200(3).
When Charging mechanism fails where is the question of collection FEES Case law of Supreme Court P.C.Srinivasa Chetty (Sine charging mechanism for operation of 234E fees is 200(3). They can charge fees only when we made the tds payment within the prescribed time but have not filed my Quarterly return within the prescribed time
Reason 2
Okay We will harmoniously interpret the section in spirit along with section 201. After payment within the prescribed time or after the prescribed time we have to file the Quarterly return!! i hope we all agree.
Section 200(3) say we should pay and file Quarterly return else our TDS return is invalid. I missed the prescribed date for payment and also the prescribed date for the Quarterly return Now We paid our TDs to government along with interest u/s 201 and filed our return immediately.
Part 1
Then you cannot charge us fees under 234E, since without payment of tax we cannot upload the return. If Department is not accepting the return how can they ask fees for not filing within the due date
LAW CANNOT ASK PEOPLE TO DO WHAT IS NOT POSSIBLE TO DO
Part 2
Let me recall a splendid decision given a decade ago
Where books of accounts are not maintained you cannot penalize Assessee for not getting his books of accounts audited Ram Prakash C Puri – 77 ITD 210
Department said you have not paid our tax pay interest (interest is compensatory in nature) We pay from due date to date of payment. Now when we pay interest for late payment how can wer / why should we again compensate the Government in the form of 234E fees.
Section 234E starts saying "Without prejudice to the provisions of the Act" and does not start as 'NOTWITHSTANDING ANYTHING CONTAINED IN THE PROVISIONS OF THIS ACT' .
So Technically the Start of Days for 234E Fees is from Due date from filling of Quarterly return or Date of TDS remittance which ever is latter.
Section 54EC on Depreciable Assets & Allowability of one Crore Exemption – Case Study
CA Sandeep Kanoi
BACKGROUND
M/s. Shri Kanabar Industries (herinafter referred to as 'SKI') is a partnership concern from Mumbai. SKI owns an Industrial Gala. SKI carried on the business of manufacturing Cartoon material in this Gala but later, the partners ceased to conduct business in SKI. No business activity has been carried out by SKI in last 8 years. As on 31.03.2013, Written Down Value of Gala was Rs. 1,27,830/- and that of the furniture at the Gala was Rs. 2,010/-
The partners of SKI have now decided to sell the aforesaid Gala for Rs. 96,00,000/-. They would like to know the tax implication of such transfer on SKI and the ways by which they can legitimately minimize the tax burden.
FACTS OF THE CASE
1. SKI acquired the Gala in 1980 vide Assignment Deed dated 13.10.1980.
2. SKI has acquired and used the said Gala in its business of manufacturing Cartoon material.
3. SKI has discontinued business activity for a period exceeding three years.
4. SKI wishes to sell the Gala for Rs. 96,00,000/- and wants to Register a Sell Agreement for the same on or before 31st March 2014.
OUR ANALYSIS
1. What will be the tax implications if SKI sells the property for Rs. 96,00,000/-?
Section 50 of the Income Tax Act, 1961 Act lays down provision for computation of capital gains in case of depreciable assets. It provides that if the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act, the capital gain will be worked out as follows :-
(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;
(ii) the written down value of the block of assets at the beginning of the previous year; and
(iii) the actual cost of any asset falling within the block of assets acquired during the previous year,
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;
(2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
In our case, we have two blocks of Fixed Assets:
1.) Building Rs. 1,27,830/-
2.) Furniture Rs. 2,010/-.
After the sale of Gala with its Furniture, both the blocks will cease to exist, so we will compute the Short Term Capital Gain on such sale as follows :-
| PARTICULARS | RUPEES |
| Sales Value of Gala with Furniture | 96,00,000 |
| Less: Written Down Value of: | |
| Gala 1,27,830 | |
| Furniture 2,010 | -1,29,840 |
| Less: Cost of Transfer if Any* | -25,000 |
| Short Term Capital Gain | 94,45,160 |
| Tax on above @ 30.90% | 29,18,554 |
| *Cost of Transfer been assumed at Rs. 25000/-. |
From the above calculation, we arrive at the tax liability of Rs. 29,18,554/-, which is to be paid on or before 31st March 2014, otherwise it shall attract interest penalty.
2. Is there a legitimate way by which SKI can minimize its tax liabilities due to aforesaid sales?
One of the option by which SKI can save tax on the aforesaid capital gain is by investing the capital gain amount in bonds specified under Section 54EC of the Income Tax Act, 1961. While considering the benefit of section 54EC exemption, the following question may arise:-
a. Whether exemption u/s 54EC is available when investment of Rs. 50,00,000/- each has been made in two financial years, but within 6 months from the date of transfer?
b. Whether exemption under section 54 is available for depreciable assets held for more than 36 months?
c. From which date the period of six months will be counted?
Before answering the above questions, we will discuss the provisions of Section 54EC of the Income Tax Act, 1961.
Section 54EC reads as follows:
"Capital gain not to be charged on investment in certain bonds":
(1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say -
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45:
The proviso to section 54EC(1) reads as follows:
"Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed Rs. 50,00,000/-."
Points to consider while claiming exemption under section 54EC:
- Exemption is available only against long term capital gain.
- Assessee has to invest the gain amount in the bonds specified U/s. 54EC within six months from the date of the transfer of asset.
- Exemption will be restricted to the amount of investment, so to claim 100% exemption from capital gain tax, the assessee has to invest equal to or more than the gain amount in bonds specified U/s. 54EC.
- Investment in one financial year in the bonds specified U/s. 54EC cannot exceed Rs. 50,00,000/-.
- Investments in bonds specified under section 54EC have a lock in period of three years.
- In case the assessee transfers the bonds before 3 years, the gain on transfer of asset sold will be taxed in the year of transfer.
- For the purpose of taxation, even if assessee takes a loan against such bonds, it will be treated as conversion of bond in money and the gain on transfer of assets sold will be taxed in the year of such conversion.
- No deduction other than exemption under section 54EC will be allowed on such investment.
- Specified Bonds includes bonds issued by NHAI, REC and by such authorities as CBDT may notify in this regard.
a. Whether exemption u/s 54EC is available when investment of Rs.50,00,000/- each has been made in two financial years, but within six months from the date of transfer?
The language of proviso makes it clear that the maximum limit for investment in specified asset is Rs. 50,00,000/- for a financial year only. Strictly following the words of the proviso, one can invest upto Rs 50,00,000/- in the current year and another sum of Rs. 50,00,000/- in the next financial year, but within 6 months from the date of transfer. Therefore, one can be entitled to deduction of Rs. 1,00,00,000/- u/s 54EC.
On the other hand, this contention is often contested by the departmental authorities on the grounds that Section 54EC stipulates the quantum of Rs.50,00,000/- for the sale of a particular asset in a particular assessment year, thereby confining the section to a particular transaction. The departmental authorities may further argue that one cannot manipulate the words "any financial year" of the section to their own advantage by construing them to mean that investment can be made in different financial periods but before the expiry of six months from the date of transfer.
In this regard, there have been various judicial pronouncements both for and against the assessee. The significant rulings by various courts are discussed below.
In this case, it was held that for claiming deduction u/s 54EC, the assessee can make the investment in two different financial years, provided, in a financial year, the investment made did not exceed Rs.50,00,000. Apart from that, the limit of Rs. 50,00,000/- as given under the proviso is per person per financial year.
Mainly, this case ruled that the ceiling limit of investment of Rs. 50,00,000/- is to be applied year-wise and not transaction-wise. It held, the words used in the proviso mention 'any' and not 'relevant financial year'; this implies that such a limit of Rs. 50,00,000/- is for each financial year. Thus, ceiling mentioned in proviso to Section 54EC(1) is applicable for investment made in one financial year only.
In this case, the assessee transfers his capital asset after 30th September of the financial year, so he gets an opportunity to make an investment of Rs. 50,00,000/- each in two different financial years and is able to claim exemption up to Rs.1,00,00,000/-. It was held as per proviso to section 54EC that the assessee is entitled for exemption of Rs. 1,00,00,000/- as six months' period for investment in eligible investments involved is two financial years.
The court ruled in favour of the assessee and concluded that Section 54EC does not stipulate assessment year in which investment is to be made but only lays down a condition of 6 months period of time after the date of transfer of the capital asset. Thus, it was open to the assessee to interpret wordings of Section 54EC liberally and in case of doubt, the benefit of exemption should be granted to the assessee. Accordingly, the appeal of the revenue was dismissed.
The Tribunal, in this case, said that "If the assessee is able to keep the six months' limit from the date of transfer of capital asset, but, still able to place the investment of Rs. 50,00,000/- each in two different financial years, we cannot say that the restrictive proviso will limit the claim to Rs. 50,00,000/- only". Since the assessee here had placed Rs. 50,00,000/- in two different financial years but within six months period from the date of transfer of capital asset, the assessee was definitely eligible to claim exemption up to Rs. 1,00,00,000/-.
While the above cited judgements hold that exemption u/s 54EC shall be available if invested in the orderly manner, a negative view was given in the case of ACIT vs. RAJKUMAR JAIN & SONS (HUF) :
Assessee is entitled to total deduction under section 54EC of the Act spread over a period of two financial years @ Rs.50 lakhs each on investments made in specified instruments within a period of six months from the date of sale of the property.
If the assessee is able to keep the six months' limit from the date of transfer of capital asset, but, still able to place investment of Rs. 50 lakhs each in two different financial years, we cannot say that the restrictive proviso will limit the claim to Rs. 50 lakhs only. Since assessee here had placed Rs. 50 lakhs in two different financial years but within six months period from the date of transfer of capital asset, assessee was definitely eligible to claim exemption upto Rs. 1 Crore. The same view has been taken by Ahmedabad Bench of this Tribunal in the case of Aspi Ginwala & Others (supra). We are, therefore, of the opinion that the assessee has to succeed in this appeal. Claim of the assessee for exemption upto Rs. 1 Crore has to be allowed in accordance with Section 54EC of the Act.
In this case, the department challenged the allowability of exemption u/s 54EC based on the following contentions:
- That the Explanatory Memorandum to Finance Act, 2007 which introduced proviso to Section 54EC(1) was clear in that limitation placed was for ensuring equitable distribution of available exempt assets so that ALL assessees could take advantage of it.
- That the maximum exemption that could be given was Rs. 50,00,000/- for each transaction which gave rise to capital gains.
Here, the department further argued that provisions of Act cannot be perceived in a manner to grant a greater benefit to one section of the tax payers. If an assessee transfers certain property in the month of April of the financial year, then he has to make investment within six months i.e. within the same financial year. The exemption from capital gain will be allowed only to the extent of Rs. 50,00,000/-. In case of another tax payer who transfers his assets in the month of October, then he cannot claim exemption u/s 54EC by purchasing Rs. 50,00,000/- bonds in the financial year in which the transfer has taken place and another Rs. 50,00,000 invested in the subsequent financial year because the period of six months will include some part of the subsequent financial year. It was therefore, submitted that interpretation of proviso should not lead to discrimination against various tax payers. Therefore, it was held that the assessee was not entitled to the deduction of Rs. 1,00,00,000/- u/s 54EC of the Act.
After considering a few judgments on the matter it can be observed that rulings in favor of the assessee exceed the rulings against it. What is to be decided is whether the negated ruling overrides the judgments in favor of the assessee?
To the relief of the assessee, it can be settled that the verdict in favour of the assessee shall prevail over the adverse opinion held in the case of ACIT VS. RAJKUMAR JAIN & SONS (HUF) based on the following reasons:
(I) The view in the abovementioned case was considered, yet distinguished by the ITAT Panaji in the case of INCOME TAX OFFICER vs. MS. RANIA FALEIRO: The ITAT Panaji, in this case, noted the negative opinion held in ACIT VS. RAJKUMAR JAIN & SONS (HUF) and subsequently held a contrary view. Thus, the same was distinguished and held in favour of the assessee.
(II) The judgment of ITAT Mumbai rather than ITAT Jaipur is pertinent to SKI: It is noteworthy that SKI falls into the Mumbai jurisdiction, and accordingly, judgment given by the ITAT Jaipur in the case of ACIT VS. RAJKUMAR JAIN & SONS (HUF) shall have lesser relevance than a verdict given in the ITAT Mumbai. That is to say, we can rely on the verdict held in INCOME-TAX OFFICER V/S. MRS. CHETANA H. TRIVEDI, which is in favour of the assessee as it was decided by the ITAT Mumbai.
(III) A liberal reading of section 54EC enables the assessee to invest up to Rs.1,00,00,000/-: A beneficial section has to be construed liberally, having due regard to the object it intends to serve. The department interprets the word "any financial year" in s. 54EC to mean "financial pertaining to the sale transaction", an approach which has no justification as it adds words into the section and also ignores the purpose which the section is intended to serve. Thus, when the sections says that a maximum of Rs.50,00,000/- can be invested in any financial year, it must liberally grant an option to assessee to invest in two different financial years as long as the time limit of 6 months does not expire.
(IV) Where there are two reasonable constructions, construction which favors the assessee must be adopted: A well-accepted rule of construction recognized by various courts states that if the language of a section is ambiguous or capable of more meanings than one, then the interpretation which favours the assessee has to be adopted. Therefore, in case of contradictory views on a section, the courts shall favor the assessee, relying on the well established principle laid in COMMISSIONER OF INCOME TAX vs. VEGETABLE PRODUCTS LTD [88 ITR 192] by the apex court.
Conclusion:
There is nothing in section 54EC to suggest that Rs.50,00,000/- is the quantum maximum investment within the time limit prescribed by it. If this were to be the intention of the legislature, then it would have specifically provided for the same through notifications or through its judgments. It is sufficient compliance of section 54EC if the investment is made within 6 months from the date of transfer and the amount of investment does not exceed Rs.50,00,000/- in a financial year . In this context, we believe that it is worthwhile to invest in two different financial years, thus claiming a tax exemption of Rs.1,00,00,000/-.
Presently in our case, if the asset is sold in the month of February, by, say the 28.02.2014, the period of six months shall expire on the 28th of August 2014. Thus, investment of Rs. 50,00,000/- for the F.Y. 2013-14 should be made before 31st March 2014. Subsequently an additional amount of Rs.50,00,000/- can be invested before the 28th of August 2014 in order to avail the optimal benefit under Section 54EC of the Income Tax Act, 1961.
b. Whether exemption under 54EC is available for depreciable assets held for more than 36 months?
Exemption u/s 54EC for depreciable assets
Section 50 stipulates the mode of computation of capital gains for transfer of depreciable assets during the previous year. Where depreciable assets are transferred, the capital gains so arising shall be treated as short term capital gains. The words of section 50 are verbatim produced below:
"Special provision for computation of capital gains in case of depreciable assets":
Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed, the provisions of sections 48 and 49 shall be subject to the following modifications:
(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:
(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;
(ii) the written down value of the block of assets at the beginning of the previous year; and
(iii) the actual cost of any asset falling within the block of assets acquired during the previous year,
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;
Now, the controversy arises between the taxpayer and the department on interpretation of Section 54EC (quoted above) and denial exemption u/s 54EC on transfer of depreciable assets. In various circumstances, the department has sought to disallow exemption u/s 54EC on the grounds that section 50 deems profits on sale of depreciable assets as short term capital profits, hence requirement of section 54EC, i.e. sale of a long term capital asset is not fulfilled. In the belief of the department, Section 54EC was not allowable in the case of assets covered by the provisions of Section 50 of the Act, since these assets are in the nature of short term capital gain. However, the deeming fiction created u/s. 50 of the Act with respect to depreciable assets would be confined for the purpose of mode of computation of capital gains contained in Section 48 and 49 of the Act and would not cover the exemption u/s. 54EC of the Act. Requirement of Section 54EC gets fulfilled if assets transferred were held for more than 36 months even if the same is depreciable assets or depreciation been claimed on the same by the assessee.
In support of our contention, we rely on the following judgments decided by various courts:
This case highlighted that section 54E does not make any distinction between depreciable assets and non-depreciable assets. Exemption available under section 54E cannot be denied by referring to the fiction created under section 50, also that benefit of section 54E is available to the assessee irrespective of the fact that the computation of capital gains is done either under section 48 and 49 or under section 50. Legal fiction created by the statute is to deem the capital gain as short term capital gain and not to deem the asset as short-term capital asset. Therefore, it cannot be said that section 50 converts long-term capital asset into a short-term capital asset. It concluded that fiction created in sub-section (1) and (2) of section 50 is restricted only to the mode of computation of capital gains contained in section 48 and 49 and does not apply to other provisions and therefore an assessee is entitled to exemption under section 54E in respect of capital gain arising on the transfer of a long-term capital asset on which depreciation has been allowed.
Yet in another case, the department questioned the allowability of exemption for transfer of depreciable assets:
The High Court held that the assessee was entitled for deduction under section 54F for investment of capital gains arising from sale of depreciable house property wherein the difference between sale proceeds and WDV of property is kept invested in eligible assets.
Once the requirement of section 54EC is fulfilled, by virtue of fact that the asset was such on which depreciation was allowed and therefore, computation would be done as provided u/s. 50 of the Act by applying modifications in Section 48 and Section 49 would not change nature of capital asset or availability of exemption specified u/s 54EC. It concluded that 54EC exemption would be made available in case of transfer of long term capital assets.
Section 50 nowhere says that depreciated asset shall be treated as short-term assets, whereas section 54E has an application where long-term capital asset is transferred and the amount received is invested or deposited in the specified assets as required under section 54E. For application of section 54E the necessary pre-requisite condition and enquiry would be, whether the assessee has transferred long-term capital asset and whether the consideration so received is invested or deposited within the time-limit in specified asset. Capital gain may have been received by the assessee on depreciable assets, if conditions necessary under section 54E are complied with by the assessee, he will be entitled to the benefit envisaged in section 54E of the Income-tax Act.
Exemption under section 54E of the Income-tax Act cannot be denied to the assessee on account of the fiction created in section 50. It is true that section 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. The legal fiction created by the statute is to deem the capital gain as short-term capital gain and not to deem the asset as short term capital asset. Therefore, it cannot be said that section 50 converts a long-term capital asset into a short term capital asset.
It was held that Section 54E does not make any distinction between the depreciable assets and non-depreciable assets, therefore, the investment u/s 54E is a permissible investment.
It is true that section 50 is enacted with the object of denying multiple benefits to the owners of depreciable assets. However, that restriction is limited to the computation of capital gains and not to the exemption provisions. It cannot be said that section 50 converts a long-term capital asset into a short-term capital asset.In the light of the accepted factual position that the "short-term capital gain" was computed u/s.50 of IT Act in respect of the assets which were held by the assessee for more than 10 years and on sale of those assets the resultant gain was invested in Rural Electrification Bonds which qualifies for exemption u/s.54EC of IT Act and the which was a legally sustainable exemption in the eyes of law.
Conclusion:
In background of the above judgments, we, to the best of our knowledge, reasonably suggest, that it shall be harmless to believe that exemption under section 54EC shall be provided on capital gain on transfer of depreciable assets held for a period of more than 36 months.
c. From which date the period of six months will be calculated?
The Assessee should invest the capital gains amount within a period of six months after the date of transfer/sale in the long term specified asset.
Long term specified asset is defined to include any bond redeemable after three years issued on or after 01.04.2007, by the National Highway Authority of India (NHAI), or by the Rural Electrification Corporation Limited (RECL).
Conclusion:
In view of the above discussion, we can conclude that the assessee can claim exemption under section 54EC on transfer of depreciable assets held for more than thirty-six months by investing in bonds notified for the purpose of Section 54EC. Further the assessee can claim exemption upto Rs. 1,00,00,000/- by investing the gain in the bonds notified under section 54EC if he invests Rs. 50,00,000/- each in two separate financial years but within six months from the date of transferMohan Gupta (HUF) vs. CIT (Delhi High Court)
S. 147: Even s. 143(1) Intimation cannot be reopened in the absence of new information
The reassessment is not on the basis of new information or facts that have come to the fore now, but rather, a re-appreciation or review of the facts that were provided along with the original return filed by the assesse. The record does not show any tangible material that created the reason to believe that income had escaped. Rather, the reassessment proceedings amount to a review or change of opinion carried out in the earlier A.Y. 2005-06, which amounts to an abuse of power and is impermissible. In response, it is argued that since the return was processed under Section 143(1) for the A.Y. 2005-06, which involves a mere intimation, rather than an application of mind or true assessment of the return, a less stringent threshold must be taken in terms of 'reasons to believe' that income has escaped assessment or not. This precise argument, however, has been considered and rejected by this Court in CIT v. Orient Craft [2013] 354 ITR 536 (Delhi)
CIT vs. Motorola India Electronics (P) Ltd (Karnataka High Court)
S. 10A/ 10B: Interest income out of surplus funds in Banks and sister concerns & EEFC account is eligible for exemption
Though s. 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software, sub-section (4) explains what is the profit derived from export of articles as mentioned in Subsection (1). Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is clear that what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking
Emco Ltd vs. UOI (Bombay High Court)
Undue delay in passing order causes prejudice & results in loss of confidence in the judicial body. Such a delayed order has to be set aside
In view of the above, it is very clear that the authorities under the Act are obliged to dispose of proceedings before them as expeditiously as possible after the conclusion of the hearing. This alone would ensure that all the submissions made by a party are considered in the order passed and ensure that the litigant also has a satisfaction of noting that all his submissions have been considered and an appropriate order has been passed. It is most important that the litigant must have complete confidence in the process of litigation and that this confidence would be shaken if there is excessive delay between the conclusion of the hearing and delivery of judgment
In Re Booz & Company (Australia) Pvt. Ltd (AAR)
Entire law on what constitutes a "Permanent Establishment" and "Business Connection" explained
As regards a "permanent establishment", various factors have to be taken into account to decide a Fixed place PE which inter alia includes a right of disposal over the premises. No strait jacket formula applicable to all cases can be laid down. Generally the establishment must belong to the Employer and involve an element of ownership, management and authority over the establishment. In other words the taxpayer must have the element of ownership, management and authority over the establishment. As regards a "business connection", the essential features may be summed up as follows: (a) a real and intimate relation must exist between the trading activities carried on outside India by a non-resident and the activities within India; (b) such relation shall contribute, directly or indirectly, to the earning of income by the non-resident in his business; (c) a course of dealing or continuity of relationship and not a mere isolated or stray nexus between the business of the non-resident outside India and the activity in India, would furnish a strong indication of 'business connection' in India. Apart from the fact that requirements of Expln. 2, referred to above, are satisfied, the facts of the instant case would also fulfill the aforementioned essential features of business connection
CIT vs. Commercial Motors Finance Ltd (Allahabad High Court)
Distinction between "hire purchase transactions" and "loan transactions" explained
The vehicles were registered in the name of the respective customers. However, in the registration certificate a remark in terms of agreement was to be recorded to the effect that vehicle is held by the registered owner under a hire purchase agreement with the assessee. A "Sale Letter" was executed, reciting that the customer had on the date of the application for loan sold to the financier the motor vehicles. The sale of vehicles have not been shown by the assessee in its profit and loss account and no sales tax return has been filed by it. In its audited account, filed with the income tax returns, the assessee has shown the finance charges as revenue receipts. The auditor has certified that the assessee is not a trading company. The auditor has also certified that the assessee has followed the norms issued by the Reserve Bank of India for non-banking financial companies (NBFC). This shows that the assessee is a finance company engaged in financing of vehicles. There is no evidence that assessee is a trader dealing in purchase and sale of vehicles. Thus the hirer is the real purchaser of vehicles from the dealer. He selects the vehicle for purchase and also the dealer from whom it was to be purchased. At this stage the assessee does not come into picture. After the hirer identified the vehicle and the dealer i.e. the seller then he approached the assessee for finance due to his inability to purchase out of his own funds. At this stage the assessee extended the facility of finance to hirer on willingness of the hirer to pay a price for this facility. The total amount of hire that hirer pays to the assessee exceeds the price at which the vehicle was purchased from the dealer. This is more than that part of the purchase consideration which was paid by the assessee to the dealer as finance to the hirer. The excess amount so paid by the hirer to the assessee is nothing but interest on loan. The amount so invested by the assessee in the purchase of vehicles is the amount of loan advanced by it to the hirer. When tested on the principles of law laid down by Supreme Court in Sundaram Finance Ltd the only conclusion that can be reached is that the transactions entered by the assessee with the customer/hirer is a loan transaction and the finance charges were nothing but interest
Tax Benefits for Disabled and Handicapped Persons
CA Sandeep Kanoi
As per The Persons With Disabilities Act, 1995 "Disability" means-(I) Blindness; (ii) Low vision; (iii) Leprosy-cured; (iv) Hearing impairment; (v) Loco motor disability; (vi) Mental retardation; and (vii) Mental illness and "Person with disability" means a person suffering from not less than forty per cent. of any disability as certified by a medical authority;
As per Wikipedia Disabilities is an umbrella term, covering impairments, activity limitations, and participation restrictions. An impairment is a problem in body function or structure; an activity limitation is a difficulty encountered by an individual in executing a task or action; while a participation restriction is a problem experienced by an individual in involvement in life situations. Thus, disability is a complex phenomenon, reflecting an interaction between features of a person's body and features of the society in which he or she lives.
The Government has recently passed Rights of Persons with Disabilities Bill 2014 in Lok Sabha but same could not be passed in Rajya Sabha as Parliament adjourned sine die without passing the much-awaited Rights of Persons with Disabilities Bill on Friday 21.02.2014. This Bill is an improvement over the 1995 law.
The Bill has Proposed the following key benefits:-
- Increase reservation for disabled persons in public sector jobs from existing 3% to 5% and reserve seat for them in higher educational institutions.
- broaden the ambit of disability from seven to 19 sub-categories
- Bill makes provisions to prevent people with disabilities from harassment while getting disability certificates, the proposal legislation also provides for stringent punitive measures under which anyone violating the provisions could face from six months to five years of imprisonment and a fine from Rs 10,000 to five lakhs.
In this article we will discuss the Benefits under the Income Tax and Profession Tax Act Available to Disabled or Handicapped Persons. Income Tax Act Provides Deduction Under Section 80DD, 80DDB and 80U and also provide indirect tax benefit under section 64 of the Income Tax Act. In addition to that In most states in India Profession tax exemption is been extended to Disabled or Handicapped Persons and we will discuss the provisions applicable in state of Maharashtra.
1. Deduction Under Section 80U of Income Tax Act, 1961 for disabled persons – The Income Tax Act, 1961 provides deduction u/s. 80 in pursuance of which an individual (Indian citizen and foreign national) who is resident of India, and who suffers from not less than 40 per cent of any disability is eligible for deduction to the extent of Rs. 50,000/- and in case of severe disability to the extent of Rs. 100,000/-. For More Details Please Visit the following Link :- Deduction U/s. 80U for disabled persons
2. Deduction u/s. 80DD for expenses on maintenance/ medical treatment of disabled dependent - Government of India has in order to provide some relief to those who have a dependent with disability or sever disability provided some relief's from Income tax under section 80DD of the Income Tax Act, 1961. Deduction allowed under this section is Rs. 50,000 if disabled dependant is not suffering from severe disability. Deduction allowed goes up to Rs. 1,00,000 if disabled dependant is a person with severe disability.
Deduction not depend on amount of expenses incurred:- Even if your actual expenses on above mentioned disabled dependent relative is less than amount mentioned above you will be eligible to full deduction.
Read more on Deduction u/s. 80DD - Deduction u/s. 80DD for expenses on medical treatment of disabled dependent
3. Medical treatment of specified ailments under section 80DDB – Deductions of expenses on medical treatment of specified ailments (such as AIDS, cancer and neurological diseases) can be claimed under Section 80DDB. The maximum amount of deduction allowed from gross total income is restricted to Rs 40,000 (which goes up to Rs 60,000 if the age of the person treated is 60 years or more) on condition that no medical reimbursement is received from any insurance company or employer for this amount. In case of reimbursement the amount paid should be reduced by the amount received if any under insurance from an insurerer or reimbursed by an employer.
Read More on Section 80DDB – Deduction under section 80DDB with FAQ
4. Transport allowance Under Section 10(14) Read with Rule 2BB – Employees with visual and orthopaedic disabilities get double the usual tax-exempt transport allowance granted to others. For an employee who is blind or with disability of the lower limbs, the exempted amount is Rs. 1,600 per month. Such employees can request their employers to structure their pay so that they get Rs. 1,600 a month as transport allowance.
5. NO Clubbing of Income of Disabled Minor with Income of his Parents Under Section 64 - Although there is no direct deduction under section 64 but income generated by minor child who is disable will not be clubbed with the Income of his parents. As the income of the child is not clubbed the child is treated as a separate Individual and can file his independent Income Tax return with all its benefits. An Individual can transfer their revenue generating asset like fix deposits in the name of disable child and the interest earned will not be clubbed with the income of individual but will be assessed separately, which provides significant scope for tax savings. Further the disable child while filing its own return can claim benefit under section 80U.
6. Exemption from payment of Profession Tax under Section 27A of Profession Tax Act, Maharashtra State - Any person suffering from a permanent physical disability (including blindness), being a permanent physical disability specified in the rules made in this behalf by the State Government, which is certified by a physician, a surgeon or an oculist, as the case may be, working in a Government Hospital is exempt from Complete amount of professional tax payable. 0To Claim Exemption individual shall forward the certificate to employer who will produces the aforesaid certificate before the prescribed authority in respect of the first assessment year for which he claims deduction under the act. Since Profession Tax is a Matter of state government so a disabled person working in as state where profession tax is applicable can check the respective profession tax law of their state to check if profession tax exemption is exist for them or not. In India In most states the Professional tax is exempted for disable person.
Read Below article for Profession Tax Rates Applicable in Maharashtra and also about exemption from Profession tax in Maharashtra to Handicapped Person with more than 40 % disability or parent of a physically disabled or mentally retarded child – New Profession Tax Rates in Maharashtra & Provisions
Income Tax Benefits from House Property
CA Sandeep Kanoi
Buying a House is nowadays is not easy considering the multifold hikes in property price in last 10 Years. It becomes almost impossible for middle and lower class to buy an house and those buying the house also finds it difficult to buy the same from their own saving without obtaining a home loan. Home loan becomes necessity to Purchase a house.
In this article we will discuss the tax benefits which one can avail under the Income Tax Act,1961 on Purchase of House property (Including the Expenses on Stamp Duty and Registration expenses) and on Repayment of Home loan (Including Interest). We will mainly discuss the Tax benefit available mainly under Section 24(b), Section 80EE and Section 80C of the Income Tax Act, 1961.
1. Income Tax Benefit on Home Loan Interest under Section 80EE Of Income Tax Act - Benefit of this section can be availed by Individual assessee. Deduction under this section is not available for any other assessee (like HUF, firm etc.). Individual can claim benefit under this section only when all the following conditions are satisfied, these are-
- Purchaser should be first time buyer. i.e. he has never purchased any house and now he is going to purchase a house.
- Value of the house should not more than 40 lakh.
- Loan taken by Individual for the purpose of buy a house should not be more than 25 lakh.
- On the date of sanction of loan individual does not have any own residential house property.
- Loan for this purpose taken by individual should be from the Financial Institution or Housing Finance Company.
- For this purpose, loan should be sanctioned between 01.04.13 to 31.03.14.
Assessee can take deduction u/s 80EE on interest payable on home loan upto 1 Lakh in A.Y.2014-15. It can claim deduction in two assessments year. Means if whole amount of interest payable upto 1 lakh is not claim as deduction in A.Y.2014-15 then remaining balance amount upto 1 lakh can claim in A.Y.2015-16.Total deduction under this section shall not be more than 1 lakh.
2. Section 80C for Investment in Residential House Property and for payment of Principal amount – The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest. The principal component of the EMI qualifies for deduction under Sec 80C.
Further Amount paid towards stamp duty, registration fees and other expenses for the purpose of transfer of house property to the owner also qualifies for tax exemption'. This is over and above the principal payment that qualifies under Section 80C. But deduction u/s. 80C for total amount including Principal Loan Repayment and stamp duty and registration charges can not exceed Rs. One Lakh.
Section 80C provides that in computing the total income of an assessee, deduction shall be provided in respect of various payments/investments made as included in the Section 80C subject to a ceiling of Rs. 1 lakh on the aggregate amount of such payments/investments.
3. Section 24(b) -Deduction of Interest on Borrowed Capital From House Property income – This deduction is allowed only in case of house property which is owned and is in the occupation of the person for his own residence. However, if it is actually not occupied by the one in view of his place of the employment being at other place, his residence in that other place should not be in a building belonging to him.
The quantum of deduction for home loan interest is as per table below:
| Sl No | Purpose of borrowing capital | Date of borrowing capital | Maximum Deduction allowable |
| 1 | Repair or renewal or reconstruction of the house | Any time | Rs. 30,000/- |
| 2 | Acquisition or construction of the house | Before 01.04.1999 | Rs. 30,000/- |
| 3 | Acquisition or construction of the house | On or after 01.04.1999 | Rs. 1,50,000/- |
In case of Serial No. 3 above
(a) The acquisition or constructing of the house should be completed within 3 years from the end of the FY in which the capital was borrowed.
(b) Further any prior period interest for the FYs upto the FY in which the property was acquired and constructed shall be deducted in equal installments for the FY in question and subsequent four FYs.
(c) The Assessee has to acquire before a certificate from the person to whom any interest is payable on the borrowed capital specifying the amount of interest payable. In case a new loan is taken to repay the earlier loan, then the certificate should also show the details of Principal and Interest of the loan so repaid.
Read more related Articles :-
- Tax & Loan Eligibility benefits from Home loan in Joint Names
- FAQ on Housing Loan & Income tax benefit
- Interest on Home Loan on Self Occupied House –Tax benefits
- Buy home to reduce Income Tax burden
- Taxability of second House under Income Tax Act,1961
( I welcome Readers suggestions to Include more benefits under other provisions of the Act in above list)
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