IT : Where transactions were treated in nature of capital gain after making detailed inquiry in scrutiny, no reassessment would be sustainable
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[2014] 44 taxmann.com 212 (Gujarat)
HIGH COURT OF GUJARAT
Vinod Dhudalal Shah
v.
Assistant Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 763 OF 2014
FEBRUARY 11, 2014
Section 45, read with sections 28(i) and 147, of the Income-tax Act, 1961 - Capital gains - Chargeable as (Business income v. Capital gains - Share dealings) - Assessment year 2006-07 - In scrutiny assessment, specific query was raised with regard to treatment accorded to activity of sale-purchase of shares - Assessee specified that shares were treated as investment in books of account and not as stock in trade and, thus, activity of purchase and sale was not a trading activity but investment activity and gains on sale of such shares were capital gains and not business profit - Thus, there was no failure of assessee in furnishing information at time of original assessment, where transactions were treated in nature of capital gains after making detailed inquiry and when all facts that were necessary for purpose of assessment were before Assessing Officer - Whether issuance of notice of re-opening under section 148 beyond period of four years was not sustainable - Held, yes [Para 17] [In favour of assessee]
FACTS
| ■ | The assessee was director of a company that was engaged in the business of diamonds. | |
| ■ | The assessee's case was taken up in scrutiny assessment and specific query was raised with regard to treatment accorded to activity of sale-purchase of shares. | |
| ■ | The assessee submitted that shares had been treated as investment in the books of account and not as stock-in-trade and, thus, activity of sale-purchase of shares was not a trading activity but investment activity. Therefore, the gain on sale of such shares was capital gain and not business profit. | |
| ■ | Subsequent to passing of the assessment order, notice of reopening was issued on the ground that income chargeable to tax had escaped assessment. | |
| ■ | The assessee's case was that the very issue had been examined in original assessment procedure and, hence, notice of reopening beyond period of four years from end of the relevant assessment year was invalid. | |
| ■ | The Assessing Officer, however, proceeded by holding that there was failure on part of the assessee to disclose truly and fully all material facts and, therefore, such notice of reopening was valid. | |
| ■ | On Special Civil Application: |
HELD
| ■ | In the instant case notice of reopening is beyond the period of four years, it is incumbent upon the Assessing Officer to have the reasonable belief that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for the purpose of assessment. [Para 10] | |
| ■ | Beyond the period of four years, if, any notice of reopening of assessment is issued in absence of any failure on the part of the assessee to disclose fully and truly all material facts, the same would have no validity. In the original assessment proceedings, the Assessing Officer has examined the claim in detail. The queries were fully answered by the assessee. Thus, the action of reopening cannot be sustained in such circumstances. It can be seen from the reasons recorded and as rightly contended on behalf of the petitioner that there is nothing in the notice to indicate that the petitioner had failed in any manner to disclose fully and truly all material facts. From the notice itself, it becomes very clear that the Assessing Officer, on perusal of the case records, had formed his belief that the petitioner had been involved in the business of share trading by verifying the trading account, profit and loss account and balance-sheet. Assessing Officer formed the belief that the petitioner had made the transactions in the purchase and sale of shares, which is the business activity of the petitioner. It further gets culled out from the notice impugned that the very question which was raised at the time of original assessment has led him to issue the notice on the ground that the benefit of long-term capital gain as requested by the petitioner was wrongly availed and deduction under section 10(38) was not permissible. [Para 11] | |
| ■ | During the course of original assessment proceedings, the question was raised while calling for the information in question and the same had been replied to in specific terms by the assessee respondent. There is no ambiguity in the reply that was furnished which had led to subsequent query. On supply of the material the same culminated into the assessment order, where such version of the assessee that he had invested in the share and the same was not a part of his business activity had been accepted. [Para 12] | |
| ■ | As emerging clearly from the reasons recorded that, while issuing the notice of reopening, no mention is made to the fact that on the basis of any new material, the Assessing Officer had any reason to believe that the petitioner had not fully and truly disclosed all material facts. In other words, such notice is based on the material which was very much available before the Assessing Officer and he had examined the very issue threadbare while framing original assessment. [Para 13] | |
| ■ | In the facts and circumstances of the case, having found that there was no failure of the assessee in furnishing the information at the time of original assessment, where the transactions were treated in the nature of capital gain after making the detailed inquiry and when all facts necessary for the purpose of assessment were before the Assessing Officer, in absence of any failure of disclosure of fully and truly of all the material facts on the part of the petitioner assessee, it is to be opined that issuance of notice of reopening under section 148 is not sustainable. The petition, is accordingly, allowed. [Para 17] |
CASES REFERRED TO
Sun Pharmaceutical Industries Ltd. v. Dy. CIT [2013] 353 ITR 450/216 Taxman 41/29 taxmann.com 262 (Guj.) (para 14), Gujarat Lease Financing Ltd. v. Dy. CIT [2014] 360 ITR 496/219 Taxman 70/36 taxmann.com 359 (Guj.) (para 15) and Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (para 16).
Hardik V. Vora for the Petitioner. Sudhir M. Mehta for the Respondent.
ORDER
Ms. Sonia Gokani, J. - Present petition is preferred challenging the notice under section 148 dated 13.2.2013 in the following factual background:—
1.1 Assessee is the Director of M/s. S. Vinodkumar Diamonds Pvt. Ltd., engaged in the business of diamond. Interest is earned by the assessee from the income under the head income from other sources and capital gain from sale of shares. For the Assessment Year 2006-07 the return of income declared by the assessee was at Rs.1.51 lakhs (rounded off). The Assessing Officer in scrutiny assessment issued notice under section 143(2) of the Income Tax Act, 1961("the Act" for short) calling for information. Specific query was raised with regard to treatment accorded to the activities of investment in shares as investment and not as business in the table shown below:—
| Name of Scrip/Units | Quantity (Units) holding | Purchase date & quantity | Purchase amount | Sale date and quantity | Sale amount | Dividend received if any | Dividend date | STCG/STCL |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| *** | *** | *** | ||||||
| (d) | Reasoning behind the treatment of activities as investment and not as business. | |||||||
2. In reply to the said notice, the petitioner on 12.11.2008 specified that the share investment in the books of account has been treated as investment and not as stock-in-trade. In reply to the other queries, the assessee answered that the activity of purchase and sale is not a trading activity but investment activity, and therefore, the gain on sale of such shares is capital gain and not business profit.
3. In the assessment order passed on 28.11.2008 the nature of the business is shown as dealing in shares as the Director and the taxable income of the assessee for such year was computed after above discussion of the said income. It would be profitable to reproduce relevant portion of the said order :—
4. The assessee is a director M/s. S Vinodkumar Diamonds Pvt Ltd, engaged in the business of diamond. During the year, the assessee has shown interest income under income from other sources and exempted long-term capital gain from the sale of shares. Also short-term capital gain has been shown on account of sales of shares.
5. Perusing all the facts on record as well as considering the position of law, total income of the assessee is being accepted as under:—
Computation of Income
The taxable income of the assessee for the assessment year 2006-07 is being computed as follows:-
| Total Taxable Income | Rs. 1,51,31,103 |
4. On 13.2.2013 notice of reopening under section 148 of the Act for the Assessment Year 2006-07 has been issued under section 148 of the Act by the Assessing Officer inter alia stating that he has reason to believe that income chargeable to tax for the Assessment Year 2006-07 has escaped assessment within the meaning of section 147. The petitioner called for supply of detailed reasons recorded by the Assessing Officer and vide communication dated 1.8.2013 the Assessing Officer supplied the reasons for reopening.
5. The petitioner responded to such notice by furnishing his reply dated 28.10.2013, strongly objecting to such reopening by urging that his case was taken up in scrutiny assessment in the original assessment and the very issue had been examined by the Assessing Officer in the original assessment proceedings. He, therefore, had urged that any notice of reopening beyond the period of four years from the end of the relevant assessment year was invalid. Relying on various decisions, it was urged that the reopening of the assessment is erroneous and bad in law and needed to be terminated.
6. On considering the objections raised by the petitioner, the Assessing Officer disposed of the same vide its order dated 2.12.2013 by holding that there was failure on the part of the assessee to disclose truly and fully all material facts, and therefore, such notice of reopening was valid.
7. Aggrieved by such order of rejection of request of non-proceeding with the impugned notice and consequent proceedings present petition is preferred seeking following reliefs:—
| "a. | A Writ of Certiorari or any other writ, order or direction in the nature of certiorari quashing the impugned notice dated 13/02/2013 issued under section 148 of the act for the assessment year 2006-07; | |
| b. | Pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of re-assessment; | |
| c. | Pass any other order (s) as this Hon'ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner; | |
| d. | Any other and further relief deemed just and proper be granted in the interest of justice; | |
| e. | To provide for the cost of this petition." |
8. We have heard learned counsel Mr. Hardik Vora for the petitioner, who has strenuously urged that in the impugned notice dated 13.2.2013 for reopening of the assessment concerns previously framed assessment after scrutiny, there is not even a suggestion, according to the learned counsel, of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment in the said notice and therefore, such notice of reopening beyond the period of four years is without jurisdiction. He further pointed out from the material on record that the very issue was closely examined and finally adjudicated upon and hence, the notice impugned is nothing but a change of mind and hence, on jurisdictional aspect alone, the notice must fail.
9. Per contra, learned counsel Mr. Sudhir Mehta appearing for the revenue has defended the issuance of the said notice by pointing out that during the original assessment when the queries were raised, the same were dealt with very briefly. It cannot be said that the petitioner had fully and truly disclosed all the materials. He has further urged that the petitioner had made various transactions in the purchase and sale of the shares which clearly indicate that his was a business activity, and therefore, his claim of eligibility for long-term capital gain was wrongly allowed as deduction under section 10(38) of the Act when in fact, shares held by him was a part of his business stock, as his main activity was of share trading. Such disclosure, if would have come on the record, clearly there was no question of allowing the benefit of long-term capital gain in the original assessment.
10. Upon hearing both the sides, and examination of the material on record, it could be noticed, at the outset, that notice of reopening is beyond the period of four years, and therefore, it is incumbent upon the Assessing Officer to have the reasonable belief that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for the purpose of assessment.
11. Beyond the period of four years, if, any notice of reopening of assessment is issued in absence of any failure on the part of the assessee to disclose fully and truly all material facts, the same would have no validity. In the original assessment proceedings, the Assessing Officer, if has examined the claim in detail after raising the queries fully answered by the assessee, such action of reopening cannot be sustained in such circumstances. It can be seen from the reasons recorded and as rightly contended on behalf of the petitioner that there is nothing in the notice to indicate that the petitioner had failed in any manner to disclose fully and truly all material facts. From the notice itself, it becomes very clear that the Assessing Officer, on perusal of the case records, had formed his belief that the petitioner had been involved in the business of share trading by verifying the trading account, profit and loss account and balance-sheet. Assessing Officer formed the belief that the petitioner had made the transactions in the purchase and sale of shares, which is the business activity of the petitioner. It further gets culled out from the notice impugned that the very question which was raised at the time of original assessment has led him to issue the notice on the ground that the benefit of long-term capital gain as requested by the petitioner was wrongly availed and deduction under section 10(38) of the Act was not permissible.
12. It is eloquent from the record that during the course of original assessment proceedings, the question was query (sic) raised while calling for the information in question and the same, had been replied to in specific terms by the assessee respondent. There is no ambiguity in the reply that was furnished nor is it the case of the revenue nor the same had led to subsequent query. On supply of the material on 12.11.2008, the same culminated into the assessment order on 28.11.2008, where such version of the assessee that he had invested in the share and the same was not a part of his business activity had been accepted.
13. As emerging clearly from the reasons recorded while issuing the notice of reopening, no mention is made to the fact that on the basis of any new material, the Assessing Officer had any reason to believe that the petitioner had not fully and truly disclosed all material facts. In other words, such notice is based on the material which was very much available before the Assessing Officer and he had examined the very issue threadbare while framing original assessment.
14. This Court in the case of Sun Pharmaceutical Industries Ltd. v. Dy. CIT [2013] 353 ITR 450/216 Taxman 41/29 taxmann.com 262 (Guj.) was examining the validity of notice of reassessment issued after the expiry of period of four years, where it held that the notice of reopening of an assessment must be adjudged on the basis of the reasons recorded while issuing the notice. If a new ground occurs to the Assessing Officer after he has recorded the reasons for reopening the assessment and issue notice for this purpose, the same cannot be ground to support the notice of reopening. Reasons other than those on the basis of which notice was issued cannot be considered while examining the validity of such notice and the same essentially and materially requires to be dealt on the basis of recorded reasons.
15. In the case of Gujarat Lease Financing Ltd. v. Dy. CIT [2014] 360 ITR 496/219 Taxman 70/36 taxmann.com 359 (Guj.) has elaborately discussed all judicial pronouncement on the issue of reopening of assessment beyond the period of four years. It is well settled position of law that the assessee is required to disclose fully and truly all material facts necessary for the purpose of his assessment and any omission or failure to disclose all material facts necessary for his assessment amounts to failure on the part of the assessee. What facts are material would differ in each case. The assessee is to disclose primary facts and not inferential facts. From the primary facts and other facts inferred from material, proper legal conclusion is to be drawn by the authority. As held over the period of time by the Courts that the object is to ensure that no harassment is meted out to the assessee by mechanically reopening the assessment.
16. The Apex Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 has held that in a case of reopening of the assessment beyond the period of four years, two conditions are required to be fulfilled. Simultaneously (1) Whether the Income Tax Officer must have reason to believe that income from profit and gains chargeable to tax have been under-assessed (2) Such under-assessment has occurred on account of omission or failure on the part of the assessee to make the return of his income or disclose fully and truly all material facts necessary for assessment for that particular year. For fulfillment of such conditions which are conditions precedent, jurisdiction is conferred upon the Assessing Officer for issuance of notice under section 148. All material facts are necessary to be disclosed by the assessee and what are the material facts necessary for the purpose of determining assessment would differ in each case as discussed hereinabove.
17. In the facts and circumstances of the case, having found that there was no failure of the assessee in furnishing the information at the time of original assessment, where the transactions were treated in the nature of capital gain after making the detailed inquiry and when all facts necessary for the purpose of assessment were before the Assessing Officer, in absence of any failure of disclosure of fully and truly of all the material facts on the part of the petitioner assessee, we are of the opinion that issuance of notice of reopening under section 148 of the Act is not sustainable. Petition, is accordingly, allowed quashing the very notice and subsequent proceedings undertaken pursuant to such notice.
SBEnhancement in the rate of various allowances by 25% as a result of enhancement of Dearness allowance upto 100% w.e.f 01.01.2014.
Government of India/Bharat Sarkar
Ministry of Railways /Rail Mantraraya
(Railway Board)
Ministry of Railways /Rail Mantraraya
(Railway Board)
PC-VI No. 336
RBE No. 39/2014
RBE No. 39/2014
No.F(E)1/2011/AL-28/18
New Delhi, dated 29.04.2014
The General Managers,
All Indian Railways etc.
(As per Standard Mailing List)
All Indian Railways etc.
(As per Standard Mailing List)
Sub: Enhancement in the rate of various allowances by 25% as a result of enhancement of Dearness allowance upto 100% w.e.f 01.01.2014.
In accordance with the recommendations of 6th CPC, the rates of various allowances admissible to different categories of railway staff were revised/doubled. The 6th CPC had also recommended that the rates of these
allowances will be increased by 25% every time the Dearness Allowance goes up by 50%. Railway Board, accordingly, issued instructions in respect of increase in rates of various allowances by 25% vide Board's letter of even number dated 13.06.2011.
In accordance with the recommendations of 6th CPC, the rates of various allowances admissible to different categories of railway staff were revised/doubled. The 6th CPC had also recommended that the rates of these
allowances will be increased by 25% every time the Dearness Allowance goes up by 50%. Railway Board, accordingly, issued instructions in respect of increase in rates of various allowances by 25% vide Board's letter of even number dated 13.06.2011.
2. Subsequent to enhancement in the rate of Dearness Allowance to 100% w.e.f. 01.01.2014 queries are being received from some of the Railways regarding further enhancement of rates of these allowances. The matter has been examined and It is clarified that the rates of allowances listed in the enclosed Annexure shall increase by a further 25% (over original 6th CPC rate prescribed by Ministry of Railways) with Dearness Allowance now having gone up to 100% w.e.f. 01.01.2014.
3. The terms and conditions for grant of these allowances will remain the same.
4. Hindi version is enclosed.
5. Kindly acknowledge receipts
DA: as above
(Amir Chand Jain)
Dy. Dirs Finance(Estt)
Railway Board
Railway Board
LIST OF THE VARIOUS ALLOWANCES THAT STAND REVISED W.E.F. 01.01.2014 ON ACCOUNT OF ENHANCEMENT IN THE RATE OF DA TO 100%
| Sl. No. | Name of Allowance | Authority number and date |
| 1. | Daily Allowance | F(E)I/2008/AL-28/14 dated 01.12.2008 (Para 3 of the Annexure to the letter) |
| 2. | Mileage for road journey by taxi/own car/auto-rickshaw/own scooter/bicycle etc. | F(E)I/2008/AL-28/14 dated 01.12.2008 (para 2 D (b) and (c) of the Annexure to the letter |
| 3. | Road Mileage Allowance and rates for transportation of House-hold effects on transfer | F(E)1/2008/AL-28/15 dated 01.12.2008 (Para A (3) & (4) and para C of the Annexure to the letter) |
| 4. | Fixed Conveyance Allowance | F(E)I/2008/AL-7/3 dated 03.10.2008 |
| 5. | Cycle Maintenance Allowance | F(E)I/2008/AL-7/2 dated 18.09.2008 |
| 6. | Washing Allowance | F(E)I/2008/AL-29/1. dated 30.09.2008 |
| 7. | Special Compensatory (Scheduled/ Tribal Area)Allowance | F(E)I/2008/AL-4/7 dated 18.09.2008 |
| 8 | Special Compensatory (Hill Area) Allowance | F(E)1/2008/AL-4/4 dated 16.09.2008 |
| 9. | Special Compensatory (Bad Climate) Allowance | F(E)1/2008/AL4/5 dated 16.09.2008 |
| 10. | Special Compensatory (Remote Locality) Allowance | F(E)I/2008/AL-4/6 dated 22.09.2008 |
(Amir Chand Jain)
Dy. Dir. Finance(Estt.)
Railway Board
Dy. Dir. Finance(Estt.)
Railway Board
Clarification on increase in certain allowances by further 25% as a result of enhancement of Dearness Allowances w.e.f. 1.1.2014
No.A-27012/1/2014-Estt. (Allowance)
Government of India
Ministry of Personnel, Public Grievances and Pension
Department of Personnel & Training
Government of India
Ministry of Personnel, Public Grievances and Pension
Department of Personnel & Training
Block-IV, Old JNU Campus
New Delhi, 28th April, 2014.
New Delhi, 28th April, 2014.
OFFICE MEMORANDUM
Subject: Clarification on increase in certain allowances by further 25% as a result of enhancement of Dearness Allowances w.e.f. 1.1.2014 —
The undersigned is directed to refer to para 1(j) of this Department's O.M. No.12011/03/2008-Estt (Allowance) dated 2.9.2008. This provides that the limits of Children Education Allowance would be automatically raised by 25% every time the Dearness Allowance on the revised pay structure goes up by 50%. References are being received from various quarters with regard to the amount of Children Education Allowance admissible consequent upon enhancement of Dearness Allowance payable to Central Government employees @ 100% w.e.f. 1st January, 2014 announced vide Ministry of Finance, Department of Expenditure O.M. No.1/1/2014-E-II (B) dated 27th March, 2014.
2. In accordance with the above, the following shall be the revised limits:
a) The annual ceiling Unlit for reimbursement of Children Education Allowance shall be Rs. 18,000/- per child. Accordingly, the quarterly claim could be more than Rs.4500/- in one quarter. The Hostel Subsidy shall be Rs.4500/- per month per child;
b) The rates of Special Allowance for Child Care to women with disabilities stands revised to Rs. 1500/- per month; and
c) The annual ceiling for reimbursement of Children Education Allowance for disabled children of Government employees shall be treated as revised to Rs.36,000/- per annum per child and the rates of Hostel Subsidy for disabled children of Government employees shall be treated as revised to Rs.9000/- per child per month.
3.These revisions are applicable with effect from 1stJanuary, 2014
4. These revisions shall be subject to other terms and conditions mentioned in this Department's O.M. No.12011/03/2008-Estt (Allowance) dated 2.9.2008, O.M. No.12011/04/2008 dated 11.9.2008 and 12011/07(0/2011-Estt.(AL) dated 21.2.2012.
(Mukul Ratra)
Director
Te1:26164314
Director
Te1:26164314
IT : In case of a charitable trust, it is only income from investment or deposit which has been made in violation of section 11(5) that is liable to be taxed and that violation under section 13(1)(d) does not tantamount to denial of exemption under section 11 on total income of assessee-trust
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[2014] 44 taxmann.com 275 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax
v.
Fr. Mullers Charitable Institutions*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NOS. 588 & 589 OF 2007†
FEBRUARY 10, 2014
Section 13, read with section 11, of the Income-tax Act, 1961 - Charitable or religious trust - Denial of exemption (Sub-section (1)(d)) - Assessment years 2000-01 and 2001-02 - Whether in case of a charitable trust, it is only income from investment or deposit which has been made in violation of section 11(5) that is liable to be taxed and that violation under section 13(1)(d) does not tantamount to denial of exemption under section 11 on total income of assessee-trust - Held, yes [Para 11][In favour of assessee]
FACTS
| ■ | The assessee was a charitable trust running a large number of institutions. It had obtained exemption under sections 11 and 12. | |
| ■ | For the relevant assessment years the assessee filed 'Nil' return of income claiming exemption of income. | |
| ■ | During the course of enquiry, the Assessing Officer noticed that the assessee-trust had advanced certain amount to 'J' Ltd. which was running Kannada daily known as JANAVAHINI. | |
| ■ | The Assessing Officer opined that advancing of such a huge amount was in violation of section 11(5). Hence, the assessee was not entitled for exemption for the said amount. | |
| ■ | The Commissioner in exercise of his suo-motu power under section 263 passed a revisional order holding that Assessing Officer ought to have assessed the total income of the trust under section 13(1)(d) and not only the amount advanced to 'J' Ltd. | |
| ■ | The Tribunal, however, held that the order passed by the Commissioner was contrary to section 164(2) and the entire income of the assessee could not be assessed. The Tribunal also held that invoking of power under section 263 was contrary to law as every error committed by the Assessing Authority could not be corrected by invoking section 263. | |
| ■ | Accordingly, the Tribunal set aside the order passed by the Commissioner and restored the order passed by the Assessing Officer. |
On revenue's appeal:
HELD
| ■ | Firstly, as regards validity of revisional order passed by the Commissioner, the law is well settled that if one of the requirements for satisfaction of taking action under section 263 is absent, then recourse cannot be made to section 263. The Commissioner cannot invoke his revisional power to correct each and every type of mistakes committed by the Assessing Officer. Accordingly, the Tribunal was correct in holding that when two views are possible and if one view is taken by the Assessing Officer the same cannot be set aside by the Commissioner exercising the power under section 263. [Para 10] | |
| ■ | Coming to the merits of the case, reading of section 13(1)(d) makes it clear that it is only the income from such investment or deposit which has been made in violation of section 11(5) that is liable to be taxed and that violation under section 13(1)(d) does not tantamount to denial of exemption under section 11 on the total income of the assessee-trust. [Para 11] | |
| ■ | A similar view has been taken by the Delhi High Court in a judgment DIT v. Agrim Charan Foundation [2002] 253 ITR 593/[2001] 119 Taxman 569. A reading of the proviso to section 142 (sic- section 164) is very clear that the legislature has clearly contemplated that in a case, where the whole or part of the relevant income is not exempted under section 11 by virtue of violation of section 13(1)(d), tax shall be levied on the relevant income or a part of the relevant income at the maximum marginal rate. The said analogy is applicable to the facts of the present case. [Para 11] | |
| ■ | In view of above, it can be concluded that for violating section 11(5) entire income of the assessee-trust cannot be assessed to tax. [Para 12] | |
| ■ | Thus, there is no infirmity or irregularity in the order passed by the Tribunal restoring the order passed by the Assessing Authority. [Para 13] |
CASES REFERRED TO
DIT (Exemption) v. Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533/114 Taxman 19 (Bom.) (para 6), DIT v. Agrim Charan Foundation [2002] 253 ITR 593/[2001] 119 Taxman 569 (Delhi) (para 6), Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (para 9) and Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.) (para 9).
E.R. Indrakumar and E. Sanmathi Indra Kumar for the Appellant. S. Parthasarathi for the Respondent.
JUDGMENT
B. Manohar, J. - The revenue has preferred these two appeals under Section 260-A of the Income Tax Act, 1961 (for short 'the Act') being aggrieved by the common order dated 27-2-2007 made in ITA Nos.187 & 188/Bang/2006 passed by the Income Tax Appellate Tribunal, Bangalore Bench 'B' (hereinafter referred to 'the Tribunal') wherein the Tribunal had allowed the appeal filed by the respondent-assessee setting aside the order passed by the Commissioner of Income Tax, Mangalore under Section 263 of the Act upholding the order passed by the Assessing Officer for the assessment years 2000-01 and 2001-02.
2. The facts leading to the filing of these two appeals are as follows:
The respondent-assessee is a Charitable Trust running a large number of Institutions such as Fr. Muller General Hospital, Fr. Muller Medical College, Fr. Muller Homeopathy Medical College, Pharmaceutical Division, St. Johns Leprosy Hospital, Rehabilitation Unit and Father Muller College of Nursing. The assessee-Trust claimed exemption under Section 11 of the Act. For the assessment year 2000-01 and 2001-02, the assessee filed 'Nil' return of income on 31-10-2001 claiming exemption of income. On the basis of tax evasion petition received by the Additional Commissioner of Income Tax, an enquiry was conducted and notice under Section 148 of the Act was issued for both assessment years. During the course of enquiry, the Assessing Officer noticed that the assessee-Trust had advanced a sum of Rs.30,00,000/- during the assessment year 2000-01 and a sum of Rs.50,00,000/- during the assessment year 2001-02 respectively to M/s. Janamadhyama Prakashana Limited which was running Kannada daily known as JANAVAHINI. Before the Assessing Officer, the assessee has contended that the said amount was advanced to M/s. Janamadhyama Prakashana for the purpose of advertisement, printing and publicity of the programmes of the Trust. The Assessing Officer on verification of the records and the balance sheet of the Trust found that the said amount was mentioned under the head loans and advance'. Advancing of the such a huge amount is in violation of Section 11(5) of the Act. Hence, the assessee is not entitled for exemption for the said amount. Accordingly, the Assessing Officer by giving elaborate reasons by its assessment order dated 29-5-2005 held that the amount given to M/s. Janamadhyama Prakashana Limited as advance infringes provision of Section 11(5) of the Act. Hence, the said amount is liable to be taxed. The assessee being aggrieved by the assessment order passed by the Assessing Officer preferred an appeal in F.No.1/263/CIT/MNG/2005-06 before the Commissioner of Income Tax (Appeals), Mangalore ('CIT for short). When the said appeal was pending before the CIT, the Commissioner in exercise of his suo-motu power under Section 263 of the Act issued show cause notice stating that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue and Assessing Officer ought to have assessed the total income of the Trust under Section 13(1)(d) of the Act and not only the amount advanced to M/s. Janamadhyama Prakashana Limited.
3. In pursuance of the notice issued by the Commissioner, an authorized representative of the assessee entered appearance and filed objections. The Commissioner of Income Tax after considering the matter in detail found that in violation of Section 11(5), a sum of Rs. 80,00,000/- was advanced to M/s. Janamadhyama Prakashana Limited, which was a sinking company. Subsequently, the said Prakashana was closed down. In view of Section 13(1)(d) of the Act, total income of the Trust has to be assessed for the tax in view of the said violation. The Commissioner by an order dated 27-12-2005 held that the assessment order dated 29-03-2005 passed by the Assessing Officer is erroneous and prejudicial interest of the revenue. Accordingly, set aside the assessment order passed by the Assessing Authority with a direction to the Assessing Officer to assess the entire income of the respondent-assessee after giving opportunity of hearing. The assessee being aggrieved by the order dated 27-12-2005 preferred an appeal before the Tribunal. The Tribunal after considering the matter in detail and on examining Sections 11, 12, 13(1)(d) and Section 164(2) of the Act held that the order passed by the Commissioner of Income Tax is contrary to Section 164(2) of time Act and the entire income of the respondent-assessee cannot be assessed. The Tribunal also held that invoking of power under Section 263 is contrary to law and every error committed by the Assessing Authority cannot be corrected by invoking Section 263 of the Act. Accordingly set aside the order passed by the Commissioner of Income Tax and restored the order passed by the Assessing Officer. The revenue being aggrieved by the order passed by the Tribunal, filed this appeal.
4. The appeal was admitted to consider the following substantial questions of law:
| (i) | Whether the Tribunal was correct in holding that when two view are-.possible and if one view is taken b the Assessing Officer the same cannot be set aside by the Commissioner of Income Tax exercising the power under Section 263 when the said view is prejudicial to the interest of the revenue? | |
| (ii) | Whether the Tribunal is correct in holding that when a part of income is held to be violative of the provisions of Section 13(1)(d) only to the said extent maximum marginal rate of tax is to be levied and not for 'the whole income more particularly when there is violation of provisions of Section 11(5) of the Act? | |
| (iii) | Whether the proviso to Section 164(2) of the IT Act is applicable to the facts of the case when there is no "income derived from the property"?' |
5. Sri. E.R. Indra Kumar, learned Senior Counsel appearing for the revenue contended that the order passed by the Tribunal setting aside the order passed by the Commissioner of Income Tax is contrary to law. The Tribunal has failed to consider the fact that if the case is covered under Section 13(1) of the Act, nothing contained in Section 11 or 12 shall operate to exclude from the total income of the previous year of a person in receipt thereof. Once the Assessing Officer holds that the assessee has contravened the provision of Section 13(1)(d), the Assessing Officer should have held the entire income of the Trust as taxable. The reason assigned by the Tribunal for; setting aside the order passed by the Commissioner is contrary to law. Further, under Section 263 of the Act, if the Commissioner is of the opinion that any order passed is erroneous insofar as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard, pass such order, as the circumstances of the case justifies. In the instant case, the Commissioner, exercising his revisional power, corrected the order passed by the Assessing Officer which was prejudicial to the interest of the revenue. The finding of the Tribunal that the Commissioner has erroneously invoked the revisional power is contrary to law and sought for setting aside the same.
6. On the other hand, Sri. S. Parthasarathi, learned counsel appearing for the assessee argued in support of the order passed by the Tribunal and contended that in view of Section 164(2) of the Act, the entire income of the Trust cannot be brought to tax. Further, on the basis of the opinion of the Commissioner, the power under Section 263 cannot be invoked to correct each and every type of mistakes and error committed by the Assessing Officer. Sri. S. Parthasarathi, relied upon following judgments in the case of DIT (Exemptions) v. Sheth Mafatlal Gagalbhai Foundation Trust [2001] 249 ITR 533/114 Taxman 19 (Bom.) and in the case of DIT v. Agrim Charan Foundation [2002] 253 ITR 593/[2001] 119 Taxman 569 (Delhi) and sought for dismissal of the appeal.
7. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders impugned in these appeals.
8. The records clearly disclose that the respondent- assessee is administering number of institutions and it had obtained exemption under Section 11 and 12 of the Act. The assessee filed Nil return of income for the aforesaid assessment years. On the basis of the tax evasion petition, an-enquiry was conducted and during the course of assessment proceedings, the Assessing Officer noticed that the respondent-Trust advanced a sum of Rs.30,00,000/- during the assessment year 2000-01 and advanced another sum of Rs.50,00,000/-during the assessment year 2001-02 to M/s. Janamadhyama Prakashana Limited, which was running a Kannada daily known as "Janavahini". In the balance sheet of the respondent-Trust, the said amounts were mentioned under the head known as "loans and advances". The Charitable Institution, advancing loan amount to M/s. Janamadhyama Prakashana Limited and obtaining exemption in payment of income tax is in violation of Section 11(5) of the Act. As per Section 13(1)(d), income of the Trust shall not be entitled for exemption under Sections 11 and 12 of the Act. Accordingly, the Assessing Officer assessed the advance made to M/s. Janamadhyama Prakashana Limited for tax Being aggrieved by the said assessment order, the respondent-assessee preferred an appeal before the Commissioner of Income Tax. The Commissioner of Income Tax, after verification of the records of the Assessing Officer found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Accordingly, initiated the proceedings under Section 263 of the Act. The Commissioner was of the opinion that in view of violation of Section 11(5), the entire income of the respondent-Trust ought to have been assessed and they are not entitled for any exemption under Sections 11 and 12 of the Act and revised the order passed by the Assessing Officer. The said order was questioned before the Tribunal. The Tribunal allowed the appeals and set aside the order passed by the Commissioner of Income Tax under Section 263 of the Act. Being aggrieved by the said order, the revenue preferred these two appeals.
9. The first substantial question of law framed in this appeal with regard to power of Commissioner under Section 263 of the Act is no more res-Integra. The Division Bench of this Court in ITA No.30/2006 considered the power of the Commissioner to exercise his suo-motu power under Section 263, taking into consideration various judgments of the Hon'ble Supreme Court reported in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 and another judgment reported inDawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.). The Division Bench of this Court in ITA No.30/2006 in Paragraph 16 has held as under:
"16. As is clear from the wording in Section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act, if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. Prejudicial to the Revenue means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the Assessing Authority if the lawful revenue to the State has not been realized or cannot be realized, as the said order is prejudicial to the interest of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under Section 263. Therefore, for attracting Section 263, the condition precedent is (a) the order of Assessing Officer sought to be revised is erroneous and (b) it is prejudicial to the interest of the Revenue. If one of them is absent, i.e., if the order of the Income tax officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to Section 263(1) of the Act. The satisfaction of both the conditions stipulated in the Section is sine quo non for the Commissioner to exercise his jurisdiction under Section 263."
10. We respectfully agree with the order passed by the Division Bench of this Court. The law declared by the Hon'ble Supreme Court made it very clear that if one of the requirements for satisfaction of taking action under Section 263 of the Act is absent, then recourse cannot be made to Section 263 of the Act. The Commissioner cannot invoke his revisional power to correct each and every type of mistakes committed by the Assessing Officer. Accordingly, the first substantial question of law is held against the revenue and in favour of the assessee.
11. With regard to second and third substantial questions of law are concerned, reading of Section 13(1)(d) of the Act makes it clear that it is only the income from such investment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed and that violation under Section 13(1)(d) does not tantamount to denial of exemption under Section 11 on the total income of the assessee. An identical question came before the Bombay High Court in the case reported in Sheth Mafatlal Gagalbhai Foundation Trust (supra). The question before the Bombay High Court is "Whether violation of Section 11(5) r/w Section 13(1)(d) by the assessee-Trust attracts maximum marginal rate of tax on the entire income of the Trust? The Bombay High Court held that in case of contravention of Section 13(1)(d), maximum marginal rate of tax under Section 164(2), proviso is applicable only to that part of income of the Trust which has forfeited exemption and not the entire income. Relevant paragraph reads as under:
"Sec. 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes. If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of an AOP. Therefore, a proviso was inserted by the Finance Act, 1984 w.e.f 1st April 1985, under which in cases where the whole or any part of the relevant income is not exempt under s. 11 or s.12 because of the contravention of s.13(1)(d),the tax shall be charged on such income or part thereof, as the case may be, at the maximum marginal rate. In other words, only the non-exempt income portion would fall in the net of tax as if it was the income of an AOP. The phrase 'relevant income or part of the relevant income' in the proviso is required to be read in contradistinction to the phrase 'whole income' under s. 161(1A). This is only by way of comparison. Under s. 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, the tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases shows that the legislature has clearly indicated its mind in the proviso to s. 164(2) when it categorically refers to forfeiture of exemption for breach of s.13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has for forfeited exemption. It does not refer to the entire income being subjected to maximum, marginal rate of tax. This interpretation is also supported by Circular No.387, dt. 6th July, 1984. Vide the said Circular, it has ' been laid down in para 28.6 that where a trust contravenes s.13(1)(d), the maximum marginal rate of Income-tax will apply only to that part of the income which has forfeited exemption wider the said provision and not to the entire income. There is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. In the circumstances, there is merit in the contention of the assessee that in the present case the maximum marginal rate of tax will apply only to the divided income from shares held in contravention of s.13(1)(a) and not to the entire income. Therefore, income other than dividend income shall be taxed at normal rate of taxation under the Act."
A similar view has been taken by the Delhi High Court in a judgment reported in Agrim Charan Foundation (Supra).
Reading of the proviso to Section 142 is very clear that the legislature has clearly contemplated that in a case, where the whole or part of the relevant income is not exempted under Section 11 by virtue of violation of Section 13(1)(d) of the Act, tax shall be levied on the relevant income or a part of the relevant income at the maximum marginal rate. The said analogy is applicable to the facts of the present case.
12. We are in respectful agreement with the views expressed by the Bombay High Court as well as Delhi High Court for violating Section 11(5) of the Act and the entire income of the respondent-Trust cannot be assessed for the tax.
13. We do not find any infirmity or irregularity in the order passed by the Tribunal restoring the order passed by the Assessing Authority. Accordingly, both second and third substantial questions of law are answered against the revenue and in favour of the assessee. Accordingly, both the appeals are dismissed.
SUNIL*In favour of assessee.
IT: In terms of sub-section (12) of section 80-IB, it is not necessary that deduction has to be allowed only where transfer of unit/industrial undertaking is under scheme of amalgamation or demerger
IT: Where pursuant to agreement of transfer of industrial undertaking, assessee started using building, plant and machinery and other assets belonging to industrial undertaking in its own right, assessee's claim for depreciation in respect of assets forming part of industrial undertaking could not be rejected merely on ground that land on which said undertaking was situated, had not been transferred to assessee during assessment year in question
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[2014] 44 taxmann.com 273 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax, Bangalore
v.
WeP Peripherals Ltd.*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NO. 662 OF 2007†
MARCH 10, 2014
I. Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings (Transfer of industrial undertakings) - Assessment year 2001-02 - Whether in terms of sub-section (12) of section 80-IB, it is not necessary that deduction has to be allowed only where transfer of unit/industrial undertaking is under scheme of amalgamation or demerger - Held, yes [Para 5] [In favour of assessee]
II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of (Industrial undertaking) - Assessment year 2001-02 - One 'W' transferred running unit/industry including building, plant and machinery to assessee and since date of transfer, assessee started running unit/industrial undertaking as owners - Subsequently, a lease agreement was executed by KIADB in favour of assessee whereby land was transferred in favour of assessee - Assessee filed its return claiming depreciation on assets forming part of industrial undertaking - Assessing Officer rejected assessee's claim holding that ownership rights over land were not transferred in favour of assessee in assessment year in question - Tribunal, however, allowed assessee's claim - Whether since assessee had been using building, plant and machinery and other assets belonging to industrial undertaking in its own right for purpose of business from date of transfer of undertaking by 'W', assessee's claim for depreciation was rightly allowed by Tribunal - Held, yes [Para 8] [In favour of assessee]
FACTS-I
| ■ | One 'W' after taking the plot of land on lease from Karnataka Industrial Areas Development Board, constructed the building and started the unit/industrial undertaking sometime in 1992-93. | |
| ■ | 'W' started claiming and was getting deduction under section 80-IB from 1-4-1993. As provided for under sub-section (3) of section 80-IB 'W' was entitled to seek deduction for a period of 10 years, i.e., the period between 1-4-1993 and 31-3-2003. | |
| ■ | Before expiry of period of ten years, the assessee purchased the building, plant and machinery from 'W' by an agreement to sell dated 30-8-2000. | |
| ■ | After the transfer, the assessee also claimed deduction, because the period of ten years had not expired as contemplated under section 80-IB. | |
| ■ | The Assessing Officer disallowed the deduction on the ground that the transfer of business by 'W' to the assessee was not through amalgamation as contemplated by sub-section (12) of section 80-IB. | |
| ■ | The Commissioner (Appeals) confirmed the order of the Assessing Officer. | |
| ■ | The Tribunal, however, allowed the assessee's claim for deduction. | |
| ■ | On revenue's appeal: |
HELD-I
| ■ | The expressions employed in sub-section (1) of section 80-IB are 'any business', 'such business' and 'eligible business' read with expression 'in the case of an industrial undertaking' as occur in sub-section (3) of section 80-IB, thus, it is a clear indication that the deduction contemplated under this provision is relatable to the unit/business/industrial undertaking. Therefore, whosoever is running the unit/industrial undertaking having domain over it, is entitled for deduction as contemplated by section 80-IB. [Para 4] | |
| ■ | Insofar sub-section (12) of section 80-IB is concerned, that is applicable only in the case, were there is an amalgamation or demerger. That does not mean that a transferor of industrial undertaking by any other mode is not entitled to claim deduction under section 80-IB. In other words, it would not be correct to say that deduction under section 80-IB is available only where transfer of the unit/industrial undertaking is under the scheme of amalgamation or demerger. It is not in dispute that the unit/industrial undertaking, in the present case, enjoyed the deduction under section 80-IB from 1-4-1993 till 30-8-2000, i.e., till the unit/industrial undertaking was transferred to the assessee. [Para 5] | |
| ■ | It is in this view of the matter there is no reason to interfere with the order passed by the Tribunal allowing the claim of the assessee. [Para 6] |
CASES REFERRED TO
Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC) (para 7) and Tamilnadu Civil Supplies Corpn. Ltd. v. CIT [1997] 228 ITR 399/[1999] 96 Taxman 463 (Mad.) (para 8).
Jeevan J. Neeralgi for the Appellant. Smt. S.R. Anuradha for the Respondent.
ORDER
Dilip B. Bhosale, J. - This Income Tax Appeal is directed against the order of the Income Tax Appellate Tribunal, Bangalore Bench-A (for short 'the Tribunal'), in ITA No.421/2005 pertaining to the assessment year 2001-02, whereby, the Tribunal allowed the appeal filed by the respondent-assessee. The appeal before the Tribunal, filed by the assessee was against the order dated 03.02.2005 passed by the Commissioner of Income Tax (Appeals)-III, (for short 'CIT(A)') in ITA No.77/AC12(3)/CIT (A)III/2004-05. The appeal before the CIT(A) was directed against the assessment order under Section 143(3) of the Income Tax Act, 1961 (for short 'the Act') dated 11.10.2004 passed by the Assistant Commissioner of Income Tax (for short 'the Assessing Officer').
2. The revenue has raised the following substantial questions of law:—
| "(i) | Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that under Section 80IB, deduction is allowable? | |
| (ii) | Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the land and factory building, agreed to be purchased from M/s. Wipro Ltd., which had a right under a lease cum sale agreement, would be entitled to depreciation under Section 32(1) of the Act?" |
3. The factual matrix that is necessary for deciding this appeal is that, the assessee purchased the building, plant and machinery from one M/s. Wipro Ltd., by an agreement to sale dated 30 08.2000. When the assessee purchased the building, plant and machinery, it was a running unit/industrial undertaking. The transferor-Wipro, after taking the plot of land on lease from Karnataka Industrial Areas Development Board (for short "KIADB") constructed the building and started the unit/industrial undertaking sometime in 1992-93. They started claiming and were getting deduction under Section 80IB of the Act from 01.04.1993. As provided for under sub-section (3) of Section 80IB, they were entitled to seek deduction for a period of 10 years i.e., the period between 01.04.1993 and 31.03.2003. Before expiry of the period of ten years, the unit/industrial undertaking was transferred, as afore-mentioned, to the assessee, vide agreement to sale dated 30.08.2000. After the transfer, assessee also claimed deduction, since the period of ten years had not expired as contemplated under Section 80IB. Admittedly, the transferor-Wipro had enjoyed the deduction till 31.03.2001. The Assessing officer, however, disallowed the deduction on the ground that the transfer of business by Wipro to the assessee was not through Amalgamation as contemplated by sub-section (12) of Section 80IB. In other words, the Assessing officer held that unless there is transfer of business through Amalgamation, the transferee, such as the assessee in the present case, is not entitled for deduction under Section 80IB. The order of the Assessing officer was carried in appeal by the assessee. The assessee relied upon the Board circular which says that deduction is relatable to the unit. Since the Board circular was issued in the context of old provision namely, section 84 of the Act, the CIT(A) did not give benefit to the assessee. The Tribunal, however, granted that benefit to the assessee and consequently, allowed the deduction for the assessment year 2001-02. It is in this backdrop, we have perused the relevant part of Section 80IB, which reads thus:—
"80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings.—(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-section (3) to [(11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section.
(3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a cooperative society) beginning with the initial assessment year subject to the fulfilment of the following conditions, namely:—
| (i) | it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may, by notification in the Official Gazettee, specify with reference to any particular undertaking; | |
| (ii) | where it is an industrial undertaking being a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant (not specified in sub-section (4) or sub-section (5) at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, [2002]. |
(12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger—"
4. The expressions employed in sub-section (1) of Section 80IB "any business", "such business" and "eligible business" read with expression "in the case of an industrial undertaking" as occur in sub-section (3) of Section 80IB, in our opinion, it is a clear indication that the deduction contemplated under this provision is relatable to the unit/business/industrial undertaking. Therefore, whosoever is running the unit/industrial undertaking having domain over it, is entitled for deduction as contemplated by Section 80IB of the Act.
5. Insofar sub-section (12) of Section 80IB of the Act is concerned, that is applicable only in the case, where there is an Amalgamation or demerger. That does not mean that a transferor of industrial undertaking by any other mode is not entitled to claim deduction under Section 80IB. In other words, it would not be correct to say that deduction under Section 80IB is available only where transfer of the unit/industrial undertaking is under the scheme of amalgamation or demerger. It is not in dispute that the unit/industrial undertaking, in the present case, enjoyed the deduction under Section 80IB from 01.04.1993 till 30.08.2000 i.e., till the unit/industrial undertaking was transferred to the assessee.
6. It is in this view of the matter, we do not find any reason to interfere with the findings recorded by the Tribunal allowing the claim of the assessee. Hence, the first substantial question of law is answered in favour of the assessee and against the revenue.
7. Insofar as second substantial question of law is concerned, what we find from the admitted facts is that the transferor-Wipro, transferred running unit/industry includes building, plant and machinery to the assessee and since the date of transfer, the assessee started running the unit/industrial undertaking as owners. The agreement to sale to that effect was executed by Wipro in favour of the assessee on 30.08.2000. It has come on record that thereafter, a lease agreement was executed by the KIADB in favour of the assessee on 30.12.2003 and then the sale deed on 26.05.2009. The execution of the lease agreement dated 30.12.2003 by the KIADB or the sale deed dated 26.05.2004 in favour of the assessee is an indication that the transfer by Wipro in favour of the assessee was not in contravention of the terms and conditions of the original lease agreement between the KIADB and Wipro. Since the date of transfer, the assessee is having domain over the unit/industrial undertaking. The Assessing officer, however, disallowed the depreciation on the ground that the ownership rights over the land were not transferred in favour of the assessee. In other words, it was held that since the ownership rights over the land for the relevant assessment year was not with the assessee and therefore, it is not entitled for depreciation. The order of the Assessing officer was confirmed by the CIT(A). The Tribunal, however, reversed the order passed by the Assessing officer and the CIT(A) relying upon the judgment of the Supreme Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166. It would be relevant to reproduce the relevant observations made by the Supreme Court in the said judgment, which reads thus:—
"10. In our opinion, the term 'owned' as occurring in S.32(1) of the IT Act, 1961, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the proper as would enable others being excluded therefrom and having right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by Transfer of Property Act, Registration Act, etc. 'Building owned by the assessee' - the expression as occurring in s.32(1) of the IT Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as Transfer of Property Act and Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others.
13. An overall view of the abovesaid authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time."
It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the legislature in enacting S.32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent.
8. In the present case, it is not in dispute that the assessee got into possession of the unit/industrial undertaking from Wipro by virtue of the Agreement to sale and since then, is in possession thereof in its own right exercising such dominion over the same and have right to use, occupy and to enjoy its usufruct in its own right. In other words, the Wipro transferred their ownership right over the building, plant and machinery to the assessee, and since then the assessee has been using it in its own right for the purpose of the business, though legal title was conveyed by KIADB initially in 2003 by executing lease deed and then in 2009 by executing sale deed in favour of the assessee. In our opinion, having regard to the law laid down by the Supreme Court in this judgment, the Tribunal has rightly allowed the depreciation. The judgment relied upon by learned counsel for the revenue in Tamilnadu Civil Supplies Corpn. Ltd. v. CIT [1997] 228 ITR 399/[1998] 96 Taxman 463 (Mad.), is of no avail to the revenue, in view of the judgment of the Supreme Court in appeal against that order reported in (2001) 249 ITR 24(SC). The Supreme Court on the facts of that case, observed that it was not possible to reach the conclusion that the assessee had acquired domain over the Mill in question. Such is not the case insofar as the present assessee is concerned. There is lot of materials placed on record, which indicate that the assessee had acquired dominion over the unit/industrial undertaking on 30.08.2000.
9. In the circumstances, we find no merit in the second substantial question of law and it is accordingly answered in favour of the assessee and against the revenue.
The Appeal is dismissed. No costs.
SUNIL*In favour of assessee.
† Arising out of order of Tribunal in ITA No. 421/2005.
IT: Where quantum addition made in reassessment being deleted by Commissioner (Appeals) and accepted by Assessing Officer, and, thus reassessment proceedings becoming infructuous, other connected additions made in course of reassessment proceedings would not sustain
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[2014] 41 taxmann.com 380 (Agra - Trib.)
IN THE ITAT AGRA BENCH
Asha Kansal
v.
Income-tax Officer, Ward 1(1), Agra*
BHAVNESH SAINI, JUDICIAL MEMBER
AND PRAMOD KUMAR, ACCOUNTANT MEMBER
AND PRAMOD KUMAR, ACCOUNTANT MEMBER
IT APPEAL NO. 74 (AGRA) OF 2013
[ASSESSMENT YEAR 2002-03]
[ASSESSMENT YEAR 2002-03]
NOVEMBER 29, 2013
Section 69, read with sections 143 & 147, of the Income-tax Act, 1961 - Unexplained investments [Reassessment] - Assessment year 2002-03 - Assessing Officer during reassessment proceedings found assessee's income from undisclosed sources which had escaped assessment and, hence, made additions in respect of Rs. 3,98,950 - Along with same he also made connected additions of Rs. 3,98,593 and Rs. 3,97,955 respectively - Commissioner(Appeals) deleted main addition of Rs. 3,98,950, relatable to reasons recorded for initiation of reassessment proceedings - Assessing officer accepted same - Whether since reassessment proceedings itself had become infructuous, no connected additions made by Assessing Officer in course of reassessment proceedings would sustain - Held yes [Para 10] [In favour of assessee]
FACTS
| ■ | During reassessment proceedings, the Assessing Officer found assessee's income from undisclosed sources which had escaped assessment and, hence, made additions in respect of Rs. 3,98,950. He also made additions of Rs. 3,98,593 and Rs. 3,97,955 as connected additions. | |
| ■ | On appeal, the Commissioner (Appeals) deleted the addition of Rs. 3,98,950 by observing that the Assessing Officer had not brought any evidence on record that the assessee had received the amount of Rs.3,98,950 in addition to the amount declared in the return of income. Thus, the quantum addition was deleted. | |
| ■ | On appeal to the Tribunal for deleting connected additions, even though the revenue accepted the incorrectness of the quantum addition, still defended the validity of reassessment proceedings to sustain connected additions. |
HELD
| ■ | Section 147 provides that if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income 'and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section'. Explanation 3 to section 147 inserted by the Finance Act, 2009, specifically provides that the 'Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue has come to the notice subsequently in the course of proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under such sub- section (2) of section 148'. [Para 7] | |
| ■ | When the reasons for reopening the assessment itself is incorrect, as evidenced by the fact that the Assessing Officer accepts that position by not making related addition, no further additions can be made in the course of such reassessment proceedings. The very initiation of reassessment proceedings in such a case ceases to be of any effect. In other words, the resultant reassessment proceedings are rendered infructuous. The underlying principle is not difficult to fathom. When it is a position accepted by the Assessing Officer that no addition can be made on the basis of reasons for which reassessment proceedings were initiated, there cannot be any legal basis for the resultant reassessment proceedings either. [Para 8] | |
| ■ | Whether such an addition is not made by the Assessing Officer himself or whether the Assessing Officer does not challenge the Commissioner (Appeals) deletion of such additions made by the Assessing Officer, the legal situation remains the same. In both the situations, the Assessing Officer accepts that addition cannot be made on the basis of reasons recorded by him while reopening the assessment. The common thread in both these situations is that the Assessing Officer accepts the situation that based on the reasons recorded, while reopening the assessment, legally sustainable additions cannot be made or deletion of such additions cannot be challenged. Once he accepts such a position, whether at the stage of assessment by not making the related addition, or at a later stage by not challenging Commissioner(Appeals) order deleting such an addition, the reassessment proceedings are rendered infructuous because no other additions, even if any, made by the Assessing Officer can survive the legal scrutiny. While deleting the additions, the Commissioner (Appeals) had given categorical findings which run contrary to the reasons recorded while reopening the assessment and yet the revenue authorities had not raised, either in appeal or by any other mode, even a whisper against such findings which had thus reached finality. Further, it is the settled legal position that reasons recorded for reopening the assessment are to be read exactly as these are recorded and it cannot be open to the Assessing Officer to fill in the gaps, even if any, while justifying the reassessment proceedings. Nothing could be added to these reasons nor could anything be deleted from the same. [Para 9] | |
| ■ | For the reasons set out above, and in view of the fact the Assessing Officer had not challenged the Commissioner (Appeals) deletion of quantum addition made on the basis of reasons recorded for reopening the assessment, the reassessment proceedings were infructuous and no other additions could have been made by the Assessing Officer either. In response to specific question, the Department could not find out any infirmity in the action of the Commissioner (Appeals) or factual inaccuracies in the observations made by the Commissioner(Appeals) on this issue. The very reassessment proceedings were also thus based on, erroneous reading of facts which could not lead to a legally sustainable addition. The reassessment proceedings were, thus, infructuous and invalid. The assessee succeeds for this short reason alone. The reasons recorded while reopening the assessment are disapproved, on merits, by the Commissioner (Appeals) and those findings remain unchallenged and controverted. Thus, appeal was to be allowed. [Para 10] |
CASES REFERRED TO
CIT v. Jet Airways (I.) Ltd. [2011] 331 ITR 236/[2010] 195 Taxman 117 (Bom.) (para 7) andPrashant S. Joshi v. ITO [2010] 324 ITR 154/189 Taxman 1 (Bom.) (para 9).
Roop Kishore Agarwal for the Appellant. K.K. Mishra for the Respondent.
ORDER
Pramod Kumar, Accountant Member - By way of this appeal, the assessee appellant has called into question correctness of learned CIT(A)-1, order dated 28th September, 2012, upholding the impugned assessment under Section 143(3) r.w.s. 147 of the Income Tax Act 1961, for the assessment year 2002-03.
2. One of the grievances raised by the assessee before us is against validity of reassessment proceedings on the facts and in the circumstances of this case. While grounds of appeal as set out in the memorandum of appeal do not specifically raise the controversy whether impugned assessment can be said to be legally valid even when the main addition, relatable to the reasons recorded for initiation of reassessment proceedings, itself is deleted by the CIT(A) and the revenue is not in appeal against such an action of CIT(A), learned representatives have been heard on this aspect of the matter and we proceed to deal with the issue, as a preliminary issue in exercise of our powers under proviso to Rule 11 of Income Tax (Appellate Tribunal) Rules 1963.
3. The material facts are not in dispute. It is a case of reopened assessment. A notice u/s 148 of the Act was issued on 27.03.2009, after recording the following reasons for reopening the assessment:—
"REASONS FOR ISSUE NOTICE U/S 148 OF THE I.T. ACT, 1961.
An information has been received from the Addl. CIT, Range-1, Agra vide his letter F.No.LTCG/Addl.CIT/Range-1/Agra/2008-09/76 dated 05.12.2008 regarding bogus entries of Long Term/Short Term Capital Gain which has been found bogus as a result of enquiries made by the Investigation wing. On enquiries it has been found that the bank accounts from which money has been transferred to various beneficiaries have been operated by certain stock brokers who have been providing entries to the beneficiaries by showing them transaction made by them in purchase and sale of shares of certain companies, gifts from certain persons, which in fact never took place.
The assessee is also one of the beneficiaries figuring in the list supplied as stated above and an amount of Rs.3,98,950/- has been remitted to be assessee through Jai Laxmi Cooperative Bank, Fatehpuri, Delhi instrument No.257799 dated 07.07.2001 from broker Singhman Financial Services Ltd. The said amount is found credited in the bank account of the assessee in SBI, Agra. Since the transaction of share trading found to be bogus and the entire amount of the same claimed to have been received by the assessee by bank draft is the assessee's income from undisclosed sources, which has escaped assessment within the meaning of Section 147 of the I.T. Act, 1961. Hence, I have reason to believe that the above income of Rs.3,98,950/- has escaped assessment within the meaning of section 147 of the I.T. Act, 1961."
4. In the reassessment proceedings, the Assessing Officer made additions in respect of above Rs.3,98,950/-, as also of Rs.3,98,593/- and Rs.3,97,955/- as connected additions. However, when the matter travelled in appeal before the CIT(A), learned CIT(A) deleted the addition of Rs.3,98,950/- by observing that,
"The AO has not brought on record any evidence on record that the assessee (appellant) has received the amount of Rs.3,98,950/- in addition to the amount through two drafts of Rs.3,98,593/- and Rs.3,97,955/-totalling to Rs.7,96,548/- as declared in the return of income." and that "Therefore, I delete the addition of Rs.3,98,950/- out of the total amount of additions of Rs.11,95,498/- made by the AO in the assessment order".
Revenue is not aggrieved of the relief so granted by the CIT(A) on merits, yet learned Departmental Representative defends the validity of reassessment proceedings.
5. During the course of hearing, it was put to the parties that there seems to be an inherent fallacyin the approach of the revenue authorities inasmuch as once the related quantum addition, i.e. addition made as a result of the reasons recorded for initiating reassessment proceedings, itself is held to be unsustainable in law, and the revenue authorities are not aggrieved of such a relief, there should not be any justification for their defence of the initiation of reassessment proceedings. It is so for the reason that incorrectness of such addition having been accepted, the very foundations of impugned reassessment ceases to hold good in law. The above proposition was put to be learned representatives and we have heard them on the same.
6. Let us deal with this aspect of the matter first, because, in the event of this proposition being actually correct, all other aspects of this appeal will be rendered academic and, as such, infructuous.
7. Section 147 provides that if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income "and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section." Explanation 3 to Section 147 inserted by Finance Act 2009 specifically provides that the "Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue has come to the notice subsequently in the course of proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under such Section 2 of Section 148". Elaborating upon the scope of these provisions, and dealing with the question whether any addition can be made on account of issues other than the issue in respect of which reasons for reopening have been recorded in a situation in which no additions are made for the reasons recorded, Hon'ble Bombay High Court, in the case of CIT v. Jet Airways (I.) Ltd. [2011] 331 ITR 236/[2010] 195 Taxman 117, has observed as follows :—
'Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction.
The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too'. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the season to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.'
8. The legal position is thus clear. When the reasons for reopening the assessment itself is incorrect, as evidenced by the fact that the Assessing Officer accepts that position by not making related addition, no further additions can be made in the course of such reassessment proceedings. The very initiation of reassessment proceedings in such a case ceases to be of any effect. In other words, the resultant reassessment proceedings are rendered infructuous. The underlying principle is not difficult to fathom. When it is a position accepted by the Assessing Officer that no addition can be made on the basis of reasons for which reassessment proceedings were initiated, there cannot be any legal basis for the resultant reassessment proceedings either.
9. Taking the above principle to a little further, we find that whether such an addition is not made by the Assessing Officer himself or whether the Assessing Officer does not challenge the CIT(A) deletion of such additions made by the Assessing Officer, the legal situation remains the same. In both the situations, the Assessing Officer accepts that addition cannot be made on the basis of reasons recorded by him while reopening the assessment. The common thread in both these situations is that the Assessing Officer accepts the situation that based on the reasons recorded, while reopening the assessment, legally sustainable additions cannot be made or deletion of such additions cannot be challenged. Once he accepts such a position, whether at the stage of assessment by not making the related addition, or at a later stage by not challenging CIT(A)'s order deleting such an addition, the reassessment proceedings are rendered infructuous because no other additions, even if any, made by the Assessing Officer can survive the legal scrutiny. It is also important to bear in mind that while deleting the addition before us, as we have seen earlier in this order, learned CIT(A) has given categorical findings which run contrary to the reasons recorded while reopening the assessment and yet the revenue authorities have not raised, either in appeal or by any other mode, even a whisper against such findings which have thus reached finality. While on this issue, it is also important to note that, as is the settled legal position, the reasons recorded for reopening the assessment are to be read exactly as these are recorded and it cannot be open to the Assessing Officer to fill in the gaps, even if any, while justifying the reassessment proceedings. Nothing can be added to these reasons nor anything can be deleted from the same. To highlight this aspect of the matter, we may refer to the following observations made by their Lordships in the case of Prashant S. Joshi v. ITO [2010] 324 ITR 154/189 Taxman 1 (Bom.).
'Sec. 147 provides that if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of ss. 148 to 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The first proviso to s. 147 has no application in the facts of this case. The basic postulate which underlines s. 147 is the formation of the belief by the AO that any income chargeable to tax has escaped assessment for any assessment year. The AO must have reason to believe that such is the case before he proceeds to issue a notice under s. 147. The reasons which are recorded by the AO for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reason recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of s. 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the AO. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under s. 148.
10. A Division Bench of this Court speaking through Mrs. Justice Sujata Manohar (as the learned Judge then was) held thus in N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1995] 216 ITR 811 (Bom):
"It is also well-settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under s. 148 by virtue of the provisions of s. 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under s. 148. In the case of Equitable Investment Co. (P) Ltd. vs.ITO (1988) 73 CTR (Cal) 236 : (1988) 174 ITR 714 (Cal), a Division Bench of the Calcutta High Court has held that where a notice issued under s. 148 of the IT Act, 1961, after obtaining the sanction of the CIT is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the CIT has been obtained. The IT Department cannot rely on any other material apart from the report."
11. The same principle was reiterated in a judgment of the Division Bench of this Court inHindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332/137 Taxman 479 (Bom):
"…..the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons must be able to justify the same based on material available on record. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit of making oral submission, otherwise, the reasons which are lacking in material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.'
10. For the reasons set out above, and in view of the fact the Assessing Officer has not challenged the CIT(A)'s deletion of quantum addition made on the basis of reasons recorded for reopening the assessment, we hold that the reassessment proceedings were infructuous and no other additions could have been made by the Assessing Officer either. As we have also observed earlier in this order, learned CIT(A) has given categorical findings which run contrary to the reasons recorded while reopening the assessment and yet the revenue authorities have not raised, either in appeal or by any other mode, even a whisper against such findings which have thus reached finality. In response to specific question by us, learned Departmental Representative could not find out any infirmity in the action of the CIT(A) or factual inaccuracies in the observations made by the CIT(A) on this issue. The very reassessment proceedings were also thus based on, what is now a settled position, erroneous reading of facts which cannot lead to a legally sustainable addition. The reassessment proceedings were thus infructuous and invalid. The assessee succeeds for this short reason alone. In any case, the reasons recorded while reopening the assessment are disapproved, on merits, by the CIT(A) and those findings remain unchallenged and controverted. In this view of the matter, we also see no need to deal with many other erudite contentions raised by the learned counsel. All those aspects will be academic in the situation before us.
11. In the result, the appeal is allowed in the terms indicated above.
SB *In favour of assessee.
SAHELI SYNTHETICS PVT. LTD. vs. INCOME TAX OFFICER
ITAT AHMEDABAD BENCH "D"
MUKUL Kr. SHRAWAT, JM & T. R. MEENA, AM.
M.A. Nos.161/Ahd/2012 & 135/Ahd/2013 (arising out of ITA No.434/Ahd/2007)
11th April, 2014
414 Taxpundit 67 (2014) 40 CCH 084 AhdTrib
Assessment Year 2003-04
Favour : Revenue
Counsel appeared
P.L. Kureel, Sr.D.R for the Revenue.: Urvashi Sodhan, A.R for the Assessee(s)
MUKUL KUMAR SHRAWAT, JM.
There are two Misc. Petitions before us pertaining to the Assessment Year 2003-04 arising
from the order of ITAT 'D' Bench Ahmedabad, bearing ITA No.434/Ahd/2007 (A.Y.2003-
04) dated 19.03.2010. As far as M.A. No.161 filed on 14th of August, 2012 is concerned,
the same is not pressed by learned AR; hence, the same is hereby dismissed being not
pressed. Therefore, the other M.A. No.135/Ahd/2013 filed on 1st of July, 2013 has now
been contested. The main contention as also the grievance of the applicant as emerged from
the petition is
reproduced below:
"3. The applicant most respectfully submits that the Hon'ble ITAT taking into consideration
the fact that the appellant due to seizure of books of account by the excise authorities was
unable to produce them before AO who after rejecting the same proceeded to make huge
addition of Rs.74,38,446/- merely by multiplying cost of job-work per meter and the total
meters sold by the appellant. The Hon'ble ITAT noting submissions of the counsel for the
appellant to apply reasonable gross profit remitted the issue to the file of AO to work out
average Gross Profit rate of previous 3 years taking into consideration loss incurred on
account of reject and waste of opening stock.
4. The appellant respectfully submits that AO pursuant to the direction of the Hon'ble ITAT
proceeded to apply GP rate of 6.20% and made addition of Rs.3,50,74,274/- in place of
addition of Rs.74,38,446/- made in the original assessment. The appellant being aggrieved
by such addition is in appeal before the Hon'ble ITAT. However, in the interest of justice it
needs to be clarified in the earlier order that after giving effect to the order of the Hon'ble
ITAT the assessed income should not exceed the income originally assessed by AO because
it is well established that the appellate Tribunal has no power to take back the benefit
conferred by the Assessing Officer or to enhance the assessment. Reliance is placed on the
following judgments of the Supreme Court. "
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From the side of the applicant, learned AR, Urvashi Sodhan appeared and informed that
originally an assessment was made u/s.143(3), which was dated 24th of March, 2006 and
the income was assessed at Rs.16,25,101/-. In the said order, an addition of Rs.74,38,446/-
was made on account of low gross profit. That addition was contested before learned
CIT(A) and thereafter reached upto the Tribunal. The Tribunal has set aside the proceedings
vide impugned order dated 19th of March, 2010 and directions were as under:
"We have heard the rival contentions and gone through the facts and circumstances of the
case. At the outset, Ld. Counsel for the assessee, Shri S.N. Soparkar made an argument that
he is not challenging the rejection of book results but he urged the Bench to apply a
reasonable gross profit rate. We find that the Assessing Officer after rejecting the book
results has not taken any basis for applying the net profit. He has merely gone through the
cost of job-work per meter and the total meters sold by the assessee were multiplied. In our
view, for fair estimating the GP rate, the AO should have gone into the previous 3 years GP
declared and assessed in the case of the assessee and average of the same should have been
applied. Taking into consideration, the loss incurred by the assessee on account of reject
and waste of opening stock should have been considered. Accordingly, we direct the
Assessing Officer to adopt the average GP of previous three years and accordingly estimate
the GP of the assessee and assess the income accordingly. Accordingly, this issue of the
assessee's appeal is set aside to the file of AO as indicated above. "
2.1 In consequence thereupon, an assessment order was passed by AO u/s. 143(3)r.w.s. 250,
dated 29.12.2011. However, the total income was assessed at Rs.2,91,88,737/-. The average
profit was determined at Rs.3,50,74,274/-. Since, the income was enhanced consequent
upon the direction of the Tribunal; therefore, the main contention of learned AR is that the
impugned directions of the Tribunal were bad in law. Learned AR has argued that the
Tribunal has no power to enhance the income originally assessed due to the reason that the
impugned directions have resulted into an enhancement, therefore, such directions are bad
in law. For this legal proposition, she has placed reliance on the case laws as mentioned in
the M.A. Petition.
From the side of the Revenue, learned Sr.D.R., Mr. P.L. Kureel appeared and argued that
there was no fault in the directions given by the Respect Tribunal. The assessee is in the
business of processing of gray cloth but failed to maintain records like details of raw
material, daily production record etc. The Tribunal has recorded that the rejection of books
of account has not been challenged by the counsel of the assessee. The argument was to
adopt a reasonable GP rate. By accepting that pleading of learned AR, it was thought proper
by the Tribunal to restore the issue back to the file of the AO which was followed by the
AO. There was no direction of enhancement by the Tribunal but it was a question of
arithmetical calculation which should have been kept in mind by the learned counsel while
rendering a proposition before the Tribunal. There was no mistake of the Tribunal; hence,
the petition should be dismissed.
Having heard the submission of both the sides, we are of the considered opinion that the
petition has no legal force. From the paragraph reproduced from the order of the Tribunal,
we have noted that the Respected Co-ordinate Bench has accepted the request of learned
counsel in a way by restoring the issue to the file of the AO with the direction that the AO
should examine the GP rate of previous years as assessed in the case of the assessee and the
average of the same was directed to be applied. The AO in the consequential order dated
29.12.2011 has compared the GP rate of A.Y.2000-01, A.Y. 2001-02, A.Y. 2002-03 and
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then calculated the average GP rate at 6.2%. He has applied the said average GP rate of
6.2% on the turnover. The Assessee has affected the total sales, as noted in the original
assessment order dated 24th of March, 2006, were at Rs.47,77,71,638/- that very sales were
not disturbed and the average GP rate was applied in the order passed u/s.143(3)/250 dated
29.12.2011. The assessee must have challenged this consequential order objecting the
assessment of the profit so determined by the AO. Prima facie, there was no apparent
mistake in the directions of the Tribunal because the same were issued after understanding
the arguments of learned AR. This is not the case where the Tribunal had gone out of the
subject matter of appeal which has resulted into enhancement. According to us, the Tribunal
is required to pass such order as thinks fit. The Tribunal has not given any direction for the
enhancement of the income. There are few methods generally applied for the purpose of
determining correct income. One of such method generally being applied is the method to
adopt average GP rate of past three years. The Tribunal has simply followed this widely
accepted general principle which is otherwise a simple method and acceptable to the
Revenue Department as well as the assessee. In the case of Hukumchand Mills Ltd., 63 ITR
232, the observation of the Hon'ble Court was that the Tribunal has all the powers to pass
such orders as think fit except possibly the power of enhancement. According to us, the
Tribunal in the impugned order dated 19.03.2010 has not exercised any such power of
enhancement. We have also examined the decision of Mcorp. Global Pvt. Ltd., 309 ITR 434
which was in respect of withdrawal of benefit allowed by the AO and it was held that the
Tribunal had no power to take back the benefit granted by the AO. The situation as well as
the facts of the present appeal are diametrically opposite from the facts of the cited decision
because the Tribunal had not directed to withdraw any such benefit which was originally
granted by the AO, but the Tribunal has simply followed one of the method to determine
the gross profit as transpired during the course of hearing. We accordingly hereby hold that
grievance raised in this Misc. Petition is ill founded; hence dismissed.
In the result, both the petitions are hereby dismissed
Regards,
Pawan Singla , LLB
M. No. 9825829075__._,_.___
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