Income Tax
Whether premium paid on insurance policy designed under Unit Linked Investment Plan can be claimed as business expenditure u/s 37 - NO: ITAT
ASSESSEE Company had debited an amount of Rs. 3 lacs under the head 'Insurance' pertaining to premium paid towards 'Keyman Insurance Policy' of Joint MD. Assessee had contended that the amount paid was claimed as expense allowable u/s 37. The amount due on maturity of this policy had been received back in AY 2010-11 and had been offered for taxation in year of receipt. Payment of premium for keyman insurance cover was allowable as a business expense. The law permits deferment of payment of tax on this amount. This amount cannot be taxed twice. The claim of payment of premium was genuine. The nature of insurance plan cannot adversely effect that admissibility of claim.
During assessment, AO held that a unit linked plan can't be equated with Keyman Insurance Policy as per meaning of the term given in clause (c) of Section 10(10D) and elaborately differentiated between the quoting guidelines and circulars of IRDA, as detailed in the assessment order and held that the expense of Rs. 3 lacs was not to be treated as incurred for the purpose of business of assessee.
The issues before the bench are: Whether expenditure incurred on Term Insurance Plan under Keyman Insurance Cover is eligible for deduction u/s 37, even if the assessee firm proves that the said amount has been spent wholly and exclusively for the purposes of the business as per provisions of section 37; Whether in case the insurance companies otherwise invest the funds available with them in debt/stock etc, deduction of the amount invested can be claimed as revenue expenditure; Whether the nature of investment can be a deciding factor in determining the allowability of the premium paid; Whether when the policies are taken from Unit Linked Investment Plan it becomes investment plan, premium of which has been put into growth fund and it is not a Pure Life Insurance Policy on the life of another person and Whether in case only a fraction of the total premium is meant for risk premium, the balance is for the deployment of purchase of units, can be claimed as business expenditure. And the verdict goes against the assessee.
Regards,IT : Recovery of outstanding tax demand should not be resorted
to when limit of 60 days to prefer appeal before Tribunal had not
expired
■■■
[2014] 45 taxmann.com 559 (Madras)
HIGH COURT OF MADRAS
Dishnet Wireless Ltd.
v.
Assistant Commissioner of Income-tax, TDS Circle -I*
V. DHANAPALAN, J.
W.P. NO. 373 OF 2014
JANUARY 7, 2014
Section 253 of the Income-tax Act, 1961 - Appellate Tribunal - Appeals
to (Limitation period) - Assessee had been directed to deposit a
certain sum as tax demand immediately by Commissioner (Appeals) -
Department hastily proceeded to recover said sum from assessee though
time-limit of 60 days to prefer appeal before Tribunal had not expired
- Whether department should not take any coercive steps for recovery
against assessee, till expiry of period of limitation for filing an
appeal against said order - Held, yes [Paras 7 & 8] [In favour of
assessee]
Sathish Parasaran for the Petitioner. T. Pramod Kumar Chopda for the Respondent.
ORDER
1. By consent of the learned counsel on either side, this Writ
Petition is taken up for final disposal at the stage of admission
itself.
2. Heard Mr. Satish Parasaran, learned counsel for the petitioner and
Mr. T. Pramod Kumar Chopda, learned counsel appearing for the
respondents.
3. Challenging the impugned demand notice of the 1st respondent vide
Ref.ACIT/TDS.CIR.I./DISHNET/2013-14 dated 02.01.2014, seeking to quash
the same and for a consequential direction to forbear the respondents
from taking any coercive steps towards recovery of the alleged
liability pursuant to the order bearing Ref. ITA No.330-339/13-14
dated 30.12.2013 till the expiry of the period of limitation for
filing an appeal against the said order under the provisions of the
Income Tax Act, 1961, the petitioner has come up with this Writ
Petition.
4. In the impugned order, it is stated that the appeal application
filed by the petitioner/assessee with the Commissioner of Income Tax
(Appeals)-VII, has been disposed of on 30.12.2013, with a direction to
the petitioner to pay the outstanding amount of
Rs.46,18,15,768/-immediately and produce the relevant challan, either
personally or through their authorised representative, so that they
may be given due credit for the same. Apprehending that there may be
coercive action for recovering that amount, the petitioner is before
this Court.
5. Learned counsel for the petitioner pointed out that though the time
limit of 60 days to prefer an appeal from the date of passing of the
impugned order, i.e. from 30.12.2013 is available to the petitioner,
without waiting for the same, the respondents have hastily proceeded
to sent a reminder to the petitioner on 02.01.2014 informing him of
the immediate payment of the outstanding amount. Therefore, the
impugned order cannot be allowed to stand against the petitioner.
6. Refuting the said submission, learned counsel appearing for the
Revenue would submit that when the original authority has passed the
order, it is not incumbent on the Revenue authorities to keep the
matter pending till the petitioner moves the Appellate forum.
Therefore, mere intimation to the petitioner to pay the outstanding
amount cannot be questioned in law.
7. It is not in dispute that the original authority passed the
assessment order on 30.12.2013, as against which, further appeal lies
to the Income Tax Appellate Tribunal under Section 253 of the Act and
the time for moving the Tribunal is 60 days from the date of receipt
of a copy of the order. As the appellate remedy is available to the
petitioner, it could be accepted and the authority may thereafter
proceed with the matter. However, in the absence of any legal
impediment, the respondents have intimated recovery proceedings
against the petitioner, when there is reasonable time for him to
prefer an appeal.
8. In view of the above, respondents are directed to not to take any
coercive steps for recovery against the petitioner, till the appeal
time is exhausted. Thereafter, the respondents are at liberty to act
in accordance with law for recovery of the amount as per the order of
the appellate authority.
With the above direction, this Writ Petition is disposed of. No costs.
Consequently, connected M.P.Nos.1 to 3 are closed.
POOJA
*In favour of assessee.
to when limit of 60 days to prefer appeal before Tribunal had not
expired
■■■
[2014] 45 taxmann.com 559 (Madras)
HIGH COURT OF MADRAS
Dishnet Wireless Ltd.
v.
Assistant Commissioner of Income-tax, TDS Circle -I*
V. DHANAPALAN, J.
W.P. NO. 373 OF 2014
JANUARY 7, 2014
Section 253 of the Income-tax Act, 1961 - Appellate Tribunal - Appeals
to (Limitation period) - Assessee had been directed to deposit a
certain sum as tax demand immediately by Commissioner (Appeals) -
Department hastily proceeded to recover said sum from assessee though
time-limit of 60 days to prefer appeal before Tribunal had not expired
- Whether department should not take any coercive steps for recovery
against assessee, till expiry of period of limitation for filing an
appeal against said order - Held, yes [Paras 7 & 8] [In favour of
assessee]
Sathish Parasaran for the Petitioner. T. Pramod Kumar Chopda for the Respondent.
ORDER
1. By consent of the learned counsel on either side, this Writ
Petition is taken up for final disposal at the stage of admission
itself.
2. Heard Mr. Satish Parasaran, learned counsel for the petitioner and
Mr. T. Pramod Kumar Chopda, learned counsel appearing for the
respondents.
3. Challenging the impugned demand notice of the 1st respondent vide
Ref.ACIT/TDS.CIR.I./DISHNET/2013-14 dated 02.01.2014, seeking to quash
the same and for a consequential direction to forbear the respondents
from taking any coercive steps towards recovery of the alleged
liability pursuant to the order bearing Ref. ITA No.330-339/13-14
dated 30.12.2013 till the expiry of the period of limitation for
filing an appeal against the said order under the provisions of the
Income Tax Act, 1961, the petitioner has come up with this Writ
Petition.
4. In the impugned order, it is stated that the appeal application
filed by the petitioner/assessee with the Commissioner of Income Tax
(Appeals)-VII, has been disposed of on 30.12.2013, with a direction to
the petitioner to pay the outstanding amount of
Rs.46,18,15,768/-immediately and produce the relevant challan, either
personally or through their authorised representative, so that they
may be given due credit for the same. Apprehending that there may be
coercive action for recovering that amount, the petitioner is before
this Court.
5. Learned counsel for the petitioner pointed out that though the time
limit of 60 days to prefer an appeal from the date of passing of the
impugned order, i.e. from 30.12.2013 is available to the petitioner,
without waiting for the same, the respondents have hastily proceeded
to sent a reminder to the petitioner on 02.01.2014 informing him of
the immediate payment of the outstanding amount. Therefore, the
impugned order cannot be allowed to stand against the petitioner.
6. Refuting the said submission, learned counsel appearing for the
Revenue would submit that when the original authority has passed the
order, it is not incumbent on the Revenue authorities to keep the
matter pending till the petitioner moves the Appellate forum.
Therefore, mere intimation to the petitioner to pay the outstanding
amount cannot be questioned in law.
7. It is not in dispute that the original authority passed the
assessment order on 30.12.2013, as against which, further appeal lies
to the Income Tax Appellate Tribunal under Section 253 of the Act and
the time for moving the Tribunal is 60 days from the date of receipt
of a copy of the order. As the appellate remedy is available to the
petitioner, it could be accepted and the authority may thereafter
proceed with the matter. However, in the absence of any legal
impediment, the respondents have intimated recovery proceedings
against the petitioner, when there is reasonable time for him to
prefer an appeal.
8. In view of the above, respondents are directed to not to take any
coercive steps for recovery against the petitioner, till the appeal
time is exhausted. Thereafter, the respondents are at liberty to act
in accordance with law for recovery of the amount as per the order of
the appellate authority.
With the above direction, this Writ Petition is disposed of. No costs.
Consequently, connected M.P.Nos.1 to 3 are closed.
POOJA
*In favour of assessee.
Ministry clarification on format for Annual Return for Financial Year 2013-2014 and fees for inspection of records
Posted In Company Law | No Comments »
Ruchira Shinde
Background – Ministry of Corporate affairs is coming up with the new clarifications and circulars every single day for doing away with the loopholes and confusions created under the Companies Act, 2013, and putting queries at rest. Two spectrums of areas of Companies Act, 2013(Act, 2013) was dealt with recently vide MCA General Circular No: 22 dated 25.06.2014 (the Circular).
Present Circular
1. Format of Annual Return applicable for Financial Year 2013-14:
Ministry notified Section 92 of the Act, 2013 dealing with Annual Return with effect from 1st April, 2014. Relevant extracts of the Section 92 of Act, 2013:
"Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year."
The format for the same was given in Rule 11(1) of the Companies (Management and Administration) Rules, 2014 i.e MGT-7. As per Section 159 of the Companies Act, 1956 (Act ,1956) companies had to prepare Annual Return giving position from the date of last Annual General Meeting till the date of current Annual General Meeting. However, as clear from the above stated relevant extract of Section 92 of the Act, 2013 the companies are required to file their Annual Return giving position as on the close of the Financial Year. This nevertheless created bundle of confusions for the companies intending to file annual return for FY 2013-14.
On account of the same the MCA in its Circular came up with the clarification with regard to format of annual return applicable for FY 2013-2014. MCA has clearly specified that the format of Annual Return under Act, 2013 (Form – MGT-7) shall not be applicable to the Companies whose financial year ended on or before 1st April, 2014. These Companies are to file the Annual Return as per the old format (Schedule V) as per Act, 1956. The same will be filed with the Registrar within 60 days from the date of AGM in eForm 20B. This clarification has been a breather to the Companies putting confusions at rest, as Annual Return Format prescribed under Act, 2013 is a 36 pager lengthy format requiring number of details in comparison to the simple 4-5 pager format under Act, 1956.
Hence the Companies are now required to file Annual Return for the Financial Year 2013-2014 in Schedule V format in Form 20B.
II. Fees for inspection of records and other documents.
Companies had also sought clarity on fees for allowing inspection of records and other documents.
Relevant extract of the Rule 14(2) of the Companies (Management and Administration) Rules, 2014:
"(2) Any such member, debenture holder, security holder or beneficial owner or any other person may require a copy of any such register or entries therein or return on payment of such fee as may be specified in the articles of association of the company but not exceeding ten rupees for each page. Such copy or entries or return shall be supplied within seven days of deposit of such fee."
Relevant extract of the Rule 16 of the Companies (Management and Administration) Rules, 2014:
"Copies of the registers maintained under section 88 or entries therein and annual return filed under section 92 shall be furnished to any member, debenture-holder, other security holder orbeneficial owner of the company or any other person on payment of such fee as may be specified in the Articles of Association of the company but not exceeding rupees ten for each page and such copy shall be supplied by the company within a period of seven days from the date of deposit of fee to the company."
To bring about a parity between the two rules the Ministry clarified that till the time the companies amends its Articles of Association providing such amount of fees for inspection of such documents in order to comply with Rule 14(2) and Rule 16 of the Companies (Management and Administration) Rules, 2014; such inspections is to be provided to all the members, debenture holders, any other security holders or any other beneficial owner of the company or such other person free of cost.
[The above post is contributed by Ruchira Shinde at Vinod Kothari & Co. She can be contacted at ruchira@vinodkothari.com]
IT: Where assessee had already disclosed all facts truly and
completely while claiming exemption under section 80-IA reopening
would lack validity
■■■
[2014] 45 taxmann.com 396 (Gujarat)
HIGH COURT OF GUJARAT
Ranjit Projects (P.) Ltd.
v.
Deputy Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 2160 OF 2014
MARCH 18, 2014
Section 80-IA, read with section 147, of the Income-tax Act, 1961 -
Deductions - Profit and gains from infrastructure undertakings
(Re-assessment) - Assessment year 2006-07 - Petitioner entered into
agreement with GSRD corporation for construction of four-lane-Rail
over-bridge for which it was allowed to collect toll at a specified
rate for a certain period - It claimed deduction under section 80-IA
with respect to its income of toll collection which was allowed by
Assessing Officer in original assessment - However, Assessing Officer
reopened assessment on ground that assessee had not entered into any
agreement with Central Government or State Government or local
authority or any other statutory body as required in section
80-IA(4)(i)(a) and it was only sub-contracted project that was
allotted to GSRDC by State Government - Whether since Assessing
Officer could not point out that income chargeable to tax had escaped
assessment due to failure on part of assessee to disclose truly and
fully all material facts notice for reopening lacked validity - Held,
yes [Para 5] [In favour of assessee]
FACTS
■ The petitioner-company, was engaged in infrastructure development
projects in sector like Road, bridges. It constructed a Four-lane Rail
Over Bridge (ROB) in terms of the agreement with Gujarat State Road
Development Corporation [GSRD]. It constructed the said over-bridge on
Build, Operate and Transfer (BOT) basis for which it entered into a
"concession agreement" with GSRDC wherein, it was allowed to collect
toll at a specified rate for a certain period.
■ Based on the agreement between petitioner and GSRDC, the
Government of Gujarat issued a notification authorizing it to collect
toll from ROB.
■ The petitioner claimed deduction under section 80-IA with respect
to its income of toll collection which was accepted by the Assessing
Officer in the original assessment.
■ The Assessing Officer reopen assessment under section 147
regarding disallowance of petitioner claim for deduction under section
80-IA. The Assessing Officer held a belief that GSRDC was a company
and not a statutory body or local authority, and therefore, condition
laid down in section 80-IA(4)(i)(a) was not fulfilled. He further
observed that the petitioner had only sub-contracted the project
allotted to GSRDC by the State Government. The Government had issued a
notification authorizing collection of toll, which was also issued in
favour of GSRDC and not the assessee-company.
■ On writ:
HELD
■ In the entire reasons recorded, the Assessing Officer did not
point out that such income chargeable to tax had escaped assessment
due to failure on the part of the assessee to disclose truly and fully
all material facts. Quite apart, such narration being simply absent
from the reasons recorded, no such conclusion can be reached on the
basis of the material merging either from the reasons recorded, or
even outside of it. In fact, the reasons recorded suggest that it was
on verification of the assessment records by the Assessing Officer
that it was revealed to him the facts noted above. Thus, the entire
formation of belief is founded on the material already on the record.
Therefore, in addition to there being no suggestion by the Assessing
Officer that income chargeable to tax had escaped assessment for the
reason of the assessee failing to disclose truly and fully all
material facts, demonstrably, from the record it emerges to the
contrary. The notice for reopening having been issued beyond the
period of four years from the end of the relevant assessment year and
original assessment having been completed after scrutiny, this
additional requirement emerging from proviso to section 147 that
income chargeable to tax had escaped assessment for the failure of the
assessee to disclose truly and fully all material facts, must be
satisfied. In that view of the matter that the notice for reopening
lacks validity. [Para 5]
■ In the result, impugned notice is quashed. Petition stands
disposed of accordingly. [Para 10]
CASE REVIEW
Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456 (Guj.)
(para 7) followed.
CIT v. Bai Navajbai N. Gamdia [1959] 35 ITR 793 (Bom.) (para 9) distinguished.
CASES REFERRED TO
Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456 (Guj.)
(para 7), Sadbhav Engg. Ltd. v. Dy. CIT [2011] 333 ITR 483/[2012] 20
taxmann.com 784 (Guj.) (para 8) and CIT v. Bai Navajbai N. Gamadia
[1959] 35 ITR 793 (Bom.) (para 9).
S.N. Soparkar and B.S. Soparkar for the Petitioner. Sudhir M. Mehta
for the Respondent.
ORDER
Akil Kureshi, J. - Heard learned counsel for the parties for final
disposal of the petition.
2. Petitioner has challenged a notice dated 22nd March 2013 issued by
the respondent-Assessing Officer seeking to reopen the assessment of
the petitioner for the assessment year 2006-07, which was previously
framed after scrutiny. At the request of the petitioner, the Assessing
Officer supplied the reasons recorded by him for issuing such notice.
The reasons read as under :—
"In this case, the assessee engaged in infrastructure development
projects in sector Road, bridges and by passes has filed its return
for A.Y 2006-07 on 28.1.2006 declaring 'Nil' income and paid tax of
Rs. 35,46,507/- under Section 115JB. The income under the normal
provisions of the Act was arrived at after claiming 100% deduction of
the profit and gains of the business of Rs. 3,52,02,368/- under
section 80IA of the Act. The case was completed in scrutiny manner
under section 143 (3) of the Act, on 22.12.2008 by accepting the
income declared by the assessee in its return and tax was charged
under section 115JB. On verification of the assessment records
revealed that the assessee was allowed deduction u/s. 80IA for
development of four-lane Rail Over Bridge [ROB] in lieu of an existing
under pass at Chhayapuri [Near GSFC Junction] on Mumbai Delhi Broad
Gauge Railway Line, Baroda. The project, as per the assessee was given
to it on Build Operate & Transfer [BOT] basis by Gujarat State Road
Development Corporation, a Government of Gujarat enterprise
incorporated under the Companies Act, 1956. From the records, it was
observed that assessee has entered into a 'concession agreement' with
GSRDC on 13.10.2001 wherein, assessee was entitled to collect from ROB
for 181 months and at the end of the stipulated period. ROB was to be
transferred to Government of Gujarat. Based on the concession
agreement between assessee and GSRDC, the government of Gujarat issued
a notification No. Toll/102001-(20)-Part 1 Prvt. Cell dated 07.03.2003
authorizing the assessee to collect toll from ROB. Thus, it was amply
clear that the assessee had not entered into any agreement with the
Central Government or State Government or local authority or any other
statutory body as required in Section 80IA[4](i)(a) of the Act. GSRDC
was a company and not a statutory body nor local authority. Thus, the
condition laid down in Section 80IA[4](i)(a) of the Act was not
fulfilled. The assessee was only sub-contracted the project alloted to
GSRDC by the State Government. Further, the Government notification
authorizing assessee to collect toll was also issued to GSRDC with
copy to the Collector and not to the assessee company. Thus, in view
of non-fulfilment of the conditions of Section 80IA of the Act, the
deduction allowed to the tune of Rs. 3,52,02,368/- was irregular and
liable to be disallowed. The underassessment of Rs. 3,52,02,368/-
involved income tax as under :—
I. Tax @ 30% on Rs. 3,52,02,368/- 1,05,60,710
Surcharge 10% 10,56,071
Education Cess @ 2% 2,32,336
LESS : I. Tax Charged under section 115JB 35,46,507
Income Tax [Differential] 83,02,610
Interest U/s. 234 @ 1% month on Rs. 83,02,610 from 01.04.2006 to
22.12.2008 i.e., 33 months [33%] 27,39,861
Total Short levy of Income Tax 1,10,42,471
In view of the above facts, I have reason to believe that short levy
of income Tax is to the extent of Rs. 1,10,42,471/-. Accordingly,
assessment is reopened u/s. 147 of the Income-Tax Act, 1961."
3. Petitioner thereupon raised objections to the proposal of the
Assessing Officer to reopen the assessment under a communication dated
26th November 2013. Such objections, however, were rejected by the
Assessing Officer by an order dated 23rd December 2013. Hence, the
petition.
4. Having heard learned advocates for the parties and having perused
the documents on record, we notice that the reasons recorded by the
Assessing Officer pertain to the petitioner's claim for deduction
under Section 80IA of the Income-tax Act, 1961 ("the Act" for short).
The Assessing Officer had objection to the petitioner claiming such
deduction with respect to the petitioner's income of toll collection
from a four-lane Rail over-bridge constructed by the petitioner in
terms of the agreement with GSRD Corporation. The petitioner had
constructed the said over-bridge on Build, Operate and Transfer [BOT]
basis. Under the agreement, the petitioner was allowed to collect toll
at a specified rate for a certain period. The Assessing Officer held a
belief that GSRDC was a company and not a statutory body or local
authority, and therefore, the condition laid down in Section
80IA[4](i)(a) of the Act was not fulfilled. The Assessing Officer
further observed that the petitioner had only sub-contracted the
project allotted to GSRDC by the State Government. The Government had
issued a notification authorizing collection of toll, which is also
issued in favour of GSRDC and not the assessee company. On such
grounds, he held a reason to believe that the income chargeable to tax
had escaped the assessment.
5. In the entire reasons recorded, the Assessing Officer did not point
out that such income chargeable to tax had escaped assessment due to
failure on the part of the assessee to disclose truly and fully all
material facts. Quite apart, such narration being simply absent from
the reasons recorded, no such conclusion can be reached on the basis
of the material emerging either from the reasons recorded, or even
outside of it. In fact, the reasons recorded suggest that it was on
verification of the assessment records by the Assessing Officer that
it was revealed to him the facts noted above. Thus, the entire
formation of belief is founded on the material already on the record.
Therefore, in addition to there being no suggestion by the Assessing
Officer that income chargeable to tax had escaped assessment for the
reason of the assessee failing to disclose truly and fully all
material facts, demonstrably, from the record it emerges to the
contrary. The notice for reopening having been issued beyond the
period of four years from the end of the relevant assessment year and
original assessment having been completed after scrutiny, this
additional requirement emerging from proviso to Section 147 of the Act
that income chargeable to tax had escaped assessment for the failure
of the assessee to disclose truly and fully all material facts, must
be satisfied. In that view of the matter, we are of the opinion that
the notice for reopening lacks validity.
6. Counsel for the Revenue, however, raised an unusual contention. He
submitted that Section 80IA of the Act was amended by the Finance Act
of 2009 with retrospective effect from 1st April 2000 and to such
amendment, an Explanation was added to the said section under which a
person acting as a works contractor would not be eligible for
deduction under Section 80IA [4] of the Act.
7. Without expressing any opinion on the true interpretation of the
said Explanation, in our opinion, any amendment in law, even with
retrospective effect, would not authorize the Assessing Officer to
reopen the assessment previously framed after scrutiny beyond the
period of four years from the end of the relevant assessment year
unless the conditions laid down under the proviso to Section 147 of
the Act are fulfilled. This is what was held by this Court in case of
Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456, in
the following terms :—
"In CIT v. Hindustan Electro Graphites Limited [2000] 243 ITR 48 (SC)
in the context of applicability of the provisions of Section 143(1A)
of the Act, the apex court quoted with approval the following
observations of the Calcutta High Court in Modem Fibotex India Limited
v. Deputy CFIT [1995] 212 ITR 496, 512 :
An assessee cannot be imputed with clairvoyance. When the return was
filed, the assessee could not possibly have known that the decision on
the basis of which cash compensatory support had been claimed as not
amounting to the assessee's income ceased to be operative by reason of
retrospective legislation."
In the above decision, the apex court followed its decision in Cement
Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15 under the
sales tax law where the court said that a return cannot be said to be
"false" unless there is an element of deliberateness in it. It is
possible that even where the incorrectness of the return is claimed to
be due to want of care on the part of the assessee and there is not
reasonable explanation forthcoming from the assessee for such want of
care, the court may in a given case, infer deliberateness and the
return may be liable to be branded as a false return. But where the
assessee does not include a particular item in the taxable turnover
under a bona fide belief that he is not liable so to include it, it
would not be right to condemn the return as a "false" return.
The same reasoning would apply for holding that for the purpose of
deciding the question under section 147 whether the assessee had
disclosed fully and truly all material facts necessary for the
relevant assessment year, the law applicable would be the law as it
stood on the date of filing of the return.
In view of the above discussion, we are of the view that there was no
failure on the part of the assessee to disclose truly and fully all
material facts. Therefore, the condition precedent for invocation of
the powers under section 147 read with sections 148 and 149 was not
fulfilled. The impugned notice is, therefore, without any authority of
law."
8. In case of Sadbhav Engg. Ltd. v. Dy. CIT [2011] 333 ITR 483/[2012]
20 taxmann.com 784 (Guj.), the Court held and observed as under :—
"In the facts of the present case, relevant assessment years are
2003-04 and 2004-05. The notice under section 148 of the Act relating
to assessment year 2003-04 has been issued on 29.03.2010, whereas the
notice under section 148 of the Act relating to assessment year
2004-05 has been issued on 29.4.2010. Computing the period between the
end of the relevant assessment years and the date of issuance of the
notices under section 148, it is evident that both the notices have
been issued beyond a period of four years from the end of the relevant
assessment years. The first proviso to section 147 of the Act, lays
down that where an assessment under sub-section (3) of section 143 or
the said section has been made for the relevant assessment year, no
action shall be taken under the section after expiry of four years
from the end of the relevant assessment year, unless any income
chargeable to tax has escaped assessment by reason of the failure on
the part of the assessee to make a return under section 139 or in
response to a notice issued under sub-section (1) of section 142 or
section 148 or to disclose fully and truly all material facts
necessary for his assessment. Thus, for the purpose of invoking
section 147 after the expiry of four years from the end of the
relevant assessment year, the income chargeable to tax should have
escaped assessment by reason of failure on the part of the assessee
either (i) to make a return under section 139 or in response to a
notice issued under sub-section (1) of section 142 or section 148, or
(ii) to disclose fully and truly all material facts necessary for his
assessment. In the facts of the present case, it is an undisputed
position that there is no failure on the part of the assessee insofar
as the first condition is concerned. Insofar as the second condition,
viz. failure on the part of the assessee to disclose fully and truly
all material facts necessary for his assessment is concerned on a
plain reading of the reasons recorded, it is apparent that the same
are totally silent as regards any failure on the part of the
petitioner to disclose fully and truly all material facts necessary
for its assessment for the relevant assessment years. From the reasons
recorded it is apparent the assessments are sought to be reopened on
the ground that as per the Explanation given below sub-section (13) of
section 80IA of the Act, which has been substituted by the Finance Act
No.2 of 2009 with retrospective effect from 1.4.2000, deduction under
section 80IA would not be admissible to an assessee who carries on
business which is in the nature of works contract. That the petitioner
assessee being a civil contractor working for the Government is not
eligible for deduction under section 80IA as claimed by the assessee,
hence there was reason to believe that income chargeable to tax has
escaped assessment for the assessment years under consideration. The
record of the case does not in any manner indicate that proceedings
under section 147 are sought to be reopened by reason of failure on
the part of the petitioner to disclose fully and truly all material
facts necessary for its assessment for assessment years under
consideration. The respondent in its affidavit in reply also has not
disputed the fact that there is no failure on the part of the
petitioner to disclose fully and truly all material facts. Only by way
of submission advanced before the Court it is contended that in the
light of the amendment of section 80IB, it is deemed that the
petitioner has failed to disclose the correct facts. As to whether or
not there is any failure on the part of the assessee in disclosing
fully and truly all material facts necessary for his assessment, is a
matter of fact and there can be no deemed failure as is sought to be
contended on behalf of the respondents. In the circumstances, in
absence of any failure on the part of the petitioner to disclose fully
and truly all material facts necessary for its assessment for the
assessment years under consideration, the notices under section 148 of
the Act having been issued after the expiry of a period of four years
from the end of the relevant assessment years, the very initiation of
proceedings under section 147 of the Act stand vitiated and as such
cannot be sustained."
9. Counsel for the Revenue, however, relied on the Division Bench
decision of the Bombay High Court in case of CIT v. Bai Navajbai N.
Gamadia [1959] 35 ITR 793 in which it was observed that an amendment
in law with retrospective effect what form information on the basis of
which it would be open for the Assessing Officer to reopen the
assessment. The question of such assessment being reopened beyond the
period of four years, in the said case did not arise. The additional
requirement of the tax escaping assessment for the reason of the
assessee failing to disclose truly and fully all material facts was
not a question needed to be gone into by the Court.
10. In the result, impugned notice dated 22nd March 2013 is quashed.
Petition stands disposed of accordingly.
SONAM
*In favour of assessee.
completely while claiming exemption under section 80-IA reopening
would lack validity
■■■
[2014] 45 taxmann.com 396 (Gujarat)
HIGH COURT OF GUJARAT
Ranjit Projects (P.) Ltd.
v.
Deputy Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 2160 OF 2014
MARCH 18, 2014
Section 80-IA, read with section 147, of the Income-tax Act, 1961 -
Deductions - Profit and gains from infrastructure undertakings
(Re-assessment) - Assessment year 2006-07 - Petitioner entered into
agreement with GSRD corporation for construction of four-lane-Rail
over-bridge for which it was allowed to collect toll at a specified
rate for a certain period - It claimed deduction under section 80-IA
with respect to its income of toll collection which was allowed by
Assessing Officer in original assessment - However, Assessing Officer
reopened assessment on ground that assessee had not entered into any
agreement with Central Government or State Government or local
authority or any other statutory body as required in section
80-IA(4)(i)(a) and it was only sub-contracted project that was
allotted to GSRDC by State Government - Whether since Assessing
Officer could not point out that income chargeable to tax had escaped
assessment due to failure on part of assessee to disclose truly and
fully all material facts notice for reopening lacked validity - Held,
yes [Para 5] [In favour of assessee]
FACTS
■ The petitioner-company, was engaged in infrastructure development
projects in sector like Road, bridges. It constructed a Four-lane Rail
Over Bridge (ROB) in terms of the agreement with Gujarat State Road
Development Corporation [GSRD]. It constructed the said over-bridge on
Build, Operate and Transfer (BOT) basis for which it entered into a
"concession agreement" with GSRDC wherein, it was allowed to collect
toll at a specified rate for a certain period.
■ Based on the agreement between petitioner and GSRDC, the
Government of Gujarat issued a notification authorizing it to collect
toll from ROB.
■ The petitioner claimed deduction under section 80-IA with respect
to its income of toll collection which was accepted by the Assessing
Officer in the original assessment.
■ The Assessing Officer reopen assessment under section 147
regarding disallowance of petitioner claim for deduction under section
80-IA. The Assessing Officer held a belief that GSRDC was a company
and not a statutory body or local authority, and therefore, condition
laid down in section 80-IA(4)(i)(a) was not fulfilled. He further
observed that the petitioner had only sub-contracted the project
allotted to GSRDC by the State Government. The Government had issued a
notification authorizing collection of toll, which was also issued in
favour of GSRDC and not the assessee-company.
■ On writ:
HELD
■ In the entire reasons recorded, the Assessing Officer did not
point out that such income chargeable to tax had escaped assessment
due to failure on the part of the assessee to disclose truly and fully
all material facts. Quite apart, such narration being simply absent
from the reasons recorded, no such conclusion can be reached on the
basis of the material merging either from the reasons recorded, or
even outside of it. In fact, the reasons recorded suggest that it was
on verification of the assessment records by the Assessing Officer
that it was revealed to him the facts noted above. Thus, the entire
formation of belief is founded on the material already on the record.
Therefore, in addition to there being no suggestion by the Assessing
Officer that income chargeable to tax had escaped assessment for the
reason of the assessee failing to disclose truly and fully all
material facts, demonstrably, from the record it emerges to the
contrary. The notice for reopening having been issued beyond the
period of four years from the end of the relevant assessment year and
original assessment having been completed after scrutiny, this
additional requirement emerging from proviso to section 147 that
income chargeable to tax had escaped assessment for the failure of the
assessee to disclose truly and fully all material facts, must be
satisfied. In that view of the matter that the notice for reopening
lacks validity. [Para 5]
■ In the result, impugned notice is quashed. Petition stands
disposed of accordingly. [Para 10]
CASE REVIEW
Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456 (Guj.)
(para 7) followed.
CIT v. Bai Navajbai N. Gamdia [1959] 35 ITR 793 (Bom.) (para 9) distinguished.
CASES REFERRED TO
Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456 (Guj.)
(para 7), Sadbhav Engg. Ltd. v. Dy. CIT [2011] 333 ITR 483/[2012] 20
taxmann.com 784 (Guj.) (para 8) and CIT v. Bai Navajbai N. Gamadia
[1959] 35 ITR 793 (Bom.) (para 9).
S.N. Soparkar and B.S. Soparkar for the Petitioner. Sudhir M. Mehta
for the Respondent.
ORDER
Akil Kureshi, J. - Heard learned counsel for the parties for final
disposal of the petition.
2. Petitioner has challenged a notice dated 22nd March 2013 issued by
the respondent-Assessing Officer seeking to reopen the assessment of
the petitioner for the assessment year 2006-07, which was previously
framed after scrutiny. At the request of the petitioner, the Assessing
Officer supplied the reasons recorded by him for issuing such notice.
The reasons read as under :—
"In this case, the assessee engaged in infrastructure development
projects in sector Road, bridges and by passes has filed its return
for A.Y 2006-07 on 28.1.2006 declaring 'Nil' income and paid tax of
Rs. 35,46,507/- under Section 115JB. The income under the normal
provisions of the Act was arrived at after claiming 100% deduction of
the profit and gains of the business of Rs. 3,52,02,368/- under
section 80IA of the Act. The case was completed in scrutiny manner
under section 143 (3) of the Act, on 22.12.2008 by accepting the
income declared by the assessee in its return and tax was charged
under section 115JB. On verification of the assessment records
revealed that the assessee was allowed deduction u/s. 80IA for
development of four-lane Rail Over Bridge [ROB] in lieu of an existing
under pass at Chhayapuri [Near GSFC Junction] on Mumbai Delhi Broad
Gauge Railway Line, Baroda. The project, as per the assessee was given
to it on Build Operate & Transfer [BOT] basis by Gujarat State Road
Development Corporation, a Government of Gujarat enterprise
incorporated under the Companies Act, 1956. From the records, it was
observed that assessee has entered into a 'concession agreement' with
GSRDC on 13.10.2001 wherein, assessee was entitled to collect from ROB
for 181 months and at the end of the stipulated period. ROB was to be
transferred to Government of Gujarat. Based on the concession
agreement between assessee and GSRDC, the government of Gujarat issued
a notification No. Toll/102001-(20)-Part 1 Prvt. Cell dated 07.03.2003
authorizing the assessee to collect toll from ROB. Thus, it was amply
clear that the assessee had not entered into any agreement with the
Central Government or State Government or local authority or any other
statutory body as required in Section 80IA[4](i)(a) of the Act. GSRDC
was a company and not a statutory body nor local authority. Thus, the
condition laid down in Section 80IA[4](i)(a) of the Act was not
fulfilled. The assessee was only sub-contracted the project alloted to
GSRDC by the State Government. Further, the Government notification
authorizing assessee to collect toll was also issued to GSRDC with
copy to the Collector and not to the assessee company. Thus, in view
of non-fulfilment of the conditions of Section 80IA of the Act, the
deduction allowed to the tune of Rs. 3,52,02,368/- was irregular and
liable to be disallowed. The underassessment of Rs. 3,52,02,368/-
involved income tax as under :—
I. Tax @ 30% on Rs. 3,52,02,368/- 1,05,60,710
Surcharge 10% 10,56,071
Education Cess @ 2% 2,32,336
LESS : I. Tax Charged under section 115JB 35,46,507
Income Tax [Differential] 83,02,610
Interest U/s. 234 @ 1% month on Rs. 83,02,610 from 01.04.2006 to
22.12.2008 i.e., 33 months [33%] 27,39,861
Total Short levy of Income Tax 1,10,42,471
In view of the above facts, I have reason to believe that short levy
of income Tax is to the extent of Rs. 1,10,42,471/-. Accordingly,
assessment is reopened u/s. 147 of the Income-Tax Act, 1961."
3. Petitioner thereupon raised objections to the proposal of the
Assessing Officer to reopen the assessment under a communication dated
26th November 2013. Such objections, however, were rejected by the
Assessing Officer by an order dated 23rd December 2013. Hence, the
petition.
4. Having heard learned advocates for the parties and having perused
the documents on record, we notice that the reasons recorded by the
Assessing Officer pertain to the petitioner's claim for deduction
under Section 80IA of the Income-tax Act, 1961 ("the Act" for short).
The Assessing Officer had objection to the petitioner claiming such
deduction with respect to the petitioner's income of toll collection
from a four-lane Rail over-bridge constructed by the petitioner in
terms of the agreement with GSRD Corporation. The petitioner had
constructed the said over-bridge on Build, Operate and Transfer [BOT]
basis. Under the agreement, the petitioner was allowed to collect toll
at a specified rate for a certain period. The Assessing Officer held a
belief that GSRDC was a company and not a statutory body or local
authority, and therefore, the condition laid down in Section
80IA[4](i)(a) of the Act was not fulfilled. The Assessing Officer
further observed that the petitioner had only sub-contracted the
project allotted to GSRDC by the State Government. The Government had
issued a notification authorizing collection of toll, which is also
issued in favour of GSRDC and not the assessee company. On such
grounds, he held a reason to believe that the income chargeable to tax
had escaped the assessment.
5. In the entire reasons recorded, the Assessing Officer did not point
out that such income chargeable to tax had escaped assessment due to
failure on the part of the assessee to disclose truly and fully all
material facts. Quite apart, such narration being simply absent from
the reasons recorded, no such conclusion can be reached on the basis
of the material emerging either from the reasons recorded, or even
outside of it. In fact, the reasons recorded suggest that it was on
verification of the assessment records by the Assessing Officer that
it was revealed to him the facts noted above. Thus, the entire
formation of belief is founded on the material already on the record.
Therefore, in addition to there being no suggestion by the Assessing
Officer that income chargeable to tax had escaped assessment for the
reason of the assessee failing to disclose truly and fully all
material facts, demonstrably, from the record it emerges to the
contrary. The notice for reopening having been issued beyond the
period of four years from the end of the relevant assessment year and
original assessment having been completed after scrutiny, this
additional requirement emerging from proviso to Section 147 of the Act
that income chargeable to tax had escaped assessment for the failure
of the assessee to disclose truly and fully all material facts, must
be satisfied. In that view of the matter, we are of the opinion that
the notice for reopening lacks validity.
6. Counsel for the Revenue, however, raised an unusual contention. He
submitted that Section 80IA of the Act was amended by the Finance Act
of 2009 with retrospective effect from 1st April 2000 and to such
amendment, an Explanation was added to the said section under which a
person acting as a works contractor would not be eligible for
deduction under Section 80IA [4] of the Act.
7. Without expressing any opinion on the true interpretation of the
said Explanation, in our opinion, any amendment in law, even with
retrospective effect, would not authorize the Assessing Officer to
reopen the assessment previously framed after scrutiny beyond the
period of four years from the end of the relevant assessment year
unless the conditions laid down under the proviso to Section 147 of
the Act are fulfilled. This is what was held by this Court in case of
Denish Industries Ltd. v. ITO [2004] 271 ITR 340/140 Taxman 456, in
the following terms :—
"In CIT v. Hindustan Electro Graphites Limited [2000] 243 ITR 48 (SC)
in the context of applicability of the provisions of Section 143(1A)
of the Act, the apex court quoted with approval the following
observations of the Calcutta High Court in Modem Fibotex India Limited
v. Deputy CFIT [1995] 212 ITR 496, 512 :
An assessee cannot be imputed with clairvoyance. When the return was
filed, the assessee could not possibly have known that the decision on
the basis of which cash compensatory support had been claimed as not
amounting to the assessee's income ceased to be operative by reason of
retrospective legislation."
In the above decision, the apex court followed its decision in Cement
Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15 under the
sales tax law where the court said that a return cannot be said to be
"false" unless there is an element of deliberateness in it. It is
possible that even where the incorrectness of the return is claimed to
be due to want of care on the part of the assessee and there is not
reasonable explanation forthcoming from the assessee for such want of
care, the court may in a given case, infer deliberateness and the
return may be liable to be branded as a false return. But where the
assessee does not include a particular item in the taxable turnover
under a bona fide belief that he is not liable so to include it, it
would not be right to condemn the return as a "false" return.
The same reasoning would apply for holding that for the purpose of
deciding the question under section 147 whether the assessee had
disclosed fully and truly all material facts necessary for the
relevant assessment year, the law applicable would be the law as it
stood on the date of filing of the return.
In view of the above discussion, we are of the view that there was no
failure on the part of the assessee to disclose truly and fully all
material facts. Therefore, the condition precedent for invocation of
the powers under section 147 read with sections 148 and 149 was not
fulfilled. The impugned notice is, therefore, without any authority of
law."
8. In case of Sadbhav Engg. Ltd. v. Dy. CIT [2011] 333 ITR 483/[2012]
20 taxmann.com 784 (Guj.), the Court held and observed as under :—
"In the facts of the present case, relevant assessment years are
2003-04 and 2004-05. The notice under section 148 of the Act relating
to assessment year 2003-04 has been issued on 29.03.2010, whereas the
notice under section 148 of the Act relating to assessment year
2004-05 has been issued on 29.4.2010. Computing the period between the
end of the relevant assessment years and the date of issuance of the
notices under section 148, it is evident that both the notices have
been issued beyond a period of four years from the end of the relevant
assessment years. The first proviso to section 147 of the Act, lays
down that where an assessment under sub-section (3) of section 143 or
the said section has been made for the relevant assessment year, no
action shall be taken under the section after expiry of four years
from the end of the relevant assessment year, unless any income
chargeable to tax has escaped assessment by reason of the failure on
the part of the assessee to make a return under section 139 or in
response to a notice issued under sub-section (1) of section 142 or
section 148 or to disclose fully and truly all material facts
necessary for his assessment. Thus, for the purpose of invoking
section 147 after the expiry of four years from the end of the
relevant assessment year, the income chargeable to tax should have
escaped assessment by reason of failure on the part of the assessee
either (i) to make a return under section 139 or in response to a
notice issued under sub-section (1) of section 142 or section 148, or
(ii) to disclose fully and truly all material facts necessary for his
assessment. In the facts of the present case, it is an undisputed
position that there is no failure on the part of the assessee insofar
as the first condition is concerned. Insofar as the second condition,
viz. failure on the part of the assessee to disclose fully and truly
all material facts necessary for his assessment is concerned on a
plain reading of the reasons recorded, it is apparent that the same
are totally silent as regards any failure on the part of the
petitioner to disclose fully and truly all material facts necessary
for its assessment for the relevant assessment years. From the reasons
recorded it is apparent the assessments are sought to be reopened on
the ground that as per the Explanation given below sub-section (13) of
section 80IA of the Act, which has been substituted by the Finance Act
No.2 of 2009 with retrospective effect from 1.4.2000, deduction under
section 80IA would not be admissible to an assessee who carries on
business which is in the nature of works contract. That the petitioner
assessee being a civil contractor working for the Government is not
eligible for deduction under section 80IA as claimed by the assessee,
hence there was reason to believe that income chargeable to tax has
escaped assessment for the assessment years under consideration. The
record of the case does not in any manner indicate that proceedings
under section 147 are sought to be reopened by reason of failure on
the part of the petitioner to disclose fully and truly all material
facts necessary for its assessment for assessment years under
consideration. The respondent in its affidavit in reply also has not
disputed the fact that there is no failure on the part of the
petitioner to disclose fully and truly all material facts. Only by way
of submission advanced before the Court it is contended that in the
light of the amendment of section 80IB, it is deemed that the
petitioner has failed to disclose the correct facts. As to whether or
not there is any failure on the part of the assessee in disclosing
fully and truly all material facts necessary for his assessment, is a
matter of fact and there can be no deemed failure as is sought to be
contended on behalf of the respondents. In the circumstances, in
absence of any failure on the part of the petitioner to disclose fully
and truly all material facts necessary for its assessment for the
assessment years under consideration, the notices under section 148 of
the Act having been issued after the expiry of a period of four years
from the end of the relevant assessment years, the very initiation of
proceedings under section 147 of the Act stand vitiated and as such
cannot be sustained."
9. Counsel for the Revenue, however, relied on the Division Bench
decision of the Bombay High Court in case of CIT v. Bai Navajbai N.
Gamadia [1959] 35 ITR 793 in which it was observed that an amendment
in law with retrospective effect what form information on the basis of
which it would be open for the Assessing Officer to reopen the
assessment. The question of such assessment being reopened beyond the
period of four years, in the said case did not arise. The additional
requirement of the tax escaping assessment for the reason of the
assessee failing to disclose truly and fully all material facts was
not a question needed to be gone into by the Court.
10. In the result, impugned notice dated 22nd March 2013 is quashed.
Petition stands disposed of accordingly.
SONAM
*In favour of assessee.
IT: Where in case of search carried out at premises of a builder, a
MOU was seized showing that assessee had to receive certain amount
from said builder on transfer of plot, in view of fact that MOU was
duly signed by assessee in presence of five witnesses, it could not be
regarded as a dumb or irrelevant document, and, therefore, impugned
addition made on basis of said document was to be upheld
IT: Sub-section (4A) of section 132 is a deeming provision and,
therefore, scope of said sub-section cannot be extended to any other
section of Act
■■■
[2014] 45 taxmann.com 533 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'A'
Pravinbhai Keshavbhai Patel
v.
Deputy Commissioner of Income-tax, Central Circle -1(2), Ahmedabad*
MUKUL KR. SHRAWAT, JUDICIAL MEMBER
AND N.S. SAINI, ACCOUNTANT MEMBER
IT (SS) APPEAL NO. 796 (AHD.) OF 2010
FEBRUARY 28, 2014
Section 153C of the Income-tax Act, 1961 - Search & Seizure -
Assessment of income of any other person (Dumb documents) - A search
was carried out in case of 'V', a builder and in course of said
proceedings a 'MOU' executed by assessee was seized - As per terms of
'MOU', assessee had to receive certain amount from 'V' on transfer of
plot - Assessing Officer taking a view that said document (MOU)
belonged to assessee, initiated proceedings under section 153C and
made certain addition to assessee's income - Whether since MOU was
duly signed by assessee in presence of five witnesses, it could not be
regarded as a dumb or irrelevant document - Held, yes - Whether,
therefore, impugned addition made by Assessing Officer was to be
confirmed - Held, yes [Paras 8 and 10] [In favour of revenue]
Section 132 of the Income-tax Act, 1961 - Search and seizure - General
(Sub-section 4A) - Whether sub-section (4A) of section 132 is a
deeming provision and, therefore, scope of said sub-section cannot be
extended to any other section of Act - Held, yes [Para 6.2]
FACTS
■ A search was conducted on 'V' in course of which certain
documents were recovered/seized from a vehicle stated to be owned by
him. There was a document in the nature of 'Memorandum of
Understanding'. Admittedly, one of the signatory was assessee in
question. On the basis of the said document, the Assessing Officer
having initiated proceedings under section 153C in case of assessee,
made certain addition on account of unexplained investment.
■ The Commissioner (Appeals) confirmed said addition.
■ The assessee filed instant appeal wherein apart from challenging
addition on merits, he raised a legal plea that seized material found
from 'V', did not belong to him and assessment made on the basis of
said material was not in confirmation of section 153C.
HELD
■ Section 132(4A) states that where any books of account, or other
documents etc, is found in possession or control of any person in a
course of a search then it may be presumed that such books of account
or other document etc. 'belongs' to such person who is searched. Now,
the question is that whether this section is to be applied while
interpreting the word 'belong to'; also incorporated in section 153C.
■ Section 132(4A) is a deeming provision; therefore, the scope of
sub-section (4A) is not to be extended to any other section. A deeming
provision should remain confined to that very section for which it is
introduced in the statute. In section 132(4A) the terminology used is
'presumed', which means a deeming provision is introduced.
■ For interpreting such provision it is desirable first to ascertain
the purpose for which such fiction is created. But in so construing
fiction, it is not to be extended beyond the purpose for which it is
created. It is well settled that a deeming provision must not be
extended by importing another fiction. Rather a 'legal fiction' is to
be interpreted narrowly.
■ There is a distinction between the reality and the fiction. In
Section 153C in reality the Assessing Officer has to satisfy that the
impugned incriminating materials belong to a person other than the
person searched. In contrast, the Assessing Officer is to draw a
presumption that if a seized material is in possession then it belongs
to that person under section 132(4A). [Para 6.2]
■ In any case, apart from the above logic, if one accepts the
argument of assessee then the basic purpose of the introduction of
section 153C/158BD shall be defeated. Heading of section 153C is
'Assessment of income of any other person'; therefore it is to be
applied if prima facie the Assessing Officer is of the opinion or
satisfied that any money, jewellery, books of account or documents
seized belong to 'such other person' other than the person referred in
section 153A. After a close reading of the relevant section it is
wrong as well as illogical to interpret section 153C that a document
etc, would belong to 'other person' only if it was found in his
possession or control.
■ The very purpose of the introduction of section 153C would be
defeated if one interprets in this manner. The purpose of introduction
of section 153C was to rope-in 'other person' who has not been raided
or searched however the incriminating material related to him was
found in possession of a person searched. [Para 6.3]
■ At this juncture, it is worth to mention that section 292C has
also been introduced in the provisions of the Act and sub section (1)
of this section prescribes that where any books of account, other
document, money, etc., is found in the possession or control of any
person in the course of a search under section 132, it may be presumed
that such books of account, etc., belongs to such person. Upto this
extent the language tallies with the language of section 132(4).
However, sub-section (2) of section 292C has clarified the controversy
in respect of the terminology 'belong to' could have arisen while
challenging under section 153C. [Para 6.4]
■ Sub-section (2) of section 292C prescribes how to treat the
material delivered on requisition. This sub-section (2) is clarifying
the controversy which sometimes arise in a situation when the seized
material is transferred to the Assessing Officer having jurisdiction
over "other person". This sub section says that where any books of
account etc., have been delivered to the requisitioning officer then
the provisions of sub-section (1) of section 292C shall apply that as
if such books of account etc. which has been taken into custody from
the person searched, as the case may be, had been found in possession
or control of 'that person' (in whose case material requisitioned) in
the course of a search under section 132.
■ Where any seized material is transferred or handed over to the
Assessing Officer having jurisdiction over such other person then that
seized material shall be treated as if such material was found in
possession or control of 'such other person'. Hence, a conclusion can
be drawn that in spite of anything contained in any of the provisions
of the Act where the Assessing Officer is satisfied that the seized
material recovered at the time of search from the possession of the
person searched but it is required to be proceeded against 'other
person', then at the time when the seized material is handed over to
the Assessing Officer having jurisdiction over 'other person' then it
shall be deemed that the said seized material was found in possession
or control of such other person. Then the consequences that if it is
found in possession of such other person then the provisions of
section 132(4A) shall also be applied ipso facto. Because of this
logic the argument of assessee is turned down. [Para 6.4]
■ Coming to the merits of the addition. It was noted by the
Assessing Officer that the Memorandum of Understanding was detected at
the time of search. This memorandum was made between the assessee and
'V' who is the Chairman of 'M' builder Ltd. This memorandum was duly
signed by these two persons/parties in the presence of few witnesses.
As per Assessing Officer a plot was allotted in Chitwan Scheme
developed by 'M' Builder Ltd. for a consideration of Rs. 12,24,000.
The Assessing Officer had inquired through a show-cause notice that
whether the assessee had shown the said transaction in his regular
books of account. The assessee has preferred not to attend the
assessment proceedings before the Assessing Officer. As per Assessing
Officer, the assessee had not disclosed the said investment in the
Department and offered no explanation, therefore, it was held as
unaccounted investment in the hands of the assessee. [Para 6.6]
■ When the matter was carried before the first appellate authority,
the Commissioner (Appeals) has examined the contents of the said
seized MOU. [Para 7]
■ The Commissioner (Appeals) has observed that the MOU was duly
signed by the assessee in the presence of five witnesses. According to
him, once the said MOU was signed by the assessee, therefore, it
belonged to the assessee. He has held that the notice under section
153C was rightly issued in the case of the assessee. The Commissioner
(Appeals) has also noted that there was proper service of notice but
there was deliberate non compliance on the part of the assessee. [Para
8]
■ The assessee contended that there was no evidence in possession
of the Department that the impugned amount has actually been received
by the assessee subsequently. The said amount was to be received as
per the MOU but it was never received by the assessee. He has pleaded
that even the said amount had not accrued in favour of the assessee
because the transaction of the plot never took place. The addition was
merely on presumption that the amount was an income of the assessee;
hence, the same should be deleted. [Para 9]
■ It was noted from records that the document in question is
written in gujarati which was duly signed by the concerned two parties
in the presence of the witnesses. On the top of the document, as
customary, name of the Lord Ganesha is also noted. Undisputedly, the
document in question has been signed in the name of God as also in the
presence of the witnesses. Considering the nature as well as the text
of the document it is difficult to hold that the said document was
merely a dumb document or an irrelevant document. In this document,
the amount of the construction, i.e., Rs. 12,24,000 as well as the
details of the plot have clearly been noted. Therefore, the argument
of the assessee that the undisclosed investment did not belong to him
could not be accepted. The assessee was given sufficient opportunity
to rebut the said document but he has preferred not to attend properly
the proceedings before the Assessing Officer. [Para 10]
■ In a situation when any books of account or documents, etc. have
been delivered to the requisitioning officer having jurisdiction over
'such other person', i.e., other than the person who has been
searched; then those documents, etc., delivered or requisitioned shall
be dealt with as if they have been found in the possession or control
of 'such other person' against whom the proceedings have been
initiated under section.153C. Such books of account or documents shall
be deemed to have been found in the possession or control of such
other person as if recovered in the course of search under section
132. Moreover, in this case the assessee being one of the signatory of
the contents recording the transactions hence the documents was
belonging to the assessee. Therefore, the amount in question was
rightly assessed in his hand. [Para 11]
■ In the result, the appeal is dismissed. [Para 12]
CASES REFERRED TO
National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) (para
2.2), Vijaybhai N. Chaudrani v. Asstt. CIT [2011] 333 ITR 436 (Guj.)
(para 3), Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 118
Taxman 112 (Ahd.) (Mag.) (para 4), Kamleshbhai Dharamshibhai Patel v.
CIT [2013] 31 taxmann.com 50/31 Taxman 50 (Guj.) (para 5), Central
Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 (para 6.5),
Unique Organisers & Developers (P.) Ltd. v. Dy. CIT [2001] 70 TTJ 131
(Ahd.) and CIT v. Maulik Kumar K. Shah [2008] 307 ITR 137 (Guj.) (para
9).
Subhash Bains for the Appellant. P.M. Patel for the Respondent.
ORDER
Mukul Kr. Shrawat, Judicial Member. - This is an appeal filed by the
assessee arising from the order of learned CIT(A)-III, Ahmedabad,
dated 08.09.2010 and the grounds raised are reproduced below:
"1. The learned Commissioner of Income Tax (Appeals)-III, Ahmedabad
has erred in deciding validity of service of notice to the assessee,
consequently deciding validity of assessment though no proper notice
have been served to the assessee, hence assessment order is bad in
law, hence liable to be anulled.
2. The learned Commissioner of Income Tax (Appeals)-III, Ahmedabad
has erred in confirming the assessment of Rs. 12,24,000.00 wrongly
added to total income by learned AO.
3. As assessee neither received any amount nor any plot from Mr.
Vikas Shah, the addition of Rs.12,24,000.00 is liable to be deleted
from the assessment order."
2. At the outset, learned AR has made a statement at bar that through
Ground no.1, the validity of the assessment is challenged on the
ground of service of notice; but in the light of an "additional
ground" raised; this Ground No.1 is not to be pressed. Considering the
statement of learned AR, Ground No.1 is dismissed being not pressed.
2.1 The appellant had raised the following "Additional Ground".
"Whether on the facts and circumstances of the case, the seized
material found from Shri Vikas A. Shah belongs to the assessee and
assessment made on the basis of said material is in confirmation of
Section 153C of Income Tax Act."
2.2 After hearing the submissions of both the sides, we hereby admit
this additional ground being a legal ground emerging from the facts
already on record by following the judgment of Hon'ble Apex Court in
the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383.
3. Learned AR has contested that the document in question, i.e., MOU;
was not found from the possession of the assessee. The said document
was recovered from one Sri Vikash A. Shah who was searched u/s.132(2)
on 9th of February, 2005. The impugned MOU was seized from his
vehicle. That vehicle was owned by Sri Vikash A. Shah and not by the
assessee. Because the said document was found in possession of Sri
Vikash A. Shah, therefore, in the light of the provisions of Section
132(4A), the same belonged to Sri Vikash A. Shah and not to the
assessee. Learned AR has referred Sec.132 (4A) for the legal
proposition that the statute prescribes that a document or a valuable
article belongs to a person in whose possession it was found. He has
further advanced his argument that the proceedings against this
assessee were initiated by invoking the provisions of Section 153C of
IT Act wherein the statute has prescribed that where the AO is
satisfied that any money, jewellery, books of account, documents etc,
seized or requisitioned belong to a person other than the person
referred in Section 153A then the books of account shall be handed
over to the AO having jurisdiction over search other person. He has
argued that the admitted factual position was that the MOU was found
in possession of Sri Vikash A. Shah, therefore, the said document
belonged to him and not to the assessee. Since, the said document
belonged to Vikash A. Shah, therefore, the proceedings u/s. 153C were
wrongly initiated against the assessee. In respect of this argument,
learned AR has also cited a decision of Hon'ble Gujarat High Court
pronounced in the case of Vijaybhai N. Chandrani v. Asstt. CIT [2011]
333 ITR 436.
4. His next plank of argument is that the property in question for
which the impugned amount of Rs.12,24,000/- was alleged to have been
received by the assessee did not belong to the assessee. Once the
property itself did not belong to the assessee, therefore, there was
no question of taxing the said amount in the hands of the assessee.
Learned AR has also cited a decision of Prarthana Construction (P.)
Ltd. v. Dy. CIT [2001] 118 Taxman 112 (Ahd)(Mag.) for the legal
proposition that Revenue was not justified in resting its case on the
loose paper and documents found from the residence of a third party,
even if such document contained narration of transaction with the
assessee company.
5. From the side of the Revenue, learned CIT-DR, Mr. Subhash Bains has
supported the view taken by the Revenue Authorities. He has pleaded
that the MOU in question was duly signed by the assessee in the
presence of witnesses. To argue that the said MOU did belong to the
assessee Ld. DR has pleaded that once the document was signed by a
person then naturally that document belonged to the person who had put
the signatures on it. In support, he has placed reliance on
Kamleshbhai Dharamshibhai Patel v. CIT [2013] 31 taxmann.com 50/31
Taxman 50 (Guj.).
5.1 In addition to the above sections quoted by both the sides a
discussion has also been held in respect of the provisions of Section
292 C of IT Act. However, learned AR has pleaded that Section 153C and
Section 158BD are identically worded sections and the case laws either
dealing any of these two sections are applicable on the issue of
"income belongs to any person, other than the person with respect to
whom search was made u/s. 132". Learned AR has pleaded that the first
contention is that the document or the income should "belong" to such
other person then only the proceedings u/s.153C could be initiated.
6. We have heard both the sides. We have perused the case law cited in
the light of the facts of the case. A search was conducted on Sri
Vikash A. Shah u/s.132 of IT Act on 9th of February, 2005 and
thereupon certain documents were recovered / seized from a vehicle
stated to be owned by Sri Vikash A. Shah. There was a document in the
nature of "Memorandum of Understanding". A photocopy of the said
document is placed before us at pages (15) and (16) of the paper book.
Admittedly, one of the signatory is assessee in question. On the basis
of the said document, the AO had initiated the proceedings u/s.153C of
IT Act.
6.1 Now the legal question before us is that whether under these facts
the AO was legally justified in invoking the proceedings u/s.153C of
IT Act. The appellant's argument is that in a situation when the
impugned document was not found in the "possession" of the assessee
then it did not "belong" to the assessee. Consequently, the
proceedings u/s. 153C were illegally initiated against the assessee.
6.2 We have perused Section 132(4A) of IT Act which is a deeming sub
section and states that where any books of account, or other documents
etc, is found in possession or control of any person in a course of a
search then it may be presumed that such books of account or other
document etc. "belongs" to such person who is searched. Now, the
question is that whether this section is to be applied while
interpreting the word "belong to"; also incorporated in Section 153C
of IT Act. According to us, Section 132(4A) is a deeming provision;
therefore, the scope of sub section (4A) is not to be extended to any
other section. A deeming provision should remain confined to that very
section for which it is introduced in the statute. In Section 132(4A)
the terminology used is "presumed", which means a deeming provision is
introduced. For interpreting such provision it is desirable first to
ascertain the purpose for which such fiction is created. But in so
construing fiction, it is not to be extended beyond the purpose for
which it is created. It is well settled that a deeming provision must
not be extended by importing another fiction. Rather a "legal fiction"
is to be interpreted narrowly. There is a distinction between the
reality and the fiction. In Section 153C in reality the AO has to
satisfy that the impugned incriminating materials belong to a person
other than the person searched. In contrast, the AO is to draw a
presumption that if a seized material is in possession that it belongs
to that person u/s. 132(4A) of the Act.
6.3 In any case, apart from the above logic, if we accept the argument
of learned AR then the basic purpose of the introduction of Section
153C/158BD shall be defeated. Heading of Section 153C is "Assessment
of income of any other person"; therefore it is to be applied if prima
facie the AO is of the opinion or satisfied that any money, jewellery,
books of account or documents seized belong to "such other person"
other than the person referred in Section 153A. After a close reading
of the relevant section it is wrong as well as illogical to interpret
section 153C that a document etc, would belong to "other person" only
if it was found in his possession or control. The very purpose of the
introduction of Section 153C would be defeated if we interpret in this
manner. The purpose of introduction of Section 153C was to rope-in
"other person" who has not been raided or searched however the
incriminating material related to him was found in possession of a
person searched.
6.4 At this juncture, it is worth to mention that Section 292C has
also been introduced in the provisions of IT Act and sub section (1)
of this Section prescribes that where any books of account, other
document, money, etc., is found in the possession or control of any
person in the course of a search u/s. 132, it may be presumed that
such books of account, etc., belongs to such person. Upto this extent
the language tallies with the language of Section 132(4). However, sub
section (2) of Section 292C has clarified the controversy in respect
of the terminology "belong to" could have arise while challenging u/s.
153C of the IT Act for ready reference, Section 292C (2) is reproduced
below:
"Where any books of account, other documents or assets have been
delivered to the requisitioning officer in accordance with the
provisions of Section 132A, then, the provisions of sub-section (1)
shall apply as if such books of account, other documents or assets
which had been taken into custody from the person referred to in
clause (a) or clause (b) or clause (c), as the case may be, of sub
section (1) of Section 132A, had been found in the possession or
control of that person in the course of a search under section 132."
This sub Section prescribes how to treat the material delivered on
requisition. This sub section (2) is clarifying the controversy which
sometimes arise in a situation when the seized material is transferred
to the AO having jurisdiction over "other person". This sub section
says that where any books of account etc., have been delivered to the
requisitioning officer then the provisions of sub-section 1 of section
292C shall apply that as if such books of account etc. which has been
taken into custody from the person searched, as the case may be, had
been found in possession or control of "that person" (in whose case
material requisitioned) in the course of a search u/s.132. Our humble
interpretation of this sub section is that where any seized material
is transferred or handed over to the AO having jurisdiction over such
other person then that seized material shall be treated as if such
material was found in possession or control of "such other person".
Hence, a conclusion can be drawn that in spite of anything contained
in any of the provisions of the Act where the AO is satisfied that the
seized material recovered at the time of search from the possession of
the person searched but it is required to be proceeded against "other
person", then at the time when the seized material is handed over to
the AO having jurisdiction over "other person" then it shall be deemed
that the said seized material was found in possession or control of
such other person. Then the consequences that if it is found in
possession of such other person then the provisions of Section 132(4A)
shall also be applied ipso facto. Because of this logic we thus turn
down the argument of ld. AR.
6.5 As far as the decision of Vijaybhai N. Chandrani (supra) as cited
by learned AR is concerned that the main finding of the Hon'ble
Gujarat High Court was that, quote, "it is nobody's case that the said
documents belong to the petitioner" unquote. On the contrary in the
present case, the case of the Revenue Department is that the appellant
being one of the signatory, therefore, the document in question
belonged to the assessee. We have also perused the decision of
Prarthana Construction (P.) Ltd. (supra), cited by learned AR, and
noticed that the facts were not matching with the facts of the appeal
in hand. The Respected Co-ordinate Bench had rested its decision on
the question whether the loose papers were to be treated as document
having any value. For this purpose, the Respected Bench has also cited
Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410.
Rather, the decision of Gujarat High Court in the case of Kamleshbhai
Darmeshbhai Patel (supra) as cited by learned DR is relevant to
follow, firstly because of the reason that the decision cited by
learned AR of Vijaybhai N. Chandrani (supra) has duly been considered
by the Hon'ble Gujarat High Court and that decision was also
distinguished. The Hon'ble Court has discussed the provisions of
Section 153C of IT Act and thereupon it was held that, quote
"Likewise, the documents of sale also can be stated to belong to the
petitioners. It is not in dispute that the petitioners were the
sellers of the lands. They do not either doubt or dispute the
documents of sale, or their respective signatures thereon. Term
"belong" is not defined and does not have legally technical
connotation and therefore, we once again fall back on the dictionary
meaning of the same. We need to ascertain if such document can be
stated to "have relation or reference to" to the petitioners. As
noted, the petitioners were as sellers of the land, parties to the
documents. They had admittedly executed such sale deeds. It cannot be
stated that the sale deeds do not belong to them. Likewise, the
receipts of payments also are documents belonging to the petitioners.
They are alleged to have received various payments in cash from the
purchasers. If there are documents evidencing such particulars and if
such documents are also signed by the petitioners, it can certainly be
stated that such documents do belong to the petitioners. Under
circumstances, we are of the opinion that the action initiated under
Section 153C of the Act cannot be quashed on the ground on which writ
petitions are presented before us. Petitions are therefore dismissed"
unquote. The basic question which is answered by the Hon'ble Court was
that after examining the document it was found that it belonged to the
assessee although it was requisitioned from the possession of an
another person, hence, the action u/s. 153C was rightly initiated
against the assessee. Having regard to the aforesaid discussion, we
hereby reject the legal issue raised by the petitioner and dismiss
this additional ground.
6.6 Now, we are left with ground no.2 which is in respect of the
merits of the addition. It was noted by the AO that the Memorandum of
Understanding dated 16.05.2001 was detected at the time of search.
This memorandum was made between the assessee and one Sri Vikash A.
shah. Sri Shah is the Chairman of Mansi Builder Ltd. This memorandum
was duly signed by these two persons/parties in the presence of few
witnesses. As per AO a plot was allotted admeasuring 3.65 sq. yard in
Chitwan Scheme developed by Mansi Builder Ltd. for a consideration of
Rs.12,24,000/-. The AO had inquired through a show cause notice that
whether the assessee had shown the said transaction in his regular
books of account. The assessee has preferred not to attend the
assessment proceedings before the AO. As per AO, the assessee had not
disclosed the said investment in the Department and offered no
explanation, therefore, it was held as unaccounted investment in the
hands of the assessee. The relevant observation of the AO is as under:
"Here it is worth to mention that certain seized papers found and
seized from the vehicle No.GJ-1-HF-251 like (1) page No.3 of Annexure
A-20 and page No.63 of A-73, which is MOU between the assessee, Vikas
A. Shah and Amit K. Patel, (2) Page No.1 and its back side of A-178,
which is the MOU between assessee and Vikas A. Shah duly signed,
clearly establish that the assessee has entered into various
transactions with Vikas A. Shah and Mansi Builders and assessee is
closely associated with Vikas A. Shah and Mansi Builders Ltd. It is
also established from the above discussion that the seized paper
belong to assessee and transactions noted on said papers are genuine.
In the case of Roger Enterprises (P.) Ltd. v. Deputy Commissioner of
Income Tax Hon'ble ITAT, Delhi (88 ITD 95 ITAT Delhi B Bench) has held
that nay statement of a person who is one of the party of the
transaction/transactions has evidentiary value and therefore cannot be
ignored. Here in the instant case both the assessee and Shri Vikas A.
Shah has signed the MOU dated 16.5.2001 in which an amount of
Rs.12,24,000/- was shown to be paid by the assessee to Vikas A. Shah
against allotment of a plot admeasuring 3675 sq. yds. in Chitvan
Scheme developed by Shri Vikas Shah and Mansi Builders. Moreover,
seized documents also clearly establish business transactions relating
to land between assessee and Shri Vikas A. Shah. Since, the assessee
has not disclosed said investment / expenditure to the department, the
same is liable to be considered as unaccounted investment / expenses
for the year in question."
7. When the matter was carried before the First Appellate Authority,
learned CIT(A) has examined the contents of the said seized MOU. The
said document was written in Gujarati and English translation is
reproduced by the learned CIT(A). The relevant reference in respect of
impugned undisclosed income was as under:
"Expenses on Income Tax (I.T.) / TDS / Sales Tax (S.T.) / Audit of
society in respect of Arohan I will be shared by both the parties in
proportion of their share of profit in the firm.
Today as per the understanding of both the parties in respect of
settlement of accounts till date, the party of first part is to
receive Rs.12,24,000/- (Twelve lakhs twenty four thousand only) from
the party of the second part against which plots admeasuring 3675 sq.
yd. in Chitvan Scheme @ Rs.333/- per sq. yd. amounting to
Rs.12,24,000/-is agreed to be allotted to the party of the first part
in any name which he wishes."
8. Learned CIT(A) has observed that the MOU was duly signed by the
assessee in the presence of five witnesses. According to him, once the
said MOU was signed by the assessee, therefore, it belonged to the
assessee. He has held that the notice u/s.153C was rightly issued in
the case of the assessee. Learned CIT(A) has also noted that there was
proper service of notice but there was deliberate non compliance on
the part of the assessee. In respect of the transaction, learned
CIT(A) has noted as follows:
"I have considered the submission of the appellant. The main
contention of the appellant is that the document seized from the
premises of Vikas Shah in the form of MOU cannot be relied upon unless
the appellant is given a cross examination of Shri Vikas Shah and that
he never got Rs.12,24,000/- from him nor was allotted any plot in
Chitvan as mentioned in the MOU. I don't agree with this contention of
the AR for the simple reason that the MOU is singed by Shri Vikas Shah
as well as the appellant in the presence of 5 witnesses. As per this
MOU, all the transactions/dealings done till 16/05/2001 such as
AArohan, -Aarohan-II, Cash, Shrafi, borrowings, profit, interest, etc.
are mutually agreed. As per which the appellant was to receive
Rs.12,24,000/- against which plots admeasuring 3675 sq.yd. in Chitvan
Scheme @ Rs.353/- per sq. yard amounting to Rs.12,24,400/-is agreed to
be allotted to the appellant in any name which he wishes. This MOU
clearly states that the appellant had to receive Rs.12,24,000/- from
Shri Vikas Shah and in lieu of that a plot at Chitvan was to be
allotted either in the name of the appellant or in any other name he
wishes. It is not necessary that the plot was allotted in the name of
the appellant as per MOU. Once the appellant is one of the signatory
of the MOU, he becomes party to it. In that case (the documents seized
from) Vikas Shah does not become third party but second party. The
case of the appellant is different from the case laws cited by the
appellant because in those cases some entries were appearing in the
documents of seized party. Here the document does not represent any
entry but it is an agreement duly signed by the appellant in the
presence of five witnesses. Prima facie this MOU would be presumed to
be correct, unless the appellant proves otherwise. The onus to prove
that the transactions as per MOU are not correct, lies on the
appellant and not on the department, as alleged by the appellant in
his submission. The appellant has not disowned the signatures in the
MOU. Once he accepts that he has signed the MOU, then he has to prove
that any contents thereof, if any, are incorrect or not acted upon.
There is no need to give any cross examination of Shri Vikas Shah
because the onus to prove the contents of the MOU to be untrue, is on
the appellant and not on the department. Further, the appellant has
not stated anywhere as to why the MOU was signed by him and what was
the purpose thereof. In fact, this MOU talks about various type of
transactions between the appellant and Shri Vikas Shah such as
Aarohan, Aarohan-II projects, cash, sharafi, borrowings, profit,
interest, etc. As the appellant miserably failed not only before the
AO but before me also to disprove the contents of the seized MOU, I
have no hesitation in upholding the addition of Rs.12,24,000/- made by
the AO."
9. Learned AR, Mr. P.M. Patel has contested that there was no evidence
in possession of the Revenue Department that the impugned amount has
actually been received by the assessee subsequently. The said amount
was to be received as per the MOU but it was never received by the
assessee. He has pleaded that even the said amount had not accrued in
favour of the assessee because the transaction of the plot never took
place. The addition was merely on presumption that the amount was an
income of the assessee; hence, the same should be deleted. He has
placed reliance on a decision of Prarthana Construction (P.) Ltd.
(supra) for the legal proposition that merely on the basis of a
document which was recovered from a third party no action should be
taken against "other person". Learned AR has also placed reliance on
Unique Organisers & Developers (P.) Ltd. v. Dy. CIT [2001] 70 TTJ 131
(Ahd) for the legal proposition that the presumption u/s. 132 (4A)
would not be applicable to a third party from whose possession such
document had not been recovered by the Revenue. In the absence of any
evidence of passing of "on money" and the assessee having denied the
payment of on money, as it was contested in that case; no addition was
called for. Learned AR has also cited CIT v. Maulik Kumar K. Shah
[2008] 307 ITR 137 Gujarat wherein the Hon'ble Court has held that in
a situation when both CIT(A) and ITAT have found that on the basis of
the loose papers no addition was justified; hence, no interference was
called for.
10. We have heard both the sides, the seized material and the
connected case laws have been considered. The document in question is
written in gujarati which was duly signed by the concerned two parties
in the presence of the witnesses. On the top of the document dated
16.05.2001, as customary, name of the Lord Ganesha is also noted.
Undisputedly, the document in question has been signed in the name of
God as also in the presence of the witnesses. Considering the nature
as well as the text of the document it is difficult to hold that the
said document was merely a dumb document or an irrelevant document. In
this document, the amount of the construction, i.e., Rs.12,24,000/- as
well as the details of the plot have clearly been noted. Therefore, we
are not convinced with the argument of the learned AR that the
undisclosed investment did not belong to the assessee. The assessee
was given sufficient opportunity to rebut the said document but he has
preferred not to attend properly the proceedings before the AO.
11. As far as the decisions relied upon by the assessee are concerned
those are distinctly distinguishable on facts as well as on law. In
the case of Prarthana construction (supra), the document in question
has not established the involvement of the said assessee and in the
absence of the nexus it was held that the impugned document did not
belong to the assessee. Likewise, in the case of Unique Organizer &
Developers (supra) the question of "on money" transaction was not
proved by the Revenue Department. There was a finding on facts that
the said addition was based on suspicion and surmises. We have also
perused the decision of Maulik Kumar K. Shah (supra) and noted that
the decision of the AO was devoid of evidence in support of his
allegation. We, therefore, conclude that the decision cited by the
assessee were primarily on their own facts; hence not matched with the
facts of the appeal in hand. We also conclude that in a situation when
any books of account or documents, etc. have been delivered to the
requisitioning officer having jurisdiction over "such other person"
i.e., other than the person who has been searched; then those
documents, etc., delivered or requisitioned shall be dealt with as if
they have been found in the possession or control of "such other
person" against whom the proceedings have been initiated u/s.153C of
IT Act. Such books of account or documents shall be deemed to have
been found in the possession or control of such other person as if
recovered in the course of search u/s. 132 of IT Act. Moreover, in
this case the assessee being one of the signatory of the contents
recording the transactions hence the documents was belonging to the
assessee. Therefore, the amount in question was rightly assessed in
his hand. We find no force in this ground of the assessee; hence,
dismissed.
12. In the result, the appeal is dismissed.
SUNIL
*In favour of revenue.
--
Regards,
*Pawan Singla ,** LLB*
*M. No. 9825829075*
MUMBAI, JUNE 26, 2014: THE issues before the Bench are - Whether principle of apportionment embedded in section 14A has any application when no expenditure has been incurred in relation to the exempt income and the primary object of investment was to acquire controlling stake in the group concern and not earning any income out of investment and Whether depreciation has to be allowed on written down value (WDV) after reducing the actual depreciation allowed in the earlier years. And the verdict favours the assessee.
Facts of the case
The assessee received dividend income of Rs. 36,90,456/- which is exempt from the Income Tax. The assessee worked out the disallowance u/s 14A at Rs. 103915/- and added back the same in the statement of the total income. The Assessee claim that no borrowed funds was used and the interest expenditure is on the bank term loans, therefore, there is no nexus between the interest expenditure and the investment in shares. The AO disallowed the administrative expenses by applying Rule 8D. The AO accordingly worked out the disallowance at Rs. 8,83,569/- on administrative expenses. The CIT(A) has confirmed the disallowance made by the AO.
On Appeal before the Tribunal the A.R submitted that the assessee has not incurred any expenditure in respect of the investment in question and for earning tax free income. The AR further pointed out that the investments were in the group concerned of the assessee, therefore, these were only passive investment made for the purpose of holding controlling stake in the group concern and not for the purpose of earning any dividend or active investment, therefore, the assessee was not required to incur any expenditure in keeping these investments. The DR on the other hand has submitted that the issue is now covered against the assessee by the decision of the Tribunal in the assessee's own case.
Having heard the parties, the Tribunal held that,
++ the investment has been made by the assessee in the group concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. The investment are in the group concern no reason to believe that the assessee would have incurred any administrative expenses .When no expenditure has been incurred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. The addition/disallowance made by AO u/s 14A r.w. Rule 8D deleted;
++ regarding disallowance/adjustment made while computing the book profit u/s 115JB, there are divergent views of the Tribunal on this point. Without going into the controversy of the quantum of adjustment, in view of the finding in respect of disallowance u/s 14A the assessee's appeal is allowed being consequential;
++ on the issue of the CIT(A) directing the AO to allow the depreciation at Rs. 35,22,140/- after working out the WDV of the assets for earlier years, it is clear that the depreciation has to be allowed on written down value (WDV) after reducing the actual depreciation allowed in the earlier years. In view of the earlier years order of this Tribunal, No substance in the appeal of the revenue.
The assessee received dividend income of Rs. 36,90,456/- which is exempt from the Income Tax. The assessee worked out the disallowance u/s 14A at Rs. 103915/- and added back the same in the statement of the total income. The Assessee claim that no borrowed funds was used and the interest expenditure is on the bank term loans, therefore, there is no nexus between the interest expenditure and the investment in shares. The AO disallowed the administrative expenses by applying Rule 8D. The AO accordingly worked out the disallowance at Rs. 8,83,569/- on administrative expenses. The CIT(A) has confirmed the disallowance made by the AO.
On Appeal before the Tribunal the A.R submitted that the assessee has not incurred any expenditure in respect of the investment in question and for earning tax free income. The AR further pointed out that the investments were in the group concerned of the assessee, therefore, these were only passive investment made for the purpose of holding controlling stake in the group concern and not for the purpose of earning any dividend or active investment, therefore, the assessee was not required to incur any expenditure in keeping these investments. The DR on the other hand has submitted that the issue is now covered against the assessee by the decision of the Tribunal in the assessee's own case.
Having heard the parties, the Tribunal held that,
++ the investment has been made by the assessee in the group concern and not in the shares of any un-related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. The investment are in the group concern no reason to believe that the assessee would have incurred any administrative expenses .When no expenditure has been incurred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. The addition/disallowance made by AO u/s 14A r.w. Rule 8D deleted;
++ regarding disallowance/adjustment made while computing the book profit u/s 115JB, there are divergent views of the Tribunal on this point. Without going into the controversy of the quantum of adjustment, in view of the finding in respect of disallowance u/s 14A the assessee's appeal is allowed being consequential;
++ on the issue of the CIT(A) directing the AO to allow the depreciation at Rs. 35,22,140/- after working out the WDV of the assets for earlier years, it is clear that the depreciation has to be allowed on written down value (WDV) after reducing the actual depreciation allowed in the earlier years. In view of the earlier years order of this Tribunal, No substance in the appeal of the revenue.
(See 2014-TIOL-372-ITAT-MUM)
Cus - Review Committee has initially accepted DC order & subsequent
decision to review order was only at instance of Audit - There is no
provision u/s 129A & 129D to reopen or review Review Committee's order
- Committee has become functus officio : CESTAT
By TIOL News Service
KOLKATA, JUNE 27, 2014 : A SCN was issued to the appellant proposing a
change in classification of 'dairy machine Ice cream candy' &
demanding differential duty.
The Deputy Commissioner of Customs, Appraising Group, 5A, Customs
House, Kolkata dropped the proceedings.
Being aggrieved, Revenue filed an appeal before the
Commissioner(Appeals) but the same was rejected on the ground of time
bar.
Before the Tribunal, it is submission of the Revenue that the lower
appellate authority should have taken a more liberal view and after
condoning the delay should have gone into the merits of the case.
Inasmuch as even though the Commissioner/Committee of Commissioners
initially accepted the order of the Deputy Commissioner, but a
decision was taken to file the Appeal consequent to receipt of audit
objection and all this coupled with the "immense work pressure" had
led to the delay in filing the appeal on time. Many case laws were
cited in support of condoning the delay. The Larger Bench Tribunal
decision in Monnet Ispat& Energy Ltd. 2010-TIOL-1133-CESTAT-DEL-LB is
also adverted to.
The respondent submitted that the period of limitation provided under
Section 129A(3) of the Customs Act, 1962, for review of the order
cannot be enlarged in view of the decision of the Calcutta High Court
in the case of Al Saif Internationaland the decision in Kap Cones -
2012-TIOL-1301-CESTAT-DEL where a view contrary to the LB decision has
been taken. It is also submitted that even if it is held that the
Tribunal has the power to condone the delay, in the absence of
sufficient cause, the delay cannot be condoned in view of the apex
court decision in Thakkar Shipping Pvt.Ltd. 2012-TIOL-105-SC-CUS. It
is alsoemphasized that i n this case the order of the lower authority
was accepted by the review committee and a decision was taken not to
file an Appeal before CESTAT and once the review was done, it cannot
be reopened or revised as held by the Tribunal in the case of Madura
Coats Pvt.Ltd. 2007-TIOL-2324-CESTAT-MAD.
The Bench noted that the order of the Dy. Commissioner was initially
accepted by the department however, based on the Internal audit
objection, a decision was taken to review the said order. It
wasfurther observed that whereas in terms of s. 129D(2) of the Customs
Act, 1962 the Commissioner of Customs was empowered to review the
order passed by the Deputy Commissioner, in the present case the
Committee of Commissioners had examined the order and after holding it
to be legal and proper accepted the same. The Bench, thereafter,
viewed that that once the legality and propriety of the order passed
by the lower authorities has been examined and the same is found to be
legal and proper, no subsequent review order could be passed under the
said Section 129D(2).
After adverting to the Tribunal decisions cited by the Respondent, the
CESTAT held thus -
++ We find that in the present case the Review Committee has initially
accepted the order of the Dy. Commissioner and the subsequent decision
to review the order was only at the instance of Audit and the order is
not free from bias. There is no provision under Section 129 (A) and
129 (D) of the Customs Act, 1962 to reopen or review the Review
Committee's order. Thus the Committee has become functus officio .
++ In view of the above ratio laid down in case of Madura Coats
(supra) and followed by the Tribunal in case of Sagar Sugar and Allied
Products Ltd. (Supra), we are of the opinion that once the Order of
the lower authority has been accepted by the Commissioner and found to
be legal and proper, the same cannot be reviewed later.
In fine, the Revenue appeal was dismissed.
Delay in passing : Will this be the end of the road for the Revenue?
(See 2014-TIOL-1134-CESTAT-KOL)
--
decision to review order was only at instance of Audit - There is no
provision u/s 129A & 129D to reopen or review Review Committee's order
- Committee has become functus officio : CESTAT
By TIOL News Service
KOLKATA, JUNE 27, 2014 : A SCN was issued to the appellant proposing a
change in classification of 'dairy machine Ice cream candy' &
demanding differential duty.
The Deputy Commissioner of Customs, Appraising Group, 5A, Customs
House, Kolkata dropped the proceedings.
Being aggrieved, Revenue filed an appeal before the
Commissioner(Appeals) but the same was rejected on the ground of time
bar.
Before the Tribunal, it is submission of the Revenue that the lower
appellate authority should have taken a more liberal view and after
condoning the delay should have gone into the merits of the case.
Inasmuch as even though the Commissioner/Committee of Commissioners
initially accepted the order of the Deputy Commissioner, but a
decision was taken to file the Appeal consequent to receipt of audit
objection and all this coupled with the "immense work pressure" had
led to the delay in filing the appeal on time. Many case laws were
cited in support of condoning the delay. The Larger Bench Tribunal
decision in Monnet Ispat& Energy Ltd. 2010-TIOL-1133-CESTAT-DEL-LB is
also adverted to.
The respondent submitted that the period of limitation provided under
Section 129A(3) of the Customs Act, 1962, for review of the order
cannot be enlarged in view of the decision of the Calcutta High Court
in the case of Al Saif Internationaland the decision in Kap Cones -
2012-TIOL-1301-CESTAT-DEL where a view contrary to the LB decision has
been taken. It is also submitted that even if it is held that the
Tribunal has the power to condone the delay, in the absence of
sufficient cause, the delay cannot be condoned in view of the apex
court decision in Thakkar Shipping Pvt.Ltd. 2012-TIOL-105-SC-CUS. It
is alsoemphasized that i n this case the order of the lower authority
was accepted by the review committee and a decision was taken not to
file an Appeal before CESTAT and once the review was done, it cannot
be reopened or revised as held by the Tribunal in the case of Madura
Coats Pvt.Ltd. 2007-TIOL-2324-CESTAT-MAD.
The Bench noted that the order of the Dy. Commissioner was initially
accepted by the department however, based on the Internal audit
objection, a decision was taken to review the said order. It
wasfurther observed that whereas in terms of s. 129D(2) of the Customs
Act, 1962 the Commissioner of Customs was empowered to review the
order passed by the Deputy Commissioner, in the present case the
Committee of Commissioners had examined the order and after holding it
to be legal and proper accepted the same. The Bench, thereafter,
viewed that that once the legality and propriety of the order passed
by the lower authorities has been examined and the same is found to be
legal and proper, no subsequent review order could be passed under the
said Section 129D(2).
After adverting to the Tribunal decisions cited by the Respondent, the
CESTAT held thus -
++ We find that in the present case the Review Committee has initially
accepted the order of the Dy. Commissioner and the subsequent decision
to review the order was only at the instance of Audit and the order is
not free from bias. There is no provision under Section 129 (A) and
129 (D) of the Customs Act, 1962 to reopen or review the Review
Committee's order. Thus the Committee has become functus officio .
++ In view of the above ratio laid down in case of Madura Coats
(supra) and followed by the Tribunal in case of Sagar Sugar and Allied
Products Ltd. (Supra), we are of the opinion that once the Order of
the lower authority has been accepted by the Commissioner and found to
be legal and proper, the same cannot be reviewed later.
In fine, the Revenue appeal was dismissed.
Delay in passing : Will this be the end of the road for the Revenue?
(See 2014-TIOL-1134-CESTAT-KOL)
--
IT: Where brokerage expenses were incurred by assessee real estate
company for finding tenant for its building which was under
construction and lease arrangement with tenant was to commence only
after construction, claim of expenses under section 37(1) was not
maintainable
■■■
[2014] 45 taxmann.com 510 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'A'
Angelica Properties (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle 1(1), Pune*
SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND G.S. PANNU, ACCOUNTANT MEMBER
IT APPEAL NO. 1724 (PN.) OF 2012
[ASSESSMENT YEAR 2008-09]
APRIL 16, 2014
Section 37(1), read with section 143(3), of the Income-tax Act, 1961 -
Business expenditure - Allowability of (Commission) - Assessment year
2008-09 - Assessee incurred expenditure towards brokerage and
commission for finding tenant for its building and claimed such
expenditure as deductible under section 37(1) - Commencement of lease
was stated to be only post-completion of building which happened in
subsequent year - Assessee received lease rentals in subsequent year
when lease arrangement actually commenced and declared such income as
income from house property - Whether since building which was sought
to be leased out was still under construction during relevant
assessment year and lease arrangement also had not been commenced
during such period, assessee's claim for deduction under section 37(1)
was not maintainable - Held, yes [Para 6] [In favour of revenue]
FACTS
■ The assessee, a company was engaged in the business of
construction and development of IT Park and Hotels, etc.
■ For the relevant assessment year, the assessee filed a return of
income declaring loss, which was subject to scrutiny assessment under
section 143(3).
■ The Assessing Officer observed that in the profit and loss
account, the assessee had debited an expenditure on account of
brokerage and commission, on which the assessee explained that it had
paid the said amount for finding a tenant for its building which was
still under construction.
■ On the date of leave and license agreement the building sought to
be leased out was not complete and, thus, lease was to commence on the
date when building was ready.
■ The assessee had not received any lease rent during the relevant
assessment year but in subsequent assessment year, assessee had
started receiving lease income which was declared in the return of
income of subsequent year as income from house property.
■ The assessee justified the claim of such brokerage expenses
incurred as revenue expenditure however, the Assessing Officer
rejected the claim of assessee by holding that such expenditure had no
nexus with the trading receipt of the assessee either during the year
under consideration or even in the ensuing year because such income
was declared in subsequent year as income from house property.
■ On appeal before the Commissioner (Appeals), Commissioner
(Appeals) also confirmed the view of the Assessing Officer.
■ On appeal:
HELD
■ In the instant case, the claim of the assessee is that it has
incurred expenditure on payment of brokerage and commission for
finding a tenant for its building, which was still under construction.
Although, the lease agreement is dated 24-5-2007, i.e., a date falling
within the previous year relevant to the assessment year under
consideration, however, the commencement of the lease is stated to be
only post-completion of the building, which has happened in the
subsequent assessment year. The assessee has received the lease
rentals also in the subsequent assessment year when the lease
arrangement actually commenced. It is also not in dispute that the
lease rentals have been declared in the subsequent year as 'income
from house property'. During the year under consideration, the
expenditure towards brokerage and commission for finding tenant for
the said building is claimed as 'revenue expenditure' deductible in
terms of section 37(1).
■ The phraseology of section 37(1) inter alia prescribes that the
expenditure should be laid out or expended wholly and exclusively for
the purposes of business. In the instant case, the issue canvassed by
the assessee is that it is in the business of construction and
development of IT Park and Hotels and its business model envisaged
that before selling the building/IT Park constructed by it, it finds a
tenant for the same and thereafter sells it to the ultimate customer
along with the tenancy arrangements. Therefore, it is sought to be
justified that the activity of finding a tenant for the building under
construction is an activity for the purposes of business and thus the
expenditure is allowable in terms of section 37(1). In so far as the
proposition sought to be canvassed by the assessee is concerned, it
cannot be disputed in principle, so however, what is required to be
examined is as to whether under the facts and circumstances of the
present case, such a proposition enables the assessee to support its
claim of deductibility of expenditure of Rs. 164,69,459 under section
37(1) during the year under consideration. Factually, it is evident
that the building which is sought to be leased out is still under
construction during the year and even the lease agreement in question
has not commenced during the year under consideration. Therefore, it
is only after the completion of the building and commencement of the
lease agreement that the proposition canvassed by the assessee can be
tested.
■ For the present, having regard to the facts and circumstances of
the case, the impugned expenditure can at best be taken as a part of
the cost of construction and development of the building, which the
assessee has sold in the subsequent years. Notably, the cost of
development and construction of building in question has been shown as
capital work-in-progress by the assessee in its balance sheet, since
it was incomplete and under construction. The claim of the assessee
that the said expenditure was allowable as 'revenue expenditure' in
terms of section 37(1) during the year under consideration is not well
founded, having regard to the facts and circumstances of the case.
Thus, on this aspect assessee has to fail. [Para 6]
Dharmesh Shah for the Appellant. P.L. Pathade for the Respondent.
ORDER
G.S. Pannu, Accountant Member. - The captioned appeal by the assessee
is directed against an order of the Commissioner of Income Tax
(Appeals)-I, Pune dated 24.02.2012 which, in turn, has arisen from an
order dated 27.12.2010 passed by the Assessing Officer u/s 143(3) of
the Income-tax Act,1961 (in short "the Act") pertaining to the
assessment year 2008-09.
2. In this appeal, the only issue raised by the assessee is with
regard to the disallowance of brokerage & commission expenses of
Rs.1,64,69,459/-incurred by the assessee.
3. In brief, the facts are that the appellant is a company
incorporated under the provisions of the Companies Act, 1956 and is
inter-alia engaged in the business of construction and development of
IT Park and Hotels, etc.. For the assessment year under consideration,
it filed a return of income declaring a loss of Rs.94,61,888/-, which
was subject to scrutiny assessment under Section 143(3) of the Act.
The Assessing Officer noticed that in the Profit & Loss Account the
assessee company had debited an expenditure of Rs.1,64,69,459/- on
account of brokerage and commission. Assessee explained that it had
paid the said amount as brokerage to M/s Flora Premises Pvt. Ltd.,
Mumbai for finding a tenant for its building, Matrix IT Tower at Pune
which was still under construction. The lease agreement was dated
24.05.2007 which was entered with M/s Emerson Electric Co. India Ltd..
On the date of leave and license agreement the building sought to be
leased out was not complete and thus lease was to commence on the date
when building was ready and after the assessee completed the fit outs
and other necessities needed by the tenant as per the terms of the
said agreement. The assessee had not received any lease rent during
the previous year relevant to the assessment year under consideration.
It was found that in the subsequent assessment year of 2009-10,
assessee had started receiving the lease income which was declared in
the return of income of the subsequent year as 'income from house
property'. In the said background, assessee justified the claim of the
brokerage expenses incurred at Rs.1,64,69,459/- as a 'revenue
expenditure' which was debited in the Profit & Loss Account for the
year under consideration. The Assessing Officer rejected the claim of
the assessee. Firstly, the Assessing Officer observed that there was
no income earned by the Assessing Officer which could be connected or
considered to have been earned in connection with the payment of
brokerage. According to the Assessing Officer for an expenditure to be
deductible in terms of section 37(1) of the Act, it should be incurred
wholly and exclusively in connection with the business carried on by
the assessee. The Assessing Officer held that the expenditure on
brokerage which is claimed by the assessee had no nexus with the
trading receipt of the assessee either during the year under
consideration or even in the ensuing year because the income from
leasing of the building was declared by the assessee in the subsequent
year as 'income from house property'. The disallowance made by the
Assessing Officer was carried in appeal before the CIT(A), who has
since upheld the stand of the Assessing Officer. Not being satisfied
with the order of the CIT(A), assessee is in further appeal before us.
4. Before us, the learned counsel for the assessee pointed out that
assessee was engaged in the construction of an IT Park building called
Matrix IT Tower at Pune, which was still under construction during the
year under consideration. Meanwhile, assessee was able to find a
tenant for the said building during the construction stage; because in
such a situation the ultimate fit outs and construction could be
carried out in accordance with the requirements of the prospective
tenant/user of the premises. The learned counsel pointed out that
assessee was not in the business of leasing buildings but was in the
business of constructing it and selling it to an investor; and, for
that purpose it considered that if an already let-out building would
be offered to a buyer, it would fetch higher returns. Therefore,
assessee undertook the said activity of locating a tenant, who would
occupy it on its completion and thus expenses incurred by way of
brokerage and commission for finding a tenant was a business expense.
The learned counsel pointed out that after completion of construction,
assessee has sold the building inclusive of the rental arrangement and
the same has helped the assessee in fetching a better price. The
learned counsel pointed out that the assessee undertook the aforesaid
exercise as a part of a business model of construction and selling a
pre-leased building to the ultimate buyer, because it would ensure the
buyer to have better returns on his investment. In this manner, it is
sought to be canvassed that the expenditure in question was incurred
wholly and exclusively for the purposes of business and was thus an
allowable expenditure in terms of section 37(1) of the Act.
5. On the other hand, the learned Departmental Representative
appearing for the Revenue has referred to the orders of the
authorities below in support of the case of the Revenue. It is
reiterated that in the present year there is no nexus between the
impugned expenditure and the income assessable and even in the
subsequent assessment year the income from the leasing of the building
was declared as 'income from house property' and therefore the
impugned expenditure could not be allowed as a deduction u/s 37(1) of
the Act. According to the learned Departmental Representative, the
Assessing Officer made no mistake in observing that under the head
'Income from house property' only specified expenditures are allowed
as a deduction and there is no provision like section 37 (1) of the
Act to allow any expenditures relating to the income under the head
'business'. Further, according to the learned Departmental
Representative, the claim of the assessee that leasing of the property
was a part of business activity to fetch higher prices for the
building on its sale is also not justified. There was no material to
support the aforesaid assertion. In this connection, a reference has
been made to the finding of the CIT(A) on this aspect to the effect
that assessee has sold the property much after letting out, which
would show that it was not a business model of the assessee to
construct and sell the property only after finding a tenant for it.
For all the above reasons, the claim of the assessee is sought to be
opposed.
6. We have carefully considered the rival submissions. In the present
case, the claim of the assessee is that it has incurred expenditure on
payment of brokerage and commission to M/s Flora Premises Pvt. Ltd.,
Mumbai for finding a tenant for its building, Matrix IT Tower at Pune
which was still under construction. Although, the lease agreement is
dated 24.05.2007, i.e. a date falling within the previous year
relevant to the assessment year under consideration, however, the
commencement of the lease is stated to be only post-completion of the
building, which has happened in the subsequent assessment year. The
assessee has received the lease rentals also in the subsequent
assessment year when the lease arrangement actually commenced. It is
also not in dispute that the lease rentals have been declared in the
subsequent year as 'income form house property'. During the year under
consideration, the expenditure towards brokerage and commission for
finding tenant for the said building is claimed as 'revenue
expenditure' deductible in terms of section 37(1) of the Act. The
phraseology of section 37(1) of the Act inter-alia prescribes that the
expenditure should be laid out or expended wholly and exclusively for
the purposes of business. In the present case, the issue canvassed by
the assessee is that it is in the business of construction and
development of IT Park and Hotels and its business model envisaged
that before selling the building/IT Park constructed by it, it finds a
tenant for the same and thereafter sells it to the ultimate customer
alongwith the tenancy arrangements. Therefore, it is sought to be
justified that the activity of finding a tenant for the building under
construction is an activity for the purposes of business and thus the
expenditure is allowable in terms of section 37(1) of the Act. In so
far as the proposition sought to be canvassed by the assessee is
concerned, it cannot be disputed in principle, so however, what is
required to be examined is as to whether under the facts and
circumstances of the present case, such a proposition enables the
assessee to support its claim of deductibility of expenditure of
Rs.164,69,459/- under Section 37(1) of the Act during the year under
consideration. Factually, it is evident that the building which is
sought to be leased out is still under construction during the year
and even the lease agreement in question has not commenced during the
year under consideration. Therefore, it is only after the completion
of the building and commencement of the lease agreement that the
proposition canvassed by the assessee can be tested. For the present,
having regard to the facts and circumstances of the case, the impugned
expenditure can at best be taken as a part of the cost of construction
and development of the building, which the assessee has sold in the
subsequent years. Notably, the cost of development and construction of
building in question has been shown as capital work-in-progress by the
assessee in its Balance Sheet, since it was incomplete and under
construction. Be that as it may, we are only trying to say that the
claim of the assessee that the said expenditure was allowable as
'revenue expenditure' in terms of section 37(1) of the Act during the
year under consideration is not well founded, having regard to the
facts and circumstances of the case. Thus, on this aspect assessee has
to fail.
7. In the result, the appeal of the assessee is dismissed.
SB
*In favour of revenue.
--
Regards,
*Pawan Singla ,** LLB*
*M. No. 9825829075*
company for finding tenant for its building which was under
construction and lease arrangement with tenant was to commence only
after construction, claim of expenses under section 37(1) was not
maintainable
■■■
[2014] 45 taxmann.com 510 (Pune - Trib.)
IN THE ITAT PUNE BENCH 'A'
Angelica Properties (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle 1(1), Pune*
SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER
AND G.S. PANNU, ACCOUNTANT MEMBER
IT APPEAL NO. 1724 (PN.) OF 2012
[ASSESSMENT YEAR 2008-09]
APRIL 16, 2014
Section 37(1), read with section 143(3), of the Income-tax Act, 1961 -
Business expenditure - Allowability of (Commission) - Assessment year
2008-09 - Assessee incurred expenditure towards brokerage and
commission for finding tenant for its building and claimed such
expenditure as deductible under section 37(1) - Commencement of lease
was stated to be only post-completion of building which happened in
subsequent year - Assessee received lease rentals in subsequent year
when lease arrangement actually commenced and declared such income as
income from house property - Whether since building which was sought
to be leased out was still under construction during relevant
assessment year and lease arrangement also had not been commenced
during such period, assessee's claim for deduction under section 37(1)
was not maintainable - Held, yes [Para 6] [In favour of revenue]
FACTS
■ The assessee, a company was engaged in the business of
construction and development of IT Park and Hotels, etc.
■ For the relevant assessment year, the assessee filed a return of
income declaring loss, which was subject to scrutiny assessment under
section 143(3).
■ The Assessing Officer observed that in the profit and loss
account, the assessee had debited an expenditure on account of
brokerage and commission, on which the assessee explained that it had
paid the said amount for finding a tenant for its building which was
still under construction.
■ On the date of leave and license agreement the building sought to
be leased out was not complete and, thus, lease was to commence on the
date when building was ready.
■ The assessee had not received any lease rent during the relevant
assessment year but in subsequent assessment year, assessee had
started receiving lease income which was declared in the return of
income of subsequent year as income from house property.
■ The assessee justified the claim of such brokerage expenses
incurred as revenue expenditure however, the Assessing Officer
rejected the claim of assessee by holding that such expenditure had no
nexus with the trading receipt of the assessee either during the year
under consideration or even in the ensuing year because such income
was declared in subsequent year as income from house property.
■ On appeal before the Commissioner (Appeals), Commissioner
(Appeals) also confirmed the view of the Assessing Officer.
■ On appeal:
HELD
■ In the instant case, the claim of the assessee is that it has
incurred expenditure on payment of brokerage and commission for
finding a tenant for its building, which was still under construction.
Although, the lease agreement is dated 24-5-2007, i.e., a date falling
within the previous year relevant to the assessment year under
consideration, however, the commencement of the lease is stated to be
only post-completion of the building, which has happened in the
subsequent assessment year. The assessee has received the lease
rentals also in the subsequent assessment year when the lease
arrangement actually commenced. It is also not in dispute that the
lease rentals have been declared in the subsequent year as 'income
from house property'. During the year under consideration, the
expenditure towards brokerage and commission for finding tenant for
the said building is claimed as 'revenue expenditure' deductible in
terms of section 37(1).
■ The phraseology of section 37(1) inter alia prescribes that the
expenditure should be laid out or expended wholly and exclusively for
the purposes of business. In the instant case, the issue canvassed by
the assessee is that it is in the business of construction and
development of IT Park and Hotels and its business model envisaged
that before selling the building/IT Park constructed by it, it finds a
tenant for the same and thereafter sells it to the ultimate customer
along with the tenancy arrangements. Therefore, it is sought to be
justified that the activity of finding a tenant for the building under
construction is an activity for the purposes of business and thus the
expenditure is allowable in terms of section 37(1). In so far as the
proposition sought to be canvassed by the assessee is concerned, it
cannot be disputed in principle, so however, what is required to be
examined is as to whether under the facts and circumstances of the
present case, such a proposition enables the assessee to support its
claim of deductibility of expenditure of Rs. 164,69,459 under section
37(1) during the year under consideration. Factually, it is evident
that the building which is sought to be leased out is still under
construction during the year and even the lease agreement in question
has not commenced during the year under consideration. Therefore, it
is only after the completion of the building and commencement of the
lease agreement that the proposition canvassed by the assessee can be
tested.
■ For the present, having regard to the facts and circumstances of
the case, the impugned expenditure can at best be taken as a part of
the cost of construction and development of the building, which the
assessee has sold in the subsequent years. Notably, the cost of
development and construction of building in question has been shown as
capital work-in-progress by the assessee in its balance sheet, since
it was incomplete and under construction. The claim of the assessee
that the said expenditure was allowable as 'revenue expenditure' in
terms of section 37(1) during the year under consideration is not well
founded, having regard to the facts and circumstances of the case.
Thus, on this aspect assessee has to fail. [Para 6]
Dharmesh Shah for the Appellant. P.L. Pathade for the Respondent.
ORDER
G.S. Pannu, Accountant Member. - The captioned appeal by the assessee
is directed against an order of the Commissioner of Income Tax
(Appeals)-I, Pune dated 24.02.2012 which, in turn, has arisen from an
order dated 27.12.2010 passed by the Assessing Officer u/s 143(3) of
the Income-tax Act,1961 (in short "the Act") pertaining to the
assessment year 2008-09.
2. In this appeal, the only issue raised by the assessee is with
regard to the disallowance of brokerage & commission expenses of
Rs.1,64,69,459/-incurred by the assessee.
3. In brief, the facts are that the appellant is a company
incorporated under the provisions of the Companies Act, 1956 and is
inter-alia engaged in the business of construction and development of
IT Park and Hotels, etc.. For the assessment year under consideration,
it filed a return of income declaring a loss of Rs.94,61,888/-, which
was subject to scrutiny assessment under Section 143(3) of the Act.
The Assessing Officer noticed that in the Profit & Loss Account the
assessee company had debited an expenditure of Rs.1,64,69,459/- on
account of brokerage and commission. Assessee explained that it had
paid the said amount as brokerage to M/s Flora Premises Pvt. Ltd.,
Mumbai for finding a tenant for its building, Matrix IT Tower at Pune
which was still under construction. The lease agreement was dated
24.05.2007 which was entered with M/s Emerson Electric Co. India Ltd..
On the date of leave and license agreement the building sought to be
leased out was not complete and thus lease was to commence on the date
when building was ready and after the assessee completed the fit outs
and other necessities needed by the tenant as per the terms of the
said agreement. The assessee had not received any lease rent during
the previous year relevant to the assessment year under consideration.
It was found that in the subsequent assessment year of 2009-10,
assessee had started receiving the lease income which was declared in
the return of income of the subsequent year as 'income from house
property'. In the said background, assessee justified the claim of the
brokerage expenses incurred at Rs.1,64,69,459/- as a 'revenue
expenditure' which was debited in the Profit & Loss Account for the
year under consideration. The Assessing Officer rejected the claim of
the assessee. Firstly, the Assessing Officer observed that there was
no income earned by the Assessing Officer which could be connected or
considered to have been earned in connection with the payment of
brokerage. According to the Assessing Officer for an expenditure to be
deductible in terms of section 37(1) of the Act, it should be incurred
wholly and exclusively in connection with the business carried on by
the assessee. The Assessing Officer held that the expenditure on
brokerage which is claimed by the assessee had no nexus with the
trading receipt of the assessee either during the year under
consideration or even in the ensuing year because the income from
leasing of the building was declared by the assessee in the subsequent
year as 'income from house property'. The disallowance made by the
Assessing Officer was carried in appeal before the CIT(A), who has
since upheld the stand of the Assessing Officer. Not being satisfied
with the order of the CIT(A), assessee is in further appeal before us.
4. Before us, the learned counsel for the assessee pointed out that
assessee was engaged in the construction of an IT Park building called
Matrix IT Tower at Pune, which was still under construction during the
year under consideration. Meanwhile, assessee was able to find a
tenant for the said building during the construction stage; because in
such a situation the ultimate fit outs and construction could be
carried out in accordance with the requirements of the prospective
tenant/user of the premises. The learned counsel pointed out that
assessee was not in the business of leasing buildings but was in the
business of constructing it and selling it to an investor; and, for
that purpose it considered that if an already let-out building would
be offered to a buyer, it would fetch higher returns. Therefore,
assessee undertook the said activity of locating a tenant, who would
occupy it on its completion and thus expenses incurred by way of
brokerage and commission for finding a tenant was a business expense.
The learned counsel pointed out that after completion of construction,
assessee has sold the building inclusive of the rental arrangement and
the same has helped the assessee in fetching a better price. The
learned counsel pointed out that the assessee undertook the aforesaid
exercise as a part of a business model of construction and selling a
pre-leased building to the ultimate buyer, because it would ensure the
buyer to have better returns on his investment. In this manner, it is
sought to be canvassed that the expenditure in question was incurred
wholly and exclusively for the purposes of business and was thus an
allowable expenditure in terms of section 37(1) of the Act.
5. On the other hand, the learned Departmental Representative
appearing for the Revenue has referred to the orders of the
authorities below in support of the case of the Revenue. It is
reiterated that in the present year there is no nexus between the
impugned expenditure and the income assessable and even in the
subsequent assessment year the income from the leasing of the building
was declared as 'income from house property' and therefore the
impugned expenditure could not be allowed as a deduction u/s 37(1) of
the Act. According to the learned Departmental Representative, the
Assessing Officer made no mistake in observing that under the head
'Income from house property' only specified expenditures are allowed
as a deduction and there is no provision like section 37 (1) of the
Act to allow any expenditures relating to the income under the head
'business'. Further, according to the learned Departmental
Representative, the claim of the assessee that leasing of the property
was a part of business activity to fetch higher prices for the
building on its sale is also not justified. There was no material to
support the aforesaid assertion. In this connection, a reference has
been made to the finding of the CIT(A) on this aspect to the effect
that assessee has sold the property much after letting out, which
would show that it was not a business model of the assessee to
construct and sell the property only after finding a tenant for it.
For all the above reasons, the claim of the assessee is sought to be
opposed.
6. We have carefully considered the rival submissions. In the present
case, the claim of the assessee is that it has incurred expenditure on
payment of brokerage and commission to M/s Flora Premises Pvt. Ltd.,
Mumbai for finding a tenant for its building, Matrix IT Tower at Pune
which was still under construction. Although, the lease agreement is
dated 24.05.2007, i.e. a date falling within the previous year
relevant to the assessment year under consideration, however, the
commencement of the lease is stated to be only post-completion of the
building, which has happened in the subsequent assessment year. The
assessee has received the lease rentals also in the subsequent
assessment year when the lease arrangement actually commenced. It is
also not in dispute that the lease rentals have been declared in the
subsequent year as 'income form house property'. During the year under
consideration, the expenditure towards brokerage and commission for
finding tenant for the said building is claimed as 'revenue
expenditure' deductible in terms of section 37(1) of the Act. The
phraseology of section 37(1) of the Act inter-alia prescribes that the
expenditure should be laid out or expended wholly and exclusively for
the purposes of business. In the present case, the issue canvassed by
the assessee is that it is in the business of construction and
development of IT Park and Hotels and its business model envisaged
that before selling the building/IT Park constructed by it, it finds a
tenant for the same and thereafter sells it to the ultimate customer
alongwith the tenancy arrangements. Therefore, it is sought to be
justified that the activity of finding a tenant for the building under
construction is an activity for the purposes of business and thus the
expenditure is allowable in terms of section 37(1) of the Act. In so
far as the proposition sought to be canvassed by the assessee is
concerned, it cannot be disputed in principle, so however, what is
required to be examined is as to whether under the facts and
circumstances of the present case, such a proposition enables the
assessee to support its claim of deductibility of expenditure of
Rs.164,69,459/- under Section 37(1) of the Act during the year under
consideration. Factually, it is evident that the building which is
sought to be leased out is still under construction during the year
and even the lease agreement in question has not commenced during the
year under consideration. Therefore, it is only after the completion
of the building and commencement of the lease agreement that the
proposition canvassed by the assessee can be tested. For the present,
having regard to the facts and circumstances of the case, the impugned
expenditure can at best be taken as a part of the cost of construction
and development of the building, which the assessee has sold in the
subsequent years. Notably, the cost of development and construction of
building in question has been shown as capital work-in-progress by the
assessee in its Balance Sheet, since it was incomplete and under
construction. Be that as it may, we are only trying to say that the
claim of the assessee that the said expenditure was allowable as
'revenue expenditure' in terms of section 37(1) of the Act during the
year under consideration is not well founded, having regard to the
facts and circumstances of the case. Thus, on this aspect assessee has
to fail.
7. In the result, the appeal of the assessee is dismissed.
SB
*In favour of revenue.
--
Regards,
*Pawan Singla ,** LLB*
*M. No. 9825829075*
IT : The offence or prohibition under law referred to in Explanation to section 37(1) should be judged with reference to the 'purpose' of the expenditure on a standalone basis divorced from the fulfilment or otherwise of the procedural formalities ( for example requirements of Companies Act like Board's consent, general body approval, Central Govt's approval) attached with and necessary for the incurring of such expenditure.
• When we turn to the language of the Explanation to sec. 37(1), which is a deeming provision, it is amply borne out that it talks of disallowing any expenditure incurred by an assessee for 'any purpose' which is either an offence or prohibited by law.
• So what is contemplated for disallowance is an 'expenditure' incurred 'for any purpose which is either an offence or which is prohibited by law'.
• When we consider the mandate of the Explanation in the light of the fact that it is a deeming provision, there remains no doubt whatsoever that the inquiry to determine the applicability or otherwise of the Explanation is restricted to ascertaining the purpose of the expenditure.
• In simple words, the investigation should be carried out to see the object and consideration for the expenditure incurred.
• If the purpose of the expenditure is either an offence or is prohibited by law, then it would suffer disallowance.
• If, however, the purpose of the expenditure is neither to commit an offence nor is prohibited by any law, then there can be no question of disallowance.
• It means that the offence or prohibition under law should be judged with the 'purpose' of the expenditure on a standalone basis divorced from the fulfilment or otherwise of the procedural formalities attached with and necessary for the incurring of such expenditure.
• To put it in simple words, if the expenditure is otherwise lawful and neither amounts to offence nor is prohibited by law, but the procedural provisions attached for incurring it are not complied with, no doubt irregularity will creep in, but such irregularity would not make the expenditure itself as unlawful so as to be brought within the scope of the Explanation.
• At the cost of repetition, the Explanation, being a deeming provision, is required to be strictly followed as per its express language and not beyond that.
• As its language talks of disallowing any expenditure for any purpose which is an offence or which is prohibited by law', we cannot do violence to the language by expanding its scope to also bring within its sweep the cases where the purpose of expenditure is neither an offence nor is prohibited by law, but there is a breach of some procedural provision necessary for incurring such otherwise lawful expenditure.
• What, therefore, turns out is that it is the expenditure alone which should be tested on the touchstone of the mandate of Explanation to section 37(1) and nothing more than that.
• If the expenditure itself is for a valid and lawful purpose, then, there can be no question of any disallowance.
• The words 'for any purpose' set in place by the legislature with the 'expenditure' on the one hand and 'which is an offence or which is prohibited by law' on the other, make it abundantly clear that if the purpose of expenditure, which is sought to be disallowed is not an offence or not prohibited by law, the same cannot be brought within the scope of Explanation to section 37(1) of the Act. If, on the other hand, the purpose of expenditure is an offence or is prohibited by law, the same cannot escape the clutches of the Explanation.
• The natural corollary which thus follows is that if the 'purpose' of expenditure is not to commit an offence or is otherwise not prohibited by law, then any breach of some procedural statutory provision necessary to be complied with before incurring such expenditure, would not per se convert the otherwise lawful purpose into an offence or prohibition under law so as to attract the wrath of the Explanation. A line of distinction needs to be drawn between the cases where the purpose of the expenditure incurred itself is unlawful on one hand and the cases where the purpose of expenditure is lawful but there is some lapse in complying with the procedural provisions for incurring such expenditure on the other.
• Whereas the disallowance will be called for in terms of the Explanation to section 37(1) in the first set of cases where the very 'purpose' of the expenditure incurred is unlawful, the second set of cases will escape the mischief of the Explanation because the 'purpose' of the expenditure is not unlawful.
• The crux of the matter is that the 'purpose' of the expenditure incurred should be viewed in isolation unbothered by anything else for determining whether or not the Explanation is attracted.
No reassessment to limit sec. 36(1)(viii) deduction if all facts were truly disclosed during assessment
June 27, 2014[2014] 45 taxmann.com 465 (Bombay)
IT-I : Where Assessing Officer completed assessment under section 143(3) allowing assessee's claim for deduction raised under section 36(1)(viii), since there was no failure on part of assessee to disclose fully and truly all material facts at time of assessment, reassessment proceedings could not be initiated after expiry of four years from end of relevant assessment year taking a view that assessee had raised excessive claim of deduction
Waiver of interest by assessee does not detract Revenue's statutory obligation to grant interest on belated refund
We are sharing with you an important judgement of the Hon'ble High Court of Allahabad, in the case of Shree Balaji Aromatics (P.) Ltd. Vs. Union of India [(2014) 46 taxmann.com 5 (Allahabad)] on following issue:
Issue:
Whether waiver of interest on delayed refund by the assessee detracts the statutory liability of the Revenue to pay interest on such delayed refund under Section 11BB of the Central Excise Act, 1944 ("the Excise Act")?
Facts & Background:
Shree Balaji Aromatics (P.) Ltd. ("the Petitioner" or "the Company") filed certain refund claims in the years 2005, 2006 and 2007. In the month of April 2007, the Petitioner on the verbal undertaking given by the Department for expeditious disposal of refund claims, wrote a letter to the Department informing that they will not claim any interest on belated refund. The said refund claims were allowed without any interest vide order dated July 8, 2007. Later, the Petitioner filed writ petition before the Hon'ble High Court of Allahabad seeking interest on belated refunds under Section 11BB of the Excise Act.
Relevant extract of Section 11BB of the Excise Act has been reproduced hereunder for the ease of reference:
"Section 11BB. Interest on delayed refunds –
If any duty ordered to be refunded under sub-section (2) of section 11B to any applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate, not below five per cent and not exceeding thirty per cent per annum as is for the time being fixed by the Central Government, by notification in the official gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty:…………."
The Department contended that the Petitioner's letter for not claiming the interest tantamounts to waiver of his right to claim the interest and therefore, they are not entitled to claim interest.
However, the Petitioner relying upon the Circular No. 670/61/2002-CX, dated October 1, 2002 ("the Circular") and decision of the Apex Court in the case of Ranbaxy Laboratories Ltd. Vs. Union of India [(2011) 33 STT 326] ("the Ranbaxy case") submitted that the Company was entitled to interest on refund claims in terms of Section 11BB of the Excise Act even though they had written a letter for not claiming the interest as the provisions of Section 11BB of the Excise Act are attracted automatically for any refund sanctioned beyond a period of three months. Further, the Petitioner also claimed interest on interest on account of illegal withholding of the amount of interest.
Held:
The Hon'ble High Court of Allahabad relying upon the Circular and the Ranbaxy case, held that use of words "there shall be paid to the applicant" in Section 11BB of the Excise Act reveals that payment of interest on belated refund is automatic and not dependent upon claim by assessee. If refund is not paid within 3 months from date of receipt of application, authority is under obligation to pay the interest.
It was further held by the Hon'ble Allahabad High Court that interest on delayed refund under Section 11BB of the Excise Act is not discretionary, it is statutory and waiver of interest by the assessee has no relevance and interest cannot be denied on said ground.
Therefore, the Hon'ble High court of Allahabad rejected the contention of the Department and decided the case in favour of the assessee/ Petitioner. However, the Hon'ble High Court rejected the Petitioner's demand of interest on interest.
Point to note:
Although the interest provision contained under Section 11BB of the Excise Act is very clear and unconditional depicting the intention of the Legislature to provide speedy disposal of refund claims, same matter has been settled number of times by the Courts strictly providing for payment of interest on refunds delayed beyond the period of 3 months calculated from the date of application:
- Commissioner of Central Excise, Pune-II Vs. Sulaki Chemicals (P.) Ltd. [(2014) 45 taxmann.com 525 (Bombay)]
- Rishabh Velveleen Ltd Vs. CESTAT [(2014) 45 taxmann.com 540 (Uttarakhand)]
- Shroff United Chemicals Limited Vs. Union Of India [2011 (24) S.T.R. 17 (Bom.)];
- Union of India Vs. Swaraj Mazda Ltd. [2010 (253) E.L.T. A19 (S.C.)];
- Amalgamated Plantations (P) Ltd. Vs. Union Of India [2013 (296) E.L.T. 13 (Gau.)]
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
Service Tax Exemption to Factory Canteens
Dr. Sanjiv Agarwal
Under Entry No. 19Aof Exemption Notification No. 25/2012-ST dated 20.06.2012, Air Conditioned or Air-heated Canteen maintained in a Factory are exempt from Service Tax w.e.f. 22.10.2013.Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948, having the facility of air-conditioning or central air-heating at any time during the year are exempt from Service Tax vide Notification No. 14/2013-ST dated 22.10.2013. The meaning of the word "factory" is same as defined in Factory Act, 1948.
According to section 2(m) of the Factories Act, 1948, 'factory' means any premises including the precincts thereof –
(i) Where ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
(ii) Where twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on.
The term "Manufacturing Process" is defined in Section 2(k) of the Factories Act, 1948 and accordingly, "Manufacturing Process" means any process for-
(i) Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use sale, transport, delivery or disposal, or
(ii) Pumping oil, water, sewage or any other substance; or
(iii) Generating, transforming or transmitting power; or
(iv) Compositing types for printing, printing by letter press, lithography, photogravure or other similar process or book binding;
(v) Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
(vi) Preserving or storing any article in cold storage;
It may be noted that canteen is a statutory requirement under the provisions of section 46 of the Factories Act, 1948 where the factory is employing more than 250 employees.
Therefore, any factory canteen which is air-conditioned or air-heated provides services in relation to serving of food or beverages are out of service tax net w.e.f. 22.10.2013.
A factory can provide and maintain a canteen in any of the following ways: -
a) a canteen can be run by the factory, directly, by forming a managing committee, which includes representation of workers also.
b) a canteen can be run by a co-operative society, formed for the purpose of providing subsidized food to the employees, by forming a managing committee including the elected representatives of the workers.
c) The organization can engage canteen contractors of providing canteen facilities and giving subsidized food to the employees.
The facility of air –conditioning or air-heating if available in the part of the year, even then such exemption is available to such factory canteen. Such exemption is not applicable to the canteen run in an office or any other place. This exemption should be applicable both to an employer who is maintaining the canteen on its own as well as to those who are getting the services from an outdoor caterer.
On combined reading of entry 19 and 19A of the exemption notification, it can be said that it has been the intention of the Government to grant exemption from Service Tax in relation to services provided for serving of food and / or beverages by a canteen maintained in a factory which is covered under or governed to the Factories Act, 1948, whether or not having the facility of air-conditioning or air-heating at any point of time in a year. While entry 19 uses the word eating joint (which is much wider in scope), entry 19A is specific to canteen only. The services provided by a canteen maintained in a factory, whether air-conditioned or not, would be exempt under entry 19A.
Material found during search not sustained in case of searched person, couldn't be used for other person as well
June 27, 2014[2014] 45 taxmann.com 466 (Gujarat)
IT : Very foundational facts and materials, not sustained in case of searched person, cannot be permitted to be used in case of person other than searched person for alleged undisclosed income and thereby allowing continuation of such proceedings
Sec 14A – Disallow only directly related Expense; Disallowance should not exceed tax on Exempt Income – ICAI
ICAI Suggestion on Disallowance of expenditure incurred in relation to income not includible in total income under section 14A of the Act:
As per the existing provisions of section 14A of the Act, no deduction shall be allowed in respect of expenditure incurred by a taxpayer in relation to income which does not form part of the total income under the Act. Further, Section 14A of the Act states that the provisions of this section shall also apply in cases where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act.
In this regard, a method has been prescribed under rule 8D of the Income-tax Rules, to calculate the amount of disallowance for the purpose of section 14A of the Act. As per the prescribed method in rule 8D, the disallowance for the purpose of section 14A is aggregate of the following:
a) Amount of expenditure directly relating to exempted income.
b) Amount of interest expenses not directly attributable to any particular income- in the proportion of average value of investments (whose income is exempt) to average of total assets.
c) Half percent of average value of investments (which generate exempt income)
Rule 8D has created genuine hardships for tax payers, as the calculation basis under rule 8D is arbitrary. In many cases, the
disallowance calculated as per rule 8D method exceeds the amount of total exempted income earned during the year.
disallowance calculated as per rule 8D method exceeds the amount of total exempted income earned during the year.
This is because of the following reasons:
- Firstly, the interest expense,which does not form part of exempted income, is disallowed.
- Secondly, while working out half percent of the average investments, all the investments in shares/mutual funds are considered.
- Thirdly, this method does not demarcate between investments that have generated or not generated income during the year.
- Lastly, no distinction has been made for companies earning dividend income due to holding strategic investments in group companies and very little expenditure is attributable to earn such dividend income.
It is suggested that:
a) Only those expenses which are directly related to earning of exempt income shall be disallowed.
b) Further, the overall maximum limit of expense to be disallowed should not exceed the tax payable on
exempted income earned.
exempted income earned.
c) Overall maximum limit of expense to be disallowed in case of dividend income earned from holding strategic investment in group companies shall be capped.
Source- Pre-Budget Memorandum 2014 on Direct Taxes by ICAI
MCA further clarifies on Shares held in fiduciary capacity
Vijaya Agarwala
Introduction
In what seems to have become an exclusive and welcome manner of making up for the perplexity created by the Companies Act, 2013, the Ministry has come out with yet another clarification vide General Circular no. 24/2014, Dated: 25.06.2014 on holding of shares in fiduciary capacity in associate companies. The circular has been issued in continuation to MCA circular 20/2013 dated 27th December, 2013 (Circular 2013). The clarifications assume significance as holding, subsidiary and associates relationships have a bearing on consolidation of financial statements. Fiduciary capacity creates a relationship wherein one holds the duty to another of trust, confidence and good faith. In such a situation, it is rationally incorrect to assume that the entity holding shares has the power to exercise influence as well. Instead in such cases, the shareholding must be counted as the shareholding of the beneficiary and not the shareholding of the trustee.
Provision under Companies Act, 1956
Under the Companies Act, 1956 (Act, 1956) shares or powers held in fiduciary capacity were specifically excluded from the purview of holding subsidiary relationships under section 4(3). The relevant extract of the Section is reproduced below:
"4. MEANING OF "HOLDING COMPANY" AND "SUBSIDIARY
(1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if,
XXX
(3) In determining whether one company is a subsidiary of another -
(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it ;"
Provision under Companies Act, 2013
Under Companies Act, 2013 (Act, 2013), definition of subsidiary under Section 2(87) did not expressly exclude the shares held under fiduciary capacity. Thereafter, the Ministry issued a clarification with regard to holding – subsidiary relationship vide MCA circular 20/2013 dated 27th December, 2013 wherein it was expressly stated that shares held in fiduciary capacity will be excluded while determining whether a particular company is a subsidiary of another company under provisions of section 2(87) of the Act, 2013.
Meaning of Subsidiary for the purpose of Section 129 (3)
Section 129 (3) of Act, 2013 pertaining to financial statements is reproduced hereunder:
"(3) Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):
XXX
Explanation.—For the purposes of this sub-section, the word "subsidiary" shall include associate company and joint venture"
Unlike in case of subsidiary companies, accounts of associates are not required to be consolidated by the company holding significant influence. However, as per Indian Accounting Standard (Ind AS) 28 investments in associates accounted for using the equity method shall be classified as non-current assets. The investors' share of the profit or loss of such investments along with amount of investment is required to be disclosed separately.
In the absence of such a clarification, a trustee would have to disclose such a holding in its financial statements despite not being a beneficiary of the return on investment. Moreover, such a treatment shall not depict a true and fair view of the statements
Position subsequent to Circular 2014
General Circular no. 24/2014, Dated: 25.06.2014 refers to the definition of "associate" (as reproduced below), and clarifies that the shares held in fiduciary capacity shall not be counted for the purpose of determining the relationship of 'associate company' under section 2(6) of the Companies Act, 2013
(6) "associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, "significant influence" means control of at least twenty per cent. of total share capital, or of business decisions under an agreement;
Conclusion
Thus, in view of the aforesaid for the purpose of consolidation under Section 129 (3), associate will not be considered as subsidiary if the shares are held in fiduciary capacity.
(Vijaya Agarwala - Management Trainee at Vinod Kothari & Company can be reached at vijaya@vinodkothari.com)
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