Time limit on Claiming CENVAT Credit: Major Implication
Ankit Bidasaria, CA & CS
Rule 4 of the CENVAT Credit Rules, 2004 ("CCR") provides the conditions for availment of credit. Amendment rules inserted a new proviso after the second proviso in Rule 4(1). The new proviso shall be inserted with effect from first day of September, 2014. The proviso has been reproduced as under: "Provided also that the manufacturer or the provider of output service shall not take CENVAT credit after six months of the date of issue of any of the documents specified in sub- rule (1) of rule 9."
Thus, now there is a restriction introduced under the CCR that credit of the duty paid in inputs or input services should be availed with 6 months from the date of relevant document specified in Rule 9(1) of the CCR.
In Rule 4(7), as we know, there is a proviso clause that in case the payment of the value of input service and the service tax thereon is not made within 3 months from the date of the invoice ("or any relevant document as per Rule 9(1)") the manufacturer of Service provider who has taken credit of such input service shall pay an amount equal to the Cenvat credit taken on such input service. Now, Rule 4(7) has been amended to make it clear that after the lapse of 6 months Credit cannot be claimed.
Now in a case where the payment to the service provider is not made within 3 months from the date of invoice, then the CENVAT credit so taken by the Service recipient has to be reversed. The credit of input tax amount can be taken by the service recipient once the payment has been made. There was no time limit on such re-credit. But now, since after the amendment no credit can be taken after six month from the date of invoice the re-credit cannot be taken. Further, there is no specific mention that the restriction clause of 6 months is only for the availment of first credit and the restriction does not covers re-credit availment.
Assume a case, where the assessee receives the service provider's invoice on October 31, 20X4 which is dated October 01, 20X4. As per the amended Rule 4(1) the assessee can claim the input service tax till March 31, 20X5. Suppose he claims the credit on October 31st itself. Now, as per Rule 4(7) the assessee shall be required to make payment by December 31, 20X4. In case the assessee fails to make the payment to service provider, he shall be required to reverse the credit of input service tax so taken. Now, there can be two cases, the assessee might make the payment before the elapse of 6 months from the date of invoice (i.e. before March 31, 20X5) or he makes the payment after 6 months from the date of invoice (i.e. after March 31, 20X5).
CASE I: The assessee makes the payment before 6 months from the date of invoice (i.e. before March 31, 20X5)
In this case the assessee shall enjoy the benefit of availing the input tax credit as six months have not elapsed from the date of invoice.
CASE II: The assessee the payment after 6 months from the date of invoice (i.e. after March 31, 20X5)
In this case since as per Rule 4(1) the last date of availing the Input credit being March 31, 20X5 the assessee shall not be able to claim the input tax.
Therefore, we see that the benefit of 3 months time frame for payment of the value of the input service, vis-à-vis availment of CENVAT credit, would be subject to the overall limit of 6 months fixed for availment of credit by the new amendment.
Further, if any assessee fails to discharge the tax liability in the past and the assessee discharges the same after receiving a notice from the department he shall not be eligible to claim the input tax credit as the specified time limit of 6 months would have already lapsed.
Since the introduction of the CENVAT credit procedure over many years, there has never been prescribed a time limit for availing CENVAT Credit. This restriction is also unreasonable to the extent that authorities are entitled to adjudicate tax shortfalls and demands for the past five years in most cases.
(Author may be contacted at bidasaria_a@yahoo.co.in)
Fund Raising In Pvt Ltd Co Under Companies Act 2013
CA Gaurav Mittal
FUND RAISING IN PVT LTD CO UNDER COMPANIES ACT 2013
Under Companies Act,2013 A company can raise funds via 3 means :-
1) Deposits.
2) Loans.
3) Capital.
The Deposits and loans has already been discussed earlier on this website
Deposits : - Acceptance Of Deposits Under Section 73 – 76
Now we will discuss the third method i.e. Raising of Capital
Under Companies Act 2013, A Private Limited Company can raise funds via Capital in 3 Ways :-
1) Private Placement/ Preferential Allotment.
2) Right Issue/preferential Allotment.
3) Bonus Issue.
PRIVATE PLACEMENT.
Issuing shares to a select group of people like friends & family, angels or VC?
Brace up, the new Companies Act 2013, provides for lengthy compliance procedures.
Unlike before, even a private limited company has to follow the processes for private placement of securities. Securities means equity shares, preference shares and debentures, convertible instruments, redeemable instruments.
"Private Placement" means any offer of securities or invitation to subscribe securities (equity or securities that convert to equity) to a select group of persons by a company, other than by way of public offer, through issue of a private placement offer letter. (Section 42 of Companies Act 2013 and Rule 14 under Companies (Prospectus and Allotment of Securities) Rules 2014)
These guidelines are applicable if the offer is made to a person who is currently not an equity shareholder in the company.
KEY CONDITIONS
A) An offer can be made under a Private Placement Offer Letter to not more than 200 people
Not just the limitation of allotment to 200 people but even an invitation to subscribe cannot be made to more than 200 people.
The 200 people limit excludes Qualified Institutional Buyers and Employees.
VARIOUS KNOW HOW TO OFFER LETTER
1) Offer letter in PAS 4 + application form serial numbered + addressed to specific person – to be sent in writing or electronic mode.
2) While passing special resolution – basis or justification of pricing (including premium) to be made in explanatory statement.
3) Offer per person cannot be for less than Rs. 20,000
A person cannot apply for shares of Less than Rs 20,000 Face Value.
4) Payment to be made from bank A/c of person subscribing.
5) Company to keep record of such Bank A/c.
6) To maintain complete record in PAS – 5 and PAS 4 to be filed with ROC
WHAT OFFER LETTER SHOULD CONTAIN
1) Business carried out by Co & subsidiaries.
2) Management's perception of risk factors.
3) Details of default including interest – statutory dues, deposit, loan, etc.
4) Time schedule for which offer is valid.
5) Price of offer and its justification.
6) Name & Address of the valuer who did valuation.
7) Purpose and object of offer.
8) Contribution by promoters or directors.
9) Disclosure of interest of director, promoter or KMP.
10) Details of litigation pending.
11)Remuneration of directors for current + last 3 yrs.
12)Related party transaction for last 3 years relating to loans, guarantee or securities.
13)Auditors' reservations or qualifications or adverse remarks for last 5 years – its impact on FS & corrective action taken / proposed for each comment.
14)Material frauds last 3 years
Financial position –
1) Capital structure before & after;
2) Profit before & after tax for 3 years
3) Dividend last 3 years
4) Interest coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid).
5) Summary of financial position including Cash Flows – last 3 years – audited
6) Change in accounting policies in last 3 years and its effect on profits & Reserves.
7) Declaration by director of compliance.
B) The money so received shall be kept in a separate bank account of the company and utilized only for allotment (or repayment).
KEY POINTS UNDER THIS
1) On allotment file PAS -3 in 30 days.
2) Detail to include PAN & e-mail id of each member to whom share allotted.
3) Share Allotment cannot be in cash now.
4) If not followed – Penalty of amount involved or 2 Cr, whichever is high+ to refund the money.
5) Effective from 01.04.2014.
6) Share to be allotted within 60 days of receipt of allotment money.
PROCEDURE FOR PRIVATE PLACEMENT
- Check Provision in Article regarding Private Placement
- Call Board Meeting:
• To Prepare Offer Letter
• Make Proposal for Private Placement
• Prepare list of persons to whom option will be given
- Call EGM:
• Pass SR- will be valid for 12 month
• If not completed PP in 12 Month pass another SR
• Approve Draft Offer Letter by SR
- File MGT-14 with ROC
Attachments: -
Notice of EGM
CTC of SR
Minutes - Issue offer letter in PAS-4 within 30 days of record of name of persons:
• Application form serially numbered
• Address to the persons to whom the offer is made
- Prepare complete record of Private Placement in PAS-5
- File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
- Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
- Called BM for allotment of shares
- File PAS-3 with Roc within 30 days if Allotment. Attachments: – List of Allottees – BR for allotment of share
- File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
12. Issue Share Certificates.
RIGHT ISSUE/ PREFERENTIAL ALLOTMENT
Preferential Offer means an issue of shares or other securities, by a Company to any select person or group of persons on a preferential basis and does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities.
Essentials:
- For a pro-rata issuance of equity and securities converting into equity, to current equity shareholders in the company, then the shareholders of the company has to approve through a special resolution, at least 3 days prior to such offer. The Articles of Association has to have an enabling provision.
- The price for the security offered has to be supported by a valuation report by a Registered Valuer.
– The validity for such Special resolution is 12 months, within which the company has to complete the allotments.
– The securities allotted has to be fully paid-up (i.e. it cannot be partly-paid for).
- When obtaining the shareholder approval, the below details has to be decided and included in the disclosures:
- the objects of the issue;
- the total number of shares or other securities to be issued;
- the price or price band at/within which the allotment is proposed;
- basis on which the price has been arrived at along with report of the registered valuer;
- relevant date with reference to which the price has been arrived at;
- the class or classes of persons to whom the allotment is proposed to be made;
- intention of promoters, directors or key managerial personnel to subscribe to the offer;
- the proposed time within which the allotment shall be completed;
- the names of the proposed allottees and the percentage of post preferential offer capital that may be held by them;
- the change in control, if any, in the company that would occur consequent to the preferential offer;
- the number of persons to whom allotment on preferential basis have already been made during the year, in terms of number of securities as well as price;
- the justification for the allotment proposed to be made for consideration other than cash together with valuation report of the registered valuer.
- The pre issue and post issue shareholding pattern of the company.
PROCEDURE FOR PREFERENTIAL ALLOTMENT
a. Check Provision in Article regarding Preferential Allotment
a. Check Provision in Article regarding Preferential Allotment
b. Call Board Meeting:
• To Prepare Offer Letter
• Make Proposal for Preferential Allotment
• Prepare list of persons to whom option will be given
• Call EGM
• To Prepare Offer Letter
• Make Proposal for Preferential Allotment
• Prepare list of persons to whom option will be given
• Call EGM
c. Call EGM:
• Pass SR- will be valid for 12 month
• If not completed PP in 12 Month pass another SR
• Approve Draft Offer Letter by SR
• Pass SR- will be valid for 12 month
• If not completed PP in 12 Month pass another SR
• Approve Draft Offer Letter by SR
d. File MGT-14 with ROC
Attachments: -
Notice of EGM
CTC of SR
Minutes
Attachments: -
Notice of EGM
CTC of SR
Minutes
e. Issue offer letter in PAS-4 within 30 days of record of name of persons:
• Application form serially numbered
• Address to the persons to whom the offer is made
• Application form serially numbered
• Address to the persons to whom the offer is made
f. Prepare complete record of Preferential Placement in PAS-5
g. File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2
h. Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.
i. Called BM for allotment of shares
j. File PAS-3 with Roc within 30 days if Allotment. Attachments: – List of Allottees – BR for allotment of share
k. File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.
l. Issue Share Certificates.
(Author may be contacted at mittalgaurav05@gmail.com)
Much needed Clarifications on matters relating to Related Party Transactions
General Circular No. 30/2014, Dated: 17th July 2014
Subject: Clarifications on matters relating to Related Party Transactions.
Government has received representations from stakeholders seeking certain clarifications on related party transactions covered under section 188 of the Companies Act, 2013. These representations have been examined and the following clarifications are given:-
1. Scope of second proviso to Section 188(1) :- Second proviso to subsection (1) of section 188 requires that no member of the company shall vote on a special resolution to approve the contract or arrangement (referred to in the first proviso), if such a member is a related party. It is clarified that `related party' referred to in the second proviso has to be construed with reference only to the contract or arrangement for which the said special resolution is being passed. Thus, the term 'related party' in the above context refers only to such related party as may be a related party in the context of the contract or arrangement for which the said special resolution is being passed.
2. Applicability of Section 188 to corporate restructuring, amalgamations etc. :- It is clarified that transactions arising out of Compromises, Arrangements and Amalgamations dealt with under specific provisions of the Companies Act, 1956/Companies Act, 2013, will not attract the requirements of section 188 of the Companies Act, 2013.
3. Requirement of fresh approvals for past contracts under Section 188. :- Contracts entered into by companies, after making necessary compliances under Section 297 of the Companies Act, 1956, which already came into effect before the commencement of Section 188 of the Companies Act, 2013, will not require fresh approval under the said section 188 till the expiry of the original term of such contracts. Thus, if any modification in such contract is made on or after 1st April, 2014, the requirements under section 188 will have to be complied with.
4. This issues with approval of the competent authority.
No. 1/32/2013- CL-V (Pt)
Yours Failthfully
(KVS Narayanan)
Assistant Director (Policy)
Ph: 23387263
Assistant Director (Policy)
Ph: 23387263
ALLAHABAD, JULY 18, 2014: THE issues before the Bench are - Whether, based on a subsequent decision of the Supreme Court which was not available at the time of decision given by the Tribunal, a rectification application u/s 254(2) is maintainable and Whether in the event of closure of a firm, stock of the said firm would be carry forward to the newly formed company, at cost only. And the verdict goes against the Revenue.
Facts of the case
The assessee is an individual. In the AY 1990-91, the Tribunal while allowing the appeal of the Revenue, had observed it was clear that whatsoever may be the mode of dissolution or closure of the business of the firm, the profits had to be ascertained only by taking the closing stock at market value. The accounts had to be worked out on that basis upto the date of dissolution or prior to it. The situation that the firm came to an end by way of liquidation or partners dissolved the firm for distributing the assets of the firm, or dissolved and closed the firm with a view to form a company or otherwise, were not relevant because the accounts of the outgoing entity, i.e., the firm, were to be prepared properly, may be the business remained the same and stock was also taken over by the new entity i.e., the company. For tax purposes, the profit and loss of the outgoing entity, i.e., the firm had to be properly and separately worked out and was not to be mixed up with the new entity, i.e., the company. The plea of the counsel for the assessee that in a case of conversion of a firm into a company, the business was not continued and, therefore, same method of valuation of closing stock should be applied, was not acceptable. This view of the tribunal was made on the basis of the decision SC in A.L.A. Firm's Vs. CIT 2002-TIOL-868-SC-IT-LB, in which it was held that if the partnership was dissolved, the valuation of the closing stock had to be valued at market price.
The assessee being aggrieved filed an application u/s 254(2) for rectification of the mistake contending that there was apparent on the face of the record. During the pendency of this application, the SC delivered a decision in Sakthi Trading Co. Vs. CIT 2002-TIOL-569-SC-IT holding that where the business continued and the firm was reconstituted, the valuation of the closing stock would have to be determined at cost price or market price, whichever was lower. In the light of this decision, which was brought to the knowledge of the Tribunal, the application of the assessee u/s 254(2) was allowed and the necessary rectification was made.
Before the HC, the assessee had contended that a substantial question of law arose namely that since the Tribunal had passed the order on merits after considering the pros and cons of the matter, it had no jurisdiction to rectify its mistake u/s 254(2) and in as much as the said rectification amounted to a review of its decision, which was not permissible u/s 254(2).
Held that,
++ we find that the Central Board of Direct Taxes has issued a Circular No. 68 explaining as to when a mistake apparent from the record could be corrected in the event of a subsequent decision delivered by the Supreme Court of India. In ACIT Vs. Saurashtra Kutch Stock Exchange Ltd. 2008-TIOL-170-SC-IT, the SC held that the rectification of an order stems from the fundamental principle that justice is above all and that it has to be exercised to remove the error and achieve the finality. The Supreme Court held that an error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. The Supreme Court, in the said case, found that the decision of the Appellate Tribunal was rendered without noticing the decision of the High Court. The Supreme Court held that there was an error apparent on the record, which could be rectified by a miscellaneous application being filed under section 254(2). Similarly, in Shahbad Co-operative Sugar Mills Ltd. Vs. DCIT [2011] 336 ITR 0222, the Punjab and Haryana High Court held that recourse to rectification proceedings would be taken once the Supreme Court rendered its decision clarifying the earlier decision passed by it and that such rectification was permissible under section 154;
++ we find that pursuant to the decision given by the Supreme Court in Sakthi Trading Co., as a result of subsequent interpretation of law by the Supreme Court, fairly indicating that where the business continued, the valuation of the closing stock would have to be determined either at cost price or market price, whichever is lower. Such decision passed by the Tribunal based on an earlier decision of the Supreme Court is a mistake apparent from the record and consequently a rectification application under section 254(2) is maintainable. We are of the opinion that the Tribunal was justified in passing the order under section 254(2). In view of the aforesaid, we do not find that any substantial question of law arises for consideration. The appeal fails and accordingly dismissed.
(See 2014-TIOL-1153-HC-ALL-IT)
Bulk e-filing services of XMLs for Tax professionals
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Bulk e-filing services of XMLs for Tax professionals
As you are ware, the income tax department has restricted the use of a single email id to a maximum of 10 accounts on the e-filing portal. A lot of tax professionals have already started experiencing issues in e-filing clients' tax returns.
H&R Block, an e-return intermediary registered with the income tax department, is offering bulk-efiling services to mitigate these issues.
In fact this service has a lot more features than just bulk-filing.
Below is the list of important features:
i) A single account to e-file all your clients' tax returns
ii) E-file multiple XMLs just at a click of a button
iii) Track ITR V status and refund status in a single screen
iv) 26AS comparison
'Annual subscription fee for the same is just Rs. 500 for unlimited filings round the year!!
Ashwani Dhingra vs Addl. CCIT S. 234A/B/C - Interest is mandatory, but it cannot be charged retrospectively when there was no receipt in the hands of assessee. No law is applicable retrospectively unless specified in the statute. The assessee is primarily an agriculturist. His land was acquired by the Government and he got compensation under Section 23 of the Land Acquisition Act. The assessee has also received interest on additional compensation and solatium. The assessee has declared the amount of compensation and solatium under VDIS, 1997, but interest on additional compensation received under Section 23(1A) was not declared by the assessee for the purpose of tax. P & H High Court judgment dated 17.8.2000 in the case of Union of India v Birla held that interest would also be payable on additional amount determined under Section 23(1A) of the Land Acquisition Act. Hon'ble Apex Court has confirmed the same in the case of Sundar Vs. Union of India dated 9th September, 2001. Resultantly, the assessee has received the interest on the amount of additional compensation, which was spread over during the assessment year under consideration. On 20th November, 2003 the A.O. has issued a notice under Section 148 of the Act. Being aggrieved, the assessee filed a writ petition before Hon'ble Allahabad High Court, which was dismissed vide order dated 31st August, 2004. On 11th October, 2004 the assessee filed returns of income declaring an income of Rs. 6,53,760/- being taxable income in each of the six years the tax was paid under Section 140A of the I.T. Act, 1961. Whether chargeability of the interest under Section 234A, 234B, 234C for the assessment year under consideration. The A.O. has charged the interest. Ld. CIT(A) & ITAT confirmed the order. Hon`ble High court observed that, no doubt the charging of the interest is mandatory, the assessee is liable to pay the advance tax and on delay/failure, interest is chargeable. In the instant case, the assessee has received compensation and interest thereupon only after the judgment of the Hon'ble Supreme Court in the year 2001. Only due to judicial pronouncement, the assessee has become entitled to receive the additional compensation and interest thereupon. The interest can be charged only on the income. No interest can be charged on notional interest. In the Case of CIT Vs. ICD, Syndicate, 285 ITR 310 Karnataka, it was held that no interest can be charged when there is no real income. In the instant case, the interest would be charged in the year when the real income was received by the assessee and certainly, not during the year when the land wasacquired. Thus, the interest will have to be charged only on the interest earned on additional compensation which was received after the year 2001. So, the interest will have to be charged in the year. When income was earned as per the ratio laid down in the case of Ghanshyam [2009] 315 ITR 1 (SC), it cannot be charged retrospectively when there was no receipt in the hands of assessee. Needless to mention that no law is applicable retrospectively unless specified in the statute. Interest is compensatory in nature as per the ratio laid down in the case of CIT Vs. Pranoy Roy, 309 ITR 231 Sc. Interest on advance tax is also compensatory in nature as per the ratio laid down in the case of CIT Vs. Insilco Ltd. (2010) 321 ITR 105 Delhi. Hon`ble High court directed the A.O. to charge the interest under Section 234A, 234B, 234C of the Act, as per the law in the assessment year when the interest earned on the additional compensation was actually received. | |||
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Budget 2014 -ECS, RTGS, NEFT etc. proposed to be allowed as permissible U/s. 269SS & 269T
Mode of acceptance or repayment of loans and deposits
ECS, RTGS and NEFT etc. are now proposed to be allowed as permissible mode to accept or repay the deposit or loan specified under section 269SS and 269T respectively.
The existing provisions contained in section 269SS of the Act, inter alia, provide that no person shall take from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or aggregate of such loans or deposits is twenty thousand rupees or more. Similarly, the existing provisions of section 269T of the Act, inter alia, provide that no loan or deposit shall be repaid otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit together with interest or the aggregate amount of such loans or deposits together with interest, if any payable thereon, is twenty thousand rupees or more.
In the present times many banking transactions take place by way of internet banking facilities or by use of payment gateways. Accordingly, it is proposed to amend the provisions of the said sections 269SS and 269T so as to provide that any acceptance or repayment of any loan or deposit by use of electronic clearing system through a bank account shall not be prohibited under the said sections if the other conditions regarding the quantum etc. are satisfied.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years.
'Annual information return' prposed to be named as statement of 'Financial Transaction or Reportable Account'
Obligation to furnish statement of Information
Name of annual information return is proposed to be substituted with statement of financial transaction or reportable account in view of amendment to section 285BA.
The existing provisions of section 285BA of the Act provide for filing of an annual information return by specified persons in respect of specified financial transactions which are registered or recorded by them and which are relevant and required for the purposes of the Act to the prescribed income-tax authority.
With a view to facilitate effective exchange of information in respect of residents and non-residents, it is proposed to amend the said section so as to also provide for furnishing of statement by a prescribed reporting financial institution in respect of a specified financial transaction or reportable account to the prescribed income-tax authority. It is further proposed that the statement of information shall be furnished within such time, in the form and manner as may be prescribed.
It is further proposed to provide that where any person, who has furnished a statement of information under sub-section (1), or in pursuance of a notice issued under sub-section (5), comes to know or discovers any inaccuracy in the information provided in the statement, then, he shall, within a period of ten days, inform the income-tax authority or other authority or agency referred to in sub-section (1) the inaccuracy in such statement and furnish the correct information in the manner as may be prescribed.
It is also proposed that the Central Government may, by rules, specify,- (a) the persons referred to in sub-section (1) of section 285BA to be registered with the prescribed income-tax authority; (b) the nature of information and the manner in which such information shall be maintained by the persons referred to in (a) above; and (c) the due diligence to be carried out by the persons referred in (a) for the purpose of identification of any reportable account referred to in sub-section (1) of section 285BA.
Further, the existing provisions of section 271 FA of the Act provide for penalty for failure to furnish an annual information return. It is proposed to amend the said section so as to provide for penalty for failure to furnish statement of information or reportable account.
It is also proposed to insert a new section 271 FAA so as to provide that if a person referred to in clause (k) of sub-section (1) of section 285BA, who is required to furnish a statement of financial transaction or reportable account, provides inaccurate information in the statement and where, (a) the inaccuracy is due to a failure to comply with the due diligence requirement prescribed under sub-section (7) of section 285BA or is deliberate on the part of the person; or (b) the person knows of the inaccuracy at the time of furnishing the statement of financial transaction or reportable account, but does not inform the prescribed income-tax authority or such other authority or agency; or (c) the person discovers the inaccuracy after the statement of financial transaction or reportable account is furnished and fails to inform and furnish correct information within the time specified under sub-section (6) of section 285BA, then, the prescribed income-tax authority may direct that such person shall pay, by way of penalty, a sum of fifty thousand rupees.
These amendments will take effect from 1st April, 2015.
Levy of penalty U/s. 276D mandatory for willful default U/s. 142(1) or 142(2A)
Failure to produce accounts and documents
Levy of penalty made mandatory. It is proposed to remove the monetary limit of fine and also proposed mandatory levy of fine.
The existing provisions of section 276D of the Act provide that if a person willfully fails to produce accounts and documents as required in any notice issued under sub-section (1) of section 142 or willfully fails to comply with a direction issued to him under sub-section (2A) of section 142, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both.
It is proposed to amend the provisions of the said section so as to provide that if a person willfully fails to produce accounts and documents as required in any notice issued under sub-section (1) of section 142 or willfully fails to comply with a direction issued to him under sub-section (2A) of section 142, he shall be punishable with rigorous imprisonment for a term which may extend to one year and with fine.
This amendment will take effect from 1st October, 2014.
Budget 2014 – Period of Provisional attachment U/s. 281B proposed to be extended by prescribed authorities
Provisional attachment under section 281B
The existing provisions of sub-section (1) section 281B of the Act provide that the Assessing Officer, during the pendency of any proceeding for assessment or reassessment, in order to protect the interest of revenue may, with the previous approval of the Chief Commissioner of Commissioner, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. Sub-section (2) of the said section provides that the provisional attachment shall cease to have effect after the expiry of six months provided that the Chief Commissioner or Commissioner may extend the period upto a total period of two years.
It is proposed to amend the proviso to sub-section (2) so as to provide that the Chief Commissioner, Commissioner, Director General or Director may extend the period of provisional attachment so that the total period of extension does not exceed two years or upto sixty days after the date of assessment or reassessment, whichever is later.
This amendment will take effect from 1st October, 2014.
T : Where assessee, a NBFC, did not show interest income on loans advanced to two parties on ground that interest remained overdue on it for more than six months, in view of fact that loan in question was a term loan and, moreover, assessee did not demand return of same, it could not be regarded as a non-performing asset and, thus, impugned addition made on account of interest deserved to be confirmed
■■■
[2014] 46 taxmann.com 190 (Kolkata - Trib.)
IN THE ITAT KOLKATA BENCH 'B'
Income-tax Officer, Ward -4(1), Kolkata
v.
Tradelink Securities Ltd.*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND GEORGE MATHAN, JUDICIAL MEMBER
AND GEORGE MATHAN, JUDICIAL MEMBER
IT APPEAL NO. 1385 (KOL.) OF 2011
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
MAY 27, 2014
Section 5 of the Income-tax Act, 1961 - Income - Accrual of (NBFC) - Assessment year 2006-07 - Assessee, a company registered as a non-banking financial company (NBFC) had advanced certain loan to two companies - In return of income, assessee did not show interest income contending that it being NBFC, was bound to follow prudential norms of RBI which prohibited recognition of interest on loans which remained overdue for more than six months - Assessing Officer held that assessee was following mercantile system of accounting, hence, it was bound to show interest accrued on loans - Whether since loans given were terms loans and, moreover, assessee had been unable to produce any document to show that it had made any demand for return of loan, same could not be regarded as non-performing asset- Held, yes - Whether, therefore, assessee could not take refuge under Prudential Norms issued by Reserve Bank of India - Held, yes - Whether, consequently, impugned addition was to be confirmed - Held, yes [Para 11] [In favour of revenue]
FACTS
| ■ | The assessee, a company registered as a non-banking financial company by Reserve Bank of India had filed its return for the impugned assessment year declaring certain taxable income. | |
| ■ | During the course of assessment proceedings, it was noted that assessee had advanced certain amount to two companies. | |
| ■ | The Assessing Officer was in possession of information that the said two companies had in their respective accounts charged interest on the loans taken by them from the assessee. | |
| ■ | The assessee, however, did not show any interest income in its return of income. The assessee's case was that it was a non-banking financial company, and bound to follow prudential norms for recognition of income as directed by the Reserve Bank of India. As per the assessee, the said prudential norms prohibited recognition of interest on loans which remained overdue for more than six months. | |
| ■ | The Assessing Officer opined that since assessee was following mercantile system of accounting, it was bound to show the interest accrued on the loans. In this view of the matter, he held that the interest accrued on the loans given to the two companies was chargeable to tax and an addition was made accordingly. | |
| ■ | The Commissioner (Appeals) was of view that interest income did not accrue even under mercantile system of accounting, once Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 applied. Thus, he deleted the addition made by the Assessing Officer. | |
| ■ | On revenue's appeal: |
HELD
| ■ | Non-Banking Financial Companies Prudential Norms (Reserve Bank) as per the Notification No. DFC.119/DG(SPT)-98 dated 31-1-1998 states at rule 3 that income including interest/discount shall be recognized only when it is actually realised if a loan is considered as non-performing asset. A non-performing asset has been defined as an asset in respect of which interest has remained overdue for a period of six months or more. A demand or loan, which remained overdue for a period of six months or more from the date of demand is also considered as non-performing asset. [Para 9] | |
| ■ | It is an admitted position that the loans were advanced based on Promissory Note. Interest can be considered as overdue only when there is an agreement between the parties wherein a stipulation is there with regard to the date of payment of interest . In the absence of any such stipulation, one can never say that interest has fallen due on a particular date or was overdue. Similarly a loan can be considered as overdue only when it remains unpaid despite lapse of six months from the date of demand of the loan. | |
| ■ | The assessee has been unable to produce any document to show that it had made any demand for return of the loan. There is no claim by the assessee that the loans given were term loan. This being the situation, the loans given by the assessee to the said two companies will not fall within any of the limb of the definition of non-performing asset. | |
| ■ | Even otherwise, the Apex Court had clearly held in the case of Southern Technologies Ltd. v. Jt. CIT[2010] 320 ITR 577/187 Taxman 346 that prudential norms issued by the Reserve Bank of India cannot override the provisions of the Act. As per section 5 of the Act, total income shall include all income from whatsoever source derived by such person, which accrues or arise to him in a given in previous year. The assessee undisputedly was following mercantile system of accounting. By virtue of the application of the accrual principle, interest income had definitely accrued to the assessee. The concerned companies were charging interest in their respective accounts, deducting tax at source and also remitting such tax to the Government account. There is nothing on record to show that possibility of realising the interest was nil. The assessee had admitted that the said companies were having substantial assets with them. | |
| ■ | Hence, one cannot say that interest income was illusory or not real. In such circumstances, the assessee cannot take refuge under the Prudential Norms issued by the Reserve Bank of India and say that principles of accrual of income, when mercantile basis of accountancy was followed would not apply to it. No doubt, section 45Q of the R.B.I. Act is overriding in nature and has to be given primacy. However unless and until an assessee shows that a loan or advance had become a non-performing asset, there can be no question of applying the norms set out for such non-performing asset. Therefore, the Commissioner (Appeals) fell in error in deleting the addition made by the Assessing Officer. [Para 10] | |
| ■ | In the result, appeal of the revenue stands allowed. [Para 11] |
CASES REFERRED TO
Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346 (SC) (para 6) and CIT v.Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440/196 Taxman 169/[2010] 8 taxmann.com 145 (Delhi)(para 7).
Biswanath Das for the Appellant. P.R. Kothari for the Respondent.
ORDER
Abraham P. Geroge, Accountant Member - This appeal filed by the Revenue, directed against an order dated 29.06.2011 of ld. Commissioner of Income Tax (Appeals)-IV, Kolkata. It has raised the following three grounds:—
| (1) | That on the facts and circumstances of the case, ld. CIT(A) erred in law in deciding the issues related to the addition of interest taking the ground that it was receivable and was not actually received. | |
| (2) | That on the facts and circumstances of the case, ld. CIT(A) has erred in law in deleting the addition of Rs.19,00,000/- received by the assessee as interest from M/s. ISG Traders Ltd. and Rs.3,00,000/- received from M/s. Davenport & Co. Pvt. Ltd. | |
| (3) | That the appellant craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing. |
2. Issues involved in grounds 1 & 2 are same. Assessee, a Company registered as a non-banking financial company by Reserve Bank of India, had filed its return for the impugned assessment year declaring income of Rs.65,352/-. During the course of assessment proceedings, it was noted that assessee had advanced a sum of Rs.95,00,000/- to one M/s. ISG Traders Limited of Duncans House, 31, Netaji Subhas Road, Kolkata-700 001 and a sum of Rs.25,00,000/- to one M/s. Davenport & Company Pvt. Ltd. of 5 & 7, Netaji Subhas Road, Kolkata-700 001, on which it had not shown any interest income. Assessing Officer was having information that the said two companies had in their respective accounts charged interest on the loans taken by them from the assessee. The amounts shown by them as interest payable came to Rs.24,72,300/-,of which Rs.19,00,000/-was of M/s. ISG Traders Limited and Rs.3,00,000/- was of M/s. Davenport & Company Pvt. Ltd. Assessee was put on notice to explain why interest from M/s. ISG Traders Limited and M/s. Davenport & Company Pvt. Ltd. was not accounted by it. Reply of the assessee was that it had not received any interest from the said two companies. As per the assessee, advance of Rs.95,00,000/- was given to M/s. ISG Traders Limited on 16.05.2002 and the sum of Rs.25,00,000/- was given to M/s. Davenport & Co. Pvt. Ltd. prior to financial year 2001-02. Submission of the assessee was that it had not received any interest from M/s. ISG Traders Limited and had received only negligible interest from M/s. Davenport & Co. Pvt. Ltd. Assessee also stated that it was a Non-Banking Financial Company, and bound to follow prudential norms for recognition of income as directed by Reserve Bank of India. As per the assessee, the said prudential norms prohibited recognition of interest on loans which remained overdue for more than six months. Even otherwise, as per the assessee, there was no real income or notional interest income, accruing to it.
3. However, Assessing Officer was not impressed by the above explanation. According to him, the two companies had taken loan from the assessee and charged interest in their respective accounts and also deducted tax at source thereon. Such tax at source was credited by them into the Government account. Therefore, as per the Assessing Officer, the concerned parties had confirmed, interests due to the assessee. Assessee was following mercantile system of accounting. Hence, it was bound to show the interest accrued on the loans. In this view of the matter, he held that the interest of Rs.22,00,000/- accrued on the loans given to the two companies was chargeable to tax and an addition was made accordingly.
4. In its appeal before the ld. CIT(Appeals), argument of assessee was that it was bound to follow the guidelines issued by Reserve Bank of India which was mandatory. As per the assessee, no income whatsoever was received from the concerned two companies. Though it was following mercantile system of accounting, assessee submitted that only real income could be taxed.
5. Ld. CIT(Appeals) was appreciative of the above contentions. According to him, Prudential norms prescribed by Reserve Bank of India prohibited recognition of interest income on loans and debts where interest or instalments of principal was outstanding for more than six months. As per ld. CIT(Appeals) assessee was required to classify these loans as non-performing assets. Once it was considered as non-performing assets it could not show any accrual of income. As per the ld. CIT(Appeals) interest income did not accrue even under mercantile system of accounting, once Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 applied. In this view of the matter, he deleted the addition made by the Assessing Officer.
6. Now before us, ld. DR strongly assailing the order of ld. CIT(Appeals) submitted that the concerned parties to whom assessee had advanced loans were charging interest in their respective books, deducting tax at source thereon, and crediting such tax to the Government account. Assessee had never made any effort for realizing the amounts due from the concerned companies. Assessee had not recalled the loans. Relying on the decision of the Hon'ble Apex Court in the case of Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577/187 Taxman 346, ld. D.R. submitted that Non-Banking Financial Companies Prudential Norms issued by the Reserve Bank of India would not override the provisions of the Income Tax Act, which stipulated recognition of income on accrual based, once mercantile system was followed. Therefore, according to him, ld. CIT(Appeals) fell in error in deleting the addition.
7. Per contra, ld. AR submitted that the decision of the Hon'ble Apex Court in the case of Southern Technologies Ltd. (supra) was in respect of deductibility of a claim of provisioning made on non-performing assets. But assessee's case, here was not a claim for any such provisioning for non-performing assets. Hon'ble Apex Court only held that RBI regulations on non-performing loans would not have any overriding effect on the provisions of Income Tax Act. It did not deal with accrual of interest on non-performing loans. Relying on the decision of the Hon'ble Delhi High Court in the case of CIT v. Vasisth Chay Vyapar Ltd.[2011] 330 ITR 440/196 Taxman 169/[2010] 8 taxmann.com 145, ld. A.R. submitted that assessee having not received any interest, section 45Q of the Reserve Bank of India Act had to be applied. This section had an overriding effect. Interest not recognized by the assessee, nor accounted by it could not be considered as its income, just because mercantile system of accounting was followed.
8. We have heard the rival contentions and perused the material available on record. During the course of hearing, ld. Counsel for the assessee was asked whether the companies to which loans were given were still functioning or not. To this he replied that the companies were still functioning. Ld. Counsel also stated that the loans were given to the said companies based on promissory note, without any other security. Bench also asked the ld. Counsel whether any efforts were being made by the assessee for recovering the loans, to which ld. Counsel stated that only oral communication was there. What we find from the record is that the loan to M/s. Davenport & Co. Pvt. Ltd. was given prior to financial year 2001-02 and the loan to M/s. ISG Traders Ltd. was given on 16.05.2002. Despite no interest being received by the assessee, it had not taken any legal step for recalling the amounts from the said concerns.
9. Non-Banking Financial Companies Prudential Norms (Reserve Bank) as per the Notification No. DFC.119/DG(SPT)-98 dated 31.01.1998 states at Rule 3 that income including interest/discount shall be recognized only when it is actually realised if a loan is considered as non-performing asset. A non-performing asset has been defined as an asset in respect of which interest has remained overdue for a period of six months or more. A demand or call loan, which remained overdue for a period of six months or more from the date of demand is also considered as non-performing asset. For better appreciation it is required to reproduce definition of non-performing asset as per Rule 1, Clause-xii of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998:—
'(xii) With effect from March 31, 2003, "non-performing asset" (referred to in these directions as 'NPA') means :
| (a) | an asset, in respect of which, interest has remained overdue for a period of six months or more; | |
| (b) | a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more; | |
| (c) | a demand or call loan, which remained overdue for a period of six months or more from the date of demand or call or on which interest amount remained overdue for a period of six months or more; | |
| (d) | a bill which remains overdue for a period of six months or more; | |
| (e) | the interest in respect of a debt or the income on receivables under the head 'other current assets' in the nature of short term loans/ advances, which facility remained overdue for a period of six months or more; | |
| (f) | any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months or more; | |
| (g) | the lease rental and hire purchase instalments, which has become overdue for a period of twelve months or more; | |
| (h) | in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/beneficiary when any of the above credit facilities becomes non-performing asset: |
Provided that in the case of lease and hire purchase transactions, an NBFC may classify each such account on the basis of its record of recovery'.
10. It is an admitted position that the loans were advanced based on Promissory Note. Interest can be considered as overdue only when there is an agreement between the parties wherein a stipulation is there with regard to the date of payment of interest. In the absence of any such stipulation, we can never say that interest has fallen due on a particular date or was overdue. Similarly a loan can be considered as overdue only when it remains unpaid despite lapse of six months from the date of demand of the loan. Assessee here has been unable to produce any document to show that it had made any demand for return of the loan by the concerned creditors. There is no claim by the assessee that the loans given were term loan. This being the situation, the loans given by the assessee to the said two companies will not, in our considered opinion, fall within any of the limb of the definition of non-performing asset. Even otherwise, Hon'ble Apex Court had clearly held in the case of Southern Technologies Ltd. (supra) that prudential norms issued by the Reserve Bank of India cannot override the provisions of the Act. As per Section 5 of the Act, total income shall include all income from whatsoever derived from such person, which accrues or arise to him in a given in previous year. Assessee undisputedly was following mercantile system of accounting. By virtue of the application of the accrual principle, interest income had definitely accrued to the assessee. The concerned companies were charging interest in their respective accounts, deducting tax at source and also remitting such tax to the Government account. No doubt Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Limited (supra) had held that, once Inter-Corporate Deposits had become non-performing asset and possibility of realising interest was almost nil, no interest could be treated as accrued to the assessee. However, the loans given here by the assessee, were not Inter-Corporate Deposits. There is nothing on record to show that possibility of realising the interest was nil. Ld. Counsel of the assessee had admitted that the said companies were having substantial assets with them. Hence we cannot say that interest income was illusory or not real. In such circumstances, we are of the considered opinion that the assessee cannot take of refuge under the Prudential Norms issued by the Reserve Bank of India and say that principles of accrual of income, when mercantile basis of accountancy is followed would not apply to it. No doubt, Section 45Q of the R.B.I. Act is overriding in nature and has to be given primacy. However unless and until an assessee shows that a loan or advance had become a non-performing asset, there can be no question of applying the norms set out for such non-performing asset. We are, therefore, of the opinion that ld. CIT(Appeals) fell in error in deleting the addition made by the Assessing Officer. We, therefore, set aside the order of ld. CIT(Appeal) and the addition made by the Assessing Officer is restored.
11. In the result, appeal of the Revenue stands allowed.
SUNIL*In favour of revenue.
Clarification of CGHS rates on 2014
F. No. S. 11011/20/2014-CGHS (HEC)
Directorate General of Central Govt. Health Scheme
Ministry of Health & Family Welfare
Directorate General of Central Govt. Health Scheme
Ministry of Health & Family Welfare
Nirman Bhavan, New Delhi
Dated, 16th July, 2014
Dated, 16th July, 2014
CLARIFICATION
It has been brought to the notice of the undersigned that some of the CGHS empanelled Health Care Organizations have started charging new CGHS rates 2014 which have been placed on CGHS website for information and acceptance only. Since these rates have not yet been notified by Ministry of Health and Family Welfare, the empanelled HCOs cannot charge these new rates and CGHS 2010 rates would prevail. Charging these new rates 2014 from CGHS beneficiaries by empanelled health care organizations would amount to overcharging and suitable action including recovery of overcharged amount and forfeiture of performance bank guarantee would be initiated against those HCOs by CGHS.
Dr. (Mrs.) Sharda Verma
Director (CGHS)
Tel. No. 011-23062800
Director (CGHS)
Tel. No. 011-23062800
18.07.2014
Friday
CBDT has appointed a Committee of 5 Commissioners headed by Rani S Nair, Chief Commissioner, Ahmedabad as Chairperson to appraise the efficacy of existing dispute resolution forums of CsIT (A) & ITAT and to suggest steps to reduce litigation before these forums.
The Committee shall submit its report within 8 weeks and it has a heavy agenda:
(i) To carry out detailed analysis of appellate orders and assessment orders, on various aspects and recommend steps to reduce litigation before the CIT (A).(ii) To study the efficacy of existing system of filing appeals to the ITAT by the Department and suggest steps to reduce litigation before the ITAT.
CBDT wants the Committee to follow the following guidelines:
(i) Sample should be drawn from the orders passed by the 1TAT during the month of June, September, December and March of the FY 2013-14.(ii) (a) Approximately 200 orders should be selected for study from each of the 8 major cities: Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad and Bangalore.(ii) (b) Approximately 150 orders should be selected for study from each of the stations: Chandigarh, Jaipur, Indore, Lucknow and Kochi.(iii) As far as possible, orders in cases of corporate and non-corporate assessees should be selected in equal numbers, particularly in Metro charges whereas in non-metro, sample of non-corporate assessees may be larger. It must also be ensured that some orders in search cases are in select basket.(iv) As number of appeals filed by the Department before ITAT is much larger than appeals filed by the assessee, the order in appeals filed by the Department and by the assessee may be selected in the ratio of 2:1.
The Board wants the Committee to analyse the following aspects:
(i) Assessment Orders: Nature of additions made in general, guidance of supervisory authorities, sustainability of additions in appeal, quality of addition made and average tax effect of additions.(ii) Orders of CIT (A): Whether relief allowed is based on proper marshalling of facts and legal position. The decisions are also to be analysed in the light of the order of the ITAT.(iii) Authorization by CIT: The filing of second appeal is to be examined as to whether the same is filed mechanically by applying the monetary limits or on sound grounds after examining the merits of each order.(iv) The success rate of appeals filed by the Department / Assessee before the ITAT to be analysed.
Is it possible to undertake such a great study in 8 weeks? And doesn't the Board already know the answers?
Customs - New Exchange Rates from Today
CBEC has notified new exchange rates for Imported Goods and for Export Goods with effect from 18th July 2014. The US Dollar is 60.70 rupees for imports and 59.70 rupees for exports.
The Exchange rates were last notified on 3rd July, 2014.
Company Law - Related Party Transactions - MoCA Clarifies
MINISTRY of Corporate Affairs clarifies that:
1. Scope of second proviso to Section 188(1): - Second proviso to sub- section (1) of section 188 requires that no member of the company shall vote on a special resolution to approve the contract or arrangement (referred to in the first proviso), if such a member is a related patty. It is clarified that 'related party' referred to in the second proviso has to be construed with reference only to the contract or arrangement for which the said special resolution is being passed. Thus, the term 'related party' in the above context refers only to such related party as may be a related party in the context of the contract or arrangement for which the said special resolution is being passed.2. Transactions arising out of Compromises, Arrangements and Amalgamations dealt with under specific provisions of the Companies Act, 1956/Companies Act, 2013, will not attract the requirements of section 188 of the Companies Act, 2013.3. Requirement of fresh approvals for past contracts under Section 188.:- Contracts entered into by companies, after making necessary compliances under Section 297 of the Companies Act, 1956, which already came into effect before the commencement of Section 188 of the Companies Act, 2013, will not require fresh approval under the said section 188 till the expiry of the original term of such contracts. Thus, if any modification in such contract is made on or after 1st April, 2014, the requirements under section 188 will have to be complied with.
International Competitive Bidding - Sub-contractors too eligible for exemption - Another Problem persists
CBEC had in a recent budget document clarified that exemption is also available to sub-contractors for manufacture and supply of goods for or on behalf of the main contractor (who has won the bid for the project through ICB) for execution of the said project, subject to compliance of conditions specified, if any. (Please see DDT 2396)
But there is a related problem:
The department is denying the exemption on two grounds - 1) The sub-contractor did not participate in ICB and 2) the sub-contractor or Indian main contractor has not fulfilled some of the conditions prescribed at Sl.No. 41, 43 (in case petroleum exploration contracts) and 93 (in case of supplies to Mega Power projects) of the Customs notification. The clarification given only settles the issue relating to the eligibility of sub-contractors in availing the exemption for supplies to mega power projects/petroleum exploration projects. The other issue in the litigation is still open.
The Notification No. 12/12-CE (Currently in force) at Sl.No. 336 exempts goods falling under any chapter if supplied against International Competitive Bidding subject to fulfilment of conditions prescribed at 41.
The condition 41 reads as under
| 336 | Any Chapter | All goods supplied against International Competitive Bidding. |
| 41. | If the goods are exempted from the duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty leviable under section 3 of the Customs Tariff Act, 1975(51 of 1975) | |
Customs Notification No. 12/2012 dated 17.03.2012 at Sl.No. 356 to 359 provide exemption to goods imported in connection with petrol exploration/petroleum operations and at Sl.No 507 exempts goods supplied to Mega power projects as project imports, subject to fulfilment of conditions prescribed at 41,43 and 93 of the Customs Notifications.
Some of the conditions relate to declaration/certification to be submitted with AC/DC before clearance of goods imported as project imports for supplies to petroleum operations/mega power projects. The contention of the department is that since the exemption under Customs is not absolute, but subject to fulfilment of certain conditions specified, even the domestic suppliers availing exemption under Sl.No 336 of Notification No. 12/12-CE are required to fulfil those conditions, as the exemption is linked to exemption provided under Customs Notification.
The assesses availing the said exemption on the other hand argue that since the condition prescribed under Customs Notification at 41, 43 and 93 are in connection with imported goods, they need not fulfill those conditions as no imports are involved.
Tribunal in 2014-TIOL-211-CESTAT-MUM accepted the contention of the appellants with regard to non-requirement of conditions attached to customs notification and allowed the appeals. And as usual the department has not accepted the Tribunal decisions and is pursuing the matter on appeal to higher forums and the litigation continues even though the exemption is in existence for more than a decade.
If the Government is really serious about ending the litigation, it has to go a little further and clarify that the conditions prescribed under Customs notification is not required to be fulfilled by domestic suppliers availing exemption at Sl.No. 336 of Notification No. 12/12-CE. The other alternative is de-link both the notifications by prescribing suitable conditions that may be required for domestic suppliers. Another alternative is that the Government can explore the possibility of putting all the details/permissions/certificates required in connection with the exemption in a website, so that the field formation can allow clearance of goods on verification of details available in the website,
It is hoped that the senior officers at the field, who have been undergoing training at world famous business schools under MACP at the expense of tax payers' money, would apply the knowledge (?) they obtained in training and take a bold decision in dropping further proceedings in all SCNs issued in this regard and not to take litigation any further. At least the Board should expand its clarification to include this issue.
IRS (IT) Probationers with the President
PRESIDENT of India speaking to the 67th batch of IRS (Income Tax) Probationers at Rashtrapati Bhavan yesterday. Senior CBDT officers were also present
DDT Cartoon
Jurisprudentiol - Monday's cases
Customs Seizure of Gold from under sea - Captain of vessel arrested on charge of throwing gold into sea - Trial court acquits accused - Revenue Appeal Dismissed: HC
THE accused was arrested in May 1987. After seven years, the trial court acquitted him. Customs took the matter in appeal to the High Court which dismissed the appeal in July 2014 - after 27 years!
The statement under section 108 is admissible and it can be relied also. However, if at all it is retracted, then, weightage can be given to it only if there is corroboration on other material particulars. In the present case, as the panchas did not corroborate and the prosecution did not examine the other panch, that material evidence collapsed.
Income Tax
Whether disallowance under section 14A can exceed total administrative expenditure debited by assessee in Profit & Loss account - NO: ITAT
THE assessee is a non-banking financial company deriving interest income from money lending and income from investment. The assessee had shown short term capital gain and long term capital gain from the sale of shares. The assessee, during the course of assessment proceedings, in response to the show cause notice, filed details submissions with regard to the overall transactions of shares, holding period, treatment given in the books, number of transactions undertaken and the history of the assessee's case in the earlier years. Assessing Officer rejected the assessee's contention on the ground that the purchase and sale of shares was not an unrelated activity but incidental to the business of the assessee. The assessee had continuously and systematically carried out the activity of trading in shares over the period of one year and had borrowed funds to fund his activity for purchase and sale of shares. The Assessing officer was of the view that the assessee had shown all the characteristics of a trader rather than an investor. Thus, the profit claimed as capital gain was taxed as business income.
THE issue before the Bench is - Whether disallowance under section 14A can exceed the total administrative expenditure debited by the assessee in the Profit & Loss account. And the answer goes against the Revenue.
Central Excise
Demand of duty on clandestine clearances - findings of Tribunal on suppression of manufacture and removal of dutiable product cannot be faulted - However, MODVAT credit extended on raw materials: HC
THE appellant is a small-scale industrial unit engaged in the manufacture of acid slurry, soap oil and waste weak acid since 1989-90. The main raw materials for manufacture of acid slurry are: linear alkyle benzene (LAB), oleum and water. The appellant was availing Modvat credit of duty paid on the raw materials after filing necessary statutory declarations before the concerned authorities.
There was an inspection at the premises of the appellant by the Directorate General of Anti-Evasion, Hyderabad certain records were seized. Based on the inspection and the information obtained, a show-cause notice was issued alleging that the appellant had not accounted for purchase of raw material namely, LAB made from a public sector organization, M/s.Tamil Nadu Petro Products.
Aggrieved by the order of Commissioner confirming the demand, the appellant filed an appeal before the CESTAT and the same was dismissed vide 2004-TIOL-446-CESTAT-BANG.
The appellant contended that the order of the Tribunal is purely based on surmises and conjectures and there is no material whatsoever evidencing purchase of LAB by the appellant and the same having been received in the Factory by the appellant. There is no material with respect to manufacture of acid slurry, a product which attracts higher rate of duty and also there is no material evidencing clearance of acid slurry from the premises.
Income Tax
Whether disallowance under section 14A can exceed total administrative expenditure debited by assessee in Profit & Loss account - NO: ITAT
THE assessee is a non-banking financial company deriving interest income from money lending and income from investment. The assessee had shown short term capital gain and long term capital gain from the sale of shares. The assessee, during the course of assessment proceedings, in response to the show cause notice, filed details submissions with regard to the overall transactions of shares, holding period, treatment given in the books, number of transactions undertaken and the history of the assessee's case in the earlier years. Assessing Officer rejected the assessee's contention on the ground that the purchase and sale of shares was not an unrelated activity but incidental to the business of the assessee. The assessee had continuously and systematically carried out the activity of trading in shares over the period of one year and had borrowed funds to fund his activity for purchase and sale of shares. The Assessing officer was of the view that the assessee had shown all the characteristics of a trader rather than an investor. Thus, the profit claimed as capital gain was taxed as business income.
THE issue before the Bench is - Whether disallowance under section 14A can exceed the total administrative expenditure debited by the assessee in the Profit & Loss account. And the answer goes against the Revenue.
CBDT appoints Committee to tone up litigation process
18.07.2014
Friday
18.07.2014
Friday
CBDT has appointed a Committee of 5 Commissioners headed by Rani S Nair, Chief Commissioner, Ahmedabad as Chairperson to appraise the efficacy of existing dispute resolution forums of CsIT (A) & ITAT and to suggest steps to reduce litigation before these forums.
The Committee shall submit its report within 8 weeks and it has a heavy agenda:
(i) To carry out detailed analysis of appellate orders and assessment orders, on various aspects and recommend steps to reduce litigation before the CIT (A).(ii) To study the efficacy of existing system of filing appeals to the ITAT by the Department and suggest steps to reduce litigation before the ITAT.
CBDT wants the Committee to follow the following guidelines:
(i) Sample should be drawn from the orders passed by the 1TAT during the month of June, September, December and March of the FY 2013-14.(ii) (a) Approximately 200 orders should be selected for study from each of the 8 major cities: Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad and Bangalore.(ii) (b) Approximately 150 orders should be selected for study from each of the stations: Chandigarh, Jaipur, Indore, Lucknow and Kochi.(iii) As far as possible, orders in cases of corporate and non-corporate assessees should be selected in equal numbers, particularly in Metro charges whereas in non-metro, sample of non-corporate assessees may be larger. It must also be ensured that some orders in search cases are in select basket.(iv) As number of appeals filed by the Department before ITAT is much larger than appeals filed by the assessee, the order in appeals filed by the Department and by the assessee may be selected in the ratio of 2:1.
The Board wants the Committee to analyse the following aspects:
(i) Assessment Orders: Nature of additions made in general, guidance of supervisory authorities, sustainability of additions in appeal, quality of addition made and average tax effect of additions.(ii) Orders of CIT (A): Whether relief allowed is based on proper marshalling of facts and legal position. The decisions are also to be analysed in the light of the order of the ITAT.(iii) Authorization by CIT: The filing of second appeal is to be examined as to whether the same is filed mechanically by applying the monetary limits or on sound grounds after examining the merits of each order.(iv) The success rate of appeals filed by the Department / Assessee before the ITAT to be analysed.
Is it possible to undertake such a great study in 8 weeks? And doesn't the Board already know the answers?
IT : Where no material was found with regard to assessee's ownership of asset found in search, deeming provision in view of Explanation 5 to section 271(1)(c) could not be applied to presume deeming concealment so as to levy penalty
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[2014] 46 taxmann.com 213 (Cochin - Trib.)
IN THE ITAT COCHIN BENCH
Income-tax Officer, Wd.1, Palakkad
v.
V.R. Rathish*
N.R.S. GANESAN, JUDICIAL MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
AND B.R. BASKARAN, ACCOUNTANT MEMBER
IT APPEAL NOS. 797 AND 798 (COCH.) OF 2013
C.O. NOS. 22 AND 23 (COCH.) OF 2014
[ASSESSMENT YEARS 2005-06 & 2006-07]
C.O. NOS. 22 AND 23 (COCH.) OF 2014
[ASSESSMENT YEARS 2005-06 & 2006-07]
APRIL 25, 2014
Section 271(1)(c), read with section 69B of the Income-tax Act, 1961 - Penalty - For concealment of income (Explanation 5) - Assessment years 2005-06 and 2006-07 - A search was conducted and subsequently, assessee for first time filed returns of income for both relevant assessment years in response to notice issued under sections 153A and 142(1) respectively - During course of assessment proceedings, assessee filed a statement of assets and liabilities of him and his wife and offered shortfall as undisclosed investment under section 69B - Assessing Officer observed that assessee had not disclosed increase in wealth before date of search and, therefore, there was a deeming concealment in view of Explanation 5 to section 271(1)(c) - He, accordingly, levied penalty - However, during course of search proceedings no material was found by Assessing Officer with regard to ownership of any asset by assessee - Whether deeming provision as provided in Explanation 5 to section 271(1)(c) would not apply - Held, yes - Whether order of Commissioner (Appeals) to delete penalty levied by Assessing Officer was justified - Held, yes [Para 8] [In favour of assessee]
FACTS
| ■ | A search was conducted and the assessee filed the return of income for the first time in response to the notice issued by the Assessing Officer under section 153A by disclosing a total income of Rs. 13,30,780 and agricultural income of Rs. 48,000. In the subsequent assessment year, the assessee declared an income of Rs. 9,07,274 along with agricultural income of Rs. 48,000 in response to the notice issued under section 142(1). | |
| ■ | During the course of assessment proceedings, the assessee filed a statement of assets and liabilities of him and his wife and offered the shortfall as income in his hands under section 69B. | |
| ■ | The Assessing Officer after placing reliance on Explanation 5 to section 271(1)(c) found that the assessee had not disclosed the increase in wealth by not filing the return before the date of search therefore, there was a deeming concealment in view of Explanation 5 and, accordingly, he levied penalty under section 271(1)(c) for both the assessment years. | |
| ■ | On appeal, the Commissioner (Appeals) found that the accretion to wealth and, consequential, levy of penalty was not referred to in the assessment order and, therefore, he deleted the penalty which was not justified as per the revenue's contention. | |
| ■ | On appeal: |
HELD
| ■ | In the instant case, it is not the case of the revenue that during the course of search proceedings, the assessee was found to be the owner of any asset, viz. money, bullion, jewellery or other valuable article or things. In the course of assessment proceedings, the assessee filed the statement of assets and liabilities for himself and his wife. To explain the shortfall, the assessee has also offered the shortfall as income under section 69B. The returns filed by the assessee with regard to investment in the assets were accepted by the Assessing Officer without any whisper. The disallowance was made only in respect of agricultural income declared by the assessee to the extent of Rs. 48,000 for each assessment year under consideration. However, this was restricted to Rs. 24,000 for each of the assessment year by the Commissioner (Appeals). [Para 7] | |
| ■ | Section 271(1)(c) is a penal provision, therefore, it has to be construed strictly. When the language employed by the legislature clearly suggests that for the purpose of application of a deeming provision as provided in Explanation 5 to section 271(1)(c) it is necessary to ensure that the asset is found in the course of search proceedings and that the assessee is the owner of the asset. In case, no material is available on record to come to a conclusion that the assessee is the owner of any asset, then, the deeming provision has no role to play. In other words, the deeming provision cannot be applied when no material was found with regard to the ownership of the asset during the course of search proceedings. [Para 8] | |
| ■ | In view of the above, the Commissioner (Appeals) has rightly deleted the penalty levied by the Assessing Officer. There was no infirmity in the order of the Commissioner (Appeals). Accordingly, the same is confirmed. [Para 9] |
K.K. John for the Appellant. Mohanan Kuttickat for the Respondent.
ORDER
N.R.S. Ganesan, Judicial Member -The revenue filed the present appeals against the common order passed by the CIT(A)-V, Kochi dated 08-10-2013 confirming the penalty levied by the assessing officer u/s 271(1)(c) of the Act. Since common issue arises for consideration in the appeals filed by the revenue and the cross objections filed by the assessee, we heard them together and are disposed of by this common order.
2-3. Shri K.K. John, the ld.DR submitted that there was a search in the premises of one Shri V.S. Ramakrishnan on 24-08-2005. Shri V.S. Ramakrishnan is none other than the father of the assessee. According to the ld.DR, the assessee has not filed returns of income before the date of search. The assessee filed the return of income in response to the notice issued by the assessing officer u/s 153A r.w.s. 153C of the Act disclosing a total income of Rs.13,30,780 and agricultural income of Rs.48,000 for the assessment year 2005-06. For the assessment year 2006-07 the assessee declared income of Rs. 9,07,274 alongwith agricultural income of Rs.48,000 in response to notice u/s 142(1). During the course of assessment proceedings, the assessee filed a statement of assets and liabilities of him and his wife and offered the shortfall as income in his hands u/s 69B of the Act. According to the ld.DR, any accretion to the wealth would attract the provisions of section 271(1)(c) of the Act. The assessing officer placing reliance on Explanation 5 to section 271(1)(c) of the Act found that the assessee has not disclosed the increase in wealth by not filing the return before the date of search. Therefore, he found that there was a deeming concealment in view of Explanation 5 to section 271(1)(c) of the Act. Accordingly he levied penalty u/s 271(1)(c) of the Act at Rs. 4,25,276 for the assessment year 2005-06 and Rs.2,36,417 for the assessment year 2006-07. According to the ld.DR, the CIT(A) found that accretion to wealth and consequential levy of penalty was not referred to in the assessment order, therefore, he deleted the penalty. According to the ld.DR, the CIT(A) has not justified in deleting the penalty levied u/s 271(1)(c) of the Act.
4. On the contrary, Shri Mohan Kuttickat, the ld.representative for the assessee submitted that Explanation 5 to section 271(1)(c) of the Act provides for levy of penalty in case any bullion, money, jewellery or other valuable article or thing was found in the possession or control of the assessee in the course of search, then, there may be a deemed concealment of income. In this case, according to the ld.representative, no money or billion or jewellery or other valuable article or thing was found in the course of search proceedings. The assessee filed the return of income consequent to the notice received u/s 153A of the Act disclosing income of Rs.13,30,780 for the assessment year 2005-06. For the assessment year 2006-07 the assessee has disclosed Rs. 9,07,274 in response to notice u/s 142(1) of the Act. The assessing officer accepted the income declared by the assessee in the returns of income filed and what was disallowed for both the assessment years is agricultural income of Rs.48,000 each. However, on appeal by the assessee, the CIT(A) restricted the agricultural income of Rs.24,000 for each assessment year under consideration. According to the ld. representative, in the course of search proceedings no money or bullion or jewellery or other valuable article or thing was found in the possession and control of the assessee, therefore, Explanation 5 is not applicable. The income declared by the assessee is accepted by the assessing officer with regard to investment in the wealth, therefore, the CIT(A), according to the ld.representative, has rightly deleted the penalty.
5. We have carefully gone through the orders of the lower authorities, materials available on record. We have also carefully gone through the provisions of section 271(1)(c) of the Act, more particularly, Explanation 5 to section 271(1)(c). Explanation 5 to section 271(1)(c) reads as follows:
"Explanation 5.— Where in the course of a search initiated under section 132 before the 1st day of June, 2007, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereinafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income,—
| (a) | For any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or | |
| (b) | For any previous year which is to end on or after the date of the search, |
Then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless,—
(1) Such income is, or the transactions resulting in such income are record,—
| (i) | In a case falling under clause (a), before the date of the search, and | |
| (ii) | In a case falling under clause (b), on or before such date, |
In the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or
(2) he, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income."
6. Thus Explanation 5 to section 271(1)(c) is a deeming provision which envisages four situations, viz. - (1) there should be a search initiated u/s 132 of the Act before 01-06-2007; (2) in the course of the search proceedings, the assessee is found to be the owner of any money, bullion, jewellery or any other article or thing; (3) the assessee claims that the assets have been acquired by him by utilizing his income either partly or wholly; and (4) no return of income was furnished before the date of search or if the return of income was furnished, the income was not disclosed therein.
7. In the case before us, it is not the case of the revenue that during the course of search proceedings, the assessee was found to be the owner of any asset, viz. money, bullion, jewellery or other valuable article or things. In the course of assessment proceedings, the assessee filed the statement of assets and liabilities for himself and his wife. To explain the shortfall, the assessee has also offered the shortfall as income u/s 69B of the Act. The returns filed by the assessee with regard to investment in the assets were accepted by the assessing officer without any whisper. The disallowance was made only in respect of agricultural income declared by the assessee to the extent of Rs.48,000 for each assessment year under consideration. However, this was restricted to Rs.24,000 for each of the assessment year by the first appellate authority.
8. The question arises for consideration is that when no material was found with regard to the ownership of any asset by the assessee, whether Explanation 5 to section 271(1)(c) would come into operation. This Tribunal is of the considered opinion that section 271(1)(c) is a penal provision, therefore, it has to be construed strictly. When the language employed by the legislature clearly suggests that for the purpose of application of a deeming provision as provided in Explanation 5 to section 271(1)(c) it is necessary to ensure that the asset is found in the course of search proceedings and that the assessee is the owner of the asset. In case, no material is available on record to come to a conclusion that the assessee is the owner of any asset, then, the deeming provision has no role to play. In other words, the deeming provision cannot be applied when no material was found with regard to the ownership of the asset during the course of search proceedings.
9. In view of the above, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the penalty levied by the assessing officer. This Tribunal do not find any infirmity in the order of the CIT(A). Accordingly, the same is confirmed.
10. The assessee filed the cross objections only to support the orders of CIT(A), therefore, the cross objections become infructuous.
11. In the result, both the appeals of the revenue and the cross objections of the assessee stand dismissed.
SB CAT Judgement Dated 15-05-2014 Reg Contempt Petition for Modified Parity to Pre-2006 Pensioners
CENTRAL ADMINISTRATIVE TRIBUNAL
PRINCIPAL BENCH
C.P. No.158/2012
O.A. No. 655/2010
M.A. No. 1228/2014
PRINCIPAL BENCH
C.P. No.158/2012
O.A. No. 655/2010
M.A. No. 1228/2014
New Delhi, this the 15th day of May, 2014
HON BLE MR. JUSTICE SYED RAFAT ALAM, CHAIRMAN
HON BLE MR. V. AJAY KUMAR, MEMBER (J)
HON BLE DR. BIRENDRA KUMAR SINHA, MEMBER (A)
HON BLE MR. V. AJAY KUMAR, MEMBER (J)
HON BLE DR. BIRENDRA KUMAR SINHA, MEMBER (A)
1.Central Government SAG (S-29)
Pensioners Association
Through its Secretary Shri Sant Bhushan Lal,
C-5/21, Grand Vasant,
Vasant Kunj,
New Delhi-110 070.
Pensioners Association
Through its Secretary Shri Sant Bhushan Lal,
C-5/21, Grand Vasant,
Vasant Kunj,
New Delhi-110 070.
2.Shri Satish Varma,
Retd. Chief Engineer, Central Water Commission,
Ministry of Water Resources,
Govt. of India,
Resident of B-6/8, Vasant Vihar,
New Delhi-110 057. .. Petitioners
(By Advocate : Shri Nidesh Gupta, Sr. Advocate with Shri Sushil
Malik, Shri M.K. Ghosh and Shri Tarun Gupta)
Versus
Retd. Chief Engineer, Central Water Commission,
Ministry of Water Resources,
Govt. of India,
Resident of B-6/8, Vasant Vihar,
New Delhi-110 057. .. Petitioners
(By Advocate : Shri Nidesh Gupta, Sr. Advocate with Shri Sushil
Malik, Shri M.K. Ghosh and Shri Tarun Gupta)
Versus
1. Mr. R.C. Misra,
Secretary to the Government of India,
Department of Pensions and Pensioners Welfare,
Ministry of Personnel, Public Grievances and Pensions,
Lok Nayak Bhawan, Khan Market,
New Delhi-110 003.
2. Mr. Sumit Bose,
Secretary to the Government of India,
Department of Expenditure,
Ministry of Finance, North Block,
New Delhi. .. Proposed Contemnors/
Respondents
(By Advocate : Shri Rajesh Katyal and with Shri D.S. Mahendru
with departmental representatives Ms. Tripti Ghosh,
Director and Shri Harjit Singh, Dy. Secretary)
Secretary to the Government of India,
Department of Pensions and Pensioners Welfare,
Ministry of Personnel, Public Grievances and Pensions,
Lok Nayak Bhawan, Khan Market,
New Delhi-110 003.
2. Mr. Sumit Bose,
Secretary to the Government of India,
Department of Expenditure,
Ministry of Finance, North Block,
New Delhi. .. Proposed Contemnors/
Respondents
(By Advocate : Shri Rajesh Katyal and with Shri D.S. Mahendru
with departmental representatives Ms. Tripti Ghosh,
Director and Shri Harjit Singh, Dy. Secretary)
ORDER (ORAL)
By Hon ble Mr. Justice Syed Rafat Alam
C.P. No.158/2012
This is an application for initiating contempt proceedings against the respondents for not carrying out the judgment/order of the Tribunal dated 01.11.2011 in O.A. No.655/2010 and connected cases.
C.P. No.158/2012
This is an application for initiating contempt proceedings against the respondents for not carrying out the judgment/order of the Tribunal dated 01.11.2011 in O.A. No.655/2010 and connected cases.
2. At the outset, Shri Rajesh Katyal, the learned counsel appearing on behalf of the respondents, on instructions from Ms. Tripti Ghosh, Director and Shri Harjit Singh, Dy. Secretary, submits that the Curative Petition preferred by them has already been rejected by the Hon ble Apex Court by order dated 30.04.2014, and that the Ministry of Law has advised the Department to implement the aforesaid order of the Tribunal qua the petitioners. He submits that some reasonable time may be given to them to implement the aforesaid order.
3. In view of the above, we are of the view that no purpose would be served by keeping this matter pending and it would be appropriate to dispose of the matter with direction to the respondents to implement the directions of the Tribunal expeditiously, preferably within three months.
4. With the above order, this Contempt Petition stands disposed of. Notices issued to the alleged respondents/contemnors are discharged.
M.A. No. 1228/2014
M.A. No. 1228/2014
In view of the fact that Curative Petition has been rejected by the Hon ble Apex Court and also in view of the submission made by Shri Rajesh Katyal, the learned counsel appearing on behalf of the respondents, on instructions made by the departmental representatives, that they have been advised by the Ministry of Law to implement the order of this Tribunal, in our view the Miscellaneous Application No.1228/2014 has become infructuous, and the same is, therefore, rejected.
(Dr. Birendra Kumar Sinha) (V. Ajay Kumar) (Syed Rafat Alam)
Member (A) Member(J) Chairman
Member (A) Member(J) Chairman
IT : For purpose of application of item (b) of sub-clause (iii) of section 2(14) and to measure KMs from radius of Municipal corporation, relevant date would be date of notification and not date of sale of land in question
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[2014] 46 taxmann.com 149 (Jaipur - Trib.)
IN THE ITAT JAIPUR BENCH
Satya Dev Sharma
v.
Income-tax Officer, Ward -5(2), Jaipur*
HARI OM MARATHA, JUDICIAL MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
IT APPEAL NOS. 25 (JP) OF 2010 & 123 (JP) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JANUARY 30, 2014
Section 2(14) of the Income-tax Act, 1961 - Capital gains - Capital asset (Agricultural land) - Assessment year 2008-09 - Assessee was allotted agricultural land by Government on his retirement from defence services - During year, assessee sold a part of said agricultural land - Assessing Officer having rejected assessee's explanation that land in question was agricultural land, brought capital gain arising from sale of land to tax - Whether for purpose of application of item (b) of sub-clause (iii) of section 2(14) and to measure KMs from radius of Municipal corporation, relevant date would be date of notification and not date of sale of land in question - Held, yes - Whether since land sold by assessee was situated outside limits of Jaipur Municipal Corporation on date of notification and, moreover, it was being cultivated during relevant year as per records of Government, it was to be regarded as agricultural land and thus capital gain arising from sale of land could not be brought to tax - Held, yes [Para 6] [In favour of assessee]
FACTS
| ■ | The assessee was allotted 16 bigha of land by the Government in year 1972 on his retirement from defence services. During the year, the assessee sold 4 bigha of said agricultural land. | |
| ■ | He claimed that said land was agricultural land because it was situated in a village where population was less than 10,000 and it was more than 8 Kms beyond the limits of Jaipur Municipal Corporation as on 6-1-1994 when the notification was issued under sub-clause (b) of clause (iii) of section 2(14). | |
| ■ | The Assessing Officer however, noted that the property was situated within limits of Jaipur Municipal Corporation as per certificate of Tehsildar. Further, property was used for residential/commercial purpose and not for agricultural purpose. She further added that Inspector's report suggested that multi storey project of leading builder was coming up adjacent to land in question. | |
| ■ | The Assessing Officer accordingly brought capital gain arising from sale of land to tax. | |
| ■ | The Commissioner (Appeals) reduced taxable amount of capital gain. | |
| ■ | On second appeal: |
HELD
| ■ | It was found that in the case of Smt. (Dr.) Subha Tripathi v. Dy. CIT [2013] 58 SOT 139/34 taxmann.com 286 (Jp), this Bench has already considered the similar matter in respect of land situated in the same village for the same assessment year. This Bench has found that the land is situated out of the limit of Jaipur Municipal Corporation and therefore, was not covered in sub-clause (a) of section 2(14)(iii). | |
| ■ | It has been held by this Bench that for the purpose of application of sub-clause (b) of clause (iii) of section 2(14) and to measure KMs from the radius of Jaipur Municipal Corporation, the relevant date would be the date of notification, i.e., 6-1-1994 and not the date of sale of land in question. The 4 Bigha land in question was part of total 16 bigha land of the assessee allotted to him by the Government in lieu of his retirement from defence services. | |
| ■ | As per the Government record in form of Girdawari which could be said to be conclusive evidence, land was being cultivated by the assessee during the year under consideration and subsequently also. The assessee has shown agricultural income in the return of income of the previous year and also in the subsequent year which has been accepted. To further support this, assessee has also referred certain electricity bills showing consumption of electricity for agricultural use. These documents clearly suggest that agricultural activities were there on the said land during the relevant year. | |
| ■ | The use of land differently by the buyers on a subsequent date of inspection is not a relevant factor. In this view of the matter, following the order of this Bench in the case of Smt. (Dr.) Subha Tripathi(supra) this ground of the assessee's appeal is allowed. [Para 6] |
CASE REVIEW
Smt. (Dr.) Subha Tripathi v. Dy. CIT [2013] 58 SOT 139/34 taxmann.com 286 (JP) (para 6) followed.
CASES REFERRED TO
Jahanganj Cold Storage v. Asstt. CIT [2011] 45 SOT 74/9 taxmann.com 261 (Agra)(TM) (para 2), CITv. Manilal Somnath [1977] 106 ITR 917 (Guj.) (para 3), M.S. Srinivasa Naicker v. ITO [2007] 292 ITR 481/[2008] 169 Taxman 255 (Mad.) (para 3), Manibhai Motibhai Patel v. CIT [1981] 131 ITR 120/6 Taxman 218 (Guj.) (para 3), Smt. (Dr.) Subha Tripathi v. Dy. CIT [2013] 58 SOT 139/34 taxmann.com 286 (JP) (para 3), Arun Sunny v. Dy. CIT [2009] 30 SOT 534 (Coch.) (para 4), M. Venkatesan v. CIT[1983] 144 ITR 886/[1984] 16 Taxman 240 (Mad.) (para 4), CIT v. Bolla Ramaiah [1988] 1744 ITR 154/39 Taxman 345 (AP) (para 4), CIT v. Gemini Pictures Circuit (P.) Ltd. [1996] 220 ITR 43/85 Taxman 594 (SC) (para 4), Alexander George v. CIT [2003] 262 ITR 367/128 Taxman 851 (Ker.) (para 4), Ranchhodbhai Bhaijibhai Patel v. CIT [1971] 81 ITR 446 (Guj.) (para 5), Navneet Kumar Thakkarv. ITO [2008] 110 ITD 525 (Jodh.) (para 10), Smt. Vijay Laxmi Dhaddha v. ITO [IT Appeal No. 90 (JP) of 2008, dated 19-9-2008] (para 10) and Carlton Hotel (P.) Ltd. v. Asstt. CIT [2010] 35 SOT 26 (Luck.) (URO) (para 10).
Sandeep Jhanwar for the Appellant. D.C. Sharma for the Respondent.
ORDER
Hari Om Maratha, Judicial Member - These two cross appeals are filed by the assessee and department respectively against the order of ld CIT(A), Jaipur dated 01-11-2011 for the assessment year 2008-09. The major issue in the two appeals is in respect of taxation of capital gain on part of agricultural land sold by the assessee.
1.1 The brief facts of the issue are that the Assessee possessed 16 bigha of agricultural land at Village Machwa. The Government record in form of Girdawari shows that there were agricultural activities on the said land and various crops like wheat, bajra etc. were grown on the said land as per this record (P.B. Page 17). Samwat 2064 is related with the assessment year under consideration i.e. A Y 2008-09. During the year, the Assessee sold 4 bigha of agricultural land out of total 16 bigha for a consideration of Rs. 1.04 crores i.e. @ 26 lacs per bigha. This land was allotted to him by Govt. in 1972 on his retirement from defence services. Assessee claimed this land to be agricultural land which is out of scope of definition of capital asset u/s 2(14). He claimed that land is covered by exclusions in clause (iii) of section 2(14) and not covered by sub clauses (a) and (b) of this clause as it is situated in village Machwa where population is less than 10,000/-. This village Machwa is also out of Jaipur Municipal Corporation and it was more than 8 kms beyond the limits of Jaipur Municipal Corporation as on 6.01.1994 when the notification (P. B. Page 1) was issued under sub-clause (b), though now the distance is 2-3 kms. only due to extension of limits of Jaipur Municipal Corporation. The sale deed (P.B. page 5-10) was not registered till the end of 31.3.2008. He also purchased bonds eligible u/s 54 EC in Feb. 2008 for a sum of Rs. 50 lacs. The Assessing Officer however, mentioned in her order that the Property is situated within limits of Jaipur Municipal Corporation as per certificate of Tehsildar. Further, property is used for residential/ commercial purpose and not for agricultural purpose. She further added that Inspector's report suggest that multi story project of leading builder is coming up adjacent to this land and the land has not been entered in the name of the purchasers. She has taken Market price of the property as on 1.4.1981 was Rs. 2700 per bigha on the basis of similar property sold. She also observed that the Provisions of section 50C are applicable in this case. After giving the aforesaid findings, the assessing officer computed the capital gain as under :
| - | She applied provisions of section 50C and took circle rate. Accordingly, he applied Rs. 35 lacs per bigha and computed total sale consideration at Rs. 1,40,00,000/-. | |
| - | Purchase price : FMV as on 1.4.1981 on the basis of document dtd. 27.12.1980 @ Rs. 2,700/- per bigha and computed total cost of Rs. 10,800/- & indexed cost Rs.59,508/- (10,800 x 551/100). | |
| - | She accordingly computed Long Term Capital gain at Rs. 1,39,40,492/-. After allowing the deduction u/s 54EC of Rs.50,00,000/-, taxable capital gain has been taken at Rs.89,40,492/-. |
2. Before ld CIT(A) the assessee raised the following plea :
| ♦ | The captioned land is not a Capital Asset within the meaning of section 2(14) as it is an agricultural land under clause (iii) of this section and not covered by exclusions of agricultural land given in sub clauses (a) & (b) of this clause (iii) of section 2(14). Ld CIT(A) has not accepted this plea and assessee has taken ground no. 1 in this respect. | |
| Alternatively | ||
| ♦ | The provisions of section 50C do not apply in assessee's case as the transaction was not registered. The word 'assessable' has been included in section 50C w.e.f. 1.10.2009 only and as per the decision of Hon'ble Jaipur Bench of ITAT itself, the provisions of section 50C would not apply where the transaction of transfer of land is not registered. Ld CIT(A) accepted this plea and directed to alter the sale consideration as received by the assessee. The department has come in appeal before us against the relief so allowed. | |
| ♦ | Regarding Cost of acquisition, the assessee contended that the cases quoted by the AO are not comparable for the following reasons : |
| • | The said land was already in the possession of the buyers. | |
| • | The said transfer was not in respect of one piece of land but it was in respect of 5 pieces of land scattered in area of 2 kms. | |
| • | The said land was very deep (3 to 4 kms.) from the main road and the assessee's land was only 250 mtrs. Further there is a lane approaching the assessee's land. | |
| • | In the immediate vicinity of the assessee's land, multistoried buildings are being constructed. It is not the position of the other land. |
In view of the said reasons, the assessee contended that FMV of the land as on 1.4.1981 should have been taken by computing the same as per principle laid down in Jahanganj Cold Storage v. Asstt. CIT [2011] 45 SOT 74/9 taxmann.com 261 (Agra) (TM). Accordingly, the value comes to Rs.18,87,477/- as per the following calculation below :
| 1,04,00,000 | x 100 = 18,87,477 | |
| 551 |
Ld.CIT(A) however considered Rs. 10,000 per bigha i.e. Rs. 40,000/- as against the assessing officer's valuation of Rs.10,800/- per bigha @ Rs.2,700 per bigha. The assessee has taken ground no. 2 in this respect. Department has also taken ground no. 2 for increasing the price per bigha as on 1.4.1981 to Rs.10,000/-.
3. Let us now come to the grounds of the assessee's appeal. As regards ground no.1, ld. A/R of the assessee Shri Sandeep Jhanwar pointed out a typographical error in drafting of ground and requested to read the same by adding word 'not' in the forth line after the words 'assessee is' and before the words 'covered in' and also to add words '(a) and' after the words 'sub clause' and before the words '(b) of' and accordingly the corrected ground would read as under :—
"Under the facts and circumstances of the case ld. Commissioner of Income Tax (Appeals), Jaipur has erred in confirming the findings of the assessing officer that the agricultural land transferred by the assessee is capital assets within the meaning of section 2(14)(iii) of the Income tax Act, 1961, which according to assessee is not covered in the exclusion under sub-sub clause (a) and (b) of section 2(14)(iii). He has accordingly erred in upholding the chargeability of long term capital gain on the transfer of agricultural land by the assessee."
As far as the findings of the Assessing Officer that the land is covered in JMC, the ld. A/R submitted that the same is wrong. The letter of Tehsildar appended by the AO in her order (AO page 10) itself says that the land is within 8 KMs of the boundaries of the JMC. Further, the notification appended by AO in her order at Page 11 contains the name of the village Machera and not Machwa. Machera has been misunderstood by AO as Manchwa. He submitted that the ld. CIT(A) has, however, given finding that the land is situated at 2 to 3 KMs. from the JMC boundary and it is within 8 kms from the JMC boundaries (Page 13 of the order). He accordingly requested to ignore these findings of AO as the same are absurd. He further submitted that the findings of AO that the land in question is used for residential/ commercial purpose is also wrong for the reasons that the land was used by the assessee for agricultural and as per the Government record, agricultural activities were being carried on the said land during the year under consideration (PB Page 17). He also submitted that this finding of AO is contradictory as far as, the AO herself has said that the buyers of the land have done plotting on the land. The assessee referred certain electricity bills also in support of agricultural activities on the land. The ld. A/R submitted that the land is an agricultural land. The assessee sold it as such charging rate per bigha. He submitted that neither the assessee nor the department should have any concern as to how the land could be used by the buyers. It was not a relevant factor for this section to see that how the buyer intended to use the land as held in the various decisions including CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj.), M.S. Srinivasa Naicker v. ITO [2007] 292 ITR 481/[2008] 169 Taxman 255 (Mad.) and Manibhai Motibhai Patel v. CIT [1981] 131 ITR 120/6 Taxman 218 (Guj.). In such circumstances, the observation that the nearby locations are getting developed as multistory project has no relevance in the present case. He further submitted that the land was situated beyond the boundaries of 8 Kms. of the limits of JMC as on 6.1.1994 (i.e. the date of issuing relevant notification No. 9447/F. No. 164/3/87-ITA-I dated 06/01/1994) as per the certificate on page 11 and trace of the site plan being produced during the course of hearing. The land has now come nearer to the boundaries covered in the jurisdictional limit of JMC due to extensions after 1994. He submitted that the question which is to be decided in this case is whether the said land would be covered by sub clause (b) of clause (iii) of section 2(14). He submitted that Under clause (b) power is given to Government to notify the area from the limit of Municipalities etc. having population of not less than 10,000/. Accordingly, the Government, on 6.1.1994 has notified certain area. He referred the relevant extracts of notification No. 9447/F. No. 164/3/87-ITA-I dated 06/01/1994 at PB Page 1. He submitted that as per this notification, for Jaipur, the area notified was the area of 8 Kms. from the boundaries of Jaipur Municipal Corporation at Entry No. 19.7. The Explanation (2) of the notification clearly indicates that the Municipal Limits as existing on the date of issue of notification are to be referred [PB Page 4]. He submitted that there is no ambiguity in the language of notification. The notification is issued within the powers given to the Government. He submitted that as per the powers given to the government under this clause, it is to notify the extended area under sub-clause (b). The area which is notified as on a particular date has to be frozen or static. It cannot be dynamic. The law also had given the power to include the area within the meaning of capital asset, where, there is a scope of extension of limits in the near future. Had the limits been extended to the land, it would have been covered within clause (a) itself. He stated that otherwise also, the government has specifically given the date of reckoning the limit of 8 Kms. in the explanation (2) to the notification as stated above. He referred his following specific submissions made in the written submissions against each and every observation of the ld. CIT(A) :
| CIT(A)'s findings | Submission | |||||||||||||||
Argument of the assessee that the limits prescribed by notification dtd. 06.01.1994 have been frozen. If this argument is accepted, it would render several decisions of High Courts and Tribunals to nullity. It was not the intention of the legislature to freeze the limits as these would change with increasing urbanization. The assessee has failed to interpret the section 2(14)(iii) in its right perspective. |
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| The legislature has used the word "any municipality". When the Legislature used "any municipality", it would be safe to infer that limits of municipality would not remain static and may change with the increasing urbanization. |
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| The Central Government has the authority u/s 507(a) of the Municipal Corporation Act to declare any portion of a rural area as an urban area. The moment the power is exercised u/s 507(a), the need for notification u/s 2(14)(iii)(b) would not arise. Similarly the moment the Central Government feels that a particular area within 8 kms of the limits of municipality has to be treated as an urban area, the need for exercise of power u/s 507(a) would also cease. Thus two provisions are in a way complimentary to each other and at times overlap. |
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| Notifications issued by the Central Government are instances of subordinate legislation and that in the absence of an express or implied provision subordinate legislation could not have overruled the statutory provisions. | The notification is not overruling the provisions of law as the Government is authorized to specify the area under the said clause (b) of section 2(14)(iii). The area has been specified by the government on the basis of boundaries of municipal corporation existing as on the date of notification. | |||||||||||||||
| The onus is on the assessee to show that the character of the lands changed after the acquisition of the capital asset by the assessee and that the lands were agricultural lands at the time of transfer of the asset. |
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On this basis, he submitted that, the interpretation taken by the ld CIT(A) makes the whole notification as invalid and the decisions of Courts given on that basis becomes nullity. The notification does take few municipal areas of the country and distances in all cases are separately determined. Distance of 8 kms. is only an outer limit and not a benchmark. He accordingly concluded that the claim of the assessee is as per law and this ground of appeal deserves to be allowed. The ld. A/R also drawn our attention towards the decision of Jaipur Bench of ITAT in the case of Smt. (Dr.) Subha Tripathi v. Dy. CIT [2013] 58 SOT 139/34 taxmann.com 286 wherein the same question arose for the same assessment year in respect of land situated in the same village Machwa. The Hon'ble Bench has decided the case in favour of the assessee on the similar basis as argued by ld. A/R. He also drew our attention towards the returns of income filed by the assessee in the subsequent years wherein agricultural income shown by the assessee in respect of the remaining part of land has been accepted by the department.
4. Ld. D/R on the other hand has supported the order of A.O. and ld CIT(A). He submitted that the land in question was capital asset u/s 2(14). He referred the findings given by the ld CIT(A) that 8 kms from the local limits was to be seen on the date of transfer and not on the date on which notification was published in official Gazette. He submitted that issue stands covered in the favour of Revenue by the decision of Hon,ble Cochin Tribunal in the case of Arun Sunny v. Dy. CIT [2009] 30 SOT 534 wherein it was held that the central government had issued the notification for the purpose of changing the character of the asset. The nature of the property had to be examined as on the date of transfer. Further, the transfer deed of the asset was executed during the year under consideration and therefore, the nature of the property whether it was a capital asset or not, had to be examined for the year under consideration. He submitted that ld CIT(A) has correctly held that once the property was found to be a capital asset on the date of transfer, the transaction became liable for capital gains taxation and the date of notification could not be used for any other purpose. He further mentioned that the date of notification was relevant only in deciding the nature of the property. He placed reliance on the decision of Hon'ble Madras High court in the case of M. Venkatesan v. CIT [1983] 144 ITR 886/[1984] 16 Taxman 240 where referring to the scope of section 45, it was held that "taxation or exemption from taxation depends upon the subject of transfer answering or not answering the definition of capital asset at the time of transfer and at no other point of time." He further submitted that normally when the area of the municipality is extended looking to the urbanization on account of pressure of population, then slowly there agricultural lands are converted into urban areas and they form part of such urban areas. It is true that even after forming of municipal areas, there might exist some lands which may be under cultivation, but that becomes an urban area with the passage of time. He submitted that section 2(14)(iii)(b) clearly stipulates that any area within such distance not being more than 8 kms from the local limits of any municipality, has to be treated as capital asset for the purpose of I.T. Act. The legislature has used the word "any municipality". When the legislature used "any municipality", it would be safe to infer that limits of municipality would not remain static and may change with the increasing urbanization. Though the assessee claimed that the agricultural land was beyond 8 kms radius of JMC as on 06.01.94, the AO had found that the land in question was within 2 to 3 kms radius of JMC. For this he placed reliance on the decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Bolla Ramaiah [1988] 174 ITR 154/39 Taxman 345 wherein it was held that when the land was situated within 8 kms of local limits of municipal corporation, it was liable for capital gain. It was held that it was unnecessary to go into the question whether the land were agricultural lands or not on the date of acquisition, because even if it were agricultural lands, they were not exempt from capital gains tax. It would imply that what is necessary is the position as on date of sale and not the position as on the date of acquisition. Further reliance was made on decision of Hon'ble Apex court inCIT v. Gemini Pictures Circuit (P.) Ltd. [1996] 220 ITR 43/85 Taxman 594 where it was held that mere fact that the land in question was agricultural land could not be a ground to claim exemption u/s 2(14) of IT Act when it was situated within 8 kms of the local limits of Municipal Corporation. Since the land sold by the assessee was a capital asset, therefore, the surplus realized by the assessee on ale of land was assessable as capital gain. He also referred the findings of the ld. CIT(A) that the central government has the authority under section 507(a) of the Municipal Corporation act to declare any portion of a rural area as an urban area. The moment the power is exercised under section 507(a), the need for notification u/s 2(14)(iii)(b) would not arise. Similarly the moment the Central Government feels that a particular area within 8 kms of the limits of the municipality has to be treated as an urban area, the need for exercise of power u/s 507(a) would also cease. Thus two provisions are in a way complimentary to each other and at times overlap. Therefore it is not required that central Government should keep on issuing notification. It has further been submitted that notification cannot override the provisions of law. For this reliance was placed on the decision of Kerala High Court in the case of Alexander George v. CIT [2003] 262 ITR 367/128 Taxman 851 where the question arose whether a particular land could be treated as agricultural land with reference to Notification in 1973 when it was found to be outside notified area on a subsequent notification in1994 then it was held that since at the time of transfer, it was within the notified area, therefore the liability could not be avoided. It was accordingly concluded that the onus was on the assessee to show that the character of the lands changed after the acquisition of the capital asset by the assessee and that the lands were agricultural lands at the time of transfer of the asset. The material date with reference to which the question whether the particular asset which had been sold was agricultural land or not was to be decided was the date of sale. In other words, the assessee should further prove that it was agricultural land at the time of transfer. He further referred the relevant para of the order of ld. CIT(A) wherein he had noticed that the land sold by the assessee was within the distance of 8 kms from the municipal limits of Jaipur Municipal corporation as per the Tehsildar, Jaipur Tehsil vide his letter dated 24.12.2010. Further, the inspector sent by the AO also reported that land in question was located within 2 to 3 kms from the Jaipur Municipality and a large number of residential towers had come up in the adjoining areas. Accordingly, the land sold by the assessee was within 8 kms for Jaipur Municipal Corporation and therefore not an agricultural land but an urban land and the capital gain earned on sale of such land was liable to be taxed. He accordingly submitted that the Ld. CIT(A) had correctly upheld the action of the AO to treat the same as capital asset within the meaning of section 2(14)(iii)(b) of I.T. Act, 1961.
5. In the rejoinder, the ld. A/R referred our attention towards annexure to his written submissions wherein he has already submitted that various case laws referred by the authorities are not relevant in the following manner : —
Arun Sunny (supra)
| Facts | Decision | Relevance in present case | ||||||||||||||||||||||||
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Alexander George (supra)
| Facts | Decision | Relevance in present case | |||
| Assessee was the owner of 2.47 acres of land at Thrikkakara Panchayat. Govt. acquired his land by invoking urgency clause. Possession was taken on 29.01.1985 and compensation was paid on 01.04.1986. On the date of transfer, notification dt. 6.02.1973 was prevailing as per which land was capital asset. In 1993, another notification was issued de-notifying the place at which assessee's land was situated and consequently making assessee's land non-capital asset. Assessee contended that since the notification de-notifying such place came into force during the pendency of appeal, so land is not a capital asset |
| In the present case, CIT(A) did not apply this case law in correct manner. In Alexander George (supra) it was held that notification prevailing on the date of transfer will be applicable on the transaction. |
M. Venkatesan (supra)
| Facts | Decision | Relevance in present case | ||||||||||||||||||||||||
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Ranchhodbhai Bhaijibhai Patel v. CIT [1971] 81 ITR 446 (GUJ)
| Facts | Decision | Relevance in present case | |||||||||||||||||||||||||||
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Therefore, land in question was held to be capital asset. |
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Bolla Ramaiah (supra)
| Facts | Decision | Relevance in present case | ||||||||||||||||||||||||
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6. We have heard the rival submission and have carefully perused the available material on record. We find that in the case of Smt. (Dr.) Subha Tripathi (supra), this Bench has already considered the similar matter in respect of land situated in the same village Machwa for the same assessment year. This Bench has found that the land is situated out of the limit of Jaipur Municipal Corporation and therefore, was not covered in sub-clause (a) of section 2(14)(iii). It has been held by this Bench that for the purpose of application of sub-clause (b) of clause (iii) of section 2(14) and to measure 8 KMs from the radius of Jaipur Municipal Corporation, the relevant date would be the date of notification i.e. 6.1.1994 and not the date of sale of land in question. We find that the 4 bigha land in question was part of total 16 bigha land of the assessee allotted to him by the Government in lieu of his retirement from defense services. As per the Government record in form of Girdawari which can be said to be conclusive evidence in this respect, the land was being cultivated by the assessee during the year under consideration and subsequently also. The assessee has shown Agricultural Income in the return of income of the previous year and also in the subsequent years which has been accepted. To further support this, assessee has also referred certain electricity bills showing consumption of electricity for agricultural use. These documents clearly suggest that agricultural activities were there on the said land during the relevant year. The use of land differently by the buyers on a subsequent date of inspection is not a relevant factor for us. In this view of the matter, following the order of this Bench in the case of Smt. (Dr.) Subha Tripathi (supra) we allow this ground of the assessee's appeal.
7. Though the above decisions goes to decide the non-taxability of the entire capital gain, still for the sake of disposing off the ground raised by the both the assessee and department, we are proceeding to decide Ground No. 2 of assessee's appeal and also Ground No. 2 of the departmental appeal. The issue involved is that on what basis Fair Market Value of the assessee's land should be considered as on 01.04.1981 for the purpose of computation of capital gain. The AO quoted an alleged comparable instance wherein the rate has been Rs.2,700/- per bigha and total cost was considered at Rs.10,800/- for 4 bigha of land. It has been taken on the basis of enquiry from Dy. Inspector General, Registrar & Stamps, Jaipur who was called upon by the AO to provide the same. Dy. Inspector General, Registrar & Stamps, Jaipur furnished a copy of sale deed of agricultural land at similar location executed on 27.12.1980. As per this sale deed, the total sale consideration was Rs. 16,000/- for 6 bigha. Accordingly the fair market value of the property as on the date of transaction works out to Rs. 2,666/- per bigha. Considering the same, the fair market value of the land in question as on 1.4.1981 was estimated by the AO at Rs. 2,700/- per bigha resulting total value of land 10,800/-(2700*4). Hence amount of Rs. 10,800/- was adopted as the fair market value of the land in question on 1.04.1981. The assessee raised objections that the comparable case cited by the AO was distinguishable due to the following reasons:
| (a) | The land sold by SH. Panna S/o Sh. Mahadev Jat consisted of Khasra No. 226, 246, 244, 245 & 233. These khasras of land were scattered over an area of 2 kms. on the other hand, the land of appellant was a big single chunk of land and it was compatible for residential use after plotting. | |
| (b) | The land of the appellant was in close proximity to the state highway (nearly 500mt.) whereas in the comparable case cited by the AO, the land was 3 to 4 kms away from the main road. | |
| (c) | The land sold by Sh. Panna S/o Sh. Mahadev Jat was already in possession of the buyers and they were cultivating the land for past many years. |
The assessee submitted that all these factors make a lots of difference in the value of land. There cannot be any basis to make suitable adjustment for the above factors in case of land. According to the assessee when no comparable case is found, the Fair Market Value of the captioned land should be computed on the basis of reverse indexation in the manner approved by Third Member Judgment of ITAT Agra in the case ofJahanganj Cold Storage (supra). Accordingly, the value comes to Rs.18,87,477/-. After considering the objections raised by the assessee, the ld. CIT(A) found that the case sited by ld. AO was not comparable. He however made his own estimation and adopted a rate of Rs.10,000/- per bigha and took the Fair Market Value as on 1.4.1981 of the total land at Rs.40,000/-.
8. We have heard the rival parties and considered the material on record. We find that value of land differs drastically due to its surroundings, distance from road, disputes, possession etc. There is no dispute on the issue that the in the instances quoted by the ld. AO, the buyers were already in the possession of land in question which is major factor which affects the rates of the transaction and attached obligations. Further, there are issues regarding proximity from road and scattered land. We also find that AO has given a finding that multistoried projects have been developed near the assessee's land and the buyer of the assessee's land is also developing some project on this land. No such development of the comparable land has been brought on record by the AO. Ld. CIT(A) also agreed that the instance quoted by the AO is not comparable. However, he has taken a arbitrary value without any basis. In these facts and circumstances, where no comparable case is available, the best way to estimate the cost would be to compute the Fair Market Value on the basis of reverse calculation considering the cost inflation index as held in Third Member Decision of ITAT Agra (Supra) in which one of us was also a party. Accordingly, the estimation made by the assessee in this respect had to be accepted. We thus allow this ground of appeal of the assessee and reject the ground of the departmental appeal.
9. Ground no. 3 of the assessee's appeal is against rejecting the agricultural income of Rs.42,000/-. As already found by us, the assessee has shown evidences of land being cultivated. The agriculture income has been accepted in the previous year and also in the subsequent years. In these facts and circumstances, size of land, government records of crop and the amount of agricultural income shown, we find no reason to reject the assessee's claim. We accordingly allow this ground of the assessee's appeal also.
10. Now we come to the remaining ground no.1 of department's appeal which is against holding that the provision of section 50C would not apply as the land was sold by the assessee through agreement and the sale deed was not registered. The AO had observed that land has been developed and is in the possession of the buyers and sale consideration has been received in toto by the assessee. Further, assessee has claimed that the property has not yet been registered and hence, provisions of section 50C are not applicable. In this regard, AO observed that the registration of sale property has not been made only to evade the stamp duty payments on the sale. Therefore, section 50C would be applicable on the sale of property and accordingly applicable DLC rates i.e. 1,40,00,000/- would be applied on such transfer. Accordingly, the AO took the sale consideration of Rs. 1,40,00,000/- as per section 50C instead of actual sale consideration of Rs. 1,04,00,000/-. In the first appeal, ld CIT(A) made a reliance on the decision of Hon'ble Jodhpur Tribunal in the case of Navneet Kumar Thakkar v. ITO [2008] 110 ITD 525 where it was held that to attract section 50C, the property under transfer from the assessee to another person should have been assessed for stamp valuation purpose at a higher value than that received or accruing to the assessee. Unless the property transferred have been registered by sale deed and for the purpose the value had been assessed and stamp duty have been paid by the parties, section 50C could not come into operation. Further reliance was made on the decision of Hon'ble Jaipur Tribunal in the case of Smt. Vijay Laxmi Dhaddha v. ITO [IT Appeal No. 90 (JP) of 2008, dated 19-9-2008] and Hon'ble Lucknow Tribunal in the case of Carlton Hotel (P.) Ltd. v. Asstt. CIT [2010] 35 SOT 26 (URO) have held that if the property sold is not registered then section 50C would not have any application. Accordingly, Ld. CIT(A) held that in the present case, the sale deeds had not been registered and the buyers had not paid any stamp duty therefore section 50C would not have any application and directed the ld. AO to adopt the sale consideration at Rs. 1,04,00,000/- instead of Rs. 1,40,00,000/-.
11. We have heard the rival parties and perused the material on record. The present case is for A Y 2008-09, i.e. prior to amendment made in the provisions of section 50C to take into consideration the transfers which have not been registered for stamp duty purpose. In view of the various decisions quoted by the ld. CIT(A), we are in agreement with his order and confirm the same. This ground of the departmental appeal is also rejected.
12. In the result, the appeal of the assessee is allowed and the appeal of the revenue is dismissed.
■■Regards,
Pawan Singla , LLB
M. No. 9825829075
__._,_.___
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