Chartered Accountant Finance: [aaykarbhavan] Judgments and Information [1 Attachment]

  IT : In terms of provisions of Explanation 1(ii) to section 153, period   of limitation for assessment can be stayed only by an order or   injunction of any Court and as soon as said order or injunction of Court   is vacated, period of limitation shall re-start even though order   vacating injunction is not communicated to department
■■■
  [2014] 46 taxmann.com 108 (Allahabad)
  HIGH COURT OF ALLAHABAD
Commissioner of Income-tax-1, Agra
v.
  Chandra Bhan Bansal*
  ASHOK BHUSHAN AND MAHESH CHANDRA TRIPATHI, JJ.
  IT APPEAL NOS.19 OF 2010 AND 277 & 279 OF 2011†
  MAY  22, 2014 
Section   153 of the Income-tax Act, 1961 - Assessment - Time limit for   completion of (Staying of period of limitation) - Assessment years   1986-87 to 1989-90 - Whether in terms of provisions of Explanation 1(ii)   to section 153(3), period of limitation for assessment can be stayed   only by an order or injunction of any Court and as soon as said order or   injunction of Court is vacated, period of limitation shall re-start   even though order vacating injunction is not communicated to department -   Held, yes [In favour of assessee]
  FACTS
 
■   A   Search and seizure operations was conducted on 19-1-1989 at the   business premises of assessee firm and residential premises of partners.   The assessee was not assessed to tax earlier. Notices under section   147(a)/148 were issued to the assessee for the assessment years 1986-87,   1987-88 and 1989-90 requiring the assessee to file return.
■   In response to the notices issued to the assessee, return was filed only for the assessment year 1989-90.
■   For remaining assessment years, assessee filed writ petition challenging validity of reassessment proceedings.
■   The High Court passed an order staying the reassessment proceedings. Subsequently, the writ petition was dismissed on 1-8-1995.
■   After dismissal of the writ petition, the proceedings for assessment were completed on 4-1-1996 by the Assessing Officer.
■   In   appellate proceedings, one of the objection taken by assessee was that   the interim order granted by the High Court was vacated on 1-8-1995,   hence the original assessment was to be completed within 60 days i.e. up   to 30-9-1995 in view of Explanation 1(ii) to section 153 (3), whereas   the assessment having been made on 4-1-1996 was barred by time.
■   The   Tribunal having accepted assessee's explanation, held that the   assessment order dated 4-1-1996 was beyond the time prescribed under   section 153(3) and thus it was barred by limitation.
■   On revenue's appeal:
  HELD
 
■   The   statutory scheme of Explanation 1(ii) of section 153 clearly indicates   that for computing the period of limitation the period during which the   assessment proceedings is stayed shall be excluded. In excluding the   above period, the concept of communication of the order of the Court   cannot be imported. The exclusion of the period has been provided   because of stay or injunction by any Court during which the assessment   proceedings are stayed.
■   The   intention is clear that when the limitation for assessment has started   it can be stayed only by an order or injunction of any Court and as soon   as the order or injunction of the Court is vacated, the period of   limitation shall re-start since after the vacation of the order of the   Court, there is no embargo on the authorities to proceed with the   assessment.
■   The   submission of the revenue that the limitation will start again only   when the order is communicated to the Department cannot be accepted. The   other reason for not accepting the above submission is equally potent.   Explanation 1(v) and (vi) to section 153 are also part of the same   statutory scheme. In Explanation 1(v) and (vi) to section 153 the   statutory scheme provides for computing the period of limitation from   the date when the order under sub-section (1) of section 245D and 245Q   is received by the Commissioner.
■   Thus,   the legislature has provided for excluding the period from the date of   communication of the order where they so intended. The use of concept of   communication of receiving the order in the same provision which is   absent in Explanation 1(ii) concerned clearly indicates that for the   purposes of Explanation 1(ii), the communication of the order of the   Court vacating the stay or injunction is not contemplated.
■   The   provisions of section 153(3)(ii) are clear and explicit. The said   provision provides that where the assessment, re-assessment or   re-computation is made on the assessee or any person in consequence of   or to give effect to any finding or direction contained in an order of   any Court in a proceeding otherwise than by way of appeal or reference   under this Act, the provisions of sub-section (1),(1a) and (1b), shall   not apply.
■   Thus,   where the assessment, re-assessment or re-computation is made on the   assessee or any person in consequence of or to give effect to any   finding or direction in an order of any Court in a proceeding otherwise   than by way of appeal or reference under this Act, the period of   limitation as provided under section 153(2) 1961 shall not be attracted.
■   In   the order dated 1-8-1995, neither there is any finding nor there is any   direction which can be relied on by the Assessing Officer for framing   the assessment. There being neither any direction nor any finding within   the meaning of section 153(3)(ii), the submission of revenue that there   shall be no limitation for making assessment cannot be accepted.
■   In   view of aforesaid, the Tribunal is justified in law in coming to the   conclusion that the assessments made by the Assessing Officer barred by   limitation on 30-9-1995 in view of the proviso to Explanation 1 to   section 153(2).
  CASES REFERRED TO
 
  CIT v. Drs. X-Ray & Pathology Istitute Pvt. Ltd. [2013] 358 ITR 27/40 taxmann.com 115/[2014] 20 taxman 88 (Mag.) (All.) (para 11), Rajinder Nath v. CIT, [1979] 120,ITR,14/2 Taxman 204 (SC) (para 14), Goombira Tea Co. (P.) Ltd. v. ITO [1980] 125 ITR, 260/[1981] 5 Taxman 78 (Cal.) (para 15), Raj Kishore Prasad v. ITO, [1990] 195 ITR, 438 (All.) (para 16), CIT v. S.P. Mishra, [2008] 297, ITR, 352/170 Taxman 244 (All.) (para 17), CIT v. Agha Abdul Jabbar   Khan, [1981] 187, ITR 587 (M.P.). (para 18), T.M. Kousali v. Sixth ITO, [1985] 155 ITR 739/30 Taxman 642 (Kar.) (para 21), CIT v.Chitranjali, [1986] 159 ITR 801 (Cal.) (para 22) and J.K.K. Natarajah v. WTO [1983] 142, ITR, 804 (Mad.) (para 23).
A.N. Mahajan for the Appellant. Rahul Agarwal for the Respondent.
  ORDER
 
  Ashok Bhushan, J. - These three appeals have been filed by the   Revenue under Section 260-A of the Income Tax Act, 1961 "hereinafter   called the "Act, 1961", against the order dated 12/8/2009, passed by the   Income Tax Appellate Tribunal allowing the appeals filed by the   assessee and cancelling the assessment for all the three years. All the   three appeals raise the same question of law and facts, hence they are   being decided by this common judgment. It is sufficient to note the   facts of Appeal No.19/2010 for deciding the question of law raised in   these appeals. Search and seizure operations were conducted on 19/1/1989   at the business premises of firm and residential premises of partners   including that of the assessee Late Chandra Bhan Bansal. The assessee   was not assessed to tax earlier. Notices under Section 147 (a)/148 of   the Act, 1961 were issued to the assessee on 08/11/1989 for the   Assessment Years 1986-87, 1987-88 and 1989-90 requiring the assessee to   file return. In response to the notices issued to the assessee, return   was filed only for the Assessment Year 1989-90. Challenging the notice   dated 08/11/1989, the assessee filed writ petition No.278/1992, for the   Assessment Years 1986-1987 and 1987-88 in this Court. A Division Bench   of this Court vide its order dated 24/3/1992, stayed the re-assessment   proceedings. A Writ Petition No.162/1992 was filed challenging the   further proceedings for the Assessment Year 1989-90. A Division Bench of   this Court vide order dated 24/3/1992 had passed interim order staying   the notices for the Assessment Year 1988-89. Both the above writ   petitions were dismissed on 01/8/1995 on the ground that after the death   of the sole petitioner, legal representatives of the deceased were not   brought on the record. After dismissal of the aforesaid writ petitions,   the proceedings for assessment were completed on 04/1/1996 by the   Assessing Officer. Against the order dated 04/1/1996, appeals were filed   by the assessee before the Commissioner of Income Tax (Appeals). The   Commissioner of Income Tax (Appeals) vide order dated 10/12/1996,   restored the matter to the file of Assessing Officer for providing   proper opportunity to the legal heirs of the assessee. Notices were   issued to the legal heirs of the assessee to attend the proceedings   before the Assessing Officer. In response to the summons/notices issued   to the legal heirs of the assessee the counsel for the legal   representatives appeared. One of the objection taken before the   Assessing Officer was that the interim order granted by the Allahabad   High Court was vacated on 01/8/1995, hence the original assessment was   to be completed within 60 days i.e. up to 30/9/1995 in view of   Explanation 1 (ii) to Section 153 (3) of the Act, 1961, whereas the   assessment having been made on 04/1/1996 was barred by time. The   Appellate Authority vide its order dated 26/3/1999 decided all the three   appeals. The Appellate Authority rejected the plea of the assessee that   assessment is barred by time, however for statistical purposes, the   appeals were partly allowed. The order passed by the appellate authority   dated 26/3/1999 was challenged by the assessee before the Income Tax   Appellate Tribunal. Two sets of appeals were filed by the assessee   pertaining to the three assessment years challenging the order dated   26/3/1999 and 17/1/2003, respectively. The Tribunal heard the parties   and allowed both the appeals. The Tribunal relying on Explanation 1 (ii)   to Section 153 of the Act, 1961 held that the assessment order dated   04/1/1996 was beyond the time prescribed under Section 153 (3) of the   Act, 1961. The above three appeals have been filed against the common   order of the Tribunal dated 12/8/2009. In all the three appeals only one   substantial question of law was framed on which question all the   appeals were admitted. The question of law framed in all these appeals   is as follows:
"(1)   Whether on the facts and in the circumstances of the case, the Tribunal   is justified in law in coming to the conclusion that the assessments   made by the A.O. Was barred by limitation on 30-09-95 in view of the   proviso to Explanation 1 to Section 153 (2) of the Act?"
2. We   have heard Shri Shambhu Chopra, learned counsel appearing for the   Revenue and Shri Rahul Agarwal, learned counsel appearing for the   assessee.
3. Shri   Shambhu Chopra, learned counsel appearing for the Revenue submits that   the assessment order dated 04/1/1996 was not beyond 60 days and it was   within sixty days from the date when the order of the High Court dated   01/8/1995 vacating the interim order was communicated. He submits that   the period of limitation for making the assessment is to be reckoned not   from the date of the vacation of the interim order, rather from the   date the order of the High Court vacating the stay order has been   communicated to the Department. He submits that the order vacating the   interim could be communicated to the Assistant Commissioner of Income   Tax (Investigations) on 18/12/1995, hence the assessment order dated   04/1/1996 is well within time. In addition to the above submission, Shri   Shambhu Chopra, learned counsel appearing for the Revenue made one more   submission i.e. the assessment order dated 04/1/1996 having been made   in consequence to the order of the High Court dated 01/8/1995,   dismissing the writ petitions of the assessee, there shall be no period   of limitation as per Section 153 (3) (ii) of the Act, 1961.
4. A   Division Bench of this Court while hearing the Income Tax Appeal   No.19/2010 on 03/12/2013, in context to the above submission of Shri   Shambhu Chopra, learned counsel appearing for the Revenue passed   following order which is quoted below:
"Shri   Shambhu Chopra, appearing for the revenue prays for and is allowed time   to produce the order of the High Court, in which according to him there   is a finding or direction, which will make his case fall under Section   153 (3) (ii) of the Income Tax Act, 1961. According to Shri Chopra there   is no limitation for framing assessment, reassessment or recomputation,   where the assessment has been framed in view of the finding or   direction in pursuance to an order of any Court in a proceeding   otherwise than by way of appeal or reference under the Act. Shri Rahul   Agarwal, relying upon the judgment of this Court inCIT v. The Drs. X-Ray & Pathology Institute (P.) Ltd. [2013] 358 ITR 27/[2014] 220 Taxman 88 (Mag.)/[2013] 40 taxmann.com 115 dated 5.9.2013 submits that the limitation starts, when the stay is vacated by the High Court.
Shri Rahul Agarwal submits that the question, that has been raised in the appeal by the revenue, was not argued in the Tribunal.
Be   that as it may, let Shri Shambhu Chopra file a copy of the judgment by   which the stay was vacated, to find out whether there was any finding or   direction to complete the assessment.
List on 21.1.2014 in the additional cause list."
  When the matter was heard before us, learned counsel for the parties   have placed before us the orders passed by the Division Bench of this   Court dated 24/3/1992 passed in Writ Petition No.162 of 1992 and   01/8/1995 in Writ Petition No.278/1992. Although, neither any ground was   taken with regard to the above submission, nor any question of law was   framed when the appeal was admitted on 19/1/2011, but looking to the   facts of the present case and submissions made by the learned counsel   for the Revenue which was noted by the Division Bench of this Court on   03/12/2013, we permitted the learned counsel for the Revenue to address   on the following additional question i.e. :
(1)   Whether the assessment order dated 04/1/1996 can be treated to be an   assessment made in consequence to or to give effect to any finding or   direction contained in the order of the High Court dated 01/8/1995   passed in Writ Petition No.162/1992 and 278/1992 so as to lift the bar   of limitation as contained in Section 153 (2) of the Act, 1961.
5. Shri   Rahul Agarwal, learned counsel appearing for the assessee refuting the   submissions of Shri Shambhu Chopra, learned counsel appearing for the   Revenue submitted that the assessment order dated 04/1/1996 was clearly   beyond the limitation period prescribed under Section 153 (2) of the   Act, 1961. He submits that the writ petitions having been dismissed on   01/8/1995, the period of stay of the proceedings which was required to   be excluded was a period beginning from 24/3/1992 and ending with   01/8/1995. He submits that the statute does not contemplate reckoning of   the period from the date of communication of the order of the High   Court dismissing the writ petitions on 01/8/1995. The order of the High   Court dated 01/8/1995 dismissing the writ petitions was passed in the   presence of learned counsel appearing for the Department. Assessee   submits that in the order dated 01/8/1995, itself reason has been   mentioned for dismissing the writ petitions, hence the submission of   Shri Shambhu Chopra, learned counsel for the Revenue that period of 60   days after the dismissal of the writ petition is to be reckoned from the   date of communication of the order is misconceived. Shri Rahul Agarwal,   further submits that the provision of Section 153 (3) (ii) of the Act,   1961 is not attracted in the present case, since neither there is any   finding nor there is any direction in the order of the High Court dated   01/8/1995 on the basis of which the Assessing Officer can claim to frame   the assessment order dated 04/1/1996. He submits that the order of the   High Court dated 01/8/1995 was an order dismissing the writ petition on   account of non-bringing of the heirs of the assessee on record. The High   Court neither entered into the merits of the case, nor recorded any   finding nor issued any direction, hence the plea of Shri Shambhu Chopra,   learned counsel appearing for the Revenue that there shall be no   limitation in the facts of the present case is wholly misconceived.
6. We have considered the submissions of the learned counsel for the parties and have perused the record.
Section 153 of the Act, 1961 provides for time limit for completion of assessments and reassessments.
Section   153 (2) and Section 153 (3) (ii) of the Act, 1961 as well as   Explanation I (ii), (v), (vi) and proviso which are relevant in the   present case are as follows:
 "153. Time limit for completion of assessments and reassessments.—(1)******
  (2) No order of assessment, reassessment or recomputation shall be made   under section 147 after the expiry of one year from the end of the   financial year in which the notice under section 148 was served:
  (3) The provisions of sub-sections (1),(1A), (1B) and (2) shall not   apply to the following classes of assessments, reassessments and   recomputations which may, subject to the provisions of sub-sub-section   (2A), be completed at any time—
 (i)**  ****
  (ii) where the assessment, reassessment or recomputation is made   on the assessee or any person in consequence of or to give effect to any   finding or direction contained in an order under sections   250,254,260,262,263 or 264 or in an order of any court in a proceeding   otherwise than by way of appeal or reference under this Act:
Explanation 1.—In computing the period of limitation for the purposes of this section—
 (i)**  ****
  (ii) the period during which the assessment proceeding is stayed by an order or injunction of any court, or
   (iia) to (iva)******
  
(v)   in a case where an application made before the Income-tax Settlement   Commission under section 245C is rejected by it or is not allowed to be   proceeded with by it, the period commencing from the date on which such   application is made and ending with the date on which the order under   sub-section (1) of section 245D is received by the Commissioner under   sub-section (2) of that section,or
(vi)   the period commencing from the date on which an application is made   before the Authority for Advance Rulings under sub-section (1) of   section 245Q and ending with the date on which the order rejecting the   application is received by the Commissioner under sub-section (3) of   section 245R, or"
[Provided   that where immediately after the exclusion of the aforesaid time or   period, the period of limitation referred to in sub-sections (1), (1A),   (1b)] (2), (2A) and (4) available to the Assessing Officer for making an   order of assessment, reassessment or recomputation, as the case may be,   is less than sixty days, such remaining period shall be extended to   sixty days and the aforesaid period of limitation shall be deemed to be   extended accordingly:
Provided   further that where a proceeding before the Settlement Commission abates   under section 245HA, the period of limitation available under this   section to the Assessing Officer for making an order of assessment,   reassessment or recomputation, as the case may be, shall, after the   exclusion of the period under sub-section (4) of section 245HA, be not   less than one year; and where such period of limitation is less than one   year, it shall be deemed to have been extended to one year; and for the   purposes of determining the period of limitation under sections   149,153B,154,155,158BE and 231 and for the purposes of payment of   interest under section 243 or section 244 or, as the case may be,   section 244A, this proviso shall also apply accordingly."
7. Notices   under Section 147 (a)/148 of the Act, 1961 were issued to the assessee   on 08/11/1989. The assessment thus was required to be completed by   31/3/1992 as per the provisions of Section 153(2) as it stood at that   relevant time. Writ Petition Nos.162/1992 and 278/1992 were filed by the   assessee in which following interim orders were passed by this Court on   24/3/1992.
"Issue notice.
  Further proceedings for the assessment year 1989-90 in pursuance to the   notices under section 143 (2) of the Income tax act filed as Annexures   7,8 and 10 to the writ petition shall remain stayed till further orders   of this Court. This order shall however, not debar the respondents from   taking any fresh action or proceedings for reassessment under section   147 if any action is contemplated for the said assessment year. However,   insofar as the assessment year 1988-89 is concerned, further assessment   proceedings in pursuance to the notices under section 143(2) issued for   that year may continue and assessment may be completed in due course.
It   is needless to add that it shall be open to the petitioner to raise   such plea as may be available to him under the law impugning the   validity of notices Under Section 143(2) for the assessment year   1988-89.
Sd/-A. Singh
  Sd/- R.K.G.
24.3.92."
  8. In view of the stay of the assessment proceedings by virtue of provisions of Section 143 (2) Explanation1   (ii) of the Act, 1961 the period of stay of the proceedings has to be   excluded. Both the writ petitions were dismissed by this Court on   01/8/1995 by the following order:
"BY THE COURT
  This petition is taken up in revised list.
None appears for the petitioner, Sri Rakesh Ranjan Agarwal,
Advocate is present for the respondent.
  This petition was on the list 13.7.1995 on which date this Court was   informed that the sole petitioner Chandra Bhan Bansal has died,   therefore, appropriate time was granted to the petitioner to bring the   legal representatives of the deceased on record. However, despite   affording time no application was moved for substitution. This being so   this petition is dismissed for non-compliance of the order dated   13.7.1995. The interim order 24.3.1992 is hereby vacated.
Dt/-1.8.1995
  Sd/-B.M. Lal.
Sd/-M.C. Agarwal."
  9. The aforesaid writ petitions having been dismissed on   01/8/1995, as per proviso to Explanation 1 to Section 153, the   assessment was to be completed by 30/9/1995, but in the present case the   assessment was completed on 04/1/1996 i.e. beyond 30/9/1995. The   submission of Shri Shambhu Chopra, learned counsel appearing for the   Revenue to save the assessment from being beyond the period of   limitation is that the period of 60 days is to be computed from the date   of communication of the order. He submits that the order of the High   Court dated 01/8/1995, dismissing the writ petitions could be received   by the office of the ACIT (Investigation) on 18/12/1995. There are two   reasons due to which the said submission cannot be accepted. Firstly,   the order of the High Court dated 01/8/1995, dismissing the writ   petitions was passed in the presence of the learned counsel for the   revenue, hence the submission that it was communicated on 18/12/1995 has   no relevance, and secondly the provision of Explanation 1 (ii) of   Section 153 of the Act, 1961 which is to the following effect:
"Explanation 1—In computing the period of limitation for the purposes of this Section -(i) …
(ii)   the period during which the assessment proceeding is stayed by an order   or injunction of any Court, or … …… shall be excluded".
10. The   above statutory scheme clearly indicates that for computing the period   of limitation the period during which the assessment proceedings is   stayed shall be excluded. In excluding the above period, the concept of   communication of the order of the Court cannot be imported. The   exclusion of the period has been provided because of stay or injunction   by any Court during which the assessment proceedings are stayed. The   intention is clear that when the limitation for assessment has started   it can be stayed only by an order or injunction of any Court and as soon   as the order or injunction of the Court is vacated, the period of   limitation shall re-start since after the vacation of the order of the   Court, there is no embargo on the authorities to proceed with the   assessment. The submission of Shri Shambhu Chopra learned counsel   appearing for the Revenue that the limitation will start again only when   the order is communicated to the Department thus cannot be accepted.   The other reason for not accepting the above submission is also equally   potent. Explanation 1 (v) and (vi) to Section 153 of the Act, 1961 are   also part of the same statutory scheme. In Explanation 1 (v) and (vi) to   Section 153 of the Act, 1961 the statutory scheme provides for   computing the period of limitation from the date when the order under   sub-section (1) of Section 245D and 245Q is received by the   Commissioner. Thus, the legislature has provided for excluding the   period from the date of communication of the order where they so   intended. The use of concept of communication of receiving the order in   the same provision which is absent in Explanation 1 (ii) concerned   clearly indicates that for the purposes of Explanation 1 (ii), the   communication of the order of the Court vacating the stay order or   injunction is not contemplated.
11. The   Division Bench judgment of this Court relied on by Shri Rahul Agarwal,   learned counsel appearing for the assessee in Income Tax Appeal   No.219/2013, CIT v. Drs. X-Ray & Pathology Istitute (P.) Ltd.[2013] 358 ITR 27/40 taxmann.com 115/[2014] 20 taxman 88 (Mag.) (All.), also supports the submission made by the learned counsel for the assessee. In the said case following was laid down.
'The department has preferred the appeal on following questions of law:—
  "1.   Whether the Hon'ble ITAT has erred in law and on facts in annulling the   assessment without appreciating the fact that the communication of   dismissal of the assessee's writ petition against the proceedings   initiated u/s 158BC of the I.T. Act, 1961, was made to the AO on   09.11.2009, and then the AO could not have proceeded to take up the   assessment proceedings before 09.11.2009, consequently the period of   limitation was counted from such date.
2.   Whether the Hon'ble ITAT has erred in law and on facts in applying the ratio of the decision of Hon'ble Court in the case of CCE v M.M. Rubber & Co. (1992) Suppl. WP (C) No.4821/2010 page 16 of 68 1 SCC 471 and Municipal Corporation of Delhi v. Qimat Rai Gupta & Others[2007] 7 SCC 209.
3.   Whether   Hon'ble ITAT was justified in ignoring the provisions of Income Tax Act   in the case of a proceeding under the I.T. Act and applying the   provisions of High Court Rules which would be applicable in the case of   proceedings in the High Court only."
In   this case search was conducted at the assessee's address on 14.9.2002   and notice under Section 158BC of the Act was issued on 29.4.2003.   Consequent thereto the return was filed by the assessee on 16.6.2003.   The search proceeding was challenged by the assessee before the High   Court by filing writ petition. The assessment proceedings were stayed   vide interim order dated 12.2.2004. The interim order was vacated on   26.8.2009.
Section   158BC provides to complete assessment proceedings within two years. It   further provides that period during which the proceedings have been   stayed shall be excluded.
In   the present case the stay was vacated by the High Court on 26.8.2009.   The A.O. took the date of vacation of the interim order to be the date,   when it was received by him on 9.11.2009 and passed assessment order on   22.6.2010, which was clearly beyond two years as limitation would   restart from 26.8.2009 and ended on 15.4.2010.
Apart   from the fact that the Assessing Officer had sufficient time the   Tribunal has held that there is no procedure in the High Court to   communicate the order to the party to make it effective. The provisions   of the Income Tax Act for filing of the appeal from the date of service   of the order will not be attracted to calculate the period of limitation   to complete the assessment.
In   the present case we are not concerned with limitation for any   particular act to be performed, but the arrest of the limitation by an   interim order passed by the High Court. As soon as the order was   vacated, the limitation will restart and will exhaust itself on the   period of limitation provided under the Act.
In   order to appreciate the submissions of Shri Sambhu Chopra that A.O.   should get knowledge of the order, the facts as to when the counsel   appearing for the department applied for copy and communicated to the   A.O. have not been brought on record. Shri Sambhu Chopra has relied uponAuto & Metal Engineers v. Union of India & Ors., (1998) 229 ITR 399 with regard to limitation of assessment proceedings in Explanation of Section 153 and the effect of the stay order and CIT v.Durga Shankar Kansara, [2008] 305 ITR 249 (Raj.).
In   both the cases cited for the revenue the limitation as provided under   Section 158BE was under consideration. The question as to whether the   order should be communicated by the Court, which had stayed the   proceedings to restart the period of limitation was neither raised nor   considered.
We   do not find any error of law in the judgment of the Tribunal holding   that the assessment was clearly barred by limitation. The questions of   law as framed are not substantial questions of law, which may arise for   consideration from the facts of the case.
The income tax appeal is dismissed.'
  12. In view of the foregoing discussions, the question No.1 as   framed is answered in favour of the assessee and against the Revenue and   the order of the Tribunal deserves to be confirmed.
  Now we come to the additional question which has been framed by us as noted above.
13. The   provisions of Section 153 (3) (ii) of the Act, 1961 are clear and   explicit. The said provision provides that where the assessment,   reassessment or recomputation is made on the assessee or any person in   consequence of or to give effect to any finding or direction contained   in an order of any court in a proceeding otherwise than by way of appeal   or reference under this Act, the provisions of sub-section (1) (1a) and   (1b) of the Act, shall not apply. Thus, where the assessment,   reassessment or recomputation is made on the assessee or any person in   consequence of or to give effect to any finding or direction in an order   of any Court in a proceeding otherwise than by way of appeal or   reference under this Act, the period of limitation as provided under   Section 153 (2) of the Act, 1961 shall not be attracted. What are the   findings or directions as contemplated in the above provision is the   question now to be answered.
14. The   Apex Court had occasion to consider the expressions "finding and   direction" as contained in Section 153 (3) (ii) of the Act, 1961 in Rajinder Nath v. CIT, [1979] 120,ITR,14/2 Taxman 204 (SC). The Apex Court laid down following in the above case:
'The   expressions " finding " and " direction " are limited in meaning. A   finding given in an appeal, revision or reference arising out of an   assessment must be a finding necessary for the disposal of the   particular case, that is to say, in respect of the particular assessee   and in relation to the particular assessment year. To be a necessary   finding, it must be directly involved in the disposal of the case. It is   possible in certain cases that in order to render a finding in respect   of A, a finding in respect of B may be called for. For instance, where   the facts show that the income can belong either to A or B and to no one   else, a finding that it belongs to B or does not belong to B would be   determinative of the issue whether it can be taxed as A's income. A   finding respecting B is intimately involved as a step in the process of   reaching the ultimate finding respecting A. If, however, the finding as   to A's liability can be directly arrived at without necessitating a   finding in respect of B, then a finding made in respect of B is an   incidental finding only. It is not a finding necessary for the disposal   of the case pertaining to A. The same principles seem to apply when the   question is whether the income under enquiry is taxable in the   assessment year under consideration or any other assessment year. As   regards the expression "direction" in s.153(3) (ii) of the Act, it is   now well-settled that it must be an express direction necessary for the   disposal of the case before the authority or court. It must also be a   direction which the authority or court is empowered to give while   deciding the case before it. The expressions " finding " and "direction"   in s. 153(3)(ii) of the Act must be accordingly confined. S. 153(3)(ii)   is not a provision enlarging the jurisdiction of the authority or   court. It is a provision which merely raises the bar of limitation for   making an assessment order under s. 143 or s. 144 or s. 147: ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC) andN.K.T. Sivalingam Chettiar v. CIT [1967] 66 ITR 586 (SC).   The question formulated by the Tribunal raises the point whether the   AAC could convert the provisions of s. 147(1) into those of s.   153(3)(ii) of the Act. In view of s. 153(3)(ii) dealing with limitation   merely, it is not easy to appreciate the relevance or validity of the   point.'
15. The   provision of Section 153 (3) (ii) of the Act, 1961 came up for   consideration before several High Court's including this Court in large   number of cases. In Goombira Tea Co. (P.) Ltd. v. ITO [1980] 125 ITR, 260/[1981] 5 Taxman 78 (Cal.). The Calcutta High Court in the said case also laid down following:
'While,   therefore, Sub-sections (1) and (2) of Section 153 provide for the   time-limit for completion of assessment and reassessment, Sub-section   (3) makes such provision inapplicable under certain circumstances, one   of which is that such assessment or reassessment can be made in   consequence of or to give effect to any finding or direction contained   in an order under certain provisions of the Act or in an order of any   court in a proceeding otherwise than by way of appeal or reference under   the Act. In a recent decision of the Supreme Court in Rajinder Nath v. CIT [1979] 120 ITR 14, it has been observed as follows (p. 18);
"The   expressions ' finding ' and ' direction ' are limited in meaning. A   finding given in an appeal, revision or reference arising out of an   assessment must be a finding necessary for the disposal of the   particular case, that is to say, in respect of the particular assessee   and in relation to the particular assessment year. To be a necessary   finding, it must be directly involved in the disposal of the case. It is   possible in certain cases that in order to render a finding in respect   of A, a finding in respect of B may be called for. For instance, where   the facts show that the income can belong either to A or B and to no one   else, a finding that it belongs to B or does not belong to B would be   determinative of the issue whether it can be taxed as A's income. A   finding respecting B is intimately involved as a step in the process of   reaching the ultimate finding respecting A. If, however, the finding as   to A's liability can be directly arrived at without necessitating a   finding in respect of B, then a finding made in respect of B is an   incidental finding only. It is not a finding necessary for the disposal   of the case pertaining to A. The same principles seem to apply when the   question is whether the income under enquiry is taxable in the   assessment year under consideration or any other assessment year. As   regards the expression 'direction' in Section 153(3)(ii) of the Act, it   is now well-settled that it must be an express direction necessary for   the disposal of the case before the authority or court. It must also be a   direction which the authority or court is empowered to give while   deciding the case before it. The expressions ' finding ' and ' direction   ' in Section 153(3)(ii) of the Act must be accordingly confined.   Section 153(3)(ii) is not a provision enlarging the jurisdiction of the   authority or court. It is a provision which merely raises the bar of   limitation for making an assessment order under Section 143 or Section   144 or Section 147 : ITO v. Murlidhar Bhagwan Das[1964] 52 ITR 335 (SC) and N. K. T. Sivalingam Chettiar v. CIT [1967] 66 ITR 586 (SC)."
In   the above observation of the Supreme Court, it has been laid down,   inter alia, that the finding and direction must be necessary for the   disposal of the particular case, and that Section 153(3)(ii) is not a   provision enlarging the jurisdiction of the authority or court. An   authority or court, therefore, cannot simply for the purpose of lifting   the bar of limitation give a finding or direction. Unless such a finding   or direction is necessary for the disposal of the proceeding before   such authority or court the provision of Section 153(3)(ii) will not be   attracted. When making any finding or direction the authority or court   will not take into consideration the provision of Section 153(3). It   makes the finding or gives the direction, if required under the facts   and circumstances of the case, for the proper disposal of the case. It   may be that the assessment or reassessment has become barred by   limitation during the pendency of a case before the authority or court,   but that will be no consideration for making a finding or a direction,   unless it is necessary for the disposal of the case.'
16. In Raj Kishore Prasad v. ITO [1990] 195 ITR, 438 (All.),   a Division Bench of our Court had occasion to consider the expressions   "finding or direction". In the said case, the Commissioner has simply   dropped the proceedings. The High Court held that when the proceedings   were dropped, there shall be no question of any finding or direction.   Following was laid down by the Division Bench in the said case.
'In   the instant case, it is quite clear from a perusal of the order of the   Income-tax Commissioner dated March 29,1979, which, according to the   respondent, is the basis for the issue of a notice under section 148 and   for reopening of the assessment that the order contained no "finding"   or "direction". Under that order, the Commissioner simply dropped the   proceedings which were initiated him under section 263 of the Act. The   order did not go beyond that. It is erroneous to say that the order   contained any "finding" or "direction" within the meaning of section 150   (1). In fact, the meaning of these two words as used in the Income-tax   Act have been explained by the Supreme Court in the case of Rajinder Nath v. CIT[1979] 120 ITR 14 (headnote):
"The   expressions 'finding' and 'direction' in section 153 (3) are limited in   meaning. A finding given in an appeal, revision or reference arising   out of an assessment must be a finding necessary for the disposal of the   particular case, that is to say, in respect of the particular assessee   and in relation to the particular assessment year. To be a necessary   finding, it must be directly involved in the disposal of the case.
As   regards the expression 'direction' in section 153(3) (i) of the Act, it   is now well-settled that it must be an express direction necessary for   the disposal of the case before the authority or court. It must also be a   direction which the authority or court is empowered to give while   deciding the case before it. The expressions 'finding' and 'direction'   in section 153(3) (i) must be accordingly confined. Section 153(3)(ii)   is not a provision enlarging the jurisdiction of the authority or   court.'
17. Same view has been taken by another Division Bench of this Court in CIT v. S.P. Mishra [2008] 297, ITR, 352/170 Taxman 244 (All.). Following was laid in paragraph 13 which is quoted below:
'13.   The argument of learned Counsel for the Revenue is that reassessment   has been made after issuing notice under Section 148 with a view to give   effect to the finding of the Commissioner of Income-tax (Appeals)   contained in his order of assessment for the year 1997-98 and,   therefore, the case was governed by Section 153(3). This argument has to   be seen in the light of the findings recorded by the Commissioner of   Income-tax (Appeals) for the assessment year 1997-98, wherein he has   made the following observations:
"The   appellant claims to have taken 28 bighas of agricultural land on   lease.... But the learned authorised representative claimed that the   land was not cultivated. However, he claimed for the first time before   me that the appellant derived agricultural income of Rs. 1,80,000 from   his ancestral orchard measuring 2 acres. No such claim of orchard was   made before the Assessing Officer and no evidence has been given before   me. The nature and number of trees have not been mentioned. It is also   not clear whether the orchard is in the name of the appellant and the   orchard of 2 acres cannot produce income of Rs. 1,80,000. Keeping in   view of these facts, I hold that the Assessing Officer was justified in   taxing Rs.1,80,000 as income from other sources."
A   perusal of the aforesaid finding reveals that it considered a fresh   plea taken by the assessee in appeal, to rebut the finding recorded by   the Assessing Officer in respect of the alleged agricultural land but   this finding cannot be extended for the period covered by the assessment   years 1992-93, 1993-94, 1994-95, 1995-96 and 1996-97. There is no   direction in the aforesaid order to the effect that the finding recorded   in respect of the agricultural income/assessee being possessed of the   agricultural land, be given effect to, much less in the earlier   assessment years.
The Tribunal has relied upon the case of Rajinder Nath v. CIT [1979] 120 ITR 14 (SC),   in reaching the conclusion that the notice under Section 147 was barred   by limitation. In the aforesaid case, the apex court interpreted the   words "in consequence of or to give effect to any finding or direction   contained" as incorporated in clause (ii) of sub-section (3) of section   153. Their Lordships in the said case held that clause (ii) of section   153(3) are limited in meanings. It must be for disposal of a particular   case in respect of a particular assessee and in relation to the   particular assessment year. Further, it was held that (page 20):   "Therefore, in our judgment, the order of the Appellate Assistant   Commissioner contains neither a finding nor a direction within the   meaning of Section 153(3)(ii) of the Income-tax Act in consequence of   which, or to give effect to which the impugned assessment proceedings   can be said to have been taken."
In   our opinion, the Tribunal did not commit any error in recording a   finding that the present case was not a case for giving effect to any   finding recorded or direction issued by the Commissioner of Income-tax   (Appeals) in its order passed for the assessment year 1997-98. That   being so, the period of limitation cannot be saved by applying the   provisions of Section 153(3)(ii) of the Act.
Under the circumstances, no substantial question of law arises.'
  18. Shri Shambhu Chopra, learned counsel appearing for the   Revenue has placed reliance on the judgment of Madhya Pradesh High Court   in CIT v. Agha Abdul Jabbar Khan, [1981] 187, ITR 587 (M.P.). Following was the question which was considered in the above case.
"Whether,   on the facts and in the circumstances of the case, the Tribunal was   justified in law in holding that the direction given by the Appellate   Assistant Commissioner was wholly unwarranted and redundant?"
19. The   Madhya Pradesh High Court in the said case laid down that once the   Appellate Assistant Commissioner came to the conclusion that the   Income-tax Officer had no jurisdiction to reopen the case under section   147 (a) of the Act, and the order of reassessment was liable to be   quashed, he had no jurisdiction to make any further direction for   recomputing the amount of capital gains. The Apex Court's judgment in   Rajinder Nath's case was also relied on. Following was laid down by the   Madhya Pradesh High Court in the said case.
"Having   heard learned counsel for the parties, we are of the view that the   aforesaid question of law deserves to be decided in favour of the   assessee and against the Revenue. In the appeal preferred by the   assessee before the Appellate Assistant Commissioner, the only question   that required decision was whether, in the facts and circumstances of   the case, the Income-tax Officer had jurisdiction to reopen the   assessment under Section 147(a) of the Act. Once the Appellate Assistant   Commissioner came to the conclusion that the Income-tax Officer had no   jurisdiction to reopen the case under Section 147(a) of the Act and the   order of reassessment was liable to be quashed, he had no jurisdiction   to make any further direction for recomputing the amount of capital   gains, because as held by the Supreme Court inRajinder Nath v. CIT [1979] 120 ITR 14, such direction was not necessary for the disposal of the appeal before the Appellate Assistant Commissioner."
20. The aforesaid case does not in any manner support Shri Shambhu Chopra, learned counsel appearing for the Revenue.
21. The next case relied on by Shri Shambhu Chopra, learned counsel appearing for the revenue is T.M. Kousali v. Sixth ITO, [1985] 155 ITR 739/30 Taxman 642 (Kar.).   In the said case, the Karnataka High Court had occasion to consider the   provisions of Section 153 (3) (ii) of the Income Tax Act, 1961.   Following was laid down by the Karnatka High Court in the said case.
'Both   sides do not dispute that if s. 153(3)(ii) of the Act does not apply,   the impugned notices are barred by time and, therefore, the only   question that calls for a critical examination is the true scope and   ambit of s. 153(3)(ii) of the Act. That section that is material as   amended by the Direct Taxes (Amendment) Act of 1964, which came into   force on October 6, 1964, reads thus :
"153.   (3) The provisions of sub-sections (1) and (2) shall not apply to the   following classes of assessments, reassessments and recomputations which   may, subject to the provisions of sub-section (2A), be completed at any   time—
(ii where   the assessment, reassessment or recomputation is made on the assessee   or any person in consequence of or to give effect to any finding or   direction contained in an order under sections 250, 254, 260, 262, 263   or 264 or in an order of any court in a proceeding otherwise than by way   of appeal or reference under this Act."
Section   153(3) in clear terms lifts the bar of limitation for reopening of   assessments to which certain periods of limitation are prescribed under   s. 153(1) and (2) of the Act. Sri Ramabhadran also does not dispute this   position also. But, he contends that the words "or in an order of any   court in a proceeding otherwise than by way of appeal or reference under   this Act" should be given a restricted meaning and should be read as   referable to proceedings of the very assessee for the very assessment   period either before a High Court or the Supreme Court that can deal   with an assessment under the Constitution and not to every order of   every court in other legal proceedings like the land acquisition   proceedings.'
22. Another Division Bench judgment of the Calcutta High Court in CIT v. Chitranjali, [1986] 159 ITR 801,   has been relied on by Shri Shambhu Chopra, learned counsel appearing   for the Revenue. Following was laid down by the Calcutta High Court in   the said case.
"In   the instant case, the assessment has been completed on a return filed   by the assessee within the period prescribed under section 153(1)(a) of   the Act. It was not contended that in view of the subsequent return   filed, the original return was invalid or non-est. Section 139(5)   permits an assessee, if he discovers an omission or wrong statement in   the original return to file a revised return at any time before the   assessment is made. Such revised return does not wash away the original   return. Such revised return does not exonerate the assessee of any   default or offence committed with reference to the original return. As a   matter of fact, in this case, the Income-tax Officer in the course of   the assessment initiated penalty proceedings under section 271(1)(c) of   the Act. An originally filed return is a return in all essential   respects and the revised return only cures the defects contained in the   original return. In disposing of an appeal, the Appellate Assistant   Commissioner may confirm, reduce, enhance or annul the assessment or he   may set aside the assessment or refer the case back to the Income-tax   Officer for making a fresh assessment in accordance with the direction   given by him. On appeal from the assessment, if it was completed within   the period of limitation, the Appellate Assistant Commissioner may set   aside the assessment and direct the Income-tax Officer to make a fresh   assessment, if the assessment is otherwise not in conformity with law or   procedure. The Income-tax Officer has the same power in making such   fresh assessment as he had originally while making the assessment under   section 143 of the Act. If the Appellate Assistant Commissioner does not   limit the scope of the enquiry by the Income-tax Officer to any   specific aspect or issue, but only sets aside the entire assessment and   directs the Income-tax Officer to make the assessment afresh, the power   of the Income-tax Officer is not affected by anything which he might   have omitted to do in the original order of assessment which was set   aside by the Appellate Assistant Commissioner. In this case, the entire   assessment order was challenged and the Appellate Assistant   Commissioner, after accepting the contention of the assessee about the   infirmity in the assessment, set aside the assessment directing the   Income-tax Officer to make a fresh assessment. The Income-tax Officer in   reframing the assessment can take into account all the returns filed   before him.
Section   153(3)(ii) of the Act provides that where an assessment is made in   consequence of or to give effect to any finding or direction contained   in the order passed by the Appellate Assistant Commissioner under   section 250 of the Act, the limitation prescribed under section   153(1)(a) or 153(1)(c) will not apply. Therefore, once the original   assessment was completed within the period of limitation, there is no   further prohibition for making a fresh assessment in consequence of or   to give effect to any finding or direction contained in the order passed   by the Appellate Assistant Commissioner."
In   the above case, the appellate authority has set aside the assessment   made by the Income Tax Officer and directed for making fresh assessment.   In the said background it was held that the limitation prescribed under   Section 153 (1) will not apply. The said case is not applicable and   also does not help Shri Shambhu Chopra, learned counsel appearing for   the Revenue.
23. The   last case relied on by Shri Shambhu Chopra, learned counsel appearing   for the Revenue is the Division Bench judgment of the Madras High Court   in J.K.K. Natarajah v. WTO [1983] 142, ITR, 804.   A similar provision in the Wealth Tax Act,1957 namely:Section 17 A(4)   came up for consideration in the aforesaid case. In the said case the   Madras High Court held that the bar of limitation otherwise prescribed   under the Wealth Tax Act, 1957 shall not apply in this context to any   direction issued by the High Court. Following was laid down by the   Madras High Court.
"Section   17A(4) lays down that the bar of limitation otherwise prescribed under   the Act shall not apply to any assessment or reassessment made on an   assessee in consequence of, or to give effect to, any direction   contained in any order of a Court otherwise than by way of reference.   Orders of the High Court under art.226 of the Constitution are covered   by this provision. In the foregoing paras. of this judgment we have   shown how the valuation orders and the consequential assessment orders   are bad in law. Our decision, however, is founded on the limited ground   that the petitioners have not been given a fair hearing by the Valuation   Officer. This procedural shortcoming, however, can be made good, if the   valuation officers were directed to comply with the provisions of s.16A   and redo their valuations.
We   accordingly think it proper in this group of writ petitions to quash   and set aside the petitioners' assessments to wealth-tax for the   assessment years 1965-66 to 1974-75, and also quash the orders passed   under s.16A on which the said assessment orders are based. We may make   it clear that the valuation orders hereby set aside include not only   those orders having reference to the assets of the partnership firms in   which the petitioners are partners, but also other valuation orders   having reference to the petitioners' own individual properties. We may   further make it clear that while the valuation orders are set aside,   there will be a direction to all the valuation officers concerned to   take up the proceedings de novo and proceed with the valuation in   accordance with the law. In such proceedings, the petitioners will be at   liberty to raise all contentions of law and fact, including those which   they have raised in these writ petitions which we have not considered   in this judgment."
24. The   order of the High Court passed in Writ Petition Nos.162/1992 and   278/1992 has been quoted above. In the order dated 01/8/1995, neither   there is any finding nor there is any direction which can be relied on   by the Assessing Officer for framing the assessment. There being neither   any direction nor any finding within the meaning of Section 153 (3)   (ii) of the Act, 1961, the submission of Shri Shambhu Chopra, learned   counsel appearing for the Revenue that there shall be no limitation for   making assessment cannot be accepted.
25. In   view of the foregoing discussions, the additional question as framed by   us is also answered in favour of the assessee and against the Revenue.
In the result all the appeals are dismissed.
SUNIL
*In favour of assessee.
  †Arising out of order of Tribunal, dated 12-8-2009.
  
  
-- 1. REMOVE positive Net Foreign Exchange :
Remove   positive NFE condition in cumulative 5 year, and introduce Export =   Duty foregone (Customs + Excise + Service tax ) X 8 times. So all SEZ   unit either purchasing from local or abroad have export obligation.   After 5 year completion, apply same criteria for next 5 year. Due to   this suggestion import from abroad will reduce and export will increase.
2. DTA sale Duty structure :
If   unit is not using imported input, then duty must payable as per normal   manufacturing unit. If unit is using imported input then BCD payment +   anti dumping duty @ 50% rate.
3. DTA sale valuation :
DTA   sale valuation should be as per Section 4 of the Central Excise Act,   and not as per CIF value plus 1% lending charges as per import valuation   rules 2007. Freight and insurance must be allowed as deduction from   transaction value.
4. DTA sale on basis of SEZ invoice :
Remove   bill of entry procedure, and introduce SEZ invoice. Also include SEZ   invoice in Cenvat credit rules as eligible cenvat documents.
5. Monthly duty payment scheme :
At   present SEZ unit is paying duty bill of entry wise and within 2 days   after assessment of BE. Also paying 15% interest when 2 days is over.   Monthly payment facility should be extended.
6. As such clearance of input :
For   non moving input, SEZ unit is paying BCD+CVD for as such clearance,   even purchased against ARE-1. In such transaction whatever duty foregone   only should be returned to the government.
7. Temporary removal on SEZ unit gate pass :
SEZ   customs office is working on normal duty hours. After duty hours or on   Sunday / Saturday SEZ unit is unable to remove for repairing. Emergency   repairing work must go on unit challan with photo of engineering item.
8. Form I on SEZ unit stationery :
Form I is not available in SEZ unit. CST Act must be amended so that the unit can issue form I on its own stationery.
9. Export shipping bill EDI linking :
SEZ   unit is preparing Export shipping bill on SEZ online website. This web   site is not linked with port. For online work SEZ unit must file   shipping bill on EDI portal so that commerce ministry gets all export   data online and no duplication work.
10. SCN , Refund , DBK specific power to specified officer of SEZ :
Government   must insert rules for who can issue SCN for revenue evasion by SEZ   unit, Refund sanction power, DBK sanction power to Specified Officer,   SEZ.
11. ARE-1 proof of export submission period :
At present 45 days time limit for ARE-1, this should be increased to 60 days or 90 days.
12. CVD exemption in conditional case for DTA sale :
There   should be specific rule that SEZ unit is not eligible for CVD exemption   when there is requirement of condition fulfillment. Unit has to pay   normal / tariff rate CVD in such cases.
13. Export incentives even payment in rupee :
Export   incentives allowed when export to SEZ against bill of export and   against rupee payment. This export incentives allow to SEZ unit only.   and SEZ unit has to export the value of goods at 8 times of export   incentives availed.
14. Scrap, by-product DTA sale at Tariff rate CVD :
No BCD payable on scrap and by-product item. Only CVD payable at tariff rate, and SAD not payable as VAT or CST is payable.
15. Income tax benefit for SEZ to SEZ , SEZ to EOU, FTZ to SEZ supply :
At   present IT benefit only on export abroad. If SEZ unit is selling SEZ to   SEZ or SEZ to EOU and getting FC payment, then IT benefit must   available to SEZ unit against such supplies.
16. SEZ benefit to sub-contractor :
At   present Excise, Customs, service tax exemption available to contractor   only. Sub-contractor has to pay Excise, Customs , service tax and   execute the contract. Even sub-contractor has to pay CST on purchase.   Government has to allow Excise, Customs , Service tax, CST exemption to   sub contractor.
17. Manual Transshipment (TP work) for imported goods :
At   present import by SEZ is allowed through TP procedure. And this   activity is totally manual. To avoid manual work , SEZ unit allow to   file BE on EDI port portal and warehousing certificate also on online so   that there is no malpractice and TP closer activity is done on online   basis.
18. Related party sale as per domestic transfer price :
Remove   DTA sale valuation as per Customs valuation rules 2007 and start   related party DTA sale as per domestic transfer pricing and avoid SVB   procedure and income tax, customs litigation.
19. Service tax , excise, customs, CST exemption when not available, list the transaction :
Government   has to list out the transaction where unit cannot avail Service tax,   excise, customs, CST exemption. Example whether an AC in office or Human   consumption item or activity is related to authorized operation or not?
20. Rejection of Input / CG :
When   unit rejects the input or CG, then this item must return on same ARE-1   without warehousing by customs officer on back side of ARE-1. DTA   supplier will showing it export return and submit ARE-1 with UT-1   accepting authority. With the help of this procedure movement will be   fast and avoid filing, assessment of DTA sale BE or replacement against   temporary removal challan.
21. Job work waste norms authority to SO of SEZ :
Normal process loss, packing loss should be with the power of specified officer of SEZ unit and not as per FTP authority.
22. SEZ record, SEZ audit, SEZ raid :
List   out SEZ register, who will audit SEZ unit, CERA party, Customs   Commissionerate, Service tax audit by whom? Who will raid SEZ unit? It   must be defined in rule.
23. Appeal authority for revenue matter of SEZ unit :
First   decide who is competent to issue SCN to SEZ unit for revenue matter,   then after OIO by competent authority where to file appeal by SEZ unit.   Define in rule. There is no clarity even today, SEZ Act made in 2005,   but till date no clarity.
24. Remission of duty foregone when natural or fire accident :
Make   one rule for giving remission of duty when finished goods , Input, CG,   Work in progress, destroyed by natural or fire accident.
25. SEZ manual or work instruction :
Commerce   ministry has to make one latest SEZ manual for procedure and work   instruction, so that different SEZ staff and units follow same   procedure.
26. Cenvat availed Input/CG as such clearance to SEZ unit against UT-1 without reversal of cenvat credit by DTA unit :
Amend   the Cenvat credit rules and excise rules, so that DTA unit can sell   input / CG to SEZ unit without reversal of Cenvat credit. This amendment   will be helpful for same group company to transfer inputs to own SEZ   unit in emergency.

Central Excise
Credit   availed without receiving capital goods - Assets register seems to be   manipulated/cooked up one and cannot be accepted as reliable piece of   evidence to substantiate appellant claim that they had received capital   goods but had removed the same later - Pre-deposit ordered: CESTAT
THE appellant   was denied CENVAT credit of Rs.20,94,889/- on the ground that capital   goods on which the credit had been taken were neither found to be   received in the factory nor reflected in the IT returns in Form 3CD and   the balance sheet. The absence of capital goods was noticed during the   audit of the records of the appellant in August/September 2008 and also   during the search of the premises conducted by the department on   06/03/2012 under a panchnama.

Income-tax   : Income from other sources [Section 56] - Income in respect of   deficiency in inventory found during course of survey has to be assessed   as income from other sources, not under the head "income from business   or profession".
 
[2011] 9 taxmann.com 283 (Agra - ITAT)(TM)
ITAT, AGRA BENCH, AGRA (THIRD MEMBER)
ACIT
  v.
  Ratan Industries (P.) Ltd.
  ITA NO. 95/AGRA/2005
  JANUARY 21, 2011
 
  ORDER
Following   questions on difference of opinion between the learned Accountant   Member and the learned Judicial Member were referred to me by Hon'ble   President u/s. 254(4) of the Income-tax Act:
(i) . "On the facts and circumstances, whether there is justification to set aside the decision of Ld. CIT (Appeals) with   regard to acceptance of valuation of undeclared stock of scrap found at   the time of survey for passing a speaking order thereon or that the   values adopted @ Rs. 7000 per M.T. taken by the Assessing Officer is to be restored.
(ii) . On the facts and findings whether the Ld. Judicial Member is justified in her decision to direct Ld. CIT (Appeals) to   address on ground No.2 in appeal by revenue as the same stands covered   by the directions given by her in assessee's appeal or that the decision   reached by the Ld. Accountant Member in rejecting the said ground in   appeal by Revenue upholding decision of Ld. CIT(Appeals) to accept surrendered income as assessee 's business income is a correct and justified decision.
(iii) .   Whether on the facts and findings and in view of decision of Ld.   Judicial Member at para 25 of the order to restore the issue to Ld. CIT (Appeals)and   at para 30 to allow the same ground No. 4 in appeal by Revenue, is it   proper to uphold her both these decisions or that the decision taken by   the Ld. Accountant Member to reject ground No. 4 in appeal by Revenue to   work out separate profit on sale of scrap for assessment as income is a   correct and justified decision?
(iv) . Whether on the facts & findings and in law, the decision to restore the matter to the Ld. CIT(Appeals) to   work out afresh the claim and addition of excessive wastage which are   deemed as sales with reference to limited directions or that no such   separate addition on trading account can be made for alleged excessive   consumption/wastage that are deemed as sales and only profit thereon can   be added as directed by the Learned Accountant Member.
(v) .   Whether on the facts and in law, the Ld. Judicial Member is justified   in directing to apply a net profit rate on the basis of immediately   preceding year on the sales estimated or that there is no justification   under the peculiar facts to apply net profit rate on that basis but to   estimate income with reference to relevant material on record in the   manner as provided u/s. 144 of the Act. "
2. Although   both the Members have mentioned the brief facts in respect of the cross   appeals filed by the assessee as well as the Revenue and all these   questions arise out of the various grounds taken in the appeals filed by   the Revenue as well as the assessee, yet for disposing of the questions   referred to me, it is necessary for me to refer to the brief facts of   the case even at the cost of repetition.
3. The   facts of the case are that the assessee has derived income from   manufacturing and trading of ADV Hubs, Crank Shafts and Ingots. During   the year under consideration, the assessee returned nil income after   claiming depreciation at Rs. 8,37,871. There had been a survey conducted   u/s. 133A of the Income-tax Act on 25.09.2000 in the case of the   assessee. During the course of survey, the value of the total stock   found on the date of survey was worked out at Rs. 59,84,000 on the basis   of the rate difference of the various items inventorized by the Survey   Party. The finished goods were valued at Rs. 19,55,000 and raw material   was valued at Rs. 40,29,000. During the course of survey, the assessee   surrendered a sum of Rs. 22,00,000 as his additional income on the date   of survey due to discrepancies found in the stock. The assessee had   credited this additional income in the profit and loss account and shown   a net loss of Rs. 3,71,404 in the profit and loss account. The   Assessing Officer noted that there was unaccounted stock to the extent   of Rs. 30,00,357 found during the course of survey while the assessee   surrendered Rs. 22,00,000 only. The value of Rs. 30,00,357 has been   re-worked out by the Assessing Officer on the basis of material as   specified under page 4 of the assessment order. He also noted that the   books of account were not maintained on day-to-day basis and the cash   book was written only upto 22.9.2000. The assessee, even though accepted   during the course of survey that some of the purchases and expenses   have been incurred between 22.9.2000 to the date of survey, but these   items could not be entered. It was also noted that there were variations   in the items of the closing stock as on 31.3.2000 vis-a-vis opening   stock as on 1.4.2000. It was also noticed that on consumption of   3200.116 M.T. of raw material, wastage was shown at 454.155 M.T. which   gives the percentage of wastage at 14.20% while normal wastage in this   line of business is between 7% and 10% mainly due to burning loss. Due   to these discrepancies, the Assessing Officer rejected the books of   account of the assessee u/s. 145(3). The assessee has declared the sales   at Rs. 4,51,76,535 which were estimated by the Assessing Officer at Rs.   5,00,00,000, as in the immediately preceding year, the assessee made   sales at Rs. 5,77,78,286. The assessing Officer also noted that the   assessee has shown loss at Rs. 9,24,763 while in the preceding year he   has shown G.P. @ 1.69% and the assessee could not prove the fall in G.P.   The Assessing Officer, after noting that the assessee has shown net   profit in the preceding year @ 0.43%, applied the same net profit rate   to the estimated sales of Rs. 5,00,00,000 and worked out net profit at   Rs. 2,15,000. Separate addition in respect of investment in unaccounted   stock were made u/s. 69 of the Act for Rs. 30,00,357 alongwith other   disallowances and additions in respect of excessive wastage etc.
4. The   question No. 1 relates to the valuation of unaccounted stock of scrap   found at the time of survey. This arises out of the ground Nos. 1 & 3   of the Revenue's appeal. The learned Accountant Member has restored the   issue to the file of learned CIT(A) while the learned Judicial Member   has set aside the order of the ld. CIT(A) deleting the addition made by   the Assessing Officer and restored his order.
5. The   learned A.R. before me vehemently contended that the assessee has   surrendered a sum of Rs. 22,00,000 during the course of survey by   valuing the excessive scrap @ Rs.5000per M.T. My attention was drawn   towards page Nos. 34 and 36 of first paper book and it was pointed out   that the average rate on the basis of purchase of scrap comes to Rs.   4593.55 per M.T. The rates of the scarp depend on the quality of the   scarp. 90% of the scrap is purchased at the rate below Rs. 5,000 per   M.T. It is only 2 M.T. scrap which was purchased @ Rs.7000 per M.T.   which was exceptional rate and was only 5% of the total purchases. The   total scrap purchased during the year was 68.040 M.T. and the total   value of the purchase was Rs. 3,12,545 the average of which comes to   Rs.4593.55 per M.T. The assessee at the time of survey agreed at a   valuation at the rate of Rs.5000 per M.T. just to settle the issue. The   survey party has also valued the unaccounted scrap @ Rs.5000 per M.T..   Thus, a sum of Rs. 22,00,000 was surrendered by the assessee which was   credited to the profit and loss account. The Assessing Officer has   valued it at the rate of Rs. 7,000 per M.T. The value of the unaccounted   scrap was Rs. 20,00,000 which was included in the amount of Rs.   22,00,000 surrendered by the assessee. Thus, the Assessing Officer   valued the scrap more by Rs. 8,00,000. My attention was also invited   towards the copies of the purchase bills of the scrap which are   available at pages 1 to 11 of the paper book. Thus, it was contended   that the learned Judicial Member was not correct in law in setting-aside   the order of ld. CIT(A) and restoring the order of the Assessing   Officer.
6. The learned DR, on the other hand, relied on the decision of the learned Judicial Member.
7. I   have carefully considered the rival submissions alongwith the order of   both the learned Members. In my opinion, the learned Assessing Officer   was not correct in law in valuing the unaccounted scrap @ Rs.7000 per   M.T. merely on the basis of purchase of 2.070 M.T. of scrap. The   assessee has submitted all the purchase bills in respect of the scrap   from 01.04.2000 to 25.09.2000. The average rate of the scrap vary from   Rs. 4337.46 per M.T. to Rs. 7,000 per M.T. The average of all the   purchases comes to Rs.4593.55 per M.T. The learned Accountant Member, in   my opinion, has correctly observed that the learned CIT(A) did not   record reasons for reaching a conclusion that the valuation of excess   stock as show by the assessee in return at Rs. 22,00,000, was not   justified. This is the fact that the assessee has placed sufficient   material for working out the average rate of excess stock of scrap at   Rs. 4593 per M.T. The learned CIT(A) has also called for the remand   report from the Assessing Officer on such evidences. These evidences   were not produced by the assessee before the Assessing Officer. The   assessing officer supported the rate of Rs. 7000 per M.T., but did not   make any adverse comment on the evidences filed by the assessee before   the CIT(A). The survey team has also worked out the value of the   excessive stock of scrap @ Rs. 5000 per M.T. after having physical   verification. The assessing Officer, in my opinion, could not have   valued the unaccounted scrap @ Rs. 7000per M.T. merely on the basis of   one purchase of 2.00 M.T. The learned CIT(A), therefore, should have   verified the survey report and have analysed as to what is the basis   adopted by the Assessing Officer differing with the survey report.   Therefore, under these peculiar facts and circumstances of the case, I   have to agree with the learned Accountant Member, as he has restored the   issue to the file of the CIT(A) even though I noted that there is   sufficient material and evidence produced by the assessee to prove that   the average rate of scarp is Rs. 4593 per M.T. As a Third Member, my   jurisdiction is limited only to agree with one Member or to disagree   with the other Member. I, therefore, answer the first question agreeing   with the learned Accountant Member setting aside the order of the ld.   CIT(A) and restoring the issue of valuation of scrap to the file of the   CIT(A) for passing a speaking order thereon.
8. The   second question referred to me is whether the amount surrendered by the   assessee in respect of excess stock found during the course of survey   be assessed under the head "income from business" or as "income from   other sources". The learned Judicial Member has held that the income in   respect of discrepancies in the stock be assessed as income from other   sources while the learned Accountant Member has held that the income so   surrendered should be assessed under the head "income from business".
9. The   learned A.R. before us supported the order of the learned Accountant   Member while the ld. DR supported the order of the learned Judicial   Member. The learned DR relied on the order of the Gujarat High Court in   the case of Fakir Mohmed Haji Hasan v. CIT 247 ITR 290 and   contended that during the course of survey unaccounted stock was found   with the assessee. The addition relate to the investment made in such   undisclosed stock u/s. 69 of the Income Tax Act. He vehemently contended   that Gujarat High Court has clearly laid down that deemed income which   are covered under the provisions of sections 69, 69A, 69B and 69C cannot   be assessed under the head "profits and gains from business or   profession". This can be assessed only under the head "income from other   sources".
10. I   have carefully considered the rival submissions alongwith the order of   the learned Judicial Member and that of the learned Accountant Member.   The learned Accountant Member treated the assessee's declaration of   income on account of undeclared stock as his business and therefore, did   not find any factual or legal infirmity in the decision of the CIT(A)   in this regard. His reasoning for arriving at this finding is that the   assessee admitted the excess stock found at the time of survey and   surrendered the same as income from business. He observed that the   Assessing Officer has admitted that the excess stock of 250 M.T.   represents the excess production/sale which has not been accounted for   by the assessee in the books and, therefore, the assessee was justified   in telescoping the amount against the surrendered income of Rs.   22,00,000 as his business income and factually this represents the   secrete profits of the business of the assessee. The assessee in his   opinion explained the nature and source of undisclosed stock as his   business income and, therefore, the CIT(A) after appreciation of facts   took the view that this income has to be assessed under the head "income   from business". The learned Judicial Member, on the other hand, was of   the view that the unaccounted stock surrendered by the assessee was not   in his books of account. The assessee was not maintaining the regular   books of account. The income so surrendered cannot be the income which   can be assessed under the head "income from business or profession. This   is an undisputed fact that there was deficiency found in the inventory   of the assessee during the course of survey. The survey party has valued   the stock. The assessee has surrendered the inventory for Rs.   22,00,000. The income so surrendered is deemed to be the income of the   assessee u/s. 69 of the Income-tax Act, as the assessee could not prove   the nature and source of investment made in the inventory. I have gone   through the decision of Hon'ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan v. CIT (supra).   In this decision when the addition was made in respect to the   unexplained gold on the question whether the income can be assessed   under the head "income from business" or income from other sources, the   Hon'ble High Court has held as under :
"6.   Under section 4 of the IT Act, income-tax is to be charged in   accordance with the provisions of the Act in respect of the total income   of the previous year of every person. As provided by section 5, total   income of any previous year of a person would, inter alia, include all   income from whatever source derived which is received or is deemed to be   received by such person, subject to the provisions of the Act. It will   be seen from section 69A of the Act that where the bullion, jewellery or   other valuable article is not recorded in the books of account and   there is no explanation about the nature and source of its acquisition,   or the explanation is not satisfactory, the value thereof may be deemed   to be the income of the assessee of the financial year immediately   preceding the assessment year in which the assessee is found to be the   owner of such bullion, etc.
6.1   The scheme of sections. 69, 69A, 69B and 69C would show that in cases   where the nature and source of investments made by the assessee or the   nature and source of acquisition of money, bullion, etc. owned by the   assessee or the source of expenditure incurred by the assessee are not   explained at all, or not satisfactorily explained, then, the value of   such investments and money, or value of articles not recorded in the   books of account or the unexplained expenditure may be deemed to be the   income of such assessee. It follows that the moment a satisfactory   explanation is given about such nature and source by the assessee, then   the source would stand disclosed and will, therefore, be known and the   income would be treated under the appropriate head of income for   assessment as per   the provisions of the Act. However, when these provisions apply because   no source is disclosed at all on the basis of which the income can be   classified under one of the heads of income under s. 14 of the Act, it   would not be possible to classify such deemed income under any of these   heads including income from "other sources" which have to be sources   known or explained. When the income cannot be so classified under anyone   of the heads of income under s. 14, it follows that the question of   giving any deductions under the provisions which correspond to such   heads of income will not arise. If it is possible to peg the income   under anyone of those heads by virtue of a satisfactory explanation   being given, then these provisions of sections 69, 69A, 69B and 69C will   not apply, in which event, the provisions regarding deductions, etc.   applicable to the relevant head of income under which such income falls   will automatically be attracted.
6.2.   The opening words of section 14 "Save as otherwise provided by this   Act" clearly leave scope for "deemed income" of the nature covered under   the scheme of sections 69, 69A, 69B and 69C being treated separately,   because such deemed income is not income from salary, house property,   profits and gains of business or profession, or capital gains, nor is it   income from "other sources" because the provisions of sections. 69,   69A, 69B and 69C treat unexplained investments, unexplained money,   bullion, etc. and unexplained expenditure as deemed income where the   nature and source of investment, acquisition or expenditure, as the case   may be, have not been explained or satisfactorily explained. Therefore,   in these cases, the source not being known, such deemed income will not   fall even under the head "income from other sources". Therefore, the   corresponding deductions, which are applicable to the incomes under any   of these various heads, will not be attracted in case of deemed incomes   which are covered under the provisions of sections 69, 69A, 69B and 69C   of the Act in view of the scheme of those provisions.
7.   It is, therefore, clear that, when the investment in or acquisition of   gold, which was recovered from the assessee was not recorded in the   books of account and the assessee offered no explanation about the   nature and source of such investment or acquisition and the value of   such gold was not recorded in the books of account, nor the nature and   source of its acquisition explained, there could arise no question of   treating the value of such gold, which was deemed to be the income of   the assessee, as a deductible trading loss on its confiscation, because,   such deemed income did not fall under the head of income "profits and   gains of business or profession".
11. From   the perusal of the said judgment, it is apparent that the Hon'ble   Gujarat High Court has categorically held that the undisclosed   investments which are deemed to be the income of assessee in accordance   with the provisions of sections 69, 69A, 69B and 69C, cannot be assessed   under the head "income from business or profession". This income has to   be assessed under the head "income from other sources". No contrary   decision has been brought to our knowledge by the learned AR even though   sufficient opportunity was provided to the learned AR. In view of the   decision of the Gujarat High Court, I am of the view that the income in   respect of deficiency in the inventory has to be assessed as income from   other sources, not under the head "income from business or profession".   While computing the total income, this income has to be separately   added in the total income and cannot be shown by crediting in the profit   and loss account. To that extent, I agree with the view taken by the   learned Judicial Member. This answers the question No. (ii) referred to me.
12. The   question No. 3 referred to me arise out of the ground No.4 taken by the   Revenue in its appeal claiming that separate profit on sale of scrap be   worked out and added to the income of the assessee instead of working   out the composite income from both the manufacturing of the goods and   sale of scrap as business profit. The ld. Judicial Member allowed the   ground of appeal of the Revenue under para 30 of his order while the   learned Accountant Member dismissed the ground taken by the Revenue.
13. I   heard the rival submissions and carefully considered the same alongwith   the orders of the authorities below as well as that of the learned   Judicial Member and learned Accountant Member. I noted from the   assessment order that the Assessing Officer has not made any separate   addition estimated as profit on the sale of excess stock of the scrap   found during the course of survey and surrendered by the assessee. The   Assessing Officer rejected the books of account of the assessee. The   rejection of books of account was confirmed by the CIT(A) as well as by   the orders of both the Members on which there is no dispute. The   Assessing Officer after rejecting the books of account estimated the   sales at Rs.5.00 crores and applied a net profit @ 0.43% and worked out   the net profit at Rs. 2,15,000 but in computation shown Rs. 2,45,000   even though the assessee has claimed in its Income-tax return net loss   after crediting in the profit and loss account the surrendered amount of   Rs. 22,00,000 on account of excess scrap found during the course of   survey. The Assessing Officer did not agree with the wastage shown by   the assessee and made a separate addition on account of excess wastage.   He also made separate addition in respect of unaccounted excess scrap   u/s. 69 surrendered by the assessee valuing @ Rs.5000 per M.T., but the   Assessing Officer valued it for Rs. 30,00,357. Thus, I noted that the   addition u/s. 69 in respect of investment made in the excess scrap   found, was made separately but no addition has been made in respect to   the profit being earned on the sale of scrap separately. The Assessing   Officer has estimated the sales under the facts and circumstances of the   case at Rs. 5.00 crores. The sales so estimated, in my opinion, would   have taken both the activities of manufacturing as well as trading of   the scrap and other goods dealt by the assessee. Since no separate   addition was ever made by the Assessing Officer and even the CIT(A) has   not also enhanced the assessment in this regard, therefore, in my   opinion, the ground No. 4 taken by the Revenue does not emanate from the   order of the CIT(A). In my opinion, the department cannot raise this   ground of appeal at this stage before the Tribunal when no such addition   has separately been made by the Assessing Officer in the assessment   order. I do not agree with the learned Judicial Member while allowing   the ground No. 4 of the Revenue's appeal. In my opinion, the learned   Accountant Member has rightly dismissed the ground No. 4 of Revenue's   appeal in his conclusion. Accordingly, I agree with the learned   Accountant Member so far as the question No. 3 is concerned and I am of   the view that the ground No. 4 in Revenue's appeal has to be dismissed   being infructuous and not being arisen out of the order of CIT(A).
14. Question   No. 4 as well as 5 referred to me have arisen out of ground Nos. 3 to 6   of assessee's appeal and ground Nos. 8 & 9 of Revenue's appeal.   Ground Nos. 3 to 6 of assessee's appeal relate to the wastage due to   melting loss while ground Nos. 8 & 9 of Revenue's appeal relate to   the estimation of the gross profit rate on the estimated sales after   accepting the additional power charges incurred by the assessee during   the year to the extent of Rs. 11,00,000. The learned Judicial Member and   learned Accountant Member have restored the issue to the file of the   CIT(A). While restoring the issue to the file of the CIT(A), the learned   Accountant Member gave certain directions. The learned Judicial Member   also directed with regard to the net profit rate on the trading result   to apply the same rate as has been worked out in the immediately   preceding year in the peculiar facts and circumstances of the case while   the learned Accountant Member directed the quantum of the sale to be   estimated afresh by considering the melting loss and oxidation factors   etc. in the right perspective. He further directed that the CIT(A) will   consider the impact of the surrendered business income on the profit   that may be worked out by present facts of the year under consideration   such as increase in power tariff, fixed wages bills, higher expenditure   on power and electricity, rise in cost of production and other selling   administration and finance expenses and not to apply the net profit rate   of earlier year as in his opinion, the same could not form a basis   under the facts situation of the year under consideration.
15. I   heard the rival submissions and carefully considered the same. I noted   that the Assessing Officer in this case made the addition on account of   net profit by estimating it @ .43% on estimated sales of Rs. 5.00 crores   at Rs. 2,15,000 (even though in the computation, figure has been taken   at Rs. 2,45,000)- Alongwith this, the Assessing Officer made the   addition on account of excess wastage at Rs. 6,72,200. The Assessing   Officer noted that the assessee has shown wastage @ 14.2% while the same   was allowed @ 10%. Thus, the Assessing Officer noted that there was   excess wastage to the extent of 134.44 MT which was valued @ Rs.5000 per   M.T. The assessee went in appeal before the CIT(A) and before the   CIT(A) he initially contended that there was gross loss due to the   increased cost of raw material, higher power charges and change in   product mix. It was also contended that the power charges had increased   considerably, but subsequently he gave the contention that there is   increase in the cost of raw material and change in product mix. The CIT   (Appeals) sustained the addition to the extent of Rs. 14,60,000 by   observing as under :
"Thus,   now the only reason given by the assessee for the fall in the gross   profit rather incurring of the gross loss, is the enhanced power   charges. It is seen that in real terms the assessee has shown the power   charges higher by about Rs. 32 lacs   as compared to the preceding year. Though in, terms of rupees the power   charges in the year under reference are lower as compared to the   preceding year but after considering the fall in production, the same   are in effect higher by about Rs. 32 lacs. For this increase, one of the   reasons given by the appellant is the enhanced power tariff which ,was   increased from September, 2000. The AR in his submissions dated   08.12.2004 has mentioned that because of the increased tariff,   additional amount of Rs. 11.06 lacs had to be paid. This fact could not   he controverted by the AO also. This being the position, to this extent,   the appellant's explanation regarding lower gross profit rate /gross   loss deserves to be accepted. However, after giving credit of Rs. 11   lacs there is still a gap of Rs. 21 lacs for the enhanced power charges   and consequently the gross loss of Rs. 22,54,763 [Rs. 33.54.73(-) Rs. 11,00,000]. For   this increase in power charges and consequently the gross loss the   appellant could not give any satisfactory reply nor could it produce any   evidence in support of the claim. The only explanation given by the AR   was that the same was on account of lower production. In my opinion,   this explanation cannot be accepted. Even if there was lower production,   the same would not justify the enhanced power charges of about Rs. 22   lacs nor does it justify the gross loss of more than Rs. 22 lacs. It is   not that in past, the production has not varied. It has not been shown   by the appellant that in past also on account of lower production, the   assessee had 10 incur gross loss. It is rather seen that in assessment   year 1999-2000 also, the assessee had shown the production at 2772 MT as against 2530 MT in this year and had still shown gross profit rate of 2.58% and   not gross loss. This shows that the lower production does not adversely   effect the trading result and certainly not to the extent as claimed in   this year. These facts support the AO's observation that the book   results shown by the assessee do not reflect the correct picture and the assessee had indulged in unaccounted production/sales.
The   case can be seen from another angle also. As mentioned above, the   assessee has shown the wastage of 669.710 MT which is about 21% of the   total consumption of 3200 MT: In my opinion, the AO has rightly observed   that the wastage claimed by the assessee is abnormal. His view is   supported by an article published on Sponge Iron industries in India in   Iron & Steel Review, November 2004. In this article, on page 36 it   is clearly mentioned that in terms of quality and productivity use of   sponge Iron as cold charge is more advantageous. However, Sponge Iron   gives a lower yield compared to pig iron/scrap. The article further   states that the use of sponge Iron/DRI in electric arc furnace varies in   the range of 83% to 89%while the yield from scrap is around 93% to 94%. As this article clearly states that the yield from sponge iron is 83% to 89% while from pig iron the same is 93% to 94%, the AR 's contention   that the AO has not correctly understood the article does not appear to   be correct. Similarly, the authorised person of Process & Product   Development Centre whose report was submitted by the appellant, in his   statement given before the AO has stated that the certificate was given   on the basis of the quality of the scrap given for testing. It is seen   that this person in the statement has stated that if the product mix is   of pig iron/iron scrap then the wastage is 8% to 10% and if the sponge iron is used then the same is about 15% and another 2% to 3%oxidation loss is there. When he was asked as to when the wastage is of this magnitude then how the certificate of 21% was given by hint, it was stated that 15% old   iron scrap included some iron and steel dust because of which the   wastage was above the normal wastage. In my opinion, from these facts,   it can be safely concluded that while in the sponge iron the wastage is   between 15% to 18% in pig iron/iron scrap wastage is around 8%to 10%. If ill product mix both the items are used then the average wastage would be around 10 % to 12%. It is seen that the appellant in the year under reference has used 54% of pig iron/iron scrap and 46% of   sponge iron meaning thereby both the items have been used almost in the   same proportion. This being the position, taking a liberal view the   average wastage of 13% seems to be reasonable in the appellant's   case in this year. As in the preceding year, the case was not   scrutinized and the wastage was not examined by the department, the same   cannot be taken as precedence or an accepted position by the   department. Thus, if the average wastage of 13% is accepted then on the total consumption of 3200 MT the wastage comes to 416 MTR as against 669.710 MT claimed by the assessee. The excess wastage claimed by the assessee comes to about 254 MT.   As rightly stated by the AO in the remand report dated 1.12.2004, this   excess wastage of 254 MT represents the excess production/sale which has   not been accounted for by the assessee in the books. It is seen that   the average selling rate of finished goods comes to Rs. 11,500 PMT as   can be seen from Schedule "H" to the balance sheet. If this rate is   applied (excluding excise duty) on the excess production   of 254 MT then the unrecorded sales come to Rs. 29,21,000. In my   opinion, this amount is required to be added in the manufacturing and   trading account of the assessee. If this amount is added then the gross   loss in the manufacturing business is reduced to Rs.4,33,763 [Rs.33,54,763 (-) Rs. 29,21,000]. Thus,   even after this addition, there is a gross loss of Rs.4,33,763 in the   manufacturing account. In my opinion after considering the additional   power charges of Rs. 11 lacs, which have been accepted by me above in   ,real terms there is now a gross profit of Rs.6,66,237 [Rs. 11,00,0001- (-) Rs. 4,33,763 in the manufacturing account which on the sales of Rs. 4,01,097,534 (Rs. 3,71,86,534 + 29,21,000) comes to 1.66% and compare well with the trading results shown by the assessee in earlier year(s).
In view of the above discussion, I am of the opinion that it would be just and fair if a trading addition of Rs. 29,21,000 is made   in the appellant's case. During the appellate proceedings, the AR,   however, contended that since the assessee had surrendered Rs. 22 lacs   on account of excess stock, telescoping of the trading addition is   required to be allowed to the appellant. I find force in the aforesaid   submissions of the AR. However, telescoping of the trading addition can   be allowed only for the pre survey period i.e. April, 2000 to the date   of survey. It is seen that till the date of survey the consumption of raw material and out put were 1543 MT and 1251 MT, and in the post survey period, the same were 1592 MT and 1278 MT:   It can thus be seen that the consumption and production were almost the   same in both the periods. Consequently 50% of the above trading   addition can be held to be pertaining to the survey period and to this   extent only the same con be telescoped against the excess stock   surrendered by the assessee. Thus, out of the total addition of Rs.   29,21,000, addition to the extent of Rs. 14,60,500 would stand telescoped against the surrender of Rs.22 lacs   made by the assessee and the remaining amount of Rs. 14,60,000 would be   further added in the income of the assessee. These grounds of appeal   are, therefore, disposed of accordingly. "
16. Both   the assessee as well as the Revenue came in appeal before the Tribunal.   The learned Judicial Member restored this issue back to the file of   CIT(A) by observing as under :
"25.   A perusal of the line of argument initially taken by the assessee and   subsequently abandoned in regard to the application of rates and the   loss claimed by it, it is seen that the assessee had given up the   arguments of the increase in cost of raw material and change in product   mix and has confined his arguments to the increase in power expenses. In   view of the fact that the assessee has claimed higher wastage and in   view of ground Nos.4, 7, 8 and 9 of the Revenue we consider it   appropriate in the peculiar facts and circumstances of the case where   the books of account cannot be relied upon in regard to the amount of   wastage and finished products sold since the consumption of electricity   is one of the direct costs which would impact the production we consider   it appropriate to restore this issue back to the file of the CIT(A) who   shall examine the issue in the light of the past history in regard to   electrical consumption and also give a specific finding as to the   specific increase in electric tariff rate which may have a bearing on   this issue also as such by this the amount of wastage and the   utilisation of the same for producing finished goods and the addition in   the trading result which may so warrant would be accordingly so   considered on which aspect both the assessee and the department are   aggrieved.
26.   In regard to the wastage claimed by the assessee it is seen that the   report of the authorized person of Process and Product Development   Centre, Mr. Joshi certifying wastage of 21 % has been considered to be   not relevant in view of the fact that it was based on a specific product   mix which was given by the assessee the said person's statement as per   the material available on record and found discussed on page 17 of the   impugned order. The statement has been recorded wherein Mr. Joshi has   stated that in the product mix of pig iron and iron scrap the wastage is   8% to 10% and if sponge iron is used then the wastage is about 15%   apart from 2% - 3% of oxidation loss. The certificate of 21 % was given   by him in view of the fact that in the sample given to him 15%   old iron scrap which included some iron and steel dust also as such the   wastage certified by him of the sample was much above the normal   wastage. It is seen that the AO. has taken cognizance of the fact that   the wastage in this line of business was generally 7% to 10% and CIT(A) has   given a finding that in the year under consideration the assessee has   used 54% of pig iron/iron scrap and 46% of small iron in the   circumstances taking a liberal view he has taken average wastage of 13%.
27.   Accordingly, on considering the facts available and the point at issue   it is seen that the consumption of electricity in the year under   consideration which issue has been restored for verification may also   have a hearing on the amount of finished products produced by the   assessee thereby the amount available for wastage would also be   affected. Accordingly, we do not give any finding on this aspect and   restore this issue also back to the file of the CIT(A) who   may examine the issue from the perspective of the assessee in regard to   increase in the electricity tariff and the expenses on account of   consumption of electricity and may also take into consideration the   wastage claimed by the assessee considering the past history of the   assessee the specific facts on record and a comparison in this line of   business with other identically situated persons using in Sponge   Iron/DRL Pig Iron in electric arc furnace.
28.   In regard to the N.P. rate on the trading result which has been taken   in the immediately preceding A Y. in the peculiar facts and   circumstances the CIT(A) shall apply the same rate.
17. The learned Accountant Member also restored the issue to the file of the CIT(A) with the following directions:
"15.   After hearing the parties and careful perusal of material on record, it   is found that the action to reject accounts by invoking provisions of   section 145 of the Act stands confirmed. Having rejected the accounts,   sub-section (3) of   section 145 of the Act requires an Assessing Officer to make an   assessment in the manner provided under section 144 of the Act. The   procedure prescribed u/s. 144 of the Act is that the Assessing Officer,   after taking into account all relevant material which has been gathered   and after giving assessee an opportunity of being heard shall make the   assessment of total income or loss to best of his judgment and determine   the sum payable by the assessee on the basis of such assessment. In the   present case in appeal, if the assessee had objected to the additions   made and assessment of income, the Ld. CIT(Appeals) ought   to have corrected that by making a reasoned order on the points or   basis what he honestly believed to be a fair estimate of income of the   assessee after taking into consideration the relevant material that had   come on his record. The ld. CIT(Appeals) ,   however did not give any reason or basis not to accept the estimation   of income made by the Assessing Officer by estimating sales or   application of net profit rate applied by him. Nor did he give any   reason for not accepting the plea of the appellant that the estimation   so made has no rationale and this being an abnormal year, net profit   rate on the basis of earlier year's profit rate could not be applied for   determination of his income for the year under consideration. The Ld.   CIT(Appeals) also   did not show as to why the entire amount of alleged sale of excess   wastage claimed needs to be added and not the estimated profit embedded   in sales for which net profit rate was adopted and a separate grounds   Nos.6 & 7 in   that respect had also been taken by the assessee in appeal before him.   It is also evident from record that the quantity weighing 3200 M. T. of   the material on which excessive wastage has been worked is available out   of recorded purchases and revenue has nowhere doubted nor recorded a   finding about suppression of investment in such consumption of goods   which are deemed as sales on account of excessive claim of wastage   worked out at 254 M.T. by Ld. CIT(Appeals) as against the   quantity of 134.44 M. T. calculated by the Assessing Officer. Under the   peculiar facts the entire amount of such sales could not have been added   as income of the assessee though the same could have been taken as a   basis for estimating reasonable amount of total sales of the business   for applying a profit/loss rate thereon or assessing income or loss of   the year under consideration, as there is no material or finding on   record about suppression of investment in acquiring the goods which are   subject matter of such deemed sales. This view also finds support from   the judgment rendered by Hon 'ble High Court of Gujarat in CIT v. President Industries [ 2002] 258   ITR 654. Keeping in view the entire conspectus of the case, the   separate trading addition of Rs. 29,21,000 so made is hereby directed to   be deleted, even though the action to allow telescoping of business   income upto the date of survey against surrendered income of Rs.   22,00,000 in principle is neither disputed by Ld. Departmental   representative nor found erroneous. The consequent addition of Rs.   14,60,500 directed to be made by Ld. CIT(Appeals) on that account is also directed to be deleted and the issue of estimating income is restored back to the file of Ld. CIT(Appeals) so   that when the matter goes back to him, he only adopts reasonable amount   of sales as against the estimates of Rs. 5,00,00,000 made by the   Assessing Officer. Needless to add the quantum of sales estimated on   account of excess claim of wastage shall have to be worked out afresh by   considering the melting loss and oxidation factor etc. in the right   perspective. He shall also consider the impact of surrendered business   income on the net profit that may be worked out by appraising facts of   the year under consideration such as increase in power tariff, fixed   wage bill, higher expenditure on power and electricity, rise in cost of   production and other selling administration and finance expenses and not   to apply the net profit rate of earlier year as the same could not form   a basis under the fact-situation of the year under consideration. The   parties shall be afforded a reasonable and effective opportunity of   being heard so that reliable evidence in support of their claim is   adduced by them before he takes decision in accordance with law for   estimating total income or loss of the year under consideration with   reference to relevant material on record as envisaged by the provisions   of section 144 of the Act. Accordingly, ground No. 1 in appeal by   assessee stands allowed and ground Nos. 3 to 6 in that appeal stand   allowed for statistical purposes only. Consequent to this, ground Nos. 5   to 10 in Revenue's appeal are also allowed for statistical purposes   only."
18. This   is a fact that the action of the Assessing Officer rejecting the books   of account by invoking the provisions of section 145(3) got confirmed.   Section 145(3) of the Income tax Act empowers the Assessing Officer to   make the assessment in the manner provided u/s. 144 if the Assessing   Officer is not satisfied about the correctness or completeness of the   accounts of the assessee or where the method of accounting provided in   sub-section (1) or accounting standard as notified in sub-section (2)   has not been regularly followed by the assessee. This section requires   the Assessing Officer to make the assessment determining total income or   loss of the assessee to the best of his judgment after giving an   opportunity of being heard to the assessee. While making the assessment   it is incumbent upon the Assessing Officer to take into account all the   relevant material, which the Assessing Officer has gathered. There is   difference between the assessment made on the basis of assessee's   accounts and that made on "best judgment" basis. The Hon'ble Supreme   Court has categorically laid down in the case of State of Orissa v. Maharaja Shri B.P. Singh Deo,   76 ITR 690 (SC), that the mere fact that the material placed by the   assessee before the Assessing Officer is unreliable, does not empower   the Officer to make an arbitrary order. The power to make the best   judgment assessment is not arbitrary one. The Assessing Officer in   making a best judgment assessment does not possess absolute arbitrary   authority to assess the income at any figure as he likes. Although he is   not bound by strict judicial principles, he should be guided by the   Rules of Justice, equity and good conscience. The Assessing Officer must   not act dishonestly or vindictively or capriciously because he must   exercise judgment in the matter. He must make what he honestly believes   to be fair estimate of the proper figure of assessment, and for this   purpose he must be able to take into consideration local knowledge and   repute in regard to the assessee's circumstances, and his own knowledge   of previous returns by and assessments of the assessee and all other   matters which he thinks will assist him in arriving at a fair and proper   estimate; and though there must necessarily be guess-work in the   matter, it must be honest guess-work. There is nothing in section 144   for holding an assessment made by an officer u/s. 144 without conducting   a local enquiry and without recording the details and results of that   enquiry cannot have been made to the best of his judgment within the   meaning of that section. The best judgment is to be based on a fair and   proper estimate of assessee's income and the inference to be drawn from   the available material should be properly inferable inference. The   assessment is to be based on material to the extent to which the   materials are discovered. This clearly supposes the Assessing Officer   should make an intelligent well-grounded estimate. Such estimate must be   based on adequate and relevant material. What is irrelevant material   depends on the facts and circumstances of the case. In my opinion, the   earlier years' results of assessee's business are the relevant material   until and unless it is proved otherwise. If the nature of the business   of the assessee is same under the ordinary circumstances, it is presumed   that the result of the business of the assessee will remain the same   under the normal circumstances. The authorities below have given   sufficient opportunity to the assessee so far the application of the net   profit rate is concerned. The ld. AR could not produce any evidence   neither before us nor before the authorities below why the net profit as   has been achieved by the assessee in the earlier year could not be   applied to the current year. The only argument of the assessee relate to   the increase in the power expenses and higher wastage. Except these two   attributes, in my opinion, there is nothing wrong in directing the   CIT(A) while restoring the matter to his file on these issues that the   net profit rate has to be applied as has been taken in the preceding   assessment year as the net profit rate of other earlier years were not   given by the assessee. To that extent I agree with the view of the ld.   Judicial Member, as in my opinion the net profit rate achieved in the   immediately preceding year will be the relevant material on record on   the peculiar facts of this case. I do agree with the Judicial Member   that the consumption of the electricity will have direct bearing on the   cost of the production. Similarly, the claim of wastage by the assessee   in the earlier years will also be a relevant factor to decide what   wastage should be allowed to the assessee keeping in view the nature of   the business of the assessee and other identically situated units   consuming the sponge iron and pig iron in electrical furnace. Once the   higher wastage are recorded, the natural inference will be that there   will be excess production, which not being accounted for, would have   been sold outside the books of account by the assessee. To the extent   there is production on account of excess wastage, in my opinion, the   sale consideration worked out on such excess production has to be added   separately since the assessee has surrendered the excess scrap stock.   There is nothing wrong in telescoping the trading addition so allowed to   the extent of the additions made on account of investment in excess   stock as on the date of survey. I, therefore, agree with the order of   the ld. Judicial Member on both the questions. Accordingly, I hold that   under the facts and circumstances, the issue relating to the consumption   of electricity and wastage on account of consumption of raw material is   restored to the file of the CIT(A) and separate addition on trading   account can be made for the excess consumption/wastage of raw material   as deemed sales. In respect of question No. 5, in my opinion, there is   nothing wrong in the direction given to the ld. CIT(A) to work out the   net profit by applying a rate as has been taken in the immediately   preceding assessment year on the facts and circumstances of the case.
19. Now, the matter shall go to the regular Bench.

Trust constituted for admin and management of various port activities entitled to sec. 12A registrationJuly 9, 2014[2014] 46 taxmann.com 71 (Gujarat)
IT:   Where assessee-trust was constituted under Major Ports Trusts Act, 1963   for administration, control and management of various port activities,   said activities being in nature of general public utility within meaning   of section 2(15), assessee's application seeking registration under   section 12A was to be allowed
 
Partial Reverse Charge Issues Suppressing Tourism Posted In Service Tax | Articles | No Comments »
       
The tourism sector is booming at a rate   that none other sector have thought of. Today maximum revenue for any   country's or even state's government is earned from tourism sector, but   where different states are trying   to promote their tourism, the CENTRAL Government with the introduction   of Partial Reverse Charge in Service Tax has raised many issues for the   Tour Operators. One of them is related to the Rent-A-Cab services   availed by the Tour Operators to facilitate their customer with cabs and   land arrangements.
For providing tour related services it is very essential for every Tour Operator   to provide Cab Services. Since every Tour operator cannot have its own   fleet of cabs, so generally they tend to rent the cab from Cab Operators   or other Tour Operators (hereinafter also referred as Cab Operators)   who own their fleet. Now Cab Operator do not show on their bills whether   they are availing abatement under Notification No.  26/2012,Service Tax  Dated- 20.06.2012 and the Tour operators get confused at what part of Bill they need to pay the service tax on. As per  Notification No.  30/2012,Service Tax  Dated- 20.06.2012 (Summary Table produced in the end) if the cab operator is availing aforesaid abatement under Notification No.  26/2012,Service Tax  Dated- 20.06.2012   then Tour Operator is obligated to pay 100% of service tax on abated   value and if cab operator is not availing the aforesaid abatement then   tour operator is obligated to pay 40% of service tax.
An Extract of Notification No.  26/2012,Service Tax  Dated- 20.06.2012 is provided as under
      
  No.
    Description of taxable
  service       %  Conditions  
  
  Renting of any motor vehicle designed to carry passengers  40  CENVAT credit on inputs, capital goods and input   services, used for providing the taxable service, has not been taken   under the provisions of the CENVAT Credit Rules, 2004.  
  To clear the whole thing let us take up an illustration.
For example ABC Tour Operator Ltd. (body   corporate) (hereinafter referred as Tour Operator) availed service of   renting cab from Ram (individual cab operator) (hereinafter referred as   Cab operator) and Ram raised an invoice of Rs. 10000. Now if Cab   Operator has mentioned on its invoice that he has availed abatement then   Tour Operator needs to pay service tax of Rs. 494.40(10000*40%*12.36%)   which is the 100% Service tax to be paid, and if Cab Operator has not   mentioned whether he has availed benefit of abatement then also assuming   that he has not availed the abatement Tour Operator needs to pay Rs.   494.40[(10000*12.36%)*40%] as their Service tax which is the 40% of   Service Tax.
So in short the tour operator should   simply pay Service Tax on the 40% part of the Invoice value only   whatever the case maybe i.e. whether the cab operator has availed   abatement or not it should not be of any concern to the Tour Operator.   In other words Service Tax is to be paid @ 4.994% of the invoice value.
I would like to bring it to the   attention of the all Tour Operators that liability to pay Service Tax on   40% of the bill is their responsibility, do not pass it to the Cab   Operator in any circumstance. It will be counted as procedural lapse and   may bring penalty upon you.
To Illustrate:
Continuing the above example
ABC Tour Operator Pvt. Ltd. (hereinafter   referred as Tour Operator) is availing Rent-a-Cab Service from Ram   (hereinafter referred as Cab operator) and Cab Operator invoiced for Rs.   10,000(exclusive of ST). So Tour Operator instead of paying Rs. 494.40   to Government on its own, Remit Rs. 10,494.40 to Cab Operator which is   wrong. Instead of this Tour Operator should pay Rs. 494.40 to the credit   of Government on its own and pay Rs. 10000/- only to the Cab Operator   after deducting TDS if applicable.
Secondly I would also like to draw the   attention towards the common practice that is being followed by the   small Tour Operators. Tour operators after obtaining the bill from Cab   operators, are deducting the Service Tax amount from the billed amount   to be paid to Cab operator instead of bearing the burden himself. This may bring heavy penal provision upon them and may invoke "Prosecution" provisions.
To Illustrate:
Continuing the above example
ABC Tour Operator Pvt. Ltd. (hereinafter   referred as Tour Operator) is availing Rent-a-Cab Service from Ram   (hereinafter referred as Cab operator) and Cab Operator invoiced for Rs.   10,000. So Tour Operator instead of paying Rs. 494.40 from its own   pocket deduct it from payment to be made to Cab operator and remit Rs.   9,505.60 to Cab operator. However this payment of Service Tax of Rs.   494.40 will be shown as indirect expenditure and become the part of the   expenses.
So it is advisable to Tour operators to   avoid such practices and pay Service tax on Rent a Cab Service under   Partial Reverse Charge from their own Pockets.
Thirdly some of the Cab Operators are   contending that no partial Reverse charge should be applicable as both   Cab Operators and Tour Operators are in the same business line, as   provided under Notification No.  30/2012,Service Tax  Dated- 20.06.2012.   As per the said notification, partial reverse charge is only applicable   on Rent-a-Cab Service if the "service of renting a cab is provided to   any person who is not engaged in the similar line of business". So the   Cab Operators are making an implication out   of it that no partial reverse charge should be charged as the Cab   Operator and Tour Operator are in the same line of business. But it is   to be reminded that the service of Renting Cab and Tour Operator are two   different Services which cannot be mixed. So it is to be kept in mind   that Partial Reverse Charge is applicable to Tour operator arranging   Cabs from other Tour Operators.
For your further perusal summary of Notification No.  30/2012,Service Tax  Dated- 20.06.2012 is provided
Table
     Sl.No.  Description of a service  Percentage of  service tax payable by the person providing service  Percentage of service tax payable by the person receiving the service  
  1  in respect of  services  provided or agreed to be provided  by an insurance agent to any person carrying on insurance business  Nil  100%  
  2  in respect of  services  provided or agreed to be   provided  by a goods transport agency in respect of transportation  of   goods by road  Nil  100%  
  3  in respect of  services  provided or agreed to be provided  by way of sponsorship  Nil  100%  
  4  in respect of  services  provided or agreed to be provided  by an arbitral tribunal  Nil  100%  
  5  in respect of  services  provided or agreed to be provided  by individual advocate or a firm of advocates by way of legal services  Nil  100%  
  6  in respect of  services  provided or agreed to be   provided  by Government or local authority by way of support services   excluding,-  (1) renting of immovable property, and (2) services   specified in sub-clauses (i), (ii) and (iii) of clause (a) of section   66D of the Finance Act,1994  Nil  100%  
  7  (a)   in respect of  services  provided or agreed to be   provided  by way of renting of a  motor vehicle designed to carry   passengers on abated value to any person who is not engaged in the   similar line of business   
(b)   in respect of  services  provided or agreed to be provided  by   way of renting of a  motor vehicle designed to carry passengers on non   abated value to any person who is not engaged in the similar line of   business
  Nil   
 
 
 
 
 
60%
  100 %   
 
 
 
 
 
40%
  
  
  in respect of  services  provided or agreed to be provided  by way of supply of manpower for any purpose  25%  75 %  
  
  in respect of  services  provided or agreed to be provided  in service portion in execution  of works contract  50%  50%  
  10  in respect of  any taxable services  provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory  Nil  100%  
   Hope this will resolve your issues to an extent. For any further queries please contact at pallavguptapg@gmail.com.
Written by Pallav Gupta
 - See more at: http://taxguru.in/service-tax/partial-reverse-charge-issues-suppressing-tourism.html#sthash.eaD9jmYk.dpuf

  IT : Prior to 1-4-2005, local authority could approve a housing project   without or with commercial use to extent permitted under Development   Control Rules and, therefore, an assessee would be entitled to deduction   under section 80-IB(10) in respect of profits derived from approved   project including profits from sale of commercial space
IT   : Clause (a) of sub-section (14) to section 80-IB, introduced by   Finance (No. 2) Act, 2004 with effect from 1-4-2005, to define built up   area wherein projection known as 'verandah' is included in built up   area, is a substantive amendment and, thus, it has no retrospective   effect
■■■
  [2014] 46 taxmann.com 15 (Pune - Trib.)
  IN THE ITAT PUNE BENCH 'B'
Assistant Commissioner of Income-tax, Circle 1, Kolhapur
v.
  Paras Bhomraj Oswal*
  SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER 
AND G.S. PANNU, ACCOUNTANT MEMBER
  IT APPEAL NOS. 561 TO 565 (PUNE) OF 2013 
CO. NOS. 10 TO 14 (PUNE) OF 2013
[ASSESSMENT YEARS 2005-06 TO 2009-10]
  NOVEMBER  29, 2013 
Section   80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from   industrial undertakings other than infrastructure development   undertakings (Housing project) - Assessment years 2005-06 to 2009-10 -   Whether prior to 1-4-2005, local authority could approve a housing   project without or with commercial use to extent permitted under   Development Control Rules and, therefore, an assessee would be entitled   to deduction under section 80-IB(10) in respect of profits derived from   approved project including profits from sale of commercial space - Held,   yes - Whether clause (a) of sub-section (14) to section 80-IB,   introduced by Finance (No. 2) Act, 2004 with effect from 1-4-2005, to   define 'built up area' wherein projection known as 'verandah' is   included in built up area, is a substantive amendment and, thus, it has   no retrospective effect - Held, yes [Paras 2.10 and 3] [Matter remanded]
  FACTS
 
  ■   The   assessee, a builder, undertook construction of housing project which   was approved by local municipal corporation prior to 1-4-2005.  
■   The assessee filed its return claiming deduction under section 80-IB(10).
  ■ The   Assessing Officer noted that built up area of some residential units   exceeded maximum prescribed limit of 1500 sq.ft. He further noticed that   the built up area of the shops and other commercial establishments was   in excess of 5 per cent of aggregate built up area of the housing   project.  
■   The   Assessing Officer, thus, taking a view that there was violation of   provisions of section 80-IB(10), rejected assessee's claim for   deduction.  
■   The Commissioner (Appeals), however, allowed assessee's claim.
  ■ On revenue's appeal:  
HELD
   
  ■ In   the instant case, the insertion of definition of built up area in the   context of completion of projects which has been approved and which has   commenced prior to 1-4-2005 in the amended provision have to be   appreciated. The assessee had undertaken construction of project the   profits in respect of which has been claimed as deduction under section   80-IB(10).  
■   According   to Assessing Officer, the project did not fulfil basic requirements and   conditions of limitation of built up area of 5000 sq. ft., per unit as   laid down under the statute. He found two residential bungalows have   area of about 1500 sq.ft. and 19 residential bungalows have area of   beyond stipulated 1500 sq.ft. of verandah was also included.  
■   The   Assessing Officer noticed that project contained residential units   built for owners of land and transferred to them in consideration as   price in terms of development agreement, residential units to be sold to   the public and shops for sale. He noted that project accounts were not   maintained for two types of residential units and commercial space and   that various expenses were of nature that they could not be segregated.   He, therefore, held that entire project was one and that all bungalows   were part of the project. He also observed that municipal authorities   have given approval for construction of all units including bungalows in   same proposal. He found that in revised proposal submitted to the   concerned authorities and approved on the construction area of all   bungalows including those being constructed for land owners, except two   bungalows were found below 1500 sq. ft.  
■   Thereafter, Assessing Officer applied provision of clause (a)   of sub-section 14, introduced by the Finance (No.2) Act, 2004 with   effect from to define built up area and included the area of verandah in   built up area in respect of 19 others bungalows to hold that provisions   of section 80-IB(10) were not complied with. He also noticed that area   of verandah is not excluded or exempted under section 78(3) of the   Bye-Laws of Kolhapur Municipal Corporation.  
■   Therefore,   he held that since verandah is a projection which is not a common area   shares with other residential units and also because it is a part of   total area which is not exempt under relevant bye-laws of the Kolhapur   Municipal Corporation. Thus, according to the Assessing Officer since 21   residential units of the project violated provisions requiring   residential units to be below 1500 sq.ft., deduction under section   80-IB(10)was not allowable.  
■   Further,   according to Assessing Officer, other condition of the total area of   commercial shops was also violated in as much as the total built up area   of shops (6701.43 feet) was found to be exceeding maximum limit of 2000   feet. According to Assessing Officer prior to 1-4-2005 there was no   scope under the Act to construct any commercial space, hence, he held   that by virtue of constructing and selling commercial space admeasuring   6701.43 feet, the assessee was not eligible for deduction under section   80-IB(10). [Para 2.8]  
■   Regarding   denial of deduction under section 80-IB(10) on account of construction   and sale of commercial space admeasuring 6701.43 feet in the project   sanctioned prior to 1-4-2005 as stated above, the project was approved   by competent authority before 1-4-2005 meaning thereby that project was   an approved housing project as per local DC Rules. On the date on which   the legislature introduced 100 per cent deduction under the Act, on the   profits derived from housing projects approved by a local authority, it   was known that the local authorities could approve the projects as   housing projects with commercial user to the extent permitted under the   Development Control Rules framed by the respective local authority. The   local authority could approve a housing project without or with   commercial use to the extent permitted under Development Rules as held   in CIT v. Brahma Associates [2011] 333 ITR 289/97 Taxman 459/9 taxmann.com 289 (Bom). [Para 2.9]  
■   Thus,   prior to 1-4-2005, there was no scope under Act for an undertaking to   construct any commercial space and project should be 100 per cent in   order to avail benefit of section 80-IB(10) has not found favour with   the High Court. Thus, assessee was entitled to benefit of deduction   under section 80-IB(10) in respect of profits derived from approved   project including profits from sale of commercial space. This factual   legal background, needs no interference. [Para 2.10]  
■   In   respect of other reason that 21 bungalows violated the requirement of   residential unit being more than 1500 feet and therefore, the deduction   would be denied. The clause (a) of sub-section (14), to section   80-IB, introduced by the Finance (No.2) Act, 2004 with effect from   1-4-2005 to define built up area wherein projection commonly known as   verandah is included in the 'built-up area'. The issue is whether the   provisions of clause (a) of sub-section (14) will have   retrospective application or not? According to Commissioner (Appeals),   restriction in 'built-up area' imposed for the first time with effect   from 1-4-2005 cannot have retrospective application.  
■   The Karnataka High Court in the case of CIT v. Anriya Project Management Services (P.) Ltd.[2012] 209 Taxman 1/21 taxmann.com 140,   examined said provision. The question was whether the definition of   'built-up area' inserted by Finance (No.2) Act, which became effective   from 1-4-2005 is prospective or retrospective in nature. It was held to   be prospective in nature. The said amendment would have no application   to the housing projects, which were approved by the local authority   prior to 1-4-2005 in calculating 1500 feet of residential unit and it   further held that once such housing project of assessee is approved by   local authority prior to 1-4-2005, it would be entitled to 100 per cent   benefit of provisions of section 80-IB(10).  
■   Thus,   the amendment with respective built up area discussed above was found   substantive amendment and not clarificatory one. Accordingly, same has   no retrospective effect. [Para 3]  
■   Without   prejudice to the above, the main limb on which deduction was denied was   for the reason that area of verandah was not excluded or exempt under   section 78(3) of the Bye-laws of Kolhapur Municipal Corporation.   Commissioner (Appeals) following the decision of his predecessor,   decided the issue in favour of assessee with regard to 19 bungalows.   With regard to two bungalows which admittedly are more than 1500 sq.ft.,   but were sold to the owners of the land and profit thereof has not been   the subject matter of section 80-IB(10). Accordingly, no adverse view   has been taken by Commissioner (Appeals). Coming back to the issue of   built up area as per bye-laws of Kolhapur Municipal Corporation with   regard to 19 bungalows mentioned above, Tribunal has set aside this   issue to Assessing officer. [Para 3.1]  
■   Facts   being similar, so following the same reasoning, this issue is restored   to Assessing Officer with similar directions. As a result, appeal of   revenue is partly allowed as indicated above. [Para 3.2]  
  CASES REFERRED TO
 
  CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxmann.com 289 (Bom.) (para 2.9),CIT v. Anriya Project Management Services (P.) Ltd. [2012] 209 Taxman 1/21 taxmann.com 140 (Kar.) (para 3), Mahan Corpn. v. Asstt. CIT [2013] 214 Taxman 373/29 taxmann.com 15 (Guj.) (para 3),CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308/172 Taxman 386 (SC) (para 3), CIT v.TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad.) (para 3) and National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [2003] 260 ITR 548/128 Taxman 361 (SC) (para 3).
S.B. Walimbe for the Appellant. M.K. Kulkarni for the Respondent.
  ORDER
 
  Shailendra Kumar Yadav, Judicial Member - All these appeals filed   by Revenue and Cross Objections are filed by assessee pertain to same   assessee and arising from the consolidated order of the CIT(A), Kolhapur   dated 13-12-2012 for the A.Ys. 2005-06 to 2009-10, so all are being   disposed off together for the sake of convenience. The Revenue has taken   the following grounds in its appeals in A.Y.2005-06.
  "1.   Whether on the facts and in the circumstances of the case and in law,   the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in   applying the ratio of the case Brahma Associates v. CIT-II, Pune when in fact the assessee has violated the provisions of section 80 IB(10)(d) of the I. T. Act, 1961.  
2.   Whether   on the facts and in the circumstances of the case and in law, the Ld.   Commissioner of Income Tax (Appeals), Kolhapur was justified in allowing   deduction u/s.80IB(10) of the I. T. Act, 1961 when the assessee had   violated the condition laid down in section 80IB(10) (c ) of the said   Act in constructing the 21 bungalows exceeding the limit of 1500 s.f.t.   for each bungalow as provided in the said provision irrespective of the   fact that such violation was marginal or more.  
3.   Whether   on the facts and in the circumstances of the case and in law, the Ld.   Commissioner of Income Tax (Appeals), Kolhapur was justified in not   appreciating that in order to claim deduction u/s.80IB(10) of the I. T.   Act, 1961 the assessee has to fulfill all the conditions laid down   therein and even non-fulfillment of a single condition shall debar the   assessee from entitling to deduction under the said section.  
4.   Whether   on the facts and in the circumstances of the case and in law, the Ld.   Commissioner of Income Tax (Appeals), Kolhapur was justified in not   considering the fact of filing of Miscellaneous Petition by the AO   before the ITAT for not considering two grounds in the appellate order   passed, when the information relating re-assessment made by the AO   pointing out such fact was in the possession of the Ld. CIT(A) and when   the said issue was dominant in deciding the allowability of deduction   u/s.80IB(10) of the act as claimed by the assessee.  
5.   Whether   on the facts and in the circumstances of the case and in law, the Ld.   Commissioner of Income Tax (Appeals), Kolhapur was justified in holding   that space occupied by 'verandah' has to be excluded for the purpose of   calculating the 'built up area' of the bungalows.  
6.   The order of the Ld.CIT(A), Kolhapur be vacated and that of the AO be restored.
  7.   The appellant craves leave to add, alter, amend or modify any other grounds of appeal at the time of hearing."
  2. The assessee is a builder and developer had undertaken   construction of housing project viz. Bhakti Pooja Nagar at R.S No.284B,   plot No.63, B-Ward, Kolhapur. This case was selected for scrutiny and   during the assessment proceedings, Assessing Officer noticed in the   computation enclosed, assessee had claimed deduction u/s.80IB(10) in   respect of his housing project Bhakti Pooja Nagar. Assessee has also   made similar claim in earlier years i.e. 2003-04 and 2004-05 in respect   of above housing project. In these years, in the assessment order passed   u/s. 143(3), assessee claim was rejected on the ground that residential   units exceeded 1500 sq.ft., being maximum area permissible u/s.   80IB(10).
2.1 The   issue of claim u/s. 80IB(10) was examined in all the years under   appeal. Assessee had obtained approval for his plan from Kolhapur   Municipal Corporation twice on 22.02.2002 and 10.10.2002. After   introduction of section 80IB(10) by Finance (No.2) Act, 2003 w.e.f.   01.04.2002, assessee had submitted revised plan which was approved on   31.03.2004. On verification of revised plan, Assessing Officer noticed   that two residential units viz. C-5 and D-5 and built up area of 19   other bungalows exceeded maximum permissible limit of 1500 sq.ft.   Further, the total commercial area in the above project had also   exceeded allowable built up area of 2000 sq. ft., and similarly, the   built up area of the shops and other commercial establishments was in   excess of 5% of aggregate built up area of the housing project. In view   of the violation of section 80IB(10) as observed above, the Assessing   Officer asked the assessee to justify the claim of deduction in respect   of the above project. CIT(A) having considered the submissions on behalf   of assessee all kinds i.e. built up area of two residential units C-5   and D-5 are permissible, built up area of 19 bungalows exceeded   permissible limit as per provisions of section 80IB(10) of I.T Act.   Accordingly, disallowance was made.
2.2 Matter   was carried before first appellate authority, wherein CIT(A) had   granted relief after calling remand report. Claim of the assessee was   allowed, same has been opposed before us. On other hand, learned   Authorized Representative supported the order of CIT(A), inter alia   Departmental Representative submitted that order of CIT(A) be set aside   and that of the Assessing Officer.
2.3 After   going through the rival submissions and material on record, we find   that section 80IB(10) prior to amendment to the Finance (No.2) Act, 2004   w.e.f. 01.04.2005 stood as under:
"(10)   The amount of profits in case of an undertaking developing and building   housing projects approved before the 31st day of March, 2005 by a local   authority, shall be hundred percent of the profits derived in any   previous year relevant to any assessment year from such housing project   if,—
  (a)   such undertaking has commenced or commences development and construction   of the housing project on or after the 1st day of October, 1998;
  (b)   the project is on the size of a plot of land which has minimum area of one acre; and
  (c)   the residential unit has a maximum built-up area of one thousand square   feet where such residential unit is situated within the cities of Delhi   or Mumbai or within twenty-five kilometres from the municipal limits of   these cities and one thousand and five hundred square feet at any other   place."  
2.4 Section 80IB(10) in post amendment period stood as under:
  '17[(10) The amount of deduction in the case of an undertaking   developing and building housing projects approved before the 31st day of   March, [2008] by a local authority shall be hundred per cent of the   profits derived in the previous year relevant to any assessment year   from such housing project if,—
  (a)   such undertaking has commenced or commences development and construction   of the housing project on or after the 1st day of October, 1998and   completes such construction—
  (i)   in   a case where a housing project has been approved by the local authority   before the 1st day of April, 2004, on or before the 31st day of March,   2008;  
(ii)   in   a case where a housing project has been, or, is approved by the local   authority on or after the 1st day of April, 2004 but not later than the   31st day of March, 2005, within four years from the end of the financial   year in which the housing project is approved by the local authority.  
(iii)   in   a case where a housing project has been approved by the local authority   on or after the 1st day of April, 2005, within five years from the end   of the financial year in which the housing project is approved by the   local authority.  
  
 Explanation — For the purposes of this clause,—  
  (i)   in a case where the approval in respect of the housing project is   obtained more than once, such housing project shall be deemed to have   been approved on the date on which the building plan of such housing   project is first approved by the local authority;  
(ii)   the   date of completion of construction of the housing project shall be   taken to be the date on which the completion certificate in respect of   such housing project is issued by the local authority;  
  (b)   the project is on the size of a plot of land which has a minimum area of one acre:
  
 Provided that   nothing contained in clause (a) or clause (b) shall apply to a housing   project carried out in accordance with a scheme framed by the Central   Government or a State Government for reconstruction or redevelopment of   existing buildings in areas declared to be slum areas under any law for   the time being in force and such scheme is notified by the Board in this   behalf;  
(c)   the   residential unit has a maximum built-up area of one thousand square   feet where such residential unit is situated within the cities of Delhi   or Mumbai or within twenty-five kilometres from the municipal limits of   these cities and one thousand and five hundred square feet at any other   place;  
(d)   the   built-up area of the shops and other commercial establishments included   in the housing project does not exceed three per cent of the aggregate   built-up area of the housing project of five thousand square feet,   whichever is higher;  
(e)   not more than one residential unit in the housing project is allotted to any person not being an individual; and  
(f)   in   a case where a residential unit in the housing project is allotted to a   person being an individual, no other residential unit in such housing   project is allotted to any of the following persons, namely:—  
  (i)   the individual or the spouse or the minor children of such individual,
(ii)   the Hindu undivided family in which such individual is the karta,  
(iii)   any   person representing such individual, the spouse or the minor children   of such individual or the Hindu undivided family in which such   individual is the karta.  
Explanation.—For   the removal of doubts, it is hereby declared that nothing contained in   this sub-section shall apply to any undertaking which executes the   housing project as a works contract awarded by any person (including the   Central or State Government).
Sub-section   (14) was also introduced by Finance Act 2005 w.e.f. 01/04/2005. Clause   (a) of this sub-section defined the 'built-up area to mean—
(a)   "built-up area" means the inner measurements of the residential unit at   the floor level, including the projections and balconies, as increased   by the thickness of the walls but does not include the common areas   shared with other residential units;'
2.5 The   provision of section 80IB(10) prior to the amendment by Finance (No.2)   Act, 2004 w.e.f. 01.04.2004 permitted a deduction of 100% of the profit   derived in any previous year relating to any assessment year from   housing project subject to conditions in respect of such housing project   which was approved prior to 31.03.2005. These conditions required the   assessee to commence development and construction of project on or   before 01.10.1998 on the plot of land which is minimum area of one acre   and residential units at maximum built up area of 1500 sq.ft. if not   situated at the Delhi, Mumbai or even 25 kilometres from municipal   limits of these area in which case maximum permissible built up area of   residential unit was 10,000 sq.ft. The provisions of section 80IB(10) as   amended by Finance (No.2) Act, 2004 w.e.f. 01.04.2005 as clause (a)   which further qualified necessitating completion of construction on or   before 31.03.2008 if project was approved by local authority before   01.04.2005 i.e. within 4 years from the end of the financial year in   which housing project is approved by the local authority if the project   was approved by the local authority on or after 01.04.2004 but on or   before 31.03.2005, and within 5 years from the end of the financial year   in which housing project is approved by the local authority if the   project was approved by the local authority on or after 01.04.2005   (w.e.f. 01.04.2010). The amended provisions provided for limit for   completion of project which was not there in the earlier section.
2.6 Clause   (d) was introduced to the provisions of section 80IB(10) by the by the   Finance (2) Act 2004 specifying that built up area of ships and other   commercial establishments included in the housing project should not   exceed 5% of aggregate built up area of housing project or 2000 sq.ft.   whichever is less, which is changed to 3% of aggregate area of housing   project or 5000 sq.ft. whichever is higher w.e.f. 01.04.2010.
2.7 Clause   (a) of sub-section 14 was introduced by the Finance (No.2) Act, 2004   w.e.f. 01.04.2005 to define built up area as the inner measurements of   the residential unit at the floor lever, including projection and   balconies as increased by the thickness of walls, but not including   common area shared with other residential units.
2.8 In   the instant case, the insertion of definition of built up area in the   context of completion of projects which has been approved and which has   commenced prior to 01.04.2005 in the amended provision have to be   appreciated. As mentioned above, the assessee had undertaken   construction of project viz. Bhakti Pooja Nagar the profits in respect   of which assessee has claimed deduction u/s. 80IB(10) for all the years.   According to Assessing Officer, the project did not fulfil basic   requirements and conditions of limitation of built up area of 5000 sq.   ft., per unit as laid down under the statute. He found two residential   bungalows have area of about 1500 sq.ft. and 19 residential bungalows   have area of beyond stipulated 1500 sq.ft. of verandah was also   included. Assessing Officer noticed that project contained residential   units built for owners of land and transferred to them in consideration   as price in terms of development agreement, residential units to be sold   to the public and shops for sale. He noted that project accounts were   not maintained for two types of residential units and commercial space   and that various expenses were of nature that they could not be   segregated. He, therefore, held that entire project was one and that all   bungalows were part of the project. He also observed that municipal   authorities have given approval for construction of all units including   bungalows in same proposal. He found that in revised proposal submitted   to the concerned authorities and approved on , the construction area of   all bungalows including those being constructed for land owners, except   two bungalows were found below 1500 sq.ft. Thereafter, Assessing Officer   applied provision of clause (a) of sub-section 14, introduced by the   Finance (No.2) Act, 2004 w.e.f. to define built up area and included the   area of verandah in built up area in respect of 19 others bungalows to   hold that provisions of section 80IB(10) were not complied with. He also   noticed that area of verandah is not excluded or exempted u/s. 78(3) of   the Bye-Laws of Kolhapur Municipal Corporation. Therefore, he held that   since verandah is a projection which is not a common area shares with   other residential units and also because it is a part of total area   which is not exempt under relevant bye-laws of the Kolhapur Municipal   Corporation. Thus, according to the Assessing Officer since 21   residential units of the project violated provisions requiring   residential units to be below 1500 sq.ft., deduction u/s.80IB(10) was   not allowable. Further, according to Assessing Officer, other condition   of the total area of commercial shops was also violated in as much as   the total built up area of shops (6701.43 feet) was found to be   exceeding maximum limit of 2000 feet. According to Assessing Officer   prior to 01.04.2005 there was no scope under the Act to construct any   commercial space, hence, he held that by virtue of constructing and   selling commercial space admeasuring 6701.43 feet, the assessee was not   eligible for deduction u/s.80IB(10).
2.9 Regarding   denial of deduction u/s. 80IB(10) on account of construction and sale   of commercial space admeasuring 6701.43 feet in the project sanctioned   prior to 01.04.2005 as stated above, the project was approved by   competent authority before 01.04.2005 meaning thereby that project was   an approved housing project as per local DC Rules. On the date on which   the legislature introduced 100% deduction under the I.T Act, 1961 on the   profits derived from housing projects approved by a local authority, it   was known that the local authorities could approve the projects as   housing projects with commercial user to the extent permitted under the   Development Control Rules framed by the respective local authority. The   local authority could approve a housing project without or with   commercial use to the extent permitted under Development Rules as held   in CIT v. Brahma Associates [2011] 333 ITR 289/197 Taxman 459/9 taxman.com 289 (Bom), wherein, the Hon'ble Bombay High Court held as under;
"22.   It is not in dispute that where a project is approved as a housing   project without or with commercial user to the extent permitted under   the Rules/Regulations, then, deduction under section 80-IB(10) would be   allowable. In other words, if a project could be approved as a housing   project having residential units with permissible commercial user, then   it is not open to the income-tax authorities to contend that the   expression 'housing project' in section 80-IB(IO) is applicable to   projects having only residential units.
24.   The fact that the deduction under section 80-IB(10) prior to 1-4-2005   was allowable on the profits derived from the housing projects   constructed during the specified period, on a specified size of the plot   with residential units of the specified size, it cannot be inferred   that the deduction under section 10-IB(IO) was allowable to housing   projects having residential units only, because, restriction on the size   of the residential unit is with a view to make available large number   of affordable houses to the common man and not with a view to deny   commercial user in residential buildings. In other words, the   restriction under section 80-IB(10) regarding the size of the   residential unit would in no way curtail the powers of the local   authority to approve a project with commercial user to the extent   permitted under the DC Rules/Regulations. Therefore, the argument of the   Revenue that the restriction on the size of the residential unit in   section 80-IB(IO) as it stood prior to 1-4-2005 is suggestive of the   fact that the deduction is restricted to housing projects approved for   residential units only cannot be accepted.
25.   The above conclusion is further fortified by clause (d) to section   80IB(10) inserted with effect from 1-4-2005. Clause (d) to section   80IB(10) inserted with effect from 1-4-2005 provides that even though   shops and commercial establishments are included in the housing project,   deduction under section 80-IB(10) with effect from 1-4-2005 would be   allowable where such commercial user does not exceed five per cent of   the aggregate built-up area of the housing project or two thousand   square feet whichever is lower. By Finance Act, 2010, clause (d) is   amended to the effect that the commercial user should not exceed three   per cent of the aggregate built-up area of the housing project or five   thousand square feet whichever is higher. The expression 'included' in   clause (d) makes it amply clear that commercial user is an integral part   of a housing project. Thus, by inserting clause (d) to section 80IB(10)   the Legislature has made it clear that though the housing projects   approved by the local authorities with commercial user to the extent   permissible under the DC Rules/Regulations were entitled to section   80IB(10) deduction, w.e.f. 01.04.2005 such deduction would be subject to   the restriction set out in clause (d) of section 80IB(10). Therefore,   the argument of the revenue that w.e.f. 01.04.2005 the Legislature for   the first time allowed section 80IB(10) deduction to housing projects   having commercial user cannot be accepted."
2.10 Thus,   prior to 01.04.2005, there was no scope under Act for an undertaking to   construct any commercial space and project should be 100% in order to   avail benefit of section 80IB(10) has not found favour with the High   Court. Thus assessee was entitled to benefit of deduction u/s. 80IB(10)   in respect of profits derived from approved project including profits   from sale of commercial space. This factual legal background, need no   interference from our side on this point. We uphold the same.
3. In   respect of other reason that 21 bungalows violated the requirement of   residential unit being more than 1500 feet and therefore, the deduction   would be denied. The clause (a) of sub-section 14, introduced by the   Finance (No.2) Act, 2004 w.e.f. 01.04.2005 to define built up area   wherein projection commonly known as verandah is included in the   'built-up area'. The issue is whether the provisions of clause (a) of   sub-section (14) will have retrospective application or not? According   to CIT(A), restriction in 'built-up area' imposed for the first time   w.e.f. 01/04/2005 cannot have retrospective application. The Hon'ble   Karnataka High Court in the case of CIT v. Anriya Project Management Services (P.) Ltd. [2012] 209 Taxman 1/21 taxmann.com 140,   wherein this provision was examined. The question was whether the   definition of 'built-up area' inserted by Finance (No.2) Act, which   became effective from 01/04/2005 is prospective or retrospective in   nature. It was held to be prospective in nature. The said amendment   would have no application to the housing projects, which were approved   by the local authority prior to 01/04/2005 in calculating 1500 feet of   residential unit and it further held that once such housing project of   assessee is approved by local authority prior to 01.04.2005, it would be   entitled to 100% benefit of provisions of Section 80IB(10). Similarly,   this view has been taken by the Hon'ble Gujarat High Court in the case   ofManan Corpn. v. Asstt. CIT [2013] 214 Taxman 373/29 taxmann.com 15 wherein decision of assessee has reference of Supreme Court in the case of CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308/172 Taxman 386, CIT v. TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad), and National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [2003] 260 ITR 548/128 Taxman 361 (SC),   wherein on the point of retrospective date was held that criteria to   hold this amendment retrospective was absent as there was no explicit   retrospective specific wording expressing retrospectivity and even if it   is assumed for the sake of arguments that the same is to be read by   implication the same does not appear to be reasonable but, in fact   emerges to be harsh and unreasonable when it comes to implementation.   Thus, the amendment with respective built up area discussed above was   found substantive amendment and not clarificatory one. Accordingly, same   has no retrospective effect.
3.1 Without   prejudice to the above, the main limb on which deduction was denied was   for the reason that area of verandah was not excluded or exempt under   section 78(3) of the Bye-laws of Kolhapur Municipal Corporation. CIT(A)   following the decision of his predecessor, decided the issue in favour   of assessee with regard to 19 bungalows. With regard to bungalows C5 and   D5 which admittedly are more than 1500 sq.ft., but were sold to the   owners of the land and profit thereof has not been the subject matter of   section 80IB(10). Accordingly, no adverse view has taken by CIT(A).   Coming back to the issue of built up area as per bye-laws of Kolhapur   Municipal Corporation with regard to 19 bungalows mentioned above, we   find that Tribunal has set aside this issue to Assessing officer by   observing as under;
"9.   I have considered the submissions of the appellant. Themain issue   concerns the definition of built up area. There was no definition in the   Act of the term 'built up area' for the year under appeal. The Finance   Act of 2004 with effect from 01/04/2005 inserted the definition of built   up area at sub-section 14(1) of section 80IB. The 'built up area' was   defined as under:
Built   up area means the inner measurements of the residential unit at the   floor level including the projections and balconies as increased by the   thickness of the walls but does not include common areas shared with   other residential areas.
Technically   speaking, the definition of 'built up area' as given above will be   applicable only with effect from 01/04/2005. The Honourable Supreme   Court in a recent Five Judge Bench decision in the case ofCIT v. Varas International (P.) Ltd. [2006] 283 ITR 484 has   held that for an amendment to be construed as being retrospective, the   amended provision must indicate either by terms or by necessary   implication that it is to operate retrospectively. The Apex Court has   referred to its earlier decisions in the case of Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677, CIT v. Podar Cement (P.) Ltd.[1997] 226 ITR 625 (SC) and Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825 (SC).   The above judgement has cleared the controversy of whether a   clarificatory amendment should be construed as being retrospective   unless specified otherwise."
3.2 Facts   being similar, so following the same reasoning, we restore this issue   to Assessing Officer with similar directions. As a result, appeal of   revenue is partly allowed as indicated above. Similar issue arose in   other years. Facts being similar, so following the same reasoning, we   partly allowed the revenue's appeal as indicated above.
4. Cross   Objections filed on behalf of assessee are nothing but supporting the   order of CIT(A) which are taken care by us while disposing off revenue's   appeal, so they are also disposed off accordingly.
5. In   the result, all appeals filed by the revenue as well as cross   objections filed by assessee are partly allowed as indicated above.
SUNIL
  
  *Matter remanded.

-- 
In   this matter, the Hon 'ble Gujarat High Court quashed and set aside the   judgment of the Gujarat Value Added Tax Tribunal holding that the   Tribunal was not justified in deciding the appeal on merits of the   adjudication order when the appeal before it was against the order   passed by the first appellate authority dismissing the appeal on   non-deposit of pre-deposit and more particularly when all throughout the   learned advocate appearing on behalf of the appellant requested the   learned tribunal to remand the matter to the first appellate authority   and more particularly when as per the order passed by the tribunal, the   appellant had deposited the entire amount of pre-deposit and as the   first appeal preferred by the appellant for the earlier assessment year   was also pending before the first appellate authority. Source- Gadhvi   And Co. Vs. State Of Gujarat (Gujarat High Court), Tax Appeal No. 392 Of   2014, Date : 04/07/2014 - See more at: http://taxguru.in/income-tax-case-laws/tribunal-decide-appeal-merits-appellate-authority-dismissed-appeal-predeposit-gujarat-high-court.html#sthash.NAiAjjB8.dpuf
  

IT: Once Settlement Commission   has completed proceedings, its order is considered conclusive as regards   matters 'stated therein' per section 245-I and reopening any proceeding   in respect of matters covered in said order would be barred  

■■■

[2014] 46 taxmann.com 14 (Delhi)

HIGH COURT OF DELHI

Omaxe Ltd.

  v.

Deputy Commissioner of Income-tax*

S. RAVINDRA BHAT AND R. V. EASWAR, JJ.
W.P. (C) NO. 1451 OF 2013
APRIL  15, 2014 

Section   245-I read with sections 153C and 245D, of the Income-tax Act, 1961 -   Settlement Commission - Order of, to be conclusive (Reopening of   proceedings) - Assessment year 2006-07 - For relevant assessment year,   assessment was completed by an order of Settlement Commission -   Subsequently, in pursuance of search proceedings carried out in case of   another person, Assessing Officer issued a notice to assessee under   section 153C - Whether once Settlement Commission has completed   proceedings, its order is considered conclusive as regards matters   'stated therein' per section 245-I and reopening any proceeding in   respect of matters covered in order would be barred - Held, yes -   Whether, therefore, impugned notice issued to assessee under section   153C could not be sustained - Held, yes - Whether, however, it would be   open to revenue to move Settlement Commission for appropriate relief of   declaration that its previous order under section 245D(6) was void,   setting out relevant facts and circumstances - Held, yes [Para 17] [In   favour of revenue]

FACTS
 
■	 	   The assessee-company was engaged in real estate business. Pursuant to   search proceedings carried out at assessee's premises, a notice under   section 153A was issued.
■	 	   In response to said notice, the assessee filed its return for relevant   year declaring certain taxable income. Subsequently the assessee   approached the Settlement Commission to settle pending assessment.
■	 	   The Commissioner passed its order under section 245D(4), finally   determining the assessee's liability for assessment year in question.
■	 	   Later on, consequent to search in the premises of one 'M' in June,   2009, a satisfaction note was recorded by the Assessing Officer for   initiating proceedings under section 153C against the assessee.
■	 	   The assessee filed instant petition objecting to   assessment/reassessment of income contending that the assessment had   already been concluded by the order of the Settlement Commission.
HELD
 
■	 	   The finality which attaches itself to Settlement Commission's order is   in respect of the matters referred to it. The revenue's contention   appears to be that the non-disclosure of materials which have a bearing   on assessment year 2006-07, discovered or seized in search proceedings   concerning 'M', were not the subject matter of the Commission's   deliberations and consequently the subject matter of its order.   Attractive though this aspect appears to be, the ruling in Omaxe Ltd. v.   Asstt. CIT [2012] 209 Taxman 443/25 taxmann.com 190 (Delhi) precludes exercise of authority by the revenue.
■	 	Whilst   from the revenue's perspective, every non-disclosure or a fresh   discovery of facts which might have a bearing on the assessee's returns,   prima facie, stands excluded from what is referred to a Settlement   Commission, the fallacy in that argument is the Commission has a full   weight and the jurisdiction of all the authorities under the Income-tax   Act when it is seized of a matter.
■	 	   Concededly in this case, the subject matter before the Commission was   the submission of the assessee to its jurisdiction with respect to   assessment year 2006-07. Of course, the revenue contends that the   recovery of material in a third party's premises were not a subject   matter of the settlement proceedings, which got concluded on 17-3-2008.   However, equally its case can proceed only on the assumption that the   assessee was guilty of non-disclosure or suppression of material facts   which ought to have been primarily revealed to the Settlement Commission   when the application was moved under section 245D in the first place.
■	 	   The fallacy in the revenue's argument is that it overlooks the remedy   available for the revenue, i.e., to approach the Settlement Commission   under section 245D(6) contending that its previous order of 17-3-2008   ought to be reopened because the non-disclosure amounted to a fraud or   misrepresentation.
■	 	   It is evident from the various rulings of the Supreme Court that orders   of Settlement Commission are final and conclusive as to matters stated   therein. The 'matters' necessarily could comprehend disputed questions,   items or heads of income, disallowance, etc. or variants of it, but   always with reference to a particular assessment year. In this case, the   Settlement Commission was seized of assessment year 2006-07. Whilst   exercising its authority over the application, the Commission concededly   exercised the vast plenitude of its power or jurisdiction.
■	 	   The assessee had made a disclosure in its application as it was duty   bound to. What is in controversy today is that the subsequent event of   search and seizure operation conducted in the premises of 'M' in the   contention of the revenue have thrown light on material that had been   suppressed from the commission. If such is the case, it would be only   logical that the commission itself should be approached for a   declaration that its order of 17-3-2008 is a nullity. Allowing any other   authority, even by way of a notice under section 153C, would be to   permit multiple jurisdictions which can result in chaos. [Para 16]
■	 	   Finally, one cannot accept the argument of the revenue that the   definition of 'case' over which the Settlement Commission has exclusive   jurisdiction excludes proceedings for reassessment, under section   245A(i). This is because any reassessment proceedings that are sought to   be excluded from the purview of 'case' must be in respect of a section   148 notice sent while the proceedings before the Settlement Commission   are ongoing. Once the Settlement Commission has completed proceedings,   its order is considered conclusive as regards matters 'stated therein'   per section 245-I and reopening any proceeding in respect of matters   covered in the order would be barred. [Para 17]
■	 	   For the above reasons, it is held that the impugned notice issued to   the petitioner under section 153C cannot be sustained; the said notice   and all further proceedings are hereby quashed. It is open to the   respondent/Revenue to move the Settlement Commission for appropriate   relief of declaration that its previous order under section 245D(6) is   void, setting out the relevant facts and circumstances. In the event the   Revenue approaches the Commission with an application for such relief,   it shall be decided on its merits in accordance with law. [Para 18]
■	 	 The writ petition is allowed, but in the above terms. [Para 19]
CASES REFERRED TO
 
Omaxe Ltd. v. Asstt. CIT [2012] 209 Taxman 443/25 taxmann.com   190 (Delhi) (para 7), CIT v. Express Newspapers Ltd. [1994] 206 ITR   443/72 Taxman 438 (SC) (para 9), Vatika Farms (P.) Ltd. v. Union of   India [2008] 302 ITR 98/169 Taxman 366 (Delhi) (para 9), Brij Lal v. CIT   [2010] 328 ITR 477/194 Taxman 566 (SC) (para 9), R.B. Shreeram Durga   Prasad v. Settlement Commission [1989] 176 ITR 169/43 Taxman 34 (SC)   (para 15), Jyotendrasinghji v. S.I. Tripathi [1993] 201 ITR 611/68   Taxman 59 (SC) (para 15), Shriyans Prasad Jain v. ITO [1993] 204 ITR   616/70 Taxman 290 (SC) (para 15), Kuldeep Industrial Corpn. v. ITO   [1997] 223 ITR 840/90 Taxman 132 (SC) (para 15) and CIT v. Om Prakash   Mittal [2005] 278 ITR 326/143 Taxman 373 (SC) (para 16).

Ajay Vohra, Ms. Kavita Jha and Vaibhav Kulkarni for the Petitioner. Sanjeev Sabharwal and Ruchir Bhatia for the Respondent.

ORDER
 
S.   Ravindra Bhat, J. - In these writ proceedings under Article 226 of the   Constitution, the petitioner challenges a notice issued by the   respondents (hereafter called "the Revenue") under Section 153A of the   Income Tax Act ("the Act").

2.   The petitioner company is engaged in real estate business. Its premises   were searched on 22.9.2005, and other dates. It filed its return on   30.11.2006 declaring a net taxable income of Rs.89,20,76,630/-. The   petitioner had earlier been issued separate notice under Section 153-A   of the Act, on 19.4.2006. In response to the notice, the petitioner   stated that its returns filed for 2000-2006 be treated as reiterated   under Section 153A. On 31.5.2007, the petitioner approached the   Settlement Commission to settle pending assessments for AY 2000-2001 to   2006-2007 and declared an additional income of Rs.18.75 crores.   Initially, after hearing parties, the Commission admitted the   application for hearing and disposal. On 17.8.2008, the Commission   passed its order under Section 245D(4), finally determining the   petitioner's liability, for 2004-05 to 2006-07.

3.   The AO issued notice under Section 148, on 30.6.2010 proposing   reopening of assessment for 2006-07. The petitioner objected to this on   30.7.2010; those objections were rejected by the AO on 30.10.2010. In   this background, the AO passed the final reassessment order on   08.11.2011. This was challenged in WP(C) 7975/2011 filed by the   petitioner.

4.   In the meanwhile, consequent to search in the premises of one Mr.   Surinder Modi in June, 2009, a satisfaction note was recorded by the AO   (of Shri Modi) for initiating proceedings under Section 153C of the Act   against the petitioner for 2004-05 to 2009-10. The Revenue, consequent   to search (in the case of Mr. Modi), issued notices under Section 153C   of the Act seeking to reassess the petitioner's income, inter alia, for   assessment years 2004-05 to 2009-10. Responding to notice dated   26.12.2011 issued under Section 153C of the Act, the petitioner objected   to assessment/ reassessment of income for assessment years 2004-05 to   2006-07 under the said provision since the assessments had already been   concluded by the order of the Settlement Commission dated 17.03.2008.

5.   This Court by judgment dated 13.07.2012 allowed WP(C) No.7975/2011 and   quashed the notice for reassessment under Section 147 of the Act (dated   30.6.2010) for the AY 2006-07.

  6. The Revenue rejected the objections of the petitioner preferred   against the notice under Section 153C. The petitioner thereafter filed   detailed objections to notice dated 26.12.2011 issued under Section 153C   of the Act, inter alia, objecting to assessment/ reassessment of income   for assessment years 2004-05 to 2006-07, particularly in the light of   the judgment of this Court dated 13.07.2012. The Revenue issued the   impugned order dismissing the said objections. During the course of   proceedings under Section 153C, the Revenue also issued notices under   Section 142(1) inter alia calling for detailed information pertaining to   the assessment years in question.

7.   It is contended on behalf of the petitioner that by virtue of Section   245I, the finality attached to the Settlement Commission's order in   respect of a particular period - in this case AY 2006-07 cannot be   disturbed. It is argued that in the previous judgment of this Court -   reported as Omaxe Ltd. v. Asstt. CIT [2012] 209 Taxman 443/25 taxmann.com   190, the applicability of any other provision of law including Section   148 had been ruled out once an order is made by the Settlement   Commission.

8.   Counsel argues that upon receipt of application, the Commission   forwards it to the Commissioner. Under Rule 44CA (1), the Commission   calls for a report under Section 245D(1). Once the Settlement Commission   admits an application for final decision, all information in the   statements and application filed by the assessee are disclosed and   reports are furnished by the Commissioner. Thereafter upon assumption of   jurisdiction and the making of an admission order, it is the Settlement   Commission alone which has exclusive jurisdiction under Section 245F   (2) of the Act to pass orders in respect of the matters and related   aspects. For this purpose, it exercises powers and functions of all   Income Tax authorities.

9.   Learned counsel relies upon the decision of the Supreme Court in CIT v   Express Newspapers Ltd. [1994] 206 ITR 443/72 Taxman 438 and of this   Court in Vatika Farms (P.) Ltd. v Union of India [2008] 302 ITR 98/169   Taxman 366 to say that by virtue of Section 245D(4), the orders of the   Commission are final and conclusive to the matters stated there and   matters covered by it cannot be reopened in any proceedings under the   Act. Reliance is also placed upon the Constitution Bench decision of the   Supreme Court in Brij Lal v CIT [2010] 328 ITR 477/194 Taxman 566 where   it was held as follows :

'………	   Consequently, Section 234B, Section 245D(2C) and Section 245D(6A) in   Chapter XIX-A operates in different fields. To this extent, we agree   with the view expressed in Damani Brothers' case. Descriptively, it can   be stated that assessment in law is different from assessment by way of   settlement. If one reads Section 245D(6) with Section 245-I, it becomes   clear that every order of settlement passed under Section 245D(4) shall   be final and conclusive as to the matters contained therein and that the   same shall not be reopened except in the case of fraud and   misrepresentation. Under Section 245F(1), in addition to the powers   conferred on the Settlement Commission under Chapter XIX-A, it shall   also have all the powers which are vested in the income-tax authority   under the Act. In this connection, however, we need to keep in mind the   difference between "procedure for assessment" under Chapter XIV and   "procedure for settlement" under Chapter XIX-A……..' (refer page 500).

10.   The Revenue contends that the application preferred before the   Settlement Commission and an order related to five issues. The search   carried out in the case of Shri Modi was subsequent to its order, i.e.,   on 19.6.2009. The materials were not part of the settlement and more   importantly revealed fresh non-disclosure of facts concerning allotment   and transfer of 1.25 lakh sq.ft. area by the petitioner to Shri Modi at   Rs.3500/- per sq.ft. Furthermore, an agreement dated 03.10.2006 between   the petitioner and one Fantastic Buildcon (P) Ltd. for sale of a hotel   project and another letter of 19.3.2009 from the petitioner to the said   Fantastic Buildcon (P) Ltd. for payment of balance amount were seized.   These pointed to undisclosed income, which clearly were not the subject   matter of the settlement proceedings and therefore had not been decided   or adverted to. They stood excluded from the proceedings and the Revenue   could justifiably proceed under Section 153C of the Act.

11. The Revenue relies on Section   245D(4) of the Act to say that finality attaches itself only in respect   of the matters which are "stated therein", i.e., stated in the   application and dealt with in the order. Since the subject matter of   Section 153 notice and consequent proceedings were not dealt with, there   is no question of any finality. Counsel also argues that the exclusive   jurisdiction of the Settlement Commission under Section 245F(2) to   exercise powers and perform the functions of the IT Authorities was only   in relation to the "case", which, as defined in Section 245A(b) read   with proviso (i), refers to any proceeding for assessment pending before   an AO when the application for settlement is made, except a proceeding   for reassessment under Section 147. Thus, any reassessment attempted to   be initiated would not impermissibly interfere with the jurisdiction of   the Settlement Commission.

Analysis and Conclusions

12.   It is evident from the above discussion that on a previous occasion   when the petitioner's premises were searched, and Section 153A notice   was issued, it approached the Settlement Commission. The Commission made   its final orders determining the petitioner's liability. The AO,   subsequent to this event, issued a notice on 30.6.2010 under Section 148   proposing reassessment proceedings. On that occasion, this Court was   approached. The reassessment notice was quashed in Omaxe Ltd.'s case   (supra). The relevant discussion at that stage may be usefully   reproduced as extracted below :

'12. A conjoint reading of the   aforesaid provisions indicates that the ITSC is a high powered body   vested with powers to settle the case of an assessee. The order of   settlement is conclusive as expressly stated in Section 245I but the   argument of the Revenue is that it is conclusive only with regard to   matters stated in the order of settlement and in respect of matters not   stated therein, the Assessing Officer has the power to reopen the   assessment. It is further submitted that the assessee did not approach   the ITSC with regard to settlement of its claim for deduction under   Section 80IB(10) of the Act and there was no adjudication of the said   claim in the order of the ITSC. It is therefore submitted that the issue   relating to deduction under Section 80IB(10) is not a matter covered by   the order of the ITSC, and can be reopened by the Assessing Officer.

13.   We are afraid that the submission of the Revenue overlooks the fact   that in the return the assessee had claimed deduction of   Rs.78,99,00,509/- u/s. 80IB (10) and it was only after claiming such   deduction that the net taxable income was declared at Rs.89,20,76,630/-.   The Assessing Officer issued notices under Section 143(2) and 142(1) on   12.07.2007 but even before the questionnaire was issued the petitioner   had approached the Settlement Commission by an application filed on   31.05.2007. Under Section 245F(1), the ITSC, in addition to the powers   conferred on it under Chapter XIX-A, shall have all the powers which are   vested in an income-tax authority under the Act. By virtue of the   provisions of Section 245F (2) once the application for settlement was   filed and an order was passed allowing the application to be proceeded   with, it was the ITSC which has the exclusive jurisdiction to exercise   the powers and perform the functions of an income tax authority under   the Act relating to the case, till the final order of settlement is   passed under Section 245D (4). Thus the moment the application of the   assessee was allowed to be proceeded with by the ITSC till the final   order of the settlement is passed on 17.03.2008, it was the ITSC which   had exclusive jurisdiction in relation to the assessee's case.   Therefore, all matters which could be examined by the Assessing Officer   could be examined by the ITSC in these proceedings, including the   assessee's claim for deduction under Section 80IB (10). The total income   of the assessee for the assessment year 2006-07 has been computed by   the ITSC at Rs.89,38,76,630/- which is Rs.18,00,000/- more than the   income of Rs.89,20,76,630/- declared by the petitioner, which figure is   after the petitioner claimed deduction of Rs.78,99,00,509/- under   Section 80IB (10) It is irrelevant that no undisclosed income was   offered by the petitioner in regard to the housing project. Again a   harmonious reading of the provisions of the statute would show that it   does not postulate the existence of two orders, each of a different   income tax authority, determining the total income of an assessee for   the same assessment year. If the contention of the Revenue is accepted,   not only will the finality of the order of settlement be disturbed, but   it will also result in different orders relating to the same assessment   year and relating to the same assessee being allowed to stand. We have   grave doubts whether such a result, which is likely to create chaos and   confusion in the tax administration could have been intended. The order   of the ITSC can be reopened only in cases of fraud and misrepresentation   and in no other case.

 	**	**	**
19.   Thus if the observations made by the Court in the paragraph at page 484   of the report are read as a whole, it would be clear that the Court was   dealing with a plea which attributed an active role as an income tax   authority to the ITSC even during the pendency of the application till   an order under Section 245D (1) was passed and thereafter once an order   was passed allowing the application to be proceeded, a role combining   the functions of both an assessing authority and an authority settling   the case. The Court repelled the plea by clarifying certain observations   made by the Supreme Court in CIT v. Express Newspapers Ltd. [1994] 206   ITR 443. What the learned standing counsel relied upon before us are   observations of the Court clarifying the earlier observations made in   the case of Express Newspapers Ltd. (supra). The gist and purport of the   observations made by the Supreme Court in the case of Damani Brothers   (supra), however, is not what the learned standing counsel would like us   to accept. These observations of the Supreme Court in Damani Brothers   (supra) do not at all support his plea that the matter relating to the   deduction under Section 80IB (10) could not have been before the ITSC.   The observations of the Supreme Court in Damani Brothers (supra)   clarifying the observations of the Court in Express Newspapers Ltd.   (supra) only mean that the ITSC does not deal with the disclosed income   of the assessee even before it decides to proceed with the case by   passing an order under Section 245D (1). It does not however imply that   once an order is passed under the aforesaid provision, the ITSC does not   deal with both the disclosed and undisclosed incomes of the assessee.   On the contrary, it would inevitably follow that once a settlement   application is allowed to be proceeded with, the entire case stands   transferred to the ITSC and thereafter it is the ITSC alone which shall   have exclusive jurisdiction to exercise the powers and perform the   functions of an income tax authority under the Act in relating to the   case, as emphatically stated in sub-section (2) of Section 245F of the   Act. In Damani Brothers (supra) the Supreme Court was explaining the   position during the pendency of the settlement application till an order   is passed under Section 245D (1) allowing the application to be   proceeded with. In the case before us, we are not concerned with that   position. The question here is what would be the position when an order   under Section 245D (4) is passed by the ITSC and whether such an order   can be construed as one dealing with the entire gamut of the return   filed by the assessee and the issues raised therein. While opining that   the observations of the Supreme Court in Damani Brothers (supra) are not   relevant to the factual situation or the legal dispute arising   therefrom in the present case, we hold that since the exclusive   jurisdiction to exercise the powers and perform the functions of an   income tax authority in relation to the case vests with the ITSC after   an order is passed under Section 245D (1) till the final settlement   order is passed under Section 245D (4), it is not possible to   countenance a situation where it can be said that the assessee's claim   for deduction under Section 80IB (10) was not the subject matter of the   order passed by the ITSC under Section 245D (4). It is further necessary   to keep in mind that Section245B (3) requires that the ITSC shall be   manned by "persons of integrity and outstanding ability having special   knowledge of and, experience in, problems relating to direct taxes and   business accounts". The provisions of Chapter XIX-A suggest that all   matters in relation to the case of the assessee shall be dealt with by   the ITSC just as an assessing authority would deal with them while   completing an assessment under Section 143 (3) of the Act. If this is   the position, it would be difficult to sustain the argument of the   revenue that the matter relating to the deduction under Section 80IB   (10) was not the subject matter of the final order of settlement. It   follows that the Assessing Officer had no jurisdiction to reopen the   assessment for the assessment year 2006-07 by issuing a notice under   Section 148 of the Act on the ground that the deduction was wrongly   allowed.

20.   The issue can also be viewed from another angle. Barring the exception   of the provisions relating to appeal and revision, the Act does not   contemplate or provide for disturbing the finality of an order or   proceeding passed or completed by an income-tax authority, by any order   or proceeding passed or initiated by a different income-tax authority.   An assessment order passed by an Assessing Officer can be rectified or   amended under Section 154 or Section 155 or reopened under Section148   only by him, and by no other income-tax authority. Similarly, an   assessment by way of settlement of a case, which is made by the ITSC,   can be reopened only by the ITSC and that too only in certain   circumstances. Applying this general principle that runs through the   Act, an assessment by way of a settlement order passed by the ITSC   cannot be reopened by a different authority, viz., the Assessing   Officer. The fact that the ITSC has not been designated as an   "income-tax authority" under Section 116 of the Act makes the position   "a fortiori". Section 147 of the Act does not employ language that   permits him to do so, nor are the powers and orders of the ITSC made   subject to the provisions of Section 147. Section 147 does not appear to   fit into the general scheme of Chapter XIX-A, which has been held to be   a self contained code by the Supreme Court in Brij Lal v. CIT [2010]   328 ITR 477 (SC).'

14.   It would be necessary to reproduce Sections 245D and 245I -both of   which are relevant for the present purposes. These provisions read as   follows:

"245D.   Procedure on receipt of an application under section 245C— (1) On   receipt of an application under section 245C, the Settlement Commission   shall call for a report from the Commissioner and on the basis of the   materials contained in such report and having regard to the nature and   circumstances of the case or the complexity of the investigation   involved therein, the Settlement Commission, shall, where it is   possible, by order, reject the application or allow the application to   be proceeded with within a period of one year from the end of the month   in which such application was made under section 245C:

Provided   that an application shall not be rejected under this sub-section unless   an opportunity has been given to the applicant of being heard :

Provided   further that the Commissioner shall furnish the report within a period   of forty-five days of the receipt of communication from the Settlement   Commission in case of all applications made under section 245C on or   after the 1st day of July, 1995 and if the Commissioner fails to furnish   the report within the said period, the Settlement Commission may make   the order without such report

(1A) Omitted by the Finance (No. 2) Act, 1991, w.e.f. 27-9-1991.

(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner.
  
(2A)   Subject to the provisions of sub-section (2B), the assessee shall,   within thirty-five days of the receipt of a copy of the order under   sub-section (1) [allowing the application to be proceeded with], pay the   additional amount of income-tax payable on the income disclosed in the   application and shall furnish proof of such payment to the Settlement   Commission.

(2B)   the Settlement Commission is satisfied, on an application made in this   behalf by the assessee, that he is unable for good and sufficient   reasons to pay the additional amount of income-tax referred to in   sub-section (2A) within the time specified in that sub-section, it may   extend the time for payment of the amount which remains unpaid or allow   payment thereof by installments if the assessee furnishes adequate   security for the payment thereof

(2C)   Where the additional amount of income-tax is not paid within the time   specified under sub-section (2A), then, whether or not the Settlement   Commission has extended the time for payment of the amount which remains   unpaid or has allowed payment thereof by installments under sub-section   (2B), the assessee shall be liable to pay simple interest at fifteen   per cent per annum on the amount remaining unpaid from the date of   expiry of the period of thirty-five days referred to in sub-section   (2A).

(2D) Where the additional amount of   income-tax referred to in sub-section (2A) is not paid by the assessee   within the time specified under that sub-section or extended under   sub-section (2B), as the case may be, the Settlement Commission may   direct that the amount of income-tax remaining unpaid, together with any   interest payable thereon under sub-section (2C), be recovered and any   penalty for default in making payment of such additional amount may be   imposed and recovered, in accordance with the provisions of Chapter   XVII, by the [Assessing] Officer having jurisdiction over the assessee.

(3)   Where an application is allowed to be proceeded with under sub-section   (1), the Settlement Commission may call for the relevant records from   the Commissioner and after examination of such records, if the   Settlement Commission is of the opinion that any further enquiry or   investigation in the matter is necessary, it may direct the Commissioner   to make or cause to be made such further enquiry or investigation and   furnish a report on the matters covered by the application and any other   matter relating to the case.

(4)   After examination of the records and the report of the Commissioner,   received under sub-section (1), and the report, if any, of the   Commissioner received under sub-section (3), and after giving an   opportunity to the applicant and to the Commissioner to be heard, either   in person or through a representative duly authorised in this behalf,   and after examining such further evidence as may be placed before it or   obtained by it, the Settlement Commission may, in accordance with the   provisions of this Act, pass such order as it thinks fit on the matters   covered by the application and any other matter relating to the case not   covered by the application, but referred to in the report of the   Commissioner under sub-section (1) or sub-section (3).

(4A)   In every application allowed to be proceeded with under sub-section   (1), the Settlement Commission shall, where it is possible, pass an   order under sub-section (4) within a period of four years from the end   of the financial year in which such application was allowed to be   proceeded with.

(5)   Subject to the provisions of section 245BA, the materials brought on   record before the Settlement Commission shall be considered by the   Members of the concerned Bench before passing any order under   sub-section (4) and, in relation to the passing of such order, the   provisions of section 245BD shall apply.

(6)   Every order passed under sub-section (4) shall provide for the terms of   settlement including any demand by way of tax, penalty or interest, the   manner in which any sum due under the settlement shall be paid and all   other matters to make the settlement effective and shall also provide   that the settlement shall be void if it is subsequently found by the   Settlement Commission that it has been obtained by fraud or   misrepresentation of facts.

(6A)   Where any tax payable in pursuance of an order under sub-section (4) is   not paid by the assessee within thirty-five days of the receipt of a   copy of the order by him, then, whether or not the Settlement Commission   has extended the time for payment of such tax or has allowed payment   thereof by installments, the assessee shall be liable to pay simple   interest at fifteen per cent per annum on the amount remaining unpaid   from the date of expiry of the period of thirty-five days aforesaid.

(7)   Where a settlement becomes void as provided under sub-section (6), the   proceedings with respect to the matters covered by the settlement shall   be deemed to have been revived from the stage at which the application   was allowed to be proceeded with by the Settlement Commission and the   income-tax authority concerned, may, notwithstanding anything contained   in any other provision of this Act, complete such proceedings at any   time before the expiry of two years from the end of the financial year   in which the settlement became void.

(8)   For the removal of doubts, it is hereby declared that nothing contained   in section 153 shall apply to any order passed under sub-section (4) or   to any order of assessment, reassessment or recomputation required to   be made by the Assessing Officer in pursuance of any directions   contained in such order passed by the Settlement Commission and nothing   contained in the proviso to sub-section (1) of section 186 shall apply   to the cancellation of the registration of a firm required to be made in   pursuance of any such directions as aforesaid.

 	**	**	**
245I.   Order of settlement to be conclusive Every order of settlement passed   under sub- section (4) of section 245D shall be conclusive as to the   matter stated therein and no matter covered by such order shall, save as   otherwise provided in this Chapter, be reopened in any proceeding under   this Act or under any other law for the time being in force."

15.   A facial consideration of the above provisions would reveal that the   finality which attaches itself to Settlement Commission's order is in   respect of the matters referred to it. The Revenue's contention appears   to be that the nondisclosure of materials which have a bearing on AY   2006-07, discovered or seized in search proceedings concerning Shri   Modi, were not the subject matter of the Commission's deliberations and   consequently the subject matter of its order. Attractive though this   aspect appears to be, the ruling in Omaxe (supra) precludes exercise of   authority by the Revenue. Whilst from the Revenue's perspective, every   non-disclosure or a fresh discovery of facts which might have a bearing   on the assessee's returns, prima facie, stands excluded from what is   referred to a Settlement Commission, the fallacy in that argument is the   Commission has a full weight and the jurisdiction of all the   authorities under the Income Tax Act when it is seized of a matter.   Concededly in this case, the subject matter before the Commission was   the submission of the assessee to its jurisdiction with respect to AY   2006-07. Of course, the Revenue contends that the recovery of material   in a third party's premises were not a subject matter of the settlement   proceedings, which got concluded on 17.3.2008. However, equally its case   can proceed only on the assumption that the assessee was guilty of   non-disclosure or suppression of material facts which ought to have been   primarily revealed to the Settlement Commission when the application   was moved under Section 245D in the first place. The fallacy in the   Revenue's argument is that it overlooks the remedy available for the   Revenue, i.e to approach the Settlement Commission under Section 245D(6)   contending that its previous order of 17.3.2008 ought to be reopened   because the non-disclosure amounted to a fraud or misrepresentation. The   observations in Brij Lal (supra) cited earlier are extremely pertinent   in this context Likewise, in Express Newspapers Ltd.'s case (supra), the   Supreme Court had earlier stated as follows :

'"…… It is equally evident that once an   application made under Section 245C is admitted for consideration   (after giving notice to and considering the report of the Commissioner   of Income Tax as provided by Section 245D) the Commission shall have to   withdraw the case relating to that assessment year (or years, as the   case may be) from the assessing/appellate/revising authority and deal   with the case, as a whole, by itself. In other words, the proceedings   before the Commission are not confined to the income disclosed before it   alone. Once the application is allowed to be proceeded with by the   Commission, the proceedings pending before any authority under the Act   relating to that assessment year have to be transferred to the   Commission and the entire case for that assessment year will be dealt   with by the Commission itself. The words "at any stage of a case   relating to him " only make it clear that the pendency of proceedings   relating to that assessment year, whether before the Assessing Officer   or before the appellate or revisional authority, is no bar to the filing   of an application under Section 245C so long as the application   complies with the requirements of Section 245C (refer page 451 plac.   E/F).'

The judgments in R.B. Shreeram Durga   Prasad v. Settlement Commission [1989] 176 ITR 169/43 Taxman 34 (SC),   Jyotendrasinghji v. S.I. Tripathi [1993] 201 ITR 611/68 Taxman 59   (SC)Shriyans Prasad Jain v. ITO [1993] 204 ITR 616/70 Taxman 290 (SC)   and Kuldeep Industrial Corpn. v. ITO [1997] 223 ITR 840/90 Taxman 132   (SC) are equally conclusive about the plenitude of powers conferred upon   the Settlement Commission.

16.   It is evident from the rulings of the Supreme Court that orders of   Settlement Commission are final and conclusive as to matters stated   therein. The "matters" necessarily could comprehend disputed questions,   items or heads of income, disallowance, etc. or variants of it, but   always with reference to a particular assessment year. In this case, the   Settlement Commission was seized of AY 2006-07. Whilst exercising its   authority over the application, the Commission concededly exercised the   vast plenitude of its power or jurisdiction. The petitioner had made a   disclosure in its application - as it was duty bound to. What is in   controversy today is that the subsequent event of search and seizure   operation conducted in the premises of Shri Modi -in the contention of   the Revenue - have thrown light on material that had been suppressed   from the Commission. If such is the case, it would be only logical that   the Commission itself should be approached for a declaration that its   order of 17.3.2008 is a nullity. Allowing any other authority, even by   way of a notice under Section 153C, would be to permit multiple   jurisdictions which can result in chaos. After all non-disclosure or   suppression of information in respect of what is required to be revealed   to the concerned authorities is akin to fraud and if it has a material   bearing on the outcome of the assessment, it would most certainly be   misrepresentation. During the course of hearing, the learned counsel for   the Revenue had voiced apprehensions that the Commission might well be   of the opinion that "misrepresentation" has to fall within the four   corners of the meaning of such expression under the Contract Act. This   Court sees no rationale for such apprehension. Misrepresentation has not   been defined under the Income Tax Act; importing the definition of   misrepresentation or for that matter fraud from the Contract Act in the   circumstances would not be appropriate. As one understands, the term   "misrepresentation" would mean failure to disclose material or facts   which are germane and relevant, or suppressing facts and materials which   are germane and relevant or holding out a falsehood which gives the   rise to an assumption that what is so stated or represented is true or   correct. These are only illustrative and by no means conclusive as to   what can be misrepresentation. The facts of each case would throw light   on whether the individual or person concerned was guilty of   misrepresentation having regard to the totality of the circumstances,   given the nature of duty cast on him or her. This interpretation is in   consonance with the ruling of the Supreme Court in CIT v Om Prakash   Mittal [2005] 273 ITR 326/143 Taxman 373 where it was held as follows:

"The   decision whether the order has been obtained by fraud or   misrepresentation of facts is that of the Commission. But it is not a   requirement that the Commission must suo motu initiate the action. If   the revenue has material to show that the order was obtained by fraud or   misrepresentation of facts it certainly can move the Commission for   decision on that issue. Otherwise, even if in a given case there is   material in abundance to establish that the order was obtained by fraud   or misrepresentation of facts, yet the void order would continue to be   operative because of the fortuitous circumstance that the Commission   does not suo motu initiate the proceeding. Merely because Section 245I   provides that the order of Settlement is conclusive it does not take   away the power of the Commission to decide whether the settlement order   had been obtained by fraud or misrepresentation of facts. Any other   interpretation would render sub-section (6) otiose. The Commission had   really missed the true scope and ambit of Section 245D(6). If the CIT   was able to establish that the earlier decision was void because of   misrepresentation of the facts, certainly it was open to the Commission   to decide that issue. It cannot be called by any stretch of imagination   to be review of the earlier judgment or the subsequent Bench sitting in   appeal over the earlier Bench's decision. Further the conclusions of the   Commission regarding the genuineness of the loan transactions were   arrived at without indicating reasons. It only referred to the   respective stands and the submissions of the assessee's counsel. That   was not the proper way to deal with the matter.

The   foundation for settlement is an application which assessee can file at   any stage of a case relating to him in such form and in such manner as   is prescribed. The statutory mandate is that the application shall   contain "full and true disclosure" of the income which has not been   disclosed before the assessing officer, the manner in which such income   has been derived. The fundamental requirement of the application under   Section 245C is that full and true disclosure of the income has to be   made, along with the manner in which such income was derived. On receipt   of the application, the Commission calls for report from the   Commissioner and on the basis of the material contained in the report   and having regard to the nature and circumstances of the case or   complexity of the investigation involved therein, it can either reject   the application or allow the application to be proceeded with as   provided in Section 245D(1).

It   has to be noted that the Commission exercises power in respect of   income which was not disclosed before the authorities in any proceeding,   but are disclosed in the petition under Section 245C It is not that any   amount of undisclosed income can be brought to the notice of the   Commission in the said petition. Commission exercises jurisdiction if   the additional amount of tax on such undisclosed income is more than a   particular figure (which at different points of time exceeded rupees   fifty thousand or rupees one hundred thousand, as the case may be). The   assessee must have in addition furnished the return of income which he   is or was required to furnish under any of the provisions of the Act. In   essence the requirement is that there must be an income disclosed in a   return furnished and undisclosed income disclosed to the Commission by a   petition under Section 245C There is a purpose why the legislature has   prescribed the condition relating to declaration of the order void when   it is obtained by fraud or misrepresentation of facts. It cannot be said   that there has been a true and fair declaration of income which is the   pre- requisite for settlement by the Commission. If an order is obtained   by fraud or misrepresentation of facts, it cannot be said that there   was true and fair disclosure. It was noted here that unlike Section 139   of the Act which provides for filing of revised return, there is no   provision for revision of an application made in terms of Section 245C.   That shows clear legislative intent that the applicant for settlement   has to make a true and fair declaration from the threshold. It is on the   basis of the application received that the Commissioner calls for   report to decide whether the application is to be rejected or permitted   to be continued. The declaration contemplated in Section 245C is in the   nature of voluntary disclosure of concealed income, but as noted above   it must be true and fair disclosure. Voluntary disclosure and making a   full and true disclosure of the income are necessary pre-conditions for   invoking the Commission's jurisdiction."

17.   Finally, this Court is not impressed by the argument of the Revenue   that the definition of "case" over which the Settlement Commission has   exclusive jurisdiction excludes proceedings for reassessment, under   Section 245A(i). This is because any reassessment proceedings that are   sought to be excluded from the purview of "case" must be in respect of a   Section 148 notice sent while the proceedings before the Settlement   Commission are ongoing. Once the Settlement Commission has completed   proceedings, its order is considered conclusive as regards matters   "stated therein" per Section 245I and reopening any proceeding in   respect of matters covered in the order would be barred.

18.   For the above reasons, it is held that the impugned notice issued to   the petitioner under Section 153C cannot be sustained; the said notice   and all further proceedings are hereby quashed. It is open to the   respondent/Revenue to move the Settlement Commission for appropriate   relief of declaration that its previous order under Section 245D (6) is   void, setting out the relevant facts and circumstances. In the event the   Revenue approaches the Commission with an application for such relief,   it shall be decided on its merits in accordance with law.

19. The writ petition is allowed, but in the above terms.

SUNIL
*In favour of revenue.


  IT: Where assessee owning a shopping mall, let out a small portion of   said mall, in view of fact that after a short period let out portion of   mall had been taken back and, moreover, in major portion of said   premises assessee was already carrying out his own business, rental   income derived from shopping mall was to be taxed as business income
IT:   Where Assessing Officer rejected assessee's claim for interest on   borrowed capital taking a view that loan was taken for acquiring   controlling interest in sister concern, in view of fact that interest   free advance available with assessee was far in excess of investment   made in purchasing shares of sister concern, it could be concluded that   borrowed funds had been utilized for business purpose and, therefore,   assessee's claim for deduction was to be allowed
■■■
  [2014] 46 taxmann.com 145 (Allahabad)
  HIGH COURT OF ALLAHABAD
Commissioner of Income-tax- I
v.
  Prakash Agnihotri*
ASHOK BHUSHAN AND SUNEET KUMAR, JJ.
IT APPEAL NO. 43 OF 2006†
MAY  23, 2014 
  Section 28(i), read with section 22, of the Income-tax Act, 1961 -   Business income - Chargeable as (Rental income) - Assessment year   1996-97 - Assessee owned an immovable property i.e. a shopping mall -   During relevant year, assessee let out a portion of said mall - Assessee   claimed that rental income derived from mall was taxable as income from   business - Assessing Officer held that rental income in question was to   be taxed as income from house property - Tribunal, however, allowed   assessee's claim - It was noted that after a short period, let out   portion of mall had been taken back by assessee and, moreover, in major   portion of said premises assessee was already carrying out his own   business - Whether in view of above, rental income arising from mall was   rightly taxed as business income - Held, yes [Para 15] [In favour of   assessee]
Section   36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital   (Loans to sister concern) - Assessment year 1996-97 - During relevant   year, assessee claimed deduction of interest paid on loan - Assessing   Officer opined that loan had been taken by assessee to purchase shares   of its sister concern in order to acquire controlling interest in said   company - He thus rejected assessee's claim taking a view that loan was   not taken for business purpose - Tribunal, however, allowed assessee's   claim - Whether since interest free advance available with assessee was   far in excess of investment made in purchasing shares of sister concern,   it could be concluded that borrowed funds had been utilized for   business purpose and, therefore, assessee's claim for deduction was   rightly allowed - Held, yes [Para 21] [In favour of assessee]
  FACTS
 
■   The assessee owned an immovable property i.e. a   shopping mall. During relevant year, assessee let out a portion of said   mall. The assessee claimed that rental income derived from mall was   taxable as income from business.
■   The   assessee had also borrowed certain loan during relevant year. The   interest paid on said loan was claimed as deduction under section 36(1)(iii).
■   The   revenue authorities held that rental income in question was to be taxed   as income from house property. It was further held that loan had been   taken by assessee to purchase shares of its sister concern in order to   acquire controlling interest in said company.
■   Accordingly,   it was concluded that purpose of investment being capital in nature,   interest paid on loan in question could not be allowed as deduction.
■   The Tribunal, however, allowed assessee's claim.
  ■ On revenue's appeal:
HELD
   
  ■ The   law is well settled that whether a particular letting is a business has   to be decided in the circumstances of each case and each case has to be   looked into from the businessman's point of view to find out whether   letting was the doing of business or exploitation of his property by an   owner. [Para 14]
■   There   being categorical findings of fact by the appellate authority as well   as the Tribunal that letting out was for the purposes of business after   considering all relevant facts and the fact that the premises City   Centre, the Mall, has been taken back by the assessee and further in   major portion of the premises assessee was already carrying out his own   business, it is opined that assessee has rightly shown his rental income   as business income. [Para 15]
■   As   regards payment of interest, in view of the findings recorded by the   appellate authority and Tribunal that interest free advance with the   assessee were far in excess to the investment made in purchasing the   share, it is proved that borrowed funds have been utilized in business.   Thus, there is no infirmity in the aforesaid findings of the appellate   authority and the Tribunal that assessee was entitled for deduction and   the addition was rightly deleted on the above score. [Para 21]
  CASES REFERRED TO
 
  Universal Plast Ltd. v. CIT [1999] 237 ITR 454/103 Taxman 493 (SC) (para 10), Sheetal Khurana Foods (P.) Ltd. v. ITAT [2011] 335 ITR 1/200 Taxman 33/11 taxmann.com 58 (Punj. & Har.) (para 12),CIT v. Chennai Properties & Investments Ltd. [2004] 266 ITR 685/136 Taxman 202 (Mad.) (para 13),CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) (para 18) and Sarabhai Sons (P.) Ltd. v. CIT[1993] 201 ITR 464 (Guj.) (para 21).
A.N. Mahajan for the Appellant. S.D. Singh for the Respondent.
  ORDER
 
  Ashok Bhushan, J. - This appeal under Section 260-A of the Income   Tax Act, 1961 has been filed against the judgment and order dated 7th   July, 2005 of the Income Tax Appellate Tribunal in Income Tax Appeal No.   397/Allahabad/2000. The appeal has been admitted on following questions   of law:
  "(i)   Whether the Income Tax Appellate Tribunal was justified in law in   directing the Assessing Officer to assess the rental income from the   properties as 'income from business' relying on the judgment of Apex   Court in the case of Universal Plast Ltd. v. CIT (99) 103 Taxman 493 (SC), without appreciating that the facts of the case as mentioned above were different from the assessee's case?
(ii)   Whether   the Income Tax Appellate Tribunal was justified in law in dismissing   the appeal of the Department confirming the order of the CIT(A), Kanpur   directing the Assessing Officer to assess the rental income of Rs. 3   lakhs from letting out of City Centre, the Mall, Kanpur as 'income from   business' instead of income from 'House Property' without properly   appreciating the facts of the case?
(iii)   Whether   the Income Tax Appellate Tribunal was justified in law in dismissing   the appeal of the Department confirming the order of the CIT(A), Kanpur   deleting the addition of Rs. 5,26,213/- on account of disallowance of   interest on borrowed capital without properly appreciating the facts of   the case?"
2. The   brief facts of the case giving rise to this appeal are; the assessee   owns the properties namely, 12/483, Mac Robertganj, Kanpur and City   Centre, the Mall, Kanpur. The assessee was receiving yearly rent of Rs. 3   lakhs from the above properties. The above receiving was claimed as   business income against which the depreciation was also claimed. The   return was filed by the assessee for the assessment year 1996-97 showing   rental income of Rs. 3 lakhs from the aforesaid two properties. In the   return of the assessee, the above amount was reflected as 'business   income' against which assessee claimed depreciation. During the   assessment year, assessee had taken interest bearing unsecured loans of   Rs. 39,27,645/- and secured loan of Rs. 3,45,343/- and has paid interest   of Rs. 5,26,213/- which was claimed as revenue expenditure. The   assessee had made investment of Rs. 88,90,354/- in the shape of purchase   of shares of its sister concern, namely, M/s Society Motors Ltd.
3. The   assessee claimed that loans are part of the working capital of   business. The assessee claimed the interest as revenue expenditure. The   Assessing Officer vide his order dated 7.7.2005 rejected the claim of   the assessee that income of Rs. 3 lakh from the aforesaid two properties   is a business income. The Assessing Officer held that the said income   as income from house property.
4. The   claim that interest is revenue expenditure was denied and the interest   of Rs. 5,26,213/- was added back to the income of assessee. Against the   order of Assessing Authority, the assessee filed appeal before the   Commissioner of Income Tax (Appeals). The Appellate Authority vide its   order dated 12.1.2000 allowed the appeal of the assessee. The Appellate   Authority held that the income received from the two properties is   business income. It was further held that interest was an allowable   expenditure under Section 57(iii) of the Income Tax Act. Against the   order of appellate Authority, the department filed an appeal before the   Income Tax Appellate Tribunal which appeal was dismissed by the Tribunal   by its order dated 7th July, 2005 against which order this appeal has   been filed by the revenue.
5. We   have heard Sri R.K. Upadhyay, learned counsel appearing for the Revenue   and Sri S.D. Singh, learned Senior Advocate appearing for the assessee.
6. Sri   Upadhyay in support of the appeal has submitted that the rent is   received by the assessee as owner of the buildings and not on account of   commercial exploitation of the commercial assets. He submits that   merely, because a property is capable of being used for running business   therein, it does not become a commercial assets. With regard to claim   of interest of the assessee it is submitted that Tribunal has wrongly   placed the burden of proof on the department. It is for the assessee to   prove that the investment in shares has not been made from the money   borrowed on interest.
7. It   is further submitted that investment in share of Society Motors has   been for acquiring interest and not for the purpose of earning income.   Interest on such investment is on capital account and, therefore, not   allowable deduction.
8. Sri   S.D. Singh, learned Senior Advocate appearing for the assessee refuting   the submission of learned counsel for the revenue submitted that   findings of fact has been recorded by the Tribunal that City Centre   premises, given on rent to M/s Society Motors Ltd. has been taken back   by the assessee and the business has started from that premises which   clearly indicate that property was given on rent for a temporary period   with a view to exploit a commercial asset on account of financial   crises. The assessee had no intention to let out the premises   permanently. He submits that the income derived from letting out of the   aforesaid commercial asset has rightly been treated as business income.   In so far as the deduction claimed by the assessee on the interest is   concerned, it is submitted that interest fee advances with the assessee   were far in excess to the investment made in purchasing the shares. He   submits that assessee has rightly been held entitled for deduction and   the order of Tribunal is correct.
9. We have considered the submission of learned counsel for the parties and perused the record.
10. The first two questions are interrelated and are being taken together. The Apex Court in Universal Plast Ltd. v. CIT [1999] 237 ITR 454/103 Taxman 493 has   laid down general principles to determine as to when the income can be   treated to be income from business or income from house property. It is   useful to refer to preposition of law as laid down by the Apex Court in   the above judgment, which is to the following effect:
In the light of the above discussion, the propositions may be summariseds as follows:
(1)   no   precise test can be laid down to ascertain whether income (referred to   by whatever nomenclature, lease, amount, rents, licence fee) received by   an assessee from leasing or letting out of assets would fall under the   head "Profits and gains of business or profession";
(2)   it   is a mixed question of law and fact and has to be determined from the   point of view of a businessman in that business on the facts and in the   circumstances of each case, including true interpretation of the   agreement under which the assets are let out;
(3)   where   all the assets of the business are let out, the period for which the   assets are let out is a relevant factor to find out whether the   intention of the assessee is to go out of business altogether or to come   back and restart the same;
(4)   if   only a few of the business assets are let out temporarily, while the   assessee is carrying out his other business activities, then it is a   case of exploiting the business assets otherwise than employing them for   his own use for making profit for that business; but if the business   never started or has started but ceased with no intention to be resumed,   the assets also will cease to be business assets and the transaction   will only be exploitation of property by an owner thereof, but not   exploitation of business assets.
11. From   the statement of facts and the facts as noted in the order of Assessing   Authority, it is clear that both the aforesaid properties are owned by   the assessee. Portion of the premises that is 2/3rd of premises no.   12/483 of Mac Robertganj, Kanpur and 3/4th of the premises of share of   the City Centre, the Mall is being used by the assessee himself as his   commercial office and workshop. It is an admitted fact that the   appellant is carrying on his own business without any break. Only   certain portion of two properties in question were let down by the   assessee due to certain financial crisis. The properties were business   assets and used by the appellant for his own business. Finding has also   been recorded by the Appellate Authority that appellant/assessee had   taken back the City Centre Showroom from M/s Society Motors Ltd. As laid   with the Apex Court, the intention of the parties in letting out the   premises is important factor and it depends upon case to case, as to for   what purpose the properties had been let out. The Tribunal after   considering all the relevant factors has recorded findings and came to   the conclusion that letting out of the commercial asset was business   income. It is useful to get paragraph 4 of the judgment which is to the   following effect:—
"We have considered the rival submissions. The Hon'ble Supreme Court in the case of Universal Plasts Ltd. 103 Taxman 493,   has held that no precise test can be laid down to ascertain whether   income by way of lease amount, rent, licence fee etc received by an   assessee from leasing or letting out of the assets would fall under the   head 'profits and gains of business or profession'. It is a mixed   question of law an fact and has to be determined from the point of view   of the business and circumstances of each case including the true   interpretation of the agreement. The period for which the assets are let   out was a relevant factor. The intention of the assessee was also   important. The Hon'ble Supreme Court also observed that if certain   business assets was let out temporarily while the assessee is carrying   out the other business activities then it is a case of exploiting the   assets otherwise than employing them for own use of making profit for   that business. But if the business never started or has started but   ceased with no intention to be resumed, the assets will also cease to be   business assets and the transaction will only be exploitation of the   property by an owner thereof but not exploitation of business asset.   Keeping in view the observations of the Hon'ble Supreme Court, we have   examined the facts of the case. We find that the City Centre premises   which was given on rent to M/s Society Motors Ltd has been taken back by   the assessee and the business has started from this premises. This   clearly indicates that the properties were given on rent for a temporary   period with a view to exploit a commercial asset on account of   financial crisis. The assessee had no intention to let out the other   property i.e. 12/483, Mac Robertganj, permanently. He is continuing his   business and using the same as his business premises. Therefore, the   income derived from letting out of the commercial asset was 'business   income'. The order of the ld. CIT(A) is in accordance with the ratio   laid down by the Hon'ble Supreme Court and we do not find any infirmity   in the same while upholding the finding of the ld. CIT(A), we dismiss   the ground of appeal raised by the Revenue."
12. Learned counsel for the revenue has relied on a Division Bench judgment of Punjab & Haryana High Court in Sheetal Khurana Foods (P.) Ltd. v. ITAT [2011] 335 ITR 1/200 Taxman 33/11 taxmann.com 58. The Division Bench of Punjab & Haryana High Court laid down following proposition in paragraph 14 which is as follows:
"Whether   the income falls under the head of business income or income from   property has to be decided from case to case depending on the question   whether the transaction involved business activity or merely deriving   rental income. One of the determining factors may be whether the   transaction is a normal part of the business of the assessee. If the   business of the assessee has nothing to do with the renting of property   and renting is an isolated transaction to earn property income, the mere   fact that such income will result in reduction of business loss is not   enough to hold that it will fall under the head of business income. If   this was to be the sole test, every rental income of a businessman has   to be held to be business income which is not the statutory scheme as   held by the hon'ble Supreme Court particularly in East India Housing and   Land Development Trust Ltd. vs. CIT [1961] 42 (SC)."
13. Another judgment relied by Sri Upadhyay is CIT v. Chennai Properties & Investments Ltd. [2004] 266 ITR 685/136 Taxman 202 (Mad.).   The Madras High Court also laid down proposition to the similar effect.   It is useful to quote following laws which is as follows:
"Although it was held by the Constitution Bench in the case of Sultan Brothers [1964] 51 ITR 353 (SC)that   whether a particular letting is business has to be decided in the   circumstances of each case and that each case has to be looked at from a   businessman's point of view to find out whether the letting was the   doing of a business or the exploitation of his property by an owner, in   all the cases which have come before the courts involving commercial or   residential buildings owned by assessees it has been held that the   income realized by such owners by way of rental income from a building,   whether a commercial building or residential house, is assessable under   the head "Income from house property" The only exceptions are cases   where the letting of the building is inseparable from the letting of the   machinery, plant and furniture In such cases, it has been held that the   rental would not have been realized but for the letting out of the   machinery, plant or furniture along with such building and therefore the   rental received for the building is to be assessed under the head   "Income from other sources"
14. The   proposition of law as laid down in the above noted cases is to the   effect that whether a particular letting is a business has to be decided   in the circumstances of each case and each case has to be looked into   from the businessman's point of view to find out whether letting was the   doing of business or exploitation of his property by an owner.
15. There   being categorical findings of fact by the Appellate Authority as well   as the Tribunal that letting out was for the purposes of business after   considering all relevant facts and the fact that the premises City   Centre, the Mall, has been taken back by the assessee and further in   major portion of the premises assessee is already carrying out his own   business, we are of the view that assessee has rightly show his above   income as business income.
16. In view of the fore coming discussion, question no. 1 and 2 are answered in favour of the assessee and against the revenue.
17. Now we come to the question no. 3. The Assessing Officer while noticing the interest on loans observed as under:—
"During   the examination of books of account it was observed that the assessee   has taken interest bearing unsecured loans of Rs. 39,27,645/- and   secured loan of Rs. 3,45,343/- and has paid interest of Rs. 5,26,213/-   which is claimed as revenue expenditures in the P&L A/C. On the   other hand the assessee has made investment of Rs. 88,90,354/- in the   shape of share purchase of its sister concern namely M/s Society Motors   Ltd. Out of the above amount, Rs. 55,50,354/- has been brought forwarded   as opening balance. The dealing in shares is not the business of   assessee. It is an investment for him. Thus, it is clear that the   assessee has diverted interest bearing loans taken for business purposes   to the interest free investments being non business purposes, in the   shape of purchase of shares."
18. The   appeal filed by the assessee against the order of Assessing Officer was   allowed. The appellate Authority has noted that opening balance of   advance from the customer was Rs. 36.92 lakhs as on 1.4.1996, such   amount was interest free advance form the customers. Appellate Authority   noted that much less amount was utilized for purchase of share of M/s   Society Motors Pvt. Ltd. The appellate Authority accepted the plea of   the assessee that he had more interest free funds available with him   than what he utilized in purchase of share of M/s Society Motors Pvt.   Ltd. during the relevant accounting year, therefore, rest of the money   was utilized only for the business purpose. The appellate Authority has   rightly relied on the judgment of the Apex Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519.   The Apex Court in the above case held that even utilization of money   for purchase of share which has not yielded any dividend was admissible   as allowable deduction under Section 57 (III) of the Income Tax Act,   following was observed by the Apex Court.
Where   the assessee borrowed money for the purpose of making investment in   certain shares and paid interest thereon during the accounting period   relevant to the assessment year but did not receive any dividend on the   shares purchased with those money. Held, accordingly, that the interest   on money borrowed for investment in shares which had not yielded any   dividend was admissible as the deduction under Section 57(iii) of the   Income Tax Act, 1961, in computing its income from dividend under the   head income from other sources.
19. After   considering the submission of learned counsel for the parties, the   Tribunal recorded following findings in paragraph 7 which is as follows:
"7.   We have considered the rival submissions. We find that during the   course of first appellate proceedings, the assessee had claimed that the   opening balance of advances from the customers was Rs. 36.92 lakhs as   on 1.4.1996. Such amount was interest free advance from the customers.   Thus, this amount was available with the assessee for making advances.   It was also claimed that much less funds were utilized for the purchase   of shares of M/s Society Motors Ltd. Thus, the investment in shares was   much less than the interest free advances received by the assessee   during the year under consideration. The ld. CIT(A) appreciated these   facts and allowed claim of the assessee. It is settled law that if the   assessee has claimed the deduction of interest it has to prove that the   borrowed funds have been utilized by it in its business but if part of   the interest bearing funds have been diverted to other parties on which   no income was being earned, the proportionate interest has to be   disallowed. But for this, the Revenue has to prove that the interest   bearing funds have been diverted to other concerns for non-business   purposes. In the instant case, we find that the interest free advances   with the assessee were far in excess of advances/investment made in   purchasing the shares. The ld. CIT(A) has, therefore, rightly   appreciated the facts and deleted the addition. We do not find any   infirmity in the same and while upholding his findings, we dismiss the   grounds of appeal raised by the Revenue."
20. The appellate Tribunal appreciated the facts of the case and was justified in confirming the order of CIT(A).
21. The judgment of Gujarat High Court in Sarabhai Sons (P.) Ltd. v. CIT [1993] 201 ITR 464 was   case on its own fact. In the above case the High Court has held that   the shares were purchased by the assessee not for the purpose of earning   income but were purchased by the assessee with clear purpose on object   of getting 100% control over S0ML. Following was observed by the Gujarat   High Court:—
Thus,   from the nature of the transaction, it becomes apparent that the   expenditure which was incurred by the assessee was not for the purpose   of earning income, but for the purpose of getting full control over   SOML. Thus, applying the test as laid down in Kasturbhai Lalbhai's case [1968] 70 ITR 267 (Guj) and Smt. Virmati Ramakrishna's case [1981] 131 ITR 659 (Guj) to   the facts of this case, it becomes clear that the dominant purpose for   which expenditure was incurred was not to earn income. At the highest,   it was a mixed purpose. For that reason, it will have to be held that   the expenditure incurred in that behalf fell outside the purview of   section 57(iii) of the Act.
22. In   view of the findings recorded by the Appellate Authority and Tribunal   that interest free advance with the assessee were far in excess to the   investment made in purchasing the share, it is proved that borrowed   funds have been utilized in business. We do not find any infirmity in   the aforesaid findings of the Appellate Authority and the Tribunal that   assessee was entitled for deduction and the addition was rightly deleted   on the above score.
23. In view of the aforesaid, we answer question no. 3 in favour of assessee and against the revenue.
24. In result, all the three questions are answered in favour of the assessee and against the Revenue. The appeal is dismissed.
SUNIL
  
  *In favour of assessee.
  †Arising out of order of Tribunal in Appeal No. 397/All/2000, dated 7-7-2005.

-- 
Regards,
Pawan Singla , LLB
M. No. 9825829075
Reintroduction Of Inheritance Tax- A Way to Bridge Gap In Fiscal Deficit Posted In Income Tax | Articles | No Comments »
       
Aastha Grover
An inheritance tax or Estate tax or Death duty is a tax paid by a person who inherits the assets   of the deceased. It is a tax on the assets which a person receives   after the demise of the transferor. In international tax law, there is   disparateness between an estate tax and an inheritance   tax: an estate tax is levied on the assets of the deceased, while an   inheritance tax is levied on the assets received by the heirs. Estate   tax was there in India from 1953-1985.The reason for its abolition was   that administrative cost was more than the tax collection. Government intends to reintroduce the estate duty for the following reasons.
INHERENT TAX A BOON FOR THE GOVERNMENT
1. Government is expecting that the revenues collected through this would be more than the administrative cost.
2. There would be a direct correlation between the tax collected and wealth generated.
3. Property or wealth inherited is a   casual income i.e one acquires wealth/estate without any efforts or   incurring any cost. Thus such acquisitions should be taxed.
4. Now people can easily afford to pay such taxes.
5. Inherent tax would reduce the income disparity and would serve as a equalizer for the Indian society.
6. Introduction of such tax would bring the heirs at par.
The proposed reintroduction stems from   the fact of accumulation of wealth in a few hands, inter-generational   equity (for the heir it serves as capital) and a possible increase in   contribution to the national exchequer.
Earlier the estate duty was payable by   the executors of the estate of a deceased. The maximum slab rate on an   estate exceeding Rs 20 lakh was an exorbitant 85 percent
 REASONS FOR ABOLISHMENT
1. Complexity of the act owing to   application of different valuation rules for different kinds of   property, leading to several tax demands.
2. Moreover, the duty was perceived to be a form of double taxation on the same property – wealth tax before death and estate duty after death.
Along with the introduction of   inheritance tax, the gift tax would have to be reintroduced   simultaneously or else it would be easy to avoid inheritance tax by   giving away property as gifts.
Currently, there is no separate Gift Tax   Act. However, there is a provision under section 56(2) of the   Income-tax Act wherein certain specified gifts are chargeable to tax.   However, section 56(2) exempts from tax gifts received under will or by   way of inheritance and in contemplation of death.
Inheritance tax may be reintroduced as   an amendment to the existing provisions of section 56(2) of the   Income-tax Act, by withdrawing the exemptions on gifts under will, inheritance and in contemplation of death.
Inheritance tax, if introduced, would   require the heir to the deceased to pay on the property bequeathed to   him at a rate probably ranging from 30-40 percent, subject to certain   exemptions.
A tax imposed on those who inherit assets from a deceased person. The tax rate   for inheritance taxes depends on the value of the property received by   the heir or beneficiary and his/her relationship to the decedent.
NO TAX ON INHERITANCE
According to the present Indian income-tax law, no tax is applicable   on inheriting property in India. However, tax is applicable when one   sells it i.e capital-gains tax is applicable. If the inheritor is an   NRI, the seller of the property is required to withhold the tax amount   "Tax at Source". However this can be avoided if the purchaser of the   property makes an application u/s 195 (2) or the seller (the NRI   inheritor) submits an application u/s 197. Proceeds from the sale of the   property are credited to the NRO A/c, which can be repatriated.
If an individual inherits any financial assets in India, no tax has   to be paid on them. However, if these assets lead to generation of   income/gains, tax has to be paid accordingly.
WEALTH TAX
According to Indian tax Laws, no tax is   applicable on the value of inherited property. However, wealth tax would   be applicable if one possesses more than one property and the value of   the same is more than Rs 30 lakh. In such a case, wealth tax at the rate   of 1 per cent is applicable on the value of assets exceeding Rs 30   lakh.
If a person has inherited a property and resides in it and has only one house, rental income will not applicable as this house   will be considered as self-occupied property. However, where an   inheritor has more than one property, the second will be deemed let out   and rental income will be considered on it. The rental income will be   added to the income in the hands of the owner and will be charged   according to the income-tax slab.
CONCERNS DUE TO PROPOSAL OF REINTRODUCTION OF INHERITANCE TAX
1. It would ultimately amount to multiple taxation.
2. It may so happen that they may be   paying inheritance tax in India and they might have to pay in other   jurisdictions too thus amounting to double taxation.
3. For wealth tax there were different   rules. For gift tax there were different rules for valuation. If there   are multiple valuation rules and always there could be difference of   opinion, resulting into litigation.
4. It is complex to implement.
A DEBATE-ON INTRODUCTION OF INHERITANCE TAX
  
AGAINST THE MOTION
1.  It is less   cumbersome to collect tax revenue from due to the Voluntary compliance   scheme which has been introduced. If the Government decides to levy   Inheritance Tax, then the culture of the tax payers which has been   changed will take a u-turn and the exercise of the Government in   educating the tax payers for better compliance and achieving the desired   results as a result of tax rate deduction would all be washed away.   Rather the law makers should further simplify the tax laws of the   country to make it more tax payer friendly so that better revenue is   derived by the Government by way of income-tax collection.
2. Due to non-applicability of the   Inheritance Tax, Non-Resident Indians would be enticed to bring their   funds in India in their old age because most of them migrate.   Non-applicability of Inheritance Tax in India would be an inspiration   for Non-Resident Indians to revert back to their home country with all   their money in hand and save their Inheritance Tax which otherwise was   applicable in many other countries. If the Government were to think   about imposing of Inheritance Tax, then immediately there would be a   shift in the mindset of the tax payers of the country and it is expected   that black money and tax evasion transactions would soar.
3. Inheritance Tax world over is paid by   the person who inherits certain assets on the death of another person.   Due to Inheritance Tax, gifts are being made by tax payers before their   demise so that these assets are tax free and since transfer of assets in   contemplation of death are not chargeable to tax. In India if   Inheritance Tax is introduced, then tax payers would indulge in these   activities namely of gifting the asset while they are alive thereby   nullifying the impact of Inheritance Tax. But if Inheritance Tax is   expected to come, then such tax payers will do everything to break the   law and would distribute their assets during their life time whereby the   impact of tax collection would be visible right now and the purpose of   introduction of Inheritance Tax would be defeated.  Hence, the   Government should not at all think about introduction of Inheritance Tax   and it may be introduced later on depending on the situation.
FAVOUR OF THE MOTION
1. Once upon a time in India we had   "Estate Duty" which was payable after the death of the person on his   assets and the maximum rate of Estate Duty was 85 percent. So as to do   away of the Estate Duty the tax payers kept the money   under their control and would pay taxes on the same because there was   no fear of the Estate Duty liability being affected on them at the time   of their death. If today a fear is brought in the minds of the tax   payers about the likelihood introduction of the Inheritance Tax, in that   situation zillion tax payers of India would try to resort to illegal   way of keeping their assets and money so that they are not liable to   payment of Inheritance Tax if introduced in the country. Hence, the   Government should make a categorical announcement. i.e Tax should be   introduced only for persons having wealth exceeding  Rs.100 crores so   that majority of the tax payers of India are not affected at all.
2. Since in many countries Inheritance   Tax is in operation so non-Resident Indians who are based in those   countries are trying to come back to India after selling all their   assets abroad just to save Inheritance Tax.  For example in U.K the   families are liable to 40 per cent Inheritance Tax Bill on whatever they   inherit above pound 3,25,000. Although the allowance is double for   married couples they are supposed to settle the tax bill before they can   inherit any assets. In India the regime of Zero Inheritance Tax the   economy is flourishing and tax payers are now resorting to healthy   practices of tax payment and are not interested to carry on nefarious   activities and tax evading activities but in case Inheritance Tax comes   into picture, again we might have the atmosphere of a higher rise.
 - See more at: http://taxguru.in/income-tax/reintroduction-inheritance-tax-bridge-gap-fiscal-deficit.html#sthash.8reOjAAl.dpuf
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No.	Description of taxable service	%	Conditions
	Renting of any motor vehicle designed to carry passengers	40	CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
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Wednesday, July 9, 2014

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Reintroduction Of Inheritance Tax- A Way to Bridge Gap In Fiscal Deficit

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■		A Search and seizure operations was conducted on 19-1-1989 at the business premises of assessee firm and residential premises of partners. The assessee was not assessed to tax earlier. Notices under section 147(a)/148 were issued to the assessee for the assessment years 1986-87, 1987-88 and 1989-90 requiring the assessee to file return.
■		In response to the notices issued to the assessee, return was filed only for the assessment year 1989-90.
■		For remaining assessment years, assessee filed writ petition challenging validity of reassessment proceedings.
■		The High Court passed an order staying the reassessment proceedings. Subsequently, the writ petition was dismissed on 1-8-1995.
■		After dismissal of the writ petition, the proceedings for assessment were completed on 4-1-1996 by the Assessing Officer.
■		In appellate proceedings, one of the objection taken by assessee was that the interim order granted by the High Court was vacated on 1-8-1995, hence the original assessment was to be completed within 60 days i.e. up to 30-9-1995 in view of Explanation 1(ii) to section 153 (3), whereas the assessment having been made on 4-1-1996 was barred by time.
■		The Tribunal having accepted assessee's explanation, held that the assessment order dated 4-1-1996 was beyond the time prescribed under section 153(3) and thus it was barred by limitation.
■		On revenue's appeal:
■		The statutory scheme of Explanation 1(ii) of section 153 clearly indicates that for computing the period of limitation the period during which the assessment proceedings is stayed shall be excluded. In excluding the above period, the concept of communication of the order of the Court cannot be imported. The exclusion of the period has been provided because of stay or injunction by any Court during which the assessment proceedings are stayed.
■		The intention is clear that when the limitation for assessment has started it can be stayed only by an order or injunction of any Court and as soon as the order or injunction of the Court is vacated, the period of limitation shall re-start since after the vacation of the order of the Court, there is no embargo on the authorities to proceed with the assessment.
■		The submission of the revenue that the limitation will start again only when the order is communicated to the Department cannot be accepted. The other reason for not accepting the above submission is equally potent. Explanation 1(v) and (vi) to section 153 are also part of the same statutory scheme. In Explanation 1(v) and (vi) to section 153 the statutory scheme provides for computing the period of limitation from the date when the order under sub-section (1) of section 245D and 245Q is received by the Commissioner.
■		Thus, the legislature has provided for excluding the period from the date of communication of the order where they so intended. The use of concept of communication of receiving the order in the same provision which is absent in Explanation 1(ii) concerned clearly indicates that for the purposes of Explanation 1(ii), the communication of the order of the Court vacating the stay or injunction is not contemplated.
■		The provisions of section 153(3)(ii) are clear and explicit. The said provision provides that where the assessment, re-assessment or re-computation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order of any Court in a proceeding otherwise than by way of appeal or reference under this Act, the provisions of sub-section (1),(1a) and (1b), shall not apply.
■		Thus, where the assessment, re-assessment or re-computation is made on the assessee or any person in consequence of or to give effect to any finding or direction in an order of any Court in a proceeding otherwise than by way of appeal or reference under this Act, the period of limitation as provided under section 153(2) 1961 shall not be attracted.
■		In the order dated 1-8-1995, neither there is any finding nor there is any direction which can be relied on by the Assessing Officer for framing the assessment. There being neither any direction nor any finding within the meaning of section 153(3)(ii), the submission of revenue that there shall be no limitation for making assessment cannot be accepted.
■		In view of aforesaid, the Tribunal is justified in law in coming to the conclusion that the assessments made by the Assessing Officer barred by limitation on 30-9-1995 in view of the proviso to Explanation 1 to section 153(2).
"1.		Whether the Hon'ble ITAT has erred in law and on facts in annulling the assessment without appreciating the fact that the communication of dismissal of the assessee's writ petition against the proceedings initiated u/s 158BC of the I.T. Act, 1961, was made to the AO on 09.11.2009, and then the AO could not have proceeded to take up the assessment proceedings before 09.11.2009, consequently the period of limitation was counted from such date.
2.		Whether the Hon'ble ITAT has erred in law and on facts in applying the ratio of the decision of Hon'ble Court in the case of CCE v M.M. Rubber & Co. (1992) Suppl. WP (C) No.4821/2010 page 16 of 68 1 SCC 471 and Municipal Corporation of Delhi v. Qimat Rai Gupta & Others[2007] 7 SCC 209.
3.		Whether Hon'ble ITAT was justified in ignoring the provisions of Income Tax Act in the case of a proceeding under the I.T. Act and applying the provisions of High Court Rules which would be applicable in the case of proceedings in the High Court only."
Sl.No.	Description of a service	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1	in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business	Nil	100%
2	in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road	Nil	100%
3	in respect of services provided or agreed to be provided by way of sponsorship	Nil	100%
4	in respect of services provided or agreed to be provided by an arbitral tribunal	Nil	100%
5	in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services	Nil	100%
6	in respect of services provided or agreed to be provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994	Nil	100%
7	(a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business (b) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business	Nil 60%	100 % 40%
	in respect of services provided or agreed to be provided by way of supply of manpower for any purpose	25%	75 %
	in respect of services provided or agreed to be provided in service portion in execution of works contract	50%	50%
10	in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Nil	100%
■		The assessee, a builder, undertook construction of housing project which was approved by local municipal corporation prior to 1-4-2005.
■		The assessee filed its return claiming deduction under section 80-IB(10).
■		The Assessing Officer noted that built up area of some residential units exceeded maximum prescribed limit of 1500 sq.ft. He further noticed that the built up area of the shops and other commercial establishments was in excess of 5 per cent of aggregate built up area of the housing project.
■		The Assessing Officer, thus, taking a view that there was violation of provisions of section 80-IB(10), rejected assessee's claim for deduction.
■		The Commissioner (Appeals), however, allowed assessee's claim.
■		On revenue's appeal:
■		In the instant case, the insertion of definition of built up area in the context of completion of projects which has been approved and which has commenced prior to 1-4-2005 in the amended provision have to be appreciated. The assessee had undertaken construction of project the profits in respect of which has been claimed as deduction under section 80-IB(10).
■		According to Assessing Officer, the project did not fulfil basic requirements and conditions of limitation of built up area of 5000 sq. ft., per unit as laid down under the statute. He found two residential bungalows have area of about 1500 sq.ft. and 19 residential bungalows have area of beyond stipulated 1500 sq.ft. of verandah was also included.
■		The Assessing Officer noticed that project contained residential units built for owners of land and transferred to them in consideration as price in terms of development agreement, residential units to be sold to the public and shops for sale. He noted that project accounts were not maintained for two types of residential units and commercial space and that various expenses were of nature that they could not be segregated. He, therefore, held that entire project was one and that all bungalows were part of the project. He also observed that municipal authorities have given approval for construction of all units including bungalows in same proposal. He found that in revised proposal submitted to the concerned authorities and approved on the construction area of all bungalows including those being constructed for land owners, except two bungalows were found below 1500 sq. ft.
■		Thereafter, Assessing Officer applied provision of clause (a) of sub-section 14, introduced by the Finance (No.2) Act, 2004 with effect from to define built up area and included the area of verandah in built up area in respect of 19 others bungalows to hold that provisions of section 80-IB(10) were not complied with. He also noticed that area of verandah is not excluded or exempted under section 78(3) of the Bye-Laws of Kolhapur Municipal Corporation.
■		Therefore, he held that since verandah is a projection which is not a common area shares with other residential units and also because it is a part of total area which is not exempt under relevant bye-laws of the Kolhapur Municipal Corporation. Thus, according to the Assessing Officer since 21 residential units of the project violated provisions requiring residential units to be below 1500 sq.ft., deduction under section 80-IB(10)was not allowable.
■		Further, according to Assessing Officer, other condition of the total area of commercial shops was also violated in as much as the total built up area of shops (6701.43 feet) was found to be exceeding maximum limit of 2000 feet. According to Assessing Officer prior to 1-4-2005 there was no scope under the Act to construct any commercial space, hence, he held that by virtue of constructing and selling commercial space admeasuring 6701.43 feet, the assessee was not eligible for deduction under section 80-IB(10). [Para 2.8]
■		Regarding denial of deduction under section 80-IB(10) on account of construction and sale of commercial space admeasuring 6701.43 feet in the project sanctioned prior to 1-4-2005 as stated above, the project was approved by competent authority before 1-4-2005 meaning thereby that project was an approved housing project as per local DC Rules. On the date on which the legislature introduced 100 per cent deduction under the Act, on the profits derived from housing projects approved by a local authority, it was known that the local authorities could approve the projects as housing projects with commercial user to the extent permitted under the Development Control Rules framed by the respective local authority. The local authority could approve a housing project without or with commercial use to the extent permitted under Development Rules as held in CIT v. Brahma Associates [2011] 333 ITR 289/97 Taxman 459/9 taxmann.com 289 (Bom). [Para 2.9]
■		Thus, prior to 1-4-2005, there was no scope under Act for an undertaking to construct any commercial space and project should be 100 per cent in order to avail benefit of section 80-IB(10) has not found favour with the High Court. Thus, assessee was entitled to benefit of deduction under section 80-IB(10) in respect of profits derived from approved project including profits from sale of commercial space. This factual legal background, needs no interference. [Para 2.10]
■		In respect of other reason that 21 bungalows violated the requirement of residential unit being more than 1500 feet and therefore, the deduction would be denied. The clause (a) of sub-section (14), to section 80-IB, introduced by the Finance (No.2) Act, 2004 with effect from 1-4-2005 to define built up area wherein projection commonly known as verandah is included in the 'built-up area'. The issue is whether the provisions of clause (a) of sub-section (14) will have retrospective application or not? According to Commissioner (Appeals), restriction in 'built-up area' imposed for the first time with effect from 1-4-2005 cannot have retrospective application.
■		The Karnataka High Court in the case of CIT v. Anriya Project Management Services (P.) Ltd.[2012] 209 Taxman 1/21 taxmann.com 140, examined said provision. The question was whether the definition of 'built-up area' inserted by Finance (No.2) Act, which became effective from 1-4-2005 is prospective or retrospective in nature. It was held to be prospective in nature. The said amendment would have no application to the housing projects, which were approved by the local authority prior to 1-4-2005 in calculating 1500 feet of residential unit and it further held that once such housing project of assessee is approved by local authority prior to 1-4-2005, it would be entitled to 100 per cent benefit of provisions of section 80-IB(10).
■		Thus, the amendment with respective built up area discussed above was found substantive amendment and not clarificatory one. Accordingly, same has no retrospective effect. [Para 3]
■		Without prejudice to the above, the main limb on which deduction was denied was for the reason that area of verandah was not excluded or exempt under section 78(3) of the Bye-laws of Kolhapur Municipal Corporation. Commissioner (Appeals) following the decision of his predecessor, decided the issue in favour of assessee with regard to 19 bungalows. With regard to two bungalows which admittedly are more than 1500 sq.ft., but were sold to the owners of the land and profit thereof has not been the subject matter of section 80-IB(10). Accordingly, no adverse view has been taken by Commissioner (Appeals). Coming back to the issue of built up area as per bye-laws of Kolhapur Municipal Corporation with regard to 19 bungalows mentioned above, Tribunal has set aside this issue to Assessing officer. [Para 3.1]
■		Facts being similar, so following the same reasoning, this issue is restored to Assessing Officer with similar directions. As a result, appeal of revenue is partly allowed as indicated above. [Para 3.2]
"1.		Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in applying the ratio of the case Brahma Associates v. CIT-II, Pune when in fact the assessee has violated the provisions of section 80 IB(10)(d) of the I. T. Act, 1961.
2.		Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in allowing deduction u/s.80IB(10) of the I. T. Act, 1961 when the assessee had violated the condition laid down in section 80IB(10) (c ) of the said Act in constructing the 21 bungalows exceeding the limit of 1500 s.f.t. for each bungalow as provided in the said provision irrespective of the fact that such violation was marginal or more.
3.		Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in not appreciating that in order to claim deduction u/s.80IB(10) of the I. T. Act, 1961 the assessee has to fulfill all the conditions laid down therein and even non-fulfillment of a single condition shall debar the assessee from entitling to deduction under the said section.
4.		Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in not considering the fact of filing of Miscellaneous Petition by the AO before the ITAT for not considering two grounds in the appellate order passed, when the information relating re-assessment made by the AO pointing out such fact was in the possession of the Ld. CIT(A) and when the said issue was dominant in deciding the allowability of deduction u/s.80IB(10) of the act as claimed by the assessee.
5.		Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur was justified in holding that space occupied by 'verandah' has to be excluded for the purpose of calculating the 'built up area' of the bungalows.
6.		The order of the Ld.CIT(A), Kolhapur be vacated and that of the AO be restored.
7.		The appellant craves leave to add, alter, amend or modify any other grounds of appeal at the time of hearing."
(a)		such undertaking has commenced or commences development and construction of the housing project on or after the 1st day of October, 1998;
(b)		the project is on the size of a plot of land which has minimum area of one acre; and
(c)		the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place."
(i)		in a case where a housing project has been approved by the local authority before the 1st day of April, 2004, on or before the 31st day of March, 2008;
(ii)		in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004 but not later than the 31st day of March, 2005, within four years from the end of the financial year in which the housing project is approved by the local authority.
(iii)		in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.
(i)		in a case where the approval in respect of the housing project is obtained more than once, such housing project shall be deemed to have been approved on the date on which the building plan of such housing project is first approved by the local authority;
(ii)		the date of completion of construction of the housing project shall be taken to be the date on which the completion certificate in respect of such housing project is issued by the local authority;
(b)		the project is on the size of a plot of land which has a minimum area of one acre:
		Provided that nothing contained in clause (a) or clause (b) shall apply to a housing project carried out in accordance with a scheme framed by the Central Government or a State Government for reconstruction or redevelopment of existing buildings in areas declared to be slum areas under any law for the time being in force and such scheme is notified by the Board in this behalf;
(c)		the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the cities of Delhi or Mumbai or within twenty-five kilometres from the municipal limits of these cities and one thousand and five hundred square feet at any other place;
(d)		the built-up area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate built-up area of the housing project of five thousand square feet, whichever is higher;
(e)		not more than one residential unit in the housing project is allotted to any person not being an individual; and
(f)		in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely:—
(i)		the individual or the spouse or the minor children of such individual,
(ii)		the Hindu undivided family in which such individual is the karta,
(iii)		any person representing such individual, the spouse or the minor children of such individual or the Hindu undivided family in which such individual is the karta.
■		The assessee owned an immovable property i.e. a shopping mall. During relevant year, assessee let out a portion of said mall. The assessee claimed that rental income derived from mall was taxable as income from business.
■		The assessee had also borrowed certain loan during relevant year. The interest paid on said loan was claimed as deduction under section 36(1)(iii).
■		The revenue authorities held that rental income in question was to be taxed as income from house property. It was further held that loan had been taken by assessee to purchase shares of its sister concern in order to acquire controlling interest in said company.
■		Accordingly, it was concluded that purpose of investment being capital in nature, interest paid on loan in question could not be allowed as deduction.
■		The Tribunal, however, allowed assessee's claim.
■		On revenue's appeal:
■		The law is well settled that whether a particular letting is a business has to be decided in the circumstances of each case and each case has to be looked into from the businessman's point of view to find out whether letting was the doing of business or exploitation of his property by an owner. [Para 14]
■		There being categorical findings of fact by the appellate authority as well as the Tribunal that letting out was for the purposes of business after considering all relevant facts and the fact that the premises City Centre, the Mall, has been taken back by the assessee and further in major portion of the premises assessee was already carrying out his own business, it is opined that assessee has rightly shown his rental income as business income. [Para 15]
■		As regards payment of interest, in view of the findings recorded by the appellate authority and Tribunal that interest free advance with the assessee were far in excess to the investment made in purchasing the share, it is proved that borrowed funds have been utilized in business. Thus, there is no infirmity in the aforesaid findings of the appellate authority and the Tribunal that assessee was entitled for deduction and the addition was rightly deleted on the above score. [Para 21]
"(i)		Whether the Income Tax Appellate Tribunal was justified in law in directing the Assessing Officer to assess the rental income from the properties as 'income from business' relying on the judgment of Apex Court in the case of Universal Plast Ltd. v. CIT (99) 103 Taxman 493 (SC), without appreciating that the facts of the case as mentioned above were different from the assessee's case?
(ii)		Whether the Income Tax Appellate Tribunal was justified in law in dismissing the appeal of the Department confirming the order of the CIT(A), Kanpur directing the Assessing Officer to assess the rental income of Rs. 3 lakhs from letting out of City Centre, the Mall, Kanpur as 'income from business' instead of income from 'House Property' without properly appreciating the facts of the case?
(iii)		Whether the Income Tax Appellate Tribunal was justified in law in dismissing the appeal of the Department confirming the order of the CIT(A), Kanpur deleting the addition of Rs. 5,26,213/- on account of disallowance of interest on borrowed capital without properly appreciating the facts of the case?"
(1)		no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head "Profits and gains of business or profession";
(2)		it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out;
(3)		where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same;
(4)		if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.