Strong suspicions/ coincidences & grave doubts cannot take the place of legal proof
STATE OF KERALA Vs. MATHEW ( M. M. ) AND ANR. (SUPREME COURT), DATE OF JUDGMENT – 18/08/1978, CITATION: 1978 AIR 1571, 1979 SCR (1) 264, 1978 SCC (4)65
ACT: Proof of account books of business in criminal trials, ingredients to be proved, explained-Presumption in favour of
acts of public servants charged with bringing home economic and other crimes-Kerala General Sales Tax Act, 1963, Sections 46(1)(a), 46(1)(c) and 46(2)(c).
acts of public servants charged with bringing home economic and other crimes-Kerala General Sales Tax Act, 1963, Sections 46(1)(a), 46(1)(c) and 46(2)(c).
Judgment analysis
During the course of a surprise raid by the Intelligence Wing of the Sales Tax Authorities for verification of accounts of the respondents pertaining to their sales tax returns submitted by them on the 1 8th of each of the months of February, 'March and April 1969, respondent No. 1 produced certain books of accounts viz. current note books, bill books, stock register of the sales and purchases and purchase bills in current use relating to the "Kallupalam Lad's Jawellery Mart" business and placed the same in a room adjacent to the firm's show room for inspection. While examining these account books, the inspecting party noticed some other account papers in the form of diarysize account books, ledger size account books, exercise account books lying on that very table. Finding that a number of transactions of sales and purchase of the
jewellery entered in the second set of account books noticed by them, revealing a large turnover for the months of January, February and March 1969, these account books were seized. On the basis of the result of the aforesaid inspection three complaints were under sections 46(1)(a) (for submission of untrue returns), 46(1)(c) (for failure to keep true and complete accounts) and 46(2) (c) (for fraudulent evasion of tax) of the Kerala General Sales Tax Act, 1963 and the rules made thereunder. on a consideration of the evidence adduced in the case, the Trial Court acquit ted the respondents under s. 46(2) (c) but convicted them under section 46(1)(a) and 46(1)(c) of the Act and imposed a fine of Rs. 600/- and Rs. 500/- respectively on each of the respondents under the aforesaid two counts. On appeal the Additional Sessions Judge, set aside the conviction and acquitted the respondents of the charges under Sections 46(1)(a) and 46(1)(c) of the Act as well. The State's appeal before the Kerala High Court failed and hence the appeal by special leave. Dismissing the appeals the Court,
jewellery entered in the second set of account books noticed by them, revealing a large turnover for the months of January, February and March 1969, these account books were seized. On the basis of the result of the aforesaid inspection three complaints were under sections 46(1)(a) (for submission of untrue returns), 46(1)(c) (for failure to keep true and complete accounts) and 46(2) (c) (for fraudulent evasion of tax) of the Kerala General Sales Tax Act, 1963 and the rules made thereunder. on a consideration of the evidence adduced in the case, the Trial Court acquit ted the respondents under s. 46(2) (c) but convicted them under section 46(1)(a) and 46(1)(c) of the Act and imposed a fine of Rs. 600/- and Rs. 500/- respectively on each of the respondents under the aforesaid two counts. On appeal the Additional Sessions Judge, set aside the conviction and acquitted the respondents of the charges under Sections 46(1)(a) and 46(1)(c) of the Act as well. The State's appeal before the Kerala High Court failed and hence the appeal by special leave. Dismissing the appeals the Court,
HELD: 1. Courts of law have to judge evidence before them by applying the well recognised test of basic human probabilities. Some of the observations made by the Sessions Judge especially the one to the effect that 'the evidence of officers constituting the inspecting party is highly interested because they want that the accused are convicted' cannot be accepted as it runs counter to the well recognised principle that prima facie public servants must be presumed to act honestly, conscientiously and their evidence has to be assessed on its intrinsic worth and cannot be discarded merely on the ground that being public servants they are interested in the success of their case. [268 A-C] 265.
2. The observations of the High Court to the effect that 'the mere fact that two sets of accounts which are conflicting are being maintained, it cannot be taken that the accounts books evidencing less turn-over or profits are false. lt may well be that the secret accounts are false and the other accounts are true. It is not unusual to find business men keeping two sets of accounts one the correct one and the other. showing exaggerated turnover and profits, the purpose of the latter being only to attract investments in dealing with the business", cannot be accepted as statement of law. [268 C-D]
3. Strong suspicions, strange coincidences and grave doubts cannot take the place of legal proof. [269 B] (a) In the instant case, there is absolutely no legal evidence on the record to prove the secret books of account, the seizure of which was effected by or under the order of the Inspecting Assistant Commissioner were recovered from a place which formed part of the business premises of the respondents or. was in their exclusive possession and control. [268 E-F]
(b) The prosecution could have established that the secret books of account related to the business transections carried on by the respondents and none else in a variety of ways viz. (1) by adducing satisfactory proof to the effect that the place from which the secret books of account were seized formed part of the place of business of the respondents or was in their exclusive possession and control, (2) that the secret books of account were maintained by or under the orders of the respondents, (3) that the said books of account were in the handwriting of either of the respondents or their account, our clerk or some other person employed by them. The third method indwelled above could have been adopted by following one or more of the ordinary modes provided in the Evidence Act for proving the handwriting i.e. (i) by calling the accountant or clerk or some other employee of the respondents who is supposed to have posted the entries in the account books, (ii) by calling a person in whose presence the account books were written, (iii) by calling a handwriting expert to
testify that the entries in the secret books of account tallied with the admitted specimen writing of the respondents or any of their employees, (iv) by calling a person acquainted with the handwriting of the person by whom the secret books of account were supposed to have been written, (v) by having the comparison done in Court of the P secret books of account with some admitted writing as provided in section 73 of the Evidence Act, (vi) by proof of an admission made by any one of tho respondents that the secret books of account related to the business transactions carried on by their firm or that any one of them had written the same, (vi) by adducing other unimpeachable circumstantial evidence. No attempt or step seems to have been made or taken in that behalf by the prosecution [269
testify that the entries in the secret books of account tallied with the admitted specimen writing of the respondents or any of their employees, (iv) by calling a person acquainted with the handwriting of the person by whom the secret books of account were supposed to have been written, (v) by having the comparison done in Court of the P secret books of account with some admitted writing as provided in section 73 of the Evidence Act, (vi) by proof of an admission made by any one of tho respondents that the secret books of account related to the business transactions carried on by their firm or that any one of them had written the same, (vi) by adducing other unimpeachable circumstantial evidence. No attempt or step seems to have been made or taken in that behalf by the prosecution [269
(c) The connection of the respondents with the entries in the secret books of account could also have been established by producing some of the customers whose names are admittedly to be found in the secret books of account to testify that the deals evidenced by the entries were transacted by them with the Kallupalam Lad's Jewellery Mart of which the respondents were the proprietors. As the prosecution has failed to resort to any of these methods the respondents have to thank themselves for the result of the prosecutions upon which it seems to have launched without seeking expert legal assistance. [269 G-H, 270 A] 266
Girdharilal Gupta and Anr. v. D. N. Mehta, collector of Customs and Anr., [1971] 3 S.C.R. 748 distinguished.
ITAT hauled up AO and DRP for 'Blatantly frivolous & unsustainable' additions
Bharti Airtel Limited Vs. ADIT (ITAT Delhi), I.T.A. No.: 5816/Del/2012, Date of pronouncing the order : March 11, 2014
Learned counsel for the assessee submitted that it is a case of frivolous double addition on deliberate misconception of the facts. He took us through the year-end financial statements of the assessee and its computation of income to demonstrate that the impugned addition made by the Assessing Officer amounted to making an addition for loss on transfer of telecom assets whereas no deduction in respect of such loss was claimed by the assessee. He invited our attention to the observations made in the stay order to the effect that it is a case of "prima facie" double addition and it was also submitted that at the stage of hearing of stay petition in this case, the Assessing Office himself has accepted that it is a case of double addition. Learned Departmental Representative, on the other hand, dutifully placed his rather bland reliance on the stand of the Assessing Officer and the Dispute Resolution Panel. It was in this backdrop that we called for personal appearance of the Assessing Officer concerned. When the Assessing Officer appeared before us, and we asked him to justify this addition of Rs 5,739.60 crores, whereas, for all practical purposes, the assessee has not even claimed deduction of the same in the computation of business income, he had nothing to say. When he was asked why DRP's directions about verifications were not complied with, he stated that, as stated in the assessment order itself, there was no fresh material at that stage over and above what was produced in the original assessment proceedings, and thus it was not open to the Assessing Officer to take any other view of the matter than the view originally taken. The Assessing Officer submitted that the loss on sale of assets could not be allowed as a deduction but that does not justify the addition on merits, because the assessee has not challenged this proposition at any stage and has merely contended that no such disallowance is warranted on the facts of this case as the said amount has not been debited to the profit and loss account at all. In effect thus, we are dealing with a situation that here is a Rs 5,739.60 crore addition, which has been made by the Assessing Officer and sustained by the Dispute Resolution Panel, and effectively there is no argument to defend it.
It is not an uncommon sight that even the most distinguished and learned Departmental Representatives, as also other revenue authorities appearing before us, simply place their bland reliance on the impugned orders- as in this case, rather than dealing with specific justification for the additions or disallowances made therein and with the arguments advanced by the taxpayer's representatives. By such a conduct, any transparent debate about correctness or otherwise of such additions impugned in appeal is pre-empted. Of course, such an exercise does render our adjudication process a one way street but, as long as legal and factual position warrants due relief to the assessee and as long as impugned additions are so frivolous, there is nothing wrong in it. However, if an action of the Assessing Officer is so blatantly unreasonable that such seasoned senior officers well versed with functioning of judicial forums, as the learned Departmental Representatives are, cannot even go through the convincing motions of defending the same before us, such unreasonable conduct of the Assessing Officer deserves to be scrutinized seriously. At a time when evolving societal pressures demand greater degree of accountability in the governance also, it does no good to the judicial institutions to watch such situations as helpless spectators. If it is indeed a case of frivolous addition, someone should be accountable for the resultant undue hardship to the taxpayer -rather than being allowed to walk away with a subtle, though easily discernable, admission to the effect that yes it was a frivolous addition, and, if it is not a frivolous addition, there has to be reasonable defence, before us, for such an addition. The case before us, for the reasons we will set out now, appears to be in the category of a wholly frivolous, and simply indefensible, addition to the income returned by the assessee.
Let us take a look at the related entry, as per the profit and loss account of the assessee, related note to the accounts and the treatment given by the assessee in the computation of income, which are reproduced below:
Note 2 (b) to Schedule 21 of the annual accounts
Extracts from the computation of income filed by the assessee (as reproduced from page 84 of the assessment order)
| Particulars | Amount | Amount |
| Profit as per profit and loss account | 6972,54,21,461 | |
| Add: | ||
| XXXX | XXXX | |
| XXXX | XXXX | |
| Loss on transfer of telecom infrastructure to Bharti Airtel Limited | 5739,60,05,089 | |
| Less: | ||
| XXXX | XXXX | |
| XXXX | XXXX | |
| Amount withdrawn from Reserve for Business Restructuring | 5739,60,05,089 | |
| Income from Business and Profession | 7161,63,56,718 |
A plain look at the above material shows that there was no effective debitto the profit and loss account as the amount of Rs 5739,60,05,089 reflected in the "Loss on transfer of telecom infrastructure to Bharti Airtel Limited" was squared up against the credit amount of Rs 5739,60,05,089 representing "Amount withdrawn from Reserve for Business Structuring" in the inner column of the profit and loss account. These entries were absolutely profit neutral so far as the profit as per profit and loss account is concerned, and since it is this profit which is starting point for computation of business income, effectively no adjustments thereto were required. Even if no adjustment was carried out in the computation of income, the resultant income would have been the same, but the adjustments, if at all required for the sake of completeness and transparency, were required for both the entries, i.e. loss on transfer of assets as also amount withdrawn from business restructuring. This is precisely what the assessee has done. As much as the loss on transfer of assets is not a tax deductible item, the amount transferred from reserves is also not a taxable item. The assessee thus reversed both these entries, as depicted above, in the computation of income. The Assessing Officer has taken note of the fact that in the computation of income attached to the return of income, the assessee has first added Rs 5739,60,05,089 as "Loss on transfer of telecom infrastructure to Bharti Infratel Limited" and then reduced Rs 5739,60,05,089 as "amount withdrawn from Reserve for Business Restructuring", but then, instead of taking note of the unambiguous fact that these two distinct entries representing two facets duly reflected in the profit and loss account, the Assessing Officer assumes that since debit and credit of the same amount, resulting in neutralizing each other, he is justified in adding the loss of transfer of telecom infrastructure to the profit as per profit and loss account. Neither there was an effective debit to the profit and loss account, since the loss was squared up by transfer from reserve rather than by debit to profit and loss account, nor was it open to the Assessing Officer to take into account loss on transfer of assets, though reflected in the inner column, without taking into account another inner column item reflecting transfer from reserves to square up this loss. Whichever way one looks at these entries, the inescapable conclusion is that the addition made by the Assessing Officer is wholly erroneous and devoid of any legally sustainable merits. In this case, the Dispute Resolution Panel has also been somewhat superficial in its approach in confirming the addition by observing that, "the disallowance of Rs.5739,60,05,000 by the AO in normal computation provisions as capital loss representing loss on transfer of Telecom Infrastructure to Bharti Infratel Limited is held as perfectly in order" because the grievance raised by the assessee was specifically against the erroneous approach of the Assessing Officer in not taking a holistic view of the accounting entries. There is no, and there was never, any dispute on whether such a loss is tax deductible or not. The dispute was confined to the question whether, on the given facts, the Assessing Officer could have made an addition for this amount to the income returned by the assessee. The contention of the assessee was that no such addition was justified because the assessee has, on his own, made appropriate adjustments in the computation of taxable income and an addition by the Assessing Officer will result in double disallowance of the said amount. No doubt, the Dispute Resolution Panel did mention that, "as regards the claim of assessee of not reducing the equivalent sum from the computation of income, it is noted that it is a matter of pure verification" and directed the Assessing Officer "to verify the claim of the assessee from the records and take necessary action", but then it was the inaction and inability of the Assessing Officer in correctly doing so that the objection was raised before the Dispute Resolution Panel and all the related facts, including accounting entries and treatment given in the computation of taxable income, were placed before the Dispute Resolution Panel. The fact that even such purely factual issues are not adequately dealt with by the DRPs raises a big question mark on the efficacy of the very institution of Dispute Resolution Panel. One can perhaps understand, even if not condone, such frivolous additions being made by the Assessing Officers, who are relatively younger officers with limited exposure and experience, but the Dispute Resolution Panels, manned by very distinguished and senior Commissioners of eminence, will lose all their relevance, if, irrespective of their heavy work load and demanding schedules, these forums do not rise to the occasion and donot deal with the objections raised before them in a comprehensive and effective manner. While we delete the impugned addition of Rs 5739,60,05,089, we also place on record our dissatisfaction with the way and manner in which this issue has been handled at the assessment stage. Let us not forget that the majesty of law is as much damaged by not rendering justice to the conduct which cannot be faulted as much it is damaged by a wrongdoer going unpunished; not giving relief in deserving cases is as much of a disservice to the cause of justice and the cause of nation as much a disservice it is, to these causes, by granting undue reliefs. The time has come that a strong institutional check is put in place for dealing with such eventualities and de-incentivizing this kind of a conduct. With these observations, the impugned addition of Rs 5739,60,05,089 is deleted. The assessee gets the relief accordingly.
Harassment of Assessee Intolerable- Warns the Courts
It is usually seen that the Revenue Officers disbelieve the version of the assessees, discard their valid explanations, reject their un-rebuttable evidence, treat the supporting material as fabricated and frame assessments as per their whims and fancies. The action of the erring officers is defended by their higher ups as purported to have been done in "the interest of Revenue". The assessee has to run from pillar to post for justice. This entire process is painstaking, expensive and morally devastating. This distracts the assessees from their normal business and is detrimental to the financial interests of both the assessee and the Revenue. The Allahabad High Court in two recent cases, one in Trade Tax and the other in Income Tax, have reprimanded these erring officials and have taken harsh measures against the highhanded officials for undue harassment of the assessees.
In a case being Commercial Tax Revision No.571 of 2013 M/s Seema Enterprises, (Orissa) versus The Commissioner, Commercial Tax, U.P., Lucknow decided on 12-07-2013, the Allahabad High Court criticized the action of the Commercial Tax Officers in seizing goods under transportation merely on the basis of presumption, suspicion and doubts. The brief facts are that goods in transit from Delhi to Orissa were seized by the mobile squad. The Tribunal also confirmed the seizure. On Revision in the Allahabad High Court, on the basis of earlier binding decisions, held that the seizure of goods cannot be made on mere presumption. The Court followed the Apex Court's decision in State of Kerala v M M Mathew & another 42 STC 348, wherein it was held that presumption, however strong, cannot take the place of evidence. The Apex Court had in this case held that strong suspicion, strange coincidences and grave doubts cannot take place of legal proof. The High Court imposed an exemplary cost on the erring officials and also ordered for appropriate departmental action against the erring officials. The Court held thus:
"The goods have been detained illegally, arbitrarily and without any basis and merely on surmises and conjectures and whims of the authorities concerned despite the settled principle of law laid down by the Court referred hereinabove.
The goods have been seized despite the settled principle of law referred hereinabove, on 19.06.2013 and since then goods are in the custody of department. The applicant has suffered huge substantial loss for no fault on his part and subjected to harassment.
It is unfortunate that the Joint Commissioner (S.I.B.) and Tribunal have affirmed the seizure of the goods.
In view of the aforesaid facts and circumstances, in my view the applicant is entitled for the exemplary cost, which I assess at Rs.1 lac. I also direct the Commissioner, Commercial Tax to look into the matter and take the appropriate action against the officials in accordance to law, who have seized the goods. It will be open to the department to realise the amount of cost from the concerned officials." (Emphasis supplied)
Under the Income Tax Act, in a landmark judgment in Income Tax Appeal No.162/2013 Commissioner of IncomeTax v. Intezar Ali decided by the division bench of the Hon'ble Allahabad High Court on 26.7.2013, the Court not only reprimanded the erring officer but also directed for an enquiry for the 'conduct & motive' of the erring officer. The brief facts of the case are the assessee had voluntarily filed his return of Income on 17.10.2008 disclosing total income of Rs.64,188/- and agricultural income of Rs.1,25,000/-. On receipt of certain information that the assessee had deposited an amount of Rs.1,08,32,752/- in bank account no.4621 with Syndicate Bank, Village Dehra, Hapur, enquiries were made and statements of the assessee and purchasers were recorded. The assessee stated that he had sold agricultural land measuring 30 kachcha bigha situate in Village Gordhanpur, Tehsil Hapur, Distt. Ghaziabad for a sum of Rs.1,20,00,000/- on 12.11.2007 to Shri Yameen and Shri Raisuddin. Both the purchasers denied in their statements to have purchased the land for a consideration of Rs.1,20,00,000/- from the assessee. They stated that they had purchased the land only for Rs.22 lacs. The sale deed was executed on the sale value of Rs.22 lacs, whereas the assessee Shri Intjar Ali claimed that he had sold his land for Rs.1,20,00,000/-. During the course of assessment proceedings, the assessee produced the witness to the sale deed, who proved that the assessee had received Rs.1,08,32,752/- in cash which he deposited in his bank account. The Bank Manager of the Syndicate Bank, Village Dehra, Hapur, which was the only bank in the village, and who had stayed late in the evening on the request of the assessee, deposed that the assessee had deposited the entire amount in his bank and which he had stated to be the sale consideration of the land sold by him. The assessee also produced the evidence of the land rates in the area and claimed exemption of the agricultural land, which was not capital asset within the definition of Section 2 (14) (iii) (a) (b) of the Act and was therefore not chargeable for capital gains tax. He also produced the evidence by way of report of Tehsildar, Hapur dated 28.9.2010 showing that the agricultural land in question was more than 8 kms. from the local limit of Nagar Palika and also 9 kms. from the Local Town Area. Without assigning any cogent reasons, the assessing officer added the surplus amount of Rs.97,80,000/- over sale deed value as 'income from undisclosed sources'.
The High Court said that harassment of assessees is intolerable and held thus:
"13. Before parting with the case we may observe here that from the facts and circumstances on the record that in the present case the Income Tax Officer did not act in bonafide manner. The assessee led substantial evidence to establish that the amount treated to be undisclosed income by the A.O. was the sale consideration of sale of his agricultural land, which he had deposited in the bank and had voluntarily filed return disclosing his income. Overwhelming evidence led by him was discarded without giving any reasons at all. The assessment was framed only on the ipse dixit of the A.O., which gives us reason to believe that he had exceeded his authority with some ill will or with ulterior motive.
14. We, therefore, find it appropriate to direct the Registrar General of the Court to forward a copy of this judgment to the Chairman of the Central Board of Direct Taxes to cause an enquiry into the conduct and motives of Shri Yaduvansh Yadav, Income Tax Officer, Ward-1, Hapur in framing the assessment and raising demand of income tax against the petitioner." (Emphasis Supplied)
It would be trite to refer to a recent decision of the Income Tax Appellate Tribunal (Delhi) in the case of Bharti Airtel Ltd. Vs. ACIT in I.T.A. No.: 5816/Del/2012 decided on March 11, 2014, where the ITAT hauled up the Assessing Officer (AO) and Dispute Resolution Panel (DRP) for 'Blatantly frivolous & unsustainable' additions and suggested accountability mechanism to put check on the Assessing Officers and also questioned the existence of 'ineffective Dispute Resolution Panel'. The facts of the case are that the AO made an arbitrary & illegal addition of Rs. 5,739 Crores to the income of the assessee, without any basis. The ITAT while allowing the Appeal passed strictures against the AO & the DRP and held thus:
"… if an action of the AO is so blatantly unreasonable that such seasoned senior officers well versed with functioning of judicial forums, as the learned DRs are, cannot even go through the convincing motions of defending the same before us, such unreasonable conduct of the AO deserves to be scrutinized seriously. At a time when evolving societal pressures demand greater degree of accountability in the governance also, it does no good to the judicial institutions to watch such situations as helpless spectators. If it is indeed a case of frivolous addition, someone should be accountable for the resultant undue hardship to the taxpayer -rather than being allowed to walk away with a subtle, though easily discernable, admission to the effect that yes it was a frivolous addition, and, if it is not a frivolous addition, there has to be reasonable defence, before us, for such an addition.
… Whichever way one looks at these entries, the inescapable conclusion is that the addition made by the AO is wholly erroneous and devoid of any legally sustainable merits.
…. The fact that even such purely factual issues are not adequately dealt with by the DRPs raises a big question mark on the efficacy of the very institution of Dispute Resolution Panel. One can perhaps understand, even if not condone, such frivolous additions being made by the AOs, who are relatively younger officers with limited exposure and experience, but the Dispute Resolution Panels, manned by very distinguished and senior Commissioners of eminence, will lose all their relevance, if, irrespective of their heavy work load and demanding schedules, these forums do not rise to the occasion and do not deal with the objections raised before them in a comprehensive and effective manner.
… While we delete the impugned addition of Rs 5739,60,05,089, we also place on record our dissatisfaction with the way and manner in which this issue has been handled at the assessment stage. Let us not forget that the majesty of law is as much damaged by not rendering justice to the conduct which cannot be faulted as much it is damaged by a wrongdoer going unpunished; not giving relief in deserving cases is as much of a disservice to the cause of justice and the cause of nation as much a disservice it is, to these causes, by granting undue reliefs. The time has come that a strong institutional check is put in place for dealing with such eventualities and de-incentivizing this kind of a conduct."
On the basis of the aforesaid decisions of the Allahabad High Court & the ITAT, binding on all authorities, it is high time for the assessing officers to act in accordance with the law as declared time & again by the Apex Court, Jurisdictional High Court and the Tribunals else they are bound to be reprimanded & penalized by the Courts at their own peril and risk. There is urgent need for fixing accountability of these Erring Officers. Mere reprimanding these erring Assessing Officers alone will not serve the purpose. Fines, Warnings & Strictures are an effective means to check the erring officials but the million dollar question is when these exemplary measures would put an end to the undue harassment of the assessees by the revenue officials.
(Author- Inder Chand Jain, Agra, Mobile:9319215672, Email: inderjain2007@rediffmail.com)
Receipt from the sale of carbon credit certificates:- Whether Capital receipt or revenue receipt?
Lokesh Mahnot
Commissioner of Income-tax – IV VS My Home Power Ltd. (Andhra Pradesh High Court), ITAT APPEAL NO. 60 OF 2014, Date of Pronouncement- 19.02.2014
Controversy- Receipt from the sale of carbon credit certificates:- Whether Capital receipt or revenue receipt?
Facts of the case
- The assessee company was engaged in business of power generation through biomass power generation unit;
- It received carbon credits, namely carbon Emission Reduction Certificate for its project activity of switching off fossil fuel from naptha and diesel to biomass.
- It transferred said carbon credits and offered receipt from said transfer as capital receipt.
- However, AO treated said receipts as business income and brought same to tax;
- Revenue submits that the consideration received on account of sale of Carbon Credits should be treated to be business income as the sale has been made in connection with the business,
- The argument that whether above said receipt can be considered as Capital receipt or Revenue receipt expediency is not acceptable because this was not a case of an ordinary business receipt. Carbon credit is not directly linked with power generation.+
Held- "Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns." We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income.
Our Comments
There are various other judgements for and against the capital receipt. For e.g the case of Apollo Tyres Ltd. V. Asstt. CIT (2014) 47 taxmann.com 416 (Cochin- Trib.), it was held in the favour of Revenue. The Tribunal held that the Certified Emission Reduction/ Carbon credit was obtained by the assessee in the course of its business activity. The carbon credits also has a market in carbon trade exchange. Tribunal held that in the view of specific provisions in the Act, viz. section 28(iv) read with section 2(24)(vd), it is obvious that the value of any benefit or perquisite arising from business or profession forms part of the profits an gains of the business. Therefore, the income on sale of certificates is admittedly a benefit arising out of the business of the assessee and would fall within the definition of "income" under section 2(24)(vd).
Further the assessee was not entitled for deduction under section 80IA. The Tribunal adjudicated that the income on sale of credits was attributable to the business but it is not direct source of income from the industrial undertaking.
Therefore, the income on sale of credits would form part of income from PGBP however, can't be treated as profit "derived from" the industrial undertaking.
However, recent judgement of Andhra High court Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. And Tribunal adjudicated that it is capital receipt and it can't be business receipt or income.
S. 254(1): Unnecessary remand by the ITAT causes prejudice and amounts to a failure to exercise jurisdiction
The Tribunal should not have refused to consider and decide the issue relating to service charges, more so, when an identical view taken by it earlier has not found favour of this Court. This Court repeatedly reminded the Tribunal of its duty as a last fact finding authority of dealing with all factual and legal issues. The Tribunal failed to take any note of the caution which has been administered by this Court and particularly of not remanding cases unnecessarily and without any proper direction. A blanket remand causes serious prejudice to parties. None benefits by non-adjudication or non-consideration of an issue of fact and law by an Appellate Authority and by wholesale remand of the case back to the original authority. This is a clear failure of duty which has to be performed by the Appellate Authority in law. Once the Appellate Authority fails to perform such duty and is corrected on one occasion by this Court, and in relation to the same assessee, then, the least that was expected from the Tribunal was to follow the order and direction of this Court and abide by it even for this later assessment year. If the same claim and which was dealt with by the Court earlier and for which the note of caution was issued, then, the Tribunal was bound in law to take due note of the same and follow the course for the later assessment years. We are of the view that the refusal of the Tribunal to follow the order of this Court and equally to correct its obvious and apparent mistake is vitiated as above. It is vitiated by a serious error of law apparent on the face of the record. The Tribunal has misdirected itself completely and in law in refusing to decide and consider the claim in relation to service charges. Read more of this post
NEW DELHI, DEC 21, 2014: AUDIT Report of the Comptroller and Auditor General of India on Indirect Taxes – Central Excise (No. 33 of 2014) for the year ended March 2014 was presented in Parliament here on Friday. The Report contains a Performance Audit on issues relating to Central Excise Administration in Automotive Sector.
The performance audit was conducted in 40 selected Commissionerates, including examination of records relating to 239 assessees manufacturing automobiles or parts thereof, to seek assurance that the indirect tax administration is adequately placed to safeguard the interests of revenue through its compliance verification mechanisms, annual analyses of tax payers and defaulters, monitoring of exemptions etc. While doing so, the Audit also looked into the adequacy of the Rules and extant instructions in ensuring proper assessment and collection of revenues.
The key findings of this performance audit are as under:-
• Thirty-nine out of the forty selected Commissionerates intimated that they had not undertaken any analysis of revenue collections from the sector.• Non-submission/delayed submission of returns prescribed under Central Excise Rules and Cenvat Credit Rules by the assessee of automotive sector.• Delays ranging between one year and five years were observed in adjudication of demands involving revenue of Rs. 587.56 crore.• Absence of provision in Cenvat Credit Rules, to reverse the proportionate Cenvat credit relating to input services at the time of clearance of input/capital goods 'as such'. The Audit came across 44 cases involving revenue implication of Rs. 87.37 crore.• During the course of this audit examination, 25 cases of incorrect valuation of excisable goods involving duty impact of Rs. 547.93 crore, were observed.• During the course of this audit examination, the Audit found 144 cases of incorrect availing of Cenvat credit with duty impact of Rs. 6.74 crore.
Recommendations
• The Ministry should include a provision in the Central Excise Rules, 2002 requiring assessees to pay late fees (unless waived on showing sufficient reasons) in case of non-compliance with provisions requiring filing of periodical returns by a specified date.• The Ministry should include a provision in the Central Excise Rules, enabling filing of revised Central Excise returns within a prescribed period.• The Ministry may insert a provision in Cenvat Credit Rules, 2004 to reverse the proportionate Cenvat credit relating to input services at the time of clearance of input/capital goods 'as such'.• The Ministry may consider inserting a provision in the Central Excise Rules for pre-audit of all such claims submitted on the same date (or within a prescribed period) where the total value of rebate claims exceeds Rs. 5 lakh.• The Ministry should review rule 10 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 as it imposes an additional requirement of "holding and subsidiary relationship" not envisaged by the Act.• Clear provisions need to be introduced indicating what would constitute "mutuality of interest in each other's business" for the purposes of clause (iv) of Section 4 (3)(b) of the Act just as the expressions "inter-connected undertakings", "group", "related persons", "under the same management" have been explained in the law.
Whether Revenue can resort to reopening of assessment merely on ground that Customs had seized assessee's goods and levied penalty - NO: HC
THE assessee is an individual, who had received a notice u/s 148, issued beyond the period of four years from the end of the relevant AY. Consequently, the first proviso to Section 147 would be applicable. Assessee's counsel had submitted that the re-assessment proceedings were bad in law inasmuch as the conditions stipulated in the first proviso to Section 147 of the said Act had not been fulfilled. In essence, it was submitted that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. It was also submitted that apart from there being no such failure on the part of the assessee, there was not even any allegation with regard to such failure in the reasons which were supplied to the assessee subsequent to the issuance of the said notice.
The issue before the Bench is - Whether Revenue can resort to reopening of assessment merely on ground that Customs had seized assessee's goods and levied penalty. And the verdict goes against the Revenue.
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