S. 269SS: Loan & deposit by way of journal entries are not covered. Transactions between a firm and its partner are also not covered
(i) As per Section 269SS, no person is supposed to take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft. The term 'loan or deposit' has also been defined by way of explanation by which loan or deposit means "loan or deposit of money". Thus, for the purpose of Section 269SS, loan or deposit of money only is to be considered. Now, in the case of all the credit entries in the accounts of the assessee which are considered for levy of penalty under Section 271D, we find that there is no monetary transaction between the assessee and the creditors. The monetary transaction had taken place between the creditors and some third party which were all by account payee cheques. In the books of the assessee, there is only a journal entry by debiting the account of some other party and crediting to the account of the creditor. In these circumstances, in our opinion, when there is no monetary transaction between the assessee and creditor, it cannot be said that assessee accepted loan or deposit from the creditor in violation of Section 269SS.
(ii) The Apex Court clearly held that the partnership firm is only a collective name of separate persons and not a legal person in itself and therefore, a partner cannot be a servant of the firm because no person can be his own servant in law. The ratio of the above decision would be squarely applicable in the case under appeal before us. Similar to the contract for employment where two distinct persons employee and employer are required, for the purpose of giving and acceptance of loan or deposit also, two different persons are required – (i) the lender and (ii) the debtor i.e. the borrower. As per Hon'ble Apex Court, firm and partner are not two different persons, therefore, credit in the books of firm in the account of partner, it cannot be said that firm has taken loan or deposit from partner. Admittedly, in the assessee's books of account, the amount has been credited in the capital account of Shri Inderpal Singh Wadhawan. The firm and partners have also treated the transaction as of contribution of capital from the partner to the firm and not as a loan by an individual to the partnership firm.
We are unable to subscribe to the view expressed per the decisions relied upon by the assessee, i.e., that in view of computational formula of section 10B(4), the entire profits of the business of the undertaking, irrespective of their immediate source, shall comprise the qualifying profits
. 10B(4): The argument that s. 10B(4) lays down a computational formula and that all business profits (including DEPB receipts) should be eligible for deduction irrespective of the effective source is not acceptable
We are unable to subscribe to the view expressed per the decisions relied upon by the assessee, i.e., that in view of computational formula of section 10B(4), the entire profits of the business of the undertaking, irrespective of their immediate source, shall comprise the qualifying profits. The words "profits of the business of the undertaking", occurring in section 10B(4), have to be accorded a contextual meaning and, therefore, are circumscribed by the qualifying condition of section 10B(1). As explained earlier, implicit in the proportionate formula (of section 10B(4)) is the condition that the profits being allocated thus are derived from such business of the eligible undertaking. It is only where they are so that the further restriction, i.e., to that derived from the relevant exports, could be derived or arrived at. All that was therefore required, i.e., if the entire profits of the eligible undertaking or its business, are to be considered, as held in the said decisions, was to define the same as the 'profits of the eligible undertaking as computed under Chapter IV-D' or 'under the head of income profits and gains of business or profession', as in fact done at several places in the statute. As explained by the apex court in, among others, CIT vs. Tara Agencies [2007] 292 ITR 444 (SC), the intention of the Legislature has to be gathered from the language used in the statute, and which means that attention should be paid to what has been said as also to what has not been said. Further, that it is the bounden duty and obligation of the court to interpret the statute as it is. It is contrary to all rules of construction to read words into a statute which the Legislature in its wisdom has deliberately not incorporated. Continuing further, the decision in the case of Motorola India Electronics (P.) Ltd. is based on the finding of a direct nexus between the income under reference and the business of the eligible undertaking. The same, thus, does not contradict what stands stated by us in this order, and a different decision in the said case, i.e., vis-à-vis that in the instant case, is due to the difference in the facts, so that the said decision is in fact supportive and distinguishable on the facts at the same time.
S. 153C: Even if the AO of the person searched and the 'other person' is the same, the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the 'other person. Impact of amendment by Finance (No. 2) Act 2014 w.e.f. 1.10.2014 considered
(i) When we consider the language of section 158BD as interpreted by the Hon'ble Summit Court in Manish Maheshwari VS. ACIT & Anr. (2007) 289 ITR 341 (SC) and CIT vs. Calcutta Knitwears (2014) 362 ITR 673 (SC), we find it as a clear-cut proposition that the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the 'other person.' On a close comparative study, it is overt that in so far as the question of acquiring jurisdiction by the AO of the person other than the person searched is concerned, the provisions of section 153C are in pari materia with section 158BD. Since the relevant part of section 158BD is similar to that of section 153C, the ratio decidendi of the judgments of the Hon'ble Summit Court to this extent will apply with full force in the context of sec. 153C as well.
(ii) The contention of the department that since the AO of the persons searched and the assessee is same, it does not make any difference whether the satisfaction is recorded in the case of the persons searched or other person is devoid of merit. We fail to comprehend as to how the requirement of recording satisfaction by the AO of the person searched provided by the statute can be substituted with anything else. There is an underlying rationale in providing for recording of such satisfaction by the AO of the person searched. As the money, bullion, jewellery, books of account or documents etc. always come to the possession of the AO of the person searched who has to frame assessment, it is only he who can find out that which of such documents etc. do not belong to the person searched and are relevant for the assessment of the other person. It is not as if all the books of account and documents etc found during the course of a search are evaluated by a separate authority to figure out that which of these documents belong to the person searched and to the others and thus handed over to the concerned AOs of the person searched and others for making assessment. As it is only the AO of the person searched who can reach a conclusion that some of the documents etc. do not belong to the person searched but to some other person, the legislature has provided for recording of such satisfaction by the AO of the person searched. It is not permissible under the law to require the AO of the other person to record such satisfaction by the AO.
(iii) The other argument of the department that since the AO of both the persons searched and the assessee is the same person, hence the requirement of recording satisfaction by the AO of the persons searched should be deemed to have been fulfilled with the recording of satisfaction by the AO of the assessee cannot be appreciated. What is relevant for this purpose is not the identity of the person assessing but his position and the capacity. When the law requires the AO of the person searched to record the necessary satisfaction, it is the AO having jurisdiction over the person searched who is obliged to record such satisfaction in the capacity of that AO and that too in the case of the person searched. The mere fact that the AO of the person searched and the assessee is the same person, does not, in any manner, obliterate the requirement of law necessitating the recording of satisfaction in the case of the person searched that money, bullion, jewellery, etc., found from the person searched belongs to the 'other person.' What is crucial to note is capacity of the AO and not his identity. In view of the fact that when the statutory stipulation is for recording the satisfaction by the AO of the person searched, then, it cannot be substituted with the satisfaction of the AO of the 'other person.'
(iv) The legislature has substituted the latter part of section 153C(1) by the Finance (No.2) Act, 2014 w.e.f. 1.10.2014. The above substitution has the effect of now making it mandatory for the AO of the 'other person' also to record satisfaction that the books of account or documents, etc., have a bearing on the determination of the total income of such 'other person' before embarking upon the exercise of his assessment or reassessment. Therefore, now under the law, w.e.f. 1.10.2014 it has become obligatory not only for the AO of the person searched to record satisfaction before handing over books of account or documents, etc., to the AO of the 'other person', but, such AO of the 'other person' is also required to record satisfaction that the books of account or documents, etc. have a bearing on the determination of the total income of such other person. In the pre-substitution era of the relevant part of sub-section (1) of section 153C covering the period under consideration, the jurisdictional condition remains that the satisfaction is required to be recorded by and in the case of the person searched so as to enable the AO of the 'other person' to start with the proceedings for making assessment or reassessment.
It is a clear-cut proposition that the recording of satisfaction by the AO having jurisdiction over the person searched is an essential and prerequisite condition for bestowing jurisdiction to the AO of the 'other person.' On a close comparative study, it is overt that in so far as the question of acquiring jurisdiction by the AO of the person other than the person searched is concerned, the provisions of section 153C are in pari materia with section 158BD
PFA
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