Rollatainers Ltd vs. ACIT (ITAT Delhi)
| COURT: | ITAT Delhi |
| CORAM: | C. M. Garg (JM), R. S. Syal (AM) |
| SECTION(S): | 147, 148 |
| GENRE: | Domestic Tax |
| CATCH WORDS: | Audit Objection, Reopening |
| COUNSEL: | Gaurav Jain |
| DATE: | August 6, 2015 (Date of pronouncement) |
| DATE: | August 10, 2015 (Date of publication) |
| AY: | 2003-04 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 147: The revenue audit cannot perform functions of judicial supervision and a reopening based on the interpretation of the audit cannot be sustained. However, a reopening based on communication of the law or factual inaccuracy by the audit is valid | |
(i) The logic in not sustaining the initiation of reassessment on the basis of interpretation of law by the audit party is that the internal auditor cannot be allowed to perform functions of judicial supervision over the Income-tax authorities by suggesting to the Assessing Officer about how a provision should be interpreted and whether the interpretation so given by the AO to a particular provision of the Act is right or wrong. An interpretation to a provision given by the internal audit party cannot be construed as a declaration of law binding on the AO. When an internal audit party objects to the interpretation given by the AO to a provision and proposes substitution of such interpretation with the one it feels right, it crosses its jurisdiction and enters into the realm of judicial supervision, which it is not authorized to do. In such circumstances, the initiation of reassessment, based on the substituted interpretation of a provision by the internal audit party, cannot be sustained. It has been categorically held by the Hon'ble Supreme Court in Indian & Eastern Newspaper Society (1979)119 ITR 996 (SC) that the internal audit party of the IT Department 'performs essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi-judicial acts of IT authorities. The IT Act does not contemplate such power in any internal audit organisation of the IT Department …. The statute supports the conclusion that an audit party can't pronounce on the law, and that such pronouncement does not amount to "information" within the meaning of s. 147(b) of the IT Act, 1961′. Having made the above observations in para 6 of its judgment, the Hon'ble Summit Court then made an exception in the same para to the effect that : `But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying s. 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose'. When we read the judgment in Indian & Eastern Newspaper Society (1979)119 ITR 996 (SC) in entirety, what unfolds is that albeit the audit party is not entitled to judicially interpret a provision, but at the same time, it can communicate the law to the AO, which he omitted to consider. This position has been aptly explained in CIT vs. First Leasing Co. of India Ltd. (2000) 241 ITR 248 (Mad) by holding that : `The Supreme Court in Indian and Eastern (supra), has made a distinction between the interpretation of the law and bringing to the attention of the ITO the relevant provision of law and if the audit party interpreted the law, then the report by the audit party cannot be regarded as "information" for the purpose of reopening an assessment under s. 147(b) of the Act. However, if the audit party has merely drawn the attention of the ITO to the existence of the law, the opinion of the audit party would be regarded as information and the Supreme Court has made a distinction between the communication of law and interpretation of law.' That is how, the Hon'ble Madras High Court held that the audit report should be regarded as a communication of law and there is no interpretation of law involved in the matter. The tribunal order, holding that the audit party had interpreted the relevant provisions relating to the granting of extra depreciation allowance and thus the AO had no jurisdiction under s. 147(b) of the Act to reopen the assessment, was set aside.
(ii) It is discernible from a close look at the above three judgments rendered by the Hon'ble Apex Court that where the audit party interprets the provision of law in a manner contrary to what the AO had done, it does not lay down a valid foundation for the initiation of re-assessment proceedings. If however, the audit party does not offer its own interpretation to the provisions and simply communicates the existence of law to the AO or any other factual inaccuracy, then the initiation of reassessment proceedings on such basis cannot be faulted with. It can be seen that in the case of Indian and Eastern Newspapers Society (1979)119 ITR 996 (SC), the otherwise taxability of receipt from occupation of conference hall and rooms was not disputed. Whereas the AO held such amount to be taxable as 'Business income', the audit party held it to be taxable as 'Income from house property.' It was this adoption of a different interpretation by the internal audit party to the existing factual position, which was not approved by the Hon'ble Supreme Court as a good ground to initiate a valid re-assessment. Similarly, in the case of Lucas TVS Ltd. (supra), the AO allowed deduction u/s 35(2) for the amounts spent in this year as well as the earlier years and the internal audit party opined that only the amount spent during the year was allowable as deduction u/s 35(2). It is obvious that in both these cases, the AO's opinion on the interpretation of the relevant provision was overruled by the internal audit party. In contrast, in the case of PVS Beedis Pvt. Ltd. (supra), the assessee claimed deduction u/s 80G and the internal audit party pointed out that such deduction was not permissible because the registration of the trust to which contribution was made, had already expired. It is manifest that in the case of PVS Beedis Pvt. Ltd. (1999) 237 ITR 13 (SC), the audit party did not interpret section 80G in a different manner, but, simply drew the attention of the AO to the existence of law. The Hon'ble Supreme Court in Indian and Eastern Newspapers Society (supra) having held that the interpretation of the internal audit party on a point of law does not constitute 'information' u/s 147, drew a line of distinction between the cases of interpretation of law and communication of existence of law. If the audit party merely draws the attention of the AO to the existence of law, the opinion of the audit party can be regarded as 'information' leading to a valid initiation of reassessment. In a nutshell, whereas the initiation of re-assessment proceedings on the basis of an interpretation to the provisions of law by the audit party is forbidden, the communication of law or the factual inconsistencies by the internal audit party, do not operate as a hindrance in the initiation of re-assessment proceedings.
Related Judgements
- Cadila Healthcare Ltd vs. ACIT (Gujarat High Court) U/s 147, it is only the AO's opinion with respect to the income escaping assessment which is relevant for the purpose of reopening an assessment. While it is true if the audit party brings certain aspects to the notice of the AO and thereupon, the AO forms his own…
- Raajratna Metal Industries Ltd vs. ACIT (Gujarat High Court) To satisfy ourselves, whether the reassessment proceedings have been initiated at the instance of the audit party and solely on the ground of audit objections ….. On a perusal of the files, the noting made therein and the relevant documents,…Read more ›
- Vijay Rameshbhai Gupta vs. ACIT (Gujarat High Court) If the audit party brings certain aspects to the notice of the AO, he is entitled to reopen the assessment after forming his own belief. However, if the AO acts under compulsion of the audit party and not independently, the action of re-opening would be vitiated. On facts, it…
- ICICI Home Finance Co. Ltd vs. ACIT (Bombay High Court) The belief u/s 147 that income has escaped assessment has to be the reasonable belief of the AO himself and cannot be an opinion and/or belief of some other authority. The AO cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief…
- Madhushree Gupta vs. UOI (Delhi High Court) The Revenue's submission that prima facie satisfaction of the AO need not be reflected at the stage of initiation is not acceptable. The presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact which cannot be wished away even post amendment. If an…
 | Rollatainers Ltd vs. ACIT (ITAT Delhi)by editor |
The logic in not sustaining the initiation of reassessment on the basis of interpretation of law by the audit party is that the internal auditor cannot be allowed to perform functions of judicial supervision over the Income-tax authorities by suggesting to the Assessing Officer about how a provision should be interpreted and whether the interpretation so given by the AO to a particular provision of the Act is right or wrong
editor | August 10, 2015 at 9:32 am | Categories: All Judgements, Tribunal | URL: http://itatonline.org/archives/?p=11103
| Comment | See all comments |
ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
F Where predominant object of assessee charitable in nature, Assessing Officer to grant registration if similar institutions in other States granted registration : Central Institute of Tool Design v. DIT (Exemption) (Hyd) p. 578 (8-7-2015)
F Expenses excluded from purpose of export turnover to be excluded from total turnover also : Asst. CIT v. ToCheungLee Stationery Mfg. Co. P. Ltd. (Chennai) p. 590 (26-6-2015)
F Where assessee not owning more than one residential house at time of purchase of new residential house, assessee entitled to exemption : Asst. CIT v. Irshad Mirza (Lucknow) p. 593 (5-6-2015)
F Amount paid to seller for delay in execution of sale deed and handing over of possession compensatory in nature and part of sale transaction, assessee entitled to deduction : Asst. CIT v. Irshad Mirza (Lucknow) p. 593
F Where accounts of copious consumption of cotton, gauze bandages and books properly maintained and not rejected by authorities, disallowance restricted to 15 per cent. of purchases : Sharma East India Hospitals and Medical Research Ltd. v. Deputy CIT (Jaipur) p. 604 (5-6-2015)
F Disallowance of interest u/s. 36(1)(iii) not justified on interest bearing advances used for business purposes : Sharma East India Hospitals and Medical Research Ltd. v. Deputy CIT (Jaipur) p. 604
F Determination of arm's length price : Assessee exclusively in software development services, company in sale of both software products and development services whose segregated accounts not available to be excluded : Global Logic India P. Ltd. v. Deputy CIT (Delhi) p. 622 (4-6-2015)
F Reference to Valuation Officer : Matter remanded to Assessing Officer to allow Valuation Officer to meet objections raised by assessee and opportunity of being heard to assessee : ITO v. Smt. Ruchita Gir (Hyd) p. 634 (1-7-2015)
F Where Assessing Officer holding assessee not entitled to exemption u/s. 10B, alternative claim for deduction u/s. 10A can be considered : ITO v. Com Lab India (Hyd) p. 641
F Arm's length price adjustment cannot be made where transaction not international transaction : Redington (India) Ltd. v. Addl. CIT (Chennai) p. 646 (26-6-2015)
F Payment towards trade mark licence fee, allowable expenditure for purpose of business : Redington (India) Ltd. v. Addl. CIT (Chennai) p. 646
F Expenditure for making building fit for business, Revenue expenditure : Redington (India) Ltd. v. Addl. CIT (Chennai) p. 646
F Where no details regarding credit given by assessee but Dispute Resolution Panel simply placing reliance on earlier order, matter remanded for re-examination : Redington (India) Ltd. v. Addl. CIT (Chennai) p. 646
F Effect of amendment of s. 36(1)(vii) w.e.f. 1-4-1996 : Sufficient that debt written off as irrecoverable in books of account for previous year, no need to prove debt became bad : Redington (India) Ltd. v. Addl. CIT (Chennai) p. 646
F Expenditure relatable to any income which do not form part of total income cannot be allowed while computing taxable income : Redington (India) Ltd. v. Addl. CIT (Chennai) p. 646
F Assessee filing returns within time allowed u/s. 139(4), levy of penalty not automatic : Deputy CIT v. Mehrotra Invofin India P. Ltd. (Delhi) p. 655
F Reopening of assessment on wrong presumption of facts, void ab initio : Deputy CIT v. Dhanrajgir Business P. Ltd. (Mumbai) p. 669
F Deduction allowable on assessee satisfying eligibility conditions prescribed u/s. 80-IB : Asst. CIT v. Anandamoy Das (Kolkata) p. 678
F Expenditure on acquisition of research reports in course of advisory services, Revenue in nature : Pulsar Knowledge Centre P. Ltd. v. Joint CIT (Delhi) p. 690
F Where assessee not carrying on any activity in nature of trade, commerce or business, entitled to exemption u/s. 10(23C)(iv) : Deputy DIT (Exemptions-IV) v. Council for Leather Exports (Chennai) p. 697 (26-6-2015)
F Foreign exchange gains and loss after receipt of sale price not income from unit eligible for deduction u/s. 10B : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712 (17-6-2015)
F Amount adjusted for purchase of rotation drive unit and not received into India within specified time as provided u/s. 10B(3) cannot be considered as receipt in India, to be excluded from export turnover : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712
F Whether interest income from fixed deposit to be treated as business income, matter remanded : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712
F Receipts of sale of scrap within ambit of gains derived from industrial undertakings, eligible for deduction u/s. 80-IC : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712
F Sale consideration representing turnover on account of sale of plastic products, eligible for exemption : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712
F Amortisation and development charges are part of business activity, eligible for deduction : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712
F Receipts towards freight and insurance charges do not form part of export turnover, deduction from turnover not justified : Yodeva Plastics P. Ltd. v. Deputy CIT (Hyd) p. 712
F Interest cannot be disallowed on payment relatable to commercial expediency : Deputy CIT v. International Institute of Planning and Management P. Ltd. (Delhi) p. 733 (10-6-2015)
F Disallowance not valid where no evidence that expenditure was excessive or unreasonable : Deputy CIT v. International Institute of Planning and Management P. Ltd. (Delhi) p. 733
Tax officer fined Rs 50,000 for ante-dating order
By Shyam Prasad S, Bangalore Mirror Bureau | Aug 14, 2015, 04.00 AM IST
The High Court has imposed a fine of Rs 50,000 on the commercial taxes department and also directed it to recover it from the official who passed an ante-dated order against a Bengaluru-based firm.
The 'exemplary' fine was imposed as the court felt it was "a classic case of the officer ante-dating an order of revision only in order to overcome limitation" imposed by the Karnataka Sales Tax Act. The department was caught on the wrong foot after the court found that its tax order dated February 10, 2010 mentioned a letter written to it by the firm a month later on March 20, 2010. The judgment in the case was passed by the division bench of Justice Vineet Saran and Justice B Manohar on August 5.
The case dates back to 2005 when the assessing officer of the department imposed a penalty on the Bengaluru-based firm M/s Shree Sheele Pvt Ltd. The firm had challenged the order before the joint commissioner of commercial taxes, who set aside the penalty on March 18, 2006 in favour of the firm.
However, it was not the end of the matter as the additional commissioner again issued notice to the firm on September 2, 2009, revising the order of 2006.
The firm replied to it on March 20, 2010. As per the KST Act, the limitation period for revising a tax order is four years from the original order. So the deadline for the revised order of tax was March 17, 2010. The firm, however, received the revised tax order copy a year and a half later on September 21, 2011. However, the order was dated February 10, 2010 within the four-year limit.
The HC found that the tax department had made a mistake.
The department was caught on the wrong foot when it was found that its revised tax order dated February 10, 2010 referred to the company's reply that was dated March 20, 2010.
The court noted, "We must deprecate the practice of officials in passing such ante-dated order and serving copies of the order more than one and a half years of the date of the order. As such, on this ground alone the order dated February 10, 2010 deserves to be quashed."
The court found it necessary to impose "exemplary costs." It said, "It is clear to this court that the impugned order is ante-dated, we allow these appeals with exemplary costs of Rs 50,000 to be deposited by the respondent before the Registrar of this Court within six weeks from today. In turn, the Registrar shall pay the said amount of costs to the appellant-assessee (the firm) within three weeks thereafter."
The 'exemplary' fine was imposed as the court felt it was "a classic case of the officer ante-dating an order of revision only in order to overcome limitation" imposed by the Karnataka Sales Tax Act. The department was caught on the wrong foot after the court found that its tax order dated February 10, 2010 mentioned a letter written to it by the firm a month later on March 20, 2010. The judgment in the case was passed by the division bench of Justice Vineet Saran and Justice B Manohar on August 5.
The case dates back to 2005 when the assessing officer of the department imposed a penalty on the Bengaluru-based firm M/s Shree Sheele Pvt Ltd. The firm had challenged the order before the joint commissioner of commercial taxes, who set aside the penalty on March 18, 2006 in favour of the firm.
However, it was not the end of the matter as the additional commissioner again issued notice to the firm on September 2, 2009, revising the order of 2006.
The firm replied to it on March 20, 2010. As per the KST Act, the limitation period for revising a tax order is four years from the original order. So the deadline for the revised order of tax was March 17, 2010. The firm, however, received the revised tax order copy a year and a half later on September 21, 2011. However, the order was dated February 10, 2010 within the four-year limit.
The HC found that the tax department had made a mistake.
The department was caught on the wrong foot when it was found that its revised tax order dated February 10, 2010 referred to the company's reply that was dated March 20, 2010.
The court noted, "We must deprecate the practice of officials in passing such ante-dated order and serving copies of the order more than one and a half years of the date of the order. As such, on this ground alone the order dated February 10, 2010 deserves to be quashed."
The court found it necessary to impose "exemplary costs." It said, "It is clear to this court that the impugned order is ante-dated, we allow these appeals with exemplary costs of Rs 50,000 to be deposited by the respondent before the Registrar of this Court within six weeks from today. In turn, the Registrar shall pay the said amount of costs to the appellant-assessee (the firm) within three weeks thereafter."
The court also sought an inquiry against the officer concerned. It said, "The cost which is to be paid by the respondent may be recovered from the official who had passed the ante-dated order, after holding a due enquiry."
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