ACIT vs. Tristar Jewellery Exports Pvt. Ltd (ITAT Mumbai)
by editorThe reassessment order is as a result of violation of the natural principle of audi alteram partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same
ACIT vs. Tristar Jewellery Exports Pvt. Ltd (ITAT Mumbai)
| COURT: | ITAT Mumbai |
| CORAM: | A. D. Jain (JM), Rajendra (AM) |
| SECTION(S): | 143(3) |
| GENRE: | Domestic Tax |
| CATCH WORDS: | Bogus purchases, Bogus Sales |
| COUNSEL: | Prakash Jotwani |
| DATE: | July 31, 2015 (Date of pronouncement) |
| DATE: | August 6, 2015 (Date of publication) |
| AY: | 2006-07 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
Bogus sales and purchases : Reliance on statement of supplier who confesses to providing accommodation entries without giving assessee right of cross-examination violates principles of natural justice and the addition has to be deleted in toto | |
(i) The assessment was reopened on the basis of the statement of Shri Hiten L. Rawal, the proprietor of M/s Zalak Impex. In this statement recorded u/s 131 of the Act, Shri Rawal confessed to have provided accommodation entries in the form of sales and purchases, to various parties. The assessee was stated to have obtained bills for non-existing parties, amounting to Rs. 4,09,12,718, during the year under consideration. It remains undisputed that the assessee was never provided any opportunity to cross examine Shri Hiten L. Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the A.O., by asking him to produce Shri Rawal, even though it was the A.O. who had relied on the statement of Shri Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross examine Shri Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audi alteram partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the ld. CIT(A) is also cancelled in toto.
was reopened on the basis of the statement of Shri Hiten L. Rawal, the proprietor of M/s Zalak Impex. In this statement recorded u/s 131 of the Act, Shri Rawal confessed to have provided accommodation entries in the form of sales and purchases, to various parties. The assessee was stated to have obtained bills for non-existing parties, amounting to Rs. 4,09,12,718, during the year under consideration. It remains undisputed that the assessee was never provided any opportunity to cross examine Shri Hiten L. Rawal, though he specifically asked for such cross examination. On the other hand, the burden was sought to be shifted on the assessee by the A.O., by asking him to produce Shri Rawal, even though it was the A.O. who had relied on the statement of Shri Rawal, without either confronting this statement to the assessee, or providing opportunity to the assessee to cross examine Shri Rawal. Therefore, the reassessment order is as a result of violation of the natural principle of audi alteram partem. A statement recorded at the back of a party cannot be used against such party without confronting such statement to the party. Hence, on this score alone, the reassessment order is unsustainable in the eye of law and we hereby cancel the same. As a consequence, the order of the ld. CIT(A) is also cancelled in toto.(ii) Further, even otherwise, before the A.O., the assessee had contended that the assessee being in an export promotion zone, the movement of its goods is controlled and customs approved; that the purchases being approved purchases, there was no question of their being bogus purchases. The assessee enclosed the custom approved invoices in respect of purchases from Zalak Impex. As per these invoices, the goods purchased had been verified and approved by the Customs Authority. This clearly shows that the goods had actually been purchased and received by the assessee. As such, these purchases could not have, by any stretch of imagination, been treated as bogus purchases. It is also noteworthy that the payments made by the assessee to Zalak Impex were through account payee cheques only. Neither of the Taxing Authorities, however, took these invoices into consideration and wrongly held the assessee's purchases from Zalak Impex to be bogus purchases. Nothing has been brought on record to show that these invoices were self made or fabricated. Moreover, the comparative chart of purchases made during the year and the selling price has not been refuted and this also goes to prove the theory of bogus bills and accommodation entries to be wrong. Therefore, the order under appeal is a result of complete misreading and non-reading of cogent documentary evidence brought on record by the assessee. For this reason also, along with the reason that the sales made by the assessee were never questioned, the addition is deleted in toto.
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CIT vs. PVS Memorial Hospital Ltd (Kerala High Court)
by editorThe expression "tax deductible at source under Chapter XVII-B" occurring in Section 40(a)(ia) has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax is deductible under Section 194J but is deducted under Section 194C, such a deduction would not satisfy the requirements of Section 40(a)(ia). The latter part of this Section that such tax has not been deducted, again refers to the tax deducted under the appropriate provision of Chapter XVII-B. Thus, a cumulative reading of this provision, therefore, shows that deduction under a wrong provision of law will not save an assessee from Section 40(a)(ia)
CIT vs. PVS Memorial Hospital Ltd (Kerala High Court)
| COURT: | Kerala High Court |
| CORAM: | Antony Dominic J, Shaji P. Chaly J |
| SECTION(S): | 194-J, 194C, 40(a)(ia) |
| GENRE: | Domestic Tax |
| CATCH WORDS: | TDS deduction, TDS disallowance |
| COUNSEL: | P. B. Balakrishnan |
| DATE: | July 20, 2015 (Date of pronouncement) |
| DATE: | August 6, 2015 (Date of publication) |
| AY: | 2005-06, 2006-07 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 40(a)(ia)/ 194C/ 194J: Deduction u/s 194C instead of u/s 194J renders the shortfall liable for disallowance u/s 40(a)(ia) | |
The assessee, a hospital, entered into an agreement with M/S Lakeshore Hospital and Research Centre Limited by which, the latter had undertaken to perform various professional services in the assessee's hospital. On the payments made, the assessee deducted tax at the rate of 2% under Section 194C. However, assessment was completed on the basis that tax deductible was at 5% as prescribed under Section 194J and the entire tax in this regard was disallowed under Section 40(a)(ia)of Act. The CIT(A) confirmed the assessment and the Tribunal also rejected the appeal filed by the assessee concerning the assessment year 2005-2006. However, in 2006-2007, the Tribunal followed the Calcutta High Court judgment in Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal) and held that where tax is deducted by the assessee, even if it is under a wrong provision of law, as in this case, the provisions of Section 40(a)(ia) of the Act cannot be invoked. On appeal to the High Court HELD dissenting from Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal):
made, the assessee deducted tax at the rate of 2% under Section 194C. However, assessment was completed on the basis that tax deductible was at 5% as prescribed under Section 194J and the entire tax in this regard was disallowed under Section 40(a)(ia)of Act. The CIT(A) confirmed the assessment and the Tribunal also rejected the appeal filed by the assessee concerning the assessment year 2005-2006. However, in 2006-2007, the Tribunal followed the Calcutta High Court judgment in Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal) and held that where tax is deducted by the assessee, even if it is under a wrong provision of law, as in this case, the provisions of Section 40(a)(ia) of the Act cannot be invoked. On appeal to the High Court HELD dissenting from Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal):(i) As per these provisions of the agreement, M/S Lakeshore Hospital and Research Centre had undertaken to render professional services to the assessee and this was not a case where they were undertaking a contract work. If that be so, tax was deductible under Section 194J and not under Section 194C as done by the assessee.
(ii) Section 40(a)(ia) (supra) is not a charging Section but is a machinery Section and such a provision should be understood in such a manner that the provision is workable. The expression "tax deductible at source under Chapter XVII-B" occurring in the Section has to be understood as tax deductible at source under the appropriate provision of Chapter XVII-B. Therefore, as in this case, if tax is deductible under Section 194J but is deducted under Section 194C, such a deduction would not satisfy the requirements of Section 40(a)(ia). The latter part of this Section that such tax has not been deducted, again refers to the tax deducted under the appropriate provision of Chapter XVII-B. Thus, a cumulative reading of this provision, therefore, shows that deduction under a wrong provision of law will not save an assessee from Section 40(a)(ia).
(iii) In so far as the judgment of the Calcutta High Court in Commissioner of Income Tax v. S.K.Tekriwal [2014] 361 ITR 432 (Cal), which was relied on by the Tribunal is concerned, with great respect, for the aforesaid reasons, we are unable to agree with the views that if tax is deducted even under a wrong provision of law, Section 40(a)(ia) cannot be invoked.
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Japan Airlines Co. Ltd vs. CIT (Supreme Court)
by editorWhen the airlines pay for these charges, treating such charges as charges for 'use of land' would be adopting a totally naïve and simplistic approach which is far away from the reality. We have to keep in mind the substance behind such charges. When matter is looked into from this angle, keeping in view the full and larger picture in mind, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as 'rent' within the meaning of Section 194-I of the Act
Japan Airlines Co. Ltd vs. CIT (Supreme Court)
| COURT: | Supreme Court |
| CORAM: | A.K. Sikri J., Rohinton Fali Nariman J. |
| SECTION(S): | 194-I |
| GENRE: | Domestic Tax |
| CATCH WORDS: | rent, TDS deduction |
| COUNSEL: | - |
| DATE: | August 4, 2015 (Date of pronouncement) |
| DATE: | August 6, 2015 (Date of publication) |
| AY: | - |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 194-I: In deciding whether a payment is for "use of land", the substance of the transaction has to be seen. If the payment is for a variety of services and the use of land is minor, the payment cannot be treated as rent" | |
The Supreme Court had to consider the conflict of judicial opinion between the Delhi High Court in CIT vs. Japan Airlines Co 325 ITR 298 (Del) and that of the Madras High Court in CIT vs. Singapore Airlines Ltd 358 ITR 237 (Mad) on the question whether landing/ parking charges paid by an airline company to the AAI were payments for a contract of work under Section 194-C and not in the nature of 'rent' as defined in Section 194-I. The Delhi High Court decided the issue in favour of the department following its earlier decision in the case of United Airlines v. CIT 287 ITR 281. It took the view that the term 'rent' as defined in Section 194-I had a wider meaning than 'rent' in the common parlance as it included any agreement or arrangement for use of land. The High Court further observed that the use of land began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport. However, the Madras Hih Court dissented from the view of the Delhi High Court. HELD by the Supreme Court reversing the Delhi High Court and affirming the Madras High Court:
of work under Section 194-C and not in the nature of 'rent' as defined in Section 194-I. The Delhi High Court decided the issue in favour of the department following its earlier decision in the case of United Airlines v. CIT 287 ITR 281. It took the view that the term 'rent' as defined in Section 194-I had a wider meaning than 'rent' in the common parlance as it included any agreement or arrangement for use of land. The High Court further observed that the use of land began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport. However, the Madras Hih Court dissented from the view of the Delhi High Court. HELD by the Supreme Court reversing the Delhi High Court and affirming the Madras High Court: (i) From the reading of s. 194-I, it becomes clear that TDS is to be made on the 'rent'. The expression 'rent' is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as 'rent'. In the second place, such a payment made even under any other 'agreement or arrangement for the use of any land or any building' would also be treated as 'rent'. Whether or not such building is owned by the payee is not relevant. The expressions 'any payment', by whatever name called and 'any other agreement or arrangement' have the widest import. Likewise, payment made for the 'use of any land or any building' widens the scope of the proviso;
(ii) The charges which are fixed by the AAI for landing and take-off services as well as for parking of aircrafts are not for the 'use of the land'. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilites offered in connection with the aircraft operation at the airport. There are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers' safety as well as on safe landing and parking of the aircrafts. Therefore, it is not mere 'use of the land'. On the contrary, it is the facilities, that are to be compulsarily offered by the AAI in tune with the requirements of the protocol, which is the primary focus;
(iii) When the airlines pay for these charges, treating such charges as charges for 'use of land' would be adopting a totally naïve and simplistic approach which is far away from the reality. We have to keep in mind the substance behind such charges. When matter is looked into from this angle, keeping in view the full and larger picture in mind, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as 'rent' within the meaning of Section 194-I of the Act;
(iv) However, the reason given by the Madras High Court that the words 'any other agreement or arrangement for the use of any land or any building' have to be read ejusdem generic and it should take it colour from the earlier portion of the definition namely "lease, sub-lease and tenancy" and to thereby, limit the ambit of words 'any other agreement or arrangement' is clearly fallacious. A bare reading of the definition of 'rent' contained in explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy which is to be treated as 'rent'. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term 'rent'. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as 'rent'. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance. It is a different matter that the High Court of Delhi did not apply this definition correctly to the present case as it failed to notice that in substance the charges paid by these airlines are not for 'use of land' but for other facilities and services wherein use of the land was only minor and insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, become incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act.
Related Judgements
- CIT (TDS) vs. Maharashtra State Electricity Distribution Co Ltd (Bombay High Court) The expression rent would also entail an element of possession. In each of the instances contemplated by the explanation to Section 194-I, we see in them an element of possession, be it land, building (including factory building), land appertaining to a building, plant, equipment, furniture or fittings. The person…
- ACIT vs. Maharashtra State Electricity Distribution Company Ltd (ITAT Mumbai) (i) It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be…Read more ›
- ITO vs. Earnest Towers (P) Ltd (ITAT Kolkata) The purport of section 194 I of the Act is not to bring in its purview payments of any or every kind. Only those payments which are in the nature of "use" of land come within the ambit of section 194 I of the Act. The word "use" is…
- DIT vs. KLM Royal Dutch Airlines (Delhi High Court) Where the assessee was a company incorporated in the Netherlands and its main activity was operation of aircrafts in international traffic both for transport of passengers and cargo and its income was exempt under the Double Taxation Avoidance Agreement between India and the Netherlands and it recovered charges from…
- DCIT vs. Tejinder Singh (ITAT Kolkota) There is a distinction between a receipt for transfer of ownership rights in property and a receipt for transfer of tenancy rights in respect of a property because though both are assessable as capital gains, in the case of tenancy rights, the "cost of acquisition" is deemed to be…
Listing agreement compliance no saviour against insider trading, based on unpublished financials
SEBI restrains Chairman and Managing Director ('CMD') of Ramsarup Industries Ltd. ('company') from dealing in securities market for 3-years and directs disgorgement of Rs. 98 lakhs - potential loss avoided by him by violating Insider Trading Regulations; Observes that CMD traded in shares while in possession of unpublished price sensitive information ('UPSI') in form of unaudited financial results when trading window was closed and such notice of closure was intimated to directors and designated employees; Rejects CMD's submission that shares were sold with an intention of complying with Listing Agreement (Cl. 40A) for bringing down promoters shareholding to 75%, holds that "such sale has nothing to do with compliance of Clause 40A and had everything to do with wrongful advantage of UPSI which CMD possessed, leading to the avoidance of potential loss"; Rejects CMD's contention that he was aware of crystallized financial results only when Finance Dept. forwarded results and share sale was 'inadvertent', holds that the top corporate executives are expected to set an example of good behavior and should strictly follow the rules laid down; Further rejects CMD's submission that shares were sold to help the company by way of extending unsecured loans, states that "it cannot be treated as a mitigating factor and cannot justify or absolve CMD of trading while in possession of UPSI, in violation of provisions of SEBI Act and SEBI PIT Regulations, or the unlawful avoidance of loss made by the Noticee by such sales during the period of prohibition"; Relies on SC ruling in N. Narayanan vs. Adjudicating Officer, SEBI, SAT ruling in Samir Arora Vs. SEBI and Rajiv Gandhi vs. SEBI:SEBI
Order was passed by Mr. S. Raman, Wholetime Member, SEBI.
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