All cases of such club can be taken for reassessment for the period 200607 to 2008-09 and substantial amount of revnue can be generated in this slow down phase. All these clubs are making huge money and won,t mind paying taxes. No, doubt they will agigate the issue up to supreme court , but after assessment , these clubs can be persuaded to pay taxes as till ITAT they don,t have chance to succeeded in view of below judgement.
-TIOL-189-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' AHMEDABAD
BENCH 'A' AHMEDABAD
ITA No.2136/Ahd/2010
Assessment Year: 2006-07
Assessment Year: 2006-07
ASSTT COMMISSIONER OF INCOME TAX
(OSD)-I, RANGE-4, AHMEDABAD NAVJIVAN TRUST BLDG
OFF ASHRAM ROAD, AHMEDABAD
(OSD)-I, RANGE-4, AHMEDABAD NAVJIVAN TRUST BLDG
OFF ASHRAM ROAD, AHMEDABAD
Vs
KARNAVATI CLUB LIMITED
SARKHEJ GANDHINAGAR
HIGHWAY, AHMEDABAD
PAN NO:AAACK7865Q
SARKHEJ GANDHINAGAR
HIGHWAY, AHMEDABAD
PAN NO:AAACK7865Q
T K Sharma, JM and A N Pahuja, AM
Dated: March 22, 2011
Appellant Rep by: Shri R K Dhanesta, DR
Respondent Rep by: Shri Sunil H Talati, AR
Respondent Rep by: Shri Sunil H Talati, AR
Income Tax - Section 115WB - Whether when the assessee is a club, the expenses like entertainment and telephone are liable to FBT.
Assessee, a recreation club, filed its ROI as per the provisions of Fringe Benefit, the same was selected for scrutiny - During the course of assessment proceedings the AO observed that assessee did not include certain expenses such as Entertainment and telephone in the value of FBT, which expenses as per the view of the AO attract provisions of FBT - Aggrieved with the order of the AO assessee filed appeal before the CIT(A) and contended that provision of FBT were not applicable to assessee since there was no employer -employee relationship between the assessee and its members - CIT(A) allowed the claim of the assessee.
After hearing the parties the ITAT held that,
++ as is apparent from the findings in the impugned order, the CIT(A) did not advert to the provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act at all nor recorded his findings as to why these deeming provisions are not applicable in the instant case;
++ the CIT(A) did not record his specific findings on the issues raised by the AO in the context of interpretation of provisions of sub-sect ion (2) of sect ion 115WB of the Act and ignored altogether the aforesaid observations of the Apex Court in R And B Falcon (A) Pty. Limited, apparently the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure;
++ we may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion. [Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the CIT(A) has not passed a speaking order on the issues raised in this appeal, we consider it fair and appropriate to set aside the order of the CIT(A) and restore the matter to his file for deciding these issues afresh in accordance with law, keeping in mind various judicial pronouncements, including the aforesaid observations of the Apex Court, after allowing sufficient opportunity to both the parties.
Assessee, a recreation club, filed its ROI as per the provisions of Fringe Benefit, the same was selected for scrutiny - During the course of assessment proceedings the AO observed that assessee did not include certain expenses such as Entertainment and telephone in the value of FBT, which expenses as per the view of the AO attract provisions of FBT - Aggrieved with the order of the AO assessee filed appeal before the CIT(A) and contended that provision of FBT were not applicable to assessee since there was no employer -employee relationship between the assessee and its members - CIT(A) allowed the claim of the assessee.
After hearing the parties the ITAT held that,
++ as is apparent from the findings in the impugned order, the CIT(A) did not advert to the provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act at all nor recorded his findings as to why these deeming provisions are not applicable in the instant case;
++ the CIT(A) did not record his specific findings on the issues raised by the AO in the context of interpretation of provisions of sub-sect ion (2) of sect ion 115WB of the Act and ignored altogether the aforesaid observations of the Apex Court in R And B Falcon (A) Pty. Limited, apparently the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure;
++ we may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion. [Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the CIT(A) has not passed a speaking order on the issues raised in this appeal, we consider it fair and appropriate to set aside the order of the CIT(A) and restore the matter to his file for deciding these issues afresh in accordance with law, keeping in mind various judicial pronouncements, including the aforesaid observations of the Apex Court, after allowing sufficient opportunity to both the parties.
Case remanded
ORDER
Per: A N Pahuja:
This appeal by the Revenue against an order dated 19-03-2010 of the ld. CIT(Appeals)-XX, Ahmedabad, for the Assessment Year (AY) 2006-07, raises the following grounds:-
1 "The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.18,76,982/- made by the Assessing Officer out of expenditure on entertainment activities for members, expenditure on activities of games and sports for members & expenditure on telephone provided to members, by treating the said amount as chargeable to fringe benefit tax.1.1 The Ld. CIT(A) has erred in law and on facts in not appreciating the deeming provisions of the section which provide that the expenditure is deemed to have been made on employees if the expenditure is incurred on any of the items specified within the section.2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.3. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent."
2 Facts, in brief, as per relevant orders are that return declaring fringe benefits of Rs.5,998/ - filed on 22-12-2006 by the assessee recreation club, was selected for scrutiny with the issue of a notice u/s 115WE(2) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] on 20-12-2007. During the course of assessment proceedings, the Assessing Officer [AO in short] noticed that the assessee did not include the following expenditure while computing fringe benefits: -
| Account Head | Head under which chargeable under FBT provisions | Amount | Value |
| Entertainment Activities Exp. | Entertainment | Rs.28,66,909/ - | Rs.5,73,382/ - |
| Activities & Games | Entertainment | Rs.61,63,764/ - | Rs.12,32,753/ - |
| Telephone Exp. | Use of Telephone | Rs.3,54,234/ - | Rs.70,847/ - |
| Total | Rs.93,84,907/ - | Rs.18,76,982/ - |
The AO was of the opinion that expenditure on account of entertainment activities was deemed to be Fringe Benefits in terms of clause (A) of sub-section (2) of section 115WB. Similarly, telephone expenditure was deemed to be Fringe Benefits in terms of the said clause (J) of sub-sect ion (2) of section 115WB of the Act. To a query by the AO, the assessee explained in the light of objects and reasons of Fringe Benefit Tax that the expenditure incurred in relation to non-employees did not relate in any manner to employees and, therefore, beyond the scope of levy of Fringe Benefit Tax. It was further pointed out that on a Writ Petition filed by the assessee along with The Gujarat Chamber of Commerce & Industry and others while challenging the validity of the CBDT Circular No.8, dated 29-08-2005 seeking to interpret the provisions of FBT as providing for levy of FBT, even in respect of expenditure incurred for nonemployees or for the business of the employer itself, without conferring any benefit whatsoever on the employees, had been admit ted and the Hon'ble High Court directed the assessees that they may deposit into a separate bank account an amount equal to the FBT incidence on items which fall under category (i) and (ii) relating to non-employees or for the business of the assessee till disposal of Writ Petitions. Accordingly, the assessee had already deposited the amount of Rs.6,31,792/ - in the separate bank account and deposited FBT amount of Rs.2019/- on other items in the Government Treasury. Therefore, the assessee argued that no FBT is liable to be paid by the assessee on the aforesaid amounts. However, the AO did not accept the submissions of the assessee and brought to tax the aforesaid amounts in terms of Circular No.8, dated 29-08-2005 and the provisions of Clause (A) &(J) of subsection 2 of section 115WB of the Act, resulting in an addition of Rs.18,76,982/-.
3. On appeal, the learned CIT(A) deleted the addition in the following terms: -
"4. I have carefully gone through the Assessment Order, submissions and the provisions of Fringe Benefit Tax. On the basis of the conditions laid down in Fringe Benefit Tax it is very clear that Fringe Benefit Tax cannot be levied in this particular case as all the expenditure are incurred wholly and exclusively on the members. It is an undisputed fact that the appellant is a Club and its income is considered as exempt on the concept of mutuality by ITAT following various judgements of High Courts. Copy of the Order of Tribunal for Asst. Year 1994-95 is on record. As the income of the Club is exempt on the concept of mutuality, particularly other than interest income, all other income of the Club is exempt as held by Gujarat High Court in the case of Rajpath Club Ltd. reported in 211 ITR 380 and also in the case of Sports Club of Gujarat Ltd. reported in 171 ITR 504. When the activities and consequential income of the Club are exempt on the ground of mutuality one cannot take a view stretching it further that benefits are attributable to the employees. Fringe Benefit Tax was introduced to bring into tax net the benefits, which are usually enjoyed collectively by the employees and cannot be attributed to individual employees. In this case the expenditure/benefits of employees are offered for Fringe Benefit Tax. Expenditure incurred by the assessee Club on its members can not be by any stretch of imagination treated as Fringe Benefit.4.1 In view of the above I am of the view that the addition made on account of
| Amount | Value | ||
| (g) | Expenditure on Entertainment Activities for members | Rs.28,66,909 | Rs.5,73,382 |
| (h) | Expenditure on Activities Of games and sports for members | Rs.61,63,764 | Rs.2,32,753 |
| (i) | Expenditure on Telephone Provided to members | Rs.3,54,234 | Rs. 70,847 |
| Rs.93,84,907 | Rs.18,76,982 |
are not at all in the nature of Fringe Benefit to its employees. They are the expenditure incurred wholly and exclusively for and towards the members of the Club on which there cannot be a levy of tax under Fringe Benefit Tax. I hold accordingly and direct the Assessing Officer to delete the additions of all the aforesaid three items of expenditure from Fringe Benefit Tax."
4. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO in the light of provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act, contending inter alia, that the ld. CIT(A) ignored altogether the aforesaid deeming provisions. On the other hand, the learned AR on behalf of the assessee supported the findings of the learned CIT(A).
5. We have heard both the parties and gone through the facts of the case. As is apparent from the findings in the impugned order, the ld. CIT(A) did not advert to the provisions of clause (A) &(J) of sub-section (2) of section 115WB of the Act at all nor recorded his findings as to why these deeming provisions are not applicable in the instant case. The provisions of sect ion 115WB of the Act, so far as relevant for adjudicating the issue before us, read as under:-
"Sec. 115WB-Fringe benefits(1) For the purposes of this chapter, 'fringe benefits' means any consideration for employment provided by way of-(a) any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise, to his employees (including former employee or employees);(b) any free or concessional ticket provided by the employer for private journeys of his employees or their family members; and………………………………………………………………………………………………(2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer has, in the course of his business or profession (including any activity whether or not such activity is carried on with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the following purposes, namely:(A) entertainment;………………………………………………………………………………………………(J) use of telephone (including mobile phone) other than expenditure on leased telephone lines;.............(3) For the purposes of sub-s. (1), the privilege, service, facility or amenity does not include perquisites in respect of which tax is paid or payable by the employee or any benefit or amenity in the nature of free or subsidised transport or any such allowance provided by the employer to his employees for journeys by the employees from their residence to the place of work or such place of work to the place of residence".
6. We further find that the Hon'ble Apex Court in their decision in R And B Falcon (A) Pty. Limited. Vs Commissioner Of Income-Tax, 301 ITR 309 (SC) = (2008-TIOL-94-SC-IT) while referring to CBDT circular no. 8 of 2005 observed in the context of provisions of sec. 115WB o the Act as under:
" Before the AAR, a circular issued by the Central Board of Direct Tax (CBDT) bearing No. 8 of 2005 [(2005) 197 CTR (St) 85] was relied upon by both the parties. We will refer to a part of it. The circular provides for Explanatory Notes on Provisions relating to Fringe Benefit Tax.The object for imposition of the said tax is stated to be as under:"The taxation of perquisites or fringe benefits is justified both on grounds of equity and economic efficiency. When fringe benefits are under-taxed, it violates both horizontal and vertical equity. A taxpayer receiving his entire income in cash bears a higher tax burden in comparison to another taxpayer who receives his income partly in cash and partly in kind, thereby violating horizontal equity. Further, fringe benefits are generally provided to senior executives in the organization. Therefore, under-taxation of fringe benefits also violates vertical equity. It also discriminates between companies which can provide fringe benefits, and those which cannot thereby adversely affecting market structure. However, the taxation of fringe benefits raises some problems primarily because-(a) all benefits cannot be individually attributed to employees, particularly in cases where the benefit is collectively enjoyed;(b) of the present widespread practice of providing perquisites, wherein many perquisites are disguised as reimbursements or other miscellaneous expenses so as to enable the employees to escape/reduce their tax liability; and(c) of the difficulty in the valuation of the benefits."8. The heading of para 11 of the said circular is "Frequently asked questions". The questions which were posed and answered and in turn are relevant for our purpose read as under:"In terms of the provisions of sub-s. (1) of s. 115WA, an employer in India is liable to FBT in respect of the value of fringe benefits-(a) provided by him to his employees; and(b) deemed to have been provided by him to his employees.The scope of fringe benefits provided or deemed to have been provided is defined in s. 115WB. Sub-s. (1) of the said section defines the scope of fringe benefits provided by the employer to his employees. Similarly, sub-s. (2) of the said section defines the scope of fringe benefits deemed to have been provided by the employer to his employees. Therefore, sub-s. (2) expands the scope of sub-s. (1) through a deeming provision.The provision relating to the computation of the value of the fringe benefits is contained in s. 115WC. It is a settled principle of law that where the computation provisions fail, the charging section cannot be effectuated. Therefore, if there is no provision for computing the value of any particular fringe benefit, such fringe benefit, even if it may fall within cl. (a) of sub-s. (1) of s. 115WB, is not liable to FBT.........19. FBT is payable in the year in which the expenditure is incurred irrespective of whether the expenditure is capitalized or not. However, the same expenditure will not be liable to FBT again in the year in which it is amortized and charged to profit.Is FBT payable by an Indian company having employees based both in and outside India on its total (global) expenditure incurred by it for the purposes referred to in cls. (A) to (P) of sub-s. (2) of s. 115B?20. FBT is payable on the value of fringe benefits provided or deemed to have been provided to employees based in India and determined on a presumptive basis in accordance with the provisions of s. 115WC of the IT Act. The value of such fringe benefits is determined, inter alia, as a proportion of the total amount of expenses incurred for some identified purposes. In the case of an Indian company having employees based both in India and in a foreign country, FBT is payable on the proportion (50 per cent, 20 per cent or 5 per cent, as the case may be of the total amount of expenses incurred for the purposes referred to in cls. (A) to (P) of sub-s. (2) of s. 115WB and attributable to the operations in India. If the company maintains separate books of account for its Indian and foreign operations, FBT would be payable on the amount of expenses reflected in the books of account relating to the Indian operations. If however, no separate accounts are maintained, the amount of expenses attributable to Indian operations would be the proportionate amount of the global expenditure. Further, such proportionate amount shall be determined by applying to the global expenditure the proportion which the number of employees based in India bears to the total worldwide employees of the company.Whether an Indian company carrying on business outside India would be liable to FBT even though none of its employees in such business may be liable to pay income-tax in India?21. An Indian company would be liable to the FBT in India if it has employees based in India. Therefore, if an Indian company carries on business outside India but does not have any employees based in India, such company would not be liable to FBT in India. Does FBT apply to foreign companies?..............103. FBT is a liability qua employer. It is an expenditure laid out or expended wholly and exclusively for the purposes of the business or profession of the employer. However, sub-cl. (ic) of cl. (a) of s. 40 of the IT Act expressly; prohibits the deduction of the amount of FBT paid, for the purposes of computing the income under the head Profits and gains of business or profession. This prohibition does not apply to the computation of book profit for the purposes of s. 115JB. Accordingly, the FBT is an allowable deduction in the computation of book profit under s. 115JB of the IT Act.…………………………………………… …………………………………………………12. Fringe benefit tax is a new concept. The taxes to be levied on the fringe benefit provided or deemed to have been provided by an employer to employees during the previous year is at the rate of 30 per cent on the value of such fringe benefits. The object for imposition of the said tax, as is evident from the said circular dt. 29th Aug., 2005, was to bring about an equity. The intention of the Parliament was to tax the employer who, on the one hand, deducts the expenditure for the benefit of the employees including entertainment, etc. and on the other when the employees getting the perks are to be taxed, those who get direct or indirect benefits from the expenditures incurred by the employer, no tax is leviable. As stated in the objective, it is for bringing about a horizontal equity and not a vertical equity.13. Sub-s. (1) of s. 115WB contains the interpretation section. It is in two parts. It provides for a direct meaning, as also an expanded meaning. Expanded meaning of the said provision is contained in sub-s. (2). Whereas sub-s. (1) takes within its sweep any consideration for employment, inter alia, by way of privilege service, facility or amenity directly or indirectly, sub-s. (2) thereof expands the said definition stating as to when the fringe benefit would be deemed to have been provided. The expansive meaning of the said term 'benefits' by reason of a legal fiction created also brings within its purview, benefits which would be deemed to have been provided by the employer to his employees during the previous year. Indisputably, sub-s. (3) refers to sub-s. (1) only. Ex facie, it does not have any application in regard to the matters which have been brought within the purview of the FBT by reason of application of the deeming provision. We are concerned here with a question in regard to grant of exemption in respect of 'conveyance' as provided for in cl. (F) of sub-s. (2) and 'tour and travel' which is provided for in cl. (Q) of sub-s. (2) of s. 115WB.14. CBDT categorically states in answer to question number 7 that sub-s. (2) provides for an expansive definition.Does it mean that sub-s. (2) is merely an extension of sub-s. (1) or it is an independent provision? If sub-s. (2) is merely an extension of sub-s. (1), Mr. Ganesh may be right but we must notice that s. 115WA provides for imposition of tax on expenditure incurred by the employer or providing its employees certain benefits. Those benefits which are directly provided are contained in sub-s. (1). Some other benefits, however, which the employer provides to the employees by incurring any expenditure or making any payment for the purpose enumerated therein in the course of his business or profession, irrespective of the fact as to whether any such activity would be carried on a regular basis or not, e.g., entertainment would, by reason of the legal fiction created, also be deemed to have been provided by the employer for the purpose of sub-s. (2). Whereas subs. (1) envisages any amount paid to the employee by way of consideration for employment, what would be the limits thereof are only enumerated in sub-s. (2). We, therefore, are of the opinion that sub-ss. (1) and (2), having regard to the provisions of s. 115WA as also sub-s. (3) of s. 115WB, must be held to be operating in different fields.
7. As already stated and as pointed out in ground no.1.1 in the appeal, since the ld. CIT(A) did not record his specific findings on the issues raised by the AO in the context of interpretation of provisions of sub-sect ion (2) of sect ion 115WB of the Act and ignored altogether the aforesaid observations of the Hon'ble Apex Court, apparently the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points before it. The application of mind to the material facts and the arguments should manifest itself in the order. Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision. The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure. The requirement of recording of reasons by the quasi-judicial authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. We may reiterate that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion.[Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. As is apparent, the impugned order suffers from lack of reasoning and is not a speaking order. In view of the foregoing, especially when the ld. CIT(A) has not passed a speaking order on the issues raised in this appeal, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding these issues afresh in accordance with law, keeping in mind various judicial pronouncements, including the aforesaid observations of the Hon'ble Apex Court, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these observations, ground nos. 1 & 1.1 in the appeal of the Revenue for the AY 2003- 04 are disposed of.
8. Ground nos. 2 & 3 being mere prayer nor any submissions having been made before us, do not require any separate adjudication and are, therefore, dismissed.
9. In the result, appeal is allowed, but for statistical purposes.
(Order pronounced in the court today on 22.3.2011)
2013-TIOL-547-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' AHMADABAD
BENCH 'A' AHMADABAD
ITA No.1329/Ahd/2012
Assessment Year: 2009-10
Assessment Year: 2009-10
RIDDHI STEEL & TUBES PVT LTD
83/84, PIPLAJ PIRANA ROAD
ASLALI, PIPLAJ, VILLAGE KAMOD
AHMEDABAD
PAN NOP:AACCR01755J
83/84, PIPLAJ PIRANA ROAD
ASLALI, PIPLAJ, VILLAGE KAMOD
AHMEDABAD
PAN NOP:AACCR01755J
Vs
ASSTT COMMISSIONER OF INCOME TAX
RANGE-5, AHMEDABAD
RANGE-5, AHMEDABAD
Mukul Kr Shrawat, JM and T R Meena, AM
Dated: April 12, 2013
Appellant Rep by: Shri Tushar P Hemani, AR
Respondent Rep by: Shri Shelley Jindal, CIT-DR
Respondent Rep by: Shri Shelley Jindal, CIT-DR
Income Tax - Sections 69B, 251, 253 - Whether appellate authorities under the I-T Act can entertain a new claim which was raised, but not made before the AO by way of revised return - Whether stock statement furnished to bank for obtaining credit facility is sacrosanct - Whether any addition on the basis of such statement can be made without pointing out any defect in regular audited books of account of the assessee.
Assessee Company engaged in manufacturing of steel, filed its ROI. During the course of assessment proceedings the AO observed that the assessee had wrongly claimed lesser depreciation; however the AO could not allow the claim of the assessee for correct depreciation on the ground of non-filing of the revised return. Beside this the AO also made addition under section 69-B on the ground that the stock statement furnished to bank did not match with the book's stock. The CIT(A) affirmed the order of the AO. On appeal before the Tribunal, the AR pointed out several judgments for contesting the issues.
After hearing the parties the ITAT held that,
++ we agree with the arguments made by the Ld. Counsel that the Supreme Court decision in the case of Goetze (supra) bars only AO but not the Appellate Authorities to entertain fresh / new claim made before AO without filing revised return of income. Therefore, we accept the claim as made by the Assessee and direct the Assessing Officer to allow the differential depreciation amount of Rs.7,62,206/- after verifying the claim as made in the Tax Audit Report in Form No.3CD;
Assessee Company engaged in manufacturing of steel, filed its ROI. During the course of assessment proceedings the AO observed that the assessee had wrongly claimed lesser depreciation; however the AO could not allow the claim of the assessee for correct depreciation on the ground of non-filing of the revised return. Beside this the AO also made addition under section 69-B on the ground that the stock statement furnished to bank did not match with the book's stock. The CIT(A) affirmed the order of the AO. On appeal before the Tribunal, the AR pointed out several judgments for contesting the issues.
After hearing the parties the ITAT held that,
++ we agree with the arguments made by the Ld. Counsel that the Supreme Court decision in the case of Goetze (supra) bars only AO but not the Appellate Authorities to entertain fresh / new claim made before AO without filing revised return of income. Therefore, we accept the claim as made by the Assessee and direct the Assessing Officer to allow the differential depreciation amount of Rs.7,62,206/- after verifying the claim as made in the Tax Audit Report in Form No.3CD;
++ the Assessee is covered by the Gujarat High Court decisions in the case of Arrow Exim Pvt. Ltd and Meico Bonds Pvt. Ltd. It is seen that Hon'ble the Gujarat High Court in the case of Arrow Exim Pvt. Ltd. has confirmed the order of ITAT and CIT(A) in deleting addition made u/s 69B of the Act under identical circumstances of the case after making observations that (a) the stock statement showing inflated quantity and value of stock was furnished to the banking authorities to avail more credit facilities; (b) the stocks were hypothecated and not pledged and (c) the books of accounts are not found to be defective or non-genuine by the AO. (d) The assessee explained the difference either on account of inflated valuation of stock or excess quantity shown to bank. We further find that Hon'ble the Gujarat High Court in the case of Meico Bonds Pvt. Ltd. has also confirmed the order of ITAT in deleting the addition made on account of understatement and undervaluation of stock after making observations that (a) the assessee had been contending that the valuation supplied to the Bank did not reflect the accurate or the correct picture; (b) the statement was drawn on the basis of estimation and such estimate is based on higher side to borrow higher loan and (c) the closing stock reflected in the books maintained for income-tax reflects the correct picture. Hon'ble Gujarat High Court in the case of Meico Bonds Pvt. Ltd has further strengthened the view taken in Arrow Exim Pvt. Ltd.
Assessee's appeal allowed
ORDER
Per: T R Meena:
This is an appeal at the behest of the assessee which has emanated from the order of CIT(A)-XI, Ahmedabad, dated 25.05.2012 for A.Y. 2009-10. The effective grounds of appeal are as under:
1. The ld. CIT(A) has erred in law and on facts of the case in confirming the action of ld. AO in making disallowance of an expenditure amounting to Rs.1,93, 150/- u/s 40(a)(ia) of the Act purely on guess work and without appreciating the facts that no such expenditure was debited to Profit & Loss account and consequently there was no violation of TDS provisions.2. The ld. CIT(A) has erred in law and on the facts of the case in not maintaining the ground raised with regard to differential amount of depreciation of Rs.7,62,206/- after holding that the same was not disallowed by the ld. AO and therefore the Appellant cannot have any grievance against the assessment order.3. The ld. CIT(A) ought to have appreciated the facts that the ld. AO has dealt with the issue with regard to claim of the Appellant to allow depreciation at Rs.86,01,248/-as given in the Tax Audit Report as against Rs.78,39,042/- shown in the Return of Income, however, the ld. AO has not allowed the differential amount of Rs.7,62,206/- as deduction while computing assessable income, and therefore, the Appellant can have grievances against such action of the ld. AO.4. The action of ld. CIT(A) in not adjudicating the ground on merits in as much as law is patently bad, untenable and illegal in the eyes of law.5. Both the lower authorities have failed to allow / grant legitimate deduction with regard to differential depreciation of Rs.7,62,206/-, which ought to have been allowed to the Appellant.6. The ld. CIT(A) has erred in law and on the facts of the case in confirming the action of ld. AO in making huge addition of Rs. 10,39,75,306/-u/s 69B of the Act.7. The ld. CIT(A) has further erred in law in erroneously holding that Bank Manager had inspected godown of the appellant on 25/04/2009. Firstly there is no such inspection report of any physical verification and secondly even as per the CIT(A) the said alleged inspection of stock took place on 26/04/2009 whereas the addition is made for the so called discrepancy of stock as on 31/03/2009.8. Alternatively and without prejudice to above, the Appellant has explained stock worth of 2654 M.T. out of alleged unexplained stock of 3319.037 M.T. and therefore addition to that extent may be deleted.9. Ld. CIT(A) has erred in not following and respecting the decision of Hon'ble Jurisdiction High Court in the case of Arrow Exim Ltd (230 CTR 293) which was directly covering the issue in favour of the appellant. The artificial and hyper technical distinctions given by the ld. CIT(A) for not following the decision of the Hon'ble Jurisdictional High Court is nothing but an attempt not to follow binding decision which amount to contemptuous defiance of the law of the land which is not permissible under any circumstances and should not be allowed to be perpetuated.10. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.11. The ld. CIT(A) has erred in law and on the facts of the case in onfirming the action of ld. AO in charging interest u/s 234A/B/C of the Act.12. The ld. CIT(A) has erred in law and on the facts of the case in confirming the action of ld. AO in initiating penalty proceedings u/s 271(1)(c) of the Act.
2. Ground No.1 challenged in the grounds of appeal is regarding disallowance of expenditure of Rs.1,93,150/- u/s 40(a)(ia) of the Act. During the course of assessment proceedings, the assessing officer was of the view that the Assessee has made provisions of Rs.49,255/- on account of TDS payable on Contractor, whereas the assessee could produce challan of Rs.45,392/- only. Accordingly, the assessing officer worked out expenditure amounting to Rs.1,93,150/-on reverse working mechanism i.e (Rs.3,863/2%) and disallowed the same u/s 40(a)(ia) of the Act for non-deposition of tax deducted at source.
3. The CIT(A) also sustained the disallowance made by the assessing officer after holding the assessee could not furnish the details of account in which excess provisions of TDS payable amounting to Rs.3,863/- was made.
4. Now the assessee is before us against the said action of the assessing officer. The ld. Counsel submitted that both the lower authorities have failed to appreciate that the Assessee had made excessive provisions by Rs.3,863/- on account of TDS payable on contractors payment, and it was not a case that the Assessee has failed to deduct tax at source or deducted tax at source but not deposited with the Government Treasury account, inasmuch as it was also not the case of AO that on certain expenditure, tax had not been deducted and / or paid. Ld. Counsel further drew our attention to pg. nos.17 to 21 @ 18 of P/B, para 6 and pg. nos.140 to 147 of P/Bregarding details of entire amount of expenditure of various expenditure including contract payment and deduction of tax at source thereon, and it was argued that the Assessee has duly deducted tax at source and deposited the same in due time on entire amount of all the expenditure including contract payment wherever applicable. It was further argued that even Tax Auditor has categorically stated that the Assessee has complied with the provisions of Chapter XVII-B of the Act. The Ld. Counsel finallyargued that both the lower authorities have failed to bring on record such expenditure on which tax has not been deducted or deposited as per scheme of the Act, and in absence of which no disallowance can be made u/s 40(a)(ia) of the Act.
5. Ld. DR has relied upon the orders of the CIT(A) and AO.
6. We have heard both the sides and gone through the orders of both the lower authorities. It is seen that the assessing officer has made disallowance of expenditure u/s40(a)(ia) of the Act only on the basis of reversal of entries made regarding provision for TDS payable on contractors payment. The assessing officer has not brought on record any such instance of expenditure, on which tax is not deducted or deducted but not paid so, and in the absence of which disallowance cannot be made u/s 40(a)(ia) of the Act. Further Ld. Counsel has drawn our attention to pg. nos.140-147 of P/B and submitted that on each and every expenditure for contractor's payment, tax has been deducted at source and paid wherever it is applicable. We are of the firm view that if the expenditure has been subject matter of tax deduction at source and if the compliance to the Chapter XVII-B has been made then no disallowance can be made u/s 40(a)(ia) of the Act on presumption basis. Therefore, in the interest of justice, we set aside this issue to the file of Assessing Officer and direct him to verify the details as furnished by the Assessee on pg. nos.140-147 of P/B and find out as to whether tax has been deducted at source on the expenditure as contented by the ld. Counsel or not, and if the compliance has been made then no disallowance should be made u/s 40(a)(ia) of the Act on presumptive basis.
7. Ground nos. 2 to 5 challenged in the Grounds of Appeal are regarding disallowance of differential depreciation amounting to Rs.7,62,206/-. The Assessee in the Return of Income has inadvertently claimed depreciation at Rs.78,39,042/-, however, the same was rightly quantified at Rs.86,01,248/- in the Tax Audit Report in Form No.3CD. During the course of the assessment proceedings, upon realization when the assessee claimed the differential depreciation, the assessing officer did not allow differential depreciation amounting to Rs.7,62,206/- after holding that the said fresh claim was not claimed in the revised return of income, and therefore, in view of Goetze India Ltd. 157 Taxman 1 (SC) = (2006-TIOL-198-SC-IT), it cannot be allowed.
8. The CIT(A) has not adjudicated this issue on the ground that since AO has not made addition of Rs.7,62,206/-, the assessee cannot be said to be aggrieved against the order of AO, and therefore, the same is not maintainable as per provisions of S.246A of the Act.
9. The ld. Counsel argued that the Assessee had already made a claim of depreciation in the return of income and it was only a matter of quantification of amount of depreciation, and therefore, it was not a fresh / new claim before AO. It was further argued that even if it is treated as a fresh / new claim, then also, the Supreme Court decision in the case of Goetze (supra) bars only AO to entertain any fresh / new claim without filing revised return of income.However the Appellate Authorities are not barred to allow the same, and accordingly reliance was placed on various authorities including Goetze (supra) itself. The Ld. Counsel further argued that CIT(A) while dismissing this ground on the technical ground failed to appreciate that grievances cannot be restricted only to addition / disallowance made by AO, instead it can also have grievance against the action of AO in not allowing any claim made by the Assessee, and therefore, the CIT(A) ought to have adjudicated the ground on merits and ought to have allowed the claim made by the Assessee.
10. Ld. DR has relied upon order of both the lower authorities.
11. We have heard the Counsels of both sides and gone through the orders of AO and CIT(A). We agree with the arguments made by the Ld. Counsel that the Supreme Court decision in the case of Goetze (supra) bars only AO but not the Appellate Authorities to entertain fresh / new claim made before AO without filing revised return of income. Therefore, we accept the claim as made by the Assessee and direct the Assessing Officer to allow the differential depreciation amount of Rs.7,62,206/- after verifying the claim as made in the Tax Audit Report in Form No.3CD.
12. Ground nos.6 to 10 challenged in the grounds of appeal are regarding making addition of Rs.10,39,75,306/- u/s 69B of the Act. The AO has made addition on account of difference between stock declared to the Canara Bank and stock reflected as closing stock as at 31st March, 2009, details given on pg. no.8 para 9.2 of the assessment order, is summarized as under :
| Particulars | Quantity (MT) | Amount (Rs.) |
| Raw Material | ||
| As per Statement furnished to Bank | 4854.782 | 14,68,86,248 |
| As per Books | 1735.745 | 5,70,72,922 |
| Difference added by AO (A) | 3119.037 | 8,98,13,326 |
| Finished Goods | ||
| As per Statement furnished to Bank | 694.918 | 2,40,19,071 |
| As per Books | 253.271 | 98,57,091 |
| Difference added by AO (B) | 441.647 | 1,41,61,980 |
Total (A+B) | 10,39,75,306 |
13. The CIT(A) has sustained the addition made by the AO after holding that (a) the discrepancy in stock were never explained by the Assessee with the help of books of account, bills, vouchers etc.; (b) stock hypothecated to Canara Bank were physically verified by the banker on 25/04/2009 and (c) the difference in stock was detected at the end of year i.e on 31st March, 2009. The CIT(A) has further held that the Assessee could not prove any linkage of purchase of 2654 M.T. of steel vide bills dated 31/03/2009 with the inventory of stocks as on 31/03/2009 furnished to the Canara bank, and accordingly, CIT(A) has rejected the contention of the assessee that stock of 2645 M.T. for which bills were raised by SAIL on 31/03/2009 were included in the stock statement furnished to the Canara Bank.
14(i). The Ld. Counsel at the first place argued before us that the entire issue is covered by the Gujarat High Court decisions in the case of CIT vs. Meico Bonds Pvt. Ltd. bearing Tax Appeal No.2041 of 2010 (pg.nos.1-4 of P/B) and CIT vs. Arrow Exim Pvt. Ltd. 230 CTR 293 (Guj). The Ld. Counsel has further relied upon CIT vs. Veerdip Rollers (P) Ltd. - 323 ITR 341 (Guj.); CIT vs. Khan & Sirohi Rolling Mills – 200 CTR 595 (All.) and CIT vs. N. Swamy - 241 ITR 363 (Mad.). After placing reliance on these decisions, it was submitted that the Hon'ble Courts, after making following observations, has held that merely relying on statement given to a bank, addition cannot be made in the hands of the assessee and onus is on revenue to prove that the assessee has undisclosed income :
(a) The stock is inflated in the statement furnished to the bank to avail larger credit facilities;(b) The inflated stock was hypothecated and not pledged;(c) The assessee has maintained stock register;(d) The assessee books of accounts are not found to be defective or nongenuine by AO.
14(ii). The Ld. Counsel further submitted that the stock detail has been inflated in the statement furnished to bank to avail larger credit facilities, which is not denied by AO; admittedly, the stock was hypothecated and not pledged; Quantitative details (month wise) of raw materials, finished goods and semifinished goods has been placed on records before both the lower authorities (Pgs.17 to 22 @ 18 & 20 of P/B)(Pg.75 of P/B being part of Company's Audit Report); admittedly, AO has not pointed out any defects in the books of accounts maintained by the Assessee and has accepted the same, and accordingly relying on the decisions cited above, it was argued that no addition can be made merely relying on the statement furnished to the bank without brining on record any evidentiary proof to establish that the assessee had undisclosed income.
14(iii). Ld. Counsel further submitted that the assessee has been subjected to tax audit and tax auditor has qualified the report in any manner which is at pages 35-54 of the Paper book filed before us. It was further submitted that the assessee is subjected to excise and VAT and none of these authorities have taken any action against assessee for the alleged stock discrepancy.
14(iv). The Counsel further submitted that most importantly, there was an Excise Revenue Audit wherein the excise department, after detailed scrutiny of the books of accounts, stock registers, excise records, has accepted the books of accounts and other record maintained by the assessee to be true, correct and without any discrepancies in so far as inventory is concerned. Such report was placed on record at pages 165-166 of the paper book.
14(v). The Counsel while drawing attention to page 10 of the assessment order submitted that if the addition as suggested by the assessing officer is made, the book result viz. GP and NP as also the stock turnover ratio would show highly abnormal picture compared to other comparable years. Ld. Counsel, upon direction from the Bench, placed on record a statement containing these three ratios from A.Y. 2006-07 to A.Y. 2012-13 to substantiate his argument.
14(vi). The Ld. Counsel further, drawing attention to the letter furnished on 05/12/2011 to the AO enclosed on pg. nos.17 to 22 of P/B, argued that the Assessee had submitted quantitative details (month wise) in respect of Raw Materials, Finished Goods and Semi-finished goods to prove that entire stock register was maintained and the stock recorded in the books of account was correct, which has not been controverted by the AO.
14(vii). Insofar as the contention of CIT(A) that the bank manager has inspected the assessee's godown on 25/04/2009 and verified the stock declared to the Bank, the Ld. Counsel has argued that the said inspection report was for the "Godown" and not for the physical verification of "stock" and even inspection of stock on 25/04/2009 can never be taken as physical verification of stock as at 31/03/2009. No one would be in a position to take physical verification of stock on 25/04/2009 for the stock lying on 31/03/2009. At page no. 217 of the paper book, the total value of goods shown 17.09 crore. Thereafter, margin @ 30% at Rs. 5.12 crore had been reduced and net value had been calculated Rs.11.96 crore and sanction limit was shown Rs.10 crore till 04.05.2009 whereas this loan was sanctioned by the Bank at Rs.11.03 crore as on 31.03.2009.
14(viii). The Ld. Counsel further explained the difference to the extent of 2654 MT out of total difference of 3119.037 MT by submitting that the Assessee had received 2654 MT stock on 07/04/2009 which was very well recorded in R.G.23 A register in April 2009 (Pgs. 210 to 214 of P/B), since the invoices of the same were dated 31/03/2009, the same was included in the stock statement furnished to Canara bank for showing the stock position as on 31/03/2009.However the same was not accounted for in the books of accounts upto 31/03/2009.The Ld. Counsel to further support his argument drew out attention to pg. no.220 of P/B and submitted that the bank manager while preparing inspection report on 25/04/2009 has also noted that the Assessee had received 2654 MT stock which has been included in the stock statement for the month of March, 2009.
14(ix). Insofar as the balance difference of 465.037 MT stock (3119.037 MT – 2654 MT) is concerned, Ld. Counsel further submitted that during the course of hearing, the stock statement was furnished purely on estimated basis and taking into account the requirement of margin of 30%. By drawing attention to pg. nos.68 read with 217, the ld. Counsel submitted that the Assessee had already borrowed an amount of Rs.11.03 Crores from Canara Bank as at 31/03/2009, and therefore, making upward adjustment of 30% thereon for margin required to be maintained by the Bank, the value of stock was worked out at Rs.17.09 Crores on estimated basis (Pg. no.217 of P/B) so as to fulfill the requirements of the loan agreement entered into with Canara Bank. Accordingly, the Ld. Counsel closed his argument by submitting that the stock statement was furnished on estimated basis taking into account the borrowed amount as of 31/03/2009 and requirement to maintain 30% margin over and above the borrowed amount.
15. Ld. CIT DR supported the orders of the lower authorities. He further put emphasis of the order of CIT(A) more particularly paras6.2 to 6.7. He thus submitted that lower authorities have passed proper order requiring no interference at all. He further relied upon CIT vs. Chemmeens, 207 ITR 909 (Ker.), wherein the ITAT deleted the addition on the basis of inconsistency of earlier year not on merit e.g. the assessee inflates the stock for getting higher margin of credit.
16(i) We have at length heard both the sides. We agree with the arguments of the Ld. Counsel of the Assessee that the case of the Assessee is covered by the Gujarat High Court decisions in the case of Arrow Exim Pvt. Ltd.(supra) and Meico Bonds Pvt. Ltd.(supra). It is seen that Hon'ble the Gujarat High Court in the case of Arrow Exim Pvt. Ltd. (supra) has confirmed the order of ITAT and CIT(A) in deleting addition made u/s 69B of the Act under identical circumstances of the case after making observations that (a) the stock statement showing inflated quantity and value of stock was furnished to the banking authorities to avail more credit facilities; (b) the stocks were hypothecated and not pledged and (c) the books of accounts are not found to be defective or non-genuine by the AO. (d) The assessee explained the difference either on account of inflated valuation of stock or excess quantity shown to bank. We further find that Hon'ble the Gujarat High Court in the case of Meico Bonds Pvt. Ltd. (supra) has also confirmed the order of ITAT in deleting the addition made on account of understatement and undervaluation of stock after making observations that (a) the assessee had been contending that the valuation supplied to the Bank did not reflect the accurate or the correct picture; (b) the statement was drawn on the basis of estimation and such estimate is based on higher side to borrow higher loan and (c) the closing stock reflected in the books maintained for income-tax reflects the correct picture. Hon'ble Gujarat High Court in the case of Meico Bonds Pvt. Ltd. (supra) has further strengthened the view taken in Arrow Exim Pvt. Ltd. (supra).
16(ii) This view is further supported by Hon'ble Allahabad High Court's decision in the case of Khan & Sirohi Rolling Mills (supra), wherein also, the Hon'ble Court did not find any error in the order of Tribunal in accepting that (a) the assesse inflated the value of the stocks in the bank declaration to obtain a number of drafts from the bank; (b) there was actually no verification of the stock made by any bank official; (c) the stocks were only hypothecated and not pledged; (d) the income – tax officer could not point out any defect in the trading accounts of the assessee and (e) the books of accounts maintained by the assessee has also been accepted by the Central Excise Department as well as by the Sales Tax Department could not be disbelieved.
16(iii) On perusal of the decisions as referred above, it is gathered that Hon'ble Courts have laid down that additions cannot be made on account of difference arising in the quantity and value of stock shown in the books of accounts and the statement furnished to the banking authorities, admittedly to avail higher credit facilities. Courts have laid down the following guidelines while dealing with the issue:
(a) The stock in quantity and value is inflated on estimate basis in the statement furnished to the banking authorities to avail higher financial credits ;(b) The inflated and estimated stock is hypothecated and not pledged;(c) No actual physical verification of stock is carried out by the officer of banking authorities during the year or as on date of valuation of stock;(d) The assessee has maintained stock register;(e) The assessee's books of accounts are not found to be defective or nongenuine by AO;(f) The books of accounts maintained by the assessee are accepted by the Central Excise and / or Sales Tax Department.
Applying these tests to the facts of the present case, the following conclusions emerge:
Applying test (a), we find that the stock details have been inflated purely on estimate basis in the statement furnished to bank to avail larger credit facilities.This aspect is duly supported by the fact that the Assessee had already borrowed an amount of Rs.11.03 Crores from Canara Bank as at 31/03/2009, and therefore, by making upward adjustment of 30% thereon for margin required to be maintained as per the loan agreement entered with the Bank, the value of stock was estimated and inflated to Rs.17.09 Croresso as to justify the amount already drawn from the Bank.
Applying test (b), we further find that in the present case, stock is only hypothecated with the bank and not pledged. Unlike pledge, under hypothecation, the stock is not kept in lock and key of the bank. Therefore the submission of the assessee that the figure of closing stock was estimated and inflated with a view to meet the margin requirements of the bank can be accepted.
Applying test (c), we also find that there was no physical verification of stock by the Bank authorities as on 31/03/2009. A perusal of CIT(A) order reveals that he has placed a great reliance on the godown visit of Bank Manager on 25/04/2009. However, the said reliance is completely misplaced in as much as firstly, this is not even the case of the assessing officer who made the addition. Secondly the said visit took place on 25/04/2009 i.e. much after the close of the year under consideration. Thirdly, the said visit was only a godown visit and not physical verification and counting of stock. Fourthly and most importantly, in the very inspection report the Bank Manager himself notes that in so far as 3000 tonnes of coil is concerned, the same was included in the stock of Month of March, 2009. Because of this inclusion, stock position of March shows increase. This aspect is conveniently overlooked and ignored by the CIT(A).
Applying test (d),We further find that the assessee has maintained stock register giving complete quantitative details including month-wise details of Raw Materials, Finished Goods and Semi-finished goods. In fact these details have been placed on record before the AO (Pg. Nos.17 to 22 @ 18 & 20 of P/B), which is not controverted by the AO and books of accounts of the assessee has not been found to be defective or non-genuine by AO.
Applying test (e),We further find that the assessee has been subjected to statutory audit under the Companies Act, 1956, also subjected to tax audit under the Income Tax Act, and none of these auditors have qualified their reports in any manner whatsoever. In fact the assessee has been filing regular returns since last 8 years and has been consistently following method of accounting as prescribed u/s 145 and valuing closing stock and inventories as prescribed u/s 145A of the Act. No such practices have been questioned or doubted or found to be erroneous by the AO.
Applying test (f), we find that the assessee is subjected to excise and VAT and none of these authorities have noticed or for that matter taken any action against assessee for the alleged stock discrepancy. In fact on perusal of pg. nos.165-166 of paper book placed before us, we find Excise Audit Report for the period Jan'2009 to Dec'2009 which was carried out by Excise Revenue Audit team wherein the excise department, after detailed scrutiny of the books of accounts, stock registers, excise records, has accepted the books of accounts and other record maintained by the assessee to be true, correct and except few discrepancies in so far as inventory is concerned. We find that the period of audit covers 31st March, 2009. If the assessee has in fact purchased and stored such unaccounted stock allegedly shown to the bank, it is impossible not to leave a single trail more so when the assessee is a manufacturer and not a trader. It is not possible to acquire unaccounted stock, carry out manufacturing activities, consume energy, remove the finished stock and sale away the same in the market. We therefore find considerable force in the submission of the counsel for the assessee that the books of accounts are found to be genuine and recorded appropriately and no such kind of discrepancies were found to be noted in the Excise Audit Report which could remotely suggest that the Assessee has invested in unexplained stock which is not recorded in books of accounts.
16(iv). If the discrepancies of stock at 3119.037 & 441.647 MT valued Rs.10.39 crore accepted as suppressed stock than same is to be included in closing stock of A.Y. 09-10 & opening stock of A.Y. 10-11 which would be again give distorted position of accounting result for A.Y. 10-11. The ld. AO had not brought on record any evidence of purchase and sale made outside the book in A.Y. 09-10. Therefore, the entire set of facts of the case falls within the parameters / guidelines framed by Hon'ble the High Courts, and we are of the view that merely relying on the statement furnished to the banking authorities to avail larger credit facilities, addition cannot be made on account of difference between the quantity and value of stock shown in the books of accounts and the statement furnished to the banking authorities.
16(v). Independent of these tests, we also find that the assessee has also explained the difference to the extent of 2654 MT out of total difference of 3119.037 MT. We find that the Assessee had received 2654 MT stock on 07/04/2009 which was recorded in R.G.23 A register on 7thApril 2009 (Pgs. 210 to 214 of P/B),and since the invoices of the same were dated 31/03/2009, the same was included in the stock statement furnished to Canara bank for showing the stock position as on 31/03/2009 though these purchases were accounted for in the books of accounts after 31/03/2009. As regards the remaining difference of 465.037 MT, as held earlier, the same was purely on inflated estimate basis so as to fulfill margin requirements of the Bank. Hence, we accept the contention of Ld. Counsel that the stock statement was furnished to the Canara bank on estimated basis to avail larger credit facilities.
16(vi) There is another angle which is required to be considered while deciding this issue and that is the effect in the financial statements on account of addition made by AO. To verify the same, during the course of hearing, we called for the actual financial ratios for 7 years and for the current year under appeal after giving effect to the addition made by the AO, which would show results as under :
| Parameters | AY 2006-07 | AY 2007-08 | AY 2008-09 | Results as shown by the Assessee AY 2009-10 |
| Gross Profit | 26332662 | 27814168 | 37648224 | 47326840 |
| Turnover | 304229927 | 395692659 | 506977341 | 610575238 |
| Percentage | 8.66% | 7.03% | 7.43% | 7.75% |
| Net Profit | 2100700 | 4611189 | 6242279 | 7797575 |
| Turnover | 304229927 | 395692659 | 506977341 | 610575238 |
| Percentage | 0.69% | 1.17% | 1.23% | 1.28% |
| Stock-intrade | 34717925 | 36842936 | 51938382 | 68641931 |
| Turnover | 304229927 | 395692659 | 506977341 | 610575238 |
| Percentage | 11.41% | 9.31% | 10.24% | 11.24% |
| Parameters | After including addition of Rs.10.40 crs. AY 2009-10 | AY 2010-11 | AY 2011-12 | AY 2012-13 |
| Gross Profit | 151301876 | 61967833 | 91443364 | 137825226 |
| Turnover | 610575238 | 890096455 | 1196543944 | 1475315486 |
| Percentage | 24.78% | 6.96% | 7.64% | 9.34% |
| Net Profit | 111772611 | 13737397 | 17686422 | 17025992 |
| Turnover | 610575238 | 890096455 | 1196543944 | 1475315486 |
| Percentage | 18.31% | 1.54% | 1.48% | 1.15% |
| Stock-intrade | 172616967 | 112963244 | 128033129 | 174150936 |
| Turnover | 610575238 | 890096455 | 1196543944 | 1475315486 |
| Percentage | 28.27% | 12.69% | 10.70% | 11.80% |
16(vii) Going through the financial ratios furnished by Ld. Counsel from A.Ys.2006-07 to 2012-13 it is seen that the Gross Profit ratio is ranging from 6.96% to 9.34%, whereas, after including the addition made for the current year, the Gross Profit ratio would show 24.78% as against actual ratio of 7.75% for the current year under appeal. Similarly Net Profit ratio is ranging from 0.69% to 1.54% and after including the addition made for the current year, the Net Profit ratio would show 18.31% as against actual ratio of 1.28% for the current year under appeal. In the same way, Stock-in-trade ratio is ranging from 9.31% to 12.69% and after including the addition made for the current year, the same would show 28.27% as against actual ratio of 11.24% for the current year under appeal.
Hence, after including the addition made by the AO, the financial statement would completely be distorted and will not show the correct, true and fair view, which is on more factor which substantiates our finding that the figure of stock was inflated, adhoc and estimated purely for showing to the bank without there being any actual stock acquired by the assessee. Therefore in any which way, the addition made by the assessing officer is not justified and the same is hereby directed to be deleted.
17. Ground no.11 is consequential to the above finding. The A.O. is directed to take decision as per law.
18. Ground no.12 is pre-mature. Therefore, no adjudication is required.
19. In the result, the assessee's appeal is partly allowed.
(This Order pronounced in open Court on 12.4.2013)
Addition could be made only if some incriminating document was found during search
In the present case it is apparent that on the date of search be on 12/09/2007, the assessments for assessment year 2004-05 & 2005-06 were alreadycompleted. There was no incriminating material found during search for these years as is apparent from arguments of Ld. AR and from records and Ld.Departmental Representative did not bring to our notice regarding any incriminating material having been found during search. Therefore following the Judicial Precedents, we are of the opinion that though assessments for the above year were bound to be reopened but additions could be made only if some incriminating document was found during search.
In view of the above, ground no.1 of appeal filed by assessee is allowed and we hold theassessment orders for above years as null and void ab inito.
ITAT BENCH 'E' NEW DELHI
ITA Nos.4212 & 4213/DEL/2011
Assessment Year: 2004-05 & 2005-06
MGF AUTOMOBILES LTD
Vs
ACIT
Dated: June 28, 2013
ORDER
Per: T S Kapoor:
These are two appeals filed by the assessee against the order of the Commissioner of Income Tax(Appeals)-I, New Delhi both dated 18.07.2011 for the assessment years 2004-05 & 2005-06. The grounds taken by the assessee are as under:
Grounds for Assessment year: 2004-05
"1. Under the facts and circumstances of the case, the appellate order passed by the Ld. CIT (A) is illegal being against the principles of natural justice and against the provisions of IT Act, 1961especially in view of the following:-
a) That neither any valuable article or thing nor any incriminating document was found during the search and hence section 153A was not applicable.
b) That the cases laws relied upon by the appellant were not considered.
c) That he has relied upon the judgment of Hon'ble ITAT, Delhi in the case of Shivnath Rai Hrnarain (India) Ltd. Vs. DCIT, (2009) 17 ITD 74 without appreciating the fact that the same has been overruled by Hon'ble ITAT, Delhi in its later judgment in the case of Shri Anil Kumar Bhatia & Ors. Vs. ACIT, (2010) 1ITR (Trib) 484 (Del) which was brought to his notice vide appellant's letter dated 8/6/2010.
2. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the disallowance of set off of Rs.1,65,09,929/- on account of accumulated losses including unabsorbed depreciation of M/s Compact Motors Ltd., the amalgamating company, especially in view of the following:-
a) In ignoring the specific provisions of scheme of amalgamation which was duly approved by the jurisdictional High Court regarding accumulated losses and unabsorbed depreciation and directed to be binding on all concerned.
b) In relying on the case law which is not applicable to the appellant.
3. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the charging of interest under various sections of the IT Act, 1961.
4. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings."
Ground For Assessment year: 2005-06
"1. Under the facts and circumstances of the case, the appellate order passed by the Ld. CIT (A) is illegal being against the principles of natural justice and against the provisions of IT Act, 1961especially in view of the following:-
a) That neither any valuable article or thing nor any incriminating document was found during the search and hence section 153A was not applicable.
b) That the cases laws relied upon by the appellant were not considered.
c) That he has relied upon the judgment of Hon'ble ITAT, Delhi in the case of Shivnath Rai Hrnarain (India) Ltd. Vs. DCIT, (2009) 17 ITD 74 without appreciating the fact that the same has been overruled by Hon'ble ITAT, Delhi in its later judgment in the case of Shri Anil Kumar Bhatia & Ors. Vs. ACIT, (2010) 1ITR (Trib) 484 (Del) which was brought to his notice vide appellant's letter dated 8/6/2010.
2. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the disallowance of set off of Rs.15,22,410/- on account of accumulated losses/ unabsorbed depreciation of M/s Compact Motors Ltd., the amalgamating company, especially in view of the following:-
a) In ignoring the specific provisions of scheme of amalgamation which was duly approved by the jurisdictional High Court regarding accumulated losses and unabsorbed depreciation and directed to be binding on all concerned.
b) In relying on the case law which is not applicable to the appellant.
3. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the charging of interest under various sections of the IT Act, 1961.
4. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings."
2. The brief facts of the case are that search and seizure operation u/s 132 of the Income Tax Act, was carried out in the case of assessee on 12.09.2007 and, therefore, notice u/s 153 A of Income Tax Act dated 17.10.2008 was issued to the assessee requiring it to file income tax returns. The assessee filed returns of income for assessment year 2004-05 and assessment year 2005-06 declaring Nil income in respect of assessment year 2004-05 and income of Rs.50,04,700/- forassessment year 2005-06. Both the returns were same as were filed originally u/s 139 (1) of the Act, on 30.10.2004 and 27.10.2005 respectively. Notices u/s 143(2) and 142(1) along withquestionnaires were issued to the assessee on 18.09.2009 requiring the assessee company to file necessary details and in response, the Ld. AR of the assessee company filed various details and attended the proceedings from time to time.
3. During the assessment proceedings, the Assessing Officer observed that assessee was dealing in the business of car dealership and service stations. He further observed that during the assessmsent year 2004-05 the assessee had entered into an amalgamation agreement with M/s Compact Motors Ltd. pursuant to the scheme of amalgamation of the erstwhile M/s Compact Motors Ltd. with the assessee company. He further observed that assessee had prepared amalgamated accounts with effect from appointed date i.e. 1st April, 2003 and all assets and liabilities of M/s Compact Motors Ltd. were incorporated in the books of assesssee at their book values. He further observed that assessee had set off an amount of Rs.1,65,09,929.93 against its business income for A. Y 2004-05 and it was mentioned that the loss belonged to M/s Compact Motors Ltd. since merged with the assessee vide order of Delhi High Court dated 27.09. 2004. In the A. Y. 2005-06, the assessee had set off the balance unadjusted carried forward loss of earlier year.
The Assessing Officer disallowed the set off of such losses by holding as under:
The allowability of the accumulated loss and unabsorbed depreciation of the amalgamating company in the hands of amalgamated company, in this case M/s MGF Automobiles Ltd. is governed by the provisions of section 72A of the Income Tax Act. The relevant extracts of provisions of section 72A of the Income Act, as applicable for A. Y. 2004-05 is reproduced below for ready reference:
72.A (1) Where there has been an amalgamation of a company owning an industrial undertaking or a ship or a hotel with another company; or an amalgamation of a banking company referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a specified bank then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation lands of the amalgamate company. In other words, to avail benefits u/s 72A, the condition that the company should be an "industrial undertaking" has to be fulfilled. Industrial undertaking is defined in clause (aa) of subsection 7 of section 72 A of the Income Tax Act. In case this condition is not complied with then the set off unabsorbed business loss or depreciation will not be allowed. It may be seen from the above that the assessee company is not covered in the definition of "Industrial undertaking" defiled in section 72A(7) (aa) of the Act. Therefore, the company cannot be allowed to set off of accumulated business loss or depreciation of the amalgamating company as stipulated by section 72A of the Act. Hence the entire loss of Rs.1,80,32,339/- incurred by the amalgamating company, M/s Compact Motors Ltd. shall not be set off against the business income of the amalgamated company M/s MGF Automobiles Ltd. for the A. Y.2004-05.
4.3 Further, even on merit also, the assessee has failed to retain 3/4th of the book value of assets of the amalgamating company for continuous period of five years from the date of amalgamation. In the A. Y. 2007-08, the company has sold land amounting to Rs.37,93,375/-. The above land was added to the assets of the assesssee company in the scheme of amalgamation. By the above sale the amalgamation company has violated provisions of sub-section (3) of section 72A of the Income Tax Act, 961. Therefore, otherwise also the assessee company is not allowed to set off the accumulated loss and depreciation of the amalgamating company. An amount of Rs.1,65,09,929/- being profit shown in the profit and loss account of the company is treated as the income for the year under consideration. The assessee shall not be allowed to carry forward the accumulated business loss and unabsorbed depreciation of the amalgamating company to the next assessment year."
4.4. For A. Y. 2005-06, the Assessing Officer disallowed the carried forward business loss of Rs.15,22,410/-, by holding as under:
4. In the computation of income the assessee has set off an amount of Rs.15,22,410/- as unabsorbed business loss and depreciation which could not be set off during the assessment year 2004-05. In the assessment order for the assessment year 2004-05, the assessee was not allowed to carry forward any amount as business loss to be set off in the next assessment year as the case of the assessee did not fall within the purview of section 72A of the Income Tax Act, 1961. Hence, there is no business loss left in the assessment year 2004-05 for being carried forward to the next assessment year. The set off of Rs.15,22,410/- is disallowed and added to the income of the assessee of the assessee for the assessment year under consideration.
(Addition of Rs.15,22,410/-)"
5. Aggrieved with the additions, the assessee filed appeals before CIT
(A) and submitted as under:
"That the issue of amalgamation was considered in the original assessment and the same cannot be considered again while framing the assessmen afresh u/s 153A unless some incriminating document and material is found during the search and that addition has to be made on the basis of documents found during the search."
6. The Ld. CIT (A) after going through the submissions of assessee upheld the disallowance by rejecting the contention of assessee that without incriminating material addition cannot be made and also upheld the addition on merits. The relevant extracts of Commissioner of Income Tax (appeals)'s orders are reproduced as under:
"I have gone through the submission filed by the appellant and do not agree that the said addition arising out of the disallowance of brought forward loss and brought forward depreciation cannot be made u/s 153A. It has been held in the case of Harvey Heart Hospitals Ltd. Asstt. CIT (2010) 130 TTJ (Chennai) 700. "It is clear that section 153C, read with section 153A brings into the purview of assessment both regular and undisclosed income subsequent to action u/s 132 or section 132A upon invocation of section 153A or section 153C. The proviso to section 153A clearly mandates the Assessing Officer to assess or reassess the total income in respect of each assessment year falling within six assessment years. The next proviso further mandates that any assessment or reassessment in respect of any those six years which are pending shall abate. Hence, it is clear that under such circumstances, assessment or reassessment will be done pursuant to section 153A or section 153C. It will not be correct to interpolate that no regular assessment or reassessment can take place u/s 153A and 153C. There is no reference to incriminating search materials as in earlier section 158BB/158BC, to which the assessment has to be confined. Thus, assessment or reassessment u/s 153C/153A does not have to be based on incriminating material found during search."
Futher, the Delhi Tribunal in the case of Shivnath Rai Harnarain (India) Ltd. Vs. DCIT (2009) 17 ITD 74 (Delhi) has observed that:
"Sec. 153A, r.w.s.132 of the IT Act,1961- Search and seizure- Assessment in case of-Assessment years 1999-2000, 2002-03 and 2003-04- A search and seizure operation u/s 132 was conducted at business premises of assessee- company on 18/06/2003-Subsequently notice u/s 153A was issued to it on 31/05/2005 wherein it was required to file returns for relevant assessment years-Assessee filed returns and assessment were framed thereon-On appeal, assessee contended that as there was no seized material based on which assessment had been completed by Assessing Officer in its case, assessment so framed by Assessing Officer u/s 153A should be held to be null and void- Whether since there is no requirement for an assessment made u/s 153A being based on any material seized in course of search, contention raised by assessee was invalid- Held, yes – Whether, further, under second proviso to sec.153A pending assessment or reassessment proceedings in relation to any assessment year falling within period of six assessment years, referred to in sec,153A(b), shall come to an end (abate), which means that Assessing Officer gets jurisdiction for said six assessment years, for making an assessment or reassessment- Held, Yes- Whether, therefore, Assessing Officer was perfectly justified in framing as assessment u/s 153A for assessment years under consideration- Held, yes."
7. Aggrieved with the decision of CIT (A), the asessee is in appeal before us. At the outset, the Ld. AR submitted that search in this case was conducted on 12.09.2007 & during search neither any undisclosed income/ property nor any undisclosed account book/ documents were found pertaining to the brought forward losses of amalgamating company, which were disallowed by Assessing Officer u/s 153A /143(3). He further submitted that audited balance sheet including auditor's report was submitted along with original return filed on 31.10.2004 and item no.2 to notes to the accounts clearly indicated that pursuant to the scheme of amalgamation of M/s Compact Motors Ltd., the accounts were prepared after giving affect to the scheme of amalgamation and all assets, liabilities and losses were taken over at their book values. Our attention in this respect was invited to paper book page 16 wherein the relevant notes of the accounts were placed. In view of the above, it was pleaded that facts regarding amalgamation and taking over of assets and liabilities including losses of amalgamating company were before Ld. Assessing Officer before the search and before original assessment which was completed u/s 143(3) on 18.12.2006 and in this respect our attention was invited to paper book page 24 where original assessment passed u/s 143(3) was placed. Our attention was specifically invited to paper book page 25 wherein Assessing Officer had allowed the set off of business loss, and unabsorbed depreciation.
8. Continuing his arguments, he submitted that assessment u/s 153 is different from regular assessment and it is made only where a search is initiated u/s 132. Quoting from provisions of section 153A, the Ld. AR submitted that second proviso to section 153A (1) states that assessment or reassessment if any relating to any assessment year falling within the period of 6 assessment years pending on the date of initiation of search shall abate and in view of this provision he argued that completed assessment u/s 143(3) will not abate and in the case of assessee the assessment was not pending as it was already completed on 18/12/2006. He further argued that for assessment u/s 153A purpose of section 132 has to be considered which is that for completed assessments additions can only be made on the basis of undisclosed income or undisclosed property found during search. In view of the above, the Ld. AR argued that basic purpose of assessment u/s 153A is to tax the undisclosed income and not to review/ examine the completed assessments and argued that it is the reason that legislature has not provided for abatement of completed assessments.
9. Reliance in this respect was placed on the case law of All Cargo Global Logistics Ltd. vs. DIT -Special Bench, wherein it was held that in case of completed assessments the assessment u/s 153A has to be made on the basis of incriminating material only. The Ld. AR further invited our attention to Hon'ble Delhi High Court's order in the case ofCIT vs Anil Kumar Bhatia, ITA No. 1626/2010 , wherein the issue regarding additions to be made in a completed assessment where no incriminating material was found was left open and in this respect our attention was invited to para 23 of the said order. The Ld. AR further invited our attention to the judgment on this issue by Hon'ble ITAT (M) dated 19.12.2012 in the case of ACIT vs. M/s Pratibha Industries Ltd., ITA No. 2197 to 2199/Mum/ 2008 , wherein it was held that in the case of completed assessment where no incriminating material was found, the assessment u/s 153A has to be made on originally assessed income only. In this respect, the Ld. AR read out the relevant extract from this order and in view of that argued that assessment u/s 153A in the case of completed assessment can only be made in case some incriminating document/ material were found during the search. The Ld. AR further relied upon the judgment dated 16.11.2012 from Hon'ble ITAT Mumbai in the case of Shri Gurinder Singh Bawa vs. Dy. CIT, ITA No. 2075/Mum/2010 and submitted that in this case the assessment was completed under summary scheme u/s 143(1) and time limit for issue of notice u/s 143(2) had expired on the date of search and, therefore, Hon'ble Mumbai Tribunal had held that there was no assessment pending and hence there was no abatement, and addition could only be made on the basis of incriminating material found during search.
10. Reliance was further placed in the following case laws:
a) LMJ International Ltd. Vs. DCIT, (2008) 119 TTJ (Kol) 214
b) Anil P. Khimani vs. DCIT, . In view of all these legal arguments, the Ld. AR argued that assessment u/s 153A where no incriminating material was found during search has to be completed on the originally assessed income only.
11. Arguing on the second ground of appeal regarding disallowance of set off of loss despite directions of Hon'ble High Court of Delhi, the Ld. AR read from the order of High Court dated 27.09.2004 and invited our attention to paper book page 45 which read as under:
" That not withstanding anything contained in any provision of the Income Tax Act,1961 the accumulated loss and the unabsorbed depreciation of M/s Compact Motors Ltd. the Transferor Company shall be deemed to be the loss or as the case may be, allowance for depreciation of M/s MGF Automobiles Ltd., the Transferee Company for the year in which the amalgamation is effected from the appointed date w.e.f. 01.04.2003 and other provisions of the Income Tax Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly."
In view of these findings of Hon'ble High Court, it was argued that as per scheme of amalgamation the accumulated loses and unabsorbed depreciation of M/s Compact Motors Ltd. were deemed to be loss/ unabsorbed depreciation of appellant for assessment year 2004-05 irrespective of provisions of Income Tax Act. He further argued that Hon'ble High Court has given its sanction to the scheme of amalgamation and therefore its terms of sanction were binding on concerned parties. Our attention was also invited to paper book page 63 where copy of letter written by DCIT, Circle -6(1), New Delhi, conveying it's no objection to the merger was placed.
12. On the other hand, the Ld. Departmental Representative referred to the case law of Anil Kumar Bhatia decided by Hon'ble Delhi High Court and read para 18 to 23 of the said order and relied heavily on it wherein the Hon'ble Court had held that in view of provisions of section 153A the assessment has to be reopened for six years. The Ld. Departmental Representative further relied upon section 72A and argued that assessee was not fulfilling the conditions as it was engaged in the sale and service of vehicles whereas, section 72A is applicable in the case of industrial units only. With respect to no objection issued by Department placed on paper book 63, the Ld. Departmental Representative submitted that Department had no objection to the merger subject to compliance of statutory provisions of Income Tax Act.
13. We have heard the rival parties and have gone through the material placed on record. We find that the assessment of assessee for assessment year 2004-05 was completed u/s 143 (3) vide assessment order dated 18.12.2006. The search u/s 132 was conducted on 12.09.2007, therefore, assessment for the year under consideration had to be re-opened as per the provisions of section 153A. The proviso to section 153A reads as under:
"Provided that the Assessing Officer shall assessee or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this ( sub-section) pending on the date of initiation of the search u/s 132 or making of requisition u/s 132A, as the case may be, shall abate."
The above proviso clearly States that assessments for six years pending on the date of initiation of search will be reopened which further implies that assessments not pending or completed assessments will not be reopened. The special Bench, Mumbai decision in the case of All Cargo Global Logistics Ltd. has dealt with this issue and has held that completed assessments falling within six year can only be reopened if some incriminating material is found during search. The Hon'ble Delhi High Court in the case of CIT vs Anil Kumar Bhatia had also considered the same situation and held that assessment for six years has to be re-opened, but left the question regarding additions to be made in a completed assessment where no incriminating material was found. The relevant extract of Hon'ble High Court is as under:
" Where no incriminating material was found during the search conducted u/s 132 of the Act. We therefore, express no opinion as to whether section 153A can be invoked then in such a situation that question is therefore left open."
14. Hon'ble ITAT (Mum) in the case ACIT vs. Pratibha Industries Ltd., ITA No.2197 to 2199/Mum/2008 has considered the case law of Anil Kumar Bhatia as decided by Hon'ble Delhi High Court and after considering the findings of the court has arrived at the following findings in similar situations:
"4.1 On going through the provisions of section 153A, 2nd proviso and the various decisions cited before us, three possible circumstances emerge on the date of initiation of search u/s 132 (1) of the Income Tax Act, (a) proceedings are pending; (b) proceedings are not pending but some incriminating material found in the course of search, indicating some income and/or assets not disclosed in the return and (c) proceedings are not pending and no incriminating material has been found.
4.2 When we treat to trace the correct and logical answers to the above circumstances, circumstances (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the Assessing Officer gets a free hand to make the assessment. Circumstances (b) has been answered by the courts, interpreting 2nd proviso along with clause (b) to section 153A, wherein the Hon'ble Delhi High Court observes and hold, "where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (Without having the need to follow the strict provisions or complying with the strict conditions of section 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed u/s 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. But when we come to third circumstance i.e. circumstance (c), we find that this has been left unanswered. Para 23 of the judgment, the Hon'ble Delhi High Court mentions that the issue is left open.
4.3 This, has been explained in the graphic made below and the relevant portion is in italics therein. This can be explained through this graphic:
4.4 To answer the question, as to what shall be the assessment of total income, where there is/ are no pending proceedings and no incriminating material, we have to trace out the logical conclusion, by harmonizing the legislative intendments and the judicial decisions, as held by the Hon'ble Supreme Court of India in the case of K P Verghese (Supra), wherein it was observed, so as to achieve the obvious intention of the Legislature and produce a rational construction. When we look into the decision of the Hon'ble Delhi High Court in Anil Kumar Bhatia (Supra), we find that the Hon'ble Court has pointed out that in case where there is no abatement, total income has to be determined by clubbing together the income already determined in the original assessment order and the income that escaped assessment (Situation 2A in the Graphic). In the circumstance, what we are dealing in instantly, there are finalized assessment proceedings and no incriminating material indicating any escaped income (Situation 2B in the graphic). Taking a cue from the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (Supra) we can tread on the same premise and hold that on clubbing, what remains in the income originally determined or assessed (i.e. income originally determined+Zero= income originally determined- as there was no incriminating material)."
15. Similar views were held by ITAT (Mum) in the case of Shri Gurinder Singh Bawa Vs. Dy. CIT, ITA No. 2075/Mum/2010 and LMJ International Ltd. Vs. DCIT,(2008) 119 TTJ (Kol) 214 and in the case of Anil P. Khimani vs. DCIT, . During proceedings before us the bench had asked a question to Ld. AR as to whether any statement u/s 132(4) was recorded during search to which the Ld. AR replied in negative and Ld. Departmental Representative also showed his ignorance about such statement. This question was asked because the view of the Bench is that if during course of search some statement is recorded u/s 132(4) and, in that statement certain facts are recorded from the interpretation of which Assessing Officer could conclude that there was some undisclosed income, then that statement can be considered as incriminating material. Recently, Hon'ble Rajasthan High Court in judgment delivered on 24.05.2013 in the case of Jai Steel (India) u/s ACIT has also dealt with similar circumstances and has held that where no incriminating document is found during search, addition cannot be made. In this case, on the reopening of cases u/s 153A, the assessee had claimed certain deductions which were not claimed in original assessment proceedings, however Hon'ble Court has held that Assessing Officer is not free to disturb the income, expenditure or deduction de hors any incriminating material while making the assessment u/s 153A. The relevant findings of the court are as under:
"In a case where nothing incriminating is found though s. 153A would be triggered and assessment or reassessment to ascertain the total income is required to be done, the same would not result in any addition and the assessments made earlier may have to be reiterated-Argument of the counsel that the Assessing Officer is free to disturb the income, expenditure or deduction de hors any incriminating material while making the assessment u/s 153A is not borne out from the scheme of the said provisions of ss.153A to 153C cannot be interpreted to be further innings for the Assessing Officer and/or the assessee beyond the provisions of ss.139, 147 and 263-A harmonious construction of the entire provisions of s. 153A would lead to an irresistible conclusion that the word 'assessee' has been used iii the context of abated proceedings and 'reassess' has been used for completed assessment proceedings which do not abate as they are not pending on the date of initiation of the search or making of requisition and can be tinkered only on the basis of incriminating material found during the course of search or requisition of documents therefore, it is not open to the assessee to seek deduction or claim relief not claimed by it in the original assessment which already stands completed in an assessment u/s 153A made in pursuance of a search or requisition."
In the present case it is apparent that on the date of search be on 12/09/2007, the assessments for assessment year 2004-05 & 2005-06 were already completed. There was no incriminating material found during search for these years as is apparent from arguments of Ld. AR and from records and Ld. Departmental Representative did not bring to our notice regarding any incriminating material having been found during search. Therefore following the Judicial Precedents, we are of the opinion that though assessments for the above year were bound to be reopened but additions could be made only if some incriminating document was found during search.
In view of the above, ground no.1 of appeal filed by assessee is allowed and we hold the assessment orders for above years as null and void ab inito.
16. In view of our findings in respect of Ground No.1 of appeals which are in favour of assessee, Ground No.2 becomes infructuous and hence are dismissed. Ground No.3 is consequential and do not require any adjudication. Ground No.4 is general in nature and do no require any adjudication.
In view of the above, the appeals filed by the assessee are partly allowed.
(Order pronounced in Open Court on 28.6.2013)
ORDER
Per: T S Kapoor:
These are two appeals filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-I, New Delhi both dated 18.07.2011 for the assessment years 2004-05 & 2005-06. The grounds taken by the assessee are as under:
Grounds for Assessment year: 2004-05
"1. Under the facts and circumstances of the case, the appellate order passed by the Ld. CIT (A) is illegal being against the principles of natural justice and against the provisions of IT Act, 1961especially in view of the following:-a) That neither any valuable article or thing nor any incriminating document was found during the search and hence section 153A was not applicable.b) That the cases laws relied upon by the appellant were not considered.c) That he has relied upon the judgment of Hon'ble ITAT, Delhi in the case of Shivnath Rai Hrnarain (India) Ltd. Vs. DCIT, (2009) 17 ITD 74 without appreciating the fact that the same has been overruled by Hon'ble ITAT, Delhi in its later judgment in the case of Shri Anil Kumar Bhatia & Ors. Vs. ACIT, (2010) 1ITR (Trib) 484 (Del) which was brought to his notice vide appellant's letter dated 8/6/2010.The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the disallowance of set off of Rs.1,65,09,929/- on account of accumulated losses including unabsorbed depreciation of M/s Compact Motors Ltd., the amalgamating company, especially in view of the following:-a) In ignoring the specific provisions of scheme of amalgamation which was duly approved by the jurisdictional High Court regarding accumulated losses and unabsorbed depreciation and directed to be binding on all concerned.b) In relying on the case law which is not applicable to the appellant.3. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the charging of interest under various sections of the IT Act, 1961.4. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings."Ground For Assessment year: 2005-06"1. Under the facts and circumstances of the case, the appellate order passed by the Ld. CIT (A) is illegal being against the principles of natural justice and against the provisions of IT Act, 1961especially in view of the following:-a) That neither any valuable article or thing nor any incriminating document was found during the search and hence section 153A was not applicable.b) That the cases laws relied upon by the appellant were not considered.c) That he has relied upon the judgment of Hon'ble ITAT, Delhi in the case of Shivnath Rai Hrnarain (India) Ltd. Vs. DCIT, (2009) 17 ITD 74 without appreciating the fact that the same has been overruled by Hon'ble ITAT, Delhi in its later judgment in the case of Shri Anil Kumar Bhatia & Ors. Vs. ACIT, (2010) 1ITR (Trib) 484 (Del) which was brought to his notice vide appellant's letter dated 8/6/2010.2. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the disallowance of set off of Rs.15,22,410/- on account of accumulated losses/ unabsorbed depreciation of M/s Compact Motors Ltd., the amalgamating company, especially in view of the following:-a) In ignoring the specific provisions of scheme of amalgamation which was duly approved by the jurisdictional High Court regarding accumulated losses and unabsorbed depreciation and directed to be binding on all concerned.b) In relying on the case law which is not applicable to the appellant.3. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the charging of interest under various sections of the IT Act, 1961.4. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings."
2. The brief facts of the case are that search and seizure operation u/s 132 of the Income Tax Act, was carried out in the case of assessee on 12.09.2007 and, therefore, notice u/s 153 A of Income Tax Act dated 17.10.2008 was issued to the assessee requiring it to file income tax returns. The assessee filed returns of income for assessment year 2004-05 and assessment year 2005-06 declaring Nil income in respect of assessment year 2004-05 and income of Rs.50,04,700/- for assessment year 2005-06. Both the returns were same as were filed originally u/s 139 (1) of the Act, on 30.10.2004 and 27.10.2005 respectively. Notices u/s 143(2) and 142(1) along with questionnaires were issued to the assessee on 18.09.2009 requiring the assessee company to file necessary details and in response, the Ld. AR of the assessee company filed various details and attended the proceedings from time to time.
3. During the assessment proceedings, the Assessing Officer observed that assessee was dealing in the business of car dealership and service stations. He further observed that during the assessmsent year 2004-05 the assessee had entered into an amalgamation agreement with M/s Compact Motors Ltd. pursuant to the scheme of amalgamation of the erstwhile M/s Compact Motors Ltd. with the assessee company. He further observed that assessee had prepared amalgamated accounts with effect from appointed date i.e. 1st April, 2003 and all assets and liabilities of M/s Compact Motors Ltd. were incorporated in the books of assesssee at their book values. He further observed that assessee had set off an amount of Rs.1,65,09,929.93 against its business income for A. Y 2004-05 and it was mentioned that the loss belonged to M/s Compact Motors Ltd. since merged with the assessee vide order of Delhi High Court dated 27.09. 2004. In the A. Y. 2005-06, the assessee had set off the balance unadjusted carried forward loss of earlier year.
The Assessing Officer disallowed the set off of such losses by holding as under:
The allowability of the accumulated loss and unabsorbed depreciation of the amalgamating company in the hands of amalgamated company, in this case M/s MGF Automobiles Ltd. is governed by the provisions of section 72A of the Income Tax Act. The relevant extracts of provisions of section 72A of the Income Act, as applicable for A. Y. 2004-05 is reproduced below for ready reference:72.A (1) Where there has been an amalgamation of a company owning an industrial undertaking or a ship or a hotel with another company; or an amalgamation of a banking company referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a specified bank then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation lands of the amalgamate company. In other words, to avail benefits u/s 72A, the condition that the company should be an "industrial undertaking" has to be fulfilled. Industrial undertaking is defined in clause (aa) of subsection 7 of section 72 A of the Income Tax Act. In case this condition is not complied with then the set off unabsorbed business loss or depreciation will not be allowed. It may be seen from the above that the assessee company is not covered in the definition of "Industrial undertaking" defiled in section 72A(7) (aa) of the Act. Therefore, the company cannot be allowed to set off of accumulated business loss or depreciation of the amalgamating company as stipulated by section 72A of the Act. Hence the entire loss of Rs.1,80,32,339/- incurred by the amalgamating company, M/s Compact Motors Ltd. shall not be set off against the business income of the amalgamated company M/s MGF Automobiles Ltd. for the A. Y.20040-05.4.3 Further, even on merit also, the assessee has failed to retain 3/4th of the book value of assets of the amalgamating company for continuous period of five years from the date of amalgamation. In the A. Y. 2007-08, the company has sold land amounting to Rs.37,93,375/-. The above land was added to the assets of the assesssee company in the scheme of amalgamation. By the above sale the amalgamation company has violated provisions of sub-section (3) of section 72A of the Income Tax Act, 961. Therefore, otherwise also the assessee company is not allowed to set off the accumulated loss and depreciation of the amalgamating company. An amount of Rs.1,65,09,929/- being profit shown in the profit and loss account of the company is treated as the income for the year under consideration. The assessee shall not be allowed to carry forward the accumulated business loss and unabsorbed depreciation of the amalgamating company to the next assessment year."4.4. For A. Y. 2005-06, the Assessing Officer disallowed the carried forward business loss of Rs.15,22,410/-, by holding as under:
4. In the computation of income the assessee has set off an amount of Rs.15,22,410/- as unabsorbed business loss and depreciation which could not be set off during the assessment year 2004-05. In the assessment order for the assessment year 2004-05, the assessee was not allowed to carry forward any amount as business loss to be set off in the next assessment year as the case of the assessee did not fall within the purview of section 72A of the Income Tax Act, 1961. Hence, there is no business loss left in the assessment year 2004-05 for being carried forward to the next assessment year. The set off of Rs.15,22,410/- is disallowed and added to the income of the assessee of the assessee for the assessment year under consideration.
(Addition of Rs.15,22,410/-)"
5. Aggrieved with the additions, the assessee filed appeals before CIT
(A) and submitted as under:
"That the issue of amalgamation was considered in the original assessment and the same cannot be considered again while framing the assessmen afresh u/s 153A unless some incriminating document and material is found during the search and that addition has to be made on the basis of documents found during the search."
6. The Ld. CIT (A) after going through the submissions of assessee upheld the disallowance by rejecting the contention of assessee that without incriminating material addition cannot be made and also upheld the addition on merits. The relevant extracts of Commissioner of Income Tax (appeals)'s orders are reproduced as under:
"I have gone through the submission filed by the appellant and do not agree that the said addition arising out of the disallowance of brought forward loss and brought forward depreciation cannot be made u/s 153A. It has been held in the case of Harvey Heart Hospitals Ltd. Asstt. CIT (2010) 130 TTJ (Chennai) 700. "It is clear that section 153C, read with section 153A brings into the purview of assessment both regular and undisclosed income subsequent to action u/s 132 or section 132A upon invocation of section 153A or section 153C. The proviso to section 153A clearly mandates the Assessing Officer to assess or reassess the total income in respect of each assessment year falling within six assessment years. The next proviso further mandates that any assessment or reassessment in respect of any those six years which are pending shall abate. Hence, it is clear that under such circumstances, assessment or reassessment will be done pursuant to section 153A or section 153C. It will not be correct to interpolate that no regular assessment or reassessment can take place u/s 153A and 153C. There is no reference to incriminating search materials as in earlier section 158BB/158BC, to which the assessment has to be confined. Thus, assessment or reassessment u/s 153C/153A does not have to be based on incriminating material found during search."Futher, the Delhi Tribunal in the case of Shivnath Rai Harnarain (India) Ltd. Vs. DCIT (2009) 17 ITD 74 (Delhi) has observed that:"Sec. 153A, r.w.s.132 of the IT Act,1961- Search and seizure- Assessment in case of-Assessment years 1999-2000, 2002-03 and 2003-04- A search and seizure operation u/s 132 was conducted at business premises of assessee- company on 18/06/2003-Subsequently notice u/s 153A was issued to it on 31/05/2005 wherein it was required to file returns for relevant assessment years-Assessee filed returns and assessment were framed thereon-On appeal, assessee contended that as there was no seized material based on which assessment had been completed by Assessing Officer in its case, assessment so framed by Assessing Officer u/s 153A should be held to be null and void- Whether since there is no requirement for an assessment made u/s 153A being based on any material seized in course of search, contention raised by assessee was invalid- Held, yes – Whether, further, under second proviso to sec.153A pending assessment or reassessment proceedings in relation to any assessment year falling within period of six assessment years, referred to in sec,153A(b), shall come to an end (abate), which means that Assessing Officer gets jurisdiction for said six assessment years, for making an assessment or reassessment- Held, Yes- Whether, therefore, Assessing Officer was perfectly justified in framing as assessment u/s 153A for assessment years under consideration- Held, yes."
7. Aggrieved with the decision of CIT (A), the asessee is in appeal before us. At the outset, the Ld. AR submitted that search in this case was conducted on 12.09.2007 & during search neither any undisclosed income/ property nor any undisclosed account book/ documents were found pertaining to the brought forward losses of amalgamating company, which were disallowed by Assessing Officer u/s 153A /143(3). He further submitted that audited balance sheet including auditor's report was submitted along with original return filed on 31.10.2004 and item no.2 to notes to the accounts clearly indicated that pursuant to the scheme of amalgamation of M/s Compact Motors Ltd., the accounts were prepared after giving affect to the scheme of amalgamation and all assets, liabilities and losses were taken over at their book values. Our attention in this respect was invited to paper book page 16 wherein the relevant notes of the accounts were placed. In view of the above, it was pleaded that facts regarding amalgamation and taking over of assets and liabilities including losses of amalgamating company were before Ld. Assessing Officer before the search and before original assessment which was completed u/s 143(3) on 18.12.2006 and in this respect our attention was invited to paper book page 24 where original assessment passed u/s 143(3) was placed. Our attention was specifically invited to paper book page 25 wherein Assessing Officer had allowed the set off of business loss, and unabsorbed depreciation.
8. Continuing his arguments, he submitted that assessment u/s 153 is different from regular assessment and it is made only where a search is initiated u/s 132. Quoting from provisions of section 153A, the Ld. AR submitted that second proviso to section 153A (1) states that assessment or reassessment if any relating to any assessment year falling within the period of 6 assessment years pending on the date of initiation of search shall abate and in view of this provision he argued that completed assessment u/s 143(3) will not abate and in the case of assessee the assessment was not pending as it was already completed on 18/12/2006. He further argued that for assessment u/s 153A purpose of section 132 has to be considered which is that for completed assessments additions can only be made on the basis of undisclosed income or undisclosed property found during search. In view of the above, the Ld. AR argued that basic purpose of assessment u/s 153A is to tax the undisclosed income and not to review/ examine the completed assessments and argued that it is the reason that legislature has not provided for abatement of completed assessments.
9. Reliance in this respect was placed on the case law of All Cargo Global Logistics Ltd. vs. DIT, 2012-TIOL-391-ITAT-MUM -Special Bench, wherein it was held that in case of completed assessments the assessment u/s 153A has to be made on the basis of incriminating material only. The Ld. AR further invited our attention to Hon'ble Delhi High Court's order in the case ofCIT vs Anil Kumar Bhatia, ITA No. 1626/2010 = (2012-TIOL-641-HC-DEL-IT), wherein the issue regarding additions to be made in a completed assessment where no incriminating material was found was left open and in this respect our attention was invited to para 23 of the said order. The Ld. AR further invited our attention to the judgment on this issue by Hon'ble ITAT (M) dated 19.12.2012 in the case of ACIT vs. M/s Pratibha Industries Ltd., ITA No. 2197 to 2199/Mum/ 2008 = (2013-TIOL-50-ITAT-MUM), wherein it was held that in the case of completed assessment where no incriminating material was found, the assessment u/s 153A has to be made on originally assessed income only. In this respect, the Ld. AR read out the relevant extract from this order and in view of that argued that assessment u/s 153A in the case of completed assessment can only be made in case some incriminating document/ material were found during the search. The Ld. AR further relied upon the judgment dated 16.11.2012 from Hon'ble ITAT Mumbai in the case of Shri Gurinder Singh Bawa vs. Dy. CIT, ITA No. 2075/Mum/2010 and submitted that in this case the assessment was completed under summary scheme u/s 143(1) and time limit for issue of notice u/s 143(2) had expired on the date of search and, therefore, Hon'ble Mumbai Tribunal had held that there was no assessment pending and hence there was no abatement, and addition could only be made on the basis of incriminating material found during search.
10. Reliance was further placed in the following case laws:
a) LMJ International Ltd. Vs. DCIT, (2008) 119 TTJ (Kol) 214b) Anil P. Khimani vs. DCIT, 2010-TIOL-177-ITAT-MUM. In view of all these legal arguments, the Ld. AR argued that assessment u/s 153A where no incriminating material was found during search has to be completed on the originally assessed income only.
11. Arguing on the second ground of appeal regarding disallowance of set off of loss despite directions of Hon'ble High Court of Delhi, the Ld. AR read from the order of High Court dated 27.09.2004 and invited our attention to paper book page 45 which read as under:
" That not withstanding anything contained in any provision of the Income Tax Act,1961 the accumulated loss and the unabsorbed depreciation of M/s Compact Motors Ltd. the Transferor Company shall be deemed to be the loss or as the case may be, allowance for depreciation of M/s MGF Automobiles Ltd., the Transferee Company for the year in which the amalgamation is effected from the appointed date w.e.f. 01.04.2003 and other provisions of the Income Tax Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly."
In view of these findings of Hon'ble High Court, it was argued that as per scheme of amalgamation the accumulated loses and unabsorbed depreciation of M/s Compact Motors Ltd. were deemed to be loss/ unabsorbed depreciation of appellant for assessment year 2004-05 irrespective of provisions of Income Tax Act. He further argued that Hon'ble High Court has given its sanction to the scheme of amalgamation and therefore its terms of sanction were binding on concerned parties. Our attention was also invited to paper book page 63 where copy of letter written by DCIT, Circle -6(1), New Delhi, conveying it's no objection to the merger was placed.
12. On the other hand, the Ld. Departmental Representative referred to the case law of Anil Kumar Bhatia decided by Hon'ble Delhi High Court and read para 18 to 23 of the said order and relied heavily on it wherein the Hon'ble Court had held that in view of provisions of section 153A the assessment has to be reopened for six years. The Ld. Departmental Representative further relied upon section 72A and argued that assessee was not fulfilling the conditions as it was engaged in the sale and service of vehicles whereas, section 72A is applicable in the case of industrial units only. With respect to no objection issued by Department placed on paper book 63, the Ld. Departmental Representative submitted that Department had no objection to the merger subject to compliance of statutory provisions of Income Tax Act.
13. We have heard the rival parties and have gone through the material placed on record. We find that the assessment of assessee for assessment year 2004-05 was completed u/s 143 (3) vide assessment order dated 18.12.2006. The search u/s 132 was conducted on 12.09.2007, therefore, assessment for the year under consideration had to be re-opened as per the provisions of section 153A. The proviso to section 153A reads as under:
"Provided that the Assessing Officer shall assessee or reassess the total income in respect of each assessment year falling within such six assessment years:Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this ( sub-section) pending on the date of initiation of the search u/s 132 or making of requisition u/s 132A, as the case may be, shall abate."
The above proviso clearly States that assessments for six years pending on the date of initiation of search will be reopened which further implies that assessments not pending or completed assessments will not be reopened. The special Bench, Mumbai decision in the case of All Cargo Global Logistics Ltd. has dealt with this issue and has held that completed assessments falling within six year can only be reopened if some incriminating material is found during search. The Hon'ble Delhi High Court in the case of CIT vs Anil Kumar Bhatia had also considered the same situation and held that assessment for six years has to be re-opened, but left the question regarding additions to be made in a completed assessment where no incriminating material was found. The relevant extract of Hon'ble High Court is as under:
" Where no incriminating material was found during the search conducted u/s 132 of the Act. We therefore, express no opinion as to whether section 153A can be invoked then in such a situation that question is therefore left open."
14. Hon'ble ITAT (Mum) in the case ACIT vs. Pratibha Industries Ltd., ITA No.2197 to 2199/Mum/2008 = (2013-TIOL-50-ITAT-MUM) has considered the case law of Anil Kumar Bhatia as decided by Hon'ble Delhi High Court and after considering the findings of the court has arrived at the following findings in similar situations:
"4.1 On going through the provisions of section 153A, 2nd proviso and the various decisions cited before us, three possible circumstances emerge on the date of initiation of search u/s 132 (1) of the Income Tax Act, (a) proceedings are pending; (b) proceedings are not pending but some incriminating material found in the course of search, indicating some income and/or assets not disclosed in the return and (c) proceedings are not pending and no incriminating material has been found.4.2 When we treat to trace the correct and logical answers to the above circumstances, circumstances (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the Assessing Officer gets a free hand to make the assessment. Circumstances (b) has been answered by the courts, interpreting 2nd proviso along with clause (b) to section 153A, wherein the Hon'ble Delhi High Court observes and hold, "where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (Without having the need to follow the strict provisions or complying with the strict conditions of section 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed u/s 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. But when we come to third circumstance i.e. circumstance (c), we find that this has been left unanswered. Para 23 of the judgment, the Hon'ble Delhi High Court mentions that the issue is left open.4.3 This, has been explained in the graphic made below and the relevant portion is in italics therein. This can be explained through this graphic:4.4 To answer the question, as to what shall be the assessment of total income, where there is/ are no pending proceedings and no incriminating material, we have to trace out the logical conclusion, by harmonizing the legislative intendments and the judicial decisions, as held by the Hon'ble Supreme Court of India in the case of K P Verghese (Supra), wherein it was observed, so as to achieve the obvious intention of the Legislature and produce a rational construction. When we look into the decision of the Hon'ble Delhi High Court in Anil Kumar Bhatia (Supra), we find that the Hon'ble Court has pointed out that in case where there is no abatement, total income has to be determined by clubbing together the income already determined in the original assessment order and the income that escaped assessment (Situation 2A in the Graphic). In the circumstance, what we are dealing in instantly, there are finalized assessment proceedings and no incriminating material indicating any escaped income (Situation 2B in the graphic). Taking a cue from the decision of Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (Supra) we can tread on the same premise and hold that on clubbing, what remains in the income originally determined or assessed (i.e. income originally determined+Zero= income originally determined- as there was no incriminating material)."
15. Similar views were held by ITAT (Mum) in the case of Shri Gurinder Singh Bawa Vs. Dy. CIT, ITA No. 2075/Mum/2010 and LMJ International Ltd. Vs. DCIT,(2008) 119 TTJ (Kol) 214 and in the case of Anil P. Khimani vs. DCIT, 2010-TIOL-177-ITAT-MUM. During proceedings before us the bench had asked a question to Ld. AR as to whether any statement u/s 132(4) was recorded during search to which the Ld. AR replied in negative and Ld. Departmental Representative also showed his ignorance about such statement. This question was asked because the view of the Bench is that if during course of search some statement is recorded u/s 132(4) and, in that statement certain facts are recorded from the interpretation of which Assessing Officer could conclude that there was some undisclosed income, then that statement can be considered as incriminating material. Recently, Hon'ble Rajasthan High Court in judgment delivered on 24.05.2013 in the case of Jai Steel (India) u/s ACIT has also dealt with similar circumstances and has held that where no incriminating document is found during search, addition cannot be made. In this case, on the reopening of cases u/s 153A, the assessee had claimed certain deductions which were not claimed in original assessment proceedings, however Hon'ble Court has held that Assessing Officer is not free to disturb the income, expenditure or deduction de hors any incriminating material while making the assessment u/s 153A. The relevant findings of the court are as under:
"In a case where nothing incriminating is found though s. 153A would be triggered and assessment or reassessment to ascertain the total income is required to be done, the same would not result in any addition and the assessments made earlier may have to be reiterated-Argument of the counsel that the Assessing Officer is free to disturb the income, expenditure or deduction de hors any incriminating material while making the assessment u/s 153A is not borne out from the scheme of the said provisions of ss.153A to 153C cannot be interpreted to be further innings for the Assessing Officer and/or the assessee beyond the provisions of ss.139, 147 and 263-A harmonious construction of the entire provisions of s. 153A would lead to an irresistible conclusion that the word 'assessee' has been used iii the context of abated proceedings and 'reassess' has been used for completed assessment proceedings which do not abate as they are not pending on the date of initiation of the search or making of requisition and can be tinkered only on the basis of incriminating material found during the course of search or requisition of documents therefore, it is not open to the assessee to seek deduction or claim relief not claimed by it in the original assessment which already stands completed in an assessment u/s 153A made in pursuance of a search or requisition."
In the present case it is apparent that on the date of search be on 12/09/2007, the assessments for assessment year 2004-05 & 2005-06 were already completed. There was no incriminating material found during search for these years as is apparent from arguments of Ld. AR and from records and Ld. Departmental Representative did not bring to our notice regarding any incriminating material having been found during search. Therefore following the Judicial Precedents, we are of the opinion that though assessments for the above year were bound to be reopened but additions could be made only if some incriminating document was found during search.
In view of the above, ground no.1 of appeal filed by assessee is allowed and we hold the assessment orders for above years as null and void ab inito.
16. In view of our findings in respect of Ground No.1 of appeals which are in favour of assessee, Ground No.2 becomes infructuous and hence are dismissed. Ground No.3 is consequential and do not require any adjudication. Ground No.4 is general in nature and do no require any adjudication.
In view of the above, the appeals filed by the assessee are partly allowed.
(Order pronounced in Open Court on 28.6.2013)
Cash Agricultural income genuineness cannot be doubted on suspicion
The CIT (A) considered the question of addition of Rs.41,08,724/- by AO under Section 68 of the Act and have recorded findings that if in the previous years the agricultural income from the same land on which agricultural crops were produced by the appellant was accepted, he could not have recorded findings that in the present assessmentyear in question, the income could not be treated as agricultural income for want of proof of records of fertilizer and chemicals and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The ITAT has confirmed the findings recorded by CIT (A). Even if each assessment year is treated to be a separate unit, the findings in respect of previous years based on the record of title and possession of agricultural land, and the evidence led for proving that agricultural operations were carried out and crops were produced could not be disbelieved in the subsequent year, for want of primary evidence. The assessee was not required to submit proof of agricultural operations every year, in the absence of any material, which may suggest that the agricultural operations were stopped or was not carried out in the relevant period. There was no evidence to establish that the assessee has sold the agricultural land or that the assessee had stooped the agricultural operations. Further, the CIT (A) and ITAT have recorded findings that the assessee as a Private Company was maintaining regularbooks of accounts as required under the Companies Act, which were also audited and accepted in the AGM of the Company. The entries in the books were not proved to be bogus. There is nothing under the Income-tax Act debarring the assessee from selling agricultural produce in cash, and thus additions based only on suspicion could not be sustained.
Allahabad High Court
INCOME TAX APPEAL No. – 106 of 2011
Commissioner Of Income Tax
V/s.
Landmark Innovation Pvt. Ltd.
Counsel for Appellant :- Shambhu Chopra
Dated – 08.08.2013
Order
Hon'ble Sunil Ambwani,J.
Hon'ble Surya Prakash Kesarwani,J.
1. An Affidavit of service has been filed. We have heard Sri Shambhu Chopra for the Commissioner of Income Tax.
2. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) is directed against the order dated 08.10.2010, passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in Income Tax Appeal No. 26/Agr/2009, relating to the Assessment Year 2005-06.
3. The revenue has raised the following substantial questions of law, for consideration:-
"1. Whether the ITAT was legally correct in confirming the decision of the first appellate authority deleting the addition of Rs.41,08,724/- (i.e. 39,55,924 + 1,52,799/-) made u/s 68 of I.T. Act, 1961 and directing the AO to assess the income of Rs.41,08,724/- as agricultural income ignoring the fact that no primary record of agricultural activities was available with the assessee to substantiate the agricultural income ?
2. Considering the ratio of decisions given by Hon'ble Apex Court in the case of CIT Vs. R. Venkata Swamy Naidu (1956) 29 ITR 529 (SC) whether the Hon'ble ITAT was justified in holding the alleged agricultural income genuine, although the assessee could not produce proper material no prove that it had earned any agricultural income during the year under consideration ?
4. The Income Tax Appellate Tribunal (ITAT) considered the submissions, and held that once the department has accepted the agricultural income returned by the assessee during the previousassessment years namely A.Y. 2003-04 and 2004-05, for which the assessments were made under Section 143 (3) read with Section 147 of the Act, no interference could be made in the order of CIT (A) for deleting the additions for the AY 2005-06. The ITAT thereafter recorded following findings of fact:-
"We have carefully considered the rival submission along with the orders of the Tax Authorities below. This is an admitted fact that the assessee was owning the land. The assessee has also cultivated the land i.e. the assessee has carried out all the basic operations including tilting, watering and planting on the land. The assessee has produced the khasra and khatauni in respect of agricultural land stating therein that agricultural crops were produced by the assessee during the year. The Department has accepted the agricultural income returned by the assessee during the A.Ys. 2003-04 & 2004-05 in the assessment made under section 143(3) read with section 147 of the Act from the same very land. The assessment orders are dated 23.12.2008. This fact is not denied by the ld. D.R. Once the agricultural income is duly accepted by the A.O. In all these A.Ys. After verification, in our opinion, there remains nomerit in the appeal of the Revenue. The ld. D.R. Although vehemently supported the order of the Assessing Officer but could not adduce any evidence which may prove that the facts involved in this A.Y. are different from the A.Y. 2003-04 and 2004-05. Apparent is real. Onus is on the person who alleges apparent is not real. The income shown by the assessee is the revenue derived from the land which is situated in India and used for agricultural purposes. No iota of evidence to the contrary is brought on record. The assessee has incurred the expenditure in cash and has sold the agriculture produce in cash cannot be the basis to conclude that the assessee has not derived the agricultural income. The assessee is a private limited company and has maintained regular books of accounts as required under the Companies Act. The Profit & Loss Account and Balance Sheet has been prepared and approved in the General Body meeting of the Company. The entries in the books are not proved to be bogus. The Income-tax Act does not prohibit the assessee to incur the expenditure in cash. Even there is no provision under the Income Tax Act debarring the assessee from selling agricultural crops in cash. No addition can be sustained merely on the basis of the suspicion however is strong it may be. We, therefore, are of the opinion that no interference is called for in the order of the CIT(A). The CIT(A) has rightly deleted the addition made by the A.O. Under section 68 and directed the A.O. To accept the agricultural income shown by the assessee. This is not a fit case which warrants our interference. The order of the CIT(A) is very exhaustive, explicit and dealt with all the objections taken by the A.O. We, therefore, confirm the finding as reproduced herein above of the CIT(A). Thus, ITA No. 26/Agr/2009 filed by the Revenue stands dismissed."
5. Sri Shambhu Chopra has relied on the order of AO, who did not believe that any agricultural operations were carried on the land in the previous year on the ground that there was no record maintained by the assessee about the purchase of fertilizers and chemicals, and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The explanation submitted by the assessee was not accepted. The AO added Rs.41,08,724/- declared by the assessee as agricultural income – exempt from income tax, as income of the assessee from other sources under Section 68 of the Act.
6. The CIT (A) considered the question of addition of Rs.41,08,724/- by AO under Section 68 of the Act and have recorded findings that if in the previous years the agricultural income from the same land on which agricultural crops were produced by the appellant was accepted, he could not have recorded findings that in the present assessment year in question, the income could not be treated as agricultural income for want of proof of records of fertilizer and chemicals and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The ITAT has confirmed the findings recorded by CIT (A). Even if each assessment year is treated to be a separate unit, the findings in respect of previous years based on the record of title and possession of agricultural land, and the evidence led for proving that agricultural operations were carried out and crops were produced could not be disbelieved in the subsequent year, for want of primary evidence. The assessee was not required to submit proof of agricultural operations every year, in the absence of any material, which may suggest that the agricultural operations were stopped or was not carried out in the relevant period. There was no evidence to establish that the assessee has sold the agricultural land or that the assessee had stooped the agricultural operations. Further, the CIT (A) and ITAT have recorded findings that the assessee as a Private Company was maintaining regularbooks of accounts as required under the Companies Act, which were also audited and accepted in the AGM of the Company. The entries in the books were not proved to be bogus. There is nothing under the Income-tax Act debarring the assessee from selling agricultural produce in cash, and thus additions based only on suspicion could not be sustained.
7. The findings recorded by the CIT (A) and ITAT are question of facts, which do not require interference, nor any substantial questions of law arises, for consideration in the appeal by the Court.
8. The Income Tax Appeal is dismissed.
Order Date :- 8.8.2013
Allahabad High Court
INCOME TAX APPEAL No. – 106 of 2011
Appellant :- Commissioner Of Income Tax
Respondent :- Landmark Innovation Pvt.Ltd
Counsel for Appellant :- Shambhu Chopra/Ssc
Respondent :- Landmark Innovation Pvt.Ltd
Counsel for Appellant :- Shambhu Chopra/Ssc
Hon'ble Sunil Ambwani,J.
Hon'ble Surya Prakash Kesarwani,J.
1. An Affidavit of service has been filed. We have heard Sri Shambhu Chopra for the Commissioner of Income Tax.
2. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) is directed against the order dated 08.10.2010, passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in Income Tax Appeal No. 26/Agr/2009, relating to the Assessment Year 2005-06.
3.� The revenue has raised the following substantial questions of law, for consideration:-
"1. Whether the ITAT was legally correct in confirming the decision of the first appellate authority deleting the addition of Rs.41,08,724/- (i.e. 39,55,924 + 1,52,799/-) made u/s 68 of I.T. Act, 1961 and directing the AO to assess the income of Rs.41,08,724/- as agricultural income ignoring the fact that no primary record of agricultural activities was available with the assessee to substantiate the agricultural income ?
2. Considering the ratio of decisions given by Hon'ble Apex Court in the case of CIT Vs. R. Venkata Swamy Naidu (1956) 29 ITR 529 (SC) whether the Hon'ble ITAT was justified in holding the alleged agricultural income genuine, although the assessee could not produce proper material no prove that it had earned any agricultural income during the year under consideration ? ?
4.� The Income Tax Appellate Tribunal� (ITAT) considered the submissions, and held that once the department has accepted the agricultural income returned by the assessee during the previous assessment years namely A.Y. 2003-04 and 2004-05, for which the� assessments were made under Section 143 (3) read with Section 147 of the Act, no interference could be made in the order of CIT (A) for deleting the additions for the AY 2005-06. The ITAT thereafter recorded following findings of fact:-
"We have carefully considered the rival submission along with the orders of the Tax Authorities below. This is an admitted fact that the assessee was owning the land. The assessee has also cultivated the land i.e. the assessee has carried out all the basic operations including tilting, watering and planting on the land. The assessee has produced the khasra and khatauni in respect of agricultural land stating therein that agricultural crops were produced by the assessee during the year. The Department has accepted the agricultural income returned by the assessee during the A.Ys. 2003-04 & 2004-05 in the assessment made under section 143(3) read with section 147 of the Act from the same very land. The assessment orders are dated 23.12.2008. This fact is not denied by the ld. D.R. Once the agricultural income is duly accepted by the A.O. In all these A.Ys. After verification, in our opinion, there remains no merit in the appeal of the Revenue. The ld. D.R. Although vehemently supported the order of the Assessing Officer but could not adduce any evidence which may prove that the facts involved in this A.Y. are different from the A.Y. 2003-04 and 2004-05. Apparent is real. Onus is on the person who alleges apparent is not real. The income shown by the assessee is the revenue derived from the land which is situated in India and used for agricultural purposes. No iota of evidence to the contrary is brought on record. The assessee has incurred the expenditure in cash and has sold the agriculture produce in cash cannot be the basis to conclude that the assessee has not derived the agricultural income. The assessee is a private limited company and has maintained regular books of accounts as required under the Companies Act. The Profit & Loss Account and Balance Sheet has been prepared and approved in the General Body meeting of the Company. The entries in the books are not proved to be bogus. The Income-tax Act does not prohibit the assessee to incur the expenditure in cash. Even there is no provision under the Income Tax Act debarring the assessee from selling agricultural crops in cash. No addition can be sustained merely on the basis of the suspicion however is strong it may be. We, therefore, are of the opinion that no interference is called for in the order of the CIT(A). The CIT(A) has rightly deleted the addition made by the A.O. Under section 68 and directed the A.O. To accept the agricultural income shown by the assessee. This is not a fit case which warrants our interference. The order of the CIT(A) is very exhaustive, explicit and dealt with all the objections taken by the A.O. We, therefore, confirm the finding as reproduced herein above of the CIT(A). Thus, ITA No. 26/Agr/2009 filed by the Revenue stands dismissed."
5.� Sri Shambhu Chopra has relied on the order of AO, who did not believe that any agricultural operations were carried on the land in the previous year on the ground that there was no record maintained by the assessee about the purchase of fertilizers and chemicals, and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The explanation submitted by the assessee was not accepted. The AO added Rs.41,08,724/-� declared by the assessee as agricultural income – exempt from income tax, as income of the assessee from other sources under Section 68 of the Act.
6.� The CIT (A) considered the question of addition of Rs.41,08,724/- by AO under Section 68 of the Act and have recorded findings� that if in the previous years the agricultural income from the same land on which agricultural crops were� produced by the appellant was accepted,� he could not have recorded findings that� in the present assessment year in question, the income could not be treated as agricultural income for want of proof of records� of fertilizer and chemicals� and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The ITAT has confirmed the findings recorded by CIT (A). Even if each assessment year is treated to be a separate unit, the findings in respect of previous years based on the record of title and possession of agricultural land, and the evidence led for� proving that� agricultural operations� were carried out and crops were produced could not be disbelieved in the subsequent year, for want of primary evidence. The assessee was not required to submit proof of agricultural operations every year, in the absence of any material, which may suggest that the agricultural operations were stopped or was not carried out in the relevant period. There was no evidence to establish that� the assessee has sold the agricultural land or that the assessee had stooped the agricultural operations.� Further, the CIT (A) and ITAT have recorded findings that the assessee as a Private Company was maintaining regular books of accounts� as required under the Companies Act, which were also audited� and accepted in the AGM of the Company. The entries in the books were not proved to be bogus.� There is nothing under the Income-tax Act� debarring the assessee from selling agricultural produce in cash, and thus� additions based only on suspicion could not be sustained.
7.� The findings recorded by the CIT (A) and ITAT are question of facts, which do not require interference, nor any substantial questions of law arises, for consideration in the appeal by the Court.
8.� The Income Tax Appeal is dismissed.
Order Date :- 8.8.2013
Hon'ble Surya Prakash Kesarwani,J.
1. An Affidavit of service has been filed. We have heard Sri Shambhu Chopra for the Commissioner of Income Tax.
2. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) is directed against the order dated 08.10.2010, passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in Income Tax Appeal No. 26/Agr/2009, relating to the Assessment Year 2005-06.
3.� The revenue has raised the following substantial questions of law, for consideration:-
"1. Whether the ITAT was legally correct in confirming the decision of the first appellate authority deleting the addition of Rs.41,08,724/- (i.e. 39,55,924 + 1,52,799/-) made u/s 68 of I.T. Act, 1961 and directing the AO to assess the income of Rs.41,08,724/- as agricultural income ignoring the fact that no primary record of agricultural activities was available with the assessee to substantiate the agricultural income ?
2. Considering the ratio of decisions given by Hon'ble Apex Court in the case of CIT Vs. R. Venkata Swamy Naidu (1956) 29 ITR 529 (SC) whether the Hon'ble ITAT was justified in holding the alleged agricultural income genuine, although the assessee could not produce proper material no prove that it had earned any agricultural income during the year under consideration ? ?
4.� The Income Tax Appellate Tribunal� (ITAT) considered the submissions, and held that once the department has accepted the agricultural income returned by the assessee during the previous assessment years namely A.Y. 2003-04 and 2004-05, for which the� assessments were made under Section 143 (3) read with Section 147 of the Act, no interference could be made in the order of CIT (A) for deleting the additions for the AY 2005-06. The ITAT thereafter recorded following findings of fact:-
"We have carefully considered the rival submission along with the orders of the Tax Authorities below. This is an admitted fact that the assessee was owning the land. The assessee has also cultivated the land i.e. the assessee has carried out all the basic operations including tilting, watering and planting on the land. The assessee has produced the khasra and khatauni in respect of agricultural land stating therein that agricultural crops were produced by the assessee during the year. The Department has accepted the agricultural income returned by the assessee during the A.Ys. 2003-04 & 2004-05 in the assessment made under section 143(3) read with section 147 of the Act from the same very land. The assessment orders are dated 23.12.2008. This fact is not denied by the ld. D.R. Once the agricultural income is duly accepted by the A.O. In all these A.Ys. After verification, in our opinion, there remains no merit in the appeal of the Revenue. The ld. D.R. Although vehemently supported the order of the Assessing Officer but could not adduce any evidence which may prove that the facts involved in this A.Y. are different from the A.Y. 2003-04 and 2004-05. Apparent is real. Onus is on the person who alleges apparent is not real. The income shown by the assessee is the revenue derived from the land which is situated in India and used for agricultural purposes. No iota of evidence to the contrary is brought on record. The assessee has incurred the expenditure in cash and has sold the agriculture produce in cash cannot be the basis to conclude that the assessee has not derived the agricultural income. The assessee is a private limited company and has maintained regular books of accounts as required under the Companies Act. The Profit & Loss Account and Balance Sheet has been prepared and approved in the General Body meeting of the Company. The entries in the books are not proved to be bogus. The Income-tax Act does not prohibit the assessee to incur the expenditure in cash. Even there is no provision under the Income Tax Act debarring the assessee from selling agricultural crops in cash. No addition can be sustained merely on the basis of the suspicion however is strong it may be. We, therefore, are of the opinion that no interference is called for in the order of the CIT(A). The CIT(A) has rightly deleted the addition made by the A.O. Under section 68 and directed the A.O. To accept the agricultural income shown by the assessee. This is not a fit case which warrants our interference. The order of the CIT(A) is very exhaustive, explicit and dealt with all the objections taken by the A.O. We, therefore, confirm the finding as reproduced herein above of the CIT(A). Thus, ITA No. 26/Agr/2009 filed by the Revenue stands dismissed."
5.� Sri Shambhu Chopra has relied on the order of AO, who did not believe that any agricultural operations were carried on the land in the previous year on the ground that there was no record maintained by the assessee about the purchase of fertilizers and chemicals, and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The explanation submitted by the assessee was not accepted. The AO added Rs.41,08,724/-� declared by the assessee as agricultural income – exempt from income tax, as income of the assessee from other sources under Section 68 of the Act.
6.� The CIT (A) considered the question of addition of Rs.41,08,724/- by AO under Section 68 of the Act and have recorded findings� that if in the previous years the agricultural income from the same land on which agricultural crops were� produced by the appellant was accepted,� he could not have recorded findings that� in the present assessment year in question, the income could not be treated as agricultural income for want of proof of records� of fertilizer and chemicals� and expenditures incurred on tube-well boring, construction of store house, levelling of field etc. The ITAT has confirmed the findings recorded by CIT (A). Even if each assessment year is treated to be a separate unit, the findings in respect of previous years based on the record of title and possession of agricultural land, and the evidence led for� proving that� agricultural operations� were carried out and crops were produced could not be disbelieved in the subsequent year, for want of primary evidence. The assessee was not required to submit proof of agricultural operations every year, in the absence of any material, which may suggest that the agricultural operations were stopped or was not carried out in the relevant period. There was no evidence to establish that� the assessee has sold the agricultural land or that the assessee had stooped the agricultural operations.� Further, the CIT (A) and ITAT have recorded findings that the assessee as a Private Company was maintaining regular books of accounts� as required under the Companies Act, which were also audited� and accepted in the AGM of the Company. The entries in the books were not proved to be bogus.� There is nothing under the Income-tax Act� debarring the assessee from selling agricultural produce in cash, and thus� additions based only on suspicion could not be sustained.
7.� The findings recorded by the CIT (A) and ITAT are question of facts, which do not require interference, nor any substantial questions of law arises, for consideration in the appeal by the Court.
8.� The Income Tax Appeal is dismissed.
Order Date :- 8.8.2013
Service Tax
Fabrication or erection of tank at site brings into existence an immovable property and, therefore, it cannot be said that appellant has undertaken any manufacturing activity as defined u/s 2(f) of the CEA, 1944 - activity undertaken would qualify as Erection, Commissioning and Installation services - Pre-deposit ordered: CESTAT
AS far as the fabrication or erection of tank at site is concerned, the activity brings into existence an immovable property. Therefore, it cannot be said that the appellant has undertaken any manufacturing activity defined under Section 2(f) of the Central Excise Act, 1944. Therefore, the activity undertaken by the appellant would qualify as erection, commissioning and installation services. According to the appellant, the liability would come to Rs. 10 lakhs
All for a signature - IRS Officer trying for a transfer through MOS(R) - Charge sheet issued without approval of Disciplinary Authority (FM) non est: SC
TIOL-DDT 218509.09.2013
Monday
THE allegations levelled against the officer are that while working as Additional Commissioner of Income Tax in the year 2003, he failed to maintain integrity and exhibited conduct unbecoming of a government servant, as he approached a practicing Chartered Accountant in Chennai pertaining to his transfer from Chennai to Mumbai and in turn an approach and contact was made to 1st P.A. to G.N. Ramachandran, the then Minister of State for Finance (Revenue), Govt. of India and on a demand of certain money, he agreed to pay the bribe for ensuring his transfer.
The officer was duly charge-sheeted. He approached the CAT on the ground that the charge sheet was not approved by the Disciplinary Authority who happened to be the Minister of Finance.
The Tribunal held, "As no specific approval has been accorded by the disciplinary authority to the charge sheet, it is right from inception without jurisdiction and is not sustainable in law."
The charge sheet was quashed; however the government was accorded liberty to take appropriate action against the officer.
The Government took the matter to the High Court with the question, "whether the charge sheet issued to the IRS officer in connection with a disciplinary inquiry was required to be approved by the disciplinary authority or not".
The High Court agreed with the Tribunal that "the charge sheet ought to have been approved by the disciplinary authority before it is issued. Since there was no such approval obtained, the charge-sheet was issued without jurisdiction."
An unrelenting Government took the matter in appeal to the Supreme Court. The Apex Court last week dismissed the govt appeal agreeing with the CAT and High Court.
The charge sheet was quashed for want of a signature - of the FM. It seems there are several such charge sheets without the approval of the FM and they all will be thrown out now. This is a very important case for the Department and several charged officers. Of course the Government is technically free to issue the charge sheets afresh, if they can get the FM to sign!
Please see 2013-TIOL-43-SC-SERVICE
Government cannot withhold Gratuity and Pension during pendency of departmental proceeding or criminal proceeding: SC
THE Supreme Court in a recent judgement held that the Government cannot withhold a part of pension and/or gratuity during the pendency of departmental/ criminal proceedings. The Supreme Court observed,
It is an accepted position that gratuity and pension are not the bounties. An employee earns these benefits by dint of his long, continuous, faithful and un-blemished service.
What is a pension? What are the goals of pension? What public interest or purpose, if any, it seeks to serve?
The antiquated notion of pension being a bounty, a gratuitous payment depending upon the sweet will or grace of the employer not claimable as a right and, therefore, no right to pension can be enforced through Court has been swept under the carpet by the decision of the Constitution Bench in Deoki Nandan Prasad v. State of Bihar and Ors wherein this Court authoritatively ruled that pension is a right and the payment of it does not depend upon the discretion of the Government but is governed by the rules and a Government servant coming within those rules is entitled to claim pension. It was further held that the grant of pension does not depend upon any one's discretion.
It is thus hard earned benefit which accrues to an employee and is in the nature of "property". This right to property cannot be taken away without the due process of law as per the provisions of Article 300 A of the Constitution of India.
Please see 2013-TIOL-44-SC-SERVICE
Deductions to be made in computing total income.
80A(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.]
IT : For claiming deduction under section 80-IB, only condition is that original return should be filed in time; if claim is not made in original return, it can be made subsequently
[2011] 16 taxmann.com 88 (Ahd.)
in the ITAT AHMEDABAD BENCH 'A'
Parmeshwar Cold Storage (P.) Ltd.
v.
Assistant Commissioner of Income-tax*
T.K. SHARMA, JUDICIAL MEMBER AND D.C. AGRAWAL, ACCOUNTANT MEMBER
IT APPEAL NO. 1198/AHD./2009
[ASSESSMENT YEAR 2006-07]
JULY 3, 2009
Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings - Whether for claiming deduction under section 80-IB, only condition is that original return should be filed in time - Whether said claim need not necessarily be made in original return and it can be made subsequent thereto also, even before appellate authority - Held, yes [In favour of assessee]
FACTS
The assessee installed new plant and machinery to increase cold storage capacity in its existing plant. It had claimed additional depreciation, but subsequently filed a revised return wherein it withdrew the claim of additional depreciation, but claimed deduction under section 80-IB.
The Assessing Officer rejected the claim on the ground that the revised return had not been filed within the time limit prescribed under section 139(5). Further, he stated that since the operation of two new units of the plant started after the terminal date, the assessee was considered to be not entitled for the deduction under section 80-IB on the merits as well.
On appeal, the Commissioner (Appeals) held that there being no valid revised return, no deductions including the claim under section 80-IB was allowable. On the merits, he held that as additional facts were not on record and the appeal was being dismissed on technical/legal ground, the same were not to be adjudicated.
On second appeal:
HELD
The undisputed facts were that the assessee had filed a return of income on 27-12-2006 which was within the time as the Central Board of Direct Taxes had extended the time for filing of return up to 31-12-2006, the revised return filed by the assessee on 15-12-2008 could not be stated to be within the time allowed under section 139(5), the revised return was to be filed within one year of end of the relevant assessment year, i.e. , by 31-3-2008. Therefore, the claim had not been made through a valid return. [Para 8]
Section 80AC does not require that the claim under section 80-IB should be made only through the original return in time. It only prescribes the condition that the original return filed should be in time for enabling the assessee to make a claim. In other words, it is not a requirement to make the claim in the original return itself, which is to be field within the time. It was further explained that for claiming deduction under section 80-IB, the only condition is that the original return should be filed in time, but the claim need not necessarily be made in the original return, it can be made subsequent thereto also. [Para 9]
Accordingly, it was to be held that the claim of deduction under section 80-IB could be made by the assessee before the appellate authorities. Since grounds relating to the deduction under section 80-IB were made before the appellate authorities, irrespective of whether it was claimed by the assessee before the Assessing Officer or not, or whether it was claimed through original return or revised return, the allowability of claim had to be adjudicated on the merits. Since the Commissioner (Appeals) had not decided the issue on the merits, the issue of claim of deduction under section 80-IB before him was to be restored before the Commissioner (Appeals) to decide the same on the merits. [Para 10]
Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 / 157 Taxman 1 (SC) (para 3), CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 / 172 Taxman 258(Delhi) (para 4), Chicago Pneumatic India Ltd. v. Dy. CIT [2007] 15 SOT 252 (Mum.) (para 4), Jt. CIT v. Hero Honda Finlease Ltd. [2008] 115 TTJ 752(Delhi) (para 4), Asheesh Securities Ltd. v. Dy. CIT [2008] 111 ITD 108 (Delhi) (para 4), Moser Baer India Ltd. v. Jt. CIT [2007] 108 ITD 80 (Delhi) (para 4), SNC Lavalin/Acres Inc. v. Asstt. CIT [2007] 15 SOT 1 (Delhi) (para 4) and Kisan Discretionary Family Trust v. Asstt. CIT [2008] 113 TTJ 918 (Ahd.) (para 4).
Tushar P. Hemani for the Appellant. Rajeev Agarwal for the Respondent.
ORDER
D.C. Agrawal, Accountant Member - This appeal is filed by the assessee against the order of the Commissioner of Income-tax (Appeals), Gandhinagar, dated February 10, 2009. The assessee in this appeal has raised as many as six grounds.
2. The learned authorised representative did not press for ground Nos. 3 and 4 and hence they are rejected as not pressed. Ground No. 6 is premature and hence rejected. Ground No. 5 is consequential and therefore does not require any separate adjudication. What now survive for adjudication are ground Nos. 1 and 2 which read as under :
"1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the action of the Assessing Officer in not admitting the claim of deduction under section 80-IB of the Act made during the course of the assessment proceedings.
2. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in confirming the action of the Assessing Officer in denying the deduction under section 80-IB of the Act."
3. Ground Nos. 1 and 2 relate to claim of deduction under section 80-IB of the Income-tax Act, 1961. The facts of the case are that the assessee installed new plant and machinery worth Rs. 175.47 lakhs to increase cold storage capacity in its existing plant from 8,000 mts. to 17,000 mts. It had claimed additional depreciation, but subsequently filed a revised return wherein it withdrew the claim of additional depreciation, but claimed deduction of Rs. 10,99,902 under section 80-IB. The Assessing Officer rejected the claim on the ground that the revised return has not been filed within the time limit prescribed under section 139(5) of the Act. On the merits, the Assessing Officer disallowed the claim on the ground that operation of two new units was started after March 31, 2005 whereas section 80-IB(3)(ii) requires that cold storage plant should begin production before March 31, 2004. As the plant started operation after the terminal date, the assessee was considered to be not entitled for the deduction under section 80-IB on the merits as well. The Assessing Officer in his order also mentioned that although the return was filed late on December 27, 2006, therefore, the revised return filed by the assessee on December 15, 2008 could not be considered as valid return, and hence the same could not be considered. The Assessing Officer noted further that in view of the decision of the hon'ble Supreme Court in the case of Goetze (India) Ltd.v. CIT [2006] 284 ITR 323/ 157 Taxman 1 no additional claim could be made without filing the return of income. The learned Commissioner of Income-tax (Appeals) held that there being no valid revised return no other deduction including the claim under section 80-IB was allowable. On the merits, the learned Commissioner of Income-tax (Appeals) held that as additional facts are not on record and the appeal was being dismissed on technical/legal ground, the same were not being adjudicated.
4. Before us, the learned authorised representative for the assessee submitted that it is incorrect to say that the original return was not valid, as not filed in time. He drew our attention to the Central Board of Direct Taxes Circular No. F. No. 220/5/2006-ITA-II dated October 13, 2006 ([2006] 286 ITR (St.) 56) wherein the time-limit for filing of return of income was extended from October 31, 2006 to December 31, 2006. Since the original return was filed on December 27, 2006 it should be considered in time. Therefore, the revised return could not be said to be belated or invalid. He then referred to the authorities which were referred to by him before the Commissioner of Income-tax (Appeals) and not considered by him as under :
(vi) SNC Lavalin/Acres Inc. v. Asstt. CIT [2007] 15 SOT 1 (Delhi) ; and
5. The ratio laid down by these authorities is that a claim can be made before the Assessing Officer before completion of the assessment and further that the decision of the hon'ble Supreme Court in Goetze (India) Ltd.'s case (supra) will not be applicable on the quasi-judicial authorities, such as, the Commissioner of Income-tax (Appeals) or the Tribunal. In other words, the appellate authorities can direct to consider the claim of deduction, even if it is raised before them, for the first time, provided all the relevant facts are on record.
6. The learned Departmental representative, on the other hand, submitted that section 80AC prohibits claim of any deduction under Chapter VI-A unless it is made through a return of income filed as per the time prescribed under section 139(1) of the Act. The learned Departmental representative further submitted that such claim can be made only in the original return.
7. The learned authorised representative, in rejoinder, submitted that the learned Departmental representative cannot argue the points which were not argued before the lower authorities by relying on the section 80AC.
8. We have heard the rival submissions and perused material on record. The undisputed facts are that the assessee has filed a return of income on December 27, 2006 which is within the time as the Central Board of Direct Taxes had extended the time for filing of return up to December 31, 2006, as per the circular referred to above. Even this, is so, the revised return filed by the assessee on December 15, 2008 could not be stated to be within the time allowed under section 139(5). The revised return is to be filed within one year of end of the relevant assessment year, i.e., revised return should be filed by March 31, 2008, therefore, it cannot be stated that the claim has been made through a valid return. Further the provisions of section 80AC for the sake of convenience is reproduced below :
"80AC. Deduction not to be allowed unless return furnished. Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139."
9. This section does not require that the claim under section 80-IB should be made only through the original return in time. It only prescribes the condition that the original return filed should be in time for enabling the assessee to make a claim. In other words, it is not a requirement to make the claim in the original return itself, which is to be filed within the time. We may further explain that for claiming deduction under section 80-IB, the only condition is that the original return should be filed in time, but the claim need not necessarily be made in the original return, it can be made subsequent thereto also. In Goetze (India) Ltd.'s case (supra), the hon'ble Supreme Court has only considered for claiming deduction before the Assessing Officer, such claim should be made only through the return. But this condition would not be applicable before the appellate authorities. This decision of the Supreme Court was interpreted by the Delhi High Court in Jai Parabolic Springs Ltd.'s case (supra) as under (page 46) :
"In Goetze (India) Ltd. [2006] 284 ITR 323 (SC) wherein deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal."
10. Accordingly following the above decision, we hold that the claim of deduction under section 80-IB can be made by the assessee before the appellate authorities. Since grounds relating to the deduction under section 80-IB were made before the appellate authorities, irrespective of whether it was claimed by the assessee before the Assessing Officer or not, or whether it was claimed through original return or revised return, the allowability of claim has to be adjudicated on the merits. Since the learned Commissioner of Income-tax (Appeals) has not decided the issue on the merits, we restore the issue claim of deduction under section 80-IB before him to decide the same on the merits.
11. In the result, the appeal is partly allowed but for statistical purpose.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
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