IT : Where a distinct commodity, i.e., milk powder, was emerging from entire complex process and it could not be restored to original product (Milk), plant and machinery installed by assessee for purpose of manufacturing milk powder had to be allowed benefit of additional depreciation
--
--
■■■
[2014] 43 taxmann.com 327 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax -II
v.
Gujarat Co-op. Milk Marketing Federation Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 760 OF 2013†
JANUARY 23, 2014
Section 32 of the Income-tax Act, 1961 - Depreciation - Additional depreciation (Manufacture) - Assessee was engaged in production and manufacturing of milk products - It had installed a new plant for manufacturing milk powder - It claimed additional depreciation on said plant which was rejected by Assessing Officer - It was found that Milk powder was completely different from main ingredient and manufacturing process lead to substantial value addition and final product could not be restored to original product - Whether since a distinct commodity was emerging from entire complex process, plant and machinery installed by assessee were exigible to additional depreciation - Held, yes [Para 11] [In favour of assessee]
FACTS
| ■ | The assessee was engaged in production and manufacturing of milk products. | |
| ■ | It installed a new plant for manufacturing milk powder and had, accordingly, claimed the additional depreciation under section 32(1)(iia) for such powder plant. | |
| ■ | However, the Assessing Officer had denied the entire claim of additional depreciation and made addition. | |
| ■ | The Commissioner (Appeals) held that the assessee had duly satisfied the conditions incorporated in section 32(1)(iia). Accordingly, the addition was deleted. | |
| ■ | The Tribunal also held that the additional depreciation was allowable to the assessee. | |
| ■ | On further appeal: |
HELD
| ■ | Section 32(1)(iia) provides for giving depreciation to the assessee engaged in the business of manufacturing or production of any article or thing in case of any new machinery or plant acquired or installed after 31.3.2005. | |
| ■ | The fact is not disputed that the assessee is engaged in the business of manufacturing of milk products and the assessee had been assessed since many years on regular basis. The revenue has at no point of time disputed the aspect of its being in the activity of manufacturing and production. [Para 7] | |
| ■ | The plant here is of making milk powder and process of producing the milk powder is complex and it is a completely different commercial commodity from the main ingredient, i.e., milk. [Para 8] | |
| ■ | The say of the assessee that final product, i.e., the milk powder was completely different from the main ingredient and the manufacturing process lead to the substantial value addition cannot be disputed nor has the same been in any manner challenged by the revenue. Thus, the very issue is rightly appreciated by both the authorities concurrently and their findings give rise to no perversity warranting interference. [Para 9] | |
| ■ | One can take note of the complex process explained by the assessee in making milk powder which is completely a different commodity. There is no way in which the final product could be restored to the original product. This process involves four different stages, namely, (i) Standardization (ii) Pre-heating (iii) Evaporation and (iv) Spray dying. [Para 10] | |
| ■ | A distinct commodity is arising from the entire complex process and it is a commercially distinct marketable commodity resulting from this process and such transformation is irreversible and thus, the plant and machinery installed by the assessee for the purpose of manufacturing the milk powder has been rightly given the benefit of additional depreciation by the authorities. [Para 11] | |
| ■ | Thus, the whole process of conversion of the raw material when leads to production of new article and its character, use and nature also indicate complete transformation bringing into existence the new product altogether, the assessee has rightly been allowed the benefit of additional depreciation by both the revenue authorities. [Para 14] |
CASE REVIEW
CIT v. Prabhudas Kishordas Tabocco Products (P.) Ltd. [2006] 282 ITR 568/154 Taxman 404 (Guj.)(para 13) and Aspinwall & Co. Ltd. v. CIT [2001] 251 ITR 323/118 Taxman 771 (para 9) followed.
CASES REFERRED TO
Aspinwall & Co. Ltd. v. CIT [2001] 251 ITR 323/118 Taxman 771 (SC) (para 5), CIT v. Mehsana District Co-operative Milk Producers Union Ltd. [I.T. Appeal No. 666 (Ahd.) of 2005] (para 5), CIT v.N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312 (SC) (para 12) and CIT v. Prabhudas Kishordas Tobacco Products (P.) Ltd. [2006] 282 ITR 568/154 Taxman 404 (Guj.) (para 13).
K.M. Parikh for the Appellant. S.N. Soparkar and B.S. Soparkar for the Respondent.
ORDER
Ms. Sonia Gokani, J. - Revenue has challenged the decision of the Income Tax Tribunal ("the Tribunal" for short) dated 22.3.2013 the present Tax Appeal raising following substantial question of law for our consideration:—
"Whether the ITAT was justified in law in upholding the decision of the CIT(A) in allowing additional depreciation of Rs.5,82,15,539/- treating the process of making skimmed milk powder from milk as "manufacture" or "production" without appreciating the fact that production of skimmed milk powder is nothing but milk without water content?"
2. We have heard learned counsel Mr. Ketan Parikh for the appellant and learned Senior Counsel Mr. Soparkar for the assessee respondent.
3. The assessee respondent had claimed an additional depreciation of Rs.5.82 crores (rounded off) under section 32(1)(iia) of the Income Tax Act ("the Act" for short) on the ground that a new plant and machinery were installed at Mother Dairy. The the assessee is engaged in production and manufacturing of milk powder. It was the case of the assessee that it was engaged in the business of manufacture of milk products which was accepted by the Department in the earlier assessment years. It is also averred that the final product i.e. milk powder was different from the main ingredient milk. It was also the case of the assessee that the manufacturing process led to substantial value addition of milk powder which was much higher than natural milk. It was also averred by the assessee that the excise regulations had been charged on milk powder on nil rate, and therefore, also the production of milk powder would amount to manufacturing. However, the Assessing Officer was not convinced by these submissions and accordingly had denied the entire claim of additional depreciation.
4. This was when challenged before CIT(Appeals), it had elaborately dealt with the issue and allowed the entire amount of depreciation holding the same in favour of the assessee. CIT(Appeals) relied on various decisions to conclude that the assessee had duly satisfied the conditions incorporated in section 32(1) (iia) of the Act and also that the same was engaged in the business of manufacturing and production of the article or thing and such business of manufacturing was the milk product. Accordingly, the addition of the said sum of Rs.5.82 lakhs (rounded off) was deleted.
5. The Revenue challenged the same before the Tribunal. The Tribunal also exhaustively dealt with the entire issue relying on the decision of the Apex Court rendered in the case of Aspinwall & Co. Ltd. v. CIT [2001] 251 ITR 323/118 Taxman 771, and other decisions to hold that the additional depreciation is allowable on new machinery or plant acquired and installed by the assessee respondent engaged in the business of manufacture and production. It also sought to rely upon the decision of its coordinate Bench rendered in the case of CIT v. Mehsana District Co-operative MilkProducers Union Ltd. (ITA No.666/Ahd/2005), which as given to understand has not being challenged by the Revenue.
6. On hearing both the sides and on having considered the decisions of all the revenue authorities, at the outset, it would be relevant to reproduce the relevant provision i.e. section 32(1) (iia)of the Act:—
"Depreciation
32(1)(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):
Provided that no deduction shall be allowed in respect of—
| (A) | any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or | |
| (B) | any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or | |
| (C) | any office appliances or road transport vehicles; or | |
| (D) | any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;" |
7. This provision provides for giving depreciation to the assessee engaged in the business of manufacturing or production of any article or thing in case of any new machinery or plant acquired or installed after 31.3.2005. The assessee, in the instant case, had installed Mother Dairy plant at Gandhinagar for manufacturing milk powder and had accordingly claimed the additional depreciation under section 32(1)(iia)claimed for such powder plant to the tune of Rs.4,00,95,506/- and for other plant and machinery and old powder plant respectively the sum of Rs.53,807/- and of Rs.1,80,66,227/- had been claimed, totaling to Rs.5,82,15,539/-. The fact is not disputed that the appellant is engaged in the business of manufacturing of milk products and the assessee respondent had been assessed since many years on regular basis where the Revenue has at no point of time disputed the aspect of its being in the activity of manufacturing and production.
8. The plant here is of making milk powder and process of producing the milk powder is complex and it is a completely different commercial commodity from the main ingredient milk.
9. At this stage, the decision of the Apex Court rendered in the case of Aspinwall & CO. Ltd. (supra) requires reference where the Apex Court has said that the word "manufacturing" has not been defined in the Income-tax Act but in the absence definition of word "manufacture" has to be given a meaning as is understood in a common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article, then the same would amount to manufacturing activity. The say of the respondent assessee that final product i.e. the milk powder was completely different from the main ingredient and the manufacturing process leads to the substantial value addition cannot be disputed nor has the same been in any manner challenged by the Revenue. Thus, the very issue is rightly appreciated by both the authorities concurrently and their findings give rise to no perversity warranting interference.
10. We can take note of the complex process explained by the assessee in making milk powder which is completely a different commodity. There is no way in which the final product could be restored to the original product. This process involves four different stages namely (I) Standardization (ii) Pre-heating(iii)Evaporation and (iv) Spray dying, as noted in the order of Assessing Officer, they are as under:—
'Standardization: The conventional process for the production of milk powders starts with taking the raw milk received at the dairy factory and pasteurising and separating it into skim milk and cream using a centrifugal cream separator.
Preheating: The next step in the process is "preheating' during which the standarised milk is heated to temperatures between 75 to 120C and held for a specified time from a few seconds up to several minutes.
Evaporation: In the evaporator the preheated milk is concentrated in stages or "effects" from around 9.0% total solids content for skim milk and 13% for whole milk, up to 45-52% total solids. This is achieved by boiling the milk under a vacuum at temperatures below 72_C in a falling film on the inside of vertical tubes, and removing the water as vapour.
Spray Drying: Spray drying involves atmoising the milk concentrate from the evaporator into fine droplets. This is done inside a large drying chamber in a flow of hot air (up to 200_C) using either a spinning disk atomiser or a series of high pressure nozzles. The milk droplets are cooled by evaporation and they never reach the temperature of the air.'
11. A distinct commodity is thus arising from the entire complex process and it is a commercially distinct marketable commodity resulting from this process and such transformation is irreversible and thus, the plant and machinery installed by the assessee for the purpose of manufacturing the milk powder has been rightly given the benefit of additional depreciation by the authorities.
12. Supreme Court in the case of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412/70 Taxman 312, has held that for determining whether manufacturing can be said to have taken place is where the commodity which is subject to the process of manufacturing can no longer be regarded as the original commodity but is recognized in a trade as a new and distinct commodity.
13. Reference needs to be made to the decision rendered in the case of CIT v. Prabhudas Kishordas Tabacco Products (P.) Ltd [2006] 282 ITR 568/154 Taxman 404 (Guj), wherein it was held:—
"9. The tests to ascertain whether an activity amounts to manufacture or production of an article or thing have been laid down and reiterated by various decisions of the apex court and this High Court. Broadly, the requirement is that the raw material must be, in the first instance, subjected to a process of such a nature that it cannot be termed to be the same as the end-product after the raw material undergoes the process of manufacture. In other words, the goods purchased as raw material should go in as inputs in the process of manufacture and the result must be manufacture of other goods. The article produced must be regarded by the trade as a new and distinct article having an identity of its own, an independent market after the commodity is subjected to the process of manufacture. The nature and extent of the process would vary from case to case, and in a given case, there may be only one stage of processing, while in another case, there may be several stages of processing, and perhaps, a different kind of process at every stage. That with every process, the commodity would experience a change, but ultimately, it is only when the change, or a series of changes, bring about a result so as to produce a new and distinct article, that it can be said that the commodity used as raw material has been consumed in the manufacture of the end-product. To put it differently, the final product does not retain the identity of the raw material after it has undergone the process or processes of manufacture."
14. Thus, the whole process of conversion of the raw material when leads to production of new article and when its character, use and nature also indicate complete transformation bringing into existence the new product altogether. The assessee has rightly been allowed the benefit of additional depreciation by both the revenue authorities.
15. In light of the discussion hereinabove, we hold that the substantial question raised in this appeal by the Revenue has been appropriately and aptly addressed and answered requiring no further indulgence, resulting into dismissal of present Tax Appeal.
POOJA*In favour of assessee.
†Arising out of order of Tribunal dated 22-3-2013.
Regards,
Pawan Singla , LLB
M. No. 9825829075
IT: Where assessee was a director of a private company and Assessing Officer to recover unpaid tax dues of company proceeded against assessee and passed an order under section 179(1) upon him, since it was established from materials on record that there was no gross neglect, misfeasance or breach of duty on part of assessee in relation to affairs of company, impugned order passed under section 179(1) was liable to be quashed
■■■
[2014] 43 taxmann.com 288 (Gujarat)
HIGH COURT OF GUJARAT
Jashvantlal Natverlal Kansara
v.
Income Tax Officer, Co. Ward -4(2)*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 6557 OF 2004
FEBRUARY 19, 2014
Section 179 of the Income-tax Act, 1961 - Company in liquidation - Liabilities of directors (Recovery of unpaid tax dues of company from director) - Assessment year 1998-99 - Assessee was a director of a private company - Assessing Officer finalised assessment of company and raised tax demand upon it - Despite efforts, department could not recover unpaid tax dues from company - Assessing Officer, therefore, proceeded against assessee and passed an order under section 179(1) upon him - He directed recovery of outstanding dues of company from assessee along with interest and penalty - It was established from materials on record that there was no gross neglect, misfeasance or breach of duty on part of assessee in relation to affairs of company - Whether in given situation impugned order passed under section 179(1) upon assessee was liable to be quashed - Held, yes [Paras 5 and 8][In favour of assessee]
FACTS
| ■ | The assessee was the director of a private company. The Assessing Officer finalised the assessment of the company for the assessment year 1998-99 and raised tax demand upon it. The Commissioner (Appeals) confirmed the assessment order. | |
| ■ | The company had tax dues towards the department. Despite efforts by the department, such dues could not be recovered. The Assessing Officer, therefore, proceeded against the assessee and passed an order under section 179(1) upon him. He directed recovery of the outstanding dues of the company from the assessee along with interest and penalty. | |
| ■ | On a revision petition filed under section 264 before the Commissioner, the assessee reiterated his stand that there was no gross neglect, misfeasance or breach of duty on his part in the affairs of the company and, therefore, the order under section 179(1) was bad in law. The Commissioner dismissed such revision petition. | |
| ■ | On writ: |
HELD
| ■ | Sub-section (1) of section 179 empowers the department to recover unpaid tax dues of a private company from its directors under certain circumstances when such dues cannot be recovered from the company. Such recovery, however, can be avoided if the director concerned proves that non recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. [Para 4] | |
| ■ | In the instant case, the company had run into losses. It had substantial dues towards the State Bank of India from which it had taken loans and also enjoyed overdraft facility. Certain properties of the company were also mortgaged to the bank. To realise its dues, the bank filed a petition before the Debts Recovery Tribunal. Before the Debts Recovery Tribunal, the parties agreed to settle the total dues of the bank for Rs. 26 lakh. The properties of the company were valued at Rs. 18 lakh. The balance was supplied by the director of the company from his personal resources. Additionally in order to strike off the name of the company from the Registrar of Companies, the director agreed to forgo his loans to the company which were in excess of Rs. 16 lakh. When such facts were established, the Assessing Officer ought to have held that the assessee had succeeded in establishing that non recovery of the tax dues of the company could not be attributed to gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. [Para 5] | |
| ■ | Further from a reading of the order of the Debts Recovery Tribunal, it does not appear that the assessee had consented that the bank dues may also be recovered from the fixed assets of the company. It was the Debts Recovery Tribunal which had given such liberty to the bank. That being the position, the contention of the revenue that the assessee should have offered the said properties of the company for recovery to the department, can still not bring the action of the assessee within the said expression of gross neglect, misfeasance or breach of duty on his part. [Para 7] | |
| ■ | In the result, the impugned orders passed by the Assessing Officer and the Commissioner were liable to be quashed. [Para 8] |
CASES REFERRED TO
Maganbhai Hansrajbhai Patel v. Asstt. CIT [2012] 353 ITR 567/[2012] 211 Taxman 386/26 taxmann.com 226 (Guj.) (para 4).
J.P. Shah and Manish J. Shah for the Petitioner. Tanvish U. Bhatt and Mrs. Mauna M. Bhatt for the Respondent.
JUDGMENT
Akil Kureshi, J. - The petitioners have challenged the order dated July 01, 2003 passed by the Income-tax Officer under section 179(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Tribunal') as confirmed by an order dated February 16, 2004 passed by the Commissioner of Income-tax in Revision Petition filed by the petitioners.
2. The facts are as under :
2.1 The petitioners were the Directors of one M/s. K.N. Minerals Pvt. Ltd. (hereinafter referred to as 'the Company'). For the assessment year 1998-1999, the return filed by the petitioners was taken in scrutiny and certain additions were made by the Assessing Officer. The assessment order though was carried in appeal, the Commissioner of Income-tax (Appeals) confirmed the order. No further appeal was carried by the Company. Arising out of such assessment proceedings, the Income-tax Department had to recover a sum of Rs.7,53,649/- with interest. Despite several efforts for recovery, such amount could not be recovered from the Company. The Income-tax Officer, therefore, issued show cause notice to the Directors on June 24, 2002, calling upon the petitioners why in terms of section 179(1) of the Act recoveries should not be made from them.
2.2 In response to such notice, the petitioners replied under a communication dated July 11, 2002 and raised several objections. It was pointed out that the Company had suffered losses. The Company had obtained overdraft facility and also taken loans from the State Bank of India. The properties and the assets of the Company were mortgaged to the Bank. Since the Company was unable to pay outstanding dues to the Bank, the Bank had instituted recovery proceedings before the Debts Recovery Tribunal. The Debts Recovery Tribunal in its order dated February 26, 1997 recorded that the petitioners were to pay Rs.2 6 lakh by way of full and final settlement towards the dues of the Bank. The land and building of the Company was valued at Rs.18 lakh. The remaining amount was brought by the directors of the Company from their personal resources. The Company had also filed an application before the Registrar of Companies to strike off the name of the Company since the Company had no assets and was not carrying on any business. In order to ensure the strike off of the name of the Company, the Company had to give a guarantee from the creditors i.e. directors themselves, that they have no objection to forgo the amount due to them by the Company. The directors, thus, had forgone an amount of Rs.17,85,729/- in the process. The petitioners also contended that the recovery can be made under section 179(1) of the Act only if the petitioners fail to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the Company. The petitioners contended that in view of the facts narrated above, there was no gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the Company. It was also pointed out that the Company had suffered total loss of Rs.2 0.85 lakh and the Company had obtained loans from three directors to the tune of more than rs.17.85 lakh.
2.3 Second reply was filed by the petitioners on October 21, 2002 before the Income-tax Officer in which similar contentions were taken.
2.4 The Income-tax Officer, however, was not convinced by such explanation and he passed the order dated July 01, 2003, holding that the provisions of section 179(1) of the Act would be applicable in the present case. He held that being the directors of the Company, it was their duty to pay tax due from the Company. They failed to discharge such duty, hence, provisions of section 179(1) of the Act are attracted. He, therefore, directed recovery of the outstanding dues of the Company from the petitioners along with interest and penalty.
2.5 The petitioners challenge such order before the Commissioner of Income-tax (Appeals) by filing a revision petition under section 264 of the Act. In such application, the petitioners reiterated their stand that there was no gross neglect, misfeasance or breach of duty on their part in the affairs of the Company and, therefore, the order under section 179 of the Act was bad in law.
2.6 The Commissioner, however, dismissed such revision petition by his order dated February 16, 2004. Hence, this petition.
3. Having heard the learned counsel for the parties and having perused the documents on record, we find that the basic facts are not in dispute. To recapitulate such facts, the petitioners were the directors of a private company. The Company had tax dues towards the Department. Despite efforts by the Department, such dues could not be recovered. The Income-tax Officer, therefore, proceeded against the petitioners under section 179(1) of the Act. Section 179(1) of the Act provides as under :
"Liability of directors of private company in liquidation :
179.(1) Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company."
4. Sub-section (1) of section 179, thus, empowers the Department to recover unpaid tax dues of a private company from its directors under certain circumstances when such dues cannot be recovered from the Company. Such recovery, however, can be avoided if the director concerned proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the Company. In the case of Maganbhai Hansrajbhai Patel v. Asstt. CIT [2013] 353 ITR 567/[2012] 211 Taxman 386/26 taxmann.com 226, the Division Bench of this Court in the context of such provision observed as under :
"21. To our mind, the authority completely failed to appreciate in proper perspective the requirement of section 179(1) of the Act. We may recall that said provision provides for a vicarious liability of the director of a public company for payment of tax dues which cannot be recovered from the company. However, such liability could be avoided if the director proves that the non recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company. It is of course true that the responsibility of establishing such facts is cast upon the director. Therefore, once it is shown that there is a private company whose tax dues have remained outstanding and same cannot be recovered, any person who was a director of such a company at the relevant time would be liable to pay such dues. However, such liability can be avoided if he proves that the non recovery cannot be attributed to the three factors mentioned above. Thus the responsibility to establish such facts are on the director. However once the director places before the authority his reasons why it should be held that non recovery cannot be attributed to any of the three factors, the authority would have to examine such grounds and come to a conclusion in this respect. Significantly, the question of lack of gross negligence, misfeasance or breach of duty on part of the director is to be viewed in the context of non recovery of the tax dues of the company. In other words, as long as the director establishes that the non recovery of the tax cannot be attributed to his gross neglect, etc., his liability under section 179(1) of the Act would not arise. Here again the legislature advisedly used the word gross neglect and not a mere neglect on his part. The entire focus and discussion of the Assistant Commissioner in the impugned order is with respect to the petitioner's neglect in functioning of the company when the company was functional. Nothing came to be stated by him regarding the gross negligence on part of the petitioner due to which the tax dues from the company could not be recovered. In absence of any such consideration, the Assistant Commissioner could not have ordered recovery of dues of the company from the director. We would clarify that in the present case the petitioner had put forth a strong representation to the proposal of recovery of tax from him under section 179 of the Act. In such representation, he had detailed the steps taken by him and the circumstances due to which non recovery of tax cannot be attributed to his gross neglect. It was this representation and the factors which the petitioner had put forth before the Assistant Commissioner which had to be taken into account before the order could be passed. It is not even the case of the department that the petitioner paid the dues of other creditors of the company in preference to the tax dues of the department. It is not the case of the department that the petitioner negligently frittered away the assets of the company due to which the dues of the department could not be recovered. To suggest that the petitioner did not oppose the GSFC's auction sale is begging the question. GSFC had sold the property after several attempts through auction. It is not the case of the department that proper price was not fetched."
5. Reverting to the facts of the case, the Company had run into losses. The Company had substantial dues towards the State Bank of India from which it had taken loans and also enjoyed overdraft facility. Certain properties of the Company were also mortgaged to the Bank. To realise its dues, the Bank filed a petition before the Debts Recovery Tribunal. Before the Debts Recovery Tribunal, the parties agreed to settle the total dues of the Bank for Rs.2 6 lakh. The properties of the Company were valued at Rs.18 lakh. The balance was supplied by the directors of the Company from their personal resources. Additionally, in order to strike off the name of the Company from the Registrar of Companies, the directors agreed to forgo their loans to the Company which were in excess of Rs.16 lakh. When such facts were established, in our opinion, the Assessing Officer ought to have held that the petitioners had succeeded in establishing that non-recovery of the tax dues of the Company could not be attributed to gross neglect, misfeasance or breach of duty on the part of the directors in relation to the affairs of the Company. In the impugned order in this respect, it had observed as under :
'5.1 ... As a director of the company it was duty bound on the part of the directors of the company to pay tax due from the company and the directors failed to discharge that duty, hence provisions of Section 179(1) are clearly attracted. Reliance is placed on the decision of Union of India v. Praveen D. Desai [1988] 173 ITR 303 (Bom.).
5.2 On verification of the relevant details it is found that there is gross negligence on the part of the directors in the day to day affairs of the company. In the auditor's report special remark is put which read as under :
" The company has sold all its assets in settlement of bank outstanding and earned capital gain of Rs.16,52,293/- .. .. .."
From the above remarks and also on the basis of the facts of the case the directors of the assessee company were in knowledge of incidence of income tax. Furthermore, the affairs of the company are audited by leading Chartered Accountant firm M/s. C. Patel and Co.. Hence the directors of the company are fully aware of their liability to pay tax on behalf of assessee company. Hence, the director's contention as non negligence on their part is not sustainable and accordingly rejected.'
6. It may be that the assets of the Company may not have been mortgaged to the Bank. Nevertheless, the Debts Recovery Tribunal in its order dated November 11, 1997 provided as under :
"27 ... The plaintiff bank is entitled to recover the suit dues by sale of said hypothecated machineries and movables including the goods etc. That the defendant No.1 had agreed to create equitable mortgage on the fixed assets including land of factory premises towards the security for repayment of suit financial facilities. Hence the plaintiff bank shall also be entitled to realise the suit dues by sale of said immovable property."
7. We have perused the said order of the Debts Recovery Tribunal. It does not appear that the petitioners had consented that the Bank dues may also be recovered from such fixed assets. It was the Debts Recovery Tribunal which had given such liberty to the Bank That being, the position, the contention of the counsel for the Revenue that the petitioners should have offered the said properties for recovery to the Department, can still not bring the action of the petitioners within the said expression of gross neglect, misfeasance or breach of duty on their part.
8. In the result, the impugned orders dated July 01, 2003 and February 16, 2004 passed by the Income-tax Officer and Commissioner of Income-tax respectively are quashed. The petition stands disposed of. Rule is made absolute accordingly. There shall be, however, no order as to costs.
Today at 12:28 AM
IT : Where Assessing Officer processed under section 143(1) return of income filed by assessee and issued intimation accepting returned income and subsequently assessee having noticed two mistakes in above return filed a revision petition under section 264 before Commissioner seeking revision of order/intimation of Assessing Officer in relation to two mistakes, revision petition was maintainable before Commissioner
■■■
[2014] 43 taxmann.com 316 (Gauhati)
HIGH COURT OF GAUHATI
Assam Roofing Ltd.
v.
Commissioner of Income-tax*
ABHAY MANOHAR SAPRE, CJ.
AND A.K. GOSWAMI, J.
AND A.K. GOSWAMI, J.
W.P.(C) NO. 3660 OF 2006
JANUARY 3, 2014
Section 264, read with section 143, of the Income-tax Act, 1961 - Revision - Of other orders (Maintainability of) - Assessment year 2002-03 - Assessing Officer processed under section 143(1) return of income filed by assessee and issued intimation - He accepted return in toto and also issued refund as claimed by assessee - Subsequently assessee noticed two mistakes in above return - It, therefore, filed a revision petition under section 264 before Commissioner seeking revision of order/intimation of Assessing Officer in relation to two mistakes - Commissioner dismissed revision as not maintainable - He held that issue/grievance mentioned in revision petition was not arisen out of order passed by Assessing Officer and, as such, it had no relation to order passed by Assessing Officer - Whether in view of provisions of section 264, revision petition filed by assessee was maintainable - Held, yes - Whether, therefore, impugned order passed by Commissioner was liable to be quashed with a direction to him to decide revision petition on merits - Held, yes [Para 21] [In favour of assessee]
FACTS
| ■ | The assessee-company was engaged in the business of manufacture and sale of asbestos cement sheets, galvanized iron sheets. | |
| ■ | The Assessing Officer processed under section 143(1) the return of income filed by the assessee and issued the intimation. He accepted the return in toto and also issued the refund as claimed by the assessee. | |
| ■ | Subsequently the assessee noticed two mistakes in the above return filed by it. In the first place, it was noticed that it had wrongly claimed disallowance under section 43B for Rs. 80.77 lakhs in place of Rs. 11.32 lakhs. In the second place, it was noticed that a sum of Rs. 55,555 spent for installation of DG sets was claimed as revenue receipt, whereas the same should have been claimed as capital receipt. It, therefore, filed a revision petition under section 264 before the Commissioner seeking revision of the order/intimation of the Assessing Officer in relation to the two mistakes. | |
| ■ | The Commissioner dismissed the revision as not maintainable without going into the merits. He held that since the return was accepted in toto by the Assessing Officer and as even the refund was granted, the assessee neither had right to raise any grievance of any nature against its own return, nor it had a right to file revision against such order under section 264. He further held that the issue/grievance mentioned in the revision petition was not arisen out of the order passed by the Assessing Officer and, as such, it had no relation to the order passed by the Assessing Officer. Therefore, it was not an issue which could be dealt with under section 264. | |
| ■ | On writ: |
HELD
| ■ | The Gujarat High Court in the case of C. Parikh & Co. v. CIT [1980] 122 ITR 610/4 Taxman 224had decided a similar issue in favour of the assessee. There is no good ground to take a view different to the one taken by the Gujarat High Court. [Para 13] | |
| ■ | The scope of revision under section 264 is wider and different than the scope of revisionary powers exercised by the Commissioner under section 263. It is clear from a mere reading of these two sections. An order/intimation passed under section 143(1) by the Assessing Officer is equally an order, which can be questioned and be made subject matter of revision under section 264 before the Commissioner for deciding the issues raised therein by the assessee on merits. [Para 17] | |
| ■ | Indeed the expression 'in the case of any order other than an order to which section 263 apply' occurring in section 264 would include an order/intimation passed under section 143(1) and, hence, it can be made subject matter of challenge in revision by the assessee before Commissioner under section 264. [Para 18] | |
| ■ | If the argument of revenue is accepted that revision does not lie under section 264 against such order passed by the Assessing Officer, then it would result in denying the assessee of his remedy to question the correctness of such order passed by the Assessing Officer so also it would deny him a right to raise his grievance against such order before the higher authority under the Act, may be, it was based on own mistake of the assessee or otherwise. [Para 19] | |
| ■ | In order to raise any kind of grievance after the issue is dealt with by the Assessing Officer, one of the remedies available to the assessee in such circumstances, apart from any other remedy as may be available under the Act, is to invoke the revisionary powers of Commissioner under section 264 and to call him to examine the same on merits in its revisionary jurisdiction in accordance with law. [Para 21] | |
| ■ | In the light of the foregoing discussion, the revision petition filed by the assessee was maintainable. Therefore, the impugned order of the Commissioner was liable to be quashed with a direction to him to decide the revision on merits. [Para 21] |
CASE REVIEW
C. Parikh & Co. v. CIT [1980] 122 ITR 610/4 Taxman 224 (Guj.) (para 13) followed.
CASES REFERRED TO
C. Parich & Co. v. CIT [1980] 122 ITR 610/4 Taxman 224 (Guj.) (para 11), Subhash Chandra Sarvesh Kumar v. CIT [1981] 132 ITR 619/[1980] 4 Taxman 106 (All.) (para 11), Parikh Bros. v. CIT [1984] 150 ITR 105/[1983] 15 Taxman 539 (Ker.) (para 11), J.J. Corpn. v. CIT [1995] 211 ITR 925/83 Taxman 103 (Guj.) (para 11), Ramdev Exports v. CIT [2001] 251 ITR 873/[2002] 120 Taxman 315 (Guj.) (para 11), SAIL DSP VR Employees Association 1998 v. Union of India [2003] 262 ITR 638/128 Taxman 704 (Cal.) (para 11), Maynak Poddar (HUF) v. WTO [2003] 262 ITR 633/130 Taxman 500 (Cal.) (para 11), Sirpur Paper Mills Ltd. v. CWT [1970] 77 ITR 6 (SC) (para 11), CIT v. Ravindranath Dhol [1995] 211 ITR 799/79 Taxman 170 (Orissa) (para 11), S.R. Koshti v. CIT [2005] 276 ITR 165/146 Taxman 335 (Guj.) (para 11), Chandrakant J. Patel v. V.N. Srivastava [2011] 339 ITR 310 /[2012] 20 taxmann.com 513 (Guj.) (para 11), Aparna Ashram v. DIT [2002] 258 ITR 401/124 Taxman 436 (Delhi) (para 11), CIT v. Mrs. Leelamma John Thoppil [2004] 267 ITR 289/134 Taxman 118 (Ker.)(para 11) and Sanchit Software & Solutions (P.) Ltd. v. CIT [2012] 349 ITR 404/201 Taxman 539/25 taxmann.com 123 (Bom.) (para 11).
ORDER
Abhay Manohar Sapre, CJ. - By filing this writ petition under Article 226/227 of the Constitution of India, the writ petitioner (an income tax assessee) seeks to challenge the order dated 20.2.2003 (Annexure - VI) passed by the Commissioner of Income Tax, Guwahati - II under Section 264 of the Income Tax Act (for short hereinafter called - "the Act").
2. Facts of the case are short. They, however, need mention in brief infra.
3. The petitioner is a public limited company registered as such under the Companies Act. They are engaged in the business of manufacture and sale of asbestos cement sheets, galvanized iron sheets (plain and corrugated). The manufactured goods are sold by the petitioner all over the country.
4. The petitioner filed their income tax return for the assessment year (2002-2003) on due date. The Assistant Commissioner of Income Tax Circle - 3, Guwahati, who was an Assessing Authority for the petitioner, accepted the return filed by the petitioner in toto and accordingly, issued an order/intimation dated 13.2.2003 under Section 143 (1) of the Act in favour of the petitioner. As a result of acceptance of the return, the petitioner became entitled to claim the refund for a sum of Rs.87,969/- including interest on the said sum of Rs. 6068/-. It was accordingly paid to the petitioner.
5. The petitioner then noticed two mistakes in their return. In the first place, it was noticed that it had wrongly claimed disallowance under Section 43 (b) for Rs. 80,77,832/- in place of Rs. 11,32,623/-. In other words, according to petitioner, instead of claiming disallowance of Rs. 11,32,623/- under Section 43(b), they claimed disallowance of Rs. 80,77,832/-. In the second place, it was noticed that a sum of Rs.55,555/- spent by the petitioner during the assessment years in question for installation of DG sets was claimed as revenue receipt whereas, according to it, the same should have been claimed as capital receipt.
6. The petitioner, therefore, filed a revision petition under Section 264 of the Act before the Commissioner of Income Tax, Guwahati -II on 30.1.2004 seeking revision of the order/intimation dated 13.2.2003 of the Assessing Authority in relation to the two mistakes, which, according to the petitioner, had crept in their return and prayed for grant of an appropriate relief.
7. The Commissioner of Income Tax by impugned order dismissed the revision as not maintainable. In his opinion, since the return was accepted in toto by the Assessing Authority and as even the refund was granted, the petitioner neither had right to raise any grievance of any nature against its own return and nor it had a right to file revision against such order under Section 264 ibid. It was, therefore, dismissed as not maintainable without going into the merits of the issue raised by the petitioner in their revision petition.
8. The order of the commissioner reads as under:—
"In this connection the assessee has filed petition u/s. 264 of the I.T.Act against the order passed by the AO u/s. 143(1). The assessee's grievances are as under:—
| (a) | Disallowances' u/s 43B has been wrongly made for Rs.21,77,832/- against the correct amount of Rs.11,32,623/- AO be directed accordingly. | |
| (b) | Adjustment of capital subsidy of Rs.55,555/- as revenue receipt. |
In response to this office notice Shri M.L. Rajak Deputy Manager (Accounts) appeared with written submission and the case was discussed with him.
On going through the assessment record it is seen that the assessee has filed total business loss of Rs.81,32,160/- thereby claiming a refund of Rs.81,901/-. It is also seen from the record that the AO has processed the return of loss as per the loss return filed by the assessee at Rs.81,32,160/- and also issued the refund as claimed by the assessee i.e. Rs.81,901/- by giving interest of Rs.6,068/-.
The above facts reveal that the assessee is not aggrieved by the order of the AO passed u/s 143(1). The issues/the grievances mentioned in the assessee's petition are not arisen out of the order passed by the AO and as such it has no relation to the order passed by the AO. Therefore it is not an issue which can be dealt with u/s. 264 as it is not an issue/grievance arisen out of the order passed by the AO. I hereby therefore decline to interfere in this matter.
This order is passed u/s. 264 of the I.T. Act."
9. It is against this order, the assessee had felt aggrieved and filed this writ petition under Article 226/227 of the Constitution of India.
10. Heard Mr. GK Joshi, learned senior counsel for the petitioner and the learned Standing Counsel for the Income Tax Department.
11. Learned senior counsel for the petitioner, placing reliance on the law laid down in C. Parikh & Co. v.CIT [1980] 122 ITR 610/4 Taxman 224 (Guj), Subhash Chandra Sarvesh Kumar v. CIT [1981] 132 ITR 619/[1980] 4 Taxman 106 (All.), Parikh Bros. v. CIT [1984] 150 ITR 105/[1983] 15 Taxman 539 (Ker.), J.J. Corpn. v. CIT [1995] 211 ITR 925/83 Taxman 103 (Guj.), Ramdev Export v. CIT [2001] 251 ITR 873/[2002] 120 Taxman 315 (Guj.), SAIL DSP VR Employees Association 1998 v. Union of India [2003] 262 ITR 638/128 Taxman 704 (Cal.)Maynak Poddar (HUF) v. WTO [2003] 262 ITR 633/130 Taxman 500 (Cal.), Sirpur Paper Mills Ltd. v. CWT [1970] 77 ITR 6 (SC), CIT v.Ravindranath Dhol [1995] 211 ITR 799/79 Taxman 170 (Orissa), S.R. Koshti v. CIT [2005] 276 ITR 165/146 Taxman 335 (Guj), Chandrakant J. Patel v. V.N. Srivastava [2011] 339 ITR 310/[2012] 20 taxmann.com 513 (Guj), Aparna Ashram v. DIT [2002] 258 ITR 401/124 Taxman 436 (Delhi), CIT v.Mrs. Leelamma Jhon Thoppil [2004] 267 ITR 289/134 Taxman 118 (Ker.), Sanchit Software & Solutions (P.) Ltd. v. CIT [2012] 349 ITR 404/210 Taxman 539/25 taxmann.com 123 (Bom.), contended that the Commissioner erred in rejecting the petitioner's revision as not maintainable. It was his submission that applying the principle laid down in the decisions cited at the bar, the revision filed by the petitioner under section 264 should have been held maintainable and, therefore, it should have been entertained for deciding the same on its merits.
12. In reply, learned counsel for the respondent (revenue) supported the impugned order and prayed for its upholding.
13. Having heard the learned counsel for the parties and upon perusal of the record of the case, we find force in the submissions of learned counsel for the petitioner and hence, are inclined to allow the writ petition, in part, as indicated infra.
13.1 In our considered opinion, the case decided by the Gujarat High Court reported in C. Parikh & Co.(supra) apart from being the first on the issue, in question, is almost nearer to the case in hand in all respects and we find no good ground to take a view different to the one taken in the Gujarat case.
14. In somewhat similar circumstances, the assesee in the case of C. Parikh & Co. (supra) had claimed that it had committed mistake in totaling of purchases in its return and which it noticed after the assessment order was passed under Section 143 (3) of the Act. The assessee, therefore, filed a revision under Section 264 ibid before the Commissioner and contended therein the mistakes noticed by it, which made it, pay more tax. The Commissioner declined to entertain this ground holding that such ground cannot be made subject matter of scrutiny in the revision petition filed under Section 264 ibid because it was the mistake committed by the petitioner and, therefore, it was not entitled to raise the grievance in the revision.
15. This is what was held by the Commissioner (reproduced in the judgment by the High Court), while declining to entertain the revision filed by the assessee:—
"The Commissioner was of the view that his revisionary powers did not extend to giving relief to the assessee on account of the assessee's own mistake which he detects after the assessment is completed. In this view of the matter, he (Commissioner) refused to give any relief to the petitioner in respect of the under totalling of the purchase to the tune of Rs. 20,000. The petitioner (assessee) has challenged the commissioner's order to the extent he has refused to give relief in respect of the under totaling of purchases to the extent of Rs. 20,000."
The High Court then formulated the following question for deciding the petition:—
"The only question which arises for our determination is whether the Commissioner, in exercise of powers under S.264, could have given relief to the petitioner in respect of the under-totalling of the purchases to the extent of Rs.20,000?"
It is this question, which was examined by the High Court in the light of scope and powers of the Commissioner under Section 264 ibid, and after examining the issue, it was held as under:—
'It is clear that under S.264, the Commissioner is empowered to exercise revisional powers in favour of the assessee. In exercise of this power, the Commissioner may, either of his own motion or on an application by the assessee, call for the record of any proceeding under the Act and pass such order thereon not being an order prejudicial to the assessee, as he thinks fit. Sub-Sections (2) and (3) of S.264 provide for limitation of one year for the exercise of this revisional power, whether suo motu, or at the instance of the assessee. Power is also conferred on the Commissioner to condone delay in case he is satisfied that the assessee was prevented by sufficient cause from making the application within the prescribed period. Sub-section (4) provides that the Commissioner has no power to revise any order under S.264(1): (i) while an appeal against the order is pending before the AAC, and (ii) when the order has been subject to an appeal to the Income-Tax Appellate Tribunal. Subject to the above limitation, the revisional powers conferred on the Commissioner under s.264 are very wide. He has the discretion to grant or refuse relief and the power to pass such order in revision as he may think fit. The discretion which the Commissioner has to exercise is undoubtedly to be exercised judicially and not arbitrary according to his fancy. Therefore, subject to the limitations prescribed in s.264, the Commissioner in exercise of his revisional power under the said section may pass such order as he thinks fit which is not prejudicial to the assessee. There is nothing in S. 264 which places any restriction on the Commissioner's revisional power to give relief to the assessee in a case where the assessee detects mistakes on account of which he was over-assessed after the assessment was completed. We do not read any such embargo in the Commissioner's power as read by the Commissioner in the present case. It is open to the Commissioner to entertain revisional powers. Therefore, though the petitioner had not raised the grounds regarding under-totalling of purchases before the ITO, it was within the power of the Commissioner to admit such a ground in revision. The Commissioner was also not right in holding that the over-assessment did not arise from the order of assessment. In other words, the assessment of the total income of the assessee is not correctly made in the assessment order and it has resulted in over-assessment. The Commissioner would not be acting de hors the I. T. Act, if he gives relief to the assessee in a case where it is proved to his satisfaction that there is over-assessment, whether such over-assessment is due to a mistake detected by the assessee after completion of assessment or otherwise. In our opinion, the Commissioner has misconstrued the words "subject to the provisions of this Act" in S.264(1) and read a restriction on his revisional power which does not exist. The Commissioner was, therefore, not right in holding that it was not open to him to give relief to the petitioner on account of the petitioner's own mistake which it detected after the assessment was completed. Once it is found that there was a mistake in making an assessment, the Commissioner had power to correct it under S.264(1). In our opinion, therefore, the Commissioner was wrong in not giving relief to the petitioner in respect of over-assessment as a result of under-totalling of the purchase to the extent of Rs.20,000.
In the result, we allow this petition, quash and set aside the order, annex. "C", passed by the Commissioner, respondent herein, to the extent he has refused to give relief to the petitioner in respect of the under-totalling of purchases to the extent of Rs.20,000 and direct the Commissioner to revise the order of the ITO by reducing the assessed income by Rs.20,000.
Rule made absolute accordingly. Respondent to pay the costs to the petitioner.'
16. As observed supra, we find no good ground to take a different view as taken by the Gujarat High Court and are completely in agreement with the same. Indeed, learned counsel for the respondent (revenue) was not able to cite any case taking a contrary view in favour of the revenue and nor was able to point out any error or distinguishable features in the view taken by the Gujarat High Court. We may also note that the law laid down by Gujarat High Court was consistently followed by the Gujarat High Court in subsequent decisions in later years and also by other High Courts cited at the bar by the learned counsel for the petitioner.
17. Apart from the aforesaid facts, we are also of the considered view that scope of revision under Section 264 is wider and different than the scope of revisionary powers exercised by the Commissioner under Section 263 ibid. It is clear from a mere reading of these two Sections (263 and 264). In our view, an order/ intimation passed under Section 143(1) passed by the Assessing Authority is equally an order, which can be questioned and be made subject matter of revision under Section 264 ibid before the commissioner for deciding the issues raised therein by the assessee on merits.
18. Indeed the expression "In the case of any order other than an order to which Section 263 apply", occurring in Section 264, would include an order/intimation passed under Section 143(1) and hence, it can be made subject matter of challenge in Revision by the assessee before Commissioner under Section 264 of the Act.
19. If the argument of learned counsel for revenue is accepted that revision does not lie under Section 264 against such order passed by the Assessing Authority, then, it would result in denying the assessee of his remedy to question the correctness of such order passed by the assessing authority so also it would deny it a right to raise its grievance against such order before the higher authority under the Act, may be, it was based on own mistake of the assessee or otherwise.
20. In order to, therefore, raise any kind of grievance after the issue is dealt with by the Assessing Authority, one of the remedies available to the assessee in such circumstances, apart from any other remedy as may be available under the Act, is to invoke the revisionary powers of Commissioner under Section 264 of the Act against such grievance to call upon the Commissioner to examine the same on merits in its revisionary jurisdiction in accordance with law.
21. In the light of foregoing discussion, the writ petition succeeds and is allowed in part. The impugned order of the Commissioner dated 20.2.2003 (Annexure -VI) is quashed by issuance of writ of certiorari. The revision filed by the petitioner under Section 264 of the Act is held maintainable. The revision is now restored to the file of the Commissioner of Income Tax, Guwahati and he is directed to decide the revision on merits with a view to find out as to whether grievances raised by the petitioner (assessee) in its revision petition is acceptable on merits and if so, how and why, and, if not, then, how and why?
22. Let the revision be decided after affording an opportunity to the petitioner by the Commissioner within six months from the date of this order.
23. A copy of this order be filed before the Commissioner by the parties within three weeks from today to enable him to decide the revision as directed above strictly in accordance with law and without being in any way influenced by our observations made in this order.
No cost.
S.K.J.*In favour of assessee.
Today at 12:32 AM
Income Tax
Whether assessee can claim deduction u/s 80HHC, ignoring the deduction already claimed and allowed u/s 80IA - NO: High Court
THE assessee claimed deduction of Rs.16.54 lakhs u/s 80IA and of Rs.52.75 lakhs u/s 80HHC, and declared NIL income. The AO held that with the introduction of subsection (9) of section 80IA, statute had barred double deductions. The amount of deduction claimed and allowed u/s 80IA had to be reduced from the profit of industrial undertaking for the purpose of allowing any other deduction for which the assessee was entitled to; in the present case u/s 80HHC. The CIT(A) confirmed the order of the AO in this respect. The Tribunal allowed the Assessee's Appeal.
The issue before the Bench is - Whether the assessee can claim deduction u/s 80HHC, ignoring the deduction already claimed and allowed u/s 80IA. And the verdict goes against the assessee.
IT: Enhanced warehousing charges raised by assessee could not be added to income of assessee where such increase had been resisted by filing civil suit
--
IT: Where government subsidy for construction of godowns was received for a number of years was transferred to construction account, same could not be taxed in current year
IT: Excess depreciation claimed in earlier years, when returned back, can never become income in hands of assessee
■■■
[2014] 43 taxmann.com 301 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax-II
v.
Gujarat State Warehousing Co.*
M.R. SHAH AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 795 OF 2012†
SEPTEMBER 23, 2013
I. Section 5 of the Income-tax Act, 1961 - Income - Concept of real income (Enhanced charges) - Assessment year 2004-05 - Assessee state wire housing-corporation was engaged in business of warehousing and incidental activity - It filed its return and claimed deduction on account of warehousing charges - Assessing Officer noted that assessee had raised higher warehousing bills to circle stamp depot than that reflected in its books - He concluded that assessee had not offered said differential to tax - He made addition to assessee's income - It was found that on identical facts in earlier year, Tribunal had deleted similar addition on ground that said income had not accrued to assessee as circle stamp depot had resisted said demand and filed a civil suit - Whether in view of said decision, addition made by Assessing Officer was to be deleted - Held, yes [Para 4.3] [In favour of assessee]
II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of (Subsidy) - Assessment year 2004-05 - Assessee state warehousing company constructed godowns and claimed depreciation - It received total subsidy of Rs. 68,69,397 during calender years 1982 to 1992 for construction of godowns - When objection was raised by office of Auditor General, assessee changed method of accounting entry in respect of subsidy and transferred Rs. 61,63,047 to construction account and reworked depreciation - In respect of godown already sold, an amount of Rs. 7,06,350 was credited to prior year income - Assessing Officer held that individual assets lost its identity and, hence, Rs. 7,06,350 needed to be reduced from block of assets and Rs. 70,635 from allowable depreciation - Accordingly, amounts of of Rs. 70,635 and Rs. 7,06,350 were sought to be added to current year income - Commissioner (Appeals) held that amount of subsidy received for earlier years could not be 'revenue receipt' for current year and, therefore, it could not be taxed in current year - Whether Tribunal was justified in concurring with findings of Commissioner (Appeals) and, thus, in deleting both amounts - Held, yes [Para 5.4] [In favour of assessee]
III. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment year 2004-05 - Whether it is a settled position that excess depreciation claimed in earlier years when returned back, can never become income in hands of assessee - Held, yes - Assessee received subsidy of Rs. 61.83 lakhs from Government during 1982 to 1992 for construction of godowns - It is in current year, assessee reduced said sum from cost of godowns i.e., from opening of current year WDV and depreciation was calculated on balance amount - Rs. 33.90 lakhs was added as excess provision of depreciation as per books of account - Whether to avoid taxation of an income twice, depreciation of Rs. 33.90 lakh that was so far provided in books of account of prior years was to be reduced from current year income of assessee - Held, yes [Paras 6.6 & 6.7] [In favour of assessee]
M.R. Bhatt and Mrs. Mauna M. Bhatt for the Appellant. S.N. Soparkar and B.S. Soparkar for the Respondent.
ORDER
Ms. Sonia Gokani, J. - Following are the substantial questions of law raised by the Revenue, while challenging the order dated 30th April 2012 passed by the Income Tax Appellate Tribunal, Ahmedabad ("Tribunal" for short), in the present Tax Appeal preferred under Section 260A of the Income-tax Act, 1961 ("Act" for short).
| '(A) | "Whether the Appellate Tribunal has substantially erred in deleting addition made of warehouse charges for Rs. 3,86,412/= without appreciating the fact that the assessee has not accounted for income ?" | |
| (B) | "Whether the Appellate Tribunal has substantially erred in deleting the disallowance of Rs. 70,635/= towards depreciation made on the ground that the individual assets had merged with block of assets having same rate of depreciation and therefore had to be reduced from the block of assets ?" | |
| (C) | "Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer not to tax the subsidy of Rs. 7,06,350/= when the same had been offered by the assessee in its return of income and whether the direction of the CIT [A]'s in contravention to the decision of the Apex Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 / 157 Taxman 1?" | |
| (D) | "Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to reduce the income by amount of Rs. 33,90,270/= being excess depreciation provided in the books of account and whether the direction of the CIT [A] is in contravention to the decision of the Apex Court in the case of Goetze (India) Ltd. (supra)?"' |
2. On issuance of notice, the respondent appeared through learned advocate.
3. We have heard learned senior advocate Shri M.R Bhatt for the Revenue and Shri S.N Soparkar, learned senior advocate for the respondent.
4. It could be noticed that the assessee-Corporation, which is engaged in the business of warehousing and incidental activity filed its return of income for the A.Y 2004-05 on 29th October 2004, where scrutiny assessment was made determining the total loss at Rs. 48,43,000/= as against the returned loss of Rs. 84,31,770/=. As the action under section 147 of the Act was otherwise to be taken upto 31st March 2009, the Assessing Officer noted that the assessee issued bill of warehouse charges for Rs. 3,86,412/= to the Circle Stamp Depot for the F.Y 2003-04, however, accounted for Rs. 68,828/= only in the books of account as the warehouse charges. Resultantly, the Assessing Officer made addition of Rs. 3,16,584/= as the same was not offered for taxation.
4.1 CIT [A] decided the issue in favour of the assessee on the ground that the assessee did not receive increase in the storage rent, eventually as the godown was vacated on 30th October 2005. Since this was an enhancement made by the assessee unilaterally, which was not acceptable to the tenant, the same became a matter of dispute and a civil suit for recovery was preferred in the year 1995 and the rent was not accorded to the assessee.
4.2 When challenged by the Revenue before the Tribunal, the Tribunal directed the Assessing Officer to delete the addition made, relying on the decision of the Tribunal for A.Y 2003-04 in the case of very assessee, by holding that the issue being identical and the Revenue has not brought any material to show that the claim made by the assessee for revised warehousing charges was accepted at any point of time during the year by the Circle Stamp Depot.
4.3 It is candidly admitted before us that such issue was raised by the Revenue in an appeal preferred for earlier year ie., A.Y 2003-04, and this Court has not entertained such a question, by giving the following reasonings :—
"With respect to question (A), same pertains to warehousing charges of Rs.3,86,412/= which the Assessing Officer added in the income of the assessee on the ground that such income had accrued during the year under consideration. Tribunal ultimately deleted such addition on the ground that the right of receiving such income had not accrued. It was noticed that though assessee had raised such demand, Circle Depot from whom demand was made had resisted the demand and not admitted the same, whereupon assessee had to file civil suit. This being facts we do not find that the tribunal committed any error in reversing the order of the revenue authorities in this respect."
4.4 Resultantly, Question (A) does not require any consideration as admittedly, the same being identical and the sole reliance is placed on the findings of the earlier year, which for the reasons stated hereinabove, this Court deemed fit not to entertain.
5. Questions (B) & (C) since are two facets of the same point, they both are being considered together.
5.1 The Assessing Officer on verification of the papers noted that the subsidy received from the Government by the respondent-assessee to the tune of Rs. 68,69,397/= had been written off and it had also deducted a sum of Rs. 61,63,047/= from the cost of building & warehousing.
5.2 The assessee was issued a show cause notice as to why the amount of Rs. 7,06,350/= was not deducted from the building account towards subsidy. Such subsidy, since was received for the earlier year for meeting the cost of godown and such godown, was already sold during the current year. According to the respondent-assessee, the said amount of Rs. 7,06,350/= was not deducted from the building account. The Assessing Officer was of the view that the individual assets had merged with the block of assets, having same rate of depreciation, it had since lost its identity, such amount need to be reduced from the block of assets, the amount of Rs. 70,635/= was required to be reduced from the allowable depreciation.
5.3 When challenged before the CIT [A], it noted that such subsidy was received during the calender years 1982 to 1992 for construction of the godowns for the assessee, being a government owned corporation. The said subsidy continued to be reflected on the liability side of the balance sheet under the head "subsidy from Government". When objection was raised from the office of the Auditor General during the year, the assessee transferred the subsidy to "construction account" and re-worked depreciation provided in the books of account. However, in respect of the godown already sold, the amount of subsidy of Rs. 7,06,350/= was credited to the prior year's income. CIT [A] in such circumstances was of the opinion that the subsidy received was for acquiring the capital assets and was not for revenue receipt and no subsidy had been received during the relevant assessment year.
5.4 When challenged before the Tribunal, it concurred with the findings of the CIT [A] by holding that the amount of subsidy received for the earlier years cannot be "revenue receipt" for the current year, therefore, it cannot be taxed in the current year. It accordingly sustained the order of CIT [A] with respect to deletion of Rs. 70,635/= and Rs. 7,06,350/=. As rightly pointed out by learned counsel appearing for the Revenue that both CIT [A] and the Tribunal have concurrently held the issue in favour of the assessee, nothing contrary is emerging to indicate any mis-application of the principles of law. The assessee-respondent merely had changed the accounting entry in respect of subsidy which was received much earlier during the years 1982 to 1992 for construction of godown. The subsidy which was shown on the liability side of the balance sheet was shown on construction account and assessee re-worked the depreciation provided in the books of account.
5.5 Since both the Revenue authorities have rightly deleted disallowance of Rs. 70,635/= and a sum of Rs. 7,06,350/=, these questions of law do not give rise to any substantial question of law.
6. With regard to Question (D) which pertains to reduction of income by an amount of Rs. 33,90,270/=, being excess depreciation provided in the books of account, the Assessing Officer called for the details of prior years from the assessee for the purposes of ascertainment. This too was a subsidy from the Government to the assessee in respect of existing godowns. The assessee, in respect of the existing godowns, has reduced the subsidy of Rs. 61,83,047/= from the cost of godowns and warehouse and the excess depreciation of Rs. 33,90,270/= provided in the books of accounts has been considered in the prior year income. In the statement of total income, the assessee reduced subsidy of Rs. 61,83,047/= from the opening written down value as per the income tax return and calculated the depreciation on the balance amount. The Assessing Officer on the ground that effect of reduction of the depreciable assets has a continuous effect, in the future assessments of the assessee did not accept such a version.
6.1 When challenged before the CIT [A], it directed the Assessing Officer to reduce the income by Rs. 33.90 lacs [rounded off] by holding, thus —
"10.2 I have considered the submissions of the A.R carefully. The excess depreciation which was provided in the books of the appellant in the earlier years has been withdrawn. This cannot be income as in assessments of earlier years depreciation has been allowed as per I.T Act in the earlier years. As the amount representing excess depreciation written back cannot be income, the A.O is directed to reduce the income by the said amount."
6.2 When Department challenged the same before the Tribunal, it concurred with the findings of the CIT [A] by holding that the excess depreciation claimed during the preceding year as a result of reduction in value of godown cannot be construed to be profit of the current year and the same cannot be taxed. It was also of the opinion that Government subsidy received by the assessee-Corporation for construction of godown is capital receipt and do not fall in the revenue field. The Tribunal also referred to the decision in case ofGoetze (India) Ltd. v. CIT [2006] 284 ITR 323/ 157 Taxman 1 (SC) and held that the reliance placed by Revenue on this decision was an incorrect quoting as the said decision was not applicable to the facts of the instant case.
6.3 In the matter before the Apex Court, the assessee had filed its return of income on 30th November 1995 and 12th January 1998 for the A.Y 1995-96 and by virtue of a letter addressed to the Assessing Officer, he sought to claim a deduction. Such claim was disallowed by the Assessing Officer on the ground that there was no provision in the Income-tax Act, 1961 for allowing an amendment in the return without a revised return. The said view of the Assessing Officer was confirmed by the Tribunal as well as the jurisdictional High Court. When challenged before the Supreme Court, the appeal was dismissed by the Court, however, it was made clear that the decision was restricted to the power of the assessing authority to entertain a claim for deduction otherwise than by way of a revised return and did not impinge on the power of the Appellate Tribunal under section 254 of the Act. Thus, the decision refers to the power of the assessing authority to entertain fresh claim made otherwise than by way of a revised return, while as held by the Tribunal, the CIT [A] gave relief to the assessee in the instant case for incorrect assessment made by the Assessing Officer.
6.4 Learned senior advocate Shri Bhatt has urged that the excess depreciation of Rs. 33.90 lacs [rounded off] provided in the books of account is to be construed as the prior year's income.
6.5 Per contra, learned senior advocate Shri Soparkar urged that the assessee's subsidy amount would be taxed twice if the order of the Assessing Officer is to be sustained. Once as the revenue receipt and second time by way of reduction of written down value for the purpose of computation of claiming of depreciation.
6.6 In our opinion, if for a particular year, depreciation claimed and allowed is on the higher side and such amount is returned back to the assessee, the same cannot be construed as the income of the assessee. Therefore, the Assessing Officer was rightly directed by both the authorities to reduce the income of the assessee by Rs. 33.90 lacs [rounded off] having been added as excess provision of depreciation as per the books of account.
6.7 With there being no provision to tax the income twice, this addition is not to be upheld and it is a settled position that excess depreciation when returned to the assessee can never become income in the hands of the assessee.
7. In view of the foregoing conclusions, we find no error in the order of the Tribunal and hence no question of law, much less a substantial question of law, arises for our consideration to warrant indulgence. The appeal is, accordingly, dismissed.
■■*In favour of assessee.
†Arising out of order of Tribunal dated 30-4-2012.
Regards,
Central Excise
Central Excise - Stay and Waiver of pre-deposit: CENVAT Credit on Capital Goods - There is absolutely no requirement that the capital goods at the time of receipt must be owned by manufacturer or that the same would cease to be capital goods, if they are installed in the factory and become fixed to earth: Demand to the tune of Rs. 800 Crores Stayed: CESTAT
THE appellant are a Public Sector Undertaking, engaged in the manufacture and marketing of petroleum products. The dispute in this case is in respect of their refinery at Panipat where they manufacture various petroleum products falling under Chapter 27 and also goods covered by Chapter 39 of Central Excise Tariff, Act 1985. During period from July'07 to March'12 the appellant had taken Cenvat Credit of Rs.3,67,72,79,616/- in respect of various items of capital goods received by them for erection, installation and commissioning of Naphtha Cracker Plant.
Commissioner Central Excise, Rohtak confirmed the Cenvat Credit demand of Rs.367,14,65,992/- and 58,13,624/- against the appellant along with interest thereon under section 11AB and besides this, imposed penalty of Rs. 367,72,79,616/- on the appellant company under Rule 15(2) of the Cenvat Credit Rules, 2002 read with Section 11AC of Central Excise Act., 1944.
Compliance – Income tax Return Filing- Why and how to reply ?
CA Chirag Chauhan
The Mission of Our Income Tax Department is "To promote Compliance with our direct tax laws, through caring taxpayer service and strict enforcement, and thus realize maximum resources for the Nation."
With the Above mission in the mind, recently Income Tax department are sending Notice to various assesses who has not filed their Income tax Return and Seeking information as per AIR Filing by various Institution. Most of assesses are Receiving Email with subject as "Compliance – Income tax Return Filing". This is with the help of improved monitoring due to stricter know-your-customer norms and online filing of returns, both of which have made data processing easier and faster with which escape can be easily monitored. So do not get shocked or surprised if you get a notice from the income tax department seeking details of a transaction or source/proof of some income and asking details.
The Reason of assessee receiving notice is because assesses has failed to file return inspite of having bank cash deposits worth Rs 10 lakh or more in a year, credit card purchases of Rs 2 lakh or more, mutual fund investments of Rs 2 lakh or more, or purchase of bonds and debentures worth Rs 5 lakh or more in a year. Besides, sale or purchase of property worth Rs 30 lakh or more also attracts attention of the tax department. Under the law, details of such transactions have be furnished by the entity with which you are doing the transaction. For example, if you have Rs 10 lakh or more in the savings account of a bank, the respective bank has to file an annual information return (AIR) with the department. Such tight monitoring means the taxman may send you a notice asking you to file a return. Also, if there is a sharp discrepancy between your earnings and spendings, the tax department may ask you to explain your sources of income.
If you want to know reason for which you have received notice you need to login to https://incometaxindiaefiling.gov.in. In the menu "Compliance", select the "Related Information Summary" and know the reason why you have received the Notice.
How to deal with tax notices
First you need to understand why have you receive notice and for which year you have not filed your returns. Please login to https://incometaxindiaefiling.gov.in.
In case you have filed your all returns, Please update the details such as Mode of Filing (electronic Filed or Paper Filed), Date of filing return, Acknowledgment Number and Circle or Ward and City in case of Manual Filing.
In case you have not filed you return for particular assessment year, Please update the detials such as Return under preparation or Business has been closed or No taxable Income or Others. Also enter the remarks, if you select the option Others.
Further under the tab "Related Information Summary" you need to select particular Information of AIR filing as "Information Relates" should be either Self or Other PAN (specify the PAN) or Not Known or I need more Information. Make sure that you reply correctly or there are chances of department asking for further clarification.
There are more than 40 Lakh Individual who has made cash deposit of more than 10 Lakh in saving account. The IT department has identified 23 lakh people, who have invested money, but have not filed returns to whom they will be sending out letters, asking those details of their tax returns.
From the annual information return (AIR), the I-T Intelligence and Criminal Investigation Directorate, at Delhi, has been routinely sending out computer-generated notices which are seen as harassment by many individuals like Senior Citizens and Women.
For any query you can write to Chirag@cachauhan.in . Before making any decisions do consult your Professional / tax advisor. Author do not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability neither for the loss or damage of any kind arising out of information in this document nor for any action taken in reliance there on.
IT : Where Assessing Officer completed original assessment of assessee for assessment year 2005-06 under section 143(3) on 24-12-2007 and subsequently he issued on assessee a notice for reassessment on basis of investigation report dated 13-3-2006 received from investigation wing, since reasons to believe did not state that investigation report was not with Assessing Officer when he completed original assessment, attempt to reopen assessment was result of a change of opinion
■■■
[2014] 43 taxmann.com 371 (Delhi)
HIGH COURT OF DELHI
Rasalika Trading & Investment Co. (P.) Ltd.
v.
Deputy Commissioner of Income-tax*
S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
W.P.(C) NO. 1608 OF 2013
CM APPLICATION NO. 3024 OF 2013
CM APPLICATION NO. 3024 OF 2013
FEBRUARY 14, 2014
Section 68, read with section 147, of the Income-tax Act, 1961 - Cash credit (Accommodation entries) - Assessment year 2005-06 - Assessee-company was engaged in business of investment and security - Assessing Officer completed assessment of assessee for assessment year 2005-06 under section 143(3) on 24-12-2007 - Subsequently he issued on assessee a notice under section 147 read with section 148 for reassessment - He recorded reasons to effect that (i) he received investigation report dated 13-3-2006 from DIT (Investigation), New Delhi, (ii) said report indicated that assessee was amongst beneficiaries of bogus accommodation entries, and (iii) in view of investigation report, he had reason to believe that assessee had introduced its unaccounted/disclosed income routed through such bogus accommodation entries - Reasons to believe did not state that investigation report was not with Assessing Officer when he completed original assessment - Whether impugned notice was based upon stale information which was available at time of original assessment - Held, yes - Whether, therefore, attempt to reopen assessment was really result of a change of opinion - Held, yes [Para 5] [In favour of assessee]
FACTS
| ■ | The assessee, an investment and security business company, had raised additional capital and offered shares at a premium of Rs.90 per share during the previous year relevant to the assessment year 2005-06. | |
| ■ | The Assessing Officer completed the assessment of the assessee for the assessment year 2005-06 under section 143(3) on 24-12-2007. | |
| ■ | Subsequently the Assessing Officer issued on the assessee a notice under section 147 read with section 148 for reassessment. He recorded the reasons to the effect that he received the investigation report dated 13-3-2006 from the DIT (Investigation), New Delhi. The said report indicated that the assessee was amongst the beneficiaries of bogus accommodation entries. In view of the investigation report, he had reason to believe that the assessee had introduced its unaccounted/disclosed income routed through such bogus accommodation entries. | |
| ■ | On writ: |
HELD
| ■ | It is evident from the aforesaid that the reassessment proceedings were initiated by the impugned notice which expressly and plainly states that 'reasons to believe' are based upon the materials contained in the investigation report of 13-3-2006. The notice itself does not spell out that the report was not on the record when the original assessment was completed on 24-12-2007, nor did the revenue even suggest so in the counter affidavit filed in the proceedings. It is only in a subsequently filed additional affidavit that the position is sought to be clarified. Clearly the High Court refrains from making such an enquiry at a time when the Assessing Officer has, in the first instance, failed to spell out clearly in section 148 notice itself that such report was not on record. In other words 'the reasons to believe' do not state even in one sentence that the investigation report was not with the Assessing Officer when he completed the assessment. | |
| ■ | The material on record in fact suggests otherwise. The nature of the queries put to assessee and the replies and confirmation furnished to the Assessing Officer in the course of the regular assessment clarify that what excited the suspicion was indeed gone into by the Assessing Officer himself while framing the assessment under section 143(3). | |
| ■ | Such being the case the Court has no doubt that the impugned notice, in the circumstances of the case, is based upon stale information which was available at the time of the original assessment and in fact appears to have been used by the Assessing Officer at the relevant time, i.e., during the completion of proceedings under section 143(3). | |
| ■ | Therefore, the attempt to reopen the proceedings under sections 147 and 148 is really the result of a change of opinion. Consequently, the impugned notice and all proceedings further thereto are beyond the authority of law and were liable to be quashed. [Para 5] |
CASE REVIEW
CIT v. Kelvinator (India) Ltd. [2010] 320 ITR 561/187 Taxman 312 (para 5) followed.
CASES REFFERED TO
CIT v. Kelvinator (India) Ltd. [2010] 320 ITR 516/187 Taxman 312 (SC) (para 2) and Commissioner of Police v. Gordhandas Bhanji AIR 1952 SC 16 (para 5) and MS Gill v. Cheif Election CommissionerAIR 1978 SC 851 (para 5).
Rakesh Gupta, Rishabh Kapoor and Ms. Khshbu Upadhyay for the Petitioner. Rohit Madan for the Respondent.
ORDER
S. Ravindra Bhat, J. - The petitioner in this case challenges the notice proposing reassessment under section 147/148 of the Income Tax Act in respect of assessment year 2005-06. The assessee, an investment and security business company, had raised additional capital and offered shares at a premium of Rs.90 per share during the concerned assessment year. The regular assessment under section 143(3) was completed by an order framed on 24.12.2007. The notice proposing reassessment, in the present case reads as follows :
"Annexure 'A'
Rasalika Trading & Investment Co. Pvt. Ltd. 2005-06
In this case initiation was received from DIT (Investigation), New Delhi which was circulated amongst the Assessing officers of Delhi Charge vide F. No. CIT-I/2005-06/2132 dated 13.03.2006. The information received indicated that the assessee is amongst the beneficiaries of bogus accommodation entries as under:
| Bank A/c in which entry is received | Amount/ instruments No. | Date of receipt | Name of party from whom received | Bank a/c of entry given | Account No. | |
| IDBI, KG Marg | 3,00,000/ 41708 | 10.06.2004 | Ashiana Electronics Pvt. Ltd. | Corpn Bank, Kamla Nagar | 4028 | |
| IDBI, KG Marg | 3,00,000/ 41704 | 29.08.2004 | Ashiana Electronics Pvt. Ltd. | Corpn Bank, Kamla Nagar | 4028 | |
| IDBI, KG Marg | 3,00,000/ 41710 | 10.06.2004 | Paropkari Finstock Pvt. Ltd. | Corpn Bank, Kamla Nagar | 4029 | |
| IDBI, KG Marg | 2,00,000/ 41719 | 24.06.2004 | Paropkari Finstock Pvt. Ltd. | Corpn Bank, Kamla Nagar | 4029 |
The information received also indicated that the bank accounts of M/s Ashiana Electronics Pvt. Ltd. and M/s Propkari Finstock Pvt. Ltd. were maintained and controlled by one Shri Hari Om Bansal, who has in statement given on oath on 12.04.2005 before the Investigation Wing admitted that he had received cash in lieu of cheque or draft to various persons through various bank accounts maintained by him with the help of his associates.
In view of the reports received from the Investigation Wing and the above facts and findings, it is clear that the assessee company has not disclosed fully and truly all material facts necessary for its assessment for the assessment year under consideration. I am in possession of material that discredits and impeaches the particulars furnished by the assessee company and also establishes the link with the self-confessed "accommodation entry providers", whose business is to help assessee bring into their booms of accounts their unaccounted money.
In view of the above facts, I have reason to believe that the assessee had introduced its unaccounted/ disclosed income routed through such bogus accommodation entries. Thus, the Income chargeable to tax amounting to Rs. 11,00,000/- during the A.Y. 2005-06 has escaped assessment in the case and there has been a failure on the part of the assessee to disclosed fully and truly all material facts necessary for his assessment in the AY 2005-06. Hence, the same is to be brought to tax under section 147 of the Income Tax Act. It is a fit case for initiating proceedings u/ s 147 of the Act. Sanction for issue of notice u/s. 148 as prescribed u/s 151, to assessee such income may kindly be accorded.
(Signature of Officer)
Name: KEYUR PATEL
Designation: DCIT. Circle 15(1), N.D."
2. The petitioner urges that on the face of it the impugned notice and subsequent proceedings are beyond the authority of law. It is urged that the fresh or tangible material, on the basis of which recourse to section 148 is proposed, existed even when the original regular assessment was completed. The learned counsel pointedly referred to the first sentence of the impugned notice stating that the intimation or report of the DIT (Investigation) was circulated to all concerned including AOs of Delhi Charge on 13.3.2006. It was therefore urged that the reasons in support of the notice were based upon material which was stale and therefore plainly outside the jurisdiction conferred under section 148. Counsel relied upon the decision of Supreme Court in CIT v. Kelvinator (India) Ltd. [2010] 320 ITR 561/187 Taxman 312. The learned counsel relied upon the response given during the assessment proceedings particularly the letters dated 20.9.2007, 5.11.2007, 15.11.2007, 29.11.2007, 10.12.2007 and 17.12.2007. It was submitted that the details of the share applicants, who had applied for allotment, sought for by the AO in the regular assessment were furnished to the AO. It was submitted that in these circumstances the reopening of assessment proposed on the basis of the material said to have been contained in the investigation report of 13.3.2006 was a matter that had been specifically enquired and gone into by the revenue. It was argued that in these circumstances, the notice is illegal and liable to be quashed.
3. Counsel for the revenue submitted that the notice no doubt adverted to an investigation wing report of 13.3.2006. However, counsel argued that this report was not on the record when the assessment was completed originally on 20.4.2007. In the counter affidavit the revenue stated as follows :
"The contents of the para are correct and admitted to the extent that the Respondents had passed the order after application of mind and accepted the income declared by the Assessee with no adverse finding but all this done on the basis of material/documents disclosed by the Assessee. The main reason for reopening the assessment was that the Assessee has not disclosed full and true material and the same has led to escapement of Income. So, the notice u/s 148 when issued after complying with all the legal formalities cannot be bad in law. Moreover the earlier order passed u/s 143(3) cannot be made a basis for proving the reopening bad in law when there was no disclosure of full and true material by the Assessee before the Assessing authority."
4. The learned counsel relied upon the following averment made in additional affidavit filed after the counter affidavit is filed. The additional affidavit was filed by one Arun S. Bhatnagar, Commissioner of Income Tax, Delhi-V and affirmed on 16.12.2013. The relevant contents of the said affidavit are as under :
"3. That after going through the original assessment records, it has been noticed that letter dated 13.03.2006 was not on record before the Assessing Officer when the original assessment was framed on 24.12.2007.
4. The information regarding the letter dated 13.03.2006 was received by the office of DCIT, Respondent No.1 after the proceedings u/s 143(3) were concluded and based on the contents of the letter dated 13.03.2006, appropriate proceedings have been initiated by the Department u/s 147/148 of the Income Tax Act, 1961."
Counsel for the revenue urged that in terms of Kelvinator of (India) Ltd. (supra) the reassessment proceedings were within jurisdiction and ought not to be interfered with.
5. It is evident from the above discussion that the reassessment proceedings were initiated by the impugned notice which expressly and plainly states that "reasons to believe" are based upon the materials contained in an investigation report of 13.3.2006. The notice itself does not spell out that the report was not on the record when the original assessment was completed on 24.12.2007 nor did the revenue even suggest so in the counter affidavit filed in the proceedings. It is only in a subsequently filed additional affidavit that the position is sought to be clarified. Clearly this Court refrains from making such an enquiry, at a time when the AO has, in the first instance, failed to spell out clearly in the section 148 notice itself that such report was not on record. In other words "the reasons to believe" do not state that even in one sentence that the investigation report of 13.3.2006 was not with the AO when he completed the assessment. The material on record in fact suggests otherwise; the nature of the queries put to assessee and the replies and confirmation furnished to the AO in the course of the regular assessment clarify that what excited the suspicion was indeed gone into by the AO himself while framing the assessment under section 143(3). This Court is fortified in its conclusions by the decision of the Supreme Court in Commissioner of Police v. Gordhandas Bhanji AIR 1952 SC 16 where it was held that public orders made by public authorities intended to have effect on the public should be construed objectively with reference to the language used rather than explanations subsequently offered. This principle was reiterated in a somewhat different vein in MS Gill v. Chief Election Commissioner AIR 1978 SC 851 by the Supreme Court. Such being the case this Court has no doubt that the impugned notice, in the circumstances of the case is based upon stale information which was available at the time of the original assessment and in fact appears to have been used by the AO at the relevant time i.e. during the completion of proceedings under section 143(3). Therefore, the attempt to reopen the proceedings under section 147/148 is really the result of a change of opinion - and thus beyond the pale of the AD's jurisdiction and falling under the illustration spelt out in Kelvinator of (India) Ltd. (supra). Consequently, the impugned notice and all proceedings further thereto are beyond the authority of law and are hereby quashed.
The writ petition is allowed in the above terms.
S.K.J.*In favour of assessee.
--
Regards,
Pawan Singla , LLB
Time to plan your Income and Taxes for 2014-15
The last financial year ended a fortnight ago, and its right time for individual taxpayers to plan their Income and give the final touches to their tax planning and savings.
There are many sections defined under the Income Tax Act that enable individuals to save tax by investing in various qualified instruments. Since your employer must have asked you to submit your investment declaration by now, It's best time to plan your investments in tax-saving instruments and look at possibilities to save maximum possible tax in the current financial year.
These are some of the major sections that enable you to reduce your income tax liability:
Section 80C – of the Income Tax Act allows income tax exemptions to individuals on investments in certain instruments. The maximum limit to claim deduction under this Section is Rs 1 lakh. You can invest Rs 1 lakh in one or more of these instruments to avail tax rebate under Section 80C.
- Employee Provident Fund and Public Provident Fund
- Life insurance (term insurance as well as endowment plans)
- Pension plans
- Equity-linked savings schemes (ELSS) of mutual funds
- Specified government infrastructure bonds
- Principal repayment of housing loans
- National Savings Certificates (NSC) and interest accruals on previous years' NSCs can also be added to the Section 80C limit
Infrastructure bond
You can invest in specified long-term infrastructure bonds to claim a deduction up to Rs 20,000. The tax rebate for infrastructure bonds is in addition to Section 80C.
Home loan benefits
Housing loans provide tax relief. The principal repayment of a housing loan attracts rebate under Section 80C up to Rs 1 lakh and the interest payment attracts a rebate of Rs 1.5 lakhs.
Medical Insurance
In addition to Section 80C, there is Section 80D that enables an individual to claim rebate on mediclaim policies. Payment of premium for medical insurance (mediclaim) is eligible for tax exemption up to Rs 15,000. You can avail this deduction on medical insurance premium paid for yourself, spouse, parents and children.
Other deductions for salaried taxpayers
If your employer provides medical allowance, you can available an income tax deduction of up to Rs 15,000 per year by offering proof of the relevant expenses.
If the employer gives leave travel allowance as a part of your salary, you can avail income tax deduction on travel expenses (family travel expenses can also be covered if family travels along with the taxpayer). Leave travel allowance can be availed twice in a block of four calendar years. Presently, the block applicable is from 2010 to 2013. Leave travel allowance can only be availed on the expenses incurred on domestic travel. However, the travel mode can be anything (taxi, bus, train or air).
Time to review saving
As we mentioned earlier, it is the best time to plan for your investments to submit investment declaration to your employer, these are some factors you should keep in mind while taking decisions on saving tax:
First of all, try to exhaust the quota for Section 80C. You can look at various options to invest and save tax under Section 80C
Salaried people can also look at saving tax by planning the expenditures under medical allowance, child education allowance and conveyance allowance.
Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. However, it is not advisable to take another medical policy just for the sake of saving tax, if you already have one.
XPERT COMMENTS
Readers should exercise their fine judgment while interpreting this article and this newsletter should not be considered as an advice to anybody to plan or otherwise design their investment pattern.
Author- XPERT Consulting – Tax Consultants, E: contact@xpertconsulting.biz,
__._,_.___
receive alert on mobile, subscribe to SMS Channel named "aaykarbhavan"
[COST FREE]
SEND "on aaykarbhavan" TO 9870807070 FROM YOUR MOBILE.
To receive the mails from this group send message to aaykarbhavan-subscribe@yahoogroups.com
No comments:
Post a Comment