Issue No. 277 / Aug 9^th, 2023

Dear Professionals,

We are glad to present to you the 277^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!

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Key Takeaways from Handpicked Rulings 

1) HC: Prosecution initiated during pendency of compounding application, no sustainable - HC quashes CIT’s order sanctioning the prosecution of Assessee due to failure to deposit the tax deducted at source in time; Also directs the CIT to consider the application for compounding of offences filed by the Assessee after payment of all legitimate dues to the Income Tax Department to meet the end of justice and dispose of in accordance with law; Remarks that “since the Petitioner has come forward to compound the offence and having regard to the amount due and the precarious situation which the Petitioner Company was put to at the time of deduction of the tax and non-payment, it is inevitable to quash the CIT’s order sanctioning the prosecution”; Assessee was subjected to TDS proceedings on account of failure to deduct tax at source in time; Subsequently, CIT passed the order granting sanction to prosecute the Assessee for criminal action in terms of Section 279(1) which lead to initiation of criminal proceedings before Judicial Magistrate; Consequently, the Assessee filed the compounding application which was not considered and pending for adjudication at the time of filing of writ petition………… Click here to read and download HC Judgment

2) HC: Satisfying '300 working days' criteria in previous year not essential for Sec. 80JJAA deduction - HC sets aside ITAT order wherein benefit of deduction under Section 80JJAA was denied to the Assessee on the premise that workmen were not employed for the period of 300 days in the previous year; Relies on coordinate bench ruling in Texas Industries wherein it was held that period of 300 days could be taken into consideration both in the previous year and succeeding year for the purpose of availing benefit under Section 80JJAA and it is not required for the workmen works for 300 days in the previous year relevant to assessment year; Refers to ITAT Bangalore ruling in Bosch wherein it was held that so long as the workman employed for 300 days, even if the said period is split into two blocks, i.e. the assessment year or financial year, Assessee would be entitled to the benefit of Section 80JJAA in the next assessment year and so on so forthwith for a period of three years; Observes that post-amendment to Section 80JJAA by Finance Act, 2016 w.e.f. Apr 1, 2017 threshold of 300 days has been reduced to 240 days in case of other industries and 150 days in case of apparel industries and the second proviso to the explanation of Section 80JJAA was inserted wherein it was clarified that where an employee fulfilled the number of days criteria in the succeeding year, such employee shall be deemed to have been employed in the succeeding year and the provisions of this section would apply accordingly; Assessee-Company engaged in the business of manufacturing apparel claimed deduction under Section 80JJAA on account of employment of workmen which was denied by the Revenue on the premise that the workmen were not employed for a period of 300 days in the previous year and therefore, benefit under Section 80JJAA cannot be provided; CIT(A) dismissed Assessee’s appeal which was also upheld by ITAT…………. Click here to read and download HC Judgment

3) HC: Sets aside reassessment over non-compliance of Sec.148A; Alternate remedy no bar - HC sets aside reassessment notice under Section 148 issued on or after April 1, 2021 without complying with the provisions of Section 148A along with the consequential assessment order under Section 147 read with Section 143(3); Remits back to Revenue with a direction to consider notice under Section 148 on June 09, 2021 to be a notice under Section 148A and proceed in complying with the provisions of Section 148A in view of SC ruling in Ashish Agarwal; Observes that undisputedly the provisions under Section 148 came to be amended w.e.f., Apr. 01, 2021, however, the notice under Section 148 was issued on June 09, 2021 after the amended provision under Section 148 came into force and insertion of Section 148A which mandates the Revenue to conduct an enquiry providing opportunity of hearing before passing an order under Section 148A(d) as well as notice under Section 148; Observes that no proceedings have been initiated under Section 148A before issuance of notice under Section 148 which was also not disputed by the Revenue in its pleadings; Observes that the Revenue was duty bound to comply with the provisions of Section 148A in its words and spirit as amended section provides safeguards to the Assessee, however, the procedure as provided under Section 148A is not followed by the Revenue before issuing notice under Section 148 and the entire proceedings initiated as well as assessment order …………. Click here to read and download HC Judgment

4) HC: Warranty Provision against sophisticated goods carrying replacement obligation allowable under Sec.37 - HC holds that no substantial question of law arises for consideration wherein ITAT held that provision of warranty would be entitled to deduction under Section 37 relying upon SC ruling in Rotork Controls; Observes that the Assessee has not committed any error in making provisions inasmuch as large number of sophisticated goods were being manufactured in the past and if the facts established show that defects existing in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction under Section 37; With regard to provision of liquidated damages, HC observes that since the liquidated damages provided in the accounts are based on allowances/deduction allowed by the Assessee to its customer as a part of contract and this practice is being followed by the Assessee consistently, and such debits are based on actual deduction made by the customers, accordingly, they are ascertained expenditure and allowable under Section 37; Assessee, a Government of India undertaking, engaged in the business of manufacturing, project works field return of income declaring Nil income and claimed ‘Provision for Warranty Expenses’ as business expenditure under Section 37 being contractual obligations for replacement of spare parts for certain specified period at free of cost which was disallowed by the Revenue under assessment under Section 143(3) along with disallowance of Provision for liquidated damages of Rs. 1178.42 Cr; CIT(A) allowed Assessee’s appeal; On appeal, ITAT dismissed Assessee’s appeal…………….Click here to read and download HC Judgment

5) ITAT: Addition based on Sec.132(4) statement in absence of incriminating material invalid - ITAT upholds CIT(A) order wherein addition made solely on the basis of the statement given during the course of search under Section 132(4) although subsequently retracted in absence of any incriminating material was deleted; Refers to CBDT Instruction dt. Mar 10, 2003 and CBDT Circular dt. Dec 18, 2014 wherein emphasis was supplied on gathering of evidences during the course of search and survey and to strictly avoid obtaining admission of undisclosed income under coercion and influence; Relies on ITAT Indore ruling in Ultimate Builders as well as Gujarat HC ruling in Mangarlal Chokshi wherein it was held that merely making addition only on the basis of the statement given during the course of search and without referring to any incriminating material is not justified and such addition cannot stand in the eyes of law; Rejects Revenue’s contention on admission of additional evidences under Rule 46A filed by the Assessee without granting any opportunity to its and observes that the subject addition evidences so referred to by Revenue are not related to the addition made on the basis of the statement given during the course of search under Section 132(4); Assessee was subjected to search assessment under Section 153A read with Section 153D wherein Assessee gave a statement on oath under Section 132(4) accepting unaccounted income of Rs. 2.20 Cr from AY 2016-17 although subsequently retracted stating that the disclosure ………………Click here to read and download ITAT Order

Expert Column 

CBDT issued Circular No. 19/2019 that mandates a computer-generated Document Identification Number (DIN) in all communications issued by the income-tax authorities on or after Oct 1, 2019 for ensuring accountability in official dealings. CBDT also laid down certain exceptions whereby manual communication without a DIN could be issued. Recently, Jharkhand High Court took a view that the delay of one day in generation of DIN was not fatal to the assessment which is contrary to Delhi High Court's judgment on this issue.

issue.

 

 Mr. Deepak Chopra (Senior Partner, AZB & Partners) and Mr. Pulkit Pandey (Associate) critically analyse the Jharkhand High Court judgment. They apprise that while dealing with the issues of limitation and communication of the order for the purposes of quoting the DIN, the High Court made a distinction between the terms, ‘making of an order’, ‘issue of an order’, ‘uploading of an order’ and ‘communication of an order’, etc., which were often used interchangeably. They highlight that the High Court held that quoting of DIN is mandatory only for communication of an order and as Section 153(3) deals with ‘making of an order’ and not its communication, the generation of DIN would not have a bearing on the said limitation. 

The authors underscore that the High Court put a heavy emphasis on the word ‘may’ as contained in Section 153(3) in order to treat the limitation therein, as recommendatory in nature. They are of the view that such interpretation would render the objective of setting limitations nugatory and would make the provisions otiose. 

Click here to read the article “Jharkhand HC on DIN Mandate -  Slip Between the Cup and the Lip”

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“Taxsutra Database”, a true Income-tax research tool, is an archive of over 123545+  Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:   

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