Affixture of notice after office hours, invalid; Unauthenticated information on foreign bank a/c not reliable and more!
Issue No. 239 / July 15th, 2021
Dear Professionals,
We are glad to present to you the 239th 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: ‘Expansion’ different from ‘extension’; 2015 amendment to Sec. 36(1)(iii) prospective - HC deletes the disallowance u/s 36(1)(iii) towards interest on borrowed capital for AYs 2013-14 & 2014-15; Holds “…word 'expansion' and 'extension' connote different meaning and legislature in its wisdom has used the terms differently under various provisions…therefore, the words cannot be used synonymously”; Assessee – Coffee Day Global filed its NIL return for AY 2013-14, wherein the AO disallowed a sum of Rs. 1.46 Cr. representing interest on borrowed capital on the grounds that it was utilized towards WIP, similar disallowance was made in AY 2014-2015; ITAT upheld the disallowance made by the AO on the grounds that in terms of proviso to section 36(1)(iii) the interest cost ought to have been capitalized; HC observes that prior to amendment of Section 36(1)(iii) in the year 2015, interest on borrowed capital utilized for the purpose of business or profession had to be allowed irrespective of the fact that it i...............Click here to read and download HC Judgment
2) ITAT: Service by affixture of notice devoid of witness, after office hours, invalid - ITAT quashes reassessment proceedings u/s 148 for AY 2008-09;Revenue completed assessment u/s 147 r.w.s 143(3) in respect of Assessee - private limited company making addition u/s 68, based on the information received from the Investigation wing stating that Assesseeobtained accommodation entries of Rs.30 lakhs on account of share capital; ITAT observes that the Assessee is correct in pleading that the notice u/s 148 was served through affixture without resorting to service by post etc, and as per Sec. 282 read with service rules from 9 to 17/20 of order ‘V’ under CPC, 1908, affixture made after working hours and without identification of place/witness makes the proceedings u/s 147/148 as void ab initio; Accepts Assessee’s submission that none of the Directors of the entity, to whom shares were allotted, were present and the AO never conducted any enquiry from the said party nor rejected evidences placed before him; Holds that the approval u/s 151 for issuance of notice u/s 148 was granted in a ................Click here to read and download ITAT Order
3) HC: Provision for bad, doubtful debts u/s 36(1)(viia) computable before adjusting b/f losses - HC upholds ITAT’s order and allows Assessee’s claim for deduction u/s 36(1)(viia), for AY 2011-12 & 2012-13, being 7.5% of total income towards provision made for rural advances before setting off of brought forwards losses; Revenue recomputed the total income restricting the deduction claimed under the said section to the provision made in the books of accounts after setting off the loss brought forward; ITAT also upheld Revenue’s treatment following Assessee’s own case for AY 2009-10 and 2010-11 and held that the deduction should be computed @ 7.5% of total income after setting off of brought forwards losses; Assessee submitted that the provision of Sec. 36(1)(viia) is a beneficent provision intended to promote rural banking and therefore should be allowed full play; HC peruses through the provisions along with the explanatory note dated 30.06.1982 and remarks “The condition precedent for claiming deduction under Section 36(1)(viia) of the Act is that a provision for bad and doubtful debt should be made in the .........Click here to read and download HC Judgment
4) HC:Deletes disallowance for not withholding tax on commission payment not taxable in India - HC upholds ITAT’s order in setting aside the disallowance made u/s 40(a)(i) on commission payments made to non-residents agents; Assessee paid commission to its Associated Enterprises which had rendered outside India in the form of placing orders with the manufacturers based outside India; Revenue disallowed the expenditure contending that Assessee had failed to deduct taxes on the amount of commission paid; HC accepts ITAT’s observation that the income of non-residents by way of commission cannot be considered as accrued or arisen or deemed to accrue or arise in India as the services of such agent were rendered/utilized outside India and the commission was paid outside India; DistinguishesSC ruling in GVK Industries Ltd. from the present case as the consultancy herein is not at all utilized in India................Click here to read and download HC Judgment
5) ITAT: Holds unauthenticated information on foreign bank accounts from French authorities inadequate – ITAT rules Revenue was not justified in invoking Sec. 153A for AYs 2006-07 & 2007-08 and making additionsas unexplained investment, in the absence of any evidence; Revenue on the basis of information received under exchange of information mechanism, that the Assessee held account with HSBC having substantial credits which were not disclosed to the department made the additions; Assessee, however challenged the authenticity of information received in pen drive as the same was not received from the bank; ITAT observes that CIT(A) failed to address the argument of the assessee with regards to the information contained in pen drive, the source thereof and author thereof and its authenticity with any credible evidence or linkage with any of the document; ITAT holds “pen drive so received was just like an anonymous letter forwarded by French Competent Authority to the Indian Competent Authority”; ITAT deletes the addition made by the department on the grounds that CIT(A) has failed to appreciate that the origin of the source of information, stating merely because information is received under DTAC agreement does not make the information credible; Remarks that passing of the information from .................Click here to read and download ITAT Order
“Taxsutra Database”, a true Income-tax research tool, is an archive of over112680+ 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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Rulings on maintainability of low tax-effect appeal; Refund adjustment u/s 140A inapplicable to KVS Scheme & More!
Issue No. 238 / July 9th, 2021
Dear Professionals,
We are glad to present to you the 238th 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: Appeals with low tax-effect falling under exceptions to CBDT Circular, maintainable - HC upholds ITAT’s order dismissing the Miscellaneous Applications (MA) filed by the Assessee u/s 254(2) holding that the tax effect involved in all the said appeals did not exceed Rs. 50 lacs in view of the CBDT Circular dt. August 8, 2021; Pr. CIT-petitioner challenged ITAT’s order and contended that the ITAT had committed gross error by not entertaining the MAs in view of the subsequent CBDT Circular No. 23/2019 dt. September 06, 2019 as well as the Office Memorandum (OM) No. 279 dt. September 16, 2019 both being clarificatory in nature and thus, applicable retrospectively; Also, Pr. CIT highlighted that the Circular No. 23/2019 dt. September 06, 2019 provided the cases involving organized tax evasion scam through bogus long term capital gain/ short term capital loss on penny stocks were not made subject to the monetary limits prescribed for filing the appeals; HC analyses the provisions of Sec. 254(2) and the relevant Circulars and OM and observes that the said Circulars and OM were not in existence at the time of passing of the order by the ITAT, thus, states it to not be a mistake apparent from the record as contemplated u/s 254(2); Further, HC observes that notwithstanding anything contained in any Circular, appeals may be filed on merits as the exception to the said Circular, where the Board by way of special order may direct filing of appeals on merits in cases involving organized tax evasion activity, irrespective of the monetary limits fixed in earlier cases, further that there is nothing to suggest in the said Circular / OM that they shall have retrospective effect; Thus, HC holds that the ITAT is right in interpreting the Circular along with the OM where the tax effect may be low but the appeal could still be filed on merits.......................Click here to read and download HC Judgment
2) HC: Normal procedure of refund adjustment u/s 140A not applicable to KVS - HC allows Assessee’s petition directing Revenue to adjust the refund amount for the year 1996-97 to the tax arrears instead of penalty and accordingly re-determine the amount payable u/s 90(1) of the Finance (No.2) Act, 1998 (Act); Assessee-Company, engaged in export of tobacco, filed declaration under Karvivad Samadhan Scheme (KVS), 1998 to determine whether the tax refund be adjusted towards arrears of the tax and then interest and penalty or vice-versa; Also, the Assessee withdrew the pending litigation as required under the scheme so as to determine the tax amount at a flat rate; On failure of Revenue authorities to determine the amount within 60 days from the date of receipt of declaration, the Assessee filed a writ petition which was disposed of despatching the Certificate of Intimation and determining the tax payable amount after adjusting the refund amount towards penalty first; HC observes that the said action by the Revenue of adjusting the amount with the penalty and not with arrears of tax is legally impermissible; Holds “…any payment or part payment of taxes should first be adjusted towards tax and balance towards interest was correctly adopted while determined the tax payable under KVS scheme”; Refers to Karnataka HC ruling in Mangilal S. Jian where in it was observed “…normal procedure followed under Sec.140A of the Income Tax Act to apply the amount paid by the assessee first towards interest and the balance towards the tax payable is not applicable to the provisions of the Finance (No.2) Act, 1998 and the KVS scheme thereof.”; Thus, HC allows the writ and directs the Revenue to adjust tax refund against tax arrears instead of penalty and determine the amount payable under KVS............... Click here to read and download HC Judgment
3) HC: ‘Reasons to believe’ is prima facie material available with AO, not legal evidence - HC dismisses the writ petition filed by the Assessee-petitioner against Revenue’s reassessment proceedings pertaining to transfer of a rural agricultural land for AY 2014-15, being sans substratum; Assessee had purchased a rural agricultural land which was sold during the AY and transferred 50% of the sale consideration to another person, recording the transaction in a registered agreement; Revenue, however treated the same to be urban agricultural land in its assessment order and contended that the Assessee herself has disclosed capital gains it her return of income on sale of land; HC denies Assessee’s observation that the reassessment proceedings in the present case are of a clear case of “change of opinion”; Refers to judicial precedents in case of Kelvinator India Ltd. and Tech. Spam India (P) Ltd. where it was held “…the phrase “reasons to believe” does not mean that the Assessing Officer should have ascertained the facts by legal evidence. All that is required is that the Assessing Officer should prima facie have some material on the basis of which there should be “reasons to believe” of certain income chargeable to tax escaping assessment”; HC observes that in the present case re-assessment proceeding has been initiated on the basis of material having direct bearing over the case of the Assessee which is based on the “reason to believe” recorded by the AO; Thus, HC finds that re-opening of the assessment proceeding was conducted on the basis of legally valid sanction accorded by the authority under provisions of Section 151, dismisses Writ of Assessee........... Click here to read and download HC Judgment
4) HC dismisses petition u/s 154 on Assessee’s failure to fulfil requirements of VsV Act - HC dismisses the petitions filed by the Assessee- A Japanese company, being devoid of merits; Assessee, engaged in execution of worldwide social-infrastructure projects and supervisory services in relation to erection, installation, etc, was asked by the Revenue for reconciliation of TDS amounts with that in Form 26AS; However, Revenue granted lesser credit of taxes and raised a demand; Assessee contended that the Revenue did not give the credit of the TDS in the relevant A.Ys 2015-16, 2016-17 and 2017-18, and wrongly withheld the said amount, thus leading to filing of rectification application u/s 154 which was rejected twice; Assessee then opted for DTVSV for AY 2016-17; HC observes that the Assessee failed to comply with Section 5(2) of the DTVSV Act wherein the applicant needs to pay the amount determined by the designated authority u/s 5(1) within 15 days of the date of receipt of the certificate; HC notes that Sec. 5(3) provides that every order passed u/s 5(1) determining the amount payable shall be conclusive and cannot be reopened in any other proceeding; Also the Assessee was required to withdraw the appeal pending before the CIT(A) on the issuance of certificate u/s 5(1) of the DTVSV Act, which again the Assessee failed to do so; Thus, HC opines that the Assessee having failed to comply with the mandatory requirements of the DTVSV Act, the present petitions cannot be entertained........ Click here to read and download HC Judgment
5) HC: Upholds reopening of assessment, finds Assessee under-assessed on income - HC dismisses WP filed by Assessee, upholds Revenue’s action to initiate reassessment proceedings u/s 147; Assessee-petitionerfiled 3 WP challenging the reassessment proceedings initiated by the Revenue with respect to claim of deduction u/s 80-IA; Assessee-company was engaged in provision of telecommunication services, and upon being granted the Licence by Dept. of Telecommunications, Government of India, started claiming deduction u/s 80IA from AY 2005-06; Return originally filed for the year was revised and Assessee claimed a deduction of Rs. 87.29 Cr. u/s 80IA, the assessment for AY 2006-07 was finalised with a refund of Rs. 1.41 Cr.; Revenue subsequently initiated reassessment proceedings, challenged by the Assessee through the writ petitions; Assessee contended that re-opening is based on change of opinion on the part of the Revenue, and is without jurisdiction since there are no new facts leading to issuance of impugned notice; Revenue contended that there being concrete material on record, it was a fit case for reassessment, and stated that Assessee has made an erroneous claim u/s 80-IA resulting in under assessment; HC notes that Revenue has addressed Assessee’s objections to re-opening adequately, stating their reasons to believe for the reassessment proceedings, the writs are liable to be dismissed; HC notes that section 147 covers under-assessment of income, notes that “High Court in a writ proceedings, cannot adjudicate all such disputed facts and circumstances raised between the parties. Disputed facts are to be adjudicated with reference to the documents, evidences and materials available on record and such an exercise is impermissible in a proceedings under Article 226 of the Constitution of India”; HC dismisses the writ petitions filed by the Assessee, states “the petitioner is at liberty to defend the case by availing the opportunities to be provided by the respondents as contemplated under the provisions of the Income Tax Act”..............Click here to read and download HC Judgment
“Taxsutra Database”, a true Income-tax research tool, is an archive of over112590+ 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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Sufficiency of “reasons to believe” u/s 147 is not for Court to judge; Withdrawal of exemption u/s 10(23C)(vi) by Pr.CIT before CBDT Notification on Rule 2C, bad in law .....and lots more!
Issue No. 237 / July 1st, 2021
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 112490+ 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:
· Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;
· Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;
· Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.
· Judicial “forward & backward reference”
We are glad to present to you the 237th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
***********************
Key Takeaways from Handpicked Rulings
1. HC: Sufficiency of “reasons to believe” u/s 147 is not for Court to judge, dismisses Assessee’s petition - HC dismisses Assessee’s appeal stating it to be devoid of merit, holds AO had ‘reasons to believe’ for reopening assessment u/s 147;Assessee-petitioner, a private limited company, was issued notice u/s 148 related to AY 2012-13 in the year 2019; One of the creditors of the Assessee was subjected to survey by the Investigation Wing basis which Revenue claimed it had“reasons to believe” that income for the AY has escaped assessment; HC holds “The sufficiency of reasons for forming the belief is not for the Court to judge, but it is open to the assessee to establish that there, in fact, existed no belief or that the belief was not bona fide or that the belief was based on vague or irrelevant information”; HC states that since the ‘reason to believe’ in the instant case are the documents recovered during the course of survey action, therefore, there was tangible material available with the Revenue which had a prima facie link with the Assessee; Refers to SC ruling in M/s. Kelvinator of India Limited wherein it was held “…Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is an escapement of income from assessment and that reasons must have a live link with the formation of the belief”; Also HC notes that the Assessee was the beneficiary of accommodation entries provided by the other assessee on whom survey action was conducted, thus rejects Assessee’s contention that there was non-application of mind by the Revenue, and dismisses the petition........... Click here to read and download HC Judgment
2. ITAT: Withdrawal of exemption u/s 10(23C)(vi) by Pr.CIT before CBDT Notification on Rule 2C, bad in law- ITAT sets aside Pr. CIT order holds that the show cause notice (SCN) itself suffered from inherent lack of jurisdiction as the CBDT’s notification 60/2019 was issued much later on Nov 5, 2019 which empowers Pr.CIT for revoking approval granted u/s 10(23C);Pr CIT had erred in law and on the facts not only in assuming jurisdiction u/s 10(23C)(vi) on Sep 16, 2019 but also he had wrongly withdrawn the assessee’s approval with effect from the date it had been granted the approval since the search was carried out almost a decade on Mar 23, 2018 whereas the approval was granted on Mar 27, 2008; The order withdrawing the approval was not sustainable for want of the Pr. CIT jurisdiction at the threshold itself which could not be made good in latter stages. Notes that the Pr CIT had withdrawn the assessee’s approval from the day from which was granted the very relief which was well beyond the period of the SCN itself, and that too, without even indicating how the assessee had violated the conditions of its approval granted earlier in all these intervening assessment years wherein it had also been assessed without any violation of the approval’s conditions; ITAT hold that Pr.CIT(Central) herein has erred in law and as on facts in withdrawing the assessee’s approval granted u/s 10(23C)(vi) of the Act; The assessee’s impugned approval is restored as a necessary corollary.........Click here to read and download ITAT order
3. ITAT upholds exemption u/s 56(2)(viib), finds Assessee deemed public company - ITAT upholds CIT(A)’s order deleting the addition made u/s 56(2)(viib),finds Assessee qualifies to be a company eligible for Sec. 56(2)(viib) exemption since it is covered under the clinching legislative expression “where a company, not being a company in which the public are substantially interested” as per section 2(18)(b)(B)(c) of the Act since the said other company was a listed one holding more than 50% of its stake in the relevant previous year”; Revenue contended that for AY 2014-15, CIT(A) has erred in concluding that assessee company is a deemed public limited company and hence provisions of Sec. 56(2)(viib) are not applicable without giving an opportunity to verify Assessee’s claim with regard to NCC Limited holding more than 40% shares of NCC Infrastructure Holding Limited; ITAT accepts CIT(A)’s view stating that the AO has carried the addition u/s 56(2) with the predetermined mindset to tax the realization over and above the value per share as worked out as per one of the methods prescribed under referred section; Refers to the provisions of Sec. 56(2)(viib) and remarks “The expression 'may' used in explanation to section 56(2)(viib) of the Act clearly indicates that income accrued under section 56(2)(viib] of the Act is not automatic”; Refers to Kolkata ITAT ruling in ASG Leather Pvt Ltd “wherein the court has laid down that the Assessing Officer should have given an opportunity to the assesse to exercise its options as per Explanation (a)(ii) to section 56(2)(viib)”..............Click here to read and download ITAT order
4. HC: Allows Sec. 54F exemption in individual capacity, notes Assessee’s family never taxed as HUF - HC dismisses Sec. 263 notice under a writ petition filed by Assessee, allows exemption u/s 54F; Assessee-Individual inherited an agricultural land and a house form his parents shared among other siblings,orally recorded in a memorandum; On sale of the land, each person divided the share in the sale proceeds in a certain percentage as decided orally and claimed Sec. 54F exemption on the long-term capital gains, which treatment was accepted by Revenue; Pr. CIT issued notice u/s 263 on the grounds that there was no physical division of the property and therefore the exemption u/s 54F appeared to be contrary to Sec. 171; Thus contending that capital gains should have been assessed in the hands of the HUF and not under individual capacity; HC finds that the assessment order for AY 2008-09 for the petitioner’s other brother was never assessed in the status of HUF, thus, in his case as well Sec. 54F benefit is to be allowed; Further observes Sec. 171 which contains a deeming provision under which partition of the property of HUF is accepted only if there has been actual physical division of the property, in the absence of any such proof, the HUF shall be deemed to continue for the purpose of assessment of tax; However, it also mentions “A reading of sub- section 171 of the Income Tax Act, 1961 makes it very clear that it is applicable only where a Hindu family was already assessed as an Hindu Undivided Family (HUF).”; Holds that since the petitioner’s family was never assessed as HUF, allows the exemption in individual hands.............. Click here to read and download HC Judgment
5. HC restores the appeal dismissed on non-prosecution, directs ITAT to re-adjudicate on merits - HC restores appeal filed by Assessee-petitioner to ITAT for consideration on merits;Appeal filed by Assessee for AY 2009-10 was earlier disposed due to non-prosecution; Assessee-individual was engaged in transportation business, Revenue had made additions towards undisclosed transportation receipts and TDS towards excess of assets over liabilities, on appeal the additions were upheld by CIT(A) except additions towards undisclosed transportation; Assessee failed to appear on the day of hearing , and ITAT dismissed the appeal for want of prosecution; Assessee, without filing a restoration appeal, filed a writ petition with the HC and claimed “…even if the petitioner was not present before the Tribunal when the appeal was taken up for hearing, it could not have been dismissed for want of prosecution as Section 254 (1)…”;HC takes note of Article 265 of the Constitution that states “No assessing authority can refuse to assess the tax fairly and legally, merely because the taxpayer is not participating in the proceeding”; HC refers to the SC ruling in S. Chenniappa Mudaliar wherein it was held that u/s 33(4) of the 1922 Act, “the Tribunal was bound to dispose of the appeal on merits, whether the Petitioner was present or not”; remarks that “it follows from all this that the Appellate Tribunal is bound to give a proper decision on questions of fact as well as law which can only be done if the appeal is disposed of on the merits and not dismissed owing to the absence of the appellant”, referring to a catena of decisions; HC further takes note of Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963, observing that “the said Rule articulates that, where, on the day fixed for hearing or on any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent”, Thus, allows the writ petition and directs the ITAT to restore the appeal and decide the same on merits............. Click here to read and download HC Judgment
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Dismisses WP to institute disciplinary action against IT officials; Illegal adjustment of refund and lots more!
Issue No. 236 / June 24th, 2021
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 112390+ 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:
· Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;
· Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;
· Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.
· Judicial “forward & backward reference”
We are glad to present to you the 236th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
***********************
Key Takeaways from Handpicked Rulings
1) HC: Dismisses WP filed to institute disciplinary action against Income-tax officials; holds it as abuse of Court process - HC dismisses writ petition, directs petitioners to pay costs; Petitioners filed the writ to initiate action against Income-tax officials, including their prosecution in respect of certain real-estate transactions, also seek monitoring of investigation conducted under Benami Law and the PMLA Act, before filing the writ, petitioners had instituted a civil suit against the respondents on the same issue; Petitioners giving details of certain real estate transactions, allege that such transactions are prohibited benami transactions wherein the consideration as undervalued to avoid stamp duty, registration and transfer fee; HC remarks that “ This Court is not inclined to go into the several contentions advanced in the Writ Petition and conduct a parallel enquiry to that which would happen in the civil suit when it would go to trial”; Further opines that “aspersions cannot be cast on officers of Government Departments solely on the basis of suspicions and assumptions of the petitioners tarnishing their reputation”; states that “We are of the opinion that filing of this Writ Petition is an abuse of process of Court and this Court cannot allow itself to be used as a private investigator by the petitioners to prove their contentions in the civil suit or to coerce the respondents for a possible settlement under threat of a prosecution from respondents 1-5 under the various statutes referred to above.”; accordingly dismisses the writ...............Click here to read and download HC Judgment
2) HC: Dismisses WP, holds no valid ground raised by Assessee to stay demand - HC disposes of the writ petition filed for grant of stay of demand for AY 2014-15; Assessee- company filed its return of income for AY 14-15 returning income of Rs. 1.76 lakhs which was processed u/s 143(1), Revenue issued notice u/s 148 assessing the income 30409 times higher resulting in an addition of Rs 575 crores making a high pitched assessment on the Assessee;Assessee made a request for staying the collection of tax, which was disposed of in a mechanical mannerby directing payment of 20% of outstanding balance demand in 10 equal instalments ignoring financial difficulty of the Assessee; HC observes that the petitioner’s business was hampered because of COVID-19 and as per CBDT instruction No.1914 which confers power on the authorities to grant stay of demand, requires the authority to consider three parameters namely “(i) existence of prima facie case, (ii) financial stringency, and (iii) balance of convenience” before giving any direction of stay; States that as per this CBDT instruction, authority can grant stay by directing payment of 20% of the demand or even less depending on case to case to protect the interest of Revenue; HC further observes that the Revenue considering Assessee’s hardship extended the time for payment of first instalment, but the Assessee still failed to comply with; HC remarks “…mere failure of the authorities to recover any amount cannot be considered as financial stringency of the petitioner”; Thus, HC having regard to the facts of the case concludes that no valid ground has been raised by the Assessee to interfere with Revenue's order; holds the writ to be devoid merits and dismisses it......................... Click here to read and download HC Judgment
3) HC: Dismisses WP; holds section 154 cannot be converted as an appeal for adjudication of disputable issues - HC dismisses WP filed by Assessee challenging notice u/s 154; Assessee, (Co-operative Bank) filed a writ petition, challenging notice u/s 154; Assessee chose not to appear in person, and file the writ petition, on the ground that his case is not covered within the scope of section 154, and Revenue has no jurisdiction to issue the notice, Assessee, however filed a reply in writing to this notice; Assessee contended that Revenue has considered all the aspects elaborately and passed order on merits, and the very initiation of proceedings for rectification of mistake is beyond scope; Assessee further stated that Revenue was trying to adjudicate a disputable point; The issue in case of Assessee was regards the allowability of deduction u/s 36(1)(vii) & 36(1)(via); Revenue contented that in case Assessee was of the opinion that there was no mistake apparent on record in terms of section 154, then it is a disputable issue which ought to be re-opened; HC remarks that Section 154 cannot be converted as an appeal for entertaining a ground for adjudication of merits or disputable issues; HC holds that “In the present writ petition, the respondent has established that they have not gone beyond the scope of Section 154 and they have taken steps to rectify the mistake apparent from record and the nature of mistake apparent from record is also furnished in the impugned notice issued under Section 154 of the Act. Thus the petitioner is at liberty to participate in the Section 154 proceedings and defend his case by availing opportunities provided by the Authorities”; dismisses the writ petition...................... Click here to read and download HC Judgment
4) HC: Condones delay, allows review petition for appeal, which was earlier not decided on merits - HC allows application seeking condonation of delay in filing the review petition and the review petition, directs Revenue to pay Rs. 5000/- to the Assessee to compensate for the inconvenience caused on account of delay in filing the review petition; Assessee objected to the condonation application on the grounds that the reasons accorded by the Revenue did not constitute ‘sufficient cause’ within the meaning of Sec. 5 of Limitation Act; HC observes that the appeal was withdrawn earlier on Revenue’s prayer that the tax effect might be less than Rs. 1 Cr. as per a policy decision take under Circular No. 17/2019 dated 08.08.2019, while granting liberty to the Revenue to file the application again if in case on scrutiny the tax effect is more than Rs. 1 Cr; HC remarks that although Revenue have been lethargic in filing the review petition along-with the application for condonation of delay, but the said appeal was not decided on merits earlier and was allowed to be withdrawn pursuant to the policy of the aforesaid Circular pursuant to which 100 cases were disposed of in a single day; Thus, HC views that it would be unjustified if the Revenue’s request for revival of the appeal is not allowed totally, directs the Revenue to compensate Assessee for inconvenience caused...................... Click here to read and download HC Judgment
5) HC: Allows Writ for illegal adjustment of refund; directs Revenue to pay interest - HC allows the writ petitions filed by the Assessee against adjustment of refund of AY 2019-20 with outstanding demands of AY 2017-18 and 2008-09, without a prior intimation u/s 245; Assessee had contended that there was illegal recovery of refunds arising for the said AY against the demands for AY 2017-18,since a stay already granted; HC refers to Delhi HC ruling in Maruthi Suzuki India Limited, wherein it was held “…once an absolute stay of recovery of demand of tax was granted to the assessee, it is improper and inappropriate for the Revenue to recover the money through adjustment of refunds.”; HC observes that the Revenue did not provide any explanation as to why the adjustment was made before the expiry of 30 days fixed under the second notice of intimation u/s 245, without averting to the objections filed by the Assessee; Accepts Assessee’s plea that issuance of notice u/s 245 is a necessary pre-requisite so as to enable the petitioner to file objections against orders of adjustment and the adjustment of refunds prior to issuance of such notice is patently illegal; Thus, directs Revenue to refund to the petitioner the amount with interest @ 15% per annum from the date on which it was determined till the date of payment.......................... Click here to read and download HC Judgment
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Retiral schemes – Challenges for Companies; Depreciation on goodwill; Allowability of revision in Form 10.... and lots more!
Issue No. 235 / June 16th, 2021
Dear Professionals,
“Taxsutra Database”, a true Income-tax research tool, is an archive of over 112250+ 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:
· Comprehensive coverage of all latest cases powered by an advanced search engine to provide a seamless user experience;
· Effective search results supported by active filters around Court Level, Location, Case Numbers and Citation;
· Enhanced search feature, using the Unique Bulls Eye Application, by including "Exact words", "Any of these", "none of these" options.
· Judicial “forward & backward reference”
We are glad to present to you the 235th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!
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Expert Column
Retirement planning ensures independence, and enables people to lead a life with an uncompromised standard of living after superannuation. India is yet to implement a robust social security system with retirement benefits, thus, the employees plan their retirement kitty during the tenure of employment. The major avenues for such planning are provident fund, gratuity and pension schemes. Such schemes provide considerable tax exemptions, and there have been instances wherein the top cadre employment is seen using them as an active tool for planning taxes. To dissuade these practices, the Union budget 2020 saw amendments to tax the employer's contributions towards such schemes and interest thereon in excess of specified thresholds.
Mr. Anurag Jain and Mr. Shubham Goel (Co-founders and Partners - ByTheBook Consulting LLP) discuss these amendments and the rules in the wake of practical challenges caused to employer and employee. They cover various aspects including double taxation of contribution in certain cases, ambiguity of the rules notified for interest computation and hint at possible difficulties in withholding taxes. The authors conclude with a suggestion “…it is imperative that the tax authorities bring clarifications on the working of formula under different practical scenarios/circumstances and also address the issue of potential double taxation of the same income.”
Click here to read the Article titled, “Taxability of contribution towards retiral schemes – Challenges for companies”
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Key Takeaways from Handpicked Rulings
1) HC: Dismisses Assessee`s writ; issue of income escaping assessment requires determination by AO – HC dismisses writ, states that question of escapement of income from assessment is a matter of determination by the AO based on all relevant materials and explanations; declines to interfere on the challenge to assumption of jurisdiction; In connection with a search exercise conducted at third party’s premises, Revenue provisionally attached land and building, and despite objections, did not take any action to lift the attachment, in the interim the Assessee received notices u/s 153C for a period of seven years, in response to which Assessee re-submitted returns filed for the respective years as response; Assessee states that notices issued are without jurisdiction since there is no income escaping assessment; HC holds that this is not an issue which can be looked into by writ petition, requires determination of disputed facts....................... Click here to read and download HC Judgment copy
2) ITAT: Upholds revision u/s 263, on AO’s failure to make adequate enquiry resulting in undervalued stock – ITAT upholds PCIT’s revisionary order recomputing cost of valuation sans adequate enquiry by AO, rejects Assessee’s contention that AO adopted one view out of two possible views and since the Assessee was regularly and consistently following FIFO method, the AO could have accepted the same without any further examination and verification; Assessee company was engaged in trading of iron ores, original assessment was completed u/s 143(3) determining total income at Rs.2,13,61,760/-, thereafter Assessee received show cause notice as to why the assessment order should not be cancelled / modified u/s 263, PCIT made an addition on account of undervaluation of closing stock; ITAT clarifies AO was required to make adequate enquiry to cover all possibilities of leakage of revenue, notes that there was no whisper in the assessment order regarding the issue of under valuation; States that PCIT has not disturbed the method of valuation adopted by the assessee i.e. FIFO method, but recomputed the cost, to include a bill was not considered by the AO while passing the assessment order; ITAT upholds PCIT’s order holding the assessment as erroneous and prejudicial to the interest of the Revenue and directs the AO to modify the assessment order enhancing the addition............... Click here to read and download ITAT Order
3) ITAT: Confirms addition of depreciation on goodwill representing accounting entry – ITAT confirms addition of depreciation on goodwill and other intangibles of Rs.44 Cr. arising from excess consideration paid by the Assessee in acquisition of running business for Rs.1240 Cr. whereby goodwill was recorded at Rs.792 Cr. ; ITAT is of the view that in absence of transfer and valuation of the asset, there cannot be any claim of ownership or claim of depreciation and allowing depreciation on fictional goodwill would tantamount to making profit/loss out of oneself; ITAT takes note of the valuation reports as per which the goodwill amount was only a balancing entry which in its opinion did not reflect the outcome of any due diligence procedures; Holds, "The balancing entry treated as goodwill as per accounting standards is fictional in nature in the present case and does not represent any real intangible and the accounting procedure in double entry accounting system cannot override the provisions of Income Tax Act.".............. Click here to read and download ITAT Order
4) HC: “May” as used in u/s 144B(7) does not absolve Revenue, obligated to consider request for personal hearing – HC holds that usage of 'may' u/s 144B(7) cannot absolve Revenue from obligation to consider 'personal hearing' request, sets aside faceless assessment order for denovo adjudication; Petitioner submitted that although personal hearings were sought for after issuance of show cause notice-cum-draft assessment orders at two occasions, Revenue chose not to accord the same; Referring to the Faceless Scheme contained in Sec 144B, HC remarks that "if one were to look at the relevant provisions, ...., then, one would get a sense as to why the legislature has provided a personal hearing in the matter:"; Rules that "...the usage of the word ‘may’, to our minds, cannot absolve the revenue from the obligation cast upon it, to consider the request made for grant of personal hearing. Besides this, under sub-clause (h) of Section 144B(7)(xii) read with Section 144B(7)(viii), revenue has been given the power to frame standards, procedures and processes for approving the request made for according personal hearing to an assessee who makes a request qua the same."; Upon Revenue’s counsel informing the Court that no such guidelines / standards have been framed, HC states that "given the aforesaid facts and circumstances, it was incumbent upon the Revenue to accord a personal hearing to the petitioner"..............Click here to read and download HC Judgment copy
5) HC: Upholds 14A disallowance even when no exempt income earned- HC: Upholds disallowance u/s 14A even if assessee did not earned exempt income in assessment year, quashes ITAT’s order, follows the Supreme Court as well as CBDT Circular No.5/2014 dated 11.02.2014 which clearly provides that disallowance u/s 14A of the Act read with Rule 8D has to be made even when the tax paid for a particular year is not earned in exempt income; Assessee is investment company with main object of making investments, during the year substantial investments were made using borrowed money, accordingly the interest expenditure was disallowed, on appeal to ITAT, it allowed the appeal.........Click here to read and download HC Judgment copy
6) HC: Revised submission of Form 10 at any time before the completion of assessment is valid compliance of law - HC dismisses Revenue’s appeal, allows assessee-trust’s accumulation of surplus amount to the extent of addition made by revising the Form 10 during the course of assessment proceedings............Click here to read and download HC judgment copy
Mr. Anurag Jain and Mr. Shubham Goel (Co-founders and Partners - ByTheBook Consulting LLP) discuss these amendments and the rules in the wake of practical challenges caused to employer and employee. They cover various aspects including double taxation of contribution in certain cases, ambiguity of the rules notified for interest computation and hint at possible difficulties in withholding taxes. The authors conclude with a suggestion “…it is imperative that the tax authorities bring clarifications on the working of formula under different practical scenarios/circumstances and also address the issue of potential double taxation of the same income.”