CASE LAWS
2018-TIOL-115-SC-IT
CIT Vs LEO FASTENERS: SUPREME COURT OF INDIA (Dated: March 28, 2018)
Income Tax – Section 80IA & 80IB
Keywords - industrial undertaking – manufacturing activity - intergroup transactions - source of investment - seperate labour
The Assessee is a partnership firm engaged in the business of manufacturing High Tensile Precision Fasteners which are extensively used in the automobile industry. During the relevant A.Y, the Assessee purchased two Nut former machines. This was followed by the Assessee purchasing in May, 2002, one more Nut Former machine, though, via the import route. For the next five (5) years, the Assessee claimed deduction at the rate of 100% of the profits derived by it for conducting the business of manufacturing fasteners/nuts. The Assessee claims that it set up a second Unit and, started commercial production qua the said Unit on Oct 23, 2003. Since, the second unit was set up, the Assessee claimed deduction vis-a-vis Unit -II at the rate of 100% of the profits derived in respect of the said unit, with effect from A.Y 2004-05. According to the AO, Unit -I and Unit -II were not, by themselves, "integrated units". He was of the view that the units were formed by splitting and/or reconstructing existing business. He concluded that the Assessee manipulated inter-group transactions only for the purpose of claiming tax benefits. He rejected the claim of Assessee for deduction u/s 80IB both for Unit - I and Unit-I. With regard to deduction claimed by the Assessee u/s 80IA, the AO adjusted the losses incurred by its one wind mill division, albeit, for earlier years, against profits of the A.Ys. in issue, while calculating the total taxable income. When the matter reached High Court, it was held that the fact that source of investment were common to two of its units, would by itself not disentitle the Assessee from claiming deduction qua second unit, if the Assessee had engaged separate labour and was engaged in manufacture and production of articles.
Having heard the parties, the Supreme Court condones the delay and dismisses the SLP, thus concurring with the opinion of High Court that Department could not notionally bring forward losses of earlier years which have been set off against other income of the Assessee.
Revenue's SLP dismissed
2018-TIOL-114-SC-IT
DAMAC HOLDINGS PVT LTD Vs CIT: SUPREME COURT OF INDIA (Dated: March 28, 2018)
Income Tax - Sections 37 & 132(4A).
Keywords - Benefit of presumption - Genuineness of expenditure - Seized documents
There were two Assessee-companies and both were engaged in the business of real estate, purchase of landed property, development and sale. Assessments were initiated on the basis of the search conducted in the residence of the Directors of both the Assessees u/s 132, wherein Assessee had claimed benefit of the presumption available u/s 132(4A) contending that bases on documents seized during search, claim for expenditure should be allowed. However, the AO rejected such contention and held that Assessee was required to submit more proofs as required u/s 37 of the Act. On appeal, the CIT(A) allowed the claims to the extent of the cheque payments as disclosed from the documents seized from the premises and disallowed it for the balance. However, on further appeal, the Tribunal allowed the entire expenses as claimed by the Assesses. When the matter reached High Court, it was held that when the AO fails to carry out an enquiry about genuineness of the expenditure and totally ignored the seized documents, refusal for presumption u/s 132(4A) in favour of the assessees for want of further proof u/s 37 was not justified. However, while giving directions, the High Court stated that the allowance of expenditure would be confined to the amounts revealed from the seized documents, whether it be cash or cheque payments and in this manner had denied the relief partially which was granted by ITAT.
Having heard the parties, the Supreme Court issued notices to the respective parties, directing their appearences for further hearing on the issue of "allowability of expenses u/s 37 in the garb of benefit of presumption u/s 132(4A).
Notice issued
2018-TIOL-113-SC-IT
CIT Vs ORCHID INDUSTRIES PVT LTD: SUPREME COURT OF INDIA (Dated: March 28,2018)
Income tax - Section 68
Keywords - non traceable investors - unexplained income
The Revenue Department preferred present SLP challenging the judgment, whereby the High Court had held that no additions could be made u/s 68, merely on the ground that investors / creditors were not traceable at their given addresses Or they did not appeared before AO in person.
Having heard the parties, the Supreme Court condones the delay and issued notices to respective parties directing their apperences for further hearing on the issue of "validity of additions u/s 68 in case of non traceable creditors".
Notice issued
2018-TIOL-578-HC-KERALA-IT + Story
DR TJ JAIKISH Vs CIT: KERALA HIGH COURT (Dated: March 8, 2018)
Income Tax - Sections 2(22)(e), 10(34) & 115(O).
Keywords: Additional income - Deemed dividends - Exemption.
The Assessee, an individual, was a major shareholder of one PVS Hospitals Pvt Ltd. He was also a major participant in a Trust, which was setting up a Nursing institution, called 'PVS Nursing College'. For the purpose of setting up the College, the Trust availed finance from PVS Hospitals Private Limited, to the extent of Rs.39,14,983/- in the FY 2004-2005. However, the AO treated such amount as deemed dividend u/s 2(22)(e) of the Act and accordingly, taxed the same in the hands of the Assessee, who definitely had a beneficial interest in the Trust. On Assessee's appeal, both the lower authorities upheld the decision of the AO.
On hearing the parties, the High Court held that,
Whether deemed dividend is different from the 'dividends' explained u/s 115(O) and therefore, the assessee cannot take exemption provided u/s 10(34), as no additional income tax is paid on such amount - YES: HC
++ exemption available from total income, as per Section 10(34), is on 'any income by way of dividends referred to in Section 115(O)'. Section 115(O) specifically speaks of an additional income tax being levied on the amounts disbursed as dividend by a Company. What is exempted from being included in the total income is that amount disbursed by a Company as dividend, which has been taxed under Section 115(O). The explanation puts it beyond any pale of doubt and excludes sub-Clause (e) of Section 2(22) from the expression of dividend for the purposes of Chapter XII-D [containing Section 115(O) to 115(Q)]. Prior to sub-section (34) of Section 10 dividend was taxable as income in the hands of the recipient. Only in the context of non additional tax being levied on the Company, declaring and paying dividend, that exemption was granted to the recipient-shareholder. Deemed dividends are not exempted since there is no payment of additional tax under Section 115(O). The revenue is right in contending that the exclusion under Section 10(34) would be applicable only for the amounts, which has suffered tax under Section 115(O). The question of law hence has to be answered in favour of the Revenue and against the assessee.
Assessee's appeal dismissed
2018-TIOL-577-HC-MAD-WT
DR SFV SELVARAJ Vs ACWT: MADRAS HIGH COURT (Dated: February 20, 2018)
Wealth tax Act - Sections 14(1), 15, 17B(1) & 17B(3)
Keywords - absence of statutory provisions - attribution of delay - belated return filling - compensatory interest - due date - net wealth
The Assessee is an individual. During the relevant year, a search was conducted in his premises, wherein it was found that the assessee, though, liable to pay wealth tax, did not file any wealth tax return, for the A.Ys 2007-08 and 2008-09. The AO therefore issued notice u/s 17 of Wealth Tax Act to the assessee calling upon him to file the wealth tax returns. In response to the said notice, the assessee filed wealth tax Returns declaring a net worth of Rs.8,85,84,300/-, for A.Y 2007-08 and Rs.19,22,50,591/- for A.Y 2008-09. These returns were taken up for scrutiny and assessments were completed, accepting the net wealth as stated in the returns. However, the Asst Commissioner of Wealth Tax (Asst CWT) proposed levy of interest u/s 17B(1) to the tune of Rs.6,70,550/- for the A.Y 2007-08 and Rs.12,39,879/- for the A.Y 2008-09, respectively. But the assessee calculated the interest payable u/s 17B(3), and submitted that interest was chargeable only from the date of issuance of the notice u/s 17 of the Act, and the same could not be charged from the due date u/s 14 of the Act. The assessee further submitted that since the Return of wealth had not been filed before the due date u/s 14(1) and within the time provided u/s 15 of the Act, he could file the Returns only after the issuance of Notice u/s 17 of the Act and hence the delay in filing of Returns on account of his inability to file the return, in the absence of statutory provisions for filing belated Returns, could not be attributed to the assessee u/s 17B(1) of the Act. The AO however, calculated interest u/s 17B(1) of the Act, from the due date of filing the return of wealth u/s 14(1) of the Act.
On appeal, the Commissioner of Wealth Tax (A) directed the AO to modify the calculation of interest. On further appeal, the ITAT reversed the order of the Commissioner of Wealth Tax (A) and observed that merely because the due date for filing of the Wealth Tax Return had expired and the assessee had not filed his return within the due date, it cannot be said that the assessee is exempt from the levy of interest u/s 17B of Wealth Tax Act. In respect of the period between the due date u/s 14(1) of Wealth Tax Act and the date of Notice u/s 17 of the Act, the Tribunal further held that, since the filing of wealth tax return was a mandatory duty of the assessee and the interest u/s 17B was admittedly compensatory in nature, the assessee was liable to pay the same.
On appeal, the HC held that,
Whether a compensatory interest is leviable for withholding the revenue due to the Government on account of delay in filing the return of net wealth - YES: HC
Whether interest for defaults in furnishing return of net wealth will commence from the due date of filing of Wealth Tax return u/s 14(1) of Wealth Tax Act, even in case of first time assessment u/s 17 of Wealth Tax - YES: HC
++ a perusal of the provisions of Wealth Tax Act, shows that interest u/s 17B is attracted in a case where the return of net wealth is furnished after the due date or where no such return is filed before the completion of the assessment. In the case on hand, the assessee has filed the return of net wealth more than six years after the due date for the A.Y 2007-08 and for the A.Y 2008-09 return of net wealth has been filed after more than five years as against the due date. Thus, apparently, there is a delay in filing the return. Since these assessments were made for the first time, they are “regular assessment” made under the Act. Therefore, a regular assessment has been completed under the Act and all natural consequences of such assessment will have to follow under the different sections of the Act. No doubt, assessment implies not only the determination of net wealth liable to be taxed under the Act, but also the wealth-tax payable by the assessee on the net wealth assessed including liability to interest u/s 17B, if chargeable. The intention of the Legislature in enacting the provisions of Section 17B is clear, which is to levy interest which is compensatory in nature for withholding the revenue due to the Government on account of delay in filing the return of net wealth;
++ in the present case, such a delay has occurred on the part of assessee in not filing the return of net wealth for the A.Ys 2007-08 and 2008-09 on or before the due date. The return disclosed substantial net wealth assessable to tax. There is a delay in the filing of the return of net wealth during the period between the aforesaid dates. Hence, interest is clearly chargeable u/s 17B. In these circumstances, the AsO has rightly levied interest u/s 17B which is mandatory under the provisions of the Act. Now, Section 17B(3) gets attracted only in a case where assessment has been done originally and return is filed subsequently, in pursuance to notice u/s 17 of the Act. There is no doubt that sub-section (3) of Section 17B does not apply to the facts of the case as in the present cases assessments have been done for the first time. Under the Income Tax Act, interest has to be levied as per the provision of Section 234B(1) and not as per the provisions of Section 234B(3), in view of the explanation to Section 234B of the Income Tax Act, which are equally applicable, to the case on hand, under the Wealth Tax Act also;
++ therefore, considering the facts and circumstances of the present case, the assessment made for the A.Ys 2007-08 and 2008-09 is made for the first time u/s 17, the same is a regular assessment and therefore attracts Section 17B(1) of the Act and not otherwise. Hence the Assessee is liable to pay interest u/s 17B(1) from the due date u/s 14(1) to the date of filing of the return u/s 17. In view of the same, the argument advanced by the counsel for assessee cannot be accepted that the assessee could not be asked to do the impossible, as the due date for filing of the wealth tax returns expired and the assessee had not filed his return within the due date and there was no provision for the assessee to file his returns beyond the due date and the assessee had to await the issuance of notice u/s17 of the Act and therefore the assessee must be exempted from the levy of interest u/s 17B in respect of the period between the due date and the date of the notice u/s 17 of the Act.
Assessee's appeal dismissed
2018-TIOL-490-ITAT-MUM + Story
Kunal R Gupta Vs ITO: MUMBAI ITAT (Dated: February 28, 2018)
Income Tax - Sections 49 & 54.
Keywords: Compromise deed - Capital gains - Family arrangement - Mode of acquisition -Probate order - Sale of property - Sale consideration & Title of property.
The Assessee, an individual had filed his return for the relevant AY. During the assessment proceeding, the AO noted that the Assessee had declared receipt of 30% of consideration received in respect of sale of property as LTCG. Further, the Assessee had claimed that the said property was devolved on him in view of memorandum of family arrangement cum compromised deed to the extent of 30%. The other 30% share to the other brother Shri Vishal Rajesh Gupta and other 40% went to father Shri Rajesh B Gupta. However, the AO believed that since no cost was incurred by the Assessee while acquiring the asset and the mode of acquisition was other than that mentioned u/s 49. The cost of the previous owner could not be allowed as cost in the hands of the Assessee and hence, the AO treated the entire share of Assessee Rs. 3.15 crore as LTCG and allowed deduction/exemption u/s 54 and assessed the balance LTCG as Assessee's income.
On appeal, the CIT(A) treated the entire consideration of Assessee's share as income from other sources.
On appeal, the Tribunal held that,
Whether bona fide family settlements worked out to maintain peace and harmony within the family are valid and binding on the tax authorities - YES: ITAT
Whether a property acquired by the assessee through family arrangement can be accepted as genuine for distribution of sale consideration in the process of computation of LTCG - YES: ITAT
++ the property-Ram Kutir was acquired by Assessee's father Shri Rajesh Gupta through a will of Shri Balak Ram Kamal dated 15-09-1997, which was executed by probate order dated 25-11-2011. This family arrangement cum compromise deed was documented by way of memorandum in writing and this is registered in the presence of witnesses. The memorandum of family arrangement cum compromise clearly states about the dispute, which was never disputed by the Revenue;
++ this Tribunal is of the view that it is settled law that when parties entered into family arrangement, validity of the family arrangement is not to be judged with reference to whether the parties should raised dispute or rights or claimed rights or a certain properties had in law any such right or not. This position is explained by the Supreme Court in the case of Maturi Pullaiah v. Maturi Narasimham. From the said judgment, it is clear that even the conflict of legal claims in present or future is a condition for validity of family arrangement, it is not necessary so. Even future dispute if any possible that can be the reasons for family settling the property by way of family arrangement. Even, the Supreme Court in the case of Kale vs. Deputy Director of Consolidation has laid down the principles which are essential for family arrangement;
++ the Madras High Court in the case of AL Ramanathan has clearly held that family arrangement should be bonafide one so as to resolve the family dispute and rival claims by a fair and equitable division of properties between various members of the family. Before this Tribunal, the Counsel for the Revenue could not point out that the present memorandum of family arrangement cum compromise deed dated 03-06-2004 is not a bonafide or it is obtained under any fraud or coercion. There is no such challenged to this family arrangement. The only casting doubt is that there is no dispute over the title of the property and there is no right in third person over sale of property by law. This proposition has been settled by the Supreme Court in the case of Maturi Pullaiah, wherein it is stated that even if there is no right of the property for any of the family members he can claim the same by way of family settlement;
++ hence, it is settled law that when parties entered into family arrangement, the validity of the family arrangement is not to be judged with reference to whether the parties who raised disputes or rights or claimed rights to certain properties had in law any such right or not. A perusal of the record in the present case, establishes that a dispute was there in the family as per memorandum of family arrangement cum compromised deed and family arrangement was arrived at was documented much prior to the sale of the property in 2011. The family arrangement was made in 2004. In view of these, this Tribunal treat the family arrangement as genuine and distribution of sale consideration according to the same is to be assessed as capital gains. The consequential benefits and deductions are to be allowed as per law.
Assessee's appeal allowed
2018-TIOL-489-ITAT-MUM
DCIT Vs RELIANCE PETROMARKETING LTD: MUMBAI ITAT (Dated: March 21, 2018)
Income Tax - Sections 43B, 115JB & 271(1)(c).
Keywords: Genuineness of expenses - Inaccurate particulars of income & Leave encashment.
The Assessee-company, had filed its return for the relevant AY declaring its loss. In the course of the assessment proceeding, the AO noted that the Assessee had claimed deduction of provision for leave encashment. After considering the factual matrix, the AO allowed the Assessee's claim by determining its total loss under normal provisions and u/s 115JB. However, the assessment was re-opened u/s 148 by the AO. The AO disallowed the Assesses claim for deduction of provision for leave encashment u/s 43B. The said re-assessment was accepted by the Assessee and no further appeal was preferred against the quantum addition. Accordingly, the AO started penalty proceeding u/s 271(1)(c) for furnishing of inaccurate particulars of the income.
On appeal, the CIT(A) deleted the penalty levied by the AO u/s 271(1)(c).
On appeal, the Tribunal held that,
Whether mere making of a claim which is not sustainable in law, by itself, will put assessee in question for furnishing inaccurate particulars of its income - NO: ITAT
Whether penalty u/s 271(1)(c) can be levied upon the assessee merely because its claim for deduction was not allowed in relevant AY but was allowable in subsequent year - NO: ITAT
++ it has made provision for leave encashment which has been debited to P&L account and the genuineness of the expenses has not been, in anyway doubted by the AO neither any material to this effect has been brought on record by the Revenue. The expenses claimed by the Assessee have been disallowed by the AO for the sole reason that the same are not allowable u/s 43B in the relevant AY and the same shall be allowed in the subsequent year. In such circumstances, this Tribunal believes that when the expenses are otherwise genuine and allowable but disallowed only due to dispute with respect to year of allowability of the claim, then, in such circumstances no penalty u/s 271(1)(c) can be levied;
++ mere making of the claim, which is not allowed by the AO by itself will not amount to furnishing of inaccurate particulars regarding the Assessee's income and merely because the Assessee's claim for deduction has not been accepted and allowed in the relevant AY but allowed in the subsequent year, penalty u/s 271(1)(c) cannot be attracted. Therefore, the said disallowance of expenses was made by the AO on the ground that the same were not allowable in the relevant AY but allowable in the subsequent year as per the provision of sec. 43B, it clearly shows that the dispute was only relating to the year in which the said expenses are allowable and not about the very deductibility of the said expenses as the genuineness of the same was neither disputed nor doubted;
++ the penalty is initiated for furnishing inaccurate particulars of income and the word 'particulars' used in sec. 271(1)(c)(1)(c) would embrace the meaning of details of the claim made. It is an admitted position in the Assessee's case that no information given by the Assessee with respect to claim made found to be incorrect or inaccurate. It is also not the case that any statement made or any details supplied were found to be factually incorrect. Therefore, it cannot be held guilty of furnishing inaccurate particulars of income. The word 'inaccurate' has been defined as not accurate, not exact or correct; not according to truth. The reading of the word 'inaccurate' and 'particulars' in conjunction, they must mean the details supplied by the Assessee are not correct. In its case, there is no finding that any details supplied by the Assessee were found to be incorrect or erroneous or false. Such not being the case, the Assessee cannot be put to question for levying the penalty u/s 271(1)(c)(1)(c) and mere making of a claim which is not sustainable in law, by itself, shall not amount to furni-shing inaccurate particulars of the income. Claim made by the Assessee in itself cannot amount to the inaccurate particulars of the income. Further, the Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. has elaborately scrutinized the definition of 'inaccurate particulars of income' and held that mere making a claim does not constitute furnishing inaccurate particulars of income.
Revenue's appeal dismissed
