2018-TIOL-861-HC-AHM-IT + Case Story
M KANTILAL AND EXPORTS Vs INCOME TAX SETTLEMENT COMMISSION: GUJARAT HIGH COURT (Dated: March 13, 2018)
Income Tax - Writ - Section 245HA(1)(iv).
Keywords: Abatement of proceeding - Opinion on merits - Settlement application.
The assessee company, involved in manufacturing and exporting of diamonds. The assessee had filed applications for settlement for the block period in the year 2003 which remained pending before the Commission. During the pendency, certain amendments were made in the chapter pertaining to settlement of cases by virtue of which a settlement application would abate if not disposed of within the prescribed time. Accordingly, the assessee had preferred various petitions before the High Court by stating that by virtue of operation of the statutory provisions, their settlement applications were likely to abate shortly. The assessee had also submitted that they had not attributed to any delay in disposal of the settlement applications. The Court stated that it was a statutory duty of the Settlement Commission to dispose of an application which was filed before it. Further, the Court also declared that unless due to any reasons attributable to the assessee, the Settlement Commission was prevented from fulfilling the said duty and only in such a case the proceedings would abate on the date specified u/s 245HA(1)(iv). Accordingly, the Court had passed interim order staying the provisions for abatement of proceedings for the assessee's settlement.
After the Court's order was passed, two important developments took place. Firstly, the Apex Court disposed of the case of Prabhu Dayal without a decision on the controversy at hand. Secondly, the Bombay High Court in case of Star Television News Ltd. considered a similar challenge to the same statutory provisions providing for abatement of settlement proceedings. The said judgment of the Bombay High Court was carried by the Revenue to the Supreme Court wherein, the HC's order was approved. Thereafter, the Settlement Commission stated that the assessee had earlier approached the HC and agreed to abide by the judgment of the Apex Court in case of Prabhu Dayal wherein, no relief was granted. Hence, the Commission declared that all the proceedings of the assessee had abated.
In Writ, the High Court held that,
Whether when a case was disposed of by the Apex Court without any opinion on merit, the same can be referred to destroy the assessee's submissions - NO: HC
Whether the Settlement Commission can apply the provision for abatement on assessee's applications without even recording any reasons attributable to the assessee for such delay - NO: HC
++ the Settlement Commission has committed an error in disposing of the proceedings as having abated. It is true that the assessee had earlier approached this Court on the issue of applicability of the abatement provisions and such petition was disposed of, the assessee to abide by the judgment of the Supreme Court in case of Prabhu Dayal. However, the Supreme Court did not have occasion to decide the case of Prabhu Dayal on merits. By virtue of interim order passed by the Apex Court in the said case or for any other reason, it appears that, by the time the Supreme Court took up the case for final hearing, the issues were no longer alive. Therefore, Prabhu Dayal withdrew his case. This disposal of the proceedings before the Supreme Court without expression of the opinion on merits, cannot be allowed to extinguish the assessee's rights and contentions;
++ from the outset, the assessee had taken a stand that the abatement proceedings are not valid and cannot apply so harshly as to terminate their proceedings for no fault of theirs. By the time the Commission took up the applications for settlement for further hearing, the law was made sufficiently clear by virtue of declaration by Bombay High Court in case of Star Television and approval of such view of High Court by the Supreme Court. When the Settlement Commission was therefore taking up the applications for settlement for further hearing, it was obliged to apply such law. If the proceedings were delayed due to the reasons attributable to the assessee, the provision for abatement would apply but not otherwise. The Settlement Commission has not recorded any such finding. The Department has not brought any facts to our notice to permit any further inquiry in this respect by the Settlement Commission. In plain terms therefore there is no material before us to hold that the application for settlement of the present assessee were belated due to the reasons attributable to the assessee. The proceedings are revived and placed back before the Settlement Commission for disposal in accordance with law.
Case Remanded
2018-TIOL-860-HC-AHM-VAT
JTC LTD Vs STATE OF GUJARAT: GUJARAT HIGH COURT (Dated: March 8 & 9, 2018)
Gujarat VAT Act - Section 11(3)(b).
Keywords: Branch transfer - Finished product - Principal place of business - Raw material - Tax credit - Transportation.
The Assessee-company was a dealer engaged in the business of manufacturing and sale and purchase of various types of textile products. Caprolactum was one of the inputs used by the assessee which was purchased from Gujarat State Fertilizers and Chemicals Ltd, which was used for manufacturing of yarn which in turn was sold within as well as outside the State. On purchase of such raw material, the assessee pays Value Added Tax at the prescribed rate. Upon manufacture and sale of goods, the assessee claims tax credit of the tax so paid for the purchase of caprolactum u/s 11 of the Act.
However, the State opposes the assessee's claim of tax credit on the ground that such raw material was sent by the assessee to its factory situated at District Hoshiarpur, Punjab, for converting into nylon filament yarn before it returned to the assessee in Gujarat, from where it was sold to its different customers within and outside the State. The assessee contends that the tax credit was available in terms of section 11.
The issue ultimately reached the Tribunal, which held against the assessee. According to the Tribunal, the assessee had sent raw material to its factory situated at Punjab for converting into nylon filament yarn. Such finished goods were received back at Surat and then sold to customers within as well as outside the State. The Tribunal was of the opinion that such a situation would fall within clause (b) of subsection (3) of section 11 and the tax credit would be subjected to reduction as provided therein. The Tribunal held that the goods were consigned or dispatched for branch transfer and therefore, in terms of section 11(3)(b), the tax credit had to be reduced by 4%. In fact, the Tribunal went to the extent of stating that when the goods had been sent to other State for whatever reason or purpose, section 11(3)(b) would apply. Therefore, against such judgment, the assessee is in appeal.
On hearing the matter, the High Court held that,
Whether transportation of raw material by the assessee to its branch situated outside the State comes within the ambit of section 11(3)(b) of Gujarat VAT Act, which reduces tax credit by 4% - NO: HC
Whether such transfer of goods for manufacturing activity can be treated as branch transfer, even though the goods were returned back to assessee's principal place of business in the form of finished product - NO: HC
++ the present is not a case either of branch transfer or transfer to a consignment agent. Undoubtedly, the raw material was transported to the assessee's branch situated outside the State but it can still not be treated as a branch transfer. It was transfer of the goods for manufacturing activity and the goods were returned back to the assessee's principal place of business in the form of finished product. It is this finished product which was eventually sold by the assessee either within the State or by way of interState sale and prescribed duty at the prescribed rates was paid. Therefore, clause(b) of subsection(3) of section 11 did not apply so as to allow the department to reduce the assessee's tax credit by prescribed percentage;
++ subclause (iii) of clause(a) of subsection(3) of section 11 is made specifically subject to the provision of subclause (b). Correspondingly subclause (b) starts with a nonobstante clause providing, that notwithstanding anything contained in the said section, the amount of tax credit would be reduced in the manner provided therein. However, this would not change the opinion on the correct interpretation of the said provision. Firstly, it is only subclause (iii) which is made specifically subject to the provision of subclause (b). Subclause (iii) refers to branch transfer or consignment of taxable goods outside the State. Subclauses (i) and (ii) of clause (b) have direct relation to these instances. For example, subclause(i) pertains to taxable goods consigned or dispatched for branch transfer or to an agent outside the State where as subclause(ii) refers to taxable goods which are used as raw materials which in turn are dispatched outside the State in the course of branch transfer or on consignment basis. Subclauses (i), (ii) and (iii) of clause (b) has no such direct corelation with subclause(iii) of clause(a). However, in the original form clause (b) of subsection (3) of section 11 only contained two subclauses. Subclause (iii) was inserted by the Gujarat Value Added Tax (Amendment) Act, 6 of 2006.
Assessee's appeal allowed
2018-TIOL-859-HC-AHM-IT
BUNDY INDIA LTD Vs ACIT: GUJARAT HIGH COURT (Dated: March 26, 2018)
Income tax - Writ - Sections 143(3), 144C, 147 & 148
Keywords - concealment - reasons for reopening - sale consideration - transfer of leasehold land
The assessee company is a manufacturer of Fuel Pipes, Fuel Tanks, Automobile Parts and Automobile Fittings & Components. During the relevant year, the assessee had e-filed its return declaring total income as Rs. 2,96,83,690/-, and after setting off of business loss/depreciation of Rs. 4,21,20,515/-, the book profit u/s 115JB was of Rs. 7,35,82,357/-. The assessment was thereafter finalized u/s 143(3) r.w.s. 144C(3) at assessed income of Rs. 10,95,54,156/-. Subsequently, it was seen from the audited annual report of assessee that the leasehold land at SIPCOT, Tamilnadu was transferred by the assessee to its related party during the year. On further verification and enquiry, the office of undersigned was in possession of information that the SPICOT Ltd. had allotted a plot measuring 2.66 acres at SIPCOT Industrial Park, to the assessee company, after remitting the plot cost of Rs. 53.20 Lacs. After that the said land was transferred to M/s. Hanil Tube India Private Limited i.e., the related party for a consideration of Rs. 117.04 lakhs. However no income on account of sale/transfer of property was shown by the assessee in its return. Since the transfer of leasehold land happened in A.Y 2011-12, the scrutiny assessment for A.Y 2011-12 was reopened, as the assessee did not show this transfer of property in its books for the said A.Y. The assessee raised objections to the notice of reopening, but in vain.
On Writ, the HC held that,
Whether when a running lease in a property is sub-leased to a related company, then differential cost of property transferred to the lessor should not be attributed as income of the former lessee, and hence non-declaration of same will not not amount to concealment, warrating any reassessment - YES: HC
++ the notice of reopening has been issued beyond the period of four years from the end of relevant assessment year and the original assessment was framed after scrutiny. The reasons recored by AO suggests that contrary to what the assessee was canvassing, the property in question was transferred during A.Y 2011-2012 and that the sale consideration was Rs. 117.04 lacs. It was not clear from what sources and for what reasons, the AO was asserting these two facts. It is seen that the AO had issued notice to the Small Industrial Promotion Council of Tamil Nadu Limited [SIPCOT] where the plot in question is situated, calling upon certain details with respect to the said plot, one of them being copies of the Deed or Agreement if any, as mentioned in relinquishment deed. In response to such notice, SIPCOT conveyed to the AO that it has accorded approval for transfer of leasehold rights of the said plot in favour of M/s. Hanil Tubes India Private Limited. Accordingly, on remittance of differential land cost of Rs. 63.84 lacs, the Modified Lease Deed was executed in favour of M/s. Hanil Tubes India Private Limited and since then, as per the records of SIPCOT, the plot is registered in the name of said M/s. Hanil Tubes India Private Limited;
++ thus, from the communication obtained by SIPCOT, the AO picked up two relevant details; one was regarding transfer of plot on 23rd September 2010 and another, stating sale consideration of Rs. 117.04 lakhs received by the assessee for such transfer. For the purpose of this petition, the details of transfer of leasehold rights is not required to be looked into. Nevertheless, when it comes to consideration for such purpose, the AO is totally off the mark. He has mechanically picked up the said figure of Rs. 117.04 lakhs from the communication addressed by SIPCOT to him. There is no indication that this is an amount received by the assessee from M/s. Hanil Tubes India Private Limited. In fact, indication is to the contrary ie., such amount is deposited by M/s. Hanil Tubes Private Limited. In either case, there was no information available with the AO that the assessee had received sale consideration of Rs. 117.04 lakhs from the transferee company. In the result, the reopening notice is hereby quashed.
Assessee's petition allowed
2018-TIOL-858-HC-AHM-VAT
LUPIN LTD Vs STATE OF GUJARAT: GUJARAT HIGH COURT (Dated: March 23, 2018)
Gujarat Value Added Tax - Writ - Sections 11, 16 & 75.
Keywords: ITC - Limitation - Revisionary powers.
The assessee company, engaged in the business of manufacture and sale of drugs, its intermediaries and medicines, had filed its returns for the relevant AY. During assessment, the AO observed that the assessee purchased fuel as raw material and claimed input tax credit u/s 11. Further the claimed input tax credit was reduced in case of fuel by the prescribed percentage u/s 11(3)(b). The AO directed further reduction u/s 11(1)&(2). Subsequently, a similar issue was decided by the jurisdictional High Court in favor of the assessee holding that the reduction can apply only once even if the product happens to be fuel, however the same stood reversed by the Supreme Court of India. The assessments in the present case were completed following the order of the High Court. However, based on the judgement of the Supreme Court, the Commissioner issued a notice for suo moto revision of assessments.
In writ, the High Court held that,
Whether if the Apex Court reverses a decision of the High Court, all assessments done on the basis of High Court decision can be revised even beyond the period of limitation - NO: HC
++ following the decision of State of Gujarat vs Reliance Industries Ltd., and without recording separate reasons in the present case, the disputed notices both dated 11.12.2017 produced at Annexures A and B are quashed. Hence, the petition is disposed of.
Assessee's Writ allowed
2018-TIOL-857-HC-AHM-IT
AISHWARYA DYING MILLS PVT LTD Vs DCIT: GUJARAT HIGH COURT (Dated: March 26, 2018)
Income Tax - Writ - Sections 133, 143(3), 147, 148 & 151.
Keywords - Accommodation entries - Fishing inquiries - share capital - Reopening - Reasons to believe vs Reason to suspect - Shell companies.
The assessee company's return was taken in scrutiny. The AO passed assessment order u/s 143(3) of the Act. Later on some information was received from the DDIT [Inv] Kolkata that during the period under consideration, the assessee company had accepted share capital and share premium from such parties who were proved to be shell companies based on the investigation conducted. Since, the investor companies were shell companies indulged in providing accommodation entries, the share capital/share premium claimed to have been received, from such companies by the assessee company was not genuine and income to that extent had escaped the assessment. For the reason that the assessee company had failed to disclose full and true facts of case, AO issued notice for reassessment. The assessee objected to the reopening of assessment. Such objections were rejected by the AO. Aggrieved assessee filed petition in the High Court.
In writ, the High Court held that,
Whether there is any provision in Income Tax Act which prevents AO from roving inquiry before issue of Sec 147 notice - NO: HC
Whether AO's fishing inquiry is valid if he receives certain information from the Investigation Wing and forms an opinion before issuance of re-assessment notice - YES: HC
++ the assessee had raised a contention that sanction u/s 151 from the Commissioner before issuance of notice of reopening was not obtained. But a perusal of the original files, suggests that the AO having recorded the reasons for reopening, presented the same for approval of the Principal Commissioner in prescribed format on 29.03.2017. On 30.03.2017, the Joint CIT as an intermediary officer, processing such reasons and opining whether it was a fit case for reopening of the assessment under section 147 of the Act, in his own handwriting put the remarks "I am satisfied" that it was a fit case for reopening under section 147 of the Act. On 31.03.2017, the Principal CIT put his remarks that he was satisfied that it was a fit case for reopening the assessment. Thus, the sanction for reassessment was granted on 31.03.2017 i.e. the date on which such notice was issued. There is nothing on the record to substantiate this allegation of assessee and the same must rest;
++ instead of Investigation Wing of the Income Tax department at Kolkata providing any report or information, it was the Surat Unit of the Income Tax Department which apparently contacted the Investigation Wing at Kolkata and sought information whether there was any material to link the assessee companies at Surat with such bogus accommodation entry transactions. The information, as requested, was provided. Such material was placed before the AO. On the basis of such information, AO found that the assessee had received share application money from as many as 22 such shell companies during the year under consideration. On the basis of such information, AO recorded his satisfaction that income chargeable to tax had escaped assessment;
++ the AO had specific and definite information at his command to form a belief that income chargeable to tax had escaped assessment. He found that the assessee had received sizeable amount of share application and share premium monies from various companies which were found to be shell companies and whose Directors' statements were recorded confirming this aspect. This is, therefore, not a case where the AO was proceeding on borrowed satisfaction or that it had dearth of information at his command to enable him to form a belief that income chargeable to tax had escaped assessment;
++ the term "reason to believe" is vitally different from reason to suspect. On a number of occasions, it has been held that reopening of assessment cannot be done for carrying out roving or fishing inquiries. The principle, that the notice of reopening can be issued only upon the AO bona fide forming a belief that income chargeable to tax had escaped assessment is well settled. However, there is no fetters on an AO carrying out preliminary inquiries even before issuance of notice of reopening in order to collect information on the basis of which, he may either form a belief that income chargeable to tax had escaped assessment or abandon any further inquiry, upon being satisfied that no such belief could be formed. No statutory backing was found to import the concept of impermissibility of a roving or a fishing inquiry at a stage prior to issuance of notice of reopening;
++ as per section 133, the AO, the Deputy Commissioner of Appeals, Joint Commissioner or the Commissioner (Appeals) for the purposes of the Act could require furnishing of various documents, informations and materials as specified therein. Pendency of an assessment is not a precondition for exercise of such powers. Even in absence of any pending assessment, such information or material may be summoned, not only from the assessee, being an individual HUF or a firm but also from any other person including a banking company or an officer thereof. Of course, these powers are not unguided or uncanalized and cannot be exercised at the whims of the assessing authority. In the present case, the AO has not even called for any information or document from the assessee or any other person in relation to the assessee's proposed assessments. He has, by all accounts, merely contacted the Investigation Wing of the Income Tax department at Kolkata and based on the process of shortlisting, has called for information with respect to dealings of such shortlisted companies. Mere fact, that instead of such information being supplied to him by the Investigation Wing of the Income Tax Department at Kolkata he sought such information, would not be of any consequence. In the result, petition is dismissed.
Assessee's petition dismissed
