NOTIFICATIONS
cnt38_2018
In supersession of Import Manifest (Vessels) Regulations, 1971, Export Manifest (Vessels) Regulations, 1976 and Transportation of Goods (Through Foreign Territory) Regulations, 1965, CBIC issues Sea Cargo Manifest and Transhipment Regulations, 2018 effective 01.08.2018
cnt37_2018
Adjudicating authority changed for DGCEI case
dgft_trade_notice_07_2018
Non-submission of complete Appendix 4E, containing technical details, chemical reactions and data sheet for advance authorisation applications on self declaration basis under Para 4.04 and 4.07 of HBP for cases relating to NC-4
CASE LAWS
2018-TIOL-908-HC-AHM-VAT + Case Story
BSCPL INFRASTRUCTURE LTD Vs STATE OF GUJARAT : GUJARAT HIGH COURT (Dated: February 23, 2018)
Gujarat Value Added Tax - Writ - Sections 5, 14A & 229; Rule 28(6)
Keywords - Composition of tax - Self-manufactured input - Taxable event - Works contract
The assessee company, engaged in execution of works contracts, is also a registered dealer under the Act. The assessee was awarded the contract for 4-laning of some sections of a national highway. To this end, the assessee used steel, cement, grit and sand. The assessee also has its own mines taken on lease, from where it procures black trap which is then converted into grit for final use in construction. It may be noted that the assessee had applied for composition of tax on works contract u/s 14A of the Act, wherein it could pay a lump sum tax on total turnover. The assessee's application opting for composition of tax, was accepted. However, in such application, the assessee did not mention that it was itself mining black trap which was later converted into grit for use in construction.
When the Department found out about it later, it noted that the assessee did not pay tax on the grit used in construction, and so had contravened the conditions for composition of tax. Hence the Department issued SCN proposing that the assessee's permission for composition of tax be cancelled. The Department also alleged contravention of Rule 28(6) of the GVAT Rules, on grounds that the assessee had withheld such information from the Department, and based on such limited information available permission for composition had been granted. Hence the present writ by the assessee.
In writ, the High Court held that,
Whether a contractor using self-manufactured inputs in execution of works contract becomes ineligible to seek composition of tax - NO: HC
Whether a commodity is taxable under the VAT Act only when its taxable event arises, and not merely because tax is prescribed upon sale of such commodity - YES: HC
Whether where a dealer executing works contract is not debarred from using self-manufactured inputs, whether a declaration for such inputs needs to be filed - NO: HC
++ reverting back to the interpretation of Rule 28(8) of the VAT Rules, the Court may recall a crucial condition which the Department claims breach of is, if a dealer who is granted permission to composition of tax uses any taxable goods in execution of the works contract, such goods should have borne tax payable under the Act. In this context, we need to appreciate and apply the two terms viz., "taxable goods" and "tax payable under the Act". A literal reading of this provision may lead to a situation where as in the case on hand a dealer uses goods which otherwise as per the definition of the term, can be categorized as taxable goods. The dealer, however, does not pay tax because he is not required to pay tax, and therefore, he would not have fulfilled the said condition of bearing the tax payable on use of taxable goods. However, this interpretation is neither correct nor reasonable or in any manner brings out the true legislative intent. In plain terms, what the legislature desired by framing the said provision is that a dealer who has been granted permission for composition of tax must have paid tax; as prescribed, upon consumption of taxable goods. This does not however mean that the dealer has to pay tax - whether such liability under the Act has arisen or not. It is in this context, the term "tax payable under the Act" must be considered. When the taxing event is sale of goods and such event has not arisen, there would be no question of tax becoming payable under the Act. This itself would be sufficient to dislodge Department’s objection. The term "taxable goods" cannot be seen in isolation by reading the definition contained in Section 229 of the VAT Act. A commodity would become taxable goods when taxable event arises. Merely because upon sale of such goods, tax is prescribed which is not exempt under Section 5 of the VAT Act, and therefore, is "taxable goods" would not for the purpose of relevant portion of Rule 28 [8] of the Rules become "taxable goods". The term "taxable goods" and "tax payable" under the Act have to be harmoniously construed. Only reconciliation possible is that the dealer is expected to pay tax when taxing event arises and not otherwise;
++ the issue can be looked from a different angle. It may be recorded that the Department has raised an erroneous objection that the assessee had failed to disclose its modus of obtaining black-trap or grit, while applying for composition. Neither the Act nor the Rules require any such declaration. The assessee cannot be expected to make declaration which was not called for. In this context, the question arises what would have happened had the assessee made such a declaration while applying for composition or the Department was aware of the assessee’s modus, while dealing with such an application. Would the authority be justified in rejecting such an application ? The answer has to be in the negative since there is no provision under the Act or the Rules which debars a dealer from using self-manufactured inputs in execution of the works contract;
++ even if the assessee wanted to pay tax on such goods, there is no provision under the Act under which the assessee could do so. Since the assessee had not purchased the goods from market but had self-manufactured it from the mines taken on lease, there was no occasion to pay the tax. The Department obviously cannot argue that in such a situation, the assessee cannot avail of composition facility at all. This would indirectly disqualify a contractor who uses self-manufactured products for home consumption in the course of execution of works contracts from claiming composition of tax. There is no condition which will render any such contractor ineligible for composition scheme. Interpretation of the said rule, as advanced by the Department would bring about a situation where such a contractor would be rendered totally ineligible to apply for composition. Such an interpretation cannot be accepted. This would amount to Rule 28(8) virtually governing the eligibility conditions for composition of tax which conditions are prescribed in Section 14A of the Act. Rule 28[8] of the VAT Rules being a piece of subordinate legislation must yield to the provisions contained in the Act.
Assessee's writ petition allowed
2018-TIOL-907-HC-AHM-IT
MSK REAL ESTATES PVT LTD Vs DCIT: GUJARAT HIGH COURT (Dated: March 21, 2018)
Income tax - Sections 68, 147 & 148
Keywords - accomodation entries - allotment of shares - investment in shell companies - incriminating documents - share application money - taxing event - undisclosed cash credit
The assessee, a real estate company, had filed no return for the A.Y 2009-10. Consequent to the same, a search operation was carried out in Madhav Group of cases, Vadodara at their business premises, wherein some incriminating documents were found and seized, which showing allotment details of 100000 shares of assessee company. On further verification, it was found that total share capital raised through this issue was Rs. 1 crores and these shares were allotted to Kolkata based companies. During the course of search on Madhav Group, the inquiries were also conducted at Kolkata by the Investigating Wing with respect to the companies which were given loans through share application money. As per reply received from the office of the DDIT(Inv.), Kolkata, it was revealed that all these companies were shell companies having no actual business activity and involved in providing accommodation entries in the form of share capital, share premium, unsecured loans etc. as admitted in their statement by the main controller/dummy directors of these companies. In view of these facts, the AO had reason to believe that income of Rs. 1 crore chargeable to tax had escaped assessment within the meaning of section 147, and accordingly, notices u/s 148 came to be issued to the assessee. In response, the assessee objected that the entire share capital and share application money was received during A.Y 2009-10 and that therefore, the reopening of A.Y 2010-2011 was impermissible. The AO however rejected such objections by stating that the allotment of share was prima facie the matter of concern and not the receipt of share application money.
On Writ, the HC held that,
Whether validity of reopening can be resolved under writ jurisdiction, when the question regarding taxing event and the notice for reopening are itself under challenge - NO: HC
++ the counsel for assessee has urged that whatever be the facts, no taxing event having been occurred during the period relevant to the A.Y 2010-11, the reopening notice should be quashed. Elaborating this ground, he contended that the entire share application and share premium money was received by the assessee on or before Mar 31, 2009. No amount having been received after such date, no taxing event fell within the period relevant to the A.Y 2010-11. This ground, the AO repealed citing two fold reasons. According to him, mere receipt of share application money was not enough. Unless shares are alloted, such amount would remain with the company and cannot be appropriated. In case of over subscription of shares, it may happen that the amount may have to be returned. In short, the transaction would be completed only upon allotment of shares. The second ground was that, in any case, part of the amount of Rs. 1 crore was actually received by the assessee company on Apr 02, 2009. He pointed out that two cheques of Rs. 10 lacs and 15 lacs respectively were deposited with the bank on Mar 31, 2009 and encashed on Apr 02, 2009. According to him, therefore, the company received the money actually on Apr 02, 2009 and not earlier. The assessee's counsel criticized this approach of AO arguing that u/s 68, the assessee's undisclosed cash credit can be brought to tax. The factum of allotment of shares in such a situation has no bearing. In the context of AO's second ground, the assessee's counsel contended that once a cheque is presented before the bank and not dishonoured, the payment would relate to the date of presentation and not the date of realization of the cheque;
++ it is undisputable that the assessee had not filed any return for the said assessment year and; as per the reasons recorded by AO, there is every case for permitting assessment of assessee for the said year. As per the reasons recorded, the assessee had received bogus share premium money from shell companies who were indulging in providing bogus accommodation of the entries. There were series of transactions of this nature. The question that, when precisely the taxing event occurred would have to be kept open to be decided at the first instance by the AO during the course of assessment. In the present case, at the very threshold, it is not necessary to decide this issue finally. This Court is conscious that the reasons recorded by AO can be challenged on the ground of their validity. If therefore there is a clear conclusion possible that such reasons lacked validity, it would always be open for the Court to strike down the notice based on such reasons. However, at the stage when the notice for reopening is under challenge, if it is not possible without further detailed inquiry to arrive at a final conclusion, the Court would be well advised in keeping such a question open and permitting further proceedings in connection with the notice of reopening. Under the circumstances, subject to these observations, the petition is dismissed and the notice is discharged. The assessment in this case would be carried out independently.
Case disposed of
2018-TIOL-906-HC-CHHATTISGARH-IT + Case Story
ARDENT STEEL LTD Vs ACIT: CHHATTISGARH HIGH COURT (Dated: May 4, 2018)
Income Tax - Writ - Sections 147, 148(1) & 292BB - General Clauses Act, 1897 - Section 27.
Keywords: Chartered Accountant - Issue of notice - Jurisdictional requirements - Procedural requirement - Reassessment notice - Service of notice & Shall be issued.
The assessee company, had returned income for the AY 2009-10, which was duly assessed by the AO. However, on 13-4-2016, the assessee was served with notice u/s 148(1) through his Chartered Accountant (CA). In reply, the assessee had returned income on 2-5-2016 and thereafter, sought reasons to believe from the AO. Thereafter, again, on 4-5-2016, the assessee was served with notice u/s 143(2) for the relevant AY. On 9-5-2016, the assessee filed objections against the reasons provided for reopening the completed assessment u/s 148 by stating that the disputed notice dated 15-3-2016 was never served upon it. Further, the assessee had also submitted that it already changed the address and the same was updated in the PAN database and the new address was also updated in the tax returns. However, the assessee's objections were rejected by stating that notice was issued on 15-3-2016 on the address shown in the assessee's tax returns but, the same remained unserved by citing a reason to be "left". Aggrieved assessee has preferred the present writ by stating that no notice was issued within the limitation period as prescribed u/s 149(1)(b) r/w Sec. 148(1) and, hence, the initiation of reassessment proceeding was barred by limitation.
In Writ, the High Court held that,
Whether service of notice u/s 148 in order to initiate reassessment proceedings can be treated as mere procedural requirement and hence, not mandatory in nature - NO: HC
Whether the expression 'issue' is to be construed in context of Sec. 149, which is an express limitation provision creating precise bar with regard to reopening of assessments - YES: HC
Whether the plea of Sec. 292BB is available to the assessee even if it has raised objections to the AO prior to the completion of an assessment proceeding - NO: HC
Whether notice served upon the assessee u/s 148 through a Chartered Accountant can be treated as a valid notice based on which the AO can finalise such proceedings - NO: HC
++ in the case of Calcutta Discount, the Supreme Court have clearly and unmistakably held that the High Court in appropriate cases has power and jurisdiction to issue an order prohibiting the ITO from proceeding to reassess the income when the conditions precedent do not exist. The same principle of law has been followed in the matter of M/s. A. Raman and Co. Therefore, in light of the principle of law laid down in Calcutta Discount followed in M/s. A. Raman's case and Jeans Knit Private Ltd. and considering the facts leading to challenge to the SCN, I do not have any slightest doubt in my mind to hold that the writ petition is maintainable to challenge the notice for reassessment issued u/s 147 r/w Sec. 148 and accordingly, I overrule the first preliminary objection raised on behalf of the Revenue in that regard;
++ Hence, Sec. 147 is not a charging Section. It merely provides a machinery whereby an income which has escaped assessment or has been under-assessed in the relevant AYs can be brought into the network of taxation. The power of reopening is not unbridled and is governed by inbuilt checks. While interpreting the said provisions, the Supreme Court in the case of Sri Krishna Pvt. Ltd. has set out the circumstances as to when the Court may look into and examine the conclusion arrived at by the ITO in proposing to initiate reassessment proceedings and sounded a note of caution by holding that the existence of the reasons to believe is supposed to be the check, a limitation, upon his power to reopen the assessment. Sec. 148(2) imposes a further check upon the said power, viz., the requirement of recording of reasons for such reopening by the AO. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the case may be, has to be satisfied, on the basis of the reasons recorded by the ITO, that it is a fit case for issuance of such a notice. The power conferred upon the AO by Ss 147 and 148 is thus not an unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the AOs. All the requirements stipulated by Sec. 147 must be given due and equal weight;
++ further, Sec. 148(1) provides for issuance of notice when income has escaped assessment and service of notice. Sec. 149 provides time limit for notice. Notice must be issued within the limitation period prescribed in Section 149(1), however, service of notice within the limitation period is not a prerequisite for conferment of jurisdiction on the AO. A clear distinction has been made out between 'issue of notice' and 'service of notice' under the IT Act. Sec. 149 prescribes the period of limitation. It categorically prescribes that no notice u/s 148 shall be issued after the prescribed limitation has lapsed. Sec. 148(1) provides for service of notice as a condition precedent to making the order of reassessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the AO to proceed to reassess. The mandate of Sec. 148(1) is that reassessment shall not be made until there has been service. The Delhi High Court in the matter of Chetan Gupta has culled the principles relating to Sec. 148;
++ the requirement of issue of notice is satisfied when a notice is actually issued within the period of limitation prescribed. Service of notice under the Act is not a condition precedent to conferment of jurisdiction on the AO to deal with the matter but it is a condition precedent for making of the order of assessment. The High Court of Gauhati in the matter of Mintu Kalita, placing reliance upon R.K. Upadhyaya's case has held that in no uncertain terms that service of notice u/s 148 for the purpose of initiating proceedings for reassessment is not a mere procedural requirement but it is a condition precedent for initiation of proceedings for reassessment u/s 147. However, in the case of CESC Ltd.'s case, the Calcutta High Court has held that service of notice u/s 148 is an integral part of the cause of action arising out of initiation of a proceeding u/s 147;
++ a focused glance of Sec. 149(1) would show that the maximum time limit for issuance of notice u/s 148 is six years from the end of relevant AY. In the present case, the relevant AY is 2009-10 and the disputed notice is said to have been issued on 15-3-2016 on the incorrect address of the assessee which has already been changed on the date of issuance of notice by updating the PAN data base. The term 'shall be issued' used in Sec. 149 is extremely important. The expression "issue" has been defined in Black's Law Dictionary to mean "To send forth; to emit; to promulgate; as, an officer issues order, process issues from court. To put into circulation; as, the treasury issues notes. To send out, to send out officially; to deliver, for use, or authoritatively; to go forth as authoritative or binding. When used with reference to writs, process, and the like, the term is ordinarily construed as importing delivery to the proper person, or to the proper officer for service";
++ thus, the expression "to issue" in the context of issuance of notice, writs and process, has been attributed the meaning, to send out; to place in the hands of the proper officer for service. The expression "shall be issued" as used in Sec. 149 would therefore have to be read in the said context. Thus, the expression "shall be issued" would mean to send out to the place in the hands of the proper official for service. After issuing notice and after due dispatch, it must be placed in hands of the serving officer like the post office by speed post or by registered post, by which the officer issuing notice may not have control over the said notice after issuance of the said notice. It must be properly stamped and issued on the correct address to whom it has been addressed. Mere signing of notice cannot be equated with the issuance of notice as contemplated u/s 149;
++ the Karnataka High Court in the matter of B J N Hotels Ltd., has clearly held that it is for the Revenue by producing the dispatch register to establish that the orders are complete and effective i.e., it is issued, so as to be beyond the control of the authority concerned within the period of limitation. Likewise, the Kerala High Court in the matter of Government Wood Works has held that in the absence of dispatch date made available to the Court from the records, to prove that the order is issued within the prescribed period, order passed by AO is barred by limitation;
++ section 27 of the General Clauses Act, 1897 provides that where any Central Act authorizes or requires any document to be served by post, whether the expression "serve" or either of the expressions "give" or "send" or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and posting. In such a case, unless the contrary is proved it would be deemed to have been served at the time when the letter would be delivered in the ordinary course of post to the assessee. In this connection, the decision of a Division Bench of the Delhi High Court in the matter of ST Microelectronics (P.) Ltd may be noticed herein in which the assessee filed return, it changed its address thereafter, new address was updated in PAN database which was duly recorded and all communications were thereafter received by assessee from Revenue at new address;
++ it is the case of the Revenue that notice was issued u/s 148(1) by the officer concerned on 15-3- 2016 on the address shown in the return and it was sent for delivery well within the period of limitation through speed post for delivering to the assessee, which is seriously disputed by the assessee and even prayed for production of said notice, but ultimately, it has not been produced by the Revenue on record. The said notice was ultimately, said to have been returned unserved on 28-3-2016 and served to the assessee through its CA on 13-4-2016 after the period of limitation which is 31-3-2016. The notice dated 13-4-2016 is filed along with the writ petition in which the assessee's address;
++ burden to establish that notice u/s 149(1)(b) r/w Sec. 148(1) has been issued to the assessee was on the Revenue which the Revenue has failed to discharge, as the Revenue has clearly failed to establish that the notice was issued on or before 31-3-2016 on the assessee's correct address and it was dispatched on or before 31-3-2016 and it was put to the proper serving officer for serving in accordance with law. Therefore, I have no hesitation to hold that no notice u/s 149(1)(b) r/w Sec. 148(1) was issued to the assessee well within the period of limitation on or before 31-3-2016 on the officially notified correct address available in the official record for service of notice to the assessee which is a jurisdictional fact and condition precedent for initiation of assessment proceeding u/s 148(1);
++ it is the case of the Revenue that the assessee has participated in the assessment proceedings after service of notice through CA and filed return and also raised objections and objections were decided on 18-7-2016, therefore, the assessee is deemed to have waived the service of notice u/s 149(1) relying upon Sec. 292BB. A careful perusal of the said provision would show that a proviso is appended to the main provision which provides that the said provision would not apply where the assessee has raised such objection before the completion of such assessment or reassessment. In the instant case, the assessee has raised objections while submitting its reply to the reasons for reassessment on 18-7-2016. No notice was served to the assessee. The plea of Sec. 292BB would not be available to the assessee as the assessee has submitted its objection on 18-7-2016 to the AO prior to the completion of assessment proceeding. Law in this regard is well settled which may be noticed herein profitably. A Full Bench of the Allahabad High Court in the matter of Laxmi Narain Anand Prakash has held that the notice of initiation proceeding u/s 21 of the U.P. Sales Tax Act, 1947 was a condition precedent and not only a procedural requirement. The mere fact that the assessee had obtained knowledge of the proceeding and participated could not validate the proceeding being initiated without jurisdiction. It has been subsequently held that "it is firmly established that where a Court or Tribunal has no jurisdiction, no amount of consent, acquiescence of waiver can create it";
++ on the basis of legal analysis, I have no hesitation to hold that no notice was served to the assessee u/s 148(1) and service of notice to the CA of the assessee is not service at all and participation of the assessee by filing return and filing objection to the notice to the reasons to believe cannot be held to be a valid service of notice as held by the Delhi High Court in Chetan Gupta's case and, therefore, it cannot be held that the assessee was served with notice u/s 148(1). Thus, having answered both the questions in favour of the assessee and against the Revenue, I hold that neither notice u/s 148(1) within the period of limitation as prescribed in Sec. 149(1)(b) was issued to the assessee nor it was served in terms of Sec. 148(1), therefore, the reassessment proceedings initiated by the said notice and the order deciding objection dated 5-8-2016 are without jurisdiction and without authority of law. Thus, the notices dated 15-3-2016 and 13-4-2016 and the order dated 5-8- 2016 deserve to be and are hereby quashed. The assessee would also be entitled for a cost of Rs. 25,000/-.
Assessee's Writ petition allowed
2018-TIOL-905-HC-AHM-IT + Case Story
BOGHARA POLYFAB PVT LTD Vs DCIT: GUJARAT HIGH COURT (Dated: February 26, 2018)
Income Tax - Sections 143(1), 147 & 148.
Keywords - Bogus share application money - Change of opinion - Reopening of assessment - Scrutiny assessment.
The assessee company, trading in yarn and textile, had filed return for relevant AY. Such return was accepted u/s 143(1) of the Act without scrutiny. An information was received from the ITO Ward 1(1)(4), Surat, that the companies shown to have invested money in form of share capital/share premium in assessee were shell companies indulged in providing accommodation entries. The AO observed that the amount was nothing but assessee company's own money introduced in the grab of share capital/share premium from the shell company and as such liable for taxation under the provisions of section 68 of the IT Act. The AO issued notice to reopen assessment as assessee company had failed to disclose full and true facts of its case. The assessee raised objections to the notice of reopening but such objections were rejected by the AO. Aggrieved assessee filed petition in High Court.
the High Court held that,
Whether when assessment is completed without scrutiny assessment, reopening can not be challenged on ground of 'change of opinion' - YES : HC
Whether there can be a blanket exemption from applicability of section 68, regardless to the nature, amount and form of share application money received, for addition in the hands of the issuing company - NO : HC
Whether at stage of issuing notice for reopening, sufficiency of reasons cannot be analyzed at detail nevertheless, the AO must have tangible materials to form a belief that the income chargeable to tax had escaped assessment - YES : HC
Whether based on information received post assessment, regarding receipt of large number of fake share applications and bogus issue of share capital by assessee, reopening of assessment can be initiated - YES : HC
++ return filed by the assessee was accepted u/s 143(1) without scrutiny. In such a situation, as held by the Supreme Court in case of Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. there would be no question of change of opinion, since in absence of scrutiny assessment, the AO cannot be stated to have formed any opinion. The High Court in case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commisssioner of Income tax, had held that " ..It would, thus, emerge that even in case of reopening of an assessment which was previously accepted u/s 143(1) of the Act without scrutiny, the AO would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., and several other decisions, such reason to believe need not necessarily be a firm final decision of the AO";
++ in case of Commissioner of Income tax v. Empire Builtech P. Ltd. Division Bench of Delhi High Court allowed the Revenue's appeal and reversed the judgment of the Tribunal deleting addition u/s 68 of the Act in the hands of the company. Division Bench made following observations " It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the AO to afford any reasonable explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the Revenue having discharged the onus if at all which fell upon it. This Court also notices that the assessee in this case was incorporated barely few months before the commencement of the assessment year, and there is no further information, or anything to indicate why its mark up of the share premium thousand folds in respect of the shares which were of the face value of 10 lakhs was justified.";
++ neither this Court nor other High Courts understood the judgment of the Supreme Court in case of Lovely Exports (P) Ltd. as to lay down a blanket proposition that no matter what the nature of transaction of share applications and receipt of the companies in form of share application money, under no circumstances, addition under section 68 of the Act, can be made in the hands of the company. Basic onus on the assessee to establish identity of the investor, genuineness of the transaction and creditworthiness attaches, also attaches on a company. There is a clear distinction between a situation where the company discharges its basic onus of providing details of the share applicants, genuineness of the transactions and their creditworthiness, but the Revenue still chases the company instead of inquiring with the investors if any mismatch or unexplained investments are found as compared to a situation where large scale share applications are found to be totally bogus transactions, are completely fictitious or stated to have been entered into by non existent persons or entities. The former is seen as a case where the company has discharged its own whereas the later would be a situation where the very genuineness of the transaction is in doubt. Therefore, the legal contention in this respect canvassed by the assessee was not accepted;
++ Division Bench of this Court in case of Aradhna Estate Pvt. Ltd v. Deputy Commissioner of Income tax Circle1 (1) had an occasion to deal with the assessee's challenge to the notice of reopening. One of the grounds raised was that u/s 68 of the Act, no additions can be made in the hands of the company concerning the share application. The Court rejected the contention making the following observations " .. the share application money received by the assessee from above noted companies was only by nature of accommodation entries and in reality, it was the funds of the assessee which was being rerouted. Undoubtedly. Section 68 of the Act would have applicability. Proviso added by the Finance Act 2012 with effect from 1.4.2013, does not change this position....";
++ as held by the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Ltd., the sufficiency of reasons cannot be gone into at this stage. Nevertheless, the AO must have tangible materials at his command to form a belief that the income chargeable to tax had escaped assessment. In present case, the AO referred to the materials available with him which prima facie suggested that the assessee company had received share capital and share premium from various companies which were proved to be bogus companies engaged in providing mere accommodation entries. After analysing such materials, he came to the conclusion that share capital/share premium amounting to Rs. 1.55 crores received by the assessee during the financial year 2009-2010 relevant to the present assessment year was bogus. It cannot be stated that the AO did not have tangible materials at his command to form such a belief. His reference to "materials on record" must be understood in the context of facts on record. The AO was not writing a statute. His expression therefore, cannot be seen with such rigidity. If therefore, he referred to the returns filed by the assessee and the accompanying documents as also materials received by him post acceptance of return, of course without scrutiny as "materials on record", he did not commit any legal error. He was ofcourse, referring to the materials placed for his consideration which enabled him to form such a belief;
++ there was no borrowed satisfaction. The AO had perused the materials and analysed the same so as to come to the conclusion that prima facie it suggested that the assessee had received large number of share applications/share premiums from the companies which were bogus companies and which engaged in providing accommodation entries. The Revenue has filed affidavit stating that before issuing notice, sanction was granted by the competent authority. A statement on oath, in absence of any contrary material on record need not be disbelieved. In the result, petition is dismissed.
Assessee's petition dismissed
2018-TIOL-904-HC-AHM-VAT
STATE OF GUJARAT Vs JAIN MARBO INDIA PVT LTD: GUJARAT HIGH COURT (Dated: March 9, 2018)
Gujarat Value Added Tax - Sections 12(7)(a), 12(7)(b) & 61(2)
Keywords - Excessive availment of credit - Penalty - Maximum limit
THE assessee company, a dealer, was registered under the Gujarat Sales Tax Act & the Central Sales Tax Act. When the Gujarat Value Added Tax Act was enacted, a transitional provision u/s 12 enabled the dealers to avail credit of stock. Further, Section 12(7) imposes penalty in case a dealer claimed tax credit on stock on which the same was not permissible. In a subsequent order, the assessing authority denied credit claimed by the assessee on grounds that the assessee claimed an excessive amount. Further, penalty u/s 12(7) was also levied, which was 200% of the input tax credit claimed in excess. Subsequently, the Tribunal reversed such findings of the assessing authority. Hence the Revenue's appeal.
On a petition , the High Court held that,
Whether penalty for excessive availment of credit, can be imposed at double of the amount of credit availed, where the statute provides a maximum limit but no minimum limit for penalty imposable - NO: HC
++ section 12 of the Act, as noted above, makes special provisions for transitory situations arising on account of introduction of the VAT Act. Section 12 itself carries a catch-note "Tax Credit for Stock on [31st March, 2006]". Sub-section 1 of Section 12 would enable a dealer to furnish a statement of taxable goods held by him in stock as on 31.03.2006 for which he intends to claim tax credit. Sub-section 3 of Section 12 provides a formula under which such tax credit would be made available to him. Sub-section 4 of Section 12 provides circumstances under which such tax credit will not be available;
++ under this subsection, thus, if the Commissioner is satisfied that a dealer has claimed tax credit for such stock for which he is not entitled to claim such credit or he has claimed excess tax credit than what he is entitled to, then the Commissioner may, after giving the dealer an opportunity of being heard, impose a penalty equal to twice the amount of tax credit so claimed. This provision, thus, uses the expression "may" when it comes to the Commissioner imposing penalty, even if a breach, as mentioned in Clauses (a) & (b) of sub-section 7 of Section 12, is shown to have been committed. The legislative intent, thus, clearly is to cloth the Commissioner with discretionary powers whether or not to impose such penalty. In other words, merely because a breach is established, it would not be compulsory for the Commissioner to impose the penalty. After giving an opportunity to the dealer of being heard, if the Commissioner is satisfied that it is not a fit case for imposition of penalty, then he may express such an opinion in his order by citing reasons. The question, then is, when the Commissioner has been vested with such wide discretion, would such discretion cease when it comes to the question of choosing the level of penalty. Accepting the argument of the Government would amount to a situation where it may be discretionary for the Commissioner to impose or not to impose a penalty all together but, once he decides to impose such penalty, he would have no choice but to fix the penalty at twice the amount of wrongly claimed tax credit. This court does not think that the Legislature desired to bring about such a harsh and incongruent result. The discretion of the Commissioner in the matter of imposing penalty would extend even on the choice of the penalty to be imposed, of course, up to a maximum of twice the value of the wrongly claimed tax credit. It is emphasized that the Statute has neither made it compulsory for the Commissioner to impose penalty once the breach is established nor has made the quantum of penalty mandatory. As is well-known, various fiscal penal statutes, either prescribe a range of penalty from which the competent authority may chose or may provide a minimum penalty below which the competent authority cannot travel. The wordings of sub-section 7 of Section 12 do not indicate either of these two situations. The statute has provided upper limit without prescribing the minimum level of penalty. As rightly pointed out by the counsel for the Respondent, the Division Bench of the Bombay High Court in case of Additional Commissioner of Sales Tax, VAT III, Mumbai v. Ankit International, dealt with a some what similar situation arising out of the Maharashtra Value Added Tax Act. Sub-section 2 of Section 61 of the said Act provides that the Commissioner may impose a penalty equal to 1/10th percentage of the total sales. On the basis of such provision, it was argued before the Bombay High Court that there was no discretion with regard to the quantum of penalty and that the penalty of an amount equal to 1/10th percentage of the total sales would have to be imposed once the breach is established. The Bombay High Court rejected such contention and held that the discretion of the Commissioner would extend even with regard to the choice of penalty. Hence the writ is dismissed.
Revenue's writ petition dismissed
