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2018-TIOL-922-HC-AHM-IT + Case Story

NIRMA LTD Vs ADDL CIT: GUJARAT HIGH COURT (Dated: February 27, 2018)

Income Tax - Sections 143(1)(a), 143(2), 143(3), 234B & 234D.

Keywords - Excess refund granted - Interest liability - Recovery of unpaid tax - Summary assessment.

The assessee company had filed the return for relevant AY. The return was processed by the AO u/s 143(1)(a) of the Act. This gave rise to refund of a sum of Rs. 59,38,056/- in favour of the assessee. Such refund was adjusted against the assessee's tax dues of the earlier years. The AO later on issued notice u/s 143(2) of the Act and undertook the scrutiny assessment of the assessee's return. He passed order of assessment u/s 143(3) of the Act. After giving credit of tax deducted at source and advance tax paid by the assessee as well as self assessed tax, the AO found that the assessee was in arrear of tax of Rs. 2,38,65,643/-. In this figure, the refund of Rs.59,38,056/- was not accounted for. The AO therefore while withdrawing the refund already paid to the assessee, computed a net of Rs. 2,98,03,699/- by way of tax payable by the assessee as on the date of the order of assessment. He thereafter proceeded to calculate the interest on such outstanding tax liability of the assessee. The AO also charged interest u/s 234B of Act from March, 1995 to January, 1997. The assessee contended that neither section 234B of the Act nor any other provision envisages levy of interest on the amount of refund paid after processing return u/s 143(1) of the Act even though later on it was found that the refund was eventually to be withdrawn upon the assessee's finally assessed tax liability. On appeal, CIT(A), passed the order in favour of assessee. However Tribunal allowed the Revenue's appeal.

After hearing parties, the High Court held that,

Whether when a new section 234B was inserted to address the mischief of missing levy of interest on excess refund granted after processing return u/s 143(1)(a), it can still be argued that such an interest always existed within the provisions of the I-T Act - NO: HC

++ the legislature was of the opinion that in a case where refund is already granted upon processing return under section 143(1) of the Act but in eventual assessment it is found that the refund granted is in excess or that return does not give rise to any refund claim at all, the existing statute does not provide for levying interest. The legislature was of the opinion that even with the aid of the provisions of sub-section (4) of section 143 of the Act, the existing provisions cannot be so interpreted as to levy interest in such a case. It is well settled that interpreting a statutory provision, one of the useful external aids is to ascertain what was the position prior to enactment of the statute and what mischief the statute seeks to address;

++ in case of Commissioner of Income-Tax, Madhya Pradesh and Bhopal v. Sm. Sodra Devi, the Supreme Court considered the question whether the word 'individual' used in section section 16(3)(a)(ii) of the Income Tax Act, 1922, would include a female. In this context, while holding that the words 'any individual' used in the said section are restricted in their connotation to mean only and do not include the word female observed as under " Though it is not legitimate to refer to the statement of objects and reasons as an aid to the construction or for ascertaining the meaning of any particular word used in the Act or Statute (See Aswani Kumar Ghose v. Arabinda Bose,1953 S C R 1: (A I R 1952 S C 369) (1), nevertheless, this Court in The State of West Bengal v. Subodh Gopal Bose, 1954 S C R 587 at p 628 : (A I R 1954 SC 92 at pp. 104-105) (J), referred to the same "for the limited purpose of ascertaining the conditions prevailing at the time which actuated the sponsor of the Bill to introduce the same and the extent and urgency of evil which he sought to remedy." There is no reason why the same principle cannot be applied by interpolation in order to interpret the existing provision in the background of the need for enacting a new provision. If the very object of inserting section 234D to the Act was to address a situation which was inadequate to levy interest in a case like the present one, interpretation advanced by the Revenue must be rejected. If we accept the contention of the Revenue that existing section 234B of the Act already covered such a situation, insertion of section 234B of the Act would be rendered meaningless and the provisions of section 234D superfluous;

++ the legislature added two explanations to section 234D by Finance Act, 2012 but with retrospective effect of 01.06.2003. The second explanation provides that for removal of doubt, it is declared that the provisions of the said section shall apply to an assessment year commencing before first day of June, 2003, if the proceedings in respect of such assessment year is completed after the said date. At best, therefore, this explanation could apply to pending assessments even though the assessment year concerned may be prior to 01.06.2003. As held by the Supreme Court in case of Reliance Energy Ltd. this provision would have no further retrospectivity. In the result, Tax Appeal is allowed. The judgment of the Tribunal is set aside.

Assessee's appeal allowed

2018-TIOL-921-HC-AHM-IT + Case Story

BALDEVBHAI BHIKHABHAI PATEL Vs DCIT: GUJARAT HIGH COURT (Dated: May 9, 2018)

Income Tax - Writ - Sections 148 & 151(1).

Keywords: Change of opinion - Escaped assessment - Scrutiny assessment - Shifting of office & Sizeable land dealings.

The assessee, an individual, engaged in the business of brokerage from dealing in land at Surat. The assessee had returned income for the AY 2007-08, on which, no scrutiny assessment was made. A survey operation was carried out at the assessee's business premises wherein, certain diaries and loose papers were found and seized. On perusal of such papers and written submission in responses to summons u/s 131, the AO noted that those were related to the land transactions and receipts of cash received from other persons and the cast payments made to others pertaining to the relevant AY. Accordingly, the AO held that there were sizeable land dealings relatable to the period relevant to the AY in question and therefore, formed a belief that income chargeable to tax to the tune of Rs. 44.50 crores had escaped assessment. Hence, the AO issued the reopening notice.

The assessee, first applied for settlement of the case before the Settlement Commission and consequently, the said reopening notice remained suspended. However, when the assessee's application was rejected by the Commission, the reassessment proceeding arising out of the said notice, was revived. At that stage, the assessee filed a petition challenging the reopening notice. Meanwhile, the AO proceeded with the reassessment and completed the same.

Having heard the parties, the High Court held that,

Whether where Revenue fails to issue reopening notice within the four-years limitation, due to shifting of office premises, can such notice be deemed as being based on 'change of opninion' - NO: HC

++ the facts on record would suggest that the assessee had filed the return for the relevant AY, on which, no scrutiny assessment was made. In other words, the return was processed u/s 143(1). Under such circumstances, the AO would have wider scope for reopening the assessment since no scrutiny assessment was, originally, framed. The AO, therefore, cannot be stated to have formed any opinion and hence, the question of change of opinion would not arise. This aspect has been discussed by the Supreme Court in cases of Rajesh Jhaveri Stock Brokers P. Ltd. and Zuari Estate Development and Investment Company Ltd.;

++ the assessee has not challenged the validity of the reasons recorded by the AO while issuing the reopening notice. The assessee's sole contention is that the sanction required in terms of Sec. 151 has not been validly granted. As is well known, Sec. 151(1) provides that no notice shall be issued u/s 148 by the AO after the expiry of a period of 4 years from the end of relevant AY unless the Pr Chief Commissioner or the Chief Commissioner or the Pr Commissioner or the Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issuance of such notice. Sec. 151(1), thus, provides a safeguard whereby, in a case where the AO desires to reopen an assessment, by issuing notice beyond a period of 4 years from the end of relevant AY, sanction from the said higher authority would be needed;

++ the Revenue, in response to the notice issued by this Court, have appeared and filed reply dated 19.12.2017, in which, in relation to the question of sanction, it was submitted that during the assessment proceedings, the assessee had requested to provide him a copy of reasons recorded and approval obtained u/s 151(1) for the relevant AY. The same was duly provided to the assessee. The assessee had also made a noting in the order sheet. Thereafter, vide an RTI application, the assessee had requested a photo copy of the case records, order sheet and also requested examination of the case records which were duly provided. In reply to the RTI application, it was intimated by this office that copy of approval obtained u/s 151(1) is presently not found on record. It was intimated that since the office had shifted before 6 months, it is possible that the approval may be in a separate folder and might got detached from the original order. Thereby, the assessee had filed a Special Civil Application before the Gujarat High Court alleging that prior sanction u/s 151(1) was not obtained before reopening the assessment proceedings and the AO was not justified in passing the assessment order. Efforts were put in to obtain a copy of the same from the records of the Office of Jt. CIT, Range 1(3), Surat. Since, the Office has shifted around 6 months back, there were many records which were unpacked in cartons. The Jt. CIT, Range 1(3), Surat had specially created a team to trace the records and after lot of searching, the approval folder was traced from the office. We discarded the assessee's first argument that no sanction at all was granted by the competent authority;

Whether when under an investigation, after completion of assessment u/s 143(3), the sizeable land dealings is found to have escaped assessment, notice u/s 148 deserves to be held as valid - YES: HC

++ the entire proposal along with necessary details and the reasons recorded by the AO were placed before the Addl. CIT, who, upon perusal of the same, in his own hands, recorded his satisfaction that it was a fit case for issuance of notice u/s 148. In the forwarding letter, the Dy. CIT reiterated that he had perused the reasons recorded by the AO and upon perusal, he was satisfied and was of the considered opinion that it was a fit case for issuance of notice u/s 148;

++ the Addl. CIT had not only put his remarks on the proforma presented before him by the AO but also separately conveyed his satisfaction to the AO in a separate letter. The application of mind and grant of sanction was, thus, one integrated exercise. Even independently, we have no reason to believe or hold that this was a case of non application of mind. The Addl. CIT had perused the materials on record, which included the reasons recorded by the AO. He had recorded his satisfaction and opinion that it was a fit case for issuance of notice u/s 148(1). This Court, in the case of Lalita Ashwin Jain, in the context of such requirement had stated that "... so as to aver allegations of non application of mind, all that is desirable is that the Joint Commissioner should briefly state his reasons. However, only because he has nodded in favour of AO by writing 'yes' to the reasons recorded and accorded permission for reopening of the assessment, the notice of reopening of that count alone cannot fail holding that the assumption of jurisdiction u/s 147 is invalid, if application of mind is demonstrable from the material on record ..."

Assessee's Writ petition dismissed

2018-TIOL-920-HC-KOL-IT

CIT Vs LCC INFOTECH LTD: CALCUTTA HIGH COURT (Dated: May 11, 2018)

Income Tax - Sections 10A, 143, 147 & 148.

Keywords: Auditor's certificate - Income escapement - Sales return.

The assessee company engaged in computer training and software development, had filed its return for the relevant AY and claimed Sec.10A deduction of Rs.3,52,52,076/- on profits from project exports. This deduction was supported by auditor's certificate in Form 54F and was duly accepted by Sec.143(1) intimation. However, the AO issued Sec.148 notice to the assessee based on auditor's statement that, part of the profit booked stood unrealized. During reassessment, the assessee filed supplementary auditor's report and amended Form 54F thereby declaring reduced net profits due to sales return. Hence, the AO rejecting the claim of sales return, took the net profit at the original figure for computation but reduced Sec.10A exemption. On appeal, the CIT(A) took a contrary view and directed re-computation of net profit. On further appeal, the Tribunal concurred with the views of the CIT(A).

On appeal, the High Court held that,

Whether, in case of unrealised exports proceeds, it is unfair on the part of AO to reduce section 10A benefit, but to retain the original net profit during reassessment: NO: HC

Whether an acknowledgement of the return is mandatory as per the amended provision of section 143(1), when the apparent purpose of intimation is only recovery of tax applicable, in case of any lapses: NO: HC

++ in the scheme of things, as noted above, the intimation under section 143(1) (a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to 1-4-1989, the assessing officer had to pass an assessment order if he decided to accept the return, but under the amended provisions, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the legislature i.e. to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted in Apogee International Ltd. v. Union of India;

++ by Sun Engineering case, the Supreme Court declared that assessee cannot seek, review in reassessment proceeding u/s 147. In Kelvinator case Supreme Court said that AO can reassess but not review. The higher total income of Rs.2,49,52,270/- found by the AO was assessed on the basis of reduced profit resulting from sales return. Sales return was the cause, as per the assessee, the effect of which was reduction in the profit figure qualifying for deduction under the provisions of Sec.10A. The exercise that resulted in the intimation, done on the basis of material and evidence then available, cannot be said to have been done in a manner which allowed some income of the assessee to have escaped assessment to tax. As such there is nothing wrong with the directions given by the said appellate authority. In the premises this Court does not find any substantial question of law is involved in the case. Hence, the appeal and application are accordingly dismissed.

Revenue's appeal dismissed