07 June 2018   

KHANDELWAL STEEL AND TUBE TRADERS Vs ITO: MADRAS HIGH COURT (Dated: June 04, 2018)

Income tax - Sections 264 & 271(1)(c)

Keywords - additional income - incriminating material - pendency of penalty proceeding - revised return - validity of assessment - voluntary surrender

During the relevant year, a survey was conducted in the premises of assessee, which led to the passing of assessment order, wherein the differences in the balances of four major suppliers of the assessee were worked out. In response, the assessee explained that reconciliation of closing balance had not been effected and arose on account of the running balance maintained by assessee in respect of the transactions with four suppliers, which excluded credit notes. It was further submitted that since the assessee wanted to purchase peace with the Department, additional income totalling Rs.168,45,190/- was offered vide two revised returns. Even though, the assessee was penalised u/s 271(1)(c). The assessee questioned this action of Department by filing both appeals as well as revision petition u/s 264 by contending that the AO had not granted any opportunity to the assessee to reconcile the closing balance and had arbitrarily foisted allegations of irregularities and deficiencies in the assessee's account that were factually and legally untenable and incorrect. The Commissioner however proceeded on the basis that it was only on account of the penalty proceedings, that the revision applications were filed and the main contention raised by the assessee that additional income offered, did not represent the reconciled correct figures, after taking into account the credit note in respect of four major suppliers, were not considered. Accordingly, the Commissioner rejecting the revision petition terming it as erroneous. This order of the Commissioner was challenged before the Tribunal, but in vain. The Tribunal did not consider the justification for levy of penalty, when the assessee had agreed to certain additions on the specific contention that the penalty would not be levied by the Department. Hence, the assessee company had preferred present appeal challenging the Tribunal's order in observing that the validity of the assessment proceedings could not be challenged in a penalty proceedings.

On Writ, the HC held that,

Whether non-disclosure of inflated purchases by the assessee, if detected by the Department pursuant to search proceedings, will not render the revised return filed by assessee as a 'voluntary surrender' - YES: HC

++ it is an admitted fact that after the survey operations, the assessee filed revised returns. Therefore, the Tribunal was justified in rejecting the case of assessee stating that because the Revenue assured that the penalty proceedings will not be initiated, if addition is admitted, therefore, revised return were filed. The Supreme Court in Mak Data (P) Ltd. case, pointed out that the AO shall not be carried away by the plea of assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement" etc., to explain away its conduct. It was further pointed out that the question is whether the assessee has offered any explanation for concealment of particular income of furnishing inaccurate particulars of income. It was pointed out that explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO between the reported and assessed income. That burden is then on the assessee to show, otherwise, by cogent and reliable evidence, when the initial onus placed by the explanation, has been discharged by the assessee, the ownership's is on the Revenue to show that the amount in question constituted the income and not otherwise. Therefore, the irresistible conclusion to be arrived, is that the revised returns filed by the assessee, cannot be termed to be voluntary, as it was done by the assessee after the Revenue deducted non-disclosure inflation of purchases and concealment of income during the search proceedings;

Whether mere offer of additional income discovered during search, will protect an assessee for his failure to render satisfactory explanation that the ommission in original return is due to his bonafide mistake - NO: HC

++ the Tribunal while approving the view taken by the CIT(A), held that there was specific evidence in respect of inflation of stock, inflation of purchase, inflation of sundry creditors, etc, which constitute valid evidence for holding that the assessee has concealed its income. Further, it was pointed out that the assessee WHEN confronted with these materials, had accepted the inflation and offered income for taxation and the assessee had no suitable explanation against the evidences found during survey. On a perusal of the order passed by the CIT(A), it is seen that during the course of survey, incriminating evidences regarding the purchase were found and the statement of the assessee was recorded. The stock statement showed a negative figure of Rs.13,71,146/- and there was a difference in closing balances in case of four sundry creditors and the total difference worked out to Rs.1,68,45,192/ and the assessee accordingly filed revised return admitting additional income. Thus, during the search, there was specific evidence on account of stock, on account of purchases, sundry creditors and closing balances of the stock. The assessee was given an opportunity to explain and no where rebutted the evidences, which were recovered during the course of survey. Thus, in the absence of any explanation, the assessee has come forward by filing revised return. Thus, the stand taken by the counsel for assessee that the contentions advanced by it were not considered by the CIT(A) or for that matter the Tribunal, deserves rejection. It was argued that merely by filing a revised return and offering additional income will not by itself be a ground to levy penalty. This is a broad legal principle, but has to be applied by taking note of the facts of each case. The assessee has to satisfy the test that he has a satisfactory explanation regarding such income offered in the revised return. The explanation as to why there was an omission or wrong statement in the original return must be due to bona fide inadvertence or bona fide mistake on the part of assessee. In the instant case on facts, it was found that there was no such assurance;

Whether additions once made by AO during assessment only after the same was offered for taxation by the assessee, can be challenged by assessee in revision petition u/s 264 - NO: HC

++ a reading of the order passed by CIT(A) as confirmed by the Tribunal would clearly show that the materials, which were recovered during the search proceedings reveal concealment of income and the assessee agreed for the additions and it would be too late for the assessee to now state that the authorities are not justified in levying penalty, especially when the assessee had no satisfactory explanation as to why he had offered income in the revised return. It is a settled legal position that the burden is on the assessee to prove non-concealment against additional income disclosure in the revised return.The challenge in the Writ Petitions is to the order passed by the CIT, rejecting the petition filed u/s 264. For the A.Y 2001-02, the stand taken by the assessee was that the addition made in respect of credit balances appearing in the names of two parties, was not proper in as much as the said balances are correct, though the parties are not traceable. The assessee further stated that the difference in closing balance was added as 'income' without proper investigation or verification of the correctness of the figures. It was further submitted that the difference was treated as purchase inflation and therefore, closing stock should have been correspondingly adjusted, which was not done. Further, the amount of Rs.3,19,021/- was offered to tax to purchase peace with the Department and on assurance that they would be no liability, interest and penalty. The Commissioner considered the said factual submission and rejected the same as being erroneous, by taking note of the record of proceedings that addition was made after the same was offered for taxation by the assessee. Further, the Commissioner has noted that as per the assessee's own version, the trade creditors were not traceable. Thus, there are no extraneous circumstances warranting interference on the factual findings recorded by the Commissioner affirming the findings recorded by the AO for the year 2001-02;

Whether consequtive revised returns filed by an assessee after intervals, offering the additional income unearthed during search, should not be claimed by assessee as unconsious application of mind, for escaping the penal consequences - YES: HC

++ with regard to the A.Y 2002-03, the sum and substance of the contention of assessee is that the disclosure of additional income of Rs.1,68,45,194/- does not represent the correct figure, since final reconciliation was not done. After taking note of the contentions raised by assessee, the Commissioner took note of the declaration given by the senior partner of the assessee firm at the time of survey, which was based upon the documents discovered during the course of survey and then rejected the contention of assessee that the declaration of additional income was made in a hurry without proper appreciation of account. It was pointed out that the additional income of Rs.1.40 crores, was declared during the course of survey which was further enhanced to Rs.1.68 crores and these figures have been shown in two revised returns filed by the assessee. In this regard, the letter given by the senior partner of the assessee firm, was taken note of. Thus, factually the Commissioner concluded that the contention of assessee that additional income was offered without application of mind, was rejected. In the said order also, the Commissioner has noted that the order imposing penalty, has been confirmed by the Tribunal. Be it noted that the assessee had filed two revised returns. In the first revised return, the assessee offered additional income of Rs.1.40 crores. At that point of time, the assessee did not take a stand that there was insufficient time or the same does not represent correct figures etc. Assuming, it was so, then the assessee had other remedies upon filing a revised return accepting additional income of Rs.1.40crores. The assessee did not avail any such remedy, but on the contrary filed a second revised return admitting additional income of Rs.1.68 crores. Thus, the Commissioner on facts rightly held that the contention of assessee that additional income was offered without due application of mind, is to be rejected and the offer made by the assessee was a conscious one.

Assessee's petition dismissed

2018-TIOL-1079-HC-KOL-IT

Pr.CIT Vs VIDYASAGAR CENTRAL COOPERATIVE BANK LTD: CALCUTTA HIGH COURT (Dated: May 17, 2018)

Income tax - Section 36(1)(viia)

Keywords - attribution to rural branches - provision for bad debts

The Revenue Department had preferred the present appeal challenging the action of the Tribunal in confirming CIT(A)'s opinion regarding the provision of Section 36(1)(viia) that in course of making any provision for bad and doubtful debts, a co-operative bank was not obliged to show some part of the bad or doubtful debts to be attributable to its rural branches.

On appeal, the HC held that,

Whether a co-operative bank is accountable only for the aggregate advances made in the rural branches, but not attribution of any provision of bad debts to such rural branches - YES: HC

++ on a plain reading of Section 36(1)(viia), it is evident that the permissible deductions under the relevant head have been divided into two categories: the first permitting a specified amount to be deducted irrespective of the concerned bank having a rural branch; and, the second part permitting a further provision for bad or doubtful debts provided that the bank has a rural branch. What is of importance is that the second part of the provision, in so far as it allows deductions on account of bad or doubtful debts, has nothing to do with the bad or doubtful debts of the rural branches, but provides for the aggregate advance in the rural branches to be made as a measure for quantum of deductions that may be permissible. The legal position has been succinctly dealt with in the Commissioner's order in the appeal preferred by the assessee against the AO restricting the quantum of deductions to a percentage of the bad and doubtful debts pertaining to the aggregate advance in the rural branches.

Revenue's appeal dismissed

2018-TIOL-1077-HC-KOL-CUS

TAPSIA ESTATE PVT LTD Vs DEPUTY COMMISSIONER OF CUSTOMS (PORT) AND ORS: CALCUTTA HIGH COURT (Dated: May 4, 2018)

Cus - the assessee imported some goods and filed bills of entry declaring their value - However, the Department rejected the value submitted by the assessee and proceeded to enhance the same - Subsequently, the Commr.(A) held such enhancement to be arbitrary & directed the Department to re-assess the goods after accepted the value submitted by the assessee - However, the Department did not carry out such instructions - Hence the present writ.

Held - the issues decided in the Order-in-Appeal are final, since the Department's appeal against such order was dismissed - It is incumbent upon the Department to comply with it - Hence the assessing officer is directed to comply with the directions laid down in the Order: HC

Writ Petition Allowed

2018-TIOL-818-ITAT-DEL

ACIT Vs SPLENDOR LANDBASE LTD : DELHI ITAT (Dated: June 6, 2018)

Income Tax - Sections 80, 139, 143(3) & 153A.

Keywords: Carry forward of loss - Non-obstante clause - Overriding provision & Revised return.

The assessee company, engaged in the business of real estate development, had returned income u/s 139 for the AY 2010-11. During the assessment proceedings, the AO noted that the assessee had claimed carry forward of business loss, including unabsorbed depreciation. However, the said business loss and unabsorbed depreciation was not allowed to be carried forward in the original assessment proceedings, as returns had been filed belatedly. Pursuant to search & seizure proceedings and in compliance of notice u/s 153A, returns were filed for AY 2010-11. Accordingly, assessment u/s 153A was completed wherein the assessee's income was computed at the same amount of income as computed u/s 143(3). Later, in rectification order u/s 153A, the income from other sources in AY 2010-11 was allowed to be set off against business loss and the net business loss was not allowed to be c/f. On appeal, partial relief was granted by the CIT(A).

On appeal, the ITAT held that,

Whether when AO accepts revised returns filed u/s 153A, such returns have to be considered when allowing carry forward of losses, even if they were not allowed in the assessment u/s 143(3) - YES: ITAT

++ section 153A starts with non obstante clause which inter alia overrides the provisions of Sec. 139. This shows that return filed u/s 153A is a separate return. The Counsel for the assessee relied upon the judgment of Delhi High Court in the case of Pr. CIT Vs Neeraj Jindal wherein, it was held that once the assessee files a revised return u/s 153A, for all other provisions of the Act, the revised return will be treated as the original return filed u/s 139. The reference to revised return u/s 153A in this decision refers to return u/s 153A. When the AO has accepted the return filed by the assessee u/s 153A, no occasion arises to refer to the previous return filed u/s 139. For all purposes of the Act, the return that has to be looked at is the one filed u/s 153A. In assessee's case also, the return filed u/s 153A was accepted and assessed by the AO. Although carry forward of loss was not allowed in 143(3) assessment as the original return u/s 139 was belated, we are inclined to follow the ratio in the decision of the Delhi High Court to accept the contentions of the assessee that it is the return u/s 153A which is to be considered for allowability of carry forward of loss rather than the original return u/s 139;

++ there is no discussion in the case of Tantia Constructions as to the aspects that Sec. 153A has non obstante clause overriding provisions of Sec. 139. Once return files u/s 153A is accepted and assessed, the same replaces the original return and the return filed u/s 153A is deemed to be return u/s 139(1) and the restrictive provision of Sec. 80 does not apply to 153A return. On exactly similar facts and circumstances of the case, the ITAT, Pune Bench in the case of Sanjay Nandlal Vyas Vs ITO, has adjudicated the similar issue in favour of the assessee. It was held by the Bench that "... The return of income filed in response to the notice u/s 153A on the basis of which assessment in question has been framed thus has replaced the original return for determining the net income in the assessment u/s 153A. Thus, in a sense, return filed in response to the notice issued u/s 153A was a revised return and the assessment was re-assessment ... The equation between Sec. 139(3) and Sec. 80 is independent. Sec. 80 provides that the loss determined by an AO in pursuance of the loss return filed u/s 139(3) shall be carried forward for the succeeding AYs. The operation of Sec. 80 ends there. The inter-say relation between the Sub-section (1), (3) and (5) of Sec. 139 does not have an equation or inter-linkage with Sec. 80 ..."

++ there is a merit in assessee's submissions that u/s 153A return is deemed to be return u/s 139(1) and that restrictive provisions of Sec. 80 do not apply to this case. It is the return u/s 153A which once accepted and assessed, replaces the original return u/s 139. Therefore, the assessee is eligible for carry forward of business loss in dispute, hence, the AO is directed to allow the claim of carry forward of business loss in question to the assessee.

Revenue's appeal dismissed