CASE LAWS
2018-TIOL-1162-HC-MAD-VAT + Case Story
SRI SARAVANA STEELS Vs ACCT: MADRAS HIGH COURT (Dated: June 13, 2018)
Tamil Nadu VAT Act, 2006 - Writ - Sections 22(2) & 27(3)(c).
Keywords: ITC - Input tax credit - Opening of new godown - Processing fee.
The assessee company, engaged in selling of iron and copper scrap by purchasing the same from TANGEDCO, had returned income for the relevant AY. During the assessment proceeding, it was noted that the assessee had purchased iron scrap in the AY 2012-13 from one M/s.Transtonnelstroy Afcons on payment of VAT. The assessment for the said year was deemed to have been completed u/s 22(2). However, after a period of 2 years, an inspection of the assessee's business premises was conducted wherein, it was noted that the adjusted claim of ITC was maintained in the carry forward register. Further, the Enforcement Wing officers also found that the assessee had no stock in its registered place of business. Later, it was then noted that the assessee had stored goods worth Rs.80,68,500/- at a place in Pulichipallam post, which is not a registered place of business at the time of inspection. Moreover, no purchase cum stock account was maintained by the assessee for the goods held at the said unregistered place as provided under Rule 6(2)(b).
Consequently, a revision notice was issued by the Revenue. The Revenue noticed that though the assessee had mentioned that they had applied for godown certificate on 20.07.2015, the letter given to the AO was only on 31.07.2015 i.e., after the date of inspection. Therefore, the Revenue provisionally concluded that the goods stored were unaccounted and not tax suffered as claimed by the assessee. It was found by the Revenue that the assessee had suppressed the purchases and sales and accordingly, estimation was made in the notice. However, no reply was submitted by the assessee. After waiting for a reasonable amount of time, the Revenue proceeded to pass the order by confirming the proposals made in the revision notice. Subsequently, the ITC availed by the assessee were reversed, apart from levying the penalty u/s 27(4)(ii).
In Writ, the High Court held that,
Whether if a taxpayer fails to avail the reasonable opportunity granted to it, then an exparte order passed by the Revenue is justified - YES: HC
Whether the Writ Court can step into the shoes of Appellate Authority even when, assessee has failed to respond to the revision notice and also to discharge its onus to prove that its registered business place was shifted to a different venue - NO: HC
++ the assessee did not submit its objections to the AO, though sufficient opportunity was granted to them. The allegation that the partner was sick and unable to submit objections to the revision notices, has not been substantiated. Therefore, the assessee cannot contend that the orders in dispute have been passed in violation of the principles of natural justice, but it is the case where the assessee has failed to avail the opportunity granted to them and therefore, the assessee cannot be permitted to take advantage of their own wrong. The Counsel for the assessee strenuously contended that intimation was given to the Revenue about the change of godown and in this regard referred to the letter dated 28.12.2014, wherein it is alleged that the assessees have shifted the godown, w.e.f. 05.11.2014, and submitted the letter on 28.11.2014, and stated that they have paid the processing fee on 24.09.2014. The letter states that they are opening a new godown and it is not clear in the said letter as to which was the registered godown earlier to 28.11.2014. The second letter which was referred to by the assessee is dated 31.07.2015, wherein the assessee claimed that they have changed their branch address w.e.f. 20.07.2015. The processing fee has been remitted by demand draft dated 08.07.2015. To be noted is that the inspection of the assessee's place of business was conducted on 23.07.2015 and the letter for change of branch address was admittedly given after the date of inspection. Prima facie, the Court is of the view that there is no clear record to show as to on which date the new godowns were opened, and when they commenced operation. However, the Court does not propose to dwell further into the matter, as the issues are disputed questions of fact, which obviously cannot be adjudicated in a Writ Petition;
++ unless and until the assessee is able to factually establish that they had, infact carried on business in a particular premises from a particular date and shifted from the premises to an another premises, the question of applying the legal principles in various decisions relied on by the petitioner, does not arise. The burden of proof lies on the assessee to establish that they had been functioning at a particular location, which is the registered place and shifted to a different venue from 05.11.2014 and thereafter, shifted to another venue on 20.07.2015. Admittedly, the assessee has not placed any documents before me to establish that the business commenced in these two godowns on the dates mentioned by the assessee in their representation as well as in the Writ Petitions. Above all, the assessee ought to have responded to the revision notices dated 13.10.2017 and placed materials before the Revenue for consideration. Without doing so, to refer to the statement recorded by the Enforcement Wing and to state that the AO should have perused the statement is an argument, which is stated to be rejected;
++ the Counsel for the assessee produced a tabulated statement of the sales turnover for the AY 2015-16 and took strenuous efforts to convince the Court that there is absolutely no purchase suppression and whatever has been dealt with by the assessee has been reflected in their returns and appropriate tax paid on the transactions. Once again, it has been pointed out that this Court cannot dorn the role of an AO or the Appellate Authority and peruse the statement of accounts, details of sales turnover and to examine the conduct of the assessee. Thus, this Court is not inclined to entertain the Writ Petitions on the ground that the assessee has an effective alternate remedy under the Act. Thus, the merits of the case are left open to be agitated before the Appellate Authority, who shall decide the appeal on merits and in accordance with law uninfluenced by any observations made in this order.
Assessee's Writ petition dismissed
2018-TIOL-1161-HC-MAD-IT
TAMILNADU MAGNESITE LTD Vs ACIT: MADRAS HIGH COURT (Dated: June 05, 2018)
Income Tax - Capital work in progress - Chemical Beneficiation Project - Enduring benefit - Intangible assets & Revenue expenditure.
The assessee-company, filed return for the relevant AY by showing a total loss of Rs.11,95,25,000/- as project expenses. With the return of income, a note was appended stating that due to various reasons, the Govt of Tamil Nadu had ordered the closure of the implementation of the Chemical Beneficiation Project and as a consequence, upon considering commercial prudence, major portion of intangible assets were shown as revenue expenditure.
However, the AO while completing the assessment held that the expenditure was capital in nature and therefore, declined to accept the assessee's claim of expenses in the P&L account, as they had utilised money from the capital account and aid from the Govt of Tamil Nadu termed as capital work-in-progress. The AO further stated that the assessee was making expenses for the new venture from the capital account and in the balance-sheet only, it would have been better if the capital work in-progress was reduced by Rs.11.58 crores, without reducing the operating revenue of the company. Thus, the AO held that the expenses were incurred before the company could establish the new Chemical Beneficiation Plant. Machineries have been imported and lying in Madras Port. Therefore, he declined to accept the claim of the assessee of Rs.11.58 crores as project expenses as revenue expenses.
On assessee's appeal, the CIT(A) allowed the appeals filed by the assessee and held that the assessee's basic intention was to take over the Chemical Beneficiation Project from the Tamil Nadu Industrial Development Corporation (TIDCO) for production of 'high quality sintered magnesia', which was one of the products of the assessee and it could not be said that a new venture had came into existence. With those observations, the appeals were allowed by the CIT(A) and the AO was directed to delete the addition of Rs.11,58,25,167/-. On further appeal by the Revenue, the Tribunal allowed the appeals of the Revenue and restored the orders passed by the AO and pointed out that the expenditure was incurred by the assessee to acquire a new asset and it was the expansion of the profit making apparatus and the fixed asset of the assessee got increased. According to the Tribunal, there was nothing on record to indicate that the expenditure was incurred in the Revenue field.
On hearing the matter, the High Court held that,
Whether an expenditure can be termed as capital in nature merely on the basis of source of funding, in absence of any enduring benefit being accrued to the assessee - NO: HC
Whether when a project couldn't fructify other than the reason attributable to the assessee, but due to decision of the Govt, expenditure incurred on such project will be allowable as Revenue in nature - YES: HC
++ it is not in dispute that the Chemical Beneficiation Plant was already established by TIDCO and on account of their not being able to achieve the desired result, the assessee was invited to take over the project, as the assessee possessed expertise in the field. This is how the assessee stepped into the project and by turn of events, the Government granted approval during the year 1998. The assessee had entered into an arrangement with TIDCO as well as with IDBI and fixed the project cost with a debt equity ratio, which was approved by the Government of Tamil Nadu and thereafter, steps were taken to acquire land, import machinery etc. In the meantime, 12 years had passed by and the project had not taken off. The IDBI had withdrawn from the project, as it was found to be unviable and another co-promoter viz., M/s.Khaltan Supermag Limited was brought in and a joint sector company was formed with the assessee subject to certain conditions. However, the said co-promoter, M/s.Khaltan Supermag Limited expressed inability to be a part of the project and after 12 years, the Government took a decision to sell the project and consequently, cancelled the allotment of 47 acres of land in favour of the assessee;
++ the assessee though had entered into arrangement with the banks and copromoters and took action for acquisition of land and import of machineries, no new venture was established by the assessee. The venture, which was to be taken over by the assessee and operated did not fructify, not on account of the conduct of the assessee, but on account of the decision of the Government of Tamil Nadu. The decision of the Government of Tamil Nadu to sell the project is a very important fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature;
++ the Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there should be an enduring benefit, which should accrue to the assessee and there should be a creation of a new asset. In the instant case, both these parameters remain unfulfilled.
Assessee's appeal allowed
2018-TIOL-1154-HC-KAR-CX
BRUHAT BANGALORE MAHANAGARA PALIKE Vs CST : KARNATAKA HIGH COURT (Dated: June 12, 2018)
CX - Assessee is in appeal against impugned order of Tribunal dismissing their appeals only on the ground of delay in filing the appeals which was of 213 and 223 days respectively - The assessee has submitted that Tribunal has failed to appreciate the reasons assigned by them and has failed to condone the delay, which was not very huge - He has also brought to the notice of this Court that co-ordinate bench of this Court had initially directed the assessee to deposit the sum of Rs.15,000/- in each of these four appeals towards the probable costs which has been deposited subject to delay being condoned and appeals being restored to CESTAT for disposal on merits in accordance with law - Court is inclined to allow the appeals filed by assessee, a public body and condone the delay in filing the appeals before CESTAT, subject to the aforesaid cost of Rs.15,000/- which is already been deposited: HC
Appeals allowed
2018-TIOL-1153-HC-KAR-ST
CELMECH ENGINEERING Vs CCE & ST : KARNATAKA HIGH COURT (Dated: June 13, 2018)
ST - Penalty - Assessee is in appeal against impugned order of Tribunal in 2017-TIOL-3706-CESTAT-BANG upholding the Order of Commissioner (A) by which penalty of Rs.8,04,615/- as against the penalty of Rs.18,57,069/- by Assessing Authority under Section 78 of FA, 1994 was imposed - Assessee submitted that they had paid due service tax in respect of one of service recipient though belatedly and documents relating to the same were produced before Tribunal but ignoring the same, Tribunal has upheld the penalty as imposed by Commissioner (A) - No question of law arises as both the Appellate Authorities have concurrently found fact against the assessee that they did not pay service tax in time even though such service tax was collected from service recipient - Tribunal had also found that the financial constraints is no ground to retain the service tax collected from the service recipient or customer and not paid to the Government Treasury in time and therefore Section 78 of FA, 1994 stood clearly attracted and the amount of penalty as reduced by Commissioner (A) was upheld by Tribunal also - Appeal is therefore dismissed as without merit: HC
Appeal dismissed
2018-TIOL-1152-HC-KAR-CUS
CC Vs MANGALORE REFINERY AND PETROCHEMICALS LTD : KARNATAKA HIGH COURT (Dated: June 12, 2018)
Cus - The question involved in present case is for period 13.01.1996 to 15.03.1998 with regard to consignments imported by assessee through IOCL and that the ground of unjust enrichment does not apply to the refund of custom duty paid by assessee under Section 18 of the Act, prior to insertion of Section 18(5) of the Act only with effect from 13.07.2006 - Revenue fairly submits that controversy is no longer res integra as co-ordinate Bench of this Court in case of same assessee 2015-TIOL-675-HC-KAR-CUS, has already held in favour of assessee that prior to amendment of Section 18(5) of the Act w.e.f. 13.07.2006, the ground of ‘unjust enrichment’ cannot be invoked for denying the refund of custom duty determined and paid under the provisional assessment under Section 18 of the Act - In view of aforesaid position of law settled, no substantial question of law arises for consideration: HC
Appeal dismissed
2018-TIOL-1151-HC-KAR-CX
K RANGANATH ADIGA Vs Pr.CCT : KARNATAKA HIGH COURT (Dated: June 8, 2018)
Cr.P.C. - Petition is filed under Section 438 of Cr.P.C. seeking anticipatory bail in event of arrest of petitioner by respondents or their sub-ordinate officers pursuant to summons - The apprehension of arrest in a non-bailable offence is a sine qua non to maintain a petition under Section 438 of Cr.P.C. - It is not the case of petitioner that he has been apprehending his arrest in any non-bailable offence and therefore, on the face of it, provisions of Section 438 of CR.P.C. do not get attracted - A reading of summons indicates that the petitioner has been asked to appear before the respondents in person along with the documents for inquiry in connection with service Tax matters - There is absolutely no basis for the petitioner to contend that he would be arrested by the authorities - The summons having been issued for appearance of petitioner, no justifiable reason found to exercise the powers under Section 438 of Cr.P.C: HC
Petition dismissed
2018-TIOL-913-ITAT-MUM + Case Story
EUROPA CHEMICALS PVT LTD Vs ITO: MUMBAI ITAT (Dated: June 15, 2018)
Income Tax - Sections 23, 24(a), 27(iiib), 143(3) & 147
Keywords - Actual rate of rent - Municipal rateable value - Prevalent rate of rent
DURING assessment for the relevant AY, the assessee company claimed that its only activities were by way of investments. In its returns for the relevant AY, the assessee received an amount of rental income which it declared as 'Business Income'. It acquired tenancy rights of about 1634 sq feet in a particular building. It later leased out a portion of the same to its sister company. Apart from monthly rent, the assessee also received an amount as rent deposit from its sister unit. This rental income was disclosed as 'Business income' and the rent paid for the property as well as expenses required for running of the company was claimed as deduction.
The AO completed assessment and passed an order u/s 143(3). Subsequently, the AO reopened the assessment and proceeded to make additions on account of Income from House Property. The AO opined that such income was taxable as 'Income from House Property', as assessee was to be treated as owner of the house property u/s 27(iiib). The AO also differed with the assessee to treat the actual rent received as the annual value of the property for the purposes of Section 23. The AO also noted that the fair rent of the property was higher than the stated rental. Thereupon the AO calculated the actual rent at a figure considerably higher than that declared by the assessee and also the annual value of the property. On appeal against such findings, the CIT(A) upheld the reopening of assessment as well as the additions made.
On appeal the Tribunal held that,
Whether the rate of rent prevalent in the market is per se basis enough to override the actual rent of a property - NO: ITAT
Whether for such purpose, there must first be substantive material showing that the prevalent market rate had been suppressed - YES: ITAT
Whether the prevalent rate can be adopted over stated rate where there is definite material showing disparity between the two - YES: ITAT
++ the short-point for our consideration is as to whether the Assessing Officer was justified in rejecting the value declared by the assessee and instead, determining the annual value of the property for the purposes of Sec. 23 of the Act based on estimation arrived at by him, having regard to the two instances noted in the vicinity of assessee's property; In this factual background, the claim of the assessee is that the actual rent be taken as the annual value of the property as it exceeds the Municipal ratable value. The AO does not accept Rs 7,500/- per month as the value for which the property might reasonably be expected to be let. In such a situation, as held by the Bombay High Court in the case of CIT vs. Tip Top Typography, the AO is required to carry out necessary investigations and inquiries. It is further prescribed that the AO shall have cogent and satisfactory material in his possession "which indicate that the parties have concealed the real position". It has been further explained that there must be "definite and positive material to indicate that the parties have suppressed the prevailing rate". If we were to examine the case made out by the AO in the instant in the background of the above reasoning laid down by the Bombay High Court, it is found that there is no allegation, much less any positive material with the AO, to say that the assessee has suppressed the real position by declaring rent from the sister concern @ Rs.7,500/- per month. On the contrary, what we find is that without arriving at such satisfaction, the AO has proceeded to ascertain the going rate of the rentals in the vicinity of assessee's property. Such approach is contrary to the judgment of the Bombay High Court in the case of Tip Top Typography, wherein the following discussion would indicate that ascertaining of the going rate in the market is not the basis to reject the actual rent declared, but rather there has to be a definite and positive material to indicate that the parties have suppressed the prevailing rate and the exercise of ascertaining the going rate would follow his satisfaction of disagreeing with the stated rent on the basis of definite and positive material;
++ on such reasoning, the action of the AO is liable to be set-aside. Apart there from, we find that the AO has straightaway based his estimation on the rates found on his inquiry without establishing the similarity of the arrangement. As pointed out by the learned representative with regard to the rental arrangement of Galaxy Aviation, the same is incomparable with assessee's arrangement because of the timing difference. The arrangement of Galaxy Aviation is of the year 2012 whereas assessee's arrangement is of 2007. Even with regard to the rental arrangement of Bank of India, there are no details brought out by the AO to show as to how the same are comparable to the assessee's arrangement. Therefore, on this ground also, the estimation made by the AO cannot be straightaway accepted;
++ therefore, there is no justification for the action of the AO in disregarding the actual rent declared by the assessee for the purpose of arriving at the annual value of the property to be taxed u/s 22 of the Act. As a consequence, we set-aside the order of CIT(A) and restore the matter back to the file of the Assessing Officer who shall recompute the income assessable under the head 'Income from House Property'. Thus, on this aspect, the assessee succeeds.
Case Remanded
