CASE LAWS
2018-TIOL-1193-HC-AHM-IT + Case Story
PR CIT Vs ZIRCONIA CERA TECH GLAZES: GUJARAT HIGH COURT (Dated: June 18, 2018)
Income tax - Clandestine removal of goods - Excise additions - Under valuation of sales
The Revenue preferred the present appeals challenging the judgment passed by the ITAT, whereby the additions made by AO on the ground of under valuation of sales, estimated gross profit and clandestine removal of goods, stood deleted.
On appeal, the HC held that,
Whether additions based on SCN issued by Excise department are valid where the CESTAT adjudicates the matter in favor of the assessee & sets aside duty demands raised by the Excise department - NO: HC
++ it is required to be noted that similar additions were made by the AO on the very ground with respect to different Assessment Years, which came to be deleted by the Tribunal and against the very common judgment and order but with respect to different Assessment Years by which the Tribunal deleted the additions made on the ground of under valuation of the sales, on the ground of estimated GP and on the ground of clandestine removal of goods, Department preferred Tax Appeal Nos.599/2018 to 601/2018 and by the common judgment and order dated 12/06/2018, Division Bench of this Court having noted and considering the fact that the Tribunal ultimately deleted the additions primarily on the ground that by virtue of the judgment of the CESTAT, the excise show-cause notice was adjudicated in favour of the assessee and the CESTAT deleted the additions on excise side, and therefore, the Tribunal was justified in deleting the additions made by AO, Division Bench has confirmed the very common judgment and order but with respect to different Assessment years.
Revenue's appeal dismissed
2018-TIOL-1192-HC-AHM-IT
CIT Vs LABH LEASE AND FINANCE LTD: GUJARAT HIGH COURT(Dated: May 10, 2018)
Income Tax - Section 68.
Keywords: Discounting charges - Genuineness of transaction - Lease rent & Undisclosed income.
The assessee-company, engaged in construction related activities, filed returns for the relevant AY. During the course of assessment, the AO noticed deposit of a sum of Rs 1.30 Crores shown by way of unsecured loan from one M/s. Miga Gas Pvt Ltd and assessee had claimed an amount of Rs. 3.90 lakhs as discounting charges towards the said transaction. When the AO questioned the assessee about such deposit in its accounts, the assessee pointed out that its group concerns, Labh Construction Ltd had purchased 2500 Gas Cylinders from one M/s. M.M Industries. Those industrial gas cylinders were leased by Labh Construction to one M/s. Miga Gas Pvt Ltd. As per the terms of the lease, MGPL had to pay monthly lease rent of Rs 2.83 lakhs to Labh Construction over a span of five years of lease agreement. MGPL thus had to pay total Rs 1.70 Crores to M/s. Labh Construction by way of lease rent. Accordingly, MGPL and assessee entered into an agreement under which MGPL paid a sum of Rs 1.30 Crores to the assessee in lieu of the assessee taking over the liability of MGPL to pay the monthly lease rent to M/s. Labh Construction. According to the assessee, such amount was paid by MGPL through different drafts drawn on different dates.
However, the AO doubted genuineness of the transaction and probed the issue further. From the material produced by the assessee, he noticed that the gas cylinders were purchased by M/s. Labh Construction Limited from M.M Industries of Madras for which, the bill of Rs 1.53 Crores for 2500 gas cylinders was raised. The delivery was shown at Madras, where no sufficient storage facility was not shown to be existing. The goods were shown to have been delivered at a godown situated at Hosur, which was altogether a different place. The delivery challan did not contain necessary details such as truck number, address at which delivery was to be made. The AO therefore did not accepted that element of delivery of goods at the declared address.He noted that MGPL had not furnished copies of bank account to verify issuance of draft payments to the assessee. MGPL had also not provided audited statement of P&L Account and balance-sheet. Even the query regarding delivery and use of the goods was not replied to. Therefore, on the basis of such inquiries, he held that the entire transaction of leasing of gas cylinders to MGPL was not genuine. He, therefore, discarded assessee's version that the sum of Rs 1.30 Crore credited in the account was received from MGPL by way of unsecured loan. He treated such sum as the income of the assessee from undisclosed sources. Consequently, he also disallowed the claim of assessee of discounting charges of Rs 3,98,944/-. On assessee's appeal, the CIT(A) upheld the decision. On further appeal by the assessee, the Tribunal reversed the decisions of Revenue authorities
On hearing the matter, the High Court held that,
Whether where rent received exceeds value of the asset & which raises doubt over genuineness of transaction, is the onus on the assessee to establish identity & genuineness of transaction & also creditworthiness of lessor - YES: HC
Whether therefore, failure of assessee to provide full details of payments and other proofs to establish genuineness of transaction, warrants addition u/s 68 as undisclosed income - YES: HC
++ it is undoubtedly true that in the context of cash credit in the books of accounts, it is primarily liability of the assessee to establish the identity, genuineness of the transaction and the credit worthiness of the donor. Such liability does not extend any further. In particular, the Courts have emphasized that the assessee is not required to establish source of the source. Nevertheless, in the present case, we are concerned with the very genuineness of the transaction which needs to be tested from various facts and circumstances duly established on the record;
++ for the equipments which cost Rs. 1.53 Crore to M/s. Labh Construction Limited, MGPL had agreed to pay lease rent which over five years of lease period would come to Rs. 1.70 Crore. In absence of any suggestion that the equipment in question was perishable, immediately a question would arise why would a business entity agree to pay a total sum by way of rental for a period of five years which is higher than the cost of equipment itself. Even going by the advance lumpsum payment of Rs. 1.30 Crore, it could be seen that MGPL paid virtually 80% of the cost of the equipment for taking it on rent. Under normal circumstances, we are not concerned with the fairness of the terms and conditions of the agreement between two parties. In business dealings and such transactions, various considerations apply with which the Revenue would have no concern. Nevertheless, these facts only raise further questions;
++ the fact that neither the assessee nor MGPL provided full details of payments to the assessee. MGPL also avoided producing its books of account for the relevant assessment year citing reason of their incompletion, and last but not the least, the completed accounts of later year had no reflection of outstanding unsecured loan of Rs. 1.30 Crore. The Tribunal, therefore, was not correct in interfering with orders of the revenue authorities.
Revenue's appeal allowed
2018-TIOL-1191-HC-MAD-IT
K VELAYUTHAM Vs ACIT: MADRAS HIGH COURT (Dated: June 13, 2018)
Income tax - Writ - Sections 133A, 147 & 148
Keywords - Reasons for reopening - Speaking order - Sworn statement
The assessee, an individual, had preferred the present petitions challenging the notices issued by ACIT u/s 148 and the corrigendum, by contending that the ACIT had not followed the procedure stipulated by the Supreme Court in GKN Driveshafts (India) Ltd. vs Income Tax Officer and Ors - 2002-TIOL-634-SC-IT as the ACIT had not passed a speaking order, after the assessee had filed their objections to the re-opening proceedings. In the objection filed by assessee, it was pointed out that it was not permissible to take the sworn statement in action u/s 133A as it did not have evidentiary value.
On Writ, the HC held that,
Whether re-assessment framed without disposing off the assessee's objections to reopening, warrants re adjudication & passing of speaking order - YES: HC
++ the assessee's counsel referred to a decision of this Court in the case of M/s.India Electronics Vs. The Joint Commissioner of Income Tax, Range II, Cuddalore and another in W.P.No.8569 of 2006, where one of the question which came up for consideration was the effect of statement recorded during the course of survey action u/s 133A. The Court took note of the decision of the High Court of Allahabad in the case of Dr.S.C.Gupta Vs. Commissioner of Income Tax reported in (2001) 248 ITR 782, which was considered by the Division Bench of this Court in Commissioner of Income Tax Vs. S.Khader Khan Son - 2007-TIOL-824-HC-MAD-IT and pointed out that the statement recorded during the course of survey action u/s 133A shall not have any evidentiary value and solely based on the said statement by one of the partners of the firm, the question of reopening cannot be done. In the considered view of this Court, the necessity to go into the merits of the case does not arise at this juncture on account of lapses committed by ACIT in not observing the directives issued by the Supreme Court in GKN Driveshafts (India) Ltd.
Case disposed of
2018-TIOL-1190-HC-KERALA-IT
CIT Vs DR PN BHASKARAN: KERALA HIGH COURT (Dated: June 12, 2018)
Income Tax - Sections 54EA & 263.
Keywords: Allotment of shares - Deed of dissolution - Dissolution of firm - Pre-existing right - Suo motu revision - Sale of the asset - Transfer of capital asset.
The assessee firm, engaged in running a hospital, had returned income for the relevant AY. During the assessment proceeding, the AO noted that the assessee was reconstituted several times over a period of time with different partners and eventually, the assessee and his daughter were the only partners. On 31.03.1997, the firm, consisting of two partners, i.e., the assessee and his daughter, was dissolved and the daughter released her share to the exclusive share of the assessee. The assessee also took his share of the assets of the firm and the hospital belonged exclusively to him on such dissolution of the firm. Later, it became a proprietorship and was sold on 18.03.1999 for Rs. Five crores. The assessee had showed the apportionment of the consideration relating to building, furniture, electric and sanitary fittings, equipments and machinery, land, goodwill and trademark of the hospital and nursing home. Towards the building, the assessee offered short term capital gains for assessment. Consideration obtained for land, goodwill and trademark was offered for taxation as long term capital gains (LTCG) however, it claimed exemption since, the same was invested in UTI as per Sec. 54EA. The AO allowed the assessee's claim which was sought to be suo motu revised u/s 263. Meanwhile, the AO initiated proceedings u/s 147 r/w Sec. 148 for escapement of income. But, the Commissioner dropped the proceedings initiated u/s 263 for reason only of the reassessment attempted. The AO however, dropped the proceedings u/s 148, upon which again the Commissioner invoked the power of suo motu revision u/s 263. On further reassessment based on suo motu revision, the AO rejected the claim of LTCG and assessed the entire capital gains in the hands of the assessee as short term capital gains. An appeal was filed, which was rejected. A further appeal to the Tribunal went in favour of the assessee.
On appeal, the High Court held that,
Whether the assessee can claim exemption u/s 54EA towards the shares received from transfer of capital asset which was exclusively done on dissolution being relatable to a pre-existing right - YES: HC
Whether the Revenue can suo motu revise an issue even when the AO's findings in that regard are not erroneous - NO: HC
++ the Supreme Court held that valuation on the cost price was permissible especially when the business had not come to a stop by the dissolution of the firm and was continued by one among the two persons; the other having expired. In these circumstances, it was held that when there are two options available, both permissible in law, then the adoption of one of such options by the AO cannot be interfered with u/s 263. For the Commissioner to invoke Sec. 263 and simply because the order of the AO was prejudicial to the Revenue, it cannot be a reason for suo motu revision u/s 263;
++ the partnership firm, at the time of dissolution, had two partners. On dissolution, the assessee's daughter, who was the other partner, had also released her share in favour of the assessee. In such circumstance, it cannot be said that the assessee had merely taken away a pre-existing right in the assets of the firm. There is absolutely no dispute to the fact that the assessee was a partner in the firm and on dissolution, was entitled to the assets in proportion to his share in the firm; in which he definitely had a pre-existing right. But, on the release of the share of the other partner, there is a transfer occasioned and the rights over that property accrues to the assessee, only on such release being effected by the other partner. On facts, we find that the share of the assessee which he received exclusively on dissolution being relatable to a pre-existing right he had, as one of the partners; to the extent of such share, the assessee's claim for exemption from LTCG for reason of the deposit made to UTI u/s 54EA has to be allowed. However, on the value of the shares in which the other partner had a pre-existing right; which was released in favour of the assessee, the right over it can be claimed only from the date of release and if subsequent sale falls within the 36 month period, necessarily the assets are to be assessed as STCG to that extent;
++ the Tribunal has not gone into the facts and has proceeded on the basis that the allotment of shares on dissolution would not result in a transfer, which, according to the Tribunal, is a legally permissible option available to the assessee. We, on the correct law applied to the peculiar facts, do not agree with the Tribunal on the acceptance of the assessee's claim raised for LTCG to be a permissible view at least to the extent of the value of the assets released in his favour by the other partner on dissolution. To that extent, the finding of the AO in the original order was an erroneous finding, which was also prejudicial to the interest of the Revenue. Hence, we are of the opinion that the Commissioner was perfectly justified in invoking the powers u/s 263. To the extent of the share, the assessee had prior to dissolution and the valuation of that share, which was allotted to his share on dissolution; we concur with the order of the Tribunal insofar as allowing the exemption available from LTCG for reason of compliance with Sec. 54EA. There is no ground for a suo motu revision to that extent since the AO's finding on that count is not erroneous;
++ Sec. 45(4) enables assessment at the hands of the firm, of the profits and gains arising from the dissolution of a firm. Which, on application of general principles of partnership, cannot be assessed in the hands of the partners who take away their pre-existing right over the capital assets, which has been held by the various precedents to be not resulting in any transfer of capital assets. The provision only enables assessment at the hands of the firm and does not deem the allotment of capital assets in proportion to the share on dissolution or otherwise as a transfer. Herein, we are not concerned with whether the firm was assessed at the time of dissolution and are only concerned with the erstwhile partners assessment as an individual; that too of the consideration received from the sale of the assets he held exclusively after the dissolution of the firm, which sale was also subsequent to the dissolution. The exact shares of the partners are not placed before us and the valuation is also a question to be decided on facts. We hence remand the matter to the Tribunal, before whom the assessee shall produce the deed of dissolution and release executed in the year 1997-98.
Case Remanded
2018-TIOL-1189-HC-MAD-VAT
ALKRAFT THERMO TECHNOLOGIES PVT LTD Vs ACST: MADRAS HIGH COURT (Dated: June 14, 2018)
Tamil Nadu VAT - Writ - Free samples - Purchase return - Stock-transferred goods
The assessee is a manufacturer and dealer of Aluminum Radiators, Inter Coolers and Oil Coolers. Its assessment under the CST Act for the year 2007-08 was completed determining total turnover of Rs.34,37,24,667/-. The turnover which was covered by C-Forms were assessed at the rate of 3% and 2%, and the turnover which was not covered by C-Forms, were assessed at the rate of 12.5% and 4% and the assessment order also demanded tax for sales without C-Forms. The assessee submitted CST sales turnover along with C-Forms and supporting documents, and on verification, a revised assessment order was passed. The assessee thereafter submitted a representation requesting for further revision of assessment based on further C Forms, F forms, purchase returns and free samples followed by several reminders. However, the ACCT considered the same, reduced the tax liability and ultimately, the taxable turnover was determined vide revised assessment order, without properly considering F Forms, C Forms, purchase returns and free samples. On the same day, another revised assessment order was passed by taking into account F-Forms, but not the purchase returns and free samples.
On Writ, the HC held that,
Whether expenditure incurred on purchase returns and free samples needs to be considered when determining VAT liability of manufacturer - YES: HC
++ it is seen that the assessee has challenged the assessment order of similar nature relating to the A.Y 2014-15 by filing a writ petition in W.P.No.32843 of 2016 - 2016-TIOL-2377-HC-MAD-VAT. The said writ petition was allowed by setting aside the order insofar as it has rejected the issue relating to Sales Return and return of stock transferred goods and directed to redo the assessment. It was further directed therein that the ACCt need not restrict himself only with regard to the C-Forms and F-Forms and if the assessee is legally entitled for any other relief then that may be considered. In the light of the said order, this petition is allowed, directing the ACCt to redo the assessment on the heads of purchase returns and free samples based on the representations of the assessee, after affording an opportunity of personal hearing.
Case remanded
2018-TIOL-1180-HC-AHM-CUS
KOSHAMBH MULTITRED PVT LTD Vs UoI: GUJARAT HIGH COURT (Dated: April 19, 2018)
Cus - Petitioner was issued Duty Credit Scrip [DCS] by the respondent authorities on 31.7.2013 which was lost by CHA on 14.8.2014 - duplicate DCS issued on 9.1.2015 and registered with the Customs authorities on 29.1.2015 - however, the validity of the duplicate certificate being co-terminuswith the original one, expired on 31.1.2015 - petitioner requested to Jt.DGFT, Vadodara to extend the validity of duplicate DCSwhich was rejected twice by the Policy Relaxation Committee on 27.9.2016 and 3.1.2017 - petitioner challenging these decisions before High Court.
Held - In the present case, it may be that some time was consumed by the Government bodies in responding and granting duplicate DCS, nevertheless, this Court cannot lose sight of the fact that after its first issuance, the petitioner did not utilise or transfer it for over one year out of total period of six months -once again it was the petitioner or its CHA who was responsible for loss of the scrip - finally, even after expiry of period of validity of 31.1.2015, the petitioner applied for extension of the validity period only on 17.4.2015 -at all stages, the petitioner had thus shown a degree of slowness - under the circumstances, though some of the observations of the Committee may not be entirely accurate, when it comes to exercise of discretionary powers, no infirmity seen - in the result, petition is dismissed : HIGH COURT [para 8, 9, 10]
Special Civil Application dismissed
2018-TIOL-1179-HC-MAD-CUS
MIOT HOSPITALS PVT LTD Vs UoI: MADRAS HIGH COURT (Dated: April 28, 2018)
Cus - On the basis of EPCG Authorization issued by the third respondent, the petitioner imported six equipments, including true beam radiotherapy system during June 2016 - the fourth respondent initiated investigation into the import of true beam radiotherapy system on the ground that the equipment was wrongly classified under TI 9022 90 30 instead of TI 9022 14 90 - petitioner approached the third respondent for amending the ITC-HS Code in the EPCG authorisation to 9022 14 90 - in response to petitioner's letter dated 17.3.2018, the third respondent sent the impugned reply thereby stating that the petitioner has to pay the differential duty with interest or produce a letter from the fourth respondent that they have no objection for amendment in the EPCG Authorization - appeal before High Court.
Held: A demand cannot be issued by the fourth respondent to the petitioner and at best, a SCN could have been issued - however, no such SCN has been issued -the third respondent cannot insist for a no objection certificate from the fourth respondent - the writ petition is disposed of by directing the third respondent to take an independent decision on the petitioner's letter dated 17.3.2018 without insisting upon a no objection certificate from the fourth respondent :High Court [para 5, 7, 8]
Writ Petition disposed of
2018-TIOL-1178-HC-MAD-ST
BUS ROUTE ROADS DEPARTMENT Vs DGCE: MADRAS HIGH COURT (Dated: April 24, 2018)
ST - SCN issued to the petitioner proposing as to why the service rendered by them should not be classified as “Renting of immovable property” services - amount of Rs.3.85 crore payable towards ST demanded along with interest, penalties proposed - SCN challenged before High Court.
Held: What is being sought to be taxed is the renting of immovable property and not for excavation work - therefore, any remittance being made by the Contractor who has excavated the earth for the purpose of renting of immovable property, will not absolve the petitioner from the proposal made in the SCN - the disputed questions of fact as to whether the nature of services proposed to be taxed, viz., renting of immovable property would fall under clause 13 of the Mega Exemption Notification No.25/2012 dated 20.6.2012 has to be adjudicated before the authority - thus, the jurisdictional issue, which is pointed out by the petitioner is not purely a jurisdictional issue as it primarily involves adjudication of facts - therefore, the petitioner has to necessarily submit their reply to the impugned SCN and participate in the adjudication process - therefore, on the grounds raised by the petitioner, the SCN cannot be quashed - the writ petition is dismiss ed as not maintainable : High Court [para 9, 10]
Writ Petition dismissed
2018-TIOL-1177-HC-MUM-CX
BOMBAY SNUFF PVT LTD Vs UoI: BOMBAY HIGH COURT (Dated: April 17, 2018)
CX - Appellant, engaged in the manufacture of snuff of tobacco, paid duty at the rate of 25% as was charged by the Department from 1.4.1989 under protest - consequent upon the decision which has attained finality upto the Apex Court holding that from 1.4.1989, the snuff of tobacco manufactured by the appellant was classifiable under the Entry No. 2404.60 and only 10% of the duty was payable on it, the appellant claimed refund of the excess amount of duty paid from 1.4.1989 till February, 1994 - the Joint Commissioner, Central Excise, partly accepted the claim of the appellant -on appeal by Revenue, the Commissioner (Appeals) reversed the order of refund passed by the Joint Commissioner -Tribunal maintained the order of Commissioner (Appeals) .
Held - It is the duty of the authority to call for the cost sheet prepared and certified by the Cost Accountant, to formulate the Maximum Retail Price of the item sold and the reasonable profit derived by the manufacturer, to decide the question as to whether entire duty of 25% was charged and recovered from the customer or consumer - the matter is required to be remanded to the Joint Commissioner to decide the controversy afresh by permitting the assessee to produce on record the other documents having bearing on the issue involved in the present case by setting aside the orders passed by the authorities below - writ petition is partly allowed : High Court [para 9, 10, 11]
Writ Petition partly allowed
2018-TIOL-1176-HC-DEL-PMLA
RAJ KUMAR GOEL Vs DIRECTORATE OF ENFORCEMENT: DELHI HIGH COURT (Dated: May 10, 2018)
Prevention of Money Laundering Act, 2002 [PMLA] - By way of the present bail applications, petitioners Rohit Tandon and Raj Kumar Goel, seek regular bail in ECIR No.18/DLZO-II/2016 dated 26.12.2016 recorded by Enforcement Directorate, Delhi Zone under sections 3 and 4 of the PMLA – the above ECIR was recorded pursuant to FIR No. 205/2016 registered for the offences punishable under sections 406/409/420/468/471/188/120B IPC at PS Crime Branch on 25.12.2016 – the allegations in the above ECIR in nutshell are that the petitioners with other accused persons illegally converted the demonetized currency into monetized currency by depositing cash into the accounts of various firms, persons and subsequent issuance of demand drafts and also paying of commission to the conspirators who also deposited the money in various accounts and transferred it to satisfy their own liability – Bail applications filed.
Held: Petitioners have been in custody for a period of now more than one year four months and despite directions of the Supreme Court, vide order dated 10.11.2017, that day-to-day trial should continue, till date arguments on charge have not begun - in the predicate offence, that is, FIR No.205/2016, the Crime Branch did not even think it fit to arrest the petitioners and filed a charge-sheet without arrest - the evidence in the present case is primarily documentary in nature and statements of accused which are admissible in evidence have already been recorded under section 50 of PMLA - further corroborative evidence in the form of CCTV footage and call detail records is also documentary in nature – moreover, as per the requirement of section 44 of PMLA, trials in FIR No.205/2016 for the scheduled offence as well as section 4 of PMLA in ECIR No.18/DLZO-II/2016 are required to be held together -hence the trial is likely to take some time -thus, this Court deems it fit to grant bail to the petitioners – it is, therefore, directed that the petitioners be released on bail on their furnishing a personal bond in the sum of Rs.5 lakhs each with two sureties of the like amount each subject to the satisfaction of the Trial Court, further subject to the condition that the petitioners will not leave the country without prior permission of the Trial Court and in case of change of residential address the same will be intimated by way of an affidavit to the Court concerned– Bail granted – petitions disposed : High Court [para 25, 26]
Petitions disposed
2018-TIOL-1175-HC-AHM-MISC
JAYANT AGRO ORGANICS LTD Vs UoI: GUJARAT HIGH COURT (Dated: April 25, 2018)
CST - Petitioner was granted refund of CST of Rs.6.19 lakhs under order dated 6.10.2007 - SCN dated 8.2.2017 issued to petitioner for recovery of the said refund amount - vide impugned order, the Development Commissioner, Kandla SEZ directed the petitioner to deposit a sum of Rs.6.19 lakhs in the Government account, and also imposed a penalty of Rs.1 lakh on the petitioner.
Held - More than nine years after refund was paid, the authority issued the SCN calling upon the petitioner why the same should not be recovered with penalty - only on the ground of delay and latches, therefore, this Court would not permit such an action - the main issue of validity of the stand of the Department kept open - impugned order set aside - the petition stands disposed of accordingly : High Court [para 6, 7]
Special Civil Application disposed of |
