CASE LAWS
2018-TIOL-233-SC-NDPS-LB + Case Story
SATPAL SINGH Vs STATE OF PUNJAB: SUPREME COURT OF INDIA (Dated: March 27, 2018)
NDPS - High Court could not have and should not have passed the order under Sections 438 or 439 Cr.P.C. without reference to Section 37 of the NDPS Act - Apex Court once again reminds the police and the prosecutor that they need to show due diligence and vigilance while dealing with the cases under the NDPS Act: Supreme Court Larger Bench[para 15, 16, 18]
Appeal by appellant dismissed/Appeal by State allowed
2018-TIOL-1237-HC-KAR-CX
CCE Vs ECIE IMPACT PVT LTD: KARNATAKA HIGH COURT (Dated: June 20, 2018)
CX - Revenue submitted that the question arising in present case is covered by decision of cognate bench of this Court in case of Fosroc Chemicals (India) Pvt. Ltd. 2014-TIOL-1609-HC-KAR-CX in which it was held that the Amendment of Rule 6(6)(i) of CCR, 2004, amended in year 2008, has to be given retrospective effect as it was clarificatory in nature and has to be extended to the goods cleared to a “developer” of a Special Economic Zone for their authorized operation - The Tribunal in the impugned order dated 21.06.2016 in view of aforesaid judgment, granted relief to the assessee - Therefore, no Substantial Question of Law arises for consideration: HC
Appeal dismissed
2018-TIOL-1236-HC-AHM-CX
CADILA HEALTH CARE PVT LTD Vs UoI: GUJARAT HIGH COURT (Dated: June 26, 2018)
CX - The petitioners have challenged communications issued by Commissioner (A) under which, he called upon the petitioners to pay the amount of pre-deposit for maintaining the appeals in cash instead of through availing cenvat credit in the account - There is no dispute about petitioners' liability to predeposit 7.5% of disputed dues - The only dispute is whether such pre-deposit can be made only by cash or also by availing credit in cenvat account - It appears that Commissioner had not even put the petitioners to notice about the decision that he took in this regard - This was thus not a case of by parte hearing culminating into a quasi judicial decision formed by Commissioner which was a mere communication of his opinion that such pre-deposit must be made in cash - Even otherwise, it is well settled that mere availing of alternative remedy is not a bar to entertain a writ petition - Even the ground of delay is not valid - Commissioner does not appear to be correct in his stand - Essentially, credit in an assessee's cenvat account is a duty he has already suffered which he can encash for specified purposes subject to conditions laid down under the Rules - As observed by Division Bench of Jharkhand High Court in case of Akshay Steel Works Pvt. Ltd., there is nothing in Rules preventing an assessee from availing such cenvat credit for purpose of pre-deposit - Predeposit made by petitioner by availing cenvat credit shall be accepted for the purpose of section 35F of Central Excise Act: HC
Petition allowed
2018-TIOL-1235-HC-AHM-CUS
CC Vs ARCADIA SHIPPING AND TRADING CO: GUJARAT HIGH COURT: (Dated: June 28, 2018) )
Cus - Whether compliance of conditions/prescribed procedures imposed in exemption notification can be interpreted in a discretionary manner, citing substantial compliance, especially when the assessee has clearly violated the conditions and not followed the prescribed procedures of notification while availing the exemption - Assessee imported goods and claimed and in fact, got benefit under the exemption notification - There is no dispute with respect to applicability of exemption notification or dispute with respect to rate of duty - However, consequently, it was found that assessee committed breach and /or violated conditions of exemption notification and therefore, proceedings were initiated for recovery of duty - Whatever the duty leviable if the assessee is not entitled to benefit of exemption notification, the assessee is liable to pay duty - Appeal before this Court would be maintainable: HC
Appeal admitted
2018-TIOL-1234-HC-MUM-FEMA
MRUGANK INVESTMENTS LTD: SPECIAL DIRECTOR OF ENFORCEMENT BOMBAY HIGH COURT (Dated: June 26, 2018)
FEMA - Appeals filed challenging the common order dated 29.6.2015 passed by Appellate Tribunal for Foreign Exchange - Impugned order of Tribunal after consideration of assessee's case on merits coupled with financial difficulties in depositing amounts of penalty primafacie considered that assessees have an arguable case - Therefore, directed deposit of 10% of penalty amount imposed by Special Director alongwith reliable guarantee for balance 90% of penalty - This further requirement of furnishing reliable guarantee for balance 90% is not called for - This is particularly so as the impugned order finds that the affidavit filed pleading financial hardship was uncontroverted - In the above view, assessees are direted to deposit 10% of penalty amount as directed by Tribunal within a period of four weeks: HC
Appeals disposed of
2018-TIOL-1233-HC-KOL-IT + Case Story
PR CIT Vs OBEROI HOTELS PVT LTD: CALCUTTA HIGH COURT (Dated: June 22, 2018)
Income tax - Sections 143(2), 147, 148 & 292BB
Keywords - Curable defect - Dispensation of notice u/s 143(2) - Participation in proceeding - Raising of objections - Re-assessment
The Revenue preferred the present appeal challenging the action of ITAT in quashing the entire re-assessment proceedings on the assessee’s assertion that no notice u/s 143(2) was issued by the AO before undertaking the re-assessment. The Department urged that in view of Section 292BB, the ground could not have been urged by the assessee before the ITAT, particularly, as the assessee participated in course of re-assessment, the objections of assessee as to the re-assessment were considered by AO and it was not pointed out by the assessee prior to the reassessment being completed that no notice u/s 143(2) had been issued to him in respect of the re-assessment. In the alternative, the Revenue contended that if a notice u/s 143(2) was deemed to be mandatory so that in the absence thereof, the subsequent order of assessment or re-assessment had to be annulled, the matter must be restored to the stage where a notice u/s 143(2) might be issued for completing the assessment or re-assessment, as the case may be.
On appeal, the HC held that,
Whether issuing notice u/s 143(2) is mandatory, if Department seeks to reject any part of return as furnished by assessee and frame assessment order contrary thereto - YES: HC
Whether issuing notice u/s 143(2) is indispensable, irrespective of the fact that notice u/s 148 makes the assessee aware of on what count his income is perceived to have escaped assessment - YES: HC
++ in course of a block assessment when the AO repudiated the return filed by assessee, but failed to issue any notice u/s 143(2) within the prescribed period of time, the Supreme Court in case of Hotel Blue Moon, held that a notice u/s 143(2) is mandatory if the return as filed is not accepted and an assessment order is to be made at variance with the return filed by assessee. It is also evident that the issue is not limited to block assessment but would apply to every case where a notice u/s 143(2) is necessary. However, this Court in case of Commissioner of Income Tax v. Humboldt Wedag India Pvt. Ltd., opined that when an order of assessment was passed in course of reassessment u/s 143(3), the omission could have been a reason for setting aside the order of assessment, but that could not have been a reason for nullifying the exercise u/s 147. Such view taken by this Court in Humboldt Wedag India Pvt. Ltd was without noticing the Supreme Court judgment in Hotel Blue Moon. The relevant Bench also did not take into consideration a previous order of this Court, when the reassessment proceedings were quashed merely on the ground that no notice u/s 143(2) was issued to the assessee before making the reassessment;
++ the Department has however relied on a Madras High Court judgment in Areva T & D India Ltd. v. ACIT - 2006-TIOL-371-HC-MAD-IT where the view taken was that "the non-issuance of a notice u/s 143(2) will not make the re-assessment nullity in law, which is validly initiated u/s 148. However, such judgment of Madras High Court was noticed and discussed in a later judgment of the same Court in Sapthagiri Finance & Investments v. ITO - 2012-TIOL-608-HC-MAD-IT, wherein it was held that the view taken in Areva T & D India Ltd was no longer good law in view of the Supreme Court judgment in Hotel Blue Moon. Therefore, taking into consideration the law laid down by the Supreme Court in Hotel Blue Moon, it is inescapable that the issuance of a notice u/s 143(2) is mandatory if the AO seeks not to accept any part of the return as furnished by assessee or make an assessment order contrary thereto and, even in course of reassessment proceedings, such notice cannot be dispensed with;
++ on of the arguments put forth on behalf of the Revenue is that in course of reassessment proceedings, once a notice is issued u/s 148, the assessee is made aware of what part of the income or on what count the assessee’s income is perceived to have escaped attention. It is submitted that in such a scenario, the requirement of notice u/s 143(2) may be somewhat diluted, if not unnecessary. Apart from the fact that such argument cannot be countenanced in the light of the dictum in Hotel Blue Moon, it is evident that an assessment u/s 143(3) is consequent upon a hearing and the production of evidence on such points on which the AO may harbour doubts and are indicated in his notice u/s 143(2) of the Act. Section 143(3) contemplates an assessment undertaken by the AO upon material being produced by the assessee on grounds which are indicated by AO in his notice u/s 143(2) in respect whereof the AO may have misgivings or may disagree with the return filed by assessee. Even if the provision does not carry a non-obstante clause, since Section 292BB is a provision of general application, it would be applicable in all situations; but only in so far as it proclaims to operate. Section 292BB which mandatorily require notices to be issued in divers situations, cannot be said to have dispensed with the issuance of such notices altogether. Section 292BB must be understood to cure any defect in the service of the notice and not authorise the dispensation of a notice when the appropriate interpretation of a provision makes the notice provided for thereunder to be mandatory or indispensable. In addition, it is held that in the light of the Supreme Court dictum in Hotel Blue Moon, the view expressed in 'Wedag India Pvt. Ltd is per incuriam and, as such, not good law.
Revenue's Appeal Disposed Of
2018-TIOL-1232-HC-KOL-IT
CIT Vs GLOSTER JUTE MILLS LTD: CALCUTTA HIGH COURT (Dated: June 18, 2018)
Income tax - Capital receipt - Government subsidy - Purpose of scheme - Upgradation of machinery
The Revenue preferred the present appeal challenging the action of ITAT in holding that the money received by the assessee jute mill under a Central Government subsidy, had to be regarded as capital receipt, hence not taxable.
On appeal, the HC held that,
Whether government subsidy received by manufacturer for purpose of upgrading existing plant & machinery and for acquiring capital assets, should be regarded as revenue receipt - NO: HC
++ it is seen that in Balarampur Chini Mills Ltd., this Court held that it is the purpose of scheme that has to be assessed before determining whether the subsidy ought to be treated as a revenue receipt or a capital receipt. It also held that if the subsidy was given for the running of business of the assessee, it had to be regarded as a revenue receipt and if it was given to meet any capital cost of any asset, it had to be seen as a capital receipt. In Sahney Steel & Press Works Ltd., the Supreme Court held that if the subsidy was to help the assessee to set up its business or complete a project, the money had to be treated as having been received for capital purposes. In Ponni Sugars, the Supreme Court held that the character of the subsidy is determined with respect to the purpose for which it is granted and the point of time when the subsidy is made available to the assessee may not be of any consequence;
++ coming to the present case, the scheme was intituled as the "Technology Upgradation Fund Scheme". The Ministry of Textiles aimed at making available funds to the domestic textile industry for technology upgradation of the existing units as well as to set up new units with the latest technology to enhance their viability and competitiveness in the domestic and international markets. The preamble to the scheme recognised that in the post-quota regime, the industry had to become competitive, cost effective and quality oriented. The avowed purpose of the scheme was to induce the entrepreneur to undertake investment in modernising the plant and machinery and assets and the objectives of the scheme clearly spelt out such purpose. In the context of such scheme, it could never have been understood to imply that the subsidy was for the purpose of the day-to-day business of the assessee or any entrepreneur qualified to receive it. The subsidy was clearly for the purpose of upgrading the machinery and plant and for acquiring capital assets. On the strength of the terms of scheme, the subsidy received thereunder had only to be regarded as a capital receipt and not a revenue receipt.
Revenue's appeal dismissed
2018-TIOL-1231-HC-KOL-IT
UNITED BANK OF INDIA Vs CIT: CALCUTTA HIGH COURT (Dated: June 27, 2018)
Income tax - Accounting method - Business loss - Investment in securities - Real income - Valuation of closing stock
During the relevant period, the RBI compelled the banks to invest a proportion of the investment that they received in securities and shares in public limited companies. Since it was not the banks' decision and they were acting in accordance with the decision and direction of RBI, they treated the investment as stock in trade, treating the closing stock on cost basis, in their books of account. However in their income tax return, they valued this closing stock on market value or cost whichever was lower. Since the price of the shares fell, the assessees showed huge losses in their return although their books of account did not reflect it. In a similar fashion, the Board of Directors of the assessee bank in its meeting, approved that closing stock of securities as on Dec 31, 1984 might be valued on the basis of cost or market value whichever was lower and the loss to be treated as business loss. The present accounting principle being followed by the bank was valuation of the closing stock on cost or market value whichever was lower. They want to apply this principle to the stock in trade acquired in the assessment year in which the accounting principle was changed, so that they could show the change in value of the closing stock and account for the losses accordingly. When the matter went before the Tribunal, it was ruled that the assessee was not entitled to claim a different basis for valuation of closing stock of these shares and securities from the one adopted its books of accounts and audited annual accounts.
On reference, the HC held that,
Whether mere change in accounting method for valuation of closing stock, will alter the assessment, till the emphasis is on determination of real income - NO: HC
++ it is seen that the United Commercial Bank case came to be considered by the Supreme Court in United Commercial Bank, Calcutta -vs- Commissioner of Income Tax, West Bengal-III, Calcutta - 2002-TIOL-851-SC-IT, wherein it was held that: "....consistently for more than thirty years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance sheet, and for the income tax return, valuation was at cost or market value whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balance sheet in accordance with the statutory provision would not disentitle the assessee in submitting income tax return on the real taxable income in accordance with a method of account adopted by the assessee consistently and regularly. That cannot be discarded by the Departmental Authorities on the ground that assessee was maintaining balance sheet in the statutory form on the basis of cost of investments. In such cases, there is no question of following two different methods for valuing its stock-in-trade (investments) because the Bank was required to prepare balance sheet in the prescribed form and it had no option to change it. For the purpose of income tax, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by assessee and that was done by the assesses in the present case....";
++ on an appreciation of the said judgement of Apex Court, it clearly appears that the court stressed on the determination of real income rather than theoretical principles of accountancy. It says that if the securities and shares were valued at cost and from that no firm conclusion could be drawn, a tax payer was free to employ his own method of keeping accounts to value the stock in trade whether at cost or market price. Then it went on to say that the emphasis was on determination of real income. Again it observed that where from the computation, the real income could not be properly deduced, the computation should be made in the manner determined by the ITO. Coming to the present case, it is seen that the computation made by assessee for subject assessment year does not disclose the real income and that changing the method of valuation of closing stock to cost or market price whichever was lower would determine the income correctly. Thus, the Tribunal dealing with the accounting method for valuation of the closing stock of assessee, is set aside.
Assessee's Appeal disposed of
2018-TIOL-1230-HC-KERALA-IT
MALAYALA MANORAMA CO LTD Vs ACIT: KERALA HIGH COURT (Dated: June 26, 2018)
Income tax - Rules 9B(4) & (5)
Keywords - Acqusition of distribution rights - Commercial expolitation - Exhibition of feature film
The assessee company preferred the present appeal challenging the action of ITAT in upholding the order of Revenue authorities, by finding that Rule 9B(4) would not entitle the assessee to claim deduction in respect of expenditure of acquisition of distribution rights of feature film, for the reason that there was no exhibition of films on commercial basis during the period of acquisition or in the next year. The assessee claimed that in accordance with the specific provisions in Rule 9B(4), deduction on the cost of acquisition made in the year 2003-04, had to be carried forward to the next following previous year and allowed as a deduction in that year, since the assessee had not commercially exploited the film in the year of acquisition. It was submitted that Rule 9B(5) did not apply to a situation covered by Rule 9B(4), where there was no exhibition of film on a commercial basis for more than two years in a row, including the year in which the distribution rights of feature film was acquired by the assessee.
On appeal, the HC held that,
Whether deduction is permissible under Rule 9B of I-T Rules in relation to acquisition of distribution rights, only if the film has been commercially exploited and an income is generated therefrom - YES: HC
++ the provision of rule 9B(5) lays down that deduction under Rule 9B shall not be allowed unless the distributor credits in the books of accounts, the amounts realised by the distributor in case where the distributor himself has exhibited the film on commercial basis. The assessee was therefore required to credit the amount realised by him by exhibiting the film in the profit and loss account. Hence the deduction is permissible under Rule 9B only if the film has been commercially exploited and an income is received. Sub-rule (4) of Rule 9B only permits carrying forward of the cost of acquisition to the next year for the purpose of claiming deduction, which can be claimed only if there is income generated by the film and the same is credited to the books of accounts as provided in the overriding sub-rule at Rule 9B(5). There can be no deduction permissible on the cost of acquisition without generation of income credited in the books of account;
++ it is an admitted case that the feature films were never exhibited and there was no amount credited in the profit and loss account as amount received on exhibition of films. The finding of the Appellate Authority as well as the Tribunal is therefore, to be upheld and we find no reason to interfere and the claim of the assessee fails.
Assessee's appeal dismissed
