CASE STORIES

Income Tax - Both ACIT as well as JCIT are competent officers for sanctioning issue of notice u/s 148: HC

I-T - Factual findings of Tribunal do not become redundant merely because some alternative conclusion can be drawn: HC

NOTIFICATION

cnt73_2018

Customs (Finalisation of Provisional Assessment) Regulations, 2018 issued

CASE LAWS

2018-TIOL-1635-HC-MUM-IT

SGS INDIA PVT LTD Vs JCIT : BOMBAY HIGH COURT (Dated: August 13, 2018)

Income Tax - Section 80-O.

Keywords: Consolidated report - Doctrine of precedents - Foreign company - Principle of consistency & Routine services.

The assessee-company entered into an agreement with a foreign company named M/s. Societe Generale De Surveillance S.A., Geneva for rendering various technical and professional services with regard to import and export of goods by the foreign company from and to India. On expiry of such agreement another agreement was entered into with the foreign company and the same was renewed by separate agreements from time to time.

In respect of the fees received from the foreign company for technical services rendered under the agreement of December 27, 1978 and March 8, 1984, the assessee made claim for deduction u/s 80-O. During the period 1980 to 1984 i.e. AY 1980-81 to 1984-85, the assessee approached the CBDT for approval of such agreements and technical services. Therefore, the CBDT called upon the assessee to supply the break up of fees received. Therefore, on submission of such break up, the approval was granted from the AYs 1980-81 upto 1984-85 being 100% deduction on account of Laboratory and testing charges and 33 1/3 % on account of professional charges u/s 80-O. However, the fee attributable in respect of other services rendered to foreign company was not granted any deduction.

However, the assessee was not satisfied on the ground that the services rendered were part of the continuous operation which culminates into technical services to the foreign party. As a consequence, the CBDT while approving the agreement for the AY 1985-86 for the purposes of Section 80-O varied its earlier approval. Instead of fixing the percentage allowable, the CBDT directed that the consideration attributable to the technical services which would qualify for deduction u/s 80-O was to be determined by the AO. Therefore, the AO for the AYs 1985-86 to 1991-92 allowed the claim for deduction of 50% of the net foreign exchange earnings. That on the total fees received from the foreign company after deducting expenses therefrom to earn the foreign exchange.

However, during the AY 1992-93, the AO called upon the assessee to bifurcate its receipts into five heads for considering deduction u/s 80-O. Finally, the AO by assessment order adopted the same methodology as was done by the CBDT in its approval to the agreement for AYs 1980-81 to 1984-85 i.e. 100% deduction on account of laboratory and testing charges and 33 1/3% on account of professional charges. The other claims on account of services rendered to the foreign company was disallowed in toto.

Therefore, being aggrieved by the order, the assessee filed an appeal to the CIT(A), which held that there was no basis and reasons whatsoever for the AO to deviate from the consistent practice of allowing deduction at 50% of the net foreign exchange earnings received from a foreign company in consideration of the technical services rendered for the AYs 1985-86 to 1991-92. Further, the CIT(A) draws attention that the very issue of deduction u/s 80-O for AY 1985-86 was the subject matter of revision u/s 263 by the CIT. On merits also while allowing the appeal, it held that the so called routine services are a part of technical services and cannot be excluded from the services rendered. On further appeal by the Revenue, the Tribunal held that the provisions of Section 80-O have to be applied independently for each AY and on consideration of the services rendered by the assessee to the foreign company, it was found that the routine services which were rendered in India would not form a part of preparation and forwarding technical information to be used outside India for deduction u/s 80-O.

On hearing the matter, the High Court held that,

Whether the assessee can claim deduction u/s 80-O by pleading the principle of consistency and by arguing that the AO had allowed the same in the previous years - NO: HC

++ the services rendered by the assessee to the foreign company involves the activity of inspection, supervision of loading and storage. These are activities which are in the nature of routine services and admittedly carried out in India. Therefore, the order of the Tribunal disallowed the deduction under Section 80-O of the Act to the extent of 20% of the consideration received as attributable to the activity being rendered in India and not being services rendered from India. The principle of consistency and doctrine of precedents would not apply in the present facts, as undisputedly there is a change in law. The order of the Tribunal on facts found that the routine services were rendered in India and not from India. Thus, would not qualify for deduction under Section 80-O of the Act;

++ the decision of the Tribunal in the case of reopening of an Assessment for A. Y. 1985-86 and 1991-92 being held to be bad by the Tribunal by order dated 4th January, 2007 will not help the assessee as the tests to be applied to determine whether or not, reopening of an Assessment is permissible under the law, would be entirely different from assessment done in regular proceedings. The jurisdiction to reopen an assessment is a very limited jurisdiction hemmed in by various limitations, amongst them being no notice for reopening can be issued only on a change of opinion. In any event, there is admittedly, a change in law for the subject assessment years from the A. Y. 1985-96 and 1991-92 for which reopening notice was issued. Thus, the same would not have any impact on the present proceedings;

Whether the contention of assessee that such routine services are part of consolidated report furnished to the foreign party and does qualify for deduction u/s 80-O, is acceptable - NO: HC

++ section 80-O of the act very clearly restricts the benefit of deduction, only to the extent technical services are rendered from India. The routine services are undisputedly services such as supervising, loading/ unloading/ storage rendered in India and not out side and / or from India. Therefore, would not qualify for deduction under Section 80-O of the Act. This, even if, it forms a part of consolidated report furnished to the foreign party.

Assessee's appeal dismissed

2018-TIOL-1634-HC-ALL-IT + Case Story

VIKRAM SINGH Vs CIT : ALLAHABAD HIGH COURT (Dated: August 03, 2018)

Income Tax - Sections 2(28), 117(1) & 148

Keywords - ACIT - Agricultural income - JCIT

The assessee sold two pieces of land, which was being held by him as well as 21 co-owners. He received about Rs 2.3 lakhs as his share in both properties. As the assessee did not file any returns for the relevant AY, the AO issued notice u/s 148. In response, the assessee declared the sale proceeds but claimed them to be income arising from sale of agricultural land and further claimed such income to be exempted. On assessment, the AO accepted only a small portion of such proceeds to be agricultural income and proceeded to treat the remaining amount as Long Term Capital Gain. Such findings were upheld by the CIT(A). Later, the Tribunal too dismissed the assessee's appeal.

On appeal, the High Court held that,

Whether the term 'Joint Commissioner of Income Tax' u/s 2(28C) of the Act also includes the rank of Additional Commissioner of Income Tax within its scope - YES: HC

Whether therefore both officers are capable of giving sanction for issuing notice u/s 148 - YES: HC

++ the only contention raised by the counsel for the assessee is that the notice was not issued with the prior sanction of the Joint Commissioner, but sanction was accorded by the Additional Commissioner and, therefore, notice under Section 148 of the Act issued by the A.O. was without jurisdiction;

++ section 2 of the Act is Definitions Section. Clause (28C) of Section 2 of the Act defines the word "Joint Commissioner" and explains it means a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under sub-section (1) of Section 117;

++ thus, the Joint Commissioner includes an Additional Commissioner as well. There is no merit in the present appeal.

Assessee's appeal dismissed

2018-TIOL-1630-HC-KOL-CX

BURN STANDARD COMPANY LTD Vs UoI : CALCUTTA HIGH COURT (Dated: August 6, 2018)

CX - The petitioner submits that the Tribunal had erred in rejecting the application made by them to consider the appeal, in view of the fact that, Committee on Disputes (CoD) put into place by orders of Supreme Court, was no longer in vogue by virtue of decision of Supreme Court in Electronics Corporation of India Ltd 2011-TIOL-18-SC-CX-CB - Moreover, with the CoD system being done away with, Tribunal ought to have admitted the appeal of petitioner and considered the same on merits - The right of appeal sought to be exercised by petitioner, is a statutory right - Such right flows out of a statute and it is available to any litigant governed by appeal provisions in respect thereof - Such right of appeal was sought to be put under suspended animation by CoD mechanism - Such mechanism was put in place by Supreme Court finding that, Article 12 authorities were the largest litigants and that, the CoD system may lesson the number of litigation - However, the Supreme Court, subsequently finding that, such a mechanism has failed, recalled the CoD mechanism by the decision rendered in Electronics Corporation of India Ltd. - Therefore, after that decision, an appeal by an authority under Article 12 of Constitution need not be accompanied with a permission of CoD - The appeal filed from the second O-I-O was dismissed in absence of CoD clearance - The petitioner before Tribunal, was granted leave to apply for restoration upon obtaining CoD clearance - Since the CoD mechanism was done away with, Tribunal ought to have taken such fact into consideration when the petitioner approached it - The right to prefer the appeal revive been done away, Tribunal ought to consider and decide such appeal on merits: HC

Writ petition allowed

2018-TIOL-1629-HC-KOL-CUS

ANVIL INVESTMENTS PVT LTD Vs DGFT : CALCUTTA HIGH COURT (Dated: August 2, 2018)

FTP - The vires of a Policy Certificate dated July 1, 1996 is under challenge - Ordinarily, a Writ Court does not interfere with policy decisions - However, all policy decisions are not exempt from judicial scrutiny - In present case, the policy decision says that, the authorities will abide by directions of orders of Court that may be passed in individual cases - It goes without saying that, parties would be bound by orders passed by the Court - Therefore, if the authorities took such a policy decision, it cannot be said to be violative of any provisions of the Constitution for interference by a Writ Court - The challenge to the vires fails - So far as the impugned order is concerned, it proceeds on the basis of the Policy Certificate dated July 1, 1996 - It is not the case of petitioners that, it does not fall within the scope and ambit of such policy decision - Therefore, the rejection of the claim of petitioners cannot be faulted: HC

Writ petition dismissed

2018-TIOL-1628-HC-KOL-CUS

MOORGATE INDUSTRIES INDIA PVT LTD Vs CC : CALCUTTA HIGH COURT (Dated: August 8, 2018)

Cus - The petitioner suffered an O-I-O dated July 23, 2018 - A period of 60 days has not elapsed from the date of such order - Therefore, the authorities have acted with undue haste in issuing the letter dated July 26, 2018, invoking the security - The justification given in impugned writing is that the bank guarantee was alive till July 24, 2018 - Apparently, the authorities may not have been favoured with the extension of bank guarantee granted by banker issuing the bank guarantee - The bank guarantee is valid upto August 5, 2019 - The petitioner will make over a copy of the extension of bank guarantee to the authorities within two days from date - It will obtain a writing from the bank certifying that, the bank guarantee is alive till August 5, 2019 and communicate the same to the authorities - The Court is informed that, the proceeds of the bank guarantee has not been disbursed - Therefore, the authorities will not receive such proceeds for a period of seven days from date: HC

Writ petition disposed of

2018-TIOL-1627-HC-DEL-IT + Case Story

ALPASSO INDUSTRIES PVT LTD Vs ITO : DELHI HIGH COURT (Dated: July 23, 2018)

Income Tax - Section 133(6)

Keywords - Factual findings of Tribunal

The assessee company filed returns for the relevant AY, declaring its income, which also included commission received in capacity of an agent for a foreign firm. The assessee had helped the foreign firm in obtaining purchase orders for transformers to be supplied to the Power Grid Corporation of India Ltd. The assessee also performed services of coordination & follow up for the foreign firm. On assessment, the AO doubted the genuineness of the expenditure and deemed such payment to be surreptitious & covert and which had not been paid for services rendered. While such findings were reversed by the CIT(A) based on documents submitted by the assessee, the Tribunal later held that the assessee failed to discharge onus or establish genuineness of the transaction.

On appeal, the High Court held that,

Whether factual findings of the Tribunal become perverse merely because an alternative conclusion can be drawn - NO: HC

Whether factual findings of the Tribunal can be interfered with only if they are blatantly unreasonable or based on conjectures & surmises - YES: HC

++ A decision of question of fact depends upon appreciation of evidence and material placed before the authorities, i.e. the Tribunal. The Tribunal, as a final fact finding authority, has to determine and decide question of fact in dispute by examination of evidence and material produced. Inference and conclusion based upon appreciation of fact does not give rise to a question of law. In this context that the assessee claims and asserts that the decision of the Tribunal was perverse, and therefore substantial question of law arises from the order. A finding of a Tribunal on fact does not become perverse merely because another finding or conclusion was possible. Test and benchmark of perversity is far stringent and strict. Factual findings can be only interfered with when they are patently unreasonable, not supported by any evidence or are based upon extraneous and irrelevant material. Interference may be justified when the conclusions are based upon mere conjectures and surmises or where no person acting judicially and properly instructed under the relevant law could have come to the same decision and conclusion. In the current factual matrix, having noted the evidence and material before the Tribunal, the final conclusion arrived at, it cannot be said, that Tribunal’s conclusion was based upon no evidence to support or was rationally not possible or entirely unreasonable. The conclusion is also not contradictory.

Assessee's appeal dismissed

2018-TIOL-1626-HC-PATNA-IT

ALKEM LABORATORIES LTD Vs PR CIT: PATNA HIGH COURT (Dated: August 2, 2018)

Income Tax - Writ - Sections 35(2AB), 148 & 263

Keywords - Notice of re-opening

The assessee company was subject to re-assessment proceedings for the relevant AY. The assessee contested such assessment order passed by the AO wherein the assessee's objections to notice issued u/s 148 and assumption of jurisdiction by the ACIT, were rejected.

In writ, the High Court held that,

Whether the Writ Court can intervene in a matter of notice for re-opening being issued at the very first level of assessment, due to which the writ court is denied any conclusive facts - NO: HC

++ we do not have benefit of concluded finding of facts because the assessee has directly approached this Court in its writ jurisdiction. We agree with the submissions of the counsel representing the Revenue that the Act of 1961 provides for certain statutory authorities vested with the powers to examine the materials based on which a finding may be recorded. Considered relevant findings of the Apex Court in the case of Commissioner of Income Tax & Ors. Vs. Chhabil Dass Agarwal wherein the Supreme Court while setting aside the judgment and order of the High Court passed in Writ Petition (C) No.44 of 2009 by which the High Court had interfered with the notice under Section 148 of the Act, granted liberty to the respondents to file an appropriate petition/appeal against the order of reassessment passed under Section 148 of the Act. Hence in absence of any concluded facts being available before us, it would not be proper to interfere with the notice and order in the present writ proceeding. We, therefore, dismiss the writ application giving liberty to the assessee to avail statutory alternative remedies, if so advised, in the facts and circumstances of the case.

Assessee's writ petition dismissed

2018-TIOL-1625-HC-MUM-IT

DY PATIL EDUCATION SOCIETY Vs CIT : BOMBAY HIGH COURT (Dated: August 9, 2018)

Income Tax - Writ - Section 127

Keywords - Audi Alteram Partem - Transfer of assessment

The assessee is a society engaged in imparting education. During assessment, the CIT(E) transferred the assessee's assessment proceedings from Kolhapur to Mumbai u/s 127 of the Act. The reasons for such transfer were stated as being to facilitate better coordination in investigation. The assessee filed the present writ, contesting such transfer of assessment proceedings.

In writ, the High Court held that,

Whether the assessment can be transfered from one jurisdiction to another without notifying the assessee about the reasons for transfer, either at stage of issuing SCN or passing adjudication order - NO: HC

++ this petition could be disposed of at this stage on the challenge to the order dated 2nd April, 2018 on the basis the grievance of being passed in breach of principles of natural justice without examining the other contentions raised by the assessee. This court finds that the notice dated 23rd February, 2018 proposing the transfer did not give sufficient indication for the reasons to transfer the assessee's case from Kolhapur to Mumbai, therefore, making it impossible for a party to meet the Revenue's case and satisfy the Authority concerned that the proposed reasons for the transfer are not justified;

++ thereby considering the decision of this court in Global Energy P. Ltd. Vs. Commissioner of Income Tax, merely stating that the transfer is proposed / being done for the purposes of coordinated investigation is not sufficient. Moreover, the order dated 2nd April, 2018 has admittedly placed reliance upon a report dated 21st December, 2017 of the Deputy Commissioner of Income Tax to justify the transfer of the assessee's case. Not only no copy of the above report dated 21st December, 2017 was furnished to the assessee at any time before the passing of the order but even the notice dated 23rd February, 2018 does not advert to it. Thus, this would be a classic case of breach of Audi Alteram Partem Rule; Hence the SCNs as well as the orders transferring the assessment are set aside.

Assessee's writ allowed