Immunity from penalty & prosecution - CBDT clears doubts on application of Sec 270AA

CASE LAWS

2018-TIOL-339-SC-IT + Case Story

CIT Vs CLASSIC BINDING INDUSTRIES: SUPREME COURT OF INDIA (Dated: August 20, 2018)

Income Tax - Sections 80IA, 80IB, 80IC & (3), 142(1) & 142(3)

Keywords - Commencement of operations - Deduction - Substantial expansion

The assessee company, engaged in manufacture of printed embossed book binding cover in form of sheets, commenced operations in 2005. For the first five AYs, being 2006-2011 since commencement of business, the assessee claimed deduction u/s 80IC. During the relevant AY, the assessee declared income of about Rs 27.9 lakhs after claiming deduction of about Rs 12.6 crores. On assessment, the AO noted that the assessee had again claimed 100% deduction against eligible profits in the relevant AY 2012-13, which was seventh year of production, by claiming substantial expansion in AY 2010-11. The assessee was asked to justify the claim of 100% deduction as against the eligible norm of 25%. The AO opined that as the assessee had already claimed 100% deduction for the first five AYs and in view of substantial expansion claimed, it was eligible for deduction @ 25% for the next five years. On appeal, the CIT(A) upheld the findings of the AO as did the Tribunal. On further appeal, the High Court held there to be no restriction to the effect that any undertaking could not undertake substantial expansion more than once as long as they remained within the period of eligibility for deduction u/s 80IC. It further held that considering the clear meaning of the provisions of Section 80IC, reliance could not be placed on CBDT Circular No. 7 of 2003 to deny such deduction.

On appeal, the Apex Court was of the view that,

Whether 100% deduction u/s 80IC is restricted to the first five AYs since commencement of operations & that only 25% deduction is available for the next five AYs - YES: SC

Whether therefore a claim for 100% deduction for 10 years, on grounds of substantial expansion, defeats the purpose behind offering deduction u/s 80IC - YES: SC

++ the question is as to whether these assessees, who had availed deductions @ 100% for first five years on the ground that they had set up a manufacturing unit as prescribed under sub-section (2) of the Act, can start claiming deductions @ 100% again for next five years as they had undertaking "substantial expansion" during the period mentioned in subsection (2)? The answer has to be in the negative;

++ In the instant case, we are concerned with the assessees who had established their undertakings in the State of Himachal Pradesh. Sub-section (3) of Section 80IC mentions the period of 10 years commencing with the initial Assessment Year. Subsection (6) puts a cap of 10 years, which is the maximum period for which the deduction can be allowed to any undertaking or enterprise under this section, starting from the initial Assessment Year. Another significant feature under sub-section (3) is that the deduction allowable is 100% of such profits and gains from an undertaking or an enterprise for five Assessment Years commencing with the initial Assessment Year and thereafter the deduction is allowable at 25% (or 30% where the assessee is a company) of the profits and gains. Cumulative reading of these provisions brings out certain aspects, such as that this deduction is allowable from the initial Assessment Year. Also that deduction is @ 100% of such profits and gains for first 5 Assessment Years and thereafter a deduction is permissible @ 25%. Lastly, total period of deduction is 10 years, which means 100% deduction for first 5 years from the initial Assessment Year and 25% (or 30% where the assessee is a company) for the next 5 years;

++ considering the spirit behind the scheme, such a situation cannot be countenanced where an assessee is able to secure deduction @ 100% for the entire period of 10 years. If that is allowed it will amount to doing violence to the provisions of sub-section (3) read with sub-section(6) of Section 80-IC. A pragmatic and reasonable interpretation of Section 80-IC would be to hold that once the initial Assessment Year commences and an assessee, by virtue of fulfilling the conditions laid down in sub-section (2) of Section 80-IC, starts enjoying deduction, there cannot be another "Initial Assessment Year" for the purposes of Section 80-IC within the aforesaid period of 10 years, on the basis that it had carried substantial expansion in its unit;

++ hence after availing deduction for a period of 5 years @ 100% of such profits and gains from the 'units', the assessees would be entitled to deduction for remaining 5 Assessment Years @ 25% (or 30% where the assessee is a company), as the case may be, and not @ 100%. The question of law is, thus, answered in favour of the Revenue thereby allowing all these appeals.

Revenue's appeal allowed

2018-TIOL-1679-HC-DEL-MISC

DIRECTRORATE OF ENFORCEMENT Vs SURAJPAL : DELHI HIGH COURT (Dated: August 10, 2018)

Money Laundering - In complaint filed under Section 55 of Wildlife (Protection) Act, 1972 which was pending in Court of Metropolitan Magistrate, Tis Hazari Courts an application under Section 44(1)(c) of Money Laundering Act, was filed by petitioner seeking transfer of said case under the Wildlife (Protection) Act, 1972 to the Special Court that had taken cognizance of complaint of offence under Money Laundering Act - Said application was allowed by order dated 19.11.2015 by the Court of ACMM - By the impugned order dated 26.11.2015, noticing the fact that there was a Notfn dated 01.11.2012 of Delhi High Court empowering all the Courts of Sessions or Additional Sessions Judges in Delhi to be Special Courts under the Money Laundering Act, the District & Sessions Judge transmitted the case back to the Court of Metropolitan Magistrate for passing appropriate orders - By order dated 18.03.2016, Court of Metropolitan Magistrate reviewed its own earlier order dated 19.11.2015 and committed the matter to the Court of Sessions and/or Additional Sessions Judges, (Central District) Tis Hazari Courts Delhi and for the said purpose placed the matter once again before the District & Sessions Judge - Even if proceedings pertaining to a scheduled offence were pending before a special court notified under the Money Laundering Act and that court is not the special court that had taken cognizance of the offence of money laundering, on an application being moved by the authorised authority, even that special court would be mandated to transfer/commit the proceedings to the special court that has taken cognizance of the offence of money laundering - Impugned orders dated 26.11.2015 and 28.03.2016 suffer from material irregularity and cannot be sustained, same are set aside: HC

Petition allowed

2018-TIOL-1678-HC-DEL-CX

ICON INDUSTRIES Vs CCE : DELHI HIGH COURT (Dated: July 17, 2018)

CX - Whether in the given circumstances of the case, the appellant/assessee was entitled to cenvat credit in respect of the countervailing duty paid on inputs.

HELD - In view of the findings of the Commissioner, there is no dispute that the inputs used i.e. PVR resin was by the assessee; in fact, the basic duty liability and penalty have been imposed on the basis of these findings -however, it is equally a matter of record that certain quantity of PVR resin too was used as a raw material -there may be no doubt that with respect to other inputs the assessee did not posses any document -however, that ought not have blinded the authority taking note of material which did exist on record (in the form of the payments made towards CVD) which can be legitimately claimed as input credit by the assessee -the record as it stands today also points to the assessee being given the benefit of SSI status and its consequential entitlement to such exemptions as are permissible -given these circumstances and findings, the denial of cenvat credit benefit to the assessee, was not justified -the impugned order of the Tribunal is, therefore, set aside -the respondent-Central Excise Authorities are directed to proceed to grant such cenvat credit as is permissible to the appellant/assessee, having regard to the documents which are on record and which may be relevant and can be produced by it for the purpose -the question of law is answered in favour of the assessee and against the Revenue - the appeal is allowed in the above terms : HIGH COURT [para 14, 15]

Appeal allowed

2018-TIOL-1677-HC-MAD-ST

CGST & CE Vs VISUAL GRAPHICS COMPUTING SERVICES INDIA PVT LTD: MADRAS HIGH COURT (Dated: July 9, 2018)

ST - Refund - (1) Whether the decision of CESTAT passed in Final Order No.42324 of 2017 dated 11.10.2017, in allowing refund of cenvat credit, even without registration, is correct? (2) Whether the CESTAT is correct in not considering the safeguards, conditions and limitations as stipulated in the Appendix to the Notification No.27/2012-CE(NT) dated 18.6.2012 ?

HELD: On the same set of facts, a Division Bench of this Court, in the case of Scioninspire Consulting Services India Private Limited - 2017-TIOL-798-HC-MAD-ST answered the substantial questions of law, raised therein, against the revenue - following the decision of the Division Bench of this Court, the instant Civil Miscellaneous Appeal filed by the revenue, on the same substantial questions of law, is liable to be dismissed - accordingly, Civil Miscellaneous Appeal is dismissed: HIGH COURT [para 11, 12, 13]

Civil miscellaneous appeal dismissed

2018-TIOL-1676-HC-MAD-ST

SUTHERLAND GLOBAL SERVICES PVT LTD Vs ACST : MADRAS HIGH COURT (Dated: August 7, 2018)

ST - The petitioner is engaged in business of Business Process Outsourcing and rendering services to clients based out of USA and UK - They were issued with a SCN proposing to demand differential service tax amount from 10.3% to 12.36% with interest - This Court, at this stage, is not inclined to go into such reasonings and findings of Adjudicating Authority, since the correctness or otherwise of such reasonings and findings is to be gone into and decided by the next fact finding authority, namely, the Appellate Authority - Admittedly, petitioner has filed the appeal before second respondent - The order of second respondent in rejecting the appeal only on the ground of limitation cannot be sustained, especially, when the petitioner has stated the reasons for filing such appeal with 13 days delay and when such reasons are not found to be either false or imaginary - In any event, as the delay is only 13 days, the second respondent ought to have condoned the delay and considered the matter on merits - Therefore, without expressing any view on the merits of the contentions raised by petitioner and on the order passed by the first respondent, writ petition is allowed in part only by setting aside the order of the second respondent: HC

Writ petition partly allowed

2018-TIOL-1675-HC-KERALA-CUS

SOUTHERN GOLD PVT LTD Vs CC : KERALA HIGH COURT(Dated: August 7, 2018)

Cus - The appeal is filed by an exporter against the refusal to release the goods despite payment of entire redemption fee and penalty imposed - The petitioner had purchased gold from the nominated agency and at the time of export of gold ornaments, the same were detained by Customs authorities - The allegation was of misclassification, insofar as quantity of gold declared in ornaments included the weight of precious stones embedded in ornaments - The petitioner was before the adjudicating authority, who has passed the order levying redemption fine and penalties - The petitioner has remitted the entire amounts and has filed an appeal against said order - However, Department has not released the gold ornaments intended for export - Admittedly, there is no stay petition filed by Department before the first appellate authority - As has been noticed by Single Judge, the order passed under Customs Act, 1962 is now in force and Department is obliged to release the goods unless there is a stay obtained from appropriate Forum - Department is directed to file a stay application within a period of two weeks - If such a stay application is not filed within the period specified, then there shall be immediate release of goods on expiry of said period: HC

Writ appeal disposed of

2018-TIOL-1674-HC-MAD-CUS

SABIN LOGISTICS PVT LTD Vs CC : MADRAS HIGH COURT (Dated: July 9, 2018)

Customs Brokers Licensing Regulations, 2013 [CBLR] - Petitioner challenging the order passed by the respondent under Regulation 19(2) of the CBLR continuing the order of suspension.

HELD: The investigation, which has proceeded since March 2017, appears to have opened a "can of worms" -in the facts and circumstances of the case and complexity of the matter, it cannot be stated that there was inordinate delay in intimating the Licensing Authority about the offence, which was detected - the action initiated by the respondent in invoking such Regulation 19(1) of the CBLR by passing an order on 14.3.2018 on receipt of the offence report on 27.2.2018 cannot be stated to be barred by limitation or an exercise which is uncalled for - writ petition is dismissed holding that the impugned order of suspension passed under Regulation 19(2) of the Regulations cannot be held to be invalid merely because the power was exercised only after the receipt of the offence report dated 27.02.2018 - the invocation of power under Regulation 19(1) of the CBLR cannot be held to be inappropriate- Petition dismissed: HIGH COURT [para 17, 19]

Writ petition dismissed

2018-TIOL-1673-HC-MUM-CUS

INDIA MEDTRONIC PVT LTD Vs UoI : BOMBAY HIGH COURT (Dated: July 24, 2018)

Cus - Petitioner is aggrieved by the detention order dated 28.9.2017 passed by the Deputy Commissioner of Customs in exercise of powers conferred by clause (a) of sub section 142 of Customs Act, 1962 -by the said order, it is directed that the amount of Rs.29.41 lakhs along with interest be recovered from any money payable to the petitioner by detaining and selling any goods belonging to the petitioner by the Officers of Customs and/or Officers of Central Excise all over India.

HELD: The order of the Appellate Authority which has been passed on 13.9.2012 making the condition of deposit of 50% amount as a condition precedent for hearing of appeal and in absence of which directing its dismissal was never communicated to the petitioner -thus, the petitioner was never made aware of the fact that the appeal filed by him resulted into a dismissal on expiry of period of two weeks from 13.9.2012 - the petitioner has now deposited an amount of Rs.14.70 lakhs on 12.6.2018 - in such circumstances, the interest of justice would be served if the appeal filed by the petitioner is restored to its file and the Commissioner is directed to decide the same on its own merits: HIGH COURT [para 12]

Writ petition disposed of

2018-TIOL-1672-HC-MAD-IT

UoI Vs DR L SUBRAMANIAN : MADRAS HIGH COURT (Dated: August 6, 2018)

Income Tax - Sections 154, 234B & 245C.

Keywords: Rectification of order & Settlement Commission.

The assessee, an individual, filed a settlement application u/s 245C for settlement of his case pertaining to AYs 1992-1993 to 1994-1995 and the same was allowed. Likewise, the assessee filed another settlement application for settlement of his case pertaining to AY 1995-1996, which was also allowed. Thereafter, the Commission passed a combined final order u/s 245D(4) and reduced the interest chargeable u/s 234B to the extent of 25% for each of the AYs 1992-1993 and 1993-1994 and the interest chargeable was reduced to the extent of 50% for each of the AYs 1994-1995 and 1995-1996. The interest was charged up to the date of assessment order.

Assailing the said order passed by the Settlement Commission reducing the statutory interest, the Revenue appealed to the Supreme Court. The Supreme Court referring to its decision in CIT v. Anjum M.H. Ghaswala, held that the Settlement Commission does not have the power to reduce or waive the statutory interest, except to the extent of granting relief under two circulars issued by the Central Board of Direct Taxes. The appeals were thus allowed and the matter was remanded to the Settlement Commission for the purpose of examining whether the two circulars referred to in the judgment were applicable in the facts of the case and if so, to what extent the assessee would be entitled to relief.

While the issue was pending consideration by the Settlement Commission, the Revenue filed a petition u/s 154 before the Settlement Commission for correction of its mistake with regard to the terminal date for levy of interest u/s 234B, in the light of the decision of the Supreme Court in CIT v. Hindustan Bulk Carrier, where the Supreme Court held that interest is to be payable till the date on which the Settlement Commission passes the order. Therefore, the Commission, held that there was no case for waiver of interest leviable u/s 234B and that the interest would be charged up to the date of the order u/s 245D(4).

Thereafter, the assessee filed a writ petition, challenging the order passed by the Settlement Commission and the same was allowed by the Single Bench following its earlier decision in C.V.Mathew v. Income Tax Settlement Commission and others.

On hearing the matter, the High Court held that,

Whether Settlement Commission has inherent powers u/s 154 to rectify an order - YES: HC

++ section 245F(1) of the 1961 Act confers on the Settlement Commission all powers which are vested in an Income Tax Authority under the 1961 Act. The Settlement Commission, therefore, has power to rectify an order. The powers under Section 154 of the 1961 Act can be exercised by the Settlement Commissioner in addition to those specifically provided under Chapter IXA. There is a difference between rectification of an order and review of an order. Review means reconsideration of the decision, whereas rectifying a mistake apparent from the record means making a correction which does not change the basis of a decision, as held in Lily Thomas v. Union of India. Review means the act of looking over something again with a view to correct or improve;

++ the power of review is not an inherent power. Such power has to be conferred by statute either expressly or by necessary implication. In this case, there is no power of review. However, the power of rectifying an apparent mistake under Section 154 of the 1961 Act includes wide power to amend the order, which has the effect of enhancing an assessment or increasing the liability of the assessee. The Settlement Commission rightly found that a later decision of the Supreme Court declaring the correct legal position would render an order passed earlier erroneous;

Whether terminal date for levy of interest under Section 234B is the date of order u/s 245D(4) - YES: HC

++ interest under Section 234B of the 1961 Act is to be charged up to the date of order under Section 245D(4) of the 1961 Act. The order of the Settlement Commission that the assessee would be entitled to waiver of interest leviable under Section 234A of the 1961 Act; that there is no case for waiver of interest leviable under Section 234B of the 1961 Act; and that interest under Section 234B shall be charged up to the date of the order under Section 245D(4) of the 1961 Act, does not warrant interference, more so, in view of the remand by the Supreme Court in Civil Appeal Nos.8705-8706 of 1996 . There is no infirmity in the order of the Settlement Commission which calls for interference in proceedings under Article 226 of the Constitution of India.

Revenue's appeal allowed

2018-TIOL-1671-HC-MAD-IT

C ARYAMA SUNDARAM Vs CIT: MADRAS HIGH COURT (Dated: August 6, 2018)

Income Tax - Sections 45, 54 & (1) & 129

Keywords - Capital gain - Exemption - Long Term Capital Gain - Residential property

The assessee filed returns for the relevant AY, declaring income of about Rs 12.20 crores. On scrutiny, the assessee was served notices u/s 129, 143(1) & 143(2). The assessee had sold a residential property for about Rs 12.50 crores, on which about Rs 10.47 crores arose as Long Term Capital Gain. Moreover, prior to making such sale, the assessee purchased some property for about Rs 15.96 crores. On such property, the assessee constructed a house at cost of about Rs 18.73 crores. Thus the assessee claimed the entire LTCG to be exempt u/s 54. On assessment, the AO held that only that portion of the construction expense incurred after sale of the original asset, would be eligible for exemption u/s 54. Hence the AO partly allowed exemption of about Rs 1.14 crores. On appeal, the CIT(A) upheld the findings of the AO. On appeal, the Tribunal held that Section 54 is a beneficial provision & had to be construed liberally on compliance of the conditions. Hence it allowed the assessee's appeal for statistical purpose.

On appeal, the High Court held that,

Whether LTCG exemption is available only when another residential house has been purchased within one year before or two years after date of transfer or has been constructed within three years after the date of transfer of such residential property - YES: HC

Whether no capital gain is attracted u/s 45 when amount of capital gain is equal to or less than cost of new residential property including value of land on which residential property is standing - YES: HC

++ What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour and any other cost relatable to the acquisition and/or construction of the residential house;

++ It is axiomatic that Section 54(1) does not contemplate that the same money received from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of a residential house should be used for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain;

++ At the cost of repetition, it it reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act.

Assessee's appeal partly allowed

2018-TIOL-1670-HC-MUM-IT

PR CIT Vs JAYANT K FURNISHERS : BOMBAY HIGH COURT (Dated: August 6, 2018)

Income Tax - Sections 132, 143(3) & 153C

Keywords - Documentary evidence - Unaccounted cash receipt

The assessee company, engaged in executing contracts for interior decoration, executed some interior decoration work for one party. Such party was subjected to search operations u/s 132 during the relevant AY. Based on certain documents found, the Revenue commenced survey proceedings u/s 153C against the assessee. On assessment, the AO held that two-thirds of the contract amount was received in cash & only one-thirds in cheque. Hence an addition of about Rs 2.48 crores was made on account of unaccounted cash receipts. Also the AO noted that the contract had been completed in the preceding AY and so the income was taxable in the current AY. Hence the assessee's total income was determined at Rs 5.09 crores. While the assessee's appeal was dismissed by the CIT(A) it was allowed by the Tribunal. It held that the issue of cash receipts & the project completion date were inter-related & so deleted the additions made on both counts.

On appeal, the High Court held that,

Whether quashing of additions made on accout of unaccounted cash receipts is justified, where such additions are made based merely on opinion of search party & without considering any documentary evidence - YES: HC

++ considering relevant findings of the Tribunal stating that "...Even according to the Revenue, an amount of Rs 2.48 Crores cannot be a subject matter of tax in the previous year relevant to subject AY but is only being taxed as this amount had to be taxed in the AY 2006-07. If the Revenue is of the view that the income chargeable to tax for AY 2006-07 has not been paid, then it is open to the Revenue to take such proceedings as are available to it in law for the subject AY 2006-07 against the Assesssee...";

++ also considered findings that "...the Tribunal records the fact that the Assessing Officer has brought an amount to tax as the unaccounted cash receipts only on the basis the opinion of the search party. This without having considered the documents on record and the submissions made by the Assessee in support of its contention that an arbitration between the parties, was pending. Thus, there is no basis to hold that the preparation of final bill was postponed, so as to postpone the income to the next Assessment Year. Nothing has been shown to us which would indicate that the finding of the Tribunal, is in any manner, perverse...". Hence the Tribunal's order warrants no interference.

Revenue's appeal dismissed