CASE STORIES
I-T - Genuine claim of exemption from capital gains tax u/s 54F cannot be denied to assessee-HUF merely because sale deed was executed in name of member: HC
I-T - Reopening of assessment where no scrutiny was undertaken, cannot be said to be hit by principle of change of opinion: HC
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CASE LAWS
2018-TIOL-2066-HC-MAD-IT
MAGNA CREDIT AND FINANCIAL SERVICES LTD Vs DCIT : MADRAS HIGH COURT (Dated: September 20, 2018)
Income Tax - Sections 154, 260A & 271(1)(c).
Keywords - Lease of machinery - Mortgage hypothecation - Penalty
The assessee company filed its return for the relevant AY. Further, the assessee claimed that they were the owners of Air Pollution Controller, Solid waste controller and Waste heat recovery which were stated to be purchased from New Shorrock Mills and also entered into a lease transaction with the M/s Mafatlal Industries Limited by lease agreement for a period of 3 years.
Further, the assessee claimed 100% depreciation on machinery being Rs.12,50,000/- each for AYs 1996-1997 and 1997-1998. During the assessment proceedings, the AO disallowed such claim of depreciation. Subsequently, a penalty proceedings u/s 271(i)(c) was initiated. On appeal, the CIT(A), deleted certain additions, but did not consider the issue of dis-allowance of depreciation due to which the assessee filed petition u/s 154 to rectify the error in the order, which was rejected, and hence confirming the disallowance of 100% depreciation.
However, an SCN was issued as to why penalty u/s 271(1)(c) should not be imposed was adjudicated and the Asst. CIT, held that to levy penalty on the assessee for concealment of income, thereby, levied a sum of Rs 5,31,800/- as penalty. Further, on appeal, the CIT(A) confirmed the order passed by the Asst. CIT. On further appeal, the Tribunal upheld the levy of penalty as there was no satisfactory explanation given by the assessee for the said lease transaction to be a bonafide transaction.
On appeal, the High Court held that,
Whether extensive documentation can be used to provide legitimacy to an otherwise unauthentic or fraudulent transaction - NO: HC
Whether the writ court can act as a third appellate authority to review the Tribunal's order upholding penalty - NO: HC
++ it is seen from the records that the transaction referred by the assessee claiming 100% depreciation on lease back transaction, enabling the assessee to claim 100% depreciation on the assets referred in the lease agreement. It could be seen that the 4 items referred in the lease agreement, cannot be detached as they are part of the bigger system of machinery being used by New Sharrock Mills, wherein, the Assessing Authority, based on the valuers report, had come to the conclusion that the asset is considered integral part of the factory as a whole, which makes it very clear that the assets mentioned in the lease are permanently fixed as an integral part of the factory which cannot be used by anyone else other than New Sharrock Mills. This would lead to the conclusion that the assets are not capable of being sold and sale exists only on paper and not in the real sense;
++ the Assessing Officer while imposing the order of penalty pointed out that on a holistic examination of the transaction, it is apparent that it is not in the nature of a normal sale and lease back transaction, rather a hurriedly planned act towards the end of the financial year to claim 100% depreciation benefit and in that process, the Assessee has prepared extensive documentation and the documents, by themselves, do not mean much unless they are vouched by authentic transaction. After examining the nature of transaction, the Assessing Officer held that the claim for depreciation is fraudulent;
++ the Tribunal examined the factual position and pointed out that the so called assets were part of integral factory owned by the sister concern of the lessee, Mafatlal Industries Ltd., namely New Shorrock Mills. The Tribunal referred to the valuation report and pointed out that when the assets were part of an integral factory they could not have been sold out to the assessee and leased out to different concern. Further, the Tribunal pointed out that it is not clear whether Mafatlal Industries Ltd., already borrowed certain monies against the assets because in the valuation report, the Assessing Officer has stated that the valuer has not been able to verify whether any encumbrances were made by way of mortgage hypothecation, to the bank or any financial institution. The discrepancy in the date of stamp paper was also pointed out. Thus, three authorities have concurrently held on facts against the assessee. While examining the correctness of the order passed by the Tribunal under Section 260A of the Act, this court cannot convert itself as a third appellate authority over the findings rendered by the Assessing Officer.
Assessee's appeal dismissed
2018-TIOL-2065-HC-AHM-IT + Case Story
ABHA VINAYKUMAR JAIN Vs ITO : GUJARAT HIGH COURT (Dated: September 25, 2018)
Income Tax - Writ - Principle of change of opinion - Reassessment & Transfer of capital asset.
The assessee, an individual had filed return and the same was accepted without scrutiny. However, thereafter, she was subjected to inquiries by the AO regarding sale of non-agriculture land for a sum of Rs. 20 lacs to one Urmil Gandabhai Patel. accordingly, a notice was sent by the AO and assessee was asked to produce details of the capital accounts and necessary supporting evidence concerning the transaction. However, the assessee contended that such notice was sent to her old address which she did not receive. However, the AO initiated reassessment proceedings by rejecting the contentions of the assessee.
In writ, the High Court held that,
Whether when no scrutiny was undertaken in case of assessee, reopening of assessment by the AO cannot be said to be hit by principle of change of opinion, since the AO is not supposed to formed an opinion in such case - YES: HC
++ the return filed by the assessee was accepted without scrutiny. It is by now well settled that in such a situation, the Assessing Officer would have much wider latitude to reopen the assessment. Since in the original assessment no scrutiny was undertaken, the Assessing Officer cannot be stated to have formed an opinion. The principle of change of opinion therefore would not apply. Reference in this respect can be made to the decision of Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P.Ltd reported which was later on reiterated in case of Deputy Commissioner of Income Tax and anr vs. Zuari Estate Development and Investment Company Ltd;
Whether pendency of a suit regarding disputed land transaction in a Civil Court will not obstruct the AO to go for reopening, since the same may render the assessment time barred - YES: HC
++ whether there is prima facie evidence suggesting transfer of capital asset or whether the assessee is correct in contending that the entire transaction was fraudulent and no sale actually took place, are the issues we are not inclined to go into in the present petition. The assessee must submit to the jurisdiction of the Assessing Officer who alone can ask relevant questions in this respect and take a final decision while framing re-assessment. If the Assessing Officer is prevented from carrying out assessment, the serious question of such assessment getting time barred by the time the assessee's litigation before the Civil Court achieves finality. This is not a case where the very liability or in the present case, the question of gain is under litigation. What is under litigation is the factum of the transfer of capital asset. If eventually the assessee losses in her challenge to the sale deed, the situation would be that the sale of the land by virtue of such deed, did actually take place as is recorded in the document, in which case, the assessee must surrender the capital gain arising out of such transaction of capital asset to tax during the assessment year relevant to financial year when the transaction took place.
Assessee's writ petition dismissed
2018-TIOL-2064-HC-AHM-IT + Case Story
Pr.CIT Vs VAIDYA PANALALMANILAl (HUF) : GUJARAT HIGH COURT (Dated: September 24, 2018)
Income Tax - Section 54F.
Keywords: Capital gains & Exemption.
The assessee-HUF was holding a capital asset which was sold for consideration of Rs. 19 lacs. The capital gain arising out of such transaction was around Rs. 12.71 lakhs, which was claimed as exempt u/s 54F on the ground that it had purchased new residential house for Rs. 20 lacs. The AO scrutinized such claim and noticed that purchase of the new residential house was in the name of two members of the HUF and not in the name of HUF. He was of the opinion that for claiming exemption u/s 54F, the purchase of a new capital asset had to be by the same assessee who had sold the capital asset which was a subject-matter of gain. Therefore, the AO rejected such claim of the assessee. On appeal, the CIT(A) as well as the Tribunal reversed such decision.
On appeal, the High Court held that,
Whether a genuine claim of exemption from capital gains tax u/s 54F can be denied to the assessee-HUF merely because sale deed was executed in the name of a member - NO: HC
++ the Tribunal was right in coming to the conclusion that this was substantial compliance with the requirement of section 54F of the Act when neither the source of acquisition of the new capital asset nor the account of such new asset in the name of the HUF are doubted. Mere technicality that the sale deed was executed in the name of member of the HUF rather not HUF, would not be sufficient to defeat the claim of deduction. By mere names of the purchasers in the sale deed, the rights of the HUF and other members of the HUF do not get defeated. If at all, the persons' named in the sale deed hold the property of the trust for and on behalf of HUF and the other members of the HUF.
Revenue's appeal dismissed
2018-TIOL-2063-HC-MUM-IT
RAMBILAS GULABDAS (HUF) Vs TAX RECOVERY OFFICER : BOMBAY HIGH COURT (Dated: September 27, 2018)
Income Tax - Writ - Rule 68B of Second Schedule.
Keywords: Limitation & Notice of auction.
The assessee- HUF by this writ petition had challenged the notice for auction on the ground that it was barred by limitation because of Rule 68B of Second Schedule of Income Tax Act, 1961. Therefore, the Court had admitted petition for final hearing and issued Rule on interim relief which was made returnable in four weeks. Thereafter, the Court granted interim relief and restrained the Revenue from proceeding to sell the attached agricultural land by auction in furtherance of disputed notice.
In writ, the High Court held that,
Whether notice of auction sent by the Revenue after expiry of period of three years but before expiry of period of four years will be hit by Rule 68B(1) and thus, unsustainable - YES: HC
++ the steps are initiated by Revenue in present matter on 18.11.2004 i.e. after expiry of period of three years but before expiry of period of four years. The judgment of Apex Court which endorses reasoning of Andhra Pradesh High Court on lack of authority in CBDT to increase the period from three years to four years. The incompetent authority, therefore, cannot prejudice legal rights of assessee flowing from statutory provisions or eclipse the same in any manner. Notice dated 18.11.2004 is, therefore, beyond period of three years and, therefore, hit by Rule 68B(1). In this situation, we find the notice dated 18.11.2004 unsustainable. It is accordingly quashed and set aside. Consequently, in view of mandate of Rule 68B(4), attachment of properties which formed subject matter of said notice dated 18.11.2004 is also set aside.
Assessee's writ petition allowed
CIT Vs CARGILL INDIA PVT LTD : DELHI HIGH COURT (Dated: September 11, 2018)
Income Tax - Section 2(22)(e).
Keywords: Deemed dividend - Loan & Step up subsidiaries.
The Revenue's contention in the instant appeal is that the loan given by M/s Cargill Global Trading India Pvt Ltd to the assessee-company namely M/s Cargill India Pvt Ltd should be treated as "deemed dividend" u/s 2(22)(e).
On appeal, the High Court held that,
Whether loan availed by the assessee from a group company can be treated as deemed dividend u/s 2(22)(e), when step up subsidiaries of both the entities are different - NO: HC
++ it is an accepted and admitted position that M/s Cargill Global Trading India Private Limited is one step down subsidiary of M/s Cargill Inc USA. The assessee is a two step down subsidiary of M/s Cargill Inc USA. The step up subsidiary(ies) of M/s Cargill Global Trading India Private Limited and M/s Cargill India Private Limited are different and not common. It is not possible to accept the contention that the assessee should be treated as a shareholder or beneficial owner of the shares in M/s Cargill Global Trading India Private Limited.
Revenue's appeal dismissed
NOVEL IMPEX Vs CC : MADRAS HIGH COURT (Dated: June 18, 2018)
Cus - The petitioner seeks implementation of order passed by the Tribunal vide 2018-TIOL-2584-CESTAT-MAD, by which, a provisional release of cargo has been granted subject to new conditions - The period of limitation is six months from the date of receipt of a copy of order passed by Tribunal - The Department is stated to have received the order copy of Tribunal on 12.6.2018 - Therefore, in the interregnum, this Court cannot issue a direction to implement the order of Tribunal, since this Court cannot curtail a statutory appeal remedy available to a party under the provisions of Customs Act - Accordingly, the writ petition is disposed of with an observation that if the respondent fails to invoke the appeal remedy available to them under the said Act within the period of limitation stipulated, the respondent shall implement the order passed by the Tribunal: HC
Writ petition disposed of
ROCHEM SEPARATION SYSTEMS INDIA PVT LTD Vs UoI: BOMBAY HIGH COURT (Dated: September 27, 2018)
Cus - This petition challenges the minutes of meetings/orders dated 1st August, 2017 and 6th December, 2017 of the Policy Relaxation Committee in the office of Director General of Foreign Trade - It is the petitioners' case that as they were unable to produce assessed copy of bill of export in respect of supplies made to SEZ, they sought relaxation of that requirement to evidence discharge of their export obligations by producing other corroborative evidence in the form of ARE1 which would establish the fulfillment of their export obligations by making supplies to SEZ - It is submitted that an identical issue had came up before this Court in Larsen and Toubro Ltd. 2017-TIOL-2291-HC-MUM-CUS from the orders of the Policy Relaxation Committee on identical facts and law and this Court allowed the petition - For the reasons indicated in order in Larsen and Tubro Ltd., this petition is allowed - Accordingly, the impugned minutes/orders dated 1st August, 2017 and 6th December, 2017 are set aside - The respondents are further directed to issue Export Obligation Discharge Certificate and redeem the Advance Authorizations dated 23rd June, 2009, 3rd November, 2010, 16th November, 2010 and 20th September, 2012: HC
Petition disposed of
CC Vs RAKESH JAVERIMAL SHAH : BOMBAY HIGH COURT (Dated: September 19, 2018)
Cus - This appeal has been filed on 14th July 2017 by the very Adjudicating Authority (Commissioner of Customs (NSIII)) and yet it finds no mention of passing of the order dated 2nd February 2017 in the appeal memo - At that time, Revenue was represented by Shri. Dwivedi and time was granted to enable the Revenue to explain its conduct - As at the hearing, the Counsel for the Revenue was not updated on facts by the officer of Revenue instructing him - Prima facie filing of such appeals from impugned order of Tribunal which has worked itself out to the knowledge of appellant i.e. the Commissioner of Customs (NSIII) inasmuch as he has given effect to the impugned order of Tribunal by passing the order dated 2nd February 2017 - In absence of facts being pointed out in appeal memo and indicating the reason for filing this Appeal, it appears that it has been filed to harass an assessee - Further, at the time of admission of appeals, court do not insist on the Respondent being represented - Court decide on the issue of admission after hearing the appellant - This on the basis that facts would be correctly informed - In the absence of Respondent pointing out the above facts, it is likely that this Appeal would have been admitted, even though in these facts, it has become infructuous: HC
Appeal adjourned
INDO COUNT INDUSTIRES LTD Vs UoI : BOMBAY HIGH COURT (Dated: September 21, 2018)
Cus - The petitioner has exported furnishing fabrics and classified the same under Chapter 63 heading 63.07 of CTA, 1975 - During audit, it was noticed that furnishing fabrics were classifiable under Chapter 63 Heading 63.04 - Thus, investigation was commenced and statements of petitioner's officers were also recorded - The investigations are still in progress as no SCN has yet been issued - Nevertheless, on 20th July, 2018 the communication was issued which directed the petitioner to pay the benefit obtained under Notfn 24/2015 (MEIS benefit) within 10 days, failing which proceedings for recovery shall be initiated as per the law - The petitioner submitted that in case a SCN is issued, the petitioner would respond appropriately and justify that it is entitled to the classification claimed by it, as also to the benefit of said Notfn - It is submitted that the impugned communication calls upon the petitioner to pay the amount which is not a result of any adjudication proceedings but a mere ipsi dixit of the Officers of the Revenue - The Revenue on instruction of Mr. R.P. Khandelwal, Additional Commissioner of Customs states that the respondent Revenue will not initiate any proceedings for recovery of Government dues till such time as adjudication order is passed on the SCN which will be issued by the respondents - In view of the statement by the respondent Revenue, no interference is called for at this stage - It is made clear that the respondents will not adopt any coercive proceedings for recovery till the passing of the adjudication order on SCN to be issued - However, this will not restrain the respondents from accepting any payments made by the petitioner in discharge of the likely demand: HC
Petition disposed of
CC Vs FORTUNE MARKETING PVT LTD: BOMBAY HIGH COURT (Dated: September 19, 2018)
Cus - The impugned order of Tribunal has adjudicated upon appropriate classification of external/portable hard disk drives and its entitlement to exemption under notfn 6/2011 CE - No reason found to entertain this appeal as the question as framed by Revenue does not arise from the impugned order of Tribunal - Moreover, it is very clear from the impugned order that the impugned order relates to a rate of duty issue and therefore, not maintainable before this Court under Section 130 of the Act: HC
Appeal dismissed
CENTURY ENKA LTD Vs CCE : BOMBAY HIGH COURT (Dated: September 19, 2018)
CX - The appeal as filed does not relate to valuation of excisable goods for purpose of assessment - The valuation issue is concluded issue and accepted by assessee - The appeal as being pressed only restricts itself to imposition of penalty on accepting the valuation as found by the Tribunal in the impugned order - Thus, the appeal would not relate to any issue with regard to valuation of the excisable goods and therefore, maintainable under Section 35G of the Act before this Court: HC
Appeal admitted
COMMISSIONER OF CGST & CENTRAL EXCISE Vs FGP LTD : BOMBAY HIGH COURT (Dated: September 19, 2018)
CX - The assessee is engaged in manufacturing of chopped strand mat - At an intermediate stage in manufacture of final product, assessee obtained glass filament - They filed the price list which was provisionally approved by Assistant Commissioner under Rule 9B of the Rules - Further, assessee also paid duty under protest and filed refund claims - It was finally held that for the period 1988 to 1990 the glass filament was not excisable goods and therefore, no duty was payable which resulted in the assessee being entitled to refund - Revenue sought to deny the refund to assessee on the ground that goods were not provisionally assessed and in fact, the duty had been paid under protest - The impugned order of Tribunal holds that the clearance effected by assessee was provisional under Rule 9B of the Rules - Thus, the excise duty paid by them was to be refunded - The finding of fact by Tribunal that the assessment was provisional under Rule 9B of Rules cannot be found fault with in the absence of same being shown to be perverse - Further, no question of unjust enrichment would arise, as the refund claims were filed in 1991 that is much before the amendment to Rule 9B of the Rules in year 1999 which requires the officers of Revenue before granting refund, to be satisfied that there is no unjust enrichment on finalization of the provisional assessment: HC
Appeal dismissed
CCE & C Vs NASHIK FORGE PVT LTD : BOMBAY HIGH COURT (Dated: September 17, 2018)
CX - The proceedings against assessee were commenced on the basis of violation / breach of Rule 8(3A) of CER, 2002 - The impugned order of Tribunal has noted that Rule 8(3A) has been struck down as unconstitutional - When a provision has been declared unconstitutional by a Court, then the Tribunal is bound to follow it as held by this Court in Valson Dyeing Bleaching & Printing Works 2010-TIOL-710-HC-MUM-CX - The Tribunal allowed the appeal of Respondent holding that the basis of proceeding therein was on account of breach of notfn 42 of 1998 (NT) - This notfn had been declared ultra vires by Madras High Court in case of Beauty Dyers 2003-TIOL-190-HC-MAD-CX - Once the provision has been declared ultra vires by any High Court then one has to proceed on the basis that the provision which has been declared as unconstitutional is non-existant - Therefore, unless a contrary decision is given by any other competent Court, the Tribunal in the state has to proceed with the decision of the other High Court as it is the law of land and binding upon it - Nothing has been shown as to why court should not follow the decision in Valson Dyeing and Godavaridevi Saraf 2003-TIOL-1136-HC-MUM-IT - No submission has been made as to why the decision of other High Courts declaring Rule 8(3A) of CER, 2002 unconstitutional, should not be accepted by this Court: HC
Appeal dismissed
SHREE SIDDHI VINAYAK ISPAT PVT LTD Vs UoI : BOMBAY HIGH COURT (Dated: September 25, 2018)
CX - The grievance of petitioner to the common impugned order is that it has been passed without giving an opportunity to them to cross examine the person whose statement is being relied upon by Revenue - The impugned order has considered and dealt with the issue of grant of cross examination to the petitioner to come to the conclusion that in these facts, it need not be granted - Thus, if the petitioner is aggrieved with regard to the manner in which the impugned order has refused to grant cross examination, that is an issue which could be appropriately agitated before the Appellate Authority i.e. the Tribunal - The impugned order is not an order without jurisdiction, if at all, at the highest, it could be an error within jurisdiction - Therefore, a proper subject of appeal, before the Tribunal - Petitioner does has an effective alternative efficacious remedy available under the Act - In its appeal, it could urge all issues including non-granting of cross examination before the Appellate Authority - Thus, following the decision of this Court in Shree Bhimeshwari Ispat Ltd., no reason found to entertain these petitions: HC
Petitions dismissed
VILSON ROOFING PRODUCT PVT LTD Vs CCE : BOMBAY HIGH COURT (Dated: September 24, 2018)
CX - The only grievance of assessee is that their refund claim is rejected on account of unjust enrichment which is in breach of principles of natural justice - It is submitted that its submissions and reliance upon CA's certificate to establish that the burden of duty has not been passed on by assessee to its customers, though recorded has not been dealt with - The impugned order of the Tribunal merely relied upon decisions of its coordinate benches to conclude that the assessee has not discharged its burden of establishing that duty has not been passed on to its customers - In none of the cases relied upon by the impugned order of the Tribunal was the claim to establish absence of unjust enrichment supported by a Chartered Accountant's certificate as in this case - The impugned order is set aside: HC
Appeal allowed
