29 October 2018   

2018-TIOL-2289-HC-MUM-ST

CRAFT WORLD Vs JCST : BOMBAY HIGH COURT (Dated: October 22, 2018)

SAMPARK MARKETING AND ADVERTISING SOLUTIONS PVT LTD Vs UoI: BOMBAY HIGH COURT (Dated: October 24, 2018)

PT INDAH KIAT PULP AND PAPER TBK Vs UoI : DELHI HIGH COURT (Dated: October 23, 2018)

 

2018-TIOL-2284-HC-MAD-IT + Case Story

LAKSHMI VILAS BANK Vs JCIT: MADRAS HIGH COURT (Dated: October 11, 2018)

Income tax - Section 263

Keywords - erroneous order - revisionary jurisdiction - show cause notice - unrelated issues

THE assessee bank had preferred the present appeal challenging the action of ITAT in not canceling the revisional order u/s 263 even when the issues found to be erroneous and prejudicial in the order of the Commissioner were completely different from and unrelated to the issues, for which, notice u/s 263 was given. The counsel for assessee contended that the order passed by the CIT in remanding the matter to the AO for a fresh decision was wholly without jurisdiction. It was submitted that the CIT had issued a notice u/s 263 proposing to invoke the said power on certain stated grounds. However, when the CIT passed his order, the same was on a new ground, which was not mentioned in the show cause notice. The assessee accordingly challenged the said order before the Tribunal by contending that the contents of the order u/s 263 were not related to the show cause notice issued in this regard. The Tribunal, though accepted the case as projected by the assessee, while setting aside the order, but remanded the matter to the CIT for de novo consideration.

On appeal, the HC held that,

Whether a show cause notice is mandated to be issued by CIT prior to passing of his revisional order u/s 263 - NO: HC

++ the issue raised under present appeal has been answered by the Supreme Court in case of Amitabh Bachchan, wherein an identical contention as advanced by the assessee's counsel herein was advanced before the Supreme Court contending that no show cause notice was given prior to the order passed u/s 263 and that the reasons stated in the order passed u/s 263 were totally different. The Supreme Court, after taking note of Section 263, has held that: "....Reverting to the specific provisions of Section 263, what has to be seen is that a satisfaction that an order passed by the Authority under the Act is erroneous and prejudicial to the interest of the Revenue is the basic precondition for exercise of jurisdiction u/s 263. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice, which is implicit in the requirement cast by the Section to give the assessee an opportunity of being heard. It is in the context of this position that this Court has repeatedly held that power of revision u/s 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction, but on the ground of violation of the principles of natural justice....";

++ the decision of Supreme Court in the case of Amitabh Bachchan would squarely apply to the facts and circumstances of this case, that the Commissioner of Income Tax was not denuded of his powers to decide the matter as detailed in the order and that there was no requirement of issuance of any show cause notice.

Assessee's appeal dismissed

2018-TIOL-2283-HC-MUM-IT + Case Story

BHUPENDRA MURJI SHAH Vs DCIT: BOMBAY HIGH COURT (Dated: September 11, 2018)

Income Tax - Writ - Section 246.

Keywords: Application for stay of demand & Right of appeal.

FOR relevant AY, the assessee filed an appeal before the Commissioner (Appeals) challenging the demand raised in assessment order. The assessee also filed an application before the AO for stay of demand during pendency of appeal. However, the same was rejected with direction to the assessee that it should pay 20 % of the outstanding amount failing which collection and recovery would continue.

In writ, the High Court held that,

Whether when demand is under dispute and is subject to appellate proceedings, it cannot be enforced upon the assessee, as the same will defeat the purpose of right of appeal vested in assessee by virtue of Statute - YES: HC

++ it is not disputed that in terms of Chapter XX styled as appeals and Revision, the order of the Assessing Officer is appealable under section 246(1). Once it is an appealable order and the appeal has been filed, it is pending, then, the assessee should have been given either an opportunity to seek a stay during the pendency of the appeal, which power is also conferred admittedly in the Commissioner or this Deputy Commissioner should have held the demand in abeyance as prayed by the assessee. He does neither, but proceeds to communicate to the assessee that his application for stay is dismissed. The assessee should pay 20 per cent of the outstanding amount as prescribed in some Circulars of the revenue and produce the challan and seek stay of demand again, failing which collection and recovery will continue;

++ if the demand is under dispute and is subject to the appellate proceedings, then, the right of appeal vested in the assessee by virtue of the Statute should not be rendered illusory and nugatory. That right can very well be defeated by such communication from the revenue/department as is disputed herein. That would mean that if the amount as directed by the communication being not brought in, the assessee may not have an opportunity to even argue his appeal on merits or that appeal will become infructuous, if the demand is enforced and executed during its pendency. In that event, the right to seek protection against collection and recovery pending appeal by making an application for stay would also be defeated and frustrated. Such can never be the mandate of law; In the circumstances, the petition is disposed of with directions that the Appellate Authority shall conclude the hearing of the appeal as expeditiously as possible and during pendency of these appeals, the assessee shall not be called upon to make payment of any sum, much less to the extent of 20 per cent under the Assessment Order/Confirmed Demand or claim to be outstanding by the revenue.

Assessee's writ petition allowed

2018-TIOL-2282-HC-MUM-IT

DURGESHWARI HI-RISE AND FARMS PVT LTD Vs CCIT: BOMBAY HIGH COURT (Dated: October 23, 2018)

Income Tax - Writ - Sections 276B & 278B.

Keywords - Compounding application & Criminal complaint.

THE assessee company filed its return for the relevant AY. Further, the interest payment was made, but the TDS was withheld on this interest amount. However, the interest was also paid for this delay in the sum. The assessee deposited in time with the treasury the TDS for all the AYs except the year under consideration. Then, a show cause notice, was duly served and to which a reply was given, copy of which is at Exhibit 'F'. During the assessment proceedings, the AO issued a SCN calling upon the assessee as to why prosecution u/s 276B r/w sec. 278B should not be launched for delay in depositing the TDS.

The assessee's applications were rejected on the ground that nobody attended the proceedings on the date on which they were scheduled. Further, a criminal complaint was field in the court of Additional Chief Metropolitan Magistrate. The assessees prayed that the ex-parte order having prejudiced them, once again requested that the compounding application be decided afresh. Thus, the restoration request was treated as a fresh or second application for compounding of offences and it came to be rejected on the ground of maintainability.

In writ, the High Court held that,

Whether in order to have the compounding application being granted to the assessee, then the same should be done within two months of time and then should be proceeded to Criminal Court concerned with the criminal complaint - YES: HC

++ the Revenue have applied their mind to the compounding applications by dealing with the merits thereof. The applications have been dismissed only on the ground that nobody attended the proceedings when the first application was being taken up and the subsequent fresh applications cannot be entertained as the first one was rejected;

++ hence, the Court directed that the application for compounding the offences made as early as on 20th February, 2014 (Exhibit 'K') be considered and a fresh order be passed as expeditiously as possible and in any event within a period of two months from the date the assessee's pay the requisite fees on that application. Needless to clarify that on the date and time fixed for this consideration/hearing the assessee must remain present or depute their representative and if at the first available opportunity of this nature the assessee's absent themselves, they will not get any benefit of this order. Then, the prosecution launched against them shall proceed on its own merits and in accordance with law;

++ thus, for a period of two months from today and in order to enable the assessees to present themselves and point out that the compounding application deserves to be granted on merits, the Court directs that the concerned criminal court shall not proceed with the criminal complaint.

Assessee's writ petition allowed

2018-TIOL-2281-HC-AHM-IT

PR CIT Vs GUJARAT STATE FINANCIAL SERVICES LTD: GUJARAT HIGH COURT (Dated: October 15, 2018)

Income tax - commercial expediency - revenue expenditure - renovation of Finance Department

THE assessee company had filed its return claiming expenditure of a sum of Rs. 82,74,452/- for renovation of Finance Department of Government of Gujarat. During the course of assessment, the AO objected to the assessee's claim of deduction on the ground that the expenditure could not be stated to be incurred for the purpose of assessee's business. In response, it was submitted that the assessee being a 100% Government Company, was engaged in the business of providing financial assistance to the Government of Gujarat Enterprises. The assessee company thus receives fund for the financial activities only because of intervention of the Finance Department of the Government, and hence generates net profit out of its investments. It was therefore claimed that the expenditure was driven by business expediency. The AO however did not accept the view point of assessee and disallowed such claim. On appeal, the CIT(A) accepted the contention that expenditure was in the nature of business expenditure of revenue kind.

On appeal, the HC held that,

Whether repair or renovation work carried out by a government owned company, under the suggestion or directives of the Government, is to be treated as revenue expenditure - YES: HC

++ there is no dispute that the entire business of assessee comes from the Finance Department of the Government of Gujarat. It is also not in dispute that the MD., Joint MD and the Vice President of the assessee occupy office in the premises of the Finance Department of the Government of Gujarat. The record would show that the assessee which is a 100% Government owned company was heavily reliant on the Government for its funds. Important members of the Board of Directors of the company were Government officers occupying office in the Finance Department. Periodical meetings of the company would also held there. If under such circumstances, under the suggestion or directives of the Government, repair or renovation work was carried out, the same cannot be seen as disconnected with the assessee's business.

Revenue's appeal dismissed

2018-TIOL-2280-HC-MP-IT

RAMSHREE EDUCATION OF TECHNOLOGY SAMITI Vs PR CIT: MADHYA PRADESH HIGH COURT (Dated: August 20, 2018)

Income tax - Writ - Sections 10(23C), 144, 221(1), 264

Keywords - dismissal of revision - entitlement to exemption - jurisdiction to reopen

THE assessee company had preferred petition challenging the order passed by Principal Commissioner of Income Tax, whereby Revision u/s 264 filed by the assessee had been dismissed. This revision was directed against the demand order passed in respect of the A.Y 2009-10 whereby an amount of Rs. 40,77,690/- was directed to be deposited by the assessee bearing PAN No. AAFFR4110D and demand notice u/s 221(1). It was the contention of assessee that in the Revision, the assessee had raised many grounds including that the notice issued u/s 148, 142(1) and 144 was never served on them and that it was beyond the jurisdiction of ACIT to have initiated the proceeding of assessment/re-assessment. It was urged that though the Revisional Authority took note of the grounds and contentions raised in the Revision, however, glossing over the same, passed the order on merit dismissing the revision and upholding the demand raised, on the findings that the assessee was not entitled for exemption u/s 10(23C)(iiiad).

On Writ, the HC held that,

Whether revision petition preferred by an assessee should not be negated by glossing over it and dwelling on all the issues & contentions raised therein - YES: HC

++ though an exception is taken by the assessee against the affidavit filed by the Revisional Authority justifying the order, which as per the assessee is impermissible, as the order under challenge has been passed by the Authority concerned in her capacity of quasi-judicial Authority. Be that as it may, the counsel for Revenue fairly submits that the assessee had raised a ground regarding non-service of notice u/ss 148, 142(1) & 144, which is not being considered, the Revision has been dismissed on merit. In view of the submissions made on behalf of the Revenue, this Court is of the considered opinion that the matter deserves to be remitted to the Revisional Authority for fresh consideration of the Revision filed by the assessee dwelling on all the issues raised therein.

Case remanded

2018-TIOL-2279-HC-MP-IT

PR CIT Vs JILA SAHAKARI KENDRA BANK MARYADIT: MADHYA PRADESH HIGH COURT (Dated: September 28, 2018)

Income tax - asertained liability - finance societies - subsidy given to farmers - revenue expenditure - settlement amount

THE scrutiny assessment in the case of assessee was completed after making additions of Rs.1,60,61,000/- on account of disallowance of provision made for overdue interest, Rs.17,29,426/- on account of subsidy on interest to farmers and Rs.2,05,14,510/- on account of subsidy on interest. The appeal filed against the disallowance came to be allowed on the ground that settlement was reached through Lok Adalat in respect of interest rebate and accordingly the assessee had provided a sum of Rs.17,29,426/- on account of rebate. The interest on subsidy was also allowed to be treated as business expenditure by the Tribunal.

On appeal, the HC held that,

Whether settlement amount which was computed through Lok Adalat and was written off in P&L A/c, is an allowable business expenditure - YES: HC

Whether an asertained liability for the subsidy given by the finance societies, even though determined on estimation basis but paid on basis of actual liabilities, merits treatment as revenue expenditure - YES: HC

++ as far as rebate is concerned, it was not disputed by the appellate authority as well as by the ITAT that settlement was reached through Lok Adalat and the assessee was directed to write off a sum of Rs.17,29,426/- in the Profit & Loss Account. Considering the same, the ITAT has rightly dismissed the appeal by holding that the CIT (A) was right in allowing this as business expenditure;

+ as far as interest on subsidy is concerned, the counsel for assessee has submitted that the amount of Rs.2,05,14,510/- is not a reserve created by bank, but it is a liability for the subsidy given by the finance societies. It was submitted that the NABARD finances the assessee @ 5.5% for the amount received from NABARD. This amount is financed by the assessee to the Rural Co-operative Societies @ 9% interest, who in turn grants loan to the agriculturist @ 5%, according to the policy of the Central and State Government. The normal rate of interest to be charged from famrers is @ 11% on account of interest. The State Government grants the subsidy of @ 4.5%, which is passed through the assessee to these societies on the advances given by the NABARD. The assessee required to give the subsidy @ 1.5% from its own funds as interest subsidy to be given to the Rural Societies. This amount is not a provision but an ascertained liability though on estimation basis which is paid in the subsequent year on the basis of actual liabilities. On due consideration of the same and the fact that the Revenue has not pointed out any provision of the Act to show that the deletion is not permissible, therefore, there is no error in the finding recorded by the ITAT.

Revenue's appeal dismissed

2018-TIOL-2278-HC-MAD-IT

UNIFAC MANAGEMENT SERVICES (INDIA) PVT LTD Vs DCIT: MADRAS HIGH COURT (Dated: October 23, 2018)

Income Tax - Writ - Sections 2(24)(x), 36(1)(va) & 43B.

Keywords - Employee's contribution - EPF & ESI

THE assessee company filed its return, for the relevant AY. Further, a sum was paid by the assessee towards Employees Provident Fund and ESI beyond the due date, but prior to filing of return, was treated by the assessee as deduction towards EPF and ESI u/s 36(1)(va) and sec. 43B. However, return filed was processed and the disputed order was passed by the Revenue, disallowing the sum paid by the assessee. Subsequently, the assessee sent a letter to the Revenue informing that though the said contribution was remitted beyond the due date, but the same was done in accordance with the respective acts and that the remittance was before the due date for filing the returns for the AY 2015-2016. Therefore, the assessee requested the Revenue to reconsider the disallowance. However, the Revenue sent a notice in this writ petition demanding payment of the amount determined in the assessment order.

In writ, the High Court held that,

Whether the mandates of Sections 36(1)(va) & 43B are different from each other & so cannot be read in conjunction so as to determine eligibility for deduction on employee's contribution to social security schemes - YES: HC

++ a combined reading of Section 2(24)(x) and Section 36(1)(va) would thus clearly indicate that both are in respect of employees contribution received by the assessee and not the employer's contribution, which alone is dealt with under Section 43B(b). Hence, section 43B(b) would undoubtedly show that it deals with the sum payable by the assessee as an employer by way of his contribution to any provident fund or superannuation fund or gratuity fund or any other fund for welfare of employees. Thus, the Court held that the sum received by the assessee as an employer from the employee is treated as an income at the hands of the assessee, as defined under Section 2(24(x) and would be entitled for deduction only when it is paid to the concerned authority within the due date. Certainly, the sum payable by the assessee as an employer by way of his contribution towards the beneficial fund cannot be treated as an income at his hand but only as an expenditure allowable for deduction. When such payment is made in accordance with Section 43B(b), then the same is entitled for deduction. Therefore, there is a clear distinction between the scope of Section 43B(b) and Section 36(1)(va);

++ it is true that Section 43B was amended and consequently the deduction is to be allowed based only on the actual date of payment. The belated payment made by the assessee in this case is not "employers contribution" and on the other hand, it is "employees contribution", which they received already. Therefore, the Assessing Officer is justified in disallowing the said payment on the reason that the same was made beyond the due date and consequently, treating the same as an income at the hands of the assessee in view of Section 2(24)(x). While Section 36(1)(va) has to be read along with Section 2(24)(x), in the court's considered view, Section 43B cannot be read into Section 36(1)(va), as both are operating on different obligatory field;

++ the Court has already pointed out that the scope of Section 43B and Section 36(1)(va) are different and thus, there is no question of reading both provisions together to consider as to whether the assessee is entitled to deduction in respect of the sum belatedly paid towards such contribution, especially when such sum is, admittedly, a sum received by the assessee/employer from his employee. Therefore, application of Section 36(1)(va) read with Section 2(24)(x) alone is the proper course and any other interpretation would only defeat the object and scope of both the provisions viz., 43B and 36(1)(va). Consequently, the Court is not in agreement with the other decisions rendered by the High Courts of Karnataka, Punjab and Haryana and Allahabad, which in the court's view, did not consider the distinction of the scope and ambit of Section 36(1)(va) and Section 43B. Accordingly, no error apparent on the face of the order passed by the Assessing Authority, based on the admitted facts.

Assessee's writ petition dismissed