2018-TIOL-2470-HC-AHM-IT

ADANI INFRASTRUCTURE AND DEVELOPERS PVT LTD Vs ACIT : GUJARAT HIGH COURT (Dated: November 20, 2018)

Income Tax - Writ - Sections 14A, 142(1), 143(2) & (3), 147 & 148

Keywords - Audit report - Re-opening of assessment

The assessee company, engaged in the real estate business, filed returns for the relevant AY declaring income of about Rs 19.7 lakhs. In reply to notices issued u/s 142(1) & 143(2), the assessee furnished requisite details. On assessment, the AO proposed to make disallowance u/s 14A. Upon considering the asssessee's submissions in this regard, the AO made disallowance u/s 14A r/w Rule 8D. The AO also furnished notice seeking to re-open assessment for another AY. The AO rejected the objections put forth by the assessee and proceeded to re-open assessment. Thus the present writ.

In writ, the High Court held that,

Whether re-opening of assessment is sustainable where the AO does not have any independent reasons to believe that income escaped assessment & where the AO mechanically followed an audit report - NO: HC

++ perusal of the reasons recorded shows that the assessment for the year under consideration is sought to be re-opened on the ground that the disallowance of expenditure u/s 14A of the Act r/w Rule 8D of the rules had not been correctly worked out. On the other hand, the Assessing Officer, after considering the audit objections, has not accepted the same has stated that after considering the applicability of section 14A of the Act, he was satisfied with the disallowance made, despite which the notice has been issued seeking to reopen the assessment on the very ground to which he has objected, which is indicative of the fact that the reopening of assessment is not based on the satisfaction of the AO but on the audit objections;

++ the record of the case clearly reveals that the AO has not accepted the objections raised by the audit party and on the contrary, has objected to such objections by communicating internally. Evidently therefore, the AO has not formed any independent belief that the income chargeable to tax has escaped assessment and on the contrary has stated to have considered the applicability of provisions of section 14A of the Act and was satisfied in adopting 0.5% of average value of investment for disallowance under section 14A of the Act. Evidently, therefore, the notice u/s 148 of the Act has merely been issued on the basis of the audit objection without the AO having formed the requisite belief regarding escapement of income as contemplated u/s 147 of the Act. It is by now well settled that the assessment cannot be reopened merely on the basis of an audit report without the AO independently forming the belief, may be on the basis of such report, that income chargeable to tax has escaped assessment. The notice issued by the AO u/s 148 of the Act being based merely upon the audit objection and not because the AO had reason to believe that any income chargeable to tax has escaped assessment, cannot be sustained.

Assessee's writ petition allowed

2018-TIOL-2469-HC-MAD-ST

Commissioner of GST & CE Vs Multicolour Projects India Ltd: MADRAS HIGH COURT (Dated: October 31, 2018)

ST - The appeals have been filed by Revenue, which arose out of a common order passed by Tribunal - The Original Authority demanded service tax to the tune of Rs.48,91,553/- - Thus, the monetary limit, involved in instant case, being well below the amount fixed in the instruction dated 11.7.2018, the Department cannot pursue these appeals - The letter produced by assessee is placed on record - These appeals are dismissed as withdrawn: HC

Appeals dismissed

2018-TIOL-2468-HC-KERALA-CUS

SATISH T ARUNACHALAM Vs CC: KERALA HIGH COURT (Dated: November 14, 2018)

Cus - The petitioner, said to have been employed in UAE, is a frequent traveler to India - Customs authorities intercepted him at Airport and seized gold ornaments - Later, the petitioner participated in proceedings of confiscation - They had contended that he has never been given an opportunity to defend himself - The petitioner has an efficacious alternative remedy under Section 128 of Customs Act - If court address the questions on merits, petitioner will loose an opportunity of invoking appellate Tribunal, thus, court refrain from adverting to the merits - Therefore, court close the Writ Petition, leaving it open for petitioner to approach the appellate authority under Section 128 of the Act within one month: HC

Writ petition closed

2018-TIOL-2467-HC-DEL-CUS

XTRAA CLEANCITIES LTD Vs UoI : DELHI HIGH COURT (Dated: July 30, 2018)

Foreign Trade (Development and Regulation) Act, 1992 [FTDR Act] - Petitioner has filed the writ petition for quashing and setting aside (a) Gazette Notification Nos. S.O. 193(E) and 194(E) dated 6.3.2000 issued by the Ministry of Commerce, Government of India(b) Order No.12013/2/2012/ADJ/AC dated 22.4.2013 passed by the Appellate Authority constituted under section 15 of the FT Act] - first issue relates to the jurisdiction of the Development Commissioner appointed under section 11 of the Special Economic Zones Act, 2005 [SEZ Act] to pass an order imposing penalty under section 11 (2) of the FT Act -second issue relates to imposition of penalty, the submission of the petitioner being that the alleged violation did not have any concern with or violate the FT Act or the SEZ Act.

Held : In terms of Notification No.102 (RE-2008) 2004-09 dated 17.4.2009, it cannot be doubted and debated that Development Commissioner of the Visakhapatnam SEZ, was the notified Adjudicating Authority under section 13 empowered and authorised to pass order(s) under section 11 of the FTAct - once section 23 does not apply, there is no question of any conflict between SEZ Act and the provisions of the FT Act - Notification SO Nos. 76(E) and 77(E), both dated 13.1.2010, are empowering and bestow and authorise the Development Commissioners with additional powers and do not abridge and repudiate power and authority to adjudicate violations of section 11 of the FT Act as Adjudicating Authority under section 13 of the FT Act - it is not the case of the petitioner that any notification under section 49 of the SEZ Act has been issued making the provisions of the FT Act inapplicable -in the absence of repugnancy, primacy of the SEZ Act, as suggested, is not conferred by Section 51 of the SEZ Act with reference to section 11 of the FT Act -section 11 read with section 13 of the FT Act would continue to apply - constitutional vires of section 12 of the FT Act is not under challenge -question of double jeopardy is not alleged -penalty under provisions of the SEZ Act has not been imposed - in the factual matrix of the present case, it cannot be said that the Development Commissioner and the Appellate Authority lacked jurisdiction to impose penalty under section 11 read with sections 13 and 15 of the FT Act, for vide Notification No. SO 76 (E) and SO No.77 (E), both dated 13.1.2010, acts and omissions under the FT Act have been also declared and made designated offences for purpose of section 21(1) of the SEZ Act and Development Commissioner has been authorized to act an Enforcement Officer under section 21(2) of the SEZ Act - for the above reasons, the first contention is rejected-this Court is in agreement with the respondents that the self certification/declaration, the procedure for issue of GSP certification for units in the SEZ, was adopted and implemented for providing conducive environment to avoid and curtail loss of time so as to not delay exports on account of compliances and formalities -the procedure was based on faith and trust -it required honesty and probity on the part of the declarants -act and omissions of the petitioner must be judged on the said parameters -the impugned order rightly holds that in case of SEZ units, the Development Commissioner did not carry out actual verification exercise and the petitioner had self certified that biodiesel to be exported was eligible for the GSP certification as goods of Indian origin - self certification was the norm i.e. the normal and accepted procedure for the SEZ units - the Appellate Authority has rightly observed that the petitioner cannot wash away its responsibility and failure to furnish correct information and declaration on the origin of goods -petitioner had made false declaration to procure wrong GSP certification -they were beneficiaries of the wrong declaration, which had jeopardised and harmed the country‘s prestige and reputation -penalty was justified -second contention is, therefore, rejected - no merit found in the writ petition and the same is dismissed : HIGH COURT [para 31, 42, 44, 46, 47, 49, 50, 56, 57, 59, 60]

Writ Petition dismissed

2018-TIOL-2464-HC-MAD-IT

  2018-TIOL-2463-HC-KERALA-IT

STATE FARMING CORPORATION OF KERALA LTD Vs ACIT: KERALA HIGH COURT (Dated: November 14, 2018)

Income tax - interest receivable - mercantile system

THE assessee is a government owned company. During the year under consideration, an amount of Rs.2 crores was given to Horticultural Corporation, on instructions from the Government. However, the assessee did not receive a single pie towards return of principal or interest as per the agreement entered into with the Horticorp. Earlier, the assessee had shown the interest receivable at Rs.25 lakhs as on Mar 31, 2004, but had not shown it as on Mar 31, 2005 pursuant to a decision taken by the Board of Directors. The AO however made addition on account of interest receivable from Kerala State Horticultural Corporation.

On appeal, the HC held that,

Whether the taxpayer following mercantile system of accounting, is bound to record interest accrued during relevant year under consideration - YES: HC

++ what assumes significance is that the assessee is following the mercantile system of accounting and the books produced for the purpose of assessment is under that system. The decision taken by the Board as seen from the Notes to the Auditor's Report forming part of the profit and loss account is that, the Board decided no material change during the year, except on two issues one of which is relevant for the consideration in this appeal. The Board had while continuing under the mercantile system, decided to provide no interest accrued on the loan to the Horticorp. Having followed the mercantile system of accounting, a decision of the Board not to show the interest receivable, would not absolve the liability, since under the mercantile system, interest is deemed to have accrued in the previous year to the assessment year. There is no reason to interfere with the order of the ITAT.

Assessee's appeal dismissed

  2018-TIOL-2462-HC-MAD-IT

CIT Vs SRA SYSTEMS LTD: MADRAS HIGH COURT (Dated: October 26, 2018)

Income tax - Sections 10A(2) & 263

Keywords - doctrine of merger - deduction u/s 10A - EOU - revisionary jurisdiction

THE Revenue Department preferred the present appeal challenging the action of ITAT in setting aside the order of CIT(A) u/s 263, holding that there was no violation of the conditions stipulated u/s 10A(2)(ii) and (iii) in the matter of assessee's undertaking claiming exemption for the first time u/s 10A for the A.Y 2000-2001, without appreciating that the assessment order and the appellate order of CIT(A) dealt with only the restriction in the quantum of deduction u/s 10A allowable and not with the eligibility of assessee for deduction u/s 10A as such in the light of conditions u/s 10(A)(2)(ii) & (iii) of Income Tax Act.

On appeal, the HC held that,

Whether deduction u/s 10A is available in respect of 100% Export Oriented Units - YES: HC

Whether conclusion reached by the Commissioner while exercising revisional jurisdiction, tantamounts to directly interfering with the conclusions reached by Appellate Commissioner and hence, not permissible - YES: HC

Whether Revisional Authority can exceed his jurisdiction in invoking the provisions of Section 263 and deciding the merits of deduction u/s 10A, when the assessment order with regard to claim of deduction u/s 10A has merged with the order passed by CIT(A) - NO: HC

++ as far as invokation of Section 263 is concerned, this issue has been decided by the Division Bench of this Court in the case of Super Auto Forge Ltd., Vs. Additional Commissioner of Income Tax - 2014-TIOL-764-HC-MAD-IT, wherein it was observed that: "....Referring to Section 10A(2) (iii), which is similar to Section 10B(2)(iii), this Court pointed out that what is prohibited in Section 10(A)(2)(iii) is the transfer of used machinery and plant to a new business undertaking and forming of an industrial undertaking by splitting or reconstruction of the existing industrial undertaking. There was no specific prohibition either express or inference to an industrial unit formed by transfer of entire business. This Court pointed out that the transfer was not that of plant and machinery alone but of sale of whole business unit to the transferee company which was only of export of articles or things....The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction u/s 10B, on getting approval as 100% EOU. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and shall be available only for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU...." Thus, by applying the said decision in the case of Super Auto Forge Ltd., the substantial question is decided in favour of the assessee;

++ as far as violation of conditions prescribed u/s 10A(2)(ii) is concerned, this very issue was considered by the Division Bench of the High Court of Gujarat in case of Commissioner of Income Tax Vs. Nirma Chemicals Works (P.) Ltd., wherein an identical contention was raised by the Revenue stating that the power u/s 263 could be exercised. The Court rejected such contention by observing that: "....In the case of Malabar Industrial Co. Ltd. v. CIT - 2002-TIOL-491-SC-IT the Apex Court has held that the phrase prejudicial to the interests of the Revenue; has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue...." Similarly, in the case of Principal Commissioner of Income Tax Vs. H.Nagaraja - 2018-TIOL-1037-HC-KAR-IT, it was held that the conclusion reached by the Commissioner, while exercising revisional jurisdiction, tantamount to directly interfering with the conclusions reached by the appellate Commissioner and such power of the Revisional authority cannot be conceded to enable him to interfere with the orders passed by the appellate Commissioner, in view of the doctrine of merger. In the light of these decisions and factual position, this Cout holds that the Revisional Authority has exceeded in jurisdiction in invoking the provisions of Section 263 when the assessment order with regard to claim of deduction u/s 10A has merged with the order passed by CIT(A).

Revenue's appeal dismissed

2018-TIOL-2461-HC-MAD-VAT  

REVA AQUA Vs CTO: MADRAS HIGH COURT (Dated: November 1, 2018)

Tamil Nadu VAT Act - Writ - Section 27(3) & Rule 19

Keywords - registered post - service of notice - violation of natural justice

THE assessee is a sole proprietorship concern and they are engaged in the business of production and sale of packaged drinking water in 20 liter cans or jars and occasionally in one liter cans. According to the assessee, the packaged drinking water sold in cans were exempted under Part B of Fourth Schedule in Entry 80 and Commodity Code 780 under the TNVAT Act. Therefore, the assessee claimed exemption for the A.Y 2012-13. Subsequently, because of various factors, the assessee stopped their production activity and the factory was closed. In the meanwhile, revision notice was sent to the assessee by registered post and it was stated to have been received by somebody. Since the assessee did not respond to the said revision notice, the AO confirmed the proposal therein, held that the transaction was liable to be taxed at 14.5% and also imposed penalty u//s 27(3)(c) of TNVAT Act.

This revision notice came to be challenged on the ground that the pre-assessment notice was not validly served on the assessee as per Rule 19 of Tamil Nadu VAT Rules, 2007, that the person, who was stated to have received the letter, was not authorized to receive the same and that the sole proprietor of assessee was preoccupied by the medical treatment given to his wife. This Court however opined that the said revision notice sent by registered post having been received, the assessee could not state that there had been a violation of the principles of natural justice or for that matter violation of Rule 19. Therefore, the said writ petition was disposed of granting liberty to the assessee to file an appeal before the Appellate Authority.

On Writ appeal, the HC held that,

Whether service of notice by registered post, constitutes a valid service as per Rule 19 of Tamil Nadu VAT Rules - YES: HC

Whether it is the duty of Writ Court to embark upon an exercise as to whether the person, who received the revision notice by the said registered post was authorized or not - NO: HC

Whether a dealer deserves an additional opportunity to submit his objections to pre-assessment & penalty notice, if he was prevented from responding during previous event due to reasonable cause - YES: HC

++ there seems no error in the finding rendered by the Writ Court, since the duty of the Department is to serve notice on the dealer in terms of the said Rules, which has been done in the instant case. This Court cannot embark upon an exercise as to whether the person, who received the said revision notice was authorized or not. However, considering the peculiar facts and circumstances of the case namely that the business of assessee was closed down, that his wife was under continuous medical treatment and his son met with an accident and sustained grievous head injuries, this Court is inclined to grant some relief to the assessee;

++ furthermore, it is noticed that the assessment pertains to the year 2012-13 and that the revision of assessment was completed on Mar 06, 2015. The assessment order remains a paper order, since the Department has been dragged into litigation. Apart from that, the specific plea of the assessee is that they are entitled for exemption in terms of Entry 80 under Part B of the Fourth Schedule to the TNVAT Act. Hence, this is a fit case where one opportunity can be granted to the assessee to go before the AO. For these reasons, the order passed by the Writ Court is modified by directing the assessee to treat the assessment order as a show cause notice and submit their objections, on receipt of which, the AO shall afford an opportunity of personal hearing to the assessee and redo the assessment on merits.

Assessee's petition allowed

2018-TIOL-3566-CESTAT-MAD

CSC COMPUTER EDUCATION PVT LTD Vs CST: CHENNAI CESTAT (Dated: August 17, 2018)

ST - Appellants are engaged in providing commercial coaching & training service and franchise service - on audit of accounts, it was noticed that appellants had short paid ST under both these categories and had also not discharged ST under business auxiliary services [BAS] - SCN issued, demands confirmed, penalty imposed - appeal to CESTAT.

Held : The issues involved in all the three services are mostly interpretational, especially with regard to the exemption notification as to whether Computer Training Institute would be eligible for exemption as also with regard to the exemption under notification no.10/2003 -further, there were issues with quantification -being interpretational issues, the penalties on the demands upheld by the Bench cannot sustain and require to be set aside - the demand raised on account of the difference in ST-3 returns and Profit& Loss Account in respect of both Franchise Service and Commercial Coaching or Training Service is remanded to the adjudicating authority for fresh consideration: CESTAT

Franchise Service - for the demand in respect of administrative materials and promotion materials sold to the franchisees, when the department itself admits that the amount is collected for the sale of such materials, the demand of ST on the same cannot sustain - the same is set aside - for the demand in respect of course material kit supplied by CSC Publications and Ramiah Publications, it is settled law that study materials supplied cannot be included in the taxable value for levy of ST - the same is set aside: CESTAT

Commercial Coaching or Training Service - for the demand in respect of com puter training imparted to students, the issue has been addressed by the various judgments of the High Court of Uttarakhandand in the decision of Doon Institute of Information and Techno. P. Ltd. - 2014-TIOL-429-HC-UKHAND-ST, it was held that "Computer Training Institute" would fall under "Vocational Training Institute" in terms of notification no.24/2004 until 16.6.2005 - following the same, the appellant is eligible for exemption up to 16.6.2005 -the demand for the period up to 16.6.2005, therefore, is set aside - the appellant is liable to pay ST from 16.6.2005 along with interest - for the demand in respect of computer training imparted to schools as per the agreement entered into with the Education Department of Tamil Nadu and the demand in respect of the income received from computer rentals, the appellant is eligible for exemption under notification no.10/2003 - the same are set aside: CESTAT

BAS & rounding off - For the demand in respect of sale of forms of Tamil Nadu Open University, no ingredients found attracting levy of ST under BAS in this activity - the same is set aside - t he penalties are set aside in toto - the appeal is partly allowed and partly remanded in the above terms : CESTAT [para 5.2.3, 5.2.4,5.3.3, 5.3.4, 5.3.5, 5.3.6, 5.3.7, 5.3.8, 5.3.10, 5.4.2, 6, 7, 9]

Appeal partly allowed/remanded