KAIZEN SWITCHGEAR PRODUCTS Vs UoI: GUJARAT HIGH COURT (Dated: December 03, 2018)
CX- The rebate claim of petitioner has been rejected by Commissioner (A) on the ground that EOUs do not have option to pay duty and thereafter claim rebate of duty paid - The Petitioner has submitted that when it is the settled view taken by revisionary authority that the applicants should be permitted to take re-credit of the amount in their Cenvat credit account, the revisionary authority is not justified in directing recovery of such amount only because in the light of peculiar circumstances the petitioner has suo motu taken re-credit of such amount - It was also submitted that the entire situation is revenue neutral - Having regard to the submissions advanced by petitioner, Issue Notice returnable on 27th December, 2018: HC
Petition disposed of
2018-TIOL-2566-HC-KAR-CX
PR CCE Vs APOTEX PHARMACEHEM INDIA PVT LTD: KARNATAKA HIGH COURT (Dated: August 14, 2018)
CX - Revenue submits that the present appeal is not maintainable due to the tax effect involved in the present case being less than the prescribed monetary limit of Rs.50,00,000/- and that the present case does not fall under the exception category of Notfn dated 17.08.2011 referred in Instructions dated 11.7.2018 - Therefore, appeal dismissed as withdrawn/ not pressed: HC
Appeal dismissed
2018-TIOL-2565-HC-JHARKHAND-ST
USHA MARTIN LTD Vs UoI: JHARKHAND HIGH COURT (Dated: June 25, 2018)
ST - Neither any SCN nor any adjudication upon the payment of service tax amount has been done by respondents - As and when SCN is issued by respondent upon this petitioner, a reply shall be given and such SCN shall be adjudicated upon by the respondents in accordance with law and on the basis of evidence on record - The respondents have all power, jurisdiction and authority to enquire into the matter from this petitioner - The petitioner is not immuned from enquiry - As nothing has been finalized by respondents, court is not inclined to decide the prayer of this petitioner whether the petition should be allowed or rejected, because, it is premature in nature - It may happen that respondents may accept the contentions of petitioner and it may also happen that respondents may reject the contentions of petitioner - Dispute will arise only when the contentions of petitioner are being rejected by respondents - The petitioner appears to be a chance taking petitioner - In advance it is avoiding the liability which is not permissible in the eye of law: HC
Writ petition dismissed
2018-TIOL-2564-HC-DEL-CUS
MANOJ KUMAR JHA Vs DRI: DELHI HIGH COURT (Dated: December 03, 2018)
Cus - The petitioner's grievance is with respect to order of CESTAT, which declined his request to dispense with the condition of pre-deposit i.e. the penalty on a substantial quantity of gold which he allegedly smuggled - The petitioner's explanation was that he merely acted as a courier and was not the owner of the goods - It appears that the petitioner is a man of limited means - It is not clear whether any prosecution has been launched against the petitioner - In view of material on record which suggests that the petitioner has very limited means to deposit any amounts, this Court is of the opinion that the relief is warranted - The requirement of pre-depositing of any amount is directed to be waived, however, the petitioner shall furnish a bond and also provide reasonable security, having regard to the list of immovable properties produced before the Court - The petitioner’s appeal shall be revived and now CESTAT shall proceed to hear the parties on its merits after issuing adequate notice: HC
Writ petition disposed of
2018-TIOL-2558-HC-AHM-VAT
FEMINA TOWN Vs STATE OF GUJARAT: GUJARAT HIGH COURT (Dated: November 30, 2018)
Gujarat Value Added Tax Act, 2003 - Writ - Section 45(1)
Keywords - Attachment of bank account
During the relevant AY, the Revenue anticipated that a liability of about Rs 1.5 crore may arise in respect of the assessee herein. It then issued notices, provisionally attaching the assessee's bank account, in exercise of powers u/s 45(1) of the Act. Hence the present writ by the assessee.
In writ, the High Court held that,
Whether as per provisions of the Gujarat Value Added Tax Act, the attachment of bank account can continue even after the assessment orders have been passed - NO: HC
Whether nonetheless, so as to protect the interests of the Revenue, the assessee can be restained from disposing off certain property in its possession & also be directed to maintain a certain bank balance - YES: HC
++ an order under section 45(1) of the Act would enure during the pendency of the proceedings of assessment or re-assessment, but once the assessment orders is passed, the authority concerned have to resort to the other provisions provided under the Act for recovery of the amount payable under the assessment orders if the dealer does not pay the same within the statutory time limit, however, they cannot continue with the provisional attachment made under sub-section (1) of section 45 of the Act. The continuance of the orders after the making of the assessment orders, therefore, cannot be sustained. At the same time, when the assessee has come to this court, the interests of the Revenue also cannot be ignored and necessary directions are required to be issued to the assessee to protect the interest of the Revenue;
++ thus the continuance of the orders of provisional attachment u/s 45(1) of the Act after the passing of the final assessment orders being bad in law, the Revenue is directed to forthwith lift the attachment of the bank accounts of the assessee. At the same time the assessee is hereby restrained from transferring the property either by way of mortgage, sale or in any other manner and is further directed to maintain a sum of Rs.10,00,000/- in its account till any order is passed by the appellate authority on the stay application already filed by/that may be filed by the assessee. The assessee shall also file an undertaking before this court that till any order is passed by the appellate authority on the stay application, the assessee shall not in any manner alienate such properties either by way of sale, mortgage or otherwise nor shall it create any encumbrance or charge thereon.
Assessee's writ petition partly allowed
2018-TIOL-2557-HC-MUM-CX
CCE Vs OBEROI FLIGHT SERVICES: BOMBAY HIGH COURT (Dated: November 21, 2018)
CX - This appeal under Section 35G of CEA, 1994 is filed by Revenue, challenging the order of Tribunal which is a common order, disposing of appeals, inter alia, also in case of M/s. Taj State Air Catering Ltd., v/s. Sky Gourmet Catering Services Ltd., & its Officers - The facts and law in this case is identical to the appeal filed by the Revenue in respect of M/s. Taj States Air Catering Ltd., thus, following the same, impugned order dated 10th August, 2018 of the Tribunal to the extent it relates to assessee is set aside and the issue restored before the Adjudicating Authority for fresh consideration and disposal, in accordance with law: HC
Appeal disposed of
2018-TIOL-2556-HC-MUM-CUS
SANJAY GHODAWAT Vs CC: BOMBAY HIGH COURT (Dated: November 21, 2018)
Cus - The assessee has challenged the order of Tribunal and a further order under which assessee's application for rectification came to be rejected - The Tribunal by the impugned order has only considered the question of redemption fine, though the Tribunal did make a passing reference to assessee's second contention - The assessee filed an application for rectification before Tribunal and mainly contended that the question of legality of imposition of duty with interest liability on assessee was not adjudicated by Tribunal - By further order, Tribunal rejected such application by mainly observing that the consideration of contention of assessee, would require review of the appeal - The assessee admittedly had not challenged the confiscation of vehicle - The redemption fine is only in the nature of an option - If assessee wishes to avoid the consequences of confiscation of vehicle, he could avail of the opportunity of paying redemption fine.
Regarding the assessee's challenge to imposition of duty liability on him, the Tribunal ought to have been adjudicated such an issue - From the first order of Tribunal itself, it is clear that such a contention was raised and orally argued before Tribunal - Despite this, the Tribunal failed to decide the same in its order - The assessee applied for rectification - At least in the rectification application, the Tribunal could have redressed the assessee's grievance - Appeals are restored to the Tribunal only to the extent for deciding the assessee's challenge to the imposition of duty with interest on them as has been done by the Adjudication Authority - The Tribunal would decide only this issue: HC
Appeals disposed of
2018-TIOL-2555-HC-MUM-CUS
HARSIDDH SHIPPING AGENCY Vs UoI: BOMBAY HIGH COURT (Dated: November 22, 2018)
Cus - As a Customs broker, the petitioner enables the importers to file necessary documents and declarations before Customs Authorities at the time of import of goods into India - Case of department is that in the process of so doing, petitioner had committed certain deliberate breaches of rules - According to department, the petitioner avoided late payment charges - The department detected such irregularities and estimated that the late payment charges in all to the tune of approximately Rs. 9 Crores became recoverable - So far as the petitioner is concerned, this amount is estimated at Rs. 89 Lacs - The department placed the name of petitioner agency in its electronic system under "Alert" - In so far as the challenge to SCNs is concerned, court is not inclined to interfere - Court do not notice any such ground to quash the notices in exercise of writ jurisdiction - The petitioner must reply to the SCNs and cooperate in the adjudication thereof - The petitioner has so far not filed any reply - If the petitioner wishes, such replies may be filed latest by 10.12.2018.
However, in so far as the action of department in placing the name of petitioner in 'Alert' is concerned, the issue stands on a different footing - Unless and until the petitioner pays up the entire amount of Rs. 89 Lacs, future clearances of the Bills of Entry filed by petitioner would not be permitted - This would be wholly impermissible - The amount demanded by department and the recovery of which is made a precondition for clearing the future Bills of Entry of the petitioner is the same for which the department has issued SCNs to the petitioner calling upon the petitioner why such demands should not be confirmed - On the other hand, the department seeks recovery of such amount coercively by blocking the petitioner's future clearances - Obviously, there cannot be recovery coercively made even before the demand is confirmed - Revenue is directed to delete the name of the petitioner from the 'Alert' list: HC
Petition disposed of
2018-TIOL-2554-HC-DEL-PMLA
AASMA MOHAMMED FAROOQ Vs UoI: DELHI HIGH COURT (Dated: December 05, 2018)
PMLA - Sections 5(5), 8 & 42
Keywords - cause of action - doctrine of forum conveniens - provisional attachment - territorial jurisdiction
The present petition had been preferred challenging the provisions of Section 5(1), 5(5), 8(3), 8(5) and 8(6) of the PMLA as well as seeking quashing of provisional attachment order and show cause notice. In support of the challenge, it was pointed that the notice to show cause u/s 8 of the Act had been issued by the adjudicating authority based in Delhi, since a part of cause of action had arisen in Delhi. Opposing this, the Respondent's counsel pointed out that even if the order had been issued by an Authority and the same constitutes a part of cause of action to make the writ petition maintainable in this Court, yet the same might not be a singular factor for this Court to decide the matter on merits and this Court could refuse to exercise its discretionary jurisdiction by invoking the doctrine of forum conveniens.
The counsel for Petitioner however submitted that the cause of action in PMLA cases, was not related to the place of investigation or place of a property and as such the plea of Respondent's counsel that investigation had been done in Mumbai and properties were in Mumbai and the Bombay High Court shall have the jurisdiction, was totally misconceived. The Respondent's counsel relied upon the judgment of the Division Bench of this Court in case of J. Sekar v. Union of India & Ors - 2018-TIOL-89-HC-DEL-PMLA wherein it was held that on existence of an alternative efficacious remedy of appeal before the High Court u/s 42 of PMLA, shall be decided independently by the Single Judge in accordance with law.
On Writ, the HC held that,
Whether Writ Court which is more convenient for a party aggrieved against the orders passed by Appellate Authority to approach in terms of Section 42 of PMLA, is to be construed as the "forum conveniens" - YES: HC
++ it is seen that the Coordinate Bench of this Court in Vishnu Security Services case, has clarified that in case where the original authority is in one State and the seat of the appellate authority is located in another State, a writ petition would be maintainable in both the Courts and also that it is the petitioner who has a right to choose his forum, which need to be respected. The Division Bench clarified that normally in such circumstances, writ petition would be maintainable at both the places and only in extreme cases where the Court finds that it is totally inconvenient for a Court to entertain the writ petition and the other High Court may be better equipped to deal with such a case then the doctrine of forum conveniens has to be applied. Thus, Petitioner's counsel may be right in contending that the notice u/s 8 of PMLA as been issued by the Authority in Delhi, so jurisdiction is there for this Court to entertain the writ petition. But merely because a part of cause of action has arisen under the jurisdiction of this Court, whether this Court needs to exercise its jurisdiction is the question need to be answered. This Court is of the view "that it should not", for more than one reason; that it is not in dispute that the petitioner is based in Mumbai. The provisional attachment order has been passed in Mumbai. The complaint though, filed before the adjudicating authority in Delhi, it encompasses all the facts that have arisen in Mumbai. The properties are in Mumbai. It is only after filing of the original complaint as contemplated u//s 5(5) of the Act before the adjudicating authority, which is located in Delhi that the show cause notice has been issued from Delhi, but the fact remains that nothing has happened in Delhi. Only notice to show cause has been issued;
++ after the adjudicating authority decides the issue, there is a forum of appeal available to the petitioner. Even thereafter, the remedy of appeal to the High Court is also available u/s 42 of the Act. In other words, in the case in hand, if an order is passed by the Appellate Authority it shall be the Bombay High Court, which shall have the jurisdiction for both, i.e. the person aggrieved and the Central Government against the order is passed by the Appellate Authority. Therefore, in view of the factual / legal aspect, this Court is of the view that instead of two Courts considering set of facts originating in Mumbai and leading to issuance of a provisional attachment order / complaint before the adjudicating authority, it should be the High Court, which is more convenient and where if a party aggrieved against the orders passed by the Appellate Authority shall approach, in terms of Section 42 of the Act, shall be the "forum conveniens". In this case, it shall be the Bombay High Court and accordingly this Court is of the view that it should not entertain the present writ petition. The petitioner shall be at liberty to approach the Bombay High Court for appropriate relief.
In favour of Respondent
2018-TIOL-2553-HC-KAR-IT
DR RANKA CHARITABLE TRUST Vs DIT: KARNATAKA HIGH COURT (Dated: November 20, 2018)
Income Tax – Sections 12-A, 80-G (5) (ii) & (vi)
Keywords – Charitable trust - Income for charitable purposes - Recognition of charitable income
The assessee is a charitable trust which was granted registration u/s 12-A of the Income Tax Act. From AY 2005-2008, the assessee was filing regular income returns u/s 80-G (5)(vi). The assessee filed for renewal of the recognition u/s 80-G in 2009 which was rejected by the DIT. On appeal to the ITAT, the matter was remanded to the Commissioner. The Commissioner, acting on remand, also rejected the renewal application. The assessee again approached the ITAT this time from the order of the Commissioner which dismissed the appeal.
On appeal before the HC, it was held that,
Whether on question of renewal of recognition u/s 80-G (5)(vi), the assessing authority can go into the question of income used for charitable purposes - NO: HC
++the Commissioner placed reliance on the conditions as laid down under Section 80- G(5)(ii) and came to the conclusion that the income was not being used for charitable purposes. The relevant provision of section 80-G in question postulates what income are used for charitable purposes. These considerations are not necessary to go into when an application for renewal for recognition has been made. The only condition that requires to be fulfilled for the purposes of seeking renewal are as specified under Section 80-G (5) (ii) but this was not under consideration in the present case. Therefore, the rejection of the application is inappropriate because this consideration can only be made, during the assessment proceedings,
++The question whether the income of the assessee is for charitable purposes or not is all questions of fact can be dealt by the AO at the time of assessing the income of the assessee. Thus, at the stage of consideration of application for renewal of recognition, it is unnecessary to for the assessing authority to look into all the material placed in order to ensure that the income is used for a charitable purpose in accordance with law.
Assessee's Appeal Allowed
2018-TIOL-2552-HC-KAR-IT
SK RAVIKUMAR PARTNER Vs ITO: KARNATAKA HIGH COURT (Dated: November 28, 2018)
Income tax - capital gains - erstwhile partners - relinquishment of rights - retirement from partnership
The assessee is a partnership firm in the name and style of "M/S.Srinivasa Enterprises". Its partners Mr. N.A.Venugopal and N.A.Ravigopal were the owners of immovable properties situated at Doddaballapur, which was purchased by them under a separate Sale Deed in the year 1973. They constituted a partnership in the name of M/S.Srinivasa Enterprises along with 12 others in terms of the Partnership Deed. Further, a Theatre by name "Gopal Theatre" was constructed in the premises in question and after some time, N.A.Venugopal and N.A.Ravigopal retired from the partnership with effect from June 06, 1978. The partnership firm however continued, and reconstituted on several occasions. In the year 2001, only four partners remained. The Theatre and the land were sold to one Sri T.Prasanna Kumar by virtue of two separate registered sale deeds by the partners as well as the erstwhile partners of the firm. The firm was also dissolved on the same day in terms of the Deed of Dissolution and certain amounts were paid to four former partners including Venugopal and Ravigopal.
In the meanwhile, a notice u/s 148 was issued to the assessee-firm, which was served on the Managing Partner. In response to the notice, the assessee filed its return declaring a loss of Rs.1,40,068/-. The assessee was asked to produce the details in support of the return filed and also a copy of the partnership deed. Since the assessee did not furnish the details as sought for, the Sub-Registrar, Doddaballapura was requested to furnish the market value adopted, in respect of the theatre sold and the Sub-Registrar had given the valuation of the land at Rs.33 lakhs and building at Rs.11.70 lakhs. The assessee was intimated about the valuation and proposed to compute long term capital gains in respect of the land and short term capital gains in respect of the building including fixtures and furniture. Thereafter, the long term capital gains at Rs.23,25,600/- and short term capital gains at Rs.10,10,537/- were computed.
On appeal, the HC held that,
Whether when erstwhile partners have retired from partnership firm but the ownership over property remained with the partnership firm, then assessment of such properties needs to be made in the hands of partnership firm - YES: HC
Whether question of relinquishment of absolute right by the erstwhile partners over property of partnership firm, does not arise for consideration in absence of erstwhile partners possessing any legal right - YES: HC
++ the contention of the assessee is that the erstwhile partners namely Venugopal and Ravigopal were the only owners of the land and therefore the income that is assessed in the name of the firm, requires to be deleted. However, the material on record would indicate that both of them had furnished a joint letter, wherein they stated that they had contributed their share as capital towards the partnership firm, running Gopal Theatre along with land and building. Therefore, the partnership firm namely, M/S.Srinivasa Enterprises has become the absolute owner since that date. Venugopal and Ravigopal have retired from the partnership firm with effect from June 06, 1978 and they have also executed a Release Deed in favour of the continuing partners of the firm. Therefore, they are not the owners of the property and have relinquished all the rights & interest of the property. Based on the submissions made by them, it is crystal clear that the partners retired from the partnership firm and the ownership of the property remained with the partnership firm. Therefore, the partnership firm has been rightly assessed. The contention of partners that the property continued to remain under the ownership of the erstwhile partner, therefore cannot be accepted. However, it is being contended that the said letter issued by the partners jointly runs contrary to the sale deed. It is contended that in the sale deed effected by the firm and the partners in favour of the purchasers, it is mentioned that in order to avoid the dispute and settle the matter, the share of the vendor in the schedule property is determined as Rs.1,00,000/- to vendor No.1 and Rs.1,00,000/- to vendor No.2 and that they agreed to relinquish their rights by executing the deed;
++ in terms of the letter written by the partners, they were no more the owners of the property in question from the date of retirement. Therefore, merely because they have stated in the sale deed that they have relinquished their right does not pre-suppose that any right existed in them as on that date. The partners could relinquish only which they possess. Since the sale deed was executed on Feb 14, 2001 whereas the partners retired on June 06, 1978, therefore, they had no right at all which they could relinquish. Therefore, in the absence of possessing any legal right, the question of relinquishment does not arise for consideration. It is also indicated that, the so called settlement was arrived at in view of the pending suit. It is pleaded that a suit in O.S.No.210 of 1992 was filed before the Court of Additional Munsiff, Doddaballapur, for implementation of the Release Deed claiming their right and disputing their relinquishment of the rights in the said lands. The said suit was dismissed. Yet another reference is made with regard to O.S.458 of 1996 filed by vendors 7 and 8 claiming their right over the schedule property. In order to avoid the dispute in this suit, vendors 7 and 8 have come forward to sell their right in the schedule property in favour of the purchaser. Therefore, so far as the earlier suit in O.S.No.210 of 1992 is concerned, there is no material to show as to what was the dispute which was required to be settled and between whom. Therefore, the finding recorded by the Tribunal that the assessee was the owner of the land and building, is just and proper. It is also justified in holding that the provisions of Section 45(4) of the Income Tax Act are applicable to the facts of the case;
++ further, the fair market value of the capital asset has been determined based on the rules as specified by the Sub-Registrar. Even when repeated requests were made, there was no valuation furnished by the assessee. Therefore, the AO had no other option but to obtain the fair market value from the jurisdictional Sub-Registrar who was authorised to furnish the same. So far as the sale is concerned, whether the entire consideration were received in the hands of assessee or not, becomes a secondary question. It is only an adjustment by the assessee with the other persons. The same can be ascertained from the recitals in the sale deed, which would indicate that in order to settle certain disputes, the shares have been given to the said persons. Therefore, the assessee alone is liable to pay tax on the sale consideration. Therefore, the contention of the assessee on that issue also, cannot be accepted.
Assessee's appeal dismissed
2018-TIOL-2551-HC-KAR-IT
SANGEETHA JAIN Vs ACIT: KARNATAKA HIGH COURT (Dated: November 28, 2018)
Income tax - genuineness of claims - maintenance of books - nexus with business - validity of deductions
The assessee, an individual, had filed her return for the A.Y 2000-2001 declaring the total income of Rs.2,16,540/-. The case was thereafter taken up for scrutiny, wherein the AO disallowed certain 'business expenses' as well as 'other expenses' as claimed in the profit and loss account of M/s. Maruthi Enterprises and M/s.Maruthi Business Centre. This addition came to be confirmed by the CIT(A) as well as ITAT on appeal. Hence, present appeal had been preferred challenging the action of ITAT in confirming the disallowance of expenses claimed by assessee in the proprietorship concern of M/s.Maruthi Enterprises, on account of bank charges, electricity charges, interest on vehicle, repairs & maintenance, depreciation and audit fee etc.
Insofar as the appeal in ITA No.120 of 2010 as concerned, the assessee had filed the return for the A.Y 2001-2002 declaring the total income of Rs.1,15,138/-. The case was thereafter taken up for scrutiny. Since no reply was furnished inspite of notice issued u/s 148, the expenses claimed were disallowed by the AO, therefore determining the total income at Rs.6,57,580/-.
On appeal, the HC held that,
Whether failure of the taxpayer to substantiate his claim of deductions with materials on record, despite granting several opportunities, calls for disallowance of such claim - YES: HC
Whether absence of close proximity or nexus between the expenditure or depreciation claimed by taxpayer against his business of subleasing/leasing property, merits disallowance of depreciation claim - YES: HC
++ insofar as the appeal in ITA No.72 of 2010 is concerned, the appeal pertains to A.Y 2000- 2001. The AO in the assessment order held that the assessee neither produced the books of accounts nor other details for verification, inspite of repeated reminders. Therefore, the loss of Rs.5,07,504/- was disallowed. The further claim of assessee in a sum of Rs.2,25,297/- as 'expenses', by preparing yet another profit and loss account, so as to bring the profit further down to Rs.1,25,037/-, was also disallowed. Before the CIT(A), certain fresh material were produced for consideration. However, the lease deed was not produced, either at the assessment stage or at the appeal stage. The sources of receipts as claimed by the assessee were not genuine. That none of the documents demonstrated that the expenses as claimed towards Hotel Haveli were in any manner related to M/s. Maruthi Enterprises. Therefore, in the absence of any material to substantiate, the same the appeal was dismissed. The material on record would indicate that the assessee could not substantiate her claim and inspite of granting sufficient opportunity, no evidence of material was led-in, in support of her case. Even the few documents that were relied upon did not assist the assessee in any manner whatsoever. Therefore, based on the available material, the findings were recorded. Under these circumstances, there is no ground to interfere with the order passed by the Tribunal;
++ infar as the appeal in ITA No.120 of 2010 is concerned, the same pertains to the A.Y 2001-2002. With regard to the income from the property situated at Jayanagar, Bengaluru, the AO found that the assessee has not furnished the description of the property, rental agreement, name and address of the tenants, sources of investments, etc. That the property could not be rented out for an annual rent of Rs.1,66,450/- per annum, without any rental agreement. So far as the business loss is concerned, the assessee stated that she has not maintained any books of accounts, balance sheet or statement of affairs. That no documents have been filed inspite of several reminders and queries from the AO. Therefore, the expenses as claimed were disallowed. Even the lease deed through which the property along with furniture, etc., had been given on lease was not produced. Therefore, the mere contention could not be accepted. None of the enclosures filed along with the written submission could be substantiated with the claim of expenditure. The assessee claims to have closed the hotel in the month of October'1998. Therefore, there was no nexus between the expenditure or depreciation claimed by the assessee and the business of subleasing or leasing the property. Therefore, the CIT(A) rightly confirmed the computation made by the AO.
Assessee's appeal dismissed
2018-TIOL-2550-HC-MAD-IT
KGISL TECHNOLOGIES AND INFRASTRUCTURES PVT LTD Vs ADCIT: MADRAS HIGH COURT (Dated: November 27, 2018)
Income tax - Section 37(1)
Keywords - revenue expenditure - software development expenses -
The assessee company filed its return for the relevant years claiming expenditure towards development of two types of softwares as revenue expenditure. The two softwares which were developed by the assessee were called Spectrum 2000 and Options Explorer. The assessee treated the expenditure towards the product development in capitalizing the same in the books of accounts and while presenting the returns, the expenditure was claimed as revenue expenditure u/s 37(1). The AO however rejected the contentions of assessee and disallowed the same.
On appeal, the CIT(A) granted relief to the assessee whereas the ITAT reversed the decision of CIT(A) by following the decision of Supreme Court in the case of Hasimara Industries Ltd., Vs. CIT & Another - 2002-TIOL-869-SC-IT.
On appeal, the HC held that,
Whether expenditure incurred for improvement of existing product and for competing the market, is to be allowed as revenue expenditure - YES: HC
Whether generation of positive income is a sine qua non for claiming expenditure incurred for such purpose - NO: HC
++ the case of the assessee, not disputed by the Revenue is that the assessee incurred the expenditure for developing an existing software. This was with the reason to compete in the market and for the improvement of the existing product. The CIT(A) after taking into consideration the facts of the case, rightly held that the products are not similar to development of specific new products and it is in respect of the expenditure incurred in improving of the existing product and the work was initiated for securing the market over others in the field of business and the assessee's business is developing of software and expenditure incurred on a project which was perceived to be of great potential cannot be disallowed because such potential has not been realised. Further, it was pointed out that it is not necessary that every expenditure results in taxable income and it cannot be held that unless income is generated, expenditure cannot be allowed. This conclusion is supported by the decision in the case of CIT Vs. Southern Roadways Limited, T.C.(A).No.2454 of 2006, wherein this court after taking into consideration that the expenditure incurred by assessee was for upgradation of software, held it to be a revenue expenditure.
Assessee's appeal allowed
2018-TIOL-2549-HC-AHM-IT
ROYAL INFRASTUCTURE Vs DCIT: GUJARAT HIGH COURT (Dated: February 21, 2018)
Income Tax - Writ - Section 80IB(10)
Keywords - Re-opening of assessment
The assessee, a partnership firm engaged in development of housing projects, filed returns for the relevant AY, declaring income of about Rs 1.36 crores. It also claimed deduction of about Rs 1.10 crores u/s 80IB(10). On assessment, the AO called for details such as housing projects completed as well as shops and houses alloted. On furnishing such information, the assessment order was passed. Thereafter, the AO proposed to re-open assessment on grounds that the assessee had been allowed deduction u/s 80IB(10) despite being ineligible for it. Hence the assessee's writ, contesting such notice.
In writ, the High Court held that,
Whether the AO can re-open assessment for any AY where there is no allegation of any failure to make full & true disclosure of material facts in that AY - NO: HC
++ There is no allegation by the Department that during the year under consideration i.e. the AY 2010-2011, the assessee made any allotment of residential units in breach of conditions. The AO as per the reasons recorded wishes to re-examine the assessee's claim of deduction of Rs 1.10 crores u/s 80IB(10) of the Act for the AY on the premise that that in the AY 2013-2014, such claim was rejected since the assessee had breached condition of not allotting two residential units to husband and wife. In other words, in absence of allegation of any of the breaches in the year under consideration, the AO wishes to reopen the assessment for the current AY. On the simple reason that there was no failure on part of the assessee to disclose truly and fully all material facts, a a mandatory condition which must be satisfied before reassessment can be permitted, the notice must be quashed.
Assessee's writ petitions allowed
