CIRCULAR
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CIT, CPC, Bengaluru, gets concurrent powers over declarations made under IDS, 2016
CASE LAWS
2016-TIOL-1938-HC-AHM-IT
GUJARAT STATE FINANCIAL SERVICES LTD Vs ACIT: GUJARAT HIGH COURT (Dated: August 12, 2016)
Income Tax Act – Sections 271(1)(c)
Keywords: penalty, concealment of income, furnishing of inaccurate particulars of income
Whether penalty u/s 271(1)(c) is leviable where there is no satisfaction recorded by the Assessing Officer regarding concealment of income or for furnishing any inaccurate particulars and there has been an ambiguity in the and/or difference of opinion amongst the authorities below as to whether the assessee has made a wrong claim or has concealed certain particulars – No: HC
So far as Tax Appeal No. 2393 of 2010 is concerned, the assessee is a non banking financial company and a venture of Government of Gujarat. The return of income for the assessment year 2001-02 was accompanied by the audited profit and loss account, balance sheet, auditor’s report in Form No. 3CA and 3CD and supporting statements of accounts. The profit and loss account showed the net profit of Rs. 27,80,90,559/-. In the return, from the above net profit the assessee provided for an amount of Rs. 1,62,81,556/- for bad and doubtful debt; whereas the amount of Rs. 21,98,638/- was the provision made for diminution in value of investments in accordance with the accounting standard. The Assessing Officer disllowed the same. CIT(A) confirmed the views of the Assessing Officer. ITAT also held against the assessee.
So far as Tax Appeal No. 601 of 2013 is concerned, the assessee is a partnership firm running educational institution. The firm had claimed depreciation u/s 32 as well as deduction u/s 24 on school building which was let out. The return of income was filed and assessment was completed by making disallowances of depreciation and disallowance of legal expenses. A penalty was also imposed on disallowances of depreciation and legal expenses. CIT(A) restricted the disallowances of depreciation and the entire disallowance of legal expenses was confirmed. ITAT dismissed the appeal thereby confirming the penalty imposed u/s 271(1)(c).
Having heard the parties, the Court held that,
+ There is no satisfaction recorded by the Assessing Officer regarding concealment of income or for furnishing any inaccurate particulars. Therefore, from the plain reading of the assessment order itself it is clear that the assumption of jurisdiction to levy penalty is lacking in the present case. The notice issued by the Assessing Officer has also not stated whether the penalty proceedings are initiated for concealment of income or for furnishing inaccurate particulars; (para 6)
++ there has been an ambiguity in the and/or difference of opinion amongst the authorities below as to whether the assessee has made a wrong claim or has concealed certain particulars; (para 6.1)
++ the revenue is not in a position to show the mens rea in the present cases. Disallowance of certain claims neither amounts to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence or some circumstance to show that the omission was attributable to an intention or desire on the part of the assessee to conceal the income so as to avoid imposition of tax thereon. Thus, jurisdiction u/s 271(1)(c) of the Act cannot be assumed; (para 7.2)
++ the claims made were not granted by the Assessing Officer on merits. This did not mean that the assessee had tried to conceal the income; (para 7.3)
++ merely because some omission or wrong statement was made in the original return, penalty proceedings for concealment as contemplated by section 271(1)(c) might not be attracted. In the penalty proceedings, when it is found as a fact that the assessee had acted on the basis of wrong legal advice or misinterpretation, the question of his failure to discharge his burden in terms of Explanation to Section 271(1)(c) of the Act would not arise; (para 8)
++ the impugned orders passed by the ITAT as well as CIT(A) are erroneous with regard to levy of penalty u/s 271(1)(c) of the Act. ITAT was not right in law in upholding the penalty under section 271(1)(c) of the Income Tax Act, 1961 and the question is required to be answered accordingly; (para 9)
Assessee’s Appeals allowed
2016-TIOL-1937-HC-AHM-IT
AMRAPALI FINCAP LTD Vs INCOME TAX SETTLEMENT COMMISSION: GUJARAT HIGH COURT (Dated: August 11, 2016)
Income Tax Act – Sections 132, 245D(1), 245D(2C)
Keywords: settlement commission, failure to disclose true and full facts, cross examination
Whether the findings of settlement commission can be set aside where the findings of the Settlement Commission are in the realm of assessment of evidence on record and essentially factual in nature – No: HC
The Assessee is a company engaged in the business of bulian trading, commodity trading, real estate, share broking and other businesses. Search and seizure operation under Section 132 was carried out in case of the Assessee. Notices under Section 153A were issued in response to which the Assessee filed return. Search and survey operations were carried out in case of one Shri S.C. Shah and others at Mumbai. Assessing Officer issued notice under Section 142(1). The Assessee applied for settlement by filing application for settlement of the cases for the assessment years 2008-08 to 2014-15. The Settlement Commission passed an order admitting such application in terms of Section 245D(1). Commissioner of Income Tax submitted his report to the Settlement Commission for deciding the stage of Section 245D(2C) of the Act. On the same day, the assessee had also filed written submissions in the proceedings fixing for hearing under Section 245D(2C) and one of the grounds was that, the statement of Shri S.C.Shah recorded at Mumbai was behind the back of the assessee and the same cannot be used against the assessee unless and until the same is tested by cross-examination. The Settlement Commission held that the application was not invalid, as referred to in Section 245D(2C). Commissioner filed a report under Rule 9 of the I. T. Settlement Commission (Procedure) Rules, 1997. Assessee filed rejoinder to the report of the department in which also the assessee contended that the statements of Shri S.C.Shah and others which have been used against the assessee without granting opportunity of cross examination. Later, the department produced a DVD containing some 1540 odd pages of data. Assessee once again applied for crossexamination of different witnesses including Shri S.C.Shah. Finally, the Settlement Commission passed the impugned order, in which, the Settlement Commission held that the assessee disclosed total investments in its share capital of Rs. 98.90 crores in two financial years F.Y 2007-08 and 2008-09. It has admitted that a capital of Rs. 33.14 crores is from unaccounted sources of various family members. The complete discussion of facts in this case reveals that the remaining sum also represents unaccounted income. It was held that the true and full facts regarding the unaccounted income were not disclosed. It was further observed that the assessee had disclosed an income computed at a rate of 7 paise per Rs. 100/- on an unaccounted trade in commodities estimated to the Rs. 2134 crores. The assessee had failed to give any evidence whatsoever about the actual trade, its quantum and the capital employed for such a huge turnover. Even the rate of brokerage is very meager. Thus, it was held that the assessee had not disclosed true and full facts of this trade and the income earned. It was further observed that the assessee had disclosed a sum earned at a rate of Rs. 2/- per Rs. 100/- in another commodity trade of Castor. This involves a turnover of more than Rs. 12.50 crores. The applicant has failed to give any evidence whatsoever about the actual trade, its quantum and the capital employed for such a huge turnover. Thus, it was held that the assessee had not disclosed true and full facts of this trade and the income earned. With respect to claim of loss in trade in the share of M/s. C, the assessee had been able to indicate certain mismatch in the figures to claim that the department had failed to prove that the loss in this trade was not genuine. However, Shri S C Shah an accomplice of the applicant was running an artificial trade in the share of M/s C and the trade was being artificially managed with the use of funds provided by Shri Y. Thus, it was held that assessee had not disclosed true facts in this instance and therefore the claim of loss was not genuine. It was held that the mode by which unaccounted income is earned is also not explained since the findings of fact are not corroborated by the admitted income. Assessee filed Special Civil Application complaining about the Settlement Commission proceeding further with the hearing of the settlement applications without granting cross examination of Shri S.C.Shah and others whose statements were being relied upon by the department. The High Court dismissed assessee’s petitions being premature.
Having heard the parties, the Court held that,
++ if the department wishes to rely on statement of witnesses, crossexamination when asked for, should be granted; (para 12)
++ the Assessees, from the outset, were keen on cross-examining of Shri S.C.Shah and other witnesses whose statements were relied upon by the department; (para 14)
++ insofar as the relation of the Assessee-company to Shri S.C.Shah and other related person is concerned, these statements did form part of important materials. That being the case, in absence of any clear discerning line of reasons adopted by the Settlement Commission, it would not be possible to segregate the effect of these statements from the rest of the material; (para 15)
++ it is not possible to separate the Settlement Commission's finding on the question of these issues, by eliminating the effect of the statements of witnesses, whether the Assessees had sufficient time to meet with the additional material produced in form of the DVD would have no effect;(para 17)
++ findings of the Settlement Commission are in the realm of assessment of evidence on record and essentially factual in nature. This Court in case of in case of Saurashtra Cement Ltd. And ors. v. Commissioner of Customs and anr. reported in 2012(3) G.L.H. 235, examined scope of judicial review by the Supreme Court against the order of Settlement Commission and held that the Settlement Commission is set up under the statute for settlement of revenue claims. Its decision is given finality and it also has power to grant immunity from prosecution, of course, subject to satisfaction of certain conditions. The scope of court's inquiry against the decision of the Settlement Commission, therefore, is necessarily very narrow. In a given situation if the Settlement Commission has taken into consideration irrelevant facts and such consideration has gone into its decision-making process resulting into grave injustice and prejudice to the party then within the narrow confines of the judicial review, interference would still be open; (para 20)
++ objection regarding non-verification of records does not seem to have been taken during the settlement proceedings and in any case, would not go to the root of the matter being a procedural matter; (para 21)
Assessee’s Petitions dismissed
2016-TIOL-1936-HC-AHM-IT
GARDEN SILK MILLS LTD Vs ACIT: GUJARAT HIGH COURT (Dated: August 1, 2016)
Interest Tax Act - Section 10
Whether notice issue by the Revenue u/s 10 was justified when the said notice was issued after a period of ten years preceding the letter dated 28/11/1995 issued by the Assessee informing the Revenue that it is not a credit institution whereupon only Section 5 applies and therefore Assessee did not file the return?
Whether on the date of amalgamation of the company, the transferor company is no more in existence on the date of issuance of notice and therefore the said notice issued upon the said company is invalid?
The Assessee filed its return upto A.Y 1993-94 under the Interest Tax Act. Thereafter, the petitioner on being advised that it was not a credit institution to which only Section 5 applies, for the A.Y 1995-96, Assessee filed a letter with the office of the AO to the effect that since it is not a credit institution, it has not filed the return. It is the case of the Assessee that for the subsequent years also, for the same reasons, it has not filed the returns under the said Act and upto 2004 the department did not do anything in the direction of asking it to file return under the said Act. However, in the month of March, 2005, after a period of 10 years, petitioner was given a notice dated 09/03/2005, u/s 10 of the Interest Act for the A.Y 1995-96.Reasons were supplied to the Assessee inter alia stating that the interest income of the Assessee from various financial activities and from those financial activities, three types of income viz., (01) finance charges of Rs.70,02,169/( 02) bill discounting income of Rs.6,47,67,934/and (03) interest on deposits/loans Rs.2,82,26,110/making a total of Rs.9,99,96,213/as income liable to the interest tax.
Before the HC the Assessee Counsel submitted that the notice issued u/s 10 of the Interest Tax Act is patently bad in law as also on the fact since the very basis of the reasons to believe omission or failure on the part of the Assessee itself patently faulty and therefore no jurisdiction u/s 10 of the Interest Tax Act was required to be invoked. The Counsel further submitted that the impugned notice pertaining to A.Y 1995-96 has been issued after a period of nearly 10 years and it was therefore time barred and therefore the said notice deserves to be quashed and set aside. The Counsel also submitted that the requirement of the provisions of Section 2(5A) read with Section 2(5B) are not fulfilled and therefore also the impugned notice may be quashed set aside. The Revenue Counsel submitted that there is no infirmity in the impugned notice and the notice issue was within the time limit.
Having heard the parties, the HC held that,
++ this Court is of the opinion that the notice issued upon the petitioner is bad in law; inasmuch as, the petitioner had also addressed a letter dated 28/11/1995 to the Revenue informing that since the Assessee is not a credit institution, it is not liable to interest tax. Reliance placed upon a decision in case of Khurana Engineering Ltd. is also relevant for this purpose because as held therein after the date of amalgamation of the company, the transferor company is no more in existence on the date of issuance of notice and therefore the said notice issued upon the said company held to be invalid;
++ the said notice was issued after a period of ten years preceding the letter dated 28/11/1995 issued by the petitioner informing the Revenue that it is not a credit institution whereupon only Section 5 applies and therefore petitioner did not file the return. Thus, for the period of ten years nothing was turned up and suddenly the notice was issued, which in the opinion of this Court is bad in law. The act of reopening of notice is not within the period of limitation. The notice quashed.
Assessee’s Writ Petition Allowed
2016-TIOL-1935-HC-KOL-IT
M/s LANDIS + GYR LTD Vs CIT: CALCUTTA HIGH COURT (Dated: July 22, 2016)
Income tax - commission payment - rendering of services & reasonableness of expenditure.
Whether a claim of commission paid by the assessee to its agents, can be disallowed by merely holding that no evidence of services rendered by the recipient of the aforesaid sums was established by the assessee, when their books of account as well as PAN Nos were adduced to show that they were del credere agents - NO: HC
The assessee during the subject year, had debited a sum of Rs.4,99,06,789/- on account of commission to the profit and loss account. Out of the aforesaid, sum of Rs.1.15,12,259/- paid to M/s. Consolidated Construction Co. Pvt. Ltd. and a sum of Rs.74,40,000/- paid to M/s. SPS Metal Cast & Alloys Ltd. were disallowed on the grounds that the important condition to be satisfied in respect of commission transaction was rendering of service and such condition was not established in this case. The AO further held that the parties to whom sale on behalf of the assessee was claimed to have been effected by M/s. Consolidated Construction Co. Pvt. Ltd. and M/s. SPS Metals Cast & Alloys Ltd were Government Undertakings who purchase the goods direct from the seller and the mere payment of TDS without rendering of service did not prove the genuineness of commission transaction. On appeal, the CIT(A) in concurring with the views of the AO held that the nature of services rendered by the recipient companies of the aforesaid sums had not been established by the assessee.
Having heard the parties, the High Court held that,
++ it is not in dispute, that pursuant to notice issued by the AO, both the agents confirmed in writing that they had rendered services to the assessee. The assessee has, before making payment, deducted tax at source. The Consolidated Construction Co. Pvt. Ltd. in its letter addressed to the Asst CIT has confirmed that they were appointed marketing agent of the assessee. They along with other agents have also disclosed extract of their books of account in order to show the dealings and transactions between the assessee and the aforesaid agent. They have also disclosed their PAN card number. From the evidence disclosed by the assessee, this court is inclined to think that the assessee had adduced such proof as it was in its power to prove. It is at this juncture that the judgement relied upon by assessee's counsel in the case of Collector of Customs, Madras and Others, becomes relevant. It goes without saying that it was in the power of the revenue to have contradicted the evidence adduced by the assessee and its agents to the extent that the income earned by them on account of commission paid by assessee was not offered for taxation or that the particulars of the final accounts or the final accounts themselves disclosed by the agents were not in accordance with the returns which they may have filed. It is difficult to believe that it did not occur either to the AO or to the CIT(A) that they could seek these information from their counterparts who may have been in seisin of the income tax files of the aforesaid two agents. Therefore, the only inference, which may be drawn, is that these facts were not contradicted because they were factually undeniable. The attention of this court was not drawn to any suggestion, far less any finding at any stage to show that it was even remotely suggested that the payment was collusive or the same was not genuine;
++ the fact that the agents made themselves liable to recover the price of goods sold and delivered, pursuant to the orders procured by them is a pointer to show that they were del credere agents well-known in the commercial world. This fact was not at all taken into consideration, nay, it did not occur to them when they held that "no evidence has been brought on record to show that any services were rendered by the said agents to the assessee." For the aforesaid reasons, we are inclined to think that the view taken is plainly contrary to common sense and is a view, which no person of ordinary prudence properly instructed in law could have arrived at. The aforesaid view is, therefore, perverse. Moreover reasonableness of an expenditure has to be adjudged from the point of view of the businessman and not of the revenue. In that view of the matter, we are of the opinion that the judgement under challenge is perverse and cannot be sustained.
Assessee's appeal allowed
