INCOME TAX CIRCULAR

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Applicability of TDS provisions of section 194-I of the Income-tax Act, 1961 on lump sum lease premium paid for acquisition of long term lease-regarding

CASE LAWS

2016-TIOL-2468-HC-MUM-CUS + Story

KIM Chemicals Ltd Vs UoI: BOMBAY HIGH COURT (Dated: September 6, 2016)

Cus - DGFT - FTP 2004-2009, 2009-2014 - A person who has not been able to fulfill the export obligations cannot insist on an unconditional relaxation or exemption - exercise undertaken by the experts in the field and in charge of interpretation and implementation of the FTP not to be interfered - Petition dismissed: High Court [para 18, 19, 22, 23]

Petition dismissed

2016-TIOL-2454-HC-AHM-IT

TRILOK ASSOCIATES Vs ITO: GUJARAT HIGH COURT (Dated: October 4, 2016)

Income Tax - Section 147/148.

Whether when the Revenue relied on retrospective statutory amendment for the reopening of the assessment u/s 147/148 beyond four years, then the issuance of such notice of reopening can be held as a change of opinion on the part of the AO.

The Assessee is a partnership firm and is engaged in the business of developing and construction of housing project. The Assessee claimed deduction of Rs.84.51 u/s 80IB( 10). The return was taken in scrutiny by the AO during which he raised multiple queries asking the assessee to substantiate the claim of deduction. After considering the replies of the assessee, the AO passed the order of assessment accepted the Assessee's returned income. In order to reopen such assessment, the AO issued the impugned notice which, was done beyond a period of four years from the end of relevant A.Y. The AO had recorded the reasons that the assessee is merely a work contractor and not taken any developing of housing project approved by the Local Authority and hence, the claim of the assessee for deduction u/s80IB(10), is not in accordance with law. Finance Act 2009 has amended the section 80IB(10) by way of the Explanation with retrospective effect from 01.04.2001. Due to illegitimate claim of the deduction of Rs.84,51,542/made by the assessee u/s 80IB(10), the income chargeable to tax has escaped the assessment within the meaning of section 147. The AO rejected the objection of the Assessee.

Before the HC the Assessee Counsel submitted that the entire issue was examined by the AO during the scrutiny assessment. It would now not be open for him to reexamine the same claim. He further submitted that there was no failure on part of the assessee to disclose truly and fully all material facts. Reopening of assessment beyond four years is even otherwise, not permissible. The DR submitted that the AO has recorded proper reasons before issuing the impugned notice. The materials on record would suggest that the petitioner had acted only as a works contractor as explained in explanation below section 80IB (10). He would therefore, not be entitled to such deduction which is available only in case of a person developing a housing project.

Having heard the parties, the HC held that,

++ the main business activity of the petitioner being development of housing project, the deduction u/s 80IB( 10). This claim came up for scrutiny before the AO. The entire claim of deduction was minutely scrutinised by the AO before acceptance. Any attempt on his part now to reopen the issue would be based on change of opinion. In any case, there is not even an allegation that the assessee had not disclosed truly and fully all material facts. Since the impugned notice has been issued beyond four years from the end of relevant A.Y, this aspect would assume significance;

++ in order to suggest that the assessee was not a developer but had acted only as works contractor, the AO in the reasons recorded did not bring in facts on record. He merely referred to the explanation added below section 80IB(10) by the Finance Act, 2009 but with effect from 1.4.2001. In case of Denish Industries Division Bench of this Court, when the Revenue relied on retrospective statutory amendment for reopening the assessment beyond four years, the Court considered the issuance of such notice of reopening as nothing but a change of opinion on the part of the AO. Similar View was taken by the Court in Sadbhav Engineering Ltd and Classic Network Ltd. The impugned notice is quashed.

Assessee's writ petition disposed of in its favour

2016-TIOL-2453-HC-MUM-IT

CIT Vs GRASIM INDUSTRIES LTD: BOMBAY HIGH COURT (Dated: September 27, 2016)

Income Tax - Section 115JA.

Whether the profit of the assessee branch in USA is taxable in India.

Whether profit from power generated are eligible for deduction for the purpose of book profit u/s 115JA even if no profits was derived from business of generation and distribution of power and that the power generated was used for captive consumption only.

Whether the provision made on account of gratuity and leave salary is not to be added to arrive at book profits u/s 115JA.

The Tribunal held that profit of the assessee branch in USA viz. Birla consultancy software Services is not taxable in India .The Tribunal further held that profit from power generated are eligible for deduction for the purpose of book profit u/s 115JA even if no profits was derived from business of generation and distribution of power and that the power generated was used for captive consumption only. The Tribunal allowed fresh claim of expenditure on account of subway and power lines not claimed in the return of income filed by the assessee. The Tribunal allowed deduction of gratuity and leave salary from computation of profit u/s 115JA. The Tribunal restored the issue of sales tax exemption to the file of the AO by relying on the decision of the Bombay High Court in the case of Reliance Industries Limited - 2003-TIOL-14-ITAT-MUM-SB.

Having heard the parties, the HC held that,

++ on the issue of profit of the assessee branch in USA is not taxable in India, the Tribunal dismissed the Revenue's appeal on the above issue by following its order in the case of the Assessee for A.YS 1996-97 and 1997-98. The Revenue has not challenged the Order of the Tribunal for A.YS 1996-97 and 1997-98. No distinguishing features in the present A.Y from that existing in the A.YS 1996-97 and 1997-98 have been brought which would justify our taking a different view on this issue for the subject A.Y;

++ on the issue of profit from power generated are eligible for deduction for the purpose of book profit u/s 115JA even if no profits was derived from business of generation and distribution of power and that the power generated was used for captive consumption only, the Revenue has accepted the order of the Tribunal for the A.Y 1998-99. The impugned order merely follows its order of A.Y 1998-99. In the absence of any special circumstances being pointed out by Revenue such as different facts etc. in the subject A.Y from those in earlier A.Y, i.e. 1998-99 there is no warrant for taking a different view;

++ on the issue of allowing expenditure on subway and power line though the said expenditure was not incurred by the assessee but by Indian Rayon & Industries Ltd., prior to the date of scheme of merger, the Tribunal has merely followed its order for AYS 1994-95 and 1998-99 which has been accepted by the Revenue there is no basis for the Revenue being aggrieved by it;

++ on the issue that the provision made on account of gratuity and leave salary is not to be added to arrive at book profits u/s 115JA, the distinction between debiting to profit and loss Apportion Account and profit and loss account is of no significance in this case, as the proposed addition on the basis of the Explanation 1 to Section 115 JB can only be made if the amounts are debited to profit and loss Account to arrive at the book profits. This issue stands concluded in favour of the Assessee by decision of this Court in Echjay Forgings;

Revenue's appeal dismissed

2016-TIOL-2452-HC-P&H-NDPS

AJAY JAIN Vs DIRECTORATE OF ENFORCEMENT: PUNJAB & HARYANA HIGH COURT (Dated: October 7, 2016)

NDPS - Petition for anticipatory bail - petitioner claims to have been falsely implicated by the officials of the Punjab Police in two different NDPS cases; that he was allegedly coerced to give a self implicating confessional statement under illegal and undue pressure exerted on behalf of the complainant/Enforcement Directorate. Held: By no stretch of imagination, can the figures shown in the declaration of income in his ITRs for the period 2009-2010 to 2014-2015 indicate any exorbitant cash credits or income as imputed to the petitioner - Furthermore, the respondent has himself mentioned that the petitioner's flat in Ahinsa Vihar, Sector 9, Rohini, Delhi was purchased by him for an amount of Rs. 1,60,000/- only (more than 20 years ago) on 14.6.1995 - So, there is nothing unusual or objectionable if the market value of such property over the two decades has appreciated, and so, on these grounds alone, it would be preposterous to conclude that the petitioner has generated any money in the form of 'Proceeds of Crime' - Regarding the specific allegations of his having purchased Pseudoephedrine worth Rs. 68 lacs in 2012, and of having sold it subsequently to one Suresh Kumar alias Mehnga Ram for Rs. 70 lacs, first of all, there is no document to support the allegations of such transactions, and more importantly, there is no explanation or indication by the complainant/respondent whatsoever to show as to in what manner, the petitioner had been engaged in projecting or claiming the aforesaid 'Proceeds of Crimes' as 'untainted property', which is an essential ingredient to constitute the offence of Money Laundering as defined u/s 3 of the PML Act - in view of the fact that the principal assets of the petitioner in the form of his flat, is already stated to have been attached by the Authorities, Court finds no justification to deny him bail - Petition allowed: High Court [para 5, 6, 7]

Petition allowed

2016-TIOL-1773-ITAT-DEL

DCIT Vs PODDAR PIGMENTS LTD: DELHI ITAT (Dated: October 5, 2016)

Income Tax - Sections 10(38), 40(a)(i), 143(3) & 271(1)(c).

Keywords: LTCG - levy of penalty - inaccurate particulars - concealment of income - non payment of TDS - defaulter - foreign national - exemption on profits

Whether if the AO has nowhere stated that assessee has furnished false and fabricated bills or claimed expenditure, which is not related to the business of the assessee, it is possible for such AO to apply explanation-1 to the section 271(1)(c) to levy penalty - NO: ITAT

Whether if an assessee has substantiated the explanation given by it with necessary evidence, the same is bonafide and all the facts relating to it are material to the computation of income disclosed by the assessee, the penalty for concealment of income still can be levied - NO: ITAT

The assessee is a company. During assessment, AO initiated penalty proceedings u/s 271(1)(c). The additions/disallowances made by AO was confirmed by CIT(A). AO issued a show cause for levy of penalty on the additions disallowances confirmed by CIT(A). The submission made by assessee that the assessee was not liable for levy of penalty, were not considered by AO and he levied the penalty u/s 271(1)(c) equivalent to the 100% of the tax sought to be evaded by the assessee. On appeal, CIT(A) allowed the appeal of assessee by deleting the penalty u/s 271(1)(c) on all the issues of addition/disallowances. Penalty in respect of disallowance of Rs.9,14,191/- u/s 40(a)(i) was levied by AO on payment of Rs.4,43,363/- made to M/s. Coperion Werner & Pfleiderer, payment of Rs. 4,44,690/- made to Dr UK Thiele and depreciation of Rs. 26,138/- claimed on payment of Rs. 1,74,254/- made to M/sHenchal Industrietichik for supervision and direction of machines. While levying penalty, AO observed that it was not a case where claim of deduction was disallowed in a year but was allowable/allowed in subsequent year. Rather, in this case, since no tax was deducted at all at any point of time, even at a later date, this amount was never allowable to the assessee at any point of time even in future. Further, the income of the recipient as received by it/him from the assessee was taxable in India which would have been either offered by him to tax or at least TDS made would have gone to the government exchequer. However, because of assessee's fault of non-deduction of tax, no tax could be realized from the recipient as it/he is a foreign national. Thus, assessee by its act also caused loss of revenue which was otherwise realizable from the recipient of the income. On appeal, CIT(A) deleted the penalty levied.

Penalty levied under section 271(1)(c)

Another issue raised before Tribunal was regarding penalty levied under section 271(1)(c) in respect of disallowance of long-term capital gain of Rs.41,62,154/-. The facts in respect of the issue in dispute were that in the return of income the assessee shown long-term capital gain (LTCG) on sale of shares of M/s. Mayuka Investment Ltd. and claimed the same as exempt under section 10(38). Before AO, the assessee explained that at the time of filing of return, the assessee was expecting that the CBDT would clarify to the BSE on the matter of STT but no such clarification was issued and as a result of which STT was paid on the sale of shares, accordingly, the assessee offered the LTCG for taxation in the course of assessment proceeding. This LTCG was adjusted against the brought forward long-term capital loss (LTCL). According to AO, this addition was not contested in appeal, therefore, he levied penalty u/s 271(1)(c). The CIT (A) held that no inaccurate particulars of income has been filed by the assessee and there is no concealment made by the assessee and hence no penalty u/s 271(1)(c) was attracted in the case of the assessee.

Having heard the matter, the Tribunal held that,

++ we find that the assessee has filed all the particulars in respect of the expenses incurred, which has been held to be disallowable u/s 40(a)(i). The explanation furnished by assessee in support of its claim of non-deduction of tax at source, though, has not been found correct, however, same was not malafide. According to assessee, the payment of Rs.4,43,363/- paid to an entity M/s. Coperion Werner & Pfleiderer was covered under Article-7 of the DTAA with Germany whereas the Tribunal has held that the Article-7 was not applicable in the case of the assessee. Similarly, in respect of payment of Rs.4,44,690/- to Dr. UK Thiele, the assessee claimed that the payment was towards independent scientific activity which fall under Article 14 of DTAA with Germany, whereas the Tribunal held that the assessee failed to demonstrate that the services rendered by Dr UK Thiele are independent scientific services. AO has nowhere stated that the assessee has furnished false and fabricated bills or claimed expenditure which was not related to the business of the assessee. SC in the case of CIT Vs. Reliance Petroproducts Private Limited has observed that making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. The assessee has given an explanation which is found to be bonafide, thus, in our opinion the Explanation-1 to the section 271(1)(c) is not attracted in the case of the assessee and, therefore, no penalty is leviable. The Tribunal in the case of Sh. Vishal Neeraj Aggarwal after taking into account the decision of Gujarat HC in the case of CIT–IV Vs. LG Chaudhary reported in (2013) 33 taxmann.com 156 (Guj) held that disallowance u/s 40(a)(ia) was due to non-payment of TDS, which was at the most technical default, and hence no penalty was leviable. The Tribunal observed that there is no dispute with regard to the fact that the addition was made on account of non-deduction of tax. HC of Gujarat in the case of CIT-IV vs. L.G.Chaudhary, has held that we find no reason to interfere in this appeal in as much as both the authorities namely CIT(A) and ITAT have rightly deleted the penalty observing that the disallowance was due to non-payment of TDS, which was at the most a technical default. There being nothing to indicate any concealment of the income or furnishing of inaccurate particulars of income by the assessee, AO was rightly not justified in levying the penalty. This being a correct approach adopted by both the authorities concurrently, this tax appeal poses no question of law and the same requires no interference and is consequently to be dismissed. Therefore, respectfully following the judgment of Jurisdictional High Court, we hereby direct AO to delete the penalty on this amount. Thus, this ground is allowed and the appeal of the assessee for AY 2006-07 is allowed. Thus respectfully following the above decision no penalty is leviable in the case for disallowances towards non-deduction of tax at source;

Penalty levied under section 271(1)(c)

++ all the particulars in respect of the sale of shares were duly filed before the AO. AR submitted that the long-term capital gain was claimed as exempt by the assessee at the time of filing the return, inasmuch as, the assessee was of bonafide view that STT would be paid in the due course once the BSE would get the issue clarified from the CBDT. The correspondence of the BSE in this respect was also filed before the Assessing Officer. However, since the assessee failed to get the same clarified until the last date of revision of return of income i.e. 31/03/2008, the assessee during the course of assessment proceeding, without any show cause notice issued by AO, offered the long-term capital gain for taxation which was accepted by AO and he adjusted long-term capital loss (LTCL) from the long-term capital gain (LTCG) so offered. This explanation offered by assessee has not been found false by AO. Further, the assessee substantiated the explanation with necessary evidence and explanation filed is bonafide and all the facts relating to the explanation and material to the computation of income on the issue have been disclosed by the assessee. In view of these facts, the Explanation-1 to the section 271(1)(c) is not attracted in the case of the assessee. We may like to repeat the findings of the SC in the case of Reliance Petroproducts Pvt. Ltd. that making an incorrect claim in law cannot tantamount to furnish of inaccurate particulars. Thus, in our opinion, in such circumstances no penalty under section 271(1)(c) is leviable on the issue in dispute. We find that the order of CIT(A) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the same. The grounds of appeal on the issue in dispute are dismissed. In the result, the appeal of the Revenue is dismissed.

Revenue's appeal dismissed

2016-TIOL-2675-CESTAT-MUM + Story

CCE Vs NATIONAL ENVIRONMENTAL ENGINEERING RESEARCH INSTITUTE: MUMBAI CESTAT (Dated: September 19, 2016)

ST - S. 35C(2) of CEA, 1944 - ROM needs to be filed within six months from the receipt of the Final order – Rubber stamp indicates that order was received by Commissionerate on 14.09.2015, therefore, ROM filed on 01.08.2016 is hit by limitation – Application dismissed: CESTAT [para 4, 5]

ROM application dismissed