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CASE LAWS

2016-TIOL-229-SC-IT

JEANS KNIT PVT LTD Vs DCIT: SUPREME COURT OF INDIA (Dated: December 8, 2016)

Income Tax - Section 148

Keywords - Notice - Reopening of Assessment.

The assessee is a private company. The assessee is manufacturer and supplier of ladies jeans, gents garments, denim jeans. It filed return for relevant AY. Assessment was completed. Notice for re-assessment of relevant FYs were issued to assessee. Assessee had filed writ petitions before the High Courts challenging the issuance of notice u/s 148 of the Act and the reasons which were recorded by the AO for reopening the assessment. These writ petitions were dismissed by the High Courts as not maintainable. Aggrieved assessee filed appeal before the Supreme Court.

On appeal, Supreme Court held that,

Whether writ petitions filed against the issuance of notice of reassessment can be rejected being not maintainable without examining them on merit - NO: SC

++ the High Court did not make any observations on the merit of the cases. The contentions which were raised by the assessee against re-opening of the assessments were not answered. The Supreme Court decided that each case must be examined on its own merit keeping in view the scope of judicial review, while entertaining such matters, as laid down by this Court in various judgments. Hence Supreme Court decided to set aside the impugned judgments and remit the cases to the respective High Courts to decide the writ petitions on merit. The Supreme Court noted that during the pendency of these appeals, stay of re-assessment was granted, which shall continue till the disposal of the writ petitions before the High Courts.

Case Remanded

2016-TIOL-228-SC-IT

CIT Vs YOKOGAWA INDIA LTD: SUPREME COURT OF INDIA (Dated: December 16, 2016)

Income Tax - Sections 2(45), 10A(4) & (6), 10B - Circular Nos 1 of 2013 & 7 of 2013 & 794 of 2000.

Keywords: 10A unit, Amendment vide Finance Act, 2000, domestic sales, gross income, pari materia, total income, exemption vs deduction, brought forward business losses & retrospective effect & total income of undertaking.

Whether after amendment vide FAs, 2000 & 2003 the colour of Section 10A changed from exemption to provision of deduction - YES: SC

Whether such deduction is available while computing gross total income of the eligible undertaking under Chapter IV and not at stage of computation of total income under Chapter VI - YES: HC

Whether the fact that the legislature retained the provisions of Sections 80HHC & 80HHE in the Act even after the amendments to Section 10A, that means that the legislature intended to give more benefits than the ones emanating from Sections 80HHC - YES: SC

The broad questions before the Apex Court are:

(i)  Whether Section 10A of the Act is beyond the purview of the computation mechanism of total income as defined under the Act. Consequently, is the income of a Section 10A unit required to be excluded before arriving at the gross total income of the assessee?

(ii)  Whether the phrase “total income” in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act?

(iii)  Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section?

(iv)  Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are effected?

(v)  Whether brought forward business losses and unabsorbed depreciation of 10A Units or non 10A Units can be set off against the profits of another 10A Units of the assessee.

Held that,

++ the amendment of Section 10A of the Act, by the Finance Act, 2000 with effect from 1.4.2001, specifically uses the words ‘deduction of profits and gains derived by an eligible unit ...... from the total income of the assessee'. By virtue of this amendment, Section 10A had changed its colour from being an exemption section to a provision providing for deduction. Yet, Section 10A continued to remain in Chapter III of the Act which Chapter deals with incomes which do not form part of the total income;

++ Circular No. 7 dated 16.07.2013 and Circular No. 01/2013 dated 17.01.2013 appear to be conflicting and contradictory to each other; in the former Circular the provision, i.e., Section 10A is referred to as providing for deductions whereas the later Circular uses the expression “exemption” while referring to the provisions of Sections 10A and 10B of the Act. Even the Income Tax Return Forms i.e. Form No. 1 dated 17.08.2001 and Form No. 6 for the assessment year 2012-13 are equally contradictory;

++ the retention of Section 10A in Chapter III of the Act after the amendment made by the Finance Act, 2000 would be merely suggestive and not determinative of what is provided by the Section 18 as amended, in contrast to what was provided by the un-amended Section. The true and correct purport and effect of the amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. The introduction of the word ‘deduction' in Section 10A by the amendment, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A as already discussed, it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions;

++ the difference between the two expressions ‘exemption' and ‘deduction', though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different;

++ Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head “profits and gains from business” in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understood by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different;

++ if the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of 22 the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking';

++ though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI.

Case disposed off

2016-TIOL-3030-HC-MUM-CX + Story

MILTON PLASTICS LTD Vs UoI: BOMBAY HIGH COURT (Dated: December 13, 2016)

CX - CENVAT - Notification 13/2003-CE(NT) - substitution of word "purchased" by "procured" in rule 7(4) of CCR, 2002 - Petitioner obtained stock transferred inputs upon reversal of credit and availed credit on receipt - credit denied on the ground that inputs were not "purchased" and appeal dismissed as being time barred - petition to High Court. Held: Without adverting to the important question raised namely, whether the amending provision is clarificatory and, therefore, retrospective, order has been passed - order quashed and set aside and Matter remanded: High Court [para 10, 11, 12]

Petition allowed

2016-TIOL-3029-HC-DEL-IT

ARAVALI INFRAPOWER LTD Vs DCIT: DELHI HIGH COURT (Dated: December 1, 2016)

Income Tax - Sections 147 & 148

Keywords: reopening of assessment - escapement of income - failure to furnish true particulars - tangible material

A notice u/s 147/148 was served upon assesseeon the ground that a survey was conducted on the corporate office of Assessee during which certain incriminating documents were found and impounded. The A group had shown issue of shares to various companies and raised capital from these companies. These companies did not have regular sources of income to invest such large amounts of capital. It was been gathered from enquiries that the various allotteeswho were allotted shares of the group companies were not actively involved in any substantial business activity.Summons were issued to the directors of these companies which were returned. An Inspector was deputed to physically verify the addresses of the registered offices of the companies and it was found that the companies did not exist at their given addresses. Assessing Officer was of the opinion that the assessee was not able to prove the genuineness of the transactions entered into with companies from whom it had received share capital and the identity and creditworthiness of such companies. Hence, there was escapement of income. The assessee had not disclosed fully and truly all material facts before the AO resulting in under assessment of income.

On appeal, the HC held that,

Whether reopening of assessment is justified, when the bank statements as well as the ITR form disclosing returns raise more questions than satisfy the queries of AO - Yes: HC

++ Information was received by the revenue with respect to bogus entries made, resulting in a survey and impounding of certain documents. On the basis of these, certain inferences were sought to be drawn. There cannot be any denial that this clearly amounted to tangible material. Nevertheless, the enquiry would not end there. Whilst the assessee, no doubt, replied to the queries addressed to it, the materials on record clearly show that there was no full disclosure. The requirement in such cases - whether the AO is prima facie not satisfied about the genuineness of the transaction (Section 68), is not merely to establish the genuineness of the identity but also genuineness of the transaction itself and the creditworthiness of the investor. Clearly, the material, primarily called "primary materials" in Mewalal referring to  Calcutta Discount Company Limited v. ITO 2002-TIOL-550-SC-IT-CB ,  in turn were not merely PAN numbers or other registration identities of the share applicants. They extended to details vis-à-vis other documents such as bank accounts etc, of the share applicants - that the assessee was in possession of. The materials supplied to the AO at the relevant time on 07.02.2009 (by the assessee) there is singular absence of documents such as bank details of the share applicants: undoubtedly, the cheque numbers were disclosed whereby amounts were received by the assessee and credited to its accounts. They were, however, not a full disclosure. A further look into the bank accounts or even the bank branches would be sufficient in the circumstances, which was possible if Bank details were given (i.e. name of bank branch etc.). Likewise, the ITR form disclosing returns raise more questions than satisfy the queries. They merely show that the share applicants paid paltry amounts as income tax even while claiming to have invested amounts ranging over Rs.8 crores. Clearly, there was no full disclosure of material facts.

Assessee's Petition dismissed