2017-TIOL-12-SC-IT
M/s CHANDRA CEMENT LTD Vs CIT: SUPREME COURT OF INDIA (Dated: January 6, 2017)
Income tax - Section 271-D.
Keywords - cash deposits - penalty & unsecured loan.
The assessee preferred this SLP challenging the order, whereby the High Court had held that the cash deposits made by managing director of assessee company, being an unsecured loan as per books of account, was liable for imposition of penalty u/s 271-D.
Having heard the parties, the Supreme Court found no basis for disturbing the HC's decision and accordingly dismisses the SLP preferred by the assessee company.
Assessee's SLP dismised
2017-TIOL-68-HC-GAW-IT
MODI REVLON PVT LTD Vs CIT: GUWAHATI HIGH COURT (Dated: November 24, 2016)
Income tax - ascertained liability - curtailment notification - excise duty exemption - pendency of litigation & refund entitlement.
The assessee was previously known as Kamakhya Cosmetics & Pharmaceuticals Pvt. Ltd. and the unit was setup in Guwahati's Bamunimaidam Industrial area, in pursuant to the new industrial policy resolution of the Central Government. Accordingly, the unit was setup in 2002 and was granted the Eligibility Certificate for refund of excise duty. As per the incentive mechanism, hundred percent refund of duty was given to the assessee until Mar 31, 2008 under the new industrial policy. Subsequently the Government of India issued curtailment notification, whereby, the refund entitlement was co-related to the "value edition" made by each industry and the percentage of excise exemption benefit was thus reduced to 56% for the assessee. On appeal, the Single Judge bench (HC) quashed the impugned notification and held that the assessee was entitled to 100% excise duty exemption, as per the original notification. However the Court verdict was not acceptable to the Excise Authorities and thus finality on the litigation on the extent of central excise exemption, was yet to be reached. In the meanwhile, the judgment of Single Judge was rendered inoperative, during the pendency of the Appeal.
The assessee thereafter filed its return for the A.Y 2009-2010 showing total income of Rs.1,09,79,095/- and also made provision for central excise duty, to the tune of Rs.3,43,18,499/-. However the AO issued show-cause-notice as to why, the provision for the central excise duty, should not be disallowed. Thereafter the Dy CCT computed the total income but in the process, disallowed the provision for central excise duty, for the claimed amount.
On appeal, the HC held that,
Whether tax liability for an accounting period can be ignored under mercantile system of accounting, if such liability is disputed in a legal forum - NO: HC
++ it is noted that the company claimed refund of Basic Excise Duty paid, but the refundable duty was restricted to maximum 56% by the subsequent notification. The assessee was successful with their challenge to the curtailment notification before the Single Judge but the departmental challenge to the Single Judge's order is now awaiting the final decision. Accordingly the assessee made provision in their accounts, to take care of the excise tax liability in the event the departmental challenge is upheld by the higher Court. This was perceived by the AO to be only provisional and not ascertained liability. In the mercantile system of accounting, tax liability for the accounting period cannot be ignored by the assessee even if the liability is disputed in a legal forum and the provision for excise duty through entries in the books of accounts can be said to be a conservative practice of a prudent assessee;
Whether a provision created for central excise duty in the books of account, can be disallowed on the basis that such precise amount of duty payable was pending litigation before the highest forum - NO: HC
++ the extent of liability of central excise duty payable by the assessee for the A.Y 2009-10, will flow from the final verdict on the legality of the curtailment notification, and although the notification was quashed, the consequential departmental challenge to the verdict of the High Court, is awaiting finality in the Supreme Court. Thus the precise amount of excise duty payable in the concerned year has remained inconclusive and therefore the reflection of the disputed amount in the books of accounts cannot be said to be an unreasonable act. In our understanding, a prudent assessee following the mercantile system, can certainly make provision for expenditure towards tax liability, even though the assessee may dispute the departmental claim but when the litigation is not yet finalized, it cannot be said with authority that the provision made will never be categorized as expenditure for the concerned assessment year. That apart, if the Supreme Court finally declares that the curtailment notification is legally unsustainable, the revenue will not suffer any prejudice since the department can bring the provisional amount to tax, u/s 41(1) of the I-T Act. Having answered thus, the respective impugned orders are set aside, in so far as the disallowance of the central excise provision made in their books of accounts by the assessee.
Assessee's appeal allowed
2017-TIOL-30-ITAT-PANAJI-SB
ORIENTAL BANK OF COMMERCE Vs ITO: PANAJI ITAT (Dated: January 3, 2017)
Income Tax - Sections 250, 254(2A) - I.T. Act Rules 1963 - rule 35A.
Keywords: academic exercise - stay petition - adjudicating authority & rejection.
The assessee is a banking concern. A reference was made before the Special Bench regarding the issue that an order of CIT(A) rejecting stay petition is an appealable order u/s 253, even when no appeal of assessee on quantum is before the Tribunal.
Having heard the matter, the Tribunal held that,
Whether it is viable for the Tribunal to adjudicate on an academic question raised before it, against an order passed by CIT(A) regarding rejection of stay - NO: ITAT, Special Bench
++ the question raised would not call for adjudication for the reasons that the quantum appeal of the assessee is already pending before this Tribunal and as such, this Tribunal could always pass such interim orders in accordance with law if required. It is held that ITAT do not wish to enter into this controversy at this stage as it would be an academic exercise. It is well settled that the adjudicatory body does not answer / entertain academic question. It would not be proper for us to pronounce upon the questions raised before us in these circumstances. We find that this apprehension is not well founded as it is always open to the assessee to file a proper application for stay of recovery proceedings in accordance with the law.
Assessee's appeal dismissed
2017-TIOL-29-ITAT-MUM
DCIT Vs M/s NAUTILUS TRADING AND LEASING LTD: MUMBAI ITAT (Dated: January 6, 2017)
Income Tax - Sections 9, 10, 22 & 143(3).
Keywords: licence fees - amenities - business income - income from house property - interest-free deposit & net loss.
The assessee-company,deriving income from house property, filed its return declaring loss of Rs. 1.05 crores. AO completed assessment, u/s 143(3) determining its income at Rs.(-) 9.46 lakhs. The effective ground of appeal was about allowing the income on account of licence fees and amenities as business income as against the income from house property income. AO found that the assessee had let out its property to Citigroup as per the Leave and license agreement. Assessee had also taken interest-free deposit. Assessee had treated rent under the head business income and had bifurcated the receipts as licensee fees and amenities fees, that after claiming various expenses against the income, assessee disclosed net loss. AO directed assessee to explain as to why the income from the property should not be charged to tax u/s 22 under the head ‘income from house property'.
Having heard the matter, the Tribunal held that,
Whether when an assessee has commercially exploited a property by providing various amenities to tenants, before letting it out, income earned from that source is to be construed as income from house property - YES: ITAT
++ the main object of the assessee, as evident from the memorandum of incorporation, was to deal in properties as well as to let them out. It had purchased a property, but could not sell it. Later on, it converted the property into commercial asset and provided various amenities to the tenant. In this case, assessee had provided certain amenities and facilities to the tenants. It is a case of exploiting the asset commercially and not the case of mere letting it out. Therefore, in our opinion, the order of the FAA does not suffer from any legal infirmity. In our opinion,facts of JST Reality are distinguishable from the facts of the case under appeal. Considering the peculiar facts and circumstances of the case, we decide the effective ground of appeal against the AO.
Revenue's appeal dismissed
2017-TIOL-28-ITAT-MUM
DCIT Vs M/s ETHL GLOBAL CAPITAL LTD: MUMBAI ITAT (Dated: January 6, 2017)
Income Tax - Sections 14A, 143(3), 147 & 148.
Keywords: 2G allocation - notional interest - advance money - loan - exempt income - acquisition of license & disallowance u/s 14A.
The assessee company, engaged in the business of holding investment in shares and debentures of companies, filed its return disclosing NIL income. Original assessment in this case was completed u/s 143(3). Thereafter the case was reopened u/s 147 and reassessment was completed u/s 143(3) r.w.s.147.
AO, on the basis of information received from the office of DGIT (Inv.) held that the central agencies, investigating the cases pertaining to 2G allocation, had suggested that financial transactions of assessee had to be looked into for tax implication as it was also figured in the 2G spectrum scam. While completing the re-assessment, AO held that the assessee had paid Rs.175 crores to Loop Telecom Ltd. to enable the latter for License Fees of UASL.
AO held that the advance of Rs.175 crores was a loan given by the assessee. Applying the principle of decision of SC in the case of M/s. MC Dowell 2002-TIOL-40-SC-CT-CB, the AO held that on the said loan notional interest has to be taxed.
Disallowance u/s 14A
AO found that the assessee had shown investments in the balance sheet. AO worked out the disallowance of Rs.7.20 crores and added to the total income of the assessee. It was, however, noted that there was a mistake in the working of the AO,as the disallowance was made 5% instead of prescribed rate of 0.5% under Rule 8D of the Rules. Accordingly by a rectification order same was reduced to Rs.72 lacs.
Having heard the matter, the Tribunal held that,
Whether an AO can tax notional income on account of interest, even if lending is made out of non interesting bearing funds, no income is recognized in books of accounts by lender - NO: ITAT
++ we find that the assessee had advanced loan from its interest free funds and had not charged any interest, that the AO had taxed notional interest in the hands of the assessee without bringing any evidence of charging of interest by the assessee. He has also not explained as to how the interest income accrued to the assessee. In the normal course of its business transaction the assessee had advanced loan and had not charged any interest. Charging or not charging of interest is a discretion of an assessee-especially when the advance is made out of interest free funds. We are of the opinion,that the order of the FAA does not suffer from any legal infirmity. So, confirming the same we dismiss this ground raised by the AO;
Disallowance u/s 14A
Whether while making disallowance in respect of expenses incurred in relation to exempt income u/s 14A, an AO can disallow expenditure in excess of actual expense claimed - NO: ITAT
++ we find that the FAA had disallowed the expenditure that was claimed against the exempt income. The basic concept for disallowance u/s. 14A r.w.r.8D of the Rules is to deprive the assessee of double benefit i.e. claiming deduction against tax free income. In the case under consideration the FAA has restricted the disallowance to the extent it was claimed against the exempt income.In our opinion there is no need to interfere with his order.So,confirming the same second ground is decided against the AO.
Revenue's appeal dismissed
