2017-TIOL-1343-HC-DEL-IT
MASTECH TECHNOLOGIES PVT LTD Vs DCIT : DELHI HIGH COURT (Dated: July 13, 2017)
Income Tax - Sections 142(1), 148 & 129.
Keywords - reopening - reasons to believe - creditworthiness - accommodation entries.
The Petitioner filed its return of income for AY 2008-09 declaring loss of Rs.6,10,314. The return was processed u/s 143(1) of the Act and an intimation was sent to the Petitioner. Thereafter AO issued notice u/s 148 proposing to reassess income of the petitioner. Petitioner submitted that the original return filed u/s 139(1) be treated as return u/s Section 142(1). On the same date two notices were issued. By the first notice issued u/s 142(1), the Assessee was asked to furnish complete details as per Annexure-A to the notice. The Annexure stated that the information was received from the Investigation Wing and the return of income was scrutinized. It was found that during the year under consideration, the share capital of the loan of the Assessee had increased to the extent as provided in the information of the investigation. It was stated that search was conducted against entry operator S.K. Jain and his group and Virendra Kumar Jain. It was concluded that they were accommodation entry providers. The details of the bank accounts of the S.J. Jain Group companies were also set out. It was stated in the Annexure that the Assessee had taken accommodation entry amounting to Rs.1.35 crores credit from various companies controlled by S.K. Jain Group through intermediary (A.K. Jain). It was stated further that, the Assessee had obtained share capital from M/s Shalini Holdings Ltd. which was a company controlled by S.K. Jain Group and that the transaction in question had also failed to pass the test of creditworthiness of creditor since the company was dummy company and that since the entries had been created to create web of transaction to camouflage the true nature of transaction. Accordingly the Assessee was asked to show cause why the sum of Rs. 1.35 crores received by it during AY 2008-2009 should not be treated as unexplained credit u/s 68. Further, the Assessee was asked to show cause why Rs.2,43,000/- representing commission paid at the rate of 1.8% should not be treated as unexplained investment to procure these accommodation entries. The Assessee was asked to furnish its reply to the AO by 24th February, 2016. Another notice received u/s 143 (3) stated that there were certain points in connection with the return for which further information needs to be provided. This notice showed that this was a "proceeding u/s 148 for the AY 2008-2009". With regard to the reasons for reopening it was merely stated that "it has received accommodation entries of Rs.1,35,00,000 during the year under consideration." The objections raised by Assessee was rejected by AO. Thus, the present writ petition was filed.
Having heard the parties, the High Court held that,
Whether notice issued by AO u/s 148 for the second time would be valid when the second notice does not state anywhere that it is in continuation of the first notice issued u/s 148 - NO: HC
Whether proceedings commenced with the issue of first notice issued u/s 148 can be commenced by proceedings u/s 129 and not by issuing another notice u/s 148 - YES: HC
++ it appears to the Court that for reasons which are not clear, the Revenue did not pursue the notice issued to the Petitioner u/s 148. Revenue submitted that since the AO who issued the said notice was replaced by another AO, the said notice was not pursued. It was insisted that u/s 129 it was possible to continue proceedings which commenced with the earlier notice and that was in fact what was done when the second notice was issued by the incumbent AO. However, a careful perusal of the second notice reveals that it does not state anywhere that it is in continuation of the earlier notice dated 23rd March, 2015. There is noting even on the file made by the AO that while issuing the said notice he was proposing to continue the proceedings that already commenced with the notice dated 23rd March, 2015. As per Annexure-A to the notice u/s 142(1) according to the AO, the second notice dated 18th January 2016 u/s 148 was issued ‘initiating’ afresh the proceedings. It was not merely in continuation of the earlier proceedings that commenced with the notice dated 23rd March, 2015. It is not possible to accept the plea of Revenue that the Court should proceed as if the second notice dated 18th January, 2016 does not exist. The fact that the said notice was issued by the AO initiating proceedings u/s 148 is plain from the Annexure-A enclosed with the notice u/s 142 (1). That being the position, the legal consequences of such action have to follow. Revenue's submission that in the absence of any approval granted to the issuance of notice dated 18th January, 2016 by the Additional CIT and with the said notice being time barred, it should not be taken to have been issued at all, is unacceptable. The Court has not been provided with any satisfactory explanation as to why the notice dated 23rd March, 2015 issued by the AO u/s 148 was not carried to its logical end. The mere fact that the AO who issued that notice was replaced by another AO can hardly be the justification for not proceeding in the matter. On the other hand, the AO did not seek to proceed under Section 129 of the Act but to proceed de novo u/s 148 of the Act. This was a serious error which cannot be accepted to be a mere irregularity.
Whether it would amount to a legal infirmity if the AO upon being asked to provide reasons for reopening merely furnishes the same in a single line which did not have the approval of Additional CIT and without any supporting material - YES: HC
++ the second problem is in the manner in which the AO has proceeded. The reasons that he furnished the Petitioner by the letter contained only one sentence. For some reasons, the AO did not provide the Petitioner the reasons recorded in Annexure-A to the proforma which contained the approval of the Additional CIT. Also, clearly, these were not the reasons for reopening of the assessment. Perhaps for that reasons what was communicated to the Assessee was a single line which did not have the approval of the Additional CIT. The fact remains that what was communicated to the Petitioner on 23rd February, 2016 was only one line without any supporting material. There appears to be also no clarity of how the case had to be proceeded with by the Revenue. On one date i.e. 16th February 2016, the AO was issuing notice both u/s 142(1) as well as notice u/s 43(2) when on that very date the Petitioner had asked for the reasons for reopening. Again, it is not clear why the AO did not wait for the process of supplying reasons to the Petitioner, considering the Petitioner’s objections thereto and passing a reasoned order thereon to be completed before issuing the notice u/s 142(1) and 143(2). There appears to be non-application of mind by the AO to the legal requirement. Thus, both the notices issued u/s 148 and all consequential proceedings including the assessment order are hereby set aside.
Assessee's petition allowed
2017-TIOL-1342-HC-DEL-IT
Pr.CIT Vs SNG DEVELOPERS LTD :
DELHI HIGH COURT (Dated:
July 12, 2017)
Income tax - Sections 147 & 148
Keywords - accomodation entries - unaccounted money - formation of belief - reasons for reopening
The assessee filed its return declaring an income of Rs. 76,340/-. Consequent to the same, the directorate of Income Tax (Inv.), New Delhi carried out a detailed enquiry about the persons /companies engaged in the business of providing accommodation entries to various companies. Information had been received along with the statements of persons who had admitted that they were in the business of providing accommodation entries and they were not doing any business but were engaged in the activity of providing accommodation entries to other concerns. These persons used to issue cheques in lieu of cash received after deducting their commission and these cheques were generally issued as share application money/ unsecured loans. As per the information received, the assessee i.e., M/s. SNG Developer Ltd. had also received accommodation entries during the F.Y. 2002-03. These accommodation entries involving total amount of Rs. 95,65,510 represent the assessee's own unaccounted money. Accordingly, the AO served a notice on the Assessee u/s 148 stating that he had reasons to believe that income of Rs. 95,65,510/- had escaped assessment.
On appeal, the CIT (A) held that the re-opening of the assessment was 'without any satisfaction, without verifying the information received from Directorate of Investigation' and that the 'AO had not applied his mind. On further appeal, the ITAT observed that the AO had not given details what was stated by the so-called entry operators in respect of the entries related to the assessee.
On appeal, the HC held that,
Whether reopening is valid, when the crucial link between the information made available to the AO and the formation of belief is absent - NO: HC
++ as noticed by the ITAT, there is a repetition of at least five entries. In other words, the total amount constituting the so-called accommodation entries would therefore not work out to Rs.95,65,510. On the face of it, therefore, there is a non-application of mind by the AO. What is further unacceptable is that the AO persisted with his “belief” that the said amount had escaped assessment not only at the stage of rejecting the Assessee’s objections but also in the re-assessment proceedings where he proceeded to add the entire amount to the returned income of the Assessee. This is a classic case of non-application of mind by the AO. In a recent decision in Principal Commissioner of Income Tax-6 v. Meenakshi Overseas (P) Ltd. - 2017-TIOL-1060-HC-DEL-IT, this Court had observed the reopening is invalid when the crucial link between the information made available to the AO and the formation of belief is absent. In view of the said decision, the Court has no hesitation in concluding in the present case that the reasons recorded by the AO for reopening the assessment u/s 147 do not meet the requirement of the law. The ITAT was, therefore, perfectly justified in confirming the order of the CIT (A) and holding the reopening of the assessment to be bad in law.
Revenue's appeal dismissed
2017-TIOL-1341-HC-MAD-CUS
DEVELOPMENT COMMISSIONER Vs HOSPIRA HEALTH CARE INDIA PVT LTD: MADRAS HIGH COURT (Dated: June 14, 2017)
Central Sales Tax The respondent is an Export Oriented Unit [EOU] its claim for reimbursement of Central Sales Tax [CST] in respect of purchases made from another EOU was declined the request for claim of refund was made in the context of provisions of paragraph 6.11(c)(i) of Foreign Trade Policy, 2009 [2009 FTP], pertaining to the period 2009-14 the appellants resisted the claim on the ground that the reimbursement of CST vis-a-vis purchases made by an EOU was restricted to the supplies received from an unit located in a Domestic Tariff Area [DTA] - in support of this stance, the appellants not only relied upon the provisions of paragraph 6.11 of the 2009 FTP, but also, sought to place reliance on the provisions of Appendix 14-I-I - in particular, emphasis was laid on clause (2) of Appendix 14-I-I - the single Judge, vide impugned order dated 30.3.2016, held that 2009 FTP provided for reimbursement of CST under paragraph 6.11 and that the said object of the policy was sought to be diluted by the provisions of Appendix 14-I-I the single Judge, thus, in effect, held that Appendix 14-I-I could not have run counter to the substantive right vested in an EOU under the 2009 FTP in other words, the conclusion reached by the single Judge was that since the right to claim refund of CST was vested in the respondent company by the policy, the said right could not be taken away by the DGFT, who was empowered to only prescribe procedure in his capacity, as the implementing authority Revenue before Division Bench of High Court
HELD Appellants have argued that since goods manufactured by an EOU were not treated as goods manufactured in India, they were not amenable to excise duty based on this, it was contended that sub-clause (i) of clause (c) of paragraph 6.11 would not enable an EOU to seek reimbursement of CST qua supplies received or purchases made from a unit other than a DTA unit both the conditions are fallacious clearly, these are goods which are manufactured in India the production of such goods is, however, incentivised under the relevant EOU scheme only to promote exports, in order to enable generation of foreign exchange for the country - central excise duty will be payable by an EOU unit qua domestic sales - in so far as the 100% EOUs are concerned, excise duty is levied and collected on any excisable goods which are produced or manufactured by it and brought to any other place in India - the excise duty so levied and collected is required to be equivalent to an aggregate of duties of customs, which would be leviable under the Customs Act, 1962 or any other law, for the time being in force, on like goods produced or manufactured outside India, if, they were to be imported into India and where the said duties of customs are chargeable, by reference to their value, the value of such excisable goods is required to be determined under the provisions of Customs Act, 1962 and the Customs Tariff Act, 1975 - quite clearly, both in law and on facts, it cannot be contended by the appellants that goods manufactured by EOU units are not goods manufactured in India and, thus, do not fulfill the conditionality for reimbursement of CST, as contained in sub-clause (i) of clause (c) of paragraph 6.11 of the 2009 FTP [para 13, 14, 15]
The 2009 FTP, like any other FTP being an economic legislation, which seeks to, inter alia, promote exports by giving various incentives to the exporters, should, in case of any ambiguity, be construed liberally in favour of the exporter - therefore, the argument of the appellant that sub-clause (i) of clause (c) of paragraph 6.11 of 2009 FTP should be construed strictly, that is, akin to a taxing statute does not appeal to the Court - even in a taxing statute, where the purpose and object of the provision is to incentivise growth and development, the approach adopted by the Courts is that, the concerned provision should be liberally construed, so as to encourage economic activity [para 17, 18]
Appellants contending that the provisions of paragraph 6.11(c)(i) should be read along with paragraph 2 of Appendix 14-I-I - FTP is formulated by the Central Government by issuing a notification under section 5 of the FTDR Act - the Central Government is entitled to delegate all powers to the Director General (DG) or an officer subordinate to him, except those contained in sections 3, 5, 15, 16 and 19 - clearly, the power of formulation of FTP, which is vested in the Central Government, by virtue of section 5 cannot be delegated to the DG or an officer subordinate to him - thus, the amendments to the FTP can only be brought about by the Central Government and not by the DGFT therefore, the provisions of clause (2) of Appendix 14-I-I cannot take away what has been conferred upon the respondent company under the 2009 FTP [para 19, 19.1, 19.2]
The fact that Appendix 14-I-I went beyond the scope of 2009 FTP appears to have donned upon the Central Government, when, the 2015 FTP was formulated - accordingly, Appendix 6H, annexed to the 2015 FTP provided that reimbursement of CST, would be available not only qua purchases made from DTAs, but also, inter alia, vis-a-vis purchases made from EOUs [para 19.3]
The submission of the appellants that the provision made in Appendix 6H of 2015 FTP, should be treated as prospective in nature in the given facts and circumstances of the case, cannot be accepted for more than one reason - firstly, even without taking recourse to Appendix 6H of the 2015 FTP, this Court has come to the conclusion that the 2009 FTP did not disentitle the respondent company/Writ Petitioner from claiming reimbursement of CST - secondly, the fact that the relevant provisions of the two FTPs have not undergone a change and, that, a change has singularly been effected only in the Appendix 6H in the Hand book of Procedures, which is, formulated by the DGFT would have this Court hold that it can only be clarificatory in nature and, therefore, ought to have retrospective effect - this is so as the introduction of Appendix 6H led to a course correction instead of a change in course contrary to what is sought to be contended on behalf of the appellants [para 21]
Thus, having regard to the scheme of Chapter 6, this Court is of the view that a plain reading of the provisions of paragraph 6.11 (c)(i), would have this Court hold that notwithstanding the fact that the respondent company made purchases from an EOU as against DTA unit, it would be entitled to seek reimbursement of CST [para 22]
Therefore, this Court is of the view that no interference is called for with the impugned judgment - consequently, the Writ Appeals are dismissed [para 23]
Writ Appeals dismissed
2017-TIOL-1340-HC-ALL-ST
N K BHASIN Vs UNION OF INDIA : ALLAHABAD HIGH COURT (Dated: May 30, 2017)
ST Renting of Immovable Property - In all the writ petitions, vires of sections 75(A)(6)(h) and 77 of Finance Act, 2010 and sections 65(90)(a) and 65(105)(zzzz) read with section 66 of Finance Act, 1994 as amended by Finance Act, 2007 and Finance Act, 2010, has been challenged as being illegal, arbitrary and lacking legislative competence infringing Articles 14, 246 and 265 of Constitution of India - petitioners have also challenged consequential circular dated 4.1.2008 and 22.5.2007, as void, nullity, illegal and ultra vires of provisions of Finance Act, 1994 as amended by Finance Act, 2007, Finance Act, 2008 and Finance Act, 2010
HELD Various High Courts have affirmed the amendments which are under challenge in these writ petitions and appeals are pending before Supreme Court - petitioners could not advance any argument other than what has already been considered by respective High Courts namely Full Bench of Delhi High Court, Punjab and Haryana High Court, Orissa High Court and Bombay High Court in the judgments [Home Solutions Retails (India) Limited Vs Union of India and others - 2011-TIOL-610-HC-DEL-ST-LB, Shubh Timb Steels Limited Vs Union of India and another - 2010-TIOL-765-HC-P&H-ST, Utkal Builders Limited Vs Union of India - 2011 (22) S.T.R. 257 (Ori.) and Retailers Association of India (RAI) Vs Union of India and others - 2011-TIOL-523-HC-MUM-ST] , and also could not dispute that all these issues have been considered in these judgments this Court adopts reasonings given in the aforesaid judgments of respective High Courts and find in respectful agreement therewith no argument has been placed before this Court so as to persuade this Court to take a different view in the matter this Court upholds validity of various provisions which are assailed in these writ petitions, and also consequential circulars issued by Revenue in the result, all writ petitions fail and are dismissed accordingly : HIGH COURT [para 39, 40, 41, 42, 43]
Writ Petitions dismissed
2017-TIOL-1339-HC-KERALA-CX
CCE, C & ST Vs SAI SERVICE STATION LTD : KERALA HIGH COURT (Dated: July 7, 2017)
CX - The respondents were engaged as authorized dealers for cars manufactured by M/s. Maruti Udyog Ltd., and also in repair of vehicles sold Respondents also sold used/pre-owned cars through its Trust Value Division Respondents were registered under the categories of Authorized Service Centre, Input-Service Distributor, and Business Auxiliary Services (BAS) Revenue opined that the difference between the sale price of old cars and purchase price of new ones was consideration for BAS and imposed duty demand with interest & penalty on both respondents Respondents' appeal was allowed by Tribunal Whether change of name in registration certificate under Motor Vehicles Act (MVA), was mandatory for effective sale of motor vehicle Whether the respondents/dealers purchased used vehicles or were agents for the actual owners.
Held - The MVA did not prescribe or regulate how a person could own a vehicle, and the mercantile element of a vehicle as goods is blissfully absent Form 29 & Form 30, filled up by the respondents when taking possession of a used vehicle, were in fact an intimation of and an application for transfer of ownership, respectively - Hence, the MVA would not apply to transfer of motor vehicles owing to their being movable items They would instead attract provisions of the Sale of Goods Act 1939 (SOGA) Now, to determine whether the respondents were mercantile dealers, the definition of BAS u/s 65(19) of the Finance Act 1994 required perusal A mercantile agent (a) had the authority to buy and sell goods on behalf of the principal or to consign them for the purpose of sale; (b) did the business by only representing the principal; (c) linked the principal and the third parties w.r.t. the business transactions; (d), thus, acted as an intermediary between the buyer and seller, for which (e) he received commission from the principal In the present case, the respondents had no authority beyond getting Forms 29 & 30 signed Considering the decision of the Delhi High Court in The Oriental Fire & General Insurance Co. Ltd., wherein it was held that the certificate of registration was not a document of title but an important piece of evidence to show the ostensible owner of the vehicle, liable to pay taxes and to perform duties and obligations under the MVA It further held that the endorsement of transfer on such certificate was not a condition precedent to the validity of the sale, and its absence did not render an otherwise valid sale as illegal or ineffective Hence sale and the registration of the sale were two distinct acts - Possessing movable property amounted to owning it, but owning it did not amount to using it - Thereby, sale of a vehicle signified possession, registration and use Registration was not a precondition for sale of a vehicle, and was important only if the vehicle was sought to be used - The Forms Nos.29 & 30 obtained by the respondents signed in blank, were neither a sale letter nor sale deed, and did not compel the respondents to be the owners to obtain the vehicles Hence revenue appeals lack merit: High Court (Para 1-27,36,38,44,60,63-65,68,72,75-79)
Revenue Appeals Dismissed
2017-TIOL-2511-CESTAT-DEL
INTERNATIONAL LEASE FINANCE CORPORATION Vs CC : DELHI CESTAT (Dated: June 23 ,2017)
Cus -M/s.Kingfisher Airlines Ltd. [KFA] filed a bill of entry for import of an aircraft engine and claimed exemption under notification no.12/2012-Cus and 12/2012-CE, both dated 17.3.2012 -admittedly, the said engine is owned by the appellant and the said engine was imported into India only for the purpose of fitting into the aircraft leased by the appellant to KFA to make it air worthy and to fly it out of India, on cancellation of lease arrangement -though the bill of entry was initially filed by KFA, later, on further developments including the proceedings in the Delhi High Court, the appellant was allowed to be substituted as importer of the said goods -the final order was issued confirming customs duty liabilities on the appellant as the importer of the said engine - the imported engine was ordered to be confiscated in terms of section 111 (o) of the Customs Act, 1962 [Act] with an option to the appellant to redeem the same on payment of fine of Rs.3.37 crore -a penalty of Rs.2.50 crore each was imposed on the appellant and KFA in terms of section 112 (a) of the Act
HELD -On detailed examination of the procedure for registration, terms of lease agreement and the provisions of notification no.12/2012-Cus, the Original Authority concluded that the aircraft engine is not eligible for exemption under the said notification - the purpose of exemption is specific and categorical - the aircraft engine should have been for servicing, repair or maintenance of aircraft which is used for operating scheduled air transport service - in the present case, the aircraft to which the engine was intended to be fitted is not to be used for operating scheduled air transport service - all the parties to the dispute categorically admitted that the import of engine is only for the purpose of making the aircraft air worthy and to take it back, out of India -this certainly does not meet the requirement of exemption in terms of the said notification - no hesitation to uphold the findings of the Original Authority regarding the ineligibility of the impugned aircraft engine for the said exemption - similarly, the appellant's claim for exemption under notification no.12/2012-CE was also disallowed by the original authority -in terms of sl. no.448 of notification no.12/2012-Cus, condition no.73 has been imposed for availment of exemption - this condition will also be applicable for availing exemption under sl. no.305 of notification no.12/2012-CE - exemption under this notification has been denied on valid grounds by the original authority - KFA is not an MRO unit - the eligibility for exemption under customs notification no.12/2012-Cus is relevant and applicable to claim exemption under central excise notification - the Bench is in agreement with the original authority regarding denial of exemption to the imported aircraft engine[para 10, 11, 12]
Confiscation. HELD - The original authority invoked the provisions of section 111(o) of the Act to order confiscation of the imported engine - a plain reading of the above provision will indicate that same is applicable in respect of any goods which were exempted subject to certain condition and upon violation of such condition, the said goods shall be liable for confiscation - in the present case, the bill of entry was filed claiming certain exemption -the exemption claimed has been denied to the appellant and, hence, there is no question of violation of conditions of exemption - the engine was intended to be fitted in an aircraft to be flown out of India as the lease agreement for the aircraft has already been terminated -in such situation, there is no scope to apply the provisions of section 111 (o) for confiscation of the engine -there is no concessional import with condition and there is no violation of such condition attracting provisions of section 111 (o) - as such, the confiscation of the imported engine is not legally sustainable[para 14, 15]
Limitation: HELD - Regarding the question of limitation raised by the appellant with reference to demand of customs duty, section 28 of the Act has been rightly invoked in the present case -the bill of entry was assessed on 6.12.2012 by denying the exemption claimed by the importer (KFA) - SCN was issued on 28.11.2013, within one year of the assessment - no infirmity found in the proceedings for confirmation of demand for customs duty as ordered by the original authority [para 16]
Penalty: HELD - The original authority imposed a penalty of Rs.2.50 crore on the appellant under section 112(a) of the Act - a plain reading of the above provision will indicate that penalty under the said section can be imposed for an act or omission which would render the goods liable to confiscation under section 111 of the Act - as already recorded earlier, the confiscation of goods is not legally sustainable - hence, the penalty in terms of section 112(a) of the Act will also become untenable - accordingly, penalty imposed on the appellant set aside [para 18, 19]
Conclusion: In sum, denial of exemption on the imported aircraft engine as ordered by the original authority upheld - however, confiscation of the engine and the penalty imposed on the appellant are not sustainable - the same are set aside - appeal partly allowed, as above.[para 21]
Appeal partly allowed
