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NOTIFICATION
cnt82_2017
Area of Jurisdiction for Principal Chief Commissioners/Chief Commissioners and Principal Commissioners/Commissioner of Customs notified w.e.f 15.09.2017 - Notfn. 77 & 78/2014-Cus(NT) superseded
CASE LAWS
2017-TIOL-1664-HC-MUM-IT
PR CIT Vs SESA RESOURCES LTD: BOMBAY HIGH COURT (Dated: August 16, 2017)
Whether it is open for a Tribunal to take a contrary view to the decision of the co-ordinate bench on identical issue - NO: HC
++ the submission of the Revenue here is that a UPS, though used admittedly only in conjunction with a computer network, is not itself a 'computer'. Reliance is sought to be placed on the ITAT decision in Nestle India Limited v Deputy Commissioner of Income Tax 2007-TIOL-496-ITAT-DEL. However, the issue is squarely covered by a decision of a coordinate bench of the ITAT in the case of Assessee itself in ITA No 190/PNJ/2011. The CIT(A) followed that decision. We see no defect in the reasoning of the Tribunal. Indeed, we are unable to appreciate why, when there is a decision of a co-ordinate Bench on an identical point, the Tribunal should, or even could, take a diametrically opposite view. To do so would only add to uncertainty in tax proceedings, and the doctrine of precedent would apply just as much to the ITAT. This is by no stretch of the imagination a substantial question of law;
Whether in case of a business loan advanced to the sister concern for business purposes, any notional interest can be taxed on the ground that the loans may have been used for personal purpose - NO: HC
++ the loans were admittedly given to sister concerns; it is difficult to see what purpose other than business, and we mean this in the widest sense, those loans might have served. We may note that this is admittedly not a case where the amount was either a donation (as in Madhav Prasad Jantia's case) or even loan was given to an individual or to a director of the company in his personal capacity. Had that been so, the question might legitimately been asked as to prove the purposes of the loan. In other words, the question posed by the Revenue suggests its own answer. It postulates that when two commercial entities have between them a loan transaction, it is conceivable that the purpose is something other than a business purpose. Prima facie, it seems that the only possible other purpose, as opposed to a business purpose or commercial expediency, is a 'personal' one (such as a loan to a director for personal use or a commemorative loan), and a commercial entity can have no such personal purpose. The finding of the Tribunal, in our view, cannot be faulted. It relied on a decision of a co-ordinate bench of the Tribunal in another matter where a decision of the Gauhati High Court in Highways Construction Co Pvt Ltd v Commissioner Of Income-Tax was considered. The finding there was that only the real income earned by the assessee could be brought to tax, not some notional income. The question suggested as a substantial of law seems to proceed on a basis that some notional interest might have been asked to be assessed. We are unable to agree.
Revenues's appeal dismissed
2017-TIOL-1663-HC-DEL-IT + Story
SAHARA INDIA FINANCIAL CORPORATION LTD Vs CIT: DELHI HIGH COURT (Dated: August 23, 2017)
Income tax - Writ - Section 142(2A) - Constitution of India - Article 14.
Keywords: Amendment vide Finance Act, 2013 - Constitutionality - 'nature and complexity of the accounts' & Special Audit.
There are many assessees in this writ petition. Mr Dhir Chand Sharma is one of them. He is a contractor and during the assessment year in question he was engaged in the business of supplying earth materials. Search and seizure operations were carried out in M/s. NKG and the contractor who at the time was undertaking contract work for M/s. NKG which was also subject to search and seizure operations under Section 132. A notice under Section 153A was issued to the assessee and in response, he filed return for the assessment year (AY) 2010-11 declaring income of Rs. 8,56,148/-. Notices were issued under sections 143(2) and 142(1) of the Act. In his reply the assessee submitted that the main source of its income for the AY under consideration was that of the contract from the M/s NKG. Notice under Section 142(2A) was then issued requiring the assessee to show cause as to why special audit of its accounts for the AYs 2007-08 to 2013-14 should not be directed. The AO was of the view that the accounts of the assessee were complex and voluminous and the same were of specialized nature. In response to this notice, the assessee objected to the proposed special audit. Thereafter, the AO proceeded to pass the order under Section 142(2A) of the Act after seeking the approval of the Principal Commissioner of Income Tax, for AYs 2010-11 to 2012-13, leaving out AYs 2007-08 and 2013-14, which were originally also sought for special audit. The AO directed the assessee to furnish report of special audit within period of 90 days from the receipt of the impugned order. The assessee preferred writ route.
Having heard the parties, the HC held that,
++ after the amendment vide Finance Act, 2013, four new grounds were added to Section 142(2A), on which Special Audit may be ordered. These are: (i) volume of accounts, (ii) doubts about the correctness of accounts, (iii) multiplicity of transactions in the accounts and (iv) specialized nature of business activity of the assessee;
++ the rationale for the amendment, therefore, is that the erstwhile expression "nature and complexity of the accounts" had been interpreted in a restrictive manner by courts. The assessee submits that such an amendment runs afoul of the guarantee under Article 14 of the Constitution. Before dealing with the constitutionality of the relevant amendment, it would be fitting to recollect the basic principles that must be kept in mind by the Courts while dealing with the challenge to the constitutionality of a legislative enactment;
Whether mere fact that certain discretionary powers vested in the Revenue may be abused, it runs afoul against the constitutionality of the provisions - NO: HC
++ while delegation of powers to the executive to implement legislative policy is a concept well-recognized, a statute would run contrary to Article 14 of the Constitution if it delegates unbridled power and discretion to the executive. While delegation of uncontrolled or unguided discretion would undermine principles of equality and non-arbitrariness enshrined in Article 14, the mere possibility that the executive authority may abuse its discretion would not be a ground for declaring the legislation unconstitutional;
++ the mere possibility that the AO may abuse the discretion that the provision vests in him would be insufficient to declare the provision as unconstitutional;
++ the Supreme Court decision in the case of Sahara India Firm was prior to the amendments inserted by the Finance Act, 2013 but this Court sees no reason as to why these holdings of the Supreme Court in Sahara would not be applicable to the amended Section 142(2A). The fact that the AO's determination under this provision must be based on objective material and not subjective satisfaction, that he must make an honest attempt at understanding the accounts of the assessee, that the grant of approval by the higher authority must not be mechanical, that principles of natural justice must be followed by giving the assessee a pre-decisional hearing, would all be equally applicable even under the amended Section 142(2A). It would still be impermissible for the AO to shift the responsibility of auditing the accounts mechanically to the special auditor. In these circumstances, we fail to understand the assessee's contention as to how the amendments would in effect nullify these procedural safeguards that the Supreme Court has read into Section 142(2A);
++ the presence of procedural safeguards in a provision, it has been repeatedly emphasized, saves the provision from being used in an arbitrary manner. In other words, while dealing with the challenge to constitutionality of a provision on the basis of Article 14, it would be a relevant factor to see whether the said provision has adequate safeguards to prevent the possibility of wanton abuse;
Whether when the statutory discretion vested in the Revenue is fenced by sufficient safeguards and guidelines, such provisions are still to be construed as arbitrary - NO: HC
++ where statutory discretion conferred upon an executive authority is circumscribed by adequate safeguards and that there are sufficient guidelines to govern such discretion, then the provision cannot be said to be arbitrary;
++ in relation to the amended Section 142(2A), this court notices that the exercise of discretion of the AO is adequately circumscribed by fetters and safeguards. Section 142(2A) already contains a safeguard in the form of requiring the prior approval of the Commissioner or the Chief Commissioner before the AO can order special audit under this provision. Moreover, the Supreme Court's ruling in Sahara insists that approval by the Commissioner or the Chief Commissioner must not be mechanical and must show application of mind. Additionally, after the Sahara decision, a pre-decisional hearing must also be mandatorily given to the assessee and the AO himself must arrive at the decision to order a special audit based on objective material and not just subjective satisfaction. Thus, it becomes clear that through the procedural safeguards already envisaged in the plain text of the statute, as well as those read into the statute by the Supreme Court in Sahara, the impugned provision, even with the amendments, cannot be classified as arbitrary or conferring un-canalized discretion on the AO;
Whether when a technical expression is capable of being interpreted differently, it is to be necessarily understood as violative of Article 14 - NO: HC
++ even the term 'nature and complexity of accounts' is also capable of different interpretations at the hands of different AOs and in that sense, equally open-ended. However, merely because a particular term is capable of different interpretations or is open-ended, would not be sufficient to hold that it is arbitrary and against the requirements of Article 14. In fact, as held by the Supreme Court in Sahara, the requirements of the provision must be met on the basis of objective material and not subjective satisfaction and, therefore, even though the requirements themselves are open-ended or capable of different interpretations, the AO would still have to act prudently and on the basis of the material on record. Thus, this Court does not see any reason as to why the criteria inserted after the amendment are arbitrary and unreasonable;
++ it is necessary to examine the purpose of enacting a provision as Section 142(2A) in the Income Tax Act, 1961. While examining the purpose of the unamended Section 142(2A), a Division Bench of this Court in DLF Ltd. & Anr made it clear that Section 142(2A) was enacted to facilitate investigation into the accounts of an assessee for the proper determination of tax liability. It deals with cases where the AO needs to take the assistance of a Chartered Accountant in order to be able to understand the assessee's accounts and determine the correct tax liability. It is, therefore, abundantly clear from the dictum, that Section 142(2A) confers an important power on the Revenue to curb tax evasion and balances it with the inconvenience that an assessee may face. The impugned amendments to Section 142(2A) also have to be viewed in that light and hence must be considered to be reasonable;
Whether section 142(2A), amended vide FA 2013, vests any right in the assessee which cannot be snatched away by a retrospective amendment - NO: HC
++ in fiscal matters, the Legislature has the ability to amend the law retrospectively. Moreover, Section 142(2A) of the Act does not confer any vested right on the assessee, which could not be taken away by retrospective amendment. Therefore, even if the amendments to Section 142(2A) were given retrospective effect, the same would be within the powers of the Legislature, as per the law laid down in the ruling of the Supreme Court.
Assessees' write dismissed
2017-TIOL-1661-HC-MUM-IT + Story
MAHARAJ GARAGE AND COMPANY Vs CIT: BOMBAY HIGH COURT (Dated: August 22, 2017)
Income Tax - Sections 143(3), 147, 271(1)(c)(iii) & 274.
Keywords - Concealment of Income - Penalty & Reopening of Assessment.
Whether the mandate of Section 274 for graning a fair opportunity to the assessee can be stretched to an act of seeking explanation relating to the quantum of penalty proposed - NO: HC
The assessee-company filed its return for the AY 1987-88. The assessment was reopened by the Revenue as it found that the assessee had concealed some particulars of the income returned. Accordingly, penalty was levied. The CIT (A) reduced the amount of penalty. On further appeal the Tribunal upheld the decision of the CIT(A).
On appeal, the High Court held that,
++ the requirement of Section 274 of the Act for granting reasonable opportunity of being heard in the matter cannot be stretched to the extent of framing a specific charge or seeking an explanation in respect of the quantum of penalty proposed to be imposed, as has been urged. The assessee was supplied with the findings recorded in the order of reassessment, which was passed on the same date on which the notice under Section 271(1)(c) was issued. The assessee had sufficient notice of the action of imposing penalty;
++ it is not in dispute that a reasonable opportunity of being heard in the matter, as required by Section 274 of the said Act was given to the assessee before imposing the penalty. The assessee furnished his explanation, which has been taken into consideration in the order. The mandatory requirement of obtaining the previous approval of the Inspecting Assistant Commissioner was followed. The penalty imposed by the Income Tax Officer was reduced by the Appellate Authority. There was no arbitrary exercise of discretion and the reasons are recorded after taking into consideration the explanation submitted by the assessee. The exercise of jurisdiction in respect of quantum of penalty is neither unjust nor beyond jurisdiction.
Assessee's appeal dismissed
2017-TIOL-1660-HC-DEL-VAT
VIJAY SANGHI AND COMPANY Vs CTT : DELHI HIGH COURT (Dated: August 22, 2017)
Delhi Value Added Tax Act, 2004 - Sections 58A & (1) & (4)
Keywords - Professional fees - Statutory audit
The petitioner was entrusted with the work of conducting the special audit of different dealers registered under the DVAT Act. Such task was entrusted by the Commr. u/s 58 A (1) of the Act, and the remuneration for which was fixed as per the norms of the Institute of Chartered Accountants of India. Once the exercise was performed as per the satisfaction of the Commr., the petitioner raised six bills for remuneration. However, the dealers who were required to make payment of the bills failed to do so. When the petitioner approached this Court on an earlier occasion, it was directed that the Commr., within a span of four weeks, had to determine the amount payable to the petitioner by the dealers, for carrying out the audit u/s 58A. Although the Commr. complied with such directive, payment was made to the petitioner only for four bills. It may be mentioned that the Section 58A (4) of the Act was amended on June 18, 2012, to the effect that remuneration paid to accountant(s) or professional(s) would be determined and paid by the Commr., and that such determination would be final.
On hearing the writ petitions, the High Court held that,
Whether a statutory authority could refuse payment of fees payable to a professional for rendering help in the functions of such authority, where such fees were unpaid due to the default in payment by a third party, who was responsible for paying such fees to the professional - NO : HC
++ in the present case the determination of the fees payable was communicated by the Commr. to the petitioner on 3rd June, 2014, i.e., after the amendment came into effect. This was pursuant to the order passed by this Court in the earlier writ petitions. While the respondent is right that at the time when the special audit took placed Section 58A (4) of the DVAT Act had not been amended, the fact remains that the fees payable to the petitioner was determined after the amendment came into force.
++ the petitioner is a firm of professional auditors and it would be unfair to expect it to remain unremunerated for the special audit work undertaken by it on orders of the Commr. They cannot be made to suffer only because of the default committed by the registered dealers. The petitioner was not engaged by the registered dealers but by the Commr., and the petitioner performed the special audit in aid of the Commissioner's statutory functions.
++ it is precisely for dealing with a situation where a professional chartered accountant may be left high and dry by a defaulting dealer whose accounts have been specially audited, that Section 58A (4) of the DVAT Act was amended. There is no reason why the benefit of this amendment should not be extended to the petitioner, considering that the fees payable to the petitioner has been fixed by the Commr. only after the amendment came into effect. Nevertheless, the power of the Commr. in these cases to recover from the defaulting dealer the amount paid to the petitioner should be kept reserved. For the purposes of such recovery, the amount due from the defaulting dealers would be treated as being due in terms of Section 30 of the DVAT Act, particularly since Section 58A (4) of the DVAT Act as it stood prior to 18th June 2012 permitted such recovery. Hence, the Department of Trade & Taxes directed to pay the petitioner the outstanding fees, at the rates determined and fixed by the Commr. of VAT.
Writ petition allowed
