NOTIFICATION
cnt84_2017
CBEC notifies new Customs exchange rates effective from September 08,2017
DGFT TRADE NOTICE
Trade Notice 17
Establishing, 'Contact@DGFT' service as single point contact for all foreign trade related issues
CASE LAWS
2017-TIOL-1792-HC-MAD-IT
PR.CIT Vs HEMALATHA RAJAN : MADRAS HIGH COURT (Dated: July 20, 2017)
Income Tax - Sections 143(1) & (2), 250(6) , 271(1)(c) & 275.
Kwyeords: Capital receipt - Debatable issue - Deliberate non disclosure and concealment - Mens rea - Revenue receipt - Substantial question of law & Sharing bonus.
The Assessee-a Promoter Director of a public limited company incorporated in India in the name and style Ma Foi Management Consultants Ltd. The Assessee had filed her return declaring a total income of Rs.1,93,15,945/-. The return was processed and was selected for scrutiny. A detailed questionnaire was issued to the Assessee, in response to the same the authorised representative of the Assessee appeared before the AO and submitted the details called for. The AO added a sum of Rs.3.82 crores u/s 28(va) which was received by the Assessee from a Dutch company for relinquishing her right to sue for damages. The Assessee contended that this was a capital receipt and was turned down, but, the AO treated the same as revenue receipt. A seperate penalty proceeding were initiated u/s 271(1)(c) where the Deputy CIT imposed a penalty of Rs.89,84,690/- being an amount equivalent to tax, which sought to be evaded by the Assessee by reason of the alleged concealment of particulars of income. The penalty order was passed on the basis that the Assessee had concealed income in the nature of 'success sharing bonus'.
Aggrieved Assessee preferred a statutory appeal before the CIT(A). The CIT(A) allowed the appeal and cancelled the penalty. Further, aggrieved Revenue filed a statutory appeal before the Tribunal. The Tribunal held that the issue as to whether success sharing bonus is capital receipt or revenue receipt as debatable and concluded that there was no concealment of income and confirmed the order of CIT(A).
On appeal, the High Court held that,
Whether when a particular issue is debatable and the Assessee chooses to take a favourable position, that qualifies as 'deliberate non disclosure or consealment' - NO: HC
++ we, have examined two perspectives of the matter. One perspective is, when a particular issue is debatable or when a particular matter is res integra and when Assessee takes a position that is favourable to the Assessee, can that be treated as concealment or non disclosure for the purpose of penalty proceedings u/s 271(1)(c). To be noted, in the instant case, the issue is res integra in the Assessee's case itself. The second perspective is considering the facts and circumstances of the case, as also the trajectory it has taken in reaching this court from the AO via CIT(A) and ITAT, does any substantial question of law arise under Section 260A;
++ as a consequence, counsel for the Revenue is not in a position to debate or dispute that the issue on the date of filing of the returns by the Assessee in the instant case was clearly debatable. As the issue was debatable, Assessee has taken the position that is favourable to her and treated the same as capital receipt. Otherwise, there is no deliberate concealment or non disclosure;
++ by a long catena of authorities, Courts have repeatedly held that for imposition of penalty u/s 271(1)(c), 'mens rea' is most important. In other words, in a plethora of authorities, Courts have repeatedly held that in the absense of mens rea on the part of Assessee to conceal the income or deliberate non disclosure, penalty proceedings cannot be initiated. To be noted, as far as tax component is concerned, the same has been levied and it is now the subject matter of T.C.A.Nos.92 and 93 of 2013, which will be decided independently on the merits of the matter;
++ we further put it to the Standing Counsel for Revenue as to how he attempts to sustain penalty proceedings when it cannot be disputed that the lone issue which is the crux of the matter is debatable. To this, Standing Counsel for Revenue replied by taking us through Section 275. The Standing counsel for Revenue would submit that there is a cap qua time frame for imposing penalty, if they await the outcome of T.C.A.Nos.92 and 93 of 2013, it will become too late for them to impose the penalty and therefore, they have commenced penalty proceedings and imposed penalty on the Assessee, though the issue is, indisputably, debatable;
++ this submission, though attractive at first blush, on a closer scrutiny does not find favour with us. The reason is, the question before us is whether the conduct of the Assessee in filing returns in the instant case, is one that warrants imposition of penalty owing to non disclosure/concealment. Assuming for a moment, if this court later returns a finding in the above said Tax Case Appeal that the receipt in question from the Dutch company should be treated as revenue receipt and not as capital receipt, that would not in any manner lead to the conclusion that the Assessee is guilty of deliberate non disclosure / deliberate concealment. That decision will only answer the question as to whether the Assessee is liable to pay tax or not. What is to be noted is, as on the date of filing of the return by the Assessee for the said A.Y. in the instant case, which is 31.3.2010, the issue is as to whether the relevant payment is revenue receipt or capital receipt was clearly debatable and therefore, Assessee choose to take a position which is favourable for her. This in our opinion does not in any manner qualify as deliberate non disclosure or concealment;
Whether penalty proceeding can be initiated u/s 271(1)(c) where there is no mens rea involved - NO: HC
++ we do not find any mens rea on the part of the Assessee qua concealment and non disclosure. Therefore, we have no hesitation in coming to the conclusion that this may not be a case which warrants penalty proceedings u/s 271(1)(c). However, this being an appeal u/s 260A, it can be entertained only on substantial questions of law and not even on questions of law. What is 'substantial question of law' for the purpose of Section 260A has been well elucidated by the Supreme Court of India in the case of Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. & Mfg. Co. Ltd. as "... The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views...";
++ We applied the above tests and examined whether they are mere questions of law or substantial questions of law. As there is nothing of substance, of purport or nothing that would decide the right of parties qua questions of law, we have no hesitation in holding that the two questions of law as propounded by Revenue are not substantial questions of law at all. We are also of the view that they may not even qualify as questions of law as the very language in which the questions are couched would demonstrate that there is a huge factual element built into them;
++ independent of the aforesaid two questions suggested by the Revenue in the Memorandum of Appeal, we also applied our mind to see if any substantial question of law arises in the instant case. To our mind, there is none. Therefore, we have no hesitation in coming to the conclusion that no substantial question of law arises in the instant case.
Revenu's appeal dismissed
2017-TIOL-1782-HC-MUM-NDPS + Story
SANJAY KUMAR SHRIVASTAVA Vs INTELLIGENCE OFFICER : BOMBAY HIGH COURT (Dated: August 24, 2017)
NDPS - No prejudice will be caused to DRI in case Advocate of applicants is permitted to remain present at a safe distance but not within the hearing distance, during the course of interrogation: High Court [para 10, 11]
Applications disposed of
2017-TIOL-1781-HC-AHM-IT + Story
PR.CIT Vs NIRMA CREDIT AND CAPITAL PVT LTD : GUJARAT HIGH COURT (Dated: August 31, 2017)
Income Tax – Section 14A (1) & Rule 8D & (2)(ii) & (2)(iii)
Keywords – Interest Expenditure – exempt income.
Whether, when an assessee pays interest on borrowings & also earns taxable interest on investments made during a particular year, the interest expenditure has to be considered as one which is the net of interest paid minus interest earned – YES: HC
The assessee company for the AY 2008-2009, declared a loss of about Rs. 5.63 crores. On scrutiny, the AO noted that the assessee had shown dividend income of Rs.25.26 lacs from the investment made by it in the shares and securities which was claimed as an exempt income. The AO opined that the assessee failed to prove that the investment in shares and securities was made out of interest free funds only, and that that the assessee had made substantial borrowings in the form of unsecured and secured loans and had claimed interest expenses. Thereby, the AO applied the formula provided in Rule 8D r/w Section 14 of the Act. The AO then adopted the full figure of Rs. 7.01 crores on account of interest expenditure, and computed a sum of Rs.99.41 lakhs under Rule 8D(2). The AO then added half a percent of the average value of investments not forming part of the total income in terms of Rule 8D(2)(iii) to come to total figure of Rs.1.06 crores for disallowance u/s 14A.
The CIT(A) upheld the AO's assessment. Later, the Tribunal confirmed the applicability of section 14A and Rule 8D, but clarified that for computation of disallowance under Rule 8D, not the gross interest payment but the net interest payment would be considered.
After hearing the matter, the Tribunal held that,
++ the computation of factor 'A' in the Rule 8D formula is significant. Factor 'A' represents the amount of expenditure by way of interest ignoring the interest expenditure already included in clause (i). The expression used by the legislature is “amount of expenditure by way of interest”. When the legislature has therefore, used this expression “amount of expenditure”, the said term shall have to be interpreted in the manner that will bring about the correct legislative intent and equitable application thereof. In the present case, when the assessee pays interest on borrowings as also earns taxable interest on investments made by him during a particular year, his interest expenditure has to be considered as one which is the net of interest paid minus interest earned. Any other view would give the unintended computation of factor 'A' provided in clause Rule 8D(2)(ii) which will in turn distort the computation of disallowable expenditure under the said clause. It is true that the legislature has not given any further indication as to how such amount of expenditure would be ascertained. Therefore, the provision has to interpreted as is most likely to give effect to legislative intent for disallowance of expenditure by an assessee for earning income which is not accountable to tax. It is true that investment made by the assessee out of such borrowed funds will continue to be factored in denominator in the formula provided in Rule 8D(2)(ii) since factor 'C' which forms the denominator refers to average of total assets of assessee as on the first and the last day of the previous year. However, ignoring taxable interest earned by the assessee for the purpose of ascertaining the amount of expenditure incurred by the assessee by way of interest, would amount to distorting the factor 'A' provided in Rule 8D(2)(ii). It may be possible for variety of reasons that in a given financial year the assessee might have earned interest income which is higher than the interest paid on the borrowed funds. This may be because assessee's investments may have earned interest at rates higher than the interest rate paid by the assessee on the borrowings or may also be because assessee's investment in earning interest may be higher in value than the assessee's borrowings, inviting interest. In such a situation, essentially, the assessee would have earned more interest than the interest paid. Applying the formula by computing factor 'A' by taking into account interest paid ignoring the interest earned, there would be disallowance under this formula even if in the net result, the assessee may have not paid any interest on borrowings;
++ while answering the question in favor of the assessee, the purpose of applying the factors contained in Rule 8D(2)(ii) prior to its amendment, what would be considered as amount of expenditure by way of interest would be the interest paid by the assessee on the borrowings minus the taxable interest earned during the FY.
Assessee's appeal allowed
2017-TIOL-1780-HC-AHM-IT
HITECH OUTSOURCING SERVICES Vs PR.CIT : GUJARAT HIGH COURT (Dated: September 4, 2017)
Income Tax - Writ - Sections 10B, 143(1) & 264.
Keywords: Compliance with statutory requirements - Foreign exchange payment - Legal lacuna & Notice of reopening.
Whether when the AO has minutely examined Assessee's claim of deduction u/s 10B, he can still call for reopening on the ground of non-failure to disclose necessary facts and scrutiny during original assessment proceedings - NO: HC
The Assessee-a partnership firm and is engaged in export of Back Office Operation and computer software. The Assessee had filed its return declaring a total income of Rs.98,360/- and claimed a deduction u/s 10B @ 100% of profit on its export turn over. During the scrutiny assessment, the AO had raised several questions with respect to Assessee's claim and the same was answered by him. It was after scrutiny that the AO passed his order of assessment. On the Assessee's claim of deduction u/s 10B, the AO made a limited disallowance of a sum of Rs.2,45,418/- to the extent the remission was not made on the export transaction within 6 months from the end of F.Y. The said amount of disallowance made by the AO was not receieved from the Assessee, hence, to reopen such assessment, the AO issued a notice.
The Assessee raised objections to the reopening notice and the very jurisdiction of the AO to carry out such reassessment. Thereupon, ignoring all the objections, the AO passed a fresh order of assessment disallowing the Assessee's claim of deduction u/s 10B on the ground that the Assessee had not fulfilled the requirement of being a 100% exportoriented undertaking since it did not enjoy the approval by the Board appointed by the Central Government under the Industries (Development and Regulation) Act, 1961. The Assessee filed a revision petition u/s 264 and challenged the assessment order before the Commissioner. The Assessee had argued that reopening of the assessment itself was bad in law, but, the Revision petition was dismissed by the Commissioner.
In Writ , the High Court held that,
++ the central issue is with respect to the validity of the reopening of the assessment by the AO. In this context relevant facts are that the assessment for the A.Y. 2007-2008 was completed after scrutiny. The notice for reopening of such assessment came to be issued beyond a period of four years from the end of A.Y. in question;
++ we have noticed that the AO in th original assessment proceedings had examined the Assessee's claim of deduction u/s 10B. It is not as if such claim went unnoticed or unscrutinized. He wanted to be specific about the Assessee's claim for deduction and therefore, he raised queries in respect to the same in response to which the Assessee has placed number of documents and materials on record. Principally, the Assessee pointed out that it has been granted certification by STPI under the Software Technology Parks Scheme. The Assessee also supported the claim on merits pointing out that the Development Commissioner had granted certificate of commencement and that foreign exchange remittances were made within six months from the end of the F.Y. After such scrutiny, the AO passed the original order of assessment in which he did not reject the claim of deduction u/s 10B. In fact, he accepted the claim substantially making minor disallowance to the extent the Assessee had not received foreign exchange payment within the prescribed period;
++ it can thus be seen that the Assessee's claim of deduction u/s 10B was examined minutely by the AO. The Assessee pointed out that it enjoyed certification under STPI. If the AO was of the opinion that such certification was inadequate and did not substitute for the requirement of approval by the Board appointed by the Government of India, under the Industries (Development and Regulation) Act, 1961, it was always open for the AO to examine this issue further or to reject the Assessee's claim in its entirety. He however, accepted the claim accepting the Assessee's certification as sufficient compliance with the statutory requirements. There was no failure on part of the Assessee to disclose necessary facts. Both on the ground of the non failure of Assessee to disclose necessary facts and on the ground of scrutiny during original assessment proceedings, notice of reopening on this issue was not permissible. The AO as well as the Commissioner both failed to appreciate this legal lacuna in the notice of reopening;
++ counsel for Department had pointed out that the return of the Assessee for the earlier A.Ys. were accepted u/s 143(1) without scrutiny. We have therefore, not based our conclusion on the third contention of the Assessee's counsel that being a continuous claim, same could not have been disturbed for the later year without withdrawing the benefits of the initial years of assessment. We leave this question open to be examined in appropriate proceedings, if need so arises;
++ In the result, impugned order dated 9.3.2017 passed by the Commissioner confirming the reassessment order dated 25.3.2015 is set aside, Consequently, the order of reopening also stands invalidated. Petition is allowed and disposed of.
Assessee's Writ allowed
2017-TIOL-1779-HC-MAD-ST
A S BABU SAH DESIGNS Vs CCE : MADRAS HIGH COURT (Dated: July 25, 2017)
ST - Whether the impugned order(s) is bad on the ground that the first respondent has remanded a portion of assessment to the second respondent for re-consideration and whether such order suffers from the vice of lack of jurisdiction.
HELD –Sub-section (5) of section 85 of the Finance Act, 1994 [FA] does not specifically state that the provisions of section 35A of the Central Excise Act, 1944 [CEA] has to be read into the provisions of the FA -in fact, section 83 of the FA enumerates the sections under the CEA which would apply to the matters relating to ST and it does not include section 35A of the CEA -this is a clear indication that the said provision cannot be superimposed into section 85 of the FA – sub-section (5) of section 85 of the FA only speaks about the procedure to be followed while hearing the appeal and making orders and the procedures to be followed under the CEA -thus, subsection (3) of section 35A of the CEA cannot be superimposed into sub-section (5) of section 85 of the FA -what is crucial to note is that sub-section (4) of section 85 of FA provides the manner in which the Commissioner (Appeals) shall hear and determine an appeal and it only states that he can pass orders as he thinks deem fit -this provision is para materia to section 128 (2) of the Customs Act, 1962, which was considered by the Supreme Court in the case of Umesh Dhaimode - [2002-TIOL-415-SC-CUS] and it was held that the said provisions would include the power to remand -therefore, the argument advanced by the petitioner by reading into sub-section (5) of section 85 of the FA, the provisions of section 35A(3) of the CEA is an incorrect interpretation - further, in the case of Medico Labs - [2004-TIOL-39-HC-AHM-CX], the Division Bench of the Gujarat High Court, while considering the said provision, has pointed out that the power to annul a decision, necessarily, includes remand and even after the amendment to section 35A of the Central Excise Act, the appellate Authority has power to set aside the decision - in view of the above reasons, no hesitation to hold that the first respondent while exercising powers under section 85 (4) of the FA has powers to pass orders as he thinks fit and such orders will also include an order of remand and amendment to section 35A (3) of the CEA with effect from 11.5.2001 does not in any manner impact the power of the Commissioner of Central Excise (Appeals) while dealing with an order passed under the FA -hence, the contention raised by the petitioners has to necessarily fail and the same stands rejected - in the result, the writ petitions are dismissed : HIGH COURT [para 20, 21, 22, 23, 24]
Writ Petitions dismissed
