2017-TIOL-1931-HC-MUM-IT
INDIAN PLASTICS INSTITUTE Vs DIT : BOMBAY HIGH COURT (Dated: September 11, 2017)
Income Tax - Writ - Sections 2(15), 12A & 12AA(3).
Keywords: Adverse to assessee's interest - Cancellation of Registration - Jurisdiction - Nature of trade & Pending appeal.
The Assessee was a successor to Plastics and Rubber Institution, London (Indian Section) and it started its activities like education, training and manpower development for the plastic industry in India. The Assessee had filed its return alongwith an audit report declaring Nil income. An SCN was issued by the Director of Income Tax(E) asking why the registration granted to the Assessee earlier u/s 12AA should not be withdrawn. The Assessee stated that it was not carrying on any activity which can be termed as commercial or in the nature of trade, commerce or business. The Assessee filed its reply to this notice, whereafter, an order was passed by the Director of Income Tax(E) withdrawing the registration u/s 12A.
On appeal, the Tribunal ruled in favour of the assessee but an MA was filed pointing out certain observations as mistake apparent. The Tribunal partly accepted the application, but in the meanwhile, Revenue filed an appeal against the substantive order passed by the Tribunal. The Revenue's appeal was dismissed by the Bombay High Court.
In Writ, the High Court held that,
Whether the decision of the co-ordinate Bench, followed by the Tribunal on the point of jurisdiction to cancel the exemption for the AYs prior to the amendment of the Act, is enough to conclude the issue - YES: HC
++ appeal was filed challenging the order dated 16th December, 2011 of the Director of Income Tax (E), passed u/s 12AA(3) cancelling the Registration granted to the Assessee u/s 12A thereof. The main thrust was that the said Director had no jurisdiction to cancel the registration and secondly, that the receipts of income of the Assessee were not in the nature of business income and therefore, proviso to Section 2(15) is not attracted to its case. The object of the Assessee being charitable in nature, the registration earlier granted has been erroneously cancelled;
++ the Tribunal noted that the argument of the Assessee that proviso to Section 2(15) is not attracted bearing in mind the objects and they being charitable in nature. Paragraph 7 of the order of the Tribunal refers to certain activities of the Assessee. The Tribunal also refers to the observations of the Director of Income Tax and in paragraph 8, another argument of the Assessee's representative, that even if the objects of the trust fall in the category of "advancement of any other objects of general public utility", then as well, it is entitled to the exemption, has been considered;
++ once the Tribunal came to the conclusion that the Director had no jurisdiction to cancel the exemption for the AYs prior to the amendment, which came in the Act from 1st June, 2010, that being the essential conclusion, the other two arguments noted by the Tribunal and dealt with may have been found in the same order which was not interfered with by this Court, but what we find is that the decision of the co-ordinate Bench which was followed in rendering the subject decision by the Tribunal and essentially on the point of jurisdiction, was enough to conclude the controversy.
Whether the observations made by the Tribunal would have any bearing on the assessments, framed for the same and subsequent AY, when the Assessee was on firm position in terms of jurisdiction - NO: HC
++ the arguments of the Assessee's representative on the applicability of proviso to Section 2(15), therefore, were strictly not required. They were not necessary for the decision on the point involved. Once on jurisdiction, the Assessee was on a sound footing, then, we do not think that the observations of the Tribunal would have any bearing on the assessments that have been framed for the same and subsequent AY;
++ in challenging that assessment orders if they are adverse to the Assessee's interest, and if such challenge is raised and is indeed pending, the Tribunal shall decide the issues or grounds in such appeals pending before it on their own merits and in accordance with law. The Tribunal should not influence itself solely by the observations that have been made in paragraphs 7 and 8 of the order passed in Income Tax Appeal No.308/Mum/2012 for the AY 2009-2010. We clarify that all the arguments and of both sides, therefore, can be considered by the Tribunal. Once the Writ Petition is disposed of with this clarification, the Income Tax Appeal No. 100 of 2015 does not survive and the same is disposed of.
Assessee's Writ disposed of
2017-TIOL-1930-HC-MUM-IT
PR .CIT Vs ORICON ENTERPRISES LTD : BOMBAY HIGH COURT (Dated: September 12, 2017)
Income Tax - Sections 14A, 37(1)(iii) & Rule 8D(2).
Keywords - Exempt income - Investments - Interest expenditure
The assessee company is engaged in manufacture & sale of petrochemicals, and also trading in goods & shares. During the AY concerned, the assessee company had income from business, capital gain and house property. On assessment, the AO observed that the assessee had both exempt income yielding investment as well as business assets in the balance sheet. The assessee company maintained consolidated accounts. Although the assessee offered Rs.21,708/- to tax u/s 14A r/w Rule 8D, the AO did not accept the allocation of expenditure and made disallowance of Rs.1,53,19,575/- under the provisions and added the amount to the assessee's total income, which was determined at Rs.11,95,62,020/-.
However, the CIT(A) restricted the disallowance to Rs.9,52,147/-. On appeal, the Tribunal held that any interest expenditure need not be allocated towards earning of exempt income, and so the disallowance sustained by the CIT(A) was unwarranted. Then w.r.t. Rule 8D, the Tribunal held that the allocation of administrative and other expenses could not be ruled out, and thereby, the Tribunal reduced the disallowance to Rs.2,10,756/-.
On appeal, the High Court held that,
Whether when it is a finding of facts that no interest expenditure was required to be allocated for the exempt income because the assessee had sufficient funds of its own, even then any disallowance u/s 14A r/w Rule 8D is warranted - NO: HC
++ the balance sheet of the assessee reveals that the assessee has its own funds in the form of share capital and reserves and surplus amounting to Rs.101.31 crores as against the investment of Rs.69.08 crores. This clearly shows that the assessee is having sufficient funds to make investments. These are the assessee's own funds. Further, out of the total investment of Rs.69.08 crores, Rs.66.68 crores are invested in subsidiary/associate companies. There is also loan liability of Rs.25.25 crores as on 31-3-2008 which has come down to Rs.15.61 crores as on 31-3-2009. Thus, there are no fresh borrowings during the year under consideration;
++ the order of the CIT(A) has not been maintained in its entirety. The Tribunal held that there is no reason for allocation of any interest expenditure towards earning of exempt income. Therefore, the Tribunal found that the CIT(A) could not have maintained the disallowance at Rs.9,52,147/-. We do not see any reason to interfere with such finding of fact and the peculiar circumstances noted in the case of the assessee. These facts and circumstances emerge from the scrutiny of the balance sheet. Therefore, the finding of fact that there is no reason for allocation of interest expenditure towards earning of exempt income, cannot be termed as perverse or vitiated by any error of law apparent on the face of the record and the appeal deserves to be dismissed.
Revenue's appeal dismissed
ESWARI GLOBAL METAL INDUSTRIES PVT LTD Vs UoI : KARNATAKA HIGH COURT (Dated: August 16, 2017)
CX– Section 35 of the CEA, 1944 - Commissioner(A) refusing to condone the delay in filing appeal beyond 90 days and dismissing the appeal – Petition filed before Karnataka High Court submitting that the delay was caused on account of illness of the official concerned of the petitioner-company and therefore, the said delay deserves to be condoned in view of the decision in Apotex Research Pvt. Ltd. 2017-TIOL-93-HC-KAR-CX
Held: In view of the limitation of the respondent authority by a statutory provision, even the genuine cases for condonation of delay cannot be considered and that is why such delays have been condoned by this Court in some cases, one of which is quoted - Since the present case is also of the same nature, the petition is also disposed of in same terms and condoning the delay, the matter is restored to the said respondent-Commissioner of Central Excise (Appeals), Mysore, for deciding the appeal on merits, in accordance with law: High Court [para 3 to 5]
Petition disposed of
2017-TIOL-1928-HC-DEL-ST
NKG INFRASTRUCTURE LTD Vs UoI : DELHI HIGH COURT (Dated: September 15, 2017)
ST – SCN dated 02.12.2016 issued by DGCEI and in respect of which a notice of hearing dated 10.08.2017 has been received by Petitioner from Director General of Goods Service Tax Intelligence (DGGSTI) – Petitioner challenges the very authority of the DGGSTI to proceed with the impugned SCN by pointing out that under Rule 3 of the STR, 1994 the CBEC could not take upon itself the task of ‘appointing' officers of Central Excise to discharge the functions of investigation and adjudication under the FA, 1994; that if the DGCEI could not have issued the SCN in the first place then a fortiori the DGGSTI cannot continue the proceedings pursuant thereto; that the DGCEI was seeking to re-visit the completed assessment of the service tax returns filed by the Petitioner for a period in FY 2011-12, five years preceding the SCN, by classifying the services provided by the Petitioner as ‘site formation services', whereas the case of the Petitioner is that it is providing ‘Works contract services' and that its returns filed on that basis have been accepted by the jurisdictional Service Tax Commissionerate at Ghaziabad; that earlier the DGCEI had issued an SCN on 5th May, 2011 for an earlier period and that SCN resulted in an adjudication order which is now the subject matter of a review petition filed in the Supreme Court.
Held: In the background set out, it appears prima facie that unless the Respondents are able to satisfy the Court that the DGGSTI (earlier DGCEI) is duly authorised in terms of the FA, 1994 to proceed with the SCN, the continuation of the proceedings would amount to a parallel exercise of determination of service tax liability for a past period in respect of which the Petitioner's returns have already been assessed by the jurisdictional Commissionerate - directed that till the next date of hearing, further proceedings pursuant to the SCN dated 2nd December, 2016 shall remain stayed – Matter to be listed on 22nd November, 2017: High Court [para 10, 11, 13]
Matter listed
2017-TIOL-1927-HC-MAD-CUS
PARMAR EXPORTS Vs JOINT DIRECTOR GENERAL OF FOREIGN TRADE : MADRAS HIGH COURT (Dated: August 1, 2017)
Cus - the importer-exporter codes of the petitioner-assessee were suspended, based upon some adverse remark reports received against the assessee - The assessee challenged the impugned order on grounds that it contravened the Foreign Trade (Development and Regulation) Act 1992 - The Madras High Court passed an interim order keeping the impugned order in abeyance.
Held - the assessee appeared unaware of the happenings after such interim order of the High Court, w.r.t. any enquiry or investigation being conducted - Moreover, no counter-affidavit was filed by the revenue - The impugned order cannot be given effect to at this stage, having been kept in abeyance - Nonetheless, revenue open to proceed with investigation, if still pending: High Court (Para 2,3,4)
Writ petition disposed off
2017-TIOL-1926-HC-MAD-IT
BALI TRADING PVT LTD Vs PR.CIT: MADRAS HIGH COURT (Dated: September 4, 2017)
Income Tax - Sections 139(4), 143(2), 143(3) & 264.
Keywords - Business Expenditure - Repairs - Rental income - Rectification of mistake.
The assessee Company filed return for the relevant AY. The assessee's main source of income, rental income, was offered under the head "income from house property". The case was selected for scrutiny. In the income memo, the entire income in the profit and loss account was offered under the head "house property" and "other sources", and there was no other income. However, while filing the return, it had been inadvertently filed against "business income" in addition to income from "house property" and "other sources" and hence, the gross total income was shown as Rs.32,71,620/- in the income tax return as against Rs.16,81,400/- and it was a keying error. The Assessee requested the AO to accept the figures as appearing in the income memo and complete the assessment under Section 143 (3) of the Act. The assessee stated that the mistake was only from the data keyed in the income tax return and when the mistake was apparent on the record, the same could be rectified.
The AO however rejected the assessee's claim to rectify the mistake on ground that if there was any keying mistake, the assessee could have filed a revised return, as allowed under Section 139(4) of the Act, which could have been done on or before 31.03.2014. However, the assessee did not do so and asked to reduce the total income during the course of assessment proceedings and that being a fresh claim could not be entertained during the course of assessment proceedings. Thus, the total income admitted as per the return of income was determined as Rs.32,71,620/- and tax payable thereon was intimated to the assessee in the form of a demand. Against the assessment order, assessee filed a revision u/s 264 of the Act. This petition was dismissed by the PCIT by order.
In a writ, the High Court held that,
Whether when the assessee has debited repair expenses and also depreciation on machinery to its P&L, it can be said that there is no element of truth in its plea that it was a keying error in its return where it had shown business income in place of only income from house property and income from other sources - YES: HC
++ contrary stand taken by the assessee in reporting its return of income amounts, in respect of business income and expenses which have been incurred by the assessee during the last two years and on the other hand, making a contrasting claim that there was no business activity relatable to those expenses/income and that the figures reported in the return of income were not inadvertent errors. Thus, the AO held that the assessee had not been able to prove with evidence that there has been no business activity during the impugned assessment year. That apart, the PCIT noted that the assessee has come forward with the theory of an error being committed while filing the income tax return only during the scrutiny assessment proceedings, despite the fact that the assessee undergoes statutory financial audit as per the provisions of the Act and having resources to engage the best professionals in the field to handle its mandatory obligations under the Act. Thus, the PCIT has considered the materials, examined the correctness of the stand taken by the assessee in an independent manner and assigned reasons for not accepting the case of the assessee.
++ admittedly, the time within which the assessee could have filed a revised return had expired long back and the assessee appears to have woken up after notice was issued under Section 143(1) of the Act. During the course of the assessment proceedings, when a personal hearing was offered, the assessee for the first time took a stand that an inadvertent error had occurred while filing the income tax returns for the relevant year namely, 2012-13 and that error was a keying error. Such contention was raised by the assessee stating that except the income from "house property" and "other sources", they have no other income and there was no "business income" and therefore, it was a keying error. If such was the stand taken by the assessee, he was duty bound to prove that there was no other income except the income under the head "house property" and "other sources";
++ on a perusal of the factual position, it was clear that this was not established by the assessee before the AO or before the AO, the Revisional Authority. The assessee's case was that it was an inadvertent error, a mistake which was apparent and needs to be rectified. The AO after taking note of the stand taken by the assessee rightly held that the assessee had time to file revised returns upto 31.03.2014 and did not do so, and only during the scrutiny assessment proceedings, such a plea was raised which cannot be considered and rightly relied on the decision of the Supreme Court in the case of M/s.Goetze India stating that he had no jurisdiction to entertain the assessee's plea. The Revisional Authority considering the scope of his power under Section 264 of the Act went a step ahead to examine as to the bonafides of the stand taken by the assessee alleging that it was an inadvertent keying error. On a comparative analysis of the returns filed for the assessment year 2011-12, with that of the returns filed for the assessment year 2012-13, the PCIT noted that for repairs to machinery, telephone expenses, salary and other expenses, depreciation have been incurred and debited to P&L account, which was a clear indicator that business activity was being carried out by the assessee. When that being the factual position, the assessee would not have debited the expenses in its P&L account. Thus, on facts, the PCIT found that a company, which was claiming no business activity with no other income other than rental income and interest income claiming expenditure on repairs to plant and machinery that too in an increasing in manner, clearly indicates a position otherwise. Further, on facts, the PCIT found that the assessee had not been able to prove with evidence that there has been no business activity during the impugned assessment year. Thus, the PCIT having done a factual exercise, in exercise of his power u/s 264 and on facts, found that the theory as propounded by the assessee as a keying error to be not proved conclusively. In such fact situation, the order passed by the PCIT calls for no interference.
Assessee's writ Petition dismissed
2017-TIOL-1925-HC-MUM-IT
CIT Vs GLOWSHINE BUILDERS AND DEVELOPERS PVT LTD : BOMBAY HIGH COURT (Dated: September 4, 2017)
Keywords : Land development rights & Short term capital gain.
The Assessee-company was engaged in the business of building, development and investments in real estate. It entered into an agreement with one Kirit City Homes for the sale of land development rights and showed the sale consideration in its profit and loss account as business income. The AO however, was of the view that sale consideration was to be treated as short term capital gain and accordingly made additions in the hand of the Assessee.
On appeal, the CIT(A) upheld the decision of the AO. On further appeal, the Tribunal reversed the decision so made by the AO and allowed the sale consideration to be treated as business income.
On appeal, the High Court held that,
Whether when it is a finding of fact that the transfer of land development right is a stock in trade transaction, the income has to be treated as business income - YES: HC
++ the Tribunal has recorded that the assessee was holding 50.16 acres of land, out of which 27.44 acres of land is the subject matter of the MOU dated 27th December, 2007. The remaining land aggregating to 22.72 acres has been converted by the assessee as capital asset, that is subsequent to the impugned transaction. It is in these circumstances and when the total cost of the land has been determined proportionately that all the questions, and particularly whether the impugned transaction relates to transfer of stock in trade or capital asset, have been answered in favour of the assessee and against the Revenue;
++ to our mind, when the written documents were perused and with the corroborating materials, the Tribunal rightly concluded that the impugned transaction relates to the business of the assessee and is to be assessed as such under the head "profit and gains of business and profession". When the Tribunal noticed such perversity in the concurrent findings, it has but performed its duty as a last fact finding authority. The Tribunal being empowered by law to undertake that exercise, has performed it's duty. We do not see how in such background can the Tribunal's view be termed as perverse or it's order termed as vitiated by any error of law apparent on the face of record. The reasons assigned from paragraphs 16 to 18 of the impugned order are based on the materials produced before the Tribunal and forming part of the record. The Tribunal has not gone beyond the same. In the circumstances, none of the questions proposed by the Revenue in this Appeal are substantial questions of law. The Appeal is devoid of merit and is dismissed. However, there shall be no order as to costs.
Revenue's appeal dismissed
2017-TIOL-1924-HC-KERALA-IT + Story
COCHIN INTERNATIONAL AIRPORT LTD Vs DCIT : KERALA HIGH COURT (Dated: August 7, 2017)
Income Tax - Section 80-IA(4) - Airports Authority of India Act, 1994 - Section 12
Keywords - Operating & maintaining Infrastructure facility - MOU - Statutory body.
Whether when the assessee and the Airport Authority of India, a statutory body, sign an MoU with respect to operating and maintaining the infrastructure facility, such agreement entitles the assessee to claim benefits under clasue (b) of sub-section (4) Section 80IA - YES: HC
Whether, for the purpose of Sec 80IA(4) benefits, it is necessary that the airport should already be operational and the agreement should be entered into thereafter - NO: HC
The assessee- company had established an airport and claimed benefit of deduction u/s 80-IA of the I-T Act. The AO took the view that the assessee did not satisfy all the conditions specified in sub-section (4) of 80-IA and accordingly rejected the claim of the assessee. On appeal, the first appellate authority held that the MOU entered into by the assessee with the Airport Authority of India could be taken as an agreement as contemplated in clause (b) of Section 80-IA(4) of the IT Act. It was also agreed that the assessee satisfied clause (c) of subsection (4). Accordingly, the CIT(A) allowed the appeals and directed the AO to allow deduction.
On appeal, the Tribunal held that the agreements entered into between the assessee and the Airport Authority of India did not constitute agreements specified in clause (b) of sub-section (4) of Section 80-IA of the IT Act. Similarly, with respect to clause (c) of Section 80-IA(4), the Tribunal took the view that the basic particulars were not borne out of the assessment order, nor was there any occasion for the assessing officer to verify those vital details. On that basis, the Tribunal set aside the order of the CIT(A) and restored the matter to the file of the assessing officer for fresh examination.
On appeal, the HC held that,
++ the MoU entered into between the assessee and the Airport Authority of India and the subsequent agreement between the parties, would show that the assessee had entered into an agreement as contemplated in clause (b) of sub-section (4) of Section 80-IA of the IT Act entitling the assessee for deduction u/s 80-IA of the Act. From the provisions of the agreement with the Airports Authority of India, it is clear that the Airport Authority of India was only undertaking to discharge its functions as provided under Section 12 of the Airports Authority of India Act, 1994 for the operation and maintenance of the airport which was developed by the Cochin International Airport Limited. Such an agreement between the Airports Authority of India and the assessee would qualify to be an agreement entered into with a statutory body for “operating and maintaining the infrastructure facility”, viz the airport;
++ having read clause-(b) of sub-section (4) of Section 80-IA, we are not persuaded to think that to satisfy the requirement of clause-(b), the agreement should be one entered into by an airport which is already functional. An airport to be operational requires the facilities that are agreed to be provided by the Airport Authority. It is only on installation and operation of such equipments can the airport be operated and maintained. Such an agreement would be an agreement for operating and maintaining the infrastructure facility viz the airport and for the purpose of Section 80- IA, the statute does not contemplate that the airport should already be on stream and that the agreement should be entered into thereafter;
++ the statutory provision and the agreement as discussed, we cannot uphold the conclusion of the Tribunal that both the agreements could not constitute agreements specified in clause-(b. Accordingly, the findings of the Tribunal with reference to clause-(b) of sub-section (4) of Section 80-IA are set aside.
Case remanded
