|
TIOL EDIT
Would 2018-19 Budget tap full potential of non-tax revenue? CASE LAWS
2017-TIOL-1957-HC-KERALA-IT
CIT Vs MUTHOOT BANKERS: KERALA HIGH COURT (Dated: August 30, 2017)
Income Tax - Section 194A & 271C.
Keywords : Interest - Mens rea - Non deduction of TDS - Proof of intention & Reasonable cause.
The Assessee-company made payment of interest to a sister concern in assessment year in question. It was observed by the AO that the Assessee had not deducted TDS on payment made as required u/s 194A of the Act. The Assessee contended that non deduction of tax was not deliberate and there was a bona fide omission on its part in not deducting tax and also the recipient sister concerns had already included the interest amount in their returns and paid tax thereon, there was no loss of revenue to the Government. The JCIT(TDS) rejected the contention of the Assessee and imposed penalty u/s 271C of the Act and raised a demand.
On appeal, the CIT(A) held that the Assessee committed default by not deducing TDS without any reasonable cause and the order of the AO was therefore confirmed. On further appeal, the Tribunal relying on the decision of the Apex Court in Hindustan Steel Ltd. v. State of Orissa and the decision in respect of the sister concern in ITO V. Muthoot Financiers, set aside the orders imposing penalty.
On appeal, the High Court held that,
Whether proof of intention or mens rea is not an essential element for imposing penalty in cases of default or failure of statutory obligations - YES : HC
Whether, therefore, the assessee is liable to pay penalty unless it is proved that he was prevented by reasonable cause from deducting TDS - YES : HC
++ the issue raised has been held in favour of the Revenue in 2016-TIOL-03-SC-IT . With respect of the contentions raised as regards the finding that contumacious conduct is necessary before a penalty can be imposed, the position has been clarified by the Bench decision of the Apex Court in Dharamendra Textile Processors's case. At paragraph 33 of the judgment, the Apex Court held, relying on precedents that mens rea is not an essential element for imposing penalty for breach of civil obligations. Considering the nature of penalty under the scheme of the Act, it was held that the penalty leviable in cases of default or failure of statutory obligation or in other words for breach of civil obligation is not a criminal offence and there is no question of proof of intention or mens rea by the assessee for imposing penalty:
++ in the decision cited by the Assessee it is apparent that no specific question of law had been raised as to the nature of the penalty which is imposed under Section 271C of the Act. It is clear that no substantial questions of law had been raised in that appeal and therefore, there was no occasion for the Apex Court to consider such question of strict liability or the nature of the penalty imposed under the provisions of law. In view of the clear language of Section 271C of the Act, the assessee was liable to pay the penalty unless he could plead and prove that he was prevented from deducting the tax at source with reasonable cause. In the absence of any such pleading of proof, the penalty under Section 271C is liable to be imposed on the assessee.
Revenue's appeal allowed
2017-TIOL-1956-HC-DEL-IT
EICHER MOTORS LTD Vs CIT: DLEHI HIGH COURT (Dated: September 15, 2017)
Income Tax - Sections 10(33) & (34), 14A, 35(2AB), 115JB & Rule 8D(2) & (3).
Keywords: Additional weighted deduction - Capital expenditure - Exempt income - Legislative intent - R&D centres - Revenue expenditure & Research expenses.
The Assessee-company was engaged in the manufacture of motorcycles. The Assessee had filed its return declaring an income of Rs. 150,38,49,972/- claiming book profit of Rs. 34,27,02,218/- u/s 115JB. The Assessee had in-house Research and Development (R&D) centres at Pithampur and Chennai which were duly approved by the Department of Scientific and Industrial Research with regard to Section 35(2AB). Accordingly, the Assessee claimed weighted deduction of Rs.19,57,26,863/- being 150% of all the research expenses incurred in the in-house R&D facilities. A dividend income of Rs. 6.39 crores was earned from investments in subsidiary companies and mutual funds that were exempt u/s 10(33) and (34). However, the Assessee did not disallowed any expenditure in respect of the earnings of the exempt income.
During the assessement proceeding, the AO granted 100% deduction on both capital and revenue expenditure incurred on the two R&D centres but disallowed the additional weighted deduction of 50% amount of Rs. 6,52,42,288/-. Further, the AO observed that Section 14A was straightaway attracted but no expenses were claimed. The AO believed that certain expenses ought to have been incurred for earning the dividend income like purchase of raw materials, salaries, etc. The AO applied Rule 8D(2) and (3) as applicable and worked out the disallowance at Rs. 1,02,73,361/-.
Aggrieved Assessee preferred an appeal before the CIT(A). The CIT(A) restricted the disallowance to Rs. 20,24,169/- as it believed that the disallowance made by the AO was not based on correct appreciation of facts and position in law. Both the Revenue and the Assessee filed an appeal before the Tribunal. The Tribunal concurred with the Assessee but subsequently, remanded the matter on the ground that the AO had not returned a finding on the nature of expenditure incurred by R&D centres.
On appeal, the High Court held that,
Whether when the Tribunal has arrived a finding that the R&D expenses are allowable u/s 32(2AB), any meaningful purpose would be served if the issue is remanded to examine whether the expenditure was revenue or capital in nature when law permits both - NO: HC
++ the Court is unable to concur with the order of the Tribunal on both the aspects. Having held that the R&D expenditure as claimed by the Assessee ought to have been allowed, there was no question of remanding the matter to the AO for returning a finding on whether the expenditure was of revenue or capital nature. This is because, u/s 35(2AB), both revenue and capital expenditure are allowable in their entirety, excluding expenditure in the nature of cost of any land or building. There was going to be no purpose served in analysing whether the expenditure was of revenue or capital nature. In fact, the AO himself had allowed 100% of the expenditure both of revenue and capital nature and the disallowance was only the additional 50% amount which, again, the CIT(A) had found and correctly so, in the opinion of this Court, ought not to have been disallowed. Recently, this Court, in the case of Maruti Suzuki India Limited vs. UOI & Anr, has held that "...The legislative intent behind this provision is to encourage innovation, research and development in India and non-grant of the benefit u/s 35(2AB) defeats the legislative intent..." In that view of the matter, the Court has no hesitation in holding that the Assessee is entitled to the full benefit of Section 35(2AB) and that the Tribunal was in error in remanding this issue to the AO for a fresh decision.
Whether when the AO fails to record his satisfaction based on the accounts of the Assessee, the question of remanding the matter to the CIT(A) and to ask for a remand report from the AO does not arise - YES: HC
++ the settled legal position is that the AO had to record reasons for disagreeing with the submission of the Assessee that it had incurred no expenditure for earning such exempt income. This is plain even from Rule 8D(1) which requires the AO to mandatorily record his satisfaction that the claim made by the Assessee that no expenditure has been incurred is incorrect "having regard to the accounts of the Assessee";
++ in this case, a perusal of the AO's reasoning shows that the AO has merely conjectured that there is an inbuilt cost even in passive investment as also incidental expenditure like collection, telephone, follow up etc., The AO thus concludes that the expenses are embedded as indirect expenses. This is not as per the requirements of Rule 8D. There is no satisfaction recorded 'based on the accounts of the Assessee'. The AO simply presumes that since the exempt income exists and is being claimed by the Assessee, some portion of the expenses ought to be added back. This is not sufficient as per the law. Once this mandatory requirement is itself not fulfilled, in terms of the law explained by this Court in Maxopp Investment Ltd. v. CIT, the question of remanding the matter to the CIT(A) and to call for a remand report from the AO for the purposes of rectifying this jurisdictional defect simply did not arise. In this context, the Court also notices that in the order passed by the AO on 28/30th December 2016 pursuant to the order of the ITAT on remand, the AO had simply repeated his entire assessment order passed in the first instance. Be that as it may, the Court is of the view that the Tribunal erred in overlooking the correct legal position in remanding the matter to CIT(A).
Assessee's appeal allowed
2017-TIOL-1955-HC-KOL-IT
ACIT Vs EMTA COAL LTD: CALCUTTA HIGH COURT (Dated: September 15, 2017)
Income Tax - Writ - Arbitrary and capricious - Fresh consideration - Principles of best judgment & Wrong premises.
The Assessee company, filed its return. The writ petitions were filled by the Department challenging an order passed by the Settlement Commission. The Settlement Commission had nullified the claim of adding the sum of Rs. 272.15 Crores as the income of the Assessee on the ground that, there was no evidence of such sum coming back to the Assessee.
In Writ, the High Court held that,
Whether a matter calls for a fresh consideration when the Settlement Commission proceeds on wrong premises and acts as an AO - YES: HC
++ the Settlement Commission has considered the rival contentions. It has noted that, the four companies are companies incorporated under the Companies Act, 1956 and that, they are subject to assessment as separate Assessees. It has also noted that, the four companies did not resort to settlement under Chapter XIXA of the Act of 1961. The Settlement Commission has expressed the view that, it is left with no option but to estimate the income of the private Assessee. The Settlement Commission has opined that, it is not in a position to assess whether the payments made to the five entities are genuine or otherwise. With respect, if the accounts of the private Assessee is so vague so as not to establish conclusively the expenditure made and which is the accepted position before the Settlement Commission, then in all fairness, the Settlement Commission ought to have given reasons for the arrival of the quantum of expenditure allowable to the private Assessee. It ought to have given reasons why it was not adding the sum of Rs. 272.15 Crores as an income of the private Assessee and assessing Income Tax thereon. It has held that, it is not inclined to hold that the entire payment of Rs. 272.15 Crores to the five entities can be added to the AYs in question of the private Assessee. It has added Rs.15 Crores each for the AYs 2011-2013 and Rs. 6 Crores for the AY 2013-2014 aggregating to Rs. 36 Crores. It has not given any reason as to why such a quantum is arrived at. On the percentage of gross profit, the Settlement Commission has taken its own calculation. Again the reasons are specious;
++ since the Settlement Commission has proceeded on wrong premises, it would be appropriate that, the matter be remanded to it for fresh consideration. Remand is possible. The Settlement Commission has deviated from the procedure and has acted as an AO, the order stands vitiated. For the grounds as canvassed, the order should be quashed and the matter may be remanded to the Settlement Commission for fresh consideration.
Whether the Settlement Commission can add figures to the income of the Assessee without applying the principles of best judgments - NO: HC
++ in the facts of the present case, instead of adding a sum of Rs. 263.68 Crores in respect of four entities, the AO has added an aggregate sum of Rs.36 Crores for the three AYs concerned for each of the four shell companies. The AO did not give any reason as to why such a quantum has been added. It has not given any reasons as to why the sum of Rs.263.68 Crores has not been added to the income of the private Assessee. In the facts of the present case, it cannot be said that, the Settlement Commission has applied the principles of best judgment. The order is, therefore, arbitrary and capricious;
++ the process of arrival of the liability of the Assessee to pay tax under Chapter XIXA being different to that of a regular assessment, the Settlement Commission should factor the same while considering an application for settlement. It is obliged to give reasons for arriving at a particular figure. It is open to the Settlement Commission to use best judgment in arrival of the figure. Nonetheless it has to explain the manner in which the best judgment figure has been arrived at by the Settlement Commission;
++ in the facts of the present case, the Settlement Commission not having disclosed the reasons for arriving at the figures which to its best judgment are the figures to be added to the income of the private Assessee, the order is set aside. The settlement application is remanded to the Settlement Commission for fresh consideration. The issue is answered accordingly.
Matter disposed of
2017-TIOL-1942-HC-KERALA-VAT
CTO Vs
HARITHA ENTERPRISES
: KERALA HIGH COURT (Dated: August 30, 2017)
KVAT/SGST – Respondent dealer had purchased a consignment of Plywood from a manufacturer at Perumbavoor and was transporting the same when they were detained by the appellant department and notice u/s 129(3) of the SGST Act, 2017 was issued alleging irregularities inasmuch as that there was no nexus between documents accompanying the goods and the actual goods under transport – Writ Petition was filed and by a judgment the petition was disposed of directing the second appellant to make fresh assessment and it was also ordered that on payment of 50% of demand of tax payable under CGST/SGST along with execution of a simple bond, goods shall be released – this order is challenged before Division Bench.
Held: Section 129 of the CGST Act and SGST Act, Rule 140 of the Rules provides a mechanism for adjudication following detention of goods including for the provisional release thereof pending adjudication - When the statute itself provides for such a mechanism, a deviation therefrom cannot be ordered - If that be so, the provisional release in the manner as is ordered in the judgment under appeal cannot be sustained – Order set aside and adjudication to be completed within one week - liberty granted to the petitioner to comply with Rule 140(1) and get provisional release on that basis – Appeal disposed of: High Court [para 4, 5, 7, 8]
Appeal disposed of
2017-TIOL-1941-HC-KAR-IT
HOTEL HAMILTON COMPLEX Vs INCOME TAX SETTLEMENT COMMISSION: KARNATAKA HIGH COURT (Dated: September 4, 2017)
Income Tax - Writ - Sections 234B & 245D(I).
Keywords: Interest charged & Settlement Commission.
The present appeal filed by the Assessee -company, globally engaged in hospitality, has challenged appeal effect orders passed by the Assessing Authority, where he had charged excessive interest u/s 234B of the Act apparently beyond the date of the order passed by the Settlement Commission.
In Writ , the High Court held that,
Whether the Assessment Authority can charge interest u/s 234B beyond the date of the order passed by the Settlement Commission u/s 245D(I) - NO: HC
++ the Assessment Authority charging interest under Section 234B of the Act beyond the date of the order passed by the Settlement Commission under Section 245D(I) cannot be sustained. The law declared by the Constitution Bench would prevail over the earlier decision which is relied upon by the counsel for the assessee, which stands disapproved and overruled by the Constitution Bench. The law declared by the Constitution Bench will apply to the period prior to the date of the said Judgment also which was rendered on 21.10.2010.
++ the law declared by the Constitution Bench would prevail over the earlier decision which is relied upon by the counsel for the Department, which stands disapproved and overruled by the Constitution Bench. The law declared by the Constitution Bench will apply to the period prior to the date of the said Judgment also which was rendered on 21.10.2010;
++ the petition deserves to be allowed and the same is accordingly allowed. The impugned orders passed by the Assessing Authority on 11.04.2008 for all the AYs i.e., 1989-90 to 1996-97 are quashed and set-aside and the matter is remanded back to the Assessing Authority to pass fresh orders in accordance with the law declared by the Supreme Court in the case of BRIJ LAL & ORS. Vs COMMISSIONER OF INCOME TAX and the order passed by Settlement Commission in the present case. No costs.
Case remanded
2017-TIOL-1940-HC-KERALA-IT
CIT Vs MATA AMRITHANANDAMAYI MATH: KERALA HIGH COURT (Dated: August 22, 2017)
Income Tax - Section 11(1)(d).
Keywords : Charitable institution - Corpus - Interest & Voluntary contributions.
The Assessee-trust a charitable institution and filed its return claiming deduction u/s 11 (1)(d) of the Act . It was found that Assessee received some voluntary contributions as donation and also earned interest on that contribution. The income earned on the contributions were added by the Assessee to its corpus, as per the instruction issued by the donors themselves. The CIT(E) rejected the claim of the Assessee for exemption and interest earned was brought to tax. On appeal, the Tribunal allowed the exemption and set aside the order of the CIT(E).
On appeal, the High Court held that,
Whether interest earned on contributions made by donors in a trust with a specific direction that they shall form part of the corpus, would also partake the character of income in the form of 'voluntary contributions' - YES : HC
++ the question that is framed has to be answered in the light of Section 11(1)(d) of the Act. A reading of Section 11 shows that subject to the provisions of Sections 62 and 63, the incomes enumerated therein shall not be included in the total income of the previous year of the person in receipt of the income. The person in receipt of the income, insofar as these cases are concerned, is the respondent assessee. One of the income that is enumerated in clause (d) of sub-Section (1) of the Section is the income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. The fact that the donors had instructed that the interest earned shall be added to the corpus of the trust is undisputed. If that be so, the interest earned on the contributions already made by the donors would also partake the character of income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust. If that be so, conclusion is irresistible that the Tribunal has rightly held that the interest earned would qualify for exemption under Section 11(1)(d) of the Income Tax Act.
Revenue's appeal dismissed 2017-TIOL-1939-HC-KERALA-VAT
RUBCO HUAT WOODS PVT LTD Vs STATE OF KERALA : KERALA HIGH COURT (Dated: August 18, 2017)
Kerala VAT Act - Sections 22(3) & 67(1)(c).
Keywords : Composite orders - Cross objection & Escaped turn over.
The Assessee-company, registered under Kerala VAT Act had not filed its return From the period of November, 2011 to March, 2012 and from June, 2012 to October, 2013. Accordingly assessments were completed u/s 22(3) of the KVAT Act and penalty was levied u/s 67(1)(c) by issuing composite orders. Against these orders, appeals were filed before the first appellate authority. The first appellate authority passed orders directing that the assessee be given the benefit of Section 22(5) of the KVAT Act. It was also ordered that if there is any escaped turn over, the assessing authority can complete the assessment u/s 25(1) of the Act. On further appeal, the Tribunal set aside the order of the first appellate authority and restored the order passed by the Assessing Officer.
On appeal, the High Court held that,
Whether Tribunal can affirm the submissions made by the Revenue in the appeal filed by the assessee , When no appeal or cross objection is filed by the revenue thereof: NO: HC
++ under the assessment orders that were passed, the total liability of the assessee towards the tax and penalty worked out to more than Rs. 10 crores. According to the assessee, if it had complied with the first appellate authority's orders, its liability would have been less than Rs. 1,00,00,000/-. It was in the appeals filed against these orders that the Tribunal has restored the order passed by the assessing officer, as a result of which the liability of more than Rs. 10 crores is again fastened on the assessee. The question is whether such an order could have been passed by the Tribunal in the appeals filed by the assessee and particularly in the absence of appeal or cross objection by the Revenue. Although this issue was not raised in the appellate order, this was pointedly raised in the rectification applications as is seen from the orders passed by the Tribunal itself. However, having gone through these orders, we are not satisfied that in a case of this magnitude, the issues were properly framed or considered. Therefore, we are of the view that the matters require to be considered afresh with due application of mind and in the light of the decision referred to above.
Assessee's petitions disposed of 2017-TIOL-1938-HC-MAD-CX
CC & CCE Vs KANNAPIRAN STEEL RE ROLLING MILLS : MADRAS HIGH COURT (Dated: July 31, 2017)
CX - a penalty had been imposed upon the respondent-assessee by the adjudicating authority, for alleged default in payment of duty - Such penalty was upheld by the Commr.(A) - However, the Tribunal exercised power under Rule 96ZP(3) of the CER, 1944, to reduce the quantum of the penalty - Moreover, the Tribunal relied upon its own precedent decision in M/s.Sree Lakshmi Steel Re-rolling Mills, while allegedly ignoring the decision of this Court in the case of Pee Aar Steels Pvt. Ltd., which had been relied upon by the Commr.(A) to uphold the penalty.
Held - the decision of this Court in the case of Arun Vyapar Udyog Limited, applies squarely onto the present case - This decision further relied on the decision of the Apex Court in Shree Bhagwati Steel Rolling Mills V. Commissioner of Central Excise 2015-TIOL-283-SC-CX, wherein the validity of the Rule 96ZP was discussed and penalty imposed under this provision was set aside - Following such precedent, the issue is answered against the revenue: High Court (Para 1,2,3,4)
Appeal dismissed 2017-TIOL-1937-HC-MAD-CX
CCE Vs KANDAGIRI SPINNING MILLS PVT LTD : MADRAS HIGH COURT (Dated: July 20, 2017)
CX - the respondent-assessee was engaged in producing 'sliver/combed/carded cotton, and sought to avail Modvat credit on certain capital goods/spares such as carding and combing machines - Such credit was denied by revenue on grounds that the aforementioned machinery were not eligible capital goods - Later, the Tribunal allowed the assessee to avail Modvat credit, reasoning that the machinery in question, were eligible as capital goods, as the goods fell under a heading which was excluded from the purview of capital goods under the erstwhile Rule 57Q of the CER, 1944.
Held - Considering the decision of the Madras High Court in the case of Commissioner of Central Excise v. Thuran Spinning Mills Pvt. Ltd., which applies squarely onto the present case, the issue at hand is answered in favor of the assessee - Revenue appeal dismissed: High Court (Para 1,2,3)
Appeal dismissed 2017-TIOL-1936-HC-AHM-CX
SAGAR DRUGS AND PHARMACEUTICALS PVT LTD Vs CCE : GUJARAT HIGH COURT (Dated: September 14, 2017)
CX - the assessee availed Cenvat credit on inputs and sold them as such, at which point of time the duty was paid on higher sale price through Cenvat credit which duty was higher than the Cenvat availed at the time of purchasing the inputs - Duty demand was imposed for recovery fo duty for the period between 2002 to 2007 - The assessee contested such demand on grounds that no duty was required to be reversed and that the SCN imposing duty demand had been issued after the passage of four years - The assessee's appeal was dismissed by the Commr.(A) and by the Tribunal.
Held - the assessee never raised the issue of unreasonable delay in raising the demand, before the adjudicating authority or the Commr.(A), in precise form - No limitation period is envisaged under the Act, leading to the decision in Pratibha Syntex Ltd. Vs Union of India, wherein it was held that the recovery beyond a reasonable period was impermissible - The reasonable period in the present case was a factual question and the assessee omitted to produce evidence before either of the authorities, to the effect that such reasonable period had been exceeded - Raising such issue for the first time before the Tribunal was impermissible - Such appeal against the Tribunal order is not maintainable: High Court (Para 1,2,4)
Appeal dismissed 2017-TIOL-1935-HC-KOL-CUS
MD HUSSAIN Vs UoI : CALCUTTA HIGH COURT (Dated: September 8, 2017)
Cus - pursuant to proceedings u/s 112, an order was passed against the petitioner-assessee, wherein the goods in question were confiscated and a personal penalty was imposed - The assessee claimed to have been denied the opportunity of cross-examination, and that judicial pronouncements cited in its favor were not considered by the adjudicating authority - The assessee sought a stay on the personal penalty.
Held - Although the SCN was issued u/s 124, the impugned O-i-O imposed penalty u/s 112 - Thereby, respondents directed to file affidavits - Matter listed for hearing in November 2017 - Although the assessee claims to have some bank balance for securing the penalty imposed, the O-i-O alleges that the assessee possessed about 40 kgs of gold - Allegations apart, with the assessee not providing any asset for securing penalty, it would not be prudent to grant an unconditional stay on the personal penalty: High Court (Para 2,5,7,9)
Writ petition dismissed 2017-TIOL-1934-HC-MUM-ST
GURU SECURITY FORCE PVT LTD Vs CST : BOMBAY HIGH COURT (Dated: August 22, 2017)
ST - a penalty was imposed on the assessee firm - Before the Tribunal, the assessee sought waiver of the pre-deposit of service tax, but the Tribunal directed the assessee to pre-deposit part of it within 12 weeks - As the assessee failed to comply with such directive, the Tribunal dismissed the assessee's appeal, as well as the subsequent application for modification of the order.
Held - the director of the assessee firm suffered severe injuries resulting from a dacoity at his house, as a result of which he was unable to handle the day-to-day affairs of the company - Consequently the assessee firm faced a financial crunch - Considering such facts and that the assessee firm sought a last chance & undertook to make the pre-deposit, a chance merits being given - Assessee firm to make pre-deposit within 12 weeks, failing which the Tribunal order dismissing the appeal would stand: High Court (Para 1,4)
Appeal allowed |
