BULLETIN(Issue No.118)DT.29-06-2020
Compiled by Vinod Kumar Goel, Advocate
CASE LAWS
Dev Milk Foods Pvt. Ltd. Vs. Addl. CIT, Special Range 3, New Delhi, ITA No. 6767/Del/2019
We have heard the rival submissions and have also perused the material on record. After considering the entire factual matrix we first deal with the primary arguments of the Ld. Authorized Representative that the conversion of the case from limited scrutiny to completer scrutiny was not legally valid. The subject of conversion of case from limited scrutiny to complete scrutiny has been dealt with in CBDT Instruction No.5/2016 which is being reproduced herein under for the sake of convenience:
“2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‘Limited Scrutiny’ into a ‘Complete
Scrutiny’ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‘Complete Scrutiny’ in a case which was originally earmarked for ‘Limited Scrutiny’, the Assessing Officer (‘AO’) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‘Complete Scrutiny’. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable.
3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information
available on record for forming such view;b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view.
6. To ensure proper monitoring in cases which have been converted from ‘Limited Scrutiny’ to ‘Complete Scrutiny’, it is suggested, that
provisions of section 144A of the Act may be invoked in suitable cases.
To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases should invariably be picked up while
conducting Review or Inspection by the administrative authorities.
7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are
pending scrutiny cases as well as cases selected/being selected under the CASS 2016.”
6.1 Earlier preceding instruction in this regard was 20/2015 which states as under:
“Instruction No. 20/2015
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi, the 29 th of December, 2015
Subject: Scrutiny Assessments-some important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection ('CASS')-reg .-
The Central Board of Direct Taxes ('CBDT'), vide Instruction No. 7/2014dated 26 09.2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS.
Further clarifications have been sought regarding the scope and applicability of the aforesaid Instruction to cases being scrutinized.
2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made.
i Year of applicability : As stated in the Instruction No. 7/2014 , the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014ii
Whether the said Instruction is applicable to al l cases selected under
CASS :
The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameter(s ) of AIR/CIB/26AS data . If a case has been selected under CASS for any other reason(s)/parameter (s) besides the AIR /CIB/26AS data, then the said Instruction would not apply.
iii Scope of Enquiry : Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s ) of AIR/CIB/26AS data .
In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No. 7/2014.
iv Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data , the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned.
3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year - one is 'Limited Scrutiny' and other is Complete Scrutiny'.
The assessees concerned have duly been intimated about their cases falling either in 'Limited Scrutiny' or 'Complete Scrutiny' through notices issued under section 143(2) of the Income-tax Act, 1961 ('Act'). The procedure for handling 'Limited Scrutiny' cases shall be as under: a. In 'Limited Scrutiny 'cases, the reasons/issues shall be forthwith communicated to the assessee concerned.
b. The Questionnaire under section 142( 1) of the Act in 'Limited Scrutiny 'cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny . Further, the scope of enquiry shall be restricted to the 'Limited Scrutiny ' issues.
c. These cases shall be completed expeditiously in a limited number of hearings.
d. During the course of assessment proceedings in ' Limited Scrutiny ' cases,
if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s) , then , the case may be taken up for 'Complete Scrutiny ' with the approval of the Pr. CIT/CIT concerned . However , such an approval shall be accorded by the by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating 'Complete Scrutiny' in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, 'Metro charges' would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmedabad).
4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/ reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances due consideration shall be given to the submissions made by the assessee in response to the show cause notice.
5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance.
6. Hindi version to follow.”
6.2 We have also gone through the CBDT letter bearing No. DGIT VIF/HQ SI/2017-18 dated 30.11.2017 which states that the idea behind
such stipulation was to enforce checks and balances upon the power of the Assessing Officer to do fishing and roving enquiries in cases selected for limited scrutiny etc. In this very letter, the CBDT has also highlighted the aspect of cryptic order sheet entries which according to the CBDT shows irresponsible, ad hoc and indisciplined working of an Officer of the Department. A perusal of the aforesaid instructions would show that the objective behind the issuance of these instructions is (i) to prevent possibility of fishing and roving enquiries; (ii) ensure maximum objectivity; and (iii) to enforce checks and balances upon the powers of an Assessing Officer.
6.3 We have also gone through the proposal drafted by the Assessing Officer on 05.10.2017 for converting the case from limited scrutiny to complete scrutiny. This reads as under:
“….4. In this regard it may be mentioned here that the assessee has shown a short term capital loss on sale of shares purchased on 09.07.2014 and sold on 15.02.2015 . The purchase price of these shares has been stated at Rs 499,98,440 and sale price has been
mentioned at Rs 79,03,676. The resultant loss of Rs 420,94,764 has been set off by the assessee against long term capital gains. This
transaction appears to be suspicious in nature and probably this loss has been created to reduce the incidence of tax on long term capital
gains discussed in para 3. This issue needs to be thoroughly examined to ascertain the genuineness of this loss”
6.4 We have also through the original order sheet entries, as were present in the assessment records and which had been submitted for our perusal by the Ld. Sr. Departmental Representative under our directions and it shows that there is not an iota of any cogent material mentioned by the Assessing Officer which enabled him to have reached the conclusion that this case was a fit case for conversion from limited scrutiny to complete scrutiny. We have also gone through the statement of assessee’s Director Mr. Rohit Verma which was recorded on 18.07.2017 i.e., after the conversion of the case and even in his statement nothing adverse is coming out vis. a vis. the impugned transactions. If the proposal of the Assessing Officer dated 05.10.2017 and the approval of the Ld. Pr. Commissioner of Income Tax dated 10.10.2017 are examined on the anvil of paragraph 3 of CBDT Instruction No.5/2016, it is very much clear that
no reasonable view is formed as mandated in the said CBDT Instruction No.5/2016 in an objective manner and secondly merely suspicion and inference is the foundation of the view of the Assessing Officer. We also note that there is no direct nexus brought on record by the Assessing Officer in the said proposal and, therefore, it is very much apparent that the proposal of converting the limited scrutiny to complete scrutiny was merely aimed at making fishing enquiries. We also note that the Ld. Pr. Commissioner of Income Tax has accorded the approval in a mere mechanical manner which is in clear violation of the CBDT Instructions No.20/2015.
6.5 The Hon’ble Calcutta High Court in the case of Amal Kumar Ghosh reported in 361 ITR 458 (Cal.) discussed the purpose behind the
CBDT Circulars. The relevant observations of the Hon’ble Calcutta High Court are as under:
“…..Mrs. Gutgutia, learned Advocate submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees
from evading tax. Even assuming, that to be so, it cannot be said that the department, which is State, can be permitted to selectively
apply the standards set by themselves for their own conduct. If this type of deviation is permitted, the consequences will be that floodgate of corruption will be opened which it is not desirable to encourage. When the department has set down a standard for itself, the department is bound by that standard and cannot act with discrimination. In case, it does that, the act of the department is bound to be struck down under
Article 14 of the Constitution. In the facts of the case, it is not necessary for us to decide whether the intention of CBDT was to
restrict the period of issuance of notice from the date of filing the return laid down under section 143(2) of the I.T. Act.”
6.6 The Co-ordinate bench of ITAT at Chandigarh in the case of Paya Kumari in ITA No.23/Chd/2011, vide order dated 24.02.2011, has
held that even Section 292 BB of the Act cannot save the infirmity arising from infraction of CBDT Instructions dealing with the subject of scrutiny assessments where assessment has been framed in direct conflict with the guidelines issued by the CBDT.
6.7 Therefore, on an overall view of the factual matrix as well as settled judicial position, we are of the considered opinion that the instant
conversion of the case from limited scrutiny to complete scrutiny cannot be upheld as the same is found to be in total violation of CBDT
Instructions No.5/2016. Accordingly, it is our considered opinion that the entire assessment proceedings do not have any feet to stand on. Therefore, we hold the assessment order to be nullity and we quash the same.
6.8 Since, we have quashed the assessment order as being nullity, the other grounds raised by the assessee became academic in nature and are not being addressed to.
7.0 In the final result, the appeal of the assessee stands allowed.
Assistant Commissioner of Income Tax 12(3)(2) & ORS Vs. Marico Ltd. SPECIAL LEAVE PETITION (CIVIL) Diary No.7367/2020 (SC)
We have considered the rival submissions. It is a settled position in law that the power to reopen an assessment within a period of four years from the end of the relevant assessment year, even when the assessment has been made under Section 143(3) of the Act, is not curtailed by the proviso to Section 147 of the Act. Therefore, even where an assessee has disclosed all material facts truly and fully for assessment and assessment is completed under Section 143(3) of the Act, the reopening is permissible within a period of four years from the end of the relevant assessment year.
The only condition precedent for exercising the jurisdiction to reopen an assessment, is the Assessing Officer should have reasonable belief that income chargeable to tax has escaped assessment. This reason to believe that income chargeable to tax has escaped assessment should not be on the basis of change of opinion, as otherwise the power of reassessment would become a power of review, which it is not.
The Apex Court in Kelvinator of India Ltd. (supra), has while setting out the parameters for the exercise of powers of reopening an assessment had inter-alia observed as under :-
“ However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. But reassessment has to be based on fulfillment of certain pre-conditions and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place.
One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is
escapement of income from assessment. Reasons must have a live link with the formation of the belief.”
In the present facts, we note that the Assessing Officer during the course of regular assessment proceedings leading to the assessment order dated 30 January 2018, on basis of the profits and loss account and balance sheet and the practice for the earlier years i.e. Assessment Year 2013-14 had issued notice on 25 September 2017 to the Petitioner to show cause why the amount of Rs.47.04 crores being claimed as book depreciation on intangibles should not be disallowed to determine book profits under Section 115JB of the Act. The above query of the Assessing Officer was responded to by the Petitioner in great detail by its letters dated 10 October 2017 and 21 December 2017. It justified its claim for deductions by placing reliance upon the decisions of the Courts. In support of its contention that they are entitled to deduction of the current years depreciation from the net profit to arrive at the book profits under
Section 115JB of the Act. It was also explained that under subsection 6 of Section 211 of the Companies Act, reference to a balance
sheet or profit and loss account would also include any notes thereto or documents annexed thereto. Thus the notes to the account
should be taken into account to determine the net profits for working out the book profits in terms of Section 115JB of the Act.
The Assessing Officer thereafter proceeded to pass an assessment order dated 30 January 2018 under Section 143(3) of the Act and
did not make the proposed dis-allowance.
It is made clear that for the purpose of this petition, we are not called upon to and therefore not examining the correctness or
otherwise of the disallowance of depreciation to arrive at book profits. Our examination is limited only to jurisdiction of the
Assessing Officer to reopen the assessment.
It is undisputed position before us, that query was raised on the very issue of reopening during regular Assessment proceedings. The parties have responded to it and the Assessment Order dated 30 January 2018 makes no reference to the above issue at all. However, once a query has been raised by the Assessing Officer during the assessment proceedings and the assessee has responded to that query, it would necessarily follow, as held by our Court that the Assessing Officer has accepted the Petitioner’s/Assessee’s submissions, so as to not deal with that issue in the assessment order. In fact, our Court in GKN Sinter Metals Ltd. V/s. Ms. Ramapriya Raghavan, Assistant Commissioner of Income Tax, Circle 2(1) (371) ITR 225 had occasion to dealt with the similar/identical submissions on behalf of the Revenue viz. that an assessment order passed under Section 143(3) of the Act does not reflect any consideration of the issue, it must follow that no opinion was formed by the Assessing Officer in the regular assessment proceedings.
This submission was negatived by this Court by observing as follows :-
According to the Revenue, it could only be when the assessment order contains discussion with regard to particular claim can it be said that the Assessing Officer had formed an opinion with regard to the claim made by the assessee. This Court in Idea Cellular Ltd. v/s. Deputy Commissioner of Income Tax 301 ITR 407 has expressly negatived on identical contention on behalf of the Revenue. The Court held that once all the material was placed before the Assessing Officer and he chose not to refer to the deduction/ claim which was being allowed in the assessment order, it could not be contended that the Assessing Officer had not applied his mind while passing the assessment order. Moreover in this case, it is evident from the letter dated 6 th August, 2007 addressed by the Assessing Officer to the Petitioner containing the reasons recorded for issuing the impugned notice also record the fact that during the regular assessment proceedings, the Petitioner has been asked to furnish details in support of the claim for exemption under Section 80IA/IB of the Act. The
letter further records that the details sought for were furnished and it is now observed that there has been a disproportionate distribution of expenses between various units belonging to the Petitioner for claiming deduction under Section 80IA/IB of the Act. This is a further indication of the fact that the Assessing Officer had during the regular assessment proceedings for Assessment Year 200203 sought information in respect of the allocation of expenses and the explanation offered by the Petitioner was found to be Zsatisfactory. This is evident from query dated 27th December, 2004 and the Petitioner's response to the same on 25 th January, 2005 explaining the manner of distribution of common expenses for delaying the process of claiming deduction under Section 80IA/IB of the Act. All this would indicate that Assessing Officer had formed an opinion while passing the order dated 9 th March, 2005. This Court in Aroni Commercials Ltd. v/s. Assistant Commissioner of Income Tax 367 ITR 405 had occasion to consider somewhat similar submission made by the Revenue and negatived the same by holding that when a query has been raised with regard to a particular issue during the regular assessment proceedings, it must follow that the Assessing Officer had applied his mind and taken a view in the matter as is reflected in the Assessment Order. Besides, the manner in which an Assessing Officer would draft/frame his order is not within the control of an assessee. Moreover, if every contention raised by the assessee which even if accepted is to be reflected in the assessment order, then as observed by the Gujarat High Court in CIT v/s. Nirma Chemicals Ltd. 305 ITR 607, the order would result into an epic tome. Besides, it would be impossible for the Assessing Officer to complete all the assessments which have to under gone scrutiny at its hand. In the above view, it is clear that once a query has been raised during the assessment proceedings and the Petitioner has responded to the query to the satisfaction of the Assessing Officer as is evident from the fact that the Assessment Order dated 9th March, 2005 accepts the Petitioner's claim for deduction under Section 80IA/IB of the Act. It must follow that there is due application of mind by the Assessing Officer to the issue raised. The above observations apply on all fours to this Petition, so far as the Revenue’s submission of no change of opinion is concerned.
The further submission of Mr. Walve that in the absence of the Assessing Officer adjudicating upon the issue it cannot be said
that the Assessing Officer had formed an opinion during the regular assessment proceedings leading to the order dated 30 January 2018.
An adjudication would only be on such issue where the assessee’s submissions are not acceptable to the Revenue, then the occasion to
decide a lis would arise i.e. adjudication. However, where the Revenue accepts the view propounded by the assessee in response to
the Revenue’s query, the Assessing Officer has certainly to form an opinion whether or not the stand taken by the assessee is acceptable.Therefore, it must follow that where queries have been raised during the assessment proceedings and the assessee has responded to the same, then the non-discussion of the same or non-rejection of the response of the assessee, would necessarily mean that the Assessing Officer has formed an opinion accepting the view of the Assessee. Thus an opinion is formed during the regular Assessment proceedings, bars the Assessing Officer to reopen the same only on account of a different view.
Thus we find that the reasons in support of the impugned notice is the very issue in respect of which the Assessing Officer has raised the query dated 25 September 2017 during the assessment proceedings and the Petitioner had responded to the same by its letters dated 10 December 2017 and 21 December 2017 justifying its stand. The non-rejection of the explanation in the Assessment Order would amount to the Assessing Officer accepting the view of the assessee, thus taking a view/forming an opinion. Therefore, in these circumstances, the reasons in support of the impugned notice proceed on a mere change of opinion and therefore would be completely without jurisdiction in the present facts.
Accordingly, the impugned notice dated 27 March 2019 is quashed and set aside.
Petition allowed.
Muradul Haque Vs. Income Tax Officer, Ward- 44 (1) New Delhi, ITA No. 114/Del/2019
We have heard the rival submissions and perused the material available on record. The issue in the present appeal is with respect to disallowance to section 40(a)(ia) of the Act. The perusal of the details of the commission paid by the assessee, which is placed in the paper book reveals that out of the total commission of Rs. 25,24,747/- which has been disallowed u/s 40(a)(ia), includes the amounts paid to Anuj Kumar, Surya Kumar, Mukesh Tyagi and Krishna Dayal which individually are below Rs. 10,000/- each and therefore we find force in the argument of the Ld AR that on those payments assessee was not required to deduct TDS u/s. 194H of the Act. We therefore hold that the same cannot be disallowed u/s 40(a)(ia) of the Act. We accordingly direct its deletion.
As far as the amounts paid to other persons in the list are concerned, we find the payments to be in excess of Rs 10000/- each. We find that Finance (No.2) Act has made amendment to section 40(a)(ia) of the Act w.e.f. 01.04.2015. Various benches of the Tribunals including the Delhi Benches of the Tribunal, have held the amendment made by Finance (No 2) Act to be curative in nature. We further finds the coordinate bench of the Tribunal in the case of R.H. International Vs. ITO (supra) has held that disallowance u/s. 40(a)(ia) of the Act be restricted to 30% of the expenses paid as against 100% because amended provision is curative in nature and the provisions should be applied retrospectively. Before us no contrary binding has been point out by the Revenue nor could the DR point any distinguishing feature in the cases relied upon by Ld. AR. We, therefore, hold that the disallowance of expenses on account of non deduction of TDS be restricted to 30% of the expenses where the amounts paid are in excess of Rs. 10,000/-. We thus hold so.
In the result, the appeal filed by the assessee is partly allowed.
Sh. Navin Jolly Vs. Income Tax Officer, Ward- 11(1), Bangalore ITA No. 320 of 2011
We have considered the submissions made on both the sides and have perused the record. Before proceeding further, it is apposite to take note to Section 54F(1) of the Act, which is reproduced below for the facility of reference:
54F. (1) Subject to the provisions of subsection (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain
shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears
to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
Provided that nothing contained in this subsection shall apply where—
(a) the assessee,—
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset,
is chargeable under the head "Income from house property".
Explanation.—For the purposes of this section,—
"net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
From close scrutiny of Section 54F(1) of the Act, it is evident that in order to attract Section 54F(1) of the Act, the conditions stipulated in clauses (a) and (b) of proviso to Section 54F(1) have to be complied with as the legislature has used the expression ‘and’ at the end
of clause (a) of proviso to Section 54F(1) of the Act. It is pertinent to note that under Section 22 of the Act any income from any buildings irrespective of which the use which has to be treated under the head ‘income from house property’. It is well settled legal proposition that
a provision in a taxing statute providing incentive for promoting growth and development has to be construed liberally so as to advance the object of the Section and not to frustrate it. [SEE:’CIT VS. STRAWBOARD MFg. CO. LTD.’, (1989) 177 ITR 431 (SC) AND ‘BAJAJ
TEMPO LTD. SUPRA]. A bench of this court in SAMBANDAM UDAY KUMAR SUPRA while interpreting
Section 54F of the Act has held that provisions of Section 54F is a beneficial provision for promoting construction of residential houses and has to be construed liberally. Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts have taken a view that usage of the property has to be considered in determining whether it is a residential property or a commercial property and Madras High Court in
C.H.KESVA RAO supra has held that expression ‘residence’ implies some sought of permanency and cannot be equated to the expression ‘temporary stay’ as a lodger.
In the backdrop of aforesaid well settled legal principles, the facts of the case in hand may be examined. Learned counsel for the revenue have fairly submitted that out of nine apartments, seven flats have been sanctioned for commercial purposes. Therefore, the dispute only survives in respect of two apartments,
which have been sanctioned for residential purposes and are being used for commercial purposes as serviced apartments. The usage of the property has to be considered for determining whether the property in question is a residential property or a commercial property. It is not in dispute that the aforesaid two apartments are being put to commercial use and therefore, the aforesaid apartments cannot be treated as residential apartments. The contention of the revenue that the apartments cannot be taxed on the basis of the usage does not deserve acceptance in view of decisions of Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts with which we respectfully concur.
Alternatively, we hold that assessee even otherwise is entitled to the benefit of exemption under Section 54F(1) of the Act as the assessee owns two apartments of 500 square feet in same building and therefore, it has to be treated as one residential unit.
The aforesaid fact cannot be permitted to act as impediment to allowance of exemption under Section 54F(1) of the Act. Similar view was taken by Delhi High Court in case of Geeta Duggal wherein the issue whether a residential house which consists of several
independent residential units would be entitled to exemption under Section 54F(1) of the Act was dealt with and the same was answered in the affirmative. The appeal against the aforesaid decision was dismissed by the Supreme Court by an order reported in (2014) 52
taxmann.com 246 (SC). We agree with the view taken by Delhi High Court.
For the aforementioned reasons, the substantial questions of law are answered in favour of the assessee and against the revenue. In the result, the orders of the assessing officer and Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal insofar as it pertains to denial of exemption under Section 54F(1) of the Act to the appellant is hereby quashed. In the result, appeal is allowed.
Principal Commissioner of Income Tax-14 Vs. Alag Securities Pvt. Ltd., ITA No. 1212 of 2017
We are in agreement with the view taken by the Tribunal. In a case of this nature Section 68 of the Act would not be attracted. Section 68 would come into play when any sum is found credited in the books of the assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not in the opinion of the Assessing Officer satisfactory.
In such a situation the sum so credited may be charged to income tax as the income of the assessee of the relevant previous year. But that is not the position here. It has been the consistent stand of the assessee which has been accepted by the First Appellate Authority and affirmed by the Tribunal that the business of the assessee centered around customers / beneficiaries making deposits in cash
amounts and in lieu thereof taking cheques from the assessee for amounts slightly lesser than the quantum of deposits, the difference representing the commission realized by the assessee. The cash amounts deposited by the customers i.e., the declared by the assessee i.e., M/s. Goldstar Finvest Pvt. Ltd., and set aside the order of CIT (A). Tribunal further noticed that the above stand had been consistently followed by the Tribunal in various orders. No distinguishing featurecould be brought on record by the Revenue. Therefore, Tribunal following the beneficiaries had been accounted for in the assessment orders of these
Coming to the percentage of commission, Tribunal had already held 0.1% commission in similar type of transactions to be a reasonable percentage of commission. Therefore Tribunal accepted the percentage of commission at 0.15% disclosed by the assessee itself. This finding is a plausible one and it cannot be said that the rate of commission was arrived at in an arbitrary manner. The same
does not suffer from any error or infirmity to warrant interference, that too, under Section 260-A of the Act.
In so far the decision of the Supreme Court in NRA Iron and Steel Pvt. Ltd. (supra) is concerned, the same is not attracted in the present case in as much as facts of the present case are clearly distinguishable. Unlike the present case, the assessee in NRA Iron and Steel Pvt. Ltd. (supra) claimed the cash credits as its income. However, it was found that the creditors had meagre or nil income which
did not justify investment of such huge sums of money in the assessee. The field enquiry conducted by the Assessing Officer revealed that in several cases the investor companies were non-existent. Thus, it was held that the assessee had failed to discharge the onus which lay on it to establish the identity of the investor companies and the credit worthiness of the investor companies. In such circumstances, the entire transaction was found to be bogus. But as already discussed in the preceding paragraphs, assessee never claimed the cash credits as its income. It admitted its business was to provide accommodation entries. In return for the cash credits it used to issue cheques to the customers / beneficiaries for slightly lesser amounts, the balance being its commission. Moreover, the cash
credits had been accounted for in the respective assessment of the beneficiaries.
Therefore, the decision in NRA Iron and Steel Pvt. Ltd. (supra) is clearly beneficiaries. Therefore, question of adding such cash credits to the income of the assessee, more so when the assessee was only concerned with the commission earned on providing accommodation entries does not arise. distinguishable and not attracted to the facts of the present case.
On a thorough consideration of all relevant aspects, we have no hesitation therefrom. There is no merit in the appeal. Appeal is accordingly dismissed. However, there shall be no order as to costs.
M/s Essar Shipping Limited Vs. Commissioner of Income-tax, City III, Mumbai ITA (201 of 2002
From the above it is quite evident that according to the Supreme Court for applicability of Section 28(iv) of the Act, the income which can be taxed has to arise from the business or profession. That apart, the benefit which is received has to be in some other form rather than in the shape of money. In the facts of that case it was found that the amount of Rs.57,74,064.00 was received as cash receipt due to waiver of loan. Therefore, it was held that Section 28(iv) of the Act was not satisfied in as much as the prime condition of Section
28(iv) that any benefit or perquisite arising from the business or profession shall be in the form of benefit or perquisite other than in the shape of money was absent. Therefore, it was held that the said amount could not be taxed under Section 28(iv) of the Act in no circumstances.
Facts and issue in the present case are identical to that in Mahindra & Mahindra (supra). Here also loan of Rs.2.52 cores was given by the Karnataka Government to the assessee which was subsequently waived off. Therefore, this amount would be construed to be cash receipt in the hands of the assessee and cannot be taxed under Section 28(iv). In view of the Supreme Court decision in Mahindra & Mahindra (supra), the earlier decision of this court in Protos Engineer Company Private Limited (supra) would no longer hold good.
In so far the decision in Sahney Steel & Press Works Limited (supra) is concerned, we find that the issue involved in the said case pertained to subsidy received by the assessee from the Andhra Pradesh Government. Question was whether such subsidy received was taxable as revenue receipt or not. In the facts of that case it was held that such subsidies were of revenue nature and not of capital
nature.
In so far the argument of Mr.Chhotaray that upon waiver of loan the amount covered by such loan would partake the character of operational subsidy, we are unable to accept such a contention. Conceptually, “loan” and “subsidy” are two different concepts. As per the Concise Oxford English Dictionary, Indian Edition, the term “loan” has been explained as a thing that is borrowed, especially a sum of money that is expected to be paid back with interest; the action of lending. Black’s Law Dictionary, Eight Edition, describes “loan”
as an act of lending; a grant of something for temporary use; a thing lent for the borrower’s temporary use, especially a sum of money lent at interest; to lend, especially money. In Supreme Court on Words and Phrases, it is stated that “loan” necessarily supposes a return of the money loaned; in order to be a loan, the advance must be recoverable; “loan” is an advance in cash which includes any transaction which in substance amounts to such advance. Having noted the above, we may revert back to what the Supreme Court has said
regarding “loan” in Mahindra & Mahindra (supra). It is stated that “loan” generally refers to borrowing something, especially a sum of cash which is to be paid back alongwith interest decided by the parties. Therefore, the loanee or Priya Soparkar 11 210 itxa 201-02-o
debtor is under a liability or obligation to pay back the loan amount i.e. the principal amount alongwith the interest agreed upon within a stipulated time frame. It is in this context that Supreme Court acknowledged the well settled principle that the creditor has the right to waive off the loan or the debt either partly or fully, thus absolving the debtor from the liability of repayment of loan.
1. In contra-distinction, “subsidy” has been explained in the Concise Oxford English Dictionary, Indian Edition, as a sum of money granted from public funds to help an industry or business keep the price of a commodity or service low; a sum of money granted to support an undertaking held to be in the public interest i.e., a grant or contribution of money. As per Black’s Law Dictionary, Eight Edition, “subsidy” has been defined as a grant usually made by the Government to any enterprise whose promotion is considered to be in the public
interest; although Governments sometimes make direct payments (such as cash grants), subsidies are usually indirect. A subsidy granted for production or bringing into existence any new asset of the assessee would be construed to be a capital receipt whereas a subsidy granted for the purpose of assisting the assessee to carry on its already existing business would be in the nature of revenue receipt and thus taxable. Therefore, when a subsidy is given, the character thereof in the hands of the recipient - whether revenue or capital –
would have to be determined having regard to the purpose for which it is given. In Sahney Steel and Press Works Ltd. (supra), Supreme Court held that subsidy provided by the Andhra Pradesh Government was basically an endeavour of the state to extend a helping hand to the newly set up industries to enable them to be viable and competitive.
Thus, from a careful analysis, it is evident that there is a fundamental difference between “loan” and “subsidy” and the two concepts cannot be equated. While “loan” is a borrowing of money required to the repaid back with interest; “subsidy” is not required to be repaid back being a grant. Such grant is given as part of a public policy by the state in furtherance of public interest. Therefore, even if a “loan” is
written off or waived, which can be for various reasons, it cannot partake the character of a “subsidy”.
From the discussions and reasons aforementioned, wefind sufficient force in the contention of the appellant. The substantial question of law therefore is answered in favour of the assessee by holding that waiver of loan cannot be brought to tax under Section 28(iv) of the Act.
Appeal is accordingly allowed but there shall be no order as to cost.
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