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Category: In the High Courts: Part A-Reported Decisions

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

23 Tamil Nadu State Marketing Corporation Ltd. vs. DY. CIT(TDS)

[2024] 463 ITR 487 (Mad)

A.Ys.: 2016–17 to 2023–24

Date of order: 22nd December, 2023

S. 206C of the ITA 1961

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

The assessee-company was wholly owned by the Government of Tamil Nadu. It was a statutory body which had been vested with the special and exclusive privilege of effecting wholesale supply of Indian-made foreign spirits in the entire State of Tamil Nadu under section 17C(1A)(a) of the Tamil Nadu Prohibition Act, 1937. The assessee ran a number of retail vending liquor shops across the State and, as a policy decision, it did not want to get into the business of running bars. The assessee had taken the responsibility of ensuring bars were located adjacent to its shop so that liquor sold in its shops were consumed in the licensed bars. From 2005, the assessee floated tenders to select third-party bar contractors (licensees) to sell eatables and collect empty bottles from bars situated adjacent to or within the assessee’s retail shops. The assessee awarded contracts to various bar owners to run the bar adjacent to the retail shops run by the assessee. The licensees who had been issued licences to run the bar adjacent to the retail outlets of the assessee were required to offer their bid to run the bar under a tender process under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. In the bar, the bar contractors (successful licensees) were entitled to sell food items (short eats) and collect the bottles left by the consumers after consuming liquor from the retail outlet in the premises licensed under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 to the bar licensees. For the A.Y. between 2016–17 and 2023–24, the Assessing Officer held that the assessee ought to have collected tax at source u/s. 206C(1) of the Income-tax Act, 1961 on the amounts tendered by the successful bar licensee, inter alia, towards tax from sale of empty bottles by treating the sale of bottles as scrap.

Assessee filed writ petition challenging the orders. The Madras High Court allowed the writ petition and held as under:

“i) Section 206C of the Income-tax Act, 1961, seeks to prevent evasion of taxes and therefore shifts the burden to pay tax on the seller. Section 206C was enacted in the year 1988 to ensure collection of taxes from persons carrying on particular trades in view of peculiar difficulties experienced by the Revenue in the past in collecting taxes from the buyer. It therefore needs to be construed strictly to achieve the purpose for which it was inserted in the year 1988 in the Income-tax Act, 1961. Section 206C of the Act deals with profits and gains from the trading in alcoholic liquor, scrap, etc. Section 206C contemplates a seller of specified goods to collect as tax from a buyer, a sum equal to the percentage specified entry in column 3. There is no definition for the expression ‘buyer’ in section 206C of the Act. ‘Buyer’ is defined in section 2(1) of the Sale of Goods Act, 1930 as a person who buys or agrees to buy goods. Under sub-section (7) to section 206C of the Act, where a person responsible for collecting tax fails to collect it in accordance with section 206C(1) of the Income-tax Act, 1961, shall be liable to pay tax to the credit of the Central Government in accordance with the provisions of sub-section (3). The expression ‘scrap’ has been defined to mean waste and scrap from the ‘manufacture’ or ‘mechanical working of materials’ which is definitely not usable as such because of breakage, cutting up, wear and other reasons. The expression ‘mechanical working of materials’ in the definition of ‘scrap’ in Explanation (b) to section 206C has not been defined separately. Both manufacture and ‘mechanical working of material’ can generate ‘scrap’. Although, an activity may not amount to ‘manufacture’ yet waste and scrap can be generated from ‘mechanical working of material’. Though the expression ‘manufacture’ has been defined in the Income-tax Act, 1961, the expression ‘mechanical working of material’ has not been defined in the Act.

ii) The principle of nocitur a sociis, provides that words and expression must take colour from words with which they are associated. In the absence of definition for the expression ‘mechanical working of materials’ in section 206C of the Act, the doctrine of nocitur a sociis can be usefully applied. Only those activities which resemble ‘manufacturing activity’, but are not ‘manufacturing activity’ can come within the purview of the expression ‘mechanical working of material’. Only such ‘scrap’ arising of such ‘mechanical working of material’ is in contemplation of section 206C.

iii) Mere opening, breaking or uncorking of a liquor bottle by twisting the seal in a liquor bottle would not amount to generation of ‘scrap’ from ‘mechanical working of material’ for the purpose of the Explanation to section 206C of the Act. That apart, the activity of opening or uncorking the bottle was also not done by the assessee. These were independent and autonomous acts of individual consumers who decided to consume liquor purchased from the shops of the assessee which had a licensed premises (bar) adjacent to them under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. Scrap, if any, was generated at the licensed premises which were leased by the licensees from the owners of the premises. Rule 9(a) of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 merely grants privilege to the respective bar owners only to run the bars to sell the eatables and to clear left over empty bottles. Bottles are neither ‘scrap’ nor the property of either the assessee or bar licensee.

iv) There was neither ‘manufacture’ nor generation of ‘scrap’ from ‘mechanical working of materials’, and the liability u/s. 206C of the Income-tax Act, 1961 was not attracted. Therefore, invocation of sections 206C, 206CC and 206CCA of the Act was wholly misplaced and unwarranted. The order were not valid.”

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

22 Principal CIT vs. Weilburger Coatings (India) Pvt. Ltd.

[2024] 463 ITR 89 (Cal):

A.Y. 2015–16

Date of order: 11th October, 2023

Ss. 143(2) and 143(3) of ITA 1961

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

The return of the assessee for the A.Y. 2015–16 was selected for limited scrutiny. The assessee was issued notice u/s. 143(2) of the Income-tax Act, 1961 in respect of the disallowance of carry forward of losses of earlier years. The assessee participated in the proceedings and thereafter, the assessment was completed u/s. 143(3) of the Act.

The Commissioner (Appeals) affirmed the disallowance. The assessee preferred an appeal before the Tribunal, raising an additional ground that the action of the Assessing Officer (AO) in making additions in respect of issues not mentioned in limited scrutiny were beyond the jurisdiction of the AO. The Tribunal, holding that the issue was jurisdictional and could be raised by the assessee at any point of time, admitted it and, holding that the AO had exceeded his jurisdiction in completing the assessment u/s. 143(3) of the Income-tax Act, 1961 on grounds which were not subject matter of limited scrutiny u/s. 143(2) for the A.Y. 2015–16, deleted the disallowance of carry forward of losses of earlier years.

The Calcutta High Court dismissed the appeal filed by the Revenue and held as under:

“i) The finding of the Tribunal, that the additional ground raised by the assessee against the order of the Commissioner (Appeals) confirming the addition made by the Assessing Officer in respect of issues not mentioned in the limited scrutiny were beyond jurisdiction of the Assessing Officer since it was selected for limited scrutiny assessment and not complete scrutiny, was a jurisdictional issue and could be raised by the assessee at any point of time was justified and in accordance with the settled legal principle. The Tribunal had also considered the Central Board of Direct Taxes Instruction No. 5 of 2016 to hold that the Assessing Officer had exceeded his jurisdiction.

ii) The Tribunal did not err in deleting the disallowance of carry forward of losses of earlier years and in holding that the Assessing Officer had exceeded his jurisdiction in enquiring into other issues which were beyond the scope of limited scrutiny u/s. 143(2) for the A. Y. 2015-16.”

Non-resident — Income deemed to accrue or arise in India — Situs of share or interest transferred outside India deemed to be located in India by corelating it with underlying assets in India — Insertion of Explanations 6 and 7 to section 9(1)(i) — Prospective or retrospective — Explanations 6 and 7 have to be read along with Explanation 5 which operates from 1st April, 1962 — Explanations 6 and 7 clarificatory and curative — To be given retrospective effect — Deeming provision attracted only where share or interest does not exceed percentage specified or transferor did not exercise right of management and control in company whose share and interest transferred:

21 CIT(IT) vs. Augustus Capital PTE Ltd.

[2024] 463 ITR 199 (Del.)

A.Y.: 2015-16

Date of order 30th November, 2023

S. Explanations 5, 6 and 7 of section 9(1)(i) of the ITA 1961

Non-resident — Income deemed to accrue or arise in India — Situs of share or interest transferred outside India deemed to be located in India by corelating it with underlying assets in India — Insertion of Explanations 6 and 7 to section 9(1)(i) — Prospective or retrospective — Explanations 6 and 7 have to be read along with Explanation 5 which operates from 1st April, 1962 — Explanations 6 and 7 clarificatory and curative — To be given retrospective effect — Deeming provision attracted only where share or interest does not exceed percentage specified or transferor did not exercise right of management and control in company whose share and interest transferred:

The Assessee Company was incorporated under the laws of Singapore on 22nd November, 2011. Between January 2013 and March 2014, the assessee invested in equity and preference shares of APL, a company incorporated in and resident of Singapore. On 27th March, 2015, the assessee sold its investment in APL to an Indian Company, JIPL for ₹41,24,35,969. The return of income for AY 2015-16 was filed declaring NIL income and refund of ₹17,84,19,800 was claimed.

The assessee’s case was selected for scrutiny and queries were raised in the course of assessment proceedings. The main contention of the assessee in its replies was that the assessee had only acquired 0.05 per cent of the ordinary share capital and 2.93 per cent of the preference share capital of APL and the assessee did not have right of management and control concerning the affairs of APL and hence the capital gains arising on account of transfer of shares was not taxable in India. The AO did not accept the contention of the assessee and proposed an addition of ₹36,33,15,969 under the head Capital Gains. In the objections before the DRP, the main contention of the assessee was that Explanation 7 of section 9(1)(i) ought to have been given retrospective effect, and in not doing so, the AO had committed an error. The respondent / assessee asserted that Explanations 6 and 7 clarified Explanation 5, which was introduced via Finance Act 2012. The DRP rejected the objections and the final assessment order was passed confirming the proposed addition. On appeal before the Tribunal, the Tribunal decided the issue in favour of the assessee and deleted the addition.

On appeal before the High Court, the main contention of the Appellant Department before the High Court was that the insertion of Explanations 6 and 7 via Finance Act 2015 was to take effect from 1st April, 2016 and could only be treated as a prospective amendment. The argument advanced in support of this plea was that Explanations 6 and 7 brought about a substantive amendment in section 9(1)(i) of the Act.

The assessee, on the contrary, contended that the provisions of s. 9(1)(i) r.w. Explanations 4, 5, 6 and 7 form a complete code, whereby situs of share or interest transferred outside India is deemed to be located in India, provided a substantial value of the underlying assets, as defined in Explanation 6, is located in India and where the transfer of share and interest exceeds the percentage provided in Explanation 7 and the transferor exercises a right of management and control in the company whose share and interest is being transferred. Explanations 6 and 7 have not brought about a substantive amendment. This is evident upon perusal of the opening words of Explanation 6 and 7, which begin with the expression “For the purpose of this clause….”. Quite clearly, Explanations 6 and 7 are not standalone provisions. The provision made by the legislature via Explanations 6 and 7 will have no meaning if it is not tied in with Explanation 5.

The High Court dismissed the appeal of the Department and the issue was decided in favour of the assessee as follows:

“Explanations 6 and 7 to section 9(1)(i) alone would have no meaning if they were not read along with Explanation 5. If Explanations 6 and 7 are not read along with Explanation 5, no legislative guidance would be available to the Assessing Officer regarding the meaning to be given to the expression “share or interest” or “substantially” found in Explanation 5. Therefore, if Explanations 6 and 7 were to be read along with Explanation 5, which operated from 1st April, 1962, they would have to be construed as clarificatory and curative. The Legislature had taken a curative step regarding the vague expressions “share or interest” or “substantially” used in Explanation 5. Therefore, though the Explanations 6 and 7 were indicated in the Finance Act, 2015 to take effect from 1st April, 2016, they could be treated as retrospective, having regard to the legislative history which had led to the insertion of Explanations 6 and 7.”

Assessment — Company — Dissolution — No corporate existence continues — Company not in existence at the time of passing assessment order — No provision to assess dissolved company — Order against non- existent entity null and void:

20 Rainawari Finance & Investment Company Pvt. Ltd. vs. ITO

[2024] 463 ITR 65 (J&K&L.)

A.Y.: 2004-05

Date of order: 3rd November, 2023

S. 143 of the ITA 1961 and S. 560 of the Companies Act, 1956

Assessment — Company — Dissolution — No corporate existence continues — Company not in existence at the time of passing assessment order — No provision to assess dissolved company — Order against non- existent entity null and void:

The assessee filed a NIL return of income for AY 2004-05. The return of income filed by the assessee contained a note stating that the assessee had filed an application before the ROC u/s. 560 of the Companies Act for striking off the name of the assessee from the Register of Companies. The assessment was completed u/s. 143(3) of the Act and addition of ₹1,00,75,000 was made on account of unsecured loan received during the earlier years and credited to the capital reserve during the previous year. On appeal before the first appellate authority, the appeal was dismissed. On second appeal, the Tribunal remanded the case back to the CIT(A) to adjudicate the case afresh after complying with necessary requirements of deposit of fees under the provisions of the Act. On remand, the CIT(A) confirmed the addition. The Tribunal confirmed the order of the CIT(A). The assessee’s contention that no assessment order could have been passed was rejected by the CIT(A) as well as the Tribunal.

The assessee filed appeal before the High Court on the only ground that the assessing authority could not have passed an assessment order as the assessee company was dissolved as per the provisions of section 560(5) of the Companies Act at the time of making the assessment order.

On the other hand, the Department argued that the Department was not intimated about the assessee company being dissolved and therefore, the assessee could not contend that the aforesaid aspect was not considered by the authorities.

The Hon’ble High Court decided the appeal in favour of the assessee and held as follows:

“i) Once a company is dissolved under section 560(5) of the Companies Act, 1956 it ceases to exist and, therefore, no order of assessment could be validly passed against it under the Income-tax Act, 1961 and if it is passed, it would be a nullity. Section 560(7) of the 1956 Act read along with section 2(31) of the Income-tax Act, 1961 makes it clear that the assessee to be assessed under section 143 of the 1961 Act must be a person in existence. A company is a juridical person but the moment it is struck off from the register of companies and is dissolved, it ceases to exist. An assessment order against a non-existent company would be a nullity and would not give rise to any right or liability under such an order.

ii) For the purpose of challenging the action of the Registrar striking off the registration of the company and effecting its dissolution by publication in the Official Gazette, the company is conferred a juridical personality and may in its own name file an application before the court for setting aside the order passed by the Registrar under sub-section (5) of section 560 of the 1956 Act. Similarly, under section 226(3) of the 1961 Act, it is provided that if there is any tax due from the struck off company it can be recovered from any person who holds or may subsequently hold money for or on account of the assessee-company.

iii) After promulgation of the Companies Act, 2013 and in view of the specific provision made in section 250 thereof, the dissolved company is by fiction of law conferred juridical personality and may, therefore, be competent to challenge the assessment order, if any, passed against it when it stood dissolved by the Registrar under section 248 of the Companies Act, 2013. Similar provision is absent under the Companies Act, 1956.

iv) On the date of passing of the assessment order, the company stood dissolved under section 560(5) of the 1956 Act on the publication of the notice in the Official Gazette and was struck off from the register of companies. In terms of section 143 of the 1961 Act, assessment can be made by the assessing authority only against the assessee, who has filed a return under section 139 or in response to a notice issued under sub-section (1) of section 142. Although the assessee had never brought the aforesaid facts to the notice of the assessing authority, the Commissioner (Appeals) and the Tribunal, all the three authorities committed no illegality in holding that merely because the company was defunct, the assessing authority could not be restrained from passing the assessment order against it. The authorities had concurrently held that there was distinction between the company which was rendered defunct because of stoppage of operations and was formally struck off and dissolved in terms of sub-section (5) of section 560 of the 1956 Act. The order of assessment and the orders of the Commissioner (Appeals) and the Tribunal were set aside.

v) Section 250 of the Companies Act, 2013 was not in existence in the year 2006 nor there was any provision parallel to or in pari materia with this section in the 1956 Act, as was applicable at the relevant point of time. The assessee was given fictional juridical personality only for the purpose of laying challenge before the court to the order of the Registrar striking it off from the register and effecting its dissolution upon publication of the notice in the Official Gazette and no more. The directors of the company who under some circumstances could be held liable to pay the dues owed by the assessee-company to the Department were competent in law to take proceedings against the assessment order passed against a dissolved company, if they were aggrieved. Therefore, all the proceedings by the assessee before the Commissioner (Appeals) and the Tribunal were not maintainable. Similarly, the appeal by the company was also not maintainable. The assessee having ceased to exist was not competent to challenge the assessment order, though, the director might have. Since the company all along been represented by the director, all proceedings taken in the name of the assessee should be treated to be the proceedings by the director of the company.

vi) Notwithstanding dissolution of a struck off company in terms of sub-section (5) of section 560 of the Companies Act, the liability of any person who holds or may subsequently hold money for and on account of the assessee-company or a director of the private company in respect whereof any tax is due in respect of any income of the previous year, as is provided under section 226(3) and section 179 of the 1961 Act, still remains and such person or director shall have the locus standi to challenge the assessment order, if any, passed by the Assessing Officer against such struck off and dissolved company in respect of any income of the previous year.

vii) If the company is not in existence at the time of making the assessment, no order of assessment can be validly passed upon it under the 1961 Act and if one is passed, it must be a nullity.”

Re-assessment — Faceless assessment — Validity — Condition precedent for faceless assessment — Adequate opportunity should be provided to assessee to be heard:

19 Packirisamy Senthilkumar vs. GOI

[2024] 461 ITR 473 (Mad.)

A.Y. 2016-17

Date of order: 2nd June, 2023

Ss. 144B and 147 of ITA 1961

Re-assessment — Faceless assessment — Validity — Condition precedent for faceless assessment — Adequate opportunity should be provided to assessee to be heard:

The assessee, a non-resident Indian, has been resident of Singapore since 1996 and a regular taxpayer there. During the previous year relevant to the AY 2016-17, the assessee purchased immovable properties amounting to ₹90,00,000 for which TDS was deducted. The assessee had not filed his return of income.

The assessee received a clarification letter dated 10th February, 2023 calling upon the assessee to reply along with documentary evidence stating that a sum of ₹1,80,00,000 had escaped assessment for the AY 2016-17. The assessee submitted a detailed reply on 23rd February, 2023 despite which notice u/s. 148A(b) dated 4th March,2023 was issued proposing to re-open the assessment. In response, the assessee once again submitted a detailed response vide letter dated 13th March, 2023 repeating its earlier reply and the reason why no return of income was filed for AY 2016-17. The AO passed order u/s. 148A(d) without considering the submission of the assessee against which the assessee filed a petition before the High Court.

The assessee contended that in the clarification letter as well as the show cause notice u/s. 148A(b), the only reason stated for re-opening of assessment was the purchase of immovable property of ₹90,00,000 and therefore a sum of ₹1,80,00,000 had escaped assessment. However, in the order passed u/s. 148A(d), the AO had dealt with the loan account, employment details, salary certificate, etc. of the assessee and he was never called upon to explain or given time to produce the documents. Therefore, the assessee submitted that the order be set-aside.

On the other hand, the Department contended that the assessee had not given any details as to how a sum of ₹22,50,000 had been sourced by him. The assessee had also not submitted any details about his employment and earnings from such employment. Lastly, it was submitted that no prejudice would be caused to the assessee since the AO had only proceeded to ask clarifications.

The Hon’ble High Court allowing the petition in favour of the assessee held as follows:

“the notice to the assessee had been based only on certain reasons, whereas the order added new reasons for the order. The assessee had not been given an opportunity to answer and explain them. Therefore, taking into account the fact that the very basis of the demand was erroneous and the order proceeded to give new reasons, which the assessee had not been given an opportunity to defend, the order had to be set aside.”

Charitable purpose — Registration of trust — Appeal to appellate tribunal — Power of Tribunal to grant registration: Charitable purpose — Registration of trust — Factors to be considered by Commissioner — Objects of trust and genuineness of activities of trust — Whether trust entitled to exemption on facts to be considered by Assessing Officer:

18 CIT(Exemptions) vs. Nanak Chand Jain Charitable Trust

[2024] 462 ITR 283 (P&H.)

A. Y. 2016-17

Date of order: 8th February, 2023

Ss. 11, 12AA and 254(1) of ITA 1961

Charitable purpose — Registration of trust — Appeal to appellate tribunal — Power of Tribunal to grant registration:

Charitable purpose — Registration of trust — Factors to be considered by Commissioner — Objects of trust and genuineness of activities of trust — Whether trust entitled to exemption on facts to be considered by Assessing Officer:

The assessee trust was set up by one VOL, a limited company as the settlor, to carry out its duties under the CSR as provided under the provisions of section 135 of the Companies Act, 2013. The objects of the trust were in the nature of eradicating hunger and poverty, promotion of education, promoting gender equality etc. An application for grant of registration u/s. 12AA was filed before the Commissioner (Exemptions) on 28th March, 2016 which was rejected by the Commissioner on the ground that the assessee trust had been formed by the settlor for the purpose of carrying out its CSR activities and also rejected the application u/s. 80G(v) holding that the application was void ab initio in terms of Rule 11AA.

On appeal before the Tribunal, the appeal of the assessee was allowed and the order passed by the Commissioner was set aside. The Tribunal, inter alia, held that merely because the trust was formed to comply with the CSR requirements, registration could not be denied to the assessee trust u/s. 12AA of the Act. The Tribunal held that while granting registration under section 12AA of the Act, the Commissioner is required to see only two factors, that is, the objects of the trust, whether they are charitable in nature and the genuineness of the activities of the trust. There is no requirement to see whether the activities are in sync with the Companies Act or not. The CIT is empowered to satisfy himself about the charitable object and the genuineness of the activities and once they are not in doubt, the powers u/s. 12AA end. Such powers do not extend to the eligibility of the trust/ institution for exemption u/s 11 r.w.s 13 of the Act which falls in the domain of the AO. Thus, the Tribunal directed the CIT to grant registration u/s. 12AA of the Act as well as the approval u/s. 80G(5)(vi) of the Act.

On Department’s appeal before the High Cout, the High Court dismissed the appeal of the Department and upheld the view of the Tribunal. The observations of the High Court are as follows:

i) The Tribunal had rightly examined the case of the assessee for grant of registration under section 12AA of the Act. The Tribunal had recorded its satisfaction as the trust fulfilled the following two basic conditions for grant of registration under section 12AA of the Act and the object of the trust, and the genuineness of the activities of the trust / institution. The Tribunal had rightly directed the Commissioner to grant registration under section 12AA and also the approval under section 80G(5)(vi) of the Act to the assessee.

ii) The Commissioner was not to examine with the genuineness of the activities of the trust and whether, if the trust transfers funds to another charitable society, it can be given exemption under section 11 of the Act. This power was restricted to the Assessing Officer. Hence, no useful purpose would be served by remanding the matter to the Commissioner to pass appropriate orders.”

Decision of High Court binding on Income-tax Authorities — Order of assessment ignoring direction of High Court — Not valid

17 Vaani Estates Pvt. Ltd. vs. Addl./Jt./Deputy/Asst. CIT

[2024] 462 ITR 232 (Mad.)

A.Ys.: 2014-15

Date of order: 19th January, 2024

Articles 215, 226 and 227 of the Constitution of India

Decision of High Court binding on Income-tax Authorities — Order of assessment ignoring direction of High Court — Not valid

The assessee company was initially formed by one BGR and his wife SR each holding 5,000 shares. Upon death of BGR, his shares devolved upon his daughter VR. In order to purchase property, SR introduced ₹23.32 crores through banking channels against which she was allotted 10,100 shares at a premium of ₹23,086 per share. The AO treated the share premium as income from other sources u/s. 56(2)(viib) of the Act. When the matter reached in appeal before the Tribunal, the Tribunal decided the issue in favour of the assessee. However, on department’s appeal before the High Court, the High Court remanded the matter back to the AO with the direction to undertake the exercise of fact finding by determining the FMV of the shares in question as required in the Explanation to section 56 of the Act. Further, liberty was given to the assessee to seek necessary clarification from the CBDT on the administrative side.

Pursuant to the orders of the High Court, the assessee approached the CBDT for a clarification vide letter dated 1st November, 2019. Pending such clarification, the AO issued notice u/s. 142(1) calling for details. In response to the notice, the assessee furnished the details and its submissions. The assessee also stated that it had approached the CBDT for seeking clarification on the applicability of section 56(2)(viib) which was pending before the CBDT. Overlooking the fact that clarification from the CBDT was pending, the AO issued a show cause notice proposing to make variation to the total income. In response, the assessee sought 15 days to file its reply and also enclosed the acknowledgment of the reminder letters to the CBDT. However, the AO passed the assessment order.

On writ petition filed by the assessee, the Hon’ble High Court allowed the petition of the assessee and held as follows:

“i) Under article 215 of the Constitution, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under article 227 it has jurisdiction over all courts and Tribunals throughout the territories in relation to which it exercises jurisdiction. The law declared by the highest court in the State is binding on authorities or tribunals under its superintendence, and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. Any order contrary to or disregarding the direction of the High Court cannot be sustained as it renders the order bad for want of jurisdiction.

ii) The High Court had directed the Assessing Officer to undertake the exercise of finding a fair market value of share as contemplated in the Explanation to section56 of the Act. However, the exercise had not been completed. Hence, the assessment order was not valid.”

Search and Seizure — Inordinate delay in return of seized cash — Assessee is entitled to interest on amount returned — Inordinate delay in returning amounts due to the assessee not justified.

16 Vindoa B. Jain vs. JCIT &Ors

[2024] 462 ITR 58 (Bom.)

A.Y. 1991-92

Date of order: 13th September, 2023

Ss. 119, 143(2) and 144 of ITA 1961

Search and Seizure — Inordinate delay in return of seized cash — Assessee is entitled to interest on amount returned — Inordinate delay in returning amounts due to the assessee not justified.

During the previous year 1990-91, the Central Excise Department seized gold items weighing 1545.2 grams and cash of ₹2,60,000/-. The gold and cash were taken over by the Income-tax Department u/s. 132A of the Income-tax Act, 1961 (‘the Act’) and order u/s. 132(5) of the Act was passed retaining the said gold and cash. Scrutiny assessment was completed and order u/s. 143(3) was passed. The matter reached before the Tribunal and the issue was decided in favour of the assessee. No appeal against the said order was preferred by the Department before the High Court and the order of the Tribunal attained finality. There was no outstanding demand against the assessee. Since the Department was not following the order of the Tribunal, the assessee filed an application before the Principal Commissioner who, vide order dated 31st December, 2019 passed u/s. 132B of the Act directed the AO to release the gold and cash. While the seized gold was handed over, the cash was not returned to the assessee. Therefore, the assessee filed the petition before the Hon’ble Bombay High Court. The Hon’ble High Court allowed the petition of the assessee and held as follows:

“i) The Income-tax Act, 1961 recognises the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the Revenue must compensate the assessee.

ii) Notwithstanding the order of the Tribunal which attained finality on 25th September, 2014, the Revenue did not consider it fit to return the cash of ₹2,60,000 that was seized on or about 9th July, 1996. Moreover, even after the Principal Commissioner passed the order on 31st December, 2019 under section 132B of the Act, the Revenue did not consider it fit to process and refund the amount. Even after the petition was filed and served and the lawyer appeared for the Revenue, the Revenue still did not consider it fit to return the money. Therefore, there had been an inordinate delay and this was nothing but a clear case of high handedness on the part of the officers of the Revenue. The assessee would be entitled to interest at 12 per cent. per annum for the post-assessment period, i. e., from 25th September, 2014 until payment / realisation.”

Search and seizure — Assessment of undisclosed income of person searched and third person — Difference between sections 153A and 153C — Conditions more stringent u/s 153C:

15 Agni Vishnu Ventures Pvt. Ltd. vs. Dy. CIT

[2024] 460 ITR 438 (Mad)

A.Ys.: 2009–10, 2011–12, 2012–13, 2013–14 to 2019–20

Date of order: 28th January, 2023

Ss. 153A and 153C of ITA 1961

Search and seizure — Assessment of undisclosed income of person searched and third person — Difference between sections 153A and 153C — Conditions more stringent u/s 153C:

Orders u/s. 153C of the Income-tax Act, 1961 were challenged by filing writ petitions. The Madras High Court held as under:

“i) The ingredients of section 153A of the Income-tax Act, 1961, are: (i) initiation of search or requisition under the applicable statutory provisions, (ii) such search or requisition being after May 31, 2003 but before May 31, 2021, (iii) a mandate upon the Assessing Officer who ‘shall’ issue notice to the person searched, (iv) the notice shall require him to furnish within such period as specified, return of income, (v) such returns are to be filed in respect of each assessment year falling within six assessment years referred to in that provision duly verified and containing the required particulars, (vi) upon receipt of the returns, reassess total income of six assessment years immediately preceding the assessment year relating to the previous year that search was conducted or requisition made. The ingredients of section 153C are: (i) satisfaction of the Assessing Officer who is the Assessing Officer of the section 153A notice that money, bullion, jewellery or other valuable article or thing or books of account or documents (incriminating materials) seized or requisitioned belong to or pertain to or any information contained, relate to, a third party, (ii) recording of satisfaction as above, (iii) handing over of the incriminating material to the Assessing Officer having jurisdiction over the third party, (iv) recording of satisfaction by the Assessing Officer of the third party that the incriminating material has a bearing on the determination of total income of the third party, (v) upon condition of recording of the satisfaction of both officers as above, notices be issued to assess or reassess the income of the third party in accordance with the procedure stipulated u/s. 153A.

ii) There is a vital distinction between the object, intention as well as the express language of sections 153A and 153C. Section 153A addresses the searched entity and the procedure set out is evidently a notch higher for this reason. There is no discretion or condition precedent u/s. 153A to the issuance of notice save the conduct of a search u/s. 132 or making of a requisition u/s. 132A. Upon the occurrence of one of these events, it is incumbent upon the officer to issue notice u/s. 153A to the searched entity in line with the procedure stipulated. Section 153C however requires the satisfaction of two conditions prior to issuance of notice: (i) recording of satisfaction by the Assessing Officer of the searched entities that some of the incriminating materials relate to a third party, and (ii) recording of satisfaction by the Assessing Officer of the third party that the incriminating materials have a bearing on the determination of the total income of that third party. Notice u/s. 153C would have to be issued only upon the concurrent satisfaction of both these conditions. To this extent, there is a clear and marked distinction between the provisions of sections 153A and 153C. To clarify, it is only where the satisfaction note recorded by the receiving Assessing Officer, i. e., the Assessing Officer of the third party, reflects a clear finding that the incriminating material received has a bearing on determination of total income of the third party for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made, that such notice would have to be issued for all the years. It thus flows from the provision that the receiving Assessing Officer must apply his mind to the materials received and ascertain precisely the specific year to which the incriminating material relates. It is only when this determination or ascertainment is complete that the flood gates of an assessment would open qua those particular years. The issuance of a notice cannot be an automated function unconnected to this exercise of analysis and ascertainment by an Assessing Officer. The construction of sections 153A and 153C is consciously different and is seen to apply different yardsticks to an entity searched and a third party, such yardstick being more exacting in the case of the former. The process of assessment is demanding and an assessee, once in receipt of a notice, is bound by the stringent procedure under the Act, till finalisation of the process. There are some situations when the spread of information and the nature of the issue itself might need more, and in-depth probing before such year-wise determination is possible. In such cases, the officer would be well within his right to state the nature of the issue and detail the difficulties that present themselves in precise bifurcation at that stage. This would reflect application of mind and, would serve as sufficient compliance with the statutory condition.

iii) The legal issue was in favour of the assessees, and would have to be applied to determine the validity or otherwise of each of the orders of assessment passed in the case of each of the assessees. The court was not in possession of all satisfaction notes. In some cases, the assessing authority had recorded satisfaction by way of a consolidated note, whereas in some others, the satisfaction notes were individual relating to a specific year.

iv) Rather than go through the factual exercise of verification of the satisfaction notes to arrive at a conclusion as to whether the precondition relating to the satisfaction being year-specific, had been complied, by the assessing authority the court left it to the concerned jurisdictional Assessing Officer to collate the satisfaction notes relating to each year and apply the conclusion of the court on the legal issue decided.”

[The court made it clear that the appellate authority should make good the error committed by the assessing authority by ensuring that an effective opportunity of cross-examination was granted to the assessee prior to finalising the appeal proceedings. The powers of the appellate authority u/s. 246 and 246A are co-terminus with those of the Assessing Officer and the direction would suffice to protect the interests of the assessees and to remedy the procedural error committed by the officer while framing the assessment.]

Search and seizure — Unexplained money — Burden of proof — Share capital — Investments in share capital through banking channels — Addition made based on unproven and untested statements recorded during searches — Onus to prove investments bogus not discharged — Deletion of addition.

14 Principal CIT vs. PNC Infratech Ltd.

[2024] 461 ITR 92 (All)

A.Y.: 2010–11

Date of order: 11th December, 2023

Ss. 69 and 132 of the ITA 1961

Search and seizure — Unexplained money — Burden of proof — Share capital — Investments in share capital through banking channels — Addition made based on unproven and untested statements recorded during searches — Onus to prove investments bogus not discharged — Deletion of addition.

The assessee received share capital from three entities in the A.Y. 2010–11 through banking channels. During the search u/s. 132 of the Income-tax Act, 1961, statements were recorded of directors and responsible functionaries of the investor entities and the assessee involved inthe transactions. Relying on the statements made by BK, LJ, RK, SK and SM recorded during the search proceedings, investments made in the form of share capital were added as unexplained cash u/s. 69 to the assessee’s income.

The Commissioner (Appeals) deleted the addition, and this was confirmed by the Tribunal.

Allahabad High Court dismissed the appeal filed by the Revenue and held as under:

“i) The investors had duly disclosed the investments in the assessee in their books of account. In the statement recorded during the assessment proceedings BK had claimed ignorance as to the actual business transaction of that company and also as to the investment made by the entity J in the assessee. Therefore, BK did not prove or disprove the fact of investment made by J in the assessee. He had only claimed ignorance. The assessing authority failed to call or examine LJ during the assessment proceedings, but had relied on the unproven or untested statement of LJ allegedly recorded during the search proceedings conducted against the entity J. No material witness was examined during the assessment proceedings.

ii) The assessing authority without affording the assessee any opportunity to cross-examine any such witness had relied on ex parte statements. Other than those statements, there was no evidence to establish that investment made in the assessee by way of share capital by the three entities was bogus and not genuine. The Commissioner (Appeals) has reasoned that the doubts and suspicions howsoever strong could never lead to adverse findings against the assessee. He had categorised the findings recorded by the assessing authority as conjectural being not based on any cogent material or evidence on record. The Department could not produce any evidence to conclude that any part of the investment made in the assessee by the three investor entities was false or bogus. The burden to prove otherwise rested on the Department. Unless the initial onus had been discharged by leading some evidence that led to the conclusion that the investment was never made, the burden that was cast on the Department remained undischarged. Accordingly, the findings of fact recorded by the Tribunal, confirming the order of the Commissioner (Appeals), were based on material and were neither illegal nor perverse.”

Revision — Powers of Commissioner — Power to consider assessment record — Meaning of record — Record includes all material including results of search proceedings — Order of revision without considering results of search proceedings — Not valid.

13 Principal CIT vs. Techno Tracom Pvt. Ltd.

[2024] 461 ITR 47 (Cal.)

A.Y.: 2009–10

Date of order: 27th March, 2023

S. 263 of the ITA 1961

Revision — Powers of Commissioner — Power to consider assessment record — Meaning of record — Record includes all material including results of search proceedings — Order of revision without considering results of search proceedings — Not valid.

The original assessment in the case of the assessee for the A.Y. 2009–10 was completed u/s. 143(3) of the Income-tax Act, 1961 on 28th March, 2011. The Principal Commissioner exercised his jurisdiction u/s. 263 of the Act and passed the order dated 28th March, 2013. Prior to the order being passed u/s. 263 of the Act, a search and seizure operation was conducted on the assessee on 18th February, 2013. The assessee challenged the order passed u/s. 263 of the Act before the Tribunal. The Tribunal remanded the case to the Principal Commissioner to consider the effect of the order passed u/s. 153A. However, this was ignored by the Principal Commissioner stating that it was irrelevant and the Principal Commissioner proceeded to pass the order u/s. 263 of the Act dated 30th March, 2021. The Tribunal quashed the revision order u/s. 263 passed by the Principal Commissioner.

The Calcutta High Court dismissed the appeal filed by the Revenue and held as under:

“i) U/s. 263 of the Income-tax Act, 1961, the Principal Commissioner has to examine all the records pertaining to the assessment year at the time of examination by him. The expression “record” as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. Where any proceeding is initiated in the course of assessment proceedings, having relevant and material bearing on the assessment to be made and the result of such proceedings was not available with the Income-tax Officer before the completion of the assessment but the result came subsequently, the revising authority (Principal Commissioner) is entitled to look into the search material as it forms part of the assessment records of that assessment year.

ii) The Principal Commissioner could not have ignored the order passed u/s. 153A of the Act dated March 23, 2015 as being immaterial and irrelevant. The Tribunal had also examined the exercise undertaken by the Assessing Officer while completing the assessment u/s. 153A of the Act and found that the entire records were examined and no adverse inference was drawn against the assessee. Thus, the Tribunal rightly granted relief to the assessee and the order did not call for any interference.”

Offences and prosecution — Wilful attempt to evade tax — Effect of order in penalty proceedings — Tribunal considering facts and holding that there was no concealment of income — Prosecution could not continue.

12 TVH Energy Resources Pvt. Ltd. vs. ACIT

[2024] 460 ITR 433 (Mad.)

A.Y.: 2013–14

Date of order: 13th July, 2023

Ss. 276C and 277 of ITA 1961

Offences and prosecution — Wilful attempt to evade tax — Effect of order in penalty proceedings — Tribunal considering facts and holding that there was no concealment of income — Prosecution could not continue.

The petitioners were prosecuted for the offences u/s. 276C(1) and u/s. 277 of the Income-tax Act, 1961, alleging that the petitioners have not explained the source of income for incurring cash expenses of ₹1,19,72,476 for the A.Y. 2013–14. The respondent also levied a penalty of ₹38,84,470 u/s. 271(1)(c) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal, by its order dated 2nd April, 2018, found that there is no evidence that the petitioner has made any cash payment which is unaccounted and the additions made by the Department are merely based on estimate and not based on any material records, and therefore, allowed the appeal filed by the petitioners and set aside the order of penalty passed u/s. 271(1)(c) of the Act.

Based on the order of the Tribunal cancelling the penalty, the petitioners filed criminal writ petitions for quashing the prosecution proceedings. The Madras High Court allowed the writ petition and held as under:

“i) The ratio which can be culled out from judicial decisions can broadly be stated as follows: (i) Adjudication proceedings and criminal prosecution can be launched simultaneously; (ii) decision in adjudication proceedings is not necessary before initiating criminal prosecution; (iii) adjudication proceedings and criminal proceedings are independent in nature to each other; (iv) the finding against a person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution; (v) adjudication proceedings by the Enforcement Directorate are not prosecution by a competent court of law to attract the provisions of article 20(2) of the Constitution or section 300 of the Code of Criminal Procedure, 1973; (vi) the finding in the adjudication proceedings in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceedings is on technical ground and not on the merits, prosecution may continue; and (vii) in the case of exoneration, however, on the merits where the allegation is found to be not sustainable at all and the person is held innocent,
criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.

ii) The respondent prosecuted the petitioners for the offences u/s. 276C(1) and 277 of the Income-tax Act, 1961, for the A.Y. 2013-14, alleging that the assessee had not explained the source of income for incurring cash expenses of ₹1,19,72,476. In penalty proceedings the Tribunal by its order found that there was no evidence that the assessee had made any cash payment which was unaccounted and the additions made by the Department were merely based on estimate and not based on any material records, and therefore deleted the penalty. A criminal prosecution on the same set of facts was not maintainable and was unsustainable and the same was liable to be quashed.”

Income from other sources — Consideration received for shares in excess of fair market value — Condition precedent — Transfer of shares — Allotment of new rights shares on proportionate basis — Provision not applicable — Renunciation of rights shares by wife and father in favour of assessee — Exemption for transactions from relatives — Provision not attracted — Renunciation of rights shares by third party in favour of assessee — Third party not related to assessee — Disproportionate allocation of shares — Section 56(2)(vii)(c) applicable — Determination of fair market value of additional shares — Computation on basis of previous year’s balance sheet approved in annual general meeting — Right computation.

11 Principal CIT vs. Jigar Jashwantlal Shah

[2024] 460 ITR 628 (Guj)

A.Y.: 2013–14

Date of order: 28th August, 2023

S. 56(2)(vii)(c) of ITA 1961

Income from other sources — Consideration received for shares in excess of fair market value — Condition precedent — Transfer of shares — Allotment of new rights shares on proportionate basis — Provision not applicable — Renunciation of rights shares by wife and father in favour of assessee — Exemption for transactions from relatives — Provision not attracted — Renunciation of rights shares by third party in favour of assessee — Third party not related to assessee — Disproportionate allocation of shares — Section 56(2)(vii)(c) applicable — Determination of fair market value of additional shares — Computation on basis of previous year’s balance sheet approved in annual general meeting — Right computation.

For the A.Y. 2013–14, the assessee filed the return of income. On noticing that the assessee was receiving salary in the capacity of the director of a company K and two lakhs rights shares of face value ₹10 each in K, the Assessing Officer issued notice u/s. 148 of the Income-tax Act, 1961 to the assessee on the grounds that the correct fair market value of shares allotted to the assessee exceeded the consideration paid for receipt of shares which was taxable u/s. 56(2) of the Act. Thereafter, the AO made additions to the income of the assessee with regard to additional 82,200 shares allotted to the assessee due to renouncement of rights by the assessee’s wife and father, additional shares allotted to the assessee due to renouncement of rights by a third party and adopted the valuation of additional shares allotted to the assessee at ₹255 per share under rule 11UA(1)(c)(b) of the Income-tax Rules, 1962.

The Commissioner (Appeals) held that section 56(2)(vii)(c) of the Act was not applicable to the rights shares allotted proportionate to the existing holding and held the fair market value for the remaining shares to be ₹205.55 per share. The Tribunal held that the renunciation of rights shares by wife and father of the assessee by not exercising the right to subscribe would not attract the provisions of section 56(2)(vii)(c) of the Act and deleted the addition under section 56(2)(vii)(c) of the Act. However, it held that renunciation of rights shares by the third party by not exercising the right to subscribe would attract the provisions of section 56(2)(vii)(c) of the Act. The Tribunal adopted the valuation of shares at ₹205 per share in respect of additional shares allotted to the assessee.

The Gujarat High Court dismissed the appeal filed by the Revenue and held as under:

“i) The provisions of section 56(2) of the Income-tax Act, 1961 would not be applicable to the issue of new shares. The Explanatory Notes to the Finance Bill, 2010 clarified that section 56(2)(vii)(c) of the Act is to be applied only in the case of transfer of shares. It is trite law that allotment of new shares cannot be regarded as transfer of shares. From a conjoint reading of section 56(2)(vii)(c) as well as the Explanatory Notes to the section, it is clear that only when an individual or a Hindu undivided family receives any property for consideration which is less than the fair market value, the provisions of section 56(2)(vii)(c) would be attracted. Therefore, in order to apply the provisions of section 56(2)(vii)(c), there must be existence of property before receiving it. The term ‘receive’ has been defined as ‘to get by a transfer, as to receive a gift, to receive a letter or to receive money and involves an actual receipt’. Issue of new shares by a company such as rights shares is creation of property and merely receiving such shares cannot be considered as a transfer under section 56(2)(vii)(c) and accordingly, such provision would not be applicable on the issuance of shares by the company in the hands of the allottee.

ii) The shares had come into existence only when the allotment was made by the company as rights shares cannot be said to be ‘received from any person’. The shares which had been allotted to the assessee were not ‘received from any person’ which was the fundamental requirement for invoking section 56(2)(vii)(c) of the Act. In other words, the property must pre-exist for application of section 56(2)(vii)(c), which is clear from the intention of the Legislature. Regarding the issue of 82,200 shares, the names of the wife and father of the assessee would also not be hit by the provisions of section 56(2)(vii)(c) of the Act as both of them would be covered by the definition of ‘relative’ covered in the exemption of relative, and therefore, the provisions of section 56(2)(vii)(c) would not be applicable at all. With regard to the application of section 56(2)(vii)(c) of the Act for the balance 14,800 shares allotted to the assessee as a result of third party shareholder declining to apply for rights shares in favour of the assessee, the Tribunal held against the assessee because renunciation of rights in favour of the assessee by the third party who was not related would lead to disproportionate allocation of shares in favour of the assessee. The findings recorded about valuation of shares to ₹205.55 were concurrent findings of fact which did not require any interference. The Commissioner (Appeals) had rightly computed the fair market value on the basis of the balance-sheet which was available on record for the previous year and which was approved in the annual general meeting.”

Assessment — Limitation — Special audit — Appointment of special auditor extending end date for framing assessment order — Special auditor seeking extension of time for submission of report — AO forwarding request letter with recommendation to Commissioner — Commissioner granting extension of time — Discretion to extend time frame solely with AO — Discretionary power vested in AO not delegable, cannot be exercised by Commissioner.

10 Principal CIT vs. Soul Space Projects Ltd.

[2024] 460 ITR 642 (Del.)

A.Ys.: 2007–08 and 2008–09

Date of order: 11th December, 2023

Ss. 142(2A), 142(2C) and 153B of the ITA 1961

Assessment — Limitation — Special audit — Appointment of special auditor extending end date for framing assessment order — Special auditor seeking extension of time for submission of report — AO forwarding request letter with recommendation to Commissioner — Commissioner granting extension of time — Discretion to extend time frame solely with AO — Discretionary power vested in AO not delegable, cannot be exercised by Commissioner.

Pursuant to search operations at the premises of the assessee, the Assessing Officer issued a notice u/s. 153A of the Income-tax Act, 1961. Thereafter, the AO issued a show-cause notice to the assessee seeking its response to have a special audit conducted concerning its affairs in the exercise of powers u/s. 142(2A) of the Act. The assessee filed its objections but the AO rejected them. The Commissioner issued a show-cause notice before approving the conduct of a special audit, as proposed by the AO. Once again, the assessee filed its objections which were rejected by a letter indicating the grant of approval for special audit based on the reasoning outlined in the order sheet and the appointment of a chartered accountants firm for completion of audit with a time frame of 120 days. Thereafter, the chartered accountants firm sought extension of time to submit the special audit report. The AO forwarded the letter seeking extension of time with a recommendation to the Commissioner and the Commissioner granted extension of 60 days’ time to submit the report.

On appeal, the Tribunal concluded that the further extension of 60 days granted by the Commissioner for completion of the audit was illegal and invalid and thus impaired the viability of the assessment order framed u/s. 153A / 143(3) of the Act, on a day beyond the prescribed period of limitation, which ended on 13th June, 2020.

On appeal by the Revenue, the following substantial question of law was framed:

“Whether the extension given to the chartered accountant appointed under the provisions of section 142(2A) of the Income-tax Act, 1961 (in short, ‘Act’) for submission of the audit report was in consonance with the proviso appended to section 142(2C) of the Act?”

The Delhi High Court upheld the decision of the Tribunal and held as under:

“i) It is the Assessing Officer who, in his proposal, sets up a case for issuance of a direction to the assessee to get its accounts audited, having regard to the circumstances referred to in sub-section (2A) of section 142 of the Income-tax Act, 1961, keeping in mind the interests of the Revenue. Once the specified authority grants its approval, it is obliged to nominate the accountant who would then proceed to audit the assessee’s accounts and generate a report which would advert to the particulars indicated in the prescribed form and,more importantly, other particulars which the Assessing Officer may require the accountant to elicit from the assessee’s accounts. Significantly, this exercise is to be completed within the time frame that the Assessing Officer prescribes.

ii) Under the proviso appended to sub-section (2C) of section 142 of the Income-tax Act, 1961, the Legislature has invested the power in the Assessing Officer to grant an extension of time as well, which can be forone or more periods with a maximum time frame (which includes the original period specified by the Assessing Officer for completion of the audit) not exceeding 180 days.

iii) As long as the authority retains the power to exercise the discretion vested in it by the statute, no fault can be found if it employs ministerial means in effectuating the exercise of discretionary power by the authority in which such power is reposed. In sum, the discretionary power invested in the specified authority should be exercised by that authority alone and none else, even if it causes administrative inconvenience, except in those cases where it is reasonably inferred to be a delegable power.

iv) Since a special auditor was appointed the end date for framing the assessment order was extended to April 14, 2010, by virtue of the provisions of section 153B, Explanation (ii), read with the first proviso appended to the provision. The record showed that the assessment order was framed on August 10, 2010. In the interregnum, the initial time frame granted for completion of the audit, which was 120 days, was extended by 60 days at the request of the special auditor. The Commissioner, in fact, granted the extension of time. The Assessing Officer simply transmitted the request received from the auditors to his superior, who then processed the matter and directed a grant of extension of time for completion of the audit. The Assessing Officer made a recommendation broadly on two grounds. Having noted the diametrically opposite assertions made on the aspect of delay, the legal tenability of the decision taken in the matter depended on which specified authority was invested with the power to extend the time frame. Since the Legislature vested the discretion to extend the time frame solely in the Assessing Officer, he could not have abdicated that function and confined his role to making a recommendation to the Commissioner. The Commissioner had no role in extending the time frame as the Assessing Officer was in seisin of the assessment proceedings. The discretionary power was vested in the Assessing Officer (which was non-delegable), and could not have been exercised by the Commissioner, irrespective of the nature of the power.

v) Thus, for the preceding reasons, the question of law, as framed, is answered against the Revenue and in favour of the assessee. The appeals are disposed of in the aforesaid terms.”

Assessment — Jurisdiction — CBDT Instructions — Binding on authorities — Time prescribed by CBDT — Burden of proof — Burden on authority assuming jurisdiction to establish that instructions satisfied in letter and spirit — Notice issued u/s. 143(2) not in terms of instructions of CBDT — Notice and assessment without jurisdiction.

9 CIT vs. Crystal Phosphates Ltd.

[2024] 461 ITR 289 (P&H.)

A.Y.: 2006–07

Date of order: 28th March, 2023

Ss. 119, 143(2) and 144 of ITA 1961

Assessment — Jurisdiction — CBDT Instructions — Binding on authorities — Time prescribed by CBDT — Burden of proof — Burden on authority assuming jurisdiction to establish that instructions satisfied in letter and spirit — Notice issued u/s. 143(2) not in terms of instructions of CBDT — Notice and assessment without jurisdiction.

The assessee’s case for A.Y. 2006–07 was selected for scrutiny and assessment was completed u/s. 144 of the Income-tax Act, 1961 by making various additions / disallowances.

The appeal was partly allowed by the CIT(A). The assessee as well as the department filed appeals before the Tribunal. The Tribunal disposed the appeal by quashing the notice issued u/s. 143(2) as well as the assessment framed by the AO on the grounds that the department had not shown that the instructions issued by CBDT for selection of cases for scrutiny were followed / satisfied for assumption of jurisdiction.

The Department filed appeal before the High Court to decide the following question:

“Whether as per CBDT instructions/guidelines, the case of the assessee was covered to be picked up for scrutiny, especially keeping in view that for the A.Y. 2007-08, the income was 30% more than the total income declared for the past year i.e. 2006-07?”

The Hon’ble Punjab & Haryana High Court dismissed the appeal of the Department and held as follows:

“i) The question of jurisdiction which was to be decided first by the Assessing Officer had not been done. The assessment order was quashed as being against the instructions of the CBDT. The instructions issued by the CBDT had not been complied with in letter and spirit. The Tribunal had rightly allowed the appeals of the assessee appreciating the facts in the right perspective. The Department had not led any cogent and convincing evidence to prove its case.

ii) As per CBDT instructions, the burden was on the authority assuming jurisdiction to show and establish that such instructions had been duly complied with and satisfied in letter and spirit. Since the notice u/s. 143(2) was not in terms of the instructions of the CBDT, both the notice u/s. 143(2) and the assessment were without jurisdiction and were accordingly quashed. No question of law arose.”

Transfer of case — Transfer from one AO to another subordinate to different higher authority — Condition precedent — Agreement between two higher authorities — Assessee should be given adequate opportunity to be heard — Mere speculation that assessee was connected to group of companies against whom search proceedings undertaken and that cases had to be centralized — Order of transfer not valid.

96 Kamal VarandmalGalani vs. PCIT

[2024] 460 ITR 380 (Bom)

A.Y.: 2021–22

Date of Order: 20th April, 2023

S 127 of ITA 1961

Transfer of case — Transfer from one AO to another subordinate to different higher authority — Condition precedent — Agreement between two higher authorities — Assessee should be given adequate opportunity to be heard — Mere speculation that assessee was connected to group of companies against whom search proceedings undertaken and that cases had to be centralized — Order of transfer not valid.

The assessee had been filing return of income for the past 22 years in Mumbai. The assessee was in receipt of show cause notice dated 24th June, 2022 issued by the Principal Commissioner of Income-tax — 19 proposing to transfer the assessment jurisdiction to Deputy Commissioner of Income-tax — Central Circle, Jaipur to enable coordinated assessment with that of Veto Group on whom search proceedings were conducted u/s 132 of the Act. As per the show cause notice, the Principal Commissioner of Income-tax (Central) — Rajasthan had proposed for centralization of the case of the assessee with Veto Group at Jaipur, and therefore, the assessee was asked to file submissions. The assessee filed objections against the aforesaid transfer of jurisdiction on the grounds that there was no search conducted at the premises of the assessee. Only a survey was conducted u/s 133A that too in the case of one company LHPL in which the assessee was a director. There was no material found during the search conducted at Veto group which could be related to the assessee. Similarly, there was no incriminating material found in the course of survey at LHPL which could relate the assessee or even LHPL to Veto Group. Lastly, the show cause notice did not refer to any material collected by the Department against the assessee on the basis of which transfer of jurisdiction was proposed.

The objections of the assessee were rejected on the ground that the assessee was the director of LHPL which was proposed to be centralized with Jaipur jurisdiction and further that the assessee was a key person of the Veto Group. During the course of search / survey at various entities of the group, incriminating documents and data were found / seized / impounded which may relate to the assessee as well as other ssesses of the group. However, what is incriminating material was nowhere specified neither in the show cause notice nor in the order.

The Bombay High Court allowed the writ petition filed by the assessee and held as follows:

“i) The Instructions of the CBDT dated 17th September, 2008 make it clear that where an order of transfer is proposed for centralisation of cases, while sending a proposal for centralisation, reasons have to be reflected including the relationship of the assessee with the main persons of the group.

ii) The order passed u/s 127(2) of the Act did not reflect why it was necessary to transfer the jurisdiction from the Deputy Commissioner, Mumbai to Deputy Commissioner, Jaipur. None of the issues raised by the assessee had been dealt with either in the order disposing of the objections raised by the assessee much less had they been reflected in the order u/s 127(2) of the Act. The transfer of assessment jurisdiction from Mumbai to Jaipur would certainly cause inconvenience and hardship to the assessee both in terms of money, time and resources, and therefore, in the absence of the requisite material or reasons as the basis the order would be nothing but an arbitrary exercise of power and therefore liable to be set aside.”

Revision — Powers of Commissioner — Special deduction — Claim to deduction u/s 80-IA not made in return of income and assessment order passed — Principal Commissioner or Commissioner competent to consider claim for deduction — Matter remanded.

95 TATA-ALDESA JVvs. UOI

[2024] 460 ITR 302 (Telangana)

A.Y.: 2014–15

Date of Order: 12th June, 2023

Ss. 80IA, 263 and 264 of ITA 1961

Revision — Powers of Commissioner — Special deduction — Claim to deduction u/s 80-IA not made in return of income and assessment order passed — Principal Commissioner or Commissioner competent to consider claim for deduction — Matter remanded.

For the A.Y. 2014–15, the Assessing Officer passed an order u/s 143(3) of the Income-tax Act, 1961. Thereafter, the assessee filed an application before the Principal Commissioner u/s 264 in which it submitted that it had commenced its business operations during the previous year 2013–14, and accordingly, the A.Y. 2014–15 was the first year under assessment and that though it was entitled to claim deduction u/s 80-IA because of a bona fide error, it did not claim it either at the time of filing the return of income or during the assessment proceeding. The assessee also sought condonation of delay of 52 days. The Principal Commissioner condoned the delay and observed that the assessee did not opt to make the claim to deduction u/s 80-IA and that in the subsequent A.Y. 2015–16 also, the assessee did not make such claim before the Assessing Officer. He opined that the assessee chose not to claim deduction u/s 80-IA and declined to interfere u/s 264 in the order of the Assessing Officer.

The Telangana High Court allowed the writ petition filed by the assessee and held as under:

“i) There is a fundamental difference between sections 263 and 264 of the Income-tax Act, 1961. For invoking the power u/s 263, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner should be of the opinion that an order passed by the Assessing Officer or Transfer Pricing Officer is erroneous inasmuch as the order is prejudicial to the interests of the Revenue. In that event, he may call for the record of the proceedings before the Assessing Officer or the Transfer Pricing Officer and after making inquiry, may pass such an order as section 263 contemplates. But there is no such limitation in section 264 under which the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may either of his own motion or on an application by the assessee for revision, call for the records of any proceeding relatable to an order other than an order to which section 263 applies and after making due inquiry, he may pass such order thereon as he thinks fit; the only caveat being that such order should not be prejudicial to the assessee. It is not confined to legality or validity of an order passed by the Assessing Officer or a claim made and disallowed or a claim not put forth by the assessee.

ii) There was no limitation on the exercise of power u/s 264 by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. The order rejecting the assessee’s application was set aside. The matter was remanded to the Principal Commissioner for reconsideration of the revision application filed by the assessee u/s 264 on the merits after giving due opportunity of hearing to both the sides.”

Revision — Writ — Powers of Commissioner — Commissioner cannot consider application where appeal lies or is pending — Prohibition does not apply where writ petition has been filed.

94 Ratan Industries Ltd. vs. Principal CIT

[2024] 460 ITR 504 (All.)

A.Y.: 2012–13

Date of Order: 11th May, 2023

S. 264 of ITA 1961

Revision — Writ — Powers of Commissioner — Commissioner cannot consider application where appeal lies or is pending — Prohibition does not apply where writ petition has been filed.

The assessment proceedings for the A.Y. 2012–13 were completed. Against the assessment order, the assessee filed revision application u/s 264 of the Income-tax Act, 1961. The Principal Commissioner rejected the application on the grounds that as the writ petition, filed by the assessee against the order passed initiating reassessment proceedings u/s 143(3)/147 of the Act of 1961 on 30th March, 2019, is pending consideration, in view of the provisions of section 264(4)(a) of the Act, no order can be passed u/s 264 of the Income-tax Act of 1961.

The Allahabad High Court allowed the writ petition filed by the assessee and held as follows:

“i) From a perusal of section 264(4)(a) of the Income-tax Act, 1961, it is clear that the Principal Commissioner or Commissioner shall not revise any order which is under challenge in a case where an appeal against the order lies to the Deputy Commissioner (Appeals) or to the Commissioner (Appeals) or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or, in the case of an appeal to the Commissioner (Appeals) or to the Appellate Tribunal, the assessee has not waived his right of appeal. The pendency of a writ petition before the High Court would not amount to pendency of any appeal before any authority.

ii) Once the proceedings were initiated for reassessment by the respondent and the competent authority proceeded to complete the assessment on 31st December, 2019, no occasion arose as to any matter being pending before the High Court as the only challenge before the writ court was for initiation of proceedings u/s 143(3) read with section 147 of the Act. Once the reassessment was made and the proceedings were completed, the writ petition had practically become infructuous. The ground taken by the Principal Commissioner for rejection of the application did not hold any ground as the writ petition is not an appeal according to section 264(4)(a) of the Act. The rejection of the application for revision was not valid.

iii) In view of the above discussions, I find that the order dated 30th March, 2022, passed by the Principal Commissioner of Income-tax-I, Agra, is unsustainable in the eyes of law and, as such, the same is hereby quashed and set aside. Respondent No. 1 is hereby directed to continue with the revisional proceedings initiated by the assessee-petitioner u/s 264 of the Act and shall decide the same expeditiously, in accordance with law.”

Rent — TDS — Agreement with State Government for development — External Development Charges (EDC) paid under Agreement with State Government — Not in the nature of rent — No tax deductible on such charges.

93 DLF Homes Panchkula Pvt. Ltd. vs. JCIT(OSD)

[2023] 459 ITR 773 (Del.)

Date of Order: 24th March, 2023

Ss. 194I read with 194C of the IT Act

Rent — TDS — Agreement with State Government for development — External Development Charges (EDC) paid under Agreement with State Government — Not in the nature of rent — No tax deductible on such charges.

The assessee was engaged in the business of developing real estate. The assessee made application to Director General, Town and Country Planning for grant of license for setting up an IT Park as well as a Group Housing Colony. As per the rules of Haryana Development and Regulation of Urban Areas Rules, 1976 (HUDA Rules), the assessee entered into agreement with the State Government of Haryana for setting up the IT Park and Group Housing Colony. The agreement required the assessee to pay proportionate development charges as and when required and as determined by the Director General.

The Assessing Officer held that the external development charges were in the nature of “rent” and, therefore, tax was liable to be deducted at source under section 194-I of the Act at the rate of 10 per cent. The Assessing Officer quantified the demand.

The Delhi High Court allowed the writ petition filed by the assessee and held as follows:

“i) The question as to the nature of external development charges payment was one of the issues that was required to be addressed by the Assessing Officer. He had concluded that the payment was ‘rent’ as it was in the nature of an arrangement to use land. It was not open to the Department to now contend that external development charges were payment made to a contractor under a contract and not ‘rent’ under an arrangement to use land.

ii) The Assessing Officer had held that tax was liable to be deducted at source u/s 194-I of the Act, and he had also proceeded to analyse the section and hold that external development charges were in the nature of rent. He had, in addition, also applied the rate of 10 per cent for assessing the assessee’s liability.

iii) The approach of the Revenue was flawed. The contention that the findings of the Assessing Officer regarding the nature of the external development charges as well as at the provisions referred by him for determining the assessee’s liability were not material was erroneous. The orders passed by the Assessing Officer raising a demand u/s 201(1) and (1A) of the Act were liable to be quashed.”

Reassessment — Notice after three years — Limitation — Change in law — Effect of decision of Supreme Court in Ashish Agarwal — Conditions prescribed under amended provisions of section 149(1)(d) for extended period of limitation — Notices issued beyond limitation period stipulated under amended provisions of section 149(1)(a) not satisfying prescribed conditions — Barred by limitation. Reassessment — Notice after three years — Limitation — CBDT Instructions dated 11th May, 2022 — Validity — Instruction vague about “original date when such notices were to be issued” — Instruction to the extent it propounded “travel back in time” theory unsustainable.

92 Ganesh Dass Khanna vs. ITO

[2024] 460 ITR 546 (Del.)

A.Ys.: 2016–17 and 2017–18

Date of Order: 10th November, 2023

Ss. 147, 148, 148A(b), 148A(d), 149(1)(a) and 149(1)(b) of ITA 1961

Reassessment — Notice after three years — Limitation — Change in law — Effect of decision of Supreme Court in Ashish Agarwal — Conditions prescribed under amended provisions of section 149(1)(d) for extended period of limitation — Notices issued beyond limitation period stipulated under amended provisions of section 149(1)(a) not satisfying prescribed conditions — Barred by limitation.

Reassessment — Notice after three years — Limitation — CBDT Instructions dated 11th May, 2022 — Validity — Instruction vague about “original date when such notices were to be issued” — Instruction to the extent it propounded “travel back in time” theory unsustainable.

A bunch of petitions involving the A.Y.s 2016–17 and 2017–18 were before the Delhi High Court where the common issue to be decided by the Hon’ble High Court was whether the notices issued u/s 148 of the Act were maintainable having regard to clauses (a) and (b) of section 149(1). In other words, where the alleged escaped income is below the threshold of R50 lakhs, the period of limitation of three years as prescribed u/s 149(1)(a) will be applicable.

Owing to the COVID-19 pandemic, Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act was enacted where the due dates / time limit / limitation were extended. Under the TOLA, the end date for proceedings and compliances referred to in section 3(1) of the said Act (which included the compliance regarding the issue of notice u/s 148) was 31st March, 2021. The Finance Act was amended in 2021 whereby significant amendments were made to the provisions relating to reopening of assessment. Sections 147 to 151 were substituted and new provisions u/s 148A and 151 were also introduced. The controversy arose when CBDT issued two notifications, i.e., Notification 20 of 2021, whereby the period of limitation as per provisions of section 149 was extended from 31st March, 2021 to 30th April, 2021 and Notification No. 38 of 2021 further extended the period of limitation to 30th June, 2021. An Explanation was added in both the Notifications which provided that provisions of sections 148, 149 and 151 as existed prior to amendment by Finance Act 2021 shall apply. In other words, the Notifications provided that the old provisions would apply even when the amended provisions were in force. Thus, the Departmentissued notices under the unamended provisions of section 148.

Several petitions were filed before the High Court challenging the notice on broadly two grounds, i.e., the notices could not have been issued under the old provisions when new provisions were in force and the notices were barred by limitation as per the amended provisions of section 149. The High Courts quashed the notices which were issued under the old provisions based on the Explanation contained in the aforesaid Notifications. The Union of India challenged the decision of the High Court before the Supreme Court and the Hon’ble Supreme Court, vide its judgment in Ashsish Agarwal’s case reported in 444 ITR 1 (SC) held that as a one-time measure the notices issued u/s 148 of the Act be treated as notice issued u/s 148A(b) of the amended provisions.

Pursuant to the decision of the Supreme Court, the CBDT issued Instruction dated 11th May, 2022 in compliance with the directions of the Supreme Court in Ashish Agarwal’s case. Accordingly, a second round of notices / communications were issued by the Assessing Officers. The assessees filed their objections once again against the notices.

Amongst the various objections taken, one of the objections was that the time limit prescribed u/s 149(1)(a) had expired and given the fact that the income chargeable to tax which had allegedly escaped assessment amounted to less than ₹50 lakhs, the revenue could not take recourse to the extended limitation period provided in clause (b) of sub-section (1) of section 149 of the 1961 Act. The Department rejected this objection of the assessee and proceeded to pass order u/s 148A(d) of the Act holding it to be fit case for issue of notice u/s 148 and thereby, notices were issued u/s 148 of the Act. It is this second notice issued u/s 148 which is now the subject matter of challenge before the High Court in the bunch of petitions.

The Delhi High Court allowed the petitions and held as under:

“i) Section 149(1) of the Income-tax Act, 1961 as amended by the Finance Act, 2021 mandates that no notice u/s 148 for reopening the assessment u/s 147 would be issued for the relevant assessment year after a period of three years has elapsed from the end of the relevant assessment year. The Assessing Officer can invoke the extended limitation period if the conditions precedent prescribed in clause (b) of sub-section (1) of the amended section 149 are fulfilled. Under clause (b) of sub-section (1) of section 149 one of the conditions for invoking the extended period up to ten years is that income chargeable to tax which has escaped assessment amounts to, or is likely to amount to, ₹50 lakhs or more for the assessment year in issue. Therefore, after the coming into force of the Finance Act, 2021, in cases where, for the relevant assessment year, the alleged escaped income is less than ₹50 lakhs, notice u/s 148 could only be issued for commencement of reassessment proceedings within the limitation period provided in clause (a) of section 149(1) as amended. If proceedings are wrongly initiated, estoppel, waiver or res judicata principles cannot apply in such situations.

ii) The time limit for reopening assessments under the new regime introduced by the Finance Act, 2021 was reduced from six years to three years and only in respect of ‘serious tax evasion cases’, that too, where evidence of concealment of income of R50 lakhs or more in a given period was found, has the period for reopening the assessment been extended to ten years. In order to ensure that utmost care is taken before invoking the extended period of limitation, approval should be obtained from the Principal Chief Commissioner at the highest hierarchical level of the Department. Where escapement of income is below ₹50 lakhs, the normal period of limitation, i.e., three years would apply.

iii) In UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC); [2023] 1 SCC 617, the Supreme Court held that it would be open to the Department to advance submissions based on the provisions as amended by the 2021 Act and those that might otherwise be available in law. Since the Supreme Court, in no uncertain terms, ruled that the judgments of the various High Courts, which included the decision in Mon Mohan Kohli vs. Asst. CIT [2021] SCC OnLine Del 5250; [2022] 444 ITR 207 (Delhi), stood “modified or substituted” to the extent indicated in the directions issued by the court, it would follow that all rights and contentions would be available to the assessees, notwithstanding any observations made in that judgment which curtailed the defences available to the assessees u/s 149.

iv) The law declared by the Supreme Court, under article 141 of the Constitution of India, is binding on every authority, including the High Court, which would necessarily have to be given effect. The Supreme Court’s directions issued under article 142 are no different.

v) The Supreme Court’s directions issued u/s 142 would show that the court noted that the power of reassessment which existed before 31st March, 2021 continued to exist till 30th June, 2021, with alteration in procedure brought about upon the enactment and enforcement of the 2021 Act. The Supreme Court, in no uncertain terms, declared Explanation A(a)(ii)/A(b) of the Notifications dated 31st March, 2021 and 27th April, 2021, ultra vires the parent statute, i.e., the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. These Explanations sought to impose the un-amended provisions of sections 148, 149 and 151 of the 1961 Act, although the substituted provisions were in force. It specifically observed that the Legislature was aware of the situation when it enacted the 2021 Act. Its observations made it clear that the amended section 149 continued to operate despite attempts to the contrary made by the introduction of the Explanations in the notifications dated 31st March, 2021 and 27th April, 2021.

vi) There was no power invested under the 2020 Act, and that too through notifications, to amend the statute, which had the imprimatur of the Legislature and since, with effect from 1st April, 2021, when the 2021 Act came into force, the Notifications dated 31st March, 2021 and 27th April, 2021, which were sought to be portrayed by the Department as extending the period of limitation, were contrary to the provisions of section 149(1)(a) of the 1961 Act, they lost their legal efficacy. The extension of the end date for completion of proceedings and compliances, a power which was conferred on the Central Government u/s 3(1) of the 2021 Act, could not be construed as one which could extend the period of limitation provided u/s 149(1)(a) of the 1961 Act.

vii) Section 149(1)(a) applied to the A.Ys. 2016–17 and 2017–18. The third proviso only excluded the timeframe obtaining between the date when the notice u/s 148A(b) was issued and the date by which the assessee filed its response within the time and extended time provided in the notices in question. Therefore, the date could not be shifted beyond the date when the original notice under the unamended section 148 was issued, which was treated as notice u/s 148A(b) of the 1961 Act. Concededly, these notices were issued between 1st April, 2021 and 30th June, 2021, by which time the limitation prescribed u/s 149(1)(a) had already expired. The fourth proviso had no impact on the outcome of the cases at hand, as it provided for a situation where, after the exclusion of the timeframe referred to in the third proviso, the time available to the Assessing Officer for passing an order u/s 148A(d) was less than seven days. Neither the judgment of the Supreme Court rendered in Ashish Agarwal nor the 2020 Act allowed for any such recourse to the Department, i.e., that extended reassessment notice would ‘travel back in time’ to their original date when such notices were to be issued and thereupon application of the provisions of the amended section 149 of the 1961 Act.

viii) The provisions contained in the Instruction dated 11th May, 2022, were beyond the powers conferred on the CBDT u/s 119 of the 1961 Act and were ultra vires the amended provisions of section 149(1) of the 1961 Act.

ix) The decision in Ashish Agarwal did not rule on the provisions contained in the 2020 Act or the impact they could have on the reassessment proceedings u/s 147 of the 1961 Act. The 2020 Act conferred no such power on the CBDT. There is no clarity in the Instruction dated 11th May, 2022 regarding the ‘original date when such notices were to be issued’. The provisions of the Instruction dated 11th May, 2022 in question are also unsustainable because they are vague. “Certainty” in taxing statutes is one of the ground norms, as ordinarily, they are agnostic to equitable principles.

x) The principle of constructive res judicata was not applicable. The orders passed u/s 148A(d) and the consequent notices issued for the A.Ys. 2016–17 and 2017–18 under the amended provisions of section 148 of the 1961 Act were unsustainable. The references made in paragraphs 6.1 and 6.2(ii) of the Instruction dated 11th May, 2022 issued by the CBDT to the extent they propounded the ‘travel back in time’ theory, was bad in law.”

Income from other sources — Shares received at price higher than market value — Determination of fair market value — Change in prescribed formula with effect from 1st April 2018 — Formula that prevails during relevant A.Y. 2014–15 applicable — Application of amended formula as on date of assessment order by AO — Not sustainable.

91 Principal CIT vs. Minda Sm Technocast Pvt. Ltd.

[2024] 460 ITR 7 (Del.)

A.Y.: 2014–15

Date of Order: 4th August, 2023

S. 56(2)(via) of ITA 1961: Rule 11UA of IT Rules 1962

Income from other sources — Shares received at price higher than market value — Determination of fair market value — Change in prescribed formula with effect from 1st April 2018 — Formula that prevails during relevant A.Y. 2014–15 applicable — Application of amended formula as on date of assessment order by AO — Not sustainable.

The assessee purchased 48 per cent of the equity of a company from three entities at a price of ₹5 per share. For the A.Y. 2014–15, the assessee submitted the valuation report of a chartered accountant who had determined the value of the shares at ₹4.96 per share in terms of rule 11UA of the Income-tax Rules, 1962, as applicable in the period in issue, i.e., the A.Y. 2014–15. The Assessing Officer valued the shares at ₹45.72 per share, taking into account rule 11UA of the Rules, as on the date when the order was passed and added the difference to the income of the assessee.

The Commissioner (Appeals) upheld the addition. The Tribunal deleted the addition.

The Delhi High Court upheld the decision of the Tribunal and held as under:

“i) The formula prescribed under rule 11UA of the Income-tax Rules, 1962 required calculation of the fair market value by taking into account, inter alia, the book value of the assets shown in the balance-sheet. This underwent a change with effect from April 1, 2018, which resulted in the fair market value of unquoted shares being calculated by taking into account, inter alia, the value of assets such as immovable property, adopted by ‘any authority of the Government’ for the purposes of payment of stamp duty.

ii) The Assessing Officer had committed an error in applying the formula contained in rule 11UA of the Rules, which was not applicable to the A.Y. 2014-15 in question as on the date of passing the assessment order and the error was continued by the Commissioner (Appeals). The assessee had applied the formula prescribed in rule 11UA which was applicable for the A.Y. 2014-15. The error was corrected by the Tribunal and therefore, there was no reason to interfere in its order.”

Block assessment — Procedure — Notice u/s 143(2) — Condition precedent for block assessment — Failure to issue notice u/s 143(2) — Not a curable defect u/s 292BB.

90 Chand Bihari Agrawal vs. CIT

[2024] 460 ITR 270 (Patna)

Date of Order: 25th July, 2023

Ss. 143(2), 158BC and 292BB of ITA 1961

Block assessment — Procedure — Notice u/s 143(2) — Condition precedent for block assessment — Failure to issue notice u/s 143(2) — Not a curable defect u/s 292BB.

A search was conducted at the premises of the assessee. Subsequently, a notice u/s 158BC was issued on 10th December, 2003 directing the assessee to file the return within a period of one month. Thereafter, a notice u/s 142(1) was issued on 9th November, 2004, wherein the assessee was required to file a return in response to the notice issued u/s 158BC issued earlier. The assessee filed the return on 22nd November, 2004. Assessment was made and order was passed u/s 158BC. The assessment was completed without issuing any notice u/s 143(2) of the Act.

The assessee’s appeals before the CIT(A) as well as the Tribunal were dismissed. The Tribunal observed that the return filed by the assessee was non-est as the same was filed beyond the outer limit of 45 days u/s 158BC, and therefore, the Assessing Officer was entitled to proceed for assessment even without the issuance of notice u/s 143(2) of the Act. Further, the Tribunal held that in the event that assessment is defective, the defect was cured by operation of section 292BB. Though section 292BB was introduced later, the Tribunal held that it was merely a procedural clarification, and since the assessee co-operated in the assessment, 292BB would apply.

The Patna High Court allowed the appeal filed by the assessee and held as follows:

“i) Though block assessment under Chapter XIV-B of the Act is a complete code in itself, the procedure under Chapter XIV for regular assessment in so far as it is applicable to block assessments stands incorporated under clause (b) of section 158BC as Circular No. 717, dated August 14, 1995 ([1995] 215 ITR (St.) 70, 98) clarifies the requirement of law in respect of service of notice u/ss. 142, 143(2) and 143(3) of the Act. It is declared that “even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice u/s 143(2) of the Act.

ii) Section 292BB only speaks of a notice being deemed to be valid in certain circumstances, when the assessee has appeared in any proceeding and co-operated in any enquiry relating to assessment or reassessment. It does not take in the circumstance of a complete absence of notice; which does not stand cured u/s 292BB, especially in the teeth of such notice being found to be mandatory under the Act.

iii) The search and seizure was conducted in the residential-cum-business premises of the assessee on February 27, 2003. On the basis of the recovery made, a notice u/s 158BC of the Act was issued on December 9/10, 2003. The assessee was directed to file a return within a period of one month. A further notice u/s 142(1) of the Act was issued on November 9, 2004 wherein again the assessee was required to file a return in response to the notice issued u/s 158BC. The subsequent notice was issued u/s 142(1), to which the assessee responded with a return filed within almost twelve days. The assessment was completed much after, but without issuing a notice u/s 143(2). The assessment completed u/s 158BC without a notice u/s 143(2) could not be sustained and had to be set aside.”

Assessment — Effect of self-assessment — Tax paid on self-assessment entitled to refund and interest on refund.

89 Mrs. SitadeviSatyanarayanMalpani& Others vs. ITSC

[2023] 459 ITR 758 (Bom.)

A.Ys.: 1989–90 to 1996–97

Date of Order: 30th June, 2023

S. 244A of ITA 1961

Assessment — Effect of self-assessment — Tax paid on self-assessment entitled to refund and interest on refund.

Pursuant to a search carried out at the premises of the assessee, an application for settlement was filed u/s 254C(1) of the Income-tax Act, 1961, for the A.Ys. 1989–90 to 1996–97. The Application was admitted on 22nd April, 1998. As per the order, the assessee was required to pay additional tax on the income disclosed. The assessee paid the additional tax and furnished copies of the challans. Pending application, the assessee filed a working of tax and interest for verification and also stated that the assessee shall pay the shortfall, if any. In response, the assessee received communication stating that a sum of ₹55,03,494 was payable by the assessee on account of tax and interest. In response, the assessee submitted that the payments made by the assessee had not been considered and thereby requested that the calculations be revised. During the course of hearing before the Settlement Commission, the assessee furnished the copies of challans. The assessee was informed that the balance amount of ₹1,16,511 was payable and to cover the said shortfall, the assessee made payment of ₹1,30,000. On 3rd August, 2008, an order was passed holding that the application filed by the assessee was not maintainable due to non-compliance of section 245(2D) of the Act and the application was held to have abated u/s 245HA(1)(ii) of the Act.

On writ petition, the assessee contended that the assessee had in fact paid more than the amount he was required to pay on self-assessment. The Settlement Commission contended that credit for such excess tax paid had already been granted to assessee but no interest was payable on the same as excess tax paid was arising out of self-assessment tax paid by assessee which was not eligible for any interest.

The Bombay High Court allowed the petition of the assessee and held as follows:

“i) Tax paid on self-assessment would fall u/s 244A(1)(b) of the Income-tax Act, 1961, i.e., the residual clause covering refunds of amount not falling u/s 244A(1) of the Act and as confirmed by a circular issued by the CBDT (Circular No. 549 dated October 31, 1989 * [1990] 182 ITR (St.) 1), the payment should be considered to bea tax and interest thereon would be payable to the assessee.

ii) It was clear that the tax payable was only ₹19,52,372 whereas the total tax paid was ₹20,06,280 which would leave an excess amount of ₹53,098 as paid. It was not denied that there was an excess tax paid of ₹53,098 but the stand of the Department was that credit for such excess tax paid had already been granted to the assessee but no interest was payable thereon as the excess tax paid arose out of self-assessment tax paid by the assessee which was not eligible for any interest. This was not correct. The assessee had complied with his obligations under the provisions of section 245D of the Act. The order rejecting the application for settlement of cases was not valid.

iii) In the circumstances, we are quashing and setting aside the impugned order dated January 3, 2008.We direct the matter to be placed before the InterimBoard for Settlement constituted u/s 245AA for consideration. Since the matter is old, the petitioners shall file a copy of the settlement application that was originally filed on April 27, 1997 before the Board within two weeks of this order being uploaded. The photocopy shall be certified as true copy by the advocates/chartered accountant of the petitioners. The Interim Board shall dispose of the application on merits in accordancewith law.”

Rectification of mistake — Mistake apparent from record — Exemption — Income received by non-resident for service rendered on foreign ship outside India — Not taxable in India even if credited to bank in India — Assessee mistakenly declaring in return salary received for services rendered outside India — Rejection of application for rectification — Failure to apply circular issued by CBDT — Error apparent on face of record — Orders refusing to rectify mistake set aside — Assessee entitled to exemption u/s. 10(6)(viii) — Matter remanded to AO. Appeal to Appellate Tribunal — Rectification of mistake — Failure to apply judicial precedents and circular issued by CBDT — Error apparent on face of record — Tribunal has jurisdiction to rectify.

88 Rajeev Biswas vs. UOI

[2023] 459 ITR 36 (Cal)

A.Y.: 2012-13

Date of Order: 22nd September, 2022

Ss. 10(6)(viii), 154 and 254 of ITA 1961

Rectification of mistake — Mistake apparent from record — Exemption — Income received by non-resident for service rendered on foreign ship outside India — Not taxable in India even if credited to bank in India — Assessee mistakenly declaring in return salary received for services rendered outside India — Rejection of application for rectification — Failure to apply circular issued by CBDT — Error apparent on face of record — Orders refusing to rectify mistake set aside — Assessee entitled to exemption u/s. 10(6)(viii) — Matter remanded to AO.

Appeal to Appellate Tribunal — Rectification of mistake — Failure to apply judicial precedents and circular issued by CBDT — Error apparent on face of record — Tribunal has jurisdiction to rectify.

The assessee was employed outside the Indian territory. For the A.Y. 2012-13, the return filed by the assessee was processed u/s. 143(1) of the Income-tax Act, 1961 computing the tax liability at ₹4,40,070. The Chartered Accountant of the assessee filed a petition for rectification stating that the assessee was a non-resident Indian during the period as he had to stay outside the country due to his employment, that he was outside the country for a total of 210 days during the previous year relating to the A.Y. 2012-13 and the income had been assessed without considering the assessee’s non-resident status. The request was rejected by the Deputy Commissioner (International Taxation) on the ground that there was no mistake apparent from the record.

The assessee preferred an appeal before the Commissioner (Appeals) contending that the Assessing Officer had ignored the revised return filed by the assessee where the income earned by the assessee under the head “Salary” was exempted u/s. 10(6)(viii) of the Act. The Commissioner (Appeals) dismissed the appeal. The Tribunal rejected the assessee’s further appeal on the ground that the issue pertaining to the assessee’s claim for exemption on account of salary income stated to be earned outside India was a debatable issue and the Commissioner (Appeals) was right in rejecting the appeal. The assessee preferred an application for rectification before the Tribunal which it dismissed by order dated5th January, 2018.

The Calcutta High Court allowed the appeal filed by the assessee and held as under:

“i) Circular No. 13 of 2017, dated 11th April, 2017 ([2017] 393 ITR (St.) 91) issued by the CBDT states that salary approved to a non-resident seafarer for service rendered outside India on a foreign ship shall not be included in the total income merely because the salary has been credited in the non-resident external account maintained with an Indian bank by the seafarer. In Circular No. 14 (XL-35), dated 11th April, 1995 the CBDT has directed the Officers of the Department not to take advantage of ignorance of an assessee as to his rights and stated that it is the duty of the Officers of the Department to assist the assessee in every reasonable way, particularly in the matter of claiming and securing reliefs under the Income-tax Act, 1961 and that in this regard the Officers should take the initiative in guiding an assessee where proceedings and other particulars before them indicate that some refund or relief is due to the assessee.

ii) The orders of the Tribunal and the Commissioner (Appeals) were perverse because:

(a) On the date when the Tribunal had passed the initial order dismissing the appeal of the assessee there was a binding decision of the court in Utanka Roy vs. DIT (International Taxation) [2017] 390 ITR 109 (Cal) which the Tribunal could not have ignored. The Tribunal having ignored it there was an error which was apparent on the face of the record. The Tribunal ought to have exercised its power when the rectification application was filed by the assessee but had erroneously rejected it. Therefore, the said order dated 5th January, 2018 also suffered from perversity.

(b) The Assessing Officer failed to note that the assessee was an individual and the return of income was filed by the chartered accountant and the chartered accountant on going through the facts found the mistake which had been committed and immediately filed the revised return which has been duly acknowledged by the Department. Thereafter, the rectification application was filedwhich was dealt with by the Deputy Commissioner of Income-tax, International Taxation which was also rejected. In our considered view the Departmentcould have taken a more reasonable stand, more particularly when the law on the subject is in favour of the assessee.

(c) The Assessing Officer and the Commissioner (Appeals) had ignored Circular No. 13 of 2017, dated 11th April, 2017 and Circular No. 14 (XL-35) dated 11th April, 1995 issued by the CBDT.

iii) The initial order and the order in the miscellaneous application passed by the Tribunal, the orders passed by the Commissioner (Appeals), the Deputy Commissioner (International Taxation), the order of rejection of the application under section 154 passed by the Centralised Processing Centre were quashed. The Assessing Officer was to review the assessment in accordance with law and Circular No. 13 of 2017, dated 11th April, 2017 issued by the Central Board of Direct Taxes and grant relief under section 10(6)(viii) by excluding the income received abroad by the assessee.”

Recovery of tax — Stay of demand pending appeal before CIT(A) — Discretion must be exercised in judicious manner — AO not bound by Departmental instructions.

87 Sudarshan Reddy Kottur vs. ITO

[2023] 458 ITR 750 (Telangana)

A.Y.: 2017-18

Date of Order: 30th January, 2023

S. 220(6) of ITA 1961

Recovery of tax — Stay of demand pending appeal before CIT(A) — Discretion must be exercised in judicious manner — AO not bound by Departmental instructions.

Assesee is an individual. For the A.Y. 2017-18, the assessee had filed return of income on 30th October, 2017 declaring total income of ₹15,02,400. By an order dated 30th March, 2022 passed u/s. 147 r.w.s. 144B of the Income-tax Act, 1961, the Assessing Officer determined the total income at ₹24,89,27,611 and raised the demand. The assessee filed an appeal before the CIT(A) and made an application u/s. 220(6) for stay of demand before the Assessing Officer. By the order dated 16th January, 2023, the Assessing Officer directed the assessee to pay 20 per cent of the demand on or before 25th January, 2023, but at the same time rejected the application for stay of demand.

The Telangana High Court allowed the writ petition filed by the assessee challenging the order and held as under:

“i) When the Income-tax authority exercises jurisdiction u/s. 220(6) of the Income-tax Act, 1961 he exercises quasi-judicial powers. While exercising quasi-judicial powers, the authority is not bound or confined by Departmental instructions.

ii) From a perusal of the order dated 16th January, 2023, it could be seen that the Income-tax Officer had followed instructions of the CBDT dated 21st March, 1996 to the effect that where an outstanding demand was disputed before the appellate authority, the assessee had to pay 20 per cent of the disputed demand. Accordingly, the assessee was directed to pay 20 per cent of the outstanding demand. There had been no application of mind by the Assessing Officer. The order therefore was not valid.

iii) That being the position, we set aside the order dated 16th January, 2023 and remand the matter back to the Assessing Officer for passing a fresh order in accordance with law after giving due opportunity of hearing to the assessee. This shall be done within a period of six (6) weeks from the date of receipt of a copy of this order. Till the aforesaid period of six (6) weeks, the respondents are directed not to take coercive steps for realising the outstanding demand for the A.Y. 2017-18.”

Reassessment — Notice — New procedure — Effect of decision of Supreme Court in Ashish Agarwal — Liberty available to matters at notice stage — Liberty granted by High Court in assessee’s petition against notice under unamended provision prior to Supreme Court decision — AO issuing second notice but allowing proceedings to lapse — Department cannot proceed for third time invoking liberty granted by Supreme Court — Notices and proceedings quashed.

86 Vellore Institute of Technology vs. ACIT(Exemption)

[2023] 459 ITR 499 (Mad)

A.Y.: 2015-16

Date of Order: 30th June, 2023

Ss. 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice — New procedure — Effect of decision of Supreme Court in Ashish Agarwal — Liberty available to matters at notice stage — Liberty granted by High Court in assessee’s petition against notice under unamended provision prior to Supreme Court decision — AO issuing second notice but allowing proceedings to lapse — Department cannot proceed for third time invoking liberty granted by Supreme Court — Notices and proceedings quashed.

For the A.Y. 2015-16, the Assessing Officer issued notice against the assessee under the unamended provisions of section 148 for reopening the assessment u/s. 147 of the Income-tax Act, 1961. Based on the liberty granted by the court on a writ petition against this notice, the Assessing Officer issued a second notice u/s. 148A(b) which included the details of the information on the basis of which the allegation of escapement of income was made. An order rejecting the objections of the assessee u/s. 148A(d) was passed and notice u/s. 148 was issued. On a writ petition challenging the second notice, the court granted an interim order which stated that while the second notice u/s. 148 could proceed with any decision taken by the Department would be subject to the result of the writ petition. Pursuant to that no notice u/s. 143(2) was issued. Thereafter, based on the decision of the Supreme Court dated 4th May, 2022 in UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC), the Assessing Officer issued a third notice dated 2nd June, 2022 u/s. 148A(b) and rejected the objections filed by the assessee in his order u/s. 148A(d) stating that the second notice dated 18th April, 2022 was dropped and the first notice u/s. 148 dated 12th April, 2021 which was the subject-matter of the first writ petition filed by the assessee was revived.

The Madras High Court allowed the writ petition filed by the assessee and held as under:

“i) The distinction between the erstwhile and the new system for reassessment of income that has escaped assessment u/s. 147 of the Income-tax Act, 1961 is that, under the old procedure it was necessary for the Assessing Officer to record reasons on the basis of which a notice u/s. 148 would be issued. The reasons formed the substratum of the proceedings for reassessment. In the new procedure obviating the necessity to record reasons and furnish them to the assessee upon request, the reasons are to be part of the initial notice u/s. 148A(b) and a response thereto is solicited. After hearing the assessee, an order is to be passed u/s. 148A(d) for issuance of notice u/s. 148 after considering the objections raised.

ii) There was no justification for the Department either in law or on fact, to subject the assessee to a third round of reassessment proceedings u/s. 147 merely by invoking the liberty granted in UOI vs. Ashish Agarwal decided on 4th May, 2022. The Department was bound by its decision in full when it dropped the second round of proceedings pursuant to the order of the High Court in the writ petition against the second notice issued under the new procedure. After the passing of the order by the High Court in respect of the second notice, proceedings had been commenced afresh by issuance of a notice u/s. 148A(b) and those proceedings had culminated by issuance of notice u/s. 148 dated 18th April, 2022 pursuant to which no notice u/s. 143(2) had been issued and the proceedings lapsed. The explanation tendered for issuance of a notice under section 148A(b) for the third time on June 2, 2022 was fallacious and unacceptable as the liberty granted by the Supreme Court in its decision dated 4th May, 2022 would be available only in those situations where the matters stood at an initial or preliminary stage of notice for reassessment and not where the proceedings had been carried forward to the stage of passing of order under section 148A(d) and issuance of notice under section 148 .

iii) The Department’s submission that the proceedings initiated pursuant to the first notice stood revived was also factually incorrect as there were material differences between the reasons in the first notice and those in notice u/s. 148A(b) dated 2nd June, 2022. If the third round of proceedings was only a revival of the earlier proceedings, the reasons ought to have been identical but they were not. The notices and consequential proceedings were quashed.”

Reassessment — Initial notice — Order u/s. 148A(d) for issue of notice — Notice u/s. 148 — Validity — Notice based on information from insight portal that assessee had purchased property — Assessee disclosing all details including bank statement in response to notice u/s. 142(1) and duly examined by AO in original assessment — Notices and order for issue of notice set aside.

85 Urban Homes Realty vs. UOI

[2023] 459 ITR 96 (Bom)

A.Y.: 2016-17

Date of Order: 4th July, 2023

Ss. 142(1), 143(3), 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Initial notice — Order u/s. 148A(d) for issue of notice — Notice u/s. 148 — Validity — Notice based on information from insight portal that assessee had purchased property — Assessee disclosing all details including bank statement in response to notice u/s. 142(1) and duly examined by AO in original assessment — Notices and order for issue of notice set aside.

The assessee was a property developer. For the A.Y. 2016-17, its case was selected for scrutiny for various reasons, one of which was large investment in property. The Assessing Officer stated in his order u/s. 143(3) of the Income-tax Act, 1961 that during the course of assessment proceedings the assessee submitted the details as called for and such details were examined. Thereafter, the Assessing Officer issued an initial notice u/s. 148A(b) on the basis of information from the Insight portal that the assessee had made an investment in a property on account of which income had escaped assessment. The Assessing Officer rejected the assessee’s explanation that all the details in respect of the purchase of the property in question were disclosed in the original scrutiny assessment and passed an order u/s. 148A(d) for issue of notice u/s. 148 and also issued a notice u/s. 148 pursuant thereto.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) The findings of the Assessing Officer that the issue covered in the scrutiny assessment u/s. 143(3) was not related to verification of source in respect of purchase of property, that the assessee did not furnish relevant bank statement evidencing the payments made for purchase of the property and did not explain the source during the course of issuance of notice u/s. 148A(b) were incorrect. In the notice u/s. 142(1) issued on 24th August, 2018, the assessee was expressly called upon to submit all the details of all the properties purchased with copies of the purchase deed and a copy of statement of the bank account from which the payment was made and the assessee had in its response furnished all the details called for. In his order u/s. 143(3) the Assessing Officer had specifically stated that during the course of assessment proceedings the assessee had submitted various details as called for and that those details were examined and that the data had been verified from the details submitted by the assessee. Therefore, the Assessing Officer was certainly satisfied with all the details provided by the assessee.

ii) In the reply to the notice issued u/s. 148A(b) also, the assessee had given details of the consideration paid for the property and the source of funds. Therefore, the Assessing Officer’s stating in his order u/s. 148A(d) that the assessee did not provide the details or explaining the source was incorrect. Accordingly, the initial notice u/s. 148A(b), the subsequent order u/s. 148A(d) and the consequential notice u/s. 148 were quashed and set aside.”

Reassessment — New procedure — Information that income has escaped assessment — Objection from Comptroller and Auditor General required —Internal audit objection cannot form the basis of reassessment — Reassessment based on change of opinion — Reassessment is impermissible in law.

84 Hasmukh Estates Pvt. Ltd. vs. ACIT

[2023] 459 ITR 524 (Bom)

A.Y.: 2015-16

Date of Order: 8th November, 2023

Ss. 147, 148, 148A(b), 148A(d) and 151 of ITA 1961

Reassessment — New procedure — Information that income has escaped assessment — Objection from Comptroller and Auditor General required —Internal audit objection cannot form the basis of reassessment — Reassessment based on change of opinion — Reassessment is impermissible in law.

The assessee sold a plot of land to one RNL by a registered agreement to sell dated 7th October, 2011 for a consideration of ₹18 crores, the stamp duty value of which was ₹16.5 crores. Due to non-fulfilment of certain obligations on the part of the assessee, the consideration was reduced to ₹12 crores. The case was selected for scrutiny and the assessment order was passed on 26th December, 2017, accepting the consideration of ₹12 crores. The submission of the assessee to the Assessing Officer in the original assessment proceedings in respect of the sale of land was that section 50C of the Act was not applicable as the sale consideration of ₹18 crores was higher than the stamp valuation of ₹16.50 crores.

Thereafter, an audit memo dated 29th March, 2019 was received by the Assessing Officer raising an objection that Petitioner has shown lower amount of sale consideration than value adopted by the Stamp Duty Authority thus, inviting the applicability of Section 50C of the Act to the transaction. Subsequently, the assessee’s case was reopened to tax the difference between the stamp duty value and the sale consideration u/s. 50C of the Act.

The assessee filed a writ petition challenging the reopening of the assessment. The Bombay High Court allowed the petition, quashed the reassessment proceedings and held as follows:

“i) The admitted facts clearly indicated that the information on the basis of which the Assessing Officer issued notice alleging that there was “information” that suggested escapement of income was an internal audit objection. Information is explained in section 148 of the Act to mean “any objection raised by the Comptroller and Auditor General of India” and no one else. Prima facie the information which formed the basis of reopening itself did not fall within the meaning of the term “information” under Explanation 1 to section 148 of the Income-tax Act, 1961, and hence, the reopening was not permissible as it clearly fell within the purview of a “change of opinion” which was impermissible in law.

ii) Consequently, dehors any audit objection by the Comptroller and Auditor General, a view deviating from that which was already taken during the course of issuing original assessment order was nothing but a “change of opinion” which was impermissible under the provisions of the Act.”

Reassessment — Notice for reassessment after 1st April, 2021 — All relevant information provided by assessee prior to original assessment order — AO has no power to review his own order — Query raised by AO answered and accepted during original assessment — Reopening of assessment on mere change of opinion not permissible.

83 Knight Riders Sports Pvt. Ltd. vs. ACIT

[2023] 459 ITR 16 (Bom)

A.Y.: 2016-17

Date of Order: 26th September, 2023

Ss. 142(1), 143(3), 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice for reassessment after 1st April, 2021 — All relevant information provided by assessee prior to original assessment order — AO has no power to review his own order — Query raised by AO answered and accepted during original assessment — Reopening of assessment on mere change of opinion not permissible.

The assessee-company was engaged in the business of operating and running a cricket team in the Indian Premier League. During the assessment proceedings for the A.Y. 2016-17, the Assessing Officer issued various notices u/s. 142(1) of the Income-tax Act, 1961, raising queries, inter alia, regarding foreign payments made and the assessee provided the details. An assessment order u/s. 143(3) of the Act was passed. Thereafter the assessee received notice dated 17th March, 2023, u/s. 148A(b) of the Act alleging that the audit scrutiny of assessment records disclosed payments of consultancy and team management fees to a foreign company and that income was chargeable to tax for the A.Y. 2016-17, had escaped assessment. The Assessing Officer rejected the objections raised by the assessee and passed an order u/s. 148A(d) of the Act, followed by a reassessment notice u/s. 148 of the Act.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i) Reopening of the assessment was not permissible based on change of opinions as the Assessing Officer does not have any power to review his own assessment when during the original assessment the assessee had provided all the relevant information which was considered by the Assessing Officer before passing the assessment order u/s. 143(3) of the Act. Once a query had been raised during the assessment and query had been answered and accepted by the Assessing Officer while passing the assessment order, it followed that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. This would apply even if the assessment order had not specifically dealt with that issue.

ii) The reopening of the assessment was merely on the basis of change of opinion. This change of opinion did not constitute justification to believe that income chargeable to tax had escaped assessment. The notice dated 17th March, 2023, the order dated 30th March, 2023 and the reassessment notice dated 30th March, 2023, were quashed and set aside.”

Offences and Prosecution — Wilful attempt to evade payment of tax — Self assessment tax shown in the return of income but paid late — Penalty levied for delayed payment of tax — Criminal intent of assessee essential — Nothing on record to show deliberate and wilful default of evasion of tax — Complaint and summoning order quashed.

82 Health Bio Tech Ltd. vs. DCIT

[2023] 459 ITR 349 (P&H.)

A.Y.: 2011-12

Date of Order: 14th September, 2023

Ss. 276C(2) and 278B of ITA 1961

Offences and Prosecution — Wilful attempt to evade payment of tax — Self assessment tax shown in the return of income but paid late — Penalty levied for delayed payment of tax — Criminal intent of assessee essential — Nothing on record to show deliberate and wilful default of evasion of tax — Complaint and summoning order quashed.

The assessee, a registered firm, filed its return of income for A.Y. 2011-12 wherein aggregate amount of tax was shown at ₹1,36,20,887. Subsequently, the return of income was revised and the aggregate amount of tax was shown at ₹1,50,81,728. The tax was not paid in time but was paid late. The Department filed a complaint for offence u/s. 276C(2) of the Income-tax Act, 1961 of wilful attempt to evade payment of tax. The trial court admitted the complaint and passed an order summoning the assessee as accused.

The Punjab and Haryana High Court allowed the revision petition filed by the assessee and held as follows:

“i) It was apparently clear from the facts on record, that there was no attempted evasion on the part of the assessee-company. There was undoubtedly delayed payment, but for that penalty had already been levied. While maintaining both these proceedings simultaneously, the one fact that must be present there, that there was or has been a criminal intent in the mind of the accused right from the beginning.

ii) The income tax was self-assessed and payment was also made by the assessee-company, though belatedly. Thus, the question of evasion of tax did not arise in the present facts and circumstances. The facts and circumstances of the case did not reveal that there was a deliberate and wilful default of evasion of tax on the part of the assessee. The complaint and all the consequential proceedings arising therefrom, including the summoning order were quashed.”

Offences and prosecution — Failure to deposit tax deducted at source before due date — Sanction for prosecution — Reasonable cause — Tax deducted at source — Delay to deposit tax deducted at source due to prevalence of pandemic — Assessee depositing tax deducted at source in phased manner with interest though after due date — Reasonable cause for failure — Prosecution orders set aside.

81 D. N. Homes Pvt. Ltd. vs. UOI

[2023] 459 ITR 211 (Orissa)

A.Y.: 2021-22

Date of Order: 13th October, 2023

Ss. 2(35), 276B, 278AA and 278B of the IT Act

Offences and prosecution — Failure to deposit tax deducted at source before due date — Sanction for prosecution — Reasonable cause — Tax deducted at source — Delay to deposit tax deducted at source due to prevalence of pandemic — Assessee depositing tax deducted at source in phased manner with interest though after due date — Reasonable cause for failure — Prosecution orders set aside.

The assessee is a private limited company. As per the TRACES, the assessee deducted tax of ₹2,58,29,945 for F.Y. 2020-21 relevant to A.Y. 2021-22 which was not deposited with the Central Government before the due date. However, the amount was deposited in a phased manner with delay of 31 days to 214 days. The Department filed a complaint against the assessee for an offence u/s. 276B of the Income-tax Act, 1961. The lower Court took cognizance of the offence.

The Orissa High Court allowed the revision petition filed by the assessee and held as under:

“i) The expression “reasonable cause” used in section 278AA of the Income-tax Act, 1961 may not be “sufficient cause” but would have a wider connotation than the expression “sufficient cause”. Therefore, “reasonable cause” for not visiting a person with the penal consequences would have to be considered liberally based on facts of each individual case. The issue of there being a reasonable cause or not is a question of fact and inference of law can be drawn.

ii) The legislative intent would be well discernible on consideration of the provisions of section 201 and section 221 which state that penalty is not leviable when the company proves that the default was for “good and sufficient reasons”, whereas, the expression used in section 278AA is “reasonable cause”. The Legislature has carefully and intentionally used these different expressions in the situations envisaged under those provisions. The intent and purport being to mitigate the hardship that may be caused to genuine and bona fide transactions where the assessee was prevented by cause that is reasonable. Therefore, the court must lean for an interpretation which is consistent with the “object, good sense and fairness” thereby eschew the others which render the provision oppressive and unjust, as otherwise, the very intent of the Legislature would be frustrated.

iii) The expression “reasonable cause” in section 278AA qualifies the penal provision laid under section 276B. Both provisions accordingly are to be read together to ascertain the attractability of the penal provision. In a criminal proceeding by merely showing reasonable cause, an accused can be exonerated and for showing that reasonable cause, the standard of proof of suchfact in support thereof is lighter than the proof in support of good and sufficient reason. A reasonable cause may not necessarily be a good and sufficient reason.

iv) The assessee and its principal officer had deposited the entire tax deducted at source with interest for the delayed deposit before the time of consideration of the matter as to launching of the prosecution u/s. 279(1)of the 1961 Act. The tax deducted at source with interest had been accepted and gone to the State exchequer when by then no loss to the Revenue stood to be viewed.

v) The point for consideration by the authority was not to cull out the justification for delay in depositing the tax deducted at source but was whether to launch the prosecution. Hence, the order u/s. 279(1) passed by the Commissioner (TDS) suffered from the vice of non-consideration of the admitted factual settings as to the existence of reasonable cause for the failure to deposit the tax deducted at source and the complaint was vitiated since the failure was on account of the reasonable cause of the prevalence of covid-19 pandemic.

vi) The order of sanction having been passed without due application of mind and in a mechanical manner and putting the blame upon the assessee and its principal officer for not filing any exemption or relaxation notifications or circulars stood vitiated. Hence, the trial court ought not to have taken cognizance of the offences u/ss. 276B, 2(35) and 278B when even the latter two had no penal provisions and its orders were bad in law and, therefore, set aside.”

Fees for technical services — Make available — Meaning of — Recipient of services should apply technology — Services offered to Indian affiliates — Tribunal holding services to Indian affiliates not fees for technical services as make available test not fulfilled — Agreement between assessee and its affiliate effective for long period — Recipient of services unable to provide same service without recourse to service provider — Not fees for technical services: DTAA between India and Singapore s. 12(4)(b).

80 CIT (International Taxation) vs. Bio-Rad Laboratories (Singapore) Pte. Ltd.

[2023] 459 ITR 5 (Del.)

A.Y.: 2019-20

Date of Order: 3rd October, 2023

S. 260A of ITA 1961

Fees for technical services — Make available — Meaning of — Recipient of services should apply technology — Services offered to Indian affiliates — Tribunal holding services to Indian affiliates not fees for technical services as make available test not fulfilled — Agreement between assessee and its affiliate effective for long period — Recipient of services unable to provide same service without recourse to service provider — Not fees for technical services: DTAA between India and Singapore s. 12(4)(b).

The Tribunal held that the services offered by the assessee to its Indian affiliates did not come within the purview of fees for technical services, as reflected in article 12(4)(b) of the DTAA between India and Singapore, as they did not fulfil the criteria of “make available” test.

The Delhi High Court dismissed the appeal filed by the Department and held as under:

“i) According to the Tribunal, the agreement between the assessee and its affiliate had been effective from 1st January, 2010, and it had run for a long period. In order to bring the services in question within the ambit of fees for technical services under the Double Taxation Avoidance Agreement, the services would have to satisfy the ”make available” test and such services should enable the person acquiring the services to apply the technology contained therein. The facts on record showed that the recipient of the services was not enabled to provide the same service without recourse to the service provider.

ii) The analysis and conclusion arrived at by the Tribunal were correct.”

Refund — Assessment — Limitation — Change in law — Remand by Tribunal — AO failing to give effect to remand order of Tribunal within prescribed time — Assessment barred by limitation — Refund in terms of declared income to be granted with interest

79 Aricent Technologies (Holdings) Ltd. vs. ACIT

[2023] 458 ITR 578 (Del)

A.Ys.: 2006–07 and 2007–08

Date of Order: 27th February, 2023

Ss. 153(3), 237 and 254 of ITA 1961

Refund — Assessment — Limitation — Change in law — Remand by Tribunal — AO failing to give effect to remand order of Tribunal within prescribed time — Assessment barred by limitation — Refund in terms of declared income to be granted with interest.

The assessee filed an appeal before the Tribunal against the order passed u/s. 143(3) read with section 144C(13) for the A.Y. 2007–08 against the entity FSS which had since amalgamated with the assessee. By an order dated 7th January, 2016, the Tribunal partly deleted the disallowance of the project expenses, the disallowance of deduction claimed u/s. 10B and the transfer pricing adjustment of corporate charges and remanded the matter to the Assessing Officer. Pursuant to the order dated 7th January, 2016 passed by the Tribunal, the Transfer Pricing Officer passed an order dated 24th January, 2017. However, the Assessing Officer did not pass any final order.

The Assessee filed writ petition contending that the amount of refund for the A.Y. 2006–07 due to FSS which was amalgamated with the assessee be refunded with applicable interest on the ground that the assessment for the A.Y. 2007–08 was barred by limitation. The Delhi High Court allowed the writ petition and held as under:

“i) Section 153 of the Income-tax Act, 1961 was amended by the Finance Act, 2017 with retrospective effect from June 1, 2016 and in sub-section (3) thereunder the provision regarding limitation for making an assessment pursuant to any order passed by the Tribunal u/s. 254 was included.

ii) Passing a fresh assessment order pursuant to the Tribunal’s order dated January 7, 2016, was barred by limitation under the provisions of section 153(3) and 153(4) and the income as returned by the amalgamated company FSS for the A.Y. 2007–08 would stand accepted. Consequently, any adjustment that would be made against the refund due to FSS for the A.Y. 2006–07 was not sustainable. Therefore, the amount which was due to FSS as refund for the A.Y. 2006–07 was to be refunded to the assessee with applicable interest.”

Refund of tax deducted at source — Payment to non-resident after deducting withholding tax — Refund to the person who made payment and has borne withholding tax — Amount wrongly deducted to be refunded if the person receiving payment not claimed credit therefor — Payee not claiming credit — Assessee deductor to be refunded the amount with interest

78 Grasim Industries Ltd. vs. ACIT

[2023] 458 ITR 1 (Bom.)

A.Ys.: 1990-91 and 1991-92

Date of Order: 1st September, 2023

Ss. 92CA, 144C and 153 of ITA 1961

Refund of tax deducted at source — Payment to non-resident after deducting withholding tax — Refund to the person who made payment and has borne withholding tax — Amount wrongly deducted to be refunded if the person receiving payment not claimed credit therefor — Payee not claiming credit — Assessee deductor to be refunded the amount with interest.

The assessee entered into a foreign technical collaboration agreement with one M/s. D wherein D agreed to render to the assessee outside India certain engineering and other related services in relation to the project set up for Gas based plant in India. The assessee also entered into supervisory agreement with D to provide supervisory services in India. Under the agreement with D, D had agreed to deliver to the assessee necessary design, drawing, data with respect to the sponge iron plant outside India. D also agreed to train outside India certain employees of the assessee so as to make available to the such employees technical information, scientific knowledge, expertise, etc. for the commissioning, operation and maintenance of the plant. The consideration agreed was a sum of US$ 1,62,31,000 net of tax and it was agreed that any withholding tax required to be deducted will be borne by the assessee and D would be paid a net amount of US$ 1,62,31,000. The assessee sought permission from the AO to make remittance to D without deduction of tax at source. However, the AO held that the amount payable to D was taxable as income in India and the assessee was required to deduct tax at source and deposit the tax with the Income-tax Department. The assessee paid under protest a sum of ₹2,73,73,084 and ₹2,81,83,272 as withholding tax on account of two installments of payments made to D. The assessee claimed that since the withholding tax was borne by the assessee and the payment made to D was not chargeable to tax, the assessee would be entitled to refund.

In the return of income filed by D for A.Ys. 1990–91 and 1991–92, D declared NIL income on the ground that the income received by D neither accrued in India nor received in India therefore not chargeable to tax in India. However, in the assessment of D, it was held that amount received by D under the agreement was chargeable to tax in India and accordingly the withholding tax deducted by the assessee was adjusted towards D’s tax liability. The assessee along with D filed a petition before the Bombay High Court challenging, inter alia, the assessment order and the taxability of the amount received by D under the agreement. Vide order dated 5th May, 2010, the Court held that the assessment orders subjecting the amount received by D under the agreement to tax was not correct and the Department was directed to pass a fresh assessment order excluding the income received by D.

Subsequently, the assessee made a request to the AO to pass an order giving effect to the order of the High Court. Reminder letters were sent to the AO time and again. However, there was no action by the AO. Vide order dated 24th August, 2012, the AO refused to give effect to the order of Bombay High Court holding that the assessee was not entitled to the refund of withholding tax deposited by the assessee as the tax was deducted on behalf of D and therefore no effect could be given in the hands of the assessee.

Therefore, the assessee, by way of writ petition, approached the Bombay High Court. The High Court allowed the petition and held as follows:

“i) Section 248 of the Act, amended by the Finance Bill, 2007 ([2007] 289 ITR (St.) 122), envisages and deals with a situation where a refund could be made to the person by whom the income was payable and who has borne the withholding tax. The amount wrongly deducted or paid to the Revenue authorities where it was not required to be paid would become refundable to the assessee. This is subject to the condition that the person receiving the payment had not claimed credit therefor.

ii) For over 13 years neither D nor its successor-in-interest had claimed any amount from the Revenue but had issued its no objection to the Department making the refund to the assessee. The assessee would be entitled to credit of any tax deducted at source both by the banks and the Department while depositing the amounts with the Prothonotary and Senior Master, High Court, Bombay giving effect to the order of this court by arriving at net amount refundable for the A.Ys. 1990–91 and 1991–92 and after deducting tax at source for the A.Ys. 1990–91 and 1991–92. The amounts having been deposited with Prothonotary and Senior Master, High Court, Bombay, the Prothonotary and Senior Master shall foreclose the fixed deposit and pay over the amount including interest to the assessee.”

Reassessment — Notice after three years — Validity — New procedure — Income chargeable to tax — Gross receipt of sale consideration not income chargeable to tax — Notice issued treating gross receipt on export transaction as asset which had escaped assessment — Not sustainable

77 Nitin Nema vs. Principal CCIT

[2023] 458 ITR 690 (MP)

A.Y.: 2016–17

Date of Order: 16th August, 2023

Ss. 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice after three years — Validity — New procedure — Income chargeable to tax — Gross receipt of sale consideration not income chargeable to tax — Notice issued treating gross receipt on export transaction as asset which had escaped assessment — Not sustainable.

Words and phrases — “Income” — “Income chargeable to tax” — Distinction.

For the A.Y. 2016-17, reassessment proceedings were initiated against the assessee on the ground that the assessee had sold 16 scooters and earned ₹72,05,084 which had escaped assessment. The Assessee filed a writ petition challenging the order passed u/s. 148A(d) and the consequential notice issued u/s. 148 of the Act claiming that the income mentioned in the order and the notice was not subject to income tax. What was stated therein was the gross sale consideration and on sale of 16 scooters. The assessee submitted that this income was not subject to tax and therefore sections 148A(d) and 148 did not apply.

The Madhya Pradesh High Court allowed the writ petition and held as follows:

“i) The expression “income chargeable to tax” is not defined in the Income-tax Act, 1961. However, the provisions with respect to computation of business income make clear that the definitions of the expressions “income” and “income chargeable to tax” are at variance with each other. The expression “income” is inclusively defined u/s. 2(24) whereas “income chargeable to tax” denotes an amount which is less than “income”. The “income chargeable to tax” is arrived at after deducting from “income” the permissible deductions under the Act. Therefore, the quantum of “income” is invariably more than “income chargeable to tax”.

ii) The Department had failed to understand the fundamental difference between sale consideration and income chargeable to tax. It had relied upon sections 2(24), 14, 28 and 44AD to emphasize the expression “income”. Neither the notice u/s. 148A(b) nor the order u/s. 148A(d), nor the consequential notice u/s. 148 stated that the income alleged to have escaped assessment included land or buildings or shares or equities or loans or advances. The assessee had filed a reply to the notice u/s. 148A(b) wherein it had submitted that the amount of ₹72,05,084 was the gross receipt of sale consideration of 16 scooters which meant that the amount of ₹72,05,084 was the total sale consideration receipt of the transaction in question, and not income chargeable to tax which would obviously be less than such amount. With the reply the assessee had also furnished the details of items sold and payment receipts, computation of total income and the computation of tax on total income and had submitted these to the Assessing Officer before the passing of the order u/s. 148A(b). There was nothing stated in the provisions of section 148, 148A or 149 which could prevent the assessee from taking advantage of these provisions merely because of his failure to file return of income.

iii) Consequently, this petition stands allowed. The impugned order dated March 25, 2023 u/s. 148A(d) of the Income-tax Act vide annexures P-3 and P-4 are quashed. The notice dated March 25, 2023 vide annexure P-5 u/s. 148 issued by the Income-tax Officer, Ward 1(1), Jabalpur is quashed. However, the Department is at liberty to invoke the provisions of section 148A in accordance with law.”

Reassessment – Notice – Sanction of competent authority :- (a) New procedure – Extension of time limits by 2020 Act – Effect of Supreme Court decision in UOI vs. Ashish Agarwal (2022) 444 ITR 1 (SC) – Notices for reassessment issued after 31st March, 2021 u/s. 148 converted into notice deemed to be issued u/s. 148A(b) – Notices do not relate back to original date – Sanction of specified authority to be obtained in accordance with law existing when sanction obtained; (b) Jurisdictional requirement – Notice for A.Y. 2016-17 issued after April 2021 – More than three years elapsing – Approval to be obtained from Principal Chief Commissioner – Approval taken of Principal Commissioner – Notice issued without sanction of correct authority invalid – CBDT instructions for issue of re-assessment notice between 1st April, 2020 and 30th June, 2021 not applicable – Order and notice quashed

76 Siemens Financial Services Pvt. Ltd. vs. DCIT

[2023] 457 ITR 647 (Bom.)

A.Y.: 2016–17

Date of Order: 25th August, 2023

Ss. 147(1), 148, 148A(d), 149(1)(b), 151(i) and 151(ii) of ITA 1961

Reassessment — Notice — Sanction of competent authority :— (a) New procedure — Extension of time limits by 2020 Act — Effect of Supreme Court decision in UOI vs. Ashish Agarwal (2022) 444 ITR 1 (SC) — Notices for reassessment issued after 31st March, 2021 u/s. 148 converted into notice deemed to be issued u/s. 148A(b) — Notices do not relate back to original date — Sanction of specified authority to be obtained in accordance with law existing when sanction obtained; (b) Jurisdictional requirement — Notice for A.Y. 2016-17 issued after April 2021 — More than three years elapsing — Approval to be obtained from Principal Chief Commissioner — Approval taken of Principal Commissioner — Notice issued without sanction of correct authority invalid — CBDT instructions for issue of re-assessment notice between 1st April, 2020 and 30th June, 2021 not applicable — Order and notice quashed.

Reassessment — No power to review assessment — Assessee providing relevant information — AO considered the information before passing assessment order and allowed deduction of expenditure on software consumables as revenue expenditure — Re-assessment by the AO to treat the expenditure as capital expenditure — Change of opinion — Order for issue of notice and consequent notice to be quashed.

The assessee, a NBFC, filed its return of income for A.Y. 2016–17 declaring total income of ₹44,92,46,370. Subsequently, the return of income was revised declaring total income of ₹50,67,32,580. The assessee’s case was selected for scrutiny. During the course of assessment, the assessee submitted a transaction-wise summary of expenditure on software consumables. On 23rd December, 2018, assessment order u/s. 143(3) of the Income-tax Act, 1961 was passed without any adjustment to the total income reported in the revised return. On 25th June, 2021, almost after 3 years, notice u/s. 148 of the Act was issued stating that there was reason to believe that assessee’s income for A.Y. 2016–17 has escaped assessment within the meaning of section 147 of the Act. Vide letter dated 22nd July, 2021, the assessee replied to the AO that the notice had been issued under the old provisions of the Act and that after 1st April, 2021, the AO should issue notice as per the amended provisions of the Act. The assessee thus requested the AO to drop the proceedings. Thereafter, the AO issued a notice dated 26th November, 2021 u/s. 142(1) which was replied to by the assessee. Subsequently, the AO issued a letter / show cause notice dated 31st May, 2022 u/s. 148A(b) of the Act wherein the earlier notice dated 25th June, 2021 issued u/s. 148 of the Act and the judgment of the Supreme Court in the case of UOI vs. Ashish Agarwal were referred and the AO stated that notice issued u/s. 148 of the Act be deemed to be issued u/s. 148A(b) of the Act. The AO relied upon the information and material which was annexed with the show cause notice to suggest that income chargeable to tax escaped assessment and also relied upon the approval of the competent authority which was attached with the show cause notice. In response to the show cause notice, the assessee made submissions vide letters dated 9th September, 2022 and 7th July, 2022. Vide order dated 31st July, 2022 passed u/s. 148A(d), the AO rejected the submissions and issued an intimation letter for issue of notice u/s. 148 of the Act and thereafter issued notice dated 31st July, 2022 u/s. 148 of the Act.

The assessee filed writ petition before the Bombay High Court challenging the impugned show cause notice dated 31st May, 2022, the order dated 31st July, 2022 passed u/s. 148A(d) of the Act and the notice dated 31st July, 2022 u/s. 148 of the Act. The Bombay High Court allowed the petition and held as follows:

“(i) The findings of the Bombay High Court in Tata Communications Transformation Services Ltd. v. Asst. CIT [2022] 443 ITR 49 (Bom) (to the effect that section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 does not provide that any notice issued u/s. 148 of the Income-tax Act, 1961 after March 31, 2021 will relate back to the original date such that the provision as existing on such date will be applicable to notices issued relying on the provision of the 2020 Act) have not been disturbed by the Supreme Court in UOI v. Ashish Agarwal [2022] 444 ITR 1 (SC). The Supreme Court only modified the orders passed by the respective High Courts to the effect that the notices issued under section 148 of the Act which were subject matter of writ petitions before various High Courts shall be deemed to have been issued u/s. 148A(b) of the Act and the Assessing Officer was directed to provide within 30 days to the respective assessee the information and material relied upon by the Department so that the assessee could reply to the show-cause notices within two weeks thereafter. The Supreme Court held that the Assessing Officer shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees. Thereafter, after following the procedure as required u/s. 148A may issue notice u/s. 148 (as substituted). The Supreme Court also expressly kept open all contentions which may be available to the assessee including those available u/s. 149 of the Act and all rights and contentions which may be available to the concerned assessee and Department under the Finance Act, 2021 and in law, shall be continued to be available. Even by the finding of the Supreme Court in Ashish Agarwal, only the original notice issued u/s. 148 of the Act was converted into a notice deemed to have been issued u/s. 148A(b) of the Act. The judgment in Ashish Agarwal does not anywhere indicate the notices that could be issued for eternity would be sanctioned by an authority other than the sanctioning authority defined under the Act.

ii) The 2020 Act only seeks to extend the period of limitation and does not affect the scope of section 151. The Assessing Officer cannot rely on the provisions of 2020 Act and the notifications issued thereunder as section 151 has been amended by the Finance Act, 2021 and the provisions of the amended section would have to be complied with by the Assessing Officer, with effect from April 1, 2021. Hence, the Assessing Officer cannot seek to take the shelter of 2020 Act as a subordinate legislation cannot override any statute enacted by Parliament. Further, the notification extending the dates from March 31, 2021 till June 30, 2021 cannot apply once the Finance Act, 2021 is in existence. The sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained. It is not open to the Central Board of Direct Taxes to clarify that the law laid down by the Supreme Court means that the extended reassessment notices will travel back in time to their original date when such notices were to be issued and, then, the new section 149 of the Act is to be applied. The 2020 Act does not envisage travelling back of any notice.

iii) The approval for issuance of notice u/s. 148A(d) of the Act had not been properly obtained because:

‘(a) the petition related to the A.Y. 2016-17, and as the order and notice were issued beyond the period of three years which elapsed on March 31, 2020 the approval as contemplated in section 151(ii) of the Act would have to be obtained which had not been done by the Assessing Officer. The approval had been taken of the Principal Commissioner who was not the specified authority u/s. 151 of the Act. The sanction was required to be obtained by applying the amended section 151(ii) of the Act and since the sanction had been obtained in terms of section 151(i) of the Act, the order and notice are bad in law and should be quashed and set aside.

(b) even assuming that it is held that these notices travel back to the date of the original notice issued on June 25, 2021, the approval of the Principal Chief Commissioner should have to be obtained in terms of section 151(ii) of the Act as a period of three years from the end of the relevant assessment year ended on March 31, 2020 for the A.Y. 2016–17.

(c) Instructions dated May 11, 2022 ([2022] 444 ITR (St.) 43) had no applicability to the facts of this case because they expressly provided that they applied only to the issue of reassessment notice issued by the Assessing Officer during the period beginning April 1, 2020 and ending with June 30, 2021 within the time extended under 2020 Act and various notifications issued thereunder.

(d) since the approval of the specified authority in terms of section 151(ii) of the Act was a jurisdictional requirement and in the absence of compliance with this requirement, the reopening of assessment would fail.’

iv) It is settled law that proceedings u/s. 148 cannot be initiated to review the stand earlier adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. If the change of opinion concept is given a go by, that would result in giving arbitrary powers to the Assessing Officer to reopen assessments. It would in effect be giving power to review which he does not possess. The Assessing Officer has only power to reassess not to review. The concept of change of opinion is an in-built test to check abuse of power by the Assessing Officer.

v) The Assessing Officer did not have any power to review his own assessment when during the original assessment the assessee had provided all the relevant information and the Assessing Officer had considered it before passing the assessment order u/s. 143(3) of the Act dated December 23, 2018. The assessee had debited an amount of ₹6,41,87,931 on account of software consumables in the profit and loss account and a detailed break-up of the expenses were submitted before the Assessing Officer during the course of assessment proceedings. The Assessing Officer having allowed the amount of software consumables as a revenue expenditure now sought to treat it as capital expenditure which was a clear change of opinion. This was not permissible.”

Income — Diversion of income by overriding title — State Government undertaking entrusted with Government funds with strict instructions regarding its usage — Income of undertaking diverted to State Government by overriding title — No income accrued to undertaking

75 Principal CIT vs. Jharkhand Tourism Development Corporation Ltd.

[2023] 458 ITR 497 (Jhar.)

A.Ys.: 2012–13 and 2014–15

Date of Order: 21st February, 2023

Income — Diversion of income by overriding title — State Government undertaking entrusted with Government funds with strict instructions regarding its usage — Income of undertaking diverted to State Government by overriding title — No income accrued to undertaking.

The assessee is an undertaking of the State Government of Jharkhand incorporated with the object to promote tourism in the State and to create, operate and maintain infrastructure for tourism on behalf of Central and State Government. The assessee received funds from the Government for making payments in accordance with the guidelines of the Government for approved projects and the assessee was liable to return the unutilized funds to the Government. Under the directions from the Government as well as under an Office Memorandum dated 6th December, 2006 issued by the Ministry of Tourism, the Government of India directed the assessee that funds released as installments of Central Financial Assistance (CFA) from the Ministry of Tourism were to be deposited in saving accounts or fixed deposits in banks. Further it was also directed to ensure utilization of interest earned on deposits for the execution and completion of concerned projects without deviation towards any other expenditure. In case, there was no scope for utilization of the amount, such amount had to be returned to the Ministry of Tourism.

Assessee’s case for A.Y. 2014–15 was selected for scrutiny where under the interest income of ₹4,63,76,660 earned on fixed deposit was taken as income and added to the total income of the assessee. For A.Y. 2012–13, the interest of ₹3,23,99,958 earned on fixed deposit was added to the total income of the assessee. Separate appeals were preferred for each of the years before the CIT(A) which were allowed by the CIT(A). The Tribunal confirmed the action of the CIT(A).

The Department filed appeals before the High Court and contended that interest income was covered under the head “Income from Other Sources”. The guidelines of the Ministry of Tourism could not override the statutory provisions of the Act. Further, the Department contended that the fixed deposits were in the name of the assessee and the TDS on interest was also shown and claimed by the assessee. The Department therefore contended that the AO had rightly treated the interest to be the income of the assessee.

The High Court dismissed the appeals of the Department and held as follows:

“i) The assessee was a Jharkhand State Government undertaking incorporated with the object to promote tourism in the State to create, operate and maintain infrastructure for tourism on behalf of the Central and State Government. The funds from the Central and State Governments were disbursed to the assessee for making payment in accordance with the guidelines of the Government for approved projects and were liable to be refunded if unutilised funds as and when Government made requisition therefor. Thus, the funds always remained the property of the Government and the assessee was authorised to use the funds as well and was duty bound to obey the direction on how to manage the surplus. The assessee under the directions of the Government kept a portion of unutilised funds in short-term bank deposits and interest earned from these deposits was transferred to the respective fund accounts of the Government. As a matter of fact, an office memorandum dated December 6, 2006 issued by the Joint Secretary, Ministry of Tourism, had directed the assessee to deposit funds released as instalments of Central Financial Assistance from the Ministry of Tourism in saving accounts or fixed deposits in banks and as a result a substantial amount accrued as interest on deposits made out of the Central Financial Assistance. It was also directed to ensure utilisation of interest earned on deposits for the execution and completion of the projects without deviation to any other head of expenditure. In case there was no scope to utilise the amount of interest for execution of the project, such amount could be returned to the Ministry of Tourism.

ii) Thus, the income never reached the assessee and was diverted at source by an overriding title. The orders of assessment for the A.Ys. 2012-13 and 2014-15 were not valid.”

Deduction of tax at source — Interest on compensation awarded by Motor Accidents Claims Tribunal — Effect of sub-section (3) of section 194A — Interest assessable only if it exceeds ₹ 50,000 in a financial year

74 Smt Kuni Sahoo vs. UOI

[2023] 457 ITR 777 (Guj.)

Date of Order: 30th January, 2023

S. 194A of ITA 1961

Deduction of tax at source — Interest on compensation awarded by Motor Accidents Claims Tribunal — Effect of sub-section (3) of section 194A — Interest assessable only if it exceeds ₹ 50,000 in a financial year.

The Petitioners are the wife and the children of the deceased who died in a road accident. Pursuant to the death of the deceased in a road accident on 7th January, 2013, the Petitioners were awarded compensation of ₹17,90,760 along with interest at 7 per cent per annum with effect from date of application till the date of realisation. On appeal by the opposite party, the compensation stood reduced to ₹ 15,00,000 with interest vide order dated 13th July, 2019. The interest pertained to the period 2013–14 to 2019–20, that is, for a period of six years and if the interest was spread over in the case of each petitioner over a period of six years, the annual interest would come around ₹35,944. The said amount being less than ₹ 50,000, no deduction of tax was required in view of section 194A(3)(ixa) as amended. However, the Insurance company deposited cheques after deduction of tax at source on the interest.

The Petitioners filed writ petitions claiming that the Insurance company should have deposited interest without deducting tax at source. The Gujarat High Court allowed the writ petition and held as follows:

“i) Section 194A of the Income-tax Act, 1961 being not a charging provision, deals with deduction of tax at source in respect of “interest other than interest on securities”. Under the provisions of section 145A(b) as it existed prior to amendment by virtue of the and sub-section (1) of section 145B of the Act, after the amendment interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.

ii) However, u/s. 194A(3)(ixa) the provisions of the section would not be applicable to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees.

iii) The interest payable under the Motor Vehicles Act, 1988 was relatable to the period 2013–14 to 2019–20. If the interest were spread over year to year, the amount would not exceed ₹50,000. Under such premise, the deduction of tax at source in respect of interest for delay in deposit of compensation before the Motor Accidents Claims Tribunal would attract the provisions of sub-section (3) of section 194A and no deduction of tax at source was required.”

Commissioner(Appeals) — Power of remand — Scope of s. 251(1)(a) — Commissioner(Appeals) can confirm, reduce, enhance or annul assessment — Finding of Commissioner(Appeals) that AO not justified in making addition and positive direction to delete additions — Order of remand for fresh assessment after further enquiry — Commissioner(Appeals) has no power to remand the matter for fresh assessment after further enquiry — Order of the Tribunal upholding the order of the Commissioner(Appeals) despite noting specific ground by the assessee regarding the powers exceeded by the Commissioner(Appeals) — Order of remand not tenable in law

73 Arun Kumar Bose vs. ITO

[2023] 458 ITR 32 (Cal.)

A.Y.: 2014-15

Date of Order: 2nd August, 2023

S. 251(1)(a) of ITA 1961

Commissioner(Appeals) — Power of remand — Scope of s. 251(1)(a) — Commissioner(Appeals) can confirm, reduce, enhance or annul assessment — Finding of Commissioner(Appeals) that AO not justified in making addition and positive direction to delete additions — Order of remand for fresh assessment after further enquiry — Commissioner(Appeals) has no power to remand the matter for fresh assessment after further enquiry — Order of the Tribunal upholding the order of the Commissioner(Appeals) despite noting specific ground by the assessee regarding the powers exceeded by the Commissioner(Appeals) — Order of remand not tenable in law.

The addition made by the AO with respect to sundry creditors was deleted by the Commissioner(Appeals) holding it to be not justified and remanded the matter to the AO for fresh assessment after enquiry. The Tribunal upheld the order of the Commissioner(Appeals) despite there being a specific ground raised by the Assessee challenging the action of the Commissioner(Appeals) in remanding the matter back to the AO.

In appeal filed by the Assessee, following questions were raised before the High Court:

“(i) Whether on the facts and circumstances of the case the learned Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) when the same is beyond the scope and power vested upon the Commissioner of Income-tax (Appeals) under the provisions of section 251(1)(a) of the said Act ?

(ii) Whether on the facts and circumstances of the case when the additions made in respect of the sundry creditors, namely, M/s. Goodwill Corporation (India), M/s. Quality Udyog and M/s. Swastik Trading and Manufacturing Co. were directed to be deleted as being unsustainable can be subject to the enquiries conducted by the Assessing Officer ?”

The Calcutta High Court allowed the appeal and held as under:

“i) U/s. 251(1)(a) of the Income-tax Act, 1961 the Commissioner (Appeals) may confirm, reduce, enhance or annul the assessment. On a reading of the Finance Act, 2001 (Circular No. 14 of 2001), the Commissioner (Appeals) had no power to remand the matter to the Assessing Officer for fresh assessment in accordance with the direction given by him after making such further enquiry as may be necessary. Though such power was conferred on the Commissioner (Appeals), the said provision stood omitted by the Finance Act, 2001. In the light of the Explanatory Notes to the Provisions related to Direct Taxes, under paragraph 78.1 dealing with the powers of the Commissioner (Appeals) with effect from June 1, 2001, the Commissioner (Appeals) could not have remanded the matter to the Assessing Officer after having decided the case in favour of the assessee in its entirety.

ii) Though in the order passed by the Commissioner (Appeals), the word “prima facie” had been used, from a cumulative reading of an order passed by the Commissioner (Appeals), it was found that the case had been discussed on merits and thereafter, a finding had been recorded that the Assessing Officer was not justified in making the addition and there was a positive direction to delete the addition. Though the assessee had raised a specific ground of exceeding the statutory powers conferred u/s. 251(1)(a) before the Tribunal which had been noted by it in paragraph 3 of the impugned order, this aspect had not been dealt with by the Tribunal. The Tribunal had gone into the correctness of the finding of the Commissioner (Appeals) who held in favour of the assessee and thereafter, had recorded his opinion. Admittedly, the Revenue had not challenged the findings rendered by the Commissioner (Appeals) which was in favour of the assessee.

iii) Thus, not only the Commissioner (Appeals) committed an error of law by remanding the matter to the Assessing Officer for a fresh consideration after having held in favour of the assessee, the Tribunal also did not deal with the said issue. In the light of the statutory embargo, the order of remand passed by the Commissioner (Appeals) is not tenable in law and consequently, was required to be set aside as well as the order passed by the Tribunal.”

Search and seizure — Assessment in search cases — Additions to be confined to incriminating material found during the course of search — Not erroneous

72 Principal CIT vs. Kutch Salt and Allied Industries Ltd.

[2023] 457 ITR 44 (Guj)

A.Y.: 2007–08

Date of Order: 5th May, 2023

Ss. 132(1), 143(3) and 153A of ITA 1961

Search and seizure — Assessment in search cases — Additions to be confined to incriminating material found during the course of search — Not erroneous.

For the A.Y. 2007–08, the Assessing Officer in his order u/s. 143(3) read with section 153A(1)(b) of the Income-tax Act, 1961, made disallowances on account of power and fuel expenses, Registrar of Companies and stamping expenses, sale made to group concern, transportation expenses and interest u/s. 36(1)(iii).

The Commissioner (Appeals) recorded a finding that no incriminating material was found at the premises of the assessee during the search u/s. 132(1) and deleted the additions. The Tribunal upheld his order.

The Gujarat High Court dismissed the appeal filed by the Revenue and held as under:

“The Tribunal had not erred in holding that addition during the assessment u/s. 153A had to be confined to the incriminating material found during the course of search u/s. 132(1). No question of law arose.”

Offences and prosecution — Money laundering — Issue of tax determination certificate in Form 15CB without ascertaining the genuineness of documents — Not an offence

71 Murali Krishna Chakrala vs. Deputy Director, Directorate of Enforcement

[2023] 457 ITR 579 (Mad)

Date of Order: 23rd November, 2022

R. 37BB of Income Tax Rules 1962

Offences and prosecution — Money laundering — Issue of tax determination certificate in Form 15CB without ascertaining the genuineness of documents — Not an offence.

On a complaint given by the Deputy Manager of a Bank, a case was registered against six accused. Since the FIR disclosed the commission of a scheduled offense under the Prevention of Money Laundering Act, 2002, the Enforcement Directorate, took up the investigation of the case. The case was related to moneys remitted abroad on the basis of forged documents. The allegations were to the effect that these persons had opened fictitious bank accounts, submitted forged bills of entry, parked huge amounts in those bank accounts and had them transferred to various parties abroad through the bank in order to make it a legitimate transaction for the alleged purpose of import.

In the course of its investigation, the ED came across 15CB certificates issued by the accused MKC, a Chartered Accountant. In the interrogation, the accused MKC submitted that one of his clients, Mr. KM, approached him for issuance of Form 15CB under Rule 37BB of the Income-tax Rules, 1962, and submitted the documents in support of his request. On perusal of the documents, the accused MKC issued certificates to the effect that it was not necessary to issue Form 15CB for remittances abroad in respect of imports. The certificate numbers were uploaded on the Income-tax portal and copies of certificates were also submitted to the Branch Manager for transferring a sum of R3.45 crores to various entities in Hong Kong.

After completing the investigation, a supplementary complaint was filed by which MKC, inter alia, was declared an accused.

The discharge application was dismissed by the trial court. The Madras High Court allowed the revision petition and held as follows:

i) In issuing form 15CB under rule 37BB of the Income-tax Rules, 1962, a chartered accountant is required only to examine the nature of the remittance and nothing more. The chartered accountant is not required to go into the genuineness or otherwise of the documents submitted by his clients.

ii) The accused MKC had issued five form 15CB in favour of B, which were handed over by him to his client K for which, a sum of ₹1,000 per certificate was given to him as remuneration. The prosecution of MKC in the facts and circumstances of the case at hand, could not be sustained.”

Insurance Business — Computation of profits — Effect of S. 44

70 Sahara India Life Insurance Co. Ltd. vs. ACIT
[2023] 457 ITR 548 (Del.)
A.Y.: 2014–15 
Date of Order: 22nd February, 2023 
S. 44 of ITA 1961

 

Insurance Business — Computation of profits — Effect of S. 44.

 

The assessee carries on a life insurance business. In the assessment for the A.Y. 2014–15, the Assessing Officer (AO) made four disallowances, viz. disallowance on account of amortization of investment, disallowance of interest on TDS, disallowance of unpaid bonus and disallowance on account of unpaid leave encashment.

 

CIT(A) allowed the assessee’s appeal and deleted all the additions. Except on the ground of amortization of investment, the Tribunal reversed the order of the CIT(A) and upheld the disallowances made by the AO.

 

In an appeal by the assessee, the High Court framed the following question of law:

 

“(i) Whether the Tribunal misdirected itself in law and on facts in not appreciating that the profits and gains of the appellant-assessee were to be computed in accordance with the provisions of section 44 read with First Schedule to the Income-tax Act, 1961?”

 

The Delhi High Court allowed the appeal and held as follows:

 

“i) What emerges upon perusal of section 44 of the Income-tax Act, 1961 is that it contains a non-obstante clause, which excludes the application of all provisions contained in the Act, which relate to computation of income chargeable under the heads referred to therein, by providing that computation of income qua the said heads will be made in accordance with rules contained in the First Schedule. Therefore, in the event of any dissonance, the provisions of the rules contained in the First Schedule will prevail over the provisions of the Act.

 

ii) Section 44 of the Act provides for a statutory mechanism for computing profits and gains of an insurance business and includes, in this context, the business carried on by a mutual insurance company or even by a co-operative society. In that sense, it moves away from the usual and general method of computing income chargeable to tax by bearing in mind the heads of income referred to in section 14 of the Act. This is plainly evident, since there is a specific reference to section 199, (which broadly deals with granting credit to the person from whose income tax has been deducted at source) and the sections spanning between sections 28 and 43B. The rules contained in the First Schedule appended to the Act will determine the manner in which the profits and gains of the insurance business are to be ascertained.

 

iii) Thus, according to us, the Tribunal has committed an error in law, which needs to be corrected.

 

iv) Therefore, for the foregoing reasons, we allow the appeal and set aside the impugned order. Consequently, the question of law, as framed, is answered in favour of the appellant-assessee and against the respondent-Revenue.”

Capital gains — Capital loss — Capital asset — Leasehold rights in land is a capital asset — Lease of land granted by State Government with permission to build thereon or sub-lease it — Compensation on subsequent cancellation of lease — Loss sustained was a capital loss

69 Principal CIT vs. Pawa Infrastructure Pvt. Ltd.

[2023] 457 ITR 392 (Del)

A.Y.: 2013–14

Date of Order: 18th November, 2022

S. 2(14) of ITA 1961

Capital gains — Capital loss — Capital asset — Leasehold rights in land is a capital asset — Lease of land granted by State Government with permission to build thereon or sub-lease it — Compensation on subsequent cancellation of lease — Loss sustained was a capital loss.

The petitioner, a real estate developer, was allotted a plot of land in Goa by the Government in September 2006. The lease deed was executed and registered in favour of the assessee for an initial period of 30 years which could be further extended by 60 years. The assessee had shown the property as a Fixed Asset in its books of account. Due to a change in the policy, the allotment was subsequently cancelled, and the assessee received ₹28,03,68,246. The said amount included compensation of ₹9,86,07,762. After reducing the indexed cost of cancellation of ₹30,49,54,129, the assessee claimed a long-term capital loss of ₹2,45,85,883 in the return of income filed for the A.Y. 2013–14. On scrutiny assessment, the return of income filed by the assessee was accepted by the Assessing Officer (AO) after considering the replies filed by the assessee with respect to the compensation received on cancellation of allotment of plot.

Subsequently, the Principal Commissioner issued notice u/s. 263 of the Income-tax Act, 1961, for revision of order and directed the AO to pass a fresh order keeping in mind that the assessee had wrongly treated the property in question as a capital asset and the assessee’s claim of indexed cost of acquisition could not be allowed.

The Tribunal allowed the assesee’s appeal and held that compensation received for the cancellation of the plot was capital in nature and not revenue receipt.

The Delhi High Court dismissed the appeal filed by the Department and held as under:

“i) The leasehold rights held by the assessee in the plot created an interest in the land in favour of the assessee. The assessee under the terms of the agreement not only had the right to construct on this plot but it had a further right to transfer and alienate the building along with the land to third parties and, therefore, the leased land came within the definition of capital asset u/s. 2(14) of the Act. Further, in this case, the allotment of land was cancelled by the Government of Goa in pursuance of the Act of 2012. The payment received by the assessee towards compensation was in terms of sub-sections (3) and (5) of section 3 of the Act of 2012. The leasehold rights held by the assessee in the plot were a capital asset and the compensation received by the assessee from the Government of Goa on the cancellation of the plot was a capital receipt and not a revenue receipt.

ii) The Assessing Officer’s order was correct and did not suffer from any error, justifying the invocation of powers u/s. 263 of the Act by the Principal Commissioner.”

Capital Gains — Computation of — Deduction u/s. 48 — Determination of actual amount deductible — Tax payable by seller agreed to be reimbursed by the assessee seller — Is an allowable deduction in proportion to assessee’s share

68 Smt. Durga Kumari Bobba vs. DCIT

[2023] 457 ITR 118 (Kar)

A.Y.: 2009–10

Date of Order: 4th July, 2022

S. 48 of ITA 1961

Capital Gains — Computation of — Deduction u/s. 48 — Determination of actual amount deductible — Tax payable by seller agreed to be reimbursed by the assessee seller — Is an allowable deduction in proportion to assessee’s share.

The assessee agreed to sell her shares in a company for a consideration of ₹2,70,32,278. Clause 7 of the agreement dealt with the payment of taxes, and it had been agreed between the parties that the seller would reimburse the tax that may be levied on the company up to the closing date. In substance, what the parties agreed was for consideration towards the sale of shares at ₹2,70,32,278 minus the tax component of ₹90,74,103. The assessee claimed deduction under the head “Capital gains” on the tax component u/s. 48 of the Income-tax Act, 1961. The Assessing Officer did not allow the claim for deduction.

The Commissioner of Income-tax (Appeals) allowed the appeal in part. The Tribunal dismissed the appeal of the assessee.

On further appeal to the High Court, it was contended by the assessee that the assessee realised the full value of consideration after excluding the tax component. On the other hand, the Department contended that the tax component which was being claimed as a deduction by the assessee was neither an expenditure in connection with transfer nor was it the cost of acquisition being the only permissible deductions u/s. 48 of the Act. Further, it was contended that since a company is not allowed to claim the tax paid as deduction, applying the same analogy, the assessee cannot be allowed the deduction of tax from the sale consideration.

The Karnataka High Court held as follows:

“i) In the facts of this case, the total amount realised, or in other words, which the appellant got in her hand, is R1.80 crores. The deduction is claimed based on the agreement between the parties. A careful perusal of the agreement shows that the intention of the parties is clear to the effect that the value of the shares shall be the amount agreed between the parties excluding the tax component.

ii) The contention urged by the Department that tax components should be distributed among both sellers merits consideration. Therefore, the appellant shall be entitled to a deduction of only 50 per cent of the tax component proportionate to her shareholding.”

Assessment u/s. 144C — Limitation — Order passed on remand by the Tribunal — Section 144C does not exclude section 153 — Final assessment order barred by limitation — Return of income filed by the assessee to be accepted

67 Shelf Drilling Ron Tappmeyer Ltd. vs. ACIT(IT)

[2023] 457 ITR 161 (Bom.)

A.Ys.: 2014–15 and 2018–19

Date of Order: 4th August, 2023

Ss. 92CA, 144C and 153 of ITA 1961

Assessment u/s. 144C — Limitation — Order passed on remand by the Tribunal — Section 144C does not exclude section 153 — Final assessment order barred by limitation — Return of income filed by the assessee to be accepted.

For the A.Y. 2014–15, the assessee filed its return of income declaring a loss of R120,18,44,672 after fulfilling the condition u/s. 44BB(3) of the Act by exercising the option available to compute its income under the regular provisions of the Act. The asssessee’s case was selected for scrutiny and a draft assessment order was passed on 26th December, 2016, after rejecting the books of account and invoking section 145 of the Act. Despite the option exercised by the assessee, the assessee’s income was computed u/s. 44BB(1) of the Act on the presumptive basis at 10 per cent of the gross receipts.

Objections were filed before the DRP against the draft assessment order. The DRP rejected the objections and gave its directions vide order dated 28th September, 2017, and based on such DRP directions, the final assessment order was passed on 30th October, 2017, u/s. 143(3) read with section 144C(13) of the Act.

On appeal, vide order dated 4th October, 2019, the Tribunal disposed of the appeal by remanding the matter back to the Assessing Officer (AO) for fresh adjudication.

The assessee, vide letter dated 5th February, 2020, informed the AO about the order passed by the Tribunal and requested for early disposal of the same. The assessee followed up with the oral requests. Over one year later, on 22nd February, 2021, the AO called upon the assessee to produce the details of contracts entered into by it and reasons for loss incurred during the A.Y. 2014–15. Details were called in time and again, which were replied to. Thereafter, the AO passed an assessment order dated 28th September, 2021, which read like the final assessment order. However, vide communication dated 29th September, 2021, the AO clarified that it was only a draft order. In order to safeguard against the objections being treated as delayed, the assessee filed its objections on 27th October, 2021, before the DRP.

Meanwhile, the assessee also filed a writ petition challenging the order dated 28th September, 2021, on various grounds. The main objection being that the limitation to pass the final order expired on 30th September, 2021, u/s. 153(3) of the Act read with the provisions of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and the notifications issued thereunder. Therefore, no final assessment order can be passed in the present case, and the same is time-barred, and therefore, the return filed by the assessee should be accepted.

The Bombay High Court allowed the petition and held as under:

“i) Although in passing a final assessment order, sub-section (13) of section 144C of the Income-tax Act, 1961 specifically excludes the provisions of section 153 stating that the Assessing Officer shall pass a final order of assessment even without hearing the assessee, in conformity with the directions issued by the Dispute Resolution Panel within one month from the end of the month when such directions were received by him, the exclusion of section 153 or section 153B is specific to, and comes in only at the stage of, passing of the final assessment order after directions are received from the Dispute Resolution Panel and not at any other stage of the proceedings u/s. 144C. Hence, the entire proceedings would have to be concluded within the time limits prescribed.

ii) No doubt, section 144C is a self contained code for assessment and time limits are in-built at each stage of the procedure contemplated. Section 144C envisions a special assessment, one which includes the determination of the arm’s length price of international transactions engaged in by the assessee. The Dispute Resolution Panel was constituted bearing in mind the necessity for an expert body to look into intricate matters concerning valuation and transfer pricing and it is for this reason that specific timelines have been drawn within the framework of section 144C to ensure prompt and expeditious finalisation of this special assessment. The purpose is to fast-track a special type of assessment. That cannot be considered to mean that overall time limits prescribed have been given a go-by in the process.

iii) Wherever the Legislature intended extra time to be provided, it expressly provided therefore in section 153. Sub-section (3) of section 153 also applies to a fresh order u/s. 92CA being passed in pursuance of an order of the Tribunal u/s. 254. Sub-section (4) of section 153 specifically provides that notwithstanding anything contained in sub-sections (1), (1A), (2), (3) and (3A) where a reference under sub-section (1) of section 92CA is made during the course of the proceeding for assessment or reassessment, the period available for completion of assessment or reassessment, as the case may be, under these sub-sections shall be extended by twelve months. Explanation 1 below section 153 also provides for the periods which have to be excluded while computing the twelve-month period mentioned in section 153(3). However, there is no mention anywhere of section 144C.

iv) The time limit prescribed u/s. 153 would prevail over and above the assessment time limit prescribed u/s. 144C since the Assessing Officer may follow the procedure prescribed u/s. 144C, if he deems fit and necessary but then the entire procedure has to be commenced and concluded within the twelve-month period provided u/s. 153(3) because, the procedure u/s. 144C(1) also has to be followed by the Assessing Officer if he proposes to make any variation that is prejudicial to the interest of the eligible assessee. If the Assessing Officer did not wish to make any variation that is prejudicial to the interest of the eligible assessee, he need not go through the procedure prescribed u/s. 144C.

v) The exclusion of applicability of section 153, in so far as the non-obstante clause in sub-section (13) of section 144C is concerned, is for the limited purpose to ensure that de hors the larger time available, an order based on the directions of the Dispute Resolution Panel is passed within 30 days from the date of the receipt of such directions. Section and subsection have to be read as a whole with connected provisions to decipher the meaning and intentions. A similar non-obstante clause is also used in section 144C(4) with the same limited purpose, even though there might be a larger time limit u/s. 153, once the matter is remanded to the Assessing Officer by the Tribunal u/s. 254, so that the process to pass the final order u/s. 144C is taken immediately. The object is to conclude the proceedings as expeditiously as possible. There is a limit prescribed under the statute for the Assessing Officer and therefore, it is his duty to pass an order in time.

vi) The date on which the draft assessment order had been passed was 28th September, 2021. Therefore, there was no possibility of passing any final assessment order as the matter had got time-barred on 30th September, 2021. Since the final assessment order had not been passed before this date the proceedings were barred by limitation. Therefore, the return as filed by the assessee should be accepted. Since the order had been passed by the Tribunal on 4th October, 2019, the time would be twelve months from the end of the financial year in which the order u/s. 254 was received. The submission of the Department that when there was a remand the Assessing Officer was unfettered by limitation would run counter to the avowed object of provisions that were considered while framing the provisions of section 144C. The assessment should have been concluded within twelve months as provided in section 153(3) when there had been remand to the Assessing Officer by the Tribunal’s order u/s. 254. Within these twelve months prescribed, the Assessing Officer was to ensure that the entire procedure prescribed u/s. 144C was completed. Since no final assessment order could be passed as it was time-barred, the return of income as filed by the assessee was to be accepted.

vii) This would however, not preclude the Department from taking any other steps in accordance with law.”

Appeal to High Court — Deduction of tax at source — Payment to non-resident — Fees for technical services — Agreement entered into by assessee with USA company for testing and certification of diamonds — Execution of work by laboratory in Hong Kong and payment made in its name as instructed by USA company — Payment to non-resident entity which had no permanent establishment in India — No technical knowledge made available to assessee — Assessee not liable to deduct tax — No question of law arose.

66 CIT(IT & TP) vs. Star Rays

[2023] 457 ITR 1 (Guj)

A.Y.: 2015–16

Date of Order: 31st July, 2023

Ss. 9(1)(vii)(b), 201(1), 201(1A) and 260A of ITA 1961; DTAA between India and USA

Appeal to High Court — Deduction of tax at source — Payment to non-resident — Fees for technical services — Agreement entered into by assessee with USA company for testing and certification of diamonds — Execution of work by laboratory in Hong Kong and payment made in its name as instructed by USA company — Payment to non-resident entity which had no permanent establishment in India — No technical knowledge made available to assessee — Assessee not liable to deduct tax — No question of law arose.

The assessee was in the business of cutting, polishing and export of diamonds. For purposes of testing and certification services, the assessee entered into a customer services agreement with GIA, USA, which set up a laboratory in Hong Kong. The invoices were raised by GIA, USA, instructing the assessee to make payment to the offshore bank accounts of GIA, Hong Kong with which the assessee had no direct relationship or any agreement. The assessee made the payments accordingly but erroneously mentioned the name of the beneficiary in forms 15CA and 15CB as GIA, Hong Kong. The Assessing Officer (AO) was of the view that the remittance made by the assessee for diamond testing certification charges to GIA’s Hong Kong laboratory was in the nature of “fees for technical services” u/s. 9(1)(vii)(b) of the Income-tax Act, 1961, which was applicable in the absence of a Double Taxation Avoidance Agreement between India and China or Hong Kong and treated the assessee as in default u/s. 201(1) for non-deduction of tax at source. He held that the assessee having made payments to GIA’s Hong Kong laboratory could not claim the benefit of the Double Taxation Avoidance Agreement between India and USA, and that the assessee ought to have deducted tax on those payments and accordingly passed an order u/s. 201(1) read with section 201(1A). GIA, Hong Kong did not have a permanent establishment in India.

The Tribunal held that in view of the tax residency certificate and form 10F furnished by GIA, USA from the tax authority of that country for the A.Y. 2015–16, the assessee was entitled to the benefits of the Double Taxation Avoidance Agreement between India and USA, even though such services were not rendered by the USA entity but the service was rendered by a subsidiary situated in Hong Kong, and the payment was merely routed through GIA, USA.

The Gujarat High Court dismissed the appeal filed by the Revenue and held as under:

“i) The concurrent findings of fact by the authorities were that there was a “take in window” where articles were delivered but the service agreement was between the assessee and GIA, USA. The rightful owner of the remittances was also the U.S.A. entity. Based on factual appreciation, especially the condition in the customer service agreement, the bank invoice and the bank remittance advice, a finding of fact had been arrived at that the assessee was protected under the Double Taxation Avoidance Agreement between India and the U.S.A. and that mere rendering of services could not be roped into fees for technical services unless the person utilising the services was able to make use of the technical knowledge. A simple rendering of the services was not sufficient to qualify the payment as fees for technical services.

ii) The orders of the Commissioner (Appeals) and the Tribunal were based on appreciation of facts in the right perspective. No question of law arose.”

Advance tax — Interest u/s. 234B — Advance tax paid in three years proportionately for transaction spread over three years — Transaction ultimately held to be entirely taxable in the first year itself — Assessee is allowed to adjust the advance tax paid in subsequent two assessment years while computing interest liability u/s. 234B.

65 Mrs. Malini Ravindran vs. CIT(A)

[2023] 457 ITR 401 (Mad)

A.Ys.: 2011–12, 2012–13 and 2013–14

Date of Order: 14th November, 2022

Ss. 119 and 234B of ITA 1961

Advance tax — Interest u/s. 234B — Advance tax paid in three years proportionately for transaction spread over three years — Transaction ultimately held to be entirely taxable in the first year itself — Assessee is allowed to adjust the advance tax paid in subsequent two assessment years while computing interest liability u/s. 234B.

The assessee entered into an MOU with a company on 12th December, 2010, for the sale of property for a sale consideration of ₹121,65,21,000. The sale took place over the A.Ys. 2011–12, 2012–13 and 2013–14, and the assessee had computed and paid capital gains for each of the years and also paid advance tax during each of the corresponding financial years. Returns filed by the assessee had become final.

Subsequently, the assessments were re-opened, wherein the Assessing Officer (AO) held that the transfer took place upon the execution of MOU, that is, on 12th December, 2010, and the entire sale consideration was taxable in the A.Y. 2011–12. The AO also made assessments for A.Ys. 2012-13 and 2013-14 on a protective basis.

In the appeal before the first appellate authority, the assessee agreed that the gains were taxable in year one, and the entire demand arose in A.Y. 2011–12. The assessee confirmed that substantive assessment for A.Y. 2011–12 could be confirmed, and the protective assessments for A.Ys. 2012–13 and 2013–14 be cancelled. The CIT(A) confirmed the position vide order dated 31st January, 2019.

While giving effect to the orders passed by the CIT(A), a demand of ₹40,78,17,870 was raised for A.Y. 2011–12 and refunds were due for A.Ys. 2012–13 and 2013–14. The refunds were adjusted against the demand for A.Y. 2011–12 and after adjustment, a sum of ₹8,30,05,290 was determined to be payable by the assessee. The total demand for A.Y. 2011–12 included a sum of ₹19,43,57,718 as interest u/s. 234B of the Act.

The assessee submitted a request for waiver of interest u/s. 234B on the grounds that self-assessment tax / advance tax paid for A.Ys. 2012–13 and 2013–14 be considered as paid towards A.Y. 2011–12. The AO did not accede to her request and held that there was no provision for adjustment of tax paid in one year as against the liability of another year.

Against the said order of rejection of waiver by the AO, as well as the order of the appellate authorities, the petitions were preferred before the High Court. The Madras High Court partly allowing the writ petitions held as under:

“i) The advance taxes relevant to the assessment years 2012–13 and 2013-14 had been paid in time, in the course of financial years 2011–12 and 2012-13, respectively. The reassessments had transpired on 29th December, 2017. The payments were not ad hoc, and had been made specifically towards advance tax for liability towards capital gains in the financial years 2011–12 and 2012–13.

ii) Moreover, the Department had been in possession of the entire amounts from the financial years 2011–12 and 2012–13, since the assessee had satisfied the demands for the corresponding assessment years by way of advance and self-assessment taxes. It was those amounts that had been adjusted against the liability for the assessment year 2011–12 and therefore, substantially revenue neutral.

iii) The phrase ‘or otherwise’ used in section 234B(2) would encompass situations of remittances made in any other context, wherein the amounts paid stood to the credit of the assessee. However, the liability to advance tax had commenced from the financial year relevant to the assessment year in question 2011–12. The assessee sought for credit in respect of the advance tax remitted during the financial years 2011–12 and 2012–13, relevant to the A.Ys. 2012–13 and 2013–14 and there was a delay of one and two years, respectively, since the amounts for which credit was sought for ought to have been remitted in the financial year 2010–11, relevant to the A.Y. 2011–12. To such extent, the assessee was liable to interest u/s. 234B. The order rejecting waiver of interest was set aside to that extent. There was no justification in the challenge to the order of the Commissioner (Appeals) and the consequential order passed by the Assessing Officer.”

Recovery of tax — Stay of recovery proceedings — Discretion of Income-tax authorities — Discretion to be exercised in a judicious manner

64 Nirmal Kumar Pradeep Kumar (HUF) vs. UOI

[2023] 456 ITR 386 (Jhar)

A.Y.: 2020–21

Date of Order: 2nd May, 2023

S. 220 of ITA 1961

Recovery of tax — Stay of recovery proceedings — Discretion of Income-tax authorities — Discretion to be exercised in a judicious manner.

In the scrutiny assessment for A.Y. 2020–21, an addition of approximately Rs.202 crores was made on account of payment made by the assessee towards damage to the environment, by treating it as compensation and disallowed under Explanation 1 to section 37(1) of the Act. Pursuant to the completion of the assessment, a demand of Rs.96,99,29,760 was raised. Against the order of assessment, the assessee filed an appeal before the first appellate authority. The assessee also filed a rectification application u/s. 154. Upon rectification application, the order was rectified, and the demand was reduced to Rs.35,28,39,450.

Since the assessee had filed an appeal before the CIT(A), the assessee filed an application for a stay of demand mainly on the grounds that the demand was high-pitched and the disallowance made by the Assessing Officer (AO) was contrary to the decision of the Supreme Court in the case of Common Cause vs. UOI [2017] 9 SCC 499.

The assessee’s application for stay of demand was rejected by AO, stating that as per the Office Memorandum of CBDT dated 31st July, 2017, the assessee is required to pay at least 20 per cent of the outstanding demand and since the assessee had not paid the said demand of 20 per cent, the stay was rejected. The assessee assailed the application further before the Principal Commissioner who directed the assessee to pay Rs.5 crores by 15th March, 2023, and further directed the assessee to pay Rs.10 lakhs from April 2023 till the disposal of the appeal.

The assessee filed a writ petition challenging the orders passed by the AO and the Principal Commissioner. The Jharkhand High Court allowed the petition of the assessee and held as follows:

“i)    The power under sub-section (6) of section 220 is indeed a discretionary power. However, it is one coupled with a duty to be exercised judiciously and reasonably (as every power should be), based on relevant grounds. It should not be exercised arbitrarily or capriciously or based on matters extraneous or irrelevant. The Income-tax Officer should apply his mind to the facts and circumstances of the case relevant to the exercise of the discretion, in all its aspects. He has also to remember that he is not the final arbiter of the disputes involved but only the first among the statutory authorities.

ii)    Questions of fact and of law are open for decision before two appellate authorities, both of whom possess plenary powers. Thus, in exercising his power, the Income-tax Officer should not act as a mere tax gatherer but as a quasi-judicial authority vested with the power of mitigating hardship to the assessee. The Income-tax Officer should divorce himself from his position as the authoritywho made the assessment and consider the matter in all its facets, from the point of view of the assessee without at the same time sacrificing the interests of the Revenue.

iii)    When it comes to granting a discretionary relief like a stay of demand, it is obvious that the four basic parameters need to be kept in mind: (i) prima facie case, (ii) balance of convenience, (iii) irreparable injury that may be caused to the assessee which cannot be compensated in terms of money, and (iv) whether the assessee has come before the authority with clean hands. The requirements of reasonableness, rationality, impartiality, fairness and equity are inherent in any exercise of discretion, such an exercise can never be according to private opinion. In L. G. ELECTRONICS INDIA PVT. LTD. vs. PR. CIT the court stated that administrative circulars would not operate as a fetter upon the assessing authority which is the quasi-judicial authority to grant a stay.

iv)    Under section 246 of the Act which provides the remedy of preferring an appeal against the assessment order, there is no pre-deposit stipulated.

v)    The Assistant Commissioner had not considered anything and had just mechanically declined to grant a stay placing reliance upon the Office Memorandum dated 31st July, 2017 ([2017] 396 ITR (St.) 55) and recording, inter alia, that since the assessee had not deposited 20 per cent of the disputed demand as stipulated in the Office Memorandum, a stay was liable to be rejected. A bare reading of the order would clearly reveal that there was no independent application of mind and no discussion whatsoever on the prima facie case of the assessee, the balance of convenience and undue hardships including whether the assessee had come with clean hands. Accordingly, the order dated 31st January, 2023 passed by the Assistant Commissioner and the order dated 24th February, 2023 passed by the Principal Commissioner were liable to be quashed and set aside.

vi)    The matter is remitted back to respondent No. 3 to pass a fresh order on the application for stay of the petitioner in view of the principles laid down above, after granting due opportunity of hearing to the petitioner.”

Reassessment — Notice — Validity — Notice based on information from Deputy Director in respect of investigation of the firm from which two of assessee’s directors retired alleging that assessee had received bogus accommodation entries in form of imports — Investigation report on which reliance placed by Department not provided to the assessee — Notice vague and not clear — Order for the issue of notice and order of reassessment set aside — Matter remanded

63 Hari Darshan Exports Pvt. Ltd. vs. ACIT

[2023] 456 ITR 542 (Bom)

A.Y.: 2019–20

Date of Order: 11th July, 2023

Ss. 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice — Validity — Notice based on information from Deputy Director in respect of investigation of the firm from which two of assessee’s directors retired alleging that assessee had received bogus accommodation entries in form of imports — Investigation report on which reliance placed by Department not provided to the assessee — Notice vague and not clear — Order for the issue of notice and order of reassessment set aside — Matter remanded.

The assessee was an exporter. For the A.Y. 2019–20, the assessee was issued a show-cause notice u/s. 148A(b) of the Income-tax Act, 1961, alleging that it had taken accommodation entries in the form of imports from a firm J in which two of the directors of the assessee were partners and had retired. The allegation was on the basis of certain information received from the Deputy Director, Ahmedabad. Along with the notice, a document titled “Verification Details” from the Insight Portal of the Department was provided wherein it was stated that the assessee had used J to import diamonds through a chain of intermediaries to escape any regulation by Government authorities and banks with respect to related party transactions for evading transfer pricing compliance. The assessee was not provided with the requested documentary details of the investigation of J.

Assessee filed a writ petition challenging the order u/s. 148A(d) and the consequent notice u/s. 148. The Bombay High Court allowed the writ petition and held as under:

“i)    It was not stated in the order u/s. 148A(d) on what basis the conclusion that the assessee had received accommodation entries in the form of imports from J had been arrived at. The details or documents of the investigation of J or the investigation report had not been made available to the assessee and there was nothing to indicate that this information was provided to the assessee. The order stated that the assessee did not submit any documentary evidence to prove the genuineness of its claim or regarding import to refute the claim that imports were bogus though the assessee had stated that whatever documents were required had been submitted.

ii)    There was no allegation that the assessee had made any imports and was not even called upon to produce documents regarding any imports. Therefore, an allegation could not be made that the assessee had not submitted any documentary evidence regarding imports to refute the claim that imports were bogus. On the facts and circumstances, the order passed u/s. 148A(d) and the consequential notice u/s. 148 were quashed and set aside. The matter was remanded to the Assessing Officer for de novo consideration.

iii)    Within two weeks the petitioner shall be provided by respondent No. 1 with copies of all documents/information regarding the investigation of M/s. Jogi Gems, including the statements recorded during the course of investigation and documents collected during the investigation. Respondent No. 1 may redact from the documents, portions that may not pertain to the petitioner or M/s. Jogi Gems.

iv)    Within two weeks of receiving these documents the petitioner shall, if so advised, file a further reply to the notice. The order to be passed under section 148A(d) of the Act shall be a reasoned order dealing with every sub- mission of the petitioner. Before passing any order, personal hearing shall be given to the petitioner, notice whereof shall be communicated at least five working days in advance.”

Reassessment — Notice u/s. 148 — Reason to believe that income has escaped assessment — Entity with which assessee had sale transaction not established to be shell entity — No enquiry conducted by AO pursuant to the receipt of information from investigation wing — Non-application of mind on part of AO — Notice and order rejecting assessee’s objections set aside

62 B. U. Bhandari Autolines Pvt. Ltd. vs. ACIT

[2023] 456 ITR 56 (Bom)

A.Y.: 2016–17

Date of Order: 10th February, 2023

Ss. 147, 148 of ITA 1961

Reassessment — Notice u/s. 148 — Reason to believe that income has escaped assessment — Entity with which assessee had sale transaction not established to be shell entity — No enquiry conducted by AO pursuant to the receipt of information from investigation wing — Non-application of mind on part of AO — Notice and order rejecting assessee’s objections set aside.

For the A.Y. 2016–17, the Assessing Officer issued a notice u/s. 148 of the Income-tax Act, 1961 against the assessee for reopening the assessment u/s. 147. Reasons were recorded that information was received from the Deputy Director (Investigation) that a search was conducted u/s. 132 in the case of one M and others wherein cash in demonetised currency was seized, that M in his statement named one R as the key accomplice and was connected with a shell entity MT, that from the value-added tax returns it was found that the assessee had made a sale with MT and that, therefore, the sale of goods by the assessee to MT was bogus and that income had escaped assessment on that account. The assessee’s objections to the reopening of the assessment were rejected.

The assessee filed a writ petition challenging the notice and the order rejecting the objections. The Bombay High Court allowed the writ petition and held as under:

“i)    The issue of reopening of assessment under section 147 had to be tested only on the basis of the reasons recorded, which could neither be improved upon nor substituted by an affidavit or oral submissions. It had not been alleged in the reasons that the entity MT with whom the assessee had made an alleged sale was being run by R although, in the reply affidavit it was stated by the Assessing Officer that MT was one of the entities which was floated by R for the purpose of providing accommodation entries. The reasons recorded also did not furnish any explanation on what basis and material the Assessing Officer had concluded that MT was a shell entity. The verification of the value-added tax returns referred to in the reasons recorded suggested only transactions between the assessee and the entity MT in regard to goods sold. Therefore, there was no material or basis for the Assessing Officer to hold the transaction between the assessee and MT not a genuine transaction of sale or for that reason to hold that MT was a shell entity.

ii)    The Assessing Officer had not independently applied his mind to the information received or conducted his own inquiry into the matter to conclude that income had escaped assessment or that the transaction in question with the alleged shell entity was only a paper transaction. The notice had been issued u/s. 148 without satisfying the conditions precedent u/s. 147. Therefore, the notice and the order rejecting the objections of the assessee were set aside.”

Reassessment — Notice — Res judicata — General principles — Consistency in decision making — Same decision-making authority rendering two decisions inconsistent with each other for different assessment years facts and circumstances being similar — Order and notice set aside

61 Prem Kumar Chopra vs. ACIT

[2023] 456 ITR 8 (Del)

A.Ys.: 2015–16 and 2016–17

Date of Order: 25th May, 2023

Ss. 147, 148, 148A(d) and 151 of ITA 1961

Reassessment — Notice — Res judicata — General principles — Consistency in decision making — Same decision-making authority rendering two decisions inconsistent with each other for different assessment years facts and circumstances being similar — Order and notice set aside.

The petitioner, a senior citizen, being the proprietor of M/s. Chopra Brothers is an authorised dealer for Kirloskar Electric Motors and is engaged in trading industrial electric motors, mono-block pumps and generator sets, etc. For the A.Y. 2015–16, the petitioner filed a return of his income, declaring the income of Rs.19,94,970 which was processed u/s. 143(1) of the Income-tax Act, 1961. On 7th April, 2021, the Assessing Officer, respondent No. 1 issued a notice u/s. 148 of the Act, which on being challenged by the petitioner, was set aside in terms of the decision in the case of Mon Mohan Kohli vs. Asst. CIT [2022] 441 ITR 207 (Delhi).

Thereafter, in terms of the decision of the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2022] 444 ITR 1 (SC); [2022] SCC OnLine SC 543, respondent issued notice dated 26th May, 2022, u/s. 148A(b) of the Act, alleging that on 26th November, 2016, a search had been conducted on the premises of an entry operator, namely, Shri Mohit Garg and during that search, in his statement, Shri Rajeev Khushwaha admitted to having provided bogus sale / purchase bills in exchange for cash; and that during the year relevant to the A.Y. 2015–16, M/s. Chopra Brothers through its proprietor Shri Prem Kumar Chopra was one of the beneficiaries of such accommodation entries to the tune of Rs.13,71,00,000.

An identical notice dated 25th July, 2022, was issued to the petitioner for the A.Y. 2016–17 as well. The petitioner submitted replies dated 10th June, 2022, and 21st July, 2022, to the said show-cause notice, thereby categorically denying any transaction with M/s. Divya International and Shri Rajeev Khushwaha. Along with the replies, the petitioner also submitted all relevant documents.

By way of order dated 28th July, 2022, respondent, accepting the case set up by the petitioner, dropped the proceedings pertaining to the A.Y. 2016–17, concluding that there is no escapement of income during the financial year 2015–16 relevant to the A.Y. 2016–17 in so far as there is no entry of transaction of sale or purchase by the bogus entity, M/s. Divya International, controlled by the entry operator Shri Rajeev Khushwaha to or from M/s. Chopra Brothers and accordingly held that it is not a fit case for issuance of notice u/s. 148 of the Act for the A.Y. 2016–17.

But soon thereafter, by way of an order dated 31st July, 2022, for the A.Y. 2015–16, respondent rejected the case set up by the petitioner, observing that there is escapement of income and accordingly held that it is a fit case for issuance of notice u/s. 148 of the Act.

The assessee, therefore, filed a writ petition challenging the validity of the notice u/s. 148 and the consequent reassessment order. The Delhi High Court allowed the writ petition and held as under:

“i)    Consistency, both in content and in procedure has to be adhered to in order to ensure predictability of the decisions. In order to ensure procedural and content consistency in decisions, every decision-making authority should ensure that in a given set of circumstances, their decision must be on the same lines as that of their predecessor or co-ordinate authorities in a similar set of circumstances. Where a decision-making authority finds itself unable to agree with the view earlier taken, by the predecessor or the co-ordinate, the authority concerned is duty bound to record cogent reasons for deviating. The significance of precedence cannot be ignored even in administrative decision-making.

ii)    The doctrine of res judicata does not apply to Income-tax proceedings pertaining to different assessment years since each assessment year is a separate assessment unit in itself only if it rests in a separate factual scenario and is supported by reasoning by the concerned authority.

iii)    The order u/s. 148A(d) and the notice u/s. 148 for the A.Y. 2015–16 were infirm since they proceeded on a view inconsistent with the earlier order for the A.Y. 2016–17 despite the facts and circumstances being similar and in the backdrop of a similar set of documentary evidence. The concerned Assistant Commissioner had dropped the proceedings pertaining to the A.Y. 2016–17, while for the A.Y. 2015–16, he had opted to proceed further u/s. 148A. The decision taken for the A.Y. 2016–17 was a reasoned decision, based on the analysis of material on record, but the decision taken subsequently for the A.Y. 2015–16 was not only completely inconsistent with the earlier view but even without reason. Though sanction u/s. 151 was accorded by two different sanctioning authorities the satisfactions recorded in both orders were of the same Assistant Commissioner. There was nothing on record to suggest that the latter sanctioning authority for the A.Y. 2015–16 was apprised of the earlier view taken by the sanctioning authority for the A.Y. 2016–17. An assessee deals with the Department as a whole. The order u/s. 148A(d) and the notice u/s. 148 were set aside.”

Offences and Prosecution — Wilful failure to file return — S. 276CC requires mens rea — Belated return and payment of tax and interest based on return accepted — Protective assessment set aside — No imposition of penalty — Prosecution not valid

60 Suresh Kumar Agarwal vs. UOI

[2023] 456 ITR 148 (Jhar)

A.Y.: 2013–14

Date of Order: 29th August, 2022

S. 276CC of ITA 1961

Offences and Prosecution — Wilful failure to file return — S. 276CC requires mens rea — Belated return and payment of tax and interest based on return accepted — Protective assessment set aside — No imposition of penalty — Prosecution not valid.

A search was conducted in the case of the assessee on 19th February, 2014, and subsequently, the assessee was required to file his return of income within 15 days from the date of receipt of the notice issued u/s. 153A of the Act. The assessee failed to file the return of income within the time provided and ultimately filed the same after a lapse of almost 17 months without giving any reasonable cause. The assessee also did not file any petition for condonation of delay.

The Department launched prosecution u/s. 276CC of the Act. The department alleged that the assessee had deliberately, willingly, intentionally and having mens rea in his mind avoided filing the return of income.

The assessee filed a writ petition for quashing the prosecution proceedings. The assessee contended that the delay in filing the return was due to death in the family and on account of not getting photocopies of papers and documents which were seized by the Income-tax Department. Further, the assessee submitted that the tax had been paid in full along with interest. The addition made by the Assessing Officer (AO) had been deleted by the CIT(A). No penalty had been levied by the AO. Lastly, the assessee submitted that since no penalty had been levied and no tax was due from the assessee, the launching of prosecution was bad in law.

The Jharkhand High Court allowed the writ petition and held as follows:

“i)    Section 276CC of the Income-tax Act, 1961, provides for prosecution in cases of wilful failure to file returns. The wilful failure referred to in section 276CC of the Act brings in the element of guilt and thus the requirement of mens rea will come into force.

ii)    It was admitted that the assessee had not filed his return on time but had filed the return belatedly with interest, which had been accepted by the authority concerned. The subsequent protective assessment was the subject matter before the first appellate authority, which had set aside the entire further assessment of the assessee.

iii)    The assessee had already deposited the tax as well as the interest in the light of the statute. When the Income-tax Officer had levied interest for the delay in filing of the return, it must be presumed that the Income-tax Officer had extended the time for filing the return after satisfying himself that there were grounds for delay in filing the return. When the amount in question with the interest had already been paid, no sentence could be imposed on the assessee.”

Computation of Capital Gains — Deduction of expenses wholly and exclusively in connection with transfer of capital asset — Transfer of shares – Amount paid for professional advice in accordance with articles of association of company – Deductible

59 Chincholi GururajacharVenkatesh and  Satish Kumar Pandey vs. ACIT

[2023] 456 ITR 459 (Cal)

A.Y.: 2016–17

Date of Order: 16th December, 2022

S. 48 of ITA 1961

Computation of Capital Gains — Deduction of expenses wholly and exclusively in connection with transfer of capital asset — Transfer of shares — Amount paid for professional advice in accordance with articles of association of company — Deductible.

The assessees held shares of one MTPL. During the previous year relevant to the assessment year under consideration, the assessee paid professional fees to KPMG and Khaitan & Co in connection with the transfer of shares of MTPL by the assessees to a German Company. During the assessment proceedings, the AO held that the selling expenses were not incurred wholly and exclusively in connection with the transfer of their shares and disallowed the expense.

The CIT(A) as well as the Tribunal confirmed the addition.

The Calcutta High Court allowed the appeal filed by the assessee and held as under:

“i)    U/s. 48 of the Income-tax Act, 1961, in computing capital gains, the expenditure incurred wholly and exclusively in connection with the transfer of capital asset is deductible. The word ‘connection’ in section 48(i) reflects that there should be a casual connect and the expenditure incurred to be allowed as a deduction must be united or in the state of being united with the transfer of the capital asset resulting in income by way of capital gains on which tax has to be paid. The expenditure, therefore, should have a direct connection and should not be remote or have indirect result or connect with the transfer.

ii)    Under article 8 of the articles of association of the company a shareholder desirous of selling his shares must notify the number of shares, a ‘fair value’ and the proposed transferee. The assesses’ specific case was that they had engaged the services of the professionals for the purpose. The transfer of shares was not disputed by the Department. Admittedly, K was a firm providing advisory services and K and Co. was a law firm. The assessees had engaged the services of professionals who had identified the investor, negotiated the value and structured the transaction. Therefore, the transaction had an inextricable nexus with the transfer of shares. The expenditure incurred was deductible in computing the capital gains.”

Business expenditure — Accrued or contingent liability — Provision for future expenses based on turnover — Amount set apart to meet future liabilities — Expenses in-built in the contract — Provision not contingent — Allowable deduction

58 Principal CIT vs. CEC SOMA CICI JV

[2023] 456 ITR 705 (Kar)

A.Ys.: 2011–12, 2012–13

Date of Order: 21st March, 2023

S. 37 of ITA 1961

Business expenditure — Accrued or contingent liability — Provision for future expenses based on turnover — Amount set apart to meet future liabilities — Expenses in-built in the contract — Provision not contingent — Allowable deduction.

The assessee entered into a contract with BMCRL to design, construct tunnels and do other civil works. The total projected future expenses (non-billable expenses) included the reconstruction of roads damaged while constructing tunnels and during the other construction activities undertaken by the assessee. The non-billable expenses were in-built in the contract and payment for them was made by the assessee and not BMRCL. For the A.Ys. 2011–12 and 2012–13, based on the turnover, the assessee made provision for expenses and claimed deduction. The Assessing Officer disallowed the claim.

The Commissioner (Appeals) allowed the assessee’s appeal on the grounds that the provision was not contingent in nature but based on the matching expenditure on ascertained liability. The Tribunal upheld his order.

The Karnataka High Court dismissed the appeals filed by the Revenue and held as under:

“i)    The provision for expenses was made on a pro rata basis based on the turnover with reference to total unbillable future expenses of the assessee’s project. For the A.Y. 2013–14 after the remand the Assessing Officer had accepted the provision made by the assessee. For the subsequent A.Y. 2014–15, no disallowance had been made.

ii)    The Tribunal was right in setting aside the disallowances made by the Assessing Officer in respect of the deduction of future expenses claimed by the assessee for the A.Ys. 2011–12 and 2012–13.”

Recovery of tax — High-pitched assessment — Stay of recovery — Appeals not disposed of for a long time — Assessee is entitled to stay of recovery proceedings.

57 Jankalyan Vinimay Pvt Ltd vs. DCIT

[2023] 455 ITR 456 (Cal.)

A.Ys.: 2011–12, 2012–13 and 2016–17;

Date of Order: 7th February, 2023

S. 220(6) of ITA 1961

Recovery of tax — High-pitched assessment — Stay of recovery — Appeals not disposed of for a long time — Assessee is entitled to stay of recovery proceedings.

For the A.Ys. 2011–12, 2012–13 and 2016–17 high-pitched assessments were completed in the year 2017–18. Well within the period of limitation, the assessee filed the appeals before the Commissioner (Appeals) and the appeals have been pending since 2018. The Assessing Officer rejected the stay application u/s. 220(6) of the Income-tax Act, 1961 by communication dated 8th December, 2022.

Assessee filed writ petitions challenging the orders of the Assessing Officer rejecting the application for stay. Allowing the writ petition a Division Bench of the Calcutta High Court held as under:

“Since the appeals were filed in 2018 and the stay applications filed before the Deputy Commissioner during the year 2018 followed by subsequent reminders, were rejected only on 8th December, 2022, and the assessment orders were not given effect to date, there was to be a direction that the appeals filed before the Commissioner (Appeals) be disposed of at an early date and until then, the Department was not to take any coercive action against the assessee for recovery of the Income-tax, which had been assessed.”

Reassessment — Notice after three years — Limitation — Capital gains — Order for issue of notice without considering reply filed by assessee to initial notice —Words “income chargeable to tax” found in section 149 must be read in terms of “income” as arising out of “capital gains” as provided u/s. 48 in the assessee’s case — Notice barred by limitation — Order and notice set aside.

56 SANATH KUMAR MURALI vs. ITO

[2023] 455 ITR 370 (Kar)

A.Y.: 2016–17; Date of Order: 24th May 2023

Ss. 48, 147, 148, 148A(b), 148A(d) and 149 of ITA 1961

Reassessment — Notice after three years — Limitation — Capital gains — Order for issue of notice without considering reply filed by assessee to initial notice —Words “income chargeable to tax” found in section 149 must be read in terms of “income” as arising out of “capital gains” as provided u/s. 48 in the assessee’s case — Notice barred by limitation — Order and notice set aside.

On 3rd March, 2023, the notice u/s. 148A(b) of the Income-tax Act, 1961 came to be issued to the petitioner stating that information was received which suggested that income chargeable to tax for the A.Y. 2016–17 has escaped assessment within the meaning of section 147, detailing the information along with supporting documents. The information was that as per the TDS statement u/s. 194-IA, during the relevant year the assessee had sold an immovable property for a consideration of ₹55,77,700 which has escaped assessment.

The assessee-petitioner filed a reply to the said notice dated 16th March, 2023, in which details were laid out, setting out the sale consideration relating to the sale deed of 22nd November, 2015, as ₹55,77,700 and also furnishing details of the sale deed by virtue of which the petitioner has purchased the property on 24th September, 2011, for a consideration of ₹15,91,735 (cost of acquisition). The assessee also worked out the long-term capital gain at ₹33,85,769. It was submitted that, as the income escaping assessment did not exceed rupees fifty lakh, in terms of section 149(1)(b) of the Income-tax Act, the notice u/s. 148 could not be issued. However, the Assessing Officer rejected the assessee’s submissions and on 21st March, 2023, passed order u/s. 148A(d) and also issued notice u/s. 148 dated 21st March, 2023.

The assessee filed a writ petition and challenged the order and the notice. The Karnataka High Court allowed the writ petition and held as under:

“i) When the procedure is followed culminating in an order passed u/s. 148A(d) of the Income-tax Act, 1961, the authority is required to apply his mind and consider the reply of the assessee to the show-cause notice u/s. 148A(b) and pass a considered order. The words used in section 149(1)(b) are “income chargeable to tax” which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year. The income chargeable under the head “Capital gains” which would arise in case of a sale transaction is as provided u/s. 48, which provides that income chargeable under the head “Capital gains” shall be computed by deducting from the full value of the consideration, the cost of acquisition and in the event the property purchased has been held for a period beyond three years in terms of the second proviso to section 48 the words, “cost of acquisition” are to be substituted by the words, “indexed cost of acquisition”.

ii) The words found in section 149 “income chargeable to tax” must be read in terms of “income” as arising out of the “capital gains” as provided u/s. 48 and this is the only manner of understanding the words, “income chargeable to tax” u/s. 149(1)(b). Section 48 provides that the entirety of the sale consideration does not constitute “income”. The Memorandum Explaining the Provisions of Finance Act, 2021 does not in any way lead to a different interpretation of the words, “income chargeable to tax”. The words used u/s. 149 for the purpose of the extended time limit is to be interpreted in terms of the plain wording of section 149 and cannot be construed differently while relying on any executive instruction.

iii) The Assessing Officer had not applied his mind to the reply filed by the assessee to the show-cause notice u/s. 148A(b) nor noticed the legal position while deciding the application of the extended period u/s. 149(1)(b) which was pointed out by the assessee in its reply. There is a bar prohibiting the issuance of notice u/s. 148 of the Income-tax Act, 1961 for reopening the assessment u/s. 147 if three years have elapsed from the end of the relevant assessment year unless the case falls under clause (b). Accordingly, no notice u/s. 148 could be issued after three years from the end of the A.Y. 2016-17, and this is subject to the exception of an extended period of limitation of three years, but not more than ten years from the end of the relevant assessment year, if the Assessing Officer had material which would reveal that “the income chargeable to tax” which has escaped the assessment amounted to or was likely to amount to R50 lakhs or more. It could not be stated that since the stage at which the notice was issued was at a premature stage, the entirety of the sale consideration ought to be taken note of.

iv) The order passed u/s. 148A(d) and the notice issued u/s. 148 for the A.Y. 2016-17 were set aside.”

Reassessment — Notice — New procedure — Initial notice — Assessee’s explanation on the ground set down in initial notice accepted — Order for the issue of notice based on new ground — Order invalid — Writ — No question of remanding the matter to AO for passing speaking order — Order u/s. 148A(d) and direction of Court (Single Judge) remanding matter to AO set aside.

55 Excel Commodity and Derivative Pvt Ltd vs. UOI

[2023] 455 ITR 341 (Cal)

A.Y.: 2018–19; Date of Order: 29th August, 2022

Ss. 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice — New procedure — Initial notice — Assessee’s explanation on the ground set down in initial notice accepted — Order for the issue of notice based on new ground — Order invalid — Writ — No question of remanding the matter to AO for passing speaking order — Order u/s. 148A(d) and direction of Court (Single Judge) remanding matter to AO set aside.

On a writ petition challenging the order u/s. 148A(d) of the Income-tax Act, 1961, the Single Judge of the Calcutta High Court held that the order dated 7th April, 2022, was devoid of reasons and without any discussion on the contentions raised by the assessee in its objections to the show-cause notice issued by the Assessing Officer u/s. 148A(b) and quashed the order but remanded the matter back to the Assessing Officer to pass a fresh speaking order.

The Division Bench allowed the appeal filed by the assessee and held as under:

“i) The term “information” in Explanation 1 u/s. 148 of the Income-tax Act, 1961 cannot be lightly resorted to and to give unbridled power to the Department to reopen an assessment. The procedure contemplated u/s. 148A requires the Assessing Officer to consider the reply to the show-cause notice u/s. 148A(b) and thereafter pass a reasoned order u/s. 148A(d). If in the opinion of the Assessing Officer, the information furnished by the assessee in his reply is satisfactory, then nothing more requires to be done. But if the Assessing Officer is of the view that the reply furnished by the assessee is not acceptable, he has to pass a speaking order u/s. 148A(d). Since the Central Board of Direct Taxes noticed that in several cases information made available or the data uploaded by the reporting entities is not fully accurate due to human or technical error it issued a Circular dated 22nd August, 2022, instructing to Departmental officers with regard to the uploading of data on the portal of the Department to effect due verification and opportunity of being heard given to the assessee before initiating proceedings u/s. 148 or 147.

ii) The Assessing Officer had used the information lightly which had resulted in the issuance of notice. The assessee had submitted an explanation to the notice with documents in support of its claim. The Assessing Officer had accepted the explanation given by the assessee that it had not indulged in fictitious derivative transactions and had given up the allegation which had formed the basis of the show-cause notice u/s. 148A(b). Thereafter, he had proceeded on fresh ground alleging that the transaction with some other company was an accommodation entryand passed the order under section 148A(d). The order passed u/s. 148A(d) was not based on the reason for which the notice dated 22nd March, 2022, was issued u/s. 148A(b). Therefore, on that score also, the order u/s. 148A(d) was to be set aside in its entirety without giving any opportunity to reopen the matter on a different issue.

iii) The order was illegal and unsustainable and the necessity to remand the matter to the Assessing Officer did not arise. The order dated 7th April, 2022 u/s. 148A(d) and the direction of the court remanding the matter to the Assessing Officer were set aside. Consequently, no further action could be taken by the Department against the assessee on the issue in question.”

Income — Assessability — Meaning of “Income” — Institution established by State Government to regulate the registration of nurses and maintain standards of professionalism — One-time grant in aid received by the institution to strengthen it — Not assessable as income.

54 H. P. Nursing Registration Council vs. Principal CIT

[2023] 455 ITR 512 (HP)

A.Y.: 2010–11; Date of Order: 25th May, 2022

S. 2(24) of ITA 1961

Income — Assessability — Meaning of “Income” — Institution established by State Government to regulate the registration of nurses and maintain standards of professionalism — One-time grant in aid received by the institution to strengthen it — Not assessable as income.

The assessee was formed under the Himachal Pradesh Nursing Registration Council Act, 1977 and was substantially funded by the Government. The assessee received ₹1 crore from the Government of India under the scheme of upgradation/strengthening of nursing services under human resources for health. In the return of income, the assessee declared NIL income and claimed exemption u/s. 11(1)(a) of the Act. In the scrutiny assessment, the Assessing Officer treated the grant in aid as the income of the assessee u/s. 2(24)(iia) of the Act. The Assessing Officer concluded that the assessee was not entitled to any exemption as its registration u/s. 12AA was effective from 01.04.2010 relevant to A.Y. 2011-12 and the assessee also did not qualify to be entitled to exemption u/s. 10(23C)(iiiab) of the Act.

The Commissioner(Appeals) and the Tribunal upheld the decision of the Assessing Officer.

The Himachal Pradesh High Court allowed the appeal filed by the assessee and held as under:

“i) The term “income” as defined in section 2(24) of the Income-tax Act, 1961, is inclusive of various heads mentioned therein. It was only by way of the amendment, made effective from 1st April, 2016, that such monetary release by a State or the Central Government has been incorporated as income by way of section 2(24)(xviii). Even in this clause exemption has been carved out in respect of subsidy or grant by the Central Government for the purpose of corpus of a trust or institution established by the Central Government or State Government, as the case may be. This clearly illustrates the legislative intent that prior to 1st April, 2016, this type of grant was not specifically included as income. The later inclusion of such a provision will not have a retrospective application. Even by way of the amendment, exemption is available to such institutions.

ii) Since the assessee received only a one-time grant with a specific purpose which nowhere suggested scope of profit generation or revenue for the assessee, the amount received by the assessee by way of grant-in-aid thus could not be termed to be revenue receipt.”

Document Identification Number (DIN) — Orders from AO — Communication of — Validity — Circular of Board mandating DIN for communications — Circular binding on AO — Order passed in violation of Circular — Not a defect curable u/s. 292B — Communication of such orders not valid.

53 CIT(IT) vs. Brandix Mauritius Holdings Ltd.

[2023] 456 ITR 34 (Del.)

A.Y.: 2011–12; Date of Order: 20th March, 2023

S. 292B of ITA 1961 and CBDT Circular No. 19 of 2019 dated 14th August, 2019

Document Identification Number (DIN) — Orders from AO — Communication of — Validity — Circular of Board mandating DIN for communications — Circular binding on AO — Order passed in violation of Circular — Not a defect curable u/s. 292B — Communication of such orders not valid.

For the A.Y. 2011-12, the final assessment order passed on 15th October, 2019 did not bear the Document Identification Number (DIN). In appeal, the assessee challenged the validity of the assessment order. The Tribunal allowed the appeal of the assessee in view of the CBDT Circular No. 19/2019 dated 14th August, 2019 which specifies the manner in which DIN is required to be generated while communicating any correspondence issued by the Department.

The Delhi High Court dismissed the appeal filed by the Revenue and held as follows:

“i) It is well established that circulars issued by the CBDT in the exercise of its powers u/s. 119 of the Income-tax Act, 1961 are binding on the Department. The CBDT Circular No. 19 of 2019 dated
14th August, 2019 ([2019] 416 ITR (St.) 140) sets out the manner in which the document identification number is required to be generated while communicating a notice, order, summons, letter and any correspondence issued by the Income-tax Department, i.e., the Revenue. Inter alia, the object and purpose of allocating document identification numbers to communications, such as notices, orders, summons, letters or any correspondence emanating from the Revenue is to maintain a proper audit trail. Therefore, the CBDT, in the exercise of its powers, has mandated that no communication shall be issued by any Income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification or approval, to the assessee or any other person, on or after 1st October, 2019, unless it is allotted a computer-generated document identification number. Further, there is a specific requirement under the 2019 circular to quote the document identification number in the body of any such communication. The 2019 circular also sets out certain circumstances in which exceptions can be made. These circumstances are categorically referred to in paragraph 3 of the 2019 circular.

ii) The object and purpose of the issuance of the 2019 circular, inter alia, is to create an audit trail. Therefore, the communication relating to assessments, appeals, orders, etcetera which are mentioned in paragraph 2 of the 2019 circular, albeit without a document identification number, can have no standing in law, having regard to the provisions of paragraph 4 of the 2019 circular. Recourse to section 292B of the Act, is untenable, having regard to the phraseology used in paragraph 4 of the 2019 circular.

iii) The final assessment order was passed by the Assessing Officer on 15th October, 2019, u/s. 147 read with sections 144C(13) and 143(3) of the Act. Concededly, the final assessment order did not bear a document identification number. There was nothing on record to show that the Revenue took steps to demonstrate before the Tribunal that there were exceptional circumstances, as referred to in paragraph 3 of the 2019 circular, which would sustain the communication of the final assessment order manually, albeit, without the document identification number.

iv) Given this situation, clearly paragraph 4 of the 2019 circular would apply. Paragraph 4 of the 2019 circular, decidedly provides that any communication which is not in conformity with paragraphs 2 and 3 shall be treated as invalid and shall be deemed to have never been issued. The phraseology of paragraph 4 of the 2019 circular fairly puts such communication, which includes communication of assessment orders, in the category of communications which are non-est in law. The Tribunal was right in holding that the final assessment order was not valid.”

Appeal to Appellate Tribunal — Scope of proceedings — Appeal by the assessee against order affirming disallowance in part — No cross objections filed by Department — Tribunal remanding of matter in entirety — Prejudicial to the assessee — Tribunal directed to limit its adjudication to issues raised by assessees.

52 Kausalya Agro Farms and Developers Pvt Ltd vs. Dy. CIT

[2023] 455 ITR 432 (Telangana)

A.Ys.: 2012–13 to 2014–15, 2016–17 to 2018–19;

Date of Order: 2nd February, 2023

Ss. 36(1)(iii), 147, 254 of ITA 1961

Appeal to Appellate Tribunal — Scope of proceedings — Appeal by the assessee against order affirming disallowance in part — No cross objections filed by Department — Tribunal remanding of matter in entirety — Prejudicial to the assessee — Tribunal directed to limit its adjudication to issues raised by assessees.

On appeals before the Tribunal against the order of the Commissioner (Appeals) partly affirming the disallowance of interest expenditure u/s. 36(1)(iii) of the Income-tax Act, 1961 and on the issue of validity of reopening of reassessment u/s. 147, the Tribunal remanded the matter in entirety to the Assessing Officer to examine afresh in the light of all the evidence of the assessees’ fund position and the issue as to whether the corresponding borrowings claimed to have carried no interest involving plotted land buyers.

The Telangana High Court allowed the appeal filed by the assessee and held as under:

“i) The Tribunal was required to adjudicate the appeals on the grounds which were raised before it by the assessees. Remanding the matter in its entirety to the Assessing Officer had caused serious prejudice to the assessees in as much as even those reliefs which had been granted by the Commissioner (Appeals) stood nullified in view of the Tribunal’s direction to the Assessing Officer to re-do the whole exercise in its entirety. No cross-appeals have been filed by the Department against the order of the Commissioner (Appeals) granting substantial relief to the assessees.

ii) The common order of the Tribunal u/s. 254 was to be set aside and the Tribunal directed to hear the appeals before it on the limited grounds urged by the assessee, namely, the disallowance of interest expenditure u/s. 36(1)(iii) to the extent disallowed by the Commissioner (Appeals) and the validity of the reassessment proceedings u/s. 147.”

Appeal to Appellate Tribunal — Ex-parte order — Powers of Tribunal — Tribunal has the power to set aside ex-parte order — Matter remanded to the Tribunal to decide the appeal on merits.

51 Cement Corporation of India Ltd vs. ACIT

[2023] 456 ITR 61 (Del.)

A.Y.: 2011–12; Date of Order: 6th February, 2023

S. 254 of ITA 1961 and Rule 24 of Income-tax Rules, 1962

Appeal to Appellate Tribunal — Ex-parte order — Powers of Tribunal — Tribunal has the power to set aside ex-parte order — Matter remanded to the Tribunal to decide the appeal on merits.

By an order dated 24th January, 2018, the Tribunal dismissed the appeal filed by the assessee for non-appearance. The order was received by the assessee on 5th February, 2018. On 24th September, 2018, the assessee filed a miscellaneous application before the Tribunal praying for recalling the order dated 24th January, 2018 and requesting for hearing the appeal. The reason for non-appearance before the Tribunal was that the notice of hearing issued by the Tribunal was misplaced by the authorised officer of the assessee company. The assessee was unaware that its appeal had been dismissed and came to know about it only on 5th February, 2018. Further, the inadvertent delay in filing the miscellaneous application was due to the fact that the concerned employees were transferred to a plant outside Delhi and some of them even retired during the relevant period. The assessee thus submitted there was sufficient cause for delay.

The miscellaneous application was dismissed by the Tribunal on 7th September, 2022 on the ground that the time limit of six months for filing the miscellaneous application as provided by section 254(2) of the Income-tax Act, 1961, expired on 31st July, 2018. In the absence of power with the Tribunal to condone the delay in filing the miscellaneous application, the miscellaneous application came to be dismissed on the ground of limitation.

The Delhi High Court allowed the writ petition filed by the assessee and held as follows:

“i) According to rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, if on the date fixed for hearing by the Tribunal, or on any other date to which the hearing is adjourned, the appellant does not appear in person or through an authorized representative, when the appeal is called out for hearing, the Tribunal may dispose of the appeal on the merits or otherwise, after hearing the respondent. The proviso appended to the rule indicates that where an appeal has been disposed of on the merits, and the appellant appears thereafter, the Tribunal shall set aside the ex parte order and restore the appeal, if it is satisfied that there was sufficient cause for his non-appearance. Although in the main part of rule 24, the expression used is “may”, when read with the proviso appended thereto, it leads to the conclusion that if the Tribunal chooses to dispose of the appeal on the merits or otherwise, after hearing the respondent in the absence of the appellant, and the appellant, thereafter, appears and shows sufficient cause for not appearing on the date when the appeal is disposed of, the Tribunal is obliged, in law, to set aside the order passed and restore the appeal.

ii) Rule 24 of the 1963 Rules which does not have the impediment of limitation, as is prescribed u/s. 254 of the Income-tax Act, 1961. Under section 254, the Tribunal is also vested with incidental and ancillary powers which can be exercised in such situations such as in the assessee’s case. The issue involved in the appeal before the Tribunal which deserved a hearing on the merits, for the reasons that while there was a delay, the assessee had furnished reasons for explaining the delay that the notice of hearing issued by the Tribunal for the hearing on 24th January, 2018, was misplaced, and did not reach the concerned officer, that it was unaware of the passing of the dismissal order dated 24th January, 2018, and came to know about it only on 5th February, 2018, and that the inadvertent delay in filing the miscellaneous application was caused on account of the concerned persons having been temporarily transferred to a plant outside Delhi, and some persons retiring during the relevant period.

iii) The order of the Tribunal was set aside and the matter was remitted to the Tribunal for disposal of the assessee’s appeal on merits.”

Section 37 of the Act and Rule 9A of IT Rules, 1962 – Business expenditure – capital or revenue expenditure – Expenditure incurred on account of abandoned teleserial – Revenue expenditure

23. CIT vs. Prasad Productions; 407 ITR
541 (Mad):  Date of order: 4th April,
2018 A. Y. 2002-03


Section 37 of the Act and Rule 9A of IT
Rules, 1962 – Business expenditure – capital or revenue expenditure –
Expenditure incurred on account of abandoned teleserial – Revenue expenditure


The following question was
raised before the Madras High Court in appeal filed by the Revenue:


“Whether in the facts and
circumstances of the case, the Tribunal was right in holding that the write off
of expenditure incurred in respect of a teleserial that was abandoned could be
treated as business expenditure during the relevant assessment year, contrary
to the provisions of rule 9A of the Income-tax Rules?” 


The Madras High Court
decided the appeal in favour of the assessee and held as under:


“i)    The issue as to whether the cost of production of an abandoned
teleserial/feature film shall be treated as revenue expenditure or capital
expenditure has to be decided as per the circular issued by the CBDT in
Circular No. 16 of 2015 dated 06/10/2015, wherein it is stated that the cost of
production of an abandoned feature film is to be treated as revenue expenditure
and allowed as per the provisions of section 37 of the Income-tax Act, 1961.


ii)    This circular was taken note of by the Division Bench of this
court in Tiruvengadam Investments Pvt. Ltd. vs. ACIT (2016) 95 CCH 24 (Mad).
Though the circular pertains to a feature film, we find that there cannot be
any distinction between teleserial and feature film as the circular deals with
the aspects regarding to the cost of production of a film. Hence, Circular No.
16 of 2015 dated 06/10/2015 has full application to the facts of the present
case.


iii)    The appeal filed by the Revenue is dismissed and the substantial
question of law as framed is answered in favour of the assessee and against the
Revenue.”

Section 37 of the Act and Rule 9A of IT Rules, 1962 – Business expenditure – capital or revenue expenditure – Expenditure incurred on account of abandoned teleserial – Revenue expenditure

31. 
Asianet Communications Ltd. vs. CIT; 407 ITR 706 (Mad); Date of order: 26th June, 2017 A. Y. 2001-02

 

Section 37 – Business expenditure – Capital
or revenue – Amount paid as non-compete fees – No new source of income – Amount
deductible as business expenditure

 

The assessee was a company engaged in the business of television
broadcasting, formed in the year 1991. The assessee was managed by one of the
directors, SK and he was also the president of the company, managing all the
affairs of the company till April 1999. SK had 50% share holding and the
balance was held by a non-resident Indian, RM. SK and RM decided to part ways
and an agreement was arrived at between them by which SK agreed to sell 50% of
his shareholding to RM or to his nominees and to renounce his management of the
company. As a part of the agreement SK agreed not to compete with the business
of the assesee for a period of five years for which the company agreed to pay
him a sum of Rs. 10.5 crore during the previous year relevant to  the A. Y. 2000-2001. This amount was paid to
SK in respect of a non-compete covenant, which was claimed as business
expenditure in computing the income for the same year. The claim was rejected
by the Assessing Officer.

 

The Commissioner
(Appeals) and the Tribunal confirmed the order of the Assessing Officer.

 

On appeal by the
assessee, the Madras High Court reversed the decision of the Tribunal and held
as under:

 

“i)    Any contractual term that
imposes restraint on a contracting party from engaging in any business for a
reasonable term must be backed by consideration. Therefore, the non-compete
compensation is but a consideration paid to the party who is kept out of
competing business during the term of the contract. The non-compete
compensation from the stand point of the payee of such compensation, is paid in
anticipation that absence of a compensation from the other party to the
contract may secure a benefit to the party paying the compensation. There is no
certainty that such benefit would accrue. In other words, in spite of the fact
that a competitor is kept out of the competition, on may still suffer loss.

ii)    The facts clearly disclose
that on account of the payment of non-compete fee, the assessee had not
acquired any new business, the profit making apparatus had remained the same,
the assets used to run the business remained the same and there was no new
business or new source of income, which accrued to the assessee on account of
the payment of the non-compete fee.

iii)    The stand taken by the Revenue that the
assessee had ammortised expenditure spread over for the period of five years
had been found to be factually incorrect, as the assessee had not capitalised
it in its accounts, but treated it as differed revenue expenditure for a period
of five years. That apart, that issue was never raised by the Revenue before
any of the lower authorities. The amount paid under the non-compete covenant
was deductible.”

Revision — Powers of Commissioner — Bonafide mistake by assessee including exempt income in the computation of income — Time for filing revised return barred — No restriction on the power of Commissioner to grant relief — Orders rejecting applications of the assessee for revision unsustainable — Matter remanded to Commissioner for reconsideration.

50. Ena Chaudhuri vs. ACIT

[2023] 455 ITR 284 (Cal.)

A.Ys. 2007–08 and 2008–09

Date of order: 18th January, 2023

Section 264 of ITA 1961

 

Revision — Powers of Commissioner — Bonafide mistake by assessee including exempt income in the computation of income — Time for filing revised return barred — No restriction on the power of Commissioner to grant relief — Orders rejecting applications of the assessee for revision unsustainable — Matter remanded to Commissioner for reconsideration.

For the A.Ys. 2007–08 and 2008–09 the assessee inadvertently offered to tax exempted income relating to dividend and long-term capital gains and realized this only upon receipt of the order passed u/s. 143(1) of the Income-tax Act, 1961. Since the filing of the original return itself was delayed she could not file a revised return u/s. 139(5) for claiming a deduction of the exempted income and therefore, she filed revision applications u/s. 264 before the Commissioner. The Commissioner held that since the orders passed u/s. 143(1) were not erroneous, that since the original returns of income were filed beyond the specified dates the assessee was debarred from filing revised returns and dismissed the revision applications.

The Calcutta High Court allowed the writ petitions filed by the assessee and held as under:

“i) On the facts, the Commissioner had committed an error in law in dismissing the revision applications of the assessee filed u/s. 264 by refusing to consider on the merits the claim of the assessee that the income in question was exempted from tax and not liable to tax and was included in her return as taxable income due to a bona fide mistake and which she could not rectify by filing revised return since original return itself was belatedly filed and that she had no other remedy except filing of revision applications u/s. 264.

ii) The Commissioner while refusing to consider the claim of the assessee had misinterpreted Goetze (India) Ltd and also the scope of jurisdiction conferred upon him u/s. 264 by equating it with that of the jurisdiction of the Assessing Officer in considering the claim of any allowance or deduction claimed by an assessee in the return of income or without filing any revised return.

iii) The orders of the Commissioner u/s. 264 rejecting the revision applications of the assessee for the A.Ys. 2007–08 and 2008–09 were unsustainable and accordingly set aside. The matters were remanded back to the Commissioner for reconsideration.”

Recovery of tax — Stay of demand — Application for stay pleading financial hardship — Plea should be considered and speaking order passed thereon.

49. Tungabhadra Minerals Pvt Ltd vs. Dy. CIT
[2023] 455 ITR 311 (Bom.)
A.Y. 2008–09: Date of order: 30th September, 2022

Recovery of tax — Stay of demand — Application for stay pleading financial hardship — Plea should be considered and speaking order passed thereon.

Pursuant to search and seizure against the assessee u/s. 132 of the Income-tax Act, 1961, the assessment for A.Y. 2008-09 was completed u/s. 143(3) r.w.s. 153A of the Act after making an addition of R264.59 crores and consequently demand of R239.54 crores was raised. The assessment order was challenged in an appeal before the CIT(A) which was pending.

The assessee filed a stay application on 30th July, 2021 requesting for a stay of demand on the ground that the assessment order was bad and illegal. The assessee also pleaded financial difficulty. The assessing officer rejected the assessee’s application for stay of demand vide order dated 11th August, 2021 without assigning any reasons.

The assessee made an application before the Principal Commissioner largely on the grounds of financial stringency. However, vide order dated 17th November, 2021, the Principal Commissioner did not accept the plea of the assessee and directed the assessee to make payment of 10 per cent of the demand on or before 15th December, 2021. While passing the order, the Principal Commissioner did not deal with the assessee’s request for a stay on the basis of financial distress. Therefore, the assessee once again on 6th December, 2021 filed application before the Principal Commissioner categorically pointing out financial stringency and prayed for stay of demand. The application was once again rejected by the Principal Commissioner vide his order dated 29th December, 2021 and concluded that 10 per cent of the tax was required to be paid by the assessee.

The assessee filed a writ petition and challenged that order. The Bombay High Court allowed the writ petition and held as under:

“i) In an application for stay of demand, the aspect of financial hardship is one of the grounds which is required to be considered by the authority concerned and the authority concerned should briefly indicate whether the assessee is financially sound and viable to deposit the amount or the apprehension of the Revenue of non-recovery later is correct warranting deposit.

ii) In the assessee’s application dated 30th July, 2021 the assessee had asserted a categorical case of financial hardship. However, the Assessing Officer rejected the assessee’s application for stay of the demand, without assigning any reasons. The assessee approached the Principal Commissioner praying for the stay of the demand, reiterating the specific grounds in that regard contending that the Assessing Officer had not applied his mind to the aspect of financial stringency. However, the fate of the petition before the Principal Commissioner was not different. Although other issues on the merits had been considered by the Principal Commissioner, there were no reasons in the context of financial hardship, in both the orders passed by the Principal Commissioner being orders dated 11th August, 2021 and an order dated 29th December, 2021. Both orders were not valid.

iii) The Principal Commissioner of Income-tax is directed to hear the petitioner(s) on the stay application on the specific plea of the petitioner in regard to financial stringency and after granting an opportunity of hearing to the petitioner(s), pass an appropriate order on such issue. Let such exercise be undertaken as expeditiously as possible and in any case within two months from today.

iv) In the meantime, till a fresh decision on such an issue is taken, the impugned demands in question, relevant to these petitions, shall not be acted upon by the respondents.”

Recovery of tax — Interest for failure to pay tax — Waiver of interest — Effect of 220(2A) — Advance tax paid in time but mistakenly in the name and PAN of minor son — Amount credited to assessee’s account — Assessee co-operating in inquiry relating to assessment and recovery proceedings — Assessee entitled to complete waiver of interest.

48. FuaadMusvee vs. Principal CIT

[2023] 455 ITR 243 (Mad.)

A.Ys. 2009-10 and 2011-12

Date of order: 9th February, 2023

Section 220(2A) of ITA 1961

 

Recovery of tax — Interest for failure to pay tax — Waiver of interest — Effect of 220(2A) — Advance tax paid in time but mistakenly in the name and PAN of minor son — Amount credited to assessee’s account — Assessee co-operating in inquiry relating to assessment and recovery proceedings — Assessee entitled to complete waiver of interest.

The assessee, an individual, filed his returns of income for A.Y. 2009-10 declaring a total income of ₹88,37,380 and for A.Y. 2011-12 declaring a total income of ₹87,10,242. In the return of income, the assessee included the income of his minor son as per the provisions of section 64 of the Act. However, out of abundant caution, the assessee also filed the return of his minor son separately. The advance tax on the minor’s income was paid under the PAN of the minor son. The assessee, in his return of income, claimed credit of taxes paid of ₹21,27,450 and ₹25,41,037 which included the advance tax paid and tax deducted at source on account of the minor son also.

The return was processed u/s.143(1) of the Income-tax Act, 1961 and demand was raised since the credit for advance tax paid by the assessee in the PAN of the minor son was not granted. The assessee was informed that credit cannot be given for the amount paid under a different PAN and was asked to file a rectification application u/s. 154 of the Act.

However, since the assessee had paid the tax amounts, the assessee claimed a waiver of tax amounts and a total waiver of interest of ₹12,20,380 and ₹8,15,179 u/s. 220(2) of the Act for the period 29th December, 2012 to 25th November, 2018 as the assessee had paid the tax in 2011 itself, albeit under the PAN of the minor son. It was the contention of the assessee that since the amount was with the Department for all these years, there was no basis for the demand of interest. The Principal Commissioner, vide order dated 31st March, 2022 granted only a 20 per cent waiver of interest and directed the assessee to pay the balance of 80 per cent.

Aggrieved by the order of the Principal Commissioner, the assessee filed a writ petition before the Madras High Court. The High Court allowed the writ petition and held as follows:

“i) There was no lapse on the part of the assessee in the payment of his taxes and he had not committed any default; the taxes deposited under the assessee’s minor son’s account were duly credited to the assessee’s account immediately on the date of remittance. The petitioner had certainly suffered genuine hardship for no fault of his. Hence, interest could not be levied u/s. 220(2) of the Act when the advance taxes were in fact paid on time though mistakenly in the assessee’s minor son’s permanent account number.

ii) It was also not the case of the Department that the assessee did not cooperate in any enquiry relating to the assessment or any proceedings for recovery of the amount due from him. The Principal Commissioner had granted a partial waiver of interest to the assessee at 20 per cent without giving any reason as to how he arrived at that rate. There was no finding given by the Principal Commissioner that the assessee had not satisfied the three conditions required for waiver of interest u/s. 220(2A). He ought to have granted full waiver of the interest to the assessee, but, instead, erroneously had granted only a 20 per cent. waiver by non-speaking orders.”

Recovery of tax — Private Company — Recovery from the director — Non-recovery not shown to be attributable to neglect, misfeasance or breach of duty on the part of the assessee — Tax is not recoverable from Director.

47. Geeta P. Kamat vs. PCIT

[2023] 455 ITR 234 (Bom.)

A.Ys. 2008-09 and 2009-10

Date of order: 20th February, 2023

Sections 179 and 264 of ITA 1961

Recovery of tax — Private Company — Recovery from the director — Non-recovery not shown to be attributable to neglect, misfeasance or breach of duty on the part of the assessee — Tax is not recoverable from Director.

A show cause notice was issued upon the assessee u/s.179 of the Income-tax Act, 1961 (“the Act”) requiring the assessee to show cause why recovery proceedings should not be initiated upon her in her capacity as the director of Kaizen Automation Private Limited (KAPL) for the A.Ys. 2008–09 and 2009–10 due to non-recovery of taxes despite the attachment of the bank account.

In response to the show cause notice, the assessee submitted that the non-recovery of taxes could not be attributed to any gross neglect, misfeasance, breach of duty on her part in relation to the affairs of the company. The assessee contended that even though she was the director of KAPL, she neither had any control over the affairs of the company nor did she have any authority or independence to take decisions for the benefit of the company. Further, the assessee did not have any authority to sign any cheques on behalf of the company. No functional responsibility was assigned to her or her husband who was also a shareholder and director in the company.

The Assessing Officer passed the order u/s. 179 of the Act rejecting the contentions of the assessee and held that the assessee had failed to prove that she was not actively involved in the management of the company for the F.Ys. 2007–08 and 2008–09 and that there was no gross neglect misfeasance or breach of duty on the part of the assessee.

Against the said order, the assessee filed a revision application u/s. 264 of the Act which was rejected on the ground that the assessee was a director for the relevant assessment years and hence was liable.

The assessee filed a writ petition challenging the order passed u/s. 179 of the Act. The Bombay High Court, allowing the petition held as follows:

“i) If the taxes due from a private company cannot be recovered, then the same can be recovered from every person who was a director of a private company at any time during the year. Such a director can absolve himself if he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty in relation to the affairs of the company.

ii) The assessee had discharged its burden by bringing material on record to demonstrate a limited role in the company and lack of authority in the management of the company.

iii) The assessing officer had not placed any material on record to controvert the material placed on record by the assessee based on which the assessee could be held to be guilty of gross neglect misfeasance or breach of duty in regard to the affairs of the company.

iv) Theassessee having discharged the initial burden, the assessing officer had to show how the assessee could be attributed to gross neglect, misfeasance or breach of duty.

v) The order passed u/s. 179 by the assessing officer and the revision order passed u/s. 264 by the Principal Commissioner on similar grounds were unsustainable.”

Reassessment — Condition precedent — Service of valid notice — Notice sent to secondary email id though active primary email id given in the last return — No proper service of notice — Notice and subsequent proceedings and order set aside.

46. Lok Developers vs. Dy. CIT

[2023] 455 ITR 399 (Bom.)

A.Ys. 2015-16 to 2017-18: Date of order: 15th February, 2023

Sections 144, 144B, 147, 148, 156 of ITA 1961

Reassessment — Condition precedent — Service of valid notice — Notice sent to secondary email id though active primary email id given in the last return — No proper service of notice — Notice and subsequent proceedings and order set aside.

The petitioner a registered partnership firm which was carrying on a real estate development business. Notices u/s. 148 of the Income-tax Act, 1961 for reopening of assessment was served upon the secondary email id as per the PAN Card i.e., on LOKTAX2008@REDIFFMAIL.COM, and not on the primary registered email id i.e., loktax201415@rediffmail.com. The Petitioner filed writ petitions and challenged the reassessment notices dated 28th March, 2021, for the A.Ys. 2015–16, 2016–17 and 2017-18 issued u/s. 148 of the Act, the show-cause notice for proposed variation in the draft assessment order dated 25th March, 2022 and assessment order under section 144B read with section 144, notice of demand under section 156.

The Bombay High Court framed the following questions for consideration:
“Whether subsequent proceedings initiated by the Revenue authorities for non-compliance of notice under section 148 of the Income-tax Act would be vitiated on account of notice under section 148 of the Act being served on the secondary email id registered with permanent account number (PAN) instead of the registered primary e-mail id or updated e-mail id filed with the last return of income?”

The High Court allowed the writ petition and held as follows:

“i) The Assessing Officer ought to have considered the primary email id furnished by the assessee in the return filed for the A.Y. 2020–21 and had erred in issuing a notice on the secondary email id when there was a primary email id. The secondary email id had to be used as an alternative or in such circumstances when the authority was unable to effect service of any communication on the primary id. There was no prudence in issuing an email to the secondary email address. The Assessing Officer ought to have sent the notice under section 148 of the Income-tax Act, 1961 to both the primary email address and the e-mail address mentioned in the last return of income filed to pre-empt a jurisdictional error on account of valid service.

ii) The assessee was not wrong in refusing to participate in a proceeding vitiated by lack of valid service of notice. Accordingly, the notice u/s. 148 and all consequential proceedings including the notice for proposed variation in income and assessment order u/s. 144B read with section 144 were quashed and set aside. The Assessing Officer was at liberty to proceed with the assessment after issuance of fresh notice in accordance with law.”

Reassessment — Notice u/s. 148 — Limitation — Law applicable — Effect of amendments by Finance Act, 2021 — Notice barred by limitation under un-amended provisions — Notice issued on 30th July, 2022 to reopen assessments for A.Y. 2013-14 and A.Y. 2014-15 — Not valid.

45. SumitJagdishchandra Agrawal vs. Dy. CIT

[2023] 455 ITR 216 (Guj.)

A.Ys. 2013–14 and 2014–15: Date of order: 20th March, 2023

Sections 147, 148, 148A and 149 of ITA 1961

Reassessment — Notice u/s. 148 — Limitation — Law applicable — Effect of amendments by Finance Act, 2021 — Notice barred by limitation under un-amended provisions — Notice issued on 30th July, 2022 to reopen assessments for A.Y. 2013-14 and A.Y. 2014-15 — Not valid.

In the present petitions filed under article 226 of the Constitution, the respective petitioners have called in question the notices issued by Respondent No. 2. Assessing Officer u/s. 148 of the Income-tax Act, 1961 seeking to reopen the assessment in respect of A.Ys. 2013–14 and 2014–15 and the corresponding orders u/s. 148A(d) of July 2022. The challenge is on the basis of limitation. The notices u/s. 148 of the Act were originally issued under the un-amended provisions during the period April to June 2021 and were treated as show-cause notices u/s. 148A(b) of the Act in the light of the decision of the Supreme Court in Union of India vs. Ashish Agarwal [2022] 444 ITR 1 (SC); [2023] 1 SCC 617, and thereupon, the order u/s. 148A(d) was passed in July 2022.

The Gujarat High Court allowed the writ petitions and held as under:

“i) Section 147 of the Income-tax Act, 1961, empowers the Assessing Officer to reassess the income of the assessee subject to the provisions of sections 148 to 151 of the Act in case any income chargeable to tax has escaped assessment. Section 149 deals with the time limit for notice. By the Finance Act, 2021, passed on 28th March, 2021, and made applicable with effect from 1st April, 2021, section 148A was brought into force and section 149 was also recast. The first proviso to section 149 of the Act as introduced by the Finance Act, 2021, inter alia, stipulated that no notice u/s. 148 shall be issued at any time in a case for the assessment year beginning on or before 1st day of April 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provision as it stood immediately before the commencement of the Finance Act, 2021. Due to the pandemic of 2020 the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 was passed. Various notifications were issued from time to time extending the time limits prescribed u/s. 149 of the Act for issuance of reassessment notice u/s. 148. The 2020 Act is a secondary legislation. Such secondary legislation would not override the principal legislation, the Finance Act, 2021. Therefore, all original notices u/s. 148 of the Act referable to the old regime and issued between 1st April, 2021, and 30th June, 2021, which stand beyond the prescribed permissible time limit of six years from the end of A.Y. 2013–14 and A.Y. 2014–15, would be time barred.

ii) The notices u/s. 148 of the Act relatable to the A.Y. 2013–14 or the A.Y. 2014–15, as the case may be, were beyond the permissible time limit, and therefore, liable to be treated as illegal and without jurisdiction.”

Reassessment — Notice — Charitable purpose — Registration — Law applicable — Effect of amendment of section 12A Charitable institution entitled to an exemption for assessment years prior to registration — Reassessment proceedings for earlier years cannot be initiated on account of non-registration.

44. Prem Chand Markanda SD College for Women vs. ACIT(E)

[2023] 455 ITR 329 (P&H)

A.Y. 2015-16: Date of order: 31st January, 2023

Sections 147 and 148 of ITA 1961

Reassessment — Notice — Charitable purpose — Registration — Law applicable — Effect of amendment of section 12A Charitable institution entitled to an exemption for assessment years prior to registration — Reassessment proceedings for earlier years cannot be initiated on account of non-registration.

The assessee was a society registered under the Registrar of Societies, Punjab running a college exclusively for girls since 1973. The assessee got substantial aid from the State Government in the shape of reimbursement of staff salary and therefore, prior to A.Y. 2016–17, it was entitled to blanket exemption from income tax in terms of clause (iiiab) of s.10 (23C) of the Income-tax Act, 1961.

The assessee apprehended that it may not fulfill the condition given under Rule 2BBB, which required that for institutions to be substantially financed, the percentage of government grant should not be less than 50 per cent and therefore, the assessee applied for registration u/s. 12AA on 28th March, 2016, before the competent authority. The assessee was granted registration vide order dated 30th September, 2016, which was applicable from A.Y. 2016–17 onwards until withdrawn by the Commissioner. The assessee again applied for fresh registration as per 12AB of the Act. Vide order dated
15th October, 2021, the assessee was again registered for a period of five years from A.Y. 2022–23 to A.Y. 2026–27.

Subsequently, on 16th March 2022, the assessee received a notice u/s. 148A(b) of the Act for reopening the assessment for A.Y. 2015–16 on account of bank interest and cash deposit in two of its bank accounts. In response to the notice, the assessee relied upon the third proviso to 12A(2) to contend that there was a bar to take action u/s. 147 for A.Y. preceding the year in which registration was granted. The objections were rejected vide order dated 29th March, 2022 and notice u/s. 148 of the Act was issued.

The assessee filed a writ petition challenging the notices issued under 148A(b) and section 148 of the Act. The Punjab and Haryana High Court allowed the writ petition and held as under:

“i) Once the reply filed by the assessee pursuant to the notice had been rejected without examining the third proviso to section 12A(2) relegating the assessee to the alternative remedy would not be appropriate. After issuance of notice u/s. 148A(b) objections were filed by the assessee which were dismissed. A notice u/s. 148 for reopening the assessment u/s. 147 was issued wherein no reference was made to the third proviso to section 12A.

ii) Registration of the assessee was granted and was applicable from the A.Y. 2016–17. The registration was valid for claiming the benefit under sections 11 and 12. No proceedings u/s. 147 could be initiated for the A.Y. 2015–16. Hence, the show-cause notice u/s. 148A(b), the consequent order u/s. 148A(d) and the notice u/s. 148 being contrary to the third proviso to section 12A(2) of the Act, are set aside.”

Interest on refund — Additional Interest — Law applicable — Delay in granting refund pursuant to order of Tribunal as affirmed by the Court — Assessee is entitled to refund with interest and additional interest — Compensation awarded if process not completed within the prescribed period.

43. Bombardier Transportation India Pvt Ltd vs. DCIT

[2023] 455 ITR 278 (Guj.)

A.Y. 2005-06: Date of order: 23rd January, 2023

Sections 244 and 244A of ITA 1961

Interest on refund — Additional Interest — Law applicable — Delay in granting refund pursuant to order of Tribunal as affirmed by the Court — Assessee is entitled to refund with interest and additional interest — Compensation awarded if process not completed within the prescribed period.

The assessee filed an appeal against the order of penalty u/s 201(1) of the Income-tax Act, 1961. The CIT(A) confirmed the penalty of ₹ 97,59,312. The assessee paid an amount of ₹ 90,46,000 in the F.Y. 2006–07. The Tribunal vide order dated 17th April, 2009 quashed the penalty levied upon the assessee. The department’s appeal before the High Court was dismissed vide order dated 4th August, 2016.

The assessee filed a complaint before the CPGRAMS on 19th June, 2017 for not giving effect to the order of the Tribunal and the High Court and for non-issuance of the refund. Though the replies were received on 11th June, 2017 and 2nd August, 2017, there was no whisper on the refund. Thereafter, on 16th October, 2017, 28th February, 2018, 7th March, 2018, 12th March, 2018, 16th March, 2018, 10th April, 2018 and 11th April, 2018 yet another complaint was filed before the CPGRAMS. The assessee submitted the details for the processing of the refund. However, the refund was not granted.

In such circumstances, due to the non-action on the part of the Department despite several complaints, the assessee filed a writ petition before the Gujarat High Court and prayed that the Assessing Officer be directed to give the refund due to the assessee and the interest and additional interest u/s. 244A due to the assessee shall be paid to the assessee.

The High Court allowed the petition and held as follows:

“i) Sub-section (1) of section 244A of the Income-tax Act, 1961 provides for interest on delayed refund and sub-section (1A) inserted by the Finance Act, 2016 provides for additional interest.

ii) Two separate portals being available for day-to-day functions for the processing of returns of income and for the processing of the returns or statements of tax deducted at source could not be the reason for the court to overlook the period of five years that had been taken by the Department after the tax appeal had been decided by the court on 4th August, 2016 and there had been no further challenge by the other party. The Department was not sure of the exact outstanding demand against the assessee. Even if there had been a manual deposit prior to the online process sufficient time of five years had been taken by the Department.

iii) With regard to the refund to be returned with the interest, sub-section (1A) inserted in section 244A had to be applied prospectively for the period of delay after the introduction of the relevant statutory provision. Under sub-section (1) of section 244A the Department had to grant interest at the statutory rate and both the provisions, sections 244 and 244A, applied and the Department had to grant the refund accordingly.”

TDS — Payments to non-residents — Failure to deduct tax at source — Order deeming payer to be “assessee-in-default” — Limitation for order — No statutory period of limitation — General principle that in absence of statutory provisions, orders must be passed within reasonable time — Writ — Power of High Court under article 226 to fix reasonable period of limitation — Limitation prescribed for deduction of tax at source on payments to residents applicable to payments to non-residents.

34. Vedanta Limited vs. Dy. CIT(International Taxation)
[2023] 454 ITR 545 (Mad)
A. Ys. 2010-11 to 2015-16
Date of order: 24th February, 2023
Section 201 of ITA 1961

TDS — Payments to non-residents — Failure to deduct tax at source — Order deeming payer to be “assessee-in-default” — Limitation for order — No statutory period of limitation — General principle that in absence of statutory provisions, orders must be passed within reasonable time — Writ — Power of High Court under article 226 to fix reasonable period of limitation — Limitation prescribed for deduction of tax at source on payments to residents applicable to payments to non-residents.

The petitioner-company is engaged in the business of mining and exploration of metals and exploration of oil and natural gas. For the F. Ys. 2009-10 to 2014-15, i.e, A. Ys. 2010-11 to 2015-16, the respondent AO passed the orders under section 201(1) of the Income-tax Act, 1961 (respectively on 31st March, 2017, 31st March, 2017, 28th March, 2019, 22nd March, 2021, 27th March, 2021 and 30th March, 2022) deeming the petitioner to be an “assessee-in-default” and levying consequential interest under section 201(1A) of the Act in respect of payments to non-residents.

In writ petitions filed by the Petitioner challenging the said orders, the High Court considered the following two questions:

“(a) Whether in the absence of limitation being prescribed for the purpose of passing orders u/s. 201(1) of the Income-tax Act, 1961 deeming a person to be an ‘assessee-in-default’ in view of failure to deduct the whole or any part of the tax in relation to payments made to a non-resident it is permissible for the court to determine the limitation for passing such orders?

(b) If the answer to the above question is in the affirmative, a further question arises as to what would constitute reasonable period for passing such orders?”

The Madras High Court held as under:
“i)    It is trite law that in the absence of statutory prescription of limitation for passing an order, the order ought to be passed within a reasonable period. The authorities under the Income-tax Act, 1961 being creatures of the statute would not be able to determine this. Thus, it is for the High Court in exercise of its plenary jurisdiction under article 226 of the Constitution, to determine what would constitute reasonable time. Reasonableness forms the foundation on which courts would determine limitation in the absence of a legislative prescription for passing orders or taking action.

ii)    Section 201 of the Income-tax Act, 1961, as it originally stood did not prescribe any limitation for passing an order u/s. 201 of the Act. By the Finance (No. 2) Act, 2009, with effect from April 1, 2010 sub-section (3) to section 201 of the Act was inserted thereby providing limitation for passing an order u/s. 201(1) of the Act deeming a person to be an ‘assessee-in-default’ for failure to deduct tax at source in respect of payments to residents. No limitation was however prescribed in so far as passing orders u/s. 201(1) of the Act deeming a person to be an ‘assessee-in-default’ for failure to deduct tax at source in respect of payments to non-residents.
 
iii) The object behind deduction of tax at source is common for payments to residents and non-residents. It is to secure the taxes or a portion thereof at the earliest. The object of tax deduction at source being common for payments both to residents and non-residents, limitation prescribed by the Legislature to pass orders u/s. 201(1) of the Act, deeming a person to be an ‘assessee-in-default’ for failure to deduct tax at source in respect of payments to residents should be applied in respect of passing orders deeming a person to be an ‘assessee-in-default’ for failure to deduct tax at source even in respect of payments to non-residents.

iv) The limitation for passing orders u/s. 201(1) of the Act deeming a person to be an ‘assessee-in-default’ for failure to deduct tax at source on payments to residents must thus be adopted and treated as constituting ‘reasonable period’ for the purpose of passing orders u/s. 201(1) of the Act deeming a person to be an ‘assessee-in-default’ for failure to deduct tax at source on payments to non-residents. The extended period of limitation of seven years would be available for passing orders u/s. 201(1) of the Act deeming a person to be an ‘assessee-in-default’ for failure to deduct taxes in respect of payments to residents. The sequitur is that the ‘reasonable period’ for passing orders u/s. 201(1) of the Act deeming a person to be an ‘assessee-in-default’ for failure to deduct taxes in respect of payments to non-residents shall also be seven years from the end of the financial year in which the payment is made or credit given with effect from 1st April, 2010.

v) As the challenge in these writ petitions were limited to the aspect of limitation which is clarified, it is left open to the petitioner to file appeals challenging the order on merits. If the petitioner raises the plea of limitation, the same shall be decided by the appellate authority in accordance with legal position clarified by this court. If the petitioner chooses to file an appeal, the time spent in these writ petitions shall stand excluded while reckoning limitation and the same shall be decided in accordance with law.”

Search and seizure — Assessment of third person — Condition precedent — Satisfaction note by AO of searched person — Limitation where no satisfaction is recorded will be taken as year of search.

33. PCIT vs. Gali Janardhana Reddy
[2023] 454 ITR 467 (Kar)
A. Y. 2011-12    
Date of order: 31st March, 2023
Sections 132, 132A, 153A and 153C of ITA 1961

Search and seizure — Assessment of third person — Condition precedent — Satisfaction note by AO of searched person — Limitation where no satisfaction is recorded will be taken as year of search.

On 25th October, 2010, a search was carried out in the case of R and others under section 132 of the Income-tax Act, 1961. During the course of search proceedings, certain incriminating materials belonging to the assessee were found and seized. Consequently, the AO of the searched person issued notice under section 153C against the assessee for the A. Ys. 2005-06 to 2010-11 and a notice under section 143(3) for the A. Y. 2011-12. Accordingly, assessments were completed.

The Tribunal set aside the assessment orders and held that there was no satisfaction recorded by the AO of the search person, which was mandatorily required for issuing a notice under section 153C.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“i)     In CIT v. Gopi Apartment [2014] 365 ITR 411 (All), the Allahabad High Court observed that in the case of an assessment u/s. 153C of the Income-tax Act, 1961, there are two stages: (1) The first stage comprises a search and seizure operation u/s. 132 or proceeding u/s. 132A against a person, who may be referred to as ‘the searched person’. Based on such search and seizure, assessment proceedings are initiated against the ‘searched person’ u/s. 153A. At the time of initiation of such proceedings against the ‘searched person’ or during the assessment proceedings against him or even after the completion of the assessment proceedings against him, the Assessing Officer of such ‘searched person’, if he is satisfied, that any money, document, etc., belongs to a person other than the searched person, shall hand over such money, documents, etc., to the Assessing Officer having jurisdiction over ‘such other person’. (2) The second stage commences from the recording of such satisfaction by the Assessing Officer of the ‘searched person’ followed by handing over of all the requisite documents, etc., to the Assessing Officer of such ‘other person’, thereafter followed by issuance of the notice of the proceedings u/s. 153C read with section 153A against such ‘other person’.

ii)    The initiation of proceedings against ‘such other person’ is dependent upon satisfaction being recorded. Such satisfaction may be during the search or at the time of initiation of assessment proceedings against the ‘searched person’, or even during the assessment proceedings against him or even after completion thereof but before issuance of notice to the ‘such other person’ u/s. 153C. Even in a case where the Assessing Officer of both persons is the same and assuming that no handing over of documents is required, the recording of ‘satisfaction’ is a must, as that is the foundation, upon which the subsequent proceedings against the ‘other person’ are initiated. The handing over of documents, etc., in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact it is mandatory.

iii)    In terms of section 153C of the Act, reference to the date of the search under the second proviso to section 153A of the Act has to be construed as the date of handing over of assets and documents belonging to the assessee (being the person other than the one searched) to the Assessing Officer having jurisdiction to assess that assessee. Further proceedings, by virtue of section 153C(1) of the Act would have to be in accordance with section 153A of the Act and reference to the date of search would have to be construed as the reference to the date of recording of satisfaction. It would follow that the six assessment years for which assessments or reassessments could be made u/s. 153C of the Act would also have to be construed with reference to the date of handing over of assets and documents to the Assessing Officer of the assessee.

iv)    The Tribunal was right in law in holding that the assessment year relevant to the financial year in which satisfaction note was recorded u/s. 153C of the Act, would be taken as the year of search for the purposes of clauses (a) and (b) of sub-section (1) of section 153A of the Act by making reference to the first proviso to sub-section (1) of section 153C. Therefore, the Tribunal was right in law in holding that no satisfaction was recorded by the Assessing Officer of the searched person and the notice issued by the Assessing Officer u/s. 153C of the Act would be taken as the year of search for the purpose of clauses (a) and (b) of sub-section (1) of section 153A. The Tribunal was right in law in setting aside the assessment order passed for the A. Y. 2011-12 under the facts and circumstances of the case holding that there was no satisfaction recorded by the Assessing Officer of the searched person in so far as section 153A in the case of the assessee.”

Reassessment — New procedure — Condition precedent for notice of reassessment — Assessee must be furnished material on the basis of which initial notice was issued.

32. Anurag Gupta vs. ITO
[2023] 454 ITR 326 (Bom)
A. Y. 2018-19
Date of order: 13th March, 2023
Sections 148 and 148A of ITA 1961

Reassessment — New procedure — Condition precedent for notice of reassessment — Assessee must be furnished material on the basis of which initial notice was issued.

For the A. Y. 2018-19, the petitioner’s return of income was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, a notice under section 148A(b) of the Act dated 8th March, 2022, was issued by the AO suggesting that income liable to tax for the A. Y. 2018-19 had escaped assessment and called upon the petitioner to show cause as to why notice under section 148 be not issued. The basis for reopening was the information, which reads as under:

“1. In your case information has been received from the credible sources that a search/survey action u/s. 132 of the Income-tax Act was carried out on February 14, 2019 on Antariksh Group. It is seen that you have purchased warehouse from BGR Construction LLP for Rs. 70,00,000 as per sale list seized and impounded during the course of search. This amount includes sale consideration of land and construction cost and the on-money received by BGR Construction LLP. As per the information, it is observed that the payments made to M/s. BGR Construction LLP are not accounted for in its regular books of account. The cash payment on account of on-money of Rs. 70,00,000 was not accounted in its books of account which is evident and the same is received in cash by M/s. BGR Construction LLP. Thus, the source of cash paid by you of Rs. 70,00,000 to BGR remains unexplained.

2. As the above information has been received from the credible sources, and this office is contemplating proceedings u/s. 148 of the Income-tax Act, 1961 in your case, you are required to submit your explanation along with appropriate documentary evidence and reconcile the above information with the Income-tax return filed by you, if any. In case, no Income-tax return has been filed by you, you may submit the reconciliation of the above information with your books of account or computation of total income. Also, this may be treated as show-cause notice u/s. 148A(b) of the Income-tax Act, 1961 and final opportunity to submit the details. In the absence of any submission or details from your side with respect to the above, it shall be presumed that you have nothing to say in the matter and the same will be dealt with as per the provisions of the Income-tax Act, 1961.”

This show-cause notice was replied by a communication dated 14th March, 2022, wherein the petitioner totally denied that there was any transaction with BGR Construction LLP and that no warehouse had been booked or payment made to the said entity. The petitioner also denied any “on-money cash transaction” with the said entity and therefore, demanded that the proceedings initiated under section 147 of the Act be dropped.

On 21st March, 2022, the AO issued a clarification in regards to the notice under section 148A(b), this time, stating therein that the petitioner had also executed a conveyance deed with Meet Spaces LLP and, therefore, the AO required the petitioner to furnish payment details regarding this deed also. No response was filed by the petitioner to this communication dated 21st March, 2022. The AO passed the order under section 148A(d) on 25th March, 2022, stated to be with the prior approval of the PCIT, Thane. In the order under section 148A(d), for the purpose of issuance of the notice under section 148 of the Act, the AO proceeds to record its satisfaction, firstly, that cash payments had been made by the assessee to BGR Construction LLP as had been confirmed by the transferee of the said entity in the statement recorded during the survey action and, secondly, that the assessee had entered into a conveyance deed as a purchaser with Meet Spaces LLP for a consideration of Rs. 10,00,000, which remained unexplained.

The Assessee filed writ petition and challenged the notice under section 148A(b) dated 8th March, 2022, the order under section 148A(d) dated 25th March, 2022 and the notice under section 148 dated 26th March, 2022. The Bombay High Court allowed the writ petition and held as under:

“i)     Section 148A(b) of the Income-tax Act, 1961, envisages that the assessee must be provided not only information but also the material relied upon by the Revenue for purposes of making it possible to file a reply to the show-cause notice in terms of the section.

ii)    The reassessment proceedings initiated were unsustainable on the ground of violation of the procedure prescribed u/s. 148A(b) of the Act on account of failure of the Assessing Officer to provide the requisite material which ought to have been supplied with the information in terms of the section. The order dated March 25, 2022 passed u/s. 148A(d) of the Act, and the notice u/s. 148 of the Act were liable to be quashed.”

Educational institution — Exemption under section 10(23C)(vi) — Scope of section 10(23C)(vi) — Condition precedent for exemption — Institution should exist solely for purposes of education — Receipts and expenses outside India not covered — American trust established in India solely for educational purposes with permission granted by the Central Government — Trust in India supported by the organisation set up in USA — American organisation incurring expenses in support of Indian trust and repatriating amounts to it — Amounts received utilised for purposes of education in India — Assessee entitled to exemption under section 10(23C)(vi).

31. Laura Entwistle vs. UOI
[2023] 454 ITR 345 (Bom)
A. Ys. 2002-03 to 2005-06
Date of order: 8th March, 2023
Section 10(23C)(vi) of ITA 1961

Educational institution — Exemption under section 10(23C)(vi) — Scope of section 10(23C)(vi) — Condition precedent for exemption — Institution should exist solely for purposes of education — Receipts and expenses outside India not covered — American trust established in India solely for educational purposes with permission granted by the Central Government — Trust in India supported by the organisation set up in USA — American organisation incurring expenses in support of Indian trust and repatriating amounts to it — Amounts received utilised for purposes of education in India — Assessee entitled to exemption under section 10(23C)(vi).

The petitioners were the trustees of the American School of Bombay Education Trust. The Trust was constituted under the Indian Trusts Act, 1882, by the trust deed, as amended in July 1995 and August 2008. The Trust was set up after the embassy of the United States of America was granted specific permission by the Ministry of External Affairs, New Delhi. The Trust was set up solely for the purpose of education and not for profit. During the years relating to A. Ys. 2002-03 to 2005-06, the Trust was supported by the South Asia International and Educational Services Foundation set up in 1996 in the United States of America wholly and exclusively for charitable and educational purposes within the meaning of section 501(c)(3) of the Internal Revenue Code of the United States of America, and the primary purpose was to provide financial assistance to educational institutions as provided in its constitution. The Foundation was a non-profit organisation, subject to scrutiny by the U.S. Government and exempted from tax payment by U.S. Federal Government under section 501(c)(3) of the Internal Revenue Code. The accounts of the Foundation were subject to detailed scrutiny by the Internal Revenue Service. By an order based on the said scrutiny, the Internal Revenue Service continued to approve the Foundation as a not-for-profit Foundation under section 501(c)(3) of the Internal Revenue Code. The Foundation would incur various expenses in support of school material and freight, salaries of teachers and administrators, education grants, etc. The surplus, if any, arising from time to time was entirely repatriated to the trustees in India and, thereafter, invested by them in accordance with the provisions of section 11(5) of the Act.

The Trust filed a writ petition to set aside the order dated 27th February, 2009 passed by the Chief CIT denying exemption under section 10(23C)(vi) of the Income-tax Act, 1961 and to direct the respondents to grant the exemption to the income, in relation to the A. Ys. 2002-03 to 2005-06. The Bombay High Court allowed the petition and held as under:

“i) The Supreme Court in the case of American Hotel and Lodging Association, Educational Institute v. CBDT [2008] 301 ITR 86 (SC) noted that the threshold condition for granting approval u/s. 10(23C)(vi) of the Income-tax Act, 1961 is to ascertain that the institution exists solely for education purposes and not for profit. The conditions as stipulated in the third and the thirteenth proviso to section 10(23C) of the Act are the monitoring conditions which may be looked at by the tax authority at a later stage. The Supreme Court observed that section 10(23C)(vi) is analogous to section 10(22). To that extent, the judgments of the court as applicable to section 10(22) would equally apply to section 10(23C)(vi). With the insertion of the provisos to section 10(23C)(vi) the applicant who seeks approval has not only to show that it is an institution existing solely for educational purposes (which was also the requirement u/s. 10(22) but it has now to obtain initial approval from the prescribed authority. There is a difference between stipulation of conditions and compliance therewith. The threshold conditions are actual existence of an educational institution and approval of the prescribed authority for which every applicant has to move an application in the standardized form in terms of the first proviso. It is only if the prerequisite condition of actual existence of the educational institution is fulfilled that the question of compliance with the requirements in the provisos would arise.

ii) It is not correct to introduce the word “India” into the third proviso to section 10(23C) of the Act. The plain words of the proviso do not require the application of the entire income to be in India.

iii) The Department could be concerned only with the application of income in the hands of the Trust or the trustees once received in India. This was because the Trust or the trustees were not transferring or repatriating any money outside India to any person or entity. Furthermore, it was not the case of the Department that having received the monies in India, the Trust or the trustees had not utilized the funds in accordance with the objects for which it was founded. The Department had not substantiated their bold statement that the Trust or the trustees had not invested the surplus money in accordance with law which in any event would not be a criteria at the initial stage of approval. The Foundation was an entity which repatriated money into India and did not receive any repatriation from India. Therefore, the money earned and expenses made by the Foundation in the U. S. A. should not and not ought to concern the Income-tax Department in India. There was absolutely no requirement to certify the correctness of the accounts of the Foundation.

iv) As a matter of record, the Department had granted the Trust or the trustees exemption u/s. 10(22) and 10(23C)(vi) of the Act since the A. Ys. 1999-2000 to 2002-03 and the A. Ys. 2006-07 to 2026-27. It was therefore substantiated that the Trust only existed for educational purposes and not for profit. Once it was established that the Trust or the trustees existed to provide education and not for profit, the exemption could not be denied, for the A. Ys. 2002-03 to 2005-06.”

Collection of tax at source — Scope of section 206C — Income from forest produce — Meaning of “forest produce” — Assessee working on sawn timber purchased from third person — Assessee not liable to collect tax at source.

30. Principal CIT(TDS) vs. Nirmal Kumar Kejriwal
[2023] 454 ITR 777 (Cal)
A. Ys. 2005-06 to 2009-10
Date of order: 2nd August, 2022
Section 206C of ITA 1961

Collection of tax at source — Scope of section 206C — Income from forest produce — Meaning of “forest produce” — Assessee working on sawn timber purchased from third person — Assessee not liable to collect tax at source.  

An order was passed against the assessee under section 206C(6)/206C(7) of the Income-tax Act, 1961 on the grounds that the assessee did not collect any tax on the sale of timber obtained by any other mode other than forest lease in terms of section 206C(1) of the Act. The assessee raised objections to the order. The AO rejected the objections.

The CIT(A) held that section 206C was not applicable to the assessee. This was upheld by the Tribunal.

On appeal by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and held as under:

“i) Section 206C introduced by the Finance Act, 1988 was intended to levy and collect presumptive tax in the case of trading in certain goods to remove hardship. The trades mentioned therein are alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under forest lease and any other forest produce not being timber, at different rates. The object of introduction of the new provisions for working out the profits on presumptive basis was to get over the problems faced in assessing the income and recovering the tax in the case of persons trading in these items. The provisions were brought into the statute not only to estimate the profits on presumptive basis but also to collect the tax on such transactions at specified rates mentioned in section 206C of the Act. What has to be borne in mind is that, the presumptive tax is collectible on a forest produce. Therefore, the test is whether the assessee had dealt with a forest produce. Basically, forest produce is the produce grown spontaneously.

ii) If timber was being sized, sawn into logs of different dimensions and shapes in activities carried out in saw mills authorised by the Government, it would amount to a different produce. Even in respect of timbers which are procured as described in the table, if it is used in the process of manufacturing, the provisions of section 206C(1) of the Act would not be applicable due to the fact that the product ceased to be a forest produce. Section 206C was not applicable to the assessee.”

Capital gains — Computation of capital gains — Effect of section 50C — Stamp value deemed to be full value of consideration for transfer of immovable property — Object of provision to prevent unaccounted cash transfers of capital assets — Not applicable in case of compulsory acquisition of land and buildings.

29. Principal CIT vs. Durgapur Projects Ltd
[2023] 454 ITR 367 (Cal)
A. Y. 2015-16
Date of order: 24th February, 2023
Section 50C of ITA 1961

Capital gains — Computation of capital gains — Effect of section 50C — Stamp value deemed to be full value of consideration for transfer of immovable property — Object of provision to prevent unaccounted cash transfers of capital assets — Not applicable in case of compulsory acquisition of land and buildings.

In the A. Y. 2015-16, the assessee had earned capital gain on transfer of land to the National Highways Authority of India on compulsory acquisition. The AO applied section 50C of the Income-tax Act, 1961 and added a sum of
Rs. 5,48,43,584 to the total income.

The CIT(A) and the Tribunal held that section 50C was not applicable and deleted the addition.

On appeal by the Revenue, the Calcutta High Court upheld the decision of the Tribunal and held as under:

“i) Section 50C of the Income-tax Act, 1961, was inserted by the Finance Act, 2002 with effect from April 1, 2003 for the purpose of taking the value adopted or assessed by the stamp valuation authority as the deemed full value of consideration received or accruing as a result of transfer of a capital asset being land or building or both, in case the consideration received or accruing as a result of transfer is less than such value. The object and purpose behind insertion of the provision in the Act was to curb the menace of the use of unaccounted cash in transfer of capital assets. In a case of compulsory acquisition of land by the Government there is no room for suppressing the actual consideration received on such acquisition.

ii) The Legislature has used the words and expressions in section 50C of the Act consciously to give them a restricted meaning. Hence, the term “transfer” used in section 50C has to be given a restricted meaning and it would not have a wider connotation so as to include all kinds of transfers as contemplated u/s. 2(47) of the Act. The provisions of section 50C will be applicable in cases where transfer of the capital asset has to be effected only upon payment of stamp duty. In a case of compulsory acquisition of a capital asset being land or building or both, the provisions of section 50C cannot be applied as the question of payment of stamp duty for effecting such transfer does not arise.

iii) In the instant case, the property was acquired under the provisions of the National Highways Act, 1956. The property vests by operation of the said statute and there is no requirement for payment of stamp duty in such vesting of property. As such there was no necessity for an assessment of the valuation of the property by the stamp valuation authority in the case on hand. For the reasons as aforesaid it is held that the provisions u/s. 50C of the Income-tax Act cannot be applied to the case on hand.”

Business expenditure — Difference between contingent and ascertained expenditure — Capital or revenue expenditure — Premium payment on redemption of shares which has been quantified is revenue expenditure.

28. AdvocatesNitesh Housing Developers Pvt Ltd vs. DCIT
[2023] 454 ITR 770 (Kar.)
A.Y. 2011-12
Date of order: 2nd August, 2022
Section 37 of ITA 1961

Business expenditure — Difference between contingent and ascertained expenditure — Capital or revenue expenditure — Premium payment on redemption of shares which has been quantified is revenue expenditure.

The assessee was a private limited company engaged in the business of development of real estate and execution of engineering contracts. In September 2009, the assessee entered into a debenture subscription and share purchase agreement. The original agreement was modified under a first addendum agreement dated 15th May, 2010 where under, the option of HDFC to convert debentures to preferential shares at the time of redemption was deleted and the parties agreed that debentures shall be compulsorily converted into preference shares entitling HDFC to post internal rate of return of 25 per cent of the subscription amount. A second addendum agreement dated 12th November, 2012 was entered into between the parties whereunder, HDFC once again resumed the right to exercise the option of converting the debentures to preferential shares. For the A. Y. 2011-12, the assessee filed its original return on 30th September 2011 and revised return on 29th September, 2012. The second addendum agreement was executed on 12th November, 2012, prior to filing the revised returns. The AO held that the premium paid or payable on the redemption of preference shares would be arising out of the reserves and surplus and would constitute capital expenditure out of the accumulated surplus and therefore, it was not a revenue expenditure. He further recorded that the expenditure was contingent upon the issue of initial public offer and accordingly disallowed the expenditure of Rs. 28,83,17,552.

The CIT(A) however held that the amount was deductible. The Tribunal recorded that the premium paid on redemption of debentures is revenue expenditure and allowable proportionately during the period of debenture. Having so held, the Tribunal further recorded that the terms of the original purchase agreement may have been changed to suit the convenience of the parties and it was a “make believe” story to claim deduction. The Tribunal reversed the order of the CIT(A) and restored the order of the AO.

The Karnataka High Court allowed the appeal filed by the assessee and held as under:

“The issuance of the debentures was not in dispute. Deduction of tax at source was also not in dispute. The Tribunal had rightly recorded the correct principle of law that premium paid on redemption of debenture is revenue expenditure. By the second addendum agreement dated November 12, 2012, the HDFC’s right to exercise the option of converting the debentures into preference shares had been restored in consonance with the original agreement. The resultant position was, the HDFC, at its option, could cause the assessee to redeem all debentures on September 20, 2012. The adverse finding recorded by the Tribunal that the parties had changed the agreement to suit their convenience and that it was a ‘make-believe’ story was not supported by any cogent reason nor material on record and therefore, was untenable. The premium payable quantified on redemption of debentures was deductible as revenue expenditure.”

Search and seizure — Assessment in search cases — General principles — No incriminating material found during search — Assessment completed on date of search — No additions can be made in assessment pursuant to search

27. S. M. Kamal Pasha vs. Dy. CIT
[2023] 454 ITR 157 (Kar.)
Date of order: 2nd September, 2022
Sections: 132 and 153A of ITA 1961

Search and seizure — Assessment in search cases — General principles — No incriminating material found during search — Assessment completed on date of search — No additions can be made in assessment pursuant to search.

Pursuant to a search and seizure conducted under section 132 of the Income-tax Act, 1961 in the residential premises of the assessee, the AO issued notice under section 153A. The assessee declared a total income of Rs. 99,33,890 in his return filed in response to the notice. Thereafter, the AO passed an order assessing the total income at Rs.7,92,57,600.

The Commissioner(Appeals) set aside the order passed under section 153A. The Tribunal allowed the Department’s appeal.

The Karnataka High Court allowed the appeal filed by the assessee and held as under:

“The Tribunal was not justified in reversing the order of the Commissioner (Appeals) setting aside the order u/s. 153A when there did not exist any incriminating material found during the search u/s. 132 for issuing notice u/s. 153A. Hence the order of the Tribunal was set aside and the order of the Commissioner (Appeals) was restored.”

Search and Seizure — Assessment of third person — Income-tax survey — Statement of assessee during survey not conclusive evidence — Author of diary based on which addition made had expired on date of search and entries not used in case of person against whom search conducted — Addition as unexplained investment in assessee’s case — Erroneous and unsustainable.

26 Dinakara Suvarna vs. DCIT
[2023] 454 ITR 21 (Kar.)
A.Ys.: 2005-06 to 2007-08
Date of order: 08th July 2022
Sections: 69B, 132, 147 and 153C of ITA 1961

Search and Seizure — Assessment of third person — Income-tax survey — Statement of assessee during survey not conclusive evidence — Author of diary based on which addition made had expired on date of search and entries not used in case of person against whom search conducted — Addition as unexplained investment in assessee’s case — Erroneous and unsustainable.

The assessee was a contractor. A search was conducted under section 132 of the Income-tax Act, 1961 in the residential premises of one AK and a diary was seized. The diary contained details of payments made by AK to the assessee. Thereafter, on 21st April, 2009, a survey action under section 133A was conducted in the business premises of the assessee, and his statement was recorded wherein the assessee agreed to offer 8 per cent additional receipts as income. However, the assessee did not file his revised return offering additional income.

On 26th March, 2010, the AO issued a notice under section 148 of the Act and called upon the assessee to show cause as to why the amount agreed to be offered to tax was not declared in the return of income. On 12th April, 2010, the assessee filed his return of income and declared the same income as filed in the original return of income. The assessee vide letter dated 30th May, 2010 objected to the reopening on the grounds that there was no reason to believe that the income chargeable to tax had escaped assessment. On 24th December, 2010, the AO passed assessment orders for the A.Ys. 2005-06 to 2007-08 making the additions.

The CIT(Appeals) partly allowed the appeals. The assessee and the Revenue preferred appeals against the said order before the Tribunal. Against the appeal preferred by the Revenue, the assessee preferred cross-objections. The Tribunal partly allowed the appeals and cross-objections filed by the assessee. The appeal preferred by the Revenue for the A.Y. 2007-08 was partly allowed and dismissed the appeals for other years.

The following questions were framed by the Karnataka High Court in the appeal filed by the assessee:

“a)    Whether the Tribunal is correct in law in upholding the action of the Assessing Officer in reopening the assessment u/s. 147 of the Act for the A.Ys. 2005-06, 2006-07 and 2007-08 on the facts and circumstances of the case?

b)    Whether the Tribunal erred in law in not holding that there was no reason to believe that income escaped assessment and all mandatory conditions to reopen the assessment u/s. 147 of the Act were not satisfied on the facts and circumstances of the case?

c)    Whether the Tribunal was correct in law in reversing the deletion made by the Commissioner of Income-tax (Appeals) of the addition u/s. 69B in respect of alleged unexplained investments made in properties of Rs. 28,75,500 for the A.Y. 2007-08 on the facts and circumstances of the case?”

The High Court allowed the appeal and held as follows:

“i) The Tribunal had erred in upholding the reopening of the assessment u/s. 147 for the A.Ys. 2005-06, 2006-07 and 2007-08 and in holding that there was reason to believe that income had escaped assessment and all mandatory conditions to reopen the assessment were satisfied. No proceedings were initiated u/s. 153C. Thus, there was patent non-application of mind. The Assessing Officer had not recorded his satisfaction with regard to escapement of income. The assessee’s admission
during the survey u/s. 133A could not be a conclusive evidence.

ii) The Tribunal had erred in reversing the deletion made by the Commissioner (Appeals) of the addition made u/s. 69B for the A.Y. 2007-08. We have perused the order passed by the Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal. It is held therein that the entries in the seized diary could not be relied upon because Smt. Soumya Shetty had passed away and there was no corroborating evidence. The Commissioner of Income-tax (Appeals) has held that it was travesty of justice that the relevant entry has not been used in Shri Ashok Chowta’s case but it has been used in the assessee’s case who is a third party to the proceedings. The Tribunal while reversing the finding of Commissioner of Income-tax (Appeals) has relied upon the signature of the assessee in the seized diary. Admittedly, the author of the diary had passed away. The addition has been made in the case of the assessee based on the entries in the diary but the said entries have not been used in the case of Shri Chowta. As recorded hereinabove, the Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. has held that admission is an important piece of evidence but it cannot be said to be conclusive. Shri Chandrashekar also placed reliance on CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad) and contended that a statement recorded u/s. 133A of the Act is not given any evidentiary value because the officer is not authorised to administer oath and to take any sworn statement. Therefore, in view of the fact that the author of the diary had passed away and relevant entry has not been used in the case of Shri Chowta himself, reversing the findings of the Commissioner of Income-tax (Appeals) by the Income-tax Appellate Tribunal is not sustainable.”

Search and seizure — Assessment in search cases — Effect of insertion of section 153D by Finance Act, 2007 — CBDT circular dated 12th March, 2008 and Manual of Office Procedure laying down the condition of approval of draft order of Commissioner — Circular and Manual binding on Income-tax authorities — Approval granted without application of mind — Order of assessment — Not valid.

25. ACIT Vs. Serajuddin and Co.
[2023] 454 ITR 312 (Orissa)
A. Ys.: 2009-10
Date of order: 15th March, 2023
Sections: 153A and 153D of ITA 1961.

Search and seizure — Assessment in search cases — Effect of insertion of section 153D by Finance Act, 2007 — CBDT circular dated 12th March, 2008 and Manual of Office Procedure laying down the condition of approval of draft order of Commissioner — Circular and Manual binding on Income-tax authorities — Approval granted without application of mind — Order of assessment — Not valid.

The search and seizure operation was carried out in the case of assessee and various other persons and concerns of the assessee. Subsequently, assessments were completed and orders were passed under section 143(3)/144/153A after making various additions/disallowances.

The assessment orders were challenged in appeal. One of the grounds for challenge was in respect of non-compliance with section 153D which required prior approval of the Additional Commissioner (Addl. CIT). Further, the approval had been granted in a mechanical manner without application of mind. The CIT(A) observed that a consolidated approval order given by the Addl. CIT for A.Ys. 2003-04 to 2009-10 and therefore held, partly allowing the appeal, that it was not necessary for the AO to mention the fact of approval in the body of the assessment order. The Tribunal concluded that the approval was granted without application of mind and the assessment orders were accordingly set aside.

The Orissa High Court dismissed the appeal filed by the Department and held as under:

“i)    Among the changes brought about by the Finance Act, 2007 was the insertion of section 153D of the Income-tax Act, 1961. The CBDT circular dated March 12, 2008 ([2008] 299 ITR (St.) 8) refers to the various changes and, inter alia, also to the insertion of a new section 153D. Even prior to the introduction of section 153D in the Act, there was a requirement u/s. 158BG of the Act, which was substituted by the Finance Act of 1997 with retrospective effect from January 1, 1997, of the Assessing Officer having to obtain previous approval of the Joint Commissioner/Additional Commissioner by submitting a draft assessment order following a search and seizure operation.

ii)    The requirement of prior approval u/s. 153D of the Act is comparable with a similar requirement u/s. 158BG of the Act. The only difference is that the latter provision occurs in Chapter XIV-B relating to “Special procedure for assessment of search cases” whereas section 153D is part of Chapter XIV. A plain reading of section 153D itself makes it abundantly clear that the legislative intent was for the Assessing Officer when he is below the rank of a Joint Commissioner, to obtain “prior approval” before he passes an assessment order or reassessment order u/s. 153A(1)(b) or 153B(2)(b) of the Act.

iii)    An approval of a superior officer cannot be a mechanical exercise. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. The mere repeating of the words of the statute, or mere “rubber stamping” of the letter seeking sanction by using similar words like “seen” or “approved” will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of section 158BG of the Act, it would equally apply to section 153D of the Act. There are three or four requirements that are mandated therein: (i) the Assessing Officer should submit the draft assessment order “well in time”; (ii) the final approval must be in writing; and (iii) the fact that approval has been obtained, should be mentioned in the body of the assessment order. The Manual is meant as a guideline to Assessing Officers. Since it was issued by the Central Board of Direct Taxes, the powers for issuing such guidelines can be traced to section 119 of the Act. The instructions under section 119 of the Act are binding on the Department.

iv)    It was an admitted position that the assessment orders were totally silent about the Assessing Officer having written to the Additional Commissioner seeking his approval or of the Additional Commissioner having granted such approval. Interestingly, the assessment orders were passed on December 30, 2010 without mentioning this fact. These two orders were therefore not in compliance with the requirement spelt out in para 9 of the Manual of Official Procedure. The requirement of prior approval of the superior officer before an order of assessment or reassessment is passed pursuant to a search operation is a mandatory requirement of section 153D of the Act and such approval is not meant to be given mechanically. In the present cases such approval was granted mechanically without application of mind by the Additional Commissioner resulting in vitiating the assessment orders themselves.”

Offences and prosecution — Sanction for prosecution — Failure to deposit tax deducted at source — Failure due to inadvertence of assessee’s official — Assessee depositing tax deducted at source with interest though after delay — Effect of Circular issued by CBDT — Prosecution orders quashed.

24. Dev Multicom Pvt Ltd & Ors vs. State of Jharkhand
[2023] 454 ITR 48 (Jharkhand):
A. Y. 2017-18
Date of order: 28th February, 2022
Sections 276B, 278B and 279(1) of ITA 1961

Offences and prosecution — Sanction for prosecution — Failure to deposit tax deducted at source — Failure due to inadvertence of assessee’s official — Assessee depositing tax deducted at source with interest though after delay — Effect of Circular issued by CBDT — Prosecution orders quashed.

The assessee had deducted tax at source. However, this tax deducted at source had been deposited with delay. The assessee paid an interest on the delay in depositing of tax deducted at source. Prosecution notices were served on the assesses and complaint was lodged stating that the assessee and its principal officer had deducted tax but failed to credit the same to the account of Central Government and therefore committed offence punishable u/s. 276B of the Income-tax Act, 1961.

The assessee filed petition to quash the complaint. The Jharkhand High Court allowed the petition and held as under:

“i)    Instruction F. No. 255/339/79-IT(Inv.) dated May 28, 1980, issued by the CBDT that prosecution u/s. 276B of the Income-tax Act, 1961 shall not normally be proposed when the amount of tax deducted at source involved or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of the Government. But no such consideration will apply to levy of interest u/s. 201(1A).

ii)    The tax deducted at source in all the cases was deposited with interest by the assessees and there was no reason to proceed with the criminal proceeding after receiving the amount with interest though a delay had occurred in depositing the amount. The continuation of the proceedings would amount to an abuse of the process of the court.

iii)    Apart from one or two cases, the deducted amount was not more than Rs. 50,000. While passing the sanction u/s. 279(1) the sanctioning authority had not considered the Instruction dated May 28, 1980 issued in this regard by the CBDT. Accordingly, the entire criminal proceedings and the cognizance orders in the respective cases passed by the Special Economic Offices whereby cognizance had been taken against the assessees for the offences u/s. 276B and 278B were quashed.”

Industrial undertaking — Special deduction under section 80-IB — Condition precedent — Manufacture of article — Making of poultry feed amounts to manufacture — Assessee entitled to special deduction under section 80-IB.

23. Principal CIT vs. Shalimar Pellet Feeds Ltd
[2023] 453 ITR 547 (Cal)
A. Y. 2008-09 to 2013-14
Date of order: 22nd February, 2022
Section 80-IB of ITA 1961

Industrial undertaking — Special deduction under section 80-IB — Condition precedent — Manufacture of article — Making of poultry feed amounts to manufacture — Assessee entitled to special deduction under section 80-IB.

For the A.Y. 2008-09 to 2013-14, the assessee claimed a deduction under section 80-IB(5) of the Income-tax Act, 1961 on the grounds that the activity of manufacturing poultry feed in their factory was a manufacturing activity. The AO was of the view that there was no manufacturing done and that the assessee only mixed various products, that each one of them had an individual identity and could not be construed to be an input for manufacturing of poultry feed. The AO rejected the asessee’s claim.

The CIT (Appeals) allowed the assessee’s claim and granted deduction. The Tribunal, on the facts and on the grounds that the Central Government had notified the poultry feed industry under section 80-IB(4) affirmed the order of the CIT (Appeals).

The Calcutta High Court dismissed the appeals filed by the Revenue and held as under:

“i)    For the A.Ys. 2008-09, 2009-10 and 2010-11 the appeals were covered by the circular issued by the CBDT and therefore were not maintainable since they involved low tax effect.

ii)    The process undertaken by the assessee in producing the poultry feed amounted to manufacture. The simple test which could be applied was to examine as to whether the individual ingredients which were mixed together to form the poultry feed could be recovered and brought back to their original position. After the process was completed, if such reversal was not possible then the final product had a distinct and separate character and identity. Though the individual ingredients were capable of being consumed by human beings, the end product, namely, the poultry feed could not be consumed by human beings. Therefore, the individual ingredients would lose their identity and get merged with the final product which was a separate product having its own identity and characteristics. Nothing contrary was shown by the Department against the factual findings recorded by the Commissioner (Appeals) after examining the process undertaken by the assessee as affirmed by the Tribunal. The Tribunal was right in confirming the order of the Commissioner (Appeals) granting deduction u/s. 80-IB for the A.Ys. 2011-12, 2012-13 and 2013-14.”

Income — Capital or revenue receipt — Interest — Funds received for project from capital subsidy, debt and equity — Funds placed with banks during period of construction of project — Interest earned thereon capital in nature.

22. Principal CIT vs. Brahmaputra Cracker & Polymer Ltd
[2023] 454 ITR 202 (Gau):
A. Ys. 2011-12, 2014-15 and 2015-16
 Date of order: 12th April, 2023
Section 4 of ITA 1961

Income — Capital or revenue receipt — Interest — Funds received for project from capital subsidy, debt and equity — Funds placed with banks during period of construction of project — Interest earned thereon capital in nature.

The assessee received a capital subsidy from the Ministry of Chemicals and Fertilizers for setting up Integrated a Petro-Chemical Complex. The assessee maintained a separate bank account for such capital subsidy and any excess amount not being utilised was temporarily parked in short-term deposits in banks and interest was earned thereupon. The assessee made these deposits in accordance with the guidelines of the Department of the Public Enterprises. Clarifications were received from the Ministry of Chemicals and Fertilizers indicating that the interest earned on the aforesaid deposits shall be treated as a part of the capital subsidy and will reduce the part of capital subsidy sought from the Government. The assessee claimed these receipts as capital receipts in the return of income. The AO treated these receipts as revenue receipts chargeable to tax.

The CIT(A) allowed the appeal of the assessee. The Tribunal dismissed the appeal of the Department.

The Gauhati High Court dismissed the appeal filed by the Department and held as under:

“Interest received by the assessee from short-term deposits made out of unutilized capital subsidy, unutilized debt funds, and unutilized equity funds received as capital during the formative years till the project was completed was rightly claimed by the assessee as capital receipts. No question of law arose.”

Assessment — Validity — Amalgamation of companies — Fact of amalgamation intimated to Income-tax authorities — Notice and order of assessment in the name of company which had ceased to exist — Not valid.

21. Inox Wind Energy Ltd vs. Addl./Joint/Deputy/Asst. CIT/ITO
[2023] 454 ITR 162 (Guj.)
A. Y. 2018-19
Date of order: 31st January, 2023
Section: 143 of ITA 1961

Assessment — Validity — Amalgamation of companies — Fact of amalgamation intimated to Income-tax authorities — Notice and order of assessment in the name of company which had ceased to exist — Not valid.

IR was incorporated on 11th October, 2010 under the Companies Act. For the A.Y. 2018-19 the return of income was filed declaring the total income at nil. The case was selected for scrutiny and the notice under section 143(2) of the Income-tax Act, 1961, was issued on 23rd September, 2019. Pending this assessment, on 25th January, 2021, the composite scheme of arrangement between IR and GFL and the assessee-company was approved by the National Company Law Tribunal and the appointed date for the merger of IR and GFL was fixed on 1st April, 2010 and demerger of the energy business to the assessee-company was from 1st July, 2020. The scheme since came into operation from 9th February, 2021, and the jurisdictional AO received the intimation through e-mail on 10th March, 2021. The assessee informed the respondent about the sanction of the composite scheme on 31st August, 2021 and on 19th September, 2021. Notices continued to be issued in the name of erstwhile company IR, which no longer existed from 1st April, 2020. The show-cause notice-cum-draft assessment order was also issued on 23rd September, 2021. Therefore, on 25th September, 2021, once again the assessee intimated and objected to the notice. However, an order was passed under section 143(3) r.w.s.144B of the Act, assessing the income in the name of IR for the A. Y. 2018-19.

The Gujarat High Court allowed the writ petition challenging the validity of the assessment order and held as under:

i)    The assessment in the name of a company which has been amalgamated and has been dissolved is null and void and framing of assessment in the name of such companies is not merely a procedural difficulty, which can be cured.

ii)    The amalgamated company had already brought the facts of amalgamation to the notice of the AO and yet he chose not to substitute the name of the amalgamated company and proceeded to make the assessment in the name of a non-existing company thereby rendering it void. The assessment framed in the name of the non-existing company requires to be quashed.

iii)    While disposing of this petition, as a parting note, it is being observed that this order of quashment against the non-existing company will not preclude the authorities to initiate actions, if permitted under the law against the amalgamated company.

Reassessment – Law applicable – Effect of amendment to sections 147 to 151 by Finance Act, 2021 and Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 – Credit Instruction No. 1 of 2022 has no binding force.

20 Rajeev Bansal vs. UOI
[2023] 453 ITR 153 (All):
A. Y.: 2013-14 to A.Y. 2017-18
Date of order: 22nd February, 2023:
Sections. 147 to 151 of ITA 1961 and Article 142 and 226 of Constitution of India

Reassessment – Law applicable – Effect of amendment to sections 147 to 151 by Finance Act, 2021 and Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 – Credit Instruction No. 1 of 2022 has no binding force.

The assessment years under challenge are A.Y. 2013-14 to A.Y. 2017-18. The dispute pertains to the issue of notice under section 148 of the Income-tax Act, 1961 after 1st April, 2021 without following the new regime of tax for reopening of assessment applicable with effect from1st April, 2021. The assessees contended that re-opening of assessment for A. Y. 2013-14 and A.Y. 2014-15 could not be done since the maximum period prescribed in the pre-amended provisions had expired on 31st March, 2021 and therefore the notices issued between 1st April, 2021 to 30th June, 2021 for AYs. 2013-14 and 2014-15 were time barred. For the AYs. 2015-16 to 2017-18, the contention raised was regarding the monetary threshold and the other requirements prescribed under the new provisions of re-opening with effect from 1st April, 2021.

Various notices were challenged before the High Courts on the basis of the above and the High Courts took the view that the re-assessment notices issued after 01.04.2021 under the pre-existing provisions by applying extension of time with the help of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 were to be quashed and further held that the assessing authorities were at liberty to initiate re-assessment proceedings in accordance with the provisions of the Act.

The matters from various High Courts travelled to the Supreme Court and the Supreme Court held that the Department should not have issued notices under the unamended provisions and the notices issued after 01.04.2021 should have been issued under the substituted provisions of section 147 to 151 of the Act. However, in order to strike a balance, the Supreme Court directed that the notices issued under the unamended provisions of the Act shall be deemed to have been issued u/s. 148A as per the substituted provisions.

Pursuant to the Supreme Court decision, the CBDT issued directions regarding implementation of the judgment of the Supreme Court. Thereafter, the Department, in pursuance of the decision of the Supreme Court and the directions issued by the CBDT issued notices providing with the material or information on the basis of which re-opening was initiated and proceeded to pass orders u/s. 148A(d) of the Act holding that notice u/s. 148 should be issued.

These orders were challenged by filing writ petitions. The Allahabad High Court framed the following two questions for deciding the issues:

“(i)    Whether the reassessment proceedings initiated with the notice u/s. 148 (deemed to be notice u/s. 148A), issued between April 1, 2021 and June 30, 2021, can be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, (TOLA) 2020 up to March 30, 2021, and then the time limit prescribed in section 149(1)(b) (as substituted with effect from April 1, 2021) is to be counted by giving such relaxation, benefit of TOLA from March 30, 2020 onwards to the Revenue ?

(ii)    Whether in respect of the proceedings where the first proviso to section 149(1)(b) is attracted, benefit of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will be available to the Revenue, or in other words the relaxation law under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 would govern the time frame prescribed under the first proviso to section 149 as inserted by the Finance Act, 2021, in such cases ?”

The High Court held as under:

“i)    Sweeping amendments have been made in sections 147 to 151 of the Income-tax Act, 1961 by the Finance Act, 2021. The radical and reformative changes governing the procedure for reassessment proceedings in the substituted provisions are remedial and benevolent in nature. A comparison of pre and post amendment section 149 indicates that the period of notice for reassessment proceedings in the pre-amended section 149 was four years and six years. Whereas in the post-amendment section 149(1), the time limit within which notice for reassessment u/s. 148 can be issued is three years in clause (a) and can be extended upto ten years after the lapse of three years as per clause (b), but there is substantial change in the threshold requirements which have to be met by the Revenue before issuance of reassessment notice after the lapse of three years u/s. 149(1)(b). Nor has the only monetary threshold been substituted but the requirement of evidence to arrive at the opinion that the income escaped assessment has also been changed substantially. A heavy burden is cast upon the Revenue to meet the requirements of section 149(1)(b). The first proviso to section 149(1) provides that notice u/s. 148, in a case for the relevant assessment year beginning on or before April 1, 2021, cannot be issued, if such notice could not have been issued at the relevant point of time, on account of being beyond the time limit specified under the unamended provisions section 149(1)(b). The time limit in the unamended section 149(1)(b) of six years, thus, cannot be extended up to ten years under the amended section 149(1)(b), to initiate reassessment proceedings in view of the first proviso to sub-section (1) of section 149. In other words, the case for the relevant assessment year where the six year period has elapsed as per unamended 149(1)(b) cannot be reopened, after commencement of the Finance Act, 2021, with effect from April 1, 2021.

ii)    The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 is an enactment to extend timelines only from April 1, 2021 onwards. Consequently, from April 1, 2021 onwards all references to issuance of notice contained in the 2020 Act must be read as reference to the substituted provisions only. In the case of Ashish Agarwal, the Supreme Court invoked its power under article 142 of the Constitution. From a careful reading of the judgment of the Supreme Court, there is no doubt that the view taken by the court in Ashok Agarwal on the legal principles and the reasoning for quashing the notices u/s. 148 of the unamended Income-tax Act, issued after April 1, 2021 had been affirmed in toto. The result is that all notices issued under the unamended Income-tax Act were deemed to have been issued u/s. 148A of the Income-tax Act as substituted by the Finance Act, 2021 and construed to be show-cause notices in terms of section 148A(b) of the Income-tax Act. The inquiry as required u/s. 148A(b) was to be completed by the officers and after passing orders in terms of section 148A(d) in respect of the assessee, notice u/s. 148 could be issued after following the procedure as required u/s. 148A. As a one time measure, the requirement of conducting an inquiry with the approval of specified authority at the stage of section 148A(a) was dispensed with.

iii)    In the absence of any express saving clause, in a case where reassessment proceedings had not been initiated prior to the legislative substitution by the Finance Act, 2021, the extended time limit of unamended provisions by virtue of the 2020 Act cannot apply. In other words, the obligations upon the Revenue under clause (b) of sub-section (1) of amended section 149 cannot be relaxed. The defences available to the assessee in view of the first proviso to section 149(1) cannot be taken away. The notifications issued by the Central Government in exercise of powers u/s. 3(1) of the 2020 Act cannot infuse life in the unamended provisions of section 149 by this way. As held by the Supreme Court, all defences which may be available to the assessee including those available u/s. 149 of the Income-tax Act and all rights and contentions which may be available to the assessee and revenue under the Finance Act, 2021 shall continue to be available to assessment proceedings initiated from April 1, 2021 onwards.

iv)    Clause 6.2 of the directions issued by the CBDT pursuant to the Supreme Court decision deals with the cases of the A. Ys. 2013-14 to 2017-18 and are based on the misreading of the judgment of the Supreme court. Terming reassessment notices issued on or after April 1, 2021 and ending with June 30, 2021 as “extended reassessment notices”, within the time extended by the 2020 Act and various notifications issued thereunder is an effort of the Revenue to overreach the judgment of the court in Ashok Kumar Agarwal as affirmed by the Supreme Court in Ashish Agarwal. In any case, the Central Board of Direct Taxes Instruction No. 1 of 2022 dated May 11, 2022 ([2022] 444 ITR (St.) 43), issued in exercise of its power u/s. 119 of the Income-tax Act, as per the Revenue’s own stand, is only a guiding instruction issued for effective implementation of the judgment of the Supreme Court in Ashish Agarwal. The instructions issued in the third bullet to clause 6.1 and clause 6.2 (i) and (i), being in teeth of the decision of the Supreme Court have no binding force.

v)    The reassessment proceedings initiated with the notice u/s. 148 (deemed to be notice u/s. 148A), issued between April 1, 2021 and June 30, 2021, could not be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation And Amendment of Certain Provisions) Act, 2020 up to March 30, 2021, and the time limit prescribed in section 149(1)(b) (as substituted with effect from April 1,2021) could not be counted by giving such relaxation from March 30, 2020 onwards to the Revenue.

(vi)    In respect of the proceedings where the first proviso to section 149(1)(6) is attracted, the benefit of the 2020 Act would not be available to the Revenue, or in other words, the relaxation law under the 2020 Act would not govern the time frame prescribed under the first proviso to section 149 as inserted by the Finance Act, 2021, in such cases.

(vii)    That the reassessment notices issued to the assessee in this bunch of writ petitions, on or after April 1, 2021 for different assessment years (the A. Ys. 2013-14 to 2017-18), had to be dealt with, accordingly, by the Revenue.”

Reassessment – Notice – Limitation – Effect of Amendment to Sections 147 to 151 by Finance Act, 2021 and Taxation and Other Laws (Relaxation and amendment of Certain provisions) Act, 2020 and notification issued under it – CBDT Instruction No. 1 of 2022 could not override provisions of law or decision of Supreme Court – Order passed under section 148A(d) and notice issued under section 148 on 26.07.2022 for A. Ys. 2013-14 and 2014-15 – Barred by limitation:

19 Keenara Industries Pvt. Ltd vs. ITO
[2023] 453 ITR 51 (Guj)
A. Ys.: 2013-14 and 2014-15
Date of order: 7th February 2023

Sections. 147 to 151 of ITA 1961 and Art. 226 of Constitution of IndiaReassessment – Notice – Limitation – Effect of Amendment to Sections 147 to 151 by Finance Act, 2021 and Taxation and Other Laws (Relaxation and amendment of Certain provisions) Act, 2020 and notification issued under it – CBDT Instruction No. 1 of 2022 could not override provisions of law or decision of Supreme Court – Order passed under section 148A(d) and notice issued under section 148 on 26.07.2022 for A. Ys. 2013-14 and 2014-15 – Barred by limitation:

During the period between 1st April, 2021 to 30th June, 2021, the Department had issued a notice under section 148 of the Income-tax Act, 1961 for A. Y. 2013-14 and A.Y. 2014-15 under the old provisions of the Act despite the fact that new regime of re-opening of provisions had come into force. This was challenged and the matter eventually travelled to the Apex Court, which vide its judgment dated 4th May, 2022 in case of Union of India & Ors. vs. Ashish Agarwal (2022) 444 ITR 1 (SC) adjudicated the issue as to the validity of such reopening notices issued across the nation and gave certain directions to the Department. Consequent to the aforesaid decision of the Supreme Court, the assessing officer issued show cause notice under section 148A(b) and supplied the relevant material on the basis of which the case was sought to be re-opened. Thereafter, on July 26, 2022, the AO passed order under section 148A(d) and issued the consequent notice under section. 148 dated 22nd July, 2022.

The assessee filed a writ petition and challenged the validity of the order under section 148A(d) and the notice under section 148 both dated 26th July, 2022. The Gujarat High Court allowed the writ petition and held as under:

“i)    Under the new scheme of reassessment as contained in the Finance Act, 2021 the time limit for issuance of notices u/s. 148 of the Act under the substituted provision of section 149 of the Act have been substantially modified. Clause (a) of sub-section (1) of section 149 of the Act makes the originally prevailing four year period to three years, whereas clause (b) has extended the previously prevailing limit of six years to ten years in cases where income chargeable to tax has escaped assessment amounting to Rs. 50 lakhs or more. While enacting the Finance Act, 2021, Parliament was aware of the existing statutory laws both under the Act as amended by the Finance Act, 2021 as also the Ordinance and the 2020 Act and notification issued thereunder. However, the new scheme for reassessment which was made effective from April, 1, 2021 does not have any saving clause. The notification dated March 31, 2021 came to be issued before the amended provision of re-opening came into force and thus, the notification was applicable to the unamended provision of reopening. The unamended provisions of re-opening ceased to exist from April 1, 2021, the extension by notification could have no applicability. Notification dated April 27, 2021 was in continuity of the earlier notification dated March 31, 2021 as the unamended provisions of reopening ceased to exist on April 1, 2021. No notification can extend the limitation of the repealed Act.

ii)    In Ashish Agarwal’s case, the Supreme Court, after detailed consideration of provisions of law and extensive submissions made by both the sides, held that the new provision substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with the specific aim and protect the right and interest of the assessee as well as being in public interest, respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to the past assessment year provided u/s. 148 of the Act notice has been issued on or after April 1, 2021. The Supreme Court was in complete agreement with the view taken by various High Courts in holding so. At the same time, being concerned about the revenue being remediless as this judgment would result into absence of reassessment proceedings, the Supreme Court permitted the respective notices u/s. 148 of the Act to be deemed to have been issued u/s. 148A of the Act as substituted by the Finance Act, 2021 and to be treated as the show cause notice in terms of section 148A(b) of the Act.

iii)    The test to determine the validity of notice issued after March 31, 2021 is that they should be permissible under the Finance Act, 2021. The Central Board of Direct Taxes Instructions No. 1 of 2022 dated May 11, 2022 ([2022] 444 ITR (St.) 43) surely cannot override the provisions of law or the decision of the Supreme Court.

iv)    The Assessing Officer had issued the reassessment notices on or after April 1, 2021 under the erstwhile sections 148 to 151 of the Act relying on Notification No. 20 of 2021 dated March 31, 2021 ([2021] 432 ITR (ST.) 141) and Notification No. 38 of 2021 dated April 2021 dated April 27, 2021 ([2021] 434 ITR (St.) 11), which extended the applicability of those provisions as they stood on March 31, 2021 before the commencement of the Finance Act, 2021 beyond the period of March 31, 2021. Since as per the scheme prescribed under the first proviso to the amended section 149 of the Act, six years had already elapsed from the end of the relevant assessment years the notices issued u/s. 148 of the Income-tax Act, as well as the order dated July 26, 2022, passed u/s. 148A(d) for the A. Ys. 2013-14 and 2014-15 were barred by limitation.”

Reassessment — Notice under section 148 — Sanction of prescribed authority — One of two reasons recorded already considered by Principal Commissioner in revision and proceedings dropped accepting assessee’s explanation — Sanction for notice under section 148 given without application of mind — Notice not valid: Sections 147, 148, 151 and 263 of ITA 1961: A. Y. 2012-13:

18 Godrej and Boyce Manufacturing Co Ltd vs. ACIT
[2023] 453 ITR 10 (Bom.)
A. Y.: 2012-13
Date of order 13th January, 2023
Sections. 147, 148, 151 and 263 of ITA 1961

Reassessment — Notice under section 148 — Sanction of prescribed authority — One of two reasons recorded already considered by Principal Commissioner in revision and proceedings dropped accepting assessee’s explanation — Sanction for notice under section 148 given without application of mind — Notice not valid: Sections 147, 148, 151 and 263 of ITA 1961: A. Y. 2012-13:

For the A. Y. 2012-13 the AO issued a notice under section 148 of the Income-tax Act, 1961. The assessee filed writ petition and challenged the notice. The Bombay High Court allowed the petition and held as under:

“i)    The sanctioning authority u/s. 151 of the Income-tax Act, 1961 is duty bound to apply his or her mind to grant or not to grant approval to the proposal put up before him to issue notice u/s. 148 to reopen an assessment u/s. 147 to the material relied upon by the Assessing Officer for reopening the assessment. Such power cannot be exercised casually in a routine and perfunctory manner.

ii)    One of the reasons recorded for reopening the assessment u/s. 147 of the Income-tax Act, 1961 being the claim for deduction of the diminution in the value of investment in a subsidiary, had already been considered by the Principal Commissioner, who in his revision order u/s. 263 had dropped the proceedings initiated accepting the reply of the assessee and rejecting the audit objection. The Principal Commissioner had accorded the approval u/s. 151 which showed non-application of mind by the Principal Commissioner while according approval for reassessment without considering all documents including his own earlier order passed dropping proceedings u/s. 263.

iii)    The notice u/s. 148 and the order passed on the objections of the assessee were quashed and set aside.”

Reassessment – Notice after four years – Sanction of prescribed authority – Limitation – Extension of time limit under provisions of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 applicable only in situations arising out of amendment by Finance Act, 2021 – Sanction not obtained from appropriate authority – Notices quashed:

17 Ambika Iron and Steel Pvt. Ltd. vs. Principal CIT
[2023] 452 ITR 285 (Ori)
Date of order: 24th January, 2022
Sections. 147, 148 and 151 of ITA 1961

Reassessment – Notice after four years – Sanction of prescribed authority – Limitation – Extension of time limit under provisions of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 applicable only in situations arising out of amendment by Finance Act, 2021 – Sanction not obtained from appropriate authority – Notices quashed:

Several notices under section 148 of the Income-tax Act, 1961 for re-opening of assessment issued prior to 1st April, 2021, that is prior to amendment by the Finance Act 2021, were issued beyond the period of four years and were time barred in terms of the first proviso to section 147 of the Act. Further, the sanction for issuing such notices was obtained from the Joint Commissioner whereas the appropriate authority to record satisfaction was the Chief Commissioner of Income-tax/Commissioner of Income-tax.

The assesses filed writ petitions challenging the validity of such notices.

The Department contended that in view of the notifications issued by the Central Government in terms of provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the said limits stood extended.

The Orissa High Court allowed the writ petitions and held as under:

“i)    The contention of the Department that in view of the notifications issued by the Central Government in terms of the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 time limits stood extended was untenable since the notifications were issued to deal with the situation arising from the amendment to 1961 Act by the 2021 Act with effect from April 1, 2021 whereas the notices issued u/s. 148 under challenge were issued prior to April 1, 2021.

ii)    It had been stated that the notices had been issued after obtaining the necessary satisfaction of the joint Commissioner whereas the officer authorized to accord necessary satisfaction was the Chief Commissioner or Commissioner.

iii)    The notices u/s. 148 are quashed.”

Offences and prosecution – Compounding of offences – No limitation laid down under section 279 – Power of CBDT to issue directions to Income-tax authorities for proper compounding of offences – CBDT has no power to lay down time limit – Guidelines of CBDT prescribing limitation – Not valid.

16 Footcandles Film Pvt Ltd vs. ITO
[2023] 453 ITR 402 (Bom)
A. Y.: 2010-11
Date of order 28th November, 2022

Section 279 of ITA 1961Offences and prosecution – Compounding of offences – No limitation laid down under section 279 – Power of CBDT to issue directions to Income-tax authorities for proper compounding of offences – CBDT has no power to lay down time limit – Guidelines of CBDT prescribing limitation – Not valid.

By order dated 14th January, 2020, the Magistrate Court convicted the assessee under section 248(2) of the Code of Criminal Procedure for the offence punishable under section 276B read with section 278B of the Income-tax Act, 1961 whereby the fine of Rs. 10,000 and rigorous imprisonment for one year were imposed. The assessee filed a criminal appeal before the Sessions Court which was pending adjudication. The assessee then filed application for compounding of offence under section 279(2) of the Act along with application for condonation of delay in filing of compounding application. The assessee’s request for compounding application was rejected.

The assessee filed a writ petition and challenged the order. The assessee, inter alia, contended before the High Court that provisions of section 279(2) do not impose any bar on the authorities to consider the compounding application even when the Magistrate Court had convicted the assessee and the appeal against the Magistrate Court’s order was pending before the Sessions Court. Section 279(2) allows compounding of offence either before or after the institution of proceedings and the word ‘proceedings’ encompasses all the stages of criminal proceedings.

The Department relied upon CBDT Circular No. 25 of 2019 and Circular No. 1 of 2020 to contend that the Circular provides that no application for compounding can be filed after the end of twelve months from the end of the month in which prosecution complaint has been filed and does not permit the authorities to grant such an application beyond the periods specified in the aforesaid circulars.

The Bombay High Court allowed the writ petition and held as under:

“i)    Offences can be compounded under the provisions of section 279(2) of the Act. The Explanation to section 279(6) provides power to the Board to issue orders, instructions or directions under the Act to other Income-tax authorities for proper composition of offences under the section. The Explanation does not empower the Board to limit the power vested in the authority u/s. 279(2) for the purpose of considering an application for compounding of offence specified in section 279(1). The orders, instructions or directions issued by the CBDT u/s. 119 of the Act or pursuant to the power given under the Explanation will not limit the power of the authorities specified u/s. 279(2) in considering such an application, much less place fetters on the powers of such authorities in the form of a period of limitation.

ii)    The guidelines contained in the CBDT guidelines dated June 14, 2019 could not curtail the powers of the authorities under the provisions of section 279(2). The guidelines in the circular of 2019 set out “Eligibility Conditions for Compounding”. The guidelines, inter alia, state that no application for compounding can be filed after the end of twelve months from the end of the month in which prosecution complaint has been filed in the Court. Guidelines further prescribe that the person seeking compounding of the offence is required to give an undertaking to withdraw any appeals that may have been filed by him relating to the offences sought to be compounded. Guidelines also contain powers to relax the time period prescribed as aforesaid and refers to situations where there is pendency of an appeal.

iii)    A conjoint reading of these provisions leaves one with no manner of doubt that the condition specified regarding the time limit of twelve months is not a rule of limitation, but is only a guideline to the authority while considering the application for compounding. It in no matter takes away the jurisdiction of the authority u/s. 279(2) of the Act to consider the application for compounding on its own merits and decide it. Guidelines also provide the basis on which the application can be rejected. It prescribes the offences which are generally not to be compounded. Clause (vii) refers to offences under any law other than the direct tax laws.

iv)    In the present case the assesses had categorically averred that they had not been convicted under any other law other than direct taxes laws, nor was it the case of the Revenue that the assessee had been convicted under such law other than direct taxes laws. The assessee had deposited the tax deducted at source due, though beyond time limit set down, but before any demand notice was raised or any show-cause notice was issued. The tax deducted at source was deposited along with penal interest thereon. Detailed reason for not depositing it within the time stipulated under the law had been filed in the reply to the show-cause notice issued earlier. Though the assesses had been convicted, a proceeding in the form of an appeal was pending before the sessions court, which was yet to be disposed of, and in which there was an order of suspension of sentence imposed on the second assessee.

v)    Under these circumstances, the findings arrived at in the order dated June 1, 2021, that the application for compounding of offence, u/s. 279 of the Act, was filed beyond twelve months, as prescribed under the CBDT guidelines dated June 14, 2019, were contrary to the provisions of section 279(2). The authorities had failed to exercise jurisdiction vested in it while deciding the application on the merits and consideration of the grounds set out when the application for compounding of offence was filed before it. On this count, the order dated June 1, 2021 is quashed and set aside.

vi)    Consequently, we remand the application, under the provisions of section 279(2) of the Income-tax Act, of the petitioners back to respondent No. 3 to consider afresh on its own merits.

vii)    Respondent No. 3 shall dispose of the application of the petitioners preferably within a period of thirty days from the date of receipt of this judgment.

viii)    Until disposal of the application of the petitioners for compounding of offence, under sub-section (2) of section 279 of the Income-tax Act, 1961, by respondent No. 3, the proceedings, being Criminal Appeal No. 127 of 2020, along with Criminal Miscellaneous Application No. 407 of 2020, pending before the City Sessions Court, Greater Mumbai, shall remain stayed.”

Assessment pursuant to revision order – Appeal to the Appellate Tribunal – Pending appeal before the Appellate Tribunal against the revision order, AO issued notice for assessment pursuant to revision order – Assessee directed to co-operate with AO – But demand, if any, to be kept in abeyance till the disposal of appeal by the Tribunal.

15 Taqa Neyveli Power Co. Pvt Ltd vs. ITAT
[2023] 452 ITR 302 (Mad)
A.Y.: 2016-17
Date of order: 14th March, 2022
Section 263 of ITA 1961

Assessment pursuant to revision order – Appeal to the Appellate Tribunal – Pending appeal before the Appellate Tribunal against the revision order, AO issued notice for assessment pursuant to revision order – Assessee directed to co-operate with AO – But demand, if any, to be kept in abeyance till the disposal of appeal by the Tribunal.

For A.Y. 2016-17, the assessment order was passed under section 143(3) of the Income-tax Act, 1961. Subsequently, the Commissioner passed a revision order under section 263 of the Act. The assessee preferred an appeal before the Tribunal against the revision order. Pending appeal before the Tribunal, the AO initiated the assessment pursuant to revision order and required the assessee to furnish the submissions along with the necessary evidence/documents in respect of the findings given in the revision order.

The assessee filed a writ petition and contended that the appeal is pending before the ITAT against the order passed in revision under section 263 of the Act, since there is no provision to seek for stay of further proceedings pursuant to the order under appeal, the assessing authority has issued this communication dated 6th February, 2022. By doing this, they want to complete the proceedings, and once they complete the proceedings, they may further go ahead with issuance of demand notice. Hence, the assessee’s appeal which is pending for consideration would become infructuous and therefore, till the disposal of the appeal, the assessing authority may be precluded from proceeding further pursuant to the notice dated 6th February, 2022.

The Madras High Court disposed the writ petition with directions as under:

“i)    Once an appeal has been filed against the revision order u/s. 263 wherein the date has been fixed for hearing before the Tribunal, the assessing authority could wait till such time.

ii)    The assessing authority could proceed with the assessment proceedings pursuant to the date fixed for hearing before the Tribunal on the basis of the order passed by the Commissioner and the assessee should co-operate by filing reply or the documents sought for.

iii)    Once the order has been passed by the assessing authority, and it is adverse to the assessee, no further proceedings, including the notice of demand should be made by the Assessing Officer till the disposal of appeal which was pending before the Tribunal and for which hearing has been fixed.

iv)    Depending upon the outcome of the Tribunal order it was open to the Assessing Officer to proceed against the assessee in accordance with law.”

Search and seizure — Block assessment — Undisclosed income — Appeal to CIT (Appeals) — Failure to furnish all material in department’s possession to assessee except documents relied upon — Directions issued to CIT (Appeals).

14 Deepak Talwar vs. Dy. CIT

[2023] 452 ITR 61 (Del.)

A. Ys. 2011-12 to 2017-18

Date of order: 27th January, 2023

Sections 132, 143(3), 153A and 246A of ITA 1961

Search and seizure — Block assessment — Undisclosed income — Appeal to CIT (Appeals) — Failure to furnish all material in department’s possession to assessee except documents relied upon — Directions issued to CIT (Appeals).

Pursuant to a search, the AO passed orders under section 143(3) r.w.s.153A of the Income-tax Act, 1961 for the A. Ys. 2011-12 to 2017-18 making additions and accordingly raising demand. The assessee’s appeal under section 246A was pending before the CIT (Appeals) against such orders. The assessee requested the Department to furnish the material and information in the possession of the Department. That was not done. The assessee filed a writ petition for a direction to that effect.

The Department’s case was that since the documents were voluminous and collating them would involve a long time, the documents relied upon were furnished and if some of them were not furnished they would be furnished shortly and that in respect of the documents which were in the possession of the Department but were not relied upon, there was no legal obligation on its part to furnish them to the assessee.

The Delhi High Court directed the CIT (Appeals) to take a decision in the matter with regards to the documents which, although, in the possession of the Department had not been relied upon and before proceeding further placed on record a list of those documents, whereupon, the assessee would have an opportunity to make a submission, as to the relevance of those documents for the purposes of prosecuting the assessee’s appeal. However, the CIT (Appeals) would not pass a piecemeal order. The order would be composite and would deal with the aforesaid aspect and the merits of the appeal.

Reassessment — DTAA — Effect of section 90 — Tax residency certificate granted by another country — Binding on income-tax authorities in India — Amount not assessable in India under DTAA — Notice of reassessment in respect of such income — Not valid.

13 Blackstone Capital Partners (Singapore) Vi FDI Three Pvt Ltd vs. ACIT (International Taxation)

[2023] 452 ITR 111 (Del)

A. Y. 2016-17

Date of order: 30th January, 2023

Sections 90, 147 and 148 of ITA 1961

Reassessment — DTAA — Effect of section 90 — Tax residency certificate granted by another country — Binding on income-tax authorities in India — Amount not assessable in India under DTAA — Notice of reassessment in respect of such income — Not valid.

The petitioner- Blackstone Capital Partners (Singapore) VI FDI Three Pvt Ltd was a non-resident in India and majority of its directors were residents of Singapore.  During the A. Y. 2016-17, the petitioner sold the equity shares purchased in the A. Y. 2014-15. For the A. Y. 2016-17, the petitioner filed the return of income on 29th September, 2016. In terms of the said return of income, the petitioner claimed that the gains earned by it on sale of Agile shares were not taxable in India by virtue of Article 13(4) of the Double Tax Avoidance Agreement entered into and subsisting between India and Singapore based on the Tax Residency Certificate. In its return of income, the petitioner made all the requisite disclosures with regard to the investment and sale of shares like the petitioner was a non-resident in India and majority of its directors were residents of Singapore. The petitioner’s return of income was processed under section 143(1) of the Income-tax Act, 1961 with no demand, on 8th October, 2016. On 31st March, 2021 a notice was issued to the petitioner under section 148 of the Act for the A. Y. 2016-17. The petitioner filed a return of income on 28th April, 2021 and also filed objections which were rejected.

The Petitioner filed a writ petition challenging the notice and the order rejecting the objections. The Delhi High Court allowed the writ petition and held as under:

“i)    The core issue that arises for consideration in the present writ petition is whether the respondent-Revenue can go behind the tax residency certificate issued by the other tax jurisdiction and issue reassessment notice u/s. 147 of the Income-tax Act, 1961 to determine issues of residence status, treaty eligibility and legal ownership.

ii)    The Income-tax Act, 1961, recognizes and gives effect to Double Taxation Avoidance Agreements. Section 90(2) of the Act stipulates that in case of a non-resident taxpayer with whose country India has a Double Taxation Avoidance Agreement, the provisions of the Act would apply only to the extent they are more beneficial than the provisions of such Agreement. On March 30, 1994, the CBDT issued Circular No. 682 emphasising that any resident of Mauritius deriving income from alienation of shares of an Indian company would be liable to capital gains tax only in Mauritius in accordance with Mauritius tax law and would not have any capital gains tax liability in India. This circular was a clear enunciation of the provisions contained in the Double Taxation Avoidance Agreement, which would have overriding effect over the provisions of sections 4 and 5 of the Act by virtue of section 90. The Supreme Court, in the case of UOI v. Azadi Bachaa Andalon , upheld the validity and efficacy of Circular No. 682 dated March 30, 1994 ([1994] 207 ITR (St.) 7) and Circular No. 789 dated April 13, 2000 ([2000] 243 ITR (St.) 57), issued by the CBDT. The court further held that the certificate of residence is conclusive evidence for determining the status of residence and beneficial ownership of an asset under the Double Taxation Avoidance Agreement.

iii)    The assessee had a valid tax residency certificate dated February 3, 2015 from the Inland Revenue Authority of Singapore evidencing that it was a tax resident of Singapore and thereby was eligible to claim tax treaty benefits between India and Singapore. The tax residency certificate is statutorily the only evidence required to be eligible for the benefit under the Double Taxation Avoidance Agreement and the respondent’s attempt to question and go behind the tax residency certificate was wholly contrary to the Government of India’s consistent policy and repeated assurances to foreign investors. In fact, the Inland Revenue Authority of Singapore had granted the assessee the tax residency certificate after a detailed analysis of the documents, and the Indian Revenue authorities could not disregard it as that would be contrary to international law.

iv)    Accordingly, the tax residency certificate issued by the other tax jurisdiction was sufficient evidence to claim treaty eligibility, residence status, legal ownership and accordingly the capital gains earned by the assessee was not liable to tax in India. No income chargeable to tax had escaped assessment and the notice of reassessment was not valid.”

Reassessment — Notice — Initial notice issued in the name of deceased assessee — Invalid — Notice and order under section 148A(d) set aside

12. Prakash Tatoba Toraskar vs. ITO
[2023] 452 ITR 59 (Bom)
Date of order: 10th February, 2023
Sections 147, 148, 148A(b) and 148A(d)
of ITA 1961

Reassessment — Notice — Initial notice issued in the name of deceased assessee — Invalid — Notice and order under section 148A(d) set aside

The AO issued a notice under section 148 of the Income-tax Act, 1961 dated 30th June, 2021for reopening the assessment under section 147 in the name of the assessee who had died on 4th November, 2019.. Pursuant to the judgment in UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC) the AO treated the notice issued under section 148 in the name of the deceased assessee to be a show-cause notice under section 148A(b). By that time the assessee had died. The legal heir of the the deceased assessee objected and did not participate in the assessment proceedings. The AO passed an order under section 148A(d).

The legal heir filed a writ petition and challenged the reassessment proceedings and the order under section 148A(d). The Bombay High Court allowed the writ petition and held as under:

“i)    Notwithstanding the objection having been taken by the legal heir of the deceased assessee, an order u/s. 148A(d) was passed on June 30, 2022. The initial notice issued u/s. 148 and the subsequent communication dated May 20, 2022 purporting to be a notice u/s. 148A(b) were in the name of the deceased assessee. The notice issued u/s. 148 against a dead person would be invalid, unless the legal representatives submit to the jurisdiction of the Assessing Officer without raising any objection.

ii)    The petition is allowed. The notice dated June 30, 2021 issued u/s. 148, the communication dated May 20, 2022 purporting to be a notice u/s. 148A(b) and the order dated June 30, 2022 u/s. 148A(d) were set aside.”

Reassessment — Notice under section 148 — Jurisdiction — Notice issued by officer who had no jurisdiction over the assessee — Notice defective and invalid — Notice and order rejecting objections of the assessee set aside.

11 Ashok Devichand Jain vs. UOI

[2023] 452 ITR 43 (Bom) A. Y.: 2012-13

Date of order: 8th March, 2022

Sections 147 and 148 of ITA 1961

Reassessment — Notice under section 148 — Jurisdiction — Notice issued by officer who had no jurisdiction over the assessee — Notice defective and invalid — Notice and order rejecting objections of the assessee set aside.

The petitioner assesee filed a writ petition challenging a notice dated 30th March, 2019 issued by the Income Tax Officer under section 148 of the Income-tax Act, 1961 for the A. Y. 2012-13 and an order passed on 18th November, 2019 rejecting the petitioner’s objection to reopening on various grounds.

The Bombay High Court allowed the writ petition and held as under:

“i)    The primary ground that has been raised is that the Income-tax Officer who issued the notice u/s. 148 of the Act, had no jurisdiction to issue such notice. According to the petitioner as per CBDT Instruction No. 1 of 2011 dated January 31, 2011, where income declared/returned by any non-corporate assessee is up to Rs. 20 lakhs, then the jurisdiction will be of Income-tax Officer and where the income declared/returned by a non-corporate assessee is above Rs. 20 lakhs, the jurisdiction will be of Deputy Commissioner/Assistant Commissioner.

ii)    The petitioner has filed return of income of about Rs. 64,34,663 and therefore, the jurisdiction will be that of Deputy Commissioner/Assistant Commissioner and not Income-tax Officer. Mr. Jain submitted that since notice u/s. 148 of the Act has been issued by the Income-tax Officer, and not by the Deputy Commissioner/Assistant Commissioner that is by a person who did not have any jurisdiction over the petitioner, such notice was bad on the count of having been issued by an officer who had no authority in law to issue such notice.

iii)    The notice u/s. 148 of the Income-tax Act, 1961 for reopening the assessment u/s. 147 is a jurisdictional notice and any inherent defect therein is not curable.

iv)    On the facts that the notice u/s. 148 having been issued by an Income-tax Officer who had no jurisdiction over the assessee had not been issued validly and without authority in law. The notice and the order rejecting the assessee’s objections were set aside.”

International transactions — Draft assessment order — Limitation — Effect of sections 153 and 144 — Issue of directions by Commissioner has no effect on limitation — Direction of Commissioner does not extend limitation.

10 Pfizer Healthcare India Pvt Ltd vs. Dy. CIT

[2023] 452 ITR 187 (Mad)

A. Y. 2015-16

Date of order: 11th November, 2022

Sections 144, 144C and 153 of ITA 1961

International transactions — Draft assessment order — Limitation — Effect of sections 153 and 144 — Issue of directions by Commissioner has no effect on limitation — Direction of Commissioner does not extend limitation.

The assessee was engaged in the business of manufacture, research, development and export to its group entities. It had filed its return for the A. Y. 2015-16. The time limit for completion of regular assessment in terms of section 153(1) of the Act, being 21 months from the end of the relevant assessment year, was 31st December, 2017. A reference was made to the Transfer Pricing Officer, since the business of the assessee included transactions that related to entities abroad for which a proper determination of arm’s length price was to be made. There was a request by the Transfer Pricing Officer for exchange of information and a reference was made to the competent authority in terms of section 90A of the Act. The reference for exchange of information was made by the Transfer Pricing Officer on 29th October, 2018 and the last of the information sought was received by him on 27th March, 2019. The order of the Transfer Pricing Officer was passed on 24th May, 2019. The draft assessment order dated 26th July, 2019, was passed in terms of section 143(3) r.w.s 144C(1).

The assessee filed a writ petition challenging the draft assessment order. The Madras High Court allowed the writ petition and held as under:

“i)    Section 92CA of the Income-tax Act, 1961, is only a machinery provision that provides for the procedure for passing of a transfer pricing order and does not constitute a prescription for computing limitation. Section 153 deals exclusively with limitation and the statutory extensions and exclusions therefrom, as set out under the Explanation thereto. Section 92CA(3A) sets out the specific time periods to be adhered to in completion of the transfer pricing proceedings and works as limitation within the period of overall limitation provided u/s. 153 for the completion of assessment. The limitations set out under sub-section (3A) of section 92CA are to be construed in the context of, and within the overall limitation provided for, u/s. 153. There is no situation contemplated that would alter the limitation set out u/s. 153C save the exclusions set out under Explanation 1 to section 153C itself. The time limits set out under sub-section (3A) of section 92CA are thus subject to the limitation prescribed u/s. 153 that can, under no circumstances, be tampered with.

ii)    The second proviso to Explanation 1 to section 153 states that the period of limitation available to the Assessing Officer for making an order of assessment shall be extended to 60 days. The 60 days period, thus, must run from the date of the transfer pricing order to provide for seamless completion of assessment. The transmission of a transfer pricing order from the Transfer Pricing Officer to the Assessing Officer is an internal administrative act and cannot impact statutory limitation, which is the exclusive prerogative of section 153.

iii)    Power is granted to the Joint Commissioner to issue directions u/s. 144A for completion of assessment. That provision states that the Joint Commissioner, on his own motion or on reference made to him by the Assessing Officer or assessee, may call for and examine the record of any proceedings in which the assessment is pending. If he considers that having regard to the nature of the case, amount involved or any other reason, it is necessary or expedience to issue directions for the guidance of the Assessing Officer, he may do so and such directions shall be binding upon the Assessing Officer. The issuance of the direction and the communication of such direction by the Joint Commissioner to the Assessing Officer to aid in the completion of assessment is expected to be within the overall limits provided for completion of assessment u/s. 153 and Explanation 1 thereto and nowhere is it contemplated that such reference would extend the limitation.

iv)    The last of the information in this case was received by the Transfer Pricing Officer on March 27, 2019, by which time, the time for completion of regular assessment had itself long elapsed, on December 31, 2018. The order was barred by limitation.

v)    In the light of the detailed discussion as above, the impugned order of assessment is held to be barred by limitation and is set aside. This writ petition is allowed.”

Interest under section 201(1A) – TDS – Interest for delay in remitting tax deducted at source – No liability for interest if tax is not deductible at source.

9 Special Tahsildar, Land Acquisition (General) vs. GOI[2023] 451 ITR 484 (Ker)

Date of order: 15th September, 2022

Section 201(1A) of ITA 1961Interest under section 201(1A) – TDS – Interest for delay in remitting tax deducted at source – No liability for interest if tax is not deductible at source.

Special Tahsildar, Land Acquisition (General) paid compensation to persons from whom the land was acquired for establishing the Government Medical College and deducted tax at source from the compensation paid. The tax deducted in the month of January 2014 was paid to the credit of the Government only in the month of June 2014 and the reason for the delay was explained to be the fact that Tahsildar was deputed for election duty during the period January 2014 to May 2014 in connection with the General Elections. However, the AO levied interest under section 201(1A) of the Income-tax Act, 1961.

The Tahsildar filed a writ petition and challenged the demand for interest.

It was then contended on behalf of the Tahsildar that the liability to deduct tax and pay it to the Department is only in respect of sums for which the tax is required to be deducted at source. Since the lands which were the subject matter of acquisition were agricultural lands, which fell outside the definition of capital asset under section 2(14) of the Act, there was no question of deducting tax at source in respect of compensation paid to the land owners and therefore levy of interest under section 201(1A) was unwarranted.

The Department contended that levy of interest under section 201(1A) was statutory and the moment there was delay in payment of tax deducted, interest had to be levied.

The Kerala High Court allowed the writ petition and held as under:

“i)    It is clear from a reading of section 201 of the Income-tax Act, 1961, that the liability to deduct tax arises only when it is required to be deducted under the provisions of the Act. In other words, where there is no liability to deduct tax at source, the mere fact that tax was deducted at source and paid to the Income-tax Department belatedly, cannot give rise to a claim for interest u/s. 201(1A) of the Act. Interest u/s. 201(1A) of the Act is obviously to compensate the Government for the delay in payment of taxes, which are rightfully due to the Government.

ii)    Since the Department itself had refunded the amount of tax deducted at source, it could not be said at this point of time that the land in question was not agricultural land falling outside the definition of capital asset u/s. 2(14).

iii)    The delay in remitting the amounts deducted as tax at source arose only on account of the fact that the Officer in question was deputed for election duty for the period from January 2014 to May 2014 in connection with the Lok Sabha Elections of 2014. Cumulatively, these facts made it clear that the levy of interest under 201(1A) was wholly unwarranted in the facts and circumstances of this case.”

Search and seizure — Assessment in search cases — Cash credit — Assessment completed on the date of search — No incriminating document against the assessee found during the search — Long-term capital gains added as unexplained cash based on statement of the Managing Director of searched entity recorded under section 132(4) — Addition unsustainable.

8 Principal CIT vs. Suman Agarwal
[2023] 451 ITR 364 (Del)
A. Y.: 2011-12
Date of order: 28th July, 2022
Sections 68, 132 and 153A of ITA 1961

Search and seizure — Assessment in search cases — Cash credit — Assessment completed on the date of search — No incriminating document against the assessee found during the search — Long-term capital gains added as unexplained cash based on statement of the Managing Director of searched entity recorded under section 132(4) — Addition unsustainable.

Search and seizure operations were conducted under section 132 of the Income-tax Act, 1961 and survey operations were carried out under section 133A in the business and residential premises of one KRP and its group companies which provided bogus accommodation entries. The AO relied upon a letter and the statement recorded under section 132(4) of the Managing Director of KRP and issued a notice under section 153A against the assessee for the A. Y. 2011-12. He held that the amount of long- term capital gains claimed by the assessee in her return of income was an accommodation entry pertaining to shares of a company KGN and treated the amount as unexplained cash credit under section 68 of the Act.

The Tribunal found that there was no incriminating material against the assessee found during the search of the assessee and held that statements recorded under section 132(4) would not by themselves constitute as incriminating material in the absence of any corroborative evidence and accordingly set aside the addition made by the AO.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i)    The Department had not placed on record any incriminating material which was found as a result of the search conducted u/s. 132. There was no reference to the company KGN in either the letter or the statement of the managing director of the company KRP in respect of which search was conducted u/s. 132(4). No other material found during the search pertaining to KGN had been placed on record.

ii)    There was no infirmity in the order passed by the Tribunal setting aside the addition made u/s. 68 by the Assessing Officer. No question of law arose.”

Reassessment — Notice — Validity — Transactions not disclosed in initial notice under section 148A(b) considered in order under section 148A(d) for issue of notice of reassessment — Department cannot travel beyond initial notice — Order under section 148A(d) and consequent notice under section 148 set aside.

7 Prakash Krishnavtar Bhardwaj vs. ITO
[2023] 451 ITR 424 (Chhattisgarh)
Date of order: 1st December, 2022
Sections 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Notice — Validity — Transactions not disclosed in initial notice under section 148A(b) considered in order under section 148A(d) for issue of notice of reassessment — Department cannot travel beyond initial notice — Order under section 148A(d) and consequent notice under section 148 set aside.

The assessee filed a writ petition and challenged the order under section 148A(d) of the Income-tax Act, 1961, dated 22nd July, 2022, directing the issue of notice under section 148 and the consequent notice under section 148 dated 22nd July, 2022. It was pointed out that the transaction of Rs. 14 lakhs considered by the Department in the order under section 148A(d) was not in the noticeunder section 148A(b) which is not permitted in law. It was contended that if the said Rs. 14 lakh transaction which has been considered by the Department is excluded from the proceedings then the amount would be less than Rs. 50 lakh and would therefore be outside the purview of the assessment proceedings as per the CBDT circular dated 11th May, 2022 ([2022] 444 ITR (St.) 43).

Chhattisgarh High Court allowed the writ petition and held as under:

“i)    From the two notices that were issued on June 29, 2021 and on May 25, 2022, i. e., the notices initially issued u/s. 148 (old provision) and u/s. 148A(b) (new provision), the Department had not disclosed the fact that the assessee had suppressed Rs. 14 lakhs transaction which had also escaped assessment u/s. 147. In the absence of its being stated in the notice the assessment of such amount would prima facie be bad since the Department could not travel beyond the show-cause notice.

ii)    Given the facts and circumstances and in view of the circular dated May 11, 2022, issued by the Central Board of Direct Taxes the order u/s. 148A(d) and the consequent notice u/s. 148 dated July 22, 2022 were unsustainable and therefore were set aside reserving the right of the Department to take appropriate recourse available in accordance with law.”

Reassessment — Notice after four years — Notice should clearly specify material not disclosed by the assessee — Expenditure on account of advertisement and sales promotion allowed by the AO after applying his mind to details furnished by the assessee — No failure on part of the assessee to disclose all material facts truly and fully — Notice under section 148 on the ground that in A. Y. 2015-16, the same has been treated as capital expenditure — Notice unsustainable.

6 Asian Paints Ltd vs. ACIT
[2023] 451 ITR 45 (Bom)
A. Y. 2014-15
Date of order: 9th January, 2023
Sections 147 and 148 of ITA 1961

Reassessment — Notice after four years — Notice should clearly specify material not disclosed by the assessee — Expenditure on account of advertisement and sales promotion allowed by the AO after applying his mind to details furnished by the assessee — No failure on part of the assessee to disclose all material facts truly and fully — Notice under section 148 on the ground that in A. Y. 2015-16, the same has been treated as capital expenditure — Notice unsustainable.

The assessee was a manufacturer and seller. It evolved a marketing strategy or scheme called “colour idea store” which envisaged a specified and designated area in the shops of the dealers for exclusive display of its products. The assessee accordingly entered into agreements with dealers as regards sharing of costs incurred for setting up of the designated area for use and display of its products but the stores continued to belong to the dealers. Such expenditure was claimed as deduction, and advertising and sales promotion expenses. For the A. Y. 2014-15, the AO accepted the assessee’s claim and passed an order under section 143(3) r.w.s. 144C(3) of the Income-tax Act, 1961. On 31st March, 2021, a notice was issued under section 148 to reopen the assessment under section 147 on the basis of assessment proceedings for the A. Y. 2015-16, in which the expenses for “colour idea store” were considered as capital expenditure on which depreciation of 10 per cent was allowed. The assessee’s objections were rejected.

The Bombay High Court allowed the writ petition filed by the assessee and held as under:

“i)    During the scrutiny assessment, the Assessing Officer had sought the relevant details with regard to the advertisement and sales promotion expenses which were furnished by the assessee. The Assessing Officer had also disallowed some of the expenses which were shown in the break-up under the head “details of advertisement and sales promotion expenses” while passing the order of assessment which showed that the Assessing Officer had applied his mind to the assessee’s claim while passing the order u/s. 143(3) read with section 144C(3).

ii)    The reasons for reopening the assessment did not state what material or fact was not disclosed by the assessee. Therefore, it was clear that there was a complete disclosure of all the primary material facts on the part of the assessee and there was no failure on its part to disclose fully and truly all the facts which were material and necessary for the assessment. The notice u/s. 148 did not satisfy the jurisdictional requirement of section 147 and therefore, was unsustainable and accordingly quashed.”