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

18. Sainik Food Pvt. Ltd. vs.
Principal CCIT; 406 ITR 596 (Patna);

Date of order: 8^th
February, 2018

Sections 226(3), 276B and 276BB – Recovery of tax – Garnishee
proceedings – Assessee holding lease for settlement of sand ghats – Surrender
of lease accepted by Government – Attachment of bank account of assessee
thereafter for failure by Mining Office to collect tax from other settlees – No
determination that settlement amount to Mines Department due against assessee –
Liability was that of Mines Department – Attachment of assessee’s bank account
not sustainable and revoked

The assessee was the highest bidder
of the tender for settlement of sand ghats located in different districts in
the State of Bihar for the period of 2015-19. According to the notice inviting
tender the assessee was required to pay settlement amount in three instalments
with simultaneous payment of the required amount of tax to the Sales Tax
Department of the State, Income Tax Department and other statutory charges. The
assessee deposited the entire settlement amount with the Department of Mines
and Geology for the years 2015 and 2016. The assessee was required to deposit
the third and the last instalment of settlement amount in the month of
September, 2017.

In the mean while, the assessee
received a notice of demand dated 26/07/2017, issued by the ITO in purported
exercise of power u/s. 226(3) of the Income-tax Act, 1961 calling upon the
assessee to deposit the tax liability of the District Mining Office, Bhagalpur.
The assessee requested for grant of time so that the third instalment was paid
to the Department instead of to the District Mining Officer with settlement of
sand ghat. On 19/12/2017 the amount was deducted from the bank account of the
assessee by the Department which treated it to be an assesee u/s. 226(3)(x) and
dues payable by the District Mining Officer, Bhagalpur on account of default in
deducting tax collected at source from various brick kiln owners. The assessee
surrendered the lease on 14/10/2017 and was accepted by the State Government on
20/10/2017. The ITO (TDS) passed the order of recovery u/s. 226(3)(x) on
23/10/2017.

The assessee filed a writ petition
contending that the assessee was not a debtor of the Mines and Geology
Department after surrender of lease and its acceptance, that the action of the
Department in releasing the bank account of the Mining Department and
thereafter attaching the bank account of the assessee and recovery of tax
liability of the Mining Department from the bank account of the assessee was
not justified, and that not taking action against the Mining Department u/s.
276B and 276BB and attaching and recovering from the bank account of the
assessee was arbitrary exercise of power. The Patna High Court allowed the writ
petition and held as under:

“i)    The
Department had not carried out any factual enquiry to examine whether or not
there was any liability to be paid by the assessee in connection with the
settlement of sand ghat. In the absence of factual enquiry, proceeding against
the assessee and treating it as debtor was not justified. The action of the
Department in treating the assesse as debtor and attaching its bank account and
recovering the tax liability of the Mines and the Geology Department from the
bank account of the assessee, without noticing the surrender of lease and its
acceptance by the State Government, was not proper.

ii)    For
the lapse of the Mines Department the assessee could not be fastened with any
liability if no tax was due to be payable by the assessee against any head to
the Mines Department. In the absence of exclusive determination that the
settlement amount to the Mines Department was only due against the assessee, it
could not have been declared exclusive debtor. The counter-affidavit filed by
the Mines Department acknowledged the lapse of its officers. There was no
statement that the settlement or tax liability was exclusively due against the assessee
and not other settlees which was noticed from the fact that the assessee kept
on requesting the authorities in the matter of payment of tax u/s. 226(3)(x).

iii)    The provisions of section 226(3)(x) did not confer such arbitrary
power to the Department to recover the amount from an innocent assessee after
surrender of settlement. The tax was the liability of the Mines and Geology
Department and instead of taking coercive action and adopting the means
available under the provisions of sections 276B and 276BB for recovery of the
liability from the Mines Department, attaching the bank account and directing
the tax due to be recovered from the account of the assessee was unreasonable
and unjustified. The attachment of the bank account was revoked.”

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17. CIT vs. Aquatic Remedies
P. Ltd.; 406 ITR 545 (Bom):

Date of order: 25^th
July, 2018

A. Y. 2004-05

Sections 147, 148 and 151(2) – Reassessment – Notice u/s. 148 –
Sanction for issuance of notice – Designated authority Additional Commissioner
– Sanction by Commissioner – Notice not valid – Order of reassessment without
jurisdiction and invalid

The assessee was in the business of
trading in pharmaceutical product. The Assessing Officer issued a notice u/s.
148 of the Income-tax Act, 1961 to reopen the assessment for the A. Y. 2004-05.
The assessee contended that the issuance of the notice for reopening of the
assessment was without jurisdiction since the sanction for issuing the notice
had to be obtained from the Additional Commissioner according to section 151(2)
but the sanction had been obtained from the Commissioner which was in breach of
the sanction and therefore without jurisdiction. The Assessing Officer rejected
the claim and passed the assessment order u/s. 147.

The Tribunal allowed the appeal and
quashed the reassessment order passed by the Assessing Officer.

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

“i)    U/s.
151(2) sanction to issue notice u/s. 148 has to be issued by the Additional
Commissioner. The Assessing Officer had not sought the approval of the
designated officer but the Commissioner which was evident from the form used to
obtain the sanction and the Additional Commissioner had not granted permission
to initiate reassessment proceedings against the assessee.

ii)    The
view of the Additional Commissioner was subject to the approval of his superior
– the Commissioner. Thus, there was no final sanction granted by the Additional
Commissioner for issuing the notice u/s. 148 to reopen assessment. Further, it
was the Commissioner who had directed the issuance of the notice u/s. 148 to
the Assessing Officer.

iii)    The order of the Tribunal in quashing the order u/s. 143(3)
r.w.s. 147 was correct. No question of law arose.”

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16. Principal CIT vs.
Softbrands India P. Ltd.; 406 ITR 513 (Karn):

Date of order: 25^th
June, 2018

A. Y. 2006-07

Chapter X and Section 260A – International transactions –
Determination of arm’s length price – Appeal to High Court – Power of High
Court to interfere with such determination – Interference only if finding of
Appellate Tribunal is perverse – Selection of comparables, short-listing them,
applying of filters, fact finding exercises and final orders passed by the
Tribunal binding on Department and High Court

In the appeal filed by the Revenue
before the High Court against the order of the Tribunal the following questions
were raised:

“i)    Whether
on the facts and in the circumstances of the case the Tribunal is right in law
in rejecting the comparables, namely, Kals Information Systems Ltd., Tata Elxsi
Ltd., M/s. Accel Information Systems Ltd., M/s. Bodhtree Consulting by
following its earlier order and without appreciating that the reasonings of the
Transfer Pricing Officer (TPO)/Assessing Officer (AO) for adopting the said
comparables which have been brought out in the TPO’s order and without
appreciating that TPO has chosen the same after application of mind and
materials on record?

ii)    Whether
the Tribunal was justified in fixing the related party transaction (RPT) at 15
percent of total revenue and deleting Geomatric Software Ltd. (Seg) and
Megasoft Ltd. as comparables without going into specific facts in the case of
taxpayer and without adducing the basis for arriving at 15 percent cut off RPT
filter, in the case of taxpayer?”

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

“i)    Income-tax
Act, 1961 contains special provisions relating to avoidance of tax in Chapter X
of the Act comprising sections 92 to 94B with regard to assessment to be done
for computation of income from international transactions on the principle of
“arm’s length price” and the relevant Rules for computation of such income
under the provisions of Chapter X are enacted in the form of rules 10A to 10E
in the Income-tax Rules 1962. The procedure for assessment under Chapter X
relating to international transactions is a lengthy one and involves multiple
authorities of the Department. A huge, cumbersome and tenacious exercise of
transfer pricing analysis has to be undertaken by corporate entities who have
to comply with the various provisions of the Act and Rules with huge data bank
and in the first instance they have to satisfy that the profits or the income
from transactions declared by them are at “arm’s length” which analysis is
invariably put to test and inquiry by the authorities of the Department through
the process of Transfer Pricing Officer and Dispute Resolution Penal and the
Tribunal at various stages, the assessee has a cumbersome task of compliance
and it has to satisfy the authorities that what has been declared by it is a
true and fair disclosure.

ii)    The
pick of comparables, short-listing of them, applying of filters, etc., are all
fact finding exercises and therefore the final orders passed by the Tribunal
are binding on the lower authorities of the Department as well as the High
Court.

iii)    The scheme of both section 260A in the Income-tax Act, 1961 and
section 100 read with section 103 of the Code of Civil Procedure, 1908 are in
pari materia and in the same terms. The existence of a substantial question of
law is a sine qua non for maintaining an appeal before the High Court. The High
Court may determine any issue which (a) has not been determined by the Tribunal
or (b) has been wrongly determined by the Tribunal, only if the High Court
comes to the conclusion that “by reason of the decision on substantial question
of law rendered by it”, such a determination of an issue of fact also would be
necessary and incidental to the answer given by it to the substantial question
of law arising and formulated by it.

iv)   Sub-section
(6) of section 260A does not give any extended power, beyond the parameters of
the substantial question of law to the High Court to disturb the findings of
fact given by the Tribunal below. The insertion of sub-section (7) of section
260A does not give any new or extended powers to the High Court and the
pre-existing provisions from sub-section (1) to sub-section (6) in section 260A
of the Act already had all the trappings of section 100 and 103 of the Civil
Procedure Code.

v)    The
Tribunal is expected to act fairly, reasonably and rationally and should
scrupulously avoid perversity in its orders. It should reflect due application
of mind when it assigns reasons for returning particular findings. The very
word “comparable” means that the group of entities should be in a homogeneous
group. They should not be wildly dissimilar or unlike or poles apart.

ii)    From the perusal of the Tribunal’s order, it
was apparent that individual cases of such comparables had been considered,
analysed and discussed by the Tribunal and while some comparables were found to
be appropriate and really comparable to the facts of the assessee, some were
not. The Tribunal had given cogent reasons and detailed findings upon
discussing each case of comparable corporate properly. Whether or not the
comparables had been rightly picked up or filters for arriving at the correct
list of comparables had been rightly applied, did not give rise to any
substantial question of law.”

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15. Evolv Clothing Company Pvt.
Ltd. vs. ACIT; 407 ITR 72 (Mad):

Date of order: 14^th
June, 2018

A. Y. 2009-10

Sections 9 and 195 – Non-resident – Income deemed to accrue or
arise in India – TDS – Effect of sections 9 and 195 – Non-resident liable to
tax only on incomes attributable to operations in India – Commission paid for
procuring abroad – Non-resident not liable to tax on commission – Tax not
deductible at source on commission

The assessee carried on business of
export of garments and claimed to have entered into agency agreements with a
non-resident Italian agent for procuring export orders for the assessee at a
commission. In the A. Y. 2009-10, the assessee paid a sum of Rs. 3,74,09,773/-
as commission to the foreign agent. According to the assessee, since no amount
of agency commission was chargeable to tax in India, the assessee did not
deduct tax at source before payment of commission to the foreign agent.
According to the assessee, the foreign agent rendered service akin to the
service of a broker to the assessee, procuring orders upon market survey with
regard to demand for the products of the assessee in the foreign country. The
Assessing Officer passed the assessment order disallowing the entire commission
u/s. 40(a)(i), because tax had not been deducted at source. This was upheld by
the Tribunal.

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

“i)    Explanation
1 to section 9(1)(i) of the Income-tax Act, 1961, would attract liability to
Indian tax for a non-resident with business connection in India, only in
respect of income attributable to his operations in India. The amendment with
retrospective effect from June 1, 1976, by insertion of Explanation to section
9(2) can only apply to income by way of interest, royalty and fees for
technical services and not to brokerage or job-wise commission on activities
incidental to procurement of orders.

ii)    Section
195 attracts tax only on chargeable income, if any, paid to non-residents.
Where there is no liability, the question of tax deduction does not arise.
Where no part of income is chargeable in India, even clearance u/s. 195(2) or
(3) of the Act is not necessary. In Toshoku’s case (1980) 125 ITR 525, the
Supreme Court held that payments to agents for performance of services outside
India are not liable to be taxed in India.

iii)    From the service agreements with the agents abroad, it was clear
that the service rendered was essentially brokerage service. The very first
clause of the agreement stated “to procure orders”. The reference to market
research abroad or co-ordination with the supplier or to ensure timely payment
or making available its office space for visit by the suppliers, were
ordinarily things which any agent or broker undertook incidental to brokerage
service. There was no finding that any of the commission agents had any place
of business in India.

iv)   The
Assessing officer had in the assessment order, accepted that the assessee had
paid commission charges to oversees agents. It was not the case of the
Assessing Officer that any lump sum consideration had been paid for any
specific managerial, technical or consultancy services. The commission was not
taxable in India. The assessee was liable to deduct tax on such payment.

v)    The
appeal is allowed and the questions framed are answered in favour of the
assessee and against the revenue”

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14. Co-operative Centrale
Reiffeisen Boerenleenbank B. A. vs. Dy. DIT, (International Taxation);  [2018] 97 taxmann.com 24 (Bom);

Date of order: 29^th
August, 2018:

A. Ys. 2002-03, 2003-04 and
2005-06

Section 9 of the Act and Article 5 of DTAA–Income – Deemed to
accrue or arise in India (Permanent establishment) – Where there were all
relevant documentary evidence available on record to render finding whether
assessee, a Netherland based company, had a permanent establishment in India
and the Tribunal having referred to same in its order could not have remanded
back matter to Assessing Officer for consideration afresh? – The Tribunal
having referred to all factual details and crystallised issues could not have
remanded back matter to Assessing officer for consideration afresh

The assessee was a tax resident of
Netherlands and was entitled to claim the benefit of the DTAA between India and
Netherlands. In fact the assessee was part and parcel of the Rabo bank group.
An Indian company, the Rabo India Finance Private Limited (RIFPL) was
registered as a non-banking financial company with the RBI. It provided wide
range of financial services such as credit facilities, investment banking,
strategic, financial and project advisory services. This company also belonged
to the Rabo group. It was claimed that both, the assessee and the said Indian
Company were independent entities but worked together on select assignments as
and when required. In the relevant years, the assessee claimed to have provided
assistance on principle to principle basis to the Indian company on a few
transactions and received fees and guarantee commission.

However, the amounts received under
the aforesaid category were not offered to tax in India on the ground that the
assessee did not have a permanent establishment in India within the meaning of
Article (5) of the DTAA. The Assessing Officer passed an order holding that the
Indian Company RIFPL was a permanent establishment of the assessee within the
meaning of Article 5 (5) of the DTAA. Hence, certain percentage of the sums
referred above were taken as profits attributable to the permanent
establishment. A further percentage from that was taken as profits chargeable
to tax in India. This resulted in the return depicting total income to Rs.
31.25 lakh.

On appeal, the
Commissioner(Appeals) came to the conclusion that the assessee neither had a
fixed place of business nor agency or any other form of permanent establishment
in India and consequently the income of the assessee was not taxable in India.
The Tribunal restored the matter back to the file of the Assessing Officer to
determine the issue afresh.

Thereafter, an application was
filed seeking rectification of order initially passed by the Tribunal. However,
the Tribunal concluded that the issue was rightly remitted to the Assessing
Officer by inter alia observing that the quantum of work done, services
rendered, the contract undertaken for outsiders would have to be examined to
determine whether RIFPL was an agent having independent status or was merely
working on behalf of assessee.

On appeal, the Bombay High Court
held as under:

“i)    The
First Appellate Authority while deciding the Appeals of the assessee has passed
a fairly detailed order. The facts and the submissions have been noted in his
order. In fact, under separate heads, the details have been noted and
considered. The Appellate Authority concludes that all the agreements placed on
record would indicate that the RIFPL had procured the contract of provision of
services to the two parties.

However, with a view to meeting its
obligations, the RIFPL further entered into an agreement with the assessee
requiring the assessee to provide advisory services in Italy for a
consideration paid by the RIFPL. Based on these two contracts, the First
Appellate Authority concluded that it cannot be said that RIFPL is acting as an
agent of the assessee. On the contrary, the agreements point towards the said
Indian company obtaining independent contracts and subcontracting the part of
the work thereunder to the assessee. On each of the counts, namely, guarantee
commission and other services, the First Appellate Authority has held that the
Assessing Officer committed a mistake. The clear conclusion in this order is
that the business profits of the assessee are not taxable in India in absence
of any permanent establishment in India within the meaning of article 5 of the
DTAA.

ii)    These
very materials could have been examined by the Tribunal and it would have
arrived at the satisfaction whether the Assessing Officer was correct or
whether the First Appellate Authority was right in reversing the order of the
Assessing Officer and holding as above in favour of the assessee. One does not
see why, when the Tribunal refers to all the factual matters in its order and
has in earlier paragraphs crystallised the issues, then, what was the occasion
for a remand. In the order under Appeal, the Tribunal notes that the assessee
preferred an Appeal before the First Appellate Authority and argued that the
concept of fixed place, permanent establishment requires the enterprises to
have their business or a place of management/branch in India or office in India
and the assessee had neither.

iii)    The activities of the Indian company did not result in
constitution of any agency or permanent establishment of the assessee and that
the Indian company did not have any authority to conclude the contract on
behalf of the assesee, that it did not maintain any stock of any goods or
merchandise of the assessee nor did it secure any orders from the assessee that
it was economically and legally independent, that it was acting in ordinary
course of its business not dependent on the assessee. During the year under
Appeal, the Indian company had income from various sources amounting to Rs.
1386.70 Million. The assessee received professional income and guarantee
commission. There was also certain reimbursement of expenses by the Indian
company.

iv)   In
the backdrop of all this, and further facts noted, a cryptic order has been
passed by the Tribunal. In fact, in the order under challenge in reference to
the Income Tax Appeal No. 4632 of 2006 for Assessment year 2002-2003, the
Tribunal says that the Indian company had made payment to the assessee for
providing the advisory services to it and under the Head ‘Guarantee Commission’
and that the Indian company was paying the assesee more than 30 per cent of its
income. That the basic issues are, as to whether the assesee had permanent
establishment in India or not and as to whether the services rendered by the
Indian company could be treated as the activities carried out by the assessee.
Yet, it says that there is nothing on record to prove that the provisions of
article 5(1) of the Agreement are applicable. That stipulates that the
permanent establishment for the purpose of convention meant a fixed business
through which the business of the enterprise was wholly or partly carried on.
The conclusion is that the assessee was not having fixed place of business in
India. Hence, the First Appellate Authority rightly held that the provisions of
article 5 (1) were inapplicable. It is in these circumstances, it is surprising
that the Tribunal still deems it fit and proper to remand the case. If there
was indeed no material on record, then, the above conclusion was impossible to
be reached.

v)    Judicial
decisions have to be consistent and all the more there should be no confusion.
There ought to be some predictability and when given facts and circumstances
give rise to certain legal principles which parties assert are applicable,
then, as a last fact finding authority, the Tribunal could have summoned all
records and thereafter should have arrived at a categorical conclusion whether
the First Appellate Authority was right or the Assessing Officer. This having
admittedly not been done, it is opined that the Tribunal failed to act as a
last fact finding authority. It failed to discharge its duty and function
expected of it by the law.

vi)   Thus,
the order of the Tribunal is set aside and revenue’s appeal is restored to the
file of the Tribunal for a decision afresh on merits and in accordance with
law.”

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13. C.
Aryama Sundaram vs. CIT; 407 ITR 1 (Mad) :

Date of order: 6^th
August, 2018

A. Y. 2010-11

Sections 45 and 54(1) – Capital gain – Exemption u/s. 54  – 
Construction of residential house within stipulated time – Exemption in
respect of cost of new residential house – Scope of section 54 – Does not
exclude cost of land from cost of residential house

The assessee
had sold a residential house property on 15/01/2010 for a total consideration
of Rs. 12,50,00,000/- and the total long term capital gains was Rs.
10,47,95,925/. On 14/05/2007, the assessee had purchased a property with a
superstructure thereon for a total consideration of Rs. 15,96,46,446/- and
after demolishing the existing structure, the assessee constructed a
residential house at a cost of Rs. 18,73,85,491/-. For the A. Y. 2010-11, the
assessee had claimed the entire long term capital gains as exempt from tax u/s.
54 of Act. The Assessing Officer held that only that part of the construction
expenditure that was incurred after the sale of the original asset was eligible
for exemption u/s. 54 and based on records held that the cost of construction
incurred after the sale of the original asset was Rs. 1,14,81,067/- and
accordingly allowed exemption of the same amount.

The Commissioner (Appeals) upheld the decision of the Assessing Officer. The
Tribunal held that section 54 was a beneficial provision and had to be
construed liberally on compliance with the conditions. It held that the
assessee had complied with the conditions of section 54 and remitted the matter
to the Assessing Officer to consider the deduction u/s. 54 for the construction
cost incurred by the assessee.

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

“i)    Section
54(1) did not exclude the cost of land from the cost of the residential house.
According to the section the capital gains had to be adjusted against the cost
of the new residential house. What had to be adjusted or set off against the
capital gains was the cost of the residential house that was purchased or
constructed. Section 54(1) was specific and clear. It was the cost of the new
residential house and not just the cost of construction of the new residential
house, which was to be adjusted.

ii)    The
cost of the new residential house would necessarily include the cost of the
land, material used in the construction, labour and any other cost relatable to
the acquisition or construction of the residential house. The condition
precedent for such adjustment was that the new residential house should have
been purchased within one year before or two years after the transfer of the
residential house, which resulted in the capital gains or alternatively, a new
residential house had been constructed in India, within three years from the
date of the transfer, which resulted in the capital gains.

iii)    The new residential house had been
constructed within the time stipulated in section 54(1). It was not requisite
of section 54 that construction could not have been commenced prior to the date
of transfer of the asset that resulted in capital gains. If the amount of
capital gain is equal to or less than the cost of the new residential house,
including the land on which the residential house was constructed, the capital
gains were not to be charged u/s. 45.”

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12. CIT(Exemption) vs. Sadguru
Narendra Maharaj Sansthan; 407 ITR 12 (Bom):

Date of order: 28^th
February, 2018

Sections 12A and 12AA(3)– Charitable purpose – Registration of
trust – Cancellation of registration – Grounds for – Difference between objects
of trust and management of trust – No change in objects of trust – Amendment in
respect of appointment of chief trustee and manner of managing the trust – Not
ground for cancelling registration of trust

The assessee-trust amended its
trust deed. The Commissioner recorded that the amendment to the trust deed
devised a system by which the chief trustee would alone define his heir for the
post of the chief trustee and “adhishtata” and that the heir could not
take part in the management of the trust during the lifetime of the chief
trustee. The Commissioner exercised his power u/s. 12AA(3) of the Income tax
Act, 1961 (hereinafter for the sake of brevity referred to as the
“Act”) and cancelled the registration of the assessee on the ground
that the amendment violated the provisions of section 13(1)(c).

The Tribunal held that the
Commissioner had not appreciated the difference between the objects of the
trust and the powers/management of the trust; the amendment of the trust deed
dealt with the powers of the management of the trust rather than the objects of
the trust. The Tribunal set aside the order of the Commissioner cancelling the
registration of the trust. 

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

“i)    The
cancellation of registration u/s. 12AA(3) is only in two contingencies, one the
activities of the trust not being genuine or the activities of the trust not
being carried out in accordance with its objects.

ii)    Cancellation
of the registration of the assessee-trust was not justified. The cancellation
was not on above two grounds. Section 13 applied while applying section 11. It
was in the domain of the Assessing Officer during the assessment proceedings
and not a basis for cancellation of registration.

iii)    Besides, the amendment of the trust deed not being in the spirit
of charitable trust, could not be the basis of cancellation u/s. 12AA(3). The
term “spirit of a charitable trust” was not defined in the Act nor elaborated
in the order of the Commissioner. The amendment made in the trust deed did not
suggest any change or addition to the objects of the trust. It was only in
respect of the appointment of the chief trustee and the manner of managing the
trust. The Tribunal rightly held that the Commissioner had focused on change in
the future management of the trust rather than the objects of the trust to
cancel the registration. The appeal is dismissed.”

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11. Principal CIT vs. Rambagh
Palace Hotels (P.) Ltd.; [2018] 98 taxmann.com 167 (Delhi):

Date of order: 17^th
September, 2018

A. Y. 2005-06

Section 37(1) – Business expenditure – Where assessee company had
furnished names and PAN numbers of all vendors to whom it had paid repair and
maintenance charges for their services, the Tribunal was justified in allowing
expenditure on account of such repair and maintainence charges

During the year, i.e. A. Y.
2005-06, the assessee had claimed expenditure on account of repair and
maintenance charges paid by it to several parties. The Assessing Officer had
allowed repair and maintenance charges paid to four parties, who had appeared
before him and whose statements were recorded on oath. However, the balance
repair and maintenance expenditure was disallowed to the extent of 50 per cent,
on the ground of absence of supporting documents.

On appeal, the Commissioner
(Appeals) reduced the disallowance to 5 per cent. The Tribunal recorded that
the assessee had produced details of all vendors, including their PAN numbers,
invoices raised by them, etc., and held that the Commissioner (Appeals) was not
right in making disallowance of 5 per cent on the ground of mere suspicion and
accordingly allowed the full claim.

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

“i)    The
finding of the Tribunal deleting disallowance of 50 per cent by the Assessing Officer
is primarily factual. One has quoted the reply filed by the respondent/assessee
before the first appellate authority. These documents and papers were relied
upon by the Tribunal and the Commissioner (Appeals). However, copies of the
said documents/papers have not been filed. There is nothing to show and
establish that the findings of the Commissioner (Appeals) and the Tribunal are
perverse and factually incorrect.

ii)    Given
the aforesaid facts, there is no any substantial question of law arises for consideration.
The appeal is accordingly dismissed.”

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ACIT vs. Gulbarga Electricity Supply Co. Ltd.- 387 ITR 484
(Karn):

The
assessee was in the business of buying and selling of electricity. The assessee
purchased electricity from the generators of the Karnataka Power Corporation
etc. and sold it to different categories of consumers in its jurisdiction. The
power from the generation point to the customers was  transmitted 
through  the  transmission 
network  of the Corporation. The
Assessing Officer found that the assessee had made payment of transmission charges
to the Corporation, without deducting tax at source thereon. He held that the
assessee was an assessee in default u/s. 201(1) of the income-tax act, 1961 in
respect of payment of transmission charges u/s. 194J. The Commissioner
(appeals) and the tribunal set aside the order.

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

“i)
 The 
provisions of section 194J  of the
act, was not attracted in the present case and the assessee was not liable to
deduct the tax at source from the payment of transmission charges made to the
Corporation and the order of the Assessing Officer was rightly set aside by the
tribunal.

ii)  Accordingly, appeal of the revenue is
dismissed.”

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CIT vs. United Breweries Ltd.; 387 ITR 150 (T&AP):

The
assessee was engaged in the manufacture and sale of beer to the andhra Pradesh
Beverage Corporation. The Corporation, in turn, sold beer purchased from the
assessee, to retail dealers. The assessee paid incentives under the trade
discount scheme to the retail dealers through del creder agents. The Assessing
Officer held that for the payment made to the retail dealers, section 194H of
the income-tax act, 1961 was applicable and the assessee had committed default
in terms of section 201(1) in not having deducted tax at source on the payments
and levied interest u/s. 201(1A) of the act in respect of the amounts paid
under the trade scheme and discounts. The tribunal held the payments
constituted sales promotion expenses and did not fall in the category of
“commission” attracting 194H of the act.

On
appeal by the Revenue, the Telangana and Andhra Pradesh High Court upheld the
decision of the tribunal and held as under:

“i)  It was evident that beer was sold by the
assessee to the Corporation, and the Corporation, in turn, sold the beer
purchased from the assessee, to retail dealers. The two transactions were
independent of each other, and were on a principal to principal basis. No
services rendered by the retail dealers to the assessee, and the incentive
given by the assessee to the retailers as trade discount was only to promote
their sales.

ii)
The tribunal rightly held that in the absence of a relationship of principal
and agent, and as there was no direct relationship between the assessee and the
retailer, the discount offered by the assessee to the retailers could only be
treated as sales promotion expenses, and not as commission, as no services were
rendered by the retailers to the assessee.”

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Dr. Gautam Sen vs. CCIT; [2016] 74 taxmann.com 128 (Bom):

Revenue carried out the search on
16th january, 1999 u/s. 132 of the income-tax act, 1961 on the Petitioner and
his premises. During the course of the search, an amount of Rs.20,000/- in cash
was found in his house which was explained to the satisfaction of the revenue. Nothing
incriminating was found during the course of search.  However, a notice dated 16th May 2000 was
issued u/s. 158BC of the Act to the Petitioner to file his return of income for
the block period covered by the search.

The petitioner filed a writ
petition before the Bombay High Court challenging the validity of the notice on
the ground that during course of search, nothing was found with the Petitioner,
so as to infer that he was in possession of any undisclosed income either at
the time of search or at any time prior thereto. Consequently, in the absence
of there being undisclosed income, the Assessing Officer would not have any
justification to issue the impugned notice u/s. 158BC of the act.

The Bombay high Court allowed the
writ petition and held as under:

“i) Action of the revenue in
issuing section 158BC notice despite the appraisal report clearly stating that
no incriminating material was found against petitioner was highly deplorable as
it amounted to harassment of the taxpayer. The Officers of the income tax
department  are obliged to proceed
in   accordance   with  
the   statutory   provisions and cannot act on their whim and
fancy. The department should adopt a standard operating procedure to provide
adequate safeguards before issuing notices under Chapter XVIB.

ii)  In the above facts, the impugned notice is
quashed and set aside.

iii) This is the fit case where
costs should be awarded to the Petitioner. The Respondents-revenue i.e. the jurisdictional Chief Commissioner of income
tax (respondent no.1) is directed to pay the costs of Rs.20,000/- to the
Petitioner within four weeks from today.”

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CIT vs. Refam Management Services P. Ltd.; 386 ITR 693 (Del)

Pursuant to a search and seizure
operation undertaken u/s. 132 of the income-tax act, 1961 in the case of a
third party, cheque books of the assessee reflecting issue of cheques were
found. Assessments were made for the assessment years 2003-04 to 2008-09 u/s.
153C of the act. Certain additions u/s. 69C and certain disallowances were
made. The CIT(a) and the tribunal deleted the additions and disallowances. In
view of such deletion assesee’s ground that assessments were illegal and
invalid were not decided.

On appeal by the revenue, the
assessee raised the ground that the assessments u/s. 153C were illegal and
invalid.

The Delhi High Court held as
under:

“The  only document seized during the search was a
cheque book pertaining to the assessee which reflected the  issue 
of  cheques  during 
the  period august  2008 to october  2008, relevant to the A. Y. 2009-10. Since there was no other evidence
of undisclosed income, the proceedings u/s. 153C were not valid.”

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CIT vs. IDBI (Bom); ITA No. 494 of 2014 dated 19/09/2016; www.itatonline.org:

For the A. Y. 1993-94, the
assessment of the assessee was reopened by issuing notice u/s. 148 of the
income­ tax Act, 1961. The assessee filed return in response to the notice and
requested the reasons for reopening. In spite of the repeated request the
reasons were not furnished but the reassessment was completed. The assesee
challenged the reassessment order on the ground that the reassessment made
without furnishing the reasons for reopening is invalid. The tribunal accepted
the assessee’s claim and held that the reassessment order is invalid.

On appeal by the revenue, the
Bombay high Court upheld the decision of the tribunal and held as under:

“i) The   question as framed proceeds on the basis
that the respondent assessee was aware of the reasons for reassessment.
the  only basis for the aforesaid
submission is the submission made by the revenue before the tribunal that the
respondent assessee is a public sector institution who was aware that search
action has been initiated on certain lessees in respect of transactions with
idBi i.e. assessee. On the basis of the above, it is to be inferred that the
reason for reassessment was known to the respondent assessee.

ii) The supply of reason in
support of the notice for reopening of an assessment is a jurisdictional
requirement. The reasons recorded form the basis to examine whether the
Assessing Officer had at all applied his mind to the facts and had reasons to
believe that taxable income has escaped reassessment. It is these reasons,
which have to be made available to the assessee and it could give rise to a
challenge to the reopening notice. It is undisputed that the reasons recorded
for issuing reopening notice were never communicated to the respondent assessee
in spite of its repeated requests. Thus, the grievance of the revenue on the
above count is unsustainable.

iii) An  alternative submission is made on behalf of
the revenue that the obligation to supply reasons on the Assessing Officer was
consequent to the decision of the apex Court that GKN Driveshafts (India) Ltd.
vs. Income-tax Officer (2003) 259 ITR 19 (SC) rendered in 2003 while, in the
present case, the reopening notice is dated 9th 
December 1996. Thus it submitted at the time when the notice u/s. 148 of
the act was issued and the time when assessment was completed, there was no
such requirement to furnish  to the  assessee 
a  copy of the reasons recorded. This
submission is not correct. We find that the impugned order relies upon the
decision of this Court in Seista Steel Construction (P.) ltd.  [1984] 17 taxman 122(Bom.) when it is held
that in the absence of supply of reasons recorded for issue of reopening notice
the assessment order would be without jurisdiction and needs to be quashed. The
above view as taken by the tribunal has also been taken by this Court in CIT
vs. Videsh Sanchar Nigam Ltd. [2012] 21 Taxmann 53 (Bombay) viz. non-supply of
reasons recorded to issue a reopening notice would make the order of assessment
passed thereon bad as being without jurisdiction.

iv) In view of the above, the
appeal is dismissed”

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CIT vs. M/s. D. Chetan & Co. (Bom); ITA No. 278 of 2014 dated 01/10/2016:
www.itatonline.org:

The assessee is engaged in the
business of import and export of diamonds. during the assessment proceedings,
the Officer found that Respondent assessee explained that the amount of
rs.78.10 lakhs claimed as loss was on account of having entered into hedging
transactions to safeguard variation in exchange rates affecting its
transactions of import and export by entering into forward contracts. The
Assessing Officer by order of assessment dated 27th december 2011 disallowed the
claim on the ground that it is a notional loss of a contingent liability debited
to Profit and Loss Account.  Resultantly,
the same was added to the assessee’s total income. The Cit (appeals) allowed
the assessee’s appeal inter alia relying upon the decisions of tribunal in
Bhavani Gems vs. ACIT (ITA No.2855/Mum/2010 dt.30.3.2011) and the Special Bench
decision in the case of DCIT vs. Bank of Bahrain and Kuwait ((2010) 132 TTJ
(Mumbai) (SB) 505). The Cit (appeals) on facts found that the transaction of forward
contract was entered into during the course of its business. It held that it
was not speculative in nature nor was it the case of the Assessing Officer that
it was so. Thus the loss incurred as forward contract was allowed as a business
loss. The Tribunal upheld the finding of the Cit (appeals). The tribunal found
that the transaction of forward contract had been entered into for the purpose
of hedging in the course of its normal business activities of import and export
of diamonds.

On appeal by the revenue, the
high Bombay Court upheld the decision of the tribunal and held as under:

“i) The Tribunal has, while
upholding the finding of the Cit (appeals), independently come to the
conclusion  that  the 
transaction  entered  into 
by the assessee is not in the nature of speculative activities. Further,  the hedging transactions were entered into so
as to cover variation in foreign exchange rate which would impact its business
of import and export of diamonds. These concurrent finding of facts are not
shown to be perverse in any manner. In fact, the Assessing Officer also in the
Assessment Order does not find that the transaction entered into by the
assessee was speculative in nature.

 ii) The reliance placed on the decision in S.
Vinodkumar Diamonds Pvt. Ltd. vs. Addl.CIT ITA 506/MUM/2013 rendered on 3rd may
2013 in the revenue’s favour would not by itself govern the issues arising
herein. This is so as every decision is rendered in the context of the facts
which arise before the authority for adjudication. Mere conclusion in favour of
the revenue in another case by itself would not entitle a party to have an
identical relief in this case. In fact, if the revenue was of the view that the
facts in S. vinodkumar are identical/similar to the present facts, then
reliance would have been placed by the revenue upon it at the hearing before
the tribunal. The impugned order does not indicate any such reliance. It
appears that in S. vinodkumar, the tribunal held the forward contract on facts
before it to be speculative in nature in view of section 43(5) of the act. However,
it appears that the decision of this court in CIT vs. Badridas Gauridas (P) Ltd.
261 ITR 256 (Bom) was not brought to the notice of the tribunal when it
rendered its decision in S. vinodkumar (supra). in the above case, this court
has held that forward contract in foreign exchange when incidental to carrying
on business of cotton exporter and done to cover up losses on account of
differences in foreign exchange valuations, would not be speculative activity
but a business activity.”

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CIT vs. India Capital Markets P. Ltd.; 387 ITR 510 (Bom):

For the A. Y. 2006-07, the
Assessing Officer disallowed the payment made to Bloomberg being data services
charges of Rs. 4.74 lakh on account of non-deduction of tax at source u/s
40(a)(ia) of the income-tax act, 1961. The Assessing Officer was of the view
that the payment made by the assessee to Bloomberg was in the nature of
consultative services and so the assessee was liable to deduct tax at source. The
Commissioner (appeals) found that the payment made to Bloomberg was essentially
a subscription for a financial e-magazine and was not liable to deduction of
tax at source and accordingly there would be no occasion to invoke section
40(a)(ia) of the act. He therefore deleted the addition. The tribunal upheld
the decision of the Commissioner (appeals).

On appeal by the revenue, the
Bombay high Court upheld the decision of the tribunal and held as under:

“i)  The 
Commissioner (appeals) and the tribunal had reached a concurrent finding
of fact that payments made  to  Bloomberg 
were  for  subscription 
to e-magazines and therefore, there was no occasion to deduct tax under
the act. Thus,  section 40(a)(ia) could
not have been invoked.

ii)  The  
submission on behalf of the revenue that B’s magazines/information was
backed by solid research carried out by its employees and made available on the
website would not by itself result in B rendering any consultative services. It
was not the case of the Revenue that specific queries raised by the asessee
were answered by B as part of the consideration of rs. 4.34 lakh. The
information was made available to all subscribers to e-magazines/journal of B.
therefore, in no way could the payments made to B be considered to be in the
nature of any consultative/professional services rendered by B to the assessee.

iii) The Tribunal was justified
in deleting the disallowance made by the Assessing Officer u/s. 40(a)(ia) of
the act.”

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CIT vs. Monica India (No. 1); 386 ITR 608 (Bom):

The assessee was following
mercantile system of accounting. For the A. Y. 1985-86, the assessee had
claimed expenditure on accrual basis which included customs duty of Rs. 1.78
crore. The same was allowed by the Assessing Officer. The Commissioner in
exercise of his powers u/s. 263 of the income-tax act, 1961 held that the
amount of rs. 1.78 crore was a contingent liability as the assessee had
challenged it in the Supreme Court and the payment of it to the customs
department was postponed and thus could not be allowed as an expenditure for the  subject 
assessment  year.  The   tribunal
held that the assessee was following the mercantile system of accounting and
therefore, the liability was to be allowed as deduction on accrual basis and
further held that the liability to pay the customs duty by the assesee was a
part of the sale price to the two sellers, and consequently, ought to be
allowed as an expenditure for purchase of goods.

On appeal by the revenue, the
Bombay high Court upheld the decision of the tribunal and held as under:

“i)  The  
agreements  between  the 
parties  provided that the consideration
payable for the purchase of goods included within it, the duty of customspayable
on the imported goods as a part of the cost incurred by  the 
seller. Therefore,   the cost of
purchase of goods was not only the expenses incurred by the seller from the
opening of the letter of credit but continued to run till the execution of the
contract. The mere fact that the seller of the goods had obtained a stay, would
not by itself result in an unascertained or unqualified liability.

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VMT Spinning Co. Ltd. Vs. CIT; [2016] 74 taxmann.com 33
(P&H):

For
the A. Y. 2007-08, the assessee challenged assessment order before the
Commissioner (appeals) which was partly allowed. This led to filing of cross-
appeals before the tribunal i.e., one by the revenue and the other by the
assessee. In the memorandum of appeal filed before the Tribunal, the assessee
raised an additional ground with regard to calculation of minimum alternate tax
to be carried forward to the subsequent year. According to the assessee, in the
assessment order, the same had not been correctly calculated. As said ground
had not been raised before the Commissioner, the tribunal refused to adjudicate
upon the same as according to the tribunal prior leave of the tribunal through
an application in writing should have been obtained before raising the
additional ground. An oral request made by the assessee to raise said
additional ground was not considered enough.

On
appeal by the assessee, the Punjab and Harayana High Court held as under:

“i)
Appeals to the tribunal are preferred u/s. 254(1) which provides that after hearing
the contesting parties, the tribunal  may
pass such orders that it thinks fit. In section 254(1) the usage of the words
‘pass such orders thereon as it thinks fit’ gives very wide powers to the
tribunal and such powers are not limited to adjudicate upon only the issues
arising from the order appealed from. Any interpretation to the contrary would
go against the basic purpose for which the appellate powers are given to the
tribunal u/s. 254 which is to determine the correct tax liability of the assessee.

 ii)
Rules 11 and 29 of the income-tax (appellate tribunal) rules, 1963 are  also 
indicative  that the powers of the
tribunal,  while considering an appeal
u/s. 254(1) are not restricted only to the issues raised before it. Rule 11 of
the 1963 rules provides that the appellant, with the leave of the tribunal can
urge before it any ground not taken in the memorandum of appeal and that the
tribunal while deciding the appeal is not confined only to the grounds taken in
the memorandum of appeal or taken by leave of the tribunal under rule 11.

iii)
Rule 29, is to the effect that though parties to the appeal before the
tribunal  shall not be entitled to
produce additional evidence but if the tribunal desires the production of any
document or examination of any witness or any affidavit to be filed, it can,
for reasons to be recorded, do so.

iv)
A harmonious reading of section 254(1) of the act and rules 11 and 29 of the
rules coupled with basic purpose underlying the appellate powers of the
tribunal which is to ascertain the correct tax liability of the assessee leaves
no manner of doubt that the tribunal while exercising its appellate
jurisdiction, has discretion to allow to be raised before it knew or additional
questions of law arising out of the record before it. What cannot be done, is
examination of new sources of income for which separate remedies are provided
to the revenue under the act.

v)
Rule 11 in fact confers wide powers on the tribunal, although it requires a
party to seek the leave of the tribunal. It does not require the same to be in
writing. It merely states that the appellant shall not, except by leave of the
tribunal, urge or be heard in support of any ground not set forth in the
memorandum of appeal. In a fit case it is always open to the tribunal to permit
an appellant to raise an additional ground not set forth in the memorandum  of 
appeal.  The   safeguard 
is  in the proviso to rule 11
itself. The proviso states that the tribunal 
shall not rest its decision on any other ground unless the party who may
be affected thereby has had a sufficient opportunity of being heard on that
ground. Thus,  even if it is a pure
question of law, the tribunal cannot consider an additional ground without
affording the other side an opportunity of being heard. even in the absence of
the proviso, it would be incumbent upon the tribunal to afford a party an
opportunity of meeting an additional point raised before it.

vi)
Moreover,  even  though 
rule  11  requires 
an appellant to seek the leave of the tribunal,  it does not confine the Tribunal to a
consideration of the grounds set forth in the memorandum of appeal or even the
grounds taken by the leave of the tribunal. In other words, the tribunal can
decide the appeal on a ground neither taken in the  memorandum 
of  appeal  nor 
by  its  leave. The only requirement is that the
tribunal cannot rest its decision on any other ground unless the party who may
be affected has had sufficient opportunity of being heard on that ground.

vii) in the present case, the tribunal ought to have exercised its
discretion especially in view of the fact 
that  the  assessee 
intends  raising  only  a
legal argument without reference to any disputed questions  of 
fact. The   matter is  remanded 
to the tribunal for adjudicating upon the additional ground on merits.”

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Principal CIT vs. Carrier Air Conditioning and Refrigeration
Ltd.; 387 ITR 441 (P&H):

In
the appeal filed by the Revenue before the Punjab and haryana high Court, the
following questions were raised:

“i)  Whether the hon’ble income-tax appellate
tribunal has acted in contravention of the second proviso to section 254(2a) of
the income-tax act, 1961 as the combined period of stay has exceeded 365 days?

ii)  Whether the order of the income-tax tribunal
be treated as void ab initio in the light of the third proviso to section
254(2a) of the income-tax act, 1961, which provides that stay of demand stands
vacated after expiry of 365 days even if delay in disposal of appeal is not
attributable to the assessee?”

The
high Court held as under:

“Where the delay in disposing of the appeal is not attributable to the
assessee, the tribunal has the power to grant extension of stay beyond 365 days
in deserving cases.”

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