By Subash Agarwal, Advocate
(A) SUPREME COURT
1. Price Waterhouse Coopers (P.) Ltd. vs.
CIT 348 ITR 308
Penalty
for concealment of income u/s 271(1)(c)- no penalty in case of a bonafide error
Held,
The facts of the case are rather peculiar and
somewhat unique. The assessee is undoubtedly a reputed firm and has great
expertise available with it. Notwithstanding this, it is possible that even the
assessee could make a 'silly' mistake and indeed this has been acknowledged
both by the Tribunal as well as by the High Court.
The fact that the tax audit report was filed
along with the return and that it unequivocally stated that the provision for
payment was not allowable under section 40A(7) indicates that the assessee made
a computation error in its return of income. Apart from the fact that the
assessee did not notice the error, it was not even noticed by the Assessing
Officer who framed the assessment order. In that sense, even the Assessing Officer
seems to have made a mistake in overlooking the contents of the tax audit
report.
3SC#PricePri
2. CIT vs. Ahmedabad Stamp Vendors Association
348 ITR 378
Section
194H of the Income-tax Act, 1961 - Deduction of tax at source – not applicable
in the case of discount on stamp purchases
Held,
Discount given to the Stamp Vendors is for purchasing the stamps in
bulk quantity and the said discount
is in the nature of cash discount.
In the circumstances, we concur with the impugned judgement that the
impugned transaction is a sale. Consequently, section 194H of the Income-tax
Act, 1961, has no application.
3. CIT vs. Gebilal Kanhaialal HUF 348 ITR 561
Section 271(1)(c) r/w
explanation 5 - Penalty for concealment of income in search cases - To grant
immunity from penalty, no time-limit for payment of tax is prescribed under
clause 2 of Explanation 5 to section 271(1)(c)
Held,
a)
Three conditions have got to be satisfied by
the assessee for claiming immunity from payment of penalty under clause (2) of
Explanation 5 to section 271(1)(c ). The first
condition was that the assessee must make a statement under section 132(4) in
the course of search stating that the unaccounted assets and incriminating
documents found from his possession during the search have been acquired out of
his income, which has not been disclosed in the return of income to be
furnished before expiry of time specified in section 139(1). Such statement was
made by the Karta during the search which concluded on 1-8-1987. It is not in
dispute that condition No.1 was fulfilled. The second condition for availing of
the immunity from penalty under section 271(1)(c) was that the assessee should specify, in his statement under section
132(4), the manner in which such income stood derived. Admittedly, the second
condition, in the present case also stood satisfied. According to the
Department, the assessee was not entitled to immunity under clause (2) as he
did not satisfy the third condition for availing the benefit of waiver of
penalty under section 271(1)(c)
as the assessee failed to file his return of income on 31-7-1987 and pay tax
thereon particularly when the assessee conceded on 1-8-1987 that there was
concealment of income. The third condition under clause (2) was that the
assessee had to pay the tax together with interest, if any, in respect of such
undisclosed income.
b)
However, no time limit for payment of such tax
stood prescribed under clause (2). The only requirement stipulated in the third
condition was for the assessee to 'pay tax together with interest'.
c)
In the present case, the third condition also
stood fulfilled. The assessee has paid tax with interest up to the date of
payment. The only condition which was required to be fulfilled for getting the
immunity, after the search proceedings got over, was that the assessee had to
pay the tax together with interest in respect of such undisclosed income up to
the date of payment. Clause (2) did not prescribe the time limit within which
the assessee should pay tax on income disclosed in the statement under section
132(4).
d)
For the above reasons, it was held that the assessee was entitled to immunity under clause (2) of Explanation
5 to section 271(1)(c).
Author’s Note: Section
271(1)(c) r/w explanation 5 is applicable to search cases only upto31.5.2007.
In cases of searches initiated after that date, new provision of penalty i.e.,
sec. 271AAA becomes applicable.
4. CIT vs. Dynavision Ltd. 348
ITR 380
Section
145: Where
assessee had been consistently following a method of valuation of stock and
Assessing Officer revalued closing stock by adding the element of excise duty
without making any adjustment to opening stock, any addition on account of
under valuation of closing stock was unjustified
Held,
a) It is not in
dispute that the assessee has been following consistently the method of
valuation of closing stock which is "cost or market price whichever is
lower." Moreover, the AO conceded before the CIT(A) that he revalued the
closing stock without making any adjustment to the opening stock . Though under
section 3 of the Central Excise Act, 1944, the levy of excise duty is on the
manufacture of the finished product the same is quantified and collected on the
value (i.e. selling price). In the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481(SC), it has
been held that, "valuation of unsold stock at the close of the accounting
period was a necessary part of the process of determining the trading results
of that period. It cannot be regarded as source of profits. That, the true
purpose of crediting the value of unsold stock is to balance the cost of the
goods entered on the other side of the account at the time of the purchase, so
that on cancelling out of the entries relating to the same stock from both
sides of the account would leave only the transactions in which actual sales in
the course of the year has taken place and thereby showing the profit or loss
actually realized on the year's trading. The entry for stock which appears in
the trading account is intended to cancel the charge for the goods bought which
have remained unsold which should represent the cost of the goods". (see
also : para 8 of the judgment in the case of CIT v. Hindustan Zinc
Ltd. [2007] 291 ITR 391(SC)
b) The addition of Rs. 16,39,000/- to
the income of the assessee on the ground of undervaluation of the closing stock
was wrong..
5. CIT vs. Bannari Amman
Sugars Ltd 210 Taxman 271
Sec 145: Closing stock may be valued below
the cost price/market price in spl. circumstances
By virtue of Essential Commodities Act, 1955
and Sugar control order a sugar manufacturer was required to sell 40 per cent
of its production at notified levy price to Public distribution system which is
lower than cost. However as per Incentive scheme, 40 per cent of total sugar
production was permitted to be sold at market price (i.e. incentive sugar).
Held,
The said scheme
came up for consideration before Supreme Court in case of CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392 in
which Court held that excess amount realized by manufacturer over notified
price on sale of incentive sugar should be treated as a capital receipt which
was not taxable under the Act. In view of said decision, assessee, who was
engaged in business of manufacture and sale of sugar was right in valuing
closing stock of incentive sugar at levy price.
6. CIT v.S. Khader Khan Son 210 Taxman
248
Section 133A : Survey
Section 133A does not empower A.O to examine
any person on oath; so statement recorded under section 133A has no evidentiary
value and any admission made during such statement cannot be made basis of
addition.
(B) HIGH COURTS
1. CIT vs. Indeo Airways (P.) Ltd. 349 ITR 85 (Del)
Sec
132 (4A) : once a presumption had been drawn as to the contents of documents recovered during search being true, revenue
cannot require assessee to produce materials in support of expenditure entries
contained in very same documents
HELD,
If the revenue was of the opinion that the expenses
claimed towards 'green boxes' was inadmissible or was excessive, or not
genuine, in order to reject the entries in the books of account and other
documents of the assessee, seized during the search, it ought to have relied on
other materials. Having once drawn the presumption that the contents of the
documents (of the assessee) taken into possession during the search were true,
the revenue could not have, consistently with that presumption, proceeded to
require the assessee to produce materials in support of the expenditure entries.
Such an inconsistent approach in respect of the contents of the same book
appears to have been founded only on suspicion that they were not genuine.
However, suspicion cannot replace proof. Moreover, the full effect of the
presumption should be given effect to, whenever the statute directs a
particular non-existent state of affairs to be assumed
2. Harshad J. Choksi vs. CIT 349 ITR 250 (Bom)
Section 28(i), r/w section 36(1)(vii) and section 36(2):If an
amount claimed as bad debt is held to be not deductible in view of
non-compliance of condition provided under section 36(2), same could be
considered as an allowable business loss
Held,
a)
On the basis of the decision in Badridas Daga vs. CIT [1958] 34
ITR 10 (SC) , it can
be concluded that even if the deduction is not allowable as bad debts, the
Tribunal ought to have considered the assessee's claim for deduction as
business loss. This is particularly so, as there is no bar in claiming a loss
as a business loss, if the same is incidental to carrying on of a business. The
fact that condition of bad debts were not satisfied by the assessee would not
prevent him from claiming deduction as a business loss incurred in the course
of carrying on business as share broker.
b)
In fact, the Bombay High Court in the case of CIT vs. R.B.
Rungta & Co. [1963] 50
ITR 233 upheld the finding of the Tribunal that the loss
could be allowed on general principles governing computation of profits under
section 10 of the Indian Income-tax Act, 1922, which is similar/identical to
section 28 of the 1961 Act. The revenue in that case urged that the assessee
having claimed deduction as a bad debt the benefit of the general principle of
law that all expenditure incurred in carrying on the business must be deducted
to arrive at a profit cannot be extended. This submission was negatived by the
Court and it was held that even where the debt is not held to be allowable as
bad debts yet the same would be allowable as a deduction as a revenue loss in
computing profits of the business under section 10(1) of the Indian Income-tax
Act, 1922.
3. CIT vs
.Dinesh
Jain HUF 211 Taxman 23 ( Del)
Sec 69B: Without a finding that assessee
invested more than what was recorded in its books of account, section 69B
cannot be invoked.
Held,
a)
Section 69B does not permit an inference to be
drawn from the circumstances surrounding the transaction that the purchaser of
the property must have paid more than what was actually recorded in his books
of account for the simple reason that such an inference could be very
subjective and could involve the dangerous consequence of a notional or
fictional income being brought to tax contrary to the strict provisions of
article 265 of the Constitution of India and Entry 82 in List I of the Seventh
Schedule thereto which deals with 'Taxes on income other than agricultural
income'.
b)
Applying the logic and reasoning in K.P. Varghese v. ITO
[1981] 131 ITR 597 ( SC) , for the purposes of
section 69B it is the burden of the Assessing Officer to first prove that there
was understatement of the consideration (investment) in the books of account.
Once that undervaluation is established as a matter of fact, the Assessing
Officer, in the absence of any satisfactory explanation from the assessee as to
the source of the undisclosed portion of the investment, can proceed to adopt
some dependable or reliable yardstick with which to measure the extent of
understatement of the investment. One such yardstick can be the fair market value
of the property determined in accordance with the Wealth Tax Act.
c)
Whether
the basis adopted by the Assessing Officer is an acceptable one or not may
depend on the facts and circumstances of the particular case. That question
may, however, arise only when actual understatement is first proved by the
Assessing Officer. It is only to this extent that the rigour of the
burden placed on the Assessing Officer may be relaxed in cases where there is
evidence to show understatement of the investment, but evidence to show the
precise extent thereof is lacking.
4. Maganbhai Hansrajbhai Patel vs. CIT 211 Taxman 386(Guj)
Sec 179: Only tax due of company, and not
interest or penalty, can be recovered from directors; if no misfeasance, gross
negligence or breach of duty is alleged, recovery under section 179 from
director cannot be made; director is liable only if recovery cannot be made
from company
Held,
a)
The liability of the director to pay the dues
of the company arises in terms of section 179(1) and such liability would be
co-extensive as provided in the said provision which refers to tax dues. The
director may be considered an assessee under section 2(7) of the Act which
provides that assessee means a person by whom any tax or any other sum of money
is payable under the Act. However, the same must be qua the tax of the company which was due and remained unpaid. By virtue of section 179(1) the director
cannot be held liable for interest and penalty and thereupon be treated as
an assessee under section 2(7) as a person by whom any tax or any other sum of
money is payable under the Act.
b)
Section 179(1) provides for a vicarious
liability of the director of a public company for payment of tax dues which
cannot be recovered from the company. However, such liability could be avoided
if the director proves that the non-recovery cannot be attributed to any gross
negligence, misfeasance or breach of duty on his part in relation to the
affairs of the company. It is of course true that the responsibility of
establishing such facts is cast upon the director. However, once the director
places before the authority his reasons why it should be held that non-recovery
cannot be attributed to any of the three factors, the authority would have to
examine such grounds and come to a conclusion in this respect. Significantly,
the question of lack of gross negligence, misfeasance or breach of duty on part
of the director is to be viewed in the context of non-recovery of the tax dues
of the company. In other words, as long
as the director establishes that the non-recovery of the tax cannot be
attributed to his gross neglect, etc., his liability under section 179(1) would
not arise. Here again the Legislature advisedly used the word gross neglect
and not a mere neglect on his part.
5. CIT vs. Usha International
Ltd 348 ITR 485 (Del)(FB)
Sec 147: change of opinion- various
facets
Held,
a) Reassessment proceedings can be validly initiated in case
return of income is processed under section 143(1) and no scrutiny assessment
is undertaken. In such cases there is no change of opinion?
b) Reassessment proceedings will be invalid in case the assessment
order itself records that the issue was raised and is decided in favour of the
assessee. Reassessment proceedings in the said cases will be hit by principle
of 'change of opinion'.
c) Reassessment proceedings will be invalid in case an issue or
query is raised and answered by the assessee in original assessment proceedings
but thereafter the Assessing Officer does not make any addition in the
assessment order. In such situations it should be accepted that the issue was
examined but the Assessing Officer did not find any ground or reason to make
addition or reject the stand of the assessee. He forms an opinion. The
reassessment will be invalid because the Assessing Officer had formed an
opinion in the original assessment, though he had not recorded his reasons.
d) Where an Assessing Officer incorrectly or
erroneously applies law or comes to a wrong conclusion and income chargeable to
tax has escaped assessment, resort to section 263 is available and should
be resorted to. But initiation of
reassessment proceedings will be invalid on the ground of change of opinion.
e) There may be cases where the Assessing
Officer does not and may not raise any written query but still the Assessing
Officer in the first round/ original proceedings may have examined the subject
matter, claim etc., because the aspect or question may be too apparent and
obvious. To hold that the Assessing Officer in the first round did not examine
the question or subject matter and form an opinion, would be contrary and
opposed to normal human conduct. Such cases have to be examined individually.
Some matters may require examination of the assessment order or queries raised by
the Assessing Officer and answers given by the assessee but in others cases, a
deeper scrutiny or examination may be necessary. The stand of the revenue and
the assessee would be relevant. Several aspects including papers filed and
submitted with the return and during the original proceedings are relevant and
material. Sometimes application of mind and formation of opinion can be
ascertained and gathered even when no specific question or query in writing had
been raised by the Assessing Officer. The aspects and questions examined during
the course of assessment proceedings itself may indicate that the Assessing
Officer must have applied his mind on the entry, claim or deduction etc. It may
be apparent and obvious to hold that the Assessing Officer would not have gone
into the said question or applied his mind. However, this would depend upon the
facts and circumstances of each case
f) Assessment
proceedings cannot be validly reopened under Section 147 of the Act, even
within four year, if an assessee has furnished full and true particulars at the
time of original assessment with reference to income alleged to have escaped
assessment.
6. CIT v. Arts Beauty Exports 211 Taxman
155(Del.)(mag)
Section 10B - Export
Oriented undertaking
Held,
A mere
reconstitution of partnership firm does not amount to splitting up or
reconstruction of partnership business already in existence so as to deny
exemption under section 10B.
7. CIT
v.Income-tax Settlement Commission 210 Taxman 529 (Guj)
Section 245C - Settlement Commission- Application for
settlement of cases - Maintainability of
Held,
Where by efflux of time, it is not open for
Assessing Officer to pass an order of assessment, merely because return was
accepted under section 143(1), case of assessee cannot be deemed to be pending
for assessment only because final order of assessment under section 143(3) was
not passed.
Where assessments had become time-barred
without any notice under section 143(2) and even final time-limit for passing
orders, even if such notices were issued, had expired and the assessee filed
his application for settlement before Commission, the assessee's application
was not maintainable.
