ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 31-5-2010 Volume 3 : Part 5

 

Reports

 

->> When specific method suggested to determine profit of entire project takes care of undervaluation of closing stock, no separate addition required : Desai Real Estate Developers v. ITO (Panaji) p. 439

 

->> Expenses incurred for leasehold premises are revenue in nature : Asst. CIT v. SET India P. Ltd. (Mumbai) p. 454

 

->> Finding that service fees paid by principal was at arm's length : Addition in hands of agent u/s. 92 not justified : Asst. CIT v. SET India P. Ltd. (Mumbai) p. 454

 

->> Gift from holding company of assessee given voluntarily without consideration not income : Asst. CIT v. SET India P. Ltd. (Mumbai) p. 454

 

->> Bad debts : Amounts written off in books offered to tax in earlier years allowable : Asst. CIT v. SET India P. Ltd. (Mumbai) p. 454

 

->> Incremental liability towards leave encashment of salary on actuarial valuation , deductible : Asst. CIT v. SET India P. Ltd. (Mumbai) p. 454

 

->> Objection to jurisdiction taken for first time before Tribunal in second round of litigation permissible : Shrimant F.P. Gaekwad (Decd.) v. Asst. CIT (Ahd.) p. 476

 

->> Building of erstwhile Ruler and lands appurtenant thereto exempted : Shrimant F.P. Gaekwad (Decd.) v. Asst. CIT (Ahd.) p. 476

 

->> Grant of approval to trust u/s. 80G to be considered independently of deeming provisions of section 80G(5)(vii) : Vidya Institute v. CIT (Delhi) p. 491

 

->> Cross-objection at assessee's instance in its own appeal not maintainable u/s.253(4) : Vidya Institute v. CIT (Delhi) p. 491

 

->> Interest accrued on debentures cannot be allowed u/s. 40(a)(ia) as tax not deducted at source : Dy. CIT v. Umang Dairies Ltd. (Delhi) p. 497

 

->> Where genuiness of gifts not proved, addition of alleged gifts to income justified : Rajinder Kumar Mittal v. Asst. CIT (Delhi) p. 508

 

    NEWS-BRIEFS

 

 

->> Finance Ministry temporarily suspends e-filing of income-tax returns

    The Finance Ministry has temporarily suspended the facility for e-filing of income-tax returns as it could not procure a security certification for the Income-tax Department's website in time.

 

    "Pending completion of the certification procedure, the e-filing facility for assessment year 2010-11 has been temporarily suspended . . . The facility is expected to be renewed very shortly", an official release said.

 

The Department has initiated the process for renewal of the security certificate of its e-filing portal, which expired on May 8, 2010, it added. The security certification, which is provided by specialised agencies, indicates that adequate safeguards have been taken to protect data from unauthorised access.

 

The Government had introduced the system for mandatory filing of income-tax returns by corporates in electronic format from assessment year 2006-07.

   

The temporary suspension of e-filing of returns, the release added, will not affect taxpayers, as the due date for submitting income-tax return for assessment year 2010-11 is July 31, 2010. The e-filing portal of the Income-tax Department remains fully secure and the lapse of the security certificate does not mean that its security features are slackened or compromised, it said. [Source : www.economictimes.com dated May 17, 2010]

 

->> Government keen to address areas of concern in impending DTC draft

 

The Government has said that it has identified nine areas of concern in the Direct Taxes Code (DTC) draft, and they would be taken into consideration while it is being redrafted.

 

The revised discussion paper would soon be put up for public comments, after which the DTC bill will be tabled in Parliament during the monsoon session, the Finance Minister said.

 

The Minister said that the second draft of the code would be put in the public domain soon.

 

Last year, the Finance Ministry had come out with the first discussion paper on the DTC, proposing that tax slabs be widened sharply. As per the proposals, the highest tax liability of 30 per cent. was to fall on people with an annual income of above Rs. 25 lakh, against the current level of over Rs. 8 lakh. It had proposed similiar widening for other tax slabs too.

 

But the draft also proposed that long-term savings be taxed at the time of withdrawal, and the minimum alternate tax (MAT) be calculated against the gross assets of the companies concerned. These proposals evoked sharp reactions from the industry as well as the public.

 

The Finance Minister also said that the Government has written to 65 countries, asking them to make exchange of information more effective and remove the secrecy clause.

 

"Twenty low or no-tax countries have been identified for negotiating and signing tax information exchange agreement", the statement added.

 

Among other matters, the Finance Minister said that two more Centralised Processing Centers (CPC) would be set up this year. "The first one at Bengaluru has enabled faster processing of tax returns and better records management", he said.

 

The Minister further stated that the Refund Banker Scheme would be extended to more cities this year. The scheme enables speedier refunds to the bank accounts of taxpayers.

 

The statement said that the scheme was introduced in nine more cities last year, taking the number to 15. Under the scheme, tax refunds are transmitted to the State Bank of India for distribution among taxpayers. [Source : www.economictimes.com dated May 19, 2010]

 

->> A host of new taxpayer services to be introduced this year by Income-tax Department

 

With the present Income-tax Act proposed to be replaced by the Direct Taxes Code (DTC) next year, the I-T Department is planning to introduce a host of services related to processing of tax returns and refunds in the current fiscal.

 

The Department will also observe 150 years of the introduction of the first ever Income-tax Act in 1860, as it will celebrate the "Income Tax day" on July 24 this year.

 

The event is likely to be inaugurated by the Finance Minister who will also lay out a roadmap of the department for the future.

 

"This is the last year of the 1961 Income-tax Act. This year, a number of taxpayer programmes of the department can be initiated and completed", a CBDT Member said.

 

The Department, this fiscal, is planning to set up an independent Tax Deducted at Source (TDS) directorate while fast processing of tax returns and technological upgrade of tax refunds are the other core issues, he said. The revenue accrued from TDS has been constantly growing over the years and with the increase in the number of service organisations across the country, the share from under this category of taxes is bound to grow. According to estimates, the TDS revenue contributes almost 40 per cent. to the direct taxes kitty.

 

Programmes like the Refund Banker scheme, presently on in 15 cities of the country, will also be extended to other locations this fiscal.

 

The DTC, aimed at simplifying the tax structure, is proposed to be introduced in April next year and will ultimately replace the Income-tax Act, 1961, bringing all other direct taxes, including wealth tax, under its purview.

 

The Finance Minister had said that if a reasonable level of discussion happens on the code, a bill could be placed in the Winter Session of Parliament.

 

According to the Finance Ministry records, the first Income-tax Act which was introduced in India in 1860 received the assent of the then Governor General and was modelled on the English Statute. [Source : www.economictimes.com dated May 19, 2010]

 

->> Jeevan Akshay-VI approved for income-tax deduction

 

The Central Government have approved Jeevan Akshay-VI Plan of the Life Insurance Corporation of India as an annuity plan eligible for deduction under clause (xii) of sub-section (2) of section 80C of the Income-tax Act, 1961.

 

Persons who have invested in this plan during the financial year 2007-08 or subsequently (relevant assessment year being 2008-09 and subsequent assessment years) will be eligible for deduction of the amount invested from their total income chargeable to income-tax. The benefit will, however, be limited to the overall ceiling of Rs. 1,00,000 available for deductions under section 80C. [Source : www.pib.nic.in dated May 19, 2010]

 

->> Taxpayers complacent about getting their income-tax records rectified

 

Despite the fact that the income-tax authorities have requested people to fill in rectification forms, many have neglected to do so, which means that the amount could resurface as outstanding dues in future.

 

Those who feel they have been wrongly charged under section 234C or TDS, should approach the concerned officer individually so they can make the change manually along with tax return acknowledgment and Form 16 to verify the facts.

 

One lakh people have filled in a special rectification form that has been prepared by the Department. Yet, this is but a third of the total number of taxpayers who have received such notices. Those who are lagging behind have chosen not to file for correction either in the belief that the system will make the necessary change automatically, or because the CAs who file their returns have not advised them to do so.

 

"Most people are quick to panic once they receive any notice from the I-T Department,'' an I-T Officer said. "Yet, this time, they have not completed their due diligence as they know several others are affected, and they feel the system will handle it on its own accord. It is advisable that they approach us to set the records straight.''

 

Six officers, most of them women, are processing each application manually, entering the recovery amount as "nil" after verifying the details on the income-tax acknowledgment form as well as Form 16. This eliminates the error from the I-T records and the amount will not show up in the assessee's records later. [Source : www.economictimes.com dated May 19, 2010]

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Core Principles of Reassessment under the Income Tax Act with Summary of Important Case Laws

I. Recording of reasons

1. Recording of reasons is a condition precedent to invoke jurisdiction under section 147/148. CIT vs. Rajindra Rosin & Turpentine Industries. (2008) 305 ITR 161 (Punj. & Har.)

2. Language of section 148(2) does not permit recording of reasons between date of issuance of notice and service of notice, words used by provisions in no uncertain terms require recording of reasons before issuing any notice.

Rajoo Engineers vs. Dy. CIT (2008) 218 CTR (Guj.) 53

II. Notice — Return under protest

3. When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.

GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC).

III. Reasons – Recorded to be supplied

4. Reasons for notice must be given and objections of assessee must be considered. Allana Cold Storage vs. ITO (2006) 287 ITR 1 (Bom.)

5. Assessee is entitled to be supplied with the reasons in the event he challenges the notice for reassessment; assessee is not estopped from challenging the impugned notice after having submitted to the jurisdiction of the officer by filing returns.

Berger Paints India Ltd vs. ACIT & Ors (2004) 266 ITR 462 (Cal)

6. If assessing officer rejects objections filed to notice under section 148 he shall not proceed further in matter for a period of four weeks from date of receipt of service of said order on objections, on assessee.

Asian Paints Ltd. vs. Dy. CIT (2008) 296 ITR 90 (Bom.)

7. Reassessment framed by the assessing officer without disposing of the primary objection raised by the assessee to the issue of reassessment notice issued by him was liable to be quashed.

MCM Exports vs. Dy CIT (2009) 23 DTR 356 (Guj).

8. Notices issued under sections 142(1) and 143 (3) without disposing of the objections raised in response to the reasons recorded held to be invalid.

Premier Ltd vs. Dy CIT WPNo 2340 dt 22-10-2008 (Bom)

IV. Issue of notice by successor

9. Assessing officer recording reasons for assessment and assessing officer issuing notice under section 148 must be the same person. Successor assessing officer cannot issue notice under section 148 on the basis of reasons recorded by predecessor assessing officer. Notice issued invalid and deserves to be quashed.

Hynoup Food and Oil Industries Ltd. vs. ACIT (2008) 307 ITR 115 (Guj.)

10.  The notice prescribed by section 148 cannot be regarded as a mere procedural requirement. It is only if the said notice is served on the assessee that the ITO would be justified in taking proceedings against the assessee. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO would be illegal and void.

• Y. Narayan Chetty vs. ITO (1959) 35 ITR 388 (SC),
• CIT vs. Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC)
• CIT vs. Kurban Hussain Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC)

1. Where notice was not sent by registered post nor served upon assessee in any other manner whatsoever, proceedings for assessment were void.

CIT vs. Harish J. Punjabi (2008) 297 ITR 424 (Del.)

12. Time limit for issue of notice- s. 143(2)

When period for issue of under section 143(2) not expired, reassessment held to be invalid. CIT vs. Qatalys Software Technologies Ltd (2009) 308 ITR 249 (Mad).

VI. Reasons – Non-application of mind

13. A.O. having communicated to the auditor that a certain decision of a High Court did not apply to the facts of the petitioner case but later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without giving any reasons as to why he has departed from the earlier view that the decision was not applicable there was total non-application of mind on the part of the AO, impugned communication is set aside and the matter is remanded back to the AO for de nevo consideration.

Asian Cerc Information Services (P) Ltd vs. ITO (2007) 293 ITR 271 (Bom)

VII. Approval and Sanction

14.  The court held that, it is not only the formation of the required belief by the Income Tax Officer to take recourse to assessment or reassessment but he is further statutorily required to record his reasons and must necessarily obtain sanction of the Commissioner or the Board as the case may be.

• Chhugmal Rajpal vs. S.P. Chaliha (1971) 79 ITR 603 (SC)
• Johari Lal (Huf) vs. CIT (1973) 88 ITR 439 (SC)

15.  CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable.

• German Remedies Ltd. vs. Dy. CIT (2006) 287 ITR 494 (Bom)
• United Electrical Company (P) Ltd. vs. CIT & Ors (2002) 258 ITR 317 (Del)

VIII. Disclosure of Primary Facts

16. Statement of unconnected person

In the absence of any material before the AO a statement by an unconnected person did not constitute reason to believe that assessee income had escaped assessment especially when the assessee had produced all the material and relevant facts and therefore the reassessment proceedings could not be sustained.

• Praful Chunilal Patel vs. M.J. Makwana, ACIT (1999) 236 ITR 832 (Guj)
• JCIT & Ors vs. George Williamson (Aassam) Ltd. (2002) 258 ITR 126 (Guj)

IX. Re-opening beyond 4 years bad in Law

17. Jashan Textiles Mills P. Ltd. vs. DCIT (2006) 284 ITR 542 (Bom)

18.  Assessee having fully and truly disclosed all the material facts necessary for the assessment as required by the AO the precondition for invoking the proviso to S. 147 was not satisfied and therefore AO acted wholly without jurisdiction in issuing notice u/s. 148 beyond four years period mentioned in S. 147.

Wel Intertrade (P) Ltd. & Anr. vs. ITO (2009) 308 ITR 22

19.  Tribunal having concluded that all the material facts were fully and truly disclosed by the assessee at the time of original assessment, invocation of provisions of S. 147 after the expiry of four years from the end of the relevant asst. year was not valid.

CIT vs. Kapil Dev (2009) 177 Taxman 6 (Del)

G.N. Shavo (Wine) (P) Ltd. vs. ITO & Anr (2003) 260 ITR 513 (Cal)

20.  AO who allowed assessee is claim for deduction under S. 80HHD was well above of the primary facts and therefore assessments could not be reopened after the expiry of four years on the ground that income had escaped assessment on account of excessive relief u/s. 80HHD.

Sita World Travels (India) Ltd vs. CIT (2005) 274 ITR 186 (Del)

21.  Assessee having made full disclosure of material facts in the return which was accompanied by several enclosures, assessment could not be reopened beyond four years from the end of the relevant asst. year for the reason that certain income has been wrongly assessed under the head 'Capital gains' instead of 'Profits and gains' of business or profession.

Gujarat Fluorochemicals Ltd. vs. DCIT (2008) 15 DTR (Guj)

22.  A.O. having accepted the claim of the assessee for deduction u/s. 80-O on the basis of details furnished by the assessee it cannot be said that the assessee had not made full and true disclosures of all material facts for claiming deduction and therefore, notices u/s. 148 issued after expiry of 4 years from the end of relevant asst. year were wholly illegal and without jurisdiction.

Universal Subscription Agency (P) Ltd. vs. Jt. Comm. of Income Tax (2007) 293 ITR 244 (All)

23.  There was no failure on the part of assessee to disclose a material fact where rateable value of the property was enhanced by the Municipal Corporation after assessment for assessment year 1991–92 to 1993-94 had been computed, hence reopening of assessment after expiry of four years from the end of relevant assessment year was barred by the Proviso to S. 147.

CIT vs. Tirathram Ahuja (HUF) (2008) 6 DTR (Del) 335.

24. There being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee's failure to make a full and true disclosure of all material facts necessary for assessment, notice u/s. 148 issued beyond four years from the end of relevant asst. year was barred by limitation under proviso to S. 147, hence without jurisdiction.

Haryana Acrylic Manufacturing Co. vs. CIT and Anr (2009) 308 ITR 38 (Del.)

X. Reassessment with in four years

25. An assessment order passed after detailed discussion cannot be reopened within a period of 4 years unless the AO has reason to believe due to some inherent defect in the assessment.

Techspan India (P) Ltd & Anr vs. ITO (2006) 283 ITR 212 (Del) German Remedies Ltd vs. DCIT & Ors. (2006) 285 ITR 26 (Bom)

XI. Reassessment – Change of opinion

26.  Amendment as per Direct Tax Laws (Amendment) Act, 1989 w.e.f. April 1, 1989 as also of sec. 148 to 152 have been elaborated in Circular No. 549, dated October 31, 1989. A perusal of clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears t that the omission of the expression reason to believe" from sec. 147 would give arbitrary power to AO to reopen past assessments on a mere change of opinion i.e. a more change of opinion cannot form basis for reopening a completed assessment.

CIT vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) (FB)

27.  Assessee having already filed his objections to the impugned notice u/s. 148 contending that it is a case of change of opinion and the issuance of notice was not justified, without making out a case of lack of jurisdiction the objections are to be considered by the competent authority and not in writ proceeding.

Jagdish Prashad Gupta vs. JCIT & Anr. (2006) 283 ITR 585 (Del)

28.  Issue regarding addition of amount of deferred taxation for computing book profits u/s. 1 15JB having been raised by the AO at the time of original assessment u/s. 143(3) and no addition having been made by AO on the account on being satisfied with the explanation of the assessee reopening of assessment on the very same issue suffered from change of opinion in the absence of any fresh material hence invalid.

M.J. Pharmaceuticals Ltd. vs. CIT (2008) 297 ITR 119 (Bom)

29.  In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.

Raymond Woollen Mills Ltd. vs. Income Tax Officer and Others (1999) 236 ITR 34 (S.C.)

30.  Points not decided while passing assessment order under section 143(3) not a case of change of opinion. Assessment reopened validly.

Yuvraj vs. Union of India (Bom.) (2009) 315 ITR 84.

31.  Change of opinion, bad in law

CIT vs. Former Finance (2003) 264 ITR 566 (SC)

XII. Reason to believe — Satisfaction.

31. Reopening is not permissible on borrowed satisfaction of another Assessing Officer. CIT vs. Shree Rajasthan Syntex Ltd. (2009) 212 Taxation 275 (Raj.)

XIII. Audit objection

32. AO having granted benefit of S. 72A to the assessee in respect of unabsorbed depreciation of the amalgamating company after the assessee had furnished the relevant particulars and the AO was satisfied about the eligibility of the assessee for the benefit of S. 72A are not applicable to the facts of the case amounted to a case of change of opinion and, therefore, reassessment proceedings cannot be sustained.

Stock Exchange Ahmedabad vs. ACIT (1997) 227 ITR 906 (Guj) Apollo Hospital Enterprises Ltd. vs. ACIT (2006) 287 ITR 25 (Mad.)

33. AO having reopened the assessment at the benefit of the Audit department while disagreeing with the later objection and without entertaining his own belief that the income of the assessee had escaped assessment on the ground that assessee had claimed loss on the basis of erroneous computation as indicated by the audit party reopening is not sustainable, notice u/s. 148 quashed.

Rajesh Jhaveri Stock Brokers (P) Ltd. vs. ACIT (2006) 284 ITR 593 (Guj)

34.  AO having communicated to the auditor that a certain decision of a HC did not apply to the facts of the petitioners case but later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without giving any reason as to why he has departed from the earlier view that the decision was not applicable, there was total non-application of mind on the part of AO; matter remanded back to AO for de novo consideration.

Asian Cerc Information Services (P) Ltd vs. ITO (2007) 293 ITR 271 (Bom)

35.  Reassessment was not valid as the AO held no belief on his own at any point of time that income of assessee had escaped assessment on account of erroneous computation of benefit u/s 80HHC and was constrained to issue notice only on the basis of audit object.

Adani Exports vs. DCIT (1999) 240 ITR 224 (Guj)

1. 36. Audit Objection cannot be the basis for reopening of assessment to income tax by the revenue. Indian & Eastern Newspaper Society vs. CIT (1979) 119 ITR 996 (SC).

37.  AO having allowed assessee's claim for depreciation in the regular assessment and reopened the assessment pursuant to audit objection, it cannot be said that he had formed his own opinion that the income had escaped assessment, and the reopening being based on mere change of opinion, same was not valid.

IL & FS Investment Managers Ltd. vs. ITO & Ors (2008) 298 ITR 32 (Bom) Vijaykumar M. Hirakhanwala (HUF) vs. ITO & Ors (2006) 287 ITR 443 (Bom)

XIV. Reasons to believe – Survey subsequent

38. Detection of excess stock or unaccounted expenditure as renovation of business premises at the time of survey u/s. 133A in a subsequent year, could not constitute reason to believe that such discrepancies existed in earlier years also and, therefore, reopening of assessments for those years on the basis of aforesaid reason to believe was not valid.

CIT vs. Gupta Abhushan (P) Ltd. (2008) 16 DTR (Del) 76

XV. Reassessment – Interpretation of High Court decision

39. Reopening of assessment on the basis of wrong interpretation of High Court decision was invalid. Assam Co. Ltd vs. UOI & Ors (2005) 275 ITR 609 (Gau)

XVI. Supreme Court decision cannot be the basis

40. The ITO cannot seek to reopen an assessment under section 147 on the basis of the Supreme Court decision in a case where assessee had disclosed all material facts.

Indra Co. Ltd. v. ITO (1971) 80 ITR 559 (Cal.)

XVII. Ignorance of board circular is not sufficient

41. The mere fact that the ITO was not aware of the circular of the board is not sufficient to reopen the assessment. Dr. H. Habicht v. Makhija (1985) 154 ITR 552 (Bom.)

XVIII. Notice – 143 (2).

42. Proceeding u/s. 147 cannot be initiated once return is filed by the assessee and no assessment is finalized by AO; since inquiries had been initiated u/s. 143(2) it became mandatory that they should have culminated in an order u/s. 143(3).

KLM Royal Dutch Airlines vs. ACIT (2007) 292 ITR 49 (Del)

43. Notice u/s. 143(2) cannot be issued after the expiry of 12 months from the end of the month in which the return was furnished reopening of assessment without any fresh material and without assigning any reason cannot be sustained.

Bapalal & Co. Exports vs. JCIT (2007) 289 ITR 37 (Mad)

XIX. Intimation – Section 143(1)

44. So long as the ingredients of section 147 are fulfilled, Assessing Officer is free to initiate proceeding under section 147 even where intimation under section 143(1) has been issued; as intimation under section 143(1)(a) is not assessment there is no question of treating reassessment in such a case as based on change of opinion.

Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500 (SC)

XX. Reassessment – Valuation report

1. AO had no jurisdiction to reopen the concluded assessments on the strength of valuation report of valuation officer obtained subsequently and that too not in exercise of powers u/s. 55A impugned notices under S. 148 quashed.

Prakash Chand vs. Dy. CIT & Ors (2004) 269 ITR 260 (MP)

1. Assessing Authority having made a detailed enquiry before making the assessment of the petitioner u/s. 143(3) the impugned notice u/s. 148 was issued only on the basis of change of opinion and was therefore, invalid, notice was also illegal on the ground that it was based on the valuation report of cost of construction.

Girdhar Gopal Gulati vs. UOI (2004) 269 ITR 45 (All)

47.  Mere DVO's report cannot constitute reason to believe that income has escaped assessment for the purpose of initiating reassessment and therefore Tribunal was justified on holding that the reassessment proceedings initiated on the basis of DVO's report were invalid ab initio, more so when it has found that the DVO's report suffers from various defects and mistakes.

CIT vs. Smt. Meena Devi Mansinghka (2008) 303 ITR 351

1. Reference to the valuation officer only in the course of the assessment. Reopening on the basis of valuation report not valid.

Manjusha Estate Pvt. Ltd. v ITO (2009) 314 ITR 263 (Guj).

1. Where apart from the valuation report which was relied upon by the ITO there was no material before him to come to the prima facie conclusion that the assessee had received the higher consideration than what had been stated in the sale deed, reassessment would not be justified.

ITO vs. Santosh Kumar Dalmia (1994) 208 ITR 337 (Cal.) XXI. Rectification

50.  Dept. having taken one of the two possible views in the matter of calculation of deduction u/ss. 10B and 80HHE assessment cannot be reopened by taking the other view more so when the CIT (A) has already quashed the rectification u/s. 154 which was made on the very same ground.

Western Outdoor Interactive (P) Ltd. vs. A.K. Phute, ITO & Ors (2006) 286 ITR 620 (Bom)

1. Allowance u/s. 80HHC having been granted by the ITO in rectification proceedings the remedy against lay with the dept. either u/s. 154 or S. 263 and not S. 147 further reassessment having been made on a date earlier than fixed same was bad. Alternative remedy was no bar for the maintainability of writ in such circumstances.

Smt. Jamila Ansari vs. ITO & Anr (1997) 225 ITR 490 (Addl)

1. Rectification proceedings initiated and dropped

i)  Dept. having taken one of the two possible views in the matter of calculation of deduction u/ss. 10B and 80HHE assessment cannot be reopened by taking the other view, more so when the CIT(A) has already quashed the rectification u/s. 154 which was made on the very same ground.

Western Outdoor Interactive (P) Ltd. vs. ITO (2006) 286 ITR 620 (Bom)

ii)  Rectification and reassessment due to audit objection on interpretation law, cannot be the basis for reopening of assessment.

CIT vs. Lucas T.V.S. Ltd. (2001) 249 ITR 306 (SC)

XXII. Direction of the Higher Authorities

53.  Revisional authority having directed the AO to adjudicate specific issues which were addressed and examined by him, assessment made by the AO on a higher total income by assuming more powers than that of the revisional authority is patently illegal and without jurisdiction.

N. Seetharaman vs. CIT (2008) 298 ITR 210 (Mad)

54.  The assessing officer for the assessment year 2000-0 1 recorded a specific note in the assessment order which indicated that the assessment order was passed under the dictates of the Commissioner. The Supreme Court in the challenge to the reopening for the same assessment year held that the assessment order passed on the dictates of the higher authority being wholly without jurisdiction, was a nullity. Therefore with a view to complete the justice to the parties, the Supreme Court directed that the assessment proceedings should be gone through again.

CIT vs. Greenworld Corporation (2009) 314 ITR 81 (SC).

XXIII. Amendment of Laws

55. No notice u/s. 148 having been served on the assessee prior to re-opening of assessment, assessment made u/s. 147 was bad in law; argument based on S. 292BB was not sustainable on the facts of the case.

CIT vs. Mani Kakkar (2009) 18 DTR (Del) 145

XXIV. Cases where full disclosures are not made

56. AO having accepted the claims of the assessee for deduction u/s. 80-O on the basis of details furnished by the assessee, it cannot be said that the assessee had not made full and true disclosure of all material facts for claiming deduction and therefore notice u/s. 148 issued after expiry of 4 years from the end of relevant assessment years were wholly illegal and without jurisdiction.

Universal Subscription Agency (P) Ltd vs. JCIT (2007) 293 ITR 244 (All)

XXV. Information

57. Information for reassessment should be based upon good faith and not mere pretence or purely subjective satisfaction.

S. Narayanappa vs. CIT (1967) 63 ITR 219 (SC) Culcutta Discount Co. vs. ITO (1961) 59 (SC) 41 ITR 191.

XXVI. Discloure in balance sheet

58. Disclosure in balance sheet also amounts to disclosure.

CIT vs. Corporation Bank Ltd. (2002) 254 ITR 791 (SC)

XXVII. Jurisdiction — Second Appeal

59. Jurisdiction can be challenged in Second Appeal.

Investment Corpn. Ltd. vs. CIT (1992) 194 ITR 548 (Bom) (556) N. Nagaganath Iyer vs. CIT (1996) 60 ITR 647 (Bom) (655)

1. 60. Appeal was pending before ITAT and the matter was subject matter of appeal before CIT (A). Metroauto Corpn vs. ITO (2006) 286 ITR 618 (Bom)

Note: Provisio to section 147 was inserted by the Finance Act, 2008, w.e.f. 1-4-2008

1. Dealing with the powers of 263, the court held that when the Commissioner (A) passes the order the entire order of AO, merges with the order of CIT (A), hence 263 cannot be initiated in respect of any other issue. The same principle will apply to reassessment under section 147 of the Act.

CIT vs. P. Munercherjii and Co. (1987) 167 ITR 671 (Bom.)

XXVIII. Scope of Powers

62.  Since the proceedings under section 147 are for the benefit of the revenue and in the assessee, and are aimed at gathering the escaped income of the revenue and an assessee and are aimed at gathering the escaped income of an assessee the same cannot be allowed to be converted as revisional or review proceedings at the instance of the assessee, thereby making the machinery workable.

CIT vs. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC)

1. Proceeding under section 147 are for the benefit of the revenue and not the assessee and hence the assessee cannot form the be permitted to convert the reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier rejected, or claim relief in respect of items not claimed in the original assessment proceedings unless relatable to the escaped income and reagitate concluded matters. Allowance of such a claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. Income for the purpose of reassessment cannot be reduced beyond the income originally assessed.

K Sudhakar S. Shanbhag vs. ITO (2000) 241 ITR 865 (Bom.)

1. Statements by the third party cannot form the basis

A mere confessional statement by the third party (who is the lender of the assessee) that he was the mere name lender and that all his transactions of loans were bogus, without naming the assessee as one who had obtained bogus loans, would not be sufficient to hold that the assessee's income had escaped assessment

S.P. Agarwalla Alias Sukhdeo Prasad Agarwalla vs. ITO (1983) 140 ITR 1010 (Cal)

65.  Assessing Officer cannot launch an inquiry on grounds not covered in reassessment notice. Where the Assessing Officer initiated proceedings for reassessment on the only ground that the assessee had claimed excess depreciation by adopting a higher rate as against the normal rate, he would not be justified in launching inquiry into issues which were not connected with the claim for depreciation. A letter issued to the assessee requiring the assessee to furnish information on issues in respect of which there was no allegation of any escapement or under assessment of income either in the reasons recorded or during the course of proceedings under the section would tantamount to reviewing the whole assessment which is not permissible. The letter was therefore vacated.

Vipin Khanna vs. CIT (2001) 251 ITR 782 (Del.)

XXIX. Block Assessment

66. Re-opening of assessment of a particular assessment year which was included in the block period — block assessment held to be invalid being barred by limitation. Merely because block assessment is time barred, the department cannot have reasons to believe that income has escaped assessment. And assessment for a particular year cannot be re-opened on that ground.

Smt. Mira Ananta Naik (2009) 183 Taxman 40 (Bom.)

67. From reading of clause (d) of the explanation one can clearly visualize a prohibition on determination of loss for the first time in a proceeding under section 147 on the basis of a return of loss filed in pursuance of a notice under section 148.

Koppind (P.) Ltd. vs. CIT (1994) 207 ITR 228 (Cal)

XXXI.    Reassessment in pursuance of an order/direction

68. The assessment or reassessment made by virtue of an order has to be confined to item in respect of which such finding or direction is given, it is not open to the AO to deal with other item of escaped income.

CIT vs. Moduri RajaiahGari Kishtaiah (1980) 123 ITR 494 (AP).

69.  As regards persons other than the assessee, who are not intimately connected with the assessee, no valid finding or direction can be given at all against them.

CIT vs. Omkarmal Meghraj (H.U.F.) (1974) 93 ITR 233 (SC) (240) CIT vs. S. Raghubir Singh Trust (1980) 123 ITR 438 (SC)

70. Direction to make an assessment or reassessment which has became time barred is not valid. K.M. Sharma vs. ITO (2002) 254 ITR (SC).

71. Remarks that reassessment proceedings could be taken. Not a finding or direction within meaning of section 150. Approval of Commissioner not obtained before issue of notice of reassessment — notice not valid.

Lotus Investments Ltd. vs. Asst. CIT (2007) 288 ITR 459 (Bom).

XXXII. Appeal

72.           In appeal against the order under section 147, the Deputy Commissioner (Appeals) cannot enhance the
assessment by adding new items of escaped income.

CIT vs. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC).

XXXIII. Order set aside by the Commissioner

73. When the assessment is set aside by the commissioner under section 263, no fresh order was passed, issue cannot be said to be escaped assessment, hence the reassessment notice held to be bad in law, void ab initio and illegal.

Ador Technopark Ltd. vs. DCIT (2004) 271 ITR 50 (Bom.)

XXXIV. Writ

74. A writ petition would be maintainable to challenge invocation of proceedings for reassessment even though it was open to the assessee to challenge the same before the assessing officer during assessment as also challenge the same before the Appellate authorities after the reassessment proceedings were completed.

Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC).

75. Writ petition challenging reassessment can not be thrown out at the threshold on the ground that it is not maintainable.

Techspan India (P) Ltd vs. ITO (2006) 283 ITR 212 (Delhi).

Read more: http://www.taxguru.in/income-tax-case-laws/core-principles-of-reassessment-under-the-income-tax-act-with-summary-of-important-case-laws.html#ixzz0p1KFecfF

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Summary of CBDT instructions on the allowability of losses on account of forex derivatives Read more: http://www.taxguru.in/income-tax/summary-of-cbdt-instructions-on-the-allowability-of-losses-on-account-of-forex-derivatives.html#ixzz0osI2StzK

The Central Board of Direct Taxes ('CBDT') on 23 March 2010 issued instructions on the matter whether losses on account of foreign exchange derivative transactions can be allowed against the taxable income of an assessee under the Income-tax Act, 1961 ('the Act'). These instructions have been issued in wake of recent growth in the volume of foreign exchange derivative transactions entered into by the corporate sector in India combined with the volatility in the foreign exchange market in the last financial year.

It may be pertinent to note that this issue has been surrounded by litigation, given the Marked-to-Market ('MTM') valuation of these derivatives and the treatment of any consequential losses in the books is usually determined by compliance with Accounting Standards or the advisory circular issued by the Institute of Chartered Accountants of India or guidelines issued by the Reserve Bank of India (in the case of Banks, Primary Dealers and Financial Institutions). The aforesaid treatment has been challenged by the Revenue Authorities, in numerous cases, by disallowing such losses on the premise that the same are notional and contingent in nature.

As regards the actual / realised losses (i.e. the losses which incur on actual settlement/ conclusion of contract), the issue that is usually the cause of litigation is whether such a loss is on account of a speculative transaction as contemplated in section 43(5) of the Income-tax Act, 1961 ('the Act'). This is due to that fact that any loss in a speculative transaction can be set off only against profit from speculativetransactions.

The CBDT instructions which have been issued recently lay down directions that the Assessing Officers may follow while dealing with the above mentioned situations:

MTM Losses

MTM is a concept under which financial instruments are valued at market price so as to report their actual value on the reporting date (i.e. at the end of a financial year). The CBDT has drawn reference to two different accounting treatments which may be followed by the assessees while giving effect to the loss which may arise on account of such year­endvaluation of open positions:

• Where the loss is reflected as a balance sheet item without making corresponding adjustment in the Profit and Loss Account, given that the same should not result in reduction oftaxable income, no instructions have been issued in this regard.
• Where the loss is booked in the Profit and Loss Account, thereby resulting in reduction in book profit, the CBDT has instructed that such a notional loss would be contingent in nature and hence, cannot be allowed to be set off againsttaxable income. This is based on the premise that no sale or settlement has actually taken place.

Losses on actual settlement / conclusion of contracts

These are the losses which may arise on actual settlement / conclusion of foreign exchange contracts and hence, are not notional in nature. In such a situation, the CBDT has instructed the Assessing Officers to determine whether such losses are speculative in nature. For the same, reference is drawn to section 43(5) of the Act which defines 'speculative transaction' as under:

"…a transaction in which a contract for the purchase and sale of any commodity including stocks and shares is settled otherwise than by the actual delivery or transfer of the commodity or scrips".

It may be pertinent to note that in terms of the proviso (d) to section 43(5) of the Act, certain eligible transactions in respect of trading in derivatives (As referred in clause (ac) of section 2 of the Securities Contracts (Regulations) Act, 1956 ) are not to be considered as a speculative transaction, provided the transaction is carried out electronically on screen based systems through a stock broker or sub-broker or intermediary registered under SEBI on a recognised stock exchange (In order to be notified as a recognised stock exchange, a stock exchange needs to fulfill the conditions specified in rule 6DDA of the Income-tax Rules, 1962.)  and is supported by time stamped contract note.

In light of the above, the CBDT has instructed the Assessing Officers to determine whether the transaction under consideration is an eligible transaction [i.e. transaction covered by the proviso (d) to section 43(5) of the Act], else the loss arising from the same should be treated as a speculative loss and the same should be allowed to be set off against speculative profits only.

Guidance for undertaking tax assessment

The CBDT has also emphasized that the Assessing Officer should examine the statements of accounts and the notes to accounts with a view to find out any reference to any loss on account offoreign exchange derivatives.

The CBDT has also stated that in some cases these losses may be camouflaged under the 'financial charges' 'foreign exchange loss' or some similar head which may make it difficult to detect them. In such cases, the Assessing Officers have been instructed to make a specific query asking the assessee to give a break up of any 'Marked to Market' loss onforeign exchange derivatives included in the Profit and Loss Account and examine whether such transactions are 'eligible transaction' in terms of section 43(5) of the Act. Further, an adjustment to the taxable income may be made, if necessary, keeping in view the provisions of law referred to above.

Our Comments

In light of these instructions, the challenges by the Revenue Authorities as regards losses arising out of derivative transactions are likely to get stronger. The losses arising on account of year-end valuation of open contracts are likely to be disallowed on the ground that these are contingent and notional in nature. Further, the actual / settlement losses may be considered to be speculative in nature and hence, shall not be allowed to be set-off against normal profits, unless they are arising out of eligibletransactions . Interestingly, the instructions do not provide any guidance with respect to assessees, which are also offering MTM profits to tax on a consistent basis and therefore, it is unclear as to how the Assessing Officer would give effect to the above instructions in these cases.

Based on the facts of each case, the assessees could clearly continue to challenge the disallowance in the appellate proceedings. The views expressed by the CBDT are merely to provide guidance to the Assessing Officers. The Courts would review the transactions and formulate their own views and to that extent these instructions should not impact the litigation which is open on the matter before any Appellate Authorities. Assessees should ensure that appropriate disclosures are made in the tax filings to mitigate any penal exposure on account of disallowance of the losses.

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Section 44-AB ,271B and 273 B Limit & penalty (Income Tax Act,1961)

Non-corporate assessees are required to obtain a tax audit report from a chartered accountant in certain cases. The limit of Rs 40 lakh in section 44-AB of the Income-tax Act, 1961, applies in the case of every person carrying on a business and whose total receipts or turnover from such business activity exceeds this figure.

The three expressions used by the statute, namely, 'total sales', 'turnover' or 'gross receipts' though not defined under the Act, in the ordinary sense, refer to the volume of the business to which it relates.

The business, which is carried on by the assessee has to be taken in totality. The 'sales', 'turnover', and 'gross receipts' are not words of art used in relation to any individual transaction independently but have been used as 'sales', 'turnover' or 'gross receipts'. The expression 'total' qualifies all the other three expressions, namely, 'sales', 'turnover', and 'gross receipts'. Total sales indicate the aggregate sale price of commodities carried out by the assessee as a trading business.

Obviously, it would not include such transfer of immovable or movable property by way of investment. Similarly, where the assessee is not merely selling movable commodities, but relating to other trading activities, for example, where the assessee is a land developer and he is engaged in the business of acquiring land, developing it, and selling houses or purchasing or is engaged in leasing business or in the stock market, the expression 'turnover' denotes receipts from such activities.

There may be a third or residuary category, which may not be termed a trading activity, though the assessee is carrying on a business activity like job work for others, without him being the manufacturer and selling such manufactured goods. Receipts by a person from business does indicate that it refers to revenue receipts only and do not include capital receipts and certainly not the receipts, which are not relatable to business and may fall under the expression income from sources other than profits or gains from business, profession or vocation.

Whenever from the return submitted by the assessee, it appears to the assessing officer that accounts of the assessee are required to be audited under section 44-AB and, therefore, the return ought to have been accompanied with the auditor's report, before rejecting the return as an invalid return, he is required to afford an opportunity as a matter of statutory obligation under section 139(9) to the assessee to submit the auditor's report.

On receiving a such notice, an assessee can avail of such an opportunity either by submitting the auditor's report if the accounts have already been audited, and if the accounts have not been audited by then and he realises that the accounts are required to be audited, then he can in the given time get his accounts audited and submit the accounts along with the report of the auditor in terms of clauses (bb) and (d) of section 139(9). On furnishing of such s report with or without audited accounts as the case may be, the return becomes valid.

There may be yet another contingency where the assessee considers that he is not under an obligation to get his accounts audited under section 44-AB. In such an event, he may raise his objection before the assessing officer in response to a notice under section 139(9). Where such an objection is raised, it will be for the assessing officer to decide such an objection before taking any decision about validity of return.

In case the assessing officer accepts the objection, the assessing officer, in that case, will proceed with the assessment on the basis of the return already submitted before him. However, in case the objection raised by the assessee is overruled, the assessing officer will be required to call upon the assessee to comply with the provisions of section 44-AB within a reasonable time, to enable a valid return to be filed, which could be processed for a regular assessment.

The question of penalty for non-compliance cannot be inquired into without reading the provisions of sections 271-B and 273-B, as both are integrally enacted.

While section 271-B provides for consequence of non-compliance of section 44-AB, section 273-B provides immunity from penalty that arises under section 271-B.

Apparently, in terms of section 273-B, the assessing officer will be required to consider whether not getting the accounts audited by September,30 of the relevant assessment year was due to any reasonable cause, which the assessee may put forward as defence for failure to comply with the aforesaid provisions.

In either case, where the assessee raises an issue that his case does not fall within the purview of section 44-AB, before penalty could be levied, the assessing officer would be under an obligation to decide such an objection raised by the assessee.

If the objection is sustained, obviously, no occasion would arise either of filing of the auditor's report along with the return so as to complete the defective return, or to impose a penalty under section 271-B.

In the case of where the assessing officer overrules the assessee's objection and holds that the assessee is liable to get his accounts audited in terms of section 44-AB, the question to consider is whether such objection raised by the assessee as to his obligation under section 44-AB was frivolous or a plausible stand, before arriving at a conclusion whether in such a case penalty could be levied. This view has been taken by the Rajasthan High Court in Bajrang Oil Mills versus Income-tax Officer (163 TAXMAN 154).

The Supreme Court in Hindustan Steel Ltd versus State of Orissa (83 I.T.R. 26), has laid down that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

To conclude, it cannot be held that in all cases where the assessee's objections as to his obligation to get his accounts audited under section 44-AB are overruled, his defense or reasons for non-compliance are not bona fide. The fact that on an analysis of the provisions, the authorities or the court come to the conclusion that the objections raised by the assessee about the requirement to comply with the provisions of the Act are not sustainable, that would not mean that the objection raised by the assessee is not bona fide.

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ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 17-5-2010 Volume 3 : Part 3

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 17-5-2010

Volume 3 : Part 3

 

 

REPORTS

>> Disallowance for personal expenses on ad hoc basis without discussion , not proper : Dy. CIT v. Sophisticated Marbles and Granite Industries (Delhi) p. 220

>> Where borrowals transferred interest free to sister concern for purchase of land for business of company and brand name, interest on borrowed capital allowable u/s. 36(1)(iii) : Dy. CIT v. Sophisticated Marbles and Granite Industries (Delhi) p. 220

>> Where assessee supplying manpower to clients and received payments from clients, expenses incurred for business purposes allowable : Dy. CIT v. Ankur Mahalwala (Delhi) p. 229

>> Arrears of mobile phone allowance and expenses towards mobile phone connection provided to employees disallowable to extent of Rs.10,000 : Dy. CIT v. Ankur Mahalwala (Delhi) p. 229

>> Long-term capital loss with indexation can be set off against long-term gains without indexation after determining tax following proviso u/s.112 : Keshav S. Phansalkar v. ITO (Mumbai) p.236

>> Where goods imported without duty under exemption certificate in earlier year and customs duty paid capitalised, depreciation allowable u/s. 32 : Dy. CIT v. Orient Ceramics and Industries Ltd. (Delhi) p. 246

>> Expenses incurred for glow sign boards not capital expenditure : Dy. CIT v. Orient Ceramics and Industries Ltd. (Delhi) p. 246

>> Sixty per cent. deprecation allowable on UPS, an integral part of computer : Dy. CIT v. Orient Ceramics and Industries Ltd. (Delhi) p. 246

>> Notice of reassessment can be issued only after expiry of time-limit for initiating proceedings u/s. 143 : Super Spinning Mills Ltd. v. Asst. CIT (Chennai) p. 258

>> Where no inference that assessee not maintaining books of accounts, direction to grant renewal of recognition : N U Trust v. DIT (Exemptions) (Bangalore) p. 290

>> TDS : Fees collected for use of infrastructure facilities from members by stock exchanges not fees for technical services : Dy. CIT v. Angel Broking Ltd. (Mumbai) p. 294

>> Where order accepting sale price and allowing set off prejudicial to Revenue, revision of order valid : S. Manickavasagam v. ITO (Chennai) p. 304

>> Income from sub-lease not constituting business, assessable as income from other sources : Ocean City Trading (India) P. Ltd. v. ITO (Mumbai) p. 311

>> Where assessee failed to explain expenditure on staff training and salary for business purpose , expenditure not deductible : Ocean City Trading (India) P. Ltd. v. ITO (Mumbai) p. 311

NEWS-BRIEFS

>> Direct Taxes Code likely to offer good value for individual savings

The proposed Direct Taxes Code (DTC) is likely to retain the exempt-exempt-exempt (EEE) regime for taxation of individual savings, as the exempt-exempt-tax (EET) regime may not gain approval.

In the current EEE regime, savings are exempt from tax in all the three stages: contribution, accretion and withdrawal. The EET method, which is considered to be the best global practice for taxation of savings, allows exemption at the first two stages, but provides for a tax on withdrawals at the personal marginal rate.

Government sources said that the via-media option of exempting withdrawals up to a certain threshold and taxing higher amounts could make things complex and invite charges of discrimination. The idea is that the administered interest rate for small savings - which is a tad above the fixed term deposits of banks - causes distortions. Analysts feel it would be pre-mature to suggest a change in the method of taxation of savings at this juncture, as accretion to savings is linked to interest rates. Another factor that weighs on the mind of policymakers is that since the intended purpose of the DTC is to make tax laws simpler, making a distinction between low and high savings could go against its very purpose.

According to the proposed DTC, the permitted savings intermediaries that were proposed to come under the EET regime were approved provident funds, approved superannuation funds, life insurer and the New Pension System Trust. Though the draft code had clarified that only new contributions to the saving schemes after the introduction of the DTC would be subject to the EET method of taxation, tax experts feel that the EET regime of taxing the savings would not be appropriate for the country at this point of time, since social security systems are still not robust. [Source : www.financialexpress.com dated May 5, 2010]

 

>> Discretion of the Assessing Officer germane to the statute applied

In an order highly critical of the Income-tax Department, the Bombay High Court has pulled up the Department for its "cavalier" approach and on the way tax issues are decided by the Department "without application of mind". The order was pronounced last week by Justice DY Chandrachud and Justice JP Devadhar.

The Division Bench made these observations in an order on a writ petition filed by an engineering major, which had moved court after the Commissioner of Income-tax rejected its petition for a lower rate of tax-deducted-at-source (TDS). The Commissioner had reportedly said that even if excess tax was deducted at source, the taxpayer would come to no harm as he (the taxpayer) is bound to get his money back with interest.

The High Court found the Commissioner's reasoning unacceptable. "We are constrained to observe that the application filed by the assessee has been rejected in a rather cavalier manner and without application of mind to circumstances which are germane to the statute," said the court.

The case is related to a direction from the I-T Department for a lower rate of TDS, which was rejected by the Assessing Officer on the ground that the assessee had failed to furnish figures for the past three years. The company then filed a revision application with the Commissioner of Income-tax.

The High Court found it impossible to accept the view that rejection of an application under section 197 is not an order. Besides, the High Court also noted that the Assessing Officer did not furnish any valid reason for rejecting the application.

The court also made reference to a system that allows discretion of the Assessing Officer, even if the applicant fulfills all the stipulated conditions. [Source : www.economictimes.com dated May 8, 2010]

 

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