| 2011-TIOL-89-SC-IT + it sc story : - ITO Vs M/s Mangat Ram Norata Ram Narwana (Dated: May 5, 2011 ) Income tax - Sections 142(1), 143(3), 148, 271(1)(a) & (c), 276C, 277, 278 - Whether, for the purpose of prosecution, it is statutorily required of the partner of the assessee-firm to sign the revised return showing higher income and leading to imposition of penalty - Whether when the partner fails to raise the issue of not signing the revised return and the assessee-firm pays up the penalty imposed, such acts impliedly amounts to admission for the purpose of prosecution.- Revenue's appeal allowed: SUPREME COURT |
| 2011-TIOL-529-HC-AHM-IT : - Dy.CIT Vs Pradip N Desai (Dated: July 6, 2011) Income Tax - Section 32 - Whethe the depreciation at the rate of 50% can be claimed in respect of vehicles given on lease. - Revenue's appeal allowed : GUJARAT HIGH COURT |
| 2011-TIOL-533-HC-AHM-IT : - CIT, Ahmedabad Vs Gurukrupa Developers (Dated: July 27, 2011) Income Tax - Section 113 - Whether the proviso to Section 113 which is in respect to the surcharge on the undisclosed income is clarificatory in nature. - Revenue's appeal allowed: GUJARAT HIGH COURT |
| 2011-TIOL-543-HC-AHM-IT : - CIT Vs Saurashtra Kutch Stock Exchange Ltd (Dated: August 8, 2011) Income tax – Section 12A, 13(3) – Whether once the CIT grants approval for registration of the trust u/s 12A, the AO is not required to re-examine the entire question of the object and purpose of the trust even though the approval was given with the said condition as the CIT cannot keep the very foundational issue open to be judged by the AO – Whether when there is no conclusion that any part of the funds were diverted or applied as not permitted under sub-section (3) of Section 13, the exemption cannot be denied only on the basis of some irregularities observed by SEBI in managing the funds of the trust. - Revenue's appeal dismissed : GUJARAT HIGH COURT |
| 2011-TIOL-519-HC-DEL-IT : - CIT, Delhi Vs Industrial Finance Corporation Of India Ltd (Dated: July 11, 2011) Income tax – Sections 36(1)(viia)(c), 36(1)(vii), 41(4A) – Whether the deduction claimed for the special reserve can be disallowed for an amount which is transferred from special reserve account to other account as per the amendment in section 36(1)(viii) which required to also maintain the amount in the reserve account though it is not retrospective – Whether the assessee is entitled to claim deduction for the amount of interest offered on NPA account which is not realized. - Revenue's appeal allowed: DELHI HIGH COURT |
| 2011-TIOL-519-HC-DEL-IT : - CIT, Delhi Vs Industrial Finance Corporation Of India Ltd (Dated: July 11, 2011) Income tax – Sections 36(1)(viia)(c), 36(1)(vii), 41(4A) – Whether the deduction claimed for the special reserve can be disallowed for an amount which is transferred from special reserve account to other account as per the amendment in section 36(1)(viii) which required to also maintain the amount in the reserve account though it is not retrospective – Whether the assessee is entitled to claim deduction for the amount of interest offered on NPA account which is not realized. - Revenue's appeal allowed: DELHI HIGH COURT |
| 2011-TIOL-559-HC-KAR-IT : - CIT, Bangalore Vs Dr T K Dayalu (Dated: June 20, 2011) Income Tax - Section 2(47)(v), 45, 143(2) – Whether, in respect of development agreement, the relevant date for attracting capital gain is the date on which possession is handed over to the developer or the date of completion of the project. - Revenue's appeal allowed : KARNATAKA HIGH COURT |
| 2011-TIOL-564-HC-KAR-IT : - CIT, Bangalore Vs M/s Ganjam Nagappa And Sons (HUF) (Dated: May 26, 2011) Income Tax - Sections 147, 148 - Whether the Tribunal can interfere with the concurrent findings on the question of fact when no cogent reasons are given for interfering. - Revenue's appeal allowed : KARNATAKA HIGH COURT |
| 2011-TIOL-536-HC-MAD-IT : - CIT, Madurai Vs K A S Mathivanan (Dated: August 1, 2011) Income Tax - Whether allowance can be made merely because future payments were made out of the funds said to be kept in the suspense account - Revenue's appeal allowed : MADRAS HIGH COURT |
| 2011-TIOL-496-HC-P&H-IT : - CIT, Chandigarh Vs Sanjay Chhabra (Dated: March 31, 2011) Income tax – Sections 69, 133A – Unexplained Investment – Whether when the assessee fails to rebut the unexplained investment in the purchase of fuits, and the CIT(A) and Tribunal fail to record the fact that such entries were made in the books, the addition made by the AO is sustainable. - Revenue's appeal allowed : PUNJAB AND HARYANA HIGH COURT; |
| 2011-TIOL-567-HC-P&H-IT : - CIT Vs Mukta Metal Works (Dated: February 28, 2011) Income Tax – Section 158BC, 158BD - Whether the office note appended to section 158BC constitutes a valid satisfaction note within the parameter of section 158BD of the Act – Whether any inference could be drawn from the entries in the seized diary during search, so as to make additions on account of undisclosed income - Whether the Tribunal is duty bound to consider the additional evidence in the form of report of forensic science laboratory in the interest of justice if the same is authentic and necessary for the decision of the issue raised before it.- Revenue's appeal allowed : PUNJAB AND HARYANA HIGH COURT |
Showing posts with label Supreme Court. Show all posts
Showing posts with label Supreme Court. Show all posts
Sunday, September 11, 2011
Some recent past case. (Favor Revenue)
Sunday, August 21, 2011
Vodafone questions I-T Dept's ambit to levy capital gains tax
Vodafone questions I-T Dept's ambit to levy capital gains tax British telecom giant Vodafone has questioned the jurisdiction of the Income Tax Department in slapping the Rs 11,000-crore capital gains tax over its buy out of Hutchison's 67 per cent stake in Essar-Hutchison joint venture, the final hearing on which began in the Supreme Court today.
Appearing before a three-judge Bench headed by the Chief Justice, Mr S. H. Kapadia, senior advocate Mr Harish Salve contended that as the transaction between two foreign companies — Vodafone International Holding BV and Hutchison Communication International Ltd — had happened outside India, the I-T Department could not impose capital gain tax. "Transfer of control of downstream companies (in this case, Hutchison's Indian telecom assets) by two foreign companies cannot be a basis for (the I-T Department) asserting tax jurisdiction. This is the heart of the matter," Mr Salve said. Mr Salve submitted that Vodafone was not liable to pay capital gains tax on the 2007 deal because all the parties involved were foreign companies and also the transaction was not carried out in India.
Therefore, there was no income that could be subjected to tax in India. Mr Salve said the complex structure of the deal had not been created to evade any tax, as claimed by the I-T Department. The structure was instead a result of several players entering and exiting the telecom business before Vodafone acquired Hutchison's Indian telecom assets. Therefore, it was not a device to perpetrate a tax fraud and did not amount to a dishonest scheme or money laundering, he claimed.
The Bombay High Court's order on the matter, which is being challenged by Vodafone before the apex court, notes that between 1992 and 2006 Hutchison had acquired interests in 23 mobile telecommunication circles in India. The Bombay High Court had said the I-T Department has the jurisdiction to claim the tax in this case. The Supreme Court sought to know from Mr Salve the nature of the transaction, the reason for routing the deal through a company based in a tax haven (Cayman Islands), and whether the I-T Department could demand tax as the underlying assets were in India. Mr Salve said though a tax haven was involved, the transaction was genuine and honest as it was transparent.
The case involves the Netherlands-based Vodafone International Holdings BV (VIH), a subsidiary of the UK-based Vodafone Group, acquiring a 67 per cent controlling stake in the Cayman Islands-based CGP Investments Ltd that held the Indian telecom assets (Hutchison Essar) of the Hong Kong-based Hutchison Whampoa. The shares in Hutchison Essar were held through companies based in Mauritius and India. The I-T Department says Vodafone failed to deduct tax at source while acquiring the controlling stake. The high-profile case is keenly watched by many across the globe as the apex court order is expected to have ramifications on India-related acquisitions and foreign investments into the country. - www.thehindubusinessline.co
Appearing before a three-judge Bench headed by the Chief Justice, Mr S. H. Kapadia, senior advocate Mr Harish Salve contended that as the transaction between two foreign companies — Vodafone International Holding BV and Hutchison Communication International Ltd — had happened outside India, the I-T Department could not impose capital gain tax. "Transfer of control of downstream companies (in this case, Hutchison's Indian telecom assets) by two foreign companies cannot be a basis for (the I-T Department) asserting tax jurisdiction. This is the heart of the matter," Mr Salve said. Mr Salve submitted that Vodafone was not liable to pay capital gains tax on the 2007 deal because all the parties involved were foreign companies and also the transaction was not carried out in India.
Therefore, there was no income that could be subjected to tax in India. Mr Salve said the complex structure of the deal had not been created to evade any tax, as claimed by the I-T Department. The structure was instead a result of several players entering and exiting the telecom business before Vodafone acquired Hutchison's Indian telecom assets. Therefore, it was not a device to perpetrate a tax fraud and did not amount to a dishonest scheme or money laundering, he claimed.
The Bombay High Court's order on the matter, which is being challenged by Vodafone before the apex court, notes that between 1992 and 2006 Hutchison had acquired interests in 23 mobile telecommunication circles in India. The Bombay High Court had said the I-T Department has the jurisdiction to claim the tax in this case. The Supreme Court sought to know from Mr Salve the nature of the transaction, the reason for routing the deal through a company based in a tax haven (Cayman Islands), and whether the I-T Department could demand tax as the underlying assets were in India. Mr Salve said though a tax haven was involved, the transaction was genuine and honest as it was transparent.
The case involves the Netherlands-based Vodafone International Holdings BV (VIH), a subsidiary of the UK-based Vodafone Group, acquiring a 67 per cent controlling stake in the Cayman Islands-based CGP Investments Ltd that held the Indian telecom assets (Hutchison Essar) of the Hong Kong-based Hutchison Whampoa. The shares in Hutchison Essar were held through companies based in Mauritius and India. The I-T Department says Vodafone failed to deduct tax at source while acquiring the controlling stake. The high-profile case is keenly watched by many across the globe as the apex court order is expected to have ramifications on India-related acquisitions and foreign investments into the country. - www.thehindubusinessline.co
Sunday, February 27, 2011
CLAIMS IN RETURN OR OTHERWSE ??
CLAIMS IN RETURN OR OTHERWSE – A NEW APPROACH AND AMENDMETN IS REQUIRED IN VIEW OF E-FILING OF RETURN
Links and references:
Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. 2008 -TMI - 3591 - HIGH COURT OF DELHI.
Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court)
CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court)
National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court).
Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court) Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court).
CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court).
Claim in return of income:
Generally a claim of any expenditure, deduction or exemption should be preferred in computation itself and claimed in the return in form of returned income which should be as reduced by such claims. If a claim is not made, it cannot be accepted by the AO while making assessment in summary manner by accepting the return.
Contentions issues:
Tax laws are very complex and on many issues there can be difference of opinion. A claim which is not allowed by the AO can be subject matter of penalty proceedings. Therefore, assessee may adopt policy of play safe and may not claim a doubtful or contentions claim in the return.
Paper return vis a vis e-filing;
When a paper return is filed, the assessee usually attaches a computation of income and supporting documents. In the computation assessee can make further claims for consideration of the AO. However, in course of e-filing of return such claims cannot be made. Even if assessee files a copy of computation and supporting documents, the AO may not consider the same. Therefore, it is difficult to make further claims for consideration of the AO. In such a situation, the only way available to the assessee is to make a claim in the returned income and keep explanation ready so that if the AO enquire about the claim assessee is ready to offer a reasonable explanation.
Judgment of the Supreme Court- claim in return or revised return is must- need reconsideration:
The Supreme Court In case of Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court), held that a claim in the return or revised return is a must. A claim cannot be made by way of letter.
In that case the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. However, the assessee made a further claim vide a letter filed with the AO claiming certain deductions, which were not claimed in the return of income. The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return. The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return cannot be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.
Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return. Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may lose the relief.
Author feels that the case before the Supreme Court was not properly contested and argued. The specific mentions should have been made by the assessee as to why a claim was made by way of letter instead of by revising return, how limitations prescribed in law prevented the assessee to make a claim in the return, how the policy of `play safe' prompted the assessee not to make a claim in return to avoid penal action, in case the claim was ultimately held by courts as not allowable, other reasons like complexity of issue, uncertainties before the assessee about making the claim in the return etc. could have been pointed out and it could have been pleaded that the AO is duty bound to allow relief, even if it was not claimed by the assessee.
Though return is significant, however, it is not final about tax base:
Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon information and documents, which the assessing officer proceeds to assess the assessee. Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed. The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return. Where there is a doubt, the assessee must have an option to request the AO to allow relief, even if not claimed by assessee due to mistake or ignorance. The assessee must be given an opportunity to make further claims.
Claims having some doubts.
Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item. However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer.
Claim in the original return is best way:
The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.
Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed.
Suggested way to claim in case of doubtful claims:
The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim is not allowed. However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return. Therefore, the following course of action may be adopted by filing a return or hard copy of e-return: -
A. The Return is without prejudice:
On the cover of the return or other documents and on the acknowledgment "WITHOUT PREJUDICE", should be written.
Illustration of further claims:
Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue.
B. Claims for consideration of the assessing officer
In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:
a) Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court). Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.
b) Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court. In earlier year the CIT (A) / Tribunal has allowed such interest. However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…
c) Deductions of provident fund, ESI has not been made as payment was made after 15th April but before the due date for filing of the return. In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.
d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain. However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account. Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade. Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment. Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income.
Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.
C. A general clause for consideration of the AO
Below the computation following general clauses in form of prayer may be given
We have made the computation of income as per our understanding and as advised by our tax consultant. We have made some claims for your kind consideration as noted above. However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance. We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.
In case of e-return:
When a return is filed electronically, it is to be filed as per the e-from and there is not yet any scope by way of explanation sheet or further claim sheet in the e-return forms.
It is suggested that in the e-return forms, provision can be made to provide the assessee scope and option to add some sheets for explanations and further claims for consideration of the AO.
However, till such option is not available the assessee can do the following:
File a hard copy of return and supporting documents with a covering letter stating that the return is without prejudice, and that the AO is requested to consider further claims as mentioned in the covering letter or the accompanying documents. The assessee can also file explanations and supporting documents to justify his claims where there is some scope of doubt or there are different opinions prevailing.
Revised return may be filed
A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1). A belated return cannot be revised. Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.
The CIT (A) has power co-terminus with assessing officer-
a new twist is likely to take place:
Earlier, generally the AO, Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.
After the judgment in case of Goetz (supra.) the AO are not even considering claim for refund if not made in the return. Cases have been informed that the AO, while considering refund or credit for tax is considering the claim made by assessee and credit shown in OLTAS. If an assessee has not made claim for TDS or tax paid in the return, credit may be denied, even if the amount of TDS or tax paid is shown credited in OLTAS or other computerized reports of the department.
Earlier rulings on powers of CIT (A) and ITAT:
Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court) power of ITAT in case of National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that " However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961."
The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz. Therefore, there is big question mark on power of CIT(A). A view can be taken that CIT(A) has power co-terminus with the AO, therefore, if a claim cannot be accepted by the AO, CIT(A) cannot admit and consider the same.
In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.
Judgment of Delhi High Court on power of ITAT:
In CIT Versus M/s. Jai Parabolic Springs Ltd decided on 07 April 2008 2008 -TMI - 3591 - HIGH COURT OF DELHI the matter of power of ITAT to consider a new claim came for consideration. Revenue expenditure was shown as deferred revenue expenditure in the audited balance sheet. However, it was claimed as allowable in an additional ground preferred before the Tribunal. The revenue objected to such claim as the Tribunal on the basis of additional ground raised by the assessee allowed full deduction even though it was not claimed in the original return or a revised return.
Delhi High Court upheld the tribunal's decision.
An analysis of Delhi High Court's ruling:
In paragraph 17 the High Court considered that in Goetze (India) Limited v. commissioner of Income Tax 2006 -TMI - 5171 – (SUPREME Court) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.
High Court referred to judgment of the Supreme Court in National Thermal Power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), where the Supreme Court observed that:- 'The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessees as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.'
Therefore, according to this judgment Tribunal has power to admit additional claim arising from assessment records and first appeal order. High Court also referred to Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court), wherein the Apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.
In paragraph 16 the High Court has considered Jute Corporation of India Ltd. v. Commissioner of Income Tax 1990 -TMI - 5320 – (SUPREME Court) about powers of CIT(A). Therein the Supreme Court observed that:-'An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.'
Thus according to the Delhi High Court, the CIT(A) and ITAT can, in view of earlier rulings of the Supreme Court can, in some circumstances consider additional claims.
The purpose of different proceedings is to have assessment as per law:
We find that there are many more proceedings and options are available to revenue in comparison to the assessee to achieve correct assessment of tax. The assessee also faces more stringent restrictions and limitations as compared to revenue. The revenue has many effective remedies like rectification, revision, re assessment and recomputation etc. The limitation prescribed are also longer. Whereas the assessee has only effective way to file a revised return to prefer claim.
Amendment is desirable to permit additional claims:
Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe. In such circumstances, most of the assessee would prefer to adopt `play safe' approach even if returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time, limit to file a revised return might have lapsed. In such circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws.
Conclusions:
In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim. Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer. There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation itself, therefore, claims made by way of notes to the computation or otherwise in the return may be regarded as sufficient claim preferred in return to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities. In case of e-filing there should be separate sheet for such claims.
Dated: - February 18, 2011
Links and references:
Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. 2008 -TMI - 3591 - HIGH COURT OF DELHI.
Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court)
CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court)
National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court).
Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court) Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court).
CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court).
Claim in return of income:
Generally a claim of any expenditure, deduction or exemption should be preferred in computation itself and claimed in the return in form of returned income which should be as reduced by such claims. If a claim is not made, it cannot be accepted by the AO while making assessment in summary manner by accepting the return.
Contentions issues:
Tax laws are very complex and on many issues there can be difference of opinion. A claim which is not allowed by the AO can be subject matter of penalty proceedings. Therefore, assessee may adopt policy of play safe and may not claim a doubtful or contentions claim in the return.
Paper return vis a vis e-filing;
When a paper return is filed, the assessee usually attaches a computation of income and supporting documents. In the computation assessee can make further claims for consideration of the AO. However, in course of e-filing of return such claims cannot be made. Even if assessee files a copy of computation and supporting documents, the AO may not consider the same. Therefore, it is difficult to make further claims for consideration of the AO. In such a situation, the only way available to the assessee is to make a claim in the returned income and keep explanation ready so that if the AO enquire about the claim assessee is ready to offer a reasonable explanation.
Judgment of the Supreme Court- claim in return or revised return is must- need reconsideration:
The Supreme Court In case of Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court), held that a claim in the return or revised return is a must. A claim cannot be made by way of letter.
In that case the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. However, the assessee made a further claim vide a letter filed with the AO claiming certain deductions, which were not claimed in the return of income. The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return. The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return cannot be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.
Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return. Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may lose the relief.
Author feels that the case before the Supreme Court was not properly contested and argued. The specific mentions should have been made by the assessee as to why a claim was made by way of letter instead of by revising return, how limitations prescribed in law prevented the assessee to make a claim in the return, how the policy of `play safe' prompted the assessee not to make a claim in return to avoid penal action, in case the claim was ultimately held by courts as not allowable, other reasons like complexity of issue, uncertainties before the assessee about making the claim in the return etc. could have been pointed out and it could have been pleaded that the AO is duty bound to allow relief, even if it was not claimed by the assessee.
Though return is significant, however, it is not final about tax base:
Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon information and documents, which the assessing officer proceeds to assess the assessee. Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed. The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return. Where there is a doubt, the assessee must have an option to request the AO to allow relief, even if not claimed by assessee due to mistake or ignorance. The assessee must be given an opportunity to make further claims.
Claims having some doubts.
Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item. However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer.
Claim in the original return is best way:
The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.
Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed.
Suggested way to claim in case of doubtful claims:
The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim is not allowed. However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return. Therefore, the following course of action may be adopted by filing a return or hard copy of e-return: -
A. The Return is without prejudice:
On the cover of the return or other documents and on the acknowledgment "WITHOUT PREJUDICE", should be written.
Illustration of further claims:
Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue.
B. Claims for consideration of the assessing officer
In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:
a) Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court). Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.
b) Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court. In earlier year the CIT (A) / Tribunal has allowed such interest. However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…
c) Deductions of provident fund, ESI has not been made as payment was made after 15th April but before the due date for filing of the return. In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.
d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain. However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account. Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade. Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment. Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income.
Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.
C. A general clause for consideration of the AO
Below the computation following general clauses in form of prayer may be given
We have made the computation of income as per our understanding and as advised by our tax consultant. We have made some claims for your kind consideration as noted above. However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance. We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.
In case of e-return:
When a return is filed electronically, it is to be filed as per the e-from and there is not yet any scope by way of explanation sheet or further claim sheet in the e-return forms.
It is suggested that in the e-return forms, provision can be made to provide the assessee scope and option to add some sheets for explanations and further claims for consideration of the AO.
However, till such option is not available the assessee can do the following:
File a hard copy of return and supporting documents with a covering letter stating that the return is without prejudice, and that the AO is requested to consider further claims as mentioned in the covering letter or the accompanying documents. The assessee can also file explanations and supporting documents to justify his claims where there is some scope of doubt or there are different opinions prevailing.
Revised return may be filed
A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1). A belated return cannot be revised. Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.
The CIT (A) has power co-terminus with assessing officer-
a new twist is likely to take place:
Earlier, generally the AO, Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.
After the judgment in case of Goetz (supra.) the AO are not even considering claim for refund if not made in the return. Cases have been informed that the AO, while considering refund or credit for tax is considering the claim made by assessee and credit shown in OLTAS. If an assessee has not made claim for TDS or tax paid in the return, credit may be denied, even if the amount of TDS or tax paid is shown credited in OLTAS or other computerized reports of the department.
Earlier rulings on powers of CIT (A) and ITAT:
Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court) power of ITAT in case of National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that " However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961."
The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz. Therefore, there is big question mark on power of CIT(A). A view can be taken that CIT(A) has power co-terminus with the AO, therefore, if a claim cannot be accepted by the AO, CIT(A) cannot admit and consider the same.
In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.
Judgment of Delhi High Court on power of ITAT:
In CIT Versus M/s. Jai Parabolic Springs Ltd decided on 07 April 2008 2008 -TMI - 3591 - HIGH COURT OF DELHI the matter of power of ITAT to consider a new claim came for consideration. Revenue expenditure was shown as deferred revenue expenditure in the audited balance sheet. However, it was claimed as allowable in an additional ground preferred before the Tribunal. The revenue objected to such claim as the Tribunal on the basis of additional ground raised by the assessee allowed full deduction even though it was not claimed in the original return or a revised return.
Delhi High Court upheld the tribunal's decision.
An analysis of Delhi High Court's ruling:
In paragraph 17 the High Court considered that in Goetze (India) Limited v. commissioner of Income Tax 2006 -TMI - 5171 – (SUPREME Court) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.
High Court referred to judgment of the Supreme Court in National Thermal Power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), where the Supreme Court observed that:- 'The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessees as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.'
Therefore, according to this judgment Tribunal has power to admit additional claim arising from assessment records and first appeal order. High Court also referred to Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court), wherein the Apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.
In paragraph 16 the High Court has considered Jute Corporation of India Ltd. v. Commissioner of Income Tax 1990 -TMI - 5320 – (SUPREME Court) about powers of CIT(A). Therein the Supreme Court observed that:-'An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.'
Thus according to the Delhi High Court, the CIT(A) and ITAT can, in view of earlier rulings of the Supreme Court can, in some circumstances consider additional claims.
The purpose of different proceedings is to have assessment as per law:
We find that there are many more proceedings and options are available to revenue in comparison to the assessee to achieve correct assessment of tax. The assessee also faces more stringent restrictions and limitations as compared to revenue. The revenue has many effective remedies like rectification, revision, re assessment and recomputation etc. The limitation prescribed are also longer. Whereas the assessee has only effective way to file a revised return to prefer claim.
Amendment is desirable to permit additional claims:
Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe. In such circumstances, most of the assessee would prefer to adopt `play safe' approach even if returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time, limit to file a revised return might have lapsed. In such circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws.
Conclusions:
In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim. Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer. There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation itself, therefore, claims made by way of notes to the computation or otherwise in the return may be regarded as sufficient claim preferred in return to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities. In case of e-filing there should be separate sheet for such claims.
Dated: - February 18, 2011
Sunday, February 20, 2011
Supreme Court recalls law requiring PSUs to obtain COD approval
Electronics Corporation of India Ltd vs. UOI (Supreme Court – 5 Judge Bench)
Friday, February 18th, 2011Supreme Court recalls law requiring PSUs to obtain COD approval
In ONGC vs. CCE 104 CTR (SC) 31, the Supreme Court directed the Central Government to set up a 'Committee on Disputes' to monitor disputes between the Government and Public Sector Enterprises and give clearance for litigation. It was held the no litigation could be proceeded with in the absence of COD approval. This was followed in ONGC vs. CIDCO (2007) 7 SCC 39 and it was held that even disputes between PSUs and State Governments would require COD approval.
In CCE vs. Bharat Petroleum Corporation, a 2 Judge Bench of the Supreme Court held that the working of the COD had failed and that the time has come to revisit the law. The matter was referred to a Larger Bench for reconsideration.
HELD by the Larger Bench recalling its orders in ONGC vs. CCE 104 CTR (SC) 31, (2004) 6 SCC 437 and ONGC vs. CIDCO (2007) 7 SCC 39:
The idea behind setting up of the … "Committee on Disputes" (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD … Whilst the principle and the object behind the aforestated Orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation …. on same set of facts, clearance is given in one case and refused in the other.
This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court
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Wednesday, October 27, 2010
Penalty: Judgement from Hon'ble Supreme Court
Penalty: Welcome judgment from Hon'ble Supreme Court
Apr 9, 2010 Income Tax
If the Assessing officer or Commissioner (Appeals) in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, then he can direct that such person shall pay by way of penalty u/s. 271(1) (c), a sum not less than 100% but not exceeding 300% of the amount tax sought to be evaded by reason of concealment of his income or furnishing inaccurate particulars of his income. This section is used as a weapon by the assessing officers. In fact in the orders passed u/s. 143(3) of the Income Tax Act, they have been mentioning "Initiate Penalty proceedings u/s. 271(1) (C) of the I T Act" by default on additions/disallowances done without providing any reasons irrespective of whether the assessee really tried to conceal his income or furnished inaccurate particulars of his income or even if additions/disallowances are on account of legally debatable issues.
Larger Bench of Supreme Court in the case of Union of India and Ors., vs. M/s. Dharmendra textile processors and Ors. [2008 306 ITR 227] had while reversing the supreme court judgment of Dilip N Shroff Vs. Joint CIT, Special Range, Mumbai [2007 291 ITR 519] held that "It is a well-settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent". Also it further held that "The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff's case (supra) has not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment of Section 271(1)(c) read with explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the I.T. Act". Hence the supreme court in this judgment had concluded that `'Mens Rea'' or `'Willful concealment'' is not a criteria for determining leviability of penalty. Based on this judgment, department had been taking a view that once additions/disallowances are confirmed, penalty is to be automatically levied.
Under Income Tax Act, there are many issues which are debatable and hence assessee takes a legal position based on judicial pronouncements existing at the time of filing returns. An assessee also prefers making a claim in a transparent manner by providing on record all relevant facts, reasoning and judicial pronouncements considered while deciding on the making a claim.
The moot question that arises is whether making of an incorrect claim/claim which is not sustainable in law tantamounts to furnishing of inaccurate particulars of income and penalty u/s. 271(1)(c) can be levied for the same.
Hon'ble Mumbai ITAT in the case of ACIT vs. VIP Industries Ltd. [2009-(122)-TTJ -0289 –TBOM] had after considering the judgment of Dharmendra Textiles (supra) held as under:
» Mere fact that an addition is confirmed cannot per se lead to the confirmation of the penalty because quantum and penalty proceedings are independent of each other;
» For the deeming provision of Explanation 1 to s. 271(1)(c) to apply, it must be shown either that (a) the assessee fails to offer an explanation, or (b) he offers an explanation which is found to be false, or (c) he offers an explanation which cannot be substantiated or shown to be bona fide.
» The judgment of the Supreme Court in Dharmendra Textiles Processors which holds that penalty u/s.271(1)(c) is a civil liability and that "willful concealment" and "mens rea" are not essential ingredients for imposing penalty cannot be read to mean that in all cases where addition is confirmed, penalty shall mechanically follow. If penalty is imposed under such circumstances also there will remain no course open to an assessee to raise disputed claims and such proposition is beyond recognized canons of law.
Similarly, Hon'ble Pune ITAT in the case of Kanbay Software India Pvt. Ltd. vs. DCIT [2009-(122)-TTJ -0721 –TPUN] after considering Dharmendra Textiles Judgment had explained that there can be three distinct and mutually exclusive situations in the case of disallowances/addition to income:
Sr. No. Situation Penalty Leviable
1. Where the addition is on account of contumacious conduct of the taxpayer and his wrongful intention is established. Penalty was always imposable.
2. Where it can neither be established that the addition is on account of contumacious conduct of the taxpayer nor is it established that the taxpayer's conduct and explanation is bona fide. Penalty is leviable on account of judgment of Dharmendra Textiles.
3 Where it is established that the taxpayer's conduct and explanation is bona fide. Penalty will not be leviable.
However Income Tax department had still been contending that once the addition is confirmed/wrong claim is made by the assessee, penalty has to be levied u/s. 271(1)(C) of the Income Tax Act, 1961.
This issue once again come up for consideration before the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Reliance Petro Products Pvt. Ltd., (SLP(C) No. 27161 of 2008), wherein after going through the meaning of the words "furnishing of inaccurate particulars" it held as under;
» Mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claims made in the return of income cannot amount to furnishing of inaccurate particulars.
» Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself, would not attract penalty u/s. 271(1) (c) of the Income Tax Act.
» Unless there is a finding that any details supplied by the assessee in its return of income were found to be incorrect or erroneous or false, there is no question of levying penalty u/s. 271(1)(c).
» If the contentions of the revenue are accepted, then in case of every return where claim is not accepted by the Assessing Officer for any reason, the assessee will invite penalty u/s. 271(1)(c). That is clearly not the intendment of the Legislature.
This judgment clearly indicates that penalty can be levied by the assessing officer only once he proves that assessee has concealed the particulars of income or he has furnished inaccurate particulars of income at the time of filing of return of income or in any submissions thereafter (whether willfully or otherwise).
This judgment is surely a welcome judgment and will help the genuine and honest tax payers in a long way to make appropriate claims in the return of income. Also this will put an end to a lot of disputes, where in department has initiated penalty proceedings in case of assessees, purely based on the disallowances/additions made in the return of income.
Sunday, October 10, 2010
SC: Law Of Natural Justice Has Limits
Kanwar Natwar Singh vs. Directorate of Enforcement (Supreme Court)
Non-furnishing of "all documents" does not violate principles of natural justice
Natwar Singh & Jagat Singh ("Natwar Singh") were alleged to have dealt in and acquired Foreign Exchange totaling US $ 8,98,027 in respect of some Iraq oil contracts in contravention of FEMA. A notice was issued asking Natwar Singh to show-cause why an inquiry should not be held against them. In response, Natwar Singh demanded that the Adjudicating Authority furnish "copies of all documents in … possession in respect of the instant case, including the 83000 documents allegedly procured by one Virender Dayal". The Adjudicating Authority furnished copies of the documents as were relied upon by it but declined to furnish copies of other documents and decided to hold an inquiry in accordance with FEMA. This non-furnishing of "all documents" was challenged by Natwar Singh in the Delhi High Court which dismissed the challenge. Natwar Singh challenged the decision of the High Court in the Supreme Court. HELD, dismissing the appeal:
(i) The extent of applicability of principles of natural justice depends upon the nature of inquiry, the consequences that may visit a person after such inquiry from out of the decision pursuant to such inquiry. The right to fair hearing is a guaranteed right. Every person before an Authority exercising the adjudicatory powers has a right to know the evidence to be used against him. Dhakeswari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC) followed;
(ii) However, the principles of natural justice do not require supply of documents upon which no reliance has been placed by the Authority to set the law into motion. Supply of relied on documents based on which the law has been set into motion would meet the requirements of principles of natural justice;
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Tuesday, October 5, 2010
S. 80HHC vs. 115JB Ajanta Pharma Reversed By Supreme Court
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S. 80HHC vs. 115JB Ajanta Pharma Reversed By Supreme Court
In CIT vs. Ajanta Pharma 318 ITR 252 the Bombay High Court held (reversing the Special Bench judgement in DCIT vs. Syncome Formulations 292 ITR (AT) 144)) that the "sunset clause" of s. 80HHC (1B) applies to s. 115JB as well.
This judgement has been reversed by the Supreme Court today (9.9.2010). It has been held that MAT companies are not subject to the limitations of s. 80HHC (1B).
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Monday, September 27, 2010
VODAFONE CASE - SC
Vodafone tax case: Supreme Court declines to stay High Court order
NDTV Correspondent & Agencies, 27 September, 2010
The Supreme Court on Monday refused relief to Vodafone in the Rs. 12,000 crore tax case, in a ruling that will have far-reaching consequences on how the future cross-border transactions are carried out in India.
Declining to stay the Bombay High Court order, the apex court has directed the Income Tax Department to decide within four weeks the liability to be paid by Vodafone.
The Supreme Court said that Vodafone has to deposit a certain amount based on the apportioned sum decided by the income tax department. Britain's Vodafone on September 13 moved the Supreme Court challenging a Bombay High Court order that upheld the Income Tax Department's demand of Rs. 12,000 crore tax on the company's over $11 billion deal with Hong Kong-based Hutchison in 2007.
The Bombay High Court had earlier dismissed Vodafone International's petition challenging the Indian tax authorities' demand of Rs. 12,000 crore in tax over the Hutchison deal.
The High Court division bench held that Indian income-tax authorities had the jurisdiction to tax the transaction.
The Income Tax department has held Vodafone liable for not deducting tax at source from payment made to Hutchison and claimed around Rs. 12,000 crore in tax and penalty in the 2007 deal.
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Thursday, September 9, 2010
s. 32(1)(ii) Techno Shares Reversed By Supreme Court
In CIT vs. Techno Shares & Stocks 323 ITR 69 the Bombay High Court considered the definition of an "intangible asset" in s. 32(1)(ii) and held that a stock exchange card was not an intangible asset eligible for depreciation.
This judgement has been reversed by the Supreme Court today (9.9.2010). It has been held that a stock exchange card is a "license" and eligible for depreciation u/s 32(1)(ii).
S. 195 Samsung Electronics Judgement Reversed By Supreme Court
S. 195 Samsung Electronics Judgement Reversed By Supreme Court
The Supreme Court today (9.9.2010) pronounced judgement in a batch of appeals challenging the judgement of the Karnataka High Court in CIT vs. Samsung Electronics 320 ITR 209 where it was held that u/s 195 the payer was not entitled to consider whether the payment was chargeable to tax in the hands of the non-resident recipient or not.
The Supreme Court has reversed the judgement of the Karnataka High Court. The appeals have been remanded to the High Court for a decision on whether or not the payments were taxable in the hands of the non-resident recipient.
The judgement is awaited.
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Friday, August 20, 2010
SC: CIT vs. Walfort Share & Stock Brokers S. 94(7) dividend stripping loss cannot be disallowed.
CIT vs. Walfort Share & Stock Brokers (Supreme Court)
Tuesday, July 6th, 2010
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Pre S. 94(7) dividend stripping loss cannot be disallowed. Transaction cannot be ignored on ground that it is for tax-planning
The copy now available (15.7.2010 @ 14.30 hrs) is a better copy. Please re-download if you downloaded earlier)
In respect of AY 2000-01, the assessee bought units of a mutual fund on 24.3.2000 (the record date) for Rs. 17.23 each and immediately became entitled to receive dividend of Rs. 4 per unit. After the dividend payout, the NAV of the unit fell by Rs. 4 to Rs. 13.23. The assessee redeemed the units on 27.3.2000 at Rs. 13.23 per unit and claimed a loss of Rs. 4. The dividend of Rs. 4 was claimed exempt u/s 10(33). The AO & CIT (A) rejected the claim of loss on the ground that the loss was "artificial" and could not be allowed. On appeal by the assessee, a Five Member Special Bench of the Tribunal 96 ITD 1 (Mum) (SB) upheld the claim and this was confirmed by the Bombay High Court 310 ITR 421 (Bom). On appeal to the Supreme Court, HELD, dismissing the appeal:
(i) The argument of the department that the loss (the difference between the purchase and sale price of the units) constitutes "expenditure incurred" for earning tax-free income and was liable to be disallowed u/s 14A is not acceptable. The difference arose as a result of the dividend payout. The said "pay-out" is not "expenditure" to fall within s. 14A. For attracting s. 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income, which is absent in the present case.
(ii) The argument of the department that the transaction was entered into in a pre-meditated manner and that the loss is not genuine is not acceptable because the transaction was a "sale", the sale-price and dividend was received by the assessee. The assessee made use of the provisions of s. 10(33), which cannot be called an "abuse of law". Even assuming that the transaction was pre-planned, there is nothing to impeach the genuineness of the transaction. With regard to McDowell & Co 154 ITR 148(SC), in the later decision in Azadi Bachao Andolan 263 ITR 706(SC) it has been held that a citizen is free to carry on its business within the four corners of the law. Mere tax planning, without any motive to evade taxes through colourable devices is not frowned upon even in McDowell & Co. Accordingly, the losses pertaining to exempted income cannot be disallowed prior to s. 94(7).
(iii) S. 94(7) was inserted w.e.f. 1.4.2002 to curb claim of such loss. However, the effect of s. 94(7) is that only losses to extent of dividend have to be ignored by the AO and not the entire loss. Losses over and above the dividend are still allowable even after s. 94(7). This shows that Parliament has not treated the dividend stripping transaction as sham or bogus or the entire loss as a fictitious or fiscal loss. If the argument of the Department is to be accepted, it would mean that before 1.4.2002 the entire loss would be disallowed as not genuine but, after 1.4.2002, a part of it would be allowable u/s 94(7) which can never be the object of s. 94(7).
(iv) As regards the reconciliation of ss. 14A and 94(7), the two operate in different fields. S. 14A deals with disallowance of expenditure incurred in earning tax-free income while S. 94(7) refers to disallowance of loss on acquisition of an asset. S. 14A applies to cases where an assessee incurs expenditure to earn tax free income but where there is no acquisition of an asset. In cases falling u/s 94(7), there is acquisition of an asset and existence of the loss which arises at a point of time subsequent to the purchase of units and receipt of exempt income. It occurs only when the sale takes place. S. 14A comes in when there is claim for deduction of an expenditure whereas s. 94(7) comes in when there is claim for allowance for the business loss. One must keep in mind the conceptual difference between loss, expenditure, cost of acquisition, etc. while interpreting the scheme of the Act. Also, though ss. 14A and 94(7) were inserted by the Finance Act, 2001, s. 14A was inserted w.r.e.f. 1.4.1962 while s. 94(7) was inserted w.e.f. 1.4.2002.
(v) The argument of the department that by virtue of Para 12 of AS 13, the dividend should be regarded as a "return of investment" and go to reduce the cost of the unit is not acceptable. As 13 provides that interest/ dividends received on investments are generally regarded as return on investment and not return of investment and it is only in certain circumstances where the purchase price includes the right to receive crystallized and accrued dividends/ interest, that have already accrued and become due for payment before the date of purchase of the units, that the same has got to be reduced from the purchase cost of the investment. A mere receipt of dividend subsequent to purchase of units, on the basis of a person holding units at the time of declaration of dividend on the record date, cannot go to offset the cost of acquisition of the units. (Reference made to Vijaya Bank 187 ITR 541 (SC) where it was held that where the assessee buys securities at a price determined with reference to their actual value as well as interest accrued thereon till the date of purchase the entire price paid would be in the nature of capital outlay and no part of it can be set off as expenditure against income accruing on those securities).
![http://i25.tinypic.com/ff23gj.jpg[/IMG]](http://i25.tinypic.com/ff23gj.jpg[/IMG]){kind=link}
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Tuesday, August 17, 2010
Delay Must Be Condoned: Supreme Court
Improvement Trust
vs.
Ujagar Singh
(Supreme Court)
Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities
The Appellant, a local authority, acquired land belonging to one of the Respondents for a development scheme in 1988. As the Appellant did not pay the compensation amount despite notice, the property was auctioned and sale confirmed in favour of the highest bidder in 1992. The bidder deposited the sale proceeds. The Appellant then "woke up from its slumber" and filed objections before the Single Judge for setting aside the auction sale. Even in these proceedings, the Appellant did not appear and the same were dismissed for non-appearance. The sale deed was executed in favour of the highest bidder. The Appellant then filed an appeal before the District Judge which was barred by limitation by a couple of months. This appeal was dismissed on the ground that there was not sufficient ground for condonation of delay. On mistaken advice, the Appellant filed a second appeal to the High Court which was thereafter treated by the Court as a revision application. This was also dismissed. The Appellant then filed a review petition which was also dismissed. Against that the Appellant filed a SLP which was also delayed. The delay in filing the SLP was condoned and the question before the Supreme Court was whether the District Judge was justified in dismissing the first appeal on the ground of delay. HELD allowing the appeal:
(i) While considering an application for condonation of delay no strait-jacket formula is prescribed to come to the conclusion if sufficient and good grounds have been made out or not. Each case has to be weighed from its facts and the circumstances in which the party acts and behaves. From the conduct, behaviour and attitude of the appellant it cannot be said that it had been absolutely callous and negligent in prosecuting the matter;
(ii) Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold;
(iii) Unless malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned. In the legal arena, an attempt should always be made to allow the matter to be contested on merits rather than to throw it on such technicalities. Apart from the above, the appellant would not have gained in any manner whatsoever, by not filing the appeal within the period of limitation. It is also worth noticing that delay was also not that huge, which could not have been condoned, without putting the respondents to harm or prejudice. It is the duty of the Court to see to it that justice should be done between the parties;
(iv) Also observed that as the auction purchaser had been put to "inconvenience and harassment" and had not got any fruits for the sale proceeds paid in 1992, it should be paid costs of Rs. 50,000.
Note: In All India Primary Teachers vs. DIT 93 TTJ 155 (Del), delay of 43 years in making a s. 12A application was condoned on the ground that school teachers could not be expected to know the nuances of income-tax law!
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