HC (BOM) : Taxing the bogus share holders are IT Department's job, company cannot be taxed.

IT : Where revenue urged that assessee company received share application money from bogus shareholders, it was for revenue to proceed by reopening assessment of such shareholders and assessing them to tax and not to add same to assessee's income as unexplained cash credit

■■■

[2017] 80 taxmann.com 272 (Bombay)

HIGH COURT OF BOMBAY

Commissioner of Income-tax- 1

v.

Gagandeep Infrastructure (P.) Ltd.*

M.S. SANKLECHA AND A.K. MENON, JJ.

IT APPEAL NO. 1613 OF 2014†

MARCH  20, 2017 

Section 68 of the Income-tax Act, 1961 - Cash credit (Share Capital) - Assessment year 2008-09 - Whether proviso to section 68 introduced by Finance Act 2012 with effect from 1-4-2013, would not have retrospective effect - Held, yes - Whether where assessee-company had established identity, genuineness and capacity of shareholders who had subscribed to its shares, Assessing Officer was not justified in adding amount of share capital subscription as unexplained credit - Held, yes - Whether where revenue urged that assessee had received share application money from bogus shareholders, it was for Income-tax Officers to proceed by reopening assessment of such shareholders and assessing them to tax in accordance with law and it did not entitle revenue to add same to assessee's income as unexplained cash credit - Held, yes [Para 3] [In favour of assessee]

FACTS

■		During the previous year relevant to subject assessment year the assessee had increased its share capital from Rs. 2.50 lakhs to Rs. 83.74 lakhs. The asessee had collected share premium to the extent of Rs. 6.69 crores and charged share premium at Rs. 190 per share. The assessee furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form No. 2 filed with the Registrar of Companies.
■		The Assessing Officer invoked section 68 to treat the amount of Rs. 7.3 crores, i.e., the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of section 68.
■		On appeal, the Commissioner (Appeals) deleted the addition made by the Assessing Officer by holding that the Assessing Officer had given no reason to conclude that the investment made was not genuine. He observed that if the amounts have been subscribed by bogus shareholders it was for the revenue to proceed against such shareholders. Therefore, the Assessing Officer was not justified in adding the amount of share capital subscription including the share premium as unexplained credit under section 68.
■		On further appeal, the Tribunal observed that the assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares and upheld the findings of the Commissioner (Appeals).
■		In instant appeal to the High Court, the revenue contended that proviso to section 68 which was introduced with effect from 1-4-2013 would apply in the facts of the present case even for assessment year 2008-09.

HELD

■		The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-4-2013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to section 68 is immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.
■		In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre-amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit. [Para 3]

CASES REFERRED TO

CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 (SC) (para 3).

Suresh Kumar for the Appellant. Percy Pardiwala, Senior Counsel and Atul Jasani for the Respondent.

JUDGMENT

1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 23rd April, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order is in respect of Assessment Year 2008-09.

2. Mr. Suresh Kumar, the learned counsel appearing for the Revenue urges the following re-framed questions of law for our consideration:—

"(i)		Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of Rs.7,53,50,000/- under Section 68 of the Act being share capital/share premium received during the year when the Assessing Officer held the same as unexplained cash credit?
(ii)		Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in restricting the disallowance under Section 14A of the Act only to the amount of expenditure claimed by the assessee in the absence of any such restriction under Section 14A and/or Rule 8D?"

3. Regarding question no.(i):—

(a)		During the previous relevant to the subject Assessment Year the respondent-assessee had increased its share capital from Rs.2,50,000/- to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at Rs.190/- per share. The respondent furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the respondent-assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the Act.
(b)		Being aggrieved, the respondent carried the issue in appeal. By an order dated 24th May, 2011 the Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition of Rs.7.53 crores made by the Assessing Officer by holding that the Assessing Officer had given no reason to conclude that the investment made (inclusive of premium) was not genuine. This inspite of evidence being furnished by the respondent in support of the genuineness of the transactions. Further he held that the appropriate valuation of the shares is for the subscriber/investor to decide and not a subject of enquiry by the Revenue. Finally he relied upon the decision of the Apex Court in CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 to hold that if the amounts have been subscribed by bogus shareholders it is for the Revenue to proceed against such shareholders. Therefore it held the Assessing Officer was not justified in adding the amount of share capital subscription including the share premium as unexplained credit under Section 68 of the Act.
(c)		Being aggrieved, the Revenue carried the issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondent-assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon, would be on capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P.) Ltd. (supra) to uphold the finding of the CIT(A) and dismissing the Revenue's appeal.
(d)		Mr. Suresh Kumar, the learned counsel appearing for the Revenue contends that proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for A.Y. 2008-09. The basis of the above submission is that the de hors the proviso also the requirements as set out therein would have to be satisfied.
(e)		We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
(f)		In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.

4. (a) Admit the substantial question of law at (ii) above.

(b) The issue arising in question no. (ii) is essentially whether application of Rule 8D(2)(iii) of the Income Tax Act Rules would permit the Revenue to disallow expenditure not claimed i.e. much larger than the expenditure / debited in earning its total income. The Counsel inform us that there is no decision on this issue of any Court available and it would affect a large number of cases where similar issues arise. Therefore, this issue would require an early determination. In the above view, at the request of the Counsel, the appeal is kept for hearing on 17th April, 2017 at 3.00 p.m., subject to overnight part-heard.

5. Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to the present appeal available, to be produced when sought for by the Court.

6. Stand over to 17th April, 2017.

Penalty leviable even if assessed income is equal to returned income.

[2010] 3 taxmann.com 99 (Mum. - ITAT)

Penalty is imposable under main provisions of section 271(1)(c) and there is no need to refer to any Explanations

·         ·        Merely because case of the assessee is not covered by any particular Explanation to section 271(1)(c), does not mean that penalty cannot be imposed when there is no difficulty in determining tax sought to be evaded

ITAT, MUMBAI BENCHES 'F' : MUMBAI

Harish P. Mashruwale HUF

v.

ACIT

ITA No. 4996/Mum/2007

March 30, 2010

RELEVANT EXTRACTS:

**       **                                            ** 

** **          **       **      

6.       The assessee has challenged the levy of penalty on three grounds. Firstly, the assessee has argued that the penalty proceedings have been initiated for concealing the particulars of income but the penalty has been imposed for furnishing inaccurate particulars of income and, therefore, penalty is legally invalid. Reliance has placed on several judgments of Hon'ble High Court of Gujarat, as mentioned in Para 4 earlier. We are unable to accept the argument advanced because the Hon'ble High Court of Gujarat in the judgments cited held that penalty imposed on the ground different from the ground on which it was initiated was not proper because in such a case it could not be said that the assessee had been given reasonable opportunity of hearing in relation to the ground on which penalty had been imposed. The position in the present case is different. In this case the assessee had been given opportunity. In fact, the assessee had itself raised this ground before the Assessing Officer during the proceedings u/s 271(1)(c) and, therefore, it cannot be said that the assessee had no opportunity in the matter. Secondly, it has been argued that Explanation 1 to section 271(1)(c) and is not applicable as there is no addition to the total income and thirdly it has been submitted that the Explanation 4 relating to computation of tax sought to be evaded is also not applicable as the returned income and assessee income remained the same. On careful consideration we do not find any merit in these arguments. We agree with the view taken by the CIT (A) that the various Explanations only explain the ambiguity in the provisions relating to imposition of penalty and merely because the case of the assessee is not covered by any particular Explanation, does not mean that penalty cannot be imposed when there is no difficulty in determining tax sought to be evaded. Under the provisions of section 271(1)(c) penalty is prescribed for concealing the particulars of income or for furnishing inaccurate particulars of income and quantum of penalty is based on tax sought to be evaded. In this case, tax sought to be evaded is very clear as the tax rate applicable is 30% whereas the assessee has paid 20%. The tax sought to be evaded was because of the lower rate of tax paid and not because of any addition to the income and, therefore, provisions of Explanation 1 are not applicable. The penalty is imposable under the main provision and there is no need to refer to any Explanations. As regards the merit of the case, the claim of the assessee that amount paid for receiving the gift was from the cash received on surrender of tenancy right is not supported by any evidence. The gifts had also been received much before the surrender of tenancy. The amount has therefore been rightly assessed as income from other sources attracting tax rate of 30 %, which has also been affirmed by the Tribunal in the quantum appeal. The assessee has sought to evade tax by paying tax at lower ate. The penalty in our view is imposable as held earlier under the main provisions of section 271(1)(c).

7.       In view of the foregoing discussion, we see no infirmity in the order of CIT (A) in confirming the penalty and the same is, therefore, upheld.

MACHINE TO MACHINE COMMUNICATIONS

 

MACHINE TO MACHINE COMMUNICATIONS

Machine to Machine (`M2M' for short) communications, in which data is transferred among communicating machines with little or no human intervention. It refers to technologies that allow both wireless and wired systems to communicate with other devices of same ability. It has been emerged around for some time before. The industry has come into prominence because of widespread availability of wireless networks.

M2M uses a device, such as a sensor or meter, to capture an event such as temperature, inventory level, etc. which is relayed through a network (wireless, wired or hybrid) to an application (software program), that translates the captured event into meaningful information. This is accomplished through the use of telemetry, the language machines use when in communication with each other. Such communication was originally accomplished by having a remote network of machines relay information back to a central hub for analysis, which would then be rerouted into a system like a personal computer.

The origin of M2M communications is cloudy because of the many different possibilities of its inception. It began around the year 2000, possibly earlier, when cellular technology first began to learn to connect directly to other computer systems. In 2009 the technology witnessed its development in U.S. and in Europe. In early 2010 in the U.S., some telecom companies began to work together in the creation of a M2M site, which will serve as a hub for developers in the field of M2M communication electronics. In March 2010, Sprint and Axeda Corporation announced their strategic alliance for global M2M solutions. In January 2011, Aeris Communications Inc. announced that it is providing M2M telematics services for Hyundai Motor Corporation. Partnerships like these make it easier, faster and more cost-efficient for businesses to use M2M. In June 2010, mobile messaging operator tyntec announced the availability of its high-reliability SMS services for M2M applications.

However, modern M2M communication has expanded beyond a one-to-one connection and changed into a system of networks that transmits data to personal appliances. The expansion of wireless networks across the world has made it far easier for M2M communication to take place and has lessened the amount of power and time necessary for information to be communicated between machines. These networks also allow an array of new business opportunities and connections between consumers and producers in terms of the products being sold.

Personal health monitoring, tracking and tracing in supply chain management, fleet management and tracking, remote security sensing, smart electricity and gas meters, smart grids, intelligent traffic control, all involve M2M. M2M is strengthened by availability of mobile networks. Mobile operators are showing interests in M2M to improve their revenues and profit margins.

M2M applications have four components which are as follows:

1) Collection of data

2) Transmission of selected data through a communication network

3) Assessment of the data

4) Response to the available information.

Machines are new subscribers of the cellular networks. It is estimated that the world would have 50 billion connected machines in the year 2020. This would far exceed the connected humans even if the entire world predicted population 7.5 billion by the year 2020 are to be connected. M2M networks need to be reliable, scalable, secure and manageable. The possibility of number of devices connected increasing exponentially requires optimizations to avoid network congestion and system overload. The network would need to support many types of M2M devices having different characteristics and requirement for running different applications. It has to be ensured that the M2M services and devices at a low cost level for mass market acceptance. These challenges can be resolved by standardization. Various bodies are current engaging in this work.

M2M has various applications. Some of the applications are as follows:

City Automation:

Sensors, pumps, valves, meters;
Power, light, elevator control;
Grid control;
Waste management;
Billing of utilities.
Sales & Payment:

Point of sales;
Vending machines;
Loyalty concepts;
Gaming and entertainment.
Home:

Smart meters;
Alarms and security;
Surveillance cameras;
Heating, gas, water;
Garbage and garden.
Security & Surveillance:

Access control;
Alarm system;
Public surveillance;
Congestion and movement monitoring;
Urban management.
Health:

Patient monitoring;
Remote diagnostics;
Activity monitoring;
Web access telemedicine;
Personal security.
Tracking & Tracing:

Fleet management;
Order management;
Vehicle diagnostic;
Navigation;
Traffic/weather information;
Location service;
Emission control;
Toll collections.
The above are only examples. There are many applications in it. Machine-to-machine communication appears to have a bright future. It's a flexible technology that uses common equipment in new ways. Every day, businesses, engineers, scientists, doctors and many others are finding new ways to use this new communications tool.

By: Mr. M. GOVINDARAJAN
Dated: - December 16, 2011

TAX EVASION VIA SHELL COMPANIES

 

TAX EVASION VIA SHELL COMPANIESEnron showed the world the trick of hiding accounting losses in special purpose vehicles (SPV). Subsequent accounting standards have ensured that interests in SPVs are at least disclosed if not morphed into the accounts of the company that controls the SPV. It was not long before the ingenious conjured up ways of using SPVs as a tax planning vehicle. SPVs had an unlikely ally in double tax avoidance agreements (DTAA) which did their best to ensure that income from cross-border transactions are taxed only in one country. Difficulties arose in deciding which. The Authority for Advance Rulings (AAR) recently ruled on the tax impact on what they perceived to be a shell company created with the lone purpose of enabling an acquisition. Muriex Alliance (MA) and Groupe Industrial Marcel Dassault (GIMD) were two French companies that joined hands to create a subsidiary named "ShanH". MA got into a Share Purchase Agreement (SPA) to acquire the shares of Shantha Biotechnics Ltd, based out of India with ShanH being the permitted assignee. Share transactions were continued with GIMD acquiring 20 per cent of the shares from MA in ShanH. Soon, they found a partner to offload their stake in ShanH to a French multinational Sanofi. After the kerfuffle created by the Vodafone case, GIMD decided to play it safe and approached the AAR for a ruling on whether the sale of shares would be taxable in India or France. Normal logic coupled with the provisions of the DTAA would give an impression that the transaction would be taxable in France since all the companies involved were in France. They did not consider the fact that the underlying asset is an Indian company.

AAR RULING

The AAR summed up the issue at hand. A company in France, invests in acquiring shares in an Indian company. Ultimately it acquires a controlling interest. For this purpose, it creates a fully-owned subsidiary. The shares are taken in the name of the subsidiary. Subsequently, another company also comes in and acquires a part of the shares in the subsidiary. The only asset of the subsidiary is the shares in the Indian company. It has no other business. The two shareholders of the subsidiary then decide to sell the shares of the subsidiary to another company. By that process, what really passes is the underlying assets and the control of the Indian company. This transaction generates a profit. By repeating the process, the control over the Indian assets and business can pass from hand to hand without incurring any liability to tax in India, if the transaction is accepted at face value. It ruled that a DTAA has to be construed on its terms.

TRANSFER OF SHARES

A literal construction of paragraph 5 of the DTAA would lead to the position that the transfer of shares of ShanH, in this case, can be taxed only in France. The contention of the Revenue was that the situs of the underlying assets cannot be ignored and the underlying assets and controlling interest are that of a company incorporated in India and a resident of India. The AAR found that what is involved in this transaction, is an alienation of the assets and controlling interest of an Indian company. It will logically follow that the transactions gone through are part of a scheme for avoidance of tax and the scheme has to be ignored, that the gain from the transaction is taxable in India. A literal interpretation of the DTAA would show that it is not the alienation of the shares of an Indian company but a purposive construction of the said paragraph of the treaty that led the AAR to the conclusion that the capital gains arising out of the transaction is taxable in India. The essence of the transaction takes within its sweep, various rights including a change in the controlling interest of an Indian company having assets, business and income in India. The AAR concluded that the capital gains would be taxed in India, though the privileges of the DTAA would not be denied. The decision of the AAR will be a wake-up call to entities that use shell companies as investment vehicles. The age-old accounting rule of substance over form will come into play and one can no longer quote liberally from the ratio of the decisions of the Supreme Court in McDowell and Co Ltd and Azadi Bachao Andolan which blessed tax planning measures as long as they are within the four corners of the law. Entities interpreted both the tax planning measures and the four corners of the law very liberally. While it would be appropriate to interpret the former liberally, the latter has to be interpreted extremely rigidly. - www.thehindubusinessline.com

LtT & ST gains from PMS transactions taxable as business profits (ITAT Delhi)

  <!--~-|**|PrettyHtmlStartT|**|-~

M/s. Radials International vs. ACIT (ITAT Delhi)

Long-term & short-term gains from PMS transactions taxable as business profits

The assessee offered LTCG & STCG on sale of shares which had arisen through a Portfolio Management Scheme of Kotak and Reliance. The investments were shown under the head "investments" in the accounts and were made out of surplus funds. Delivery of the shares was taken. The AO & CIT (A) held that as the transactions by the PMS manager were frequent and the holding period was short, the LTCG & STCG were assessable as business profits. On appeal by the assessee, HELD dismissing the appeal:

In a Portfolio Management Scheme, the choice of securities and its period of holding is left to the portfolio manager and the assessee has no control. Only the portfolio manager can deal with the Demat account of the assessee. While, at the time of depositing the amount, the assessee will make entry in his books of account as investment in PMS, he is not aware of the transactions in the shares being entered into by the portfolio manager on his behalf as his agent. Since the assessee comes to know about the purchase and sale of shares under PMS after the expiry of the quarter, the accounting treatment in the books of the assessee in respect of shares purchased/sold by the portfolio manager under PMS cannot be entered in the books of the assessee. It is at the end of the year the shares available in the DEMAT account can be entered. Therefore, at the time of deposit of amount, the intention of the assessee was to maximize the profit. As the purchase and sale of shares under PMS is not in the control of the assessee at all, it cannot be said that the assessee had invested money under PMS with intention to hold shares as investment. The portfolio manager carried out trading in shares on behalf of his clients to maximize the profits. Therefore, it cannot be said that shares were held by the assessee as investment. The fact that the transactions were frequent and its volume was high indicated that the portfolio manager had done trading on behalf of the assessee. The fact that the shares remaining at the end of the year were shown under the head `investment' makes no difference. Even the LTCG is assessable as business profits and s. 10(38) exemption is not available. The fact that the AO took a contrary view in the preceding year is irrelevant. There is no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. There is, however, a difference between investment in a mutual fund and PMS.

Note: See the contrary view in Radha Birju Patel (Mum) ARA Trading & Investments (Pune). See also KRA Holding & Trading (Pune) & Homi K. Bhabha (Mum)

Related Judgements
ARA Trading & Investments Pvt Ltd vs. DCIT (ITAT Pune) On facts, as the assessee had engaged a portfolio manager to look after its' investments and all decisions to buy and sell were taken by the portfolio manager and not by the asessee, the assessee cannot be called a "dealer"
ITO vs. Radha Birju Patel (ITAT Mumbai) Transactions carried out via Portfolio Management Scheme are clearly in the nature of transactions meant for maximization of wealth rather encashing the profits on appreciation in value of shares. The very nature of Portfolio Management Scheme is such that the investments made by the assessee are protected and enhanced…
ACIT vs. Vinod K. Nevatia (ITAT Mumbai) Primarily, the intention with which an assessee starts his activity is the most important factor. If shares are purchased from own funds, with a view to keep the funds in equity shares to earn considerable return on account of enhancement in the value of share over a period then…

S. 132: Cash seized in search has to be adjusted against Advance Tax (itat, rAJKOT)

  <!--~-|**|PrettyHtmlStartT|**|-~

Ram S. Sarda vs. DCIT (ITAT Rajkot)

S. 132: Cash seized in search has to be adjusted against "Advance Tax"

Pursuant to a search u/s 132, cash was seized from the assessee and third parties and assessed as the assessee's income. Though the assessee requested that the said seized cash be treated as payment of "advance tax", the AO ignored the same and levied interest u/s 234A, 234B & 234C on the basis that advance tax had not been paid. On appeal, the CIT (A) relied on Central Provinces Manganese 160 ITR 961 (SC) and held that the ground was not maintainable. It was also held that cash seized from third parties could not be treated as the assessee's payment of advance tax. On appeal by the assessee, HELD allowing the appeal:

(i) S. 246 permits an appeal to be filed when the assessee "denies his liability to be assessed". The levy of interest u/s 234A to 234C is a part of the process of assessment. The expression "denies his liability to be assessed" does not mean a total denial of liability. Even a partial denial of the assessment i.e. of the liability to pay interest is covered and the appeal is maintainable (C. P Manganese 160 ITR 961 (SC) explained, Kanpur Coal Syndicate 53 ITR 225 (SC) & JK Synthetics 119 CTR 222 (SC) followed);

(ii) On merits, s. 132B (1) provides that the assets seized u/s 132 may be adjusted against the amount of any "existing liability" and the liability determined on completion of the assessment. The expression "existing liability" cannot be ascribed a restricted meaning. The liability to pay advance tax is an "existing liability" and so the cash seized ought to have been adjusted against that liability. The cash seized from third parties, having been assessed in the assessee's hands, retains the same character as cash seized from the assessee (Sudhakar Shetty 10 DTR (Mum) 173 followed).

Related Judgements
Atma Ram Properties Pvt Ltd vs. DCIT (Delhi High Court) S. 147: AO must specify what facts are failed to be disclosed. Lapse by AO no ground for reopening if primary facts disclosed In AY 2001-02, the AO assessed advances of Rs. 1.56 crores received from a group concern as "deemed dividend" u/s 2(22)(e). In appeal, the CIT…
Vineetkumar Raghavjibhai Bhalodia vs. ITO (ITAT Rajkot) S. 56(2)(v) exempts gifts from a "relative". Though the definition of the term "relative" does not specifically include a Hindu Undivided Family, a `HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. As all these persons fall in…

tongue twister

 

English is a rich language in every sense of the term. Its already-staggering wealth of words is ever-expanding, thanks to the open arms with which it welcomes words from other languages. The official website of the Oxford English Dictionary tells us that the second edition of the 20-volume dictionary contains full entries for 171,476 words in current use, and 47,156 obsolete words.

Yet, there are occasions when one feels the language falls short of an apt word or phrase to describe a situation, person or emotion. Mercifully, other languages can fill this gap. Imagine someone says something to you that leaves you so outraged that you're at loss for words to return the compliment. Later, thinking about it, the words come to you but by then the moment is gone. English has no term to convey such slow-to-respond wit. French has. It's called l'esprit de l'escalier (literally, staircase wit).

Of course, one always has the option to forget and forgive. As they say in Gujarati, "Manav matra/bhool ne patra" (to err is human)... One could go a step further and turn the other cheek. We all know the word for that: Gandhigiri. However, two cheeks are all one has. So, would it not be fair to hit back the third time? Well, there is one language which has the ready word for such a policy. The word Ilunga comes from Tshiluba, a branch of Bantu language spoken in the Democratic Republic of Congo. Actually, after the third insult, the aggrieved person could be forgiven for thinking that the aggressor's face is backfeifengesicht - in German, that means 'a face badly in need of a fist'.

Talking of faces, there's a word in Arabic for resolving a dispute without any party losing face: tarradhin. It isn't the same as 'compromise' but a positive win-win for the two sides. Unfortunately, there's no dearth of bystanders who hate such outcomes. Not only because it robs them of a piece of precious schadenfreude - German for pleasure derived from the misfortune of others - but also because it may verily send them into deep missgunst (German word conveying the feeling of not liking it when something good happens to someone you don't like).

Indians can claim credit for the ultimate terminological jugaad called 'miskaal' ( missed call). But while miskaal says a lot without saying anything, for the exact sense in which we use it we have to turn to the Czech word prozvonit. This means calling a mobile phone and disconnecting after the first ring so that the other person calls back. Naturally, that saves the first caller the outgoing call charge.

The point is obvious. In the age of Twitter, the key word is not economy (of words) but freakonomy. We need words and phrases that can pack in a whole lot of quirky sense. In fact, wordsmiths would do well to coin new words for some situations and behaviours which are being reported frequently.

For example, we need a word for the newly revealed practice of claiming the full airfare despite travelling on a concessional ticket so as 'to use the surplus for the benefit of the poor and downtrodden'. Similarly, one commonly hears celebrities say by way of self-defence, 'I was quoted out of context'. Could we not find a single word for that? Ditto for someone doing a semi-nude scene because 'the story demanded it'. Or for inviting someone to one's wedding and hoping that he doesn't turn up.

Last but not least, we need a word for a frequently reported eventuality in India. It has to do with a high and mighty personality developing chest pain on being arrested for a crime, so much so that he requires immediate admission in a swanky hospital. How about creating a neat four-letter word for such a tragic circumstance?

HC(DEL) : No time limit prescribed for filing an application for compounding of an offense

Vikram Singh vs. UOI (Delhi High Court)

S. 279: As there is no time limit prescribed for filing an application for compounding of an offense, the CBDT is not entitled to reject an application on the ground of 'inordinate delay'. The CBDT has no jurisdiction to demand that the assessee pay a 'pre-deposit' as a pre-condition to considering the compounding application. The larger question as whether in the garb of a Circular the CBDT can prescribe the compounding fee in the absence of such fee being provided for either in the statute or prescribed under the rules is left open

The Court finds nothing in Section 279 of the Act or the Explanation thereunder to permit the CBDT to prescribe such an onerous and irrational procedure which runs contrary to the very object of Section 279 of the Act. The CBDT cannot arrogate to itself, on the strength of Section 279 of the Act or the Explanation thereunder, the power to insist on a ‘pre-deposit’ of sorts of the compounding fee even without considering the application for compounding. Indeed Mr Kaushik was unable to deny the possibility, even if theoretical, of the application for compounding being rejected despite the compounding fee being deposited in advance. If that is the understanding of para 11(v) of the above Circular by the Department, then certainly it is undoubtedly ultra vires Section 279 of the Act. The Court, accordingly, clarifies that the Department cannot on the strength of para 11(v) of the Circular dated 23rd December 2014 of the CBDT reject an application for compounding either on the ground of limitation or on the ground that such application was not accompanied by the compounding fee or that the compounding fee was not paid prior to the application being considered on merits

S. 37(1): Distinction between capital & revenue expenditure explained

 

Airport Authority of India vs. CIT (Delhi High Court Full Bench)

January, 04th 2012
S. 37(1): Distinction between capital & revenue expenditure explained

The assessee incurred expenditure on removal of encroachments and claimed the same as a revenue deduction on the ground that the expenditure was incurred in the normal course of the business. The AO, CIT (A) & Tribunal rejected the claim on the basis that the assessee had acquired an advantage of an enduring nature. The High Court (for an earlier year, Airport Authority of India vs. CIT 303 ITR 433) upheld the view of the authorities that the expenditure was capital in nature. For the present year, the issue was referred to the Full Bench. HELD by the Full Bench reversing the lower authorities:

The question that has to be considered is whether the expenditure is incurred for initiating the business or for removing an obstruction to facilitate an existing business. Expenditure incurred for running the business or working it, with a view to produce profits is in the nature of revenue expenditure. The aim and object of the expenditure determines its character and not the source and manner of its payment. The fact that the expenditure is once and for all is not conclusive. While expenditure for acquisition of a source of income would ordinarily be capital expenditure, expenditure which merely enables the profit making structure to work more efficiently would be in the nature of revenue expenditure. Expenditure incurred to fine tune trading operations to enable the management to run the business effectively, efficiently and profitably leaving the fixed assets untouched would be an expenditure of a revenue nature even though the advantage obtained may last for an indefinite period. On facts, the land belonged to the assessee and the amount paid for removal of encroachers was not for acquisition of new assets. The payment was made to facilitate its smooth functioning of the business i.e. in relation to carrying on the business in a profitable manner (Airport Authority of India 303 ITR 433 (Del) reversed; Bikaner Gypsum vs. CIT 187 ITR 39 (SC) followed)

269SS 269 T

 

INCOME TAX APPELLATE TRIBUNAL , KOLKATA

Addl. C.I.T., R-V(C) -vs.- M/s. J.A. Land & Housing Development India Limited

INCOME TAX APPELLATE TRIBUNAL, KOLKATA
Addl. C.I.T., R-V(C) -vs.- M/s. J.A. Land & Housing Development India Limited
I.T.A No. 1116/Kol/2011 – Assessment Year : 2004-05
Addl. C.I.T., R-V(C) -vs- M/s. J.A.M. Chemical Works Limited
I.T.A Nos. 1117, 1118 & 1140/Kol/2011 – Assessment Years: 2005-06, 2006-07 & 2007-08
Date of Pronouncement: 02.01.2012

ORDER

PER BENCH

All the four appeals are by the Department for assessment years 2004-05, 2005-06, 2006- 07 & 2007-08 directed against the order of Ld. CIT(A)-III, Kolkata dated 23.06.2011. The first three appeals i.e. ITA Nos. 1116 to 1118/Kol/2011 are against deletion of penalty levied under section 271D and the last one also i.e. ITA No. 1140/Kol/2011 relates to penalty levied under section 271E. All the four appeals are heard together and disposed of by this common order for the sake of convenience.

2.Inspite of sufficient notice none appeared on behalf of the assessee. After hearing the Ld. Departmental Representative, we proceed to decide the appeals ex parte assessee by considering the statement of facts filed by the assessee before the 1st Appellate Authority. For the purpose of discussion, we will take ITA No.1116/Kol/2011 for assessment year 2004-05.

3.Assessing Officer levied penalty under section 271D for the assessment year 2004-05 in respect of M/s. J.A. Land & Housing Dev. India Limited and also in assessment years 2005-06 & 2006-07, as well as under section 271E of the Income Tax Act for the assessment year 2007-08 in the case of M/s. J.A.M. Chemical Works Limited. Assessing Officer was of the view that violation of Section 269SS which defines `loan or deposit' & Section 269T defines `loan or deposit' and the common word "loan" means lending a sum of money by one party to another upon agreement to repay. Hence, Assessing Officer was of the view that though in the Companies Act "deposit" does not include share application money which is given to a Company by an applicant for allotment of shares. The fact that under the given set of facts, according to Assessing Officer, the amount so deposited with the assessee-company in the name of share application money attracts Sections 269SS & 269T. In other words, these financial transactions should be through banking channels by abiding cash transactions. Therefore, Assessing Officer was of the view that assessee has violated Section 269SS in ITA Nos. 1116 to 1118/Kol/2011 and there is violation of Section 269T in respect of ITA No.1140/Kol/2011. He, therefore, levied penalty. On appeal to the Ld. CIT(A), Ld. CIT(A) found that I.T.A.T., Kolkata Benches, "C" Bench in ITA Nos. 141 & 142/Kol/2011 have decided the issue vide order dated 19.04.2011 by following the decision of Hon'ble Madras High Court in the case of CIT vs. Rugmini Ram Raghav Spinners (P) Ltd. [2008] 304 ITR 417 (Mad.) that the share application money and repayment thereof will not violate Sections 269SS & 269T of the Act which attracts levy of penalty under section 271D & 271E of the Act.

4.After considering the argument of Ld. Departmental Representative who relied decision of Hon'ble Jharkhand High Court in the case of Bhalotia Engineering Works (P) Ltd. vs. CIT [2005] 275 ITR 399 (Jharkhand). However, we are unable to agree with the contention of the Ld. Departmental Representative as the Tribunal has already decided the issue in other group concern cited (supra) by following the decision of Hon'ble Madras High Court in the case of Rugmini Ram Raghav Spinners (P) Ltd. (supra). Hence, we agree with the findings of Ld. CIT(A) rightly deleted the penalty levied under section 271D in assessment years 2004-05, 2005-06 & 2006-07 and in assessment year 2007-08 deleted the penalty under section 271E of the Act.

5. In the result, all the four appeals of the Department are dismissed.

Order pronounced in the open Court on 02.01.2011.

TRANSPORT OF GOODS THROUGH PIPELINE SERVICES

 

TRANSPORT OF GOODS THROUGH PIPELINE SERVICES

Service tax has been imposed on transport of goods through pipeline or other conduit services rendered to any person by any other person engaged in provision of such services by the Finance Act, 2005 with effect from 16th June, 2005. The gross amount charged to or total consideration received from any person in relation to transport of goods through pipeline services shall be chargeable to service tax.

Meaning of Transport of Goods through Pipeline or Other Conduit

The statutory provision of service tax does not define what is meant by transport of goods through pipeline or conduit.

With the levy of service tax on goods being transported through a pipeline or conduit, now only goods transportation by train is out of service tax net. Transportation of goods by air and by road are already covered. Transportation of goods through pipeline or conduit should meet the following tests:

(a) transportation of goods should take place.

(b) such transportation should be through a pipeline or other conduit.

(c) service must be provided by any person to another person.

Taxable Service

Section 65(105)(zzz) defines taxable service as under —

"any service provided or to be provided to any person, by any other person in relation to transport of goods other than water, through pipeline or other conduit".

To be covered under a taxable service, following conditions must be satisfied—

(a) transportation of goods should take place.

(b) goods transported should be through any pipeline or other conduit.

(c) transportation of water is excluded.

(d) transportation of goods should be on behalf of other person.

(e) service rendered should be for a consideration and not a free service.

It appears that what could be transported through pipeline or conduit are generally gases or liquids. Since water has been specifically excluded, all types of gases and fuels, other chemicals and liquids etc. shall be covered. Though milk is specifically exempt under road transportation, no specific exemption of milk exists in case of transportation through pipeline or conduit. Examples of goods may include petrol, diesel, other liquid fuel, Piped Natural Gas (PNG), Compressed Natural Gas (CNG), Liquefied Natural Gas (LNG) etc. It may be noted that service tax is not on goods sold through pipeline (like cooking gas) but is on transportation done or undertaken through a pipeline, on behalf of other person for a consideration. Pipelines or conduits are generally laid on or under the surface. Service provider could be any person including an individual.

The taxable service would not include transportation of water in tankers as water has been specifically excluded from its scope. However, if water is transported and freight is paid to goods transport agency say, in case of industrial water or otherwise, service tax shall be payable on such freight.

In Oil India Ltd v. CCE, Dibrugarh 2008 -TMI - 30942 - (CESTAT KOLKATA), where transportation of crude oil was done through pipeline and taxable service under (zzz) clause was brought into force w.e.f. 16.6.2005, taxation under any other category (clearing & forwarding service) or (business auxiliary service) prior to 16.6.2005 was held to be inconceivable.

Departmental Clarification

Circular No. B1/6/2005-TRU dated 27.7.2005 clarifies as under –

"Transport of goods through pipeline or other conduit [see sub-clause (zzz) of section 65(105) of the Finance Act, 1994]

Transportation of goods, other than water, through pipeline or conduit is generally employed to transport petroleum and other petroleum products, natural gas, LPG, chemicals, coal slurry and other similar products. Such transport services are liable to service tax under sub-clause (zzz) of section 65(105) of the Finance Act, 1994. Consideration for the said transportation service provided may be payable periodically or from time to time. The service provider is required to pay service tax as and when payment is received for the services provided or to be provided."

Person Liable

Any person (including individuals) providing transportation services by pipeline or conduit to any other person shall be liable to pay service tax and shall be treated as an assessee for service tax purposes.

By: Dr. Sanjiv Agarwal
Dated: - January 11, 2012

__,_._,___

RIGHT TO INFORMATION A FUNDAMENTAL RIGHT?

 RIGHT TO INFORMATION – A FUNDAMENTAL RIGHT?

Section 2(j) of the Right to Information Act defines the terms `Right to information' as the right to information accessible under this Act which is held by or under the control of any public authority and includes the right to-

Inspection of work, documents, records;
Taking notes, extracts, or certified copies of documents or records;
Taking certified samples of material;
Obtaining information in the form of diskettes, floppies, tapes, video cassettes or in any other electronic mode or through print outs where such information is stored in a computer or in any other devise.
Section 3 of the Act provides that subject to the provisions of this Act, all citizens shall have the right to information. It is to be discussed in this article whether such right is a fundamental right to the citizens.

Lord Action said on one of his speech that everything secret degenerates, even the administration of justice; nothing is safe that does not show how it can bear discussion and publicity. It is thus clear that a society which adopts openness as a value of overarching significance not only permits its citizens a wide range of freedom of expression, it also goes further actually opening up the deliberative process of the Government itself to the sunlight of public scrutiny.

Justice Frankfurter opined that the ultimate foundation of a free society is the binding tie of cohesive sentiment. Such a sentiment is fostered by all those agencies of the mind and spirit which may serve to gather up the traditions of a people, transmit them from generation to generation and thereby create that continuity of a treasured common life which constitutes a civilization.

The concept of active liberty, which is structured on free speech means sharing of a nation's sovereign authority among its people. Sovereignty involves the legitimacy of a governmental action. Sharing of sovereign authority suggests intimate correlation between the functioning of the Government and common man's knowledge of such functioning.

On the emerging concept of an `open government' the Constitution Bench of Supreme Court in `State of UP V. Raj Narain' – AIR 1975 SC 865 held that the people of this country have a right to know every public act, everything, that is done in a public way, by their public functionaries. They are entitled to know the particulars of every public transaction in all its bearing. The right to know, which is derived from the concept of freedom of speech, though not absolute, is a factor which should made on wary, when secrecy is claimed for transactions which can, at any rate, have no repercussion on public authority. To cover with veil of secrecy, the common routine business is not in the interest of the public. Such secrecy can seldom be legitimately desired.

In `S.P Gupta V. President of India' –AIR 1982 SC 149 the Supreme Court Constitution Bench held that the concept of an open government is the direct emanation from the right to know which seems to be implicit in the right of free speech and expression guaranteed under Article 19(1)(a). Therefore disclosure of information in regard to the functioning of Government must be the rule and secrecy an exception justified only where the strictest requirement of public interest so demands. The approach of the court must be to attenuate the area of secrecy as must as possible consistently with the requirement of public interest, bearing in mind all the time that disclosure also serves an important aspect of public interest.

From the above judgment it can be inferred that the right to information is basically founded on the right to know which is an intrinsic part of the fundamental right to free speech and expression guaranteed under Article 19(1)(a) of the Constitution.

In `Reliance Petrochemicals Limited V. Properties of Indian Express Newspapers Bombay (P) Limited' – (1988) 4 SCC 592 the Supreme Court held that the right to information is a fundamental right under Article 21 of the Constitution. It was further held that we must remember that the people at large have a right to know in order to able to take part in participatory development in the industrial life and democracy. Right to know is a basic right which citizens of a free country aspire in the broader horizon of the right to live in this age in our land under Article 21 of the Constitution. That right has reached new dimension and urgency. That right puts greater responsibility upon those who take upon themselves the responsibility to inform. In `Secretary, Ministry of Information and Broadcasting, Government of India V. Cricket Association of Bengal' – (1995) 2 SCC 161, the Supreme Court held that right to acquire information and to disseminate it is an intrinsic component of freedom of speech and expression.

In `People's Union for Civil Liberties V. Union of India' – (2004) 2 SCC 476 the Supreme Court held that right to information is a facet of the right to freedom of speech and expression as contained in Article 19(1)(a) of the Constitution of India. It was also held that right to information is definitely a fundamental right. In coming to the conclusion the Supreme Court traced the origin of the said right from the Universal Declaration of Human Rights, 1948 and also Article 19 of the International Covenant on Civil and similar enunciation or principle in the Declaration of European Convention for the Protection of Human Rights and found that the spirit of the Universal Declaration of 1948 is echoed in Article 19(1)(a) of the Constitution.

The preamble to the Right to Information Act shows that the Act was enacted to promote transparency and accountability in the working of every public authority in order to strengthen the core constitutional values of a democratic public. It is thus clear that the Parliament enacted the said Act keeping in mind the rights of an informed citizenry in which transparency of information is vital in curbing corruption and making the Government and its instrumentalities accountable. It is to harmonize the conflicting interests of Government to preserve the confidentiality of sensitive information with the right to citizens to know the functioning of the governmental process in such a way as to preserve the paramountcy of the democratic ideal.

The Supreme Court is also conscious that such a right is subject to reasonable restrictions under Article 19(2) of the Constitution. In `Dinesh Trivedi, M.P., V. Union of India' – (1997) 4 SCC 306 it was held that sunlight is the best disinfectant. But it is equally important to be alive to the dangers that lie ahead. It is important to realize that undue popular pressure brought to bear on decision makers in Government can have frightening side effects. If every action taken by the political executive functionary is transformed into a public controversy and made subject to an enquiry to soothe popular sentiments, it will undoubtedly have a chilling effect on the independence of the decision who may find it safer not to take any decision. It will paralyze the entire system and bring it to a grinding halt. So we have two conflicting situation almost enigmatic and the Court thought the answer is to maintain a fine balance which would safe public interest.

By: Mr. M. GOVINDARAJAN

DIVIDEND TAX A PEEK BEHIND THE SMOKE SCREEN

 

DIVIDEND TAX — A PEEK BEHIND THE SMOKE SCREEN

Why are dividends exempt from taxation?

According to the Companies Act, since dividends are technically a share in the profit received by the investor for investing share capital in the company, he should enjoy such income only from profits after taxes. Therefore, by the same logic, if the investor is asked to include dividend income as a part of his total individual income for taxation, it would amount to "taxing an already taxed income", or "double taxation". Thus, dividend income from domestic companies was made exempt from taxation. This is more or less a globally embraced concept. But are they REALLY? The other side of the smoke screen. However, this is just one side of the smoke screen. On the other side is the concept of dividend distribution tax (DDT). Section 115-O of the Income Tax Act states: "In addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends shall be charged to additional income-tax at the rate of 15 per cent." Thus, even though dividend is not taxable in the hands of the shareholder, it has not exactly escaped double taxation. While it's only fair that a company should be free to distribute its profits after income tax amongst its members, as per the provisions of Section 115-O, it cannot do so unless it has paid an additional tax called the Dividend Distribution Tax (DDT) at the rate of 15 per cent. Consequently, the net dividend distributed is less by that much. The DDT was introduced with the Finance Bill, 1997, and justified in the Memorandum to the Finance Bill, 2003, as: "It has been argued that it is easier to collect tax at a single point, i.e., from the company, rather than compel the company to compute the tax deductible in the hands of the shareholder." The double taxation effect that is caused by the DDT has not been clearly rationalised till date.

TRIPLE TAXATION?

Besides, the dividend received from non-domestic or foreign companies is taxable in the hand of the shareholder separately. With the unfortunate existence of DDT almost globally (known as just "Dividend Tax" in most countries), the recipients of dividends from foreign companies undergo a worse fate "triple taxation". First, the foreign company pays Income Tax or Revenue Tax on operating profits to the government of its country. Then it again pays Dividend Tax (same as Indian DDT) to its government. Finally, when the investor in India receives his "doubly taxed" dividend, he has to again pay Income Tax, as tax received from non-domestic companies is not exempt under the Income Tax Act. To add to this jarring irrationality, in some countries like China, while Chinese citizens in Mainland China are victim to the cruelty of a Dividend Tax as high as 50 per cent, Chinese citizens in Hong Kong completely escape tax liability!

SOMETHING TO LOOK INTO

Some other countries such as Canada and Australia have, however, worked out a tax credit system on dividend tax which can be studied and implemented, mutatis mutandis. Additionally, bilateral tax exemption agreements should be considered with stock exchanges such as London Stock Exchange or NYSE where there is a lot of mutual interest in terms of investments. – www.thehindubusinessline.com

Voluntary disclosure scheme under Sec. 115BBE - 20 things to know

Voluntary disclosure scheme under Sec. 115BBE - 20 things to know

1.	Voluntary disclosure of undisclosed income by assessee enabled by disclosure in a return filed under section 139.
2.	Tax rate increased from 30% to 60% with effect from assessment year 2017-18. Cess of 25% is introduced, also with education cess. Effective rate shall be 77.25%.
3.	Voluntary disclosure scheme under section 115BBE has no expiry date. It will be an "On-Tap Scheme" from assessment year 2017-18 unless in future section 115BBE is amended again to prohibit voluntary disclosure.
4.	Voluntary disclosure must be accompanied by deposit of 77.25% of the undisclosed income on or before the end of the relevant previous year. Relevant previous year means previous year in the return of which voluntary disclosure is intended to be made. If tax is not deposited by the end of previous year (i.e., by 31-3-2017, in case of current financial year, ending on 31-3-2017), penalty @ 6% [10% of 60% tax rate stated in section 115BBE(1)(i)] will apply, taking the effective tax rate to 83.25%.
5.	No deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in section 115BBE(1)(a).
6.	Voluntary disclosure should be made before any notice is issued by the Department or before any search or seizure is carried out. This is important as disclosure has to be in a return filed under section 139 be it original return or revised return or belated return.
7.	If voluntary disclosure is not made and undisclosed income is detected in scrutiny assessment or reassessment or through survey (i.e., any manner other than search), then penalty @ 6% [10% of 60% tax rate stated in section 115BBE(1)(i)] will apply under proposed new section 271AAC, taking the effective burden to 83.25% of the undisclosed income.
8.	Filing of return in response to notice under section 142 or after survey is conducted will not be regarded as voluntary disclosure. Nor will disclosure in any return filed under section 148 be regarded as voluntary disclosure. In such a case assessee will be able to avail section 115BBE with penalty @ 6% [10% of 60% tax rate stated in section 115BBE(1)(i)].
9.	If undisclosed income is detected in any search which takes place on or after the date the Bill receives Presidential Assent, then penalty of 30% or 60% will be levied under proposed new sub-section (1A) of section 271AAB taking the effective rate to 107.975% or 137.975%.
10.	If undisclosed income is detected in any search which takes place before the date of Presidential Assent, then, penalty of 10% or 20% or 30% to 90% will be levied, taking the effective tax rate to 87.25% or 97.25% or 107.25% to 167.25%.
11.	No penalty is imposable under section 270A.
12.	Substaintive law stated under sections 68 to 69D has not been changed.
13.	Scheme of section 115BBE applies to all income covered under sections 68 to 69D, whether in form of cash, bank deposits, jewellery, property, etc.
14.	Cash may or may not be in form of demonetized notes.
15.	Scheme of section 115BBE also applies to crime monies.
16.	Income chargeable under Black Money Act, 2015 cannot be declared.
17.	Scheme applies to all categories of assessee be it individual, HUF, BOI, AOP, Trust, Companies, etc.
18.	Scheme applies to both resident and non-resident.
19.	Scheme applies to assessees covered under Presumptive Taxation Scheme (Sections 44AD, 44ADA, 44AE).
20.	Scheme applies to assessment years 2017-18 and onwards.

271(1)(c): disclosure after 142(1) / 143(2) can not be said to "voluntary disclosure"

S. 271(1)(c): A disclosure of income, or withdrawal of claim for deduction, by the assessee after a specific s. 142(1)/ 143(2) notice is issued cannot be said to be a "voluntary disclosure" so as to avoid the levy of penalty. The argument that the earlier non-disclosure of income/ wrong claim for expenditure was due to "mistake" is not an acceptable defense (Mak Data 358 ITR 593 (SC) followed, Price Waterhouse Coopers 348 ITR 306 (SC) distinguished)

A.O. Can rectify Assessment order

 

CIT Vs. M/s Varindra Construction Company (P&H HC)
Issue- Whether assessing Officer has jurisdiction to rectify the original assessment u/s 154 of the Act, as it was change of opinion and the review of order passed by his predecessor was not permissible under law.

Held – That assessing officer has a power to rectify the assessment by invoking the provisions of Section 154 of the Act. The rate of depreciation claimed by the assessee on trucks at 40% was wrongly allowed as the assessee was not plying trucks owned by it on hire but was utilizing the trucks for its own purposes and hence rate of depreciation applicable was 25%.

HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 209 of 2003

Date of decision: 24.01.2012

The Commissioner of Income Tax-III, Ludhiana

Vs.

M/s Varindra Construction Company

ORDER

Ajay Kumar Mittal, J.

1. This order shall dispose of Income Tax Appeal Nos. 209 and 210 of 2003 relating to the assessment years 1992-93 and 1993-94 respectively, as according to learned counsel for the parties, common questions of law and facts are involved therein. For brevity, the facts are being taken from ITA No.209 of 2003 relevant to the assessment year 1992-93.

2. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 9.4.2003 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as "the Tribunal") in ITA No.222 (ASR) 1999 for the assessment year 1992-93, claiming following substantial questions of law:-

"i) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in law in setting aside the order under section 154 of the Income Tax Act, 1961 passed by the AO and upheld by the CIT(A), wherein the mistake in the application of rate of depreciation on Trucks was rectified?

ii) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in law in holding that the order in question rectifying the mistake in application of rate of depreciation on assessee's own trucks used by the assessee for its own business tantamounts to review of the assessment order?"

3. The respondent-assessee filed its return of income for the assessment year 1992-93 on 29.3.1994 declaring net income of Rs.51,290/-. The assessment was framed by the Assessing officer under section 143(3) of the Act on 23.2.1995, Annexure A-1 at a total income of Rs.1,97,217/-. It was noticed by the Assessing Officer that as per Appendix I to Rule 5 of the Income Tax Rules, 1962 (for brevity, "the Rules"), the rate of depreciation applicable on the trucks not plied on hire was 25% and not 40% as claimed and allowed in the assessment order. Accordingly, the Assessing officer rectified the assessment by invoking the provisions of Section 154 of the Act and held that the rate of depreciation claimed by the assessee on trucks at 40% was wrongly allowed as the assessee was not plying trucks owned by it on hire but was utilizing the trucks for its own purposes and hence rate of depreciation applicable was 25%. Vide order dated 16.12.1998, Annexure A-2, assessment framed under section 143(3) of the Act was rectified under section 154 of the Act and income was assessed at Rs.6,74,312/-. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), (CIT(A)), which was dismissed vide order dated 25.3.1999, Annexure A-3. The assessee then filed an appeal before the Tribunal. Vide order dated 9.4.2003, Annexure A-4, the Tribunal set aside the order passed by the CIT(A) and allowed the assessee's appeal. Hence these appeals by the revenue.

4. The revenue has assailed the findings of the Tribunal wherein it had held that the Assessing Officer had no jurisdiction to rectify the original assessment under section 154 of the Act as it was change of opinion and the review of order passed by his predecessor was not permissible under law.

5. Learned counsel for the revenue submitted that under section 154 of the Act, any error which is apparent on the face of the record can be rectified by the revenue. He referred to Section 154(1) of the Act which reads thus:-

"154(1) With a view to rectifying any mistake apparent from the record an income tax authority referred to in section 116 may –

a) amend any order passed by it under the provisions of this Act;

b) amend any intimation or deemed intimation under sub-section (1) of section 143."

6. In view of Full Bench judgment of this Court in CIT v. Smt.Aruna Luthra, (2001) 252 ITR 76, it was submitted that the Assessing Officer was within his jurisdiction to rectify the order as the assessee had claimed 40% depreciation on the trucks which were being used by it as private carrier. According to him, under Sub-Item (1) of Item III of Appendix I to the Rules, the assessee was entitled to 25% rate of depreciation on trucks which were being used for its own business of transportation of goods. However, 40% was admissible in those cases where the trucks had been used for public carrier transport. Reliance was placed on the decisions of the Karnataka High Court in [A] Veeneer Mills v. CIT, (1993) 201 ITR 764 and Rajasthan High Court in CIT v. Sardar Stones, (1995) 215 ITR 350 in support of his submissions.

7. Controverting the aforesaid submissions, learned counsel for the assessee submitted that the assessment was framed under Section 143 (3) of the Act and recourse to rectification under Section 154 of the Act was in the nature of review which was not permissible. On the strength of judgments in Jaipur Udyog Limited v. ITO, (1985) 156 ITR 377 (Raj.), Harbans Lal Malhotra and Sons (P) Limited v. ITO, (1972) 83 ITR 848 (Cal.), T.S.Balaram v. Volkart Brothers and others, (1971) 82 ITR 50 (S.C.), it was contended that the rectification order passed by the Assessing Officer under Section 154 of the Act was beyond jurisdiction as there was no mistake apparent on the record. Reliance was placed on Circular No.652 dated 14.6.1993 to urge that the Board itself had clarified with regard to the rate of depreciation on motor buses, motor lorries and motor taxis used in the business of transportation of goods. According to him, under the aforesaid circumstances, in view of judgment of Bombay High Court in CIT v. S.C.Thakur and Brothers (2010) 322 ITR 463, the higher depreciation will be admissible on motor lorries used in the transportation of goods on hire. The higher rate of depreciation, however,` will not apply if the motor buses, motor lorries etc. are used in some other non-hiring business of the asses see.

8. After giving thoughtful consideration to the rival submissions, we find merit in the submissions of learned counsel for the revenue. Full Bench of this Court in Smt. Aruna Luthra,'s case (supra) considered the scope of Section 154 of the Act in the following terms:-

"The power given to the authority is wide. It can correct "any mistake" provided it is "apparent from the record". The first question that arises for consideration is – when a mistake can be said to be apparent from the record?

The plain language of the provision suggests that the mistake should be apparent. It must be patent. It must appear ex facie from the record. It must not be a mere possible view. The issue should not be debatable.

xx xx xx xx

xx

Only the dead make no mistake. Exemption from error is not the privilege of mortals. It would be a folly not to correct it. Section 154 appears to have been enacted to enable the authority to rectify the mistake. The legislative intent is not to allow it to continue. This purpose has to be promoted. The Legislature's will has to be carried out. By placing a narrow construction, the object of the legislation shall be defeated. Such a consequence should not be countenanced."

9. It would be expedient to refer to the relevant entries in Appendix I of the Rules. Sub Item 1 of Item III of Appendix I provides for depreciation on machinery and plant whereas Sub Item 2(ii) of Item III of Appendix I deals with higher rate of depreciation on motor buses, motor lorries and motor taxis used in a business of running them on hire. They read thus :-

Appendix I

WDV


"III. Machinery and Plant Dep. allowance
As % age of

1) Machinery and Plant other than those covered by
Sub item (1A) (2) and (3) below.

25%
1A)Motor Cars, other than those
used in a business of running

them on hire, acquired or put

to use on or after the Ist day of April 1990.

20%
2) (i) xxxxxxx
Motor buses, motor lorries and Motor taxis used in a business of running them on hire."

40%

10. A plain reading of the aforesaid clearly shows that wherever motor buses, motor lorries and motor taxis are used for public carrier, rate of depreciation admissible is 40%. However, in the case of private carrier, the same is restricted to 25%.

11. In order to appreciate the controversy in right perspective, it would be essential to refer to discussion made by Assessing Officer in the original assessment order framed under Section 143(3) of the Act, which reads thus:-

"The details of depreciation claim reveal that the assessee has claimed depreciation on trucks @ 40% as admissible in the case of Public Carrier Trucks. The assessee was asked to explain as to why it should not be restricted to 25% because the trucks were used by the assessee for its own business. The assessee submitted its detailed explanation in support of its claim vide para 13 of the written reply filed on 19.12.94, which is reproduced as under:-

"In regard to the depreciation on trucks, it is submitted that our trucks are public carriers, not private carriers. We use our trucks for the carriage of crashers, Bajris and sands and other goods meant for use in the execution of construction work of the assessee firm. These trucks of the firm carried these materials during the year 1991-92 nearly five lacs cubic feets of crashers, bajris and sand which costs nearly amounting to Rs.18,80,000/- the average rate of these goods approximately comes to Rs.3.75 per cubic feet to us.

If we purchase these materials like crasher, bajri, sand and other goods from the market and loaded in trucks taken from the Trucks unions, the same quantities of material costs us nearly amounting to Rs.37,60,000/- which come to us nearly amounting to Rs.7.50 per cubic feet, which doubles the costs of materials.

It means we save half of the higher charges from the materials loaded by our firms Public Carriers trucks than the trucks taken from the Truck Unions. These savings of higher charges is as like as carriage charges earned by our public carrier trucks.

If we purchase goods from the local market, we have to spend more money for the purpose of the goods. Therefore, we purchase and carry goods from out stations on our Public Carrier trucks on cheaper rates than the local markets, which is in the interest of the revenue.

Moreover, the private trucks can only carry the goods manufactured in their own factories. The private carriers are unable to bring goods from the different places to the site as the truck unions do not permit the private carriers to load the same from different stations. Therefore, the assessee is compelled to use the public carriers for their business.

Public Carriers Trucks are to pay the token tax and goods tax, whereas the private trucks are to pay more token tax. The private trucks do not pay tax because they are not permitted to load the goods from the outside on hire basis.

The Public Carrier Trucks pay much more insurance premium than the private carrier trucks. Public Carrier Trucks operate in far away places, cover more distances, and are prone to more risks.

It is clear from the above facts that if our public trucks carry goods of our assessee firm they save much more hire charges and result in increased income of the assessee firm which is in the interest of revenue and therefore public carriers owned by the assessee are entitled to claim the depreciation at the rate of 40% which is prescribed in the Income Tax Act and Rules. Therefore, the claim of depreciation at the rate of 40% by the assessee firm is genuine."

The claim of the assessee firm has been considered in the light of the above said submissions. The cost of transportation of the materials like crasher, bajri and other goods from the market to the site of the assessee's business is double if these materials are brought in trucks taken from the truck unions. In this way the assessee is able to save huge amount of hire charges which are like carriage charges earned by Public Carrier Trucks. Further if the goods are purchased from the local market the cost is higher. Keeping in view these facts and other points as reproduced above the claim of depreciation appears to be in order. Hence depreciation as claimed is allowed to the assessee."

12. Learned counsel for the assessee was unable to demonstrate with reference to any material that the respondent-assessee was using the vehicles in a business of transportation of goods and the trucks owned by the respondent-assessee were being used for public carrier. Further, he was unable to substantiate that the assessing officer while framing assessment under section 143(3) of the Act had recorded any finding that the respondent-assessee was using the vehicles in a business of running them on hire and the trucks on which depreciation had been claimed @ 40% were being used for public carrier. In such a situation, it cannot be held that the issue was debatable. If that was so, exercise of jurisdiction under section 154 of the Act was validly exercised. The judgments relied upon by learned counsel for the respondent, therefore, do not advance his case.

13. Adverting to the circular relied upon by learned counsel for the assessee, it would be advantageous to reproduce the same which reads thus:-

"Under sub item 2(ii) of Item III of Appendix I to the IT Rules, 1962, higher rate of depreciation is admissible on motor buses, motor lorries and motor taxis used in a business of running them on hire. A question has been raised as to whether, for deriving the benefit of higher depreciation, motor lorries must be hired out to some other person or whether the user of the same in the assesee's business of transportation of goods on hire would suffice.

2. In Board's Circular No.609, dated 29th July 1991, it was clarified that where a tour operator or travel agent uses motor buses or motor taxis owned by him in providing transportation services to tourists, higher rate of depreciation would be allowed on such vehicles. It is further clarified that higher depreciation will also be admissible on motor lorries used in the assessee's business of transportation of goods on hire. The higher rate of depreciation, however will not apply if the motor buses, motor lorries, etc. are used in some other non-hiring business of the assessee."

14. A bare perusal of the above circular clearly shows that this is applicable in respect of motor buses and motor lorries used in a business of running them on hire whereas the assessee is utilizing the vehicles for its own business and is not carrying on business of hiring of motor vehicles. The Bombay High Court in S.C.Thakur and Bros.'s case (supra) was dealing with a case where the business of the assessee was running of motor vehicles on hire and the assessee had utilized the motor lorry in his own business of transportation of goods on hire. Such being not the position here, neither the circular nor the judgment support the case of the assessee. The Tribunal was, thus, not justified in holding that the assessing officer had erroneously exercised jurisdiction under Section 154 of the Act. The substantial questions of law claimed above are, therefore, answered in favour of the revenue and against the assessee.

15. Accordingly, both the appeals are allowed.

16. A photo copy of this order be placed on the file of the connected case.

Related posts:

In case of under-assessment or a mistaken order, A.O. can rectify the mistake u/s 154 or make a reassessment u/s 147
After order u/s 143(3) of the Act, no rectification order u/s. 154 could be passed to rectify the intimation u/s 143(1)(a) of the Act – HC
U/s 254(2) Tribunal entitled to recall order in entirety to rectify apparent mistake
Tribunal's power u/s 254(2) is not to review its earlier order but only to amend it with a view to rectify any mistake apparent from the record
Tribunal got the power to rectify mistake apparent from the record but not empowered to rectify its own under u/s. 254(2)