Scrutiny notice issued to assessee under section 143(2) at address available as per PAN database was justified as change in address had not been intimated to Assessing Officer

[2019] 110 taxmann.com 332 (SC) 

SUPREME COURT OF INDIA 

Principal Commissioner of Income-tax, Mumbai v. I-Ven Interactive Ltd.

UDAY UMESH LALIT, MS. INDIRA BANERJEE AND M.R. SHAH, JJ. 

CIVIL APPEAL NO. 8132 OF 2019† OCTOBER 18, 2019 Section 143 of the Income-tax Act, 1961 - 

Assessment - Issue of notice (Service of notice) - Assessment year 2006-07 - Pursuant to return of income filed for relevant year by assessee under e-Module Scheme, scrutiny notice under section 143(2) was sent at assessee's address available as per PAN database (within prescribed timeline) - Assessee argued that it had shifted to new address and when subsequent notices were served upon assessee, such notices were barred by limitation period - However, it was found that no application was made by assessee to change address in PAN database and in PAN database old address continued - Further, assessee failed to produce alleged communication intimating Assessing Officer about new address - Whether in absence of any specific intimation to Assessing Officer with respect to change in address, Assessing Officer was justified in issuing notice at address available as per PAN database, more particularly when return had been filed under e-Module scheme - Held, yes - Whether therefore, orders passed by lower authorities holding assessment order as bad in law on ground that no notice under section 143(2) was served upon assessee within prescribed time-limit was to be quashed and set aside - Held, yes [Paras 6.1, 7, 9 and 10][In favour of revenue]

“Adventure in the nature of trade”

Characters of “Adventure in the nature of trade”: Even an isolated and single transaction may be an adventure in the nature of trade if some of essential features of trade are present in such a transaction. The character of a transaction depends on relevant facts and circumstances and there is no abstract rule, principle or test which is universal G. Venkataswamy Naidu & Co [1959] 35 ITR 594 (SC) Section 2(13), 28

Legal error apparent on record can be corrected by the AO in exercise of his power under s 154 HC (Madras)

Legal error apparent on record can be corrected by the AO in exercise of his power under s 154, as held byDelHC in Mitsubishi Corporation v CIT & Anr — In favour of: The revenue; ITA Nos 486–488 of 2008........

Case Name : Vijay Sachdev Vs JCIT (ITAT Delhi)
Appeal Number : ITA No. 5344 & 5345/Del/2016
Date of Judgement/Order : 21/03/2018
Related Assessment Year : 2009-10 & 2011-12
Courts : All ITAT (6186) ITAT Delhi (1409)
 Download Judgment/Order


Vijay Sachdev Vs JCIT (ITAT Delhi)
It is well settled law that non-consideration of decision of Jurisdictional High Court is mistake apparent from record. Ld. Counsel for the assessee, therefore, rightly contended that Ld.CIT(A) did not follow the judgement of the Jurisdictional High Court and shall have to rectify the mistake in his order in calculating the disallowance u/s 14A r.w. Rule 8D(2)(iii) of the Act. In view of the above discussion and in the light of the above decisions, the order of Ld.CIT(A) is set aside and matter in issue is restored to the file of Ld.CIT(A)-18, New Delhi with direction to re-decide the appeal of the assessee in the light of the decision of Jurisdictional High Court.

FULL TEXT OF THE ITAT JUDGMENT

Both these appeals by same assessee are directed against the different orders of Ld.CIT(A)-18, New Delhi dated 01.08.2016 for AY 2009-10 & 2011-12. Since common issues are involved in both the appeals, therefore, both appeals are disposed of through this common order. Both the parties mainly argued in AY 2009-10.

2. We have heard Ld. Representatives of both the parties and perused the
material available on record. For the purpose of disposal of both the appeals, we decide the appeal for AY 2009-10 as under:-

3. The facts of the case are that the AO passed the assessment order u/s 143(3) of the Income Tax Act, 1961 (in short “Act”) on 20.10.2011 making addition of Rs.10,84,889/- [Rs.1,76,583/- + Rs.9,08,306/-] by making disallowance u/s 14A of the Act r.w. Rule 8D(2)(ii)(iii) of the Act. The assessee challenged the addition before Ld.CIT(A). Ld.CIT(A) confirmed the addition subject to certain modification/finding vide order dated 27.08.2013. The assessee filed application u/s 154 of the Act before Ld. CIT(A). Ld.CIT(A) reproduced the rectification application dated 16.11.2015 in the impugned order in which the assessee explained that the computation of disallowance was made by the AO vide para 7(c) of assessment order in which disallowance attributable to Rule 8D(2)(iii) i.e. 0.5% of average investment was computed at Rs.9,08,306/- and average investment was worked out by taking the figure of investment at Rs.19.58 crores and Rs.16.74 crores. The assessee filed one letter dated 05.09.2011 showing that average value of investment comes to Rs.1.46 crores only after those shares are to be taken into account on which tax exempt income was earned. The assessee relied upon the decision of Hon’ble Delhi High Court dated 24.03.2015 in the case of ACB India Ltd. vs ACIT [2015] in ITA No.615/2014 reported in 374 ITR 0108 (Del.) in which it was held that “for computing average investment for the purpose of Rule 8D(2)(iii) only those investments will be taken into account which have yielded tax exempt income.” Accordingly, the disallowance under Rule 8D(2)(iii) could be Rs.73,085/- and accordingly the disallowance was excessive by Rs.8,35,221/-. It was submitted that it is mistake apparent on record in view of the decision of the Hon’ble Supreme Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 0227 (SC). It was prayed that the appellate order may be rectified accordingly.

4. CIT(A) after considering the rectification application u/s 154 of the Act and material on record and by reproducing the facts noted that the letter of the assessee was filed before Ld. CIT(A) prior to passing of the order and after verification only impugned order have been passed, therefore, present application would amount to review of the order which power Ld.CIT(A) did not possess. He has noted certain decisions that Ld.CIT(A) has no power to review the orders passed on merits. It was also noted that the issue raised by the assessee debatable and no rectification of Ld.CIT(A)’s order is legally or factually permissible. The appeal of the assessee against the rectification application u/s 154 was rejected.

5. Counsel for the assessee reiterated the submissions made before Ld.CIT(A) and submitted that the investment that yield tax exempt income should be taken into consideration instead of total investment considered by Ld.CIT(A). In support of his contention, he has relied upon the decision of Hon’ble Delhi High Court in the case of ACB India Ltd. (supra) in which it was held that “where the AO, instead of adopting average value of investment of income which was not part of total income i.e. value of tax exempt investment, chose to factor in total investment itself and CIT(A) even though noticed exact value of investment which yielded taxable income, did not correct error but chose to apply his own equity; the findings of ITAT and the lower authorities were rightly set aside.” He has submitted that non-consideration of decision of Jurisdictional High Court is a mistake apparent from the record. He has submitted that Ld.CIT(A) did not follow the decision of Hon’ble Delhi High Court in the case of ACB India Ltd. (supra) which was delivered on 24.03.2015 after passing the original appellate order passed on 25.08.2013. He has further submitted that the decision of the Jurisdictional High Court have been delivered after passing of the impugned order by Ld.CIT(A) should have been considered by Ld. CIT(A) for rectifying the impugned order because the decision of the Jurisdictional High Court is applicable retrospectively. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Ltd.(supra) in which it was held that “A judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a ‘new rule’ but to maintain and expound the ‘old one’. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.” Ld. Counsel for the assessee submitted that the assessee never wanted for review of the order of Ld. CIT(A). The assessee made a request for rectification in the order of Ld.CIT(A) which is apparent from record in calculating the disallowance u/s 14A r.w. Rule 8D(2)(iii) of the Act. He has submitted that Ld. CIT(A) should decide the issue in accordance with the judgement of Hon’ble Delhi High Court. On the other hand, Ld. DR relied upon the impugned order.

6. After considering the rival submissions and in the light of the decision of Jurisdictional High Court in the case of ACB India Ltd. (supra) and in the light of the decision of Hon’ble Supreme Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Ltd.(supra), we are of the view that there appears mistake apparent on the record of Ld.CIT(A) in calculating the disallowance u/s 14A r.w. Rule 8D(2)(iii) of the Act. It would not amount to review of the order of Ld. CIT(A). It is well settled law that non-consideration of decision of Jurisdictional High Court is mistake apparent from record. Ld. Counsel for the assessee, therefore, rightly contended that Ld.CIT(A) did not follow the judgement of the Jurisdictional High Court and shall have to rectify the mistake in his order in calculating the disallowance u/s 14A r.w. Rule 8D(2)(iii) of the Act. In view of the above discussion and in the light of the above decisions, the order of Ld.CIT(A) is set aside and matter in issue is restored to the file of Ld.CIT(A)-18, New Delhi with direction to re-decide the appeal of the assessee in the light of the decision of Jurisdictional High Court in the case of ACB India Ltd. (supra). CIT(A) shall re-decide the appeal after giving reasonable and sufficient opportunity of being heard to the assessee.

7. In the result, the appeal of the assessee is allowed for statistical purposes.

ITA No.5345/Del/2016 [A.Y.2011-12]

7.1. The issue is also same in AY 2011-12 in ITA No.5345/Del/2016. Following the reasons for decision in AY 2009-10 (supra), the order of Ld.CIT(A) is set aside and the matter in issue is restored to the file of Ld.CIT(A)-18, New Delhi with similar direction to pass an order afresh as is directed in AY 2009­10. Therefore, ITA No.5345/Del/2016 is also allowed for statistical purposes.

8. In the final result, both appeals filed by the assessee are allowed for statistical purposes.

Pronounced in the open court on 21.03.2018.

Tags: ITAT Judgments, Section 154

Whether AO can travel beyond direction of Tribunal directions

 

Order passed giving appeal effect — Whether AO can travel beyond direction of Tribunal

While passing order giving appeal effect, the AO cannot travel beyond direction of the appellate authority and cannot bring to tax income which was held not taxable by such authority. Vide Lopamudra Misra v. ACIT (2011) 42(I) ITCL 265(Ori-HC)

SERVICE TAX

Cenvat credit — Input service used in providing taxable and non-taxable service — Assessee engaged in trading activity

Assessee was providing engaged in providing taxable services falling under the categories Consulting Engineer, Maintenance or Repair Service and Erection, Commissioning and Installation Services. It also supplied telecommunication equipment to one of its customers. The Commissioner held that the assessee was entitled to utilize Cenvat Credit only to the extent of 20% of the service tax payable in terms of Rule 6(3)(c) of Cenvat Credit Rules, 2004. The Tribunal held that the Corporate Office registered with the Service Tax department cannot be held to have rendered taxable and exempted service for the reason that it engaged in trading activity. Hence, the full Cenvat credit was allowable ― Ericsson India Pvt. Ltd. v. CCCE&ST (CESTAT-Bang) Stay Order No. 937/2010, dated 9-12-2010.

__._,_.__

ITR Volume 202 Part 6

ITR Volume 202 Part 6

AX REPORTS (ITR)--PRINT AND ONLINE EDITION

Appeal to Appellate Tribunal --Procedure--Additional evidence--Additional evidence on affidavit by assessee--Tribunal cannot consider such additional evidence--Income-tax (Appellate Tribunal) Rules, 1963, r. 29-- CIT v. Canara Housing Development Company(Karn) . . . 309

Business expenditure --Agreement to sell cement factory on 25-8-1999--Actual transfer in subsequent year--Agreement stipulating that title to assets should be perfected and lease agreement renewed--Expenditure in relation to transfer of plant and machinery deductible in assessment year 2002-03--Amount spent on maintenance of corporate office--Deductible--No evidence of payment of royalty--Royalty not deductible--Income-tax Act, 1961--Karnataka Instrade Corporation Ltd. v. Asst. CIT (Karn) . . . 295

Disallowance--Payments liable to deduction of tax at source--Non-resident--Commission paid to foreign agents--Non-resident agents procuring orders and following up payments with buyers for assessee--No contribution of any technical knowledge--Commission payments not for technical services--No deduction of tax at source required and disallowance not attracted--Income-tax Act, 1961, ss. 9(1)(vii), 40(a)(i)-- CIT v. Farida Leather Company(Mad) . . . 328

Co-operative society --Co-operative bank--Special deduction under section 80P--Special deduction not available for interest on income-tax refund--Income-tax Act, 1961, s. 80P--Rajkot Nagarik Sahakari Bank Ltd. v. Asst. CIT (Guj) . . . 337

Depreciation --Unabsorbed depreciation--Amounts written back in accounts and assessed as business income under section 41--Unabsorbed depreciation can be set off against such income--Income-tax Act, 1961, ss. 32, 41-- Karnataka Instrade Corporation Ltd. v. Asst. CIT(Karn) . . . 295

Interest --Deduction--Hundred per cent. export oriented undertaking--Interest accrued on temporarily surplus business funds deposited for short-term with bank--To be treated as profits of business of undertaking--Entitled to deduction--Income-tax Act, 1961, s. 10B--CIT v. Hindustan Gum and Chemicals Ltd. (Cal) . . . 323

Loss --Carry forward and set off--Amounts treated as business income under section 41--Losses carried forward can be set off against such income--Income-tax Act, 1961, s. 41--Karnataka Instrade Corporation Ltd. v. Asst. CIT (Karn) . . . 295

Penalty --Repayment of loan or deposit in excess of specified amount otherwise than by account payee cheque or account payee bank draft--Exemption from penalty in case of reasonable explanation for such payment--Repayments in excess of Rs. one crore--Finding that there were banking facilities available and there was no reasonable explanation for so many payments--Penalty can be levied--Income-tax Act, 1961, ss. 269T, 271B, 271E-- CITv. Canara Housing Development Company (Karn) . . . 309

Precedent --Binding nature of-- Yashovardhan Birla v. Deputy CIT (Bom) . . . 284

High Court--Decision binding on all authorities within State including Settlement Commission-- Yashovardhan Birla v. Deputy CIT (Bom) . . . 284

Settlement of cases --Condition precedent for application--Pendency of assessment proceedings--Assessment would be considered pending till service of assessment order upon assessee--Provisions of Chapter XIX-A can be invoked--Income-tax Act, 1961, s. 245D(1)-- Yashovardhan Birla v. Deputy CIT (Bom) . . . 284

Limitation--Abatement of proceedings--Period specified in section 245D for passing order mandatory--Order passed after expiry of period--Proceedings abate--Income-tax Act, 1961, ss. 245D, 245HA-- RNS Infrastructure Ltd. v. ITSC (Karn) . . . 262

Transfer of case --Scope of section 127--Transfer for purposes of centralisation of cases--Reasons for transfer recorded--Objection of assessee considered--Order of transfer valid--Income-tax Act, 1961, s. 127-- Dr. Monu Pattanayak v. Principal Chief CIT (Orissa) . . . 273

PRINT EDITIONITR Volume 394 : Part 4 (Issue dated : 12-6-2017)SUBJECT INDEX TO CASES REPORTED IN

THIS PARTSUPREME COURT

Heads of income --Income from house property or business income--Letting of property--Whether business activity--To be determined on facts--Clause in objects of assessee not conclusive --Assessee must show that its entire income or a substantial part thereof was from letting of property which was its principal business activity--Objects clause in partnership deed to take premises on rent and to sub-let them--Assessee “deemed ownerâ€--Finding of Tribunal that assessee had not established that it was engaged in systematic or organised activity of providing service to occupiers of shops--Receipts from sub-licensees not business income but to be treated as income from house property--Income-tax Act, 1961, ss. 14, 22, 27(iiib), 269UA(f)-- Raj Dadarkar and Associates v. Asst. CIT . . . 592

HIGH COURTS

Appeal to Appellate Tribunal --Appeal to Commissioner (Appeals)--Powers of Tribunal--Condition precedent for appealing to Commissioner (Appeals)--Payment of taxes due--Tax not paid on date of appeal--Appeal dismissed--Subsequent payment of tax--Tribunal directing Commissioner (Appeals) to hear appeal--Justified--Income-tax Act, 1961, s. 254-- Principal CIT v. Abdul Zahid M. (Karn) . . . 727

Powers of Tribunal--Tribunal can grant refund--Income-tax Act, 1961, s. 254-- Kalindee Rail Nirman (Engineers) Ltd. v. CIT (Raj) . . . 684

Search and seizure--Proceedings pursuant to search conducted during pendency of appeal not brought to notice of Appellate Tribunal--Order of Appellate Tribunal without considering developments to be set aside--Matter remitted to Appellate Tribunal--Income-tax Act, 1961, ss. 132, 133A, 143(3), 153A-- Skyline Builders v. CIT (Ker) . . . 768

Business --Business income--Remission or cessation of trading liability--Burden on Department to prove such cessation--Finding by Tribunal that burden had not been discharged--Addition to income under section 41(1) not justified--Income-tax Act, 1961, s. 41-- Principal CIT v. Ramgopal Minerals (Karn) . . . 696

Capital gains --Exemption--Investment of gains in residential house--Assessee getting more than one residential house in several blocks--All flats product of one development agreement of same piece of land--Flats located in same address--Assessee entitled to benefit under section 54F--Income-tax Act, 1961, s. 54F-- CIT v. Gumanmal Jain (Mad) . . . 666

Transfer--Relinquishment of life interest in property--Not gift in absence of transfer by releaser to assessee--No acquisition of capital assets by way of gift--Income-tax Act, 1961, s. 49(1)(ii)--Gift-tax Act, 1958, s. 4(1)(c), (d), (e)-- Nusli N. Wadia v. CIT (Bom) . . . 638

Cash credits --Issue of shares at premium--Three essential tests--Genuineness of transactions, identity, and capacity of investors--Tests satisfied--Amendment requiring share applicant to explain source of moneys--Not to be given retrospective effect--Income-tax Act, 1961, s. 68-- CIT v. Gagandeep Infrastructure Pvt. Ltd. (Bom) . . . 680

Charitable purposes --Depreciation--Application of income in acquisition of capital asset--Provision barring allowance of depreciation on such asset prospective--Depreciation on assets allowable for earlier period--Income-tax Act, 1961, s. 11(1), (6)-- CIT (Exemption) v. Seth Anandram Jaipuria Education Society (All) . . . 712

Expenditure incurred on payment of scholarship--Payment of scholarship for advancement of higher technical education to deserving students--Expenditure allowable--Income-tax Act, 1961-- CIT (Exemption) v. Seth Anandram Jaipuria Education Society (All) . . . 712

Hotel business --Special deduction--Condition precedent--Claim must be made in return--Assessee’s claim to deduction under section 80-IB(7)(a) denied for want of approval by prescribed authority but deduction allowed of lower sum under clause (b)--Not a case where no claim made in return to deduction under section 80-IB(7)--Assessee cannot be denied deduction--Income-tax Act, 1961, ss. 80A, 80-IB(7)-- Shrikar Hotels Pvt. Ltd. v. CIT (All) . . . 657

Special deduction--Grant of approval--Application by assessee for approval pending decision with Director General (Exemptions)--Benefit cannot be denied for inaction of prescribed authority--Denial of deduction erroneous--Income-tax Act, 1961, s. 80-IB(7)(a)--Shrikar Hotels Pvt. Ltd. v. CIT (All) . . . 657

Income --Business income--Remission or cessation of trading liability--Conditions precedent for application of section 41--Cessation of liability and benefit to assessee--Mere inability to prove credit not sufficient--Section 41 not applicable--Income-tax Act, 1961, s. 41-- CIT v. Alvares and Thomas (Karn) . . . 647

Income-tax --General Principles--Taxation only in accordance with law-- Kalindee Rail Nirman (Engineers) Ltd. v. CIT (Raj) . . . 684

Income from other sources --Cash credits--Exemption in respect of remittances received from abroad from relative--Burden of proof--Failure to establish genuineness and creditworthiness of donor--Receipts taxable as income--Income-tax Act, 1961, ss. 56(2), 68-- Sunil Thomas v. ITO (Ker) . . . 619

Legislative powers --Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted--Income-tax Act, 1961, ss. 10B(1), 80A(5), 139(1), 139(4)--Constitution of India, arts. 14, 226-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

Offences and prosecution --Compounding of offences--No limitation period for application for compounding--Application cannot be rejected on ground that application not accompanied by compounding fee or that compounding fee not paid prior to application being considered on merits--Chief Commissioner directed to consider afresh assessee’s application for compounding of offence--Income-tax Act, 1961, s. 279-- Vikram Singh v. Union of India(Delhi) . . . 746

Reassessment --Condition precedent--New material--Income-tax Act, 1961, ss. 147, 148--Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Income escaping assessment--Undisclosed investment--Addition on account of unexplained investment in building--Assessee not establishing creditworthiness of creditors but only identity of creditors--Findings of fact by Appellate Tribunal based on appraisal of evidence--No infirmity--Income-tax Act, 1961, s. 69-- Dr. Chhangur Rai v. CIT (All) . . . 611

Income escaping assessment--Undisclosed investment--Assessee’s failure to file returns for years during which investments made showing corresponding income--Additions made by Assessing Officer based on District Valuation Officer’s report--Reassessment proceedings valid and proper--Income-tax Act, 1961, ss. 69, 147, 148-- Dr. Chhangur Rai v. CIT (All) . . . 611

Notice--Validity--Assessing Officer passing reassessment order without disposing objection raised by assessee against notice--Reassessment order not valid--Income-tax Act, 1961, ss. 147, 148-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Scope of--Power of Assessing Officer to consider other income not mentioned in reasons recorded--Only if income mentioned in reasons forms part of reassessed income--Income-tax Act, 1961, ss. 147, 148-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Recovery of tax --Writ--Locus standi--Assessment of earlier year, initiation of proceedings and conclusion in name of non-resident assessee--State Government with which non-resident entered into contract not party to earlier proceedings--Not entitled to seek rectification of order of Tribunal or file writ petition--For consistency of law parties should be continuously joined all throughout proceedings--Income-tax Act, 1961-- Chief Engineer I D and R Irrigation Department v. Asst. CIT (Raj) . . . 720

Search and seizure --Assessment in search cases--Assessment of third party--Condition precedent--Recording of satisfaction by Assessing Officer that seized material or cash belonged to third party--Search in premises of director of assessee-company and seizure of cash--Statement made by director in course of search that part of seized cash belonged to assessee--Constitutes material under section 132(4)--Satisfaction sufficient under section 153C--Income-tax Act, 1961, ss. 132, 132(4), 153A, 153C-- Principal CIT v. Nau Nidh Overseas Pvt. Ltd. (Delhi) . . . 753

Assessment in search cases--Assessment of third party--Document seized whether belonging to third party assessee--Person in respect of whom search conducted denying that document pertained to assessee--Finding of fact--No material to contradict brought by Department--Pre-condition not fulfilled--Provisions of section 153C not attracted--Income-tax Act, 1961, ss. 132, 153A, 153C-- Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

Assessment of third party--Burden of proof--Source of seized document--Person in respect of whom search conducted stating that document was proposal given by broker--Duty of Department to ascertain truth of document investigating further--Additions made to assessee’s income based on conjectures--Unsustainable--Income-tax Act, 1961, ss. 132, 153A, 153C-- Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

Settlement of cases --Abatement of proceedings--Effect--Proceedings before Assessing Officer revive on date of abatement of assessee’s application--Assessing Officer bound to pass fresh orders disposing of assessment proceedings in accordance with law--Assessing Officer not right in treating earlier assessment order as valid and serving demand notice--Earlier assessment order and proceedings for recovery of demand to be set aside--Income-tax Act, 1961, s. 245HA(2)-- Chain Roop Bhansali v. Union of India (Delhi) . . . 703

Transfer of case --Transfer of cases due to re-structuring of Department--Administrative convenience for equitable distribution of work--Order communicated to assessees--Assessees given option to be heard at camp court--No prejudice caused to interest of assessees--Income-tax Act, 1961, s. 127(2)-- Swayamstuti Pattanayak v. Principal Chief CIT (Orissa) . . . 627

Words and phrases --â€Relativeâ€--Term as explained in Explanation to proviso of section 56(2) of 1961 Act-- Sunil Thomas v. ITO (Ker) . . . 619

Writ --Existence of alternative remedy--Does not exclude power of court to entertain writ petition when challenge raised on ground of absence of jurisdiction or breach of principles of natural justice--Constitution of India, art. 226--Income-tax Act, 1961, ss. 147, 148-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Constitution of India :Art. 14 --Legislative powers--Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

Art. 226 --Legislative powers--Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

Writ--Existence of alternative remedy--Does not exclude power of court to entertain writ petition when challenge raised on ground of absence of jurisdiction or breach of principles of natural justice-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Gift-tax Act, 1958 :S. 4(1)(c), (d), (e) --Capital gains--Transfer--Relinquishment of life interest in property--Not gift in absence of transfer by releaser to assessee--No acquisition of capital assets by way of gift-- Nusli N. Wadia v. CIT (Bom) . . . 638

Income-tax Act, 1961 :S. 10B(1) --Legislative powers--Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

S. 11(1), (6) --Charitable purposes--Depreciation--Application of income in acquisition of capital asset--Provision barring allowance of depreciation on such asset prospective--Depreciation on assets allowable for earlier period-- CIT (Exemption) v. Seth Anandram Jaipuria Education Society (All) . . . 712

S. 14 --Heads of income--Income from house property or business income--Letting of property--Whether business activity--To be determined on facts--Clause in objects of assessee not conclusive --Assessee must show that its entire income or a substantial part thereof was from letting of property which was its principal business activity--Objects clause in partnership deed to take premises on rent and to sub-let them--Assessee “deemed ownerâ€--Finding of Tribunal that assessee had not established that it was engaged in systematic or organised activity of providing service to occupiers of shops--Receipts from sub-licensees not business income but to be treated as income from house property-- Raj Dadarkar and Associates v. Asst. CIT (SC) . . . 592

S. 22 --Heads of income--Income from house property or business income--Letting of property--Whether business activity--To be determined on facts--Clause in objects of assessee not conclusive --Assessee must show that its entire income or a substantial part thereof was from letting of property which was its principal business activity--Objects clause in partnership deed to take premises on rent and to sub-let them--Assessee “deemed ownerâ€--Finding of Tribunal that assessee had not established that it was engaged in systematic or organised activity of providing service to occupiers of shops--Receipts from sub-licensees not business income but to be treated as income from house property-- Raj Dadarkar and Associates v. Asst. CIT (SC) . . . 592

S. 27(iiib) --Heads of income--Income from house property or business income--Letting of property--Whether business activity--To be determined on facts--Clause in objects of assessee not conclusive --Assessee must show that its entire income or a substantial part thereof was from letting of property which was its principal business activity--Objects clause in partnership deed to take premises on rent and to sub-let them--Assessee “deemed ownerâ€--Finding of Tribunal that assessee had not established that it was engaged in systematic or organised activity of providing service to occupiers of shops--Receipts from sub-licensees not business income but to be treated as income from house property-- Raj Dadarkar and Associates v. Asst. CIT (SC) . . . 592

S. 41 --Business--Business income--Remission or cessation of trading liability--Burden on Department to prove such cessation--Finding by Tribunal that burden had not been discharged--Addition to income under section 41(1) not justified-- Principal CIT v. Ramgopal Minerals (Karn) . . . 696

Income--Business income--Remission or cessation of trading liability--Conditions precedent for application of section 41--Cessation of liability and benefit to assessee--Mere inability to prove credit not sufficient--Section 41 not applicable-- CIT v. Alvares and Thomas(Karn) . . . 647

S. 49(1)(ii) --Capital gains--Transfer--Relinquishment of life interest in property--Not gift in absence of transfer by releaser to assessee--No acquisition of capital assets by way of gift--Nusli N. Wadia v. CIT (Bom) . . . 638

S. 54F --Capital gains--Exemption--Investment of gains in residential house--Assessee getting more than one residential house in several blocks--All flats product of one development agreement of same piece of land--Flats located in same address--Assessee entitled to benefit under section 54F-- CIT v. Gumanmal Jain (Mad) . . . 666

S. 56(2) --Income from other sources--Cash credits--Exemption in respect of remittances received from abroad from relative--Burden of proof--Failure to establish genuineness and creditworthiness of donor--Receipts taxable as income-- Sunil Thomas v. ITO (Ker) . . . 619

S. 68 --Cash credits--Issue of shares at premium--Three essential tests--Genuineness of transactions, identity, and capacity of investors--Tests satisfied--Amendment requiring share applicant to explain source of moneys--Not to be given retrospective effect-- CIT v. Gagandeep Infrastructure Pvt. Ltd. (Bom) . . . 680

Income from other sources--Cash credits--Exemption in respect of remittances received from abroad from relative--Burden of proof--Failure to establish genuineness and creditworthiness of donor--Receipts taxable as income-- Sunil Thomas v. ITO (Ker) . . . 619

S. 69 --Reassessment--Income escaping assessment--Undisclosed investment--Addition on account of unexplained investment in building--Assessee not establishing creditworthiness of creditors but only identity of creditors--Findings of fact by Appellate Tribunal based on appraisal of evidence--No infirmity-- Dr. Chhangur Rai v. CIT (All) . . . 611

Reassessment--Income escaping assessment--Undisclosed investment--Assessee’s failure to file returns for years during which investments made showing corresponding income--Additions made by Assessing Officer based on District Valuation Officer’s report--Reassessment proceedings valid and proper-- Dr. Chhangur Rai v. CIT(All) . . . 611

S. 80A --Hotel business--Special deduction--Condition precedent--Claim must be made in return--Assessee’s claim to deduction under section 80-IB(7)(a) denied for want of approval by prescribed authority but deduction allowed of lower sum under clause (b)--Not a case where no claim made in return to deduction under section 80-IB(7)--Assessee cannot be denied deduction-- Shrikar Hotels Pvt. Ltd. v. CIT (All) . . . 657

S. 80A(5) --Legislative powers--Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

S. 80-IB(7) --Hotel business--Special deduction--Condition precedent--Claim must be made in return--Assessee’s claim to deduction under section 80-IB(7)(a) denied for want of approval by prescribed authority but deduction allowed of lower sum under clause (b)--Not a case where no claim made in return to deduction under section 80-IB(7)--Assessee cannot be denied deduction-- Shrikar Hotels Pvt. Ltd. v. CIT (All) . . . 657

S. 80-IB(7)(a) --Hotel business--Special deduction--Grant of approval--Application by assessee for approval pending decision with Director General (Exemptions)--Benefit cannot be denied for inaction of prescribed authority--Denial of deduction erroneous-- Shrikar Hotels Pvt. Ltd. v. CIT (All) . . . 657

S. 127(2) --Transfer of case--Transfer of cases due to re-structuring of Department--Administrative convenience for equitable distribution of work--Order communicated to assessees--Assessees given option to be heard at camp court--No prejudice caused to interest of assessees-- Swayamstuti Pattanayak v. Principal Chief CIT (Orissa) . . . 627

S. 132 --Appeal to Appellate Tribunal--Search and seizure--Proceedings pursuant to search conducted during pendency of appeal not brought to notice of Appellate Tribunal--Order of Appellate Tribunal without considering developments to be set aside--Matter remitted to Appellate Tribunal-- Skyline Builders v. CIT (Ker) . . . 768

Search and seizure--Assessment in search cases--Assessment of third party--Condition precedent--Recording of satisfaction by Assessing Officer that seized material or cash belonged to third party--Search in premises of director of assessee-company and seizure of cash--Statement made by director in course of search that part of seized cash belonged to assessee--Constitutes material under section 132(4)--Satisfaction sufficient under section 153C-- Principal CIT v. Nau Nidh Overseas Pvt. Ltd. (Delhi) . . . 753

Search and seizure--Assessment in search cases--Assessment of third party--Document seized whether belonging to third party assessee--Person in respect of whom search conducted denying that document pertained to assessee--Finding of fact--No material to contradict brought by Department--Pre-condition not fulfilled--Provisions of section 153C not attracted-- Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

Search and seizure--Assessment of third party--Burden of proof--Source of seized document--Person in respect of whom search conducted stating that document was proposal given by broker--Duty of Department to ascertain truth of document investigating further--Additions made to assessee’s income based on conjectures--Unsustainable--Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

S. 132(4) --Search and seizure--Assessment in search cases--Assessment of third party--Condition precedent--Recording of satisfaction by Assessing Officer that seized material or cash belonged to third party--Search in premises of director of assessee-company and seizure of cash--Statement made by director in course of search that part of seized cash belonged to assessee--Constitutes material under section 132(4)--Satisfaction sufficient under section 153C-- Principal CIT v. Nau Nidh Overseas Pvt. Ltd. (Delhi) . . . 753

S. 133A --Appeal to Appellate Tribunal--Search and seizure--Proceedings pursuant to search conducted during pendency of appeal not brought to notice of Appellate Tribunal--Order of Appellate Tribunal without considering developments to be set aside--Matter remitted to Appellate Tribunal-- Skyline Builders v. CIT (Ker) . . . 768

S. 139(1) --Legislative powers--Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

S. 139(4) --Legislative powers--Parliament--Discrimination--Provisions mandating claim to deductions with respect to profits of export oriented unit to be made in return within time stipulated under section 139(1)--Not arbitrary, discriminatory, unreasonable or violative of article 14--Claim to deduction under section 10B(1) made in return filed belatedly--Relief cannot be granted-- Nath Brothers Exim International Ltd. v. Union of India (Delhi) . . . 577

S. 143(3) --Appeal to Appellate Tribunal--Search and seizure--Proceedings pursuant to search conducted during pendency of appeal not brought to notice of Appellate Tribunal--Order of Appellate Tribunal without considering developments to be set aside--Matter remitted to Appellate Tribunal-- Skyline Builders v. CIT (Ker) . . . 768

S. 147 --Reassessment--Condition precedent--New material-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Reassessment--Income escaping assessment--Undisclosed investment--Assessee’s failure to file returns for years during which investments made showing corresponding income--Additions made by Assessing Officer based on District Valuation Officer’s report--Reassessment proceedings valid and proper-- Dr. Chhangur Rai v. CIT(All) . . . 611

Reassessment--Notice--Validity--Assessing Officer passing reassessment order without disposing objection raised by assessee against notice--Reassessment order not valid--Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Reassessment--Scope of--Power of Assessing Officer to consider other income not mentioned in reasons recorded--Only if income mentioned in reasons forms part of reassessed income-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Writ--Existence of alternative remedy--Does not exclude power of court to entertain writ petition when challenge raised on ground of absence of jurisdiction or breach of principles of natural justice-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

S. 148 --Reassessment--Condition precedent--New material-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Reassessment--Income escaping assessment--Undisclosed investment--Assessee’s failure to file returns for years during which investments made showing corresponding income--Additions made by Assessing Officer based on District Valuation Officer’s report--Reassessment proceedings valid and proper-- Dr. Chhangur Rai v. CIT(All) . . . 611

Reassessment--Notice--Validity--Assessing Officer passing reassessment order without disposing objection raised by assessee against notice--Reassessment order not valid--Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Reassessment--Scope of--Power of Assessing Officer to consider other income not mentioned in reasons recorded--Only if income mentioned in reasons forms part of reassessed income-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

Writ--Existence of alternative remedy--Does not exclude power of court to entertain writ petition when challenge raised on ground of absence of jurisdiction or breach of principles of natural justice-- Martech Peripherals P. Ltd. v. Deputy CIT (Mad) . . . 733

S. 153A --Appeal to Appellate Tribunal--Search and seizure--Proceedings pursuant to search conducted during pendency of appeal not brought to notice of Appellate Tribunal--Order of Appellate Tribunal without considering developments to be set aside--Matter remitted to Appellate Tribunal-- Skyline Builders v. CIT (Ker) . . . 768

Search and seizure--Assessment in search cases--Assessment of third party--Condition precedent--Recording of satisfaction by Assessing Officer that seized material or cash belonged to third party--Search in premises of director of assessee-company and seizure of cash--Statement made by director in course of search that part of seized cash belonged to assessee--Constitutes material under section 132(4)--Satisfaction sufficient under section 153C-- Principal CIT v. Nau Nidh Overseas Pvt. Ltd. (Delhi) . . . 753

Search and seizure--Assessment in search cases--Assessment of third party--Document seized whether belonging to third party assessee--Person in respect of whom search conducted denying that document pertained to assessee--Finding of fact--No material to contradict brought by Department--Pre-condition not fulfilled--Provisions of section 153C not attracted-- Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

Search and seizure--Assessment of third party--Burden of proof--Source of seized document--Person in respect of whom search conducted stating that document was proposal given by broker--Duty of Department to ascertain truth of document investigating further--Additions made to assessee’s income based on conjectures--Unsustainable--Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

S. 153C --Search and seizure--Assessment in search cases--Assessment of third party--Condition precedent--Recording of satisfaction by Assessing Officer that seized material or cash belonged to third party--Search in premises of director of assessee-company and seizure of cash--Statement made by director in course of search that part of seized cash belonged to assessee--Constitutes material under section 132(4)--Satisfaction sufficient under section 153C-- Principal CIT v. Nau Nidh Overseas Pvt. Ltd. (Delhi) . . . 753

Search and seizure--Assessment in search cases--Assessment of third party--Document seized whether belonging to third party assessee--Person in respect of whom search conducted denying that document pertained to assessee--Finding of fact--No material to contradict brought by Department--Pre-condition not fulfilled--Provisions of section 153C not attracted-- Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

Search and seizure--Assessment of third party--Burden of proof--Source of seized document--Person in respect of whom search conducted stating that document was proposal given by broker--Duty of Department to ascertain truth of document investigating further--Additions made to assessee’s income based on conjectures--Unsustainable--Principal CIT v. Vinita Chaurasia (Delhi) . . . 758

S. 245HA(2) --Settlement of cases--Abatement of proceedings--Effect--Proceedings before Assessing Officer revive on date of abatement of assessee’s application--Assessing Officer bound to pass fresh orders disposing of assessment proceedings in accordance with law--Assessing Officer not right in treating earlier assessment order as valid and serving demand notice--Earlier assessment order and proceedings for recovery of demand to be set aside-- Chain Roop Bhansali v. Union of India (Delhi) . . . 703

S. 254 --Appeal to Appellate Tribunal--Appeal to Commissioner (Appeals)--Powers of Tribunal--Condition precedent for appeal to Commissioner (Appeals)--Payment of taxes due--Tax not paid on date of appeal--Appeal dismissed--Subsequent payment of tax--Tribunal directing Commissioner (Appeals) to hear appeal--Justified-- Principal CIT v. Abdul Zahid M.(Karn) . . . 727

Appeal to Appellate Tribunal--Powers of Tribunal--Tribunal can grant refund-- Kalindee Rail Nirman (Engineers) Ltd. v. CIT (Raj) . . . 684

S. 269UA(f) --Heads of income--Income from house property or business income--Letting of property--Whether business activity--To be determined on facts--Clause in objects of assessee not conclusive --Assessee must show that its entire income or a substantial part thereof was from letting of property which was its principal business activity--Objects clause in partnership deed to take premises on rent and to sub-let them--Assessee “deemed ownerâ€--Finding of Tribunal that assessee had not established that it was engaged in systematic or organised activity of providing service to occupiers of shops--Receipts from sub-licensees not business income but to be treated as income from house property-- Raj Dadarkar and Associates v. Asst. CIT (SC) . . . 592

S. 279 --Offences and prosecution--Compounding of offences--No limitation period for application for compounding--Application cannot be rejected on ground that application not accompanied by compounding fee or that compounding fee not paid prior to application being considered on merits--Chief Commissioner directed to consider afresh assessee’s application for compounding of offence-- Vikram Singh v. Union of India (Delhi) . . . 746

TAXABILITY OF RECOVERY AGENT'S SERVICES

 

TAXABILITY OF RECOVERY AGENT'S SERVICES

Service tax had been imposed on recovery agent's services by the Finance Act, 2006 with effect from 1st May, 2006 vide Notification No. 15/2006-ST dated 25.4.2006. The gross amount charged by recovery agent to a person in relation to recovery services is chargeable to service tax.

Meaning of Recovery Agent

Recovery agent has not been defined but it would cover recovery agents or enforcement agencies under Securities and Reconstruction of Financial Assets and Enforcement of Security Act, 2002. Under this Act, and rules made thereunder, banks and other financial institutions appoint recovery agents.

For the purpose of service tax, recovery shall be of any sums due to the service receiver and nothing else (asset or other property).

To recover means to find or regain possession of, regain control of, regain or secure by any of a legal process, to get again. Recovery means the action of regaining or securing money lost or spent by means of a legal process or subsequent profits, debts recovery. Recovery means a thing secured by a process of law, the actual possession of any thing, or its value, by judgment of a legal tribunal, the obtaining of a thing as a result of an action brought for the purpose.

Taxable Service

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

Taxable service means services provided to a banking company or a financial institution including a non-banking financial company or any other body corporate or a firm, by any person, in relation to recovery of any sums due to such banking company or financial institution, including a non-banking financial company, or any other body corporate or a firm, in any manner.

The services provided for recovery of any sums due to a commercial or business entity are covered as taxable service.

The taxable services could be provided to any of the following –

(a) a banking company

(b) a financial institution

(c) a non-banking financial company (NBFC)

(d) any body corporate, or

(e) a firm

To be a taxable service, following ingredients should be satisfied —

(a) the activity should result in provision of service.

(b) service provider i.e., recovery agent can be any person.

(c) the service should be provided to specified persons only i.e., bank, financial institution, NBFC, body corporate or firms.

(d) service provided or to be provided should be in relation to recovery of any sums due to such persons.

(e) service may be provided in any manner by recovery agent.

The services provided to an individual or person or HUF are not taxable services. The services of recovery agent should be for recovery of any sums due to such service receiver and it appears that recovery of assets or property or goods is not covered but such assets if offered as security against any sums due shall be covered under taxable services. For example, recovery of a vehicle or machinery which has been financed by way of a loan or hire purchase would be a taxable service but recovery of a stolen vehicle or machinery does not fall under the definition. The taxable service can be provided in any manner.

CBEC has vide Circular No. 334/4/2006-TRU, dated 28-2-2006 clarified as under —

"Services provided for recovery of any sums due to a commercial or business entity are covered under this category. Under Securities and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 and the relevant rules made there under, banks and other financial institutions appoint recovery agents."

Person Liable

Recovery agency providing recovery agent's services shall be person liable and treated as an assessee for service tax purposes.

= = = = = = = = =

By: Dr. Sanjiv Agarwal
Dated: - December 20, 2011