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

I. Recording of reasons

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

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

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

II. Notice — Return under protest

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

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

III. Reasons – Recorded to be supplied

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

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

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

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

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

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

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

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

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

IV. Issue of notice by successor

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

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

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

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

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

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

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

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

VI. Reasons – Non-application of mind

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

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

VII. Approval and Sanction

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

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

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

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

VIII. Disclosure of Primary Facts

16. Statement of unconnected person

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

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

IX. Re-opening beyond 4 years bad in Law

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

X. Reassessment with in four years

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

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

XI. Reassessment – Change of opinion

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

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

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

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

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

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

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

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

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

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

31.  Change of opinion, bad in law

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

XII. Reason to believe — Satisfaction.

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

XIII. Audit objection

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

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

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

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

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

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

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

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

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

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

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

XIV. Reasons to believe – Survey subsequent

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

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

XV. Reassessment – Interpretation of High Court decision

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

XVI. Supreme Court decision cannot be the basis

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

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

XVII. Ignorance of board circular is not sufficient

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

XVIII. Notice – 143 (2).

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

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

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

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

XIX. Intimation – Section 143(1)

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

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

XX. Reassessment – Valuation report

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1. Rectification proceedings initiated and dropped

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

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

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

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

XXII. Direction of the Higher Authorities

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

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

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

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

XXIII. Amendment of Laws

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

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

XXIV. Cases where full disclosures are not made

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

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

XXV. Information

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

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

XXVI. Discloure in balance sheet

58. Disclosure in balance sheet also amounts to disclosure.

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

XXVII. Jurisdiction — Second Appeal

59. Jurisdiction can be challenged in Second Appeal.

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

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

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

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

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

XXVIII. Scope of Powers

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

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

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

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

1. Statements by the third party cannot form the basis

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

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

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

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

XXIX. Block Assessment

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

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

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

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

XXXI.    Reassessment in pursuance of an order/direction

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

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

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

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

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

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

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

XXXII. Appeal

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

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

XXXIII. Order set aside by the Commissioner

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

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

XXXIV. Writ

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

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

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

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

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

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

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

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

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

MTM Losses

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

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

Losses on actual settlement / conclusion of contracts

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

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

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

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

Guidance for undertaking tax assessment

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

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

Our Comments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Volume 3 : Part 3

 

 

REPORTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NEWS-BRIEFS

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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MEDICAL FACILITIES FOR RETIRED EMPLOYEES

With the intention that any our retired member can be benefited.

MEDICAL FACILITIES FOR RETIRED EMPLOYEES

FACILITIES FOR RETIRED EMPLOYEES

'RETIRED EMPLOYEES CAN SUE GOVT FOR NEGLIGENCE UNDER CGHS'

The verdict, read with a ruling of the SC in 1995 that in-service Central Government employees are consumers under the Central Government Health Service Scheme, now catgorieses the entire working and retired work force as consumers, as far as health care is concerned under the scheme

Lakhs of retired central government employees can rejoice as the apex consumer forum has held them to be the consumers under the CGHS scheme, thus conferring a right on them to sue the Center for damage in case of deficiency in health care provided to them and their dependents.

This was unanimous decision of a full Bench of the National Consumer Disputes Redressal Commission (NCDRC) comprising its president Justice M.B.Shah, members Rajyalakshi Rao, B.K. Taimni, Justice K.S.Gupta, Justice S.N. Kapoor and P.D.Shenoy. This verdict, read with a ruling of the Supreme Court in 1995 that in-service central government employees are consumers under the Central Government Health Scheme (CGHS). now categorises the entire working and retired work force of the Central Government as consumers, as far as health are is concerned under the scheme.

The question before the NCDRC was "whether a pensioner and beneficiary of the CGHS would be a consumer under the provisions of Consumer Protection Act, 1986, for alleged deficiency in service by the CGHS Medical Officer".

Answering in the affirmative, NCDRC said medical treatment facilities extended to a retired under CGHS could not be termed as 'free service' as it was in consideration of service rendered by him to the government till the age of superannuation, which conferred a right on him to get pension as well as other benefits, including medical treatment prescribed by various rules or the schemes framed by the Center.

"Such employee would be a consumer as defined in Section 2(1)(d)(ii) of the Consumer Protection Act," said Justice Shah , writing for the Bench. Explaining the reason behind the conclusion that would make the retired employees feel less neglected, the NCDRC said service rendered by the government employees before retirement would be "consideration" for providing medical facilities to him or his family members.

"Hence, it cannot be said that the hospital which is subsidized by the government is rendering service free of charge," it said.

The NCDRC verdict came on a petition filed by retired employee Jagdish Kumar Bajpai, throgh advocate Nikhil Nayar, claiming that he was refused medicines for his wife by the CGHS dispensary in Kanpur. He also claimed damages to the tune of Rs. 4 lakh alleging that his wife died due to the negligence of the medical officer.

(The above news item appeared in Ahmedabad Edition of Times of India dated November 7, 2005 - Needless to say that this verdict is relevant to the working and retired employees of ONGC as the Central Government Medical Attendance Rules also apply on ONGC.)


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ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 19-4-2010 Volume 2 : Part 7

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS
ISSUE DATED 19-4-2010
Volume 2 : Part 7  

 

 

REPORTS

> Where valid data supported by appropriated documentation furnished for the project regarding administrative expenses, deletion of addition justified : ITO v. B. Nagi Reddy (Chennai) p. 730

 

> Deduction of premium on secured premium notes allowable u/s. 36(1)(iii) : Jt. CIT v. Bombay Dyeing Mfg. Co. Ltd. (Mumbai) p. 733

 

> AO has no jurisdiction to reopen case for AY 1998-99 under proviso to s. 14A : Jt. CIT v. Bombay Dyeing Mfg. Co. Ltd. (Mumbai) p. 733

 

> Advances adjusted against professional fees, in absence of contract for any film, not assessable as income : R.S. Suriya v. Dy. CIT (Chennai) p. 746

 

> Where TDS prior to due date u/s. 139(1) deduction of payment by actor to organisation for managing call sheets allowable u/s. 40(a)(ia)(A) : R.S. Suriya v. Dy. CIT (Chennai) p. 746

 

> Higher rate of depreciation allowable on wind mill as requirement of second proviso to r. 5(1A) fulfilled : K. Ravi v. Asst. CIT (Chennai) p. 752

 

F Immovable property devolving on assessee and her children, children

relinquishing share in favour of assessee cannot be deemed gift for purposes of computing cost of acquisition : M. Suseela v. ITO (Vishakhapatnam) p. 760

 

> Loss on account of transactions in shares and transactions of future options is speculative loss : Renaissance Asset Management Co. P. Ltd. v. AO (Delhi) p.765

 

> Appeal filed after ten years without reasonable cause : delay cannot be condoned : Foramer France v. Dy. CIT (Delhi) p. 773

 

> Payment of incentive to Dock Labour Board workers disallowed u/s.37 : Sical Logistics Ltd. v. Dy. CIT (Chennai) p. 786

 

> Assessee claiming deduction u/s 80-O for interest income is liable to penalty u/s. 271(1)(c) : Asst. CIT v. Surinder Lal Chopra (Delhi) p. 790

 

NEWS-BRIEFS

> Finmin work in haste to give final shape to direct taxes code

The Finance Ministry has set up a task force to draft the Bill, by almost doubling the strength of its revenue officials working on the Direct Taxes Code, as it is running against time to present it in the monsoon session of Parliament. The Government has posted seven Commissioners and Joint Commissioners of income-tax as Officers on Special Duty (OSD) in Tax Policy Legislation (TPL), a division of the Central Board of Direct Taxes (CBDT).

With the addition of seven officials in two rounds (three in first round and four in the second), it has now 17 officials to finalise the architecture of the code. The newly deputed officials are busy giving shape to the Direct Tax Bill.

The Finance Minister has assured the industry that the Government is open to re-examining the proposals relating to the Minimum Alternate Tax (MAT), capital gains tax, Double Taxation Avoidance Agreement (DTAA), general anti-avoidance rule, taxation of charitable organisations and foreign companies in India, exempt-exempt-tax regime, deductions in case of retirement benefits and income from house property. Apart from the nine areas identified by the Finance Minister, the taskforce was looking at various parts of the draft code.

The Government is planning to implement the Direct Taxes Code in April 2011. It will replace the Income-tax Act, 1961. The Finance Ministry will have to get the Bill vetted by the Law Ministry before it takes it to Parliament. [Source : www.businessstandard.com dated April 9, 2010]

 

 

> Aayakar Sewa Kendra Pune receives ISO certification

The nodal agency for implementation of Sevottam scheme, and the Aayakar Sewa Kendra (ASK) unit at Pune has received certification under IS 15700 : 2005 from the Bureau of Indian Standards for excellence in public delivery system after audit of the Directorate of Organisation and Management Services (DOMS) along with the Central Board of Direct Taxes (CBDT) and the Income-tax Department.

ASK is a one stop computerized center for the taxpayers to obtain services promised by the Department in its Citizens' Charter in a time bound manner. ASK provides a front office backed by re-engineered processes and a new outlook of the officials to quickly redress grievances of taxpayers and also to prevent grievances. The first ASK was inaugurated in Pune on May 18, 2009, followed by two more ASKs at Kochi and Chandigarh.

IS 15700 : 2005 requires a public service organization to demonstrate its ability to consistently provide effective and efficient service that meets customer and applicable legal, statutory and regulatory requirements. It aims to enhance customer satisfaction and to continually improve its service and service delivery process. [Source : www.pib.nic.in dated April 6, 2010]

 

> CBDT move to early resolution of tax case disputes

The Central Board of Direct Taxes (CBDT) has brought all the dispute resolution panels (DRP) under the supervision of the Director-General of Income-tax (International Taxation).

Budget 2009-10 had introduced the concept of DRPs to provide an alternate dispute resolution mechanism to facilitate expeditious resolution of disputes on a fast track basis. This facility was made available only to foreign companies.

Official sources said that the latest move to "subordinate" the 10 DRPs (Delhi-2, Mumbai-2, one each in Pune, Hyderabad, Chennai, Kolkata, Bangalore and Ahmedabad) to the Director-General of Income-tax (International Taxation) should be seen as a step for administrative purposes only.

The larger objective of independence and functioning of the panel as a dispute resolution body need to be subserved. The day-to-day functioning of the panel should not be subordinated to a meticulous scrutiny of an administrative authority, said a partner in tax services. [Source : www.hindubusinessline.com dated April 8, 2010]

 

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Government introduce a new Medical Scheme for Central Government Employees and Pensioners

13 February 2010

Government introduce a new Medical Scheme for Central Government Employees and Pensioners

Government introduce a new Medical Scheme for Central Government Employees and Pensioners as in the name of Central Government Employees and Pensioners Health Insurance Scheme (CGEPHIS). In all over India, pensioners are getting meager amount of Rs.100 as Medical Allowance (except CGHS beneficiaries). It is estimated that approximately 17 lakh serving employees and 7 lakh pensioners shall be offered this Scheme and Government plan to enroll all serving employees and pensioners on compulsory / optional basis.

Some key points regarding the scheme:-

CENTRAL GOVERNMENT EMPLOYEES AND PENSIONERS HEALTH INSURANCE SCHEME (CGEPHIS)

BENEFICIARIES:
CGEPHIS shall be compulsory to new Central Government Employees who would be joining service after the introduction of the Health Insurance Scheme.

CGEPHIS shall be compulsory to new Central Government retirees who would be retiring from the service after the introduction of the Insurance Scheme.

CGEPHIS would be available on voluntary basis for the following:
Existing Central Government Employees and Pensioners who are already CGHS beneficiaries. In this case they have to opt out of CGHS scheme. They will also have the option of choosing both CGHS and Insurance policy. In such case the total insurance premium has to be borne by the member.

Existing Central Government Employees and Pensioners who are not CGHS beneficiaries but are covered under CS (MA)

INSURANCE COVERAGE:
In-patient benefits – The Insurance Scheme shall pay all expenses incurred in course of medical treatment availed of by the beneficiaries in an Empanelled Hospitals/ Nursing Homes (24 hours admission clause) within the country, arising out of either illness/disease/injury and or sickness.

NOTE: In case of organ transplant, the expenses incurred for the Donor are also payable under the scheme.

Pre & Post hospitalization benefit: Benefit up to 30 days Pre Hospitalization & up to 60 days Post Hospitalization respectively which would cover all expenses related to treatment of the sickness for which hospitalization was done.

FAMILY SIZE:
Serving/Retired Employees: Self, Spouse, Two dependent children and up to Two Dependent Parents. New born shall be considered insured from day one till the expiry of the current policy irrespective of the number of members covered subject to eligibility under maternity benefit.

Any additional dependent member in addition to above [Sr. No. 5 (1)] can be covered under the Scheme by paying the fixed amount of premium. This additional full premium shall be borne by the beneficiary.

IDENTIFICATION OF FAMILY:
Beneficiaries shall be identified by a "Photo Smart Card" issued by the insurer to all beneficiaries which would have all personal details, medical history, policy limits etc. of the CGEPHIS members. This card would be used across the country to accessHealth Insurance Benefits. The photograph embedded in the chip of the Smart Card will be taken as the proof for determining the eligibility of thebeneficiaries.

SUM INSURED AND BUFFER / CORPORATE SUM INSURED
SUM INSURED:
The Scheme shall provide coverage for meeting all expenses relating to hospitalization of beneficiary members up to Rs. 5, 00,000/- per family per year in any of the Empanelled Hospital/Nursing Home/Day Care Unit subject to stated limits on cashless basis through smart cards. The benefit shall be available to each and every member of the family on floater basis i.e. the total reimbursement of Rs. 5.00 lakh can be availed by one individual or collectively by all members of the family.

Entitlements for various types of wards: CGHS beneficiaries are entitled to facilities of private, semi-private or general ward depending on their pay drawn in pay band / pension. These entitlements are amended from time to time and the latest order in this regards needs to be followed. The entitlement is as follows:-

Pay drawn in pay band/Basic Pension - Entitlement
Rs. 13,950/-(up to)……………………………… General Ward
Rs. 13,960/- to 19,530/- …………………… Semi-Private Ward
Rs. 19,540/- and above ……………………… Private Ward

CASHLESS ACCESS SERVICE:
The Insurer has to ensure that all CGEPHIS members are provided with adequate facilities so that they do not have to pay any deposits at the commencement of the treatment or at the end of treatment to the extent as the Services are covered underthe Scheme . The service provided by the Insurer along with subject to responsibilities of the Insurer as detailed in this clause is collectively referred to as the "Cashless Access Service."

The services have to be provided by the Empanelled Hospitals/Nursing Homes/Day Care Clinics to the beneficiary based on Photo Smart Card authentication only without any delay. Thebeneficiaries shall be provided treatment free of cost for all such ailments covered under the Scheme within the limits/sub-limits of defined package rates and sum insured, i.e., not specifically excluded under the scheme.
ENROLMENT PROCESS
The process of enrolment shall be as under:
Serving Employees:
1. Departments and offices will call for options from employees to join voluntary CGEPHIS with or without existing CGHS/CS (MA) benefits.

2. Head of Department of the Administrative Ministry/Department would be the contact point for the Insurance Companies.

3. Enrolment forms giving details about self and family and authorization to the department for recovery of premium on a monthly basis would be consolidated by the Administrative Ministry / Department. The data of the beneficiary and dependent members to be covered along with 2 recent passport size photo and copy of enrolment form will be forwarded to Insurance Company on monthly basis.

4. Insurance Company will issue Smart Cards on the basis of information received of the beneficiaries for enrolment.

5. Such Smart Cards along with the enrollment kit shall be sent by the insurers directly to the insured persons at their respective mailing addresses at insurer's cost within 7 days.

Insurance Premium:-
The beneficiary will have to pay an annual premium which will be determined after the formal introduction of the Scheme. It will vary according to the grade pay of the officer. The estimated annual premium for a standard family size will be in the range of Rs.8000 to Rs.12000 p.a. It is however proposed to be subsidized by the Government to a considerable extent.

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Before due date simply refers and means that not after the expiry of due date

Before due date simply refers and means that not after the expiry of due date; if the requisite act is done before the last day expires then it will be simply said that before due date; when the time of filing the return is available to the assessee till the last moment of the due date then the whole of that day is available to the assessee and due date expires only when the last day is expired; as such the option exercised on the due date is nothing but before the due date as the same is not after the due date.

CASE LAWS DETAILS

DECIDED BY: ITAT, BENCH `D', CHENNAI, IN THE CASE OF: K. K. S. K. Leather Processors (P.) Ltd. v. ITO, APPEAL NO: ITA No. 826 & 827/Mds./2009,    DECIDED ON: November 20, 2009

RELEVANT PARAGRAPH

7. We have considered the rival contentions, relevant record and various decisions relied upon by both the parties. The undisputed factual position emerging out of the record is that in the case of first assessee in ITA Nos.826 & 827/09 the return of income for the assessment year 2003-04 was filed on due date but the return of income for 2005-06 was filed after the due date as prescribed under section 139(1) of Income-tax Act. Similarly in the case of the second assessee in ITA Nos.828 & 829/09 the return of income for the assessment year 2003-04 was filed on due date and for the assessment year 2005-06 was filed after due date. In the case of third assessee in ITA No.832/09 the return of income was filed on due date. In the case of the fourth assessee in ITA Nos.833 to 836/09 all the returns for the four assessment years were filed on due dates. As far as the entitlement of higher rate of depreciation on windmill as per Appendix I to Rule 5(1A) is concerned, there is no dispute that the assessee is entitled because the Revenue has not disputed the entitlement on merits. But the claim was disallowed by the Assessing Officer1 on the ground that the assessee did not exercise the option as prescribed under Second Proviso to Rule 5(1A). The two questions arising for consideration and determination in the facts of ihese cases are.

(i) whether the claim made in the return of income along with audit report showing the claim of the assessee regarding depreciation of windmill would amount to exercising option as required under Second Proviso to Rule 5(1 A) of Income-tax Rules?

(ii) whether the return filed on the due date of Tiling the return of income under section 139(1) would be considered as exercising of option before due date as prescribed in the Second Proviso of Rule 5(1 A)

Before discussing these two questions, it is appropriate to discuss the relevant provisions for depreciation provided under Section 32 of Income- • tax Act as well as Appendix (I) & Appendix (1A) to Rule 5(1A) of Income- tax Rules. For better understanding we quote sub-dause (i) & {it);..'$ftSection 32(1) which is as under:

32. (1) In respect of depreciation of-

(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may beprescribed;

(ii) – (in the case of- any block of assets, such percentage on the written down value thereof

as may be prescribed:

As per clause (i) of sub-section (1) of Section 32 the depreciation on the assets of an undertaking engaged in generation or generation and distribution of power is at a percentage as prescribed as per rates on the actual cost thereof. Thus sub-clause (i) of sub-section (1) of Section 32 provides the depreciation at a prescribed rate on the assets of specified undertaking on the actual cost instead of written down value. Explanation 5 to sub-section (1) ofSection 32 makes it clear that the provisions of sub-section (1) to section 32 of Income-tax Act shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. We quoit? Explanation 5 winch is as under:

"For the removal of doubts, it is hereby declared that the provisions of this subjection shall apply whether or not the assessee has claimed the deduction in respect ofdepreciation in computing his total income; "

From the provisions of sub-section (1) of Section 32 along with the Explanation 5, it is dear that "the Assessing Officer is duty beyond and under obligation to allow the deduction ofdepreciation as per the provisions of sub-section (1) of Section 32. Since two rates of depreciation are prescribed as per Appendix (1) as well as Appendix (1A) to Rule 5 of Income-tax Rules in respect of assets of the undertaking engaged for generation and distribution of power. Thus to make it dear and to facilitate the Assessing Officer has to see which of the rates provided

under two different Appendixes of ..depredation shall be allowed, second proviso to Rule 5(1A) requires the assessee to exercise its option thatdepreciation be allowed as per Appendix 1. Though the proviso of that if such option is exercised before the due date of furnishing the 'return of income under sub-section (1) of Section 139 of the Income-tax Act, in our view the second proviso to Rule 5(1A) is only to facilitate the Assessing Officer in discharging of its obligationas per Explanation 5 to sub-section (1) of Section 32 of Income-tax Act so that the depreciation shall be allowed as per the option of the assessee and not on the discretion of the Assessing Officer. The Assessing Officer is otherwise under obligation to allow thedepreciation but because the depreciation specified under two different Appendixes (1) & (1A) and the choice is given to the assessee in respect of the assets specified under clause (1) of sub-section (1) of

"Section 139 of the Act" Therefore the provisions contained in the Rules cannot override the provisions contained in the statute and the requirement of option under proviso to Rule 5(1A) cannot be held in the nature that on failure of the same would be so fatal that the very object c' the provision for providing higher rate ofdepreciation is defeated. When there is no specific form or method prescribed for exercising the said option then the claim made in the return of income as well as reflected from the books of account and audit report filed along with return of income is more than the exercise of the option as required under second proviso to Rule 5(1A).

8. In the case of CIT vs. Shivanand Electronics (209 1TR 63), the Hon'ble Bombay High Court has held at page 71 as under: "The requirement of filing theaudit report "along with the return of income" is directory and if the assesses complies with the same before completion of the assessment and offers a satisfactory explanation for his failure to submit the same in time, the Income Tax Officer may consider the same and examinethe claim of the assessee for deduction under section 80] on the basis of such report, We, however, do not subscribe to the view taken by the Tribunal-that it is the duty of the Income Tax Officer to the assessee that as, he had not submitted the report of audit required by sub-sect/on (6A), his claim would not be allowed and to give him an opportunity to file the same."

Therefore even if option is not exercised within the stipulated time as per second proviso to Rule 5(1A), the same cannot have a serious consequence of total denial of the claim of the assessee. There is ho doubt in our mind that when there is no prescribed procedure or mode of exercising option prescribed in the Rules then the option exercised by the assessee by way of making a claim in the return of income along with the audit report is definitely more than the requirement of the second proviso.

Even otherwise the question of exercising the option in the return of income is not seriously agitated by the Revenue, As per the order of the lower authorities the depreciation claimed has been rejected on the ground that option has not been exercised before the due date. Therefore the second question whether the filing of the return on due date is exercising of option before due date or not is of importance. In the case of CIT vs. G.R.Govindarajulu 'and Sons Charities (271 ITR 145), the Hon'ble Junsidictional High Court has held as under at page 152;

"The other 'contention raised by learned counsel for the appellant is that the assessee failed to exercise the option as contemplated under section 11(2) of the Act In a prescribed form, namely, Form No. 10. But the said contention was rightly rejected by both the Commissioner (Appeals) and the Tribunal There is no mandatory requirement under section 11(1) of the Act requiring the assessee to exercise the option when he seeks relief under section 11(1) of the Act, as It is enough for the assessee to submit a statement along with the return to exercise such option. "

Further in the case of CTT vs. Adar Tea Products Company (314 ITR 38), the Hon'ble Jurisdictional High Court has held at page 46 as under:

"The Supreme Court has held that if a provision is made in the context of a law providing for concessional rates of tax for the purpose of encouraging an industrial activity, a liberal construction should be put upon the language of the statute -vide CIT k Straw Board Manufacturing Co. Ltd. (1989) 5upp 2 SCC523.

The items in an exemption notification are to be strictly construed, but once the goods in question fall even narrowly in one of the exempted categories, then the exemption notification has to be construed broadly and widely – vide Bombay Chemical Pvt. Ltd. v. CCE, AIR 1995 SC1469.

The table includes energy saving device in the context and for the purpose of encouraging industries to adopt energy saving measures. While it was possible, in the context. of, encouraging industrial activity, to bring within' the net of exemption, manufacture of products which may even be remotely considered as "paper"; we cannot adopt the same reasoning here, since the table indicates its intention to afford depreciation at the rotes mentioned only to the specifically listed equipments. It is not even proved that a drier of the kind mentioned herein is an energy saving device. "

In our view, the requirement of second proviso to Rule 5(1A) is satisfied if the option is exercised before the expiry of due date of filing of return of income under -section 139(1) of the Income-tax Act. The meaning of the term before due date shall be understood as it is understood by a man of ordinary prudence. Before due date simply refers and means that not after the expiry of due date. If the requisite act is done before the last day expires then it will be simply said that before due date; when the time of filing the return is available to the assessee till the test moment of the due date then the whole of that day is available to the assessee and due date expires only when the last day is expired; as such the option exercised on the due date is nothing but before the due date as the same is not after the due date, In the case of CIT vs. Vijaya Hirasa Kalamkar (HUF), (229 ITR 772), the Hon'ble Bombay High Court has held at pages 774 & 775 as under:

"Having regard to the obtect of the Ordinance and the words used in section 3(1), it seems to as that the declaration received on January 1, 1976, was well within time. In the whole context, the word "before" will have to be construed as "upto" or as "not after". There are various provisions in the Income-tax Act. wherein the expression "before" has been used (sections 139(l)(a)(i) , section 139(l)(b); section 184, section 212). The expression has always been taken to mean "upto Section 3 spec/fi^d^ the period before which a declaration in respect of income has to be made for the purposes of getting a benefit under the Ordinance It provides a period of limitation within which certain benefits are available. In case of ambiguity the construction which preserves the right to the one which defeats it, has to be preferred. After alt, this is a taxing statute which m case of doubt should be interpreted in favour of a taxpayer. Had the legislative intention been to make December 31. 1975. the last day for making the declaration, it could have clearly-said so in the proviso. The very fact that the date January 1, 1&76. is in terms mentioned indicates that the time limit was up to that date. That in a given case the word "before" in the context of the time can be construed as "not after" is well settled ( R.v

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ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS, issue dt 12.04.2010 Vol2 Part 6

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS

ISSUE DATED 12-4-2010
Volume 2 : Part 6

F Credit for TDS must be given to assessee u/s 205 : Ahluwallia and Associates v. ITO (Ahd.) p.582

F Where expenses incurred by assessee for earning salary as well as share in profits of the firm, proportionate disallowance to be worked out u/r. 8D: Dharmasingh M. Popat v. Asst. CIT (Mumbai) p. 586

F Receipt declared as income from other sources but expenses claimed against income from profession not allowable : Dharmasingh M. Popat v. Asst. CIT (Mumbai) p. 586

F Assessee sold units within three months from record date : loss to be ignored u/s.94(7): Tube Investments of India Ltd. v. Jt. CIT (Chennai) p. 612

F Where capital borrowed for business purposes and TDS from interest payment and deposited with Govt., addition to be deleted : Dy. CIT v. J.H. Finvest P. Ltd. (Delhi) p. 620

F Where assessee providing evidence regarding identity of share applicants, deletion of addition justified : Dy. CIT v. J.H. Finvest P. Ltd. (Delhi) p. 620

F Stocks brought into account from year to year and forming part of current stock, assessee entitled to deduction of loss in relevant AY : Dy. CIT v. Indroyal Furniture Co. P. Ltd. (Cochin) p. 628

F Payment of royalty towards right to use technical know-how with no asset of enduring benefit transferred in favour of assessee is revenue expenditure : Modi Revlon P. Ltd. v. Asst./Dy. CIT (Delhi) p. 632

F Advertisement expenses incurred for promotion of brand in interest of business of company allowable u/s 37: Modi Revlon P. Ltd. v. Asst./Dy. CIT (Delhi) p. 632

F Web hosting, web development, telephone handsets expenses, as revenue expenditure : Radial Marketing P. Ltd. v. ITO (Mumbai) p. 641

F Software development charges, capital expenditure : Radial Marketing P. Ltd. v. ITO (Mumbai) p. 641

F Assessee entitled to credit for TDS on foreign income : Rectification to allow credit proper : Asst. CIT v. Ms. Aishwarya K. Rai (Mumbai) p. 644

F Where service of assessment notice on company not denied, notice valid : Amrac Automotive India P. Ltd. v. Asst. CIT (Delhi) p. 649

F Reassessment notice sent to correct address, not received back : Power of attorney issued to CA after date of notice and subsequent notices issued : notice validly served : Avneesh Kumar Singh v. ITO (Agra) p.663

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