ITR (Trib) HIGHLIGHTS Volume 10 Part 3 ISSUE DATED 18-07-2011

ITR'S TRIBUNAL TAX REPORTS (ITR (Trib)) HIGHLIGHTS ISSUE DATED 18-07-2011

Volume 10 Part 3

 

APPELLATE TRIBUNAL ORDERS

 -> Revision : AO's order cannot be revised because CIT has different opinion : Aditi Developers v. Asst. CIT (Mumbai) p. 241

 

-> Assessee carrying on business of distribution of computer products, income from commission is business income : Dy. CIT v. FX Info Technologies P. Ltd. (Delhi) p. 250

 

-> Expenditure on designing charges of telecom equipment is revenue expenditure : Matrix Telecom P. Ltd. v. Asst. CIT (Ahmedabad) p. 258

 

-> Assessee establishing claim to deduction of provision made for interest was bona fide, penalty not leviable : Mawana Sugars Ltd. v. Dy. CIT (Delhi) p. 266

 

-> Assessee filing belated voluntary return after search and offering capital gains, penalty cannot be imposed : K. Ramakrishnan (HUF) v. Dy. CIT (Chennai) p. 269

 

-> Amount paid to agent and other boards for treating effluents on account of business exigency, revenue expenditure : Asst. CIT v. T.M. Abdul Rahman and Sons (Chennai) p. 272

 

-> Assessee followed accrual basis under Companies Act and cash basis under ITA, rejection of accounts and additions to income not justified : Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) p. 27

 -> Commercial transaction between two separate legal entities though belonging to same group, capital loss allowable : Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) p. 27

 

-> Assessee submitted bona fide writing off of debt in conformity with RBI directions allowable u/s. 36(1)(vii) : Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) p. 277

 

-> Assessee disclosing facts truly and fully, reassessment after four years on change of opinion not valid : Asst. CIT v. Simpson and Co. Ltd. (Chennai) p. 283

 

-> Provision for warranty made on scientific basis allowable u/s. 37 : Asst. CIT v. Simpson and Co. Ltd. (Chennai) p. 283

 

-> Where no nexus between borrowed funds and investments made for non-business purpose, interest allowable u/s. 36(1)(iii) : ITO v. Anjani Synthetics Ltd. (Ahmedabad) p. 291

 

-> Where assessee not able to prove genuineness of loans, imposition of penalty valid : STS Chemicals Ltd. v. Asst. CIT (Mumbai) p. 303

 

-> Charitable trust : Where no evidence object of general public utility was religious, trust entitled to approval u/s. 80G(5)(vi) : Brij Vikas Trust v. CIT (Agra) p. 310

 

-> Where original loans taken by father and assessee not for purpose of construction or acquisition of house property, interest not deductible u/s. 24(1)(vi) : K. S. Kamalakannan v. Asst. CIT (Chennai) p. 32

 

-> Where claim to set off carried forward business loss of earlier years of firm in which assessee a partner not bona fide, penalty leviable u/s. 271(1)(c) : Asst. CIT v. Dinesh Goel (Delhi) p. 330

 

-> French company obtaining services of associate company, employees of associate working in India

 

->  French company cannot be treated as agent of such employees : Pride Foramer S.A.S. v Asst. CIT (Delhi) p. 340

NEWS-BRIEF
CBDT plans Directorates for tax exemption cases to restore confidence to financial markets

 

"CBDT plans to have Directorate (Exemptions) in all the States and to begin with we will be setting up 10-11 new Directorates", a Revenue official said. However, the official did not specify any timeframe for creation of the specialised offices (Directorates).

 

The Government also allows tax exemptions to various organisations engaged in activities like charity, religious activities and scientific research-related. Early this year, the Board had set up a Committee to suggest ways to further strengthen the administrative process in relation with exempt entities.

 

The exemptions are given under the Income-tax Act, 1961, to encourage and fulfil certain social objectives. The Exemption Wing of the Income-tax Department, headed by Director-General of Income-tax (Exemptions), currently has seven Directorates - Kolkata, Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Mumbai. When the new Directorates are operationalised, the number will increase to 18. The Committee is likely to submit its report early next month, the official said. [Source : www.businessstandard.com dated June 30, 2011]

 

Top income-tax officials meet to identify tax defaults to be set up soon

 

In a bid to tighten the noose around defaulters, the Income-tax Department will set up a centralised system to identify entities which deduct tax at source but do not deposit it with the Government.

 

"This Centralised Processing Centre (CPC) would be set up to process TDS (tax deducted at source) statements and to identify the defaults and PAN errors . . . ", the Central Board of Direct Taxes (CBDT) said.

 

Besides, the idea behind creating the CPC is to develop a mechanism to rectify the defaults and errors in the process of TDS collection through intelligent technological aids and by persuading the deductors.

 

As per the income-tax laws, entities, both corporate and non-corporate, are required to deduct tax at source while making payments to their employees and deposit the same with the Government within a stipulated time period. If a person or corporate entity fails to pay the deducted TDS to the Government within the prescribed time, he could face rigorous imprisonment of 3 months to 7 years.

 

The CPC would identify TDS defaults, like non-payment, short payment, short deduction, late payment and others. TDS accounts form about 38 per cent. of the total direct tax collection. The Department would engage a Managed Service Provider (MSP) for setting up and managing the CPC for TDS. "The selected MSP will create and operate the CPC to process TDS statements for ITD", a revenue official said. The MSP would design and develop the required IT software.

 

"Any future requirements like change in Income-tax Acts/Rules, including Direct Taxes Code, which is likely to come into force in 2012, or any modification in tax information network application will also need to be taken into account at the time of designing the software", the CBDT said. [Source: www.businessstandard.com dated June 30, 2011]

 

DTAT with Germany is far from specific bank account details

 

Holding that the Double Taxation Avoidance treaty with Germany has been drafted in a "sloppy" manner, the Supreme Court today cautioned the Government not to enter into an agreement which would undermine Constitution.

 

"The fact that such treaties are drafted by diplomats, and not lawyers, leading to sloppiness in drafting also implies that care has to be taken to not to render any word, phrase, or sentence redundant" a Bench of justices, B. Sudershan Reddy and S. S. Nijjar said.

 

"The Government cannot bind India in a manner that derogates from constitutional provisions, values and imperatives", the court said adding "we agree that the language (DTAT with Germany) could have been tighter and may be deemed to be sloppy".

 

The Bench said the treaty with Germany does not prevent the Centre from disclosing the names of the persons having bank accounts in Liechtenstein bank.

 

"We have perused the said agreement with Germany. We are convinced that the said agreement, by itself, does not proscribe the disclosure of the relevant documents and details of the same, including the names of various bank account holders in Liechtenstein", the court said. [Source : www.financialexpress.com dated July 5, 2011]

 

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When project is set up by raising money

When project is set up by raising money through commercial borrowings, inference could only be that it is to be run on a commercial basis - [2011] 11 taxmann.com 108 (Chennai - ITAT)

Where assessee sold land alongwith trees which were self grown, it was to b

Where assessee sold land alongwith trees which were self grown, it was to be held that those self grown trees did not constitute 'capital asset' and, thus, sale proceeds on sale of trees was to be assessed under head 'Income from other sources' - [2011] 11 taxmann.com 107 (Kol. - ITAT)

Income tax - Sec 4 - assessee following project completion method is out of purv

Income tax - Sec 4 - assessee following project completion method is out of purview of revised AS-7 - AO cannot ignore it and apply percentage completion method particularly when it has been accepted for earlier years: ITAT

MUMBAI, AUG 10, 2010: THE issue before the Tribunal is - Whether an assessee who is following project completion method and has constructed the residential complex on his own is out of the purview of revised (Accounting Standard) AS-7 which is applicable in the case of construction contracts and recognizes percentage completion method and hence the AO was not correct in ignoring project completion method and applying percentage completion method particularly when the method applied by the assessee has been accepted in earlier years. And the answer is YES.

Facts of the case

Assessee bought some land in Khar, Mumbai and constructed certain floors on it but could not complete the construction for six years and as such did not reflect any profits attributable to the project. During the course of assessment proceedings the AO applied percentage completion method and estimated profits observing that assessee has received advances from prospective buyers and ignoring the contention of the assessee that the assessee was following project completion method and has shown profits in the year in which the project was completed. CIT (A) deleted the addition and reversed the order of the AO.

On appeal, the Tribunal held that,

++ right from the inception, i.e. from the assessment year 1994- 95, the assessee has been following the project completion method of accounting and has also stated so in its accounts as well as before the Income Tax authorities. The returns up to and including the assessment year 1999-2000 do not appear to have been disputed by the Assessing Officer. For the first time an attempt was made to disturb the return filed by the assessee for the assessment year 2000- 01 in which year the Assessing Officer had attempted to estimate profits from the project on a percentage of the work-in-progress. This attempt was negated by the CIT(A) who held that the assessee was following the project completion method which had been accepted by the Department since 1994-95. He also held that the project was completed only in the financial year 2006-07. A similar decision was rendered by him in respect of the assessment year 2004-05 by order dated 29.04.2008. Both these orders do not seem to have been appealed against by the Assessing Officer. Thus the rule of consistency requires that the same decision has to be applied even for the year under consideration as there is no difference in the facts of the case;

++ for the year under consideration, in addition to the earlier orders of the CIT(A) which have become final, there are further facts which are in favour of the assessee. These facts are that the BMC gave the Occupation Certificate only on 24.05.2006 and that the possession letters were given to the purchasers only in the period between May to July 2006. The electricity connection has also been provided in June 2006. These three aspects have also been taken note of by the CIT(A) in the impugned order. In addition to the same there is also the certificate of the Civil Engineers & Architects that the RCC work up to sixth floor was completed as on 31.03.2005. The Occupation Certificate as well as the certificate of the Civil Engineers & Architects have been furnished before the Assessing Officer as can be seen from paragraph 4.13 of the assessment order. These additional facts also go to show that the project was not completed as on 31.03.2005;

++ in the paper Book the assessee has given the summary of the work-in-progress for the years ended 31.03.2005 to 31.03.2007. The work-in-progress which was Rs.5,53,36,058/- as on 31.03.2005 increased to Rs.6,74,65,954/- as on 31.03.2006 and further increased to Rs.7,35,68,053/- as on 31.03.2007. When the work is in progress, it is not possible to say that the project has been completed. It may be clarified that the work-in-progress of Rs.7,35,68,053/- has been taken as the final cost of construction of the project and debited to the Profit & Loss Account for the year ended 31.03.2007. A copy of the Profit & Loss Account for the year ended 31.03.2007 is at page 33 of the Paper Book. After taking credit for the sale of flats of Rs.7,49,71,250/-, legal charges, electricity & water charges and car parking charges, the assessee has set off the expenditure being the cost of construction of Rs.7,35,68,053/-, audit fees, depreciation, interest on vehicle loan and Directors' remuneration and has arrived at a net profit of Rs.24,58,942/- which has been shown as the assessee's profit from the project in the return filed for the assessment year 2007-08;

++ as already noted, the said return has been examined under section 143(3) and accepted. The full Occupation Certificate issued by the Municipal Corporation of Greater Mumbai, a copy of which is at page 41 of the Paper Book, is dated 24.05.2006. When the Occupation Certificate has been issued only in the financial year ended 31.03.2007, it cannot be said that the project was complete earlier. The assessee's contention that the revised Accounting Standard-7 is applicable for construction contracts as clarified by the Expert Committee of the ICAI is correct. The assessee has constructed the building all by itself and cannot be said to be in the business of taking up and executing construction contracts

Revenue's appeal dismissed.

80-IB. Not employed requisite no of people

(2010) 34 (II) ITCL 511 (Chenn `A'-Trib)

Chiranjjeevi Wind Energy Ltd. v. ACIT

Counsel: Shri Saroj Kumar, for the Appellant q Shaji P Jacob, for the Respondent

ORDER

This appeal by the assessee is directed against the order dated 16-2-2007 of Commissioner of Income Tax (Appeals)-I, Coimbatore for the assessment year 2004-05

2. The assessee has raised various grounds in this appeal. However, the only issues that arises is whether the Commissioner of Income Tax (Appeals) is justified in confirming the denial of claim of deduction u/s 80IB on the ground that the assessee has not complied with clause (iv) of sub-section (2) of section 80IB as the assessee has not employed the requisite number of workers.

3. We have heard the learned A.R. as well as the learned departmental Representative and considered the relevant records. At the outset, we note that this issue has already been considered and adjudicated by this Tribunal vide order dated 27.11.2009 in assessee's own case in I.T.A. Nos. 900, 901 & 902/Mds/2009 for the assessment years 2001-02, 2002-03 & 2006-07 in para Nos. 4 to 18 as under:

"4. We have heard the rival submissions and have carefully perused the Tribunal order vis-à-vis the facts of the case. At first site, we were of the opinion that the issue involved in all these appeals is squarely covered by the Tribunal order(supra) in assessee's own case and so it is an open and shut case. But the ld.AR pleaded for our indulgence by polemically submitting that he too relies on the same Tribunal order and even by following the finding given by the Hon'ble Tribunal the assessee is bound to succeed. It was argued that the Hon'ble Tribunal has held in its order dated 7-12-2007 on which the ld. Commissioner (Appeals) has relied, that the activity carried on by the assessee is only of assembling wind operated electricity generator and erection thereof in the place of customers and the same cannot be construed as a manufacturing activity entitling the assessee-company for the relief u/s 80IB. According to the ld.AR after the date of this order the following decisions have brought the activities of assembling also within the purview of manufacturing/production. The decisions on which the ld.AR has heavily relied on are as under:

CIT v. Shri Mahesh Chandra Sharma, (2009) 25 (I) ITCL 492 (P&H-HC) : (2009) 308 ITR 222 (P&H) – Judgment dated 31.10.2008

India Cine Agencies v. CIT, (2009) 26 (I) ITCL 81 (SC) : (2009) 308 ITR 98 (SC) Judgment dated 12.11.2008

Vijay Ship Breaking Corpn. & Ors v. CIT (2009) 25 (I) ITCL 101 (SC) : (2009) 314 ITR 309 (SC)– Judgment dated 01.10.2008

CIT v. Anand Affiliates, (2010) 321 ITR 431 (P&H) : (2010) 229 CTR (P&H) 167 – Judgment dated 9.12.2008

CIT v. Perfect Liners (1983) 142 ITR 654 (Mad)

5. It was argued in the light of the above decisions that these are the later decisions and the Tribunal is bound to follow them now as these decisions were not available on 7-12-2007 when the Tribunal passed its order.

6. Per contra, the leared DR has relied on the Tribunal order and has further submitted that the assessee only assembles the wind mill and this would neither amount to production nor manufacturing activity.

7. After considering the rival submissions, we are of the considered opinion that the later judgments rendered subsequent to the Tribunal order have to be followed in their letters and spirit. There is a force in the submission of the ld.AR that the Tribunal has held that the assessee-company only `assembles' wind mills at its factory and put them at site of the customers. When the Tribunal rendered its decision in assessee-company's own case the `assembling activity' was not treated as a manufacturing/production activity. The fact found by the Tribunal in assessee-company's own case in assessment year 2003-04 have to be treated as correct until there is a change. The Tribunal has categorically held in its order relied on by the ld. Commissioner (Appeals) that the assessee is assembling wind operated electricity generator. The relevant portion of the Tribunal order is being extracted verbatim, herein as below:

"In view of this, the activity carried on by the assessee is only assembling wind operated electricity generator (emphasis supplied by us) and erection in the place of custom and that can not be construed as manufacturing activity and accordingly relief u/s 80IB can not be allowed.

Regarding the finding that the assessee has not employed more than 10 persons, the assessee has not placed any evidence to controvert the finding of the assessing officer. Further the basic condition that the assessee should manufacture or produce any article or thing not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India has not been complied with by the assessee. Hence the question of probing into number of workers is only academic and does not require any adjudication."

8. Thus, it cannot be disputed that the assessee has been held to be carrying on the activity of `assembling' wind mills. This is also the admitted case of the revenue. The Hon'ble P&H High Court in the case of Shri Mahesh Chandra Sharma (supra) has categorically held on 31-10-2008 that `assembling' of wheels using different components amounts to `manufacture'. In that case the assessee was assembling wheels from rim, tyre, tube, bearing, drum, spoke, nipple and collar. This `assembling' has been held to be a `manufacturing' activity as under:

"In the absence of any definition in the Income-Tax Act, 1961 the word "manufacture" used in section 80-IB has to be given its ordinary meaning. The expression "manufacture" has been understood to mean transformation of goods into a new commodity commercially distinct and separate having its own character, use and name whether it be the result of one or several processes.

The assessee claimed deduction under section 80-IB which was disallowed by the of the Act on the ground that the assembling/job work done by the assessee did not amount to manufacturing activity, which was a condition for claiming deduction under section 80-IB of the Act. The Commissioner (Appeals) upheld the claim of the assessee and this was affirmed by the Income Tax Appellate Tribunal. On appeal to the High Court:

Held

(i) that if a claim falls under section 80-IB of the Act, it could not be disallowed on the ground that the Tribunal erroneously made reference to section 80-IA.

(ii) That the assessee assembled the wheels from the raw material/components which were rim, tyre, tube, bearing, drum, spoke, nipple and collar by different processes.

The "wheel" was certainly a different item from the components which were used in the process. The assessee was entitled to special deduction under section 80-IB."

9. Again the Hon'ble P&H High Court in the case of Anand Affiliates (supra) has held `assembling' as `manufacturing' activity.

10. The Hon'ble Supreme Court in the case of Vijay Ship Breaking Corpn & Others v. CIT (supra) has elaborately given the definition of the word "production" as under:

"The important test which distinguishes the word `production' from `manufacture' is that the word `production' is wider than the word `manufacture'. Further, it is true that the Budharaja's case, the Division Bench has used the word `new article'. However, what the Division Bench meant was that a distinct article emerges when the process of ship breaking is undertaken. Further, the legislature has used the words `manufacture' or `production'. Therefore, the word `production' cannot derive its colour from the word `manufacture'. Further, even according to the dictionary meaning the word `production', the word `produce' is defined as something which is brought forth or yielded either naturally or as a result of effort and work. It is important to note that the word `new' is not used in the definition of the word `produce. Tribunal in the present case was right in allowing the deduction under sections 80HH and 80-I to the assessee holding that the ship-breaking activity gave rise to the production of a distinct and different article – CIT v. Vijay Ship Breaking Corpn & Ors (2003) 181 CTR (Guj) 134 set aside, CIT v. N.C. Budharaja & Co. & anr. (1993) 114 CTR (SC) 420: (1993) 204 ITR 412 (S.C) and CIT v. Sesa Goa Ltd (2004) 192 CTR (S.C) 577: (2004) 271 ITR 331(S.C.) relied on: Ship Scrap Traders & Ors. v. CIT (2001) 168 CTR (Bom) 489: (2001) 251 ITR 806 (Bom) approved."

11. Likewise, the Hon'ble Apex court has held in the case of India Cine Agencies as under:

"The assessee converted jumbo rolls of photographic films into small flats and rolls in the desired sizes. It claimed that the same amounted to manufacture/production for the purpose of allowances under sections 32AB, 80HH and 80-I of the Income-Tax Act, 1961. The High Court held that it did not. The assessee appealed to the Supreme Court:

Held: reversing the decisions of the High Court, that the assessee was entitled to the allowance under sections 32AB, 80HH and 80-I.

The word "production" or "produce" when used in juxtaposition with the word "manufacture" takes in bringing into existence new goods by a process, which may or many not amount to manufacture. It also takes in all the by-products, intermediate products and residual products, which emerge in the course of manufacture of goods."

12. The Hon'ble Madras High Court in the case of Perfect Liners has held as under:

"Held

The word "manufacture" has to be understood in a wide sense. After the rough castings are polished, the product is a new product which is utilized as component in internal combustion engines. The Tribunal has found that component parts are essential parts for internal combustion engines. Hence the Tribunal was right in law in holding that the assessee was entitled to higher development rebate at 35% under section33(1)(b)(B)(i).

Conclusion

The process of polishing rough casting which ae used as component in internal combustion engines, being a manufacturing activity the assessee is entitled to higher rate of development rebate under item (24) of Sch.V.

13. It was argued by the ld.AR that the Tribunal has not considered the term "production" and hence, the decision is per incuriam; and that in the light of the definition of the term "production" given by the Hon'ble Supreme Court as above, the activity of the assessee would not only amount to "production" but also to "manufacture".

14. We are in agreement with the ld.AR that even by following the Tribunal order supra, the assembling is also now to be held as a manufacturing activity in view of the subsequent decision of Hon'ble High Court. Thus,by following the Tribunal order on facts, we are of the considered opinion that the interpretation of law as laid down by the Hon'ble High Court and Hon'ble Supreme Court brings the assembling activities of the assessee under the definition of "manufacture" and "production". We cannot ignore the subsequent legal position which holds even the assembling activity as a manufacturing activity, rather we are bound to follow the same. The revenue could not successfully controvert the above recent legal position on the subject and the ld.DR only relied on other decisions from which only it could be inferred that if the assessee undertaking has been carrying on manufacturing/production activities, only then it is eligible for such a deduction. We are in agreement with the ld.DR to that extent. Moreover, it is nobody's case otherwise. But if we apply the latest case law to the facts established by the Tribunal in assessee's own case in assessment year 2003-04, the assessee-company becomes eligible for this deduction. Therefore, by accepting the factual position as culled out by the Tribunal in its order dated 7.12.2007 and by applying the latest legal position, we are bound to hold that the activities of the assessee is a `manufacturing/production' activity. Hence, we hold accordingly.15. The other important condition for claiming deduction u/s 80-IB is as detailed in the earlier part of this order.

As per the assessing officer, the assessee did not fulfill the condition Nos(iii) and (iv). Since now we have held that condition No.(iii) is also fulfilled by the assessee-company, now it remains to be examined whether condition No.(iv) is fulfilled or not. This condition says that

"in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power."

16. In this regard, the Tribunal in its order dated 7-12-2007 has not adjudicated upon and has left it open. The assessee claims that it has fulfilled this condition also, but the ld.DR says that this condition has not been fulfilled.

17. The second reason given by the assessing officer for denying 80-IB deduction is that the factory has not employed the minimum number of employees required for claiming this deduction. The assessing officer has mainly relied in this regard, on the statement of Shri Mani recorded on 5.1.2006 in which he has stated that he was only a permanent employee at the factory and that the assessee-company had not done any manufacturing activity in the factory but only wind mills are being `assembled' there. The argument as advanced by the ld.AR is that if the statement of Shri Mani is considered in toto in the light of other available evidences, it would be established that more than 12 employees were employed to carry out the assembling of the wind mills. It is not the requirement of the law whether these employees ought to be permanent, temporary or daily wager, as per ld.AR. He has shown us the copies of muster rolls of such employees and has also relied on certain case laws in support of his contention.

18. We have carefully treaded through the statement of Shri Mani. He has nowhere stated that except him no other worker was employed by the company. What, in content, he has stated is that he is only the permanent employee at the factory. He has confirmed the activities of assembling of wind mills. Actually section 80IB(2)(iv) says that such undertaking should employ ten or more `workers' if this activity is done with the help and aid of power. This section talks of workers and not of employees – whether permanent or temporary etc. The Hon'ble Mumbai Bench `D' of the ITAT in the case of ACIT v. Ms. Richa Chadha (2005) 3 SOT 55 (Mum-Trib) : (2005) 96 ITD 325 (Mum-Trib) has held that "All workers whether permanent or casual, employed by the assessee in the manufacturing process as well as in subsidiary activities are to be counted for determining compliance with the requirement of the Act, if ten or more workers were employed for substantial part of the working period of factory, it would be sufficient compliance of the condition". Copies of wage registers maintained during the relevant period have been produced before us and these were also produced before the assessing officer, but the assessing officer chose to rely on a statement of Shri Mani, an employee, that too by tearing it out of context of sworn statements of Shri R. Ramesh and of Shri R. Mani. These statements support the case of the assessee-company. There is force in the submission of the ld.AR that such huge activity cannot be carried on without the help of more than 10 workers. Although this issue could be restored to the file of the assessing officer, but it would amount to futile exercise given the fact that entire facts of this issue are available before us. Hence, we are of the opinion that the assessee-company fulfills all the eligibility criterion for deduction u/s 80IB. We order accordingly and allow all the appeals of the assessee for assessment years 2001-02, 2002-03 and 2006-07.

4. Following the earlier order of this Tribunal, we decide this issue in favour of the assessee and against the revenue.

5. In the result, this appeal filed by the assessee is allowed.

A person against whom only First Information Report was lodged, but charge

A person against whom only First Information Report was lodged, but charge sheet was not filed, is not barred from taking benefit of VDIS, 1997 - [2011] 10 taxmann.com 106 (Uttarakhand)

ITR (TRIB) Volume 10 : Part 3 Issue dated : 18-07-2011

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 10 : Part 3 (Issue dated : 18-07-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Accounting --Rejection of accounts--Book profits--Accrual basis followed under Companies Act and cash basis under Income-tax Act--Rejection of accounts and additions to income--Not justified--Income-tax Act, 1961, s. 115JB-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

Bad debt --Non-banking financial company--Bona fide writing off of debt in conformity with Reserve Bank directions--To be allowed--Income-tax Act, 1961, s. 36(1)(vii) -- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

Business expenditure --Provision for warranty made on scientific basis--Allowable --Income-tax Act, 1961, s. 37-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

Business income --Assessee carrying on business of distribution of computer products--Taking business decision to transfer distribution to another company and earn commission--Memorandum of association of assessee permitting assessee to make arrangement with any company to achieve its objects--Income from commission is business income, not income from other sources--Income-tax Act, 1961, ss. 28, 56-- Deputy CIT v. FX Info Technologies P. Ltd. (Delhi) . . . 250

Capital gains --Capital loss--Loss on divestment of shares in sister concern--Commercial transaction between two separate legal entities though belonging to same group--Disallowance not based on valid grounds--To be allowed--Income-tax Act, 1961-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

Capital or revenue expenditure --Assessee running tannery business--Assessee to make necessary provisions for disposal of effluents to prevent pollution under Government regulations--Compliance with Pollution Control Board to run unit--Amount paid to agent and other boards for treating effluents--Expenditure on account of business exigency--Revenue expenditure--Income-tax Act, 1961, s. 37-- Asst. CIT v. T. M. Abdul Rahman and Sons (Chennai) . . . 272

----Expenditure on designing charges of telecom equipment--Technical improvement a recurring necessity in the line of manufacturing of telecom equipment--Is revenue expenditure--Income-tax Act, 1961-- Matrix Telecom P. Ltd. v. Asst. CIT (Ahmedabad) . . . 258

Charitable trust --Charitable purpose--Definition--Donation for charitable purposes--Special deduction under section 80G--Approval of institution--Trust for construction and maintenance of Brij Chaurasi Kos Parikrama way and construction and maintenance of dharamshala, tents, etc. for tourists coming to have parikrama--Object of general public utility--No evidence that object was religious--Trust entitled to approval for purposes of section 80G--Income-tax Act, 1961, ss. 2(15), 80G(5)-- Brij Vikas Trust v. CIT (Agra) . . . 310

Income from house property --Deduction--Assessee's father mortgaging property for business purposes--Assessee inheriting property with subsisting mortgage--Assessee offering same property as collateral security and taking loan for investment in shares and in firms--Assessee taking second loan to pay off all previous loans--Original loans taken by father and assessee not for purpose of construction or acquisition of house property--Interest paid on loan--Not deductible--Income-tax Act, 1961, s. 24(1)(vi)-- K. S. Kamalakannan v. Asst. CIT (Chennai) . . . 321

Income-tax --General principles--Rule of consistency-- ITO v. Anjani Synthetics Ltd. (Ahmedabad) . . . 291

Interest on borrowed capital --No nexus between borrowed funds and investments made for non-business purpose--Interest allowed in earlier years--Rule of consistency--Interest to be allowed--Income-tax Act, 1961, s. 36(1)(iii)-- ITO v. Anjani Synthetics Ltd. (Ahmedabad) . . . 291

Non-resident --Agent--French company entering into agreement with Indian company--French company obtaining services of associate company--Employees of associate company working in India--French company cannot be treated as agent of such employees--Income-tax Act, 1961, s. 163-- Pride Foramer S. A. S. v. Asst. CIT (Delhi) . . . 340

Penalty --Concealment of income--Cash credits--Amounts shown as loans assessed as income--Assessee not able to prove genuineness of loans--Imposition of penalty--Valid--Income-tax Act, 1961, s. 271(1)(c)-- STS Chemicals Ltd. v. Asst. CIT (Mumbai) . . . 303

----Concealment of income--Claim to set off carried forward business loss of earlier years of firm in which assessee a partner--Claim untenable and not bona fide--Penalty leviable--Income-tax Act, 1961, s. 271(1)(c)-- Asst. CIT v. Dinesh Goel (Delhi) . . . 330

----Concealment of income--Order of Supreme Court holding interest on price realised from levy sugar payable--Claim to deduction of provision made for interest--No mala fide intention to evade payment of tax--Assessee establishing claim bona fide--Penalty not leviable--Income-tax Act, 1961, s. 271(1)(c)-- Mawana Sugars Ltd. v. Deputy CIT (Delhi) . . . 266

Reassessment --Notice--Reassessment after four years--Assessee disclosing facts truly and fully--Reassessment proceedings after four years on change of opinion--Not valid--Income-tax Act, 1961, ss. 147, 148-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

Revision --Condition precedent--Order of Assessing Officer should be erroneous and prejudicial to Revenue--Assessing Officer allowing deduction after considering facts--Order not erroneous--Order cannot be revised because Commissioner has different opinion--Income-tax Act, 1961, s. 263-- Aditi Developers v. Asst. CIT (Mumbai) . . . 241

Search and seizure --Block assessment--Undisclosed income--Penalty--Assessee filing belated voluntary return after search and offering capital gains--Assessing Officer charging tax at 60 per cent. and imposing penalty--Penalty cannot be imposed--Income-tax Act, 1961, s. 158BFA(2)-- K. Ramakrishnan (HUF) v. Deputy CIT (Chennai) . . . 269

Words and phrases --"Religion","Religious community"-- Brij Vikas Trust v. CIT (Agra) . . . 310

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(15) --Charitable trust--Charitable purpose--Definition--Donation for charitable purposes--Special deduction under section 80G--Approval of institution--Trust for construction and maintenance of Brij Chaurasi Kos Parikrama way and construction and maintenance of dharamshala, tents, etc. for tourists coming to have parikrama--Object of general public utility--No evidence that object was religious--Trust entitled to approval for purposes of section 80G-- Brij Vikas Trust v. CIT (Agra) . . . 310

S. 24(1)(vi) --Income from house property--Deduction--Assessee's father mortgaging property for business purposes--Assessee inheriting property with subsisting mortgage--Assessee offering same property as collateral security and taking loan for investment in shares and in firms--Assessee taking second loan to pay off all previous loans--Original loans taken by father and assessee not for purpose of construction or acquisition of house property--Interest paid on loan--Not deductible-- K. S. Kamalakannan v. Asst. CIT (Chennai) . . . 321

S. 28 --Business income--Assessee carrying on business of distribution of computer products--Taking business decision to transfer distribution to another company and earn commission--Memorandum of association of assessee permitting assessee to make arrangement with any company to achieve its objects--Income from commission is business income, not income from other sources-- Deputy CIT v. FX Info Technologies P. Ltd. (Delhi) . . . 250

S. 36(1)(iii) --Interest on borrowed capital--No nexus between borrowed funds and investments made for non-business purpose--Interest allowed in earlier years--Rule of consistency--Interest to be allowed-- ITO v. Anjani Synthetics Ltd. (Ahmedabad) . . . 291

S. 36(1)(vii) --Bad debt--Non-banking financial company--Bona fide writing off of debt in conformity with Reserve Bank directions--To be allowed-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

S. 37 --Business expenditure--Provision for warranty made on scientific basis--Allowable-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

----Capital or revenue expenditure--Assessee running tannery business--Assessee to make necessary provisions for disposal of effluents to prevent pollution under Government regulations--Compliance with Pollution Control Board to run unit--Amount paid to agent and other boards for treating effluents--Expenditure on account of business exigency--Revenue expenditure-- Asst. CIT v. T. M. Abdul Rahman and Sons (Chennai) . . . 272

S. 56 --Business income--Assessee carrying on business of distribution of computer products--Taking business decision to transfer distribution to another company and earn commission--Memorandum of association of assessee permitting assessee to make arrangement with any company to achieve its objects--Income from commission is business income, not income from other sources-- Deputy CIT v. FX Info Technologies P. Ltd. (Delhi) . . . 250

S. 80G(5) --Charitable trust--Charitable purpose--Definition--Donation for charitable purposes--Special deduction under section 80G--Approval of institution--Trust for construction and maintenance of Brij Chaurasi Kos Parikrama way and construction and maintenance of dharamshala, tents, etc. for tourists coming to have parikrama--Object of general public utility--No evidence that object was religious--Trust entitled to approval for purposes of section 80G-- Brij Vikas Trust v. CIT (Agra) . . . 310

S. 115JB --Accounting--Rejection of accounts--Book profits--Accrual basis followed under Companies Act and cash basis under Income-tax Act--Rejection of accounts and additions to income--Not justified-- Asst. CIT v. Shriram Transport Finance Co. Ltd. (Chennai) . . . 277

S. 147 --Reassessment--Notice--Reassessment after four years--Assessee disclosing facts truly and fully--Reassessment proceedings after four years on change of opinion--Not valid-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

S. 148 --Reassessment--Notice--Reassessment after four years--Assessee disclosing facts truly and fully--Reassessment proceedings after four years on change of opinion--Not valid-- Asst. CIT v. Simpson and Co. Ltd. (Chennai) . . . 283

S. 158BFA(2) --Search and seizure--Block assessment--Undisclosed income--Penalty--Assessee filing belated voluntary return after search and offering capital gains --Assessing Officer charging tax at 60 per cent. and imposing penalty--Penalty cannot be imposed-- K. Ramakrishnan (HUF) v. Deputy CIT (Chennai) . . . 269

S. 163 --Non-resident--Agent--French company entering into agreement with Indian company--French company obtaining services of associate company--Employees of associate company working in India--French company cannot be treated as agent of such employees-- Pride Foramer S. A. S. v. Asst. CIT (Delhi) . . . 340

S. 263 --Revision--Condition precedent--Order of Assessing Officer should be erroneous and prejudicial to Revenue--Assessing Officer allowing deduction after considering facts--Order not erroneous--Order cannot be revised because Commissioner has different opinion-- Aditi Developers v. Asst. CIT (Mumbai) . . . 241

S. 271(1)(c) --Penalty--Concealment of income--Cash credits--Amounts shown as loans assessed as income--Assessee not able to prove genuineness of loans--Imposition of penalty--Valid-- STS Chemicals Ltd. v. Asst. CIT (Mumbai) . . . 303

----Penalty--Concealment of income--Claim to set off carried forward business loss of earlier years of firm in which assessee a partner--Claim untenable and not bona fide--Penalty leviable-- Asst. CIT v. Dinesh Goel (Delhi) . . . 330

----Penalty--Concealment of income--Order of Supreme Court holding interest on price realised from levy sugar payable--Claim to deduction of provision made for interest--No mala fide intention to evade payment of tax--Assessee establishing claim bona fide--Penalty not leviable-- Mawana Sugars Ltd. v. Deputy CIT (Delhi) . . . 266

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Guj HC : Waiver of interest & Penalty. in favor of revenue.

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION No. 5993 of 2001

SHAYAMA SANJAY SHAH Versus COMMISSIONER OF INCOME TAX

Date : 25/03/2011

ORAL JUDGMENT

(Per : HONOURABLE MS.JUSTICE HARSHA DEVANI)

1. By this petition under Article 226 of the Constitution of India, the petitioner has challenged order dated 28.3.2001 passed by the Commissioner of Income Tax, Surat, under section 273A of the Income Tax Act, 1961 (the Act), whereby, he has rejected the petitioner's application for waiver of interest and penalty.

2. The facts of the case stated briefly are that in respect of the assessment year 1987-88, the petitioner was charged interest under section 139 as also under section 215 of the Act and penalty was also levied under sections 271(1)(a) and 273(1)(b) of the Act. The petitioner made an application under section 273 of the Act on 30.11.1992, inter alia, stating that the petitioner had fulfilled all the conditions mentioned in section 273A of the Act for total waiver of the interest and penalties. It was also stated in the application that the petitioner had voluntarily and in good faith made full and true disclosure of her income prior to the issue of notice under section 139(2) of the Act and had cooperated in the inquiry relating to the assessment of income and had also paid the tax and interest payable in consequence of the assessment order. After a period of about eight years the Commissioner of Income Tax Surat the respondent herein rejected the said application by the impugned order dated 28.03.2001. Being aggrieved, the petitioner has filed the present petition challenging the said order.

3. Mr. J. P. Shah, learned advocate appearing on behalf of the petitioner invited attention to the provisions of section 273A of the Act to submit that while considering an application for waiver under the said section, the Commissioner is required to record satisfaction in respect of the matters provided under the said section. Inviting attention to the impugned order, it was submitted that the Commissioner has rejected the application on the ground that the reasons advanced by the petitioner for not filing the return in time were not reasonable and that the petitioner had already made payment of entire penalties and interest demanded by the said order and, therefore, there was nothing to waive. It was submitted that the Commissioner has failed to take into consideration the relevant factors as contemplated under section 273A of the Act and has rejected the application on extraneous grounds which are not relevant insofar as the provisions of section 273A of the Act are concerned. Referring to the provisions of section 273A of the Act, it was submitted that while making the order under section 273A of the Act the Commissioner was required to consider the relevant factors as envisaged thereunder even in case where the assessee had paid the tax and interest payable in consequence of the order in respect of which the application under section 273A had been filed. It was, accordingly, submitted that the second ground for rejecting the application, viz., the payment of entire interest and penalty demanded under the order in respect of which the application had been filed had already made, and therefore, there was nothing to waive, is contrary to the provisions of the section 273A of the Act under which the Commissioner has exercised powers. It was submitted that under the circumstances, the impugned order being inconsistent with the provisions of section 273A of the Act, is required to be quashed and set aside. In support of his submission, the learned advocate placed reliance upon a decision of this High Court in the case of Vinodchandra C. Patel Vs. Commissioner of Income Tax, (1995) 211 ITR 232.

4. On the other hand, Mrs. Mauna Bhatt, learned Senior Standing Counsel appearing on behalf of the respondent submitted that powers exercised by the Commissioner under section 273A of the Act are in the nature of discretionary powers, hence, this Court in exercise of powers under Article 226 of the Constitution of India would ordinarily not interfere with the same and substitute its own opinion in place of that of the Commissioner. It was, accordingly, urged that the petition being devoid of merit deserves to be dismissed.

5. Section 273A makes provision for "Power to reduce or waive penalty, etc., in certain cases" and as it stood at the relevant time, insofar as the same is relevant for the present purpose, reads thus:

273A.-.(1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise,-

reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139; or

reduce or waiver the amount of penalty imposed or imposable on a person under clause (iii) of sub-section (1) of section 271; or

reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273, if he is satisfied that such person-

(a) in the case referred to clause (i), has, prior to the issue of a notice to him under sub-section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income;

(b) in the case referred to in clause (ii), has, prior to the detection by the Income-tax officer, of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;

(c) in the cases referred to in clause (iii), has, prior to the issue of a notice to him under sub-section (2) of section 139, or where no such notice, has been issued and the period for the issue of such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed.

and also has, in all the cases referred to in clauses (a), (b) and (c), co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act, in respect of the relevant assessment year.

Explanation: For the purpose of this sub-section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of clause (c) of sub-section (1) of section 271."

On plain reading of the aforesaid provision, it is apparent that the same empowers the Commissioner in his discretion, whether on his own motion or otherwise, to reduce or waive the amount of penalty imposed or imposable on a person under clause (i) of sub-section (1) of section 271 for failure, without reasonable cause, to furnish the return of total income which he was required to furnish under sub-section (1) of section 139. Thus, the question of waiver would arise in a case where there is failure without reasonable cause to furnish return of total income as required under sub section (1) of section 139 of the Act. In the circumstances, the question as to whether there was a reasonable cause for failure in furnishing return of total income under section 139(1) would have been considered at the time of levying penalty under clause(i) of sub-section (1) of section 271 of the Act and it is only when the adjudicating authority finds that there is no reasonable cause for such failure that penalty would have been levied. In view of the provisions of section 273B of Act, in case, the assessee were in a position to make out a case that there was reasonable cause for such failure, no penalty could have been imposed under sec 271(1)(i) of the Act. Therefore, the very fact that penalty has been imposed under the said section indicates that no reasonable cause had been made out. Also the opening portion of section 273A makes it amply clear that such power has to be exercised where penalty has been levied for failure to show reasonable cause. Hence, when the question of waiver of penalty already imposed arises, there would be no reason for the Commissioner to go into the question as to whether the return has been filed belatedly without reasonable cause. While deciding an application under section 273A of the Act in a case where penalty is imposed or imposable on a person under clause (i) of sub-section (1) of section 271, the Commissioner is required to be satisfied that the assessee had prior to issue notice to him under sub-section (2) of section 139, voluntarily and in good faith made full and true disclosure of his income. In case, where reduction or waiver of interest is sought for, the Commissioner has to record satisfaction to the effect that prior to the issue of notice under section (2) of section 139, or where no such notice, has been issued and the period for the issue of such notice has expired, prior to the issue of notice under section 148, the assessee has voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed. The Commissioner is also required to be satisfied that such person has co-operated in any enquiry relating to the assessment of his income. He is also required to be satisfied that such person has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment year. Thus, while considering the application under section 273A, the Commissioner is required to be satisfied as aforesaid.

A perusal of the impugned order shows that two factors have weighed with the Commissioner while rejecting the said application. Firstly that the reasons advanced by the petitioner for failure to file return within time cannot be said to be reasonable; and secondly that the petitioner had made payment of entire penalty and interest, therefore, there was nothing to waive. Insofar as the first factor is concerned, as discussed hereinabove, no question arises of going into that issue while considering an application under section 273A of the Act. Insofar as the second factor is concerned, as is apparent on a plain reading of section 273A, for granting relief under the said provision the Commissioner is required to record satisfaction that such person has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment year. Thus, the very reason why the Commissioner should have recorded satisfaction in favour of the petitioner has been considered to be a ground for non-consideration of the application by the Commissioner. Thus, instead of recording satisfaction or otherwise, in respect of the grounds prescribed under section 273A of the Act, the Commissioner had totally misdirected himself and decided the application on grounds that were not germane for the purpose of deciding the application under section 273A of the Act.

8.Though it is true that powers under section 273A of the Act are discretionary powers, it is equally true that powers conferred under a statute are required to be exercised in consonance with the provisions of the said statute. In the present case, as discussed hereinabove, the Commissioner instead of recording satisfaction or otherwise in respect of the grounds prescribed under section 273A of the Act, has rejected the petition on irrelevant grounds, firstly, on the ground that there was no reasonable cause for failure in filing the return of income belatedly, and secondly, on the ground that the petitioner had already paid the tax payable in consequence of the order of penalty, which ground in view of the provisions of section 273A of the Act should have, in fact, weighed in favour of the petitioner. Thus, the Commissioner has not exercised discretion as required under section 273A of the Act and as such the impugned order suffers from the vice of non application of mind to the relevant factors and as such cannot be sustained.

9. For the foregoing reasons, petition succeeds and is accordingly allowed. The impugned order dated 28.3.2001 passed by the Commissioner of Income Tax, Surat (Exhibit "B" to the petition), is hereby quashed and set aside. The application made by the petitioner under section 273A of the Act shall stand restored to the file of the Commissioner who shall decided the same afresh in accordance with law keeping in mind the provisions of section 273A of the Act. Considering the fact that this is a matter pertaining to Assessment Year 1987-88 and the present petition has been pending before this Court for a period of about ten years, it would be in the interests of justice that the matter be decided at the earliest. The respondent Commissioner, therefore, shall decide the application as expeditiously as possible, and not later than three months from the date of receipt of a copy of this order. Rule is made absolute accordingly with no order as to costs.

(HARSHA DEVANI, J.)

(BELA TRIVEDI, J. )

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