Legislation UpdatesRules & Regulations

On 19-09-2022, the Ministry of Finance has notified the Income-tax (31st Amendment) Rules, 2022 in order to amend Income-Tax Rules 1962 which will come into force from 01-11-2022.

The amendment inserts a new Rule 12AD providing return of income under Section 170A and a new form ITR-A for ‘successor entities’ to furnish their return of income u/s 170A of the Income Tax Act, 1961 consequent to business reorganisation.

Rule 12AD provides that the modified return of income to be furnished by a successor entity to a business reorganization, as referred to in section 170A, for an assessment year, shall be in the Form ITR-A and verified in the manner specified therein. The return of income shall be furnished electronically under digital signature.

If the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the order of the business reorganisation applies have been completed or are pending on the date of furnishing of the modified return in accordance with the provisions of section 170A, the Assessing Officer shall, pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, or proceed to complete the assessment or reassessment proceedings, as the case may be, in accordance with the order of the business reorganisation and the modified return so furnished.

 

Delhi High Court
Case BriefsHigh Courts

Delhi High Court: On a question of law before the Court that whether the Income Tax Appellate Tribunal (‘ITAT’) erred in law in holding that the difference between the price at which stock options were offered to employees of the appellant company under ESOP and ESPS and the prevailing market price of the stock on the date of grant of such options was not allowable revenue expenditure under Section 37(1) of Income Tax Act, 1961, (‘IT Act’), a Division Bench of Manmohan and Manmeet Pritam Singh Arora, JJ., sets aside the impugned order and held that an assessee is entitled to claim deduction under Section 37 IT Act, 1961, if the expenditure has been incurred, thus, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued, and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of IT Act.

Reliance was placed on Commissioner of Income Tax v. Biocon Ltd. I.T.A. NO. 653 OF 2013 (Karnataka), wherein it was held

“2. The shares of the company were transferred to the trust at the face value and the employees of the assessee were allowed to exercise the option to buy the shares within the time prescribed under the scheme subject to the terms and conditions mentioned therein. The assessee claimed the difference of market price and allotment price as a discount and claimed the same as an expenditure under Section 37 of the Act. The Assessing Officer rejected the claim on the ground that the assessee has not incurred any expenditure and the expenditure is contingent in nature and therefore, the assessee is not entitled to claim the difference between the market price and the allotment price as an expenditure under Section 37 of the Act. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 13.11.2009 dismissed the appeal preferred by the assessee.

10. From perusal of Section 37(1), which has been referred to supra, it is evident that an assessee is entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression ‘expenditure’ will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of Section 37(1) of the Act. The primary object of the aforesaid exercise is not to waste capital but to earn profits by securing consistent services of the employees and therefore, the same cannot be construed as short receipt of capital.

Thus, the Court held that the Income Tax Appellate Tribunal erred in law in holding that the difference between the price at which stock options were offered to employees of the appellant company under ESOP and ESPS and the prevailing market price of the stock on the date of grant of such options was not allowable revenue expenditure under Section 37(1) of the Income Tax Act, 1961.

[PVR ltd. V. Commissioner of Income Tax, ITA 564 of 2012, decided on 23-08-2022]


Advocates who appeared in this case :

Mr. Salil Kapoor and Mr. Sumit Lalchandani, Advocates, for the Appellant;

Mr. Sanjay Kumar and Ms. Easha Kadian, Advocates, for the Respondent.


*Arunima Bose, Editorial Assistant has put this report together.

Case BriefsSupreme Court

Supreme Court: In the case where the Revenue had challenged Bombay High Court’s judgment affirming Income Tax Appellate Tribunal (ITAT)’s order for writing off assessee’s ₹ 10 crores as a bad debt, the 3-judge bench of UU Lalit, S. Ravindra Bhat* and Sudhanshu Dhulia, JJ has summarised the law on writing off a bad debt and has held that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in Section 36(1)(vii), 36(2), and Explanation to Section 36(1)(vii) of the Income Tax Act, 1961 would not entitle the assessee to claim a deduction.

The Court explained that before the amendment in 1989, the law was that even in cases where the assessee had made only a provision in its accounts for bad debts and interest thereon, without the amount actually being debited from the assessee’s Profit and Loss account, the assessee could still claim deduction under Section 36(1)(vii) of the Act. With effect from 1 April 1989, with the insertion of the new Explanation under Section 36(1)(vii), any bad debt written-off as irrecoverable in the account of the assessee would not include any ‘provision’ for bad and doubtful debt made in the accounts of the assessee. In other words, before this date, even a provision could be treated as a write off. However, after this date, the Explanation to Section 36(1)(vii) brought about a change. As a result, a mere provision for bad debt per se was not entitled to deduction under Section 36(1)(vii).

After going through the scheme of the Act and various authorities of the Supreme Court, the Court summarised the following points:

(i) The amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year;

(ii) Such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision for bad and doubtful debts made in the accounts of the assessee;

(iii) No deduction is allowable unless the debt or part of it “has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year”, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;

(iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of Section 36(1)(vii) as well as Section 36(2) of the Income Tax Act, 1961.

Coming to the facts of the case, the assessee had contended that an amount of ₹ 10 crores was deposited with one M/s C. Bhansali Developers Pvt. Ltd. towards acquisition of commercial premises in 2007. It was contended that the project did not appear to make any progress, and consequently, the assessee sought return of the amounts from the builder. When the latter did not respond, the assessee resolved to write off the amount as a bad debt in 2009. It was also contended that the amount could also be construed as a loan, since the assessee had ‘financing’ as one of its objects.

The Assessing Officer as well as the Appellate Commissioner of Income Tax [CIT(A)] had disallowed the sum of ₹ 10 crores claimed as a bad debt in determining its income under “Profits and Gains of Business or Profession”. The ITAT, however, allowed the assessee’s plea.

The Court noticed that there was nothing on record to suggest that the requirement of the law that the bad debt was written-off as irrecoverable in the assessee’s accounts for the previous year had been satisfied. Another reason why the amount could not have been written-off, was that the assessee’s claim was that it was given to M/s Bhansali Developers Pvt. Ltd. for acquiring immovable property – it therefore, was in the nature of a capital expenditure. It could not have been treated as a business expenditure.

Hence, it was held that the assessee’s claim for deduction of ₹ 10 crore as a bad and doubtful debt could not have been allowed. The findings of the ITAT and the High Court, to the contrary, are therefore, insubstantial and have to be set aside.

[CIT v. Khyati Realtors Pvt Ltd, 2022 SCC OnLine SC 1082, decided on 25.08.2022]


*Judgment by: Justice S Ravindra Bhat


For Petitioner(s): ASG N. Venkataraman, Advocate H. Raghavendra Rao and AOR Raj Bahadur Yadav

For Respondent(s): AOR Kavita Jha and Advocate Aditeya Bali

Case BriefsSupreme Court

Supreme Court: Dealing with an important question relating to appellate jurisdiction of the High Courts under Section 260A of the Income Tax Act, 1961 (the Act) against judgments of Income Tax Appellate Tribunals (ITAT), the bench of UU Lalit, S. Ravindra Bhat and PS Narasimha*, JJ has held that appeals against every decision of the ITAT shall lie only before the High Court within whose jurisdiction the Assessing Officer who passed the assessment order is situated.

Interestingly, Section 260A is open-textual and does not specify the High Court before which an appeal would lie in cases where Tribunals operated for plurality of States. Hence, as Benches of the ITAT are constituted to exercise jurisdiction over more than one state, each state having a separate High Court, question arose as to which of the High Court is the appropriate Court for filing appeals under Section 260A. The Supreme Court observed that the decision of the High Court of Delhi in the case of Seth Banarsi Dass Gupta v. Commissioner of Income Tax, 1978 SCC OnLine Del 43, wherein it was held that the appropriate High Court would be the one where the Assessing Authority is situated, continuous to hold the field.

However, due to a difference of opinion between the Punjab and Haryana High Court and the Delhi High Court, a further question arose before the Supreme Court relating to the jurisdiction of the High Court consequent upon administrative order of transfer of a ‘case’ under Section 127 of the Act from one Assessing Authority to another Assessing Officer located in a different State.

The Punjab & Haryana High Court took the view that such a transfer would not change the principle laid down in Seth Banarasi Dass Gupta. However, the Delhi High Court in CIT v. Sahara India Financial Corporation Ltd, 2007 SCC OnLine Del 1762 and CIT v. Aar Bee Industries Ltd, 2013 SCC OnLine Del 2356 has held that an administrative order of transfer of cases will also have the consequence of transferring even the jurisdiction of the High Court.

The Supreme Court, however, reversed the judgments of Delhi High Court on this aspect and held that the appellate jurisdiction of the High Court stands on its own foundation and cannot be subject to the exercise of executive power to transfer a ‘case’ from one Assessing Officer to another Assessing Officer.

“Even if the case or cases of an assessee are transferred in exercise of power under Section 127 of the Act, the High Court within whose jurisdiction the Assessing Officer has passed the order, shall continue to exercise the jurisdiction of appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year(s).”

The Court further observed that if it is the accepted principle to determine the jurisdiction of a High Court under Section 260A of the Act on the basis of the location of the Assessing Officer who assessed the case, then, by the strength of the very same logic, upon transfer of a case to another Assessing Officer under Section 127, the jurisdiction under Section 260A must be with the High Court in whose jurisdiction the new Assessing Officer is located.

Stressing on the ‘need for order’ and consistency in decision making, the Court noted that a decision of a High Court is binding on subordinate courts as well as tribunals operating within its territorial jurisdiction. It is for this very reason that the Assessing Officer, Commissioner of Appeals and the ITAT operate under the concerned High Court as one unit, for consistency and systematic development of the law.

The Court also explained that the decisions of the High Court in whose jurisdiction the transferee Assessing Officer is situated do not bind the Authorities or the ITAT which had passed orders before the transfer of the case has taken place. This creates an anomalous situation, as the erroneous principle adopted by the authority or the ITAT, even if corrected by the High Court outside its jurisdiction, would not be binding on them.

“The legal structure under the Income Tax Act commencing with Assessing Officer, the Commissioner of Appeals, ITAT and finally the High Court under Section 260A must be seen as a lineal progression of judicial remedies. Culmination of all these proceedings in question of law jurisdiction of the High Court under Section 260A of the Act is of special significance as it depicts the overarching judicial superintendence of the High Court over Tribunals and other Authorities operating within its territorial jurisdiction.”

[Commissioner of Income Tax v. ABC Papers Ltd, 2022 SCC OnLine SC 1036, decided on 18.08.2022]


*Judgment by: Justice PS Narasimha


For Revenue: ASG N. Venkatraman

For Assessee: Advocate Rohit Jain

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

   

Income Tax Appellate Tribunal (ITAT), New Delhi: While deciding the instant appeal pertaining to the Assessment Year 2015-16 where the Revenue challenged the decision of CIT(A) for deleting the addition of Rs 4,33,18,870 made on account of unsecured loan under Section 68 of the Income Tax Act, 1961, the Bench of Shamim Yahya (Accountant Member) and Yogesh Kumar US (Judicial Member) held that the non-existence of the parties who have given loan to the assessee, clearly indicates their nature being prima facie bogus. Furthermore, non-discussion of the financials further cast doubt on the lender's creditworthiness.

Facts and Legal Trajectory of the case: The Assessing Officer (hereinafter AO) noted that the assessee had received unsecured loan during the Financial Year 2014-15 from approximately 26 people. The assessee was also asked to submit ITR of the relevant years for all the parties to prove their creditworthiness. The AO issued summons under Section 131(1A) to several parties at the address provided by the assessee, requesting their personal deposition and information. During the analysis of the bank statement of the parties concerned, the AO noted that the amount forwarded to the assessee was received by the lenders from some other accounts just before it was forwarded. However, neither anyone attended on the date given nor was any information requested by the summons filed.

Several reminders were issued, no one gave their personal attendance, but details and alibis were submitted through their authorized representative. In view of this conduct the AO raised doubt regarding their identity. The AO rejected the submissions of some of the parties that it was their saving from which they have given loan. Hence, the AO found the source to be unexplained and found 10 people to be of dubious credit. The AO also raised questions upon the genuineness of the transactions was not successfully explained by the assessee.

The assessee challenged the findings via an appeal to the CIT(A) who noted that the assessee had stated that all the details were given to the Assessing Officer. Furthermore, the CIT(A) observed that the assessee had precisely given the details and documents filed during the assessment proceedings for each party. Therefore CIT(A) rejected the AO's assessment and held that the assessee had proved the identity and genuineness of the transaction and creditworthiness thereby discharging the onus.

Contentions: Aggrieved with the afore-stated decision by the CIT(A), the Revenue appealed before the ITAT contenting that the CIT(A) erred in deciding the issue by ignoring the fact that the income of some of the parties/lender was not proportionate to the loan amount provided to the assessee.

It was further argued that that merely because identity of creditor is disclosed, the burden of assessee to explain money in his hands would not be discharged if the donor's creditworthiness is not proved to the satisfaction of the AO. It was submitted that the instant matter is a classic case of routing of unaccounted money in circuitatious manner.

Observations

  • Perusing the facts and the contentions, the Tribunal noted that the people who gave the loans were not present at their address, which clearly shows the lack of genuineness of the transactions.

  • It was also pointed out that only part figures for the financial were available and the entire financials of the loan given were not on record and the CIT(A) decided the genuineness of the transactions and the creditworthiness of the lenders relying upon the documents and data picked from here and there. The Bench was perplexed as to- “Without examining the entire financials of the parties, how their creditworthiness has been accepted by the CIT(A) itself is a mystery”.

  • The Tribunal expressed its confusion over the findings by the CIT(A) stating that “The powers of the CIT(A) is co-terminus with that of the Assessing Officer. In the appeal, if the CIT(A) was of the opinion that further enquiry was required, the same should have been done by the CIT(A) himself”.

Decision: With the afore-stated observations, the Tribunal remitted the issue to the AO and directed the assessee to cooperate and produce cogent evidence in support of identity, creditworthiness and genuineness of the transaction.

[ACIT v. Hare Krishna Orchid, ITA No.662/DEL/2020, decided on 12-08-2022]


Advocates who appeared in this case :

Revenue – Gayasuddin Ansari, Sr. DR;

Assessee – R.S. Singhvi, CA, Rajat Garg, CA and Satyajeet Goel, CA.


*Sucheta Sarkar, Editorial Assistant has prepared this brief.

Legislation UpdatesNotifications

   

The Central Government has notified that the provisions of  section 206-C (IG) of the Income Tax Act, 1961 shall not apply to a person (being a buyer) who is a non-resident in terms of section 6 of the Act and who does not have a permanent establishment in India.

Madras High Court
Case BriefsHigh Courts

   

Madras High Court: A Division Bench of R. Mahadevan and Sathya Narayana Prasad, JJ. approved the orders of the Deputy Commissioner of Income Tax, Chennai, to continue with the provisional property attachment till the Adjudicating Authority decides the Benami nature of such property in accordance with law.

The present appeal arises from a common order dated 25-10-2021. The facts of the case that led the appellants to demand a writ of certiorari begin from November 2017. In consequence of the case of V.K. Sasikala, the petitioner’s premises were searched, and various documents were impounded. Subsequently, he received a show cause notice on 01-11-2019, under section 24(1) of Prohibition of Benami Property Transactions Act, 1988 with respect to him being the benamidar for the beneficial owner V.K. Sasikala, with regard to his share in the Spectrum Mall. The petitioner has henceforth challenged the order of the first respondent for continuance of provisional attachment, under section 24(4) of Prohibition of Benami Property Transactions Act, 1988.

The counsel for the appellant denied any involvement of the appellant in the alleged benami transaction and submitted that neither did the respondent provide all the documents relied upon, nor was the appellant given the opportunity to cross-examine the witnesses before the impugned order was passed. And so, there has been gross violation of the principles of natural justice in conducting the proceedings.

While the Special Public Prosecutor submitted corroborative evidence, copies of sworn statements referring to the receipt of Rs. 18 crores by the appellant and sales deeds were discovered during searches, which led the respondent to take such recourse. In addition to this, the appellant was provided with sufficient opportunities to raise objections and the respondent has fairly adhered to the provisions of the said Act in passing the order.

The Court, while dismissing the writ petition, held that there was no error in the order passed by the first respondent as the proceedings under Section 24 of Prohibition of Benami Property Transactions Act, 1988 required a mere prima facie opinion as to the benami nature of the transaction, which was fairly made out in the case. The Court placed reliance on the case of K.L. Tripathi v. State Bank of India, (1984) 1 SCC 43, where the Supreme Court observed that the mandate of furnishing all material documents to the appellant, the exercise of cross-examination and the opportunity of being heard shall be given to the petitioner only after the proceedings for adjudication have commenced and that a writ petition shall not be entertained against a show cause notice.

In view of the aforementioned arguments, the Court dismissed the writ appeal, while the contentions raised by the appellant were left to be decided on merit by the concerned authority.

[V.S.J. Dinakaran v. The Deputy Commissioner of Income Tax, Writ Appeal No. 1174 of 2022, decided on 30-06-2022]


Advocates who appeared in this case :

Vandana Vyas, Advocate, for the Appellant;

Sheela Special Public Prosecutor (Income Tax), Advocate, for the Respondents.


*Arunima Bose, Editorial Assistant has reported this brief.

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT): While deciding the instant appeal wherein the relevant question arose that whether the interest paid on late payment of TDS after deduction can be claimed as expenditure for determining the taxable income; the Bench of A.D. Jain (Vice President) and Dr B.R.R Kumar (Accountant Member) examined the issue of allowability as per the provisions of Income Tax Act and various judicial pronouncements. The Bench held that interest payment on late payment of TDS is not eligible business expenditure for deduction and it is not compensatory in nature. Payment of interest on late deposit of TDS levied under Section 201(1-A) is neither an expenditure only and exclusively incurred for the purpose of the business and therefore the same is not allowable as deduction u/s 37(1) of the Act.

Facts of the case: The assessee via its letter dated 12-03-2015 submitted copy of ledger account of interest on TDS. The assessee itself agreed that interest on TDS amounting to Rs. 9,70,248 was not added back in the computation of income. Interest on TDS is not allowable as per provision of Income Tax Act, 1961. Accordingly, expenses of Rs. 9,70,248 were disallowed and added back to the income of the assessee.

Observations: The Tribunal considered the question of allowability notwithstanding the contentions of the assessee before the Revenue. Some of the salient observations made by the Bench are as follows-

  • Section 201(1-A) of the Income Tax Act mandates assessee to pay simple interest at 1.5% per month or part of the month in case of delay in remittance of TDS amount deducted, to the treasury of the Central Government. For claiming expenditure and arriving at the taxable income, the Income Tax Act states twin conditions – allowance of expenditure as per Sections 30 to 37 and non-allowable expenditure as per Sections 40, 43B. The same are applicable for claiming the interest paid on late remittance of TDS.

  • Interest as defined in Section 2(28A) of Income Tax Act means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Section 36(1)(iii) of the Act provides deduction of the interest paid in respect of capital borrowed for the purpose of the business or profession.

  • Interest on late payment of TDS is not covered under Sections 30-36 of the Act and thus qualifies for consideration under Section 37. It is neither capital expenditure nor personal expenditure of the Assessee. The Tribunal pointed out that Courts have time and again held that interest expenses on late payment of taxes which are compensatory in nature, should be treated as expended wholly and exclusively for the purposes of the business or profession, since responsibility of payment of taxes including deduction and remittance of TDS is part and parcel of the business operations and the assessee has no right to utilize such monies collected from others on behalf of the government.

  • The Tribunal relied on the judicial pronouncements of Lachmandas Mathuradas v. CIT, (2002) 254 ITR 799; Commissioner of Income-Tax v. Chennai Properties and Investment Ltd., 1998 SCC OnLine Mad 1095; Velankani Information Systems Ltd. v. CIT, 2018 SCC OnLine ITAT 17731 wherein the issues vis-à-vis disallowance of interest on TDS payments were addressed. The Tribunal observed that, “Payment of interest takes colour from the nature of the levy with reference to which such interest is paid and the tax required to be but not paid in time, which renders the assessee liable for payment of interest was in the nature of a direct tax and similar to the income-tax payable under the Income Tax Act. The interest paid under Section 201(1A) of the Act, therefore, would not assume the character of business expenditure and cannot be regarded as a compensatory payment”.

[Universal Energies Ltd. v. DCIT, ITA No. 2761/Del/2018, decided on 26-07-2022]


Advocates appearing in the case

Assessee by: Sudesh Garg, Adv. and Sahil Aggarwal, CA

Revenue by:  K. A. Manu, Sr. DR


*Sucheta Sarkar, Editorial Assistant has prepared this brief.

 

 

Jharkhand High Court
Case BriefsHigh Courts

   

Jharkhand High Court: Sanjay Kumar Dwivedi, J. allowed a criminal miscellaneous petition quashing the entire criminal proceeding including the order dated 08-12-2017, passed by the Special Judge, Economic Offences, Dhanbad, whereby cognizance had been taken against the petitioners for the offences under Sections 276(B) and 278(B) of the Income Tax Act, 1961 pending in the Court of Special Judge, Economic Offences, Dhanbad.

Facts of the case:

The complainant, Assistant Commissioner, Income Tax Department stated that accused 1 (petitioner1) is a joint venture company represented through its principal officer i.e., accused 2 (petitioner 2) and is carrying business of power generator in the name “Maithon Power Limited”.

It is a private limited company registered under the Companies Act and derived Income from business of generating power and is an assessee within the meaning of Income Tax Act. Being a principal officer as per Section 2(35) of the I. T. Act of accused 1, the accused 2 was liable and responsible to the company for the conduct of the business of the company.

The accused 2 for and on behalf of accused 1, being a principal officer of accused 1, deducted TDS amount, amounting to Rs. 8,22,23,551/- for F.Y.-2012-13 but failed to credit the same to the account of Central Government of India, TDS Ward Dhanbad. The complainant contended that the accused 2 deliberately, intentionally, knowingly, willingly and having mens rea in his mind failed, neglected and avoided to deposit the same in time to the credit of Central Government account without reasonable cause rather converted the aforesaid amount into their own use for their wrongful gain and for wrongful loss to the Central Government. A show cause notice was issued and served upon the accused in response to which he filed a letter which had no leg to stand.

Finally sanction to launch a prosecution U/s 276-B r/w Section 278-B of the I. T. Act against the accused persons was sent to Commissioner of Income Tax, TDS Ward, Patna. Considering all the facts and circumstances with due care and caution he applied his judicial mind and opined that a prima facie case is made out under section 276-B r/w Section 278-B of the I. T. Act.

Contentions:

Counsel appearing for the petitioners submitted that the TDS amount in question was received by the company in the month of February, 2013 and in terms of Rule-30 of the Income Tax Rules, 1962, it is required to be deposited in terms of Rule-30(2)(B), as such, the amount was required to be deposited on or before 07-03-2013, however, the same was credited in the account of Income Tax Department on 08-03-2013. He further submitted that for the delay of one day in payment of TDS amount, the interest has also been paid to the department, which is also an admitted fact. By way of referring Section 95 of the Penal Code 1860, he submitted that in view of that Section, if the harm is so slight, no person of ordinary sense and temper would complain of such harm. He further submitted that in light of Section 202 Criminal Procedure Code, 1973, the summon was not required to be issued so far as petitioner 2 is concerned, who was stationed at Mumbai. Relying on case laws he submitted that the complainant has not disclosed in the complaint as to how the petitioner 2 was overall in-charge. He finally submitted that the entire criminal proceedings including the order of taking cognizance were fit to be quashed.

Counsel appearing for the Income Tax Department submitted that whatever has been argued by the counsel appearing for the petitioners can be looked into only in the trial. She further submitted that the there is no delay of one day rather there was delay of two months in crediting the T.D.S. stating that period of delay is counted from the date of deduction of the TDS and not from the date of deposit of the TDS, as per the CBDT guidelines. She further submitted that paying the interest is civil liability, whereas the TDS amount, which has not been deposited by the petitioner is a criminal liability, for which, he has been called to face the prosecution under the relevant Sections of the Income Tax Act.

Findings:

The Court went through the materials available on record and it was noted that the charts enclosed by the General Manager, CSD, State Bank of India disclosed the time of transaction. On perusal of the said chart, it transpired that the TDS credit transaction was initiated between 10.00 P.M. to 11. 00 P.M. and the first initiation was also done in the evening and for the transaction between 10.00 P.M. to 11. 00 P.M on 07-03-2013, the status description discloses ‘completed successful.' Meaning thereby that the petitioners had taken steps within time, however, the same was credited in the account of the Central Government on 08-03-2013. It was further noted that interest of one day had also been paid.

The Court was of the opinion that looking at Rule-30(2)(B) of the Income Tax Rules and the Bank document, it transpires that the liability cannot be fastened upon the petitioners on the ground that the initiation of payment of TDS shall not be taken at the right time. The Court relied on Ravi Thapar v. Madan Lal Kapoor, (2013) 3 SCC 330 and came to a conclusion that the documents of the State Bank of India can be looked into by this Court, sitting under Section 482 Cr.P.C. The court further stated that the Magistrate was required to follow the mandatory provision of Section 202 Cr.P.C., which has been amended in the year 2005 making it mandatory to postpone the issue of process, where the accused is not residing within the territorial jurisdiction of the magistrate concerned.

The Court further relying on Girdhari Lal Gupta v. D.H. Mehta, (1971) 3 SCC 189 and Dayle De'souza v. Government of India, 2021 SCC Online SC 1012 held that the petition does not disclose as to how petitioner 2 is overall in-charge of the business reproducing Section 278(B) of the Income Tax Act.

The Court consequently quashed the entire criminal proceeding including the order Special Economic Offices against the petitioners and allowed the criminal miscellaneous petition.

[Maithon Power Limited v. State of Jharkhand, Cr.M.P. No. 2193 of 2018, decided on 14-02-2022]


Advocates who appeared in this case :

Pandey Neeraj Rai, Rohit Ranjan Sinha, Akchansh Kishore, Pradymna Poddar, Advocates, for the Petitioners;

Bhola Nath Ojha, Advocate, for the State;

Amrita Sinha, Advocate, for the Income Tax Department.


*Suchita Shukla, Editorial Assistant has reported this brief.

Op EdsOP. ED.

   

Introduction

The tax related disputes in India, were previously governed by the Tax Resolution Scheme, 2016 (the 2016 Scheme) which had a designated authority to deal the cases through physical mode. However, on 5-4-2022 the Central Board of Direct Taxes (CBDT) issued a notification3 (notification) introducing an e-Dispute Resolution Scheme (Scheme) which is made applicable to the dispute resolution provided under Chapter XIX-AA of the Income Tax Act, 19614 (the IT Act). The notification provides for an end-to-end mechanism of dispute resolution which would be conducted through electronic medium going forward. It has made the process of dispute resolution more flexible, convenient, and approachable for the parties and authorities concerned. The Dispute Resolution Committee (the Committee)5 has been constituted under the Scheme which would be responsible for adjudicating these income tax related disputes. The taxpayers who have return income of up to Rs 50 lakhs and having dispute not exceeding Rs 10 lakhs can access the Scheme.

Procedure for dispute resolution as per the new Scheme

The notification6 provides for an end-to-end process to be followed while resolving the dispute which is as follows:

Filing an application

The assessee who satisfies the conditions prescribed under any order may file an application before the Committee for dispute resolution in respect of his tax returns for a particular financial year. The application must be filed electronically in Form No. 34-BC7 and within the region of Chief Commissioner of Income Tax (CIT) having jurisdiction over the matter. The submission of the application will be via sending an e-mail to the Committee accompanied with receipt of payment of tax and a fee of Rs 1000.

The period for filing application is kept: (i) within such period from the date of formation of Committee or specified by the Board in the cases where appeal is pending before the Commissioner; or (ii) within 1 month from date of receipt of the particular order. The application process is quite convenient for both assessee and Committee as the mode of filing is through electronic medium.

Determining the admissibility

The application then will be examined by the Committee with respect to the criteria and conditions which were mentioned in the said order. After examination, if the Committee is of the opinion that the application should be dismissed, then the Committee is obligated to serve a show-cause notice to the assessee to show as to why his application should not be dismissed. The assessee will be provided with an equal opportunity of being heard via videoconferencing facility. A reply to the notice needs to be filed by the assessee within the specified given time and date. After considering the reply, the Committee may either reject or proceed to entertain the application on merits and the application will be presumed to be rejected if no response is filed. The Committee's decision regarding acceptance or rejection of application will accordingly be intimated to the assessee on his e-mail address. The appearance before the Committee of the person is not required.8 Moreover, no authorised representative is required to be present in connection with the proceedings as the hearing is conducted in electronic mode. Further, within thirty days from admission, the assessee is required to furnish proof of withdrawal of appeal or must establish that no proceeding is pending in the instant case.

Procedure complied by Committee after admission of an application

Upon admission of the said application, the Committee may call for records from the authorities concerned of income tax and will examine the same regarding the issues which are covered in the said application. The Committee can require a report from the assessing officer pertaining to the issues covered therein. Before disposal of the application, the Committee may call for additional information from the assessee. Within the specified time, the assessee should submit the response electronically to the Committee. After taking into consideration the material available on record, the Committee may pass a decision either:

(i) to make alterations to the variations in the specified order, which should not be prejudicial to assessee's interest and may waive imposition of penalty or immunity from prosecution9 and accordingly pass resolution order; or

(ii) to not to make any modifications in the order but may grant waiver of penalty and immunity from prosecution and accordingly pass resolution order and the order will not be prejudicial to assessee's interest; or

(iii) to not make any alterations to the said order and pass such order disposing of the application which is not prejudicial to assessee's interest.

Further, the Committee is empowered to waive penalty or grant immunity from the prosecution on satisfaction of certain conditions10. Any proceeding before the Committee is to be considered as equivalent to judicial proceedings within the meaning provided under the Penal Code, 186011 (IPC). Every authority for income tax related matters is presumed to be a civil court for the purpose of Section 195 of the Code of Criminal Procedure, 1973 (CrPC)12. The Committee is empowered to remove the difficulty or inconsistency with the provisions of the Act. This can be done either suo motu or on an application made by assessing officer or assessee regarding such difficulty.13

Procedure after decision passed by the Committee

The Committee will endeavour to dispose of the application within 6 months from the end of month in which application was admitted for dispute resolution. A copy of the order passed by the Committee of resolution will be served to the assessee and the assessing officer (if required). The assessing officer will notify and send a copy of the modified order accompanied by the demand notice for making payment wherein the dates would be mentioned for payment to the assessee. Then, the assessee must undertake to provide proof of payment to the officer and the Committee. After receiving the payment receipt, the Committee by an order in written form, has the power to grant immunity from penalty and prosecution (if applicable). The order for the dispute resolution will be made in accordance with the provisions contained under the IT Act.

Termination of proceedings by the Committee

According to the notification14, the Committee is empowered to terminate the dispute resolution proceedings at any stage if the Committee considers it necessary after giving reason in writing and providing an opportunity of being heard to the assessee. The proceedings can be terminated by the Committee on any of the following grounds, namely:

(i) failure on the part of assessee to cooperate during the course of proceedings; or

(ii) when the assessee has failed to respond or submit any information which was required as per the notice issued to him; or

(iii) if the Committee believes that any material has been concealed by the assessee during proceedings or had presented false evidence; and

(iv) failure, if any, by the assessee to pay the demand which was required to be complied under Para 4(1)(xviii).

After termination of proceedings, the Committee is required to intimate15 the Income Tax Authority concerned to take necessary action in accordance with the provisions of the IT Act.

Remedy, in cases where application was rejected

In case the application was rejected under Para 4(1)(vii), the assessee has the remedy to prefer an appeal to the Commissioner (Appeals) and the time taken by the Committee in deciding the admissibility of the case will be automatically excluded from the period available for the purpose of filing the said appeal.

Rules/Particulars to be complied with during dispute resolution proceedings

The notification warrants for compliances both by the assessee and the Committee, so to ensure there is confidentiality maintained throughout the dispute resolution proceedings. These include:

Mode of communication will exclusively be electronic mode

Every communication between the Committee, assessing officer and the assessee must be exchanged and conveyed only by way of electronic mode to such an extent which is technologically convenient and feasible. Moreover, every internal communication between the Committee or any Income Tax Authority has to be conveyed exclusively by electronic medium.16

Authentication process of electronic record

The authentication of the electronic record can be done by the Committee by affixing its digital signature. In case where the assessee or any individual is required under the Income Tax Rules (IT Rules) to provide his return of income, then he can authenticate by affixing his digital signature. In all the other cases, communication can be done through registered e-mail address.17

Delivery of electronic record

There can be issues surrounding electronic evidence such as tampering, threats caused by viruses, and as it is volatile in nature, it can be destroyed easily when handled with negligence. Under the Scheme, every order or notice or any other electronic record to be communicated, will be served to the assessee or any other addressee through: (i) sending an authenticated copy to the account of assessee or any other addressee; or (ii) sending authenticated copy of the said record to the assessee's e-mail address or in other cases to e-mail address of such other addressee of his authorised representative.18

Proceedings not accessible to the public

The proceedings before the Committee will never be made open to the public and no one is allowed to be present even during the videoconferencing except the assessee, his employee, the officer concerned of the Committee, Income Tax Authority, or the authorised representatives.19 Although the said rule makes the process non-transparent, the reason behind this is to maintain the confidentiality of assessee in taxation matters.

Power to determine the mode, format, process, and procedure of the resolution proceedings

The Principal Director General or Director General of Income Tax (Systems) has authority to lay down the procedures, processes, and standards for effective function of the Committee under the said Scheme.20 It has authority to decide the processes regarding (i) manner in which order is served; (ii) receipt of any information or document; (iii) issuance of official e-mail id to the Committee; and (iv) provision of e-proceeding facility.

Conclusion

In other countries like USA, the taxation matters are settled through the deficiency determination process; similarly in UK, the resolution is done by the first-tier tribunal. Therefore, in other jurisdictions electronic modes of resolution have not yet been adopted in toto. In India, e-Dispute Resolution Scheme issued by CBDT is one such step towards making the dispute settlement more feasible in the matters of income tax. This dispute resolution process is totally handled by the Dispute Resolution Committee which resolves the matter electronically. The assessee is not required to be present physically as the entire process is conducted on a virtual platform. The Scheme has provided a perfect alternative to the traditional approach of resolving dispute as unlike settlement by court it is more expeditious, cheaper, and convenient. However, the Scheme suffers from a loophole that it does not provide an alternative to electronic mode in case the party is unable to be present virtually, or where the assessee does not have adequate knowledge and exposure to electronic documents. The said flaws should be removed to have an effective remedy for resolution of disputes in the income tax regime. Broadly, considering the number and nature of tax returns in India, the e-Dispute Resolution Scheme is an extension of futuristic mindset in adjudication of tax related cases.


† Innovation & Knowledge Associate, PSL Advocates & Solicitors. Author can be reached at <pbabu@pslchambers.com>.

†† 5th year student, Amity University, Chhattisgarh.

3. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022.

4. Income Tax Act, 1961.

5. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 2(i).

6. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 4.

7. Income Tax Rules, 1962, R. 44-DAB.

8. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 12.

9. Income Tax Rules, 1962, R. 44-DAC.

10. Income Tax Rules, 1962, R. 44-DAC.

11. Penal Code, 1860.

12. Code of Criminal Procedure, 1973, S. 195. Prosecution for contempt of lawful authority of public servants, for offences against public justice and for offences relating to documents given in evidence.

13. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 5.

14. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 4(3).

15. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 4(4).

16. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 9.

17. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 10.

18. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 11.

19. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 13.

20. Ministry of Finance, Noti. No. S.O. 1642(E), dt. 05-04-2022, S. 15.

Case BriefsSupreme Court

Supreme Court: The bench of MR Shah* and BV Nagarathna, JJ has rejected the view taken by the Karnataka High Court and ITAT, Bangalore that the requirement of furnishing a declaration under Section 10B (8) of the Income Tax Act, 1961 (IT Act) is mandatory, but the time limit within which the declaration is to be filed is not mandatory but is directory. The Court held that the assessee shall not be entitled to the benefit under Section 10B (8) of the IT Act on noncompliance of the twin conditions as provided under Section 10B (8) of the IT Act.

In the case at hand, when the assessee submitted its original return of income under Section 139(1) of the IT Act on the due date i.e. 31.10.2001, it specifically stated that it is a company and is a 100% export-oriented unit, entitled to claim exemption under Section 10B of the IT Act and therefore no loss is being carried forward. However, thereafter the assessee filed the revised return of income under Section 139(5) of the IT Act on 23.12.2002 and filed a declaration under Section 10B (8) which admittedly was after the due date of filing of the original return under Section 139(1), i.e., 31.10.2001.

The ITAT as well as the High Court held that for claiming the so-called exemption relief under Section 10B (8) of the IT Act, furnishing the declaration to the assessing officer is mandatory but furnishing the same before the due date of filing the original return of income is directory. Aggrieved by the decision, the Revenue approached the Supreme Court.

The Supreme Court observed that the High Court and ITAT is erroneous and contrary to the unambiguous language contained in Section 10B (8) of the IT Act which provides that  “where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of Section 10B may not be made applicable to him, the provisions of Section 10B shall not apply to him for any of the relevant assessment years”.

Hence, for claiming the benefit under Section 10B (8), the twin conditions of furnishing the declaration to the assessing officer in writing and that the same must be furnished before the due date of filing the return of income under sub-section (1) of Section 139 of the IT Act are required to be fulfilled and/or satisfied. Both the conditions to be satisfied are mandatory.

It cannot be said that one of the conditions would be mandatory and the other would be directory, where the words used for furnishing the declaration to the assessing officer and to be furnished before the due date of filing the original return of income under subsection (1) of section 139 are same/similar.”

The Court also considered the facts that in the case at hand the assessee filed its original return under Section 139(1) and not under Section 139(3). The revenue submitted that the revised return filed by the assessee under Section 139(5) can only substitute its original return under Section 139(1) and cannot transform it into a return under Section 139(3), in order to avail the benefit of carrying forward or set-off of any loss under Section 80 of the IT Act.

Agreeing with the Revenue’s submission, the Court explained,

“The assessee can file a revised return in a case where there is an omission or a wrong statement. But a revised return of income, under Section 139(5) cannot be filed, to withdraw the claim and subsequently claiming the carried forward or setoff of any loss. Filing a revised return under Section 139(5) of the IT Act and taking a contrary stand and/or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible. By filing the revised return of income, the assessee cannot be permitted to substitute the original return of income filed under Section 139(1) of the IT Act.”

Therefore, it was held that claiming benefit under Section 10B (8) and furnishing the declaration as required under Section 10B (8) in the revised return of income which was much after the due date of filing the original return of income under Section 139(1) of the IT Act, cannot mean that the assessee has complied with the condition of furnishing the declaration before the due date of filing the original return of income under Section 139(1) of the Act.

Ruling in favour of the Revenue, the Court held that for claiming the benefit under Section 10B (8) of the IT Act, the twin conditions of furnishing a declaration before the assessing officer and that too before the due date of filing the original return of income under Section 139(1) are to be satisfied and both are mandatorily to be complied with.

Setting aside the judgment of High Court and ITAT, the Court held that the assessee shall not be entitled to the benefit under Section 10B (8) of the IT Act on noncompliance of the twin conditions as provided under Section 10B (8) of the IT Act.

[CIT v. Wipro Ltd., 2022 SCC OnLine SC 831, decided on 11.07.2022]


*Judgment by: Justice MR Shah


Counsels

For Revenue: ASG Balbir Singh

For Assessee: Senior Advocate S. Ganesh

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), Mumbai: While deciding the instant appeal wherein a major issue that came before Tribunal was whether receipts received by the assessee on sale of alleged carbon credit is revenue in nature or capital in nature. The coram of Kuldip Singh (Judicial Member) and Gagan Goyal (Accountant Member), held that by the virtue of S. 115BBG of Income Tax Act, sale of Renewable Energy Certificate (Carbon Credit) of income received by the assessee is a capital receipt and cannot be considered business receipt or income.

Facts of the case: The assessee-company filed its return of income for the Assessment Year (AY) 2015-16, declaring a total loss of Rs. 229,54,99,761. The case was selected for scrutiny under CASS. During the year under consideration, the assessee was engaged in various business like -raising of Ore; manufacture of Nitrogen Gas & Ferro Alloys; trading of Iron Ore & Ferro Alloys to name a few. During the scrutiny assessment various additions were made by the Assessing Officer. Upon preferring an appeal to CIT -(A) against the order of the Assessing Officer, the assessee got substantial relief.

The instant appeal was directed against CIT-(A) Order dated 05-02-2021 for Disallowance of common expenses against deduction claimed under S. 80IA of Rs. 5,92,7000 and Carbon Credit treated as revenue income under S. 28 of Rs. 102,05,87. Regarding Carbon Credit getting treated as revenue, the assessee stated that CIT (A) erred in confirming the disallowance of the claim of Carbon Credit Income as Capital Receipt.

Observations and Decision: The Tribunal observed that the issue regarding the taxability of Carbon Credit received by assessee is whether the receipts received by the sale of carbon credit can be considered revenue in nature or capital in nature.

The Tribunal noted that Legislature itself made provision for taxation of such receipts at the rate of 10 per cent from the assessment year 2018-19. Thus, any sum received on account of carbon credit or protecting the environment is not included in the business income. However, with the insertion of S. 115BBG [inserted via Finance Act, 2017 w.e.f 01-04-2018]; whereby the income by way of transfer of carbon credit has been given a special treatment as chargeable to tax at 10% and not as part of the normal business income of the assessee. The Tribunal also pointed out that the said Amendment was made prospective in nature and therefore cannot be applied to the assessment years under consideration in the appeal. It was also observed that Carbon Credit was neither directly linked with the business of the assessee, nor was any asset generated in the course of business.

The Tribunal further relied on the decisions by co-ordinate Bench of the Tribunal in DCIT v. Dawarkesh Sugar Industry Ltd., ITA No. 312/Mum/2019 and decision by the Andhra Pradesh HC (now Telangana) in CIT v. My Home Power Ltd., 2014 SCC OnLine AP 1315. It was observed that these cases raised identical issues as in the instant appeal and the same was decided in the favour of the assessee.

With the afore-stated observations, the Tribunal partly allowed the appeal and stated that the Carbon Credit of income received by the assessee is a capital receipt. Therefore, the addition of Rs. 10,20,587/- by the Assessing Officer from the sale of Carbon Credit and confirmed by the CIT(A) is not sustainable.

[Essel Mining & Industries Ltd. v. Dy. 2022 SCC OnLine ITAT 311, decided on 27-06-2022]


Advocates who appeared in this case :

Yogesh Thar, Advocate, for the Appellant;

Amol B. Kirtane, Advocate, for the Respondent.


*Sucheta Sarkar, Editorial Assistant has prepared this brief.

AAR GST
Case BriefsTribunals/Commissions/Regulatory Bodies

Ahmedabad Authority for Advance Ruling: Members Atul Mehta and Arun Richard, has held that 18% GST is payable on value for intended supply on the sale of a car by a company after using it for business purposes.

Factual Background of the case

The applicant purchased a new SUV (i.e., sports utility vehicle) for Rs. 80 Lakhs on 16-02-2018 for use in its business. It did not use GST Input Tax Credit at the time of purchase as it is restricted under Section 17(5) of the Central Goods and Services Tax Act, 2017 (CGST Act). The depreciation on the car was claimed under the Income Tax Act, 1961. The Applicant intends to sell the used car for Rs 55,00,000/-. The written down value of the car as per books of accounts is Rs 47,00,000/-.

An application was filed by the applicant, under Section 97(2) of the CGST Act before the Ahmedabad Authority for Advance Ruling to seek an Advance Ruling on the following:

  • At what rate of GST, the new car purchased by the company is sold after using it for business purposes, shall the GST be charged?
  • Whether the value of the old and used car, sold by the company as mentioned above, can be taken as the value that represents the margin of the supplier, on the supply of such car, and whether the GST can be charged on such margin?
  • The value that represents the margin of the supplier, on supply of such old and used goods/Car will be inclusive of GST or exclusive?

Decision and Analysis

The bench opined that concerning the submissions made on behalf of the applicant, the used car falls under the category of Serial No. 3 of the Notification 8/2018- CT dated 25-01-2018.

As per the notification, 9% CGST is payable on old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as SUVs including utility vehicles. According to the notification, an SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.

The relevant part of the notification which forms the subject matter of the case is as follows-

Explanation- for the purpose of this notification –

In case of a registered person who has claimed depreciation under Section 32 of the Income-Tax Act, 1961 (43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored.

Hence, the bench applied the abovementioned provisions and held that 18% (9% CGST and 9% SGST) GST shall be levied upon the difference between the consideration received for the supply of the car and the depreciated value of the car on the date of supply i.e., the value intended for supply.

[Dishman Carbogen Amcis Ltd., 2021 SCC OnLine Guj AAR-GST 19, decided on 01-06-2022]

Meghalaya High Court
Case BriefsHigh Courts

Meghalaya High Court: The Division Bench of Sanjib Banerjee, CJ. and W. Diengdoh, J. disposed of a petition holding that the assessee should be given a minimum of 7 days’ time to respond to the reassessment notice.

A notice under Section 148 of the Income-Tax Act, 1961 had been issued without following the mandatory procedure under Section 148-A thereof. An incidental issue as to jurisdiction had also been raised.

According to the assessee, the relevant notice that ought to have afforded the assessee seven days’ time to respond thereto was issued to an email id that was used for filing the return for the assessment year 2017-18. The assessee submits that the notice pertains to the assessment year 2018-19 and, by then, the email id of the assessee had been changed. The assessee further informed that the notice was physically delivered at the address of the assessee on 30-03-2022 and, even before the reply could be issued, the notice under Section 148 of the Act was issued by recording that the assessee had not responded to the previous notice.

The Court opined that since the scheme of the relevant provisions required a previous notice and seven days’ time to be afforded to the assessee to respond thereto and it appeared that such procedure may not have been followed in this case, the subsequent notice under Section 148 of the Act and the order pertaining thereto should be set aside and the matter be restored to the initial stage.

The Court held that the assessee will have seven days to respond to the initial notice and the response will be considered by the appropriate authority before passing any order or taking any further steps. The question of jurisdiction was left open for the assessee to urge before the Department.

[Highgrowth Commodities Trade (P) Ltd. v. Principal Commr. of Income Tax, 2022 SCC OnLine Megh 253, decided on 14-06-2022]


Advocates who appeared in this case :

Mr Abhratosh Mazumdar, Sr.Adv with Mr Kaushik Goswami, Sr.Adv Mr Avra Mazumdar, Ms Shruti Swaika, Ms Anakshi Neog, Ms M. Kakoty, Advocates, for the Petitioner;

Dr N. Mozika, ASG with Ms K. Gurung, Advocates, for the Respondents.


*Suchita Shukla, Editorial Assistant has reported this brief.

Rajasthan High Court
Case BriefsHigh Courts

Rajasthan High Court: Sameer Jain J. granted police protection and directed the State authorities to charge an appropriate fee from the couple seeking police protection before the Court, if the income is found to be more than the taxable income under the Income Tax Act, 1961.

A couple got married which was not approved by their respective family and relatives and apprehending threat to life, they filed for police protection at their residence and place of work.

The Court noted that the State has a duty to protect the life and liberty of the citizens. The petitioners are adult citizens who have a right to choose their partners. Thus, society cannot determine how individuals live their lives, especially when they are major, irrespective of the fact that the relation between two major individuals may be termed as unsocial. Thus, life and personal liberty of the individuals has to be protected except according to procedure established by law, as mandated by Article 21 of the Constitution of India.

It was also noted that as per Section 29 of the Rajasthan Police Act, 2007 every police officer is duty bound to protect the life and liberty of the citizens.

The Court held “It would be the duty of the said authority to ensure the safety and security of the petitioners, for which he may take such suitable measures as found necessary in accordance with law.”

The Court observed that if the petitioner’s income is more than the taxable income under the Income Tax Act, 1961, the Superintendent of Police after considering the financial aspect may charge appropriate fee from them as specified in law if financial hardship is not the case.

[Pooja Gurjar v. State of Rajasthan, 2022 SCC OnLine Raj 1059, decided on 21-06-2022]


Advocates who appeared in this case :

Bharat Yadav, Advocate, for the Petitioner;

Ghanshyam Singh Rathore, Advocate, for State.


*Arunima Bose, Editorial Assistant has reported this brief.

AAR GST
Case BriefsTribunals/Commissions/Regulatory Bodies

Maharashtra Authority for Advance Ruling: Rajiv Mangoo, Additional Commissioner of Central Tax & T.R. Ramani, Joint Commissioner of State Tax held that the stipend amount is given to the trainees by the training institutes for the duration of their training is not a part of taxable value.

Factual Background of the case

The applicant is indulged in the business of human resource and skill development and had enrolled as a facilitator under the National Employability Enhancement Mission (NEEM) scheme and provides trainees to various institutes for which service charges were collected in addition to the reimbursement of the stipend payable to trainees.

An application was filed by the applicant, under Section 97 of the Central Goods and Services Tax Act, 2017 (CGST Act) before the Maharashtra Authority for Advance Ruling to seek an Advance Ruling on the following:

  • Whether the applicant, in the capacity of being a NEEM facilitator, acts as a ‘Pure Agent’ while receiving reimbursement of stipend amounts from the various trainer institutes and remitting the same to the trainees?

  • If not, whether such a stipend amount forms a part of the taxable value?

Analysis and Decisions

The bench defined ‘advance ruling’ as a decision given by the authority to an applicant on matters or issues specified in sub-section (2) of Section 97, concerning the supply of goods and services. Therefore, the bench refrained from answering the first issue of the case as the matters specified in clauses (a) to (g) of Section 97 sub-clause (2) of the CGST Act as it was not applicable to the facts of the case.

Further, the bench observed that in regard to payment of stipend to the trainees, the actual service was provided by the trainees for which stipend was payable, the applicant was only acting as an intermediary in collecting the stipend from the training institutes and disbursing the same to the trainees in full without making any deductions.

At this juncture, the bench referred to the case of Yashaswi Academy for Skills 2019 SCC OnLine Mah AAR-GST 78 wherein the bench held that “the reimbursement by industry partner to the applicant, of the stipend paid to the trainees, does not attract tax under the GST Act.”

Hence, the bench applied the same principle as laid down in the aforementioned case and held that the stipend paid by entities/ training institutes to the trainees through the applicant does not attract GST and need not be added to the taxable value.

[Patle Eduskills Foundation, In Re. 2022 SCC OnLine Mah AAR-GST 13, decided on 08-06-2022]

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), Bangalore: The coram of N.V. Vasudevan (Vice President) and Padmavathy S. (Accountant Member), considered the instant appeal, wherein, the issue that came to the forefront was when can a loss due to embezzlement, be allowed as a deduction during computation of income tax. It was held that the loss should be allowed as a deduction in the year in which the embezzlement was discovered.

Facts and Submissions: Relating to the Assessment Year 2011-12, the matter concerned a District Central Co-operative Bank [Assessee]. The assessee had been conducting the banking business governed by Karnataka State Co-operative Societies Act, 1959 and the rules and regulations of NABARD and RBI Guidelines for Banking activities. The assessee had debited an amount of Rs.7,50,99,000/- as provision for misappropriation in the P&L [profit and loss] account and computed income from business after such deduction.

The assessee had reduced this amount from loans and advances in the balance sheet. It was explained by the assessee that the Co-op Department of Government of Karnataka conducted an enquiry on misappropriation in one of assessee’s branch at Honalli. The assessee submitted that a fraud occurred in the bank and was under enquiry by the Co-operative Societies Enquiry Office as per the provisions of S. 64 of Karnataka Co-operative Societies Act, 1959. It is very difficult to recover the amount misappropriated, as such a recovery depends upon the enquiry report as per the afore-mentioned provision.

The Assessing Officer [A.O.] however, had a contrary opinion after examining the assessee’s claim and held that there was a reasonable prospect of getting the misappropriated amount back since, the bank has already attached the assets of the persons who indulged in fraud.

Aggrieved by the order of the AO, the assessee preferred appeal before the Commissioner Income Tax (Appeals). The CIT(A) deleted the addition made by the AO and held that the assessee is entitled to claim deduction of bad debts purely based on mere write- off. Aggrieved by this decision, the Revenue preferred the instant appeal.

Observations and Decision: Upon perusing the facts and submissions, the Tribunal observed that the CIT(A) had proceeded on an erroneous presumption that the sum claimed as a deduction was on account of write- off bad debts; the presumption being factually wrong because it was a case of embezzlement by the employee of the assessee which resulted in a loss to the bank.

The Tribunal then pointed out that neither A.O. nor the CIT (A) had considered a crucial question as to when a deduction on account of a loss due to embezzlement can be allowed as a deduction. The Tribunal noted that the Central Board of Direct Taxes issued a Circular- No. 35-D (XLVII-20) [F. No. 10/48/65-1T(A-0], dt. 24-11-1965, which specifically pertains to the query raised by the Tribunal. Upon examining clause-1 of the Circular, the Tribunal pointed out that loss due to embezzlement by employees should be treated as a loss incidental to business.

It was thus noted by the Tribunal that there is no doubt that the assessee suffered a loss on account of embezzlement, in the sense that a fraud was carried out in one of its branches. Therefore, as per the afore-mentioned CBDT Circular, the loss by the assessee should be allowed as a deduction.

The Tribunal decided that since the above aspect was not examined by anyone involved in the matter (assessee or A.O. or CIT), it is appropriate that the A.O. considers the matter afresh in the light of the referred CBDT circular, only on the question as to in which year the loss has to be allowed as a deduction. The Tribunal also directed the A.O. to allow deduction in the year in which the embezzlement by the employee was discovered by the assessee.

The appeal of the Revenue was allowed for statistical purposes.

[ACIT v. Davangere District Central Co-op Bank Ltd., 2022 SCC OnLine ITAT 264, decided on 17-06-2022]


Advocates who appeared in this case :

Sanjay Kumar S. K, CIT(DR)(ITAT), for the Revenue;

Suresh Muthukrishnan, CA, for the Assessee.


*Sucheta Sarkar, Editorial Assistant has reported this brief.

Madras High Court
Case BriefsHigh Courts

Madras High Court: A Division Bench of R Mahadevan and Sathya Narayan Prasad, JJ. dismissed the tax appeal holding that guarantee commission as well as royalty must be excluded from the business profit for the purpose of calculation of deduction under Section 80 HHC of the Income Tax Act, 1961. 

 

The facts of the case are such that the appellant was engaged in the business of manufacture and sale of V & Fan Belts, Oil Seals etc. For the assessment year 2004-2005, they filed its return admitting a total income of Rs.14, 02, 65,870/-, which was subsequently, revised by them. Upon scrutiny of the same, the respondent issued notice under section 143(2) of the Income Tax Act, 1961 (hereinafter, “the Act”) and thereafter, completed the assessment under section 143(3) determining the total income which excludes long term capital gains. While doing so, the assessing officer, among others, restricted the claim of deduction under Section 80HHC by excluding 90% of the royalty receipts from the profits of the business under clause (baa) to explanation to section 80HHC (4). The order of AO was challenged before the Commissioner of Income Tax Madurai, who partly allowed the appeal. Aggrieved by this, the Revenue filed an appeal before the Income Tax Appellate Tribunal (‘ITAT’) which thereby set aside the impugned order. Assailing this, the present tax appeal was filed under Section 260 A of the Income Tax Act, 1961. 

 

Counsel for appellants submitted that the appellant entered into a MOU with its 100% subsidiary company; the subsidiary company manufactures the goods as per the specifications given by the appellant and the appellant has also provided know-how, secret formula manufacturing process and methods to ensure the same quality of manufactured goods; for providing these services, the subsidiary company paid royalty and hence, the royalty receipts are directly related to the goods exported by the appellant and the same cannot be excluded from the profits of the business. 

  

The Court relied on CIT v. Bangalore Clothing Co., 2003 SCC OnLine Bom 40 , wherein it was categorically held that “guarantee commission as well as royalty viz., a payment for using a right, must be excluded from the business profit for the purpose of calculation of deduction under section 80HHC of the Act. 

  

The Court noted that there is no concrete material produced by the appellant / assessee to prove that the royalty income received from the subsidiary company is related to export business,  

  

Thus, the court held the “Tribunal has rightly directed the assessing officer to exclude the royalty income from the business profits for the purpose of calculation of deduction under section 80HHC of the Act, which warrants no interference.” 

[Fenner India Ltd. v. Assistant Commissioner of Income Tax, 2022 SCC OnLine Mad 2923 , decided on 08-06-2022] 

 

Appearances 

For Appellant: Mr. Subbaraya Aiyar 

For Respondent: Mr.M. Swaminathan, and Mrs. V. Pushpa 

 


*Arunima Bose, Editorial Assistant has reported this brief.

Delhi High Court
Case BriefsHigh Courts

Delhi High Court: A Division Bench of Jyoti Singh and Anoop Kumar Mendiratta, JJ. sets aside notices sent to a deceased assessee in spite of being intimated about his death by the family. 

The instant petition was filed by the petitioner who is the son of Late Mr. Amrit Thapar, the deceased assessee, assailing the impugned notices in relation to assessment year 2013-14 stating therein that income chargeable to tax for the assessment year 2013-14 had escaped assessment within the meaning of Section 147 of the Act and 30 days were granted to file a return in the prescribed form under Section 148 of the Income Tax Act, 1961, (hereinafter referred to as the ‘Act’), issued by Respondent 1.  

Counsel for the petitioner submitted that the impugned notices are invalid in the eyes of law having been issued against a dead person as it was duly intimated by the wife of the deceased about the death of the assessee by sending his Death certificate. 

The Court relied on judgment Sangeeta Vig v. ITO, in WP(C) 8276 of 2022 wherein it was observed that “the notice under Section 148 of the Act against a dead person was held to be null and void and all consequential proceedings/orders, including the assessment order and subsequent notices were set aside.” 

The Court thus sets aside the impugned notices as they were sent against a dead person. 

[Davinder Singh Thapar v. Assistant Commissioner of Income Tax,  2022 SCC OnLine Del 1778, decided on 13-06-2022]  


Appearances 

For petitioner – Mr Akshit Mago  

For respondent- Ms Zehra Khan for R-1 and Mr Sanjay Kumar for R-2.  

 


*Arunima Bose, Editorial Assistant has reported this brief.