Delhi High Court
Case BriefsHigh Courts

   

Delhi High Court: In a case, where petition was filed by a son against the assessment order and the notice for initiating scrutiny proceedings under the Income Tax Act, 1961 (Act) issued in the name of his deceased father, the Division Bench of Manmohan and Manmeet Pritam Singh Arora, JJ. held that the order and notices issued in the name of the deceased assessee were null and void and the scrutiny proceedings in the name of the deceased assessee without bringing on record all his legal heirs was declared to be wrongly conducted.

Background

The petitioner was the son of Late Virendra Kumar Bhatnagar (deceased assessee) who died on 10-03-2018 and upon demise of the deceased assessee, the petitioner filed an application for registration as a legal representative of the deceased assessee in the records of the Income Tax Department (ITD). The said application was accepted, and the petitioner filed an Income Tax Return (ITR) of the deceased assessee for assessment year (AY) 2018-2019 in the capacity as his legal representative. In the ITR, it was verified and declared that the ITR had been filed by the petitioner in his capacity as a representative of the deceased assessee. In 2019, a statutory notice was issued in the name of the deceased assessee under Section 143(2) of the Act by the Assessing Officer (AO) for the AY under consideration for limited scrutiny.

Submission on behalf of the Petitioner

Counsel for the petitioner contended that the said notice suffered from a fundamental jurisdictional error as it was issued in the name of a dead person and scrutiny proceedings were proposed in the case of a dead person. Further, the said notice had neither mentioned the name of the legal heirs nor the PAN of the said legal heirs and the AO had not taken any step to bring together all the legal heirs of the deceased assessee on record at the time of issuance of the notice.

In 2021, two more notices were issued by the AO in which even though the name of the deceased assessee was mentioned, the AO had added a suffix “through legal heir Vikram Bhatnagar”. Counsel contended that such an amendment was impermissible and adding a suffix could not cure the fundamental defect of not issuing notice to all the legal heirs of the deceased assessee.

Further, it was submitted that the AO concluded the assessment proceedings and passed the consequential assessment in September 2021 in the name of the deceased assessee bearing his PAN. The assessment had been completed for the complete financial year (FY) 2017-2018, irrespective of the fact that the deceased assessee expired on 10-03-2018 and the relevant period of previous year for assessment was from 1-04-2017 to 10-3-2018 and not the complete year.

Therefore, it was submitted that the notice issued in 2018 under Section 143(2) of the Act was in the name of the deceased assessee and bearing his PAN, without bringing on record the legal heirs of the deceased assessee, the consequential order passed in 2021 under Section 143(3) for the complete FY 2017-2018 and the accompanying notices of demand and penalty issued under Sections 156 and 270(A) of the Act respectively, were illegal and without jurisdiction.

Submission on behalf of the Respondent

Counsel for the Respondent submitted that there was no dispute in facts and agreed that the notice and the assessment order had been issued in the name of the deceased assessee and for the PAN of the said assessee.

Analysis, Law, and Decision

In relation to the issue of validity of the notice issued against a dead person and the validity of the proceedings held subsequent thereto, the Court relied on Savita Kapila v. CIT, 2020 SCC OnLine Del 2540, where this Court held that:

  1. The sine qua non for acquiring jurisdiction to reopen an assessment was that such notice should be issued in the name of the correct person. This requirement of issuing notice to a correct person and not to a dead person was not merely a procedural requirement but was a condition precedent to the impugned notice being valid in law.

  2. A notice issued against a dead person was invalid unless the legal representative submits to the jurisdiction of the AO without raising any objection. Therefore, notice issued in the name of the deceased assessee was null and void.

The Court noted that the death of the assessee was communicated by the petitioner and the ITR also disclosed that the same had been filed by the petitioner in his capacity of a legal representative of the deceased assessee. Hence, the Court opined that the scrutiny proceedings had been wrongly conducted in the name of the deceased assessee without bringing on record all his legal heirs as per the requirement of the law.

The Court held that the jurisdictional notice was issued against the dead person and the assessment order had also been passed against the dead person on his PAN without bringing on record all his legal representatives, therefore, the said assessment order and the subsequent notices were null and void and hence, were set aside.

[Vikram Bhatnagar v. Assistant Commissioner of Income Tax, 2022 SCC OnLine Del 3899, decided on 9-11-2022]


Advocates who appeared in this case :

For the Petitioner: Advocate Rohit Jain;

Advocate Aniket D. Agrawal;

Advocate Mansha Sharma;

For the Respondent(s): Senior Standing Counsel Ajit Sharma;

Advocate A. Renganath.

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.

Case BriefsHigh Courts

Orissa High Court: A Division Bench of S. Muralidhar CJ and R. K. Pattanaik J. dismissed the appeal filed by the assessee and upheld AO’s decision to disallow part of the payment towards commission.

The background facts are that the Appellant during the AY in question was engaged in the business of manufacturing and sale of P.P. woven sacks meant for packing of fertilizer and cement etc. It filed its return of income and while examining the claims, the AO raised a query regarding payment of commission and asked the Appellant to justify it. It was claimed that the commission was entirely paid through banking channels after deducting Tax at Source (TDS). Each of the commission agents had disclosed the said commission amount in their respective returns and paid tax thereon. In the assessment order dated 8-03-2013, the AO partly allowed the commission expenses to the tune of Rs.23,41,245/- and disallowed Rs.30,08,545/- which was then added to the returned income of the Appellant. The Appellant filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which was dismissed as the persons to whom the commission was paid were Directors of the appellant or the relatives of such Directors. Thereafter, the Appellant went before ITAT. The Appellant failed to bring on record their expertise to render services and also what services had in fact been rendered to enhance the business of the Appellant. Merely because TDS had been deducted, would not justify allowing the entire amount as claimed towards commission. Accordingly, the appeal was dismissed, and the instant appeal was filed.

Counsel for the appellants Mr. RP Kar submitted that the commission paid could not be termed as excessive or unreasonable and had been duly accounted for. He insisted that with the TDS having been deducted at the time of paying such commission, and with the recipients of commission having disclosed it in their respective tax returns and having paid tax thereon, again subjecting such payment at the hands of the Appellant would amount to double taxation, which is impermissible in law.

Counsel for respondents Mr. RS Chimanka and A Kedia submitted that the concurrent orders of the AO, the CIT (A) and the ITAT and submits that they call for no interference.

The Court observed that in the given case claiming that each of the seven persons to whom commission was paid actually had the expertise to help the Appellant procuring the IOF from different sources appears to be stretching things a bit too far, and hence the AO appears to be justified in disallowing the commission insofar as it was paid to the said seven persons.

The Court relied on J.K. Woollen Manufacturing v. Commissioner of Income Tax (1969) 72 ITR 612 (SC) and observed that there was the test of commercial expediency. In other words, whether the payment made to the General Manager of the company as commission was an expenditure wholly and exclusively for the purpose of the business? It was concluded that the reasonableness of the expenditure had to be adjudged from the point of view of the businessman and not the Income Tax Department. In the circumstances, the entire amount paid to the General Manager as commission was allowed as expenditure.

The Court observed that all the persons to whom commission was paid were either Directors of the Company or their relatives. None of them is shown to have any expertise in procuring IOF from the Indian markets for enabling the Appellant to meet the purchase order placed on it for IOF. The amounts paid as commission were also not insubstantial. Even from the point of view of a businessman, it does appear to this Court that the commission amount which was disallowed by the AO cannot be said to be for the purpose of business of the Appellant.

The Court held “Thus, it cannot be said that the AO’s decision to disallow part of the payment towards commission was unreasonably arrived at.” [Oripol Industries Ltd. v. Joint Commissioner of IT, ITA No.41 of 2017, decided on 12-05-2022]


Arunima Bose, Editorial Assistant ahs reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Delhi (ITAT): Addressing the issue, of whether mere rejection of the claim by an Assessing Officer would ipso facto make assessee liable for the penalty, the Bench of G.S. Pannu (President) and Kul Bharat (Judicial Member) held that it won’t make the assessee liable to a penalty.

Factual Matrix


An assessee had filed its return of income and the assessment under Section 143(3) of the Income Tax Act, 1961 was framed. Thereby, the income was assessed at Rs 2,13,61,910 after making additions in respect of the wrong claim of deduction under Section 24(a) of the Income Tax Act; disallowance of excess depreciation on vehicles and disallowance of interest under Section 36(1)(iii) of the Act.

A further appeal was carried out wherein the disallowance of interest under Section 36(1)(iii) of the Act was deleted.

Subsequently, the Assessing Officer issued a notice under Section 271(1)(c) of the Act to show cause why the penalty should not be levied, for which the assessee stated that deduction under Section 24(a) of the Act was claimed by the assessee through a bonafide and inadvertent error.

AO did not accept the contention of assesse that he had disclosed and furnished correct particulars of his income, hence penalty was levied.

Aggrieved with the above, the assessee preferred an appeal before the CIT (A) who sustained the penalty, therefore the assessee has appealed before this Tribunal.

Analysis and Decision


“There is no straight jacket formula to say that particular act was a bonafide error or another a deliberate act.” 

The Bench noted that the assessee in the present matter had successfully demonstrated that the claim of deduction under Section 24(a) of the Income Tax Act, was made as the rent was offered for tax under the income from house property.

Hence, in view of the Supreme Court decision in Price Waterhouse Coopers (P) Ltd. v. CIT, (2012) 11 SCC 316 the penalty imposed by the AO on the stated issue could not be sustained, therefore, AO was directed to delete the penalty.

Tribunal found merit in the contention of the assessee that,

“…merely because of a claim is rejected by the Assessing Officer, would not ipso facto make the assessee liable for penalty.”

In the Supreme Court’s decision of CIT v. Reliance Petroproducts (P) Ltd., [2010] 322 ITR 588, the levy of penalty was not justified.

Therefore, the Tribunal directed the Assessing Officer to delete the penalty.

Further, it was added that since the notice did not specify the specific charge, hence in light of the Supreme Court decision in PCIT v. Sahara India Life Insurance Company Ltd., ITA No.475/2019, the initiation of penalty proceedings was not in accordance with law.

In view of the above, the appeal of the assessee was allowed. [Agarwal Packers & Movers Ltd.,  2022 SCC OnLine ITAT 168, decided on 29-4-2022]


Advocates before the Tribunal:

For the appellant: Ruchesh Sinha, Advocate

For the respondent: Kirti Sankratyayan, Sr. Dr

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), New Delhi: Stating that, “Urgent needs invite urgent action”, Amit Shukla, Judicial Member and Dr B.R.R. Kumar, Accountant Member while addressing a very significant matter wherein assessee did not disclose the two bank accounts operated by him to the Income Tax Department, expressed that,

Merely disowning the bank accounts by the assessee does not lead to the conclusion that the accounts are not maintained by him when there is a direct evidence contrary to the contention of the assessee.

Purpose of approaching ITAT

Investigation Division of the Income Tax Department found that two bank accounts maintained by the assessee have not been disclosed to the Income Tax Department. Based on the said information, the Assessing Officer initiated the reopening proceedings under Section 148 of the Income Tax Act, 1961 and issued notice.

Owing to credits in the bank account, the addition of Rs 12.81 Crores was made by the Assessing Officer under Section 68 of the Act.

Since the CIT(A) confirmed the order of the Assessing Authorities, the present appeal was filed before the ITAT.

Facts of the Case

The assessee had opened, operated and owned two bank accounts in which Rs 12.81 crores were duly deposited. The assessee before the revenue authorities on various occasions denied the knowledge of having any such account. During the statement recorded on 29.12.2015, the assessee said that he was in no way associated with Alfa India and he was hearing the name for the first time during the assessment proceedings.

Analysis and Discussion

Tribunal noted the stark facts recorded by the Assessing Officer and found no theories, surmises or suspicion, in fact, the information gathered was entirely of factual content.

The credits in the bank were not disputable nor the bank account of the assessee.

Assessing Officer’s reasoning: Mechanical?

In the opinion of the Bench, the Assessing Officer had credible information in his possession and the reasons were duly recorded after application of mind.  It was also an indisputable fact that the assessee had denied owing any such bank account during the statement recorded by the department.

Assessing Officer’s reason clearly mentioned that the AO had applied his mind verified the Income Tax Return of the assessee, gone through the bank statement wherein the credits were appearing.

While the citizen and public are disgruntled regarding the apathy, red tapism and delays in various bureaucratic and judicial procedures, the prompt action taken by the revenue authorities in this case cannot be looked with contempt, rather it is highly appreciable.

Keeping the file for longer time, mulling over issue cannot be considered as a sign of application of mind and taking prompt decision must not be taken as non-application of mind nor mechanical action by the authorities.

 In the instant case, on going through the entire records, we find that there were no theoretical postulates involved in the information or the reasoning recorded by the revenue authorities.

Tribunal relied on the decision of the Delhi High Court in Experion Developer (P) Ltd. v. Assistant Commr. Of Income Tax, wherein it was held that where necessary sanction to issue notice u/s 148 was obtained from Pr. Commissioner as per provision of section 151, Pr. Commissioner was not required to provide elaborate reasoning to arrive at a finding of approval when he was satisfied with reasons recorded by Assessing Officer.

Calling the present case to be a classic case of prompt action on the part of the revenue taking into consideration received, Tribunal denied accepting the arguments that the satisfaction was borrowed, the approval was mechanical, and the promptness of the revenue authorities was misplaced

Tribunal upheld the action of revenue authorities on the issue of impugned under Section 148 of the Income Tax Act as the information received was not wrong nor the reasons to be believed were faltered.

Nothing done behind the back of assessee

The assessee had been given ample opportunities on various occasions as to why the case was reopened and as to what amounts the revenue was proposing to bring to tax.

Conclusion

The assessee had failed every time and feigned ignorance about the account which was opened with his full knowledge and conscience.

Since the assessee failed to prove the source of the sum of money found in his bank account, they have been rightly taxed by the revenue under Section 68 of the Income Tax Act.

Onus of providing the source of a sum of money found to have been received by an assessee is on him.

Where any sum is found credited in the books of the assessee for any previous year, it may be charged to Income Tax as the income of the assessee for that previous year if the explanation offered by assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. [Vasantibai N. Shah v. CIT (Bom.) 213 ITR 805, Sreelekha Banerjee v.  CIT (SC) 49 ITR 112]

Therefore, keeping in view the entire facts and circumstances of the case, Tribunal held that:

  • Action of the revenue authorities on the issue of notice under Section 148, approval under Section 151 was in accordance with the law.
  • Addition under Section 68 was rightly made, as the assessee failed to offer any explanation with regard to nature and source of credit in his bank account and the primary burden cast upon the assessee for proving the credits has not been discharged either before AO or CIT(A) or before us.

Therefore, the action under Sections 147, 148 as well as the addition made under Section 68 was affirmed and the appeal of the assessee was dismissed. [Arun Duggal v. SCIT, 2022 SCC OnLine ITAT 32, decided on 4-1-2022]


Assessee by: Sh. Kapil Goel, Adv.

Revenue by : Ms. Paramita M. Biswas, CIT DR

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Mumbai: Dealing with the issue on the validity of the reassessment proceedings objecting to the reasons based on which the A.O had assumed jurisdiction the tribunal has reiterated that A.O had failed to independently apply his mind to the “material” available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the Assessee u/s 147 of the Act.

The Assessee, in the present case, was engaged in the business of trading in shares and derivatives. The original assessment was framed by the A.O vide his order passed under Sec. 143(3). Whereby, an appeal against the original assessment was partly allowed by the CIT(A). Vide his order the assessed income of the Assessee was reduced. Subsequently, information was received by the A.O through a letter from the DIT(I&CI), New Delhi. Wherein it was intimated that search and seizure proceedings were conducted and the name of the Assessee had figured as one of the beneficiaries that had invested in shares of different securities amounting through a broker, during the financial year 2007-08.

In the backdrop of the aforesaid information, the A.O reopened the case of the Assessee under Sec. 147 of the Act. Notice under Sec. 148 was issued and served upon the Assessee. In compliance, the Assessee e-filed its return declaring the income as was determined pursuant to the order of the CIT(A).

The Assessee assailed the validity of the reassessment proceedings objecting to the reasons based on which the A.O had assumed jurisdiction. However, not finding favor with the objections raised by the Assessee the A.O rejected the same.

Aggrieved, the Assessee assailed the assessment framed by the A.O in appeal before the CIT(A). The Assessee assailed the validity of the jurisdiction that was assumed by the A.O under Sec.147 of the Act, as well as the disallowance of its F&O loss on merits. The CIT(A) did not find favour with the claim of the Assessee that the A.O had wrongly assumed jurisdiction u/s 147 of the Act and rejected the same. Accordingly, the CIT(A) partly allowed the appeal and vacated the disallowance of F&O loss.

The revenue being aggrieved with the order of the CIT(A) whereby the addition was deleted on account of loss on future & options, carried the matter in appeal before the LD. ITAT. The Assessee preferred a cross-appeal and assailed the order of the CIT(A) to the extent he had upheld the validity of the jurisdiction assumed by the A.O for framing the reassessment. Whereby, the tribunal was pleased to Dismiss the Appeal filed by the Revenue and conclude that A.O had failed to independently apply his mind to the “material” available on his record and mechanically acting on the information supplied by the Directorate of Income-tax (Inv.) had on the basis of incomplete and incorrect facts reopened the case of the Assessee u/s 147 of the Act

“Though the A.O had referred to the material/information on the basis of which the case of the Assessee was sought to be reopened under Sec. 147 of the Act i.e the information received from the DDIT(Inv.), Unit-1(4), Mumbai, but then, there is nothing discernible therefrom on the basis of which it could be gathered that there was any independent formation of a bonafide belief by the A.O that the income of the Assessee chargeable to tax had escaped assessment.”

“That the A.O had mechanically acted upon the information received from the DDIT(Inv.), Unit 1(4), Mumbai, and without even doing the bare minimum i.e consulting the assessment records of the Assessee for the year in question as was indispensably required on his part for arriving at a bonafide belief that the income of the Assessee chargeable to tax had escaped assessment therein reopened its concluded assessment.”

[DCIT Vs. M/s Shradha Tradelinks Pvt. Ltd ITA No. 656/Mum/2016 AND C.O No. 323/Mum/2017]


† Advocate, Supreme Court of India and Delhi High Court  

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of UU Lalit, Indira Banerjee and MR Shah, JJ has held that mere mentioning of the new address in the return of income without specifically intimating the Assessing Officer with respect to change of address and without getting the PAN database changed, is not enough and sufficient.

The Court said that though merely by filing of return of income with the new address, it shall be enough for the assessee to discharge its legal responsibility for observing proper procedural steps as per the Companies Act and the Income Tax Act is concerned,

“In absence of any specific intimation to the Assessing Officer with respect to change in address and/or change in the name of the assessee, the Assessing Officer would be justified in sending the notice at the available address mentioned in the PAN database of the assessee, more particularly when the return has been filed under E­Module scheme.”

The Court further explained that the notices under Section 143(2) of the 1961 Act are issued on selection of case generated under automated system of the Department which picks up the address of the assessee from the database of the PAN.  Therefore, the change of address in the database of PAN is must, in case of change in the name of the company and/or any change in the registered office or the corporate office and the same has to be intimated to the Registrar of Companies in the prescribed format (Form 18) and after completing with the said requirement, the assessee is required to approach the Department with the copy of the said document and the assessee is also required to make an application for change of address in the departmental database of PAN.

[Principal Commissioner of Income Tax, Mumbai v.  I­Ven Interactive Limited, 2019 SCC OnLine SC 1369, decided on 18.10.2019]

Case BriefsHigh Courts

Delhi High Court: A Division Bench of Dr S. Muralidhar and Talwant Singh, JJ. quashed an order of reassessment passed by the Assessing officer for non-compliance of the procedure outlined by the Supreme Court in GKN Driveshafts India (P) Ltd. v. CIT, (2003) 1 SCC 72.

The short point involved in the present case was — whether the Assessing Officer could have proceeded to finalise the reassessment pursuant to notices issued under Section 147/148 of the Income Tax Act, 1961 without compliance of procedure laid down by the Supreme Court in GKN Driveshafts case?

The High Court observed: “This Court has emphasised ins several decisions that the procedure outlined by the Supreme Court in GKN Driveshafts (India) Ltd. is sacrosanct. in other words, where in response to a notice issued under Section 147 by the AO, the Assessee seeks the reasons to believe that prompted the reopening, and files objections thereto, those objections have to be considered on their merits and only a reasoned order has to be passed thereon by the AO. Importantly, this has to happen prior to the AO proceeding with the reassessment.”

In the present case, it was noted, the Assessment Officer had not chosen to dispose of the objections filed by the petitioner against reopening of the assessment, but had proceeded to the stage of passing the impugned reassessment order.

The Court, therefore, set aside the reassessment order. Directions were issued to the Assessing Officer to consider the petitioner’s objections to reopening of assessment and dispose of them by a reasoned order within 4 weeks of the date of the order.[Surendra Kumar Jain v. CIT, 2019 SCC OnLine Del 9393, decided on 29-07-2019]

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Delhi (ITAT):  In a case related to bogus Share Capital/Premium, the Accountant Member RK Panda took note of the fact that the Supreme Court verdict in PCIT vs. NRA Iron & Steel (P) Ltd., 2019 SCC Online SC 311 was pronounced subsequently wherein it was held,

“The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.”

In the present case,

  • The case of the assessee was reopened by issue of notice u/s 148 on 27th March, 2014, after recording reasons for issue of notice and after obtaining the approval from the Addl. CIT u/s 151 of the IT Act. The reason for such reopening was on account of accepting of accommodation entry of Rs. 10 Lakhs by the assessee company from two companies.
  • The Assessing Officer asked the assessee to substantiate such accommodation entry of Rs.10 lakhs. Since there was no compliance from the side of the assessee to his satisfaction, the Assessing Officer made addition of Rs.10 lakhs being the amount received as share capital not proved and invoking the provisions of section 68 of the IT Act, the Assessing Officer treated the same as income of the assessee.
  • In appeal, the CIT(A) not only sustained the addition so made by the Assessing Officer, but, further enhanced the same by Rs.20,000/- being the amount incurred by the assessee for arranging such bogus share capital.

Aggrieved by the said order of CIT(A), the assessee appealed before ITAT and argued that CIT(A) has not given effective opportunity to the assessee to substantiate his case. Advocate Swarnendu Chatterjee argued that no enhancement notice was given for enhancing the income of the assessee.

The Court noticed that Supreme Court verdict in PCIT vs. NRA Iron & Steel (P) Ltd., 2019 SCC Online SC 311 was pronounced subsequently wherein it was held,

“i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.

ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.

iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.”

Noticing that the ld.CIT(A) shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee, it was held that the issue be restored to the file of the CIT(A) with a direction to give one more opportunity to the assessee to substantiate its case.

[Shivalik Cotex Ltd. v. ITO, ITA No.5819/Del/2018, decided on 01.07.2019]

Case BriefsHigh Courts

Karnataka High Court: A Division Judge Bench comprising of Vineet Kothari and S. Sujatha, JJ., decided an Income Tax Appeal wherein it was held that the income tax appellate tribunal has the power to give direction for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on the grounds raised by any party.

The appellant-assessee company bought back it’s share from it’s Holding Company at an extremely high price out of the Reserve and Surplus and on the directions of Dispute Resolution Panel, the same was taxed as a dividend under Section 115-O of the IT Act, 1961. Thereafter the appellant went for appeal before the ITAT, it held that as per Section 26-A of IT Act, the buyback of shares should be taxed as Capital Gains and ordered for the re-opening of the matter by Assessing Officer who should also decide the fair market value of shares. Hence, the present appeal.

The appellant-assessee submitted that the Tribunal had exceeded its jurisdiction in opening the enquiry upon questions of market price of the shares’ buy-back. Whereas, the respondent submitted that the Tribunal was completely justified in re-opening the assessment and the same was well within the parameters of the subject of appeal.

The Court kept away from deciding the second issue of taxability in the light of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613. Thereafter, it held that ITAT has the power to give directions for fresh enquiry into the aspects of the subject matter of appeal filed before it either suo motu or on any grounds raised by either party to the appeal which have not been investigated or enquired into by the lower Authorities earlier and which may result in enhancement of tax liability of the assessee. The Court added that payment by the assessee to its holding company could not be taxed as dividend. The powers of the Tribunal are not limited or circumscribed by the grounds raised before it and it has the freedom to pass any order on important matters related to appeal. The appeal was thus dismissed.[ Fidelity Business Services India (P) Ltd v. CIT,  2018 SCC OnLine Kar 756,  dated 23-07-2018]