Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Bangalore: Dealing with the issue of whether the CIT(A) was justified in confirming the addition of amount representing 15% of the sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to the Assessee and which was contributed to SPV, as per the direction given by the Supreme Court,  the ITAT held that the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the Assessee, but at the same time it is allowable as deduction u/s 37(1) of the Income Tax Act, 1961.

Over rampant mining in the state Karnataka the Supreme Court in the case of Samaj Parivartana Samudaya v. State of Karnataka, (2019) 17 SCC 753 imposed a complete ban on mining in the district of Bellary. Further, after application and request the mining work was resumed after categorizing the mines in three segments ‘A’, ‘B’ and ‘C’, depending on various types of violations by Lessee and financial obligation were created on account of damages and loss caused to the forest and environment by contravention of laws

The Assessee was a partnership firm and is engaged in the business of extraction of iron ore by taking lease of lands from Government. The mines owned by the Assessee herein have been categorised as “B” category mines. Hence 15% of sale, proceeds have been deducted by Monitoring Committee during the years under consideration.

The Assessee had reduced the above-said amounts from the gross sale proceeds and accordingly declared only net sale proceeds as its income in both the years. Assessment proceedings were initiated whereby the AO held that: –

  1. Entire sale proceeds as per E-auction bit sheets/invoices has to be assessed to tax as trading receipts. Hence it constitutes income in the hands of the Assessee.
  2. The amount retained by CEC/MC, as per directions of the Supreme Court on behalf of the Assessee, which is given to the Special Purpose Vehicle (SPV) is on account of damages and loss caused to the forest and environment by contravention of laws. The said amount cannot be allowed as deduction out of sale proceeds even after the accrual of such liability which is being compensation and penal in nature for contravention of laws. The amount so retained for adjusting penalty and other liabilities is nothing but the appropriation of the profit of the Assesse
  3. SPV established for Social-economic development of the mining area is nothing but relating to Corporate Social responsibility only. Hence it is not allowable u/s 37(1), as it was not incurred by the Assessee wholly and exclusively for the purpose of business. It was retained to meet the penal and other liabilities for contravention of law and therefore, the said amount cannot be allowed as deduction in view of the specific Explanation to section 37(1) of the Act.

The CIT(A) confirmed the view taken by the AO. Being aggrieved by the said order, the Assessee preferred an Appeal before the ITAT, whereby ITAT held that:

“It cannot be said that these amounts are penal in nature. The Assessee could not have resumed the mining operations. Therefore, these expenses are incidental to carrying on the business and hence allowable u/s 37(1) of the Act.”

“In view of the foregoing discussions and also following the decision rendered by the co-ordinate benches, we hold that the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the Assessee, but at the same time it is allowable as deduction u/s 37(1) of the Act. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue in both the years under consideration and direct the AO to delete the impugned addition in both the years.”

Thus the Appeal preferred by the Assessee was allowed and the ITAT was pleased to hold the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the Assessee, but at the same time it is allowable as deduction u/s 37(1) of the Act.

 [M/s. M. Hanumantha Rao Vs. A.C.I.T I.T.A. No. 3298 % 3299/Bang/2018. Decided on 25.02.2021].


† Advocate, Supreme Court of India and Delhi High Court 

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Mumbai (ITAT): Dealing with the issue on nature, scope, and explanation Section 263 (2)(a) to the effect that an order is deemed to be erroneous and prejudicial to the interests of the revenue or not. Further, what a prudent, judicious and responsible Assessing is to do in the court of Assessment Proceeding, whether an income is exempt under section 10(34) or not. The tribunal was pleased to conclude that, the true test for finding out whether Explanation 2(a) has been rightly invoked or not is, not simply existence of the view, but an objective finding that the Assessing Officer has not conducted, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and a responsible public servant that the Assessing Officer is expected to be. Further, the investments in questions were held as the corpus, and, as such, the provisions of Section 13 (1)(d) were not attracted

The Assessee before us is a public charitable trust, set up in the year 1932, registered under the Bombay Trusts Act, 1950. The Assessee trust is also registered as a charitable institution under Section 12A of the Income Tax Act, 1961. The Assessee trust had filed its return of income, and its assessment, under section 143(3) of the Act, was completed determining ‘Nil’ taxable income. Subsequently, however, learned Commissioner of Income Tax (Exemptions) [hereinafter referred to as ‘the Commissioner’] issued a show-cause notice requiring the Assessee to show cause as to why this order not be subjected to revision under Section 263 of the Act. A subsequent show cause notice was also issued whereby the commissioner framed the issues on lack of inquiry by the Assessing Officer, the inadequacy of inquiry of the Assessing Officer, or taking up the pertinent line of inquiry but not following it to its logical conclusion by the Assessing Officer. Whereby the Commissioner was pleased to conclude that: –

  1. The investments in shares are covered by an exception provided in proviso (i) & (ia) to section 13(1)(d) and unless it is covered by exceptions, it results into denial of exemptions. Therefore, the AO has failed to make basic but necessary verification on this issue.
  2. It is the failure of Assessing Officer to make due verification on the basis of which jurisdiction under Section 263 can be invoked.
  3. Despite the material being available on records, which could lead to prima facie opinion that the trustees are having control over the affairs of Tata Sons Ltd., the Assessing Officer has failed to take the issue to any logical conclusion. Hence, the show-cause notice issued under Section 263 of I.T Act was reasonable and justified.
  4. In reference to Section 10, the Assessing Officer ought to have asked the assessee to demonstrate that the entire income of the Trust was applied or being applied for the purpose of the Trust. Not conducting due verification amounts to the order being erroneous and prejudicial to the interest of revenue. Similarly, adopting the pertinent line of inquiry but not taking it to the logical end also renders the order erroneous and prejudicial to the interest of revenue.
  5. Therefore order u/s 143(3) dated 30.12.2016 for the assessment year 2014-15 is erroneous in so far as it is prejudicial to the interests of the revenue. The Assessing Officer shall make a denovo assessment after proper examination of various issues.

Being Aggrieved by the stand of the Commissioner the Assessee preferred an Appeal before the Income Tax Appellate Tribunal, Mumbai whereby the tribunal was pleased to conclude that

  1. The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, not simply existence of the view, but an objective finding that the Assessing Officer has not conducted, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be.
  2. Whether an income is exempt under Sections 10(34) or under 11, it does not prejudice the interests of the revenue in any way. Accordingly, even if the order can be said to be ‘erroneous’ for any reason, it cannot be said to be ‘prejudicial to the interests of the revenue’, and, therefore, section 263 could not have been invoked on this point either. Further, the investments in questions were held as the corpus, and, as such, the provisions of Section 13 (1)(d) were not attracted.
  3. What essentially follows is that it’s not the declaration of an investment being a corpus investment but the fact of its being treated as capital and rather than using the investment for the purposes of the trust, using the income from investment for the purposes of the trust, which is determinative of its being in the nature of corpus investment. How the trust is treating the investment, i.e., in the capital field or not, is thus truly determinative of the investment being part of the corpus. Viewed thus, the mere fact of these investments being held as capital for at least more than four decades as conclusively established by the material before the Assessing Officer, and only income from these investments being applied for the purposes of the trust clearly establishes the fact of these investments being part of the corpus of the trust.
  4. A prima facie view of the Assessing Officer cannot be reason enough to decline the assessee certain tax treatment which has been given to the assessee all along for decades, but it can surely be reason enough to leave a window for appropriate action being taken against the assessee, if so warranted- and that is exactly what the Assessing Officer has done. The stand of the Assessing Officer is, in our humble understanding, quite apt and bonafide. It cannot be faulted.

The ITAT was pleased to set aside the order and judgment passed by the Commissioner “Learned Commissioner was clearly in error in invoking powers under section 263 on the ground that the Assessing Officer failed to examine the investments of the trust complying with the provisions of Section 11(5) and Section 13(1)(d) of the Act. We disapprove his action.” Further, the learned Commissioner was not justified in subjecting the assessment order to revision proceedings on the ground that the Assessing Officer did not examine the matter regarding assessee’s control over Tata Sons Ltd, and whether, by virtue of such alleged control, any of the specified persons under section 13(3) received any benefits, and whether the investments made by the assessee trust were in violation of Section 13(2)(h). Subsequently, ITAT held that  “we are unable to see any reasons for holding the suspicion that some of the interest income may be from sources that are not qualified for exemption under section 11, and, for that reason, the verification about sources of interest income is required to be done extensively. Once all these details were on record, and there is not even a suggestion that any part of interest income is not qualified for exemption under section 11, we are unable to uphold the stand of the learned Commissioner that the subject assessment order was erroneous and prejudicial to the interest of the revenue for want of verifications of interest income sources.”

[Sir Ratan Tata Trust v. Deputy Commr. of Income Tax, ITA No. 3737/Mum/2019, decided on 28-12-2020]


Akshat Malpani, Advocate, Supreme Court of India and Delhi High Court

Case BriefsTaxationTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), Jaipur: The Bench of Vijay Pal Rao, JM and Vikram Singh Yadav, AM, held that, the benefit of CBDT Instruction No1916 dated 11-05-1994 will not take away the benefit of the explained jewellery acquired by the assessee.

The instant appeal was directed against the Order of CIT(A)-4, Jaipur.

The assessee is an individual and derives income from salary and other sources. When Search and Seizure under Section 132 of the Income Tax Act were carried out, gold and silver jewellery valued at Rs 32, 71, 895 were found from the residential premises of the assessee.

In the course of assessment proceeding, the assessee claimed benefit of CBDT Instruction No. 1916 dated 11-05-1994 to the extent of 850 gms. of jewellery in the hands of his wife, daughter and himself.

The AO accepted the above claim and allowed the said benefit, further the assessee added that the jewellery of 343.328 gms was purchased from time to time recorded in the books of account and all the jewellery is supported by purchase bill found during the course of search.

However, the above claim of the assessee was denied in giving the benefit of purchases made on the ground that this quantity of 343.328 gms. of gold jewellery is already the part of 850 gms. jewellery allowed as per CBDT Instruction No. 1916 dated 11-05-1994.

The above-stated action of denying the benefit by the AO was challenged by the assessee.

On being aggrieved by the order of CIT (A), the assessee filed the present appeal.

Decision 

Bench observed that there is no dispute regarding the fact that jewellery to the extent 343.328 gms. represents the purchases made by the assessee from time to time which is duly supported by the purchase bills found during the search and seizure action.

Tribunal stated that:

Once the AO has not disputed the purchases made by the assessee of the said quantity of jewellery then the same cannot be treated as unexplained jewellery of the assessee.

Why did AO deny the benefit? 

The AO denied the benefit of the said quantity of jewellery on the ground that since the benefit of reasonable jewellery to the extent of 850 gms. as per CBDT Instruction No. 1916 dated 11-05-1994 is already granted, therefore, to that extent, no further benefit can be granted.

Tribunal observed that it is pertinent to note that CBDT Instruction No. 1916 dated 11-05-1994 has explained in case of gold jewellery found in the possession of the assessee during the course of search and seizure activity and the assessee is not able to explain the same then the quantity prescribed under the said CBDT Instruction No. 1916 in respect of the married female member, unmarried female member and male member of the assessee would be treated as a reasonable holding of jewellery on account of the acquisition of that much jewellery on various occasions of marriages, other social & customary occasions as prevailing in the society. 

Bench held that the quantity of jewellery which is otherwise explained by the assessee by producing the purchase bills as well as recorded in the books of account of the assessee and the AO had not disputed the said explanation then the quantity which is explained otherwise by producing the purchase bills and books of account would not be treated as part of the quantity of reasonable possession as prescribed under the said CBDT Instruction No. 1916 dated 11-05-1994.

Therefore, the benefit of CBDT Instruction No. 1916 dated 11-05-1994 will not take away the benefit of the explained jewellery acquired by the assessee.

In view of the above discussion, the quantity of jewellery to the extent of 343.328 gms has to be allowed separately as explained jewellery and no addition can be made to that extent.

No error was found in the Order of CIT (A) in regard to 50% of silver items and the addition sustained by CIT on account of unexplained jewellery was deleted.[Ram Prakash Mahawar v. DCIT Central Circle, Alwar; 2020 SCC OnLine ITAT 498, decided on 20-02-2020]


What is the CBDT Instruction No. 1916?

The Central Board of Direct Taxes has issued Guidelines/ Instruction No. 1916 dated 11th May, 1994 in the matter of seizure of jewellery, which reads:

Instances of seizure of jewellery of small quantity in the course of operation under section 132 have come to the notice of the Board. The question of a common approach to situation where search parties come across items of jewellery has been examined by the Board and following guidelines are issued for strict compliance.

(i) In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need to be seized.

(ii) In the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms. per married lady 250 gms per unmarried lady and 100 gms. per male member of the family, need not be seized.

(iii) The authorized officer may having regard to the status of the family and the customs and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorizing the search all the time of furnishing the search report.

(iv) In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Mumbai: Dealing with the issue on disallowance under Section 14A of the Income Tax Act, 1961, the Tribunal has reiterated that no deduction is allowed in respect of expenditure incurred by the Assessee in relation to income which does not form part of the total income under this Act.

The Assessee, in the present case was engaged in the business of banking including foreign exchange transaction. It has branches in India and head office is based out in Muscat. Assessment proceedings were initiated against the Assessee, involving following issues: –

  1. Assessee credited an amount of ₹ 14,35,542/– as interest received from the head office in its profit and loss account but in the computation of income filed along with the return of income, it has reduced the above said interest income from the taxable income stating that the same is not taxable as it is received from head office. The Assessing Officer brought the above interest received from head office as taxable income of the Assessee.
  2. Assessee claimed for deduction of specifically incurred expenses by Head Office on behalf of Indian branches of ₹ 45,164/– which were justified by the Assessee as travel expenses and certification fees. The Assessing Officer rejected the contention of the Assessee and made the disallowance of ₹ 45,164/–
  3. Assessee debited an amount of ₹ 1,64,68,864/– on account of interest paid to the Head Office. In the computation of income, the Assessee added back to the total income stating that the same is not claimed as a deduction in view of the fact it is a payment to self and hence no expenses incurred on amount of payment to self. The Assessing Officer treated the interest received from head office as taxable income and interest paid to head office not treated as taxable since the Assessee has added back this amount to the total income.

Aggrieved by the order passed by the Assessing Officer, Assessee preferred an Appeal before the CIT(A) whereby CIT (A): –

  1. deleted the interest income received from head office of ₹ 14,35,542/– being income to self and holding the principle of mutuality as provided under the Act is applicable in respect of interest income earned from Head Office.
  2. deleted the disallowance of ₹ 45,164/- under Section 37 of the Act.
  3. confirmed that when the income of the assessee is not taxable, the provision of section 14A is applicable for expenditure incurred on income not part of taxable income.

Being aggrieved by the said order, both the parties preferred an Appeal before the ITAT, whereby the issue no. 1 and 2 decided by CIT where upheld. In reference to issue no. 3 the ITAT held that the interest income earned by Assessee dealing with Head Office held that the transaction between the head office and its branch office shall be treated like mutual concerns and all the transaction between them shall be eliminated.

“Therefore, we do not agree with the assessee that only exempt income which is not part of total income alone should be considered to disallowance u/s 14A. As per the provision of section14A at that point of time, it clearly says that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Nowhere it says it is confine to exempt income which is not form part of total income.”

The matter was, hence, remitted back to the AO to quantify the disallowance u/s 14A by eliminating the expenditure relevant for earning the above said income, it may not the interest expenditure alone, it will include the administrative and other expenditure.

[DCIT (IT) Versus Oman International Bank S. A. O. G. (now known as HSBC International Bank S.A.O.G.) I.T.A. No. 4174/Mum/2014. Decided on 15.09.2020]


Advocate, Supreme Court of India and Delhi High Court 

Case BriefsHigh Courts

Karnataka High Court: A Division Bench of Alok Aradhe and H.T. Narendra Prasad, JJ. set aside the decision of the Income Tax Appellate Tribunal in favour of the assessee.

The present appeal was filed under Section 260-A of the Income Tax Act, 1961 (IT Act) wherein an order passed by the Income Tax Appellate Tribunal (ITAT) was challenged.

The substantial question under deliberation was:

If the ITAT was correct coming to the decision that deductions which fall under Section 10-B of IT Act the can be computed without setting off of brought forward business losses and unabsorbed depreciation?

The Court relied on the decision in CIT v. Yokogawa (India) Ltd., 2016 SCC OnLine SC 1491 and held that the decision of the Tribunal in the said matter was incorrect. Therefore, the above-mentioned question was answered in favour of the assessee.[Commissioner of Income Tax v.  Mind Tree Consulting Ltd., I.T.A No. 50 of 2013, decided on 17-08-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal, Hyderabad: Dealing with the issue on accommodation entries and bogus purchases, the Tribunal has said that the entire purchase cannot be treated as a bogus purchase when there is evidence to establish that the payment was carried out through banking channels.

The Assessee, in the present case, is an individual who is engaged in the business of trading gold and gold ornaments in the name and style of M/s Vijay Jewelers. Search and seizure under Section 132 of the Income Tax Act on three individuals, revealed that these individuals were providing accommodation entries for the purchase of gold and gold Jewelry to various entities including the proprietary concern of the Assessee. It was further revealed that the Assessee had obtained accommodation entries for the purchase of gold from them and various other individuals.

The Assessee failed to prove the credit-worthiness of the individuals from whom the gold and ornaments were purchased. Though the Assessee was able to furnish the bank statements and vouchers to substantiate a claim that the payment was done via cheque.

The Assessing Officer placed its reliance on the decision passed by the  Supreme Court in the case of Kachwala Gems v. CIT, (2007) 12 SCC 761 and held that the purchase made by the Assessee from those individuals is a bogus transaction.  Therefore, the Assessing Officer estimated 10% of the bogus purchase as the undisclosed income of the Assessee.

On Appeal, the Commissioner of Income Tax (Appeal) opined that the entire bogus purchase has to be added to the income of the Assessee and accordingly enhanced the addition.

Being aggrieved by the addition done by the CIT(A) the Assessee preferred an Appeal before the Income Tax Appellate Tribunal which was called upon to decide whether the CIT(A) was justified in enhancing the addition by treating the entire bogus purchase of the Assessee as his income?

The Tribunal set aside the order passed by the CIT(A) and held that the CIT(A) was not justified to enhance the addition by treating the entire bogus purchases as the income of the Assessee. It placed reliance on the payment of the purchases which were done via banks and were the accounted money of the Assessee. Further, the gold and ornaments were either sold by the Assessee or were treated as his business stock. Confirming the  estimated 10% of the bogus purchase as the undisclosed income of the Assessee by the AO, the Tribunal said,

“Though the payment made by the assessee towards the purchases are through banking channels, it is also revealed that the suppliers were issuing bogus bills and vouchers to various parties. In this situation, producing the bills and vouchers and evidencing the payment made through cheque alone will not establish that the transactions are genuine.”

Hence, setting aside the order of CIT(A), the Tribunal held,

“… the order of the Ld. CIT (A) to enhance the addition by treating the entire bogus purchases as the income of the Assessee is not appropriate because it is evident that the Assessee had made purchases apparently from his accounted money as the payments have made through banking channels.”

[Bhagatram Hyderabad v. Asst. Commissioner of Income Tax, 2020 SCC OnLine ITAT 345, decided on 28-07-2020 ]

Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), Mumbai: Explaining the law on disallowance u/s.40(a)(ia), the Tribunal has said that if the payees have included the subject mentioned transaction in their income tax returns, then the assessee payer should not be treated as assessee in default and disallowance u/s.40(a)(ia) of the Act should be deleted in its hands. It further stated,

“IF the subject mentioned transaction is not reflected in the income tax returns of the payees, then disallowance made in the hands of the assessee u/s 40(a)(ia) of the Act would remain in force.”

The Tribunal was dealing with a case pertaining to Tax Deduction at Sources and held that the advertisement charges paid to an agency which is a franchisee of a newspaper would attract TDS under Section 194 of the Income Tax Act, 1961.

The Tribunal held that any amount paid as a consideration for carrying out any work is liable for deduction of Tax at Source.

Background

The Assessee was in the business of import eye testing equipment mainly from M/s. Topcon Asia Pvt. Ltd., Singapore and selling them to eye doctors, eye hospitals, medical colleges etc., all over India. The Assessee also procured maintenance contracts, brake-down jobs, and other services to the customer through its engineers.

The Assessee made a one-time payment to the franchisee of “The Hindu” newspaper for advertising for hiring staff . It was argued that it was a one-time payment and no contract exist with the newspaper and accordingly, the provisions of Section 194C of the Act would not be applicable.

On Scrutiny, the Assession Officer disallowed the payment made u/s. 40(a)(ia) by the Assessee on account of advertisement expenses incurred without deduction of tax at source. The Order passed by the AO was upheld the CIT(A). Being aggrieved by the decision of the CIT(A) the Assessee preferred an Appeal before the ITAT.

Issue

Whether the CIT(A) was justified in confirming the disallowance made u/s 40(a)(ia) of the Act for an amount of Rs. 56,997/- on account of advertisement expenses without deduction of tax at source?

Finding

The ITAT was pleased to hold that the any Assessee who is responsible for paying any sum to any resident for carrying out any work in pursuance of a contract shall deduct tax at source thereon.

Further, in the present case the Assessee was responsible for paying the sum to the franchise as consideration for publishing the advertisement and therefore It was held that all the ingredients of Section 194C were fulfilled. Hence, it was held that the Assessee is liable for deduction of Tax at Source.

[Mehra Eyetech Pvt. Ltd. v. Add. Commissioner of Income Tax,  ITA No. 1760/Mum/2019,decided On 13.07.2020]

Case BriefsHigh Courts

Bombay High Court: A Division Bench of Ujjal Bhuyan and Milind N. Jadhav, JJ., dismissed an appeal filed against the order of the Income-tax Appellate Tribunal, Pune, whereby it had set aside the decision of the Assessing Officer proposing to conduct special audit of the respondent-assessee under Section 142(2-A) of the Income Tax Act, 1961.

The assessing officer had submitted a proposal for a special audit under Section 142(2-A) to the administrative Commissioner. Pursuant thereto, the administrative Commissioner granted approval. The ITAT set aside the said decision holding that a show-cause notice was required to be given to the assessee by the Assessing Officer before making the order proposing conduct of special audit under Section 142(2-A). Aggrieved thereby, the Commissioner of Income Tax filed the instant appeal.

The High Court relied on the Supreme Court decisions in Rajesh Kumar v. CIT, (2007) 2 SCC 181 and Sahara India v. CIT, (2008) 14 SCC 151 and observed that before forming an opinion as to the need for a special audit, having regard to the requirement of Section 142(2-A), a pre-decisional hearing has to be given by the Assessing Officer to the assessee. Even thereafter when the question of approval is before the approving authority. The latter is also required to comply with the principles of natural justice. Therefore, in both the stages contemplated under Section 142(2-A), principles of natural justice are required to be followed.

Moreover, vide the Finance Act, 2007 (w.e.f. 1-6-2007), a proviso was added to Section 142(2-A), and following the said amendment, it is now a statutory requirement that the Assessing Officer has to provide reasonable opportunity of hearing to the assessee before directing the assessee to get the accounts audited under the said provision.

In such view of the matter, the High Court held that in the absence of pre-decisional hearing, the decision to have special audit was invalid and consequentially, all the proceedings conducted thereafter stood vitiated. The Court found no infirmity in the order of the ITAT and the appeal was held devoid of merits. [CIT v. Vilson Particle Board Industries Ltd., 2020 SCC OnLine Bom 183, decided on 27-1-2020]

Case BriefsHigh Courts

Bombay High Court: A Division Bench comprising of S.C. Dharmadhikari and B.P. Colabawalla, JJ. dismissed an appeal filed under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal wherein it was held that Section 194-LA was not applicable in case at hand.

The facts of the case were that the assessee Development Authority had acquired land from hutment dwellers and paid compensation for rehabilitation. The Assessing Officer passed an order under Sections 201(1) and 201(1-A). He was of firm opinion that there had been acquisition of immovable property and the assessee, while compensating the hutment dwellers, was liable to deduct tax at source (TDS) as per the provisions of Sections 194-L and 194-LA. The assessees carried the matter in appeal before the Commissioner of Income Tax (Appeals) who held that the said sections were not applicable in the instant case. The decision was affirmed by ITAT. Aggrieved thus, the Revenue had filed the instant appeal.

The High Court perused the record and found that the order impugned did not require any interfere. The Court was of the view that the subject land always vested in the State. The hutment dwellers were encroaching squatters who had built illegal hutments on State land, they were trespassers. This being the case, there was no question of land being acquired by the assessee. It was an encroachment which was removed by the assessee and the encroachers were rehabilitated. This being the case, the Court was of the view that Sections 194-L or 194-LA had no application to the facts and circumstances of the case. The appeal was accordingly dismissed. [CIT v. Mumbai Metropolitan Regional Development Authority,2018 SCC OnLine Bom 2374, dated 06-09-2018]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Ravindra Bhat and A.K. Chawla, JJ. dismissed Revenue’s appeal holding that Income Tax Appellate Tribunal (ITAT) was right in holding that the assessee was not liable to penalty under Section 271(1)(c) of Income Tax Act, 1961.

The assessee, manufacturers of TV parts, purchased some machinery for Rs 3.34 crores, which they were not able to remove from the port due to inability to mobilize funds. The assessee decided to write off the machinery into account books, which was disclosed in Annual Accounts. Subsequently, while filing the IT return, the above-mentioned amount was claimed as revenue loss. The revenue Authorities held that the writing off of the said amount was not justified. The penalty was levied on the assessee under Section 271(1)(c) for making the wrong claim in the return. On appeal, ITAT held that no penalty could be levied on assessee in the present case. Revenue appealed against the order of ITAT.

The High Court perused the section and observed that a plain reading of the provision shows that penalty is levied only on an assessee who either ‘conceals’ or ‘furnishes inaccurate particulars of his income’, these are the two essentials. Supreme Court decision in T. Ashok Pai v. CIT, (2007) 7 SCC 162, was relied upon wherein it was held that penalty under the section is not automatic in nature; the conditions under the section must exist before the penalty is imposed; Revenue had the responsibility of showing intentional wrongdoing. It was observed that though the petitioner made a wrong claim, the Parliament had no intention to penalise everyone who makes a wrong claim of deduction. The Court held that the essentials of Section 271(1)(c) were not satisfied. Hence, the decision of ITAT was upheld and the appeal was dismissed. [PR CIT-8 v. Samtel India Ltd.,2018 SCC OnLine Del 9750, dated 09-07-2018]