2023 (4) TMI 94 - AT - Income Tax

Tribunal remits appeal for fresh adjudication due to incorrect dismissal under Direct Tax Vivad se Vishwas Act

Inter Globle Aviation Ltd. Versus ACIT Circle – 10 (1) New Delhi

The Tribunal remitted the appeal back to the Commissioner of Income Tax (Appeals) for fresh adjudication due to the incorrect dismissal of the appeal ... Validity of order framed u/s 143(3) r.w.s 144B - dismissal of appeal owing to settlement under VsV Act - Deduction of duties paid under protest - HELD THAT:- We find that the present appeal filed by the assessee is with respect to the order framed u/s 143(3) r.w.s 144B of the Act. Aggrieved by the aforesaid order of AO assessee had filed appeal before CIT(A). CIT(A) had dismissed the appeal of the assessee by holding that since the appeal has already been disposed of under VSV scheme therefore, it is not maintainable Before us, assessee has demonstrated the factual error in the findings of CIT(A). He has further pointed that the appeal that was disposed under VSV Scheme was with respect to appeal against the penalty order passed u/s 271DA and not the appeal against the order passed u/s 143(3) r.w.s 144B of the Act. In such a situation, since CIT(A) has not decided the issue on merits, we are of the view that the issue needs to be re-adjudicated by CIT(A). We accordingly restore the appeal back to the file of CIT(A) and direct him to decide the appeal in accordance with law. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellate order dismissing the appeal on the ground that it was settled under the Direct Tax Vivad Se Vishwas (VSV) Act was correct when settlement under the VSV Act related to a different appeal. 2. Whether the assessment framed under section 143(3) read with section 144B of the Income-tax Act (NaFAC assessment) was invalid for non-compliance with mandatory procedural requirements under section 144B (draft assessment order / show-cause notice and opportunity of hearing). 3. Whether amounts described as 'supplier credits' (amortised credits from aircraft suppliers) are capital receipts (non-taxable as revenue) or revenue receipts (taxable), and whether prior tribunal decisions in earlier assessment years bindingly determine the characterisation. 4. Whether expenditure on replacement of aircraft seats is capital expenditure (and not deductible) and/or eligible for depreciation. 5. Whether credit for TDS claimed by the assessee should be allowed as per amounts claimed (and whether disallowance without reasons was permissible). 6. Whether interest under sections 234B and 234C should be deleted. 7. Whether duties paid under protest are deductible. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Dismissal of appeal as settled under VSV Act Legal framework: The VSV scheme provides for settlement of specified appeals on filing prescribed forms and issuance of a certificate under the Act; such settlement extinguishes the corresponding appeal covered by the certificate. Precedent treatment: The Court does not rely on or distinguish prior precedent on VSV application; determination is fact-driven from documentary record (Forms 1-3/5). Interpretation and reasoning: The Tribunal examined the record of VSV filings and the certificate(s) produced by the assessee and found that the VSV election and the certificate issued by the tax authorities pertained to an appeal against penalty proceedings under section 271DA for the same assessment year, and not to the appeal against the assessment passed under section 143(3) read with section 144B. The CIT(A)'s dismissal treated the present appeal as disposed under VSV erroneously. Because CIT(A) did not decide the present appeal on merits and dismissed it on the incorrect factual basis that it was covered by VSV settlement, the Tribunal concluded that the appellate decision was premised on a mistaken factual finding and deprived the assessee of adjudication on merits and of an opportunity of hearing on the appeal. Ratio vs. Obiter: Ratio - where an appeal is dismissed by an appellate authority on the ground of VSV settlement, the factual scope of the VSV certificate must correspond to the appeal before the forum; dismissal on a mistaken identification of the appeal covered by VSV is improper. Conclusions: The Tribunal set aside the CIT(A) order insofar as it dismissed the appeal on the incorrect ground of VSV settlement and restored the appeal to the CIT(A) for fresh adjudication in accordance with law, directing that adequate opportunity of hearing be given to the parties. This restoration is the operative holding of the Tribunal. Issue 2 - Validity of NaFAC assessment under section 143(3) read with section 144B Legal framework: Section 144B prescribes the procedure to be followed by NaFAC for assessment, including issuance of draft assessment proposals, show-cause communications for variations to returned income, and providing an opportunity of hearing (including personal/video hearing) before finalising assessment. Precedent treatment: The Tribunal did not decide this issue on merits in the present order; no precedential application or distinction was undertaken. Interpretation and reasoning: The assessee had alleged non-compliance with section 144B - specifically, absence of draft assessment order or show-cause notice on proposed variations and denial of adequate hearing - and contended that the assessment is therefore illegal. The CIT(A) did not adjudicate these contentions because he dismissed the appeal on the (incorrect) VSV ground. The Tribunal, having restored the matter to the CIT(A), did not examine or rule on the validity of the assessment itself. Ratio vs. Obiter: Obiter in this order - no ruling on the substantive question of compliance with section 144B; the Tribunal's decision to remit prevents any ratio on this issue. Conclusions: Matter remitted to CIT(A) for fresh consideration; assessment validity to be decided by CIT(A) after hearing parties (no substantive determination by the Tribunal). Issue 3 - Characterisation of 'supplier credits' as capital or revenue receipts Legal framework: Classification of receipts as capital or revenue depends on the nature and purpose of the receipt and the transaction; amortisation and netting against lease rentals are relevant facts to characterisation. Tax consequences depend on whether the receipt is on capital account (non-taxable as revenue) or income/commission (taxable). Precedent treatment: The assessee relied on prior Tribunal decisions in its own earlier assessment years holding similar supplier credits to be capital receipts and asserted judicial discipline should have required following those decisions. The present Tribunal did not address application or bindingness of prior decisions because it refrained from adjudicating merits. Interpretation and reasoning: The assessing officer treated the supplier credits as revenue (taxable), disallowing the assessee's capital characterisation. The assessee's contentions included (a) supplier credits were consideration for selection/specification of engine/parts and hence capital; (b) operating lease status of aircraft does not convert the receipt to revenue; (c) amortisation over the lease period and netting off lease rentals does not change character; and (d) the assessing officer erred in treating credits as commission. Because the CIT(A) dismissed the appeal on the VSV ground, these factual and legal contentions were not examined by the CIT(A) or decided by the Tribunal. Ratio vs. Obiter: Obiter - no substantive decision on characterisation in this order; prior-tribunal reliance was noted by the assessee but not adjudicated. Conclusions: Issue to be determined afresh by CIT(A) on remand; Tribunal did not decide whether supplier credits are capital or revenue. Issue 4 - Seat replacement cost: capital expenditure vs deduction and depreciation Legal framework: Expenditure on replacement or improvement of an asset may be capital in nature and thus not deductible as revenue expenditure; if capital, depreciation may be claimable under appropriate heads as per the Income-tax Act. Precedent treatment: The Tribunal did not apply or distinguish any precedent on capital/revenue classification of seat replacement costs in this order. Interpretation and reasoning: The assessing officer treated replacement of aircraft seats as capital and disallowed the expenditure; the assessee alternatively sought depreciation. As the CIT(A) dismissed the appeal on the wrong VSV basis, these contentions were not examined or decided by the CIT(A) and no findings were recorded by the Tribunal. Ratio vs. Obiter: Obiter - no determination made. Conclusions: Issue remitted to CIT(A) for adjudication on merits with opportunity of hearing. Issue 5 - TDS credit reconciliation and disallowance without reasons Legal framework: Tax credit for tax deducted at source is claimable subject to proof and matching; any disallowance requires articulation of reasons. Precedent treatment: Not addressed in this order. Interpretation and reasoning: The assessee alleged disallowance of TDS credit without reasons; CIT(A) did not decide the claim because the appeal was dismissed on the mistaken VSV rationale. The Tribunal therefore did not adjudicate on the propriety of the disallowance. Ratio vs. Obiter: Obiter - no substantive finding. Conclusions: Claim for TDS credit to be reconsidered by CIT(A) on remand. Issue 6 - Deletion of interest under sections 234B and 234C Legal framework: Interest under sections 234B/234C arises for defaults in advance tax payment and pay-as-you-go compliance; relief requires factual/legal basis to negate liability. Precedent treatment: Not addressed in this order. Interpretation and reasoning: The assessee sought deletion of interest; the CIT(A) did not address the argument given dismissal on the VSV ground. The Tribunal did not decide this claim. Ratio vs. Obiter: Obiter - no ruling. Conclusions: Issue remitted to CIT(A) for decision on merits. Issue 7 - Deduction of duties paid under protest Legal framework: Duties/taxes paid under protest may be claimed as deductible expenses subject to facts and legal principles governing claimability and reimbursement/contingencies. Precedent treatment: Not adjudicated in present order. Interpretation and reasoning: This ground was raised by the assessee as additional; no decision was taken because appeal was remitted. Ratio vs. Obiter: Obiter - unresolved. Conclusions: To be decided by CIT(A) on remand after hearing parties. Cross-references and operative outcome The Tribunal's operative determination is limited to finding a factual error in the CIT(A)'s dismissal of the appeal as settled under VSV (Issue 1) and restoring the appeal to the CIT(A) for fresh adjudication in accordance with law with an express direction to grant adequate opportunity of hearing. All substantive issues (Issues 2-7), though raised and framed, were left undecided by the Tribunal and must be decided by the CIT(A) on remand; therefore, no precedent or ratio is laid down on those substantive questions in this order.