TaxTMI 
TaxTMI 
2010 (5) TMI 544
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....nd the subsequent year 1997-98 has been settled up to appellate stage and the question involve in the present assessment year is the same as of those years now it is not open for this court to enter into illegality committed by the appellate authority or Tribunal and the appeal is not maintainable ?" Facts 2. The dispute relates to the assessment year 1996-97. The assessee filed her return of income on August 13, 1996, disclosing net loss of Rs. 17,38,311. Notice under section 143(2) of the Income-tax Act, 1961, (in short "the Act') was issued on October 8, 1996. Notice under section 142(1) of the Act was issued on October 31, 1996. These notices were served upon the respondent assessee on October 10, 1996 and October 11, 1996 respectively. 3. After service of notice aforesaid, the assessee filed a revised return on March 31, 1998, reducing the loss to the tune of Rs. 30,56,670. In consequence thereof, notice under section 143(1)(a) was sent for service on September 23, 1998, followed by a notice dated September 26, 1996 under section 142(1) of the Act which was served on the assessee on October 30, 1998. 4. The respondent-assessee claims to ....
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....l relates to disallowing the interest claimed on the loan taken from Sahara India Mutual Benefit Co. Limited (in short, SIMBCL). The assessee has taken the following loan from SIMBCL : 1-4-1995 Opening balance Rs. 20,712,923.47 9-8-1995 Amount paid Rs.1,150,000.00 4-12-1995 Amount paid Rs. 3,520,000.00 9-12-1995 Amount paid Rs. 499,000.00 22-12-1995 Amount paid Rs. 20,000,000.00 31-3-1996 Interest Rs. 8,446,885.00 Rs. 54,328,808.47 The assessee invested the amount received aforesaid as under : 9-8-1995 Rs. 11,50,000 Investment in Chhabi Advertising (Firm) 4-12-1995 Rs. 35,20,000 Investment in Sahara India Marketing (Firm) 9-12-1995 Rs. 4,99,000 Investment in Shares of Sahara India Electrical Limited 22-12-1995 Rs. 1,00,00,000 Investment in shares of Sahara India Housing Limited 23-12-1995 Rs. 1,00,00,000 Investment in share of Sahara India International Corpn. Ltd. 9. Before the Assessing Officer, the assessee claimed interest on the aforesaid loan pertaining to the respective year. The Assessing Officer has observed that the figure for the claim....
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....o the manner in which the principal or interest accrued thereon are to be repaid. Virtually, in the absence of any terms and conditions entered into between parties or imposed by the company of the firm, the repayment of loan has been left at the sweet will of the loanee, i.e. the assessee Smt. Swapna Roy. There appears to be no specific pinpointed stipulation in the terms and conditions of the loan requiring to pay the same in specified period. The sanction letter obtained in the case of Ishtiaq Ahmad, one of the recipients of such loan vaguely mentions that the loan shall be repayable in five years. Apart from the above, it has been noted by the Assessing Officer that the total amount of debt of the assessee at the face value much exceeds the value of assets. If the amount of interest accrued on the loan is included in the amount of debt, the total liability to repay the interest is not supported by any commensurate asset or income. 14. The Assessing Officer has noted that the companies in whose shares the loan has been invested are the companies belonging to the Sahara group and they have never declared any dividend nor is there any possibility of their declaring any d....
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....ear future, those companies are not likely to declare any dividend keeping in view past 20 years history of the group. 18. Keeping in view the fact that there is no possibility of income of any dividend in future and not even a penny has ever been earned by the assessee from the shares held in the past so far, the amount in question cannot be treated as expense towards interest on loan was allowed or expended wholly and exclusively for the purpose of making or earning income for dividend in view of the provisions contained in section 57(iii) of the Act. The Assessing Officer observed that the reference of making and earning income under section 57(iii) of the Act should be construed as reference to real and feasible income. The Assessing Officer observed that the expenses incurred for the purpose of earning imaginary or hypothetical dividend in future is not substantiated by placing any material on record. Hence not allowable under section 57(iii) of the Act. It has been observed that to attract section 57(iii) of the Act, it is necessary that the possibility of income coming from investment. The possibility should be real and not hypothetical. The word "expended" wholly ....
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....has observed that only difference is the reliance placed by the Assessing Officer on the judgment of the Madras High Court reported in CIT v. Sujani Textiles (P) Limited [1985] 151 ITR 653 which does not apply. Disallowance of the appellant's claim amounting to Rs. 21,30,827 in respect of interest paid on borrowed capital for the purposes of investment in the share of companies was set aside by the Commissioner of Income- tax (Appeals) and allowed under section 57(iii) of the Act. 22. The Revenue as well as the assessee preferred an appeal before the Tribunal. Before the Tribunal, the Revenue raised the plea that the Commissioner of Income-tax (Appeals) was not justified in deleting the addition of Rs. 21,30,827. However, the Tribunal also relying upon its order dated March 12, 2004 for the assessment year 1994-95 had dismissed the appeal of the Revenue as well as the cross-objections. 23. Feeling aggrieved, the Revenue preferred the present appeal with the submission that the whole purpose of taking loans from a company of the Sahara group and investing the same in the shares of the closely held companies of the same group was to create an artificial interest l....
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....look into the return filed, assessments made and the financial status of the companies. The information supplied has not been disputed by the learned counsel for the respondents in the form of chart which is reproduced as under : Assessment year Returned income (Rs.) Assessed income (Rs.) 1994-95 (-) 9,89,630 (-)9,89,630 1995-96 (-) 1,46,181 (-)99,930 1996-97 (-) 41,42,284 (-)40,07,280 1997-98 (-) 67,99,970 (-) 83,10,164 (Original) (Revised) (-)71,83,640 1998-99 (-) 4,11,35,025 (-) 8,60,80,825 (Original) (Revised) (-) 2,81,10,450 Name of the company-Ms. Chabbi Advertising Assessment year Returned income (Rs.) Assessed income (Rs.) 1992-93 1,780 20,930 1993-94 5980 1,71,947 1994-95 5,274 2,83,220 1995-96 6,280 3,87,660 1996-97 6,670 20,41,090 1997-98 4,75,380 4,75,380 1998-99 2,46,637 3,76,261 Name of....
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....enue has not provided necessary information with regard to the assessment year 1996-97. The Delhi High Court dismissed the appeal with regard to the assessment year 1997-98 on the ground that the Revenue had followed own order of the assessment year 1996-97. The appeal was dismissed by the Delhi High Court without framing any substantial question of law in limine. The hon'ble Supreme court dismissed the appeal without discussing the controversy involved. 30. It has also been stated that the observation of the assessing authority at least with regard to two companies, namely Sahara India Limited and Sahara India Mask Communication is based on unfounded facts as no investment was done by the assessee in these two firms. Consistency 31. Learned counsel for the respondent has vehemently argued that the Tribunal has rightly not interfered with the order of the appellate authority to maintain the consistency. It has not been disputed that every assessment year is independent and assessment can be made on the basis of the material on record. However, relying upon the various pronouncements of the High Court and the hon'ble Supreme Court, it has been submitted....
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....have allowed that position to be sustained, it would not be appropriate to allow the position to be changed in subsequent year. For the sake of consistency, the same view should be continued to prevail in subsequent years unless there is some material change in the facts. 35. In Director of Income-tax v. Lovely Bal Shiksha Parishad [2004] 266 ITR 349 (Delhi), the same view has been reiterated. 36. In the case reported in Radhasoami Satsang v. CIT [1992] 193 ITR 321 their Lordships of the hon'ble Supreme Court while dealing with the principle of consistency and the principle of res judicata observed that unless there is a material change justifying the Revenue to take a different view of the matter, it shall not be proper for the Revenue to reopen and take contrary view. To reproduce the relevant portion from the judgment of Radhasoami Satsang [1992] 193 ITR 321, to quote (page 329) : " We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the differen....
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.... the previous year would not estop or operate as res judicata for subsequent year. [vide Maharana Mills P. Ltd. v. ITO [1959] 36 ITR 350 (SC) ; [1959] Supp (2) SCR 547 ; AIR 1959 SC 881, Raja Bahadur Visheshwar Singh v. CIT [1961] 41 ITR 685 (SC) ; [1961] 3 SCR 287, Instalment Supply P. Ltd. v. Union of India [1961] 12 STC 489 ; [1962] 2 SCR 644, New Jehangir Vakil Mills Co. Ltd. v. CIT [1963] 49 ITR (SC) 137 ; [1964] 2 SCR 971, Amalga- mated Coalfields Ltd. v. Janapada Sabha, Chhindwara [1963] Supp 1 SCR 172, Devilal Modi v. STO [1965] 16 STC 303 ; [1965] 1 SCR 686, Joint Family of Udayan Chinubhai v. CIT [1967] 63 ITR 416 (SC) ; [1967] 1 SCR 913, M. M. Ipoh v. CIT [1968] 67 ITR 106 (SC) ; [1968] 1 SCR 65, Kapurchand Shrimal v. TRO [1969] 72 ITR 623 (SC) ; [1969] 1 SCR 691, CIT v. Durga Prasad More [1971] 82 ITR 540 ; AIR 1971 SC 2439, Radhasoami Satsang [1992] 193 ITR 321 ; [1992] 1 SCC 659 ; AIR 1992 SC 377, Society of Medical Officers of Health v. Hope (Valuation Officer) [1960] AC 55 and Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council [1925] All ER 675 ; [1926] AC 94 ; 95 LJPC 33 ; Turner on Res Judicata, 2nd Edn., para 219, page 193]. 39. In the same judg....
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.... view the fact reasons assigned by the Assessing Officer has not been taken into account by the Tribunal. 43. The judgment referred to hereinabove shows that it is always open for the Assessing Officer to depart from the earlier practice on substantial justifiable grounds. 44. Apart from the tax effect, the order passed by the Assessing Officer shows that the interest claimed by the assessee on the loan taken in the relevant year varies. The gap between the original return and the revised return coupled with the subsequent statement filed by the assessee is enormous (supra). This fact shows that the assessee has not acted bona fidely in submitting a revised return. The revised statement filed by the assessee is an incident of changing of stand with regard to income. 45. In case an assessee changes his or her stand repeatedly and does not come with the clean hands, then it shall be sufficient to depart from the earlier practice and the principle of consistency shall not come in the way to assess the income on the basis of the material on record. 46. Substantial amount has been invested by the assessee as is evident from the chart (supra) in th....
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.... vested in it. On this score also, right of the assessee seems to be not protected by the principle of consistency. Reasoned order 50. Their Lordships of the hon'ble Supreme Court in the case reported in Assistant Commissioner Commercial Tax Department, Works Contract and Leasing, Kota v. Shukla and Brothers [2010] 30 VST 114 (SC) ; [2010] 4 JT SC 35 has held that it shall be obligatory on the part of the judicial or quasi-judicial authority to pass a reasoned order while exercising statutory jurisdiction. 51. The aforesaid view to pass a reasoned order by the authorities which includes quasi-judicial authorities is consistently reiterated by the hon'ble Supreme Court in earlier judgments. It has been held by their Lordships that the authorities have to record reasons, otherwise it may become a tool for harassment vide K. R. Deb v. Collector of Central Excise, AIR 1971 SC 1447 ; State of Assam v. J. N. Roy Biswas, AIR 1975 SC 2277 ; State of Punjab v. Kashmir Singh [1997] SCC [L&S] 88 ; Union of India v. P. Thayagarajan, AIR 1999 SC 449 and Union of India v. K. D. Pandey [2002] 10 SCC 471. 52. In view of the above, the Tribunal should have de....
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....rth, and pressed by the parties for decision of the appellate court . . . While reversing a finding of fact the appellate court must come into close quarters with the reasoning assigned by the trial court and then assign its own reasons for arriving at a dif- ferent finding. This would satisfy the court hearing a further appeal that the first appellate court had discharged the duty expected of it." 58. The aforesaid proposition of law has been reiterated in a case, reported in Madhukar v. Sangram, AIR 2001 SC 2171. 59. In an earlier judgment, reported in Punjab National Bank v. Kunj Behari Misra, AIR 1998 SC 2713, the hon'ble Supreme Court after considering a catena of earlier judgments held that in case the disciplinary authority disagrees with the conclusion reached by the enquiry officer, then while recording his own finding, it shall be obligatory to deal with the reason given by the enquiry officer. On the same analogy, in case the appellate authority differs with the finding recorded by the Assessing Officer, then each and every issue, grounds and circumstances dealt with by the Assessing Officer must be considered and difference of opinion must be support....
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....is rendered and while applying decision to a later case, the court must carefully try to ascertain the true principle laid down by the decision of the court. The court should not place reliance upon the decision without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed as it has to be ascertained by analysing all the material facts and issue involved in the case and argued by both sides. The judgment has to be read with reference to and in context with a particular statutory provisions interpreted by the court, as the court has to examine as to what principle of law has been decided and the decision cannot be relied upon in support of a proposition that it did not decide (vide H. H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India, AIR 1971 SC 530, Amar Nath Om Parkash v. State of Punjab, AIR 1985 SC 218, Rajpur Ruda Meha v. State of Gujarat, AIR 1980 SC 1707, CIT v. Sun Engineering Works P. Limited [1992] 198 ITR 297 (SC), Sarva Shramik Sangh, Bombay v. Indian Hume Pipe Co. Limited [1993] 2 SCC 386 and Makhija Construction and Enggr. Pvt. Limited v. Indore Development Authority, AIR 2005 SC....
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....he interest received for the purpose of claiming benefit under section 57(iii). It should be seen whether the amount has been laid out or expended wholly and exclusively for the purpose of earning the income. Unless this test is satisfied the benefit under section 57(iii) shall not be available. 73. The hon'ble Supreme Court in a leading case, reported in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 held that it is not necessary that any income should, in fact, have been earned as a result of expenditure. It is also not necessary to show that the expenditure was profitable one or that, in fact, any profit was earned. 74. Their Lordships held that merely because there is no profit the assessee's right to claim the benefit under section 57(iii) of the Act may not be thrown out. However, a close reading of the judgment of Rajendra Prasad Moody [1978] 115 ITR 519 shows that the hon'ble Supreme court observed that the expenditure should be proper and bona fide. It shall be appropriate to reproduce the relevant portion of the judgment of Rajendra Prasad Moody [1978] 115 ITR 519, 523 : "We fail to appreciate how expenditure which is otherwise a proper expenditure....
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....r under section 36(1)(iii) or under section 57(iii). The view taken by the Madras High Court seems to be correct and we are in agreement to it. 78. In a case reported in McDowell and Co. Limited v. CTO [1985] 154 ITR 148 the hon'ble Supreme Court took note of the fact that the consequences of tax avoidance by an assessee is enormous. The black money flowing in the market discourage the honest taxpayers to file return and cause loss to the exchequer. 79. It has been further observed that (supra), in a civilized society, the evasion of tax by dishonest taxpayers should be dealt with firmly and proper way to construe a taxing statute while considering a device to avoid tax is to be construed literally and strictly to preserve and check the tax avoidance. To reproduce the relevant portion (page 160): "We think that the time has come for us to depart from the Westminster principle as emphatically as the British courts have done and to dissociate ourselves from the observations of Shah J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantal loss of much needed public revenue, particularly in a welfa....
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....e from other sources". It shall be appropriate to reproduce from the judgment of Amritaben R. Shah [1999] 238 ITR 777 (Bom) (page 780) : "The question which arises in this case is : whether the expenditure incurred for borrowing money for purchasing shares for acquiring controlling interest in a company can be held to be an expenditure incurred wholly or exclusively for earning income from dividend. There is no dispute in this case that the shares in question were purchased by the assessee for the purpose of acquiring controlling interest in the company and not for earning dividend. That being so, the expenditure incurred by way of interest on the loan taken by the assessee for the said purpose cannot be held to be an expenditure incurred wholly and exclusively for the purpose of earning income by way of dividends. From the nature of transaction, it is clear that the expenditure was not for the purpose of earning income by way of dividends but for the purpose of acquiring controlling interest in the company and, therefore, it would not be allowable as a deduction under section 57(iii) of the Act. 81. In another case reported in CIT v. Malayalam Plantations Ltd. ....
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....rn profit. The decision taken under the circumstances while making an investment should reveal that there was likelihood to earn profit. The investment or expenditure made in a company where there is no hope of earning profit shall not be covered by section 57(iii) of the Act (laid out or expended wholly and exclusively for the purpose of making or earning such income). 86. After filing original return the petitioner has submitted a revised return and statements giving out different figures. This act on the part of the assessee reveals that she has not acted bona fide and tried to avail of the benefit of section 57(iii) of the Act by changing her stand. Neither the appellate authority nor the Tribunal has considered this aspect of the matter with regard to bona fide of the assessee. 87. Though it is not unfair to borrow money or take loan from one concern and invest the same in other concern for the purpose of profit or income but while doing so, the assessee must act bona fide with primary motive to earn profit. The amount taken on loan from one concern and investment in other concern running in loss having fragile financial status cannot be treated as bona fid....
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....of Andhra Pradesh [2006] 2 SCC 670, their Lordships of the hon'ble Supreme Court affirmed the principle of construction and held that when the language of the statute is clear and unambiguous court cannot make any addition or subtraction of words 93. In M. C. D. v. Qimat Rai Gupta, AIR 2007 SC 2742 and Mohan v. State of Maharashtra, AIR 2007 SC 2625, their Lordships of the hon'ble Supreme Court ruled that the court should not add or delete the words of a statute. Casus omisus should not be supplied when the language of the statute is clear and unambiguous. 94. In Karnataka State Financial Corporation v. N. Narasimahaiah [2008] 143 Comp Cas 176 ; AIR 2008 SC 1797, the hon' ble Supreme Court held that while construing a statute it cannot be extended to a situation not contemplated thereby. The entire statute must be first read as a whole then section by section, phrase by phrase and word by word. While discharging statutory obligation with regard to take action against a person in a particular manner that should be done in the same manner. Interpretation of a statute should not depend upon contingency but it should be interpreted from its own words and language us....
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....n Saloman v. Saloman and Co. [1897] AC 22 case has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can, and often do, draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The Legislature has shown the way with group accounts and the rest. And the courts should follow suit . . ." 102. One of the most important circumstances in which the veil has been lifted is the cases of fraud or improper conduct of the promoters. Where dummy companies were incorporated by a promoter and his family members to conceal profits and avoid tax liability, the separate entity of the company has been ignored by looking through the veil and identifying those individuals who have deviced such method for their own benefits. 103. In Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC) ; AIR 1969 SC 932 ; [1969] (1) SCR 988 it was found that three brothers who were partners in the assessee-firm were carrying on the managing agency in a dominant capacity in the guise of a limited company. The court held that th....
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....oncern substan tially invested in those sister concerns who are running in loss Amount invested Rs. 14,62,20,000 Assessee U. K. Bose, Employee of Sahara India Airlines Assessment year 1995-96 [ITA No. 20 of 2005] Loan taken from one sister concern substan tially invested in those sister concerns who are running in loss Amount invested Rs. 24,87,76,396 Assessee Ishtiaq Ahmad, Employee of Sahara India Assessment year 1996-97 [ITA No. 31 of 2005] Loan taken from one sister concern substan tially invested in those sister concerns who are running in loss Amount invested Rs. 1,46,22,000 Total Rs. 81,98,60,937.47 107. It is strange that the salary of Ishtiaq Ahmad and U. K. Bose is of few lakhs, loan sanctioned without any guarantee and chance of return is remote and the investment of substantial amount is made in such sister firms which lacks financial backbone with remote chance to earn income. 108. From the discussion hereinabove and keeping in view the fact that the assessee in question collectively along with other employees borrowed the fund from sister concerns and invested in other sister concerns majority of which lacks f....