TaxTMI 
TaxTMI 
2014 (9) TMI 389
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....notice under section 143(2), is based on misconception /non-appreciation of the provisions of law as came to be interpreted in large number of case laws and on a due consideration of correct position of law, it deserves to be held that notice under section 143(2) not being issued in accordance with the provisions of law, the assessment order dated 31.12.2009 captioned as order under section 143(3) is wholly without jurisdiction." 3. It was submitted by Learned A.R. of the assessee that in the present case, the case was selected for scrutiny as per computer selection and there was no application of mind by the Assessing Officer as required u/s 143(2)(i) of the Act and hence, the notice issued by the Assessing Officer u/s 143(2) is wholly without jurisdiction. In support of this contention, reliance was placed on the following judicial pronouncements: (i) Commissioner of Income-tax Vs Rajeev Sharma [2011] 336 ITR 678 (All) (ii) Commissioner of Income-tax Vs Sunderlal (Late) [1974] 96 ITR 310 (All) (iii) Sirpur Paper Mill Ltd. Vs Commissioner of Wealth-tax [1970] 77 ITR 6 (SC) (iv) Income-tax Officer Vs Eastern Scales (Pvt.) Ltd. [1978] 115 ITR 323 (Cal) (v) Gordhand....
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....was held that issuance of notice u/s 143(2) is mandatory and omission on the part of the Assessing Authority to issue notice u/s 143(2) cannot be a procedural irregularity and the same is not curable. In the present case, it is not the case of the assessee that the notice u/s 143(2) was not issued and served on the assessee. This judgment is not rendering any help to the assessee. 5.2 The next judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Allahabad High Court rendered in the case of Sunderlal (Late) (supra). In this case, the dispute before Hon'ble Allahabad High Court was that as to whether CIT should give reasons for passing order of revision. In that case, the facts were that the CIT had authorized for filing of appeal against the order of AAC for assessment year 1960-61 and thereafter, he initiated revision proceedings u/s 33B of Indian Income Tax Act, 1922 relying solely on the order of AAC. It was held in that case that having authorized to file the appeal against the order of AAC for the same assessment year, it cannot be accepted that the CIT was having reasons that the order of the Assessing Officer is erroneous and prejudicial to the....
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.... In the present case, it is not the case of the assessee that the Assessing Officer has acted in accordance with any such specific direction of the superior officer that the case of the assessee must be elected for scrutiny and therefore, this judgment is also not applicable in the present case. 5.5 The next judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Bombay High Court rendered in the case of Gordhandas Desai (supra). In this case, it was held that the Assessing Officer should pass order for rectification ignoring the decision of the Commissioner and the further letters of the CBDT and the Govt. of India which must not influence his determination. There is no quarrel on this aspect but in the present case, there is no such dispute that the decision of the Assessing Officer is on the direction of any other authority. This judgment is also not rendering any help to the assessee in the present case. 5.6 The next judgment cited by Learned A.R. of the assessee is the judgment of Hon'ble Gujarat High Court rendered in the case of Gujarat Gas Co. Ltd. (supra). In this case, it was held that the proceedings before the Assessing Officer are judici....
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....ave also seen that the case was selected for scrutiny by Assessing Officer although he had taken help of computer and it cannot be said that the action of the Assessing Officer is not valid. 6.1 Now we examine the issue from a different angle. This has to be admitted that the entire juris prudence in respect of tax administration such as principle of natural justice etc. are with the sole object of ensuring that the tax payer is not unduly harassed by the tax department having almighty power of state. In order to make tax administration and collection friendly to tax payer, some steps have been taken by the tax administration/Government although much work is still to be done in this regard. Some of these steps are that it is made a rule that tax returns can be filed in a paper less manner in order to improve voluntary compliance by the tax payer and also to reduce the burden of filing voluminous documents along with the tax return. This is a big relief to the tax payer but this has to be ensured that there are some deterring measures so that no undue advantage is taken by any tax payer of this liberal policy of the Government. Even these deterring measures are to be such that th....
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....neral manner for the assessees all over the country, it cannot be said that such guideline is interfering with the independent decision of the Assessing Officer for deciding the cases to be selected for scrutiny. If this view is taken then the departmental administration will be forced to adopt old system of selecting almost all cases for scrutiny which was causing very undue harassment to all the tax payers and wastage of the energy and efforts of the Department also. In the present system, the thrust is on voluntary compliance of the tax payer and by ensuring that some deterring measures are taken that too in a taxpayer friendly manner of promoting the assessee to file returns without attaching any paper and then selecting only very small number of cases for scrutiny with the aid of computer and certain generally formed guidelines. In our considered opinion, it cannot be said that the decision of the Assessing Officer to select the case for scrutiny in this system is not an independent decision of the Assessing Officer. From this angle also, we came to the same conclusion that various contentions raised by the assessee are devoid of any merit. Accordingly, these grounds are rejec....
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....972) 84 ITR 273, wherein their lordships have observed and held as under:- "The fact that in the earlier proceedings the Tribunal took a different view of those deeds is not a conclusive circumstance. The decision of the Tribunal reached during those proceedings does not operate as res-judicata. As seen earlier there was a great deal more evidence before the Tribunal during the present proceedings, relating to those gift deeds." 9. Learned D.R. of the Revenue supported the order of learned CIT(A). 10. We have considered the rival submissions. We find that it is admitted by Learned A.R. of the assessee also that this issue is squarely covered against the assessee by various Tribunal decisions in assessee's own case. In this regard, we find that no material has been brought on record by the Learned A.R. of the assessee to convince us for taking a different view in the present year. Therefore, we do not find any reason to interfere in the order of CIT(A) because the same is in line with the earlier Tribunal decision. 11. Ground Nos. 4, 5 & 6 are inter connected, which read as under: "4. BECAUSE the "CIT(A)" has erred in law and on facts in upholding the disallowance....
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....any such paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid." 11. It is very significant to mention here that it is an actual payment physically made to LIQ and it is not the provision made in the books of account which alone could be treated to be hit by the provision of section 40A(7). The said sub-section as has been reproduced in Para 9 above is preferable to a provision and not to an expenditure actually made. Therefore, it is pleaded that the premium paid to LIC for the purposes of making payment of gratuity is not hit by section 40A(7), but admissibility of the same as deduction is governed by the omnibus section 37(1) of the Act which reads as under:- General. 37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income charg....
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....profession or vocation. Even assuming that the motive behind the payment of retrenchment compensation was that the terms of the agreement of the sale of shares should be satisfied, as long as the amount had been laid out or expended wholly and exclusively for the purpose of the business of the assessee, there appears to be no good reason for denying the benefit of s. 10(2) (xv) of the Act to the company if there is no other impediment to do so." 13. In short the appellant's contention is that, even if it is held that Group Gratuity Scheme launched by LIC is not formally approved in the instant case by the jurisdictional Commissioner of Income Tax, although not admitted by the appellant in view of the submissions made in Para 11 (a) hereinfore, it is pleaded that sum in question should be allowed as a legitimate outgoing incidental to carrying on of business and the same is admissible as deduction in view of the principles laid down by Hon'ble Supreme Court in the case of Sassoon J. David and Co. Pvt. Ltd. (supra). 14. Wholly without prejudice, to the submissions so made, it is pleaded that actual payment of gratuity made to the retiring employees should be allowed as ....
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....ision of Hon'ble apex court in the case of CIT vs. Raja Bahadur Kamakhaya Narayan Singh reported in 16 ITR 325 as also by various other decisions of the Hon'ble apex court, as have been referred to and relied upon by the "CIT(A)" in his appellate order for the assessment years 2005-06 and 2006-07 (as referred to in the appellate order which is subject matter of present appeal) as the same had been delivered in an altogether different context and on the facts dissimilar to that of the "appellant". 10. BECAUSE the direction to recompute the "eligible profit", after reducing the same by receipts "as referred to in ground no. 7 hereinfore" amounted to enhancement of income and no notice for enhancement having been given by the "CIT(A)", the same is wholly erroneous." 16. It was submitted by Learned A.R. of the assessee that on this issue, Para No. 15 to 37 of the written submissions filed by assessee are relevant for deciding this issue and therefore, these paras are reproduced below: "15. Deduction under section 80IA, Rs. 21,23,81,785/- (Grounds no.7, 8, 9 and 10): The Ld. Assessing Officer has discussed this issue on pages 2 (later part), 3, 4, and 5 (earlier part). ....
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....ify for being included in the quantum of eligible profit. The Ld. CIT(A) has also directed to consider the addition towards premia income (5% of the total collection made during the year as referred in Para 8 hereinfore) upheld by him as a part of "eligible profit" for the purposes of deduction under section 80IA of the Act, relevant observation of the appellate order is as under; "6.2.1. ......... In those orders, the Ld. CIT(A) had, however, allowed certain items of income (which had not been considered by the AO) to be considered as income "derived" from the eligible business. As the nature of the income remains the same in this year too, the AO is directed to follow my directions/findings given in my appellate orders for A. Y. 2005-06 & 2006-07 on this issue. Before parting with the issue, I hereby direct the A.O. to consider the 5% premium (corresponding to these three industrial parks) which was added by the AO to the income of the assessee and which has been confirmed by me at ground No. 1 & 2 of this order as income derived from the eligible business and to consider the same for deduction u/s 80IA of the Act." Thus, the disallowance of Rs. 8,54,09,491/- as has been....
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....s made an enhancement. To elaborate, it is submitted that as far as component of interest forming part of the "profits and gains" derived from the "undertaking"/ "enterprise" as per details given in Para 16 above, the Assessing Officer held the same to be eligible for deduction under section 80IA of the Act and there was no dispute in the appeal so far as appellant's eligibility for deduction on that score was concerned. The CIT(A) has held the same as "ineligible" for deduction under section 80IA, which amounts to enhancement of income. For the reason that such an enhancement has been made without issuing any show cause notice and/or giving any opportunity of being heard on this issue, in any other manner, the same deserves to be knocked off and the appellant's claim for deduction on interest income deserves to be restored. 22. Without causing in any manner any prejudice to the submissions made in the foregoing paragraphs (challenging the enhancement made by the Id. First Appellate Authority) it is submitted that the view taken by the Ld. CIT(A) is wholly inconsistent with the facts of the instant case and law applicable thereof as have been discussed in the written sub....
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.... equal half yearly installments each of which will be due for payment on 1 st day of January and 1st day of July each year. The first installment will fall due for payment on 01/01/2003. The second and subsequent installments of premium will fall due on 1 st day of January and 1st day of July each year. An interest @ 15% per annum shall be charged on the outstanding (balance) premium with effect from the date of allotment and will be payable along with installment of premium as stipulated in clause 3 above subject to a rebate of 2.00% per annum on payment on or before the prescribed date and if there are no arrears or dues. The amount of the balance premium and the interest due on it from time to time shall remain first charge on the land and the building and machinery erected thereon till it is (they are) paid in full". (P.B. 211& 212) 23. Further Para 9 & 10 of the said submission is also relevant, the same reads as under:- "9. As per clause 5 as reproduced above, the installment plan forming part of the letter of allotment is also reproduced hereunder :- Installment no. Due date of Interest Premium Total amount No. installment due (Rs.) due (Rs.) (Rs.) 1. ....
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....due, if any, and thereafter towards the premium due, if any and the balance, if any, shall be appropriated towards the lease rent notwithstanding any directions/request of the Lessee to the contrary." (P.B. 212-213) 24. Thus, as an integral and inseparable part of the business activities carried on by the appellant, which involved realization of premia in lieu of its business activity of allotment of industrial sites (along with infrastructure facilities) developed by it, the appellant has realized interest on so much of the premia which has been allowed to be paid in installments, by the allottees. 25. From the discussions made in the foregoing paragraphs, it is amply borne out that interest earned by the appellant is the part of 'profits and gains' derived from the "undertaking"/ "enterprise", namely Tronica City project, EPIP of Greater Noida and EPIP, Agra (on which exemption under section 80-IA is being claimed) as per particulars given in Para 15 hereinabove. The receipt/accruals in the form of interest, "sprung" directly from the activities carried on by the "undertaking"/ "enterprise". Therefore, the same should be treated to have been derived from the "first ....
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....from the incentive schemes enacted by the Government of India or from section 75 of the Customs Act, 1962. Hence, according to the Department, in the present case, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, the Department places heavy reliance on the judgment of this court in Sterling Foods (1999) 237 ITR 579. Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaken, we need to trace the source of the profits to manufacture, (see CIT v. Kirloskar Oil Engines Ltd. reported in (1986) 157ITR 762). Continuing our analysis of section 80-IA/80-IB it may be mentioned that sub-section (13) of section 80-IB provides for applicability of the provisions of sub-section (5) and subsections (7) to (12) of section 80-IA, so far as may be, applicable to the eligible business under section 80-IB. Therefore, at the outset, we stated that one needs to read sections 80-1, 80-IA and 80-IB as having a common scheme. On a perusal of sub-section (5) of section 80-IA, it is noticed that it provides for the manner of computation of profits of an eligible business. Accordingly, such profit....
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....in (2012) 342 ITR 49 the Hon'ble Apex Court has advanced the 'theory' further, by holding that when a receipt has got a direct nexus with the eligible business, such "receipt" should be held to be the income derived from such business. This is evident out from the overall background of the case of Topman Exports as per discussion as appearing in the paragraphs that follows. 28. Owing to sharp cleavage of judicial opinion on the issue as to "Whether the entire amount received on sale of DEPB entitlements represents profit chargeable under section 28(iiib) of the Income-tax Act or the profit referred to therein requires any artificial cost to be interpolated?", a Special Bench of the ITAT, Bombay was constituted in the cases of Topman Exports Vs. ITO, Kalpataru Colours & Chemicals Vs. Additional CIT and Others. It was undisputed from both the sides that DEPB is a "cash assistance" allowed to exporters under Export Promotion Scheme framed by the Government. However, the parties differed on the issue of taxability of sale proceeds of DEPB. The assessee's contention was DEPB is directly connected with exports and accordingly taxable under clause (iiib) of section 28 o....
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....in the scheme of this section inasmuch as the DEPB has only a local market from the point of view of its sale. When DEPB is sold, the sale proceeds will form part of total turnover but not export turnover for the reason that the sale proceeds are not received in or brought into India in convertible foreign exchange. In that situation the sale proceeds of DEPB will be included in the total turnover but not the export turnover and resultantly the deduction to the extent of profit on sale of DEPB will be automatically denied when the profits of business are proportionately reduced in the ratio of export turnover to total turnover." (Emphasis added) 29. The Revenue felt aggrieved by the said judgment passed by special bench of the ITAT and preferred an appeal under section 260A before the Hon'ble Bombay High Court. The questions formulated were as under:- "(a) Whether the Tribunal is justified in holding that the entire amount received on the sale of the duty entitlement passbook does not represent profits chargeable under section 28(Hid) of the Income-tax Act, 1961, and that the face value of the duty entitlement passbook shall be deducted from the sale proceeds? (b) Whet....
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....g customs duty on imported goods makes a profit by transferring the DEPB, would form a separate class and seeks to tax the receipts on the transfer of the DEPB would form a separate class and seeks to tax the receipts on the transfer of the DEPB credit and make a profit cannot be placed on part with those exporters who utilize the credit for paying the customs duty on the imported goods; (iv) the fact that Parliament did not consider the amount received on the transfer of the DEPB to be export profit cannot be a ground to hold that the receipts on the transfer of DEPB credit are not business profits. Counsel appearing on behalf of the assessee submits that the entire amount received on the transfer of the DEPB credit is business profit, but it was contended that what is included in section 28(iiid) is the amount received on the transfer of the DEPB credit in excess of the face value of the DEPB and the amount received to the extent of the face value of the DEPB would be covered under section 28(iiib). There is no merit in this contention because, (a) the DEPB credit was not in existence when section 28(iiib) was inserted by the Finance Act of 1990. DEPB credit was introduced with e....
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....granting the DEPB to an exporter is to neutralize the incidence of custom duties which has been incurred on the import component of the export product and this neutralization is achieved by grant of duty credit of the amount specified in the DEPB Scheme. They submitted that the Tribunal, therefore, was right in coming to the conclusion that there was a direct relation between the DEPB and the cost of inputs imported for manufacture of the export product." (b) Argument on behalf of the Revenue : "Learned counsel for the Revenue, on the other hand, supported the impugned judgment and orders of the High Court and submitted that profit on transfer of the DEPB would represent the entire sale value realized by the assessee on transfer of the DEPB. He submitted that the High Court has rightly held that the assessee does not incur any cost in obtaining the DEPB. He argued that the DEPB is an export incentive granted by the Government under the DEPB Scheme and it has no direct relation with the cost of purchases made by the assessee and, therefore, the assessee is not entitled to deduct the face value of the DEPB from the sale proceeds for determining the profit arising on transfer of....
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....onnected with export business. Decision in the case of Meghalaya Steels Ltd. 35. The test of "first degree source" as has been laid down by the Hon'ble Apex Court in 'Liberty India' case to determine as to whether a particular receipt is the "income derived" from the undertaking/enterprise stand fully satisfied in the instant case, looking to the nature of receipt under the head "interest" as has been discussed at length hereinfore. The said rule of "first degree source" as has been laid down by the Hon'ble Apex Court in the case of 'Liberty India' has been specifically applied by the Hon'ble Gauhati High Court in the case of CIT vs. Meghalaya Steels Ltd. reported in (2013) 356 ITR 235, copy of which appear at pages 304 to 354 of the compilation already placed on record. The said judgment has been delivered by the Hon'ble Gauhati High Court, specifically in the context of computation of income under section 80IB and 80IC of the Act and is applicable in the appellant's case. 36. Other case laws on this issue as appearing in the compilation are listed herein below:- (i) CIT vs. Govinda Choudhury & Sons reported in (1993) 203 ITR 881 (SC....
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....he assessee company regarding development of infrastructure facility. At the best, it can be said that these receipts are in relation to this activity of the assessee company but it cannot be accepted that these receipts are derived from this activity of the assessee company regarding development of infrastructure facility. Therefore, these receipts are not eligible for deduction u/s 80IA. Various judgments cited by the learned AR in his written submissions are not applicable for this reason that these receipts are not income derived from the activity of the assessee company regarding development of infrastructure facility. Hence, in our considered opinion, no interference is called for in the order of CIT(A) on this issue. These grounds of the assessee are rejected. 20. Ground Nos. 11 & 12 of the appeal are also inter connected, which read as under: "11. BECAUSE the expenditure classified under the head "prior period expenses" accrued as a liability in the year under appeal and the same stood fully supported by relevant bills and vouchers and directions as aforesaid are wholly vitiated. 12. BECAUSE all such details as were necessary and relevant for the purposes of allowi....
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.... 142 of the PB) 39. Further, on the issue of accrual of expenses, although legitimate to prior period and admissibility thereof in the year under appeal, reliance is placed on the decision of Hon'ble Delhi High Court in the case of Krishak Bharati Cooperative Ltd. vs. CIT & Anr reported in (2013) 96 DTR (Del) 13, wherein their lordships have observe and held as under:- "Conclusion: When, by their letter dt. 20 th APRIL, 1988, the Government of India converted a part of their equity share capital amounting to Rs. 16 crores into a loan with retrospective effect: Rs. 6 crores from 26 th Dec., 1983 and Rs. 10 crores from 20th Jan., 1984, claim for deduction under section 36(l)(iii) was not allowable in asst, yrs. 1987-88 and 1988-89, liability having been accrued and crystalised after end of previous years ending on 30 th June, 1986 and 30th June, 1987 respectively." A copy of the said judgment is enclosed as Annexure - II hereto, (pages 34 to 42) 22. Learned D.R. of the Revenue supported the orders of the authorities below. 23. We have considered the rival submissions. In this regard, we find that this issue was decided by CIT(A) as per Para 7.2 & 7.2.1 of his order....
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....ciding this issue and therefore, these paras are reproduced below: "40. Ad hoc disallowance under section 14A (Ground no.13): It is a matter of record that dividend income has been earned from shares in which investment had been made by UPSIDC in earlier years (out of its equity and other surplus funds) as a part of its activities related to long term finance. No borrowed funds have been invested and looking to the nature of business carried on by the appellant, no other expenditure also was incurred or even required to be incurred in earning the dividend income. It is significant that there is no finding by the Assessing Officer that any expenditure had been incurred by the appellant, in earning the said income. 41. More over the income from dividend is Rs. 3,32,369/- only, whereas disallowance has been made for sum of Rs. 6,44,865/-, by applying Rule 8D. The Ld. CIT(A) has categorically held that the said rule was not applicable in this year (assessment year 2007-08), yet he has sustained an ad hoc disallowance of Rs. 1.00 lacs, which is wholly illegal, unsustainable both on facts as well as in law. A reference is also made, in this respect, to the decision of Hon'ble S....
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.... 8D was Rs. 5,90,760/- being 0.5% of average investment. As against this, CIT(A) has confirmed the disallowance of Rs. 1 lac out of administrative expenses and no disallowance has been confirmed out of interest expenditure for which, disallowance was made by the Assessing Officer as per Rule 8D. Considering all these facts, we do not find any reason to interfere in the order of CIT(A). Accordingly, this ground is rejected. 28. Ground Nos. 14 and 15 are also inter connected which read as under: "14. BECAUSE "CIT(A)" has erred in law and on facts in issuing "notice of enhancement" and in pursuance of such "notice of enhancement", holding that the "appellant" was not entitled to deduction under section 36(1)(viii) of the Act. 15. BECAUSE on the facts and circumstances of the case, the "appellant" was liable to be held and treated as a company engaged in the business of "providing long-term finance" as envisaged in section 36(1)(viii) of the Act and its claim for deduction there under (as had duly been allowed by the Assessing Officer while making scrutiny assessment) was deserved to be upheld and direction given by the CIT(A) for withdrawal of the same is wholly illegal." ....
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....hat even if it is accepted that allowing installment facility to the allottee of lease by the assessee company is giving loans and advances then also, this is not a long term finance as per clause (h) of explanation to section 36(1)(viii) because as per this explanation, long term advance has been defined as any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years. In the present case, the repayment is to be made in a period less than five years and therefore, this cannot be accepted as long term finance. Since only a sample copy of only one lease deed is made available to us, we accept that all other lease deeds are similar. In the light of these facts, we have no hesitation in holding that the assessee is not eligible for deduction u/s 36(1)(viii) of the Act. Accordingly, ground No. 14 & 15 are rejected. 32. In the result, the appeal of the assessee stands dismissed. (Order was pronounced in the open court on the date mentioned on the caption page) ============= Document 1 Particulars Net profit as per profit & loss account Add: (i)Depreciation....