K. Gopal
Advocate

1. Block assessment – Additions on the basis of regular books of accounts seized – Not justified

CIT vs. Sunita Aggarwal [2007] 213 CTR (Del) 62

The assessee’s premises were subject to search and seizure action. During the course of search some material was allegedly seized on the basis of which the assessing officer had made additions as undisclosed income of the assessee. On appeal the first appellate authority confirmed the Assessing Officer’s action.

Being aggrieved by the Order of the CIT(A) the assessee preferred an appeal to the Income-tax Appellate Tribunal. The Appellate Tribunal allowed the appeal filed by the assessee by observing that the Panchnama reveals that what was seized was the regular books of account of the assessee, which was available before the Assessing Officer at the time of making the regular assessment. Other than that “there is no other material or document found in the course of search which warranted embarking upon an enquiry by the AO in a block assessment.”

The Department being aggrieved by the Appellate Tribunal’s Order preferred an appeal before Hon’ble Delhi High Court under section 260A of the Act. The Hon’ble High Court upheld the order of the Appellate Tribunal with the observations that even after one year, the Revenue is unable to trace out the documents allegedly seized from the assessee’s premises on the basis of which impugned addition of undisclosed income has been made, the finding of fact arrived at by the Tribunal that no material other than the books of account of the assessee was seized cannot be doubted.

2. Penalty — No penalty can be levied when there is no positive assessed income on which any tax is payable

CIT vs. Moser baer India Ltd. [2007] 213 CTR (Del) 64

The assessee before the Hon’ble Delhi High Court was a limited company. The assessee has filed a return of income declaring a loss of Rs. 2,72,12,620/- after claiming deduction under sections 10A and 10B of the Act. During the course of assessment proceeding the assessee has revised its return of income by withdrawing its claim of deduction under section 10B of the Act since the assessee had incurred a loss. The Assessing Officer computed the total income of the assessee at Rs. Nil income and while completing the assessment observed that penalty proceedings under section 271(1)(c) of the Act have been initiated separately. After the quantum appeal of the assessee was dismissed by the Hon’ble CIT(A), the Assessing Officer has passed an order under section 271(1)(c) imposing a penalty of Rs. 4,43,28,488/-. On appeal the first appellate authority granted relief by observing that since the tax payable on the total income as assessee was nil, there was no positive income and therefore, the penalty cannot be levied. Being aggrieved the revenue preferred an appeal to the Income-tax Appellate Tribunal. The Hon’ble Tribunal dismissed the appeal of the revenue. Being aggrieved by the Order of the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Delhi High Court under section 260A of the Act. Hon’ble High Court upheld the order of the Appellate Tribunal and held that penalty under section 271(1)(c) could not be levied in the absence of positive assessed income.

3. Recovery – Attachment of immovable property – No Notice was issued under section 226(3)(I) before attachment of house property — Attachment not valid

Tax Recovery Officer & Anr. vs. S. Ramakrishnan [2007] 213 CTR (Mad) 222

The issue before the Hon’ble Madras High Court in this case was whether the attachment of the house property of the assessee without issue of notice under section 226(3)(i) of the I.T. Act is valid?. The tax recovery officer on failure of the assessee to pay a sum of Rs. 75,000/- passed an order of attachment of the house property of the assessee. On writ petition filed by the assessee before the Hon’ble High Court, learned single judge has allowed the writ petition of the assessee and held that the order of attachment having passed in violation of rules of natural justice.

Being aggrieved by the above order, the revenue filed an appeal before the Hon’ble Madras High Court. Hon’ble High Court upheld the order of single judge and held that TRO not having issued notice under section 226(3)(i) before attachment of house property, such attachment was invalid for violation of principles of natural justice.

4. Disallowance of Pf and Esic under section 43b is not justified if paid during the previous year

CIT. vs. Sabari Enterprises [2007] 213 CTR (Kar) 2269

The issue before the Hon’ble Karnataka High Court was allowability of deduction under section 43B of the Act. Hon’ble High Court has observed that clause (va) of s. 36(1) is inserted by Finance Act, w.e.f. 1st April, 1988. Explanation to this clause is read very carefully “Due date” has been explained stating that “means the date by which the assessee is required as an employer to credit contribution to the employee’s account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise”. Prior to the above clause was inserted to s. 36 giving statutory deductions of payment of tax under the provisions of the Act, s. 43B(b) was inserted by Finance Act, 1983 which came into force w.e.f. 1st April, 1984. Therefore, again the provision of s. 43B(b) clearly provides that notwithstanding anything contained in other provisions of the Act including s. 36(1), clause (va) even prior to the insertion of that clause the assessee is entitled to get statutory benefit of deduction of payment of tax from the Revenue. If that provision is read along with the first proviso of the said section which was inserted by Finance Act, 1987 which came into effect from 1st April, 1988, the letters numbered as clause (a) or clause (c) or clause (d) or clause (e) or clause (f) are omitted from the above proviso and, therefore, deduction towards the employer’s contribution paid can be claimed by the assessee. The Explanation to clause (va) of s. 36 further makes it very clear that the amount actually paid by the assessee on or before the due date applicable in this case at the time of submitting returns of income under s. 139 to the Revenue in respect of the previous year can be claimed by the assessee for deduction out of their gross income. The above said statutory provisions of the IT Act abundantly make it clear that, the contention urged on behalf of the Revenue that deduction from out of gross income for payment of tax at the time of submission of returns under s. 139 is permissible only if statutory liability of payment of PF or other contribution funds referred to in clause (b) of s. 43B are paid within the due date under the respective statutory enactments by the assessee is not tenable in law and, therefore, the same cannot be accepted.

5. Depreciation – When assessee does not claim depreciation it can not be forced upon him

CIT. vs. Aircel Limited [2008] 296 ITR 85 (Mad)

The assessee before the Hon’ble Madras High Court was a Limited Company engaged in the business of providing mobile telephone services. While filing the return of income for the assessment year 2000-01 the assessee had not claimed depreciation. However, the Learned Assessing Officer allowed the depreciation to the assessee by observing that allowing of deprecation is mandatory. On appeal the first appellate authority has accepted the contention of the assessee and allowed the appeal of the assessee.

Being aggrieved by the Order of the CIT(A), the revenue preferred an appeal to the Income-tax Appellate Tribunal. The Hon’ble Tribunal dismissed the appeal of the revenue and observed that depreciation cannot be forced upon the assessee and where assessee had not claimed depreciation, the same should not be granted.

Being aggrieved by the Order of the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Delhi High Court under section 260A of the Act. Hon’ble High Court upheld the order of the Appellate Tribunal and held that depreciation could not be forced upon the assessee, when the assessee did not wish to avail of the benefit for some reason, particularly when the provision for claim of depreciation was for the benefit of the assessee.

Editor’s Note: In the above decision the Madras High Court has followed the ratio laid down by the Hon’ble Supreme Court in the case of CIT vs. Mahendra Mills reported in [2000] 243 ITR 56 (SC) for assessment year 2000-01. In the relevant period section 34 was not on the statute book.

6. Interest on refund — Payable from the date refund had become payable till the date of actual payment

Garden Silk Mills Ltd. vs. DCIT [2008] 296 ITR 577 (Guj.)

The assessee before Hon’ble Gujarat High Court was a public limited company. The assessee during the assessment year 1988-89 had paid Rs. 1,62,98,750/- towards advance tax and further tax of Rs. 54,00,000/- making a total of Rs. 2,16,98,750/-. The Assessing Officer passed the Assessment Order u/s. 143(3) computing refund at Rs. 79,265/-. Consequent to the order of the CIT(A), the assessee became entitled to a further refund of Rs. 2,31,57,382/- which was paid to the assessee. The assessee was also paid interest under section 214 on the amount of Rs. 1,62,98,750/- paid towards advance tax for the period between 1-7-1988 and 25-9-1992, i.e. the date on which the assessee got the refund. However, in respect of amount of Rs. 54,00,000/- paid on 26-6-1988; i.e., after the financial year no interest was paid. The assessee made an application for grant of interest on the sum of Rs. 54,00,000/- under section 214/244A which was rejected. On an application before the Central Board of Direct Taxes, the Board rejected the application holding that interest under section 244(1A) was admissible only in respect of refund of excess tax payment, where such payments were made in pursuance of an order of assessment or penalty and the self assessment tax paid voluntarily by the assessee could not be categorized as payment in pursuance of an order of assessment or penalty and no interest was admissible on refund of self assessment tax.

Being aggrieved by the above order the assessee preferred Writ Petition before Hon’ble Gujarat High Court. Hon’ble High Court has partly allowed the writ petition and held that the assessee had paid the amount of Rs. 54,00,000/- after the financial year hence it is not in the nature of advance tax. However the assessee is entitled to interest on the amount of Rs. 54,00,000/- from February 1, 1991 to September 25, 1992; i.e., from the date of assessment order to the date of payment of refund under the provisions of section 244(1A).

7. Revision – Powers of Commissioner – No power to make short enquiries or to go into process of Assessment

CIT vs. Ganpat Ram Bishnoi [2008] 296 ITR 292 (Raj.)

The assessment for the assessment year 1993-94 in the case of the assessee was completed but the Commissioner invoked jurisdiction under section 263 cancelled the assessment and directed the Assessing Officer to make a fresh assessment after making enquiry into the genuineness of fresh deposits made in the capital accounts of the partners, the genuineness of cash credits in the names of 26 different persons, the genuineness of outstanding liability in the names of various persons and also after examining whether there was any acceptance or repayment of loans or deposits of Rs.20,000 or more otherwise than by cheque/bank draft and then re-determine the income chargeable to tax. Being aggrieved by the above order the assessee preferred an appeal before the Income-tax Appellate Tribunal. Hon’ble Tribunal had allowed the appeal of the assessee by observing that the Assessing Officer had required the assessee to produce documents or material in relation to ten different items, which included the details of capital contributed by the partners, details of purchases made in excess of Rs. 20,000 with evidence, confirmation of unsecured loans, amongst other matters.

Being aggrieved by the Order of the Appellate Tribunal, the revenue filed an appeal before the Hon’ble Rajasthan High Court under section 260A of the Act. Hon’ble High Court upheld the order of the Appellate Tribunal and held that when enquiry had been conducted and the Assessing Officer had reached a particular conclusion, though reference to such enquiries had not been made in the order of assessment, it was apparent from the record, without anything to show how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of jurisdiction by the Commissioner was unsustainable. The finding of the Tribunal that the Assessing Officer had passed the assessment order after relevant enquiries and considering the aspects of the matter required by the Commissioner to be considered by him was finding of fact. The basis on which the jurisdiction was assumed by the Commissioner being non-existent his order must be held to be not sustainable.

8. Revision – Commissioner cannot initiate revision proceedings on the basis of audit objection

CIT vs. Sohana Woollen Mills [2008] 296 ITR 238 (P & H)

The assessee held certain machinery and was also in possession of a permit obtained from the Textile Commissioner for the working of 1,200 spindles for the manufacture of woollen worsted yarn. The 1,200 spindles were a part of the machinery to be sold by an agreement dated 26-7-1974. The assessee sold some machinery. In the course of filing the return, the assessee worked out the profit under section 41(2) amounting to Rs. 51,067 and capital gains amounting to Rs. 55,006 subject to the statutory deduction and returned them in its total income. Besides in Part III of the return, the assessee showed a sum of Rs. 1 lakh on account of sale of permit from the Textile Commissioner in respect of 1,200 spindles and marked it as the amount receivable on account of goodwill. The Income Tax Officer accepted the return filed by the assessee. However, the Commissioner on the basis of an audit objection initiated revision proceedings. The assessee preferred an appeal before the Hon’ble ITAT challenging the action of the Commissioner of Income Tax initiating revision proceedings. The Hon’ble Tribunal set aside the order of revision passed under section 263 of the Income-tax Act, 1961.

Being aggrieved by the above order, the Revenue preferred an appeal before the Hon’ble Punjab and Haryana High Court u/s 260A of the Act. The Hon’ble High Court had dismissed the appeal filed by the revenue and held that the Tribunal had held that the assessee had disclosed that out of sale consideration, a sum of Rs. 1 lakh was to be received for sale of permit. If that was so, there was no error in the view taken by the Assessing Officer and no case was made out for invoking jurisdiction under section 263.