REPORTED DECISIONS

1. Appealable Orders – Commissioner (A) – Section 246A – Consequential order granting refund on account of waiver of interest u/ss.234A, 234B and 234C by Chief Commissioner – Cannot be challenged in terms of provisions of section 246A – No appeal would lie against order of AO not granting interest u/ss.244A in consequential order passed – A.Y. 1993-94

ITO vs. A.J. Dhanapal (2006) 99 ITD 317 (Chennai); Order dated 9-12-2005

The Assessing Officer passed order refunding the amount collected on account of interest charged u/ss. 234A, 234B and 234C in terms of order of the Chief Commissioner waiving interest charged under the said provisions. The assessee filed appeal challenging order of AO for not granting interest u/s. 244(1A) and 244A(1)(b) on refund of waived interest. The Commissioner (A) allowed the claim of the assessee by entertaining the appeal under section 246A.

The Tribunal held that the provision of section 246A does not speak of exclusive refusal to grant interest, which can be challenged under these provisions. Nothing was coming out of these provisions that consequential order granting refund on account of waiver of interest under sections 234A, 234B and 234C by the Chief Commissioner can be challenged under these particular provisions. The right of appeal is not merely a matter of procedure. It is a matter of substantive right. The right of appeal is a creature of statute and it is for the Legislature to decide whether right of appeal could be unconditionally given to an aggrieved party. If the statute does not create any right of appeal, no appeal can be filed. The right of appeal inheres in no one and, therefore, an appeal for maintainability must be having a clear authority of law and this is why the right of appeal is described as a creature of statute. In the instant case, the disputed appeal was not appealable as there was no specific appeal provided under the provisions of section 246. In view of the same, no appeal would lie against the order of the Assessing Officer, who had not granted any interest in the consequential order passed on the order of the Chief Commissioner for waiver of interest u/s. 234A, 234B and 234C.

2. Appeals – Commissioner – Powers of – Section 251 – Appellate Authority can permit assessee or revenue to withdraw appeal, if opposite party is not objecting and if appellate authority is judiciously satisfied – A.Ys. 1992-93, 1993-94 & 1996-97

M. Loganathan vs. ITO [2006] 99 ITD 246 (Chennai); Order dated 19-10-2005

The assessee filed appeal before CIT(A) against the order of the AO. Since the assessee filed application before the Settlement Commission, which was pending, the assessee requested for withdrawal of the appeal. The CIT(A) accordingly dismissed the appeal as withdrawn. The assessee filed Second Appeal to ITAT contending that in terms of provisions of section 251, the appeal could not be dismissed as withdrawn and ought to be decided on merits.

The Tribunal held that the appellate authority in tax matters is a watchdog in the general public interest and specifically on behalf of public revenues. The assessee once having filed the appeal before the appellate authority to consider the case on merits in the interests of the assessee and also in the larger interest to see whether the assessee has not been under-assessed and in that event, enhancement of assessment is to be seen. The power to withdraw is always linked with the power of enhancement and in that eventuality the withdrawal is not permissible. But it is seen that an appeal can be withdrawn with the permission of the appellate authority, if the other party does not object to the same. As per section 251(1)(c), the first appellate authority has to consider whether the assessee is to be allowed to withdraw the appeal. The assessee cannot, as a matter of right, claim to withdraw the appeal, but if the appellate authority allows the withdrawal of appeal without causing harm to the other party and if the other party permits, the withdrawal or does not object to such withdrawal, then the withdrawal can be permitted. In the instant case, the assessee as well as his counsel were aware about the pending matter before the Settlement Commission and he knowingly withdrew the appeals and the revenue had not objected to the same. It was not the case of the assessee that withdrawal was persuaded or it was taken under coercion or undue influence. The assessee with due diligence had authorized his counsel to withdraw the appeal and the authorized representative was given proper power of authority for withdrawal, as this, the assessee had not controverted. Accordingly, against the impugned order, no cause of action arose to the assessee.

3. Business Income – Section 28(i) – Purchase and sale of shares – Looking to the volume, frequency, continuity and regularity of transaction, held to be business income and not capital gains – A.Ys. 1992-93 to 1995-96

Dy. CIT vs. Smt. Deepaben Amitbhai Shah [2006] 99 ITD 219 (Ahd); Order dated 25-7-2005

The assessee was engaged originally in the business of trading in cloth. The assessee received certain funds, which were not required in the cloth business and hence, the same were invested in shares. The assessee claimed that the intention was to earn long- term capital gains since the funds were mainly invested in primary market by submitting applications for allotment of shares in public issue and that there was no element of business. The AO held that the assessee was dealing in shares on a very large scale and hence, held that income earned from purchase and sale of shares was from business. The CIT(A) held that the mode of purchase was not that of trader who would normally deal in secondary market and not wait for allotment of shares and even in secondary market, the assessee used to take delivery of shares, get it transferred in her name and all this take considerable time gap of months and hence, the income was assessable as long-term capital gains.

The Tribunal held that looking into the volume, frequency, continuity and regularity of transactions of purchase and sale in shares, it could be inferred that those transactions must have been entered into by the assessee with a profit motive. The assessee might have an intention thereby to carry on business. It could not be said that those transactions were entered only for the purpose of investment and there was no motive of the assessee to earn profit. There was no justification in the finding of the CIT(A) that the profit arising on sale of shares acquired from primary market was assessable as capital gains. The purchase of shares from primary market was only one of the modes of purchase and merely because the assessee had to wait for two to three months for allotment process, the transaction could not be said to be non-business transaction. Similarly, the transfer of shares purchased from secondary market in the name of assessee had little relevance to arrive at the conclusion as non-transfer of shares in the name of assessee might have affected the legal title of the assessee to enable her to sell them at appropriate time. Thus, the income arising out of the transactions of purchase and sale of shares was assessable as business income.

4. Penalty – Sec. 271(1)(c) – Amounts surrendered – Understanding with AO not to take penal action – Test to determine such understanding is whether there is material to establish case of concealment other than admission/surrender of assessee – A. Y. 1990-91

ACIT vs. J.L. Kumar [2006] 5 SOT 694 (Del)(TM); Order dated 28-12-2005

The question required to be examined as to whether there was any understanding between the assessee and the AO to not to take penal action against the assessee in case the amounts in dispute were surrendered is to be seen on the basis of evidence gathered other than the admission or the surrender. It might not be possible to produce direct evidence of such an understanding but then there should be sufficient circumstantial evidence to prove that the assessee had surrendered and agreed to addition only to buy peace of mind and on account of assurance of the AO not to exercise his discretionary power to levy penalty. Normally, the test to be applied in such cases is to see that is the material to establish the case of concealment/furnishing of inaccurate particulars of income other than admission/surrender of the assessee. If admission is discarded, is there evidence to support the case. Relative value of admission depends upon other material on record, or (it has to be seen whether) the penalty is solely based on admission (sic).

5. Refund – Interest on – Section 244A – Interest on refund u/s. 244A(1) granted to assessee in proceedings u/s. 143(1)(a) would be assessable in the year in which it is granted and not in the year in which proceedings u/s. 143(1)(a) attain finality – A.Y. 1997-98

Avada Trading Co. (P.) Ltd. vs. ACIT [2006] 6 SOT 1 (Mum) (SB); Order dated 18-1-2006

According to the charging provisions of sections 4 and 5, the income is chargeable in the year in which it either accrues or is received as the case may be. The income accrues when the right to receive is acquired and such right can be said to have been acquired when an enforceable debt is created in favour of the assessee. A bare look at the provisions of sub-section (1) of section 244A reveals that as soon as any refund becomes due under any provisions of the Act, the assessee becomes entitled to receive the interest in respect of such refund calculated in the manner provided in clauses (a) and (b) of such provisions. Therefore, the moment the refund is granted, an enforceable debt is created in favour of the assessee in respect of interest due on such refund. Consequently, income can be said to accrue on the date of refund itself. Therefore, when such interest is actually granted along with the refund, then the requirements of sections 4 and 5 are fully satisfied and the same can be taxed in the year of receipt.