REPORTED DECISIONS

1. Penalty for concealment – Income surrendered during survey – No penalty imposed for subsequent assessment year on similar set of facts – Specific order passed for dropping penalty for that year – Penalty not sustainable on that ground alone – On merits also, mere fact of surrender per se cannot lead to conclusion that there was concealment – A.Ys. 1993-94 and 1994-95

Orient Press Ltd. vs. JCIT (2006) 99 TTJ 1091 (Mum); Order dated 30-6-2005

The assessee was engaged in the business of publishing pre-share issue stationery like company prospectus, brochures and share application forms, etc. The assessee takes up the job of printing on job work basis whereas the paper is supplied by its sister concern namely Vikas Printers. A survey action was conducted on the assessee on 26-2-1996 but it was in respect of verification of certain expenditure incurred by Ramgopal Polytex Ltd. During the course of survey, the assessee surrendered incomes of Rs. 4.10 lakh for A.Y. 1993-94; Rs. 9 lakh for A.Y. 1994-95 & Rs. 6 lakh for A.Y. 1995-96. The assessee also revised IT returns to show these additional surrendered incomes and in the covering letter it was stated that additional income was being offered to tax only to avoid litigation and buy peace on the condition that no penalty will be levied. While the AO did not impose penalty for A.Y. 1995-96, a specific order dropping penalty proceedings was also passed by the AO for that year, penalties were imposed for the A.Ys. 1993-94 and 1994-95 mainly on the ground that the income was surrendered only because of survey else would not have come to light.

The Tribunal held that it is difficult to understand as to how can Revenue defend imposition of penalties for A.Ys. 1993-94 and 1994-95 when on the materially similar set of facts no penalty is imposed for A.Y. 1995-96. The dropping of penalty proceedings for A.Y. 1995-96 is conscious act by the AO as evident from the specific order dropping the penalty proceedings for that year. On the same set of facts, in one year the penalty is dropped and for the remaining years penalty is imposed. For this reasons alone, penalties are not sustainable in law. In any event, the imposition of penalties is based on the surrender made during the course of survey, but then mere surrender of income during the survey is not even a sound basis for addition to the returned income. The fact of surrender per se cannot lead to the condition that there was a concealment of income. The factors surrounding the surrender of income also do not establish that there was a concealment of income. In fact all along the assessee has taken a stand that at the time of survey, relevant records could not be located and that there was no justification for this additional income on merits, but these explanations have been simply brushed aside by the authorities below. This kind of approach cannot be sustained in law.

2. Deduction u/s. 80-I – Profits and gains from infrastructure development undertakings in backward areas – Depreciation has to be allowed while computing deductions under Chapter VI-A; i.e., Ss. 80HH, 80-IA, 80-IB, etc. irrespective of whether claimed by assessee or not – A.Y. 2001-02

Vahid Paper Converters vs. ITO [2006] 98 ITD 165 (Ahd.)(SB); Order dated 9-11-2005

The Special Bench of the Tribunal held that when the assessee is entitled to certain deduction or exemption by claiming the deduction, his income is reduced. Therefore if such deduction is not claimed, the interest of the revenue is not prejudicially affected. Therefore, it could be the privilege of the assessee to claim such deduction or not to claim. However, the position is not the same when the income of the assessee is to be determined for the purpose of computing deduction under Chapter VI-A. Under this Chapter, either whole or a certain percentage of the income is exempt. Therefore, if the depreciation is not claimed, the resultant income would be more and consequently more deduction would be available to the assessee under Chapter VI-A. Certainly, therefore, it cannot be privilege of the assessee to claim more deduction than what he is entitled to. The assessee is entitled to deduction under Chapter VI-A on the basis of the income computed in accordance with the provisions of this Act. Therefore, the income is to be computed taking into account all the provisions applicable while computing the business income including the allowance of deprecation. By not claiming the depreciation, the assessee is in fact claiming higher deduction under Chapter VI-A, and at the same time keeping WDV of the assets high (because if depreciation is claimed, WDV would be reduced by the amount of actual depreciation allowed). The assessee would claim depreciation on such high WDV in the subsequent year, Thus, by not claiming depreciation in the years in which the assessee is entitled to deduction under Chapter VI-A, assessees are claiming double advantage – (i) claiming higher deduction under Chapter VI-A than their entitlement, (ii) keeping WDV of assets high resulting in higher claim of depreciation in subsequent years. This cannot be privilege of the assessee. Therefore, the depreciation, which is though allowable but not claimed in the return for normal computation of income, has to be allowed while computing the deductions under Chapter VI-A.

3. Penalty – Ss. 271D & 271E r.w.s. 275 – Bar of limitation for imposition of – Period of limitation for purpose of sec. 275 to be reckoned from date when penalty proceedings are initiated by Dy. Commissioner (Joint Commissioner) and not from date on which assessment proceedings are completed – A.Ys. 1993-94 and 1994-95

Dewan Chand Amrit Lal vs. Dy. CIT [2006] 98 ITD 200 (Chd)(SB); Order dated 3-11-2005

The Special Bench of the Tribunal held that the validity of penalty proceedings has got to be seen with reference to the authority empowered to impose the penalty on the relevant date. The authority to impose penalty under provisions of sections 271D and 271E is the Dy. Commissioner (now Joint Commissioner). When the Assessing Officer does not have jurisdiction either to initiate or impose penalty under section 271D or 271E, a notice issued by him for making inquiries relating to the contravention of section 269SS or section 269T cannot be construed to be initiation of penalty proceedings by the competent authority. Even if a show-cause notice is issued by the AO for imposition of penalty u/s. 271D or 271E, that notice would be without any jurisdiction as the AO has no authority under law either to initiate or impose the penalty u/s. 271D or 271E. Therefore, in the instant appeals, at the relevant point of time, the Dy. Commissioner had the jurisdiction to initiate and impose the penalty under section 271D and therefore, the limitation under section 275(1)(c) had got to be computed from the date of initiation by the Dy. Commissioner.

4. Capital Gains – Sec. 54F – Exemption in case of investment in residential house – Word ‘own’ in section 54F refers to only such residential house as is fully and wholly owned by one person and not by more than one person – Assessee claiming exemption from capital gains by investing in another residential flat – AO denying the claim on the ground that assessee was already a co-owner in another flat – Assessee not absolute owner of another flat – Exemption could not be denied – A. Y. 1998-99

ITO vs. Rasiklal N. Satra [2006] 98 ITD 335 (Mum); Order dated 19-9-2005

The assessee declared capital gains of certain amount on sale of shares and claimed exemption under section 54F by investing the same in purchase of a residential flat at Vashi. The AO noticed that the assessee was also co-owner of another flat in Sion. The AO took the view that the assessee was already owner of house in Sion on the date of sale of original assets and therefore was not entitled to exemption under section 54F.

The Tribunal held that the Legislature has used the word ‘a’ before the words ‘residential house’, which means a complete residential house and would not include shared interest in a residential house. Where the property is owned by more than one person, it cannot be said that any one of them is the owner of the property. In such case, no individual person can sell the entire property. Joint ownership is different from absolute ownership. Ownership of the residential house means ownership to the exclusion of all others. Therefore, where a house is jointly owned by two or more persons, none of them can be said to be the owner of that house. The Legislature has amended section 32 with effect from 1-4-1997 by using the expression ‘owned wholly or partly’, whereas no such amendment is made in section 54F of the Act, which continue to govern by the word ‘own’ and therefore it would include only a residential house which is fully and wholly owned by assessee and consequently would not include a residential house owned by more than one person. Consequently, the exemption under section 54F could not be denied.

5. Capital Gains – Section 54F – Use of property is not relevant criterion to consider eligibility for benefit u/s. 54F – A.Y. 1997-98

Mahavir Prasad Gupta vs. JCIT [2006] 5 SOT 353 (Del); Order dated 7-10-2005

The Tribunal held that section 54F envisages exemption of long term capital gains, if the net consideration thereof is appropriated towards the construction of a new residential house. The new property, in the instant case, had been let out for commercial use and thus the revenue sought to deny the exemption under section 54F. The use of the property is not the relevant criterion to consider the eligibility for benefit under section 54F. What is required is investment in a new residential house. Mere non-residential use would not render a property ineligible for benefit under section 54F, if it otherwise is a residential house.

6. TDS – Section 199 – Law has used words in section 199 that ‘credit’ shall be given for TDS on production of certificate for assessment year for which such income is assessable, it implies that nexus between TDS and corresponding income element would remain rather notional/conceptual – There is no merit in view where the assessee was following project completion method for recognizing income/loss, credit for TDS amount could be availed by assessee in those assessment years when corresponding income would be assessed to tax – A.Y. 1999-2000

Toyo Engg. India Ltd. vs. JCIT [2006] 5 SOT 616 (Mum); Order dated 13-9-2005

Tax is deducted at source from every piecemeal payment even though every such piecemeal payment does not reflect ‘income’ as such. Earning of income is a continuous, indivisible process embedded in the business dynamics. The income is recognized for a particular period, statutorily for one year on the basis of the method employed by an assessee. The income or loss of an assessee is the cumulative result of the working carried on by the assessee and reasonably measured for that particular assessment year. Therefore, there is no immediate nexus between income as such and the TDS made out of a particular payment. Tax deduction at source is basically a machinery provision for collecting tax on the potential income of the assessee. There is no such conclusive presumption that tax is invariably deducted always out of income; that is why the expression ‘tax deducted at source’ has been used in the Act, rather than ‘tax deducted from income’. Therefore it might not be possible all the times to co-relate a specific amount of TDS with a specific amount of income earned by an assessee in a particular assessment year. If at all such a nexus is required, such nexus is rather notional or conceptual, rather than specific or immediate. When the law has used the words in section 199 that ‘credit’ shall be given for the tax deducted at source on production of the certificate for the assessment year for which such income is assessable; it implies that the nexus between TDS and the corresponding income element would remain rather notional/conceptual.

In the instant case, the work-in-progress credited by the assessee every year in its books of account was impregnated with the element of income, which would finally culminate into the summation of the profits on the completion of the projects, which would be offered for assessment. The execution of a project is a continuing process. The income/loss arising there from also generates contemporaneously/simul-taneously; even though such income/loss is finally measured as profit/loss at the end of the project for the reason that the assessee is following project completion method for the recognition of profit/loss. The expression ‘income’ also includes loss. The set off of TDS would arise only when the income results in profits. Therefore, it is all the more clear that the income whether profit or loss impregnated in the value of work-in-progress is finally summed up to be the profit/loss of the contract which is answerable to the assessment on to be made on the assessee. Therefore, in every assessment year, even thought the final result is ascertained only on the completion of the project an element of income is latent in the yearly working result. The distinction between the above conceptual profit and the ultimate de facto assessment of profit is because of the fine distinction that exists between ‘income’ and ‘profits’. Therefore, the provision of law contained in section 199 did not stand in the way of the claim made by the assessee for credits in respect of TDS made during the relevant previous year. Hence the assessee was entitled to the benefit of credit for TDS amount.