High Court irked at abuse of law to settle personal vendetta between top-level IRS officers

The respondents have to act in accordance with law and not under any pressure. The AO, being a responsible officer should not be party or pressurised by someone to personal vendetta. Being statutory officers they have to act independently and in accordance with law

S. 254(2A): The Tribunal has no power to extend stay of demand beyond 365 days even if the assessee is not at fault. If dept seeks an adjournment, ITAT may either refuse it or dept should undertake not to recover the demand

(i) In view of the third proviso to s. 254(2A) of the Act substituted by Finance Act, 2008 with effect from 1st October, 2008, the Tribunal cannot extend stay beyond the period of 365 days from the date of first order of stay

S. 147: Even s. 143(1) Intimation cannot be reopened in the absence of new information

The reassessment is not on the basis of new information or facts that have come to the fore now, but rather, a re-appreciation or review of the facts that were provided along with the original return filed by the assesse. The record does not show any tangible material that created the reason to believe that income had escaped. Rather, the reassessment proceedings amount to a review or change of opinion carried out in the earlier A.Y. 2005-06, which amounts to an abuse of power and is impermissible. In response, it is argued that since the return was processed under Section 143(1) for the A.Y. 2005-06, which involves a mere intimation, rather than an application of mind or true assessment of the return, a less stringent threshold must be taken in terms of ‘reasons to believe’ that income has escaped assessment or not. This precise argument, however, has been considered and rejected by this Court in CIT v. Orient Craft [2013] 354 ITR 536 (Delhi)

S. 10A/ 10B: Interest income out of surplus funds in Banks and sister concerns & EEFC account is eligible for exemption

Though s. 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software, sub-section (4) explains what is the profit derived from export of articles as mentioned in Subsection (1). Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is clear that what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertaking

Undue delay in passing order causes prejudice & results in loss of confidence in the judicial body. Such a delayed order has to be set aside

In view of the above, it is very clear that the authorities under the Act are obliged to dispose of proceedings before them as expeditiously as possible after the conclusion of the hearing. This alone would ensure that all the submissions made by a party are considered in the order passed and ensure that the litigant also has a satisfaction of noting that all his submissions have been considered and an appropriate order has been passed. It is most important that the litigant must have complete confidence in the process of litigation and that this confidence would be shaken if there is excessive delay between the conclusion of the hearing and delivery of judgment

Distinction between “hire purchase transactions” and “loan transactions” explained

The vehicles were registered in the name of the respective customers. However, in the registration certificate a remark in terms of agreement was to be recorded to the effect that vehicle is held by the registered owner under a hire purchase agreement with the assessee. A “Sale Letter” was executed, reciting that the customer had on the date of the application for loan sold to the financier the motor vehicles. The sale of vehicles have not been shown by the assessee in its profit and loss account and no sales tax return has been filed by it. In its audited account, filed with the income tax returns, the assessee has shown the finance charges as revenue receipts. The auditor has certified that the assessee is not a trading company. The auditor has also certified that the assessee has followed the norms issued by the Reserve Bank of India for non-banking financial companies (NBFC). This shows that the assessee is a finance company engaged in financing of vehicles. There is no evidence that assessee is a trader dealing in purchase and sale of vehicles. Thus the hirer is the real purchaser of vehicles from the dealer. He selects the vehicle for purchase and also the dealer from whom it was to be purchased. At this stage the assessee does not come into picture. After the hirer identified the vehicle and the dealer i.e. the seller then he approached the assessee for finance due to his inability to purchase out of his own funds. At this stage the assessee extended the facility of finance to hirer on willingness of the hirer to pay a price for this facility. The total amount of hire that hirer pays to the assessee exceeds the price at which the vehicle was purchased from the dealer. This is more than that part of the purchase consideration which was paid by the assessee to the dealer as finance to the hirer. The excess amount so paid by the hirer to the assessee is nothing but interest on loan. The amount so invested by the assessee in the purchase of vehicles is the amount of loan advanced by it to the hirer. When tested on the principles of law laid down by Supreme Court in Sundaram Finance Ltd the only conclusion that can be reached is that the transactions entered by the assessee with the customer/hirer is a loan transaction and the finance charges were nothing but interest

Rejection of stay application by ITAT on the ground that “the financial position of the assessee is very sound” and “government also needs liquid funds to manage its day to day affairs” & without discussing prima facie case is in disregard of law laid down in KEC International 251 ITR 158 (Bom)

The impugned order of the Tribunal has been passed in total disregard of the principles laid down in KEC International Ltd 251 ITR 158 (Bom) wherein a Division Bench of this Court laid down parameters to be observed by the Authorities while considering the stay application. The Tribunal has not even given short prima facie reasons recording the Petitioner’s case. The Petitioner does has a strong prima facie case on merits before the Tribunal. Thus, having regard to the fact that the Petitioner has already paid the full tax amount and also 25% of the penalty amount earlier, the Tribunal ought not to have required the Petitioner to deposit a further sum of Rs.50.00 lakhs. In fact, the Tribunal while passing the impugned order has not only ignored the directions in KEC but also the observations made by this Court in the Petitioner’s own case

S. 10 (23C): An institution which regularly makes more than 10% – 15% surplus is existing for profit & is not eligible for exemption

In our opinion, “Surplus” cannot be more than 10% – 15% so as to meet contingencies or unforeseen expenditure. If an University or an educational institution under the guise of “surplus” start making huge profit, in our opinion, it would cease to exist for net making profit and in that event would not be entitled for exemption under this provision. On facts, the University collects huge sums which are 3-4 times more than the requirement. Such “surplus” which is invested in fixed deposits and fetches huge interest cannot be stated to be “incidental”

S. 254: Tribunal is not required to consider pleadings, material etc to which its pointed attention is not drawn

It is true, as held by the Supreme Court in a long line of cases that the Tribunal is duty-bound to consider all the grounds, the evidence produced and consider the contentions of the parties before it and all other material brought to its
notice in a judicial spirit and should not feel incommoded by technicalities: The duty is limited to the points raised before it. It would be placing an impossible burden on the Tribunal if it is ordained to rule upon aspects and contentions which were not raised by the parties before it or to deal with pleadings, evidence or material to which its pointed attention was not drawn in the course of the proceedings and which lies buried in the forest of papers filed by the parties

S. 147: Assessee is not entitled to challenge validity of reopening on a ground not stated in objections to AO

Just as the revenue cannot improve upon its case for reopening before the Court and but must stand or fall by the reasons recorded for reopening the assessment, the same test would be applicable in case of an assessee i.e. it must stand or fall by its objection to the grounds for reopening of assessment. It is not open to the assessee to urge fresh objections before the Court which the AO had no occasion to deal with, unless of course the notice to reopen is ex-facie without jurisdiction not requiring consideration of any argument such as beyond limitation