| COURT: | ITAT Bangalore |
| CORAM: | Jason P. Boaz (AM), Rajpal Yadav (JM) |
| SECTION(S): | 153A, 234B, 234C, 32 |
| GENRE: | Domestic Tax |
| CATCH WORDS: | advance tax, Depreciation, Interest, Search assessment |
| COUNSEL: | Babu Prasad |
| DATE: | December 5, 2014 (Date of pronouncement) |
| DATE: | December 8, 2014 (Date of publication) |
| AY: | 2008-09 to 2010-11 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| (i) S. 153A: Even in non-pending assessments where no incriminating material is found, AO is not limited to assessing “undisclosed” income, (ii) revenue expenditure on leased premises is not hit by sub-section (1A) to s. 32 or Explanation 1 to s. 32, (iii) Even income voluntarily disclosed in search is liable for 2. 234B/C interest | |
(i) The circumstance where proceedings are not pending and no incriminating material is found in the course of search has been left unanswered by the Delhi High Court in Anil Kumar Bhatia 352 ITR 493 (Del). In this case, the Court has held that even if the assessment order has been passed in respect of one or any of the six relevant assessment years, either under section 143(1)(a) or 143(3) of the Act prior to the initiation of search, the AO is still empowered to reopen those proceedings u/s 153A of the Act without any fetters and reassess the total income taking note of undisclosed income, if any, unearthed during the search. It is clear that the Court dealt with a situation in which some incriminating material was found in respect of a non-pending assessment. It was in this background that the Court held that section 153A of the Act applies if incriminating material is found in the course of search even if assessments are completed. The question as to whether any addition can be made in respect of completed assessments when no incriminating material was found was apparently left open. The observation in the judgement appears to indicate a doubt in the mind of the High Court as to whether the proceedings under section 153A of the Act can still be initiated if no incriminating material is found in the course of search. To our minds, had it been an open and shut case, i.e. acquiring of jurisdiction under section 153A of the Act does not depend upon recovery and of seizure of any incriminating material, the Court would not have so commented. It is in this context that the decision of the High Court of Karnataka in the case of Canara Housing Development Co. assumes significance where it is held that once the assessment is reopened, the Assessing Officer can take note of the income disclosed in the earlier return, any undisclosed income found during the course of search and also any other income which is not disclosed in the earlier return of income OR which is not unearthed in the course of search under section 132 of the Act, in order to find out and determine what is the ‘total income’ of each year and then pass the order of assessment.
(ii) The question that arises for consideration is when the assessee has incurred expenditure on renovation of the hotel taken on lease, then whether the assessee is entitled for deduction of the expenditure incurred on such repairs as revenue expenditure OR whether it has to be treated as capital expenditure in view of Explanation 1 to section 32 of the Act. On a careful perusal of the provisions of section 32(1A) of the Act and the circumstances in which it was introduced in the statute, it is clear that in case revenue expenditure was incurred by the assessee on the premises taken on lease, the question of allowing any depreciation u/s 32(1A) of the Act would not arise for consideration. In other words, section 32(1A) of the Act introduced w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970 would not be applicable in case the assessee incurred revenue expenditure on the leased premises. However, sub-section 1A of Section 32 of the Act introduced by Taxation Laws (Amendment) Act, 1970 was omitted and Explanation 1 to Section 32 was introduced by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. This was done when the concept of depreciation on individual asset was changed to depreciation on the block of assets. When Parliament introduced depreciation on block of assets, sub-section (1A) of Section 32 of the Act was deleted, an identical provision was incorporated in Explanation 1 to Section 32 of the Act. Therefore, the position of law as it remains after the introduction of sub-section 1A of Section 32 of the Act w.e.f. 1.4.1971 continued to be the same in respect of revenue expenditure incurred by the assessee on premises taken on lease. In other words, the concept of allowing depreciation on the capital expenditure in relation to renovation, extension or improvement of the premises taken on lease continued to be the same w.e.f. 1.4.1971. Therefore, whenever the assessee incurred the expenditure, in the process of earning profit while carrying on the business in the leased premises, the expenditure has to be treated as revenue expenditure and neither sub-section (1A) to Section 32 OR Explanation 1 to Section 32 of the Act would come in the way of allowing the same as revenue expenditure. However, when the assessee incurred expenditure which is of capital nature, then the Parliament allows the benefit to the assessee for claiming depreciation on such capital expenditure in relation to renovation, extension or improvement w.e.f. 1.4.1971 u/s. 32(1A) and in accordance with the provisions of Explanation 1 to Section 32 of the Act w.e.f. 1.4.1988. Hence, this is a benefit allowed to the assessees who have taken premises on lease and incurred expenditure in the capital field. However, as explained earlier, if the expenditure incurred falls in the revenue field, the assessee is entitled to claim it as revenue expenditure irrespective of Section 32(1A) or Explanation 1 of Section 32 of the Act.
(iii) The contentions of the assessee that the additional income voluntarily disclosed in the course of search proceedings and such additional income was not related to any incriminating document or material found during search action under section 132 of the Act and that since the additional income was offered in the course of search action, the assessee was not aware of the income at the time of payment of advance tax and therefore interest under section 234B and 234C of the Act is not acceptable. The reliance on P. Indra Kumar V ITO 322 ITR 454 is misplaced as the facts are distinguishable.
it is always what is better for tax payer/accused is to be given better treatment than the revenue what does it mean?
so it is clear old assessments cannot be revoked, for any reason, if allowed only litigation just grow in multiples, so limitation principle came into being, that way due diligence of the officer of relevant periods is vital sirs. then we seem to exonerate your officers but pounce on the tax payer who cannot understand your maze of tax laws as most tax laws are indeed an ocean of confusion confounded in the departments, till you remove the tax department confusions, you cannot take advantage of ignorance of your laws though you are supposed to be the top experts!
it is always what is better for tax payer/accused is to be given better treatment than the revenue what does it mean?
so it is clear old assessments cannot be revoked, for any reason, if allowed only litigation just grow in multiples, so limitation principle came into being, that way due diligence of the officer of relevant periods is vital sirs. then we seem to exonerate your officers but pounce on the tax payer who cannot understand your maze of tax laws as most tax laws are indeed an ocean of confusion confounded in the departments, till you remove the tax department confusions, you cannot take advantage of ignorance of your laws though you are supposed to be the top experts!
Law is a stable proposition not a chameleon like changing colors. sec 153 alone is indeed so complicated, i doubt whether very finance ministers do understand while these ministers staying in government cannot be more than 5 years at the most, and did they attempt to simplify the so called tax law for the year in an active voice structure, i doubt very tax commissioners may not be able to when so how do you expect the taxpayer understand your complicated structuring of sections with so many ifs and buts structures, i do doubt whether the great taxation accountants really do understand in today’s so called new English, so there are several mismatches bound to happen,when so how can you be so tough on tax payer who may not understand all such intricacies save a good lawyer certainly not accountants of any class, but simply professing to be that i am great cannot make any thing like an ear calling itself that i am elephant and the like; so the very principle is evolved , if there are different kinds of contradictory judgements that which favors the tax payer the courts give credence what is the most favorable to the tax payer!
so till the government is able to simplify the sections with direct readings courts will not be kind to revenue is as sure as anything!
therefore it is a function of any government first of all create prudent structuring of tax laws till then litigation would just mount at the cost f exchequer as also to the tax payer. there is no escape. the judgement seems lacking what Blackstone said ..’a science that distinguishes the criteria of right and wrong’ is very Law’s very principle of interpretation!
i know you may not like saying any thing uncomfortable so i as a lawyer do not want to hurt any one!
Interestingly one need to note best discussed possible law is the Constitution of India and legislative enactments are not that well discussed like Constituent Assembly. Incidentally one has to note again any law is not a divine verdict and so Kings accepted the falibility of any law as law is not necessarily infallible. So quality of Mercy came into being just because religion and the theological discussions led to philosophical treatises that only led to rule of justice system over any law and led to the power of judicial review of any law which can invalidate any any law if the judicial system supplimented by people jurors who were asked to decide initial justice what is appealing to them that way jury system was established from day one judiciary kind came into being.
So, Halsbury , 4td Ed. vol 1 para 18 of ‘ Institute of Patent Agents v Lockwood (1894)A.C 347 (360-361) H.L., observed ….In the UK ., since the legal sovereignty of parliament is unquestionable(in England unlike India) in the courts, it is competent for parliament to delegate its legislative power to the administration to any extent , WITHOUT the RISK of the Judiciary INVALIDATING such law on the ground that, by EXCESSIVE DELEGATION , Parliament has ABDICATED its LEGISLATIVE function , was the observtion in the said case….so any section in any ACT would face axe from Judiciary which aspects every Account Members of the honorable tribunals if noted they would also can do meaningful justice is any considered jurist would say!
Interestingly one need to note best discussed possible law is the Constitution of India and legislative enactments are not that well discussed like Constituent Assembly. Incidentally one has to note again any law is not a divine verdict and so Kings accepted the falibility of any law as law is not necessarily infallible. So quality of Mercy came into being just because religion and the theological discussions led to philosophical treatises that only led to rule of justice system over any law and led to the power of judicial review of any law which can invalidate any any law if the judicial system supplimented by people jurors who were asked to decide initial justice what is appealing to them that way jury system was established from day one judiciary kind came into being.
So, Halsbury , 4td Ed. vol 1 para 18 of ‘ Institute of Patent Agents v Lockwood (1894)A.C 347 (360-361) H.L., observed ….In the UK ., since the legal sovereignty of parliament is unquestionable(in England unlike India) in the courts, it is competent for parliament to delegate its legislative power to the administration to any extent , WITHOUT the RISK of the Judiciary INVALIDATING such law on the ground that, by EXCESSIVE DELEGATION , Parliament has ABDICATED its LEGISLATIVE function , was the observtion in the said case….so any section in any ACT would face axe from Judiciary which aspects every Account Members of the honorable tribunals if noted they would also can do meaningful justice is any considered jurist would say!
one has to note the constitutional principle that a tribunal of limited jurisdiction say ITAT is the last fact finding tribunal, it cannot exceed that limitation like creating constitutional benches , it cannot be permitted conclusively determine its own jurisdiction’ was said in Crown Estate Commissioners v Dorsett CC (1990) Ch.247 at 312 (Millet J), so explaining R v Hutchings.
This decisional reasoning has played an important ( role ) part in a series of decisions about assessments for rates and taxes.
in these it has been repeatedly held that matters decided for the purposes of one year’s assessments or of one rating list do not amount to res judicata for the later assessments or lists.
It was held decisions relating to different lists were irrelevant, since the local valuation court has jurisdiction to determine cases for one list only at any one time.
the same point has been settled , after some difference of opinion, in a line of income tax cases.
Thus where a trust in Ceylon had been held to be a charity and so exempt from income tax by the statutory board of review , this was held to be conclusive only in the relevant year of assessment , and to be open to challenge by the commissioner of income tax in any subsequent year. (Caffoor v commissioner of income tax (1961)(AC 584 following Broken Hill proprietory company Ltd v Broken Hill municipal council (1926) AC 94 and inland commissioners v Sneath (1932)2 KB 362; not following Hoystead v Commissioner of Taxation (1926)A C 155;
From this it would be clear these benches cannot constitute constitutional tribunals, for constitutional tribunals are supposed to render decisions which are supposed to be Stair decis kind of decisions, if not stair decis how we can call these decisions as by constitutional benches!
one has to note the constitutional principle that a tribunal of limited jurisdiction say ITAT is the last fact finding tribunal, it cannot exceed that limitation like creating constitutional benches , it cannot be permitted conclusively determine its own jurisdiction’ was said in Crown Estate Commissioners v Dorsett CC (1990) Ch.247 at 312 (Millet J), so explaining R v Hutchings.
This decisional reasoning has played an important ( role ) part in a series of decisions about assessments for rates and taxes.
in these it has been repeatedly held that matters decided for the purposes of one year’s assessments or of one rating list do not amount to res judicata for the later assessments or lists.
It was held decisions relating to different lists were irrelevant, since the local valuation court has jurisdiction to determine cases for one list only at any one time.
the same point has been settled , after some difference of opinion, in a line of income tax cases.
Thus where a trust in Ceylon had been held to be a charity and so exempt from income tax by the statutory board of review , this was held to be conclusive only in the relevant year of assessment , and to be open to challenge by the commissioner of income tax in any subsequent year. (Caffoor v commissioner of income tax (1961)(AC 584 following Broken Hill proprietory company Ltd v Broken Hill municipal council (1926) AC 94 and inland commissioners v Sneath (1932)2 KB 362; not following Hoystead v Commissioner of Taxation (1926)A C 155;
From this it would be clear these benches cannot constitute constitutional tribunals, for constitutional tribunals are supposed to render decisions which are supposed to be Stair decis kind of decisions, if not stair decis how we can call these decisions as by constitutional benches!
According to hon SC of India, a constitution bench under Art 145(2) should have constituted 5 member benches like in AK Gopaln v st of Madras and like that to determine on constitution to interpret the constitution of India , when so what ITAT constitution benches determine is not Constitution but just some income tax provisions, not even Art 265 on taxation say about whether the tax authority followed the due procedure laid down under the Art 265…so does it not look something like farce is played ! sorry sirs
According to hon SC of India, a constitution bench under Art 145(2) should have constituted 5 member benches like in AK Gopaln v st of Madras and like that to determine on constitution to interpret the constitution of India , when so what ITAT constitution benches determine is not Constitution but just some income tax provisions, not even Art 265 on taxation say about whether the tax authority followed the due procedure laid down under the Art 265…so does it not look something like farce is played ! sorry sirs
In Municipal council v kamal kumar, AIR 1965 SC 1324, – 1325 held….’Levy of tax as ILLEGAL; IF PROCEDURE prescribed for imposition of liability is not (strictly)followed….
Under Art 265, it should be clear to all taxing men ” Tax laws and procedure settled by honorable SC of India under Art 141 need to be noted without fail;
Else shallows and miseries wait all administrators…after all if Parliament abdicates its control executive it is clear there is no parliament. n such situations judiciary reviews and hands out tough decisions on Executive, if and when Executive fails to understand Administration need to be a maleable steel if not hon courts enters in hat way all administrative tribunals too face court ire!
Any liability must be created by clear ,unambiguous, and express enactment after all all administrators need to know only statute binds not your rule -besides when statutes are not proper that faces doctrine of severability or gets quashed – every judge worth the salt understands sir!
sirs,
after 2012 Apex ct decision in Bar council of India v balaji, you could have noted the position of CAs too
It is a settled law that only advocates can fight matter in litigation or non litigation matters before taxation authority, and others representation is just infructuous is made clear, when so what would happen to tax payers!
so after reading CAG report on CAs what status they deserve you only decide!
there might be certioraries would be filed in all such tax audit matters by tax payers if they had been adversely implicated, i presume. very sad taxation accountants!
sirs,
after 2012 Apex ct decision in Bar council of India v balaji, you could have noted the position of CAs too
It is a settled law that only advocates can fight matter in litigation or non litigation matters before taxation authority, and others representation is just infructuous is made clear, when so what would happen to tax payers!
so after reading CAG report on CAs what status they deserve you only decide!
there might be certioraries would be filed in all such tax audit matters by tax payers if they had been adversely implicated, i presume. very sad taxation accountants!
i hope tribunals would be seized with Balaji decision…as also CAG report on CAs now, do you think CAs really interpret laws or statutes?
So hon Apex ct is right in NTT v Madras Bar Association judgement.
Do you think AG of India would come to support CAs to interpret.. a mirage!
I doubt would Arun jaitley as minister would fight for CAs?
Why CAs you suffer from high superiority pushed by egotism!