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Sir, Here it is:

SCA/18821/2011   6/6   JUDGMENT


IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION No.18821 of 2011


For Approval and Signature:

HONOURABLE MR. JUSTICE AKIL KURESHI
HONOURABLE MS. JUSTICE HARSHA DEVANI

=========================================
1
Whether Reporters of Local Papers may be allowed to see the judgment?
2
To be referred to the Reporter or not?
3
Whether their Lordships wish to see the fair copy of the judgment?
4
Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder?
5
Whether it is to be circulated to the civil judge?

=========================================BILAG INDUSTRIES PVT LTD - Petitioner(s)
Versus
ASST. COMMISSIONER OF INCOME TAX & 1 - Respondent(s)
=========================================
Appearance:
MR RK PATEL for Petitioner(s): 1,
MR SUDHIR M MEHTA for Respondent(s): 1 - 2.
=========================================
CORAM :
HONOURABLE MR. JUSTICE AKIL KURESHI
and
HONOURABLE MS. JUSTICE HARSHA DEVANI


Date : 05/11/2012

ORAL JUDGMENT (Per : HONOURABLE MR. JUSTICE AKIL KURESHI)

1.    This petition is filed challenging a notice dated 24-3-2011 issued under section 147 of the Income Tax Act, 1961 ('the Act', for short) by which the Assessing Officer desired to reopen the assessment in case of the petitioner assessee for the assessment year 2004-05. It can, thus, be seen that the notice for reopening had been issued beyond a period of four years from the end of relevant assessment year. For issuing such notice, the Assessing Officer had recorded his reasons which were supplied to the petitioner under communication dated 26-4-2011. We will refer to such reasons in detail at a later stage. Suffice it to notice that the petitioner raised several objections to such process of reopening under communication dated 4-7-2011. The Assessing Officer, however, rejected such objections vide his order dated 27-12-2011. Assessee has, therefore, preferred this petition challenging the very notice for reopening of the assessment.

2.    Having heard learned counsel for the parties, we may peruse the reasons recorded by the Assessing Officer for reopening the assessment. Relevant portion of such reasons read as under:-

"Thereafter, a scrutiny of the assessment order against the background of the material available on record, including the submissions of the Assessee, revealed the following:
The Assessee claimed deduction u/s. 80HHC of the I.T.Act at Rs.23,38,76,292/-. The AO restricted the deduction to Rs.21,83,49,539/-. This difference arose because the AO reduced 90% of the interest income, provisions written back, proceeds from sale of scrap and exchange gain. Such deduction amounted to Rs.2,37,90,110/-. The AO also reduced the gain on cancellation of forward currency contract of Rs.6,49,83,003/- and 90% of the export incentives of Rs.13,23,41,400/-. The amount reduced was Rs.11,91,07,260/-. These deductions were made in accordance with the provisions of section 80HHC (3) r.w.clause (Baa) to the Explanation below the said section, and the clauses (iiia) (iiib)(iiic) (iiid) and (iiie) of the section 28 of the Act.
However, after working on the profits of business in terms of sub section 80HHC at Rs.64,15,41,324/-, the AO added the sum of Rs.8,62,90,472/- under the first proviso to the said section, so that the eligible profits of business was worked out at Rs.72,78,31,796/-. Thus, a mistake has been committed by the AO. This is because, as per the First Proviso the profits of business computed under sub section (3) to section 80HHC is to be further increased by the amount which bears to 90% of the export incentives as referred to in clauses (iiia) (iiib) and (iiic) of the section 28 in the ratio of the export turnover to the total turnover of the business. As per, the details furnished by the Assessee, vide written submissions dtd.2/11/2006, export incentives included the following :

DEPB Income    Rs.   16,19,01,763
Loss of sale of DEPB    Rs. (68,43,896)
Loss on valuation of Licenses at hand   Rs. 2,27,16,467
(at the year ende)    --------------------------
Rs.    1,33,41,400
From the above, it will be seen that the export incentives/benefits comprised entirely of DEPB, which is covered under clause (iiid) of section 28. This means that under the first proviso, the DEPB was not to be included while adding back 90% of the export incentives in the ratio of the export turnover to the total turnover, to the profits of the business. In other words, the profits of the business ought to have been computed at Rs.64,15,41,324/- in place of Rs.72,78,31,796/-, which was the figure computed by the AO after adding the proportionate export incentives of Rs.8,62,90,472/-, inclusive of the DEPB. 30% of the profits of business of Rs.64,15,41,324/- works out to Rs.19,24,62,397/-.

Therefore, the deduction u/s. 80HHC was allowed in excess by the sum of Rs.21,83,49,539 – Rs.19,24,62,397 = Rs.2,58,87,142.

Further, from the details of export incentives totaling Rs.13,24,41,400/-, as detailed above, it will be seen that the Assessee adjusted a sum of Rs.2,27,16,467/- on account of loss on valuation of licenses at hand. This was not permissible. The Act does not provide for booking loss on valuation of such licenses. Moreover DEPB is not a license but is a credit given to the exporter against the exports made. This credit is recorded in a pass book. Though it is permissible for the exporter to buy or sell such credits yet. There cannot be any scope for valuing such credits, since, there is no market value rate which can be ascribed to such credits which are essentially allowed to the Assessee to compensate the cost of inputs into the manufacture of the product that is exported.

Clause (iiid) to section 28 of the I.T.Act speaks of "any profit on the transfer of the Duty Entitlement Pass Book Scheme". The Assessee showed 'DEPB income' of Rs.16,19,01,763/-, and 'Loss on sale of DEPB' of Rs.68,43,896/-, which was adjusted against the DEPB income. Firstly, no details were furnished by the Assessee to show how the income was earned or the loss incurred. Such income and loss could have been booked only if the Assessee had purchased and sold such credits, but, if the Assessee had only sold the credits that it earned against exports then there could not have been any cost to the assessee. This, in turn, means that the entire sales proceeds of such DEPB credits would have to be treated as the profit from the transfer of DEPB. In other words, the DEPB income could have been at a much higher figure than the sum of Rs.16,19,01,763/- disclosed by the assessee. On the other hand, the loss of Rs.68,43,896/- could not be allowed to be adjusted if the assessee had not purchased and sold the credits but had only sold the credits that it had earned. In any case, the loss booked on valuation of DEPB 'Licenses' of Rs.2,27,16,467/- should have been allowed to be adjusted against DEPB income. This would mean that even without inquiring into the details of the income earned and the loss suffered from the alleged transfer of DEPB, the export incentives earned on account of DEPB would have to be adopted at Rs.13,23,41,400 + Rs.2,27,16,467 = Rs.15,50,57,867/-. Thus, notwithstanding the excess claim allowed by the AO on the basis of the submissions of the Assessee, and as computed at Rs.2,58,87,142/- above, the admissible deduction u/s. 80HHC could be further recomputed as under:"

3.    The crux of the Assessing Officer's contention in such reasons appears to be that the entire sale consideration on sale of DEPB scrip should be discarded for deduction under section 80HHC of the Act and not merely the profit margin thereof. Quite apart from the fact that such issue has been covered in favour of the assessee by virtue of Supreme Court decision in the case of Topman Exports vs. Commissioner of Income-Tax reported in 342 ITR 49, we find that the reasons recorded simply would not give jurisdiction to the Assessing Officer to reopen the assessment. We say so for the following reasons.

4.    We may recall that the assessment previously framed after scrutiny was sought to be reopened beyond a period of four years. In that view of the matter, it was necessary that the income chargeable to tax has escaped assessment for the reason of the assessee failing to disclose fully and truly all material facts for the purpose of the assessment. In the present case, there is not an iota of such allegation either in the reasons recorded or anywhere else. In fact, in the reasons recorded, the Assessing Officer observes that, thus, a mistake has been committed by the Assessing Officer. A mistake on the part of the Assessing Officer surely would not be a ground to reopen an assessment previously framed after scrutiny beyond a period of four years. Besides such observation which is damaging to the revenue also, there are other sufficient indications in the reasons recorded that in the original assessment the entire issue was examined threadbare by the Assessing Officer. To the extent he was convinced that the claim was exaggerated, disallowances were made. If one peruses minutely the portion of the reasons reproduced above, it becomes clear that the Assessing Officer in the original assessment had examined the claim of the assessee pertaining to deduction under section 80HHC of the Act at considerable length. Various aspects were gone into and disallowances to the extent found required were made. Quite apart from there being nothing on the record to suggest that the Assessing Officer formed a belief that the income chargeable to tax has escaped assessment due to the reason of the assessee failing to disclose truly and fully all material facts, the present case would be one of mere change of opinion. On all counts, therefore, the impugned notice must fail. The same is, therefore, quashed. Rule made absolute. No costs.

( Akil Kureshi, J. )

( Harsha Devani, J. )

hki

Respected Profesionals,

Here are two important judgements:

No S. 43B Disallowance For Interest Payable To Non-Scheduled Banks: Upendra T. Kapadia (Bombay High Court)

Section 43B of the Act is applicable only in respect of any amount paid as interest to a scheduled bank. A scheduled bank as defined in Explanation 4 to Section 43B of the Act. The Shree Mahalaxmi Co. op. Bank Ltd. Is not mentioned in the second schedule to the Reserve Bank of India Act, 1934 nor covered by any other Banks mentioned to the Explanation to Section 11(5)(iii) of the Act. Consequently, the Tribunal was correct in its conclusion that non payment of interest amount to a co-operative bank would not attract the provisions of Section 43B of the Act

http://tax2.me/no-s-43b-disallowance-for-interest-payable-to-non-scheduled-banks-upendra-t-kapadia-bombay-high-court/

Advertisement Expenditure Of Brand Owned By Another: Khambata Family Trust (Gujarat High Court)

The assessee procured usage rights for brand "Rasna" for a valuable consideration and incurred advertisement expenses in respect of products manufactured by it under such brand name. No part of the said expenditure was expended for any purpose other than for the assessee's business. Under the circumstances, merely because by virtue of such advertisements the brand value of Rasna is enhanced and other manufacturers of the brand are also indirectly benefited, it cannot be said that the expenditure incurred by the assessee is not wholly and exclusively for its own business. It cannot be gainsaid that when any user of a brand name advertises its product, as a necessary corollary the brand value is likely to increase, thereby benefiting the owner of such brand name. If the owner of the brand name has licensed such brand to other manufacturers, it is quite possible that such other manufacturers may also be benefited on account of such advertisements as the advertisements may enhance the value of the brand as a whole. In fact, such incidental benefits are bound to accrue to the owner of the brand as well as other users of the brand name when any of the users of such brand name advertises its products. However, merely because some other persons are incidentally benefited from the advertisements issued by the assessee, the same would not change the character of the expenses from being wholly and exclusively for the purpose of its business

http://tax2.me/advertisement-expenditure-of-brand-owned-by-another-khambata-family-trust-gujarat-high-court/

If you are not agreeable with the tax demand, you must file a stay application asking for a stay. You can an article here on the legal aspects of that.

http://www.itatonline.org/articles_new/index.php/the-law-of-tax-recovery-recent-important-case-laws/

But you should not ignore the notice because then AO may resort to coercive steps and penalty for non-payment.

Once again No answer..only views are greater than replies in this forum  :'( >:( :-[ :-\ :-X

That has always been the bane of this forum. So many knowledgeable people but nobody very few wants to share their knowledge. Only Ashutosh Sir and a few other seniors lends a helping hand sometimes. What I want to say is that knowledge spreads by sharing. No point being tight-fisted about it. So, people come on SHARE UR KNOWLEDGE!!

Under the proviso to s. 12A, the CIT had the power in cases where the application for registration was made pre 1.6.2007, to condone the delay if there was sufficient cause. That power is not available u/s 12A(1)(b) for applications made after 1.6.2007.

I suggest you immediately make the application so that at least the future is secure. For the past, you can approach the CBDT u/s 119 asking for a condonation of delay.

Sir,

I think this judgement will help you:

CIT vs. Sambandam Udaykumar (Karnataka High Court)
(22.4 KiB, 756 DLs)


S. 54F does not require construction to be complete within specified period

The assessee sold shares for Rs. 4.18 crores and, within 12 months, invested Rs. 2.16 crores thereof to construct a house property and claimed exemption u/s 54F. However, as even after the expiry of 3 years of the date of transfer, the construction of the house was not complete and sale deed not executed, the AO & CIT (A) denied relief u/s 54F though the Tribunal granted it. On appeal by the department to the High Court, HELD dismissing the appeal:

S. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. The condition precedent for claiming benefit u/s 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief (Sardarmal Kothari 302 ITR 286 (Mad) followed)

Here also, the construction was not complete but Court allowed relief.

Sir, what will be the state of construction in July 2014. Will it be habitable? What about the OC? Will it have been applied for/ granted?

I remember there is a judgement that if the assessee has done his part of the bargain but the flat is not complete owing to some technical issues from the builder's part, then the assessee cannot be penalized. I'll post that judgement soon.

Sir,

Is that organisation registered u/s 12A? That is mandatory for claiming exemption u/s 11 of the Income-tax Act. The activity appears to be charitable as per section 2(15) "object of general public utility".

There are restrictions on how much of the funds have to be used for the activities of the trust and how much can be accumulated.

If you do comply, then it is a simple job of filing a Return Of Income in Form ITR-7 and claiming a refund of the TDS.

Regards,

Shobha

The point is that the decision of every authority should be based on facts and legal position of each matter and not on who appears for the assessee. Further, the practise for the assessee and the department should be same before ITAT as both are equal party before ITAT.

Yes, that I agree with. Justice has to be delivered blind-folded - on the merits and law of each case - without being influenced by who the assessee or representative is.

[and crook]

"poor assessee who get a favourable decision from CIT(A) by hook and crook"
it is really amusing to find a poor assessee getting favourable decision from CIT(A) by hook and crook . Really great sense of humour.

Good point. If he got the decision by "crook", the Tribunal is obviously justified in grilling him!!

I agree with camanojgupta sir. s. 115JB requires "the amount of income-tax paid or payable, and the provision therefor" to be added to the book profit. The fact that it relates to another year or that it was paid under protest makes no difference.

The entire scope of section 115JB has been answered in JCIT(OSD), v. Shreyans Industries Ltd by Hon'ble ITAT CHANDIGARH BENCH 'A' and you will get decision here:

http://tax2.me/s-115jb-scope-in-view-of-retrospective-amendment-shreyans-industries-itat-chandigarh/

Sir, what is your opinion about whether this will apply to s. 9 retrospective amendments.

[CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468]

Sir, as Srinivasan Sir has correctly pointed out, the position is that expenditure on leasehold can be treated as revenue because no capital asset has come into being refer: CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468

Please see section 30 which reads as follows:

"Sec.30: In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose of the business or profession, the following deductions shall be allowed:



a) Where the premises are occupied by the assessee –

i)                   as a tenant, the rent paid for such premises, and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;

ii)                 otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;

b) any sums paid on account of land revenue, local rates or municipal taxes;

c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises;

Explanation: For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub clause (i), and the amount paid on account of current repairs referred to in sub clause (ii) of clause (a), shall not include any expenditure in the nature of capital expenditure."

The position was considered in detail in DCIT v. Chaya Lakshmi Creations (P.) Ltd [2010] 6 taxmann.com 29 (Hyd. - ITAT) where it was held as follows:

In view of this decision of the Tribunal by majority opinion, even after introduction of Sec.32(1A) or Explanation 1 to Sec.32, the assessee is entitled to claim the expenditure on repair/maintenance of premises taken on lease u/s 30(a)(i) in respect of expenditure incurred in the process of earning the profit.

After incurring the expenditure the assessee has not obtained any new enduring benefit. No capital asset came into existence. The assessee continued to exhibit feature films in the very same premises probably with a little more profit. Admittedly the seating capacity was not increased after the expenditure. However, it may be little more attractive and comfortable for cine goers. Therefore, the expenditure incurred by the assessee is only for carrying on the business of exhibiting feature films. Therefore, the expenditure incurred by the assessee was an integral part of profit earning process. Therefore, it is not correct to say that the assessee has obtained any enduring benefit because of this expenditure. The assessee can use the premises taken on lease only during the lease period as found by the assessing officer. After expiry of the lease period, the assessee has to leave the entire thing as it is and handover the same to the lessor. The nature of work undertaken by the assessee is to carry on the business and not to obtain any asset. Furthermore, as already observed, no capital asset of enduring nature came into existence. In other words, the assessee has not acquired any asset/ income earning apparatus. It is well settled principles of law that the expenditure incurred for acquisition of an asset is capital expenditure and expenditure incurred in the process of earning profit is revenue expenditure. In the case before us, the assessee incurred the expenditure in order to attract more customers and make the customers comfortable. Therefore, it is obvious that that the assessee has to incur the expenditure, in order to carry on the business and in the process of earning profit and, therefore, the expenditure is of revenue in nature.

The full text of the judgement is available here: http://www.taxmann.com/TaxmannFlashes/flashbn14-7-10_2.htm

[DCIT vs. Andaman Sea Food Pvt Ltd]

Sir pl see judgement of Kol Bench of ITAT in DCIT vs. Andaman Sea Food Pvt Ltd (ITAT Kolkata) http://tax2.me/is-fees-for-technical-services-taxable-as-other-income-andaman-itat-kol/
Unfortunately, the judgement in TVS electronics 22 taxmann. com 215  chennai is not considered but seems to be a correct judgement.