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Discussion / Re: Business Vs Investment
January 12, 2009, 09:58:43 AM
As regards penalty imposition u/s 271(1)(c), on account of change in classification/head of taxation, viz. from capital gains to business income, one may interalia refer to following:

In CIT v. Vamchampigons & Agro. Product [2006] 150 Taxman 370 (Delhi), the assessee had shown the income arising from sale of debentures as capital gain relying on the assessment for the preceding year. The Assessing Officer treated the income as business income and levied penalty for concealment. Before the Commissioner (Appeals), the assessee explained that he was under bona fide belief that, on basis of assessment of preceding year, the income could be offered as capital gain. The Commissioner (Appeals), on the basis of Hindustan Steel Ltd. v. State of Orissa [1972] 82 ITR 26 (SC), held that penalty was not leviable and deleted the same. The Tribunal confirmed the order of Commissioner (Appeals), as simply an addition by change of opinion by itself was not enough to justify levy of penalty which cannot be imposed merely on technical and venial default.

Ahd SB of ITAT in Gujarat Credit 302 ITR 250 AT  and DHC in 163 Taxman 533, Jp ITAT in 12 TTJ 305

In CIT v. SPK Steels (P.) Ltd. [2005] 144 Taxman 469 (MP), the assessee claimed loss on account of sale of shares on account of trading. The Assessing Officer applied Explanation to section 73 and held that the loss was speculation loss and it could not be allowed. He imposed penalty for concealment. The Tribunal held that since the assessee had filed preliminary details of the transaction along with return, it could not be held that the assessee filed inaccurate particulars of his income or concealed any income. It is a case of mistaken view of the matter. Hence, the penalty was cancelled and the Court affirmed the decision of the Tribunal.

CA Kapil Goel
Dear Mr Balakrishnan,

Although i do not see any problem in relying Honda Siel (supra) (on the stated facts i.e non consideration of directly applicable case law etc), but in fitness of things and to have a wholesome view, whether the same may amount to review or not, may still require specific judicial adjudication (with due respect to the proposition put forth by Hon'ble Supreme Court in Honda Siel (supra) that " atonement to the wronged party by the court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review" etc ).

Further, as regards Ramesh Electric case (supra) is concerned, it may still have application on a  principle (which is undisputed till today) : in the grab of rectification, review cannot be done.

In this connection, one may distinguish honda siel facts (where SC categorically found the relevant 'case law'  which remained unconsidered in Ist instance by ITAT as having material and direct bearing on the issue - without calling for further investigation) with Ramesh Electric case (where grounds which remained unattended by ITAT may be seen to be treated by BHC as i) having little/less bearing on the issue so as to warrant rectification under section 254(2), in light of overall facts and/or ii)calling for further investigation)

May be useful

Kapil Goel


Dear Mr Balkrishnan,

In relation your subject query, it seems that SC in Honda Siel case (supra) has taken a view viz. power under section 254(2) is meant to redress prejudice and ITAT can rectify its order where some material argument is not considered etc, which is contrary to views taken by BHC in Ramesh Electric case (supra).

Having said that, one may (respectfully submitted) distinguish the SC ruling in Honda Siel case (supra) on legal and factual grounds, as the same did not deliberate upon distinction (if any) between review and rectification, which has been otherwise considered at length by BHC in Ramesh Electric (supra) and DHC in its underlying ruling in the case of Honda Siel 293 ITR 132/158 Taxman 26 In this connection, it seems that SC in Honda Siel (supra) has also not considered the earlier landmark ruling of SC in the case of T.S.Balaram vs Volkart Bros 82 ITR 50 which interalia held that "...A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record. ...". (seems to have implications on underlying issue)

Even further, in an unreported ruling dated 4 December 2007 in the case of Deva Metal Powders, SC speaking through the bench of Hon'ble Justices Dr. ARIJIT PASAYAT & P. SANTHASIVAM, seems to have echoed the similar views which were expressed by BHC in Ramesh Electric case (supra) and DHC in Honda Siel case (supra) (in context of section 22 of Uttar Pradesh Sales Tax Act containing the phrase "........"Rectification of Mistakes: (1)   Any officer or authority, or the Tribunal or the High Court may, on it's own motion or on the application of the dealer or any other interested person rectify any mistake in any order passed by him or it under this Act apparent on the record within three years from the date of the order sought to be rectified...."  In this connection, SC has interalia held that:

"10.   A bare look at Section 22 of the Act makes it clear that a mistake apparent from the record is rectifiable. In order to attract the application of Section 22, the mistake must exist and the same must be apparent from the record.  The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended.   "Mistake" means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception.  "Apparent" means visible; capable of being seen, obvious; plain.  It means "open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming."  A mistake which can be rectified under Section 22 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration.  In our view rectification of an order does not mean obliteration of the order originally passed and its substitution by a new order.  What the Revenue intends to do in the present case is precisely the substitution of the order which according to us is not permissible under the provisions of Section 22 and, therefore, the High Court was not justified in holding that there was mistake apparent on the face of the record....."

Further, reference in aforesaid connection may be made to SC ruling in Ralson Industries 288 ITR 322 wherein Hon'ble Justice S.B.Sinha speaking for the court has interalia held that:

"....The scope and ambit of a proceeding for rectification of an order under Section 154 and a proceeding for revision under Section 263 are distinct and different. Order of rectification can be passed on certain contingencies. It does not confer a power of review. If an order of assessment is rectified by Assessing Officer in terms of Section 154 of the Act, the same itself may be a subject matter of a proceeding under Section 263 of the Act. .."

Also, reference may be made to FB ruling of DHC in the case of Kelvinator of India 256 ITR 1 wherein Hon'ble Justice S.B.Sinha (as his lordship then was) speaking for the court has interalia held that:

".....14. It is well settled -principle of interpretation of statute that entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word. It is not in dispute that the AO does not have any jurisdiction to review its own order. His jurisdiction is confined only to rectification of mistake as contained in s. 154 of the Act. The power of rectification of mistake conferred upon the ITO is circumscribed by the provisions of s. 154 of the Act. The said power can be exercised when mistake is apparent. Even mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Tribunal has limited jurisdiction under s. 254(2) of the Act. Thus, when the AO or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake.
15. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the ITO does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Sec. 263 of the Act empowers the CIT to review an order which is prejudicial to the Revenue. ..."

Hope the above is useful for analyzing the subject matter under consideration.

CA. Kapil Goel
Discussion / Re: Section 50C
December 05, 2007, 12:37:42 PM

Dear Mr. Murali,

In relation to your query in context of section 50C of the Income Tax Act (Act), reference may be made to the following:

1. Mumbai ITAT in Ravi Kant 110 TTJ 297 speaking through Mr. Pramod Kumar in context of section 50C:
"9. On a perusal of valuation report, however, we find that even the valuation by the DVO has placed too much of emphasis on the assessment or valuation by the stamp valuation authority. This is neither desirable nor permissible. The reason is this. The valuation by the stamp valuation authority is based on the circle rates. These circle rates adopt uniform rate of land for an entire locality, which inherently disregards peculiar features of a particular property. Even in a particular area, on account of location factors and possibilities of commercial use, there can be wide variations in the prices of land. However, circle rates disregard all these factors and adopt a uniform rate for all properties in that particular area. If the circle rate fixed by the stamp valuation authorities was to be adopted in all situations, there was no need of reference to the DVO under s. 50C(2). The sweeping generalizations inherent in the circle rates cannot hold good in all situations. It is, therefore, not uncommon that while fixing the circle rates, authorities do err on the side of excessive caution by adopting higher rates of the land in a particular area as the circle rate. In such circumstances, the DVO's blind reliance on circle rates is unjustified. The DVO has simply adopted the average circle rate of residential and commercial area, on the ground that interior area of the locality, where the assessee's property is situated, is mixed developed area i.e. shops and offices on the ground floor and residence on the upper floors. When DVO's valuation required to compare the same with the valuation by the stamp valuation authority, it is futile to base such a report on the circle report itself. Such an approach will render exercise under s. 50C(2) a meaningless ritual and an empty formality. In our considered view, in such a case, the DVO's report should be based on consideration stated in the registration documents for comparable transactions, as also factors such as inputs from other sources about the market rates. For the reasons set out above, and with these observations, we remit the matter to the file of the AO. The DVO will value the property de novo, in the light of our above observations, and in case the valuation so arrived at by the DVO is less than Rs. 11,42,100, the AO shall adopt the fresh valuation so done by the DVO for the purpose of computing capital gains under s. 48 of the Act. We direct so."

2. Further, reliance may be placed on Supreme Court ruling in the case of K.P.Varghese 131 ITR 597, which has in context of section 52(2) of the Act, since deleted (similar to section 50C of the Act) has interalia held that:

"Moreover, if sub-s. (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view-point can be rationally considered as capital gains or any other type of income. It is a well settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under entry 82 in List I of the Seventh Schedule to the Constitution, which deals with "Taxes on income other than agricultural income" and under which the I. T. Act, 1961, has been enacted, Parliament cannot "choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt. Sub-section (2) would, therefore, on the construction of the revenue, go outside the legislative power of Parliament and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax. Sub-section (2) would also be violative of the fundamental right of the assessee under art. 19(1)(f) which fundamental right was in existence at the time when sub-s. (2) came to be enacted-since on the construction canvassed on behalf of the revenue, the effect of sub-s. (2) would be to penalise the assessee for transferring his capital asset for a consideration lesser by 15% or more than the fair market value and that would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of his choice. The court must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that which makes it void.
We must, therefore, hold that sub-s. (2) of s. 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words, the consideration
actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue."

3. Further, reference may be made to CBDT Circular No. 20D dated 7 July 1964 accompanying Finance Act 1964, containing the legislative spirit and object behind section 52(2) of the Act, to argue that in genuine and bonafide cases, section 50C cannot be triggered. However, it seems that Lucknow bench of ITAT in AKG Consultants 17 SOT 592 in context of section 50C of the Act, has taken a view that provisions of section 50C(1) are mandatory in nature.

4. Further, Jd ITAT in 110 TTJ 886 in context of penalty under section 271(1)(c) of the Act for underlying addition under section 50C, has taken a lenient view and accordingly deleted the same.

Hope the above is useful.

Warm regards

CA Kapil Goel

Dear Friend,

In relation to 'netting off' interest in context of section 80HHC of the Income Tax Act, useful reference may be interalia made to following judicial precedents:

1.   DHC in Kashmir Arts (available on ITATonline website: refer High Court section)

"For purposes of netting off the interest received from the interest paid u/s 80HHC, not only must be there be a nexus but it must be shown that obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) was ?wholly and exclusively? for the purpose of earning the interest on the fixed deposit, to draw an analogy from Section 37. Shriram Honda clarified."

2.   DHC in Shri Ram Honda Power Equipment 289 ITR 475
3.   Delhi ITAT SB in Lalsons Enterpsises affirmed by DHC in Shri Ram Honda (supra) 89 ITD 25

On a separate note, it seems that Supreme Court has taken cognizance of ITAT SB ruling in Lalsons case (supra) in its latest order dated 13 November 2007 (Janatha Cashew Exporting) and remanded the matter back to AO for his fresh consideration.

May be useful....

CA Kapil Goel

Discussion / Re: need help on 147
December 02, 2007, 06:46:19 PM

In addition to useful case laws pointed out by Mr Ramesh, we may also refer to latest Supreme Court ruling in the case of Rajesh Javeri Stock Brokers 291 ITR 500 (Hon'ble Justices Arijit Pasayat and Justice D.K.Jain) which after considering at length the changing face of assessment and reassessment scheme in Income Tax Act, has distinguished scope of reassessment in 143(1) (or 'intimation' cases) and 143(3) cases (regular assessment/scrutiny assessment).

May be useful

CA Kapil Goel
Discussion / Re: Is Max India right?
November 20, 2007, 10:30:47 PM
Dear Ashutosh,

In relation to your views on SC ruling in MAX India Limited case (dated 1 November 2007), it seems that albeit SC has decided the validity of subject CIT's order under section 263 of the Income Tax Act ('Act') giving reference to the date when CIT passed the subject order under section 263 of the Act but that in my understanding, as voiced by you also, may not dilute the position, that in case two views were possible at the time when AO passed its order then jurisdiction under section 263 is not invokable and reference in this regard may be interalia made to underlying ruling of Punjab & Haryana High Court in Max India (supra) 268 ITR 128 and latest Gauhati High Court ruling in the case of Meghalaya Plywood 160 Taxman 89 (Para 9).

Hope the above is useful.

Warm regards
CA Kapil Goel

Dear Pankaj,

In relation to deductibility of DDT ('Dividend Distribution Tax') while computing MAT liability, you may usefully refer to following ITAT rulings:

1. Kol ITAT in Balrampur Chinni Mills 14 SOT 372 (favorable: stating DDT allowable in MAT Computation, interalia relying on CBDT Circular No.8 of 2005)

2. Chennai ITAT in Dhanlakshmi Paper Mills 105 ITD 123 (adverse: stating DDT not allowable in MAT Computation distinguishing CBDT Circular No, 8 of 2005 on which reliance was placed by assessee's counsel)

CA. Kapil Goel
Discussion / Re: Reopening of Block Assessment
September 25, 2007, 08:42:11 PM

Dear Pankaj,

In relation to your query regarding reopening of block assessment, you may please refer to
Mum ITAT ruling in the case of Western India Bakers reported at 87 ITD 607/84 TTJ 223, as argued from assessee's side by learned senior counsel Mr. Soli Dastur, wherein it has been interalia held that

".....23. The policy of law is that there must be a point of finality inall legal proceedings. State issues should not be re-activated beyonda particular stage. Lapse of time must induce repose in and set atrest judicial controversies. The effect of re-opening an assessmentis to vacate or set aside the original order of assessment and tosubstitute in its place the order made on reassessment. There is noindication in Chapter XIV-B that assessments completed under thisChapter could be reopened. When Legislature prescribes a particularprocedure, it is incumbent on the Assessing Officer to follow thatprocedure only. He cannot travel beyond that. It is abundantly clearfrom the perusal of Chapter XIV-B and the scheme of reassessment thatsection 147 of the Act cannot be applied in the context of blockassessment. We, therefore, decide this issue in favour of theassessee and against the revenue....."

Kapil Goel, Delhi
Discussion / Re: re: Bad Debts Deduction
August 25, 2007, 11:00:32 PM

Dear ca,

In relation to allowability of bad debts under section 36(1)(vii) post amendment of 1989, besides Delhi High Court ruling in Morgan Securities 162  Taxman 124 (Fav) and Madras High Court in South India Surgical 287 ITR 62 (Adverse), you may refer to following other rulings on the subject:

1. Mumbai ITAT in Kanoria Securities 108 TTJ 473 (Fav) ,
2. Delhi High Court in Autometers 292 ITR 345 (Fav) ,
3. Madras High Court in Brilliant Tutorials 292 ITR 399 (Fav.),
4. MP High Court in Nai Dunia 154 Taxman 493 (Fav)

Kapil Goel
Discussion / Re: Goetze judgement
August 19, 2007, 12:14:37 PM


In relation to your query on how Goetze SC ruling is being taken by ITAT, you may refer to latest ruling of Mumbai ITAT (15 SOT 252 )in Chicago Pneumatic, argued by Mr. Pardiwalla for the assessee. In this ruling,Mumbai ITAT ,inter alia, in context of allowability of new claims during the assessment proceedings without having recourse to revised return, placing reliance on principle embedded in Article 265 of Indian constitution (No tax can be collected except by the authority of law) and old CBDT Circular No. 14 dated 11 April 1955 and distinguishing Goetze ruling of SC reported in 284 ITR 323 has categorically held that assessee has the right to make new claims during assessment proceedings without recourse to revised return (Refer Para 45 to Para 49 of the ruling).

Further refer to DNX Herbal Manufacturing 109 TTJ 87 (Para 38 and 39) discussing Goetze.