Source: http://aiftponline.org/journal/2016/february/high-court/
Timestamp: 2019-04-24 03:20:30+00:00

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The assessee-society had given its plots on lease to its members for the purpose of constructing residential units. During the relevant year, the society collected premium, on transfer of some plots from the outgoing members as per the Bye-Laws of the society and claimed such amount as capital receipt. The Assessing Officer held that the assessee was not a co-operative society but an association of persons engaged in the business and accordingly, added premium amount to the income of the assessee.
(1) The identity of the contributors to the fund and the recipients from the fund, (2) The treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate and (3) The impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.
(a) Whether the Indian liaison office involves a permanent arrangement for the application under Article 5.1 of the DTAA?
(b) Whether any portion of the income attributable to the liaison office on account of the activity of vendors co-operation of global production management and planning and equitable quality assurance strategy, quality development and is liable to tax?
(i) Section 9 of the Income-tax Act deals with income deemed to accrue or arise in India. It provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India. However, Explanation 1(b) to the said Section carves out an exception. It provides that in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. Therefore, it is clear that when a non-resident purchases goods in India for the purpose of export, no income accrues or arises in India for such non-resident for it to be taxed.
(ii) Under Article 7(1) of the Tax Convention with the Republic of India and the USA, it clear that if a permanent establishment carries on business of sales in India or other business activities of the same or similar kind through that permanent establishment, then only, the profits of the enterprise will be taxed. Therefore, there is no tax liability if purchase is made for the purpose of export. The permanent establishment referred to therein is also defined in Article 5. It provides that for the purposes of this convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. It is an inclusive definition of what is included in the term ‘permanent establishment’ which is clearly set out in sub-Article (2). However, sub-Article (3) starts with a non-obstante clause. It makes it clear that the term ‘permanent establishment’ shall be deemed not to include any one or more of the following as set out in sub-Article (3). Clause (d) of sub-Article (3) speaks about the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise. In other words if the permanent establishment is established for the purpose of purchasing goods or merchandise for the purpose of collecting information for the enterprise, it is not a permanent establishment as defined under Article 5(1) read with Article 7. According to the Advance Ruling Authority what sub-Article 3(d) excludes is the place of business solely for the purpose of purchasing goods or of collecting information for the enterprise.
(iii) In the instant case, the liaison office of the petitioner identifies a competent manufacturer, negotiates a competitive price, helps in choosing the material to be used, ensures compliance with the quality of the material, acts as go-between, between the petitioner and the seller or the manufacturer, seller of the goods and even gets the material tested to ensure quality in addition to ensuring compliance with its policies and the relevant laws of India by the suppliers. Therefore, it is of the view that the aforesaid activities carried on by the liaison office, cannot be said to be an activity solely for the purpose of purchasing the goods or for collecting information for the enterprise. We find it difficult to accept this reasoning. If the petitioner has to purchase goods for the purpose of export, an obligation is cast on the petitioner to see that the goods, which are purchased in India for export outside India is acceptable to the customer outside India. To carry on that business effectively, the aforesaid steps are to be taken by the seller i.e., the petitioner. Otherwise, the goods, which are purchased in India may not find a customer outside India and therefore, the authority was not justified in recording a finding that those acts amounts to involvement in all the activities connected with the business except the actual sale of the products outside the country. In our considered information, all those acts are necessary to be performed by the petitioner – assessee before export of goods. Consequently, the reasoning of the authority that for the same reasons, the liaison office in question would qualify to be a permanent establishment in terms of Article 5 of the DTAA is also erroneous. That liaison office is established only for the purpose of carrying on business of purchasing goods for the purpose of export and all that activity also falls within the meaning of the words “collecting information” for the enterprise. In that view of the matter, we are of the view that the impugned order is unsustainable.
(i) This Court is of the view that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, it is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this Court, indefensible.
(ii) It takes little imagination to comprehend the extent and length of negotiations that take place when two nations decide to regulate the reach and application of their legitimate taxing powers (Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) in the context of the Indo-Mauritius Double Tax Avoidance Convention referred).
(iii) The Vienna Convention on the Law of Treaties, 1969 (“VCLT”) is universally accepted as authoritatively laying down the principles governing the law of treaties. Article 39 therein states the general rule regarding the amendment of treaties and provides that a treaty may be amended by agreement between the parties. The rules laid down in Part II of the VCLT apply to such an agreement except insofar as the treaty may otherwise provide. This provision therefore clearly states that an amendment to a treaty must be brought about by agreement between the parties. Unilateral amendments to treaties are therefore categorically prohibited.
(iv) We do not however rest our decision on the principles of the VCLT, but root it in the inability of the Parliament to effect amendments to international instruments and directly and logically, the illegality of any Executive action which seeks to apply domestic law amendments to the terms of the treaty, thereby indirectly, but effectively amending the treaty unilaterally. As held in Azadi Bachao Andolan these treaties are creations of a different process subject to negotiations by sovereign nations. The Madras High Court, in Commissioner of Income Tax v. VR. S.RM. Firms Ors  208 ITR 400 (Mad.) held that “tax treaties are…… considered to be mini legislation containing in themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries”.
(v) At the very outset, it should be understood that it is not as if the DTAAs completely prohibit reliance on domestic law. Under these, a reference is made to the domestic law of the Contracting States. Article 3(2) of both DTAAs state that in the course of application of the treaty, any term not defined in the treaty, shall, have the meaning which is imputed to it in the laws in force in that State relating to the taxes which are the subject of the Convention.
(vi) The treaties therefore, create a bifurcation between those terms, which have been defined by them (i.e., the concerned treaty), and those, which remain undefined. It is in the latter instance that domestic law shall mandatorily supply the import to be given to the word in question. In the former case however, the words in the treaty will be controlled by the definitions of those words in the treaty if they are so provided.
(vii) Though this has been the general rule, much discussion has also taken place on whether an interpretation given to a treaty alters with a transformation in, or amendments in, domestic law of one of the State parties. At any given point, does a reference to the treaty point to the law of the Contracting States at the time the treaty was concluded, or relate to the law of the States as existing at the time of the reference to the treaty? The former is the ‘static’ approach while the latter is called the ‘ambulatory’ approach. One opportunity for a State to ease its obligations under a tax convention comes from the ambulatory reference to domestic law. States seeking to furtively dodge the limitations that such treaties impose, sometimes, resort to amending their domestic laws, all the while under the protection of the theory of ambulatory reference. It thereby allows itself an adjustment to broaden the scope of circumstances under which it is allowed to tax under a treaty. A convenient opportunity sometimes presents itself in the form of ambiguous technical formulations in the concerned treaty. States attempting to clarify or concretise any one of these meanings, (unsurprisingly the one that benefits it) enact domestic legislation which subserves such purpose.
(viii) There are therefore two sets of circumstances. First, where there exists no definition of a word in issue within the DTAA itself, regard is to be had to the laws in force in the jurisdiction of the State called upon to interpret the word. The Bombay High Court seems to accept the ambulatory approach in such a situation, thus allowing for successive amendments into the realm of “laws in force”. We express no opinion in this regard since it is not in issue before this Court. This Court’s finding is in the context of the second situation, where there does exist a definition of a term within the DTAA. When that is the case, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA and the ultimate taxability of the income under the agreement. That is not to say that the Court may be inconsistent in its interpretation of similar definitions. What that does imply however, is that just because there is a domestic definition similar to the one under the DTAA, amendments to the domestic law, in an attempt to contour, restrict or expand the definition under its statute, cannot extend to the definition under the DTAA. In other words, the domestic law remains static for the purposes of the DTAA.
Dismissing the appeal of revenue the Court held that letting out halls for marriages, sale and advertisement rights had not been found to be a regular activity undertaken as part of business. The income was generated from giving various halls and properties of the institution on rentals only on Saturdays and Sundays and on public holidays when they were not required for educational activities and could not be said to be a business which was not incidental to attainment of the objects of the Trust. This being merely an incidental activity and income derived from it having been used for the educational institute and not for any particular person and separate books of account having been maintained, this income could not be brought to tax. As regards acquisition of property the deduction was allowed earlier was towards application of funds of the trust for acquiring assets, the depreciation is permissible as deduction considering the use of the assets.
Dismissing the appeal of revenue the Court held that; where trust deed specifically provided that if necessary to close trust, then property of trust be handed over to other institution/trust having similar objects by passing resolution by minimum 2/3rd majority of trust and unanimous decision of committee working trustees, registration under section 12AA could not be denied to assessee-trust on ground that trust deed did not have dissolution clause.
The assessee-company borrowed funds from IC, an associate concern, from time-to-time at commercial rate of interest. Similarly, the assessee had advanced loan to MBPL, another associate concern.
There was default on the part of MBPL and the assessee waived the loan granted to MBPL together with interest. At the same time, IC waived loan advanced to the assessee together with interest.
The Assessing Officer treated the amount of loan and interest waived by IC as business income under section 28(iv) and made addition accordingly.
On appeal, the Commissioner (Appeals) deleted the additions.
On revenue’s appeal, the Tribunal upheld the order of the Commissioner (Appeals).
Assessing Officer disallowed the estimated rent by invoking the provision of section 40A(2) of the Act. Tribunal deleted the disallowances. On appeal by revenue dismissing the appeal of revenue the Court held that; the assessee company as well as parent company, both were assessed to tax at maximum marginal rate and, therefore, it could not be said that service charge was paid to G at unreasonable rate to evade tax. Since revenue could not point out that assessee evaded payment of tax, invocation of section 40A(2) was not valid.
Assessee sold rice bran at a price lessor than its purchase price, Lower authorities confirmed the difference as additional income of assessee. On appeal allowing the appeal of assessee the Court held that; The Apex Court in the case of CIT v. Calcutta Discount Co. Ltd.  91 ITR 8 has held that ‘where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimise his tax burden. Similarly, the Gujarat High Court in the case of CIT v. Keshavlal Chandulal  59 ITR 120 has observed that ‘where a person disposes of his goods at a lesser value than their market price, or at a concessional price, there is nothing in the income tax law which compels him to sell at a price which is the price realisable in the market.
S. 40A(3) : Expenses of payments not deductible – Cash payments exceeding prescribed limits –Amendment of aggregation of payments in a single day is applicable w.e.f. 1st April, 2009.
During the year under consideration, the assessee made various purchases of ` 1,38,43,525/- from two parties in respect of which payments were made in cash. The Assessee was required to make payments in cash for the reason that the assessee was new in business and had a small capital base of ` 10 lakh, therefore, distributors were not ready to extend the credit even for a single or two days.
The AO and CIT(A) disallowed the said payment u/s. 40A(3). However, the Tribunal deleted the addition so made.
The Revenue carried the matter to the Delhi High Court and the Hon’ble High Court concurred with the view of the Tribunal on the ground that there are several mitigating factors to show and establish commercial expediency and reasons for making the purchases in cash, which have not been disputed. Further, amendment to section 40A(3) relating to “aggregation” of payments made to a person in a single day is not applicable as the same is effective from 1st April, 2009 i.e. AY. 2009-10 onwards.
(i) There is a basic fallacy in the submission of the Revenue about the precise role of the Assessee, Five Vision. The broad sweeping allegation made is that “the Assessee being a developer is charging on money which is taken in cash”. This, however, does not apply to the assessee which appears to be involved in the construction of a shopping mall. In fact for the AYs in question, the assessee had not commenced any business. The construction of the mall was not yet complete during the AYs in question. The profit and loss account of the assessee for all the three AYs, which has been placed on record, shows that only revenue received was interest on the deposits with the bank. Assessee is, therefore, right in the contention that the basic presumption of the Revenue as far as the assessee is concerned has no legs to stand. Correspondingly, the further allegation that such ‘on money’ was routed back to the mainstream in the form of capital has also to fail.
(ii) The other submission that the assessee was itself being used as a conduit for routing the ‘on money’ or that the investment in the assessee was also for routing such ‘on money’ has not even prima facie been able to be established by the Revenue. On the one hand there is an attempt to treat the cash credit found in the assessee’s books of accounts to be ‘undisclosed income of the assessee’ by showing the investors to be ‘paper companies’. On the other hand, the attempt is to show that this money in fact belongs to certain other entities whose source has not been explained by the assessee.
(iii) Coming to the core issue concerning the identity, creditworthiness and genuineness of the investor companies, it is seen that as far as the Table I investors were concerned, only 9 were searched and in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the assessee had discharged the primary onus of proving their creditworthiness and genuineness. They had responded to the summons issued to them. Directors of 14 of these companies appeared before the AO and produced their books of account.
(iv) The mere fact that some of the investors have a common address is not a valid basis to doubt their identity or genuineness.
(i) The Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the AO by the assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been rightly commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the credit worthiness of the shareholders.
During search at assessee’s premises it was found that assessee had purchased a property (Anand Niketan property). Assessee explained that his company RFPL had received cash amount of ` 1 crore on account of sale of other property (Golf Link property) and said amount was used by assessee for purchasing Anand Niketan property. Buyer of Golf Link property, however, denied to have paid any cash to RFPL. On that basis Assessing Officer held that cash involved in purchase of Anand Niketan property remained unexplained and made addition accordingly. Appellate authorities deleted addition on ground that RFPL had shown cash receipt of ` 100 lakh on account of sale of a property and had declared long-term capital gain on basis of sale proceeds of ` 255 lakh which had been accepted by Assessing Officer of that company and, hence, it had to be accepted that this much cash was received by that company. On appeal by revenue the Court held that; on given fact-intensive nature of matter, findings recorded by Appellate Authorities were to be upheld.
Dismissing the appeal of revenue the Court held that; where assessee made an admission regarding unaccounted investment during survey and almost after two years, retracted from same on basis that admission was based on coercion and force without giving any reason, same was not acceptable and addition as undisclosed investment was to be upheld.
For the assessment year 1999-2000, the assessee-firm, relying upon the provisions of section 32(2), claimed that the carry forward depreciation loss relating to assessment year 1997-98 was admissible to be set off against profit and gains arising from business in the relevant year which included short-term capital gains arising from sale of business assets. In support of its claim the assessee relied upon the decision of the Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd.  57 ITR 306 and E.D. Sassoon & Co. Ltd. v. CIT  86 ITR 757.
The Assessing Officer, however, rejected the assessee’s claim and brought to tax the short-term capital gains to tax.
On appeal, the Commissioner (Appeals) and the Tribunal were of the view that the claim of the assessee that unabsorbed depreciation should be allowed to be adjusted against capital gains was incorrect as sections 32(2)(i) and 32(2)(ii) did not get attracted in instant case.
The core issue in the instant case is whether in terms of section 32(2)(iii), the assessee will be entitled to set off the brought forward depreciation loss against capital gains. That issue, apparently, has not been addressed by the Tribunal in the order in question. All that the Tribunal says in the order is that, though it is abundantly clear that section 32(2)(iii) is operational in the case of the assessee, it only says that unabsorbed depreciation can be carried forward to the successive years. That is not the issue raised in the appeal.
The issue to be decided in the instant case is whether the capital gains arising out of sale of depreciable assets could be set off against the profits and gains of business for the assessment year 1999-2000. That issue, unfortunately, has not been considered by the Tribunal. Furthermore, the decision of the Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. (supra) and E.D. Sassoon & Co. Ltd.’s case (supra) raised in the grounds of appeal by the assessee has also not been adverted to. The decision of the Supreme Court clearly gives a pointer to the issue as to whether the appellant/assessee is entitled to set off of brought forward depreciation loss as against profits and gains of business arising from sale of depreciable assets for the assessment year 1999-2000.
S.79 : Carry forward and set off losses – Change in share holdings – Companies in which public are not substantially interested – The transfer of shares of an Indian company by a holding Co. (Yum Asia) to another holding Co. (Yum Singapore) results in change of “beneficial ownership” of shares, – Set off of losses was rightly rejected by the Tribunal.
Assessees were issued show cause notices for centralisation of their cases. They requested to supply material information, which formed basis for issuance of notices. Request of assessees was turned down holding that such material would be supplied to them during course of assessment proceedings. On writ, allowing the petition the Court held that assessees should know gist of enquiry carried out against them and were also to be supplied adverse material gathered against them in order to enable them to represent their cases effectively before Commissioner and assessees were entitled to pre-decisional hearing in order to contest show cause notices.
Dismissing the appeal of revenue the Court held that no incriminating material having during search, block assessment made solely on the basis of statement of assessee recorded under section 132(4) was invalid, more so when such statement was recorded after two and half months of search and was retracted.
(i) The Court is of the view that notwithstanding several decisions of the Supreme Court as well as this Court clearly enunciating the legal position under Section 147/148 of the Act, the reopening of assessment in cases like the one on hand gives the impression that reopening of assessment is being done mechanically and casually resulting in unnecessary harassment of the Assessee.
Allowing the petition the Court held that; It is settled legal position as held by a catena of decisions that the substratum for formation of belief that income liable to tax has escaped assessment has to form part of the reasons recorded. In the present case, the substratum for formation of belief, as indicated in the order rejecting the objections as well as the affidavit-in-reply, is the information given by the DGIT (Inv.), Mumbai, which got no relation with the reasons recorded, which are stated to be based upon the material available on record. Under the circumstances, the Assessing Officer, on the basis of the material on record, could not have formed belief that there was any escapement of income chargeable to tax so as to validly assume jurisdiction under section 147 of the Act. As held by the Supreme Court in a catena of decisions, the reasons recorded cannot be supplemented in the affidavit or by the order rejecting the objections. The material, on the basis of which, the belief that income chargeable to tax has escaped assessment has been formed, has to find place in the reasons itself.
Dismissing the appeal of revenue, the Court held that; the copy of the satisfaction recorded by the Assessing Officer, reads that in the course of search and seizure of the house of one MM, some documents related to assessee were found and seized. Therefore, the jurisdiction over the assessee had been assigned by Commissioner and in view of provisions of section 158BD, notice under section 158BC issued. On perusal of the same, it is found that no satisfactory reasons were assigned by the Assessing Officer in order to issue a notice under section 158BD as held by the Tribunal. In addition, it is also seen that the revenue did not show any reasons for non-production of the reasons recorded for the satisfaction of the Assessing Officer to issue notice under section 158BD before the Tribunal when time was granted for one year to the revenue to produce the same. Even in this appeal, no explanation is offered except stating that reasons were recorded. When there is no explanation offered by the revenue for non-production of the document before the Tribunal for more than an year and having held that reasons recorded would not constitute satisfactory reasons, it is to be held that there is no merit in this appeal.
Requirement of section 158BD, that Assessing Officer of person searched or against whom an order under section 132A has been passed, should be satisfied that any undisclosed income belongs to a third person, is statutory mandate and a jurisdictional prerequisite before proceedings under section 158BD are initiated and violation of said requisite and mandatory requirement would result in annulment of assessment under section 158BD read with section 158BC. Merely because Assessing Officer of person searched and Assessing Officer of assessee were same, this would not mean that Assessing Officer of person searched should not have recorded satisfaction before notice was issued under section 158BD read with section 158BC. In the instant case, no satisfaction note recorded by the Assessing Officer of the person searched is available. In these circumstances and in view of the decision of the Supreme Court in CIT v. Calcutta Knitwears  362 ITR 673 (SC) the block assessment proceedings initiated under section 158BD read with section 158BC were bad and contrary to law.
The Assessing Officer and the CIT(A) completed block assessment proceedings u/s. 158BD. On assessee’s appeal, the Tribunal held that the Assessing Officer should record satisfaction. In the instant case, the communications available with the Assessing Officer show that certain facts with regard to question were communicated, but there is no specific recording of reasons for resort of block assessment. On Revenue’s appeal to the High Court, it held that recording of reason is a mandatory requirement as contemplated u/s .158BD and therefore, it didn’t find any error in the Tribunal’s Order.
(i) A bare perusal of s. 44BB indicates as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7 % of the aggregate ½ of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head “Profits and Gains of Business or Profession”. It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The amounts which are paid or payable whether in or out of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at a port in India and the amount received was deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India shall be deemed to be the profits and gains. On that the tax is payable by virtue of sub-section (1) of section 172. That has to be levied and recovered in terms of the sub-sections of section 172 of the Income Tax Act. Once section 172 falls in Chapter XV titled as Liability in Special Cases – Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195.
(ii) To our mind, the Division Bench judgment in Commissioner of Income-tax v. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business.
(i) It is clear that the notice is issued proposing to levy penalty under Section 271(1)(b) of the Act whereas the order is passed by the Assessing Officer under Section 271(1)(c) of the Act which clearly indicates that there was no application of mind by the Assessing Officer while issuing the notice under Section 274 of the Act. It is imperative from the order under Section 271(1)(c) of the Act that the Assessing Officer noticed that the assessee has declared the revenue expenditure in the financial expenses which was capital in nature. This is based on the verification of details of the return of income filed by the assessee. If so, there was no occasion for the Assessing Officer to come to a conclusion that there was concealment of the income by the assessee or the assessee has filed inaccurate particulars. The very particulars were available in the return of income.
(ii) This clearly indicates that the Assessing Officer had no jurisdiction to pass the penalty order under Section 271(1)(c) of the Act without issuing a proper notice as required under law and moreover, when the particulars are disclosed in the return of income.
(iii) As regards Section 271(1-B) of the Act, it clearly indicates that the assessment order should contain a direction for initiation of proceedings. Merely saying that the penalty proceedings have been initiated would not satisfy the requirement, a direction to initiate proceeding shall be clear and not be ambiguous.
(i) In terms of section 275(1)(c), there are two distinct periods of limitation for passing a penalty order, and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed in the first instance. In the present case, at the level of the AO, the quantum proceedings was completed on 28th December, 2007. Going by this date, the penalty order could not have been passed later than 31st March 2008. The second possible date is expiry of six months from the month in which the penalty proceedings were initiated. With the AO having initiated the penalty proceedings in December 2007, the last date by which the penalty order could have been passed is 30th June 2008. The later of the two dates is 30th June 2008.

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