Source: http://aiftponline.org/category/journal/2016/october-2016/
Timestamp: 2019-04-23 15:01:04+00:00

Document:
Under Section 48 of the up Vat Act, there is no embargo of releasing the Seized goods in part. In the absence of any provisions, it is the discretion of the authority to release the goods either upon receiving the entire amount as demanded or release a part of goods upon furnishing security to that extent.
Aluminium grills can be used at any place in a house or even in an industrial accommodation. One cannot confine its use for air conditioning or cooling equipment alone. Therefore it cannot be classified to be an integral part of the Air conditioning or cooling plant and therefore cannot be taxed @15% applicable to Parts of Air Conditioning or Cooling Plant.
The work of cleaning and polishing of Silver articles will not fall within the definition of word manufacture as contemplated under Section 2 (e-1) of The UP Trade Tax Act, as the purpose of cleaning does not entail a change in the original commodity so that a new and distinct article can be said to have emerged.
(Source: CCT v. M/s. Hari Prasad Gopal Krishna Jewellers Pvt. Ltd., Trade Tax Rev. No. 778 of 2011, dated 18th January, 2016, 2016 NTN (Vol.-61 ) -23 (All)).
Sections 19(16) of The TNVAT Act does not empower the authority to revoke input tax credit availed on a plea that the selling dealer has not paid tax.
Under Rule 54(3) of The Haryana Vat Rules, the buyer is required to produce the tax invoice, its name and TIN number entered on it. However, question would be whether the purchaser can be penalized where the seller does not comply with the same. Answer is No. The non-mentioning of buyer’s name or TIN number in tax invoice as it is issued by the seller cannot be taken to be fatal against the buyer and the benefit of input tax credit cannot be declined to the buyer on that basis alone. In that event heavy onus is cast on the buyer to produce material to discharge the said onus by producing other evidences to show that the transaction was genuine.
The claim for deduction of the trade discount and performance discount cannot be disallowed solely on the ground that it were not shown in the sale invoices.
(Source: M/s. Titan Industrial Ltd. v. CCT, MP, WP No. 3387 of 2005, dated 4th April, 2016, (2016) 28 STJ 612 (MP)).
The revisional authority discarded certain documents only on the basis that the same was not produced at the time of hearing of case. It is not the case that the document was produced after the delivery of judgment. In the interest of justice, the order was set aside and matter was remanded for considering the matter afresh after taking into consideration the documents filed by the petitioner.
(Source: M/s. Savera Traders v. STO, Misc. Petition No 2392 of 1988, dated 17th April, 1998, (2016) 28 STJ 629 (MP)).
Any payment that does not have any nexus with the sale transaction cannot be included in the definition of turnover. The subsidy granted is not in discharge of any liability or obligation by the Government towards the purchase of the fertiliser. It is a payment made to compensate the importers and manufacturers of fertilisers for the difference between actual cost of production of the fertilisers and the realised price. Such a payment cannot be seen as a payment made to petitioners, on behalf of the purchasers of fertilisers so as to form part of turnover for levy of tax.
(Source: M/s. Indian Potash Ltd. v. State of Kerala & Ors, WP(C) No.
– 8444 & 12320 of 2011, 2741, 6674 & 228 90 of 2012 and 8835, 11732, 13661 & 30884 of 2013, dated 1st December, 2015, (2016) 24 KTR 242 (Ker)).
"shall not include" and the same is designed to exclude the goods which are primarily cosmetics in use but have a subsidiary use as drugs and medicines. However, when goods which are drugs and medicines in their primary use but have cosmetic use as well cannot be treated as product covered by residual Entry 1 of the Fifth Schedule of the Act. The products involved in proceedings are basically treated as drugs and medicines although they have ancillary use as cosmetics are drugs and medicines covered by Entry 21 of Fourth Schedule of the Act.
(Source: M/s. Emami Ltd & Anr. v. State of Assam & Anr., W. P. (C) No. 3023, 3510, 3593, 4330 and 5622 of 2008, dated 20th March, 2015, (2016) 24 KTR 259 (Guwahati)).
In case of Works Contract, whether contractor can make exempted sale u/s. 6(2) of the CST Act by transfer of documents of title to goods ?
There is special facility of exempted subsequent sale under section 6(2) of the CST Act, when sale is effected by transfer of documents of title to goods and when such sale is during movement of said goods. The transactions are better known as in-transit sale or E-I/E-II/C forms sale. In other words, there is intention to minimise CST levy within the course of single movement. As per Section 3(b) of the CST Act, the movement commences when the goods are delivered to public carrier and ends when the goods are taken delivery from the carrier.
"Within section 3(b) of the 1956 Act are sales in which property in the goods passes during movement of the goods from one State to another by transfer of documents of title thereto, whereas section 3(a) covers sales, other than those included in clause (b), in which the movement of goods from one State to another is under the contract of sale, and property in the goods passes in either States. A sale which takes place under section 3(a) stands excluded from the purview of section 3(b) and vice versa.
"during such movement" in section 6(2) suggest that the goods are in movement, i.e., the goods have commenced movement in one State, but have not completed their movement in the other State.
Where the Legislature uses the same word or phrase in similar contexts, in different parts of the same section or statute, there is a presumption that the word is used in the same sense throughout, and to intend it in each place to bear the same meaning. It is reasonable to presume that the same meaning is implied by the use of the same expression in every part of an Act.
The conditions discernible from section 6(2) are that, while the first sale can be either a section 3(a) or a section 3(b) sale, the second or subsequent sale has to be a section 3(b) sale. A contract of sale entered into either before commencement of movement in the first State, or after completion of movement of the goods in the second State, can neither be a section 3(b) sale nor a subsequent sale exempt under section 6(2) of the 1956 Act.
It is necessary to read the contract as a whole to ascertain whether the parties, in fact, intended to transfer title to the goods during their movement from one State to another or after the goods have landed and have been utilised or incorporated in the works of the owner. The rule of construction, applicable to all written instruments, is that the instrument must be construed as a whole in order to ascertain the true meaning of its several clauses. The contract must be read as a whole, and a single clause, or a few clauses, in the contract should not be read out of context to determine the intention of the parties.
As ownership of the goods is not determined on the basis of who insures the goods, it matters little that the goods are insured, for their inter-State movement, by the owner. If the parties have agreed that the responsibility for risk of loss and damage to the goods would be that of the supplier till erection of the plant is completed, evidently transfer of title to the goods is intended to pass only on erection, and not prior thereto.
Usha Beltron Ltd. v. State of Punjab  7 SCC 58 followed.
– one under section 3(a) and the second under section 6(2), as a section 3(a) sale is the first sale, and the sale exempt under section 6(2) is the second sale which takes place when the goods are in continuous movement pursuant to the first sale. As the first sale cannot, simultaneously, be a second sale also, a section 3(a) or a 3(b) sale cannot, at the same time, be a subsequent sale exempt from tax under section 6(2) of the 1956 Act.
The principles laid down in the context of an intra-State deemed sale of goods involved in the execution of a works contract would equally apply to an inter-State deemed sale of goods involved in the execution of a works contract. As the situs of the sale is irrelevant to a sale falling within the ambit of section 3(a) of the 1956 Act, and it would suffice if the movement of goods from one State to another is occasioned by the contract of sale or an agreement of sale containing a stipulation for the sale of goods or even as an incidence of such contracts, the measure or value of the goods on which tax, under section 3(a) of the 1956 Act, is to be levied would be the value of the goods when it is incorporated in the works, and neither the cost of acquisition of the goods by the contractor nor the price at which the goods were sold by the contractor to the owner under the supply contract. The value of the goods would also include the expenses incurred by the contractor (after the goods have been delivered by the carrier within the State), for transporting the goods to the site, the profit component involved in the inter-State deemed sale of goods, etc.
It is for the contracting parties to decide how, and from where, the goods should be purchased. It is not open to the State to contend that, even if the suppliers are identified in advance, they should have effected branch transfers, and then sold the goods to the contractee. When the goods move to a pre-determined buyer in the destination State, then the State from which the goods commence their journey would treat it as inter-State movement under section 3, and levy tax without giving exemption towards branch transfer. Questions, as to how a contract should be structured, and whether the goods should be sold in the course of inter-State trade or commerce or brought within the State as branch transfers, are commercial decisions, for the contracting parties to take, and not for the assessing/revisional authorities to impose.
"owner" being the importer of the goods, the title to the goods continued to remain with the contractor.
That the contracts were entered into between the owner and the petitioner-contractor, prior to an order being placed by the petitioner-contractor on suppliers outside the State for supply of the goods required for installation and erection of the project within the State, i.e., for the sale of future goods which were required to be manufactured by the suppliers, identified in the contract. The contracts could not have been, and were not, entered into when the goods were in movement from one State to another. A contract for the sale of future goods can neither be a section 3(b) sale nor a subsequent sale exempt from tax under section 6(2) of the 1956 Act. The sale could not, therefore, be a subsequent sale exempt from tax under section 6(2) of the 1956 Act."
Thus, the main principle applied by Hon. High Court was that the transfer of ownership in the goods when they are to be installed by way of contract is after installation and therefore, sale u/s.6(2) by transfer of documents of title to goods is not possible.
The judgment has far reaching effect. The situation can be seen by the law makers and make suitable changes to give real benefit of section 6(2) even in case of works contract.
Whether Section 115BBE would come into operation when the assessee has himself declared in his original Return of Income (or voluntarily through revised return) any income which could have been brought to tax by the Assessing Officer u/ss. 68, 69, 69A and 69B etc? In other words, if the assessee himself declares any income in the Return without specifying the source thereof as other income he should be liable to pay tax at the normal applicable rate and not necessarily at 30% specified u/s. 115BBE.
"Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee. In case of individuals, HUF etc.; no tax is levied up to the basic exemption limit. Therefore, in these cases, no tax can be levied on these deemed income, if the amount of such deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at lower slab rate.
Thereafter, the Finance Act, 2016 w.e.f. April 1, 2017 i.e., from assessment year 2017-18 amended the said section to provide that even set-off any loss shall also be not allowed against the income under the aforesaid sections.
Thus, even though the assessee declares voluntarily income under sections 68, 69, 69A and section 69B etc., shall be liable to pay tax @ 30% plus surcharge and cess as may be applicable, under section 115BBE.
Mr. A has taken over the running business of Mr. B with all its assets and liabilities w.e.f. April 1,2014. He makes a cash payment of &#8377 40,000/- on June 1, 2014 to one of the trade creditors of the predecessor, Mr. B., deduction in respect of which obviously not claimed by the Mr. A. Can there be any disallowance in the hands of Mr. A in the assessment year 2015-16?
i) There shall be a change of ownership.
– the whole business should devolve upon the successor.
iii) The identity and continuity of the business should be substantially preserved. The same business shall be carried on by the person succeeding.
"succeed" to the business of another.
Now, from the facts, it is clear that Mr. A has succeeded to the running business of Mr. B and stepped into the shoes of Mr. B and paid his liability (creditors) in cash whose business he has succeeded.
So sub-section (3A) of section 40A of the Act clearly applies which provides that where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income tax as income of the subsequent year of the payment or aggregate of payments made to a person in a day exceeds twenty thousand rupees.
When my father was alive not only he prepared the will & bequeathed the residential flat to me exclusively, but also added my name in the share certificate of the society. So on his death the society deleted his name and my name which was second became first. After few days I added my wife’s name as second and then both of us nominated our only child (i.e. married daughter), Now in above situation on my death who will become owner of the flat?
"associate member". Now on his death you became the "member" as per his Will.
but you have not assigned your flat to your daughter.
Amount paid to tenants for vacating the house against compensation (Pagidi). Can I treat the entire compensation which was paid to the tenant while calculating capital gains?
"for the transfer". Here again, we are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if without removing any encumbrance including encumbrance of the type involved in this case, sale or transfer could not be effected the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration is required to be reduced by the amount of compensation.
"cost of improvement" deductible u/s. 48(ii).
So, amount paid to tenants for vacating the house can be deducted while calculating capital gains tax under section 48 of the Act.
39. The practitioner plans and performs an assurance engagement with an attitude of professional skepticism recognising that circumstances may exist that cause the subject matter information to be materially misstated. An attitude of professional skepticism means the practitioner makes a critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or bring into question the reliability of documents or representations by the responsible party. For example, an attitude of professional skepticism is necessary throughout the engagement process for the practitioner to reduce the risk of overlooking suspicious circumstances of overgeneralising when drawing conclusion from observations, and of using faulty assumptions in determining the nature, timing and extent of evidence gathering procedures and evaluating the results thereof"
Therefore, it would be advisable for trust to obtain AADHAR card or PAN card of the patients to prove that they are genuine.
Note: Please send your queries relating to Direct, Indirect & International taxation, Accounting & Auditing Standards and Company Law, FEMA etc., to AIFTP, having interest to the Members.
Now, GST in India will be levied under Article 246A of the Constitution. The Union will levy its own Central GST (“CGST” ) applicable on all “intra-State” supplies throughout India. The various States will levy their own State GST (“SGST” ) which will cover all “intra-State” supplies in the State. On all inter-State supplies, the Union can levy Integrated GST (“IGST” ) and the States are constitutionally barred from taxing inter-State transactions.
“In exercise of the legislative power conferred upon them in substantially similar terms by the Government of India Act, 1935, the Provincial Legislatures enacted sales-tax laws for their respective Provinces, acting on the principle of territorial nexus referred to above; that is to say, they picked out one or more of the ingredients constituting a sale and made them the basis of their sales-tax legislation. Assam and Bengal made among other things the actual existence of the goods in the Province at the time of the contract of sale the test of taxability. In Bihar the production or manufacture of the goods in the Province was made an additional ground. A net of the widest range perhaps was laid in Central Provinces and Berar where it was sufficient if the goods were actually ‘found’ in the Province at any time after the contract of sale or purchase in respect thereof was made. Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a Court of law. And such claims to taxing power led to multiple taxation of the same transaction by different Provinces and cumulation of the burden falling ultimately on the consuming public. This situation posed to the Constitution makers the problem of restricting the taxing power on sales or purchases involving inter-State elements, and alleviating the tax burden on the consumer”.
The GST regime also seeks to ensure that only one State can tax a supply as far as SGST is concerned. To that end, only one legislature, that is Parliament, controls the law defining inter-State supplies.
Section 2(48) borrows the definition of “goods” from the Sale of Goods Act, 1930 and thus also includes “securities”. This is in contrast with similar definition under the Sales tax laws which used the Sale of Goods Act, 1930 definition but consciously excluded “securities”. Securities were of course kept out since the policy was that transactions in securities should not be subjected to State laws to avoid burdening the markets. This policy has now been departed with.
The definition of goods and services, is important since primarily the place and time of supply rules differ for goods and services. The inclusion of securities in the definition of goods will create problems in case of demat securities when place of supply rules are sought to be applied to it. The GST place of supply rules for goods follow the old “movement” and “location” pattern of sales tax. Thus, where goods do not move, the place of supply is where the goods are located at the time of delivery and that State gets the right to tax. In case of demat securities, this is bound to cause problems.
The “movement” and “location” conundrum under sales tax has also led to a welcome change in the GST regime. All intangible property has been put outside the remit of the term “goods” and within “services”. Sales Tax Laws also allowed states to tax intra-State sales and Parliament would tax inter-State sales. An inter-state sale, under sales tax, would ordinarily arise if the sale occasioned “movement” of goods etc. across state frontiers. If there was no movement across state frontiers, then the state where goods are located would get the right to tax. Inter-State sales carried a much lesser rate of tax and import and export were not subject to sales tax. The criteria to determine if a sale is in course of import or export also followed the “movement” pattern similar to inter-State sales. In cases of intangibles like trademark, copyright and patent, the claim of inter-State, import or export sale was not accepted by the sales tax authorities in some States like Maharashtra on the basis that a trademark, a copyright or a patent could not move and therefore even if a assignment takes place anywhere in the world, the same was liable to be taxed in India. So far so good. A further question would then arise as to which State can tax the sale, a copyright, patent and trademark being present throughout India at the same time and whether all 29 states can tax the entire sale consideration or whether the sale consideration was to be apportioned and what should be the basis of such apportionment. We will thankfully be spared this nightmare under the GST law. All intangible property will be classified as a service whose place of supply rules are better suited for things like copyright, patent and trademark.
Services is defined in a rather expansive manner. The definition of service “anything other than goods” has been borrowed from the New Zealand GST law. But as held in New Zealand in Case S65 (1996) 17 NZTC 7408, howsoever wide the definition of service may seem, it has its limitation. In that case, payments made under an order of a disciplinary tribunal to reimburse the costs and expenses of the winning party were held not to be consideration for supply of any “services” since ordinarily a supply of services has to be for the benefit of the recipient and not against him.
The definitions of “goods” as well as “services” exclude “money”. It is one of the fundamental principles of all VAT/GST jurisdictions that supply of money is not to be taxed. This exclusion makes sure that when monetary consideration is supplied for the supply of goods and services, that consideration itself is not to be taxed as supply of money.
The definitions of “goods” excludes “actionable claim”. Sales tax law also excluded actionable claim from definition of “goods”. But the definition of “services” here covers “actionable claim” specifically, whereas the service tax law excluded “actionable claim” from definition of “services” in that law. Actionable claim is defined in Section 2(1) of the Model CGST law. Assignment of a debt is thus a service, debt being an actionable claim.
There is one more snag in the definition of “service”. It seems wide enough to cover immovable property even though we have been always told that real estate will be kept outside the scope of GST. I expect some clarification one way or the other from the Empowered Committee on this in the coming weeks.
Before we proceed to the meaning of the term “supply” , it is important to go through the definition of business. All supplies have not been brought to tax under this Act, only those supplies which are “in the course of or furtherance of business” are taxed.
“Business” under this Act includes trade, commerce, manufacture, vocation, profession as well as any other similar activity. Sub-clause (a) makes pecuniary benefit irrelevant to the enquiry. “Pecuniary” is anything which is money or whose value can be expressed in monetary terms. The concept of pecuniary benefit is similar to that of “profit motive” in income tax and sales tax. Just like sales tax, “profit motive” has been made irrelevant even here.
A transaction which is incidental or ancillary to a trade, commerce, manufacture, profession, vocation or other similar activity will be covered by sub-clause (b). Similarly, an isolated transaction which is in nature of trade, commerce, manufacture, profession, vocation or any other similar activity will be covered by sub-clause (c). In cases covered by sub-clause (b) and (c), pecuniary benefit will again be irrelevant due to the reference to sub- clause (a).
Sub-clauses (d) to (g) deal with special situations which otherwise may not have been considered business.
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.
(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
(2A) Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.
(iii) neither a supply of goods nor a supply of services.
(4) Notwithstanding anything contained in sub-section (1), the supply of any branded service by an aggregator, as defined in section 43B, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator.
All forms of supply are covered by sub-clause (1)(a), whether sale, barter, exchange, licence, rental, lease or disposal. The tax is on “supplies of goods and services” which are “made for consideration”. The “supply for consideration” formula is also used in the EU VAT directive, New Zealand, Australian and Canadian GST laws. “Supply for consideration” postulates a link between “supply” and “consideration” which is a sufficient nexus as opposed to remote, imaginary or fantastic nexus.
Sub-clause (b) declares importation of services as “supply”. For importation of services to be treated as supply, it is not necessary that the supply has to be for consideration or that it has to be in course of or furtherance of business.
Clause 5 of this Schedule I should be of some interest, because it makes the requirement of consideration irrelevant for all supplies. This Schedule I has been borrowed from the UK VAT Act, but in the UK the requirement of consideration is the norm and the Government has to specifically notify a supply for the purpose of taking away the requirement of consideration. As such, clause 5 conflicts directly with the provisions of section 3(1)(a).
Sub-clause (2) of section 3 speaks of a Schedule II which classifies a supply as either a supply of goods or of services. This would be important since the place and time of supply rules for goods as well as services differ.
Sub-clause (3) empowers the Central Government (State Government in case of SGST) to notify whether a particular supply is a supply of goods or services or neither.
Consideration is very widely defined. It can be either monetary or non-monetary in form. Apart from payments, consideration can take the form of an act or forbearance (Forbearance here would mean a party refraining from exercising their rights for consideration). It is not necessary that consideration be provided voluntarily. The consideration has to be “in respect of, in response to, or for the inducement of” a supply. These words, borrowed from New Zealand, have been held there to imply that some binding obligation (even if not enforceable in Court) is created between the supplier and the recipient and the the obligations of supply and consideration are reciprocal in nature.
Consideration can move from the supply recipient or “any other person”. Thus third party consideration is sufficient consideration.
Proviso to Section 2(28) of the Model GST law speaks about deposits which are given in respect of supply of goods and services. Such deposits, whether refundable or not, are not to be treated as consideration till the supplier applies them as consideration for the supply.
The provisions of Section 271(1) providing for penalty on concealment of Income and/or furnishing inaccurate particulars of Income has been in the statute book for more than 56 years. Major legal issues arising in penalty proceedings have to a greater extent been settled and practically it was this settled law which had to be applied to the facts of each case. Yet due to almost automatic initiation and consequent levy of penalty by Assessing Officers for additions or disallowances made under scrutiny assessment had given rise to proliferation of litigation. In CIT v. Reliance Petro Products 322 ITR 158, the Supreme Court stated: “If we accept the contention of the revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature”.
R. V. Easwar in the year 2015 recommended that the scope of Section 273B should be suitably enlarged to provide that penalty for concealment of income or furnishing inaccurate particulars thereof will not be imposed where any addition or disallowance is made without any evidence or in a routine manner or on estimate and in cases where the Assessing Officer takes a view which is different from the bona fide view adopted by the assessee on any issue involving the interpretation of any provision of the Income- tax Act or any other law in force and which is supported by any judicial ruling.
However, instead of implementing the recommendation, the Finance Act, 2016 effectively replaces Section 271 by inserting a new Section 270A under Chapter XXI which provides for penalty on under-reporting of income and misreporting of income. Hence, from AY 2017-18 there will be no penalty for concealment of income or furnishing inaccurate particulars of income u/s. 271(1)(c) but there will be penalty for under-reporting of income and misreporting of income. According to the memorandum to the Finance Bill this amendment is done in order to rationalise and bring objectivity, certainty and clarity in the penalty provisions.
Whether the new provisions achieve the desired object or it is simply a case of unsettling settled laws resulting in more litigation or it is just an old wine in new bottle will be unearthed as we look at the provisions and analyse them hereinafter.
It may be noted that the Finance Bill did not contain the phrase “during the course of any proceedings under this Act”. This led to the issue whether penalty proceedings can now be initiated after the completion of the assessment proceedings or independent of assessment proceedings or as under Section 271 they will have to be initiated during the course of assessment proceedings itself. The addition of this phrase has settled this issue. Further implications of this phrase are analysed in later portion of this article.
(vii) The income assessed or reassessed has the effect of reducing the loss or converting such loss into income.
(i) Disallowance of set off of loss where return is filed beyond due date.
(ii) Disallowance of deduction where return is filed beyond due date.
(iii) Form 26AS or Form 16A or Form 16 adjustments.
In a case where return is furnished and assessment is made for the first time.
The amount of under reported income in case of all persons shall be the difference between the assessed income and the income determined under section 143(1)(a). Thus adjustments made while determining income u/s 143(1)(a) will not be considered as under-reported Income.
In a case where no return has been furnished and the income has been assessed for the first time.
For a person other than company, firm or local authority, the difference between the assessed income and the maximum amount not chargeable to tax.
The amount of under reported income shall be the difference between the income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order.
As per Explanation (a) to sub-section (3) “preceding order” means an order immediately preceding the order during the course of which the penalty under sub-section (1) has been initiated.
Hence preceding order could be an order u/s 143(3), 147, 254 r.w 143(3), 263 r.w. 143(3) etc.
A = Income assessed as per normal provision.
D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under reported income.
Where an assessment or reassessment has the effect of reducing the loss declared in the return or converting that loss into income.
The amount of under reported income shall be the difference between the loss claimed and the income or loss, as the case may be, assessed or reassessed.
Here, due to the use of the phrase “loss claimed” an issue will arise whether under-reported income will be the difference between returned loss and assessed income/loss or it will be difference between loss determined u/s 143(1)(a) and assessed income /loss. This issue is explained in the illustration given hereinafter.
Where the under-reporting is because of misreporting than provision of sub-section(6) [exclusions from under-reported income] shall not apply.
– An issue will arise as to the meaning and scope of the terms misrepresentation and suppression.
– An issue may arise as to the implication of the word “any”.
f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
In case of under-reporting of income – 50% of tax payable on under-reported income.
In case of misreporting – 200% of tax payable on under-reported income.
ii. In other case – 30% of the amount of under-reported income.
• Thus, slab benefit was not available.
Total income as per immediate prior order/ where intimation is a loss.
Tax calculated on under-reported income as if it were the total income.
Y – Tax on Income as per immediate prior order/ intimation.
Thus, first step will be to identify whether there is under-reported income in terms of sub-section (2) and sub-section (3). If there is under-reported income then the second step will be to identify which additions or disallowances constituting under-reported income are additions or disallowances which are on account of misreporting. Thereafter the third step would be to apply sub-section (6) to additions or disallowances to which misreporting does not apply and calculate total under-reported income and total misreporting income. Then calculate tax payable on under-reported income(without misreporting) and apply requisite penalty rate and calculate penalty amount. Then calculate tax payable on under-reported income (on account of misreporting) and apply requisite penalty rate and calculate penalty amount.
G. Under-reported income in a case where the source of any receipt, deposit or investment is linked to earlier year. [ Sub-Section (4), and Sub-Section(5)].
Section 270A(4) is somewhat similar to erstwhile explanation 2 to section 271(1) and provides that where the source of any receipt, deposit or investment in any assessment year is claimed to be an amount added to income or deducted while computing loss, as the case may be, in any preceding assessment year and no penalty was levied in such preceding assessment year then, the under-reported income shall include such amount as is sufficient to cover such receipt, deposit or investment. Further, section 270A(5) specifies that the amount for the purpose of sub-section (4) shall firstly be from the immediately preceding assessment year and then from the year preceding that and so on.
Investment in AY 2017-2018 claimed out of above addition.
Bifurcation of tax payable on UI and M is implicit.
OTHER CONSEQUENCES SAME AS ILLUSTRATION 1.
Only Sub-section 2(a) and sub-Section (3)(i)(a) is applicable and proviso is not applicable as income is assessed under normal provisions.
Hence, no penalty on adjustment under S.115JB.
Sub-Sections 2(a) and (d) are attracted Sub-Section (3)(i)(a) and proviso are attracted.
Hence, penalty on both will be levied.
Penalty – Depending on whether adjustments are classified as Misreporting or not.
The Income-tax Act does-not define the terms “under-report” or “misreporting”. It merely gives instances which will constitute misreporting (Sub-section (9)) and which will not constitute under-reporting (sub-section (6)). Hence, for the purposes of interpretation and deciding various legal issues which will crop up it is necessary to find out the ordinary or dictionary meaning.
THE FREEDICTIONARY – To report as less or fewer than is correct.
CAMBRIDGE DICTIONARY – To record that you have earned less than you really have on your tax return.
MERRIAM WEBSTER – To report to be less than is actually the case.
OXFORD DICTIONARY – Fail to report (something) fully.
• Thus, the ordinary meaning does suggest some sort of deliberate attempt to Under-report income.
OXFORD DICTIONARY – Give a false or inaccurate account of (something), A false or incorrect report.
THE FREE DICTIONARY – To report falsely or inaccurately, an inaccurate or false report/ to report mistakenly or falsely, An inaccurate or wrong report.
The term falsity is defined as wrong and untruthful assertion of a fact known to the person. The term failure is defined as the neglect or omission of expected or required action.
• Thus, the term misreporting clearly represents existence of a guilty mind on the part of the assessee.
• Under the provisions of section 270A a difference has to be made between the terms “Under-reported his Income” and “Under-reported Income”.
• As per Sub-Section (1) person is liable to penalty when that person has under-reported his income. Sub-section (2) lays down cases when a person shall be considered to have under-reported his income. It lays down six cases which essentially refer to cases where an assessment takes place and there is an addition or disallowance. The cases to a great extent manifest the ordinary meaning of the term “Under-report”. Sub-section (2) is exhaustive.
• Once sub-section (2) is triggered then the amount of under-reported income is to be computed under sub-section (3) which essentially is the difference between assessed income and income as per intimation or reassessed income and assessed income. This is the under-reported income of the person. This under-reported income computed under sub-section (3) is to be further adjusted by reducing those additions / disallowances which satisfy the conditions of sub-section (6). Thus, sub-section (6) gives the “Under-reported Income” on which penalty would be finally levied.
• The sub-section (6) gives five scenarios when a particular addition /disallowance or amount of income will not form part of Under-reported Income computed under sub-section (3). Sub-section (6) uses the term “shall not include”. The Apex Court in Narpatchand A Bhandari v. Shantilal Moolshankar Jain AIR 1993 SC 1712 was considering the scope of definition of landlord in the Explanation to Section 13(1)(g) which stated that Landlord will not include a rent-farmer or rent collector or estate manager. The Apex court held that a mortgagee with possession would qualify as a landlord as it is not specifically excluded. Thus, scenarios which are not specifically excluded by sub-section (6) would be scenarios where penalty would be imposed. Thus, the exclusion under sub-section (6) is exhaustive. The exhaustive nature of sub-section (2) and sub-section(6) are in line with the object of bringing clarity in penalty provisions which was lacking in the erstwhile section 271.
• However on must note that Sub-clause(a) of Sub-section(6) is a general/universal clause which will help assessee to raise all bona fide defences against levy of penalty.
As per sub-section (8) of section 270A if under-reporting is in consequence of misreporting then the exclusions provided in sub-section (6) will not apply. Further sub-section (9) gives six cases of mis-reporting. These cases are manifestation of the ordinary meaning of misreporting in the context of Income Tax act. Thus enumeration of six cases will make the meaning of misreporting exhaustive. Also as the ordinary meaning suggest culpability or existence of guilty mind, bona fide inadvertence or mistake in not recording investments or not recording any receipt in books of accounts etc can always be taken up as a defence.
• Both the words concealment and furnishing inaccurate particulars in the context of section 271(1)(c) indicate prima facie the intention of an assessee to hide his income or particulars thereof from the department. Consequently these words cast a burden on the department to prove the guilty mind as well as concealment. This legal position was confirmed by the Apex court in CIT v. Anwar Ali (1970) 76 ITR 696 (SC), Jain Brothers v. UOI (1970) 77 ITR 107 (SC), Hindustan Steel Ltd v. CIT (1972) 83 ITR 26 (SC) and CIT v. Khoday Eswaras and sons (1972) 83 ITR 369 (SC).
• To get over this interpretation of law, Explanation 1 was introduced in section 271(1)(c). This explanation shifts the burden of proof from the Asessing.Officer. to the assessee. Instead of the A.O. being under an obligation to establish the mala fides of the assessee, the burden is on the assessee to establish his bona fides and innocence.
• A person has under-reported his income as per sub-section (2) the moment there is a difference between assessed income and income as per intimation or reassessed income and assessed income and further the said difference is also his under-reported income as per sub-section (3). Thus till this stage i.e., whether a person has “under-reported his income” there is no question of burden of proof as per the mechanism provided to compute under-reported income of a person. It is simply automatic.
• The amount of under-reported income computed under sub-section (3) can be brought down or reduced or eliminated only in terms of sub-section (6). Clause (a) of sub-section (6) requires assessee to offer a bona fide explanation and substantiate such explanation with material facts. It is similar to Explanation 1(B) to Section 271(1)(c). Hence, the initial burden will be on the assessee to show that the benefit of exclusion under sub-section (6) is available to the assessee. Similarly in case of transfer pricing additions the initial burden will be on the assessee. In case of estimated addition referred to in clause (b) to sub-section (6) burden will be on the assessee to show that the accounts are correct and complete.
• As already discussed the term misreporting as well as six cases of misreporting will involve some sort of a deliberate attempt to misreport on the part of the assessee. Thus by applying the decisions rendered under section 271(1)( c) prior to insertion of Explanation 1 such as Anwar Ali (supra) etc, it can fairly be concluded that the burden is on the Assessing Officer to prove that there is misreporting.
• Further as sub-section (6) of Section 270A is not applicable or provision similar to Explanation 1 to Section 271(1)(c) is not incorporated for misreporting, the initial burden will not be on the assessee even if penalty under section 270A is held to be a civil liability. The Pune Tribunal in Kanbay software India P Ltd v DCIT  122 TTJ 721 (Pune) while dealing with the observation of Supreme Court in case of Union of India v. Dharamendra Textile Processors  306 ITR 277 (SC) to the effect that penalty under section 271(1)(c) is to provide remedy for loss of revenue and is a civil liability held that judgment in Dharamendra Textile Processors case (supra) does not make a radical change in scheme of section 271(1)(c) but it re-emphasises paradigm shift on burden of proof as brought about by Explanation to section 271(1)(c). Thus, since no such explanation similar to explanation 1 is appended to misreporting the initial burden of proof will be on the revenue. Hence, it will be for the revenue to prove that there is misrepresentation, suppression, failure and falsity in terms of six cases of misreporting.
HOW TO DISCHARGE THE BURDEN.
• Before analysing how an assessee can discharge the burden cast on him under sub-section (6), it is important to keep in mind the fundamental legal proposition that Assessment proceedings are not conclusive for levying. This was the position under section 271(1)(c) and same is the position under section 270A as sub-section (6) provides the scenario when though there is under-reported income as per sub-section (2) and (3) said under-reported income would not be exigible to penalty. Thus, assessment proceedings and penalty proceedings are separate and distinct. Thus the law as applicable under the current regime of section 271(1)(c) will also be applicable to Section 270A.
• Thus, under penalty proceedings Assessee can discharge his burden by relying on the same material on the basis of which assessment is made by contending that all necessary disclosures of material facts were made and that the explanation of assessee was bona fide. Further if there is any material or additional evidence which was not produced during assessment proceedings same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate.
• Under section 271(1)(c) the meaning of “Concealment” and “furnishing inaccurate particulars” contained an element of culpable mental state. The Apex Court in Dilip N. Shroff v. CIT [(2007) 291 ITR 519] held therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word “inaccurate” signified a deliberate act or omission on behalf of the assessee. It went on to hold that clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the assessing authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential.
• However, subsequently it was on the point of mens rea that the judgment in Dilip N. Shroff v. CIT [supra] was upset by the decision in Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277 after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with the Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act.
• From the scheme of section 270A it appears that where there is under-reporting or misreporting of income, the objective is to remedy loss to the revenue and is thus a strict and civil liablity not requiring existence of mens -rea. This issue will be settled only through litigation. However the burden to prove misreporting will be on the revenue as explained earlier.
• Hence, penalty u/s. 271(1)(c) is not automatic but discretionary and that the assessing officer must exercise the discretion judicially.
Sub-section (1) of section 270A uses the term “may”. Further sub-section (6) provides for situations when it cannot be said that there is under-reported income. Hence, just because a person has under-reported his income in terms of sub-section (2) and (3) would not automatically lead to the conclusion that penalty u/s 270A is leviable.
• As the burden of proving misreporting will be on the assessing officer, penalty for misreporting cannot be automatic unless AO is satisfied about misrepresentation, suppression, failure and falsity on the part of the Assessee with some degree of deliberateness on the part of the assessee.
• Thus, a bona-fide mistake or reliance on expert professional opinion would continue as a defence for assessee from levy of penalty even in cases of mis-reporting.
Thus penalty u/s 271(1)(c) cannot be levied on an incorrect legal claim.
• In the case of under-reported income, clause (a) of sub-section (6) of Section 270A is similar to Explanation 1 clause (B). Hence, where a debatable issue is involved or an incorrect legal claim is involved then penalty under section 270A for under-reporting of income would not be leviable. Obviously, such under-reporting of income cannot be as a consequence of misreporting.
• Hence, there has to be satisfaction, such satisfaction has to be recorded, recording must be before completion of assessment proceedings and penalty proceedings though initiated before completion of assessment proceedings they will have to commence after passing of assessment order.
The above provision came up for interpretation before the Delhi High Court in the case of Ms. Madhushree Gupta v. Union of India  309 ITR 143(Del) wherein the Delhi High Court held that both in post amendment and pre amendment there is not much difference and the satisfaction is required to be arrived in the course of assessment proceedings and should be discernable in the assessment order.
Following the above ratio, in CIT v. MWP Ltd  264 CTR 502 (Karn) wherein the assessment order it was recorded “Penalty u/s. 271(1)(c) initiated separately.” penalty was deleted.
• Thus there has to be a satisfaction and direction to initiate penalty should be clear, unambiguous and akin to an order requiring positive compliance.
• As pointed out earlier, the Finance Bill did not contain the phrase “during the course of any proceedings under this act”. However with the introduction of the said phrase which also existed under section 271(1) and the interpretation of section 271(1) given by the courts as pointed out above it can be concluded that penalty proceedings can commence only after completion of assessment proceedings but there has to be a direction to initiate penalty proceedings before the completion of assessment proceedings. Obviously such direction has to form part of the assessment order.
• At the first glance of section 270A(1) there seems to be no requirement for AO to have satisfaction and record such satisfaction as was required under the erstwhile section 271(1) as the term satisfaction is not used in S.270A(1).
• However my view is that there is an implied requirement. This is because the term “may” which qualifies the term “direct” indicates that penalty is not automatic and thus if penalty is to be initiated, AO must be satisfied of the quantum of under-reported income or misreporting and only upon such satisfaction or application of mind he can direct during the course of any proceedings under this act that any person who has under-reported his income shall be liable to pay a penalty. Also, the term “direct” or “direction” as pointed out above in CIT v. Manjunath Cotton and Ginning Factory(supra) itself requires AO to pass an order requiring positive compliance.
• The conclusion is further strengthened by the language used in Section 270AA(3) being “……., where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A”.
• Hence, if in an assessment an expenditure is disallowed or there is estimation, there will be an unreported income under Sub-section(2) and (3) of S.270A. When the said expenditure is being disallowed / income is estimated, AO has a choice to decide whether to direct levy of penalty or not, which will depend on satisfaction of AO as to applicability of Sub-Section (6) in the facts of the case. Thus if AO is satisfied [ie after application of mind] that sub-section (6) will not apply or that expenditure disallowed is on account of misreporting, he will have to direct the levy of penalty under section 270A and such direction will have to be recorded in the assessment order.
Only where the income computed u/s. 115JB/ 115JC is deemed to be the total income of the assessee, is the formula ‘(A-B) + (C-D)’ applicable. Where the income is finally assessable under normal provisions only, then any adjustment in Book profit u/s. 115JB and 115JC may not attract penalty.
• The Apex Court in the case of K. P. Madhusudan v. CIT (2001) 251 ITR 99 has held that decision in Shadilal’s case (Supra) is no more good law after insertion of Expl-1. After the decision in the case of K. P. Madhusudan, it was noticed that just because the assessee has agreed for the addition, the penalties were levied u/s 271(1)(c). It is to be stated that the above decision in the case of K. P. Madhusudan is not to be interpreted as meaning that in an agreed addition, penalty would automatically follow. It simply holds that under the Explanation 1, the assessee should show that his failure to return correct income was not due to fraud or neglect. No separate enquiry is necessary for imposing penalty but the assessee is at liberty to show his bonafides in the penalty proceedings and if he does, no penalty can be imposed. This decision of Supreme Court had been so considered and analysed in the following decisions.
i) Shri Dilip M. Shah Mumbai v. ACIT ITA 4413/Bom/98 A.Y. 1994- 95 dt. 25/1/1999.
ii) CIT v. SAS Pharmaceuticals (2011) 335 ITR 259 (Del.)(HC).
iii) ACIT v. Crescent Property Developers ITA No. 2770/M/2012, Dt. 19/6/2014.
• This issue has to be seen in the light of section 270AA which provides for immunity from penalty under section 270A if tax and interest is paid. Thus, if assessee chooses not to challenge the assessment order, then he can apply for immunity under section 270AA and subject to the provisions of section 270AA assessee will be granted immunity from penalty.
penalty on agreed additions will be leviable or not.
• As far as Under-reported Income is concerned, the ratio deciphered above in the context of Section 271(1)(c) would also apply to Section 270A in view of clause (a) to sub-section (6) to Section 270A which permits assessee to give a bona-fide explanation. However if it is proved that the agreed addition is on account of misreporting then penalty under section 270A would certainly be leviable.
(ix) Whether issue of show cause notice is mandatory for levying penalty u/s. 270A.
• Section 274 of the Income Tax Act which provides for opportunity of hearing before imposing penalty would apply to Section 270A also.
• If the provisions of section 270A are interpreted in the manner that the assessment order must record a proper direction as to whether penalty is initiated for under-reporting or misreporting then even the show cause notice must be in consonance with such direction and the final penalty order must be in consonance with the show cause notice.
• Thus, it cannot be that SCN is for under-reporting and penalty is levied for misreporting. Even in the context of Section 271(1)(c) it has been held that show cause notices for penalty must strike either concealment if penalty is levied on furnishing inaccurate particulars and vice versa and further penalty order cannot levy penalty on concealment if show cause notice is for furnishing inaccurate particulars and vice -versa. For this proposition reliance can be placed on various decisions such as Commissioner of Income-tax v. SSA’S Emerald Meadows  73 taxmann.com 248 (SC), CIT v. Manjunath Cotton and Ginning Factory ( 2013) 359 ITR 565(Karn)(Para 59-61 and 63), Suvaprasanna Bhatacharya v ACIT ITA No 1303/Kol/2010 AY 06-07, Dt 6-11-2015 (Kol).(Rel para 8),New SorathiaEngg. Co (2006) 282 ITR 642 (Guj), CIT v. LakhdhirLalji  85 ITR 77 (GUJ.) and CIT v. Manu Engg. Works  122 ITR 306 (GUJ). The ratio of these decisions would also apply to SCN issued u/s 274 r.w.S 270A.
• As per Section 270A, where no return has been filed, the clause specifies that under-reported income shall be difference between the assessed income and maximum amount not chargeable to tax in case of persons other than company, firm and local authority. No exception is carved out in case where tax has been paid but only return is not filed.
• No clarity on rate of tax to be taken in case of firm, company or local authority say where a company which opts for section 115BA (25 %) etc. Further, as per the formula, under-reported income includes addition under normal provision as also under MAT/AMT provision which totals up to form the under-reported income. Then what shall be the rate applicable to compute the tax payable in such case is not clear.
• Section 246A which provides for appealable order before Commissioner (Appeals) specifically provides that order imposing penalty u/s 271(1) is appealable. However, the Finance Act,2016 does not amend section 246A to specifically provide that order imposing penalty under section 270A will be appealable. Section 246A(1)(q) provides that an order imposing penalty under Chapter XXI is appealable and as Section 270A is in chapter XXI, order imposing penalty under section 270A will be appealable. However a specific amendment will avoid controversy.
Section 271A provides for penalty where there is failure of keep, maintain or retain books etc.
Section 271A is without prejudice to the provisions of section 271 and therefore consequential amendment is made to make it without prejudice to provisions of section 270A also.
Section 271AA is without prejudice to the provisions of section 271 and therefore consequential amendment is made to make it without prejudice to provisions of section 270A also.
Section 271AAB provides for penalty for specified assessment years in case where search is initiated.
Section 271AAB provides for penalty in case of specified assessment years where search has taken place. Those assessment years are outside the ambit of section 271(1)(c) as per section 271AAB(2). Now, amendment is made to keep those assessment years outside the ambit of section 270A also.
Section 273A provides for the power of Pr. CIT/ CIT to reduce or waive penalty levied u/s 271(1)(iii) if the conditions given are fulfilled.
Section 273A is proposed to apply to section 270A and the Pr. CIT/CIT shall have the power to waive or reduce penalty levied under the said section 270A. Section 273A however does not substitute the words concealment of income and furnishing inaccurate particulars of Income by Under-reported Income giving rise to an anamoly.
Section 279 provides that prosecution it to be at the instance of the Pr. CCIT, CCIT, Pr. CIT, CIT. Sub-section (1A) provides that where the penalty u/s 271(1)(iii) has been waived off or reduced u/s 273A, then no such person shall be proceeded against.
Section 279(1A) is amended to provide that where the penalty u/s 270A has been waived or reduced u/s 273A then no prosecution can be initiated.
6. Insertion of new section – 270aa – immunity from imposition of penalty, etc.
The new section 270AA provides for immunity from penalty u/s. 270A and prosecution u/s. 276C in certain cases.
An assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, provided he pays the tax and interest payable as per the order of assessment or reassessment within the period specified in such notice of demand and does not prefer an appeal against such assessment order.
The assessee can make such application within one month from the end of the month in which the order of assessment or reassessment is received in the form and manner, as may be prescribed.
Immunity from initiation of penalty and proceeding under section 276C will be granted if the penalty proceedings under section 270A has not been initiated on account of misreporting u/s 270A.
Time limit for passing order.
The Assessing Officer shall pass an order accepting or rejecting such application within a period of one month from the end of the month in which such application is received. However, in the interest of natural justice, no order rejecting the application shall be passed by the Assessing Officer unless the assessee has been given an opportunity of being heard.
The order of Assessing Officer under the said section shall be final.
Effect of order under Section 270AA accepting the application.
No appeal under section 246A or an application for revision under section 264 shall be admissible against the order of assessment or reassessment referred to in clause (a) of sub-section (1), in a case where an order under section 270AA has been made accepting the application.
Remedy against order rejecting application.
By virtue of amendment in section 249 and section 253, an appeal against order of rejection passed under section 270AA is to be made before the Commissioner (Appeals) within thirty days of the receipt of the notice of demand relating to an assessment order. The period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee shall be excluded for calculation of the thirty days period.
• In case of penalty on under-reported income which is not as a consequence of misreporting AO is bound to grant immunity subject to fulfilment of other conditions.
• In case of misreporting AO has a discretion.
• It appears that where penalty is levied on certain additions on ground of mis-reporting and certain additions on ground of only under-reporting than assessee will have to make a choice whether to file appeal or make application for immunity as he cannot file appeal on penalty levied on mis-reported income and immunity application for under-reported income.
• There is no bar to filing appeal against quantum order with application for condonation of delay after rejection of application for immunity.
• There is no specific bar prohibiting revision u/s 263 of order accepting immunity application.
The analysis of new section 270A indicates that there will be number of issues on which both the assessee and revenue will be at loggerheads. In fact majority of those issues would be the ones which are settled u/s 271(1). Hence, to a substantial extent section 270A will either result in either unsettling settled principles of law or will confirm them but only after litigation. It will be like old wine in new bottle. Hence, this article is made comprehensive so as to give complete up-to-date picture of position u/s 271(1) as well. The object of introducing Section 270A will be defeated. According to me , the Government must invite views on this Section and decide whether the same needs to be scrapped or retained. The implementation of Easwer committee recommendations as referred in the introduction of this article appears to have been a better way forward.
1.1 It is well known that powers of the Assessing Officer to reopen a completed assessment are not unfertile. Sec. 147 and Section 148 of the Act contains the perquisite conditions to be fulfilled for invoking the jurisdiction to reopen the assessment.
i) The Assessing Officer has to record the reason for taking action under section 147. It is on the basis of such reasons recorded in the file that the validity of the order reopening a assessment has to be decided. Recorded reasons must have a live link with the formation of the belief.
ii) The Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year.
iii) The jurisdictional condition under section 147 is the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment for any assessment year.
iv) No action can be initiated under section 147 after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason for the failure on the part of the taxpayer to disclose fully and truly all material facts necessary for his assessment..
has laid down the procedure to challenge the reassessment proceedings.
(b) If he so desires, to seek reasons for issuing the notices.
(c) The Assessing Officer is bound to furnish reasons within a reasonable time.
(e) The Assessing Officer is bound to dispose of the same by passing a speaking order.
(f) The assessee if desires can file a writ challenging the order or can proceed with the assessment. However the assessee has still a right to challenge the reopening of assessment after the assessment order is passed, before Appellate Authority.
orders or directions to prevent such consequences.
CIT v. Trend Electronics( 2015) 379 ITR 456 (Bom.)(HC).
3.1 The Income-tax Act provides a complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities. The assessee cannot be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he has adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals). As the said statutory remedy is an effective and efficacious one, the Writ Court should not entertained the Writ Petition.
Allana Cold Storage Ltd. v. ITO (2006) 287 ITR 1 (Bom.)(HC), Kamlesh Sharma (Smt.) v. B. L. Meena, ITO (2006) 287 ITR 337 (Delhi) (HC).
The assessee cannot be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he has adequate remedy open to him by an appeal to the CIT (Appeals). As the said statutory remedy is an effectual and efficacious one, the Writ Court ought not to have entertained the Writ Petition filed by the assessee.
‘change of opinion’ & preconditions of s. 147 are not satisfied is maintainable.
Crompton Greaves Ltd. v. ACIT (2015) 275 CTR 49 / 229 Taxman 545 (Bom).
Thus the facts in the case of Chhabil Das Agarwal (supra) were different and distinguishable namely that the reassessment order was passed and thereafter the notice and the said order was challenged by way of writ.
IOT Infrastructure and Eng. Services Ltd. v. ACIT (2010) 329 ITR 547 (Bom) the Hon. Bombay High Court set aside the assessment for fresh hearing in case.
wherein following the order passed by Supreme Court in the case of GKN Driveshaft matter was setaside to pass fresh order holding that the Reasons for notice must be given and objections of assessee must be considered.
Bros. v. ITO (2015) 229 Taxman 444 (Bom.)(HC) where in Assessment of the assessee was reopened. The recorded reasons stated that the assessee had taken accommodation entries from a Surat based diamond concern and this information (according to the recorded reasons) was obtained by the Department from search and survey action on the said diamond concern. The assessee objected to the recorded reasons which were disposed of by the by AO referring to investigation carried out by Sales Tax authorities, display of names of parties on the website of Sales Tax department. Held, since these facts were even remotely adverted to in the recorded reasons, and hence, the order disposing of objections was held unsustainable in law with fresh opportunity to AO to dispose of the objections keeping in mind the recorded reasons.
5.1 For passing an order under section 147 recording of reasons u/s. 148 and communication thereof to party concern is mandatory.
CIT v. Fomento Resorts and Hotels Ltd., has been dismissed by Apex Court, vide order dated July 16, 2007. The court dismissed the appeal of the revenue.
Before the Tribunal the question of supply of reasons recorded by the AO was raised by the assessee and it went to the root of the matter, the Bench directed the Departmental Representative to produce the records to verify as to whether the reasons were recorded by the AO and whether same were supplied to the assessee. The AO appeared with the assessment records but the relevant records were not traceable or were not available.
It was found that even after completion of the assessment/appellate proceedings the assessee was requesting the AO to supply him the copy of the reasons. But, till the date of hearing i.e. on 19-9-2014 i.e. even after 18 years of the issuance of notice u/s. 148 of the Act, the AO is not been able to prove that the assessee was supplied copy of the reasons recorded. Hence, the assessment was quashed.
6.1 New reasons cannot be allowed to be introduced or supplied by way of affidavit. Validity of an order must be judged by the reasons so mentioned therein. Reasons recorded cannot be supplemented by filing affidavit or making oral submission.
– Only reasons recorded by Assessing officer must be considered.
The assessee company filed its return of income for the A.Y. 2006-07 on 31st Oct., 2006 declaring nil income. The assessee claimed that profits earned from the transactions in Indian securities are not liable to tax in India in view of Article 7 of the India-Singapore treaty because the assessee company did not have PE in India. The assessment was reopened on the ground that no foreign companies are allowed to invest through stock exchange in India unless it is approved as FII by the regulatory authorities viz. RBI, SEBI. etc. According to the Assessing Officer the gain earned on investment as FII is liable to be taxed under section 115AD. The reassessment notice was challenged before the Court, the Court held that the attention was drawn to the notice of Assessing Officer that the assessee is not an FII and that provisions of section 115AD would not be attracted. The Assessing Officer attempted to improve upon the reasons which were originally communicated to the assessee. Those reasons constitute the foundation of action initiated by the Assessing Officer for reopening of assessment. Those reasons cannot be supplemented or improved upon subsequently. The court held that in the absence of any tangible material assessment could not be reopened under section 147, further succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee which was not permissible.
7.3 Assessing Officer recording reasons for assessment and Assessing Officer issuing notice under section 148 must be the same person. Successor Assessing Officer cannot issue notice under section 148 on the basis of reasons recorded by predecessor Assessing Officer. Notice issued invalid and deserves to be quashed.
Notice u/s. 148 invalid as it was issued on direction of CIT.
Assessment having been made by AO in Kolkata, in the absence of any order under section 127 transferring the case, reassessment notice issued by AO at Delhi and all subsequent proceedings based on said notice are without jurisdiction.
– Held ITO did not have jurisdiction notice invalid.
prima facie opinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment. The AO was also required to examine whether the cash deposits were disclosed in the return of income to form an opinion that income has escaped assessment.
8.4 The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power.
It is not for somebody else to tell the assessing authority what inferences, whether of facts or law, should be drawn.
In the case of CIT v. Greenworld Corporation (2009) 314 ITR 81 (SC) it was held that the assessment order passed on the dictates of the higher authority being wholly without jurisdiction, was a nullity..
9.2 Reopening of assessment on basis of letter of Commissioner (Appeals) containing identical facts stated by assessee was held not valid.
Sun Pharmaceutical Industries Ltd. v. Dy.CIT (2016) 381 ITR 387 (Delhi)(HC). The notice under section 148 was issued as a result of Instruction No. 9 of 2006 dated November 7, 2006 issued by the Central Board of Direct Taxes. These audit objections were not accepted by the Assessing Officer. CBDT instruction directing remedial action in case of audit objections – Notice based solely on such instruction not valid.
9.4 Detection of excess stock or unaccounted expenditure on renovation of business premises at the time of survey u/s. 133A in a subsequent year, could not constitute reason to believe that such discrepancies existed in earlier years also and, therefore, reopening of assessments for those years on the basis of aforesaid reason to believe was not valid.
– Nothing before Assessing Officer to record belief that escapement has taken place -Notice is not valid.
9.6 AO can assume jurisdiction under this provision only if he has sufficient material before him; he cannot form belief on the basis of his whim and fancy and the existence of material must be real. Further, there must be nexus between the material and escapement of income. Statement recorded at the time of survey does not have evidentiary value, therefore, cannot be the basis for reopening. Reassessment proceedings initiated u/s. 148 by AO based on survey statement was held to be invalid and thereby were quashed.
– Notice is not valid. The requirement of law is "reason to believe"
and not reason to "suspect".
No reopening to make fishing inquiries.
f) Reassessment – Distinction between reason to believe and reason to suspect.
The assessment reopened merely to verify discrepancy- i.e. variation between Income declared by assessee and Income shown in TDS Certificate i.e. case reopened on reasons to suspect is not valid.
– No reason to issue notice for reassessment.
h) The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year.
New Amendments made by Finance Act, 2016.
11.1 If Assessing officer does not assess income for which reasons were recorded u/s. 147 he cannot assess other income u/s. 147.
CIT v. Best Wood 331 ITR 63 Ker FB.
assessment" and the issue of the notice becomes invalid. If so, he has no jurisdiction to assess any other income.
wherein the Petitioner were called upon to file objection to the notice u/s. 148 proposing to reopen the assessment on ground that &#8377 73,219 had escaped asst. Now the authorities could not shift their stand and pass on order on other ground that valuation report received subsequent to passing of the order disposing the objection the Assessing Officer must consider the material and pass speaking order. Assessment quashed.
12.1 No notice u/s. 148 having been served on the assessee prior to reopening of assessment, Asst. made u/s. 147 was bad in law; argument based on S. 292BB was not sustainable on the facts of the case.
– Direction to ascertain when the notice had been dispatched by reg. post.
12.4 The notice prescribed by section 148 cannot be regarded as a mere procedural requirement. It is only if the said notice is served on the assessee that the ITO would be justified in taking proceedings against the assessee. If no notice us issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO would be illegal and void.
12.5 Notice issued to individual. His HUF cannot be assessed on the ground that notice was issued to individual who was Karta of HUF. Defect of jurisdiction.
Suraj Mal HUF v. ITO (2007) 109 ITD 327 (Del.)(TM).
– No proceedings can be initiated against the transferor company.
12.7 Similarly in the case of Techpac Holdings Ltd. v. Dy. CIT [(2016) 135 DTR (Bombay HC) 322] it was held that service of notice u/s. 148 on the assessee company’s subsidiary was not valid service of notice,.
12.8 Where notice was not sent by registered post nor served upon assessee in any other manner whatsoever, proceedings for assessment were void.
Invalid Service of notice not a procedural defect. No material to prove efforts made by Department to serve notice in normal course.
ITO v. Om Praksh Kukreja (2016) 134 DTR (Chd,. Trib.) 208 it was held that where A.O having served the notice under S.148 by affixture at a wrong address where the assessee was not residing it cannot be said that the notice u/s. 148 was served upon the assessee and therefore the resultant reassessment proceedings were invalid and bad in law.
‘due and reasonable diligence’. Before taking advantage of rule 17, he must make diligent search for the person to be served. He therefore, must take pain to find him and also to make mention of his efforts in the report. Another requirement of rule 17 is that the Serving Officer should state that he has affixed the copy of summons as per this rule. The circumstances under which he did so and the name and address of the person by whom the house or premises were identified and in whose premises the copy of the summon was affixed. These facts should also be verified by an affidavit of the Serving Officer.
(ii) The reason for taking all these precautions is that service by affixture is substituted service and since it is not direct or personal service upon the defendant, to bind him by such mode of service the mere formality of affixture is not sufficient. Since the service has to be done after making the necessary efforts, in order to establish the genuineness of such service, the Serving Officer is required to state his full action in the report and reliance can be placed on such report only when it sets out all the circumstances which are also duly verified by the witnesses in whose presence the affixture was done and thus the affidavit of the Serving Officer deposing such procedure adopted by him would also be essential. In the instant case, the whole thing had been done in one stroke. It was not known as to why and under which circumstances another entry for service of notice by affixture was made on 27-7-2012 when sufficient time was available through normal service till 30-9-2012. Nor there is any entry in the note-sheet by the AO directing the Inspector for service by affixture and had only recorded the fact that the notice was served by the affixture. It appears that the report of the Inspector was obtained without issuing any prior direction for such process or mode. In view of the above, it is clear that there was no valid service of notice u/s.143(2) by way of affixation and the assessment made on the basis of such invalid notice could not be treated to be valid assessment and, hence, such assessment order deserves to be treated as null and void and liable to be quashed and annulled.
13.1 Issue of a notice u/s.143(2) is mandatory. The failure to do so renders the reassessment void (CWT v. HUF of H. H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom). S.292BB was inserted w.e.f. 1-4-2008 and came into operation prospectively for AY 2008-09 and onwards.
• CIT v. Salman Khan (Bom.)(HC) www.itatonline.org.
• CIT v. Mundra Nanvati (Bombay High Court) 227 CTR 387 Bom.
PCIT v. Silver Line (2016) 383 ITR 455 (Delhi)(HC).
14.2 When time limit for issue of notice under section 143(2) has not expired, Assessing Officer cannot initiate proceedings under section 147.
15.1 Tribunal having concluded that all the material facts were fully and truly disclosed by the assessee at the time of original assessment, invoking the provisions of S. 147 after the expiry of four years from the end of the relevant asst. year was not valid.
15.2 There was no tangible material before the Assessing Officer to form the belief that the income had escaped assessment and therefore, reopening of assessment under section 147 was not valid.
15.3 Where the deduction under section 80-IB of the Act was allowed to the assessee by the Assessing Officer in the original assessment order under section 143(3) of the Act after considering the audit report in Form 10CCB and the other details filed by the assessee, it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all the facts for the assessment so as to invoke the provisions of section 147 for re-examining the deduction under section 80-IB of the Act, after expiry of four years from the end of the assessment year.
– As there is no allegation in the reasons for failure to disclose material facts necessary for assessment reopening beyond four years was held to be not valid.
– Reassessment held to be not valid in the absence of any new or additional information.
It is necessary for the AO to first state that there is a failure to disclose fully and truly all material facts. If he does not record such a failure he would not be entitled to proceed u/s. 147. There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts.
16.1 CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable.
17.1 Order of Assessing officer u/s. 143(3) reflects that the primary facts relating to case was before the Assessing Officer therefore there was disclosure of all primary facts relating to claim of deduction u/s. 80-IB(10).
17.3 Assessment order is not a scrap of paper & AO is expected to have applied his mind. Reopening on ground of "oversight, inadvertence or mistake" is not permissible.
17.4 The Court held that AO has no power to review assessment order under shelter of re-opening of assessment under sections 147/148, therefore, it was not open for AO to re-look at same material only because he was subsequently of view that conclusion arrived at earlier was erroneous.
17.5 All facts were before AO at the time of original assessment as well as reopened asst. Even assuming that he failed to apply his mind, assessment cannot be reopened u/s. 147.
Asian Paints Ltd. v. CIT  308 ITR 195 (Bom.) (HC).
17.7 In the absence of any material before the AO a statement by an unconnected person did not constitute reason to believe that assessee income had escaped assessment especially when the assessee had produced all the material and relevant facts and therefore the reassessment proceedings could not be sustained.
Reassessment based on statement of third party-Assessee not given opportunity to be heard-Reassessment not valid.
Share premium amount-No lack of disclosure or suppression of any material facts – No tangible reasons in notice – Notice not valid.
Considering the decision against of Dr.
20.1 An asst. order passed after detailed discussion cannot be reopened within a period of 4 years unless the AO has reason to believe that there is to some inherent defect in the assessment.
Once an assessment has been completed under section 143(3) after raising a query on a particular issue and accepting assessee’s reply to the query. Assessing Officer has no jurisdiction to reopen the assessment merely because the issue in question is not specifically adverted in the assessment order, unless there tangible material before the Assessing Officer to come to the conclusion that there is escapement of income. (Asst Year 1998-99).
Commissioner of Income Tax-3 v. SICOM LTD. [Income Tax Appeal No 137 of 2014 dt : 8-8-2016 (Bombay High Court)].
believe" from sec. 147 would give arbitrary power to AO to reopen past assessments on a mere change of opinion i.e. a more change of opinion cannot form basis for reopening a completed assessment.
21.2 In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.
21.3 Points not decided while passing assessment order under section 143(3) not a case of change of opinion. Assessment reopened validly.
– Reassessment on change of opinion of officer not valid.
22.1 AO having communicated to the auditor that a certain decision of a HC did not apply to the facts of the petitioners case but later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without giving any reason as to why he has departed from the earlier view that the decision was not applicable, there was total non application of mind on the part of AO; matter remanded back to AO for de-novo consideration.
22.2 AO having allowed assessee’s claim for depreciation in the regular assessment and reopened the assessment pursuant to audit objection, it cannot be said that he had formed his own opinion that the income had escaped assessment, and the reopening being based on mere change of opinion, same was not valid.
22.3 Audit objection cannot be the basis for reopening of assessment to income tax by the revenue.
Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC).
22.4 Reassessment was not valid as the AO held no belief on his own at any point of time that income of assessee had escaped asst. on account of erroneous computation of benefit u/s 80HHC and was constrained to issue notice only on the basis of audit object.
Raajratna Metal Industries Ltd v. ACIT (Gujarat High Court).
Letter written by AO to CIT showing that AO himself found that the issue on which reassessment was sought was debatable, reasons recorded by A.O did not meet the requirements of law.
Sunil Gavaskar v. ITO (2016) 134 DTR (Mumbai ITAT) 113.
22.7 CBDT instruction directing remedial action in case of audit objections. Notice based solely on such instruction (CBDT Instruction No. 9 of 2006). No failure to disclose fact. No allegation that material facts had not been disclosed. Notice was held not valid.
Reopening of assessment on the basis of wrong interpretation of High Court decision was invalid.
24.1 Revisional authority having directed the AO to adjudicate specific issues which were addressed and examined by him, asst made by the AO on a higher total income by assuming more powers than that of the revisional authority is patently illegal and without jurisdiction.
24.2 The Assessing Officer for the assessment year 2000-01 recorded a specific note in the assessment order which indicated that the assessment order was passed under the dictates of the Commissioner. The Supreme Court in the challenge to the reopening for the same assessment year held that the assessment order passed on the dictates of the higher authority being wholly without jurisdiction, was a nullity. Therefore with a view to complete the justice to the parties. The Supreme Court directed that the assessment proceedings should be gone through again.
CIT v. Greenworld Corporation (2009) 314 ITR 81 (SC).
The ITO cannot seek to reopen an assessment under section 147 on the basis of the Supreme Court decision in a case where assessee had disclosed all material facts.
Subsequent High court decision – beyond 4 year Discloure of complete facts. Reopening bad in law.
Law in subsequent A.Y. is different, reopening not proper.
Notice u/s. 148 based on amended law not applicable to relevant A.Y.
• Kalpataru Sthapatya (P) Ltd. (2012) 68 DTR 221 (Guj)(High Court).
Assessee claimed the deduction under section 80(IB)(10) after enquiry the deduction was allowed. The amendment was introduced by Finance Act, 2009, inserting Explanation with retrospective effect from 1st April, 2001 which denied benefit of deduction under section 80-IB(10) to works contractors execution housing project. The only reason for issuing the notice, was amendment brought in the statute book with retrospective effect. The said notice was challenged before the High Court. High Court quashed the notice and held that reopening only on the basis of retrospective amendment of law is not justified. (A. Y. 2004-05).
Proviso to section 147 has been inserted by Finance Act, 2008, w.e.f. 2008.
(2008) 298 ITR 163 (st), – Notes on clauses.
(2008) 298 ITR St. 222 to 224 Memorandum explaining the provision.
Appeal was pending before ITAT and the matter was subject matter of appeal before CIT(A). No Reassessment. Once an issue is subject matter of appeal before Tribunal , issuance of notice of reassessment on said ground hasto be considered bad in law. (A.Y. 2000-01).
Chika Overseas (P) Ltd v. ITO ( 2011) 131 ITD 471 (Mum) (Trib).
• GTL Ltd. v. Asst CIT (2015) 37 ITR 376 (Mum.)(Trib.).
– Rule 27 of ITAT Rules: Reassessment ground can be raised.
– If assessee does not ask for the reasons recorded and object to reopening, ITAT cannot remand to Assessing officer and give assessee another opportunity.
29.1 Dept. having taken one of the two possible views in the matter of calculation of deduction u/s. 10B and 80HHE asst. cannot be reopened by taking the other view more so when the CIT(A) has already quashed the rectification us. 154 which was made on the very same ground.
29.2 Allowance u/s. 80HHC having been granted by the ITO in rectification proceedings. The remedy the against lay with the dept. either u/s. 154 or S. 263 and not S. 147 further reassessment having been made on a date earlier than fixed same was bad.
Section 147 reopening for rectifying sections 154 mistakes are invalid.
The jurisdiction under sections 147(b) and 154 are different but in cases where they seem to overlap, the ITO may choose one in preference to the other and once he has done so, he should not give it up at a later stage and have recourse to the other.
When proceedings under section 154 were pending on the same issue and not concluded , parallel proceedings under section 147 initiated by the Assessing Officer are invalid ab initio, especially when except the return and its enclosures, no other material or information was in the possession of the assessing Officer.( Asst year 2004-05).
Mahinder Freight Carriers v. Dy CIT (2011) 56 DTR 247 (Mum) (Trib).
Honda Siel Power Products Ltd. v. Dy. CIT( 2011) 197 Taxman415 (Delhi). Assessee’s SLP dismissed Honda Siel Power Products Ltd v. DCIT ( SC).www.itatonline.org.
30.1 AO had no jurisdiction to reopen the concluded assessments on the strength of valuation report of valuation officer obtained subsequently and that too not in exercise of powers u/s. 55A impugned notices under S. 148 quashed.
30.2 Assessing Authority having made a detailed enquiry before making the assessment of the petitioner u/s. 143(3) the impugned notice u/s. 148 was issued only on the basis of change of opinion and was therefore, invalid, notice was also illegal on the ground that it was based on the valuation report of cost of construction.
30.3 Mere DVO’s report cannot constitute reason to believes that income has escaped assessment for the purpose of initiating reassessment and therefore tribunal was justified on holding that the reassessment proceedings initiated on the basis of DVO’s report were invalid ab initio, more so when it has found that the DVO’s report sufers from various defects and mistakes.
Where apart from the valuation report which was relied upon by the ITO there was no material before him to come to the prima facie conclusion that the assessee had received the higher consideration than what had been stated in the sale deed, reassessment would not be justified.
ITO v. Shiv Shakti Build Home (P) Ltd. ( 2011) 141 TTJ 123 ( Jodhpur) (Trib).
– Department was not entitled to reopen the assessment.
Assistant CIT v. Dhariya Construction Co. (2010) 328 ITR 0515.
31.1 Since the proceedings under section 147 are for the benefit of the revenue and in the assessee, and are aimed at gathering the escaped income of the revenue and an assessee and are aimed at gathering the escaped income of an assessee the same cannot be allowed to be converted as revisional or review proceedings at the instance of the assessee, thereby making the machinery workable.
CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC).
31.2 Proceeding under section 147 are for the benefit of the revenue and not the assessee and hence the assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier rejected, or claim relief inrespect of items not claimed in the original assessment proceedings unless relatable to the escaped income and reagitate concluded matters. Allowance of such a claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. Income for the purpose of reassessment cannot be reduced beyond the income originally assessed.
CIT v. Caixa Economica De Goa (1994) 210 ITR 719 BOM.
ITO v. Tamil Nadu Minerals Ltd. (2010) 124 ITD 156 (Chennai)(TM).
The mere fact that the ITO was not aware of the circular of the board is not sufficient to reopen the assessment.
32.1 So long as the ingredients of section 147 are fulfilled, Assessing Officer is free to initiate proceeding under section 147 even where intimation under section 143(1) has been issued; as intimation under section 143 (1) (a) is not assessment there is no question of treating re assessment in such a case as based on change of opinion.
CIT v. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661(SC).
32.3 It is open to the assessee to challenge a notice issued u/s.148 as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by intimation u/s 143(1) of the Act.
"reasons to believe" recorded by the AO.
Where only intimation was issued u/s. 143 (1) and no notice was issued u/s. 143(2) within the prescribed time limit, a substantive right is created of not being put to scrutiny could be said to have accrued and could not be snatched away by resorting to other provisions of the Act.
where section 143(3) assessment not made.
For purpose of reopening of assessment under section 147, Assessing Officer must form and record reason before issuance of notice under section 148. The reasons so recorded should be clear and unambiguous and must not be vague. There can not be any reopening of assessment merely on the basis of information received without application of mind to the information and forming opinion thereof.
1. Asian Paints v. Dy. CIT & Anr.
3. Dy. CIT v. Pasupati Spinning & Weaving Mills Ltd.
33.1 The Section 150 of the Act provides that notwithstanding the limitation prescribed under section 149, notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under the Act by way of appeal, reference or revision or by a court in any proceeding under any other law.
expression "direction" has been construed by the apex court to mean a direction which the appellate or revisional authority as the case may be, is empowered to give under the sections mentioned therein.
33.3 Apart from the above, section 150(1) of the Act provides that the power to issue notice under section 148 of the Act in consequence of or giving effect to any finding or direction of the appellate/revisional authority or the court is subject to the provision contained in section 150(2) of the Act. Section 150(2) provides that directions under section 150(1) of the Act cannot be given by the appellate/revisional authority or the court if on the date on which the order impugned in the appeal was passed, the reassessment proceedings had become time-barred.
33.4 According to s. 150(2), the provisions of s. 150(1) shall not apply where, by virtue of any other provision limiting the time within which action for assessment, reassessment or recomputation may be taken, such assessment, reassessment or recomputation is barred on the date of the order which is the subject-matter of the appeal, reference or revision in which the finding or direction is contained. Thus, s. 150(2) enacts a well-settled principle of law that an appellate or revisional authority cannot give a direction which goes to the extent of conferring upon the AO if he is not lawfully seized of jurisdiction.
33.5 Similarly Bombay High court in the case of Rakesh N Dutt v. Asst CIT (2009) 311 ITR 247 wherein it was held, that the Tribunal had held that the addition of &#8377 90 lakhs, if at all permissible legally, it could be considered in the hands of the two companies and not in the hands of the assessee. There was no finding that the amount of &#8377 90 lakhs was liable to be taxed in the hands of the assessee. Consequently, reopening of the assessments by invoking the provisions of section 150 of the Act could not be sustained. Once it was held that section 150 of the Act was not applicable, then the reopening of the assessment beyond the period of six years from the end of the relevant assessment year would be time barred.
33.6 The Tribunal do not have power to give any finding or direction in respect of another year / period which is not before the authority as held by Supreme Court in CIT v. Green World Corporation 314 ITR 81 (SC).
33.7 The decision of the apex court in the case of CIT v. Green World Corporation 314 ITR 81 (106) SC wherein it was observed that the provision of s. 150 although appears to be of a very wide amplitude, but would not mean that recourse to reopening of the proceedings in terms of ss. 147 and 148 can be initiated at any point of time whatsoever. Such a proceedings can be initiated only within the period of limitation prescribed therefore as contained in s. 149. Sec. 150(1) is an exception to the aforementioned provision. It brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. For the said purpose, the records of the proceedings must be before the appropriate authority. It must examine the records of the proceedings. If there is no proceeding before it or if the assessment year in question is also not a matter which would fall for consideration before the higher authority, s. 150 will have no application.
33.8 Finding or direction. (S.149.).
of the Act by holding the same as ‘finding’ of the Tribunal is not legally tenable.
Shri Anil Suri v. ITO 11(1)(3); ITA No. 1640/M/2010; dtd. 16-4-2014 (Mum. ITAT).
• Assessment having not been reopened to give effect to the order of the CIT(A). According to the Assessing Officer because of giving effect to the order made by the CIT(A), will result in to escapement of income. The court held that section 150 did not apply. As there was no failure on the part of assessee to disclose fully and truly all material facts, reassessment is clearly time barred. (A.Y. 1988-89).
Harsiddh Specific Family Trust v. JCIT ( 2011) 58 DTR 149 ( Guj.) (High Court).
of six years from the end of the assessment year was clearly time barred.
Vadilal Dairy International Ltd. v. Asst CIT (2011) 140 TTJ 371 (Ahd) (Trib).
direction of appellate authority or Court.
Sujeer Properties (AOP) v. ITO ( 2011) 131 ITD 377 (Mum) (Trib).
• The order u/s. 147 has to be passed within one year from the end of the financial year in which the notice u/s. 148 has been served.
F.Y. in which the notice u/s. 148 has been served.
– Reduced to 9 months and 21 months respectively.
At the outset, we convey our good wishes and greetings to all of you in connection with two festivals in this month of which one is completed just now with the devotional poojas to Godess Durga for 9 days. We all have invoked the blessings of the Godess.
this month of a very illuminating and glittering one – Diwali on 29th October, 2016 when we all worship Godess of wealth and prosperity and this is also a festival in succession bringing happiness coupled success over the evil things and demonly acts. The evil or demon is not to be seen elsewhere but within ourselves and the very object and purpose coupled with mythological ideology is to keep ourselves purified against impurities and inculcate a habit of a happy journey of humanity in the society in all assistance, love, affection and service towards the fellow human beings. We pray Godess of wealth and prosperity to shower her merciful and blissful blessings on all of us in all respects.
Friends, we are successful in our efforts halfway through by convincing the Ministry of Finance, Government of India, Revenue for inclusion of the tax practitioners for the purpose of preparation of the returns as well as representation on behalf of the assessees before the authorities. To this effect, you are all aware that Rules 24 and 25 of Draft Rules have provided for a positive and affirmative inclusion of all tax practitioners. Please be reminded that the Federation at the National level does pursue the policy of inclusion only and we do not believe in exclusion as all categories of tax professionals are equally near and dear to us.
audit by the Chartered Accountant under the provisions of Income-tax Act 1961.
We are hopeful that the Federation would be able to achieve this part of the issue also at the earliest point of time and would be able to fulfil its word to its members.
Friends, one more news to share by which our Federation must be overwhelmingly happy and jubilant that our member from Chennai, a leading practising advocate Dr. Anita Sumanth who is the daughter of the Past National President of the Federation Late V. Ramachandran has recently been elevated as Judge to the High Court of Madras and we are informed that she has taken Oath of office as judge of the High Court on 5-10-2016. Thus this is a one more addition of colourful feather in the cap of the Federation and we all believe that Dr. Justice Anita Sumanth shall prove herself as the best choice as the product of AIFTP to be the Judge of the High Court for serving the institute of justice as well as the Indian public.
Let us all gear up to the much awaited glorious function 40th year Foundation Day Celebrations on 11-11-2016 at Pune and all the arrangements are in progress and we once again appeal to all of you to make it a grand success with your affectionate participation.
Appointment’s Committee of Cabinet (ACC) expeditiously and preferably within two months from the date of recommendation and a time bound procedure should be followed. In the Finance Act, 2016 w.e.f. 1-6-2016, the Govt. has abolished the post of Senior Vice-President. No explanation was given in the notes on clauses as to why the Senior Vice-President post was abolished. It is Bar Associations which can take up such important issues with the Government. We make an appeal to all the stakeholders in the interest of the institution that the issue may be taken up with the Hon&apos;ble Prime Minister of India and Honourable Law Minister. If no response is received, as a Bar, being the custodian of the Institution, we may have to knock the doors of the Judiciary.
There is apprehension amongst the Tax Bar that the Government is keen to merge the ITAT with other similar Tribunals. Possibly the (bureaucrats) who have moved the idea, may not be aware of the functioning of this great institution. One will appreciate that this institution is functioning under the Ministry of Law and Justice, whereas, many of the Tribunals such as Central Excise Customs and Service Tax Appellate Tribunal (CESTAT) and even Authority for Advance Rulings function under the Ministry of Finance. Even the selection process of the Members of the ITAT is done by the committee headed by a senior Judge of Supreme Court in a completely transparent manner. We are of the firm opinion that any move by the Government to merge the ITAT with any other Tribunal will destroy the independence of the institution. For example a member appointed in Securities Appellate Tribunal (SAT), if he is transferred to ITAT to discharge the duty as a member of ITAT, can he do justice to the job? Can he decide extremely complicated issues of taxation? We therefore appeal to all the stakeholders including various Tax Bar Associations that they must oppose any such move by the Government All those concerned may express their views and it should be a national movement to save the institution. When there was a move to bring National Tax Tribunals to take away the jurisdiction of the High Courts, all the Bar Associations across the country strongly opposed it and ultimately the Apex Court struck down the National Tax Tribunal Act. We hope all those who are concerned with the judicial independency of the institution must join together and bring to the notice of the Government that merging the ITAT with other institutions is neither in the interest of taxpayers nor in the interest of the country.
We hope that Government will interact with the stakeholders before they introduce any provision to merge the ITAT with other Tribunals.

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