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Assessments and appeals

Writ course against reassessment notice


The Full bench of the Gujarat High Court in Garden Finance Ltd. v. Asstt. CIT (2004) 137TAX49 held that the assessee would be right in challenging the notice u/s 148 at the initial stage itself before the assessing officer first in which case it is required upon the assessing officer to pass an interim order on such objections first before going further on merits of the case. In case the assessing officer holds against the assessee then the assessee can choose to go to the High Court under writ jurisdiction. The High Court in this connection held that the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income-tax Officer (2003) 259ITR19 does not therefore whittle down the principle laid down by the Constitution bench of the Apex Court in Calcutta Discount Co. Ltd. Vs. Income-tax Officer (1961) 41ITR191.


After the GKN case (supra) the revenue is now on a better wicket since the assessing officer can always re-record his reasons or rectify his course after receipt of objections from the assessee. In Sukhlal Ice and Cold Storage Company Vs. Income-tax Officer (1993) 199ITR129 the Income-tax Officer issued a notice under section 148 of the Income-tax Act, 1961, but the Tribunal held that the notice was illegal because the reasons for the issue of the notice were not on record. On a subsequent date the Income-tax Officer issued another notice under section 147 of the Act for the said assessment year by setting out the necessary reasons and removing the defect pointed out earlier. This notice was served on the assessee within the period of limitation. The Allhabad High Court against a writ filed by the assessee held that, since the Tribunal had recorded a finding to the effect that the very initiation of the proceedings under section 147 by the first notice was without jurisdiction, there were no earlier proceedings subsisting on the date when the second notice was served on the assessee. Hence the second notice was held valid and could not be quashed.




Transfer of incorporeal rights – Eligible for section 80HHC Deduction


In Abdulgafar A Nadiadwala v. Asstt. CIT (2004) 137TAX112 the assessee transferred overseas film telecasting rights for a period of five years to STAR TV and for this purpose recorded the films in beta cam Tapes that were exported. Making a note of 46th amendment to the Constitution on the expanded definition of sale the Bombay High Court held that the words ‘or otherwise’ in the definition of the word export turnover would include within it export of tapes which has incorporeal rights. But it is also a fact that such tapes are only used as a medium to effect transfer of the film telecasting rights similar to lease of right of exhibition of feature films. 


The judgment provide an opportunity to even service providers such as engineers services etc. to claim deduction u/s 80HHC in every case where the services are rendered by use of tapes, cassettes, CDs, floppies etc. that are exported through custom clearance.




Order u/s 210(3) – Requiring payment of advance tax


In Punjab Tractors Ltd. v. Asstt. CIT (2004) 137TAX211 the assessing officer demanded advance tax on the basis regularly assessed income for the assessment year 2000-01 as per the provisions of section 210(3). Since the assessee was of the view that in the estimate the advance tax payable on its current income during the current financial year would be less, it exercised its right under section 210(5) by filing an estimate of income in Form No. 28A. When the assessing officer rejected such estimate of the assessee the P& H High Court had to intervene by stating that the assessee’s liability to pay advance tax is only viz a viz his estimate filed in Form 28A.


However care must be exercised by assessees in every such case to file such estimate in Form 28A by the due date for any failure in this regard will prompt the assessing officer to make legally permissible coercive recovery under the law. 




Capital or revenue- Contribution for Building Construction


In CIT v. Rajasthan Spg. & Wvg. Mills Ltd. (2004) 137TAX249 the assessee running a textile mill set up an institutional building to provide training in textile technology and handed over such building to the state government which allotted land for this purpose free of cost. The assessee claimed the building construction expenditure as revenue in each of the year on construction. The revenue alleged that the same is capital in nature. The Rajasthan High Court held that the laying out of the expenditure for bringing into existence a building to be owned by the state and to be run by the State for the benefit of the industry was clearly related to the running of the business of the assessee mire efficiently and smoothly.






If not bad debt then trading loss


In CIT v. Sree Ganesh Stores (2004) 137TAX261 the Madras Tribunal was persuaded to hold that the result of the transaction amounted to a trading loss if not a bad debt. For this purpose it took support from the Madras High Court decision in CIT v. Inden Biselers (1990) 181ITR69. The Madras High Court upheld the decision of the Tribunal allowing deduction of payment made to a third party when it held that it was not expenditure unconnected with the assessee’s business activities.


On the basis of this decision it is therefore possible to claim expenditure even as trading loss incidental to business. 





Amalgamation expenses are allowable deduction


The Gujarat High Court in CIT v. Akme Electronics & Control (P.) Ltd. (2004) 137TAX263 allowed deduction of legal expenses incurred by the transferor company for the purpose of amalgamation on the ground that the liability to pay such expenses arose in respect of the period when it still continued to exist no matter that the effective date of amalgamation may be prior to the date of sanction of the scheme by the High Court. Like in every case since the amalgamation is resorted to for the smooth and efficient conduct of the business of the transferee company the High Court held that the legal expenses were laid down wholly and exclusively for the purpose of the business of the assessee company.





Discrepancy in bank statement (stocks)- Deliberate or not deliberate


In CIT v. Punjab Rice & General Mills (2004) 137TAX314 the assessing officer made certain addition to the income on account of difference of stock as per bank statement furnished to the bank and as per stock ledger maintained by the assessee. The assessing officer did not pointed out any shortcomings in the stock ledger except for such discrepancy. The P & H High Court deleted the addition by stating that so called discrepancy could not be the sole basis for making addition in the declared income.


It is important to make note that the Supreme Court in SLP (Civil) No. 9244 of 1993 (1993) 204ITR (St.) 45 approved the Gauhati High Court decision to the fact that the assessee is liable to be assessed at higher income having made overvaluation of the stocks as per books maintained for the purpose of securing larger credit from the bank. In Commissioner of Income-tax Vs. Prem Singh & Co. (1987) 163ITR434 the Delhi Tribunal deleted the addition on the ground that there was the practice of filing inflated lists for getting a loan. The High Court held in favour of the assessee for the reason that the stock indicated by the assessee’s account books were accepted by the Tribunal.




Stay application- Learning for the Assessing Officer


In Bhubneshwar Stock Exchange v. Union of India (2004) 137TAX 318 the demand in dispute related to issues that had been decided in assessee’s own case in its favour by Commissioner (Appeals) and the assessee pleaded for stay of disputed demand on the basis of CBDT Circular No/ 530 dated 03.03.1989. The assessing officer however rejected the application for stay.  The Orissa High Court held that the Board has issued instructions from time to time as to how the discretion available u/s 220(6) will be exercised by the assessing officer in different situations. The Board has issued the instruction in Circular No. 530, dated 06.03.1989 that where the demand in dispute relates to issue that have been decided in favour of the assessee’s own case, the assessee should be treated as not being in default in respect of the amount in dispute in appeal keeping in mind the well –settled principle of justice and equity. Those instructions have not been superseded but reiterated and claimed by the Board in its Circular No. 589, dated 16.1.1991.

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