Unreported Decisions – April 2020

By Ajay R. Singh, Advocate

1. Section 271(1)(c) – Penalty – For concealment of income – the timing difference in offering income to taxes cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of income, thus no penalty was leviable u/s. 271(1)(c) of the Act.

The assessment for was completed u/s 143(3) of the Act, by making additions towards income from other sources being interest received on income tax refund u/s 244A amounting to Rs. 4,91,513/-. Thereafter, A.O imposed the penalty u/s 271(1)(c) of the Act on the basis that the assessee has deliberately concealed particulars of income by not disclosing interest received on income tax refund, though it has received interest on income tax refund during the relevant period and accordingly, levied penalty of Rs.3,03,756/-, being 200% of tax sought to be evaded.

The ld.CIT(A) relied upon various judicial precedents, including the decision of Hon’ble Delhi High Court, in the case of CIT vs Zoom Communication Pvt. Ltd (2010) 327 ITR 510 and confirmed the penalty on the ground that the assessee has failed to explain the accounting of interest on refund on receipt basis, when the details of refund issued were available to it and when, it was following mercantile system of accounting.

The assessee submitted that it has offered interest received of income tax refund u/s 244A of the Act, in the subsequent AY 2013-14, when the actual refund was credited to the account of the assessee. The Assessee, further submitted that interest on income tax refund was very much available with the department in Form No. 26AS and there is no possibility of non disclosure of said interest income for taxation. The assessee has not offered interest income for the year under consideration, because the major portion of interest was credited to assessee account in subsequent financial year and also the fact that when, refund advise was issued to the assessee, there is no breakup, in respect of refund of taxes and interest. In this regard, he relied upon by the decision of Hon’ble Punjab & Haryana High court, in the case of CIT vs SSP Pvt.Ltd. 302 ITR 436.

The Tribunal held that the AO has levied penalty only on the ground that the assessee is following mercantile system of accounting, it has not offered interest income for tax for the year under consideration. Otherwise, there is no dispute with regard to the fact that said interest income has been offered to tax in subsequent financial year. Therefore, once, the fact with regard to taxability of interest income in AY 2013-14 was not disputed by the Ld. AO, then he erred in levying penalty u/s 271(1)(c) of the Act for not offering interest income to tax for the year under consideration, more particularly when, the assessee has explained the reasons for not accounting and considering interest income to tax for the year under consideration. When, the assessee has offered to tax interest income in subsequent financial year, there is no reason for the Ld. AO to levy penalty on the same income for the year under consideration for not offering to tax said income, because the timing difference in offering income to taxes cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of income. Therefore, the Ld. AO, as well as the Ld.CIT(A) erred in levying penalty u/s 271(1)(c) of the Act in respect of additions towards interest on income tax refund. Hence, penalty levied u/s 271(1)(c) of the Act is deletedg.

Steelfab Building System v. ACIT 31(3), ITA No. 6509/ Mum/2018, A.Y. 2012-13, Bench. “SMC”, dt :04/03/2020 (Mum)(Trib)   

Steelfab Building System.

2. Section 68 rws 263 of the Act – Share premium – Where Assessing Officer after making proper and detailed enquiries, took a view that amount received by assessee as share premium was a genuine transaction – revisional order passed by CIT directing Assessing Officer to enquire into in light of proviso inserted to section 68 of the Act and to decide about genuineness of share premium afresh, was not sustainable.

The law as was there at the prevailing time, when the assessment was completed by the Ld. AO was supported by certain judicial precedents – on day when Commissioner passed his order that two views were inherently possible – Revision not justified.

The assessee is engaged in the business of financing, investments, consultancy and share related activities. The assessment has been completed u/s 143(3) of the Act, determining the total income at Rs.29,80,924/- by making additions towards disallowances u/s 14A of the Act.

Subsequently, the Ld.CIT-1, Mumbai, passed the revision order u/s 263 of the Act on the basis that the assessment order passed by the Ld. AO is erroneous insofar as, it is prejudicial to the interest of the revenue, in respect of share premium collected on issue of shares and issue of disallowances of expenditure u/s 14A of the Act, on the ground that although, the Ld. AO has examined both the issues, but failed to appreciate the facts and relevant provision of the Act, even though the assessee has issued shares at huge premium, which is not supported by necessary evidences. Further, although the ld. AO has determined disallowances u/s 4A r.w. Rule 8D, but excluded shares held as stock in trade for the purpose of determination of disallowances, even though shares held as stock in trade needs to be considered for the purpose of computation of average value of investments. Therefore, he opined that the assessment order passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue and accordingly, set aside the assessment order passed by the Ld. AO with a direction to reframe the assessment afresh taking into account, the observation made in his order.

The Tribunal held that the provisions of section 263 provides an inherent power to the CIT to revise the assessment order, if he is satisfied that the assessment order passed by the Ld. AO is erroneous, insofar as, it is prejudicial to the interest of the revenue. In order to invoke jurisdiction u/s 263, the ld.CIT should satisfy himself that the Ld. AO has passed erroneous order, which caused prejudice to the interest of the revenue. Unless, the Ld. CIT satisfied twin condition provided u/s 263, he cannot assume jurisdiction to revise the assessment order.

The Ld.CIT has questioned two issues in his show cause notice. Insofar as, issue of shares at premium, there is no doubt, the Ld. AO has called for necessary details by issuing a specific notice u/s 142(1), for which the assessee has filed a detailed reply, vide its letter date 29/10/2012, which is part of paper book, where it has furnished complete details, including issue of share at premium. The assessee has also filed necessary details with regard to expenses incurred in relation to exempt income and also claimed that it has made suo-moto disallowances of Rs.7,81,161/-. The Ld. AO has determined disallowances u/s 14A by invoking Rule 8D and made further additions, over and above disallowances made by the assessee. These are undisputed facts. The ld.CIT, although accepted fact that the Ld. AO has examined the issue of shares at premium, but questioned premium collected on issue of shares, in light of provisions of section 68 of the Act.

Further Tribunal find that once necessary ingredients provided u/s 68 i.e identify, genuineness of transactions and creditworthiness of the parties are proved, then the share premium collected on issue of shares cannot be questioned, because the proviso inserted to section 68 of the Act was effective from AY 2013-14 and which is not applicable for the year under consideration as held by the Hon’ble Bombay High Court, in the case of CIT vs Green Infra Ltd. [2017] 392 ITR 7.

Insofar as, disallowances of u/s 14A of the Act, the law as was there at the prevailing time, when the assessment was completed by the Ld. AO was supported by certain judicial precedents, as per which share hold as stock in trade was not necessarily to be included for the purpose of determination of average value of investments. The Ld. AO on the basis of law prevailing at that time has considered the issue and determined disallowances applying the prescribed procedure provided u/s 14A r.w.Rule 8D of act. Therefore, the ld.CIT was erred in, coming to the conclusion that the Ld. AO has not examined the issue, in light of provisions of the Act.

Further, when a issue has been considered by A.O and has taken one of the possible views, then the Ld.CIT cannot assume jurisdiction to revise assessment order, on the ground that the enquiries conducted by the ld. AO is inadequate. This legal principle is supported by the decision of Hon’ble Bombay High court, in the case of CIT vs Neerav Modi (2016) 241 taxmann 245. This legal principle is further supported by the decision of Hon’ble Supreme Court, in the case of CIT vs Max India Ltd.(2007) 295 ITR 282, where it was held that where, two views inherently possible and when, one view had to be taken into account by considering position of law, as it stood on day, when the commissioner passed order in purportedly exercises of his power u/s 263 of the Act, then view taken by the Ld. AO cannot be called erroneous and the Ld.CIT is incorrect in assuming jurisdiction u/s 263 of the Act.

Therefore, the Ld.CIT was incorrect in assuming jurisdiction to revise the assessment order u/s 263 of the Act on both issues.

KSM Securities & Finance Private Limited v CIT-1, ITA NO.: 2980/M/2015, A.Y. 2010-11, Bench. “H”, date : 04/03/2020 (Mum)(Trib)

KSM Securities & Finance Private Limited.

3. Section 50C – Capital gains – Reference to DVO – Assessing Officer computed long-term capital gain on basis of valuation made by Stamp valuation authority without reference to DVO – It is irrespective of the fact whether the assessee objects to the stamp duty valuation or not, the A.O has to get the valuation done through the DVO in terms of section 50C(2) of the Act.

The assessee is an individual. In the course of assessment proceedings, the A.O noticing that the assessee has declared long term capital gain of Rs. 2,23,544, on sale of flat called upon the assessee to furnish the working of long term capital gain as well as the sale deed. On perusing the sale deed, he found that the stamp duty authority has valued the property for stamp duty purpose at Rs. 37,80,000, as against the declared sale consideration of Rs. 30 lakh. Though, the assessee objected to the proposed addition, however, the A.O rejecting the submissions of the assessee
proceeded to treat the value determined for stamp duty purpose as the deemed
sale consideration and computed long term capital gain accordingly.

The CIT(A) upheld the A.O order. The assessee submitted that the A.O without referring the valuation of the property to the District Valuation Officer (DVO) has straight away adopted stamp duty value for determining the long term capital gain. As per section 50C(2) of the Act, the A.O has to refer valuation of the property to DVO irrespective of the fact whether the assessee objects or not to the stamp duty valuation.

The Tribunal held that, the A.O has invoked the provisions of section 50C(1) of the Act to determine the long term capital gain by adopting the value determined by the stamp valuation authority as the deemed sale consideration. However, before doing so, he has not made any reference to the DVO to determine the value of the property in terms of section 50C(2) of the Act. The Hon’ble Calcutta High Court in Sunil Kumar Agarwal v/s CIT, [2014] 225 taxman 211 (Cal.) has held that irrespective of the fact whether the assessee objects to the stamp duty valuation or not, the A.O has to get the valuation done through the DVO in terms of section 50C(2) of the Act. The assessee has filed the valuation report obtained from a registered valuer valuing the property at Rs. 27,20,000/-. Admittedly, the aforesaid valuation was not before the Departmental Authorities. Therefore, admitting the valuation report as additional evidence, matter was restore to the file of the A.O for fresh adjudication after complying to the provisions of section 50C(2) of the Act by referring the valuation of the property to the DVO.

Nafisa Abizar Banatwala v. I.T.O Ward – 17(2)(4), ITA No.974/Mum/2019, A.Y. 2013-14, Bench. “SMC”, DOH: 04/03/2020 (Mum)(Trib)   

Nafisa Abizar Banatwala