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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 1162 of 201 DIRECTOR OF INCOME TAX (EXEMPTION)....Appellant(s)
Versus
SABARMATI ASHRAM GAUSHALA TRUST....Opponent(s) 15th January 2014
Term “Charitable Trust” is defined in Section 2 (15) of the Act
which includes the relief to the poor, education, medical relief, preservation
of environment; including watersheds, forests and wildlife and
preservation of monuments or places or objections of artistic or historic
interest and advancement of any other object of general public utility.
Proviso to Section 2 (15) and further proviso whereof inserted by Finance
Act 2010 w.e.f 1st April 2009.
The legal controversy in the present Tax Appeal centers around the
first proviso. In the plain terms, the proviso provides for exclusion from
the main object of the definition of the term “Charitable purposes” and
applies only to cases of advancement of any other object of general public
utility. If the conditions provided under the proviso are satisfied, any
entity, even if involved in advancement of any other object of general
public utility by virtue to proviso, would be excluded from the definition of
“charitable trust”. However, for the application of the proviso, what is
necessary is that the entity should be involved in carrying on activities in
the nature of trade, commerce or business, or any activity of rendering
services in relation to any trade, commerce or business, for a cess or fee or
any other consideration. In such a situation, the nature, use or
application, or retention of income from such activities would not be relevant. Under the
circumstances, the important elements of application
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of proviso are that the entity should be involved in carrying on the
activities of any trade, commerce or business or any activities of rendering
service in relation to any trade, commerce or business, for a cess or fee or
any other consideration. Such statutory amendment was explained by the
Finance Minister’s speech in the Parliament. In consonance with such assurance given
by the Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of
2008 dated 19th December 2008 explaining the amendment.
What thus emerges from the statutory provisions, as explained in
the speech of Finance Minister and the CBDT Circular, is that the activity
of a trust would be excluded from the term ‘charitable purpose’ if it is
engaged in any activity in the nature of trade, commerce or business or
renders any service in relation to trade, commerce or business for a cess,
fee and/or any other consideration. It is not aimed at excluding the
genuine charitable trusts of general public utility but is aimed at
excluding activities in the nature of trade, commerce or business which
are masked as ‘charitable purpose’.
Many activities of genuine charitable purposes which are not in
the nature of trade, commerce or business may still generate
marketable products. After setting off of the cost, for production
of such marketable products from the sale consideration, the
activity may leave a surplus. The law does not expect the Trust to
dispose of its produce at any consideration less than the market
value. If there is any surplus generated at the end of the year,
that by itself would not be the sole consideration for judging
whether any activity is trade, commerce or business particularly
if generating ‘surplus’ is wholly incidental to the principal
activities of the trust; which is otherwise for general public
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utility, and therefore, of charitable nature.
The Tribunal also noted that the objects were admittedly charitable in nature. The
surplus generated was wholly secondary. It was, therefore, that the Tribunal held that
the proviso to section 2 (15) of the Act would not apply. We are wholly in agreement
with the view of the Tribunal. Merely because while carrying out the activities for the
purpose of achieving the objects of the Trust, certain incidental surpluses were
generated, would not render the activity in the nature of trade, commerce or business.
Delhi High Court in case of Institute of Chartered Accountants of India & Anr. vs.
Director General of IncomeTax [Exemption] & Ors., reported in [2012] 347 ITR 99
(Delhi) considered these very provisions in the context of activities of the Institute of
Chartered Accountants holding that the fundamental or dominant function of the
Institute was to exercise overall control and regulate the activities of the
members/enrolled chartered accountants and merely because the Institute
was holding coaching classes which also generate income, the Court held
that proviso to Section 2 (15) of the Act would not be applicable.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 596 of 2013
With
CIVIL APPLICATION NO. 585 of 2013
In
TAX APPEAL NO. 596 of 2013
=================================================
PANASONIC ENERGY INDIA CO. LTD....Appellant(s)
Versus
ASST. COMMISSIONER OF INCOME TAX CIRCLE FOUR....Opponent(s)
================================================= Date : 07/01/2014 “
Whether on the
facts and in the circumstances of the case, the Tribunal was right in law in disallowing
totally section 80IB claim of the appellant only because Form 10CCB was not submitted
during the course of assessment proceedings?”
It is true that the Tribunal has made observations, which may suggest that if
report in Form 10CCB is not filed before the Assessing Officer before completion
of the assessment, the entire claim under section 80IB of the Act, necessarily
has to fail. Had this been the sole factual matrix, we would have certainly
examined the question further and as prima facie advised, also would have
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accepted the assessee’s contention that even at the appellate stage, such report
could be furnished if valid grounds are made out for doing so.
However, we enquired with the counsel for the appellant whether and at what
stage, the report was presented before the Appellate Commissioner or the
Tribunal. We may recall that the Commissioner allowed the appeal of the
assessee and granted deduction by merely referring to his own orders in
the earlier years without commenting on whether at least before him such report
was filed by the assessee or not. Likewise, the Tribunal merely proceeded on the
footing that such report not having been furnished before the Assessing Officer
till the assessment was completed, the claim should be disallowed. It was,
therefore, that we had raised the said question to the counsel. Counsel candidly
said that there is nothing on record to suggest that any such report was
furnished on record either before the Commissioner(Appeals) or before the
Tribunal. He, therefore, urged us to examine the question on the admitted
premise that no such report was presented till the Tribunal decided the appeal of
the Revenue. We have accordingly proceeded on such factual basis.
11. If this be the question, a serious consideration must be bestowed on whether
the assessee, who had not previously furnished the report either before the
Assessing Officer before completion of the assessment proceedings, failed to do
so before the Appellate Commissioner or before the Tribunal till the second
appeal was finally decided, at the appellate stage before the High Court can
present a report requesting that the claim be granted. We have serious difficulty
in accepting such a situation. Before giving our reasons we must record the
opposition of learned counsel Mr. Shah to take this factor into consideration. He
urged that the question must be decided as framed in view of the conclusion of
the Tribunal. We are afraid we cannot be pinned down to answering the question
only as raised by the appellant. Section 260A of the Act itself gives sufficient
scope and liberty to the Court to frame such question as may be found
necessary.
Further the admitted fact being that no such report was ever filed till the stage of
Tribunal, it would be futile to decide the question framed by the appellant
which completely ignores this factual aspect. The issue can be looked from a
slightly different angle. The Tribunal’s order can be supported by the respondent
independently of the grounds mentioned by the Tribunal. Therefore, if the report
was never filed till the Tribunal decided the appeal, surely, the Revenue had to
succeed. Simply because the Tribunal mentioned this for allowing the appeal
would not mean that we must also ignore the same. 12. In that view of the
matter, we have considered whether the appellant can claim deduction under
section 80IB of the Act having previously not filed the audit report under Form
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10CCB. In the present case, the appellant has not made out any ground why
such report could not be filed earlier In the application filed for taking into account
the additional document on record also, no valid grounds are made out.
Even before the first appellate stage before the Commissioner, though the rules
permit production of additional evidence, the same is hedged with certain
conditions. (Rule 46A of the Income Tax Rules, 1962)
Under the circumstance, without any justification and
without any indication of reasons why such report could not
be presented earlier, the assessee simply cannot for the first
time present such document before the High Court and seek
benefit of the deduction on the basis of such document
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 793 of 2013
================================================================
COMMISSIONER OF INCOME TAX AHMEDABAD IV....Appellant(s)
Versus
DAHYABHAI VELJIBHAI PATEL....Opponent(s) 6th January 2014
Having heard learned counsel for the appellant and having perused the judgment under
challenge, we see no scope for interference. The Tribunal applied the decision of the
apex Court in case of Reliance Petroproducts Private Limited, reported in 322 ITR
158 (SC) and observed that merely on account of disallowance of certain claim, penalty
cannot be imposed. The Tribunal also recorded that the question of disallowance under
section 40[a](ia) of the Act in respect of transporters had given rise to diversified
opinion. CIT [A] has further recorded that the department did not question genuineness
of the expenditure but but
disallowed the same merely on the ground that TDS was not deducted.
Such being the factual position, no question of law arises. Tax Appeal is,
therefore, dismissed.
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 1151 of 2013
With
TAX APPEAL No. 1152 of 2013
================================================================
COMMISSIONER OF INCOME TAX III....Appellant(s)
Versus
GUJARAT NARMADA VALLEY FERTILIZERS CO LTD....Opponent(s) 10th January 2014 We
could
notice from the material on the record that both the authorities have correctly
approached the issue in as much as the record
clearly had reflected from the balance sheet of the assesseecompany
that
the interest free funds available was much larger to the extent of Rs.
84,45,567/= lakhs as compared to the investment which was only Rs.
22.707 lakhs. Both the authorities have also noted faultnessly that the
dividend income which was earned out of the investments made in the
earlier years and there was no investment made in the year under
consideration. With the availability of the huge interest free funds in the form of share
capital, reserves, etc., the Assessing Officer had not correctly
applied the provisions of law to the issue. Such findings are also supported
by the decision rendered by this Court in case of Commissioner of
IncomeTax
v. Gujarat State Fertilizers & Chemicals Limited,
reported in [2013] 358 ITR 323 (Guj) where identical question of law had
come up before this Court.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 575 of 2009 COMMISSIONER OF INCOME TAX-I....Appellant(s)
Versus
KANDLA PORT TRUST Date : 23/04/2014 Various provisions noted
above
leave no manner of
doubt that the port trust under the said Act would
control the activities at a major port for utilizing
and creating facilities. Agencies utilizing such
facilities would pay charges to the port trust at the
rates specified with prior sanction of the Government.
It would be open for the Board to utilize the money
credited to the general account for the purposes
mentioned in sub-section(1) of section 88. Such purposes
include the administrative expenses and
salary and other benefits to be paid to the employees
and also the cost of repairs and maintenance of the
property of the Board and other expenses. The Board
would also be allowed to create reserve fund for the
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purpose of replacement or for meeting expenditure
arising from loss or damage from fire, cyclones,
shipwreck or other accident or for any other emergency
arising in the ordinary conduct of its work under this
Act. Thus creating an autonomous body under the Major
Port Trusts Act still envisages the involvement of the
Central Government in important decision making. For
example under section 92 the Board would have to take
prior sanction of the Central Government to charge
expenditure to capital. Under section 96 before
writing off any loss as irrecoverable the Board would
have to obtain prior approval of the Central
Government.
22. Thus the fact that the respondent is involved in
an activity which is of general public utility is
doubtless. Further the fact that there is no profit
making or motive to make profit is equally clear from
the said provisions of the Act of 1963.
Refer: Additional Commissioner of Incometax, Gujarat vs.
Surat Art Silk Cloth Manufacturers Association reported in
[1980]121 ITR 1; Commissioner of Income-tax, Madras vs.
Andhra Chamber of Commerce reported in [1965]55 ITR 722,
Commissioner of Income-tax, A.P. vs.Andhra Pradesh State Road
Transport Corporation reported in [1986] 159 ITR 1
To the same effect are latest decisions in:
i)
ITAT HYDERABAD BENCHES “B” in ITA 549/2013 Andhra Pradesh Urban
Infrastructure fund (order dated 9/5/2014)
ITAT “A” BENCH, CHENNAI in M/s.Madras Craft Foundation I.T.A. No.
2266/Mds/2013 Date of Pronouncement : 21-04-2014
iii) ITAT ‘I’ BENCH MUMBAI Indian Institute of Banking & Finance, ITA No.
674/Mum/2012 order 07- 05- 2014
ii)
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 3955 of 2014 SAHKARI KHAND UDYOG
MANDAL LTD.....Petitioner(s)
Versus
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ASSTT. COMMISSIONER OF INCOME TAX....Respondent(s) Date : 31/03/2014
Under the circumstances, following directions are issued:
(1)Once the Assessing Officer serves to an assessee a notice of
reopening of assessment under section 148 of the Income Tax
Act, 1961, and within the time permitted in such notice, the
assessee files his return of income in response to such notice,
the Assessing Officer shall supply the reasons recorded by him
for issuing such notice within 30 days of the filing of the
return by the assessee without waiting for the assessee to
demand such reasons.
(2)Once the assessee receives such reasons, he would be
expected to raise his objections, if he so desires, within 60
days of receipt of such reasons.
(3)If objections are received by the Assessing Officer from the
assessee within the time permitted hereinabove, the Assessing
Officer would dispose of the objections, as far as possible,
within four months of date of receipt of the objections filed
by the assessee.
(4)This is being done in order to ensure that sufficient time is
available with the Assessing Officer to frame the assessment
after carrying out proper scrutiny. The requirement and the
time-frame for supplying the reasons without being demanded
by the assessee would be applicable only if the assessee files
his return of income within the period permitted in the notice
for reopening. Likewise the time frame for the Assessing
Officer to dispose of the objections would apply only if the
assessee raises objections within the time provided hereinabove.
This, however, would not mean that if in either
case, the assessee misses the time limit, the procedure
provided by the Supreme Court in the case of GKN
Driveshafts (India) Ltd (supra) would not apply. It only
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means that the time frame provided hereinabove would not
apply in such cases.
(5)In the communication supplying the reasons recorded by the
Assessing Officer, he shall intimate to the assessee that he is
expected to raise the objections within 60 days of receipt of
the reasons and shall reproduce the directions contained in
sub-para 1 to 4 hereinabove giving reference to this
judgment of the High Court
(6)The Chief Commissioner of Income Tax and Cadre
Controlling Authority of the Gujarat State, shall issue a
circular to all the Assessing Officers for scrupulously carrying
out the directions contained in this judgment.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 325 of 2014
COMMISSIONER OF INCOME TAX AHMEDABAD IV....Appellant(s)
Versus MAA KHODIYAR CONSTRUCTION....Opponent(s) 28th April 2014
It is contended by the Revenue that though the genuineness of the
transactions had not been doubted and assuming that these agriculturists were
residing in the remote areas that would not permit the respondent to make any
breach of provision of Section 269SS of the Act. Any transaction above a sum of
Rs. 20,000/= in cash would invite the rigor of levying of penalty. It is also
argued that a huge amount of Rs. 42.75 lakhs had been taken in cash, and
therefore, both the authorities committed error in deleting the penalty. Reliance is
placed on the decisions of Delhi High Court in case of Commissioner of
Income Tax v. Samora Hotels (P) Limited, reported in [2012] 19 taxmann.com
285 (Delhi) and of Kerala High Court in case of K.V George v. Commissioner of
Incometax, reported in [2014] Taxmann.com 261 (Kerala).
What is therefore necessary to prove is the reasonable cause by the assessee on its
having failed to abide by the conditions incorporated in the said provision of Section
269SS.
Reverting to the facts of the instant case, a sum of Rs. 42.75 lakhs has been taken by
way of loan by the respondent from ten different persons. Admittedly, this was by way of
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loan in cash exceeding rupees twenty thousands and the same therefore contravenes
the provision of Section 269SS of the Act. For not inviting the rigour of penalty u/s.
271D of the Act as consequence, on the part of the assessee, the reasonable cause
needs to be shown. What is pleaded by the respondent was that all these persons were
agriculturists and that the genuineness of the transactions at no point of time
had been doubted by the Revenue. They stayed in remote areas. Both the
authorities, therefore, were of the opinion that reasonable cause had been
sufficiently made out and when the very transactions were never doubted by
the Revenue authorities, the breach is to be treated as a mere technical or venial
breach.
We notice that the requirement of Section 273B is for the assessee to
prove that there was a reasonable cause for its having failed to abide by the
provisions of Section 269SS. As emerges from the record, not only the
substantiating evidence like 7/12 Extracts were produced, but, also
additionally, transactions were reflected in the accounts of assessee and the
advancement of loan to the assessee had been reflected in the books of account
of those persons from whom the loan had been received. The identity of those
persons has also been well established. The assessee also had given satisfactory
reason for taking such loan. His bona fide belief that such transactions would not attract
provision of Section 269SS on the ground that they were agriculturists
and lived in remote villages also was one of the grounds which has weighed
with both the authorities.
Reliance placed on the decision in case of Hindustan Steel Limited v.
State of Orissa [Supra] also requires a specific reproduction at this stage where
the Apex Court has held that, “...An order imposing penalty for failure to carry out
a statutory obligation is the result of a quasi criminal proceeding, and penalty will not
ordinarily be imposed unless the party obliged, either acted deliberately in defiance of
law or was guilty of conduct contumacious or dishonest, or act in conscious disregard
to its obligation. Penalty will not also be imposed merely because it is lawful to do so.
Whether penalty should be imposed for failure to perform a statutory obligation is a
matter of discretion of the authority to be exercised judicially and on a consideration of
all the relevant circumstances. Even if a minimum penalty is prescribed, the authority
competent to impose the penalty will be justified in refusing to impose penalty, when
there is a technical or venial breach of the provisions of the Act or where the breach
flows from a bona fide belief that the offender is not liable to act in the manner
prescribed by the statute.”
We find that both the authorities have rightly construed the provisions
and applied the law to the facts and the surrounding circumstances aptly. Tax
Appeal, resultantly, deserves no further consideration and hence, the same is
dismissed.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
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TAX APPEAL No. 1071 of 2013
================================================================
COMMISSIONER OF INCOME TAX I....Appellant(s)
Versus
INDU NISSAN OXO CHEMICAL INDUSTRIES LTD....Opponent(s) 28th January
2014
This brings us to the sole surviving Question No. 1. We admit the
following substantial question for our consideration :{
1} “Whether on the facts and in the circumstances of the
case and in law, the Tribunal was correct in upholding the
decision of CIT (A), which was perverse on fact in so far as
his finding that assessee had furnished required information
before the A.O was not supporting facts on record as held by
Assessing Officer in assessment order ?”
In our view, CIT [A] as well as the Tribunal committed an error in allowing the
expenditure without its full verification.
Surely, the foreign travelling expenses, if incurred for the purpose of business,
would be allowable as the business expenditure. However, the assessee has to
establish that the travelling was undertaken for the purpose of business, and
therefore, the expenditure was “business expenditure”. Merely because on the
basis of material for the earlier years, the Commissioner [A] and the Tribunal
allowed such expenditure would not by itself mean that in the later years also,
any expenditure under the same head must be automatically allowed. The
assessee owed a duty to establish the basic facts to demonstrate, particularly
when called upon by the Assessing Officer that the expenditure was in fact
incurred for the purpose of business. committed an error in allowing the expenditure
without its full verification.
Surely, the foreign travelling expenses, if incurred for the purpose of business,
would be allowable as the business expenditure. However, the assessee has to
establish that the travelling was undertaken for the purpose of business, and
therefore, the expenditure was “business expenditure”. Merely because on the
basis of material for the earlier years, the Commissioner [A] and the Tribunal
allowed such expenditure would not by itself mean that in the later years also,
any expenditure under the same head must be automatically allowed. The
assessee owed a duty to establish the basic facts to demonstrate, particularly
when called upon by the Assessing Officer that the expenditure was in fact incurred for
the purpose of business.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
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TAX APPEAL NO. 588 of 2013
================================================================
COMMISSIONER OF INCOME TAX III....Appellant(s)
Versus
BHOGILAL RAMJIBHAI ATARA....Opponent(s) Date : 04/02/2014
On the other hand, learned counsel Shri Soparkar for the assessee
supported the order of the Tribunal contending that there had been no
cessation of liability. Section 41(1) of the Act would not apply. In any
case, it was not established that such liability ceased during the year
under consideration.
The counsel relied on following decisions: In the case of CIT v. Miraa
Processors (P) Ltd. (2012) 208 Taxman 93 (Guj.); In the case of CIT v.
Nitin S. Garg, (2012) 208 Taxman 16 (Guj.), In the case of CIT v. G.K.
Patel & Co. (2013) 212 Taxman 384 (Guj).;
We are in agreement with the view of the Tribunal. Section 41(1)
of the Act as discussed in the above three decisions would apply in a
case where there has been remission or cessation of liability during the
year under consideration subject to the conditions contained in the statute
being fulfilled. Additionally, such cessation or remission has to be
during the previous year relevant to the assessment year under
consideration. In the present case, both elements are missing. There
was nothing on record to suggest there was remission or cessation of
liability that too during the previous year relevant to the assessment year
2007-08 which was the year under consideration.
Even the liability itself seems under serious doubt. The
Assessing Officer undertook the exercise to verify the records of the so
called creditors. Many of them were not found at all in the given
address. Some of them stated that they had no dealing with the assessee.
In one or two cases, the response was that they had no dealing with the
assessee nor did they know him. Of course, these inquiries were made ex
parte and in that view of the matter, the assessee would be allowed to
contest such findings. Nevertheless, even if such facts were established
through bi-parte inquiries, the liability as it stands perhaps holds that
there was no cessation or remission of liability and that therefore, the
amount in question cannot be added back as a deemed income under
section 41(c) f the Act. This is one of the strange cases where even if
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the debt itself is found to be non-genuine from the very inception, at
least in terms of section 41(1) of the Act there is no cure for it. Be that
as it may, insofar as the orders of the Revenue authorities are concerned,
the Tribunal not having made any error, this Tax Appeal is dismissed
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 556 of 2013ANUPAM TELE SERVICES....Appellant(s)
Versus
INCOME TAX OFFICER....Opponent(s) 22nd January 2014
================================================================
“Whether on the facts and in the circumstances of the case, the Tribunal was right
in law in holding that Section 40A(3) applies to the payment of Rs. 33,10,194/=
deposited by the Appellant in the bank account of Tata Tele Services Limited ?”
It could be appreciated that Section 40A and in particular subclause (3) thereof aims at
curbing the possibility of onmoney transactions by insisting that all payments where
expenditure in excess of a certain sum [in the present
case twenty thousand rupees] must be made by way of account payee cheque
drawn on a bank or account payee bank draft. In the present case , neither the
genuineness of the payment nor the
identity of the payee were in any case doubted. These were the conclusions on
facts drawn by the Appellate Commissioner. The Tribunal also did not disturb
such facts but relied solely on Rule 6DD (j) of the Rules to hold that since the
case of the assessee did not fall under the said exclusion clause nor was
covered under any of the clauses of Rule 6DD, consequences envisaged in
Section 40A(3) of the Act must follow.
In our opinion, the Tribunal committed an error in coming to such a
conclusion. We would base our conclusions on the following reasons :[
[a] The paramount consideration of Section 40A(3) is to curb and reduce the
possibilities of black money transactions. As held by the Supreme Court in Attar Singh
Gurmukh Singh [Supra], section 40A(3) of the Act does not eliminate
considerations of business expediencies;
[b] In the present case, the appellant assessee was compelled to make cash
payments on account of peculiar situation. Such situation was as follow
[i] the principal company, to which the assessee was a distributor, insisted that cheque
payment from a cooperative bank would not do, since the realization takes a longer
time;
[ii] the assessee was, therefore, required to make cash payments only;
[iii] Tata Teleservices Limited assured the assessee that such amount shall be
deposited in their bank account on behalf of the assessee;
[iv] It is not disputed that the Tata Teleservices Limited did not act on such promise;
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[v] if the assessee had not made cash payment and relied on cheque payments alone, it
would have received the recharge vouchers delayed by 4/5 days and thereby severely
affecting its business operations;
We would find that the payments between the assessee and the Tata
Teleservices Limited were genuine. The Tata Teleservices Limited had insisted that
such payments be made in cash, which Tata Teleservices Limited in turn
assured and deposited the amount in a bank account. In the facts of the present
case, rigors of section 40A(3) of the Act must be lifted. We notice that the Division
Bench of the Rajasthan High Court in case of Smt. Harshila Chordia vs. IncomeTax
Officer, reported in [2008] 298 ITR 349 (Raj) had observed that the exceptions
contained in Rule 6DD are not exhaustive and that the said rule must be interpreted
liberally.
In the result, the question is answered in favour of the appellant
assessee and against the Revenue. Judgment of the Tribunal is reversed. Tax
Appeal is allowed. Order accordingly.
N THE INCOME TAX APPELLATE TRIBUNAL , ‘A’ BENCH, CHENNAII .T.A.Nos.1339 &
1340/Mds/2011 & C.O.No.136/Mds/2011
( In ITA No.1340/Mds/2011) Assessment Years : 2006-07 & 2007-08 Mr . K.M. Vidyasagar ,
Flat No.8, 2nd f loor ,
‘Sapthaswara’
57, 1s t Avenue, Ashok Nagar
Chennai -600 083.
PAN:AADPV3326K: 21st March, 2014 Heard
both sides. Perused orders of lower
authorities
and decisions relied on. The Assessing Officer disallowed
cash payments made by the assessee under section 40A(3)
of the Act. There is no dispute that all these transactions are
made in the course of assessee’s business of purchase and
sale of plots and the transactions are all genuine. The
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question now for consideration is whether assessee made
these payments in the course of carrying on the business of
purchase and sale of plots and considerations of business
expediency and other relevant factors are relevant for the
purpose of section 40A(3) or not?
6. The Hon’ble Gujarat High Court in the case of Anupam
Tele Services (supra) held that provisions of Rule 6DD(j) are
not exhaustive and considerations of business expediency
and other relevant factors are not excluded from the
provisions of section 40A(3) of the Act. This is also clear on
reading from the provisions of section 40A(3) of the Act. The
Commissioner of Income Tax (Appeals) elaborately
considered the submissions of the assessee as well as case laws and came
to the conclusion that provisions of section
40A(3) are not attracted in the assessee’s case….
7. On going through the above order of the
Commissioner of Income Tax (Appeals), we find that assessee has made
payments to various parties for
purchase of plots / paid brokerage in the course of
carrying on its business of purchase & sale of plots/flats.
All these payments were made in view of business
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expediency and transactions are genuine. The Hon’ble High Court observed
that the Hon’be Supreme
Court in the case of Attar Singh Gurmukh Singh Vs. ITO (191
ITR 667) held that the provisions of section 40A(3) are not
intended to restrict the business activities. There is no
restriction on the assessee on his trading activities. The
terms of section 40A(3) are not absolute. The genuine and
bonafide transactions are not taken out of the sweep of the
section and considerations of business expediency and other
relevant factors are not excluded. The provisions of section
40A(3) and Rule 6DD are intended to regulate business
transactions and the prevent the use of unaccounted money
or reduce the chances to use black money for business
transactions.
9. Here in the present case, it is not the contention of the
Revenue that transactions are not genuine and payments were all
undisclosed money. It is not the case of Revenue that
payee was not identified or payee denied the receipt of
money. Therefore, taking totality of the facts and
circumstances of the case into consideration and the case
laws, we are of the view that Commissioner of Income Tax
(Appeals) has rightly deleted the disallowance following
various decisions. We sustain the order of the Commissioner
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of Income Tax (Appeals) and dismiss the grounds raised in
both the appeals of the Revenue
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 41 of 2014
================================================================
COMMISSIONER OF INCOME TAX (TDS)....Appellant(s)
Versus
ASSISTANT GEOLOGIST....Opponent(s) Date : 30/01/2014
5. It is a matter of record that the payment of sum of Rs.3.51 crores (rounded off)and
the amount of Rs. 3.42 crores (rounded off) to GMDC and GMRDS respectively by the
respondent were not for construction activity carried out by them. Budgetary provision
made to the tune of Rs.351.76 lakhs for such projects at Ambaji and Dhangadra. For
executing such scheme, proposal was to be made to the Commissioner, Department of
Industry and Mining by the assessee. Thus respondent acted as intermediary for
release of funds and on sanction, the same were disbursed. Thus, both the elements
necessary for deduction of tax at source were lacking. There was no contract with both
these corporations nor was such payment made towards the construction work carried
out by them. These we re the amounts towards grantinaid.6. We are therefore, of the
firm opinion that the tribunal committed no mistake nor any error in adjudicating the
dispute before it. There was no contractual obligation as is apparent from the
record. It is the Government department which had paid to GMDC and GMRDS for
construction of the Marble Park and such amounts being grantinaid,
the requirement of deducting the tax at source under section 194C, as rightly held by
the tribunal, did not arise.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 347 of 2013 COMMISSIONER OF INCOME TAX II....Appellant(s)
Versus
RAMESH D PATEL....Opponent(s) Date : 21/01/2014 “Whether the ITAT was
justified in law and in facts in annulling the assessment finalized
u/s.153A(b) on technical ground that in absence of search warrant, no
order can be passed u/s.153A(b) of the Act, without appreciating fact that
the assessee did not challenge issue of statutory notice calling for return
u/s.153A of Income Tax Act, 1961 within stipulated time or before
completion of assessment, in view of section 124(3) of Income Tax
Act,1961?”
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Having heard the learned counsel for the parties, we find from the
record that the Assessing Officer had made contradictory statements with
respect to the assessee being subjected to search. In one order, he noted
that no search warrant was issued against the assessee, while in another
order, he recorded that not only M/s.J.K.Securities Group, but the
assessee was also subjected to search. To clear this confusion, the
Tribunal gave multiple opportunities to the Revenue to produce the
record of search and authorization. Despite sufficient opportunities, the
Revenue could not produce the same. The Tribunal, therefore, concluded
that there was no search warrant against the assessee. The Tribunal,
therefore held that in absence of any search warrant, the orders passed by
the Assessing Officer under section 153B of the Act were invalid.
We have no reason to interfere with the order passed by the
Tribunal. Section 153A of the Act pertains to assessment in case of
search or requisition. Sub-section (1) thereof provides that
notwithstanding anything contained in sections 139, 147, 148, 149, 151
and 153 of the Act, in case of a person where a search is initiated under
section 132 or books of account, other documents or any assets are
requisitioned under section 132A after 31st of May 2003, the Assessing
Officer shall issue a notice to such person requiring him to furnish the
return of income and assess or reassess the total income of six
assessment years immediately preceding the assessment year relevant to
the previous year in which such search is conducted or requisition is
made. Section 153B of the Act provides for time limit for completion of
assessment under section 153A.
Learned counsel for the assessee has rightly relied on a decision of
the Orissa High Court in the case of Siksha ‘O’ Anusandhan v. CIT,
336 ITR 112 (Orissa) in which it was held that provisions of section
153A make it clear that only in the case of a person where a search was
initiated under section 132 or books of account or other documents or
any assets were requisitioned under section 132A after 31.3.2002, the
Assessing Officer could after issuing a notice, assess or reassess the total
income of such person for six assessment years immediately preceding
the assessment year relevant to the previous year in which such search
was conduced or requisition was made.
In the present case, the Tribunal came to a factual finding that no
search authorization was produced. This was necessary because the
Assessing Officer had made contradictory references to the assessee
being subjected to search or not. In absence of a search authorization,
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the Tribunal correctly held that assessment orders under section 153A
could not have been passed. Reliance of the Revenue to section 124(3)
of the Act would be of no avail. In
terms of sub-section (3) of section 124, right to raise such objection shall
be foregone beyond the stages mentioned therein. The said provisions
are clearly concerning with the dispute of the assessee with respect to the
territorial jurisdiction of the Assessing Officer and has no relevance in
so far as the inherent jurisdiction for passing an order of assessment
under section 153A of the Act is concerned, when no search authorization
under section 132 was issued or requisition under section
132A of the Act was made
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD M/S. AMARSHIV
CONSTRUCTION PVT. LTD.....Appellant(s) Versus THE DEPUTY COMMISSIONER
OF INCOME TAX....Opponent(s) 19th March 2014 TAX APPEAL No. 554 of 2003
Mere fact that the amount was received by the assessee would not
mean that income had accrued. Whether income did accrue or not would
depend on the fact whether the right to receive said amount had accrued or not.
The fact that tax was deducted at source on said amount also would be of no
consequence. Tax was deducted by SSNNL. The assessee had no control over
such deduction. Merely whether tax was deductible or not would not decide
the taxability of certain receipts.
The manner in which the assessee accounted for such receipt in its books of account
can also not determine its tax liability, as held by the Supreme Court in case of
Kedarnath Jute Mfg. Company Limited v. Commissioner of IncomeTax
[Central], Calcutta reported in 82 ITR 36.
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The assessee claiming entire expenditure and not excluding expenditure relatable to the
withheld security deposit also would not be fatal to the interest of the assessee. The
expenditure in toto was incurred. The expenditure incurred by the assessee could not
be proportionately divided into that covering the assessee’s ninety per cent of the bill
amount and relatable to the rest ten percent.
In Commissioner of IncomeTax v. Punjab Tractors Cooperative Multi
Purpose Society Limited, reported in {1998} 234 ITR 105, the Punjab & Haryana
High Court observed that, “...it is only receipt as “income” which would attract tax.
Every receipt by the assessee is, therefore, not necessarily income in his hands. It
bears the character of income at the time when it accrues in the hands of the assessee
and then it become exigible to tax.”
(Supreme Court rendered in case of
Commissioner of Income Tax v. Excel Industries Limited & Anr., reported in
(2013) 358 ITR 295 (SC).;)
INCOME TAX APPELLATE TRIBUNAL MUMBAI - ‘C’ BENCH MUMBAI ITA Nos. 3408 Mum 2010
& 3559/Mum/2011 Poddar Ashish Developers Date
of Pronouncement : 12- 03 - 2014
7.We have heard the rival submissions and perused the material before
us.We have also carefully considered the guidance notes issued by ICAI as
well as Accounting Standards AS-7&9 in the light of provision of section
145 of Act.Principles applicable with regard to the method of accounting
can be summarised as under:
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i.Section 145 of the Act,deals with the method of accounting.It is for the
assessee to adopt any recognised method of accounting for his
business.Income shall be computed in accordance with the method of
accounting regularly employed by the assessee.In other words,it is open to
the assessee to opt for such method of accounting as he deems
reasonable and appropriate.The proviso to sub-section(1) empowers the
AO to compute the income on such basis and in such manner as he
determines if the accounts are correct and complete but the method
adopted is such that, in his opinion, the income cannot properly be
deduced therefrom. The jurisdiction can beinvoked where he is of the
opinion that the income cannot properly be deduced therefrom. He cannot
exercise the jurisdiction merely on the ground that the method adopted,
which is otherwise regular or fair,is detrimental to the Revenue or
advantageous to the assessee.(200 ITR 496-Doom
Dooma India Ltd.-Gau.)
ii.Every assessee is entitled to arrange its affairs and follow the method of
accounting, which the Department has earlier accepted.It is only in those
cases where the Department records a finding that the method adopted by
the assessee results in distortion of profits that the Department can insist
on substitution of the existing method.(Bilahari Investment P. Ltd.-299ITR1SC)
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iii.The AO’s power to choose the basis and manner of computation of
income is not an arbitrary power to assess the income, but he must
exercise his discretion and judgment judicially.
iv.The accounts which are regularly maintained in the course of business
and are duly audited, free from any qualification by the auditors, should
normally be taken as correct unless there are adequate reasons to indicate
that they are incorrect or unreliable. The onus is upon the AO to show that
either the books of account maintained by the assessee were incorrect or
incomplete or that the method of accounting adopted by him was such that
true profits of the assessee cannot be deduced
therefrom.(325ITR13,Paradise Holidays-Del.)
v.If a particular accounting system has been followed and accepted and
there is no acceptable reason to differ with it,the doctrine of consistency
would come into play.(339ITR382-Jagatjit Industries Ltd.,Del.)
We find that the assessee had constructed the complete building over a period of time and
received the purchase consideration from time to time from the purchasers and handed
over the possession of the building when the building was fully completed and occupancy
certificate was received.It was only at that time that the proverbial risks and rewards were
transferred to the purchaser.Therefore,in our opinion PCM followed by the assessee-AOP
was in order and the action of the FAA to reject the stand taken by the AO was
justified.Only objection of the AO,as stated by the FAA was that the assessee has deferred
the taxes to subsequent years.But,as held the Hon’ble Gauhati High Court it cannot be
basis for rejecting the method of accounting regularly followed by the
assessee.Therefore,confirming the order of the FAA we decide ground no.1 against the
AO.
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Mumbai bench ITAT in LSG Sky Chef (India) Pvt. Ltd.
C/o. Kalyaniwalla & Mistry ./I.T.A. No. 4828/Mum/2012 Assessment Year: 200910) 27.03.2014 ___. / O R D E R
1. We have given our careful and anxious consideration to the matter. In our
view, though Form 26AS (r/w r.31AB and ss. 203AA and 206C(5)) represents a
part of a wholesome procedure designed by the Revenue for accounting of TDS
(and TCS), the burden of proving as to why the said Form (Statement) does
not reflect the details of the entire tax deducted at source for and on behalf
of a deductee cannot be placed on an assessee-deductee.
2. The assessee, by furnishing the TDS certificate/s bearing the full details
of the tax deducted at source, credit for which is being claimed, has in our
view discharged the primary onus on it toward claiming credit in its
respect. He, accordingly, cannot be burdened any further in the matter. The
Revenue is fully entitled to conduct proper verification in the matter and satisfy
itself with regard to the veracity of the assessee’s claim/s, but cannot deny the
assessee credit in respect of TDS without specifying any infirmity in its claim/s.
Form 26AS is a statement generated at the end of the Revenue, and the
assessee cannot be in any manner held responsible for any discrepancy
therein or for the non-matching of TDS reflected therein with the
assessee’s claim/s. Where so, no doubt a matter of concern, is one which
is to be investigated and pursued by the Revenue, which is suitably armed
by law therefor. The plea that the deductor may have specified a wrong
TAN, so that the TDS may stand reflected in the account of another
deductee, is no reason or ground for not allowing credit for the TDS in the
hands of the proper deductee. The onus for the purpose lies squarely at the
door of the Revenue.
3.
\
IN THE INCOME TAX APPELLATE TRIBUNAL
“A” BENCH, AHMEDABAD ITA No.297/Ahd/2011
A.Y. 2006-07 Shri Ravi Hansraj
Gouthi (HUF), Date of Pronouncement: 17/04/2014 We have also examined
the relevant provision, according to which
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Section 140A(3) says that if an assessee fails to pay the whole or any part
of tax or interest in accordance with provision of sub Section (1) of
Section 140A then he shall be deemed to put an assessee in default.
Section 221 has defined penalty when the assessee is in default. Sub
Section 1 of Section 221 prescribes that when an assessee is in default or
is deemed to be in default in making a payment of tax then he shall in
addition to the amount of the arrears be liable by way of penalty to pay
such amount as AO may direct. Thus, the second proviso prescribes that in
a situation when the
assessee proves that there was a good and sufficient reason then no
penalty is to be levied on the assessee. To ascertain whether there was
good and sufficient reason we have inquired from the assessee that
whether losses were incurred before the date of filing of the return or the
date on which actually the return was filed. We have been informed that
as per the order/intimation made u/s.143(1) the due date of filing of
return for A.Y. 2006-07 was 31.12.2006, however, the return was filed
on 29th of March, 2007. The assessment u/s.143(1) was made on 26th of
March, 2008. The assessee has furnished a balance sheet drawn as on
31st
of December, 2006 and demonstrated that there was heavy losses
incurred in share trading to the tune of Rs.1,36,46,928/-. The assessee
had cash in hand of only Rs.47,873/-. Likewise, in the bank accounts, the
balance was only Rs.8,848/-. There was heavy current liabilities against
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the investment in shares. Due to the said reason, the assessee has no
liquid funds to make the payment of self-assessment although he had
earned profit in the financial year 2005-06 but by the time he was
required to file the return, he had suffered heavy losses and the entire
profit had washed away due to losses in share trading. In support of the
facts and the legal position, reliance was placed on the following
decisions:
“1. Safari Mercantile (P) Ltd. Vs. ACIT, (2008) 21 SOT 531
2. CIT Vs Pure Drinks (New Delhi) Ltd., (2013) 37 taxmann.com 30
(P&H.)”
3. V. Govinda Chetty Vs. CIT, (1998) 231 ITR 615 (Madras)
4. Diamondstar Exports Ltd. Vs. ITO, (2013) 40 taxmann. com 460
5. M/s. Lok Housing and Construction Ltd. Vs. Additional CIT, ITA
No.5224 & 5225/Mum/2009.”
5. Considering the totality of the facts and circumstances of the case,
we are of the view that the assessee has satisfied us that there was a good
and sufficient reason for the said default; hence, no penalty should be
levied in such circumstances, especially, when the assessee has later on
deposited the entire amount, as detailed above. Resultantly, we hereby
affirm the findings of learned CIT(A) and we find no force in this ground
of the Revenue.
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IN THE INCOME TAX APPELLATE TRIBUNAL
“C” BENCH, AHMEDABAD Shri Haresh R. Vasani Date of Pronouncement : 04/04/2014
PAN: AAKPV9716K
The said document does not bear signature of any person. The document also does not
specify the name of party to whom this document or noting made therein relates to. The
said document does not specify the nature of the transaction whether the transaction, if
made at all, was a revenue transaction or was capital transaction. We find that no material
has been brought on record by the revenue by making proper inquiry in relation to the
said seized document to show the identity of the party and nature of transaction for which
the said document was drawn or made. 28. In our considered opinion, merely from the
above document it cannot be concluded that the assessee in fact received Rs 10,00,000/on 03.06.2005 from any unspecified person and that too in respect of his business on
revenue account. We find that no material could be brought on record by the revenue by
making a proper inquiry in respect of the said seized document to show that the said seized
document shows business receipt of Rs 10,00,000/- by the assessee on 03.06.2005. In
absence of any such material having been brought on record by the Assessing Officer by
making specific inquiry, we do not find any good reason to interfere with the order of the Ld.
CIT(A). It is confirmed. The ground of appeal of the Revenue is dismissed.
(i) Decision of Delhi tribunal in case of Mahan Foods Ltd. v. CIT (2009) 27 DTR 185, wherein the
Hon'ble IT AT have held as under: Search and Seizure — Block assessment - Computation of
undisclosed income -Although the contents of the relevant seized documents show that the amounts
mentioned therein relate to some expenditure, in the absence of any other evidence found during the
course of search or brought on record by the AO to show that the said expenditure was actually
incurred by the assessee, the same cannot be added to the undisclosed income of the
assessee by invoking provisions of s. 69C — Assessee explained that the said entries represented
estimates made by employees in respect of proposed expenditure — There is no evidence on record
to rebut/controvert the said explanation — Additions not sustainable
(ii) Decision of Gujarat High Court in case of DCIT v. Jivanlal Nebhumal (HUF) [2004] 134 TAXMAN
660 (GUJ.) wherein the Hon'ble High Court have held as under, Section 69 of the Income-tax Act,
1961 – Unexplained investments - Tribunal having found that there was no material on record to
indicate that assessee - HUF, whose family had 50 per cent share in J company, had in fact paid
any 'on-money' to said J company in respect of shops purchased by them over and above amount
recorded in their books of account, deleted addition made by Assessing Officer and confirmed by
Commissioner (Appeals), on account of unexplained investments and also reduced addition in
respect of low household expenses - Further, question with regard to levy of interest under section
139(8)/215 was restored back to file of Assessing Officer for fresh adjudication in accordance with
law after giving opportunity of hearing to assessee - Whether since Tribunal had appreciated facts
and evidence on record and had come to conclusion, no substantial question of-law, much less any
question of law, arose out of Tribunal's order - Held, yes
(iii) The appellant further submits that as far as the addition made on the basis of the notings on the
loose paper is concerned the Gujarat High Court has recently in case of CIT vs. Maulik Kumar K.
Shah 307 1TR 137 had held that loose papers containing .rough estimates cannot be relied upon to
make addition on account of undisclosed income in the absence of any independent' evidence.
(iv) Further there are also certain other legal precedent which clarifies that loose papers alone
cannot be made basis for addition. Where loose sheets are found, there is the usual inference of the
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Assessing officer, that they represent concealed transactions such inference does not readily follow.
Such inference can be positively made only after identification of papers and after due verifications.
Figures therein could not be lightly inferred to represent unaccounted income, unless there is
something more to it. It was so held by a third member on a difference between the other members
of the tribunal in Goyal (S.P.) v DCIT (2004) 269 ITR 496 (HP). A similar view was taken again by a
Third Member in Babros Machinery Manufactures Pvt Ltd v DCIT (2004) 269 TTR (AT) 36 (Ahd).
(v) Further, the Honorable Supreme Court in the case of Mohd. Yusuf & ANR. & ANR. AIR 1968
Bom 112 has observed that the contents contained in the document is hearsay evidence unless the
writer thereof is examined before the Court The Honourable Court, therefore, held that attempt to
prove the contents of the document by proving the signature of the handwriting of the author thereof
is to set at nought, the well recognized rule that hearsay evidence cannot be admitted. If we consider
the said piece of paper seized during search in light of the definition of the word "document" is given
in the Indian Evidence Act and General Clauses Act and truthfulness of the intents thereof in light of
the aforecited decisions of the Honourable Supreme Court, we find that the said paper contains
jottings of certain figures the same does not describe or express the substance of any transaction
and even if the said paper has been seized from the possession of the assessee the contents
thereof are not capable of the describing the transactions the way the Assessing Officer has
deciphered them without support of corroborative evidence of the parties attributed to the alleged
transaction. The said paper, therefore, does not come within the compass of the definition of the
word "document to be used as evidence. The paper seized, therefore, has no evidentiary value and
accordingly the same cannot form the basis for assessing the undisclosed income.
(vi) Decision of Delhi Tribunal in case of SK Gupta v/s DCIT 63 TTJ 532 wherein ITAT has held that
addition made on the basis of loose sheets cannot be sustained as same does not indicate that any
transaction ever took place arid does not contain any information in relation to nature and party to
the transaction in question.
(vii) Decision of Delhi ITAT in case of SMC Brokers Limited V/s DCIT 109 TTJ (700 wherein Tribunal
has held that diary seized was not containing any [evidence regarding any receipts of money by way
of cheques of Rs. 50,00,000 each and also the diary was not written by assessee or his employees.
There was no evidence on record to substantiate that assessee has earned any undisclosed income
hence addition based on dumb document is deleted. The appellant states that in its case, also no
evidence is present except the notings on the loose paper so as to allege that the appellant has
made any investment outside the books of accounts. And hence in view of the above
mentioned judicial pronouncements and the facts of the case of the appellant, it is submitted that the
addition made by the assessing officer only on the basis of presumptions and
without bringing on any corroborative evidence in support of the same, is unwarranted and
unjustified and hence the same deserves to be deleted."
IN THE INCOME TAX APPELLATE TRIBUNAL
“C” BENCH, AHMEDABAD ITA No. 2691 & 2692/Ahd/2009
A.Ys. 2005-06 & 2006 M/s. Jayesh Finance 31/10/2013
It is an
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established way of computation of income where ever there is
recycling of cash in a financial business to work out the peak
credit. Particularly in a situation, when no regular or proper books
of account are maintained by the assessee then a cash flow
statement is generally prepared. The department then makes an
addition on the basis of the peak credit, as appearing in the cashflowstatement, if there is recycling of cash. That peak credit is
thus treated as an unexplained income of the assessee. But that
working ought not to be final. Certain other factors are also required to be
taken into account, as suggested in the Grounds of
Appeal by the Revenue. As far as the assessee is concerned, the
undisputed fact is that on the basis of the seized material a cash
follow statement was prepared which was supplied to the AO.
After the search, the working of the said cash flow statement was,
therefore, required to be examined by the AO, that too after due
verification from the seized material. We are of the view that a
cash flow statement which was prepared on the basis of the
seized material must not be ignored. Once the assessee is in the
business of finance then the assessee is required to furnish the cash
flow statement, so as to arrive at the figure of the incremental book
credit, as per the prevalent practice. We are taking this view on
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the basis of decision of Hon’ble Gujarat High Court pronounced in the case
of Pipush Kumar O. Desai, 247 ITR 568 (Guj.),
wherein a cash flow was prepared by the assessee after the
conclusion of the search. That was directed to be considered,
especially when there was absence of books of account. On the
basis of the cash flow statement the availability of cash was
accepted.
Next, in the case of Swaroop Chandra Kojuram, 235
ITR 732, wherein the question before the Hon’ble High Court was
whether the benefit of peak credit theory could or could not be
granted to the assessee. The Hon’ble Court has held that it was not
a referable question of law. It was pleaded, quote “it was
submitted that a refinement or extension of the peak theory
occurs where the credits appear not in the same account but in
the accounts of different persons. If the genuineness of all the persons is
disbelieved and all the credits appearing in the
different accounts are held to be assessee’s own money, the
assessee will be entitled to a set off and a determination of the
peak credit after arranging all the credits in chronological order.
It was admitted that these propositions should not, however, be
treated as propositions of law. They are inferences based on
normal probabilities and can be displaced by material on record
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which may indicate facts to the contrary.” unquote. It was held by
the Hon’ble Court that the theory of peak credit presupposes an
adverse finding against the petitioner that certain borrowings made
by the petitioner from the cash creditor were the borrowings from
non-genuine creditors and therefore the same is to be treated as
unexplained fund-borrowing to the assessee. Having found, the
borrowings had been made from various characters which were not
genuine, the question of law arises so as to determine the
quantum of the addition to be made under the theory of
incremental peak credit to be applied so as to ascertain the
maximum amount which the petitioner had in the books of account
at particular date during the year which is to be treated as nongenuine.
So the logic behind the applicability of the peak credit
theory is that if the borrowing from various persons is to be treated as nongenuine then systematic repayment to such person should
also be treated as non-genuine. Such recycling thus constituted
unexplained credits and unexplained debits, thus, accordingly a
netting of the two is required to be worked out from the cash flow
statement.
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