Summary of 10 Landmark Judgments by various High Courts in Recent Times Let’s see Assessee’s Victory
Introduction
Let us discuss legal judicial pronouncements announced by various high courts in recent time of 2023 which specifically deal with matters which shows victory of assessee and I have chosen because it had a significant impact on how income tax laws are understood and applied. In this we summarise these complex legal judgments, making them easier to understand So, let’s dive into these cases and discover how they have shaped the world of income tax and shows assessee’s victory also having other referral case laws.
Facts of the case :
- Commissioner declined the registration applied by the assessee-trust, stating that the trust did not prove the genuineness of its activities
- Commissioner claimed that the trust had generated surplus (profit) from its total receipts, which was not in line with the provisions of Section 12AA.
Analysis from the case
- The Tribunal found that there was no evidence to suggest that the fees structure was in-genuine or against accepted norms.
- The Commissioner failed to provide any proof that the trust’s activities were non-charitable or for personal purposes of the trustees.
- The funds acquired by the trust were utilized for educational activities.
- The Tribunal concluded that there was no basis to reject the trust’s application for registration.
Decision by the Court:
- Commissioner refused registration, however Tribunal allowed an appeal and directed the grant of registration.
- Commissioner filed an appeal under section 260A of the Income-tax Act, 1961.
- Court dismissed the appeal, stating that the issue was covered by previous Supreme Court judgments and referred Queen’s Educational Society v. CIT [2015] 55 taxmann.com 255/231 Taxman 286/372 ITR 699 (SC)
- Court held that no substantial question of law arises as the Tribunal considered all aspects and allowed the appeal.
Facts of the case
- The assessee, who was a partner in a firm manufacturing gold ornaments, had gold and jewelry seized during a search operation.
- The Assessing Officer made additions under section 69A of the Income-tax Act, claiming that the seized items lacked distinctive identification numbers on the challans.
Analysis from the case : –
- CIT (Appeals) has examined the facts and concluded that the gold and ornaments were given to the assessee for the purpose of making jewelry or for polishing, as evidenced by the challans.
- The Commissioner has found explanations provided by various parties involved to be convincing and accepted claim of assessee.
- The Commissioner deleted the additions made by AO based on the established purpose of the gold and jewelry.
Decision by the Court:
- Department has filed an appeal by challenging the CIT(A)’s order, but the Income-tax Appellate Tribunal upheld decision of CIT(A), dismissing the revenue’s appeal.
- The Tribunal agreed with the Commissioner’s findings that the gold and jewelry were intended for jewelry making or polishing, and that the lack of distinctive identification numbers on the challans did not justify the additions made by the Assessing Officer.
- Court was agreed with Tribunal’s decision and no substantial questions of law were found to arise from the case by referring case of Chuharmal v. CIT [1988] 38 Taxman 190/172 ITR 250 (SC).
Summary of above decision
the case involved the seizure of gold and jewelry during a search operation, leading to additions made by the Assessing Officer under Section 69A of the Income-tax Act. However, the Commissioner (Appeals) carefully considered the evidence, including original challans and independent verifications, and concluded that the gold and ornaments were meant for jewelry making or polishing purposes. Consequently, the Commissioner deleted the additions, a decision that was upheld by the Tribunal. The case highlights the significance of factual evidence and independent verification in determining the legitimacy of additions under Section 69A. Ultimately, the ruling favored the assessee, emphasizing the importance of thorough examination and substantiated claims.
3. Principal Commissioner of Income-tax v. Vishwashakti Construction [2023] 151 taxmann.com 93 (Bombay) dated 04.05.2023
Facts of the case :
Appellant firm was engaged in a business of road repairs and construction in which appellant has shown purchases from various entities during the assessment years 2009-10 and 2010-11.
The Assessing Officer (A.O.) issued a notice under section 133(6) of the Income-tax Act, 1961, which was not complied with by the appellant.
The appellant failed to produce the said parties for verification, and the A.O. treated the entire purchases as bogus, adding the amount back to the appellant’s income.
Analysis of the case : –
- The Commissioner (Appeals) held that the purchases were bogus but only the profit element embedded in such purchases should be considered for addition to the appellant’s income.
- The Tribunal upheld the Commissioner (Appeals) order and restricted the addition by estimating the profit at 12.5% on the disputed purchases referring case such as
1. CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 40 taxmann.com 494/[2014] 220 Taxman 82/[2013] 355 ITR 290 (Guj.)
2. CIT v. Ram Builders [2023] 146 taxmann.com 447 (Bom.)
Decision by the Court
Court agreed with the decision of ITAT and upheld it. The court noted that no substantial questions of law arose in the case, and hence, there was no need for further interference. The court dismissed both appeals in favor of the appellant, meaning the addition to the appellant’s income was restricted to the profit element estimated at 12.5% of the disputed purchases.
In this decision, court has taken practical view for situation by considering only the profit element in the disputed purchases, the court struck a balance between addressing the issue of bogus purchases and avoiding potential disruption.
Facts of the case :
- Petitioner company was amalgamated with non-existent company i.e. ERP Infrastructure Projects Private Limited, as per order passed by NCLT on 03.12.2021 with effect from 1st April 2021.
- Although there is clear communication of amalgamation to the authorities, show-cause notices, assessment order, notice of demand, & penalty proceedings were initiated against petitioner in the name of the non-existent company, ERP Infrastructure Projects Private Limited.
Analysis from case
- The court examined the validity of the issuance of notices and assessments in the name of a non-existent company.
- It referred to several relevant judgments to support its analysis.
Verdicts by the Court :
Court has held that issuance of show-cause notices, assessment order, notice of demand, etc., in the name of the non-existent company, ERP Infrastructure Projects Private Limited, was without jurisdiction and thus liable to be quashed by referring following pronouncements
1. CLSA India (P.) Ltd. v. Dy. CIT [2023] 149 taxmann.com 380 (Bom.)
2. Saraswati Industrial Syndicate Ltd. v. CIT [1990] 53 Taxman 92/186 ITR 278 (SC)
3. Spice Entertainment Ltd. v. CST 2012 (280) ELT 43 (Delhi)
4. Pr. CIT v. Maruti Suzuki India Ltd. [2019] 107 taxmann.com 375/265 Taxman 515/416 ITR 613 (SC)
5. Rajesh Poddar v. Income-tax Officer [2023] 152 taxmann.com 98 (Bombay) dated 17.04.2023
Facts from the Case
- Case involves notice issued u/s. 148 of the IT Act, 1961, for reopening the assessment for the assessment year 2014-15.
- Taxpayer requested a copy of the reasons recorded for reopening, However, it was not provided.
- Instead, Notice / draft assessment order was issued, requiring objections to be filed within three days.
- Taxpayer claimed that the first day was a holiday, and the next two days were weekends, making it impossible to file objections.
- Despite the taxpayer’s consistent requests, the reasons for reopening were never furnished.
- Assessment order was passed under Section 147 read with Section 144B.
Analysis from the Case:
- Court examined requirement for the taxpayer to seek reasons for reopening after receiving a notice under Section 148.
- The AO is obligated to furnish the reasons within a reasonable period, and the taxpayer can file objections based on these reasons.
- Furnishing reasons is essential to allow taxpayers to present relevant facts or legal issues that could lead the AO to drop the reassessment proceedings if not warranted by referring certain case laws
1. GKN Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963/[2003] 259 ITR 19 (SC): This case established the obligation of the AO to provide reasons for reopening and the requirement for a speaking order to ensure proper assessment.
2. Amaya Infrastructure (P.) Ltd. v. ITO [2017] 79 taxmann.com 345/[2016] 383 ITR 498 (Bom.): In this case, the court dismissed the petition because the taxpayer had already submitted objections after receiving the reasons for reopening.
Decision by the court:
- Court held that the failure of the AO to furnish reasons for reopening, despite the taxpayer’s consistent requests, rendered the assessment order unsustainable in law.
- Court has also noted that the time given to the taxpayer to respond to the draft assessment order was also
- The court allowed the petition, setting aside the assessment order, notice of demand, and the notice under Section 148.
- The case was remanded to the concerned officer under the Faceless Assessment Scheme, with a direction to provide the taxpayer with the reasons for reopening.
- The court instructed that the proceedings be completed within three months from the date of the judgment.
6. Swati Viren Karani v. Income-tax Officer [2023] 152 taxmann.com 65 (Gujarat) dated 31.03.2023
Facts from the Case:
- The petitioner filed a petition under Article 226 of the Constitution challenging notice issued by the AO u/s. 148 to reopen the assessment for the assessment year 2014-15 and an order passed under Section 148A(d) on 26-7-2022.
- Original notice U/s, 148 was issued on 6-4-2021 for the assessment year 2014-15. Notice was treated as a show-cause notice u/s. 148A(b), and subsequently, an order was passed u/s. 148A(d).
- Petitioner argued that a notice and order for A Y 2014-15 were time-barred as they were issued after the expiration of six years from the end of the relevant assessment year.
Analysis of the Case:
- Section 147 empowers AO to reassess income of the assessee if any income chargeable to tax has escaped assessment, subject to the provisions of Sections 148 to 151.
- Before the Finance Act, 2021, Notice u/s. 148 could be issued within four/six years from the end of the relevant assessment year.
- Section 149 deals with the time limit for issuing notice for reopening of the assessment. AO could reopen the case of assessee within six years from the end of the relevant assessment year if the amount escaped assessment is likely to exceed rupees one lakh.
- The Finance Act, 2021, introduced Section 148A and recast Section 149, allowing notice u/s. 148 to be issued within three years from the end of the relevant assessment year. Reopening within 10 years is possible if the Assessing Officer is in possession of relevant documents showing income escaping assessment of over Rs. 50 lakhs, with approval from the competent authority under Section 151.
- The First Proviso to Section 149 in the Finance Act, 2021, stated that no notice under Section 148 shall be issued for assessment years beginning on or before 1-4-2021 if such notice could not have been issued within the time limit specified under the old provision before 1-4-2021.
Decision by Court:
- Supreme Court, in Union of India v. Ashish Agarwal, held that all notices issued under Section 148 between 1-4-2021 and 30-6-2021 shall be deemed to have been issued under Section 148A(b).
- The Court clarified that the amended provisions post-Finance Act, 2021, will not permit the issuance of notices that were time-barred under the old regime.
- The Court in Keenara Industries (P.) Ltd. v. ITO and Allahabad High Court in Rajeev Bansal v. Union of India both held that the provisions of Taxation and Other Laws Act, 2020, cannot extend the time limit for issuing notices under Section 148 in the old regime after the repeal of those provisions.
- All original notices under Section 148 issued between 1-4-2021 and 30-6-2021 in relation to assessment years 2013-14 and 2014-15 are deemed time-barred and illegal as per the provisions applicable in the old regime prior to 1-4-2021.
- The Court allowed the petitions and quashed the notice and order issued for the assessment year 2014-15 by referring the case
1. Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 83/444 ITR 1 (SC)
2. Keenara Industries (P.) Ltd. v. ITO [2023] 147 taxmann.com 585/453 ITR 51
3. Rajeev Bansal v. Union of India [2023] 147 taxmann.com 549/453 ITR 153 [Writ Tax No. 1086 of 2022]
Facts of the case : –
- The assessee filed his return of income for the assessment year 2018-19.
- The department issued a show cause notice, proposing to reject the books of account and estimate the net profit.
- The assessee requested multiple times for a personal hearing through video conferencing, but his request was not granted.
- The department completed the assessment by rejecting the books of account and making additions to the income proposed in the show cause notice, resulting in a 50 times higher assessment.
Comprehensive Analysis from the case :
- Department has conducted faceless assessment for the assessee, during which it rejected the assessee’s books of account and made significant additions to income proposed in the show cause notice.
- Additions has resulted in actual income being assessed at 50 times more than the proposed income.
- Throughout the assessment process, Assessee repeatedly requested a personal hearing through video conferencing, However, Department denied the request without considering the reasons provided by assessee.
- Denial of the assessee’s repeated requests for virtual hearing was found to be in breach of principles of natural justice by the court.
- Court pointed out that the provisions of Section 144B of the Income-tax Act itself permit the assessee to seek audience during the assessment process. By repeatedly denying the right, the assessment order was rendered invalid due to the violation of principles of natural justice.
- Additionally, the assessment order was deemed to be contrary to the scheme of the Income-tax Act because additions made to the income were beyond the scope and issues mentioned in the show cause notice.
- Faceless assessment scheme, which was followed by the department under Section 144B, is designed to ensure efficiency and transparency in the assessment process. However, present case , denial of the assessee’s right to seek audience through video conferencing undermined intended purpose of the scheme.
- As a result, the court concluded that the assessment order and the demand notice issued under Section 144 were to be quashed and set aside.
- Department was granted permission to issue the fresh show cause notice, and during the new proceedings assessee was allowed to raise all relevant contentions.
- Court’s decision aimed to rectify the procedural flaws in the initial assessment and provide the assessee with an opportunity for fair and just proceedings in line with the principles of natural justice and the scheme of the Income-tax Act.
Decision by the court:
- The court held that the assessment order and the demand notice issued under Section 144 be quashed and set aside.
- The department was granted permission to issue fresh show cause notice & assessee was allowed to raise all relevant contentions during new proceeding referring case
- Gandhi Realty (India) (P.) Ltd. v. Asstt./Jt./Dy./Asstt. CIT/ITO [2021] 133 taxmann.com 83/[2022] 441 ITR 316 (Guj.)(para 7).
Comprehensive Facts:
- Assessee filed return for AY 2011-12, declaring a taxable income of Rs. 5.93 crores.
- During search conducted U/S. 132 in assessee’s premises, certain loose papers containing interest payments & cash payments to landowners were found.
- AO has completed the assessment and made additions to the income of assessee based on the payments made to landowners in cash.
- The Commissioner (Appeals) allowed appeal & deleted both additions made by the AO , stating that seized documents did not contain entries of cash payment and interest payment.
- The revenue appealed to the Tribunal, which dismissed the appeal.
Analysis from the Case:
- Assessment order revealed that proposed payment schedule included sum of Rs. 17.30 crores by cheque and a balance of Rs. 5 crores in cash. Payments were scheduled to occur from 2-5-2006 to 31-5-2013.
- The Commissioner (Appeals) sought a remand report from the Assessing Officer, which confirmed that statements from certain individuals were not adverse to assessee and were not used in scrutiny assessments.
- The revenue claimed that a sheet of paper found during the search, dated 17-3-2010 and sent by PK, indicated cash payments to be made. However, the Assessing Officer’s order and the assessee’s explanation recorded in para 4.12 of the order clarified that the initial sum of Rs. 5 crores was intended to be paid in cash but was subsequently paid by cheque.
- Both the Commissioner (Appeals) and the Tribunal, as the final fact-finding authorities, examined the material on record and the remand report submitted by the Assessing Officer. Following a precedent in the case of CIT v. Anil Bhalla [2010] 322 ITR 191 (Delhi), they held that the addition made by the Assessing Officer based on loose papers was not sufficient to justify the additions.
Complete Decision by Court:
High Court affirmed the decisions of the Commissioner (Appeals) and the Tribunal, stating that there was no merit in the revenue’s appeal as per the factual matrix found by the fact-finding authorities, the court dismissed the appeal and also referred decision
Dy.CIT v. Plama Developers Ltd. [IT Appeal No. 1363 (Bang.) of 2017, dated 28-9-2018] (para 10) affirmed
Facts From the case
- Assessee, civil contractor, executed works contracts for State Public Works Department related to road construction.
- Assessee received payments from various Government departments, and TDS was deducted by the payer departments.
- Assessee did not maintain proper accounts and furnished income @ 3% of turnover based on estimates.
- AO , due to the absence of proper accounting, determined the income @ 8% as per section 44AD of the Income-tax Act, resulting in an increased income liable to tax.
- Commissioner (Appeals) scaled down the estimated profit to 4% without depreciation, considering previous assessment years where the assessee had estimated 3% as the net profit, which was accepted by the Assessing Officer.
Analysis From Case : –
- The primary issue in present case was the estimation of income, which falls under the realm of factual determination rather than a question of law.
- Tribunal, while considering the facts and submissions, upheld the Commissioner (Appeals)’s decision to estimate the income at 4% of turnover based on previous assessment orders.
- Tribunal noted that in previous assessment years, the assessee had estimated the net profit at 3%, and the Assessing Officer accepted it for assessment years 2014-15 and 2015-16.
- The Tribunal also considered explanation provided by the assessee, justifying the adoption of 3% net profit due to higher volume of work and heavy competition, making it difficult to achieve higher profits in civil contracts.
- Based on the facts and after referring to various case laws as like CITv. Srinivasan Devendran [2022] 145 taxmann.com 183 (Chennai – Trib.) (para 5) affirmed, the Commissioner (Appeals) reduced the net profit estimation to 4%.
- The Tribunal found no infirmity in the Commissioner (Appeals)’s order and dismissed the revenue’s appeal, affirming the 4% net profit estimation.
Final Decision by Court:
High Court dismissed the Tax Case Appeal, stating that no substantial question of law arises for consideration.
Court observed that the matter primarily involves an estimation of income, which is a question of fact and discretion.
It held that in the absence of any challenge to the estimate as being arbitrary or perverse, there was no reason to interfere with the findings of the Tribunal on the estimation
Consequently, the Court affirmed the Tribunal’s decision to estimate the income at 4% of turnover, as done by the Commissioner (Appeals) based on previous assessment orders.
Facts from the case
- Petitioner was a financial adviser of a company and not employee .
- The Competent Authority filed a complaint against several persons, including the petitioner, alleging that they were responsible for deducting tax from payments to contractors, employees, and others of the company.
- Special Judge took cognizance of the complaint and issued summons to the petitioner and others.
- Petitioner was not an employee of company & Company had been hired to improve the company’s finance and costing system.
Analysis of Case
- Issue in present case was whether petitioner could be summoned for an offence under section 276B, read with section 278B, and section 409, read with section 34, of the Indian Penal Code, 1860.
- Petitioner was not employee of company and did not have control over company’s affairs, including the deduction and deposit of tax.
- Complaint did not specify any overt act by petitioner that could attract penal consequences, and it did not mention that he was responsible for the company’s daily affairs.
Decision by Court:
High Court quashed order taking cognizance against petitioner & held that petitioner, being a financial adviser and not an employee or part of the management of the company, could not be summoned for the offence alleged.
Court noted that there was no material to summon the petitioner, and the order taking cognizance deserved to be set aside by referring case
- M.P. No. 1570 of 2014 (para 12) – The High Court had previously quashed a similar complaint against the petitioner in this case. The facts and points involved in the instant case were found to be similar to that of Cr.M.P. No. 1570 of 2014, leading to a similar outcome.
Author Bio
can you send 2 cases verdict where government circle rate and purchase rate was different . purchase rate was 19 lac less than circle rate .after more than six year income tax issued notice assuming difference amount as income from other source and ordered to pay income tax with interest and penalty. even though purchase was made from the overseas income. concerned was an N.R.I. till 2019and sufficient proof including bank statement was provided to the income tax on line but AO passed order unreasonably without considering our side. please send some of the case verdict according to my case requirements to my e mail fkhanzaki @gmail.com .
Thanks & Regards
Firoz