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16.07.2013 - Voice of CA Presents - Updates
Tuesday, July 16, 2013


 I.  Today's Headlines   

  1. CBDT Inst. No. 7: Payment of interest u/s 244A of Income Tax Act 1961 when assessee is not at fault  (Click for detail)
  2. CBDT Inst. No. 6: Past adjustment of refunds against the arrears where procedure u/s 245 of Income Tax Act was not followed  (Click for detail)
  3. Result of the CA Final Examination held in May, 2013 and CPT held in June, 2013 declared  (Click for detail)
  4. Every district to have Income Tax office by 2013  (Click for detail)
  5. RBI penalises 22 banks for violating KYC norms, SBI fined Rs 3 cr  (Click for detail)


II.  Direct Tax Case laws:

1.  CIT Vs. Manjunatha Cotton and Ginning Factory, ITA No. 2564 of 2005, Date: 13.12.2012, Karnataka High Court

The Karnataka High Court has concluded the below mentioned principles to be considered for levying penalty u/s 271(1)(c) of the Income Tax Act, 1961.

(a) Penalty under Section 271(l)(c) is a civil liability.

(b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.

(c) Wilful concealment is not an essential ingredient for attracting civil liability.

(d) Existence of conditions stipulated in Section 271(l)(c) is a sine qua non for initiation of penalty proceedings under Section 271.

(e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.

(f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.

(g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).

(h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.

(i) The imposition of penalty is not automatic.

(j) Imposition of penalty even if the tax liability is admitted is not automatic.

(k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order.

(l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed.

(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.

(n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.

(o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.

(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income

(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

(r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.

(s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.

(t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.

(u) The findings recorded in the assessment proceedings insofar as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.

(Please click here for judgment)


2.  M/s FL Smidth Minerals Pvt. Ltd. Vs. Dy. CIT, TCA No. 38 of 2010, Dated: 03.06.2013, High Court of Madras

Section: 37 of the Income Tax Act, 1961

Whether provision made for warranty related to retention money for the liquidated damages on the basis of scientific data, performance capacity and information provided by the technical team is entitled for deduction u/s 37 of the Income tax Act, 1961.

Held Yes,

The assessee claimed deduction regarding provision for warranty claims related to retention money for the liquidated damages on the basis of scientific data related to the past experience, nature of the contract and the plausible client claims. The same was disallowed by Revenue stating the provision being made for unascertained liabilities.

Following the decision of Apex Court in of Rotork Controls India P. Limited vs CIT (2009) 314 ITR 62, it was held that a provision is a liability which can be measured only by using a substantial degree of estimation. Taking note of nature of the business, nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee.

In this case the assessee would be entitled to deduction u/s 37 of the Act for the provision made for the warranty as the company had made reliable estimates based on the performance capacity, the quality therein, the materials relating thereto and on the basis of materials and information provided by the technical team.

(Please click here for judgment)


3.  CIT Vs. Vijay M.Mahtaney, Tax Case (Appeal) No. 152 of 2010, Dated: 18.06.2013, High Court of Madras

Section: 54EC and 70 of the Income Tax Act, 1961

Whether for taking benefit u/s 54EC of the Act, it is necessary to first apply provision of Sec. 70(3) of the Act and thereafter only, the assessee could invest the capital gain to any specified bond as specified u/s 54EC of the Act.

Held No,

The assessee earned Long term capital gain on the sale of shares and investment was made in REC Bonds to claim exemption u/s 54EC of the Act. The CIT u/s 263 of the Act ordered for revision of assessment with the view that as per Sec. 74(1) of the Act, the loss relating to the long term capital asset shall be first set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short term capital asset and then only the exemption under Section 54 EC would apply.

The order of revision was set aside holding that the provisions of Sec. 70(3) are not required to be considered for the purpose of working out the relief u/s 54EC. These two sections are altogether different. Sec 70(3) shows that the loss that has to be looked at first is not with reference to the loss arising in respect of any new capital asset, but in the totality of the loss suffered on the sale of capital asset chargeable to tax u/s 45.  On the other hand, Sec. 54EC is specific with reference to investment in specified bonds as regards the capital gain arising from and out of a long term capital asset. Thus going by the scheme of the Act, the plea of assessee was accepted.

(Please click here for judgment)

III. A Useful Article:

[ Contribution by CA Bimal Jain and contributor is available at ]

No liability to pay service tax again if assessee has deposited the service tax under wrong accounting code

(Please click here)   


 Golden Rules:

"Intention kitni bhi achhi ho,
duniya presentation dekhti hai.
Aur presentation kitni bhi achhi ho,
uparwala intention dekhta hai


  Thanks & Regards


Voice of CA


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