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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)
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