Recent Developments in Income Tax Controversies Addressed by Senior Advocate Tushar Hemani

Controversial issues under

the Income Tax Act, 1961

National Conference on Direct Tax

Rajkot Branch of WIRC of ICAI

th

 January, 2024

Tushar P. Hemani

Senior Advocate

Tushar Hemani, Senior Advocate

Bogus Purchase

Fake Invoice

Bogus Billing

Tushar Hemani, Senior Advocate

Fake Invoice - IT

•

Accommodation Billing

•

Fake Billing

•

Genuine transaction becomes billing transaction

due to lack of proof

 or supplier related issues;

•

Supplier not traceable

•

Supplier never existed

•

Supplier is alleged to be bogus

•

Supplier is proved to be bogus

•

Supplier’s GST registration is cancelled

prospectively or retrospectively

Tushar Hemani, Advocate

•

PO & Invoice [Invoice Reference Number (IRN)];

•

E-way bill;

•

Transport receipt, affidavit of driver;

•

Weight bridge slip;

•

Toll payment receipts;

•

RFID vehicle tracking details;

•

GSTR1 of Seller, GSTR2B of buyer, GSTR3B filed by

both the parties;

•

Correspondence with supplier;

•

CCTV footage;

•

payment details and relevant bank statement;

•

Internal documents e.g. Inward register, quantity

details etc.

Tushar Hemani, Senior Advocate

Quantify Details

•

Even though the assessee was a scrap dealer, the

addition u/s. 69C on account of bogus purchases

was held not justified as assessee had maintained

trading account with quantitative tally of

purchases, opening stock, sales and closing stock

and no discrepancy in such quantitative tally was

found -

Manoj Sharma

v.

ITO

[2019] 103

taxmann.com 105 (Delhi - Trib.)

•

What if quantity details are not maintained;

Tushar Hemani, Senior Advocate

Burden of Proof

•

Where assessee had submitted

purchase bills,

transportation bills, confirmed copy of account and

VAT Registration of sellers as also their income-tax

Return and payment was made through cheques

impugned purchases could not be disallowed -

CIT

v.

Odeon Builders (P.) Ltd.

418 ITR 315 (SC)

•

Where assessee brought on record name and address of

parties, their PAN, TDS deducted, date of bills, details of

cheques issued, etc., to establish genuineness of purchase

transactions, in such a case,

he could not be held

responsible for parties not appearing in person and

thus, addition so made under section 69C deserved to be

deleted -

Pr. CIT

v.

Chawla Interbild Construction Co.

(P.) Ltd

. 412 ITR 152 (Bom).

Tushar Hemani, Senior Advocate

Natural Justice

•

Merely on suspicion bases on information received from

sales Tax authority, assessing officer could not make

addition on account of bogus purchases

without carrying

out independent enquiry and affording opportunity to

Assessee to controvert statements made by seller

Pr.

CIT

v.

Shapoorji Pallonji & Co. Ltd.

[2022] 288

Taxman 661 (SC).

•

No addition can be made in respect of bogus purchases

merely on the basis of material / information received from

the Maharashtra Sales Tax Department without providing

such material to the assessee or affording an opportunity

to cross examine the concerned parties -

Shailesh

Keshavlal Shah vs. ITO – ITA 1877 to 1879/Ahd/2015.

Tushar Hemani, Senior Advocate

Sales – whether accepted?

•

Bombay High Court in the case of

Pr. CIT

v.

Nitin Ramdeoji Lohia

[2022] 145

taxmann.com 546

 held that Where AO made

addition by disallowing expenses on purchases

on ground that an information was received from

sales tax department that assessee was

beneficiary of accommodation entries on account

of bogus purchases, in absence of AO not

disputing corresponding sales transactions,

purchases could not be treated as bogus and,

thus, impugned addition made on account of

bogus purchases to be deleted.

Tushar Hemani, Senior Advocate

Percentage disallowance

–

CIT vs La Medica 250 ITR 575 (Del) – 100%

–

Sanjay Oil Cake Ind vs CIT 316 ITR 274 (Guj) – 25%

–

Pr. CIT v. Suraj Infrastructures (P.) Ltd

[2023] 156

taxmann.com 192 (Bombay) – 12.5%

–

Pr. CIT v. Rakesh Kailashchand Jain [2023] 156

taxmann.com 82 (Gujarat) – 6%

–

CIT vs. Gujarat Ambuja Export Ltd. –

[2014] 43 taxmann.com

244 (Gujarat)

– 5%

Tushar Hemani, Senior Advocate

Other Approaches

•

Dhondiram Naryan Limbhore

 vs Pr.CIT

153 taxmann.com 539 (Bom)

addition

was to be limited to extent of bringing GP

rate on tainted purchases at same rate

as applied in other genuine purchases.

•

Nehal Hsamukhari Gandhi vs. DCIT –

ITA 2578/Ahd/2017

 - NP

Tushar Hemani, Senior Advocate

Other Issues

•

Distinction between a trader, manufacturer

and/or consumer.

•

Rejection of books of accounts 145(3);

•

GP/NP comparison (history & Industry

average);

•

Disallowance u/s 69C – justified?

(expenditure incurred and Assessee offers no

explanation)

•

Impact of S. 40A(3) [Hynoup - 290 ITR 702

(Guj)];

•

GP addition vs addition as

percentage of

bogus purchases

Tushar Hemani, Senior Advocate

Curious case of N K Ind Ltd

[2016] 72 taxmann.com 289 (Gujarat)

•

Whether 25% or 100% disallowance is

confirmed by HC

•

Before Guj High Court, both Revenue and

Assessee were in appeal.

•

Assessee was in appeal against confirmation

of disallowance @ 25% out of purchases

whereas Revenue was in appeal against

deletion of 75% out of purchases by the ITAT.

•

Hon’ble High Court while dismissing both the

appeals, gave the following finding:

Tushar Hemani, Senior Advocate

“6.

 The Tribunal in the case of

Vijay Proteins Ltd

. (

supra

) has observed that it

would be just and proper to direct the Assessing Officer to restrict the addition

in respect of the undisclosed income relating to the purchases to 25% of the

total purchases. The said decision was confirmed by this Court as well. On

consideration of the matter, we find that the facts of the present case are

identical to those of

M/s. Indian Woollen Carpet Factory

supra

) or

Vijay Proteins

Ltd

. (

supra

) In the present case the Tribunal has categorically observed that the

assessee had shown bogus purchases amounting to Rs. 2,92,93,288/- and

taxing only 25% of these bogus claim goes against the principles of Sections 68

and 69C of the Income Tax Act. The entire purchases shown on the basis of

fictitious invoices have been debited in the trading account since the transaction

has been found to be bogus. The Tribunal having once come to a categorical

finding that the amount of Rs. 2,92,93,288/- represented alleged purchases

from bogus suppliers it was not incumbent on it to restrict the disallowance to

only Rs. 73,23,322/-.”

xxx…

9.

 In view of the above, the impugned judgment and order passed by the

Tribunal is modified accordingly.

Hence, the present Tax Appeals are

dismissed.

”

Tushar Hemani, Senior Advocate

•

Assessee preferred SLP against confirmation of

25% which got dismissed.

[2017] 84 taxmann.com

195 (SC)

•

Subsequently, Gujarat High Court itself

distinguished judgement in the case of N K Ind.

Ltd. In the following cases:

•

[2019] 106 taxmann.com 316 (Gujarat) Pr.

CIT

v.

Synbiotics Ltd.

•

[2023] 148 taxmann.com 154 (Gujarat) Pr.

CIT

v.

Surya Impex

Tushar Hemani, Senior Advocate

Bogus Billing – GST vs IT

•

During the course of an IT search, material is

found indicating unaccounted turnover outside

the books. IT department proposes to add the

said turnover on the basis of the seized

documents. Assessee wants to surrender only

GP on this unaccounted turnover. However,

Assessee is worried about GST consequences.

Kindly advice.

Tushar Hemani, Senior Advocate

•

During the course of GST search, material is found

indicating purchases from dealers whose

registration were found to be cancelled ab-initio as

they were found to be indulging into bogus billing

without actual supply of material. Assessee is

asked to reverse the ITC claimed from such

supplier on the ground that the same is fake and

fraudulent. Assessee wants to surrender such ITC

and pay the necessary amount into the Govt.

treasury. However, Assessee is worried about IT

consequences. Kindly advice.

Tushar Hemani, Senior Advocate

•

In an income tax assessment, sales are treated as

accommodation entries and addition to that effect

is made u/s 68 of the IT Act. GST department on

the strength of such AO, want to treat the said

sales as billing transaction and deny ITC in the

hands of the purchaser. Recovery notices for wrong

claim of ITC is issued against the said purchaser.

Kindly advice. (

Circular No. 171/03/2022-GST

dated 06/07/2022, Example 3)

Tushar Hemani, Senior Advocate

Interplay between

IBC & Income Tax

Tushar Hemani, Senior Advocate

Tata Steel Ltd. vs. DCIT

W.P.(C) 13188/2018

•

Facts:

•

Assessment order for AY 2001-02 was passed on

28.02.2003. Addition was confirmed upto High Court.

SLP has been accepted by Supreme Court & is pending

for adjudication.

•

Assessment order vis-à-vis AY 2009-10, 2010-11 &

2013-14 was passed on 30.12.2016. CIT(A) dismissed

the first appeal & also triggered penalty proceedings

u/s. 271(1)(c). Second appeal with ITAT is pending.

•

Insolvency proceedings were triggered against the

assessee. Petition was admitted by NCLT on 26.07.2017

•

Public announcement was published on 28.07.2017.

Tushar Hemani, Senior Advocate

•

Revenue lodged its claims to Interim Resolution Professional

(IRP) on 28.09.2017, 24.10.2017 & 25.10.2017 for AY 2009-

10, 2010-11 & 2013-14 but not for AY 2001-02.

•

Penalty order u/s. 271(1)(c) vis-à-vis AY 2009-10, 2010-11 &

2013-14 was passed on 23.04.2018.

•

Resolution Plan was admitted by NCLT on 15.05.2018.

•

Notice u/s. 221(1) was issued on 28.08.2018 requiring

assessee to deposit tax for all 4 AYs & seeking response as to

why penalty u/s. 221(1) shall not be levied.

•

Revenue lodged an updated claim with Resolution

Professional (RP) on 20.09.2018 wherein the claim for the

demand of tax for AY 2001-02 & penalties for all 4

assessment years were added.

Tushar Hemani, Senior Advocate

•

Objections were filed by assessee on 26.09.2018 against

notice u/s. 221(1) dated 28.08.2018.

•

Order u/s. 221(1) was passed on 17.10.2018 rejecting

the objections filed by the assessee.

•

Assessee filed a writ petition against notice u/s. 221(1)

dated 17.10.2018 & order dated 17.10.2018.

•

Held:

•

n our opinion, the stand taken by the revenue that the

demands for the AYs in issue were not outstanding at

the time of the RP being accepted, if agreed with, would

amount to splitting

hairs.

Tushar Hemani, Senior Advocate

•

Therefore, the facts on record, in our opinion, not only

disclose that the revenue had knowledge of the CIRP,

but that it took steps to lodge its claims with regard to

three out of the four AYs, on the footing that the

amounts reflected in the assessment order were due

and payable by BSL. Insofar as AY 2001-02 is

concerned, the revenue did not lodge any claim before

the RP was approved. The demand

qua

AY 2001-02

(along with the penalty imposed

qua

all four relevant

AYs) was communicated as an additional claim on

20.09.2018, only after the RP was approved on

15.05.2018. In the ordinary course, the claim would get

extinguished under the provisions of the 2016 Code, as

the approved RP obviously made no

reference to it.

Tushar Hemani, Senior Advocate

•

We are of the opinion that dues payable to creditors,

including statutory creditors, for the periods which precede

the date when the RP is approved, can only be paid as per the

terms contained in the RP. In cases where no provision is

made for claims lodged on behalf of the creditors, or there is

failure to lodge a claim with the Resolution

Professional, all

such claims stand extinguished.

•

When one examines the provisions of Section 238 of the 2016

Code, the underlying purpose of the provision comes through.

Section 238 clearly states without any ambiguity that the

provisions of the 2016 Code “shall” have effect,

notwithstanding anything inconsistent contained in any

other law for the time being in force, or any instrument

having effect under any

such law.

Tushar Hemani, Senior Advocate

•

Thus, where matters covered by the 2016 Code are

concerned [including insolvency resolution of corporate

persons] if provisions contained therein are inconsistent

with other statutes, including the 1961 Act, it shall

override such laws. If such an approach is not adopted,

it will undermine the entire object and purpose with

which the Legislature enacted

the 2016 Code.

•

Thus, the impugned notice & order dated 28.08.2018 &

17.10.2018 respectively, are unsustainable in law and,

hence cannot be enforced.

Tushar Hemani, Senior Advocate

Rishi Ganga Power Corporation Ltd. vs. ACIT

W.P.(C) 3167/2020

•

Facts:

•

Notices u/s. 143(2) were issued on 09.08.2018,

28.09.2018  & 30.09.2018 followed by a notices u/s.

142(1) dated 14.03.2019, 22.10.2019 & 04.11.2019.

•

None of the notices were complied, hence a penalty

order u/s. 272A(1)(d) was passed on 21.11.2019.

•

Eventually an ex-parte assessment order u/s. 143(3)

came to be passed on 06.12.2019.

•

Meanwhile a petition was filed under IBC against the

assessee which was admitted by NCLT on 25.01.2018.

•

Consequent to insolvency proceedings, public

announcement was made on 31.01.2018 which was

published in various newspapers on 02.02.2018 &

03.02.2018.

Tushar Hemani, Senior Advocate

•

No claims were lodged by the Revenue being an

operational creditor, with Resolution Professional (RP).

•

Resolution Plan was approved by NCLT on 13.11.2018.

•

On 11.02.2020, the new management who has taken

over the affairs of the assessee, wrote to AO, explaining

reasons for non-participation in assessment

proceedings and requesting the AO for deletion of

additions made thereunder.

•

Since there was no response from revenue, the assessee

filed a writ petition in the High Court.

Tushar Hemani, Senior Advocate

•

Held:

•

Revenue argued that it has not lodged claims with the RP

pursuant to public announcement on 31.01.2018 because

claims had not fructified into demands on that date. The

assessment order resulting in demand was passed on

06.12.2019.

•

IBBI (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 require operational creditors to submit

their claim with proof to the IRP, which are not necessarily

claims that have been adjudicated. As per Regulation 7 of

2016 Regulations, operational creditors must file their claims

with proof in the prescribed form i.e. Form B. Regulation 7,

when read alongside particulars sought against Sr. No. 6 of

Form B, would drive home the point that it can include

claims that are disputed.

Tushar Hemani, Senior Advocate

Furthermore, the definition of claim u/s. 3(6)(a) of the

2016 Code puts these aspects beyond doubt:

“

3. Definitions

.- In this Code, unless the context

otherwise requires,-

xxx xxxxxx

(6) “claim” means-

(a) a right to payment, whether or not such right is

reduced to judgment, fixed, disputed, undisputed, legal,

equitable, secured or unsecured;”

Tushar Hemani, Senior Advocate

•

Thus, having regard to the fact that the revenue had

not lodged its claim, despite the publication of the

public announcement by the Resolution Professional

inviting claims from creditors, including

statutory/operational creditors such as the revenue, no

provision could be made [even if it may otherwise have

been possible] in the approved RP. The terms contained

in the approved RP are binding on all stakeholders,

including those who could have filed claims but chose

not to lodge them. The revenue, having failed to lodge

its claim, cannot enforce the impugned orders and

notices, given the binding nature of the approved RP.

Tushar Hemani, Senior Advocate

•

Section 31 of the 2016 Code, among other things,

stipulates that once the RP is approved, it shall be

binding on the corporate debtor and its employees,

members, and creditors, which includes the Central

Government, State Government, Local Authority to

whom a debt in respect of payment of dues arising

under any law for the time being in force and also on

authorities to whom statutory dues are owed.

•

Accordingly, the assessment and penalty orders were

quashed.

Tushar Hemani, Senior Advocate

TUF Metallurgical P. Ltd. & ors. vs. UOI & ANR

W.P.(C) 10528/2022

•

Facts:

•

A public advertisement was notified u/s. 15 of IBC

pertaining to initiation of Corporate Insolvency

Resolution Process (CIRP) of Albus India Ltd. declaring

last date for submission of claims as 21.01.2019.

•

No claim was filed by the Revenue during the CIRP.

•

Resolution plan was filed with NCLT on 20.05.2019 and

the same was approved by NCLT on 05.11.2019.

•

Pursuant to Resolution Plan dated 20.05.2019, the

assessee took over the management of Albus India Ltd.

•

On 02.12.2019, Assistant Commissioner of Income Tax

was intimated about the approval of Resolution Plan &

change of management of Albus India Ltd.

Tushar Hemani, Senior Advocate

•

Thereafter, the Revenue passed the assessment order &

demand notice on 12.12.2019 for AY 2017-18, raising a

demand of Rs. 9,71,79,357.

•

Penalty orders u/s. 272A(1)(d), 270A & 271AAC(1) were

passed on 10.09.2021, 16.03.2022 & 25.03.2022

respectively levying various penalties.

•

Assessee challenged the above orders by filing a writ

petition before the High Court.

•

Held:

•

Revenue did not file any claim till the last date for

submission of claims (21.09.2019)

 or even thereafter.

Tushar Hemani, Senior Advocate

•

Reliance was made to the case of

Ghanshyam Mishra &

Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Ltd.

(2021) 9 SCC 657

, wherein the Hon’ble Apex Court held

that the words “other stakeholders” would squarely

cover the Central Government, any State Government

or any local authorities. The legislature noticing that on

account of obvious omission certain tax authorities

were not abiding by the mandate of I&B Code and

continuing with the proceedings, has brought out the

2019 Amendment so as to cure the said mischief. We

therefore hold that the 2019 Amendment is declaratory

and clarificatory in nature and therefore retrospective in

operation.

Tushar Hemani, Senior Advocate

•

Hence, the Hon’ble Delhi High Court rejected the

argument of the Revenue that being State exchequer, it

cannot be bound by the Resolution Process provisions

of the Code.

•

The tax claims pertaining to AY 2017-18 stood

extinguished on approval of Resolution Plan dated

05.11.2019.

•

The writ petition is allowed and the impugned notices

and orders are set aside.

Tushar Hemani, Senior Advocate

Reopening

Tushar Hemani, Senior Advocate

Ganesh Dass Khanna vs ITO

[WP(c) 11527/2022, dated 10/11/2023]

Facts:



Notices u/s 148 of the unamended IT Act came to be issued

for AY 2016-17 on 30.6.2021) & AY 2017-18 on 28.06.2021.



Pursuant to judgement of Supreme Court in case of Union of

India v. Ashish Agarwal [2022] 444 ITR 1 (SC), revenue issued

another notice under section 148A(b) dated 20-5-2022.



Assessee contended that reassessment proceedings triggered

against it were time-barred as limitation period of three years

qua relevant assessment years had expired and alleged

escapement was below Rs.50 lacs.

Tushar Hemani, Senior Advocate

Issue:



After the coming into force of FA 2021, in cases where, for the relevant AY, the

alleged escaped income was less than Rs.50 lakhs, notice under Section 148 could

only be issued for commencement of reassessment proceedings within the

limitation period provided in Clause (a) of Section 149(1) of the amended 1961 Act.



Consequently, for AYs 2016-17 & 2017-18, whether the order passed under

Section 148A(d) and the consequent notice issued under Section 148 of the

amended 1961 Act falls foul of the limitation prescribed in Clause (a) of Sub-

Section (1) of Section 149?



Thus, in the ordinary course, the limitation for AY 2016-17 would expire on

31.03.2020; likewise, for AY 2017-18, the end date for the culmination of the

limitation period would be 31.03.2021.



The revenue seeks to take recourse to the provisions of Section 3(1) of TOLA and

the Notifications issued thereunder, from time to time, which, in effect, extended

the end date for completion of proceedings and compliances up until 30.06.2021.

Tushar Hemani, Senior Advocate

Further following arguments were raised by the Revenue:

First, the observations made in the judgment of the Supreme Court in

Ashish Agrawal

‟

case.

Second, the observations made in paragraphs 98 and 99 by the

coordinate bench in

Mon Mohan Kohli

‟

case.

Third, the extension of the time limit, as noticed hereinabove, granted via

the subject Notifications by the Central Government in the exercise of

powers under Section 3(1) of TOLA.

Fourth, the third and fourth provisos appended to Section 149 of the

1961 Act, which provide for the exclusion of periods referred to therein,

which, if excised, would bring the impugned notices and orders within

the limitation prescribed under Section 149(1)(a) of the amended 1961

Act.

Fifth

, the issue raised before the Court is no longer

res integra

, given the

judgments rendered by the coordinate bench in

Touchstone

and

Salil

Gulati

Tushar Hemani, Senior Advocate

Held:



“Concededly, these notices were issued between

01.04.2021 and 30.06.2021, by which time limitation of

three years under section 149(1)(a) had already expired

and, thus, same were barred by limitation at the

inception itself.”



Furthermore, the reference made in paragraphs 6.1 and

6.2(ii) of the Instruction dated 11.05.2022,

to the extent

it propounds the “travel back in time” theory

, is

declared bad in law.

Tushar Hemani, Senior Advocate

Kankanala Ravindra Reddy vs. ITO

[2023] 156 taxmann.com 178 (Telangana)

•

Facts:

•

For the AY 2016-17, the jurisdictional AO issued a

notice to the assessee under section 148A and

proceeded to reassess the income of the assessee and

passed a further order under section 148A(

) and

issued a reopening notice under section 148.

•

The assessee filed a

writ petition

contending that the

reassessment has to be conducted in a faceless

manner, rather than being assessed by the

jurisdictional officer as was provided under section

144B and in accordance with the scheme enacted by

the Central Government under

section 151A.

Tushar Hemani, Senior Advocate

•

Held:

•

On preferring a writ before the Hon’ble High Court, it

was observed that the Hon’ble Supreme Court in the

case of Union of India vs. Ashish Agarwal – 444 ITR 1,

ordered that notices issued under section 148 after

enactment of Finance Act, 2021 shall be deemed to be

notices issued under section 148A i.e. new provision

inserted by Finance Act, 2021. However, the Hon’ble

Supreme Court has only permitted the revenue to

proceed further with reassessment proceedings under

the amended provisions of law, more particularly, as

amended by Finance Act, 2021.

Tushar Hemani, Senior Advocate

•

It was observed that certain provisions of the Income-

tax Act which stood amended with effect from 1-4-2021

by virtue of the Finance Act, 2021. Section 144B

inserted by virtue of the Finance Act, 2021, with effect

from 1-4-2021 provides for faceless assessment and

subsection (1) of the said newly inserted section 144B is

an

non obstante

clause. Sub-section (1) of section 151A

was inserted with effect from 1-11-2020 which refers to

faceless assessment of income escaping assessment.

Section 130 was amended so far as conferring

jurisdiction of income tax authorities in light of faceless

assessment procedure.

Tushar Hemani, Senior Advocate

•

In furtherance to the powers conferred under sub-

sections (1) and (2) of section 130, CBDT framed a

scheme called as the 'Faceless Jurisdiction of Income-

tax Authorities

Scheme, 2022.’ which defines

automated allocation.

•

Further, CBDT again in exercise of its powers conferred

under sub-sections (1) and (2) of section 151A framed

another scheme called as the e-assessment of Income

Escaping Assessment Scheme, 2022, which defines

automated allocation and the scope of the scheme again

has been envisaged in section 3 of the said scheme

Tushar Hemani, Senior Advocate

•

After the introduction of the above two schemes, it becomes

mandatory for the revenue to conduct/initiate proceedings

pertaining to reassessment under sections147, 148 & 148A

in a faceless manner. Proceedings under section 147 and

section 148 would now have to be taken as per the procedure

legislated by the Parliament in respect of

reopening/reassessment

i.e.,

proceedings under

section

148A.

•

In the instant case, both the proceedings

i.e.,

the impugned

proceedings under section 148A, as well as the consequential

notices under section 148 were issued by the local

jurisdictional officer and not in the prescribed faceless

manner. The order under section 148A(

) and the notices

under section 148 are issued on 29-7-2022,

i.e.,

after the

'Faceless Jurisdiction of the Income-tax Authorities Scheme,

2022’ and the 'e-Assessment of Income Escaping Assessment

Scheme, 2022' were introduced.

Tushar Hemani, Senior Advocate

•

In the instant case, undisputedly the department has

not proceeded against the petitioner under the

substituted provisions of the Finance Act, 2021. Rather,

it proceeded with the unamended provisions of

law.

•

Hence, the impugned notice was set aside/quashed.

Tushar Hemani, Senior Advocate

143(1) followed by 143(3)

Tushar Hemani, Senior Advocate

NSE Ltd. vs. DCIT

ITA No. 732/Mum/2023

•

Facts:

•

Return of income was processed u/s. 143(1) disallowing

an expenditure marked as capital expenditure in the

tax audit report without considering the response of the

assessee to proposed adjustments u/s. 143(1)(a)

•

Rectification u/s. 154 was filed, however no order was

made by CPC, hence an appeal was filed before CIT(A).

•

Meanwhile, order u/s. 143(3) was passed on

28.09.2022 where no query was raised w.r.t. issue of

allowability of such expenditure.

•

Thereafter CIT(A) passed his order on 12.01.2023

dismissing the assessee’s appeal against adjustment

u/s. 143(1).

Tushar Hemani, Senior Advocate

•

Held:

•

The ITAT observed that neither assessee’s response to

proposed adjustment was considered, nor application u/s.

154 was disposed of, amounting to violation of proviso 1

and 2 of the section 143(1) and making whole action null

and void. Further, as the case of assessee was scrutinized

u/s. 143(2) and assessment order u/s. 143(3) was passed,

technically the doctrine of merger comes into picture,

therefore the impugned adjustment by CPC gets merged

into order passed u/s. 143(3) of the Act and order passed

u/s. 143(3) only survives. Hence, the whole issue becomes

academic including the order passed by CIT(A).

•

As far as reporting by

Tax Auditor

 is concerned, maybe he

has been appointed by the assessee, still his independence

is always assumed and he is always free to give his own

legal opinion, but

the same is not binding on assessee

or revenue.

Tushar Hemani, Senior Advocate

Controversies

u/s 197 of the Act

Tushar Hemani, Senior Advocate

ST Engineering Electronics Ltd. vs. ACIT

ITA No. 755/Chny/2022

•

Facts:

•

Assessee has entered into fixed price sub-contract with

the awardee of contract for undertaking signaling,

platform screen doors & telecommunication work for

Chennai Metro Rail Project. Assessee follows percentage

of completion method (POCM) as per AS-7.

•

Assessee has obtained lower deduction certificate u/s.

197 by providing estimated costs & revenue details for

FY 2012-13 till FY 2017-18 until which contract was

expected to be completed.

•

Projected revenue under application u/s. 197 for FY

2017-18 was Rs. 2587.75 lakhs, however the revenue

as per financial statements was Rs. 1146.03 lakhs

along with a contract loss of Rs. 495.65 lakhs.

Tushar Hemani, Senior Advocate

•

Assessee submitted that the duration of project got

extended to FY 2020-21. Revenue & costs were

recorded as per POCM. Unrecognized portion of revenue

was recorded & offered to tax in succeeding years.

•

Still, AO made an addition of shortfall in revenue in

financial statements & application u/s. 197, after

getting directions from DRP.

Tushar Hemani, Senior Advocate

•

Held:

•

The Hon’ble ITAT observed that in the application u/s. 197,

the assessee has merely projected the contract revenue and

these estimations could not be taken to be turnover

disregarding revenue earned by assessee based on actual

work certified by the contractor.

•

The deviation in estimation & actual revenue stood explained

by the fact that duration of project got extended much

beyond the original contract period.

•

Further, the aggregate contract revenue has been offered to

tax over the life of the contract period starting from FY 2012-

13 to FY 2022-23. Hence, taxing more amounts in this year

would result into bringing to tax contract revenues much

more than fixed price contract value to be received over life of

the contract.

•

The appeal of the assessee stands allowed.

Tushar Hemani, Senior Advocate

Shreyansh Retail Pvt Ltd vs. DCIT

W.P.(C)

 11877/2023

•

Facts:

•

Assessee applied for Lower Deduction of tax certificate

(LDC) seeking rate of TDS at 0.01% as against rate of

1% prescribed u/s 194O.

•

Assessee submitted various details called for by the

DCIT along with calculation of projected tax refund of

Rs. 45.05 crores under 0.5% TDS rate.

•

A non-speaking order was passed permitting deduction

of TDS @ 0.5% as against 0.01% sought by the

assessee

Tushar Hemani, Senior Advocate

•

Held:

•

The Hon’ble Delhi High Court observed that the

Impugned Order set forth no reasons for not accepting

the rate of 0.01% as requested by the assessee.

•

At the request of the DR, an opportunity was granted to

department to file a counter-affidavit furnishing reasons

as regards conclusion arrived at in the Impugned Order.

•

However, the Court set aside the order by observing

that the Impugned Order must stand on its own legs, &

accordingly, reasons furnished by a counter-affidavit

could not be supplanted in the Impugned Order.

•

Reliance was placed on the case of

Mohinder Singh Gill

v. Chief Election Comm., (1978) 1 SCC 405,

wherein the

Hon’ble Supreme Court held as under:

Tushar Hemani, Senior Advocate

“8. The second equally relevant matter is that when a

statutory

functionary makes an order based on certain

grounds, its validity must be judged by the reasons so

mentioned and cannot be supplemented by fresh

reasons in the shape of affidavit or otherwise.

Otherwise, an order bad in the beginning may, by the

time it comes to court on account of a challenge, get

validated by additional grounds later brought out. We

may here draw attention to the observations of Bose, J.

in Gordhandas

Bhanji [Commr. of Police, Bombay v.

Gordhandas Bhanji,

1951 SCC 1088 : AIR 1952 SC 16] :

Tushar Hemani, Senior Advocate

“Public orders, publicly made, in exercise of a statutory

authority cannot be construed in the light of explanations

subsequently given by the officer making the order of

what he meant, or of what was in his mind, or what he

intended to do. Public orders made by public authorities

are meant to have public effect and are intended to affect

the acting and conduct of those to whom they are

addressed and must be construed objectively with

reference to the language used in the order itself.”

Orders are not like old wine becoming better as they

grow

older.”

Tushar Hemani, Senior Advocate

Bitkuber Investments P. Ltd. & others vs. DCIT

W.P. No. 11565 of 2023

•

Facts:

•

Assessee company got incorporated in March, 2021 and

has started its operations in April, 2022.

•

Assessee is part of group entities including M/s.

Bitcipher Labs LLP & Chain Laps Pte. Ltd. (Singapore)

(“M/s. Bitcipher”).

•

Assessee applied for Non-deduction of TDS certificate

u/s. 197 for FY 2023-24.

•

The application u/s. 197 got rejected majorly on

following grounds:

i.

Assessee cannot avail assistance of Rule 28AA

ii.

There is no precedential guidance for examining the

basis of estimation

Tushar Hemani, Senior Advocate

iii. A survey u/s. 133A is conducted on M/s. Bitcipher’s

premises resulting in initiation of proceedings u/s.

201.

iv. Ambiguity in transactions under different agreements

between assessee and M/s. Bitcipher which are

under common control of Chain Labs Pte. Ltd. like:



Agreements are executed after survey u/s. 133A



It is not clear whether any asset would remain with

M/s. Bitcipher to discharge liability u/s. 201



Agreements do not have specific clauses on present &

future liability of M/s. Bitcipher, there is no clarity on

how the tax will be discharged.

Tushar Hemani, Senior Advocate

•

Held:

•

Section 197(2A) stipulates that CBDT may make Rules

specifying cases & circumstances under which

application can be made, conditions s.t. which

certificate may be granted & matters connected

therewith.

•

However, those conditions cannot impose a

classification amongst the assessees to even file an

application when provisions do not contemplate the

same.

Tushar Hemani, Senior Advocate

•

Rule 28AA(2) requires the AO to determine existing &

estimated liability after considering the following:

i.

tax payable on estimated income of previous year (PY)

ii.

tax payable on assessed/returned/estimated income,

as the case may be, for last 4 PYs.

iii.

Existing liability under Income Tax/Wealth Tax Act

iv.

Advance tax payment, TDS & TCS for the PY till the

date of making of application.

•

However, the above details cannot be read to say that a

Certificate will be issued only when returns for the 4

PYs are filed or tax must be paid for PY inasmuch as

provisions of Rule 28AA(1) and 2(i) & 2(ii) contemplate

estimated liability & estimated income.

Tushar Hemani, Senior Advocate

•

If the contention that only if returns are filed for 4 PYs,

or the payment of tax, is accepted as a condition for

entertaining an application u/s. 197(1), it would result

into permitting classification & rendering redundant the

concept of estimated liability & estimated income that

are built into Rule 28AA.

•

Further, on an application u/s. 197(1), AO has to

record his satisfaction only upon the examination of

circumstances mentioned in Rule 28AA. The liability of

another entity (here M/s. Bitcipher), even if it is the

sister concern, would be extraneous.

•

The order was quashed and the matter was sent to AO

for reconsideration.

Tushar Hemani, Senior Advocate

Settlement Commission

Few issues

Tushar Hemani, Senior Advocate

Kotak Mahindra Bank Ltd.

v.

CIT

[2023] 458 ITR 113 (SC)

Facts:

•

During assessment proceedings for assessment year 1997-98,

the AO observed that the assessee was accounting for lease

rentals by treating same as financial transaction and lease rental

was bifurcated into capital repayment portion and interest

component. Only interest was offered for tax. Accordingly, the

AO opined that since assessee treated such leases as loans

granted to the lessees to purchase the assets, the ownership of

the assets was vested with the lessees. He, thus, issued

reopening notice for AYs 1994-1995 to 1996-1997 on ground

that assessee claimed depreciation on said assets even though it

was not owner of the assets. AO also levied penalty u/s 271(1)(

).

•

The assessee approached Settlement Commission to settle its tax

liabilities under section 245C.

Tushar Hemani, Senior Advocate

•

The revenue raised preliminary objection contending that assessee

had not made a full and true disclosure of its income which had not

been disclosed before the AO. Disallowance of depreciation was

already discovered by the AO. There is no new or additional income

being offered by the assessee.

•

The Settlement Commission found the application maintainable and

passed order determining additional income and also annulled the

penalty levied by the AO on ground that the non-disclosure of lease

rentals was on account of RBI guideline and the assessee

subsequently disclosed said rentals before Settlement Commission

when the assessee realised the omission to disclose the same as per

income-tax law.

•

Revenue challenged the order of Settlement Commission, wherein

the Single Judge did not find the reasoning of the Settlement

Commission convincing and held the Order granting immunity from

penalty and prosecution to be an illegal order. Matter was remanded

to Settlement Commission for the limited purpose of reconsidering

the question of immunity from levy of penalty and prosecution.

•

DB confirmed the order of Single Judge.

Tushar Hemani, Senior Advocate

Held:

•

Settlement Commission was right in granting immunity. The necessary

ingredients for granting immunity from prosecution would be: (

) the

assessee should have co-operated with the Settlement Commission in

the proceedings before it; and (

) the assessee should have made a full

and true disclosure of its income and the manner in which such income

has been derived, to the satisfaction of the Commission.

•

According to the revenue, in the present case, what had been "disclosed"

in the application was the same as what was "discovered" by the

Assessing Officer and therefore, the application of the assessee ought

not to have been entertained by the Commission, and further, immunity

under section 245H ought not to have been granted.

•

Even if the pre-conditions prescribed under section 245C are to be read

into section 245H, it cannot be said that in every case, the material

"disclosed" by the assessee before the Commission must be something

apart from what was discovered by the Assessing Officer. What is of

relevance is that the assessee offered to tax, income, in addition to the

income recorded in the return of income.

Tushar Hemani, Senior Advocate

•

Section 245C read with section 245H only contemplates full and

true disclosure of income to be made before the Settlement

Commission, regardless of the disclosures or discoveries made

before/by the Assessing Officer. Disclosure may also include the

income discovered by the Assessing Officer.

•

Powers vested with the Settlement Commission u/s 245H is a

discretionary power to be exercised if the Settlement Commission is

satisfied that an assessee has complied with the preconditions

specified therein. It is trite that any judicial, quasi-judicial or

administrative authority must while exercising discretion, direct

itself properly in law and consider all the facts and material that it is

bound to consider while excluding from consideration irrelevant

aspects of the matter.

Tushar Hemani, Senior Advocate

Jain Metal Rolling Mills & others vs. UOI & others

W.P. No. 13455 of 2021

•

Facts:

•

Finance Act, 2021 has abolished the Income Tax

Settlement Commission (ITSC) by making certain

amendments in Section 245-A. However, such abolition

was made w.e.f. 01.02.2021 i.e. the date on which Finance

Bill, 2021 was introduced in the Parliament instead of

01.04.2021 when the Finance Act, 2021 came into force.

•

An Interim Board was constituted for disposal of pending

applications with ITSC, however only the applications

pending on 01.02.2021 were considered and the

applications to ITSC during 01.02.2021 to 31.03.2021

were rejected on account of abolition of ITSC w.e.f.

01.02.2021.

•

Hence, writ petitions were filed challenging the

constitutional validity of this retrospective amendment.

Tushar Hemani, Senior Advocate

•

Held

•

The basic ground of attack on the constitutionality of the

impugned enactment is that it is retrospective in nature and

that it takes away the vested rights of the petitioners.

In this

regard, the contention on behalf of the State is that the

settlement itself is concession and therefore, the writ

petitioners cannot claim any vested right. We are unable to

countenance the said argument on behalf of the

State.

It may

be true that the orders passed by ITSC containing terms of

settlement has the trappings of concession and benevolence

showered by the State to a particular assessee. But, such

benevolence, concession etc., are exercised by the State

through a statutory regime.

Tushar Hemani, Senior Advocate

•

The

State had every right to abolish the

ITSC

. While

being so, in appropriate cases, the right to enact a law

with retrospective operation is also well recognized. In

the instant case, on a perusal of the impugned

legislation, it was given retrospective effect with effect

from 01.02.2021 on the premise that it is on the said

date, that the Bill was introduced by the Parliament, by

which, all the assessees and the general public

concerned are made to know about the policy decision

in the making by which the State proposed to make the

ITSC

inoperative.

he act of the State in abolishing the

ITSC with effect from a cut-off date

per se

cannot be

illegal

or

ultra vires

the Constitution.

Tushar Hemani, Senior Advocate

•

But, at the same time, the

ITSC

did exist legally and factually

until 31.03.2021. Every eligible assessee had a right to

approach the

ITSC

, if they had a ‘

case

’ pending against them.

The definition of '

case

' as per Section 245-A(eb) is also

extracted above. Therefore, even if any proceeding for

assessments/reopening is issued after 01.02.2021 upto

31.03.2021, the assessee had a ‘

case’

to approach the

Commission and if they had submitted an application and if

no final order has been passed under Sub-Section 4 of 245(D)

on or before 31.01.2021, then the said application is treated

as a ‘

pending application

’. It can be seen that in respect of the

case of the petitioners whose matters had arisen before the

notification of the

Act

on 01.04.2021, but, after the cut-off

date of 01.02.2021, were also very much eligible to approach

the

ITSC

Tushar Hemani, Senior Advocate

•

ithout amending the

definition of case pending applications

etc., Section 245C(5) simply provides that no application

shall be made under the Section on or after the first day of

February, 2021. The right to file application before ITSC is

very much existent and has been exercised till 31.03.2021.

The retrospective legislation by way of legal fiction attempts

to make it as if it

is unavailable.

•

As a matter of fact, the applications are either made by the

petitioners or on direction by the orders of the Court as the

ITSC

was in the statute book in the interregnum period

before the retrospective legislation came into force. Therefore,

the retrospectivity also makes these directions of Court and

the consequential applications being filed before the ITSC

nugatory.

Tushar Hemani, Senior Advocate

•

Therefore, when we consider the instant case, the

purpose of the retrospective legislation is to make the

ITSC inoperative right from the date of the introduction

of the Bill and to send all the pending applications to

the Interim Board. Therefore, fixing the last date for

filing the applications alone travels beyond the purpose

and results in more retrospectivity than which is

needed and thus, runs counter to the other parts of the

Act

. As a matter of fact, as per the principle of

lex

prospicit

non respicit

(law looks forward not back) it can

be seen that the purport of the legislation is only to do

away with the policy of resolution through

ITSC.

Tushar Hemani, Senior Advocate

•

As a matter of fact, the Central Government has to

make a Scheme for the purposes of Settlement in

respect of pending applications by the Interim Board as

per Section 245D(11) and such scheme had to be

placed before the Parliament. Thus, neither there is any

intent nor it is within the purpose to do away with the

‘

pending applications

’ in respect of matters in which the

‘

cases

’ arose from 01.02.2021 to 31.03.2021. Thus, we

find that it is just and necessary to read down the last

date mentioned for filing applications in Section 245C(5)

as 31.03.2021 and consequently the last date

mentioned in paragraph No.4(i) of the Circular should

also read as 31.03.2021.

•

The decision was rendered in favour of assessee and

accordingly, the writ petitions were partly allowed.

Tushar Hemani, Senior Advocate

Document

Identification

Number &

Unsigned Order

Tushar Hemani, Senior Advocate

Sharda Devi Bajaj & Others vs. DCIT

ITA No. 3006, 3008, 3009/Del/2022

•

Facts:

•

Assessment order was passed in the case of assessee

which was also confirmed by CIT(A).

•

Assessee filed an appeal before ITAT where in addition

to challenging on merits, assessee raised an additional

ground stating that assessment order does not contain

DIN (Document Identification Number).

•

Held:

•

Hon’ble ITAT held that the additional ground pertains to

a question of law which is based on material already on

record and hence, it deserves to be admitted.

Tushar Hemani, Senior Advocate

•

Reliance was made to decision of Hon’ble Supreme

Court in NTPC vs. CIT (1998) 229 ITR 383 (SC) wherein

it was held that the

view that the Tribunal is confined

only to issues arising out of the appeal before the CIT(A)

is too narrow a view of the powers of the Appellate

Tribunal. It has been held that Tribunal will have a

discretion to allow or not to allow new ground to be

raised. However, where the Tribunal is only required to

consider a question of law arising from the facts which

are on record, in the assessment proceedings, there is

no reason, why such a question should not be allowed

to be raised.

Tushar Hemani, Senior Advocate

•

On merits, it was held that t

he CBDT Circular No.

19/2019 dated 14.8.2019 has mandated, Generation/

Allotment/ Quoting of computer generated Document

Identification Number (DIN) in the body of all

communications, in the nature of notices/summons/

letters/ correspondences as well as the orders passed.

•

Para 3 of the Circular sets out, exceptional

circumstances, in which such communications may be

issued manually, with the rider that this shall be done

only after recording reasons in writing in the file and

with the prior written approval of the Chief

Commissioner/Director of Income Tax.

Tushar Hemani, Senior Advocate

•

Para 4 of the Circular provides that any communication

which is not in conformity with the requirement of Para

2 and Para 3 shall be treated as invalid and shall be

deemed to have never been issued.

•

In the present case, it is not in dispute and otherwise, it

is a matter of record that the order of the Assessing

Officer does not

bear any DIN.

•

On behalf of the Revenue reliance is placed on the

communication dated 17.9.2019 which pertains to the

roll out of facility for System generated Document (i.e.

Intimation Letter)

containing Document Identification

number (DIN) for documents

issued outside the system

but uploaded manually in Income Tax

Business

Application (ITBA).

Tushar Hemani, Senior Advocate

•

From para 4 of the communication dated 17.09.2019, it

is clear that it pertains to the functionality to capture

and uphold the letters, notices and orders issued

manually and served on taxpayers by users due to

any

exceptional circumstances under Para 3 (i), (ii) and (iii)

of the aforesaid Circular dated 14.8.2019. It is not the

case made out that there are any exceptional reasons

recorded in these appeals as required by the Circular

dated 14.8.2019. Thus, in our opinion, the

said

communication cannot come to the aid of the Revenue

in the

present Appeals.

•

Hence, the additional ground as raised has to succeed.

Tushar Hemani, Senior Advocate

Gupta Domestic Fuels (Nagpur) Ltd.& Others vs. ACIT

ITA No. 61/NAG/2022 & others

•

Facts:

•

Assessment orders and appellate orders were issued

without quoting computer-generated DIN (Document

Identification Number) in the body of the orders.

•

DIN were intimated to assessees by separate letters.

•

Held:

•

On appeal to ITAT, it was held that

circular No.

19/2019 dt. 14/08/2019 mandated the income tax

authorities w.e.f. 01/10/2019 for generation, allotment

and communication of computer generated DIN in

relation to any assessment,

appeals, orders,

statutory

or otherwise, exemptions, enquiry, investigation,

verification of information, penalty,

prosecution,

rectification, approval etc

Tushar Hemani, Senior Advocate

•

ntimation of DIN by separate letters communicated

within 15 days of issuance of former DIN less

communication

would be valid only if, former DIN less

communication is issued incorporating therein the

reason for issue of such DIN less communication in

terms of para 3(i) to 3(v) [as applicable] along with the

Number & date of obtaining written approval

of the

Chief Commissioner / Director General of Income-Tax

in a specified format, and not otherwise.

•

The decision was held in favour of assessees rendering

the impugned orders invalid as if they have never been

issued.

Tushar Hemani, Senior Advocate

Finesse International Design P. Ltd. vs. DCIT

ITA No. 1298/Del/2021

•

Facts:

•

Assessment order was passed u/s. 153A after taking

approval u/s. 153D from Addl. CIT. However, neither

the requisition letter of AO to Addl. CIT requesting for

approval u/s. 153D nor the letter of Addl. CIT granting

such approval bears DIN. Demand notice u/s. 156 was

also issued without quoting DIN.

•

Held:

•

On appeal, the Hon’ble ITAT held that the Circular No.

19/2019 dated 14.08.2019 is binding in nature.

Tushar Hemani, Senior Advocate

•

Any communication issued by any income tax authority

relating to assessment, appeals, orders, etc. to the

assessee or any other person on or after 01.10.2019

shall have no standing in law unless a computerised

DIN has been allotted & is duly reflected in the body of

such communication subject to exceptional

circumstances referred to in para 3 of CBDT Circular.

•

ITAT relied on the judgements of Hon’ble Delhi High

Court in the case of

CIT vs. Brandix Mauritius Holdings

Ltd. – 456 ITR 34 (Delhi)

 and Hon’ble Calcutta High

Court in the case of

PCIT vs. Tata Medical Center Trust

[2023] 154 taxmann.com 600 (Cal.)

Tushar Hemani, Senior Advocate

•

In the backdrop of

nuanced judicial view, the approval

under section 153D which is the fulcrum for passing

final assessment order dated 19.02.2021 in question is

thus apparently non-est

in law in the absence of DIN

allocated to such communication at all. The final

assessment order so passed under s. 153A in question

on the basis of such invalid and non-est approval under

section 153D is thus without sanction of law. The

assessment order dated 19.02.2021 passed under s.

153A is thus liable to be quashed at threshold.

Similarly, notice of demand under s. 156 without DIN

and on the basis of non-est

assessment order is also to

be reckoned as a nullity.

Tushar Hemani, Senior Advocate

Sutherland Global Services Inc. & Ors. vs. ACIT & Ors.

IT(TP)A No.27/CHNY/2023

•

Facts:

•

Assessment order was passed after receiving

instructions from DRP. However, such directions were

issued by DRP without mentioning DIN therein.

•

Held:

•

On appeal, Hon’ble Chennai ITAT held that every

income tax authority is required to satisfy twin

conditions viz. a) allot DIN and b) quote such DIN in the

body of communication.

•

The requirement of Circular is to allot & quote DIN in

the body of communication but not generation &

communication of DIN by separate intimation.

Tushar Hemani, Senior Advocate

•

Subsequent

generation of DIN either on the same day or

next day and intimated to the assessee or other person

by way of separate communication does not satisfy the

conditions of para 3 & 4 of said circular.

•

The ITAT rejected Revenue’s argument that DRP

direction is an internal communication for the guidance

of the AO, and observed that as per Section 144C(15),

directions issued by DRP is an order/communication

which is issued to the eligible assessee to enable it file

rectification.

•

The ITAT also rejected Revenue’s argument that DRP is

not an income tax authority defined under the Act and

hence, circular issued by CBDT is not applicable to DRP

proceedings.

Tushar Hemani, Senior Advocate

•

Section 144C(15) defines DRP to mean a collegium

comprising of three PCIT/CIT constituted by CBDT.

From the dictionary meaning of ‘collegium’, it is clear

that DRP is merely an association/group of three

Commissioners, all of which are defined as income-tax

authorities as per Section 116. Thus, DRP is an income-

tax authority and consequently, panel would be bound

to follow the circular issued by CBDT.

•

The directions issued by CBDT without DIN were held

to be invalid and the final assessment order in

pursuance of such non-est DRP directions were held to

be void-ab-initio.

Tushar Hemani, Senior Advocate

SPS Structures Ltd. vs. DCIT

ITA No. 130/Chd/2023

•

Facts:

•

Assessment order was passed without mentioning DIN,

however, demand notice u/s. 156 issued along with the

assessment order bears DIN.

•

Held:

•

On appeal to ITAT, the assessment order passed

without mentioning DIN was set aside holding the same

to be in contravention of the Circular No. 19/2019.

Relying on various judicial precedents, it was held that

such circular is binding in nature and non-mentioning

of DIN on the body of the order is not a curable defect

u/s. 292B.

Tushar Hemani, Senior Advocate

•

The ITAT rejected the Revenue’s contention that the

assessment order is not invalid since the DIN was

generated and mentioned on the demand notice which

was issued simultaneously with the assessment order.

Assessment order and demand notice are two separate

communications qua the assessee and carry separate

physical existence and identity, even though issued on

the same date by the same AO pertaining to same

assessment year. Quoting of DIN has to be qua each

communication and just because there is simultaneous

communication of assessment order and demand

notice, the same wouldn’t satisfy the requirement as so

laid down in the Circular.

Tushar Hemani, Senior Advocate

SC Stay Order

CIT vs Brandix Mauritius Holdings Ltd.

[SLP

 (C) Diary No(s). 46964/2023, dated 03/01/2024]

We have heard learned ASG for the petitioner and

learned senior counsel for the respondent /

caveator.

Interim stay of impugned order

dated 20.03.2023 as well as order of the ITAT

dated 19.09.2022, until further orders.

Tushar Hemani, Senior Advocate

Reuters Asia Pacific Ltd. vs. DCIT

ITA No. 587/MUM/2021

•

Facts:

•

An unsigned assessment order was served to the

assessee on email. A note was given in the email that “-

Signed copy may be sent separately if not already

digitally signed”. However, no assessment order was

ever served on assessee except the unsigned order

served on email.

•

Held:

•

S.282A deals with authentication of notices & other

documents. The section mandates that any notice or

other document to be issued by any IT authority must

be signed before communicating to assessee.

Tushar Hemani, Senior Advocate

•

Notification No. 2/2016 dated 03.02.2016 was issued

by CBDT when the Department was in process of

migration from manual mode to E-assessment

procedure. As per such Notification, AO shall pass the

assessment order and attach the scanned copy of the

order bearing his/her signature in PDF format to the

email sent to the assessee.

•

Instruction No. 1/2018 dated 12.02.2018 w.r.t. “E-

proceedings” also specifies the requirement of digital

signatures by AO on orders/notice/communications

before they are issued to the assessee.

Tushar Hemani, Senior Advocate

•

Instruction No. 6 dated 03.10.2017 lists out entire process of

passing assessment order under “E-Assessment”, wherein the

fifth step is “Order Generation”. The signing of assessment

order is an integrated process of “Order Generation” in E-

assessment. The assessment proceedings conclude only after

the order is digitally signed.

•

Signing of an assessment order by AO is a mandatory

requirement & not merely a procedural formality that can be

cured u/s. 292B. Unless, the order is signed it cannot be said

to be complete. Once the order is signed digitally or manually,

as required, the order is complete and the date of signature

on the order shall be the date of passing of the order.

•

The appeal of the assessee was allowed treating the unsigned

assessment order as invalid.

Tushar Hemani, Senior Advocate

153A & 153C

Tushar Hemani, Senior Advocate

PCIT vs. Abhisar Buildwell Pvt. Ltd.

[2023] 454 ITR 212 (SC)

•

Facts:

•

The core issue involved in the instant appeal filed by

revenue was the scope of assessment under section

153A. According to the revenue, the Assessing Officer

was competent to consider all the material that was

available on record including that found during the

search, and make an assessment

of 'total income'.

•

However, according to the assessee if no assessment

proceeding was pending on the date of initiation of the

search, the Assessing Officer might consider only the

incriminating material found during the search and was

precluded from considering any other material derived

from any other source.

Tushar Hemani, Senior Advocate

•

Held:

•

The observations of Hon’ble Supreme Court are as

under:

•

hat in case of search under section 132 or requisition

under section 132A, the AO assumes the jurisdiction

for block assessment under section 153A;

•

ll pending assessments/reassessments shall stand

abated;

•

n case any incriminating material is found/unearthed,

even, in case of unabated/completed assessments, the

AO would assume the jurisdiction to assess or reassess

the 'total income' taking into consideration the

incriminating material unearthed during the search and

the other material available with the AO including the

income declared in the returns; and

Tushar Hemani, Senior Advocate

•

In case no incriminating material is unearthed during

the search, the AO cannot assess or reassess taking

into consideration the other material in respect of

completed assessments/unabated assessments.

Meaning thereby, in respect of completed/unabated

assessments, no addition can be made by the AO in

absence of any incriminating material found during the

course of search under section 132 or requisition under

section 132A of the Act, 1961. However, the

completed/unabated assessments can be re-opened by

the AO in exercise of powers under sections 147/148 of

the Act, subject to fulfilment of the conditions as

envisaged/mentioned under sections 147/148 of the

Act and those powers are saved.

Tushar Hemani, Senior Advocate

PCIT vs. Oxygen Business Park P. Ltd.

ITA 680/2023

•

Facts:

•

Assessee was engaged in development of SEZ for IT

enabled services, hence eligible for deduction u/s. 80IAB.

•

Return of income for AY 2011-12 was filed on 30.09.2011

and the same was processed u/s. 143(1).

•

On 29.10.2013, a search & seizure was carried out at the

premises of assessee and accordingly notice u/s. 153A

was issued. Assessee requested the AO on 22.03.2016 to

treat the original return of income as return of income filed

in response to notice u/s. 153A.

•

AO disallowed the deduction u/s. 80IAB on the basis of

statement of a valuer Shri B. P. Singh recorded in post-

search proceedings.

Tushar Hemani, Senior Advocate

•

CIT(A)

allowed the appeal of the assessee holding that

invocation of Section 153A would not be sustainable in

absence of incriminating material found during the

search.

•

ITAT upheld the order of CIT(A).

•

Held:

•

On appeal by Revenue, the Hon’ble Delhi High Court

held that no incriminating material was found during

the search and the material in the form of statement of

Shri B. P. Singh now sought to be relied upon by

revenue was recorded subsequent to the search action.

Tushar Hemani, Senior Advocate

•

The Hon’ble High Court distinguished the case of

Dr. A.

V. Sreekumar vs. CIT [2018] 90 taxmann.com 355

 which

was heavily relied upon by Revenue. In that case, the

Kerala High Court after expressing agreement with the

legal proposition laid down in

Kabul Chawla [2015] 61

taxmann.com 412 (Del.),

 held that the case before it is

on a different footing insofar as the documents

considered though not found during the course of

search were received by the Revenue through Tax

Evasion Petition filed prior to the search and they were

incriminating material by themselves, which led to

initiation of search action.

•

The appeal of the revenue was dismissed.

Tushar Hemani, Senior Advocate

CIT vs. Jasjit Singh

[2023] 458 ITR 437 (SC)

•

Facts:

•

Search was conducted on a third party on 19.02.2009

where documents belonging to assessee were found.

•

The assessment of assessee was centralized on

16.06.2009. Assessment of AY 2009-10 was completed

u/s. 143(3) treating the AY 2009-10 as year of search &

assessments of AY 2003-04 to 2008-09 were reopened

u/s. 153C.

•

Assessee contended that as per first proviso to Section

153C, the year in which documents belonging to him

were transferred to his jurisdictional AO shall be

considered as year of search i.e. AY 2010-11 when his

case was centralized on 16.06.2009 & not AY 2009-10.

Tushar Hemani, Senior Advocate

•

Assessee submitted that the assessment of AY 2009-10

framed u/s. 143(3) without issuing notice u/s. 153C and

recording satisfaction is null and void.

•

CIT(A) has confirmed the validity of assessment order u/s.

143(3) for AY 2009-10.

•

On appeal, ITAT held in favour of assessee.

•

On further appeal, the High Court upheld the order of ITAT.

•

Held:

•

On appeal, the Hon’ble Supreme Court dismissed the appeal

and held that the submission of revenue that the first proviso

to Section 153C is confined only to question of abatement is

unsubstantial and without merit.

Tushar Hemani, Senior Advocate

•

It is evident on a plain interpretation of section 153C(1) that

the Parliamentary intent to enact the proviso was to cater not

merely to the question of abatement but also with regard to

the date from which the six year period was to be reckoned,

in respect of which the returns were to be filed by the third

party, whose premises are not searched and in respect of

whom the specific provision

u/s. 153-C was enacted.

•

If

the date would virtually relate back to the date of seizure as

contended by revenue, it would cause prejudice to third party

who is not searched. For instance, if the papers are assigned

u/s. 153C after 4 years, the third party assessee has to

preserve records for at least 10 years which is not the

requirement in law. Accordingly, the revenue’s appeals were

dismissed.

Tushar Hemani, Senior Advocate

Tax Appeals

Tushar Hemani, Senior Advocate

Bikram Singh vs. PCIT

[2023] 154 taxmann.com 80 (SC)

•

Facts:

•

During assessment proceedings, AO made addition

under section 68 in respect of loans/advances received

from eight persons, on ground that assessee was

unable to establish identity, creditworthiness and

genuineness of said persons and transactions.

•

Tribunal set aside additions in respect of four creditors.

•

High Court restored the matter to AO holding that mere

establishing of their identity and fact that amounts had

been transferred through cheque payments, did not by

itself mean that transactions were genuine.

Tushar Hemani, Senior Advocate

•

Held:

•

On appeal to Hon’ble Supreme Court, it was observed

that the High Court has not followed procedure under

section 260A.

•

On a reading of the provision of section 260A, it is

noted that an appeal before the High Court is

maintainable only on a substantial question of law (not

a question of fact or only a question of law). The High

Court when entertaining such an appeal must

formulate that question and admit the appeal,

thereafter, on the question so formulated the

respondent must also be heard and consequently the

matter must be disposed of depending on whether the

substantial question of law requires to be answered for

Tushar Hemani, Senior Advocate

or against either of the parties or no such question of

law would arise. The High Court has also the power to

formulate a fresh question of law if it so arises on

hearing the respective parties in the event, such a

substantial question of law would arise and if the High

Court is satisfied the said case involves such a

question.

•

Further, sub-section (7) of section 260A states that

'save as otherwise provided in this Act, the provisions of

the Code of Civil Procedure, 1908 (5 of 1908), relating to

appeals to the High Court shall, as far as may be, apply

in the case of appeals under this section’. Since the

appeal filed under section 260A is akin to a Second

Appeal, section 100 read with Order XLII rule 1 of Code

Tushar Hemani, Senior Advocate

of Civil Procedure would apply, wherein, in a Regular

Second Appeal under the said provision read with

section 100 of the said Code, the formulation of a

substantial question of law when the matter is

entertained and admitted would be required, otherwise

the High Court has the power to dismiss such a Second

Appeal on the ground that no such substantial question

of law arises in the appeal.

•

In the

present case, it is found that the High Court did

not formulate

any substantial question of law at the

time of admitting the appeal, rather the appeal was

heard on merits and in the absence of formulating the

substantial question of law the appeal was reserved for

judgment.

Tushar Hemani, Senior Advocate

•

During the course of preparation of the judgment, the

question of law was framed stated to be a 'question of

law' and the matter was then admitted and at the same

time considered on merits. Issuance of notice prior to

admission without framing any substantial question(s)

of law is not contemplated under section 260A. The

High Court has either to admit or not admit the appeal.

If the High Court admits the appeal then substantial

question(

) of law has to be framed and the respondent

put on notice on such substantial question(

) of law. On

the contrary, if the High Court is of the view that no

substantial question of law arises, then the appeal has

to be dismissed.

Tushar Hemani, Senior Advocate

•

It is found that the procedure adopted by the High

Court in the instant case is not in consonance with

what is contemplated under section 260A and hence,

on that short ground alone the impugned judgment is

set aside. The matter is remanded to the High Court for

re consideration of the appeal filed by the respondent-

revenue having regard to the essentials of section 260A

and in accordance with law.

Tushar Hemani, Senior Advocate

PCIT vs. KGY Glass Industries P. Ltd.

R/Tax Appeal No. 722 of 2023

•

Facts:

•

Assessee company opted to be taxed as per provisions of Section

115BAA while filing return of income.

•

Return was processed by CPC u/s 143(1) on 20/12/2021 and

income was taxed as per Section 115JB & not as per

concessional rate u/s. 115BAA because assessee has not filed

Form 10-IC on or before due date of filing return of income.

•

Form 10-IC could not be uploaded by the assessee before due

dated of return of income due to some technical error. The time

limit for filing Form 10-IC was extended to 30.06.2022 and

assessee physically filed such form before AO on 29.06.2022.

•

Appeal was filed before CIT(A) which came to be dismissed

holding that filing of Form 10-IC before due date of return of

income is a mandatory requirement as per Section 115BAA(5)

r.w. Rule 21AE.

Tushar Hemani, Senior Advocate

•

Further appeal was filed before Hon’ble ITAT which was

allowed in favour of assessee.

Held:

•

On Revenue’s appeal, the Hon’ble High Court observed that

during the relevant period, due date of filing Form 10-IC was

extended to 30.06.2022. The assessee physically filed such

Form before AO on 29.06.2022. Copy of such form was also

placed before ITAT.

•

Since assessee could not upload Form 10-IC on account of

technical error, there being no fault of assessee, it could not

be deprived of benefit particularly when this being first year

for availing such benefits.

•

Accordingly issue was decided in favour of assessee and

revenue’s appeal was dismissed.

Tushar Hemani, Senior Advocate

PCIT vs. Jigar Jashwantlal Shah

R/Tax Appeal No. 80 & 96 of 2023

•

Facts:

•

Assessee is a director in a company. Such company

issued right shares at Rs. 10 per share.

•

Assessee was allotted 1,03,000 right shares of such

company in proportion to his existing shareholding.

•

Assessee was allotted additional 82,200 right shares

due to renunciation of rights by his wife & father.

•

Assessee was allotted additional 14,800 right shares

due to renunciation of rights by a third party.

•

AO invoked Section 56(2)(vii)(c), computed FMV of right

shares at Rs. 255 per share & made the addition of the

differential amount.

Tushar Hemani, Senior Advocate

•

CIT(A) partly allowed the appeal to the extent of

1,03,000 right shares allotted proportionate to existing

shareholding of the assessee.

•

ITAT allowed the appeal to the extent of 1,85,200 right

shares [1,03,000 as allowed by CIT(A) + 82,200 being

right shares allotted pursuant to renunciation of rights

by the assessee’s wife and father in addition to what

has been allowed by CIT(A)].

•

Revenue filed an appeal before the Hon’ble Gujarat High

Court against the order of ITAT.

Tushar Hemani, Senior Advocate

•

Held:

•

On appeal, Gujarat High Court observed that on

conjoint reading of provision as well as explanatory note

of the said provision, it is clear that only

when an

individual or a HUF receives any property for

consideration which is less than the FMV, the

provisions of Sec.56(2)(vii)(c) would be attracted.

•

In the facts of the case, the shares had come into

existence only when the

allotment

 is made by the

company as right shares cannot be said to be

“received

from any person”.

In other words,

the property must

pre-exist for application of Sec.56(2)(vii)(c), which is

clear from the intention of the

legislature.

Tushar Hemani, Senior Advocate

•

f the shares are allotted strictly on proportionate basis

based on existing shareholding, then though the

provisions per se are applicable, but will not operate

adversely because the gain accruing on allotment of

fresh shares will be offset by the loss in value of existing

shares.

•

The Tribunal,

therefore held that the provisions of

sec.56(2)(vii)(c) would not apply in respect of allocation

of 1,03,000 right shares allotted to the assessee

proportionate to its share

holding in the company.

Tushar Hemani, Senior Advocate

•

Further, it is a settled principle of law that what cannot

be done directly cannot be done indirectly as well.

The

Tribunal, therefore, held that had the wife and father of

the assessee directly transferred their shares in favour

of the assessee, provisions of Sec.56(2)(vii)(c) of the Act

could not have been invoked  since both of them are

falling in the definition of “relatives” which are

excluded from within the purview of operation of

Sec.56(2)(vii)(c) of the Act. As a consequence

it was

held that the renunciation of right shares by wife and

father of the assessee by not exercising the right to

subscribe would not attract the provisions of

Sec.56(2)(vii)(c) of the Act.

Tushar Hemani, Senior Advocate

•

With regard to the application of Sec.56(2)(vii)(c) of the

Act for the balance 14,800 shares allotted to the

assessee as a result of third pary share-holder declining

to apply for right shares in favour of the assessee, the

Tribunal held against the assessee because

renunciation of rights in favour of the assessee by third

party who are not related does lead to disproportionate

allocation of shares in favour of the assessee.

•

Hence, the appeals of the Revenue were dismissed.

Tushar Hemani, Senior Advocate

PCIT vs. Weilburger Coatings (India) Pvt. Ltd.

IA NO: GA/1/2023, GA/2/2023 – Calcutta HC

•

Facts:

•

Assessee’s case was selected for limited scrutiny &

certain additions were made by AO which were

confirmed by CIT(A).

•

Assessee raised an additional ground before ITAT

contending that AO has no jurisdiction to make

additions on the issues beyond limited scrutiny.

•

ITAT agreed to the contention of the assessee and

allowed the assessee’s appeal holding that AO has

exceeded his jurisdiction.

Tushar Hemani, Senior Advocate

•

Held:

•

On further appeal, Hon’ble Calcutta High Court held

that ITAT has rightly allowed the appeal of the assessee.

•

Reliance was placed on the decision of

PCIT vs.

Sukhdham Infrastructures LLP – ITAT No. 164 of 2023

dated 14.08.2023

, where an identical contention was

raised stating that at best the action of AO could be

construed as an irregularity. Such contention was

rejected by the Court with the following observations:

“While considering the said issue, the Hon’ble Supreme

Court noted the distinction between the statutes affecting

rights and those affecting mere procedure. The revenue

Tushar Hemani, Senior Advocate

cannot rely upon the said decision as the scheme of

assessment as provided under Section 143 of the Act is a

complete code by itself and the circumstances under

which the power under sub-section (2) of Section 143

could be invoked has been clearly spelt out and on a

reading of sub-section (3) of Section 143, it s evidently

clear that on the day specified in the notice issued under

sub-section (2), or as soon afterwards as may be, after

hearing such evidence as the assessee may produce and

such other evidence as the Assessing Officer may require

on specified points, and after taking into account all

relevant material which he has gathered, the Assessing

Officer shall, by an order in writing, make an

assessment of the total income or loss of the assessee,

and determine the sum payable by him or refund of any

amount due to him on the basis of such assessment.

Tushar Hemani, Senior Advocate

Therefore, the question of part of the provision being

procedural is an incorrect interpretation of the scheme

provided under Section 143 of the Act. Further, as noted

above, the CIT(A) has examined the merits of the matter

and after taking note of the facts granted relief to the

assessee to the extent indicated therein. Thus, for the

above reasons, we find that the revenue has not made

out any case for interference of the order passed by the

Tribunal. Accordingly, the appeal

fails and is dismissed.

The substantial questions of law are answered against

the revenue.

The application for stay being GA 1 of 2023 is also

dismissed.”

Tushar Hemani, Senior Advocate

PCIT vs. Montecarlo Construction Ltd.

Tax Appeal No.786 of 2023

Dated 19/12/2023 - Gujarat HC

Facts:



Assessee is engaged in development of infrastructure

facilities i.e. construction of road, irrigation canals, etc.



AO disallowed deduction u/s 80-IA(4) of the Act claimed

by the assessee broadly on the following counts:

•

Assessee merely acted as a “works contractor” and

not as a “developer”;

•

Assessee was not the “owner” of “infrastructure

facilities”;



Both the CIT(A) as well as ITAT decided the issue in

favour of the Assessee by holding as under:

Tushar Hemani, Senior Advocate



Assessee

designed, executed & completed

 the project;



Assessee

deployed own funds

 for execution of projects and also

arranged for

term loans

working capital facilities



Assessee arranged for the

Plant & Machinery, equipment and

arranged for

requisite workmen and also secured

& maintained

insurance for them



Assessee

procured, transported & stored various materials



Assessee took the

responsibility

 of all the site operations and also

maintained

dominant control

 over project till completion of work;



Assessee

assumed entire risk

 of the project, had to bear

defect

liability and damages for non-adherence to work program



Assessee

indemnified the employer for all claims, suits, etc.



Assessee’s annual accounts revealed h

uge working capital facility

from bank, huge machinery loans from bank / Fis, huge block of

machinery, substantial inventory, work-in-progress, construction

expenses, camp expenses and other site expenses, substantial

interest and finance charges etc.

Tushar Hemani, Senior Advocate

Findings of HC:



While dismissing the appeal filed by the IT Department, Hon’ble

Court observed as under:



Concurrent findings of fact arrived at by the CIT (A) as well as

the Tribunal that the assessee has undertaken the development

of infrastructure facility and is eligible to claim the deduction

under Section 80IA(4) of the Act;

•

Assessee has undertaken a

work of development of

infrastructure facilities by execution of the contract awarded to it

as per the terms of the

contract;

•

Lower appellate authorities have considered various points

discussed in the previous slide.

•

Agreeing with the findings of the ITAT and CIT(A), HC dismissed

the tax appeal of the Department.

Tushar Hemani, Senior Advocate

Mutuality

Tushar Hemani, Senior Advocate

Secundrabad Club etc. vs. CIT

[2023] 457 ITR 263 (SC)

•

Facts:

•

The assessee-clubs deposited surplus funds by way of

bank deposits in various bank and claimed interest

earned on said deposits was exempt on the principle of

mutuality.

•

On appeal, the various High Courts held that the

interest earned on the bank deposits made by the

assessee-clubs was liable to be taxed in the hands of

the clubs and the principle of mutuality would not

apply.

Tushar Hemani, Senior Advocate

•

Held:

•

On further appeal, the Hon’ble Supreme Court held that

the triple test for applying principle of mutuality was

discussed in the case of Bangalore Club vs. CIT [350

ITR 509 (SC)]. The triple test is as under:

i.

Complete identity

between contributors &

participators

ii.

Action of participators & contributors must be in

furtherance of the mandate of associations or Clubs.

iii.

There must be no

scope for profiteering by the

contributors from a fund made by them which could

only be expended or

returned to themselves.

Tushar Hemani, Senior Advocate

•

That, it is not a normal activity of the assessee clubs to

deposit funds in a bank. It is only when a surplus is

generated. In the absence of the said fixed deposits

being utilized by the banks for their transactions with

their customers, no interest can be payable on the fixed

deposits. This is so in respect of any customer of a bank

who would deposit surplus funds in a bank. It may be

that the interest income would be ultimately used for

the benefit of the members of the clubs but that is not a

consideration which would have an impact on satisfying

the triple test of mutuality.

Tushar Hemani, Senior Advocate

•

It was observed in Bangalore Club (

supra

) that even if

ultimately the interest income and surplus funds in the

fixed deposit are utilized for the benefit of the members

of the clubs, the fact remains that when the fixed

deposits were made by the clubs in the banks, they

were exposed to transactions with third parties,

i.e.

between the banks and its customers and this would

snap the principle of mutuality breaching the triple

test.

•

The question asked therefore is - at what point does the

relationship of mutuality end and that of trading begin.

If there is an entry of a third party or non-member to

deal with the contributions of or funds of the club or to

Tushar Hemani, Senior Advocate

utilize the funds of the club and return the same with

interest, then, the relationship of the parties is not on

the basis of a privity of mutuality. The essential

condition of mutuality,

i.e.

, identity between the

contributors and participators would end. The

relationship would then be like any other commercial

relationship such as that between a customer and a

bank where the fixed deposit is made by the customer

for the purpose of earning an interest income.

•

Thus, the interest income earned on fixed deposits

made in the banks by the appellant Clubs has to be

treated like any other income from other sources within

the meaning of section 2(24).

•

Consequently, the appeals were dismissed.

Tushar Hemani, Senior Advocate

Prosecution

Tushar Hemani, Senior Advocate

Tirumala Tirupati Constructions P. Ltd. vs. ADIT

Criminal Petition No. 2684 of 2022

•

Facts:

•

Assessee has sold land in AY 2015-16 & 2016-17 at the

rates below Sub-Registrar office. Assessee has not filed

returns of income for such AYs & not paid any tax.

•

Sanction u/s. 279(1) was issued by

PDIT(Inv.)

Hyderabad to

DDIT(Inv.)

 for prosecuting the assessee

for offences punishable u/s. 276(1) & 278B.

•

Pursuant to such sanction,

ADIT(Inv.)

 filed a criminal

complaint to Special Court of Economic Offences,

Hyderabad.

•

Assessee has challenged the said criminal complaint

contending that initiation of prosecution is illegal &

void-ab-initio.

Tushar Hemani, Senior Advocate

•

Held:

•

As per Section 279(1), sanction has to be accorded by

an officer at the level of CCIT/DGIT. However, in the

present case, sanction has been accorded by PDIT, who

is lower in rank than CCIT.

•

Further, sanction was accorded to DDIT but complaint

was filed by ADIT, who is lower in rank than DDIT.

•

It is evident that if a statutory authority has been

vested with jurisdiction, he has to exercise it

accordingly and if discretion is exercised under the

directions or in compliance of some higher authority’s

instruction, then it would be a case of failure to exercise

discretion altogether.

Tushar Hemani, Senior Advocate

•

The authority

which has initiated the prosecution must have

sanction of law. Otherwise, it amounts to illegal action.

•

f a statute has conferred a power to act and has laid down

the method, any power must be exercised discreetly, which

prohibits doing of act in any another manner. Which

means,

if a sanction has been granted to the Deputy director to

launch prosecution against the petitioner company, it is for

the Deputy Director alone to launch the prosecution but not

the Assistant Director.

•

Even though DDIT is a senior officer

& ADIT is a junior officer

and both were doing the same duties, the said contention

cannot be taken into consideration as in the present case, the

sanction is accorded to the DDIT for initiating prosecution

and not to ADIT. Hence, the proceedings were quashed.

Tushar Hemani, Senior Advocate

Anish Modi vs. UOI & Ors.

Criminal W.P. No. 3962 of 2022

•

Facts:

•

Assessee served as an independent, non-executive, and

nominee director of M/s. S. Kumar Nationwide Ltd. from

27.06.2007 to 12.11.2011.

•

For FY 2008-09, the company failed to deposit TDS of Rs.

2,98,29,252/- within the prescribed period.

•

ACIT(TDS) sent a notice u/s. 2(35) to the company on

16.12.2013 to nominate the principal officer for initiatiting

the prosecution u/s. 276-B & 278-B for failure to pay

TDS.

•

The company nominated Mr. Jagdeesh Shetty as a

principal officer, however department rejected such

nomination as he was not a director at the time of offence.

Tushar Hemani, Senior Advocate

•

The department then issued another notice u/s. 2(35)

to the assessee. The notice also stated that if no reply is

received, the department would treat all the 13

directors of the company as principal officer and initiate

appropriate action without further intimation.

•

Thereafter, the department initiated prosecution against

the assessee director. The Magistrate issued the process

and fresh summons against the assessee.

•

The assessee challenged the orders of the Magistrate

and Criminal Case filed against him by filing a writ

petition before the Hon’ble High Court.

Tushar Hemani, Senior Advocate

•

Held:

•

The term ‘person’ is defined under section 2(31) of the

I.T. Act and includes a company. As per sub-section

(35) of Section 2 of the I.T. Act, principal officer with

reference to a local authority or a company or any other

public body or any association of persons or any body of

individuals, means (a) the secretary,

treasurer, manager

or agent of the authority, company, association or body,

or (b) any person connected with the management or

administration of the local authority, company,

association or body upon whom the Assessing Officer

has served a notice of his intention of treating him as

the principal officer thereof.

Tushar Hemani, Senior Advocate

•

In order to treat a person as a ‘Principal Officer’ as defined under

section 2(35)(b) of the I.T. Act, the following conditions must be

satisfied: (i) he must be a person connected with the

management or administration of the company, and (ii) the

Assessing Officer must have served upon him a notice of his

intention of treating him as the principal officer of the company.

•

In the present case, it is not the case of respondent No.1 that

the

notice as contemplated by Section 2(35) of the I.T. Act has been

served upon the petitioner. Although, the petitioner is not

classified under Section 2(35)(a) as an individual who can be

treated as a principal officer without notice, but he falls under

the category of persons specified under Section 2(35)(b), where

he can be treated as a principal officer only upon service of

notice to prosecute him under the purview of Sections 276-B

and 278-B of

the I.T. Act.

Tushar Hemani, Senior Advocate

•

Additionally, a bare perusal of the Order dated 18

February 2014 shows that before issuing the process, the

learned Magistrate did not take into consideration the

relevant provisions of the I.T. Act and determine whether

the mandatory notice under section 2(35)(b) of the I.T. Act

was delivered to the accused or not. Needless to state that

an order of issuance of process is not an empty formality

and requires the Magistrate to apply his mind before

issuing the process. Passing orders of issuance of a

process without appreciating the statutory provisions and

cautiously examining the material on record may put the

wheels of criminal law in motion and summon an innocent

individual to stand trial. Such orders are liable to be

quashed and set aside.

Tushar Hemani, Senior Advocate

•

The statutory requirement of service of notice as

contemplated by Section 2(35)(b) of the I.T. Act is not

complied with. This non-compliance goes to the root of

the matter and dents the prosecution against the

petitioner.

•

The Criminal Case filed before the Magistrate and the

orders passed by the Magistrate are quashed.

Tushar Hemani, Senior Advocate

Scope of S. 254(2)

Tushar Hemani, Senior Advocate

Pr. CIT vs Hitesh Ashok Vaswani

(SCA No. 198 of 2023, dated 02/11/2023)



Facts:

 Petitioner challenged the order passed by the ITAT u/s 254(2)

of the Act. Revenue was dissatisfied with the dismissal of its

miscellaneous applications filed against the order passed u/s 254(1)

of the Act and therefore filed Special Civil Applications (writs)

against such order.



Held:

 While dismissing the writs filed by the Deptt., High Court

observed that “the mistake has to be apparent from the face of the

record and not one where an extensive delving into arguments and a

re-look can be sought on questions decided on merits”.



HC further notes that the ITAT considered the issues threadbare on

merits in light of the case laws, and thus, remarks “merely because

the ITAT, according to the Revenue, decided the issues by

misinterpretation of facts and law, the same cannot be a subject

matter of rectification”.

Tushar Hemani, Senior Advocate



HC relies on SC ruling in

Reliance Telecom

 [(2021) 440 ITR 1 (SC)] wherein it was

observed that when a detailed order was passed by ITAT, no rectification can be

made on the ground that the order passed by ITAT was erroneous either on facts

or in law and preferring an appeal is the only remedy in such a case.



HC also considers co-ordinate bench ruling in

Vrundavan Ginning

 and Delhi HC

ruling in

Maruti Insurance

 to observe that “the power to rectify an order under

Section 254(2) is extremely limited and it does not extend to correcting the errors

of law or reappreciating the factual findings. Those properly fall within the

appellate review of an order of Court of first instance. What legitimately falls for

consideration are errors (mistakes) apparent from the record”



Moreover, HC relies on Delhi HC ruling in R.C. Sabharwal and co-ordinate bench

ruling in

Muni Seva Ashram

 and observes that in the instant case appeals were

filed by the Revenue which have been admitted by the HC and thus,

disposes of the petitions reserving the right of the Revenue to urge the grounds

raised in these petitions while arguing appeals.

Tushar Hemani, Senior Advocate



Regarding the petitions where Revenue has not filed appeals, HC holds

that once the ITAT had considered the issues on merits and undertaken

a detailed discussion, no rectification could be made on the grounds

stated in the MAs; HC anlayses the batch of petitions in under four

categories including a category of cases covered by SC ruling in

Vikram

Bhatia

 which was delivered after the MA was dismissed by ITAT;  Across

the categories, HC observes that issue raised by Revenue in

MAs requires long drawn argument which is not allowed under Section

254(2) and if the Revenue feels the order passed by the ITAT is

erroneous on account of law or on fact, then the only remedy available is

to challenge the order at higher forum.



While dismissing the writs, high court also observed that when ITAT

dismissed the 254(2) applications, judgment in the case of ITO vs.

Vikram Bhatia – (2023) 453 ITR 417 (SC) was not even delivered and

therefore, the same cannot be pressed into service.

Tushar Hemani, Senior Advocate

Trade Advances to Sales

vs

Cash Credit

Tushar Hemani, Senior Advocate

ITO vs. Sahana Jewellery Exports P. Ltd.

ITA No. 999/Chny/2022

•

Facts:

•

Assessee is a trader of gold & jewellery.

•

Case was selected for scrutiny for AY 2017-18 to verify

cash deposits during demonetization period.

•

Cash deposits of Rs. 48,80,73,000/- were made during

demonetization period.

•

Assessee submitted that source of cash deposits is out

of trade advances for gold scheme and the same are

being recorded in the books of accounts.

•

The assessee filed details of name & addresses of

customers with AO.

Tushar Hemani, Senior Advocate

•

AO issued summons u/s. 131(1) to 50 persons, out of which

46 summons were returned citing ‘addressee cannot be

located’, 3 persons replied out of which 2 persons denied

having any transaction with assessee and 1 person confirmed

that he has paid an advance to assessee for purchase of gold.

•

AO thereafter called the assessee to file various details &

books of account to justify cash deposits. The assessee filed

various documents like cash book, purchase and sale

invoices, stock register, etc.

•

The assessee thereafter changed his stand that the earlier

submission that source of cash deposit was out of trade

advances was made by mistake, whereas the actual source is

out of earlier cash withdrawals from the same bank accounts.

Tushar Hemani, Senior Advocate

•

AO discussed the modus operandi to create source of

cash deposits, huge disproportion in number of parties

& collections between pre-demonetization period &

post-demonetization period, etc. AO also discussed that

the assessee has not furnished any confirmation from a

single customer. Further, substantial number of

summons u/s. 131(1) were returned back.

•

AO reached to a conclusion that the assessee is not

able to discharge initial onus to establish identity &

creditworthiness of the parties & genuineness of the

cash deposits in the bank accounts. Addition of total

cash deposits was made u/s. 68 of the Act.

Tushar Hemani, Senior Advocate

•

CIT(A) deleted the addition made by the AO holding that

the assessee is able to explain source of cash deposits

out of cash in hand available before the date of

demonetization period as per cash book maintained.

Further, AO has not pointed out any discrepancy in

books of accounts with regard to purchase & sales

declared during relevant period. Even GST authorities

have accepted the purchases & sales declared by the

assessee.

•

Further, the AO has ignored the settled legal position

that trade advances which has been subsequently

accounted as sales in the books of accounts cannot be

treated as cash credits u/s. 68.

•

Revenue filed an appeal before the Hon’ble ITAT.

Tushar Hemani, Senior Advocate

•

Held:

•

AO has rejected the contention on two grounds: (a)

Persons from whom advances are received have not

responded to summons issued u/s. 131(1) and hence,

assessee failed to discharge initial onus u/s. 68 and (b)

There is a contradiction in the claim of assessee insofar

as initially, the assessee claims to have explained cash

deposits out of trade advances and subsequently,

changed its stand and argued that source of cash

deposits is out of cash withdrawals from the very same

bank account.

Tushar Hemani, Senior Advocate

•

Insofar as first ground is concerned, trade advances

cannot be examined u/s. 68, because

trade advances have

been subsequently converted into sales and sales has been

accounted in the books of

accounts of the assessee.

•

On merits, it was held that

he assessee need not obtain

confirmation and submit to the AO, because, the law does

not mandate colleting PAN details of the persons, if sale

value of jewellery does not exceed Rs.2 lakhs as per Rule

of Income Tax Rules, 1962.

 When

the assessee has

furnished name and address of the persons from whom it

has received trade advances for sale of jewellery, the

assessee has satisfactorily discharged onus cast upon to

furnish name and address of

the persons.

Tushar Hemani, Senior Advocate

•

Further, The AO has never disputed sales or purchases

or stock in trade held before the date of demonetization.

It is not a case of AO that assessee has declared sales

without purchases. In fact, sales are backed by

corresponding purchases. Therefore, simply sales

cannot be rejected on the ground that sale for a

particular month or period is higher when compared to

corresponding previous period.

•

Insofar as second ground is concerned, on perusal of

cash book, bank statements, etc., it is found that the

assessee has sufficient cash balance on the date of

demonetization and the cash balance as on 08.11.2016

was much higher than the amount of cash deposits.

Tushar Hemani, Senior Advocate

•

The assessee was having sufficient cash withdrawals

from the very same bank account before the date of

demonetization which was recorded in the books of

accounts.

•

Hence, there is no reason for the AO to reject the

explanation of the assessee that cash deposits are out

of cash withdrawals from the very same bank account.

•

In the result, the appeal filed by the Revenue is

dismissed.

Tushar Hemani, Senior Advocate

Issues

•

Can credits on account of Sales / professional

receipts be added as cash credit u/s 68 of the

Act so as to apply rate u/s 115BBE?



ACIT

v.

Hirapanna Jewellers [2021] 128 taxmann.com 291

(Visakhapatnam - Trib.)



Anantpur Kalpana

v.

ITO [2022] 138 taxmann.com 141

(Bangalore - Trib.)



Agson Global (P.) Ltd.

v.

ACIT [2020] 115 taxmann.com 342

(Delhi - Trib.)



CIT vs Vishal Exports Overseas Limited (Tax Appeal No.2471

of 2009)



Nitisha Silk mills Pvt. Ltd. vs. ITO (ITA No. 896/ Ahd/2011)



ITO vs Jethu Ram P:rem Chand [2001] 114 TAXMAN 219

(DELHI)(MAG.)



Harish Kumar

vs.

DCIT [2003] 85 ITD 366 (HYD.)

Tushar P. Hemani, Advocate

Thank You

Tushar Hemani, Senior Advocate

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Explore controversial issues under the Income Tax Act, 1961 discussed at the National Conference on Direct Tax. Senior Advocate Tushar Hemani sheds light on topics such as bogus purchases, fake invoices, and burden of proof in tax matters, offering valuable insights and legal perspectives. Discover key considerations, evidentiary requirements, and case law implications for taxpayers facing scrutiny in tax assessments.

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Controversial issues under the Income Tax Act, 1961 National Conference on Direct Tax Rajkot Branch of WIRC of ICAI 6thJanuary, 2024 Tushar P. Hemani Tushar P. Hemani Senior Advocate Senior Advocate Tushar Hemani, Senior Advocate 1

Bogus Purchase Fake Invoice Bogus Billing Tushar Hemani, Senior Advocate 2

Fake Invoice - IT Accommodation Billing Fake Billing Genuine transaction becomes billing transaction due to lack of proof or supplier related issues; Supplier not traceable Supplier never existed Supplier is alleged to be bogus Supplier is proved to be bogus Supplier s GST registration is cancelled prospectively or retrospectively Tushar Hemani, Advocate 3

PO & Invoice [Invoice Reference Number (IRN)]; E-way bill; Transport receipt, affidavit of driver; Weight bridge slip; Toll payment receipts; RFID vehicle tracking details; GSTR1 of Seller, GSTR2B of buyer, GSTR3B filed by both the parties; Correspondence with supplier; CCTV footage; payment details and relevant bank statement; Internal documents e.g. Inward register, quantity details etc. Tushar Hemani, Senior Advocate 4

Quantify Details Even though the assessee was a scrap dealer, the addition u/s. 69C on account of bogus purchases was held not justified as assessee had maintained trading account with purchases, opening stock, sales and closing stock and no discrepancy in such quantitative tally was found - Manoj Sharma v. ITO [2019] 103 taxmann.com 105 (Delhi - Trib.) What if quantity details are not maintained; quantitative tally of Tushar Hemani, Senior Advocate 5

Burden of Proof Where transportation bills, confirmed copy of account and VAT Registration of sellers as also their income-tax Return and payment was made through cheques, impugned purchases could not be disallowed - CIT v. Odeon Builders (P.) Ltd. 418 ITR 315 (SC). Where assessee brought on record name and address of parties, their PAN, TDS deducted, date of bills, details of cheques issued, etc., to establish genuineness of purchase transactions, in such a case, he could not be held responsible for parties not appearing in person and, thus, addition so made under section 69C deserved to be deleted - Pr. CIT v. Chawla Interbild Construction Co. (P.) Ltd. 412 ITR 152 (Bom). assessee had submitted purchase bills, Tushar Hemani, Senior Advocate 6

Natural Justice Merely on suspicion bases on information received from sales Tax authority, assessing officer could not make addition on account of bogus purchases without carrying out independent enquiry and affording opportunity to Assessee to controvert statements made by seller - Pr. CIT v. Shapoorji Pallonji & Co. Ltd. [2022] 288 Taxman 661 (SC). No addition can be made in respect of bogus purchases merely on the basis of material / information received from the Maharashtra Sales Tax Department without providing such material to the assessee or affording an opportunity to cross examine the concerned parties - Shailesh Keshavlal Shah vs. ITO ITA 1877 to 1879/Ahd/2015. Tushar Hemani, Senior Advocate 7

Sales whether accepted? Bombay High Court in the case of Pr. CIT v. Nitin Ramdeoji taxmann.com 546 held that Where AO made addition by disallowing expenses on purchases on ground that an information was received from sales tax department beneficiary of accommodation entries on account of bogus purchases, in absence of AO not disputing corresponding purchases could not be treated as bogus and, thus, impugned addition made on account of bogus purchases to be deleted. Lohia [2022] 145 that assessee was sales transactions, Tushar Hemani, Senior Advocate 8

Percentage disallowance CIT vs La Medica 250 ITR 575 (Del) 100% Sanjay Oil Cake Ind vs CIT 316 ITR 274 (Guj) 25% Pr. CIT v. Suraj Infrastructures (P.) Ltd [2023] taxmann.com 192 (Bombay) 12.5% Pr. CIT v. Rakesh Kailashchand taxmann.com 82 (Gujarat) 6% CIT vs. Gujarat Ambuja Export Ltd. [2014] 43 taxmann.com 244 (Gujarat) 5% 156 Jain [2023] 156 Tushar Hemani, Senior Advocate 9

Other Approaches Dhondiram Naryan Limbhore vs Pr.CIT 153 taxmann.com 539 (Bom) addition was to be limited to extent of bringing GP rate on tainted purchases at same rate as applied in other genuine purchases. Nehal Hsamukhari Gandhi vs. DCIT ITA 2578/Ahd/2017 - NP Tushar Hemani, Senior Advocate 10

Other Issues Distinction between a trader, manufacturer and/or consumer. Rejection of books of accounts 145(3); GP/NP comparison (history & Industry average); Disallowance u/s (expenditure incurred and Assessee offers no explanation) Impact of S. 40A(3) [Hynoup - 290 ITR 702 (Guj)]; GP addition vs addition as percentage of bogus purchases 69C justified? Tushar Hemani, Senior Advocate 11

Curious case of N K Ind Ltd [2016] 72 taxmann.com 289 (Gujarat) Whether 25% or 100% disallowance is confirmed by HC Before Guj High Court, both Revenue and Assessee were in appeal. Assessee was in appeal against confirmation of disallowance @ 25% out of purchases whereas Revenue was in appeal against deletion of 75% out of purchases by the ITAT. Hon ble High Court while dismissing both the appeals, gave the following finding: Tushar Hemani, Senior Advocate 12

6. The Tribunal in the case of Vijay Proteins Ltd. (supra) has observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25% of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s. Indian Woollen Carpet Factory (supra) or Vijay Proteins Ltd. (supra) In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs. 2,92,93,288/- and taxing only 25% of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs. 2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs. 73,23,322/-. xxx 9. In view of the above, the impugned judgment and order passed by the Tribunal is modified accordingly. Hence, the present Tax Appeals are dismissed. Tushar Hemani, Senior Advocate 13

Assessee preferred SLP against confirmation of 25% which got dismissed. [2017] 84 taxmann.com 195 (SC) Subsequently, Gujarat distinguished judgement in the case of N K Ind. Ltd. In the following cases: [2019] 106 taxmann.com 316 (Gujarat) Pr. CIT v. Synbiotics Ltd. [2023] 148 taxmann.com 154 (Gujarat) Pr. CIT v. Surya Impex High Court itself Tushar Hemani, Senior Advocate 14

Bogus Billing GST vs IT During the course of an IT search, material is found indicating unaccounted turnover outside the books. IT department proposes to add the said turnover on the basis of the seized documents. Assessee wants to surrender only GP on this unaccounted turnover. However, Assessee is worried about GST consequences. Kindly advice. Tushar Hemani, Senior Advocate 15

During the course of GST search, material is found indicating purchases registration were found to be cancelled ab-initio as they were found to be indulging into bogus billing without actual supply of material. Assessee is asked to reverse the ITC claimed from such supplier on the ground that the same is fake and fraudulent. Assessee wants to surrender such ITC and pay the necessary amount into the Govt. treasury. However, Assessee is worried about IT consequences. Kindly advice. from dealers whose Tushar Hemani, Senior Advocate 16

In an income tax assessment, sales are treated as accommodation entries and addition to that effect is made u/s 68 of the IT Act. GST department on the strength of such AO, want to treat the said sales as billing transaction and deny ITC in the hands of the purchaser. Recovery notices for wrong claim of ITC is issued against the said purchaser. Kindly advice. (Circular No. 171/03/2022-GST dated 06/07/2022, Example 3) Tushar Hemani, Senior Advocate 17

Interplay between IBC & Income Tax Tushar Hemani, Senior Advocate 18

Tata Steel Ltd. vs. DCIT W.P.(C) 13188/2018 Facts: Assessment order for AY 2001-02 was passed on 28.02.2003. Addition was confirmed upto High Court. SLP has been accepted by Supreme Court & is pending for adjudication. Assessment order vis- -vis AY 2009-10, 2010-11 & 2013-14 was passed on 30.12.2016. CIT(A) dismissed the first appeal & also triggered penalty proceedings u/s. 271(1)(c). Second appeal with ITAT is pending. Insolvency proceedings were triggered against the assessee. Petition was admitted by NCLT on 26.07.2017 Public announcement was published on 28.07.2017. Tushar Hemani, Senior Advocate 19

Revenue lodged its claims to Interim Resolution Professional (IRP) on 28.09.2017, 24.10.2017 & 25.10.2017 for AY 2009- 10, 2010-11 & 2013-14 but not for AY 2001-02. Penalty order u/s. 271(1)(c) vis- -vis AY 2009-10, 2010-11 & 2013-14 was passed on 23.04.2018. Resolution Plan was admitted by NCLT on 15.05.2018. Notice u/s. 221(1) was issued on 28.08.2018 requiring assessee to deposit tax for all 4 AYs & seeking response as to why penalty u/s. 221(1) shall not be levied. Revenue lodged an updated Professional (RP) on 20.09.2018 wherein the claim for the demand of tax for AY 2001-02 & penalties for all 4 assessment years were added. claim with Resolution Tushar Hemani, Senior Advocate 20

Objections were filed by assessee on 26.09.2018 against notice u/s. 221(1) dated 28.08.2018. Order u/s. 221(1) was passed on 17.10.2018 rejecting the objections filed by the assessee. Assessee filed a writ petition against notice u/s. 221(1) dated 17.10.2018 & order dated 17.10.2018. Held: In our opinion, the stand taken by the revenue that the demands for the AYs in issue were not outstanding at the time of the RP being accepted, if agreed with, would amount to splitting hairs. Tushar Hemani, Senior Advocate 21

Therefore, the facts on record, in our opinion, not only disclose that the revenue had knowledge of the CIRP, but that it took steps to lodge its claims with regard to three out of the four AYs, on the footing that the amounts reflected in the assessment order were due and payable by BSL. Insofar as AY 2001-02 is concerned, the revenue did not lodge any claim before the RP was approved. The demand qua AY 2001-02 (along with the penalty imposed qua all four relevant AYs) was communicated as an additional claim on 20.09.2018, only after the RP was approved on 15.05.2018. In the ordinary course, the claim would get extinguished under the provisions of the 2016 Code, as the approved RP obviously made no reference to it. Tushar Hemani, Senior Advocate 22

We are of the opinion that dues payable to creditors, including statutory creditors, for the periods which precede the date when the RP is approved, can only be paid as per the terms contained in the RP. In cases where no provision is made for claims lodged on behalf of the creditors, or there is failure to lodge a claim with the Resolution Professional, all such claims stand extinguished. When one examines the provisions of Section 238 of the 2016 Code, the underlying purpose of the provision comes through. Section 238 clearly states without any ambiguity that the provisions of the 2016 notwithstanding anything inconsistent contained in any other law for the time being in force, or any instrument having effect under any such law. Code shall have effect, Tushar Hemani, Senior Advocate 23

Thus, where matters covered by the 2016 Code are concerned [including insolvency resolution of corporate persons] if provisions contained therein are inconsistent with other statutes, including the 1961 Act, it shall override such laws. If such an approach is not adopted, it will undermine the entire object and purpose with which the Legislature enacted the 2016 Code. Thus, the impugned notice & order dated 28.08.2018 & 17.10.2018 respectively, are unsustainable in law and, hence cannot be enforced. Tushar Hemani, Senior Advocate 24

Rishi Ganga Power Corporation Ltd. vs. ACIT W.P.(C) 3167/2020 Facts: Notices u/s. 143(2) were issued on 09.08.2018, 28.09.2018 & 30.09.2018 followed by a notices u/s. 142(1) dated 14.03.2019, 22.10.2019 & 04.11.2019. None of the notices were complied, hence a penalty order u/s. 272A(1)(d) was passed on 21.11.2019. Eventually an ex-parte assessment order u/s. 143(3) came to be passed on 06.12.2019. Meanwhile a petition was filed under IBC against the assessee which was admitted by NCLT on 25.01.2018. Consequent to insolvency announcement was made on 31.01.2018 which was published in various newspapers on 02.02.2018 & 03.02.2018. proceedings, public Tushar Hemani, Senior Advocate 25

No claims were lodged by the Revenue being an operational creditor, with Resolution Professional (RP). Resolution Plan was approved by NCLT on 13.11.2018. On 11.02.2020, the new management who has taken over the affairs of the assessee, wrote to AO, explaining reasons for non-participation proceedings and requesting the AO for deletion of additions made thereunder. Since there was no response from revenue, the assessee filed a writ petition in the High Court. in assessment Tushar Hemani, Senior Advocate 26

Held: Revenue argued that it has not lodged claims with the RP pursuant to public announcement on 31.01.2018 because claims had not fructified into demands on that date. The assessment order resulting in demand was passed on 06.12.2019. IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 require operational creditors to submit their claim with proof to the IRP, which are not necessarily claims that have been adjudicated. As per Regulation 7 of 2016 Regulations, operational creditors must file their claims with proof in the prescribed form i.e. Form B. Regulation 7, when read alongside particulars sought against Sr. No. 6 of Form B, would drive home the point that it can include claims that are disputed. Tushar Hemani, Senior Advocate 27

Furthermore, the definition of claim u/s. 3(6)(a) of the 2016 Code puts these aspects beyond doubt: 3. Definitions.- In this Code, unless the context otherwise requires,- xxx xxxxxx (6) claim means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; Tushar Hemani, Senior Advocate 28

Thus, having regard to the fact that the revenue had not lodged its claim, despite the publication of the public announcement by the Resolution Professional inviting claims from statutory/operational creditors such as the revenue, no provision could be made [even if it may otherwise have been possible] in the approved RP. The terms contained in the approved RP are binding on all stakeholders, including those who could have filed claims but chose not to lodge them. The revenue, having failed to lodge its claim, cannot enforce the impugned orders and notices, given the binding nature of the approved RP. creditors, including Tushar Hemani, Senior Advocate 29

Section 31 of the 2016 Code, among other things, stipulates that once the RP is approved, it shall be binding on the corporate debtor and its employees, members, and creditors, which includes the Central Government, State Government, Local Authority to whom a debt in respect of payment of dues arising under any law for the time being in force and also on authorities to whom statutory dues are owed. Accordingly, the assessment and penalty orders were quashed. Tushar Hemani, Senior Advocate 30

TUF Metallurgical P. Ltd. & ors. vs. UOI & ANR W.P.(C) 10528/2022 Facts: A public advertisement was notified u/s. 15 of IBC pertaining to initiation Resolution Process (CIRP) of Albus India Ltd. declaring last date for submission of claims as 21.01.2019. No claim was filed by the Revenue during the CIRP. Resolution plan was filed with NCLT on 20.05.2019 and the same was approved by NCLT on 05.11.2019. Pursuant to Resolution Plan dated 20.05.2019, the assessee took over the management of Albus India Ltd. On 02.12.2019, Assistant Commissioner of Income Tax was intimated about the approval of Resolution Plan & change of management of Albus India Ltd. of Corporate Insolvency Tushar Hemani, Senior Advocate 31

Thereafter, the Revenue passed the assessment order & demand notice on 12.12.2019 for AY 2017-18, raising a demand of Rs. 9,71,79,357. Penalty orders u/s. 272A(1)(d), 270A & 271AAC(1) were passed on 10.09.2021, 16.03.2022 & 25.03.2022 respectively levying various penalties. Assessee challenged the above orders by filing a writ petition before the High Court. Held: Revenue did not file any claim till the last date for submission of claims (21.09.2019) or even thereafter. Tushar Hemani, Senior Advocate 32

Reliance was made to the case of Ghanshyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Ltd. (2021) 9 SCC 657, wherein the Hon ble Apex Court held that the words otherstakeholders would squarely cover the Central Government, any State Government or any local authorities. The legislature noticing that on account of obvious omission certain tax authorities were not abiding by the mandate of I&B Code and continuing with the proceedings, has brought out the 2019 Amendment so as to cure the said mischief. We therefore hold that the 2019 Amendment is declaratory and clarificatory in nature and therefore retrospective in operation. Tushar Hemani, Senior Advocate 33

Hence, the Honble Delhi High Court rejected the argument of the Revenue that being State exchequer, it cannot be bound by the Resolution Process provisions of the Code. The tax claims pertaining to AY 2017-18 stood extinguished on approval of Resolution Plan dated 05.11.2019. The writ petition is allowed and the impugned notices and orders are set aside. Tushar Hemani, Senior Advocate 34

Reopening Tushar Hemani, Senior Advocate 35

Ganesh Dass Khanna vs ITO [WP(c) 11527/2022, dated 10/11/2023] Facts: Notices u/s 148 of the unamended IT Act came to be issued for AY 2016-17 on 30.6.2021) & AY 2017-18 on 28.06.2021. Pursuant to judgement of Supreme Court in case of Union of India v. Ashish Agarwal [2022] 444 ITR 1 (SC), revenue issued another notice under section 148A(b) dated 20-5-2022. Assessee contended that reassessment proceedings triggered against it were time-barred as limitation period of three years qua relevant assessment years had expired and alleged escapement was below Rs.50 lacs. Tushar Hemani, Senior Advocate 36

Issue: After the coming into force of FA 2021, in cases where, for the relevant AY, the alleged escaped income was less than Rs.50 lakhs, notice under Section 148 could only be issued for commencement of reassessment proceedings within the limitation period provided in Clause (a) of Section 149(1) of the amended 1961 Act. Consequently, for AYs 2016-17 & 2017-18, whether the order passed under Section 148A(d) and the consequent notice issued under Section 148 of the amended 1961 Act falls foul of the limitation prescribed in Clause (a) of Sub- Section (1) of Section 149? Thus, in the ordinary course, the limitation for AY 2016-17 would expire on 31.03.2020; likewise, for AY 2017-18, the end date for the culmination of the limitation period would be 31.03.2021. The revenue seeks to take recourse to the provisions of Section 3(1) of TOLA and the Notifications issued thereunder, from time to time, which, in effect, extended the end date for completion of proceedings and compliances up until 30.06.2021. Tushar Hemani, Senior Advocate 37

Further following arguments were raised by the Revenue: o First, the observations made in the judgment of the Supreme Court in Ashish Agrawal s case. o Second, the observations made in paragraphs 98 and 99 by the coordinate bench in Mon Mohan Kohli s case. o Third, the extension of the time limit, as noticed hereinabove, granted via the subject Notifications by the Central Government in the exercise of powers under Section 3(1) of TOLA. o Fourth, the third and fourth provisos appended to Section 149 of the 1961 Act, which provide for the exclusion of periods referred to therein, which, if excised, would bring the impugned notices and orders within the limitation prescribed under Section 149(1)(a) of the amended 1961 Act. o Fifth, the issue raised before the Court is no longer res integra, given the judgments rendered by the coordinate bench in Touchstone and Salil Gulati. Tushar Hemani, Senior Advocate 38

Held: Concededly, these notices were issued between 01.04.2021 and 30.06.2021, by which time limitation of three years under section 149(1)(a) had already expired and, thus, same were barred by limitation at the inception itself. Furthermore, the reference made in paragraphs 6.1 and 6.2(ii) of the Instruction dated 11.05.2022, to the extent it propounds the travel back in time theory, is declared bad in law. Tushar Hemani, Senior Advocate 39

Kankanala Ravindra Reddy vs. ITO [2023] 156 taxmann.com 178 (Telangana) Facts: For the AY 2016-17, the jurisdictional AO issued a notice to the assessee under section 148A and proceeded to reassess the income of the assessee and passed a further order under section 148A(d) and issued a reopening notice under section 148. The assessee filed a writ petition contending that the reassessment has to be conducted in a faceless manner, rather than jurisdictional officer as was provided under section 144B and in accordance with the scheme enacted by the Central Government under section 151A. being assessed by the Tushar Hemani, Senior Advocate 40

Held: On preferring a writ before the Hon ble High Court, it was observed that the Hon ble Supreme Court in the case of Union of India vs. Ashish Agarwal 444 ITR 1, ordered that notices issued under section 148 after enactment of Finance Act, 2021 shall be deemed to be notices issued under section 148A i.e. new provision inserted by Finance Act, 2021. However, the Hon ble Supreme Court has only permitted the revenue to proceed further with reassessment proceedings under the amended provisions of law, more particularly, as amended by Finance Act, 2021. Tushar Hemani, Senior Advocate 41

It was observed that certain provisions of the Income- tax Act which stood amended with effect from 1-4-2021 by virtue of the Finance Act, 2021. Section 144B inserted by virtue of the Finance Act, 2021, with effect from 1-4-2021 provides for faceless assessment and subsection (1) of the said newly inserted section 144B is an non obstante clause. Sub-section (1) of section 151A was inserted with effect from 1-11-2020 which refers to faceless assessment of income escaping assessment. Section 130 was amended so far as conferring jurisdiction of income tax authorities in light of faceless assessment procedure. Tushar Hemani, Senior Advocate 42

In furtherance to the powers conferred under sub- sections (1) and (2) of section 130, CBDT framed a scheme called as the 'Faceless Jurisdiction of Income- tax Authorities Scheme, automated allocation. Further, CBDT again in exercise of its powers conferred under sub-sections (1) and (2) of section 151A framed another scheme called as the e-assessment of Income Escaping Assessment Scheme, 2022, which defines automated allocation and the scope of the scheme again has been envisaged in section 3 of the said scheme. 2022. which defines Tushar Hemani, Senior Advocate 43

After the introduction of the above two schemes, it becomes mandatory for the revenue to conduct/initiate proceedings pertaining to reassessment under sections147, 148 & 148A in a faceless manner. Proceedings under section 147 and section 148 would now have to be taken as per the procedure legislated by the Parliament reopening/reassessment i.e., proceedings under section 148A. In the instant case, both the proceedings i.e., the impugned proceedings under section 148A, as well as the consequential notices under section 148 were issued by the local jurisdictional officer and not in the prescribed faceless manner. The order under section 148A(d) and the notices under section 148 are issued on 29-7-2022, i.e., after the 'Faceless Jurisdiction of the Income-tax Authorities Scheme, 2022 and the 'e-Assessment of Income Escaping Assessment Scheme, 2022' were introduced. in respect of Tushar Hemani, Senior Advocate 44

In the instant case, undisputedly the department has not proceeded against the petitioner under the substituted provisions of the Finance Act, 2021. Rather, it proceeded with the unamended provisions of law. Hence, the impugned notice was set aside/quashed. Tushar Hemani, Senior Advocate 45

143(1) followed by 143(3) Tushar Hemani, Senior Advocate 46

NSE Ltd. vs. DCIT ITA No. 732/Mum/2023 Facts: Return of income was processed u/s. 143(1) disallowing an expenditure marked as capital expenditure in the tax audit report without considering the response of the assessee to proposed adjustments u/s. 143(1)(a) Rectification u/s. 154 was filed, however no order was made by CPC, hence an appeal was filed before CIT(A). Meanwhile, order u/s. 28.09.2022 where no query was raised w.r.t. issue of allowability of such expenditure. Thereafter CIT(A) passed his order on 12.01.2023 dismissing the assessee s appeal against adjustment u/s. 143(1). 143(3) was passed on Tushar Hemani, Senior Advocate 47

Held: The ITAT observed that neither assessee s response to proposed adjustment was considered, nor application u/s. 154 was disposed of, amounting to violation of proviso 1 and 2 of the section 143(1) and making whole action null and void. Further, as the case of assessee was scrutinized u/s. 143(2) and assessment order u/s. 143(3) was passed, technically the doctrine of merger comes into picture, therefore the impugned adjustment by CPC gets merged into order passed u/s. 143(3) of the Act and order passed u/s. 143(3) only survives. Hence, the whole issue becomes academic including the order passed by CIT(A). As far as reporting by Tax Auditor is concerned, maybe he has been appointed by the assessee, still his independence is always assumed and he is always free to give his own legal opinion, but the same is not binding on assessee or revenue. Tushar Hemani, Senior Advocate 48

Controversies u/s 197 of the Act Tushar Hemani, Senior Advocate 49

ST Engineering Electronics Ltd. vs. ACIT ITA No. 755/Chny/2022 Facts: Assessee has entered into fixed price sub-contract with the awardee of contract for undertaking signaling, platform screen doors & telecommunication work for Chennai Metro Rail Project. Assessee follows percentage of completion method (POCM) as per AS-7. Assessee has obtained lower deduction certificate u/s. 197 by providing estimated costs & revenue details for FY 2012-13 till FY 2017-18 until which contract was expected to be completed. Projected revenue under application u/s. 197 for FY 2017-18 was Rs. 2587.75 lakhs, however the revenue as per financial statements was Rs. 1146.03 lakhs along with a contract loss of Rs. 495.65 lakhs. Tushar Hemani, Senior Advocate 50

Recent Developments in Income Tax Controversies Addressed by Senior Advocate Tushar Hemani

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