2018 (7) TMI 207 - HC - Income Tax

Reopening of assessment - AO disallowed a sum being the difference in SPF Special Privilege Fee paid and admissible - Held that - Special Privilege Fee which was revised by subsequent Government Orders substitutes the rates fixed in the earlier Government Order therefore it is untenable on the part of the Revenue to contend that they will consider as to whether the claim of additional vend fee amounting to Rs. 435, 17, 13, 674/- is admissible or not. The fundamental error which has crept in on account of usage of wrong terminology. The Prohibition Act and the Rules framed thereunder have fixed a fee payable by the petitioner corporation to the Government and this is termed as the Special Privilege Fee payable on account of special status given to the Corporation with regard to distribution of sale of IMFL in the State of Tamil Nadu. Assessing Officer enquired and passed an assessment order allowing the relief. Subsequently the assessment was reopened and an order was passed. This order was tested and ultimately a decision was arrived in favour of the assessee. The only issue to be decided is Special Privilege Fee payable by the petitioner. This has been dealt with by the Tribunal in the assessee s own case for the current assessment year as well as earlier and held that the subsequent Government orders will have to be taken into consideration for arriving at the SPF payable for the said year. No further enquiry is required or any verification is required as only the legal interpretation to be given is to the effect of the subsequent Government Orders which have been held to be substitutive in nature therefore deemed to be retrospective with effect from issuance of the first Government Order. The show cause notices are without jurisdiction and not sustainable in law.

Summary

Issues:
Challenge to notices issued under section 263 of the Income Tax Act, 1961 for assessment years 2004-05 and 2005-06.

Analysis:
1. The petitioner, a State-owned Corporation, challenged notices issued by the 2nd respondent under section 263 of the Income Tax Act, 1961, claiming the order of reassessment to be erroneous and prejudicial to the Revenue's interests due to diversion of income by the assessee. The 2nd respondent proposed disallowing the enhanced additional vend fee in the assessment order, leading to the challenge in the writ petitions.

2. The 2nd respondent argued that under Section 263 of the Act, if an order is deemed erroneous and prejudicial to Revenue, the power to revise it lies with the authority. The petitioner's maintainability challenge was raised by the Revenue's Standing Counsel and emphasized in the counter-affidavit filed by the 2nd respondent.

3. The High Court, after hearing both parties and examining the facts, concluded that the impugned notices lacked jurisdiction. The Court specifically referred to the assessment year 2004-05 to support this conclusion.

4. Detailed facts for the assessment year 2004-05 were presented, including the petitioner's initial income return, subsequent revised return, and the dispute over the Special Privilege Fee (SPF) claimed by the petitioner. The Assessing Officer's actions, including reopening the assessment and disallowing a significant sum of SPF, were discussed.

5. The Court highlighted the petitioner's arguments regarding the statutory nature of the SPF, the methodology of fee calculation, and the rejection of the petitioner's contentions by the Assessing Officer. The subsequent appeals and orders by the CIT (Appeals) and the Income Tax Appellate Tribunal were also discussed, leading to the impugned notice by the 4th respondent.

6. The Court analyzed the Tribunal's decision, emphasizing the importance of consistency and the impact of subsequent Government Orders on the SPF rates. The Assessing Officer's actions post-Tribunal order were also reviewed.

7. The Court criticized the 2nd respondent's interpretation in the impugned notice, stating it contradicted the Tribunal's analysis of the Government Orders and the SPF rates. The incorrect terminology used by the 2nd respondent was highlighted.

8. The Revenue's argument regarding a Tax Case Appeal and contesting the Tribunal's order was dismissed by the Court, citing a contravention of Section 263(1) of the Act.

9. The Court rejected the Revenue's reliance on the explanation to Section 263(1) regarding lack of inquiries or verifications, asserting that the issue of SPF payment had been thoroughly examined and decided in favor of the assessee by the Tribunal.

10. Ultimately, the Court held that the impugned show cause notices lacked jurisdiction and were not sustainable in law, leading to the writ petitions being allowed and the notices quashed. No costs were awarded, and the connected miscellaneous petitions were closed.