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2016 (8) TMI 275 - GUJARAT HIGH COURT

2016 (8) TMI 275 - GUJARAT HIGH COURT - TMI - Reopening of assessment - Possible MAT liability - Held that:- The Assessing Officer noted that in the order of assessment, book profit of the assessee was worked out at ₹ 51.85 crores. The MAT liability would work out to ₹ 57.1 crores. Since the tax liability on the assessee as per the normal computations is higher than the tax liability under the MAT provisions, at present there is no tax liability arising. However, if the assessee succ .....

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₹ 11.18 crores. The Assessing Officer having scrutinized the claim in the final order of assessment accepted the claim though without stating the reasons. Any attempt on his part to reopen the issue is based on change of opinion. - Claim of expenditure under the head of ‘Professional Services and Legal Fees’- Held that:- This amount of ₹ 3.15 crores which the Assessing Officer disputes by way of expenditure was never claimed as such in the original return itself. The audited acco .....

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eable to tax having escaped assessment on this ground fails. - SPECIAL CIVIL APPLICATION NO. 18773 of 2014 - Dated:- 3-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR B S SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR KM PARIKH, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The additional documents supplied by the learned counsel for the petitioner are taken on record. 2. The petitioner - National Dairy Development Board (for short NDDB ) has challenge .....

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Income-Tax Act,1961 (for short the Act ) on 4.11.2011 computing the petitioner s total income at ₹ 52.61 lacs. To reopen such assessment, the Assessing Officer issued the impugned notice. For issuing such a notice, Assessing Officer had recorded the following reasons : REASONS FOR ISSUE OF NOTICE U/S.148 OF THE IT ACT,1961. The assessee had filed its return of income for the assessment year 2009-10 on 11.9.2009 declaring total business loss at ₹ 62,18,088/- and long term capital loss .....

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ribed form 29B from the chartered accountant. The book profit of the assessee worked out to ₹ 51,85,10,000/- and MAT liability works out to ₹ 5,71,91,653/-. Since the tax liability the assessee as per income assessed under normal provision of the act is more than the tax liability under MAT, there is presently no tax liability however MAT liability is to be worked out as per provision of section 115JB of the IT Act which would be tax liability of the assessee in the event of assessee .....

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debts of ₹ 1,18,81,780/-. Thus an amount of ₹ 8,51,00,000/- is required to be disallowed out of claim of bad debts. (iii) On examination, it is found that the assessee has claimed expenditure under the head professional services & legal fees and which are of personal in nature and not expended wholly and exclusively for the purpose of business of the assessee. The expenditure of ₹ 75,000/- was in the nature of personal expenditure and of ₹ 93,55,633/- was in the natu .....

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see as revenue expenditure whereas it was required to be capitalized tot he cost of investment since the assessee is not a bank and there is no mandatory requirement for the assessee to make such investment. Accordingly, the non capitalization of said expenditure as resulted in under assessment to tune of ₹ 3,15,90,000/-. 3. In view of the above facts and circumstances, I have reason to believe that the income as mentioned above has escaped assessment within the meaning of Sec.147 of the I .....

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ing to the reasons recorded by the Assessing Officer, learned counsel for the petitioner raised the following contentions ; (i) Regarding the first ground mentioned in the reasons, namely, a possibility MAT liability, learned counsel submitted that the petitioner is not a company and therefore, not subjected to provisions of Section 115JB of the Act. In any case, mere possibility that MAT provisions would apply, would not be a ground to hold that income chargeable to tax has escaped the assessme .....

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ues. (iii) With respect to 4th ground, learned counsel submitted that assessee had not claimed the expenditure of ₹ 3.15 crores (rounded off) as suggested by the Assessing Officer and the entire amount was added back and offered to tax. (iv) Learned counsel lastly contended that the notice for reopening was issued at the instance of the audit party and therefore, was not valid. 6. On the other hand, learned counsel, Mr.K.M.Parikh for the department opposed the petition contending that Asse .....

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ity. The Assessing Officer noted that in the order of assessment, book profit of the assessee was worked out at ₹ 51.85 crores. The MAT liability would work out to ₹ 57.1 crores. Since the tax liability on the assessee as per the normal computations is higher than the tax liability under the MAT provisions, at present there is no tax liability arising. However, if the assessee succeeds in appeal against the order of assessment, the question of applying MAT provisions would arise. In .....

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by the Assessing Officer in simple terms, his case is that by making some additions and disallowances in the order of assessment, the assessee has been taxed. As per the income so computed, the provision for Minimum Alternative Tax would not apply. However, the assessee has challenged such additions and disallowances. If these additions and disallowances are set aside, the net income of the assessee would dip below, the minimum prescribed for a company and therefore, the assessee would be cover .....

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nd equally importantly, if the assessee succeeds in appeal, by virtue of which, the normal tax computation comes to below the prescribed limit so as to kickin MAT provisions, the same can always be applied as a consequence of the appellate order or by way of giving effect to the order in appeal. To this, even learned counsel for the petitioner raised no dispute, of course, except for contending that whether the MAT provision applies to the petitioner at all, itself would be a question which the .....

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erefore after deducting such sum from the loan amount of ₹ 11.18 crores, the balance of ₹ 2.67 crores (rounded off) alone was allowable under Section 36(2)(ii) of the Act. Instead the assessee had claimed the entire amount of ₹ 11.18 crores. Thus, said sum of ₹ 8.51 crores was required to be disallowed towards the claim of bad debts. 10. In the context of this ground, the assessee in the objections raised before the Assessing Officer had pointed out as under : B. Bad debt .....

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be appropriated in the following manner : 1. Towards other costs, charges, expenses and other money. 2. Interest for delayed payment of instalments of principal and interest. 3. Towards interest. 4. Towards instalment of principal due. Accordingly, NDDB adjusted the amount received of ₹ 8.51 crores against the interest outstanding of ₹ 11.13 crores and the balance interest amount of ₹ 2.62 crores was written of against the provisions. The principal loan amount of ₹ 11,18, .....

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written off is rightly allowed as deduction in the regular assessment. In view of these facts, since NDDB has written off the amount in the books of accounts the bad debt write off has been correctly allowed. As per NDDB it is entitled to deduction of ₹ 2.62 crores of interest which was not recovered and was written off against the provision, though not claimed in the return nor assessment. 11. In the additional documents provided today, the petitioner has produced a statement of bad debts .....

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₹ 8.51 crores, he discharged only partially the interest liability. The entire principal sum of ₹ 1.11 crores remains outstanding and was written off and was in addition to the interest amount of ₹ 2.62 crores which also remained unpaid and was written off. 13. Quite apart from this explanation, we notice that during the scrutiny assessment, this question had come up for consideration by the Assessing Officer. In a letter dated 25.7.2011, the Assessing Officer had called upon t .....

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he loan given to them. This has been done after the receipt of ₹ 8.51 crores from the said party in full and final settlement towards outstanding. NDDB has written off the principal amount of ₹ 11,18,81,780.93 by debiting the Income and Expenditure account. Due to this write-off, loan account of the party became nil. Copy of account of the said party evidencing the write off is enclosed at Annex.L. It is submitted that said amount written off during the year satisfied all the conditi .....

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n other words, without giving reasons he accepted the petitioner s version of written off of the bad debts of ₹ 11.18 crores. The Assessing Officer having scrutinized the claim in the final order of assessment accepted the claim though without stating the reasons. Any attempt on his part to reopen the issue is based on change of opinion. 17. The 3rd ground mentioned in the reasons recorded by the Assessing Officer refers to the claim of expenditure under the head of Professional Services a .....

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e had vide our letter dated 25.8.2011 given our reply enlisting in detail the nature and purpose of various expenditures incurred on legal fees vide Annexure-B1 (relevant invoices page 202 to 206). We had also enclosed the copy of the invoices in respect of all the expenses. The AO was satisfied with our explanations and considering the said reply, did not make any disallowance regarding the same while completing assessment u/s.143(3). C. Legal fees : In order to help the Salt Farmers, NDDB init .....

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of ₹ 75,000/- are allowable as business expenditure under section 37 of the Act. D. Professional fees : NDDB has drawn up National Dairy Plan (NDP). The implementation of the same was a complex task which required time, investment and enhanced professional management skills. Therefore, to accomplish this task NDDB was considering the decision to introduce the strategic partner in its subsidiary company, Mother airy Fruits & Vegetables Pvt. Ltd. (MDFVL). Generally such specialized issu .....

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tions, MDFVL had made payment of the professional fees of ₹ 80,92880/- and NDDB had reimbursed the same to MDFVL on 31.3.2009. The expenditure is incurred by NDDB to meet the objective of development of the Dairy industry in India. Since the expenses have been incurred wholly and exclusively for the purpose of business of the assessee, the said expenditure is as an allowable expenditure under section 37 of the Act. 18. Apart from these objections, during the original assessment also, this .....

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377; 100000/- and above. 19. In response to such queries, the petitioner under a letter dated 25.8.2011provided the details as under : a. Communication charges of ₹ 1,00,000/- and above - Annexure-B b. Legal fee of ₹ 50,000/- and above - Annex B1 c. Professional fee of ₹ 1,00,000/- and above - Annex B2. 20. The Annexures-B1 and B2 referred to in the said reply dated 25.8.2011 have been supplied along with the additional documents today. Part of Annexure-B1 is payment of sum of .....

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bai (Rs.13,48,320) on behalf of NDDB. Applicable TDS has been deducted by MDFVPL. No. service charges has been charged by MDFVPL. Accordingly, no TDS has been deducted for the reimbursement made to MDFVPL. 21. It was after such examination during the original assessment that the Assessing Officer in the order of assessment made no disallowance. It can thus be seen that all legal and professional fees paid by the petitioner during the year under consideration in excess of ₹ 50,000/- and  .....

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had given minute details. The petitioner had pointed out that sum of ₹ 75,000/- was paid to an Advocate and sum of ₹ 80.92 lacs was paid regarding professional fees which was by way of reimbursement to the Mother Dairy since it had engaged the services of SBI Capital Markets and other professionals on behalf of NDDB. If the Assessing Officer was of the opinion that what are the reasons these expenditures were not required to be allowed, it was well within his rights to do so in the o .....

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n review if statute so permits but not liable to be reopened by the same authority. Such powers are vested by the Legislature presumably in view of the highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be apprec .....

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eguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review. 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in .....

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nd trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be sta .....

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to red flapcarry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue tred flaphat the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, red flapwould be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands a .....

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recorded, the same pertains to the expenditure amount of ₹ 3.15 crores (rounded off) towards the premium paid on purchases of debentures / bonds in Government companies or financial institutions which was debited against the interest income. According to the Assessing Officer, this expenditure was in the nature of capital expenditure and could not have been claimed deduction by way of revenue expenditure. In this respect, learned counsel for the petitioner drew our attention to audited acc .....

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