TMI Blog2020 (2) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... inaccurate particulars of income . M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. Imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. - Decided against revenue. Unclaimed credit balances - Relevant assessment year - HELD THAT:- CIT(A) taking note that the liability was pertaining to AY 1983-84 when the assessee/entity s income was not taxable and the liability of ₹ 1.75 cr. pertained to AY 1983-84 which was never allowed as deduction in the year in which it was debited/created so, the reversal of the same in the relevant assessment year cannot be brought to tax, which action of the Ld. CIT(A) cannot be found fault with. The judgments cited by the Ld. CIT, DR is distinguishable on the facts of this case and, therefore, we d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Vs. M/s. Shoorji Vallabhdas Co. [ 1962 (3) TMI 6 - SUPREME COURT] and Godhra Electricity Co. Ltd. Vs. CIT [ 1997 (4) TMI 4 - SUPREME COURT] and since no real income has arisen for the assessee in the year under consideration in respect of the sum of ₹ 101 cr. (unrealised portion of the compensation) this amount need not be taxed in this assessment year, and we order accordingly. For this, we also rely on the decision of the Hon ble Bombay High Court in the case of DSL Enterprises (P) Ltd. Vs. Mrs. N.C. Chandratre, Income-tax Officer [ 2013 (3) TMI 440 - BOMBAY HIGH COURT]. - I.T.A. No. 453/Kol/2018 And C.O. No.23/Kol/2019 In I.T.A. No. 453/Kol/2018 And I.T.A. No. 452/Kol/2018 And C.O. No.60/Kol/2018 In I.T.A. No. 452/Kol/2018 And I.T.A. Nos. 367 to 369/Kol/2018 - - - Dated:- 21-2-2020 - Shri A. T. Varkey, JM And Dr. A.L. Saini, AM For the Assessee : Shri K. M. Sundaram, FCA For the Revenue : Dr. P. K. Srihari, CIT, DR ORDER PER SHRI A.T.VARKEY, JM: All these captioned appeals and Cross Objections preferred by the assessee and the appeals of the revenue are against the separate orders of Ld. CIT(A)-10, Kolkata dated 28.12.2017 for AYs 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contumacious conduct of the assessee, therefore, penalty need not be levied upon the assessee. Be that as it may, we are not going to get into the merit of the impugned order of Ld. CIT(A). However, we confirm the action of the Ld. CIT(A) on a different reason, i.e. invalid notice of penalty. At the outset, we note that the show cause notices issued u/s 274 of the Act r.w.s. 271 of the Act dated 29.12.2016 issued by the AO before imposing penalty does not contain the specific charge against the assessee namely as to whether the assessee was being proceeded against for having concealed particulars of income or having furnished inaccurate particulars of income . A copy of the show cause notice u/s 274 of the Act dated 29.12.2016 was filed before us and perusal of the same reveals that AO has not struck out the irrelevant portion in the show cause notice and, therefore, the show cause notice does not specify the charge against the assessee as to whether the charge is for concealment of particulars of income or furnishing of inaccurate particulars of income . The same is reproduced for the purpose of ready reference: Whereas in the course of proceedings before me for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us. 8. The learned DR relied on three decisions of Mumbai ITAT viz., (i) Dhanraj Mills Pvt. Ltd. Vs. ACIT ITA No.3830 3833/Mum/2009 dated 21.3.2017; (ii) Earthmoving Equipment Service Corporation Vs. DCIT 22(2), Mumbai, (2017) 84 taxmann.com 51 (iii) Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017. Reliance was placed on two decisions of the Hon ble Bombay High Court viz., (i) CIT Vs. Kaushalya 216 ITR 660(Bom) and (ii) M/S.Maharaj Garage Co. Vs. CIT dated 22.8.2017. This decision was referred to in the written note given by the learned DR. This is an unreported decision and a copy of the same was not furnished. However a gist of the ratio laid down in the decision has been given in the written note filed before us. 9. In the case of CIT Vs. Kaushalya (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NO.5020 OF 2009 which was an appeal by the revenue. The Tribunal held that on perusal of the notice issued under Section 271(1)(c) of the Act, it is clear that it is a standard proforma used by the Assessing Authority. Before issuing the notice the inappropriate words and paragraphs were neither struck off nor deleted. The Assessing Authority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appeal, the said finding was set-aside. But addition was sustained on a new ground, that is under valuation of closing stock. Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, no longer exists. If the Appellate Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before us. Even otherwise this decision does not follow the ratio laid down by the Hon ble Karnataka High Court in the case of Manjunatha Cotton Ginning (supra) in as much as the ratio laid down in the said case was only with reference to show cause notice u/s.274 of the Act. The Hon ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u/s.271(1) (c ) is discernible from a reading of the Assessment order in which the penalty was initiated. 14. From the aforesaid discussion it can be seen that the line of reasoning of the Hon ble Bombay High Court and the Hon ble Patna High Court is that issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal Benches at Mumbai and Patna being subordinate to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls regarding the same for which the assessee submitted that on 28.02.2014 an amount of ₹ 1.75 cr. was adjustment of excess provision of outstanding liabilities prior to AY 2002-03 . According to AO, the assessee s explanation was not acceptable and since the liability is not relevant to the assessment year under consideration (AY 2014-15) he disallowed the same and was added back to the total income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved, the revenue is in appeal before us. 11. Assailing the decision of the Ld. CIT(A), the Ld. CIT, DR contended that the entries made by the assessee clearly reflect that the sum of ₹ 1.75 cr. is the unclaimed credit balances (for the AY 1983-84) which were time barred in this year i.e. AY 2014- 15 and so the assessee for this assessment year has reversed this amount by writing back in the P L Account and, therefore, the AO has rightly added back the said amount as income of the assessee during the relevant assessment year as decided by the Hon ble Supreme Court in the case of CIT Vs. TVS Iyengar Sons (1996) 88 taxman 429 (SC). Therefore, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Ld. ARs of the appellant, I am in complete agreement with the contention put forth by the appellant in this regard. The credit of ₹ 1,75,00,000/- to the P L Account represents the reversal of a liability created in the books during the period when the assessee was not a taxable entity and therefore when the liability was never allowed as deduction in the year in which it was debited/created; then reversal of the same in the relevant year cannot be brought to tax. For the reasons set out in the foregoing therefore, the addition of ₹ 1,75,00,000/- made by the Ld. AO is hereby deleted. Ground no. 2 is therefore allowed. 14. We note that the Ld. CIT(A) taking note that the liability was pertaining to AY 1983-84 when the assessee/entity s income was not taxable and the liability of ₹ 1.75 cr. pertained to AY 1983-84 which was never allowed as deduction in the year in which it was debited/created so, the reversal of the same in the relevant assessment year cannot be brought to tax, which action of the Ld. CIT(A) cannot be found fault with. The judgments cited by the Ld. CIT, DR is distinguishable on the facts of this case and, therefore, we do not find any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 17,18,956/- which the assessee had contributed to the officers club he confirmed the action of AO. We note that the Officers Club was established by the employees of the assessee Port Trust and since the club is being run by and for the benefit of the employees to which contributions have been paid by the assessee as an employer, the assessee claimed it as an expenditure. We note that the assessee is governed by the Major Port Trust Act, 1963 and as per Chapter 8, heading revenue expenditure section 87, the moneys received by or on behalf of the Board under the provision of this Act (Major Port Trust Act) is credited to fund called the general account of the Port and it can be applied as per section 88 of the Major Port Trust Act from the general account. As per section 88, the moneys credited to the general account u/s. 87 shall be applied by the Board (Trustees) in payment of various charges specified in clause (a) to (l). Clause (k) says about application of money credited in the general account (sec. 87) subject to sec. 89 of the Major Port Trust Act and sec. 36 of the Indian Ports Act for any other expenditure which may be incurred by the Board generally for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractice . In various Government departments also subsidies are given as a matter of course for carrying on welfare activities. So finally the Tribunal upheld the order of the Commissioner (Appeals) who had deleted the said addition. By respectfully following the earlier order of the Tribunal there was no infirmity with the order of the Commissioner (Appeals) who had rightly deleted the said additions pertaining to the staff welfare. In this view of the matter and in the absence of any distinguishable material brought on record by the revenue, we respectfully following the order of the Tribunal (cited supra) hold that the disallowance of ₹ 5,37,755/- is not sustainable in law and therefore, the same is hereby deleted. The ground of appeal of the assessee is, therefore , allowed.. 19. We note that the assessee Port Trust has been contributing every year for more than four decades annual contribution to this Officers club for the welfare of the employees and this annual contribution has been consistently allowed by the AO in earlier assessment years after scrutiny u/s. 143(3) of the Act. Therefore, based on the principles of consistency since the facts permeating in the ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o according to the assessee, since there is total uncertainty in realisation of the compensation bills, the assessee following accounting standard 9 issued by the Institute of Chartered Accountants takes into consideration only that part of the compensation bills which are actually realised as income. According to Ld. AR, when there is total uncertainty regarding realisation of the compensation bill raised by the assessee because eviction notices have been issued to the parties they do not accept the amount raised in the compensation bills and only after the court order for payment the parties accepted the bills and, therefore, according to assessee, no income can accrue or arise to it until it acquires a right to receive it. It was explained before the AO that an amount can accrue or arise to the assessee only when the assessee acquires a legal right to recover that amount and thus, it was submitted that this amount cannot be taxed. However, the AO did not accept the same and according to AO, assessee had the right of recovery rental income from the land which it has given on rent irrespective of the fact whether the land is evicted by the tenant or not. According to AO, the compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the observations of the Ld. AO in the assessment order. I have also given my due consideration to the judicial decisions and pronouncements relied upon by the Ld. ARs in the course of hearing as well as in the written submissions. From the assessment order passed by the Ld. AO, it appeared that at the time of assessment proceedings, the appellant raised no plea at any stage that 'compensatory charges' which the appellant was charging and/or receiving from various occupiers of the property were capital receipt. In fact I find that in the appellant's books for FY 2011-12, the appellant had credited ₹ 76,01,63,183/- under the head 'Compensatory Charges' and in the return of income such sum credited in the P L A/c was offered to tax as income. However in Note No.14 of the Annual Accounts the appellant made the following disclosure of facts: Compensation billing for unauthorized occupation of KoPT property has been made during the year for ₹ 176,92,12,615.07 (excluding service tax education cess). In absence of any contractual agreement, considerable uncertainties are involved in actual realization of such claims. Actual amount realized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was in the nature of 'mesne profit' and therefore in the nature of 'capital receipt' not liable to tax. I thus find that the entire complexion and character of the assessee's claim underwent a radical change at the stage of filing of appeal. I note from the submissions of the Ld. ARs as' also the documents on record that even though the disputes between the appellant and the lessees/occupants/tenants have been happening over the past several years and the assessee has been accounting for receipt of damages even in the past; the appellant never raised any plea either before the Ld. AO or before the appellate authorities that such compensation was 'capital receipt' not liable to tax on the ground of being 'mesne profit'. In other words, I find that till the earlier assessment years, the appellant never raised the legal contention that such damages or compensation was in the nature of 'mesne profit' and therefore capital receipt not liable to tax. Ordinarily the principle of judicial consistency is required to be followed in tax proceedings, if facts permeating through the years are same and identical. In the appellant's ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed that in many such instances after the appellant issued the eviction notices; the lessees/licensees/tenants Instituted legal proceedings or suits in the appropriate courts/judicial forums or before the Estate Officer. It was the appellant's contention that where the assessee had taken steps for termination and/or cancellation of agreements and yet the lessees/licensees/occupants/tenants continued with possession 'of the properties, no rent bills were raised on such persons. However during the period of occupation the appellant raised monthly invoices by way of 'compensatory billings'. The appellant also charged service tax which is levied on consideration receivable for use of / letting our properties in terms of the service-tax laws. According to the submissions of the Ld. ARs, the very fact that the assessee did not claim the payment of rent from lessees/occupiers but claimed the same as 'compensatory payment' indicated that the payment demanded was in the nature of mesne profit or in the nature of damages for unauthorized occupation of the premises by the said persons. Relying on the .judgments in the cases of CIT v. Smt. Lila Ghosh (205 ITR 9), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt. Ultimately the matters were referred under Public Premises Act. The lessee resisted this by filing writ petition being WP No. 645 of 2005. In the course appellate proceedings, the Id. AR of the appellant filed copy of the order dated 27.01.2016 passed in WP No. 645 of 2005 by the Calcutta High Court, in terms of which the Estate Officer was directed to proceed with eviction proceedings in accordance with law. From perusal of the said order dated. 27.01.2016, it is noted that the Writ Court had vacated all Interim orders granting stay and required the Estate Officer to complete eviction proceedings expeditiously and directed the Estate Officer to quantify the occupation charges payable by the petitioners i.e. the lessees for their occupation of the property from the date of possession until eviction. From the documents placed on record by the appellant,it therefore transpired that even though the writ court allowed the appellant to proceed with eviction of the lessee nowhere in the order passed by the writ court any direction was issued to the lessee. to pay mesne profit as claimed by the Id. ARs of the appellant. The term mesne profit as defined in Section 2(12) of Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mesne profits received by the appellant were in the nature of damages which the appellant had suffered due to wrongful possession of the property by the tenant who continued to remain possession all through. 9. In the present case however it is noted that the lessee i.e. M/s Eri- Tech Ltd, was directed by the Court to pay only occupation charges because the Court found that the said lessee continued to enjoy occupation of the property even after the period of lease was over. 0 Nowhere the appellant has brought on any material, which in any manner showed that it had demanded payment of 'mesne profit' for the damage caused due to wrongful occupation. On the contrary, it is found that what was being demanded was 'occupation charges' being the amount that the appellant otherwise would have received in the form of rent. In fact in the written submissions, as also in the course of oral arguments, it was agreed that so long as the agreement or arrangement was subsisting the appellant raised rent bills and wherever the assessee did not arrive at a mutually acceptable arrangements with the. lessees, the assessee continued to raise monthly invoices on the occupants by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht on record by the Id. ARs of the appellant in. this regard. On the contrary from the submissions of the appellant it appeared that it was raising invoices on each of the lessee or occupier on monthly basis demanding from them the charges for occupation of the premises. In order to claim the charges for use of premises as a capital receipt, it was necessary for the assessee to show that the wrongful occupation of the premises was causing damages to the capital or the capital apparatus of the assessee so as to consider such charges to be capital receipt. However the very fact that the assessee kept on invoicing the lessees/occupiers on month basis showed that the purpose of the raising the invoices was to compensate itself for the use of the premises by the lessees/occupiers. In the present case, granting of lease or license of properties in lieu of receiving monthly charges in the form of rent or otherwise is a normal business activity and therefore the amount claimed by the appellant from the tenants/lessees/occupiers with whom the terms were not settled could not be considered to be capital receipt, not liable to tax. In this regard the observations of the Madras 'High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch by any competent Court or judicial forum. The mere fact that the appellant termed the, said sum as 'compensation' in its books by itself did not give the color of mesne profit merely because the appellant claimed the said sum to be due from unauthorized occupiers. For the reasons set out in the foregoing therefore, the appellant's claim that sum Off₹ 228,14,32,098/- was capital receipt and therefore liable to be excluded from the assessed total income Is rejected. Ground Nos. 6 to 9 is therefore dismissed. 24. Against the aforesaid action of the Ld. CIT(A) the assessee is before us. One of the main arguments of the assessee is that the unrealised portion of the compensation of ₹ 101 cr.(approx) is capital in nature and, therefore, not taxable in the hands of the assessee. It is a trite law that the character of the receipt whether it is revenue or capital in nature is adjudged in the hands of the recipient and the source from which it receives the receipt has no relevance to determine the question. In other words, the nature and character of a payment and its tax treatment in the hands of the payer cannot be determinative of the character of the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C). It is also well settled that the word income has to be understood in the generic sense. If a receipt bears the trait of income as per the plain and natural meaning the same will still be included within the scope of section 2(24) of the Act even after there is no specific mention of such item in the definition clause. It is more aptly demonstrated from the scheme of the Act itself by which the receipt by way of rent from property, although not included in sub-section 24 of the Act is income as specifically included in Chapter IVC of the Act. Since sub-section 24 of section (2) defines income in all inclusive manner and not exhaustively, according to this provision income includes profits and gains ........ Thus, this definition includes various items as mentioned in clause (i) to (xiv). If any other item of receipt is or contains the element of income in common parlance that will be included within the scope of definition of income under the provision notwithstanding the fact that there is no specific inclusion of such item in the definition. (CIT Vs. G. R. Karthikeyan (1993) 201 ITR 866). Therefore, since the receipt of the portion of the compensation of ₹ 101 cr. in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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