Advance tax payable is liable to be adjusted against an amount illegally retained with the department, upon specific request: Delhi High Court

Matter: Vishwanath Khanna v. Union of India, decided on 03 June, 2011

Assessment Years: 1995-96, 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04

Relevant Facts:

1. A search and seizure operation was carried on at M/s Foto Traders in which cash and bullion worth approx Rs 5, 00,000 were seized.

2. Under an order u/s 132(5), the AO assessed the income of M/s Foto Traders as an unregistered partnership and passed the assessment. This was opposed by the petitioner.

3. The petitioner approached the Settlement Commission and the Commission ordered that the concern M/s Foto Traders is a sole proprietorship and assessed it accordingly.

4. The assessee was to file Income tax returns for the AY’s in question save 1995-96, but did not pay the advance tax due to the fact that a huge amount was lying with the department.

5. The department sought to levy interest u/s 234 A, B, C and 220(2) upon the assessee for non-payment of advance tax.

Questions of law:

1. Whether interest under Sections 234A, 234B, 234C and 220 (2) of the Act could be charged when according to the petitioner, sufficient amount of the petitioner was lying deposited with the Department wherever advance tax could be adjusted?

2. From which date the petitioner is entitled to interest on the amount which became refundable after giving effect to the orders passed by the Income Tax Settlement Commission?

Upholding the appeal of the Assessee, the Hon’ble Court held that:

1. The respondent would not be justified in levying interest, as the amount of advance tax payable by the petitioner for these assessment years could be adjusted from the amount lying with the Department in the petitioners own account. (para 15)

2. Interest is payable to the assessee u/s 132B(4) and 244A as well alongwith costs of Rs. 10,000.

The decision is available here.

A deduction u/s 37 is sustainable only if it is made for the purposes of the business or even incidental to the business: Delhi High Court

Matter: M/s Pragati Constructions Co. v. Dy.CIT, decided on 31 May, 2011

Assessment Year: 1989-90

Relevant Facts:

1. The assessee was was carrying on the business of construction, purchase and sale of flats. In a bid for construction of flats for the DDA, the assessee lent some money to a sister concern, Pragati Construction Co. Pvt. Ltd.(“PCL”) to the tune of Rs. 44,00,000. This money was forwarded to the DDA.

2. This money was forfeited by the DDA for non-payment of rest of the money and non construction of the flats. PCL adjusted Rs. 36,00,000 towards certain previous amounts due. A payment of Rs. 5,00,000 was effected by PCL to the assessee.

3. Finally, Rs. 31,00,000 was shown as outstanding amount in the assessees books after settlement and payment of certain amount by the DDA. The amount was written off as bad debts by the assessee on the receipt of a certain letter 14.12.1988 that it would not be able to return the money.

4. The AO held that the amount was never a debt but infact an advance, and therefore the same could not be written off u/s 36(1)(vii) of the Income Tax Act, 1961. The CIT(A) and Tribunal ruled in favour of the department

Question of law made under a reference:

1. Whether, on the facts and in the circumstances of the case the ITAT has erred in law in disallowing the loss of Rs 31.05 lakhs claimed by the assessee as a trading loss in its business of purchase and sale of flats?

Dismissing the appeal of the Assessee, the Hon’ble Court held that:

1. The condition, required to be fulfilled to sustain a deduction under Section 37 of the I.T. Act that the expense should be incurred for the purpose or should be incidental to the business of the assessee is not fulfilled in the instant case.

The decision is available here.

Interest leviable u/s 27(1) of the DST Act if full amount of tax due has not been paid by the assessee as per a correct and complete return: Delhi HC

Matter: Mohan Hotel Pvt. Ltd v. Commissioner of Sales Tax, S.T. Ref. No.2/2002, decided on 03.06.2011

Assessment Year: 1984-85 to 1989-90

Relevant Facts:

1. The assessee supplies food to airlines which are not for consumption/consumed in India. The assessee thus claims exemption from local sales tax as the food being in the course of export/

2. The assessee contented that the sale came within the purview of section 5(1) of the Central Sales Tax Act, 1956. http://www.vakilno1.com/bareacts/centralsalestaxact/s5.htm. Furthermore, as there was a correct and complete disclosure in the returns of the assessee, no interest would be liable to be paid.

3. The AO rejected the claim of the assessee. The Dy. Commissioner (A) also rejected the claim of the assessee. The tribunal reasoned against the assessee that the document was not a document of title. A review before the Tribunal was also dismissed.

Question of law made under a reference:

(i). Whether on the facts and under the circumstances of the case, the Tribunal was correct in holding that the delivery order issued by the dealer is not a document of title and therefore, the case of the appellant does not fall under the second limb of section 5(1) of the Central Sales Tax Act, 1956?

(ii). Whether on the facts and under the circumstances of the case, the Tribunal was correct to hold that the second limb of the aforesaid section 5(1) pre-supposes foreign destination of the goods?

(iii). If the answer to both the aforesaid questions is in the negative, whether on the facts and under the circumstances of the case the Tribunal was correct in upholding levy of interest under Section 27(1) of the Delhi Sales Tax Act, 1957 read with Section 9(2A) of the Central Sales Tax Act, 1956?

Dismissing the appeal of the petitioner, the Hon’ble Court held that:

1. Only question (iii) came to be adjudicated before the court.

2. Each question is to be decided on the facts of the case. It is clear that there was no correct and complete disclosure of sales in the returns.

3. Interest will be leviable under section 27(1) of the DST Act read with section 21(3) if full amount of tax due has not been paid by the dealer/assessee as per return which is both correct and complete. The correctness and completeness of the return and the bonafide of the assessee/dealer would have to be ascertained in the facts and circumstances of each case.

The decision is available here.

Section 27: If any dealer fails to pay the tax due as required by sub- section (3) of section 21, he shall, in addition to the tax (including any penalty) due, be liable to pay simple interest on the amount so due at one per cent per month from the date immediately following the last date for the submission of the return under sub-section (2) of the said section for a period of one month, and at one and a half per cent per month thereafter for so long as he continues to make default in such payment or till the date of completion of assessment under section 23, whichever is earlier.

Section 21(3): Every registered dealer required to furnish returns under sub-section (2) shall pay into a Government Treasury, or the Reserve Bank of India or in such other manner as may be prescribed, the full amount of tax due from him under this Act according to such return, and shall where such payment is made into a Government Treasury or the Reserve Bank of India furnish along with the return a receipt from such Treasury or bank showing the payment of such amount.

Amounts expended by an advocate for bypass surgery of his heart not allowable as expense: Delhi High Court

Matter: Shanti Bhushan v. CIT, ITR No. 230/1994, decided on 31.05.2011

Assessment Year: 1982-83

Relevant Facts:

1. The assessee filed a revised return in which he claimed expenses to the extent of Rs. 1,74,000/- for coronary surgery performed on him in Houston, USA.

2. The assessee claimed that the human heart is a plant and the expenses should be deducted as expenses u/s 31 of the Income Tax Act, 1961.

3. The AO rejected the claim of the assessee that the expenses are allowable u/s 31 or 37. The CIT (A) and the Tribunal rejected the claims of the assessee.

Question of law made under a reference:

1. Whether, on all facts and circumstances of the case, the expenses incurred by the assessee on coronary by-pass operation should have been allowed as a allowable deduction either under Section 31 or Section 37 of the I. T. Act, 1961?

Dismissing the appeal of the Assessee, the Hon’ble Court held that:

1. It is important that in order to claim deduction for expenses incurred in the repair of the plant that the same be reflected in the balance sheet of the assessee. The heart was not a part of the balance sheet.

2. A heart is not the ‘tool’ for an advocates business and therefore, it is not a plant u/s 31 of the Income Tax Act, 1961.

3. The amount used for the surgery is not used wholly and exclusively for the purposes of the business.

The decision is available here.

Recording of reasons is a condition precedent for proceeding for action u/s 158BD (material of another person found during search): Delhi High Court

Lead Matter: CIT XIII v. Radhey Shyam Bansal, decided on on 30 May, 2011, ITA No.582/2008

Relevant Facts:

1. A search was conducted under Section 132 of the Income Tax Act (the “Act”) in the premises of one Manoj Aggarwal of Baldev Park, Delhi on 30.8.2000.

2. In the course of search it was found that there were a lot of bogus accommodation entries found. Consequently, the Assessing Officer (“AO”) of Mr. Agarwal wrote to the AO of the respondent assessee, Mr. Radhey Shyam Bansal that he was acting as mediator in transactions of bogus accommodation entries.

3. Upon a notice being served, the assessee Mr. Bansal filed a block return from AY 1991-92 to 2001-02.

4. AO: Income by way of commission to the extent of Rs. 50,85,315/- was added. Also an amount of Rs. 9,81,29,575 was added u/s 69 as unexplained investment. The order of the AO was challenged before the CIT (A) who did not provide any relief to the assessee.

5. The Tribunal set aside the orders on the basis:-

a. There was no satisfaction of the AO recorded.

b. The issue of notice was beyond the limitation period.

Questions of law:

1. Whether the Assessing Officer is bound to record satisfaction within the meaning of Section 158BD of the Act, during the process of Assessment of the person searched under Section 158BC of the Act?

2. Whether satisfaction as contemplated in Section 158BD of the Act has been duly recorded regard being had to be letter dated 15.7.2003 or in the assessment order, wherein undisclosed income of the respondent-assessee has been reflected and negation of such satisfaction by the Income Tax Appellate Tribunal is erroneous and perverse for not accepting such satisfaction?

Dismissing the appeal of the Department, the Hon’ble Court held that:

1. Recording of satisfaction by the assessing officer of the searched person is a condition precedent. Satisfaction must be recorded by the said assessing officer that any undisclosed income belongs to any person, other than the person searched.

2. No satisfaction is borne out by the statements of the AO.

The decision is available here.