Income Tax Appellate Tribunal

Vijay Kumar Jain, Delhi vs Income Tax Officer

MANU/ID/0763/2024

31.07.2024

Direct Taxation

Assessment cannot be framed only on bare suspicion

The assessee is an individual engaged in the business of trading of fabrics. The case of the assessee was subjected to scrutiny assessment by issuance of notice under Section 143(2) and Section 142(1) of the Income Tax Act, 1961 (IT Act). The AO enquired into source of cash deposits during demonetization period. The explanation placed by the assessee before the AO towards source of cash deposit during demonetisation was however, not found satisfactory by the AO.

The Assessing Officer accordingly treated the cash deposits of ₹ 1,36,90,000 made by the assessee during demonetisation period i.e. from 09.11.2016 to 31.12.2016 as undisclosed income of the assessee in the form of cash credit within the meaning of Section 68 read with Section 115BBE of the Act. Aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) also, however, confirmed the action of the AO.

Sale of goods has corresponding effect on the closing stock as well as the profitability. These aspects have not been questioned. The Assessing Officer has picked up the amount declared by way of cash sales and treated that as non-existent to hold the corresponding cash deposits as unexplained. The assessee, on the other hand, has demonstrated the factum of cash sales to be genuine by the direct and circumstantial evidences.

The Revenue, has based itself findings on suspicion and conjectures and on improper rejection of tangible material. The assessee on the other hand has successfully demonstrated the propriety of cash sales by corresponding purchases, reduction in stock and declaration of profits on sales.No defect has been pointed out on the declarations made towards purchases, the closing stock and the profits either. The additions made have resulted assessment of cash sales twice which is not permissible in law.

It is trite that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw & Bros. vs. CIT. The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax has observed that powers given to the Revenue authority, howsoever, wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law and one should avoid presumption of evasion in every matter.

The assessee, in the instant case, has sufficiently demonstrated the source of cash deposits. On a broader reckoning, the apprehension raised by the Revenue authorities militates against the tangible material and is thus extraneous. The additions made under Section 68 of the Act is thus unsustainable in the facts of the case. The order of CIT(A) is thus set aside. The Assessing Officer is directed to cancel the impugned additions towards cash deposits. The appeal of the assessee is allowed.

Tags : Assessment Addition Legality

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High Court of Madras

S.C. Srinivasan vs. The Presiding Officer

MANU/TN/4056/2024

30.07.2024

Service

Writ Court while exercising the power of judicial review may interfere, if order has been passed by an incompetent authority or without following the principles of natural justice

Writ petition filed under Article 226 of the Constitution of India, praying to issue a writ of Certiorarified Mandamus, calling for the records pertaining to the Award and to quash the same in so far asdismissing the petitioner claim for reinstatement with continuity of service, back wages and other attendant benefits and consequently direct the 2nd Respondent to reinstate the Petitioner.

Whenever a writ petition is filed against the order of the Authority, the Writ Court while exercising the power of judicial review may interfere with the said order, if such order has been passed by an incompetent Authority or if such order has been passed without following the principles of natural justice, besides when the order of the Authority is unreasonable, arbitrary and perverse. Except the circumstances enumerated hereinabove, the Writ Court cannot re-appreciate the evidence as an Appellate Authority and give a different finding.

It is amply clear that the finding recorded by the Labour Court that, the Petitioner was working continuously for more than 240 days in a year, and that he was retrenched without following the procedure contemplated under Section 25F of the Industrial Disputes Act, 1947 (ID Act) is perfectly in order. Once the retrenchment is not in accordance with the provisions of the ID Act, then the termination became illegal and as a sequel, this workman is entitled for a reinstatement. However, the Labour Court on some justifiable reason, in lieu of reinstatement, awarded compensation. As rightly observed by the Labour Court, the decision of the Management not to provide work that too in a public transport as a driver, where he has caused a fatal accident, is perfectly justifiable and only in that background, the Labour Court has also not ordered for reinstatement.

Therefore, the contention raised by the workman that he must be reinstated in the respondent-Management cannot be countenanced as his past conduct goes counter to his request. Therefore, this Court does not find any ground to interfere with the well considered order of the Labour Court. Petitions dismissed.

Tags : Award Reinstatement claim Entitlement

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Supreme Court

The State of Gujarat vs. Ambuja Cement Ltd. (Neutral Citation: 2024 INSC 572)

MANU/SC/0822/2024

02.08.2024

Sales Tax/VAT

Definition of purchase price under Gujarat Value Added Tax Act, 2003 would not include value added tax

In present matter, the Respondent dealer calculated the taxable turnover of its purchases within the State of Gujarat by excluding the amount representing Value Added Tax and value of purchases of which no credit was claimed. This was asserted to have been done under the provisions of Section 11(3)(b) of the Gujarat Value Added Tax Act, 2003 (GVAT Act). Accordingly, the taxable turnover was calculated and proportionately reduced by four per cent on the quantity of goods involved in the manufacturing of goods dispatched by way of branch transfer.

The Deputy Commissioner during the process of audit assessment determined the taxable turnover of purchases within the State by including the tax amount i.e., Value Added Tax Amount and Value of Purchases on which no tax credit was claimed by the Respondent dealer nor proposed to be granted in the assessment. The Respondent being aggrieved preferred an appeal before the Joint Commissioner which was dismissed leading to the filing of a second appeal before the Gujarat Value Added Tax Tribunal wherein the same was partly allowed by holding that the tax and value purchases on which no tax was claimed nor was granted in the assessment could not be included in the aggregate of taxable turnover of purchases within the State for the purpose of reduction of tax credit. The State of Gujarat carried an appeal before the High Court challenging the order passed by the Tribunal which has been dismissed affirming the order of the Tribunal.

The Courts are bound to give effect to the said meaning irrespective of the consequences so far as the taxation statutes are concerned. Article 265 of the Constitution of India, 1950 prohibits the State from extracting tax from the citizens without the authority of law. The tax statutes have to be interpreted strictly which means that the legislature mandates taxing certain persons in certain circumstances which cannot be expanded or interpreted to include those who were not intended or comprehended.

The purchase price would be the determinative factor for calculating the turnover of purchases, the purchase price would be restrictive within the domain of Section 2(18). The cogent reading of sub-Section (18) of Section 2 which defines ‘purchase price’, sub- Section 32 of Section 2 which defines ‘turnover of purchases’, and Section 11 of the GVAT Act which deals with entitlement to the tax credit, would lead to only one conclusion, that the purchase price would not include purchases on which no value added tax was claimed nor granted and the component of value added tax stood already paid on purchases. Accordingly, the taxable turnover of purchases would have to be calculated after deducting both the components.

Therefore, the calculation of taxable turnover of the purchases and reduction value of purchases on which no tax credit was claimed nor granted, and component of value added tax already paid on purchases, was rightly excluded from the total turnover of the Respondent dealer while computing his tax liability under Section 11(3)(b) of the GVAT Act. The order passed by the Tribunal as has been upheld vide the impugned judgment of the High Court being in accordance with law calls for no interference. Appeals dismissed.

Tags : Taxable turnover Liability Assessment

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Supreme Court

Pro Knits vs. The Board Of Directors Of Canara Bank (Neutral Citation: 2024 INSC 565)

MANU/SC/0814/2024

01.08.2024

Commercial

Instructions issued by the Central Government under Section 9 of the MSMED Act and by the RBI have statutory force and are binding to all the Banking companies

The Appellants have challenged the impugned common order passed by the High Court, whereby the High Court held that the Banks/ Non-Banking Financial Companies (NBFCs) are not obliged to adopt the restructuring process as contemplated in the Notification dated 29th May, 2015 issued by the Ministry of Micro, Small and Medium Enterprises, on its own without there being any application by the Petitioners/ MSMEs.

The Appellants who were the Writ Petitioners before the High Court had basically challenged the actions of the Respondents Banks/ NBFCs taken by them against the Appellants under the provisions contained in The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). The bone of contention raised by the learned Counsel appearing for the Appellants in all the Appeals is that the Respondents-Banks could not have classified the loan accounts of the appellants who were the MSMEs, as Non-Performing Assets (NPA), without following the procedure laid down in the Instructions for Framework for Revival and Rehabilitation of MSMEs issued vide the Notification dated 29th May, 2015 by the Ministry of MSME, in exercise of the powers conferred under Section 9 of the MSMED Act.

When it is mandatory or obligatory on the part of the Banks to follow the Instructions/Directions issued by the Central Government and the Reserve Bank of India with regard to the Framework for Revival and Rehabilitation of MSMEs, it would be equally incumbent on the part of the concerned MSMEs to be vigilant enough to follow the process laid down under the said Framework, and bring to the notice of the concerned Banks, by producing authenticated and verifiable documents/material to show its eligibility to get the benefit of the said Framework.

The findings recorded by the High Court in the impugned order that, the Banks are not obliged to adopt the restructuring process on its own or that the Framework contained in the Notification dated 29.05.2015, as revised from time to time could not be said to be mandatory in nature, are highly erroneous. The Instructions/Directions issued by the Central Government under Section 9 of the MSMED Act and by the RBI under Section 21 and Section 35A have statutory force and are binding to all the Banking companies.

The impugned order therefore is set aside. Since, it has been submitted by the Learned Counsels for the Respondents-banks that in all the cases, the proceedings under the SARFAESI Act have already been concluded and the possession of the respective premises of the Petitioners has already been taken over, present Court do not propose to remand the matters to the High Court for deciding the Writ Petitions afresh. Appeals allowed.

Tags : Restructuring process Instruction Compliance

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Supreme Court

Union of India And Ors. vs. Prohlad Guha . Etc (Neutral Citation: 2024 INSC 563)

MANU/SC/0815/2024

01.08.2024

Service

Appointments on compassionate ground cannot be allowed to be retained, when position is obtained by fraud

In facts pf present case, Respondent-employees were appointed on compassionate ground with the Engineering Department, Eastern Railway. The disciplinary authority placed the respondents under suspension due to contemplation/pendency of departmental enquiry. On issuing show cause notice, information was sought as to why their appointments on compassionate ground should not be terminated as it was based on forged and fabricated documents with respect to the employment of their respective fathers. After receiving their responses, the authority found that their appointments were based on forged/fabricated and bogus documents, however, terminated their services.

On filing appeals against the order of termination, they were dismissed by the appellate authority, vide order. The respondent-employees preferred writ petitions wherein the High Court held that the order of the Tribunal was untenable. The Appellant-employers were directed to reinstate the respondent-employees with the liberty to place them under suspension if they choose to hold a departmental inquiry in accordance with the Discipline Rules. Further, it was directed that during the period of such suspension, subsistence allowance would have to be paid.

Upon it being discovered that the respondent-employees had secured appointments on the basis of forged and fabricated documents, an FIR bearing stood registered against them under Sections467, 468, 471, 419, 420 and 120-B Indian Penal Code, 1860. There is no bar, as has been held in M. Paul Anthony v. Bharat Gold Mines Ltd. and as recently reiterated in State Bank of India &Ors. v. P. Zadenga, for departmental and criminal proceedings to continue simultaneously. The criminal proceedings initiated as a result of alleged fraud committed by the respondent- employees are independent of the proceedings initiated by the appellant- employer.

The impugned judgment is liable to be set aside on a further ground, since the requisite to establish eligibility for compassionate appointment was not properly fulfilled, they were appointed on the basis of false claims and fabricated documents.

Fraud vitiates all proceedings. Compassionate appointment is granted to those persons whose families are left deeply troubled or destitute by the primary breadwinner either having been incapacitated or having passed away. When persons seeking appointment on such ground, attempt to falsely establish their eligibility, such positions cannot be allowed to be retained. The respondent-employees in the present case, having obtained their position by fraud, would not be considered to be holding a post for the purpose of the protections under the Constitution.

The impugned judgment passed by the High Court, is set aside and the order passed by the Tribunal dismissing the respondent-employees’ Original Applications is restored. The respondent- employees were rightly dismissed from service by the appellant-employer. Appeals allowed.

Tags : Reinstatement Direction legality

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Income Tax Appellate Tribunal

DCIT vs. Tripoli Management Private Limited

MANU/IB/0343/2024

01.08.2024

Direct Taxation

Mere non-compliance of summons by some creditors cannot be a ground to treat the loans as non-genuine

The assessee-company was engaged in the business of Non-Banking Finance Companies. The assessee company furnished its return of income for the A.Y. 2016-17 on 17.10.2016 disclosing a total income of Rs. 20,48,130. The case was selected for scrutiny and notices under Sections 143(2) and 142(1) of the Act were issued to the assessee. The assessee filed required documents online. During the assessment proceedings, the AO observed that the assessee-company has taken unsecured loan amounting to Rs.55,05,27,020 and paid interest thereon amounting to Rs.3,94,15,139.

The Learned CIT(A) deleted the additions made by Assessing Officer both under Section 68 and 69C of the Act and allowed the appeal of the assessee. While doing so, the Learned CIT(A) recorded his satisfaction on genuineness, creditworthiness of the lenders. Aggrieved by the order of the Learned CIT(A), the revenue is in appeal.

In case of DCIT Vs. Rohini Builders, GujaratHigh Court held that, mere non-compliance of summons by some creditors cannot be a ground to treat the loans as non-genuine, the Department should have pursued further investigation, if necessary. The Hon'ble High Court also discussed Section 68 of the Act highlighting that the unsatisfactoriness of the explanation does not automatically result in deeming the amount credited as the income of the assessee.

The assessee has provided substantial evidence to establish the identity, genuineness, and creditworthiness of the loan creditors. The AO's conclusions were largely based on assumptions and the principle of preponderance of human probability, without substantial evidence contradicting the assessee's claims. The assessee complied with statutory requirements, including the provision of confirmations, ID proofs, bank statements, and tax return details of the loan creditors. The repayment of loans in subsequent years further supports the genuineness of the transactions. The reliance on the decisions of Gujarat High Court are well placed. The case of Ayachi Chandrashekhar Narsangji is appropriate, wherein the Court held that no addition should be made, if the repayment of loans is accepted by the department in subsequent years.

The Learned CIT(A) has rightly noted that the AO's remand report did not provide substantial adverse comments on the identity and genuineness of the transactions. The AO's reliance on the principle of human probability without concrete evidence does not warrant the additions made under Sections 68 and 69C of the Act. The appeal of the Revenue lacks merit and the LearnedCIT(A)'s order deleting the additions under sections 68 and 69C of the Act is upheld. Revenue's appeal dismissed.

Tags : Assessment Deletion Legality

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