30 November 2020


Income Tax Appellate Tribunal

Rajesh Bajaj, Allahabad vs. Deputy Commissioner Of Income Tax, Allahabad



Direct Taxation

If transaction of payment of rent is not found bogus then disallowance of expenditure under Section 40A(2)(b) of IT Act is not warranted

The assessee filed its return of income for the assessment year under consideration under Section 139(1) of the Income Tax Act, 1961 declaring total income of Rs.23,10,440. During the course of scrutiny assessment, the AO noted that the assessee has paid rent for various godowns/shops. The Assessing Officer (AO) has made a disallowance of Rs.6,26,811 on account of the excess rent paid to the related party by invoking the provision of Section 40A(2)(b) of the IT Act. The AO has compared the rent paid by the assessee in the preceding year and found that, the rent paid by the assessee for the year under consideration which is more than the reasonable enhancement of 10% is not allowable being excess payment in comparison to the fair market price. The assessee challenged the action of the AO before the CIT(A) but could not succeed.

It is evident from the assessment order that, the AO has made a disallowance on the basis of comparative rent paid by the assessee in the preceding year and in the year under consideration without determining the fair market rent of the properties in question. It is settled proposition of law that in order to make a disallowance under Section 40A(2)(b) of IT Act, the AO has to first determine the fair market value/price and then compare the same with the actual expenditure incurred and payment made by the assessee to the specified person. In case, the payment made by the assessee to the specified person is excessive and unreasonable having regard to the fair market value/price, the amount found to be excess or unreasonable is liable to be disallowed under Section 40A(2) of the IT Act. Therefore, it is pre-condition for making the disallowance under Section 40A(2) of IT Act that the AO has to arrive to the conclusion that the amount paid by the assessee is excessive or unreasonable in comparison to the fair market value/price. The AO failed to conduct the minimum enquiry to ascertain the fair market rent of the properties.

Thus, once the transaction of payment of rent is not found to be bogus or ingenuine then the disallowance of the expenditure under Section 40A(2)(b) of IT Act is not warranted in the absence of a definite finding that the payment made by the assessee is excessive or unreasonable in comparison to the fair market rent. Accordingly, in the facts and circumstances of the case, when the AO has not conducted any enquiry to determine the fair market rent so as to hold that the payment made by the assessee on account godown/shop rent is excessive or unreasonable, the disallowance made by the AO is contrary to the provisions of Section 40A(2) of the IT Act. Appeals of the assessee are allowed.

Tags : Assessment Disallowance Legality

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Supreme Court

Manohar Lal Jat and Ors. Vs. The State of Rajasthan and Ors.




Seniority of promotees is determined on the basis of date of appointment

Present appeals challenge the common judgment of the Rajasthan High Court. The Division Bench of the High Court by the impugned judgment set aside an order made by the learned single judge of that Court and held that, the present Appellants ("direct recruits" or "DRs") were not entitled to claim seniority over and above the Respondents, hereafter called departmental promotes" or "DPs"). The DRs had approached the High Court in the first instance, claiming that the seniority list, showing the DPs in earlier positions, was untenable; the single judge allowed that petition.

The Appellants argued that, the Division Bench ignored the fact that, recruitments in present case were conducted with two different advertisements for the same post, the Appellants who were from open category against 80% quota were selected earlier and the other set of departmental employees were recruited later. In terms, the DR, answered the description of having been selected earlier, and having participated in an earlier recruitment process. On the other hand, the DPs responded to a different advertisement issued later, and underwent a separate selection process.

On a plain reading of the Rule 27 [1] and the two provisos of the Rajasthan Commercial Taxes Subordinate Services (General Branch) Rules, 1975, it is evident that (a) before the amendment of 2002, seniority of personnel appointed to the "lowest categories of posts" in any department was to be determined as from the date of appointment; however, for promotees, it was to be from the date of selection; (b) after the amendment of 2002, seniority has to be fixed (by reason of Rule 27(1)) as on the date of appointment to the post or service; (c) however, in the case of pre-state integration of state (of Rajasthan) or pre-integration of services, seniority could be "modified or altered by the Appointing Authority on an ad hoc basis"- this clearly was meant to be a "sunset" clause, i.e. operative for a limited period; (d) the second proviso,-which is the one pressed into service by the DRs, states that seniority of those selected earlier will be determined over those selected latter.

Plainly, the principal mandate of the Rule is that, seniority is determined on the basis of date of appointment ("shall be fixed from the date of their appointment"). Proviso (2) lists out two rules. The first is that, those selected and appointed through a prior selection would rank senior to those selected and appointed through a later selection process. The High Court, in this case, was of the opinion that this Rule (i.e. proviso) applied to selections from the same source, i.e. where two sets of direct recruits were appointed, those selected through a previous recruitment process, would rank senior to those recruited through a later recruitment process. This interpretation is, in this Court's opinion, salutary.

The proviso clarifies that, candidates from the earlier process would rank senior, despite the main Rule speaking of a date of appointment based seniority. The same logic would apply to departmental promotees, as well, if two batches of promotees are appointed, through selection. The second limb of the second proviso clarifies that when merit based, or seniority based promotions are resorted to, the applicable norm would be seniority in the feeder cadre, to forestall any debate about the Rule of merit (in the selection) being the guiding principle. The impugned judgment, in the opinion of present Court, is not erroneous; it does not call for interference. The appeals are dismissed.

Tags : Promotees Seniority Entitlement

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High Court of Bombay

Parle International Ltd vs Union Of India and Ors.




Adjudication of show cause notices issued more than a decade ago is illegal

Present is a petition under Articles 226 / 227 of the Constitution of India, 1950, the writ petition was filed seeking a direction to the Respondents for a declaration that adjudication of the show-cause notices dated 1st June, 2006 and 28th November, 2006 after 13 years is illegal, void and bad in law and on that ground to quash the said show-cause notices. The Petitioner is a private limited company incorporated under the Companies Act, 1956 and is engaged in the business of manufacture of excisable goods.

Question for consideration is whether in the facts and circumstances of the case, such delayed adjudication of the show-cause notices would be just, proper and legal.

The Revenue/Department has not been able to justify its lapse in not adjudicating the show-cause notice issued on 28th March, 2002 for more than 15 years. There may be reasons enough for the Revenue to retain some matters like this in the call book, but those reasons do not find any support in law insofar as the present Petitioner's case is concerned.

A show-cause notice issued a decade back should not be allowed to be adjudicated upon by the revenue merely because there is no period of limitation prescribed in the statute to complete such proceedings. Larger public interest requires that revenue should adjudicate the show-cause notice expeditiously and within a reasonable period. What would be the reasonable period would depend upon the facts and circumstances of each case but certainly a period of 13 years cannot be termed as a reasonable period. Regarding keeping the show-cause notice in the dormant list or the call book, this Court held that such a plea cannot be allowed or condoned by the writ court to justify inordinate delay at the hands of the revenue.

In the present case, it is evident that, the delay in adjudication of the show-cause notices could not be attributed to the petitioner. The delay occurred at the hands of the Respondents. An Action which is unfair and in violation of the principles of natural justice cannot be sustained. Sudden resurrection of the show-cause notices after 13 years, therefore, cannot be justified. When the commencement of adjudication proceedings after inordinate delay of 13 years post-issuance of show-cause notices and submission of reply is held to be untenable in law, any consequential decision or order based on such delayed adjudication would also be rendered invalid.

The Respondents were not justified in commencing adjudication proceeding 13 years after issuance of the show-cause notices dated 1st June, 2006 and 28th November, 2006. Such adjudication proceeding is therefore, held to be invalid. Consequently, impugned order-in-original is accordingly set aside. Writ petition is allowed.

Tags : SCN Adjudication Bar

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Supreme Court

Jatinderveer Arora vs. State of Punjab




General allegation of 'surcharged atmosphere' is not sufficient to transfer a case from one Court to another

Present petitions are filed under Section 406 of the Code of Criminal Procedure, 1973 (CrPC) read with Order XXXIX of the Supreme Court Rules seeking transfer of Trial of criminal cases pending before the Courts at Bhatinda, Moga and Faridkot districts to competent Court in Delhi or to any nearby State, out of Punjab.

The learned Senior Counsel for the Petitioners submits that, as the matters relate to alleged sacrilege of the holy book, Shri Guru Granth Sahibji in different places in Punjab, deep anguish and bitterness is generated amongst a particular religious group, who form majority of the population in the State of Punjab and therefore, the accused who are members of the Dera Sacha Sauda sect, are facing bias and prejudice and are unlikely to get a fair trial in the face of strong presumption of culpability. The question to be answered here is whether the situation in Punjab is so communally surcharged that the petitioners will be deprived of fair trial, if they are to be conducted within the State.

The sacrilege incidents occurred in 2015 and it has been more than 2 years since the Petitioners were arrayed as accused in the cases. During this long period, no complaint has been made by the Petitioners of any threat to their security or to their associates. The zimni orders of the Trial Court does not reflect any bias faced, either by the accused or their family.

As per the proposition of law, for transfer of trial from one Court to another, the Court must be fully satisfied about existence of such factors which would make it impossible to conduct a fair trial. General allegation of surcharged atmosphere is not however sufficient. The apprehension of not getting a fair and impartial trial cannot be founded on certain grievances or convenience of the accused but the reasons have to be more compelling than that. No universal Rules can however be laid down for deciding transfer petitions and each one has to be decided in the backdrop of that case alone. One must also be mindful of the fact that, when trial is shifted out from one State to another, it would tantamount to casting aspersions on the Court, having lawful jurisdiction to try the case. Hence, powers under Section 406 of CrPC must be exercised sparingly and only in deserving cases when fair and impartial trial uninfluenced by external factors, is not at all possible. If the Courts are able to function uninfluenced by public sentiment, shifting of trial would not be warranted.

From the available material, present Court cannot reasonably conclude that, the situation in Punjab is not conducive for a fair trial for the Petitioners. The few instances mentioned by the Petitioners’ counsel may suggest heightened feelings amongst different groups but they do not call for transfer of proceedings to another State. Moreover, it cannot just be the convenience of the Petitioner but also of the Complainant, the Witnesses, the Prosecution. The larger issue of trial normally being conducted by the jurisdictional Court must also weigh on the issue.

The transfer of trial from one state to another would inevitably reflect on the credibility of the State’s judiciary. Except for compelling factors and clear situation of deprivation of fair justice, the transfer power should not be invoked. The present bunch of cases is not perceived to be amongst such exceptional categories. The State as assured to this Court, must make all arrangement to ensure safe conduct of proceedings at the trial courts and also provide adequate security to the Petitioners and their associates as might be warranted from the security perspective. Petitions are dismissed.

Tags : Trial Transfer Entitlement

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High Court of Himachal Pradesh

Nitesh Verma Vs. State of Himachal Pradesh




Bail decision must enter the cumulative effect of the variety of circumstances justifying the grant or refusal of bail

In present matter, based on a complaint, the police arrested the Petitioner in FIR registered under Section 304, 201 read with Section 34 of Indian Penal Code, 1860, (IPC), disclosing cognizable and non-bailable offences. The Counsel for the Petitioner contends that incarceration before the proof of guilt would cause grave injustice to the Petitioner and family. While opposing the bail, the alternative contention on behalf of the State is that if this Court grants bail, such order must be subject to conditions, especially of not repeating the criminal activities.

In Gurbaksh Singh Sibbia and others v. State of Punjab, a Constitutional bench of Supreme Court held that, the bail decision must enter the cumulative effect of the variety of circumstances justifying the grant or refusal of bail.

Pre-trial incarceration needs justification depending upon the offense's heinous nature, terms of the sentence prescribed in the statute for such a crime, probability of the accused fleeing from justice, hampering the investigation, criminal history of the accused, and doing away with the victim(s) and witnesses. The Court is under an obligation to maintain a balance between all stakeholders and safeguard the interests of the victim, accused, society, and State. However, while deciding bail applications, the Courts should discuss evidence relevant only for determining bail.

The investigation in this matter is almost complete and the police has filed the final report under Section 173(2) of CrPC. Learned Additional Advocate General states that, they had yet to received the report from Forensic Science Laboratory, however, based upon the investigation conducted till date, the police filed report under Section 304, 201 read with Section 34 IPC. In fact, filing of report under Section 304 of IPC would make out a case for bail, more so when the petitioner is in judicial custody, since 9th August, 2020.

An analysis of entire evidence does not justify further incarceration of the accused, nor is going to achieve any significant purpose. Without commenting on the merits of the case, the stage of the investigation and the period of incarceration already undergone would make out a case for bail.

The possibility of the accused influencing the course of the investigation, tampering with evidence, intimidating witnesses, and the likelihood of fleeing justice, can be taken care of by imposing elaborative conditions and stringent conditions. The Court is granting bail to the Petitioner, subject to strict terms and conditions, which shall be over and above and irrespective of the contents of the form of bail bonds in chapter XXXIII of CrPC, 1973.


Gurbaksh Singh Sibbia and others v. State of Punjab, MANU/SC/0215/1980

Tags : Bail Entitlement Conditions

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High Court of Madhya Pradesh

Shri Shyam Baba Edible Oils vs. Chief Commissioner



Goods and Services Tax

Communication of Show-Cause Notice must be on Revenue’s website and not via email

Instant petition invoking writ and supervisory jurisdiction of present Court under Articles 226 and 227 of Constitution of India, 1950 is filed praying for issuance of writ of certiorari for quashing the impugned order passed by the Respondents. Grievance of the Petitioner is that, while raising the demand of tax vide summary of order dated 18th September, 2020, the foundational show-cause notice/order dated 10th June, 2020 qua financial year 2018-2019 and tax period April, 2018 to March, 2019, was never communicated to the Petitioner who is an individual registered under GST Act.

Learned counsel for the Petitioner has drawn the attention of present Court to the provision of Rule 142(1) of Central Goods and Services Tax (CGST) Rules, 2017 (CGST Act) to contend that, the said provision statutarily obliges the revenue department to communicate show-cause notice/order by uploading the same on the website of revenue so that the aggrieved person can have access to the same and be aware of reasons behind the demand to enable the aggrieved person to avail alternative remedy before the higher forum under CGST Act.

As per Rule 142 of CGST Act, the only mode prescribed for communicating the show-cause notice/order is by way of uploading the same on website of the revenue. The State in its reply has provided no material to show that show-cause notice/order No.12 dated 10th June, 2020 was uploaded on website of revenue. The show-cause notice/order was communicated to Petitioner by E- mail and was not uploaded on website of the revenue. It is trite principle of law that, when a particular procedure is prescribed to perform a particular act then all other procedures/modes except the one prescribed are excluded. This principle becomes all the more stringent when statutorily prescribed as is the case herein.

Present Court has no manner of doubt that, statutory procedure prescribed for communicating show-cause notice/order under Rule 142(1) of CGST Act having not been followed by the revenue, the impugned demand pertaining to financial year 2018-2019 and tax period April, 2018 to March, 2019 deserves to be and is struck down. Accordingly, instant petition stands allowed with liberty to the revenue to follow the procedure prescribed under Rule 142 of CGST Act by communicating the show-cause notice to the Petitioner by appropriate mode thereafter to proceed in accordance with law.

Tags : SCN Procedure Compliance

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