Issue:

Whether sub-section (5A) inserted by way of an amendment in the Finance Act, 2017, expressly stated to be effective from 01.04.2018 cannot be treated as retrospective?

Held:

“20. We refer to paragraph 65 of Godrej and Boyce Manufacturing Company Ltd. (supra), wherein the principles of retrospectivity were succinctly stated; which we also have extracted herein above. The date from which the amendment is made operative, though does not conclusively decide the question, the issue of retrospectivity has to be considered by examining the scheme of the statute prior to the amendment and subsequent to the amendment, to determine whether the amendment is clarificatory or substantive. In addition to the fact that the amendment is expressly stated to be effective only from 01.04.2018, the benefit of including the consideration by way of a transfer as capital gains in the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority, was confined to individuals and Hindu undivided families. This very clearly indicates that the benefit was intended to be conferred only on two classes of assessees and this fact especially works against the contention of the amendment being clarificatory. The amendment also cannot be stated to have intended to remedy unintended consequences or to render a statutory provision workable. It cannot be related back to the date of enactment of the original provisions, as an amendment supplying a remedial effect.

21. Section 2(47)(v) read with Sections 45 & 48 remainsas such, applicable to all assesses who transferred a capital asset coming within the definition of Section 53A of the Transfer of Property Act, except those individuals and Hindu undivided families, who by virtue of a JDA transferred the capital assets after 01.04.2018.
22. The power of the legislature to makean amendment, with retrospective effect is undisputed but the requirement is that unless the same is expressed in clear language or implied, without any scope for doubt, then the amendment would only be prospective. An amendment can be taken as impliedly retrospective only when it is intended at removing an obvious anomaly or correcting a blatant error or obliterating an absurdity or bringing it in consonance with any other law or the Constitution. In fact, in such cases the legislature brings in the amendment by way of a substitution and even when a provision is substituted, it would be retrospective only if it is so expressed or follows from necessary intendment, as is implicit from the language implied. In the present case, the amendment made effective from 01.04.2018 is expressly stated to be prospective from that date and there can be no intendment ferreted out since the above noted deficiencies are totally absent. We find no discrimination having been visited on individuals or Hindu undivided families, for whom there was a change made in the manner, or the previous year in which the computation of total income is made, which was effective only insofar as the agreements entered into after 01.04.2018.”

Issue:

Whether mere revaluation amount being credited to the partners current account upon conversion to company, the partners did not get any extra right to withdraw any sum out of the said revalued amount and hence it did not jeopardise the claim of exemption u/ s 47(iii)?

Held:

“7. The case of the revenue is that the amount of revaluation of the land and building which was credited to the current accounts of the partners which was treated as loans to new companies amounted to accrual of consideration or benefit to the partners which was a transfer and therefore the firm is liable to pay tax on long term capital gain and short term capital gain. Further the partners have withdrawn the amount of revaluation reserve without paying the taxes on the revalued amount. On facts it has been established that revaluation of the fixed assets did not give rise to any profit to the partnership firm and there is no accrual of benefits in the hands of the partners and if that be so can there be any tax liability in the hands of the firm as well as in the hands of the partners. The learned tribunal after noting the accounting treatment followed by the assessee on facts found that no profit allotment on account of revaluation has accrued or arisen to the assessee firm and the revaluation of fixed asset did not give any profit to the firm and the revaluation was done so that the value of the fixed assets in the balance sheet would match the market price and the object behind such revaluation is to avail loans from banks and financial institutions by showing market price of the fixed assets in the balance sheet. Thus, in our view, the learned tribunal rightly rejected the contention raised by the revenue and also rightly noted the decision of the Hon’ble Supreme Court in Sanjeev Woolen

Mills Versus Commissioner of Income Tax, (2005) 279 ITR 434 (SC) wherein it was held that valuation of the assessee at market value, which was higher than the cost, resulted in the imaginary or notional potential profit out of itself and not any real profit or income which can be taxed.

8. The next aspect which the tribunal dealt with was with regard to the applicability of Section 45(4) of the Act. It was noted that the said provision would apply when there is a distribution of assets to the partners so that its application can be justified and it can apply only when there is a transfer and secondly only when there is a distribution of assets to the partners. Further the tribunal noted that Section 47(xiii) is also complied with if it is held that there is a transfer of capital asset to a company, the clauses of Section 47(xiii) are fulfilled and thus even if it is held that there is transfer of capital asset by the firm to a company as a result of succession, the same is not charitable, as the condition prescribed therein are complied with. Thus, the tribunal concluded that looking at either angle, the capital gain is not eligible to tax. Similar was the finding for the assessment year 2009-2010 and the tribunal noted that mere revaluation amount being credited to the partners current account upon conversion to company, the partners did not get any extra right to withdraw any sum out of the said revalued amount. Furthermore, the tribunal rightly noted that for the assessment year 2009-2010, the revaluation had taken place in the preceding year and the amount had already been credited in the preceding year and only the conversion has taken place in the assessment year 2009-2010. The following facts noted by the tribunal would be relevant. The assets were revalued in the financial year 2007-2008 relevant to the assessment year 2008-2009 and the corresponding amount was credited to partners current account in the assessment year 2008-2009 itself and as such the partners were entitled to withdraw any sum out of such current account from the assessment year 2008-2009 etc. Taking note of this fact and also the relevant clauses in the partnership deed, the tribunal rejected the conclusion of the assessing officer that upon conversion of such partnership firm to company under Part IX of the Companies Act, the character of the current account had changed. The tribunal placed reliance on the decision in the case of Ram Krishnan Kulwant Rai Holdings Private Limited and took note of the facts of the assessee’s case and held that there is no distribution of assets but only taking over of the firm by company and as such there is no transfer of capital assets as contemplated in Section 45(1) or Section 45(4) of the Act. Further the mere revaluation amount being credited to the partner’s current account and upon conversion of the firm as a company, the partners did not get any extra right to withdraw any sum out of the said revalued amount and accordingly rejected the revenue’s appeal.”

Issue:

Whether the reassessment proceedings u/s 147 initiated on the basis of an audit objection are valid? Held:

The honourable Court while allowing the SCA of the assessee held as follows.

“13. The co-ordinate Bench after analyzing the detailed case law on this subject has considered the issue and as such, we may deem it proper to quote hereunder the relevant observations made in the said judgment precisely paragraph 9 to 12:-

9. This Court made it quite clear that the Assessing Officer himself initiated the reassessment proceedings without his own conviction and only at the instance of the audit party which was termed to be a coulourable exercise of jurisdiction and the same was not sustained.
10. The two decisions of the Apex Court which areheavily relied upon will need to be considered at this stage. It is to be noted that this Court in

Vodafone West Ltd (supra), has already referred

to the Lucas T.V.S. It was a case where the auditor’s opinion in regard to the interpretation of law was questioned to be treated by the Assessing Officer as information. The Court, while considering the submissions of both the sides, has held that apart from the information furnished by the audit party, the Assessing Officer had no other information for reopening under Section 147B. The opinion expressed by the audit party in the matter before the Apex Court showed that they had pointed out to the Assessing Officer that he failed to apply the provision contained in Section 35. This, according to the Apex Court, would amount to pointing out the law and the interpretation of the provisions contained in Section 35, which is barred by the decision of the Apex Court in Indian & Eastern Newspaper Society V.CIT [1979] 119 ITR 996. It was a case where the Tribunal has cancelled the order of reassessment and on reference, the High Court held that apart from the information furnished by the audit party, the Assessing Officer had no other information for reopening. The views taken by the Tribunal and the High Court, both were upheld by the Apex Court and the appeals had been dismissed. This would, on the contrary, help the cause of the assessee.

11. So far as the P.V.S.Beedies (P) Ltd. (supra) isconcerned, it was a case of reopening of assessment because in the original assessment, the donation made to a charitable trust were held by the Assessing Officer to be eligible for deduction under Section 80G. It was pointed out by the internal audit party that the recognition which had been granted to the trust had expired on 22.9.1972. Since it had expired before 1.4.1973, for the assessment year 197475 and 75-76, the trust was not recognized charitable trust and therefore, the donation to the trust did not qualify for deduction under Section 80G as a donation made to a recognized charitable trust. The audit party had pointed out a fact that had been overlooked by the Assessing Officer in the assessment. When the Tribunal and the High Court held that

the information given by the internal audit party could not be treated as information within the meaning of Section 147B, the Court held that the factum of the recognition granted to the charitable trust since had expired on 22.9.1972 was not noticed by the Assessing Officer. It was not a case of information of question of law. The dispute as to whether the reopening is permissible after audit party expresses an opinion on a question of law was considered by a larger Bench of the Apex Court in the case of Lucas T.V.S.Ltd. (supra) wherein, the Court held that the reopening of the case on the base of a factual error pointed out by the audit party is permissible under the law and there can be no dispute that the audit party is entitled to point out such factual error or omission in the assessment.

12. Here is a case where, admittedly, audit partyhad expressed the opinion on a question of law. It had also pointed out to the Assessing Officer and that information which had been given was on question of law. This has been dealt with in Lucas T.V.S. Ltd. and even otherwise, the facts of the instant case clearly make out that when the audit party had pointed out to the Assessing Officer, it not only was disagreeing with the information given on the law point, it had completely disagreed after examining the objections raised by the audit party. In paragraph 3 and paragraph 6, it has said that after carefully examining, the objections are not acceptable and they need to be dropped. The Assessing Officer, without any conviction, when has issued the notice, this surely is not a case where the reopening of the case is on the basis of any factual error pointed out by the audit party so as to be covered by the decision of the P.V.S.Beedies (P) Ltd. On the contrary, it is covered by those decisions which have been discussed in reopening on the part of the Assessing Officer essentially on the audit party opinion and not on the basis of his own conviction. There is no material worth the name emerging that to indicate any independent application of mind could be noticed. On the contrary, there are glaring facts which have been pointed out that the Assessing Officer had no subjective satisfaction while issuing the notice of reopening. Therefore also, in this background, it is a settled law that any notice of reopening issued by the Assessing Officer without any independent application of mind would laid the validity. Accordingly, this petition is allowed. Notice dated 21.3.2021 along with the order dated 25.10.2021 are quashed and set aside.””

Issue:

Whether the Learned Tribunal erred in law in holding that the prior period expenses of Rs. 4,08,23,000/- as an allowable expense in the instant assessment year which is patently wrong in as much as the assessee is following mercantile systems of accounting and as such the prior period expenses cannot be allowed during the assessment year in question?

Held:

“4. The tribunal after taking note of the factual position noted that the CIT(A) has taken specific note of the fact that the expenses claimed by the assessee as prior period, the liability to pay had crystallized during the relevant previous year and therefore the claim was allowed. Further the tribunal noted that no appeal was preferred by the revenue against the orders of the CIT(A) for the assessment years 2007-2008 to 2009-2010 and the appeals filed by the revenue for the assessment years 2010-2011 and 2011-2012 were dismissed by the tribunal. Further the tribunal has pointed out that the revenue was unable to bring any material or fact to disprove the assessee’s explanation furnished before the authorities in support of its claim that liability to pay expenses charged under the head “prior period” crystallized during the financial year 2011-2012. Further on perusing the details furnished by the assessee with regard to those expenses, the tribunal noted that the assessee had claimed deduction in respect of items which were revenue in nature and therefore fully allowable in arriving at its business income. Further the learned tribunal has pointed out that the revenue did not controvert the contention raised by the assessee that no deduction in respect of these expenses was allowed in the prior years and the tax rate in the earlier years and in the year under consideration were same and therefore irrespective of the year of deduction allowed, the revenue’s effect was taxed neutral. The learned tribunal also referred to the decision of the High Court of Gujarat in PCIT Versus Adani Enterprises Limited Tax Appeal No. 566 of 2016 and found the said decision to be relevant to the facts and circumstances of the case. Thus, we find that the learned CIT(A) and the learned tribunal has examined the facts and granted relief to the assessee and more importantly that for the earlier assessment years i.e. 2005-2006, 20092010, the revenue has accepted the orders passed by the CIT(A). Though the appeal was filed before the tribunal for the assessment years 20102011 and 2011-2012, the same were dismissed.

Thus, a consistent view is required to be adopted in the absence of any material placed by the revenue before the required tribunal to show that there was any distinguishing feature in the assessment year under consideration to make a departure from the earlier view.”

Issue:

If the assessee has itself offered a receipt to tax, albeit with a caveat in the return of income, whether such receipt could be taxed?

Held:

“15. The other argument made by Mr Sanjay Kumar, learned senior standing counsel, who appears on behalf of the appellant/revenue, is that the Tribunal could not have gone beyond the assessment order, given the fact that the respondent/assessee itself had included the surplus as income chargeable to tax in its return of income.

15.1To our minds, this argument misses the point (something which the Tribunal has noted) which is that the assessee had entered a caveat in the return of income. It is not disputed that a note was incorporated in the return wherein it was explained as to how the surplus arose in the instant case on transfer of Trunk Infrastructure/capital work-inprogress.

16. Besides this, in our view, it is more than wellestablished that merely because the assessee inadvertently offers a receipt for levy of tax, tax cannot be levied by the revenue if it is not otherwise constitute income of the assessee. Every receipt is not an income chargeable to tax under the provisions of the Act.
17. Accordingly, we find no good reason to interferewith the impugned order passed by the Tribunal. In our opinion, no substantial question of law arises for our consideration.”

Issue:

What is the obligation of the assessing officer if he wants to hold against the assessee for a default in the nature of non deduction of income tax at source (TDS)? Held:

“21. In the present case, the Revenue does not seek to support the decision of the AO that EDC are ‘rent’ or in the nature of ‘rent’. Thus, concededly, the fundamental reasoning on which the impugned order rests is fundamentally flawed.

22. The contention that the AO has merely referred toa wrong Section of the Act and therefore, the said reference may be ignored is also without merit. As noticed above, the AO has not only held that TDS was liable to be deducted under Section 194-

I of the Act, he has also proceeded to analyse the said Section and hold that EDC are in the nature of rent. He has, in addition, also applied the rate of TDS at the rate of 10% for assessing the petitioner’s liability.

23. The reasoning of the AO for finding that thepetitioner was obliged to deduct TDS is important. The determination of the nature of payment is vital for ascertaining whether there was any obligation on the part of the petitioner to deduct and deposit TDS on EDC. The Revenue appears to be approaching the issue from quite the reverse direction; it has for an inexplicable reason, concluded that assessees ought to deduct TDS from EDC and now seeks to find provisions of law to sustain the said conclusion. In BPTP’s case (supra), the AO had initiated reassessment proceedings on the ground that assessee was required to deduct TDS under Section 194[7] of the Act; apparently, on the premise that EDC is dividend. However, before the court, it was argued on behalf of the Revenue that EDC is rent and therefore TDS was required to be deducted from payment of EDC. In the present case, the AO has proceeded on the basis that EDC is rent but the Revenue contends that it is a payment to contractor attracting the provisions of TDS under Section 194C of the Act. (emphasis supplied)
24. It is apparent from the above, that the approach of the Revenue is flawed. We reject the contention that the findings of the AO regarding the nature of EDC charges as well at the provisions referred by him for determining the petitioner’s liability are not material.”

Issue:

Whether if the facts remain the same in subsequent years can the assessing officer take a different view of the matter and make an addition?

Held:

“9. While none may sucessfully contend or invoke res judicata in taxation matters, at the same time, in absence of any difference of fundamental fact or law arising in subsequent Assessment Year and in face of the same dispute having been thrashed out inter partes in earlier Assessment Year and a definite opinion having been formed by the Tribunal for the same as had also attained finality and has been consistently applied in the case of the assessee itself (over different Assessment Years), which orders have also attained finality, the rule of consistency would commend that view to prevail, in all succeeding Assessment Years.

10. To allow the revenue to re-agitate decided issuessolely because each Assessment Year is a separate unit for which a fresh assessment order is to be passed, would be to make a mockery of judicial decision making. Revenue goals apart, the primary need of good tax administration remains transparency, predictability and certainty. Revenue may seek to take different view over same or similar facts involved in different years, based on different appreciation of such facts, arising primarily from different officers coming to deal with those facts in different Assessment Years.
11. That circumstance or occurrence is natural andunavoidable in the running of the State machinery. Yet, it may never be forgotten, the little entity that the assessee is, suffers the process adopted by the gigantic State machinery to yield the precious oil of tax, remains the same. It may not be exposed to multiple and different crushing processes, every year, in the ambitious desire to extract more oil/ revenue.
12. Being the live force that grants the State itslegitimacy and purpose to exist, the little entity that the assessee is, must be protected and assured of same assessment process year after year, to grant to it an environment in which it may not only survive but may look to thrive. The decision in Radhasoami Satsang (supra) has been consistently applied by Courts for the last more than three decades. Therein it was observed:-

“We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”

13. That view expounded by two bench decision ofthe Supreme Court was reiterated by a three bench decision of that Court in CIT Vs. Excel Industries Ltd (2013) 358 ITR 295. It has been consistently applied by Courts to ensure predictability and certainty in tax litigation.
14. In the present case also, in view of absence ofany change to the law and in absence of any fresh facts shown to be involved in the Assessment Year in question, we do not find, the Tribunal has committed any error in pressing into service the rule of consistency and enforcing on the revenue its view taken in the case of the assessee for the

A.Y. 2010-11.”

Issue:

Whether TDS is deductible u/s 195 from the payments made for purchase software where the payer or end user does not get any right to use the copyright?

Held:

“9. As noted hereinabove, it is the petitioner’s case, that the Software sold by it to its distributor partners under the Distributor Agreement does not confer, either on the distributor partner or the reseller, the right to make use of the original copyright which vests in the petitioner. This plea was sought to be supported by the petitioner, by relying upon the judgment of the Supreme Court in Engineering Analysis, wherein inter alia, the Court has ruled, that consideration received on sale of copyrighted material cannot be equated with the consideration received for right to use original copyright work. Therefore, in our opinion, this central issue had to be dealt with by the concerned officer. Instead, as is evident on a perusal of paragraph 4 of the impugned order, the concerned officer has simply by-passed the aforementioned judgement of the Supreme Court by observing that the revenue has preferred a review petition, and that the same is pending adjudication.

10. According to us, as long as the judgment of the Supreme Court is in force, the concerned authority could not have side stepped the judgment, based on the fact that the review petition had been preferred. It would have been another matter, if the concerned officer had, on facts, distinguished the judgment of the Supreme Court in Engineering Analysis.

10.1That apart, in our view, the least that the concerned officer ought to have done was to, at least, broadly, look at the terms of Distributor Agreement, to ascertain as to what is the nature of right which is conferred on the distributor partner and/or the reseller.”

Issue :

What is the requisite for allowing commission payment? Held:

It is not a sheer coincidence that three of the seven persons to whom commission was paid happened to be directors of the appellant and the remaining four were relatives of such directors. Particularly, with the appellant not being able to demonstrate their special expertise to procuring iron ore fines (IOF) from the markets in India, the Assessing Officer  appears to be justified in disallowing the commission in so far as it was paid  to the said seven persons. The Assessing