Fresh assessment by the Assessing Officer on direction given by the Principal Commissioner or Commissioner in 263 order

The scheme of the Act has provided different powers to different authorities and these are required to be exercised after satisfying the pre-requisite conditions and jurisdictional facts. The Assessing Officer can disturb/reopen a finalised assessment by invoking his powers either under section 154 or under section 147 provided he can show that the necessary requirements are fulfilled. If, what the revenue contends is accepted, these and other such provisions which empower different authorities to exercise jurisdiction at different points of time in distinct settings would be rendered otiose and that can never be the legislative intent. Therefore, in proceedings to give effect to an order under section 263 the Assessing Officer cannot be permitted to undertake an exercise not warranted by the legislative scheme. The operative part of the order under section 263 had to be read in the context of what had preceded, namely, the discussion in the revision order, and both the notice and the order under section 263 had to be read as a whole.

Only in cases where assessment order is erroneous and prejudicial to interests of revenue and not prejudicial to interest of assessee, assessment can be reopened under section 263 and, thus, assessee is not eligible to claim any new benefit in assessment proceedings pursuant to section 263

The assessee, a public limited company, filed its return admitting an income of Rs. 1.04 crore and the same was processed under section 143(1). The assessee had also filed revised return of income admitting an additional income of Rs. 2.54 crore. Subsequently, the case was selected for scrutiny and the assessment was completed under section 143(3) determining the total income at Rs. 1.28 crore as per the normal provisions of the Act and book profits at Rs. 1.74 crore under section 115JA. After perusing the assessment order passed under section 143(3), the Commissioner issued a show-cause notice under section 263 to the assessee as he was of the opinion that the order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue on several grounds. After verifying the submissions made by the assessee, the Commissioner set aside the assessment order passed under section 143(3), with a direction to the Assessing Officer to redo the assessment after re-examining the issues involved and taking into account all the facts on record. Consequent to the order of the Commissioner under section 263, the Assessing Officer passed the assessment order under section 143(3), read with section 263 making an addition of Rs. 6,61,951 as long-term capital gain. Against said order, the assessee filed an appeal before the Commissioner (Appeals). During the appellate proceedings, the assessee raised an additional ground stating that while computing the book profit under section 115JA, the net profit should have been reduced by the amounts credited to the profit and loss account on account of withdrawal from the provisions made, which had not been allowed in the earlier years. The aforesaid additional ground of appeal was forwarded to the Assessing Officer for his examination and comments. The Assessing Officer vide his remand report submitted that additional ground raised by the assessee could be admitted and the claim was allowable in view of the provisions of section 115JA. On the basis of the remand report from the Assessing Officer, the additional ground was admitted by the Commissioner (Appeals) and the claim of the assessee was also allowed with a direction to the Assessing Officer to recompute the book profit as per the revised claim of the assessee. On revenue’s appeal :

It was undisputed fact that the assessee filed additional ground of appeal before the Commissioner (Appeals), stating that while calculating book profit under section 115JA, the net profit should be reduced by the amount of provision for doubtful debts and withdrawal from provision for doubtful advances, which had not been allowed in the earlier years. The assessee did not claim the said deduction while calculating the book profit under section 115JA in the return of income filed originally and also in the revised return of income filed. It was evident from the assessment records that the original assessment was set aside under section 263 by the Commissioner for verification of specific issues which were stated to have been prejudicial to the interest of the revenue and the assessment was set aside for examination of those specific points. Hence, the claim of the assessee stating that while computing the book profit under section 115JA, the net profit ought to have been reduced by the amount which was credited to the profit & loss account on account of withdrawals from the provisions made, could not be entertained at the stage of assessment proceedings pursuant to the order under section 263. In the assessment proceedings pursuant to the order under section 263, the assessee cannot seek to show that there was some other benefit in favour of the revenue which was prejudicial to the interest of the assessee. The words ‘erroneous insofar as they are prejudicial to the interests of the revenue’ have to be taken together and are required to be widely construed. The power of the Commissioner under section 263 is restricted only to the errors so far as they are prejudicial to the interest of the revenue and if there is any other error, it is for the assessee to take up the issue in other appropriate proceedings. In view of the above, since the present order was made consequent to the order of the Commissioner passed under section 263 directing the Assessing Officer to redo the assessment only for a specific issue involved therein, the assessment made pursuant to section 263 was only for the benefit of the revenue and not for the assessee. Only in the cases where the assessment order is erroneous and prejudicial to the interests of the revenue and not prejudicial to the interest of the assessee, assessment can be reopened under section 263 and the assessee is not eligible to claim any new benefit in the assessment proceedings pursuant to section 263. Hence, the Commissioner (Appeals) was not justified in allowing the aforesaid claim of the assessee while computing the book profit under section 115JA. In the result, the appeal filed by the revenue was to be allowed. [In favour of revenue] (Related Assessment year : 2000-01) - [ACIT v. ITW India (P) Ltd. (2010) 40 SOT 348 (ITAT Hyderabad)]

Unlike re-assessment under section 148, in fresh assessment pursuance to 263 order entire assessment is not opened before the Assessing Officer

Revision under section 263 is not like reopening of assessment where once assessment is reopened entire assessment is open before Assessing Officer to be reconsidered in accordance with law. In revision proceedings, Commissioner cannot travel beyond reasons given by him for revision in show-cause notice. (Related Assessment year : 2003-04) -  [Geometric Software Solutions Co. Ltd. v. ACIT (2009) 32 SOT 428 (ITAT Mumbai)]

Assessing Officer can consider only those grounds regarding which direction was given by the Pr. CIT / CIT in 263 order and can make fresh assessment on said grounds only

The assessee was carrying on the proprietary business of exhibition of 16 mm films on non-commercial basis and also business of manufacturing and sale of the projector spare parts. He filed return of income for the assessment years 1979-80 to 1983-84. The Assessing Officer completed the assessment of the assessee. Thereafter, the Commissioner issued a show-cause notice under section 263 on the ground that the total investment in the films including cost of extra prints was not considered properly by the Assessing Officer and that the write off of the cost of the films was wrongly allowed in the assessments. After hearing the assessee, the Commissioner passed an order under section 263 setting aside the assessment order with a direction to the Assessing Officer to look into the above-mentioned aspects and to redo the assessments as per law. The Assessing Officer framed fresh assessment and made additions and disallowances beyond the aforesaid two issues which were taken up in revisional proceedings by the Commissioner. On appeal, the Commissioner (Appeals) confirmed the assessment orders. On second appeal, the Tribunal held that in the fresh assessment order passed in pursuance of the order of the Commissioner under section 263, the ITO was entitled to consider only those two issues which were considered by the Commissioner and was not entitled to consider afresh any other item for making addition.

The Tribunal was, therefore, right in holding that the operative part of the order under section 263 had to be read in the context of what had preceded, namely, the discussion in the revision order, and both the notice and the order under section 263 had to be read as a whole. That the direction to the Assessing Officer to redo the assessments was after looking into the aspects discussed by the Commissioner in his order and the directions made in the body of the order. The sentence recorded in the revisional order could not be read in isolation, nor could it be read by omitting a certain portion of the sentence so as to mean that the Assessing Officer was entitled to process further items while giving effect to the order under section 263. Powers of revision can be exercised only by Commissioner and, therefore, Assessing Officer cannot, under guise of framing fresh assessment, exercise said powers in relation to other items forming part of assessment record. Therefore, Assessing Officer while passing fresh assessment order in pursuance of an order of Commissioner under section 263, is entitled to consider only such items which had been considered by Commissioner, and he cannot consider any other item afresh for making additions. The Tribunal was, therefore, justified in holding that the Assessing Officer had travelled beyond his jurisdiction. [In favour of revenue] (Related Assessment years : 1979-80 to 1983-84) - [CIT v. D. N. Dosani (2006) 280 ITR 275 : 153 Taxman 13 (Guj.)]

In pursuance of Commissioner’s direction under section 263 to make a fresh assessment, Assessing Officer’s duty to make assessment does not begin and end with carrying out directions of commissioner but his duty is something more, that is to determine correct taxable income - Therefore, where assessee made claim for consideration of an item for deduction during course of assessment proceedings carried out in pursuance of Commissioner’s direction under section 263, it was duty of Assessing Officer to examine said claim on merits

In the instant case, it was a stronger case for the assessee as the ITO was directed to determine the correct total income of the assessee according to law and during those proceedings when the assessee made a claim, the ITO was bound to consider the claim of the assessee. While considering such a claim, the question of fulfilment of the conditions for rectification was not a sine qua non and even if the conditions to rectify the mistakes were not present, the ITO, should examine the claim of the assessee on the merits of the case. The power of the ITO to make the assessment is derived from the statutory provisions of section 143(3). Therefore, the refusal of the ITO even to consider the claim of the assessee was not justifiable and both the Commissioner (Appeals ) and the Tribunal were right in directing the ITO to consider the claim of the assessee on the merits of the matter. Though, Tribunal was not right in holding that the entire assessment order was set aside by the Commissioner still the power of the ITO to consider the claim of the assessee was neither curtailed nor taken away by the order of the Commissioner. The ITO was bound to consider the claim of the assessee under section 143(3) when he was in the final process of assessment in the determination of the total income of the assessee as the assessment pursuant to the directions of the Commissioner had not reached the stage of finality. The Central Board is more liberal in its approach and directed the ITO to consider the claim of the statutory deduction even when the assessee has not made such a claim (vide: Circular No. 14(XL-35) of 1955 dated 11.04.1955 - Chokshi Metal Refinery v. CIT (1997) 107 ITR 63 (Guj.), such an attitude of the ITO would instil confidence in the minds of the taxpayer that his income would be properly determined and he is not required to pay the tax, neither one paise more nor one paise less than what is correctly and rightly due in accordance with and under the provisions of the statute, In this view of the matter, the order of the Tribunal was sustainable in law, though for different reasons. [In favour of assessee] (Related Assessment year : 1974-75) - [CIT v. Geo Industries & Insecticides (I) (P) Ltd. (1998) 234 ITR 541 : 147 CTR 426 (Mad.)]

 

 

Substantive provisions versus Technical Provisions

An analysis of the proposition as found to have been conclusively settled by the case laws from the numerous Supreme Court and High Court Judgments in decided cases reveals as under. As such, going by the correct legal position, unequivocally accepted, there might be no dispute – or even a remote scope for disputing any longer – that the said settled proposition is binding, with all force, on all judicial and quasi-judicial authorities, the ITAT being no exception. If so, all the more reason why administrative/ executive authorities are duty bound to not but follow/abide by the same as a PRECDENT.

Sequencing of provisions

As a general rule, provisions of a legislative text are sequenced as follows:

§  General provisions precede specific provisions

§  More important provisions precede less important provisions

§  Permanent provisions precede temporary provisions

§  Technical provisions appear last

Statement of purpose - if the substantive provisions of an enactment are well drafted, they should not need additional elements to assist in their interpretation

In principle, if the substantive provisions of an enactment are well drafted, they should not need additional elements to assist in their interpretation. It is therefore primarily important to draft the substantive provisions of the proposed enactment so as to communicate clearly the legislative intent to those to whom it is addressed and those called upon to enforce it. However, in certain cases, the formulation of such intent in a separate statement may be appropriate. In some jurisdictions, such statements of purpose are used to articulate the principles and policies which are intended to be implemented in the body of the text and to preside over its interpretation. Therefore, a statement of purpose should not contain substantive provisions granting rights, prohibiting actions, establishing substantive standards, etc.

Justice G.P. Singh in “Principles of Statutory Interpretation” (14th Edition, in Chapter 6) while dealing with operation of fiscal statute elaborates the principles of statutory interpretation in the following words:

“Fiscal legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. The above rule applies to the charging section and other substantive provisions such as a provision imposing penalty and does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. But a procedural provision, as far as possible, will not be so construed as to affect finality of tax assessment or to open up liability which had become barred. Assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either is either expressly or by necessary implication retrospective. A provision which in terms is retrospective and has the effect of opening up liability which had become barred by lapse of time, will be subject to the rule of strict construction. In the absence of a clear implication such a legislation will not be given a greater retrospectivity than is expressly mentioned; nor will it be construed to authorize the Income-tax Authorities to commence proceedings which, before the new Act came into force, had by the expiry of the period then provided become barred. But unambiguous language must be given effect to, even if it results in reopening of assessments which had become final after expiry of the period earlier provided for reopening them. There is no fixed formula for the expression of legislative intent to give retrospectivity to a taxation enactment……”

Holds 2016 Benami Act amendments was not merely procedural, rather, prescribed substantive provisions; Forfeiture envisaged, punitive in nature, cannot be retroactive

Supreme Court holds that the Benami Transactions (Prohibition) Amendment Act, 2016 (2016 Act) prescribes substantive provisions and is not merely procedural; Holds Section 3(2) of the Benami Transactions (Prohibition) Act, 1988 (unamended Benami Act) as unconstitutional for being manifestly arbitrary and holds Section 3(2) of the Prohibition of Benami Property Transactions Act, 1988 (amended Benami Act) also as unconstitutional for being violative of Article 20(1) of the Constitution; Holds provisions under Section 5 of unamended Act providing for in rem forfeiture, is unconstitutional for being manifestly arbitrary and expounds that forfeiture provision under Section 5 of amended Benami Act is punitive in nature, thus, can only be applied prospectively and not retroactively; Supreme Court makes it clear that the authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., October 25, 2016, thus, quashes all such prosecutions or confiscation proceedings; SC leaves question of forfeiture of property under the amended Benami Act open for adjudication in appropriate proceedings; Supreme Court holds that the unamended Benami Act was an inconclusive law where essential features were to be prescribed through delegation and the gaps were not merely procedural, rather the same were essential and substantive; Supreme Court observes that without substantive provisions, the law was fanciful and oppressive at the same time, thus, manifestly arbitrary as the open texture of the law did not have sufficient safeguards to be proportionate; Supreme Court holds Section 3 (criminal provision) read with Section 2(a) and Section 5 (confiscation proceedings) of the unamended Benami Act as overly broad, disproportionately harsh, and operating without adequate safeguards in place; Remarks that such provisions were stillborn law and never utilized in the first place and finds Sections 3 and 5 of the unamended Benami Act to be unconstitutional from their inception; With regard to the amended Benami Act, Supreme Court observes that the criminal provisions are applicable only prospectively as the relevant Sections of the unamended Benami Act have been declared as unconstitutional and the question of retroactive applicability of the penal provisions of the amended Benami Act does not arise; Supreme Court traces the development of law of forfeiture of property and finds provisions of forfeiture of property in amended Benami Act to be in rem and not in personam since the property itself is held to be tainted subjected to confiscation; Supreme Court observes that under such legal framework, “a retroactive law would characterize itself as punitive for condemning the proceeds of sale which may also involve legitimate means of addition of wealth.” Also observes that the amended Benami Act condemns the method of transfer and holding of property which was once a recognized form of property holding in India, thus the in rem civil proceeding utilized retroactively itself take penal character; Supreme Court throws light on the legal framework that allows authorities under the amended Benami Act to initiate confiscation by using extensive powers of discovery, inspection, compelling attendance, compelling production of documents and take assistance of police officers, custom officers, income tax officers and other relevant officers for furnishing information whereby any person who fails to furnish information is subjected to penalty and the one providing false information is subjected to rigorous imprisonment of upto 5 years; Supreme Court thus holds that the law amended by 2016 Act cannot retroactively apply for confiscation of the transactions entered into between September 5, 1988 to October 25, 2016 as the same would tantamount to punitive punishment, in the absence of any other form of punishment and under this unique circumstance, confiscation contemplated during the said period would take punitive character, if allowed retroactively; On this aspect, Supreme Court also observes that curbing benami transactions retroactively would no doubt be susceptible to prohibitions under Article 20(1) of the Constitution since at one point of time benami transactions were an accepted form of holding property in our country; Supreme Court, alternatively, observes that continuation of only the civil provisions implies that the ostensible owner would continue to have full ownership over the property, without allowing the real owner to interfere with the rights of the benamidar and in such a situation without effecting any enforcement proceedings for a long span of time, the crystallised rights would be in jeopardy; Supreme Court finds this implied intrusion into the right to property impermissible since it operates retroactively and would be unduly harsh and arbitrary; Supreme Court, thus, disposes of Union’s appeal with the aforementioned observations and conclusion; Factual background of the case is that Respondent-Company was subjected to Benami proceedings where it purchased a property in 2011 and in 2012 its shares were acquired by another company with common directors at a substantially lower price; The Benami Authority passed a provisional attachment order that was quashed in writ appeal by Calcutta High Court on the basis that 2016 Act does not have retrospective application

In view of the above, it is held as under:

(i)      Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of Article 20(1) of the Constitution.

(ii)     In rem forfeiture provision under Section 5 of the unamended Act of 1988, prior to the 2016 Amendment Act, was unconstitutional for being manifestly arbitrary.

(iii)    The 2016 Amendment Act was not merely procedural, rather, prescribed substantive provisions.

(iv)    In rem forfeiture provision under Section 5 of the 2016 Act, being punitive in nature, can only be applied prospectively and not retroactively.

(v)     Concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to the coming into force of the 2016 Act, viz., 25.10.2016. As a consequence of the above declaration, all such prosecutions or confiscation proceedings shall stand quashed. – [Union of India v. Ganpati Dealcom (P) Ltd. (2022) 447 ITR 108 : 141 taxmann.com 389 (SC)]

Financial Benefits to Assessee can not be a Ground to Levy Interest without an explicit substantive provision

The Bombay High Court has ruled that penalty or interest on additional customs duty (CVD) and special additional duty of customs (SAD), or surcharge, which is not connected to the basic customs duty, cannot be imposed in the absence of an explicit substantive provision.

The Division Bench of Justices K.R. Shriram and A.S. Doctor observed that there was no substantive provision which obligated the assessee to pay interest or penalty on CVD or SAD, leviable under the Customs Tariff Act, 1975, or on the surcharge leviable under the Finance Act, 2000. – [Mahindra & Mahindra Ltd. versus Union of India & Ors. Citation: 2022 LiveLaw (Bom.) 400]

Extension Notification inapplicable on Benami Authority after end of additional charge arrangement, for passing reserved orders

Delhi High Court dismisses Assessees' writ appeals, holds that CBDT Notification No.113/2021 dated 17.09.2021, extending the deadline for completion of assessment under Benami Act cannot be extended to Adjudicating Authority who  ceased to hold the office; Assessee-Companies were subjected to proceedings under the Benami Act before the Adjudicating Authority, New Delhi and since the Adjudicating Authority, New Delhi was vacant, the Adjudicating Authority, Mumbai was given additional charge of Adjudicating Authority, New Delhi, who had actually heard the matter and reserved orders on 16.09.2021; Subsequently, on 08.10.2021, a proper appointment was made to the post of Adjudicating Authority, New Delhi and, thus, the additional charge given to the Adjudicating Authority, Mumbai, came to an end; In this backdrop, the Assessees filed a writ petitions before the Single Judge Bench praying that the Adjudicating Authority, Mumbai, who was given the additional charge and had heard the matter should be directed to pass the order in Assessees' cases; However, the Single Judge Bench dismissed the writ petition holding that once a proper appointment was made for Adjudicating Authority, New Delhi, the authority holding additional charge could not have passed the order in the matter reserved by him since he was no longer holding the post of Adjudicating Authority at New Delhi; On Assessee's appeal against Single Judge's ruling, the Division Bench observes that on the day of proper appointment for Adjudicating Authority, New Delhi, the officer holding the additional charge before passing the order in Assessees' cases and had ceased to function as the Adjudicating Authority, New Delhi; Opines, “Viewed in this light, the notification dated 17.09.2021 extending the time period from 30.09.2021 to 31.03.2022 for pronouncing judgments in cases where hearings had been completed and orders were reserved cannot be applied to the present cases.”; Explains that the notification would apply to such of those officers who had reserved orders, but had not pronounced it within the time as stipulated by the notification, “The said notification cannot be extended to an officer who has ceased to occupy the post.”; Further points out that the Notification only extended the period from 30.09.2021 to 31.03.2022 to deliver judgments in cases where the Adjudicating Authority was yet to deliver its judgments; States that a writ is maintainable only when there is a right and in absence of any right, a writ cannot be passed and in the present case, Assessee has not been able to demonstrate violation of any right or breach of any notification which states that an Authority should pronounce the judgment in a matter heard by it even after the person, who heard the matter, has ceased to occupy the chair, thus upholds the Single Judge Bench ruling and dismisses Assessee’s appeals. – [Ramaa Advisors (P) Ltd. v. Union Of India & Anr – Date of Judgement : 05.08.2022 (Del.)]

 

Section 2 (9) (A) and Section 2 (9) (C) being substantive provisions, creating an offence by widening the definition of benami transaction cannot have retrospective effect” – [Nexus Feeds Ltd. & Others v. ACIT [TS-291-HC-2022(TEL)] – Date of Judgement : 08.03.2022 (High Court Telangana)]

 

Natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more, lead to the conclusion that prejudice is thereby caused. Where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest, but also in public interest. – [State Of U.P v. Sudhir Kumar Singh – Date of Judgement : 16.10.2020 (SC)]

Section 11 & 12 are the substantive provisions providing exemptions to charitable/ religious Trusts

under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner. Thus, in my view, sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s 12AA by itself that offers immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in our view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration. – [Bandanthamma Mathu Kalamma Trust v. ITO, Mysuru. [TS-119-ITAT-2020(Bang)] Date of Judgement : 26.02.2020 (ITAT Bangalore)]

 

Failure to furnish Annual Information Return in time is a technical or venial breach of provision of Act flowing from a bona fide ignorance of assessee; for such failure penalty proceeding under section 271FA need not be initiated

Assessee, co-operative bank, an entity falling within the ambit of section 285BA, failed to furnish Annual Information Return (AIR) for the assessment year 2012-13. A notice was issued by the Assessing Officer. On a request made on behalf of the representative of the assessee, the time was extended. The assessee complied with the requirement of section 285BA and filed the annual information return. Subsequently, the Director of Income Tax (Intelligence and criminal investigation) levied penalty on it for the delay in furnishing AIR. According to the assessee, the default was not intentional, but due to ignorance of existence of such an obligation. The revenue took stand that there could not be such an ignorance in view of the department conducting so much of awareness campaign and the assessee was complying with other obligations under the Act. On appeal to the High Court:

On a careful consideration of the matter, one can find that except the instant alleged breach, nothing more is alleged against the assessee. As a matter of fact, the Director of Income Tax (Intelligence and Criminal investigation) who passed the penalty order himself observed in his order vide para No 3 that the assessee got the accounts of all branches consolidated and audited, and also filed Income Tax/TDS returns. The order of the Director of Income Tax (Intelligence and Criminal investigation) does not speak as to how the assessee stood to gain by contravening the provisions of section 285BA of the Act or the act of assessee resulted in any loss to the Revenue. Further, it is an acknowledged and judicially recognized fact that the tax laws of this country are complex and complicated and often require compliance therewith. The assistance of tax practitioners specialising in this field is a well known fact and it is equally well known fact that the legislation in this field undergoes so frequent changes and amendments that it is not possible for even a person specialised in this field, including the tax administrator, to claim that he knows what exactly the law is on a particular given day or period without making references to the history of the enactments. In these circumstances, no mala fides can be attributed to the assessee so as to invoke the penalty proceedings under section 271FA of the Act. The Director of Income Tax (Intelligence and Criminal investigation) should have taken note of fact that the breach is only technical or venial breach of the provisions of the Act and such a breach could have flown from a bona fide ignorance of the assessee that he is liable to act in the manner prescribed by the statute, and should not have invoked the penalty proceedings. [In favour of assessee] (Related Assessment year : 2011-12) - [Malda District Central Co-op Bank Ltd. v. Director of Income-tax (I & CI), Kolkata (2016) 72 taxmann.com 306 (ITAT Kolkata)]

Insertion of the proviso to Section 113, is clearly a substantive provision and hence is to be construed prospective in operation

The charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to Section 113, is clearly a substantive provision and hence is to be construed prospective in operation. The amendment neither purports to be merely clarificatory nor is there any material to suggest that it was intended by Parliament. Furthermore, an amendment made to a taxing statute can be said to be intended to remove 'hardships' only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from 01.06.2002. – [CIT v. Vatika Township (P) Ltd. – Date of Judgement : 15.09.2014 (SC)]

 

Section 92CA(2A), though substantive provision, applies to all proceedings pending on 01.06.2011 & TPO can examine un-referred transactions. Section 92CA(2B) applies even to cases where Form 3CEB is filed but the transaction is not reported. DRP has power to hold that TPO had no jurisdiction & to quash his order. Writ cannot be entertained where there is alternate remedy

HELD by the High Court dismissing the Petition:

(i) Though s. 92CA(2A) inserted with effect from 01.06.2011 is a substantive provision and not a procedural one and confers fresh jurisdiction on the TPO, it applies to all proceedings that are pending as of 1.6.2011. Consequently, the TPO has jurisdiction to consider unreported and un-referred international transactions in proceedings that were pending before him on 01.06.2011; - [Vodafone India Service (P) Ltd. v. UOI – Date of Judgement : 06.09.2013 (Bom.)]

Mere breach of some technical provision or a requirement would not ipso facto disqualify an assessee from claiming deduction under Section 80IB of the Act

High Court observed that outside of the Income Tax Act, there may be large number of requirements for the factory owner to be fulfilled and mere breach of some technical provision or a requirement would not ipso facto disqualify an assessee from claiming deduction under Section 80IB of the Act. However, Factory License was the basic requirements of setting up of a factory without which legally it would not be permissible to set up a factory and to commence manufacturing activity.

Accordingly, High Court held that the benefit of Section 80IB was not available where the assessee had not applied for Factory License before April 1st 2004. However, High Court also clarified that in other cases where the assessee had applied for Factory License before April 1st 2004 but was granted the same later, deduction shall be allowable and such cases shall be treated as mere technical default. – [CIT v. Jolly Polymer – Date of Judgement : 16.01.2012 (Guj.)]

Trustees were not aware of the technical provisions of the Act and that would have prevented them from applying for the registration on time. Thus, the rejection of prayer for condonation of delay in filing application was also not justified

The Commissioner, after obtaining a report from the Assessing Officer, rejected the application under section 12A on the reasons that assessee had not filed the returns for the last three years and, therefore, it did not comply with the conditions laid down in section 12A(1)(b); that the assessee had not spent even a single pie for the welfare of the general public except the claim of Rs. 54,249 as repair and maintenance of the Dharamshala; that it had also purchased a car which could not be put into the frame of the objects of the society; that the trust deed did not stipulate that it would take care of regular expenses of the settlor of the trust; and that it could not prove that it had separate account for the personal expenses of the settlor. He also rejected the prayer of condonation of delay by observing that these days charitable trust/Societies are created/established mostly with an eye on the concessional provisions of the Act and by observing the fact that the trust was situated in a remote rural area of Haryana and the plea that trustees were not aware of the technical provisions was not a ground which could prevent them from applying for registration under section 12AA in time.

Held that the Commissioner was not justified in rejecting the claim of the assessee. Apparently, the trust was a charitable one established for the general welfare of the public utility. The reason given for rejection that it had not filed returns for the past three years was no ground and was also not a condition for granting registration. The other reason that it had not spent even a pie for the welfare of the public utility was also not relevant as he himself had stated that a sum of Rs. 54,249 had been spent on repair and maintenance of Dharmashala which was an object of general public welfare. As far as the car was concerned, the same had been given as a donation and was not purchased by the trust and, therefore, nothing adverse could be inferred therefrom. Thus, it was also not a ground for refusing registration. The last ground stated by him that the trust deed did not stipulate that it would take care of the living expenses of the settlor was also not a valid ground. Looking to the facts and circumstances of the case, the CIT was not justified in rejecting the claim of the assessee. The assessee had a reasonable cause for delay in filing of the application as it was situated in a remote rural area of Haryana and the trustees were not aware of the technical provisions of the Act and that would have prevented them from applying for the registration on time. Thus, the rejection of prayer for condonation of delay in filing application was also not justified. [In favour of assessee] - [Baba Samtai Nath Charitable Trust v. CIT (2010) 130 TTJ 97 (ITAT Delhi) (UO)]

Interest on delayed payment of tax can be levied and charged only if the statute that levies and charges the tax makes a substantive provision to this effect

In India Carbon Ltd. & Ors. v. State of Assam 1997 (6) SCC 479 there was delay in payment of central sale tax. The appellants were called upon to pay interest of 24% per annum by the sale tax authorities of the state of Assam under the Assam Sales Tax Act. Following the judgment of the Constitution Bench in J.K. Synthetics v. CCE (supra) among other judgments, the court inter alia went on to hold that there is no substantive provision in the Central Act requiring payment of interest under 50 the Central Sales Tax Act. Though Section 9(2) was pressed into service by the Revenue and the said provision did refer to the power to recover interest under the State Act noticing the absence of any power to recover interest under the Central Act in respect of tax due under the Central Act, the Court took the view that interest could not be demanded from the appellant.

The Supreme Court had held that interest on delayed payment of tax can be levied and charged only if the statute that levies and charges the tax makes a substantive provision to this effect. Therefore, the Apex Court had laid down that where there is no substantive provision requiring the payment of interest, the authorities cannot charge interest on tax for the purpose of collecting and enforcing the payment of tax.

In short, therefore, the principle may be taken to be established that while levy of interest is a part of the adjective law, yet to levy interest there must be substantive provision. Demand for interest can be made only if the legislature has specifically intended collection of interest. We must look at the statutory provisions. – [India Carbon Ltd. & Ors. v. State of Assam 1997 (6) SCC 479 (SC)]

Procedural and substantive provisions of law which embody the principles of natural justice which, when infracted, must lead to prejudice being caused to the litigant in order to afford him relief

In State Bank of Patiala and Ors. v. S.K. Sharma, a Division Bench of this Court distinguished between “adequate opportunity” and “no opportunity at all”, and held that the “prejudice” exception operates more especially in the latter case.

This judgment also speaks of procedural and substantive provisions of law which embody the principles of natural justice which, when infracted, must lead to prejudice being caused to the litigant in order to afford him relief

An order passed imposing a punishment on an employee consequent upon a disciplinary/departmental enquiry in violation of the rules/regulations/statutory provisions governing such enquiries should not be set aside automatically. The Court or the Tribunal should enquire whether (a) the provision violated is of a substantive nature or (b) whether it is procedural in character.

(2) A substantive provision has normally to be complied with as explained hereinbefore and the theory of substantial compliance or the test of prejudice would not be applicable in such a case. – [State Bank of Patiala and Ors. v. S.K. Sharma (1996) 3 SCC 364 (SC)]

 “Marginal notes are not decisive in interpreting a substantive provision of law, but, in case of doubt, they can be relied upon as one of the aids for construction.” – [R. B. Shreeram Religious & Charitable Trust v. CIT (1988) 172 ITR 373 (Bom.)]