Bombay High Court Judgments — 2011

The Tribunal was justified in allowing the claim of Rs. 45,21,000/- as revenue expenditure. The Tribunal held that by paying the charges, the assessee did not acquire any right or control over the gas facility. The facilities served the sole purpose of supplying gas to the assessee's works, making it an integral part of the profit-earning process. This facilitated carrying on the assessee's business more efficiently without providing any enduring benefit. The Tribunal relied on the Apex Court judgments in Empire Jute Co. Ltd. v. CIT and L.H. Sugar Factory and Oil Mills (P) Ltd. v. C.I.T., U.P., and the Bombay High Court decision in CIT v. Excel Industries Ltd. The High Court found no fault with the Tribunal's decision, noting that the assets remained the property of Mahanagar Gas Ltd. and the sole object of the payment was to get gas to facilitate the manufacturing activity. The appeal was dismissed.

The High Court held that exchange traded derivative transactions are speculative transactions covered under Section 43(5) of the Act. The Court reasoned that these are contracts for purchase or sale of commodities (including stocks and shares) settled otherwise than by actual delivery. The Court rejected the assessee's argument that derivatives are not commodities or shares, stating they are articles of trade on the stock exchange. Furthermore, the Court held that clause (d) inserted to the proviso to Section 43(5) is prospective in nature, effective from 1-4-2006. Therefore, it does not apply to transactions undertaken in AY 2003-04. The ITAT's decision to the contrary was found to be in error. The loss incurred by the assessee was liable to be treated as speculative loss, not business loss.

The High Court held that the submission made on behalf of the applicant (Commissioner of Central Excise) had considerable substance. It noted that prior to the amendment, the High Court had no power to condone delay beyond 180 days in filing appeals under Section 35-G. However, Section 108 of the Finance (No.2) Act, 2009, inserted sub-section (2-A) into Section 35-G, which specifically conferred power on the High Court to condone delay beyond 180 days if satisfied of sufficient cause. This insertion was deemed to have effect from July 1, 2003. Following the interpretation of this amendment by another Division Bench in VIP Industries Ltd. Versus The Commissioner of Central Excise (2011) 264 E.L.T. 24 (Bom), the Court found no hesitation in allowing the review applications. The Court distinguished the case of CIT Versus The West Coast Paper Mills Ltd. (2009) 319 ITR 390 (Bom) by stating it concerned the maintainability of a review petition under Section 260A of the Income Tax Act, 1961, and not a review in light of a retrospective statutory amendment. The operative direction was to recall the judgment dated June 12, 2009, restore the miscellaneous civil applications to the file, and list them for hearing.

The High Court held that while the filing of an appeal does not automatically render a Writ Petition non-maintainable, the applicability of this principle depends on the facts and circumstances. In this case, there were disputed questions of fact, specifically concerning whether the interest in the companies was substantial and whether Section 2(22)(e) was attracted. These factual disputes could not be resolved on affidavits and required a proper factual inquiry, which is best undertaken by the appellate authority. The Court noted that the assessing officer had passed a speaking order prima facie concluding that the assessee had common directors and substantial interest, and that the amount was treated as deemed dividend. The Court found the reliance on Anil Radhakrishna Wani (supra) to be misplaced due to the distinct factual matrix. Citing Commissioner of Income Tax, Calcutta V/s Mukundray Shah (2007) 4 SCC 327, the Court emphasized that whether a payment is for the benefit of the assessee and the existence of accumulated profits are questions of fact. Therefore, the Court declined to exercise its writ jurisdiction, deeming the appeal to be an efficacious remedy, and dismissed the Writ Petition.

The High Court held that the reopening of the assessment beyond four years from the end of the relevant assessment year was not valid. The Court found that the reasons recorded by the Assessing Officer did not contain any allegation of suppression of material facts by the assessee. The original assessment under Section 143(3) was made after the Assessing Officer had called for and received all particulars relating to the transfer of development rights. The Court noted that the question of whether indexation is allowable or whether the capital gains should be treated as long-term or short-term are issues to be decided on merits, and the assessee cannot be said to have suppressed material facts in these regards. Furthermore, the Court observed that the development rights were available even before the Board of Directors passed the resolution to transfer them, making the date of the resolution irrelevant for computing capital gains. Consequently, the impugned notice for reopening, the order rejecting objections, and the reassessment order were quashed and set aside.

The High Court, by consent, took up the appeal for hearing and final disposal. For issues (A), (B), (C), and (D), the Court found no substantial question of law arising. Regarding (A), the Tribunal's decision was based on the CIT(A)'s order for the preceding year, which had attained finality. Regarding (B), the Revenue had no grievance as they were not in appeal before the Tribunal on this issue, and the Tribunal confirmed the CIT(A)'s order. Regarding (C), the Tribunal followed its earlier orders, which were confirmed by the High Court. Regarding (D), the Revenue conceded the issue was covered by a Supreme Court judgment. However, for issues (E) and (F) concerning the addition to the value of inventory and goods in process, the High Court found that the Tribunal had failed to independently apply its mind. The Tribunal merely relied on the CIT(A)'s elaborate discussion without independent evaluation. The Court held that the fact that the issue for AY 1990-91 might have a cascading effect on other years was not sufficient reason for the Tribunal to avoid applying its mind to the merits. Therefore, the High Court set aside the Tribunal's order on these two grounds and remitted the appeal back to the Tribunal for a fresh decision, without expressing any opinion on the merits.

The High Court held that the notice dated March 29, 2010, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for assessment year 2003-04, was not sustainable. The Court noted that the reopening was sought beyond the period of four years from the end of the relevant assessment year. As per the proviso to Section 147 of the Act, reopening beyond four years is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts. The Court found no material on record to suggest such a failure by the assessee. The Assessing Officer's presumption about the failure to achieve the value addition was not supported by the licensing authority's stance. Therefore, the notice for reopening was quashed and set aside, along with the order rejecting the assessee's objections.

The High Court held that prior to April 1, 2005, Section 80IB(10) allowed deduction for housing projects approved by the local authority, even if they included commercial units, provided the commercial user was permitted under the respective local authority's Development Control (DC) Rules/Regulations. The Court found no justification for the Tribunal's restriction of this deduction to projects with commercial user up to 10% of the plot area, as such a restriction was introduced only by clause (d) effective April 1, 2005. The Court also held that the deduction under Section 80IB(10) is on the entire project approved by the local authority, not a part of it. However, since the assessee did not challenge the Tribunal's decision to restrict the deduction to a part of the project (the residential buildings), the Court did not disturb that finding. The Court affirmed that clause (d) of Section 80IB(10), introduced with effect from April 1, 2005, is prospective and cannot be applied retrospectively. The appeal was disposed of accordingly.

The High Court held that the challenge to the assessment order dated 29/12/2009 could not be entertained as the assessee had an alternate remedy of filing an appeal to agitate whether the assessing officer was bound to consider additional evidence beyond those permitted by the ITAT. Regarding the ITAT's rejection of the miscellaneous application, the Court found no fault. It reasoned that the ITAT has no power to review its own orders once an appeal has been disposed of on merits. Unlike Civil Courts, which are expressly granted review powers under the Code of Civil Procedure, the Income Tax Act does not confer such powers upon the ITAT. Therefore, the ITAT correctly rejected the miscellaneous application. The Court also found the decisions relied upon by the petitioner to be irrelevant, as they pertained to the review powers of Civil Courts or the allowability of additional evidence before the disposal of an appeal, not after.

The High Court held that Section 80IA(9) does not affect the computability of deductions under other provisions of Chapter VI-A, but it does affect the allowability of such deductions. The Court reasoned that the plain language of Section 80IA(9) indicates that it relates to the allowance of deductions, not their computation. The Court found it difficult to subscribe to the views of the Delhi and Kerala High Courts, noting that in the Delhi High Court case, the Revenue itself had argued that Section 80IA(9) applies at the stage of allowing deduction, not computation. The Court's interpretation, supported by CBDT Circular No. 772, is that the aggregate deduction under Section 80IA and other provisions under Heading 'C' of Chapter VI-A should not exceed 100% of the profits of the business. For example, if profits are Rs. 100, 80IA deduction is Rs. 30, and 80HHC computed deduction is Rs. 80, then the 80HHC deduction would be restricted to Rs. 70 to ensure the total deduction does not exceed Rs. 100.