Bombay High Court Judgments — 2017

The Tribunal, in its impugned order dated April 11, 2016, had considered the petitioner's submission. It concluded that no error apparent on the record existed in the order dated August 26, 2015, which would necessitate rectification under Section 254(2) of the Income Tax Act, 1961. The High Court agreed with this conclusion, stating that the appreciation of evidence cannot be a subject matter for rectification of an error apparent on record. The Court found no reason to interfere with the Tribunal's order. Therefore, the remedy, if any, for the petitioner concerning the August 26, 2015 order would be to file an appeal against it, rather than seeking review under the guise of rectification. The petition was dismissed.

The High Court dismissed the writ petition. Regarding the first issue, the Court found that the Petitioner had not demonstrated any flaw in the decision-making process of the ITSC, nor was the order perverse. The Court noted that the Petitioner had accepted the impugned order and demanded payments based on it, indicating acceptance that the term 'mafia' was used loosely and did not violate Section 37. Furthermore, the Court observed that the time for rectification applications had expired and the members who passed the order had retired, reinforcing the finality of the order. On the second issue concerning Sections 37 and 40A(3), the Court held that the ITSC allowed only 78% of the expenditure, implying that all payments, including those to 'mafia', were factored into the settlement. The Court emphasized that disallowance is based on the purpose of the expenditure, not the recipient, and that payment to 'mafia' is not inherently an offense or prohibited by law. Regarding penalty immunity, the Court found that Section 245H of the Act does not exclude Sections 271D and 271E from the Commission's power to grant immunity. The Court concluded that any perceived mistake in the ITSC's order regarding immunity from penalties under Sections 271D and 271E was a 'mistake on the face of it' and did not warrant interference, especially since the ITSC intended to grant partial immunity and the Petitioner had not sought rectification.

The High Court held that the Assessing Officer is bound to dispose of objections filed by the assessee to the issuance of a notice under Section 148 by passing a speaking order, as per the Supreme Court's decision in GKN Driveshafts (India) Ltd. vs. Income Tax Officer & Ors. The Court found that in the present case, no speaking order was passed dealing with the specific objections raised by the Petitioner. The Petitioner's communication dated December 6, 2016, clearly contained factual and legal objections, including a reference to a Tribunal decision. The Court rejected the Revenue's contention that the recitals in the Section 142 notice could substitute for a speaking order. Furthermore, the Court held that the failure to issue a speaking order vitiates the subsequent proceedings, including the Assessment Order. The Court also noted that the Petitioner's absence on December 19, 2016, was justified as it was a public holiday. Consequently, the Assessment Order was quashed, and the Respondents were directed to pass a speaking order on the objections and proceed in accordance with law. The Court also relied on the Andhra Pradesh High Court's judgment in Kohinoor Hatcheries Pvt. Ltd. vs. Deputy Commissioner of Income-Tax & anr, which established exceptions to the alternative remedy rule when statutory authorities act in defiance of provisions or principles of natural justice.

The High Court answered both questions in the affirmative, favoring the Revenue on the second question and against the assessee on the first. Regarding Question (i), the Court held that an appeal under Section 246(1)(c) is maintainable if the assessee denies its liability to be assessed and/or to the levy of tax and interest. However, it found that the assessee's arguments regarding Section 80J and its interpretation did not constitute a denial of liability to interest under Section 215. The Tribunal's finding that the assessee was not in a case of denial of liability to tax or interest was upheld. For Question (ii), the Court held that the assessee was liable to pay interest under Section 215. It distinguished the assessee's reliance on cases like Rainbow Industries Pvt. Ltd. and EMMTILI Engineering Ltd. by noting that those decisions were based on specific findings of fact by the Tribunal and that they ignored Section 215(4), which deals with waiver or reduction of interest. The Court emphasized that arguments of hardship or bona fide conduct are relevant for waiver under Section 215(4), not for interpreting the primary liability under Section 215(1), citing the principle that equitable considerations are out of place in interpreting taxing statutes. The assessee's claim that non-payment was due to circumstances beyond its control and reasonable cause did not warrant deletion of interest under Section 215(1).

The High Court held that an appeal against an ITAT judgment can only be entertained on a substantial question of law, as mandated by Section 268 of the Act. The assessee, after receiving notices under Sections 147 and 148, submitted to the jurisdiction of the authorities without raising objections at the relevant time, allowing proceedings to continue. The assessee submitted fresh accounts before the Commissioner (Appeals), which were considered. The Court stated it cannot enter into factual disputes unless there is manifest illegality or perverse findings of fact, which were not made out. The primary contention regarding the initiation of proceedings under Sections 147 and 148 was never raised before any authority or the Tribunal. Since the assessee submitted to jurisdiction and the authorities considered the evidence and arrived at plausible conclusions, it was too late for the High Court to consider the objection. Therefore, no substantial question of law arose.

The High Court answered all four questions in the affirmative, in favour of the assessee and against the Revenue. Regarding investment allowance (Question 1) and additional depreciation (Question 3), the Court relied on the Supreme Court's decision in CIT vs. Shaan Finance (P.) Ltd. The principle established was that where an assessee's business involves hiring out machinery, or derives income from hiring machinery, the assessee is considered to have used the machinery for its business. Therefore, a leasing company owning machinery and leasing it out is entitled to investment allowance and additional depreciation, even if the lessees use it for manufacture. The Court noted that Section 32(1)(iia) for additional depreciation is in pari materia with Section 32A(1) for investment allowance in this regard. For extra shift allowance (Question 4), the Court followed the Supreme Court's decision in CIT vs. Maharashtra Apex Corporation Ltd., which, in turn, relied on Shaan Finance (P.) Ltd. The ruling was that the assessee is entitled to extra shift allowance even if it is the lessee and not the one directly using the machinery in double shifts, provided the lessees did work in extra shifts, which was confirmed by certificates produced before the AO. Question 2 regarding Rule 6D disallowance was also answered in favour of the assessee, as previously decided by the Court in the assessee's own case.