Gujarat High Court Judgments — 2018

The High Court held that the impugned notice dated March 26, 2017, issued under Section 148 of the Income-tax Act, 1961, is liable to be quashed and set aside. The Court reasoned that the notice was issued beyond the period of four years from the end of the relevant assessment year (AY 2010-2011). As per the first proviso to Section 147 of the Act, reassessment proceedings beyond four years are permissible only if the assessee failed to make a return or failed to disclose truly and fully all material facts necessary for the assessment. The Court found that the assessee had disclosed full and complete facts during the original assessment under Section 143(3), and these details were examined. The reasons recorded for reopening did not indicate any failure on the part of the assessee to disclose material facts. The Court relied on its own decision in Gujarat Lease Financing Limited v. DCIT and the Apex Court's decision in ACIT v. ICIC Securities Primary Dealership Limited, which held that reopening beyond four years based on a mere relook or change of opinion without new material is not permissible. Therefore, the Assessing Officer lacked jurisdiction to reopen the assessment. The reassessment proceedings were deemed illegal and bad in law.

The High Court held that the issue of when the manufacturing activity commenced was purely a factual matter. The Tribunal, after perusing the material on record, had arrived at a definite factual finding that the manufacturing of production commenced only during the financial year 2001-2002. The Court found no question of law arising from the ITAT's decision. Therefore, the addition made by the Revenue was deleted based on the Tribunal's factual determination. The appeal was dismissed as no substantial question of law was involved.

The High Court held that the impugned notice of reopening under Section 148 of the Income-tax Act, 1961, was without the authority of law and could not be sustained. The Court noted that the petitioner had filed its return for AY 2011-2012, claiming a deduction under Section 10B, and provided necessary details to the AO during the scrutiny assessment. The AO, after examining these details, accepted the claim and framed the assessment under Section 143(3) without making any disallowance. The Court also referred to a previous decision for AY 2008-2009 where a similar Section 10B deduction for the petitioner was upheld by the High Court. The Court reasoned that when a particular claim has been scrutinized by the AO during the original assessment, the AO cannot reopen the case merely to examine another facet of the same claim, especially when there was no failure on the part of the assessee to disclose truly and fully all material facts. Since the very basis for reopening, as articulated in the AO's reasons, was that the claim was not substantiated, and this claim was already accepted after scrutiny, the assumption of jurisdiction under Section 147 was found to be flawed. Therefore, the writ petition was allowed, and the impugned notice was quashed and set aside.

The High Court held that no substantial question of law arose from the order of the Income Tax Appellate Tribunal. The Court noted that the issues were based on concurrent findings of fact by the CIT(Appeals) and the Tribunal. The Court perused the orders on record with the assistance of the learned counsel for the Revenue. The judgment does not detail the reasoning for each specific issue (A to E) but concludes that the appeals do not present any question of law. Therefore, the additions made by the Assessing Officer, which were deleted by the lower appellate authorities, were not disturbed. The operative direction was to dismiss the tax appeals.

The High Court held that the Tribunal had erred in law by concluding that the income earned on the sale of carbon credits was a revenue receipt. The Court noted that it had previously, following judgments of the Karnataka High Court in CIT v. Subhash Kabini Power Corporation and the Andhra Pradesh High Court in Commissioner of Income-tax v. My Home Power Limited, held the issue against the Revenue. Furthermore, in a related case, PR Commissioner of Income Tax Vadodara-1 v. Alembic Limited, the High Court had observed that receipts from carbon credits were in the nature of revenue receipts. The High Court allowed the Tax Appeal, answering the substantial question of law in favour of the assessee and reversing the judgment of the Tribunal to the extent of the taxability of the carbon credit income. The appeal was disposed of.

The High Court held that no question of law arises from the order of the Income Tax Appellate Tribunal. The court dismissed the Tax Appeal. The specific reasoning for dismissing the appeal is that the court found no substantial question of law to be decided. The judgment does not elaborate on the specific findings of the ITAT beyond stating that the addition of Rs. 25,75,000 was deleted by the ITAT on the ground that it was already taxed in the hands of another assessee. The court did not delve into the merits of the ITAT's decision or the arguments raised by the Revenue concerning Section 292C or perversity.

The High Court held that the impugned assessment orders were unsustainable and deserved to be quashed and set aside. Firstly, the Court noted that the Assessing Officer failed to furnish the reasons for reopening the assessment, which is a mandatory requirement as per the decision in GKN Driveshafts (India) Ltd. Secondly, and more importantly, the Court found that treating the alleged embezzlement amount of Rs. 5,43,683/- as income from other sources solely on the basis of an FIR lodged by the employer was illegal and arbitrary. The Court emphasized that the trial for the alleged embezzlement was still pending, and it had not been established or proved that the petitioners had actually embezzled any amount. There was no adjudication by any competent court. Therefore, the alleged misappropriation could not be considered income from other sources. The Court also noted that the Assessing Officer for the Revenue was unable to justify the inclusion of this amount or its treatment as income from other sources. Consequently, the assessment orders were quashed and set aside to the extent they treated the amount of Rs. 5,43,683/- as income from other sources and directed its inclusion in the total income.

The High Court allowed the appeals in favour of the Revenue, reversing the Tribunal's decision to the extent of the deduction allowed. The Court relied on its prior judgment in CIT vs. Moon Star Developers ([2014] 367 ITR 621 (Guj.)), which held that profits arising from the sale of unused FSI, where the utilization of FSI is significantly short of permissible limits, cannot be considered as derived from the housing project itself. The Court emphasized that for the deduction under Section 80IB(10), there must be a direct nexus between the profits and the housing project. The Court noted that while marginal underutilization of FSI might be acceptable, considerable underutilization without special grounds would necessitate bifurcation of profits. The Court also clarified that the second question framed at the time of admission, concerning the calculation of developed land area by dividing total construction by permissible FSI, was based on an incorrect appreciation of facts and law and was therefore not answered. However, by answering the first question in favour of the Revenue, all appeals were allowed, and the Tribunal's judgments were set aside.

The High Court held that the impugned notice for re-opening the assessment could not be sustained for multiple reasons. Firstly, the notice was issued beyond a period of four years from the end of the relevant Assessment Year. The reasons recorded by the AO did not demonstrate any failure on the part of the assessee to disclose material facts truly and fully. Crucially, the AO failed to justify his belief that income chargeable to tax had escaped assessment. The Court noted that the total loan of Rs. 22.18 Crores did not represent the transaction in question, which was valued at Rs. 3.72 Crores. Furthermore, the AO ignored the assessee's plea of repayment of the loan in a subsequent year. The Court also found that the AO's presumption of cessation of liability was baseless. Even if the buyer was dissatisfied and rejected the consignment, it would not extinguish the assessee's liability to repay the loan to the bank. The mere fact that the loan was not repaid during the validity period or for some time thereafter is not conclusive of cessation of liability. Therefore, the impugned notice was set aside, and the petition was allowed.

The High Court terminated the first question concerning the allowability of deduction under Section 80IB(10) in relation to approval and completion certificates issued to the landowner. Regarding the second and sole surviving question, which pertains to the assessee's claim for deduction under Section 80IB(10) on the sale of unused FSI, the High Court noted that the tax effect was extremely small, not exceeding Rs. 1.39 lacs. On this ground alone, the High Court decided not to entertain the tax appeal. Therefore, the appeal was disposed of without a decision on the merits of the second issue. No specific finding was given on the merits of the second issue, and the ratio decidendi is based on the de minimis principle for tax effect.

The High Court held that the profit derived from the sale of unutilized FSI, where the utilization of FSI was significantly short of permissible limits, cannot be considered as derived from the housing project for the purpose of deduction under Section 80IB(10). The Court distinguished between profits directly arising from the development and construction of a housing project and profits incidentally earned from selling surplus FSI. Relying on Supreme Court judgments in Sterling Foods, Pandian Chemicals Ltd., and Liberty India, the Court emphasized the need for a direct nexus between the profits and the industrial undertaking or housing project. The Court noted that while marginal underutilization might be acceptable, substantial underutilization without special justification necessitates bifurcation of profits. The Court reversed the decisions of the ITAT and CIT(Appeals), restoring the AO's order. The question was answered in favour of the Revenue.

The High Court held that the assessee company was indeed a financial company. It reasoned that the company's three principal objects, which included investing in and acquiring shares, bonds, stocks, securities, lending money, and dealing in land and other immovable properties, clearly fell within the nature of investment and loan businesses as defined in Section 2(5B) of the Interest Tax Act, 1974. The court rejected the assessee's argument that only actual activities in a financial year should be considered, stating that this would lead to a fluctuating classification of the company from year to year. Regarding the argument that interest earned on deposits was not taxable, the court noted that this contention was raised for the first time and contradicted the assessee's earlier stand before the lower authorities, where it admitted to advancing money and earning interest. Since no factual dispute was raised or material produced to support the deposit argument, it was rejected. Therefore, the question was answered against the assessee.

The High Court held that no question of law arose from the ITAT's order. Regarding the first set of issues (1-4), the court noted that the evidentiary value of statements and the assessment of materials on record, including retracted statements, are essentially questions of fact. For the remaining issues (5-13), which pertained to individual additions deleted by the CIT (Appeals) and confirmed by the Tribunal, the High Court, after perusing the record and hearing the Revenue's counsel, was satisfied that all deletions were based on evidence on record. The court found that the CIT (Appeals) and the Tribunal were concurrent in their conclusions, and the deletions were essentially based on facts. Therefore, the Tax Appeal was dismissed.

The High Court held that no question of law arises from the order of the Income Tax Appellate Tribunal. The Tribunal had deleted the penalty under Section 271(1)(c) of the Income Tax Act, 1961. While the quantum additions were under appeal by the Revenue and admitted by the High Court, the Tribunal had also relied on the ground that the assessee had not concealed any particulars of income and had provided all necessary information. The High Court, in its oral order, found no substantial question of law to entertain the appeal. Therefore, the Tax Appeal was dismissed. The operative direction was the dismissal of the appeal.

The Tribunal upheld the decision of the CIT(A) in deleting the addition of Rs. 10,89,39,900 on account of 'on-money'. The Tribunal relied on the judgment of the Gujarat High Court in the case of Principal Commissioner of Income-tax vs. Saumya Construction Pvt. Limited, [2016] 387 ITR 529 (Guj.). This judgment held that when no incriminating material is available in the search, additions made by the Assessing Officer are not justified. Consequently, the Tax Appeals filed by the Revenue were dismissed. The issue regarding quashing of assessment proceedings under Section 153A was implicitly decided in favour of the assessee by upholding the deletion of additions based on the principle that no incriminating material was found.

The High Court held that the ITAT had relied on its own judgment in the case of Principal Commissioner of Income-tax vs. Saumya Construction Pvt. Limited ([2016] 387 ITR 529 [Guj.]). This precedent established that when no incriminating material is available from a search, additions made by the Assessing Officer are not justified. Consequently, the High Court found the Tax Appeals to be without merit in light of this settled legal position. The operative direction was to dismiss the appeals. The judgment does not expressly leave any issue undecided.

The High Court held that the Income Tax Appellate Tribunal (ITAT) was correct in its view. The Tribunal had noted that the Assessing Officer (AO) had taken a particular view regarding the assessee's investments, which was considered a plausible view. Furthermore, the Tribunal observed that the Investigation Wing of the department had also inquired into these transactions, and the assessee had provided complete details. The funds received by the assessee, Shital Shah, from M/s. Sheetal Bio Agritech Limited through banking channels were utilized for the share investments. The Court found no error in the ITAT's decision and concluded that no question of law arose from the ITAT's order. Consequently, the Tax Appeal filed by the Revenue was dismissed.

The High Court held that no question of law arises from the order of the Income Tax Appellate Tribunal. The Tribunal, in its order, had confirmed the deletion of the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961. This deletion was based on the reasoning that the disallowance of the bad debt claim by the Assessing Officer was made due to a retrospective amendment to Explanation 1 to Section 36(1)(vii). This amendment stipulated that bad debts are allowable only upon actual write-off. Both the Commissioner of Income Tax (Appeals) and the Tribunal were of the opinion that imposing a penalty based on the retrospective application of a legal provision is not permissible, a principle considered well-settled. Consequently, the appeal filed by the Revenue was dismissed.

The High Court agreed with the view of the CIT(A) and the Tribunal that the surplus of Rs. 67,16,76,274 was not taxable income. The reasoning was that the Gujarat State Civil Supplies Corporation Limited is essentially an arm of the State Government, carrying out an essential public distribution function. The surplus represented Government funds that the Corporation was permitted to retain under various Government Resolutions, representing a conscious decision by the Government. The Court also noted that in the past, the Assessing Officer had accepted the Corporation's accounting treatment. The Court focused on the first issue and did not decide the second issue concerning Rs. 2,87,265, stating it was of a small amount and could be considered in an appropriate case. The operative direction was to dismiss the appeal.

The High Court dismissed the Tax Appeal filed by the Revenue. The Court noted that the ITAT had passed a common judgment setting aside several appeals, some of which concerned the assessee's appeals on quantum additions. The ITAT had found the Revenue's additions and disallowances to be incorrect. While acknowledging that for the current assessment year, the assessee might not have appealed the quantum additions, the Court reasoned that when identical grounds for other years led to the deletion of additions by the ITAT, there would be no basis for levying a penalty. Therefore, the ITAT's decision to delete the penalty was upheld. The operative direction was the dismissal of the Revenue's appeal.

The High Court broadly agreed with the view expressed by the revenue authorities and confirmed by the Tribunal. The court found that the assessee's correspondence with prospective buyers and sellers primarily constituted market surveys. There was nothing on record to suggest active solicitation of business or negotiations at an advanced or concrete stage. A significant time gap existed between such correspondence and actual sale/purchase transactions, leading the AO to refuse to link them. The court also noted the absence of income generation and the difficulty in justifying staff payments. The Tribunal's finding that there was no evidence of registration as a trading concern or procurement of statutory licenses further supported the conclusion. The Delhi High Court decisions relied upon by the assessee were distinguished as they were based on facts showing active groundwork for manufacturing or trading, which was not evident in this case. Therefore, the expenditure was not allowed as business expenditure.

The High Court held that no question of law arises from the order of the Income Tax Appellate Tribunal. The Court noted that the Commissioner of Income Tax (Appeals) and the Tribunal had analyzed the expenditure and the statutory provision under Section 40A(2)(b) and found that the requirements of the said provision were not fulfilled. Consequently, the Tax Appeal filed by the Revenue was dismissed. The reasoning implies that the ITAT's finding that the conditions for disallowance under Section 40A(2)(b) were not met was a finding of fact, and no substantial question of law was presented to the High Court for its consideration. The operative direction was the dismissal of the appeal.