Himachal Pradesh High Court Judgments — 2017

The High Court held that the substantial questions of law raised in the present appeal were no longer res integra and were covered by the Court's previous judgment dated 28th November, 2017, in ITA No. 20 of 2015, titled M/s Stovekraft India vs. Commissioner of Income Tax. The Court noted that the assessee had already availed the benefit of exemption to the extent prescribed under the Income Tax Act. Consequently, the Court disposed of the present appeal by making the directions issued in the M/s Stovekraft India case mutatis mutandis applicable to the present case. No specific issue was left undecided; the entire appeal was decided based on the precedent.

The High Court allowed the appeals, quashing and setting aside the orders of the Assessing Officer, Appellate Authority, and Tribunal. The Court held that Section 80-IC of the Income Tax Act is a self-contained code and does not require assistance from notifications of other departments. It found that the authorities below erred in creating an artificial distinction between units established before and after January 7, 2003, and in misconstruing the definition of 'Initial Assessment Year'. The Court clarified that a unit established after January 7, 2003, could claim a 100% deduction even after the initial five years if substantial expansion occurred within the window period of January 7, 2003, to April 1, 2012. The Court ruled that 'substantial expansion' is not limited to one instance, and multiple expansions meeting the criteria are permissible, leading to more than one 'Initial Assessment Year'. Consequently, within the specified window, an undertaking could be entitled to 100% deduction for a period exceeding five years, subject to the ten-year cap under Section 80-IC(6). The Court directed the Assessing Officer to carry out fresh assessments for each appellant.

The High Court found that the factual matrix had not been adequately considered or discussed by the Tribunal and the authorities below. The order of the Appellate Authority lacked reasoning for its conclusions. Consequently, the High Court deemed it appropriate to remand the matter back to the Commissioner of Income Tax for a fresh decision. The Commissioner is to consider the rival contentions of the parties, discuss the factual matrix, and determine if the assessee's case is covered by the High Court's previous decisions in 'Pollution Control Board' and 'Himachal Pradesh Road Transport Corporation'. The Commissioner shall also consider the amendment brought into the statute and Circular No. 21/2016 dated May 27, 2016. The orders of the Commissioner of Income Tax dated December 26, 2008, and the Income Tax Appellate Tribunal dated August 28, 2009, were quashed and set aside. The questions of law were left open to be decided in future proceedings. No specific finding was given on the issues raised.

The High Court held that the respondent's reliance on the 'no dues declaration' and supporting documents was misplaced and unfounded. The Court found that the TDS deductions, particularly given that the date of execution of Annexure R-4 was prior to the TDS deductions and without evidence of contemporaneous bill raising and clearance, suggested that the deductions were made after the declaration. This indicated that despite some bills being transmitted by the petitioner, they remained uncleared and payments unliquidated, thereby giving rise to a subsisting contractual dispute. The Court also dismissed the respondent's argument that the petition was premature due to a pre-arbitration mechanism, citing Demerara Distillers Pvt. Limited vs. Demerara Distiller Limited (2015) 13 SCC 610, which held such mechanisms to be an empty formality and not mandatory. Consequently, the petition was allowed, and an Arbitrator was appointed to adjudicate all disputes.

The High Court held that the arrangement between the Development Authority and HRTC was a stop-gap measure whereby HRTC employees continued to discharge duties for the Authority until it developed its own infrastructure. The Authority was reimbursing HRTC for expenses incurred, including a proportion of salaries. The Court found that HRTC was not rendering professional or technical services as defined under Section 194J. The services were not of a legal, medical, engineering, architectural, accountancy, or technical consultancy nature. Similarly, no managerial, technical, or consultancy services were provided. The payments were purely a reimbursement of expenses incurred by HRTC and apportioned on agreed terms. Therefore, no TDS was required to be deducted. The Court also referred to the Delhi High Court's decision in CIT Vs. M/s. DLF Commercial Project Corporation, which held that reimbursement of expenses is not a revenue receipt and not liable to tax, and that TDS is not obligatory on such payments. Consequently, the substantial questions of law were answered in favor of the assessee.

The High Court held that the Supreme Court decisions relied upon by the Tribunal did not lay down that the rigors of Section 68 of the Income Tax Act would not come into play until the assessee starts production. Rather, the Supreme Court judgments indicate that the burden lies upon the assessee to prove the creditworthiness of creditors and the genuineness of transactions. These facts necessarily have to be adjudicated by the fact-finding authorities. The Court noted that notices were not issued to 11 out of 64 creditors, and the assessee had requested the Assessing Officer to issue summons under Section 131 for their examination. The Tribunal, without discussing the evidence, proceeded to hold that no addition could be made. Accordingly, the High Court quashed the impugned order of the Tribunal and remanded the matter back to the Assessing Officer to examine and decide the case afresh, ascertaining the creditworthiness of creditors and genuineness of transactions as per law. The Court expressed hope that the decision would be taken expeditiously given the assessment years.