Rajasthan High Court Judgments — 2010

The Tribunal dismissed the appeal filed by the Commissioner of Income Tax. The Court found that the benefit under Section 32 of the Income Tax Act was not granted in absolute terms by the Commissioner of Income Tax (Appeals). Instead, the benefit was made subject to the provisions of Section 56(1)(ii) and Section 57(ii) of the Act. The Court noted that the Commissioner of Income Tax (Appeals) had observed that although the appellant company did not carry out manufacturing activity, the plant and machinery were put to use, generating job work/hire charges income of Rs. 6,60,000/-. This income was to be taxed under the Head 'Income from other Sources', and the assessee would be entitled to deduction under Section 32 read with Section 57(ii). The Assessing Officer was directed to assess the amount accordingly. Since the only argument raised by the Revenue was on the ground of allowing absolute benefit under Section 32, which was not supported by the order, the Tribunal found no substantial question of law. The appeal was accordingly dismissed.

The Tribunal dismissed the appeal, following a similar order passed in D.B. Income Tax Appeal No.223/2010. The Court observed that the benefit under Section 32 of the Income Tax Act was not granted in absolute terms but was made subject to the provisions of Section 56(1)(ii) and Section 57(ii) of the Act. The Commissioner (Appeals) had noted that although the company did not carry out manufacturing activity, the plant and machinery were put to use, generating job work/hire charges income of Rs. 6,60,000/-. This income was to be treated under the head 'Income from other Sources' as per Section 56(1)(ii), and the Assessee would be entitled to deduction under Section 32 read with Section 57(ii). The Court found that the Revenue's argument of an absolute benefit under Section 32 was not supported by the order. Therefore, no substantial question of law arose for entertaining the appeal.

The High Court held that the appeal does not involve any substantial question of law as required by Section 260-A of the Income Tax Act. The Court reasoned that the issue primarily concerned a pure question of fact, specifically the acceptance or rejection of the assessee's explanation for the source of income. The High Court stated that it cannot undertake a fresh examination of factual issues or draw factual inferences in an appeal under Section 260-A. It further held that once an appellate court, such as the Tribunal, has examined the explanation and recorded a finding that it is not worthy of acceptance, such a finding is binding on the High Court. The Court noted that the Tribunal had examined the assessee's explanation in detail and found it unmeritorious, leading to the upholding of the AO's additions. The submission regarding loose papers was also dismissed as not raising a substantial question of law, as they were considered for examining the source of income. Therefore, the appeal was dismissed in limine.

The High Court held that the Income Tax Appellate Tribunal had taken into consideration various factual matrices and seized material. The inference drawn by the ITAT was purely based on questions of fact. The Court also noted that the amount of addition was not substantial enough to warrant interference with a finding of fact. Consequently, the High Court found no justification in interfering with the findings recorded by the ITAT and concluded that no substantial question of law was involved. The appeal was dismissed.

The High Court held that the ITAT had recorded a finding of fact after duly considering various aspects, including the assessee's declared gross profit rates in earlier years. The Court noted that the assessee maintained regular books of account, including cash book, ledger, and vouchers for purchases, sales, and expenses, and these books were audited without adverse remarks. The Assessing Officer had not detected any unaccounted purchases or sales, and the entire turnover was vouched. The Court found that the non-maintenance of a stock register was not vital given the facts. Considering the nature of the business, the ITAT's conclusion that rejection of books of account was not justified was upheld. The Court also took into account the doubling of turnover compared to the preceding year, the net profit rates for both years, and the admitted increase in raw material and stitching costs. The ITAT's finding to apply a GP rate of 16.67% was considered purely fact-based and not perverse, thus not warranting interference in appeal. Consequently, no substantial question of law arose. The appeal was dismissed.

The High Court held that the order passed by the ITAT did not suffer from any legal infirmity. The ITAT had correctly found that the assessment was reopened essentially due to a 'change of opinion' and not because of escapement of income. The Tribunal also correctly noted that when an assessment is reopened after four years from the end of the assessment year, escapement of income must be due to the assessee's failure to file a return or failure to disclose fully and truly all material facts. The Assessing Officer had not alleged any such non-disclosure. The sole basis for reopening was the change in the Assessing Officer's view on the appropriateness of the accounting system. The ITAT's reliance on CIT & Anr. vs. Foramer France-264 ITR 566 was deemed appropriate. Consequently, the appeals filed by the revenue did not raise any substantial question of law and were dismissed.

The High Court held that the order passed by the ITAT did not suffer from any legal infirmity. The Tribunal had correctly found that the assessment was reopened essentially due to a change of opinion, which is not permissible even under the amended provisions of Section 147. Furthermore, when reopening occurs after four years from the end of the assessment year, escapement of income must be due to the assessee's failure to file a return or failure to disclose fully and truly all material facts. The Assessing Officer had not alleged any such non-disclosure at the time of the original assessment. The sole basis for reopening was the change in the Assessing Officer's view on the appropriateness of the assessee's accounting system. The ITAT's reliance on the Supreme Court judgment in CIT & Anr. vs. Foramer France, holding that reopening on mere change of opinion without non-disclosure is not permissible, was upheld. Consequently, the appeals filed by the Revenue did not raise any question of law and were dismissed.

The High Court held that the question of whether the sale of shares and the receipt of consideration at an appreciated value is essentially a question of fact. The Court noted that both the CIT (Appeals) and the ITAT had provided reasons for their findings. Specifically, they found that the broker was not banned by SEBI at the time of the transactions. Furthermore, the assessee had produced various supporting documents, including purchase bills, contract numbers, share certificates, transfer applications, holding statements, balance sheets, sale bills, bank account details, Demat account details, and official reports and quotations from the Calcutta Stock Exchange Association Limited. Consequently, the Court concluded that the present appeal did not raise any question of law, let alone a substantial question of law.

The High Court held that the appeal was devoid of any merit and did not involve any substantial question of law within the meaning of Section 260-A of the Income Tax Act. The Court agreed with the Tribunal's reasoning for remanding the case. It observed that the CIT(A) had made uncalled-for adverse comments on the Tribunal's earlier remand order and had decided factual issues contrary to the Tribunal's directions. The Court emphasized that a subordinate appellate authority is legally obligated to exercise its powers within the parameters set by a higher appellate authority and that the CIT(A) had no jurisdiction to comment adversely on the Tribunal's order or to ignore its mandate. The Court found that the Tribunal, as an appellate court, had the jurisdiction to remand the case. Since the impugned order was a remand order and did not decide any issue on merits, and the entire issue was left open for decision by the CIT(A), no prejudice was caused to either party. The Court found that the case laws relied upon by the assessee were not applicable to the facts of the present case. Consequently, the appeal was dismissed in limine.

The High Court held that the assessee was not entitled to carry forward and set off the losses of the State Bank of Jaipur. The Court interpreted Section 78(2) of the Income Tax Act, 1961, which allows set-off of losses if the succeeding person has derived them by way of inheritance. The Court found that the merger of one company with another, even if it results in continuity of business, cannot be considered a case of succession by inheritance. For the purpose of Section 78(2), two companies, even after merger, are to be treated as different persons and not the same assessee. The Court referred to its own decision in *Rajasthan Rajya Sahakari Spinning and Ginning Mills Federation Limited's case* and the Karnataka High Court's decision in *Hindustan Aeronautics Limited's case*, which held that a successor company is not entitled to carry forward losses of its predecessor unless it is a case of inheritance. The Supreme Court's decision in *Saroj Aggarwal* was distinguished as a clear case of inheritance involving a widow joining a firm. The Court concluded that the precondition of deriving losses by way of inheritance was not fulfilled, and therefore, the assessee could not claim the set-off. The reference was answered accordingly.

The High Court held that approach roads constructed within the boundary wall of factory premises should be treated as part of the building for the purpose of allowing depreciation. The Court concurred with the view expressed by various High Courts, including the Andhra Pradesh High Court in Panyam Cement and Mineral Industrial Limited (117 ITR 770) and the Bombay High Court in Motwane Manufacturing Company's case. The reasoning was that such roads are constructed to augment the utilization of the building/factory by providing access thereto. Therefore, the Tribunal was justified in its decision. The reference was answered in favour of the assessee. The operative direction was to allow depreciation on the approach roads as part of the building.

The High Court held that the arguments of the assessee regarding non-consideration of relevant material evidence or reliance on inadmissible evidence could not be accepted. The Court found that the ITO's assessment order was based on information gathered during a search of M/s B.C. Purohit & Company, which indicated that M/s Prakash Nahta & Company, Kolkata, was involved in providing accommodation entries for LTCG on shares of M/s Bolten Property Limited. The Court noted that the statement of Shri Prakash Purohit (grandson of Shri B.C. Purohit) corroborated this, stating that M/s Prakash Nahta and Company provided accommodation entries. The Court also observed that the assessee failed to appear or respond to letters from the ITO, despite opportunities given. The CIT(A) and ITAT upheld these findings, noting the lack of proof of actual delivery of shares and that the shares were dematerialized immediately before sale. The conclusion drawn by all authorities was that the LTCG was managed to channelize undisclosed income. Consequently, the Supreme Court judgments relied upon by the assessee were held to have no application. The appeal was dismissed summarily.

The High Court held that the appeal does not involve any substantial question of law. The court reasoned that the issue primarily concerns a question of fact, specifically the acceptability of the explanation offered by the assessee regarding the source of income. The High Court stated that it cannot re-examine factual issues or draw factual inferences in an appeal under Section 260-A. The Tribunal had examined the assessee's explanation in detail and found it unsatisfactory, leading to the upholding of the additions made by the AO. The court found no error in the Tribunal's reasoning or its conclusion that the explanation was not worthy of acceptance. The High Court emphasized that a factual finding by the Tribunal would only constitute a substantial question of law if it were entirely dehors the subject, based on no reasoning, absurd reasoning, or against a provision of law. Since none of these conditions were met, the appeal was dismissed in limine. The operative direction was to dismiss the appeal.

The High Court dismissed the appeal in limine, holding that it did not involve any substantial question of law as required under Section 260-A of the Income Tax Act. The Court reasoned that the ITAT had examined the assessee's explanation in detail and recorded a finding for its acceptance. Such a factual finding, when challenged, does not constitute a substantial question of law. The Court stated that it cannot undertake a re-examination of factual issues or draw factual inferences in an appeal under Section 260-A. The Court emphasized that once an appellate court (the Tribunal) accepts an explanation, its finding on such explanation is binding on the High Court. The Court found no error in the Tribunal's detailed appreciation of the explanation and its decision to delete the additions. Regarding the conflicting statements, the Court held that it was a matter of explaining the source of income, and the Tribunal, as the last court on facts, was empowered to appreciate the explanations and record findings, which it had done.

The High Court held that the ITAT's judgment was not infirm and did not warrant interference. The court reasoned that the provisions of Sections 69, 69A, 69B, and 69C are invoked when an assessee fails to offer a satisfactory explanation about the nature and source of investments, money, valuable articles, or expenditure not recorded in the books of account. The satisfaction of the AO regarding the correctness and completeness of the books of account under Section 145 is intrinsically linked to the satisfaction required for invoking these deeming provisions. In this case, the appellant-assessee failed to provide any satisfactory explanation or cogent evidence for the issues raised. The concurrent findings of the AO, CIT(A), and ITAT against the assessee were not perverse or erroneous. The court distinguished the cited judgments, noting that in this case, the assessee failed to offer satisfactory explanations, unlike in the cited cases where explanations were accepted or evidence was produced. Therefore, the appeal was dismissed.

The High Court held that the appeal did not involve any substantial question of law, as required by Section 260-A of the Income Tax Act, 1961. The Court noted that the core issue related to the process of best judgment assessment. The CIT(A) had identified a fundamental error in the AO's approach by reducing sublet premium from gross contract receipts, finding it was correctly claimed in the Profit & Loss account. The CIT(A) also upheld the 5.55% net profit rate computation based on the record and CBDT guidelines. The Court considered the finding that a basis for the profit rate existed on record as a question of fact and appreciation of evidence. Regarding the AO's use of the previous year's 8.17% rate, the Court observed from the CIT(A)'s order that this rate was based on a lump sum addition of Rs. 50,000/- in the previous year, which was insufficient to form a basis for estimating the current year's profit rate. Given the concurrent findings of the CIT(A) and the Tribunal on these factual matters, no substantial question of law arose. The appeal was dismissed.

The High Court held that none of the grounds raised by the Revenue gave rise to a substantial question of law. The Court found that every aspect questioned in the appeal essentially related to questions of fact. The Tribunal had meticulously dealt with each item and ground. For grounds where the CIT(A) and Tribunal had concurrent findings, no question of law arose. In other instances, like the investment in house construction and renovation of a shop, the Tribunal had consciously taken note of facts, recorded findings, and remitted issues to the AO for necessary enquiry, which also pertained to questions of fact. The Court found the Revenue's contention regarding the rebate for conversion from CPWD to PWD rates to be worthless, noting that the Tribunal had reduced the rebate from 20% to 15% after considering relevant decisions and the facts. The Court also held that remitting questions to the AO for re-determination was within the Tribunal's appellate powers and did not finally decide the rights of the parties, thus not giving rise to a substantial question of law. The appeal was dismissed.

The Tribunal decided each ground as follows: Grounds 1 & 2 (unexplained cash): Remitted to the AO for proper adjudication, allowing credit for reasonable savings, pin money, Stridhan, cash with the firm, and ensuring no double taxation. Grounds 3, 4 & 5 (jewellery/ornaments): Set aside the CIT(A)'s decision and restored to the AO for proper verification and decision, noting procedural lapses by the CIT(A) and the applicability of Section 69B. Ground 6 (household withdrawals): Modified the CIT(A)'s order, finding the AO's estimate excessive and unreasonable, and worked out annual drawings. Ground 7 (marriage expenditure): Sustained addition after modification. Ground 8 (household/valuable items): Remitted to the AO for fresh adjudication. Ground 9 (FDRs and interest): Rejected the Revenue's ground, finding the CIT(A)'s deletion justified based on the assessee's explanation and the AO's failure to examine it. Ground 10 (construction of shops/house): Set aside the CIT(A)'s order and remitted to the AO for fresh decision, noting the CIT(A)'s order was silent on material aspects and lacked proper verification. Ground 11 (surcharge): Allowed in favour of the Revenue, with reference to the Supreme Court decision in CIT vs. Suresh N. Gupta. The High Court, in its appeal, found that the issues before the ITAT were essentially questions of fact and no substantial question of law arose, thus dismissing the Revenue's appeal.

The Tribunal's order, which provided for a 35% reduction on the cost of construction of the building as estimated by the DVO and fixed agriculture expenses at 29%, was found to be not requiring interference. The High Court, in its order dated March 15, 2010, passed in similar appeals involving identical issues, had taken a view that supported the Tribunal's findings. Therefore, following its own previous decision, the High Court held that the present appeal filed by the Revenue also fails. The ratio decidendi is that when identical issues have been decided by the High Court in previous cases, subsequent appeals raising the same issues should be dismissed summarily, following the precedent. The operative direction was to dismiss the appeal.

The High Court held that no substantial question of law was involved in the four appeals. Regarding the construction cost, the Court found no error in the Tribunal's approach, which allowed a 20% deduction for scaling down from CPWD to PWD rates, 12% rebate for self-supervision charges, and deleted the 3% addition for architect/engineer's fees. The Court noted the ITAT's reliance on the jurisdictional High Court's decision in CIT vs. Prem Kumari Murdia and the fact that a co-owner was a civil engineer. On agricultural income, the Court found the Tribunal's estimate of expenses at 29% to be justified, aligning with findings in other related cases and not arbitrary. The Court also affirmed the Tribunal's decision regarding vehicles and interest paid to specified persons, finding the AO's additions baseless and the CIT(A)'s deletions justified. The Court specifically noted that merely because interest was paid to specified persons under Section 40A(2)(b), it did not automatically require a reduction in the interest rate, especially when the rates paid to depositors ranged from 9% to 15%. The Court concluded that the appeals were devoid of merits and did not involve any substantial question of law.

The High Court held that no substantial question of law was involved in the four appeals. Regarding the construction cost, the Tribunal's reduction of the DVO's estimate by 35% was found justified, considering the allowance for scaling down from CPWD to PWD rates (20%), self-supervision charges (12%), and deletion of architect/engineer's fees (3%). The Tribunal's final addition of Rs. 2,82,342/- on this score was upheld. On agriculture income, the Tribunal's estimation of expenses at 29% was deemed not arbitrary or violating statutory requirements, aligning with findings in other related cases. The Tribunal's affirmation of the CIT(A)'s deletion of additions related to vehicles was also upheld, noting the AO provided no basis for disallowing expenses entirely and that the CIT(A) had rightly disallowed 20% for personal use. Similarly, the deletion of additions on interest paid to specified persons was affirmed, as the AO's reduction of interest rates was unjustified, and the CIT(A) had rightly deleted the addition. The Court concluded that the findings and conclusions of the CIT(A) and the Tribunal were not contrary to legal requirements. Therefore, the appeals were dismissed summarily.

The High Court held that no substantial question of law was involved in the appeals. Regarding the cost of construction, the Tribunal's decision to reduce the DVO's estimate by 35% by allowing 20% for scaling down from CPWD to PWD rates, 12% for self-supervision, and deleting 3% for architect/engineer's fees was considered justified. The Tribunal's finding that the assessee's brother, being a civil engineer, justified the 12% self-supervision rebate was noted. The Tribunal's estimate of agriculture expenses at 29% was also found to be not arbitrary or violating statutory requirements. The Court found no error in the Tribunal's affirmation of the CIT(A)'s deletion of additions related to vehicles and interest paid to specified persons, noting that the AO had no basis for disallowing vehicle expenses entirely and that the rate of interest paid to relatives was not necessarily excessive. The Court concluded that the appeals were devoid of merits and did not involve any substantial question of law.

The High Court held that no substantial question of law was involved in the four appeals. Regarding the construction cost, the Court found no error in the Tribunal's approach, which allowed a 20% deduction for scaling down from CPWD to PWD rates, 12% rebate for self-supervision charges, and deleted the 3% addition for architect/engineer's fees. The Court noted the ITAT's reliance on the jurisdictional High Court's decision in CIT vs. Prem Kumari Murdia and the fact that a co-owner was a civil engineer. On agricultural income, the Court found the Tribunal's estimate of expenses at 29% to be justified, aligning with findings in other related cases and not arbitrary. The Court also affirmed the Tribunal's decision regarding vehicles and interest paid to specified persons, finding the AO's additions baseless and the CIT(A)'s deletions justified. The Court specifically noted that merely because interest was paid to specified persons under Section 40A(2)(b), it did not automatically require a reduction in the interest rate, especially when the rates paid to depositors ranged from 9% to 15%. The Court concluded that the appeals were devoid of merits and did not involve any substantial question of law.

The High Court held that the proposed question of law was based on appreciation of findings of fact. The Court was of the considered opinion that the findings arrived at by the Appellate Authority (CIT(A)) and affirmed by the Tribunal (ITAT) that the interest payment made by the assessee was for business purposes and allowable under Sections 28 to 36 of the Act, and not for capital expenditure or personal purposes, is essentially a finding of fact based on appreciation of material on record. Therefore, no substantial question of law was involved in the appeal. The appeal was dismissed summarily.