Rajasthan High Court Judgments — 2018

The High Court held that the Tribunal committed no error of law in concluding that the Commissioner (Exemption) wrongly rejected the assessee's applications. The Court found the Commissioner's reliance on the statements of Mr. D.K. Gupta and Dr. Rohilla Gorach to be insufficient. Mr. Gupta's statement regarding medical stores was deemed irrelevant to PMU's account maintenance. Discrepancies noted from Dr. Gorach's statement were considered satisfactorily explained by the assessee and not fatal to the exemption. The Court also found that the Commissioner erred in not allowing cross-examination of Ms. Mayuri Jain. The Tribunal's findings were deemed correct and not perverse. Consequently, no substantial question of law arose, and the appeals were dismissed.

On the first substantial question of law concerning the initiation of re-assessment proceedings under Section 148, the Court found that the assessment records and questionnaire did not indicate any information regarding DEPB or Duty Draw Back being furnished by the assessee, nor was there any adjudication on this aspect. Therefore, the concurrent view of the lower authorities was upheld. The Court noted that the assessee failed to demonstrate that the AO had considered the issue of allowability of deduction under Section 10BA in respect of Duty Draw Back, implying the AO did not apply his mind to this aspect. The re-assessment proceedings were initiated when the AO realized the mistake regarding the deduction on Duty Draw Back. Thus, the question was answered in favour of the Revenue. Regarding the second question on the eligibility of deduction under Section 10BA on DEPB and DDB, the Court, while acknowledging the arguments and reliance on various judgments by both parties, noted that a co-ordinate bench had remanded similar matters back to the AO for fresh consideration, citing judgments in Topman Exports and Meghalaya Steels Limited. Therefore, the Court deemed it appropriate to adopt the same course of action without deciding the second substantial question of law on merits. The appeal was allowed in part, the impugned judgments were set aside to that extent, and the matter was remanded back to the Assessing Officer for a fresh decision, leaving all contentions open for both parties. The Court explicitly stated that no opinion was expressed on the second substantial question of law.

The Court dismissed the writ petition. Regarding the first issue, the Court referred to the amendment made in Section 132A of the Income Tax Act, 1961, by the Finance Act, 2017, which states that 'reason to believe' or 'reason to suspect' shall not be disclosed to any person or authority or Appellate Tribunal. The Supreme Court in *N.K. Jewellers & Anr. Vs. Commissioner of Income Tax, New Delhi* (2018) 12 SCC 627, held that in view of this amendment, the question of disclosing the basis of information cannot be gone into. The Court found that the judgment in *N.K. Jewellers* dealt with proceedings under Section 132A where the authorities concluded that cash found was concealed income, and the Apex Court upheld the High Court's order, stating that the 'reason to believe' or 'reason to suspect' was not to be disclosed. Therefore, the claim of the present petitioners was not justified. Regarding the second issue, the Court noted that the ACJM, Mandal, had already recorded a finding that the seized money could be claimed by the petitioner after the Income Tax Department concluded its proceedings. The Court found that if a summon was issued under Section 131 and the petitioner was asked to explain the seized amount, the authorities are bound to conclude proceedings as per law, and the petitioner has the liberty to avail remedies against any order passed. The Court found the writ petition to be devoid of merit.

The High Court held that the controversy involved in the present appeal is squarely covered by the judgment dated 11.05.2018 rendered by a Coordinate Bench of the same Court in D.B. Income Tax Appeal No.17/2018, Commissioner of Income Tax-Exemption, Jaipur Vs. Shri Suparasnath Jain Sangh Trust, Bharudi. In that prior judgment, the appeal preferred by the appellant Revenue, involving an identical question, was dismissed. Consequently, the High Court dismissed the present appeal in light of its prior decision in the case of Shri Suparasnath Jain Sangh Trust, Bharudi. The specific findings or reasoning from the cited judgment were not elaborated upon in this order, but the principle applied is that if an identical issue has been decided against the Revenue by a Coordinate Bench, the current appeal will follow the same fate.

The High Court held that the interest income from FDRs and NSCs must be treated as income from business and not income from other sources. The Court reasoned that the assessee, a civil contractor, was required to furnish performance guarantees for securing contracts. These FDRs/NSCs were maintained by utilizing bank overdraft limits, and their purpose was inextricably linked to securing and executing civil contracts. Failure to provide or maintain these guarantees could lead to contract termination. Therefore, the interest earned was not from surplus idle money but was integral to the business operations. The Court distinguished the facts from CIT vs. Bhawal Synthetics (India) and CIT vs. Karnal Co-operative Sugar Mills Ltd. by emphasizing the direct nexus with securing contracts. The Court answered the substantial question of law in favor of the assessee, holding that the interest income is part of total receipts and not from other sources. The ITAT's judgment was set aside, the CIT(A)'s order regarding interest on FDRs and NSCs was restored, and the matter was remitted back to the Assessing Officer for a fresh assessment.

The High Court held that in the facts and circumstances of the case, the interest income from FDRs and NSCs must be treated as income from business and not income from other sources. The reasoning was that the assessee, a civil contractor, was required to provide performance guarantees for securing contracts. These FDRs/NSCs were maintained to keep the performance guarantees alive, often by utilizing bank overdraft limits. This had an inextricable nexus with securing civil contracts and was integral to the assessee's working as a civil contractor. The interest income was earned from deposits made for business exigencies, not from surplus idle money. The Court found the factual matrix covered by decisions like Bokaro Steel Ltd., Karnal Co-operative Sugar Mills Ltd., Koshika Telecom Ltd., Bharat Oman Refineries Ltd., CIT vs. Chinna Nachimuthu Constructions, and Shyam Bihari. The question of law was answered in favor of the assessee. The ITAT's judgment was set aside, the CIT(A)'s order regarding interest earned on FDRs and NSCs was restored, and the matter was remitted back to the Assessing Officer for a fresh assessment order.

The High Court held that the ITAT was justified in upholding the additions made by the Assessing Officer. The Court reasoned that while an admission is not conclusive and can be disputed, the burden lies on the assessee to prove its incorrectness with cogent and convincing evidence. The appellant's retraction, made belatedly and without sufficient evidence to demonstrate duress or coercion during the recording of the initial statement under Section 132(4), was not accepted. The Court noted that Shri Bannalal Jat had made categorical admissions regarding the cash belonging to the appellant-company and its nature as undisclosed income in multiple statements recorded under Section 132(4) and Section 131. The Court found that the subsequent retraction was not supported by strong evidence, and the statement recorded during the search, in the presence of independent witnesses, had an overriding effect over the retraction. The Court concluded that no substantial question of law arose, and the appeal was dismissed.

The High Court held that as per Circular No. 3/2018, which sets a monetary limit of Rs. 50,00,000/- for prosecuting appeals in the High Court and applies retrospectively, the instant appeals were not to be prosecuted by the appellant (CIT). The reasoning was based on the direct application of the circular's instructions. The ratio decidendi is that appeals with a tax effect below the stipulated monetary limit, even if pending, are to be withdrawn or not pressed by the revenue. Consequently, the appeals were dismissed as not pressed. No specific issue was left undecided.

The High Court held that as per Circular No. 3/2018 dated 11.07.2018, the monetary limit for prosecuting appeals in the High Court is Rs. 50,00,000/-. The Circular explicitly applies retrospectively to pending appeals. In the present cases, the tax effect in D.B. Income Tax Appeal No. 110/2006 was Rs. 2,60,520/- and in D.B. Income Tax Appeal No. 108/2006 was Rs. 41,05,432/-. Both these amounts are below the prescribed limit of Rs. 50,00,000/-. Therefore, the appeals were not to be prosecuted by the appellant (CIT). The High Court accordingly dismissed the appeals as not pressed. No specific issue regarding the merits of the original assessment or the orders under challenge was decided.

The High Court held that the ITAT was right in confirming the proceedings initiated under Section 148. The Court noted that the notice issued under Section 148 was on record and clearly indicated it was issued to Shri Munna Lal Katta as the President of M/s. Triveni Powerloom Cooperative Society. The Court found that the mere selection of 'individual' status initially did not make a difference, especially since it was corrected to 'Body of Association' during the assessment proceedings. The Court also observed that the ITAT had substantially restricted the addition made by the Assessing Officer. The cited judgments were considered distinguishable on facts. Therefore, the Court found no error in the ITAT's order and no merit in the appeal, answering the substantial question of law in favour of the revenue.

The High Court observed that the matter was already pending before the adjudicating authority, where the alleged benamidar had submitted objections and the petitioner, as the beneficiary, could also raise his objections. The Court found it inappropriate to examine the legality and veracity of the notice of attachment at that stage, given the ongoing proceedings before the adjudicating authority. The Court directed that all objections raised by the petitioner before the High Court could be taken up before the adjudicating authority. It was expected that the adjudicating authority would decide all objections in a reasoned manner, providing reasonable time for the petitioner to submit written objections and affording a fair opportunity to all parties to present their case. The writ petition was disposed of with these observations.

The High Court held that it would not be appropriate to examine the legality and veracity of the notice of attachment at that stage, as the matter was already pending before the adjudicating authority. The Court observed that all objections raised by the petitioner before the High Court could be taken up before the adjudicating authority. The adjudicating authority was directed to decide and examine all objections and pass a reasoned order. It was also expected that the adjudicating authority would grant reasonable time to the petitioner to submit written objections and conduct a thorough examination of the issue after affording a fair opportunity to all parties. The writ petitions were disposed of with these observations.