Monday, January 7, 2013

Presumption as to validity of document wouldn’t discharge assessee’s onus to prove ‘source’ and ‘nature’ of receipt evidenced by document

In view of Sec. 292C, if any document is found during the search, such document shall be presumed to be depicting the true position. Even in that case, assessee would be under obligation to prove the ‘source’ and ‘nature’ of receipts to avoid the additions envisaged under provisions of Sec. 68, 69, etc.

In the instant case, the assessee-partnership firm was subject to survey action under section 133A of the Act. Incriminating documents were recovered from its premises. During assessment, the AO had made certain additions based on certain computer printouts. During appellate proceedings before ITAT, the assessee relied on Section 292C, which contains a statutory presumption as to truth of documents found during survey/search, and argued that addition made by AO under Sec. 69A was not justified as the document which was presumed to be true showed that the amount came from the partner and hence, it could not be treated as unexplained money under sections 68, 69A etc.

The Tribunal held in favour of revenue as under:

1) All that section 292C provides for a presumption as to the truth of any document found during search or the moneys recovered from assessee is belonging to the assessee;

2) The same does not contradict, rather compliments and supports the rule of evidence as enshrined in sections 68, 69, etc. The two, therefore, have to be read in conjunction and as complimentary, and not as disjunctive or de hors each other.

3) Sec. 68, 69A etc. casts an obligation on assessee to explain both the nature and source of the money, and not its source alone;

4) It was revealed during proceedings that the basic facts had been withheld by the assessee. Therefore, the deeming fiction of Section 69A validly applied by the Revenue in the facts and circumstances of the case as the assessee's explanation was silent as to the nature of receipts - Alliance Hotels v. ACIT [2012] 28 277 (Mumbai - Trib.)

TP adjustments to be governed by SAAR as contained in sec. 92; Sec.40A(2) can’t be imported for such adjustments

Anti-avoidance provisions of Act, override all other provisions of Act; hence, disallowance made under section 40A(2) is not required to be made for TP adjustments

In the instant case, the Tribunal held as above on the basis of following reasonings:

1) The TP provisions in Chapter X are special provisions and section 92(1) thereof mandates that any income arising from an international transaction shall be computed having regard to the arm's length price (ALP);

2) Chapter X being brought in as an anti-avoidance measure to protect the tax base of the country, provisions thereof would override the other provisions of the Act, including section 40A(2); and

3) The Explanation to section 92(1) clarifies that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the ALP, and, therefore, the disallowance should be made under section 92(1) and not under section 40A(2) - Toyota Kirloskar Motors (P.) Ltd. v. ACIT [2012] 28 293 (Bangalore - Trib.)

HC held regulatory function of a State Agency an economic activity and denied it registration; BIS's verdict contradicted

As the activity of the State Seed Certification Agency assists the sale of certified seeds and is "in relation to any trade, commerce or business", its activity cannot be held to be a "charitable purpose" in terms of section 2(15).

The petitioner-assessee was registered under the State Society Registration Act to carry on the functions of the certification agency under the Seeds Act, 1966 in the Andhra Pradesh State. The petitioner used to certify the Seeds which met the minimum seeds certification standards as per the Indian Minimum Seed Certification Standards, 1988. The petitioner collected a fee for providing certification as the process of certification involved technical and scientific evaluation of the seeds, although the fee collected by it was enough to enable it to sustain its activities and did not result in much profit to it. However, CCIT rejected the approval in his case for exemption under section 10(23C)(iv).

On appeal, the High Court held in favour of revenue as under:

1) The term "advancement of any other object of general public utility" used in Section 2(15) of the Act includes all objects to promote the welfare of the public, particularly when the object is to promote or protect the interest of a particular trade or industry;

2) The activity of the petitioner would fall within "advancement of any other object of general public utility" but in view of the fact that certification of seeds by the petitioner facilitated trade, commerce or business in the certified seeds by the client of the petitioner, the proviso to section 2(15) would come into operation; and

3) The petitioner's activity assisted the sale of certified seeds and was "in relation to any trade, commerce or business", therefore, its activity couldn’t be regarded as "charitable purpose".

In view of the above, the rejection by CCIT of the petitioner’s application for approval under section 10(23C)(iv) was upheld - Andhra Pradesh State Seed Certification Agency v. CCIT [2012] 28 288 (Andhra Pradesh)

Editor’s Note – In a recent ruling of Bureau of Indian Standards vs. DGIT(E) [2012] 27 127 (DELHI), the Delhi High Court held otherwise - that performing any regulatory function can’t be enfolded within the proviso to Section 2(15) to construe it as service ‘in relation to trade, commerce or business’ so as to exclude it from the scope of "charitable purpose". The ruling in Bureau of Indian Standards (Supra) has not been considered in the instant case.