TWISTS AND TURNS IN TAX ACCOUNTING STANDARDS: TAS v. AS

In December, 2010 the CBDT constituted the Committee to harmonize the AS issued by the ICAI with the provisions of the income-tax Act for the purposes of notification under the Act and to suggest amendments to the Act. The Committee recommended that some of the AS issued by ICAI related to 'disclosure' requirement, whilst some other contained matter that was adequately dealt within the Act. In view of this, the Committee formulated the drafts of only fourteen Tax Accounting Standards ('TAS') issued by the ICAI. It submitted its final report along with draft of TAS in August, 2012 which was placed in the public domain for comments. After examining the comments, the CBDT revised the draft of twelve TAS submitted by the Committee. It has withdrawn draft of TAS which corresponded to AS-4 on "Contingencies and Events Occurring After the Balance Sheet Date" and AS-5 on "Net Profit or Loss for the Period, Prior Period Items and changes in Accounting Policies". Click here to view comparative study of Accounting Standards issued by ICAI, TAS and revised TAS issued by CBDT.

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Petitioner couldn't ask for transfer of case for his convenience to participate in proceedings, says High Court

Facts:

a)Petitioner was residing with her husband at Tanjore till 2008, after which they moved to Chennai. Petitioner's husband as well as the petitioner were Income-tax assessee and the petitioner's husband died on 29-3-2013, leaving behind two sons and a daughter as his legal heirs.

b)The Income-tax Officer (‘ITO’) issued notices to the petitioner and her two sons under section 148, calling upon them to produce the accounts and documents pertaining to the estate of her husband.

c)Pursuant to the notice, the petitioner had sought for transfer of the files from Tanjore to Chennai.

d)The assessee submitted that merely because notices were issued at Tanjore and statement of the petitioner's son was recorded at Tanjore, it could not be a ground to compel the petitioner to travel from Chennai to Tanjore on each occasion for participating in the assessment proceedings.

The High Court held in favour of revenue as under:

1)On a reading of the provisions of section 127, it was seen that the object for which such provision was enacted is for the purpose of administrative convenience. The said provision does not empower the Assessing Officer to transfer a case from his jurisdiction to that of another and even when the Director General or the Chief Commissioner or the Commissioner exercising such power, can transfer any case after recording his reasons for doing so.

2)For the purpose of recording reasons, it is obvious that the Commissioner has to consider the circumstances involved in each case.

3)When the transactions have taken place within the jurisdiction of the ITO and the transaction pertained to the immovable property, the petitioners could not insist that the files should be transferred from Tanjore to Chennai solely on the ground that it would be convenient for the first petitioner to partake in the assessment proceedings.

4)The ITO after considering the representation of petitioner, called for a report from the Assessing Officer and the contentions raised by the representative of the petitioner was considered and reasoned order had been passed.

5)Thus, the impugned order being a reasoned order and nothing has been placed before Court to show that the impugned order was either ex facie perverse or vitiated by any patent error. In the impugned order reasons have been assigned for rejecting the request for transfer, which was based on the records. Therefore, Court was not inclined to interfere with the discretion exercised by the ITO in refusing to transfer the case from Tanjore to Chennai. - D.V. MERCY V. ITO [2014] 52 taxmann.com 519 (Madras)

Insurer rightly rejected claim for damages as complainant didn’t intimate to it transfer of interest in property

Where complainant in terms of insurance policy failed to intimate insurer about transfer of interest of insured property in favour of bank, insurer was not guilty of unfair trade practice in rejecting complainant's claim for damages as a result of fire

Facts:

a) The complainant-company obtained Standard Fire and Special Perils Policy (‘The Policy’) from the Insurer in respect of the plant, machinery and stocks.

b) The Policy provided for cessation of insurer's liability on failure of insured to intimate if property remained unoccupied or if interest of property passed from insured otherwise than by will or operation of law.

c) The complainant had taken loan from bank, but failed to repay the same and as a result of recovery proceedings its property was attached. While the property was lying sealed, a fire broke out resulting in damages and, accordingly, the complainant informed the insurer about the fire incident.

d) The Insurer rejected complainant’s claim for damages. The complainant filed petition under section 36B of the Monopolies And Restrictive Trade Practices Act, 1969 declaring that decision of insurer amounted to unfair trade practice.

The Competition Appellate Tribunal held as under:

1) As complainant had not informed insurer about sealing of property and that custody of property was with bank and not with insured, the complainant had violated general conditions of policy and, therefore, the insurer was not guilty of unfair trade practice and complainant was not entitled to any compensation or damages-- Anu Texchem Products (P.) Ltd. V. New India Assurance Co. Ltd. [2014] 52 taxmann.com 463 (CAT)

No deduction of legal fee incurred by assessee to defend his criminal case on charges of customs duty evasion

Legal fees incurred to defend criminal case related to customs duty evasion would meet disallowance under section 37(1) as it did not have any connection with business of assessee

Facts:

a) Assessee was arrested by the Department of Revenue Intelligence (DRI) on charge of evading customs duty on import of palm oil.

b) It claimed deduction of legal fees paid to lawyers for representing his criminal case before High Court and Lower Courts.

c) The Assessing Officer (AO) held that legal expenditure was in the nature of personal expenditure and disallowed the same.

d) CIT(A) affirmed the order of AO by holding that the expenditure incurred for defending the criminal proceedings could not be allowed under any provision of Income Tax Act.
e) Aggrieved by the order of CIT(A), assessee filed the instant appeal before the tribunal.

The tribunal held in favour of revenue as under:

1) Expenditure on legal fees and proceedings could be allowed under section 37 if it was wholly or exclusively related to carrying on the business of the assessee, but in this case, legal fees was paid to defend criminal prosecution which was totally unrelated to the business of assessee.

2) Therefore, the expenditure so incurred was rightly disallowed as it was having no connection with carrying on business of assessee- Praveen Saxena v. Joint CIT [2014] 52 taxmann.com 451 (Delhi - Trib.)

CBDT plans to celebrate 'Good Governance day' on every Wednesday by holding it as 'public meeting day'

As a part of PM’s 'Good Governance Day' promise to provide an "open and accountable administration" it has been decided by CBDT that all field offices of the Income-Tax department will observe 'Public Meeting Day' from 10.00 AM to 1.00 PM on every Wednesday with effect from January 7, 2015 to address the grievances of the public.

Further, the CBDT has decided that a suitable feedback mechanism shall also be put in place to record the number of grievances attended to and solved on every 'public meeting day', and to identify the deficiencies to avoid delays in redressal of grievances.

Even on sale of land held jointly with son Sec. 54B relief to be allowed to father on purchase of land in son's name

Where son of assessee was also joint owner of land, which was sold and subsequently new land was purchased only in name of son because of assessee's old age and other technical reason, assessee was entitled to deduction under section 54B

Facts:

a) During assessment proceedings the Assessing Officer (‘AO’) noticed that proceedings under section 153C were initiated against assessee when documents regarding sale of land was unearthed during search. Ultimately capital gain was computed and the assessee had claimed deduction under section 54B of the Act.

b) The AO denied the deduction on the ground that new land was purchased by the assessee in the name of his son. The CIT(A) upheld the action of AO. The assessee contended that he was an old person and had only one son, who was going to be the legal heir, there was no purpose for purchasing the new land in the name of the assessee himself and that is why land was purchased in the name of his son.

c) The aggrieved assessee filed the instant appeal before ITAT.

The ITAT held in favour of assessee as under:

1) The land which was sold by the assessee was in the joint name of the assessee along with his son, which means the son was also part owner of the land, therefore the issue would stand covered by the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Gurnam Singh [2008] 170 Taxman 160 (Punj. & Har.) wherein it was held as under :

"The Tribunal had recorded a pure finding of fact that the land in question was purchased out of the sale proceeds of the agricultural land which was used only for agricultural purposes and merely because the assessee's son was shown in the sale deed as co-owner, it did not make any difference. It was not the case of the Revenue that the land in question was exclusively used by his son. Therefore, the assessee was entitled to deduction under section 54B."

2) If the land was purchased in the name of the son of the assessee because of old age and other technical reasons, the assessee would still be entitled to deduction under section 54B. Accordingly, the order of the CIT(A) was to be set-aside and AO was to be directed to allow deduction under section 54B. - Bant Singh v. ITO [2014] 52 taxmann.com 364 (Chandigarh - Trib.)

Defect of framing assessment on non-existent entity couldn't be cured by resorting to sec. 292B

Facts:

a) The assessee-company had been amalgamated with another company under Sections 391(2) and 394 of the Companies Act. Consequently, the assessment order was made on the assessee.

b) Aggrieved by the assessment order, the assessee appealed to the CIT(A). It argued that the assessment order was invalid, because on the date on which order was passed, it had already ceased to exist (having been amalgamated). The CIT(A) held in favour of assessee. 

c) The revenue, being aggrieved by the order of CIT(A) appealed to the ITAT, which upheld the order of CIT(A). Finally the aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1) In case of Spice Entertainment Ltd. v. CIT [IT Appeal No. 475 of 2011] the Delhi High court held that:

“it [becomes] incumbent upon the Income Tax Authorities to substitute the successor in place of the said 'dead person'. Such a defect cannot be treated as procedural defect... once it is found that assessment is framed in the name of non-existing entity it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act."

2) In Spice Entertainment Ltd. (supra), this Court expressly classified "the framing of assessment against a non-existing entity/person" as a jurisdictional defect. This had been a consistent position. In case of CIT v. Express Newspapers Ltd. [1960] 40 ITR 38 (Mad), the Madras High Court held that:

“there cannot be an assessment of non-existent person. The assessment in the instant case was made long after the Free Press Company was stuck off from the register of the companies, and it could not be valid."

3) It was clear that all contentions sought to be urged by the revenue were in respect of familiar grounds, which had been ruled upon, against it. Thus, assessment could not be made on amalgamating company even by resorting to Section 292B. – CIT v. Dimension Apparels (P.) Ltd [2014] 52 taxmann.com 356 (Delhi).

Every suit for recovery of money from Sick Co. doesn't require prior permission of BIFR, rules HC

Facts:

a) The petitioner-company filed an application under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (‘SICA’) but same was dismissed by impugned order holding that a simple suit for recovery of moneys was not barred by section 22 of SICA.

b) The Trial court in the impugned order also recorded that in spite of repeated directions to the petitioner/defendant, no document was filed to show that the debt of the respondent/plaintiff was included in the scheme of rehabilitation of the petitioner-company

On writ, the High Court of Delhi held as under:

Since every suit for recovery of money does not require permission under section 22 of SICA and despite repeated directions of Court petitioner-company failed to show that debt of the respondent was included in scheme of rehabilitation, application filed by petitioner under section 22 of SICA was to be dismissed. - Kusum Products Ltd. v. Hitkari Industries Ltd. [2014] 52 taxmann.com 230 (Delhi)

Requirement of amending articles pursuant to Section 43A in case of hybrid Companies is only optional on part of shareholders

Requirement of amending Articles of Association pursuant to Companies (Amendment) Act, 2000 insofar as hybrid companies, i.e., deemed public companies are concerned, is only optional on part of shareholders

Issue:

Whether requirement of amending Articles of Association pursuant to Amendment Act 53 of 2000, in case of hybrid companies are optional on part of shareholders?

The Supreme Court held as under:

1) A private company which becomes a public company by virtue of operation of any one of four sub-sections of section 43A of Companies Act, 1956 has choice either to retain or delete those stipulations as specified in its Articles of Association relating to matters specified under section 3(1)(iii)

2) After amendment to Companies Act by Act No. 53 of 2000 concept of hybrid (section 43A) companies is not altogether abolished, at least insofar as companies falling under section 43A(1C) are concerned which were in existence on 13-12-2000 would continue to be hybrid companies 

3) Effect of amendment to section 3(1)(iii) on private companies in existence on 13-12-2000 is that if they choose to make provisions in their Articles of Association to give effect to mandate of section 3(1)(iii)(d), they become private companies with effect from such date when they make such provision by virtue of section 43(2A) and if they do not make such an amendment, they would still continue to be public companies governed by section 43A(1C) (hybrid companies) and can continue to have provisions in their Articles of Association referable to section 3(1)(iii)(a), (b) & (c) 

4) Thus, requirement of amending Articles of Association pursuant to Amendment Act 53 of 2000, insofar as hybrid companies are concerned, is only optional on part of shareholders---Darius Rutton Kavasmaneck v. Gharda Chemicals Ltd. [2014] 52 taxmann.com 349 (SC)