JUDICIAL UPDATE – MAY 2020, EXAMINATION

1. Is non-issuance of notice under section 143(2) by the Assessing Officer a defect not curable
under section 292BB inspite of participation by the assessee in assessment proceedings?
CIT v. Laxman Das Khandelwal (2019) 417 ITR 325 (SC)
Relevant provision of the Income-tax Act, 1961: Issue of notice under section 143(2) is
mandatory for making a regular assessment under section 143(3). Section 292BB is a deeming
provision that seeks to cure defects in any notice issued under any provision of the Income-tax
Act, 1961, if the assessee has participated in the proceedings. Section 292BB provides that where
the assessee has participated in the proceedings, any notice which is required to be served upon
him shall be deemed to have been duly served and the assessee would be precluded from taking
any objection that the notice was (a) not served upon him; or (b) not served upon him in time; or
(c) served upon him in an improper manner.
Issue: The issue under consideration is whether the Assessing Officer’s omission to issue notice
under section 143(2) is a defect not curable under section 292BB in spite of participation by the
assessee in assessment proceedings.
Supreme Court’s Observations: The law on the point as regards applicability of the requirement
of issue of notice under section 143(2) is quite clear. According to section 292BB, if the assessee
had participated in the proceedings, by way of legal fiction, notice issued would be deemed to be
valid even if there be infractions as detailed in the said section. The scope of the provision is to
make service of notice having certain infirmities to be proper and valid if there was requisite
participation on the part of the assessee. It is, however, to be noted that the section does not save
complete absence of issue of notice. For section 292BB to apply, the notice must have
emanated from the Department. It is only the infirmities in the manner of service of notice that
the section seeks to cure. The section is not intended to cure complete absence of notice itself.

Supreme Court’s Decision: The Supreme Court held that non-issuance of notice under section
143(2) is not a curable defect under section 292BB inspite of participation by the assessee in
assessment proceedings.

2. Is initiation of assessment by issue of notices under sections 143(2) and 142(1) in the name
of the erstwhile amalgamating company, after approval of the scheme of amalgamation by
the High Court and intimation of such amalgamation to the Assessing Officer, void ab
initio?
Pr. CIT v. Maruti Suzuki India Ltd. [2019] 416 ITR 613 (SC)
Facts of the case: The assessee-company, S, filed its return of income on November 28, 2012
(when no amalgamation has taken place). On January 29, 2013, the High Court approved the
Scheme for Amalgamation of S (amalgamating company) with M (amalgamated company) w.e.f.
April 1, 2012. On April 2, 2013, the amalgamated company, M, intimated the Assessing Officer of
the amalgamation. Notice under section 143(2) was issued to S on September 26, 2013, followed
by a notice under section 142(1). The Transfer Pricing Officer (TPO) passed an order making an
adjustment in respect of royalty. A draft assessment order was passed in the name of the
amalgamating company, S. The amalgamated company, M, participated in the assessment

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 proceedings and also filed an appeal before the Dispute Resolution Panel (DRP) as successor in
interest of S. No objection was taken by M before the DRP that the draft assessment order was
passed in the name of S. The DRP issued its final assessment order on October 31, 2016 in the
name of S. In appeal before the Tribunal, the assessee, M, raised the objection that the
assessment proceedings were continued in the name of the non-existent entity S and that the final
assessment order which was also made in the name of a non-existent entity would be invalid. The
Tribunal set aside the final assessment order on the ground that it was void ab initio, having been
passed in the name of a non-existent entity. The High Court affirmed the decision of the Tribunal.
Relevant provision of the Income-tax Act, 1961: Section 292B allows for curing of defects of a
technical nature. The rationale behind this section is that the return of income, assessment , notice,
summons or other proceedings should not be held to be invalid due to technical mistakes, which
otherwise do not have much impact touching its legality, provided such return, assessment, notice,
summons or other proceedings, etc., are otherwise in conformity with the purpose of the Income-
tax Act, 1961.
Issue: Whether issue of notice by the Assessing Officer in the name of the amalgamating
company (S, in this case), after such company has amalgamated with another company (M, in this
case) and after he has been so informed of such amalgamation, is a defect curable under section
292B? Would participation of the amalgamated company, M, in the assessment proceedings
operate as an estoppel against law?
Supreme Court’s Observations: The consequence of approval of the scheme of amalgamation
under section 394 of the Companies Act, 1956 1 is that the amalgamating company ceased to exist.
It could not, thereafter, be regarded as a person under section 2(31) against which assessment
proceedings could be initiated or an order of assessment could be made. Notice under section
143(2) was issued on September 26, 2013 to S, the amalgamating company. Prior to the date on
which the jurisdictional notice under section 143(2) was issued, the scheme of amalgamation had
been approved by the High Court under the Companies Act, 1956 and the same had also been
informed to the Assessing Officer.

Supreme Court’s Decision: In the present case, despite the fact that the Assessing Officer was
informed of the amalgamating-company (S) having ceased to exist as a result of the approved
scheme of amalgamation, the jurisdictional notice was issued in the name of S, the amalgamating
company. The basis on which jurisdiction was invoked was fundamentally at odds with the legal
principle that the amalgamating entity ceases to exist upon the approved scheme of
amalgamation. The Supreme Court, accordingly, held that the initiation of assessment proceedings
on a non-existent entity (S, in this case) was void-ab-initio and participation in the proceedings by
the appellant-amalgamated company (M, in this case) in the circumstances cannot operate as an
estoppel against law.

3. While deciding an appeal, is it mandatory for the High Court to frame a substantial question
of law or can it decide the case on the basis of the question of law urged by the appellant
under section 260A(2)(c)?
CIT v. A. A. Estate Pvt. Ltd. [2019] 413 ITR 438 (SC)

1 Section 232 of the Companies Act, 2013

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 Facts of the case: The High Court, without itself framing the substantial question of law at the
time of admission of appeal, issued notices, heard both the parties and decided the appeal
affirming the order of the Tribunal based on the questions raised by the appellant.
Relevant provision of the Income-tax Act, 1961: Section 260A provides that an appeal lies to
the High Court from every order passed by the Tribunal, if the High Court is satisfied that the case
involves a substantial question of law. In this regard, section 260A(2)(c) requires the appellant to
file an appeal before the High Court in the form of a memorandum of appeal precisely stating
therein the substantial question of law involved. If the High Court is satisfied that the case
involves a substantial question of law, section 260A(3) requires the High Court to formulate such
question. Thereafter, section 260A(4) provides that the appeal shall be heard only on the question
so formulated; and section 260A(5) provides that the High Court shall decide the question of law
so formulated.
Issue: The issue under consideration is whether the High Court was justified in not formulating
the substantial question of law as required u/s 260A(3) and adjudicating merely on the questions
put forth by the appellant under section 260A(2)(c).
Supreme Court’s Observations: The Apex Court noted that there lies a distinction between the
questions proposed by the appellant for admission of the appeal to the High Court and the
questions framed by the High Court. The questions, which are proposed by the appellant, fall
under section 260A(2)(c) whereas the questions framed by the High Court fall under section
260A(3). Section 260A(4) provides that the appeal is to be heard on merits only on the questions
formulated by the High Court under section 260A(3). In other words, the appeal is heard only on
the questions formulated by the High Court and not on the questions proposed by the appellant.
In case if the High Court is of the view that the appeal did not involve any substantial question of
law, it should have recorded a categorical finding to that effect that the questions proposed by the
appellant either do not arise in the case or/and are not substantial questions of law so as to attract
the rigour of section 260A for its admission and accordingly, should have dismissed the appeal in
limine. However, this was not done in this case. Instead, the appeal was heard only on the
questions urged by the appellant u/s 260A(2)(c). The High Court, therefore, did not decide the
appeal in conformity with the mandatory procedure prescribed in section 260A.

Supreme Court’s Decision: The Supreme Court held it to be just and proper to remand the case
to the High Court for deciding the appeal afresh, on merits of the case in accordance with
procedure prescribed in section 260A.

4. Can an assessee who has set up a new industrial undertaking and availed deduction@100%
of profits under section 80-IC(3) for the first 5 years, be eligible to claim deduction@100% of
profits once again on having undertaken “substantial expansion” thereof, for the period
remaining out of 10 years?
Pr. CIT v. Aarham Softronics [2019] 412 ITR 623 (SC)
Facts of the case: The assessee had started availing exemption under section 80-IC on setting
up of new industrial unit in Himachal Pradesh. The assessee had availed deduction of 100% of
profits for a period of 5 years. From sixth year, in normal course, deduction is admissible at 25% of
the profits and gains, for next five years. However, the assessee, after the expiry of five years,
carried out substantial expansion of its existing unit. This substantial expansion is in accordance

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 with the provisions of section 80-IC and there is no dispute about the same. From the year of such
substantial expansion, the assessee claimed deduction at 100% of profits, instead of 25% for the
period remaining out of ten years.
Relevant provision of the Income-tax Act, 1961: Section 80-IC applies to an undertaking or
enterprise which has begun or begins to manufacture any specified article or thing therein by
setting up a new factory in special category States, which includes the State of Himachal Pradesh.
As per section 80-IC(3), the category of undertakings or enterprises to which the assessees’
belong, is entitled to deduction@100% of profits and gains for 5 assessment years commencing
from the “initial assessment year” and, thereafter, deduction@25% of profits and gains f or the next
5 assessment years. As per section 80-IC(6), the total period of deduction is, however, capped at
10 assessment years.
As per sub-clause (v) of section 80-IC(8), “initial assessment year” means the assessment year
relevant to the previous year in which the undertaking or the enterprise:
(1) begins to manufacture or produce articles or things, or
(2) commences operation or
(3) completes substantial expansion.
As per sub-clause (ix) of section 80-IC(8), “Substantial expansion” means increase in the
investment in the plant and machinery by at least 50% of the book value of plant and machinery
(before taking depreciation in any year), as on the first day of the previous year in which the
substantial expansion is undertaken.
Supreme Court’s Observations: The Apex Court noted that as per the definition of “initial
assessment year”, the first two events i.e., the previous year in which the undertaking or the
enterprise begins to manufacture or produce article or things; or commences operation are
relatable to new units, whereas third incident i.e., completes substantial expansion, would occur in
respect of existing units. The benefit of section 80-IC is, thus, admissible not only when an
undertaking or enterprise sets up new unit and starts manufacturing or producing article or things.
The advantage of this provision also accrues to existing units, if they carry out "substantial
expansion" of their units by investing required capital, in the assessment year relevant to the
previous year.
The Apex Court also observed that the various provisions of section 80-IC should be read
conjointly, i.e., sub-section (2)(a)(ii), sub-section (3)(ii), sub-section (6) and sub-section (8)(v) and
(ix). Sub-section (3) enumerates the deduction, as being 100% of profits and gains for the first 5
initial assessment years commencing with the initial assessment year and thereafte r 25% (or 30%
where the assessee is a company) of the profits and gains. The deduction at 25% for the next 5
years in on the assumption that the new unit remains static in so far as expansion thereof is
concerned. However, the moment “substantial expansion” takes place, another "initial assessment
year" gets triggered. This new event entitles that unit to start getting deduction at 100% of the
profits and gains. At the same time, new period of 10 years does not start, on account of the cap
under sub-section (6) of section 80-IC. Thus, the total period for which deduction can be allowed is
capped at 10 years, however, there is no cap on quantum.

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 Supreme Court’s Decision: The Apex Court held that an undertaking or an enterprise which had
set up a new unit of the nature mentioned in section 80-IC(2)(a)(ii), would be entitled to deduction
at the rate of 100% of the profits and gains for five assessment years commencing with the "initial
assessment year". For the next five years, the admissible deduction would be 25% or 30%, as the
case may be, of the profits and gains. However, in case substantial expansion is carried out as
defined in section 80-IC(8)(ix) by such an undertaking or enterprise, within the aforesaid period of
10 years, the said previous year in which the substantial expansion is undertaken would become
"initial assessment year", and from that assessment year the assessee shall be entitled to 100%
deductions of the profits and gains. Such deduction, however, would be for the period remaining
out of 10 years, as provided in section 80-IC(6).

Notes – (1) The crux of the Supreme Court ruling is explained in the following example. If the
substantial expansion is carried out immediately, on the completion of first 5 years, the assessee
would be entitled to deduction@100% of profits and gains again for the next 5 years. On the other
hand, if substantial expansion is undertaken, say, in the 8th year, deduction would be 100% for the
first 5 years, deduction at 25% for the next 2 years and at 100% again from the 8 th year as this
year becomes "initial assessment year" once again. This 100% deduction would be for the
remaining 3 years only, i.e., 8th, 9th and 10th assessment years.
(2) Consequent to the above Supreme Court judgement, students are advised to ignore case law
no. 10 [CIT v. Classic Binding Industries [2018] 407 ITR 429 (SC)], reported under “Significant
Select Cases” in pages no. 11.106-11.107 in Chapter 11: Deductions from Gross Total Income in
the printed copy of Module 2 of the October 2019 edition of the Study Material.
5. Can the Appellate Tribunal, while hearing an appeal under section 254(1), in a matter where
registration under section 12AA has been denied by the Commissioner, itself pass an order
directing the Commissioner to grant registration?
CIT (Exemptions) v. Reham Foundation [2019] 418 ITR 205 (All [FB])
Facts of the case: An appeal was preferred by Revenue to challenge the order of the Appellate
Tribunal directing registration of the trust, where registration under section 12AA has been denied
by the Commissioner of Income-tax (CIT).
Relevant provision of the Income-tax Act, 1961: Section 12AA sets out the procedure for
registration of trusts or institutions. Registration of a trust requires satisfaction of the Principal
CIT/CIT. In case the Principal CIT/CIT is not satisfied or refuses registration, then , the appeal lies
to the Appellate Tribunal under section 254.
Issue: The issue under consideration is whether the Appellate Tribunal has the power under
section 254(1) to pass an order directing CIT to grant registration under section 12AA or should it
remand the case to the CIT for deciding the matter afresh.
High Court’s Observations: A perusal of section 254 shows that the Appellate Tribunal has the
power to pass such orders, as it thinks fit. The powers under section 254 is to be read along with
other provisions of the Act. Section 12AA requires satisfaction about the genuineness of the
activities and the object(s) of a trust by the CIT before its registration.
Case where the Appellate Tribunal can direct registration of the trust without remand to the
CIT

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 The High Court opined that the Tribunal can pass an order directing the CIT to grant registration,
considering the specific facts of the case, where –
(i) the CIT has refused to accept the application for registration of trust after recording its finding ,
on the basis of the material on record before him, that the activities and object(s) of the trust
are not genuine; and
(ii) the Appellate Tribunal, on the basis of the same material on record, comes to the conclusion
that the order of the CIT is perverse since it has been passed ignoring, misconstruing or
misinterpreting such evidence.
In such a case, the Appellate Tribunal can direct registration of the trust without remanding the
matter to the CIT, since such remand would be an empty formality as the CIT cannot go against
the conclusion arrived at and recorded by the Appellate Tribunal.
In view of the unfettered power of the Appellate Tribunal in terms of section 254(1), the Tribunal
can very well record its satisfaction on the genuineness of the activities and object (s) of the trust
and direct registration of the trust without remand of case to the CIT, in case such satisfaction is
recorded on the basis of documents and material already available on record at the stage of
examination by the CIT.
Cases where the Appellate Tribunal has to remand the case to the CIT :
In the following cases, however, the Appellate Tribunal has to remand the case to the CIT -
(i) Where the Appellate Tribunal records such satisfaction on the basis of material or documentary
evidence which was not available before the CIT while exercising his powers under section
12AA; and
(ii) Where the CIT rejects the application on a technical ground without recording its opinion on
facts or genuineness of the activities and object(s) of the trust and such decision is overturned
by the Appellate Tribunal, the case has to be remanded to the CIT for recording satisfaction in
terms of section 12AA.
The onus on the Appellate Tribunal to remand the matter in cases indicated hereinabove is in view
of the strict interpretation of the powers of the CIT under section 12AA; if the Appellate Tribunal is
given wide powers to direct registration of trust in all or any circumstance, it would render the
provisions of section 12AA ineffective, which again cannot be the intention of the Legislature.

High Court’s Decision: The High Court held that the Appellate Tribunal while hearing an appeal
under section 254(1) in a matter where registration under section 12AA has been denied by the
CIT, can itself pass an order directing the CIT to grant registration, only in case the Tribunal
disagrees with the opinion of the CIT as regards the genuineness of the activities and object(s) of
the trust, on the basis of material already on record before the CIT. However, the said power is
not to be exercised by the Appellate Tribunal as a matter of course and remand to the CIT is to be
made where the Appellate Tribunal records a divergent view on the basis of the material which has
been filed before the Appellate Tribunal for the first time.

6. Can the Appellate Tribunal dismiss an appeal, without deciding the case on its merits,
solely on the ground that the assessee had not appeared on the appointed date of hearing?
Smt. Ritha Sabapathy v. DCIT [2019] 416 ITR 191 (Mad)

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 Facts of the case: The assessee filed an appeal under section 260A before the High Court
against the order of the Appellate Tribunal dismissing the appeal due to non-appearance of the
assessee on the appointed date of hearing.
Relevant provision of the Income-tax Act, 1961: Section 254 empowers the Tribunal to pass
such orders "as it thinks fit" after giving both the parties an opportunity of being heard. Rule 24 of
the Income-tax (Appellate Tribunal) Rules, 1963 provides for hearing of appeal ex parte in case of
the appellant’s failure to appear in person or through an authorised representative when the
appeal is fixed for hearing. In such a case, the Tribunal may dispose of the appeal on merits after
hearing the respondent.
High Court’s Observations: The High Court noted the provisions of section 254, Rule 24 of the
Income-tax (Appellate Tribunal) Rules, 1963 and decisions of the Apex Court on the said issue.
Accordingly, the High Court opined that even if the assessee could not appear, the Tribunal could
have decided the appeal only on merits, ex parte, after hearing the Revenue's contentions. It
reiterates that the fact finding Appellate Tribunal should not shirk its responsibility to decide a case
on its merits. Cryptic orders, not touching the merits of the case, would not give rise to any
substantial question of law for consideration by the High Court under section 260A. The
assessee's valuable right of getting the issues decided on merits by the final fact finding body, viz.,
the Tribunal cannot be given short shrift in this manner. A legal and binding responsibility,
therefore, lies upon the Tribunal to decide the appeal on merits, irrespective of the appearance or
otherwise of the assessee or his counsel before it.

High Court’s Decision: In view of the decided case laws and the clear provisions of Rule 24, the
High Court set aside the impugned order of the Tribunal dismissing the assessee’s appeal due to
non-appearance and directed it to decide the appeal on merits afresh in accordance with law.

7. Can the assessee’s failure to produce Commissioner’s order of approval dating back to the
year 1976 for employees Gratuity Scheme, tantamount to non-disclosure of material facts to
justify re-opening of assessment under section 148, where he has produced the agreement
between LIC and the trustees of the Gratuity Scheme, on the basis of which claim for
deduction under section 36(1)(v) was being allowed in the earlier years?
Valsad District Central Co-operative Bank Ltd. v. ACIT [2019] 414 ITR 616 (Guj)
Facts of the case: For the relevant assessment year, the assessee-co-operative bank claimed
deduction under section 36(1)(v) in respect of its contribution towards gratuity fund for the benefit
of its employees. No disallowance was made in respect of such contribution in assessment order
passed under section 143(3). After four years, however, the Assessing Officer issued a notice
under section 148, recording reasons to believe that the assessee has not disclosed fully and truly
all material facts necessary for assessment, since it failed to produce Commissioner’s order of
approval of the gratuity fund for the purpose of claiming deduction under section 36(1)(v). Thus, he
came to a conclusion that the income of the assessee to the extent of contribution towards gratuity
fund has escaped assessment under section 147.
Assessee’s Objections: The assessee raised objections against the notice issued under section
148 pointing out that the gratuity scheme is being managed by the LIC, pursuant to an agreement
between LIC and the trustees of the gratuity scheme. The LIC had accepted the responsibility to
manage the fund only after verifying that the scheme was duly approved by the Commissioner of

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 Income-tax. During the course of original assessment, assessee had produced the documents
pertaining to the contribution made towards the fund and the agreement with LIC to manage the
fund. It was only after examining these documents, that the assessee’s claim of deduction was
accepted.
As the scheme was framed in 1976, the assessee, at this point of time, did not have the
Commissioner’s approval order (as there has been a long passage of time since the year 1976).
Nevertheless, it was on the basis of such approval that the assessee had been, year after year,
claiming the deduction which was also granted, in all assessment years, some of them after
scrutiny. The assessee, therefore, contended that there was no failure on its part to disclose truly
and fully all material facts and that the reopening of the assessment amounted to change o f
opinion by the Assessing Officer.
Issue: The issue under consideration is whether, in this case, re-opening the assessment under
section 148 was merely on account of a change of opinion of the Assessing Officer, there being no
failure on the part of the assessee to disclose truly and fully all material facts.
High Court’s Observations: The High Court noted that during the course of original assessment,
the Assessing Officer has not pointedly examined this aspect of gratuity, nor raised any queries
thereto. The question of change of opinion may, therefore, not arise. However, when examining
the validity of a notice issued after four years, the crucial additional element would be of the failure
on the part of the assessee to disclose true and full facts. Considering the peculiar facts of the
present case, in none of the past years since 1976, any such issue was raised by the Assessing
Officers in this regard. Therefore, in the relevant assessment year, the assessee produced during
the course of original assessment, what it had been producing all along namely, the contribution
made towards the fund and the agreement with LIC to manage the fund. If the Assessin g Officer
had any doubt about such a claim, it was always open for him to examine it and ask the assessee
to fulfil further requirements.

High Court’s Decision: The High Court, accordingly, held that merely because the assessee is
unable to produce a copy of the order of approval of the Gratuity Scheme by the Commissioner
after long gap of time, it cannot tantamount to failure on the part of the assessee to disclose truly
and fully all material facts, since the assessee had produced a copy of the agreement with LIC and
the trustees of the gratuity scheme in the course of original assessment, in line with the documents
produced in the course of assessment in the earlier years. Therefore, in the absence of failure on
the part of the assessee to disclose truly and fully all material facts, reopening of assessment by
issue of notice under section 148 is not valid, though, there may not be a change of opinion on the
part of the Assessing Officer, as he may not have pointedly examined this aspect of gratuity in the
original assessment.

8. Can penalty under section 271C be levied for the non-remittance of the tax deducted at
source under Chapter XVII-B to the credit of the Central Government?
CIT (TDS) v. Eurotech Maritime Academy Pvt. Ltd. [2019] 415 ITR 463 (Ker)
Facts of the case: The assessee, a trust registered under section 12AA, ran an educational
institution. It paid rent for the building occupied by it. The Assessing Officer found that the tax
deducted at source by the assessee was deposited belatedly and imposed a penalty under s ection
271C equal to the amount of tax payable. The explanation offered by the assessee for the delay is

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 that the clerk failed to discharge her duties properly. It was also noticed that the assessee had
been making the payments piecemeal throughout the year and not deducting the tax on its
payment in the respective months. The assessee contended that it is a trust registered under
section 12AA, and therefore, not obliged to carry out an audit as provided under section 44AB.
Only those persons covered under section 44AB would have to deduct tax at source under section
194-I. The first appellate authority, however, rejected the trust’s contentions and confirmed the
penalty order passed by the Assessing Officer. The Tribunal deleted the penalty on the ground th at
the assessee had reasonable cause within the meaning of section 273B and reversed the order.
Relevant provision of the Income-tax Act, 1961: Section 194-I requires any person, not being
an individual or a Hindu undivided family, to deduct tax at source from any amount paid or credited
as rent to a resident. The second proviso to 194-I provides that an individual or a Hindu undivided
family, whose total sales, gross receipts or turnover from the business or profession carried on by
him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the
financial year immediately preceding the financial year in which such income by way of rent is
credited or paid, shall be liable to deduct income-tax thereunder. Section 271C imposes penalty
where the assessee is liable to deduct tax at source and fails to do so.
High Court’s Observations: The second proviso to section 194-I cannot be applicable to the
assessee, because a trust cannot be included within the definition of "an individual or a Hindu
undivided family" and therefore, the monetary limits specified in clause (a) or (b) of section 44AB is
not relevant in this case. There is no exemption as such for other persons not covered under
section 44AB. Hence, the trust is liable to deduct tax at source, irrespective of whether or not it
was covered under section 44AB.
Regarding the delay in deposit, the Court took note of the decision of the Kerala High Court in US
Technologies International (P.) Ltd. v. CIT [2010] 195 Taxman 323 case, which held that penalty
under section 271C would be attracted for failure to deduct or failure to remit recovered tax.
Further, it also noted another decision of the same High Court in case of Classic Concepts Home
India Pvt. Ltd. v. CIT [2016] 383 ITR 626 (Ker) which held that so far as failure on the part of the
assessee to remit the tax recovered at source is concerned, there cannot be any justifying
circumstance for delay in remittance because the assessee cannot divert tax recovered for the
Government towards working capital or any other purpose. Thus, the defence available under
section 273B does not cover failure in payment of recovered tax.

High Court’s Decision: Accordingly, the High Court held that, assessee is liable to pay penalty
under section 271C for both non-deduction of tax at source and non-remittance of tax deducted at
source.

Note: Section 271C provides that if any person fails to

(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII -
B; or
(b) pay the whole or any part of the tax as required by or under -
(i) sub-section (2) of section 115-O; or
(ii) the second proviso to section 194B,

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 then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which
such person failed to deduct or pay as aforesaid.
On a plain reading of section 271C, it appears that penalty under this section is attracted only if a
person fails to deduct the whole or any part of the tax as required to be deducted at source under
any provision of Chapter XVII-B. For failure to remit tax deducted at source to the credit of the
Central Government, prosecution under section 276B would be attracted. As per section 276B,
such offence would be punishable with rigorous imprisonment for a term which shall not be less
than three months but may extend to seven years and with fine.
However, the Kerala High Court has, in three cases, decided that penalty under section 271C is
also attracted for failure to remit tax deducted at source. It has also opined that section 273B relie f
will not be applicable for such failure. This may lead to an inference that both penalty under
section 271C and prosecution under section 276B would be attracted where there is a failure to
remit tax deducted at source.
9. Does the High Court have the inherent power to review its own order to correct a mistake
apparent from the record?
Sunil Vasudeva & Others v. Sundar Gupta & Others [2019] 415 ITR 281 (SC)
Facts of the case: A receiver was appointed by the Calcutta High Court in a suit filed in 1957 in
respect of properties, including one in New Delhi, owned by the HUF of KL. The property at New
Delhi was sold to V by the Income-tax Department for recovery of income-tax dues of the HUF. KL
objected stating that no leave was obtained from the Calcutta High Court by the Department for
such sale. The Department filed an application in the suit praying for leave to complete the sale of
the Delhi property in favour of V. Thereafter, many appeals/applications were preferred by both the
respondents and appellants. While passing an order, the Calcutta High Court made an error
apparent from record, overlooking section of 293 of the Income-tax Act, 1961, in directing a civil
suit to be pursued at Delhi. The said order was recalled for review and error appar ent was
corrected. After review, Calcutta High Court restored the writ to be heard on its own merits.
Relevant provision of the Income-tax Act, 1961: Section 293 puts a complete bar on filing suit in
any civil court against an income-tax authority in respect of any proceeding under the Income-tax
Act, 1961.
Issue: The issue for consideration is whether the High Court is justified in recalling and reviewing
its order to correct an apparent error, i.e., overlooking the provisions of section 293 of the Income-
tax Act, 1961 and directing a civil suit to be pursued.
Supreme Court’s Observations: The effect of section 293 of the Income-tax Act, 1961 had been
mistakenly omitted by the High Court while passing an order directing pursuance of a civil suit.
Accordingly, the said order was recalled for review and error apparent was corrected.
On the issue of whether the High Court can review its own order, the Supreme Court referred to its
ruling in Kamlesh Verma v. Mayawati (2013) 8 SCC 320, wherein the basic principles for
entertaining a review application had been eloquently examined.
As per the said decision, the High Court can review its own order, where the grounds for review
were:

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 (i) discovery of new and important matter or evidence which, after the exercise of due diligence,
was not within knowledge of the petitioner or could not be produced by him;
(ii) mistake or error apparent on the face of the record;
(iii) any other sufficient reason.
A review will, however, not be maintainable in the following cases:
(i) repetition of old and overruled argument;
(ii) minor mistakes of inconsequential import.
The following observations were also made by the Supreme Court in relation to entertaining a
review application:
(i) review proceedings cannot be equated with the original hearing of the case.
(ii) a review is not maintainable unless the material error, manifest on the face of the order,
undermines its soundness or results in miscarriage of justice.
(iii) a review is by no means an appeal in disguise whereby an erroneous decision is reheard and
corrected but lies only for patent error.
(iv) The mere possibility of two views on the subject cannot be a ground for review.
(v) The error apparent on the face of the record should not be an error which has to be fished out
and searched.
(vi) The appreciation of evidence on record is fully within the domain of the appellate court, it
cannot be permitted to be advanced in the review petition.
(vii) A review is not maintainable when the same relief sought at the time of arguing the main
matter had been negatived.

Supreme Court’s Decision: The Supreme Court held that section 293 puts a complete bar on
filing suit in any civil court against the Income-tax authority. If the civil suit was not maintainable in
view of section 293 of the Act and this was the purported defence of the respondents and of the
Department, there was no error committed by the High Court in its judgment rendered in exercise
of its review jurisdiction calling for interference.

10. Should capital gains exempt under section 54EC, which forms part of the net profit in the
statement of profit and loss of the assessee-company, be taken into account for calculation
of tax on book profits as per section 115JB?
CIT v. Metal and Chromium Plater (P) Ltd. [2019] 415 ITR 123 (Mad)
Facts of the case: The assessee invested long-term capital gains in eligible redeemable bonds
and claimed exemption under section 54EC. The Assessing Officer did not question the eligibility
of the assessee to such exemption in regular computation but for purposes of computation of
“book profit” for determination of minimum alternate tax (MAT) under section 115JB, the Assessing
Officer denied relief under section 54EC by placing reliance on the judgment of the Supreme Court
in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 and the Bombay High Court in the case
of CIT v. Veekaylal Investment Co. (P.) Ltd. [2001] 249 ITR 597.

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 Appeals were, however, decided in favour of the assessee by both the Commissioner (Appeals)
and the Tribunal.
Relevant provision of the Income-tax Act, 1961: Section 115JB is a self-contained code of
assessment. The levy of tax is on the "book profit" after effecting various upward and downward
adjustments as per the Explanations thereto. Section 115JB(5) provides that “Save as otherwise
provided in this section, all other provisions of this Act shall apply to eve ry assessee, being a
company, mentioned in this section”.
Issue: The issue under consideration is, whether, while determining the “book profit” for purposes
of section 115JB, can long-term capital gains included in the statement of profit and loss be
excluded since the same is eligible for exemption under section 54EC under the regular provisions
of the Income-tax Act, 1961.
High Court’s Observations: Sub-section (5) of section 115JB allows for application of all other
provisions contained in Income-tax Act, 1961 except if specifically barred by that section itself.
Thus, the “book profit” would be further eligible to the benefits set out in the other provisions of the
Act. Both the judgments relied upon by the Assessing Officer were rendered in the context of
erstwhile section 115J which does not contain a provision analogous to sub-section (4) of erstwhile
section 115JA and sub-section (5) of section 115JB of the Act. Assessment under erstwhile
section 115J would be concluded exclusively on the basis of the book profit i.e., the net profit as
adjusted by the items set out in the Explanation thereunder. However, in an assessment in terms
of section 115JB, the book profit would be further subjected to the effect of other provisions of the
Act that are specifically brought into play by virtue of sub-section (5) of section 115JB.

High Court’s Decision: The High Court affirmed the decision of the Tribunal holding that capital
gains which forms part of the net profit in the statement of profit and loss of the assessee-
company, in respect of which exemption under section 54EC is available while computing total
income under the regular provisions of the Income-tax Act, 1961, should not be taken into account
for calculation of minimum alternate tax on book profits under section 115JB.

Note – The following is an extract of Circular No.13/2001 dated 9.11.2001, issued by the CBDT at
the time of insertion of section 115JB in the Income-tax Act, 1961 -
“It may be emphasised that the new provision of section 115JB is a self-contained code. Sub-
section (1) lays down the manner in which income-tax payable is to be computed. Sub-section (2)
provides for computation of "book profit". Sub-section (5) specifies that save as otherwise provided
in this section, all other provisions of this Act shall apply to every assessee, being a company
mentioned in that section. In other words, except for substitution of tax payable under the
provision and the manner of computation of book profit, all the provisions of the tax
including the provision relating to charge, definitions, recoveries, payment, assessment,
etc., would apply in respect of the provisions of this section.”
The CBDT Circular clarifies that except for substitution of tax payable under the provision and
manner of computation of book profit, all other provisions relating to charge, definitions,
recoveries, payment, assessment, etc., would apply in respect of section 115JB. Therefore, “book
profit” for levy of MAT has to be computed in the manner laid down under section 115JB i.e., by
making the adjustments as specified in the Explanations contained therein to the net profit as per
the statement of profit and loss. This implies that exemptions and deductions available under the

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 regular provisions of the Act would not be available unless expressly provided for in the
Explanations to section 115JB [For example, income exempt under section 10, 11 and 12 of the
Income-tax Act, 1961 have to be deducted while computing book profit for levy of MAT, if credited
to the statement of profit and loss, by virtue of specific provision in clause (ii) of Explanation 1
below section 115JB(2)]. Therefore, it appears that the intent of sub-section (5) is to make
applicable other provisions like payment of advance tax, interest under sections 234B and 234C,
return filing, penal and prosecution provisions under the Income-tax Act, 1961 etc. to a case where
tax is computed under section 115JB.
The Madras High Court has, however, in this case interpreted sub-section (5) of section 115JB to
also permit adjustment for exemption under section 54EC while computing MAT, even though the
same is not expressly provided for in the Explanations to section 115JB.

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