Judicial Update
Judicial Update
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
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)
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
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
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)
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
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
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.
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.
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