Assessee’s Win: Five Significant Income Tax Decisions | Recent High Court Cases

A synopsis of five significant rulings rendered by different high courts recently.
Let’s talk about recent legal rulings from several high courts in 2023 that particularly address cases where the assessee has prevailed. I chose these cases because they have a big influence on how income tax laws are interpreted and administered. Here, we simplify these intricate court rulings so that you can easily understand them. Now, let’s examine these cases and see how they have influenced income tax law while also demonstrating the assessee’s success and other referral case laws.

1. Commissioner of Income-tax  v. D.N Memorial Trust [2023]

Details of the case:

The assessee-trust applied for registration, but the commissioner denied it because the trust had not demonstrated the validity of its operations. The Commissioner asserted that the trust had exceeded its total receipts and made a profit, in violation of Section 12AA.

The Tribunal determined that there was insufficient evidence to imply that the fee structure was not legitimate or did not follow established standards. The Commissioner did not present any evidence to support the claim that the trustees’ personal gain or non-charitable purposes drove the trust’s operations. The trust used the money it had acquired for educational purposes. The Tribunal came to the conclusion that the trust’s registration application could not be denied for any reason.

Decision by the Court: 

The Tribunal granted an appeal after the Commissioner denied registration, and they ordered that registration be granted. In accordance with Income-tax Act of 1961 Section 260A, the Commissioner filed an appeal. The court dismissed the appeal, noting that Queen’s Educational Society v. CIT addressed the matter and that it was addressed in earlier Supreme Court rulings. The Tribunal took all relevant factors into account before granting the appeal, thus the court held that no significant legal issue had arisen.

2. Principal Commissioner of Income-tax v. Goutam Chakraborty

Details of the case:

During a search operation, gold and jewelry belonging to the assessee—a partner in a company that made gold ornaments—were found. In accordance with section 69A of the Income-tax Act, the Assessing Officer added items, stating that the challans’ distinctive identification numbers were missing from the seized goods.

Analysis of the case:-

Based on the facts, the CIT (Appeals) determined that the assessee received the gold and ornaments with the intention of using them to make jewelry or to polish them, as shown by the challans. The Commissioner has accepted the assessee’s claim and found the various parties’ explanations to be compelling. Based on the stated purpose of the gold and jewelry, the Commissioner removed the additions made by AO.

Decision by the Court:

Department has filed an appeal by challenging the CIT(A)’s order, but the Income-tax Appellate Tribunal upheld decision of CIT(A), dismissing the revenue’s appeal.

The Tribunal agreed with the Commissioner’s findings that the gold and jewelry were intended for jewelry making or polishing, and that the lack of distinctive identification numbers on the challans did not justify the additions made by the Assessing Officer.

Court was agreed with Tribunal’s decision and no substantial questions of law were found to arise from the case by referring case of Chuharmal v. CIT.

3. Principal Commissioner of Income-tax v. Vishwashakti Construction

Case facts:

During the assessment years 2009–10 and 2010–11, the appellant firm demonstrated purchases from different entities while operating in the road construction and repair business. The appellant disregarded a notice that the Assessing Officer (A.O.) issued in accordance with section 133(6) of the Income-tax Act, 1961. The A.O. considered all of the purchases to be fraudulent and added the money back to the appellant’s income because the appellant did not provide the aforementioned parties for verification.

Analysis of the case : – The Commissioner (Appeals) held that the purchases were bogus but only the profit element embedded in such purchases should be considered for addition to the appellant’s income. The Tribunal upheld the Commissioner (Appeals) order and restricted the addition by estimating the profit at 12.5% on the disputed purchases referring case such as

1. CIT v. Bholanath Poly Fab (P.) Ltd.

2. CIT v. Ram Builders

4. New Age Buildtech (P.) Ltd. v. National Faceless Assessment Centre

Case facts:

On March 12, 2021, the NCLT issued an order combining the petitioner company with an extant company, ERP Infrastructure Projects Private Limited, effective April 1. Despite the fact that the authorities were informed of the merger in a clear and concise manner, the petitioner was subjected to show-cause notices, assessment orders, notices of demand, and penalty proceedings under the name of ERP Infrastructure Projects Private Limited, a company that never existed.

Examination of the case
The court looked into the legality of sending assessments and notices in the name of a fictitious business. To bolster its analysis, it cited a number of pertinent rulings.

Court has held that issuance of show-cause notices, assessment order, notice of demand, etc., in the name of the non-existent company, ERP Infrastructure Projects Private Limited, was without jurisdiction and thus liable to be quashed by referring following pronouncements:

1. CLSA India (P.) Ltd. v. Dy.

2. Saraswati Industrial Syndicate Ltd. v. CIT

3. Spice Entertainment Ltd. v. CST

4. Pr. CIT v. Maruti Suzuki India Ltd.

5. Rajesh Poddar v. Income-tax Officer

Details of the Case:

The case concerns a notice that was sent under Section 148 of the IT Act of 1961 in order to reopen the assessment for the 2014–2015 assessment year. The taxpayer asked for a copy of the reopening’s documented justifications. But it wasn’t given out. Rather, a notice was published along with a draft assessment order, mandating the filing of objections within three days. The taxpayer argued that it was not possible to file objections because the first day was a holiday and the following two days were weekends. The taxpayer repeatedly requested the reasons for reopening, but they were never provided. A section 147 read in conjunction with section 144B assessment order was approved.

Analysis from the Case:

Court examined requirement for the taxpayer to seek reasons for reopening after receiving a notice under Section 148. The AO is obligated to furnish the reasons within a reasonable period, and the taxpayer can file objections based on these reasons. Furnishing reasons is essential to allow taxpayers to present relevant facts or legal issues that could lead the AO to drop the reassessment proceedings if not warranted by referring certain case laws:

1. GKN Driveshafts (India) Ltd. v. ITO: This case established the obligation of the AO to provide reasons for reopening and the requirement for a speaking order to ensure proper assessment.

2. Amaya Infrastructure (P.) Ltd. v. ITO: In this case, the court dismissed the petition because the taxpayer had already submitted objections after receiving the reasons for reopening.

The court’s decision stated that the assessment order was unsustainable in law because the AO had not provided the taxpayer with reasons for reopening, even though the taxpayer had repeatedly requested them. The court has also observed that the taxpayer was given a reasonable amount of time to reply to the draft assessment order. The assessment order, notice of demand, and notice under Section 148 were all set aside by the court upon approval of the petition. Under the Faceless Assessment Scheme, the case was remanded to the concerned officer, who was instructed to furnish the taxpayer with the rationale behind the reopening. Within three months of the judgment date, the court ordered that the proceedings be concluded.

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