Recent case laws on the procedures under the Income Tax Act, 1961
Posted on July 25,2018

1. Can Revenue take advantage of the extended period of limitation for imposing penalty by filing an appeal before ITAT and withdraw it later on:

Sec 275 of the Income Tax Act provides for the period of limitation for penalty proceedings. It provides that penalty proceedings shall be completed before the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or six months from the end of the month in which the order of the CIT (Appeal) or ITAT is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever period expires later.

In a recent judgement of the Hon’ble Delhi High Court in the case of Salora International Ltd v. Commissioner of Income Tax [2018] 402 ITR 211 (Delhi), the issue before the Hon’ble High Court was regarding computation of period of limitation for completion of penalty proceedings where the appeal filed by the tax department before the ITAT was unilaterally withdrawn. The Hon’ble High Court held that a plain and textual reading of Section 275(1A) clarifies that the expiry of six months prescribed is to be reckoned "from the date of completion of proceedings or from the end of the month in which the order of the CIT(A) or as the case may be the appellate tribunal is received." If the logic of the provision is kept in mind, it is obviously an adjudicatory "order" which culminates in "the proceedings" (i.e. an order that determines inter alia the rights of the parties finally) that is to be deemed a terminus quo for the completion of penalty proceedings. Any other interpretation would inject a great deal of uncertainty because in either case of maintainability of an appeal preferred by either the revenue or the assessee, in the eventuality of withdrawal of that appeal, without an adjudicatory order, the period of limitation would be deemed to subsist. The law abhors uncertainty. Therefore, the dependence of the period of the limitation upon whether an order becomes final at the instance of one party, i.e. that filing and prosecution or withdrawal of an appeal (by one party or the other) would be, in the opinion of the Court leaves the legal position inchoate and unsatisfactory. 

Therefore, period of limitation cannot be extended where the appeal is withdrawn without an adjudicating order. 

2. Can the tax officer ignore the submissions made by the tax payer during Assessment Proceedings :

Sometimes, the Assessing Officer passes an order in a haste to meet the time limit for passing the assessment order without considering the relevant documents or information produced by the assesse before him/her. 

In the recent judgement of the Hon’ble High Court of Patna in the case of Dhananjay Kumar Singh vs. Assistant Commissioner of Income Tax and Ors. [2018] 402 ITR 91 (Patna), the question canvassed before the Hon’ble High Court was whether the order passed by the Assessing Officer hastily without considering the documents and other materials on record is valid? The Hon’ble High Court held that it is a cardinal principle of law that if relevant materials and objections are produced before a quasi-judicial authority, the quasi-judicial authority is duty-bound, under law to advert to consider the same, discuss them and then reject it by recording reasons. Therefore, the Hon’ble Court remanded the matter back holding the order as perverse based on his ipse dixit (assertion without proof) and in violation to the principles of natural justice.

Therefore, the Assessing Officer is duty bound to consider all the submissions made before him.

3. Doctrine of Mutuality:

The doctrine of mutuality is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable.

In the recent judgement of Apex Court in the case of ITO v. Venkatesh Premises Co-Operative Society Ltd. [2018] 402 ITR 670 (SC) the issue before the apex court was whether certain receipts by co-operative societies, from its members i.e. non-occupancy charges, transfer charges, common amenity fund charges and certain other charges, are exempt from income tax based on the doctrine of mutuality. The challenge is based on the premise that such receipts are in the nature of business income, generating profits and surplus, having an element of commerciality and therefore exigible to tax. The Hon’ble Apex Court held that the income of a co-operative society from business is taxable under Section 2(24)(vii) and will stand excluded from the principle of mutuality. The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and the participators in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense. The principle postulates that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership. It was finally held that the surplus, if any, from the business was not shared by the members but was used for providing better facilities to the members and therefore, not taxable.

Therefore, amount of surplus which is to be used for the common benefit of members cannot be taxable due to the Principal of Mutuality.

4. Assessment made in case of non-existent entity is a nullity:

In the recent judgement of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax-6 v. Nokia Solutions & Network India (P.) Ltd [2018] 402 ITR 21 (Delhi), the issue before the Hon’ble High Court was regarding validity of the assessment where the assessee on whom scrutiny notice was issued merged during the course of assessment proceedings. The Hon’ble High Court relying on its judgement in Spice Entertainment Ltd. v. CIT [2012] 247 CTR 500 (Delhi) is held that, if the assessment is concluded in favour of a non-existing entity, then notwithstanding Section 292B, the assessment would not be valid. 

Therefore, the framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person.


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