Wp/11875/2005 Of M/S. Lakshmi Finance And Industrial Corporation Ltd v. Commissioner Of Income Tax

[ [33861] IN THE HIGH COURT FOR THE STATE AT HYDERABAD(Special Original Jurisdiction) FRIDAY, THE ELEVENTH DAY OF AUGUSTTWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE SRI JUSTICE P. SAM KOSHYANDTHE HONOURABLE SRI JUSTICE LAXMI NARAYANA wRIT PETITION NO: 11875 OF [2005] Between: M/s. Lakshmi Finance AND lnduskial [Corporation ][Ltd., ][rep.by ][its ][Managing]Director, 1st Floor, 1-10-60/3, Suryodaya, Begumpet, ...pETlTloNER AND 1. Commissioner of lncome Tax, Hyderabad [- ][ll ][Hyderabad.] 2. Asst. Commissioner of lncome Tax, [Circle ][2(2) Hyderubad.] ...RESPONDENTS Petition under Article 226 of lhe Constitution of [lndia ][praying ][that in ][the]circumstances stated in the affidavit [filed ][therewith, ][the ][High Court may ][be]pleased to pass an order or orders or writ more [particularly ][one ][in ][the ][nature of]writ of Mandamus declaring the order d1.29-3'20O4 [passed ][by ][the ][Commissioner]of lncome Tax Hyderabad -ll as arbitrary, [illegal ][and set ][aside ][the ][same ][and]consequenfly directing the commissioner of [lncome ][Tax ][to treat the ][intimation]passed u/s. ['143 ](1) dated 22.11.2001 for the assessment [year ]1999 [-2000 ][and]2OOO-01 is an Order of assessment [for ][revision ][uls.264 ][of ][the ][lncome Tax ][Act'] Counsel for the Petitioner: SRI CHALLA [GUI.iARANJAN] Counsel for the Respondents: SRI [B. NARASIMHA SARMA,]SPL. SC FOR CENTRAL TAXES The Court made the following: ORDER -,) .,) THE HON'BLE SRI JUSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE LAXMI W.P. No. 11875 of 2OO5 JUDGMENT: (per Hon'ble Si Justice [P.SAM ][KOSHY)] Heard Sri Challa Gunarajan, learned counsel for [the] petitioner and Sri B. Narasimha Sarma, learned Special [Counsel]for Central Taxes appearing for [respondents.]2. The instant writ petition has been filed by the [pretitioner]assailing the order dated 29.03.2004 [passed ][by respondent ][No.1]and also to treat the consequential intimation [passed ][under]Section 143 (1) of the Income Tax Act, [1961 ][('for ][short, the ][Act,]1961') dated 22.ll.2}Ol and 13.11.2001 for the [ass;essment]years 1999-00 and 2000-Ol as an 'Order' of assessment forrevision under Section 264 of the Income Tax Act. 3. The grievance of the petitioner seems to be [the]non-consideration of lease equali zatiorr charges claime,l [by ][the]petitioner for the purpose of expenses incurred as [per ][the]method of accounting prescribed by the Institute of [Charted]Accountant of India (ICAI), in "Guidance note on Accounting forLeases". The expenses incurred by the petitioner are as follows: 4. It was the contention of the petitioner that in terms of theaforesaid guidance note, the arnounts representing leaseequalization charges were either to be credited/debited to profitand loss account in each of the assessment years and thepetitioner, as such, is neither going to gain nor would be put toany loss because of the same. Hence, the petitioner claimed forthe deduction of the same while computing the taxable incomefor the assessment years 1997-98 and 1998-99. However, theAssessing Offrcer after completing the assessment, disallowedthe petitioner's claim for deduction of lease equalZation chargesamounting to Rs.45,22,665/- and 3,88,694/- for the twoassessment years 1997-98 and 1998-99 respectively. This orderwas subjected to challenge by the petitioner before the CIT(Appeals), where the CIT (Appeals) confirmed the orders of the Assessing Officer and [thereafter, ][they ][have ][approached this]Court by way of filing [this ][writ ][petition.] Assessing Officer and [thereafter, ][they ][have ][approached this]Court by way of filing [this ][writ ][petition.] 5. Today, when the matter [is ][taken ][up ][for ][hearing, ][learned]counsel for the [petitioner submits ][that ][sofaras ][the ][lease]equalization charges [are ][concerned, ][the ][issue ][has ][already ][been]made to Honble Supreme [Court ][in ][case ][of ][Commissioner ][of]Income Tax-VI [Vs. ][Virtual ][Soft ][Systems ][Limitedl, ][whereby,]the Hon'ble Supreme [Court ][in ][paragraph ][Nos.19 ][and ][2O ][has]held as under: "19. In the [present case, ][the ][relevant ][assessment ][year ][-s]1999-2000. The main [contention of ][the ][Revenue ][is that ][the]respondent cannot be [allowed ][to ][claim ][deduction ][regarding]lease equalzation [charges ][since ][as such there ][is ][no ][expresis]provision regarding such deduction [in ][the ] [Act. ][However, ][it]is apt to note here that [the ][respondent ][can ][be charged ][on y]on real income which [can be calculated ][only after ][apptyir ][g]the prescribed method. [The ] [Act ][is ][silent ][on ][such]deduction. For such [calculation, ][it is ][obvious ][that ][ttLe]respondent has [to take course of ][Guidance ][Note prescribed ][t'y]tht ICAI if it is available. [Only after ][applying such ][methcd]which is prescribed in the [Guidance ][Note, the ][respondent ][can]show faii and real [income ][which is liable ][to ][tax ][under the ][lT]Act. Therefore, it [is ][wrong ][to ][say ][that ][the respondent ][claim€d]deduction by virtue of [Guidance ][Note ][rather ][it ][only ][applie d]the method of bifurcation [as prescribed ][by ][the expert ][team ][lf]ICAI. Further, a conjoint [reading ][of ][Section ][145 ][of ][the ] [A':t]read with Section [21 ][1 ][(unamendedl ][of ][the ][Companies ][Art]makes it clear that the [respondent ][is ][entitled ][to do ][su(h]bifurcation and in our [view there ][is ][no ][illegality ][in ][such]bifurcation as it is [according ][to ][the ][principles ][of ][larv]Moreover, the rule of [interpretation ][says ][that ][when internal]aid is not available [then ][for ][the proper interpretation of ][tlte]statue, the Court [may take ][the ][help of external ][aid lf ][a ][terin]is not defined in a statue, [then ][its ][meaning can ][be ][taken ][as ][is]prevalent in ordinary or commercial [parlance. ][Hence, ][n'e ][rlo]not hnd any force in the [contentions of ][the ][Revenue ][that ][the]accounting standards [prescribed ][by ][the ][Guidance ][Nole] cannot be used to bifurcate the lease rental [to ][reach the ][real]income for the purpose of tax under the [IT Act.] 20. To sum up, we are of the view that [the ][respondent ][is]entitled for bifurcation of lease rental as [per ][the ][accounting]standards prescribed by the ICAI. Moreover, there is [no]express bar in the IT Act regarding the [application ][of ][such]accounting standards". 6. Insofar as passing an intimation order d'ated [22.11.2001]under Section 143(1) ofthe Act, [1961 ][is ][concerned, ][the ][learned]counsel of the petitioner relied upon the [recent decision of ][the]High Court of Delhi in case of Vijay Gupta [Vs. ][Commissioner]of Income Tax Delhi-XIII and [Anotherz, ][whereby, ][the ][High]Court of Delhi in somewhat similar circumstances [in ][paragraph]Nos.35 to 40 held as under: cannot be used to bifurcate the lease rental [to ][reach the ][real]income for the purpose of tax under the [IT Act.] 20. To sum up, we are of the view that [the ][respondent ][is]entitled for bifurcation of lease rental as [per ][the ][accounting]standards prescribed by the ICAI. Moreover, there is [no]express bar in the IT Act regarding the [application ][of ][such]accounting standards". 6. Insofar as passing an intimation order d'ated [22.11.2001]under Section 143(1) ofthe Act, [1961 ][is ][concerned, ][the ][learned]counsel of the petitioner relied upon the [recent decision of ][the]High Court of Delhi in case of Vijay Gupta [Vs. ][Commissioner]of Income Tax Delhi-XIII and [Anotherz, ][whereby, ][the ][High]Court of Delhi in somewhat similar circumstances [in ][paragraph]Nos.35 to 40 held as under: "35. From the various [judicial ][pronouncements, ][it ][is ][settled]that the powers conferred under section 264 of [the ][Act ][are]very wide. The Commissioner is bound to apply his [mind ][to]the question whether the petitioner [was ][taxable ][on ][that]income. Since section 264 uses the expression ["any ]order", [it]would imply that the sectioh does not limit [the ][power ][to]correct efrors committed by the subordinate authorities [but]could even be exercised where errors are [committed ][by]assesses. It would even cover situations where the [assessee]because of an error has not put forth [a ]legitimate [claim at ][the]time of hling the return and the error is [subsequently]discovered and is raised for the first time in [an ][application]under Section 264. 36. An assessee is liable to tax only upon [such ][receipt ][as ][can]be included in his total income and [is ][assessable ][under ][the]Income-tax Act. There is nothing in s. 264, [which ][places any]restriction on ttre Commissioner's [revisional power ][to ][give]relief to the assessee in a [case ][where the ][assessee ][detracts]mistakes because of which he [was ][over-assessed ][after ][the]assessment was completed. [Once ][it ][is found ][that ][there ][was ][a]mistake in making an assessment, [the ][Commissioner ][had]power to correct it under [s. 264(1). When ][the substantive ][law]confers a benefit on the [assessee ][under ][a ][statute, ][it ][cannot ][be]taken away by the [adjudicatory ][authority on ][mere] '2016 [Online ][1961] technicalities. It is settled proposition of law that no ta_x carlbe levied or recovered without authority of law_ Article 265 ofthe Constitution of India and section 114 of the Statothe Constitution of India and section 114 of the StatoConstitution imposes an embargo on imposition antl' collection of ta_x if the same is without authority ;f law.' collection of ta_x if the same is without authority ;f law. 7 264section 143(1 ) could not be regarded as an order and was;thus not amenablerevlurisdiction under sectior264 of the Act. The Intim tion under section 143 1) is.ed as an order for the purDoses of sectron 264 of theAct. He failed to aDclate that the Detitioner was not onlylmDusnlns the intim ation under section 1431I I but also therelection of the aonlication under section 154 of the Act 38. In the present case, as per the petitioner, in his return olincome, he has erroneously offered to tax gains arising onsale of shares as short term capital gains instead of samethe being petitioner long term on capital gains 14.01.2011 exempt fil;d from tax. the application Subsequen undery,section 154 of the Act. The assessing officei on 2l-O2-2OlIpartly rectified the intimation and computed the tax oncapital gains @ TOyo as against 307o computed in theintimation issued under section 143(1) of ihe Act. 1.heassessing oflicer, however refused to accept the applicationlnder section 154 filed by the petitioner. Wien the assessingofficer could rectify the intimation on 21.O2-2Oll, he couldalso consider the prayer of the petitioner made in therectification application under section 154 of the Act, whichwas already pending before him on that date. 39. When the commissioner was called upon to examine therevision application under section 264 of th. A"t, ,ll th.relevant material was already available on the recoid of theassessing officer. The commissioner instead of merelyassessing officer. The commissioner instead of merelyexamining whether the intimation was correct based on thematerial then available should have examined the material inthe light of the Circular No. 14(XL-35) of 1955, datedmaterial then available should have examined the material inthe light of the Circular No. 14(XL-35) of 1955, dated11.4.1955 and Article 265 of the Constitution of Iniia. .t.hecommissioner has erred in not doing so and irr failing toexercise the jurisdiction vested in him on mere techriicalgrounds.grounds. 40. In view of the above, the impugned order dated2O.17.2OI2 is set aside. The revision [-application ]undersection 264 of the Act is restored to t'iie frle of theCommissioner. The commissioner is directed to consider thesame afresh on merits and dispose the same within a periodof eight veeks from today. The Writ petition is aisposed of,leaving the parties to bear their o*., "o"t"". 7. Learned counsel appearing for the Department contendedthat on perusal of the aforesaid decisions he doe\not clispute the fact that sofaras lease equalization charges a-re concerned,the issue is now considered by the Hon'ble Supreme Court incase of Virtual Soft Systems Limited (Supralf and also [the]fact that the High Court of Delhi has also considered the aspectof intimation under Section 143(1) of the Act, 1961, in the caseof Vijay Gupta (supra 2f 8. Having regard to the contentions put forth by either sideand taking into consideration the [judiciary ]. [pronouncements]referred to in the preceding paragraphs, both sofaras leaseequalization charges and the issue raised under 143(1) of theAct, 1961 are concerned, we are inclined to encourage theaforesaid [judgments ]and allow the writ petition to the a-foresaidextent and as a consequence, the impugned order dated29.O3.2OO4 passed by respondent No.l is set aside and theconsequent order of the Commissioner treating the intimationpassed under Section 1a3 (1) of the Act, 1961, dated 22.11.2O2Land 13.11.20O1 for the assessment years-1999-200O and2000-0i is set aside/quashed and the matter is remanded backto respondent No.l to reassess the same on its own meritskeeping in view the [judgments ]referred in the precedingparagraphs. .4.4' \ 9. Accordingly, the Writ Petition is allowed. No order as tocosts.Consequently, miscellaneous petitions pending, if any,shall stand closed SD/-V.KAVITHAASSTSTADE. REGTSTRAR//TRUE COPYIIL-+JSECTION OFFICER To,1. Commissioner of lncome Tax, Hyderabad - ll Hyderabad.2. Asst. Commissioner of lncome Tax, Circle 2(2) Hyderabad.3. One CC to SRI CHALLA GUNARANJAN, Advocate 4. One CC to SRI B. NARASIMHA SARMA, SPL. SC FOR CENTFI/CL TAXESloPUcI5. Two CD CopiesBN ns 6PtF HIGH COURT DATED:1 110812023 ORDERWP.No.11875 of 2005 ALLOWING THE WRIT PETITIONWITHOUT COSTS er$,o" l tlE 16:(o(-)11sEP2ma.htD]r:: [r,.1T ]Ct{'j