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‘itat e-dwar’ (ITAT), e-filing portal of Income Tax Appellate Tribunal launched

‘itat e-dwar’ (ITAT), e-filing portal of Income Tax Appellate Tribunal launched

Ministry of Law and justice recently launched the e-filing portal of Income Tax Appellate Tribunal (ITAT), ‘itat e-dwar’. The newly developed e-Filing Portal would enable the parties to file appeals, miscellaneous applications, documents, paper books, etc. electronically.

All communications related to appeals like filing of appeal, fixation for hearing, adjournments, pronouncements and disposals will be sent to the appellant’s/respondent’s, Mobile number as well as his/her e-mail address. Tribunal’s Orders will also be sent to their e-mail.

The portal will enhance accessibility, accountability and transparency in the working of the ITAT. Besides, it will lead to cost-savings, paper-saving and expedite disposal of cases.

Link to portal: https://itat.gov.in/

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Non consideration of paper book filed is a mistake apparent from the record which can be amended by Tribunal – SC

Non consideration of paper book filed is a mistake apparent from the record which can be amended by Tribunal – SC

Income Tax Appellate Tribunal (ITAT) is a quasi-judicial institution which specializes in dealing with appeals under the Direct Taxes Acts. According to Section 254, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. On a question of fact, the Appellate Tribunal order is a final order and no appeal can lie to High Court against this order. However, if the fact finding had not been done properly by the Appellate Tribunal, the assessee can file a writ petition to the High Court challenging the fact-finding process. If the High Court is satisfied that the claim of the assessee is correct then it will direct the Appellate Tribunal to conduct the fact finding as per the proper procedure.

Section 254(2) of the Income-tax Act, 1961, empowers the Tribunal to amend any order passed by it under sub-section (1) with a view to rectifying any mistake apparent from the record at any time within four years from the date of the order. Therefore, to attract the applicability of section 254(2), the mistake which is sought to be rectified must be apparent from the record and the same must be in any order passed under sub-section (1) of section 254. An order rejecting an application for rectification under section 254(2) is not an order passed under section 254(1) and it cannot be rectified under section 254(2).

Let us refer to the case of Nisha Synthetics Ltd. v CIT (2017), where the issue under consideration was whether the Tribunal had committed a mistake apparent from record in not considering the documents in the paper books filed while deciding the appeal and hence the order of the Tribunal was subject to rectification u/s. 254(2) of the Act or not.

Facts of the Case:

  • The appellant claimed that it had filed two paper books, Paper Book – I and Paper Book – II during the appellate proceedings before the Tribunal.
  • Paper Book I contained Page Nos. 1 to 40 and the Paper book – II contained Page Nos. 1 to 90.
  • There was no dispute about the paper book I being available on records.
  • Paper book II, as per the claim of the assessee, was filed during the course of the hearing before the Tribunal.
  • First part of Paper Book II i.e., Page Nos. 1 to 6 was containing the order of the Tribunal in the first round of hearings, vide which the matter was set aside to the assessing officer.
  • Part – 2 of the Paper Book II contained another set of papers from Sr. No. 1 to 90.
  • This contained the paper book filed before the CIT (A) in the fresh round of litigation, which the CIT (A) had not admitted.
  • The Tribunal passed the order and in the order of the Tribunal none of the papers contained in the Paper Book I or Paper Book II were referred to.

Miscellaneous Application filed by Assessee

  • The assessee filed a Miscellaneous Application u/s. 254(2) of the Act and claimed that there was a mistake apparent from the records in as much as the documents filed vide both the Paper Books have not been considered.
  • The said Miscellaneous Application was decided and the Tribunal accepted the fact that the Paper book I was filed/tendered during the hearing, leading to the order.
  • However, it was an admitted position that the document referred to in Paper book I, would have no bearing to the result arrived at, in the order passed in appeal.
  • So far as Paper book II was concerned, the Tribunal observed that no such compilation had been filed before it during hearing, leading to the order.
  • In view of this, the Miscellaneous Application of the assessee was dismissed.

Petition filed before the High Court (HC)

  • The assessee filed a writ petition before the HC against the order of the Tribunal dismissing the Miscellaneous Application.
  • Before the HC, the Registrar of the Tribunal filed an affidavit stating that on verification of the record, it was found that there was one compilation of Paper book I containing 40 pages and there was another compilation viz: Paper book II containing 6 pages, namely order of the Tribunal passed in respect of Assessment Year 1996-97.
  • On oath, the affidavit stated that no other documents/Paper book was available in the record of the case with the Tribunal.
  • The assessee also filed an affidavit of director of the assessee company.
  • This affidavit had a communication from the advocate who appeared for the petitioner in the appeal proceedings.
  • Both these documents inter alia stated that the compilation of documents (Paper book II) was filed.
  • However, the advocate in his communication had neither categorically stated the number of pages which Paper Book II contained nor did it state that the second paper book was in two parts i.e. from Page 1 to 6 and another from Page No. 1 to 90.
  • The Index to the second paper book also did not make any reference of documents being filed along with it, containing compilation of pages 1 to 90, which were sought to have been filed before the CIT(A).
  • Considering these factors, the HC held that there was no fault of the Tribunal in rejecting the assessee’s rectification application specially taking into account the conduct of the assessee.
  • HC inter alia held that the proceedings for rectification were not a proceeding to recall so as to have the matter reheard on merits by relying upon the evidence which were never produced before the Tribunal.
  • The assessee filed a Civil Appeal before the Supreme Court against the order of the HC.

Observations of the Supreme Court (SC)

  • Before the SC, the assessee submitted that even on the materials admitted to have been filed before the ITAT i.e. Paper Book I containing Page Nos. 1 to 40, the appellant can make out its case which has been admittedly filed by the assessee, though not as claimed by the assessee before the HC.
  • SC held that even going by the records which were found to have been received by the Tribunal, the Tribunal could have been directed to consider the case of the appellant.
  • The SC, therefore, directed the Income Tax Appellate Tribunal, to hear the appeal of the appellant afresh on the basis of the documents, which have already been found to be filed by the appellant.
  • The SC also clarified that the order passed by the HC shall not stand in the way of the Tribunal in passing the orders.
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Can additional grounds be raised during appellate proceedings when the same were not made before AO during assessment?

Can additional grounds be raised during appellate proceedings when the same were not made before AO during assessment?

An income tax return (ITR) is basically a document that is filed as per the provisions of the Income Tax Act, reporting one’s income, profits and losses and other deductions as well as details about tax refund or tax liability. After filing an ITR if the case if selected for scrutiny by the Assessing Officer (AO), income tax liability is determined by the Assessing Officer first. A tax payer aggrieved by various actions of Assessing Officer can appeal before Commissioner of Income Tax (Appeals).

Further appeal can be preferred before the Income Tax Appellate Tribunal. On substantial question of law, further appeal can be filed before the High Court and even to the Supreme Court. The Commissioner of Income-Tax (Appeals) is the first appellate authority and the Income Tax Appellate Tribunal (ITAT) is the second appellate authority. Appeal to the ITAT can be filed by any of the aggrieved party either by the taxpayer or by the Assessing Officer.

Let us refer to the case of Jute Corporation of India Ltd. v. CIT (1991), was whether additional grounds could be raised before the appellate Authority in respect of a claim not made during the course of assessment proceedings or not.

Facts of the Case:

  • The Appellant was a Government Corporation engaged in jute industry.
  • While filing the return for the assessment year 1974-75, the Appellant had not claimed any deduction on its liability to pay purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as the Appellant was under the bona fide belief that it was not liable to pay purchase tax.
  • However, the AO while passing the assessment order assessed the purchase tax.

Order of Appellate Assistant Commissioner (AAC)

  • The Appellant being aggrieved by the assessment order preferred an appeal before the AAC.
  • During the pendency of appeal proceedings, the Appellant raised an additional ground claiming deduction of certain amount on account of liability of purchase tax.
  • The AAC permitted the assessee to raise the additional ground and after hearing the AO, accepted the assessee’s claim and allowed the claim of the assessee.

Order of Income Tax Appellate Tribunal (ITAT)

  • The department being aggrieved filed an appeal before the ITAT.
  • The ITAT held that the AAC had no jurisdiction to entertain the additional ground or to grant relief to the assessee on a ground which had not been raised before the AO.
  • ITAT further rejected the assessee’s application for reference under section 256(1).

Order of the High Court (HC)

  • On an application under section 256(2), the High Court also refused to call for a statement of the case.
  • The Appellant being aggrieved by the decision of the High Court filed a SLP before the Supreme Court (SC).

Observations of the Supreme Court (SC)

  • There was no provision in the Act which put restrictions on the right of the assessee from raising an additional ground in appeal.
  • Further, there was no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground of appeal.
  • In the absence of any statutory provision, the general principle relating to the amplitude of appellate authority’s power being co-terminus with that of AO should normally be applicable.
  • If the tax liability of the assessee was admitted and if the AO was afforded opportunity of hearing by the appellate authority in allowing the assessee’s claim for deduction on the settled view of law, there appeared to be no good reason to curtail the powers of the appellate authority under section 251(1)(a) of the Act.
  • Reversing the order of the High Court, Supreme Court held that there may be several factors justifying the raising of additional ground in appeal, and each case had to be considered on its own facts.
  • If the AAC was satisfied, he would be acting within his jurisdiction in considering the question so raised in all its aspects.
  • Of course, while permitting the assessee to raise an additional ground, the AAC should exercise his discretion in accordance with law and reason.
  • He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.
  • The satisfaction of the AAC depended upon the facts and circumstances of each case and no rigid principles or any hard and fast rule could be laid down for this purpose.

In conclusion, additional grounds could be raised during the course of appellate proceedings in respect of claims not made before Assessing Officer during the course of assessment proceedings

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‘Goodwill’ generated in a newly commenced business could not be described as an “asset” under section 45 – SC

‘Goodwill’ generated in a newly commenced business could not be described as an “asset” under section 45 – SC

Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset. Capital loss arises when the cost price is higher than the selling price.

The sale of capital assets may lead to capital gains and these gains may attract tax under the Income Tax Act. Section 45 of Income Tax Act, 1961 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year will be chargeable to income-tax under the head ‘Capital Gains’. Such capital gains will be deemed to be the income of the previous year in which the transfer took place.

Let us refer to the case of CIT v. B. C. Srinivasa Shetty (1981), where the issue under consideration was whether the transfer of goodwill to the newly constituted firm gave rise to capital gains under section 45 in the hands of transferor firm or not.

Facts of the Case:

  • The assessee, a registered firm, manufactured and sold agarbattis.
  • Clause (13) of the Instrument of Partnership showed that the goodwill of the firm was not valued and the valuation would be made on dissolution of the partnership.
  • Subsequently, the assessee firm was dissolved.
  • At the time of dissolution, the goodwill of the firm was valued at Rs. 1,50,000.
  • A new partnership by the same name was constituted and it took overall the assets, including the goodwill, and liabilities of the dissolved firm.
  • The Income-Tax Officer made an assessment on the dissolved firm but did not include any amount on account of the gain arising on transfer of the goodwill.

Order of Appellate Authorities and High Court (HC)

  • The Commissioner, being of the view that the assessment order was prejudicial to the Revenue, decided to invoke his revisional jurisdiction and setting aside the assessment order directed the Income-Tax Officer to make a fresh assessment after taking into account the capital gain arising on the sale of the goodwill.
  • In appeal before the Income Tax Appellate Tribunal, the assessee maintained that the sale did not attract tax on capital gains under section 45 of the Income-Tax Act, 1961.
  • By its judgment the High Court answered the question in the affirmative, holding that the value of the consideration received by the assessee for the transfer of its goodwill was not liable to capital gains tax under Section 45 of the Act

Observations of the Supreme Court (SC) on Goodwill

  • Goodwill denotes the benefit arising from connection and reputation.
  • Its value may fluctuate from one moment to another depending on changes in the reputation of the business.
  • It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio-economic ecology, introduction to old customers and agreed absence of competition.
  • There can be no account in value of the factors producing it. It is also impossible to predicate the moment of its birth.
  • No business commenced for the first time possesses goodwill from the start.
  • It is generated as the business is carried on and may be augmented with the passage of time.

Observations of the Supreme Court (SC) on the issue of the present case

  • The asset must be one which fell within the contemplation of section 45. It must bear that quality which brings section 45 into play.
  • All transactions encompassed by section 45 must fall under the governance of its computation provisions.
  • A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 to be the subject of the charge.
  • Thus, inference flows from the general arrangement of the provisions in the Act in which the charging section and the computation provisions together constitute an integrated code.
  • Ordinarily, the operation of the charging provision could be affected by the construction of a particular computation provision.
  • But the question here was whether it was possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision.

Conclusion by Supreme Court (SC)

The Supreme Court held that:

  • The charging section and the computation provisions together constitute an integrated code.
  • When there is a case to which the computation provisions could not apply at all, it was evident that such a case was not intended to fall within the charging section.
  • All transactions encompassed by section 45 must fall under the governance of its computation provisions.
  • A transaction to which those provisions could not be applied must be regarded as never intended by section 45 to be the subject of the charge.
  • What was contemplated by section 48(ii) was an asset in the acquisition of which it was possible to envisage a cost. It must be an asset which possessed the inherent quality of being available on the expenditure of money to a person seeking to acquire it.
  • None of the provisions pertaining to the head “Capital gains” suggested that they include an asset in the acquisition of which no cost at all could be conceived.
  • When goodwill generated in a new business was sold and the consideration brought to tax, what was charged was the capital value of the asset and not any profit or gain.
  • Further, the date of acquisition of the asset was a material factor in applying the computation provisions pertaining to capital gain; but in the case of goodwill generated in a new business it was not possible to determine the date when it came into existence.
  • Having regard to the nature of goodwill, it would be impossible to determine its cost of acquisition.
  • Therefore, ‘goodwill’ generated in a newly commenced business could not be described as an “asset” within the terms of section 45 and the transfer of goodwill initially generated in a business did not give rise to a capital gain for the purposes of income-tax.
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Physical hearings to start post Diwali in ITAT Mumbai

Physical hearings to start post Diwali in ITAT Mumbai

Placed below is a draft Standard Operating Procedure (SOP) which has been formulates to conduct physical hearings in the Income Tax Appellate Tribunal, Mumbai Benches from 23 November, 2020.

Physical hearing in the ITAT, Mumbai

  • Effective 23 November, 2020, physical hearings will start in the Income Tax Appellate Tribunal, Mumbai benches.
  • Out of 12 benches, 3 benches, by rotation, will work in physical mode one week every month. In effect, three benches will be functioning in physical formats every week.
  • The cases fixed in response to requests for physical hearings in each bench will be taken up in the week earmarked for physical hearing of that bench that moth or, when it is not so possible, in the subsequent month.
  • The matters taken up in physical hearing will be the matters falling in the following categories:
    • Stay ranted matters;
    • Early hearing matters;
    • The matters in which both the parties have given consent for physical hearing; and
    • All such matters which are directed, by Hon’ble President, to be fixed before the benches for physical hearings;
  • All the stay granted matters/ early hearing matters posted before the benches, unless heard in the virtual benches, will be taken up in the week earmarked for physical hearing in that month or in the subsequent month
  • To ensure safety, following measures are being taken:
    • Not more than six persons (other than Hon’ble President/ Vice Presidents/Members bench, bench clerk and court jamadar) will be permitted at any point of time. her persons will wait in the adjoining court. rooms, but, even in the adjoining rooms, not more than 10 persons, with adequate social distancing, will sit at any of time.
    • The court will be sanitized every morning an hour before the court functioning starts, and none, including the court staff, will, be permitted to use the court rooms for any other purposes except actual judicial functioning of the bench. Immediately after the judicial functioning is over, the bench clerk will vacate the room, and do any related work i including handling: of related files and supporting work, from one of the adjoining court rooms earmarked for this purpose.
    • Each court room will have a register, which will have details and time of sanitization of the court room every day, and, in addition thereto, names, phone numbers and. temperature of every person entering the court room every day.
    • Prior to starting physical functioning of court room, public address system, and fiber glass partitioning for the bench, the bend clerk, departmental representative and the arguing counsel, will be installed in each Court room.
    • Sanitizers will be placed on the desks of all the functionaries in the court rooms, and it will be mandatory to use sanitizers before the court room functioning starts, and after the court room functioning ends.
  • The cases involving not more than five assesses (,irrespective of number of appeals involved) will be listed before the bench every working day. Wherever, for any reasons, the cases of more than five assessees are listed, the time of hearing will be staggered inasmuch as not more than five such matters will be listed at any specific point of time.
  • Income Tax Appellate Tribunal will take such additional safety measures as may be deemed necessary, from time to time, in the light of guidance of the Government authorities, in the light of inputs from the stakeholders, or in the light of the developing pandemic situation.
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