Issue' versus `service' of notice

Issue' versus `service' of notice ------------ --------- --------- --------- --------- --------- - ----------- The law says that the notice under Section 143(2) is required to be served within 12 months from the end of the month in which the return was filed. ------------ --------- --------- --------- --------- --------- - ----------- V. K. Subramani For assessment of income, a notice is issued seeking the taxpayer to produce the necessary details for examination of the statements filed and income admitted by him. Technically, a notice must be served on the taxpayer as if it were a summons issued by a court under the Code of Civil Procedure, 1908. In CIT vs Inderpal Malhotra (171 Taxman 359) a notice under Section 143 (2) was issued by means of registered post on the last day of the period of limitation. The law says that the notice under Section 143(2) is required to be served within 12 months from the end of the month in which the return was filed. The court held that the statute has used the word `served' in Section 143(2) and, hence, mere dispatch or issue of notice before the prescribed time is not sufficient compliance of the legal requirement. Accordingly, the notice dispatched by registered post on the last of the limitation time was held as inadequate for seeking compliance from the assessee and, hence, the decision went in the assessee's favour. Tribunal subordinate to HC In the hierarchy of appellate authorities, the Tribunal is the final fact-finding authority. However, in respect of questions of law, both the taxpayer and the Revenue can transverse beyond the Tribunal, to the High Court and thereafter to the Supreme Court. In National Textile Corporation Ltd vs CIT (171 Taxman 339), it was observed by the court that the tribunal is subordinate to the High Court and hence has to follow the decision of the jurisdictional High Court without making any comment on the said decision or ignoring it on any grounds except those which are well-recognised. It referred to a catena of cases in which there have been deviations from binding decisions of superior authority and held that the tribunal cannot ignore the decision of the jurisdictional High Court and give a contrary decision. Modvat credit Where the taxpayer acquires a plant and machinery and pays excise duty on such acquisition, he can claim credit in respect of such duty against duty payable on goods manufactured by him. Whether the duty credit, which is eligible for such adjustment, is chargeable to tax as income was the issue in CIT vs Jay Bee Industries (171 Taxman 386). The court held that merely because the Modvat credit is irreversible would not mean that it is an income to be taxed. Following the precedent of the apex court in the CIT vs Indo Nippon Chemicals Co Ltd (130 Taxman 179) case, it held that the Modvat credit eligible for adjustment against duty payable is not chargeable as income. Estimate of stock on survey During the course of survey by the income-tax authorities, the value of stock in the premises surveyed is compared with the books of account to detect and tax the unaccounted stocks as income. Such stock valuation is a matter of conjecture in most of the cases. Whether such stock valuation might result in concealment penalty is to be decided based on facts. In SSR Pirodia vs Union of India (171 Taxman 221) the addition towards excess value of stock found at the time of survey was sustained but the concealment penalty was set aside by the tribunal as the addition to income was made on the basis of mere estimate. The further consequence of prosecution was quashed by the court in view of relief from concealment penalty granted by the tribunal. Forfeiture of exemption Where a charitable trust advances or allows its funds to remain with an interested person without security or adequate interest, then such trust is not eligible for exemption contained in Sections 11 and 12 of the Act. In Kanahya Lal Punj Charitable Trust vs DIT (171 Taxman 134), the assessee gave advance to a company which had substantial interest in the trust. It was stated that the advance was towards purchase of land for a school project of the trust. The plea of the assessee was taken as an after-thought and the court held that the income of the trust has been used to the benefit of a person referred to in Section 13(3) which is one of the disqualifying acts contained in Section 13(1). Accordingly, the benefit of exemption had to be cancelled to the trust. It held that the disqualification under Section 13(1)(c) would result in taxation of entire income of the trust, including voluntary contributions and income from property held under trust. Such disqualification would saddle the trust to pay tax on its total income without any exclusion. However, if the trust for example, does not keep its unspent income in the approved investments as enumerated in Section 11(5), then only income from such investments would be subjected to maximum marginal rate of tax and the other incomes would continue to enjoy the benefit of exemption contained in Sections 11 and 12. Enhancement of income in appeal The Commissioner (Appeals) can confirm, reduce, enhance or annul an assessment order of the AO. The power to enhance the income liable to tax is to be exercised only after providing an opportunity of hearing to the taxpayer. However, there is no embargo in sourcing information from the AO while enhancing the income in an appeal proceeding. It was so held in Goel Die Cast Ltd vs CIT (171 Taxman 272). (The author is an Erode-based chartered accountant.)

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