Lakshmi Finance and Industrial Corporation Ltd. V. Commissioner of Income Tax, Hyderabad - II and Asst. Commissioner of Income Tax, Circle 2(2) Hyderabad

WP/11875/2005

AI Insights

The case involves M/s. Lakshmi Finance and Industrial Corporation Ltd., which filed a writ petition against the Commissioner of Income Tax, Hyderabad - II, challenging the order dated 29.03.2004 and subsequent intimation orders under Section 143(1) of the Income Tax Act, 1961. The petitioner contested the non-consideration of lease equalization charges claimed for the assessment years 1997-98 and 1998-99, which were disallowed by the Assessing Officer and upheld by the CIT (Appeals). The petitioner argued that the lease equalization charges should be treated as an 'Order' of assessment for revision under Section 264 of the Income Tax Act. The court considered relevant Supreme Court and High Court decisions, which supported the petitioner's stance on the treatment of lease equalization charges and the nature of intimation orders under Section 143(1).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 685216 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 11-08-2023
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax-VI Vs. Virtual Soft Systems Limited, Vijay Gupta Vs. Commissioner of Income Tax Delhi-XIII and Another
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B NARASIMHA SARMA
• Assessee Lawyers: CHALLA GUNARAJAN
• Keywords: Income tax assessment; Lease equalization charges; Writ of Mandamus; Revision under section 264
• Section: 143(1); 264

Judgement Text

"[ 33861 IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE ELEVENTH DAY OF AUGUST TWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE SRI JUSTICE P. SAM KOSHY AND THE HONOURABLE SRI JUSTICE LAXMI NARAYANA ALISHETTY 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 NARAYANA ALISHETTY 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 for revision 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 for Leases\". The expenses incurred by the petitioner are as follows: -,) 2 Asst.Year Lease Equalization Charses Debited Rs. Credited Rs. 1996-1997 2,84,473 t997 -1994 45,22,665 t998-1999 3,aa,694 1999-2000 22,35,841 2000-2001 23,20,268 2001-2002 4,24,201 2002-2003 1,16,069 2003-2004 99,453 Total 5L,95,8321- 5t,9s,8321- 4. It was the contention of the petitioner that in terms of the aforesaid guidance note, the arnounts representing lease equalization charges were either to be credited/debited to profit and loss account in each of the assessment years and the petitioner, as such, is neither going to gain nor would be put to any loss because of the same. Hence, the petitioner claimed for the deduction of the same while computing the taxable income for the assessment years 1997-98 and 1998-99. However, the Assessing Offrcer after completing the assessment, disallowed the petitioner's claim for deduction of lease equalZation charges amounting to Rs.45,22,665/- and 3,88,694/- for the two assessment years 1997-98 and 1998-99 respectively. This order was 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. 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 IT 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 IT 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 IT 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 't2O18) 6 SCC 584 4 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 SCC Online 1961 5 technicalities. It is settled proposition of law that no ta_x carl be levied or recovered without authority of law_ Article 265 of the Constitution of India and section 114 of the Stato Constitution imposes an embargo on imposition antl ' collection of ta_x if the same is without authority ;f law. section 143(1 ) could not be regarded as an order and was; thus not amenable revl urisdiction under sectior 264 of the Act. The Intim tion under section 143 1) is. ed as an order for the purDoses of sectron 264 of the Act. He failed to aD clate that the Detitioner was not only lmDusnlns the intim ation under section 1431I I but also the relection of the aonlication under section 154 of the Act 38. In the present case, as per the petitioner, in his return ol income, he has erroneously offered to tax gains arising on sale of shares as short term capital gains instead of same being long term capital gains exempt from tax. Subsequen y, the petitioner on 14.01.2011 fil;d the application under section 154 of the Act. The assessing officei on 2l-O2-2OlI partly rectified the intimation and computed the tax on capital gains @ TOyo as against 307o computed in the intimation issued under section 143(1) of ihe Act. 1.he assessing oflicer, however refused to accept the application lnder section 154 filed by the petitioner. Wien the assessing officer could rectify the intimation on 21.O2-2Oll, he could also consider the prayer of the petitioner made in the rectification application under section 154 of the Act, which was already pending before him on that date. 39. When the commissioner was called upon to examine the revision application under section 264 of th. A\"t, ,ll th. relevant material was already available on the recoid of the assessing officer. The commissioner instead of merely examining whether the intimation was correct based on the material then available should have examined the material in the light of the Circular No. 14(XL-35) of 1955, dated 11.4.1955 and Article 265 of the Constitution of Iniia. .t.he commissioner has erred in not doing so and irr failing to exercise the jurisdiction vested in him on mere techriical grounds. 40. In view of the above, the impugned order dated 2O.17.2OI2 is set aside. The revision -application under section 264 of the Act is restored to t'iie frle of the Commissioner. The commissioner is directed to consider the same afresh on merits and dispose the same within a period of 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 contended that on perusal of the aforesaid decisions he doe ot clispute 7 264 6 the fact that sofaras lease equalization charges a-re concerned, the issue is now considered by the Hon'ble Supreme Court in case of Virtual Soft Systems Limited (Supralf and also the fact that the High Court of Delhi has also considered the aspect of intimation under Section 143(1) of the Act, 1961, in the case of Vijay Gupta (supra 2f 8. Having regard to the contentions put forth by either side and taking into consideration the judiciary . pronouncements referred to in the preceding paragraphs, both sofaras lease equalization charges and the issue raised under 143(1) of the Act, 1961 are concerned, we are inclined to encourage the aforesaid judgments and allow the writ petition to the a-foresaid extent and as a consequence, the impugned order dated 29.O3.2OO4 passed by respondent No.l is set aside and the consequent order of the Commissioner treating the intimation passed under Section 1a3 (1) of the Act, 1961, dated 22.11.2O2L and 13.11.20O1 for the assessment years-1999-200O and 2000-0i is set aside/quashed and the matter is remanded back to respondent No.l to reassess the same on its own merits keeping in view the judgments referred in the preceding paragraphs. .4.4' 7 9. Accordingly, the Writ Petition is allowed. No order as to costs. Consequently, miscellaneous petitions pending, if any, shall stand closed //TRUE COPYII SD/-V.KAVITHA ASSTSTADE. REGTSTRAR L-+J SECTION OFFICER To, ns 6PtF 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 [OPUC] 4. One CC to SRI B. NARASIMHA SARMA, SPL. SC FOR CENTFI/CL TAXES loPUcI 5. Two CD Copies BN HIGH COURT DATED:1 110812023 ORDER WP.No.11875 of 2005 ALLOWING THE WRIT PETITION WITHOUT COSTS ( l tlE STA 16: 11sEP2m ]r:: r,.1T Ct{'j o (-) a .h t D er$,o\" "