DEVI PRASAD GUPTA V. PRINCIPAL COMMISSIONER OF INCOME TAX

ITA/66/2016

AI Insights

The case involves Sh. Devi Prasad Gupta, the appellant, contesting the additions made under Section 80IA(10) read with Section 80IC(7) of the Income Tax Act, 1961, by the Income Tax authorities. The additions were based on agreements from previous assessment years, despite no business transactions occurring between the appellant and his alleged sister concern in the current assessment year. The Income Tax Appellate Tribunal upheld these additions, leading to the appeal in the High Court. The main legal issues revolved around the application of res judicata and the proper consideration of legal and factual submissions by the lower authorities.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 747727 (HC-HIMACHAL_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 31-10-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VINAY KUTHIALA; DIWAN SINGH NEGI
• Assessee Lawyers: VISHAL MOHAN; SUSHANT ADITYA PRAVEEN KAPRATE SOOD AND SHARMA
• Keywords: Assessment Year; Goodwill; Income Tax; Perversity; Res Judicata; Technical Knowhow
• Section: 80IA(10); 80IC(7)

Judgement Text

"IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA ITA No. 66 of 2016 Date of Decision: October 31, 2018 Sh.Devi Prasad Gupta …Appellant. Versus Principal Commissioner of Income Tax, Shimla, Railway Board Building, Shimla. ..Respondents. Coram: The Hon’ble Mr. Justice Sanjay Karol, Judge. The Hon’ble Mr. Justice Chander Bhusan Barowalia, Judge. Whether approved for reporting?1No. For the Appellant: Mr. Vishal Mohan, Advocate, with M/s Sushant Kaprate, Aditya Sood and Praveen Sharma, Advocates, for the appellant. For the Respondent: Mr.Vinay Kuthiala, Sr. Advocate with Mr.Diwan Singh Negi, Advocate, for the respondent. Sanjay Karol, J (Oral) The present appeal stands admitted on the following substantial questions of law:- (a) Whether the learned Income Tax Appellate Tribunal is right in law in upholding the addition made under Section 80IA(10) read with Section 80IC (7) of the Income Tax Act, 1961 based on the addition made on agreed basis in the preceding assessment years though no business had been transacted between the appellant and his alleged sister concern? (b) Whether the learned Income Tax Appellate Tribunal is right in law in holding the addition made on the principle of res judicata though on the legal front, the same Bench of the Hon’ble ITAT had held that if there is no business 1 Whether reporters of the local papers may be allowed to see the judgment? transacted, no addition under section 80IA(10) read with Section 80IC(7) of the Income Tax Act, 1961 could be made? (c) Whether the order of the learned Income Tax Appellate Tribunal suffers from perversity as legal and factual submissions have not been considered in proper prospective? 2. Vide order dated 14.12.2010 (Annexure A-1), the Deputy Commissioner of Income Tax, Circle, Shimla, H.P., found the assessee to have close connection with another concern i.e. M/s Stoneage Industrial Diamond Product, also partnership concern of Sh.Devi Prasad Gupta, sole proprietor of the assessee M/s Shree Tools, thus, by applying the principle of Section 80IA(10) of the Income Tax Act, 1961 (hereinafter referred to as the Act), assessed the income of the assessee by reducing the net profit by 10% (5% for use of technical knowhow, customer base and 5% towards goodwill). 3. Subsequently, appeal preferred by the assessee stood dismissed vide order dated 22.01.2013, passed by the Commissioner of Income Tax (Appeals), Shimla, H.P., in Appeal No.IT/442/2010-11/SML (Annexure A-2). 4. Further appeal filed by the assessee met the same fate with the Income Tax Appellate Tribunal, Chandigarh, rejecting the same vide order dated 23.06.2016 (Annexure A-4), passed in ITA No.316/CHD/2013, titled as Shri Devi Prasad Gupta vs. The DCIT, Circle Shimla. 5. Having heard learned counsel for the parties as also perused all the orders, we are of the considered view that the matter needs to be remanded back, for we find the order passed by the Assessing Officer suffering from perversity, both legally and factually. 6. It is not in dispute that the reason assigned by the Assessing Officer in applying the provisions of Section 80IA (10) of the Act, is based only on an admission made by the assessee in relation to the two preceding assessment years i.e. 2006-07 and 2007-08. Well, in our considered view, about which there cannot be a dispute, assessment of each year is required to be independently carried out on the basis of material before the Assessing Officer. 7. We notice that the authorities below failed to consider compliance of essential ingredients required for invocation of the said provisions. The Assessing Officer as also other authorities proceeded on the presumption that since in the preceding years the assessee admitted deduction to the extent of 10%, hence, in future also assessee would continue to be bound by the same. This, in our considered view, is not a reasonable approach adopted by the authorities, for each case of the assessee has to be considered independent of the each assessment year and not on the basis of assessment carried out in the preceding year. The approach adopted by the authorities below is erroneous and perverse. 8. Thus, we quash and set aside the orders dated 14.12.2010 (Annexure A-1), passed by the Deputy Commissioner of Income Tax, Circle, Shimla, H.P.; dated 22.01.2013, passed by the Commissioner of Income Tax (Appeals), Shimla, H.P., in Appeal No.IT/442/2010-11/SML (Annexure A-2); and dated 23.06.2016 (Annexure A-4), passed by the Income Tax Appellate Tribunal, Chandigarh, in ITA No.316/CHD/2013, titled as Shri Devi Prasad Gupta vs. The DCIT, Circle Shimla, and remand the matter back to the Assessing Officer for consideration afresh. Parties undertake to appear before the Assessing Officer on 20.11.2018. We may not be misunderstood to have expressed any opinion on the merits of the case. In view of the above, present appeal stands disposed of, so also pending application(s), if any. (Sanjay Karol), Judge. (Chander Bhusan Barowalia) October 31, 2018 Judge. (Purohit) "