Allowed

M/s. Lakshmi Finance and Industrial Corporation Ltd., v. Commissioner of Income Tax

Telangana HC11 Aug 2023WP/11875/2005

Case brief

AI extract

What is this about?

The High Court allowed the petitioner's writ petition against the Commissioner of Income Tax. It relied on Supreme Court and Delhi High Court precedents to accept lease equalization charges as a valid deduction and directions regarding the revision of intimation orders under s. 143(1) as an order u/s 264. The impugned orders were quashed and the matter remanded.

What did the court decide?

The impugned order dated 29.03.2004 was set aside. The intimation orders dated 22.11.2001 and 13.11.2001 were quashed. The matter was remanded to the Commissioner for reassessment on merits keeping re

M/s. Lakshmi Finance and Industrial Corporation Ltd., Vs… — Income Tax | Telangana HC (2023)

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[³³⁸⁶¹

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IN THE HIGH COURT FOR THE STATE^{OF TELANGANA} AT HYDERABAD (Special Original Jurisdiction)

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FRIDAY, THE ELEVENTH DAY OF AUGUST TWO THOUSAND AND TWENTY THREE

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PRESENT

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THE HONOURABLE SRI JUSTICE P. SAM KOSHY AND THE HONOURABLE SRI JUSTICE LAXMI NARAYANA^ALISHETTY

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wRIT PETITION NO: 11875 OF²⁰⁰⁵

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Between:

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M/s. Lakshmi Finance AND lnduskial^{CorporationLtd., rep.byits Managing} Director, 1st Floor, 1-10-60/3, Suryodaya, Begumpet,

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...pETlTloNER

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AND

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Commissioner of lncome Tax, Hyderabad^{- ll Hyderabad.}

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Asst. Commissioner of lncome Tax,^{Circle2(2) Hyderubad.}

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...RESPONDENTS

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Petition under Article 226 of lhe Constitution of^{lndiaprayingthat in the} circumstances stated in the affidavit^{filed therewith,the High Court maybe} 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^{lncomeTax 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.264of the lncome Tax Act'}

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Counsel for the Petitioner: SRI CHALLA^GUI.iARANJAN

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Counsel for the Respondents: SRI^{B. NARASIMHA SARMA,} SPL. SC FOR CENTRAL TAXES

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The Court made the following: ORDER

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.,)

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-,)

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THE HON'BLE SRI JUSTICE P.SAM KOSHY

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AND

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THE HON'BLE SRI JUSTICE LAXMI^{NARAYANAALISHETTY}

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W.P. No. 11875 of 2OO5

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JUDGMENT: (per Hon'ble Si Justice^{P.SAM KOSHY)}

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Heard Sri Challa Gunarajan, learned counsel for^the petitioner and Sri B. Narasimha Sarma, learned Special^Counsel for Central Taxes appearing for^respondents.

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The instant writ petition has been filed by the^pretitioner assailing the order dated 29.03.2004^{passedby respondent No.1} and also to treat the consequential intimation^passedunder 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.

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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:

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Asst.Year	LeaseEqualiz	ationCharses
	DebitedRs.	CreditedRs.
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-

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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

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Assessing Officer and^{thereafter, they have approached this} Court by way of filing^{this writ petition.}

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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. VirtualSoft SystemsLimitedl,whereby,} the Hon'ble Supreme^{Court in paragraphNos.19and 2O has} held as under:

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"19. In the^{present case, the relevant assessmentyear-s} 1999-2000. The main^{contention of the Revenueis that the} respondent cannot be^{allowed to claim deductionregarding} lease equalzation^{chargessince as such there is no expresis} provision regarding such deduction^{in the IT Act. However, it} is apt to note here that^{the respondentcan be charged on y} on real income which^{can be calculated only after apptyirg} the prescribed method.^{The ITAct issilent onsuch} deduction. For such^{calculation,it isobvious thatttLe} respondent has^{to take course of Guidance Note prescribedt'y} tht ICAI if it is available.^{Only after applying suchmethcd} which is prescribed in the^{Guidance Note, the respondent can} show faii and real^{incomewhich is liable to tax under the lT} Act. Therefore, it^{is wrong to say that the respondent claim€d} deduction by virtue of^{GuidanceNoterather it onlyapplie d} the method of bifurcation^{as prescribed by the expert team lf} ICAI. Further, a conjoint^{reading of Section145of the IT A':t} read with Section^{21 1 (unamendedlof theCompaniesArt} makes it clear that the^{respondent is entitledto do su(h} bifurcation and in our^{view there is no illegalityinsuch} bifurcation as it is^{accordingto the principlesof larv} Moreover, the rule of^{interpretationsays that when internal} aid is not available^{thenfor the proper interpretation of tlte} statue, the Court^{may take the help of externalaid lf a terin} is not defined in a statue,^{thenits 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 thatthe} accounting standards^{prescribed bythe GuidanceNole}

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't2O18)^{6 SCC 584}

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cannot be used to bifurcate the lease rental^{to reach thereal} income for the purpose of tax under the^{IT Act.}

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To sum up, we are of the view that^{the respondentis} entitled for bifurcation of lease rental as^{perthe accounting} standards prescribed by the ICAI. Moreover, there is^no express bar in the IT Act regarding the^{application of such} accounting standards".

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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}

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Nos.35 to 40 held as under:

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"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 powerto} correct efrors committed by the subordinate authorities^but could even be exercised where errors are^committedby 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.

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An assessee is liable to tax only upon^{suchreceipt as can} be included in his total income and^{is assessable underthe} Income-tax Act. There is nothing in s. 264,^{whichplaces any} restriction on ttre Commissioner's^{revisional power togive} relief to the assessee in a^{casewhere the assesseedetracts} mistakes because of which he^{was over-assessedafterthe} assessment was completed.^{Once it is found that there wasa} mistake in making an assessment,^{the Commissionerhad} power to correct it under^{s. 264(1). Whenthe substantivelaw} confers a benefit on the^{assessee undera statute,it cannotbe} taken away by the^{adjudicatoryauthority onmere}

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'2016^{SCCOnline1961}

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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.

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7 264 section 143(1 ) could not be regarded as an order and was; thu s not amenable revl urisdiction under sectior 264 of the Act. The Intim tion under section 143 1) is. ed as an ord er 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 sectio n 1431I I but also the relection of the aonlication under section 154 of the Act

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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.

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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.

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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"".

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Learned counsel appearing for the Department contended that on perusal of the aforesaid decisions he doe\not clispute

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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

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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.

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Accordingly, the Writ Petition is allowed. No order as to

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costs.

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Consequently, miscellaneous petitions pending, if any,

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shall stand closed

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SD/-V.KAVITHA ASSTSTADE. REGTSTRAR //TRUE COPYII L-+J SECTION OFFICER

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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 [OPUC] 4. One CC to SRI B. NARASIMHA SARMA, SPL. SC FOR CENTFI/CL TAXES loPUcI 5. Two CD Copies BN ns 6PtF

HIGH COURT

DATED:1 110812023

ORDER

WP.No.11875 of 2005

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ALLOWING THE WRIT PETITION WITHOUT COSTS