2016 (1) TMI 675 - SC - Income Tax

Disallowance of service charges paid under Section 40A(2) - ITAT deleted the addition - HC confirmed disallowance 2007 (7) TMI 639 - KARNATAKA HIGH COURT - Held that - A reading of the order of the ITAT in favour of the assessee which has been reversed by the High Court would indicate that the learned ITAT did not address itself to a very fundamental issue that had arisen before it namely effect of the failure of the assessee to produce evidence in support of the services claimed to have been rendered by UTC during the Assessment Year in question i.e. 1984-1985. The answer given by the assessee in response to a specific query made by the Assessing Officer in this regard was that explanations in this regard had already been submitted for the previous Assessment Year i.e. 1983-1984. If service had been rendered to the assessee by UTC during the Assessment Year in question and service charges had been paid for such service rendered naturally it was incumbent on the part of the assessee to adduce proof of such service having been rendered during the period under assessment. There is no dispute on the issue that the assessee did not in fact offer any proof of the service rendered during the Assessment Year in question. In such circumstances the High Court was perfectly justified in reversing the eventual conclusion of the learned ITAT on the basis that the findings and conclusions recorded in the course of the assessment proceedings of the previous year cannot foreclose the findings that are required to be arrived at for the Assessment Year in question i.e. 1984- 1985. We therefore can find no fault with the order of the High Court on the aforesaid score. - Decided against assessee Disallowance of loss shown by the assessee in Film business - Held that - Having regard to the facts and circumstances in which the investment was made and loss claimed we can find no fault in the view taken by the High Court that the entire transaction was a sham transaction and was a calculated device to avoid tax liability.- Decided against assessee Disallowance of donation to Aparna Ashram - Held that - Assessee had failed to furnish any proof of service rendered by UTC in the course of the relevant Assessment Year i.e. 1984-1985. Alternatively the High Court construed certain facts as for example compliance of the conditions subject to which registration was granted to the Aparna Ashram under Section 35(2A) of the Act to be of significance as against the contrary/different view of the learned Tribunal on this score. There was no departure from the basic facts found by the learned Tribunal in the two illustrative situations cited above namely that (i) the assessee had not adduced any proof of service rendered by UTC in the Assessment Year 1984-1985; (ii) that Aparna Ashram had not complied with the conditions subject to which registration had been granted to it under Section 35(2A) of the Act.- Decided against assessee

Summary

Issues:
1. Disallowance of service charges
2. Disallowance of loss shown in film business
3. Disallowance of donation to Aparna Ashram

1. Disallowance of Service charges:
The High Court upheld the disallowance of service charges paid to M/s Universal Trading Company by the assessee, which was initially claimed but disallowed by the Assessing Officer and CIT. The ITAT reversed the decision based on the CIT (Appeals) order from a previous assessment year. However, the High Court reversed the ITAT's decision, emphasizing the lack of evidence provided by the assessee to support the services claimed to have been rendered by UTC during the relevant assessment year. The High Court concluded that failure to produce evidence for the current assessment year cannot be foreclosed by findings from a previous year. The Supreme Court found the High Court's decision justified, as the assessee failed to provide proof of services rendered during the assessment year in question.

2. Disallowance of loss shown in film business:
The Assessing Officer and CIT initially disallowed the loss shown in the film business, but the ITAT allowed the deduction based on a decision in a related case. However, the High Court found the ITAT's reliance on the related case to be untenable and considered the entire transaction as a sham to avoid tax liability. The Supreme Court agreed with the High Court's decision, stating that the investment and loss claimed appeared to be a calculated device to evade tax, supporting the High Court's view.

3. Disallowance of donation to Aparna Ashram:
The donation made to Aparna Ashram was disallowed by the lower authorities due to the absence of a necessary certificate showing compliance with registration conditions under Section 35(2A) of the Act. The ITAT disregarded the conditions, but the High Court emphasized their importance and ruled in favor of the revenue. The Supreme Court upheld the High Court's decision, stating that the conditions for registration had to be satisfied, and the absence of the certificate meant the assessee was not entitled to the deduction.

In conclusion, the Supreme Court dismissed the appeal, finding no fault in the High Court's decisions on the issues of disallowance of service charges, loss in the film business, and donation to Aparna Ashram. The Court reiterated the finality of the Tribunal's fact-finding authority and upheld the High Court's emphasis on existing undisputed facts in its decision-making process. The difference in approach between the Tribunal and the High Court was deemed within the latter's jurisdiction under the provisions of the Act.