2018 (2) TMI 1469 - HC - Income Tax

Issue of taxability of the sale tax exemption benefit availed by assessee - Held that - At this stage of our dictation, Mr. Chhotaray interjected to mention that it should be Assessing Officer / Inspector and not Assessing Officer alone. This is contrary to what was stated to us during the hearing. In fact, we were categorically told by Mr. Chhotaray that he has met the Assessing Officer twice and he was informed by him that no order has been passed. Mr. Chhotaray, now states that he was receiving instructions both from Assessing Officer as well as Inspector. In any case, the Assessing Officer who has instructed Mr. Chhotaray has to ensure that the facts are correctly briefed to the Counsel for the Revenue appearing before this Court. The least that is expected of a State is fairness. Facts are sacred. We are unable to understand why the incorrect instructions are given to the Counsel, which in turn leads taking up time, which is otherwise scarce considering the quantum of pending income tax appeals. Moreover, the absence of the Assessing Officer being fully updated with all facts may lead to waste of time and effort on all sides. This for the reason that in case, we hold in favour of the Revenue on the present question no.(iii) in this appeal, then, the entire exercise done consequent to the impugned order of the Tribunal i.e. passing of an order dated 29th July, 2015 of the Assessing Officer and further orders in appeal therefrom would all be rendered infructuous. This as the basis / foundation of the order dated 29th July 2015 and subsequent orders in appeal will be set aside. Besides, being most unfair to the respondent assessee. We direct the Assessing Officer to file an affidavit pointing out the circumstances which led to his giving incorrect fact to the Counsel for the Revenue leading to unnecessary waste of time and effort. We adjourn the hearing of this appeal to 26th February, 2018 to enable the filing of the affidavit.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Year 2001-02.
2. Technical knowhow expenditure treated as revenue expenditure.
3. Taxability of profit from US and UK branches.
4. Taxability of sale tax exemption benefit of ?58 crores.
5. Incorrect information provided by the Assessing Officer leading to wastage of time and effort.

Analysis:
1. The appeal challenges the order of the Income Tax Appellate Tribunal for Assessment Year 2001-02. The Revenue raised substantial questions of law concerning the treatment of technical knowhow expenditure, taxability of profit from US and UK branches, and the sale tax exemption benefit of ?58 crores. The Tribunal's decision on these issues was contested by the Revenue.

2. Regarding the technical knowhow expenditure, the Tribunal considered it as revenue expenditure, contrary to the Revenue's argument that it should be treated as a capital expenditure due to the amended provisions of Section 32. The Tribunal's decision was questioned based on the nature of technical knowhow as an intangible asset and the corresponding fee as capital expenditure.

3. The taxability of profit from US and UK branches was another issue raised by the Revenue. The Tribunal's decision to exclude this profit from the taxable income of the assessee was challenged, questioning the justification behind this exclusion and its impact on the overall tax liability.

4. The issue of the sale tax exemption benefit of ?58 crores availed by the assessee was also brought into question. The Tribunal's decision to restore this issue to the Assessing Officer for fresh consideration was disputed by the Revenue, raising concerns about the acceptance of this benefit and its impact on the taxable profit.

5. The judgment highlighted the incorrect information provided by the Assessing Officer, leading to confusion and wastage of time during the proceedings. The Court emphasized the importance of accurate briefing and directed the Assessing Officer to file an affidavit explaining the circumstances behind the misinformation. Additionally, the Counsel for the Revenue was instructed to serve a copy of the order to relevant tax authorities to ensure proper briefing of officers in future proceedings.