Jharkhand HC Quashes ITAT Ruling Which Deletes Addition u/s 40(a)(ia) of Income Tax Act [Read Order]

The Jharkhand High Court ruled that an order from the Income Tax Appellate Tribunal (ITAT), Circuit Bench, Ranchi, was invalid since it was based only on a precedent that the Supreme Court had overturned.

New Punjab Motor Transport, the Assessee filed return disclosing total income of Rs. 9,36,120/-. The return was processed under Section 143(1) of the Act and same was selected for scrutiny under CASS. The reason for selection of the case for scrutiny assessment was to examine the various aspects of the contractor business. Finally, the Assessing Officer completed the assessment under Section 143(3) of the Act determining total income at Rs. 8,99,42,090/-.

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The Assessee being aggrieved challenged the Assessment Order of the AO before the CIT(A) has partly allowed the appeal of the assessee and sustained few additions made by the Assessment Officer. The assessee as well as the Revenue Authority challenged the Order of the CIT (A) before the ITAT.

The issue in dispute is consideration/interpretation of Section 40(a)(i-a) of the Income Tax Act, the same refers with respect to the payable amount. Section 40 of the Act enumerates certain situations wherein expenditure incurred by the assessee, in the course of his business, will not be allowed to be deducted in computing the income chargeable under the head “Profits and Gains from Business or Profession”.

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The applicability of Section 40(a)(i- a) of the Income Tax Act is not the dispute herein for which, the assessment has again been made and in consequence thereof, the notice was issued under Section 43(2) of the Income Tax Act, and the said reply having not been found to be satisfactory, fresh assessment order determining the total income of Rs. 8,99,42,090/- under Section 143(3) of the Income Tax Act, 1961 has been made. The said order of assessment has been challenged which went before the appellate authority i.e., before the C.I.T (A) in Appeal No.520/Jsr./ 2012-13 which was partly allowed vide order dated 29.08.2014 and sustained few additions made by the AO.

The adherence to the provisions ensures not merely the collection of tax but also enables the authorities to bring within their fold all such persons who are liable to come within the network of taxpayers. The intention was to ensure the collection of tax irrespective of the system of accounting followed by the assessees.

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The appellant moved the High Court, whereby the Co-ordinate Bench of the Court heard the matter. Although the issues were framed by the Court, the parties argued the matter on the issue of the law laid by the Allahabad High Court in the case of CIT Vs. Vector Shipping Services (P) Ltd. (2013)  had been overruled by the Apex Court in the case of Palam Gas Service Vs. Commissioner of Income Tax (2017) which was the basis of passing the impugned order.

The High Court in its ruling observed that , the sole consideration taken by the forum is the judgment passed by the Allahabad High Court in CIT vs. Vector Shipping Services (P) Ltd., which has been over-ruled by the  Apex Court in the case of Palam Gas Service vs. Commissioner of Income Tax, holding therein that the Allahabad High Court has not laid down good law; meaning thereby the error has been rectified by the Apex Court, said to be committed by the Allahabad High Court, by laying down the correct law.”

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It was viewed that applying the law laid down by the Apex Court in the case of Directorate of Revenue Intelligence vs. Raj Kumar Arora & Ors, will have retrospective application. The Court quashed and set aside the impugned order passed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi and remitted the matter before the Income Tax Appellate Tribunal, Circuit Bench, Ranchi for fresh adjudication of the issue, taking into consideration the observation made by the High Court.

The Division Bench comprising Justice Sujit Narayan Prasad and Justice Rajesh Kumar found  that the Tribunal's reliance on the Allahabad High Court's decision in CIT v. Vector Shipping Services (P) Ltd. was no longer legally tenable in view of the Supreme Court's subsequent judgment in Palam Gas Service v. CIT.

To Read the full text of the Order CLICK HERE

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