Kalpesh Classes

Income Tax authorities, transfer of cases 116 to 129

Question 1 (ITA) (SLID ​​ 16)​​ 

The assessment of B, an individual, for the year was made under section 143(3) of the Income-tax Act, 1961 on 18.3. and the penalty was initiated. The assessment has become final and is not the subject-matter of an appeal or revision. The Assessing Officer issued a show cause notice for levy of penalty to B on 25.3. B furnished a reply to the said notice on 30.3. There was a change in incumbent and the Assessing Officer, who made the assessment and issued the show cause notice, was succeeded by another. The successor-Assessing Officer, suo moto, issued a notice under section 129 to B on 20.9. B did not respond to the said notice. The successor-Assessing Officer passed an order on 24.10 levying penalty. Examine the validity of the order of penalty passed with reference to the aspect of limitation.

Power to call for documents and information 131, 132A, 133

Question 1 (power to call for documents, summons etc.) (SLID ​​ 14) (Revision ​​ / Home work)

The Director General of Income – Tax after getting the information that Mr. Mogambo is in possession of unaccounted cash of ​​ 50 lacs, issued orders by invoking powers vested in him as per section 131(1A) of the Act, for its seizure. Is the order for seizure of cash issued by the Director General of Income – Tax​​ correct ? If not, does the Director General of Income – Tax have any power to seize such cash ?

Question 2 (power to call for documents, summons etc.) (SLID ​​ 08) (Revision ​​ / Home work)

The assessee was carried on the business of purchase and sale of silver ornaments, utensils, etc. A search was conducted by the Income-tax Department on the residential and business premises of the assessee. During the search silver ornaments and utensils were seized and were found to be in excess of the accounts as per books of account. After the assessment proceeding silver ornaments amounting to 125.44 kilograms were held by the Income-tax Officer unexplained and he made an addition of Rs. 3,49,225 for the purpose of computation under the Act. The assessee had explained that the said silver had been purchased from R. The assessee had filed correspondences made between him and R regarding the payment of the amount. After the statement of R was recorded he moved an application stating that his statement was recorded under coercion and he retracted the statements confirming the transaction entered between him and the assessee. The Assessing Officer accepted all the entries recorded in the amanat book except the entries pertaining to R. The affidavit of R and the bank transaction made by him were ignored. The Assessing Officer on the basis of the statement made an addition of Rs. 3,49,225 against the bill amount of Rs. 1,77,117. The assessee made a prayer under section 131 of the Act to summon R for cross-examination. The prayer​​ was not acceded to and the assessment order was passed. The officer was of view that the statement of R was fairly communicated to the assessee and that apart it was not the case of the assessee that he did not know what R had stated. You are required to​​ state whether the action of officer is justified.

Question 3 (power to call for documents, summons etc.) (SLID 09)

The assessee-company was engaged in the business of selling consumer goods. The assessee was requested to furnish the true and complete​​ details of all payments made by it to its distributors in Kerala, during the period of last 3 years, with the names and complete addresses of the respective payees and the amount paid in each financial year, etc., and any other relevant details. This letter was issued in lieu of summoning the assessee under section 131. The assessee was informed that the distributors of the company’s products in Kerala were in receipt of remuneration (by whatever name called) from the company which had not been fully and properly offered for income-tax assessment in their respective hands. For the purpose of making necessary enquiry and investigation thereto, relevant details were called for, from the assessee. A formal summons was also enclosed. It was further informed that​​ the personal appearance of the managing director was not essential provided the particulars called for were furnished. You are required to answer whether the action of the income tax authority in issuing the summons are justified.

Question 3 (power to​​ call for documents, summons etc.) (SLID 17)

The Assessing Officer issued notices under section 133 to four banks requiring particulars relating to a customer in a specific format duly verified in a prescribed manner. One of the banks refused to part with the information on the ground that the letter did not specify about any proceeding pending against the said customer under the Income-tax Act, 1961. Discuss the correctness of action of the bank in refusing to furnish the particulars as required by the Assessing Officer.

Power to collect information 133A, 133B and 134

Question 1 (power to call for documents, summons etc.) (SLID ​​ 15)​​ 

An Assessing Officer entered a hotel run by a person, in respect of whom he exercises jurisdiction, at 8 p.m. for the purpose of collecting information, which may be useful for the purposes of the Act. The hotel is kept open for business every day between 9 a.m. to 9 p.m. The hotelier claims that the Assessing Officer could not enter the hotel after sunset. The Assessing Officer wants to take away with him the books of account kept at the hotel. ​​ Examine the validity of the claim made by the hotelier and the proposed action of the Assessing Officer with reference to the provisions of section 133B of the Income – tax Act, 1961.

Question 2 (SLID 01) (survey) (Revision ​​ / Home work)

During the course of survey operations under Section 133A, carried on 5th March, The Income-tax authority, impounded the books of account and other documents inspected by him, relating to the assessee and retained the same in his custody. Is the action of the officer justified under law ?

OR

The Assessing Officer within his jurisdiction surveyed a popular Cyber Cafe at 12’ o clock in night for the purpose of collecting information which may be useful for​​ the purpose of the Income-tax Act. The Cyber Cafe is kept open for business every day between 2 P.M. and 2.A.M. The owner of the Cyber Cafe claims that the Assessing Officer could not enter the café in late night. The Assessing Officer wanted to take away​​ with him the books of account kept at the Cyber Cafe. Examine the validity of the claim made by the owner and the proposed action of the Assessing Officer.

Power of survey 133A

Question 1 (SLID 02) (survey) (Revision ​​ / Home work)

An Income-tax​​ authority in the course of exercising powers of survey under section 133A serves a summon on the assessee and impounds the books of account and other documents found in the premises visited. Discuss the legality of its action.

Question 2 (SLID ​​ 10)​​ (survey)

A survey under section 133A of the Income-tax Act, 1961 was conducted at the business premises of the assessee. During the course of survey, the tax officials noticed some discrepancies in stock and cash in hand. During the survey, the assessee surrendered an amount of Rs. 99,50,000 and offered it for the purposes of taxation. The additional income offered included a sum of Rs. 45,00,000 on account of excess stock found during the course of survey and offered by one of the partners of the assessee​​ as additional income. The answer by one of the partners of the assessee was he could not explain the difference and to buy peace of mind offering additional income. However, subsequently, the assessee by letter withdrew the offer of additional income for taxation on account of excess stock stating that the statement about stock was incorrect and that the discrepancy had been reconciled as it was only a mistake. Assessing officer proposes to tax the additional income. Whether the action is justified ?

Question 3 (SLID ​​ 11) (survey) (Revision ​​ / Home work)

The assessee companies manufactured dye-intermediates for their own and job work purposes. On the basis of allegations that the companies were illegally diverting one of the raw materials AA, a controlled substance under the Narcotic Drugs and Psychotropic Substances Act, 1985, for illegal use in manufacture of banned drugs, search operations were carried out by the Central Narcotics Bureau and Narcotics Control Bureau at the premises of the assessee companies. Consequently, survey actions under section 133A of the Income-tax Act, 1961 were carried out. However, no discrepancies in stock of AA was found. The Assessing Officer held that the sales of dye-intermediates MG-7, for the manufacture of which AA was used, to three parties were bogus and that AA was sold in the grey market. The Assessing Officer made additions of Rs. 25,51,768 and Rs. 80,64,032, being the prevailing black market rate of AA treated to have been illicitly sold in the grey market by the assessee companies respectively. Before the Commissioner (Appeals), the assessee companies submitted that the three purchasers had retracted their statements made to the narcotics authorities before the court and they also had confirmed the purchase of the goods before the Assessing Officer. It was stated that the purchasers had given the statements under duress. You are required to answer whether the action of the officer is justified ?

Question 4 (SLID 12) (survey) (Revision ​​ / Home work)

Survey was conducted in premises of Mr. X, his books are lying with his CA. therefore the income tax authorities proposes to conduct the survey of premises of CA. whether it is justified.

Power of search and seizure 132, 132B, 292, 153A to D,​​ 

Question 1 (SLID 03) (search) (Revision ​​ / Home work)

On 1.9, Prem & Sons have been searched. During the search, papers belonging to his close friend Mr. Shyam indicating concealed income have been found. How should the Assessing Officer proceed in such a situation under the Act ?

Question 2 (SLID 04) (search) (Revision ​​ / Home work)

(a) In the course of search on 25.03, assets were seized. ​​ State the procedure laid down to deal with such seized assets under the Act.

​​ (b) The Director of Income Tax received information that Mr. X​​ has unaccounted cash exceeding Rs.50 lakhs. ​​ Can the Director pass orders for seizure of the cash invoking his powers under section 131(1A)? ​​ Does the Director have any other course open to him for the seizure of cash?

Question 3 (SLID 05) (search) (Revision ​​ / Home work)

In the course of search operations under section 132, a tax payer makes a declaration under section 132(4) on the earning of income not disclosed. ​​ Can that State save the tax payer from a levy of penalty under section 271(1)(c) ?​​ ​​ ​​ 

Question 4 (SLID 06) (search) (Revision ​​ / Home work)

State whether the information regarding possession of unexplained assets and income received from the Central Bureau of Investigation, a Government agency, can constitute “information” for action under​​ section 132 of the Act. ​​ Discuss

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Question 5 (SLID 07) (search)​​ 

The business premises of Ram Bharose Ltd. and the residence of two of its directors at Delhi were searched under section 132 of the Act by the DDI, Delhi. The search was concluded​​ on 9-8-PY and following were also seized besides other papers and records:

• Papers found in drawer of an accountant relating to Shri Krishna Ltd., Mumbai indicating details of various business transactions. However, Ram Bharose Ltd. is not having any direct or indirect connection of any nature with these transactions and Shri Krishna Ltd., Mumbai and its directors.​​ 

• Jewellery worth Rs. 5,00,000 from the bedroom of one of the director, which was claimed by him to be of his married daughter.​​ 

• Papers recording​​ certain transactions of income and expenses having direct nexus with the business of the company for the period from 16-4-2011 to date of search. It was admitted by the director that the transactions recorded in such papers have not been incorporated in the books.​​ 

You are required to answer on the basis of the aforesaid and the provisions of Act, following questions:

• What action the DDI shall be taking in respect of the seized papers relating to Shri Krishna Ltd., Mumbai ?

• Whether the contention raised​​ by the director as to jewellery found from his bedroom will be acceptable ?

• What presumption shall be drawn in respect of the papers which indicate transactions not recorded in the books ?

• Proceedings for how many years shall now be taken up and within which time limit the assessment thereof be completed by the Assessing Officer ?

• Can the company move an application for settlement of case as per chapter XIX-A of the Act ?

Question 6 (SLID 13) (search)

Mr. I is a informer to the income tax department. He​​ has so for given 8 out of 10 successful information. His average remuneration is 10% of taxes recovered. On 17th July he has information about Mr. Babanlal who has secreted assets worth 12 crores. Mr. I has request for 15% remuneration to DDI & submitted the information with expectation of higher remuneration. In the search it was revealed that

• Cash of 25 lakhs lying ​​ with police department.

• Investment in benami property at silvassa with 50 Lakhs. But his wife has admitted the same as un-disclosed income belonging to her. His wife accepted that she was trading in gold over the year from which the said income was generated.

• Some Bank FD’s were 30 Lakhs found as was kept in state bank of India, Andheri branch.

• Three fishing trawlers were found belonging to Babanlal, but because of volume & weight custody could not be taken.

• Mr. Babanlal possessed many documents regarding un-disclosed assets came to knowledge of department.

• Mr. Babanlal had one girlfriend Miss Mona, with whom some personal letters were communicated (love letters) which also came to knowledge of income tax authorities during search operations.

• Total value of income un-earthed was 20 crores in view of income tax authorities but assessment is challenged by the assessee.

You are required to answer

• What are the basis on which remuneration of informer decided.

• ITA has requested cash from police department, whether justified.

• Benami property at silvassa whether includable is the assessment of Mr. Babanlal

• Documents / letters which were seized are not​​ in the handwriting of assessee, what will be the presumption there about.

• Regarding Bank fixed deposit, ITA wants to search premises of Bank at andheri branch to know whether there are more FD’s. ​​ Whether justified ?

• ITA want to search Laptops of assessee​​ as well also his auditors. Whether justified ?

• What action ITA must take in respect to fishing trawlers and personal letters ?​​ 

• After search was over it was observed a spelling mistake in search warrant whether it can make search illegal, whether material​​ obtained in search can be used for assessment.

Application of seized assets – 132B

Question 7 (SLID ​​ 18) (search) (Revision ​​ / Home work)

Cash of 25 lacs was seized on 12.9 in a search conducted as per section 132 of the Act. The assessee moved an application on 27.10 to release such cash after explaining the sources thereof, which was turned down by the department. The assessee seeks your opinion on, the following issues:​​ 

• Can the department withhold the explained money?

• If yes, then to what extent and​​ upto what period?

List of Important Question to be glanced for Revision before exam.

Wishing You all the best for exams.​​