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Jaya gets a breather in two Income Tax cases
January, 30th 2008
Tamil Nadu former chief minister J Jayalalithaa has got a reprieve from the Income Tax Appellate Tribunal (ITAT) in at least two of the several tax cases against her. The reprieve is on the additional income tax levied on her agricultural income from the land at Poyyapakam village and the tax levied on the purchase of newsprint for Namadu MGR. The income tax department had claimed that the purchase was a fictitious one for the purpose of inflating expenses.

ITAT, the second appellate body on tax matters, has almost waived the tax on Rs 1.6 crore, the expense incurred for the purchase of newsprint. The assessing officer had decided that since this part of the purchase was not carried out through banks, 50% of this expenditure should be disallowed and taxed, but the commissioner (appeal), the first appellate body, had reduced it to 15%.

ITAT found merit in the assessees claim that purchase of the newsprint was genuine, but could not totally rule out the possibility of an inflated expenditure. Therefore, it decided that 5% of the expenses on newsprint could be held taxable. The assessment year in this case is 1994-95.
In the case of agricultural income, ITAT upheld the order of CIT (appeal), which allowed the exemption claimed for the agricultural income from leased and licensed land. The ITAT decision is fair and is in line with the order of the commissioner (appeal), G Narayana Swamy, senior partner, S Venkatram & Co, auditor for Jayalalithaa, said.

The decision by ITAT on the claim of agricultural income was in relation to 7.7 acre leased at Poyyapakam village and 6.9 acre procured on licence basis. To begin with, the assessing officer had disputed the genuineness of the land lease. The officer had argued that there was no entry for the sale of stamp paper utilised for the deal with the office of the Registrar of Stamp Duty. Besides, the lesser had given a statement before the assessing officer that he had not leased the land in question.

However, the lesser, TR Vasudevan, had later retracted the statement given before the deputy commissioner, income tax. In an affidavit, he claimed that the statement before the deputy commissioner was secured by the raiding income tax officials through coercion, including harassment of his wife.

He further said he had signed the statement around mid-night. ITAT observed that though the statement given before the income tax officials has evidentiary value, such statements should be viewed with great caution, especially when they are subsequently retracted. Therefore, ITAT has observed there is a great need to probe the reasons for retracting from the earlier statements and if possible, one should not rely on the earlier statements that are retracted later.

ITAT upheld the commissioners appeal decision to consider Rs 14 lakh as agricultural income and Rs 1.8 lakh as non-agricultural income. In the second case, the issue was bogus purchase of newsprint and inflating expenses. The newspaper in question is Namadu MGR. According to the assessing officer, newsprint purchase worth Rs 1.6 crore was fictitious. The assessee had furnished documentary evidence to support the stand that the newsprint had actually been purchased, and also details of suppliers.

When the suppliers of the newsprint visited the income tax inspector attached to the assessing officer, the officer was not available. He later concluded that the suppliers did not exist and thereafter, made the additional tax on charges of inflated expenses.

The assessing officer, however, decided to consider only those purchases transacted through banks and made an addition of 50% of the total cash transaction carried out by the assessee. The CIT appeal had reduced the addition to 15%. ITAT, after carefully examining the details of the cash transactions, concluded that the purchase of newsprint was genuine.

However, ITAT did not find merit in the assessing officers view that all the off bank newsprint purchases were bogus. But it found some merit in the CIT (A) decision to reduce the addition to 15% of the cash transaction. ITAT, then, directed the assessing officer to sustain a 5% addition of the cash purchases.
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