Revenue department can’t claim tax for over a decade old tax report: I-T tribunal

MUMBAI: In an interesting ruling, the Mumbai bench of Income Tax tribunal has held that if the revenue authorities do not raise demand for over a decade, then they loses the right to claim such tax from the company.

In a case related to Mumbai-based jewellery maker Lakshmi Diamond, the company had reported some sundry creditors. The income tax department then asked the company to furnish the details and confirmations of all such creditors after more than 10 years of such transactions.

However, Lakshmi Diamond, a company that owns jewellry brands including ‘Cygnus’ and ‘Noor’, couldn’t confirm two of such creditors. The income tax department argued that since the company failed to show the details, its company’s liability to pay the tax to the extent of 20% on such amount.

“When commissioner of income tax had satisfied itself that in the last so many years those parties had never been seen by anybody, nor any known address of them was available,” said Kunal Gandhi, partner at Mumbai-based tax and forensic advisory firm US Gandhi & Co. “There was never any demand of payment by any of the said parties from the Lakshmi Diamond for the last 10 years, only then revenue officer concluded that the liability of the company had ceased to exist.”

The Income Tax Appellate Tribunal ( ITAT) giving relief to the jewellry company observed that in last so many years those parties (sundry creditors) had never been seen by anybody and the revenue department had also not made any demand from the company for last more than 10 years, liability in respect of said creditors was considered as having been ceased under section 41(1).