April « 2018 « AIFTP

A. Classification of Service

Banking and Other Financial Services

1. The Tribunal held that there was no distinction between borrowing and lending in case of services pertaining to loans and therefore services availed by the assessee from mandated lead agents in borrowing money from banks located abroad would be covered under the category of Banking & Other Financial services.

Tata Steel Ltd. v. CST – (2016) 41 STR 689 (Tri.-Mum.)

2. The Tribunal held that service tax is not payable on services provided by Association to its members and therefore held that the assessee, taking interest paying deposits from its members and lending to needy members on interest was not liable to service tax.

Chiplun Nagari Sahakari Patsanstha Ltd. v. CCE – (2015) 40 STR 957 (Tri.-Mum.)

Business Auxiliary / Support Services

3. The Court held that the activity of conducting or managing business for an owner could not be classified under the category of Business Support Services. It held that the assessee was responsible for any profits generated or losses sustained and therefore the transaction would not fall within the meaning of support services.

CCE&ST v. Karan Agencies – (2015) 64 taxmann.com 374 (Bom.)

4. The Tribunal held that fees collected by the assessee from members for the purpose of organisation of an exhibition was not liable to service tax. However, it held that sums collected from non-members was subject to service tax.

Maharashtra Chamber of Housing Industry vs. CCEC&ST – 2016 41 STR 441 (Tri.-Mum.)

5. The Tribunal held that reimbursement of sale promotion expenses received by an authorized service station from a vehicle manufacturer would be treated as consideration for providing sales promotion services, liable to service tax under the category of Business Auxiliary Services.

CCE v. Premier Motor Garage – (2015) 39 STR 490 (Tri. – Del.)

6. The Tribunal held that, as per the agreement, the assessee was responsible for proper management, supervision and co-ordination of various aspects in relation to transportation of vehicles from factory to manufacturers depot and dealers and therefore the service rendered clearly fell under the scope of managing, distribution and logistics liable to service tax under Business support services w.e.f. 1-5-2006 and not under Business Auxiliary Services for the period prior to that.

Capital Transport Convoy Contractor vs. CCE&ST – (2016) 41 STR 651 (Tri.-Del.)

7. The Tribunal held that distributors of Amway India Enterprises, receiving commission on volume of purchases was liable to service tax under Business Auxiliary Services.

Charanjit Singh Khanuja v. CST – (2016) 41 STR 213 (Tri.-Del.)

8. The Tribunal held that preparation / reissue of documents such as bill of entry was liable to service tax under the category of Business Auxiliary Services in light of
the explanation inserted defining commission Agent.

CMA CGM Global (India) Pvt Ltd. v. CCE – (2016) 41 STR 292 (Tri. – Mum.)

9. The Tribunal held that processing of vegetables by the assessee on behalf of its clients was in relation to agriculture and therefore not liable to service tax in light of circular No. 143 / 12 / 2011-ST.

Tasty Bite Eatables Ltd v. CCE – (2016) 41 STR 117 (Tri. – Mum.)

10. The Tribunal, relying on a series of decisions held that, providing/selling SIM cards / recharge vouchers in lieu of certain commission was not liable to service tax under Business Auxiliary Services.

Omar Agencies (Hutch) v. CCE, Allahabad 2015 (40) STR 1135 (Tri.-Del.)

Commercial Training or Coaching Services

11. The Court held that where the assessee incurred expenses towards training of staff outside India no coaching service was performed / rendered in India and therefore the same
was not liable to service tax on reverse charge basis

CCE, ST & C v. Maersk India (P)Ltd – (2015) 40 STR 1059 (Tri.-Mum.)

Club or Association Service

12. The Tribunal held that as per the principle of mutuality, entrance fee for admission of new members, collected by the assessee was not liable to service tax since it was a onetime payment for inclusion into restricted group constituting membership of club or association.

Further it held that monthly contributions by members that could not be attributable to identifiable activities could not be deemed to be consideration liable to be taxed and that contributions for discharge of liabilities or meeting common expenses of a group of persons would not be taxable under the Act in absence of identifiable service benefitting identified individual or individuals making such contribution.

Cricket Club of India Ltd. v. CST – (2015) 40 STR 973 (Tri.-Mum.)

13. The Advance Authority held that the term “activity” is very wide connotation and that it may be active or passive and includes provision of facility by club. It further held that the asssessee was involved in business of establishing and running indoor sports complex & club and since its shareholders may not be members of club and vice versa, the principle of mutuality was not applicable and therefore membership fees, annual fees and other charges received from members from time to time were liable for service tax.

Emerald Leisures Ltd. – (2016) 41 STR 321 (AAR)

Erection, Commissioning & Installation Service

14. The Tribunal held that the fabrication of structures at client’s premises would not be liable to service tax under the category of Erection, Commissioning and Installation as it led to the emergence of excisable goods which amounts to manufacture.

Plus Tech Engineering Pvt. Ltd. v. CCE – (2015) 39 STR 454 (Tri.-Ahd.)

Franchise Service

15. The Tribunal held that as per the agreement between the assessee, a municipal corporation and private operators granting the private operators the right to use of a logo on its buses, no representational right was granted to the private operator to provide any service identified with the assessee and therefore there being no relationship of franchisor and franchisee between the two, no service tax was payable.

CCE v. Aurangabad Municipal Corporation – (2016) 41 STR 443 (Tri.-Mum.)

Interior Decorator Service

16. The Tribunal held that the activities carried out by the assessee viz. manufacturing of furniture as per design, drawing and specifications provided by the customer as well modular partition and certain activities executed under supervision through sub-contractor were not liable to service tax under category of Interior Decorator Service.

Divekar Associates v. CCE, Pune III 2015 (40) STR 1101 (Tri.-Mum.)

Management, Maintenance and repair services

17. The Tribunal held that software maintenance services were liable for service tax under the category of Maintenance and Repair services, considering the decision of the Apex Court in Tata Consultancy Services wherein software was held to be goods.

Choudhary International Pvt Ltd v. CST (2015) 39 STR 170 (Tri.-Mum.)

18. The Tribunal held that the assessee, engaged in the activity of designing, manufacturing, installing, commissioning, and maintaining energy saving devices on build, own, operation and transfer (BOOT) basis, retained ownership of the equipment after undertaking aforesaid activity for the municipal corporation and sharing the profits, rendered services to himself only and not to municipal corporation and therefore profit earned over and above cost of equipment could not be considered as charges for rendering service.

CCE v. Sahastronics Controls (P) Ltd. – (2016) 41 STR 454 (Tri.-Mum.)

19. The Court held that services rendered in relation to widening of roads and maintenance thereon during the period June 2005 to July 2009 would be exempt from service tax in light of the retrospective exemption granted under section 97 of the Act.

Khattar & Company Pvt. Ltd. v. CST – (2015) 39 STR 391 (All.)

Manpower recruiting services

20. The Tribunal held that the gross amount charged for service was inclusive of amount of payment made to labourers and therefore service tax was leviable on such gross amount and not merely on amount of commission

Neelkant Associates v. CCE – (2016) 41 STR 569 (Tri.-Del.)

21. The Tribunal held that the lumpsum work carried out by the employees deputed by the assessee to the factories of manufacturers for doing specific job as per purchase orders was not liable to service tax and therefore dismissed the contention of the Revenue in trying to tax the consideration received under the category of Manpower Recruitment & Supply Agency
Service.

Shivshakti Enterprises v. CCE – (2016) 41 STR 648 (Tri.-Mum.)

22. The Tribunal held that based on the work order, the assessee was only required to supply manpower and therefore the department was incorrect in seeking to tax welding and gas cutting service provided on firm rate basis for NTPC under Manpower Recruitment & Supply Agency Service.

D. S. Chavan Engineering Works v. CCE&C, Nashik 2015 (40) STR 1150 (Tri.-Mum.)

Rent-a-Cab Service

23. The Tribunal held that since hiring and renting could be distinguished from each other, service tax could not be levied on hiring of cabs under the category of Rent-a-Cab services.

CCE v. P.B. Bobde – (2015) 64 taxmann.com 126 (Tri.-Mum.)

Renting of Immovable Property

24. The Tribunal held that long term leases would also fall within the ambit of renting of immovable property services and that renting / leasing of vacant land for business or commercial purpose would fall within the ambit of service tax only with effect from July 2010.

New Okhla Industrial Development Authority v. CCE – (2015) 39 STR 443 – (Tri.-Del.)

25. The Tribunal held that providing of vacant land on lease / license for construction of building / temporary structures to be used for business or commerce purposes would be liable to service tax with effect from July 1, 2010 onwards and that service tax would be payable even in cases where the agreement for such lease / license is entered into prior to July 1, 2010 since the provision of services was the taxing event. It further held that there was no distinction between long term and short term leases for service tax purposes.

Premium paid by lessee to the lessor was not liable to service tax since the levy of service tax was on the renting of immovable property and not transfer of interest in property. Additionally, the Tribunal held that processing charges collected for allotment of land would be liable to service tax under the category of renting of immovable property and that charges for map approval, validation, map revision, not having any nexus with the renting of immovable property would not be liable for service tax.

Rent received for letting out residential units / leasing out land for construction of residential complexes would not be liable to service tax, not being for furtherance of business or commerce.

Greater Noida Indl. Development Authority v CCE&ST – (2015) 38 STR 1062 (Tri.-Del.)

Supply of Tangible Goods Service

26. The Tribunal held that the assessee, a radio taxi scheme operator was not covered under the supply of tangible goods service since the privity of contract for supply of taxi for undertaking journey was between the assessee and the passengers and not between the assessee and the drivers and therefore the agreement between the assessee and drivers does not indicate that the drivers had possession of vehicles for their use.

Meru Cab Co. Pvt. Ltd. v. CCE – (2016) 41 STR 444 (Tri.-Mum.)

Tour Operator Service

27. The Tribunal held that since the appellant was not engaged in planning, scheduling or organising tours for passengers, it was not liable to pay service tax under the category of Tour Operator Service.

Jet Airways (India) Ltd. v. CST – (2016) 41 STR 225 (Tri.-Mum.)

Transport of Goods/Passengers by Air Service

28. The Tribunal held that carrying baggage, including excess baggage by Airlines is integral part of transport of passengers by qir and an incidental activity of main service and that neither was there an element of transport of unaccompanied goods under this service nor was there a separate contract for such service. Since service tax on passenger transport under main service, was fixed per passenger during relevant period, no further tax could be demanded on excess baggage charges recovered from passengers.

Kingfisher Airlines Ltd. v. CST- (2015) 40 STR 1159 (Tri.-Mum.)

Works contract Services

29. The Tribunal held that the taxable event is rendition of service and since the assessee in this case rendered works contract services prior to 1-3-2008, when lower rate of tax was applicable but payment was received after
1-3-2008, when rate of tax increased, the lower rate of tax was applicable.

CST v. Bagai Construction 2016 (41) STR 433 (Tri.-Del.)

30. The Tribunal held that where the assessee cancelled an old contract and executed fresh contract and obtained registration under Works Contract Service on 29-6-2007 and paid service tax under composition scheme on 5/6th July, 2007, in the absence of any evidence to support the allegation of the department that the new contracts replacing old contracts were merely an eyewash to avail benefit of aforesaid rule, there was no violation of composition scheme.

Further, it held that the adjudication order was to be set aside since the adjudicating authority confirmed demand on completely fresh grounds not mentioned in SCN.

CCE v. Ashoka Buildcon Ltd. 2016 (41) STR 452 (Tri.-Mum.)

B. Valuation

31. The Tribunal held that trading profit on sale and purchase could not be subjected to service tax.

Rama Marketing v. CCE – (2015) 39 STR 475 (Tri. – Mum.)

32. The Tribunal, following the decision of the Larger Bench in Bhayana Builders Pvt. Ltd. v. CST (2013) 32 STR 49, held that value of free supples of materials received from the service recipient for incorporation into the works contract could not be included in the value of taxable services.

Millennium Constructions Pvt. Ltd. v. CST – (2015) 39 STR 477 (Tri.-Del.)

33. The Tribunal held that gross amount charged by the service provider for provision of construction services would not include consideration for sale of immovable property.

SPL Developers Pvt. Ltd. v. CST – (2015) 39 STR 455 (Tri.-Bang.)

34. The Tribunal, following the decision of Reliance Industries Ltd. v. CCE (2008) 12 STR 345, held that reimbursement of actual travel expenses received by the assessee from the service recipients would not form part of the taxable value.

Kirloskar Pneumatic Co. Ltd. v. CCE – (2015) 38 STR 1198 (Tri.-Mum.)

C. CENVAT Credit

35. The Tribunal held that availment of CENVAT Credit by the company’s head office at Bengaluru in respect of credit of its branches was allowed even without centralised registration since service tax was paid as per centralised registration and therefore there was substantive adherence of law.

Further it held that credit of service tax paid on renting of premises used for providing services was admissible since services could not be rendered without the premises.

Nuance Transcription Services India Pvt. Ltd. v. CST – (2015) 39 STR 241 (Tri.-Bang.)

36. The Tribunal held that CENVAT credit on outdoor catering services received before April 1, 2011 was admissible even if payment was made after April 2011 though such services were excluded from the definition of input services with effect April 1, 2011.

Hindustan Coca Cola Beverages Pvt Ltd v. CCE & ST – (2015) 38 STR 855 (Tri.- Del)

37. The Tribunal held that CENVAT credit on business auxiliary services received by a manufacturer of excisable goods prior to September 10, 2004 was not admissible in terms of Rule 3(1) of the CENVAT Credit Rules even though he invoices were raised and payments were released post the said date.

Elecon Engineering Co. Ltd. v. CCE – (2015) 38 STR 874 (Tri.-Ahd.)

38. The Tribunal held that the CENVAT credit availed on steel, racks, bolts etc. procured by the assessee for construction of mobile towers used for providing Passive Telecom Infrastructure to other companies was admissible as the said items would qualify as inputs under the CENVAT Credit Rules.

Reliance Infratel v. CCE – (2015) 38 STR 984 (Tri. – Mum.)

39. The Tribunal held that CENVAT Credit of service tax paid rent, stock insurance and commission paid for sale of goods post clearance from the factory was admissible.

Dhampur Sugar Mills Ltd. v. CCE – (2015) 38 STR 1004 (Tri.-Del.)

40. The Tribunal held that since the CENVAT Credit Rules do not provide for utilisation of CENVAT Credit for payment of amount specified under section 73A, the said payment had to be made in cash.

Jaipur Cricket Pvt Ltd. v. CST – (2015) 38 STR 1193 (Tri.-Mum.)

41. The Tribunal held that CENVAT credit on housekeeping and gardening services availed by the assessee to maintain factory premises in an eco-friendly manner was admissible.

CCE&ST v. Rane TRW Steering Systems Ltd. – (2015) 39 STR 13 (Mad.)

42. The Tribunal held that CENVAT Credit on Manpower Recruitment services could not be denied merely because the name of the service was not mentioned on the invoice

Bajaj Motors Ltd v. CCE – (2015) 39 STR 85 (Tri. – Del.)

43. The Tribunal held that CENVAT credit on maintenance of photocopying machines used in the office was admissible being activity related to business.

Nirma Ltd. v. CCE – (2015) 39 STR 145 (Tri.-Ahd)

44. The Tribunal held that CENVAT Credit on renting of furniture for use by new recruits, housekeeping services for up-keep of premises, annual maintenance contract for maintenance of UPSs and computer networks and food coupons for provision of food to office staff during office hours was admissible.

C-Cubed Solutions Pvt. Ltd. v. CCE, C&ST – (2015) 38 STR 853 – (Tri.-Bang.)

45. The Tribunal held that where the assessee paid service tax on the full value of transportation charges as opposed to 25 per cent thereon, CENVAT Credit on full value would allowed as per Rule 3 of CENVAT Credit Rules.

H One India Pvt. Ltd. v. CCE, C&ST – (2015) 39 STR 87 (Tri.-Del.)

46. The Tribunal held that where the assessee paid tax on exempted services, it could not be concluded that the assessee provided any exempted services and therefore the restriction on availment of credit under section 6(2) was not applicable and that the assessee could be forced to avail the benefit of exemption notification.

Deloitte Haskins & Sells v. CCE – (2015) 38 STR 1220 – (Tri.-Mum.)

47. The Tribunal held that credit of service tax paid on pandal or shamiana services for safeguarding machines lying in the open ground during installation of such machinery was admissible for CENVAT Credit.

Dalmia Chini Mills v. CCE – (2015) 39 STR 310 (Tri.-Del.)

48. The Tribunal held that credit of service tax paid on car insurance services on cars used for official purposes of the Company and by the Directors of the company was admissible for CENVAT Credit.

Technical Associates Ltd. v. CCE – (2015) 39 STR 312 (Tri.-Del.)

49. The Tribunal held that services availed at residential colonies of employees and for club and welfare activities of staff could not be considered as input services since it did not have any nexus with the manufacturing business of the assessee and therefore CENVAT Credit was inadmissible.

Mahindra & Mahindra Ltd. v. CCE – (2015) 39 STR 316 (Tri.-Mum.)

50. The Tribunal held that service tax paid on input services such as banking, other financial services, clearing and forwarding services, courier services, labour contract services, transportation, telephone, repair and maintenance, insurance and professional consultancy was admissible for CENVAT Credit.

CCE v. JK Fabrics (Bengaluru) Pvt. Ltd. – (2015) 39 STR 315 (Tri.-Beng.)

51. The Tribunal held that credit on service tax paid on courier services availed for dispatch of cheques to vendors/suppliers, air ticketing services availed for travelling abroad for the procurement of inputs/sale of final products, services provided by a foreign language instructor for the translation of technical know-how and documents given in foreign language and outward transportation services availed for delivering good up to the premises of the buyer would be eligible for CENVAT Credit.

CCE v. Mindarika Pvt. Ltd. – (2015) 39 STR 309 – (Tri.-Del.)

52. The Tribunal held that where the assessee maintained separate accounts for inputs in respect of excisable and exempted final products but reversed proportionate CENVAT Credit taken on common input services, the Tribunal held that the reversal of credit of value of exempted final products was not warranted.

VST Tillers and Tractors Ltd. v. CCE – (2015) 39 STR 321 (Tri.-Bang.)

53. The Tribunal held that as per Rule 4(2)(b) of the CENVAT Credit Rules, 2004, 50 per cent of the CENVAT credit could be availed in the subsequent years provided that capital goods other than components, spares, refractories etc were in the possession of the manufacturer of the final product and therefore for ‘blushings’ being components, the condition of possession of the same in subsequent years for claiming balance CENVAT Credit was not applicable.

Owens Corning (India) Pvt. Ltd. v. CCE – (2015) 64 taxmann.com 171 (Tri.-Mum.)

54. The Tribunal held that CENVAT Credit could not be denied to the service recipient on the ground that the service provider has not paid service tax.

Memories Photography Studio v. CCE&ST – (2015) 39 STR 331 (Tri.-Ahd.)

55. The Tribunal held that credit of service tax paid on construction services availed for setting up of factory building and on rent-a-cab services availed for transporting employees from residence to factory and for official purposes was admissible for CENVAT Credit.

CCE v. Rane NKS Steering System Ltd. – (2015) 39 STR 339 (Tri.-Del.)

56. The Tribunal held that CENVAT Credit on outdoor catering services, the cost of which was borne by the assessee employer was to be allowed for the period prior to March 31, 2011. It further held that the amendment excluding the said services from the definition of input services was not retrospective in nature since the amendment clearly specified that the date of its enforcement was April 1, 2011.

CCE v. Visteon Powertrain Control Systems Pvt. Ltd. – (2016) 41 STR 168 (Mad.)

57. The Tribunal held that where the debit notes raised by input service providers mentioned all the information to be mentioned on an invoice as prescribed under Section 4A of the Service Tax Rules, 1994, CENVAT Credit was admissible.

Jaguar & Co. Ltd. v. CST – (2015) 39 STR 273 (Tri. – Del.)

58. The Tribunal held that credit of service tax paid on outdoor catering services availed by the manufacture for its employees would be admissible to the extent of cost borne by him. Further, it held that credit of service tax on guest house maintenance service would not be admissible since it did not have nexus with manufacturing activities.

CCE v. Mahindra & Mahindra Ltd. – (2015) 39 STR 298 (Tri.-Mum.)

59. The Tribunal held that where outdoor catering services and life insurance services were received for personal use of employees post April 1, 2011, no credit on service tax was allowable.

Applied Micro Circuits India Pvt Ltd. v. CCE – 2016-TIOL-403-CESTAT-Mum

60. The Tribunal held that post April 1, 2011, CENVAT Credit of rent a cab services was not allowed due to specific exclusion from the definition of input services even though it is essential for providing output services.

CST v. MMS Maritime India Pvt. Ltd. – (2016) 65 taxmann.com 196 (Tri.-Mum.)

61. The Tribunal held that mobile and courier services are entitled to CENVAT Credit since they were used in relation to manufacture of final products.

CCE &ST v. Miranda Tools – (2016) 65 taxmann.com 88 (Tri.-Ahd.)

62. The Tribunal held that where the assessee imported and utilised inputs in the manufacture of final product and there was no dispute of use of such material, CENVAT Credit could not be denied merely on the ground that a photocopy of the bill of entry was produced as opposed to the original bill of entry.

Arbes Tools Pvt. Ltd. v. CCE – 2016-TIOL-399 CESTAT-Mum.

63. The Tribunal held that goods manufactured on job work basis could not be considered as exempted goods as they were exempt from duty under Notification No .214 / 86 on the basis that excise duty was charged on the full value of final product including the value of job work goods.

Precision Metals v. CCE – 2016-TIOL-400-CESTAT-Mum.

64. The Tribunal held that commission paid to distributors for selling goods did not amount to sales promotion since no consideration was specifically paid towards sale promotion and therefore it amounted to a sale goods and accordingly CENVAT Credit was inadmissible.

Gujarat State Fertilizers & Chemicals Ltd. v. CCE&ST – (2016) 41 STR 191 (Tri. – Ahd.)

65. The Tribunal held that CENVAT credit could not be denied on the ground that the invoices raised by the service provider did not give full details of description of services especially when the payment of service tax by the service provider and the availment of service by the recipient was not disputed.

UG Sugar & Industries Ltd. v. CCE – (2015) 38 STR 852 – (Tri.-Del.)

66. The High Court held that since there was no dispute about the consumption of Rent-a-Cab Service, Tour Operators Service and Travel Agents Service at various stages of manufacturing/business activities, the impugned services were input services and credit thereon was admissible.

Principal Commissioner v. Essar Oil Ltd. – (2016) 41 STR 389 (Guj.)

67. The Tribunal held that since Banking & Other Financial Service was not fully exempted, the same does not fall under the category of exempted service as defined under rule 2(e) of CCR, 2004.

Ambejogai Peoples Co-op. Bank Ltd. v. CCE – (2016) 41 STR 450 (Tri.-Mum)

68. The Tribunal allowed CENVAT credit of service tax paid on ECB under Reverse Charge Method for enhancing existing facility and creating new production facility in India and abroad as there was clear nexus with business activities and therefore amounted to Input Service.

Micro Inks (P) Ltd. v. CCEC&ST – (2016) 41 STR 501 (Tri.-Ahd.)

69. The Tribunal allowed CENVAT credit of service tax paid on construction service availed in respect of construction of dormitory within the factory premises for technician/engineers since it was integrally connected with manufacturing activity and the factory was located at a remote area.

Bajaj Hindustan Ltd. v. CCE – (2016) 41 STR 503 (Tri.-Del.)

70. The Tribunal held that prior to June 16, 2005, in the absence of any rule prescribing documentation for availing credit, credit of service tax paid under reverse charge in respect of Goods Transport Agencies could be availed on the basis of TR-challan.

CCE v. Essel Propack Ltd. – (2015) 39 STR 363 (Tri.-Mum.)

71. The Tribunal held that where the assessee availed CENVAT Credit on sales commission paid by it which was attributable to the trading of goods carried on by it, the same was admissible.

FL Smidth Pvt. Ltd. v. CCE – (2015) 39 STR 373 (Mad.)

72. The Tribunal held that unlike inputs wherein CENVAT credit is allowable only when it is received within the factory premises, there is no restriction on claiming CENVAT credit on input services and therefore allowed CENVAT Credit availed by the assessee with respect to service tax paid on input services utilised by other units, for the purpose of discharging
duty liability on clearances made by the main unit.

Expert Industries Pvt. Ltd. v. CCE – (2015) 39 STR 465 (Tri.-Bang.)

73. The Tribunal held that credit of service tax paid on repair and maintenance services availed by a manufacturer for providing free services during warranty period is admissible since provision of free servicing during warranty period is a condition of sale and hence would be covered by the definition of input service as defined in Rule 2(1) Of the CENVAT credit Rules, 2004 being an activity relating to the business.

Leroy Somer India Pvt. Ltd. v. CCE – (2015) 39 STR 466 (Tri.-Del.)

74. The Tribunal held that Department was incorrect in denying CENVAT Credit availed pertaining to service tax paid on Goods Transportation Agency service, paid by the transporter on the ground that service tax on the said services was not paid by the service recipient.

Rucha Engineering Pvt. Ltd. v. CCE – (2015) 39 STR 518 (Tri.-Mum.)

75. The Tribunal held that denial of CENVAT credit on input services received prior to obtaining of service tax registration on the ground that obtaining of registration is mandatory for availing CENVAT credit is incorrect especially considering the fact that there is no provision to this effect in the CENVAT Credit Rules, 2004. Further it held that credit of service tax paid on rent for cafeteria, maintenance of air-conditioners and gym-instructor services would be admissible being services in the nature of activity relating to business.

CST v. Verizon Data Services India P. Ltd. – (2015) 39 STR 522 (Tri.-Chen.)

76. The Tribunal held that CENVAT credit of service tax paid on outdoor catering services used in the canteen of the assessee was allowable even though the number of workers were less than 250.

CST v. Reliance Capital Asset Management Ltd. – (2016) 41 STR 508 (Tri.-Mum.)

77. The Tribunal allowed CENVAT credit of service tax paid on maintenance of vehicles used by staff, group health insurance provided to staff and workers and garden maintained under statutory obligation.

Hindustan National Glass & Industries Ltd. v. CCE – (2016) 41 STR 527 (Tri.-Mum.)

78. The Court held that there is no law that provides that credit on outdoor catering service is available only if number of employees in factory exceeds 250.

CCEC&ST v. Sansera Engineering (P) Ltd. – (2016) 41 STR 611 (Kar.)

79. The Tribunal held that obtaining an ISD registration is only procedural condition which could not lead to denial of substantive benefit and accordingly held that CENVAT Credit could be availed by the assessee without such registration. Further it held that as per rule 12 of CCR, 2004, an assessee can transfer credit lying in one unit to other unit.

Trident Powercrafts (P) Ltd. v. CCE&ST – (2016) 41 STR 687 (Tri.-Beng.)

80. The Tribunal disallowed CENVAT credit of service tax paid on construction of school and SC/ST colony as the same had no nexus with manufacturing activity. It further held that, extended period of limitation could not be invoked as there was no evidence to show suppression or misstatement with malafide intent as the credit availed has been reflected in statutory records and monthly returns filed.

Mangalore Refinery & Petrochemicals Ltd. v. CCE & ST – (2015) 40 STR 1093 (Tri.-Beng)

81. The Tribunal allowed CENVAT credit of service tax paid on maintenance of windmill and plantation since the assessee, being a cement plant, was required to plant trees by dictate of the Pollution Control Board to prevent pollution.

CCE&ST, Tiruchirapalli v. Grasim Industries Ltd. 2016 (41) STR 73 (Tri.-Chen.)

82. The Tribunal held that where there was no lapse in payment of tax and filing service tax returns the department was incorrect in denying input service credit on the ground that invoices containing address of unregistered premises since the other premises/units also belonged to assessee from where output services were provided and the assessee maintained records of credit taken utilised for providing output service and disclosed it in its returns.

Allspheres Entertainment Pvt. Ltd. v. CCE – (2016) 41 STR 104 (Tri.-Del.)

83. The Tribunal allowed CENVAT credit of service tax paid on general insurance and medical insurance policies taken for employees and outdoor catering service. Further it held that merely because certain bills were in individual names, the same could not be a ground for denial of benefit as expenses were reflected in books of account of appellant.

CST v. FIL Capital Advisors (India) Pvt. Ltd. – (2015) 40 STR 1073 (Tri.-Mum.)

D. Others

Appeal / Assessments

84. The Tribunal held that the powers of the Commissioner (Appeals) are co-extensive with the powers of the adjudicating authority in view of the fact that the Commissioner (Appeals) has the power of enhancement of demand and penalties and hence has to consider new grounds / facts and evidences before passing his order.

Ashirwad Sales Corporation v. CCE – (2015) 38 STR 1155 (Tri.-Mum.)

85. The Tribunal held that where the activities carried out by the assessee viz., affixing aluminium composite panels and cladding and coil cutting services were classifiable under more than one taxable service and the Revenue assumes that the service falls under one category and the assessee asserts that the services fall under another category, it was obligatory for the adjudicating authority to deal with the dispute and record a finding as to why a service falls within a specified taxable service.

Glaztech Alupenal Pvt. Ltd. v. CCE&ST – (2015) 39 STR 507 (Tri.-Del.)

86. The Court held that the requirement of pre-deposit of 7.5% in order to file appeal before Commissioner (Appeals) or 10% in order to file appeal before the Tribunal could not be held as arbitrary or violative of Article 14 and therefore was valid.

Ganesh Yadav v. UOI – (2015) 39 STR 177 (All.)

87. The Court, in the interest of justice, held that the delay in filing of appeal owing to the medical ailments of the assessee’s consultant for which medical records were produced, was condonable by the Tribunal.

Maharaja Tourism Dev P. Ltd. v. Secy Ministry of Finance – (2015) 39 STR 384 (Mad.)

88. The Court held that a delay of 26 days in filing appeal before the CCE(A) owing to the sickness of the assessee as a result of which he could not instruct the counsel to file the appeal, was condonable since it was a bona fide reason.

Chandra Associates v. CCE&C(A) – (2015) 39 STR 353 (All.)

89. The Court held that where both parties, the assessee and the Department have preferred appeals before the Tribunal, the Tribunal was to pass a reasoned and speaking order and discuss the reasons for acceptance and rejection of appeals.

Raipur v. General Manager, Telecom District BSNL – (2016) 41 STR 183 (Chhattisgarh).

90. The Court held that as per section 35C(2) of the Act, the Tribunal can only review its final order and does not have the power to review its interlocutory order, including an order of pre-deposit.

Avtar & Company v. CCE – (2015) 39 STR 245 (Tri.-Del.)

91. The Tribunal held that under section 85(4) of the Act, the CCE(A) has the power to remand.

CCE v. Goel International Pvt. Ltd. – (2015) 39 STR 330 (Tri.-Del.)

92. The Tribunal held that where an application for rectification of original order is filed, the time for filing appeal is to be reckoned from the date of rejection of rectification application.

United Corporation v. CCE – (2016) 41 STR 494 (Tri.-Del.)

93. The Tribunal held that best judgment ought to be used only for ascertaining quantum of tax liability, in cases where the actual extent of liability could not be determined with mathematical precision and not for determination of specific taxable service provided.

Shubham Electricals v. CCE&ST – (2015) 40 STR 1034 (Tri.-Del.)

Demand / Extended Period

94. The Court held that demand alleged to be due as per show-cause notice without its proper adjudication could not be recovered by issuing notices to banks and debtors.

Quality Fabricators and Erectors v. Dy Director DGCEI – (2016) 41 STR 11 (Bom.)

95. The Court case held that the department could not resort to invoke section 87 for recovery of demand, until and unless there was determination and adjudication either under Sec. 72 or 73 of FA, 1994.

Prashant v. UOI – (2016) 41 STR 392 (Kar.)

96. The Tribunal held that the explanation (c) to Section 67(4) providing for the liability to pay service tax on the credit / debit in the books of account by a service provider in case of transactions with associated enterprises would have prospective applicability from May 10, 2008.

Sify Technologies Ltd. v. CCE – (2015) 39 STR 261 (Tri.-Chennai)

97. The Tribunal held that demands were to be made based on the show cause notice and the order in original/order in appeal could not differ from it. Accordingly, it held that where the show-cause notice was issued and the order in original confirmed the demand under the category of Business Support Services, the Commissioner (Appeals) was incorrect in confirming the demand under the category of Business Auxiliary Services in the order in appeal.

Deepak & Co. v. CCE – (2015) 38 STR 1010 (Tri.-Del.)

98. The Tribunal held that where there was a dispute regarding eligibility of CENVAT Credit of certain goods which had not reached a finality and there were conflicting decisions on the issue, the assessee could have entertained a reasonable belief that the credit was allowable. Further, in the absence of any material brought on record to prove suppression, misstatement, collusion, the extended period of limitation could not be invoked and no penalty could be imposed.

Umax Packaging Ltd v. CCE – 2016-TIOL-374-CESTAT- Del.

99. The Tribunal held that where the Revenue did not issue a show cause notice to the assessee, a proprietary concern taken over by a private company, but to the private company, no demand could be made on the assessee.

Narayana Coaching Centre v. CCE – (2015) 39 STR 33 (Tri. – Bang.)

Export of Services

100. The Tribunal held that where commission was paid by the Indian buyers directly to the assessee instead of the commission and price being paid to the foreign supplier who would in-turn remit the commission to the assessee, such receipts were deemed to be receipts in foreign exchange.

National Engineering Industries Ltd. v. CCE – 2016-TIOL-149-CESTAT-Del.

Penalty / Interest

101. The Tribunal held that where the assessee paid part of its service tax on a quarterly basis instead of monthly basis through its CENVAT credit account, no interest on service tax was payable since sufficient balance was available in the CENVAT credit account on a monthly basis.

Oil & Natural Gas Corporation Ltd. v. CCE & ST – (2015) 38 STR 867 (Tri.-Ahd.)

102. The Tribunal held that if the assessee had a bona fide belief and service tax liability was paid voluntarily for the period beyond the normal period of limitation, liability of interest did not arise.

Bank of Baroda v. CST – (2015) 40 STR 1069 (Tri. – Mum.)

103. The Tribunal held that renting of immovable property by individual co-owners was a service provided in individual capacity and not as an association of persons and therefore hey were not liable to pay service tax jointly or severally. It held that since they had paid appropriate service tax before initiation of investigation by the Department, no penalty under sections 76 and 78 were imposable.

CCE v. Deoram Vishrambhai Patel – (2015) 40 STR 1146 (Tri.-Mum.)

104. The Tribunal observed that where there was no evidence that fraud is committed with connivance of the assessee or within his knowledge and he has paid the entire service tax along with interest, penalty was to be waived.

Hemangi Enterprises v. CCE – (2015) 40 STR 945 (Tri.-Mum.)

105. The Tribunal held that even though some portion of service tax as determined by the central excise officer, was paid before issuance of show-cause notice, the prepayment would not be reduced while quantifying penalty under section 78 of the Act.

Amit Pandey Physics Classes v. CCE&ST – (2015) 64 taxmann.com 243 (Tri.-All.)

106. The Tribunal held that where the assessee paid entire amount of service tax on fees paid to the lead managers abroad before the issue of show-cause notice and had paid the interest soon after the adjudicating order was passed, no penalty was to be initiated specially since whatever tax was paid was available as CENVAT Credit to the assessee and therefore there was no intention to avoid payment of tax.

Bharat Forge Ltd. v. CCE – (2016) TIOL-12-CESTAT-Mum

107. The Tribunal held that where the issue of levy of service tax on commission from financial institutions and amounts as Target Incentive Schemes was settled by the Larger Bench, the assessee could have entertained a bona fide belief and therefore penalties were to be set aside by invoking section 80 of the Act.

Sharayu Motors v. CST – 2016-TIOL-132-CESTAT-Mum

108. The Court held that the statutory provision providing for the benefit of reduced penalty under section 78 on payment of reduced penalty along with due tax and interest within 30 days of date of communication of adjudication order is not available in appeal stage.

Principal Commissioner of ST v. Tops Security Ltd. – (2016) 41 STR 612 (Del.)

109. The Court held that interest on service tax could be recovered from the assessee only if the service tax was assessed as payable under section 72 or 73. In the present case, the assessee had paid tax under protest due to coercion and therefore the Court held that since no assessment was carried out, the revenue was incorrect in demanding interest.

ICICI Bank v. UOI – (2015) 38 STR 907 (Bom.)

Refund and Rebate

110. The Tribunal held that in the case of export of services, the relevant date for refund claim would be from the date on which the payment is received in convertible foreign exchange.

Alan Infrastructures Pvt. Ltd. v. CCE – (2015) 38 STR 1087 (Tri.-Del.)

111. The Tribunal held that limitation period of 1 year as provided under section 11B of the Central Excise Act, 1944 would apply to refund claim of taxable services only and not to exported services.

Alar Infrastructures Pvt. Ltd. v. CCE – (2015) 40 STR 1066 (Tri.-Del.)

112. The Court held that where the Tribunal rejected the stay application filed by the Department against the order of the CCE(A) granting refund to the assessee, the withholding of refund on the grounds that the appeal was yet to be decided on merits was incorrect.

Madura Coats Pvt Ltd. v. CCE – (2015) 39 STR 188 (Kar.)

113. The Tribunal held that where the assessee filed a refund claim within the time limit but before the wrong authority and subsequently filed the same with the correct authority after the period of limitation, the date of filing refund claim before the wrong authority could be taken as the date of filing for the purpose of determining limitation and that the claim was not barred by limitation.

CCE &ST v. Gimpex Ltd. – (2015) 39 STR 143 (Tri.- Beng.)

114. The Tribunal held that an Export Oriented Unit has an option to file refund claim for refund of unutilised CENVAT credit either on a quarterly basis or a monthly basis. Further, it held that since the notification issued under Rule 5 of the CENVAT Credit Rules does not link the refund procedure to the provisions of section 11B of the Central Excise Act, the provisions of time limit specified under section 11B of the Act would not be applicable to such refund claims.

Quality BPO Services Pvt. Ltd. v. CST – (2015) 39 STR 230 (Tri.-Ahd.)

115. The Tribunal held that the Commissioner was incorrect in revising the order granting refund under section 84 of the Act without issuing show-cause notice, since as per section 73 of the Act, issuing of show-cause notice even for recovery of erroneously granted refund was necessary.

Balaji Edibles Pvt. Ltd. v. CCE&ST – (2015) 39 STR 270 (Tri.-Del.)

116. The Tribunal held that in light of exemption benefit granted under section 26(1)(e) read with section 51 of the SEZ Act, 2005 having an overriding effect, the assessee was entitled to refund of service tax paid by it on input services wholly consumed within the SEZ, inspite of Notification No. 9/2009 as amended by Notification No. 15 / 2009.

Eon Kharadi Infrastructure Pvt. Ltd. v. CCE – (2015) 39 STR 267 (Tri.-Mum.)

117. The Tribunal held that in the case of refund arising out of a Tribunal order, the time limit of one year was to be counted from the date of the Tribunal order and not from the date of payment of tax.

CCE v. Kusalva Finance Ltd. – (2015) 38 STR 1163 (Tri. – Beng.)

118. The Tribunal held that in case of associated concerns, where the assessee paid service tax on book adjustments made prior to May 10, 2008 in light of explanation to section 67 wherein it was provided that gross value charged would include book entries made in the books of accounts of persons liable to pay tax, interest on such tax could not be demanded for period prior to May 10, 2008 since the explanation sought to introduce a new provision and not to remove any doubts in the existing provision.

Kelly Services India P. Ltd. v. CCE&ST – (2015) 64 taxmann.com 26 (Tri.-Del.)

119. The Tribunal held that the asssessee was entitled to refund claim of service tax paid on Banking and other Financial Services for issuing IPO the proceeds of which were utilised for funding of SEZ in May 2007 since section 26 read with section 51 of the SEZ Act, 2005 exempted a developer of an SEZ or an SEZ unit from service tax payment on services received for authorised operations. The Tribunal noted that the said sections had an overriding effect and therefore Notification No. 4/2004-ST, relied on by the Department was inconsistent with provisions of SEZ Act inasmuch it did not provide for refund mechanism although services were intended for use in SEZ. Therefore, harmonious construction of Notification No. 4/2004-ST must perforce for a refund mechanism for earlier period also.

Reliance Industries Ltd. v. CCE – (2016) 41 STR 465 (Tri.-Mum.) 120. The Tribunal held that the Department was incorrect in denying the assessee refund on the ground that the refund was to be claimed at Mumbai since the foreign exchange was received in Mumbai, since the assessee had actually rendered services at Coimbatore.

CCE v. Cbay Systems (India) Pvt. Ltd. – (2016) 41 STR 488 (Tri.-Chen.)

121. The Tribunal held that denial of rebate claim on the ground that the input service do not have any nexus with the output service was not permissible and that the only thing that needed to be verified was whether the assessee paid tax or not.

Textron India Pvt. Ltd. v. CST – (2015) 39 STR 468 (Tri. – Beng.)

Service of Notice / Order

122. The Court held that where an order was served on a family member and there was no assertion by the assessee to the effect that the recipient was not a family member or not connected with its business, then it would amount to proper service of order.

Jyoti Enterprises v. CCE&ST – (2016) 41 STR 19 (All.)

123. The Tribunal held that any notice, merely issued but not served cannot be said to be within knowledge of person against whom notice is issued and ‘Issued to person’ used in section 106 to be construed as “Served to person”.

B.R. Ajit v. CCCE&ST – (2016) 41 STR 628 (Tri.-Bang.)

Show Cause Notice

124. The Tribunal held that where the SCN was vague and incoherent and did not contain any assertion proposing to levy and collect service tax on basis of any specified taxable service allegedly rendered except several alternative taxable services speculated to have been provided it resulted in serious transgression of due process of law and hence SCN and consequent OIO was unsustainable and liable to be quashed.

Shubham Electricals v. CCE&ST – (2015) 40 STR 1034 (Tri.-Del.)

Miscellaneous

125. The Court held that merely because the assessee paid duty in wrong accounting code it could not be treated as non-payment of duty and accordingly directed to credit the duty paid by the assessee by making necessary accounting entries.

Devang Paper Mills (P) Ltd. v. UOI – (2016) 41 STR 418 (Guj.)

126. The Tribunal held that no service tax was payable by the assessee’s Head Office in India on reverse charge basis on remittances made to its foreign branches for expenses incurred by the branches in availing services outside India. It held that an overseas permanent establishment of an assessee could not be treated as a service provider of the assessee since one could not provide a service to one’s self. It further held that the services were consumed outside India since overseas service providers had raised invoices directly on the branch offices and therefore the question of paying service tax on reverse charge basis did not arise.

Torrent Pharmaceuticals Ltd. v. CST (2015) 39 STR 97 (Tri.-Ahmd.)

127. The Court held that as the rate quoted by service provider / contractor was inclusive of service tax, they could not plead that the contract did not result in provision of service and therefore were liable to pay service tax thereon.

Ashish Kumar Dey v. Food Corporaton of India – (2016) 41 STR 403 (Tripura)

128. The Tribunal held that education cess / higher secondary education cess would also be eligible for exemption / refund along with basic excise duty even if the notification granting such exemption did not expressly state it.

Lupin Ltd. v. CCE&ST – (2016) 65 taxmann.com 282 (Tri.-Mum.)

129. The AAR held that provision of a car to an employee, during the course of his employment and only because the employee was in service would not constitute a service.

JP Morgan Services India Pvt. Ltd. – 2015-TIOL-12-AAR-ST

130. The Tribunal held that when the value of goods used was shown separately in the invoice and VAT / Sales Tax had been paid on it, the transaction was to be treated as sale and not as a service transaction.

Tanya Automobiles Pvt. Ltd. v. CCE&ST – 2016-TIOL-166-CESTAT-All

131. The Tribunal held that the reimbursement of marketing costs by the assessee to its overseas distributors was not in the nature of a discount as it benefitted the assessee as well. It further held that sales promotion expenses incurred were for services consumed by the assessee in India and that service tax would be payable by the assessee as a recipient of such services.

Torrent Pharmaceuticals Ltd. v. CST (2015) 39 STR 97 (Tri.-Ahmd.)

132. The Tribunal held that a letter communicating non-grant of centralised registration number was an appealable order and that even a recipient of service is entitled to obtain a centralised registration.

CCE v. Maharashtra State Bureau of Text Books Production & Curriculum Research – (2015) 39 STR 235 (Tri.- Mum.)

133. The assessee entered into a contract with Bihar State Electricity Board prior to June 1, 2007 for carrying out certain works. Subsequently, service tax was introduced on Works Contracts Services which was paid to the Department by the assessee, pursuant to which the assessee claimed reimbursement of the said tax from the Board who refused to pay the same. The Court held that under the Act, the liability for payment of service tax was fixed upon the service provider and though the service provider has a right to collect the service tax from the service recipient, there is no provision in the Act providing for such reimbursement. It also noted that under the terms of the contract, all taxes were to be borne by the service provider.

Mutli Engg & Scientific Corporation v. Bihar State Electricity Board – (2015) 39 STR 414 (Pat.)

134. The Tribunal held that selling of space for printing advertisements in an Almanac (book covered under the print media) would be outside the ambit of service tax.

CCE v. Media World Enterprises – (2015) 30 STR 259 (Tri.-Mum.)

135. The Tribunal held that excess payment of service tax in a month could be adjusted against service tax liability of other months.

General Manager BSNL v. CCE – (2015) 39 STR 278 (Tri.-Del.)

136. The Court held that the explanation to the definition of service inserted vide Finance Act, 2015 to enlarge the definition so as to cover the activities of lottery distributors was ultra vires, since the principle requirement of service is that the activity should be carried out by one person for another and for a consideration. Considering the fact that the assessee was acting in a principal to principal relationship with the State Government, buying and selling lottery tickets which could not fall under the definition of service per se, it held that if an activity was not covered under the definition of service, then the same could not be made taxable by way of an explanation inserted.

Future Gaming & Hotel Services Pvt. Ltd. v. UOI – (2015) 40 STR 833 (Sikkim)

137. The Tribunal held that provision of intellectual property service as complete on the date of transfer of such intellectual property and therefore when such date was before the introduction of service tax on such services, no service tax would be leviable even though royalty payments were received over a period of time including the period post introduction of service tax on the said service.

CST v. Denso Haryana P. Ltd. – (2015) 64 taxmann.com 203 (Tri.–Del.)

138. The Court held that the action of attaching bank accounts without giving the assessee an opportunity for hearing was in gross violation of Rule 3(2) of the Service Tax (Provisional Attachment of Property) Rules, 2008. Accordingly, the Court quashed the order and awarded costs to the assessee.

Kunj Power Project Pvt. Ltd. v. UOI – (2016) 41 STR 3 (All.)

139. The Tribunal held that the adjustment of excess service tax paid by the assessee on account of a calculation mistake against service
tax payments for subsequent periods was admissible.

Bharat Sanchar Nigam Ltd. v. CCE – (2016) 41 STR 475 (Tri.-Del.)

140. The Tribunal held that the rate of service tax applicable on hire purchase contracts would be the rate prevailing on the date of entering into the contract even if the rate
of tax increases during the period of the contract.

Jaylaxmi Credit Company Ltd. v. CCE (2015) 39 STR 164 (Tri.-Ahmd.)

1. Handicrafts – Meaning

The goods sold under brand name of ‘badli’ fall in the category of “Handicrafts” within the meaning of the expression used in Entry No. 128 of the Third Schedule of the Delhi VAT Act and therefore chargeable at 4%. High price cannot, rather ought not, become a negative factor. Mere consideration that decorative would find a pride of place in plush homes of rich or affluent, adding to their luxurious style of living, cannot take away the properties on account of which it qualifies to be treated as “Handicraft”.

(M/s. Ame De Verre (P) Ltd. v. CTT (Del), (2016) 28 STJ 196 (Del.), ST Appeal No. 21 of 2013, dated 24th April, 2015).

2. Transfer of Right to Use Hoardings – Not Immovable Property – Taxable under VAT Laws

Under a contract of work order hoarding is transferred to a lessee for a specified period enabling the lessee to display the advertisement works on it according to wishes and imagination of the lessee is liable to pay vat as transfer of right to use the goods. The hoarding is not an immovable property and its transfer of right to use taxable under section 6(1)(c) of The Kerala Value Added Tax Act, 2003.

(M/s. Delta Communications v. State of Kerala, (2016) 53 PHT 174 (Ker.), O. T. Rev. No. 103 of 2012, dated 31st July, 2015).

3. Adjustment of Credit of ITC towards 25% Pre-deposit for Admission of Appeal – Permissible

The ITC amounting to Rs. 2,70,34,216/- was available to dealer for the year 2008-09 which could be adjusted towards amount of 25% of additional demand for admission of appeal.

(D. M. Pungrain v. State of Punjab, (Punjab VAT Tribunal), Appeal No. 123 of 2015, dated 18th September, 2015).

4. Exemption – Non-Woven felts – Supplied to car manufacturer – Is textile fabrics – Exempt

Article non-woven felts mainly used in cars as a matting and supplied to car manufacturers falls within the definition of fabric and is thus exempt from payment of tax.

(CTO v. United Felts and Carpets, (2016) 28 STJ 294 (Raj.), Sales Tax Revision Petition No. 842 of 1999, dated 27th February, 2015).

5. Provision for Payment of Minimum Amount of Pre-Deposit for Entertaining Appeal – Directory

Under section 62(5) of the Punjab VAT Act, no appeal shall be entertained, unless such appeal is accompanied by satisfactory proof of prior minimum payment of 25% of total amount of tax, interest and penalty, if any. This provision is directory in nature meaning thereby that the First Appellate Authority is empowered to partially or completely waive the condition of pre-deposit contained therein in given facts and circumstance.

(Punjab State Power Corporation Ltd. v. State of Punjab, (2016) 53 PHT 258 (P & H), CWP No. 26920 of 2013, dated 31st December, 2015).

6. Nebula Watch made from Gold and Diamonds – Article of Gold / Jewellery the NEBULA Jewellery watch made from Gold Studded with precious stones etc. is an article of Gold / Jewellery covered by Entry 13(ii) of The Gujarat Vat Act.

(M/s. Titan Industries Ltd. v. State of Gujarat, (2016) 54 STJ 1495 (Gujarat Tribunal), Appeal No 23 of 2011, dated 24th February, 2016).

S.2(14) : Capital asset – Non-resident – Shares – Non-resident not having permanent establishment in India – Transaction not for avoidance of tax – Shares to be treated as capital asset not stock-in-trade – Profits not business income but capital gains – Not taxable in India – Even if treated as business income not taxable in absence of permanent establishment – Provisions relating to minimum alternate tax, transfer pricing and TDS not applicable – Non-resident not bound to file return in India – DTAA-India-Mauritius
1. The applicant company which had been operating for more than 10 years in Mauritius could not be said to be a shell company. The shares were acquired years ago for a substantial cost. After more than 5 years old from the date of the last acquisition of the shares, the shares were transferred as a part of group reorganisation after approval of the Department of Industrial Policy and Promotion and the Reserve Bank of India. Hence, it could not be said to be a colourable device. Thus, it could not be said that the proposed transfer of shares was a scheme to avoid payment of taxes in India. It was clearly for business considerations.
2. That the shares in the Indian company held by the applicant had to be treated as capital asset as defined u/s. 2(14) of the Act and not as stock-in-trade. Article 13 of the DTAA would not be applicable for the simple reason that the applicant did not have a permanent establishment in India.
3. That there would be no applicability of section 115JB to the applicant.
4. That section 92 is not an independent charging section and unless the transaction is taxable in India, there would be no application of sections 92 to 92F. In the present case even though the proposed transfer of shares could result in income/capital gains from the international transaction since this income was not chargeable to tax in India, there would be no question of the applicability of sections 92 to 92F.
5. That since the capital gains earned out of the proposed transaction were not taxable there was no question of the applicability of section 195 of the Act.
6. That the applicant would not be required to file a return of income u/s. 139 of the Act.

Dow Agro Sciences Agricultural Products Ltd., In re (2016) 380 ITR 668 / 131 DTR 177 / 65 taxmann.com 245 (AAR)

S.4 : Charge of income-tax – Settlement amount received in pursuance for surrender right to sue is a capital receipt and not a business income, hence not chargeable to tax in India

The Applicant, a foreign institutional investor (‘FII’) along with its affiliates purchased shares of Satyam Computer Services Limited (‘Satyam’) and Satyam’s American Depository Shares (‘ADRs’). Subsequently, in January 2009, the CEO confessed that the accounts of the company were manipulated, pursuant to which, the Appellant and its affiliates disposed of the shares of Satyam and ADRs.

Thereafter, the Appellant filed claims against Satyam for fraudulent misrepresentation. Finally, a Settlement agreement was entered with Satyam whereby for an agreed amount, the Appellant on behalf of the Aberdeen Investors would forever waive, release, discharge and dismiss all legal claims against Satyam.

An application was filed with Authority of Advance Ruling (‘AAR’), to seek a ruling in respect of the taxability of the agreed amount received from Satyam under the Settlement Agreement under the Income-tax Act, 1961.

The AAR held that the nature of settlement amount is of a capital receipt and the amount has been received against surrender of right to sue cannot be considered for the purpose of capital gains u/s. 45, relying on the AAR decision in the case Qualified Settlement Fund (QSF), In re (2016) 130 DTR (AAR) 367. In the said case, under similar situation, AAR held that if right to sue is considered as a capital asset, its cost of acquisition cannot be determined and in the absence of such cost of acquisition, the computation provisions fails. Therefore, right to sue cannot be subjected to income tax under the head ‘Capital gains’.

Further, it was held that the settlement amount have been received not as part of business profit or to compensate the future income but as a result of surrender of the claim. Thus, even in accordance with the principle of surrogatum such amount is not assessable as income because it does not replace any business income.

Aberdeen Asset Management Plc., In re (2016) 131 DTR 1 (AAR)]

Aberdeen Claims Administration Inc., In re (2016) 131 DTR 1 (AAR)]
S.6 : Residence in India –Installation project continuing only for 178 days in fiscal year, less than 183 days – No permanent establishment of applicant in India-Business profits from execution of project taxable only in country where applicant was resident –DTAA-India-Singapore

Since the project executed by the applicant in India continued only for 178 days in a fiscal year, less than 183 days in a fiscal year, there was no permanent establishment of the applicant in India and that the business profits accruing or arising to the applicant by way of the execution of the project under reference were taxable only in the country where the applicant was a resident in terms of Article 7(1) of the Double Taxation Avoidance Agreement between India and Singapore.(AAR No 1602/14 dt. 10-11-2015)(AY. 2013-14)

Tiong Woon Project and Contracting (Pte) Ltd. In (2016) 380 ITR 187 (AAR)
S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Supply management service fees received by Applicant – Not liable to deduct tax at source- DTAA-India-UK

The Applicant is a company incorporated in UK. The Indian affiliate is engaged in the business of manufacture and sale of turbochargers and purchases turbocharger components directly from third party in UK and US and in relation to such purchases, the applicant provides supply management services vide material suppliers management service agreement. AAR ruling was sought on question whether the supply management service fees received by Applicant from Indian affiliate is in the nature of “fees for technical services” (FTS) or “royalties” within the meaning of the term Article 13 of the India-UK DTAA.

The AAR held that, the Applicant is not imparting its technical knowledge and expertise to the Indian Company based on which the Indian company will acquire such skills and will be able to make use of it in future. Therefore, the ‘Make available’ clause under India–UK, DTAA is not satisfied and hence such fee is not FTS under the Article 13 of the India-UK Treaty.

AAR further held that, the nature of services related to the identification of products and competitive pricing cannot qualify as royalties under the provisions of Article 13 under India-UK DTAA because it is not related with the use of, or the right to use any copyright, patent, trademark, design, or modal, plan secret formula or process etc. Thus, Indian affiliate is not required to withhold tax under section 195 of the Act.

Cummins Ltd., In re (2016) 237 Taxman 693 (AAR)
S.44BB : Mineral oils – Assessee entered into a contract with RIL to provide facilities in connection with extracting, prospecting or production of mineral oil – Assessee signed a change order’ with RIL to facilitate certain amendments in scope of work of Original contract – original contract and ‘change order’ were inextricably linked with each other – Entire consideration received for scope of work was taxable in India under section 44BB

The applicant, a company incorporated in and a tax resident of Norway, was engaged in the business of providing floating production storage and offloading facilities, a type of floating production system used in offshore oil and gas industry. It entered into a contract on May 9, 2007 with an Indian company under which for a consideration on a day rate lease rental basis, the applicant was required to provide floating production storage and offloading facilities at the assigned site in connection with extraction, prospecting or production of mineral oil. The contract specified the fee towards mobilisation of the vessel from Singapore to India to the offshore location in India. The consideration for floating production storage and offloading facility and fees towards mobilisation of the vessel under contract were offered to tax from assessment year 2009-10 onwards, accepting that they had accrued in India for supplying plant and machinery on hire used or to be used in the prospecting, extracting or production of mineral oil and the income was computed in terms of section 44BB of the Act. Similarly, the mobilisation revenue was also offered to tax on the same basis.

On July 27, 2008, the applicant signed a “change order” with the Indian company to facilitate amendments in the scope of work under the original contract. The amendments involved fabrication and installation of new living quarters on board the floating production storage and offloading facilities, procurement and installation of heating, ventilation air conditioning systems on board the living quarters, mobilising the commissioning team of the applicant four months prior to the floating production storage facilities sailing to India instead of six weeks prior, extending the dry docking as envisaged, expediting the deliveries of the topside modules and increasing the productivity of the Singapore shipyard and timely installation of buoy and moorings in India. The consideration received in terms of the change order was not offered to tax on the premises that a substantial portion of the work was performed outside India. However the Indian company withheld tax based on a withholding order of the department in respect of the original contract.

The applicant sought an advance ruling on (1) Whether consideration received by the applicant under the ‘Change Order’ for undertaking the various activities is in the nature of business profits or in the nature of ‘fees for technical services’ as defined in the Explanation 2 of section 9(1)(vii). (2) If the scope of work is in nature of business profits, would the consideration for the scope of work, as mentioned in question 1 above, be taxable in India even though it pertains to work performed wholly outside India. (3) Whether on the stated facts and in the circumstances of the case, the consideration received by the Applicant for installation of the buoy and moorings in India is in the nature of business profits on fees for technical services under section 9 of the Act. Whether the income chargeable to tax ought to be computed having regard to the computational mechanism under section 44BB of the Act. (4) If for any reason the amount as received by the Applicant for performing the scope of work as mentioned in Question No. 1 is taxable in India, whether the income chargeable to tax ought to be computed having regard to the computational under section 44BB of the Act. (5) Whether consideration received by the Applicant is attributable to mobilisation of the FPSO to the extent of the distance travelled by the FPSO outside India is taxable in India.

The AAR observed that, it was apparent from facts that the applicant was giving different treatment to considerations received as per the original contract and as per the change order. Not only that, it was giving different treatment to considerations received pursuant to change order also as its offering consideration for installation of buoys and moorings for tax under section 44BB and for other amount it is taking the stand that the same is not taxable. The AAR further observed that an analysis of original contract and of the change order done showed that the change order is nothing but amendments in their original contract. It is mentioned upfront in clear terms in the change order. The original contract already had clauses pertaining to provisioning of 104 living quarters and for HVSC systems. As per the change order the applicant has made 104 living quarters livable and installed new HVAC system by dismantling the existing one. In paragraph 9(IX) it is apparent that the entire scope of work in the change order is nothing but modifications/amendments in the original contract. The AAR held that it was beyond doubt that the consideration received as per change order was similar to consideration received as per original contract and that it was also established that both original contract and amendments therein by way of change order are inextricably linked with extraction, processing, production, storing & offloading of crude oil and natural gas for which RIL had floated tender and granted the contract to the applicant. Hence, the applicant would be governed by provisions of section 44BB of the Act.

The AAR further held that, section 44BB does not make any distinction between amount paid in India or outside India and, therefore, the entire amount has to be considered for the purpose of computation under this section. Accordingly there was no reason to give a different treatment to the consideration received pursuant to the change order. The AAR rejected the applicant’s contention that the consideration received as per change order is not taxable under the DTAA between India and Norway. The AAR observed that the scope of work as per change order has not changed as compared to that in the original contract and that the applicant’s arguments is based on the stand that it, being a resident of Norway, does not carry on any activity offshore in India while performing its obligations under the change order and, therefore, provisions of Article 23 are not applicable. This stand was based on the distinction between original contract and change order and was different from the stand taken in respect of original contract in the returns filed by the applicant from assessment year 2009-10 onwards. Further, the scope of work is to prepare the FPSO for chartering to provide the same on lease rental basis to extract, receive, process, produce, store & offload crude oil and natural gas from development area in India and all activities and works connected with this including its preparation for chartering are inextricably linked with the main work. Accordingly, the entire consideration received for the scope of work as mentioned in question No. 1 is taxable in India under the provisions of section 44BB.

Aker Contracting FP ASA, In re (2016) 381 ITR 489 / 237 Taxman 427 / 283 CTR 250 (AAR)
S.195 : Deduction at source – Non-resident – Settlement amount payable by Applicant to QSF –Pursuant to the final judgment of the US Court – Not regarded as sum chargeable to tax in hands of QSF

The applicant is an Indian company whose shares are listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Its American Depository Shares (ADS) were listed in the New York Stock Exchange (NYSE).

A number of suits were filed against the Indian company as well as its auditors in various jurisdictions in the US, for claiming damages. The suits were consolidated and a consolidated ‘Class Action Complaint’ was filed for alleged violation of the Securities Exchange Act of US.

The US court passed a preliminary order approving the settlement and later the US court passed a final judgment in this regard. Under the terms of the settlement, Indian Company had first to deposit the agreed amounts in a segregated account in India. Thereafter, the amount deposited by would be transferred to an initial escrow account in New York. After the approval of the settlement, the amount had to be transferred from the initial escrow account to the final escrow account to be treated as Qualified Settlement Fund (QSF). Thereafter, it had to be distributed to the qualified claimants in the class action, after deducting the expenses including legal fees incurred and meeting the tax liability, if any.

Before actual transfer of the funds, the applicant approached the AAR for a ruling on whether the settlement amount payable under the Stipulation to the QSF was liable to TDS under section 195 of the Act.

Ruling in favour of the Revenue, AAR held that the settlement amount constituted ‘income from other sources’ in the hands of QSF, under Article 23(3) of the Indo-US DTAA. Thus, the 3 applicants were required to withhold tax under section 195 of the Act, before the fund was distributed. Having held that the income arose in India and observing that the Lead Counsel was a resident of the USA, the AAR held that the receipts under class action suit were
squarely covered by Article 23(3) of the Indo-US DTAA.

Against the aforesaid AAR, a writ was filed before Delhi HC. HC had set-side the above AAR ruling and remanded matter back to AAR to firstly examine whether the afore-mentioned receipts were in nature of revenue or capital and then determine chargeability under the Act.

Further AAR rejected Revenue’s stand that amount was taxable under the head ‘Income from other sources’. AAR noted that Sec. 56(1) contemplates only such source which does not specifically fall under any one of other four heads of income. AAR held that the income in the nature of settlement amount in lieu of surrender of ‘right to sue’ was not covered in this section.

Thus AAR disagreed with earlier AAR ruling in applicant’s case and held that amount was not taxable under section 56 of the Act. However, as TDS under section 195 of the Act was already deducted pursuant to co-ordinate bench order, AAR clarified that the remedy for this was available in Income-tax Act for the payee to claim refund and for that appropriate action will have to be taken.

Lead Counsel of Qualified Settlement Fund (QSF). In RE (2016) 237 Taxman 667 (AAR)
S.195 : Deduction source – Penalty paid to Government of USA Pursuant to order of court in USA for violations of securities law in that country – No tax liability – No tax required to be deducted at source

That unless the payment made attracts tax under the law in India, there would be no liability to deduct tax u/s. 195 of the Act. A penalty ordered by the US. court can never attract any tax nor would such a payment made by the applicant attract any tax liability. The payment being penalty as ordered by the court of competent jurisdiction could never attract any such tax liability. Hence, the applicant would not be required to deduct any such amount u/s. 195.

Satyam Computer Services Ltd., In re (2016) 380 ITR 180 / 236 Taxman 199/ 282 CTR 41 (AAR)

S.2(22)(d) : Deemed dividend – Buy back of shares cannot be assessed as deemed dividend DTAA – India-Mauritius

A buyback cannot be regarded as a “colourable transaction” and cannot be assessed as “deemed dividend” u/s. 2(22)(d). The capital gains on buyback are exempt under the India-Mauritius DTAA. (ITA No. 3726/Mum/2015, dt. 12-2-2015)(AY-2011-12)

Goldman Sachs (India)(Securities Pvt. Ltd. v. ITO (Mum.)(Trib.);
www.itatonline.org
S.2(22)(d) : Deemed dividend –Redemption of preference shares cannot be assessed as deemed dividend

Redemption of preference shares does not constitute “deemed dividend”.

(ITA No. 4669/Mum/2014. dt. 6-4-2016)(AY. 2005-06)

Uday K. Pradhan v. ITO (Mum.)(Trib.);
www.itatonline.org
S.4 : Charge of income-tax – Income does not accrue if the debtor is in a precarious financial position and recovery is doubtful

The Tribunal held that income did not accrue in the hands of the assessee owing to the precarious financial condition of the debtor notwithstanding that:, services were rendered and the income was recorded in the books of account of the assessee during the relevant year and bad debts were claimed in subsequent years when the dispute was settled. (ITA No. 39/07, ITA No. 650/07 & CO No. 122/07, dt. 30-10-2015) (AY. 2002-03)

Bechtel International Inc v. DDIT (Mum.)(Trib.);
www.itatonline.org
S.4 : Charge of income-tax – Subsidy granted to set up a wind mill project is a capital receipt

Subsidy granted to set up a wind project is a capital receipt. The subsidy cannot be reduced under Explanation 10 to S. 43(1) from the cost of the assets acquired though 100% depreciation is allowed on the cost of the assets. The subsidy is also not assessable either u/s. 41(1) or u/s. 50. (ITA No. 3473/M/2013, dt. 26-11-2015) (AY. 2008-09)

Uni Deritend Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.4 : Charge of income-tax –Mutuality – Co-operative housing Society – TDR premium received from members is not liable to tax

CIT(A) relied on ITAT order for A.Y. 2006-07 (ITA No. 499/M/2011) & A.Y. 2007-08 (ITA No. 500/M/2011) and held that TDR premium received by Society from its members was not covered by principle of mutuality. The Tribunal for A.Y. 2008-09 reversed the order of learned CIT(A) and held that TDR premium will be covered by the principle of mutuality. Tribunal followed the order of High Court in ITA Nos. 427 / 428 / 590 of 2012. (ITA No. 66 & 67 /Mum/2014. dt. 9-3-2015) (AYs. 1995-96,
2008-09)

Hatkesh Co-op. Hsg Society Ltd. v. CIT (Mum.)(Trib.);
www.itatonline.org
S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Consideration paid for use of computer software cannot be considered as royalty – Not liable to deduct tax at source – DTAA-India-Singapore

Allowing the appeal of assessee the Tribunal held that; the assessee cannot be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD-ROM which can be said to be sale of ‘good’ by the owner. The consideration paid by the assessee thus as per the clauses of DTAA cannot be said to be royalty and the same will be outside the scope of the definition of ‘royalty’ as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a licence provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act, 1957. (ITA No. 7779/Mum/2011, dt. 29-2-2016)(AY.2007-08)

Capgemini Business Services (I) Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.10(38) : Long term capital gains from equities – Loss on sale of equity shares – Cannot be allowed as deduction

In view of S. 10(38) any income arising from transfer of a long term capital asset being equity share is exempt from tax and, therefore, loss incurred on sale of long term capital asset being equity shares cannot be allowed as deduction. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.11 : Property held for charitable purposes – Advance of money to managing trustee for purchase of land – No violation – Entitle exemption

Assessee trust advanced money to its managing trustee for purchase of land belonging to the latter and the said trustee returned the entire money along with interest after cancellation of agreement. It cannot be said that the transaction between the assessee trust and the managing trustee was one without adequate security or adequate interest or that the money was diverted for the benefit of the managing trustee and, therefore, there is no violation of S. 13. There was no violation of any other provision of the IT Act on transfer of three institutions and its infrastructure by another trust to the assessee trust by way of donation. Assessee was entitled for exemption u/s. 11. (AY. 2010-11)

Dy. DIT (E) v. Vels Institute of Science, Technology & Advanced Studies (2016) 157 ITD 237 / 130 DTR 331/ 175 TTJ 593 (Chennai)(Trib.)
S.14A : Disallowance of expenditure – Exempt income –No disallowance can be made on shares held as stock-in-trade

Assessee, engaged in the business of share trading earned Rs. 12.04 lakh as exempt dividend income. The AO made a disallowance of
Rs. 46,89,748/- u/s. 14A r.w. Rule 8D. Before the CIT(A), the assessee stated that the Tribunal in assessee’s own case for AY 2010-11 has held that no disallowance u/s. 14A r.w. Rule 8D can be made on dividend income from shares held as stock-in-trade. However, the CIT(A), disregarding the order of Tribunal passed in assessee’s own case, followed the decision of Mumbai Bench of the Tribunal in the case of HDFC Bank Ltd. v. DCIT in ITA No. 374/Mum/2012 decided on 23-9-2015 and rejected the appeal.

Before the Tribunal, submitted that the order of the Tribunal in the case of HDFC Bank Ltd. (supra) on which the CIT had placed reliance had been reversed by the Hon’ble Bombay High Court in Writ Petition No. 1753 of 2016 decided on 25-2-2016. Held, CIT(A) erred in not following the order of Tribunal in assessee’s own case. The Bombay High Court in the case of CIT v. India Advantage Securities Ltd. (supra) has confirmed the order of Tribunal wherein it was held that no disallowance u/s. 14A r.w. Rule 8D can be made on shares held as stock-in-trade. The Tribunal further observed that the CIT(A) should have maintained ‘Judicial Propriety’ in following the order of Appellate Authority. However, it restrained from commenting on the judicial indiscipline committed by the CIT(A) and expected that the CIT(A) concerned shall be more careful in future in honouring the orders of the higher Appellate Authorities. (ITA No. 1715/PN/2015, dt. 18-3-2016)(AY. 2012-13)

Paresh Pritamlal Mehta v. ITO (Pune)(Trib.);
www.itatonline.org
S.14A : Disallowance of expenditure – Exempt income – Share application money cannot be included while working average value of investment

It was held that share application money cannot be included while working out the average value of the investments under rule 8D(2)(iii). (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.23 : Income from house property – Notional income in respect of unsold shops cannot be charged to tax under the head income from house property

Allowing the appeal of assessee the Tribunal held that; notional income in respect of unsold shops cannot be charged to tax under the head Income from house property. (AY. 2009-10) (ITA No. 4277/Mum/2012 dt. 13-5-2015 Bench ‘C’)

C. R. Developments Pvt. Ltd. v. JCIT (2016) BCAJ – February – P. 34 (Mum.)(Trib.)
S.23 : Income from house property – Annual value – Brokerage is held to be not deductible

Brokerage paid to give out premises on rent and to earn lease rent is not deductible in computing the Income from house property. (ITA No. 5494/Mum/2013, dt. 5-6-2015) (AY. 2010-11)

Radiant Premises Pvt. Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.32 : Depreciation – Drilling rigs- Registered as heavy goods vehicle – Eligible depreciation @ 40%

It was held that workover mobile rigs owned by the assessee which are registered under category of heavy goods vehicle by the State Transport Authority are eligible for depreciation @ 40 per cent. (AYs. 2002-03 to 2008-09)

John Energy Ltd. v. Dy. CIT (2016) 130 DTR 348(Ahd.)(Trib.)
S.37(1) : Business expenditure – Sales promotion expenses –Gift to doctors bearing logo of company – Allowable expenditure – CBDT Circular dated 1-8-2012 is prospective

Receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceutical companies have been sponsoring practicing doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated
1-8-2012 onwards. However, the Circular was not applicable because it was introduced w.e.f. 1-8-2012. i.e. assessment year 2013-14, whereas the relevant assessment year under consideration is 2010-11 and 2011-12. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration.(ITA No. 6429 & 6428/Mum/2013 & ITA No.11/Mum/2014, dt. 23-12-2015) (AY. 2010-11, 2011-12)

DCIT v. Syncom Formulation (I) Ltd. (Mum.)(Trib.);
www.itatonline.org
S.37(1) : Business expenditure –Penalties & fines paid to SEBI, BSE etc. for breach of regulatory/procedural requirements are “compensatory” in nature and not for any purpose which is an ‘offence’ prohibited by the law

(i) The payments have been made on account of routine fines for minor procedural irregularities, in day-to-day working of the assessee company. The assessee company is engaged into stock broking activities and also in financial services which involves substantial compliance requirements with various regulatory authorities e.g. BSE, NSE, CDSL, NSDL, & SEBI etc. In the regular course of the business of the assessee company, certain procedural non-compliances are not unusual, for which assessee is required to pay some fines or penalties. In our considered view, these routine fines or penalties are “compensatory” in nature; these are not punitive. These fines are generally levied to ensure procedural compliances by the concerned persons. Their levy depend upon facts and circumstances of the case, and peculiarities or complexities of the situations involved. Sometimes elements of discretions of levying authorities are also involved therein.

(ii) On the other hand, an ‘offence’ would be the one which will arise as a result to commission of an action which is prohibited by law, and, in all the given situations, no element of any consent of the parties involved can bring any change in its legal consequences. Similarly, any amount paid by the assessee, in the form of compensation, as a consequence of breach of contract between the two parties, cannot be said to be amount paid for any purpose which is an ‘offence’, prohibited by the law. In other words, under the Income Tax Law, one is required to go into the real nature of the transactions and not to the nomenclature that may have been assigned by the parties. Thus, to decide such issues, we are required to see real substance under the Income Tax Law, and not merely its form. Thus, only those payments, which have been made by the assessee for any purpose which is an ‘offence’ or which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37. (ITA No. 8047/Mum/2010, dt. 29-9-2015) (AY. 2006-07)

Mangal Keshav Securities Limited v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.37(1) : Business expenditure – Payment of speed money to dock workers are not bribes or prohibited under the law hence cannot be disallowed

Allowing the appeal of assessee the Tribunal held that Payment of speed money to dock workers are not bribes or prohibited under the law hence cannot be disallowed. (AY. 2009-10) (ITA No. 4524/Mum/2013 dt. 18-3-2016, Bench ‘ D’)

D.H. Patkar & Co v. ITO ( 2016) BCAJ – April – P. 32 (Mum.)(Trib.)
S.37(1) : Business expenditure – There is a distinction between “setting up” and “commencement” of a business. A business is “set up” and expenditure is deductible even if assessee has no customers and no income

The assessee has already purchased residential flat for the purpose of resale/lease, and therefore assessee was apparently ready to do its business. Under these circumstances, it can be said that the business is set up by the assessee during the year under consideration. For the deductibility of expenses incurred after this stage, earning of the business income is not a mandatory condition under the law. The assessee may not have been successful in getting customers or earning the business income, but if the assessee has done requisite preparations and if the assessee can be said to be in a position to cater to its customers, then it can be said that business is set up and it would amount to carrying on the business and accordingly the expenses would stand allowable to the assessee, irrespective of the fact whether actually assessee got any customer and earned any business income during the year or not. (AY 2008-09)

Multi Act Realty Enterprises Pvt. Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.37(1) : Business expenditure – Genuineness of commission payments – Ad-hoc disallowance

It was held that AO having not controverted the assessee’s claim and not brought any material on record to show that the commission expenditure was either bogus or was not allowable deduction, disallowance made by him solely on ad hoc basis cannot be sustained. (AY. 2008-09)

Dy. CIT v. Vodafone Mobile Services Ltd. (2016) 130 DTR 195 (Delhi)(Trib.)
S.37(1) : Business expenditure – Commission payments – No disallowance can be made only on the ground that copy of assessee’s account did not indicate in the account of payee, when tax was deducted

It was held that commission by cheques after deducting TDS could not be disallowed on the basis that the copy of the assessee’s account in the payees books of account did not indicate any payment received by him from the assessee. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib).
S.37(1) : Business expenditure – Capital or revenue – Advertisement expenditure on product launches was held to be revenue in nature

It was held that no asset of permanent nature comes into existence on display of granty signs and, therefore, expenditure incurred by the assessee on the installation of granty signs and other advertisement expenditure on product launches was allowable as revenue expenditure. (AY. 2008-09 )

Dy. CIT v. Vodafone Mobile Services Ltd. (2016) 130 DTR 195 (Delhi)(Trib.)
S.37(1) : Business expenditure – Interest for late deposit of service tax – Cannot be termed as penalty – Allowable as deduction

The Tribunal held that interest paid on delayed payment of service tax cannot be termed as penalty for infringement of any law and, therefore the same cannot be disallowed . (AY. 2012-13)

Gillco Developers & Builders (P) Ltd. v. Dy. CIT (2016) 175 TTJ 81 (UO)(Chd.)(Trib.)
S.40(a)(ia) : Amounts not deductible – Deduction at source – No disallowance was made for short deduction of TDS

The Tribunal held that when the assessee has made deduction of tax at source under section 194C instead of section 194J, disallowance cannot be made under section 40(a)(ia) for short deduction of tax at source.

Cross object filed by assessee dismissed. (AY. 2009-10)

Dy. CIT v. Parryware Roca (P) Ltd. (2016) 175 TTJ 450 (Chennai)(Trib.)
S.43(5) : Speculative transaction – Business loss – Hedging – Loss on account of forex forward contracts consequent to cancellation of export orders not speculation loss allowable as business loss

It was held that forward contracts in question being purely hedging transactions entered into by the assessee to safeguard against loss arising out of fluctuation in foreign currency are not speculative transactions falling within the ambit of S. 43(5) and, therefore, loss incurred on account of such forex forward contracts consequent to cancellation of export orders is not speculative loss. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.45 : Capital gains – Premium received on grant of tenancy right was held to be assessable as capital gains and not as income from house property

The assessee trust received the premium from the tenants for grant of tenancy rights. Assessee has shown the said receipt as long term capital gain and invested the said amount and claimed exemption under section 54F of the Act. Assessing Officer assessed the premium as income from house property and denied the exemption under section 54EC of the Act. On appeal the Commissioner (Appeals) allowed the claim of assessee. On appeal by revenue, dismissing the appeal the Tribunal held that the premium received by the assessee from the tenants is a capital asset and not advance rent exigible to tax under the head income from house property. Tribunal has also allowed the cross objection of assessee on the reassessment. (ITA No. 844/Mum/2014 & C.O. 76/Mum/2015 dt. 29-2-2016) (AY. 2005-06)

ITO v. Dr. Vasant J. Rath Trust (Mum.)(Trib.);
www.itatonline.org
S.48 : Capital gains – Computation – Interest on borrowed money utilised for acquiring shares can be capitalised as cost of acquisition

Dismissing the appeal of revenue; the Tribunal held that; the interest paid by the assessee on loans taken for acquiring the shares in the past can be allowed as a deduction u/s. 48 as cost of acquisition while computing capital gain on sale of such shares. Followed Trishul Investments Ltd. (2008) 305 ITR 434 (Mad.) (HC). ITA No. 236/Mum/2010, dt. 8-5-2015) (AY.2005-06)

DCIT v. Fritz D. Silva (Mum.)(Trib.);
www.itatonline.org
S.48 : Capital Gains – Cost of Improvement – Legal expenses were incurred to protect the investments of assessee and should be added to the cost of shares as cost of improvement

The assessee was engaged in the business of manufacturing and processing of Ayurvedic medicines. The assessee engaged lawyers as financial advisors to evaluate the maximum value to get and to prevent other companies to buy the shares at low price. The assessee claimed the expenditure incurred towards legal services as legal expenses. The AO invoked section 14A of the Income-tax Act, 1961, and disallowed the expenses on the ground that the expenses were incurred to safeguard the investment and that investment would yield exempt income in form of dividend. The CIT(A) confirmed the order of the AO.

On appeal, the Tribunal held that there was an improvement in the value of the shares held by the assessee. Hence, the expenses could be added to the cost of shares as cost of improvement. The AO was to recompute the amount of capital gains earned by the assessee. (AY. 2009-10)

Vaipa Pharmaceuticals Pvt. Ltd. v. ACIT (2016) 46 ITR 109 (Mum.)(Trib.)
S.50C : Capital gains – Full value of consideration – Stamp valuation does not apply to transfer of leasehold rights in land

Allowing the appeal of assessee the Tribunal held that; Section 50C of the Act provides that if the consideration received or accruing is less than the value adopted or assessed or assessable by the stamp valuation authority of the State Government for such transfer then the value so adopted or assessed or assessable shall be deemed to be the full value of consideration and the capital gains will be computed accordingly. The phraseology of section 50C of the Act clearly provides that it would apply only to “a capital asset, being land or building or both”. The moot question before us is as to whether such expression would cover the transfer of a capital asset being leasehold rights in land or building. There cannot be a dispute to the proposition that the expression land by itself cannot include within its fold leasehold right in land also. Of course, leasehold right in land is also a capital asset and we find no fault with this stand of the Revenue. So however, every kind of a ‘capital asset’ is not covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of consideration. In fact, the heading of section itself provides that it is “Special provision for full value of consideration in certain cases”. Therefore, there is a significance to the expression “a capital asset, being land or building or both” contained in section 50C of the Act. The significance is that only capital asset being land or building or both are covered within the scope of section 50C of the Act, and not all kinds of capital assets. (ITA No. 5136/Mum/2014, dt. 16-3-2016)(AY. 2010-11)

Farid Gulmohamed v. ITO (Mum.)(Trib.);
www.itatonline.org
S.50C : Capital gains – Full value of consideration – Stamp valuation – Difference being les than 2% addition was held to be not justified

It was held that difference between the valuation for the stamp duty and the actual consideration received by the assessee being less than 2 per cent the addition made by the AO by adopting the valuation of the impugned property as determined for stamp duty purposes as the sale consideration for the purpose of computing the long term capital gain is not sustainable. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.54 : Capital gains – Profit on sale of property used for residence – Assessee utilising entire capital gains within period of one year in constructing a house which could not be completed due to circumstances beyond assessee’s control – Assessee was entitled to exemption

The AO disallowed the exemption u/s. 54 of the Act on the ground that the assessee had entered into a development agreement with S for construction of an independent house in a gated community in the land but the construction of the house was not completed within the stipulated period. The CIT(A) allowed the exemption.

On appeal held that the assessee had utilised the capital gains within the period of one year but due to certain circumstances beyond the control of the assessee, the construction of the house could not be completed within the specified period. Therefore, the assessee was entitled to exemption. (AY 2009-10)

ITO v. Narayan Rao (2016) 46 ITR 178 (Hyd.)(Trib.)
S.54EC : Capital gains – Investment in bonds – Payment of cheque dates back to date of presentation and not date of encashment

Allowing the appeal of the assessee the Tribunal held that the period of six months available for making investment means six months and not 180 days. Payment by cheque dates back to date of presentation and not date of encashment. (AY. 2005-06)(ITA No. 7548/Mum/2012
dt. 28-8-2015) Bench ‘B’.

Neela S. Karyakarte v. ITO (2016) BCAJ–March–P. 30 (Mum.)(Trib.)
S. 54F: Capital gains – Investment in a residential house – Demolition of structure does not amount to transfer – Entitle to exemption

The demolition of the structure would not constitute a transfer of the assets in terms of Section 54(3) of the Act in view of the decision of the Apex Court in the matter of Vania Silk Mills P. Ltd. v. CIT, reported in 191 ITR 647. In the above case, the Apex Court has held that when an asset is destroyed, there is no question of transfer taking place under the Act. The Apex Court held that in terms of the Act that the words ‘Extinguishment of any right’ in Section 2(47) of the Act, does not include an extinguishment of right on account of destruction. It has to be an extinguishment of right on account of transfer. Thus, a destruction of assets when not on account of any transfer would not be hit by Section 54F(3) of the Act. Counsel for the revenue seeks to distinguish the decision of the Apex Court in the matter of Vania Silk Mills P. Ltd. (supra) that the destruction in that case took place because of fire and hence it was involuntary. This distinction is of no consequence. In our view of the decision of the Apex Court in Vania Silk Mills (supra) would squarely apply to the facts of the present case;

The CIT(A) had the benefit of afore stated judgment of Bombay High Court in the case of Mrs. Chhaya B. Parekh and the CIT(A) fell into an error by making an attempt to distinguish the judgment of Hon’ble Bombay High Court by holding that judgment of Hon’ble Apex Court in the case of CIT v. Mrs Grace Collis (2001) 248 ITR 323(SC) was not brought to the notice of Hon’ble Bombay High Court while judgment of Vania Silk Mills Limited (supra) was brought to the notice of Hon’ble Bombay High Court, which judgment of Vania Silk Mills stood overruled by Hon’ble Supreme Court by three-member bench of Hon’ble Supreme Court in the case of Grace Collis (supra). The judgment of Hon’ble Supreme Court in Grace Collis has been considered and distinguished by Hon’ble Madras High Court in the case of Neelamalai Agro Industries Ltd. v. CIT (2003) 259 ITR 651 whereby it has held by the Hon’ble Madras High Court that the law laid down in Vania Silk Mills (P.) Ltd.’s case (supra), that extinguishment of rights in a capital asset as a necessary consequence of destruction of the asset does not amount to transfer, has not been overruled by the Apex Court in the case of Mrs. Grace Collis;

Judicial discipline and rule of law demand and requires that lower judicial authorities should and must follow the decisions/judgment of higher judicial authorities on identical facts. Thus, the CIT(A) was bound by law to follow the jurisdictional High Court judgment in the case of Mrs. Chhaya B. Parekh (supra). In our considered view that this instant case is squarely covered by the decision of Hon’ble Bombay High Court in the case of Mrs. Chhaya B. Parekh (supra) and hence the assessee is entitled for his claim of deduction u/s. 54F of the Act as claimed in the return of income filed with the Revenue.(ITA No. 6169/Mum/2013, dt. 15-4-2016) (AY. 2007-08)

Dilip Manhar Parekh v. DCIt (Mum.)(Trib.);
www.itatonline.org
S.68 : Cash credits – Share application – Addition can be made in the hands of alleged bogus shareholders and not in the recipient company

Dismissing the appeal of revenue the Tribunal held that in case of receipt of share application money from the alleged bogus shareholders, addition can be made in the hands of the alleged shareholders and not in the income of the recipient company. (ITA No 3645/ Mum/ 2014 Bench A dt. 30-11-2015 (AY. 2007-08)

ITO v. Superline Construction Pvt. Ltd. (2016) BCAJ–January – P. 18 (Mum.)(Trib.)
S.69 : Unexplained investments – Bogus purchases – An addition on account of bogus purchases cannot be made only on the basis of information received from the MVAT department

Allowing the appeal of assessee the Tribunal held that; we have carefully considered the rival submissions. The entire discussion in the assessment order reveals that purchases from four parties namely Dhruv Sales Corporation –
Rs. 13,67,640/-; Subhlaxmi Sales Corp. –
Rs. 20,20,800/-; Dharshan Sales Corporation –
Rs. 9,64,656/-; and Paras (India) – Rs. 33,98,400, totalling to Rs. 77,51,496/- have been treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of the Government of Maharashtra. Ostensibly, the Assessing Officer ought to have brought on record material which is relevant to the transactions of the assessee with the aforesaid four parties instead of making a general observation about the information received from the Sales Tax Department of the Government of Maharashtra. Quite clearly, the Assessing Officer as well as CIT (Appeals) have taken note of the fact that no sales could have been effected by the assessee without purchases. In the present case, assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods, etc. Notably, no independent enquiries have been conducted by the Assessing Officer. Under identical circumstances, our Co-ordinate Benches in the cases of Deepak Popatwala Gal, Shri Rajeev G. Kalathil and Ramesh Kumar and Co. have held that the Assessing Officer was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals), one of the points raised by the assessee was with respect to an opportunity to cross examine the four parties, but we find that no such opportunity have been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid precedents, which have been rendered under identical circumstances, in our view, the CIT (Appeals) erred in sustaining the addition to the extent of
Rs. 4,19,356/- instead of deleting the entire addition of Rs. 9,68,937/- made by the Assessing Officer. We direct accordingly. (ITA No. 5427/Mum/2015, dt. 18-3-2016)(AY2009-10)

Imperial Imp & Exp. v. ITO (Mum.)(Trib.);
www.itatonline.org
S.69 : Unexplained investments – Bogus purchases – Theory that transaction “defies human probabilities” cannot be applied to purchases in isolation but has to be applied to the entire transaction in the light of documentary evidence produced by the assessee – Sales are accepted as genuine – Purchases cannot be disallowed – Addition was deleted

Allowing the appeal of assessee following the ratio of decision in CIT v. Nikunj Eximp Enterprieses Pvt. Ltd. (2015) 372 ITR 619 (Bom.)(HC), the Tribunal held that there cannot be sales without purchases and the fact that the assessee has exported the goods was not controverted. It is a known fact that the claim of export cannot be considered to be not – genuine, since the export cannot take place without clearance from Customs Authorities, another arm of Government of India. Hence, the claim of export has to be necessarily accepted on the basis of relevant documents. In the instant case also, the assessee has furnished the copies of purchase invoices, confirmation letters, copies of ledger accounts, copies of export bills, the details of re-import of the same and details of payment of customs duty on re-import, the details of purchase return. All these chronological events have not been disproved by the tax authorities. Therefore the theory of human probability has been applied to only part of transactions and not to the whole round of transactions. In any case, it cannot be said that the claim of the assessee defies the human probabilities, when one examines the documents furnished by the assessee. Accordingly, we are of the view that the learned CIT(A) was not justified in confirming the addition made by the AO. Accordingly, we set aside the order of learned CIT(A) on this issue and direct the AO to delete the impugned addition. (ITA No. 3823/Mum/2014, dt. 9-3.2016) (AY 2009-10)

Maruti Impex v. JCIT (Mum.)(Trib.);
www.itatonline.org
S.69 : Unexplained investments – Bogus purchases – Sales was accepted as genuine – Purchase cannot be assessed as bogus

Dismissing the appeal of revenue the Tribunal held that; assessee has furnished quantitative reconciliation, gross profit rate is comparable to earlier and subsequent years, suppliers are income tax assessee and their sales have not been treated as bogus by their Assessing Officer, payments are by account payee cheques and other evidence was available, hence the purchases cannot be treated as bogus purchases.(ITA No. 5163/Mum/2013 dt. 24-2-2016 ( AY. 2010-11)

ACIT v. Jaybhart Textiles & Real Estate Ltd. (Mum)(Trib)
S.69C : Unexplained expenditure – Assessment – Bogus sales and purchases- Addition solely on the basis of information received from the Sales Tax department is not sustainable. Suspicion of the highest degree cannot take the place of evidence

Allowing the appeal of assessee the Tribunal held that; the AO had made the addition on the basis of information received from the Sales Tax department, but, he did not make any independent inquiry. He did not follow the principles of natural justice before making the addition. The First Appellate Authority had reduced the addition to 20%, but he has not given any justification except stating that same was done to plug the probable leakage revenue. Considering the peculiar facts and circumstances of the case, we are reversing the order of the First Appellate Authority. (ITA No. 4547/2545/1275/Mum/2014, dt. 1-1-2016) (AY. 2009-10)

Hiralal Chunilal Jain v. ITO (Mum.)(Trib.);
www.itatonline.org
S.73 : Losses in speculation business – Where the assessee is a dealer in shares, the entire business of share trading and derivatives should be treated as a composite business and aggregated before applying Explanation to S. 73

Allowing the appeal of assessee the Tribunal held that; The assessee was a member of two recognised Stock Exchanges – BSE & NSE. Both Exchanges had two separate segments i.e. Capital Market Segment and Derivative Segment. In Capital market segment, assessee made trading of equity shares whereas in Derivative segment, future and options. The AO held that the transactions done by the assessee which were not covered u/s. 43(5) shall be hit by explanation to section 73 and shall be treated as speculative in nature and accordingly he disallowed a sum of
Rs. 56,94,166/- as deemed speculative loss, applying Explanation to section 73. CIT(A) held that derivative transactions were covered by sec. 43(5)(d) and therefore, could not be held as speculative transactions. On the other hand, share trading done in the cash market is hit by Explanation to section 73, and therefore, any loss/profit arising therefrom shall be deemed to be speculative, and could only be set off against income of subsequent years.

Held, by the Tribunal, where the assessee is a dealer in shares, the entire business consists in sale purchase of shares, then, it should be treated as composite business. Also, assessee’s stand of treating the whole business as composite business has always been accepted by the revenue in earlier as well as subsequent years. Accordingly, whole of assessee’s business was treated as speculative and loss of current year was allowed to be set off against profits of the current year. (ITA No.4053/Mum/2013,
dt. 16-3-2016)(AY. 2009-10)

J. G. A. Shah Brokers P. Ltd. v. DCIT (Mum.)(Trib.);
www.itatonline.org
S.80-IA : Industrial undertakings – Infrastructure development – Liquidated damages – Excess provision written back – Interest and other refund from universal services – Deduction for telecommunication services is available in respect of profits of eligible business and it is not restricted to profits derived from eligible business as mentioned in section 80-IA(1)

Assessee claimed deduction u/s. 80-IA(2A). AO disallowed deduction on various miscellaneous income on the ground that sub-section (1) of section 80-IA uses the phrase “ derived from”. According to the assessee section 80-IA along with sub-sections (1), (2) and (2A) of the same , the qualification of “derived from” as is available in sub-section (1) of section 80-IA of the Act cannot be read into sub-section (2A) of section 80-IA of the Act. It was held that Sub S. (2A) of S. 80-IA overrides the requirements of sub-ss. (1) and (2) as it starts with non obstante clause, namely,
Rs.notwithstanding” which is further qualified by “anything contained in sub-s. (1) or sub-S. (2)” and uses the words “profits and gains of eligible business” as against “profits and gains derived by an undertaking or an enterprise from” used in sub-ss (1) and (2) and, therefore, the restriction of “derived from” contained in sub-s (1) cannot be read into the provision of sub-s. (2A) of S. 80-IA. (AY. 2004-05)

Bharat Sanchar Nigam Ltd. v. Dy. CIT (2016) 156 ITD 847/ 175 TTJ 369 / 130 DTR 161 (Delhi)(Trib.)
S.80QQB : Royalty – Authors other than text books – Book written on income tax problems in question answer form – entitle to deduction

It was held that book authorised by the assessee on income tax problems in question answer form is a literary work in terms of s. 80QQB and, therefore, assessee is entitled to deduction u/s. 80QQB in respect of the royalty received by him on the same. (AY. 2005-06).

Dilip Loyalka v. ACIT (2016) 130 DTR 73/ 175 TTJ 334 (Kol.)(Trib.)
S.92C : Transfer pricing – Corporate guarantee – Taken at 0.5%

Tribunal held that the Corporate guarantees are not comparable to bank guarantees hence the commission charged by banks is not a bench mark to evaluate the ALP of a corporate guarantee but it has to be taken at 0.5%. The decision of ITAT which was up held the 3% orate cannot be followed as they are contrary to CIT v. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom.)(HC). (ITA No. 859/Mum/ 2014
dt. 29-4-2016 ) (AY. 2008-09)

Thomas Cook(India) Limited vs. ACIT (Mum.)(Trib.)
www.itatonline.org.
S.115JA : Book profit – Capital receipts – Such as subsidy & carbon credits which have no income element, have to be excluded from book profits even if credited to the P&L A/c

Tribunal held that; From perusal of the decisions of Rain Commodities Ltd. v. DCIT, 41 DTR 449 and Growth Avenues, we notice that both the decisions dealt with the issue of taxability of capital gains in computing book profit u/s. 115JB of the Act. These capital gains were otherwise income u/s. 2(24) of the Act and exclusion was claimed in computing Book Profit u/s. 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s. 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with capital gains but with pure capital receipt, which does not even have any ‘income’, ‘profits or, gains’ embedded therein. The impugned incentive granted to the Assessee is pure and simple capital receipt, in terms of our decision on ground No. 1 at Para 10 hereinabove, which in turn is supported by the principles laid down by the Apex Court, various High Courts & Special Bench of the Tribunal. That being the case, it does not have any income or profit element embedded in it, since the incentive was granted to encourage industrial growth of industrially non-developed area. No one can make profit out of the subsidy or incentive granted to it. Hence, it is not chargeable to tax under the Income-tax Act as held by the Apex Court in the case of Padmaraje and in the light of our fact finding – as above, clearly not includible in P&L account prepared under Part II & Part III of Schedule VI to the Companies Act.

(ii) The genesis of Sec 115J, thereafter section 115JA and now section 115JB was to ensure that the assessee, while making profit from operations, should not enjoy tax free status due to various deductions available under the Income-tax Act. There was never any intention of the legislature to tax what is not income at all. In a recent decision, the Hon’ble Apex Court in the case of Indo Rama Synthetics (I) Ltd. v. CIT (2011) 330 ITR 363 (SC) has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Inclusion of receipt in the computation of MAT would defeat two fundamental principles, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been credited to P&L a/c and not otherwise.

(iii) With the above discussions, the only issue left to be considered is whether exclusion of the above capital receipt is in line with the principles as laid down by Hon’ble Apex Court in the case of Apollo Tyres (supra). In the case of Apollo Tyres (supra), the question before the Apex Court was whether an AO can, while assessing a company for income tax u/s. 115J of the IT Act, question the correctness of the P&L A/c prepared in accordance with requirements of Parts II and III of Schedule VI to the Companies Act. From the question as framed before the Apex Court it is clear that the issue before the Hon’ble Court was with regard to power of the AO to recast audited accounts prepared in accordance with Part II and Part III of the Schedule VI to the Companies Act. Therefore, for applicability of the decision of the Apex Court the prerequisite is that the accounts are prepared in accordance with Part II and Part III to Sch. VI of the Companies Act. If however the P&L accounts are not in accordance with Parts II and III of Sch. VI to the Companies Act, the said decision cannot be applied and in that situation it does not prohibit the needful adjustment.

(iv) Our view as above is supported by the decision of the Special Bench in the case of Rain Commodities. On examination of the said order, we find that at Para 17 (last sub-para) & Para 18, after considering the decision of Supreme Court in Apollo Tyres Ltd. (supra), Special Bench have held that if Profit & Loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, it is permissible to alter the net profit so as to make it in accordance with Parts II & III of Schedule VI, which is the starting point for computation of ‘Book Profit’ in terms of section 115JB. It implies that needful adjustment to exclude the same is not only permissible, but is mandatory so as to make the Profit & Loss Account compliant, with the basic requirement of Section 115JB.

(v) Accordingly, the receipt on account of transfer of carbon credit which is held to be a capital receipt needs to be excluded from profit as per P&L account for the present year while computing the book profit u/s. 115JB of the Act.(ITA Nos. 417 & 418/LKW/2013, dt. 9-2-2016)(AY. 2008-09, 2009-10)

ACIT v. L. H. Sugar Factory Ltd. (Lucknow)(Trib.);
www.itatonline.org
S.115JB : Book profit – Banking company – Provision is not applicable – Explanation 3 thereto by the Finance Act, 2012 is applicable w.e.f. A.Y. 2013-14 only

Assessee being a nationalised bank and not a company within the meaning of the companies Act, 1956. S. 211(2) and proviso thereto of that Act are not applicable to it and, therefore, the provisions of S. 115JB are also not applicable. Amendment made to S. 115JB r.w. Expl. 3 thereto by the Finance Act, 2012 is applicable w.e.f. A.Y. 2013-14 only. (AY. 2002-03 )

UCO Bank v. Dy. CIT (2016) 130 DTR 113 (Kol.)(Trib.)
S. 143(3) : Assessment – In an AIR scrutiny assessment, the AO is not entitled to widen the scope of scrutiny without approval of the CIT as per CBDT’s Instruction. Such an assessment order is not sustainable

Allowing the appeal of assessee the Tribunal held that; (i) The AIR information was regarding transaction of
Rs. 25 lakh dated 31-3-2011 Para 2 of the CBDT Instruction dated 8-9-2010 states that the scrutiny of cases selected on the basis of information received through AIR returns would be limited only to the aspects of information received through AIR;

(ii) As seen, the AIR information in the present case was regarding cash deposits of
Rs. 25 lakh by the assessee in her savings bank account with OBC. Meaning thereby, that the assessee was required to explain the source of such cash deposits. The assessee explained the same as sale proceeds of her residential house amounting to
Rs. 32.25 lakh received from Smt. Naunihal Kaur, the purchaser. Her this assertion was duly supported by a copy of the concerned sale deed;

(iii) Now, as per the CBDT Instruction, nothing further was to be gone into by the AO, since the information received through AIR was the cash deposits. However, the AO as noted in paras 3.1 & 3.3 of the assessment order itself asked the assessee vide letter dated 13-12-2013 to produce Smt. Balbir Kaur and Smt. Kamaljit Kaur, with whom the assessee had entered into a separate agreement to sell and from whom, the assessee had received a sum of
Rs. 3 lakh at the time of agreement “for their examination in order to ascertain whether the agreement, was finalised or cancelled”. The AO observed that this proceeding was limited to the extent of the AIR information;

(iv) Evidently, the matter of the other agreement to sell does not stand covered in the AIR information, which was regarding the cash deposits of
Rs. 25 lakhs, which the assessee had adequately explained, as above. So, it was obviously not within the purview of the AO to ask the assessee to produce Smt. Balbir Kaur and Smt. Kamaljit Kaur, or to make addition of
Rs. 3 lakhs, as was done;

(v) In fact, what the AO did was to widen the scrutiny. Now, para 2 of CBDT Instruction is specific when it states that where it is felt that apart from the AIR information, there is potential escapement of income more than
Rs. 10 lakhs, the case may be taken up for wider scrutiny with the approval of the administrative Commissioner.

(vi) So, the proper course for the AO before making these additional enquiries would have been to take approval from the administrative Commissioner to widen the scrutiny. This, however, was not done and therefore, the action of the AO is violative of the CBDT Instruction.(ITA No. 87(Asr)/2016, dt. 24-3-2016)(AY. 2011-12)

Gurpreet Kaur v. ITO (Asr.)(Trib.);
www.itatonline.org
S.151 : Reassessment – Sanction for issue of notice – Non-application of mind – Reassessment was held to be bad in law

Addl. CIT and the CIT having simply written “Yes. I am satisfied” on the same day while according sanction under s. 151, it does not in any manner shed any light as to whether there was any application of mind at all by the two senior officers. Therefore, sanction granted by the CIT is invalid and consequently, the notice u/s. 148 issued by the AO is bad in law. (AY. 2004-05).

Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241/ 175 TTJ 663 (Delhi)(Trib.)
S.263 : Commissioner – Revision of orders prejudicial to revenue – Assessment order passed in pursuance of time barred notice is not amenable to revision

Held that the notice u/s. 143(2) of the Act, was issued beyond time. The assessment order passed pursuant to the notice which was beyond time was not justified and all proceedings subsequent to the notice were of no consequence. Hence, the revision order passed u/s. 263 was to be quashed.) (AY. 2007-08)

Krishan Kumar Saraf v. CIT (2016) 46 ITR 387 (Delhi)(Trib.)
S.263 : Commissioner – Revision of orders prejudicial to revenue – Lack of enquiry and inadequate enquiry – Explanation 2 is declaratory and clarificatory in nature

Explanation 2 to s. 263 (which supersedes the law that there is a difference between “lack of inquiry” and “inadequate inquiry”) is “declaratory & clarificatory” in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interests of Revenue. (ITA No. 1994/Mum/2013 &
ITA No. 2836/Mum/2014, dt. 1-2-2016) (AY. 2007-08)

Crompton Greaves Ltd. v. CIT (Mum.)(Trib.);
www.itatonline.org
S.271(1)(c) : Penalty – Concealment – If show cause notice does not specify the concealment particulars – Levy of penalty was held to be bad in law

Allowing the appeal of assessee the Tribunal held that for valid initiation of penalty proceedings it is essential that; prima facie, the case may deserve the imposition of penalty should be discernible from the order passed and notice must specify as to whether the assessee was guilty of having ‘ furnished inaccurate particulars of income’ or having ‘concealed particulars of such income .(AY. 2006-07)( ITA No. 1303/ Kol. /2010 dt 6-11-2015) Bench ‘ B’ )

Suvaprasanna Bhatacharya v. ACIT (2016) BCAJ–January- P. 19 (Kol.)(Trib.)

S.2(15) : Charitable purpose – For providing training charging fees – Such activity does not amount to services in relation to trade, commerce and industry it amounts to imparting education

Assessee institution engaged in imparting higher and specialized education in field of communication including advertising and its related subjects. Training given to individual as well as to persons sent by companies to meet needs of Indian industry and commerce. Held, such activity does not amount to services in relation to trade, commerce and industry it amounts to imparting education, it will still be held that the institution exist solely for educational purpose.

Mudra Foundation for Communications Research & Education v. CCIT (2016) 237 Taxman 139 (Guj.)(HC
S.2(24) : Income – Capital or revenue – Receipt representing compensation for loss of source of income would be treated as capital receipt

Assessee was a journalist by profession and was appointed as the foreign correspondent in India of a German news magazine. German publisher paid a lump sum amount upon termination as sign off compensation for association of past 23 years and loss of work space. Assessing Officer treated the compensation received to be revenue in nature and chargeable to tax under Income- tax Act, 1961.

High Court noted that the receipt in the hands of the Assessee was compensation for loss of an income generating asset. Termination of contract had fatally injured the
appellant’s only source of income for the last 23 years. The mere fact that the Assessee was free to earn through other sources would not make a difference. High Court relied on Supreme Court ruling in Kettlewell Bullen and Co. Ltd (53 ITR 261) and Oberoi Hotel Pvt. Ltd. v. CIT (236 ITR 903) wherein the court held that if receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the Assessee continues to be in receipt of income from its other similar operations. Accordingly the Court ruled in favour of the Assessee and treated the receipt as capital receipt. (AY. 1994-95)

CIT v. Sharda Sinha (2016) 237 Taxman 111 (Delhi)(HC)
S.4 : Charge of income-tax -Mutuality – The contributions made by the members to the assessee cannot be a subject matter of tax merely because the part of its excess of income over expenditure is invested in mutual funds

The contributions made by the members to the assessee cannot be a subject matter of tax merely because the part of its excess of income over expenditure is invested in mutual funds. The concept of Mutual concerns not being subject to tax is based on the principle of no man can profit out of itself. Therefore the test to be satisfied before an association can be classified as a Mutual concern are complete identity between the members i.e. contributors and the participants, the action of the mutual concern must be in furtherance of its objectives and there must be no scope of profiteering by the contributors from a fund. (ITA No. 2455 of 2013, dt. 31-3-2016)

CIT v. Air Cargo Agents Association of India (Bom.)(HC);
www.itatonline.org
S.4 : Charge of income-tax -Accrual of income
– Mercantile system of accounting – Waiver of income recoverable from person facing financial difficulties

Even in mercantile system of accounting an item would be regarded as accrued income only if there is certainty of receiving it and not when it has been waived, therefore non recognition of income on the ground that the income had not really accrued as the realisability of the principal outstanding itself was doubtful, is legally correct under the mercantile system of accounting, when the same is in accordance with ASI notified by the Government and the provisions of Section 145(1) are subject to, inter alia, mandate of ASI which also prescribes that
"˜Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting
policies.’ In the name of compliance with Section 145(1), it cannot be open to anyone to force adoption of accounting policies which result in a distorted view of the affairs of the business. Therefore, even under the mercantile method of accounting, and, on peculiar facts of instant case, the assessee was justified in following the policy of not recognising these interest revenues till the point of time when the uncertainty to realise the revenues vanished. The Tribunal further referred to the fact that the various resolutions which decision rendered by the Tribunal in the impugned order is a decision on facts and nothing has been shown to us which would warrant interference by this Court on account of any finding being perverse or arbitrary.
(ITA Nos. 2251 of 2013 with 2360 of 2013, dt. 5-4-2016)

CIT v. Neon Solutions Pvt. Ltd. (Bom.)(HC);
www.itatonline.org
S.4 : Charge of income-tax – Capital or revenue – Money to be used in purchase of plant and machinery temporarily placed in fixed deposits – Inextricably linked with setting up of plant – Interest on fixed deposits – Capital receipt

Held, the test that is required to be employed is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the business. The findings of fact had been returned by the Commissioner (Appeals) and had been confirmed by the Tribunal to the effect that the funds were inextricably connected with the setting up of the power plant of the assessee. The Revenue had also not been able to point out any perversity in such finding and, therefore, interest earned by the assessee from fixed deposits in the pre-commencement period. (AY. 2009-10)

PCIT v. Facor Power Ltd. (2016) 380 ITR 474/237 Taxman 613/ 283 CTR 141 (Delhi) (HC)
S.14A : Disallowance of expenditure – Exempt income – The disallowance of expenditure cannot exceed the amount of tax – Free dividend

Dismissing the appeal of revenue the Court held that; in the present case, when the assessee claimed that it had not made any expenditure on earning exempt income, the Assessing Officer in terms of sub-section (2) of Section 14A of the Act was required to collect such material evidence to determine expenditure if any incurred by the assessee in relation to earning of exempt income. The income from dividend had been shown at

Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule 8D of the Rules worked out by the Assessing Officer came to
Rs. 4,09,675/-. Thus, the Assessing Officer disallowed the entire tax exempt income which is not permissible as per settled position of law. The window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure"incurred by the assessee in relation to the tax exempt
income". The disallowance under section 14A read with Rule 8D as worked out by the Assessing Officer is not in accordance with law and as such working is not sustainable. The view adopted by the Tribunal being a plausible view based on factual position and the relevant case law on the point, does not warrant any interference by this Court. (ITA No. 415 of 2015, dt. 12-1-2016) (AY. 2009-10)

Pr. CIT v. Empire Package Pvt. Ltd. (P & H) (HC);
www.itatonline.org
S.14A : Disallowance of expenditure – Exempt income-Appellate authorities finding ten per cent of income earned could be apportioned towards expenses for earning dividend – Finding not perverse

The Commissioner (Appeals) took into account the words of rule 8D and found that the figures as derived by the Assessing Officer could not be taken into consideration. Disallowance of expenses can be made which are incurred for earning dividend. For that purpose, the figures under the head "Investment" could be taken and some charges apportioned for the purpose of computing the expenses. The Commissioner (Appeals) found from such figures, that only 10% of the income earned could be apportioned towards expenses for earning the dividend. Held, Rule had been applied correctly. (AY. 2008-09)

CIT v. India Advantage Securities Ltd. (2016) 380 ITR 471 (Bom.) (HC)
S.14A : Disallowance of expenditure – Exempt income – Interest on borrowed capital -Investment was from own funds – Disallowance was held to be not justified

The ITAT passed an order in HDFC Bank Limited v. DCIT ( 2015) 173 TTJ 810 (Mum)(Trib.) in which it held that the presumption laid down in HDFC Bank 366 ITR 505 (Bom.) and Reliance Utilities 313 ITR 340 (Bom.) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom). On a Writ Petition filed by the assessee, Order of Tribunal is reversed on the ground that it is "Judicial Indiscipline" leading to complete chaos and anarchy in the administration of law. (AY. 2008-09)

HDFC Bank Ltd. v. DCIT (2016) 132 DTR 89 (Bom.)(HC)
S.14A : Disallowance of expenditure – Exempt income – Disallowance of interest expenditure would not be tenable where AO failed to establish a nexus between interest bearing funds and investment made

Assessee was a State Government undertaking engaged in financing industrial units. It had made investment in securities on which it earned tax-free dividend income. The AO observed that though 75 per cent of investments were made through funds given by State Government, 25 per cent of investments were made out of mixed pool of funds and, therefore, 25 per cent of interest expenditure was taken as indirect expenditure liable for disallowance under section 14A, r.w. rule 8D. As amount of disallowance exceeded amount of exempt income itself, AO adopted a sum of 5 per cent of indirect expenditure together with 0.5 per cent of average investments under rule 8D(2)(iii) as disallowance under section 14A, read with rule 8D.

On appeal, the CIT(A) deleted the additions made by the AO on the ground that the AO failed to establish direct nexus between borrowed funds and tax-free investments. The Tribunal affirmed the order of the CIT(A).

The High Court held that as the disallowance was made on an ad hoc percentage without any basis or assigning any reason whatsoever, the disallowance was rightly set aside by the appellate authorities. The court observed that the AO had been unable to establish a nexus between the interest bearing funds and the investments made. Accordingly, the High Court dismissed the
Revenue’s appeal. (AY. 2009-10)

CIT v. Karnataka State Industrial & Infrastructure Development Corpn. Ltd. (2016) 237 Taxman 240 (Karn.)(HC)
S.17(3) : Profits in lieu of salary – Amount paid by employer to employee in order to put an end to litigation which was related to
employee’s termination of service was not in nature of"profit in lieu of
salary"

Assessee, an individual, was an employee of company 'G'. He was discharged from service under the relevant Service Rules after giving three months' pay. Further, the assessee was also paid certain amount as ex-gratia compensation on premature cessation of his services. The assessee treated the said ex-gratia payment as a capital receipt and consequently did not offer it to tax. The AO took a view that compensation so received was to be taxed u/s. 17(3) as 'profits in lieu of salary'. The Tribunal confirmed the order passed by AO.

On appeal, the HC held that the assessee's services came to be terminated under the relevant service rules after giving three months' pay. Therefore, insofar as the obligation of the employer to pay any amount to the assessee in relation to the termination of his services, the same came to an end in view of the discharge of his services under relevant rule. The amount in question was paid only in terms of the settlement, without there being any obligation on the part of the employer to pay any further amount to the assessee in terms of the services rules. The employer, voluntarily at its discretion, agreed to pay the amount in question to the assessee with a view to bring an end to the litigation. There was no obligation cast upon the employer to make such payment and, therefore, the same would not be taxable as 'profits in lieu of salary' as envisaged u/s. 17(3)(i). (A.Y. 1994-95)

Arunbhai R. Naik v. ITO (2016) 131 DTR 402 (Guj. HC)
S.17(3) : Profits in lieu of salary – Amount received from his employer on retirement is profits in lieu of salary and not non-compete fees – Liable to tax

At the time of retirement, the assessee received various retirement benefits from the company. Further, the assessee was also paid certain amount as compensation which was claimed as non-compete fees, not chargeable to taxable. However, the AO re-characterised the nature of payment to be “profits in lieu of salary’ as the assessee failed to provide explanation the manner in which the compensation was computed and negotiated with the company. The CIT(A) and Tribunal upheld the order of the AO.

On appeal, the HC held that the assessee has worked with the company for more than 33 years and received handsome retirement package and would not compete with his former employer. Hence, the payment shown as non-compete fees is a camouflage transaction to reduce tax implication. (AY. 2003-04)

B.L. Shah v. ACIT (2016) 131 DTR 265 (Bom) HC)
S.24 : Income from house property – Deduction – Interest paid on loan taken over while acquiring mortgaged property would be deductible under section 24(1)(vi) against rental income from said property

The assessee was having rental income and claimed deduction of interest from the said income under section 24(1)(vi). The Assessing Officer disallowed the said deduction as the assessee had not purchased/constructed any building from the funds on which the interest was paid. On appeal, the Commissioner (Appeals) upheld the disallowance. On Second Appeal, the Tribunal allowed deduction under section 24(1)(vi) to assessee by recording finding that said loan liability was undertaken by assessee for acquiring its mortgaged property.

The High Court held that Section 24(1)(vi) of the Act at the relevant time provided that where the property had been acquired, constructed, repaired, renewed or re-constructed with borrowed capital, the amount of interest payable on such capital was a permissible deduction from income from house property. Thus, it would be required to be seen in the present case whether the deduction of interest paid by the assessee on the borrowed funds satisfied the requirements of clause (vi) of sub-section (1) of Section 24 of the Act. The Court further observed that the Tribunal had come to a finding that there was a nexus between the loan taken and the acquisition of the property. The Revenue was unable to show any perversity in the findings of the Tribunal and accordingly the High Court dismissed the Revenue's appeal. (AY. 1997-98)

CIT v. Haryana Television Ltd. (2016) 237 Taxman 247 (P&H)(HC)
S.32 : Depreciation – Sale and lease back – Lessee not claiming depreciation – Entitled depreciation

The assessee claimed 100 per cent depreciation on energy measuring devices purchased from Haryana State Electricity Board. After purchase they were leased back to the Board under a lease agreement. The Assessing Officer held that purchase and lease back transaction was in fact and in substance a finance lease agreement. He disallowed the depreciation relying on Circular No. 20 of 2001 dt. 9th February, 2001. CIT(A) and Tribunal allowed the claim of depreciation. On appeal by revenue, dismissing the appeal the Court held that the transaction was genuine and the assessee is entitled to depreciation. Relied on I.C.D.S. Ltd v. CIT ( 2013) 350 ITR 527 (SC)& West Coast Paper Mills Ltd. (2010) 322 ITR 9 (SC)(St.)(AY. 1996-97)

CIT v. Apollo Fine Vest (I) Ltd (2016) 382 ITR 33 (Bom)(HC)
S.32 : Depreciation – Additional depreciation allowed on manufacture/production of ‘article or thing’ – Depreciation is allowable on assets kept ready for use

Assessee was engaged in the business of FM radio broadcasting and was granted permission for operating FM Radio Broadcasting channels. In its return of income, Assessee claimed additional depreciation under section 32(1)(iia) of the Act, on new plant and machinery acquired for production of radio programmes. Assessing Officer did not concur with the Assessee and did not consider production of radio programmes as production of article or thing. On appeal the Tribunal held that Assessee was eligible for claiming additional depreciation under section 32(1)(iia) of the Act. Aggrieved by the Tribunal judgement, Revenue preferred an appeal before the High Court.

The High Court observed that production of radio programmes involved process of recording, editing and making copies prior to broadcasting, there comes into existence a
"˜thing’ which is tangible and which can be transmitted and even sold by making copies. High Court placed reliance on Gramophone Co. India Ltd v. Collector of Customs (1 SCC 549)(SC) and Collector of Central Excise v. Rajasthan State Chemical Works (4 SCC 473)(SC). Thus it was held that Assessee had acquired and installed plant and machinery for manufacture of ‘article or thing’ and it is entitled to claim additional depreciation under section 32(1)(iia) of the Act.

For the year under consideration Assessing Officer had disallowed Assessee claim for depreciation on licence fee for radio station as the same were not used during the year. Contrary to the Assessing
Officer’s claim, radio stations were ready-to-use and had started trial runs. High Court relied upon Refrigeration & Allied Ind. Ltd (247 ITR 12)(Del.) where it was held that an asset can be said to be
"˜used’ when it is kept ‘ready to use’ and Capital Bus Service Pvt. Ltd. (123 ITR 404)(Del.) where similar view was taken. As a result it was held that Assessee would be entitled to claim depreciation on licence fee as the same were kept ready-to-use for the year under consideration. (AY. 2008-09)

CIT v. Radio Today Broadcasting Ltd. (2016) 382 ITR 42 / 237 Taxman 126 (Delhi)(HC)
S.37(1) : Business expenditure – Capital or revenue – Expenditure in respect of a project which did not materialise has to be treated as revenue expenditure as no capital asset comes into existence

On the question has to whether if the project does not materialise and an asset is not created, expenditure on steps in that direction must be treated as capital expenditure or revenue expenditure, the Supreme Court in Commissioner of Income Tax v. Madras Auto Service (P) Ltd., reported at (1998) 233 ITR 468 clinches the controversy. There while considering the issue, the Court finds that the assessee could not have claimed it as capital expenditure, as there was no capital asset generated by spending said amount. The expenditure has been held rightly classified as revenue expenditure. (ITR No. 150 of 1993, dt. 11-2-2016)

CIT v. Manganese Ore India Ltd. (Bom.)(HC);
www.itatonline.org
S.37(1) : Business expenditure -Capital or revenue – Expenditure on "application software" is revenue expenditure

Allowing the appeal of assessee the Court held that; Expenditure on "application software" is revenue as it allows efficient carrying on of business and requires to be constantly updated due to rapid advancements in technology and increasing complexity of the features. (ITA No. 278 of 2007, dt. 18-3-2016) (AY. 1997-98 )

Indian Aluminium Co. v. CIT (Cal.)(HC);
www.itatonline.org
S.37(1) : Business expenditure – Allowability of travel expenditure
– Where foreign buyer of assessee was situated in Singapore, expenditure incurred for travel to meet buyer in Singapore could only be allowed; and expenses incurred on travel to countries other than Singapore were to be disallowed

The assessee, an export-oriented unit, claimed deduction of foreign travel expenditure of its president and directors for purpose of marketing and selling its goods. Assessing Officer found that president and directors of company had not only travelled to Singapore where associated enterprise was situated but also to other countries and therefore, disallowed expenses incurred by assessee on travel to countries other than Singapore. The CIT(A) and Tribunal confirmed order of Assessing Officer. In appeal, the High court held that the view taken by Tribunal to restrict the expenses of travel only to Singapore visit where the foreign buyer of the appellant was situated, could not be said to be perverse. (AY. 2003-04)

Advance Power Display Systems Ltd. v. CIT (2016) 237 Taxman 16 (Bom.)(HC)
S.37(1) : Business expenditure – Deferred revenue expenditure – Decision to abandon project, balance deferred revenue expenditure relating to said project would be deemed to arise in relevant year

The assessee was running a project which was not making profits. Therefore, it was abandoned and entire expenses, including balance deferred revenue expenditure were written off during the year. The Assessing Officer disallowed the balance deferred revenue expenditure as it was not related to current year's income. The CIT(A) allowed the claim of assessee, which was affirmed by the Tribunal. On appeal, the High Court held that since the project was abandoned in the assessment year 1995-96 and the entire expenses was written off during the said assessment year. It can be safely concluded that the expenditure arose in the relevant year. (AYs. 1995-96, 1996-97)

CIT v. Alcove Industries Ltd. (2016) 237 Taxman 226 (Cal.)(HC)
S. 37(1) : Business expenditure – Royalty paid to director for use of IPR of the director
– Held, assessee company is a separate juristic entity – Payment made as royalty is an allowable expenditure

Director of the assessee company, had invented the technology through which ringtones could be created. He carried on the business in the name and style of
"˜phoneytunes.com’ as a sole proprietor. Assessee company entered into an agreement with the director for using the brand name in lieu of payment of royalty. The AO and CIT(A) held that the director cannot enter into an agreement with the company as they are the same person. High Court held that, assessee company is a separate juristic entity and therefore, can enter into the said agreement. Further, it was held that the director had obtained copyright in the artistic work comprised in the name
"˜phoneytunes.com’ and registration thereof was not compulsory. Further, it constituted the trademark of the director. Held, therefore, the assessee was entitled to use the trademark as a licensee and the payment of royalty made was allowable as a deduction. (AYs. 2006-07 to 2008-09)

CIT v. Mobisoft Tele Solutions (P.) Ltd. (2016) 237 Taxman 221 (P&H)(HC)
S.37(1) : Business expenditure – Payment of damages to compensate the loss suffered by other, is compensatory in nature and hence, allowable

The assessee had taken on lease a plot of land from the Calcutta Port Trust. It had encroached some of land belonging to the trust, for which the trust asked the assessee to pay damages before proposal of the assessee for grant of a long-term lease in respect of the encroached land. The assessee made the said payment and claimed it as revenue expenditure u/s. 37(1).

The AO treated the impugned payment as capital in nature on the ground that it was expended to obtain a long-term lease. He also held that the encroachment amounted to an infraction of law. The CIT(A) and Tribunal concurred with the view of the AO.

On appeal, the HC held that the impugned payment was made to compensate the loss suffered by the Trust and for benefit already received by the assessee as a user of land. Therefore, payment is not in the nature of penalty. Further, the impugned payment was also held to be not a capital expenditure as prayer for lease of encroached land could not have been examined before payment of the compensation. (AY. 2001-02)

Mundial Export Import Finance (P) Ltd. v. CIT (2016) 131 DTR 195 (Cal.) (HC)
S.40(a)(ia) : Amounts not deductible – Deduction at source
– Non-resident – Commission – Services rendered outside India – Order of Tribunal was set aside for reconsideration [S. 195]

The Tribunal took the view (Sesa Resources v. ACIT) that in view of the retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India, commission to non-resident agents for services rendered outside India is liable for TDS u/s. 195 and has to suffer disallowance u/s. 40(a)(ia). In appeal before the High Court, the assessee contended that the Tribunal has misconstrued Explanation 2 to Section 195 of the Finance Act, 2012 while coming to the conclusion that even in case in which the income of the non-resident is not chargeable to tax in India, the deduction at source would have to be made by the assessee. It was pointed out that the Explanation was not itself relevant to the facts of the case as it is not the case of the department that the commission paid to the non-resident was not chargeable to tax in India. The assessee relied upon the Judgment in the case of CIT v. Gujarat Reclaim & Rubber Products Ltd (ITA No. 169/2014 dated 8-12-2015). HELD by the High Court:

In Gujarat Reclaim & Rubber Products Ltd. it has been, inter alia, held that before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of the Income-tax Act. This aspect has not been considered by the Tribunal while concluding that the Appellant has committed a default in not deducting the tax at source. As the said learned Division Bench Judgment was not available while passing the impugned order by the learned Tribunal, we find it appropriate, in the interest of justice, to quash and set aside the impugned order of the learned Tribunal to the extent it holds that the Appellant has defaulted in not deducting tax at source and remand the matter to the Tribunal to examine the said aspect afresh in the light of the judgment of this Court after hearing the parties in accordance with law. All contentions on that count are kept open. (TA. No. 11 of 2016, dt. 7-3-2016)(AY. 2009-10)

Sesa Resoureces Ltd. v. DCIT (Bom.)(HC);
www.itatonline.org
S.45 : Capital gains – Accrual -Deferred consideration dependent on a contingency does not accrue unless the contingency has occurred and is not liable to capital gains tax in year of transfer

Dismissing the appeal of revenue the Court held that; The Tribunal held that what amount has to be brought to tax is the amount which has been received and/or accrued to the assessee and not any notional or hypothetical income as the revenue is seeking to tax the assessee in the subject assessment year 2006-07"¦ learned counsel for the Revenue urged that in terms of section 45(1) of the Act that transfer of capital asset would attract the capital gains tax. It is further submitted that the amount to be taxed under section 45(1) is not dependent upon the receipt of the consideration. In support of the above he invites our attention to Section 45(1)(A) and section 45(5) of the Act which in contrast brings to tax capital gains on amount
received"¦ in the subject assessment year no right to claim any particular amount gets vested in the hands of the assessee. Therefore, entire amount of
Rs. 20 crores which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the assessee. The test of accrual is whether there is a right to receive the amount though later and such right is legally
enforceable"¦ contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-07 as the same has not accrued during the year. (ITA No.2348 of 2013, dt. 29-3-2016) (AY. 2006-07)

CIT v. Hemal Raju Shete (Mrs.) (Bom.)(HC);
www.itatonline.org
S.45 : Capital gains – Business income – Sale of shares and mutual funds held as investment – Maintenance of two separate accounts in respect of shares held in trading portfolio and investment portfolio – Gains arising on sale of shares held in investment portfolio to be treated as capital gains

The assessee held two separate accounts in respect of dealing in shares and mutual funds under trading portfolio and under investment portfolio. During the year under consideration, the assessee sold shares and mutual funds in investment portfolio and returned long term capital gain on the same. The Assessing Officer held that the gains arising out of the same has to be treated as business income as he is a trader in shares for the reason that the assessee held the shares of the same company both under investment portfolio and trading portfolio and the assessee has the discretion to decide which scrip is to be held under investment portfolio and which one under trading portfolio. On appeal, the CIT(A) upheld the order of the Assessing Officer, which was subsequently reversed by the Tribunal. On appeal by the Revenue, the High Court held that the tests applied by the Assessing Officer is not correct relying upon Circular No. 4 of 2007 dated
15-6-2007 which gives the discretion to the assessee to treat a particular scrip either as investment or as stock-in-trade. Further, also following the principle of consistency as it was held that the gain is to be assessed as capital gain in the preceding previous year, it was held that the gain arising on the sale of shares and mutual funds is to be assessed as capital gain in the year under consideration. (AY. 2006-07)

CIT v. IHP Finvest Ltd. (2016) 236 Taxman 64 (Bom.)(HC)
S.45 : Capital Gains – Sale of business of firm as a going concern to a company for consideration of paid-up capital does not amount to transfer liable as tax as capital gains – Conversion of capital asset into stock-in-trade – Distribution of capital assets necessary to invoke the provisions of the section

The assessee was a firm and was having a shopping centre and land which was non business asset and hence was kept out of the Balance Sheet. During the year under appeal, the said asset was brought into the stock of the business and corresponding credit was given to the respective capital accounts of the partners in their profit sharing ratio. The firm was converted into a joint stock company with the same objects to deal in land, building and construction. The Assessing Officer noticed that the asset i.e. is the shopping centre was introduced for the first time in the books and thus charged this receipt of income. Alternatively, the Assessing Officer observed that in this transaction the assessee has transferred an asset where the cost of acquisition is nil for a consideration of
Rs. 1,16,40,000/- for shopping centre and for the land which had acquisition value of
Rs. 12,00,000/- for a consideration of
Rs. 65,00,000/- The Assessing Officer treated the same as short term capital gain as the asset had been brought for the first time in its books of account and added it to the income of the assessee.

Before the CIT(A) the assessee contended that the provisions of section 28(iv) of the Act were not applicable as neither the Act of bringing an asset into the books nor revaluation thereof would amount to benefit or perquisite because the asset was already owned by the assessee, though not reflected in its books. The fact that the asset had been brought into its books did not amount to obtaining any benefit by the assessee. It was further contended that no capital gains had occurred when it had converted the firm into a joint stock company as in view of the provisions of Chapter IV of the Companies Act, the act of declaring a firm as a company did not amount to transfer. It was contended that if the property is transferred from an individual to himself, then no profit or gain accrues to such person.

The CIT(A) held that a transfer of assets by a partnership firm to a company comprising only of shareholders who were earlier partners of the firm attracts liability under section 45 of the Act and directed the Assessing Officer to compute the capital gains as per the provisions of section 48 read with section 55 of the Act. The Tribunal held that capital gains can be brought to assessment only, if the full value of the consideration is received by or accrues to the transferor. The consideration in the instant case is stated to be allotment of shares though the shares were issued by the company not to the firm but to its partners. Even if it was considered that the shares somehow represented the consideration, the firm would not be liable to tax.

After going through the various submissions and contentions of both the parties and relying on various judicial precedents the High Court (including decision of Bombay High Court in case of Texspin Engineering and Manufacturing Works (263 ITR 345) (Bom.) and held that impugned transaction is not chargeable to tax under sections 28(iv), 45 and 45(4) of the Act. Accordingly
department’s appeal was dismissed. (AY. 1996-97)

Dy. CIT v. R. L. Kalathia and Co. (2016) 381 ITR 180/ 237 Taxman 621 (Guj.)(HC)
S.45(4) : Capital gains -Distribution of capital asset – Conversion of firm to a company – When a partnership firm is transformed into a limited company with no change in the number of partners and extent of property, there is no transfer of assets involved and hence, there is no liability to pay tax on capital gains

The assessee, erstwhile registered firm, was engaged in the business of training and trading of software. It consisted of only two partners, who were holding equal stakes in the firm. Subsequently, the assessee firm revalued its assets and the partnership business was converted into the business of Private Limited Company as a going concern and all the assets of the firm got vested as assets of the Private Limited Company, in which, the same partners were interested.

The Assessing Officer opined that the transfer of business assets of the assessee firm to the Private Limited Company would constitute distribution of assets and would attract capital gains as contemplated under section 45(4) and that
the assessee was liable to pay tax on 'capital gains'.

The Commissioner (Appeals) allowed the appeal holding that when a partnership firm was transformed into a private limited company, there was no transfer of capital assets as contemplated under section 45(4).

The Tribunal again held that the transfer of assets of a partnership firm, without dissolution, to a private limited company fell within the expression 'otherwise' as contemplated under section 45(4) and, therefore, the assessee was liable to pay tax.

The High Court held that before a levy on the capital gain can be imposed, it is a must to ensure that, such a gain has arisen from the disposal of the asset, by any one of the mode, referred to in the definition of the term 'transfer' in section 2(47). It was well settled that when a partnership firm is transformed into a private limited company, there is no distribution of assets and as such, there was no transfer and therefore, the assessee was not liable to pay any tax on capital gains. There was no case law supporting the proposition that even in cases of subsisting Partners of a partnership firm transferring assets to a private limited company, there would be a transfer, covered under the expression 'otherwise'. So far as this case is concerned, there is no transfer of asset as (a) no consideration was received or accrued on transfer of assets from the firm to the company; (b) the firm has only revalued its assets which will not amount to transfer; (c) the provision of section 45(4) of the Act is applicable only when the firm is dissolved. In the instant case, there is no distribution of asset, but only taking over of the assets from the firm to the company. Therefore, it is clear that the vesting of the property in the private limited company is not consequent or incidental to a transfer. There is no transfer of a capital assets as contemplated by section 45(1). ((AY. 1992-93)

CADD Centre v. ACIT (2016) 237 Taxman 401 (Mad.)(HC)
S.50C : Capital gains – Full value of consideration
– Stamp valuation – Value ascertained by the DVO lesser than the value adopted by the State Stamp Duty authority
– Held, value ascertained by DVO to be taken as full value of consideration

Assessee sold the property for a total consideration of
Rs. 47 lakh. Sub-Registrar of the Stamp Duty valued the asset at
Rs. 3.4 crores. The assessee carried the said valuation in appeal before the Deputy Collector, Stamp Duties who valued the property at
Rs. 1.33 crores. AO adopted the latter value as the full value of consideration. CIT(A) called for the valuation report from DVO, who in turn valued the property at
Rs. 71.98 lakh. The said value was adopted by the CIT(A) as full value of consideration. Held, as per the provisions of section 50C, where the value ascertained by the DVO is lesser than the value adopted by the State Stamp Duty authority, then the earlier one is to be taken as full value of consideration. (AY. 2007-08)

PCIT v. Rajabhai Lumbhabhai Hadiya (2016) 237 Taxman 528 (Guj.)(HC)
S.50C : Capital gains – Full value of consideration
– Stamp valuation – Agreement was entered in 2001 and part consideration was received and later sale deed was executed in April 2003, transfer of property could be said to have taken place in 2001, when provision of section 50C was not in existence hence same was not applicable

The provisions of section 50C are not applicable in the case where the agreement for sale is entered into prior to the introduction of section 50C, i.e. AY. 2003-04 and sale deed is entered into after the introduction of Section 50C. The moment the agreement for sale is entered into, transfer is said to have taken place for the purpose of section 50C and relying upon the decision of the Supreme Court in the case of Sanjeev Lal v. CIT [2014] 365 ITR 389 wherein it was held that once an agreement to sell is executed in favour of some person, the said person gets a right to get the property transferred in his favour and, consequently, some right of the vendor is extinguished, it was held that the transfer in the instant case took place in 2001 i.e. the year in which the agreement for sale was entered into and as provisions of section 50C were not in the statute then, there was no case of application of section 50C of the Act. (AYs. 2003-04, 2004-05)

CIT v. Shimbhu Mehra (2016) 236 Taxman 561 (All.)(HC)
S.54F : Capital gains – Investment in a residential house
– Amount invested in new asset need not be entirely sourced from capital gain

The assessee claimed benefit of section 54F, however, he did not entirely source the amount invested in his new asset from capital gain receipts and therefore AO made an addition to the income of the assessee. The CIT(A) upheld the addition made by the AO. The Tribunal reversed order of the CIT(A) holding that section 54F did not put any restriction whether the investment was made out of loan amount or from the sale consideration and, therefore, for availing the benefit of section 54F amount invested in the new asset need not be entirely sourced from capital gain.

The High Court upheld the order of the Tribunal and held that, no provision had been made in the statute that in order to avail benefit of section 54F, the assessee had to utilise the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is so, the assessee was entitled for benefit under section 54F. (AY. 2009-10)

CIT v. Kapil Kumar Agarwal (2016) 382 ITR 56 / 237 Taxman 555 / 284 CTR 75/131 DTR 87 (P&H)(HC)
S.57 : Income from other sources – Write off of interest and lease charges which were earlier offered to tax under section 56 cannot be claimed as a deduction under section 57(iii) or under section 36(1)(vii)

Assessee had given loans to its subsidiary and had also leased out its machineries and was entitled to receive interest on loans and rental income for lease of machines. Interest and rental income which had accrued were shown as income from other sources under Section 56 in the return of income. As the subsidiary was incurring losses, the assessee wrote off the interest and lease charges and claimed the same as deduction. AO denied the claim under section 57(iii). High Court held that where income has been offered to tax under the head Income from other sources, the claim for deduction can be considered only under section 57. High Court denied the
assessee’s claim for write off of interest and lease charges as the requisites under section 57(iii) were not satisfied. High Court further held that deduction cannot also be claimed under section 36(1)(vii) as the same can be availed only where the income is offered under the head Profits and gains from business or profession. (AY. 2008-09)

Malankara Plantations Ltd. v. ACIT (2016) 236 Taxman 61 (Kerala)(HC)
S.68 : Cash credits – Onus on the assessee is to only prove creditworthiness and genuineness of the source from which it has received loan
– No onus to prove genuineness of source

For the year under consideration, Assessee had received loan from Tom Investments Limited of
Rs. 38 lakh. During assessment proceedings of Assessee, authorised representative of Tom Investments Limited attended the proceedings to substantiate the genuineness of loan transaction and Tom Investment Limited intimated that the amount lent to Assessee was had in turn borrowed from M/s Tuq Credits Limited. The Tom Investments Limited was unable to furnish the information to prove genuineness and credibility of Tuq Credits Limited. Therefore the Assessing Officer concluded that Tuq Credits Limited is not a genuine party and the entire chain of lending and borrowing was bogus. Hence the loan received was treated as unexplained income and entire interest expenditure was disallowed to the Assessee.

High Court while deciding the case in favour of the Assessee, relied on Guwahati High Court decision in case of Nemi Chand Kothari (264 ITR 254) wherein it was held that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor it is the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. In the present case the Assessee has indeed discharged its onus of proving the creditworthiness and gaminess of the lender (TIL), hence the HC held that no disallowance or addition could be made under section 68 of the Act. (AY. 1994-95)

CIT v. Shiv Dhoot Pearls & Investment Limited (2016) 237 Taxman 104 (Delhi)(HC)
S.69 : Unexplained investments – Search carried on at the premises of third party
– Merely on the basis of third party statement addition cannot be made

A search was conducted upon one 'S' and certain agreements to sell were seized from his possession, which indicated that the assessee had entered into agreement with 'S' to purchase various plots of land. Further, statement of
"˜S’ was also recorded u/s. 131. 'S' clarified that the plots referred to in the agreement to sell were disputed and could not be transferred due to pending civil suits. In place of those plots, other plots which were in the same vicinity were transferred to the person specified by the assessee and the entire consideration in terms of the agreement to sell had been paid by a person/representative of the assessee. Thereupon the Assessing Officer made additions in crores of rupees under section 69 to the income of the assessee in relation to the assessment years 2005-06 to 2008-09. The Tribunal upon appreciation of the evidence on record held that insofar as assessment year 2005-06 was concerned, the agreement proved that
Rs. 11 lakh had been paid by the assessee. It, accordingly, partly allowed the appeal in relation to assessment year 2005-06 by upholding the addition to the extent of

Rs. 11 lakh and allowed the assessee’s appeals in relation to assessment years 2006-07 and 2007-08. On analysis of the various documents, the High Court held that revenue had failed to bring on record any reliable material to prove that the assessee had made actual investment in crores in the previous years relevant to assessment years 2005-06, 2006-07 and 2007-08 except for the payment of
Rs. 11 lakh. Held no addition u/s. 69 justified. (AYs. 2005-06 to 2007-08)

PCIT v. Vivek Prahladbhai Patel (2016) 237 Taxman 331 (Guj.)(HC)
S.80-IA : Industrial undertaking – Deduction is allowable without setting off losses / unabsorbed depreciation which were set off earlier years against other business income

The High Court had to consider whether the assessee is entitled to deduction under Section 80-IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s. Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP. Civil No. 33475 of 2012. HELD by the High Court dismissing the appeal:

(i) On the basis of the decision in Velayudhaswamy Spinning Mills (340 ITR 477), the Central Board of Direct Taxes has issued Circular No. 1/ 2016 dated 15-2-2016. The CBDT has clarified that an assessee who is eligible to claim deduction u/s. 80-IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s. 80-IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfilment of conditions prescribed in the section. Hence, the term
"˜initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s. 80-IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.

(ii) We cannot resist our temptation to record one more fact. If an issue is covered by the judgment of the High Court, it is always open to the Department to take it on appeal to the Supreme Court and get the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which, a circular has been issued. The Department shall take note of this for future guidance.( TCA No. 176 of 2016, dt. 1-3-2016) (AY. 2010-11)

CIT v. G.R.T. Jewellers (India) Pvt. Ltd. (Mad.)(HC);
www.itatonline.org
S.92C : Transfer pricing – Adjustment arising out of
Arm’s Length Price is to be restricted to only international transactions

During the year under consideration the Assessee had international transactions with associated enterprises over and above transactions with independent third parties. The Tribunal by its impugned order negate the contention of the Revenue that adjustment arising out of
Arm’s Length Price has to be made to the entire turnover of the Assessee, as same is contrary to the clear mandate for section 92 of the Act, which permits adjustment only of income arising from International Transactions having regard to its
Arm’s Length Price.

High Court held that transactions with parties other than the International Transactions with associated enterprise or in respect of specified domestic transactions are not within the ambit of Chapter X of the Act. Similar view was taken in Tara Jewels Exports Pvt Ltd. ((2016) 381 ITR 404 (Bom)(HC) and Keihin Panalfa Ltd. (2016) 381 ITR 407 (Delhi)(HC).
Revenue’s appeal was dismissed. (AY. 2007-08)

CIT v. Ratilal Becharlal & Sons (2016) 237 Taxman 71 (Bom.)(HC)
S.92C : Transfer pricing – Arm's length price
– Adjustment only in respect of transactions with its associated enterprises
– Not in respect of transactions entered in to by assessee with independent third parties

Transfer Pricing Officer has made adjustment on account of enhancement of profit margin on all transactions of the assessee. Tribunal held that only transactions entered into by the assessee with its associated enterprises were subjected to transfer pricing adjustment and not others. On appeal by department the Court held that in terms of Chapter X of the Act, redetermination of the consideration was to be done only with regard to income arising from international transactions on determination of
arm’s length price. The adjustment which was mandated was only in respect of international transaction and not transactions entered into by the assessee with independent unrelated third parties. There was no issue of avoidance of tax requiring adjustment in valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Department if allowed would result in increasing the profit in respect of transactions entered into with enterprises other than associated enterprises and thus the adjustment was beyond the
scope and ambit of Chapter X of the Act. (AY. 2007-08)

CIT v. Thyssen Krupp Industries India P. Ltd. (2016) 381 ITR 413 (Bom.)(HC)
S.92C : Transfer pricing – Arm's length price
– Adjustments – AMP expenses – Since the revenue sharing model of the assessee was duly supported by relevant documents the TPOs alteration to the sharing ratio was to be set aside

During relevant year, assessee entered into international transactions with its AE. In terms of agreement, assessee retained 75 per cent of revenue and paid 25 per cent of revenue to its subsidiaries for marketing and administrative support services provided by them. The TPO fixed remuneration sharing model of 15 per cent in cases where customers entered into contracts directly with assessee and thus made certain addition to assessee's ALP. The CIT(A) and the Tribunal set aside said addition noting that TPO in principle had accepted remuneration model of 25 per cent revenue sharing and same had been substantiated and justified by documents submitted before him. Further the department had not doubted the genuineness of the documents relied upon by the assessee. Accordingly the High Court dismissed the
department’s appeal. (AY. 2006-07)

CIT v. ITC, Infotech India Ltd. (2016) 237 Taxman 476 (Cal.)(HC)
S.92C : Transfer pricing -Companies with large turnover like Infosys & Wipro are not comparable to companies with smaller turnover and should be excluded from the list of comparables

(a) For transfer pricing purposes, the Tribunal did not accept three companies as comparable by stating as follows:
1. HCL Comnet Systems & Services Ltd: We find force in the submission of the learned AR that this company cannot be a comparable as the turnover of this company is 260.18 crores while in the case of the Assessee, the turnover is around
  Rs. 11 crores only. While making the selection of comparables, the turnover filter, in our opinion, has to be the basis for selection. A company having turnover of
  Rs. 11 crores cannot be compared with a company which is having turnover of
  Rs. 260 crores which is more than 23 times the turnover of the Assessee. This company cannot be regarded to be in equal size to the Assessee. We, accordingly, direct the AO to exclude this company out of the comparables.
2. Infosys BPO Ltd: In this case also we noted the turnover in respect of this company is
  Rs. 649.56 crores while the turnover of the Asseessee company is around
  Rs. 11 crores which is much more than 65 times of the
  Assessee’s turnover. We, therefore, do not find any illegality or infirmity in the order of CIT(A) in excluding this company out of the comparables.
3. Wipro Ltd.
  – The turnover reported in the case of Wipro Ltd. is
  Rs. 939.78 crores while in the case of the Asseessee the turnover is around
  Rs. 11 crores. Therefore, on the basis of the turnover filter itself this company cannot be regarded to be comparable to the Assessee.
(b) The said findings of the Tribunal in respect of the said three companies are on the basis of appreciation of evidence on record. We find no infirmity in the said findings of the Tribunal on that count. In fact, the Tribunal has endorsed the views of the CIT Appeals whilst coming to such conclusions. The concurrent findings of facts arrived at by the Authorities below, cannot be reappreciated by this Court in the present Appeal as held by the Apex Court in the Judgment reported in 2011(1) SCC 673 in the case of Vijay Kumar Talwar v. CIT.

(c) The said companies are no doubt large and distinct companies where the area of development of subject services are different and as such the profit earned therefrom cannot be a bench-marked or equated with the assessee. The learned Counsel has rightly relied upon the Judgment of the Delhi High Court reported in (2013) 36 taxmann.com 289 (Delhi) in the case of Commissioner of Income-tax vs. Agnity India Technologies (P.) Ltd. learned Counsel has also brought to our notice the Order of the Income Tax Appellate Tribunal whilst examining similar circumstances for the assessment year 2005-06. He has taken us through the findings therein to point out that the conclusions arrived at are based on a comparison that the condition in any uncontrolled transaction between an independent enterprises for the purpose of such comparison, economically relevant characteristics must be sufficiently comparable if two parties are to be placed in a similar situation. Learned Counsel as such submitted that it is not open for the appellant to now contend a different criteria to ascertain the comparability. In fact the Tribunal whilst passing the impugned Order has considered the said principles whilst coming to the conclusion that the said three companies cannot be treated to be comparable to the Assessee company. The turnover is obviously a relevant factor to consider the comparability. (TA. No. 18 of 2015,
dt. 16-9-2015) (AY. 2007-08)

CIT v. Pentair Water India Pvt. Ltd. (Bom.)(HC);
www.itatonline.org
S.92C : Transfer pricing – Arm's length price
– AMP expenses – No adjustment could be made where on account of AMP expenses, where there was no international transaction with AEs for promoting the brand of the AE

The assessee-company was engaged in the business of manufacturing and trading of soft contact lenses and eye care solutions. In transfer pricing proceedings, the TPO noted that the assessee had entered into an agreement with its AE, B&L USA, for distribution of the product manufactured by its group companies, in terms of which the assessee was required to promote the B&L brand and to develop marketing intangibles for B&L products in India by incurring expenditure on AMP. The TPO opined that the AMP expenses did not benefit the assessee as it had incurred a loss in assessment year 2006-07. The TPO noted that the Assessee did not receive any reimbursement from its AE for the AMP expenses. The TPO concluded that the Assessee had developed marketing intangibles for its AE and was in the process of making the intangible even more valuable by incurring huge AMP expenses, bearing risks and using both its tangible assets and skilled, trained manpower. TPO, applied 10 per cent markup on AMP expenses and made addition to assessee's ALP. The adjustment was confirmed by the DRP.

The High Court held that the mere fact that B&L, USA through B&L, South Asia, Inc held 99.9% of the share of the Assessee would not ipso facto lead to the conclusion that AMP expenditure by the Assessee involved an international transaction with B&L, USA. The Court further held that merely because there was an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. The revenue had been unable to show the existence of an international transaction involving AMP expenses between the assessee and its AE and accordingly no adjustment could be made. (AYs. 2006-07 to 2009-10)

Bausch & Lomb Eyecare (India) (P.) Ltd. v. ACIT (2016) 381 ITR 227 / 237 Taxman 24 / 283 CTR 296 (Delhi)(HC)
S.115JB : Book profit – Sale of land – Profit directly credited to capital reserve
– Audit report qualified to this extent – Held, no power to embark upon a fresh enquiry in regard to the entries made in the books of account once the accounts are audited and approved by the company in general body meeting and thereafter filed before the Registrar of Companies
– Held, no adjustment of Book Profit required

Assessee sold the land and credited the capital gain arising out of the sale of the land directly to capital reserve and not to profit and loss account. The auditor's report certified with a qualification that the profit and loss account and balance sheet referred to in the report complied with substantially in all material respects with the applicable accounting standards referred to in section 211(3C) of the Companies Act except that the land and building was sold during the year and the capital gain had been transferred directly to capital reserve account instead of crediting to profit and loss account. The AO held that, as per Clauses 3(XII)(b) and (c) of Part II of Schedule VI and as per the accounting standards applicable, the capital gain should be routed through Profit and Loss account. Further, even the
auditors’ report was qualified and therefore, the AO held that the amount of capital gain should have been credited to profit and loss account. High Court, after considering the judgment in case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273(SC), held that AO had no power to embark upon a fresh enquiry in regard to the entries made in the books of account. It was also held that AO had no power to recompute the book profit and had to rely upon the authentic statements of accounts of the company, the accounts being scrutinised and certified by the statutory auditors though with a qualification, approved by the company in general body meeting and thereafter filed before the Registrar of Companies, who had a statutory obligation to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. (AY. 2002-03)

Sri Hariram Hotels (P.) Ltd. v. CIT (2016) 237 Taxman 564 (Karn.)(HC)
S.132B : Application of seized or requisitioned assets
– Application filed for release of asset – Disposed of by the AO after more than 1 year
– Held, not valid and the cash ordered to be released along with interest

On 25-3-2014, certain cash was seized by the competent authority. Application was filed by the assessee on 17-4-2014 for release of such cash. Despite repeated reminders, the authority failed to dispose of such application and it was disposed of, denying such release, only on 20-7-2015 i.e. after the expiry of more than 1 year. High Court held that if an application is made under first proviso to section 132B(1)(i) then the same should be disposed of within the time limit given in the second proviso which is 120 days from the date on which of the last of the authorisations for the search was executed. Second proviso though speaks of releasing the assets as referred to in first proviso within the time limit prescribed, still the question of not releasing the asset would arise only upon the decision on the application is taken by the AO. If no decision is taken within the time limit, then the releasing of assets becomes imminent. Further, it was held that such time limit cannot be said to be directory in nature.

Nadim Dilip Bhai Panjvani v. ITO (2016) 237 Taxman 480 (Guj.)(HC)
S.147 : Reassessment – Though assessee claims that she is a non-resident & that onus is on the revenue to show that the money in the HSBC Geneva account is taxable in India, the non-co-operation with the Revenue by signing the consent waiver form shows that she has something to hide and makes it an unfit case for exercise of writ jurisdiction

Dismissing the petition the Court held that:
1. During the course of the hearing of the Reply of the Revenue it was pointed out to us that despite the
  Revenue’s request, the Petitioner had failed to sign a Consent Waiver Form ("œthe
  Waiver") which would have enabled HSBC to provide information about the Account. According to the petitioner the Waiver was sought only on 30th October, 2015 i.e. much after the issue of the impugned notice on 31st March, 2015 and also after filing of this Petition in Court on 30th October, 2015. In any case, we asked the Petitioner whether she is now ready to sign the Waiver. At the time of the rejoinder we were informed that the Petitioner is willing to sign the Consent Waiver Form with a modification
  – namely as alleged beneficiary rather than holder or beneficiary of the account in HSBC, Geneva.
2. However, on enquiry by the Revenue from HSBC, Geneva, it was learnt that a modified Consent Waiver Form would not enable the bank to give copies of the bank statement of A/c. No. 5091404580 since the Waiver would have to be provided without modifications.
3. We notice that the principal contention of the Petitioner before us has been that she is non-resident and it is only her income which is received or accrued or arising in India which can be brought to tax under the Act. Thus, it is submitted that it is for the Revenue to establish that the income had accrued or arisen in India which was lying on 26th March, 2006 in A/c. No. 5091404580 in HSBC, Geneva. We find that the Petitioner and/or her uncle
  – Dilip Mehta i.e. Executor of the Estate of late Ramniklal N. Mehta who could probably amongst others be able to produce copies of the bank statement either by giving a Consent Waiver Form to the Income Tax Department or in the alternative Mr. Dilip Mehta could instruct the Director of M/s. White Cedar to apply for and furnish to him copies of the bank statement in A/c. No. 5091404580 of HSBC, Geneva. The fact that it is within the authority/power of Mr. Dilip Mehta to instruct M/s. White Cedar is evident from the letter dated 14th August, 2014 addressed by HSBC Bank, Geneva to M/s. Red Oak Operation Ltd. which has been taken on record and marked X for identification. This bank statement if obtained from HSBC, Geneva, would reveal and/or possibly give clues as to the source of amounts deposited in the Account No. 5091404580 of HSBC. Neither the Petitioner nor her uncle i.e. Executor of the Estate of late Ramniklal N. Mehta is ready to obtain the necessary statement either directly or through M/s. White Cedar from HSBC, Geneva in respect of A/c. No. 5091404580 by exercising or causing to be exercised the limited authority to instruct White Cedar to
  apply for and obtain the requisite information.
4. In the normal course of human conduct if a person has nothing to hide and serious allegations/questions are being raised about the funds a person would make available the documents which would put to rest all questions which seem to arise in the mind of the Authorities. The conduct on the part of the Petitioner and her uncle, in not being forthcoming, to our mind leads us to the conclusion that this is not a fit case where we should exercise our extraordinary writ jurisdiction and/or interfere with the orders passed by the authorities under the Act. If a person has nothing to hide, we believe the person would have co-operated in obtaining the Bank Statements. (WP (L) No. 3172 of 2015, dt. 5-4-2016)(AY.2006-07)
Soignee R. Kothari v. DCIT (Bom.)(HC);
www.itatonline.org
S.147 : Reassessment – Non- disposal of objections
– Providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note & remedy
1. This passing of the draft Assessment order on 30th March, 2015 was in the face of the decision of the Supreme Court in GKN Driveshafts (India)Ltd v. Income Tax Officer and Others reported in 259 ITR 19 (SC), wherein it has been laid down that whenever a reopening notice is issued under Section 148 of the Act, the Assessing Officer was to make available to the assessee, on request, a copy of the reasons recorded while issuing the notice for reopening the Assessment. The assessee is then entitled to file its objection to the grounds in support of the reopening notice and the Assessing Officer is required to dispose of the
  assessee’s objection to the reasons recorded by a speaking order. It is only if the Assessing Officer rejects the objection that he can proceed with the assessment proceedings of the reopened assessments.
2. In the present case, as the issue involves the provisions with regard to transfer pricing cases, the period of limitation to dispose of an assessment consequent to reopening notice as provided in 4th proviso to sub-section (2) of Section 153 of the Act is two years from the end of the financial year in which the reopening notice was served. In this case, the impugned reopening notice was issued on 6th February, 2013 and the reasons in support were supplied only on 19th March, 2015. This when the Revenue was aware at all times that the period to pass an order of reassessment on the impugned reopening notice dated 6th February 2013 would expire on 31st March, 2015. However, there is no reason forthcoming on the part of the Revenue to satisfactorily explain the delay. The only reason made out in the affidavit dated 3rd September, 2015 by the Assessing Officer was that the issue was pending before the Transfer Pricing Officer (TPO) and it was only after the TPO had passed his order on transfer pricing were the reasons for reopening provided to the Petitioner. We are unable to understand how the TPO could at all exercise jurisdiction and enter upon enquiry on the reopening notice before the same is upheld by an order of the Assessing Officer passed on objections. Besides the recording of reasons for issuing the reopening notice is to be on the basis of the Assessing
  Officer’s reasons. The TPO’s reasons on merits much after the issue of the reopening notice does not have any bearing on serving the reasons recorded upon the party whose assessment is being sought to be reopened.
3. One more peculiar fact to note is that in the affidavit dated 10th July, 2015 filed by one Prabhakar Ranjan on behalf of the Revenue it is stated that the Assessing Officer was under a bona fide impression that the TPO would pass an order in favour of the assessee. In fact, if that be so, we are unable to understand how the Assessing Officer could have any reason to believe that income chargeable to tax has escaped assessment. Be that as it may, this petition was adjourned from time-to-time to enable the Revenue to file the necessary affidavits explaining their contention.
4. In fact, on 23rd December, 2015 the Revenue again sought time. At that stage, we indicated that in view of the gross facts of this case, the Principal Commissioner of Income Tax would take serious note of the above and after examining the facts, if necessary, take appropriate remedial action to ensure that an assessee is not made to suffer for no fault on its part. This is particularly so as almost the entire period of two years from the end of the financial year in which the notice is issued was consumed by the Assessing Officer in failing to give reasons recorded in support of the impugned notice. Nevertheless, the Assessing Officer proceeds to pass a draft assessment order without dealing with the objections filed by the Petitioner. We could have on that date or even earlier passed an order setting aside the draft assessment order dated 30th March, 2015 as it was passed without disposing of the objections. Thus, clearly without jurisdiction. However, we were of the view that although this appears to be a gross case of harassing an Assessee, the Principal Commissioner would take note and adopt remedial action/proceedings.(AY. 2007-08)
Bayer Material Science Pvt. Ltd. v. DCIT (2016) 133 DTR 53 (Bom.)(HC)
S.147 : Reassessment – Reason to believe – It is open to the assessee to challenge a notice issued u/s. 148 as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by Intimation u/s. 143(1) of the Act

The assessee filed a Writ Petition to challenge a notice issued u/s. 148 in a case where only an intimation u/s. 143(1) had been passed. The Department contended that the Writ Petition was not maintainable in view of the judgment of the Supreme Court in Dy. CIT v. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661 where the order of the Bombay High Court in Zuari Estate Development Co. Ltd. v. Dy. CIT x 271 ITR 269 had been set aside. The Supreme Court held that where the original Return has been accepted by Intimation under Section 143(1) of the Act, there could be no change of opinion. Further, it was contended that the Supreme Court impliedly held that in such cases where assessment is completed by Intimation under Section 143(1) of the Act, there is no requirement for the Assessing Officer to have reason to believe that income chargeable to tax has escaped assessment, so as to exercise jurisdiction under Section 148 of the Act. HELD by the Bombay High Court:
1. The Apex Court in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of the Act. In the above case, the Apex Court held that a Notice for reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This decision of the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion.
2. The Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra) has not dealt with the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment has been completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because the Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra) has set aside the order of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Apex Court had come to the conclusion that reason to believe was not necessary for issuing reassessment Notices where the regular assessment was completed under Section 143(1) of the Act. As rightly pointed out by Mr. Pardiwalla, it can equally be inferred that the Apex Court in the above case had come to the conclusion that there is reason to believe that income had escaped assessment and consequently restored the issue to the Tribunal to decide the reassessment proceedings on merits.
3. It is settled position in law that the decision of the Court has to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court in Ambica Quarry Works v. State of Gujarat, 1987(1) SCC 213. The Apex Court in Zuari Estate Development and Investment Co. Ltd. (supra) not having dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where regular assessment was completed by Intimation under Section 143(1) of the Act, it would not be wise for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by Intimation under Section 143(1) of the Act. The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and the same would continue to apply and be binding upon us. Thus, even in cases where no assessment order is passed and assessment is completed by Intimation under Section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the Assessment has been completed earlier by Intimation under Section 143(1) of the Act.(WP. No. 3027 of 2015, dt. 10-2-2016) (AY. 2010-11)
Khubchandani Healthparks Pvt. Ltd. v. ITO (Bom.)(HC);
www.itatonline.org
S.147. Reassessment – Limitation – ITO who is not the Assessing Officer of the assessee, not empowered to reopen the assessment

The time limit for reopening of the assessment under section 147 of the Act in the
assessee’s case was 31st March, 2012. The extended period of limitation in terms of section 149(1)(b) of the Act was 31st March, 2014 (i.e. 6 years from end of the assessment year). The DCIT
– Circle 39(1) was the Assessing Officer of the Assessee and had the jurisdiction over this case. However on 14th March, 2014 the ITO Ward 39(2) issued a notice to the assessee under section 148 of the Act. The notice of reopening was issued by ITO Ward 39(2) who was not the Assessing Officer of the assessee and this single fact in itself vitiates the reopening of the assessment. Realising the mistake the Assessing Officer (who had the jurisdiction over the Assessee) issued a notice dated 23rd June, 2014 under section 148 of the Act but it was beyond the deadline of 31st March, 2014 under section 149(1)(b) of the Act.

One of the main points urged in the present petition is that the reopening of the assessment sought to be made under Section 148 of the Act is bad in law since the notice had been issued and the reasons for reopening had been recorded by the ITO Ward 39(20, who was not the Assessing Officer as far as petitioner is concerned.

The High Court held that it was only the Assessing Officer who has issued the original assessment order dated 13th April, 2009 for AY 2007-08 under Section 143(3) of the was empowered to exercise powers under Section 147/148 to reopen the assessment. This was because he alone would be in a position to form reasons to believe that some income of that particular AY had escaped assessment. Further provisions of section 151 of the Act required prior approval of CIT if he feels that the assessment order is prejudicial to the interest of Revenue. However in any event ITO who has not passed the original order cannot reopen the assessment.

Thus the writ petition filed by the Assessee is allowed. (AY. 2007-08)

Dushyant Kumar Jain v. CIT (2016) 237 Taxman 646 (Delhi)(HC)
S.147 : Reassessment – Jurisdiction – Participated in the proceedings
– Writ is not maintainable

If the assessee responds to the Ss. 142(1)/143(2) notices, it means that he has submitted to the AO's jurisdiction and is estopped for filing a Writ Petition to challenge the same. The fact that the jurisdiction is challenged while participating in the proceedings is irrelevant. Petition of the assessee was dismissed.. (WP No. 787 of 2016, dt. 20-4-2016)

Amaya Infrastructure Pvt. Ltd. v. ITO (Bom.)(HC) ;
www.itatonline.org
S.153 : Assessment – Reassessment – Limitation
– Limitation for the purpose of section 153 shall start from the end of the year in which the notice is served on the assessee and not from the end of year in which it is issued

A notice u/s. 148 for AY 1959-60 dated 23-1-1965 was issued to the assessee. The said notice was served on the assessee only in September 1965. The provisions of section 153(2) at the relevant time prescribed limitation of four years for making assessment from the end of assessment year in which notice u/s. 148 was served upon assessee. The assessment order came to be passed on 18-3-1970. Held, time limit for completion of assessment was four years from the end of the year in which notice was served and not the year in which it was issued. Accordingly, reassessment held to be valid.) (AY. 1959-60)

R. B. Shreeram Durgaprasad v. CIT (2016) 237 Taxman 189 (Bom.)(HC)
S.153A : Assessment – Search – No incriminating materials for the relevant years
– Addition cannot be made

Assessment cannot be made for the AYs in which incriminating material is not recovered even though incriminating material may be recovered for other years in the block of 6 years.( ITA No. 274/2016, dt. 29-4-2016)

Pr. CIT v. Lata Jain (Delhi)(HC);
www.itatonline.org
S.153A : Assessment – Search – Accounts which were duly verified during regular assessment of assessee could not be re-appreciated merely because further a search was conducted in premises of assessee as same would amount to reopening of concluded assessment

Assessments had been completed under section 143(3) and under section 143(1). Thereafter, a search was conducted in the premises of the assessee. The AO made certain additions after holding that the accounts of the assessee did not tally with the corresponding accounts of the creditors and debtors. The CIT(A) allowed the
assessee’s appeal, after concluding that no incriminating documents were found during the course of search, on the basis of which additions had been made by the AO. This finding was upheld by the Tribunal.

On appeal, the High Court observed that there were specific findings of fact recorded by both the CIT(A) and the Tribunal that there were no incriminating documents found during the course of search, on the basis of which the additions had been made by the AO and that the accounts were submitted by the assessee at the time of regular assessment which were duly verified and accepted by the AO. In the absence of any incriminating documents having been found, if the assessment was allowed to be reopened the same would amount to the revenue getting a second opportunity to reopen a concluded assessment, which is not permissible. The High Court held that, merely because a search was conducted in the premises of the assessee, would not entitle the revenue to initiate the process of reassessment, for which there was a separate procedure prescribed in the statute. It was only when the conditions prescribed for reassessment were fulfilled that a concluded assessment could be reopened. The very same accounts which were submitted by the assessee, on the basis of which assessment had been concluded, could not be reappreciated by the AO merely because a search had been conducted in the premises of the assessee. (AYs. 2005-06 to 2008-09)

CIT v. Lancy Constructions (2016) 237 Taxman 728 (Karn.)(HC)
S.172 : Shipping business – Non-resident – Shipping companies assessed u/s. 172 are not subject to deduction at source obligations u/s 195
– Demurrages charges paid by Indian company to foreign company was held to be not liable to deduct tax at source

As a Division Bench of the Bombay High Court was unable to agree with the view taken in Commissioner of Income-tax v. Orient (Goa) Private Limited 325 ITR 554, the Full Bench had to consider the question" Whether, while dealing with the allowability of expenditure under section 40(a)(i) of the Income-tax Act, 1961, the status of a person making the expenditure has to be a non-resident before the provision to section 172 of the Act can be
invoked?" HELD by the Full Bench overruling CIT v. Orient (Goa) Private Limited 325 ITR 554:
1. A bare perusal of s. 44BB indicates as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7% of the aggregate Â½ of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head"Profits and Gains of Business or
  Profession". It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The amounts which are paid or payable whether in or out of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at a port in India and the amount received was deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India shall be deemed to be the profits and gains. On that the tax is payable by virtue of sub-section (1) of section 172. That has to be levied and recovered in terms of the sub-sections of section 172 of the Income- tax Act. Once section 172 falls in Chapter XV titled as Liability in Special Cases
  – Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in Chapter XVII for collection and recovery of the tax and its deduction at source vide section 195.
2. To our mind, the Division Bench judgment in Commissioner of Income-tax v. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business.
3. The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income-tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the
  recipient’s position and the perspective in which the recipient’s income would be taxed will have to be borne in mind. The non-resident shipping company in respect of its income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian/foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a position to rely upon section 172 but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot be avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else.(AY. 1999-2000)
CIT v. V. S. Dempo & Co. Pvt. Ltd. (2016) 381 ITR 303 (FB) (Bom.)(HC)
S.201 : Deduction at source -Limitation – Amendment is prospective in nature
– Can be challenged in a writ petition Failure to deduct or pay, the amendment to s. 201(3) by FA 2014 to extend the time limit for passing s. 201 orders is prospective and does not apply to cases which are already time-barred. A
show-cause notice involving a pure point of law can be challenged in a Writ Petition. (A.Ys. 2007-08, 2008-09)

Tata Teleservice v. UOI (2016) 132 DTR 1 (Guj.)(HC)
S.206C : Collection at source – Scrap – The words
"˜waste and scrap’ in clause (b) to Explanation to section 206C of the Act is a singular item
– Assessee was not required to collect tax at source on mere scrap as the same was not covered by clause (b) of the Explanation to section 206C

The Assessee had made sales of scrap, however no tax was collected at source on sale of scrap by the Assessee. Therefore the Assessing Officer held that as a consequence of non-compliance of provisions of section 206C of the Act, the Assessee was liable to pay tax and interest under section 206C(7) of the Act.

The Tribunal noted that the Assessee is engaged in ship breaking activity and the items in question are finished products obtained from the activity and constitute sizeable chunk of production done by ship breakers. Tribunal ruled in favour of the Assessee treating the sale of scrap out of the scope of section 206C and hence it was not required to collect tax at source. It was held that"waste and
scrap" must be from manufacture or mechanical working of material which is definitely not usable as such because of breakage, cutting up, ware and to other reasons. The word"is" as used in the definition of Scrap, in explanation to section 206C, is meant for singular term i.e."waste and
scrap" and hence sale of scrap, which is not part of manufacturing activities would not be regarded as
"˜waste and scrap’ and thereby not liable for tax collection at source. Aggrieved the Revenue filed an appeal before the High Court.

The High Court noted that the products may be commercially known as
"˜scrap’ they are definitely not "˜waste and scrap’, as such items are usable as such and therefore do not fall within the definition of scrap as envisaged in the Explanation to section 206C(1) of the Act. From plain reading of the explanation it is evident that any material which is usable as such would not fall within the ambit of the expression
"scrap" as envisaged under the clause. High Court upheld the order of the Tribunal and dismissed the appeal filed by the Revenue. (AY. 2005-06)

CIT v. Priya Blue Industries Pvt. Ltd. (2016) 381 ITR 210 / 237 Taxman 1 (Guj.)(HC)
S.220 : Collection and recovery – Assessee deemed in default
– Department was directed to redeposit moneys collected illegally by attachment of
assessee’s bank account during pendency of stay application. A order passed on a stay application must give reasons for the refusal to stay the demand

On writ the Court directed the department to redeposit moneys collected illegally by attachment of
assessee’s bank account during pendency of stay application. A order passed on a stay application must give reasons for the refusal to stay the demand. (WP. No. 710 of 2016, dt. 17-3-2016) (AY. 2009-10)

Khandelwal Laboratories Pvt. Ltd. v. DCIT (Bom.)(HC);
www.itatonline.org
S.220 : Collection and recovery – Assessee deemed in default
-Stay – Strictures passed against high-handed and unfair approach of AO (IRS Officer) in refusing to give an acknowledgement of stay application. Chief CIT directed to ensure such behaviour is not repeated. Department is directed to nominate another AO to hear stay application

Allowing the petition the Court held that:
1. We find this conduct on the part of the Assessing Officer to accept a stay application and not immediately give acknowledgement of its receipt is unacceptable. The least that is expected of a civil servant is to be fair and civil. In the absence of the above, his conduct is not one becoming of an Officer belonging to the prestigious Indian Revenue Service. The least that is expected of an Officer is that when a person files an application / letter, which is accepted by him, an acknowledgement should be forthwith given to the party filing the application or letter. In case he refuses to accept the letter he should endorse on the letter / application the reason why it is not being accepted with a line or two for the refusal to accept. In case he does accept it and give an acknowledgment he can deal with the applications/ letters as is appropriate in accordance with law. We believe that what has happened in this case is an aberration. However, the Chief Commissioner of Income Tax would ensure that his Officers do not behave in such an high handed and unfair manner, not expected of civil servants.
2. Be that as it may, the stay application is still pending decision. Normally, we would have let the Assessing Officer decide the same. However, looking at the manner in which the petitioner has been dealt with by the Assessing Officer in regard to its stay application dated 17th February, 2016, it would be in the interest of justice that the application for stay filed by the petitioner be heard by another Officer different from the Assessing Officer i.e. respondent No.1 herein. The Officer to deal with the
  petitioner’s stay application dated 17th July, 2016 is to be selected / nominated by the Revenue. (WP. No. 526 of 2016, dt. 17-3.2016) (AY. 2012-13)
Pirmal Fund Management Pvt. Ltd. v. DCIT (Bom.)(HC);
www.itatonline.org
S.254(1) : Appellate Tribunal -Adjournment
– Failure by ITAT to grant an adjournment requested due to bereavement results in breach of principles of natural justice
– Matter was set aside

In the peculiar facts and circumstances of the case and in the interest of justice, the learned Tribunal could have given an opportunity of hearing to the appellant for the subsequent date. Having failed to grant a short adjournment has resulted in passing the impugned order in breach of the principle of natural justice which calls for the interference of this Court. The substantial question of law is answered accordingly. (Tax Appeal Nos. 79 to 82 of 2015, dt. 16-2-2016)

Zuari Global Ltd. v. Pr. CIT (Bom.)(HC);
www.itatonline.org
S.254(1) : Appellate Tribunal -Non-consideration by the ITAT of a judgment of the co-ordinate Bench makes the order a non-speaking one and breaches the principles of natural justice
– Order of Tribunal was set aside

Allowing the appeal, the Court held that; In fact the impugned order of the Tribunal in paragraph 6 thereof does record the
appellant’s reliance upon the decision of the Court of its coordinate Bench in J. K. Investors (Bombay) Ltd vs. Assistant Commissioner of Income Tax (ITA No.7858/MUM/2011) decided on 13th March, 2013. However, thereafter the impugned order does not deal with the
appellant’s reliance upon the decision of the Tribunal in J. K. Investors (supra) while dismissing the appellant-assessee’s appeal before it. In fact the impugned order of the Tribunal ought to have dealt with its decision in J. K. Investors (supra) and considered its applicability to the present facts. In view of the fact that the impugned order of the Tribunal does not deal with its decision in J. K. Investors (supra) relied upon by the appellant-assessee.in support of its submission as recorded in the impugned order itself makes the impugned order a non-speaking order and, therefore, in breach of principles of natural justice. The substantial question of law is answered in the affirmative i.e. in favour of the appellant assessee and against the revenue. However, the issue of applicability of Rule 8D of the Rules or otherwise has yet to be determined by the Tribunal. In these circumstances, we set aside the impugned order dated 10th July, 2013 passed by the Tribunal and restore the entire appeal to the Tribunal for fresh disposal in accordance with law. All contentions of both sides left open. (ITA No. 2342 of 2013, dt. 8-3-2016)

DSP Investment Pvt. Ltd. v. ACIT (Bom.)(HC);
www.itatonline.org
S.254(1) : Appellate Tribunal -Precedent – Binding nature
-Jurisdictional High Court – Law declared by the decision of the High Court will be binding upon all authorities and Tribunals functioning with in State

Law declared by the decisions of the High Court will be binding upon all authorities and Tribunals functioning within State; when an appeal is not entertained then the order of the Tribunal holds the filed and the
Co-ordinate benches of Tribunal are obliged to follow the same. (AY. 2008-09)

HDFC Bank Ltd. v. DCIT (2016) 132 DTR 89 (Bom.)(HC)
S.254(1) : Appellate Tribunal – Additional evidence
– CIT(A) ought to have given opportunity to Assessing Officer before admitting additional evidence

A best judgment assessment was passed under section 144 of the Act by Assessing Officer, disallowing deductions under section 10A of the Act. On appeal, CIT(A) set aside the assessment order after considering the documents furnished and the evidence placed on record by the Assessee. Aggrieved the Revenue appealed against the CIT(A) order before the Tribunal.

Tribunal dismissed the
revenue’s appeal and held that there is no requirement in law that the CIT(A) should invariably consult or confront the Assessing Officer every time additional evidence is obtained by CIT(A) on its own motion. Also in cases wherein the additional evidence is in nature of clinching evidence, leaving no further room for any doubt or controversy, in such case no useful purpose would be served in performing the ritual or forwarding the evidence to the Assessing Officer and in obtaining his report.

Revenue preferred appeal before the High Court against the impugned order. High Court noted that the Tribunal had failed to note that Rule 46A(3) requires the Assessing Officer to be given an opportunity to examine the documents produced by the assessee for the first time before the CIT(A). This mandate of Rule 46A(3) could not have been dispend with, as it is a statutorily prescribed rule of natural justice. High Court held that Rule 46A(3), cannot be whittled down or brushed aside as performing a ritual. While sub-rule (4) confers power on the First Appellate Authority to cause production of documents, justice and fair play would require the Assessing Officer to be given the opportunity to examine such documents and put forth his objections. Accordingly, the High Court held that the document which the Assessee intends to place before the Appellate Authority, cannot be entertained by CIT(A) except on fulfilment of the following conditions:- (1) recording reasons in writing for receiving such evidence; and (2) giving the assessing authority an opportunity to examine the documents.

As a result High Court set aside the CIT(A) order and directed to pass a fresh order after giving the Assessing Officer opportunity of being heard. (AY. 2010-11)

CIT v. NE Technologies India (P) Ltd. (2016) 237 Taxman 151 (AP)(HC)
S.254(1): Appellate Tribunal -Right of respondent in an appeal before Tribunal
– The respondent cannot assail the finding of the CIT(A) without filing an appeal
– Rule 27 would not permit the respondent to expand the scope of an appeal and argue on issues which are not subject matter of appeal

Pursuant to a search and seizure action, the AO invoked the provisions of S. 153A of the Act and completed the assessment by bringing to tax share application money as unexplained u/s. 68 of the Act.

The CIT(A) held that addition u/s. 68 was beyond the scope of S. 153A, however, upheld the addition on merits. The Tribunal though allowed the revenue to assail the finding of the CIT(A) on scope of Sec. 153A, reversed the assessment order.

Against the order of the Tribunal, the Revenue preferred an appeal before the HC wherein it was held that, the issue whether the additions made by the AO were outside the scope of s.153A, had been decided by the CIT(A) in favour of assessee, against which no appeal was preferred by the Revenue before the Tribunal and thus, had attained the finality. In absence of any appeal, the Tribunal could not have disturbed the said findings. Further, the Revenue cannot take recourse to Rule 27 of the ITAT (Rules), 1963 as it would not extend to permitting the respondent to expand the scope of an appeal and assail the decision on issues, which are not subject matter of the appeal. (AY. 2008-09)

CIT v. Divine Infracon (P) Ltd. (2016) 131 DTR 395 (Delhi) (HC)
S.254 : Appellate Tribunal – Rectification of mistake
– Order dismissing Revenue appeal for want of Committee on Disputes ("˜COD’) approval was an order passed u/s. 254(1). Therefore, limitation provided u/s. 254(2) is applicable to the said order

Against the order of the Commissioner (Appeals), the revenue filed an appeal before the Tribunal in the prescribed form. The Tribunal by order dated 6th November, 2007 dismissed the appeal on the ground that the revenue had not obtained approval of the Committee on Disputes (COD) to prosecute a dispute with the assessee, a public sector company, which was required in view of the decision of the Supreme Court in the case of ONGC v. CCE [2004] 6 SCC 437. Thereafter, the Supreme Court in the case of Electronics Corpn. of India Ltd. v. Union of India [2011] 332 ITR 58 held that the approval of COD was no longer required to prosecute a dispute amongst the departments of the Government and Public Sector undertakings inter se. Consequently, in the year 2012 the revenue filed a Miscellaneous application ("˜MA’) before the Tribunal for recall of the order dated 6 November 2007.

The Tribunal dismissed the MA on the ground that the said Application was filed beyond the period of limitation provided in s. 254(2).

On appeal to HC, the Revenue contended that the appeal was dismissed by Tribunal under Rule 12 of the ITAT Rules, 1963 i.e. memorandum of appeal was rejected for want of Committee on Disputes ("˜COD’) approval. Further, the period of limitation as envisaged u/s. 254(2) only applies to order passed u/s. 254(1).

The HC held that Rule 12 cannot apply in instant case as the memorandum of appeal was filed in the prescribed format which made it list for hearing before a Division Bench of the Tribunal. Consequently, leading to passing of an order of even date u/s. 254(1). Furthermore, the order was an appealable order u/s. 260A. Hence, the order dated 6th November, 2007 of the Tribunal has been passed u/s. 254(1) and not Rule 12 of the ITAT Rules, 1963. Hence, period of limitation provided u/s. 254(2) is applicable to the Tribunal order. (AY. 2000-01)

CIT v. Air India Ltd. (2016) 131 DTR 81, 237 Taxman 639 (Bom.) (HC)
S.260A : Appeal – High Court – Revenue should be deprecated for filing frivolous appeal. When a question of law is already covered by earlier orders of the Court, the Court may be constrained to impose cost on AO & CIT

The Revenue had raised various questions of law which were either covered by earlier orders of Tribunal in
assessee’s own case and are accepted by Revenue by not filing an appeal to HC; or which already been concluded by Supreme Court against the Revenue.

In such a scenario, the HC held that a question of law which is already settled and accepted by Revenue in earlier years in
assessee’s own case, cannot be again challenged before the Court. However, the Revenue can challenge the ground on a different valid point provided the same is mentioned in the memo of appeal or is filed before the hearing by way of an affidavit. Otherwise, the Court may be constrained to impose costs on the AO concerned
and CIT heading the Commissionerate. (AY. 2003-04)

CIT v. Goodlas Nerolac Paints Ltd. (2016) 131 DTR 57 (Bom.) (HC)
S.260A : Appeal – High Court -Substantial question of law raised for the first time which is based on records and does not require any investigation of any facts can be admitted in appeal before the High court

The issue before the HC was that whether the AO was justified passing an assessment order without serving a notice u/s. 143(2) within the stipulated period as prescribed under the Act. The HC held that the jurisdiction of AO starts only if the notice u/s. 143(2) is issued within the prescribed time. It has nothing to do with service of the notice which is contemplated u/s. 292BB. Therefore, the order of the Tribunal, First Appellate Authority and the assessment order cannot be sustained and are to be quashed. Further, the assessee had raised the aforesaid question for the first time before the HC to which the Revenue raised objection for admission. The HC held that a substantial question of law which is based on records and does not require any investigation of any facts can be entertained in appeal before the HC even if the same is not taken before the lower authorities. (AY. 1997-98)

U P Hotels Ltd. v. CIT(2016) 131 DTR 99 (All) (HC)
S.260A : Appeal – High Court – Where the Tribunal has made decision on a legal issue by following its earlier order which has been accepted by Revenue, appeal is not maintainable before the HC for its subsequent years unless a different argument is raised

The Tribunal had allowed
assessee’s appeal following the decision of Tribunal in the case of ACIT v. Bright Star Investment Pvt. Ltd. (2009) 120 TTJ 498 which was accepted by Revenue as no appeal was filed before HC. However, an appeal was filed before HC in
assessee’s case.

The HC, while dismissing the appeal held that once a
Tribunal’s view on a legal issue is accepted in a particular case, the same legal point cannot be challenged now before HC in respect of another
assessee’s case. This is for the reason that the basic feature of rule of law is certainty of law and its uniform application among all the assessees. However, the Revenue can challenge the ground on a different valid point provided the same is mentioned in the memo of appeal or is filed before the hearing by way of an affidavit. (AY. 2004-05)

CIT v. Synchem Chemicals (I) Ltd. (2016) 131 DTR 51 (Bom. HC)
S.263 : Commissioner – Revision of orders prejudicial to Revenue
– Lease rental – Capital or revenue – Revision was not justified as the Commissioner failed to record as to how and in what manner order was erroneous and prejudicial to revenue

The Assessee Company had claimed a deduction on account of lease rental paid for motor car taken on finance lease and the same was allowed in the assessment. The Commissioner being of the view that the lease rentals were required to be treated as capital expenditure, thus directed the Assessing Officer to examine the same.

Tribunal was of the view that the Assessing Officer (while passing the order under section 143(3) of the Act) had requisite details and evidences and on being satisfied of such details and evidences, he had allowed the claim to the assessee. Therefore the assessment order passed by the Assessing Officer was not erroneous and prejudicial to the revenue. Aggrieved by the order, the revenue preferred an appeal before the High Court.

The High Court followed the earlier year orders, wherein DRP had ruled in the favour of the Assessee and had allowed deductions on account of lease rental payment. High Court also noted that the Commissioner had simply directed the Assessing Officer to examine the matter without recording as to why the order passed by the Assessing Officer was prejudicial to the interest of the revenue and erroneous.

High Court held that the Assessing Officer had adopted one of the courses permissible by law and the factors relevant for exercise of power under section 263 were absent and the order passed does not record how and in what manner the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. Accordingly High Court dismissed the
revenue’s appeal. (AY. 2007-08)

CIT v. Philips India Ltd. (2016) 237 Taxman 538 (Cal.)(HC)
S.263 : Commissioner – Revision of orders prejudicial to revenue
– Order passed without complying with the direction of Tribunal would be erroneous and prejudicial to interests of Revenue. Therefore, CIT has power to exercise revisional powers to set aside the assessment

The Tribunal had remanded matter to the AO after issuing certain directions. However, the AO passed the order without complying with the directions of the Tribunal. Thereafter, the CIT exercised revisional powers u/s. 263 in setting aside the assessment order and remanded it to AO.

Appeal was filed before the HC challenging the jurisdiction of CIT u/s. 263. The HC held that assessment order passed without complying with the directions of the Tribunal (remand order) is erroneous and prejudicial to the interest of Revenue and thus CIT has power to revise the assessment order u/s. 263. (AYs. 1990-91 to 1994-95)

U.P. Forest Corporation v. CIT (2016) 131 DTR 274 (All HC)
S.271(1)(c) : Penalty – Concealment – Survey
– Capital gains on sale of shares – Penalty is not leviable on income declared during survey and offered in return
– A mere change of head of income does not attract penalty

Dismissing the appeal of revenue the Court held that; We find that the CIT(A) during the penalty proceedings had again examined the issue whether the claim of capital gain made in the regular return of income to the extent of
Rs. 1.62 crores with the particulars in support of the same. On examination, the CIT(A) reaches a prima facie conclusion that the income could be regarded as long term capital gain. Once the aforesaid conclusion has been reached coupled with two further facts viz. the authorities have rendered a finding of fact that the Respondent-assessee had not concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of income, the view taken to delete the penalty is a possible view. In the present fact, the view taken by the CIT(A) as well as the Tribunal is a reasonable and possible view. Nothing has been shown to us to hold that the findings of the CIT(A) and Tribunal was perverse and/or arbitrary warranting any interference by this Court. It may be pointed out that even in the Memo of Appeal, it is not urged by the Revenue that the finding of the CIT(A) and Tribunal are in any manner perverse. The reliance by the Revenue upon the decision of the Apex Court in Mak Data P. Ltd. 358 ITR 593 (SC) to contend that the justification of having deleted and accepted the amount of
Rs. 1.62 crores as business income, to buy peace is not available (ITA No. 2331 of 2013, dt. 9-2-2016) (AY. 2006-07)

CIT v. Hiralal Doshi (Bom.)(HC);
www.itatonline.org
S.271(1)(c) : Penalty – Concealment – Disallowance of claim, effect of
– Business loss was shown in e-return, software atomically reflected loss returned as carry forward loss
– The assessee had in subsequent assessment year had not claimed carry forward loss was evidence of fact that there was no intent to furnish inaccurate particulars of income

The assessee filed its return of income claiming deduction of certain expenditure which resulted in business loss. The Assessing Officer disallowed the expenditure as the business had not commenced and added the same to the income of the assessee. The AO disallowed the carry forward loss as claimed in the return of income as it was filed beyond the due date. The AO also passed a penalty order under section 271(1)(c) on ground that assessee had deliberately furnished inaccurate particulars of income relating to carry forward loss.

The CIT(A) as well as the Tribunal set aside the penalty order holding that even when assessee declared net loss in its e-return, it was automatically reflected as carry forward loss. It was also found that return of income filed for the subsequent assessment year prior to the order of the subject assessment year also indicated that the assessee had not claimed any set off or loss carried forward from the earlier assessment years.

The High Court dismissed the
Revenue’s appeal holding that, the CIT(A) and the Tribunal have concurrently reached a finding of fact that the assessee had not claimed any carry forward loss either in the return which it has filed for the subject assessment year or in the subsequent assessment years. In the subject assessment year, once a loss was shown in the e-return, the software suo motu reflected the loss returned as carry forward loss. The assessee has not fed in the entry of carried forward loss while filing its return of income in the e-return. The fact that assessee had in the subsequent assessment year not claimed carry forward loss was evidence of the fact that there was no intent to furnish inaccurate particulars of income or conceal income. In any case, both the Commissioner (Appeals) as well as the Tribunal had concurrently reached a finding of fact that there was no intent on the part of the assessee to evade tax. This finding is not shown to be arbitrary. Therefore, the Tribunal was justified in setting aside impugned penalty order. (AY. 2008-09)

CIT v. First Data (India) (P.) Ltd. (2016) 237 Taxman 543 (Bom.)(HC)
S.275 : Penalty – Bar of limitation – During the pendency of appeal before ITAT, penalty u/s. 271(1)(c) cannot be levied on the assessee

Certain addition was made to assessee's income in reassessment proceedings. First Appellate Authority had disposed of the appeal and further appeal of assessee before the Tribunal was pending. In the meantime, the AO levied penalty on the assessee u/s. 271(1)(c). Held, order imposing penalty cannot be passed if the appeal against basic order of assessment is pending before the competent superior authority. Held, notices initiating penalty, could not have been issued before the order of the ITAT. (AY. 1959-60)

R. B. Shreeram Durgaprasad v. CIT (2016) 237 Taxman 189 (Bom.)(HC)

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