S. 2(15) : Charitable purpose –When business activities are carried by assessee trust in course of actual carrying out of such advancement of any other object of general public utility, benefit of s. 11 cannot be declined

Allowing the appeal of assessee the Tribunal held that; Proviso to S.2(15) as substituted by Finance Act, 2015 is applicable with prospective effect; even post insertion of proviso to S. 2(15) but before 1-4-2016, when business activities are carried by assessee trust in course of actual carrying out of such advancement of any other object of general public utility, benefit of S. 11 cannot be declined. (AYs. 2004-05 to 2007-08 and 2009-10 to 2011-12)

Hoshiarpur Improvement Trust v. ITO (2015) 155 ITD 570 (Asr.)(Trib.)

S.4: Charge of income-tax – Subsidy granted to set up a wind mill project is a capital receipt [Ss. 41(1), 43(1), 50]

Subsidy granted to set up a wind mill 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 Limited v. ACIT (Mum.)(Trib.) ; www.itatonline.org

S.4 : Charge of income-tax –Interest on surplus funds – Prior to implementation of its project – Capital receipts – Required to be set off against pre-operative expenses. [S.28(i)]

Assessee company was engaged in business of developing, operating, maintenance of power projects and sale of power. During year under consideration, assessee – company’s projects were under implementation and it had not started any commercial activities. Assessee earned certain interest income on surplus funds deposited in Government securities. Assessing Officer assessed the interest as revenue receipt. On appeal the Tribunal held that; since interest received related to period prior to commencement of business, it was in nature of capital receipt and was required to be set off against pre-operative expenses. Amount so received was to be treated as capital receipt. (AY. 2008-09)

Adani Power Ltd. v. ACIT [2015] 155 ITD 239 (Ahd.)(Trib.)

S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Installation services did not constitute permanent establishment – Not taxable in India-DTAA – India-Singapore. [Art. 5, 7]

The Tribunal held that the activity of assessee is purely installation services, it is to be scrutinised under Article 5(6). The installation activities carried out by the assessee in terms of various contracts in India did not constitute PE in India under Article 5(3) and, therefore, income earned from the said contracts for installation activities is not taxable in India. Threshold limit of 183 days under Article 5(3) of Indo-Singapore DTAA would be calculated from date of actual activity for installation purpose and not from date of contract. (AY. 2010-11)

Kreuz Subsea Pte. Ltd. v. Dy. CIT (2015) 172 TTJ 291 / 42 ITR 11 / 69 SOT 368 / 122 DTR 422 (Mum.)(Trib.)

S.9(1)(vi) : Income – Deemed to accrue or arise in India – Royalty – Deduction at source – Payment made by assessee to non-resident towards purchase of products did not fall within purview of royalty – Not liable to deduct tax at source – DTAA –India-Singapore. [S.195, Art. 12]

Assessee was appointed as a registered re-seller of software products manufacture by Altiris, a Singapore based company. In terms of agreement, assessee had to purchase software products from Altiris and sell those products to customers in India. Role of assessee was that of a trader and, there was no transfer of copyright or patent of software products by Altiris to assessee. Assessee was not even permitted to make copies or duplicate software. Payments made by assessee to Altiris did not come within purview of royalty u/s. 9(1)(vi) and, thus, there was no requirement to deduct TDS while making said payments. (AYs. 2008-09, 2009-10)

ADIT v. Locuz Enterprise Solutions Ltd. (2015) 154 ITD 808 (Hyd.)(Trib.)

S. 10A : Free Trade Zone – Survey – Undisclosed income surrendered-Eligible exemption. [S.133A ]

Even undisclosed income surrendered by assessee is eligible for exemption if department does not show that the assessee has any other source. (ITA No. 4954/Del/2011, dt. 18-12-2015)(AY. 2007-08)

Bridal Jewellery Mfg. Co. v. ITO (Delhi)(Trib.); www.itatonline.org

S.10B : Export Oriented Undertakings – After AY 2001-02 when Ss. 10A / 10B became “deduction” provisions instead of “exemption” provisions, the deduction has to be computed before adjusting brought forward unabsorbed losses / depreciation. [S. 10A]

The assessee set off of brought forward losses of
Rs. 4,11,06,003/- against the income resulting into total taxable income of Nil, whereas the deduction under section 10B of the Act at
Rs. 7,68,41,580/- was claimed as against the income of EOU units of
Rs. 8,01,88,716/. The Assessing Officer was of the view that the brought forward losses and unabsorbed depreciation were required to be set off against the total income of the assessee first and thereafter, deduction under section 10B of the Act should be allowed. Accordingly, the Assessing Officer re-computed the deduction under section 10B of the Act by granting the deduction after allowing set off of brought forward losses. The contention of the assessee before the CIT(A) was that the stage of granting of deduction under section 10B of the Act was before set off of brought forward unabsorbed losses or depreciation, in view of various decisions. The CIT(A) noted that the CBDT has issued Circular dated 16-7-2013 that the brought forward unabsorbed depreciation should be set off before granting deduction under section 10A or 10B of the Act. Further, the Hon’ble Supreme Court in Himasingka Seide Ltd. v. CIT, Civil Appeal No. 1501 of 2008, dated 19-9-2013 had decided the issue in favour of the Department by dismissing the assessee’s appeal. On appeal the Tribunal allowed the appeal of the assessee following the ratio of decision of Bombay High Court in CIT v. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom.)(HC). (AY. 2005-06)

Vishay Components India Pvt. Ltd. v. ACIT (2015) 174 TTJ 354/ 128 DTR 178 S (Pune)(Trib.)

S.11 : Property held for charitable purposes – Promote advance medical science and to promote the improvement of public health and medical education in India – Endorsing products of companies – Entitled to exemption. [S. 2(15)]

Dismissing the appeal of revenue the Tribunal held that, denial of exemption on ground that assessee receiving money for endorsing products of companies on claiming of health and nutritional benefits is not justified there is no violation of provisions of S. 2(15) of the Act. Assessee is entitled to exemption. (AY. 2009-10)

ADIT(E) v. Indian Medical Association (2015) 41 ITR 222 (Delhi)(Trib.)

S.12AA : Procedure for registration – Trust or institution – Mere non-intimation of amendments to trust deed cannot ipso facto result in cancellation of registration if there is no change in tone and tenor of objects. [Ss. 2(15), 11]

Dismissing the appeal of revenue the Tribunal held that mere non-intimation of amendments to trust deed cannot ipso facto result in cancellation of registration if there is no change in tone and tenor of objects as long as the object of the Trust being charitable in nature. (ITA No. 5948/Mum/2012, dt. 31-8-2015) (AY. 2009-10)

ITO v. Bhansali Trust (Mum.)(Trib.); www.itatonline.org

S.14A : Disallowance of expenditure – Exempt income – The AO must give reasons before rejecting the assessee’s claim. He must establish nexus between the expenditure & the exempt income. The disallowance cannot exceed the exempt income. [R. 8D]

(i) The AO has neither recorded his satisfaction nor given reasons as to how the claim of expenditure in relation to tax free income has not been correctly made by the assessee as envisaged under section 14A(2). The AO has mechanically invoked Rule 8D. Sub-section (2) of section 14A of the Act provides the manner in which the AO is to determine the amount of expenditure incurred in relation to income, which does not form part of the total income.

(ii) The AO has not established any nexus between the investments made and the expenditure incurred under the head interest expenditure and administrative expenses, before disregarding the disallowance suo motu made by the assessee u/s 14A of the Act vis-a-vis the dividend income earned amounting to
Rs. 68,088/-.

(iii) Even the CIT(A) has not compensated for the deficiency by the A.O in recording proper satisfaction. The CIT(A) has restricted the disallowance to an extent of
Rs. 9.79 lakhs. The CIT(A) fails to appreciate the reasonableness of expenditure that has been disallowed vis-a-vis the exempt income in the light of the judgment of Maxopp Investments Ltd. v. CIT (2012) 374 ITR 272. We, restrict the disallowance to
Rs. 10.23 lakhs as calculated by the assessee.

(iv) The Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. v. CIT, vide its order dated 25-2-2015, has held that disallowance u/s. 14A cannot exceed the amount of exempt income. The Delhi High Court in the case of Holcim India Pvt. Ltd., reported in (2014) 272 CTR 282(Del.), has held that there can be no disallowance u/s. 14A in the absence of any exempt income. The rationale behind these judgments are that, the amount of disallowance should not exceed the exempt income. (ITA No. 4467/Del/2012, dt. 01.09.2015) ( AY. 2009-10)

DCM Ltd. v. DCIT (Delhi)(Trib.); www.itatonline.org

S.23 : Income from house property – Annual value – Brokerage paid to give out premises on rent and to earn lease rent is not deductible in computing the Income from house property. [Ss.22, 24]

The assessee rented its office premises on leave and licence basis to M/s. Dow Jones Consulting India Pvt. Ltd., vide leave and licence agreement dated 22-11-2008 for a period of five years. For giving the property on rent, the assessee used the services of M/s. C. B. Richard Ellis South Asia Pvt. Ltd. for sourcing and securing a suitable licensee for the said office premises. The assessee had paid two months licence compensation and 2% of the security deposit as professional fees/brokerage. The assessee claimed that the brokerage amounting to
Rs. 1,11,92,127/- was deductible from the rental income of Rs. 1,29,13,475/- while computing the taxable income under the head “Income from house property”. HELD by the Tribunal dismissing the appeal:

(i) Section 22 is the charging section of income from house property which provides that annual value of the property shall be charged to income tax. Section 23 provides for determining of annual value and section 24 provides for deductions from income from house property. The case of the assessee is that, u/s. 23(1)(b), for the purpose of determination of annual letting value of the property, envisages that the property which has been let out, then the actual rent received or receivable is to be taken as rental income. The phrase “actual rent received” or “receivable” means net of deductions and the actual rent received in the hands of the assessee. Such a plea of the assessee cannot be accepted, because what is contemplated u/s. 23 is that the annual value of the property which is let out should be the portion of rent received or receivable by the owner from the tenant/licensee. The first and foremost condition is that it should be in the nature of rent as mutually agreed upon between the two parties for the enjoyment of rights in the property let out in lieu of rent. The deduction envisaged in the proviso to section 23(1) is that, taxes levied by any local authority shall be deducted in determining the annual letting value of the property in that previous year in which said taxes have actually been paid. Section 24 provides two kinds of deductions, firstly, 30% of the actual value and secondly the interest payable on the capital borrowed for acquiring, construction, repair, etc., subject to the conditions laid down in the provisos thereto. The word ‘rent’ connotes a return given by the tenant or occupant of the land or corporeal hereditaments to the owner for the possession and use thereof. It is a sum agreed between the tenant and the owner to be paid at fixed intervals for the usage of such property. The phrase rent received and receivable contemplates the amount received for the enjoyment of the property and certain rights in the said property by the tenant. If there is charge directly related to the rental income or for the property without which the rights in the property cannot be enjoyed by the tenant then it can be construed as part and parcel of enjoyment of the property from where rent is received then such charges can be held to be allowable from the rent received or receivable. However, the brokerage paid to the third party has nothing to do with the rental income paid by the tenant for enjoying the property to the owner. Brokerage cannot be said to be a charge that has been created in the property for enjoying the rights and at best it is only an application of income received/receivable from rent. ITAT Delhi Bench in the case of Tube Rose Estates Pvt. Ltd. v. ACIT (2010) [123 ITD 498], as relied upon by the AO, clearly bring out this distinction between the brokerage and other charges payable in respect of services provided.

(ii) If such a nature of expenses like brokerage, professional fee, etc., is held to be allowable, then numerous other expenses like salary or commission to an employee/agent who collects the rent can also be held to be allowable. This is not the mandate of the law. So far as the decisions relied upon by the learned counsel before us are mostly pertaining to maintenance charges paid to the society, wherein it has been held to be allowable as deduction u/s. 23 itself. There is distinction between maintenance charges and the brokerage paid because such a charge is given/paid for the very maintenance of the property so as to enjoy the property itself; whereas brokerage has nothing to do with the property or the rent which is given to a third party who has facilitated the landlord and the tenant on agreeable terms to rent the property. Therefore, these decisions will not apply in the assessee’s case. Further in the cases where payment of stamp duty has been held to be allowable will not apply also as the same is directly related in connection with the lease agreement for renting of the property. Hence, said cases and instances will not apply in the present case. Thus, in our opinion, the payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24. (ITA No. 5494/Mum./2013, dt. 5-6-2015) (AY. 2010-11)

Radiant Premises Pvt. Ltd. v. ACIT (Mum.) (Trib.); www.itatonline.org

S.28(i) : Business income – Accrual – Transfer of land to developer under development agreement –Income cannot be brought to tax until the assessee exercises his right in part or in full to sell his specified share of constructed area of the proposed housing project. [Ss. (2(14), 2(47), 5, 45]

The Tribunal held that anticipated business profits supposedly accruing to the assessee as a result of transfer of his land to the developer under a development agreement cannot be brought to tax until the assessee exercises his right in part or in full to sell his specified share of constructed area of the proposed housing project. Addition confirmed by the CIT(A) was deleted. (AY. 2010-11)

Dheeraj Amin v. ACIT (2015) 172 TTJ 228 (Bang.)(Trib.)

S.28(i) : Business income – Capital gains – Sale and purchase of shares on same day – No intention to purchase shares as investor –Assessable as business income. [S.45]

The assessee declared short-term capital gains. The Assessing Officer treated the amount as business income of the assessee on the ground that the assessee had indulged in intraday transactions and that the resultant profit was to be considered as speculative profit. ITAT held that the assessee had earned the amount on purchase and sale of shares on the very same date. It was a well-established principle that the intention of a person at the time of purchase of shares was one of the most important criteria to be considered while deciding the nature of a transaction. It was a fact the assessee had been indulging in intraday transactions. Purchase and sale of shares on the very same day showed that the assessee had not intended to purchase them as an investor. Therefore it is a business income of the assessee. (AY. 2007-08)

Dy. CIT v. Kisan Ratilal Choksey Shares and Securities P. Ltd. (2015) 41 ITR 114 (Mum.)(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, pharmaceuticals companies have been sponsoring practising 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 years 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 Nos. 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 –Gift of car by car – manufacturer to State Police department was held to be not an allowable deduction.

Assessee a manufacturer and seller of motor vehicles claimed expenditure being cost of 100 cars donated by it to police department of Tamil Nadu as allowable deduction. There was difference of opinion and the matter was referred to third member to consider “Whether the expenditure incurred by the assessee by giving 100 cars to the police department of Tamil Nadu was an eligible expenditure under section 37? “. Assessee submitted that the expenditure under head ‘Advertisement and sales promotion’ and claimed that it had made aforesaid donation to test efficacy of their vehicles and to obtain feedback. The expenditure was disallowed by the Assessing Officer. On appeal it was contended that the expenditure was under the head’ advertisement and sales promotion’ and the donation was made to test efficacy of their vehicles and to obtain feedback. : Dismissing the appeal of assessee the Tribunal held that; neither assessee called for their feedback nor did Police Department deem it fit to give any feedback. The assessee could not effectively prove that cars were given for market research and manner in which cars were given also did not indicate that there was any advertisement value hence, there was no commercial expediency in incurring this expenditure, therefore it was not allowable expenditure. (AY. 2007-08)

Hyundai Motor India Ltd. v. Dy. CIT [2015] 155 ITD 1 (TM) (Chennai) (Trib.)

S.37(1) : Business expenditure – A business is “set up” the moment employees are recruited for the purpose of the business. All expenditure incurred thereafter is allowable as a deduction even if the business has not commenced. [S. 28(i)]

Setting up of business is different from commencement of business and the expenditures are allowable on setting up of business. The assessee has recruited employees for the purpose of its business and about 16 employees are for the job of quality assurance. The assessee is in the business of Merchandising of diamonds/gold / jewelleries. Undisputedly, this line of business requires expertise who have proficiency in understanding the carats of diamonds and related jewellery, without such recruitment, it would be a futile exercise to commence the business. In our considered opinion upon recruitment of employees, the factum that expenditure under the different heads was incurred is indicative that business was set up. (ITA No. 3855/Mum/2013, dt. 28-10-2015) (AY. 2008-09)

Reliance Gems & Jewels Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

S.37(1) : Business expenditure –Fines and penalties imposed by stock exchange for violation of bye-laws – Held to be allowable

The assessee paid fine and penalties on violation of bye-laws of stock exchange. The same has been claimed as business expenditure. The AO had disallowed the same. CIT(A) deleted the disallowance of penalty paid to the stock exchange. The Hon’ble ITAT has held that Explanation to section 37(1) was not applicable for the penalty paid on contravention of bye-laws of the stock exchange. Accordingly order of CIT(A) was affirmed. (Followed, ITO v. VRM Share Broking P. Ltd. v. ITO ( 2009) 27 SOT 469 (Mum.)(Trib.), Goldcrest Capital Markets Ltd v. ITO (2010) 2 ITR 355 (Mum.)(Trib.) (AY. 2007-08)

Dy. CIT v. Kisan Ratilal Choksey Shares and Securities P. Ltd. (2015) 41 ITR 114 (Mum.)(Trib.)

S.43(5) : Speculative transaction – Forex forward contract – Forex derivatives – Pure foreign exchange hedging transactions cannot be treated as speculative transactions

Dismissing the appeal of revenue the Tribunal held that; It is clear that the forward contract in question was purely hedging transactions entered into by the assessee to safeguard against loss arising out of fluctuation in foreign currency. Such transactions have been held in the following cases to be not speculative transactions falling within the ambit of S. 43(5) of the Act, CIT v. Soorajmull Nagarmull (1981) 5 Taxman 289 (Cal), CIT v. Badridas Gauridu (P) Ltd., (2004) 134 Taxman 376 (Bom), CIT v. Friends and Friends Shipping Pvt. Ltd., Tax Appeal No. 251 of 2010 dated 23-8-2011 and CIT v. Panchmahal Steel Ltd. Tax Appeal No. 131 of 2013 dated 28-3-2013 by the Hon’ble Gujarat High Court. (ITA No. 267/Kol/2013, dt. 7-12-15) (AY. 2009-10)

ITO v. LGW Limited (Kol.)(Trib.); www.itatonline.org

S.43B : Certain deductions on actual payment – Method of accounting – VAT – Taxes collected by the assessee, which remain unpaid, have to be added to the income, even if the same are not debited to the P&L A/c and claimed as a deduction. [S.145A, Maharashtra Value Added Tax Act, 2002]

The assessee collected VAT but did not pay it over to the Government. The assessee claimed that a disallowance u/s. 43B cannot be made as the amount of VAT was not routed through the Profit & Loss Account and no deduction had been claimed. The assessee also claimed that under the Maharashtra Value Added Tax Act, 2002, the sale price shall not include the tax paid or payable to a seller in respect of such sale and hence, there was no requirement for the assessee to recognise the VAT account in its Profit & Loss Account. AO disallowed the claim. On appeal dismissing the claim, taxes collected by the assessee, which remain unpaid, have to be added to the income even if the same are not debited to the P&L A/c and claimed as a deduction. (ITA No. 1806/PN/2013, dt. 30-10-2015) (AY. 2009-10)

Munaf Ibrahim Memon v. ITO (Pune)(Trib.); www.itatonline.org

S.45 : Capital gains – Business income – Securities Transaction Tax (STT) – Sale of shares within a short span of time – Profit earned from delivery based sale of shares is capital gains. [S. 28(I)]

Allowing the appeal of assessee the Tribunal held that ;the objects of introduction of Securities Transaction Tax (STT) was to end litigation on the issue of whether profit earned from delivery based sale of shares is capital gains or business profit. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares. (ITA No. 3469/Mum/2012, dt. 18-2-2015) (AY. 2008-09)

Hema Hiren Dand v. JCIT (Mum.)(Trib.); www.itatonline.org

S.45 : Capital gains – Transfer of title in land was distribution of capital assets of AOP on its dissolution – On facts held not assessable as capital gains. [Ss. 2(31)(v), 2(47)]

Assessee entered into a MOU for jointly developing property. Assessee agreed to provide land as capital contribution. However, owing to certain disputes, a settlement was arrived at amongst parties according to which assessee was to receive
Rs. 14 crore for foregoing their rights and Rs. 6 crore for conveying property. While filing return, assessee declared long-term capital gain only on sum of
Rs. 6 crore. The A.O. considered entire sum of Rs. 20 crore as taxable under head capital gains. The Tribunal held that, since two parties had voluntarily combined for a common purpose and their main objectives were to produce profit, essential conditions for forming an AOP were satisfied. settlement deed practically put an end to AOP and transfer of title in land was nothing but distribution of capital assets of AOP on its dissolution, thus addition of
Rs. 14 crore made under head capital gain was incorrect. (AY. 2005-06)

Ind Sing Developers (P.) Ltd. v. ACIT (2015) 155 ITD 543 (Bang.)(Trib.)

S.50C : Capital gains – Full value of consideration – Stamp valuation – Lease hold rights in land or building – Provision do not apply.

Allowing the appeal of assessee the Tribunal held that Lease hold right in land is also capital asset, however every kind of a capital asset is not covered within the scope of section 50C. 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. Thus lease hold right in land or building is not covered. (ITA No 1265/PN/ 2011 dt. 19-1-2015) (AY. 2006-07)

Kancast (P) Ltd. v. ITO (2015) The Chamber’s Journal- April -2015 P 125 (Pune)(Trib.)

S.50C : Capital gains – Full value of consideration – Stamp valuation – The stamp duty value on the date of agreement and not date of sale deed has to be taken. The nature of the property on the date of agreement has to be considered – Proviso to S.56(2)(vii)(b) is curative and retrospective left open. [S. 56(2)(vii)(b)]

The stamp duty value on the date of agreement and not date of sale deed has to be taken. Followed the ratio in Sanjeev Lal and Smt. Shantilal Motilal v. CIT(365 ITR 389) as well as decisions of the coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters Visakhapatnam v. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22-6-2010) and Moole Rami Reddy v. ITO (ITA No.311/Vizag/2010 dated 10-12-2010). It is therefore, now settled that the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains. The next question is the nature of the property for valuation under S. 50C, because, according to the assessee, even if the date of registered sale deed is considered for determination of the fair market value under S. 50C, the SRO value should be taken for residential area and not commercial area. He submitted that if the value of the residential area as on 1-4-2006 i.e.
Rs. 10,000 per sq. yard, is taken into consideration, the sale consideration received by the assessee was more than the SRO value and no addition was warranted. Therefore, the nature of the property as on the date of transfer attains importance. There cannot be any dispute that the nature of the property on the date of transfer/sale is to be considered. Proviso to s. 56(2)(vii)(b) is curative and retrospective left open. (ITA No. 1942/Hyd/2014, dt. 27-11-2015) (AY. 2006-07)

Mohd. Imran Baig v. ITO ( Hyd.) (Trib.); www.itatonline.org

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. [S.143(3)]

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 v. (Mum.)(Trib.) ; www.itatonline.org

S.92C : Transfer pricing – (i) If the AO & CIT make a mechanical reference to the TPO without applying mind to the TP report & other data filed by the assessee, the reference is invalid, (ii) A transfer pricing adjustment cannot be made if the assessee’s income is exempt u/s. 10A or 80HHE or (iii) if the AE is assessed at a rate of tax higher than tax rate in India.[Ss. 10A, 80HHE, 92CA]

The assessee contended before the Tribunal:

(i) That under section 92C or 92CA of the Act, it is the statutory duty of the AO to decide independently, whether the determination of arm’s length price by the assessee should be accepted, or whether or not after applying the provisions of section 92CA, the transfer pricing adjustment should be made. This is a statutory safeguard for the assessee. It was contended that similarly, it is only after proper application of mind to all the facts and holding a prima facie belief that the AO can make reference to the TPO, or that the CIT can grant approval to such a reference. This, again, is a statutory safeguard for the taxpayer. It was submitted that CBDT Instruction No. 3 of 2003, dated 20-5-2003 detracts the AO and the CIT from the above obligation in complete violation of the statutory provisions of the principles of natural justice. It has been submitted that in the present case, in compliance of the said CBDT Instruction No.3 of 2003, the AO did not himself examine the issue of transfer pricing and with the approval of the CIT, made a reference to the TPO u/s. 92CA(1) of the Act. The AO and the CIT did not apply their minds to the Transfer Pricing Report, or to any other material or information or document. The TPO made an adjustment which was incorporated by the AO in the assessment order. On their part, the AO and the CIT did not discharge necessary judicial functions conferred upon them u/s. 92C or 92CA of the Act and

(ii) That Transfer Pricing adjustment cannot be made in a case where the assessee enjoys benefit u/s. 10A or section 80HHE of the Act, or where the tax rate in the country of the Associated Enterprise is higher than the Indian rate and where, accordingly, establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible.

HELD by the Tribunal:

(a) In Vodafone India Services P. Ltd. v. Union of India 361 ITR 531 (Bom.) the Bombay High Court has held that CBDT Instruction No. 3 dated 20-5-2003 is contrary to the decision being taken therein and it is not binding on the AO. It was held that this Instruction departs from the provisions of law. It was held that the decision in Sony India P. Ltd. v. Central Board of Direct Taxes 288 ITR 52 (Delhi), is not applicable after the amendment of 2007 (paras 35 to 37 of the judgment are relevant in this regard);

(b) The AO abrogated his obligation under a wrong assumption that CBDT Instruction No. 3 of 2003 dated 20-5-2003 mandated him to go ahead without making any reference to the TPO. The AO did not examine the question, whether he should himself accept the transfer pricing report of the assessee or whether he should himself determine the arm’s length price;

(c) The AO erred in not himself examining the issue of Transfer Pricing and with the approval of the CIT, made a reference to the TPO u/s. 92CA(1) of the Act; that the AO as well as the CIT failed to apply their mind to the TP Report filed by the assessee, or to any other material or information or document furnished. The TPO made an adjustment which was incorporated by the AO in the assessment order. Thereby, the AO as well as the CIT did not discharge necessary respective judicial functions conferred on them under sections 92C and 92CA of the Act;

(d) Further, the assessee is also correct in contending that no TP adjustment can be made in a case like the present one, where the assessee enjoys u/s. 10A or 80HHE of the Act, or where the tax rate in the country of the Associated Enterprises is higher than the rate of tax in India and where the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. (AY. 2005-06)

DCIT v. Tata Consultancy Service Ltd. (2015) 174 TTJ 570 (Mum.)(Trib.)

S.92C : Transfer pricing – Allowing interest on excess credit to AE’s on account of sale of goods – Addition cannot be made as notional value – Corporate guarantee to AEs – Adjustment was held to be not valid. [S. 92B]

If the international transaction of exports of goods which has been benchmarked on TNMM basis is duly accepted by the TPO, making an adjustment for interest on excess credit allowed on sales to AEs will vitiate the picture, inasmuch as what has already been factored in the TNMM analysis, by taking operating profit figure which incorporate financial impact of the excess credit period allowed. Therefore bench marked on TNMM adjustment of ALP on the basis of notional value of excess credit period allowed to AE was not called for in the facts and circumstance of the case.

Corporate guarantees issued by the assessee were in the nature of quasi-capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of ‘international transactions’ under s. 92B; these guarantees do not have any impact on income, profits, loses or assets of the assessee and therefore were outside the ambit of international transaction under s. 92B. (AYs. 2002-03 2003-04 2004-05 2006-07)

Micro Link Limited v. ACIT (2016) 175 TTJ 8 (Ahd.)(Trib.)

S.132B : Application of seized or requisitioned assets – Adjustment of cash seized towards tax liability – Treating the same as advance tax was held to be justified –Explanation 2 as inserted by Finance Act, 2013 w.e.f. 1-6-2013 is prospective. [S. 234A, 234B, 234C]

The assessee requested for adjustment of cash seized during the search towards advance tax liability. The same was denied by the Assessing Officer. CIT(A) following decision of Bombay High Court in ITA. No. 3741 of 2010 dt. 21-9-2011 in the case of CIT v. Jotindra B. Mody directed the Assessing Officer to treat the amount seized as payment to advance tax. On further appeal to the Tribunal, the revenue contended that the CIT(A) erred in applying the decision of jurisdictional High Court which is contrary to the extant provisions of s. 132B(1). Dismissing the appeal of revenue the Tribunal held that as per the existing provision of section 132B, it cannot be said that tax liability relating to the assessment year in question would crystallise only after the assessment is completed and, therefore, the request of the assessee for adjustment of amounts in question towards the advance tax could not be entertained. Now to overcome this decision the Explanation to section 132B had been inserted to provide that ‘for removal of doubt it is hereby declared that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter 17’. Admittedly, this Explanation aims at subverting the above decision without removing the statutory basis of the decision that tax liability cannot be said to crystallize only after the assessment is complete. Hence, this Explanation will act prospectively. Hence, the reliance by the revenue on the insertion of this Explanation to section 132B cannot help as the Explanation has been inserted much after the conclusion of the assessment year under consideration. Revenue cannot keep the assessee’s money with itself and claim that it has no liability or less liability towards the assessee by way of an Explanation inserted to negate the effect of judicial decisions without removing the statutory basis of the decisions. (AY. 2009-10)

ACIT v. Concreta Developers (2015) 155 ITD 65 (Nag.)(Trib.)

S.143(2) : Assessment – Service of notice – Validity of service by speed post – No reason to doubt – Assessment was held to be valid. [Ss. 282, 292BB, General Clauses Act, 1897, S.27, Indian Evidence Act, 1882, S. 114]

The Tribunal held that very fact of delay in the delivery of notice as recorded with reference to 30-8-2010 implies acceptance of veracity of dispatch register / document maintained by the Assessing Officer’s office and there is no reason to doubt the validity or authenticity of same in view of the presumption under section 114 of the Evidence Act. Thus, service of notice on the assessee is proved and assessment cannot be assailed on that score. (AY. 2009-10)

Color Craft v. ITO (2015) 172 TTJ 273 (Mum.)(Trib.)

S.147 : Reassessment – Recorded reasons – Issue of furnishing the ‘Reasons’ for reopening the assessment goes to the root of the matter. In the event of failure of the AO to furnish the reasons, the reopening is bad in law. [S.148]

(i) The undisputed facts are that, i) No ‘Reasons’ are available in the assessment record, and ii) there is nothing on record to show that certified copy of verbatim ‘Reasons’ was ever provided to the assessee, despite the request made by the assessee before AO, more than once. It clearly indicates that no ‘Reasons’ were recorded in fact and therefore, these could not have been provided to the assessee. Had the ‘Reasons’ been recorded by AO, these would have definitely been provided to the assessee. The position of law is clear. It has been held by Hon’ble Supreme Court in the case of GKN Driveshaft 259 ITR 19, that it is mandatory on the part of the AO to provide the copy of the reasons to the assessee and to meet the objections filed by the assessee thereto, if any, before the AO can frame the reassessment order. It is further noted that Hon’ble Bombay High Court in the case of CIT v. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.)(HC), has held that in case reasons are not furnished by the AO to the assessee before completion of reassessment proceedings, reassessment order cannot be upheld. It is further noted that SLP filed by the Revenue against the order of Hon’ble Bombay High court, has been rejected by Hon’ble Supreme Court. Similar view has been taken by Hon’ble Mumbai bench of ITAT in the case of Tata International Ltd. v. DCIT [2012] 52 SOT 465 (Mum.)(Trib.) and also in few other judgments. We further derive support of our view from a latest judgment of Hon’ble Bombay High Court in the case of CIT v. Trend Electronic in ITA No. 1867/2013 order dated 16th September 2015. In this case, Hon’ble Jurisdictional High Court, following its earlier decision in the case of Videsh Sanchar Nigam Ltd. (supra), held that law laid down by Hon’ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd, is clear and mandatory for implementation and it is to be strictly followed by the AO before framing the reassessment order. It was further held that rule with regard to furnishing of reasons by the AO is to be followed strictly, as the power given to the AO for reopening of a completed assessment under the Income-tax Act, is an exceptional power and whenever Revenue seeks to exercise such power, it must strictly comply with the prerequisite conditions i.e. ‘Reasons’ must be recorded and these recorded ‘Reasons’ must be furnished to the assessee, when sought for, so as to enable the assessee to object to the same, during the course of assessment proceeding.

(ii) Similar view has been reiterated by Hon’ble Karnataka High Court in the case of Kothari Metals (writ appeal No. 218/2015), order dated 14th August 2015, wherein it has been held that the question of non-furnishing the ‘Reasons’ for reopening an already concluded assessment goes to very root of the matter, and that the assessee is entitled to be furnished the ‘Reasons’ for such reopening and that if ‘Reasons’ are not furnished to the assessee, then the proceedings for the reassessment cannot be taken any further, and reopening of the assessment would be bad in law. (ITA No. 5926/Mum/2009, dt. 28-10-2015) (AY. 2001-02)

Muller & Philpps (India) Ltd. v. ITO (Mum.)(Trib.); www.itatonline.org

S.147 : Reassessment – Bogus bills – Reopening solely on the basis of information received from another AO that the assessee has booked bogus bills but without independent application of mind to the information renders the reopening void. [Ss. 143(1), 148]

Allowing the appeal of the assessee the Tribunal held that: the observation of the Assessing Officer also shows that it was letter dated 20-12-2013 received by him from the ACIT on the basis of which the Assessing Officer could make a view that the purchase bills provided by these persons or their family members is nothing but bogus purchase bills. At the time of recording of the reasons the Assessing Officer apparently was not having any idea about the nature of the transactions entered into by the assessee. In the reasons recorded there is no mention about the nature of the transactions. As per provision of section 147 an assessment can be reopened if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment. The reasons to believe has to be that of the Assessing Officer and further there have to be application of mind by the Assessing Officer. The Assessing Officer was also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the names of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item No. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated ‘Yes’, and in Colunm No. 7(a), whether any voluntary return had already been filed and in Colunm No. 8 (b), date of filing the said return ‘NA’ has been stated. Thus this is a clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the return of income for the year under consideration was filed with this ward on 27-9-2006. These facts clearly demonstrate that the return was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, the assessment has been reopened. It is a settled position of law that there must be material for formation of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the Assessing Officer holds reason to believe. There must be nexus between such material and belief. Further and most importantly the reasons referred to must show application of mind by the Assessing Officer. It is also a settled law that the validity of the initiation of the reassessment proceeding is to be judged with reference to the material available with the Assessing Officer at the point of time of the issue of notice under section 147.

(ii) In the present case, as is evident from the assessment order, the Assessing Officer was having nothing except the list provided by the CIT, Central-2, New Delhi about the list of accommodation entries. Beyond that he was not having the copies of the statement of any of these persons, He was not having copy of the assessment orders and other details or document which would have enabled the Assessing Officer to apply his mind and form a belief that income has escaped assessment. In fact this information was not with the Assessing Officer till fag end of the reassessment proceedings, a fact admitted by the Assessing Officer himself in the assessment order. Consequently, the reopening is not valid. (ITA No. 1372/Del/2015, dt. 28-10-2015) (AY. 2006-07)

Unique Metal Industries v. ITO (Delhi)(Trib.); www.itatonline.org

S.153A : Assessment – Search and seizure – assessment made u/s. 143(1) can be said to have abated in the absence of incriminating material. [S. 143(1)]

Allowing the appeal of assessee the Tribunal held that on a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

(i) Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

(ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

(iii) The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

(iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

(v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.

The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

(vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

(vii) Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. (ITA No. 173 to 177/Mum/2015, dt. 31-12-2015) (AY 2005-06 to 2009-10)

Ideal Application Co. Pvt. Ltd. v. DCIT (Mum.) (Trib); www.itatonline.org

S.153C : Assessment – Income of any other person – Search and seizure – Recording of satisfaction by AO of person searched was a condition precedent for AO of ‘other person’ to acquire jurisdiction – No satisfaction was recorded – Assessment was held to be void ab-initio. [S.153A ]

AO recorded instant assessment order after procuring certain documents while conducting search and seizure action u/s. 132 against three persons. Proceedings were initiated against assessee u/s. 153C read with section 153A on basis of documents. AO computed total income at
Rs. 22,49,330. Assessee submitted that proper satisfaction was not recorded by correct AO before taking up proceedings u/s. 153C against assessee. CIT(A) dismissed appeal of the assessee on all legal issues taken up before him. The Tribunal held that as per Section 153C it was clear that where AO satisfied that any money, bullion, jewellery, books of account or other documents belonged to person other than person searched, then, such documents or assets, should be handed over to AO of ‘other person’. Bare perusal of provision indicates that before handing over such documents to AO of ‘other person’, ‘satisfaction’ had to be recorded by AO of person searched that money, bullion or jewellery, etc., found from person searched belong to the ‘other person’, recording of satisfaction by AO of person searched was a condition precedent for AO of ‘other person’ to acquire jurisdiction. AO did not record any satisfaction that some money, bullion, jewellery or books of account or other documents found from those persons belonged to assessee. Absence of such satisfaction, failed to confer any valid and lawful jurisdiction on AO of assessee to proceed with matter of assessment u/s. 153C. Assessment initiated by AO set aside as it was void ab initio. (AY. 2003-04).

Tanvir Collections (P) Ltd. v. ACIT (2015) 153 ITD486 / 168 TTJ 145/ 114 DTR 305 (Delhi)(Trib.)

S.153C : Assessment – Income of any other person – Search and seizure – Notice in the name of non-existing amalgamated company – Assessment is held to be bad in law

The Tribunal held that the notice under section 153C issued in the name of the assessee-company which had already merged and amalgamated with another company and ceased to exist prior to the issuance of the notice was void and, therefore assessment completed in pursuance of the said notice is quashed. (AY. 2003-04 to 2007-08)

ACIT v. Computer Engineering Service India (P.) Ltd. (2015) 172 TTJ 317 (Delhi)(Trib.)

S.153C : Assessment – Income of any other person – Search and seizure – Recording of satisfaction by the assessing of person searched is mandatory though the Assessing Officer may be same – No recording of satisfaction – Notice itself is null and void. [S.132 ]

Dismissing the appeal of revenue the Tribunal held that recording of satisfaction by Assessing Officer having jurisdiction over person searched is an essential and prerequisite condition for bestowing jurisdiction to Assessing Officer of ‘other person’ under section 153C. Where Assessing Officer of searched person and such other person is same, Assessing Officer has to carry out dual exercise first as Assessing Officer of person searched in which he has to record satisfaction, during course of assessment order proceedings of person searched and second as Assessing Officer of other person. where exercise of recording satisfaction during assessment proceedings of person searched has not been carried out and satisfaction does not satisfy requirement of section 153C, Assessing Officer lacks jurisdiction to initiate proceedings u/s. 153C against assessee and, therefore, issuance of notice itself is null and void. (A.Y 2003-04, 2008-09)

Dy. CIT v. Satkar Roadlines (P.) Ltd. (2015) 155 ITD 501 (Delhi)(Trib.)

S.153C : Assessment – Income of any other person – Search and seizure – Satisfaction was not recorded – Condition required was not satisfied – Order was held to be bad in law

During search at premises of Group K, an undated cheque issued by assessee in favour of its director was seized. Assessing Officer issued notice u/s. 153C to assessee and assessed the income. On appeal allowing the appeal the Tribunal held that where no satisfaction was recorded by Assessing Officer of person searched, and satisfaction was recorded by Assessing Officer assessee being ‘other person’, notice issued to assessee u/s. 153C was not valid. since cheque, on basis of which notice was issued, was undated, it could not be said to pertain to any of years for which notice was issued. since cheque was in name of director of Group K which was searched and cheque was found from person upon whom cheque was drawn, cheque, in fact, belonged to said group and could not be said to be continued to ‘belonging to’ assessee who issued cheque. therefore, conditions for issue of notice to assessee u/s. 153C were not satisfied. (AYs. 1999-2000, 2004-05)

Rekhaben Thakkar (Smt.) v. ACIT (2015) 155 ITD 54 (Ahd.)(Trib.)

S.158BFA : Block assessment –Penalty – Investment in shares duly recorded in regular books of account – Levy of penalty not automatic – Penalty was deleted [Ss. 139(4), 158BB(1)(c)]

Dismissing the appeal of revenue, the Tribunal held that, even though the assessee failed to file the return before the due date, the transfer of shares was recorded in the unaudited balance-sheet and profit and loss account. The sale proceeds were deposited in the declared bank account and the investment in shares was found to be duly recorded in the regular books of account. These facts would not call for imposition of penalty under section 158BFA(2) of the Act. The assessee might be waiting for the requisite details of shares sold and this may be the genuine reason for its not being able to file the return by the due date, but the fact remained that it filed the return within the time allowed under section 139(4) of the Act. The Commissioner (Appeals) rightly deleted the penalty. (BP.1-41989 to 13-1-2000)

Dy. CIT v. Mehrotra Invofin India P. Ltd. (2015) 41 ITR 655 (Delhi)(Trib.)

S.194C : Deduction at source –Contractors – Sub-Contractors – Advertising agency – Hording charges – Liable to deduct tax at source u/s. 194C and not u/s 194I. [S. 194I ]

Allowing the appeal of assessee the Tribunal held that assessee, an advertising agency, made payments of hoarding charges to different parties, it was required to deduct tax at source u/s. 194C and not u/s. 194I (AY. 2010–11, 2011 –12)

Ogilvy & Mather (P.) Ltd. v. ITO (2015) 155 ITD 475 (Mum.)(Trib.)

S.234E : Fee – Default in furnishing the statements-Change of law – Assessing Officer is not permitted to levy fee while processing statement of tax at source prior to June 1, 2015 but authority to pass order separately levying fee. [S.200A]

According to S. 234E the assessee is liable to pay fee for the delay in delivery of the statement with regard to TDS and the assessee shall pay the fee as provided u/s. 234E(1) before delivery of the statement u/s. 200(3). Pursuant to the amendment of s. 200A by the Finance Act, 2015, after June 1, 2015, if the assessee fails to pay the fee for the periods of delay, then the assessing authority has all the powers to levy fee while processing the statement u/s. 200A by making adjustment. Prior to June 1, 2015, the A. O. had authority to pass an order separately levying fee u/s. 234E of the Act, but not to levy a fee while processing the statement of tax deducted at source. Tribunal held that, the A. O. exceeded his jurisdiction in levying fee u/s. 234E while processing the statement and making adjustment u/s. 200A for the A.Y. 2013-14. It was open to the A. O. to pass a separate order u/s. 234E of the Act levying fee, provided the limitation for such a levy did not expire. (AY. 2013-14)

G. Indhrani (Smt) v. Dy. CIT (2015) 41 ITR 439 (Chennai) (Trib.)

S.250 : Appeal – Commissioner (Appeals) – Order of Tribunal is binding on CIT(A) [S. 254(1)]

The CIT(A) decided the appeal of the assessee against which the revenue preferred appeal before Tribunal. The Tribunal sent the matter back to decide the matter a fresh in accordance with law. The CIT(A) again passed the order by following the order of his predecessor and ignoring the order of the Tribunal. The Tribunal warned the CIT(A) and did not initiate contempt proceedings since it was a first matter reported to the Bench. The Tribunal set aside the impugned order of CIT(A) and restored the matter in issue to his file with direction to re decide the appeal strictly in accordance with law and following the earlier order of the Tribunal. (AY. 2007-08)

Dy. CIT v. Sham Sunder Sharma (2015) 172 TTJ 120 (Chd.)(Trib.)

S.251 : Appeal – Commissioner (Appeals) – No jurisdiction to enhance the new source of income and direct the Assessing Officer to initiate proceedings u/s. 201(1). [Ss.40(a)(ia), 201(1)]

The Tribunal held that the CIT(A) exceeded her jurisdiction in directing the Assessing Officer to make disallowance of payments under section 40(a)(ia) in a set aside matter as the same involved taxability of income from a new source of income which was neither considered by the Assessing Officer nor was subject matter of set aside order passed by the Tribunal and the CIT(A) also exceeded her jurisdiction in directing the Assessing Officer to initiate proceedings under section 201(1). The Tribunal decided the appeal in favour of assessee. (AY. 2007-08)

Cheil India P. Ltd. v. ITO (2015) 172 TTJ 302 (Delhi)(Trib.)

S.253 : Appellate Tribunal –Filing of appeal with complete knowledge of its fate by revenue only reflects mischievous adamancy to attempt to mislead Tribunal and waste time of court and officers concerned [S.68]

CIT(A) deleted the addition after considering the remand report of Assessing Officer who has stated that he has verified the genuiness of loans and gave favourable remand report. Against the order of CIT(A) allowing the appeal, the Revenue filed appeal before the Tribunal. Dismissing the appeal of revenue the Tribunal held that filing of appeal with complete knowledge of its fate by revenue only reflects mischievous adamancy to attempt to mislead Tribunal and waste time of Court and officers concerned.

ACIT v. R.P.G. Credit & Capital Ltd. (2015) 155 ITD 29 (Delhi)(Trib.)

S.263 : Commissioner – Revision of order prejudicial to revenue-An order of revision which does not show independent application of mind by the CIT is against the spirit of the Act and liable to be set aside [S. 143(3)]

Allowing the appeal of assessee the Tribunal held that:

(i) As per the provisions of section 263 it is the Commissioner of Income-tax who has to examine the records and thereafter form an independent opinion that the order passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue. In the present case we find that the Commissioner of Income -tax has not exercised his independent judgment for invoking revisional powers. The Commissioner of Income Tax has to pass a speaking order highlighting deficiencies in the assessment order with reasons.

(ii) A perusal of the impugned order shows, that the Commissioner of Income-tax in the instant case has merely reproduced the deficiencies pointed out by the Dy. Commissioner of Income-tax in the assessment order. The Commissioner of Income Tax has not given the reasons as to how the findings of the Assessing Officer are erroneous in so far as prejudicial to the interest of revenue. The contention of the assessee is that all the relevant documents were placed on record by the assessee during the course of assessment proceedings. The Assessing Officer has passed the order after considering the same. The duty of the assessee is bring all the relevant documents before the Assessing Officer. The manner in which the order is to be passed is the prerogative of the Assessing Officer.

(iii) The order of the Assessing Officer may be brief and cryptic but that by itself is not sufficient reason to hold that the assessment order is erroneous and prejudicial to the interest of revenue. It is for the Commissioner to point out as to what error was committed by the Assessing Officer in taking a particular view. In the case in hand, the Commissioner of Income-tax has failed to point out error in the assessment order. For invoking revisionary powers the Commissioner of Income-tax has to exercise his own discretion and judgment. Here the Commissioner of Income-tax has invoked the provisions of section 263 at the mere suggestion of the Dy. Commissioner of Income-tax, without exercising his own discretion and judgment. In view of the fact that the Commissioner of Income-tax has invoked the provisions of section 263 without applying his own independent judgment and merely at the behest of proposal forwarded by the Dy. Commissioner of Income-tax is against the spirit of Act. Thus, the impugned order is liable to be set aside. (ITA No. 1223/PN/2013, dt. 21-12-2015) (AY. 2008-09)

Span Overseas Ltd. v. CIT (Mum.)(Trib.); www.itatonline.org

S.263 : Commissioner – Revision of orders prejudicial to revenue – Cash credit – Share capital at premium- Inadequate enquiry –Revision was held to be justified – Insertion of proviso to section 68 by Finance Act, 2012 which casts onus on closely held company to explain source of share capital is clarificatory and hence applicable with retrospective effect. [S.68]

Assessee filed return offering meagre income and issued share capital at huge premium, while making large investments in new companies at much higher price than their real worth. Assessment was completed under section 143(3), without making any addition under section 68 of the Act. Commissioner set aside order and directed the Assessing Officer to make fresh assessment after conducting detailed enquiry and upon satisfying on genuineness of transaction. On appeal dismissing the appeal of assessee the Tribunal held that; order of Commissioner was not based on irrelevant considerations and further in present circumstances, he was not obliged to positively indicate deficiencies in assessment order on merits on question of issue of share capital at a huge premium. Since inadequate enquiry conducted by Assessing Officer was as good as no enquiry making order erroneous and prejudicial to interests of revenue, Commissioner was empowered to revise assessment order. Insertion of proviso to section 68 by Finance Act, 2012 which casts onus on closely held company to explain source of share capital is clarificatory and hence applicable with retrospective effect (AY. 2008-09, 2010-11)

Subhlakshmi Vanijya (P.) Ltd. v. CIT (2015) 155 ITD 171/ 43 ITR 48 / 172 TTJ 721 (Kol.)(Trib.)

S.271(1)(c) : Penalty – Concealment – Revised return – Deemed concealment – Explanation 5A to S. 271(1)(c) on deemed concealment despite income having been offered in the search return explained – Levy of penalty was held to be justified. [S.153A]

Search and seizure action was carried out against the assessee on 9-12-2009. While travelling from Pune to Delhi by air, the assessee was found to be in possession of cash of
Rs. 1,60,76,800/-. The assessee was searched by the Investigation Wing under section 132 of the Act on 9-12-2009 and residence was also searched and cash of
Rs. 1.60 crores was seized during the search proceedings. In the course of recording of statement during the search proceedings, the assessee admitted that she had sold her ancestral property at Delhi for
Rs. 3.40 crores, for which the Agreement was made for Rs. 1.70 crores and the balance amount was received in cash. In response to notice issued under section 153A of the Act, the assessee offered 50% of the Agreement value i.e.
Rs. 85 lakhs and 100% of the cash element i.e. Rs. 1.70 crores in her hand and computed the income from capital gains and declared total income of
Rs. 2,04,91,850/- on 13-9-2010. Against the income from capital gains computed at
Rs. 2,41,17,168/-, the assessee also claimed exemption under section 54 of the Act at
Rs. 38,40,098/-, on account of investment in Mega Polis property. The Assessing Officer while completing assessment, noted that the assessee had not declared the sale consideration of
Rs. 2.55 crores in the original return of income filed and subsequently after the search, the declaration was made on account of total amount of capital gains. The Assessing Officer rejecting the claim of the assessee that it had suomotu offered the income from long term capital gains, and no malafide intention could be attributed to the said disclosure, hence, there was no merit in levy of penalty, held the assessee exigible to levy of penalty under section 271(1)(c) of the Act and levied penalty of
Rs. 47,11,104/-. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD dismissing the appeal:

(i) The deeming provisions of Explanation 5A under section 271(1)(c) of the Act are applicable to all the searches initiated under section 132 of the Act on or after first day of June, 2007. Reading the said provisions of the Explanation 5A to section 271(1)(c) of the Act, it is noted that the person is deemed to have concealed particulars of his income or furnished inaccurate particulars of such income, which is equivalent to the value of money, bullion, jewellery, valuable articles or things from the possession of the assessee during the course of search conducted on or after first day of June, 2007. Further, where any income is based on any entry in any books of account or other documents or transactions and he claims that all the above said represents his income for any previous year, then the Explanation lays down to that extent, the person would be deemed to have concealed his particulars of income or furnished inaccurate particulars of income.

(ii) Now, coming to the main provisions which constitute two portions i.e. what is concealment and quantum of penalty to be levied. The question is quantum of income on which penalty is to be levied. The said issue was before the Pune Bench of Tribunal in ACIT v. Mulay Construction P. Ltd. & Ors in ITA Nos.116 to 119/PN/2012 & Ors. Applying the said proposition to the facts of the present case, Tribunal hold that the income offered by the assessee pertaining to the cash seized from the assessee and the declaration of the assessee that the said cash relates to the unaccounted cash received vide the sale transaction entered into by the assessee, which in turn, was declared by the assessee in the return of income filed pursuant to issue of notice under section 153A of the Act, is the income detected during the course of search and seizure operation. The case of the assessee is squarely covered by the provisions of Explanation 5A to section 271(1)(c) of the Act and the assessee is exigible to levy of penalty on such income which was detected during the course of search and seizure operation, which in turn has been offered by the assessee in return of income filed pursuant to notice issued under section 153A of the Act. (AY. 2009-10)

Sarita Kaur Manjeet Singh Chopra v. ITO( 2015) 174 TTJ 516 / 128 DTR 80 (Pune)(Trib.)

S.271(1)(c) : Penalty – Concealment – Revised return – Offering additional rental income- Levy of penalty was held to be not justified. [S. 22, 139 ]

Allowing the appeal of assessee the Tribunal held that; Assessing Officer could not pass penalty order u/s. 271(1)(c) in a case where assessee suo-motu revised his return declaring additional rental income and paid taxes thereon before any detection of concealment by revenue authorities. (AY. 2010 – 2011)

Harpreet Singh v. ITO (2015) 155 ITD 167 (SMC)(Chandigarh )(Trib.)

S.271(1)(c) : Penalty – Concealment – Admission – Levy of penalty was held to be justified. [S.69B ]

Dismissing the appeal the Tribunal held that; when assessee himself admitted in presence of his Chartered Accountant that he had undisclosed income which was utilised for renovation of his bungalow, revenue authorities were not required to prove by bringing any positive evidence of existence of undisclosed income. Levy of penalty was held to be justified. (AY. 2000-01)

Sudarshan P. Amin v. ACIT (2015) 155 ITD 130 (Ahd.)(Trib.)

S.271(1)(c) : Penalty – Concealment – Satisfaction – A penalty notice u/s. 274 which does not strike out the irrelevant portion & which does not specify whether the penalty is for “concealment” or for “furnishing inaccurate particulars” renders the penalty order void. [S.274 ]

Allowing the appeal of assesse: the Tribunal held that: In the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn.)(HC) has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High Court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and finding the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon’ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled.(ITA No. 13.03/Kol/2010, dt. 16-11-2015) (AY. 2006-07)

Suvaprasanna Bhattacharya v. ACIT (Kol.)(Trib.); www.itatonline.org