143. S.2(IB) : Amalgamation – Assessment completed on the amalgamating company – Held, amalgamation took place after the completion of the financial year in respect of which assessment was completed – Held, prior to amalgamation, liability was of the amalgamating company – Held, order passed on the amalgamating company not a nullity

For the relevant assessment year i.e. AY 2002-03, the assessee filed its return declaring certain taxable income. Subsequently, the assessee company got amalgamated with M Ltd. by way of an order of the High Court dated 26-3-2003. The AO completed the assessment making various additions. The assessee filed an appeal raising a plea that the assessment order passed on 31-3-2005 was a nullity because the assessee had merged with M Ltd. pursuant to an order passed by the High Court on 26-3-2003. High Court held that on a plain reading of the definition of the expression ‘amalgamation’, appearing in section 2(1B), the impression which one receives is that all the liabilities of the amalgamating company immediately before the amalgamation become the liability of the amalgamated company. In the present case, it noted that the assessment was of the year which was prior to the amalgamation and therefore, it held that it was a liability of the amalgamating company which accrued prior to the amalgamation. Further, the Court also noted that the assessee did not bring to the notice of the Revenue, in particular the AO, about the amalgamation sanctioned by the High Court on 26-3-2003. It was also found that the assessee also filed a return for the AY 2003-04. Accordingly, the Court held that the assessee itself did not act upon the amalgamation. For all the reasons, the Court held that the order was not a nullity and that the liability was now of the amalgamated company. (AY. 2002-03)

CIT v. Shaw Wallace Distilleries Ltd.(2016) 386 ITR 14 / 240 Taxman 348(Cal)(HC)

144. S.2(15) : Charitable purpose – No denial of exemption under S. 11 to an educational trust if it let out its auditorium for educational activities [Ss. 11, 12A]

Dismissing the appeal of the revenue, the court held that; if the pre-dominant object is to carryout a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity. Therefore exemption cannot be denied under Section 11 to an educational trust if it let out its auditorium for educational activities. (AY. 2009-10)

DIT(E) v. Lala Lajpatrai Memorial Trust (2016) 383 ITR 345/ 240 Taxman 557 (Bom.) (HC)

145. S.2(24) : Income – Capital or revnue – Sales tax subsidy – Subsidy for encouraging industries to set up units in rural areas – Subsidy constituted a capital receipt

Subsidy given in accordance with the scheme of the State Government for encouraging the industries to set up their units in rural areas and for compensating for the hardship in setting up such industries in remote rural areas was capital receipt and not taxable. (AY 2005-06)

PCIT v. Talbros Engineering Ltd. (2016) 386 ITR 154 (P&H) (HC)

146. S.2(42A) : Short-term capital asset – Period of holding is to be determined from the date on which the agreement to purchase is entered into by paying a substantial amount though the sale deed is executed at a later point in time

Assessee agreed to purchase land by way of an agreement dated 1st April 1995 for which an advance of Rs. 40 lakh was paid by the assessee to the seller in terms of the agreement. However, due to certain disputes the sale deed could not be executed. Ultimately, a compromise was entered into between the parties, and in terms of the said compromise, instead of 3 acres 39 guntas of land which was to be sold in favour of the assessee, only 27 guntas of land was agreed to be sold to the assessee. A sale deed was executed in favour of the assessee on 5th December 2002 and the balance sum of  Rs. 1 lakh was paid by the assessee. Assessee sold the land to a third party on 20th May, 2005 for Rs. 1,02,50,000/- and treated the gains as long term capital gains. AO held the gains to be short term in nature. HC, following the SC decision in the case of Sanjeev Lal, held the gains to be long term in nature. HC observed that in the facts of the present case out of a sum of Rs. 41 lakh which was payable, the assessee had already paid Rs. 40 lakh at the time of entering into the agreement to sell. HC further held that determination of period of holding was a beneficial piece of legislation and the same had to be construed liberally. (AY 2006 – 07)

Lahar Singh Siroya v. ACIT (2016) 138 DTR 331 (Karn.)(HC)

147. S.4. : Charge of Income-tax -Mutuality – Amounts received by the assessee society from its members for allotment of a tenement is not taxable on the grounds of mutuality

Dismissing the appeal of Revenue, the High Court has noted the three tests of mutuality laid down by the Supreme Court in the case of Bangalore Club v. CIT (2013) 350 ITR 509 (SC). HC observed that all these three tests were satisfied in the given case. (1) Revenue had not contended that there was absence of complete identity of the contributors and participants of the Society. (2) Actions of the Society were in furtherance of the object of the Society. It was not the case of the Revenue that building tenaments and giving it to its members was not the object of the Society. (3) There was no scope for profiteering in the present facts, as the members had not purchased the flat but had only got a right to occupy a tenament allotted by the Society. HC held that no substantial question of law arose on these facts. (AYs. 1998 – 99 to 2001-02)

CIT v. Shree Parleshwar Co-operative Housing Society Ltd. (2016) 138 DTR 145/ 287 CTR 468/ 71 taxmann.com 179 (Bom.)(HC)

148. S.4 : Charge of income-tax -AOP – Principle of res judicata would not apply to income tax matters. However, where there is no change in the factual position or the law, the views expressed in one year are binding for the subsequent years

The question before the HC was whether an income can be taxed in the hands of AOP as against the past practice of the Revenue in taxing the same in the hands of members of such AOP. The HC, referring to the decision of Apex Court in the case of Radhasoami Satsang v. CIT [193 ITR 321 (SC) and Bharat Sanchar Nigam Ltd. v. UOI [(2006) 282 ITR 273 (SC)] held that though the principle of res judicata is not applicable to tax matters as cause of action for each assessment year is different/distinct, however, in a case where there is no change in the factual position or the law, the view expressed in one year is binding for the subsequent years based on the principle of consistency. The HC further held that in the present case, the Revenue has to prove that the facts of this year are different from earlier years to tax the income in the hands of AOP. Accordingly, the matter was set aside to the files of Commissioner to examine afresh. (AY. 2011-12)

Madhukar C. Ashar v. UOI(2016) 239 Taxman 367 (Bom)(HC)

149. S.4 : Charge of income-tax -Capital or revenue receipt – Income from sale of carbon credits – Carbon credits not a by-product of business – Capital receipt [Ss. 2(24), 28(i), 263]

Carbon credit is not an offshoot of business, but an offshoot of environmental concerns. Income received by sale of carbon credits is a capital receipt. Revision of order was held to be not justified. (AY. 2009-10)

CIT v. Subhash Kabini Power Corporation Ltd. (2016) 385 ITR 592/ 240 Taxman 514/ 287 CTR 147 (Karn.)(HC)

150. S.4 : Charge of income-tax – Capital or revenue receipt – Sum received by assessee from ex-husband on sale of property -Finding by Tribunal that money received by assessee amount to lump sum alimony – Department not preferring appeal against finding of Tribunal indicating Department satisfied with finding – Lump sum alimony in nature of capital receipt and not taxable [S. 2(24)]

Sale proceeds were received by the assessee on account of alimony from her former husband, it was open to the assessee to contend that the receipt was capital in nature and therefore not taxable. When the alternative case, which the assessee could have made, was not only found against her but also put forward as an answer to her claim, it was not improper to grant her the benefit on the basis that alimony was not taxable. When the Department did not prefer an appeal against the finding of the Tribunal that the payment was “on account of alimony”, the Department must be deemed to be satisfied by such finding. Therefore, it was to be concluded that lump sum alimony received by the assessee was in the nature of a capital receipt and was not taxable (AY. 1997-1998).

Roma Sengupta v. CIT (2016) 385 ITR 663/ 238 Taxman 682/ 288 CTR 234 (Cal.)(HC)

151. S. 4 : Charge of income-tax – Mutuality – Transfer fee and non – occupancy charges received from the members was held to be not taxable

Allowing the appeal of the assesse the Tribunal held that Transfer fee and non-occupancy charges received from the members was held to be not taxable. Followed CIT v. Darbhanga Mansion CHS Ltd. (2015) 370 ITR 443 (Bom) (HC) & Mittal Court Premises Co-operative Society Ltd. v. ITO (2010) 320 ITR 414 (Bom) (HC) ( ITA No. 3566/Mum/2014, dt. 15-1-2016) )(AY. 2009-10)

Land End Co-operative Housing Society Ltd. v. ITO (Mum)(Trib.); www.itatonline.org

152 S.5 : Scope of total income – Interest accrued on non-performing assets could not be brought to tax on notional basis even if assessee had adopted mercantile system of accounting. [S. 4,145 ]

During the assessment proceedings, the AO made an addition of interest income accrued on non-performing assets. The AO was of the view that as the assessee follows mercantile system of accounting, therefore the interest accrued should be chargeable to tax.

On appeal before the High Court, the High Court after placing reliance on case of CIT v. .Canfin Homes Ltd. (2012) 347 ITR 382 (Karn)(HC) held that interest on non-performing asset cannot be brought to tax on notional basis. Further the High Court held that the nomenclature ‘non-performing asset’ would also include bad loans and advances. As a result the Revenue’s appeal challenging the Tribunal’s order was dismissed. (AY. 2009-10, 2010-11)

CIT v. Shri Siddeshwar Co-Operative Bank Ltd (2016) 240 Taxman 588 (Karn)( HC)

153. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Consideration not royalty and cannot be characterised as fees for technical services. No part of income taxable in India. [DTAA-India – Singapore [Arts. 5(3), 7, 12(4)(a)]

Assessee not having permanent establishment in India. Control of equipment with assessee and not transferred. Contract for rendering services and not for hiring equipment. Services not involving transfer of technology, skill, experience or know-how and constituting integral part of contract. Consideration not royalty and cannot be characterised as fees for technical services. No part of income taxable in India. (AY. 2009-2010)

Technip Singapore Pte Ltd v. DIT (2016) 385 ITR 408/ 240 Taxman 373 (Delhi)(HC)

154. S.12AA : Procedure for registration – Application – Date from when effective – Submission of audited accounts along with application – Directory and not mandatory – Application for registration submitted without audited accounts – Application not to be treated as defective – Registration to be allowed from date of filing application not date on which defects in application cured

Held, application under section 12AA was filed without any defect and the audited accounts were submitted later on because submission of audited accounts along with the application was not mandatory. There was no error in the order of the Tribunal which allowed the registration from the date of submission of the application by the assessee. The Tribunal and the Department had not pointed out any defect in the application other than the non-filing of the audited accounts with the application, which was not mandatory.

CIT v. Garment Exporters Association of Rajasthan (2016) 386 ITR 20 (Raj.)(HC)

155. S.12AA : Procedure for registration -Trust or Institution – Submission of audited accounts along with the application made for registration under section 12AA is directory and not mandatory and the registration would take effect from the date of application though the audited accounts are submitted later

Assessee made an application for registration under section 12AA. As the application was not filed along with a copy of the audited accounts, a copy thereof was sought and registration was granted. The case of the Revenue before the HC was that the registration took effect not from the date of the application made by the assessee but from the date on which the defect was removed by submitting a copy of the audited accounts. HC accepting the assessee’s arguments held that the requirement of submitting the audited accounts along with the application was not mandatory but directory in nature. Therefore, the application made by the assessee could not be considered to be defective in nature and hence, the registration took effect from the date of the application made by the assessee for registration.

CIT v. Garment Exporters Association of Rajasthan (2016) 138 DTR 214 (Raj.)(HC)

156. S.14A : Disallowance of expenditure – Exempt income – If the investments in tax free bonds were made out of assessee’s own funds, no disallowance could be made

Assessee made investment in shares, mutual funds and tax free bonds out of its own funds. However, the AO disallowed proportionate interest expenditure incurred on its borrowed funds. On assessee’s appeal, the CIT(A) deleted the disallowance, as the investments were made out of assessee’s own funds and not made out of borrowed funds. On Revenue’s appeal, the Tribunal upheld the order of the CIT(A). On Revenue’s further appeal, the High Court held that the Revenue has not been able to show that the CIT(A)’s and Tribunal’s findings were perverse and therefore, no question of law arose. (AY. 1998-99)

CIT v. Nicholas Piramal (India) Ltd. (2016) 239 Taxman 470 (Bom.) (HC)

157. S.22 : Income from house property – Business income – Assessee leasing out property to restaurant for 12 years renewable for further period of 12 years – Intention of assessee to enjoy rental income- Assessable as income from house property [S. 28(i)]

Dismissing the appeal of assessee the Court Held that the Tribunal categorically recorded that upon perusal of the memorandum of understanding between the assessee and the lessee, it showed that the property was given for use for a period of 12 years which was renewable for a further period of 12 years and nowhere was it shown that the intention was to let it out for a temporary period. This showed the intention of the assessee to enjoy rental income, which was rightly treated as income from house property by the Assessing Officer. The view adopted by the Tribunal was a plausible view and the assessee failed to show any illegality or perversity in that order. (AY 2005-06)

Batra Palace P. Ltd. v. CIT (2016) 385 ITR 144 (P & H)(HC)

158. S.28(i) : Business loss – Mark to market loss – Loss suffered in foreign exchange transactions entered into for hedging business transactions cannot be disallowed as being “notional” or “speculative” in nature. [S. 43(5)]

Dismissing the appeal of revenue ; the Court held that;

(i) The Tribunal has, while upholding the finding of the CIT(Appeals), independently came to the conclusion that the transaction entered into by the assessee is not in the nature of speculative activities. Further the hedging transactions were entered into so as to cover variation in foreign exchange rate which would impact its business of import and export of diamonds. These concurrent finding of facts are not shown to be perverse in any manner. In fact, the Assessing Officer also in the Assessment Order does not find that the transaction entered into by the assessee was speculative in nature. It further holds that at no point of time did Revenue challenge the assertion of the assessee that the activity of entering into forward contract was in the regular course of its business only to safeguard against the loss on account of foreign exchange variation. Even before the Tribunal, we find that there was no submission recorded on behalf of the Revenue that the assessee should be called upon to explain the nature of its transactions. Thus, the submission now being made is without any foundation as the stand of the assessee on facts was never disputed.

(ii) So far as the reliance on Accounting Standard 11 is concerned, it would not by itself determine whether the activity was a part of the assessee’s regular business transaction or it was a speculative transaction. On present facts, it was never the Revenue’s contention that the transaction was speculative but only disallowed on the ground that it was notional.

(iii) The reliance placed on the decision in S. Vinodkumar Diamonds Pvt. Ltd. v. Addl. (2013) 89 DTR 129 (Mum.)(Trib.) in Revenue’s favour would not by itself govern the issues arising herein. This is so as every decision is rendered in the context of the facts which arise before the authority for adjudication. Mere conclusion in favour of the Revenue in another case by itself would not entitle a party to have an identical relief in this case. In fact, if the Revenue was of the view that the facts in S. Vinodkumar are identical/similar to the present facts, then reliance would have been placed by the Revenue upon it at the hearing before the Tribunal. The impugned order does not indicate any such reliance. It appears that in S. Vinodkumar, the Tribunal held the forward contract on facts before it to be speculative in nature in view of section 43(5) of the Act. However, it appears that the decision of this Court in CIT v. Badridas Gauridas (P) Ltd.( 2004) 261 ITR 256 (Bom.)(HC) was not brought to the notice of the Tribunal when it rendered its decision in S. Vinodkumar (supra). In the above case, this Court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. (ITA No. 278 of 2014, dt. 1-10-2016) (AY. 2009-10)

CIT v. D. Chetan & Co. (Bom.)(HC), www.itatonline.org

159. S.32 : Depreciation – Assets which are necessary for setting up and running of a windmill would be eligible for depreciation at the rate of 100%

The assessee, running windmill, claimed 100% depreciation on assets like temporary approach road, central control room, 33 KV Transformer yard, 33 KV grid line, metering yard, vacuum circuit breakers, additional meeting yard and earth pit. The Assessing Officer allowed the depreciation at the rate of 25%. On assessee’s appeal, the CIT(A) confirmed the order of the Assessing Officer.

On further appeal, the Tribunal relied on its Co-ordinate Bench decision in the case of MET Developers & Builders, which involved identical facts and therefore, allowed the entire claim of depreciation at the rate of 100%.

On Revenue’s further appeal, the High Court held that full amount of depreciation would be allowed, as the assets would be necessary for setting up of a windmill (AY 1997-98).

CIT v. Infrastructure Leasing & Financial Services Ltd. (2016) 239 Taxman 464 (Bom.) ( HC)

160. S.32 : Depreciation – Dyes and moulds used for manufacture of switches are entitled to depreciation at the rate of 30%

The High Court held that the dyes and moulds used in manufacture of switches are entitled to a depreciation at the rate of 30% under sub- clause(vii) of clause(3) of Entry III in Part-A in the New Appendix I as the assessee is involved in manufacture of plastic goods (switches). (AY 2006-07).

PCIT v. L.K. India Pvt Ltd. (2016) 240 Taxman 627 (Gu.j) (HC)

161. S.36(1)(iii) : Interest on borrowed capital – Advance of loans to sister concern – Disallowance of interest was not justified

Allowing the appeal of assessee the court held that; where both assessee and its sister concern to whom loans were advanced were in the same business – without indicating difference in nature of their business activities, Revenue could not disallow interest on borrowed capital on the ground that loan was advanced for non-business purpose (AY. 1991-92).

Industrial Feeders v. ACIT (2016) 240 Taxman 506 (Mad.) (HC)

162. S.36(1)(iii) : Interest on borrowed capital – Where the assessee company borrowed certain amount to set up a new plant for expanding its business, interest paid on amount borrowed was to be allowed as deduction [S. 43(1)]

On Revenue’s further appeal, the High Court held that the CIT(A)’s and Tribunal’s findings of glass manufacturing being an existing business and commonality of management and funds have not been perverse and therefore, no question of law arose. Where the assessee company borrowed certain amount to set up a new plant for expanding its business, interest paid on amount borrowed was to be allowed as deduction (AY 1998-99).

CIT v. Nicholas Piramal (India) Ltd. (2016) 239 Taxman 470 (Bom.) (HC)

163. S.36(1)(vii) : Bad debt – Write-off of bad debts were held to be allowable as the pending cases against the debtors cannot deter an assessee from making a claim in respect of write off

The assessee made a claim of write-off of losses which were partly allowed by the Assessing Officer. The Tribunal allowed the entire claim by finding that the same were incidental to the business of the assessee and that pending cases against the debtors before the Courts cannot deter an assessee from writing off the losses and claim the same under section 36(1)(vii) as it is a forseeable business loss. The said finding was upheld by the High Court. (AY 2008-09)

PCIT v. RJD Impex (P) Ltd. (2016) 240 Taxman 502 (Guj.)(HC)

164. S.37(1) : Business expenditure – Fines and penalties – Penalty charges paid to Pollution Control Board was held to be allowable

The payment made by the assessee to Pollution Control Board was for the purpose of compensating the damage to the environment and this compensation was recovered on the “polluter pays” principle. It was not the case that the business pursued by the assessee was illegal. Hence, the amount was allowed as deduction.(AY. 2003-04 )

Shyam Sel Ltd. v. Dy. CIT (2016) 386 ITR 492 (Cal.)(HC)

165. S.37(1) : Business expenditure – ad hoc disallowance of 50% of miscellaneous expenditure – Held, no finding by the AO that either the expenditure was not genuine or that books have been rejected – Held, disallowance not justified.

The assessee claimed deduction of a certain amount as miscellaneous expenditure. The AO disallowed 50 per cent of the expenditure on the basis that the assessee was not doing any business activity but acting as a real estate developer and that the expenditure claimed was not related to day-to-day business activities.The CIT(A) held that the assessee reasonably established that the expenditure was necessary for running any business establishment and that AO had not held the expenditure to be non-genuine or disallowance was not based on any scientific method or any specific defects were pointed out in the books of account. High Court held that CIT(A) had examined the record and the accounts produced by the assessee and after scrutiny of the same returned findings of fact that the expenditure was justified. Further it was held that no rationale was given by the AO for disallowing 50 per cent of the expenditure incurred. Neither was there a finding that the expenditure was not genuine nor were the books of account been rejected by the AO (AY 2008-09).

CIT v. DLF Hilton Hotels [2016] 69 taxmann.com 300/ [2016] 240 Taxman 495 (Delhi)(HC)

166. S.37(1) : Business expenditure – Capital or revenue – non-compete fees – Held, only if non-competition agreement is of permanent or enduring nature, payment thereunder can be said to be capital expenditure – Held, if the agreement only provided for restrictive covenant which eliminated competition for three years, payment thereunder, cannot be treated as capital expenditure

The assessee was a company involved in setting up of power projects. The assessee was initially promoted by three companies including KHPL represented by one R. Raju. Due to certain disputes, an agreement was signed according to which said R. Raju would exit from assessee-company and would stay away of all contacts, suppliers, funding agencies and other business associates of the assessee. The non-competition agreement was only for a limited period of three years to ward off competition in territory of Andhra Pradesh. The assessee paid Rs. 3.25 crore to KHPL and claimed deduction as revenue expenditure. AO treated the said expenditure as capital expenditure. High Court held that the non-competition agreement was not of a permanent or an enduring nature, on the contrary the agreement prevented R. Raju from establishing a power plant only for a period of three years from the date of the agreement and therefore, it was held that the payment made under such agreement was revenue in nature. (AY 2002-03).

CIT v. Andhra Fuels (P.) Ltd. [2016] 70 taxmann.com 271/ [2016] 240 Taxman 280 (AP)(HC)

167. S.37(1) : Business expenditure – Where the assessee had to close down one of its unit on account of statutory compulsion, expenditure incurred on shifting of manufacturing activity of the said unit to other units was to be allowed as a deduction

Where the assessee had to close down one of its unit on account of statutory compulsion, expenditure incurred on shifting of manufacturing activity of the said unit to other units was to be allowed as a deduction. High Court held that the findings were not shown to be perverse and therefore, Revenue’s appeal was held to be dismissed (AY 1998-99).

CIT v. Nicholas Piramal (India) Ltd. (2016) 239 Taxman 470 (Bom.) (HC)

166. S.37(1) : Business expenditure -Capital or revenue – Expenditure incurred on renovation of rented premises is capital in nature and therefore, depreciation is to be allowed [Ss. 30, 32]

The assessee made a claim of expenses incurred on repairs and maintenance of the premises which also included rented premises. The Assessing Officer found that under the garb of repairs and maintenance, the assessee had carried out major renovation and after perusal of the nature of expenses incurred, held that 25% of the expenses is to be treated as revenue in nature and the balance is to be treated as capital in nature and thereby, allowing depreciation on the same, which action was upheld both by CIT(A) and by Tribunal. On appeal, the High Court was held that the expenses incurred provided long term enduring benefit to the assessee and therefore, is to be treated as capital expenditure. It was also held that the claim is not under section 30 as well as it excludes expenses in the nature of capital expenditure (AY. 1996-97).

RPG Enterprises Ltd. v. DCIT (2016) 386 ITR 401 / 240 Taxman 614 / 138 Taxman 49 (Bom.)(HC)

167. S.37(1) : Business expenditure – Bogus purchases -Disallowance of 25% of expenses was held to be not justified [S. 40(A)(3)]

The Assessing Officer disallowed 25% of the payments for purchases incurred by the assessee on the ground that the payments were actually not made by the assessee for the purchases made. Tribunal has up held the order of Assessing Officer. On appeal allowing the appeal of assessee the Court held that the purchases were genuine and are allowable as the Assessing Officer has accepted the corresponding sales and that it is not established by the Assessing Officer that the payments made by the assessee for purchases by crossed cheque was ultimately encashed either by or on behalf of the assessee. Order of Tribunal was set side. (AY. 2003-04).

Yunus Haji Ibrahim Fazalwala v. ITO (2016) 240 Taxman 198 (Guj)(HC)

168. S.37(1) : Business expenditure – Capital or revenue – Guarantee commission to acquire the asset on installment terms is revenue expenditure

Expenditure incurred for the purchase of the machinery was undoutedly capital expenditure; for it brought in an asset of enduring advantage. But the guarantee commission stands on a different footing. By itself, it does not bring into existence any asset of an enduring nature; nor did it bring in any other advantage of an enduring benefit. The acquisition of the machinery on installment terms was only a business exigency. If interest paid on a credit purchase of machinery could be held to be revenue expenditure, we fail to see how guarantee commission paid to a bank for obtaining easy terms for acquisition of the machinery could be regarded as capital payments (ITA No. 85/2016, dt. 29-9-2016) (AY. 2010-11).

Haryana State Road & Bridge Development Corporation Ltd. v. CIT (P&H)(HC), www.itatonline.org

169. S.40(a)(ia) : Amounts not deductible – Payment of wages through agents – No work contracts – Persons to whom payments made neither contractors nor sub-contractors -No liability to deduct tax at source – Disallowance unsustainable [S. 194C]

Allowing the appeal of assessee the Court held that: The persons to whom the payments had been made had been working on behalf of the assessee and not as sub-contractors and there was nothing on record to show that any work had been assigned to them by the assessee. The payment made to workers through the hands of the four persons was a payment made directly by the assessee to those persons. On the basis of the letters that had been received by the Assessing Officer from the four persons, it could neither be held that they were sub-contractors nor that the assessee had assigned to them the work that had been entrusted with him. Unless these factors were proved, the question of applicability of section 194C(2) did not arise and that there was no liability of deduction of tax at source. The order of the Tribunal upholding the addition of labour charges was perverse. (AY 2006-07)

Jiauddin Mollah v. CIT (2016) 385 ITR 394 (Cal.)(HC)

170. S.40(a)(ia) : Amounts not deductible – Freight charges – Assessee, buyer, reimbursing transportation expenses – Liability to deduct tax at source on supplier under agreement – No liability on assessee to deduct tax [S. 194C]

Allowing the appeal of assessee the Court held that under the contract of sale, the seller was bound to send the goods to the buyer and showed that the seller was bound to pay the transportation charges to the transport agency and was entitled to recover it from the buyer. The assessee had merely reimbursed the cost of transportation incurred by the seller. Section 40(a)(ia) might be applied to the seller but not to the case of the assessee who was the buyer. The agent being the supplier had admittedly paid to the transporters and had also deducted the tax at source. When the agent had complied with the provision, the principal could not have been visited with penal consequences. For one payment there could not have been two deductions. Moreover, when a person acted through another, in law, he acted himself. The Tribunal was wrong in holding that the assessee was liable to deduct tax at source in respect of the freight component (AY 2006-07)

Hightension Switchgears P. Ltd v. CIT (2016) 385 ITR 575/ 240 Taxman 582 (Cal.)(HC)

171. S.41(1) : Remission or cessation of trading liability – Merely because creditor could not be traced cannot lead to cessation of liability

Dismissing the appeal the Court held that; just because creditor of assessee is not traceable it cannot satisfy the requirement of cessation of liability. High Court held that even if creditor has expired, the legal heirs has the right to claim the debt from the assessee. Thus, upholding the view of Tribunal, High Court held that conditions for invoking Section. 41(1) were not satisfied (AY 2009-10).

CIT v. Alvares & Thomas (2016) 239 Taxman 456 (Karn.)(HC)

172. S.45 : Capital gains – International transaction – Chapter X deals primarily with evasion of tax – No income chargeable to tax [Ss. 2(47), 92B, 92C]

Held, that the conclusions of the Tribunal did not in any manner indicate that the essential ingredients of amended section 2(47) were satisfied. If the transaction was indirect, circuitous and to take place in future, then, on the basis thereof the Tribunal could not have concluded that the amended definition of the term “transfer” was attracted, that the matter must be viewed differently and distinctly and not in the manner noted by the Supreme Court in Vodafone International Holdings B. V. v. Union of India [2012] 341 ITR 1 (SC). A holistic view and approach ought to be adopted in considering such intricate deals and complex transactions. One transaction cannot be picked up in isolation so as to hold that it was a deliberate and intentional act of the parties to circumvent Indian tax structure. Capital asset means property and throughout there was only a transfer of a share. Further, the overseas transaction and thereafter all the agreements or arrangements evinced an intention of the assessee to control the telecommunication business of HEL in India through TII and downstream companies. On the same transactions and same set of facts reaching a different conclusion than that reached by the Supreme Court was not possible and was impermissible. The Tribunal’s order was vitiated by serious errors of law apparent on the face of the record. It was also perverse for it ignored vital materials which had been noted extensively in the judgment of the Supreme Court. None of the amendments post the Supreme Court judgment would enable the Department to urge that the position as noted in the Supreme Court judgment no longer subsisted. There were no capital gains. Since there was no income the provisions of section 92B read with section 92F(v) were not applicable (AY 2008-09)

Vodafone India Services P. Ltd. v. CIT (2016) 385 ITR 169 / 284 CTR 441/ 69 taxmann.com 283 (Bom.)(HC)

173. S.45 : Capital gains – Transfer – Distribution of capital asset -Where AOP could not be taxed at the time of distribution of capital assets, it is not open to department to tax the members of AOP [Ss. 2(47), 4, 45(4)]

Dismissing the appeal of Revenue the Court held that; when the AOP was dissolved and assets were distributed among the members of AOP, at that time, the department ought to have taxed the AOP u/s. 45(4) of the Act. Having failed to do so, it is not now open to the department, to tax the erstwhile members of AOP on the distributed amounts. Merely because the right person could not be taxed, it is not open to department to tax wrong person.

PCIT v. Ind Sing Developers (P.) Ltd. (2016) 239 Taxman 350 / 288 CTR 154 (Karn.) (HC)

174. S.48 : Capital gains – Full value of consideration – Part of consideration was paid by said other company directly to shareholders of assessee with its consent would not absolve assessee from recognising entire consideration for computing capital gains [S. 45]

Allowing the appeal of Revenue the Court held that; where in terms of scheme of arrangement assessee transferred one of its divisions to other company, it was only assessee which was entitled to receive entire consideration for transfer of its assets and mere fact that part of consideration was paid by said other company directly to shareholders of assessee with its consent would not absolve assessee from recognising entire consideration for computing capital gains (AY 1997-98).

CIT v. Salora International Ltd. (2016) 386 ITR 580 / 240 Taxman 7 (Delhi)(HC)

175. S.54 : Capital gains – Profit on sale of property used for residence -Merely because the assessee got the occupancy certificate after 4 years and such delay was beyond control of the assessee, assessee’s claim for deduction was to be allowed [S. 45]

Dismissing the appeal of Revenue; where assessee sold a residential property and entered into an agreement with a builder for purchasing flat by investing the sale proceeds within the prescribed period of two years. Merely because the assessee got the occupancy certificate after 4 years and such delay was beyond control of the assessee, assessee’s claim for deduction u/s. 54 was to be allowed.

CIT v. Girish L. Ragha (2016) 239 Taxman 449 (Bom. HC)

176. S.54F : Capital gains – Investment in a residential house – Exemption could not be denied to the assessee, where he sold a land and purchased another house property [S. 45]

Dismissing the appeal of Revenue the Court held that; where assessee was owner of a residential house and a commercial property and earned income from both the properties. Exemption could not be denied to the assessee, where he sold a land and purchased another house property.(AY 2009-10)

CIT v. I. Ifthiqar Ashiq (2016) 239 Taxman 443 (Mad) (HC)

177. S.64 : Clubbing of income – Benami property of assessee and income of such unit was rightly clubbed with income of assessee. [Indian Contract Act, 1872, S. 11]

Dismissing the appeal the Court held that ; where assessee filed returns of his daughter ‘K’ declaring income derived from a unit ‘P’ and stated that said unit belonged to his wife ‘S’ and ‘K’ had purchased it from ‘S’, since it was apparent from record that unit ‘P’ was neither owned by ‘K’ nor by ‘S’, it would have to be held that said unit was benami property of assessee and income of such unit was rightly clubbed with income of assessee. The High Court held that, if ‘K’ was minor, it is difficult to understand how she earned money to pay the same to her mother. Moreover when she was minor, how she has got capacity to execute promissory note in favour of her mother. The HC further relied on the observations made by the Supreme Court in the case of Mathai Mathai v. Joseph Mary @ Marykkutty Joseph [2015] 5 SCC 622 held that any contract by the minor is void. Thus it concluded that ‘K’ was not competent to execute any promissory note which is also an agreement between her and her mother, hence such document is void one. Taking into consideration of all these documents and statement of ‘K’, the Bench was of the considered view that the unit ‘P’ is not owned by ‘K’. Moreover neither the assessee takes the plea nor is document proved to show that the said unit is owned by his wife ‘S’. Thus it was held that ‘P’ is a benami property of the assessee.

Sri Suru Bhaskar Rao v. CIT ( 2016) 386 ITR 419/ 286 CTR 200/ 239 Taxman 6 (Orissa)(HC)

178. S.69 : Unexplained investments – in absence of any independent material to come to conclusion that assessee has paid extra consideration for purchase of property over and above what was stated in sale deed of property – Mere report of DVO cannot form sale basis to make addition under section 69 of the Act

Allowing the appeal of assessee the Court held that the basis of the addition is only valuation report of the District Registrar under the Stamp Act and the Departmental valuer. As such, there is no independent material which had come on record for such purpose. The payment of additional stamp duty may be on the basis of the valuation of the valuer of the Stamp Act authority but same ipso facto cannot be said to be a valid ground to initiate the proceedings under section 69 of the Act. Under such circumstances, the addition made by the AO and further upheld by the CIT(A) as well as by the Tribunal, cannot be sustained. Hence the High Court ruled in favour of the assessee. (AY. 2006-07)

S. S. Jyothi Prakash v ACIT (2016) 240 Taxman 741 (Karn.) (HC)

179. S.73 : Losses in speculation business – Loss arising on dealing in units of mutual funds/bonds would not be considered as loss in speculation business

Dismissing the appeal of revenue, the Court held that Loss arising on dealing in units of mutual funds/bonds would not be considered as loss in speculation business. (AY 2004-05)

CIT v. Hertz Chemicals Ltd. (2016) 386 ITR 39 / 239 Taxman 431 (Bom.) (HC)

180. S.73 : Losses in speculation business – Assessee incurred substantial losses in settlement of options and derivatives which was treated as normal business loss – AO held that Explanation to section 73 would prevail over section 43(5) and accordingly, treated such loss as speculative loss – Held, losses incurred on account of derivatives will be deemed to be business loss in view of proviso to section 43(5) and not speculation loss [Section 43(5)]

The assessee-company was dealing in settlement of future and option/derivatives and suffered loss. AO treated the said loss as speculation loss by applying provision of Explanation to section 73. Department tried to argue that provision of section 73 are more specific as compared to general provisions of section 43(5). High Court held that, it cannot be said that section 43(5) is a general provision and the provision contained in section 73 is specific in nature. On the contrary, the object of sub-section (5) of section 43 is to define ‘speculative business’. It was held that once the transaction forms part of a deemed business under relevant clauses of section 43(5), then the losses of such business can be set off against income of any other business. In so far as Explanation to section 73 is concerned, the Court held that, it does not apply to derivatives, on the contrary applies to shares and that derivatives cannot be treated at par with shares. Accordingly, the Court held that, loss from derivatives is a business loss and not a speculative loss. (AY 2009-10).

Asian Financial Services Ltd. v. CIT (2016) 240 Taxman 192 (Cal.)(HC)

181. S.80-IA : Industrial undertakings – Development of infrastructure -Assessee engaged in generation of power – Losses set off – Assessee entitled to special deduction

Dismissing the appeal of revenue the Court held that the assessee was an individual having income from salary, business and other sources and was generating power through windmills and had claimed the benefit of deduction under section 80-IA for the assessment year 2011-12 and for the subsequent years as well. Having exercised his option and his losses having been set off already against other income of the business enterprise, the assessee fell within the parameters of section 80-IA of the Act. He was entitled to special deduction under section 80IA of the Act. (AY 2011-12)

CIT v. P.V. Chandran (2016) 385 ITR 479 (Mad.) (HC)

182. S.80-IA : Industrial undertaking – Losses and depreciation set off against other profits and gains of earlier years – Assessee entitled to deduction

Assessee was entitled to deduction under section 80-IA of the Act without setting off the losses and unabsorbed depreciation pertaining to the windmill. (AY 2003-04, 2004-05, 2005-06 )

CIT v. SAS Hotels and Enterprises Ltd. (2016) 385 ITR 324 (Mad.)(HC)

183. S.80-IC : Special category states – Only those hotels which are set up as Eco-tourism units are eligible for deduction [S.80-IC(2)(b)]

The assessee had set up hotels in Dehradun. AO held that for claiming deduction under S. 80-IC(2)(b), it was not enough to set up a hotel but the assessee’s hotel also had to be associated with eco-tourism as S. 80-IC(2)(b) read with the Fourteenth Schedule covers only those undertakings or enterprises which are engaged in eco-tourism including hotels, resorts, spa, entertainment/amusement parks and ropeways. HC held that Legislature did not intend that any person who sets up a hotel in Uttarakhand, without any regard to the exact location, and the manner in which it operates, its impact on the environment, its relationship with the local people, what it does for the people there, should be entitled to claim the benefit. HC further held that only those hotels which were set up as Eco-tourism units would be entitled to the benefit of 80-IC and the fact that a No Objection Certificate has been obtained from the Pollution Control Board is not determinative of the fulfilment of conditions of S. 80-IC. Appeal of revenue was allowed.

CIT v. Aanchal Hotels (P) Ltd. (2016) 138 DTR 169/287 CTR 233 / 241 Taxman 108 (Uttarakhand) (HC)

CIT v. Pankaj Nagalia (2016) 138 DTR 169/ 287 CTR 233/ 241 Taxman 108 (Uttarakhand)(HC)

184. S.92C : Transfer pricing – Arm’s length price – Cash profits to operating cost as PLI is an appropriate ratio while applying TNMM, particularly when the ratio was adopted by TPO in subsequent year

Dismissing the appeal of revenue the Court held that the adopting ratio of cash profits to operating cost as PLI is an appropriate ratio under TNMM; particularly when the same ratio was adopted by TPO in subsequent years. (AY. 2005-06)

CIT v. Reuters India P Ltd. (2016) 239 Taxman 428/ 288 CTR 714 (Bom.) (HC)

185. S.115J : Book profits – Powers of Assessing Officer – No power to go behind duly certified books of account. [S. 115JA]

Dismissing the appeal of revenue, the Court held that; Once there was no dispute that the books of account were maintained in accordance with law and were duly certified, it was not open to the Assessing Officer within his limited jurisdiction, to disallow a debit entry made by the assessee. The Tribunal’s order setting aside a similar disallowance for the assessment year 1998-99 was also confirmed.

Both the provisions for doubtful debts and diminution in the value of investment were covered by clause (g) of the Explanation to sub-section (2) of section 115JA of the Act. Clause (g) was introduced with effect from April 1, 1998. Disallowances were made in the assessment year 1997-98. Therefore, the amendment which became operative from April 1, 1998 was not applicable to the assessment year 1997-98. The disallowances were deleted. (AY. 1997-98,
1998-99)

CIT v. Peerless General Finance and Investment Co. Ltd. (2016) 385 ITR 130 (Cal.)(HC)

186. S.115JA : Book profit – Lease equalisation charges is not to be added back to the income for the purpose of computation of book profits

The Assessing Officer disallowed the lease equalisation charges for the purpose of computation of book profits, which was upheld by the CIT(A) but rejected by the Tribunal. Upholding the order of the Tribunal and agreeing with the view taken by the Delhi High Court in the case of CIT v. Virtual Soft Systems Ltd. [2012] 341 ITR 593/205 Taxman 257/18 taxmann.com 119, it was held that the lease equalisation charge is a method of recalibrating the depreciation claimed by the assessee in a given accounting period and that the method employed by the assessee, therefore, over the full term of the lease period would result in the lease equalisation amount being reduced to a naught, as the debits and credits in the profit and loss account would square off with each other. Under the circumstances, the same is neither in the form of a reserve nor a deduction. (AY. 2000-01)

PCIT v. Sun Pharmaceuticals Industries Ltd (2016) 240 Taxman 686 (Guj)(HC)

187. S.131 : Power – Discovery – Production of evidence – Summons can be issued u/s. 131(1A) even after the search proceedings are initiated. [S. 132]

HC upheld the validity of the summons issued u/s. 131(1A) after the search proceedings initiated u/s. 132. HC held that summons can be issued before or even after the search proceedings are initiated. HC held that the words ‘referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section’ in S. 131(1A) qualify the words ‘authorised officer’ only and not the other specified authorities named in the section.

Emaar Alloys (P) Ltd. v. DGIT (Inv) & Ors. (2016) 138 DTR 54 (Jharkhand)(HC)

188. S.131 : Power – Onus of proof -Assessee not producing relevant material or witnesses for cross examination – Evidence indicating no trading transactions carried out but mere accommodation entries – Assessee not discharging onus – Department’s failure to summon witnesses immaterial

Appellate authorities were justified in maintaining the additions of the sums claimed by the assessee on account of loss. The onus was on the assessee to prove the genuineness of the transactions by producing the relevant evidence and material on record which he had failed to do. The assessee was unable to produce the witnesses for cross examination from the broker firm of which he claimed to be a client. Further, the evidence collected from the stock exchange and confronted to the assessee had proved that the commodity transactions had not been actually carried out but were mere accommodation entries. The assessee having failed to discharge the primary onus of proving the genuineness of the transactions, no right accrued in his favour on account of non-summoning of the witnesses by the AO under section 131. The assessee had been unable to show any material to controvert the findings recorded by the authorities below. (AY 2006-07)

Sham Sunder Khanna v. CIT (2016) 386 ITR 461 (P&H)(HC)

189. S.132B : Application of seized or requisitioned assets – Department’s recalcitrance to release the assessee’s seized jewellery, even though it is so small as to constitute “stridhan” and even though no addition was sustained in the assessee’s hands, is not “mere inaction” but is one of “deliberate harassment” [S. 132, Constitution of India Art. 300-A]

Allowing the petition the Court held that Department’s recalcitrance to release the assessee’s seized jewellery, even though it is so small as to constitute “stridhan” and even though no addition was sustained in the assessee’s hands, is not “mere inaction” but is one of “deliberate harassment”. The obdurate refusal of the respondents to release the jewellery constitutes deprivation of property without lawful authority and is contrary to Article 300-A of the Constitution of India. The petition has to succeed; a direction is issued to the respondents to release the jewellery within two weeks and in that regard intimate to the petitioner the time and place where she (or her representative) can receive it. The respondents shall also pay costs quantified at Rs. 30,000/- to the petitioner, within four weeks, directly. The writ petition is allowed in terms of these directions. (WP. No. 7620/2011, dt. 21-10-2016)

Sushila Devi v. CIT (Delhi)(HC), www.itatonline.org

190. S.132B : Application of seized or requisitioned assets – Attitude of the Revenue in not returning seized assets despite assessee having succeeded in appeal is clearly arbitrary and shows an attitude of undue harassment to the assessee in the garb of public Revenue, court awarded cost of Rs. 25,000 and directed the revenue to pay interest at 18% [S. 132]

Pursuant to search and seizure FDRs etc. were seized. Block Assessment was made but on petitioner’s appeal, same was set aside by Commissioner of Income Tax (Appeals), Kanpur, vide order dated 21-2-2008 and that order was confirmed by Tribunal by rejecting Revenue’s appeals. Tribunal also relied on this Court’s judgment in Income Tax Appeal No. 506 of 2008 filed by Revenue which was dismissed. In spite of the order of the Tribunal the petitioner was not refunded the FDR. On writ allowing the petition the Court held that the Respondents are directed to release all FDRs seized during seizure and also refund the amount in question, if not already released or refunded. In case FDRs and amount in question are not returned or refunded so far, they shall be returned / refunded forthwith without any further delay along with interest @ 18% per annum from the date of seizure till the date of actual returned / refund. Respondents shall be at liberty to recover the said amount of interest from the official(s) concerned who is/are found responsible for such negligence and illegal act, after making enquiry as permissible under law. Petitioner shall also be entitled to cost which we quantify to Rs. 25,000. (WT No. 805 of 2013, dt. 14.09.2016)

Shreemati Devi v. CIT (All)(HC), www.itatonline.org

191. S.143(1D) : Assessment – Refund – AO cannot rely on Instruction No. 1/2015 dated 13-1-2015 to withhold refunds as the same has been struck down by the Delhi High Court

Allowing the petition, the Court held that the; AO cannot rely on Instruction No.1/2015 dated 13-1-2015 to withhold refunds as the same has been struck down by the Delhi High Court in Tata Teleservices & the same is binding on all AOs across the country. Action of the AO in not giving reasons for not processing the refund application is “most disturbing” and stating that he will wait till the last date is “preposterous”. Action of the AO suggests that it is not enough that the deity (Act) is pleased but the priest (AO) must also be pleased. (WP. No. 2067 of 2016,
dt. 15-10-2016)

Group M. Media India Pvt. Ltd. v. UOI (Bom)(HC), www.itatonline.org

192. S.145 : Method of accounting – Assessee following cash system – Advances/deposits to electricity board and other Market Committee – AO taxed accrued interest – Held, cannot tax accrued interest without any receipt [S.5]

The assessee was a market committee. It made advances/deposits to electricity board and other Market Committees. The AO assessed accrued interest on said advances. High Court held that, assessee was following cash system of accounting and therefore, accrued interest cannot be taxed in absence of any receipt. (AY 2006-07)

CIT v. Market Committee, Shahabad (2016) 240 Taxman 535 (P&H)(HC)

193. S.147 : Reassessment – Cash credits – Cash deposited – Change of opinion – Reassessment initiated to treat the cash deposits in the bank account as unexplained is invalid – Reassessment was held to be not valid [Ss. 68, 133A, 148]

The assessee was in the business of issuing of cheques and demand drafts against cash deposits received from the parties/customers in lieu of commission. The assessee had submitted the details of bank accounts, cash book etc. establishing the trail of money in the reassessment proceedings initiated initially which was accepted by the Assessing Officer. Subsequently a survey was carried out and in pursuance of the survey, the Assessing Officer initiated fresh reassessment proceedings based on information received from Additional Director. The High Court quashed the reassessment proceedings after holding that there was no incriminating document found during the course of survey and that all relevant details were filed during the first reassessment proceedings and therefore, it cannot be said that “income has escaped assessment” as it merely amounts to change of opinion. (AY. 2008-09)

Shree Sidhnath Enterprise v. ACIT (2016) 387 ITR 644/ 240 Taxman 631 (Guj.)(HC)

194. S.147 : Reassessemnt – Non-supply by the AO of reasons recorded for reopening the assessment (even where the reopening is prior to GKN Driveshafts 259 ITR 19 (SC)) renders the reassessment order bad as being without jurisdiction [S.148]

(i) The question as framed proceeds on the basis that the Respondent Assessee was aware of the reasons for reassessment. The only basis for the aforesaid submission is the submission made by the Revenue before the Tribunal that the Respondent Assessee is a public sector institution who was aware that search action has been initiated on certain lessees in respect of transactions with IDBI i.e. assessee. On the basis of the above, it is to be inferred that the reason for reassessment was known to the Respondent Assessee. The supply of reason in support of the notice for reopening of an assessment is a jurisdictional requirement. The reasons recorded form the basis to examine whether the Assessing Officer had at all applied his mind to the facts and had reasons to believe that taxable income has escaped reassessment. It is these reasons, which have to be made available to the assessee and it could give rise to a challenge to the reopening notice. It is undisputed that the reasons recorded for issuing reopening notice were never communicated to the Respondent Assessee in spite of its repeated requests. Thus, the grievance of the Revenue on the above count is unsustainable.

(ii) An alternative submission is made on behalf of the Revenue that the obligation to supply reasons on the Assessing Officer was consequent to the decision of the Apex Court that GKN Driveshafts (India) Ltd. vs. Income-tax Officer (2003) 259 ITR 19 (SC) rendered in 2003 while, in the present case, the reopening notice is dated 9th December, 1996. Thus it submitted at the time when the notice under Section 148 of the Act was issued and the time when assessment was completed, there was no such requirement to furnish to the assessee a copy of the reasons recorded. This submission is not correct. We find that the impugned order relies upon the decision of this Court in Seista Steel Construction (P.) Ltd. [1984] 17 Taxman 122(Bom.) where it is held that in the absence of supply of reasons recorded for issue of reopening notice the assessment order would be without jurisdiction and needs to be quashed. The above view as taken by the Tribunal has also been taken by this Court in CIT v. Videsh Sanchar Nigam Ltd. [2012] 21 Taxmann 53 (Bombay) viz. non-supply of reasons recorded to issue a reopening notice would make the order of assessment passed thereon bad as being without jurisdiction. (ITA No. 494 of 2014, dt. 19-9-2016) (AY 1993-94)

CIT v. IDBI Ltd. (Bom)(HC), www.itatonline.org

195. S.147 : Reassessment – Writ Petition challenging the notice issued is not maintainable as Petitioner has the alternate remedy of challenging the reassessment order under section 246A of the Act. [S. 148]

The objection filed by the assessee against the reopening were rejected by the AO. The assessee filed a writ petition challenging the notice issued u/s. 148 of the Act on the ground that full and true disclosure was made during the assessment proceeding and reopening is based on change of opinion. The averment made by the assessee regarding the full disclosure and change of opinion was not disputed by the AO. However, High Court held that subsequent to the issue of notice, the assessment order has been passed for A.Y. 2007-08, therefore in view of the subsequent development, the assessee has the alternate remedy of filing an appeal u/s. 246A of the Act and thereafter to the Tribunal. For A.Y. 2008-09 the assessment order has not been passed however, the similar alternate remedy is available to the assessee. Therefore, the writ petition filed by the assessee deserves to be dismissed.

Kiran Kanwar v. UOI (2016) 135 DTR 209 (Raj.)(HC)

196. S.147 : Reassessment – If there exists reasonable material, the court shall not interfere in the matter – Writ petition was dismissed [S. 148]

Dismissing the petition the Court held that at the stage of issue of notice u/s. 148, the AO is not required to give conclusive finding regarding escapement of income. Further, the court is not required to go into sufficiency of material, if there exists reasonable material, the court shall not interfere in the matter. (AY. 2009-10)

Malay Srivastava v. DCIT (2016) 135 DTR 249 (MP)(HC)

197. S.147 : Reassessment – Where on basis of evidences collected and statement recorded during course of search of entry provider, Assessing Officer had reason to believe that unsecured loans received by assessee from certain persons escaped assessment, it could not be said that there was change of opinion. [Ss. 68, 143(3), 148

Dismissing the petition the Court held that the reasons in support of the impugned notice indicates that the Assessing Officer has received definite information that one Mr. P. and the companies controlled by him was in the business of providing accommodation entries. On receipt of the aforesaid information, the Assessing Officer called for the necessary information in regard to the accommodation entries made in respect of the assessees in his jurisdiction. Consequent thereto, the Assessing Officer found that the information received indicated that the eight companies mentioned in the reasons belonged to P. group and formed the basis of his reasonable belief. At this stage the Assessing Officer has merely to establish that there is justification for him to form a reasonable belief that income chargeable to tax had escaped assessment and not conclusively prove the same. The statement of prima facie completely negatives the stand taken by the petitioner during the regular assessment proceedings. The exact nature of the transaction is only privy to the parties to the transaction and when one of the parties to the transaction states that what appears is not factually so, then the Assessing Officer certainly has tangible material to form a reasonable belief that income chargeable to tax has escaped assessment. (AY. 2012-13)

Bright Star Syntax P. Ltd. v. ITO (2016) 387 ITR 231 / 240 Taxman 459 (Bom.) (HC)

198. S.147 : Reassessment – Reassessment proceedings taken over from Income Tax Officer by Deputy Commissioner vested with pecuniary jurisdiction was held to be proper – Furnishing copy of reasons recorded and order of Commissioner granting permission along with notice to assessee is not mandatory – Copy of reasons and order of sanction was furnished to assessee -No prejudice to assessee – Re assessment proceedings was held to be valid. [S. 2(7A), 124 148, 151]

As provided under section 124(3) no person is entitled to call in question the jurisdiction of an Assessing Officer after the expiry of the time allowed by the notice issued under section 148. Held, the basic territorial and pecuniary jurisdiction to assess income up to Rs. 10 lakhs to entertain the case of the petitioner vested with the Income Tax Officer as an Assessing Officer and he had dealt with the assessment of the period 2011-12 onwards. As soon as he noted from the return filed for the year 2010-11 that the income was more than Rs. one crore and the assessment was made by the Joint Commissioner, he transferred the file to the Deputy Commissioner. There was no illegality or irregularity on the part of the Income Tax Officer in issuing notice under section 148 as well as order dated September 16, 2015 passed by the Deputy Commissioner. Since the Joint Commissioner had dealt with the case of the assessee for the assessment year 2010-11 pursuant to the transfer order passed by the Commissioner, operative for the period February 9, 2012 to March 31, 2013, the assessee was not entitled to contend that only an officer not below the rank of Joint Commissioner could make reassessment. The Deputy Commissioner dealing with the case was duly competent and possessed the pecuniary and territorial jurisdiction to deal with the case of the assessee for reassessment. The notice issued by the Department was not illegal, bad in law or without jurisdiction. There was no infirmity in the order passed by the Deputy Commissioner. No objection as to the jurisdiction was raised by the assessee within the period of thirty days of issuance of notice under section 148. In response to the notice dated March 25, 2015, the assessee did not raise any objection as to the jurisdiction of the Income Tax Officer to issue such notice. He had raised the objection as to reopening of assessment and issuance of notice under section 148 by the Income Tax Officer for the first time by representation dated September 7, 2015. No person is entitled to call in question the jurisdiction of an Assessing Officer after the expiry of the time allowed by the notice issued under section 148.

On the request of the assessee the Income Tax Officer had provided the assessee a copy of the reasons recorded and of the order passed under section 151 of the Act. No case of prejudice to the assessee had been made out. (AY. 2010-11)

Suresh v. Addl. CIT (2016) 385 ITR 1 (Bom.)(HC)

199. S.153A : Assessment – Search and seizure – No assessments pending at time of initiation of proceedings – Finding by Tribunal that no incriminating evidence found during course of search – Finalised assessment or reassessment shall not abate.

Once an assessment was not pending but had attained finality for a particular year, it could not be subject to proceedings under section 153A of the Act, if no incriminating materials were gathered in the course of the search or during the proceedings under section 153A, which were contrary to and were not disclosed during the regular assessment proceedings. (AY. 2005-06)

CIT v. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom.)(HC)

200. S.153A : Assessment – Assessment in case of search – Limitation -No mandatory requirement of issuance of notice under section 143(2) in respect of search assessment proceedings – Notices under sections 142(1) and 143(2) issued beyond period of six months – Will not invalidate assessment [Ss. 142(1), 143(2), 153A].

Consequent to a search and seizure carried out at the premises of the assessee, notice under section 153A for the assessment year 2004-05 was issued to the assessee on December 5, 2008 and in compliance therewith, the assessee filed a return of income on January 30, 2009. Thereafter, notices under sections 142(1) and 143(2) of the Act were issued to the assessee on June 10, 2010, i.e., beyond a period of six months. The Assessing Officer passed an assessment order. Penalty proceedings were also ordered to be carried out. The Commissioner (Appeals) allowed partial relief to the assessee. Before the Tribunal, the assessee contended that the stipulated time period for service of notice under section 143(2) of the Act would also be applicable in respect of assessment framed under section 153A of the Act. The Tribunal rejected the contention of the assessee and confirmed the decision of the Commissioner (Appeals). On appeal: Held, dismissing the appeal, that the order of the Tribunal was justified. (AY. 2004-05)

Tarsem Singla v. DCIT (2016) 385 ITR 138 (P&H)(HC)

201. S.153A : Assessment – Search -Once notice is issued under section 153A – Return must be filed even if no incriminating documents discovered during search [S. 132]

Allowing the appeal of revenue, the Court held that Once a notice is issued u/s. 153A(1) and the Assessing Officer has required the assessee to furnish return for a period of six assessment years as contemplated under clause (b) then the assessee has to furnish all details with respect to each assessment year since it is treated as a return filed under section 139. Even if no documents are unearthed or any statement made by the assessee during the course of search under section 132 and no materials are received for the period of six years, the assessee is bound to file a return, is the scheme of the provision. Even though the second proviso to section 153A speaks of abatement of assessment or reassessment pending on the date of the initiation of search within the period of six assessment years specified under the provision that will also not absolve the assessee of his liability to submit returns as provided under section 153A(1)(a). (AY 2002-03 to 2008-09)

CIT v. St. Francis Clay Décor Tiles (2016) 385 ITR 624/ 240 Taxman 168 (Ker.)(HC)

202. S.153C : Assessment – Income of any other person – Search and seizure – Satisfaction – No incriminating materials found – Assessment was held to be not valid. [Ss. 132, 158BD]

Held, one of the conditions precedent for invoking a block assessment pursuant to a search in respect of a third party under section 158BD of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search had not been complied with. Though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. (AYs. 2004-05 to 2008-09)

CIT v. IBC Knowledge Park P. Ltd. (2016) 385 ITR 346/ 287 CTR 261/ 69 taxmann.com 108 (Karn.)(HC)

203. S.154 : Rectification of mistake – Assessing Officer being statutorily bound to comply with provisions of sub-section (5) of section 154 cannot refuse to give effect to order passed by Commissioner (Appeals) [Ss. 40(a)(ia), 245]

Allowing the appeal the Court held that pursuant to the order dated 5-9-2013, the Assessing Officer has neither given effect to such order as contemplated under sub-section (5) of section 154 nor has he made any adjustment after prior intimation to the assessee under section 245. The reason for non-compliance with the mandate of the provisions of sub-section (5) of section 154 is nothing but an adamant attitude of the Assessing Officer. It may be that the Assessing Officer is aggrieved by the order passed by the Commissioner (Appeals) and may have preferred an appeal before the Tribunal. Nonetheless, as on date, such order is in operation, as the same has not been stayed by the Tribunal or any other court of competent jurisdiction. Under the circumstances, the Assessing Officer is statutorily bound to give effect to the said order (AY. 2005-06).

R.G. Gurjar v. ITO (2016) 387 ITR 696/ 240 Taxman 273 (Guj.) (HC)

204. S.194A : Deduction of tax at source – Interest – Motor Vehicles Act – Compensation awarded by Motor Vehicle Accident claims Tribunal and interest accruing therein are not incomes, hence such amounts cannot be subjected to tax deduction at source

The compensation awarded by the Motor Accident Claims Tribunal or the interest accruing thereon cannot be subjected to deduction of tax at source and since the compensation and the interest awarded therein do not fall under the term “income” as defined under the Act.

Managing Director, Tamil Nadu State Transport Corpn. (Salem) Ltd. v. Chinnadurai (2016) 385 ITR 656/240 Taxman 162 (Mad)(HC)

205. S.194A : Deduction at source – Interest other than interest on securities – Discounting charges cannot be termed as “interest” – Not liable to deduct tax at source [S. 40(a)(ia)]

Dismissing the appeal of revenue the Court held that; the term sheet issued by GTFL showed that interest @ 13% would be charged on the loan advanced to the assessee. This is difference from the factoring charges @ 10% payable to GTFL. The AO had no factual basis to treat the impugned amount as “interest”. Thus, no disallowance is warranted u/s. 40(a)(ia) of the Act. (AY. 2009-10)

PCIT v. M Sons Gems N Jewellery (P.) Ltd. (2016) 239 Taxman 530 (Delhi) (HC)

206. S.194I : Deduction at source – Rent – Onetime non-refundable upfront payment for the acquisition of leasehold rights for a period of 99 years as a co-developer cannot constitute rent for deduction of tax at source [S. 201]

Allowing the appeal of assessee the Court held that the up front charges paid by assessee was not merely for use of land but for a variety purposes such as (i) becoming a co-developer, (ii) developing a project and (iii) putting up an industry on the land and therefore upfront payment made for the acquisition of leasehold rights over an immovable property could not be treated as rental income at the hands of the lessor, obliging the lessee to deduct tax at source.

Foxconn India Developer (P.) Ltd. v. ITO (2016) 239 Taxman 513/ 288 CTR 173 (Mad.)(HC)

207. S.194J : Deduction at source -Fees for professional or technical services – Programme support services – Revenue shared – Not payments for technical services rendered – Not liable to deduct tax at source

Dismissing the appeal of revenue, the court held that the assessee imparting computer education to Government employees and students through franchises. Franchisees under the agreement remitting entire fees collected from students to assessee and the assessee sharing with franchisees and programme support centres. Contract not in the nature of service provider or service receiver. Payment shared is not payments for technical services rendered. Tax is not deductible at source on payments by assessee to franchisees. (AY. 2009-10)

CIT (TDS) v. Rajasthan Knowledge Corporation Ltd (2016) 385 ITR 427 (Raj.)(HC)

208. S.220 : Recovery of tax – Stay -Assessing Officer must consider all relevant factors and pass speaking order in stay proceedings – High pitched assessment – No order by Assessing Officer in response to application for stay – Rejection of further application by Principal Commissioner – Coercive measures initiated during pendency of application for stay – Orders and coercive measures was held to be not valid.

While the Assessing Officer had not passed any order on the applications made by the assessee under section 220(6) including not informing the assessee that the application was not being entertained, the Principal Commissioner had nowhere considered the relevant factors having a bearing on the demand raised, nor had he made any reference to the grounds stated by the assessee for keeping the demand in abeyance. Apart from the fact that the application made under section 220(6) of the Act was required to be decided by the Assessing Officer, even if the order passed by the Principal Commissioner was treated to be the one under section 220(6) of the Act, it could not be to meet the requirements laid down in Instruction No. 1914, dated February 2, 1993. During the pendency of the stay application, which had been filed almost immediately after the period stipulated in the notice under section 156 of the Act had expired, there was no warrant for the Department to resort to drastic measures of making coercive recovery without first taking a decision on the application under section 220(6) of the Act. The action of the Department in attaching the bank accounts and flats of the assessee, therefore, could not be sustained. (AY 2011-12, 2012-13, 2013-14 )

M.D. Infra Developers v. DCIT (2016) 385 ITR 82/ 240 Taxman 237/ 287 CTR 431/ 138 DTR 298 (Guj.)(HC)

209. S.234A : Interest – Insolvency -Company in liquidation – Levy of interest under sections 234A, 234B and 234C – Waiver of interest – Insolvency court has jurisdiction to consider application. [Ss. 178, 234B, 234C]

The insolvency court has full power to decide (i) all questions of priorities and (ii) all other questions whatsoever. The questions that could be decided by the insolvency court could be of law or of fact. The question whether or not interest in certain circumstances can be waived is not a matter covered by section 178, to enable the Department to take advantage of the overriding effect conferred under sub-section (6). The official assignee need not go before the Central Board of Direct Taxes praying for waiver of interest under sections 234A, 234B and 234C of the Act. The insolvency court itself could consider the question of waiver of interest in terms of the power conferred under section 7 of the Provincial Insolvency Act, 1920 and in the light of the provisions of the Income-tax Act, together with the quantum of funds available and the distribution already made.

Held, that the insolvent herself took out an application before the insolvency court for a direction to the official assignee to set apart capital gains tax. By an order passed by the court, the official assignee was directed to set apart 20% of the sale proceeds. Hence, section 178(4) of the Act had been complied with by the official assignee. The question of waiver of interest under sections 234A, 234B, 234C could be considered by the Insolvency Court.

Official Assignee, High Court, Madras v. T.R. Bhuvaneswari (2016) 385 ITR 105/ 240 Taxman 266 (Mad.) (HC)

210. S.234E : Fee – Default in furnishing the statements – TDS deducted prior to 1-6-2015, levy of fee was held to be not valid [Ss. 200A, 271H]

Allowing the petition the Court held that ; as the amendment to S. 200A has come into effect on 1-6-2015 and has prospective effect, no computation of fee for the demand or the intimation for the fee u/s. 234E can be made for TDS deducted prior to 1-6-2015. Hence, the demand notices u/s. 200A for payment of fee u/s. 234E is without authority of law. (WP Nos. 2663-2674/2015, dt. 26-8-2016)

Fatheraj Singhvi v. UOI (Karn.)(HC), www.itatonline.org

211. S.244A : Refund – Interest on refunds – Interest under section 244A is payable on refund arising on account of Double Taxation Relief [S. 90]

During the assessment the Assessing Officer allowed interest under section 244A to assessee at certain part of refund. However, according to him no interest under section 244A was allowable on DTAA relief under section 90 of the Act. On appeal the CIT(A) and the Tribunal agreed with the assessees contention and allowed assessee interest under section 244A of the Act.

Before the High Court, the Department contended that interest under section 244A of the Act is only available on refunds arising out of tax paid/collected as advance tax or TDS. Disregarding the Department’s contention the High Court held that the relief under section 90 of the Act is available in respect of the income tax which is payable both in India as well as in the other countries with which India has DTAA. Therefore, relief under section 90 of the Act is to be allowed while computing the tax liability in India by virtue of credit being given to the extent that tax has been paid abroad. Therefore, the tax payable is to be computed on the income to be assessed. Thereafter the credit which is available to the assessee in view of DTAA is to be taken into account and if there is any excess which the assessee has paid into the Indian Treasury, then, he is entitled to the refund of the same which would also carry interest in terms of section 244A of the Act. As a result the Department’s appeal was dismissed. (AY. 2003-04)

CIT v. Tech Mahindra Limited (2016) 240 Taxman 143 (Bom.) (HC)

212. S.245R : Advance ruling – Mere issue of notice under section 143(2) without any specific queries – Would not bar an application for advance ruling [S. 143(2)]

Notice that was issued to the assessee was a notice under section 143(2)(ii) of the Act and not section 143(2)(i). The notice issued under section 143(2) by the Assessing Officer on August 25, 2011 in relation to the return filed for the assessment year 2010-11 merely reproduced the language of section 143(2)(ii) of the Act. This notice in any event, did not set out the opinion of the Assessing Officer that he considered it necessary or expedient to issue such notice for any of the reasons specified in section 143(2)(ii). Therefore, the issuance of the notice under section 143(2) would not constitute a bar in terms of clause (i) to the first proviso under section 245R(2) of the Act inasmuch as the notice did not refer to any particular “question” which could be stated to be pending consideration.

Hyosung Corporation v. AAR (2016) 385 ITR 95 (Delhi)(HC)

213. S.250 : Appeal – Commissioner (Appeals) – Procedure – Held, once an assessee files an appeal u/s. 246A, it is not open to him as of right to withdraw or not press the appeal rather the CIT(A) is obliged to dispose them on merits – Held, CIT(A) cannot dismiss an appeal for non-prosecution and that he has to apply his minds to all the issues raised in the appeal. [S. 251]

High Court held that from reading of sections 250 and 251, it was very clear that once an appeal is preferred before the CIT(A), then in disposing of the appeal, he is obliged to make such further inquiry that he thinks fit or direct the Assessing Officer to make further inquiry and report the result of the same to him as found in section 250(4). Further, section 250(6) obliges the CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support. High Court also held that once an assessee files an appeal u/s. 246A, it is not open to him as of right to withdraw or not press the appeal rather the CIT(A) is obliged to dispose them on merits. Accordingly, it was held that the CIT(A) cannot dismiss an appeal for non-prosecution and that he has to apply his mind to all the issues which arise from the impugned order before him whether or not the same had been raised by the appellant before him. (AY 2006-07)

CIT v. PremkumarArjundas Luthra (HUF) (2016) 240 Taxman 133 (Bom)(HC)

214. S.263 : Commissioner – Revision of orders prejudicial to revenue – Action initiated by the CIT u/s. 263 is not sustainable in a case where the AO had made specific enquiries by raising queries and had thereafter accepted the stand of the assessee. [S. 68]

During the concerned years, the assessee had received certain gifts. In the course of assessment proceedings, the AO verified the identity, genuineness and creditworthiness of the donors. On verification, the AO accepted the gifts received by the assessee. Thereafter, CIT initiated proceedings under section 263 and set aside the orders of the AO and further directed that in case the gifts were not found to be genuine, then the Assessing Officer was at liberty to invoke section 68. HC held that it was settled that if during the assessment proceedings, queries were raised and the assessee responded to the same, then even if an Assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issues. HC held that in the present case, assessee had given evidence of the communications received from the donors of the gifts along with the statement of their Bank accounts and that the AO was satisfied about the identities of the donors, the source from where these funds had come and also the creditworthiness/capacity of the donor. Therefore, once the AO was satisfied with regard to the same, there was no further requirement on the part of the AO to disclose his satisfaction in the Assessment Order. HC also rejected the argument that the donor had not been examined by the AO. HC observed that it was not necessary in every case that all the evidence produced had to be tested by cross examination of the person giving the evidence. It is only in cases where the evidence produced gives rise to suspicion that further scrutiny is called for. If there is nothing on record to indicate that the evidence produced is not reliable and the AO was satisfied with the same, then it is not open to the CIT to exercise his powers of revision without the CIT recording how and why the order is erroneous due to not examining the donors. HC further held that it was not necessary that the AO should have verified the source of the source and even otherwise this would be a case of an inadequate enquiry and not a ‘no enquiry’. HC held that the proceeding initiated by the CIT under section 263 was not sustainable. (AY 2007-08, 2008-09)

CIT v. Nirav Modi (2016) 138 DTR 81 /241 Taxman 255 (Bom.)(HC)

215. S.263 : Commissioner – Revision of orders prejudicial to revenue – Held, mere fact that the AO did not make any reference to the issues in the assessment order cannot make the order erroneous when the issues were indeed looked into – Held, AO made enquiries and was satisfied with the replies of the assessee, order u/s. 263 invalid. [S. 68]

ITAT held that the AO made enquiries about the issues involved and which have been noted by the CIT. The assessee made submissions by placing all relevant documents before the AO. It further held that the mere fact that the AO did not make any reference to theimpugned issues in the assessment order cannot make the order erroneous when the issues were indeed looked into. On the above findings, the High Court held that the findings were rendered on facts and which cannot be held to be perverse. (AY 2007-08)

CIT v. Reliance Communication Ltd. (2016) 240 Taxman 655 (Bom.)(HC)

216. S.271(1)(c) : Penalty – Concealment – Survey – Levy of penalty was upheld rejecting assessee’s contention that the income was not disclosed as the books of account were impounded and the correct income figure could not be determined [S. 133A]

In the course of the quantum proceedings, additions were sustained on two counts – unaccounted collection receipts from the hospital and denial of claim of deduction of certain expenditure. Penalty proceedings were initiated thereafter. HC upheld the levy of penalty. HC rejected the assessee’s explanation that its books of account for the relevant year were impounded by the Revenue and therefore, the correct figures of income could not be furnished as per its return of income and further that the accounts could not be audited because of impounding of books. HC held that this explanation was rightly rejected by the AO as it was the assessee’s duty to get its accounts audited and the time for audit had expired long before the survey. Further, the assessee could have applied for copies of extracts of the records impounded which was not done by the assessee. (AY. 2004-05)

Manural Huda Trust v. CIT (2016) 138 DTR 28 (Ker.)(HC)

217. S.271(1)(c) : Penalty – Concealment – Merely submitting an incorrect claim in law for expenditure would not amount to furnishing inaccurate particulars of income so as to attract penalty. [S. 40(a)(ia)]

The assessee was engaged in the business of construction. During assessment proceedings, the AO noticed that in some cases, the tax deducted at source (‘TDS’) from certain parties to whom labour payments were made, were not deposited into Government account as per the provisions of section 200(1) of the Act. The AO disallowed such payments under section 40(a)(ia) of the Act and also levied penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of income. In appeal CIT(A) deleted the penalty. On appeal by revenue the Tribunal held that, the assessee had suppressed the actual particulars of income by not making disallowance under section 40(a)(ia) of the Act and restored the penalty order passed by the AO. Aggrieved, assessee filed an appeal before the High Court. Allowing the appeal of assessee the Court held that ; words ‘inaccurate particulars’ in section 271(1)(c) must mean details supplied in return – which are not accurate, not exact or correct or not according to truth or erroneous – merely submitting an incorrect claim in law for expenditure would not amount to furnishing inaccurate particulars of income so as to attract penalty under section 271(1)(c). (AY. 2006-07)

Nayan C. Shah v. ITO (2016) 386 ITR 304/ 240 Taxman 115 (Guj) (HC)

218. S.279 : Commissioner -Compounding of offences – Conviction of offences – Application for compounding cannot be rejected

The fact that the assessee has been convicted of an offence does not mean that the application for compounding of the offence is not maintainable. Under the guidelines, the competent authority has to examine the merits of the case and decide whether there is a case for compounding. There are no fetters on the powers of the competent authority under the guidelines. Thus, this Court is of the view that the respondent can examine the matter afresh without being, in any manner, influenced merely because of the conviction passed against the petitioner by the Criminal Court. (WP No. 32731 of 2015, dt. 2-9-2016)

V. A. Haseeb and Co. (Firm) v. CCIT (Mad.)(HC), www.itatonline.org