.

1. Appeal — Additional evidence
   
   Opportunity of being heard. The Assessing Officer who was present at the time of hearing before CIT(A) having raised no objection, the opportunity as envisaged u/r. 46A is said to have been satisfied.CIT vs. Kuldip Industrial Corporation 209 CTR (P & H) 400
    

2. Appellate Tribunal — Powers of Tribunal — Power to remand – Partial disallowance of expenses by CIT(A) — There is neither Second Appeal to Tribunal by Dept. nor Cross-appeal by it. Order of remand to reconsider entire claim — not valid — S. 254
   
   In its return of income for the A.Y 1997-98, the assessee had claimed deduction of service charges and marketing expenses. The A.O disallowed part of service charges and also part of marketing expenses. The Learned CIT(A) upheld the disallowance of part of the service charges and reduced the disallowance of marketing expenses.The assessee filed second appeal to ITAT. The ITAT without considering the specific grounds raised in appeal relating to disallowance of service charges and marketing expenses confirmed by the CIT(A), restored the matter to the A.O for de novo consideration.Held that the order passed by the ITAT without considering the issues raised in the appeal and in remanding the case to the file of the A.O for reconsidering the entire claim could not be sustained and hence the said order is liable to be quashed. The matter was remitted to the ITAT for disposal of the appeal in accordance with law.Appeal to Appellate Tribunal (2007) 290 ITR 464 (Bom) - Coca Cola India P. Ltd. vs. ITAT Sec. 254 Asst. Year 1997-98
    

3. Appellate Tribunal — Powers of Tribunal — Search and Seizure — S. 254
   Requisition of assets u/s. 132A – ITAT has no power to consider validity of authorization u/s. 132A.A search was conducted at the residential premises of the assessee under the provisions of the Prevention of Corruption Act, 1988. Later on, the books of account, documents and assets found and seized by the Lokayukt authorities were requisitioned by the Commissioner as per Sec. 132A of the I.T. Act, 1961. Subsequently, notice u/s.158BC was issued to the assessee. Return for Block Period was filed. The assessment was completed by the Assistant Commissioner. Being aggrieved by the said order, the appeal was preferred before the ITAT. Before the ITAT, it was contended by the assessee that the authorization issued by the Commissioner u/s. 132A was invalid which vitiated the entire assessment u/s. 158BC making it void ab initio.However, the ITAT held that the notice issued u/s. 158BC was valid though status of the assessee was not mentioned in the said notice and Tribunal had no jurisdiction to look into the legality and validity of the authorization issued u/s. 132A of the Act.. H.C. dismissed the appeal.Gaya Prasad Pathak vs. ACIT (2007) 290 ITR 128 (M.P) - Sections 132A, 158 BC, 254.
    

4. Assessment — Power of A.O. to issue commission — A.O. cannot issue Commission to Departmental Valuation Officer
   
   to value premises of assessee much prior to commencement of proceedings — A.Ys. 1989-90 to 1991-92 — Ss. 68, 131(1)(d) U/s. 131(1), the A.O. can issue a commission if a proceeding is pending before him, and not otherwise. The existence of a pending proceeding is a condition precedent sine qua non for the exercise of such power.On 29th November, 1989, the A.O. had issued a commission to the D.V.O. u/s. 131(1)(d) to value the construction of the building owned by the assessee much prior to the commencement of assessment proceedings relating to A.Y 1990-91.Held, that as no proceedings in regard to A.Y. 1990-91 was pending before him, he could not have issued the commission prior to initiation of assessment proceedings was not valid and consequently, the Valuation Report of the D.V.O. in pursuant to the invalid commission could not be made use of and hence value shown by the approved valuer of the assessee has to be taken into consideration.CIT vs. Nevendram Ahuja (2007) 290 ITR 453 (M.P)
    

5. Assessment — Prima facie adjustment — S. 143(1)(a)
   
   When the issue relating to deduction or disallowance of deduction is debatable, the assessing officer cannot make adjustment in an order u/s. 143(1)(a) of the Act. CIT vs. Mahesh Kumar A. Rathod [(2007) 198 Taxation 173 (Guj)]
    

6. Bad debt — S. 36(1)(VII)
   
   Claimed on closure of franchisees. As the franchisees was closed due to steep fall in the receipts, the claim made by assessee u/s. 36(1)(vii) is allowable.CIT vs. Brilliant Tutorials Pvt.Ltd. 210 CTR (Mad) 49
    

7. Book profit — S. 115J
   
   Claim of depreciation and change in the method of depreciation. Depreciation under new method can be claimed only from the date of change and the arrears of deprecation cannot be deducted for the purpose of computation of Book Profit u/s. 115J.Gilt Pack Ltd. vs. CIT 209 CTR (MP) 405 For the A.Y. 1990-91 the A.O. while computing book profit u/s. 115J of the Act added the amount being provision for doubtful debt to the book profit. On appeal before the High Court at the instance of the assessee it was held that accounts of the assessee are being prepared as per Part II & III of the IV Schedule of the Companies Act, 1956 and certified by auditor. Further, the debt being bad is being reasonably assessed by the Board of Director. Under these circumstances, the A.O. is not authorized to scrutinize the accounts duly supported by the audit reports intention of the Board of Directors and approved by the Shareholders. Amines Plasticizers Ltd. vs. Dy. C.I.T. [(2007) 197 Taxation 283 (Gau.)]
    

8. Business expenditure
   
   Allowability of corporate guarantee obligation. Amount paid by Assessee company towards discharge of corporate guarantee on behalf of various borrowers is allowable as deduction.CIT vs. United Breweriews Ltd. & Amr. 209 CTR (Kar) 385
    

9. Business expenditure — disallowance — S. 40A(2)
   
   Payment of commission to sister concern rendering service as distributor was not in doubt and the payment was not unreasonable and hence, no part thereof could be disallowed u/s. 40A(2).Dy CIT vs. Microtex Separaters Ltd. 209 CTR (Kar) 62
    

10. Business expenditure — Expenditure on shifting the machinery within the premises is revenue expenditure — S. 37
    
    Assessee-company had readjusted its plant and machinery within same factory shed for better productivity. Assessing Officer disallowed claim on ground that expenditure was capital expenditure. Assessee by moving its plant within the premises to a location so that plant could work better resulting in better output was only providing better facilities for manufacture,expenditure on relocation of plant and machinery was allowable as revenue expenditure. CIT vs. Breakes India Ltd. [2007] 161 Taxman 47 (Mad.)
     

11. Business expenditure — Interest in borrowed capital — S. 36(1)(iii)
    
    Advance given to subsidiary as interest-free. There were sufficient free reserves funds which were used mainly for running expenses and in the absence of any material to establish that the money borrowed by the assessee were given to its subsidiary it was held that interest paid on borrowings could not be disallowed.CIT vs. South India is Corpn. (Agencies) Ltd. 209 CTR (Mad) 233
     

12. Business expenditure — Irrespective of Nomenclature — Amount paid in the nature of compensation Is allowable deduction — S. 37
    
    Assessee claimed deduction of certain sum paid as fine, to excise department, for belated payment of excise duty instalment — Assessing Officer disallowed same. It was found that though sum paid was termed as fine, payment was not in nature of punishment but was by way of compensation.C.I.T. vs. Hoshiari Lal Kewal Krishan [2007] 160 Taxman 96 [P & H]
     

13. Business expenditure — Lease rent as paid by the State Electricity Board in sale-cum-lease back is allowable expenditure — S. 37
    
    Assessee, a State Electricity Board, had sold various electrical equipments to various companies and after sale, Board had taken back some equipments on lease basis and paid lease rent. The Board filed return and claimed deduction of lease rent. Assessing Officer disallowed same and made addition holding that sale-cum-lease back agreements were sham or colourable device of tax evasion. Hon’ble Court upheld the order of the Tribunal observing that by entering into these transactions, tax liability of the Board has not been reduced, thus the transaction in question could not be termed as sham transaction. C.I.T. vs. Rajasthan State Electricity Board [2007] 160 Taxman 19 [Raj.]
     

14. Business expenditure — Liability on account of warrants quantified and discharged in future is allowable deduction — S. 57
    
    Liability arising out of a warranty is an allowable deduction, even when amount payable by assessee is quantified and discharged in future. The amount set apart by assessee to meet claims arising out of warranties issued by it to its customers could be taken as a permissible deduction under section 37[1].C.I.T. vs. Sony India [P.] Ltd. [2007] 160 Taxman 397 [Del.]
     

15. Business Expenditure — S. 37
    
    When there is nexus between the expenditure incurred and purpose of business, the A.O. cannot substitute his opinion about the reasonableness or not of the expenditure as if the A.O. was the businessman.C.I.T. vs. Devaghi Beverages Ltd. [(2007) 197 Taxation 444 (Del)]The A.O. disallowed commission paid by the assessee to agents on the ground that the assessee was not able to produce parties to whom commission was paid. Even though the copies of accounts at the parties and the particulars of services rendered were produced before the A.O. On appeal at the instance of revenue the High Court confirming the finds of the Tribunal held that the commission paid was allowable as business expenditure as, the assessee had produced all the material that it could possibly produce. If the A.O. was not inclined to believe the material so produced, he could have used coercive powers available to him which he failed to exercise.CIT vs. Genesis Commet P. Ltd. – [(2007) 197 Taxation 248 (Del)]
     

16. Business expenditure — S. 37(3A)
    
    The expenses incurred on account of commission and rebate to dealers do not fall within the preview of section 37(3A) of the Act as sales promotion or publicity expenses.C.I.T. vs. J.M.P. Manufacturing Co. [(2007) 197 Taxation 393 (P & H)]
     

17. Business expenditure — S. 40A[2]
    
    Commission paid to sister concern as sole selling agent as per the agreement and there was no intention to avoid tax no disallowance can be made by invoking the provisions of section 40A(2).DCIT vs. — Microtex Separators Ltd. [2007] 160 Taxman 244 [Kar.]
     

18. Capital asset — Capital Gain — Asset held by assessee need not be his own — Transfer — Assessee obtaining lease of immovable property — Granting of sub-lease constitutes transfer — Capital gain has to be levied — A. Y. 1986-87 —Ss. 2(14), 45
    
    According to the definition of Capital Asset, “any kind of property” held by an assessee would come within the definition of Capital Asset. Therefore, it does not necessarily mean that the property which the assessee holds, must be his own.The assessee took on lease an immovable property under a lease agreement dated 6.9.1985 for 22 years. The assessee sub-leased the said property by a Lease Deed dated 10-9-1985 for a period of 20 years. Now the question before the DCIT was, whether transfer of leasehold rights in the land by the assessee in favour of the sub-lessee would amount to transfer of a capital asset at the hands of the assessee, and if so, the consideration paid by the sub-lessee to the assessee would partake the character of Capital Gains and be assessable to tax as such. The A.O. held that as transfer and taxed it as Capital Gain.On further appeal to the CIT(A) it was held that since there was no transfer of capital asset by the assessee when he sub-leased the property in favour of a third party and therefore no capital gains is involved.The Revenue went in appeal to ITAT. The ITAT confirmed CIT(A)’s view. On further appeal to High Court by revenue, it was held that as per the Supreme Court Judgment in the case of A. Gasper (172 ITR 311) the transfer by way of lease would amount to transfer of a capital asset and therefore tax is leviable as capital gains.CIT vs. Sujatha Jewellers (2007) 290 ITR 631 (Mad.)
     

19. Capital Gain — S. 48
    
    The assessee sold share to a foreign buyer at a price much higher than the market value. Out of the sale consideration received the assessee claimed deduction on account of brokerage, stamp duty, etc. The A.O. restricted the deduction so claimed by the asseessee to 0.5% of the sale consideration. The High Court on the appeal filed by the revenue held that the assessee was entitle to deduction of full expenditure incurred on sale of shares on the ground that the assessee required the services of professionals who were employed not only for sale of shares but also for procuring the appropriate price.C.I.T. vs. Plash Food Pvt.Ltd. [(2007) 198 Taxation 220(Del)]
     

20. Carry forward and set off of loss
    
    Belated filing of Return — As the Assessing Officer had failed to convey the rejection of application for extension of time for filing the return. The order of the Assessing Officer denying extension was ineffective and the claim made by the Assessee cannot be denied.CIT vs. Dhatu Sanskar (p) Ltd. 209 CTR (Guj) 39
     

21. Cash credit — S. 68
    
    Cash credit in the form of gift from NRI —The Assessing Officer, CIT(A) and ITAT after consideration of material on record recorded the finding that explanation offered by assessee was unacceptable and held that gift from NRI was not real. Held, the High Court was not justified in disturbing the said finding of fact and deleting addition u/s. 68 as no substantial question of law arises.CIT vs. P. Mohanakala & Ors. 210 CTR (SC) 20 Partner’s contribution to firm – Genuineness of Cash Credit — Once a partner has accepted having advanced amount to the firm, no addition could be made in the hands of the firm u/s. 68.
    CIT vs. Rameshwar Dass Suresh Pal Cheeka 208 CTR (P&H) 459
     

22. Cash Credits — Gift — S. 68
    
    Gift received by the assessee from a Non Resident Indian was held to be non genuine on the fact of the case, where the assessee was not aware of the business of the donor, donor was employed only as a watchman in foreign country and there was also no occasion for gift.Shri Tirath Ram Gupta vs. C.I.T. [(2007) 197 Taxation 533 (P & H)]
     

23. Commencement of business — S. 28
    
    Where the assessee had filed a return of income declaring a loss from software development/consultancy business and interest income. The A.O. was of the view that the expenses claimed by the assessee were not allowable as the assessee had not suffered only loss during the previous year as it had not commenced its business activities. The only receipt during the year was interest income. The loss as declared by the assessee during the year was only due to various administrative expenses debited by the assessee in its profit and loss account. On appeal the High Court held that it is possible that the assessee may not have earned any income during the year but the fact that the assessee had taken steps necessary to procure business itself shows that the assessee had commenced business during the previous year and the loss as declared by the assessee was allowable as business loss.C.I.T. vs. E funds International India (P) Ltd. [(2007) 198 Taxation 218 (Del)]
     

24. Commissioner (Appeals) — Powers of enhancement opportunity to be given to the assessee before enhancement — S. 251
    
    While completing the assessment for the A.Y 1997-98, the A.O allowed the claim of the assessee with respect to Rs. 1,26,06,781/- being the interest on debenture and inter-corporate dividends. The Learned CIT(A) without giving any opportunity to the assessee enhanced the assessment, since according to him it was not clear as to how the expenditure which had been capitalized in the books of account and claimed in the adjustment statement, had been allowed by the A.O and observed that this part of the case needed to be examined. On appeal to the ITAT, the ITAT set aside the order of the CIT(A).On appeal to the High Court, the High Court held that the CIT(A) committed an error in passing the order without giving opportunity to be heard. The Hon’ble High Court further held that it is a settled law in the case of India Cements Ltd., vs. CIT reported in 60 ITR at page 52 (SC), that the loan obtained was not an asset or an advantage for the enduring benefit of the business of the assessee. Applying the same principle, the interest on debentures and corporate borrowings also cannot be treated as an asset or an advantage for the enduring benefit of the business of the assessee and accordingly confirmed the ITAT’s Order.CIT vs. Lotte India Corporation Ltd. (2007) 290 ITR 248 (Mad.) Sec. 251 — A.Y. 1997-98
     

25. Depreciation — S. 32
    
    Transformers, electric sub-station, generators, weighing machine are eligible for extra shift allowance as the above machineries and equipments are installed for the purpose of business of manufacture of an article or thing. C.I.T. vs. Mahavir Spinning Mills Ltd. [(2007) 197 Taxation 540 (P&H)]
     

26. Dividends — Deduction — S. 80
    
    MDeduction u/s. 80M is to be allowed on net dividend income and not on the gross dividend income earned by the assessee.
    Williamson Financial Service Ltd. vs. C.I.T. [(2007) 197 Taxation 457 (Gau)]
     

27. Earning in Foreign Exchange on account of hotels do not form part of receipt — S. 80HHD
    
    The assessee, travel agent, computed deduction under section 80HHD by ignoring the receipts of which the assessee issued disclaimer certificates. The quantum of deduction was modified by the Assessing Officer. Hon’ble Court held that in the formula for purposes of computing eligible profit under section 80HHD (business profit x foreign exchange receipts/total receipts) foreign exchange receipts received on behalf of other hotels and in respect of which assessee has issued disclaimer certificate under Form No. 10CCAE will be reduced from numerator of multiplier (foreign exchange receipts) and same figure will also be reduced from denominator of multiplier (total receipts). CIT vs. Lotus Trans Travels (P.) Ltd. [2007] 161 Taxman 5 (Delhi)
     

28. Export — Business export — Special deduction Computation of Special deduction — A. Y. 1986-87 to 1988-89 — S. 80HHC
    
    Advances received from foreign buyers kept as short-term deposits in Bank - Interest on such deposits to be considered as business income.The assessee was a Private Limited Company engaged in business of export of processed food items. In the process, the assessee received some amounts from its foreign customers by way of advance in respect of the exports to be made by it. The amounts so received were kept in short-term deposits with banks and it had received interest out of those deposits. The assessee treated it as part of its business income and claimed deduction u/s. 80HHC for all the years.The A.O. negatived the claim and treated it as income from other sources, but the ITAT treated the same as business income.On appeal to the High Court, the High Court held that what is business income and what is not business income has to be judged from the main activity of the business of each assessee. In the present case, main activity of the assessee was export business and not that of earning interest on short term fixed deposits. The assessee instead of keeping such funds idle, since it did not require it for its immediate business activity, had deposited the same in Banks and hence interest income derived from such advances was assessable as business income.CIT vs. Producin P. Ltd (2007) 290 ITR 598 (Karnataka)
     

29. Export — Deduction — S. 80HHC
    
    Computation of Total Turnover Sales Tax and Excise Duty are not includible in total tunner in the formulae contained in Sec. 80HHC (3).CIT vs. Lakshmi Machine Works 210 CTR (SC) 1 Adjustment of brought forward business loss — Sec. 80HHC is governed by sec. 80AB and unabsorbed losses of earlier years u/s. 72 have to be set off in completing eligible profits for the purpose of sec. 80HHC. CIT vs. Shirke Construction Equipment Ltd. 210 CTR (SC) 159 Deduction u/s. 80HHC of the Act is allowable on composite income of growing and manufacturing of tea, before application of Rule 8(1) of Income Tax Rule.Williamson Financial Service Ltd. vs. C.I.T. [(2007) 197 Taxation 457 (Gau)]Where the assessee for the purpose of deduction u/s. 80HHC reduced the indirect cost of goods exported by 10% being the expenses for earning export incentives, brokerage and miscellaneous income. The High Court on appeal held that the profits from export of trading goods has been defined to mean export turnover of such goods minus direct or indirect cost attributable to such exports. As such an assessee would not be entitled to claim deduction only on account of expenses without income having been included therein. Accordingly, the assessee would not be entitled to deduct 10% of earning from export incentive etc. as expenses from the indirect cost.
    C.I.T. vs. M/s. Hero Exports, G. T. Road [(2007) 198 Taxation 353 (P&H)]
     

30. Export — Export House Premium is includible in ‘Profit of Business’ — S. 80hhc
    
    Export house premium received by assessee, a supporting manufacturer, is an integral part of sale price realized by it from export house and same is includible in ‘profits of business’ of assessee while computing deduction under section 80HHC. C.I.T. vs. Baby Marine Exports [2007] 160 Taxman 160 [S.C] Freight charges were incurred by assessee and recovered by it from its foreign buyer, same were liable to be included in expression ‘indirect cost’ for purposes of calculation of export turnover in terms of section 80HHC[3][b]. C.I.T. vs. Crown Computerized [2007] 160 Taxman 213 [Del.]
     

31. Income cannot be taxed merely because shown in the return — Ss. 4, 264
    
    The assessee filed return for the A.Y. 1990-91, 1991-92 and 1993-94 including the annuity received on superannuation as income. The assessee filed application u/s. 264 seeking exemption u/s. 10[13][ii] on the said annuities. The same was rejected as the assessee himself has offered the same for tax. The Hon’ble court, on a writ petition under Article 226 of the Constitution, observed that Article 265 of the Constitution mandates that no person shall be taxed without the authority of law. Since in the present case there is no authority to tax annuities received by the petitioner, we consider it appropriate to exercise out extraordinary power to correct the injustice. S.D.S. Mongia vs. C.B.D.T. [2007] 160 Taxman 101 [Delhi]
     

32. Interest — S. 139 r.w.Ss. 215 & 217
    
    Where interest calculation was shown in the computation form and demand notice signed by the A.O., even though there was no direction to charge interest given in the assessment order it was held that interest u/s. 139(8) & 217 of the Act was rightly charged.C.I.T. vs. Vijay Yarn & Textile Pvt. Ltd. [(2007) 197 Taxation 527 (P & H)]
     

33. Interest Tax Act, 1974 — S. 5
    
    Where the assessee purchased the vehicles from manufacturer and then gave them to its customers on hire purchase agreement. In the event of default by the customer the assessee was entitle to repossess the vehicle. On these set of facts the A.O. treated the transaction as finance transaction and levied interest tax. The High Court confirming the order of the Tribunal held that the transactions were in the nature of purchase agreement and not financing agreement so as to attract interest tax liability.C.I.T. vs. G.E. Capital Transportation [(2007) 197 Taxation 451 (Del)]
     

34. Investment allowance — S. 32AB
    
    Machine assembled by the assessee and used for the purpose of wire drawing was entitle to investment allowance u/s. 32AB of the Act.C.I.T. vs. Hindustan Wire Product Ltd. [(2007) 197 Taxation 536 (P&H)]
     

35. Penalty — Accounts — S. 271B
    
    For the A.Y. 1990-91 though the audit report was obtained in time the same was filed late along with the return of income which, was delayed due to missing T.D.S. certificate. The High Court held that during the relevant period the requirement of law was only for obtaining the audit report within time specified. As such, on penalty u/s. 271(1)(c) of the Act could be imposed for filing the audit report late along with return.C.I.T. vs. Puran Lal Ramesh Chand [(2007) 197 Taxation 543 (P&H)]}
     

36. Penalty — Concealment — S. 271(1)(c)
    
    A mere addition to the income of the assessee cannot give rise to any punishment for concealment of income. Thus, where there was only an omission on the part of the assessee in declaring his income it cannot be said that there was a concealment of income on the part of the assessee so as to attract penal proceedings. Further, the High Court held that for invoking explanation to section 271(1)(c) of the Act no separate charge is to be spelt out, as the explanation is part of the main section that is section 271 (1) (c) of the Act.CIT vs. Punjab Kesari Hosiery Factory – [(2007) 198 Taxation 301 (P&H)] Where the assessee claimed that the money received on sale of plot was merely an advance on the sale of land and not a business receipt as held by the A.O. The High Court held that no penalty was livable in the present case as the assessee was under a bona fide belief that the receipt was not a business receipt, but an advance for sale of property.CIT vs. Rekha Lands Pvt. Ltd. [(2007) 198 Taxation 322 (P&H)] Where during the search action conducted by the excise department it was noticed that the assessee had not recorded the processing charges received by it in its books of account. On enquiry being made with the assessee the assessee revised its return after two years of filing its return. The A.O. imposed penalty u/s. 271(1) (c) of the Act. The High Court upheld the levy of penalty, taking into consideration the fact that, the revised return was filed only after the fact of concealment of processing charges received by the assessee had surfaced on record. Kholwadwala Dyeing & Printing Mills vs. C.I.T. [(2007) 197 Taxation 304 (Guj.)]Concealment of income doubted by the Assessing Officer before the issue of show cause notice which was disclosed subsequently by the assessee as additional income by way of Revised return. The assessee is not entitled to the benefits of immunity under Amnesty Scheme in respect of additional income declared in the revised return. Levy of penalty u/s. 271(1) (c) is justified.Deepak Construction Co. vs. CIT 208 CTR (Guj) 444
     

37. Prosecution — S. 276B
    
    Failure to deduct tax at source and subsequently credit to same Government Account complaint is maintainable against the directors who are considered to be principal officers u/s. 2(35)- Prosecution is maintainable even though the amount of TDS is already deposited into Central Government Account. Madumilan Syntex Ltd. Ors. vs. UOI 208 CTR (SC) 417
     

38. Purchase of immovable property by Central Government — S. 269UD
    
    Notice must give instances of comparable sales. No data regarding comparable sales in the said notice — Order of pre-emptive purchase not valid. The assessees were owners of flat in Mumbai. They entered into an agreement of sale with Purchasers. They filed requisite Form No. 37-I after signing the agreement. Later on, assessee received notice from appropriate authority to show cause as to why the property should not be acquired compulsorily. Apart from notice, no other documents were made available to the assessees. At the time of hearing, assessees relied upon a few comparable cases and pointed out that there was no under-valuation of the flat concerned. However, the Department relied upon five sale instances. The assessees were not informed about these instances at any time before the date of hearing and order for compulsory purchase was passed.On a Writ Petition against the said order, the High Court held that it is necessary that show-cause notice itself must refer to and mention the comparable instances which are to be relied upon so that the party concerned gets an appropriate opportunity. Even on merits, there was no discussion whatsoever about the merits and demerits of five instances which had been relied upon. The order arrived at by such a method apart from being in violation of the principles of natural justice, was unjustified on merits also.Jai Nadershah Karani vs. CIT (2007) 290 ITR 594 (Bom.)
     

39. Reassessment
    
    Pursuant to audit objection on the claim of depreciation cannot be said that the Assessing Officer had formed his own opinion that income has escaped assessment since in the very claim was allowed in regular assessment and the reopening is based on mere change of opinion, the same is not valid.Investment Managers Ltd. vs. ITO 209 CTR (Bom) 1 IL 2FS
     

40. Search and Seizure — Search took place in August 2006. Assessment for the A.Y. 2004-05 pending on date of search — Assessment proceedings u/s. 153A not valid. Assessment order is void in view of circular No. 7 dated 5-9-2003 A. Y. 2004-05 — S. 153A, 153B, and 153C
    
    The assessee filed his return of income Voluntarily u/s. 139(1) of the I.T Act, 1961 for the A.Y 2004-05 on 17-5-2004.On 24th August, 2006 Search and Seizure operations were carried out at the office premises as well as at the residence of the assessee. Thereafter, the Asst. Commissioner issued notice u/s. 142 of the Act, asking the assessee to file the return of income and to produce books of account, etc.The assessee submitted that he has not received the notice u/s. 153A for filing return of income as contemplated in the said section and the assessment proceedings which was pending for A.Y. 2004-05 on the date of search u/s. 132 had abated.The assessee filed Writ before the High Court and pleaded that in spite of pendency of the Writ Petition, the Asst. Commissioner passed the final order of assessment. Held, that admittedly no notice as required u/s. 153A was issued for Six Assessment Years; i.e., from 2001-02 to 2006-07. On the date on which the search was initiated, the assessment proceedings were pending on the basis of the return filed by the assessee u/s. 139(1) of the Act. Consequently, the pending assessment proceedings stood abated by virtue of second proviso to Sec. 153A. Instead, Assessing Officer proceeded with the pending Assessment proceedings for the A.Y. 2004-05 and passed assessment order during the pendency of the writ petition. The entire action of A.O. in proceeding with the assessment after search in contravention of the provisions of Sec. 153A was vitiated in law, and hence, Assessment Order dated 28-12-2006 purportedly passed u/s. 143(3) in a pending Assessment Proceedings which stood abated was a nullity.Abhay Kumar Shroff vs. CIT (2007) 290 ITR 114 (Jharkhand)
     

41. Special reserve — S. 36(1)(viii)
    
    Deduction u/s. 36(1) (viii) at the rate 40% on the total income is to be calculated before deduction of the amount allowable under this section. C.I.T. vs. Haryana State Industrial Development Corpn. [(2007) 198 Taxation 349 (P&H)]
     

42. Tax Planning — Tax Planning not inconsistent with Act — Cannot be reason to disallow allowances
    
    Assessee was an investment company. Its claim for loss in share transactions was disallowed by Assessing Officer. Tribunal deleted disallowance of share loss. There was nothing on record to show that transactions were not genuine and that there was an attempt on part of assessee to defraud revenue conclusions reached by Tribunal which were findings of fact and supported by evidence on record could not be interfered with. CIT vs. Bihariji Construction (India) Ltd. (Guwahati) [2007] 161 Taxman 312 (Guwahati)
     

43. Tribunal — Powers of the Tribunal — S. 254(2)|
    
    While exercising the power u/s. 254(2) of the Act, the Tribunal can rectify any mistake apparent from the record and amend any order passed by it, if a mistake is brought to the Tribunal’s notice by the A.O. or by the assessee. However, the Tribunal has no power to rehear the matter touching the merit, which was finally decided, and as such the Tribunal should not make any observation relating to merits of the case while passing the order u/s. 254(2) of the Act.M/s. Bharat Drug Stores vs. C.I.T. [(2007) 197 Taxation 263 (Gau.)]
     

44. Valuation of closing Stock — S. 145
    
    Where the assessee a works contractor valued its closing stock of work-in-progress on the basis of recognized accounting standard. The A.O. deviated and determined the value of the work-in-progress by adopting a different method. The High Court held that the assessee has been employing the same method of valuation of work-in-progress regularly and the method is in consonance with the accounting standards prescribe by the Institute of Chartered Accountants as such the A.O. under such, circumstances had no jurisdiction to muddle in the matter and adopt a different method of valuation of work-in-progress.M.K.B. (Asia) Pvt. Ltd. vs. C.I.T. [(2007) 197 Taxation 288 (Gau.)]