High Courts

1. Accrual of Income – Retention money – S. 4

The payment of retention money in the case of contract is contingent on satisfactory completion of contract work. The right to receive the retention money accrues only after the obligations under the contract are fulfilled and therefore, it would not amount to income of the assessee in the year in which the amount is retained.

CIT vs. Associated Cables P. Ltd. (2006) 286 ITR 596 (Bom.)

2. Actual cost – S. 43

Amount of subsidy is not be deducted from the cost of assets for the purpose of calculating depreciation.

CIT vs. Amol Decalite Ltd. (2006) 205 CTR (Guj) 521

3. Advance Tax – Ss. 234A, 234B, 234C

Interest charged under section 234A, 234B, 234C of the Income-tax Act – High Court holding that assessee was entitled to waiver of interest since assessee fulfilled conditions, mentioned in clause (e) of the Board’s Instructions dt. 23-5-1996 – Lower authorities bound by the said decision.

On 31st January, 2000, Chief Commissioner of Income Tax rejected the application for waiver of interest.

The assessee challenged the said order before the High Court by way of a writ and High Court held that if the assessee has complied with the conditions laid down in Cl. 2(e) of section 273A then the authority shall decide tax quantum while considering the question of waiver.

The High Court further held that the prayer for waiver has to be decided by a competent authority/officer other than the Chief Commissioner of Income Tax.

High Court allowed the writ petition of the assessee with costs.

Om Prakash Trivedi vs. Union of India (2006) 287 ITR 11 (All)

4. Appeal – S. 260a

The assessee challenged the jurisdiction of the Hon’ble High Court to entertain the appeal filed by the Department. The Hon’ble High Court accepted the objection and observed that the test for determining the jurisdiction of the High Court would be whether the assessment proceedings were completed within its territorial limits. Viewed thus, not only were the assessment proceedings in the instant case completed in Bulandshahr, but even the appeals arising out of the said proceedings were heard and disposed of by the Commissioner (Appeals), Meerut. There was, in that view, no difficulty in holding that an appeal against the order passed by the Tribunal, even though located in Delhi, ought to be filed in the High Court at Allahabad.

CIT vs. Digvijay Chemicals Ltd. [2006] 156 Taxman 64 (Delhi)

5. Appeal to CIT(A) – Defect in Memo of Appeal – S. 140 r.w. Rule 45 of the Income Tax Rules, 1962

The assessee is a limited company. The Assessee Officer passed assessment order under section 143(3) of the Income-tax Act, 1961 for the Asst. Years 1990-91 and 1995-96. Thereafter, assessee filed appeal before CIT(A). However, both the appeal memos were signed by the assessee’s advocate who was not authorized to sign the same. Subsequently, the learned CIT(A) dismissed the said appeals on the ground that since appeal memo are not signed by the authorized signatory, they are not maintainable. The learned CIT(A) did not go into the merits of the case.

Later on, the assessee preferred appeals to the Income Tax . Fortunately the Hon’ble ITAT allowed assessee’s appeals and directed CIT(A) to permit the assessee to sign the memos of appeals so as to make the same in conformity with the requirement of section 146 r. w. Rule 45 and relied on Bombay High Court’s judgments in the cases of Dayabhai Gidshardas vs. Babaji Kotwal reported in AIR 1953 Bom. 28 and Kaluram Pannalal vs. Jagannath Kalna reported in AIR 1963 MP 151 in which it was held that not signing of the memo of appeal by the assessee can be regarded as an irregularity and not illegality.

Income Tax Department filed appeals to High Court under section 260A of the Act which were dismissed in limine.
CIT vs. Hope Textiles Ltd. (2006) 287 ITR 321 (MP)

6. Appeal to High Court – Appellate – Powers of – Ss. 254, 260A, Rule 29 – Asst. years 1996-97 to 1998-99

Powers to consider material which was in the form of additional evidence considered by CIT(A) can be considered.
Questions of law or fact – Question whether sufficient opportunity to be heard was afforded to assessee is a question of fact which cannot be raised before High Court u/s. 260A.

Question not raised before the Tribunal does not arise out of order of Tribunal. Question cannot be raised before High Court.

CIT vs. Bank of Punjab Ltd. (2006) 286 ITR 630 (P & H)

7. Appeal to High Court – S. 260A

No substantial question of law, if it is settled by Supreme Court.

CIT vs. Saraswati Kunj Co-op. Hsg. Society (2006) 287 ITR 22 (Delhi)

8. Appellate – Powers of – Power to admit – Additional Grounds – Ss. 11, 254

The Assessing Officer denied the benefit of section 11 to the assessee on the ground that the assessee had violated provisions of section 13(1)(c)(ii) and 13(1)(d) of the Income-tax Act.

Before CIT(A), the assessee alternatively claimed benefit u/s. 10(22A) of the, Income-tax Act, which too was rejected by CIT(A).

In further appeal to Tribunal the assessee was allowed to raise additional claim for benefit u/s. 10(22A) in exercise of its power under Rule 11 of the Income Tax (Appellate ) Rules, 1963.

Ultimately, Tribunal remitted the matter back to the Assessing Officer with the direction that the claim made by the assessee u/s. 10 (22A) may be examined afresh and pass order after giving opportunity to the assessee of being heard.

Held, that no question of law much less a substantial question of law arose. Appeal was dismissed.

Director of Income Tax (Exemption) vs. Arunodya (2006) 286 ITR 383 (Delhi)

9. Appellate – Powers of – Rule 25 (ITAT, Rule, 1963)

Rule 25 of ITAT Rules, 1963, empowers the Tribunal to dispose of an appeal on the merits after hearing the appellant. If on the day of hearing on which the matter is fixed the respondent does not remain present personally or through an authorized representative, then the proviso to the said Rule, however, makes it very clear that any such order of disposal of an appeal can be set aside upon an application made by the respondent on sufficient reasons shown for non-appearance.

In the aforesaid case, the respondent proved that it was not served with the notice of hearing on the day it was fixed. Tribunal was justified in recalling its exparte order. It has to freshly reconsider the merits of the case.

Appeal of the CIT was dismissed by the High Court on the ground that no question of law much less any substantial question of law arose.

CIT vs. Focus Estating P. Ltd. (2006) 286 ITR 410 (Delhi)

10. Appellate Tribunal – S. 253

The assessee, before the Hon’ble High Court on the basis of an affidavit of its Counsel, contended that the additions confirmed were not justified. The Hon’ble Court observed that it is not the job of a Counsel to file affidavit. The submission of the assessee in placing reliance on affidavit of the Counsel and pressing such submission, deserved to be deprecated and rejected at the outset. Indeed, it is highly objectionable and against the ethics of advocacy and judicial norms. It may tantamount to committing contempt entitling the court to initiate proceedings against the concerned lawyer who filed such an affidavit.

Keshav Pulses vs. CIT [2006] 156 Taxman 234 (MP)

11. Appellate – Tribunal – S. 5 of Limitation Act, 1967

Delay in filing appeal – Delay on account of advice by Counsel – Appeal dismissed without giving finding whether assessee had reasonable cause – Matter was sent back by High Court to Income Tax for giving reasons.

Areva T and D India Ltd. vs. JCIT (2006) 287 ITR 555 (Mad.)

12. Appellate Tribunal – Duty of Tribunal – S. 254

The Tribunal must examine the evidence on record while rendering a decision on any issue raised by the assessee. The Tribunal being the final fact finding authority, a higher responsibility is cast by the legislature on it to decide the case by recording complete facts and assigning cogent reasons. It is the duty of the Tribunal to decide the case on the basis of the law laid down by the Supreme Court/High Court. Every effort must be made by the Tribunal to decide the issue by taking help from the decisions of the Supreme Court and if there is no direct decision of the Supreme Court on the point then of the jurisdictional High Court and lastly of any other High Court. Not taking note of the facts of the case, nor the legal position and not even referring to the facts of the case involved in those decisions on which reliance is placed for deciding the appeal amounts to non-exercise of the appellate powers by the Tribunal.

CIT vs. Abhishek Industries Ltd. (2006) 286 ITR 1 (P & H)

13. Appellate Tribunal – Power – Ss. 254, 256

Assessee filed Reference Application u/s. 256(2) of the Income-tax Act, 1961 for the Hon’ble High Court’s opinion by raising three questions.

In a given case, Tribunal declined to follow the law laid down by the Madhya Pradesh High Court essentially on the ground that it does not lay down the correct principles of law because it has not taken into consideration certain amendments brought on the statute book which had a bearing on the controversies involved therein. It was the Department’s appeal. Tribunal declined to refer a question of law on a Reference Application filed u/s. 256(1) of the Income-tax Act by the assessee.

Held, that the manner in which the Tribunal dealt with the issue so far as precedents of judicial propriety in following High Court decisions was concerned, should have been referred to the Court for examination. It was an issue which the High Court alone had to decide and it was not for the Tribunal to decide. Tribunal cannot comment on the decision of the High Court. Tribunal cannot ignore such decision and take its own view.

High Court allowed the Reference Application filed by the assessee u/s. 256(2) and directed to draw statement of facts for High Court.

National Textile Corpn. Ltd. vs. CIT (2006) 286 ITR 496 (MP)

14. Appellate Tribunal – Duty of Tribunal – S. 354

The assessee was a company registered under the laws of Switzerland. The assessee was holding 40,50,000 shares of our Indian company. During the previous year, it transferred entire lot of shares and claimed a capital loss of Rs. 43,29,28,296.

Assessing Officer disallowed the same on the ground that the assessee was not entitled to indexation under section 48 of the Income-tax Act and hence, not eligible to rely on section 55(2)(b)(i). The learned Assessing Officer therefore levied penal interest for not paying advance tax in time. confirmed the Assessing Officer’s version and dismissed the appeal.

The assessee’s contention was that there was no discussion at all as to how the penal interest would become payable and the judgment in Ghaswalla’s case (252 ITR 1) was totally misplaced.

The claim of the assessee was rejected on the ground that section 48 was not available to the non-resident company.

High Court held that the Appellate Tribunal should decide the liability of the appellant independent of section 48. Similarly, for penal interest, it should discuss in its order how there was delay in not paying the advance tax in time and if so, whether penal interest. Since, there was not appropriate discussion on both these aspects, appeal of the assessee was allowed and matter was sent back to .

Novartis A G Basle vs. ACIT (2006) 287 ITR 409 (Bom.)

15. Assessment – Notice – S. 143(2)

Service of notice after time stipulated under section 143(2) – Assessment in pursuance to that not valid.

There is a clear cut distinction between ‘issuance of notice’ and ‘service of notice’.

The assessee filed the return of income on 20th November, 1996. The time stipulated under the proviso to section 143(2)(ii) for service of Notice expired on 30th November, 1997.

Notice under section 143(2) though issued on 27th November, 1997 and posted on 28th November, 1997 was actually received by the assessee only on 1st December, 1997.

According to above proposition, the notice must be served, which was not done and hence, assessment was not valid.

CIT vs. Bhan Textiles P. Ltd. (2006) 287 ITR 370 (Delhi)

16. Assessment – Prima facie adjustment – S. 143(1)(a)

Admissibility of guesthouse expenses, which is a highly debatable issue on account of conflicting judicial pronouncements of various High Courts, disallowance of the same by making adjustment u/s. 143(1)(a) was held not permissible.

CIT vs. Hughes Escorts Communications Ltd. – [(2006) 195 Taxation 214 (Del)]

17. Assessment – Return filed – S. 143

Intimation under section 143(1)(a) was sent on 17-10-1994. Revised Return filed on 31-8-1995, whether valid.

The assessee filed his return of income for A. Y. 1994-95 on 29th July, 1994 by showing loss of Rs. 2,77,300/-. The said return of loss was processed and intimation to that was sent 7th October, 1994 under section 143(1)(a) of the Income-tax Act, 1961.

Thereafter, assessee filed revised return of income on 31st August, 1995 by showing income of Rs. 33,650/-. In the said revised return, assessee showed income from capital gains which he omitted to show in original return. In the original return, the assessee had claimed house tax but in the revised return the said claim of house tax was withdrawn as the same had not been paid. The case was selected for scrutiny. The Assessing Officer made addition of Rs. 12,98,328/- on account of unexplained investment under section 69 and determined the total income at Rs. 13,31,974/- (Rs. 33,646 + Rs.12,98,328). Aggrieved by the said order, an appeal was filed before CIT(A).

Before CIT(A), the assessee contended that the intimation under section 143(1)(a) became final assessment order since limitation under the proviso to section 143(2) for issue of notice in respect of original return expired as 31st July, 1995 and the revised return that was filed on 31st August, 1995 was not a valid return and the assessment made by the Assessing Officer was a nullity.

Aggrieved by the CIT(A)’s order, assessee filed Second Appeal to ITAT, ITAT allowed assessee’s appeal by holding that the revised return was invalid and void ab initio.

High Court reversing ITAT’s view by holding that even if no notice was served on the assessee under section 143(2) and since no assessment was made pursuant to the original return, the assessee could file a revised return under section 139(5) at any time before the expiry of one year from the end of the relevant A. Y. 1994-95; i.e., before 31st March, 1996 and as the revised return was filed on 31st August, 1995, it was a valid revised return and assessment made pursuant to the said revised return was a valid assessment.

CIT vs. Omprakash Bagria (2006) 287 ITR 523 (MP)

18. Block assessment – Chapter XIV B – S. 158BC

No evidence of concealment of income found in search proceedings – addition based on estimate of value of property not valid.

CIT vs. Manoj Jain (2006) 287 ITR 285 (Delhi)

19. Block assessment – Notice – Precedent – Ss. 158BC, 292B

Notice not mentioning block period for which return to be filed, section under which issued, period within which to be filed, proof defective.

The CIT(A) and ITAT confirmed the same and held against the assessee.

High Court also held that 1st notice suffered from only technical error and was protected by the provisions of section 292B of the Income-tax Act, 1961. A procedural requirement can always be waived by the subject for which benefit they are enacted so the assessee’s appeal was dismissed.

Shirish Madhukar Dalvi vs. ACIT (2006) 287 ITR 242 (Bom.)

20. Block assessment – S. 158

Limitation u/s. 158BE – Direction of Assessing Officer for special Audit u/s. 142(2A) one day before the expiry of limitation for completing the Block Assessment given merely to get extension of time Assessing Officer’s action apparently beyond the scope of 142(2A).

Finding by Appellate Tribunal that the direction for special audit was illegal and consequently assessment was barred by time are findings of fact therefore, no substantial question of law arises.

CIT vs. Bajrang Textiles (2006) 205 CTR (Raj) 287

21. Block assessment – S. 158 BB

Where the income which is not otherwise taxable, being below the taxable limit, the same income cannot be taxed in the block assessment irrespective of the fact whether the same has been disclosed after or before the search operation.

CIT vs. Dr. Sangeeta Varma & Ors – [(2006) 195 Taxation 67 (MP)]

Salary income for the period falling in the block period which is below the taxable limit or on which tax has been deducted at source cannot be included in undisclosed income of the assessee.

Surendra Kumar Lahoti vs. Asstt. CIT – [(2006) 195 Taxation 647 (MP)]

22. Block assessment – S. 158 BC

Block assessment – Undisclosed Income – Unless the Revenue proves that the deduction claimed by Assessee is false, there is no scope to treat the disallowance u/s. 40A(2) as undisclosed income. Finding has to be given that the claim is false.

CV Engineering Ltd. vs. Asst. CIT (2006) 205 CTR (Mad) 161

23. Block assessment – Undisclosed Income – S. 158b(b)

Assessment proceedings undertaken under Chapter XIVB are only in respect of undisclosed income, that is, income which has not been, or would not have been disclosed and which has been unearthed as a result of the search or requisition.

Assessment proceedings under Chapter-XIV–B are not concerned with that income which has already been disclosed and in respect of which regular assessment proceedings stand concluded or are still pending, or in respect of which time for filing of return has not expired on the date of search/requisition and which stand recorded in the books of account on the date of search. The proceedings under Chapter XIV-B cannot be used as an opportunity to either reopen concluded assessments or to reassess the returned income by taking a fresh look at the disclosed facts and figures, unless, of course, they are found to be false as a result of the search or requisition.

CIT vs. Jupiter Builders (P.) Ltd. [2006] 156 Taxman 361 (Del.)

24. Block assessment of the other person – S. 158bd

The assessee was other person as contemplated under section 158BD. She was a person other than the person in respect to whom search was carried out under section 132. Thus, as per section 158BD, the relevant material ought to have been handed over to the Assessing Officer having jurisdiction over such other person and the Assessing Officer should proceed against such other person as provided under section 158BD. Thus, the block assessment order passed in the assessee’s case under section 158BD, by the Assessing Officer having jurisdiction over the assessee’s covered in search and block assessment orders passed under section 158BC is bad-in-law as the Assessing Officer does not have jurisdiction to do so.

CIT vs. Smt. Maya Chotrani [2006] 157 Taxman 107 (MP)

25. Business expenditure – Consulting Service – S. 37(1)

The A.O. disallowed the claim for deduction of consultancy and service charges paid, as there was no agreement between the assessee and payee for the services provided. On appeal the High Court endorsed the finding of the Tribunal which after going through the correspondence, accounts, payments made and T.D.S. held that payee had performed the work contract.

CIT vs. Galaxy Power Cables Ltd. – [(2006) 195 Taxation 215 (Del)]

26. Business Expenditure – Expenditure incurred in connection with issuance of bonus shares is revenue expenditure – S. 37(1)

Issuance of bonus shares does not result in any inflow of fresh funds or increase in the capital employed; the capital employed remains the same. Issuance of bonus shares by capitalization of reserves is merely a reallocation of company’s fund. If that be so, then it cannot be held that the company has acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares will not result in any change in the capital structure of the company. Issue of bonus shares does not result in the expansion of capital base of the company. Thus, the expenditure incurred in connection with issuance of bonus shares is revenue expenditure.

CIT vs. General Insurance Corporation [2006] 156 Taxman 96 (Bom)

27. Business expenditure – Interest – S. 37(1)

Merely, because the assessee had not charged interest from its debtors it does not mean that interest paid by it to its creditors should be disallowed, especially, when there is no dispute about the genuineness of the payment made by the assessee and more so, when the A.O. had not established linkage between the interest paid to creditors and debts receivable.

CIT vs. Indo Kopp Ltd. – [(2006) 94 Taxation 321 (Del)]

28. Business expenditure – S. 37

Violation of provision law not to be taken advantage of by an assessee for claiming deduction u/s. 37 of the Income-tax Act. Redemption fine paid to Central Excise Department for release of confiscated goods not allowable as business expenditure. The assessee is a manufacturer of brass. He purchased copper, zinc, etc. for converting them into brass at its factory. There was a search in the business premises of the assessee by Central Excise authority. The Central Excise Authority confiscated finished goods valued at 18,200 kgs of copper, etc.

Penalty of Rs. 1,00,000/- was levied. It was not paid by the assessee. However, the assessee was given option to pay fine to redeem the said goods confiscated. The assessee later on paid Rs. 2,00,000/- as redemption fine, and claimed deduction u/s. 37 of the Income-tax Act, 1961.

Assessee Officer brought to tax the said amount of Rs. 2,00,000/-, since, it was not spent for commercial expediency and was only for infraction of law and is in the nature of personal liability.

However, CIT(A) and ITAT allowed the appeal by holding that the said sum of Rs. 2,00,000/- was business expenditure.

Held, that those who violate a provision of law have to suffer and that violation cannot be made use of in any other proceedings and make gain out of it. If deduction is available, then there are chances of people taking advantage of the violation of a statute at least for the purpose of getting some benefit in the matter of payment of tax. Assessee should not be provided any such opportunity.

High Court decided in favour of the Department.

CIT vs. Jayaram Metal Industries (2006) 286 ITR 403 (Kar.)

29. Business expenditure – Warranty – S. 37(1)

The assessee had set apart different amounts in different assessment year to provide for claim of warranty. The A.O. disallowed the claim of the assessee by holding it to be contingent liability, on appeal the High Court held that the assesse’s claim of warranty clause formed part of the sale and as such the same was allowable expenditure.

CIT vs. Sony India P. Ltd. – [(2006) 194 Taxation 344 (Del)]

30. Business expenditure – Commission – S. 37

Commission to sole selling agent – Finding that assessee had utilized the services of the non-resident sole selling agent – Remittances made through RBI – No evidence in the hands of Revenue to contend that the Assessee had no infrastructure facility–Disallowance of commission payment rightly deleted – No substantial question of law arises.

CIT vs. L.G. Balkrishnan & Bros. (2006) 205 CTR (Mad) 173

31. Business Income – S. 28

Government securities held by the assessee bank was held to be treated as stock-in-trade and not as investment as treated by the A.O. As the assessee in past had shown the securities as stock- in-trade and the appreciation or depreciation in the value of securities was shown as income and loss which was accepted by the A.O. there was no change in the method of accounting in the present year also.

The Lakshmi Vilas Bank Ltd. vs. CIT – [(2006) 195 Taxation 176 (Mad)]

32. Business income or income from other sources – S. 28, 5

Fixed monthly compensation received by exporter for using name and goodwill of erstwhile business was assessable as Income from Other Sources and not business income.

CIT vs. Nijrang Specific Family Trust (2006) 205 CTR (Guj) 144

Ester Industries Ltd. vs. CIT(2006) 206 CTR (Del) 260

33. Business income vs. Income from House Property – S. 22, 28

Income from letting of guest house–Income from leasing of property along with furniture and furnishing used as guest house in the past, to a bank to be used as training centre is assessable as Business Income.

Shri Pateshwari Electrical & Associated Industries (P) Ltd. vs. CIT (2006) 206 CTR (All) 420

34. Capital Gain – Approved valuer valued as on 1-4-1981

Where the assessee on the basis of the Government approved valuer valued the fair market value as on 1-4-1981 at Rs. 4,600 per sq. metre. The A.O. however, estimated the fair market value at Rs. 2,000 per sq. metre as according to him the valuation done by the assessee was on a higher side. On appeal the Hon’ble High Court held that as approved valuer was a technical person and A.O. had no basis for his estimation. As such the fair market value report by the registered valuer as declared by the assessee was to be accepted.

CIT vs. Mrs. Ina Buha – [(2006) 195 Taxation 301 (Del)]

35. Capital Gain – Gains invested in residential house before expiry of time limit to file returns under section 139(4) are exempt – S. 54

The assessee before the Hon’ble High Court claimed that he is eligible to exemption under section 54 of the Act as the capital gains were utilized for acquiring a new residential accommodating before due date for filing returns under section 139(4). From a plain reading of sub-section (2) of section 54, it is clear that only section 139 is mentioned in section 54(2) in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income. Section 139 cannot mean only 139(1) but it means all sub-sections of section 139. Thus, the condition laid down under section 54 stands satisfied if the capital gains are utilized for the purchase of new residential accommodation before the due date to file returns under section 139(4).

CIT vs. Rajesh Kumar Jalan [2006] 157 Taxman 398 (Gau.)

36. Capital gain – S. 54F

High Court denying the exemption u/s. 54F of the Act held that the construction must be real one and not symbolic, as such, a mere construction by way of extension of old existing house would not mean construction of a residential house as contemplated u/s. 54F of the Act.

CIT vs. Pradeep Kumar – [(2006) 195 Taxation 348 (Mad)]

37. Capital gains – Exemption – S. 54

Sale of residence and purchase of house for residence within stipulated time but in wife’s name, exemption available.

CIT vs. V. Natarajan (2006) 287 ITR 271 (Mad.)

38. Capital Gains – Sale of land – S. 52(2)

Difference between consideration and fair market value, no evidence of receipt of amount over and above sale consideration, section 52(2) cannot be employed.

On appeal to High Court under section 260A of the Act, High Court held that there is no finding by any authority on the second condition which was also required to be proved by the revenue before invoking section 52(2) and hence, in the absence thereof, provisions of section 52(2) have been wrongly invoked.

Therefore, assessee’s appeal is allowed.

Prem Narain & Co. vs. CIT (2006) 287 ITR 56 (P & H)

39. Capital or revenue – S. 5

Subsidy whether capital or revenue – Incentive subsidy received by assessee – Capital receipt not includible in total income.

Tribunal was right in law in holding that the incentive subsidy received by the assessee was a capital receipt and could not be included in total income.

High Court held that the above proposition is covered by CIT vs. Ponni Sugars and Chemicals Ltd. (260 ITR 605) in favour of the assessee and against the revenue and therefore, the question is answered in favour of the assessee.

CIT vs. Salem Co-operative Sugar Mills Ltd. (2006) 286 ITR 635 (Mad.)

40. Capital or revenue receipt – Non Compete agreement – S. 28

Receipt under non-compete agreement cannot be strictly construed as restrictive covenant as understood in law and consideration received is not Capital Receipt but an income.

Tam Tam Pedda Guruva Reddy vs. Jt. CIT (2006) 205 CTR (Ker) 97

41. Capital receipt or revenue receipt – S. 28

Refund of liquidated damages collected from supplier for the latter’s failure to supply equipment in time is Capital receipt – And the amount refunded to the supplier on account of part of waiver of such damages, not voluntarily but under the direction of Telecom Commission is not allowable as deduction either u/s. 37(1) or section 57(iii).

MTNL In re Authority for Advance Rulings (2006) 205 CTR (AAR) 104

42. Carry forward and set off – S. 72

Return filed with extension of time on the basis of application seeking extension. When application was not disposed of, the assessee is justified to entertain belief that application is granted. Carry forward and set off is allowable even though intimation regarding extension of time to file the return was not given to the assessee.

CIT vs. Swastik Sanitary Works Ltd. (2006) 205 CTR (Guj) 517

CIT vs. Sumathi Process India Ltd. (2006) 206 CIT (Mad) 236

43. Cash Credit – S. 68

Provision of section 68 are not attracted to amounts representing purchases made on credit.

CIT vs. Pancham Dass Jain (2006) 205 CTR (All) 444

Where the assessee had produced before the A.O. certificate of incorporation of the company, which had subscribed its shares, register of members, evidence of dividend paid to the shareholders and that the subscriber were also assessed to tax. It was held that the identity of subscriber was established and addition u/s. 68 of the Act was not called for.

CIT vs. A. R. Leasing P. Ltd. – [(2006) 194 Taxation 323 (Del)]

Creditors are income tax payee. Payments made by account payee cheques. Payments made from bank account with sufficient funds available. No material to doubt genuineness of transactions addition not justified.

Assessee in his return of income shown certain amounts as loan received from family members and relatives. All creditors were assessee on the file of Assessing Officer. Their file numbers were reflected in the order. All the amounts were paid by the account payee cheques. However, Assessing Officer held that the sum of Rs. 8,35,000/- was not genuine and added it as income of the assessee.

Even CIT(A) and ITAT confirmed the same. However, High Court held that out of three conditions; i.e., (1) identity of creditors (2) their creditworthiness and (3) genuineness of the transactions, two conditions were satisfied, they are identified and their creditworthiness had been established. As far as genuineness of transactions, assessee proved that entire amount involved was received by account payee cheques. There was no material to show that transactions are shown false so Tribunals finding was totally wrong and addition was deleted.

P. K. Sethi vs. CIT (2006) 286 ITR 318 (Guwahati)

44. Cash credit – Share Application Money – Ss. 68, 260A

The assessee company disclosed

Rs. 4,75,000/- in its return of income as received on account of share application money for the A. Y. 1989-90.

The learned Assessing Officer, however, made addition under section 68 on the ground that the identity of the subscribers not established.

But the CIT(A) and ITAT held that the assessee discharged the onus by reference to the material produced to establish the identity of the subscribers.

CIT vs. Illac Investments P. Ltd. (2006) 287 ITR 135 (Delhi)

45. Cash credits – Share capital – S. 68

The Department contended before the Hon’ble High Court that the assessee company while discharging the onus cast on it has not established the capacity of the creditor of the share holder. The Hon’ble Court observed that the revenue could have gone back, insofar as the assessee was concerned, to determine whether the shareholder was a genuine person and whether she had requisite creditworthiness or not. Once that was established, there was no occasion for the revenue to go further to find out whether creditor of the shareholder was also genuine and creditworthy. That would be stretching the provisions of section 68 a little too far.

CIT vs. Glocom Impex (P) Ltd. [2006] 157 Taxman 308 (Delhi)

46. Charitable or religious trust – S. 13

The assessee Trust was denied exemption under section 11 of the Act on the ground that it is a religious trust. The Appellate Tribunal granted the relief. On further appeal Hon’ble Court observed that if Jainism is accepted to be a religion and from the covenants of the Trust Deed it can be spelt out that not only to propagate Jainism or help and assist maintenance of the Temple, Sadhus, Sadhvis, Shravikas and Shravaks, yet other goals are set in the Trust Deed, then the Trust would become a Charitable Trust, so also a Religious Trust or it can be addressed as a Charitable Religious Trust, and, if that be so, section 13(1)(b) would not be applicable.

CIT vs. Chandra Charitable Trust [2006] 156 Taxman 19 (Guj.)

47. Charitable trust – Ss. 11 & 13

Exemption u/s. 11 of the Income-tax Act, 1961 was denied to the assessee, where the assessee was engaged in the business of manufacturing of safety matches, as the same was not carried on in the course of accomplishing the object of the trust.

CIT vs. P. Iyya Nadar Charitable Trust – [(2006) 195 Taxation 364 (Mad)]

48. Closing Stock – S. 68

Assessee, was a manufacturer of machinery equipments. The Assessing Officer made an addition in the light of variation of closing stock recorded by the assessee in its accounts and stock statement declared and given to the bank as on the last date of the accounting year relating to the A. Y. 1989-90.

CIT(A) had confirmed the said addition. On appeal to High Court, it was held that no acceptable evidence was placed to disbelieve the bank statement as the entire amount shown pertained to the raw materials which had to be supported by various statutory registers as well, as ruled by all authorities. In the absence of concrete material, addition was justified.

Recon Machine Tools P. Ltd. vs. CIT (2006) 286 ITR 637 (Kar.)

49. Clubbing of income – S. 64(i)(iii)

The issue before the Full Bench of the Hon’ble High Court was whether income of the minor, which will be distributed to the minor, on his gaining majority can be clubbed in the hands of the parents on accrual of the income. The Hon’ble Court held that to attract clause (iii) of section 64(1), read with Explanation 2A to section 64(1), unless it is found that the minor for whose benefit the income was available, is shown to have an absolute right of disposal in praesenti over the same, it cannot be included in the income of the individual in computing his total income. In other words, if such income is to reach the hands of the minor / beneficiary only on attaining majority, then it cannot be included in the income of the individual in computing his total income.

CIT vs. K. J. Ramaswamy [2006] 157 Taxman 2 (Mad.)(F.B.)

50. Depreciation – Leasing – S. 32

The assessee who is engaged in the business of leasing the machinery. The asset is deemed to be put to use as soon as the machinery is leased out and, accordingly, depreciation was allowable on such machinery.

Geeta Lease P. Ltd. vs. CIT – [(2006) 194 Taxation 337 (Del)]

51. Depreciation – Leasing business – S. 32(1)(ii)

Assessee engaged in leasing business. Asset costing less than Rs. 5,000/-. Asset like printing cylinders, sintex shipper, ice box, etc. Each asset is plant entitled to 100% depreciation.

The assessee was engaged in the business of hire purchase finance and leasing. It claimed 100% depreciation on printing cylinders, bins and shipper sintex under 1st proviso to section 32(1) but Assessing Officer refused the claim on the ground that the assets were leased in bulk.

ITAT found that each asset cost less than Rs. 5,000/-.

High Court upholding ITAT’s view held that the printing cylinders are mainly used in printing industry and the matter to be screwed on to these cylinders and turn prints are taken. So they are part of the plant. The bins are being used as individual items and each one of them is a plant as a single unit. The same is the case for shippers sintex ice boxes. So each of these assets is a plant, and therefore, entitled to depreciation.

CIT vs. Upasana Finance Ltd. (2006) 286 ITR 179 (Mad.)

52. Depreciation – Terraces – S. 32

Terraces and other structures used as telecom site constitute building entitling the assessee to depreciation.

CIT vs. Israni Telecom P. Ltd. – [(2006) 195 Taxation 294 (Del)]

53. Disallowance – Commission – S. 40A(2)

Reasonableness of commission to interested parties – Finding that commission paid by assessee to sole selling agents was reasonable having regard to the fact that agents had their well experienced work force and outlets which had admittedly resulted in more business for the assessee and there was no proof of excessive or unreasonable payments, therefore, no disallowance could be made u/s. 40A(2).

CIT vs. Computer Graphics Ltd. (2006) 205 CTR (Mad) 403

54. Export – Deduction – S. 80HHC

Where there is no material to show that income from service charges, cash discount, commission, forwarding, weighment charges and octroi refund have any nexus or are connected with the export activities of the assessee, then, as per clause (baa) of explanation to section 80HHC(4B) such incomes do not qualify for deduction u/s. 80HHC of the Act.

Floor & Food Ltd. vs. CIT – [(2006) 195 Taxation 78 (MP)]

55. Export – Interest receipts treated as business income computation of deduction – S. 80HHC

Once the income was assessed as income from business or profession, the same had to be taken as such for the purpose of calculation of profits of the business in terms of clause (baa) of section 80HHC, after reducing therefrom 90 per cent of the amount so referred in the clause.

CIT vs. Avery Cycle Inds. Ltd. [2006] 157 Taxman 382 (P & H)

56. Fringe Benefit Tax – Non-resident and non-profit organisation is liable to fringe benefit tax – S. 115

The applicant before the Authority of Advance Ruling was an organization engaged in a non profit activity. The issue raised by the Authority with respect to the applicability of provisions of fringe benefit tax was answered with following observations.

Section 115WA says that FBT is in addition to income-tax and it is to be charged to tax even when no income tax is payable by an employer on his total income computed in accordance with the provisions of the Act, it would be futile to contend that if there is no total income which can be computed in accordance with the provisions of the Act, no FBT would be payable by the employer. Such an interpretation would be contrary not only to the intention of the Parliament but also to the plain language of the provision and the basic principles of interpretation.

Population Council, Inc., In re [2006] 156 Taxman 125 (AAR)

57. Income from House Property – Annual rateable value – Standard rent has to be taken as rent if actual rent is not acceptable – S. 23(1)

The assessee before the Hon’ble High Court contended that the A. O. cannot treat the fair market rent as a notional figure under section 23(1). If actual rent is not accepted the standard rent should be adopted as rent. The Hon’ble Court observed that the Assessing Officer is duty bound to calculate the standard rent of a property under section 23. Section 23(1) is a deeming provision and if the Legislature intended that it would be reasonable that income-tax must be paid on limited rent basis, it should have expressly and unequivocally stated so. A healthy balance had been introduced by the amendments carried out in 1975 since prior thereto, it was possible for an assessee to insist that the standard rent should be calculated for the purpose of accessibility to income tax and actual rent / income should be ignored. It appears that the equilibrium should not be disturbed by interpreting provisions of the Act in manner such as would permit a person to be subjected to tax much beyond the ‘income’ which has actually been received by him.

John Tinson & Co. (P) Ltd. vs. CIT [2006] 157 Taxman 410 (Delhi)

58. Income from undisclosed sources – S. 28

Withdrawal from bank – Expenses incurred by assessee out of withdrawals made from his bank account cannot be treated as income.

Tam Tam Pedda Guruva Reddy vs. Jt. CIT (2006) 205 CTR (Ker) 97

59. Incorporate dividend – Deduction – S. 80M

For claiming deduction u/s. 80M, the dividend should have been distributed before the due date of filing of return u/s. 139(1).

Delhi Tourism & TDC Ltd. vs. CIT (2006) 205 CTR (Del) 471

60. New Industrial Undertaking – Deduction – Ss. 80HH & 80-I

Where the assessee is eligible for deduction under sections 80HH & 80-I, deduction u/s. 80I is admissible on the gross total income before reducing it by the deduction allowable u/s. 80HH.

CIT vs. Decora Tubes Ltd. – [(2006) 195 Taxation 85 (MP)]

Refund of excise duty is to be included in the profits for the purpose of deduction u/ss. 80HH and 80-I of the Income-tax Act, 1961.

CIT vs. Siddharth Tubes Ltd. – [(2006) 195 Taxation 96 (MP)]

Interest of delayed payments by trade debtors is the amount directly relatable to the amount receivable in the course of business. It is profit and gains derived from the business of industrial undertaking of the Assessee and is eligible for relief u/s. 80 HH & 80-I.

CIT vs. Indo Matsushita Carbon Co. Ltd. (2006) 205 CTR (Mad) 493

61. Penal interest – S. 234A, 234B, 234C

Interest u/ss. 234A, 234B and 234C is chargeable even when the assessment was made u/s. 115J.

CIT vs. Geetha Ramakrishna Mills (P) Ltd. (2006) 205 CTR (Mad) 365

62. Penalty – Concealment Loss – S. 271(1) (C)

Penalty u/s. 271 (1)(c) was not leviable where the final figure of assessment was a loss.

Annapurana Granites P. Ltd. vs. CIT – [(2006) 195 Taxation 70 (MP)]

63. Penalty – Concealment penalty – Explanation 5 to section 271(1)(c) – If returns are not filed in time declaring the income surrendered – Immunity of explanation 5 is not available

If immunity from penalty is to be availed of by the assessee by invoking the provisions of Explanation 5 to section 271(1)(c), tax on the surrendered income along with interest, if any, is required to be paid immediately and in any case before the due date of return, in view of scheme of law which is clear from the language of the statute itself. Non-availability of funds for payment of tax due on the surrendered income, payment of tax along with interest before the date of assessment or payment of interest for delayed payment of tax cannot be the circumstances which could be pleaded by the assessee to claim immunity from levy of penalty in terms of Explanation 5. An assessee, who has surrendered his concealed income during the course of search and seizure but neither files the return in time nor deposits the tax on surrendered income immediately after the surrender, cannot be given benefit of Explanation 5 to section 271(1)(c).

Ashok Kumar Gupta vs. CIT [2006] 157 Taxman 339 (P & H)

64. Penalty – Concealment – S. 271(1)(c)

Where the assessee initially offered capital gain on sale of land. However, thereafter, on the advice of the Tahsildar and Municipal Corporation claimed the land to be agricultural land and therefore claimed the consideration received on transfer of the land as exempt from capital gain tax liability. Thereafter, the assessee surrendered the claim and admitted that the land was not agricultural land. The A.O. imposed penalty u/s. 271(1)(c). The Hon’ble High Court, deleting the penalty held that the assessee acted bona fide on the basis of advice of the Tahsildar and Municipal Corporation, as such it cannot be said that the assessee concealed any fact or attempted to hide any material fact.

CIT vs. M/s. Videon – [(2006) 195 Taxation 292 (Del)]

65. Penalty – Deduction of tax at Source – S. 271C

Penalty u/s. 271C was held not leviable where the recorded finding of fact was that the assessee acted bonafidely, as it constitute reasonable cause in accordance with the provisions of section 273B. In the present case, the expatriate employees of the assessee to whom salary was paid, had filed their return and paid taxes accordingly. Besides this the assessee had not deducted tax at source on the benefit it granted to the employees on account of L.T.A. as he acted upon the declaration given by the employees.

CIT vs. Owens Brockkwy India Ltd. – [(2006) 194 Taxation 342 (Del)]

66. Penalty – Concealment – S. 271(1)(c)

Disallowance of expenditure – Withdrawal of claim deduction results in difference of opinion between the assessee and the Assessing Officer did not amount to concealment of income or furnishing of inaccurate particulars by the assessee and therefore, no penalty u/s. 271(1)(c) was leviable.

CIT vs. Bacardi Martini India Ltd. (2006) 206 CTR (Del) 250

67. Penalty – Deposit – S. 271 E

A. Y. 2001-02, sections 269T and 271E of the Act as it existed during the relevant year dealt with repayment of ‘deposit’ made otherwise then by way of an account payee cheque or draft drawn in the name of the lender and not with repayment of ‘loans’ made otherwise then by account payee cheque. Therefore, penalty in the present case u/s. 271E was held not leviable.

CIT vs. Vikramjit Singh – [(2006) 194 Taxation 331 (Del)]

68. Plant and machinery – Calculators, water coolers, factory cleaning machines are ‘plant’ – S. 32A

The Hon’ble Court was concerned with the phrase ‘Plant & Machinery’ in the Reference Application filed by the assessee with respect to the investment allowance. It is well settled that the word ‘plant’ must be given a wide meaning as held by the Supreme Court in CIT vs. Taj Mahal Hotel [1971] 82 ITR 44 and that ‘plant’ includes whatever apparatus is used by a person for carrying on his business. Data processing machines, computers, weighing scales and cranes and items of similar nature are held to be plant in CIT vs. IBM World Trade Corpn. [1981] 130 ITR 739 (Bom.), CIT vs. Emirates Commercial Bank Ltd. [2003] 262 ITR 55 (Bom.), and CIT vs. Mahindra Ugine Steel Co. Ltd. [1999] 233 ITR 204 (Bom.), respectively..

Associated Bearing Co. Ltd. vs. CIT [2006] 157 Taxman 28 (Mumbai)

69. Powers of High Court – S. 256

The issue before the Hon’ble High Court was whether it has the powers to recall an order passed ex parte in the absence of any such provision under the Act. The Hon’ble Court observed that in terms of section 256 a reference is made to the High Court. The High Court, therefore, is not a persona designate. While exercising its power, the High Court still acts as a constitutional authority and thus, can exercise its jurisdiction in a manner as it may think fit and proper. The High Court is not a creature of statute. It is now a well settled principle of law that a power of substantive review is required to be confirmed by statute. No such power is required to be expressly conferred upon a court in relation to exercise of its power of procedural review. Such a power inheres in every court, more so in the High Court.

International Airports Authority of India vs. CIT [2006] 154 Taxman 1 (Delhi)

70. Promissory Estoppel

Where by certain notification an area was excluded from the list of backward area. The assessee by way of writ petition challenged the action of the Government as discriminatory on the ground of promissory estoppel. The High Court disposing of the writ held that the action of the Government was not discriminatory and the Government may decide the issue of backward areas. The High Court also held that in the present case the law was amended by Parliament, and such amendment cannot be ignored by the High Court.

Kajaria Ceramics Ltd. vs. UOI & Ors. – [(2006) 194 Taxation 340 (Del)]

71. Reassessment – S. 148

Full and true disclosure – Notice u/s. 148 after 4 years – Assessee had furnished full details to determine the quantum of depreciation – Period of limitation applicable for reopening – Therefore, impugned notice is illegal and without jurisdiction and the reassessment were barred by limitation.

CIT vs. Elgi Finance Ltd. (2006) 205 CTR (Mad) 241

Reason to believe – Report of DVO determining the value of construction raised by Assessee – This could not from the reason to believe that the assessee has underdisclosed the cost of construction in the relevant years and ITAT was right in holding that reassessment proceedings was without jurisdiction.

CIT vs. Smt. Sohan Devi Sodani (2006) 205 CTR (Raj) 466

Reassessment proceeding cannot be sustained in the case of change of opinion or when there is the possibility of two views.

Apollow Hospital & Enterprises Ltd. vs. Asst. CIT(2006) 206 CTR (Mad) 426

Notice u/s. 148 – Pendency of assessment proceedings – Notice u/s. 148 could not be issued during the pendency of appeal filed by the Department before ITAT against the order of CIT(A) allowing relief to Assessee.

Metro Auto Corporation vs. ITO (2006) 206 CTR (Bom) 581

72. Recovery

Stay – Non consideration of prima facie case of the Appellate resulted in passing the order without application of mind and must be set aside. Interim stay granted against recovery of penalty till the disposal of appeal pending before the Tribunal.

Fountainhead Communications Ltd. vs. Addl. CIT (2006) 205 CTR (Mad) 415

73. Recovery of taxes – Schedule II, Rule 11

Dispute as to whether the defaulter had transferred the property prior to issuance of notice under rule 2 of Second Schedule of the Act or thereafter can be conveniently adjudicated in a suit under rule 11(6) of the Second Schedule. Such disputed facts cannot be decided in a writ proceeding under Article 226 of the Constitution.

Siby Jose vs. T.R.O., J.C. Augustine & Ors. – [(2006) 195 Taxation 46 (Ker)]

74. Rectification – S. 154

The A.O. rectified the order u/s. 154 of the Act on the ground that deduction u/s. 80HHC of the Act was calculated without taking into account the loss suffered by the assessee from export of trading goods. At the time of rectification u/s. 154 there were divergent decision of High Court on the issue, which was finally decided in favour of the revenue by the Supreme Court. The High Court held that A.O.’s action in rectifying the order u/s. 154 was in accordance with the Supreme Court as the assessee before the A.O. did not raise the question of debatable nature of the issue.

CIT vs. Rovy Indl. Corporation – [(2006) 195 Taxation 422 (P&H)]

75. Rectification – Tribunal – S. 254

The Tribunal cannot upturn a well-reasoned order given by a regularly constituted bench by taking recourse to the provisions of section 254(2) like an appellate court. The Tribunal while hearing an application u/s. 254(2) cannot act as an appellate court. The Tribunal must keep in mind the subtle distinction between the appellate power and rectification powers while deciding the rectification application.

CIT vs. M/s. Chhabra Ginning Udyog – [(2006) 195 Taxation 671 (MP)]

76. Rectification – Tribunal – S. 254(2)

Merely, because a judgment given on the subject either by the Tribunal or any other court was not noticed by the while taking a particular view on the merits of the case decided by it, it may constitute an error, which could be corrected in appeal but, would fall short of constituting a mistake apparent from record within the meaning of section 254 (2) of the Act.

CIT vs. ITAT – [(2006) 195 Taxation 288 (Del)]

77. Registration of firm – S. 184(7)

The A.O. during the reassessment proceeding found that Form No. 12 was not available on record, as such, he did not allow continuation of registration to the firm. On appeal to the High Court the High Court observed that as the notice u/s. 139(9) was not issued by the A.O. to the assessee regarding non-filing of Form No. 12 and continuation of registration was also allowed by the A.O. while processing the return us/. 143(1) (a), the Tribunal was not justified in upholding the order of the A.O.M/s. Suraj Oil Mills vs. I.T.O. – [(2006) 195 Taxation 400 (P&H)]

78. Relief – Salary – S. 89(1)

The amount received under the V.R.S., is a compensation received in connection with the termination of employment and as such eligible for relief u/s. 89 (1) of the Act after availing exemption u/s. 10 (10C) of the Income-tax Act, 1961.

CIT vs. S. Nagaria – [(2006) 194 Taxation 693 (Karn)]

CIT vs. S. Sundar & Ors. – [(2006) 194 Taxation 467 (Mad)]

79. Revision – S. 263

Order passed on the dictates of superior officer – directing the Assessing Officer to accept the return filed by the assessee without asking for further information – Held, order was erroneous and prejudicial to the interest of Revenue Revision u/s. 263 is justified.

Green World Corporation vs. ITO (2006) 205 CTR (HP) 524

80. Revision – S. 263

Where there was no concealment of facts by the assessee in declaration under K.V.S.S. and the CIT had not cancelled the certificate issued under the scheme, it is not permissible for CIT to pass revision order u/s. 263 of the Act, as there was full and final settlement of demand under the K.V.S.S. Siddhartha Tubes Ltd. vs. CIT – [(2006) 195 Taxation 89 (MP)]

81. Unexplained Investment – S. 69A

Where the A.O. added the difference between the estimated cost of construction as determined by the assessee, which was supported by a registered valuer’s report, and cost of construction as determined by the D.V.O. to the income of the assessee. On appeal the Hon’ble High Court, held that as the A.O. had not pointed out any defect on the books of account maintained by the assessee mere difference in estimation by the D.V.O. and the registered valuer cannot be the sole ground for making addition to the income of the assessee.

CIT vs. Swastik Udyog P. Ltd. – [(2006) 194 Taxation 707 (P&H)]

82. Unexplained money – S. 69A

Where the assessee could not explain that the cash found in his possession belonged to third person by bringing on record any cogent material to that effect, the revenue u/s. 132(4) was entitled to draw a presumption against the assessee in respect of the cash found in assessee’s possession.

Shri Sakhram vs. Asstt. CIT – [(2006) 195 Taxation 532 (Del)]