High Court

1. Accounting – Construction Works Contract – S. 145

The assessee has the option to adopt any recognized method of accounting for his business and the income shall be computed in accordance with such regularly maintained accounting system.

MKB (Asia) Pvt. Ltd. vs. CIT (2007) 294 ITR 655 (Guwahati)

2. Accounts – Rejection of books – Search – Estimate of Sales for post-search – S. 145

Unaccounted sales in pre-search period. A.O. cannot presume that such unaccounted sales would continue for post-search period. No discrepancy found in books of post-search period.

The search was carried out at the assessee’s premises where unaccounted sales were found. The A.O. did not find any defects in the books of account; but he presumed such unaccounted sales for the entire accounting period. The Learned CIT (A) and the Hon’ble ITAT also did not notice any defects in the books for the post-search period. On further appeal to the High Court, the Hon’ble High Court held that the A.O. who examined the books of account in the middle of the accounting period, cannot presume that the said discrepancies of unaccounted sales would have continued in the post-search period, particularly when there was factually no evidence/material found by the authorities below to support such a view. Therefore, the A.O. could not draw such an inference and hence the appeal of department was dismissed.

CIT vs. Anand Kumar Deepak Kumar (2007) 294 ITR 497 (Delhi)

3. Accounts – Waiver of Interest – Ss. 28, 145

The assessee changed its accounting system from mercantile to cash system. In assessment for subsequent year A.O. did not allow the assessee’s claim for waiver of interest, decompounding and rebate arising as a result of agreement with its customers, as there was change in system of accounting. On appeal the High Court held that there is no provision in law that creates embargo against credit of amount to which an assessee is entitled to after a change in accounting system. The change of system of accounting does not divest the assessee from receiving the benefits which have already accrued to it in previous years.

CIT vs. M. P. Financial Corporation [(2007) 201 Taxation 521 (MP)]

4. Additional Evidence – S. 251

Rule 46A(4) provides that notwithstanding rule 46A(1), the appellate authority can permit production of documents which enables him to dispose of the appeal. In this case before CIT(A), the asssessee produced confirmation letters from various creditors which request was turned down on the ground that under rule 46A(1) of the Income-tax Rules, 1962, no fresh evidence could be permitted for the first time in appeal. Later the Tribunal reversed the decision and the High Court upheld the same.

CIT vs. Suretech Hospital and Research Centre Ltd. (2007) 164 Taxman 168 (Bom.)

5. Agricultural Income – S. 10

The State Government Corporation whose activities were related to agricultural farms. Income from hiring of tractors and combines by the corporation were held to be agricultural income as all the activities of the assessee were connected to agricultural activities and farming.

CIT vs. Haryana Land Reclamation Development Corporation Ltd. [(2007) 200 Taxation 529 (P & H)]

6. Agriculture Income – S. 10(1)

Sale proceeds of plants raised in nursery on land belonging to assessee is agricultural income exempted from tax.

CIT vs. Green Gold Tree Farmers (P) Ltd. (2007) TLR (Oct.) 609 (Utr.)

7. Amount not deductible – Leave encashment provision – S. 43B

Struck down clause (f) of section 43B as arbitrary, unconscionable and de hors the Apex Court decision in Bharat Earth Movers v. CIT (2000) 245 ITR 428/112 Taxman 61 so that leave encashment provision is held as an allowable deduction notwithstanding any payment.

Exide Industries Ltd. vs. Union of India (2007) 164 Taxman 9 (Kol.)

8. Appeal – High Court – Maintainability – Ss. 254(2), 260A

Second appeal against same order, single appeal challenging two orders of the Tribunal is not maintainable. Further, once the High Court has dispose of the appeal filed by the appellant challenging the order of the Tribunal, appellant cannot reagitate the same issue again.

Perfetti Van Melle India (P) Ltd. vs. CIT (2007) 212 CTR 173 (Del.)

9. Appeal – Tribunal – Dismissal for default – Ss. 253, 254(1), Rules 19, 20, 24

Appeal filed by the assessee before the Tribunal could not be dismissed as non-maintainable simply for the reason that the assessee or his representative was not present on the date when the appeal came up for consideration before the Tribunal. Tribunal could have proceeded for hearing of the appeal ex-parte as provided in Rule 24 of ITAT Rules.

Tribhuwan Kumar & Ors. vs. CIT & Anr. (2007) 213 CTR 198 (Raj.)

10. Appeal to High Court – Substantial Question of Law – S. 260A

Where the Tribunal had decided an appeal before it following its earlier decision in the case of same assessee on same issue and the revenue had not preferred appeal against the earlier order, in such case, following the rule of consistency the High Court held that the no substantial question of law arose.

CIT vs. DCM Sri Ram Industries Ltd. [(2007) 201 Taxation 402 (Del)]

11. Assessment – Limitation – Extension – Ss. 139(4), 144B, 153

Revision of return filed under section 139(4) by letter being invalid, reference to IAC under section 144B on the basis of such revised return was also invalid, hence extended period of limitation under section 153, Expln. 1(iv) was not available to Revenue.

Mittal Alloys & Steels vs. CIT (2007) 212 CTR 502 (P & H)

12. Assessment – Unexplained investments – Ss. 69, 69A

The assessee was engaged in construction business. Whether there could be any addition on account of DVO’s report that the assessee had invested unexplained income.

The High Court held that if the unexplained income in the investment was added, that would give rise to the cost of construction and the result would remain the same; i.e., “Zero”. The said addition was made on the basis of DVO’s report. Reference could be made to the DVO for the purpose of sections 55(A), 131, 133(6) and 142(2) and not for the purpose of finding out the cost.

CIT vs. Star Builders (2007) 294 ITR 338 (Guj.)

13. Audit — Auditing of accounts – S. 142(2A)

Provisions of sec. 142(2A) of the I. T. Act 1961 do not give any authority to direct the preparation of fresh books of account by referring the matter to an auditor under special audit. A search took place on 20th November, 1997 and Notice u/s. 158BC was issued on 7th September 1998. The assessee submitted a Block Return on 20th October, 1998 declaring undisclosed income of Rs. 2,44,000/- for the block period. Only one day before the period for completing the Block Assessment was expiring, the A.O. directed the assessee to have the accounts subjected to special audit under the provisions of sec. 142(2A) of the I. T. Act, 1961. Thus, the limitation for completing the Block Period was sought to be extended and the assessment order was ultimately passed on 24th May, 2000.

The ITAT held that reference to Special Audit u/s. 142(2A) was not for the purpose for which the provision was enacted but merely for getting the extended period for completing assessment, which was not allowed in law. On that basis, Special Audit was held to be illegal and assessment order was held to be barred by time.

On appeal to High Court, it was held that the findings given by the ITAT are findings of facts based upon the relevant material and hence no question of law arises.

CIT vs. Bajrang Textiles (2007) 294 ITR 561 (Raj.)

14. Bad debt – Provision – Non Performing Assets – S. 36(1)(vii)

Provision for non-performing assets debited to P & L a/c as per RBI directions cannot be allowed as bad debt in view of mandatory provisions of Explanation to section 36(1)(vii).

T. N. Power Finance & Infrastructure Development Corporation Ltd. vs. Jt. CIT (2007) 213 CTR 610 (Mad.)

15. Bad debt – S. 36(1)(viia)

Claim of bad debts in relation to non-rural branches of the assessee bank is allowable without first setting off against the provision already allowed under section 36(1)(viia) when no distinction between advances relating to non-rural and rural has been made in section 36(1)(vii).

CIT vs. City Union Bank Ltd. (2007) 213 CTR 113 (Mad.)

16. Bad Debt – Ss. 5, 36(i)(vii)

Once the assessee has filed winding up petition against the debtor company for its inability to pay the debts and the latter has also been declared a sick company by BIFR, assessee is entitled to claim deduction of bad debts.

CIT vs. Goyal M. G. Gases (P) Ltd. (2007) 212 CTR 305 (Del.)

The assessee had claimed bad debt on account of export incentive which had become irrecoverable. On appeal the High Court held that the assessee had taken the amount of export incentive as part of its income in earlier year and this amount was written off by the assessee only when it become irrecoverable. In such case as the essential condition of section 36(1) (vii) were fulfilled the assessee was eligible for deduction of the amount as bad debt.

CIT vs. Excel Fashion P. Ltd. [(2007) 201 Taxation 216 (Del)]

17. Block Assessment – S. 158BC

Where no material relating to understatement of cost of investment or improvement was found. High Court held Dismissing the revenue’s appeal held that in such case no addition could be made u/s. 158BC as undisclosed income of the assessee.

CIT vs. Shri Prem Nath Nagpal [(2007) 201 Taxation 252 (Del)]

18. Block Assessment — Search & Seizure – Ss. 132, 158BC

It was held by the High Court that the statement of the assessee was recorded u/s 132 (4) of the I.T. Act, 1961 wherein it was admitted that the amount of Rs. 23,65,000 was recovered and seized belonged to him. Findings recorded by the Tribunal that the sequence of events from the stage of serving the warrant, recording the statement clearly established that the amount which was seized from the assessee could not be faulted and hence, the Block Assessment was valid in law. Appeal dismissed.

Smt. Ratpaulkar vs. ACIT L/H. of I. Osan (2007) 294 ITR 273 (Bom.)

19. Business Expenditure – Allowance of education expenses – S. 37

Son of Director of company sent abroad for education, training that was availed by son has nothing to do with business of company. Expenses incurred by company was for benefit of personal gain and not for benefit of company. Fact that on his return the son took over management and responsibility of company immaterial. Expenditure cannot be included by way of business expenditure.

M/s. Mac Explotee (P) Ltd. vs. CIT 2007 TLR 626 (Kant.)

20. Business Expenditure – Contribution towards building fund – S. 37(1)

The contribution made by the company towards the construction of building of the Chamber of Commerce satisfied the commercial expediency test since their activities are closely linked with the welfare of the corporate entities who are its members and whose interests are taken care of by the Chamber of Commerce.

CIT vs. Chemicals & Plastics India Ltd. (2007) 165 Taxman 158/292 ITR 115 (Mad.)

21. Business Expenditure – Issue of partly convertible debenture – S. 37(1)

The expenditure incurred was on the issue of debentures, hence, the expense incurred on obtaining a loan was a revenue expenditure.

CIT vs. South India (Corpn.) Agencies Ltd. (2007) 164 Taxman 249 (Mad.)

22. Business Expenditure – Penalty – Fine – S. 37(1)

Payment to State Electricity Board for using excess load, amount paid by the assessee to the State Electricity Board as a kind of surcharge for drawal of excess load as per rules not being a penalty, is allowable as deduction.

CIT vs. Industrial Cables (India) Ltd. (2007) 212 CTR 513 (P.& H.)

23. Business Income – Capital Receipt – S. 28

Agreement entered into between assessee and one construction company created by assessee that assessee was not to compete with said company for certain period viz. 5 years, in consideration, said amount of compensation be treated as income of assessee and not as capital receipt.

Tam Tam Pedda Guruva Reddy vs. Jt. CIT 2007 TLR 743 (Kar.)

24. Business Income – Interest – S. 28

Interest on FDR which was assessable under the head income from other sources and not as business income, netting of such interest against the interest paid by the assessee to the bank on bank overdraft was not allowable.

CIT vs. M/s. Indian Handicrafts [(2007) 200 Taxation 342 (Del)]

25. Business income or House property income – Property held as stock-in-trade – Ss. 22, 28

If the property is used as ‘stock-in-trade’, then the said property would become or partake of the character of the stock, and any income derived from the stock would be ‘income’ from the business, and not income from the property. In this case, the assessee was incorporated with the main object of purchase, take on lease, or acquire by sale, or let out the buildings constructed by the assessee and it had shown one of the building properties in the closing stock in the balance sheet drawn for the business.

CIT vs. Neha Builders Pvt. Ltd. (2007) 164 Taxman 342 (Guj.)

26. Business Loss – S. 28

Diminution in the value of investments is an allowable business loss.

CIT vs. Citi Union Bank Ltd. (2007) 213 CTR 113 (Mad.)

27. Business Loss – S. 37 r.w.s. 28

The assessee was a sole selling agent of a principal for sale of liquor. Assessee was also engaged in the business as a recovery agent. The principal modified the terms of agreement to the effect that the assessee, henceforth, will also be responsible for recovery of outstanding dues from liquor sold through his agency. Thereafter the principal debited the assessee’s account with an amount outstanding against one of the persons to whom liquor was sold by the assessee. The assessee claimed the amount so deducted by the principal as bad debts u/s. 36(2) of the Act. A.O. negated the claim of the assessee. The High Court on this set of facts held that as there was a valid agreement between the parties and the assessee had agreed to share responsibility of bad debts on account of non recovery as one of the obligations in lieu of the commission earned by him. The bad debts so incurred on account of non recovery of such dues from buyer of liquor from the assessee cannot be said to be not related to the business of the assessee and the same should be allowable as bad debts/ business loss.

CIT vs. M/s. Amrik Singh Surendra Singh [(2007) 200 Taxation 524 (P & H)]

28. Capital Gain – S. 48

Where the assessee entered into an agreement for purchase of a property with a condition that if the seller does not hand over the assessee vacant possession of the property on or after a particular date, the seller would have to pay liquidated damages. The liquidated damages so received by the assessee, the buyer upon seller failure to hand over the possession was held to be in the nature of a capital receipt and not a revenue receipt as held by the A.O.

CIT vs. Ram Nath Exports Ltd. [(2007) 201 Taxation 42 (Del)]

29. Capital Gains – Acquisition – Ss. 2(14), 3, 45, 48

Cost of agricultural land which was allotted to assessee in lieu of land left in Pakistan is not incapable of being ascertained and, therefore, capital gain arising on acquisition of said land is exigible to tax. Since assessee was allotted the land before 1st March, 1970; i.e., the date from which agricultural land situated within the municipal limits is deemed to be a capital asset, cost of the land has to be determined as on 1st March, 1970

CIT vs. S. Hoshnak Singh (HUF) (2007) 212 CTR 422 (P. & H.)

30. Capital Gains – Business Income – S. 45

Receipts from sale of land Assessee having not carried out any business for several years and treated as an Investment company by the Assessing Officer. Compensation received by the Assessee from the Government having acquired the land was assessable as Capital Gains.

CIT vs. Heritage Estate Pvt. Ltd. (2007) 213 CTR 275 (Bom.)

31. Capital Gains – Cost of Bonus Shares – S. 55

The cost of bonus shares for the purpose of calculating capital gain is to be determined by spreading over the cost of old shares over the old shares and bonus shares.

CIT vs. M/s. Gaja Nand Dalmia & Sons [(2007) 201 Taxation 539 (P & H)]

32. Capital Gain – Investment or Stock-in-Trade – S. 45

The treatment given to a transaction in the books of account is of importance so that assessee’s income from sale of shares is found to be assessable as capital gains instead of business income. In this case, the assessee had shown shares as investments in its books of account.

CIT vs. Ess Jay Enterprises (P) Ltd. (2007) 165 Taxman 465 (Delhi)

33. Capital Gains – Sale of Shares – S. 45

Assessee not dealer in shares but mere investor. Excess amount is liable to tax as capital gains. It cannot be treated as capital receipt merely on basis of settlement containing clause that assessee should abstain from interfering with managing and running of company. After selling all the shares it was not possible for assessee to interfere with management of company. Thus, receipt by assessee was consideration for shares and liable to be taxed as capital gains.

N. K. Leasing and Construction (P) Ltd. vs. CIT 2007 TLR 695 (AP)

34. Capital or revenue – MS office software – S. 37(1)

Expenditure incurred on MS office software which is not customized software and which software requires frequent upgradation is an allowable business expenditure whereas according to it only customized software can have an enduring value.

CIT vs. G. E. Capital Services Ltd. (2007) 164 Taxman 46 (Delhi)

35. Capital or Revenue Receipt – S. 4

Consideration received on sale of technical know-how lump sum consideration received in respect of sale of boilers along with technical know-how and for giving up business is a capital receipt.

Lipi International vs. CIT (2007) 213 CTR 1 (Bom.)

36. Cash Credits – Gifts from unrelated persons/donors /friends – S. 68

Mere identification of donor or receipt of amount through banking channel is not sufficient to satisfy the requirement of a genuine gift. The Court emphasized on the genuineness when it found that there was no occasion for the donor to make the gift and the plea of gift for the treatment of the assessee on account of his ill health had remained unsubstantiated.

Subhash Chand Verma vs. CIT (2007) 164 Taxman 401 (P & H)Where the gifts were given to the assessee by persons who were not related to him in any manner and were not given to him for any particular reason.

The taxing authorities in gift transactions must look into the surrounding circumstances to find out the real and factual position. In this case the assessee though produced documentation to show the creditworthiness of both the donors, yet offered no proper, reasonable and acceptable explanation in his defence.

Rajeev Tandon vs. ACIT (2007) 164 Taxman 271 (Delhi)

37. Cash payment – S. 40A(3)

Cash payments made to one party on one day were not required to be clubbed together and treated as one cash payment and, for that reason, total cash payments exceeding Rs. 2,500 in a day to that party were not to be held as violative of section 40A(3). In this case, the assessee made certain payments in cash to two parties on one day in small instalments.

CIT vs. Bal Krishan Jagdish Chand (2007) 164 Taxman 459 (P & H)

38. Charitable Institution – S. 10(22)

Word ‘income’ in sub-section (22) of section 10 of the Act is wide enough to include deemed income under section 68 of the Act. The Court held that as the words ‘derived from’ (or some other similar words) do not occur in section 10(22) of the Act, therefore, the word ‘income’ as occurring in section 10(22) cannot be given restrictive meaning and must be given its natural meaning or the meaning ascribed to it in section 2(24) of the Act.

DIT (Exemption) vs. Raunaq Education Foundation (2007) 164 Taxman 266 (Delhi)

39. Cost of Acquisition – S. 2(14)

Agriculture land acquired before 1st Jan., 1954, agricultural land became capital asset only on amendment of section 2(14) w.e.f. 28th Feb., 1970 and therefore, cost of acquisition of agricultural land as on 28th Feb., 1970, is to be taken for computation of capital gains and not as on 1st Jan., 1954.

CIT vs. Gurcharan Singh (2007) 212 CTR 420 (P & H)

40. Deduction of cost of binding material – Ss. 37, 40A(2)(a)

Assessee manufacturer of sugar purchased raw material; i.e., sugarcane from members as well as non members. Minimum price of sugarcane fixed by Central Government, sugarcane brought in bound and unbound conditions. Factories allowed to deduct 0.01 per cent from sugarcane price rebate towards binding material, Assessing Officer disallowed cost of binding material for both members as well as non members. On appeal by assessee, Commissioner of Income Tax (A) deleted the additions made by Assessing Officer. Appeal filed by Revenue dismissed by I. T. A. T. In appeal the court upheld the order of Tribunal.

CIT vs. Terna Shetkari Sahakari Karkhana Ltd. (2007) 109 BLR (Oct.) 2642 (Aurg.)

41. Depreciation – Additional Depreciation – S. 32A

Computer installed by assessee engineering company used for processing raw materials, data, wages and salary payment and for monitoring the details of production was entitled to additional depreciation.

T. R. F. Ltd. vs. CIT (2007) 213 CTR 557 (Jhar.)

42. Depreciation – Computers – S. 32

The assessee was held entitled to additional depreciation on computers installed for the following functions :
(a) data processing
(b) system designing
(c) softwere development and supply.
If office premises are used as industrial premises for carrying out either of the above activities, then the computers installed for either of such purposes would constitute plant and machinery and not just office equipments.

CIT vs. Statronics & Enterprises (P) Ltd. (2007) 165 Taxman 153/288 ITR 455 (Guj.)

43. Depreciation – Forex fluctuations on last day of previous year – Ss. 32, 43A

The assessee was entitled to increase claim of depreciation on increased liability due to foreign exchange rate fluctuation on the last date of previous year.

CIT vs. Honda Sielpower Products Ltd. (2007) 164 Taxman 275 (Delhi)

44. Depreciation – Plant – Gas cylinder – S. 32

Assets leased out, namely gas cylinders and spindles, each gas cylinder and spindle be treated as plant and hence 100% depreciation on each of them is allowable.

CIT vs. M/s. Synergy Financial Exchange Ltd. 2007 TLR 770 (Mad.)

45. Depreciation – Plant – Road – S. 32

Roads and culverts in factory premises and storage tank and pipelines are plants. Hence, higher rate of depreciation is not allowable.

CIT vs. MICO Ltd. (2007) TLR (Oct.) 622 (Kar.)

46. Depreciation – Rate – Hotel building – S. 32

Even though a part of hotel building is used for residence of employees and another let out to bank and shops, the entire hotel building has to be treated as a composite building entitled to depreciation @ 20 per cent.

CIT vs. Sangu Chakra Hotels (P) Ltd. (2007) 212 CTR 215 (Mad.)

47. Depreciation – Trial production – S. 32

Assessee having used the plant for manufacture of sugar during the relevant assessment year, was eligible for depreciation.

CIT vs. Piccadily Agro Industries Ltd. (2007) 212 CTR 505 (P. & H.)

48. Depreciation – User for business – Active or Passive – S. 32

Lessee having failed to use the film roll due to strike in film industry, there was passive user and assessee, lessor was entitled to depreciation on the film roll.

CIT vs. Heera Financial Services Ltd. (2007) 212 CTR 532 (Mad.)

Where the machinery is kept ready for use but could not be put to use for non-receipt of orders, the assessee would be entitled to depreciation.

CIT vs. Nahar Exports Ltd. (2007) 213 CTR 20 (P & H)

49. Disallowance – S. 40A(3)

When multiple payments were made to a single party on the same day, it is, for the purpose of Sec. 40 A(3), not required to be clubbed to treat it as one payment and therefore, not violative of Sec. 40A(3) and since the payments had been made after banking hours.

CIT vs. Balkrishan Jagdish Chand (2007) 213 CTR 174 (P & H)

50. Disallowance – Contribution to Provident Fund – S. 43B

Amendment made to S. 43B by Finance Act, 2003 is effective from 1st April, 2004; i.e., asst. year 2004-05 and, therefore prior to that, contribution towards PF made beyond the due date could not be allowed as deduction notwithstanding the fact that payment was made before filing the return.

CIT vs. Godavari (Mannar) Sahakari Sakhar Karkhana Ltd. (2007) 212 CTR 384 (Bom.)

51. Disallowance Expenditure – S. 43B

Excise duty collected by assessee though be regarded as trading receipts, to be allowed on actual payment to Government. Mere furnishing of bank guarantee to that effect pursuant to order of Court is not equivalent to actual payment of excise duty.

Mugat Dyeing and Printing Mills vs. ACIT 2007 TLR 665 (Guj.)

52. Disallowances – Sales Tax deferred and converted into loan – S. 43B

Deferred sales tax converted into loan and deemed to have been paid under the Sales-tax Act as per amended S. 22 of the M. P. General Sales-tax Act cannot be disallowed under section 43B.

ACIT vs. Perfect Pumps (P) Ltd. (2007) 212 CTR 145 (M. P.)

53. Duty Drawback – S. 80-IB

Income of the assessee from duty drawback cannot be held to be income ‘derived from’ specified business.

CIT vs. Five Star Rugs (2007) 164 Taxman 348 (P & H) Duty drawback sums do not qualify for deduction under section 80-IB.

Paramount Impex vs. CIT (2007) 165 Taxman 181 (P & H)

54. Exemption – Investment – S. 54E

Assessee investing additional amount of compensation in respect of acquisition of its land within six months from date of its receipt is entitled to claim exemption under section 54E.

Darapaneni Chenna Krishnayya (HUF) vs. CIT (2007) TLR (Oct.) 643 (AP)

55. Export – Additional Deduction – S. 80HHC

Assessing Officer is duty bound to allow deduction with reference to profits determined in the assessment proceedings.

CIT vs. Bawa Skin Co. (2007) 165 Taxman 102 (P & H)

56. Export – Deduction – Interest on Export Packing Credit – S. 80HHC

On the facts of the case the Hon’ble High Court held that interest on export packing credit term loan and depreciation on computers which were directly related to manufacture and export activities of the assessee should not be apportion proportionately between the manufacturing and trading activities for the purpose of calculating deduction u/s. 80HHC.

CIT vs. Jyoti Overseas Ltd. [(2007) 201 Taxation 527 (MP)]

57. Export – Interest – Deduction – S. 80HHC

Interest earned on short term deposit made with bank out of advance received from foreign buyers was held to be business income eligible for deduction u/s. 80HHC of the Act, as the deposits in question were having close link/nexus by with business activity of the assessee.

CIT vs. Production P. Ltd. [(2007) 201 Taxation 639 (Karn)]

58. Export – Netting of interest income – S. 80HHC

Interest paid by assessee is liable to be reduced from interest received by it while calculating deduction under section 80HHC(1), read with Explanation (baa)

CIT vs. Anand Kumar (2007) 164 Taxman 330 (Delhi)

59. Export – Surrender at the firm of survey – Deduction – S. 80HHC

Where the assessee surrendered income as a result of survey on account of excess stock and undisclosed investment in building and claimed the same to be eligible for deduction u/s. 80HHC of the Act. On appeal High Court following it earlier judgment in the case of National Legguard Works – [(2007) 201 Taxation 243] held that deduction u/s. 80HHC of the Act is available only on fulfilment of certain conditions specified u/s. 80HHC therein. There can be no presumption in such case, that surrender made by the assessee on account of difference in stock at the time of survey represented income from exports.

Sarla Handicraft P. Ltd. vs. Addl. CIT [(2007) 201 Taxation 529 (P & H)]

60. Hotel – Convertible Foreign Exchange – Deduction – S. 80HHD

Where the assessee was running two hotels. It had obtained approval for the purpose of deduction u/s. 80HHD separately for each of two hotels. Accordingly, the assessee claimed deduction u/s. 80HHD separately and independently in respect of each hotel. High Court held that under section 80HHD deduction with reference to profits and gains of entire business of hotel business is to be determined, instead of determining profits separately for each hotels.

Hotel & Allied Trader P. Ltd. vs. Dy. CIT [(2007) 201 Taxation 555 (Ker)]

61. Income – S. 2(24) r.w.s. 48

Incentive bonus received by the assessee on purchase and sale of units of mutual fund is to be reduced from the cost of purchase of the units. Such incentive received cannot be taxed as “Income from Other Sources”.

CIT vs. Shri V. S. Bhagat [(2007) 201 Taxation 251 (Del)]

62. Income from House Property – Annual value – S. 23(1)(b)

Expenditure on account of stamp duty and registration charges on lease deed, amount spent by the assessee towards stamp duty for drawing up the lease deed and the registration cannot be allowed to be deducted in determining the annual value under section 23(1)b.

CIT vs. Premnath Motors (Raj.) (P) Ltd. (2007) 212 CTR 16 (Raj.)

63. Income from House Property – Business income – Ss. 22, 28, 56

Income derived by assessee by mere letting out commercial complex is assessable under the head “Income from house property”. Since the assessee is also providing certain ancillary services to the occupants against payment, AO is directed to consider the details of the services provided as well as the amounts received for the same, and to consider the said amounts under the head “Income from other sources” or “Business income”.

A. R. Complex vs. ITO (2007) 212 CTR 328 (Mad.)

64. Income from House Property – Plot rent – S. 22

Rental income in respect of plot in multi-storeyed building would be assessable under head ‘Income from house property.’

CIT vs. Sardar Man Singh (2007) 164 Taxman 434 (Delhi)

65. Income from undisclosed sources – Addition – S. 69

Alleged understatement of sale consideration of shops, in the absence of any material on record to show that the actual consideration received by assessee for transfer of shops in question was more than what has been stated in the transfer deed, no addition could be made.

CIT vs. Emerald Construction (P) Ltd. (2007) 212 CTR 20 (Raj.)

66. Initial assessment year – S. 80-IA

Merely conducting a trial production, the assessee cannot be said to have been set up in the context of section 80-IA so that it could defer its initial assessment year to the year of commercial production.

Himachal Fine Blank Ltd. vs. DCIT (2007) 164 Taxman 129 (Chd.)

67. Interest on Borrowed Capital – Ss. 36(1)(iii), 37(1)

Interest on debentures and corporate borrowings, debentures and corporate borrowings cannot be treated as an asset or an advantage for the enduring benefit of the business of the assessee and therefore, interest on debentures and corporate borrowings is allowable as deduction.

CIT vs. Lotte India Corporation Ltd. (2007) 212 CTR 543 (Mad.)

68. Investment Allowance – S. 32A

Assessee running Pathological Laboratory is entitled to investment allowance on expenditure incurred for pathological equipments.

CIT vs. Suresh Amin Family Trust 2007 TLR 763 (Guj.)

The High Court endorsing the conclusion of the Tribunal held that the assessee has option to claim the investment allowance in the year of installation, where the machinery is put to use in the immediately succeeding year of its installation.

CIT vs. Sukhijit Starch & Chemicals Ltd. [(2007) 201 Taxation 612 (P & H)]

69. Lease rights amount to transfer – S. 2(14)

The assessee has taken a building on 99-year lease from her husband executed a sub-lease against receipt of lump sum consideration as advance adjustable against future lease rentals for 97 years. The Court held that lease rights of the assessee in property constitute a capital asset and more so since such rights were held for less than 36 months the assessee was liable to pay short-term capital gains tax.

G. Seetha Kamraji vs. CIT (2007) 165 Taxman 117 (AP)

70. Mistake Apparent on record – Appeal to ITAT – S. 254

ITAT failed to consider one of the grounds raised by the assessee in her Appeal Memo. ITAT re-heard the appeal without giving an opportunity to be heard.

On appeal to High Court, it was held that the ITAT at the stage of deciding the Misc. Application itself could not be regarded as a correct approach. The assessee should have been given an opportunity to present her case further in respect of the third issue which had been left out for consideration in the original order passed by the ITAT by giving due opportunity. Therefore, the order was not valid and matter was remanded back.

T. Jayabharathy vs. ACIT (2007) 294 ITR 128 (Madras)

71. Non-service of Notice – S. 143(2)

Notice under section 143(2) sent to the assessee by registered post having been received back undelivered without acknowledgement due, there was no service of notice upon the assessee within the prescribed period and consequently the assessment made by the AO is invalid.

CIT vs. Eqbal Singh Sindhana (2007) 212 CTR 341 (Del.)

72. Notice after expiry of four years – Original assessment – Ss. 143(3), 147

Original assessment having been made under section 143(3), reassessment based on the same material after four years from the end of the relevant assessment year was barred by proviso to section 147, there being no failure on the part of assessee to make full and disclosure.

CIT vs. Tamil Nadu Transport Development Finance Corporation Ltd. (2007) 212 CTR 53 (Mad.)

73. Notice of expiry of four years – Reopening of assessment – Ss. 143(3), 147

Reopening of assessment made under section 143(3) after expiry of four years from the end of relevant assessment year was barred by proviso to section 147 in the absence of any finding by AO that there was failure on the part of assessee to disclose fully and truly all material facts.

CIT vs. A. V. Thomas Exports Ltd. (2007) 212 CTR 164 (Mad.)

74. Preoperative expenditure of new project – S. 37(1)

New project undertaken by the assessee company being under the control of same management and administration and managed from common funds, was only an extension of the existing business and therefore, expenditure incurred on the new project constituted revenue expenditure.

Jay Engineering Works Ltd. vs. CIT (2007) 212 CTR 562 (Del.)

75. Profits chargeable – S. 41(1)

Unilateral write off of liability – Explanation 1 to section 41(1) is effective from 1st April, 1997, therefore, the liabilities written back unilaterally by the assessee are not chargeable to tax under section 41(1) in Asst. Year 1996-97.

CIT vs. Eid Mohd. Nizammudin (2007) 212 CTR 13 (Raj.)

76. Reassessment – Change of opinion – True and full disclosure – S. 148

Issue of notice u/s. 148 after four years – No failure on the part by the Assessee to make full and true disclosure of all materials necessary for assessment. Reopening of assessment beyond four years on the basis of subsequent decision of jurisdictional High Court was not justified.

Sesa Goa Ltd. vs. Jt CIT & Ors (2007) 213 CTR 579 (Bom.)

77. Reassessment – Export – S. 147 r.w.s. 80HHC

Where the Assessing Officer issued notice u/s. 148 of the Act after recording reason that, the assessee had claimed excess relief u/s. 80HHC of the Act. The Tribunal held that there was no information for taking action u/s. 148 of the Act and the action u/s. 147 was taken only due to change opinion. On reference, High Court held that in case of excessive relief claimed, u/s. 80HHC, action u/s. 147 can be taken and it was not a case of change of opinion.

CIT vs. Hindustan Tools & Forgings P. Ltd. [(2007) 201 Taxation 619 (P & H)]

78. Reassessment – Limitation – Applicability – Ss. 147, 149

Applicability of proviso to section 147 vis-à-vis section 149, assessment cannot be reopened after expiry of four years from the end of the relevant assessment year, except in circumstances specified in the proviso to section 147. Action under section 147 having been initiated after expiry of four years, same was barred by limitation. Assessment cannot be reopened on the basis of same materials which were available with the concerned authorities when the assessment order was passed.

Anil Kumar Bhandari vs. Jt. CIT & Ors. (2007) 212 CTR 439 (Cal.)

79. Reassessment – Notice – Service of notice to employee – S. 148

Receipt of the notice by employee is not receipt of the notice by the assessee unless he is authorized to receive any summons on behalf of the assessee.

CIT vs. Rajesh Kumar Sharma (2007) 165 Taxman 488 (Delhi)

80. Rectifying of mistake – Interest – Ss. 139, 154

Return of income in response to notice u/s. 148 was filed belated. Accordingly, interest was charged u/s. 139 (8) of the Act. The interest so charged was further enhanced by the A.O., by passing order u/s. 154 of the Act. On appeal the High Court held that at the time when rectification order was passed by the A.O. the period for charging interest was a debatable issue, as such the same, was outside the preview of rectification u/s. 154 of the Act.

CIT vs. Mangal Sain [(2007) 201 Taxation 323 (P & H)]

81. Reserve – Transfer to utilized reserve account – S. 80HHD

Mere transfer from ‘80HHD reserve account’ to the ‘80HHD utilised account’ does not stand violation of section 80HHD once it had been utilised for the purposes specified in section 80HHD(4).

Travel Corporation (India) (P). Ltd. vs. ACIT (2007) 165 Taxman 204/293 ITR 577 (Bom.)

82. Residential accommodation provided by employer – S. 17(2)(ii)

Even before the amendment of Rule 3 by IT (Twenty–second Amendment) Rules, 2001, section 17(2)(ii) was not to apply if it is established that there was no concession in the matter of accommodation provided by the employer to the employees. It is open to the petitioners to contend that there is no concession in the matter of accommodation provided by the employer and the case is not covered by section 17(2)(ii).

All India Punjab National Bank Officers’ Association & Anr. vs. Union of India & Ors. (2007) 212 CTR 339 (M. P.)

83. Residential status – Non-resident – S. 6(1)(c)

Assessee who was employed in foreign in foreign country was not on leave or vacation while he was in India for less than 90 days in the relevant previous year but on termination of one service, and, therefore, his case does not fall within the Explanation to section 6(1) and he has to be teated as a resident under section 6(1)(c) and not a non-resident.

V. K. Ratti vs. CIT (2007) 212 CTR 552 (P. & H.)

84. Return – S. 139(5)

The assessee revised its return pursuant to a resolution passed subsequent to the close of the previous year adopting change in method of valuation only for the reason that the new method is more realistic. The Court held that such a revision is not a good reason for the purpose of revised return.

Golden Insulation and Engg. Ltd. vs. CIT (2007) 165 Taxman 105 (Delhi)

85. Return – Signing of return by Secretary – S. 140(c)

The Assessing Officer treated a return as invalid for it was signed by the Secretary and not the Managing Director. The Court held that such an error can be removed by submission of a fresh return under the signature of the Managing Director.

Bharat Nidhi Ltd. vs. CIT (2007) 165 Taxman 314 (Delhi)

86. Revenue expenditure – Expenditure on construction of building in a leasehold premises – S. 32(1)

Is not applicable where the assessee only puts by up construction of building on leasehold land and building is not taken on lease and, therefore, entire construction cost is admissible as revenue expenditure.

CIT vs. TVS Lean Logistics Ltd. (2007) 212 CTR 536 (Mad.)

87. Revenue expenditure – Expenditure on repair and renovation of rented premises – S. 37(1)

Expenditure incurred by. An advocate, on repairs and renovation of rented office premises for running the profession smoothly and more profitably, was revenue in nature.

CIT vs. Dr. A. M. Singhvi (2007) 212 CTR 1 (Raj.)

88. Revision – Penalty – Initiation of Proceedings – S. 263

Direction by Commissioner, in exercise of powers under section 263, to Assessing Officer to consider initiation of penalty proceedings under section 271(1)(a) of Act against assessee is not permissible.

CIT vs. Parmanand M. Patel 2007 TLR 726 (Guj.)

89. Revision – Second opinion possibility – S. 263

The Commissioner cannot use his powers on the mere pretext that a second opinion is possible on a certain issue. In this case the assessing officer treated the insurance compensation as a capital receipt under an order passed under section 143(3), whereas the Commissioner ordered the Assessing Officer to consider it as revenue receipt.

CIT vs. Vinod Kumar Gupta (2007) 165 Taxman 225 (P & H)

90. Service of Notice – Registered Post – S. 282

Where notice is sent by registered post to the address given by the assessee and the notice is not received back unserved. The High Court held that notice was duly served as per section 282 read with Order V of the Civil Procedure Code.

CIT vs. Yamu Industries Ltd. [(2007) 201 Taxation 220 (Del)]

91. Survey – Powers of ITO (TDS) – S. 131

Prior to 1999, the I.T.O. (T.D.S.) was not empowered to issue notice u/s. 131 of the Act with respect to the T.D.S. return filed by the assessee. The power to issue notice u/s. 131 of the Act was only given to T.D.S. officials by the circular issued by C.B.D.T. in 1999. Accordingly, in absence of appropriate authority being given under the statute to the T.D.S. officials, action of the officer, to issue notice u/s. 131 of the Act was held to be without jurisdiction.

CESC Ltd. & Anr. vs. I.T.O. (TDS) & Ors. [(2007) 201 Taxation 105 (Cal)]

92. TDS – Assessee in default – S. 201(1A)

Short-deduction of tax from salary income, assessee company having received intimation from the expatriate employees as regards the payments received by them from the other employer only in the month of March, 2000, assessee company was not on assessee in default on account of short-deduction of TDS for the financial year 1998-99. Further, performance incentive being dependent on the performance of the employer company in a given financial year and the payment of such incentive being uncertain, assessee company is not an assessee in default on account of short-deduction of tax relatable to the payment of performance incentive and thus, interest under section 201(1A) is not chargeable.

CIT vs. Marubeni India (P) Ltd. (2007) 212 CTR 415 (Del.)

93. TDS – Credit for TDS – S. 199

Dividend income taxed in the hands of partner, once dividend income is assessed in the hands of assessee partner, proviso to section 199 has no application and credit for TDS cannot be denied to the assessee partner.

Yezdi Hirji Malegam & Ors. vs. CIT (2007) 213 CTR 161 (Bom.), (2007) 103 BLR 1900 (Bom.)

94. Territorial Jurisdiction of High Court – S. 127

Jurisdiction in respect of the assessee having been transferred to Delhi lock, stock and barrel under section 127(2) and all the records of the assessee also having been transferred from Lucknow to Delhi, it is only the Delhi High Court that can entertain an appeal under section 260A directed against the order passed by the Tribunal at Lucknow.

CIT vs. Sahara India Financial Corporation Ltd. (2007) 212 CTR 178 (Del.)

95. Transfer – Ss. 2(47), 45

Conversion of property into stock-in-trade and property development agreement. No transfer took place on conversion of assessee’s share in the HUF property into stock-in-trade of its proprietorship concern. Assessee having entered into an agreement with a builder whereby the builder was to erect a multi-storeyed building on the assessee’s property in consideration of the latter allocating to the builder 50 per cent of its share, there was a transfer of property and capital gains were chargeable to tax.

CIT vs. Ashok Kapur (HUF) (2007) 213 CTR 241 (Delhi)

96. Tribunal – Additional ground – S. 254

An additional ground can always be raised under section 254 before Tribunal if it involves a question of law, which emerges from facts on record in assessment proceedings, although same might not have been raised before Commissioner (Appeals).

Avery Cycle Industies Ltd. vs. CIT (2007) 164 Taxman 429 (P & H)

97. Tribunal – Speaking order – Judicial propriety – S. 257

The revenue placed reliance upon the Bombay High Court decision but the Tribunal instead of dealing with the same referred to other co-ordinate Mumbai Bench decision which though contained reference to the Bombay High Court’s decision. The Delhi High Court held that judicial propriety demands that when there was a judgment of a superior Court, that judgment should be considered by Tribunal and clear reasons should be given as to why that decision was distinguishable either in its own words or in words of co-ordinate Benches. The High Court held that merely mentioning decision without otherwise referring to the facts or the law laid down in that decision does not amount to considering the decision. The appeal stood remanded to the Tribunal for a fresh disposal on merits.

CIT vs. Havell’s (P) Ltd. (2007) 165 Taxman 510 (Delhi)

98. Tribunal stay – Power to grant Extended/Interim Stay – S. 254(2A)

The power to grant stay or interim relief being inherent or incidental is not defeated by the provisos introduced under section 254(2A) by the Finance Act, 2007. The third proviso has to be read as a limitation on the power of the Tribunal to continue interim relief in case where the hearing of the appeal has been delayed for acts attributable to the assessee. The power of the Tribunal to continue interim relief is not overridden by the language of the third proviso to section 254(2A). There would be power in the Tribunal to extend the period of stay on good cause being shown and on the Tribunal being satisfied that matter could not be heard and disposed of for reasons not attributable to the assessee.

Narang Overseas (P) Ltd. vs. ITAT (2007) 165 Taxman 557 (Bom.)

99. Wealth Tax — Business asset – Exemption – S. 40(3)(iv) of Finance Act, 1983

Building under construction admittedly not used by assessee for purpose of business would not fall in the exception clause provided in section 40(3)(iv) of the Finance Act, 1983, hence could not be excluded from the ambit of chargeable asset under that section.

CWT vs. Cadmach Machinary Co. (P) Ltd. (2007) 212 CTR 285 (Guj.)