Tribunal

1. Additional Evidence – S. 4 r.w. rule 46A

Commissioner (Appeals) was justified in admitting fresh evidence, and reversing the order of A.O. once CIT(Appeal) was satisfied that assessee had a reasonable cause for not producing such evidence before A.O., and further A.O. also did not comment on fresh evidence when matter was referred to him and opportunity given as per rule 46A(3).

ACIT vs. Subhash Chander & Bros. (2007) 164 Taxman 67 (Amritsar)

2. Allowability of Deduction u/ss. 80HHC and 80-IA

Deduction u/s. 80HHC cannot be allowed on the profits to the extent of the deduction already allowed u/s. 80-IA.

Leben Laboratories Ltd. vs. Dy. CIT [294 ITR 1 (AT) (Mumbai)]

3. Annual Value – S. 22

In addition to the letting of premises, the assessee was also responsible to provide additional facilities and amenities to its tenants. Equipments required for such additional facilities and amenities given on rent to the party to whom the task relating to provision of additional facilities and amenities was outsourced. The amount received by the said party from the tenants also considered by the Assessing Officer while determining the annual value. The Tribunal held that the amount collected by the lessee from the tenants towards the amenity charges while determining the annual value was held as unjustified.

Buharia Estate & Co. vs. DCIT, ITA No. 3247/Mds./2004, Bench-A, A.Y. 2001–02, dt. 7-8-2007 - BCAJ p. 28, Vol. 39-E, Part 1, October, 2007.

4. Assessment – Notice – S. 143(2)(i)

As per section 143(2)(i), the Assessing Officer’s power was limited. Under the said provision, the A.O. can only allow or reject the claims specified in the notice and make an assessment. If he wants to go further for full scrutiny, then he has to issue notice u/s 143(3)(ii).

ITO vs. Pericles Foods Pvt. Ltd., ITA No. 4457/Mum/2004, Bench – B, A.Y. 2001-02, dt. 31-7-2007, BCAJ p. 151, Vol. 39-E, Part 2, November, 2007.

5. Audit u/s. 44AB

A partnership concern running a hospital providing nursing home and other supportive services for which the assessee was maintaining account books and accounted for room rent, operation theatre rent and nursing charges received from patients whereas the professional fees was received directly by the doctors from the patients. On these facts it was held that the activities carried on for providing nursing home and other facilities constituted as business activities but audit under the provisions of section 44AB was not required as the turnover from such activities were not exceeding Rs. 40 lakhs as prescribed under the said provisions.

Shalini Hospitals vs. Asstt. CIT [108 ITD 534 (Hyd.)]

6. Bad Debts – S. 36(1)(vii)

The writing off a bad debt is a prime evidence and is sufficient requirement of law, and it is not obligatory to prove that debt w/off is indeed a bad debt, for purpose of allowance u/s 36(1)(vii).

Triveni Engg. & Industries Ltd. vs. DCIT (2007) 164 Taxman 125 (Delhi)

7. Block Assessment — S. 158B(b)

Receipt of loan found recorded in a diary cannot be considered as undisclosed income as defined in S. 158B(b)

Sunil Rathi Alias Jitendra Rathi vs. ACIT (2007) 112 TTJ 545 (Jd.)

8. Block Assessment – S. 158BD r.w.ss. 158 BC & 143

Block assessment order passed u/s 158BD, pursuant to Notice u/s 143(2), which was not served within prescribed period, held to be null and void.

ACIT vs. R. P. Singh (2007) 165 Taxman 147 (Delhi)

9. Block Assessment – Time limit for completion of Block Assessment u/s. 158BE

Assessing Officer is bound by time-limit prescribed u/s. 158BE. In the case before the Hon’ble Tribunal was – search u/s. 132, covering the periods 1986-87 to 1996-97, was conducted on 22-1-1996 at registered office and the same was concluded on 22-4-1996. On these facts Notice u/s. 158BC was served on 22-4-1996. On the facts & circumstances the Block Assessment order u/s. 158BC was due to be completed on or before 30-4-1997 but the order was passed on 30-5-1997. Therefore, the order passed on 20-5-1997 was held to be barred by limitation.

Value Securities (India) Ltd. vs. Astt. CIT [108 ITD 639 (Hyd.)]

10. Block Assessment – Undisclosed Income – S. 158BC r.w.s. 158B(b)

Search u/s. 132, covering the periods 1986-87 to 1996-97, was conducted on 22-1-1996 at registered office and the same was concluded on 22-4-1996. On these facts Notice u/s. 158BC was served on 22-4-1996. Before conclusion of the search some promoters filed affidavits admitting total undisclosed income of Rs. 40 lakhs but in response to the Notice u/s. 158BC Block Return was filed disclosing NIL income. On the facts & circumstances the Assessing Officer completed the assessment at Rs. 38,64,000/- which was comprising certain amounts which were introduced in the names of some investors. The Assessing Officer treated value of such investment as benami investments in share capital and the same was added as unexplained cash credit u/s. 68 disregarding the facts that the same was recorded in account books and had been part of record furnished to the Department. On these facts and circumstances it was held that impugned addition on account of such unexplained cash credit u/s. 68 was beyond jurisdiction of Chapter XIV-B.

Value Securities (India) Ltd. vs. Astt. CIT [108 ITD 639 (Hyd.)]

11. Business Expenditure – S. 37

Assessee stock broker, member of Delhi Stock Exchange, paid various amounts as penalty on account of late delivery, short delivery, short margin etc. to National Stock Exchange. Held, that said payments were not for infraction law, same were allowable as revenue expenditure.

Arch Finance Ltd. vs. CIT (2007) 165 Taxman 189 (Delhi) Expenses incurred for raising funds by way of preference shares are capital expenditure.

Amtek Auto Ltd. vs. Addl. CIT (2007) 112 TTJ 464 (Del.)

Foreign travel expense could not be disallowed on the ground that they did not result in earning of profits immediately.

ACIT vs. Amtek Auto Ltd. (2007) 112 TTJ 455 (Del.)

Payment of redemption fine in lieu of confiscation under Gold Control Act is not allowable as deduction.

P. Soman vs. ITO (2007) 112 TTJ 513 (Coch.)

12. Business Expenditure – S. 37(1)

Assessee dealing in Pharmaceutical product, was in process of setting up manufacturing facilities in respect of very same items. Held, manufacturing activity of same product be regarded as expansion of existing trading activity, and same satisfies the condition for claiming the expenses u/s 37(1).

Baxter (India) (P) Ltd. vs. DCIT (2007) 165 Taxman 190 (Delhi)

13. Business Income – S. 28(1)

Interest on Bonds earned by Investment Company was assessed as Business Income in assessment u/s 143(3) in earlier years. During the year under consideration taxability of Interest as Business Income was denied on ground that there was no business in the year under consideration. Held, A.O. was not justified in holding that mere holding of Investment as Stock-in-Trade did not amount to carrying on business.

J. R. Sharma Holdings (P) Ltd. vs. DCIT (2007) 165 Taxman 69 (Delhi) (SMC)

14. Business Loss — S. 28(i)

Loss on sale of non–convertible debentures was allowable as business loss.

Medicare Investment Ltd. vs. Jt. CIT (2007) 112 TTJ 889 (Del.)(SB)

15. Capital Gains – S. 2(47)

The agreement of hire purchase was entered into on 1-9-1986 and it provided for situation wherein the assessee could acquire the right of ownership over the immovable property in question, and with the condition that the consideration was to be paid by assessee in stipulated time. However assessee was allowed the possession of flat in part performance of above contract. Conveyance deed was executed on 13-1-1997; i.e., day when full and final payment was made. Property was sold on 27-1-1997. Held, that flat be treated as Long Term Capital Asset, and Income earned was Long Term Capital Gain.

Smt. Sushma Rani Bansal vs. ACIT (2007) 165 Taxman 145 (Delhi)

16. Capital Gains – Shares – S. 45

Assessee company was engaged in business of financier, trading, leasing, money lending. Shares which were classified as Investments and not as stock-in-trade in Balance Sheet, was sold after holding them for about 4 to 6 years. Profit earned on sale of said shares were assessed as Capital Gains, after granting indexation benefits.

Gomti Credits (P) Ltd. vs. DCIT (2007) 164 Taxman 69 (Delhi)

17. Capital Receipt – Restrictive covenant — S. 28

An assessee enters into a restrictive covenant and it does not carry out manufacture for certain period of time being a self imposed restriction and not transfer, the non-compete fee received by the assessee is not taxable.

Dy. CIT vs. Max India Ltd. (2007) 112 TTJ 726 (Asr.)

18. Capital Receipt & Not Business Income – S. 28(i)

Compensation received as non-compete fees, which was not in the course of its ordinary business operation, on facts of the case was treated as a capital receipt and not a revenue receipt.

Gomti Credits (P) Ltd. vs. DCIT (2007) 164 Taxman 69 (Delhi)

19. Deemed Dividend – S. 2(22)(e)

Individual and HUF are two different entities, and their shareholding cannot be clubbed for applying provisions of section 2(22)(e).

JCIT vs. Kunal Organics (P) Ltd. (2007) 164 Taxman 169 (Ahmedabad)

20. Delay in Filing Appeal – S. 253

Delay in filing of appeal caused due to mistake on part of counsel in giving wrong opinion, constituted a reasonable cause for delay.

Pushpa Gujral Science City Society vs. CIT (2007) 165 Taxman 67 (Amritsar)

21. Depreciation – S. 32

Allowance of depreciation on car and interest on car loan cannot be disallowed on the ground of personal use.

Mangat Ram Bhagwat Swarup vs. I.T.O, ITA No. 2953/Del/2007, Bench–SMC, A.Y. 2001-02, dt. 8-8-2007 - BCAJ p. 29, Vol. 39-E, Part 1, October, 2007.

22. Expenditure incurred in relation to income not includible in Total Income – S. 14A

(a) Provisions for quantification of amount of disallowance as per sections 14A(2) and 14A(3) are procedural and therefore, apply to all pending matters.
(b) Assessing Officer cannot disallow any expenditure at his own discretion or on ad hoc basis but he has to compute such disallowances in the manner as provided u/ss. 14A(2) and 14A(3).

Asstt. CIT vs. Citycorp Finance (India) Ltd. [108 ITD 457 (Mum)]

23. Export – Deduction — S. 80HHC

DEPB credit amount constitutes profits of export business eligible for deduction.

Interest on EEFC account is to be treated as profits and not to be excluded for calculation of deduction under section 80HHC.

Interest on FDR’s maintained by way of guarantee for export business is eligible for deduction under section 80HHC.

Shah Originals vs. ACIT (2007) 112 TTJ 754 (Mum.)

24. Export – Deduction – S. 80HHC r.w.s. 80-IB

The Tribunal relying on the decision of the Supreme Court in the case of IPCA Laboratory Ltd. and of the Karnataka High Court in the case of RPG Telecom, held that the deduction allowable u/s 80HHC cannot be reduced by the amount of deduction u/s 80-IB. It was also noted that the assessee had not claimed more than 100% of its income and the decision of the Gujarat High Court in the case of Sidhpur Isabgul Processing Co. Ltd. also supported the assessee’s case.

Vijay Industries vs. ITO, ITA No. 247/JP/2005, Bench–A, A.Y. 2001-02, dt. 29-6-2007, BCAJ p. 152, Vol. 39-E, Part 2, November, 2007.

25. Export – Deduction u/s. 80hhc on profits and gains from transfer of Depb

By virtue of the amendment made by the Taxation Laws (Amendment) Act, 2005 profit from transfer of DEPB is deemed to be the profit and gains of the business as the amendment is held to be retrospectively effective from 1-4-1998 and therefore, such profit is entitled to deduction u/s. 80HHC.

Asstt. CIT vs. K. S. International (2007) 108 ITD 709 (Delhi)

26. Export – Turnover — S. 80HHC

Turnover which is related to the profit eligible for exemption under section 10B cannot be included in the export turnover for the purposes of deduction under section 80HHC.

ACIT vs. Mahabir Spinning Mills Ltd. (2007) 112 TTJ 966 (Chd.)

27. Export Undertaking – Exemption u/s. 10B

1. Section 10B is a code by itself as it contains scheme of taxation formulated by the Govt. for taxability of units set up in the export processing zone.

2. Exemption u/s. 10B is available for five consecutive assessment years falling within the block of eight years beginning from the year in which the undertaking commences commercial production as specified by an assessee at his option. Therefore, once the period of five years is specified, it is irrevocable and therefore, the assessee cannot thereafter seek to change the five years period. Only condition is that the exemption cannot extend beyond the period of eight years from initial assessment year.

3. The requirement of filing declaration as per the provisions of section 10B(7) is directory in nature and not mandatory and therefore, it is open to an assessee not to claim tax holiday benefit u/s. 10B for any one year or more of the relevant block of five assessment years by filing declaration u/s. 10B(7). If the assessee opts out of the provisions of section 10B by filing declaration u/s. 10B(7) during the course of assessment proceeding of the relevant assessment year then in such case the revenue could not thrust the exemption upon the assessee.

Moserbaer India Ltd. vs. Jt. CIT [108 ITD 80 (Delhi)]

28. Free Trade Zone – Exemption – S. 10A

Exemption under section 10A cannot be denied to the assessee simply because it has availed of deduction under section 80HHE in an earlier year.

DCIT vs. Interra Software (I) Pvt. Ltd. (2007) 112 TTJ 982 (Del.)

29. Housing Project – Deduction – S. 80-IB(10)

As per the provisions of section 80-IB(10), it was the undertaking that develops or builds the housing project that was entitled to deduction, irrespective of the fact whether it was the owner or not, or whether it was the contractor thereof. The requirement for claiming deduction was that such an undertaking must develop and build housing project, be it on their own land or on the land of others.

Radhe Developers vs. ITO, ITA No. 2482/Ahd/2006, Bench–A, A.Y. 2003-04, dt. 29-6-2007, BCAJ p. 271, Vol. 39-E, Part 3, December 2007.

30. Import Entitlement – Industrial Undertaking u/s. 80-IB

Profit from sale of import entitlement is not entitled to deduction u/s. 80-IB

Asstt. CIT vs. K. S. International (2007) [108 ITD 709 (Delhi)]

31. Income from House Property – S. 23(1)(b)

Notional Interest on Interest free deposit can- not be added to actual rent received in determining the annual value u/s 23(1)(b).

Madison Mercantile Ltd. vs. DCIT (2007) 164 Taxman 97 (Delhi)

32. Industrial Undertaking – Claim u/s. 80-IA(9)

Restriction is placed on claiming repetitive deductions under the provisions of section 80IA(9) and therefore, deduction u/s. 80-IA should be claimed from the profits and gains of the business before computing deduction u/s. 80HHC.

CIT vs. Rogini Garments (2007) [108 ITD 49)/294 ITR 15 (AT) (Chennai)(SB)]

33. Industrial Undertaking – Deduction – S. 80-IB

— Duty drawback was part of the profit of the industrial undertaking for the purpose of deduction u/s 80-IB.
— Part of the manufacturing activity was carried on by contract workers. The Assessee is entitled to full deduction and not on proportionate basis on the activity done by contract workers.

Padhrod vs. ITO, ITA No. 4191/Mum/2004, Bench-A, A.Y. 2001-02, dt. 17-8-2007-BCAJ p. 30, Vol. 39-E, Part 1, October, 2007.

34. Infrastructure Undertakings – S. 80-IA

Fulfilment of conditions laid down in section 80IA(3)(ii) r.w. Explanation 2 has to be examined as on date of commencement of actual production, and not as on date of trial production.

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

35. Interest – S. 234B

The controversy before the Tribunal was when the tax payable by the assessee was enhanced in the reassessment proceedings, then whether the self-assessment tax paid by the assessee u/s 140A was to be ignored for the purpose of computing the interest payable by the assessee u/s 234B(3) of Act. According to the Tribunal, the reference to section 234B(1) in section 234B(3) was to be read with reference to section 234B(2) of the Act, and applying the rule of harmonious construction on the facts of the present case, interest was to be charged up to the date on which the assessee had paid the tax u/s 140A. In the present case, the income of the assessee was enhanced and due to the enhanced income, additional tax liability was also determined, but at the same time, it was seen that the assessee has paid the self-assessment tax u/s 140A, which was more than even whatever tax was determined after reassessment. Hence self-assessment tax paid u/s 140A cannot be ignored.

The Fertilizers and Chemicals Travancore Ltd. vs. ACIT, ITA No. 1213/Coch./2004, Cochin Bench, A.Y 1996-97, dt. 24-4-2007, BCAJ p. 30, Vol. 39-E, Part 1, October, 2007.

36. Interest on Borrowed Capital – S. 36(1)(iii)

Interest paid on borrowings were partly disallowed on ground that assessee had advanced interest free sum to sister concern. Held, that as advance was not in nature of loans, but as amounts was debited for day-to-day transactions, addition on account of disallowance of interest was deleted.

Triveni Engg. & Industries Ltd. vs. DCIT (2007) 164 Taxman 125 (Delhi)

37. Method of Accounting – S. 145

Addition made by rejecting book results, and by estimating shortfall in yield, without any findings or pointing out any defect in the books of account or in the method of accounting followed is unjustified.

Puneet Udyog vs. ACIT (2007) 164 Taxman 167 (Delhi)

38. Perquisite – S. 10(10CC)

Taxes paid by the employer can be added only once in the salary of the employee, thereafter tax on such perquisite is not to be added again.

RBF Rig Corpn. LIC (RBFRC) vs. ACIT (2007) 165 Taxman 101 (Delhi) (SB)

39. Powers of Commissioner (Appeals) for enhancement – S. 251(2)

Section 251(2) only requires to offer a reasonable opportunity to call for an explanation from an assessee for proposed action of enhancement and it has not prescribed any statutory notice under the Act for issuing a show-cause notice for enhancement of income.

Honda Siel Cars India Ltd. vs. Asstt. CIT [109 ITD 1 (Delhi)]

40. Reassessment – Notice for Reassessment – S. 148

Unless and until the earlier proceedings commenced on issuance of notice u/s 148 were disposed of, subsequent notice u/s 148 cannot be issued. Accordingly, the appeal filed by the assessee was allowed and the second notice issued by the A.O. was held as not valid and the assessment made thereunder was quashed.

The National Leather Mfg. Co. vs. DCIT, ITA No.2369/M/2003, Bench–G, A.Y. 1993-94, dt. 16-10-2007, BCAJ p. 271, Vol. 39-E, Part 3, December, 2007.

41. Rectification – S. 154

Commissioner (Appeals) is an authority of Income Tax which is authorised to rectify its order as per provisions of sections 154 and 116.

Failure to apply a retrospective amendment amounts to a mistake apparent from record.

Shokat Ali Contractor vs. ITO (2007) 164 Taxman 99 (Jodhpur) (SMC)

42. Rectification — S. 254(2)

Order passed by Tribunal on the basis of decision of High Court subsequently overruled by Supreme Court suffers from mistake apparent rectifiable under section 254(2).

Jt. CIT vs. Milton’s Ltd. (2007) 112 TTJ 167 (Mum.)

43. Rectification of Mistake – S. 154

Once Commissioner had recorded his finding against the assessee, the Commissioner is not competent to review its own order on basis of same facts in garb of powers vested under section 154.

All issues which involve prolonged arguments and are debatable and where two views are possible fall outside the scope of powers under section 154.

Pushpa Gujral Science City Society vs. CIT (2000) 165 Taxman 67 (Amritsar)

44. Registration – S. 12A

Belated application for registration u/s 12A filed with detailed reasons for such delay was summarily rejected without giving any reason. Held that order without assigning any reason for coming to such conclusion cannot be said to be judicious order.

Pushpa Gujral Science City Society vs. CIT (2007) 165 Taxman 67 (Amritsar)

45. Settlement Commission – S. 245F

During pendency of proceedings before the Settlement Commission, lower authorities cannot invoke provisions of section 147/148, as Settlement Commission has exclusive jurisdiction to exercise powers and perform functions of Income Tax Authority.

Vivek Nagpal vs. DCIT (2007) 165 Taxman 71 (Delhi)

46. Speculative Transaction – S. 43(5)

As per the definition of speculative transaction, there has to be purchase or sale of any commodity, including stock and shares. As derivative trading did not involve any purchase and sale of shares, the loss on account of derivative could not be treated as loss on account of speculative transaction.

DCIT vs. SSKI Investors Services Pvt. Ltd., ITA No. 3182/Mum/2004, Bench – J, A.Y. 2001-02, dt. 25-9-2007, BCAJ p. 151, Vol. 39-E, Part 2, November 2007.

47. Subsidy – Income – S. 4

Transport subsidy from State Govt. under the Transport Subsidy Scheme, 1971 of the Govt. of India against transfer cost of raw material and finished goods would be revenue receipt.

Asstt. CIT vs. Steel Strips Ltd. (2007) [108 ITD 720 (Chd)]

48. TDS – Contractor – S. 194C

TDS on Composite contracts, consisting payments for supply of materials as well as payments for execution of civil work, erection, designing and commissioning, and which are divisible, though having common purchase order, has to be deducted only in respect of consideration attributable to civil work, as well as erection and payment towards supply of material, spare parts, freight and insurance has to be excluded.

Haryana Power Generation Corpn. Ltd. vs. ITO (2007) 164 Taxman 64 (Delhi)

49. Transfer Pricing – Computation of arm’s length transactions – S. 92C

1. Assessing Officer is not required to demonstrate avoidance of tax or existence of circumstances specified under clauses (a) to (d) to sub-section (3) of section 92C and the Assessing Officer is also not required to hear assessee before making reference.

2. Assessing Officer must have some material to justify reference.

3. Instructions of the CBDT to make reference where international transactions cross Rs. 5 crores in value.

4. Order of transfer pricing is not binding on the Assessing Officer but he must have some strong reasons not to accept such order.

— Aztec Software and Technology Services Ltd. vs. Asstt. CIT [294 ITR 32 (AT) (SB)(Bang)]

50. Unexplained Investment — S. 69B

Addition cannot be made on account of unexplained investment in property only on the basis of stamp duty charged by the Sub-Registrar.

ITO vs. Satyanarayan Agarwal (2007) 112 TTJ 717 (Jd.)