DIRECT TAXES

Tribunal

Aarti Sathe, Deepak R. Shah, Haresh P. Shah, Paras S. Savla, Prem Chandra Tripathi & Rahul Hakani

144. Accrual of Income – Compensation for termination of agreement – Project completion method – S. 4, 5, 28(ii)

When agreement itself got terminated there could be no other completion except completion as a result of termination of agreement and to that extent income is liable to tax, on due / on accrual basis.

Kailas Nath & Associates vs. ITO (2009) 121 ITD 563 (Delhi) (SB).

145. Agricultural income – Tea Plantation – S. 2(1A)

Income generated from tea plantation taken on lease, cannot be ceased to be an Agricultural Income, on ground that basic operations had already been carried out in agricultural land by the lessor. That cultivation charges and harvesting charges incurred by assessee along with other basic operations cannot be said as towards secondary operation, so as to treat the income as Non-agricultural Income.

Wilson & Co. Ltd. vs. ACIT (2009) 184 Taxman 79 (Chennai)

146. Annual value – Duplex Flat – S. 23

Annual value of a single duplex flat for self occupation to be taken as “nil”, merely because the assessee had entered into two separate agreements jointly to purchase the duplex flat having two separate door numbers would not mean that the assessee had acquired two residential flats.

Suresh C. Sadarangani vs. ACIT (2009) 33 SOT 428 (Mum.)

147. Appeal – Additional ground – S. 254(1)

Additional ground raised by the appellant can be admitted if it raises a question of law which arises from the undisputed facts as found by the Income Tax Authorities.

DCW vs. Dy. CIT (2009) 126 TTJ 416 (Mum.)

148. Appeal – Tribunal – Powers – Rectification of Mistake – S. 254(2), 255

When the question was pending before the High Court, it was not right for the assessee to agitate it before the Tribunal.

It is for the bench to decide whether there should be joint consideration by members before draft order finalised. Merely because there was no specific mention of each argument, the order could not be said to be vitiated by mistake apparent from the record.

Tata Communications Ltd. vs. Jt. CIT (2009) 317 ITR 1 (AT) (Mumbai) (SB) / (2009) 124 TTJ 721 (Mumbai) (SB)

149. Appeal – Tribunal – Rule 27

Where the CIT(A) decided the ground of reopening against the assessee but decided the ground of merits in favour of the assessee, the assessee is entitled, in an appeal by the Revenue before the Tribunal, to urge, under Rule 27 of the Income Tax Rules, that the CIT(A) was wrong in deciding the ground of reopening against the assessee.

ACIT vs. M/s. Triace, ITA No. 2827/Mum/04, A.Y. 1995 – 96, Bench-H, dated 26-11-2007 Source: www.itatonline.org

150. Appellate Tribunal – powers – Precedent – S. 254(1)

Tribunal has no power to hold decision of jurisdictional High Court as per incuriam or sub silentio.

ACIT vs. Sreeja Hosieries (2009) 33 SOT 29 (Chenai) (URO)

151. Appellate Tribunal – Powers – S. 254(1)

It is not open for the tribunal to take away the benefit given by the Assessing Officer.

ITO vs. Anant Y. Chavan (2009) 32 DTR 377 (Pune) (Trib.) / (2009) 126 TTJ 984 (Pune)

152. Appellate Tribunal – Rectification of Mistakes – Apparent from records – S. 143(2), 154

When an assessment is subject – matter of proceedings under section 143(2), during pendency of such proceedings rectification proceedings under section 154 can not be initiated. Where there can conceivably be two opinions on a particular issue, provisions of section 154 will not be attracted.

M. P. Telelinks Ltd. vs. ACIT (2009) 121 ITD 241 (Agra) (TM)

153. Appellate Tribunal – Rectification of Mistakes – Judgement of Supreme Court and jurisdictional High Court – S. 254(2)

If an order passed by Tribunal is not in conformity with judgement of Supreme court or that of Jurisdictional High court rendered prior to or subsequent to impugned order, same constitute a mistake apparent from record.

Kailasnath Malhotra vs. JCIT (2009) 34 SOT 541 (Mum.)(TM)

Editorial Note: In Kishanchand J. Bhavanai vs. WTO (1989) 29 ITD 383 (Bom.), the Tribunal has held that subsequent judgement of jurisdiction High Court, order of Tribunal can not be rectified.

154. Appellate Tribunal – Rectification of Mistakes – Power – Non-Consideration of agreement – S. 254(2)

Non consideration of any argument advanced by either party for arriving at a conclusion is not an error apparent on record, although it may be an error of judgement and same can not be rectified under section 254(2).

Essel Propack Ltd. vs. ACIT (2009) 34 SOT 359 (Mum.)

155. Appellate Tribunal – Rectification of mistakes – Powers - S. 254(2)

Tribunal can set a side a matter or remand it to file of Assessing Officer for further enquiry to make proper assessment by allowing parties including revenue authorities to raise a contention for first time before it.

ACIT vs. Amar Mining Co. (2009) 121 ITD 273 (Ahd.) (TM)

156. Assessment – Material as a whole – S. 153A

When Assessment is made based/relying on materials collected during search, then said materials should be read in wholesome and continuous manner, and not in a piecemeal manner by cutting chain of events, but in a logical & continuous manner from beginning to end so as to reach a lawful conclusion.

ACIT vs. Hotel Harbour View (2009) 184 Taxman 42 (Kochi) (A.Y. 1999-2000)

157. Assessment – Notice – Block Assessment – 143(2), 158BC, 292BB.

Assessing Officer having, not issued any notice under section 143(2) before completing the assessment under section 158BC(c), assessment was bad in law and liable to be quashed. Section 292BB does not save the same.

ACIT vs. Supreme Appar & Associates (2009) 30 DTR 229 (Mum.) (Trib.)

158. Assessment – Notice under section 143(2) – Validity – S. 143(2)

Assessment order passed either without serving notice under section 143(2) or serving the notice improperly upon the assessee can not be said to be void and the assessment order can not be annulled on this ground.

Haryana Sanitary Ware Industries (P) Ltd. vs. ITO (2009) 31 DTR 329 (Del.) (Trib.)

159. Authorised representative – Resigned Members & Members who retired before 3-6-2009 can practice before the ITAT – S. 288

The Tribunal has inherent jurisdiction to consider whether the parties who are appearing before it are properly entitled under the law to make appearance; Such Members who had resigned and terminated their contract of employment with the Government before confirmation cannot be said to hold any post and there is no question of any conditions of services being applicable to them after resignation. They cannot be treated as having been “retired” from service for purposes of Rule 13E and were not disqualified from appearing before the ITAT; On a plain reading of Rule 13E, it is prospective and applies only to Members who were in service as of 3.6.2009 or who join service thereafter. It has no application to Members who retired prior to that date.

M/s. Concept Creations vs. ACIT, (2009) 129 TTJ 433 (SB) (Del.) Source: www.itatonline.org

160. Bad debts – Whether two deductions possible – S. 36(i)(vii)

Whether two deductions permissible in respect of assessee to whom clause (viia) of section 36(1) applies, there can be two deductions allowed, one on account of provision for bad debts and the second, on account of bad debts actually written off, but in any case deduction to such assessee cannot exceed bad debts actually written off in books of account of previous year.

Addl. DIT vs. CITIBANK NA (2009) 34 807 311 (Mum.)

161. Block assessment – Computation of undisclosed income – S. 158BB

Loans which were shown by the assessee in the balance sheet filed with the return for an earlier year cannot be treated as bogus and addition cannot be made merely because interest has not been paid.

Estimation by Tehsildar cannot be basis to make addition as income from undisclosed source.

ACIT vs. Subhash Verma (2009) 125 TTJ 685 (Del.)(SB)

162. Block Assessment – Firm and Partners – S. 158BB(1)

In view of cl. (2A) of section 10 and proviso to cl. (b) of Explanation to sub-section 1 of section 158BB, both disclosed and undisclosed income of the firm and not in the hands of partners.

ACIT vs. K. T. Joseph (2009) 30 DTR 156 (Coch.) (TM) (Trib.)

163. Block Assessment – Limitation – S. 142(2A), 158BE

Directing special audit without affording reasonable opportunity of being heard to the assessee is merely an irregularity and not an illegality, and in such cases assessment can not be annulled but is required to be restored back to the file of Assessing Officer for framing an assessment a fresh after giving a reasonable opportunity.

ACIT vs. Sushila Milk Specialities (P) Ltd. (2009) 126 TTJ 289 (Del.)(SB) (2009) 31 DTR 210 (Del.) (SB)

164. Block of assets – S. 2(ii), 43(6)(c)

When block of asset is sold, the block of assets stands reduced only by moneys payable on account of sale of the asset and not by the fair market value of the asset sold.

Dy. CIT vs. Cable Corporation of India Ltd. ITA No. 5592/Mum/2002 dt.29-10-2009 Bench E / 392 (2009) 41B BCAJ (Jan)

165. Business expenditure – Agricultural Income and Agricultural Expenditure – S. 37(1)

Assessee engaged in business of manufacturing extracts from spices, cannot claim net farming expenses even when there was direct nexus with its business, as Agricultural Income and Agricultural Expenses are outside the purview of the Act.

Held, that the principles of business expediency and prudence comes into play only when an expense is otherwise allowable under the Act.

Kancour Flavours and Extracts Ltd. vs. DCIT (2009) 185 Taxman 100 (Kochi)

166. Business expenditure – Biri binding charges – S. 40(a)(ia), 194H

Payment of Biri binding charges made through Munshis who are part of the labourers can not be considered as commission in terms in Expln. (i) to section 194H, therefore, the said payment could not be disallowed under section 40(a)(ia).

Jahangir Biri Factory (P) Ltd. vs. Dy. CIT (2009) 126 TTJ 567 (Kol.)

167. Business expenditure – Capital expenditure – S. 35(1)(iv)

Capital expenditure on scientific research incurred for subsidiary company is not allowable as deduction.

Ciba India (P) Ltd. vs. ITO (2009) 126 TTJ 481 (Mum.)

168. Business expenditure – Capital or revenue expenditure – Expenditure relating to setting up of a new unit

Mere fact that the assessee company was taking steps to set up a new unit for manufacturing a product which is authorized by its Memorandum and Articles of Association does not prove that the proposed unit was inextricably linked with the existing business of the assessee or that it was an expansion thereof and, therefore, expenditure incurred by the assessee in relation to setting up of the proposed unit is not allowable as revenue expenditure, more so as the project was ultimately cancelled by the assessee.

Indo Ram Synthetics (I) Ltd. vs. Dy. CIT (2009) 31 DTR 42 (Del.) (Trib.)

169. Business expenditure – Commission paid to director – S. 40(a)(ia), 194H, 194J

Commission paid to directors as per terms of employment is for the works done in their capacity as whole time directors is to be treated as incentive in addition to salary etc, therefore same can not be disallowed under section 40(a)(ia), neither section 194H or 194J is applicable.

Jahangir Biri Factory (P) Ltd. vs. Dy. CIT (2009) 126 TTJ 567 (Kol.)

170. Business expenditure – cost of production of TV serial – Rule 9A.

Feature film which was exclusively for telecast on TV Rule 9A will be applicable as the film was released for exhibition for less than 90 days.

Vieshesh Films (P) Ltd. vs. Dy. CIT (2009) 126 TTJ 271 (Mum.)

171. Business expenditure – deduction actual payment – S. 43B

Where neither such deduction is claimed nor charge is made to profit and loss account, no disallowance can be made under section 43B.

Dynavision Ltd. vs. ACIT (2009) 121 ITD 461 (Chennai)(TM)

172. Business expenditure – Discounting charges on sale bills – S. 2(28A), 40(a)(i), 195

Discounting charges on discounting bills of exchange do not amount to interest and therefore assessee was not under obligation to deduct tax at source under section 195 and hence, the discounting charges can not be disallowed by invoking section 40(a)(i).

ACIT vs. Cargill Global Trading (I) Ltd. (2009) 126 TTJ 516 (Del.) (2009) 31 DTR 289 (Del.)

173. Business Expenditure – Exempt Income – Interest as cost of capital asset in the nature of shares vis-a-vis section 14A

Interest paid on borrowed funds for acquisition of shares is allowed to be capitalized and treated as cost of shares for the purpose of computation of capital gain and it cannot be disallowed in view of the provisions of section 14A on the ground that intention of the investment in shares was to earn dividend income which is exempt.

S. Balan alias Shanmugam vs. Dy. CIT (2009) 120 ITD 469 (Pune).

174. Business expenditure – Exempted Income – Disallowance – Share of partner in the profits of firm – S. 14A

Income charged in the hands of partnership firm cannot be treated as a non exempt income in the hands of partner of such firm and, therefore, provisions of section 14A are applicable in computing the total income of such partner in respect of his share in the profits of the firm. In the instant case, assessee partner received salary from the partnership firm besides share of profit. Thus, the expenditure claimed by assessee can be considered to have been incurred for earning salary as well as share in the profits of the partnership firm and the disallowance under section 14A has to be worked out as per the provisions of Rule 8D. same being retrospective.

Dharmansingh M. Popat vs. ACIT (2009) 31 DTR 295 (Mum.) (Trib.)

175. Business expenditure – Interest on borrowed capital – Diversion of fund for non business purpose – S. 36(1)(iii)

Assessee was obliged to provide funds to the subsidiary company under a rehabilitation scheme sanctioned by BIFR. Funds put to use by the subsidiary for its business. It was held that it was a case where funds have been advanced by the assessee to its subsidiary company on grounds of commercial expediency. No part of interest was therefore disallowable.

Industrial Cables (I) Ltd vs. Addl. CIT (2009) 31 DTR 513 (Chd.) (Trib.)

176. Business Expenditure – Interest on Deep Discount Bonds – Mercantile system of accounting – S. 36(1)(iii), 43B

Interest accrued on deep Discount Bonds, though payable on maturity on some later date was in view of mercantile system of accounting followed by assessee, there being no loan or advance or borrowing by assessee, section 43B, was not allowable.

Gujarat Toll Road Investment Co. Ltd. vs. ACIT (2009) 126 TTJ 262 (Ahd.)

177. Business expenditure – Keyman insurance – S. 37

Premium paid by firm in respect of Keyman insurance policies on the lives of working partners is allowable as business expenditure. Employer–employee relationship is not essential for allowing deduction.

ITO vs. Modi Motors (2009) 126 TTJ 495 (Mum.)

178. Business expenditure – labour charges to Labour sardars – S. 40(a)(ia)

Labour sardars could not be called labour contractors, within the meaning of section 194C(2), hence, provisions of section 40(a)(ia), can not be made applicable.

Samanwaya vs. ACIT (2009) 34 SOT 332 (Kol.)

179. Business expenditure – Liability of interest on Court Order – S. 37(1)

Liability for payment of interest arising out of court order is an ascertained liability and, therefore, it is allowable as deduction.

Dy. CIT vs. Dune Leasing & Finance Ltd. (2009) 125 TTJ 87 (Del.)

180. Business expenditure – Penalty – fine – SEBI – S. 37(1)

Payment, made under SEBI Regulation scheme, 2002 for failure to make disclosure as required under SEBI (Substantial Acquisition of shares and Takeovers) Regulations 1997 could not be treated as penalty as it is a payment for regularizing the default committed hence such payment can not be disallowed by invoking explanation to section 37(1).

Kaira Can Company Ltd. vs. Dy. CIT (2009) 32 DTR 485 (Mum.)(Trib.)

181. Business expenditure – Penalty – S. 37(1)

Penalty which is not of nature of illegal/unlawful expenditure is not covered by Explanation to section 37(1)

Western Coalfields Ltd. vs. ACIT, ITA Nos. 289 and 290/Nag./2006, A. Y. 2002-03 & 2003-04, dt. 30-6-2009 – BCAJ p. 30, Vol. 41-B, Part 1, October 2009.

182. Business Expenditure – Reimbursement – S. 37(1)

Reimbursement of expenditure incurred in running the school is allowable as business expenditure.

Tata International Ltd. vs. ACIT, ITAT ‘I’ Bench, Mumbai. ITAT No. 5591/M/2005 dt. 11/9/2009, Source: BCAJ Vol.41-B Part 2 Nov. 2009 Pg. 21

183. Business Expenditure – Reimbursement of expenditure to parent, non-resident company – S. 40(a)(i)

No income accrued or arose to the payee from the payment made by the assessee to its non-resident parent company in respect of the expenditure incurred by the latter in connection with the business activity carried on by assessee was not required to deduct tax at source and therefore, the payments could not be disallowed by invoking the provision of section 40(a)(i); disallowance could not be made also for the reason that the income of the assessee is to be computed as per the special provisions of section 42 which overrides the general provisions of computation of income.

Cairn Energy India Pvt. Ltd vs. ACIT (2009) 30 DTR 258 (Chennai) (Trib.)

184. Business expenditure – Salary to partner – S. 40(b)

Salary paid to partner can not be disallowed only on the reason that salary is not quantified in partnership deed.

ACIT vs. Suman Construction (2009) 34 SOT 495 (Pune)

185. Business Expenditure – Year in deductible – S. 37(1)

Since the assessee has completed more than 95 percent of project and offered income there from on year-to-year basis, expenses incurred on home for aged and on club house were allowable as business expenditures.

ACIT vs. Sheth Developers (P.) Ltd. (2009) 33 SOT 277 (Mum.)

186. Business Income – Benefit or perquisite – S. 28(iv)

In absence of any finding by the Department that the purchase and sale transaction of shares was a part and parcel of a business transaction the difference in market price and purchase price cannot be brought to tax as benefit or perquisite u/s. 28(iv) merely because purchase of investments in shares, with a lock-in-period, for a consideration less than market price.

Rupee Finance (P.) Ltd. vs. ACIT (2009) 120 ITD 539 (Mum.)

Editorial Note : Affirmed by Bombay High Court. Source : www.itatonline.org

187. Business income – Business loss – Speculation loss – S. 28(i), 43(5)

Payment made by assessee to bank for cancellation of forward foreign exchange contract being in the nature of damages for non performance of contract is allowable as business loss and it can be treated as a speculative loss as there is no settlement of contract and section 43(5) is not attracted.

Voltas International Ltd. vs. ACIT (2009) 126 TTJ 702 (Mum.)

188. Business loss or bad debts – Ss. 28, 36(1)(vii), 37

Amount paid by the assessee under Performance Guarantee Bond is allowable as a business loss/expenditure. Mere fact that the assessee has claimed the amount written off in the course of business as ‘bad debt’ does not preclude him from claiming the same as business loss/expenditure.

Anang Tradevest Pvt. Ltd. vs. ITO, ITA Nos. 10/Mum/2008, A. Y. 2003-04, Bench ‘A’, dt. 10-8-2009 – BCAJ p. 20, Vol. 41-B, Part 2, November 2009.

189. Capital Gain – Index Cost – Indexed cost of gifted assets has to be determined with reference to previous owner – S. 48

The assessee transferred a capital asset which was received by her by way of gift on 1.2.2003. The previous owner had acquired the capital asset on 29.1.1993. In computing capital gains, the assessee claimed that the indexed cost of acquisition had to be worked out by taking the date of acquisition by the previous owner. The Assessing Officer rejected the claim though the CIT(A) accepted it. On appeal by the Revenue, the issue was referred to the Special Bench. HELD by the Special Bench:

(i) Explanation (iii) to section 48 defines the term “indexed cost of acquisition” to mean the amount which bears to the cost of acquisition the same proportion as the …. Cost Inflation Index for the first year in which the asset was held by the assessee …” A literal reading of the provision suggests that one has to go by the year in which the asset was held by the assessee. However, this would be inconsistent with the scheme of the Act as reflected in the definition of “short-term capital asset” in Expl. 1(b) to s. 2 (42A) which provides that the period for which the asset was held by the previous owner also has to be taken into account. It is not logical that the cost of acquisition and the period of holding is determined with reference to the previous owner and the indexation factor is determined with reference to the date of acquisition by the assessee. Such an interpretation will lead to absurdity and unjust results and defeat the purpose of the concept of ‘indexed cost of acquisition’. In accordance with the principles of purposive interpretation of statutes, Expl. (iii) to s. 48 has to be read to mean that the indexed cost of acquisition has to be computed by taking into account the period for which the asset was held by the previous owner.

DCIT vs. Manjula Shah (ITAT Mumbai Special Bench) Source: www.itatonline.org

190. Capital Gain – TDR – FSI – Consideration – Not chargeable – S. 45

Consideration received for permission to use TDR / FSI not chargeable to tax as the cost of acquisition being nil.

Om Shanti Co-op. Society vs. ITO (Mum.) Source: www.itatonline.org

191. Capital gains – Computation – Interest Capitalised – S. 48

Interest was paid because installments could not be paid in time and same had became part of cost of acquisition, hence, the interest capitalised has to be considered as part of cost of acquisition.

Ajmal Fragrances & Fashions (P) Ltd. (2009) 34 SOT 57 (Mum)

192. Capital gains – computation - revaluation of assets after conversion of proprietary concern in to partnership – S. 45(3), 4(1)(a) of Gift Tax Act

Assessee having converted his proprietary concern in to a partnership, firm revalued the assets and credited the capital accounts of the partners by the revalued figure at the end of the same previous year, section 45(3), is applicable and the said value has to be taken to be the full value of consideration and not the amount credited to the capital account of assessee. When capital gain is charged there is no deemed gift under section 4(1)(a) of Gift Tax Act.

Dharmshibhai B. Shah vs. ITO (2009) 32 DTR 106 (Ahd.)(TM)(Trib.) / (2009) 126 TTJ 721 (Ahd.)(TM)

193. Capital Gains – Depreciable Assets – S. 50

It was held that there cannot be any presumption regarding allowing depreciation unless it was actually claimed by the assessee and allowed by the A.O. However, it was held that connotation of the phrase used u/s. 43(6)(b) is “actually allowed” which means depreciation actually taken into account or granted and given effect to it cannot be stretched to mean “notionally allowed” or merely allowable on notional basis. Therefore, for the purpose of section 50, during the relevant period of time, depreciation has been allowed means depreciation actually allowed to the assessee.

Sadhuram Patel & Sons vs. ITO (2009) 120 ITD 291 (Mum.)

194. Capital Gains – ESOP – S. 45, 48

Assessee having made no payment for exercising the right to purchase shares under ESOP, there was no cost of acquisition of such shares to the assessee and therefore, amount received on sale of said shares is not taxable as capital gains, further date of exercise of option and date of sale being the same, there is no difference between the deemed cost of acquisition and actual price realized by the assessee and therefore, no amount is chargeable to tax as capital gains.

Bomi S. Billimoria vs. ACIT (2009) 124 TTJ 960 (Mum.)

195. Capital Gains – Exemption – Extension of existing building – S. 54F

Mere extension of existing building would not give benefit to assessee under section 54F.

ACIT vs. T. N. Gopla (2009) 121 ITD 352 (Chennai) (TM)

196. Capital gains – Exemption – S. 54F

When a house is located in a commercial complex, it can not be accepted that it is residential house or that it was used for residential purposes, in the absence of any evidence or record for use of residential purposes.

Sunita Oberoi (Smt.) vs. ITO (2009) 126 TTJ 745 (Agra)(TM)

197. Capital gains – FSI – S. 45

Gains arising to the society on sale of 50% of the areas constructed by the builder, at his own cost, by utilising additional FSI received by society from BMC in lieu of roads taken over by BMC are chargeable to tax as Capital gains.

ACIT vs. Sai Ashish Bandra Co-op. Hsg. Soc. Ltd., ITA No. 5232/Mum/2004, A.Y. 2000-01, dt. 22-8-2009, Bench - E – BCAJ p. 33, Vol. 41-B, Part 3, December 2009.

198. Capital Gains – Indexation – Foreign Institutional Investor – S. 48, 111A, 112, 115AD

A Foreign Institutional Investor has to be assessed with regard to capital gain / loss under section 115AD, and is not entitled opt out of provisions of said section and claim to be assessed under section 48, read with section 112, with indexation provisions in case of assessment resulting in to capital loss.

Advantage Advisors INC vs. Dy. DIT (2009) 33 SOT 46 (Bom.)

199. Capital gains – long term - Short term – firm – partners – S. 48, 54, 54F, 55(2)

Where the property purchased by firm and transferred to partners at latter date, for computing the period of holding to be computed from the date of allotment to partner and not from the date of acquisition by the firm.

Shantilal J. Jain vs. Addl. CIT (2009) 126 TTJ 831 (Mum.)

200. Capital Gains – Registration Charges – Cost of acquisition – S. 48

The assessee had purchased the land out of borrowed funds. The Tribunal held that registration charges and interest paid on borrowings formed part of cost of acquisitions and eligible for deduction. Indexation was also granted on the same.

Ishtiaque Ahmad vs. ACIT, ITA No. 863/D/2009, A. Y. 2002-03, Bench ‘C’, dt. 28-8-2009 – BCAJ p. 21, Vol. 41-B, Part 2, November 2009.

201. Capital gains – Retirement of partner – S. 45(4)

Section 45(4), has no application in the case of retirement of one partner. Capital gain is not chargeable to tax on the facts of the case also for the reason that the transfer of property to the retiring partner was necessitated on account of family arrangement to avoid a possible dispute.

ACIT vs. Goyal Dresses (2009) 30 DTR 75 (Chennai) (Trib.)

202. Capital gains – Stamp duty valuation – S. 50C

If there is objection from assesse’s side regarding sale consideration without challenging stamp duty valuation, then valuation should be referred to valuation officer who is an expert and who can do correct valuation.

Ajmal Fragrances & Fashions (P) Ltd. vs. ACIT (2009) 34 SOT 57 (Mum.)

203. Capital Gains – Valuation – S. 50C

In the event of the assessee contending that valuation as done by Stamp Valuation Authority is not acceptable to him and asking the Assessing Officer to make a reference to the Valuation Officer, it is mandatory on the part of the Assessing Officer to make such a reference notwithstanding that the assessee has not filed an appeal against such valuation.

Kalpataru Industries vs. ITO, ITA No. 5540/Mum/2007, A.Y. 2005-06, dt. 24-8-2009, Bench – H – BCAJ p. 32, Vol. 41-B, Part 3, December 2009.

204. Capital or Revenue Expenditure – Renovation expenses – S. 37(1)

Since expenditure incurred on renovation had given assessee an enduring benefit and ownership of renovated items would not per se become property of lessor and moreover assessee had not placed any material on record to show that lump sum payment in form of renovation expenses had benefited it in form of rentals or otherwise, expenditure in question was rightly considered as capital expenditure.

Living Room Designers vs. ITO (2009) 34 SOT 34 (Mum.)

205. Capital or Revenue Expenditure – S. 37(1)

Amount spent on purchase of tools viz. specific gauges, for special purpose machines manufactured based on specific order and quality, which were non-repetitive, was held to be revenue expenditure.

Gallium Industries Ltd. vs. DCIT (2009) 185 Taxman 17 (Delhi)

206. Capital or Revenue Receipt – S. 4

Amount received under non-compete agreement is not taxable either as revenue receipt or as capital gains during the Asst. Year 2001-02

BASF India Ltd. vs. Addl. CIT (2009) 125 TTJ 355 (Mum.)

207. Carry forward and set-off – unabsorbed depreciation – S. 10A

In view of section 10A(6) by the Finance Act, 2003, unabsorbed depreciation relating to asst. yr. 1993-94 and 1995-96 of an industrial unit located in free trade zone cannot be set-off against income of the unit for the asst. yr. 2003-04.

Phoenix Lamps Ltd. vs. Addl. CIT (2009) 30 DTR 245 (Del.) (Trib.)

208. Cash credits – Loans – S. 68

When particulars regarding income tax assessments and bank accounts had been filed, initial burden on assessee under section 68 had held discharged burden shift on revenue to show that what was stated or explained by assessee was not satisfactory.

Kalyan Memorial & Charitable Trust vs. ACIT (2009) 121 ITD 525 (Agra) (TM)

209. Cash credits – surrender of amount by letter – S. 68

Letter written by assessee might not be treated as representing the income unless supported by probative evidence against the assessee. Matter set a side to for verification of facts.

Rakesh Agrwal (Dr.) vs. Dy. CIT (2009) 121 ITD 575 (Agra) (TM)

210. Charitable or religious trust – Condonation of delay – S. 12A, 12AA

Since objects of trust and genuineness of its activities were not in doubt in as much as registration was granted with prospective effect from 1-4-2007 and reasons for delay for filing of application were not false or untrue delay was required to be condoned.

Church of Our Lady of Grace vs. CIT (2009) 34 SOT 315 (Mum.)

211. Charitable or religious trust – S. 11, 13

A trust established to carry out partly charitable purposes and partly religious purposes would be entitled to exemption under section 11.

Society of Presentation Sisters vs. ITO (2009) 121 ITD 422 (Cochin) (TM); (2009) 30 DTR 1 (Coch.) (TM) (Trib.)

212. Charitable Trust – Registration – S. 12A

CIT(A) has to satisfy himself about the objects of the trust and the genuineness of its activities. If the trust has established that it is formed to run educational institutions, the trust is entitled to registration under section 12A.

Reliable Educational Alliance Society vs. CIT (2009) 126 TTJ 407 (Del.)

213. Deduction – Business Expenditure – Exempted Income – S. 14A

It could not be assumed that assessee did not incur any expenditure in earning dividend and therefore disallowance under section 14A restricted to 1 percent of tax free dividend received by the assessee.

EIH Associated Hotels Ltd. vs. Dy. CIT (2009) 126 TTJ 246 (Kol.)

214. Deduction – Business Expenditure – Share of partner in partnership firm – S. 10(2A) 14A, Rule 8D, 28(V)

Partnership firm is a separate assessable entity for the purpose of Income Tax Act. Income charged in the hands of partnership firm can not be treated as non exempt income in the hands of such firm and therefore, provisions of section 14A, are applicable in computing the total income of such partner in respect of his share in profits of the firm. Assessee partner having received salary from the partnership firm besides share of profit, disallowance under section 14A has to be worked out as per the provisions of Rule 8D same being retrospective.

Dharamsingh M. Popat vs. ACIT (2009) 31 DTR 295 (Mum.) (Trib.)

215. Deduction – Computation – Eligible industrial units – S. 80A, 80B(5), 80 IB

Loss in one unit can not be set off against of other unit, it is a mandatory to work out the eligible amount of deduction under various sections of Chapter VI-A, individually and then such aggregate amounts has to be restricted to the amount of gross total income as computed under section 80IB(5).

Meera Cotton & Synthetic Mills (P) Ltd. vs. ACIT (2009) 28 DTR 139 (Mumbai) (Trib.)

216. Deduction – Computation – Gross total income – Adjustment of Brought forward loss, depreciation, etc. – S. 80I

Gross Total income of the assessee has first to be computed in accordance with the Act and thus profit of assessee new unit had first to be adjusted against other unit’s losses and if there was no positive income. Deduction under section 80I could not be allowed.

CIT vs. Shree Synthetics Ltd. (2009) 30 DTR (MP) (Indore Bench)

217. Deduction – Disallowance of expenditure – S. 14A

Any expenditure incurred by the assessee bank for investing in the bonds, even tax free was expenditure incurred for carrying on it’s business, so as to maintain the required statutory liquidity ratio and tax free interest is just an incidence to it. Thus, section 14A had no application in the case of the assessee.

State bank of Travancore vs. ACIT (2009) 318 ITR (AT) 171 (Cochin) / (2009) 226 CTR 49 (Del.)

218. Deduction – Export – deduction is allowable for section 115JB even if there are no normal profits – S. 80HHC, 115JB

The assessee’s income was computed under section 115JB as it had no income under the normal provisions of the Act. The assessee claimed that despite the absence of normal profits, it was eligible for deduction under section 80HHC in computing the book profits under Expl. (iv) of section 115JB in accordance with the judgement of the Special Bench in Syncome Formulations 106 ITD 193 (Mum.) (SB) and that the judgement of the Bombay High Court in Ajanta Pharma 223 CTR 441 (Bom.) (which held that Syncome Formulations was overruled) was not applicable. HELD upholding the assessee’s plea:

In Syncome Formulations, the Special Bench had to consider two questions i.e. (a) method of computation of deduction under section 80HHC and (b) percentage of deduction allowable in each year. As regards the percentage of deduction, the Special Bench held that the assessee would be entitled to 100% deduction. This view was overruled by the High Court in Ajanta Pharma where it was held that in view of section 80HHC(1B), deduction was only allowable as per the limits set out therein. However, the first issue as to the method of deduction under section 80HHC was not before the High Court. As per Sun Engineering 198 ITR 297, the observations of a Court have to be read in context. Consequently, the judgement of the Special Bench on this aspect still held good and the assessee was entitled to deduction under section 80HHC even though there were no normal profits.

Dy. CIT vs. Glenmark Laboratories (ITAT Mumbai) Source: www.itatonline.org

219. Deduction – housing project – percentage completion method – S. 80IB(10)

An assessee developing a housing project and fulfilling all other requirements of section 80IB(10) can adopt “project percentage method” to arrive at the eligible profits for claiming deduction under the said section. Deduction can not be postponed to alter year ie on completion of project.

B. K. Patel Enterprises vs. Dy. CIT (2009) 28 DTR 451 (Pune) (Trib); (2009) 125 TTJ 974 (Pune)

220. Deduction – Hypothetical Tax – S.10(10CC), 16

The deduction on account of hypothetical tax liability is made under tax equalization and only reduces the tax perquisite of the employee and not his income. This aspect of the matter will be relevant in computation of perquisites when the same are to be computed with reference to the salary of the employee. The deduction to be made at the stage of computing the tax perquisite and not the basic salary. There will be no tax impact in this year on account of s. 10 (10CC) in case hypothetical tax is reduced from tax perquisite instead of being reduced from the basic salary.

ITO vs. Lukas Fole (2009) 28 DTR 210 (Pune) (Trib.)

221. Deduction at Source – Commission – Bookings – S. 194H

If there is no principal-agent relationship between the parties then section 194H is not attached.

Ajmer Zila Dugdh Utpadak Sangh Ltd. vs. ITO (2009) 126 TTJ 197 (Jp.)

222. Deduction at source – Upfront fees - Liability to deduct tax vis-ΰ-vis year of assessment of year – S. 194I

A person who is responsible for paying to a resident any income by way of rent us required to deduct tax at source under section 194I at the time of credit of such income to the account of the payee even if it is not the income of the payee previous year in which it is paid; upfront fee paid by assessee to the lessor which is adjustable against 50% of the annual license fee payable to the lessor was rent and therefore, assessee was required to deduct tax at source under section 194I at the time of the credit of such amount.

Tax Recovery Officer vs. Bharat Hotels Ltd. (2009) 28 DTR 337 (Bang.) (Trib.)

223. Deduction of Tax at Source – Interest – S. 40(a)(i), (9)

The discounting charges paid for discounting bills of exchange cannot be included under the ambit of interest under section 2(28A) of the Income-tax Act, 1961 and the assessee was not under an obligation to deduct tax at source as per section 195 of the Income-tax Act, 1961.

Asst Comm. of Income Tax, New Delhi vs. Cargill Global Trading (I) Pvt. Ltd. (2009) 34 SOT 424

224. Deductions – Housing project – built up area – S. 80IB

Definition of “built-up area” in clause (a) of section 80IB(14) introduced by Finance Act, 2004, has only prospective effect from 1-4-2005, therefore prior to 1-04-2005 balcony would not form part of built up area, irrespective of area of such balcony.

ACIT vs. Sheth Developers (P) Ltd. (2009) 33 SOT 277 (Mum)

225. Deemed dividend – Advance – S. 2(22)(e)

Advances equal to the amount advanced during the relevant assessment year not exceeding accumulated profit after adjustment of deemed dividend of earlier assessment year is treated as deemed dividend of the relevant assessment year u/s. 2(22)(e).

Aswani Enterprises vs. ACIT (2009) 120 ITD 38 (Chennai)

226. Depreciation – Actual cost – S. 32(1)(i), 43(i) Expln. 3

In order to apply Expln. 3 to section 43(1), Assessing Officer has to determine the ‘actual cost’ of the assets to the assessee which can only mean arm’s length value or real value or worth of assets transferred, burden to determine the ‘actual cost’, in accordance with the law is on the Assessing Officer and not on the assessee in question. Assessing Officer having cited no good ground for not accepting the cost of the assets in question as valued by registered valuer or shown in memorandum of transfer and made no attempt to undertake the exercise of finding out the actual cost of said assets acquired by assessee on takeover business of a firm, no case is made out for applying Expln. to section 43(1).

Chitra Publicity Company (P) Ltd. vs. ACIT (2009) 32 DTR 227 (Ahd.)(TM)

227. Depreciation – Good will – Revision – S. 32, 263

True test of depreciation is character of an asset and not its description, therefore, even if an asset is described as “goodwill” but it fits in description of section 32(1)(ii), depreciation is to be granted thereon, hence, the revision order is bad in law.

Hindustan Coca Cola Beverages (P) Ltd. vs. Dy. CIT (2009) 34 SOT 171 (Delhi)

228. Depreciation – Goodwill – S. 32

Goodwill is a bundle of rights which include, inter alia, patents trade marks, licences franchises, etc. and they assume importance in commercial world as they represent a particular benefit or advantages or reputation built by a person / company / business house over a period of time and customers associate themselves with such assets hence depreciation would be allowable on same.

Kotak Forex Brokerage Ltd. vs. ACIT (2009) 33 SOT 237 (Mum.)

229. Depreciation – Passive use – S. 32

Assessee was entitled for depreciation on plant which was kept ready for use but it was not actually used due to lack of raw material.

ACIT vs. Chennai Petroleum Corp. Ltd. (2009) 126 TTJ 865 (TM) (Chennai)

230. Depreciation – Restrictive covenant – S. 32(1)(iii)

Depreciation on restrictive covenant is not allowable.

Srivatsan Surveyors (P) Ltd. vs. ITO (2009) 32 SOT 268 (Chennai)

Editorial Note:- See ITO vs. Medicorp Technologies India Ltd. (2009) 21 DTR 69 (Chennai) (Trib.) / (2009) 30 SOT 506 (Chennai) (Trib.)

231. Disallowance – S. 43B

Contribution towards ESI & PF within the grace period could not be disallowed under section 43B.

BASF India Ltd. vs. Addl. CIT (2009) 125 TTJ 355 (Mum.)

232. Exemption – Additional construction in existing house – S. 54F

Assessee is not entitled to exemption under section 54F on investment of capital gain in the construction of an additional floor in existing house.

ACIT vs. I. N. Gopal (2009) 125 TTJ 1 (TM) (Chennai)

233. Exemption – encoding and decoding an eligible EOU – S. 10B

Assessee having obtained order from the Development Commissioner stating that the assessee has been abounded and does not enjoy the status of 100% EOU, and the same having being produced before Assessing Officer though not filed before the due date of filling of return as required by section 10B(8), the assessee has to be held as opted out of the benefit of section 10B and entitled to carry forward the loss.

Torry Harris Sea Foods (P) Ltd. vs. Dy. CIT (2009) 28 DTR 165 (Coch.) (Trib.)

234. Exemption – Free Trade Zone – Turnover Profit – S. 10A

As the term Total Turnover and profits of the business are not defined in section 10A, then both the terms has to be understood as is given in section 80HHE, since formula in 10A is same as prescribed for section 80HHE.

If the Export Turnover is arrived at after excluding certain expenses, then expenses has to be excluded from Total Turnover also.

Tata Elexi Ltd. vs. ACIT (2009) 184 Taxman 46 (Bang.)

235. Exemption – Keyman insurance – S. 10(10D)

In view of the conflicting clarification given by the LIC, regarding the status of keyman insurance policy after assignment, issue regarding taxability of the amounts received on the maturity of such policy remanded to Assessing Officer for fresh consideration after obtaining clarification from higher authorities of LIC.

Rajan Nanda vs. Dy. CIT (2009) 31 DTR 249 (Del.) (Trib.)

236. Exemption – Setting of Loss – S. 10A, 70

Since 10A, was not forming part of sections mentioned in section 29, business losses of the undertaking whose income was not exempt under section 10A, can not be setoff against profits of the undertaking whose income is exempt. Loss of the non STPI is allowed to be carried forward.

ACIT vs. Honeywell Technology Solutions Lab. Pvt. Ltd. 263 (2009) 41-B BCAJ P 34. (December)

237. Exemption – splitting up or reconstruction – S. 10A

Assessee having taken over the medical transcription unit from another company along with obligation of exports, etc., it is a case of purchase of business undertaking in view of circular no F. No. 15/S/63-ITA-1) dt. 13th Dec., 1963, it can not be said to be a case of formation of undertaking by using assets previously used and, therefore, assessee is entitled to deduction under section 10A, more so as deduction has already been allowed to the assessee for two assessment years.

ITO vs. Heartland K. G. Information Ltd. (2009) 31 DTR 98 (Chennai) (Trib.)

238. Export – Deduction – Protocol Export – S. 80HHC

Assessee exported rice to Cambodia through the State Trading Corporation of India Ltd. [STC] as supporting manufacturer, the STC had not claimed any export benefit as it was “protocol export” i.e., under a Government-to-Government aid programme and the export consideration was received by the assessee in Indian Rupee from Ministry of External Affairs. Sec. 80HHC. In view of the Circular No. 562 dated May 23, 1990, being a beneficial one, it was hold that assessee was eligible to the deduction on the “protocol exports”.

Shamanur Kallapa and Sons vs. ACIT (2009) 318 ITR (AT) 438 (Bang.)

239. Gift – Agricultural land – S. 56(2)(v)

Value of agricultural land by a non–relative can not be added to total income of done under section 56(2)(v) of the Act, since agricultural land cannot be considered as “any sum of money”.

ITO vs. Kumar Bader. Tax World Vol. XLII 207 – October 2009

240. Income – contractual payment to retiring partner – S. 4, 28

Contractual payment made by the firm to its retiring partners, in terms of partnership deed, is not includible in the total income of the firm, since to that extent income has never reached the hands of the assessee.

RSM & Co. vs. ACIT, ITA No 3269/Mum/2007 Bench D dt. 12-10-2009. 391 (2009) 41-B BCAJ.

Jan 2010

241. Income – Notional Gain on foreign currency swap – S. 5

Notional gain arising on revaluation of foreign currency loan at the end of relevant previous year is not a real income and therefore, it is not taxable even though assessee is following mercantile system of accounting.

EIH Associated Hotels Ltd. vs. Dy. CIT (2009) 126 TTJ 246 (Kol.)

242. Income do not form part of total income – Voluntary retirement – S. 10(10C)

An employee, who takes voluntary retirement, is entitled to exemption under section 10(10C)

Dy. CIT vs. Krishana Gopla Saha (2009) 121 ITD 368 (Kol.) (TM)

243. Income from house property – interest free deposit – Annual value – S. 23(1)(a)

The benefit derived by the assessee from interest–free deposit could be taken in to consideration for determination of fair rental value under section 23(1)(a) but the benefit derived by the assessee can not be more than lending rate at which the deposits were available in the market at particular point of time.

ITO vs. Baker Technical Services (P) Ltd. (2009) 126 TTJ 455 (Mum.)(TM); (2009) 31 DTR (Mum) (TM) (Trib.)

244. Income from undisclosed source – slips – S. 69A

Amount shown and recorded on slips found during survey having been advanced to one person for purchase of land and that person having confirmed the same, no addition was called for simply on the basis of presumption.

Prakash Motwani vs. ITO (2009) 125 TTJ 941 (Agra) (TM)

245. Income from undisclosed sources – Addition – Investment in purchase of land – S. 69

A plot was purchased by four individuals for a total consideration of Rs. 5 lakhs. It was valued by Sub-Registrar for the purposes of stamp duty at Rs.9,82,355/- on which stamp duty of Rs. 88,420/- was paid. Assessing Officer added the entire amount of Rs. 10,70,775/- as the value of investment made in the subjected land purchased by the alleged AOP. It was held that provisions of section 50C cannot be extended to the case of the purchaser unless the fact of understatement is established by the Revenue.

Further, all the four individual purchasers were income tax assessee and were in the service of State Govt. for last several years and in some cases their spouses are also in service. It was not difficult for them to invest Rs. 5 lakhs collectively. Hence, as no contrary material was brought on record. Addition was deleted.

Sangam Tower vs. ITO (2009) 31 DTR 172 (JP) (Trib.)

246. Interest – Book profit – S. 115JA, 234B, 234C

Interest under sections 234B and 234C, is chargeable on income computed under section 115JA.

Kanel Oil & Export Inds Ltd. vs. Jt. CIT (2009) 126 TTJ 158 (Ahd.) (TM) Source: www.itatonline.org

Editorial Note:- See Bombay High Court - Snowcem India Ltd. vs. Dy. CIT (2009) 221 CTR 594 (Bom.)

247. Interest – Refund – S. 244A

Held, that assessee is entitled to Interest on Interest under section 244(1A) on refund of tax paid by way of S.A. Tax.

MMTC Ltd. vs. DCIT (2009) 185 Taxman 104 (Delhi)

248. International Taxation – Computation of income by way of royalties, etc., by foreign company u/s. 44D readwith DTAA
Following unanimous views taken by Tribunal and Authority for Advance Ruling it was held that the deductions of any expenses are to be allowed against income in the nature of royalties and fees for technical services only in accordance with the provisions of domestic law. If the domestic law prohibits such deductions then such deductions would not be allowed.

Thus, section 44D has been considered to be the process of computation of business profits which provided restriction that the assessee is not entitled to any deductions contained in Ss. 28 to 44C of the Act. However, in view of the specific non obstante provisions contained in section 44D it was held that no deduction of any expenses would be allowed from income in the nature of royalties or fee for technical services received by the assessee i.e., the foreign company.

Dy. CIT vs. Pipeline Engineering GmbH (Mumbai) (2009) 318 ITR (AT) 210 (Mum.)

249. International Taxation – DTAA – India-Brazil – S. 90, Article 8

Where assessee was neither owner nor lessee nor character of feeder vessels carrying cargo from Mumbai port to destination in Durban, profits attributable to such voyage would be outside scope of article 8 of DTAA.

Dy. DIT vs. Cia de Navegacao Norsul (2009) 121 ITD 113 (Mum.)

250. International Taxation – Fees for Technical Services – DTAA – India – France – S. 9. Art. 13(4)

Expression ‘fees for technical services’ as appearing in provision of article 13(4) of DTAA between India and France as well as in Explanation 2 to section 9(1)(vii) means payment made to any person in consideration of managerial, technical or consultancy services. Since test reports had been used by assessee in India in manufacturing of cars payment made to “U” company of France were chargeable to tax in India.

Maruti Udyog Ltd. vs. Asstt. DIT (2009 ) 34 SOT 480 (Delhi)

251. International Taxation – Freight income – DTAA – India – UK – S. 9, 44

Article V

In view of Article 9(1) of DTAA between India and UK, freight income earned by non-resident assessee on account of transportation of cargo in international traffic by ships operated by other enterprises under slot chartering, arrangement would be taxable only in State of residence and consequently, such income would be exempt from taxation under Indian Income tax law.

Dy. DIT vs. Balaji Shipping (UK) Ltd. (2009) 121 ITD 61 (Mum.)

252. International Taxation – India – Singapore DTA – S. 80HHC, 90, 263

A plain reading of section 80HHC shows that non–resident assessee is not all eligible for deduction under section 80HHC, exception under cl. (4)(a) of Art. 26 of DTAA between India and Singapore clearly mandates that deduction under section 80HHC which provides for deduction to residents in India cannot be superseded by this non–discrimination clause of the DTAA. Revision by the commissioner was justified.

Mosraq Ahmed vs. Asstt. Director (International Taxation) (2009) 29 DTR 410 (Chennai) (Trib.)

253. International Taxation – Meaning of ‘royalty’ – S. 9(1)(vi) r.w. Explanation 2

(i) The services rendered through satellites for telecommunication or broadcasting amounts to “process”.

(ii) To fall within the meaning of ‘royalty’ as envisaged in Explanation 2 to section 9(1)(vi), it is not necessary that the services rendered must be through “secret process” only. Even services rendered through simple process will also be covered within the meaning of ‘royalty’.

(iii) Payment received by assessee from their customer is on account of use of process involved in the transponder and it amounts to royalty within the meaning of section 9(1)(vi). And it also amounts to royalty within the meaning of respective articles of the DTAA.

New Skies Satellites N. V. vs. Asst. Director of Income Tax (International Taxation) (2009) 319

ITR (AT) 269 (Delhi) (SB) / (2009) 121 ITD 1 (Delhi) (SB)

254. MAT – Book profits – Company – S. 115JB

For the purpose of adjustment under section 115JB, ordinary business loss and statutory depreciation have been differentiated and either the amount of brought forward loss or unabsorbed depreciation, which ever is less is to be deducted and not both.

Dy. CIT vs. Costal Resorts (I) Ltd. (2009) 31 DTR 283 (Coch.) (Trib.)

255. Non-Resident – Period of Stay – S. 6(1)(c)

While computing 60 days stay in India, first day in series of days to be excluded.

Manoj Kumar Reddy vs. ITO (2009) 34 SOT 180 (Bang.)

256. Notice by affixture – Reassessment – S. 148, 292BB

In the absence of anything to show that there was any urgency to serve the notice under section 148 on the very next day after it was issued or any material on record to show or suggest that any effort was made by the Assessing Officer to serve the notice in the normal course before issuing the directions to serve the same by affixture was not valid service. Section 292BB inserted w.e.f 1st April 2008, has not retrospective operation and therefore, it was no application for Asst. Year 2001-02.

Arun Lal vs. ACIT (2009) 30 DTR 178 (Agra) (TM)

257. Penalty – Concealment – Block Assessment – S. 158BFA(2)

Amount of undisclosed income shown in the return of income in form NO 2B could not be taken into account for computation of penalty under section 158BFA(2). There is nothing in the language to incorporate the requirement of payment of tax on the “undisclosed income” as a condition for application of second proviso.

Dy. CIT vs. Heera Constructions Co. (P.) Ltd. (2009) 29 DTR 398 (Coch.) (TM) (Trib.)

258. Penalty – Concealment – Depreciation on fabricated evidence – S. 271(1)(c)

Assessee having claimed depreciation which was found to be based on fabricated invoice and assets having never been installed and used by the lessee and which claim was withdrawal after finding of false claim, it could not be said that assessee disclosed primary facts in a return bona fidely filed and therefore penalty under section 271(1)(c) was validly levied.

ACIT vs. TVS Finance & Services Ltd. (2009) 126 TTJ 302 (Chennai) (TM); (2009) 30 DTR 81 (Chennai)

259. Penalty – Concealment – Disclosure of additional income by a letter – S. 271(1)(c), Expln. 5

Authorised officer having not recorded assessee’s statement under section 132(4), during the course of search, the disclosure of additional income made by the assessee through a letter addressed to the Asstt. Director of IT (Inv.) immediately after conclusion of the search which has shown in the return of income, which has been accepted without any variation, has to be construed as a bona fide voluntary disclosure and therefore, penalty under section 271(1)(c) is not leviable in view of Expln. 5.

Hissaria Brothers vs. Dy. CIT (2009) 31 DTR 223 (Jd.) (Trib.)

260. Penalty – Concealment – No penalty under Expl. 7 to section 271(1)(c) for bona fide transfer pricing adjustments – S. 271(1)(c)

(i) The question whether the provision for bad debt in respect of sum owed by the parent company is a matter falling in the ordinary course of trade or whether it is an extraordinary item warranting exclusion from operational cost is a debatable point on which there can be two opinions. The fact that the assessee accepted the addition and did not challenge the same will not change this aspect;
Penalty also cannot be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation;

The conduct of the assessee was not mala fide or contumacious. The computation claiming exclusion of the provision for doubtful debts in arriving at comparable profit margins cannot be said to have been done not in good faith or without due diligence. Accordingly, penalty under Expl. 7 to section 271(1)(c) could not be levied.

Dy. CIT vs. M/s. Vertex Customer Services (India) Pvt. Ltd., ITA No. 1506/Del/2008, Bench – C, A. Y. 2003-04, dt. 21st Sept. 09. Source: www.itatonline.org

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

Penalty levied on Addition to Income by estimating ALV of the property, which was reduced substantially by Tribunal, and which was based on satisfaction recorded in Penalty Order and not in Assessment Order was held as not justified and penalty was deleted.

Further held that, for imposition of penalty a definite finding about concealment is necessary, and penalty cannot be imposed if there is no conscious breach of law.

Smt. Rishwa Rani vs. ACIT (2009) 184 Taxman 140 (Chandigarh)

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

Non bifurcation of short-term capital loss from the overall business loss amounted to concealment of income and furnishing of inaccurate particulars of income.

Nera (India) Limited vs. DCIT, ITA No. 107/Del/2009, A. Y. 2004-05, Bench ‘F’, dt. 4-8-2009 – BCAJ p. 20, Vol. 41-B, Part 2, November 2009.

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

Payer having acknowledged payment, appeared before he Assessing Officer and led evidence, in support of services rendered to the assessee, there was no justification to term the assessee’s explanation as false and there fore no penalty was leviable not withstanding the claim for disallowance was confirmed in appeal by the Tribunal.

Dhirajlal Maganlal Shah vs. ITO (2009) 32 DTR 69 (Ahd.) (TM)(Trib.)

Editorial Note:- UOI vs. Dharmendra Textile Processors & Ors. (2008) 306 ITR 277 (SC), considered.

264. Penalty – Concealment – Search and Seizure – S. 153A, 271(1)(c)

Additional income declared in returns filed in response to notice under section 153A, did not fall under category of return mentioned in Explanation 5(2) to section 271(1)(c), assesses were not entitled to immunity from penalty.

ACIT vs. Kirti Dahyabhai Patel (2009) 121 ITD 159 (Ahd.) (TM)

265. Penalty – Concealment – Transfer pricing adjustment – S. 92C, 271(1)(c)

The fact that the assessee had accepted the addition and not challenged the same would not change when the issue is debatable. When there is full disclosure by the assessee and conduct being not mala fide or contumacious Penalty under section 271(1)(c), not justified.

Dy. CIT vs. Vertx Customer Services India (P) Ltd. (2009) 34 SOT 532 (Delhi); (2009) 31 DTR 27 (Del.)

266. Perquisite – pick-up and drop facilities to employees – S. 17(2), 10(14)

Pick-up and drop facility to employees between the specified points is not a perquisite.

WNS Global Services (P) Ltd. vs. ITO (2009) 33 SOT 445 (Mum.)

267. Precedent – Advance Ruling for Authority – S. 245S

Ruling given by the Advance Ruling Authority is not binding precedent on the Tribunal but, it was held that, it does not mean that the Tribunal cannot concur with the reasoning given by the said Authority.

Dy. CIT vs. Pipeline Engineering GmbH (Mumbai) (2009) 318 ITR (AT) 210 (Mum.)

268. Precedent – S. 254(1)

Decision of non-jurisdictional High Court prevails over an order of Jurisdictional Special Bench of the Tribunal.

Kanel Oil & Export Ind. Ltd. vs. Jt. CIT (2009) 126 TTJ 158 (TM) (Ahm.)

269. Precedent – Tribunal – S. 254(1)

Judicial propriety demand that a Bench of the Tribunal must follow the judgement of a co-ordinate Bench, Judicial Member was not justified in taking a different view than one taken in an earlier case by a Co-ordinate Bench on identical facts.

The Society of Presentation Sisters vs. ITO (2009) 30 DTR 1 (Coch.) (TM) (Trib.)

270. Profits of the business – Sales of scrap – S. 80HHC

Receipts from sale of scrap cannot be included in the business profits for deduction under section 80HHC.

ACIT vs. Chennai Petroleum Corp. Ltd. (2009) 126 TTJ 865 (TM) (Chennai)

271. Reassessment – After four years – Supreme Court judgement – S. 147

Assessee having disclosed all the primary facts before the Assessing Officer at the stage of original assessment, re-opening of assessment after expiry of four years from the end of relevant year merely on the basis of a subsequent decision of the Supreme Court was not valid.

ACIT vs. Prestige Foods Ltd. (2009) 32 DTR 283 (Ind.)(Trib) Editorial Note:- Full bench of Delhi High Court in CIT vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Delhi) affirmed.

272. Reassessment – Change of opinion – Absence of new material vis-a-vis full and true disclosure – S. 148

Assessee having furnished all the original bills and vouchers in respect of additions made to the assets and also cost allocation on the basis of which proportionate allocation of foreign exchange fluctuation was made and the assessment having been completed on the basis of papers and documents submitted by the assessee, there was no failure on the part of the assessee to disclose fully and truly all material facts relevant for assessment and therefore, the reopening of assessment to disallow the additional depreciation on account of foreign exchange fluctuation was not valid.

Dy. CIT vs. A.P. Gas Power Corpn Ltd. (2009) 31 DTR 530 (Hyd.)

273. Reassessment – Change of opinion – S. 147, 148

Where the original assessment is farmed under section 143(3) and subsequently, it comes to the notice, of Assessing Officer, that still some income chargeable to tax has escaped assessment, he can get assistance of provisions of section 147, provided it does not amount to change of opinion.

M. P. Ramachandran vs. Dy. CIT (2009) 32 SOT 592 (Mum.)

274. Reassessment – Sanction of commissioner – S. 148, 151

Sanction of Commissioner to notice issued under section 148 is a must for reopening assessment after four years.

ACIT vs. M. P. Export Corpn. Ltd. (2009) 120 ITD 460 (Indore)

275. Return – defect – S. 139, 292B

Assessing officer is duty bound to give a chance to assessee to rectify defect in return.

Morgan Stanley Asset Manangement Inc vs. Dy. CIT (2009) 33 SOT 452 (Mum.)

276. Revision – Erroneous and prejudicial order – Exemption – Ss. 54EC, 263

Assessee HUF received advances against sale of a property before the transfer and it deposited the money in the specified bonds as required under section 54EC. Assessing Officer allowed exemption under section 54EC on the basis of said investment. CIT invoked section 263. It was held that word “transfer” has a wide meaning as contemplated in section 2(47). Clause (v) of section 2(47) explicitly states that transfer can take place by possession or retention of property or any part thereof in part performance of the contract, it cannot be charged with defrauding the law in depositing the same in specified bonds simply because the sale deed was executed later on. Neither the conduct of the assessee is prejudicial to the interests of the Revenue nor it has caused loss to the revenue. Therefore, CIT was not justified in invoking section 263 to disallow exemption under section 54EC.

Bhikulal Chandak (HUF) vs. ITO (2009) 31 DTR 369 (Nag.) (Trib.)

277. Revision – Erroneous and Prejudicial order – S. 263

Assessing Officer having taken a plausible view after investigation and proper enquiry, CIT cannot invoke revisionary power just to substitute his own view; assessment order cannot become erroneous where queries raised during the assessment proceedings are not recorded in final assessment order.

V. B. Construction (P) Ltd. vs. Dy. CIT (2009) 28 DTR 84 (Kol.) (Trib.)

278. Revision – further enquiry – S. 263

Commissioner can regard order as erroneous on the ground that in circumstances of case Assessing officer should have made further enquiries before accepting statement made by the assessee.

Rajalakshmi Mills Ltd. vs. ITO (2009) 121 ITD 343 (Chennai) (SB)

279. Revision – On issue not mentioned in show cause notice – S. 263

In revision proceedings, Commissioner can not travel beyond reasons given by him for revision in show cause notice.

Revision is not like reopening of assessment, entire assessment is not opened before the Assessing Officer.

Geometric Software Solutions Co. Ltd. vs. ACIT (2009) 32 SOT 428 (Mum.)

Editorial Note:- Also see CIT vs. Contimeters Electricals Works P. Ltd. (2009) 22 DTR 158 (Delhi)

280. Scientific Research Expenditure – S. 35

Where assessee incurred capital expenditure on scientific research which was related to its subsidiary companies and it did not have any active business carried on by it which said research related to assessee would not be entitled to deduction under section 35 in respect of such expenditure.

Ciba India (P) Ltd. vs. ITO (2009) 121 ITD 94 (Mum.)

281. Search and Seizure – Assessment – limitation – service of order – S. 153A

Assessment order passed on 28th Dec., 2007, but served on 2nd Jan., 2008, beyond the period of limitation of 31st Dec., 2007, was barred by limitation and thus non est in law.

Shantilal Godawat & Ors. vs. ACIT (2009) 126 TTJ 135 (Jd.)

282. Search and Seizure – Assessment – S. 132A, 153A

For invoking jurisdiction under section 153A, not only warrant of authorisation is to be issued in name of assessee but also search shall have to be necessarily conducted or in case of requisition under section 132A, has to be made.

Rajat Tradecom India (P) Ltd. vs. Dy. CIT (2009) 120 ITD 48 (Indore)

283. Set off Loss – Capital Gains – Capital Loss – S. 70(3), 112

Capital loss computed by assessee with indexation cost can be set off against long term capital gains computed without indexation.
Keshav S. Phansalkar vs. ITO (2009) 32 DTR 454 (Mum.) (Trib.) / (2009) 126 TTJ 892 (Mum.)

284. Set off loss – capital gains – S. 45, 74(1)

In A.Y. 2002-03, the assessee suffered a long-term capital loss. Under section 74(1) as it then stood, such loss could be carried forward and set off against all capital gains including short-term capital gains. Section 74 was amended in A.Y. 2003-04 to provide that long-term capital loss could only be set-off against long-term capital gains and not against short-term-capital gain. When the assessee claimed a set-off in A.Y. 2004-05 the question arose whether the amended law should apply or the un-amended law. The tribunal held that Right to set-off loss is a “vested right” which is available despite amendment in year of set-off.

Geetanjali Trading vs. ITO (ITAT Mumbai) Source: www.itatonline.org

285. Set off of loss – S. 70 r.w.s. 10A

Exemption u/s 10A has to be allowed on income earned without setting off of loss of non STPI unit. Loss of the non STPI unit is to be carried forward.

ACIT vs. Honeywell Technology Solutions Lab. Pvt. Ltd., ITA Nos. 344 & 345/Bang/2009, A.Ys. 2003-04 & 2004-05, dt. 4-8-2009, Bench – A – BCAJ p. 30, Vol. 41-B, Part 3, December 2009.

286. Slump sale – S. 50B

All the fixed assets as well as the current assets of agrochemical division were valued. The fixed assets were valued itemised by ascertaining the value of each and every asset separately and after adding the non-compete fee. Held that such a transaction could not be considered as slump sale.

ACIT vs. RPG Life Sciences Ltd., ITA No. 1579/Mum/2006, A. Y. 2002-03, Bench – C, dt. 31-8-2009 – BCAJ p. 31, Vol. 41-B, Part 1, October 2009.

287. Special Audit – Time Limit – S. 142(2C)

The amendment to section 142(2C) by insertion of the words ‘suo motu or’ w.e.f. 1-4-2008 is prospective and prior to this date A.O. could grant extension of time except on an application by the assessee.

Bishan Saroop Ram Kishan Agro Pvt. Ltd. vs. Dy. CIT, ITA No. 3413/Del/2008, A. Ys. 1999-2000 to 2005-06, Bench ‘A’, dt. 18-9-2009 - BCAJ p. 23, Vol. 41-B, Part 2, November 2009.

288. Speculative transactions – future and option – S. 28(i), 43(5)

Loss arising in future and option transactions carried out in a recognised stock exchange is to be treated as business loss and not as loss in speculation.

G. K. Anand Bros. Build Well (P) Ltd. vs. ITO (2009) 34 SOT 439 (Delhi) (Asst year 2006-07)

Editorial Note:- Shree Capital Services Ltd. vs. ACIT (2009)121 ITD 498 (SB) (Kol.) considered.

289. Transfer – Ss. 2(47), 53A

As no possession was taken in pursuance of contract for sale, same cannot be construed as a transfer for the purpose of section 2(47) r.w. Sec 53A of the Transfer of Property Act, 1882.

Transfer takes place only when sale deed is executed and title of property is transferred. The telephone/electricity connection obtained without possession or executing sale deed cannot be treated as transfer of Capital Asset.

ACIT vs. Hotel Harbour View (2009) 184 Taxman 42 (Kochi)