1. Additional evidence — Rule 29 of ITAT Rules

In an appeal filed by assessee, additional evidence can be admitted at the instance of revenue on application under Rule 29 of ITAT Rules.

UOPLLC vs. Addl. Dir. of IT. (2007) 110 TTJ 619 (Del)

2. Assessment — Additions — S. 143

Impugned addition to Income on account of treating job charges and material bills as bogus, cannot be sustained when it has been established by furnishing relevant bills, bank statements etc. and the fact remains that without purchase of such material and job charges being incurred, the manufacture could not have been possible.

Hylux Automotive (P) Ltd. vs. I.T.O. (2007) — 163 Taxman 90 (Delhi)

3. Assessment — Evidence — S. 28(i) r.w. S. 143

A.O. is duty bound to falsify the assessee’s claim with convincing and appealing evidence, rather than doubting the transaction in the realm of suspicion. A.O. cannot reject the evidence placed without showing as to how it was not reliable.

Anilkumar Mahipal vs. I.T.O. (2007) — 162 Taxman 87 (Jodhpur) (SMC)

4. Assessment — Issue of notice — S. 143

The jurisdiction of A.O. in cases where notice is issued for limited scrutiny, is confined to claims set out in the notice for verification. A.O. has no power to make the entire assessment of income in such limited scrutiny cases.

Even Commissioner (Appeals) power cannot be enlarged beyond the power of A.O. in limited scrutiny cases, and decision to consider other claim not covered in the notice for limited scrutiny is contrary to provisions of the Act.
Rajesh Jain vs. I.T.O. (2007) — 162 Taxman 212 (Chandigarh)

5. Assessment — Notice — S. 148

It is the duty of revenue to establish that service of an order or a notice was made on assessee himself or on somebody duly authorised by him. Reassessment order passed without service of a legal and valid notice in accordance with law is bad, and mere participation of assessee in proceedings cannot validate assessment proceedings.

Anil Kumar Goel vs. I.T.O. (2007) — 163 Taxman 167 (Lucknow)

6. Assessment — Prima facie adjustment — S. 143(1)(a)

Disallowance of loss on an issue as to whether a business was set up or not requires investigation and deliberation and verification of documents. The same can be done only in proceeding u/s. 143(3), and order disallowing loss while processing the return u/s 143(1)(a) was set aside.

Hyundai Engg. & Construction Co. Ltd. vs. DCIT (2007) — 163 Taxman 171 (Delhi)

7. Assessment amalgamation — Notice — S. 143

Issue of Notice and subsequent assessment made in name of amalgamating company subsequent to the amalgamation becoming effective, is bad in law and void ab initio, when such fact was brought to notice of A.O.
Modi Corp. Ltd. vs. JCIT (2007) — 162 Taxman 214 (Delhi)

8. Block Assessment — Notice — S. 158BC(a)

Any defect in the notice u/s. 158BC(a) is curable as it is a procedural irregularity. In such case the block assessment does not become null and void.

Smt. Krishna Verma vs. Asstt. CIT [107 ITD 1 (Delhi)(SB)]

9. Block Assessment — Penalty — S. 158BFA(2)

Levy of penalty u/s. 158BFA(2) is at the discretion of the A.O. Habibullah Kanyari vs. Dy. CIT [108 ITD 321 (Mumbai)]

10. Block Assessment — S. 158B(b)

It was held that in order to charge on income at higher rate, as undisclosed income for the block period, condition to be first satisfied is that the income which has not been, or would not have been disclosed should have been determined on basis of evidence found as a result of search or other documents.

ACIT vs. Mrs. Leena J. Sonawala (2007) — 162 Taxman 84 (Mumbai)

11. Book profit — Minimum Alternate Tax — S. 115JA

Amount transferred to “lease equalisation reserve” by a lessor was allowable as deduction.

Further applying the judicial principle that when there were two conflicting decisions, the view favourable to the assessee should be adopted the revenue appeal dismissed.

ITO vs. Pal Credit & Capital Ltd., ITA No. 7526/M/2004, Bench – F, A.Y. 1997-98, dt. 20-7-2007, BCAJ p. 679, Vol. 39-D, Part 6, September 2007.

12. Business Expenditure — S. 37(1)

Once the evidence proved that services were rendered, and when payees confirmed that commission was received, A.O. was not justified in disallowing assessee’s claim.

ACIT vs. Pushpsons International (2007) — 162 Taxman 42 (Delhi)

13. Business Expenditure — S. 43B

Deduction of tax, duty etc. is allowable u/s. 43B on payment basis before incurring the liability to pay such amounts.

Dy. CIT vs. Glaxo SmithKline Consumer Health Care Ltd. (2007) 110 TTJ 183 (Chd.) (SB)

14. Business Expenditure — Expansion of existing unit — S. 35D

Expenditure incurred in connection with expansion of existing unit treated as deferred revenue expenditure in assessee’s accounts was allowable in its entirety and S. 35D was not attracted.

ITW Signode India Ltd. vs. Dy. CIT (2007) 110 TTJ 170 (Hyd.)

15. Business Disallowance — S. 40A(3)

Where A.O. has made trading addition after rejecting books of account and applied G.P. rate, no separate addition u/s 40A(3) can be made.

J. K. Construction Co. vs. I.T.O. (2007) — 162 Taxman 46 (Jodhpur)

16. Business Loss — S. 28

In the original return filed, the loss of amalgamating company was claimed on estimated basis, since the amalgamation petition was pending before the High Court, as on the date of filing of the return and the accounts of amalgamating company could not be consolidated. On receipts of the order of the High Court approving the amalgamation, the assessee; i.e., the amalgamated company filed a revised return on the basis of consolidated accounts.

DCIT vs. Metazinc (I) Ltd., ITA No. 3335/B/2004, Bench – A, A.Y. 1990-91, dt. 30-3-2007, BCAJ p. 680, Vol. 39-D, Part 6, September 2007.

17. Capital Gain — S. 45

Receipt From sale of immovable property with imperfect title is chargeable as capital gains.

ITO vs. Rina B. Parwani (2007) 110 TTJ 460 (Pune)

18. Capital Gains — S. 48

The fair market value of the property has to be determined after considering host of cumulative factors including size, location and other special advantages/dis-advantages attached to the property.

Shankarlal Gupta vs. DCIT (2007) — 162 Taxman 209 (Jodhpur)

19. Capital Gain — Depreciated assets — S. 50

The assessee had sold, amongst others, a building wherein it had constructed industrial galas. The assessee claimed that the same was held stock-in-trade. On the sale the assessee suffered loss which was claimed as business loss. The Assessing Officer treated the same as “short-term capital loss” u/s 50. On Appeal, CIT(A) upheld the assessment order. Tribunal noted that no depreciation was claimed and advances were received on sale of galas. The Tribunal held that once an assessee has trading assets, and the assessee, for whatever reasons, sells the same in whatever form, the resultant profit or loss can only be treated as business profit/loss.
Magna Industries & Exports Ltd. vs. ITO, ITA No. 5337/Mum/2003, Bench – F, A.Y. 1999-2000, dt. 9-3-2007, BCAJ p. 545, Vol. 39-D, Part 5, August 2007.

20. Capital Gain — Exemption — Ss. 54 & 54F

Assessee sold a residential house and reinvested total sale consideration in purchasing two independently located flats and claimed exemption u/s. 54. But the exemption is held to be allowable in respect of either of the flats at the option of the assessee as the exemption is available in respect of investment in only one flat.

ITO vs. Ms. Sushila M. Jhaveri [107 ITD 327 (Mum)(SB).

21. Capital Gains — Computation — S. 45/50B

Provisions of section 50B inserted by the F. Act 1999 w.e.f. 1-4-2000 are retroactive in operation and will apply to all pending assessments of slump sale.

ACIT vs. Asea Brown Boveri Ltd. (2007) 110 TTJ 502 (Mum)

22. Charitable Trust — Registration — S. 12A r.w. S. 12AA

While disposing application u/s 12A, Commissioner has to examine only two aspects viz., the genuineness of the activities of the trust / institution, and “Object of the Institution’. Once there is no dispute about genuineness of activities, Commissioner cannot take shelter of any other outer source for refusing registration u/s 12A.

U.P. Awas Evam Vikas Parishad vs. I.T.O. (2007) — 162 Taxman 173 (Lucknow)

23. Circular Instructions to subordinate authorities — S. 119

Directions issued by the CBDT given by way of circular which are contrary to statutory provisions and adverse are not binding on assessee.

Asstt. CIT vs. Norasia Lines (Malta) Ltd. [107 ITD 301(Kochi)(SB)]

24. Deduction — S. 43B

The amendment to proviso made by the Finance Act, 2003 is retrospective in nature.

Precision Fasteners Ltd. vs. ACIT, ITA No. 5793/Mum/2004, Bench - C, A. Y. 1998 – 199, dt. 27-2-2007 - BCAJ p. 420, Vol. 39-D, Part 4, July 2007.

25. Deemed Dividend — S. 2(22)(e)

If an amount is advanced in ordinary course of its business, and when same has never been doubted by A.O., then invoking provisions of section 2(22)(e) is not justified.

DCIT vs. Lakra Brothers (2007) — 162 Taxman 170 (Chandigarh)

26. Dividend — Interest and management /overhead expenses out of inter corporate dividend — S. 80M

1. Deduction u/s. 80M is allowed on net dividend computed as per the provisions of sections 57 to 59 and not on gross dividend receipt.

2. Net dividend income is to be computed under the head “Other Sources” after deducting expenditure incurred for the purpose of earning, making or realizing dividend income and not after allowing expenditure on general commercial consideration.

Punjab State Industrial Development Corporation Ltd. vs. Dy. CIT [292 ITR 268 (AT) (Chandigarh) (SB)].

27. Exempted Income — Allowability of expenditure in relation to income not included in total income — S. 14

Only expenditure on the basis of assumption cannot be disallowed. For disallowing any expenditure u/s. 14A out of common expenditure on proportionate basis the A.O. has to prove the nexus between expenditure & income as to how such expenditure attributes to the earning tax free income. However, the burden of proof is on the A.O.
Wimco Seedlings vs. Dy. CIT [107 ITD 267 (Delhi)(TM)]

28. Export — Deduction — S. 80HHC

Export sale proceeds not realized up to extended period are includible in total turnover for computing deduction under section 80HHC.

ACIT vs. Ishar International (2007) 110 TTJ 882 (All)

29. Export — Deduction u/s. 80HHC vis-à-vis book profit u/ss. 115J, 115JA, and 115JB

Deduction u/s. 80HHC in MAT Scheme is from the taxable income under the scheme; i.e., from adjusted book profit as regular profit under the scheme is the book profit. In such case there is no option to go back to the normal computation of statutory profit which is computed under the regular provisions of law applicable to the computation of profits and gain of business or profession.

Dy. CIT vs. Syncome Formulation (I) Ltd. [292 ITR 144 (AT) (Mumbai) (SB)]

30. Export — Exemption — S. 10A

The assessee was a firm. During its existence as a firm it was in export of software and claiming deduction u/s 80HHE. During the year the assessee registered itself as a company and later got registered as STP unit and claimed deduction u/s. 10A for the first time. The claim was rejected by the A.O. on the ground that conditions of sections 10A(2)(ii) and (iii) were not fulfilled and further assessee was also hit by section 10A(9).

The CIT(A) allowed the appeal. The Tribunal agreed with the CIT(A) that conversion of a firm into a company was not a transfer as held by Bombay High Court in case of Texspin Eng (263 ITR 345). Therefore, there was no violation of any condition of sections 10A(2)(ii) and (iii).

ITO vs. Foresee Information Systems Pvt. Ltd., ITA No. 3014/Bang/2004, 1363-1364/Bang/2005, Bench–A, A.Ys. 2002-03 to 2004-05, dt. 16-3-2007 - BCAJ p. 422, Vol. 39-D, Part 4, July 2007.

31. Export — Exemption — S. 10B

Exemption u/s 10B in respect of 100% export – oriented unit. One out of three units eligible. The section does not require the maintenance of separate books of account in order to be eligible for exemption

DCIT vs. Arabian Exports Ltd., ITA No. 3535 and 3536/Mum/2003, Bench - G, A. Ys. 1997-98 and 1998-99, dt. 12-3-2007 - BCAJ p. 421, Vol. 39-D, Part 4, July 2007.

32. Housing project — Deduction — S. 80-IB(10)

Project consisted of residential units where the individual flat size varied between 800 sq. ft. and 3,000 sq. ft. The Tribunal noted that the provisions of section 80-IB(10) do not provide for denial of deduction, if a housing complex contains both, the smaller and larger residential units. Hence the assessee allowed deduction computed on proportionate basis.

ACIT vs. Bengal Ambuja Housing Development Ltd., ITA No. 1735/Kol/2005, Bench–C, A.Y. 2002–03, dt. 24-3-2006, BCAJ p. 546, Vol. 39-D, Part 5, August 2007.

33. Income — Subsidy — S. 4

Subsidy received by way of reimbursement of expenses incurred on the purchase of raw material and on transportation of finished goods is a revenue receipt.

ACIT vs. Steel Strips Ltd. (2007) 110 TTJ 66 (Chd.)

34. Industrial undertaking — S. 80-IB

The assessee getting its manufacturing of jewellery under the control and supervision of its employees is an industrial undertaking eligible for deduction under section 80IB.

CIT vs. Tribhuvandas M.P. Jhaveri (2007) 110 TTJ 942 (Mum)

35. Industrial undertaking — Telecommunication — S. 80-IA

Telecommunication services through earth station were not eligible for deduction under section 80-IA.

VSNL vs. CIT (2007) 110 TTJ 948 (Mum) (SB)

36. Interest — u/ss. 234B and 234C vis-à-vis deemed income u/s. 115JA

Interest u/ss. 234B and 234C cannot be charged on the income determined by invoking section 115JA.

Escapade Resorts (P.) Ltd. vs. Asstt. CIT [107 ITD 323 (Kochi)]

37. Land & building — Capital gains — S. 48 r.w. S. 49

On sale of two assets viz., land & building, by a composite agreement for a composite consideration, assessee has right to segregate consideration amongst two assets and compute respective capital gains.

ACIT vs. Yamuna Syndicate Ltd. (2007) – 162 Taxman 167 (Chandigarh)

38. Minimum Alternate Tax — Book Profit — S. 115JB

Deferred tax and dividend distribution tax were allowable as deduction. Deferred tax charge was a provision for tax effect of difference between taxable income and accounting income and not the provision for income tax paid or payable and therefore, could not to covered under Explanation (a) to section 115JB(2). Deferred tax cannot be treated as ‘Reserve’ within the meaning of clause (b) of explanation to section 115JB(2). It cannot be considered as ‘unascertained liability’ within the clause (c) of explanation to 115JB(2).

ACIT vs. Balrampur Chini Mills Ltd., ITA No. 1237/Kol/2006, Bench-A, A.Y. 2004-05, dt. 9-3-2007, BCAJ p. 678, Vol. 39-D, Part 6, September 2007.

39. Minimum Alternative Tax — S. 115JA r.w. S. 154

A.O. has limited power of increasing or reducing the books profit, and cannot go behind the net profit shown in Profit & Loss Account except to extent provided in explanation to section 115 JA(2), and cannot invoke power u/s 154.

Asian Diet Products Ltd. vs. DCIT (2007) — 162 Taxman 210 (Delhi)

40. New industrial undertaking — Deduction — Ss. 80HH/80-I

Assessee earned profit from one unit and suffered loss from another. Deduction under sections 80HH & 80-I will be available in respect of unit having profits but deduction cannot exceed gross Total income.

DCIT vs. Ruchira Papers Ltd. (2007) 110 TTJ 883 (Chd.)

41. Penalty — Concealment — S. 271(1)(c)

A.O. brought the income to tax by independently referring to evidence gathered by him, and levied penalty, and did not consider the conditional surrender. Held, assessee’s contention that penalty cannot be imposed having accepted the surrender was without force.

Giri Raj Gupta vs. I.T.O. (2007) — 162 Taxman 81 (New Delhi)

42. Penalty — Tax Audit — Ss. 44 AB/271B

Activities of nursing home constituted business and not profession. Therefore, receipts from such business being below 40 lakh section 44AB was not attracted consequently penalty under section 271B was not leviable.

Shalini Hospital vs. ACIT (2007) 110 TTJ 690 (Hyd.)

43. Presumptive taxation — Civil construction contract — S. 44AD r.w. S. 145

It was held that once having applied the principles enunciated in section 44AD, and having applied net profit rate, there cannot be separate addition in respect of closing stock.

I.T.O. vs. Modern Decorators (2007) — 163 Taxman 46 (Delhi)

44. Reassessment — Income escaping assessment — S. 147

Re-opening of Assessment made on appraisal of same set of facts available at time of original assessment, would amount to mere change of opinion, and same is impermissible even under provisions of amended section 147.

ACIT vs. Yamuna Syndicate Ltd. (2007) — 162 Taxman 167 (Chandigarh)

45. Refund — S. 239

For the years under appeal the assessee had not filed return of income u/s 139(1) or u/s 139(4). Return was filed in response to notice u/s 148. While the A.O. allowed the credit for prepaid taxes as per the law, he refused the refund of excess taxes paid, holding that same was not allowable u/s 239. The CIT(A) upheld the order. The Tribunal referring to the provisions of section 240, held that a refund becomes due to an assessee as a result of any order passed in appeal or other proceedings under the Act. The phrase “other proceedings” used in section 240 was of wide amplitude to cover any order passed in proceedings other than appeals under the Act. Hence assessee was entitled to refund of excess taxes paid.

Claridge Hotels Pvt. Ltd. vs. ACIT, ITA Nos. 4250 to 4252/Del/2004, Bench - E, A. Ys. 1999-2000 to 2001-02, dt. 13-10-2006 - BCAJ p. 421, Vol. 39-D, Part 4, July 2007.

46. Refund — S. 244A

The assessee paying tax in consequence of an order passed u/s 195. On appeal, CIT(A) held that tax not payable and ordered refund thereof. The assessee claimed that it was also entitled to interest as provided u/s 244A. However, A.O. and CIT(A) refused the interest on refund. The Tribunal allowed the appeal and granted interest on refund. Clause (b) of section 244A(1) very categorically provided that interest shall be paid on any refund, arising because of payment of tax ‘in any other case’.

Tata Chemical Ltd. vs. DCIT, ITA Nos. 3531 & 3532/Mum/2005, Bench – K, A.Ys. 1997-98, dt. 28-6-2007, BCAJ p. 681, Vol. 39-D, Part 6, September 2007.

47. Residential status — S. 6(3)(ii)

Control and management means central control and management and not carrying on of day-to-day business. If a slightest control and management of the company is exercised from outside India it would not fall within the ambit of S. 6(3)(ii) and the company would be treated as a non-resident.

Radha Rani Holding (P) Ltd. vs. Addl. Dir. of IT (2007) 110 TTJ 920 (Del)

48. Revised return — S. 139(3)

During the course of assessment proceedings, the assessee claimed by filing revised return long-term capital loss. Applying the provisions of section 139(3), the A.O. rejected the claim. The Tribunal noted that the original return as well as the revised return had been filed within the time limit and hence allowed the appeal

Harileela Investrade Pvt. Ltd. vs. ITO, ITA

No. 2946/Mum/2004, Bench – I, A.Y. 2001-02, dt. 25-4-2007, BCAJ p. 681, Vol. 39-D, Part 6, September 2007.

49. Revision — S. 263

It was held that if a reasonable view has been adopted by an A.O., then order passed by Commissioner u/s 263, disturbing that view is liable to be set aside.

The Commissioner gets revisional power u/s 263 where assessment order is erroneous and prejudicial to the interest of revenue. The twin conditions are required to be satisfied simultaneously.

J. K. Construction Co. vs. I.T.O. (2007) — 162 Taxman 46 (Jodhpur)

50. Revision — S. 263 r.w. S. 80HHC

If A.O. allows the claim, on being satisfied with the explanation of assessee, on an enquiry made during the course of Assessment Proceedings, the decision of A.O. cannot be held to be erroneous, on ground that there is no elaborate discussion in that regard in the order. It is the practice that whenever any claim of the assessee is accepted, A.O. may not discuss the same in his order.

Anil Shah vs. ACIT (2007) — 162 Taxman 39 (Mumbai)

51. Speculation — Losses — S. 73

Loss incurred by assessee share broker due to client’s disowning the transaction or refusing to accept the delivery, cannot be treated as speculation loss, so as invoke provisions of explanation to section 73, and such loss cannot denied to be set-off against other business income.

I.T.O. vs. JPS Share Brokers (P) Ltd. (2007) — 163 Taxman 89 (Delhi)

52. Speculation — S. 73

Assessee, a share broker, had purchased shares in an earlier year and held as stock-in-trade and during the year, the same was carried forward. Interest paid on loan taken against the said shares claimed against income from brokerage. The Assessing Officer treated interest paid as speculation loss. According to the Tribunal, Explanation to section 73 applies where any part of the business of an assessee consists of purchase and sale of shares, and not purchase alone. Hence the loss is not speculation loss.

Pioneer Equity Trade (India) Pvt. Ltd. vs. ITO, ITA No. 6935/Mum/2005, Bench – A, A.Y. 2002-03, dt. 10-4-2007, BCAJ p. 547, Vol. 39-D, Part 5, August 2007.

53. Transfer Pricing — Reference to Transfer Pricing Officer u/s. 92CA for computation of arm’s length price u/s. 92C

1. Under Chapter X there is no legal requirement, prima facie, that the A.O. should demonstrate any tax avoidance before invoking provisions of section 92CA.

2. There is no requirement on the A.O. to demonstrate as to whether any one or more circumstances as set out under section 92C(3) (a), (b), (c) and/or (d) are satisfied before a case is transferred to the Transfer Price Officer u/s. 92CA.

3. There is no requirement to record any reason/opinion before seeking previous approval of the Commissioner u/s. 92C(3).

4. The A.O. is not required to give any opportunity of hearing before making reference to the Transfer Price Officer u/s. 92CA(1).

Aztech Software & Technology Services Ltd vs. Asstt. CIT [107 ITD 141 (Bang) (SB)].

54. Winning a car on the basis of scratch card — S. 2(24)(ix)

Winning a car under the scheme, under which a purchaser is given a scratch card, is taxable as per the Explanation (i) to the section 2(24)(ix) as winning from lottery. The value of car is taxable as such as the purchase price under the scheme included payment for the chance to win a prize in the scratch card.

D.N. Thakur vs. ITO [292 ITR 382 (AT) (Chandigarh)]