Assessment — Estimation of income — S. 145
Where no fault was found with the books of account maintained by the assessee
or the method of accountancy employed by the assessee and there was no
suppression of material facts in the accounts. It was held that, the A.O.
cannot embar upon speculative assessment of notional profit.
Shri Pyarelal Mittal vs. Asstt. CIT — [(2007) 197 Taxation 186 (Del)]
Assessment — Fresh assessment — Ss. 142, 153
Fresh assessment consequent to Appellate order. Assessment order must be
passed before expiry of two years.
The appellant filed return of income for the A. Y. 1990-91 by declaring income
at Rs. 1,14,294/-. The appellant also filed an application u/s. 184 of the Act
for treating the firm as registered firm.
However, Assessing Officer framed the assessment in the status of an AOP and
assessed income at Rs. 1,96,689/-.
The appellant preferred appeal to CIT(A). On 24-7-1992, the CIT(A) annulled
the assessment holding that no assessment could be framed against the
appellant and directed the Assessing Officer to pass a fresh order of
assessment. Department filed second appeal to ITAT. Before ITAT disposed of
the said appeal, Assessing Officer issued notice u/s. 142(1) of the Act
required appellant to file return in the status of AOP and claimed that it was
a registered firm. On January 18, 1993 Assessing Officer passed a fresh order
treating the firm as AOP after rejecting the claim of the appellant to be a
registered firm.
The issue was taken up before the Hon’ble High Court by the appellant on the
ground that the Assessing Officer was not justified in passing fresh
assessment till the appeal before ITAT was pending.
High Court held that Assessing Officer was right in passing fresh assessment
within the time limit prescribed under section 153(2A) of the Act and he was
not supposed to wait till the Tribunal decided Department’s appeal on 4th
April, 1997. The question was answered in favour of the revenue.
Bhatia Motor Stores vs. CIT (2007) 288 ITR 31 (MP)
Assessment — Service of Notice — S. 143(2)
Where the assessee was neither able to produce the envelope in which, the
notice issued by the department u/s. 142(2) was sent to the assessee nor the
assessee was able to produce a certificate from the post office about the
delivery of the notice to him. Under these circumstances, the High Court held
that the assessee had failed to discharge the onus of its claim that the
notice
u/s. 143(2) was served upon him after the period of limitation prescribed
under the act and such, held that the notice was validity served on the
assessee within time.
CIT vs. Shankarlal Ved Prakash — [(2007) 197 Taxation 58 (Del)]
Asset — Wealth Tax — Agricultural land —
S. 2(m)
If the land is recorded as agricultural, it would continue to be agricultural
land. If somebody, buys the land for a higher price and thereafter, changes
the use for the first holder the property would not change its character so
long as he himself does not change the use or put the land to some other use
after getting the conversion of use from the competent authority/officer. The
agricultural land’s price would not be deciding factor for concluding that the
land in dispute is agricultural or non-agricultural and even if it remains
barrier or uncultivated for some time and even grass only is raised on the
land, it would continue to be an agricultural land.
CWT vs. Shashiben (2007) 288 ITR 319 (Guj.)
Audit — Special Audit — S. 142(2A)
Where the Assessing Officer after elaborating considering the details and
material and after applying his mind ordered for special audit of accounts of
the assessee u/s. 142(2A) of the Act. Such decision of the A.O. according to
the High Court, considering the complexity of the assessee’s case was not
considered to be, whimsical or punitive or arrived at in a mechanical manner.
M/s. Sahara India Investment vs. CIT — [(2007) 197 Taxation 70 (Del)]
Audit Report — Delay in Filing Audit Report — Penalty — Ss. 271B, 273B
The appellant company filed its tax audit report late because it did not get
its Audit Report from Branch Office in USA in time. The learned Assessing
Officer levied penalty under section 271B of the Income-tax Act, 1961. The
said penalty order was confirmed by the CIT(A).
The appellant company filed Second Appeal to ITAT which cancelled the said
penalty because according to ITAT the appellant company had reasonable cause
for not filing the complete Audit Report in time since it did not get from its
Branches which were in USA and hence, penalty under section 271B of the Act
was not leviable.
CIT vs. Data Software Research Co. P. Ltd.
(2007) 288 ITR 289 (Mad.)
Audit Report — Delay in filing Audit Report — Penalty — Need not be
initiated before completion of assessment — S. 271B
The appellant filed its return of income for the A. Y. 1988–89 on 30th August,
1988 showing a loss of Rs. 5,38,710/-. The Assessing Officer accepted the said
return under section 143(1) of the Act, determined loss at Rs. 5,38,710/- and
closed the proceedings by refunding the advance tax paid.
Subsequently, after one and half years, the Assessing Officer issued notice to
the appellant to show cause as to why penalty under section 271B of the Act
should not be imposed for its failure to submit the audit report in time.
The appellant in its reply showed the reasons for not filing Audit report in
time. However, it was not accepted by A. O. and he levied penalty of
Rs. 1,00,000/- under section 271B of the Act. Before the learned CIT(A),
appellant took a plea that since the penalty proceedings were not initiated
before the assessment got completed, and hence, they were bad in law. The
learned CIT(A) accepted the said plea and allowed the appeal. However,
aggrieved by the said order, department filed second appeal to ITAT which
reversed the said order of CIT(A) by holding that provisions of section 271B
do not provide for initiation of the penalty proceeding during the pendency of
the assessment proceeding and such a proceeding could be initiated even after
the completion of the assessment.
The Hon’ble High Court upheld the view of the ITAT since the proceedings were
initiated within two years from the date of assessment.
Assam Stock Warehousing Corporation vs. CIT (2007) 288 ITR 25 (Guwahati)
Bad debts — Provisions for bad debts — Mat — S. 115ja
The provision made for doubtful and bad debt cannot be disallowed for the
purposes computing book profit under section 115JA.
CIT vs. Eicher Ltd. [2007] 159 Taxman 293 (Delhi)
Binding precedent
A Division bench of a High Court is fully bound by the view taken by a larger
Bench of the Court, regardless of the fact that another High Court prefers a
different view.
KLM Royal Dutch Airlines vs. Asst. Dir. of IT 208 CTR 83 (Del.)
Block assessment — Assessment of Third person — Permission to cross
examine not allowed — Principles of natural justice violated — Assessment not
valid — S. 158BD
A search was conducted in the premises of Mr. A on 3-8-2000 on which date
various documents and books of account were seized.
On the basis of the documents and the statements of Mr. A block assessment was
made in the hands of Mr. A on 29-8-2002 under section 158 BC of the Income-tax
Act.
Subsequently, the block assessment proceedings were initiated against the
assessee and completed on 28-11-2004 under section 158BD of the Act.
During the assessment proceedings, the assessee requested the Assessing
Officer time and again to permit him to cross-examine Mr. A on the basis of
whose statement proceedings had been launched. However, the said request was
not acceded to by the learned Assessing Officer and later on in appeal before
ITAT it was found that it was in complete violation of the principles of
natural justice. Since Assessing Officer was functioning as a quasi-judicial
authority and was under an obligation to adhere to the principles of natural
justice.
The Hon’ble High Court upheld the same view of the ITAT.
CIT vs. SMC Share Brokers (2007) 288 ITR 345 (Delhi)
Business expenditure — A. Y. 1993-94 — Gifts to dealers — S. 37(1)
Amount spent on distribution of gift articles to dealers by assessee, promotes
goodwill and enhances its business interests, and therefore, said expenditure
would certainly fall within ambit of expenditure for business consideration
and same is allowable.
CIT vs. Avery Cycle Inds. Ltd. [2006] 157 Taxman 382 (Punj & Har.)
Business expenditure — Capital or revenue — Expenditure on upgrading
computers — Revenue expenditure — S. 37(1)
The assessee only claimed the expenditure for up gradation of existing
computers. The said expenditure was incurred for impressing the efficiency of
the existing system with a view to keep pace with improvement of technology
and no machinery was brought into existence. Such expenses incurred by the
assessee for enhancement of efficiency.
The High Court upheld ITAT’s view after relying on 177 ITR 377 (SC) and B. P.
Australia Ltd. vs. CIT (1996) AC 224 (PC).
CIT vs. Southern Roadways Ltd. (2007) 288 ITR 15 (Mad.)
Business expenditure — S. 37
For the A.Y. 1995-96 the Assessing Officer had treated the route permit fees
paid by the assessee as a capital expenditure. The Tribunal following its
decision for A.Y. 1981-82 in assessee’s own case held that it was revenue
expenditure. Before the High Court it was contended by the revenue that in the
immediately preceding year the assessee himself had treated the route permit
fee expenses as capital expenditure. The High Court observed that as the
revenue had not challenged the order of the Tribunal for A.Y. 1981-82 before
the High Court. Further, no pleading with regard to change in circumstances
was raised before the Tribunal in the revenue’s appeal. Therefore, the High
Court following the Apex Court decision in the case of Radha Soami Satsang vs.
CIT (1992) 193 ITR 321, dismissed the revenue’s appeal.
CIT vs. Pepsu Road Transport Corporation — [(2007) 196 Taxation 125 (P & H)].
Business expenditure — S. 37(3A)
Commission reimbursed to distributors which were in turn paid by them to sales
representative, was held not to be covered u/s. 37(3A) of the Act, as the
commission paid to sales representative is for services rendered and not a
sales promotion expenses.
CIT vs. Lakhan Pal National Ltd. — [(2007) 196 Taxation 201 (Guj)]
Business expenditure — S. 39
Amount claimed by way of a deduction on account of leave encashment. The said
deduction was not claimed in return. Whether subsequent judgment of the Apex
Court can be applied retrospectively for allowing the said deduction.
The assessee Co. did not claim in its return of income the claim of leave
encashment as an expenditure for the purpose of business and the assessment
was completed u/s. 143(3) of the Income-tax Act, 1961.
Later on, the Supreme Court delivered judgement in favour of the assessee in
the case of Bharat Earth Movers vs. CIT that the said claim of leave
encashment is an allowable deduction.
Subsequently, assessee Co. files a revision petition u/s. 264 of the
Income-tax Act, 1961 before CIT, since the time limit for the same was not
expired.
The learned CIT allowed the said claim but he dismissed the said petition on
the ground that the ratio laid down by the Supreme Court, subsequent to the
assessment of the assessee’s case cannot be applied retrospectively.
Assessee filed writ before High Court who ultimately applied Supreme Court’s
judgment and held that as on the date of delivery of the apex court decision,
the assessee’s case was pending before CIT and hence ratio of apex court can
be applied.
Jayshree Tea and Industries Ltd. vs. CIT (2007) 288 ITR 386 (Cal.)
Business Income — S. 37(3A)
Expenditure incurred on payment of commission on sales to agents and dealer
cannot be treated as sale promotion expenses and therefore cannot be taken
into account while computing the disallowance u/s. 37(3A) of the Act.
CIT vs. Arundata Mills Ltd. — [(2007) 196 Taxation 203 (Guj)]
Capital or Revenue Expenditure
Admission fees paid to become member of Stock Exchange and contribution made
to infrastructure development fund floated by Stock Exchange — As payments
made in order to exclusively carry on the business on the floor of stock
exchange – Held, the same is to be treated as Revenue Expenditure and hence,
allowable.
CIT vs. Venkatasubramanian 207 CTR 88 (Mad)
Cash credit — S. 68
Where the Assessing Officer during the course of assessment proceedings found
that the person who had given loan to the assessee was small time
agriculturist and the Assessing Officer also found that one of the partners of
the assessee firm had given the loan creditor money which he deposited in his
bank and thereafter, loan was given by him to the firm. Under these
circumstances the High Court held that cash credit was non – genuine.
Gujarat Fertiliser vs. CIT — [(2007) 196 Taxation 187 (Guj)]
Chartitable Trust — Trust provides medical help, education and relief to
poor — Small amounts given to devotees of particular deity — Immaterial —
Trust is charitable — S. 2(15)
The assessee was a registered trust under the Bombay Public Trust Act. The
said Trust provided education, medical facilities, feeding of the poor and
propagation of philosophy etc. The said trust was granted exemption under
section 80G of the Act since 1985 till 1991.
However, when later on trust applied for renewal of its exemption, the claim
was rejected on two grounds (1) the trust was for identified beneficiaries and
not for public at large (2) the trust was more for its private charity and the
benefits if any, to the public were incidental and insignificant.
The said Trust had given small amounts on monthly basis to some of the
devotees and hence, it was concluded by the Assessing Officer that all the
beneficiaries were identifiable.
On writ, High Court held that it was immaterial if some of the devotees were
given cash assistance for holding trust as charitable. What is to be seen is
that in the earlier assessments of this very trust, the objection of the trust
were accepted and assessment orders had been passed even after 1992 to the
effect that the trust was a public charitable trust. The order of Assessing
Officer was invalid and was liable to be quashed.
S. S. Nayak vs. DIT (2007) 288 ITR 79 (Bom.)
Clubbing of income — S. 64
Where certain ornaments and movable properties were bequeathed to minor’s by
virtue of a will. The A.O. treated the case, as creation of trust by way of
will and clubbed the income under Explanation 2A of section 64(i)(iii) of the
Act. On appeal the High Court held that no trust was ever created by the
testator under the will and as such, such income cannot be clubbed u/s. 64 of
the Act.
CIT vs. Abdul Gafar A. Mistri — [(2007) 196 Taxation 255 (Guj)]
Definition — Higher rate of depreciation on vehicles run on hire
The Assessee cannot be denied higher rate of depreciation on the cars given on
hire to the customers using the Assessee’s hotel services on the ground that
the dominate business of the Assessee is of running hotels.
CIT vs. Lake Palace Hotels and Motels (P.) Ltd. [2007] 159 Taxman 320 (Raj.)
Export — Deduction — S. 80HHC
Duty drawback and cash compensatory support — Whether to be considered as
export profit in order to confer benefit of deduct in u/s. 80HHC to the
assessee in spite of fact that the Assessee has not made any export during the
relevant year — Held, no.
CIT vs. B. Desraj 207 CTR 81 (Mad)
Interest income for the purpose of explanation (baa) to section 80HHC — It is
the gross interest received which is to be considered and not net interest.
CIT vs. Liberty Footwear Company 207 CTR 185 (P & H)
Profits of business — implication of clause (baa) of Explanation to section
80HHC for exclusion of gross interest or net interest where interest income is
treated as business income – Held, the amount of interest to be reduced is the
net interest that is gross interest less expenditure incurred for the purpose
of carrying such interest.
CIT vs. Shri Ram Honda Power Equip. & Ors. 207 CTR 689 (Del.)
Interest income, export incentive, sales in India, octroi refund did not form
part of total profits for the purposes of total turnover and also as
qualifying profit u/s. 80HHC of the Act.
CIT vs. Gaskets & Radiators Distributors — [(2007) 196 Taxation 205 (Del)]
Firm — S. 184
The Assessing Officer adopted the status of the assessee as that of an A.O.P.
on the ground that the books of account have not been maintained by the
assessee. On appeal, the High Court held that since the conditions laid down
u/s. 184 of the Act were fulfilled by the assessee the firm is eligible to be
assessed in the status of a firm.
CIT vs. Zhilmil Vaishno Dhaba — [(2007) 196 Taxation 127 (P & H)]
Income — Heads of income — S. 14
Where due to a dispute between the director’s of the company the High Court
ordered that the factory building of the assessee could not be used for
business. The building was leased out. The A.O. taxed the income from leasing
of the building under the head Income from House Property as against income
from business or profession, as declared by the assessee. On appeal the High
Court, held that due to some compelling circumstance the business asset of the
assessee was not put to use for which it was established, in the meanwhile the
lease rental received by the assessee from exploitation of business asset, by
the assessee should be treated business income and not income from house
property of the assessee.
CIT vs. Hagochi Chemicals P. Ltd. — [(2007) 196 Taxation 171 (Guj)]
Industrial undertaking — Deduction — S. 80-I
Where the assessee was running banquet hall and marriage place, and catering
activities were just ancillary and not main business of the assessee. The High
Court following the judgment of the Apex Court in the case of Indian Hotels
Co. Ltd. vs. ITO – [(2000) 245 ITR 538 held that the assessee was not eligible
for deduction u/s. 80I of the Act.
Vijay Kiran Hotels P. Ltd. vs. CIT — [(2007) 196 Taxation 336 (P & H)]
Interest — Tax Deducted at Source —
S. 201(1A)
Period for which interest can be charged under section 201(1A) is ‘from date
on which such tax was deductible to the date on which such tax is actually
paid’ and, consequently, no interest beyond date of actual payment of tax can
be charged. Section 201 does not state that tax should have been paid by
assessee (deductor) alone, and tax may actually be paid by assessee or
deductee.
CIT vs. Adidas India Marketing P. Ltd. [2006] 157 Taxman 519 (Delhi)
Interest — Waiver or reduction of interest —
Ss. 220(2), 234A, 234B and 234C
Presence of unavoidable circumstances such as the assessee was taken into
custody, books impounded by the CID, assessee’s mother has been granted
benefit of waiver of interest on the same set of facts – Therefore, the
impugned order of Chief CIT declining to grant waiver are set aside for fresh
examination.
Rafique A. Malik vs. Chief CIT. 207 CTR 537 (Bom.)
Interpretation taxing statute
Interpretation as to the presumption of retrospectivity — In the absence of
any express mention, an amending provision cannot be implied to have greater
retrospectivity than what is expressly stated
Virtual Soft Systems Ltd. vs. CIT 207 CTR 733 (SC)
Investment allowance — S. 32A
Mining and excavation of lignite amounts to production and the assessee was
entitled to investment allowance u/s. 32A of the Act.
M/s. General Contracts Co. vs. CIT — [(2007) 197 Taxation 221 (Guj)]
Investment allowance — Job work — S. 32A
The assessee, who is carrying on the manufacturing activity on job work basis
is eligible to claim investment allowance on it’s plant and machinery.
Chief Commissioner vs. Rohelkhand Foods (P.) Ltd. [2006] 157 Taxman 379 (All.)
Investment allowance — Ultra sound machine — S. 32A
Assessee, who is running nursing and maternity home, is entitled to investment
allowance with reference to ultra sound machine.
CIT vs. R. M. Malhotra [2006] 157 Taxman 37 (All.)
Investment allowance — Plant — S. 32A
Calculators, water coolers, factory cleaning machines etc. used at factory
premises can be termed as plant and investment allowance is allowable on the
same.
Associated Bearing Co. Ltd. vs. CIT [2006] 157 Taxman 28 (Bom.)
Liability of a Trust vis-a-vis its assessment
Validity of a Deed of Trust executed with a prior date to the date mentioned
on the Stamp Paper which was purchased in the name of a third party — Held, no
valid trust had come into existence based on the alleged Deed and the income
had to be assessed to tax at the rates applicable to AOP.
Hemesh Family Trust vs. CIT 207 CTR 99 (Guj.)
Penalty — S. 271(1)(c)
Erroneous claim of deduction — As there was no concealment of primary facts,
the Assessee is not liable for penalty u/s. 271(1)(c)
CIT vs. International Audio Visual 208 CTR 328 (Del.)
CIT vs. Nath Bros. Exim International 208 CTR 326 (Del.)
Penalty — Revised returns — S. 271(1)(C)
When an assessee files a revised returns showing higher income and gives an
explanation that he offered higher income to buy peace of mind and avoid
litigation, penalty cannot be imposed merely on account of higher income
having been subsequently declared.
CIT vs. Suraj Bhan [2007] 159 Taxman 26 (Puj & Har.)
Reassessment
Notice issued after expiry of four years not amounting to charge of opinion by
the Assessing Officer who had accepted the claim of the assessee u/s. 80-O and
had processed the return u/s. 143(1)(a) on the basis of details furnished by
assessee. Notice u/s. 148 cannot be said to be merely on the change of
opinion. But since the assessee had made true and full disclosure of facts for
claiming deductions, the issue of notice after four years is wholly illegal
and beyond jurisdiction since there was no reason to believe that the alleged
claim of the assessee is false.
Universal Subscription Agency (P) Ltd. vs. Jt. CIT 207 CTR 62 (All)
Validity thereof – On the basis of third party statements, reassessment
preceding was re-opened — In spite of specific request made to cross examine
the said party, the Assessing Officer did not heed to the request – Held, the
reassessment is not valid.
CIT vs. Pradeep Kumar Gupta 207 CTR 115 (Del.)
Reassessment — Change of opinion
Reopening of assessment on a change of opinion and on the premise that there
is hardly any activity of branch office to allow the claim of expenses in
spite of fact that the expenses had been consistently allowed for several
decades – Held, the reassessment is invalid.
Vijaykumar M. Hirakhanwala (HUF) vs. ITO. 207 CTR 345 (Bom.)
Reassessment — Issue of notice — Without concluding the original
assessment proceedings — S. 148(1)
The Assessee filed returns in response to notice under Section 148(1). The
Assessment proceedings were initiated by issuing a notice Under Section
143(2). Without passing an order, another notice Under Section 148(1) was
issued. The Hon’ble Court held that pending the assessment proceedings no
notice under Section 148(1) can be issued. It is not permissible to invoke
provisions of Section 147 to enlarge the time available for framing the
assessment.
KLM Royal Dutch Airlines vs. ADIT [2007] 159 Taxman 191 (Delhi)
Reassessment — Reasons recorded to issue Notice — Objections — S. 148(1)
The Assessee files objections against the issue of notice under section
148(1). The A.O. has to dispose of such objections by passing a speaking order
before proceedings with assessment.
Smt. Kamlesh Sharma vs. B. L. Meena, ITO [2007] 159 Taxman 330 (Delhi)
Revision — S. 267
On the basis of examination of records, the Assessing Officer had taken a
possible view – Mere audit objection and merely because, a different view
could be taken are not enough to hold that the original assessment order is
erroneous or prejudicial to the interest of the Revenue.
CIT vs. Sohana Woollen Mills 207 CTR 178 (P & H)
When two views are possible upon an issue, it is not the case of CIT to hold
that the view taken by Assessing Officer is not possible to accept or
incorrect — Held, the CIT cannot invoke the jurisdiction us/. 263.
CIT vs. Mepco Industries Ltd. 207 CTR 642 (Mad)
Search and Seizure — S. 132
Computation of undisclosed income — Mere retraction of statement is not
enough, but before arriving at the conclusion, the Appellate Tribunal had
considered all the relevant materials to reach its conclusion on the
undisclosed income on the alleged amount invested in the construction of house
property — The finding of fact can’t be brushed aside.
CIT vs. Ashok Kumar Soni 207 CTR 188 (Raj.)
Tax Deduction at Source — S. 194C
Where the assessee who was in the business of freight forwarding had made
payment to non resident shipping companies or their Indian agent covered under
section 172 of the Act. These payments made to the shippers or their agents
was held not amenable to T.D.S. by the High Court.
CIT (T.D.S.) vs. Continental Carriers P. Ltd. — [(2007) 197 Taxation 137
(Del)]
Taxation Laws Amendment Act, 2005 — Ss. 3 & 4
Where various writs were pending in various High Courts challenging the
constitutional validity of sections 3 and 4 of the Taxation Laws (Amendment)
and most of the petitions were transferred to the Hon’ble Supreme Court, under
these circumstances, the High Court found it fit to restrain the respondent
from giving effect to the provisions of Act till further orders.
Bhartiya International Ltd. vs. U.O.I. & Anr. — [(2007) 197 Taxation 123
(Del)]
Transfer Pricing — Reference To Transfer Pricing Officer — S. 92ca
The A.O. is not bound by the arm’s length price as determined by the Transfer
Pricing Officer. He can always be persuaded by the assessee at that stage to
reject the TPO’s report and still proceed to determine arm’s length price
himself.
Sony India (P.) Ltd. vs. CBDT [2006] 157 Taxman 125 (Delhi)
Wealth — S. 4
The assets of the trust created through the income of the assessee, in respect
of which the assessee had no power of disposition or transfer cannot be
included in the net wealth of the assessee.
CIT vs. Mahendrabhai D. Parmar — [(2007) 196 Taxation 213 (Guj)]