1. Document – contents of memory-card/pen-drive would be a “substance” – Hence, contents of memory-card would be a “document” : Evidence Act, Ss. 3, 65-B ; Information Technology Act of 2000, S. 2(1)(t)

Video footage/clipping contained in memory card/pen drive being an electronic record as envisaged by Section 2(1)(t) of the 2000 Act, is a “document” and cannot be regarded as a material object. An electronic record is not confined to “data” alone, but it also means the record or data generated, received or sent in electronic form. The expression “data” includes a representation of information, knowledge and facts, which is either intended to be processed, is being processed or has been processed in a computer system or computer network or stored internally in the memory of the computer. On a bare reading of the definition of “evidence”, it clearly takes within its fold documentary evidence to mean and include all documents including electronic records produced for the inspection of the Court. This provision is reiteration of the legal position that any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be a “document” and shall be admissible in evidence subject to satisfying other requirements of the said provision. Considering the 42nd and 156th Law Commission Reports, it can be concluded that the contents of the memory card would be a “matter” and the memory card itself would be a “substance” and hence, the contents of the memory card would be a “document”.

P. Gopalkrishnan @ Dileep v. State of Kerala and Anr, : AIR 2020 Supreme Court 1

2. Public Prosecutor – Role discussed: Cr.P.C. (2 of 1974), Ss. 301, 302, 24(8), Proviso, 2(wa) (as inserted by (Amendment) Act 5 of 2009)

In criminal justice system, the Public Prosecutor occupies a position of great importance. Given that crimes are treated as a wrong against the society as a whole, his role in the administration of justice is crucial, as he is not just a representative of the aggrieved person, but that of the State at large. Though he is appointed by the Government, he is not a servant of the Government or the investigating agency. He is an officer of the Court and his primary duty is to assist the Court in arriving at the truth by putting forth all the relevant material on behalf of the prosecution. While discharging these duties, he must act in a manner that is fair to the Court, to the investigating agencies, as well to the accused. This means that in instances where he finds material indicating that the accused legitimately deserves a benefit during the trial, he must not conceal it. The space carved out for the Public Prosecutor is clearly that of an independent officer who secures the cause of justice and fair play in a criminal trial. From a reading of these provisions, it is clear that a Public Prosecutor is entrusted with the responsibility of conducting the prosecution of a case. That this is a crucial role is evident from conditions such as in Section 24(7), which stipulates a minimum legal experience of seven years for a person to be eligible to be a Public Prosecutor. It is further clear from a joint reading of Section 301 and the proviso to Section 24(8) that the two provisions are mutually complementary. There is no bar on the victim engaging a private counsel to assist the prosecution, subject to the permission of the Court.

Rekha Murarka v. The State of West Bengal and Anr. : AIR 2020 Supreme Court 100

3. Corporate person – NHAI is statutory body and performs government functions – Proceeding against NHAI is not permissible under Insolvency Code: Insolvency and Bankruptcy code of 2016, S.3(7) – Companies Act of 2013, S.2(20), (45)

NHAI is a statutory body which functions as an extended limb of the Central Government, and performs governmental functions which obviously cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body. Nor can such Authority ultimately be wound-up under the Insolvency Code. For all these reasons, it is not possible to accede to the argument to either read in, or read down, the definition of ‘corporate person’ in Section 3(7) of the Insolvency Code.

In this view of the matter, the moment challenges are made to the arbitral awards, the amount said to be due by an operational debtor would become disputed, and therefore be outside the clutches of the Insolvency Code.

Hindustan Construction Company Ltd & Anr v. UOI & Ors. : AIR 2020 Supreme Court 122

4. Oral Gift in favour of Deity – Registration – Document in nature of dedication of immovable property to God do not require registration as it constitutes religious Trust and it is exempted from registration : Transfer of property Act of 1882, S.123 – Registration Act of 1908, S. 17

It is no doubt true that the gift deed was an unregistered instrument and no title could pass on the basis of the same u/s. 123 of the Transfer of Property Act. However, when the document is in the nature of a dedication of immovable property to God, the same does not require registration as it constitutes a religious trust and is exempt from registration. Section 123 of the Transfer of Property Act does not apply to such a case for “God” is not a “living person” and so the transaction is not a “transfer” as defined by Sec.5 of the Transfer of Property Act. Thus, a gift to an idol may be oral and it may be effected also by an unregistered instrument.

Sri Dadhibaban Mahaprabhu Bije v. Paramananda Sahu : AIR 2020 Orissa 1

5. Health Insurance Contract – Insurance companies, being ‘Instrumentalities of state’ have freedom to structure their contracts – However, arbitrary or unreasonable clause is not enforceable: Insurance Act of 1938, preamble, S. 2(11) – Constitution of India, Arts. 12, 21, 14

Every citizen ought to be entitled to obtain health insurance and avail of claims arising therefrom. Though, insurance policies are contractual in nature, and parties to them are bound by it, the clauses of such a contract have to stand the test of Constitutionality. Insurance companies, especially those which are „instrumentalities of state under Art. 12, have the freedom to structure their contracts, however, clauses that are unreasonable, arbitrary or contrary to public policy are not immune. If a clause in an insurance contract is unconstitutional, it is not enforceable. Primacy is given to a contract, but not above Fundamental Rights.

The fine print of an insurance contract is not easily understandable by a layman, who operates primarily on the basis of trust and faith. Standard form contracts, especially insurance policies, do not provide a choice to the consumer whether to sign up or not. Under such circumstances, the principle of uberima fides applies, on the insurance companies and the insured.

M/s. United India Insurance Company Limited v. Jai Parkash Tayal : Air 2020 (Noc.) 88

6. Substantial question of law – Second Appeal Interpretation of any terms and conditions of a document constitutes a substantial question of law. Dismissal order of High Court set aside. Matter remanded

Rajendra Lalitkumar Agrawal v. Ratna Ashok Muranjan And Another [2019(6) MH.L.J.1]

7. Mutation of a land – Maharashtra Land Revenue code (41 of 1966), ss. 148 and 157

Mutation entry does not create or extinguish title over such land nor it has any presumptive value on title. It only enables person in whose favour mutation in records is made to pay land revenue in respect of land.

Bhimabai Mahadeo Kambekar (D) Thr. Lr v. Arthur Import And Export Company And Others: [2019(6) Mh.L.J.4]

8. Testamentary succession – Mitakshara Coparcenary property – Hindu Succession Act of 1956, s. 30 Explanation :

A male Hindu can dispose of his interest in property by way of a will – No further independent share could be claimed by other coparceners in ancestral properties as a member of a family . Hence, order of High Court holding that no further independent share could be claimed by appellant in ancestral properties as a member of family, is justified and not interfered with.

Radhamma and Others v. H. N. Muddukarishna And Others [2019(6) Mh.L.J.5]

9. Power of attorney – Revocation – Effect of revocation on documents executed prior to revocation – Powers of Attorney Act of 1882, SS. 2 and 1-A

Respondent No. 5 acting on basis of General power of Attorney executed by appellants on 25-10-2001 sold property in question to respondents on 13-06-2011 by executing sale deeds . Said general power of attorney was revoked by the appellants by a public notice dated 5-6-2012 but sale deeds were executed by respondent No. 5 much prior to said revocation . Thus, trail court rightly found that appellants had failed to make out a prima facie case to grant injunction in their favour.

Ratnew Vishnu Kamat @ Rukmabai Vishnu Kamat And Another v. Roopali Sunil Lotlikar And Others [2019(6) Mh.L.J.292]

10. Probate proceedings – Succession Act of 1925, S. 276 and Civil procedure code, S. 24(1)(a) and 1-A Misc. Petitions preferred by executors against each other. Suit filed before civil court seeking disqualification of defendants therein in terms of the Will. Application for transfer of suit to High Court

Nature and character of the proceedings in the suit and Miscellaneous Petitions are different, which are to be decided under different jurisdiction and would culminate in distinct orders.

Probate jurisdiction. Even if the parties are permitted to lead the evidence, such proceedings before the Probate Court are in the “form of the suit” and not the “suit” itself.

Removal of a person as an Executor and debarring a beneficiary from taking any benefit out of estate of testator. Removal of a person as an Executor for not administering the estate may not have civil consequences but if beneficiary is precluded and debarred from taking any benefit out of the estate of the testator would entail in civil consequences.

Devan S. Ghatalia v. Mr. Nanak S. Ghatalia: [2019(6) Mh.L.J.310]

11. Precedent

When a binding judgement is given by Bench of High Court, any attempt to get over and brush it aside, must be deprecated . It amounts to overreaching Court and refusing to abide by its binding judgement by a backdoor or oblique method.

Reliance Industries Ltd. v. State of Maharashtra And Others [2019(6) Mh.L.J.665]

12. Committee of administrators – Duration of committee – Goa Co-operative Societies Act of 2001, S. 67-A(1)(e)

Committee cannot be appointed for an indefinite period. Elections of Board of Directors of Co-operative Society must be held within time prescribed. Impugned orders of registrar extending tenure of Committee
are totally illegal and hence quashed and set aside.

Shree Gopalkrishn Multipurpose Co-Operative Society Ltd., Goa And Another v. State of Goa And Others [2019(6) Mh.L.J.927]

13. Readiness and willingness of plaintiff to performance his part of contract – Specific Relief Act of 1963, S.16(c) and Evidence Act, S.59

Plaintiff had paid substantial part of consideration . Not necessary to show that he had balance amount when matter proceeding before trial court . Averment about readiness and willingness and proof thereof by oral evidence is sufficient.

Kerba S/o Ambadas Dhengle v. Digambar S/o Ishwara Chavan (Deceased) Through His L.Rs. Chandrakant S/o Digambar Chavan And Others: [2019(6) Mh.L.J.939]

1. 4 : Charge of income-tax – Mesne profit– Arbitral award – damages from tenant for unauthorized occupation of let out property, amount so received being in nature of ‘mesne profit‘ was a capital receipt, not liable to tax [S. 22]

Assessee owned a property which was given on sub-lease to PSIDC. PSIDC did not vacate premises after determination of sublease. Matter was thus referred to arbitrator who passed an award in terms of which assessee received damages for unauthorised occupation of property by PSIDC. AO held that amount so received was nothing but unrealized rent and should be taxed as ‘income from house property. Tribunal held that on facts, damages received by assessee were in nature of mesne profits which were not chargeable to tax being in nature of a capital receipt. (AY. 2010-11)

Talwar Bro. (P.) Ltd. v. ITO (2019) 178 ITD 818 (Kol) (Trib.)

2. 4 : Charge of income-tax – Development and operation of multipurpose port terminal – Share capital in form of foreign inward remittance – Unutilised funds – FDR interest – Capital receipt – Interest income is a capital receipt and is not taxable at all both under the normal provisions of the Act as well as under S. 115JB of the Act [S.56, 115JB]

The assessee-company was incorporated to develop, operate multipurpose port terminal. For the purpose of the port terminal project, the assessee raised share capital as foreign inward remittance from its holding company (P.) Ltd. Cyprus. The IPO was raised for the specific purpose of developing multipurpose port terminal facility and logistics facility at Karanja Creek. However, the port terminal could not be developed as envisaged and planned as it was delayed for various reasons beyond the control of the assessee and therefore the unutilized funds as received from the IPO were put in fixed deposits and ICDs with banks and non-Banking finance companies till the resumption of development work of the port terminal and other facilities at Karanga Creek. The assessee, treated the said interest as capital in nature and did not file any return of income for the instant year. AO assessed the income as income from other sources. CIT (A) confirmed the order of the AO. Tribunal held that the interest income received by the assessee from the FDRs/ICDs made out of funds are inextricably linked to the development of port terminal and other infrastructure which was yet to be completed and commissioned. These funds could not be used for the development work of the port due to late issuance of permissions / clearances by the Government authorities and also due to some local issues. Therefore, the interest income is a capital receipt and is not taxable at all both under the normal provisions of the Act as well as under S. 115JB of the Act. (AY. 2013-14 to 2015-16)

Karanja Terminal & Logistics (P.) Ltd. v. DCIT (2019) 178 ITD 659 / 71 ITR 390 (Mum) (Trib.)

3. 4 : Charge of income-tax – Capital or revenue – Compensation for termination of lease – Loss of source of income – Capital receipt not to chargeable to tax [S. 45]

Assessee-company owned a godown. This property was already given on long term lease of 99 years. The lessee sold the property. The assessee entered into MOU with lessee in terms of which assessee received compensation of ₹ 4.65 crore towards termination of long-term lease. The AO treated the compensation as sale consideration. CIT (A) confirmed the order of the AO. On appeal the Tribunal held that compensation received was towards loss of source of income; same could not be treated as revenue receipt, and it was capital receipt not liable to tax. Referred Karam Chand Thapar and Bros. (P.) Ltd. v. CIT (1971) 80 ITR 167 (SC), Kettlewell Bullen & Co. Ltd. v. CIT (1964) 53 ITR 261, (SC) (AY. 2012-13)

Butterfly Marketing P. Ltd. v. DCIT (2019) 179 ITD 431 (Chennai) (Trib.)

4. 9(1)(i) : Income deemed to accrue or arise in India – Permanent establishment – Liaison office of assessee did not constitute PE – Income is not chargeable to tax in India [Art. 5]

Assessee is a company incorporated in Japan and has opened a Liaison office in India seeking RBI approval. Assessee declared nil income in its return of income. AO held that assessee’s LO constituted a PE under Article 5 of India-Japan DTAA as it had a full fledged office with employees and staff. AO also referred to an agreement between assessee’s LO and LG Chemicals Ltd. Korea for granting exclusive and non-transferrable right to distribute chemicals products on commission basis. Tribunal noted that the agreement was valid up to December 1996 and it did not pertain to the year under consideration. Further, the co-ordinate bench of the tribunal in its own case for earlier years held that LO did not constitute a PE of the assessee in India and the LO was performing activities in accordance with permission granted by RBI. Hence, relying on the earlier year order it was held that LO did not constitute PE of the assessee under Article 5 of India-Japan DTAA. (AY. 2002-03)

Nagase and Company Ltd v. ADIT (2019) 109 taxmann.com 288 / 180 DTR 1 (Mum.)(Trib.)

5. 10(4) : Non-resident – Stayed in India for 283 days for taking up employment – Not entitled to exemption [S.6, 10(14(iii), Foreign Exchange Management Act, 1999, S. 2 (v)]

The assessee had an NRE account in an Indian bank. The assessee claimed exemption under
S 10(4)(ii) on the interest income earned from NRE FD account amounting to ₹ 1.10 crores. The AO rejected the claimand taxed the interest amount on the grounds that though the assessee was a non-resident earlier he became a person resident in India during the current year as per section 2(v) of the FEMA Act, 1999. CIT (A), upheld the order of the AO. On appeal the Tribunal held that since, the assessee has come and stayed in India in the financial year 2014-15, the CIT(A) held that the assessee was a Resident and Ordinarily Resident in India for both income tax purpose and also under FEMA and therefore, he is not eligible for exemption under S. 10(4)(ii) as he does not fulfil the condition required under proviso to the said section, that is, he was a resident outside India in the relevant previous year 2014-15 under FEMA. Since the assessee has come and stayed in India during the financial year 2014-15 for 283 days, his residential status under FEMA is a ‘person resident in India’ only. Therefore, the assessee is not entitled for the deduction under S. 10(4)(ii) of the Act. (AY. 2015-16)

Baba Shankar Rajesh. v. ACIT (2020) 180 ITD 160 (Chennai) (Trib.)

6. 10(26) : Exemption to member of a Scheduled Tribe – Allowability – Individual vis-a-vispartnership firm – Since partnership firm is not a member of a scheduled tribe – Such firm not entitled to exemption under S. 10(26) – but its partners are eligible for the same [General Clauses Act, 1897, S.13]

Dismissing Assessee’s appeal the Tribunal held that:

1) The specified member of a scheduled tribe only is covered under Art. 366 of the Constitution of India for enjoying the benefit of exemption of income. Hence, the benefit of exemption is available only to a member of Schedule tribe (i.e. individual not partnership firm of such individuals). In such a situation, benefit of doubt in relation to an exemption provision in tax laws goes in favour of the Revenue and not to the taxpayer.

2) Further, the Income-tax Act being a special legislation and complete code in itself, provisions of S. 13 of the General Clauses Act, 1897 (containing masculine and singular expression in central regulations to be inter-changeable as famine gender, plural expression, etc), are of no avail. (Civil Appeal No. 3327 of 2007, dt. 30th July, 2018) relied on. (AY. 2013-14 to 2015-16)

Hotel Centre Point v. ITO (2019) 182 DTR 297 / 201 TTJ 913 (Gau)(Trib)

7. 10A : Free Trade Zone – Loss in unit situated outside the Software Technology Park (STPI) not adjusted against units within the STPI – Income enhanced – Deduction claimed u/s. 10A to be enhanced – Expenses excluded from export turnover – Consequential exclusion from total turnover

Assessee is engaged in the business of providing solutions to the Railways. It had units both within and outside the Software Technology Park (STPI). In its return of income, it claimed deduction u/s. 10A for income earned from STPI unit. The lower authorities set- off the loss of non-STPI unit against profits of the STPI unit before giving the deduction u/s. 10A. Further, it made various disallowance/addition to returned income filed by the assessee. The authorities restricted deduction u/s. 10A as claimed in the return of income and not assessed income. The lower authorities excluded certain expenses from the export turnover and not from the total turnover while computing deduction u/s. 10A.

The Tribunal held the loss of the non-STPI unit shall not be adjusted against the profits of the STPI unit before computing deduction u/s. 10A. The disallowance/addition made during the assessment proceedings increases the profits of the assessee, thereby the deduction u/s. 10A should also be enhanced. Export turnover is part of total turnover. While computing deduction amount of deduction u/s 10A, expenditure excluded from export turnover were also to be excluded from total turnover. (AY. 2008-09 to 2010-11)

McMl Systems Pvt. Ltd. v. ACIT (2019) 75 ITR 656 (Bang) (Trib)

8. 10AA : Special economic zones – Determination of profits where profits disclosed by assessee higher than ordinary profits – No arrangement between assessee and comparable companies to enable assessee to earn super normal profits – Concept of applying profit level indicators applied in determination of arm’s length price of international transactions not applicable for determination of profits for computation of exemption – AO is directed to allow entire deduction. [S. 10A(7), 10AA(9), 80IA(10), 92CA]

The assessee provided various services in the field of engineering, information technology enabled services and business support services to its associated enterprises and claimed the exemption under S. 10AA of the Act. The AO in the draft assessment order proposed an addition of ₹ 2.53 crore alleging that the assessee had claimed excess exemption under S. 10AA of the Act, on the ground that operating profit to operating cost of the assessee was 150.55 per cent as against 27.72 per cent operating cost of the comparable companies. The Dispute Resolution Panel upheld the reduction of exemption under S. 10AA of the Act. On appeal, Tribunal held that the Transfer Pricing Officer had accepted the profit level indicator shown by the assessee at 150.55% when compared with the mean margins of the comparable companies at 27.72%. The Assessing Officer’s view that the assessee showing such high operating profit had earned super normal profits when compared with the margins of comparable companies was not tenable as the concept of profit level indicator, and the operating profit which had been adopted by the Assessing Officer was relevant for comparability for transfer pricing analysis and could not be used for holding the assessee to have earned super normal profits in carrying on its business. The officer had to look at the net profit shown by the assessee, which in the present year was 63% only. The basic condition for application of the provisions of section 10AA of the Act was an arrangement between the parties to enable the assessee to earn super normal profits. Neither the TPO nor the AO or the DRP had pointed out any such arrangement between the assessee and the comparable companies. In the absence thereof, the provisions of S. 10AA(9) read with S. 80-IA(10) of the Act were not attracted. There was no merit in invoking the provisions of S. 10AA(9) read with S. 80-IA(10) of the Act in the case of the assessee. The TPO having accepted the transactions to be at arm’s length and where the assessee was raising invoices on man hour basis, in line with the third party agreement and where the net profit was shown by the assessee at 63%, the concept of operating profit/operating cost could not be the basis for benchmarking the profits of any business. Hence, the AO was directed to allow the deduction claimed under S. 10AA of the Act in entirety. (AY. 2012-13)

Eaton Technologies Pvt. Ltd. v. Dy. CIT (2019) 75 ITR 675 (Pune)(Trib.)

9. 11 : Property held for charitable purposes – Failure to file return – Return is filed in pursuance of notice u/s 148 – Entitle to exemption as applicable to charitable Trust – Failure to produce evidence in support of its claim of electricity expenses – Such amount had to be excluded while considering application of income – S.40(a)(ia), 40A(3) and S. 43B falls in Chapter IV-D which are applicable for computing profits and gains of business or profession and Chapter IV-D is not applicable in respect of charitable trust or institution whose income is to be computed under S 11 and 12 falling under Chapter-III. S. 37(1), Explanation is not applicable to charitable trust. Capital expenditure is to be allowed as application of income. [S. 12, 37(1), 40(a)(ia) 40A (3) 43B, 139, 139(4A), 147, 148]

Tribunal held that failure to file return under S. 139(4A) cannot be interpreted to mean that income cannot be computed in case of a charitable trust under S. 11 of the Act. Once return has been filed in response to notice issued under S. 148, provisions of Act shall apply as if such return were a return required to be furnished under S. 139 and, thus, return filed under section 148 is treated as return filed under S. 139. which will include S. 139(4A) of the Act. Oce such return is treated as return filed under S. 139, then all provisions of Act shall apply which will include S. 11. A new clause (ba) which has been inserted in section 12A by Finance Act, 2017 to put a further condition w.e.f 1-4-2018 of furnishing return within time allowed under section 139(4A) has been made applicable from assessment year 2018-19 on wards. Failure to produce evidence in respect of electricity expenses, amount to be excluded while computing application of income. S. 40(a)(ia), 40A(3) and S. 43B fall in Chapter IV-D which are applicable for computing profits and gains of business or profession and, thus, they are not applicable in respect of charitable trust or institution whose income is to be computed under Chapter-III and, accordingly, no disallowance or adjustment can be made while determining income of society under S. 11 and 12 of the Act. Penalty was levied by bank for mortgaging a property without permission of prescribed authority on assessee-society by invoking Explanation to S. 37 is not applicable to charitable Trust since provisions of Chapter IV-D, i.e., S28 to 44D are applicable while computing income of business or profession and these provisions are not applicable in respect of charitable institution whose income is to be computed under S 11 and 12 falling under Chapter III of the Act As per section 11, income of a eligible institution to extent of which such income is applied to charitable purpose in India is not to be included in total income and application of income towards charitable purposes include application towards acquisition of assets, i.e., capital expenditure. (AY. 2006-07, 2009-10)

United Educational Society v. JCIT (2019) 74 ITR 11 / 178 ITD 716 (Delhi) (Trib.)

10. 12A : Registration – Trust or institution – Object clause – Registration cannot be refused on the ground that the Trust Deed does not contain “dissolution clause” and not registering with the Registrar of Societies [S.2(15), 11, 12AA]

On reference to third member,the third member held that, the only requirement for granting registration is that the objects of the society should be charitable in nature and activities are genuine (i) A trust may be of a public charitable nature even if the control of the trust property is not vested in the public but is retained by the settlors, (ii) Registration u/s. 12A cannot be declined on the ground that the Trust Deed does not contain “dissolution clause”. This is totally irrelevant & beyond the scope of enquiry contemplated u/s. 12A. of the Act, (iii) Registration cannot be refused for non furnishing of registration with the Registrar of Societies. Registration with the Registrar of Societies is not a precondition for granting registration u/s. 12A. (ITA No. 53/ASR/2017, dt. 08.01.2020)

Shri Dhar Sabha Vaishno Devi v. CIT(E) (TM) Amristar) (Trib.), www.itatonline.org

11. 12AA : Procedure for registration – Trust or institution – No defects in the object of the society or doubted the genuineness – Denial of registration is held to be not valid [S. 2(15), 11],

The Assessee was carrying on social, spiritual, & charitable activities of operating a homeopathy dispensary and organizing camps for blood donation & sermons. The Commissioner denied the registration u/s. 12AA applied by the Assessee by giving certain general remarks. On Appeal, the Tribunal held that the commissioner has to consider the twin requirement (i) objects of the assessee-society, and (ii) the genuineness of its activity. When the commissioner has not pointed out any defect in the object of the society or doubted the genuineness of its activities, the registration u/s. 12AA cannot be denied. (AY. 2017-18)

Acharya Shri Tulsi Kalyan Kendra (Regd.) v. CIT(E) (2019) 72 ITR 14 (Amritsar)(Trib)

12. 28(i) : Business income – Letting out shopping mall/business centres by providing host of services/facilities/amenities – Income derived assessable as business income and not as income from house property [S.22]

The main object of the assessee company was carrying on the business of letting out its commercial properties. The assessee company constructed a shopping mall/business centre and had let out the said property. Further assessee company maintained and provided necessary service for proper upkeep of such properties in order to earn income by letting and/or leasing thereof income. The AO held that income derived from letting out of house property would always be taxable under the head ‘income from house property’. The CIT(A) deleted the said addition treating the same as Business Income. Tribunal while allowing the appeal held that, income is attached to immovable property, cannot be sole criteria for such income as income from house property, to find out that what is primary object of assessee while exploiting such property, assessee-company had developed shopping malls/business centres on properties owned by it and had let out same to various users by providing host of services/facilities/amenities in said malls/business centres, it could be said that basic intention of assessee was commercial exploitation of its properties by developing them as shopping malls/business centres and, therefore, income derived from such activities are business income’ and not as income from house property. (AY. 2012-13, 2013-14)

DCIT v. ATC Realtors (P.) Ltd. (2019) 178 ITD 293 (Guwahati)(Trib.)

13. 28(i) : Business income – Compensation – Amount received towards professional goodwill – Management of the Company was vested in the Board of Directors – AO failed to establish that person receiving the amount is managing whole or substantially the whole of the affairs of the Company – Cost of such managerial right being indeterminate, computation provisions fails – amount not taxable as capital gains [S. 4, 28(ii)(a), 55(2)]

Dismissing Revenue’s appeal, Tribunal held that since the AO has not established that assessee was the person who was managing the whole or substantially the whole of the affairs of the Company, the amount received towards professional goodwill was not chargeable under S. 28(ii)(a) of the Act. Further, AO has not ascertained as to what was the cost of ‘management right’ for computing capital gains and S. 55(2) does not specify such cost to be taken as Nil (no deemed cost of acquisition provided in the statute), hence computation mechanism fails and no capital gains can be computed in present case.
(AY. 2009-10)

DCIT v. Dr. Sandeep Dave (2019) 201 TTJ 683 / 182 DTR 109 (Raipur) (Trib)

14. 28(i): Business loss – Real estate business – Advance to parties – Amount written off for commercial reasons – Loss is allowable as business loss

Tribunal held that advance given to parties were written off for commercial reasons,
hence the loss is allowable as business loss (AY. 2012-13).

ACIT v. Bhosale Builders and Developers P. Ltd. (2019) 74 ITR 67 (SN) (Pune) (Trib)

15. 36(1)(iii) : Interest on borrowed capital – Interest paid to relatives and non-relatives – Difference between rate of interest charged by private money – lender and that charged by bank bound to exist – Assessee paying interest after deducting tax at source – AO failed to show that assessee utilised loan for purpose other than business – Interest expenses is held to be allowable

The Tribunal held that the assessee paid interest at 18% to relatives as well as to non-relatives. There was bound to be a difference between the interest charged by the bank and the interest charged by a private lender as for obtaining loans from bank, the assessee needed to maintain a margin and there were other expenses charged by the bank in the form of bank charges, penalty, etc. Therefore, the basis for disallowance made by the authorities was not correct. The assessee had made payments of interest after deducting tax at source and it was not the case of the authorities that the loans were not utilised for business purposes. Therefore, disallowance deleted. (AY. 2014-15)

Anurag Rastogi v. ITO (2019) 75 ITR 8 (Luck) (Trib)

16. 36(1)(vii) : Bad debt – Non furnishing of TDS certificate amounts to amount due – Allowable as bad debt – Cannot be disallowed on ground that it was not within time prescribed under S. 155(14) of the Act
    [S. 37(1), 155(14)]

Assessee claimed the non receipt of TDS certificate as revenue expenditure. The AO held that the write off of TDS could not be allowed to the assessee. Further, he observed, non-furnishing of TDS certificate could not be treated as debt due to the assessee from the persons who had deducted tax at source. Therefore, provision of S. 36(1)(vii) could not be applied. On appeal, the CIT (A) held that that withholding of tax by the deductor amounted to debt owed by him to the deductee and in the event of non-receipt of such debt, deduction would be eligible to the assessee under S. 36(1)(vii) as the conditions prescribed therein are fulfilled. However, he held that assessee’s claim could not be allowed in view of the provisions of S. 155(14), since assessee had not claimed the deduction in the computation of income filed along with the return of income. Accordingly, he disallowed assessee’s claim. On appeal the Tribunal held that, though, tax was deducted at source in earlier assessment years, however, the assessee could not get credit of such TDS amount due to non-furnishing of TDS certificate by deductors. Undisputedly, the TDS amount is nothing but a part of income accruing to the assessee. It is also a fact that the assessee has offered the gross income including TDS in the respective assessment years. Therefore, to that extent, non-allowance of TDS credit to the assessee due to non-receipt of TDS certificates amounts to loss of income. Relied on CIT v. Shreyans Industries Ltd. [2008] 303 ITR 393 (Punj. & Har.) (HC). The decision of the P & H High Court in the aforesaid case with regard to write off of TDS was not a subject matter of dispute before the Supreme Court, therefore, the contention of the revenue that the decision of the P & H High Court, has been reversed by the Supreme Court, is not correct interpretation of the legal position, as the subject matter of dispute before the Supreme Court was on a different issue. In view of the aforesaid, the AO is directed to allow assessee’s claim of write off of TDS. (AY. 2005-06 to 2009-10)

DCIT v. AGC Network Ltd. (2020) 180 ITD 204 (Mum) (Trib.)

17. 37(1) : Business expenditure – Disallowance – Providing gifts to Medical practitioners by pharmaceutical companies – CBDT circular on prohibition of acceptance of gifts by medical practitioners – AO made ad hoc addition – Providing gifts in lieu of sales promotion expenses – CBDT circular silent about pharmaceutical companies – Circular had no retrospective effect – Disallowance deleted

During assessment proceedings, AO noticed that assessee had debited an amount to P&L account towards gift/sales promotion expenses. The expenditure incurred was for providing gift to Doctors/Medical Practitioners. As per CBDT circular No. 5/2012, Medical Practitioners were prohibited from accepting gift, travel facility, hospitality, cash or monetary grant from pharmaceutical companies as per Indian Medical Council Regulation. The AO made addition on ad-hoc basis considering 40% to have been spent for presenting gift articles to doctors in India. The CIT(A) confirmed AO’s action. The assessee contended that said gift items bearing assesses name and logo were only for sales promotion. The reason for making an ad-hoc disallowance of 40% was, CBDT Circular No. 5/2012, wherein, prohibition imposed by IMC with regard to acceptance of gift by medical practitioner/doctor which was imposed w.e.f. 10th December 2009. The prohibition imposed by IMC did not talk about pharmaceutical companies. CBDT Circular referred to by Departmental Authorities would not apply retrospectively. Allowing the assesses ground, the tribunal deleted the disallowance made.

ACIT v. J. B. Chemicals & Pharmaceuticals Ltd. (2019) 177 DTR 378 (Mum)(Trib.)

18. 37(1) : Business expenditure – Self made vouchers – Ad hocdisallowance is not justified [S.145]

While allowing the appeal of the Assessee, the Tribunal held that, when the telephones were used in the business premises of the assessee and the expenses were verifiable from the telephone bills the expenses could not be disallowed on mere suspicion. Similarly, the AO had not doubted the travelling expenditure incurred by the assessee and if the expenses were not found to be excessive having regard to the nature of business and volume of business of the assessee such an ad hoc disallowance on personal element was not justified. Further, in the case of building repair and maintenance expenses, the expenditure was incurred in cash and the assessee had produced only self-made vouchers and in the absence of supporting documentary evidence, the 10 per cent disallowance of expenditure was justified. If office expenses were paid in cash and supported by the self-made vouchers. If the expenditure was not found to be excessive and it was inevitable for the business of the assessee petty expenses were incurred by the assessee on day-to-day basis in cash and without any vouchers. Once the expenditure was not found to be excessive having regard to the nature of business and volume of the business of the assessee the ad hoc disallowance was not justified.
(AY. 2012-13)

Swastik Oil Industries v. Dy. CIT (2019)76 ITR 392 (Jaipur)(Trib.)

19. 37(1) : Business expenditure – Levy of interest for withholding payment of VAT – Compensatory interest u/s. 30(2) – For delay in payment of additional tax under MVAT – Penal interest u/s 30(4) – Concealment or furnishing of inaccurate particulars of income – Paid by assessee to buy peace and end litigation with MVAT authorities – AO asked to bifurcate these payments – Compensatory interest allowed – Penal Interest disallowed [VAT S.30(2) 30(4)]

During assessment proceeding, AO noted from Tax Audit Report that assessee had paid a penalty which was not disallowed by it while computing income chargeable to income tax. Assessee submitted that such penalty was paid to avoid litigation with Sales Tax Department on an amount of tax for bogus purchases. AO held that such amount was a penalty levied by Sales Tax Department for violation of law committed by assessee which need to be disallowed u/s. 37 and which also was certified by CA in tax audit report. AO completed assessment after making disallowance in this regard. CIT(A) allowed assesses claim. The tribunal held that interest u/s. 30(2) was compensatory in nature for delay in payment of additional tax under MVAT computed from original due date of payment of the MVAT liability due to availment of wrong ITC, on alleged bogus purchases, till said additional tax liability of VAT was paid to the authorities. Whereas, levy of interest u/s 30(4) of MVAT Act had germane to detection of short payment of VAT by way of concealment or furnishing of inaccurate particulars of income in original return of VAT filed with MVAT Department due to infraction of law, which is detected after commencement of such special events such as audit, inspection, survey, search under MVAT Act. The AO was directed to bifurcate payments of interest made u/s 30(2) and 30(4) of MVAT Act, allowing only the compensatory interest u/s. 30(2) of MVAT Act. Penal interest u/s. 30(4) of MVAT Act was disallowed. Revenues appeal was partly allowed.
(AY. 2009-10, 2012-13)

ACIT v. Gini & Jony Ltd. (2019) 178 DTR 114 (Mum)(Trib.)

20. 37(1) : Business expenditure –Compensation for not complying with terms of contract – Civil consequence for not complying with certain terms of contract and had nothing to do with any offence – No violation of law – No disallowances can be made by applying the explanation 1

The AO held that the expenditure as penalty levied on it for not complying with the terms of the contract, such penalty paid for violation of the contract in the course of the conduct of business could not be regarded as a deductible expenditure. The CIT (A) deleted the addition. On appeal the Tribunal held that the contract between the assessee and the buyers was clear in its terms that there was a specification as to the quality of coal that had to be supplied and should there be any variation in such quality, the price would be adjusted accordingly. In the case of supply of coal with the high moisture under low grass calorific value, the buyer would make deduction on such account. Further, the case of the assessee had been that it did not pass on the liability incurred on this count to its sellers. The Assessing Officer should have considered this aspect as to the possibility of the assessee passing on such liability to its sellers, which was not possible in the case of the penalty paid for an offence or infraction of law. The inability to meet the contractual obligation by the assessee could not be termed as an offence or infraction of law so as to deny the claim of the assessee by invoking Explanation 1 to S. 37(1). Merely because the assessee categorised the claim under “penalty levied on it for not complying with the terms of the contract”, it was not permissible to conclude that such penalty was in respect of any offence or infraction of law committed by the assessee so as to invoke the provisions under Explanation 1 to section 37(1). The expression “penalty was levied on the assessee for not complying with the terms of the contract”, clearly indicated that it was a civil consequence for not complying with certain terms of contract and had nothing to do with any offence. (AY. 2012-13)

Dy. CIT v. Mahavir Multitrade P. Ltd. (2020)77 ITR 165 (Delhi) (Trib)

21. 37(1) : Business expenditure – fine/penalty levied upon it by European commission for violating European union competition laws by way of accepting non-compete settlement amount from a European company – Payment could not be disallowed as per Explanation 1 to S. 37(1) of the Act – Allowability of claim as business loss – Matter remanded for verification. [General Clauses Act,1897, S.3(38), Indian Evidence Act, 1872, S. 57(1), Art. 13]

Assessee-company paid fine/penalty levied upon it by European Commission for violating European Union Competition laws by way of accepting non-compete settlement amount from a European company, such payment could not be disallowed as per Explanation 1 to S.37(1) of the Act. The Tribunal held that what has to be disallowed under Explanation 1 to S.37(1) of the Act is a payment made for contravention of laws in force in India and not of any foreign country. The laws are specific to each of the countries according to their rules and regulations and an offence in one country may not be so in another country. Accordingly addition confirmed by the CIT (A) is deleted. As regards whether allowable as business loss as the income was offered in the earlier year, the matter remanded to the file of AO for verification. (AY. 2014-15)

Mylan Laboratories Ltd. v. DCIT (2020) 180 ITD 558 (Hyd) (Trib.)

22. 37(1) : Business expenditure – Festival expenditure – Books of account not rejected – Disallowance of 25% of festival expenses cannot be disallow when books of account were duly audited and no discrepancy was found [S.145]

Tribunal while dismissing the appeal of the revenue held that books of account had been duly audited and no discrepancy was found by revenue authorities, further observed that there was increased turnover and also increased profit during year, hence, increase in festival expenditure could not be treated as disallowable expenditure. (AY. 2012-13)

ACIT v. HAL Offshore Ltd. (2019) 178 ITD 272 (Delhi)(Trib.)

23. 37(i) : Business expenditure – Parking fees – Ad hoc disallowance of 20% disallowance – Books of account not rejected – Disallowance is held to be not valid [S.143(3)

Dismissing the appeal of the revenue the Tribunal held that disallowance of 20 per cent ad hoc disallowance of parking fee, without rejecting books of account not permissible.
(AY. 2012-2013, 2013-2014)

DCIT v. ATC Realtors (P.) Ltd. (2019) 178 ITD 293 (Guwahati)(Trib.)

24. 37(1) : Business expenditure – Ad-hocdisallowance of 10% of total expenses – Books of account not rejected – Submitted the details of expenses – Ad-hoc disallowance is held to be not justified [S.145]

Allowing the appeal of the assessee the Tribunal held that since assessee had submitted complete details of these expenses and no defects in books of account were brought on record by revenue, ad hoc disallowance of these expenses to tune of 10 per cent by AO is held to be not justified. (AY. 2011-12)

TUV India (P.) Ltd. v. DCIT (2019) 75 ITR 364 / 179 ITD 238 (Mum) (Trib.)

25. 40(a)(ia) : Amounts not deductible – Deduction at source – Non-resident – Copy editing, indexing and proof reading requiring only knowledge of language and not expertise in subject matter of text – Services rendered by non-residents not technical services – Tax deduction is not required – No disallowance can be made [S. 9(1)(1), 195 (6)]

The Assessee, had hired the services of a non-resident foreign entity, which mainly consisted of language translation. The services rendered involved copy editing, indexing and proof reading required only knowledge of the language and did not require necessary expertise in the subject matter of text. Thus during the assessment year 2011-12, assessee made payments to the non-resident entity of ₹ 2,95,31,708/- without deducting tax at source, on the ground that services rendered were not technical in nature and therefore no tax was liable to be deducted under section 195 of the Act. The AO disallowed the payments on the ground that tax was required to be deducted on payments made to non-residents for services rendered.

The CIT(A) found that since the non-resident entity did not have any permanent establishment or a business connection within the meaning of S. 9(1)(i) in India. Therefore he held that since the present case was not hit with the provisions of S. 9(1)(i) the payments received by the non-resident entity was not to be assessed as business income in India. However, he found that the services rendered by non-resident entity was technical in nature.

On Appeal, the Tribunal held that, language translation was not a technical service. The copy editing, indexing and proof reading required only knowledge of the language and did not require necessary expertise in the subject matter of text. Thus, the services rendered by the non-residents were not technical services and the payment received by the non-residents from the assessee was not taxable in India. S. 195(6) requires the assessee to furnish information but did not require the assessee to deduct tax at time of payment. Hence, there was no question of disallowance under S. 40(a)(ia) for consideration in the appeal. (AY. 2011-12)

Dy. CIT v. Integra Software Services Pvt. Ltd. (2019)76 ITR 491 (Chennai) (Trib)

26. 40(a)(ia) : Amounts not deductible – Deduction at source – Failure to deduct tax at source – Filing Forms 15G and form no 15H before CIT(A) – Addition is unsustainable – CIT(A) ought to have verified from the banks – AO is directed to delete the addition [S.251]

AO disallowed interest paid to two persons for failure by the assessee to deduct tax at source on the payments. The assessee filed form 15G and form 15H before the CIT(A) but the latter did not consider them. On appeal the Tribunal held that the assessee had filed form 15G or form 15H. The CIT(A) should have considered the evidence supplied by the assessee and if he was not satisfied, got it verified from the bank. The AO is directed to delete the addition. (AY. 2008-09)

Hiralal Jain v. ITO (2020)77 ITR 333 (Indore) (Trib)

27. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub-contractor – PAN of transporters at the time of payment – No disallowances can be made [Ss.194C(6), 194C(7)]

Dismissing the appeal of the revenue the Tribunal held that all that was required for non-deduction of tax at source on payment to transporters was that the latter furnishes his PAN to the person responsible for paying or crediting the amount to him. The primary onus was thus on the recipient to furnish his PAN to the payer and the payer, on receipt of such PAN, was under a statutory obligation not to deduct tax at source on such payments. Further, the payer was under a statutory obligation to furnish the information in prescribed forms to the Income tax authority. As far as the Assessee’s non-compliance with S. 194C(7) of the Act were concerned, there were separate penal provisions in terms of S. 234E and S. 271H of the Act. In the instant case, once the Assessee was in receipt of PAN and had not deducted tax at source, it had complied with the first statutory obligation cast upon it and could not penalized for non-deduction of tax at source u/s. 40(a)(ia) of the Act. Merely because there was a failure by Assessee to furnish the prescribed information to the income tax authorities, Assessee should not suffer thirty percent of disallowance of expenditure u/s. 40(a)(ia) of the Act. (AY. 2015-16)

ACIT v. Arihant Trading Co. (2019) 72 ITR 11 (SN) (Jaipur) (Trib.)

28. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – No addition can be made if AO has not brought any evidence to show that liability has ceased to exist – No additions can be made unless liability has not been written off in books of account [S.145]

The AO has made additions under section 41(1) of the Act stating that the liability has been outstanding since a long time and no transactions have been occurred since then. The Tribunal relied on the Gujarat High Court ruling the case of Bhogilal Ramjibhai Atara (43 taxmann 313) which has held that even if the liability is found to be non-genuine from the inception then also 41(1) of the Act was no solution for it. The Tribunal held that revenue authorities has not shown that the liability has ceased to exist and the assessee has not written back and continue to show the same in liabilities outstanding in the balance sheet. Hence, following the above decision of the Gujarat High court in the case of Bhogilal Ramjibhai Atara (43 Taxmann 313), the Tribunal deleted the adjustment made under section 41(1) of the Act. (AY. 2013-14)

Shivacid India Private Ltd. v ITO (2019) 76 ITR 76 (SN) (Ahd) (Trib)

29. 45: Capital gains – Transfer – Conversion – AOP converted in to a company limited by shares – New company never remained in existence simultaneously –
    Not liable to capital gain tax [S.2(47)]

During the year, assessee-society was converted into a company limited by shares. AO held that there was transfer of assets owned by assessee to another legal entity within meaning of S. 2(47) which would attract capital gain tax under S 45 (1) of the Act. CIT (A) held that that there was no transfer within meaning of S 45 (1) of the Act because there were no two parties transferor and transferee, accordingly he deleted addition made by the AO. On appeal by the revenue the Tribunal held that till date of conversion, assessee-AOP remained in existence and moment conversion took place, company came into existence. However, AOP and company never remained in existence simultaneously. As per S. 45(1) transfer of capital asset was possible only when there was simultaneous existence of transferor and transferee. in absence of two entities at same time, consideration could not pass from transferor to transferee and, as a result, provisions of S.45 (1) were not applicable. Accordingly the order of CIT (A) is affirmed. (AY. 2001-02)

ACIT v. Escorts Heart Institute & Research Centre. (2019) 178 ITD 362 (Delhi) (Trib.)

30. 45 : Capital gains – Taxable in the hands of owner and not in the hands of General Power of Attorney holder [S. 2 (47)

Assessee holding GPA for certain persons sold certain immovable property belonging to them during relevant assessment year. He did not offer capital gains tax on said transaction contending that he had executed sale deed as a General Power of Attorney Holder (GPA) and he had not received any amount from transaction. The AO held that the assessee had sold the plot to his daughter not only as a GPA holder, but also as a owner of the property and had earned the capital gain therefrom. He accordingly brought the capital gains to tax. On appeal, the CIT(A) confirmed the order of the AO Tribunal held that since the assessee was not owner of property, capital gain could not be brought to tax in his hand. Followed Suraj Lamps & Industries (P.) Ltd v. State of Haryana (2012 340 ITR 1 (SC) (AY. 2008-09)

Veerannagiri Gopal Reddy v. ITO (2019) 72 ITR 578 / 179 ITD 305 (Hyd.) (Trib.)

31. 45 : Capital gains – Gains from equities – Entire documentary evidence not disputed and no rebuttal to explanation of assessee – no adverse materials against assessee – No proper enquiry conducted on documentary evidence filed – Assessee entering into genuine transaction of sale and purchase of shares – Entitled to exemption [S.10(38), 68, 115BBE].

The Assessee had entered into a transaction of sale of shares held in a company. The sale took place through Stock Exchange via a registered Stock Broker after payment of Securities Transaction Tax. Assessee claimed exemption under S. 10(38) in respect of the said sale transaction. During the assessment proceeding, the assesse submitted all the relevant documents supporting the purchase of shares made in cash, with sale contract notes and bank statements and dematerialised statements. However, the price of shares skyrocketed without the essential parameters for increase in price. Hence the AO held such transaction to be a sham transaction in the Assessment order passed. The AO treated the gains as unexplained cash credit under S. 68 and taxed the same at 30 per cent under S. 115BBE in the hands of the Assessee. The CIT (A) upheld the AO’s order. The Tribunal, on appeal held – Documentary evidence provided cannot be brushed aside on probabilities and suspicions without pointing out the defect therein. Prices of shares depend upon innumerable factors. Reliance placed upon the statement of Investigation Wing cannot be applied to all the cases blindly. Securities and Exchange Board of India in a subsequent decision, absolved the companies involved in artificial rigging of price of shares, this fact vitiates the revenues case. Held that the Assessee is entitled to claim exemption under S. 10(38) of the Act. (AY. 2014 -15)

Asha Luthra (Ms.) v. ITO (2019) 76 ITR 432 (Delhi)(Trib.)

32. 45(3) : Capital gains – Transfer of capital asset to firm – AOP – BOI – Full value of consideration – Stamp valuation – Deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as a full value of consideration – Provision of
    S. 50C is not applicable – Special provision of S.45(3) override the general provision of S.50C of the Act. [S.45, 48, 50C]

The assessee transferred an immoveable property as a capital contribution in to ATL Hospitality. The assessee while computing the capital gain on transfer of land in to partnership has taken the value as recorded in the books of the firm as per provision of S.45(3) of the Act i.e. ₹ 5.60 crore as the full value of consideration deemed to have been received or accrued as a result of transfer of capital asset to the partnership firm. The AO applied the provisions of S.50C and valued at ₹ 9,41,78,500,being the value determined by the Stamp Valuation Authority at the time of registration of the supplementary partnership deed. The CIT (A) up held the order of the AO. On appeal the Tribunal held that a plain reading of provisions of S. 45(3) makes it clear that it comes in to operation only on a special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as a full value of consideration. Though the provision of S.45(3) is not specific provision overrides the other provisions of the Act. Importing a deeming fiction provided in S. 50C of the Act cannot extended to another deeming fiction created by the statute by way of S. 45(3) to deal with special case of transfer. Accordingly the finding of the CIT (A) is reversed and appeal of the assessee is allowed. (ITA No. 6050/M/2016 / ITA No 1614 / Mum/2016 dt 29-12-2017 (AY. 2012-13)

(Editorial : decision in Carlton Hotel Pvt. Ltd. v. ACIT (2009) 122 ITTJ 515 (Luck) (Trib) is distinguished, High Court set aside the order of the Tribunal, CIT v. Carlton Hotel Pvt. Ltd. (2017) 399 ITR 611 (All) (HC), SLP of the assessee is dismissed, Carlton Hotel Pvt Ltd v. ACIT (SC). Followed CIT v. Moon Mills Ltd (1966) 59 ITR 574(SC), also refer, Shri Sarrangan Ashok v. ITO, ITA No 544 /Chny/ 2019 dt 19-08 -2019 (AY. 2015 -16), D. R. Yadav v R. K. Singh (2003) 7 SCC 110, ACIT v. Moti Ramnanad Sagar, ITA NO 2049/Mum/ 2017 / 1690 /Mum/ 2017 dt 28-02-2019 (AY. 2012 -13) ITO v. Chiraayu Estate & Dev Pvt. Ltd. ITA No. 263/Mum/2010 dt. 24 -08, 2011 (AY. 2006-07) ITO v. Sheila Sen, ITA No. 554 /Kol/2016 dt 7-09-2018 (AY. 2006-07) Navneet Kumar Thakkar v. ITO (2008) 110 ITD 525 (Jodhpur)(Trib))

Amartara v. DCIT (Mum) (Trib) (UR)

33. 48 : Capital gains – Computation – VAT payment made by assessee at time of transfer of trademark is allowable as deduction [S.45 48]

The assessee had sold one of its registered trademark for certain consideration and paid VAT to State Government on sale consideration. Since VAT was paid wholly and exclusively in connection with ‘transfer’ of trademark, said amount was claimed as deduction under S. 48 of the Act. AO held that cost of such capital asset was to be deemed as ‘NIL’ and, therefore, expenditure on VAT could not be allowed as deduction while computing capital gains. CIT (A) deleted the addition. Tribunal held that since assessee had to mandatorily pay statutory levy at time of ‘transfer of intangible to transferee, said expenditure was incurred wholly and exclusively in connection with transfer of capital asset and was allowable as deduction. (AY. 2008 -09)

Bata India Ltd. v. DCIT (2020) 180 ITD 464 (Kol) (Trib.)

34. 54 : Capital gains – Profit on sale of property used for residence –

Exemption can be claimed on transfer of any number of residential houses provided the capital gain arising thereon is invested in a proper manner within the prescribed time limit. [S.45]

The Assessee had purchased three flats on the same floor of the building by three separate agreements. Subsequently, the three flats were combined into a single residential flat. During the relevant previous year, the Assessee had sold the combined residential flat under three sale agreements on account of legal requirements. The Assessee had claimed deduction under S. 54 of the Act for the long term capital gains arising on sale of the aforesaid combined residential flat. However, the AO held hat the Assessee had sold three flats by way of three separate agreements and accordingly, allowed deduction under S. 54 of the Act only on sale of one flat and taxed the long term capital gains arising on sale of the balance two flats. On appeal, the CIT(A) held that the three adjoining flats were merged and made into one residential unit and the Assessee also used it as one residential house. There is one electricity meter in respect of the three flats. Further, the CIT(A) observed that there is no restriction under S. 54 of the Act that exemption is allowable only in respect of sale of one residential house. Accordingly, the CIT(A) held that even if the Assessee sells more than one residential houses in the same year and the capital gain is invested in a new residential house, the claim of deduction cannot be denied if the other conditions of S. 54 are fulfilled. On appeal by the Department, the Tribunal upheld the findings of the CIT(A) relying on the decision of the Hon’ble Bombay High Court in the case of CIT v. Devdas Naik (2014) 366 ITR 12 (Bom) (HC). (AY 2011-12)

ACIT v. Bipin N. Sagar (2019) 70 ITR 16 (SN) (Mum) (Trib)

35. 54 : Capital gains – Profit on sale of property used for residence – No requirement that residential house should be constructed in a particular manner – Only requirement is residential use as against commercial use – Assessee constructing ground floor, first floor and second floor – Assessee keeping rights of ground floor and second floor with roof rights of first floor – Entitled to exemption [S. 54F]

The assessee entered into a collaboration agreement with one Mr. K for dismantling an old building and construction of ground floor, first floor and second floor. In terms of the collaboration agreement, the assessee kept the rights of ground floor and second floor with roof rights of the first floor. The assessee declared the fair market value of the property at ₹ 1,25,10,000 for the assessment year 2016-17. After reducing the indexed cost of acquisition at ₹ 21,16,515, he declared long-term capital gains at ₹ 1,03,93,485. The assessee then claimed exemption under section 54 of the Income-tax Act, 1961 at ₹ 1,24,50,000 on the long-term capital gains. The Assessing Officer did not accept the claim of exemption under section 54 on the ground that the assessee had sold the rights of the first floor to the builder and kept the ground and second floors to himself under the collaboration agreement. Therefore, he treated the long-term capital gains on proportionate sale value of the first floor which came to ₹ 34,64,495 (one-third of the long-term capital gains as calculated by the assessee at ₹ 1,03,93,485) as the deemed long-term capital gains on transfer of rights of the first floor to Mr. K and taxed it in the hands of the assessee. The Commissioner (Appeals) enhanced the income. On appeal :

Held, that sections 54 and 54F use the expression “a residential house” which is not “a residential unit”. Sections 54 and 54F require the assessee to acquire a “residential house” and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections which requires the residential house to be constructed in a particular manner. The only requirement is that it should be for residential use and not for commercial use. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction under section 54 or section 54F. It is neither expressly nor by necessary implication prohibited. Thus, the assessee was entitled to exemption. (AY 2016-17)

Vinod Kumar Sharma v. ITO (2019) 76 ITR 72 (SN) (Delhi) (Trib)

36. 54EC : Capital gains – Investment in bonds –Transferable Development Right (TDR) – Acquisition of immovable property is capital asset- Period of holding of TDR was to be calculated from date of acquisition of assessee’s property by municipality [S 2(14), 43(5), 45, 48]

In 1986, assessee’s immovable property was acquired by municipal corporation. Assessee got a right in Transferable Development Right (TDR) in lieu of acquisition of his immovable property. No TDR was allotted for long. On 17-8-1996, assessee entered into an MoU with third party for transfer of right in TDR though there was no TDR in hand Surplus derived from transfer of TDR rights had been assessed under head capital gains. In 2004, said MoU was cancelled because purchaser was not willing to wait anymore because of delay in allotment of TDRs by competent authority. The ssessee got a new buyer for right in TDR and, accordingly, one more MoU was entered into and right in TDR was transferred. The assessee invested the amount in capital gain bonds and claimed exemption u/s 54EC of the Act. The AO held that the transfer of right in the TDR is held to be short term capital gain and denied the exemption u/s 54EC of the Act. On appeal the CIT (A) held that gain on sale of TDR is speculative gain and assessed u/s. 43(5) of the Act and denied the exemption u/s. 54EC of the Act. On appeal the Tribunal held that as TDR was inextricably linked with immovable property and it flew from transfer of immovable property, TDR was a capital asset within meaning of S 2(14) of the Act. Accordingly the surplus from transfer of TDR would be capital gains; not speculative business profit. The fact that assessee had derived right in TDR by virtue of acquisition of immovable property by municipal authorities in year 1986 and such right was conferred on assessee from date of acquisition of property, subsequent cancellation of sale of TDR to third party could not be considered as purchase of TDR from a third party and, therefore, for purpose of determination of period of holding, period of holding of asset from date of acquisition of property by municipal authorities had to be considered, and date, when MoU was cancelled in year 2004 was not to be considered. If investments were made in NABARD Capital Gain Bonds, exemption claimed by assessee under S. 54EC was to be allowed. (AY. 2005-06)

Adi D. Vachha v. ITO (2019) 179 ITD 356 (Mum) (Trib.)

37. 54F : Capital gains – Investment in a residential house – Developer failed to delivered possession – Delay in construction is not attributable to the assessee –Entitled to exemption [S.45]

Tribunal held that as per the agreement with the developer, the developer was supposed to hand over the possession of plot within 18 months from the date of the allotment letter. However, the developer did not deliver possession. Since the delay was not on the part of the assessee but on the part of the developer which is beyond the control of the assesse. Exemption is allowed to the assessee. (AY. 2013-14)

Abodh Borar v. ITO (2019) 76 ITR 30 (SN) (Delhi) (Trib.)

38. 54F : Capital gains – Investment in a residential house – The words “in India” cannot be read into section 54F when Parliament in its legislative wisdom has deliberately not used the words. The assessee is entitled to exemption of the Act though he has acquired house property in a foreign country – The amendment to s. 54F by the Finance Act, 2014 w.e.f. 2015 is applicable only prospectively [S.45]

The assessee is an individual. He sold a site and claimed deduction u/s. 54/54F of the Act on the capital gain on sale of the property as he invested the capital gain in purchase of a residential house in Texas on 12.7.2013. The AO denied the exemption. On appeal the Tribunal held that The words “in India” cannot be read into section 54F when Parliament in its legislative wisdom has deliberately not used the words. The assessee is entitled to exemption of the Act though he has acquired house property in a foreign country- The amendment to S. 54F by the Finance Act, 2014 w.e.f. 2015 is applicable only prospectively. (ITA No 2015 of 2019 dt 10 -1 2020) (AY. 2013-14)

Rajasugumar Subramani v. ITO (Bang) (Trib) www.itatonline.org

39. 54F: : Capital gains – Investment in a residential house – Letting out property on rent – Two adjacent bungalows – Two registered deed- Used as one unit – Entitle to exemption [S.22,45]

The assessee purchased two adjacent bungalows and claimed exemption u/s. 54F of the Act. AO allowed the exemption in respect of only one bungalow which was affirmed by the CIT(A). On appeal the Tribunal held that 2 units bearing separate numbers which were purchased by the assesee out of long -term capital gain income. Both the units are adjacent to each other and the same are single residential unit. Accordingly exemption was granted though there were two registries of the properties. Followed CIT v. Shri D.Anand Basappa (2009) 309 ITR 329/ 180 Taxman 4 (Karn) (HC) (ITA No. 1797 /Ahd/ 2018 dt
6-1-2020) (AY. 2015-16)

Mohammadanif Sultanali Pradhan v. DCIT (Ahd) (Trib) (UR)

40. 54F: Capital gains – Investment in residential house – Purchase – Constructed in phased manner and payments was linked to stage of construction, it is a purchase and not construction of new asset – Exemption is allowable [S.45]

The assessee claimed u/s. 54F in respect of capital gains on sale of shares in respect of apartment buyer’s agreement entered with SEPL for purchase of a new residential apartment as per which the assessee was required to make a payment which was paid by assessee on various dates. The AO held that assessee had not purchased the new flat but had made payment towards instalment to the builder for construction of the property, therefore, as the new asset was constructed then time limit is there, i.e., the date of sale of original asset till the expiry of 3 years thereafter applied. The assessee had started investing in the new asset from 3 years and 11 months before the date of sale. Around 90% of the total investment in the new asset was made before the date of sale of the original asset. The AO held that assessee was not eligible for deduction u/s. 54F of the Act. Tribunal held that, assessee had sold shares, entered into an agreement with a builder for purchase of new residential flat which was constructed by builder in phased manner and payment of which was linked to stage of construction, it was a case of purchase and not construction of new asset hence eligible for deduction. (AY. 2011-12)

Kapil Kumar Agarwal v. DCIT (2019) 178 ITD 255 / 72 ITR 353 (Delhi)(Trib.)

41. 54F : Capital gains – Investment in a residential house – Purchase of flat from builder – Date of allotment to be taken as date of acquisition of property – House consisted of several independent units – Exemption cannot be denied – New house need not be purchased exclusively in the name of the assesee – Invested prior to date of filing of return u/s. 139 (4) – Eligible for exemption [S.45, 139 (1), 139(4)]

Allowing the appeal of the assessee the Tribunal held that,while determining claim for deduction under S. 54F in respect of purchase of flat from builder, date of issuance of allotment letter by builder has to be taken as date of acquisition of property. In respect of purchase of a residential house, mere fact that said house consisted of several independent units could not be a ground for denying the exemption. For claiming exemption the new house need not be purchased by assessee in his own name exclusively. In order to claim deduction under section 54F, new residential house need not be purchased by assessee in his own name or exclusively in his name. Sale proceeds utilised in acquisition of new residential house prior to filing of return u/s 139 (4) is eligible for exemption. (AY. 2011-12)

Kamal Murlidhar Mokashi. (Mrs.) v. ITO (2019) 179 ITD 265 (Pune) (Trib.)

42. 54F : Capital gains – Investment in a residential house – Payments towards purchase of house property – Deduction is available up to date of filing of return of income prescribed u/s. 139(4) [S.45, 139(1), 139(4)]

Allowing the appeal of the assessee the Tribunal held that in respect of payments made to purchase of residential house the deduction is available up to date of filing of return prescribed u/s 139 (4) of the Act. (AY. 2012-13)

Vatsala Asthana (Smt.) v. ITO (2019) 179 ITD 297 (Delhi) (Trib.)

43. 56: Income from other sources – Share premium – Valuation of shares – Fair Market Value – Valuation considers various factors and not only balance sheet – Evidence on valuation. [S.56 (2) (viib), R11UA]

Assessee issued 70 lakh equity shares of ₹ 10/- each at a premium of ₹ 5 per share, receiving a total premium of ₹ 3.5 Crores. A.O. invoked the provisions of S. 56(2)(viib) and determined the fair market value of each share at ₹ 6.65/-. The premium received was added back to the total income of the assessee. The CIT(A) rejected the valuation of the assessee and A.O and applied rule 11UA to determine the value at ₹ 10.05/-. The assessee challenged the order before the Tribunal.

The assessee submitted that it had obtained the permission of the competent authority for the change of land use from agricultural to institutional for art, culture and convention centre. The total area of the land was 51366.94 sq. yards, while the circular rates of the institutional area were ₹ 22,000/- per sq. yard. The total value of land would come to ₹ 113 crore. After adding the total assets (9.18 lakh) and reducing the total liability of ₹ 46.56 crore, net asset value comes to ₹ 66.54 crore. If the net asset value is divided by the number of equity shares issued (10.10 lakh), the value of each share is ₹ 658.83.

The Tribunal accepted the assessee submissions, held the valuation of the shares should be made based on various factors and not merely on the financials/balance sheet as done by lower authorities. Further, it held that valuation could not be rejected, where it demonstrated the fair market value of the asset is more than the value of the balance sheet. (AY. 2014-15)

India Convention and Culture Centre Pvt. Ltd. v. ITO (2019)75 ITR 538 / 111 Taxmann.com 252 (Delhi) (Trib)

44. 56 : Income from other sources – Definition of relative – Includes Adopted child – “blood relative” is not mandatory [S.56(2) (vi)]

It was the case of the assessee that out of his natural love and affection the donor has gifted amount to the assessee from his income/capital. The gifts were not liable to income tax in his hands under Income Tax Act as they were ‘capital receipts’. S. 56(2)(vi) also exclude gifts from individuals from certain specified relatives including ‘brother-in-law’ from the purview of taxation. Since the donor resides in Mumbai, it was not possible for him to come down to Baroda before the AO within such short notice. Although It was categorically mentioned in the said reply that the donor was a regular tax payer and is regularly assessed to tax for these years, the AO added ₹ 5,00,00,000/- in the hands of the assessee. The Learned CIT(A) deleted the addition. The Department contested that, the assessee is not a blood relative of Mr. N. It was submitted by the assessee that the assessee is an adopted child under the Hindu Law, mainly Hindu Adoption and Maintenance Act, 1956 the assessee is having same status as of the own child of a spouse in this case. Tribunal held that as the details of the donor starting from PAN number, capital gain statement, bank statement and others is annexed to the paper book, which was duly placed before the authorities below. It appears that when Shri NS not brought to the Learned AO by the assessee no further enquiry was conducted by him, no record against the assessee was also brought. Apart from that, the creditworthiness and/or genuineness of the transaction though doubted by the Learned AO, the same has not been proved by any cogent document in favour of the revenue. Further that, whether the gift so received by the assessee from his brother-in-law is exempted from tax under S. 56 of the Act has been considered on a wrong notion. Instead of relative as provided by the statute, “blood relative”. Hence, the Revenue’s appeal is dismissed. (AY. 2008-09, 2009-10)

Dy. CIT v. Arvind N. Nopany (2019) 174 DTR 313 (Ahd.)(Trib.)

45. 56 : Income from other sources – Share premium – Two share holders – Brothers – Excess benefit was passed on to assessee was out of shareholding held by his brother-Provisions of S. 56(2)(viii)(c)(ii) would not apply-Balance sheet – Previous Balance Sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. [S.56(2)(viii) (c) (ii), R.11U, 11UA].

Assessee acquired certain shares of a company at face value of ₹ 10 per share. As cost of acquisition of shares appeared to be much lesser than Fair Market Value (FMV), AO estimated FMV as per previous year balance sheet of company, and worked out taxable income under S 56(2)(vii)(c)(ii), as per rules 11U & 11UA. CIT deleted the addition. On appeal by revenue the Tribunal held that since prior to allotment of shares, existing shareholders, were only assessee and his brother, and whatever excess benefit was passed on to assessee was out of interest of shareholding held by his brother, provisions of S. 56(2)(viii)(c) (ii) would not apply. In case balance sheet is not drawn up on date of allotment, for arriving at FMV of shares under S. 56(2)(vii)(c)(ii), previous Balance Sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. In case balance sheet is not drawn up on date of allotment, for arriving at FMV of shares under S 56(2)(vii)(c)(ii), previous Balance Sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. (AY. 2014-15)

ACIT v. Y. Venkanna Choudary (2020) 180 ITD 166 (Vishakha) (Trib)

46. 56 : Income from other sources – HUF – Gift – Amount received as gift from ‘HUF’, being its member, is a capital receipt not liable to tax – Revision is held to be not valid. [S. 4, 10(2), 56 (2) (vii), 263]

The assessee received a gift of ₹ 5,90,000/- from his ‘HUF’. The AO held that since the amount of said gift was more than ₹ 50,000/-, hence, the same was exigible to tax as ‘income from other sources’ under S 56(2)(vii) of the Act.

Subsequently, in course of reassessment proceedings, assessee submitted that ‘HUF’ being a group of relatives, hence, the gift by the ‘ ‘HUF’ to an individual is nothing but a gift from group of relatives and as per the exclusion clause 56(2)(vii) a gift from relative was not exigible to taxation. The AO accepted the contentions raised by the assessee and accordingly assessed the income of the assessee at the returned income. CIT set aside the order passed by the AO and held that the ‘HUF’ did not fall in the definition of relative in case of an ‘individual’ as provided in Explanation to clause (vii) to section 56(2) as substituted by Finance Act, 2012 with retrospective effect from 1-10-2009. That though, the definition of a relative in case of a ‘HUF’ was extended to include any member of the ‘HUF’, yet, in the said extended definition, the converse case was not included that is to say in the case of individual, the ‘HUF’ had not been mentioned in the list of relatives. The Commissioner thus formed a view that though a gift from a member thereof to the ‘HUF’ was not exigible to taxation as per the provisions of section 56(2)(vii), however, a gift by the ‘HUF’ to a member exceeding a sum of ₹ 50,000/- was taxable. Accordingly set aside the order of the AO and directed the AO to make assessment afresh. On appeal the Tribunal held that the property of the ‘HUF’ neither cannot be said to belong to a third person nor can be said to be in ‘corporate entity’, rather, the same is the property of the members of the family. It is because that the share of each of the individual member in the property or income of the ‘HUF’ is not determinate, hence, the family, as such, is treated as separate entity for taxation purposes. ‘HUF’ otherwise is not recognized as a separate juristic person distinct from the members who constitute it. A member of the ‘HUF’ has a pre-existing right in the family properties. A Coparcener has a pre-existing right and interest in the property and can demand partition also, however, the other members of the ‘HUF’ have right to be maintained out of the ‘HUF’ property. On division, the share in the estate/capital of the ‘HUF’ cannot be treated as income of the recipient, rather, the same will be a capital receipt in his hands. Accordingly the amount received by the assessee from the ‘HUF’, being its member, it is a capital receipt in his hands and is not exigible to tax. (AY. 2011-12)

Pankil Garg v. PCIT (2019) 178 ITD 282 (Chd.) (Trib.)

47. 56 : Income from other sources – Share premium – Approved valuer report was furnished – Addition is held to be not valid. [S. 56(2)(viib), R, 11UA]

The assessee company charged premium on issue of shares. The AO treated the difference between the share premium received in excess of valuation as determined under Rule 11UA of the Act amounting to ₹ 16 x 57,477 (Shares issued to resident shareholders namely Sh. Kamal Batra, Sh. Pankaj Sudan and Sh. Pravin Jain) = ₹ 9,19,632/- was treated as income of the assessee as per the provisions of section 56(2)(viib) of the Act and added the same to the income of the assessee as income from other sources u/s. 56(2)(viib) of the Act. CIT(A) confirmed the order of the AO. On appeal the Tribunal held that, the legislative intent is to apply S. 56(2)(viib) where unaccounted money received in garb of share premium. The AO has not made out a case that stated money is not clean money. Also, the assessee has given approved valuer (CA) report justifying share premium raised based on valid and prescribed method being DCF and said report is in accordance with ICAI norms. AO has not countered the said report by substitute valuation. Also, if the shares are sold in next FY at much higher amount, the premium cannot be said to be excessive (Lalithaa Jewellery Mart Pvt Ltd v ACIT (2019))178 ITD 503 (Chennai) (Trib) followed) (ITA No. 2222/Del/2019, dt. 03.01.2020)(AY. 2014-15)

Clearview Healthcare P. Ltd. v. ITO (SMC) (Trib)(Delhi), www.itatonline.org

48. 56 : Income from other sources – Shares at premium – Valuation of shares – FMV of shares was estimated after considering intangible assets like goodwill, know-how, patents, copyrights, trademarks, licences, franchises, etc – Re valuation of shares by the AO is held to be not justified. [S.52(viib)]

Assessee issued shares having face value of ₹ 10 per share at premium of ₹ 1,590 per share. The AO held that, share premium was much higher than value estimated under rule 11UA and therefore he determined excess amount as income of assessee u/s. 56(2)(viib) of the Act. On appeal Tribunal held that, FMV of shares was estimated after considering intangible assets like goodwill, know-how, patents, copyrights, trademarks, licences, franchises, etc. AO had not found any specific fault in valuation of shares made by assessee. When the AO has not found any defect or error in the valuation of shares by the assessee-company, it may not be necessary to apply the method of valuation prescribed under rule 11UA. Hence, revaluation of shares by the AO under rule 11UA was unjustified. (AY. 2013-14, 2015-16)

Lalithaa Jewellery Mart (P.) Ltd. v. ACIT (2019) 178 ITD 503 / 73 ITR 532 (Chennai)(Trib.)

49. 57 : Income from other sources – Deductions – Co-Operative Housing Society – Administrative expenses are allowable against the interest on fixed deposit [S.56]

Allowing the appeal of the assessee the Tribunal held that, the interest income is to be adjusted against the expenditure incurred by the assessee during the year, accordingly the professional fees paid to its chartered Accountant is held to be allowable as deduction. Interest on deposit is not per se a separate source of income and must be taxed only after allowing administrative expenses of a society. Followed Nivedita Garden Condominium v ITO (ITA No. 120/PN. 2009 (ITA No 1390 /Pun/2019s, dt 21-01-2020 (AY. 2014 -15)

Maharashtra Police Mega City Co-Operative Society Ltd v. ITO (Pune) (Trib) (2020) CTCJ-Feb- P.122

50. 57 : Income from other sources – Deductions – Interest paid on borrowed money – Advanced to earn interest – Though no interest is earned on money lent, interest paid is allowable as deduction.[S.56, 57(iii)]

The assessee borrowed funds and utilised them for lending money to various parties. AO disallowed the interest paid. CIT (A) confirmed the order of the AO. On appeal the Tribunal held that, interest paid by assessee on money borrowed was to be allowed under S. 57(iii) even if it did not earn interest income on money lent by it. Followed CIT v. Rajendra Prasad Moody (1978) 115 ITR 519 (SC). (AY. 2015 -16)

Akash Goyal v. ACIT (2020) 180 ITD 551 (Agra) (Trib.)

51. 68 Cash credits – Share Application money – Identity and Creditworthiness of the share applicant – Genuineness of the transactions – Burden of Proof – Initial onus on assessee – Discharged – Onus shift to Revenue – Addition based on suspicion is held to be invalid. [S. 133 (6)]

The assessee credit the books of accounts on share capital and share premium to the tune of ₹ 2,40,00,000/-. During the assessment proceedings, the A.O. requested the assessee to provided details of identity and creditworthiness of the share applicant. Further, it requested the directors of the share applicant company to appear before him. The A.O. drew an adverse inference as the director failed to appear and the similarity on documentation filed by all parties showed the entire transaction is a sham. Further, it stated that the share applicants showed little or no tangible asset in their financial. It noted that the assessee failed to show the creditworthiness of the investors and genuineness of the transaction. He brought the entire amount as income u/s 68 of the Act. On appeal, the CIT(A) granted part relief to the assessee. On cross-appeal to the Tribunal.

The Tribunal held the duty is cast upon the assessee to explain the nature, and source of credit in books of account. The assessee has to prove 3 ingredients, i.e. identity of the share applicant, genuineness of the transaction and creditworthiness of the share applicant. To prove these ingredients, the assessee furnished the name, address, permanent account number (PAN), balance sheet and income tax return. On verification of share applicants’ financial statements, it was noticed that they had crores of rupees and the investment made was a small part of their capital. The transactions reflected in the share applicants balance sheet. The share applicants have confirmed the amount in the responses to the notice u/s. 133(6) issued by the A.O. If the assessee has discharged the initial onus, the burden shift to the A.O. to rebut by showing contra evidence. The assessee is not required to prove the source of source. If there is doubt about the creditworthiness of the investor, the A.O. should have carried out an enquired without which no adverse inference can be drawn. In the absence of investigation and gathering of evidence, the addition could not be sustained merely on suspicion or conjectures.
(AY. 2012-13)

ITO v. Paras Surti Products Pvt. Ltd. (2019) 75 ITR 137 (Kol) (Trib)

52. 68 : Cash credits – Bank statement – Books of account – credit in bank statement not credited in books of account, no cash deposits recorded in books of account – Transactions outside books of account – Addition as cash credit is held to be not justified

Tribunal while allowing the appeal of the Assessee held that, though the assessee had maintained books of account, the cash deposits made in the bank account were not found credited in the books of account. The entire transactions were made outside the books of account. In the absence of any finding with regard to the cash deposits recorded in the books of account of the assessee, the additions made u/s. 68 in respect of cash deposits in the bank account were unsustainable. (AY. 2011-12)

Asha Sanghavi (Smt.) v. ITO (2019) 76 ITR 17 (SN) (Vishakha (Trib)

53. 68 : Cash credits – Unsecured loan received substantiated by substantial documentary evidence – No proof by AO that loan emanated from coffers of assessee – Lenders corporate entities assessed to tax, making unsecured loans through banking channels – Complete details and evidence of lenders submitted by assessee – Addition is deleted [S.133(6)]

Unsecured loans from 15 persons had been taken during the year 2015-16. Notice under section 133(6) was issued to all the parties. Only two parties confirmed the transactions but refused to accept that they provided any unsecured loan to the assessee. Therefore, the Assessing Officer treated the loans as income under section 68. The Commissioner (Appeals) partially sustained the addition. On appeals by the assessee and Department, the Tribunal held that it is for the AO to pursue a creditor particularly once the assessee had duly furnished the complete particulars of the person from whom monies have been received by the assessee. In the absence of such a burden having been discharged, the Assessing Officer could not have mechanically proceeded to make the addition. Non-compliance with the notice issued under section 133(6) of the Income-tax Act, 1961 to all the entities giving unsecured loan cannot be a basis to make addition under section 68 of the Act. The Tribunal observed that the unsecured loans received by the assessee had been fully substantiated by substantial documentary evidence, copy of the audited financial statement, acknowledgment of return, confirmation from the lender, bank statement of the lender. Such sum could not in law or on fact be held to be unexplained cash credit under section 68 of the Act. No material had been led by the Assessing Officer to even allege that such amount emanated from the coffers of the assessee. The lenders were corporate entities duly assessed to tax and had made unsecured loans through banking channels, which fact had neither been denied nor rebutted in the assessment order, which was also duly confirmed by each of the lender. The assessee had furnished complete details and evidence to discharge the burden in respect of unsecured loan. Therefore, addition was liable to be deleted. The Tribunal followed Earthmetal Electrical (P) Ltd. v. CIT (CA No. 6181 of 2010 dated July 30, 2010) (SC) and CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC). (AY. 2015-16)

Radius Industries v. ACIT (2019) 75 ITR 547 (Delhi)(Trib))

54. 68 : Cash credits – Share application money – Share premium – Name, address, PAN of share applicants together with copies of their balance sheets and returns and, amount received by account payee cheques out of sufficient bank balances maintained – Addition is held to be not valid

Assessee received share capital along with share premium from various investors. The AO held that assessee failed to prove identity, genuineness and creditworthiness of share subscribers, added the amount as cash credits. CIT (A) deleted the addition. On appeal by the revenue the Tribunal held that, for proving identity of share applicants, assessee had furnished name, address, PAN of share applicants together with copies of their balance sheets and returns, with regard to creditworthiness of share applicants, applicant companies were having capital in several crores of rupees and investment made in assessee was only a small part of their capital. As regards genuineness of transactions, monies had been directly paid to assessee by account payee cheques out of sufficient bank balances maintained by share applicants. Accordingly the addition is held to be not valid. (AY. 2012-13)

ITO v. Axisline Investment Consultants (P.) Ltd. (2019) 178 ITD 402 (Kol)(Trib.)

55. 68 : Cash credits – Share application money – Premium – Confirmation filed – Mode of investment is explained – Addition is held to be not justified.

The assessee received a certain amount from one Investor as an investment towards share capital and share premium. The AO noticed that neither DML nor assessee produced any documentary evidence that said amount was deposited DML. Hence, made additions u/s. 68 on account of bogus share capital and share premium. CIT (A) deleted the addition. Dismissing the appeal of the revenue the Tribunal held that, the investor, has proved the identity beyond doubt and that notices, summons etc. were duly served upon her at her address provided by assessee. Investors was a woman having considerable financial strength and capacity who had a substantial annual income further she had investments in many immovable properties. Investor has confirmed investment made by her in shares of assessee-company and had also explained mode of investment with substantiated reasons as well as justification for making investments in shares of assessee. Addition is held to be not valid. (AY. 2012-13, 2013-14)

DCIT v. ATC Realtors (P.) Ltd. (2019) 178 ITD 293 (Guwahati) (Trib.)

56. 68 : Cash credits – Share transactions – Accommodation entries – Unaccounted money – denial of exemption is held to be justified [S. 10 (38), 45

Assessee filed the return declaring long-term capital gain on sale of shares as exempt under S. 10(38) of the Act. AO held that the amount received as unexplained cash credit on the ground that the assessee failed to discharge burden of proof and explain nature and source of transaction and huge profit in all shares traded by assessee against human probability. CIT (A) also affirmed the order of the AO. On appeal the Tribunal held that the assessee failed to justify manifold increase in prices of shares despite weak financials of companies. Further, investigation carried out by Department had brought facts on record that share prices had been manipulated artificially, purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator, etc.. Moreover, fact that prices of all shares purchased by assessee went up, that too without any corresponding profit or prospects of company, and not even in single case price of share came down, was against human probabilities and impugned year was an isolated year of such profits with no such profits made in earlier or subsequent years. Accordingly as the assessee failed to prove genuineness of transaction and long-term capital gain on sale of shares by assessee was an arranged affair to convert its own unaccounted money and thus, exemption claimed under S. 10(38) on sale of shares had rightly been disallowed. (AY. 2015-16)

Satish Kishore v. ITO (2019) 179 ITD 333 (Delhi) (Trib.)

57. 69: Unexplained expenditure – Bogus purchases – Sales accepted – The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. [S.68]

The assessee is in the business of diamonds. The AO made addition of ₹ 14, 37 867 as alleged bogus purchases. CIT(A) restricted the addition to extent of 12.5 % of such purchases. On appeal following the decision in Mohammad Haji Adam & Co. ITA No. 1004 of 2016 dt 11-02-2019 www.itatonline.org and Judgement of Mumbai Tribunal in Shri Rameshkumar Daularaj v. ITO (ITA No 4192 /Mum/ 2018 dt 07-05-2019 directed that in case of bogus purchases where sales are accepted, the addition can be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. (ITA No. 6483/Mum/2018, dt. 06.12.2019)(AY. 2008-09)

Hemant M. Mehta HUF v. ACIT (SMC) (Mum)(Trib), www.itatonline.org

58. 72 : Carry forward and set off of business losses – Discontinued business – Entitle to set off the loss against business income of the current year. [S. 28(i), 71, 72(1), 176(3A)]

The assessee was engaged in the business of manufacturing of textile garments. It filed return for relevant year, declaring total income at Rs. Nil.

The AO held that as the business was discontinued the assessee was not entitle to set-off against the brought forward business losses of the earlier years. CIT (A) allowed the claim of the assessee. Tribunal affirmed the order of the CIT (A) by holding that S. 72(1)(i) does not mandate that business or profession should have been carried on by assessee during relevant previous year as a pre-condition for set off of brought forward business losses and, therefore, in case there are profits and gains of any business or profession carried on by assessee, which are assessable in its hands during relevant year, it would be entitled to set off its brought forward business losses against same. Referred CT v. Jaipuria China Clay Mines (P) Ltd (1966) 59 ITR 555 (SC) (AY. 2011-12)

DCIT v. Regency Property Investments (P.) Ltd. (2019) 179 ITD 584 (Mum) (Trib.)

59. 73 : Losses in speculation business – Business in trading in shares – Business loss – Delivery based transactions – Derivates transactions in futures and options segment – Explanation to section 73 does not differentiate between ‘delivery based transactions’ and ‘derivative transactions in F&O segment’ and same applies to entire business of purchase and sale of shares, whether such trading is delivery based or non-delivery based and, whether there is profit or loss from such business [S.28(i)]

The assessee-company which is engaged in the business of trading in shares on its own account, derivative transactions and share broking activity. It incurred loss in respect of the business of purchase and sale of shares on its own account and the same was claimed to be a normal business loss. The AO held that the loss incurred from the said activity was liable to be treated as a deemed speculation loss in terms of Explanation below S. 73 and rejected the claim. CIT (A) up held the order of the AO. On appeal the Accountant Member accepted the claim of the assessee that the loss incurred from the business of purchase and sale of shares on its own account constituted a normal business loss. The Judicial Member did not agree with the view taken by the Accountant Member and proceeded a pass a separate order taking a different view. He held that the assessee-company during the year under consideration was engaged in a systematic business activity of purchase and sale of shares of other companies on its own account and the loss suffered in the said activity was liable to be treated as speculation loss in terms of Explanation to section 73. In view of difference of opinion between the members of the Tribunal, the matter was referred to the Third Member, Third member held that the business carried on by the assessee during the year under consideration remained the same and it was continued to be of trading in shares on its own account, derivative transactions and share broking activity as admitted by the AO himself in the assessment order. As categorically observed by the AO, there was no material difference or any deviation in the nature of business carried on by the assessee during the year under consideration, vis-a-vis the preceding year. This position gets further fortified from the gross income earned by the assessee from the different activities. The legal position that emanates from various judicial pronouncements is that the Explanation to section 73 does not differentiate between ‘delivery based transactions’ and ‘derivative transactions in F&O segment’ and same applies to the entire business of purchase and sale of shares, whether such trading is delivery based or non-delivery based, whether there is profit or loss from such business. In the present case, the assessee-company has treated the entire activity of purchase and sale of shares, which comprised of both the delivery based and non-delivery based trading as one composite business and, accordingly, claimed set off of the loss incurred in delivery based trading against profit derived from derivative trading. If the ratio of earlier judicial pronouncements is applied to the facts of the assessee’s case, it follows that the aggregation of the share trading loss and profit from derivative transaction should be done before application of Explanation to section 73 and where there was surplus profit on such aggregation, Explanation to section 73 would not be applicable. Therefore, the view taken by the Accountant Member is correct. (AY. 2009-10)

Lohia Securities Ltd. v. DCIT (2020) 180 ITD 1 (TM) (Kol) (Trib.)

60. 80IB : Industrial undertakings – Profit derived from new oil wells – Law does not require separate accounts to be maintained as if the undertaking itself is a distinct business – Oil wells come into existence after digging the earth through rigs – usage of old plant and machinery in those undertakings no ground to disallow the claim

Held that the assessee is eligible for deduction under S. 80-IB in respect of profits derived from new oil wells, as assessee’s oil wells are distinctly identifiable as per their respective production and also that it has maintained production-wise records and drilling cost well-wise in separate books of account. Further, there is no merit in the Revenue’s argument that assessee’s each oil well ought not to be treated as a separate eligible undertaking. (AY. 2003-04 to 2006-07)

ACIT v. Oil India Ltd. (2019) 182 DTR 25 / 201 TTJ 545 (Gau)(Trib)

61. 80IB : Industrial undertakings – Eligible undertaking – Each oil well can be treated as a separate eligible undertaking – Not required to maintain separate account for each undertaking [S. 80IC]

Dismissing the appeal of the revenue the Tribunal held that for claiming deduction under S. 80IB, law does not require such separate accounts to be maintained as if undertaking itself is a distinct business. For purpose of deduction each oil well can be treated as a separate eligible undertaking. (AY. 2003-04 to 2006-07, 2007-08)

ACIT v. Oil India Ltd. (2019) 179 ITD 455 (Guwahati) (Trib.)

62. 80IB(11A) : Undertaking – Business of processing, preservation and packing of fruits or vegetable eligible – Business of extraction of oil from oil palm by different processes and preservation of oil under adjusted temperature and then packaging of oil in large containers or tanks, could be said to be from business of processing, preservation and packing of fruits or vegetable eligible for deduction

Allowing the appeal of the assessee the Tribunal held that, Profits from assessee’s business of extraction of oil from oil palm by different processes and preservation of oil under adjusted temperature and then packaging of oil in large containers or tanks, could be said to be from business of processing, preservation and packing of fruits or vegetable eligible for deduction. (AY. 2012-13 to 2014-15)

3F Oil Palm Agrotech (P.) Ltd. v. ACIT (2019) 178 ITD 319 (Hyd) (Trib.)

63. 80IC : Special category States – Oil exploration activity can be taken as manufacture or production – Eligible for deduction. [S.80IB, 80IC (7)]

Dismissing the appeal of the revenue the Tribunal held that the assessee is not required to maintain its books of account qua each undertaking to be treated as separate unit in section 80IC(7) of the Act. Oil exploration activity could be taken as manufacture or production as prescribed in section 80IC(2)(b) of the Act, hence eligible for deduction. (AY. 2003-04 to 2006-07, 2007-08)

ACIT v. Oil India Ltd. (2019) 179 ITD 455 (Guwahati) (Trib.)

64. 80JJAA : Employment of new workmen – Rendering software development services – Regarded as an industrial undertaking engaged in manufacture of article or thing – Eligible for deduction

Tribunal held that rendering software development services is regarded as an industrial undertaking engaged in manufacture of article or thing. Accordingly the software professional who were employees of assessee-company could be considered as workman, hence eligible for deduction. Followed ESI Corpn. v. Reliable Software Systems (P.) Ltd. [2012] 5 AIR Bom. R 795 (para 12] ACIT v.. Texas Instruments (India) (P.) Ltd. [2009] 27 SOT 72 (URO)(Bang) (Trib). The Tribunal held that Software Industry has also been notified as Industry for the purpose of Industrial Disputes Act, 1947 by the State of Karnataka and that the employees employed in software development industry render technical services and not services in the nature of supervisory or management character. (AY. 2012-13)

Manhattan Associates (India) Development Centre (P.) Ltd. v. DCIT (2020) 180 ITD 257 (Bang) (Trib.)

65. 92A(2) : Transfer pricing- Arm’s length price – Associated enterprises – Two enterprises can be treated as associated enterprises – Judgements of non jurisdictional High Courts are binding on the Tribunal – Addition is deleted. [S.92C]

The law in Diageo India Pvt Ltd v. Dy CIT (2011) 47 SOT 252 (Mum) (Trib) that the definition of “Associated Enterprises” in section 92A(1)(a) & (b) is the basic rule which is unaffected by the specific instances referred to in s. 92A(2) is not good law in view of the amendment by the FA 2002 and CBDT Circular No. 8 dated 27.08.2008. The correct law as held in Veer Gems 95 taxmann.16 (Guj) is that S. 92A(2) restricts the scope of S. 92A(1) and it is only when the criterion specified in sub section (2) is satisfied, two enterprises can be treated as associated enterprises. Judgements of non jurisdictional High Courts are binding on the Tribunal. Tribunal held that the relationship between assessee and KES was not AEs and accordingly no arm’s length price adjustments could be made on the transactions between these two entities. Addition is deleted.(ITA No 2165/Mum/15, dt. 28.02.2020)(AY. 2007-08)

Kayee Pvt. Ltd. v. ITO (Mum)(Trib),www.itatonline.org

66. 115JAA : Book profit – Deemed income – Tax credit – Demerger of SEZ units – Tribunal Order – MAT credit needs to be allowed to the assessee – not to the demerged company (SEZ units) even though the same arose on account of SEZ units.

Dismissing Revenue’s appeal, Tribunal held that even though no specific provision is provided in the Act in respect of carry forward and set off of MAT credit in respect of demerger, the credit for such MAT credit needs to be allowed to the assessee, and not to the demerged Company (SEZ units).
(AY. 2014-15)

DCIT v. TCS E-Serve International Ltd. (2019) 182 DTR 273 / 201 TTJ 997 (Mum)(Trib)

67. 132 : Search and seizure – No search warrant – Search declared as invalid – Block assessment is also invalid [S.158BC, 158BD]

A search and seizure operation under section 132 of the Act was conducted in the business and residential premised of the assessee. In the course of the search, books of account were seized. The AO completed the assessment under s. 158BC rws 143(3) rws 158BD of the Act. CIT(A) observed that notice under s. 158BC issued is invalid and the order u/s 158BC was after limitation & cancelled the order of the AO. Tribunal held that the CIT(A) has also observed that since there is no search warrant issued in the name of the assessee in the assessment records. Therefore, once the search was to be declared as invalid and, on that ground, that impugned block assessment was also declared as invalid. Hence the order of the CIT(A) is confirmed. (BP 01-04-1989 to 08-11-1999)

Seema Sen (Dey) (Smt.) v. ACIT (2019) 177 DTR 205 (Ctk)(Trib.)

68. 139: Return – Invalid return – Failure to enclose the report from Chartered Accountant in Form No 3CEB – AO must give an opportunity to rectify the defect with in specified time- Reassessment is quashed on the ground of change of opinion.[S.92E, 139(9), 147, 148, 271BA ITAT R. 27]

Dismissing the appeal of the revenue the Tribunal held that the AO cannot hold the return as invalid for failure to enclose the report from Chartered Accountant in form No 3CEB. AO must give an opportunity to rectify the defect with in specified time. The Tribunal entertained the Rule 27 application of the responded in respect of validity of the re assessment. Following the judgement in CIT v Kelvinator of India Ltd (2010) 320 ITR 561 (SC) the reassessment proceeding was quashed. (AY. 2008-09)

DCIT v. Husco Hydraulics (P.) Ltd. (2019) 179 ITD 559 (Pune) (Trib.)

69. 143(2) : Assessment – Notice – Notice issued to wrong address – Department acknowledging mistake and serving notice by affixture at correct address – Service by affixture not permissible and could not be taken into account – Notice invalid and assessment is void ab initio [S.143(3), 282, 292BB]

Allowing the appeal of the assessee the Tribunal held that, the notices were never issued to the correct address. The Department itself had acknowledged its mistake by substituting service of notice by way of affixation by mentioning the correct address but this could not be taken into account as there was no effort whatsoever on the part of the Department to get the service effected through ordinary course. Notice by way of affixation was only to be served when the correct address was not available or the assessee had refused to accept the service of notice. Consequently, the assessment framed under S. 143(3) is void ab initio. (AY. 2013-14)

Tourism India Management Enterprises (P.) Ltd. v. Dy. CIT (2020)77 ITR 311/185 DTR 361 / 203 TTJ 509 (Delhi) (Trib)

70. 143(2) : Assessment – Service of notice – Notice served on assessee which was not as per addresses as specified in rule 127(2) of 1962 Rules, assessment based on said notice is not valid assessment. [R.127(2)]

Before the CIT(A) the assessee contended that in absence of valid service of notice u/s. 143(2), assessment done u/s. 143(3) was null and void. CIT (A) allowed the partial relief on merit. The assessee filed an appeal in respect of issue of notice u/s. 143(2) of the Act. Tribunal held that, notice issued at a wrong address cannot be said to be a valid service of notice, since address which had been mentioned in notice u/s.143(2) was none of addresses as specified in rule 127(2), therefore service of notice could not be regarded as proper or valid service and, thus, consequent assessment made on basis of such invalid. (AY. 2009-2010)

ITO v. Ajay Raj (2019) 178 ITD 379 (Delhi)(Trib.)

71. 143(3) : Assessment – Books of account – TDS return – Difference in income as per 26AS and books of accounts – No additions can be warranted [S.28(i), Form, 26AS]

Assessee received income for some contract work done for Kuvempu University. The Kuvempu university in its TDS Return has recorded higher amount as compared to that recorded by the assessee in its books of accounts. Thus, the AO has made addition based on difference in Form 26AS and books of accounts of the assessee which was also confirmed by CIT(A). On appeal the Tribunal relying on the decision of Hon’ble Mumbai ITAT in case of TUV India Pvt. Ltd. (2019) 75 ITR 364 (Mum) (Trib.) which has similar facts as that of assessee and has held that:

• Addition to total income cannot be made due to discrepancy in receipts as shown in 26AS;

• There is difference in accounting policy followed by assessee and clients who have deducted TDS or the TDS have been deducted by the clients on inclusive of service tax whereas the income reflected by assessee is exclusive of service tax;

• The assessee does not have control over the data base of the Income tax Department as reflected in Form 26AS and at the best it can obtain bona fide explanations for this difference;

• The Department has all the information in its possession and control and thus, should have conducted necessary enquiries to unravel the truth but asking the assessee to do is not warranted.

Thus, no addition can be made on the difference between the income as per Form 26AS and as that reflected in books of accounts. (AY. 2010-11)

Roopa Electricals v. ITO (2019) 57 CCH 501/ 76 ITR 39 (SMC) (SN) (Bang.)(Trib.)

72. 145 : Method of accounting – Survey – Estimation of income on the basis of estimated gross profit on sales – Rejection of books of account without any reason – Addition is held to be not valid.[S.133A, 144]

The assessee is in the e business of dealing in precious metals and ornaments. During the course of this survey, certain diaries were found indicating unaccounted credit sales. These diaries were impounded by the authorities. On the basis of the entire material and the books of account, the assessee offered to tax additional income on account of stock difference of gold, silver and diamond on account of stock. The assessee filed return accepting this additional income. However the AO made addition on account of estimated gross profit on estimated sales. CIT (A) confirmed the addition. On appeal the Tribunal held that the AO made addition made in respect of the unaccounted sales are far in excess of the actual sales made by the assessee, when the income voluntarily offered to tax on the basis of material on record is far more than income, strictly speaking, legally justified on that basis, there cannot be any good reasons to make separate additions on the basis of the same material. In these circumstances, separate addition on account of income, as profit or as seed capital or for any other related factor, is clearly unwarranted. Accordingly deleted the addition. (AY. 2011-12)

Mayankkumar Natwarlal Soni. v. ACIT (2019) 179 ITD 444 (Ahd) (Trib.)

73. 147: Reassessment – After the expiry of 4 years – No scrutiny assessment – Reopening solely based on information from Investigation Wing – No independent application of mind – Reassessment invalid.

The assessee filed return of income, but no scrutiny assessment was carried out. There was information obtained from the Principal Directorate of Income – Tax (Investigation Wing). The information provided that the modification of client code in the stock exchange by brokers was misused for manipulative activities, including tax evasion. On investigation by SEBI and Investigation Directorate Ahmedabad, the assessee name appeared in the list of beneficiaries. A.O. based on information held it has reasons to believe that income of the escaped assessment.

According to the Tribunal, the reassessment is invalid, as it was based on the information from the investigation wing without making independent verification and application of mind by the A.O. (ITA. No 4558/Del/2019, dated 11/09/2019, AY 2009-10)

Magan Behari Lal v. DCIT (2019)75 ITR (Trib) 322 (Delhi) (Trib)

74. 147: Reassessment – Reasons recorded and additions made – CIT(A) deleted some additions which formed part of reasons –other additions not part of reasons survived- held no other addition could survive in respect of which reasons are not recorded [S.148]

The assessee is a government contractor and its assessment under Section 143(3) of the Act was completed by AO after making certain additions. Thereafter, reopening proceedings were initiated by issuing notice under Section 148 of the Act. After recording reasons, the AO made certain additions in the reassessment order of which some were part of reasons for reopening and some did not form part of reasons for reopening. These additions were challenged before the CIT(A) and the CIT(A) deleted those additions which were part of the reasons for reopening and confirmed the other additions. Aggrieved by the same, the assessee preferred an appeal before the Tribunal. The Tribunal relying on the various judicial precedents in case of Adhunik Niryat Ispat Ltd. (ITA No. 2090 of 2010) and Ranbaxy Laboratories Ltd v. CIT (2011) 242 CTR 117 (Delhi) (HC) held that when the additions in respect of which reasons were recorded are deleted, the additions made on account of the items other than the items in reasons recorded, cannot survive. Hence the AO was directed to delete the additions accordingly. (AY. 2009-10)

Naresh Kumar Garg, Prop. Grag Electricals v. ACIT (2019) 76 ITR 18 (SN) (Delhi)(Trib.)

75. 147 : Reassessment – Notice – Notice was neither served upon assessee nor sent at proper address – Reassessment is held to be not valid [S.148]

Tribunal held that the assessee was regularly assessed to tax, Since the AY 2003-04, he had been regularly filing the returns up to the AY 2018-19, at Kanpur and the address mentioned was a Kanpur address. If in the Income-tax records and in the permanent account number data base, the assessee’s address and the jurisdiction of the AO had been categorically given, then without verifying the address, the ITO could not issue a notice at a wrong address. The case was reopened mentioned wrong address on which notice had been sent, which, as brought out by the assessee was not an address at all. Tribunal held that, neither the notice u/s. 148 been served upon the assessee nor had been sent at the proper address. Accordingly in absence of any valid service of notice u/s. 148 which is the condition precedent for assuming the jurisdiction for reopening the case u/s. 147, the entire proceedings were void ab initio and to be held as null and void. (AY. 2009-10)

Vikrant Tiwari v. ITO (2019)76 ITR 310 (Delhi)(Trib.)

76. 147 : Reassessment – Sale of agricultural land – Book profit – Erroneous application of law – Mechanical application of mind – Reassessment is held to be not valid [S. 2(14(iii), 115JB, 148, 151, 263]

The assessee has sold agriculture land which has resulted into gain of ₹ 13,98,46,990/-. As per the AO, the said land being located in rural area though does not form the part of the capital asset within the meaning of Section 2(14)(iii) of the Act, at the same time, while computing book profits U/s. 115JB of the Act, gain so derived on sale of agriculture land cannot be excluded while computing the book profits. For this reason, the assessment was re-opened and notice u/s 148 was issued. As per the AO such gain is not income derived from land but is the income derived from sale of the land which cannot be termed as agriculture income which can be claimed as exempt under S.10 of the Act. Accordingly applied the provision of S.115JB in the reassessment proceedings. On appeal the CIT(A) held that gain on sale of agriculture land is eligible for exclusion from book profits U/s 115JB of the Act. However, the assessee’s ground challenging the reopening of the assessment u/s 147 was decided against the assessee and in favour of the Revenue. On appeal by the revenue and cross objection by the assessee the Tribunal held that, if the AO has incorrectly or erroneously applied law and income chargeable to tax has escaped assessment, the Revenue should resort to s. 263 and revise the assessment and not reopen u/s. 147. When matter was referred to the CIT for seeking approval, instead of holding that the matter falls u/s. 263 and not u/s 148, has given approval u/s. 151 which shows non-application of mind and mechanical grant of approval. Therefore, the assumption of jurisdiction u/s. 147 cannot be sustained and is held as invalid in eyes of law. Accordingly the cross objection is decided in favour of the assesee. (ITA No. 237/JP/2019, dt. 23.12.2019)(AY. 2013-14)

Krish Home Pvt Ltd v. ITO (Jaipur)(ITO), www.itatonline.org

77. 147 : Reassessment – Foreign bequest – Request to transfer is pending – Bequest received by assessee at Sri Lanka could not be recognized as income – Reopening is held to be bad on law [S. 2 (24)(iia), 5,11(2), 12AA, 143(3), 148, 160(1) (iv), 161(1)]

Assessee, a charitable trust exemption u/s. 11 is allowed in the original assessment proceedings. The assessment was reopened on the grounds that assessee had received UK based bequest of certain amount which was credited to assessee’s Sri Lanka based bank account and same was entitled to be treated as income of assessee as same was neither claimed for exemption under S. 11(1) nor set apart under S. 11(2). The Assessee contended that it was not in receipt of impugned sum since due permission seeking transfer of impugned sum to India was still pending and, therefore, above sum was wrongly treated as taxable income of assessee. Allowing the appeal the Tribunal held that the amount in question was lying in treasury of bank at Sri Lanka and the Assessee’s request seeking its transfer to India was pending till date. Accordingly London based bequest transfer to Sri Lanka of assessee could not be considered as income of assessee and, therefore, impugned reopening was unjustified. (AY.2007-08)

Mahabodhi Society of India v. ITO (2019) 74 ITR(T) 485 / 179 ITD 564 (Kol) (Trib.)

78. 148 : Reassessment – Legal representatives – Notice issued in name of deceased assessee – No subsequent notice issued on legal heirs of deceased assessee – S. is 159 not applicable – Reassessment is not valid. [S. 147, 159]

The assessee had expired on November 26, 2008 as per the death certificate dated February 11, 2009 issued by the Jaipur Municipal Corporation. The reasons for reopening the assessment for the assessment year 2006-07 under S. 147 of the Income-tax Act, 1961 were recorded on March 15, 2013. A notice under S. 148 was issued in the name of the deceased assessee on March 20, 2013. Further, there was no subsequent notice under section 148 which had been issued by the AO on the legal heirs of the deceased assessee and therefore, the provisions of S. 159 could not be invoked. Therefore, the reassessment proceedings initiated by issuance notice on the deceased assessee were to be quashed for want of jurisdiction. (AY. 2006-07)

Bhura Ram (Late) v. ITO (2019) 76 ITR 681 (Jaipur) (Trib)

79. 151 : Reassessment – Sanction for issue of notice – Approval of commissioner in a mechanical manner without due application of mind and mentioning only “yes” – Reassessment is not sustainable [S.147, 148]

Tribunal held that, PCIT while granting approval for issue of notice u/s. 148 had only mentioned “yes”, which established that the approving authority had given approval to the reopening of the assessment in a mechanical manner without due application of mind. Therefore, reassessment was not sustainable in the eyes of law and had to be quashed. AY. 2009-10)

Blue Chip Developers P. Ltd. v. ITO (2019) 76 ITR 58 (SN.) (Delhi) (Trib)

80. 151 : Reassessment – Sanction for issue of notice – Sanction granted by the CIT under s. 151 by simply writing “Yes, I am satisfied” is also invalid. [S.147, 148]

Held by the Tribunal that:

(i) For re-opening, the condition precedent of ‘reason to believe’ that there escapement of income is sine qua non. Re-opening merely on the basis of information given by the Addl DIT (Inv.), without application of mind / independent enquires by AO is erroneous as it does not satisfy the jurisdictional fact and law for reopening. Hence, both the reopening and reassessment order are quashed

(ii) As the CIT has simply written ‘Yes I am satisfied’ on the same day on which AO has issued reasons recorded does not clear as to whether the senior officer / sanctioning authority has applied his mind before sanctioning, the sanction granted by the CIT under s. 151 is invalid and therefore, the notice under S. 148 is bad in law and quashed. (AY 2009-10)

Vinod Commodities v. ACIT (2019) 182 DTR 49 / 200 TTJ 273 (Jod)(Trib)

81. 153A : Assessment – Search-Addition to income on account of receipt of share application money and premium – AO not referring to any seized material or other material found during course of search – Addition is unsustainable

Search and seizure operation was conducted upon the assessee. Pursuant to the search action, notice was sent to the assessee under S. 153A of the Act, requiring the assessee to submit its return. In reply to the said notice, assessee declared a net income of
₹ 84,740 as against the returned total income of ₹ 74,831. The Assessing Officer noted that the assessee had received share application money and premium totaling to ₹ 1,11,00,000 from three companies but the required documents evidencing creditworthiness, genuineness and identity of the investors were not furnished. The assessment was completed at an income of ₹ 1,11,84,740 after making an addition of ₹ 1,11,00,000 under section 68 on account of bogus share capital. The CIT (A) deleted the addition on the ground that the additions made by the AO were beyond the scope of S. 153C because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. In the entire assessment order, the Assessing Officer had not referred to any seized material or other material for the year 2009-10 having being found during the course of search in the case of the assessee. Therefore the action of the AO was based upon conjectures and surmises and the addition made was not sustainable in the eyes of law. (AY. 2009-10)

Dy. CIT v. Madhyam Housing Pvt. Ltd. (2019)76 ITR 82 (Delhi) (Trib)

82. 159 : Legal representatives – Assessment – Assessee is not the legal heir of the deceased – Assessment is held to be bad in law [S.142(1), Hindu Succession Act, 1956, S 8, 15]

Deceased assessee i.e. Rathindranath Bhattachrya while he was alive filed return declaring certain taxable income. After his death, a notice under section 142(1) was issued to Shri A. K. Chakroborty as alleged legal heir of deceased assessee. Subsequently, assessment was made in name of Smt Sumita Bhattacahrya (Das) as legal heir. CIT (A) deleted the addition on the ground that assessment in the name of Smt Sumita Bhattacahrya (Das) as legal heir is void. On appeal by the revenue Tribunal affirmed the order of CIT (A) and held that, when the assessee is not the legal heir the assessment is void and bad in law. (AY. 2014-15)

ITO v. Rathindranath Bhattacharya. (2019) 179 ITD 349 (Kol) (Trib.)

83. 194B : Deduction at source – Winning from lottery – Lucky draw price coupons – Gratuitous distribution without any price being paid by customers – Not lottery – Not liable to deduct tax at source.[S. 2(24) (ix), 115BB]

The assessee had made purchases of cloth from a shop. He won one Kg. of gold in lucky draw. He was issued 600 grams of gold coins and balance was deducted under S. 194B being 40 per cent of the prize money. The 1 Kg. of gold coins was valued at
₹ 4.29 lakh and total tax deducted at source including surcharge was ₹ 1.89 lakh on the impugned amount. The AO held that the tax had been rightly deducted at source by the Trust authorities. CIT (A) confirmed the order of the AO. On appeal the Tribunal held that The term ‘lottery’ is required to be construed without the aid of Explanation. The Explanation was added with effect from 1-4-2002. Explanation is neither retrospective nor merely clarificatory in this case. The term ‘lottery’ is widened to bring within the ambit also price won without any contribution for participation. In other words the Explanation, added with effect from 1-4-2002, is not applicable to this appeal which relates to assessment year 2000-2001. Accordingly the essential ingredients of ‘lottery’ as it stood prior to the insertion of Explanation to S. 2(24)(ix) is absent in the facts and circumstances of the case and the same cannot be taxed as a ‘lottery’. Hence, the order of the CIT(A) is reversed.(AY. 2000-01)

Rajmohan V. V. Kumbalappalli v. ITO (2019) 179 ITD 288 (Cochin) (Trib.)

84. 194C : Deduction at source – Contractors – Finance Act states that it would be applicable from a particular date – Section cannot be applied retrospectively [S. 40(a)(ia), 194(6), 263]

The assessee made payment of ₹ 5,00,000/- to a transporter for which no tax was deducted as source as it was exempt from TDS. However the AO disallowed the same under section 40(a)(ia) of the Act for non deduction of TDS under section 194C(6). The CIT(A) upheld this disallowance made by the AO. On appeal to the Tribunal, the Tribunal held that the amendment in respect of section 194C(6) has been inserted by Finance Act, 2015 w.e.f. 1.6.2015 wherein TDS was applicable on transporter. There was no reason whatsoever to apply the provisions with a retrospective effect in order to make a disallowance and thereby directed to delete the addition made by AO. (AY. 2011-12)

Oruganti Sowbhagyam v. DCIT (2019) 76 ITR 79 (SN) (Cuttack) (Trib.)

85. 194H : Deduction at source – Bank guarantee commission – No principal-agent relationship – Not liable deduct tax at source [s. 2(28A) and 194A(3)(iii)]

The A.O. held the assessee is liable to deduct tax u/s 194H on the bank guarantee commission under the new scheme by Notification No 56/2012 which came into force on 01-01-2013. The Tribunal reversed the lower authorities order, as there is no principal-agent relationship between the bank and the assessee, which is a mandatory condition for invoking the provisions of section 194H. Further, it noted that the bank guarantee commission partook the character of interest u/s 2(28A), and the exemption provided u/s 194A(3)(iii) is available to assessee qua such payment. (AY. 2012-13)

Navnirman Highway Project Pvt. Ltd. v. DCIT (2019) 75 ITR 67 (Delhi)(Trib.)

86. 194IA : Deduction at source –Immoveable property – Purchase through power of attorney holder for Consideration of ₹60.12 lakh – Each co-owners share is less than ₹ 50 lakh – Not liable to deduct tax at source – Addition confirmed by the CIT (A) is deleted [S. 201(1), 201 (IA)]

Assessee Purchased an Immovable Property from Power of Attorney holder of two joint owners of said property for consideration of ₹ 60.12 Lakhs. Share of each Co-Owner was ₹ 30-06 lakhhs. Assessee deducted one per cent TDS on sale consideration paid by it. AO held that TDS should have been deducted in name of actual owners and not in name of Power of Attorney holder and since the assessee had not mentioned PAN details of joint owners, tax at source was deductible at rate of 20 Per Cent of purchase consideration accordingly created a demand under S. 201(1) along with interest under S. 201(1A) of the Act CIT (A) confirmed the addition. On appeal the Tribunal held that,even though admitted position is that assessee buyer/ transferee had not deducted tax in hands of joint owners of property, still sub-Section(2) of S. 194IA provides an exception from deducting tax of 1 Per Cent of sale consideration, when sale consideration for transfer of an immovable property is less than ₹ 50 Lakhs. Since consideration for each transferor came to ₹ 30.06 Lakhs each, which was below prescribed limit of ₹ 50 Lakhs given by statute S. 194IA is not applicable and Assessee was not required to deduct tax at source while making payment for said purchase. Accordingly the addition confirmed by the CIT (A) is deleted. (AY. 2016-17)

Oxcia Enterprises (P.) Ltd. v. DCIT (2019) 178 ITD 520 (Jodhpur) (Trib.)

87. 194J : Deduction at source – Fees for professional or technical services – Arbitration charges – Payments to arbitrators is in nature of professional services rendered by legal professionals liable to deduct tax at source [S.40(a)(ia)]

Assessee made payments to arbitration without deducting TDS u/s. 194J. Since services of arbitrators were in the nature of court procedure for out of court settlement, TDS was not required to be deducted on the payment made to them. The AO rejected explanation of the assessee to deduct TDS and disallowed same u/s. 40(a)(ia). Tribunal by rejecting the claim of the assessee held that, since amount paid is in nature of professional services rendered by legal professionals involved in profession/occupation/vocation of arbitration, same is liable to TDS as per provisions of S. 194J. Circular No 3 of 2015 dt 12-2 2015)(2015) 371 ITR 359 (St) (AY. 2012-2013)

ACIT v. HAL Offshore Ltd. (2019) 178 ITD 272 (Delhi) (Trib.)

88. S 199 : Deduction at source – Credit to tax deducted – Point in time – Credit in the year in which income is assessable [R. 37BA]

Assessee is engaged in the business of providing software. It raised invoice on Ashoka Leyland, Chennai in March 2011. Ashoka Leyland deposited the tax in April 2011 (succeeding financial year). The A.O. denied the credit by applying Rule 37BA(1) of the Income Tax Rules, 1962. The assessee submitted that benefits of tax deducted at source (TDS) should be allowed in the year in which the corresponding income is recorded.

The Tribunal considered rule 37BA, that grants TDS credit to a person, to whom payment is made, or credit has been given, based on information furnished by the deductor. There is no denial to the TDS by Ashok Leyland. Rule 37BA(3) provides for the “point of time” at which the benefit of TDS is granted. It equivocally provides for credit on tax deducted at source in the year in which income is assessable. Applying the rule, it allowed the TDS credit. (AY. 2011-12)

Mahesh Software Systems P. Ltd. v. ACIT (2019) 75 ITR 100/ 112 Taxmann.com 354 (Pune) (Trib)

89. 201 : Deduction at source – Failure to deduct or pay – Non – residents – Limitation period prescribed in sub-section (3) of section 201 would be equally applicable in respect of non-residents – Order held to be in valid [s.40(a)(ia), 195, 201 (3)]

The assessee company is engaged in the business of generation, purchase, transmission and distribution of electricity. The assessee had made a remittances to certain foreign parties without deduction of any tax at source. AO treated the assessee in default and passed the order u/s 201(1) and 201(IA of the Act. CIT (A) confirmed the disallowance. The assessee challenged the order passed by the CIT(A) on the grounds viz. that, as the order passed by the ITO(IT) – TDS, Range-2, Mumbai was beyond the period specified in the proviso to section 201(3) Act therefore, the same was barred by limitation. Tribunal quashed the order on the ground that limitation period prescribed in sub-section (3) of section 201 would be equally applicable in respect of non-residents. The Tribunal also held that the revenue had not taken any action against the payee viz. Entec U.K Ltd for non deduction of tax at source and also the time limit for taking such action against them us. 148 had expired, therefore, the order against the payer assessee under S. 201(1) & 201(IA) read with section 195 dt 31-10-2013 would be in valid. Accordingly the order passed ITO (TDS is also struck down. (AY. 2007-08)

Tata Power Co. Ltd. v. ITO (IT) (2019) 179 ITD 779 (Mum) (Trib.)

90. 201 : Deduction at source –- Failure to deduct or pay – Limitation- Increased limitation of seven years with effect from 1-04-2014 shall not apply retrospectively – Order is barred by limitation [S 201(1) 201(IA)]

Allowing the appeal of the assessee the Tribunal held that, increased limitation of seven years under section 201(3) as amended by Finance (No. 2) Act, 2014, with effect from 1-4-2014 shall not apply retrospectively to orders which has already become time barred under old time limitation of two years as set out by unamended section 201(3)(i) and, hence, no order under section 201(1)/201(1A) deeming tax deductor to be assessee-in-default can be passed if limitation has already expired as on 1-10-2014. Accordingly order is barred by limitation. (AY. 2010-11, 2011-12)

Sodexo SVC India (P.) Ltd. v. DCIT (2019) 72 ITR 132 / 178 ITD 39 (Mum) (Trib.)

91. 206C : Collection of tax at source – Failure to collect tax at source – Limitation – No limitation is prescribed –Reasonable period of limitation of four years from end of financial year in question was to be followed – order is quashed. [S. 201(3), 206C(6A)]

During the year, the assessee sold ‘scarp’ to various parties on which tax was not collected at source as contemplated u/s. 206C(1). The AO treated the assessee as in default u/s. 206C(6A) in respect of failure to collect tax.

Tribunal held that, the limitation prescribed under one provision of the Act cannot be applied straightway to some other provisions of the Act. The legislature, in its wisdom, inserted sub-section (3) under section 201 by the Finance (No. 2) Act, 2009 w.e.f. 2001 proposing time limit for passing orders u/s. 201 with reference to tax deduction at source. However, no limitation provision has been enacted with regard to tax collection at source as provided in s. 206C and in the absence of statutory time limit prescribed for passing order with reference to collection of tax, the reasonable time limit is followed to be four years from the end of the financial year for passing the order u/s. 206C. order of the AO is quashed.(AY. 2009 -10)

Adani Enterprise Ltd. v. DCIT (2019) 178 ITD 373 (Ahd)(Trib.)

92. 251 : Commissioner (Appeals) – Dismissal of appeal in limine – CIT(A) cannot dismiss appeal in limine for non-prosecution without deciding same on merits – Order of CIT (A) is set aside. [S. 246A, 249, 250(6), 251]

The AO passed order by making certain additions / disallowances. The assessee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal by holding it non-maintainable on the grounds that the impugned assessment order was not placed on record by the assessee; and that demand notice and challan for payment of appeal fee in compliance of section 249 had not been placed on record by the assessee. On appeal the Tribunal held that, u/s. 250(6) the CIT(A) was obliged to dispose of the appeal in writing after stating the points for determination and to then pass an order on each of the points which arose for consideration. Further he obliged to state the reasons for his decision on each such point which arose for determination. Thus, the CIT(A) was duty-bound to dispose of the appeal on merits. Accordingly the Tribunal held that the assessee has e-filed documents and other attachments, as well as other information submitted by assessee at time of e-filing of appeal before CIT(A) must be treated as part of record of CIT(A) and he should pass order on merits stating points for determination, decision thereon, and reasons for decision. Followed CIT v. Premkumar Arjundas Luthra (HUF) (2016) 240 taxman 133/ 297 CTR 614 (Bom) (HC) (AY. 2015-2016)

Pawan Kumar Singhal v. ACIT (2019) 178 ITD 390 (Delhi)(Trib.)

93. 251 : Appeal – Commissioner (Appeals) – Powers – Direction issued by the CIT(A) to initiate reassessment proceedings for assessment year 2011-12 is held to be non- est direction hence invalid [S. 50C, 147, 148,149(1)(b) 150(2))

For the assessment year the CIT (A)by order dt 3-05-2019 annulled assessment order passed by the AO and directed the jurisdictional AO to execute remedial action u/s. 50C of the Act. On appeal the Tribunal held that since in terms of S.149(1) (b) in instant case notice u/s 148 could have been issued by end of assessment year 2018-19 and thus law did not permit initiation of proceedings u/s. 147 when the order was passed and direction was issued by CIT (A). As the order was not in accordance with law and was non est direction. (AY. 2011-12)

Anshuman Ghosh v. ITO (2019) 178 ITD 311 (Luck) (Trib)

94. 251 : Appeal – Commissioner (Appeals) – Power of enhancement Not competent to enhance assessment by taking an income which income was not considered expressly or by necessary implication by AO [S. 45, 54F, 68, 147]

The assessee disclosed capital gain on sale of a residential house property and claimed exemption u/s 54F of the Act. The AO denied the exemption on the ground that two residential properties were sold by the assessee and the deduction under section 54F is only available if property other than a residential property is sold. The Assessee made alternative claim in revised computation which was also denied. On appeal CIT (A) enhanced the assessment by making addition u/s 68 of the Act. On appeal the Tribunal held that CIT (A) has exceeded his jurisdiction in enhancing the income of the assessee by considering the new sources of income not at all considered by the AO. consequently the ground of the appeal of the assessee is allowed. (AY. 2014-15)

Hari Mohan Sharma v. ACIT (2019) 179 ITD 310 (Delhi) (Trib.)

95. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Order of Tribunal affirmed by High Court – Co-ordinate bench of Tribunal, subsequent to decision of High court could not have entertained miscellaneous application of assessee and recalled order originally passed by Tribunal. [S. 260A]

Assessee is carrying out business of advertisement, marketing and publicity for certain parties from whom it received money and against said receipts, expenses were made. All receipts and expenses were shown in Profit and Loss account, however, surplus of income over expenditure was not offered to tax. CIT (A) and Tribunal held that amount received by assessee towards contribution for advertisement marketing and promotion expenditure was not tainted with mutuality, thus, income of assessee was chargeable to income tax. Assessee preferred a Miscellaneous Application before co-ordinate bench recalling original order of Tribunal claiming that income was not taxable on ground of issue of diversion of income by overriding title which had not been considered. However prior to this, in appeal preferred by assessee against order of Tribunal, High Court had upheld order of coordinate bench and Supreme Court granted leave to assessee against order of High Court. Tribunal held that when a particular issue has been decided by higher forum, then, lower forum should always refrain from deciding any aspect of that matter which can disturb finding of higher judicial forum. Accordingly coordinate bench, subsequent to decision of High court could not have entertained miscellaneous application of assessee and recalled order originally passed by Tribunal. (AY. 2001-02]

Yum! Restaurants Marketing (P.) Ltd. v. ITO (2019) 179 ITD 480 (Delhi) (Trib.)

96. 263 : Commissioner – Revision of orders prejudicial to the revenue – Commissioner required to decide the issue before determining the assessment order as erroneous and unsustainable in law – Order of Commissioner set aside [S.143(3)]

Commissioner invoked revisionary jurisdiction under S. 263 of the Act setting aside the assessment and directed AO to make a fresh assessment as he did not make an enquiry about the AIR information received regarding cash deposits made in the bank account of the assessee. Tribunal found that Commissioner had not concluded on the issue of inadequacy of cash in hand but required the AO to do so. Tribunal held that Commissioner required to decide the aspect one way or the other before he could determine that the assessment order was erroneous. The initiation of proceedings under S. 263 of the Act were inconsistent with the requirement of S. 263(1) of the Act and therefore set aside by the Tribunal. (AY. 2009-10)

Adishwar K. Jain v. CIT (2019) 201 TTJ 77 / 52 CCH 606 / 181 DTR 29 (Mum.)(Trib.)

97. 263 : Commissioner – Revision of orders prejudicial to revenue – Commissioner should make independent enquiries to reach a conclusion that the assessment order was erroneous and prejudicial to the interests of the revenue – In absence of independent enquiry, CIT(E) order set aside. [S. 11, 12, 28(iii), 143(3)]

Assessee a non profit organization drives technology of services market by being a strategic advisor to IT industry. Assessee though registered under section 12A did not claim exemption under section 11 of the Act but claimed part of its income as exempt on the principal of mutuality. AO denied the benefit of mutuality. CIT(E) observed that assessee had not incurred any Global Trade Development (GTD) expenses in accordance with its objects and set aside the order under section 263. Tribunal held that CIT(E) did not make any independent enquiry with respect to admissibility of GTD expenses and did not undertake the exercise of required to reach a conclusion that the assessment order was erroneous. Hence, impugned order was quashed. (AY. 2010-11)

National Association of Software and Services Companies (‘Nasscom’) v. CIT(E) (2019) 201 TTJ 39 / 56 CCH 532 / 181 DTR 73 (Delhi.)(Trib.)

98. 263 : Commissioner – Revision of orders prejudicial to revenue – limited scrutiny – PCIT cannot look into issue which the AO himself was barred from looking into in original assessment.[S.143(1)]

The assessee purchased a property for 41,50,000 against the stamp duty value of the property being ₹ 77,19,000. The case was selected for limited scrutiny in order to verify the source of funds used for purchase of property. The assessee explained the source of funds to the tune of 41,50,000, however the AO made an addition of 3,00,000 disbelieving the receipt of gift received from brother and explaining the explanation for the balance sources of money for purchase of immovable property. The PCIT later found that the AO had not enquired into the applicability of s. 50C and issued notice under section 263 of the Act. On appeal the Tribunal held that it is beyond the power of the AO to look into any other issue when the case itself was selected for limited scrutiny. Hence the PCIT also could not look into any other issue other then the limited issue on which matter was selected for scrutiny and the order u/s. 263 could not be sustained in the eyes of law. (AY. 2014-15)

Padmavathi (Smt) v. ITO (2019) 76 ITR 55 (SN) (Chennai) (Trib.)

99. 263 : Commissioner – Revision of orders prejudicial to revenue – Revision based on proposal from AO impermissible – Without Application of mind – Revision not erroneous or prejudicial to revenue. [S.143(3)]

Assessees filed return of income and thereafter assesses case was selected for scrutiny and assessment was completed under section 143(3) of the Act. PCIT noticed that in course of assessment proceedings, certain additions and disallowances were not examined by the AO properly hence treated order erroneous as well as prejudicial to interest of revenue and directed AO to make fresh assessment.

On Assessees appeal to Tribunal, it was noted by the Tribunal that on perusal of PCIT’s order it was clear that PCIT had exercised jurisdiction under section 263 based on proposal received from AO. It was held that PCIT was using mind of AO to revise order which was not the scheme of section 263 of the Act. PCIT ought to apply his own mind to examine whether order passed by AO is erroneous and prejudicial to interest of revenue i.e. examine assessment records and assessment order made by AO to find out error. PCIT cannot take guidance from AO to revise the assessment order which is the revisional jurisdiction vested as per scheme of the Act. It was finally concluded by Tribunal that Revisional jurisdiction exercised by PCIT was not in accordance with law hence quashed order passed by PCIT allowing Assesses appeal. (AY. 2015-16)

Manish Chirania v. PCIT (2019) 76 ITR 7 (SN) (Kol.)(Trib.)

100. 263 : Commissioner – Revision of orders prejudicial to revenue – Limitation – Delay of more than 9 months in service of the order passed is beyond time limit allowed under the Act, hence, unsustainable – Department failed to produce evidence to show that order passed and dispatched within reasonable time – Order is held to be barred by limitation.

Tribunal held that, department had failed to produce any evidence to show that the order had been passed and dispatched to the assessee as well as the AO within reasonable time. Delay of more than 9 months in service of the order passed is beyond time limit allowed under the Act, hence, unsustainable.
(AY. 2007-08)

Chebolu Lakshmi (Smt.) v. ITO (2019) 76 ITR 4 (SN.) (Vishakha) (Trib)

101. 263 : Commissioner – Revision of orders prejudicial to revenue – Capital gains – Profit on sale of property used for residence – Revision is held to be valid as the conditions of S. 54(2) had been violated as the assessee had not invested the capital gain in purchasing a new residential house before the due date of filing of return under S. 139(1) of the Act – Judgement of jurisdictional High Court is followed. [S.45, 54, 139(1) 139(4), 139(5)]

The assessee sold a residential flat and derived long-term capital gain of ₹ 30.08 lakhs. The assessee filed his return of income under S. 139(1) on 17-7-2014 and claimed deduction under section 54 on account of purchase of new residential flat. The AO completed assessment under S. 143(3) and accepted income returned by the assessee. PCIT in revision proceedings held that the conditions of S. 54(2) had been violated as the assessee had not invested the capital gain in purchasing a new residential house before the due date of filing of return under S. 139(1). The assessee made first payment toward purchase of flat on 5-10-2015 and next on 15-2-2016 and had not deposited the unutilized capital gain in Capital Gain Account Scheme before the due date of furnishing return under S. 139(1). Thus, the assessee was not eligible for deduction under S. 54(1) of the Act. On appeal the Tribunal held that it cannot be said that the decision of the AO is in accordance with the legal position prevailing at the relevant point of time. The decisions cited by the assessee challenging the validity of exercise of jurisdiction under S. 263, would not help the assessee in view of the specific fact involved in the instant case. Thus, on overall consideration of facts and material on record and keeping in view the ratio laid down in the catena of decisions, including the decision of the jurisdictional High Court in Humayun Suleman Merchant v. CIT (2016) 387 ITR 421 (Bom) (HC), it is to be held that PCIT has correctly exercised his power under section 263 to revise the impugned assessment order. Accordingly, the order passed under S. 263 is to be upheld by dismissing the grounds raised by the assessee. (AY. 2014-15)

Rajan Gumba Telang v. PCIT (2020) 180 ITD 184 (Mum) (Trib.)

102. 271(1)(c) : Penalty – Notice – No specific charge and limb under which penalty proposed – Concealment of income or inaccurate particulars of income – Notice void ab intio. [Section 271(1)(c)]

It is crystal clear that charge for which penalty proposed u/s 271(1)(c), whether for concealment of income or furnishing inaccurate particular of income should be mentioned explicitly in the show-cause notice. The law mandates that authority, who is proposing to impose the penalty, shall be certain as to the basis on which penalty is levied. The notice must reflect that specific reasons, so that assessee to whom such notice is given can prepare his defense to support his case. Show-cause notice not specifying the charge and limb under which the penalty imposed is bad in law. (AY. 2014-15)

Rajendra Kumar and Co. v. DCIT (2019)75 ITR 73 (Luck) (Trib)

103. 271(1)(c) : Penalty – Concealment – Penalty Notice bad in law – If limb under which penalty has been initiated not specified [S.274]

AO had issued notice section 271(1)(c) read with section 274 of the Act for concealment of income or furnishing inaccurate particulars of income without specifying specific limb of section 271(1)(c) of the Act. CIT(A) confirmed the penalty levied.

On Assessees appeal, Tribunal held that penalty notice issued was bad in law as it did not specify which limb i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars, which was not sustainable in the eyes of law. The Tribunal after placing reliance on the decision in its own case and various other judicial pronouncements deleted the penalty levied by AO. (AY. 2005-06, 2006-07, 2008-09 to 2010-11)

Manjeet Kaur Sran (Mrs.) v. Dy. CIT (2019) 76 ITR 57 (SN) (Delhi)(Trib.)

104. 271G : Penalty – Documents – International transaction – Transfer pricing – Unless and until a specific defect is pointed out in documents submitted, penalty cannot be levied. [S.92D(3), R.10D(i)]

Allowing the appeal of the assessee the Tribunal held that, Unless and until a specific defect is pointed out in documents submitted, penalty cannot be levied. (AY. 2012-13 to 2014-15)

Procter & Gamble Home products (P) Ltd v. Dy.CIT (2020) 180 ITD 194 (Mum) (Trib)

1. 2(14) : Capital asset – Advance given to subsidiary – Loss – Held to be allowable as short term capital loss [S. 2(42A), 2(47)]

Dismissing the appeal of the revenue the Court held that, advance given to subsidiary which was written off is held to be allowable as short term capital loss. (Arising from ITA No. 3833/ M/21 dt. 31-03-2016) (ITA No. 1366 of 2017 dt. 26-08-2019) (AY. 2002-03)

CIT v. Siemens Nixdorf Information Systems Gmbh (2019) BCAJ- October-P. 63 (Bom) (HC)

2. 2(14)(iii) : Capital asset – Agricultural land – Capital gains – Agricultural lands and beyond 8 k.m., from the notified cities – Revenue records showing as agricultural lands – Department to prove that the entries in the revenue records and the patta were false or bogus – Entitle to exemption. [S.45]

Dismissing the appeal of the revenue the Court held that, the agricultural land sold by the assessee is beyond 8 k.m., from the notified cities and the revenue records showing as agricultural lands. It is for the department to prove that the entries in the revenue records and the patta were false or bogus. There is a presumption to the validity of such official document and if a party states that the entry is incorrect or the document is false, the onus is on the party to prove the same. There is no allegation made by the Assessing Officer that the patta, copy of which was furnished by the Tahsildar, is a bogus patta. Even going by the Adangal extracts, which were furnished by the VAO, on being summoned under Section 131 of the Act, court observed that in column no. 19 of the Adangal extract, the land has been described as “Tharisu”. Therefore, even going by the subsequent records, the character of the land is not stated to be non agriculture. A land, which is an agricultural land, at many a times, cannot be put to use for agricultural purposes. Merely because an agriculture activity could not be carried on for various reasons including natural causes, it will not cease to be an agricultural land. Accordingly the order of the Tribunal granting exemption is affirmed. (TANO. 1408 of 2019 dt 10-07-2019) (AY. 2011-12)

PCIT v. K. P. R. Developers Ltd. (2019) 311 CTR 832/ 183 DTR 406 (Mad.)(HC)

3. 2(22)(e) : Deemed dividend – loan to share holder – loan in the ordinary course of business – Not assessable as deemed dividend – Deemed dividend is exempt u/s 115O [S.10(34), 115O, Art. 226]

Allowing the petition the Court held that in the application before the Settlement Commission, the assessee had specifically stated that Rasi Seeds Pvt. Ltd. had advanced money to Rasi Tex Pvt. Ltd. in the ordinary course of business. The money so received was utilised for its working capital requirements and no part of it was diverted as loan or advance for direct or indirect benefit of any of the directors, including the assessee. It was further stated therein that these funds were given as inter corporate loans on which interest was charged at market rates. The interest charged by Rasi Seeds Pvt. Ltd. have been assessed as business income by the same Assessing Officer, who was also the Assessing Officer of the assessee. The only finding by the Settlement Commission in this regard was that the lending of money did not form a substantial part of the business of Rasi Seeds Pvt. Ltd. When the facts which were specifically referred to in the application and contended before the Settlement Commission had not been disputed, it could not be said that the assessee had failed to explain before the Commission that the transactions were during the ordinary course of business. The dividend was not taxable as per the provisions of section 10(34) of the Act and the contrary findings in the order of the Settlement Commission were violative of the statutory provisions and therefore illegal. It was not in dispute that during the assessment years 2012-13 and 2013-14, there were more than one shareholder holding substantial interests in Rasi Seeds Pvt. Ltd. and Rasi Tex Pvt. Ltd. The Settlement Commission was also apprised of this fact that there were two shareholders having substantial interests in Rasi Tex Pvt. Ltd. The loan from Rasi Seeds Pvt. Ltd. was not made directly to the specific shareholder and as more than one shareholder was to be treated as specified shareholder for the purposes of section 2(22)(e) for the loan from Rasi Seeds Pvt. Ltd. to Rasi Tex Pvt. Ltd. the section could not be applied for the relevant assessment years for the reason that the computation of the section failed since the section did not provide for making the amount of loan to be added in the hands of more than one shareholder or dividing the amount of loan between specified shareholders in any ratio. Since the computation of the section itself failed, it necessarily would follow that the charge of the section for the assessment years 2012-13 and 2013-14 would also fail. The ground of absence of incriminating material in relation to deemed dividend, was placed before the Settlement Commission but not considered. The order of the Settlement Commission was not in accordance with the provisions of the Act and therefore, it was liable to be quashed. (AYs 2007-08 to 2013-14)

R. Chitra v. ITSC Vice Chairman (2019) 418 ITR 530 (Mad) (HC)

4. 2(35) : Principal officer – Notice must mention some connection with the management or administration of the company – Merely on surmises and conjectures, no person shall be treated as a Principal officer
   [Art. 226]

The assessee is treated as a Principal Officer of the Company Kingfisher Airlines Ltd. for the financial years 2009-10 to 2012-13 u/s. 2(35) of the Act. The said notice is challenged mainly on the ground that the objections submitted to the notice issued had not duly considered. Allowing the petition the Court held that, notice must mention some connection with the management or administration of the company. Merely on surmises and conjectures, no person shall be treated as a Principal officer. Accordingly the notice is quashed. (WP No. 34252 of 2018 dt. 17-10-2019)

A. Harish Bhat v. ACIT (2019) CTCJ-December-P. 170 (Karn)(HC)

5. 2(42A) : Short-term capital asset – Assignment of loan – Loss arising out of assignment of loan is allowable as short term capital loss. [S. 2(14), 2(42B), 28 (i)]

Dismissing the appeal of the revenue the Court held that Loss arising out of assignment of loan is allowable as short term capital loss. Followed Siemens Nixdorf Informations Systems GmbH v. Dy. DIT(IT) (2016) 158 ITD 480 (Mum) (Trib.) affirmed in Dy. DIT v. Siemens Nixdorf Informations Systems GmbH ITA No. 1366 of 2017 dt 26-08-2019)(ITA No. 623 of 2017 dt 26-08-2019) (AY. 2007-08)

PCIT v. Reliance Natural Resources Ltd (2019) 267 Taxman 644 (Bom) (HC)

6. 4 : Charge of income-tax – Capital or revenue – Business of accepting deposits from members and lending the same to non members – Waiver of deposit – Waiver of principal component of deposits and debentures – Capital receipts [S.28(i)]

The assessee is carrying on the business of accepting deposits from members and lending the same to non members. The assessee treated the waiver of principal component of deposits and debentures as capital receipts. The AO treated the same as revenue receipts. Tribunal confirmed the order of the AO. On appeal high Court held that waiver of principal component of deposits and debentures constituted capital receipt. Followed ITA No 99 of 2009. (AYs 2007-08, 2008-09)

Manipal Sowbhagya Nidhi Ltd. v. Dy. CIT (2019) 112 Taxman.com 325 / (2020) 268 Taxman 330 (Karn.) (HC)

Editorial: SLP of revenue is dismissed Dy CIT v. Manipal Sowbhagya Nidhi Ltd (2020) 268 Taxman 329 (SC)

7. 5 : Scope of total income – Accrual – Year of taxability – Income accrues only when it becomes due – When the other party accepts the liability to pay the amount [S. 4, 145]

The assessee is in the business of promoter and developer of land. It sold the land under a memorandum of understanding (MOU) for a consideration of 120 crore. The assessee offered only ₹ 100 crore for tax in the year 2012-13 as the MOU provided that a sum of ₹ 20 Crore would be paid by the purchaser on execution of sale deed after getting plan sanctioned and on inclusion of the name of the purchaser in the 7/12 extract. However the AO taxed entire sum of ₹ 120 crore in the assessment year 2012-13 only. On appeal CIT(A) also confirmed the order of the AO. On further appeal the Tribunal deleted the addition following the ratio in Morvi Industries Ltd v. CIT (1971) 82 ITR 835 (SC). On appeal by the revenue dismissing the appeal of the Court held that, the income accrues only when it becomes due when the other party accepts the liability to pay. Followed CIT v Shoorji Vallabdas & Co (1962) 46 ITR 144 (SC), the Court also referred CIT v. Nagri Mills Co. Ltd. (1958) 33 ITR 681 (Bom) (HC) wherein the High Court held that when the tax rate is the same the department should not fritter away the energies in fighting matters. (ITA No 306/Pun/ 2015 dt. 09-02-2017) (AY. 2012-13) (ITA No 1345 of 2017 dt. 18-11-2019)

PCIT v. Rohan Projects (2020) BCAJ-January- P.46 (Bom) (HC)

8. 10(24) : Association of trade unions – Amount received on settlement of dispute between company and its workers – Amount disbursed to workers – Amount not assessable in hands of trade union

Allowing the appeal of the assessee the Tribunal held, that once the factum of settlement was not disputed coupled with the factum of receipt of a particular amount from the company, and the amount had been distributed amongst the employees, the case would squarely stand covered under S. 10(24) of the Act. Though the contribution from the employer was received as per the settlement agreement, it was only incidental to the activities of the services of the assessee in resolving the dispute between the member workers and the employer with the intention of advancement of welfare of the members. The amount was not assessable as income of the assessee. (AY. 2009-10)

Gujarat Rajya Kamdar Sabha Union Machiwadi v. ITO (2020) 421 ITR 341 / 312 CTR 313 (Guj) (HC)

9. 10B : Export oriented undertakings – Total turnover- Foreign currency expenditure incurred for providing software development services outside India cannot be excluded from export turnover for purpose of computing deduction- When expenditure incurred in foreign currency on account of telecommunication expenses is excluded from export turnover, said expenditure has to be excluded from total turnover also for purpose of computation of deduction [S. 80HHC, 80HHE]

Dismissing the appeal of the revenue the High Court held that foreign currency expenditure incurred for providing software development services outside India cannot be excluded from export turnover for purpose of computing deduction. High Court also held that when expenditure incurred in foreign currency on account of telecommunication expenses is excluded from export turnover, said expenditure has to be excluded from total turnover also for purpose of computation of deduction. Followed CIT v. Tata Elxsi Ltd (2012) 349 ITR 98 (Karn) (HC), affirmed in CIT v HCL Technologies Ltd. (2018) 404 ITR 719 (SC) (AY. 2003-04, 2004-05)

CIT v. Mphasis Ltd (2016) 74 taxmann.com 274 (Karn) (HC)

Editorial : SLP of revenue is dismissed; CIT v. Mphasis Ltd. (2020) 269 Taxman 3 (SC)

10. 11 : Property held for charitable purposes-Company set up for prevention of pollution- Preservation of environment is an object of general public utility- Entitle to exemption. [S. 2(15), 12A, Companies Act, S.25]

Dismissing the appeal of the revenue the Court held that Company set up for prevention of pollution is preservation of environment is an object of general public utility hence entitle to exemption. (AY. 2009-10)

CIT v. Naroda Enviro Projects Ltd. (2019)419 ITR 482 (Guj)(HC)

11. 11 : Property held for charitable purposes – Accumulation of income- Form No 10 was filed belatedly – Rejection of claim on technical formalities is held to be not valid- AO is directed to decide the allowability of claim on merits [S.11(2), 139(9), 143(1) 154]

Assessee filed its return which was processed under S. 143(1) of the Act. Subsequently, assessee filed application under S. 154 contending that by mistake it had not filed Form No. 10 along with extract of Board Resolution for accumulation of funds for purpose of construction of a temple at a particular property as envisaged under S. 11(2) which in turn permitted assessee to not include said income for taxation purposes. AO rejected assessee’s application holding that return filed by assessee was not accompanied with Form No. 10 and Board Resolution, and even if Board Resolution with Form No. 10 had been enclosed with return, such filing would have been beyond time under section 139(9) and, thus, assessee could not be allowed for accumulation of income under S. 11(2) of the Act. Tribunal upheld order of the AO. On appeal High Court held that when assessee was entitled to a statutory benefit, it was incumbent upon concerned authority to examine admissibility of benefit than to foreclose assessee on technicalities. Therefore, order was to be set aside and, matter was to be remanded back to AO. to take note of Form No. 10 accompanied by Board Resolution and, thereupon, take a decision on merits. Accordingly the matter was remanded.
(AY. 2008-09)

Chandraprabhuji Maharaj Jain Juna Mandir Trust v. DCIT (2019) 266 Taxman 399 (Mad) (HC)

12. 12A : Registration –Trust or institution – 71% of the receipt were spent in accordance with the object of the Trust – Partial expenditure were spent on religious – Trust is held to be genuine – Entitle for registration – Benefit of S.11 is not available only to the extent of partial expenditure which were spent on religious [S.11]

Dismissing the appeal of the revenue the Court held that at stage of registration, question of application of income of trust is premature. DIT(E) rejected petitioner’s application for registration under S. 12A on ground that 29 per cent of its gross receipts were expended on making donations for religious purposes which was not in accordance with objects of trust. Court held that 71 per cent of receipt of trust were being spent in accordance with its object, it was established that trust was genuine. Court also held that spending a partial expenditure which was not authorized by trust would not make trust non-genuine and only consequences would be that benefit of S. 11 would not be available to that extent.

CIT v. Manekji Mota Charitable Trust. (2019) 267 Taxman 16 (Bom)(HC)

13. 14A : Disallowance of expenditure – Exempt income – Disallowance cannot exceed exempt income earned – Tribunal restricting disallowance to extent offered by assessee is held to be proper [R.8D]

Dismissing the appeal of the revenue the Court held that the disallowance of expenditure incurred to earn the exempt income could not exceed the exempt income earned. The ratio of the decisions in the cases of Cheminvest Ltd. v. CIT(2015) 378 ITR 33 (Delhi) (HC)) and CIT v. Holcim India (P) Ltd. (I.T.A. No. 486 of 2014 decided on September 5, 2014 (Delhi) (HC)) would include a facet where the assessee’s exempt income was not nil, but had earned exempt income which was more than the expenditure incurred by the assessee in order to earn such income. The order of the Tribunal which restricted the disallowance of the expenditure to the extent voluntarily offered by the assessee was not erroneous. (AY. 2009-10)

CIT v. HSBC Invest Direct (India) Ltd. (2020) 421 ITR 125 (Bom) (HC)

14. 14A : Disallowance of expenditure – Exempt income – When there is no exempt income declared during the year no disallowance can be made. [R.8D(2) (ii)]

Dismissing the appeal of the revenue the Court held that, when there is no exempt income declared during the year no disallowance can be made. Followed Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Delhi) (HC), CIT v. Shivam Motors Pvt. Ltd. (2015) 230 Taxman 63 / 272 CTR 277 (All) (HC), PCIT v. Man Infraprojects Ltd. ITA No dt 9-04 2019. (ITA No. 5241 / 2013 dt 18-10 2016) (ITA No. 1124 of 2017 dt. 27-01-2020) (AY. 2008-09)

Editorial: Also refer, PCIT v. Ballapur Industries Ltd (ITA No. 51 of 2016, dt. 13.10.2016) (Bom.) (HC), www.itatonline.org, PCIT v. Oil Industries Development Board (2019) 262 Taxman 102 (SC), www.itatonline.org, Cheminvest Ltd v. ITO (2009) 27 DTR 82 /124 TTJ 577 / 121 TTD 318 (SB) (Delhi) (Trib.)

PCIT v. Khoinoor Project Pvt. Ltd. (Bom) (HC) (UR)

15. 28(i) : Income from business – Income from house property – Exploitation of property commercially by way of complex commercial activities – Rental income is to be taxable as income from business – Not as Income from House Property [S.22]

Assessee declared its income under the head Income from Business. The AO however, treated the same as Income from House Property which was affirmed by the CIT (A). Tribunal decided the issue in favour of the assessee. On appeal before the High Court, question raised is “Whether, on the facts and in the circumstance of the case and in law, the Hon’ble Tribunal was justified in holding that the assessee had exploited its property commercially by way of complex commercial activities and hence, the rental income received by the assessee to be taxable as income from business and not under the head “Income from House Property ?” The Honourable Court considered the object clause of the company and various services provided such as marketing and promotional activities and also organising various events and programs. Court also noted in the context of the revenue sharing agreement copies of which have been placed on record on which the revenue receives not only license fee of the amounts specified therein and percentage of net revenue. In some of the agreements the compensation is either license fee or percentage of net revenue, whichever is higher. The Intention of the Assessee is also a material circumstance and the objects of Association, the kind of services rendered clearly point out that the Income is from Business. All the factors cumulatively taken demonstrate that the assessee had intended to enter into a Business of renting out commercial space to interested parties. The other income is only an income which is a dividend income from the deposits received from the Business income. Therefore, considering all these factors which have been enumerated above and referred to by the Tribunal, the findings rendered by the Tribunal on assessment of the factual position before it that the income in question has to be treated as business Income. Referred Chennai Properties and Investments Ltd. v. CIT [2015] 373 ITR 673 (SC) Raj Dadarkar, Associates v. ACIT[2017] 394 ITR 592 /81 taxmann.com 193 (SC) PCIT v. Krome Planet Interiors (P.) Ltd [2019] 107 taxmann.com 443 / 265 Taxman 308 (Bom) (HC). (ITA No. 1783/Mum/ 2015 dt. 23-09-2016 (ITA No. 1583 of 2017 dt 13-01-2020) (AY.2010-11)

PCIT v. City Centre Mall Nashik Pvt. Ltd (Bom) (HC) (UR)

16. 28(i) : Business loss – Business expenditure – Obsolescence allowance – Write of off obsolete stock – Allowable as business loss [S. 37(1) 145A]

Dismissing the appeal of the revenue the Court held that the obsolete stock which was not disposed of or sold was allowable as expenditure. Order of Tribunal is affirmed.

CIT v. Gigabyte Technology (India) Ltd. (2020) 421 ITR 21 (Bom) (HC)

17. 32 : Depreciation – Residential flats – Accommodation of employees – Entitle for higher rate of depreciation

Dismissing the appeal of the revenue the Court held that, residential flats built by assessee-company for accommodation of its employees was to be regarded as building used for purpose of business of company and thus, assessee was entitled to claim high rate of depreciation on said flats. i.e. @ 10 %. (AY. 2000-01)

CIT v. Ashok Leyland Ltd. (2019) 266 Taxman 406 (Mad) (HC)

18. 37(1): Business expenditure – Cheque issued – Realised in next assessment year – Cheque is not dishonoured but encashed, payment relates back to date of tendering of cheque and date of payment would be date of delivery of cheque – Allowable as deduction during previous year

Assessee paid municipal tax for which cheques were issued to local authority prior to end of previous year relevant to assessment year, however, bank statements showed realization only on commencement of next assessment year, deduction in respect of such municipal tax was to be allowed during previous year. When a cheque is not dishonoured but encashed, payment relates back to date of tendering of cheque and date of payment would be date of delivery of cheque. Followed CIT v Ogale Glass Works Ltd. (1954) 25 ITR 529 (SC) (Arising from Punalur Paper Mills Ltd. v. ITO (2009) 29 SOT 449 (Cochin) (Trib) (ITA Nos. 1378 to 1423 of 2019 dt. 7-2-2019) (AY. 1996-97 to 2002-03 2004-05)

CIT v. Punalur Paper Mills Ltd. (2020) 268 Taxman 47 (Ker) (HC)

19. 37(1) : Business expenditure – Business loss – Write off of losses towards stock obsolescence in respect of Laptops and motherboards – Held to be allowable as revenue expenditure [S. 28(i), 145A]

Dismissing the appeal of the revenue the Court held that the Tribunal is justified in holding that write off of losses towards stock obsolescence in respect of Laptops and motherboards is held to be allowable as revenue expenditure. Followed CIT v Heredilla Chemicals Ltd (2002) 255 ITR 532 (Bom) (HC) (ITA No. 28 of 2014 dt 7-1-2020)

CIT v. Gigabyte Technology (India) Ltd (Bom) (HC) (UR)

20. 37(1) : Business expenditure –Capital or revenue – Non-compete fee – Agreement was only for 18 months – Allowable as revenue expenditure

Assessee is engaged in business as Registrar and Transfer Agent licensed by SEBI. It entered into a non-compete agreement and the tenor of agreement was only 18 months. AO treated the payment as capital in nature. Tribunal allowed the claim as revenue in nature. On appeal by the revenue the Court held that it could not be stated that assessee derived any enduring benefit due to payment effected by it to said person for obtaining certain commitments and restricting himself from indulging in any competition with business of assessee or from weaving away employees. therefore, non compete fee had to be treated as a revenue expenditure. Followed Asianet Communications Ltd. v. CIT 2018) 407 ITR 706 (Mad) (HC)
(AY. 2014-15)

CIT v. Computer Age Management Services (P.) Ltd. (2019) 267 taxman 146 (Mad) (HC)

21. 37(1) : Business expenditure – Construction business – Expenditure incurred subsequent to sale of building – Held to be allowable as revenue expenditure. [S. 145]

Dismissing the appeal of the revenue the Court held that assessee which is engaged in the business of construction and sale of residential and commercial building complexes expenditure for completing its construction during financial year subsequent to sale of building, such expenditure was liable for deduction. Court held that in order to claim deduction of business expenditure, it is not necessary that amount has been actually paid or expended during relevant accounting year itself and it is sufficient that liability for payment had incurred or accrued during relevant accounting year and actual payment of amount or discharge of liability may occur in future. (AY. 2009-10)

CIT v. Oberon Edifices & Estates (P.) Ltd. (2019) 267 taxman 118 (Ker) (HC)

22. 37(1) : Business expenditure – Capital or revenue – Insurance premium on purchase of new car – Held to be revenue expenditure

Dismissing the appeal of the revenue the Court held that the insurance premium paid by the assessee towards purchase of the new car was revenue in nature, and should be allowed in the year in which it was incurred. (AY. 2011-12)

PCIT v. Shah Virchand Govanji Jewellers Pvt. Ltd (2019] 418 ITR 472 (Guj) (HC)

23. 37(1) : Business expenditure –Social responsibility – Agreement with State Government to construct houses for poor people affected by floods – Held to be allowable on commercial expediency

Allowing the appeal of the assessee the Court held that the assessee was carrying on the business of iron ore and also trading in iron ore. Thus, day in and day out the assessee would be approaching the appropriate Government and its authorities for grant of permits, licences and as such the assessee in its wisdom and as a prudent business decision had entered into a memorandum of understanding with the Government of Karnataka and incurred the expenditure towards construction of houses for the needy persons, not only as a social responsibility but also keeping in mind the goodwill and benefit it would yield in the long run in earning profit which was the ultimate object of conducting business and as such, expenditure incurred by the assessee would be in the realm of business expenditure. The amounts were deductible. (AY. 2011-12, 2012-2013)

Kanhaiyalal Dudheria v. JCIT (2019) 418 ITR 410 / 310 CTR 617 / 182 DTR 57 (Karn) (HC)

24. 40(a)(ia) : Amounts not deductible – Deduction at source – Interest paid to resident – Second proviso to S. 40(a)(ia) is applicable – No disallowance can be made

High Court dismissed the appeal of the revenue by holding that second proviso to S. 40(a)(ia) is applicable to relevant assessment year. Followed Ansal Land Mark Township (P) Ltd. v. CIT (2015) 377 ITR 635 (Delhi) (HC). (AY. 2010-11)

PCIT v. Noida Software Technology Park Ltd. (2020)113 taxmann.com 144/ 269 Taxman 11 (Delhi) (HC)

Editorial: SLP of revenue is admitted, PCIT v. Noida Software Technology Park Ltd. (2020) 269 Taxman 10 (SC)

25. 40(a)(ia) : Amounts not deductible – Deduction at source – Payee reflected the said amount as it tax liability – No disallowance can be made

AO made disallowance in respect of certain payments made by assessee on which tax had not been deducted at source. Tribunal deleted said disallowance on ground that payee had reflected said amount as its tax liability in its return. High Court affirmed the order of the Tribunal. Followed CIT v. Rajinder Kumar (2014) 362 ITR 241 (Delhi) (HC), CIT v. Ansal Land Mark Township Pvt. Ltd. (2015) 377 ITR 635 (Delhi) (HC).

PCIT v. Shivaai Industries (P.) Ltd. (2020) 269 Taxman 54 (Delhi) (HC)

Editorial : SLP is granted to the revenue; PCIT v. Shivaai Industries (P.) Ltd. (2020) 269 Taxman 53 (SC)

26. 40(a)(ia) : Amounts not deductible – Deduction at source – Second proviso to S. 40(a)(ia) of the Act inserted by Finance Act, 2012 is clarificatory and retrospective in nature – No disallowance can be made where the recipient of the amount has already discharged his tax liability therein [S. 40(a), 139(1)]

The Question before the High Court was “Whether the second proviso to S. 40(a)(ia) of the Act inserted by Finance Act, 2012 is clarificatory and retrospective in nature and disallowance under S. 40(a)(ia) of the Act by the Tribunal is justifiable where the recipient of the amount has already discharged his tax liability therein?” High court answered the question in favour of assessee and against the revenue. followed flowing case laws. CIT v. Ansal Land Mark Township P. Ltd. (2015) 377 ITR 635 (Delhi) (HC) CIT v. Calcutta Export Company (2018 404 ITR 654 (SC) PCIT v. Manoj Kumar Singh; [2018] 402 ITR 238 (All) (HC), PCIT v Perfect Circle India Pvt. Ltd (Bom) (HC). (ITA No 707 2016 dt 07-01-2019s) PCIT v. Shivpal Singh Chaudhary [2018] 409 ITR 87 (P&H) (HC) Deeva Devi (Smt) v. PCIT (Karn) (HC) (WP No. 3928 /2018 dt. 20-02-2018). Distinguished Thomas George Muthoot v. CIT. (2015)235 Taxman 246/ (2016) 287 CTR 101 (Ker) (HC) (Approved Rajeev Kumar Agarwal v. Add.CIT (2014) 34 ITR 479 (Agra) (Trib))

CIT v. Anand, S. M. (2019) 311 CTR 795 (Karn)(HC)

27. 45: Capital gains – Surrender of tenancy rights – Assessable as capital gains and not as income from other sources – Invested in capital bonds is eligible for exemption u/s 54EC of the Act [S.48, 54EC, 56]

The assessee is an HUF on surrender of tenancy rights received compensation of ₹ 50 lakh which was invested in capital bonds and claimed exemption u/s. 54EC of the Act. The AO treated the amount received on surrender of tenancy rights as income from other sources and denied the exemption u/s. 54EC of the Act. Order of the AO is affirmed by the Tribunal. On appeal by the assessee allowing the appeal of the High Court held that the assessee had disclosed the amount of ₹ 50 lakh received from M/s. Carlton Coats Pvt. Ltd. for settlement of its claim to the property and had further disclosed that the said amount was invested in capital bonds. Thus the said amount was received by the assessee as long term capital gains in view of surrender of rights by the assessee vis-a-vis the property in question. In the circumstances, merely on the basis of suspicion, the revenue authorities ought not to have rejected the claim of the assessee that the said amount was received as long term capital gains but to treat the said amount as income from other sources. (ITA No. 4511/Mum/2016 dt 24-08-2016, (AY. 2009- 10).) ITA No 1219 of 2017 dt 27-01-2020

Amol C. Shah (HUF) v. ITO (Bom) (HC) (UR)

28. 45 : Capital gains – Family arrangements – If there is no pre-existing right, the family arrangement constitutes a transfer – Merely because dispute involved some family members and such dispute is ultimately settled by filing consent terms, the same cannot be styled as a family arrangement or family settlement so as to hold that the consideration received as a result of such settlement, does not constitute capital gain – Reassessment is also held to be valid [Ss.147, 148, 149, 151]

Dismissing the appeal of the assessee the Court held that a family settlement which is a settlement amongst family members in the context of their ‘pre-existing right’ is not a “transfer”. Such a settlement only defines a pre-existing joint interest as a separate interest. However, if there is no pre-existing right, the family arrangement constitutes a “transfer”. Merely because dispute involved some family members and such dispute is ultimately settled by filing consent terms, the same cannot be styled as a family arrangement or family settlement so as to hold that the consideration received as a result of such settlement, does not constitute capital gain. Referred Maturi Pullaiah v. Maturi Narasinham, AIR 1966 SC 1836. Court also upheld the reassessment proceedings. (AY. 1999-2000) (ITA 2012 dt. 8-11-2019)

P. P. Mahatme, Power of Attorney, Lorna Margaret Pinto v. ITO (2020) 420 ITR 71/ 226 Taxman 186 (Bom) (HC) www.itatonline. org

29. 54 : Capital gains – Profit on sale of property used for residence – Additional cost of construction incurred within stipulated time though not deposited in capital gains account – Entitled to deduction [Ss. 45, 54F, 264, Art. 226]

Allowing the petition the Court held that the assessee had claimed that it had utilised the disputed sum towards the cost of the additional construction within the period of three years from the date of the transfer and therefore, if such contention were factually correct, the assessee had to be held to have satisfied the mandatory requirement under S. 54(1) to get the deduction. Matter remanded to verify whether the sum was utilised by the assessee within the time stipulated under S. 54(1) for the purpose of construction. If such utilisation was found to have been made within such time, the Department was bound to grant deduction.

Venkata Dilip Kumar v. CIT (2019)419 ITR 298 (Mad) (HC)

30. 54F : Capital gains – Investment in a residential house – The assessee is entitled to the withdrawal of the amount deposited under Sub-Section (4) of Section 54F of the Act under the capital gain account subject to deduction of tax applicable to the case on hand [S.45, 54F(4)]

The petitioner had sold two properties. From the sale consideration amount, ₹ 1,15,00,000/- was deposited by the petitioner in the Capital Gain Account Scheme, 1988. The return of income for the Assessment year 2013-14 was filed on 14-7-2013 and exemption was claimed under S. 54F of the Act. In the meantime, the petitioner had purchased a flat for ₹ 21,32,470/- (including stamp duty and registration) on
20-08-2013 before the expiry of three years from the date of the transfer of the capital asset. The revenue issued the notice impugned, to bring the unutilized capital gain to tax as per S. 54 F(4) of the Act. In other words, the unutilized amount (₹ 1,15,00,000 – ₹ 21,32,470 deducting exemption) after the expiry of three years from the date of transfer of the original capital is proposed to be subjected to tax under Section 45 of the Act. On writ the the petitioner argued that the scope of Section 54F(4) of the Act and the proviso thereof is not properly appreciated by the respondent. The petitioner had deposited the sale consideration received on transfer of certain capital assets in the capital gain account scheme with the bankers and utilized ₹ 21,32,470/- out of ₹ 1,15,00,000/- capital gain amount deposited which squarely falls under the proviso to section 54F(4) of the Act. High Court held that the respondent failed to interpret the phrase ‘wholly or partly’ enumerated in the proviso in a right perspective. According to the petitioner, the amount deposited under Section 54F (4) of the Act if utilized partly for the purchase or construction of the new asset within three years, then the unutilized amount shall not be liable to tax under Section 45 of the Act. it is clear that the proviso appended to Section 58[4][f] has to be read as a whole along with the Clauses [a] and [b] therein which would explain the real intendment of the phrase “not utilized wholly or partly”. In the context, the proviso to Section 54 F[4] becomes an integral part of the enactment acquiring the tenor and colour of the main provision. To make the provision workable, the arguments of the petitioner that the Clauses [a] and [b] of the proviso need not be addressed to, cannot be countenanced for the reasons aforesaid. Thus, it can be held that on reading of the provision as a whole along with Clauses [a] and [b] to the proviso, the intention of the Legislature would be gathered that the unutilized capital gain amount under Section 54 F[4] has to be charged under Section 45 as income of the previous year, after the expiry of three years from the date of sale of the capital asset which in the present case is the assessment year 2016-17 In the circumstances, the assessee is entitled to the withdrawal of the amount deposited under Sub-Section (4) of Section 54F of the Act under the capital gain account subject to deduction of tax applicable to the case on hand. (AY. 2016-17)

P. N. Shetty v. ITO (2019) 181 DTR 97/ 310 CTR 359/ 266 Taxman 15 (Karn) (HC)

31. 68 : Cash credits – The expression “any previous year” does not mean all previous years but the previous year in relation to the assessment year concerned – If the cash credits are credited in the FY 2006-07, it cannot be brought to tax in a later AY. 2009-10 [S.3]

The question before the High Court was “On the facts and in the circumstances of the case and in law, whether the Tribunal was right in sustaining the additions made of old outstanding sundry credit balances” Allowing the appeal of the assessee the Court held that, the expression “any previous year” does not mean all previous years but the previous year in relation to the assessment year concerned. If the cash credits are credited in the FY 2006-07, it cannot be brought to tax in a later AY. 2009-10. Followed CIT v. Bhaichand H. Gandhi (1983), 141 ITR 67 (Bom) (HC) CIT v. Lakshman Swaroop Gupta & Brothers (1975), 100 ITR 222 (Raj) (HC) Bhor Industries Ltd v. CIT AIR 1961 SC 1100 (ITA No. 29 of 013, dt. 14-02-2020) (AY. 2009-10)

Ivan Singh v. ACIT (Bom)(HC)(Goa Bench), www.itatonline.org

32. 68 : Cash credits – Share capital – Substantial part of share application money was received in earlier assessment years – Balance amount sufficient evidence was produced such as identity and genuineness – Deletion of addition is held to be valid

Dismissing the appeal of the revenue, the Court held that, substantial part of share application money was received in earlier assessment year accordingly the amount could not be added in impugned assessment year Balance amount sufficient evidence was produced such as identity and genuineness. Order of Tribunal is affirmed. (Arising from ITA No. 4836/Mum/ 2011 dt 30-06-2016)(ITA No. 957 of 2017 dt 4-11-2019)(AY. 2007-08)

PCIT v. Realvalue Realtors (P) Ltd. (2020) 113 taxmann.com 62 (Bom) (HC)

33. 68 : Cash credits – Identity of creditor established – Need not prove the source of the source – Addition confirmed by the Tribunal is deleted

The assessee had taken unsecured loan from various persons. The Assessee has filed the confirmation letters. The AO has doubted the genuineness of the loan and made addition as cash credits. The Tribunal also confirmed the addition. On appeal by the assessee allowing the appeal the Court held that the assessee need not prove the source of the source. Accordingly the addition was deleted. Followed PCIT v. Veedhata Tower Pvt. Ltd. (2018) 403 ITR 415 (Bom) (HC). (ITA No. 6160 /Mum/2016 dt. 11-05-2017 (AY. 2010-11) (ITA No 1750 of 2017 dt. 22-01-2020)

Gaurav Triyugi Singh v. ITO (Bom) (HC) (UR)

34. 68 : Cash credits – Share application money and share premium – Identity, genuineness of transaction, creditworthiness is proved – Deletion of addition is held to be justified

Dismissing the appeal of the revenue the Court held that, the assessee has proved, identity, genuineness of transaction, creditworthiness of the share application money and share premium hence deletion of addition by the Tribunal is held to be justified. Addition cannot be made as cash credits. (ITA No 4607 /Mum/2012 AY. 2008-09 dt. 18-10-2016) ITA No 991 of 2017 dt. 4-11-2019)

PCIT v. Shree Rajalakshmi Textile Park Pvt. Ltd. (2020) BCAJ-January-P. 46 (Bom) (HC)

35. 68 : Cash credits – VDIS – Declaration of diamond jewellery – Sale of items after smelting – Weight of gold not disputed – Addition as cash credit is held to be not justified – Assessable as capital gains [S. 45, VDIS 1997, S. 65]

Assessee voluntarily disclosed gold and diamond jewellery u/s. 65(1) of VDIS, 1997 which was accepted and certificate was issued u/s. 68(2) of the Act. Assessee filed return by declaring negative income from sale of above said VDIS declared gold and diamond jewellery items, which had been converted into bullion after smelting and separating diamonds through a goldsmith. AO rejected assessee’s claim and brought entire sale consideration of VDIS declared items to tax under S. 68 of the Act. Tribunal upheld the order of the AO. On appeal the Court held that AO had not disputed weight or gold sold by assessee after smelting it from jeweller. Moreover, Tribunal in its various decisions in case of other assessee’s who were similarly placed, had accepted capital gain declared on sale of VDIS declared items after smelting them through various jewellers. Accordingly the Tribunal committed an error in not accepting sale invoices submitted by assessee on ground that it was not same items which had been shown and declared by them in VDIS. Addition was deleted. (AY. 1998-99)

Bhurat Sunilkumar (HUF) v. ITO (2019) 267 taxman 139 (Karn)(HC)

36. 68 : Cash credits – Peak credit theory – Hawala transactions – Money laundering can be for oneself – Refusal to divulge details of persons from whom money was distributed – Entire amount to be added as income on basis of peak credit theory – Estimation of commission again at 2% as alleged commission shall be only on the amounts deposited, other than the incremental peak credit adopted for each year – Appeal is dismissed [Ss. 69, 69A]

Assessee had been carrying on a lodge it opened various bank accounts in the name of partnership firms constituted of the relatives and employees of the assessee. Substantial amounts came into such Bank accounts in all the subject assessment years and there were withdrawals made immediately on the deposits having come to the account. The AO added the peak credit in the accounts recovered were assessed under Ss. 68, 69 and 69A as unexplained cash credits and investments. Considering the fact that the entire transactions were hawala transactions, commission at the rate 2 per cent was also assessed as income of the assessee. The assessee contended that very allegation of hawala transaction would indicate that money which came into the accounts did not belong to assessee; but to those persons to whom it was distributed and, thus, there could not have been any addition made on the basis of peak credit. Tribunal upheld the addition. On appeal High Court held that money laundering can also be for oneself and there can be no presumption that it is for others, especially when the assessee refuses to divulge the details of the persons to whom money was distributed. When the assessee contested the proceedings with a stout denial and nothing more; various accounts being found to have been opened and operated on behalf of the assessee, the entire deposits therein had to be treated as assessee’s income. The AO himself adopted the peak credit in each year, which again was modified to incremental peak credit. Court held that the assessee cannot dissociate himself from the various accounts in view of the overwhelming evidence unearthed by the department connecting him to the various accounts maintained in the Bank and the depositions of the various witnesses summoned. Despite the fact that the Enforcement Directorate had found the assessee to be a hawala operator or money launderer, the assessment under Ss. 68, 69 and 69A of the incremental peak credit of the respective years, in the subject assessment years, taken from all the accounts to be perfectly in order. There can be a reasonable assumption that the incremental credit would be the income of the assessee, the remittances being found in favour of the assessee and the disbursal not having been proved or even admitted. As regards commission when incremental peak credits are taken as the income of the assessee for a particular year the said quantum shall not be treated for the purpose of 2 per cent commission and no addition shall be made on that count. Hence the commission shall be only on the amounts deposited, other than the incremental peak credit adopted for each year. (AY. 2002-03 to 2005-06)

K. P. Abdul Majeed v. ACIT (2019) 267 taxman 151 (Ker) (HC)

37. 68 : Cash credits – Share capital – Identity of the investors were not in doubt – Furnished PAN, copies of the income tax returns of the investors as well as copy of the bank accounts in which the share application money was deposited in order to prove genuineness of the transactions – Not required to prove source of the source – Deletion of addition by the Tribunal is held to be justified

Dismissing the appeal of the revenue the Court held that, the identity of the investors were not in doubt. The assessee had furnished PAN, copies of the income tax returns of the investors as well as copy of the bank accounts in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, the bank accounts of the investors showed that they had funds to make payments for share application money. The assessee was not required to prove source of the source. Nonetheless, the inquiries through the investigation wing of the department at Kolkata proved source of the source (PCIT v. NRA Iron & Steel (2019) 412 ITR 161 (SC) distinguished) (ITA No. 1231 of 2017, dt. 29-01-2020) (AY. 2010-11)

PCIT v. Ami Industries (India)P. Ltd. (Bom)(HC), www.itatonline.org

38. 69 : Unexplained investments – Capital gains – Sale of property – Stamp valuation – Legal fiction cannot be invoked to make addition – Merely on the basis of stamp valuation addition cannot be made [Ss. 45, 50C, 69B, 263, Art, 265]

The assessee purchased a piece of land. Assessment was completed. Subsequently the order was set aside in revision and an addition was made to his income under S. 69 on the ground that there was a difference between the value of the land shown in the sale deed and the stamp value. The order of revision was upheld by the Tribunal. On appeal, High Court held that there was nothing on record to indicate what was the price of the land at the relevant time. Even otherwise, it was a pure question of fact. Apart from the fact that the price of the land was different from that recited in the sale deed unless it was established on record by the Department that as a matter of fact, the consideration as alleged by the Department did pass to the seller from the purchaser, it could not be said that the Department had any right to make any additions. The addition was not justified. (R/TA. No. 399 of 2019 dt 20-08-2019) (AY. 2011-12)

Gayatri Enterprise v. ITO (2020) 420 ITR 15 (Guj) (HC)

39. 69C : Unexplained expenditure – Bogus purchases – Accommodation entries – Restricting the disallowances at 5% of alleged bogus purchases is held to be justified – Entire purchases cannot be disallowed [S. 37(1)n, 144]

The assessee is engaged in the business of manufacturing and dealership of all kinds of industrial power controlling instrument cables and related items. On the basis of the information received from the sales tax department the AO disallowed the entire purchases from the alleged hawala bill givers and passed the order u/s. 144 of the Act. On appeal considering the additional evidences added only 2% of the profit element on alleged purchases. On appeal by the revenue the Tribunal directed the AO to make further disallowance of 3% alleged purchases. Against the order of the Tribunal the revenue filed an appeal to the High Court. Followed, CIT v. Bholanath Polyfab Ltd. (2013), 355 ITR 290 (Guj) (HC) and distinguished the ratio in Kaveri Rice Mills v. CIT (2006)157 Taxman 376 (All) (HC), CIT v. La Medica (2001) 250 ITR 575 (Delhi) (HC) (Arising from ITA No. 7773/Mum/2014 dt. 3-11-2016 (ITA No. 1330 of 2017 dt 20-02-2020 (AY. 2010-11).

PCIT v. Rishabhdev Tachnocable Ltd. (Bom) (HC). www.itatonline. org

40. 69C : Unexplained expenditure – Bogus purchases – Business of Civil Contractor – Even if the purchases made by the assessee are to be treated as bogus, it does not mean that entire amount can be disallowed – As the AO did not dispute the consumption of the raw materials and completion of work, only a percentage of net profit on total turnover can be estimated [S. 37(1), 68]

The Respondent-Assessee carried on business as a Civil Contractor. The assessment was reopened under Section 147 of the Income Tax Act. Information was received from the Sales Tax Department that Respondent-Assessee had taken bogus purchase entries of ₹ 1,69,48,368/- from the different parties. The reassessment order was accordingly passed on 17 February, 2014 determining the total income of ₹ 2,18,13,430/. On appeal CIT (A) who partly allowed the Appeal and sustained addition of based on the net profit @ 5.76 % on the contracted amount. On appeal by the revenue the Tribunal affirmed the order of the CIT(A). dismissing the appeal of the revenue the Court held that, even if the purchases made by the assessee are to be treated as bogus, it does not mean that entire amount can be disallowed- As the AO did not dispute the consumption of the raw materials and completion of work, only a percentage of net profit on total turnover can be estimated. Court also held that assuming that the Respondent – Assessee the purchasers from whom the purchases were made were bogus, in view of the finding of fact that the material was consumed, the question would be of extending the percentage of net profit on total turnover. This would be a matter of calculations by the concerned authority. In this context, if the CIT (A) and the Tribunal chose to follow the percentage arrived by the Settlement Commission in the Respondent-Assessee’s own case for the other years, this exercise cannot be considered as irregular or illegal. Followed PCIT v. Mohommad Haji Adam & Co (Bom) (HC) www. itatonline.org, PCIT v. Paramshakti Distributors Pvt. Ltd. (Bom) (HC) www.itatonline.org. (ITA No. 1453 of 2017 dt. 8-1-2020) (AY. 2019-10)

PCIT v. Pinaki D. Panani (Bom) (HC) www.itatonline. org

41. 69C : Unexplained expenditure – Income from undisclosed sources – Bogus purchases – Bhanvarlal Jain group – Hawala concern – Addition cannot be made of entire purchases based on the report of Investigation wing – When sales are accepted purchases cannot be rejected – Estimate of profit of 3% of bogus purchases – Held to be justified – Appeal of revenue is dismissed – No question of law [S.260A]

The responded is in business in trading and manufacturing of silver, gold, diamonds stones and Jewellery. The AO on the basis of report of investigation wing Mumbai where in two purchases were made from Amit Diamonds which belongs to Bhanvarlal Jain group being a hawala concern, made addition of entire purchases. CIT(A) deleted the addition and confirmed 3% of amount of purchases. Tribunal affirmed the order of the CIT(A). On appeal by the revenue, dismissing the appeal of the revenue the Court held that the CIT(A) had found that the assessee had shown purchases as well as sales. If the sales were accepted, the Assessing Officer could not have rejected the purchases. Once the purchases were accepted, the difference between the inflated and actual price of purchases would be required to be disallowed and what would be the extent of difference would be a matter of estimate. The Commissioner (Appeals) had estimated this difference at 3 per cent of the bogus purchases and the Tribunal had accepted it. Whether an estimate should be at a particular sum or at a different sum can never be an issue of law. (Followed Sanjay Oilcake Industries v. CIT (2009) 316 ITR 274 (Guj)(HC) Referred N. K. Industries Ltd. v. Dy CIT (2017) 292 CTR 354/ 8 ITR-OL 336 (Guj) (HC), Vijay Proteins Ltd. v. CIT (2015) 58 taxmann.com 44 (Guj) (HC) (AY. 2011-12)

PCIT v. Shah Virchand Govanji Jewellers Pvt. Ltd. (2019] 418 ITR 472 (Guj) (HC)

42. 80 : Return for losses – Claim for carry forward of loss – Return filed in old form – Filed revised form after due date – Entitle to carry forward the loss [S. 139(1), 139 (3)]

Assessee had filed its return on 31-10-2007, in old Form, its claim for carry forward of loss could not be allowed. New form was filed on 23-12-2008 i.e., beyond due date of filing of return. AO disallowed the claim for carry forward of loss. Tribunal allowed the claim of the assessee. On appeal by the revenue, High Court affirmed the view of the Tribunal. Court held that the assessee had not sought to gain any unfair advantage by filing return in old Form and moreover, it did later on comply with conditions of filing new Form. (AY. 2007-08)

CIT v. Zila Sahkari Bank (P.) Ltd. (2019) 112 taxmann.com 403/ 269 Taxman 56 (All) (HC).

Editorial : SLP of revenue is dismissed; CIT v. Zila Sahkari Bank (P.) Ltd. (2020) 269 Taxman 55 (SC)

43. 80IB(10) : Housing projects –Completion of project – Partial construction of project – Eligible for exemption

Question raised before the High Court by the revenue was “Whether on the facts and in the circumstances of the case and in law, the ITAT has erred in holding that the project was complete on or before 31-03-2009 when occupation certificate was accorded only in respect of 9206.30 sq. mtr. against sanction of 11960.15 sq. mtr. ?”

Following the order of High Court in assessee’s own case bearing ITA No. 655 of 2017 dt 6-6-2019 for the AY. 2009-10 the question raised is decided against the revenue and in favour of the assessee. (ITA No. 2099/Mum/ 2015 dt 15-12-2016) (ITA No. 1755 of 2017 dt. 22-01-2020 (AY.2010-11)

PCIT v. Sadhana Builders Pvt. Ltd. (Bom) (HC) (UR)

44. 80IB(10) : Housing projects – One of the unit constructed exceeded the upper limit – Deduction cannot be denied to entire housing projects – Exemption is not allowable only in respect of the unit exceeded the prescribed limits

Assessee claimed deduction under S. 80-IB(10) in relation to income of housing development. AO rejected assessee’s claim on ground that some residential units exceeded specified built up area of 1500 sq. ft. Tribunal held that simply because out of several units included in housing project, only in one of them, constructed area exceeded upper limit; that too, by a small margin, deduction claimed could not be denied in respect of entire housing project. High Court confirmed order passed by Tribunal.

PCIT v. Shreenath Buildcon (2019) 110 taxmann.com 389 (Guj) (HC)

Editorial : SLP of revenue is dismissed; PCIT v. Shreenath Buildcon. (2019) 267 taxman 115 (SC)

45. 90: Double taxation agreement – Rate of tax Applicable to domestic company and not 65% – CBDT Circular is held to be applicable – DTAA – India-Japan [Arts. 7, 23, 24(2)]

The question before the High Court was “Whether on the facts and in the circumstances of the case, the tribunal was right in law in holding that the rate of tax applicable to the assessee would be the rate of 65% as held by the Tribunal to be applicable to assessee and not the rate applicable to a domestic company” After considering the various provisions of the DTAA the Court held that the stand taken in the Tribunal’s order cannot be appreciated or accepted since a similar clause in the double taxation avoidance agreement between India and the Netherlands was interpreted by the Central Board for Direct Taxes and a circular issued thereupon. The Tribunal held, in the present case, that since there was no similar circular, the benefit as available to a permanent establishment of ABN Amro Bank in India could not be extended to this assessee. When there is no dispute that there is a double taxation avoidance agreement in place between India and the country of origin of the assessee in the present case and when such agreement contains a lucid clause as apparent from Article 24(2) thereof quoted above and when Section 90 of the Act itself recognises such an agreement and creates a special status for the relevant permanent establishments, there was no room for either the Commissioner to wait for any dictat from the high command of the CBDT or for the Tribunal to demonstrate similar servile conduct in not appropriately interpreting and giving effect to the clear words of the agreement between the two countries. The reference is concluded by answering the first question raised as follows: The Tribunal was incorrect in holding that the rate of tax applicable to the assessee was 65%. The Tribunal ought to have held that the rate applicable to the assessee was such rate as applicable to a domestic company carrying on similar activities. (AY. 1991-92)

Bank of Tokyo Mitsubishi Ltd. v. CIT (2019) 310 CTR 479/ 181 DTR 220 (Cal) (HC)

46. 139 : Return of income – Delay in filing revised return – Amalgamation – Sanction of company Law Tribunal is not binding on Income-Tax Authorities – Application for condonation of delay to me made [S. 119, Companies Act, 2013, S. 230(5), Constitution, Art. 226]

Pursuant to sanction of the scheme of arrangement the transferee company attempted to file revised returns without filing an application for condonation of the delay in filing them on the basis that the sanctioned scheme of arrangement and, in particular, clause 64(c) thereof, entitled such filing and was binding on the Income-tax authorities. This contention was accepted by a single judge under article 226 of the Constitution. On appeal, the Court held that the Department had been notified that the scheme of arrangement enabled the amalgamated company and transferee company to file returns and revised returns before the tax authorities, including the Income-tax authority. However, it could not be said that the Department had consented to waive the procedures or statutory requirements prescribed in the Income-tax Act for this purpose. In this regard, the order of the Company Law Tribunal whereby the scheme of arrangement was sanctioned also mandated that necessary permissions should be obtained and compliances fulfilled. The transferee company was required to comply with the procedure for filing a revised return belatedly. (AY. 2015-16, 2016-17)

ACIT v. Dalmia Power Ltd. (2019) 418 ITR 242 (Mad) (HC)

ACIT v. Dalmia Cement Power Ltd. (2019) 418 ITR 242 (Mad) (HC)

Editorial : Decision in Dalmia Power Ltd. (2019) 418 ITR 221 / 308 CTR 777/ 178 DTR 113/ 265 Taxman 37 (Mad) (HC) is reversed.

47. 143(2) : Assessment – Notice – Mandatory – Block assessment – Non issue of notice – Assessment is held to be bad in law [S.132, 158BC]

Dismissing the appeal of the revenue the Court held that the assessment made by the AO without issuing the mandatory notice u/s. 143(2) of the Act is held to be bad in law.

CIT v. Sodder Builder And Developers (P.) Ltd. (2019)419 ITR 436 (Bom) (HC)

48. 143(2) : Assessment – Notice – Limitation – Notice was not issued within prescribed time – Order is barred by limitation [S.143(3)]

Dismissing the appeal of the revenue the Court held that on the admitted fact situation the notice under S. 143(2) of the Act, was not given within prescribed time, and the Tribunal was justified in law in quashing the draft assessment order in pursuance of the notice under S. 143(2) holding the notice was barred by limitation. (AY. 2010-11)

CIT(IT) v. Cameron Singapore Pte. Ltd. (2019) 418 ITR 272 (Raj)(HC)

Editorial : Order in Cameron Singapore Pte. Ltd. v. Asst. DIT(IT) (2017) 58 ITR 202 (Trib) (Jaipur) is affirmed.

49. 143(2) : Assessment – Notice under S. 143(2) of the Income Tax Act was never issued to the Assessee before initiating of proceedings under Section 158 BC of the Income Tax Act – Order is held to be bad in law [S. 158BB, 158BC, 260A]

Tribunal decided the quantum addition in favour of the assessee. In the cross objection the assessee raised the issue of non servicing the issue of notice u/s. 143(2) of the Act, though the ITAT has not given a finding against the assessee on the issue of notice u/s. 143(2) of the Act. Substantial question of law is raised at the time of final hearing of the appeal though it was not raised at the time of admission of appeal. Substantial question of law is admitted on following question of law “Whether non-issuance of notice under Section 143(2) of the Income Tax Act, 1961 vitiates that assessment proceedings under Section 158 BC of the Income Tax Act in view of the Judgment of the Hon’ble Supreme Court in ACIT v. Hotel Blue Moon 2010 3SCC 259?”

Following the ratio of Apex Court in ACIT v. Hotel Blue Moon, the Court held that the omission on the part of the Assessing Authority to issue notice under Section 143(2)cannot be regarded as a procedural irregularity and the same is not curable and such requirement cannot be dispensed with. Hon’ble Apex Court has held that even for the purpose of Chapter XIV-B of the Income Tax Act for determining of undisclosed income for block assessment in proceedings under Section 158BC, provisions of Section 142, 143(2) and 143(3) are applicable and no assessment can be made without issuing notice under Section 142 of the said Act. Accordingly the order is held to be bad in law. (TA No. 75 of 2008 /Misc A No. 179 of 2016 dt. 13-09-2019)

CIT v. Fomento Fianance & Investment (P) Ltd (2019) 183 DTR 340/ (2020) 312 CTR 88/ 421 ITR 146 (Bom) (HC)

50. 143(3) : Assessment – E-Assessment – Post demonetization – The AO should at least call for an explanation in writing before proceeding to conclude that the amount collected by the assessee was unusual – The AO could have come to a definite conclusion on facts after fully understanding the nature of business of the assessee – Order of AO is set aside and the AO is directed to dispose the matter within sixty days of receipt of the order. [S.69A, 115BBE.]

The petitioner has challenged the order passed by the respondent on 27-12-2019 in respect of the amount received by the petitioner post demonetization i.e., between 09-11-2016 and 31-12-2016. the petitioner has prima facie demonstrated that the assessment proceeding has resulted in distorted conclusion on facts that amount collected by the petitioner during the period was huge and remained unexplained by the petitioner and therefore same was liable to be treated as unaccounted money in the hands of the petitioner under S. 69A of the Act. Therefore, the impugned order making the petitioner liable to tax at the maximum marginal rate of tax by invoking S. 115BBE of the Act. Court held that while E-Assessment without human interaction is laudable, such proceedings can lead to erroneous assessment if officers are not able to understand the transactions and accounts of an assessee without a personal hearing. Assessment proceeding under the changed scenario would require proper determination of facts by proper exchange and flow of correspondence between the assessee and the AO. The AO should at least call for an explanation in writing before proceeding to conclude that the amount collected by the assessee was unusual. Also, since the assessment proceedings no longer involve human interaction and is based on records alone, the assessment proceeding should have commenced much earlier so that before passing assessment order, the AO could have come to a definite conclusion on facts after fully understanding the nature of business of the assessee. AO is directed to dispose the matter within sixty days of receipt of the order. (W.P. No. 1732 of 2020 and W.M.P. Nos. 2006 & 2007 of 2020, dt. 04-02-2020)
(AY. 2-17-18)

Salem Sree Ramavilas Chit Company v. DCIT(2020) 114 taxmann.com 492 (Mad)(HC), www.itatonline.org

51. 143(3) : Assessment – Remand by the Tribunal – Additional claim could be made in remand proceedings – Order of tribunal is set aside [S. 144, 254(1)]

The AO made the assessment u/s. 144 of the Act. The Tribunal set aside the matter to the AO for framing a fresh assessment. The AO passed the oder u/s 143(3) r.w.s 254 of the Act by making certain additions and disallowances. Order of the AO is upheld by the CIT(A). On appeal the Tribunal once again set aside the order of the CIT(A) and directed the AO to pass fresh order. The AO deleted the addition made in the first two rounds. The Assessee made afresh claim as regards the non taxability of income as regards write off liability by Canara Bank which was earlier offered as taxable income. The AO rejected the claim on the ground that in remand proceedings the assessee could not raise a fresh claim. CIT(A) also confirmed the order of the AO. Tribunal also affirmed the order of the CIT(A). On appeal the High Court held that the Tribunal has not appreciated the scope and nature of the remand ordered by the it by its earlier order dt. 10-03-2011. Accordingly the Court allowed the assessee to raise the claim and restored the matter back to the AO for evaluation of the said claim on its own merits. (AP. No. 259 of 2018 dt 28-11-2019) (AY. 2002-03)

Curewel (India Ltd v. ITO (2020) CTCJ – January-P. 87 (Delhi) (HC)

52. 145 : Method of accounting –Accommodation entries – Estimate of commission – Rejection of accounts and estimate of income – Discretion must be exercised in a judicious manner – Tribunal is not justified in confirming the addition [S.144, 145(3)]

The AO estimated 10 per cent commission for providing accommodation entries to the tune of ₹ 12,00,02,100. The CIT(A) took the view that the estimation of commission at 10 per cent by the Assessing Officer is one-third of the benefit, which could be termed as excessive and not a reasonable estimate. The CIT(A) without there being anything on record, thought it fit to take the view that the estimate by the assessee at 3 per cent translated to 1 per cent of the benefit derived, which could be termed too low, and in such circumstances, estimated it at 2 per cent, which would translate to about 6.7 per cent of the benefit alleged to have been derived by PACL India Ltd. Tribunal confirmed the addition. On appeal the High Court held that this was nothing but pure guesswork without there being any material or basis for arriving at the same. The Tribunal was not right in law in confirming the addition. (AY. 2011-12)

Rameshchandra Rangildas Mehta, Prop. of M/s. Sunit Trading Company v. ITO (2020) 421 ITR 109 (Guj)(HC)

53. 145 : Method of accounting – Real estate developer – Project completion method – Addition on the basis of percentage completion method is held to be not justified [AS-7]

Assessee is engaged in business of construction as a builder /real estate developer. It maintained books of account on basis of project completion method. AO made certain addition to assessee’s income by applying percentage completion method. Tribunal held that project completion method followed by assessee would not result in deferment of payment of taxes which were to be assessed annually under Act. Moreover, AS-7 issued by ICAI also recognized position that in case of construction contracts, assessee could follow either project completion method or percentage completion method. Tribunal further opined that there was no jurisdiction on part of AO to adopt percentage completion method for one year on selective basis. Accordingly the Tribunal deleted the addition. On appeal by the revenue the High Court affirmed the order of the Tribunal.

PCIT v. Panchsheel Colonizers (P.) Ltd. (2019) 267 Taxman 571/ 111 taxmann.com 459 (Raj) (HC)

Editorial : SLP is granted to the revenue, PCIT v. Panchsheel Colonizers (P.) Ltd. (2019) 267 Taxman 570 (SC)

54. 145 : Method of accounting – Suppression of sales – Revenue was not able to show any defect in assessee’s records or in books of account maintained by assessee – Rejection of books of account is held to be not justified – Deletion of addition on account of suppression of addition is held to be justified [S 43CA, 50C, 145(3)]

The assessee was engaged in the business of property development. During year, the assessee sold several flats and received sale consideration. The AO held that the income on the sale of flats was available to tax in the assessment year 2004-05 and not in the assessment year 2005-06 on the basis that the project was completed in the previous year relevant to the assessment year 2004-05 and not assessment year 2005-06. However, the income offered by assessee for the assessment year 2005-06 was assessed on protective basis. Further, he found that there was suppression of sales value in respect of six flats. Thus, he made an addition on account of suppressed sales value in respect of six flats. CIT(A) partly allowed the assessee’s appeal holding that the project was completed in the assessment year 2005-06 and not in the assessment year 2004-05. However, he rejected the books of account under S. 145(3) and completed the assessment on best judgment basis. CIT (A) held that there was an understatement of sales value in respect of all twelve flats as there was suppression of value in all the twelve flats of the project, as the market rate then was ₹ 8,992 per sq. ft. for the assessment year 2005-06. Thus, the above rate of ₹ 8,992 per sq. ft. was applied to all the twelve flats to enhance the assessment to certain amount. On appeal Tribunal set aside the order of CIT (A) and held that neither the AO nor the CIT(A) had any material on record to show that the assessee received more than what was shown in the sale-deeds. Moreover, it held that there was no occasion to apply section 145(3) so as to reject the books in the absence of any defect in the books on account of being found. Thus, it deleted the enhancement of assessment. On appeal by the revenue, High Court affirmed the order of the Tribunal and also held that, provision introduced with effect from 1-4-2014 for deeming consideration received on sale of goods/assets on basis of stamp duty valuation would be applicable prospectively. (AY. 2005-06)

PCIT v. Swananda Properties (P.) Ltd. (2019) 267 Taxman 429 (Bom.)(HC)

55. 147 : Reassessment – After the expiry of four years – Change of opinion – Interest income on fixed deposit assessed as business income – Reassessment on the ground that it has to be assessed as income from other sources.
    [S. 56, 148, Art. 226]

Assessee, in return of income claimed interest income earned on fixed deposit as part of its business income and AO disallowed same on ground that it did not carry out any business during year and passed assessment order under S. 143(3) on 30-03-2014 and subsequently AO issued reopening notice dated 26-03-2018 on ground that interest income was required to be taxed as income from other sources. On writ the Court held that notice was issued beyond period of four years from end of assessment year 2011-12 and there had been a complete disclosure of all material facts on part of assessee during regular assessment proceedings under S. 143(3), impugned notice was clearly hit by first proviso to section 147 and deserved to be set aside. (AY. 2011-12)

DCIT v. MSEB Holding Co. Ltd. (2019) 102 taxmann.com 288 (Bom) (HC)

Editorial : SLP of revenue is dismissed, since tax effect is less than ₹ 2 Crore. DCIT v. MSEB Holding Co. Ltd. (2020) 269 Taxman 22 (SC)

56. 147 : Reassessment – After the expiry of four years – Without there being any element of lack of true and full disclosure on the part of the assessee – Reassessment notice is held to be bad in law [S. 115-0, 148]

The reassessment notice was issued on the ground that the assessee has resorted to dubious method of buyback of shares to avoid dividend tax. Thus the transaction is a colorable device to avoid tax and it clearly amounts to tax evasion. The assessee company has utilized the accumulated profit for buy back of the shares and this arrangement is a convenient ploy to get round the dividend distribution tax liability and the payment towards buyback was indeed divided. By not paying the dividend, the company has avoided DDT. Instead of paying dividend, the company has offered a buyback offer which is accepted by the holding company and therefore I have reason to believe that the income of
₹ 11,04,29,642/- chargeable to tax has been under assessed. On writ allowing the petition the Court held that issue of notice after expiry of four years, without there being any element of lack of true and full disclosure on the part of the assessee – Reassessment notice is held to be bad in law. (AY. 2011-12)

Firstsource Solutions Ltd. v. Dy. CIT (2019) 176 DTR 151 (Bom) (HC)

57. 147 : Reassessment – After the expiry of four years – Bogus purchases – Accommodation entries – No failure to disclose material facts – Change of opinion – Reassessment is held to be bad in law [S. 69C, 148]

The petitioner is a partnership firm carrying on the business of manufacture and exports of diamonds. The assessment was completed u/s. 143(3) and thereafter reopening was done for alleged bogus purchases. The assessment was done by making GP additions. Thereafter the reassessment notice was issued again for alleged accommodation entries. On writ allowing the petition the Court held that the omission of the AO to make an assertion in the reasons that there was a failure to disclose fully and truly all material facts necessary for the assessment is sufficient to set aside the reassessment notice. Also, a notice issued on change of opinion is bad in law. (WP No. 2506 of 2019, dt. 12-12-2019) (AY. 2012-13)

Usha Exports v. ACIT (2020) 312 CTR 237/ 185 DTR 87 (Bom)(HC), www.itatonline.org

58. 147 : Reassessment – Within four years – Change of opinion- Netting of interest earned and paid on borrowed capital – No new material – Notice for reassessment is held to be not valid [S.148, Art. 226]

Allowing the petition, the Court held that the entire question of taxing the assessee’s interest had been minutely scrutinised by the AO during the original assessment proceedings. The AO had asked the assessee to explain why certain interest earned was not offered to tax and the assessee had produced full details of the interest earned and the interest paid on the borrowed capital and had clarified that it had netted the interest received against the interest paid and had transferred the remaining amount to the work-in-progress account. In the absence of new material, reopening of the assessment under S 147 would be based on a mere change of opinion. The notice issued under S. 148 was to be set aside. (AY. 2013-14)

Rubix Trading Pvt. Ltd. v. ITO (2020) 421 ITR 330 (Bom) (HC)

Editorial : SLP of revenue is dismissed. ITO v. Rubix Trading Pvt. Ltd. (2019) 416 ITR 136 (St) (SC)

59. 147 : Reassessment – Fishing enquiry – Information from intelligence wing – Builder – Make detailed enquiry – Reassessment is held to be bad in law. [S. 28(i), 148, Art. 226]

The assessee is builder. The assessment was completed u/s. 143(3) Subsequently AO reopened the assessment on the ground that record of assessee was checked and it was found that it was a builder and, therefore, to verify intelligence gathered by Intelligence Wing, it was necessary to carry out detailed inquiry, and the assessee had developed society land which according to information received did not contain any agreement. Assessee repeatedly pointed out to AO that it had neither developed any such project nor claimed exempt income arising out of such project. AO rejected the objection filed by the assessee. On writ the Court held that from reasons recorded it was very clear that AO wished to carry out a fishing inquiry. Accordingly the reopening of assessment could not be permitted for carrying out fishing inquiries. (AY. 2011-12)

Giriraj Enterprises v. ACIT (2019) 174 DTR 409 /102 taxmann.com 188 (Bom) (HC)

60. 147 : Reassessment – Agricultural income – Advisory issued by the department – Verify the income – Undisclosed income – No tangible material – Reassessment is held to be bad in law [S.2(IA), 148, Art. 226]

Assessee filed its return of income showing agricultural income of certain amount which was accepted. On the basis of an advisory issued by department the AO was directed to thoroughly verify claims in respect of agricultural income earned by several parties including assessee. On basis of same, AO issued notice u/s 148 against assessee so as to treat its agricultural income as income from undisclosed sources. On writ the revenue admitted that the advisory contained in a letter which was issued in light of an order passed by this Court on a public interest litigation and required verification of agricultural income for certain period, which also included assessment year in question. Advisory directed AO to verify whether there was any data entry error in returns filed; to provide feedback where assessment was complete and in cases where assessment was pending, to thoroughly verify claims on agricultural income. Allowing the petition the Court held that reopening was simply founded on advisory issued by department and there was no tangible material in possession of AO for formation of belief about escarpment of income chargeable to tax, therefore reopening notice was unjustified. (AY. 2011-12)

Ravindra Kumar (HUF) @ Rabindra Kumar (HUF) v. CIT (2019) 266 Taxman 506 (Patna) (HC)

61. 148 : Reassessment – Notice – Notice sent at address available in PAN database returned – Communication had to be delivered at address of assessee available with banking company – No service of reopening notice – Order making additions unjustified [S. 147, 282, R, 127, Art. 226]

Assessee never filed return of income as she did not have any taxable income. AO issued reopening notice which was dispatched for delivery through post. The postal authorities returned the notice with a remark ‘left’. AO did not take any further steps and carried on assessment and made additions to assessee’s income. High Court held that where delivery of notice could not be made at address of assessee available in PAN database, communication had to be delivered at address available with banking companies. Service of notice was not complete inspite of department having access to assessee’s bank account. Hence, impugned reassessment order making additions to income of the assessee was unjustified and impugned notice and order are set aside. (AY. 2011-12)

Harjeet Surajprakash Girotra v. UOI (2019) 180 DTR 257 /266 Taxman 29 (Bom.) (HC)

62. 148 : Reassessment – Notice – Issue of notice prior to recording of reasons for reopening of assessment is held to be without jurisdiction – Deserves to be quashed – Defects could not be cured by invoking S. 292B of the Act [S. 147, 292B]

Dismissing the appeal of the revenue the Court held that issue of notice u/s. 148 without recording reasons for same, it was not a mere case of clerical error, but substantial condition for valid issue of reopening notice had not been fulfilled and, such a defect could not be cured by invoking provisions of S. 292B of the Act. (AY. 2004-05)

PCIT v. Tata Sons Ltd. (2019) 267 Taxman 13 (Bom) (HC)

63. 151 : Reassessment- Sanction for issue of notice – Joint Commissioner of Income tax – Reopening of assessment with the approval of Commissioner is held to be not valid [Ss.147, 148, 151(2)]

Dismissing the appeal of the revenue, the Court held that, where the Act provides for sanction by the Joint Commissioner of Income tax in terms of S.151, then the sanction by the Commissioner of Income tax would not meet the requirement of the Act and reopening notice would be without jurisdiction. Followed Ghanshyam K. Khabarani v. ACIT (2012) 346 ITR 443 (Bom) (HC). (ITA No. 371 /Lkw/2016 dt 19-10-2016) (AY. 2008-09) (ITA No. 1035 of 2017 dt. 11-11-2019)

PCIT v. Khushbu Induatries (2019) BCAJ- January-P. 47 (Bom) (HC)

64. 153A : Assessment – Search – Abated assessment – It is open to both parties, i.e. the assessee and revenue, to make claims for allowance or disallowance [S. 132, 139(1)]

Dismissing the appeal of the revenue the Court held that, once the assessment gets abated, the original return filed u/s. 139(1) is replaced by the return filed u/s. 153A. It is open to both parties, i.e. the assessee and revenue, to make claims for allowance or disallowance. The assessee is entitled to lodge a new claim for deduction etc. which remained to be claimed in his earlier/ regular return of income (CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom)(HC), referred) ITA No. 1934 of 2017, dt. 05-02-2020) (AY. 2008-09)

PCIT v. JSW Steel Ltd. (Bom)(HC), www.itatonline.org

65. 194C : Deduction at source – Contractors – Failure to file TDS related documents at the time of filing of return of TDS – Procedural law – Fine can be imposed – Expenses cannot be disallowed – Matter remanded to the AO for readjudication [Ss. 40(a)(ia), 194C(6), 194C(7), 254(2), 260A]

The AO disallowed the expenses on the ground that the assesee has failed to file TDS related documents at the time of filing of return of TDS. Order of the AO is upheld by the Tribunal. On appeal High Court held that sub-section (6) of section 194C is the provision which grants benefit to the assessee. This benefit comes with the condition of compliance of sub-section (7) of section 194C, which is the procedure to be followed. Even assuming that the assessee had not furnished the particulars as required under sub-section (7) of section 194C in the prescribed form, the maximum that could be done is to impose a fine of ₹ 200 for every day of such non-compliance. Therefore, this procedural law, as prescribed under sub-section (7) of section 194C cannot takeaway the benefit, which will accrue to the assessee under sub-section (7) of section 194C. For the above reasons, the matter is to be remanded to the AO for a fresh consideration. Followed, CIT v. Sri Parameswari Spinning Mills (P.) Ltd. (2019) 108 taxmann.com 386 (Mad) (HC) referred ACIT v. Arihant Trading Co (.) 176 ITD 397 (Jaipur) (Trib). (AY. 2012-13)

Dilip Kumar. v. ACIT (2020) 269 Taxman 93 (Mad) (HC)

66. 194C : Deduction at source – Contractors – Contract for sale of goods – Agreement for bulk sale of advertising space – Provision is not applicable

Allowing the appeal of the assessee the Court held that the S. 194C of the Act, would apply to a contract for work and not to a contract of sale. There is a distinction between the two concepts namely “contract for sale of goods” and “works contract”. In determining the question whether a contract constitutes one for work or is a contract of sale, the intention and object of parties has to be borne in mind, which is to be examined in the light of terms of the contract. The main object in a contract of sale is the transfer of property and delivery of possession of the property, whereas the main object in a contract for work is not the transfer of the property, but it is one for work and labour. On facts the assessee had entered into an agreement for bulk sale of advertising space with its holding company on a principal to principal basis by transfer of rights therein. The assessee under the agreement made purchase of advertisement space and exercised control over such space with the right to either sell it to another or retain it for itself. Thus, it was a transfer of advertising space to the assessee who in turn sold it to others. Therefore, the transaction could not be termed a contract for work, and S. 194C was not applicable. (AY. 2007-08)

Times VPL Ltd. v. CIT (2020) 421 ITR 170/ 312 CTR 284/185 DTR 139 (Karn) (HC)

67. 194H : Deduction at source – Commission or brokerage – Bank credit card payment – Not liable to deduct tax at source – Lounce charges are covered u/s 194C and not u/s 194I of the Act [S. 40(a)(ia), 194I]

Questions raised before the High Court was the were :

(a) ”Whether, on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in upholding the order of the CIT (A) and holding that the amount retained by a bank/credit card agency out of the sale consideration of the tickets booked through credit cards is not covered under the definition of “commission or brokerage” given in the Explanation (i) to section 194H of the Act and the assessee was not liable to deduct tax at source under section 194H in respect of this amount?”

(b) “Whether, on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in holding that the use of lounge premises paid by the assessee were payments for contract of work under section 194C of the I.T. Act and not in the nature of rent as per section 194-I of the I.T. Act”

Following the ratio in CIT v. JDS Apparsal Ltd. (2015) 370 ITR 454 (Delhi) (HC) first question is answered in favour of the assessee. As regards question no (b) Following the Japan Airlines Company Ltd. (2015) 377 ITR 372 (SC) has overruled such decision of Delhi High Court. Supreme Court approved the view of Madras High Court in case of CIT v. Singapore Airlines Ltd (2013) 358 ITR 237 (Mad) (HC). (AY. 2009-10)

CIT v. Jet Airways India Ltd. (2019) 180 DTR 115 (Bom) (HC)

68. 194C : Deduction at source – Contractors advertisement services – Principle of natural justice must be followed – Assessing Officer is not justified in deciding that tax should be deducted under Section 194J without giving an opportunity of hearing. [S.194J, 201(1) 201(IA), Art. 226]

The assessee is an advertising and media agency, engaged in the business of advertising by creative and production work, media planning and incidental activities. The assessee deducted the tax as per S. 194C of the Act. According to the revenue tax should have been deducted as per S. 194J of the Act as the rate applicable to professional or technical services. The Income-tax Officer (TDS) passed orders under section 201(1)/(1A) and held that the assessee had short tax deducted/not deducted tax at source to the tune of ₹ 91.10 crore during the assessment years. On a writ petition to quash the order the Court held that the orders could not survive the test of following the principles of natural justice. The Income-tax Officer (TDS) had collected extensive material, which was attributable to his own research, but never put such material to the assessee for its comments and most importantly his entire orders were founded on such research material. The orders were not valid. Accordingly the order was quashed. (AY. 2017-2018)

TLG India Pvt. Ltd. v. ITO (TDS) (2019) 418 ITR 324 (Bom)(HC)

69. 194H : Deduction at source – Commission or brokerage – Guarantee commission paid to bank is not covered under commission or brokerage – Not liable to deduct tax at source. [Ss. 201(1) 201(IA)]

Dismissing the appeal of the revenue the Court held that payment of guarantee commission made by assessee to banks was not covered under commission or brokerage as defined under S. 194H of the Act. Followed CIT v. Larsen & Toubro Ltd. (2019) 260 Taxman 271 (Bom) (HC).

CIT v. Nimbus Communications Ltd. (2019) 266 Taxman 376 (Bom) (HC)

Editorial : SLP of revenue is dismissed; CIT v. Nimbus Communications Ltd. (2019) 266 Taxman 375 (SC)

70. 199 : Deduction at source – Credit for tax deducted – Mismatch of TDS figures – Failure of deductor to upload the correct details in Form No. 26A – Benefit of tax deducted at source should be given to the assessee on the basis of evidence produced before the revenue authorities [S. 205, Form 26A]

In the assessment proceedings the revenue objected to assessee’s claim of Tax Deducted at Source from payments made on ground that there was mis-match in TDS certificate issued by deductors and aggregate amounts arrived at as appearing in Form 26-A. On appeal Tribunal held that though in case, deductor failed to upload correct details in Form 26-A, benefit of TDS should be given to assessee on basis of evidence produced before Department. Accordingly Tribunal directed the AO to verify correct facts and give credit of TDS to assessee. Tribunal relied on Yashpal Sahni v. Rekha Hajarnvis, Asstt CIT (2007) 165 Taxman 44 / 293 ITR 539 / 211 CTR 1 (Bom) (HC). On appeal by the Revenue High Court dismissed the appeal of the revenue.

PCIT v. Tata Communications Ltd. (2019) 267 Taxman 498 / 111 taxmann.com 258 (HC)

Editorial: SLP of revenue is dismissed; PCIT v. Tata Communications Ltd. (2019) 267 Taxman 497 (SC)

71. 201 : Deduction at source – Failure to deduct or pay – Natural justice violated-The order of revenue must speak for itself and cannot be improved upon by an affidavit-in-reply filed by assessee, its not permitted- Orders of revenue were set aside – Matter restored to revenue for fresh disposal of show cause notice after following principles of natural justice i.e. due consideration of assessee submission by speaking order [Ss. 40(a)(ia), 194C, 194J, 197, 201(1), 201 (IA), Art. 226]

Assessee, advertising agency, recovers amount from its clients and makes payment to media owners for advertisement of its clients, on its media. While making payment, Assessee’s clients deduct tax at source u/s. 194C and assessee again deducts tax at source u/s. 194C while making payment to media owners. Show-cause notices were issued as to why it should not be treated as assessee in default u/s 201(1) and 201(1A) for failure to deduct tax on payments u/s. 194J and failure to deduct tax on provisions for expenses, which was disallowed u/s. 40(a)(ia) of the Act. Assessee filed the reply, however the AO held that assessee in default u/s 201(1) and 201 (1A) of the Act. On writ the Court held that when assessee filed representation in respect of proceedings u/s. 201 and 201(1A), revenue was in undue haste passed an order determining huge sums payable by assessee for failure to appropriately deduct tax. This entire exercise was done in undue haste as Revenue was obliged to issue tax deduction certificate u/s. 197. It was only on determination of assessee’s tax liability, could revenue reduce amount of tax to be deducted by assessee’s customers while making payment. Court held that the entire proceedings leading to orders were vitiated for breach of natural justice. Orders of revenue were set aside. The Court also observed that the order of revenue must speak for itself and cannot be improved upon by an affidavit-in-reply filed by assessee, its not permitted. Matter restored to revenue for fresh disposal of show cause notice after following principles of natural justice i.e. due consideration of assessee submission by speaking order. (AY. 2017-18, 2018-19, 2019-20)

TIG India Pvt. Ltd. v. DCIT (2019) 184 DTR 349 / (2020) 312 CTR 199 (Bom) (HC)

72. 220 : Collection and recovery – Assessee deemed in default – Pendency of appeal before CIT(A) and condonation of delay – Offered to pay 10% of tax demand – Court directed the CIT(A) to dispose the application for condonation of delay – Not to recover further tax amount until disposal of applications for condonation of delay [S. 246A, Art. 226]

Petitioner filed appeals before CIT(A) along with applications for condonation of delay in filing appeals as also for stay on assessment orders. Petitioner, apprehending that respondent authority would go to next step and withdraw entire tax amount from its account already frozen by revenue, filed writ petition seeking direction to CIT(A) to keep all coercive proceedings including freezing of bank accounts of petitioner under abeyance till final disposal of said appeals. Petitioner also offered to deposit 10 percent of tax as demanded in assessment orders. Court directed the petitioner to deposit 10 percent of tax amount within a week whereas revenue should not recover tax amount until disposal of condonation of delay application within two weeks from assessee’s representation.

Hi Care Gloves (P.) Ltd. v. DCIT (2019) 267 Taxman 42 (Ker) (HC)

73. 222 : Collection and recovery – Certificate to Tax Recovery Officer – Amalgamation – Tax Recovery Officer could not seek recovery of taxes of reassessment from assessee-company inasmuch as assessee neither had been served with notice of reopening of assessment, nor had any occasion to participate in such reassessment proceedings. [S. 147, 148, Art. 226]

Company Mahadev Floorings (India) Pvt. Ltd. was amalgamated with assessee-company. AO had reopened assessment of company Mahadev Floorings (India) Pvt. Ltd. and passed assessment order on raising tax demand upon it. Subsequently Tax Recovery Officer issued on assessee-company a notice to recover tax dues of company Mahadev Floorings (India) Pvt Ltd and on failure of assessee to pay tax dues of company Mahadev Floorings (India) Pvt Ltd had attached bank accounts of assessee. On writ the court held that Tax Recovery Officer could not seek recovery of taxes due of Mahadev Floorings (India) Pvt. Ltd. arising out of order of reassessment from assessee-company inasmuch as assessee neither had been served with notice of reopening of assessment, nor had any occasion to participate in such reassessment proceedings. Accordingly the notice of recovery was set aside and attachment of bank accounts were lifted. (AY. 2010-11)

Hinal Estates (P.) Ltd. v. UOI (2019) 266 Taxman 411 (Bom)(HC)

74. 222 : Collection and recovery – Certificate to Tax Recovery Officer – Attachment and sale of immovable property – Limitation – Attachment of immovable property in 1997 – Proclamation of sale in February, 2019 – Barred by limitation [Sch. II R. 68B. Art. 226]

Allowing the petition the Court held that Part D of Chapter XVII of the Income-tax Act, 1961 pertains to collection and recovery of tax. Schedule II to the Act pertains to the procedure for recovery of tax. The Schedule contains detailed rules for recovery of unpaid taxes through various modes envisaged in sub-section (1) of section 222. One of the modes is attachment and sale of immovable property. Rule 68B was inserted with effect from June 1, 1992. For the first time with effect from June 1, 1992 a time-limit of a period of three years was prescribed for sale of attached immovable property starting from the end of the financial year in which the order giving rise to a demand of tax, interest, etc., became conclusive. Sub-rule (4) of rule 68B provides for the consequences of the immovable property not being sold within such time. Under this sub-rule in such a situation, the attachment order in relation to the property would be deemed to have been vacated on the expiry of the time-limit specified.

Court held, that the attachment of the immovable properties was ordered in the year 1997. The sale proclamation which was made in February, 2019 was thus, hit by the period of limitation prescribed under rule 68B. The sale proclamation was barred by limitation. (AY. 1974-75 to 1999-2000)

Sapana Charudatt Ranadive v. ITO (2019) 418 ITR 193 / 181 DTR 127 / 310 CTR 432 / 266 Taxman 4 (Bom) (HC)

75. 225 : Collection and recovery – Stay of proceedings – Disputed demand – Deposit of 20 percent tax of demand is not a condition precedent – Directed to pass reasoned order [S.226, Art. 226]

Court held that the AO has to consider the case of the particular assessee on the merits and if he comes to the conclusion that the assessee has a case for grant of stay, then subject to deposit of 20 per cent. of the disputed demand, the outstanding demand may be stayed and in certain cases. The condition of pre-deposit of 20 per cent. of the disputed demand is neither contemplated by the memorandum nor is there legislative sanction mandating such deposit for hearing of an application for stay. Directed to follow the guidelines prescribed by the Bombay High court in UTI Mutual Fund v. ITO (2012) 345 ITR 71 (Bom) (HC); KEC International Ltd. v. B.R. Balakrishnan (2001) 251 ITR 158 (Bom) (HC), Coca Cola India P. Ltd. v. Add. CIT (2006) 285 ITR 419 (Bom) (HC)

Aarti Sponce & Power Ltd. v. ACIT (2019) 418 ITR 257 (Chhatisgarh) (HC)

76. 234C : Interest – Deferment of advance tax – Demerger of the unit – Not justified in levying the interest for period before acquisition of cement business by assessee- Interest is directed to be waived. [S. 119(2), Art. 226]

Assessee-company was a successor of company Samruddhi Cement Ltd. which was incorporated on 4-9-2009 as a subsidiary of Grasim Industries Ltd. Grasim Industries Ltd demerged its cement unit which was taken over by Samruddhi Cement Ltd. Scheme of demerger was framed which envisaged 1-10-2009 as appointed date. Scheme was approved by High Court and effective date was fixed as 18-5-2010. Scheme provided that Grasim Industries Ltd. would carry on cement business from appointed date to effective date in trust and on behalf of SCL and advance tax payment made by Grasim Industries Ltd in respect of profits of cement business would be deemed to be paid by Samruddhi Cement Ltd and that scheme would have retrospective effect. Pursuant to such clause, Grasim Industries Ltd. paid advance tax on profits of cement business in two instalments falling due on 15-3-2012 and 15-9-2012. AO held that Samruddhi Cement Ltd had not paid advance tax instalments falling due on 15-6-2009 and 15-9-2009 and, thus, interest under S. 234C was levied. Assessee claimed for waiver of interest under S. 234C which was denied. Court held that scheme itself provided that all taxes paid by Grasim Industries Ltd. on profit of cement business arising on and after 1-10-2010 would be deemed to be paid by Samruddhi Cement Ltd. and scheme was approved having a retrospective effect. Further, Samruddhi Cement Ltd. was incorporated only on 4-9-2009 and company was not in existence on 15-6-2009. Further, by time second instalment fell due on 15-9-2009, cement business from Grasim Industries Ltd. was not acquired by Samruddhi Cement Ltd. Accordingly the interest levied upon assessee under S. 234C was to be waived. (AY. 2010-11)

Ultratech Cement Ltd. v. CIT (2019) 266 Taxman 390 (Bom) (HC)

77. 237 : Refunds – Tax deduction at source – Refund cannot be withheld on account of computer glitch at Central Processing Center – Department was to be directed to release refund with statutory interest after manually computing same. Court also observed that “We expect the department to address this larger issue so that similar disputes do not have to travel to the High Court for resolution.” [Art.226]

Assessee suffered sizeable deduction of tax at source. In assessment, refund of ₹ 224.28 crore arose. Department raised issue that assessee had pending demands for other assessment years. Department stated that assessee’s refund claim had not been released on account of computer glitch at Central Processing Center presumably for reason that system was not accepting stay of demands so far made for other years. On writ the Court held that refund arose out of order of assessment could not be withheld on ground of technical difficulty of system. Accordingly the Department was to be directed to release refund with statutory interest after manually computing same. Court also observed that Per Court:

‘Surely, before the department, there would be large number of cases of assessees where the refund claim out of an order of assessment or appellate order arises as against which the same assessee may have demands for other assessment years, recovery of which may have been suspended. In all such cases, similar difficulty may be faced by the department. We expect the department to address this larger issue so that similar disputes do not have to travel to the High Court for resolution.’) (AY. 2014-15) WP No. 2435 of 2019 dt 4-10-2019)

Vodafone Idea Ltd. v. CIT (2019) 267 Taxman 408 (Bom.)(HC)

78. 241A : Withholding of refund in certain cases – AO cannot withhold refund without processing the return as well as revised return u/s 143(1) – Show cause notice to withhold the refund was quashed – Withholding the refund is without authority of law and liable to be set aside. [S.143(1)]

Assessee filed its return seeking refund. Subsequently, return so filed was revised. Despite not having processed the return of income under section 143(1) a notice was issued by the Assessing Officer proposing to withhold the refund relatable to assessment year 2017-18, in view of section 241A.

On writ the Court held that S. 241A could only be invoked, after the refund due was determined under section 143(1) and, thus, impugned notice deserved to be quashed. Court held that it is an undisputed position that neither the regular return of income nor the revised return of income for the subject assessment year has been processed under section 143(1) till date. Consequently, the occasion to withhold any refund under section 241A at this stage does not arise. Therefore on the admitted facts the application/ invocation of section 241A of the Act is premature. Accordingly show-cause notice proposing to withhold refund due is quashed and set aside. (WP No. 1845 of 2019 dt. 16-09- 2019) (AY. 2017-18) (Also refer, WP No. 894 of 2019 dt 8-7-2019 (AY. 2015 16)

Tata Communications Ltd. v. Dy. CIT (2019) 267 Taxman 423 /182 DTR 249/311 CTR 1 (Bom.)(HC)

Tata Communications Ltd. v. Dy. CIT (2019) 181 DTR 9/310 CTR 805 (Bom.)(HC)

79. 241A: Withholding of refund in certain cases – Tax deduction at source – Merely because a notice was issued u/s. 143(2), it was not a sufficient ground to withhold refund – Withhold refund and the order denying refund on this ground alone would be laconic. [S.143(ID), 143(2), 197, Art. 226]

The assessee filed application u/s. 197 of the Act to issue the certificate for lower deduction of tax at source at 0.8% ACIT allowed deduction of TDS @1% and issued a notice requesting assessee to produce evidence/documents in support of claims made in its return. In reply, assessee submitted its e-reply along with relevant documents. Since the, assessee had not received any hearing notice, or assessment order in terms of S. 143(3) and the assessee was facing acute financial crunch on account of blockage of funds in form of excess TDS and delay in processing of tax refund, it filed an online complaint on portal of Centralized Public Grievance Redress And Monitoring System and requested DIT to expeditiously process pending income tax return. Meanwhile, DIT issued an intimation processing ITR filed by assessee wherein, tax liability of assessee was assessed and refund amount due to assessee was determined along with eligible interest u/s. 244A. The AO issued the notice u/s. 143(2) of the Act and withheld the refund due to the assessee. On writ the court held that merely because a notice was issued u/s. 143(2), it was not a sufficient ground to withhold refund. Accordingly the AO was directed to grant the refund as per the law. (AY. 2017-18, 2018-19)

Maple Logistics Pvt. Ltd. v. (2019) 184 DTR 408 /(2020) 312 CTR 141 / 420 ITR 258 (Delhi) (HC)

80. 244A : Refunds – Interest on refunds – Entitle to interest on excess self assessment tax from date of payments till refund [S.14OA, 244(1)(b)]

Dismissing the appeal of the revenue the High Court held that the assessee is entitled to interest on excess self assessment tax from date of payment till refund. Followed PCIT v. Bank of India (ITA No. 742 of 2016 dt. 10-12 2018).

PCIT v. Bank of India (2019) 112 Taxmann.com 327/ (2020) 268 Taxman 318 (Bom) (HC)

Editorial : SLP is granted to the revenue PCIT v. Bank of India (2020) 268 Taxman 318 (SC)

81. 250 : Appeal – Commissioner (Appeals) – Duties – Must pass a speaking order on merits by expressing reasons and finding in support of the conclusion – Matter remanded to the CIT(A) for passing speaking order [Art. 226]

Assessee filed an appeal to CIT(A) against order of scrutiny assessment done by AO. CIT (A) disposed appeal holding that Assessing Officer’s order was a self speaking order and did not require interference. On writ the Court held that CIT(A) being a fact finding authority, had to consider assessment order on grounds raised in appeal and pass a speaking order on merits by expressing reasons and findings in support of conclusion. Accordingly the order of CIT(A) was set aside and matter was to be remitted for passing fresh order, such order must be a speaking order with reasons and findings. (AY. 2016-17)

Ajji Basha v. CIT (2019) 267 Taxman 545 (Mad.)(HC)

82. 251 : Appeal – Commissioner (Appeals) – Powers – CIT(A) has the power to decide stay petition – He should not direct the assessee to file stay petition before AO
    [S. 220(6), Art. 226]

Assessee filed petition before CIT(A) for stay of demand in assessment order. CIT (A) directed assessee to file stay applications before AO under S. 220 of the Act. On writ the Court held that discretion and power is independently available to CIT(A) to decide stay petitions. Since he disposed of stay applications by an order that was merely in nature of an advice, he failed to exercise discretion and jurisdiction vested with him. Accordingly the matter remanded to CIT (A) to decide the stay petition on merits. Followed Mavilayi Service Co-Operative Bank Ltd v. CIT (2019) (2) KLT 597 (FB) (Ker) (HC)

Kallettumkara Service Co-operative Bank Ltd. v. ITO (2020) 268 Taxman 10 (Ker) (HC)

83. 254(1) : Appellate Tribunal- Duties – Relying on the case laws not cited by both the parties – Not dealing with the case law cited by the representative of the assessee – Matter remanded to the Tribunal to pass the fresh order. [S.80IB (10)]

The Tribunal dismissed the appeal of the assessee by relying on 63 cases which were not cited by either side. The Tribunal also not given any finding on case law relied by the authorised representative. High Court at the stage of admission itsself allowed the appeal by observing that, this manner of disposing appeals by the Tribunal is not expected of it and cannot stand to the scrutiny of law and justice. The Tribunal cannot refer to decisions on its own without giving the litigant an opportunity to distinguish it. This results in a breach of the principles of natural justice. It also cannot omit to deal with the decisions relied upon by the litigant. Not dealing with the cited decisions leads to the order being bad as an order without reasons. Accordingly the matter remanded. (ITA No. 1009 of 2017, dt. 30-01-2020) (AY. 2007-08) (also refer, DSP Investment Pvt. Ltd. v. Add. CIT ITA No 2342 of 2013 dt 8-3-2016 (Bom) (HC), Reliance Infrastructure Ltd. v. Dy. CIT ITA No. 701 of 2014 dt. 29-11-2016 (Bom) (HC), Dattani and Co. v. ITO ITA No. 847 of 2013 dt 21-10-2013 (Guj) (HC), Lakhmi Mewal Das v. ITO (1972) 84 ITR 649 (Cal) (HC) (659), Kranti Associates Pvt. Ltd. v. Masood Ahamed Khan & ors (2010) 9 SCC 496)

Bhavya Construction Co. v. ACIT (Bom)(HC), www.itatonline.org

84. 254(1) : Appellate Tribunal – Duties Ex-partedecision on first day of hearing – Issue covered in earlier years – Rejection of application for recalling the order is held to be not justified – Directed to hear the appeal on merits. [S.254(2), Art. 226]

In course of appellate proceedings, assessee did not cause appearance before Tribunal. Tribunal allowed revenue’s appeal ex-parte. Assessee filed an application under S. 254(2) of the Act to recall said order. Tribunal rejected assessee’s application on ground that assessee was not able to point out any mistake in Tribunal’s order. On writ the Court held that Tribunal had decided issue in revenue’s favour on first date of hearing itself and, thus, Tribunal could have accommodated assessee’s request for rectification of order. Court also held that the issue before Tribunal was a recurrent issue and assessee had succeeded in respect of same in earlier years. Accordingly the order of Tribunal rejecting assessee’s application was set aside and, matter was to be remanded back to Tribunal for disposal on merits of case. (AY. 2000-01)

Universal Cold Storage Ltd. v. DCIT (2020) 268 Taxman 178 (Mad)(HC)

85. 254(1) : Appellate Tribunal – Duties – Delay of 253 days in filing the appeal before the Tribunal is condoned – Directed the assessee to deposit ₹10,000 / with the Maharashtra State Legal Services Authority and submit receipt of the same before the office of the Tribunal – Directed the Tribunal to decide on merit [S.12A(3), 253]

The assesee has preferred an appeal before the Tribunal against the cancellation of the registration. The appeal was delayed by 253 days and affidavits were filed. Tribunal refused to condone the delay on the ground that there were inconsistencies in the affidavit filed by the assessee. On appeal High Court condoned the delay and directed the Tribunal to decide on merit. Court also directed the assessee to deposit ₹ 10,000/- with the Maharashtra State Legal Services Authority and submit receipt of the same before the office of the Tribunal. (ITA No. 942/PUN/2010 dt 21-03-2017). (ITA No 1762 of 2017 dt 22-01 2020 (AY. 2009-10)

Nandkishor Education Society v. CIT (Bom) (HC) (UR)

86. 254(1) : Appellate Tribunal – Duties – Strictures – Disallowance of administrative expenses – Matter remanded to the Tribunal following the earlier year order. [S.40(a)(ia), 40(b)(a), 194C]

The department has raised the question regarding the disallowance of expenses for failure to deduct tax at source. During the course of the arguments, learned standing counsel for Revenue has fairly placed before the Court a copy of order of this Court in the case of CIT v. ITD CEM India JV, (2018) 405 ITR 533 (Bom) (HC) and submits that the same issue was gone into by this Court in respect of the same assessee for the assessment year 2008-09. Regarding deletion of the disallowance under the head of ‘administrative expenses’, it was held that it was a concurrent finding of fact and no substantial question of law arose therefrom. However, on the question of deletion of the amount of salary which was disallowed by the Assessing Officer under Section 40(ba) of the Income Tax Act, 1961, the same was remanded back to the Tribunal for a fresh decision on merit and in accordance with law. Honourable Court referred “para 25. However, we have expressed our displeasure and unhappiness at the manner in which the Tribunal approached the matter/issue insofar as the applicability of Section 40(ba) (question no. 10(a) reproduced above) of the IT Act is concerned, we allow this Appeal. We set aside the Tribunal’s order to that extent. We restore the issue to the file of the Tribunal for being decided afresh on merits and in accordance with law. The Tribunal shall not be influenced in any manner by it’s earlier observations. We also clarify that when we note the rival contentions, beyond that exercise, we have expressed no opinion on the correctness of these contentions. All of them are open insofar as this issue is concerned for being raised before the Tribunal. There will be no order as to costs.” Following the order the matter is remanded to the Tribunal. (ITA No. 1246/Mum/2015 dt. 19-10-2016) (ITA NO. 1742 of 2017 dt. 20-01-2020 (AY. 2011-12)

PCIT v ITD CEM INDIA JV (Bom) (HC) (UR)

87. 254(1) : Appellate Tribunal – Powers – Jurisdictional issue – Reassessment – CIT(A) has not decided – Deemed to have been decided against – Rule 27 of the Income Tax Tribunal Rules would entitle a respondent who has neither preferred an appeal nor cross objections to relief on a point decided in favour of the appellant by the lower appellate authority – Order of Tribunal, quashing of reassessment and also on merit is affirmed [S.80IA, 147, 148, R. 27]

Assessment which was completed u/s. 143(3) was reopened and disallowance was made in respect of claim u/s. 80IA of the Act. Before CIT(A) the appellant challenged the jurisdiction u/s. 147 as well as on merits. CIT(A) decided the issue on merits and held that as he is deciding on merits it is not necessary to decide the issue on reassessment. Revenue filed an appeal before the Tribunal. The assessee neither filed an appeal nor filed any cross objection. The assessee filed application under Rule 27 and challenged the reassessment proceedings. The Tribunal held that when the CIT(A) has decided the issue, it is presumed that the issue is decided against the assessee hence the application under Rule 27 is held to be valid and accordingly the Reassessment was quashed. The Tribunal also affirmed the order of the CIT(A) on merit. On appeal by the revenue, dismissing the appeal the Court held that Rule 27 of the Income-Tax Tribunal Rules would entitle a respondent who has neither preferred an appeal nor cross objections to relief on a point decided in favour of the appellant by the lower appellate authority. Court also held that the language employed in Rule 27 of the Rules is clear and it deals with cases where the respondent may support the order on the grounds decided against him. Rule 27 of the Rules states that though the respondent may not have appealed, he may support the order appealed against on any of the grounds decided against him. As pointed out by us earlier, the CIT(A) has recorded that the validity of the reassessment proceedings was hotly debated before him. However, the CIT(A) proceeded to take up the issue relating to the relief, which the assessee would be entitled to under Section 80-I of the Act and proceeded to grant the same on the close of its order and the CIT(A) would state that since the appeal has been allowed on merits under Section 80-I of the Act, there is no necessity for him to give a finding on the issue of reopening of assessment under Section 147 of the Act. Thus, the CIT(A) did not adjudicate the correctness of the reassessment proceedings, which was challenged by the assessee. It is deemed that the said issue was decided against the assessee and that the assessee was entitled to canvass the said issue before the Tribunal without independently filing an appeal in the light of the Rule 27 of the Rules. Therefore, the Tribunal was right in permitting the assessee to argue on the issue relating to the validity of the reassessment proceedings. (AY. 1996-97)

CIT v. India Cements Ltd. (2019) 181 DTR 105 (Mad) (HC)

88. 254(1) : Appellate Tribunal- Powers – Registration – Interpretation – Tribunal can direct the Commissioner to grant the registration. [Ss.12A 12AA]

The Appellate Tribunal while hearing an appeal in a matter where registration under S. 12AA has been denied by the Commissioner can itself pass an order directing the Commissioner to grant registration if it disagrees with the satisfaction of the Commissioner on the basis of material already on record before the Commissioner. However the power is not to be exercised as a matter of course and remand to the Commissioner is to be made where the Tribunal records a divergent view on the basis of material which has been filed before it for the first time. Remand for determination of the question regarding grant of registration to a trust would also be necessitated in cases where the registration application has been rejected by the Commissioner on technical grounds without recording his satisfaction as contemplated under S. 12AA of the Act, 1961 and such decision is overturned by the Tribunal. The powers of the Appellate Tribunal are co-extensive with the powers of the Commissioner under S. 12AA of the Act, 1961 subject to what has been indicated above. However an order for registration can be issued only after recording satisfaction with regard to the genuineness of activities of the trust as provided under S. 12AA. The words “as it thinks fit” used in relation to the powers of the Appellate Tribunal exercisable under S. 254(1) of the Income-tax Act, 1961 are of the widest amplitude. The expression confers wide jurisdiction enabling the appellate authority to take an entirely different view on the same set of facts. The powers given under S. 254 are to be read along with other provisions of the Act.

CIT v. Reham Foundation. (2019) 418 ITR 205 (FB)(All (HC)

89. 254(2) : Rectification of mistake apparent on record – Application for rectification was filed within period of six months – Order recalling the order is beyond period of limitation is held to be valid. [S.255(5), ITAT R. 24, Art. 226]

Tribunal recalled its order in the case of Nutrela Marketing Pvt. Ltd. v. ITO ITA No. 3910/ Mum/ 2010 dt 10-01-2018 and placed for hearing. After hearing the Tribunal recalled the earlier order on 1-2-2019. On writ the department contended that miscellaneous application was filed by the assessee on 9-7-2018 i.e., within period of six months however the Tribunal did not dispose of the same within the period of limitation, hence the order passed by the Tribunal is beyond the jurisdiction. Court held that the initial order passed by the Tribunal on 10th January, 2018 was an ex-parte one for the AY. 2006- 07. The limitation of six months as noticed above was substituted by the Finance Act, 2016 with effect from 1st June, 2016. Therefore, for the assessment year under consideration the limitation period may be construed to be four years from the date of the order. Even otherwise, if a view is taken that since the order was passed by the Tribunal on 1st February, 2019, the substituted limitation period of six months would be applicable, then also it is seen that the said period of six months was available to respondent till 31st July, 2018. Respondent had filed the application for recall of the ex-parte order on 9th July, 2018 within the limitation period of six months. However, Tribunal passed the impugned order only on 1st February, 2019. Court also observed that from a careful reading of the provision, it is seen that Tribunal is vested with the power to rectify any mistake apparent from the record to amend any order passed by it under sub-section (1) of Section 254 at any time within six months from the end of the month in which the order was passed, provided the mistake is brought to its notice by the assessee or by the Assessing Officer.. The use of the expression “may” in the aforesaid provision is clearly indicative of the legislative intent that the limitation period of six months from the end of the month in which the order was passed is not to be construed in such a manner that there can not be any extension of time beyond the said period of six months. This is so because the assessee or the Assessing Officer can only bring the mistake to the notice of the Tribunal. The assessee or the Assessing Officer has no control over the Tribunal. For one reason or the other, the Tribunal may not be in a position to pass the order under Section 254(2). For the inability of the Tribunal to pass such an order within the period provided, neither the assessee nor the revenue should suffer. What therefore becomes relevant is that the assessee or the Assessing Officer should bring the mistake to the notice of the Tribunal within the limitation period. (Referred Srei Infrastructure Finance Ltd. v. Tuff Drilling Private Limited, (2018) 11 SCC 470. Grindlays Bank Ltd. v. Central Government Industrial Tribunal, 1980 Supp SCC 420, Kapra Mazdoor Ekta Union v. Birla Cotton Spinning and Weaving Mills Limited, (2005) 13 SCC 777, Sree Ayyanar Spinning and Weaving Mills Ltd. v. CIT (2008) 301 ITR 434 SC, Harshavardhan Chemicals and Minerals Limited v. UOI (2002) 256 ITR 767 (Raj) (HC), Assam Company Ltd. v. State of Assam (2001) 248 ITR 567 (SC)) (MA No. 483/M/2018 dt. 1-02-2019 (AY. 2006-07) (WP No. 2858 of 2019 dt 24-01-2020)

PCIT v. ITAT (Bom) (HC) (UR)

90. 263 : Commissioner- Revision of orders prejudicial to revenue – Rectification of mistake – When the claim is justifiably allowed by the AO the rectification order could not be construed to be erroneous and prejudicial to the interest of revenue [S.154]

AO on the basis of rectification application rectified the assessment order and allowed unabsorbed depreciation of earlier years. CIT revised the order. On appeal the appellate Tribunal set aside the revision order following the judgement in in CIT v. Virmani Industries Pvt. Ltd., (1995) 216 ITR 607 which view has been followed by several High Courts as well as by the Tribunal and held that when the claim of the respondent was justifiably allowed by the assessing officer then the same could not have been interfered with by the Commissioner by invoking the provisions of S. 263 of the Act because the rectification order could not be construed to be erroneous and prejudicial to the interest of Revenue. On appeal by the revenue, High Court affirmed the view of the Tribunal. (Arising from I.T.A. No. 3055/ Mum/2015 dt. 28-10-2015) (ITA No. 1029 of 2017 dt 23-2-2020 (AY. 2011-12)

PCIT v. Destimoney India Services Pvt. Ltd. (Bom) (HC)

91. 264 : Commissioner – Revision of other orders – Income from sale of property is shown as short term capital gains – Revision application made to assessee the income as business income – CIT is directed to dispose the petition expeditiously. [S.5A, 28(i), 45(2), 143(1), Portuguese Civil Code, Art. 226]

Petitioners have filed the return of income showing the sale of property income as short term capital gains. The return was accepted u/s. 143(1) of the Act. The petitioner there after filed the revision application u/s. 264 of the Act contenting that they have wrongly shown as short term capital gains the correct position should have been the income should have shown as business income. CIT rejected the petition on the ground that application on the ground that it was afterthought to avoid the payment of capital gains tax. Allowing the petition the Court held that the petitioners have made a genuine error hence directed the CIT to dispose the petition expeditiously as possible and in any case within a period of four months from today. (WP No. 924 of 2019 dt. 14-1-2020 (AY. 2015-16)

Rajesh Prakash Timlo v. PCIT (Bom) (HC) (UR)

Vidya Rajesh Timlo v. PCIT (Bom) (HC) (UR)

92. 264 : Commissioner – Revision of other orders – Rejection revised return and rectification application – Delay in filing revision application – Directed to condone the delay – CIT is directed to decide on merit [S.139(5), 143(1), 154, Art. 264]

Court held that the revised return was rejected under S. 139(5) on a technical ground. The assessee filed a rectification application, on which no orders were passed. Without passing orders on the application for rectification, a demand notice was issued triggering a second application for rectification from the assessee which came to be dismissed. A demand was made on January 31, 2018, the second rectification request was filed by the assessee on February 25, 2018, the second rectification having been dismissed on July 2, 2018, the assessee ultimately filed a petition under S.264. Therefore, this was not a case where the assessee had not acted in time. The rejection of the application for revision solely on the ground of delay was not justified. CIT is directed to decide on merits. (AY. 2009-10)

Ramupillai Kuppuraj v. ITO (2019) 418 ITR 458 (Mad) (HC)

93. 271(1)(c) : Penalty – Concealment – Depreciation – Claim was withdrawn in the course of search proceedings – Deletion of penalty by the Tribunal is held to be justified [S.32, 132(4), 153A]

Assessee filed its return claiming depreciation on its intellectual property rights. During the course of search proceedings as per the statement u/s. 132(4) director of the company reduced the claim of depreciation. AO imposed penalty under S. 271(1)(c) for raising a false claim. On appeal the Tribunal held claim of depreciation being a plausible claim, mere fact that same was withdrawn during subsequent search proceedings, would not give rise to penalty. Followed CIT v. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC) (AY. 2004-05)

PCIT v. Financial Technologies India Ltd. (2019) 112 taxmann.com 398 / (2020) 269 Taxman 33 (Bom) (HC)

Editorial : SLP of revenue is dismissed ; PCIT v. Financial Technologies India Ltd. (2020) 269 Taxman 32 (SC)

94. 271(1)(c) : Penalty – Concealment – Revised return filed prior to issuance of notice u/s. 153C – No satisfaction was recorded – Deletion of penalty is held to be valid. [S.153C]

Dismissing the appeal of the revenue the Court held that, revised return filed prior to issuance of notice u/s. 153C and no satisfaction was recorded, deletion of penalty is held to be valid. Mak Data Pvt Ltd v. CIT (2013) 358 ITR 593 (SC) (AY. 2010-11)

PCIT v. Prabhjot Kaur Chhabra (Smt.) (2019) 419 ITR 94 (MP) (HC)

Editorial : SLP of revenue is dismissed, PCIT v. Prabhjot Kaur Chhabra (Smt.) (2019) 416 ITR 78 (St)

95. 271(1)(c) : Penalty – Concealment – Survey – Amount disclosed in the survey was included in return – Return was accepted – Levy of penalty is held to be not valid. [S.133A]

Dismissing the appeal of the revenue the Court held that amount disclosed in the survey was included in return. Return was accepted. Accordingly levy of penalty is held to be not valid. (AY. 2012-13)

CIT v. Shree Sai Developers. (2019) 418 ITR 306 (Guj) (HC)

96. 271AAA : Penalty – Search initiated on or after 1st June, 2007 – Undisclosed income and specifies manner in which such income derived – Failure of the raiding party to elicit a response from assessee regarding manner of deriving income – Deletion of penalty by the Tribunal is held to be valid [Ss.132(4), 271AAA(2)]

Dismissing the appeal of the revenue the Court held that, failure of the raiding party to elicit a response from assessee regarding manner of deriving income- Deletion of penalty by the Tribunal is held to be valid. (R/TA No. 836 of 2028 dt 10-07-2018) (AY. 2011-12)

CIT v. Backbone Enterprise Ltd. (2020) 420 ITR 305 (Guj) (HC)

97. 271AAA : Penalty – Search initiated on or after 1st June, 2007 – Undisclosed income and specifies manner in which such income derived – Failure of the raiding party to elicit a response from assessee regarding manner of deriving income – Deletion of penalty by the Tribunal is held to be valid [S.132 (4), 271AAA(2)]

Dismissing the appeal of the revenue the Court held that both the CIT (A) as well as the Tribunal had recorded concurrent findings of fact that during the course of search the director of the assessee-company had admitted undisclosed income of ₹ 15 crore as unaccounted cash receivable, for the year under consideration, i.e., financial year 2010-11. The director of the assessee in his statement, had explained that the income was earned out of booking/selling shops and had specified the buildings. Thereafter the assessee could not be blamed for not substantiating the manner in which the disclosed income was derived. The cancellation of penalty by the Tribunal was justified. (R/TA No. 174 & 540 of 2019 dt. 17-09-2019) (AY. 2011-12)

CIT v. Patdi Commercial and Investment Ltd. (2020) 420 ITR 308 (Guj) (HC)

98. 271AAA : Penalty – Search initiated on or after 1st June, 2007 – Statement u/s. 132(4) – Partner specifying the manner in which the disclosed income was earned – Entitle to claim immunity [S.132(4)]

Dismissing the appeal of the revenue the Court held that, during the process of recording a statement of the assessee under S. 132(4). In reply to a query to a partner of the assessee-firm to elaborate on the details of the undisclosed income and how it was earned by him and the group, the partner had stated that the undisclosed income of
₹ 35 crore declared by him and his group was earned out of a land-related transaction which was not recorded in the books of account. He had further stated that the break-up of such income person-wise and firm-wise would be submitted after opening the bank locker and that such disclosure was made with the consent of the family members and all the partners. The answer of the partner thus, in addition to confirming the disclosure of the undisclosed income, further stated that the income was earned by the group out of a land-related transaction which was not previously recorded in the books. This was thus specifically in compliance with the requirement of establishing the manner in which the income was earned. Although at that stage, he could not give the break up of such income person-wise or firm-wise citing the reason of sealing of the bank locker that would not be of much relevance. The answer was in sufficient compliance with the requirement of the disclosing the manner of earning the income.

PCIT v. Sun Corporation (2019) 419 ITR 414 (Guj) (HC)

99. 276 : Offences and prosecutions – Deposit of self assessment tax belatedly – No inference can be drawn that there was wilful attempt on part of assessee to evade payment of tax – Prosecution was quashed [S. 132, 140A, 276CC]

The assessee is a co-operative society. The premises of the assessee was subjected to search and seizure under S. 132. Consequent to search, the AO issued a notice under S. 153A to file its return of income for the assessment years 2006-07 to 2011-12. Since there was no compliance of the aforesaid notice, the AO issued a show-cause notice calling upon the assessee as to why prosecution for the offence punishable under S. 276CC could not be initiated.

In response to the said show-cause notice, the assessee filed returns of income for the assessment years 2010-11 and 2011-12 and declared the total income of certain amount and the total tax payable at certain amount. But the assessee failed to pay the self-assessment tax along with the return of income under section 140A. Thereafter, the assessee sent a cheque of certain amount towards self-assessment tax due. On the back of the said cheque, it was instructed that ‘cheque to be presented at the time of registration of the property’. In view of this instruction, department did not encash the said cheque. The revenue contended that the assessee had willfully and deliberately made an attempt to create circumstances to enable them to evade payment of tax, a compliant was lodged before the court for economic offences, seeking prosecution of the assessee for the offence punishable under S. 276C(2) of the Act. Respondent-department has pointed out that all the payments were made by the petitioners subsequent to the lodging of the compliant and therefore, the said payment do not absolve the petitioner from the rigors of S 276C(2). Even the cheque was issued with a rider not to encash the same. These circumstances, clearly disclose mens rea on the part of the petitioners to evade tax and hence there is no reason to quash the proceedings. The gist of the offence under S. 276C(2) is the wilful attempt to evade any tax, penalty or interest chargeable or imposable under the Act. What is made punishable under this section is an ‘attempt to evade tax penalty or interest’ and not the actual evasion of tax. ‘Attempt’ is nowhere defined in the Act or in the Indian Penal Code. In legal echelons ‘attempt’ is understood as a ‘movement towards the commission of the intended crime’. It is doing ‘something in the direction of commission of offence’. Viewed in that sense, in order to render the accused guilty of ‘attempt to evade tax’ it must be shown that he has done some positive act with an intention to evade tax. In the instant case, the only circumstance relied on by the respondent in support of the charge levelled against the petitioners is that, even though accused filed the returns, yet, it failed to pay the self-assessment tax along with the returns. This circumstances even if accepted as true, the same does not constitute the offence under section 276C(2). The act of filing the returns by itself cannot be construed as an attempt to evade tax, rather the submission of the returns would suggest that petitioner No. 1 had voluntarily declared his intention to pay tax. The act of submitting returns is not connected with the evasion of tax. It is only an act which is closely connected with the intended crime, that can be construed as an act in attempt of the intended offence. A positive act on the part of the accused is required to be established to bring home the charge against the accused for the offence under section 276C(2).

In the case on hand, conduct of the assessee making payments in terms of the returns filed by him, though delayed and made after coercive steps were taken by the department do not lead to the inference that the said payments were made in an attempt to evade tax declared in the returns filed by him. Delayed payments, under the provisions of the Act, may call for imposition of penalty or interest, but by no stretch of imagination, the delay in payment could be construed as an attempt to evade tax so as to entail prosecution of the petitioners for the alleged offence under section 276C(2). In that view of the matter, the prosecution initiated against the petitioners, is illegal and tantamount to abuse of process of Court and is liable to be quashed. For the aforesaid reasons, petitions are allowed. The proceedings initiated against the petitioners are quashed. It is made clear that this order shall not come in the way of the department taking necessary steps for recovery of tax, if any, due and payable by the petitioners in accordance with law. (AY. 2006-07 to 2011-12)

Vyalikaval House Building Co operative Society Ltd. v. IT (2019) 267 Taxman 81 (Karn)(HC)

Wealth-tax Act, 1957

100. 25 : Commissioner – Revision of other orders – Condonation of delay – Beyond six years – CBDT circular prescribing time limit for condonation – Not binding on High Court – Delay condoned and directed the Commissioner to decide on merit. [S. 2(ia)(i)(4), 25(1)(c) (ii), ITAct, S. 264 Art. 226]

The petitioner erroneously included the commercial and residential properties for the purpose of wealth tax though the said properties were let out for a minimum period of 300 days and exempt as per S. 2(ia)(i) (4) of the Act. The petitioner became aware of the exempt provision in the year 2015. The petitioner filed an application for revision of the order with application for condonation of delay. The Commissioner rejected the applications for condonation of delay by referring the Circular of the Board No 9 of 2015 (R. No 312/22/15-OT) (2015) 374 ITR 25 (St) wherein the Board instructed that delay beyond six years from the relevant year cannot be condoned. On writ the Court held that petition pertained to assessment years 2003-04 to 2012-13. This was a case of over-statement of wealth and it was not a case of understatement or non-filing of returns. More importantly, the assessees had also paid the tax on the wealth that had been overstated in the returns. The respondent had even recorded in the orders that the properties which had been erroneously included in the returns by the petitioners were clearly exempt under section 2(ea)(i)(4) of the Wealth-tax Act. The order was to be set aside in so far as it rejected the assessees’ request for condonation of delay for the assessment years 2003-04 to 2010-11. The other part of the order wherein the prayer for condonation of delay for the assessment years 2011-12 and 2012-13 was acceded to was to be sustained. Court held that the Circular is not binding on High Court. (AY. 2003-04 to 2012-13]

Lakshmi Muthukrishnan v. PCIT (2019) 418 ITR 513 (Mad) (HC)

Vasanthi Muthukrishnan v. PCIT (2019) 418 ITR 513 (Mad) (HC)

101. 271AAA : Penalty – Search initiated on or after 1st June, 2007– AO must establish there was undisclosed income – estimated income not undisclosed income – No specific finding in respect of any specific seized material or undisclosed income detected as a result of search – Penalty is not leviable [S.132]

The AO levied a penalty of ₹ 76,42,611/- under S. 271AAA of the Income-tax Act, 1961 at 10 per cent after computation of an undisclosed income of ₹ 7,64,26,117/-. The penalty order did not provide for any specific finding in respect of any specific seized material or undisclosed income detected as in the course of search. The CIT(A) deleted such the penalty on the grounds that the Assessing Officer had not examined the matter properly under S. 271AAA and assessed the income mechanically either on an estimated basis or on account of the assesse’s inability to produce audited accounts for certain entities. The CIT (A) had specifically noted in the quantum proceedings that the principles of natural justice were not followed. On appeal, it was held that the burden of proof in the penalty proceedings is independent and greater than in the assessment proceedings and the assessment proceedings and penalty proceedings are different. While levying the penalty, the AO had nowhere mentioned specifically any undisclosed income within the meaning of undisclosed income given under S. 271AAA . The penalty order was devoid of any specific finding in respect of any specific seized material or undisclosed income detected as a result of search. It was incumbent upon the Assessing Officer to first establish that there was undisclosed income within the meaning of S. 271AAA before any penalty under the section could be levied. (AY. 2012-13)

DY. CIT v. Himanshu Verma (2019)76 ITR 698 (Delhi) (HC)