1. Registration of document – Time for presenting a document is 4 months: Registration Act, 1908 sec. 23

Documents were presented in office of Sub Registrar within four months of their execution. The office of Sub-Registrar took time to adjudicate stamp duty which was beyond four months prescribed by S. 23. It was held that if authorities take time to adjudicate stamp duty, petitioner cannot be made to face consequence of the delay. Time spent by Sub-Registrar in adjudicating stamp duty should not be held to detriment of petitioner in so far as registration of documents are concerned. Refusal of Sub- Registrar to register documents, not proper. Sub registrar directed to register documents in question.

Opal Builders P. Ltd. Mumbai v. State of Maharashtra & Ors. AIR 2016 (NOC) 113 (Bom.)

2. Registration of Document – Document actually effectuating partition : Registration Act, 1908 sec. 17

Unregistered Panchayat partitition deed is not memorandum of recording of past transactions but document effectuating partition of all family properties. Is inadmissible for want of registration and stamp duty. Document actually effectuating partition of all family properties are required to be registered compulsorily under Registration Act.

Venkataswamy & Ors v. Smt. Annemma AIR 2016 (NOC) 120 (Kar.)

3. Rights of lessor’s transferee – Statutory, attornment by tenant in favour of lessors transferee: Transfer of Property Act, 1882

Transfer of ownership of premises to respondent by previous lessor results in statutory attornment by tenant in favour of lessor’s transferee, i.e. the respondent. Jural relationship of landlord and tenant between transferee respondent therefore comes into existence. Transferee/steps in shoes of lessor/landlord and entitled to all rights of lessor/landlord . He is entitled to collect rent in terms of lease as of right and becomes
Rs.landlord’ under s. 3(e) of Rent Act. Tenant cannot dispute right of Transferee to maintain an eviction petition under Rent Act or to claim rent.

Vinod G. V. Jijabai Shrikant Jadhav AIR 2016 (NOC) 121 (Kar.)

4. Recovery of dues – Financial Corporation is deemed to be bank – Banker’s Book Evidence Act, 1891 sec 4

Financial Corporation is deemed to be bank for purpose of bankers book Evidence Act. Held that the certified copy of entries in loan ledger of corporation should be received as prima facie evidence in proceedings for recovery of dues.

Karnataka State Industrial Investment and Development Corporation, Bengaluru v. M/s. Prashanth Minerals Exports (P) Ltd. Bengaluru & Ors. AIR 2016 (NOC) 125 (Kar.)

5. Foreign Award – Objections to enforcement

Contract was entered into between parties for sale of white sugar. Contract starting with phrase
Rs.we confirm having sold to you’ suggesting contract had been entered into. Arbitration clause in contract clearly showing that disputes arising out of contract were to be referred to Association for settlement in accordance with Arbitration Rules. Judgment debtor having filed their written submissions before Tribunal, they had participated in Arbitration. Award not found to be against public policy of India. Moreover judgment debtor not taking any action in English Courts to set aside award. Judgment debtors application for oral hearing not entertained as they had not deposited requisite fees. Objections to enforcement of award, not tenable.

Bunge London Ltd. v. E. Piyarellal Import & Export Ltd. AIR 2016 (NOC) 68 Cal

6. Cancellation of allotment of flat on non payment of additional price would not amount to abuse of dominance by builder: Competition Act

Where complainant filed complaint against respondent builder for indulging in unfair trade practice and sought for possession of flat allotted to him by respondent, there was no unfair trade practice and Tribunal could not issue direction to respondent to deliver possession, because that would tantamount to specific performance of agreement.

Inder Mehta v. Pushpa Builders Ltd. (2015) 58 taxmann.com 212 (CAT – New Delhi).

7. Consumer Complaint – Registered Agreement to sale – Stipulated sale consideration – Held written note for any other amount for consideration not binding on parties – The Maharashtra Ownership Flats (Regulation of the Promotion, Construction, Sale Management and Transfer) Act, 196 (MOFA); Consumer Protection Act

In this case appellant Developer had entered in a registered agreement for sale of the flat with the respondent/complainant dated 9-5-2011. The said agreement stipulated a total price of the flat for
Rs. 10 lakh. Appellant developer admitted to have received only Rs. 10 lakh prior to execution of the agreement to sale whereas agreed consideration of the said flat was
Rs. 15.65 lakh and not Rs. 10 lakh as per a written note. The Opponent developer relied on the handwritten note.

The District Forum Kolhapur passed an order allowing the consumer complaint partly with directions to execute registered sale deed by complying with all the legal requirements for handing over possession of Unit No. B-2 admeasuring 58.55 sq mtrs. Aggrieved by the order passed by the District Forum, appellant preferred an appeal.

The Hon’ble State Consumers Disputes Redressal Commission Maharashtra Mumbai observed that agreement to sale has been executed and duly registered on 9-5-2011. As provided under the provisions of the MOFA and model agreement thereunder any provision inconsistent therewith is not binding on the parties. The written note dated 29-4-2011 is outside the registered agreement to sale. It was therefore held that the order passed by the District Forum is not inconsistent with the legal provisions and thus held that the appeal was unsustainable and was liable to dismissed.

Amey Developers Pro. Suresh Rajaram Dharmadhikari v. Vidya Mahesh Salokhe, [First Appeal No. A/15/958 dated 8-9-2015, State Consumer Disputes Redressal Commission, Mumbai]

8. Professional activity carried on in residential premises by lawyer – Levy of Property Tax – Activity of such kind cannot be termed as professional establishment and premises cannot be termed as business building within purview of Bye-law 9(b) – Levy of property tax on such premises – Not proper.[Delhi Municipal Corporation Act of 1957, Ss. 481, 2(3), 116A(f)

The Hon’ble High Court was considering a issue that whether user of portion of house for consultation work by lawyer and study by his son can be termed as professional establishment and premises can be termed as business building and levy of property tax on such premises was permissible or not.

The Hon’ble Delhi High Court in this case observed that there is a fundamental distinction between a professional establishment and professional activity.

The distinction between ‘professional activity and ‘professional establishment’ can be illustrated by the following example. A ‘professional’s office would be a ‘professional establishment’ when the usage of the office space is in excess of the conditions stipulated in Clause 15.8 of the MPD 2021 or if the said office is situated in a building designated as commercial or business in the MPD 2021 and Zonal Plan. In the opinion of this Court, a premise would not become business premise just because a lawyer read his office file or did some official work at his residence.

Thus, the High Court held that user of portion of house for consultation work by lawyer and study by his son cannot be termed as professional establishment and premises cannot be termed as business building and levy of property tax on such premises is illegal.

A. Classification of Service

Authorised Service Station Services

1. The Tribunal held that where the assessee, a service station authorised by a manufacturer of motor vehicles was also engaged in carrying out servicing of other manufacturer, the services pertaining to the other manufacturers would not be liable to service tax under the category of authorised service station services.

Sefeway Motors v. CCE (2015) 38 STR 1005 (Tri.-Mum.)

Banking and Other Financial Services

2. The Tribunal held that the assessee, engaged in collecting octroi on vehicle transporting goods into municipal limits and remitting the same to the Municipal Corporation, did not perform a cash management activity under the Banking and Other Financial services category. Further, it held that the assessee was neither a banking company nor a financial institution and the term ‘any other person’ appearing in the definition of the impugned service was to be read ‘ejusdem generis’ with the preceding words contained therein.

Mega Enterprises v. CCE & C – (2015) 40 STR 528 (Tri. – Mum.)

3. The Tribunal held that without client custodian relationship and without entrusting the securities for safekeeping, the services performed by the assessee viz. agency services for the sale of bonds issued by the RBI to the public do not merit classification under Banking and Financial services and were liable under Business Auxiliary service and therefore amounts received from the RBI could not be considered as custodial service.

ICICI Bank Ltd v. CST – 2015-TIOL-1983-CESTAT-MUM

4. The Tribunal held that commission earned by banks for the activity of receiving and paying money on behalf of the RBI / Government of India was not liable to service tax.

Union Bank of India v. CCE&ST – (2015) 40 STR 308 (Tri. – Mum.)

Broadcasting Agency services

5. The Tribunal held that where the assessee, an independent representative of

Hong Kong, engaged in the soliciting of television advertisements on behalf of

Hong Kong, sold time slots for advertisements in India, the service provided by it was taxable in India as the radio / television programme was received in India and was intended for viewership by Indian public inspite of the fact that the beaming / encryption took place outside India and the advertisers made direct payment to

Hong Kong in USD. It held that the assessee was a broadcasting agency under section 65(16) and was liable to service tax under the category of Broadcasting services. It further, held that the amount received directly by

Hong Kong was not exempt under notification Nos. 6 / 99 and 21 / 2003 since no payments were received in India and even if they were received in the India, they was subsequently repatriated outside India. The Tribunal also held that the amount received in USD by

Hong Kong could not be considered as exports as the condition of receipt of convertible foreign exchange in India was not satisfied.

India Pvt Ltd v. CCE – (2015) 38 STR 884 (Tri. – Mum.)

Business Auxiliary / Support Services

6. The Tribunal held that where the assessee, a mandap keeper service provider received a donation from the decorator to whom it had granted a monopoly right for decoration in its premises, no service had been rendered by the assessee on behalf of the decorator and hence the donation received by it was not liable to service tax under the category of Business Auxiliary Services.

CCE v. Jain Kalar Samaj (2015) 38 STR 995 (Tri. – Mum.)

7. The Tribunal held that as per the Master Service agreement relating to the loan given by the assessee to its subsidiary by way of inter-corporate deposit, no conclusion could be reached that the advance was towards consideration of business support services to be rendered and therefore could not be subject to service tax.

Reliance Infratel Ltd v. CST – (2015) 39 STR 829 (Tri.-Mum.)

8. The Tribunal held that the assessee, engaged in disbursing salaries to Government teachers on the direction of the Zilla Parishad was not covered under the category of Business Auxiliary services as such activity was not related to sale or purchase of goods or services. Further, it held that the said amount received by the assessee could not be termed as amount received as a commission agent.

Janta Sahakari Bank Ltd v. CCE – (2015) 39 STR 856 (Tri. – Mum.)

9. The Tribunal held that the activity of the assessee viz. facilitation of payment of octroi by filling up forms and presenting the same to the octroi officer for clearance did not amount to Business Auxiliary Services as it did not amount to dealing with or handling documents of title and further, the assessee did not have any authority to transfer title.

Trimurti Octroi Company v. CCE – (2015) 40 STR 152 (Tri. – Mum.)

10. The Tribunal held that service tax could not be levied on the manufacture of alcohol based medicine as the medicines were manufactured as per the Drugs & Cosmetics Act and were liable to excise duty.

Mistair Health & Hygiene Pvt Ltd v. CCE – (2015) 40 STR 148 (Tri. – Mum.)

11. The Tribunal held that promotion / marketing of Computer Reservation Systems provided to overseas entities by employing computer data processing was not covered under Business Auxiliary Services during the period 1-7-2003 to 30-4-2006.

Abacus Distrbution Systems (India) Pvt. Ltd. v. CST – (2015) 40 STR 190 (Tri. – Mum.)

12. The Tribunal held that the assessee, engaged in collecting toll on behalf of NHAI for which it received commission, was neither promoting nor marketing services of its client and did not render any service incidental or auxiliary on behalf of NHAI and therefore the toll collection services could not be covered under Business Auxiliary Services.

Ideal Road Builders Pvt. Ltd. v. CST – (2015) 40 STR 480 (Tri. – Mum.)

13. The Tribunal held that the activity of supervision of loading and dispatch of molasses and arranging information of molasses lifted was not liable to service tax under the category of Business Auxiliary Services.

Chaddha Paper Mills Ltd v. CCE – (2015) 40 STR 812 (Tri. – Del.)

14. The Tribunal held that the assessee, a distributor of a binary network company, who appointed further distributors to create a chain of distributors who were under the compulsion to buy products from the shopping section of the company, was not an independent trader but a commission agent under the category of Business Auxiliary Services.

Lalit Dongre v. CCE – (2015) 40 STR 486 (Tri. – Mum.)

15. In light of decision by Andhra Pradesh High Court in Karvy Securities v. Union of India 2006(2) STR-481 setting aside CBEC circular dated 5-11-2003 wherein it was clarified that marketing of mutual funds and bonds were Business Auxiliary Services, the Tribunal held that no service tax was leviable on the said services.

CST v. ABN Amro Bank – (2015) 40 STR 187 (Tri. – Del.)

16. The Tribunal held that the supply of fly ash by the assessee to cement and asbestos companies for the purpose of manufacture of cement could not be considered as rendering of business support services since the cement companies did not outsource any service from the appellant for use in their business and the consideration for supply of fly ash was for the sale of fly ash and not towards any services irrespective of the fact that the assessee collected it as ‘service charge’.

Mettur Thermal Power Station v. CCE & ST – (2015) 38 STR 606 (Tri. – Chennai)

Cargo Handling Service

17. The Court held that as per common parlance, cargo means load to be carried by a ship, plane, rail or truck and the organised activity of handling such load is cargo handling. It held that the activity carried out by the assessee i.e., loading, unloading, packing, unpacking, stacking, re-stacking etc. of sugar bags from the mill floor to the godown or from one godown to another within the factory did not constitute cargo handling services since there was no activity of loading or unloading of movement outside the factory on public road, ship etc.

CCE v. Manoj Kumar – (2015) 40 STR 35 (All.)

Clearing and Forwarding Agent

18. The Apex Court held that the assessee, engaged in supervision of coal loading in railway wagons at the colliery on behalf of coal purchasers was not liable to service tax under the category of Clearing and Forwarding Agency services since its main job was supervision of coal loading and there was no clearing by the assessee since the goods was not under any legal detention requiring clearing. It held that the services provided by the assessee did not amount to forwarding either since the destination of the goods was pre-determined and the railways transported the goods to the purchases as per mutual contracts, not requiring any instruction from the assessee as to the destination of dispatch and also based on the fact that the assessee did not take custody of the coal.

Coal Handlers Pvt Ltd v. CCE – (2015) 38 STR 897 (SC)

Construction Services

19. The Tribunal held that preconstruction anti-termite treatment services were not covered under the category of commercial or industrial construction services or construction of complex services.

Premier Pest Control Pvt. Ltd. vs. CST (2015) 38 STR 870 (Tri.-Del.)

20. The Tribunal held that repair and renovation work viz. mason work, plastering, painting etc. carried out by the assessee in respect of office premises was liable to service tax under the category of commercial or industrial construction services and held that the services covered under the said category were not merely confined to services undertaken in relation to new buildings and also applied to services provided in relation to a part of the building and not only to cases where the services were provided for the entire building.

Kala Sagar v. CCE – (2015) 38 STR 1017 (Tri. – Mum.)

21. The Tribunal held that laying of pipelines for lift irrigation systems for transmission of water or sewage disposal undertaken for the Government or Government undertakings and involving associated activities such as trenching, soil preparation, masonry work etc. was classifiable only under Commercial or Industrial Construction services up to 1-6-2007 and not under Erection, Commissioning or Installation Services but however, since the services were not primarily for commercial or industrial services, they did not fall under the aforesaid construction services.

Lanco Infotech Ltd. v. CC, CE & ST – (2015) 38 STR 709 (Tri. – LB)

22. The Tribunal held that the assessee, engaged in the construction of residential complex for the accommodation of employees of ITC Ltd. was not liable to service tax since the activity was covered under ‘personal use’ and therefore excluded from the definition. Further, it held that since the tax required to be paid was paid by the sub-contractors, there was no liability on the main contractor i.e., the assessee as per the relevant CBEC Circular.

Nithesh Estates Ltd v. CCE, ST & C – (2015) 40 STR 815 (Tri. – Bang.)

23. The Tribunal held that construction services provided by a sub-contractor to the main contractor who had in turn contracted with the Government of India for building residential complexes for the Delhi police, would not be considered as ‘commercial or industrial construction services’ since the services provided by the sub-contractor would also be considered as construction services in respect of a building used for non-commercial purposes. It held that merely because the construction was done by a sub-contractor, it would not change the nature of activity from non-commercial to commercial.

RB Chy Ruchi Ram Khattar & Sons v. CST – (2015) 38 STR 583 (Tri. – Del.)

Consulting Engineers Services

24. The Tribunal held that the activities of finalising vessels / ships for movement of men and material from an island to the mainland, overseeing progress of construction of vessel and conducting tests on various machinery of the ship were not covered under Consulting Engineer Services.

Shipping Corporation of India Ltd v. CCE – (2015) 40 STR 468 (Tri. – Mum.)

Goods Transportation Agency

25. The Tribunal held that the transportation of goods by individual truck owners without issue of consignment note would be simple transportation and not the service of Goods Transport Agency.

Bhima Sahakari Karkhana Ltd. v. CCE – 2015-TIOL-2134-CESTAT-MUM

Health and Fitness Service

26. The Tribunal held that the amount collected for conducting aerobics and yoga classes was liable to service tax under the category of Health and Fitness services in view of the decision in Osho International Foundation v. CCE (2015) 40 STR 530 (T).

Malabar Hill Citizen Forum v. CCE – (2015) 40 STR 480 (Tri. – Mum.)

Manpower recruitment and supply services

27. The Tribunal held that where the assessee was responsible for cutting sugarcane from the fields and delivering the same to the sugar factories either by availing services of labour provided by the sugar factories or the labour contractors, the services provided by the assessee to the sugar factories could not be considered as manpower recruitment services.

Shriram OOS Tod Majdoor Seva Sangh vs. CST (2015) 38 STR 1052 (Tri.-Mum.)

CCE v. Shriram Sao TVS Ltd. (2015) 39 STR 75 (Tri. – Mum.)

Market Research Agency Service

28. The Tribunal held that consultancy and professional services rendered by an IIT engineer for metal development could not be made liable for Service tax under Market Research Agency Services.

Metal Development Co v. CCE & ST – (2015) 40 STR 545 (Tri. – Mum.)

Outdoor Caterer Services

29. The Tribunal held that the activity of preparing meals as per a fixed menu and supplying it to various schools of Chandigarh Administration under the Mid-Day Meal scheme of the Government was not liable to service tax under the category of Outdoor Caterer Services.

Ambedkar Institute of Hotel Management v. CCE – (2015) 40 STR 823 (Tri. – Del.)

30. The Tribunal held that the assessee, a co-operative society running canteen service in the recipients premises and providing food, snacks etc. to the employees of the company was liable to service tax under the category of Outdoor Catering Services.

Alfa Laval (I) Ltd. Employees Co-op. Consumers Society v. CCE – (2015) 40 STR 255 (Tri. – Mum.)

Prospecting mineral oil service

31. The Tribunal held that the assessee, engaged in the activity of making preliminary exploration report, based on survey and detailed exploration report of mineral deposit for which they were paid grant-in-aid by the Government of India was not liable to service tax since no consideration had been paid by the Government to the assessee for undertaking the said work and what has been received from the Government was only the reimbursement of the actual expenses involved and also that the survey reports were retained by the assessee and not provided to the Government.

Mineral Exploration Corporation Ltd. v. CCE – (2015) 60 taxmann.com 227 (Tri. – Mum.)

32. The Court held that services provided by vessels for prospecting mineral oil consumed by Continental Shelf of India came into the tax net only after Notification No. 14 / 2010-ST came into effect.

Greatship (India) Ltd. v. CST – (2015) 39 STR 754 (Bom.)

Renting of Immovable Property

33. The Court held that the definition of the expression ‘renting of immovable property’ read with Explanation to section 65(105)(zzzz) of the Act included lease of various plots allotted by the assessee for business / commercial purposes and rent collected in respect of lease so executed was liable to service tax and that the period of lease was of no consequence. It further held that the Act makes no distinction between a statutory body and an individual and therefore activities which were not in the nature of a statutory activity for a consideration was liable to service tax if it fell under the scope of a taxable service.

Greater Noida Industrial Development Authority v. CCCE – (2015) 40 STR 95 (All.)

34. The Tribunal held that the definition of renting of immovable property service specifically excluded buildings used for accommodation, including hotels and therefore, the assessee was not liable to pay service tax on renting of a building for the purpose of running a hotel.

Ashok Enterprises v. CCEC & ST – (2015) 40 STR 584 (Tri. – Bang.)

35. The Court held that the scope of Renting of Immovable Property service was expanded to renting of vacant land or licence for business or commerce purposes and that in view of the exclusion of vacant land from the ambit of immovable property prior to 1-7-2010, it could not be said that the clause (105)(zzzz) was clarificatory and retrospective in nature.

CST v. Greater Noida Development Authority – (2015) 40 STR 46 (All.)

Storage and Warehousing Services

36. The Court held that staff deputed by the State Excise for the supervision of storage of foreign liquor to ensure compliance with the State excise laws did not provide services to the liquor contractors or the persons storing the liquor on behalf of the Government, but were in the nature of fees levied for supervision to ensure proper functioning of the warehouse, and therefore the demand of service tax on charges recovered by the staff under the category of Storage and Warehouse services was incorrect.

CCE&E v. State of Madhya Pradesh – (2015) 38 STR 954 (MP)

Telephone Services

37. The Tribunal held that club membership charges and club privilege charges received by RIL, which formed part of the scheme used for marketing the telephone services provided by the assessee could not be subject to service tax under the category of telephone services. RIL, who was permitted to market its own products along with the assessee, had remitted to the assessee, the tariff plans pertaining to the assessee’s telephone services on which service tax had been paid. The Tribunal observed that RIL was not a telegraph authority and accordingly did not fall under the scope of agent under section 65(7) and therefore the club membership fees and club privilege charges could not be included as telephone services as they were not incidental to the service of telephone connection. It also observed that the value of handsets supplied by RIL under the scheme was a sale of goods not liable to service tax.

CST vs. Reliance Infocomm Ltd. – (2015) 38 STR 558 (Tri-Mumbai)

Works contract Services

38. The Tribunal held that construction of canals for irrigation, construction or laying of pipelines for lift irrigation integrated into a dam project was to be classified as works contract in respect of dam and therefore excluded from the scope of Works Contract Services.

It further held that services relating to the construction of canals / pipelines / conduits to support irrigation, provided to the Government, executed under the turnkey mode would fall within the ambit of Works Contract Services but would not be chargeable to service tax since they are not for commercial or industrial purposes.

Additionally, it held that where the principal contract, in terms of an agreement with the contractee, assigns the entire works to a sub-contractor and such works is incorporated into the works on the property belonging to the contractee, the principal contractor could not be considered to have provided works contract services since the property passed from the sub-contractor to the contractee.

Lanco Infratech Ltd. vs. CC,CE&ST (2015) 38 STR 709 (Tri.-LB)

B. Valuation

39. The Apex Court held that section 65(105) of Finance Act, 1994 levies service tax only on contracts simplicitor and not on composite indivisible works contracts, and therefore where assessment machinery provisions were absent and the law was vague, it was arbitrary to levy service tax on indivisible composite works contracts. It held that the Parliament could only tax the service element and the States could only tax the transfer of property in goods and therefore the two elements had to be completely segregated or it would be unconstitutional.

CCE&C v. Larsen & Toubro Ltd. – (2015) 39 STR 913 (SC)

40. The Court held that levy of service tax on services provided by restaurants, hotel inns, guest houses, clubs etc. was on the service aspect of the transaction and not on the sale of goods.

Ballal Auto Agency v. UOI – (2015) 40 STR 51 (Kar.)

41. The High Court held that where there was no monetary consideration in the transaction, section 65 of the Finance Act, 1994 provided for various methods for valuation and it was for the assessee to establish the plea made by it, i.e., tax should be demanded on the basis of the cost of land for the 24 flats allotted by it to the land owner as the share equivalent of the land provided.

Southern Properties & Promoters v. CCE – (2015) 61 taxmann.com 423 (Mad.)

42. The Tribunal held that reimbursement of expenses was not includable while determining gross value of services, considering that the High Court in Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India 2013 (29) STR 9 (Del.) struck down Rule 5(1) of the Valuation Rules, being ultra vires sections 66 and 67 of the Act.

Tetra Pack India Pvt. Ltd. vs. CCE – (2015) 39 STR 995 (Tri. – Mum.)

43. The Tribunal held that the demand computed by the Department on the value of oil and supply items on which VAT Payment had been made and which was clearly indicated in the invoice issued by the assesseee was unsustainable as it was outside the purview of service tax.

Technocrate Transformers v. CCE – (2015) 39 STR 996 (Tri. – Del)

C. CENVAT Credit

44. The Court held that towers and shelters were immovable property and therefore the assessee was not entitled to credit of duty paid on them.

Vodafone India Ltd v. CCE – (2015) 40 STR 422 (Bom.)

45. The Tribunal held that the term ‘any office’ contained in the definition of Input Service Distributor was not limited to physical boundaries only but was to be interpreted to include offices which distribute credit and therefore allowed the distribution of credit by the assessee’s Regional Office instead of Head Office.

India Cement Ltd. v. CCE – (2015) 40 STR 497 (Tri. – Chennai)

46. The Tribunal held that in the absence of registration as an input service distributor under Rule 3 of the Service Tax (Registration of Special Category of Persons) Rules, 2005, the zonal office of the bank could not pass on credit to their respective branches.

CCE&ST v. Punjab National Bank (2015) 38 STR 586 (Tri. – Del.)

47. The Tribunal held that printing for distribution of calendars, greeting cards and diaries on account of sales promotion and organising functions for giving rewards to persons providing innovative marketing ideas was a part of the business activity of the assessee.

Ultratech Cement Ltd. v. CCE – (2015) 40 STR 523 (Tri. – Del.)

48. The Tribunal allowed the assessee CENVAT credit of service tax on car parking availed at the Head office for parking cars of its management, being directly related to the business of manufacturing.

Goodyear India Ltd. v. CCE – (2015) 40 STR 546 (Tri. – Del.)

49. The Tribunal held that merely because the invoice issued by the service provider mentioned the service as IT Service as opposed to Management Consultancy Service, for which it was registered, the department was not correct in denying the assessee credit since there was no dispute that the service tax was deposited by the service provider. Further, it held that CENVAT credit of service tax paid on fees paid to the auditor for filing tax returns was admissible as the same had a direct nexus with running the business of the assessee.

Adecco Flexione Workforce Solution Pvt. Ltd. v. CCE & ST – (2015) 40 STR 564 (Tri. – Bang.)

50. The Tribunal held that the CENVAT credit availed by the assessee of service tax paid on inspection of safety fitness of its CNG cylinders was admissible since CNG could only be filled in those cylinders which were certified fit and therefore was integrally connected with the business of sale of CNG.

Mahanagar Gas Ltd. v. CCE – (2015) 40 STR 586 (Tri. – Mum.)

51. The Tribunal held that unless the CENVAT credit wrongly availed was utilised there would be no payment of interest.

TV Sundram Iyenger and Sons Ltd v. CCE – 2015-TIOL-2081-CESTAT-MAD

52. The Tribunal allowed CENVAT credit of service tax paid on rent of storage premises situated outside the factory since the premises were used in relation to the business activity and services being intangible in nature unlike inputs or capital goods was not liable to be confined to the factory premises for them to be considered as input services.

Vako Seals Pvt. Ltd. v. CCE – (2015) 40 STR 594 (Tri. – Mum.)

53. The Tribunal allowed CENVAT credit of service tax paid on security services provided at a guest house nearby used exclusively for the lodging of its employees and auditors while they rendered services to the assessee.

ISMT Ltd. v. CC&CE – (2015) 40 STR 596 (Tri. – Mum.)

54. The Tribunal allowed the assessee CENVAT credit of duty / service tax paid on inputs, capital goods and input services used for construction / erection of towers for use by the telecom companies.

Essar Telecom Infrastructure Pvt. Ltd. v. CST – (2015) 40 STR 591 (Tri. – Mum.)

55. The Tribunal held that where it was a statutory requirement of the assessee to maintain a garden and to provide food to its employees, credit on garden maintenance services and outdoor catering services was admissible. Further, it held that CENVAT credit on maintenance and repairs of factory and office relating to the factor was admissible.

Cargill India Pvt. Ltd. v. CCE, C&ST (2015) 38 STR 587 (Tri.-Bang.)

56. The Tribunal allowed credit of duty paid on cement and steel used in the construction of new jetties and other commercial buildings. It also held that amendment to Explanation 2 to Rule 2(k) was not clarificatory in nature as whenever the legislature wants to clarify the provision it clearly mentions so in the notification which was not so in the present case.

Mundra Ports & SEZ Ltd. v. CCE& C – (2015) 39 STR 726 (Guj)

57. The Tribunal held that where the assessee was a manufacturer and a service provider and had acquired separate registrations as a manufacturer and service provider, credit on input services used for providing output services could be utilised for the payment of excise duty as there was no restriction on such cross utilisation.

S. S. Engineers v. CCE (2015) 38 STR 614 (Tri. – Mum.)

58. The Tribunal held that credit distributed by the head office without input service distributor registration prior to the rules for registration coming into effect, was admissible since the credit pertained to the manufacturing activity of the assessee and procedural law is directory and not mandatory.

Pricol Ltd. v. CCE (2015) 38 STR 668 (Tri. – Chennai)

59. The Tribunal held that CENVAT credit of service tax paid on outward transportation of sugar to the railway station / load port was allowable since the railway station / port was the place of removal. Further, in relation to the transportation of dry sugar from the assessee’s factory to its sister concerns, it held that the CENVAT credit could have been taken either by the assessee or its sister concerns and therefore the claim made by the assessee was revenue neutral and did not have to be reversed.

Tatyasaheb KoreWarana S.S.K Ltd. v. CCE (2015) 38 STR 575 (Tri. – Mumbai)

60. The Tribunal held that credit of service tax paid on security services availed for protection of the factory was admissible being inextricably linked to the manufacturing facility. It further held that the credit of service tax on sales commission for sales promotion of the assessee’s products was admissible.

SAR Ispat Pvt. Ltd. v. CCE (2015) 38 STR 829 (Tri. – Chennai)

61. The Tribunal held that where it was the statutory obligation for the assessee to maintain a canteen for providing food to its employees and no amount was recovered from the employees, credit on outdoor catering services was admissible.

Further, it held that credit on rent-a-cab services used for transportation of passengers from their residence to the factory and vice versa, credit on outward transportation services for transportation of goods to the buyers place and credit of auction services for sale of waste and scrap arising in the course of manufacture was admissible, being a service integral to the manufacturing activity of the appellant.

As regards club and association services availed for officials visiting outside the city the Tribunal held it was admissible as the same was incurred in the course of business.

Mangalam Cements Ltd. v. CCE (2015) 38 STR 635 (Tri-Del.)

62. The Tribunal held that where the assessee had on account of its inability to correctly determine the service tax payable by it, discharged its service tax liability on an estimate basis and thereafter adjusted the excess service tax paid against its tax liability for subsequent months, the benefit of CENVAT credit could not be denied merely because the prescribed procedure was not followed.

BSNL v. CCE (2015) 38 STR 1182 (Tri. – Del.)

63. The Court held that the service of transportation of employees from their residence to the factory premises was an input service under the CENVAT Credit Rules.

CCE v. Federal Mogul Goetze (India) Ltd. – (2015) 39 STR 735 (P&H)

64. The Tribunal held that credit of service tax paid in respect of a windmill farm located at a distance of 100 kms. from the manufacturing unit was not admissible since neither the power generated at the windmill farm could be termed as an intermediate product nor could it be termed as captive consumption of electricity for the manufacture of final product.

Rajshanti Metals Pvt. Ltd. v. CCE – (2015) 39 STR 875 (Tri. – Ahd.)

65. The Tribunal held that credit availed on input services received at the unregistered branch for the purpose of providing output services, by the centralized office on the basis of documents pertaining to the said branch office which was subsequently registered was to be allowed. Further, it held that the disallowance of credit in respect of invoice for telephone services raised in the directors name but having mention of the office address, was uncalled for.

Ketan Motors Ltd. v. CCE – (2015) 39 STR 858 (Tri. – Mum.)

66. The Court held that catering, photography and mandap keeper services availed by the assessee for the celebrations hosted for passing out of its students and the repair of vehicle and other travelling expenses incurred in relation thereto were not relatable to commercial training and coaching services and therefore credit was inadmissible.

Bansal Classes v. CCE & ST – (2015) 30 STR 967 (Raj.)

67. The Tribunal held that the definition of input service provided under Rule 2(1) of the CENVAT Credit Rules, 2004 specifically included services “in relation to setting up, premises of provider of output service or an office relating to such premises” and accordingly, the services used for setting up the stadium such as Architect Services, Consulting Engineers Services, Management Consultancy Services were eligible input services.

Maharashtra Cricket Association v. Commissioner of Central Excise – 2015-TIOL-2418-CESTAT-MUM

68. The Tribunal held that where the assessee has paid service tax to service provider, CENVAT credit is available to service receiver without finding whether service tax paid by him to service provider stands deposited in the Government treasury.

Adecco Flexione Workforce Solutions Ltd. v. CCE – (2015) 40 STR 288 (Tri. – Bang.)

69. The Tribunal held that outdoor catering service was an eligible input service irrespective of whether subsidised food was provided or not or whether the cost of the food was given by the worker or by the factory and even if there was no statutory requirement of provision of food to workers in the factory.

Paramount Communication Ltd. v. CCE – (2015) 40 STR 265 (Tri. – Del.)

70. The Tribunal held that CENVAT Credit was admissible in accordance with Rule 3 of the Rules and therefore, credit on input services availed for the trading activities of the assessee, not being an output services was not admissible. It further held that since the assessee had not disclosed the input service credit in relation to the trading activity in its ST-3 returns, it amounted to a suppression of facts and therefore the extended period of limitation was correctly invoked.

Synise Technologies Ltd. v. CCE – (2015) 30 STR 903 (Tri. – Mum.)

71. The Tribunal disallowed the claim of CENVAT credit in the present case as the assessee had taken credit as a manufacturer at its Pune factory and utilised the same for discharging service tax liability on renting of immovable property at Mumbai. It held that there being no nexus of input credit with output service, CENVAT credit was inadmissible.

Dai Ichi Karkaria Ltd. v. CCE – (2015) 40 STR 275 (Tri. – Mum.)

72. The Larger Bench of the Tribunal held that Erection, Commission or Installation Service and Management, Maintenance or Repair Service used by windmills for generation of electricity away from the factory premises which was used in the factory are input services.

Parry Engg. Electronics Pvt. Ltd. v. CCE – (2015) 40 STR 243 (Tri. – LB)

73. The Tribunal held that a manufacturer of goods was entitled to avail CENVAT credit on services availed in setting up the factory.

CCE v. Technico Industries Ltd – (2015) 40 STR 259 (Tri. – Del.)

74. The Tribunal held that the assessee was eligible to claim CENVAT Credit of service tax paid on construction of manufacturing plant and rental of immovable property on which its plant was erected as the final product of the assessee could not have been manufactured without the factory and the land on which it was constructed thereby falling under the definition of input service.

CCE v. Bellsonica Auto Components India Pvt. Ltd. – (2015) 40 STR 41 (P&H)

75. The Tribunal allowed CENVAT credit on outdoor catering services for canteens as it was essential to run the business of the assessee, garden maintenance services as it was statutorily required, event management services as it was essential to the business being incurred at opening and ceremonial occasions and brokerage services incurred for finding residential accommodation for its employees thereby ensuring availability of staff.

Gateway Terminals India Pvt. Ltd. v. CCE (2015) 39 STR 1027 (Tri. – Mum.)

76. The Tribunal held that the definition of input services containing the terms ‘directly’, ‘indirectly’ and ‘in relation to’ was wide enough to include consulting engineer services used in the development and manufacture of vehicle prototypes used for the ultimate manufacturing activity of the assessee. Accordingly, it allowed the assessee’s claim of CENVAT credit of service tax paid on the aforesaid service.

Tata Motors Ltd. v. CCE – (2015) 40 STR 269 (Tri. – Mum.)

77. The Tribunal held that there was no provision in Rule 6(3) of the CENVAT Credit Rules stating that if the assessee did not opt for any option at any particular time, then Rule 6(3A)(i) providing for payment of 5 per cent of the value of exempted services was automatically applicable. It held that there was no time limit to exercise the option though the intention to avail a particular option was to be made before the actual availing of the option.

Mercedes Benz India Pvt. Ltd. v. CCE – (2015) 40 STR 381 (Tri. – Mum.)

78. The Tribunal allowed the assessee’s claim of CENVAT credit of service tax paid on construction of dormitories / residential colony since the assessee’s manufacturing activities were continuous and the factory was located in a remote area, therefore requiring the aforesaid construction to ensure continuity of business.

CCE v. Bajaj Hindustan Ltd. – (2015) 40 STR 379 (Tri.-Del.)

79. The Court held that if the assessee had paid tax on a non-taxable service that he was not liable to pay, the availing of CENVAT credit on such tax paid cannot be termed as illegal and accordingly dismissed the Revenue’s appeal.

CCE&ST v. Tamil Nadu Petroproducts Ltd. – 2015-TIOL-2600-HC-MAD-CX

80. The Tribunal allowed CENVAT credit of service tax paid on security services, pest control and repair and maintenance of coolers in the employee’s residence colony as well as service tax paid on the maintenance of river pump and security service in relation to the guest house of the assessee.

Ultratech Cement Ltd. v. CCE – (2015) 40 STR 284 (Tri. – Mum.)

81. The Tribunal held that where the assessee had paid service tax on output transportation services twice, once in cash and another by utilising CENVAT credit, it was correct in subsequently taking suo motu credit of the double utilisation.

JK Lakshmi Cement Ltd. v. CCE&ST – (2015) 40 STR 618 (Tri. – Del.)

82. The Tribunal allowed CENVAT credit of service tax paid on freight inward, telecommunication, security service, insurance, consultancy and courier services as the said services were used in the manufacture of excisable goods in the course of business.

CCE v. SKH Metals Ltd. – (2015) 40 STR 690 (Tri. – Del.)

83. The Tribunal held that if service tax was paid by service provider and service receiver was eligible for CENVAT credit, responsibility to examine correctness of service tax paid by service provider was not cast upon the service receiver. Accordingly, relying on various decisions, the Tribunal allowed CENVAT Credit in spite of the fact that the service provider was registered for installation and commissioning services and the service availed was that of equipment rent.

India Vision Satellite Communications Ltd. v. CCE, C & ST – (2015) 39 STR 698 (Tri. – Bang.)

84. The Tribunal held that CENVAT credit of service tax paid on construction services used for construction of hostel/quarters for employees being in relation to manufacturing business was admissible.

Mahindra Ugine Steel Co.Ltd v. CCE – 2015-TIOL-1716-CESTAT-MUM

85. The Tribunal held that services of general insurance for group and medical policies were in respect of the employees and as per the statutory provisions under the Factory Act and therefore were allowable. Further, it held that in respect of bills in personal name, the expenditure towards the bills was booked in the assessee’s account and therefore the credit claimed was allowable.

CST v. FIL Capital Advisors India Pvt. Ltd. – (2015 – TIOL – 2106 – CESTAT – MUM)

86. Where the assessee’s head office was centrally registered for service tax and as a Input Service Distributor, the Tribunal held that availing of and distribution of credit pertaining to services received at the assessee’s branch office by the Head Office was legal and proper in view of the facts that the Branch office had no separate accounting system and the branch accounts formed part of the Head Office accounts.

Mahindra & Mahindra Ltd. v. CCE (2015) 38 STR 830 (Tri.-Mumbai)

D. Others

Appeal

87. The Court held that even if the assessee has alternate remedy to file appeal before the Tribunal, writ is maintainable since there is a provision of mandatory pre-deposit before filing appeal.

Dileep Kumar V.S. v. Union of India – (2015) 39 STR 972 (Ker.)

88. The Court held that the Service Tax Voluntary Compliance Encouragement Scheme was not an independent code and was part and parcel of the Finance Act 1994 and that all provisions of the Act including those relating to appeals would be applicable unless specifically excluded.

Narasimha Mills Pvt. Ltd. v. CCE – (2015) STR 795 (Mad.)

89. The Court held that even if the assessee did not comply with the provisions of pre-deposit as per the stay order at first but had done so belatedly, the appeal could not be dismissed without hearing on merits.

Top Security Ltd. v. CCE & ST – (2015) 39 STR 964 (Bom.)

90. The Court held that dismissal of delayed appeal by Commissioner (Appeals) for want of application for condonation of delay was valid and that the assessee could not contend that the Commissioner was to point out the defect in filing appeal.

Adhunik Power Transmission Ltd. v. UOI – [2015] 61 taxmann.com 124 (Jharkhand)

91. The High Court observed that as per section 85(3A) of the Finance Act, 1994, the appeal had to be presented within two months from the date of receipt of the order. Relying upon section 35-O of the Central Excise Act, 1944, it held that for computing the period of limitation prescribed for an appeal, the day on which the order was served has to be excluded and that in the instant case the delay of two days was not too fatal and a liberal approach should have been adopted while handling the matter and the matter therefore, was remanded to decide the appeal on merits.

Rotomac Global Pvt. Ltd. v. CCE – (2015) 60 taxmann.com 181 (All.)

92. The Court held that the delay by the Commissioner in passing the order after almost 22 months of the date of personal hearing was contrary to public interest. Considering the number of files and matters pending, the Court ordered the Commissioners to place on record complete data and figures of the pending cases with the time required to dispose of these cases.

M/s. S2 Infotech Pvt. Ltd. v. The Union of India & Ors. – 2015-TIOL-1888-HC-MUM-ST

93. The Court held that the adjudicating authorities were to follow the order of Larger Bench unless the factual situation of the case calls for different interpretation of law.

Muthoot Finance Ltd. v. Union of India – (2015) 40 STR 26 (Ker.)

94. The High Court upheld the order of the Tribunal extending the stay granted to the assessee due to failure to dispose of the appeal within 365 days of the stay order considering the large volume of cases pending before the few number of Tribunal benches.

CCE v. Chotelal Virendra Kumar – (2015) 39 STR 721 (Raj.)

Demand / Extended Period

95. The Supreme Court relying on the decision of Commissioner of Central Excise, Ahmedabad v. Asarwa Mills [2015 (319) ELT 216 (SC) held that the appellant cannot be faulted with for adopting a valuation mechanism prior to the issuance of the clarificatory circular, clarifying the manner of valuation of captively consumed goods and therefore since there was no misdeclaration or misstatement, the extended period invoked by the Department for non-inclusion of certain costs in arriving at the value for captive consumption, was not invokable.

Greaves Ltd v. CCE & C – (2015) 322 ELT 772 (SC)

96. The Court held that that recovery u/s. 87 of the Finance Act, 1994, could be resorted to only after an amount was adjudicated to be due to the Central Government and therefore could not be adopted by the Department without issuance of a demand notice. Accordingly, the proceedings were quashed.

Gopala Builders v. Directorate General of Central Excise Intelligence – 2015-TIOL-2451-HC-AHM-ST

97. The Tribunal held that Notification No. 14/2004-ST providing exemption under Business Auxiliary Service to four industries viz. agriculture, printing, textile processing and education applied to the assessee who was engaged in manufacture and export of textile products and therefore commission paid to the overseas agents to promote export sales was an activity incidental or auxiliary to processing of textile goods and covered by Clause (d) of the notification. Accordingly, it was held that the benefit of exemption Notification No. 14/2004 was available and the demand of service tax under reverse charge was set aside.

Texyard International v. CCE – (2015) 60 taxmann.com 394 (Tri. – Chennai)

Export of Services

98. The Court held that where the assessee was engaged in providing steamer agency services to foreign entities during the period wherein the exemption for receipts in foreign exchange was not in force, the services rendered would not be liable to service tax even in the absence of such exemption, since the recipient of the services was located abroad and the consideration was received by the assessee in convertible foreign exchange, therefore amounting to an export of services.

CST v. Maersk India Pvt. Ltd. – (2015) 38 STR 1121 (Mum.)

99. The Tribunal held that the assessee, who procured orders from Indian customers for overseas manufacturers in consideration of commission from the overseas manufacturers, was not liable to service tax since the services could not be considered as services provided in India.

ATE Enterprises Pvt. Ltd. v. CST – (2015) 39 STR 81 (Tri. – Mum.)

100. The Tribunal held that the assessee, engaged in preparing feasibility reports and sending them abroad to enable foreign investors to decide on investments in India was an export of service as the service was utilised outside India and the remuneration for services was received in convertible foreign exchange.

Mount Kellett Management I Pvt. Ltd. v. CST – (2015) 40 STR 165 (Tri. – Mum.)

101. The Tribunal, relying on the decision of Vodafone Essar Cellular Ltd. v. CCE – (2013) 31 STR 738 (Tri.) held that were the assessee provided services to its principals located outside India by marketing their products in India, it would be considered as an export of services since the recipient was located outside India.

CST v. Bayer Material Science Pvt. Ltd. – (2015) 38 TR 1206 (Tri. – Mum.)

Penalty / Interest

102. Where the assessee, a telephone service provider had collected amounts for fixed wireless service from the subscriber by way of adjustment against security deposits and had failed to pay service tax on the same but duly paid the tax and interest before the issue of show cause notice, the Tribunal deleted the penalty imposed by the Department relying on CCE v. Adecco Flexione Workforce Solutions Ltd. – (2012) 26 STR 3 (Kar.)

CST vs. Reliance Infocomm Ltd. (2015) 38 STR 558 (Tri. – Mumbai)

103. The Tribunal held that where the payment arising out of CENVAT discrepancies pointed out in the course of Audit conducted by the Central Excise team was made by the assessee along with interest and without contesting it further, the show cause notice for levy of penalty could not be issued.

Racold Thermo Ltd. v. CCE – [2015] 61 taxmann.com 244 (Mumbai)

104. The Court held that where refund ordered was paid by the Department to the assessee, withholding interest thereon considering that if interest is also paid, the appeal before the Supreme Court would be rendered infructuous was not the correct understanding of law.

Tahnee Heights Co-op. Housing Society Ltd. v. The Union of India – 2015- TIOL-1828-HC-MUM-ST

105. Where the assessee had taken CENVAT credit on the basis of xerox copies of invoices but did not argue against the demand before the Tribunal and the adjudicating authority had not quantified the penalty u/r. 15(4) of the CENVAT Credit Rules, 2004 with reasons, the Tribunal condoned the penalty.

Pricol Ltd. v. CCE (2015) 38 STR 668 (Tri.-Chennai)

106. The Court held that waiver of penalty u/s. 80 for delayed payment of taxes may not be available on the sole ground of financial hardship and that penalty was imposable even in cases where tax is paid before issuance of show cause notice.

Bootleggers Island v. CESTAT – (2015) 39 STR 569 (Mad.)

107. The High Court held that section 80 opens with non obstante clause and therefore once the assessee proves that there was reasonable cause for the said failure, section 80 starts to operate insulating imposition of all the penalties stated therein viz. penalties u/s. 76, 77 and 78 of the Finance Act, 1994

Akbar Travels of India Pvt. Ltd. v. CCE – (2015) 60 taxmann.com 152 (Ker.)

108. The Tribunal held that mere taking credit without utilising the same will not attract interest as well as penalty and therefore where the assessee had wrongly availed CENVAT credit but not utilised the same, no penalty or interest was applicable. It held that the amendment to Rule 14 of the CENVAT Credit Rules, 2004 substituting “taken or utilised” by the term “taken and utilised” for the levy of interest being clarificatory in nature would apply retrospectively.

Tilaknagar Industries Ltd v. CCE – 2015 – TIOL – 1628 – CESTAT – MUM.

109. The Tribunal held that where the assessee regularly paid service tax under reverse charge on certain input services but failed to pay tax on a few transactions owing to oversight, which was paid subsequently, the imposition of penalty under sections 77 and 78 of the Act were not warranted especially considering the fact that the assessee would be eligible to avail CENVAT credit of the tax paid. However, it imposed interest on the delayed payment, dismissing the argument of revenue neutrality.

Forbes Marshall Pvt. Ltd. v. CCE – (2015) 38 STR 843 (Tri.-Mumbai)

Refund and rebate

110. The Tribunal held that refund was to be granted on the basis of CENVAT credit available in the CENVAT account and not on the basis of closing balance of CENVAT Credit shown in the ST-3 returns and since the correct balance was disclosed in the revised returns, it dismissed the rejection of the refund claim made by the Department for non-mention of CENVAT closing balance in ST-3 returns.

Serco Global Services Pvt. Ltd. v. CCE – (2015) 39 STR 892 (Tri. – Del.)

111. The Tribunal held that refund of CENVAT and availment of CENVAT credit for want of registration at the time of exports could cannot be rejected and that subsequent registration shall also be considered sufficient compliance for refund of CENVAT credit.

Embitel Technologies (India) Pvt. Ltd. v. CST – (2015) 39 STR 612 (Tri. – Bang.)

112. The Tribunal held that the service receiver may claim refund of wrong service tax paid by service provider even when the same is not shown separately on the invoice, provided the service provider had discharged service tax considering receipts to be inclusive of the service tax.

Abraham Pothen v. CCE – (2015) 39 STR 676 (Tri. – Bang.)

113. The Tribunal held that registration with the Department was not a pre-requisite for claiming refund when there was no such stipulation in Rule 5 of the CENVAT Credit Rules and therefore dismissed the rejection of refund claim by the Department on the ground of non-registration of the assessee.

Dorling Kindersley India Pvt. Ltd. v. CCE&ST – (2015) 40 STR 598 (Tri. – Del.)

114. The Tribunal allowed refund of service tax paid on legal services obtained in relation to filing of State tax returns of a branch office of the assessee in the USA.

HCL Comnet System & Services Ltd. v. CCE – (2015) 40 STR 621 (Tri. – Del.)

115. The Tribunal held that the assessee could not be denied of its claim of refund of service tax on export of services since the FIRC clearly specified that the payment was received in convertible foreign exchange which satisfies the conditions prescribed in Rule 3(ii) of the ESR, 2005. Further, it held that since the issue of admissibility of input services such as security and air travel services was not raised in the show cause notice, denial of refund on those grounds was unsustainable.

Sun-Area Real Estate Pvt. Ltd. v. CST – (2015) 39 STR 897 (Tri. – Mum.)

116. The Tribunal held that contribution to expenses could not be deemed to be consideration for any identified service rendered by the assessee, a club, to its members by way of access to the facilities or advantage. However, if the payments were specifically attributable to such facility, advantage or service, the subscription would be taxable. Accordingly, it allowed the refund claim of service tax paid under protest on entrance fees received by the assessee.

Cricket Club of India Ltd. v. CST – [2015] 62 taxmann.com 2 (Mumbai – CESTAT)

117. The Tribunal held that where the assessee had paid full service tax on Inland Haulage charges and GTA charges (input services used in exportation of goods), the full amount of service tax was refundable as per Notification No. 17/2009. As regards ocean freight, onward carriage charges and terminal handling charges for delivering goods to the destination of the buyer outside India, it dismissed the contention of the Revenue that these services were availed outside India since the charges would form part of the price of goods in question and the ownership of the goods remained with the assessee till delivery. It also allowed refund on service tax paid on courier charges paid by the supplier of service, recovered from the assessee.

Polyplex Corporation Ltd. v. CCE – (2015) 38 STR 821 (Tri.-Delhi)

118. The Tribunal held that, as per Section 51 of the SEZ Act, the refund claim filed by the assessee could not be rejected where there was a delay in filing of Refund claim owing to delay in obtaining approvals under the SEZ Act.

Mahindra Engineering Services Ltd. v. CCE – (2015) 38 STR 841 (Tri.-Mumbai)

119. The Tribunal held that the assessee was entitled to refund claim of the unutilised CENVAT credit pertaining to service tax on input services used for providing investment advisory services to Greater Pacific Capital LLP, located outside India as it amounted to export of services.

CST v. Greater Pacific Capital Pvt. Ltd. – (2015) 38 STR 656 (Tri.-Mumbai)

120. The Court held that where the assessee wrongly paid service tax on Architectural services provided for the construction of building in Sri Lanka under the Account head “Service Tax” through TR-6 challan meant for payment of service tax, the contention of it to be a deposit was not sustainable and held that refund claims filed beyond the statutory period of limitation was not tenable even if tax was paid under mistake of law.

ACST v. Natraj & Venkat Associates – (2015) 40 STR 31 (Mad.)

121. The Court held that the relevant date for calculating the time limit for grant of refund would be the date of receipt of consideration and not the date of provision of services.

CCCE & ST v. Hyundai Motor India Engg. Pvt. Ltd. – (2015) 39 STR 984 (AP)

122. The Tribunal held that the limitation period for refund claim was to be counted from the date of refund claim filed electronically and not from the physical submission of documents.

The Design Consortium v. CCE – (2015) 40 STR 734 (Tri. – Del.)

123. The Tribunal held that the assessee was not entitled to refund merely upon accumulation, but only after it makes an attempt to utilise the credit for payment of service tax / excise duty. It held that the assessee would qualify for refund on accumulation only in the case of export of services and the inability to utilise the same for its domestic business. Accordingly, it held that there was no time limit to apply for refund claim under Rule 5 of the CENVAT Credit Rules, 2004.

Affinity Express India Pvt. Ltd. v. CCE – (2015) 40 STR 808 (Tri. – Mum.)

124. The Tribunal held that where the assessee had provided services within the Mangalore Commissionerate but claimed refund of service tax in the Bangalore Commissionerate, the assessee was to approach the Mangalore Commissionerate and that the date of filing refund before the Bangalore Commissionerate was to be taken as the date of filing.

Sahara Power Products v. CCE – (2015) 40 STR 536 (Tri. – Bang.)

125. The Tribunal held that since CBEC Circular No. 120 / 1 / 2010 –ST clarified that CENVAT credit refund of past period in subsequent quarters shall be allowed specifically for 100 per cent exporter of services irrespective of the date of CENVAT credit taken and also since the assessee could not use the credit of input service for the exports, it allowed the refund claim.

Ionnor Solutions Pvt. Ltd. v. CCE & ST – (2015) 39 STR 698 (Tri. – Del.)

126. The Tribunal disallowed the refund claimed by the assessee as the assessee had debited the amount of tax paid to its profit and loss account implying that the burden had been passed onto the customers and it therefore held that the claim was barred by unjust enrichment. It further held that a Chartered Accountant’s certificate stating that the burden was not passed on to the customers was an inadequate argument.

CCE v. Peptech Constructions (2015) 38 STR 639 (Tri.-Del.)

Service of Notice / Order

127. The Court held that communication by speed post was not covered as a mode of service under the Central Excise Act, 1944 prior to amendment with effect from 10-5-2013 and therefore such service was not binding on the assessee and that the proof of services was mandatory for reckoning the period of limitation.

Premier Garment Processing v. CESTAT – (2015) 39 STR 812 (Mad.)

Show Cause Notice

128. The Tribunal held that where no specific classification of taxable service was made in the show cause notice and the assessee provided various services, no demand of service tax could be made as classification of taxable service was required to be specified while demand service tax.

Bombay Intelligence Security (India) Ltd. v. CST – (2015) 40 STR 158 (Tri. – Mum.)

Miscellaneous

129. The Tribunal held that the taxable event for the levy of service tax is the date of rendition of service and therefore the rate prevalent at the time of provision of service would be the applicable rate irrespective of the rate prevalent at the time of receipt of payment.

CST v. Bagai Construction – 2015-TIOL-2086-CESTAT-Del.

130. The Tribunal held that where the assessee, engaged in carrying out seismic surveys for ONGC did not pay service tax on the services rendered by it as it was beyond the designated areas of the Continental Shelf and Exclusive Economic Zone based on Notification 1 / 2002 which was prevalent at the time of providing services, it could not be made liable to service tax based on Notification No. 21 / 2009 wherein the areas in which it provided services were notified as designated areas as the amendment was a subsequent amendment not being beneficial and therefore could not be held to be retrospective in nature.

CGG Veritas Services Ltd. v. CCE – (2015) 38 STR 1139 (Tri. – Mum.)

131. The Tribunal held that services rendered by a branch to its Head Office could not be considered as taxable service and therefore not liable to service tax.

CCE v. Manugraph India Ltd. – (2015) 38 STR 648 (Tri.-Mumbai)

132. The Tribunal held that were the assessee started paying service tax on the works contract services under the composition scheme and had disclosed the amount of tax paid in its returns but failed to make a specific declaration under Rule 3 of the Works Contract Composition Rules, the substantial benefit could not be denied merely due to procedural deficiency in delay in option for the scheme considering the fact that no format for making the declaration or the authority to whom declaration was to be made was prescribed and that the assessee made adequate disclosures in its return.

ABL Infrastructure Pvt. Ltd. v. CCE – (2015) 38 STR 1185 (Tri. – Mum.)

133. The Tribunal held that the charges imposed by the foreign bank on the assessee’s Indian bank for the purpose of making remittances from the assessee’s overseas customers could not be charged under section 66A fo the Act since the foreign bank did not charge the assessee directly but had charged the Indian bank who had recovered the amount from the assessee.

Greenply Industries Ltd. v. CCE (2015) 38 STR 605 (Tri.-Delhi)

134. The Court held that service providers have the right to claim service tax from its customers as nothing in the law provides that the service provider cannot quote a rate which was inclusive of service tax. It observed that the assessee, a contractor quoted its rate knowing fully that it would have to bear the service tax liability and therefore after having paid such service tax could not claim that such liability was to be paid by the customer.

Oil & Natural Gas Corporation Ltd. v. Swapan Kumar Paul – (2015) 39 STR 789 (Tripura)

135. The Court held that since the assessee had obtained due approval from the Approval Committee of the SEZ for list of services for which it claimed exemption as per the relevant Notification which provided ample safeguards to avoid evasion of tax, the denial of authorisation in Form A2 for availing exemption by the Department on the ground of possible tax evasion was not justified.

Sai Wardha Power Co. Ltd. v. UOI – (2015) 39 STR 952 (Bom.)

136. The Tribunal held that merely because the assessee adjusted advance payment of service tax against the subsequent period’s liability without giving intimation to the Superintendent, the adjustment could not be disallowed as it would lead to the unjust enrichment of the Government and also noted the fact that the intimation of adjustment had been made in the ST-3 returns.

Garima Associates v. CC&CE – (2015) 40 STR 247 (Tri. – Mum.)

137. The Tribunal held that marketing services provided by the assessee to a Bank using their publicity material could not be regarded as services provided under the brand name of the Bank. It noted that the assessee was not paying some amount to the Bank for the use of the trade mark but in fact, the Bank was making payments to the assessee for providing the marketing services. Accordingly, it held that the benefit of small scale service provider exemption was available to the assessee.

CCE v. AS Financial – (2015) 60 taxmann.com 203

138. The Tribunal held that the CBEC circular requiring declaration by GTA on consignment note that notification conditions are fulfilled was beyond the requirement of the exemption notification and that CBEC circulars could not restrict or expand the amplitude of an exemption notification nor could they add/subtract conditionsreto/therefrom.

CCE v. Sangam Structural Ltd. – (2015) 39 STR 1034 (Tri.-Del.)

1. F Form for Dispatch of Goods by Agent who purchased goods on behalf of principal situated outside the State

The purchase of Goods by Commission Agent within the State and dispatch of it to his Principal outside the State, no F form is required for such dispatches as it is a purchase covered by section 3(a) of The CST Act. The judgment of Tribunal cannot be faulted.

CCT UP, v. M/s. Vimal Prasad Mahendra Kumar and others, 2015 NTN (Vol. 59 )– 287 (All.)

2. Luxury Tax – Auditorium within Premises of Temple or not

Under the Kerala Tax on Luxuries Act exemption is given to Halls and Auditorium located within the premises of places of worship owned by such institutions. An auditorium situated opposite side of the Road in a different plot owned by such Institutions is eligible for exemption from payment of tax although it is separated by the road subject to conditions that usage of auditorium for the requirement of Temple also.

Sree Narayana Dharma Samajam v. Comml. Tax Officer & Ors (2015,) 23 KTR 593 (Kar.)

3. Penalty for Non-Registration and filing of Returns – Not valid

The High Court condemned the growing tendency among Intelligence officers under the Kerala Vat Act to invoke penal proceedings against assessee without first having ascertained whether they would come under the coverage of the Act in respect of the activities carried on by them where there is an uncertainty with regards to the real nature of transaction in question. The Intelligence Officer ought, ideally, to refer the matter to the Assessing Officer concerned to arrive at finding regarding liability to tax before taking recourse to the penal provisions of the Act. The Revenue Authority must realise that tax administration is not just about collecting revenue from citizens. They have to bear in mind the fundamental Constitutional precept under Article 265 that no tax shall be levied or collected except by authority of law.

M/s. Flikpart Internet Pvt. Ltd. & Anr v. State of Kerala & Ors, (2016) 24 KTR 46 (Ker).

4. Penalty u/s. 10A of The CST Act

Purchase of ‘hut material’, against form C for use in construction of Bridge, is covered by the meaning of expression ‘stores, material and consumable, etc.” appearing in CST registration certificate as such the dealer has not falsely represented that goods are covered by registration certificate so as to attract penalty u/s. 10A of The CST Act. The levy of penalty was set aside.

M/s. Yundai Engineering v. CTT, UP, (2015) 27 STJ 887 (All.)

5. Input Tax Credit on Purchase of DEPB

The tax paid purchase of DEPB for reducing the incidence of custom duty should be held to constitute as use of such DEPB scrip for the purpose of sale of imported commodity eligible for input tax credit although dealer does not deal in such goods. As long as it is shown that use of the DEPB scrip has impacted the cost of the product that is sold, either directly or indirectly, the credit of input tax paid on DEPB scrip cannot be denied

M/s. Jagriti Plastics Ltd. v. CTT (2015), 27 STJ 891 (Del.)

6. Classification of Goods – Electrical Insulated Press Board Commonly Known as High Density Board – Not All Kinds of Paper

Sale of Electrical Insulated Press Board Commonly Known as High Density Board is not covered by Entry 69 of the Third Schedule of the Act relating to All kinds of paper but covered by residual entry taxable at 12.5%. The goods in question is excessively used in an electrical industry and not used in common persons who are in trade, may be aware that the process undergone, similar to which is used for manufacturing paper, they are clear in their mind that it is not a paper but an electrical insulation press board which is used in the electrical transformers as conductor wrapping and insulation barriers between winding coils. In the trade parlance it is understood as electrical goods. The term paper of all kinds in Entry 69 is comprehensive and an inclusive definition. But it is not possible to treat the goods in question as a paper.

M/s. Raman Board Ltd. v. State of Karnataka, 2015-16(20) KCTJ 185 (Kar.)

7. Sale of Car Co-terminus with Registration

In order to satisfy the requirement of law noticed above, the dealer can deliver possession and owner can take possession and present the vehicle for registration only when it reaches the office of Registering Authority. With the handing over of the possession of a specific motor vehicle just prior to registration, the dealer completes the agreement of sale rendering it a perfect sale. The purchaser as an ‘owner’ under the Motor Vehicles Act is thereafter obliged to obtain certificate of registration which alone entitles him to enjoy the possession of the vehicle in practical terms by enjoying the right to use the vehicle at public places, after meeting the other statutory obligations of Insurance etc. Hence, technically though the registration of a motor vehicle is a post-sale event, the event of sale is closely linked in time with the event of registration. Neither the manufacturer nor the dealer of a motor vehicle can permit the intended purchaser having an agreement of sale to use the motor vehicle even for taking it to the registration office in view of the statutory provisions already noticed. Hence lawful possession with the right of use is permissible to be given to the intended owner only after reaching the vehicle to the office of Registering Authority. Thus seen, in practical terms though sale precedes the event of registration, in normal circumstances and as the law stands, it is co-terminus with registration of a new motor vehicle.

S. 2(15) : Charitable purpose –When business activities are carried by assessee trust in course of actual carrying out of such advancement of any other object of general public utility, benefit of s. 11 cannot be declined

Allowing the appeal of assessee the Tribunal held that; Proviso to S.2(15) as substituted by Finance Act, 2015 is applicable with prospective effect; even post insertion of proviso to S. 2(15) but before 1-4-2016, when business activities are carried by assessee trust in course of actual carrying out of such advancement of any other object of general public utility, benefit of S. 11 cannot be declined. (AYs. 2004-05 to 2007-08 and 2009-10 to 2011-12)

Hoshiarpur Improvement Trust v. ITO (2015) 155 ITD 570 (Asr.)(Trib.)

S.4: Charge of income-tax – Subsidy granted to set up a wind mill project is a capital receipt [Ss. 41(1), 43(1), 50]

Subsidy granted to set up a wind mill project is a capital receipt. The subsidy cannot be reduced under Explanation 10 to S. 43(1) from the cost of the assets acquired though 100% depreciation is allowed on the cost of the assets. The subsidy is also not assessable either u/s. 41(1) or u/s. 50. (ITA No. 3473/M/2013, dt. 26-11-2015) (AY. 2008-09)

Uni Deritend Limited v. ACIT (Mum.)(Trib.) ; www.itatonline.org

S.4 : Charge of income-tax –Interest on surplus funds – Prior to implementation of its project – Capital receipts – Required to be set off against pre-operative expenses. [S.28(i)]

Assessee company was engaged in business of developing, operating, maintenance of power projects and sale of power. During year under consideration, assessee – company’s projects were under implementation and it had not started any commercial activities. Assessee earned certain interest income on surplus funds deposited in Government securities. Assessing Officer assessed the interest as revenue receipt. On appeal the Tribunal held that; since interest received related to period prior to commencement of business, it was in nature of capital receipt and was required to be set off against pre-operative expenses. Amount so received was to be treated as capital receipt. (AY. 2008-09)

Adani Power Ltd. v. ACIT [2015] 155 ITD 239 (Ahd.)(Trib.)

S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Installation services did not constitute permanent establishment – Not taxable in India-DTAA – India-Singapore. [Art. 5, 7]

The Tribunal held that the activity of assessee is purely installation services, it is to be scrutinised under Article 5(6). The installation activities carried out by the assessee in terms of various contracts in India did not constitute PE in India under Article 5(3) and, therefore, income earned from the said contracts for installation activities is not taxable in India. Threshold limit of 183 days under Article 5(3) of Indo-Singapore DTAA would be calculated from date of actual activity for installation purpose and not from date of contract. (AY. 2010-11)

Kreuz Subsea Pte. Ltd. v. Dy. CIT (2015) 172 TTJ 291 / 42 ITR 11 / 69 SOT 368 / 122 DTR 422 (Mum.)(Trib.)

S.9(1)(vi) : Income – Deemed to accrue or arise in India – Royalty – Deduction at source – Payment made by assessee to non-resident towards purchase of products did not fall within purview of royalty – Not liable to deduct tax at source – DTAA –India-Singapore. [S.195, Art. 12]

Assessee was appointed as a registered re-seller of software products manufacture by Altiris, a Singapore based company. In terms of agreement, assessee had to purchase software products from Altiris and sell those products to customers in India. Role of assessee was that of a trader and, there was no transfer of copyright or patent of software products by Altiris to assessee. Assessee was not even permitted to make copies or duplicate software. Payments made by assessee to Altiris did not come within purview of royalty u/s. 9(1)(vi) and, thus, there was no requirement to deduct TDS while making said payments. (AYs. 2008-09, 2009-10)

ADIT v. Locuz Enterprise Solutions Ltd. (2015) 154 ITD 808 (Hyd.)(Trib.)

S. 10A : Free Trade Zone – Survey – Undisclosed income surrendered-Eligible exemption. [S.133A ]

Even undisclosed income surrendered by assessee is eligible for exemption if department does not show that the assessee has any other source. (ITA No. 4954/Del/2011, dt. 18-12-2015)(AY. 2007-08)

Bridal Jewellery Mfg. Co. v. ITO (Delhi)(Trib.); www.itatonline.org

S.10B : Export Oriented Undertakings – After AY 2001-02 when Ss. 10A / 10B became “deduction” provisions instead of “exemption” provisions, the deduction has to be computed before adjusting brought forward unabsorbed losses / depreciation. [S. 10A]

The assessee set off of brought forward losses of
Rs. 4,11,06,003/- against the income resulting into total taxable income of Nil, whereas the deduction under section 10B of the Act at
Rs. 7,68,41,580/- was claimed as against the income of EOU units of
Rs. 8,01,88,716/. The Assessing Officer was of the view that the brought forward losses and unabsorbed depreciation were required to be set off against the total income of the assessee first and thereafter, deduction under section 10B of the Act should be allowed. Accordingly, the Assessing Officer re-computed the deduction under section 10B of the Act by granting the deduction after allowing set off of brought forward losses. The contention of the assessee before the CIT(A) was that the stage of granting of deduction under section 10B of the Act was before set off of brought forward unabsorbed losses or depreciation, in view of various decisions. The CIT(A) noted that the CBDT has issued Circular dated 16-7-2013 that the brought forward unabsorbed depreciation should be set off before granting deduction under section 10A or 10B of the Act. Further, the Hon’ble Supreme Court in Himasingka Seide Ltd. v. CIT, Civil Appeal No. 1501 of 2008, dated 19-9-2013 had decided the issue in favour of the Department by dismissing the assessee’s appeal. On appeal the Tribunal allowed the appeal of the assessee following the ratio of decision of Bombay High Court in CIT v. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom.)(HC). (AY. 2005-06)

Vishay Components India Pvt. Ltd. v. ACIT (2015) 174 TTJ 354/ 128 DTR 178 S (Pune)(Trib.)

S.11 : Property held for charitable purposes – Promote advance medical science and to promote the improvement of public health and medical education in India – Endorsing products of companies – Entitled to exemption. [S. 2(15)]

Dismissing the appeal of revenue the Tribunal held that, denial of exemption on ground that assessee receiving money for endorsing products of companies on claiming of health and nutritional benefits is not justified there is no violation of provisions of S. 2(15) of the Act. Assessee is entitled to exemption. (AY. 2009-10)

ADIT(E) v. Indian Medical Association (2015) 41 ITR 222 (Delhi)(Trib.)

S.12AA : Procedure for registration – Trust or institution – Mere non-intimation of amendments to trust deed cannot ipso facto result in cancellation of registration if there is no change in tone and tenor of objects. [Ss. 2(15), 11]

Dismissing the appeal of revenue the Tribunal held that mere non-intimation of amendments to trust deed cannot ipso facto result in cancellation of registration if there is no change in tone and tenor of objects as long as the object of the Trust being charitable in nature. (ITA No. 5948/Mum/2012, dt. 31-8-2015) (AY. 2009-10)

ITO v. Bhansali Trust (Mum.)(Trib.); www.itatonline.org

S.14A : Disallowance of expenditure – Exempt income – The AO must give reasons before rejecting the assessee’s claim. He must establish nexus between the expenditure & the exempt income. The disallowance cannot exceed the exempt income. [R. 8D]

(i) The AO has neither recorded his satisfaction nor given reasons as to how the claim of expenditure in relation to tax free income has not been correctly made by the assessee as envisaged under section 14A(2). The AO has mechanically invoked Rule 8D. Sub-section (2) of section 14A of the Act provides the manner in which the AO is to determine the amount of expenditure incurred in relation to income, which does not form part of the total income.

(ii) The AO has not established any nexus between the investments made and the expenditure incurred under the head interest expenditure and administrative expenses, before disregarding the disallowance suo motu made by the assessee u/s 14A of the Act vis-a-vis the dividend income earned amounting to
Rs. 68,088/-.

(iii) Even the CIT(A) has not compensated for the deficiency by the A.O in recording proper satisfaction. The CIT(A) has restricted the disallowance to an extent of
Rs. 9.79 lakhs. The CIT(A) fails to appreciate the reasonableness of expenditure that has been disallowed vis-a-vis the exempt income in the light of the judgment of Maxopp Investments Ltd. v. CIT (2012) 374 ITR 272. We, restrict the disallowance to
Rs. 10.23 lakhs as calculated by the assessee.

(iv) The Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. v. CIT, vide its order dated 25-2-2015, has held that disallowance u/s. 14A cannot exceed the amount of exempt income. The Delhi High Court in the case of Holcim India Pvt. Ltd., reported in (2014) 272 CTR 282(Del.), has held that there can be no disallowance u/s. 14A in the absence of any exempt income. The rationale behind these judgments are that, the amount of disallowance should not exceed the exempt income. (ITA No. 4467/Del/2012, dt. 01.09.2015) ( AY. 2009-10)

DCM Ltd. v. DCIT (Delhi)(Trib.); www.itatonline.org

S.23 : Income from house property – Annual value – Brokerage paid to give out premises on rent and to earn lease rent is not deductible in computing the Income from house property. [Ss.22, 24]

The assessee rented its office premises on leave and licence basis to M/s. Dow Jones Consulting India Pvt. Ltd., vide leave and licence agreement dated 22-11-2008 for a period of five years. For giving the property on rent, the assessee used the services of M/s. C. B. Richard Ellis South Asia Pvt. Ltd. for sourcing and securing a suitable licensee for the said office premises. The assessee had paid two months licence compensation and 2% of the security deposit as professional fees/brokerage. The assessee claimed that the brokerage amounting to
Rs. 1,11,92,127/- was deductible from the rental income of Rs. 1,29,13,475/- while computing the taxable income under the head “Income from house property”. HELD by the Tribunal dismissing the appeal:

(i) Section 22 is the charging section of income from house property which provides that annual value of the property shall be charged to income tax. Section 23 provides for determining of annual value and section 24 provides for deductions from income from house property. The case of the assessee is that, u/s. 23(1)(b), for the purpose of determination of annual letting value of the property, envisages that the property which has been let out, then the actual rent received or receivable is to be taken as rental income. The phrase “actual rent received” or “receivable” means net of deductions and the actual rent received in the hands of the assessee. Such a plea of the assessee cannot be accepted, because what is contemplated u/s. 23 is that the annual value of the property which is let out should be the portion of rent received or receivable by the owner from the tenant/licensee. The first and foremost condition is that it should be in the nature of rent as mutually agreed upon between the two parties for the enjoyment of rights in the property let out in lieu of rent. The deduction envisaged in the proviso to section 23(1) is that, taxes levied by any local authority shall be deducted in determining the annual letting value of the property in that previous year in which said taxes have actually been paid. Section 24 provides two kinds of deductions, firstly, 30% of the actual value and secondly the interest payable on the capital borrowed for acquiring, construction, repair, etc., subject to the conditions laid down in the provisos thereto. The word ‘rent’ connotes a return given by the tenant or occupant of the land or corporeal hereditaments to the owner for the possession and use thereof. It is a sum agreed between the tenant and the owner to be paid at fixed intervals for the usage of such property. The phrase rent received and receivable contemplates the amount received for the enjoyment of the property and certain rights in the said property by the tenant. If there is charge directly related to the rental income or for the property without which the rights in the property cannot be enjoyed by the tenant then it can be construed as part and parcel of enjoyment of the property from where rent is received then such charges can be held to be allowable from the rent received or receivable. However, the brokerage paid to the third party has nothing to do with the rental income paid by the tenant for enjoying the property to the owner. Brokerage cannot be said to be a charge that has been created in the property for enjoying the rights and at best it is only an application of income received/receivable from rent. ITAT Delhi Bench in the case of Tube Rose Estates Pvt. Ltd. v. ACIT (2010) [123 ITD 498], as relied upon by the AO, clearly bring out this distinction between the brokerage and other charges payable in respect of services provided.

(ii) If such a nature of expenses like brokerage, professional fee, etc., is held to be allowable, then numerous other expenses like salary or commission to an employee/agent who collects the rent can also be held to be allowable. This is not the mandate of the law. So far as the decisions relied upon by the learned counsel before us are mostly pertaining to maintenance charges paid to the society, wherein it has been held to be allowable as deduction u/s. 23 itself. There is distinction between maintenance charges and the brokerage paid because such a charge is given/paid for the very maintenance of the property so as to enjoy the property itself; whereas brokerage has nothing to do with the property or the rent which is given to a third party who has facilitated the landlord and the tenant on agreeable terms to rent the property. Therefore, these decisions will not apply in the assessee’s case. Further in the cases where payment of stamp duty has been held to be allowable will not apply also as the same is directly related in connection with the lease agreement for renting of the property. Hence, said cases and instances will not apply in the present case. Thus, in our opinion, the payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24. (ITA No. 5494/Mum./2013, dt. 5-6-2015) (AY. 2010-11)

Radiant Premises Pvt. Ltd. v. ACIT (Mum.) (Trib.); www.itatonline.org

S.28(i) : Business income – Accrual – Transfer of land to developer under development agreement –Income cannot be brought to tax until the assessee exercises his right in part or in full to sell his specified share of constructed area of the proposed housing project. [Ss. (2(14), 2(47), 5, 45]

The Tribunal held that anticipated business profits supposedly accruing to the assessee as a result of transfer of his land to the developer under a development agreement cannot be brought to tax until the assessee exercises his right in part or in full to sell his specified share of constructed area of the proposed housing project. Addition confirmed by the CIT(A) was deleted. (AY. 2010-11)

Dheeraj Amin v. ACIT (2015) 172 TTJ 228 (Bang.)(Trib.)

S.28(i) : Business income – Capital gains – Sale and purchase of shares on same day – No intention to purchase shares as investor –Assessable as business income. [S.45]

The assessee declared short-term capital gains. The Assessing Officer treated the amount as business income of the assessee on the ground that the assessee had indulged in intraday transactions and that the resultant profit was to be considered as speculative profit. ITAT held that the assessee had earned the amount on purchase and sale of shares on the very same date. It was a well-established principle that the intention of a person at the time of purchase of shares was one of the most important criteria to be considered while deciding the nature of a transaction. It was a fact the assessee had been indulging in intraday transactions. Purchase and sale of shares on the very same day showed that the assessee had not intended to purchase them as an investor. Therefore it is a business income of the assessee. (AY. 2007-08)

Dy. CIT v. Kisan Ratilal Choksey Shares and Securities P. Ltd. (2015) 41 ITR 114 (Mum.)(Trib.)

S.37(1) : Business expenditure – Sales promotion expenses –Gift to doctors bearing logo of company – Allowable expenditure – CBDT Circular dated 1-8-2012 is prospective

Receiving of gifts by doctors was prohibited by MCI guidelines, giving of the same by manufacturer is not prohibited under any law for the time being in force. Giving small gifts bearing company logo to doctors does not tantamount to giving gifts to doctors but it is regarded as advertising expenses. As regards sponsoring doctors for conferences and extending hospitality, pharmaceuticals companies have been sponsoring practising doctors to attend prestigious conferences so that they gather contemporary knowledge about management of certain illness/disease and learn about newer therapies. We found that the disallowance was made by the AO by relying on the CBDT Circular dated 1-8-2012 onwards. However, the Circular was not applicable because it was introduced w.e.f. 1-8-2012. i.e. assessment year 2013-14, whereas the relevant assessment years under consideration is 2010-11 and 2011-12. Accordingly, we do not find any merit in the disallowance so made by the AO in both the assessment years under consideration. (ITA Nos. 6429 & 6428/Mum/2013 & ITA No.11/Mum/2014, dt. 23-12-2015) (AY. 2010-11,2011-12)

DCIT v. Syncom Formulation (I) Ltd. (Mum) (Trib); www.itatonline.org

S.37(1) : Business expenditure –Gift of car by car – manufacturer to State Police department was held to be not an allowable deduction.

Assessee a manufacturer and seller of motor vehicles claimed expenditure being cost of 100 cars donated by it to police department of Tamil Nadu as allowable deduction. There was difference of opinion and the matter was referred to third member to consider “Whether the expenditure incurred by the assessee by giving 100 cars to the police department of Tamil Nadu was an eligible expenditure under section 37? “. Assessee submitted that the expenditure under head ‘Advertisement and sales promotion’ and claimed that it had made aforesaid donation to test efficacy of their vehicles and to obtain feedback. The expenditure was disallowed by the Assessing Officer. On appeal it was contended that the expenditure was under the head’ advertisement and sales promotion’ and the donation was made to test efficacy of their vehicles and to obtain feedback. : Dismissing the appeal of assessee the Tribunal held that; neither assessee called for their feedback nor did Police Department deem it fit to give any feedback. The assessee could not effectively prove that cars were given for market research and manner in which cars were given also did not indicate that there was any advertisement value hence, there was no commercial expediency in incurring this expenditure, therefore it was not allowable expenditure. (AY. 2007-08)

Hyundai Motor India Ltd. v. Dy. CIT [2015] 155 ITD 1 (TM) (Chennai) (Trib.)

S.37(1) : Business expenditure – A business is “set up” the moment employees are recruited for the purpose of the business. All expenditure incurred thereafter is allowable as a deduction even if the business has not commenced. [S. 28(i)]

Setting up of business is different from commencement of business and the expenditures are allowable on setting up of business. The assessee has recruited employees for the purpose of its business and about 16 employees are for the job of quality assurance. The assessee is in the business of Merchandising of diamonds/gold / jewelleries. Undisputedly, this line of business requires expertise who have proficiency in understanding the carats of diamonds and related jewellery, without such recruitment, it would be a futile exercise to commence the business. In our considered opinion upon recruitment of employees, the factum that expenditure under the different heads was incurred is indicative that business was set up. (ITA No. 3855/Mum/2013, dt. 28-10-2015) (AY. 2008-09)

Reliance Gems & Jewels Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

S.37(1) : Business expenditure –Fines and penalties imposed by stock exchange for violation of bye-laws – Held to be allowable

The assessee paid fine and penalties on violation of bye-laws of stock exchange. The same has been claimed as business expenditure. The AO had disallowed the same. CIT(A) deleted the disallowance of penalty paid to the stock exchange. The Hon’ble ITAT has held that Explanation to section 37(1) was not applicable for the penalty paid on contravention of bye-laws of the stock exchange. Accordingly order of CIT(A) was affirmed. (Followed, ITO v. VRM Share Broking P. Ltd. v. ITO ( 2009) 27 SOT 469 (Mum.)(Trib.), Goldcrest Capital Markets Ltd v. ITO (2010) 2 ITR 355 (Mum.)(Trib.) (AY. 2007-08)

Dy. CIT v. Kisan Ratilal Choksey Shares and Securities P. Ltd. (2015) 41 ITR 114 (Mum.)(Trib.)

S.43(5) : Speculative transaction – Forex forward contract – Forex derivatives – Pure foreign exchange hedging transactions cannot be treated as speculative transactions

Dismissing the appeal of revenue the Tribunal held that; It is clear that the forward contract in question was purely hedging transactions entered into by the assessee to safeguard against loss arising out of fluctuation in foreign currency. Such transactions have been held in the following cases to be not speculative transactions falling within the ambit of S. 43(5) of the Act, CIT v. Soorajmull Nagarmull (1981) 5 Taxman 289 (Cal), CIT v. Badridas Gauridu (P) Ltd., (2004) 134 Taxman 376 (Bom), CIT v. Friends and Friends Shipping Pvt. Ltd., Tax Appeal No. 251 of 2010 dated 23-8-2011 and CIT v. Panchmahal Steel Ltd. Tax Appeal No. 131 of 2013 dated 28-3-2013 by the Hon’ble Gujarat High Court. (ITA No. 267/Kol/2013, dt. 7-12-15) (AY. 2009-10)

ITO v. LGW Limited (Kol.)(Trib.); www.itatonline.org

S.43B : Certain deductions on actual payment – Method of accounting – VAT – Taxes collected by the assessee, which remain unpaid, have to be added to the income, even if the same are not debited to the P&L A/c and claimed as a deduction. [S.145A, Maharashtra Value Added Tax Act, 2002]

The assessee collected VAT but did not pay it over to the Government. The assessee claimed that a disallowance u/s. 43B cannot be made as the amount of VAT was not routed through the Profit & Loss Account and no deduction had been claimed. The assessee also claimed that under the Maharashtra Value Added Tax Act, 2002, the sale price shall not include the tax paid or payable to a seller in respect of such sale and hence, there was no requirement for the assessee to recognise the VAT account in its Profit & Loss Account. AO disallowed the claim. On appeal dismissing the claim, taxes collected by the assessee, which remain unpaid, have to be added to the income even if the same are not debited to the P&L A/c and claimed as a deduction. (ITA No. 1806/PN/2013, dt. 30-10-2015) (AY. 2009-10)

Munaf Ibrahim Memon v. ITO (Pune)(Trib.); www.itatonline.org

S.45 : Capital gains – Business income – Securities Transaction Tax (STT) – Sale of shares within a short span of time – Profit earned from delivery based sale of shares is capital gains. [S. 28(I)]

Allowing the appeal of assessee the Tribunal held that ;the objects of introduction of Securities Transaction Tax (STT) was to end litigation on the issue of whether profit earned from delivery based sale of shares is capital gains or business profit. Merely because the assessee liquidates its investment within a short span of time, which had given better overall earning to the assessee, would not lead to the conclusion that the assessee had no intention to keep on the funds as investor in equity shares, but was actually intended to trade in shares. (ITA No. 3469/Mum/2012, dt. 18-2-2015) (AY. 2008-09)

Hema Hiren Dand v. JCIT (Mum.)(Trib.); www.itatonline.org

S.45 : Capital gains – Transfer of title in land was distribution of capital assets of AOP on its dissolution – On facts held not assessable as capital gains. [Ss. 2(31)(v), 2(47)]

Assessee entered into a MOU for jointly developing property. Assessee agreed to provide land as capital contribution. However, owing to certain disputes, a settlement was arrived at amongst parties according to which assessee was to receive
Rs. 14 crore for foregoing their rights and Rs. 6 crore for conveying property. While filing return, assessee declared long-term capital gain only on sum of
Rs. 6 crore. The A.O. considered entire sum of Rs. 20 crore as taxable under head capital gains. The Tribunal held that, since two parties had voluntarily combined for a common purpose and their main objectives were to produce profit, essential conditions for forming an AOP were satisfied. settlement deed practically put an end to AOP and transfer of title in land was nothing but distribution of capital assets of AOP on its dissolution, thus addition of
Rs. 14 crore made under head capital gain was incorrect. (AY. 2005-06)

Ind Sing Developers (P.) Ltd. v. ACIT (2015) 155 ITD 543 (Bang.)(Trib.)

S.50C : Capital gains – Full value of consideration – Stamp valuation – Lease hold rights in land or building – Provision do not apply.

Allowing the appeal of assessee the Tribunal held that Lease hold right in land is also capital asset, however every kind of a capital asset is not covered within the scope of section 50C. The phraseology of section 50C of the Act clearly provides that it would apply only to a capital asset, being land or building or both. Thus lease hold right in land or building is not covered. (ITA No 1265/PN/ 2011 dt. 19-1-2015) (AY. 2006-07)

Kancast (P) Ltd. v. ITO (2015) The Chamber’s Journal- April -2015 P 125 (Pune)(Trib.)

S.50C : Capital gains – Full value of consideration – Stamp valuation – The stamp duty value on the date of agreement and not date of sale deed has to be taken. The nature of the property on the date of agreement has to be considered – Proviso to S.56(2)(vii)(b) is curative and retrospective left open. [S. 56(2)(vii)(b)]

The stamp duty value on the date of agreement and not date of sale deed has to be taken. Followed the ratio in Sanjeev Lal and Smt. Shantilal Motilal v. CIT(365 ITR 389) as well as decisions of the coordinate bench of this Tribunal at Visakhapatnam in the cases of M/s. Lahiri Promoters Visakhapatnam v. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22-6-2010) and Moole Rami Reddy v. ITO (ITA No.311/Vizag/2010 dated 10-12-2010). It is therefore, now settled that the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains. The next question is the nature of the property for valuation under S. 50C, because, according to the assessee, even if the date of registered sale deed is considered for determination of the fair market value under S. 50C, the SRO value should be taken for residential area and not commercial area. He submitted that if the value of the residential area as on 1-4-2006 i.e.
Rs. 10,000 per sq. yard, is taken into consideration, the sale consideration received by the assessee was more than the SRO value and no addition was warranted. Therefore, the nature of the property as on the date of transfer attains importance. There cannot be any dispute that the nature of the property on the date of transfer/sale is to be considered. Proviso to s. 56(2)(vii)(b) is curative and retrospective left open. (ITA No. 1942/Hyd/2014, dt. 27-11-2015) (AY. 2006-07)

Mohd. Imran Baig v. ITO ( Hyd.) (Trib.); www.itatonline.org

S.69C : Unexplained expenditure – Assessment – Bogus sales and purchases – Addition solely on the basis of information received from the Sales Tax department is not sustainable. Suspicion of the highest degree cannot take the place of evidence. [S.143(3)]

Allowing the appeal of assessee the Tribunal held that ; the AO had made the addition on the basis of information received from the Sales Tax department, but, he did not make any independent inquiry. He did not follow the principles of natural justice before making the addition. The First Appellate Authority had reduced the addition to 20%, but he has not given any justification except stating that same was done to plug the probable leakage revenue. Considering the peculiar facts and circumstances of the case, we are reversing the order of the First Appellate Authority. (ITA No. 4547/2545/1275/Mum./2014, dt. 1-1-2016)(AY. 2009-10)

Hiralal Chunilal Jain v. ITO v. (Mum.)(Trib.) ; www.itatonline.org

S.92C : Transfer pricing – (i) If the AO & CIT make a mechanical reference to the TPO without applying mind to the TP report & other data filed by the assessee, the reference is invalid, (ii) A transfer pricing adjustment cannot be made if the assessee’s income is exempt u/s. 10A or 80HHE or (iii) if the AE is assessed at a rate of tax higher than tax rate in India.[Ss. 10A, 80HHE, 92CA]

The assessee contended before the Tribunal:

(i) That under section 92C or 92CA of the Act, it is the statutory duty of the AO to decide independently, whether the determination of arm’s length price by the assessee should be accepted, or whether or not after applying the provisions of section 92CA, the transfer pricing adjustment should be made. This is a statutory safeguard for the assessee. It was contended that similarly, it is only after proper application of mind to all the facts and holding a prima facie belief that the AO can make reference to the TPO, or that the CIT can grant approval to such a reference. This, again, is a statutory safeguard for the taxpayer. It was submitted that CBDT Instruction No. 3 of 2003, dated 20-5-2003 detracts the AO and the CIT from the above obligation in complete violation of the statutory provisions of the principles of natural justice. It has been submitted that in the present case, in compliance of the said CBDT Instruction No.3 of 2003, the AO did not himself examine the issue of transfer pricing and with the approval of the CIT, made a reference to the TPO u/s. 92CA(1) of the Act. The AO and the CIT did not apply their minds to the Transfer Pricing Report, or to any other material or information or document. The TPO made an adjustment which was incorporated by the AO in the assessment order. On their part, the AO and the CIT did not discharge necessary judicial functions conferred upon them u/s. 92C or 92CA of the Act and

(ii) That Transfer Pricing adjustment cannot be made in a case where the assessee enjoys benefit u/s. 10A or section 80HHE of the Act, or where the tax rate in the country of the Associated Enterprise is higher than the Indian rate and where, accordingly, establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible.

HELD by the Tribunal:

(a) In Vodafone India Services P. Ltd. v. Union of India 361 ITR 531 (Bom.) the Bombay High Court has held that CBDT Instruction No. 3 dated 20-5-2003 is contrary to the decision being taken therein and it is not binding on the AO. It was held that this Instruction departs from the provisions of law. It was held that the decision in Sony India P. Ltd. v. Central Board of Direct Taxes 288 ITR 52 (Delhi), is not applicable after the amendment of 2007 (paras 35 to 37 of the judgment are relevant in this regard);

(b) The AO abrogated his obligation under a wrong assumption that CBDT Instruction No. 3 of 2003 dated 20-5-2003 mandated him to go ahead without making any reference to the TPO. The AO did not examine the question, whether he should himself accept the transfer pricing report of the assessee or whether he should himself determine the arm’s length price;

(c) The AO erred in not himself examining the issue of Transfer Pricing and with the approval of the CIT, made a reference to the TPO u/s. 92CA(1) of the Act; that the AO as well as the CIT failed to apply their mind to the TP Report filed by the assessee, or to any other material or information or document furnished. The TPO made an adjustment which was incorporated by the AO in the assessment order. Thereby, the AO as well as the CIT did not discharge necessary respective judicial functions conferred on them under sections 92C and 92CA of the Act;

(d) Further, the assessee is also correct in contending that no TP adjustment can be made in a case like the present one, where the assessee enjoys u/s. 10A or 80HHE of the Act, or where the tax rate in the country of the Associated Enterprises is higher than the rate of tax in India and where the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. (AY. 2005-06)

DCIT v. Tata Consultancy Service Ltd. (2015) 174 TTJ 570 (Mum.)(Trib.)

S.92C : Transfer pricing – Allowing interest on excess credit to AE’s on account of sale of goods – Addition cannot be made as notional value – Corporate guarantee to AEs – Adjustment was held to be not valid. [S. 92B]

If the international transaction of exports of goods which has been benchmarked on TNMM basis is duly accepted by the TPO, making an adjustment for interest on excess credit allowed on sales to AEs will vitiate the picture, inasmuch as what has already been factored in the TNMM analysis, by taking operating profit figure which incorporate financial impact of the excess credit period allowed. Therefore bench marked on TNMM adjustment of ALP on the basis of notional value of excess credit period allowed to AE was not called for in the facts and circumstance of the case.

Corporate guarantees issued by the assessee were in the nature of quasi-capital or shareholder activity and, for this reason alone, the issuance of these guarantees should be excluded from the scope of services and thus from the scope of ‘international transactions’ under s. 92B; these guarantees do not have any impact on income, profits, loses or assets of the assessee and therefore were outside the ambit of international transaction under s. 92B. (AYs. 2002-03 2003-04 2004-05 2006-07)

Micro Link Limited v. ACIT (2016) 175 TTJ 8 (Ahd.)(Trib.)

S.132B : Application of seized or requisitioned assets – Adjustment of cash seized towards tax liability – Treating the same as advance tax was held to be justified –Explanation 2 as inserted by Finance Act, 2013 w.e.f. 1-6-2013 is prospective. [S. 234A, 234B, 234C]

The assessee requested for adjustment of cash seized during the search towards advance tax liability. The same was denied by the Assessing Officer. CIT(A) following decision of Bombay High Court in ITA. No. 3741 of 2010 dt. 21-9-2011 in the case of CIT v. Jotindra B. Mody directed the Assessing Officer to treat the amount seized as payment to advance tax. On further appeal to the Tribunal, the revenue contended that the CIT(A) erred in applying the decision of jurisdictional High Court which is contrary to the extant provisions of s. 132B(1). Dismissing the appeal of revenue the Tribunal held that as per the existing provision of section 132B, it cannot be said that tax liability relating to the assessment year in question would crystallise only after the assessment is completed and, therefore, the request of the assessee for adjustment of amounts in question towards the advance tax could not be entertained. Now to overcome this decision the Explanation to section 132B had been inserted to provide that ‘for removal of doubt it is hereby declared that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter 17’. Admittedly, this Explanation aims at subverting the above decision without removing the statutory basis of the decision that tax liability cannot be said to crystallize only after the assessment is complete. Hence, this Explanation will act prospectively. Hence, the reliance by the revenue on the insertion of this Explanation to section 132B cannot help as the Explanation has been inserted much after the conclusion of the assessment year under consideration. Revenue cannot keep the assessee’s money with itself and claim that it has no liability or less liability towards the assessee by way of an Explanation inserted to negate the effect of judicial decisions without removing the statutory basis of the decisions. (AY. 2009-10)

ACIT v. Concreta Developers (2015) 155 ITD 65 (Nag.)(Trib.)

S.143(2) : Assessment – Service of notice – Validity of service by speed post – No reason to doubt – Assessment was held to be valid. [Ss. 282, 292BB, General Clauses Act, 1897, S.27, Indian Evidence Act, 1882, S. 114]

The Tribunal held that very fact of delay in the delivery of notice as recorded with reference to 30-8-2010 implies acceptance of veracity of dispatch register / document maintained by the Assessing Officer’s office and there is no reason to doubt the validity or authenticity of same in view of the presumption under section 114 of the Evidence Act. Thus, service of notice on the assessee is proved and assessment cannot be assailed on that score. (AY. 2009-10)

Color Craft v. ITO (2015) 172 TTJ 273 (Mum.)(Trib.)

S.147 : Reassessment – Recorded reasons – Issue of furnishing the ‘Reasons’ for reopening the assessment goes to the root of the matter. In the event of failure of the AO to furnish the reasons, the reopening is bad in law. [S.148]

(i) The undisputed facts are that, i) No ‘Reasons’ are available in the assessment record, and ii) there is nothing on record to show that certified copy of verbatim ‘Reasons’ was ever provided to the assessee, despite the request made by the assessee before AO, more than once. It clearly indicates that no ‘Reasons’ were recorded in fact and therefore, these could not have been provided to the assessee. Had the ‘Reasons’ been recorded by AO, these would have definitely been provided to the assessee. The position of law is clear. It has been held by Hon’ble Supreme Court in the case of GKN Driveshaft 259 ITR 19, that it is mandatory on the part of the AO to provide the copy of the reasons to the assessee and to meet the objections filed by the assessee thereto, if any, before the AO can frame the reassessment order. It is further noted that Hon’ble Bombay High Court in the case of CIT v. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.)(HC), has held that in case reasons are not furnished by the AO to the assessee before completion of reassessment proceedings, reassessment order cannot be upheld. It is further noted that SLP filed by the Revenue against the order of Hon’ble Bombay High court, has been rejected by Hon’ble Supreme Court. Similar view has been taken by Hon’ble Mumbai bench of ITAT in the case of Tata International Ltd. v. DCIT [2012] 52 SOT 465 (Mum.)(Trib.) and also in few other judgments. We further derive support of our view from a latest judgment of Hon’ble Bombay High Court in the case of CIT v. Trend Electronic in ITA No. 1867/2013 order dated 16th September 2015. In this case, Hon’ble Jurisdictional High Court, following its earlier decision in the case of Videsh Sanchar Nigam Ltd. (supra), held that law laid down by Hon’ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd, is clear and mandatory for implementation and it is to be strictly followed by the AO before framing the reassessment order. It was further held that rule with regard to furnishing of reasons by the AO is to be followed strictly, as the power given to the AO for reopening of a completed assessment under the Income-tax Act, is an exceptional power and whenever Revenue seeks to exercise such power, it must strictly comply with the prerequisite conditions i.e. ‘Reasons’ must be recorded and these recorded ‘Reasons’ must be furnished to the assessee, when sought for, so as to enable the assessee to object to the same, during the course of assessment proceeding.

(ii) Similar view has been reiterated by Hon’ble Karnataka High Court in the case of Kothari Metals (writ appeal No. 218/2015), order dated 14th August 2015, wherein it has been held that the question of non-furnishing the ‘Reasons’ for reopening an already concluded assessment goes to very root of the matter, and that the assessee is entitled to be furnished the ‘Reasons’ for such reopening and that if ‘Reasons’ are not furnished to the assessee, then the proceedings for the reassessment cannot be taken any further, and reopening of the assessment would be bad in law. (ITA No. 5926/Mum/2009, dt. 28-10-2015) (AY. 2001-02)

Muller & Philpps (India) Ltd. v. ITO (Mum.)(Trib.); www.itatonline.org

S.147 : Reassessment – Bogus bills – Reopening solely on the basis of information received from another AO that the assessee has booked bogus bills but without independent application of mind to the information renders the reopening void. [Ss. 143(1), 148]

Allowing the appeal of the assessee the Tribunal held that: the observation of the Assessing Officer also shows that it was letter dated 20-12-2013 received by him from the ACIT on the basis of which the Assessing Officer could make a view that the purchase bills provided by these persons or their family members is nothing but bogus purchase bills. At the time of recording of the reasons the Assessing Officer apparently was not having any idea about the nature of the transactions entered into by the assessee. In the reasons recorded there is no mention about the nature of the transactions. As per provision of section 147 an assessment can be reopened if the Assessing Officer has reasons to believe that any income chargeable to tax has escaped assessment. The reasons to believe has to be that of the Assessing Officer and further there have to be application of mind by the Assessing Officer. The Assessing Officer was also not aware of the nature of the accommodation entries. In the reasons recorded he has simply mentioned the names of the party and the amount and nowhere has stated the nature of such entry. This also shows that the Assessing Officer has made no effort to look into the return of the assessee which was available with him. This fact gets further supported from the sheet appended to the reasons and quoted on page 4 of the assessment order whereby against Item No. 7, whether the assessment is proposed to be made for the first time, the Assessing Officer has stated ‘Yes’, and in Colunm No. 7(a), whether any voluntary return had already been filed and in Colunm No. 8 (b), date of filing the said return ‘NA’ has been stated. Thus this is a clear case of non-application of mind by the Assessing Officer. It may also be relevant that on page 2 of the assessment order, the Assessing Officer himself has stated that in this case the return of income for the year under consideration was filed with this ward on 27-9-2006. These facts clearly demonstrate that the return was with the same ward and at the time of recording of the reasons for reopening the assessment, the Assessing Officer has not looked at the return and in a mechanical way, on receipt of the letter from the CIT, the assessment has been reopened. It is a settled position of law that there must be material for formation of a belief that income has escaped assessment. Further reasons referred to must disclose process of reasoning by which the Assessing Officer holds reason to believe. There must be nexus between such material and belief. Further and most importantly the reasons referred to must show application of mind by the Assessing Officer. It is also a settled law that the validity of the initiation of the reassessment proceeding is to be judged with reference to the material available with the Assessing Officer at the point of time of the issue of notice under section 147.

(ii) In the present case, as is evident from the assessment order, the Assessing Officer was having nothing except the list provided by the CIT, Central-2, New Delhi about the list of accommodation entries. Beyond that he was not having the copies of the statement of any of these persons, He was not having copy of the assessment orders and other details or document which would have enabled the Assessing Officer to apply his mind and form a belief that income has escaped assessment. In fact this information was not with the Assessing Officer till fag end of the reassessment proceedings, a fact admitted by the Assessing Officer himself in the assessment order. Consequently, the reopening is not valid. (ITA No. 1372/Del/2015, dt. 28-10-2015) (AY. 2006-07)

Unique Metal Industries v. ITO (Delhi)(Trib.); www.itatonline.org

S.153A : Assessment – Search and seizure – assessment made u/s. 143(1) can be said to have abated in the absence of incriminating material. [S. 143(1)]

Allowing the appeal of assessee the Tribunal held that on a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

(i) Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

(ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

(iii) The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

(iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

(v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.

The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

(vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

(vii) Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. (ITA No. 173 to 177/Mum/2015, dt. 31-12-2015) (AY 2005-06 to 2009-10)

Ideal Application Co. Pvt. Ltd. v. DCIT (Mum.) (Trib); www.itatonline.org

S.153C : Assessment – Income of any other person – Search and seizure – Recording of satisfaction by AO of person searched was a condition precedent for AO of ‘other person’ to acquire jurisdiction – No satisfaction was recorded – Assessment was held to be void ab-initio. [S.153A ]

AO recorded instant assessment order after procuring certain documents while conducting search and seizure action u/s. 132 against three persons. Proceedings were initiated against assessee u/s. 153C read with section 153A on basis of documents. AO computed total income at
Rs. 22,49,330. Assessee submitted that proper satisfaction was not recorded by correct AO before taking up proceedings u/s. 153C against assessee. CIT(A) dismissed appeal of the assessee on all legal issues taken up before him. The Tribunal held that as per Section 153C it was clear that where AO satisfied that any money, bullion, jewellery, books of account or other documents belonged to person other than person searched, then, such documents or assets, should be handed over to AO of ‘other person’. Bare perusal of provision indicates that before handing over such documents to AO of ‘other person’, ‘satisfaction’ had to be recorded by AO of person searched that money, bullion or jewellery, etc., found from person searched belong to the ‘other person’, recording of satisfaction by AO of person searched was a condition precedent for AO of ‘other person’ to acquire jurisdiction. AO did not record any satisfaction that some money, bullion, jewellery or books of account or other documents found from those persons belonged to assessee. Absence of such satisfaction, failed to confer any valid and lawful jurisdiction on AO of assessee to proceed with matter of assessment u/s. 153C. Assessment initiated by AO set aside as it was void ab initio. (AY. 2003-04).

Tanvir Collections (P) Ltd. v. ACIT (2015) 153 ITD486 / 168 TTJ 145/ 114 DTR 305 (Delhi)(Trib.)

S.153C : Assessment – Income of any other person – Search and seizure – Notice in the name of non-existing amalgamated company – Assessment is held to be bad in law

The Tribunal held that the notice under section 153C issued in the name of the assessee-company which had already merged and amalgamated with another company and ceased to exist prior to the issuance of the notice was void and, therefore assessment completed in pursuance of the said notice is quashed. (AY. 2003-04 to 2007-08)

ACIT v. Computer Engineering Service India (P.) Ltd. (2015) 172 TTJ 317 (Delhi)(Trib.)

S.153C : Assessment – Income of any other person – Search and seizure – Recording of satisfaction by the assessing of person searched is mandatory though the Assessing Officer may be same – No recording of satisfaction – Notice itself is null and void. [S.132 ]

Dismissing the appeal of revenue the Tribunal held that recording of satisfaction by Assessing Officer having jurisdiction over person searched is an essential and prerequisite condition for bestowing jurisdiction to Assessing Officer of ‘other person’ under section 153C. Where Assessing Officer of searched person and such other person is same, Assessing Officer has to carry out dual exercise first as Assessing Officer of person searched in which he has to record satisfaction, during course of assessment order proceedings of person searched and second as Assessing Officer of other person. where exercise of recording satisfaction during assessment proceedings of person searched has not been carried out and satisfaction does not satisfy requirement of section 153C, Assessing Officer lacks jurisdiction to initiate proceedings u/s. 153C against assessee and, therefore, issuance of notice itself is null and void. (A.Y 2003-04, 2008-09)

Dy. CIT v. Satkar Roadlines (P.) Ltd. (2015) 155 ITD 501 (Delhi)(Trib.)

S.153C : Assessment – Income of any other person – Search and seizure – Satisfaction was not recorded – Condition required was not satisfied – Order was held to be bad in law

During search at premises of Group K, an undated cheque issued by assessee in favour of its director was seized. Assessing Officer issued notice u/s. 153C to assessee and assessed the income. On appeal allowing the appeal the Tribunal held that where no satisfaction was recorded by Assessing Officer of person searched, and satisfaction was recorded by Assessing Officer assessee being ‘other person’, notice issued to assessee u/s. 153C was not valid. since cheque, on basis of which notice was issued, was undated, it could not be said to pertain to any of years for which notice was issued. since cheque was in name of director of Group K which was searched and cheque was found from person upon whom cheque was drawn, cheque, in fact, belonged to said group and could not be said to be continued to ‘belonging to’ assessee who issued cheque. therefore, conditions for issue of notice to assessee u/s. 153C were not satisfied. (AYs. 1999-2000, 2004-05)

Rekhaben Thakkar (Smt.) v. ACIT (2015) 155 ITD 54 (Ahd.)(Trib.)

S.158BFA : Block assessment –Penalty – Investment in shares duly recorded in regular books of account – Levy of penalty not automatic – Penalty was deleted [Ss. 139(4), 158BB(1)(c)]

Dismissing the appeal of revenue, the Tribunal held that, even though the assessee failed to file the return before the due date, the transfer of shares was recorded in the unaudited balance-sheet and profit and loss account. The sale proceeds were deposited in the declared bank account and the investment in shares was found to be duly recorded in the regular books of account. These facts would not call for imposition of penalty under section 158BFA(2) of the Act. The assessee might be waiting for the requisite details of shares sold and this may be the genuine reason for its not being able to file the return by the due date, but the fact remained that it filed the return within the time allowed under section 139(4) of the Act. The Commissioner (Appeals) rightly deleted the penalty. (BP.1-41989 to 13-1-2000)

Dy. CIT v. Mehrotra Invofin India P. Ltd. (2015) 41 ITR 655 (Delhi)(Trib.)

S.194C : Deduction at source –Contractors – Sub-Contractors – Advertising agency – Hording charges – Liable to deduct tax at source u/s. 194C and not u/s 194I. [S. 194I ]

Allowing the appeal of assessee the Tribunal held that assessee, an advertising agency, made payments of hoarding charges to different parties, it was required to deduct tax at source u/s. 194C and not u/s. 194I (AY. 2010–11, 2011 –12)

Ogilvy & Mather (P.) Ltd. v. ITO (2015) 155 ITD 475 (Mum.)(Trib.)

S.234E : Fee – Default in furnishing the statements-Change of law – Assessing Officer is not permitted to levy fee while processing statement of tax at source prior to June 1, 2015 but authority to pass order separately levying fee. [S.200A]

According to S. 234E the assessee is liable to pay fee for the delay in delivery of the statement with regard to TDS and the assessee shall pay the fee as provided u/s. 234E(1) before delivery of the statement u/s. 200(3). Pursuant to the amendment of s. 200A by the Finance Act, 2015, after June 1, 2015, if the assessee fails to pay the fee for the periods of delay, then the assessing authority has all the powers to levy fee while processing the statement u/s. 200A by making adjustment. Prior to June 1, 2015, the A. O. had authority to pass an order separately levying fee u/s. 234E of the Act, but not to levy a fee while processing the statement of tax deducted at source. Tribunal held that, the A. O. exceeded his jurisdiction in levying fee u/s. 234E while processing the statement and making adjustment u/s. 200A for the A.Y. 2013-14. It was open to the A. O. to pass a separate order u/s. 234E of the Act levying fee, provided the limitation for such a levy did not expire. (AY. 2013-14)

G. Indhrani (Smt) v. Dy. CIT (2015) 41 ITR 439 (Chennai) (Trib.)

S.250 : Appeal – Commissioner (Appeals) – Order of Tribunal is binding on CIT(A) [S. 254(1)]

The CIT(A) decided the appeal of the assessee against which the revenue preferred appeal before Tribunal. The Tribunal sent the matter back to decide the matter a fresh in accordance with law. The CIT(A) again passed the order by following the order of his predecessor and ignoring the order of the Tribunal. The Tribunal warned the CIT(A) and did not initiate contempt proceedings since it was a first matter reported to the Bench. The Tribunal set aside the impugned order of CIT(A) and restored the matter in issue to his file with direction to re decide the appeal strictly in accordance with law and following the earlier order of the Tribunal. (AY. 2007-08)

Dy. CIT v. Sham Sunder Sharma (2015) 172 TTJ 120 (Chd.)(Trib.)

S.251 : Appeal – Commissioner (Appeals) – No jurisdiction to enhance the new source of income and direct the Assessing Officer to initiate proceedings u/s. 201(1). [Ss.40(a)(ia), 201(1)]

The Tribunal held that the CIT(A) exceeded her jurisdiction in directing the Assessing Officer to make disallowance of payments under section 40(a)(ia) in a set aside matter as the same involved taxability of income from a new source of income which was neither considered by the Assessing Officer nor was subject matter of set aside order passed by the Tribunal and the CIT(A) also exceeded her jurisdiction in directing the Assessing Officer to initiate proceedings under section 201(1). The Tribunal decided the appeal in favour of assessee. (AY. 2007-08)

Cheil India P. Ltd. v. ITO (2015) 172 TTJ 302 (Delhi)(Trib.)

S.253 : Appellate Tribunal –Filing of appeal with complete knowledge of its fate by revenue only reflects mischievous adamancy to attempt to mislead Tribunal and waste time of court and officers concerned [S.68]

CIT(A) deleted the addition after considering the remand report of Assessing Officer who has stated that he has verified the genuiness of loans and gave favourable remand report. Against the order of CIT(A) allowing the appeal, the Revenue filed appeal before the Tribunal. Dismissing the appeal of revenue the Tribunal held that filing of appeal with complete knowledge of its fate by revenue only reflects mischievous adamancy to attempt to mislead Tribunal and waste time of Court and officers concerned.

ACIT v. R.P.G. Credit & Capital Ltd. (2015) 155 ITD 29 (Delhi)(Trib.)

S.263 : Commissioner – Revision of order prejudicial to revenue-An order of revision which does not show independent application of mind by the CIT is against the spirit of the Act and liable to be set aside [S. 143(3)]

Allowing the appeal of assessee the Tribunal held that:

(i) As per the provisions of section 263 it is the Commissioner of Income-tax who has to examine the records and thereafter form an independent opinion that the order passed by the Assessing Officer is erroneous in so far as it prejudicial to the interest of revenue. In the present case we find that the Commissioner of Income -tax has not exercised his independent judgment for invoking revisional powers. The Commissioner of Income Tax has to pass a speaking order highlighting deficiencies in the assessment order with reasons.

(ii) A perusal of the impugned order shows, that the Commissioner of Income-tax in the instant case has merely reproduced the deficiencies pointed out by the Dy. Commissioner of Income-tax in the assessment order. The Commissioner of Income Tax has not given the reasons as to how the findings of the Assessing Officer are erroneous in so far as prejudicial to the interest of revenue. The contention of the assessee is that all the relevant documents were placed on record by the assessee during the course of assessment proceedings. The Assessing Officer has passed the order after considering the same. The duty of the assessee is bring all the relevant documents before the Assessing Officer. The manner in which the order is to be passed is the prerogative of the Assessing Officer.

(iii) The order of the Assessing Officer may be brief and cryptic but that by itself is not sufficient reason to hold that the assessment order is erroneous and prejudicial to the interest of revenue. It is for the Commissioner to point out as to what error was committed by the Assessing Officer in taking a particular view. In the case in hand, the Commissioner of Income-tax has failed to point out error in the assessment order. For invoking revisionary powers the Commissioner of Income-tax has to exercise his own discretion and judgment. Here the Commissioner of Income-tax has invoked the provisions of section 263 at the mere suggestion of the Dy. Commissioner of Income-tax, without exercising his own discretion and judgment. In view of the fact that the Commissioner of Income-tax has invoked the provisions of section 263 without applying his own independent judgment and merely at the behest of proposal forwarded by the Dy. Commissioner of Income-tax is against the spirit of Act. Thus, the impugned order is liable to be set aside. (ITA No. 1223/PN/2013, dt. 21-12-2015) (AY. 2008-09)

Span Overseas Ltd. v. CIT (Mum.)(Trib.); www.itatonline.org

S.263 : Commissioner – Revision of orders prejudicial to revenue – Cash credit – Share capital at premium- Inadequate enquiry –Revision was held to be justified – Insertion of proviso to section 68 by Finance Act, 2012 which casts onus on closely held company to explain source of share capital is clarificatory and hence applicable with retrospective effect. [S.68]

Assessee filed return offering meagre income and issued share capital at huge premium, while making large investments in new companies at much higher price than their real worth. Assessment was completed under section 143(3), without making any addition under section 68 of the Act. Commissioner set aside order and directed the Assessing Officer to make fresh assessment after conducting detailed enquiry and upon satisfying on genuineness of transaction. On appeal dismissing the appeal of assessee the Tribunal held that; order of Commissioner was not based on irrelevant considerations and further in present circumstances, he was not obliged to positively indicate deficiencies in assessment order on merits on question of issue of share capital at a huge premium. Since inadequate enquiry conducted by Assessing Officer was as good as no enquiry making order erroneous and prejudicial to interests of revenue, Commissioner was empowered to revise assessment order. Insertion of proviso to section 68 by Finance Act, 2012 which casts onus on closely held company to explain source of share capital is clarificatory and hence applicable with retrospective effect (AY. 2008-09, 2010-11)

Subhlakshmi Vanijya (P.) Ltd. v. CIT (2015) 155 ITD 171/ 43 ITR 48 / 172 TTJ 721 (Kol.)(Trib.)

S.271(1)(c) : Penalty – Concealment – Revised return – Deemed concealment – Explanation 5A to S. 271(1)(c) on deemed concealment despite income having been offered in the search return explained – Levy of penalty was held to be justified. [S.153A]

Search and seizure action was carried out against the assessee on 9-12-2009. While travelling from Pune to Delhi by air, the assessee was found to be in possession of cash of
Rs. 1,60,76,800/-. The assessee was searched by the Investigation Wing under section 132 of the Act on 9-12-2009 and residence was also searched and cash of
Rs. 1.60 crores was seized during the search proceedings. In the course of recording of statement during the search proceedings, the assessee admitted that she had sold her ancestral property at Delhi for
Rs. 3.40 crores, for which the Agreement was made for Rs. 1.70 crores and the balance amount was received in cash. In response to notice issued under section 153A of the Act, the assessee offered 50% of the Agreement value i.e.
Rs. 85 lakhs and 100% of the cash element i.e. Rs. 1.70 crores in her hand and computed the income from capital gains and declared total income of
Rs. 2,04,91,850/- on 13-9-2010. Against the income from capital gains computed at
Rs. 2,41,17,168/-, the assessee also claimed exemption under section 54 of the Act at
Rs. 38,40,098/-, on account of investment in Mega Polis property. The Assessing Officer while completing assessment, noted that the assessee had not declared the sale consideration of
Rs. 2.55 crores in the original return of income filed and subsequently after the search, the declaration was made on account of total amount of capital gains. The Assessing Officer rejecting the claim of the assessee that it had suomotu offered the income from long term capital gains, and no malafide intention could be attributed to the said disclosure, hence, there was no merit in levy of penalty, held the assessee exigible to levy of penalty under section 271(1)(c) of the Act and levied penalty of
Rs. 47,11,104/-. This was confirmed by the CIT(A). On appeal by the assessee to the Tribunal HELD dismissing the appeal:

(i) The deeming provisions of Explanation 5A under section 271(1)(c) of the Act are applicable to all the searches initiated under section 132 of the Act on or after first day of June, 2007. Reading the said provisions of the Explanation 5A to section 271(1)(c) of the Act, it is noted that the person is deemed to have concealed particulars of his income or furnished inaccurate particulars of such income, which is equivalent to the value of money, bullion, jewellery, valuable articles or things from the possession of the assessee during the course of search conducted on or after first day of June, 2007. Further, where any income is based on any entry in any books of account or other documents or transactions and he claims that all the above said represents his income for any previous year, then the Explanation lays down to that extent, the person would be deemed to have concealed his particulars of income or furnished inaccurate particulars of income.

(ii) Now, coming to the main provisions which constitute two portions i.e. what is concealment and quantum of penalty to be levied. The question is quantum of income on which penalty is to be levied. The said issue was before the Pune Bench of Tribunal in ACIT v. Mulay Construction P. Ltd. & Ors in ITA Nos.116 to 119/PN/2012 & Ors. Applying the said proposition to the facts of the present case, Tribunal hold that the income offered by the assessee pertaining to the cash seized from the assessee and the declaration of the assessee that the said cash relates to the unaccounted cash received vide the sale transaction entered into by the assessee, which in turn, was declared by the assessee in the return of income filed pursuant to issue of notice under section 153A of the Act, is the income detected during the course of search and seizure operation. The case of the assessee is squarely covered by the provisions of Explanation 5A to section 271(1)(c) of the Act and the assessee is exigible to levy of penalty on such income which was detected during the course of search and seizure operation, which in turn has been offered by the assessee in return of income filed pursuant to notice issued under section 153A of the Act. (AY. 2009-10)

Sarita Kaur Manjeet Singh Chopra v. ITO( 2015) 174 TTJ 516 / 128 DTR 80 (Pune)(Trib.)

S.271(1)(c) : Penalty – Concealment – Revised return – Offering additional rental income- Levy of penalty was held to be not justified. [S. 22, 139 ]

Allowing the appeal of assessee the Tribunal held that; Assessing Officer could not pass penalty order u/s. 271(1)(c) in a case where assessee suo-motu revised his return declaring additional rental income and paid taxes thereon before any detection of concealment by revenue authorities. (AY. 2010 – 2011)

Harpreet Singh v. ITO (2015) 155 ITD 167 (SMC)(Chandigarh )(Trib.)

S.271(1)(c) : Penalty – Concealment – Admission – Levy of penalty was held to be justified. [S.69B ]

Dismissing the appeal the Tribunal held that; when assessee himself admitted in presence of his Chartered Accountant that he had undisclosed income which was utilised for renovation of his bungalow, revenue authorities were not required to prove by bringing any positive evidence of existence of undisclosed income. Levy of penalty was held to be justified. (AY. 2000-01)

Sudarshan P. Amin v. ACIT (2015) 155 ITD 130 (Ahd.)(Trib.)

S.271(1)(c) : Penalty – Concealment – Satisfaction – A penalty notice u/s. 274 which does not strike out the irrelevant portion & which does not specify whether the penalty is for “concealment” or for “furnishing inaccurate particulars” renders the penalty order void. [S.274 ]

Allowing the appeal of assesse: the Tribunal held that: In the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn.)(HC) has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High Court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and finding the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon’ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled.(ITA No. 13.03/Kol/2010, dt. 16-11-2015) (AY. 2006-07)

Suvaprasanna Bhattacharya v. ACIT (Kol.)(Trib.); www.itatonline.org

S.2(28A) : Interest – Deduction of tax at source – Additional compensation paid to the purchaser of flat on cancellation of booking of flats is not interest – Not liable to deduct tax at source. [S.194A, 201]

Purchaser has made payment while booking the flat, however subsequently dropping out of agreement. Builder has sold the flat to third person at higher rate and refunded the amount paid by the purchaser and part of excess price received. Tribunal held that the excess price was interest and liable to deduct tax at source. On appeal, allowing the appeal the Court held that; Additional compensation paid to the purchaser of flat on cancellation of booking of flats is not interest hence not liable to deduct tax at source. (AY. 2012-13, 2013-14)

Beacon Projects P. Ltd v. CIT (2015) 377 ITR 237/ 234 Taxman 706 (Ker) (HC)

S.4 : Charge of income-tax –Mutuality – Premium from outgoing members – The premium amount received by Society on transfer of four plots was not liable to tax as the said amount was to be utilised for the benefit of members

The assessee-society had given its plots on lease to its members for the purpose of constructing residential units. During the relevant year, the society collected premium, on transfer of some plots from the outgoing members as per the Bye-Laws of the society and claimed such amount as capital receipt. The Assessing Officer held that the assessee was not a co-operative society but an association of persons engaged in the business and accordingly, added premium amount to the income of the assessee.

However, all the three following tests of mutuality laid down since the decision of Privy Council in case of English & Scottish Joint Co-operative Wholesale Society Ltd. which were reiterated, highlighted and refined in the decision in case of Bangalore Club v. CIT [2013] 350 ITR 509 (SC), stands satisfied in instant case:

(1) The identity of the contributors to the fund and the recipients from the fund, (2) The treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate and (3) The impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.

Further, it was found from the records that these funds were to be expended for common amenities or for general benefit of members of society, or to be distributed amongst members in form of dividend or lease rent waiver, it could not be regarded as ‘taxable income’ in hands of assessee. (AY. 1986-87)

CIT v. Prabhukunj Co-op. Housing Society Ltd. (2015) 124 DTR 233/232 Taxman 517 (FB) (Guj.)(HC)

S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Liaison office of a foreign co. which identifies a manufacturer in India, negotiates the price, helps in choosing raw material to be used, ensures compliance with quality and gets material tested is not a ‘permanent establishment’ – DTAA – India-USA. [Articles 5, 7]

The High Court had to consider the following questions:

(a) Whether the Indian liaison office involves a permanent arrangement for the application under Article 5.1 of the DTAA?

(b) Whether any portion of the income attributable to the liaison office on account of the activity of vendors co-operation of global production management and planning and equitable quality assurance strategy, quality development and is liable to tax?

HELD by the High Court:

(i) Section 9 of the Income-tax Act deals with income deemed to accrue or arise in India. It provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India. However, Explanation 1(b) to the said Section carves out an exception. It provides that in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. Therefore, it is clear that when a non-resident purchases goods in India for the purpose of export, no income accrues or arises in India for such non-resident for it to be taxed.

(ii) Under Article 7(1) of the Tax Convention with the Republic of India and the USA, it clear that if a permanent establishment carries on business of sales in India or other business activities of the same or similar kind through that permanent establishment, then only, the profits of the enterprise will be taxed. Therefore, there is no tax liability if purchase is made for the purpose of export. The permanent establishment referred to therein is also defined in Article 5. It provides that for the purposes of this convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. It is an inclusive definition of what is included in the term ‘permanent establishment’ which is clearly set out in sub-Article (2). However, sub-Article (3) starts with a non-obstante clause. It makes it clear that the term ‘permanent establishment’ shall be deemed not to include any one or more of the following as set out in sub-Article (3). Clause (d) of sub-Article (3) speaks about the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise. In other words if the permanent establishment is established for the purpose of purchasing goods or merchandise for the purpose of collecting information for the enterprise, it is not a permanent establishment as defined under Article 5(1) read with Article 7. According to the Advance Ruling Authority what sub-Article 3(d) excludes is the place of business solely for the purpose of purchasing goods or of collecting information for the enterprise.

(iii) In the instant case, the liaison office of the petitioner identifies a competent manufacturer, negotiates a competitive price, helps in choosing the material to be used, ensures compliance with the quality of the material, acts as go-between, between the petitioner and the seller or the manufacturer, seller of the goods and even gets the material tested to ensure quality in addition to ensuring compliance with its policies and the relevant laws of India by the suppliers. Therefore, it is of the view that the aforesaid activities carried on by the liaison office, cannot be said to be an activity solely for the purpose of purchasing the goods or for collecting information for the enterprise. We find it difficult to accept this reasoning. If the petitioner has to purchase goods for the purpose of export, an obligation is cast on the petitioner to see that the goods, which are purchased in India for export outside India is acceptable to the customer outside India. To carry on that business effectively, the aforesaid steps are to be taken by the seller i.e., the petitioner. Otherwise, the goods, which are purchased in India may not find a customer outside India and therefore, the authority was not justified in recording a finding that those acts amounts to involvement in all the activities connected with the business except the actual sale of the products outside the country. In our considered information, all those acts are necessary to be performed by the petitioner – assessee before export of goods. Consequently, the reasoning of the authority that for the same reasons, the liaison office in question would qualify to be a permanent establishment in terms of Article 5 of the DTAA is also erroneous. That liaison office is established only for the purpose of carrying on business of purchasing goods for the purpose of export and all that activity also falls within the meaning of the words “collecting information” for the enterprise. In that view of the matter, we are of the view that the impugned order is unsustainable.

Columbia Sportswear Company v. DIT(2015) 235 Taxman 349 (Karn.)(HC)

S.9(1)(vi) : Income deemed to accrue or arise in India – The retrospective amendment to s. 9(1)(vi) so as to supersede the law laid down in Asia Satellite 332 ITR 340 (Del.) and assess transmission fees as “royalty” has no impact on assessees covered by DTAA because a corresponding amendment has not been made to the definition of “royalty” therein-Amendments to domestic law do not affect the DTAA – DTAA –India-Thailand. [Art . 12]a

The Delhi High Court had to consider the following two propositions of law: (i) Whether by a unilateral amendment in the Income-tax Act, an interpretation of the same term in the Double Taxation Avoidance Agreement can be changed? And (ii) Whether by merely terming an amendment as ‘clarificatory’ and making it retrospective in fact renders its retrospectivity valid in law? HELD by the High Court:

(i) This Court is of the view that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, it is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this Court, indefensible.

(ii) It takes little imagination to comprehend the extent and length of negotiations that take place when two nations decide to regulate the reach and application of their legitimate taxing powers (Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) in the context of the Indo-Mauritius Double Tax Avoidance Convention referred).

(iii) The Vienna Convention on the Law of Treaties, 1969 (“VCLT”) is universally accepted as authoritatively laying down the principles governing the law of treaties. Article 39 therein states the general rule regarding the amendment of treaties and provides that a treaty may be amended by agreement between the parties. The rules laid down in Part II of the VCLT apply to such an agreement except insofar as the treaty may otherwise provide. This provision therefore clearly states that an amendment to a treaty must be brought about by agreement between the parties. Unilateral amendments to treaties are therefore categorically prohibited.

(iv) We do not however rest our decision on the principles of the VCLT, but root it in the inability of the Parliament to effect amendments to international instruments and directly and logically, the illegality of any Executive action which seeks to apply domestic law amendments to the terms of the treaty, thereby indirectly, but effectively amending the treaty unilaterally. As held in Azadi Bachao Andolan these treaties are creations of a different process subject to negotiations by sovereign nations. The Madras High Court, in Commissioner of Income Tax v. VR. S.RM. Firms Ors [1994] 208 ITR 400 (Mad.) held that “tax treaties are…… considered to be mini legislation containing in themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries”.

(v) At the very outset, it should be understood that it is not as if the DTAAs completely prohibit reliance on domestic law. Under these, a reference is made to the domestic law of the Contracting States. Article 3(2) of both DTAAs state that in the course of application of the treaty, any term not defined in the treaty, shall, have the meaning which is imputed to it in the laws in force in that State relating to the taxes which are the subject of the Convention.

(vi) The treaties therefore, create a bifurcation between those terms, which have been defined by them (i.e., the concerned treaty), and those, which remain undefined. It is in the latter instance that domestic law shall mandatorily supply the import to be given to the word in question. In the former case however, the words in the treaty will be controlled by the definitions of those words in the treaty if they are so provided.

(vii) Though this has been the general rule, much discussion has also taken place on whether an interpretation given to a treaty alters with a transformation in, or amendments in, domestic law of one of the State parties. At any given point, does a reference to the treaty point to the law of the Contracting States at the time the treaty was concluded, or relate to the law of the States as existing at the time of the reference to the treaty? The former is the ‘static’ approach while the latter is called the ‘ambulatory’ approach. One opportunity for a State to ease its obligations under a tax convention comes from the ambulatory reference to domestic law. States seeking to furtively dodge the limitations that such treaties impose, sometimes, resort to amending their domestic laws, all the while under the protection of the theory of ambulatory reference. It thereby allows itself an adjustment to broaden the scope of circumstances under which it is allowed to tax under a treaty. A convenient opportunity sometimes presents itself in the form of ambiguous technical formulations in the concerned treaty. States attempting to clarify or concretise any one of these meanings, (unsurprisingly the one that benefits it) enact domestic legislation which subserves such purpose.

(viii) There are therefore two sets of circumstances. First, where there exists no definition of a word in issue within the DTAA itself, regard is to be had to the laws in force in the jurisdiction of the State called upon to interpret the word. The Bombay High Court seems to accept the ambulatory approach in such a situation, thus allowing for successive amendments into the realm of “laws in force”. We express no opinion in this regard since it is not in issue before this Court. This Court’s finding is in the context of the second situation, where there does exist a definition of a term within the DTAA. When that is the case, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA and the ultimate taxability of the income under the agreement. That is not to say that the Court may be inconsistent in its interpretation of similar definitions. What that does imply however, is that just because there is a domestic definition similar to the one under the DTAA, amendments to the domestic law, in an attempt to contour, restrict or expand the definition under its statute, cannot extend to the definition under the DTAA. In other words, the domestic law remains static for the purposes of the DTAA.

(ix) Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word “royalty” in Asia Satellite [2011] 332 ITR 340 (Del.), when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement. (ITA 473/2012, 474/2012, 500/2012 & 244/2014, dt. 8-2-2016)

DIT v. New Skies Satellite BV (Delhi)(HC) ; www.itatonline.org

S.10(23C) : Educational institution – Approval – Question of application of funds not to be considered at stage of approval

The assessee submitted an application for grant of approval for exemption under section 10(23C)(vi) for the assessment years 1999-2000, 2000-01 and 2001-02. On rejection of the application a writ petition was filed, Allowing the petition the Court held that; Question of application of funds not to be considered at stage of approval. (AYs. 1999-2000, 2000-01, 2001-02)

American School of Bombay Education Trust v. UOI (2015) 377 ITR 645 (Delhi) (HC)

S.10B : Export Oriented undertakings – Deemed Export Drawback, Customer claims, Freight subsidy & interest on fixed deposit receipts (under lien for LC & bank guarantee) are all derived from the undertaking & are eligible for deduction

Allowing the appeal of assessee, the Court held that; Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction u/s. 10B of the Act.”As regards the decision of the ITAT in not accepting the assessee’s plea in regard to ‘customer claims’ ‘freight subsidy’ and ‘interest on fixed deposit receipts’ even while it accepted the assessee’s case as regards ‘deemed export drawback’, the contention of the assessee as regards customer claims was that it had received the claim of ` 28,27,224 from a customer for cancelling the export order. Later on the cancelled order was completed and goods were exported to another customer. The sum received as claim from the customer was non-severable from the income of the business of the undertaking. The Court fails to appreciate as to how the ITAT could have held that this transaction did not arise from the business of the export of goods. Even as regards freight subsidy, the assessee’s contention was that it had received the subsidy in respect of the business carried on and the said subsidy was part of the profit of the business of the undertaking. If the ITAT was prepared to consider the deemed export draw back as eligible for deduction then there was no justification for excluding the freight subsidy. Even as regards the interest on FDR, the Court has been shown a note of the balance sheet of the assessee [which was placed before the AO] which clearly states that “fixed deposit receipts (including accrued interest) valuing ` 15,05,875 are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities.” the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act. (ITA No. 549 of 2015, dt. 19-11-2015) (AY. 2008-09)

Riviera Home Furnishing v. ACIT (Delhi)(HC); www.itatonline.org

S.11 : Property held for charitable purposes – Management and development programme –Consultant charges are part and parcel of institute of management studies – Surplus funds was applied for attainment of object of institute – Entitled exemption – Allowance of depreciation – No double deduction. [S.32]

Dismissing the appeal of revenue the Court held that letting out halls for marriages, sale and advertisement rights had not been found to be a regular activity undertaken as part of business. The income was generated from giving various halls and properties of the institution on rentals only on Saturdays and Sundays and on public holidays when they were not required for educational activities and could not be said to be a business which was not incidental to attainment of the objects of the Trust. This being merely an incidental activity and income derived from it having been used for the educational institute and not for any particular person and separate books of account having been maintained, this income could not be brought to tax. As regards acquisition of property the deduction was allowed earlier was towards application of funds of the trust for acquiring assets, the depreciation is permissible as deduction considering the use of the assets.

DIT(E) v. Shri Vile Parle Kelavani Mandal (2015) 378 ITR 593 / 232 Taxman 499 (Bom.)(HC)

S.11 : Property held for charitable purposes – Charitable purpose – Maintaining gaushalas and tending to other animals and birds, anonymous donation received would not be taxable. [Ss. 2(15), 115BBC ]

Assessee was a charitable trust engaged in maintaining gaushalas and tending to other animals and birds. Assessee received donations from identified donors and also anonymous donations. Assessing Officer after excluding identified donations, brought to tax anonymous donations. Commissioner(Appeals) after examining objects of assesee-trust and work carried out, concluded that assessee trust was a trust which had been established to fulfil charitable and religious purpose. Tribunal also upheld finding of Commissioner(Appeals). On appeal by revenue, it was contended that trust not being one for religious purposes but only for charitable purposes, anonymous donations were liable to be taxed under section 115BBC. Dismissing the appeal of revenue the Court held that; taking care of animals was to be considered as charitable as well as religious activities, therefore, anonymous donation received would not be taxable. (AY. 2007-08)

DIT v. Bombay Panjrapole Trust (2015) 232 Taxman 821 (Bom.)(HC)

S.11 : Property held for charitable or religious purposes – Accumulation of income-Just because more than one object is mentioned, benefit of accumulation cannot be denied.[Form No. 10]

As long as objects of assessee-trust, are charitable in character and purposes mentioned in Form 10 are for achieving objects of trust, merely because more than one purpose have been specified and details about plan of such expenditure has not been given, same would not be sufficient to deny benefit under section 11(2) to assessee. (AY. 2005-06)

DIT v. Envisions (2015) 232 Taxman 164 (Karn.)(HC)

S.12AA : Procedure for registration – Trusts or institutions – Dissolution clause – Refusal of registration was held to be not justified

Dismissing the appeal of revenue the Court held that; where trust deed specifically provided that if necessary to close trust, then property of trust be handed over to other institution/trust having similar objects by passing resolution by minimum 2/3rd majority of trust and unanimous decision of committee working trustees, registration under section 12AA could not be denied to assessee-trust on ground that trust deed did not have dissolution clause.

DIT v. Vanchhara Tirthadhipati – Chintamani Paraswaprwabhu (2015) 233 Taxman 1 (Guj.)(HC)

S.14A : Disallowance of expenditure – Exempt income – Interest incurred on taxable income has also to be excluded while computing the disallowance to avoid incongruity & in view of Department’s stand before High Court

The ITAT referred to the decision of the Kolkata Bench of the ITAT in ACIT v. Champion Commercial Co. Ltd., (2012) 139 ITD 108, which in turn referred to the decision of the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd v. CIT (2010) 328 ITR 81 (Bom.)(HC) and held that for the purposes of Rule 8D(2)(ii), the amount of interest not attributable to the earning of any particular item of income, i.e., ‘common interest expenses’ that was required to be allocated would have to exclude both expenditures, i.e., interest attributable to tax exempt income as well as that attributable to taxable income. The ITAT observed that notwithstanding the rigid wording of Rule 8D(2), this interpretation was permissible in view of the stand taken by the Revenue before the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. The ITAT, therefore, was of the view that since there was no common interest expenditure in the present case no portion of interest really survives for allocation under Rule 8D(2)(ii). On appeal by the department, High Court dismissed the appeal of revenue and affirmed the order of Tribunal. (ITA No. 802/2015, dt. 17-12-2015) (AY. 2008-09)

Pr.CIT v. Bharti Overseas Pvt. Ltd. (Delhi)(HC); www.itatonline.org

S.22 : Income from house property – Land appurtenant there to – Licence’ the terrace floor as the ‘space’ for mounting a tower/mast and antenna – Assessable as income from house property and not as business income or income from other sources. [S. 28(i), 56]

Assessee-company was owner of a terrace floor. Assessee entered into agreement with a telecom company and gave said floor on licence as space for mounting tower and antenna. Assessee claimed amount of licence fee as ‘Income from house property’. Assessing Officer opined that since property was reflected as ‘commercial asset’, income derived therefrom was to be assessed as business income. Tribunal held that the terrace does not have any appurtenant land, hence the agreement of renting and hiring terrace was in essence an agreement of hiring space and not building and land appurtenant thereto hence, rental income was assessable as income from other sources. On appeal by assessee, allowing the appeal the Court held that; since assessee continued to be owner of terrace floor and such property could not be used for any other purpose except exploitation of its space in such a way for gaining income, impugned licence fee was to be taxed as income from house property. (AY. 2008-09)

Niagara Hotels & Builders (P.) Ltd. v. CIT (2015) 233 Taxman 180 (Delhi)(HC)

S.22 : Income from house property – Business income – Income from letting out godowns is held to be assessable as income from house property and not as business income. [S.28(i)]

Main business of assessee-firm was export of tobacco and for that purpose it had constructed godowns. It let out godowns when they were not in use and earned rental income therefrom. It claimed said income as business income contending that one of objectives in partnership deed was to let out godowns. Assessing Officer assessed the income under the head income from house property. On appeal, the Commissioner (Appeals) held that the income from letting out of godowns should be treated as income from business. On revenue’s appeal, the Tribunal confirmed the order of the Commissioner (Appeals). On appeal to the High Court by the revenue, allowing the appeal the Court held that; since letting out of godowns was not a continuous activity of assessee from year to year and assessee could let out godowns only because those were not in use at relevant time, rent received by assessee would have to be computed as income from property and character of income would not stand altered only because it was received by firm with one of objects of partnership deed to let out their godowns. (AY. 1992-93)

CIT v. Sileman Khan Mahaboob Khan (2015) 377 ITR 613 / 233 Taxman 65 (AP)(HC)

S.22 : Income from house property – Income from business – Real estate developer – Stock in trade-Rental income is held to be assessable as Income from house property. [S.28(i)]

Rental income received from unsold portion of property constructed by assessee, a real estate developer, is assessable as income from house property and not business. Once it is held that income is derived from property, treatment given in books of account as stock-in-trade would not alter character or nature of income. (AY.2000-01)

CIT v. Sane & Doshi Enterprises (2015) 377 ITR 265 / 278 CTR 316 / 232 Taxman 452 (Bom.)(HC)

S.24 : Income from house property – Deductions – Interest paid to partners capital accounts – Held to be allowable. [S.22]

Assessee-firm’s business was to construct flats or commercial units and sell them at profit. Interest was paid to partners on capital contributed by them which was utilised for purpose of construction of property from which assessee earned rental income. Same had been allowed by Tribunal under section 24(b) on ground that such claim was allowed by Commissioner (Appeals) and later approved by Tribunal in earlier year. Dismissing the appeal of revenue, the Court held that since entire interest paid on partners’ capital which was utilised for construction of property from which rental income was earned was allowable. (AY.2000-01)

CIT v. Sane & Doshi Enterprises (2015) 377 ITR 265 / 278 CTR 316 / 232 Taxman 452 (Bom.)(HC)

S. 28(iv) : Business income – Value of any benefit or perquisites – Converted into money or not – Waiver of loan – Assessing as business income was held to be not justified

The assessee-company borrowed funds from IC, an associate concern, from time-to-time at commercial rate of interest. Similarly, the assessee had advanced loan to MBPL, another associate concern.

There was default on the part of MBPL and the assessee waived the loan granted to MBPL together with interest. At the same time, IC waived loan advanced to the assessee together with interest.

The Assessing Officer treated the amount of loan and interest waived by IC as business income under section 28(iv) and made addition accordingly.

On appeal, the Commissioner (Appeals) deleted the additions.

On revenue’s appeal, the Tribunal upheld the order of the Commissioner (Appeals).

On appeal to the High Court; When in earlier years revenue did not accept loan transactions from IC and to MBPL both, as business transactions, it could not apply section 28(iv) by terming such waiver as income of assessee arising from its business. Further if both transactions were loan transactions and one part of it was treated as business income, then second part could not have given a different character and what assessee derived by way of loan having been shown as income and what was amount written off by assessee could be adjusted against each other. (AY. 2005-06)

CIT v. Digiwave Infrastructure & Services Ltd. (2015) 232 Taxman 399 (Bom.)(HC)

S.32 : Depreciation – Wind mills – Cost of wind mill – Disallowance of depreciation on alleged inflation of cost is held to be not justified

The assessee had claimed 100 per cent depreciation on 12 wind mills. Assessing Officer disallowed said claim holding that cost of wind mills were inflated by ` 1 crore per windmill. Tribunal, allowed assessee’s claim. Dismissing the appeal of revenue, the Court held that; the Tribunal had considered statement of comparable cases produced by assessee and concluded that payment made by assessee was certainly not inflated. It was also found that Assessing Officer had merely proceeded on basis of a presumption that cost of each windmill was inflated but it had not been proved by documentary evidence, in view of aforesaid, Tribunal was justified in allowing assessee’s claim. (AYs. 2002-03 to 2006-07)

CIT v. Karma Energy Ltd. (2015) 232 Taxman 496 (Bom.)(HC.)

S.32 : Depreciation – Functional test – Centering/Shuttering material – 100% depreciation is not eligible

Allowing the appeal of revenue the Court held that; shuttering/centering is undoubtedly a plant, but its components which cannot be put to use in the business independently cannot be treated as plant; hence the assessee was not entitled to claim 100 per cent depreciation under section 32(1), proviso, on centering/shuttering material. (AY.1991-92)

CIT v. S. Vijay Kumar (2015) 122 DTR 81 (FB)((AP&T)(HC)

S.32 : Depreciation – Block of assets – Even assets installed in a discontinued business are eligible for depreciation as part of ‘block of assets’ [Ss. 2(11)43(6)]

On appeal by the department to the High Court HELD dismissing the appeal; Once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset loses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased machinery becomes a part of the block of assets for the first time (ITA No. 2088 of 2013. dt. 17-11-2015) (AY.2005-06)

CIT v. Sonic Biochem Extraction Pvt. Ltd. (Bom.) (HC); www.itatonline.org

S.35 : Scientific research –Assessing Officer cannot disallow the weighted deduction in respect of scientific expenditure pursuant to certificate issued by prescribed authority, i.e., Department of Scientific and Industrial Research (DSIR) : Availability of alternate remedy would be a good ground to refuse the relief under Article 226 of the Constitution of India. [S. 35(2AB), Constitution of India, Article 226 ]

Allowing the petition the Court held that; where assessee claimed deduction under section 35(2AB), pursuant to certificate issued by prescribed authority, i.e., Department of Scientific and Industrial Research (DSIR), approving such claim, Assessing Officer could not have denied weighted deduction under section 35(2AB) in respect of scientific expenditure. Court also held that the Assessing Officer cannot sit in judgment over report submitted by prescribed authority, however, where Assessing Officer does not accept claim of assessee made under section 35(2AB), he should refer matter to Board, which will then refer question to prescribed authority, since issue of jurisdiction of Assessing Officer was under consideration, petition could not have been dismissed on ground of availability of alternate remedy. (AY. 2009-10)

Tejas Networks Ltd. v. Dy. CIT (2015) 233 Taxman 426 (Karn.)(HC)

S.37(1) : Business expenditure – On medical treatment of eyes – Not incurred wholly and exclusively for purpose of profession – Held not deductible

Expenditure incurred by assessee advocate on medical treatment of eyes is for personal wellbeing and the benefit, if any, as a professional is incidental, assessee is not entitled to claim deduction in respect of expenditure incurred by him on foreign tour undertaken by him for the purpose of pre-operative treatment of his eyes. (AY. 1986-87)

Dhimant Hirarla Thakkar v. CIT (2016) 282 CTR 87 / 236 Taxman 181/ ( 2016) 380 ITR 275 (Bom.)(HC)

S.37(1) : Business expenditure –Tournament to promote corporate image – Held to be allowable deduction

Expenditure incurred in organising tournaments to promote corporate image of group companies was an allowable deduction. (AYs. 1998-99, 1999-2000)

CIT v. Williamson Magor & Co. Ltd. (2015) 232 Taxman 533 (Cal.)(HC)

S.37(1) : Business expenditure – Capital or revenue – Contribution to various industries – Revenue in nature

Assessee company was engaged in business of manufacturing and selling petrochemicals. It made certain contribution to various industries which Tribunal held to be revenue in nature. Tribunal had merely followed and applied its earlier orders for prior assessment years in case of this very assessee and on same question. Dismissing the appeal of revenue the Court held that; such factual findings could not be termed perverse and did not give rise to any substantial question of law. (AYs. 2003-04, 2004-05)

CIT v. Indian Petrochemicals Corporation Ltd. (2015) 378 ITR 569/ 233 Taxman 89 (Bom.)(HC)

S.37(1) : Business expenditure –Cost of Employees Stock Option (ESOP) debited to P & L A/c is allowable business expenditure

The question sought to be projected by the Revenue is whether the ITAT erred in deleting the addition of ` 1,28,19,169/- made by the Assessing Officer (‘AO’) by way of disallowance of the expenses debited as cost of Employees Stock Option (‘ESOP’) in profit and loss account? The Court has been shown a copy of the decision dated 19th June, 2012 passed by the Division Bench of Madras High Court in CIT-III Chennai v. PVP Ventures Ltd. (TC(A) No. 1023 of 2005) where a similar question was answered in favour of the assessee by holding that the cost of ESOP could be debited to the profit and loss account of the assessee. This Court has also in its decision dated 4th August, 2015 in ITA No. 2 of 2002 (CIT v. Oswal Agro Mills Ltd.) held that the expenditure incurred in connection with issue of debentures or obtaining loan should be considered as revenue expenditure. In the circumstances, the impugned order of the ITAT answering the question in favour of the assessee is affirmed.(ITA No. 107/2015, dt. 18-8-2015) (AY. 2008-09)

CIT v. Lemon Tree Hotels Ltd. (Delhi)(HC); www.itatonline.org

S.37(1) : Business expenditure – Advertisement – Brand building – Agarbatti – Businessman point of view – AO cannot question and challenge the right of asessee – Disallowance was held to be not justified. [S.40A(2)]

Advertisement expenses incurred by the assessee for brand building of Agarbatti cannot be disallowed. The expenditure that has been incurred is prerogative and right of assessee and the Assessing Officer cannot question and challenge same. (AYs. 2003-04 to 2005-06)

CIT v. Hari Chand Shri Gopal (2015) 231 Taxman 79 (Delhi)(HC)

S.40(a)(ia) : Amounts not deductible – Deduction at source – Payee filing income-tax return and offering sum received for taxation – Disallowance was not justified – Second proviso is declaratory and curative and has retrospective effect from April 1, 2005. [Ss. 194J, 201(1)]

Dismissing the appeal of revenue the Court held that; The payees had filed returns and offered the sums received to tax. No disallowance could be made under section 40(a)(ia). Second proviso is declaratory and curative and has retrospective effect from April 1, 2005. (AYs. 2008-2009, 2009-2010)

CIT v. Ansal Land Mark Township P. Ltd. (2015) 377 ITR 635/ 124 DTR 18/ 234 Taxman 825 (Delhi )(HC)

S.40(a)(i) : Amounts not deductible – Royalty – Purchase of software – Not royalty – Not liable to deduct tax at source. [S. 9(1)(iv), 40(a)(ia), 194J, 195]

Dismissing the appeal of revenue the Court held that ; Payments made for purchase of software as a product is not for use or the right to use the software and is not assessable as “royalty” The amount cannot be disallowed, the assessee is not liable to deduct tax at source. (AY. 2008-09). (ITA No. 890/2015, dt. 19-1-2016)

Pr. CIT v. M Tech India P. Ltd. (Delhi)(HC); www.itatonline.org

S.40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Both the companies are assessed at maximum marginal rate –Disallowance was held to be not justified. [S.37(1)]

Assessing Officer disallowed the estimated rent by invoking the provision of section 40A(2) of the Act. Tribunal deleted the disallowances. On appeal by revenue dismissing the appeal of revenue the Court held that; the assessee company as well as parent company, both were assessed to tax at maximum marginal rate and, therefore, it could not be said that service charge was paid to G at unreasonable rate to evade tax. Since revenue could not point out that assessee evaded payment of tax, invocation of section 40A(2) was not valid.

Pr.CIT v. Gujarat Gas Financial Services Ltd. (2015) 233 Taxman 532 (Guj.)(HC)

S.40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Sale of rice lesser than its purchase price – Addition cannot be made if the parties are not related

Assessee sold rice bran at a price lessor than its purchase price, Lower authorities confirmed the difference as additional income of assessee. On appeal allowing the appeal of assessee the Court held that; The Apex Court in the case of CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 has held that ‘where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimise his tax burden. Similarly, the Gujarat High Court in the case of CIT v. Keshavlal Chandulal [1966] 59 ITR 120 has observed that ‘where a person disposes of his goods at a lesser value than their market price, or at a concessional price, there is nothing in the income tax law which compels him to sell at a price which is the price realisable in the market.

The only exception in this rule is, if the goods fall under section 40(A)(2) where there exists a relationship as set out in the said provision between the parties. It is not the case of the department that though the shops are adjoining each other, they are related in any manner. That provision is not invoked. In the light of the aforesaid statement of law, the authorities were not justified in adding the income, taking the difference between the price at which the rice bran is purchased and rice bran is sold. (AY. 2004-05)

A. Khadar Basha v. ACIT (2015) 232 Taxman 434 (Karn.)(HC)

S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Film artist – Costumes, makeup at different places – Deletion of expenses was held to be justified. [S.260A]

Assessee was a leading film artist and claimed professional expenditure. Assessing Officer disallowed some of expenses claimed by assessee in excess of ` 20,000 in terms of section 40A(3) and other expenses claimed were disallowed for want of evidence. However, Commissioner (Appeals) held that incurring of expenditure by assessee at different places where shooting took place could not be ruled out and there was reasonableness in claim of assessee insofar as expenses on costumes, makeup, wig material, travelling expenses etc. Tribunal confirmed order of Commissioner (Appeals). Dismissing the appeal of revenue the Court held that; since issue involved was a pure question of fact, appeal against order of Tribunal was to be dismissed. (AYs. 2007-08 & 2008-09)

CIT v. R.S. Suriya (2015) 232 Taxman 126 (Mad.)(HC)

S. 40A(3) : Expenses of payments not deductible – Cash payments exceeding prescribed limits –Amendment of aggregation of payments in a single day is applicable w.e.f. 1st April, 2009.

During the year under consideration, the assessee made various purchases of ` 1,38,43,525/- from two parties in respect of which payments were made in cash. The Assessee was required to make payments in cash for the reason that the assessee was new in business and had a small capital base of ` 10 lakh, therefore, distributors were not ready to extend the credit even for a single or two days.

The AO and CIT(A) disallowed the said payment u/s. 40A(3). However, the Tribunal deleted the addition so made.

The Revenue carried the matter to the Delhi High Court and the Hon’ble High Court concurred with the view of the Tribunal on the ground that there are several mitigating factors to show and establish commercial expediency and reasons for making the purchases in cash, which have not been disputed. Further, amendment to section 40A(3) relating to “aggregation” of payments made to a person in a single day is not applicable as the same is effective from 1st April, 2009 i.e. AY. 2009-10 onwards.

CIT v. Hitesh Bansal (2015) 113 DTR 433 (Delhi) (HC)

S.45 : Capital gains – Transfer –Accrual of income – Subsequent to cancellation of agreement of sale of land – Income has not accrued to assessee in real sense – No hypothetical income could be brought to tax. [Ss. 2(47), 139, 145]

Assessee filed its return declaring income on account of sale of land/FSI to its associates/sister concerns. Subsequently, assessee-company filed revised return declaring nil income and claimed that income declared in original return in respect of sale of land/FSI stood withdrawn due to cancellation of sale agreements. Assessing Officer was of view that action of assessee in filing revised return was not bona fide and taxed income from sale of land/FSI. Tribunal allowed the claim of assessee. On appeal by revenue dismissing the appeal the Court held that; it was found that agreements were cancelled, properties reverted to assessee which were duly reflected in balance sheet and assets of assessee. There were revised accounts which were also scrutinised and were found to be in order and meeting accounting principles. Since income had not accrued to assessee in real sense, original return represented wrong statement which was corrected by assessee by filing a revised return, no hypothetical income of assessee could have been brought to tax. (AY. 2007-08)

CIT v. Lok Housing & Constructions Ltd. (2015) 232 Taxman 159 (Bom.)(HC)

S.45 : Capital gains – Business income – Borrowed money – Income from sale of shares – Portfolio management services – Income assessable as capital gains and not as business income. [S.28(i)]

Dismissing the appeal of revenue the Court held that merely because assessee has invested funds in shares through portfolio management service or it has invested borrowed funds in the purchase of shares, it does not mean that the assessee is carrying on business of investment in shares; findings arrived by the Tribunal that the income from the sale of shares by the assessee is assessable as capital gains and not as business income being conformity with the guidelines issued by Circular No. 4 of 2007 dt. 15th June, 2007, no substantial question of law arises. (AY. 2006-07, 2008-09)

CIT v. Kapur Investment (P) Ltd. (2015) 122 DTR 311/ 234 Taxman 149 (Karn.)(HC)

S.50B : Capital gains – Slump sale – In computing the net worth for computing capital gains from a slump sale, depreciation on assets have to be deducted even if not claimed by the assessee. [S.2(11), 2(42C), 43(6)(c), 50]

Allowing the appeal of revenue the Court held that; In computing the net worth for computing capital gains from a slump sale, depreciation on assets have to be deducted even if not claimed by the assessee. (AY. 2001-02). (ITA No. 1003/2011, dt. 6-1-2016)

CIT v. Dharmpal Satyapal (Delhi)(HC); www.itatonline.org

S.54B : Capital gains – Land used for agricultural purposes – Land need not be used continuously – Land purchased in the name of wife was not eligible to deduction.[S.45]

Court held that section does not indicate that land should have been used continuously, since assessee had established that he had been using said land for a period of two years immediately preceding date on which he transferred same exemption was to be allowed, however, purchase of land in the name of wife was held to be not eligible deduction. (AY. 2006-07)

CIT v. Dinesh Verma (2015) 233 Taxman 409 (P&H)(HC)

S.54F : Capital gains – Investment in a residential house – Amount invested – Construction though not completed within three years entitle to exemption. [S.45]

Assessee sold a property on 6-10-2008. She purchased another residential plot on 13-10-2008. On 2-6-2010 she obtained approval of building plan from local authority and commenced construction, which was not completed within 3 years, i.e., on or before 5-10-2011. She claimed exemption under section 54F in respect of long-term capital gain arising from sale of property. Assessing Officer disallowed claim on ground that assessee had not completed construction of house within three years as per section 54F. Dismissing the appeal of revenue the Court held that; once it was established by assessee that she had invested entire net consideration in construction of residential house within stipulated period, it would meet requirement of section 54F and she would be entitled to get benefit of section 54F. (AY. 2009-10)

CIT v. B.S. Shanthakumari (Smt.) (2015) 233 Taxman 347 (Karn.)(HC)

S.68 : Cash credits – Share capital – It is a fallacy to assume that a company which has not commenced business has unaccounted money – Fact that investors have a common address is not relevant – Fact that shares were subsequently sold at reduced rate is not relevant – Addition was deleted

Dismissing the appeal of revenue , the Court held that –

(i) There is a basic fallacy in the submission of the Revenue about the precise role of the Assessee, Five Vision. The broad sweeping allegation made is that “the Assessee being a developer is charging on money which is taken in cash”. This, however, does not apply to the assessee which appears to be involved in the construction of a shopping mall. In fact for the AYs in question, the assessee had not commenced any business. The construction of the mall was not yet complete during the AYs in question. The profit and loss account of the assessee for all the three AYs, which has been placed on record, shows that only revenue received was interest on the deposits with the bank. Assessee is, therefore, right in the contention that the basic presumption of the Revenue as far as the assessee is concerned has no legs to stand. Correspondingly, the further allegation that such ‘on money’ was routed back to the mainstream in the form of capital has also to fail.

(ii) The other submission that the assessee was itself being used as a conduit for routing the ‘on money’ or that the investment in the assessee was also for routing such ‘on money’ has not even prima facie been able to be established by the Revenue. On the one hand there is an attempt to treat the cash credit found in the assessee’s books of accounts to be ‘undisclosed income of the assessee’ by showing the investors to be ‘paper companies’. On the other hand, the attempt is to show that this money in fact belongs to certain other entities whose source has not been explained by the assessee.

(iii) Coming to the core issue concerning the identity, creditworthiness and genuineness of the investor companies, it is seen that as far as the Table I investors were concerned, only 9 were searched and in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the assessee had discharged the primary onus of proving their creditworthiness and genuineness. They had responded to the summons issued to them. Directors of 14 of these companies appeared before the AO and produced their books of account.

(iv) The mere fact that some of the investors have a common address is not a valid basis to doubt their identity or genuineness.

(v) Also, the fact that the shares of the assessee were subsequently sold at a reduced price is indeed not germane to the question of the genuineness of the investment in the share capital of the assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares. (AY. 2007-08, 2009-10)

CIT v. Five Vision Promoters Pvt. Ltd. (2016) 380 ITR 289 (Delhi)(HC)

S.68 : Cash credits – Share application – If the identity and other details of the share applicants are available, the share application money cannot be treated as undisclosed income in the hands of the Co. The addition, if at all, should be in the hands of the applicants if their creditworthiness cannot be proved

(i) The Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the AO by the assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been rightly commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of income was sufficient to doubt the credit worthiness of the shareholders.

(ii) The Court is of the view that the assessee produced sufficient documentation, discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In para 39 of the decision in CIT v. Nova Promoters & Finlease Ltd. 342 ITR 169, the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the assessee under section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law. (ITA Nos. 71-72 & 84 of 2005, dt. 12-8-2015) (AYs. 2006-07 2007-08, 2008-09)

CIT v. Vrindavan Farms (P) Ltd. (Delhi) (HC); www.itatonline.org

S. 69 : Unexplained investments – Cash received on sale of property shown as income – Buyer of property denied having paid any cash – Deletion of addition was held to be justified. [S.153A]

During search at assessee’s premises it was found that assessee had purchased a property (Anand Niketan property). Assessee explained that his company RFPL had received cash amount of ` 1 crore on account of sale of other property (Golf Link property) and said amount was used by assessee for purchasing Anand Niketan property. Buyer of Golf Link property, however, denied to have paid any cash to RFPL. On that basis Assessing Officer held that cash involved in purchase of Anand Niketan property remained unexplained and made addition accordingly. Appellate authorities deleted addition on ground that RFPL had shown cash receipt of ` 100 lakh on account of sale of a property and had declared long-term capital gain on basis of sale proceeds of ` 255 lakh which had been accepted by Assessing Officer of that company and, hence, it had to be accepted that this much cash was received by that company. On appeal by revenue the Court held that; on given fact-intensive nature of matter, findings recorded by Appellate Authorities were to be upheld.

CIT v. Tilak Raj Anand (2015) 232 Taxman 653 (Delhi)(HC)

S.69B : Amounts of investments not fully disclosed in books of account – Survey – Unaccounted investment – Retraction of statement without giving reasons – Addition was held to be justified. [Ss. 133A, 142, 143]

Dismissing the appeal of revenue the Court held that; where assessee made an admission regarding unaccounted investment during survey and almost after two years, retracted from same on basis that admission was based on coercion and force without giving any reason, same was not acceptable and addition as undisclosed investment was to be upheld.

Navdeep Dhingra v. CIT (2015) 232 Taxman 425 (P&H)(HC)

S.72 : Carry forward and set off of business losses – Depreciable assets – Can be set off against gains arising from sale of depreciable asset – Matter remanded to Tribunal. [Ss. 32, 32(2)(iii)(a), 50]

For the assessment year 1999-2000, the assessee-firm, relying upon the provisions of section 32(2), claimed that the carry forward depreciation loss relating to assessment year 1997-98 was admissible to be set off against profit and gains arising from business in the relevant year which included short-term capital gains arising from sale of business assets. In support of its claim the assessee relied upon the decision of the Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 and E.D. Sassoon & Co. Ltd. v. CIT [1972] 86 ITR 757.

The Assessing Officer, however, rejected the assessee’s claim and brought to tax the short-term capital gains to tax.

On appeal, the Commissioner (Appeals) and the Tribunal were of the view that the claim of the assessee that unabsorbed depreciation should be allowed to be adjusted against capital gains was incorrect as sections 32(2)(i) and 32(2)(ii) did not get attracted in instant case.

On appeal to High Court:

The core issue in the instant case is whether in terms of section 32(2)(iii), the assessee will be entitled to set off the brought forward depreciation loss against capital gains. That issue, apparently, has not been addressed by the Tribunal in the order in question. All that the Tribunal says in the order is that, though it is abundantly clear that section 32(2)(iii) is operational in the case of the assessee, it only says that unabsorbed depreciation can be carried forward to the successive years. That is not the issue raised in the appeal.

The issue to be decided in the instant case is whether the capital gains arising out of sale of depreciable assets could be set off against the profits and gains of business for the assessment year 1999-2000. That issue, unfortunately, has not been considered by the Tribunal. Furthermore, the decision of the Supreme Court in the case of CIT v. Cocanada Radhaswami Bank Ltd. (supra) and E.D. Sassoon & Co. Ltd.’s case (supra) raised in the grounds of appeal by the assessee has also not been adverted to. The decision of the Supreme Court clearly gives a pointer to the issue as to whether the appellant/assessee is entitled to set off of brought forward depreciation loss as against profits and gains of business arising from sale of depreciable assets for the assessment year 1999-2000.

In this view of the matter, the matter is remanded back to the Tribunal to consider and pass orders on the entire issues raised by the assessee. (AY. 1999-2000)

Southern Travels v. ACIT (2015) 232 Taxman 689 (Mad.)(HC)

S.79 : Carry forward and set off losses – Change in share holdings – Companies in which public are not substantially interested – The transfer of shares of an Indian company by a holding Co. (Yum Asia) to another holding Co. (Yum Singapore) results in change of “beneficial ownership” of shares, – Set off of losses was rightly rejected by the Tribunal.

Dismissing the appeal of assesse the Court held that ;Having examined the facts as well as the concurrent orders of the AO and the ITAT, the Court finds that there was indeed a change of ownership of 100% shares of Yum India from Yum Asia to Yum Singapore, both of which were distinct entities. Although they might be AEs of Yum USA, there is nothing to show that there was any agreement or arrangement that the beneficial owner of such shares would be the holding company, Yum USA. The question of ‘piercing the veil’ at the instance of Yum India does not arise. In the circumstances, it was rightly concluded by the ITAT that in terms of section 79 of the Act, Yum India cannot be permitted to set off the carry forward accumulated business losses of the earlier years.(AY. 2009-10) ( ITA No. 349/2015, dt. 13-1-2016)

Yum Restaurants (India) Pvt. Ltd. v. IOT (Delhi)(HC) ; www.itatonline.org

S.80-IA : Industrial undertakings – Wind mill power generation – Losses incurred by assessee had already been set off against other income of business enterprise, profit earned by it would be eligible for deduction. [S.32 ]

Assessee – was engaged in wind mill power generation and textile exports. It claimed deduction under section 80IA. Tribunal allowed assessee’s claim .On appeal dismissing the appeal of revenue the Court held that since losses incurred by assessee had already been set off against other income of business enterprise, profit earned by it would be eligible for deduction. (AY. 2010-11)

CIT v. Mallow International (2015) 232 Taxman 281 (Mad.)(HC)

S.80-IB : Industrial undertaking – Proprietorship converted into partnership – Partnership firm is entitled to deduction. [S.84 ]

Dismissing the appeal of revenue, the Court held that; when a proprietorship converted in to partnership and transferred the industrial undertaking as a whole along with assets and liabilities is not a case of transfer of plant and machinery to firm or of splitting or reconstruction of business hence the firm is entitled to deduction.( AY. 2005-2006)

CIT v. Advance Valve Global (2015) 377 ITR 207 (All.) (HC)

S.92C : Transfer pricing – CUP method can be applied by comparing a pricing formulae, rather than the pricing quantification in amount. Rule 10AB inserted w.e.f. 1-4-2012 is beneficial in nature and so retrospective w.e.f. 1-4-2002

Dismissing the appeal of revenue the Court held that CUP method can be applied by a comparing a pricing formulae, rather than the pricing quantification in amount. Rule 10AB inserted w.e.f. 1-4-2012 is beneficial in nature and so retrospective w.e.f. 1-4-2002. (AY. 2007-08) (ITA No. 374/2015, dated 10-12-2015)

Pr. CIT v. Global Forwarding India Pvt. Ltd. (Delhi)(HC); www.itatonline.org

S.92C : Transfer pricing –Advertising Marketing and Sales promotion (AMP) Expenditure – Onus is on revenue [S.92B ]

Dismissing the appeal of revenue the Court held that the onus is on the Revenue to demonstrate by tangible material that there is an international transaction involving AMP expenses between the Indian Co. and the AE. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In the absence of a machinery provision it is hazardous for any TPO to proceed to determine the ALP of such a transaction since Bright Line Test has been negatived as a valid method of determining the existence of an international transaction and thereafter its ALP. (AY. 2008-09) (ITA No. 610/2014, dated 22-12-2015)

CIT v. Whirlpool of India Ltd. (Delhi)(HC); www.itatonline.org

S.92C : Transfer pricing –Adjustment with respect to transfer pricing has to be confined to transactions with Associated Enterprises

An adjustment with respect to transfer pricing has to be confined to transactions with Associated Enterprises and cannot be made with respect to transactions with unrelated third parties. (ITA No. 2201 of 2013. dated 2-12-2015) (AY. 2007-08)

CIT v. Thyssen Krupp ( Bom.)(HC); www.itatonline.org

S. 92C : Transfer pricing –Arm’s length price (‘ALP’) –Advertisement, Marketing and sales promotion (AMP) –Adjustment for Advertisement & Market Promotion (AMP) expenses cannot be made on the basis that there is an assumed “international transaction” with the AE because the advertisement expenditure of the Indian company is “excessive”. [S.92B, 92F]

The Tribunal followed its decision in LG Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1 and held that the Assessing Officer (‘AO’) was entitled to make a transfer pricing adjustment under Chapter X of the Act in respect of the AMP expenditure incurred by MSIL on the ground that such expenditure created brand value and marketing intangibles in respect of the brands/trademarks belonging to MSIL’s Associated Enterprise (‘AE’), Suzuki Motor Corporation, Japan (hereinafter ‘SMC’). HELD by the High Court: Advertisement & Market Promotion (AMP) – Adjustment for Advertisement & Market Promotion (AMP) expenses cannot be made on the basis that there is an assumed “international transaction” with the AE because the advertisement expenditure of the Indian company is “excessive”. Appeals of assessee was allowed by holding that AMP expenses incurred by MSIL cannot be treated as an international transaction under section 92B of the Act. (ITA No.110 of 2014 and 710 of 2015, dt. 11-12-2015. (AY. 2005-06, 2006-07)

Maruti Suzuki India Limited v. CIT (2016) 129 DTR 25 / 282 CTR 1(Delhi) (HC)

S.115JA : Book profit – Interest is chargeable even in case of assessment under section 115JA. [Ss. 234B, 234C]

Interest is chargeable even in case of assessment under section 115JA. (AY. 1997-98)

CIT v. Salgaokar Mining Industries (P.) Ltd (2015) 122 DTR 260 (Bom.)(HC)

S.127 : Power to transfer cases – Assessee should be supplied the information which formed basis of issuance of notice for centralisation of their cases

Assessees were issued show cause notices for centralisation of their cases. They requested to supply material information, which formed basis for issuance of notices. Request of assessees was turned down holding that such material would be supplied to them during course of assessment proceedings. On writ, allowing the petition the Court held that assessees should know gist of enquiry carried out against them and were also to be supplied adverse material gathered against them in order to enable them to represent their cases effectively before Commissioner and assessees were entitled to pre-decisional hearing in order to contest show cause notices.

Virbhadra Singh v. CIT (2015) 233 Taxmann 269 (HP)(HC)

S.132(4) : Search and seizure –Statement on oath – Addition which was made only on the basis of statement recorded after two and half months of search was held to be invalid. [Ss. 132, 158B, 158BC, Constitution of India, Article 20(3), Evidence Act, 1872, S.31]

Dismissing the appeal of revenue the Court held that no incriminating material having during search, block assessment made solely on the basis of statement of assessee recorded under section 132(4) was invalid, more so when such statement was recorded after two and half months of search and was retracted.

CIT v. Naresh Kumar Agarwal (2015) 122 DTR 339 (AP)(HC)

S.142A : Estimate by Valuation Officer – Cost of construction – reference to DVO cannot be made without rejecting the books of account on some legal or justified basis [S.147]

Where books of account in respect of cost of construction are maintained, reference to DVO cannot be made without rejecting said books of account on some legal or justified basis. (AYs. 2004-05, 2005-06, 2007-08, 2009-10)

CIT v. Freedom Board & Paper Mills (2015) 231 Taxmann 719 (P&H)(HC)

S.143(2) : Assessment – Notice – Failure to issue a S. 143(2) notice renders the reassessment order void. S. 292BB saves a case of “non service” of the notice but not a case of “non issue” [s. 292BB]

The failure of the AO, in reassessment proceedings, to issue notice under Section 143(2) of the Act, prior to finalising the reassessment order, cannot be condoned by referring to Section 292BB of the Act. Section 292BB applies in so far as failure of “service” of notice is concerned and not with regard to failure to “issue” notice. The non-issue of the said notice is fatal to the order of reassessment. (ITA No. 519/2015, dt. 14-10-2015) (AY. 2008-09)

Pr.CIT v. Shri Jai Shiv Shankar Traders Pvt. Ltd. (Delhi)(HC); www.itatonline.org

S.143(3) : Assessment – Amalgamation – Non-existent assessee – Successor-company – Null and void – Not curable defects. [S. 292B]

Assessee-company was amalgamated with respondent-company , with effect from 1-4-2004. For relevant assessment year, assessee filed its return on 28-11-2003 and assessment order was passed on 27-3-2006. On appeal CIT(A) gave partial relief to assessee. Asssessee and revenue filed appeal before the Tribunal. The Tribunal allowed the appeal of the respondent company and quashed the assessment order by the Assessing Officer holding that the assessment proceedings against SSS Ltd. (which was non-existent on the date of passing of the assessment order) was not valid proceedings. On appeal by the revenue dismissing the appeal the Court held that Assessment order passed by Assessing Officer on assessee after being intimated about its merger with respondent. company was without jurisdiction and null and void. Provisions of section 292B would not make assessment valid as a defect/omission to incorporate name of successor company in assessment order was not a procedural irregularity but it went to root of matter. (AY. 2003-04)

CIT v. Intel Technology India (P.) Ltd. (2015) 232 Taxmann 279/(2016) 380 ITR 272 (Karn.)(HC)

S.143(3) : Assessment – Estimate of income – Enquiry by excise authorities cannot be sole basis for estimation of income – Method adopted by the Tribunal was held to be justified

Dismissing the appeal of revenue the Court held that the provisions under the two laws, viz., the Central Excise Act and the Income-tax Act, operate in two different fields. Without there being an independent enquiry by the taxing authorities the demand made under the provisions of the Central Excise Act cannot be incorporated as such, especially when the notice of demand had been modified by the adjudicating authority. The method adopted by the Commissioner (Appeals) with regard to taxation under the Income-tax Act, as affirmed by the Tribunal, was the correct method of determining the income based on the unaccounted turnover. (AY 2002-03, 2003-04, 2004-05)

CIT v. Amman Steel and Allied Industries (2015) 377 ITR 568 (Mad.) (HC)

S.143(3) : Assessment – Notice – Limitation – Service of notice beyond one year – Order void ab initio. [S.143(3)]

Notice under section 143(2) served upon assessee beyond period of one year barred by limitation. Assessment was held to be void ab initio. (AY. 1999-2000)

CIT v. Gujarat Foils Ltd. (2015) 377 ITR 324 (Guj.) (HC)

S.144C : Reference to dispute resolution panel – Empowered to examine issues arising out of assessment proceedings even though such issues are not part of subject-matter of variations suggested by Assessing Officer.[S.147 ]

In terms of Explanation to section 144C(8), Dispute Resolution Panel is empowered to examine issues arising out of assessment proceedings even though such issues are not part of subject matter of variations suggested by Assessing Officer. Reassessment was also quashed. AY. 2008-09)

Lahmeyer Holding GMBH v. Dy. DIT (2015) 376 ITR 70/232 Taxman 829 (Delhi)(HC)

S.147 : Reassessment – Assessing Officer has to form his own opinion – Reassessment on the basis of Audit objection was held to be bad in law. [S.148 ]

Allowing the petition the Court held that Reopening of assessment to take remedial action pursuant to audit objections as per Instruction No. 9 of 2006 is not valid if AO disagrees with the objections. Instruction No. 9 cannot override the requirement in s. 147 that AO should form his own belief that income has escaped assessment. (AY. 2004-05)( WP. No. 6729/2011, dt. 14-1-2016)

Sun Pharmaceuticals Industries Ltd. v. DCIT (Delhi) (HC); www.itatonline.org

S.147 : Reassessment – Non-furnishing of reasons for reopening to assessee renders reassessment void. [Ss. 143(1), 148]

The question of non-furnishing the reasons for reopening an already concluded assessment goes to the very root of the matter. After filing of the return in response to the notice issued under Section 148 of the Act or on request of the assessee requesting that the return of income initially filed be treated as a return of income filed in response to such notice, the assessee is entitled to be furnished the reasons for such re-opening, which can also be challenged independently. Since such reasons had not been furnished to the appellant, even though a request for the same had been made, we are of the opinion that proceedings for the reassessment could not have been taken further on this ground alone. (WA No. 218/2015(T-IT), dt. 14-8-2015) (AY. 2006-07)

Kothari Metals v. ITO (Karn.) (HC); www.itatonline.org

S.147 : Reassessment – Department is warned not to harass taxpayers by reopening assessments in a mechanical and casual manner. Pr. CIT directed to issue instructions to AOs to strictly adhere to the law explained in various decisions and make it mandatory for them to ensure that an order for reopening of an assessment clearly records compliance with each of the legal requirements. AOs also directed to strictly comply with the law laid down in GKN Driveshafts (2003) 259 ITR 19 (SC) as regards disposal of objections to reopening assessment [S.148 ]

(i) The Court is of the view that notwithstanding several decisions of the Supreme Court as well as this Court clearly enunciating the legal position under Section 147/148 of the Act, the reopening of assessment in cases like the one on hand gives the impression that reopening of assessment is being done mechanically and casually resulting in unnecessary harassment of the Assessee.

(ii) The Court would have been inclined to impose heavy costs on the Revenue for filing such frivolous appeals but declines to do so since the appeals are being dismissed ex parte. However, the Court directs the Revenue through the Principal Chief Commissioner of Income Tax (Pr CIT) to issue instructions to the AOs to strictly adhere to the law explained in various decisions of the Supreme Court and the High Court in regard to Sections 147/148 of the Act and make it mandatory for them to ensure that an order for reopening of an assessment clearly records the compliance with each of the legal requirements. Secondly, the AOs must be directed to strictly comply with the law explained by the Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer (2003) 259 ITR 19 (SC) as regards the disposal of the objections raised by the assessee to the reopening of the assessment. (ITA 768/2015, dt. 12-10-2015) (AY.2002-03)

Pr. CIT v. Samcor Glass Ltd. (Delhi) (HC) ; www.itatonline.org

S.147 : Reassessment – After expiry of four years – Business income – Capital gains – Order passed within four weeks from date of rejection of assessee’s objections- Reassessment was held to be bad in law. [Ss. 28(i), 45 143(3), 148 ]

Assessee, a member of BSE, filed his return declaring income from sale of shares as capital gains. Assessing Officer completed assessment under section 143(3) accepting assessee’s treatment in respect of income in question . After expiry of four years from end of relevant year, Assessing Officer sought to reopen assessment on ground that assessee was a trader holding shares as stock-in-trade and, thus, income from sale of shares was to be taxed as business income. On Writ allowing the petition the Court held that at time of making assessment, assessee had given complete details giving names of scrips, purchase quantity, sale quantity, period of holding profit earned etc. Therefore in absence of any failure on part of assessee to disclose all material facts necessary for assessment, initiation of reassessment proceedings merely on basis of change of opinion was not sustainable. Court also held that; Assessing Officer passed assessment order within period of four weeks from date of rejection of assessee’s objections to reopening of assessment, order so passed being invalid, same deserved to be set aside. (AY. 2007-08)

Bharat Jayantilal Patel v. UOI (2015) 233 Taxmann 98 (Bom.)(HC)

S.147 : Reassessment – After the expiry of four years – Objections should be disposed by the Assessing Officer by passing speaking order – Disallowance of expenditure on exempt income –There was no failure to disclose all relevant facts – Reassessment was quashed. [Ss.14A, 148]

Allowing the petition, the Court held that Assistant Commissioner without making any reference to assessment and appellate proceedings or specific disallowances filed an affidavit in reply in court and merely copied reasons which had been recorded by her predecessor. Court held that a speaking order was required to be passed dealing with objections and reproduction of reasons and reiterating them again was no compliance with law laid down by court . Further there being nothing on record to suggest that assessee had failed to fully and truly disclose all materials facts necessary for assessment for relevant assessment year, impugned notice seeking to reopen assessment beyond four years was to be quashed and set aside. (AY. 2007-08)

Godrej Industries Ltd. v. Dy. CIT (2015) 232 Taxmann 380 (Bom.)(HC)

S.147 : Reassessment – Within four years – Change of opinion – Order of Commissioner (Appeals) – Independent application of mind is required – Reassessment was held to be bad in law. [S. 148]

The assessee and others were co-operative societies manufacturing sugar out of sugarcane supplied by their members. Their assessments had been completed under section 143(3) accepting returned income. Notices under section 148 were issued to reopen assessment inter alia on the ground that by paying amount to the cane growers in excess of the Statutory Market Price (SMP) declared by the Govt., the assessees were passing/distributing their profits and to that extent there was escapement of income. The assessees filed objections to the notices but the Assessing Officer rejected same. On writ; allowing the petition the Court held that; on basis of order passed by Commissioner (Appeals) in case of some other assessee satisfaction of Assessing Officer and formation of opinion in case of present assessee cannot be sustained; such satisfaction can be said to be a borrowed satisfaction from another officer which in absence of any application of mind and any real finding in case of assessee does not constitute valid reason to believe that income has escaped assessment. The Court held that reassessment on the basis of change of opinion was bad in law. (AY. 2007-08)

Shree Chalthan Vibhag Khand v. Dy. CIT (2015) 376 ITR 419 /233 Taxman 469 / 281 CTR 389 (Guj.)(HC)

S.147 : Reassessment – Within four years – Free trade zone –Setting off losses of other units – Query was raised in the original assessment proceedings – Reassessment notice was held to be bad in law. [S.10A]

Assessing Officer issued reassessment notice on basis that assessee claimed section 10A deduction without setting off losses of other unit – Assessee objected to reassessment order by stating that complete facts relevant to section 10A deduction were before Assessing Officer during course of original assessment – Further a specific query had been raised by Assessing Officer in relation to section 10A deduction, after which Assessing Officer passed order under section 143(3) allowing deduction – Whether thus reopening assessment would be a clear case of revisiting claim which was clearly impermissible.(AY. 2007-08)

Capgemini India (P.) Ltd. v. ACIT (2015) 232 Taxman 149 (Bom.)(HC)

S.147 : Reassessment – Change of opinion – Labour charges – Subsequent assessment year – Reassessment was held to be bad in law. [S. 37(1), 148]

In regular assessment proceedings the Assessing Officer had called upon assessee to give details of labour charges. Assessee made available said details along with quantum of work done by each of labour contractor, TDS amount on labour charges and sample bills. It was only after Assessing Officer was satisfied with claim of labour charges that he accepted claim of assessee in regular proceedings . Later on, Assessing Officer on basis of material obtained during subsequent assessment year which indicated that deduction on account of labour charges had been excessively claimed, re-opened assessment for current year. Dismissing the appeal of the revenue the Court held that reopening of assessment was a mere change of opinion and could not be sustained. (AY. 2004-05)

CIT v. Srusti Diam (2015) 232 Taxmann 127 (Bom.)(HC)

S.147 : Reassessment – Intimation – Bogus purchases – The assessment is reopened on the ground of “bogus purchases”, the reasons must contain an averment of which details on record reflect the bogus purchases. [S.143 (1), 148]

Allowing the petition the Court held that; It is settled legal position as held by a catena of decisions that the substratum for formation of belief that income liable to tax has escaped assessment has to form part of the reasons recorded. In the present case, the substratum for formation of belief, as indicated in the order rejecting the objections as well as the affidavit-in-reply, is the information given by the DGIT (Inv.), Mumbai, which got no relation with the reasons recorded, which are stated to be based upon the material available on record. Under the circumstances, the Assessing Officer, on the basis of the material on record, could not have formed belief that there was any escapement of income chargeable to tax so as to validly assume jurisdiction under section 147 of the Act. As held by the Supreme Court in a catena of decisions, the reasons recorded cannot be supplemented in the affidavit or by the order rejecting the objections. The material, on the basis of which, the belief that income chargeable to tax has escaped assessment has been formed, has to find place in the reasons itself.

(ii) In the aforesaid premises, the formation of belief that income has escaped assessment not being based upon record, it is evident that the substratum for reopening the assessment is not laid in the reasons recorded, but on material extraneous thereto. Under the circumstances, the basic requirement for assumption of jurisdiction under section 147 of the Act for reopening the assessment is not satisfied in the present case. The impugned notice under section 148 of the Act, therefore, cannot be sustained.(CA. No. 12873-75 of 2014, dt. 13-10-2015) (AY. 2009-10 )

Varshaben Sanatbhai Patel v. ITO (2016) 129 DTR 261 (Guj.)(HC); www.itatonline.org

S.147 : Reassessment – Objection – Assessing Officer was bound to decide objections on merits and pass an order, disposing of objections. [S.148]

Assessments were completed under section 143(1) and 143(3). Thereafter notices under section 148 were issued stating to file returns of income within 30 days from service of notices. The assessee raised objections against the reopening of the assessments and the Assessing Officer had disposed of the said objections without dealing anything on merits and solely on the ground that the assessee had not filed returns of income within a period of 30 days from the receipt of the notice under section 148.On writ allowing the petition the Court held that; the Assessing Officer was bound to decide objections on merits and orders, disposing of objections on ground that assessee had not filed returns of income within a period of 30 days from service of notices, were to be quashed and set aside and matter was to be remanded to Assessing Officer to consider, decide and dispose of objections on its own merits. (AY. 2007-08, 2009-10)

Pushpak Bullion (P.) Ltd. v. Dy. CIT (2015)379 ITR 81 / 233 Taxmann 326 (Guj.)(HC)

S.147 : Reassessment – Once reassessment was held to be valid, the Assessing Officer is empowered to make addition even on ground on which reassessment notice might not have been issued. [S. 143(3), 148]

Court held that in view of Explanation 3 to section 147, Assessing Officer is empowered to make addition even on ground on which reassessment notice might not have been issued, therefore, if notice under section 148(2) is found to be valid, then addition can be made on all grounds or issues which may come to notice of Assessing Officer subsequently during course of proceedings under section 147, even though reason for notice for ‘such income’ which may have escaped assessment, may not survive. (AY. 2004-05)

N. Govindaraju v. ITO (2015) 377 ITR 243 /233 Taxmann 376 / 280 CTR 316 (Karn.)(HC)

S.151 : Reassessment – After the expiry of four years – Sanction for issue of notice – Sanction has to be by Joint Commissioner and not by Commissioner – Order passed with approval of Commissioner was held to be bad in law- Not curable defects. [S. 143(1),147, 148, 292B]

Dismissing the appeal of revenue the Court held that where reassessment proceedings were initiated after expiry of four years from end of relevant years, sanction for issuance of notice for reassessment proceedings was to be granted by Joint Commissioner and not by Commissioner. The Court also invoke the principle enunciated by the Privy Council in Nazir Ahmad v. Emperor AIR 1936 PC 253 that if the statute mandates that something be done in a particular manner, it should be in that manner or not at all. The Court also relying on the ratio in CIT v. S.P.L’s Siddhartha Ltd. (2012) 345 ITR 223 (Delhi)(HC) rejected the revenue‘s contention about its application holding that where a jurisdictional infirmity strikes at the root, in validating the Issuance of notice, Section 292B cannot be rescue it .(AY. 2002-03)

CIT v. Soyuz Industrial Resources Ltd. (2015) 232 Taxman 414 (Delhi) (HC)

S.153C : Assessment – Income of any other person – Search and seizure – Intimation–Amalgamation – Notice was issued to transferor company –since such notice had not been issued to transferee-company, entire proceedings were a nullity. [S.143(3)]

Assessee-company amalgamated with other company with effect from 1-4-2008 and this fact was intimated to revenue. While so, revenue issued notice under section 153C to assessee on basis of search conducted in premises of some other parties – Despite assessee’s objection that it ceased to exist on account of its amalgamation, Assessing Officer completed assessment in name of assessee-company – Whether since assessee had amalgamated with transferee-company, notice ought to have been sent to latter, and since such notice had not been issued to transferee-company, entire proceedings were a nullity. (AY. 2003-04 to 2008-09)

CIT v. Micra India (P.) Ltd. (2015) 231 Taxmann 809 (Delhi)(HC)

S.153C : Assessment – Income of any other person – Recording of satisfaction – No satisfaction was recorded before issue of notice – Order was quashed. [S.132]

Assessee was a partnership firm carrying on business of steel fabricators. A search was conducted against partners of assessee-firm under section 132(1). On bases of seized material, Assessing Officer issued notice under section 153C calling upon assessee to file returns for assessment years in question. Assessee filed its return declaring certain taxable income. Assessing Officer completed assessment under section 153C, read with section 143, making various additions to assessee’s income. Tribunal held that no satisfaction had been recorded by the Assessing Officer before issuing of notice under section 153C. Further, none of the papers seized belonged to assessee in course of search proceedings carried out at premises of its partner hence order was quashed. On appeal by revenue, High Court affirmed the order of Tribunal. (AY. 2000-01 to 2006-07)

CIT v. Mechmen 11-C (2015) 233 Taxmann 540 / 280 CTR 198 (MP)(HC)

S.153C : Assessment – Recording of satisfaction – Assessing Officer same – Recording of satisfaction is mandatory – As no satisfaction was recorded order was held to be bad in law. [S. 132,153A]

A search and seizure operation under section 132 was carried out in the group case of TYG and others. During the course of search documents belonging to the assessee had been seized. On that basis the Assessing Officer initiated action against the assessee and consequently framed an assessment under section 153C. On appeal the Tribunal quashed the assessment on the ground that there was no satisfaction recorded by the Assessing Officer having jurisdiction over the searched person despite the fact that the Assessing Officer of the assessee and the Assessing officer of the searched person were the one and the same. On appeal by the revenue dismissing the appeal the Court held that recording of satisfaction is a pre-condition for invoking jurisdiction under section 153C and, therefore, Tribunal had correctly followed principle in quashing assessment framed. (AY. 2009-10)

CIT v. Shettys Pharmaceuticals & Biologicals Ltd. (2015) 232 Taxmann 268 (AP)(HC)

S.158BD : Block assessment –Recording of satisfaction is mandatory – Mere stating that in the course of search of third party certain cash belong to the assessee was found cannot be the ground to initiate proceedings without recording proper satisfaction. [S.158BC ]

Dismissing the appeal of revenue, the Court held that; the copy of the satisfaction recorded by the Assessing Officer, reads that in the course of search and seizure of the house of one MM, some documents related to assessee were found and seized. Therefore, the jurisdiction over the assessee had been assigned by Commissioner and in view of provisions of section 158BD, notice under section 158BC issued. On perusal of the same, it is found that no satisfactory reasons were assigned by the Assessing Officer in order to issue a notice under section 158BD as held by the Tribunal. In addition, it is also seen that the revenue did not show any reasons for non-production of the reasons recorded for the satisfaction of the Assessing Officer to issue notice under section 158BD before the Tribunal when time was granted for one year to the revenue to produce the same. Even in this appeal, no explanation is offered except stating that reasons were recorded. When there is no explanation offered by the revenue for non-production of the document before the Tribunal for more than an year and having held that reasons recorded would not constitute satisfactory reasons, it is to be held that there is no merit in this appeal.

CIT v. SSK Tulajabhavani Kalyan Mantap Kattd Samithi (2015) 232 Taxmann 262 (Karn.)(HC)

S.158BD : Block assessment – Undisclosed income of any other person – Satisfaction – Even if the Assessing Officer is same, recording of satisfaction is mandatory. [S.132A, 158BC ]

Requirement of section 158BD, that Assessing Officer of person searched or against whom an order under section 132A has been passed, should be satisfied that any undisclosed income belongs to a third person, is statutory mandate and a jurisdictional prerequisite before proceedings under section 158BD are initiated and violation of said requisite and mandatory requirement would result in annulment of assessment under section 158BD read with section 158BC. Merely because Assessing Officer of person searched and Assessing Officer of assessee were same, this would not mean that Assessing Officer of person searched should not have recorded satisfaction before notice was issued under section 158BD read with section 158BC. In the instant case, no satisfaction note recorded by the Assessing Officer of the person searched is available. In these circumstances and in view of the decision of the Supreme Court in CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC) the block assessment proceedings initiated under section 158BD read with section 158BC were bad and contrary to law.

CIT v. Manju Finance Corporation (2015) 231 Taxmann 44 (Delhi)(HC)

S. 158BD : Block assessment –Undisclosed income of any other person – Specific recording of reason is a mandatory requirement

The Assessing Officer and the CIT(A) completed block assessment proceedings u/s. 158BD. On assessee’s appeal, the Tribunal held that the Assessing Officer should record satisfaction. In the instant case, the communications available with the Assessing Officer show that certain facts with regard to question were communicated, but there is no specific recording of reasons for resort of block assessment. On Revenue’s appeal to the High Court, it held that recording of reason is a mandatory requirement as contemplated u/s .158BD and therefore, it didn’t find any error in the Tribunal’s Order.

ACIT v. J. B. Enterprises (2015) 117 DTR 254 (MP)(HC)

S.170 : Succession to business otherwise than on death – Appeal – Merger – Jurisdiction – Subsequent to merger, company was assessed at Gurgaon – Order was passed by the Assessing Officer at Bangalore – Bangalore Tribunal deciding the appeal – Appeal was filed at Punjab and Haryana High Court – No jurisdiction to adjudicate upon Lis over an order passed by Assessing Officer at Bangalore. [S.260A]

For relevant assessment year, original company MIEPL was assessed at Bangalore on27-3-2006. In meantime, it merged with respondent assessee (which was assessed at Gurgaon) with effect from 1-4-2005, which filed appeals against assessment order before Commissioner (Appeals) and Tribunal at Bangalore. Tribunal decided in favour of assessee. Revenue filed appeal before Punjab and Haryana High Court against order of Tribunal. Dismissing the appeal of revenue the Court held that once assessment of MIEPL was at Bangalore, subsequent merger of that company would not give right to assessing authorities who had jurisdiction over successor company and only Assessing Officer of predecessor company would have jurisdiction which was at Bangalore, therefore, Punjab and Haryana High Court had no territorial jurisdiction to adjudicate upon lis over an order passed by Assessing Officer at Bangalore. (AY. 2003-04)

CIT v. Motorola Solutions India (P.) Ltd. (2015) 232 Taxmann 608 (P&H)(HC)

S.172 : Shipping business – Non-residents – Shipping companies assessed u/s. 172 are not subject to deduction at source obligations u/s. 195 [S. 40(a)(ia), 44B,195]

As a Division Bench of the Bombay High Court was unable to agree with the view taken in Commissioner of Income-tax vs. Orient (Goa) Private Limited 325 ITR 554, the Full Bench had to consider the question “Whether, while dealing with the allowability of expenditure under section 40(a)(i) of the Income Tax Act, 1961, the status of a person making the expenditure has to be a non-resident before the provision to section 172 of the Act can be invoked?” HELD by the Full Bench overruling CIT vs. Orient (Goa) Private Limited 325 ITR 554:

(i) A bare perusal of s. 44BB indicates as to how this provision covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. That stipulates a sum equal to 7 % of the aggregate ½ of the amount specified in sub-section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head “Profits and Gains of Business or Profession”. It is the explanation which refers to the demurrage and for the purpose of sub-section (2) of section 44B. It clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for the purposes of sub-section (1) deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The amounts which are paid or payable whether in or out of India to the assessee or to any person on his behalf on account of carriage of passengers, livestock, mail or goods shipped at a port in India and the amount received was deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods shipped at any port outside India shall be deemed to be the profits and gains. On that the tax is payable by virtue of sub-section (1) of section 172. That has to be levied and recovered in terms of the sub-sections of section 172 of the Income Tax Act. Once section 172 falls in Chapter XV titled as Liability in Special Cases – Profits of Non-residents, then section 172 is referable to section 44B. Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195.

(ii) To our mind, the Division Bench judgment in Commissioner of Income-tax v. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business.

(iii) The resident assessee contended before the Division Bench in Orient (Goa) (supra) as well as the Division Bench which made the referring order that section 172 of the Income-tax Act has a bearing and an important one on the obligation to deduct tax at source. Therefore, it is the recipient’s position and the perspective in which the recipient’s income would be taxed will have to be borne in mind. The non-resident shipping company in respect of its income would be in a position to rely upon section 44B and consequently section 172. However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian/foreign company, assistance can be derived by such non-residents from section 44B if they are in shipping business. It would also be in a position to rely upon section 172 but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 cannot be avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 of the IT Act and none else.(ITA No. 989 of 2015, dt. 5-2-16)(AY.1999-2000)

CIT v. V. S. Dempo & Co Pvt Ltd (FB) (Bom)(HC); www.itatonline.org

S.195 : Deduction at source –Business connection – Foreign company is not chargeable to tax in India – Not liable to deduct tax at source – DTAA-India-USA [S.9(1)(i), 201(1), 201(IA) Art. 5, 7]

Dismissing the appeal of revenue the Court held that ; where recipient of income, a foreign company, is not chargeable to tax in India, then question of deduction of tax at source by payer-assessee would not arise. (AY. 1999-2000, 2000-01)

CIT v. ITC Hotels Ltd. (2015) 233 Taxmann 302 (Karn.)(HC)

S.234C : Interest – Deferment of advance tax – Waiver of interest –Case which was not falling under such notified classes, would not be entitled to waiver of interest. [Ss. 119, 234A, 234B

Assessee filed petition seeking waiver of interest under section 234C on basis of Notification dated 26-6-2006 issued by CBDT under section 119(2)(a) which was dismissed by the Commissioner. On writ dismissing the petition the Court held that Income-tax authorities are authorised to waive off interest under sections 234A, 234B and 234C only for such classes of income and cases for which general or special orders have been issued by CBDT, since assessee’s case was not falling under such notified classes, he would not be entitled to waiver of interest under section 234C. (AY. 1990-91)

Fertilizers & Chemicals Travancore Ltd. v. Dy. CIT (2015) 377 ITR 591 /233 Taxmann 29 (Ker.)(HC)

S.254(1) : Appellate Tribunal –Cross objection – Cross appeal – Where the assessee is aggrieved against any disallowance by the order of the Commissioner (Appeals) which is not under challenge before the Tribunal at the behest of the Revenue, Rule 27 cannot be invoked. [S. 68, ITAT, Rule 27]

The assessee was a partnership firm engaged in the business of manufacturing and sale of knitted cloth. Consequent upon search and seizure, the Assessing Officer (AO) made certain additions after rejecting books of account u/s. 145(3). The major addition of ` 37.30 lakhs was made as cash credit u/s. 68. On appeal, the Commissioner (Appeals) partly allowed the appeal deleting the said addition of ` 37.30 lakhs and rejecting the other additions. Aggrieved by the CIT(A) order, the Revenue filed an appeal before the Tribunal. However, the assessee chose to file an application under Rule 27, to assail that part of order passed by the Commissioner (Appeals) which was decided against it. The Tribunal allowed revenue’s appeal and dismissed the application filed under Rule 27 by the assessee as not maintainable. In respect to Rule 27, the Tribunal held that the assessee is entitled to support the order appealed against and raise defence against the appeal filed by the Revenue on any of the grounds which have been decided against him. However, cannot invoke the said rule to claim any fresh relief which was denied by the Commissioner (Appeals) and which is not part of the ground so raised by the revenue. On an appeal, the High Court held that where the assessee is aggrieved against any disallowance or addition sustained by the Commissioner (Appeals) which is not under challenge at the behest of the revenue, the only remedy available with the assessee is to either file separate appeal or agitate the issue by way of cross objections impugning the disallowance or the addition sustained. Thus, The Tribunal had rightly not allowed the assessee to invoke Rule 27 of the ITAT Rules. (AY. 2005-06)

Self-Knitting Works v. CIT (2014) 227 Taxmann 253 / (2015) 116 DTR 319 (P&H)(HC)

S.254(2A) : Appellate Tribunal –Stay – Tribunal has power to grant stay beyond 365 days. [S.254(1)]

Dismissing the writ petition of revenue; the Court held that as the Third Proviso which restricts the power of the ITAT to grant stay beyond 365 days “even if the delay in disposing of the appeal is not attributable to the assessee” has been struck down in Pepsi Foods Pvt Ltd v. ACIT (2015) 376 ITR 87 (Del.) as being arbitrary, unreasonable and discriminatory. The law laid down in Narang Overseas (P) Ltd. v. ITAT (2007) 295 ITR 22 (Bom.) & CIT v. Ronuk Industries Ltd (2011) 333 ITR 99 (Bom.) that the ITAT has power to grant stay beyond 365 days has to be followed. (AY. 2009-10 to 2012-13)(WP. No. 3437 of 2015, dt. 16-12-2015)

CIT v. Tata Teleservices (Maharashtra) Ltd. (Bom) (HC); www.itatonline.org

S.271(1)(c) : Penalty – Concealment – If the notice is issued without application of mind (by striking out the relevant part in the notice), the penalty proceedings are invalid. [s. 271(1)(b), 271(IB)]

The assessee filed a return of income claiming certain deductions as revenue expenditure disclosing the same under the head ‘financial expenses’ in the return of income filed by him. This return was taken for scrutiny and after adjudication, the Assessing Officer held that the claim made by the assessee as revenue expenditure is capital in nature and allowed the deduction claimed by the assessee. Having held so, separate proceedings were initiated under Section 271(1)(c) of the Act to levy penalty for wilful concealment of the particulars of income and for furnishing inaccurate particulars of such income. In the printed proforma issued by the Assessing Officer under Section 274 read with Section 271 of the Act the Assessing Officer has deleted the paragraph relating to “have concealed the particulars of your income or furnished inaccurate particulars of such income” and has put a right mark on the printed form relating to the para “failure to comply with a notice under sections 22(4)/23(2) of the Indian Income-tax Act, 1922 or under sections 142(1)/143(2) of the Income-tax Act, 1961” which corresponds to Section 271(1)(b) of the Act. The High Court had to consider whether such a notice is proper in law. HELD by the High Court:

(i) It is clear that the notice is issued proposing to levy penalty under Section 271(1)(b) of the Act whereas the order is passed by the Assessing Officer under Section 271(1)(c) of the Act which clearly indicates that there was no application of mind by the Assessing Officer while issuing the notice under Section 274 of the Act. It is imperative from the order under Section 271(1)(c) of the Act that the Assessing Officer noticed that the assessee has declared the revenue expenditure in the financial expenses which was capital in nature. This is based on the verification of details of the return of income filed by the assessee. If so, there was no occasion for the Assessing Officer to come to a conclusion that there was concealment of the income by the assessee or the assessee has filed inaccurate particulars. The very particulars were available in the return of income.

(ii) This clearly indicates that the Assessing Officer had no jurisdiction to pass the penalty order under Section 271(1)(c) of the Act without issuing a proper notice as required under law and moreover, when the particulars are disclosed in the return of income.

(iii) As regards Section 271(1-B) of the Act, it clearly indicates that the assessment order should contain a direction for initiation of proceedings. Merely saying that the penalty proceedings have been initiated would not satisfy the requirement, a direction to initiate proceeding shall be clear and not be ambiguous.

(iv) In the light of the said judgment of the Co-ordinate Bench in CIT vs. Manjunatha Cotton And Ginning Factory 350 ITR 565 (Kar.), we are of the considered view that the Assessing Officer has not applied his mind at the time of issuing notice under Section 274 r/w Section 271(1)(b) of the Act. This view is fortified by the order passed under Section 271(1)(c) of the Act. No direction is coming forth in the assessments order for levying penalty which is mandatory as per Section 271(1B) of the Act. Considering the relevant factors, Appellate Commissioner has rightly allowed the appeal of the assessee setting-aside the orders passed by the Assessing Officer which has been reversed by the ITAT on the ground that the assessee deliberately evaded the payment of tax by declaring the capital expenditure as revenue expenditure in the ‘financial expenses’. In our considered opinion, for the reasons stated above, the order passed by the ITAT is not sustainable. Accordingly, we set aside the order of the ITAT and restore the order passed by the CIT(A) answering the substantial questions of law in favour of the assessee and against the revenue. (ITA No. 240/2010, dt. 25-1-2016) (AY. 2011-12)

Safina Hotels Private Limited v. CIT ( Karn.) (HC) ; www.itatonline.org

S.271(1)(c) : Penalty – Concealment – Claim of assessee was not accepted by Revenue – Levy of penalty was not justified

Dismissing the appeal of revenue the Court held that merely because the assessee made a claim which was not acceptable ipso facto the assessee could not be said to have made a wrong claim by furnishing inaccurate particulars attracting penalty. (AY 2007-08)

Pr. CIT v. G.K. Properties P. Ltd. (2015) 377 ITR 417 (T&AP) (HC)

S.271(1)(c) : Penalty – Concealment – Revised return was filed showing additional income – Penalty could not be levied [S.139(5)]

Dismissing the appeal of revenue the court held that the Tribunal which is the ultimate fact finding authority, after consideration of the evidence had found that there was no concealment of income, further scrutiny by way of reappreciation of evidence would be beyond the scope of the present appeal. The deletion of penalty was justified. (AY. 2005-06)

CIT v. Bhavinkumar M. Dagli (2015) 377 ITR 389 (Guj.) (HC)

S.271(1)(c) : Penalty – Concealment – Non compete fee – Capital or revenue – Based on legal opinion – Deletion of penalty was held to be justified

Dismissing the appeal of revenue the Court held that the assessee had disclosed material particulars in return. Assessee also had obtaining legal opinion that entire receipt of non-compete fees from foreign collaborator a capital receipt and not on account of transfer of any capital asset, therefore basis for taking amount of compensation as business income of assessee debatable and not a case of furnishing inaccurate particulars of income attracting penalty. (AY. 2004-05)

Pr. CIT v. Control and Switchgear Contractors Ltd. (2015) 377 ITR 215 (Delhi) (HC)

S.275 : Penalty – Bar of limitation – Penalty proceedings initiated on issues unrelated to assessment of income (such as for ss. 269SS / 269T & TDS defaults), time limit runs from date of initiation of penalty proceedings and not from date of CIT(A)’s order. [Ss. 269T, 271E, 275(1)(c)]

The AO initiated penalty proceedings as per assessment order passed u/s. 143(3) dated 28-12-2007. The AO passed a penalty order u/s. 271E dated 20-3-2012. The AO held that the time limit for passing of the penalty order had to be reckoned from the date of the passing of the order of the CIT(A) in the quantum appeal. The assessee claimed that the order of the CIT(A) was on a totally different issue and had no bearing on the issue on which penalty u/s. 271E was imposed. The CIT(A) accepted the assessee’s claim and held that the penalty order should have been passed within the financial year itself in which the penalty proceedings were initiated or within six months from the end of the month in which the penalty proceedings were initiated, whichever period expires later, and in the present case the penalty order could have been passed on or before 30-6-2008. He held that the penalty order passed u/s. 271E on 20-3-2012 is barred by limitation and deserves to be quashed on this ground alone. On appeal by the department, the Tribunal dismissed the appeal. On further appeal by the department to the High Court HELD dismissing the appeal:

(i) In terms of section 275(1)(c), there are two distinct periods of limitation for passing a penalty order, and one that expires later will apply. One is the end of the financial year in which the quantum proceedings are completed in the first instance. In the present case, at the level of the AO, the quantum proceedings was completed on 28th December, 2007. Going by this date, the penalty order could not have been passed later than 31st March 2008. The second possible date is expiry of six months from the month in which the penalty proceedings were initiated. With the AO having initiated the penalty proceedings in December 2007, the last date by which the penalty order could have been passed is 30th June 2008. The later of the two dates is 30th June 2008.

(ii) Considering that the subject matter of the quantum proceedings was the non-compliance with Section 269T of the Act, there was no need for the appeal against the said order in the quantum proceedings to be disposed of before the penalty proceedings could be initiated. In other words, the initiation of penalty proceedings did not hinge on the completion of the appellate quantum proceedings. This position has been made explicit in the decision in CIT v. Worldwide Township Projects Limited (2014) 269 CTR 444 in which the Court concurred with the view expressed in Commissioner of Income-tax v. Hissaria Bros. (2007) 291 ITR 244(Raj).(ITA No. 780/2015, dt. 13-10-2015) (AY. 2005-06)

Pr. CIT v. JKD Capital & Finlease Ltd. (2015) 378 ITR 614 (Delhi) (HC)

S.240 : Refunds – Appeal – Revised return was held to be invalid – Tax and interest paid on revised return was liable to be refunded to the assessee. [S. 4, 139(5), 148 Art. 265]

When revised return was held to be invalid; tax and interest paid on revised return was liable to refunded to by assessee. (AY. 1992-93)

K. Nagesh v. ACIT (2015) 376 ITR 473 /232 Taxmann 507 (Karn.)(HC)

S. 254(1) : Appellate Tribunal –Stay of prosecution proceedings – The ITAT has no jurisdiction to grant a stay of prosecution proceedings as such proceedings are not directly & substantially flowing from the orders impugned before it [S. 276C ]

Allowing the appeal of revenue the Court held that proceedings for prosecution are independent of assessment and penalty, and the Tribunal is neither the appellate nor the revisional authority in a case where prosecution is launched, the mere fact that the decision in the appeal may have an impact on the prosecution, in our considered opinion, cannot be used to read into the expressions “pass such orders thereon as it thinks fit” or “any proceedings relating to an appeal”, a power in the Tribunal to direct that prosecution or a show cause notice shall be kept in abeyance. There is another aspect of the case, namely, if such a power, as has been canvassed by the assessee, were available to the Tribunal, prosecution would have to await the final outcome of proceedings up to the Supreme Court. We are unable to discern any legislative intent or power as would confer upon the Tribunal power to stay consideration of a show cause notice proposing to initiate prosecution, by reading into Section 254, the power to stay independent proceedings merely because they may be affected by the decision of a pending appeal. The legislature having conferred power to grant stay in terms, used in Section 254 (1) and the first proviso, we cannot add to or subtract from the words and expressions used in Section 254(1) or by a process of interpretation confer jurisdiction which legislature did not intend to confer. A prosecution being a consequence of infractions by an assessee cannot be said to be act of harassment or mischief so as to confer power upon the Tribunal, to order that prosecution shall be kept in abeyance. (AY. 2008-09 )

Pr. CIT v. ITAT, & Jindal Steel& Power Ltd. (2015) 128 DTR 9/ 281 CTR 521 (P&H) (HC)

S.271(1)(c) : Penalty – Concealment – Amount was disclosed as capital receipt – Assessed as income – Just because explanation was not accepted in quantum proceedings, levy of penalty was held to be not valid. [S.45 ]

Dismissing the appeal of revenue the Court held that the disclosure of amount was made by assessee as a part of notes to its accounts as well as by a letter given along with return of income claiming same as not taxable, would be considered as a complete disclosure of all relevant facts, mere fact that explanation of assessee was not accepted in quantum proceedings would not ipso facto become a reason to levy penalty for concealment on assessee. (AY. 2005-06)

CIT v. S.M. Construction (2015) 233 Taxmann 263 (Bom.)(HC)

S.271(1)(c) : Penalty – Concealment – Stamp valuation – Department valuation was more than the agreement value – Deletion of penalty was held to be justified. [S.50C]

Stamp valuation, department valuation was more than the agreement value, deletion of penalty was held to be justified

CIT v. Fortune Hotels and Estates (P.) Ltd. (2015) 232 Taxmann 481 (Bom.)(HC)

S.80HHC : Export business – Industrial undertaking – Whether the assessee is entitled to deductions under all three sections, i.e. 80HHC, 80-IA, 80-IB, matter referred to larger Bench. [S. 80-IA(9), 80-IB]

Controversy on whether S. 801A(9) mandates whether the amount of profit allowed as deduction u/s. 80-1A(1) has to be reduced from the profits of the business of the undertaking while computing deduction under any another provision under heading “C” in Chapter VI-A of the Income-tax Act, 1961 is referred to larger Bench. While Hon’ble Mr. Justice Anil R. Dave took the view that the judgment of the Delhi High Court in Great Eastern Exports v. CIT [2011] 332 ITR 14 (Delhi) laid down the correct position in law and allowed the appeals of the Revenue, Hon’ble Mr. Justice Dipak Misra dissented and held that the law laid down by the Bombay High Court had in Associated Capsules Private Limited v. Dy. CIT [2011] 332 ITR 42 (Bom.) lays down the correct position in law and dismissed the appeals of the Revenue. In view of difference of opinion, the matters have been referred to a larger Bench in terms of signed reportable judgment. The Registry has been directed to place the matters before the Hon’ble the Chief Justice of India.

ACIT v. Micro Labs Ltd.( 2016) 380 ITR 1 (SC)

S.143(3) : Assessment – Natural justice – Denial of opportunity to cross examine witness – Failure to give the assessee the opportunity to cross-examine witnesses whose statements are relied upon results in breach of principles of natural justice. It is a serious flaw which renders the order a nullity. [Central Excise Act, 1944, S. 3, Rules 1944, R. 173C)

The assessee raised a plea that it was not allowed to cross-examine the dealers whose statements were relied upon by the Adjudicating Authority while passing the order. However, the Tribunal rejected the plea on the basis that “The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex-factory prices remain static”. On appeal by the assessee to the Supreme Court HELD allowing the appeal:

Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

Andaman Timber Industries v. CCE (2015) 127 DTR 241/ 281 CTR 241 (SC)

S.147 : Reassessment – Intimation – Change of opinion – Intimation is not an assessment, there is no question of “change of opinion” by the Assessing Officer – Reassessment was held to be valid. [Ss. 143(1), 148 ]

Intimation is not an assessment, there is no question of “change of opinion” by the Assessing Officer. Reassessment was held to be valid. (CA No. 6758 of 2004, dt. 17-4-2015) (AY. 1991-92)

DCIT v. Zuari Estate Development & Investment Co. Ltd. (2015) 373 ITR 661 /279 CTR 527 / 124 DTR 222 / (2016) 236 Taxman 1 (SC)

S.256 : High Court – Reference – Reference jurisdiction High Court should not act as an appellate Court to review findings of fact arrived at by the Tribunal by a process of reappreciation and reappraisal of the evidence on record

The Court held that it is well settled that issues of fact determined by the Tribunal are final and the High Court in exercise of its reference jurisdiction should not act as an appellate Court to review such findings of fact arrived at by the Tribunal by a process of reappreciation and reappraisal of the evidence on record. On merit dismissed the appeal of assesee. (AY.1984-85). (C. A. No. 1964 of 2008, dt. 18-1-2016)

Ganapathy & Co. v. CIT (SC); www.itatonline.org

S.271C : Penalty – Failure to deduct tax at source – Penalty cannot be levied if Department is unable to show contumacious conduct on the part of the assessee. [S. 201(1), 201(IA)]

The Tribunal deleted the levy of penalty u/s. 271-C for failure to deduct tax at source on the basis that the department has to show that there was “contumacious conduct on the part of the assessee, which was affirmed by the High Court. On appeal to the Supreme Court, HELD dismissing the appeal:“On facts, we are convinced that there is no substantial question of law, the facts and law having properly and correctly been assessed and approached by the Commissioner of Income Tax (Appeals) as well as by the Income Tax Appellate Tribunal. Thus, we see no merits in the appeal and it is accordingly dismissed. No costs. ”(C.A. No. 1704 of 2008, dt. 7-1-2016)

CIT v. Bank of Nova Scotia (SC) ; www.itatonline.org

Interpretation of taxing statues – Central Board of Direct Taxes – CBDT & Govt. are bound by their own interpretation of a statutory provision [S. 119]

Central Board of Direct Taxes – CBDT & Govt .are bound by their own interpretation of a statutory provision. Principle of “contemporanea expositio”. The word “or” can be interpreted as “and” if the former leads to unintelligible and absurd results. (CA No. 1978 of 2007, dt. 9-10-2015)

Spentex Industries Ltd. v. CCE (SC); www.itatonline.org.

My Dear Fellow Members, Brothers and Sisters in the AIFTP Family.

The clock ticks very fast as a proverb says time and tide never wait for anyone. The present is the second edition of my communiqué welcoming all the members in the AIFTP family. Though the beginning of the New Year has witnessed an irreparable loss to the Nation with the sudden and surprise call of God to the former Chief Justice of India Hon’ble Mr. Justice S. H. Kapadia on 5-1-2016, and as I have already stated in my condolence message that the loss to the nation and Indian Bar is a vacuum forever.

Friends you are all aware that the AIFTP Times is the mouthpiece for the Federation and now I must say to the consent and acceptance of one and all that journal is the life for the Federation, for, it is the staunch belief of everyone in the Federation that they are bestowed with the rare opportunity of updating and enriching their knowledge required for their growth, uplift, reputation and finally improved prosperity in the professional life by dint of the only companion namely the Journal. It is a much sought after one not only by the members of the AIFTP family but interestingly by outsiders also to say that many of the Hon’ble Judges of the Supreme Court and High Courts in the country eagerly look forward to receiving a copy of the journal and it may not be an exaggeration to say that some of the Hon’ble Judges have also offered to pay the cost of the journal. Such is the unchallenged reputation that the journal has earned in its appreciable life since a long time.

What is the great significance and much more love that the members look at it, the reason is simple firstly it provides an excellent and wonderful educative and knowledgeful information to the professional fraternity by way of digesting of the recent decision of the judiciary in our country. Secondly articles of very good interest by eminent authors and writers are brought about in the journal which would give an opportunity to know many more new things which one may not know or claim to know. Thirdly and importantly questions of general importance in day-to-day professional life in relation to direct and indirect taxation posed by our members are suitably and authoritatively answered by our senior and versatile professional brothers from all the above triple features, one must admit that the journal of the Federation is a mobile school of learning, thought provoking and knowledge. What more does any member require?

Friends, it is also felt by me as an essential feature in fulfilment of one of the objects of the Federation is to maintain and strive to maintain the independence of judiciary. It is a bad luck and I can also say with all respects to one and all that 15th instant i.e. Monday is a black day in the country and Indian Judiciary where, in contradiction to the hierarchy of the delivery of justice system, the order of a court inferior to the Supreme Court seeks to set aside or overrule or reverse the order of the superior court. But as one will say that the cart is before the horse as it so happened that in simultaneous passage of proceedings, order of a High Court is sought to be projected to outwit the order of the Apex Court. I am restricting and staying my hands at this point of time and at this stage, as the matter is subjudice. It is really an unfortunate situation in the country which concerns every citizen. A day will come of course with the prior approval of the NEC that the Federation would start or initiate dialogue on this issue at an appropriate time.

Friends, I would like to once again renew my appeal to all the life members of the Federation to pay their subscription to the journal so that more and more encouragement the journal would receive to march forward in this year of 40 years of its inception and I am sure that the hope of the journal would not be let down and on the other hand it would receive its due and legitimate laurels in future.

Friends, I take leave of all of you hoping that the hands of the president for constructive work would be strengthened.

Jai Hind !

Dr. M. V. K. Moorthy
National President

EXPECTATION FROM THE TAX BAR REFORM AND STABLE TAX REGIME STRUCTURAL CHANGES FOR BETTER ADMINISTRATION OF TAX LAWS

The Hon’ble Prime Minister of India, Shri Narendra Modi, in his address on the eve of Make in India week at Mumbai on 13th Feb., 2016, has promised more economic reforms and a stable tax regime. It is beyond doubt that the Government is making a very sincere attempt to bring about ease of doing business in India, so as attract more investments to India. We hope that the vision of the Hon’ble Prime Minister of India and the Hon’ble Finance Minister gets ingrained at the grass root level. Tax professionals highly appreciate the unequivocal steps taken by the Government to bring stability in tax laws and the firm assurance against any retrospective tax amendments. We are of the opinion that for achieving the dream of Hon’ble Prime Minister and Hon’ble Finance Minister following suggestions may be considered:

Mind set of tax officials in the field must be changed from tax collection to tax service;

Introduce Accountability provision under the tax laws as per the recommendation of Dr. Raja Chelliah Committee;

All instructions to the Assessing Officers may be made public;

All orders of Assessing Officers may be made appealable to Commissioner (Appeals) and all orders of Commissioners/Chief Commissioners may be made appealable to Tribunal;

For filing of appeals of revenue before Supreme Court the monetary limit may be increased from present limit of Rs. 25 lakh to Rs. 1 crore;

Transparency is needed in appointment of members of the Settlement Commission and also to be debated whether the power to settle the matter may be given to the ITAT;

In respect of domestic taxation issues, power to grant advance ruling may be given to ITAT by introducing provisions similar to those in the Maharashtra VAT Act;

Prosecution matters relating to Direct taxes may be decided by two Judicial Members of the ITAT;

Where substantial questions of law are involved and where different High Courts have taken different views, Tribunal should be able to refer the matter directly to the Supreme Court;

CBDT may publish the information where the Department has accepted the orders of High Courts or Tribunal;

CBDT may publish the list of matters admitted by various High Courts on various issues;

Guidelines issued regarding non-seizure of jewellery in cases of search were last revised in the year 1994. These limits may be increased;

Statement recorded in the course of search and survey may be directed to be furnished to the assessee within seven days of search or survey, as the case may be;

Compounding fee may be liberalised. Matters pending before Courts for more than 15 years may be compounded by prescribing minimum compounding fees;

Sections 54 & 54F may be amended to expressly provide that as long as the amount is invested the benefit of exemption may be given;

As suggested by Justice R. V. Easwar Committee, ICDS may be postponed at least for few years;

Huge litigation is on the issue of whether the profit on sale of investments in shares and securities or mutual fund is assessable as business income or capital gains. It may be clarified that if the investment is held at least for more than 30 days it may be treated as investment and those held for less than 30 days may be treated as stock-in-trade; this may bring clarity and help to reduce the litigation;

One of major sources of litigation is disallowance under section 14A. The said provision may be deleted, or alternatively the disallowance of expenditure may be restricted to 2% of dividend income or actual expenditure or as per rule 8D whichever is less;

Large number of the writ petitions before the High Courts are against initiation of reassessment proceedings, as some Assessing Officers do not follow the guidelines prescribed by the Apex Court and other High Courts. Field Officers may be educated on the law laid down by Apex Court and High Courts. Against the rejection order of the Assessing Officer, an optional appeal may be provided directly to the Tribunal which should be disposed of within three months of filing of appeal. This may help reduce substantial litigation before the High Courts.

Linking of all High Courts to the Supreme Court so that the option may be given to argue the matter before Supreme Court by sitting at the respective High Courts;

Strict implementation of time limit for passing orders by CIT(A) must be done;

Remand report must be furnished within one month of direction. In case the Assessing Officer is not able to send, he has to take extension from the CIT(A) stating reasons, however maximum time limit should not exceed six months;

Ease of doing business may be further facilitated by changes in the stamp laws which presently are different in different States. The same may be aligned together to introduce simplicity.

Professional organisations such as the AIFTP, the Chamber of Tax Consultants, Bombay Chartered Accountants’ Society etc. may be involved by the Government before amendments are brought in to the statute.

We hope concerned Officials in the Ministry of Finance will look into the suggestions positively. I appeal to all tax professionals to contribute further suggestions in this regard.

Dr. K. Shivaram
Editor-in-Chief