1. Bringing legal heirs on record – A suit against a dead person is a nullity – No question of bringing his legal heirs as record – CPC Order 22, Rule 4

Where a defendant dies during the pendency of the suit, but the right to sue survives, the legal representative of the deceased Defendant may be substituted and they may contest the suit. In this case, the Defendant No. 4 was already dead, when the suit was filed. There can be no suit if there is no defendant in existence. The suit is a nullity as against the said defendant No. 4. There being no suit against defendant No. 4, in the eye of law, there would be no question of substitution of his heirs under Order XXII, Rule 4 of the Civil Procedure Code. The Plaintiff was already dead at the time when the suit had been filed. A suit against a dead person is a nullity.

Nirmal Jain and Ors. v. Ahuja Impex Pvt. Ltd. & ors. AIR 2017 DELHI 34

2. Prohibition of right to recover property held benami – Applicable to daughter-in-law – Benami Transaction (Prohibition) Act, 1988

The property purchased in name of wife and daughters-in-law of purchaser, intention of purchaser clear that property was purchases for their benefit. It cannot be said that property was purchased in name of wife and daughters-in-law because they stood in fiduciary capacity to him. Since in such case he would have executed any instrument by way of family settlement Prohibition under S.4 would apply. Suit for possession by daughter- in- law, maintainable.

Smt. Kanchan Jain and Other v. Babita Jain. AIR 2017 (NOC) 73 (P & H).

3. Summary suit – Suit for recovery – Based on dishonoured cheque – Cheque returned unpaid on ground of alteration of contents of cheque : CPC order 37 Rule 1

Cheque returned unpaid on ground of alteration of contents of cheque, same ceases to be bill of exchange within the meaning of section 5 of the Negotiable Instruments Act for suit under order XXXVII, CPC to maintained thereon unless such alteration is established to have been made to carry out common intention of parties thereto . Further, there can be no mandate to the bank to pay and if there is no such mandate, the question of maintainability of a suit under Order XXXVII on basis of such a cheque would not arise.

Yogesh Mehra v. Amit Aggarwal: AIR 2017 Delhi 39

4. Framing of additional issue – CPC Order 14, Rule 1

Mere fact that application for additional issue has been moved at belated stage is no ground to decline request when fact is not disputed that issue arises from pleadings of parties. No issue framed regarding valid execution of will though due execution of will propounded by defendant was disputed by plaintiff in pleadings. Application to frame issue as to valid execution of will allowed, though made at time of arguments.

Smt. Krishna Kanwar and Others v. Satya Pal Singh Chauhan (since deceased) through his heirs and Other. AIR 2017 (NOC) 74 (P.& H.)

5. Natural justice – Meaning and scope

Natural Justice has two main limbs (i) the right to a fair hearing, also known as the audi alteram partem rule, viz., that no one should be condemned unheard and (ii) the rule against bias and nemo judex in causa sua, i.e., no one may be a judge in this own cause.

In other words, these two concepts tantamount to fairness and impartiality and are pillars supporting natural justice. There can be no variable standard for reasonableness except that the Court’s conscience must be satisfied that the person against whom an action is proposed has had a fair chance of convincing the authority who proposes to take action against him. The decision of the Court will depend upon the peculiar facts and circumstances of each case.

Malvika Foundation v. Human Resource Development Department AIR 2017 (NOC) 119 (SIK).

6. Eviction – Sub-letting – Occupation of shop by son-in-law of tenant under partnership agreement – No consent in writing obtained from landlord – It amounts to sub-letting

S.14(4) of Delhi Rent Control Act provides that if a person is allowed to occupy the premises ostensibly as a partner of the tenant but really for the purpose of sub-letting it, such an arrangement would be deemed to be sub-letting. Therefore, if the tenant has allowed any person to occupy the whole or any part of the premises, actually for the purpose of sub-letting but speciously by entering into a partnership with him, such an arrangement shall be deemed to be sub-letting. In other words, sub-letting is not permitted by camouflaging it as a partnership.

The combined reading of clause (b) of the proviso to Section 14(1) read with Section 14(4) makes it clear that before a tenant can sub-let, assign or part with the possession of any part of the premises or the whole, it must be preceded by the consent in writing from the landlord. In other words, the requirement of obtaining the consent in writing of the landlord is retained as a pre-requisite even for the purposes of sub-section (4).

Thus the mere occupation by son-in-law was not sufficient to establish a case of sub-letting.

Manishi Lal v. Smt. Santosh and Others. AIR 2017 Supreme Court 1057

7. Execution of Will – Suspicious circumstances – Succession Act, 1925

Will allegedly executed bequeathing all properties of testatrix towards charities . Plaintiff appointed as executor. Evidence by plaintiff, one of attestors and by person who drafted will as per instruction of testatrix . All three witnesses deposed equally stating that testatrix had executed will after perusing same in sound state of mind and was happy for bequeathing her properties for charity. Testatrix having suffered lot during her matrimonial life and divorce petition pending in Court on ground of cruelty, exclusion of husband from will, not suspicious. Especially since husband did not chose to examine himself . Will held to be validly executed.

Jayesh B. Dolia v. Umesh M. Thailramani (deid) and other. AIR 2017 (NOC) 177 (MAD).

8. Eviction – Deceased tenant, Hindu female – Claim of tenancy by brother of deceased – Brother of deceased tenant neither within definition of “family” under S.3 (g) nor “heir” under S.3(a)

In the present case, the suit property was taken on rent by the father-in-law of deceased tenant-Lalita that is Hem Ram Sharma and after his death, his son Baldev (husband of Lalita) became tenant of the suit property. Upon his death, Lalita became the tenant of the suit property. Upon death of Lalita, in terms of Section 15(2)(b) of the Hindu Succession Act, in the absence of any son or daughter of deceased Lalita, the tenancy would devolve upon the heirs of her husband. Since the appellant does not fall under the category of heir of Lalita’s husband, the tenancy of the suit property will not devolve on him nor can he be called as an heir under Section 3(a) of the U.P. Act. Thus, the appellant is in unauthorised occupation of the suit premises and is liable to be evicted.

As per section 3(a)(1), in the case of residential building, in the event of death of a tenant, for heirs to be treated as tenant, the statute requires them to prove that they have been normally residing with the deceased tenant at the time of his/her death. The term used in the section is heir which implies that not any of the family member residing with the tenant would succeed to the tenancy, but only the heirs of tenant normally residing with him/her. The words normally residing with him suggests that only those heirs would inherit the tenancy rights of deceased tenant who resided with him ordinarily in normal course and not temporarily. The legislative intent appears to be that only those heirs would inherit tenancy who normally resided with the tenant and not occasionally. In the present case, the appellant claims that he has been carrying on business in the property along with his deceased sister Lalita and had been ordinarily living with her because of the medical business they were running. The appellant being the brother of deceased-Lalita had no reason to normally reside with his married sister. Be it noted, in her written statement filed in the release application, Lalita has not averred that her brother-appellant Durga Prasad was living with her and that he was taking care of her. As rightly held by the Courts below, Durga Prasad is neither a heir within the meaning of Section 3(a) nor falls under the definition of family as per Section 3(g) of the Act.

Durga Prasad v. Narayan Ramchandaani (D) Thr. Lrs. Air 2017 Supreme Court 915

Posted in May.

A. Appeal / Limitation

1. Against the OIO dated 27-9-2013, appeal was filed on 29-4-2014, i.e., after a delay of 142 days. Assessee claimed that OIO was served on them on 9-10-2013. In view of the non-production of supporting evidence that OIO was served on 9-10-2013, the appeal was rightly rejected.

[Seetha Dayananda Pai Kalyana Mantapa v. CCE, Hassan – 2017 (47) STR 118 (Karnataka)]

2. The assessee filed the appeal before the Commissioner (Appeals) on 27-2-2013 against the OIO passed on 31-10-2012 and corrigendum was issued on 31-12-2012. The Commissioner (Appeals) rejected the appeal on the ground that the same is not filed within limitation. Held, that the limitation is counted from the date of corrigendum and hence appeal filed on 27-2-2013 is within limitation.

[Arihan Telecommunications v. UOI – 2017 (47) STR 308 (Mumbai)]

3. The adjudicating authority found that the respondent is eligible for the CENVAT credit as the services received are in connection with procurement of raw materials and accordingly dropped the demands raised in SCN. Aggrieved by this, Revenue filed appeal before CESTAT raising fresh grounds. Held, that fresh grounds, which were not raised before lower authorities, cannot be raised in appeal. Revenue’s appeal dismissed.

[CCE v. Mangalam Cement Ltd. – 2017 (47) STR 349 (Tribunal – Delhi)]

B. Penalty

4. The assessee paid service tax along with interest, payable under reverse charge mechanism before issuance of show cause notice by the Department. Department imposed penalty u/ss. 77 and 78 of the Finance Act, 1994. Held, that in the absence of allegation of wilful suppression of facts and intent to evade payment of service tax, penalty u/ss. 77 and 78 is unsustainable.

[Doowon Automotive Systems India P Ltd. v. CST, Chennai-III – (2017) 97 VST 127 (CESTAT-Chennai)]

5. The assessee, during the period of Audit, calculated service tax liability and paid along with interest before issuance of show cause notice by the Department. Subsequently, the Department has issued show cause notice levying penalty. Held, that taking into consideration the conduct of the assessee regarding immediate payment of service tax along with interest before issuance of show cause notice and similar matters were under litigation before various courts, the demand of penalty is set aside.

[Shree Anand Venkateshwara Associates v. CCE (2017) 73 ITPJ (S) 507 (CESTAT-Mumbai)]

C. CENVAT Credit

6. The assessee, engaged in the manufacture of motor vehicles, availed CENVAT credit of service tax paid on mandap keeper service used for organising meetings and events for promotion of its products such as launching of new vehicles, conferences, etc. The assessee also availed CENVAT credit of service tax paid on rent-a-cab services used for travel requirements of business meetings, visit to dealers, vendor sites, etc. The Department has denied credit on these input services stating that there is no nexus between input services used and the manufacture of final products. On appeal by the assessee, the CESTAT has allowed the credit. The High Court has dismissed the Department’s appeal holding that sales promotion events, etc., and travel expenses incurred for business meetings, etc., are cost to the assessee and are part of assessable value of the final product on which excise duty was paid and hence, the assessee is entitled to avail CENVAT credit.

[CCE v. Maruti Suzuki India Ltd. – (2017) 97 VST 209 (P&H HC)]

7. The assessee has taken CENVAT credit on the pest control service and on repairs of JCB, etc. Pest control activity is a basic requirement to maintain any building where huge volume of documents are being handled and said activity is directly connected with refinery manufacturing activity. Repairs for JCB are in the nature of services in relation to repairs, which are specifically included in Rule 2(l) of Cenvat Credit Rules, 2004. CENVAT credit is allowed.

[Hindustan Petroleum Corporation Limited v. CCE, Visakhaptanam – 2017 (47) STR 136 (Tribunal – Hyd.)]

8 The assessee availed CENVAT credit on the basis of supplementary invoice issued by the service provider. On objection raised by the Audit Wing, the service provider, who raised the invoice, has paid the service tax before issuance of show cause notice by the Department. The Department has denied credit to the assessee. Held, that the embargo created in Rule 9 of the Cenvat Credit Rules, 2004 is not applicable for denial of CENVAT credit and hence appeal is allowed.

[Ultratech Cement Ltd. v. CCE, Jaipur-II – 2017 (47) STR 237 (Tribunal – Delhi)]

9. The assessee claimed CENVAT credit on demo car purchased for the purpose of displaying to attract customers. The assessee also claimed credit of service tax paid on construction of vehicle service centre shed. The Adjudicating Authority has denied the credit on both. Held, that CENVAT credit on demo car is not permissible, since the demo car is neither the capital goods nor used as inputs to provide output service as defined under Rule 2(a) and Rule 2(k) of Cenvat Credit Rules, 2004. As far as credit on construction of service centre shed is concerned, the same is allowed as such construction services are used for providing authorized service station services.

[A.R.A.S. Motors P. Ltd. v. CCE, Madurai – 2017 (47) STR 253 (Tribunal – Chennai)]

D. Demand/Assessment

10. The assessee provides security services throughout the country through their branches and maintains centralised accounts at their HO in Mumbai. Depending on the payment advice from different branches of the country where services were provided, accounts are compiled at Mumbai. Service Tax Returns could not be filed in time since reconciliation of accounts could not be done expeditiously. The adjudicating authority raised service tax demand and levied penalty. Held, that in the case of centralised accounts, the difficulty of receiving payment advise from various parts of the country could not be ruled out. Even the delay in receipt of payment advice may cause difference in determination of liability of the relevant tax period. When the tax liability was discharged completely, penalty cannot be levied.

[Top Security Ltd. v. CCE, Chennai – (2017) 97 VST 169 (CESTAT-Chennai)]

11. The assessee was an airline company having operations all over India as well as outside India. The assessee entered into agreements with companies located outside India for providing computer reservation system and display of real time availability of flights, reservation availability and details relating to the movement of flights. Show cause notice was issued levying service tax, interest and penalty on consideration so paid by the assessee to the above companies located outside India. The activity would fall under “online information and database access or retrieval service”. Held that the payments made to companies located outside India would be exigible to service tax under reverse charge mechanism. The assessee was also eligible to avail CENVAT credit on all the services on which service tax was paid and utilise the same for payment of service tax liability on output service. Hence a revenue neutral situation arose wherein the assessee paid the tax and took the credit. Therefore, demand of service tax, interest and penalties were set aside.

[Jet Airways India Ltd. v. CST, Mumbai – (2017) 97 VST 225 (CESTAT-Mumbai)]

12. The assessee was demanded service tax on mobilisation advance received from principals and on construction of railway sidings for M/s. Vedanta Aluminium Ltd., M/s. BALCO, etc. Held, that mobilisation advances received were towards obtaining necessary equipments and creating basic facilities before the commencement of rendering of service and such advances are deducted in subsequent bills issued to the service recipient. Following the judgment in Thermax Instrumentation Ltd. v. CCE, Pune [2016 (42) STR 19 (Tribunal-Mumbai), demand of service tax on mobilisation advance is not sustainable. On the issue of construction of railway sidings, consequent to the shift of the policy by the Ministry of Railways to tap private sector investment in building national assets in track and rolling stock through private investments. Consequently, railway sidings so built would fall within exclusionary portion of Section 65(25a) of the Finance Act, 1994 and therefore outside the ambit of service tax.

[SMS Infrastructure Ltd. v. CCE, Nagpur – 2017 (47) STR 17 (Tribunal – Mumbai)]

13. Service Tax on Goods Transport Agency service was paid by the service provider. Revenue demanded service tax from service recipient, being the person who paid freight to the transporter. Held, that once the service tax was accepted by the Revenue from the provider of GTA service, it cannot be again demanded from the recipient of the GTA service. The impugned order is set aside and the appeal is allowed.

[Umasons Auto Compo P. Ltd. v. CCE, Aurangabad – 2017 (47) STR 377 (Tribunal-Mumbai)]

14. The assessee had undertaken job work at the premises of the client on lump sum basis. The Department raised demand considering said service as manpower recruitment and supply agency. Held that the invoices indicated that the rate was for job work undertaken on lump sum basis. Hence the demand is not sustainable.

[Rita Painting & Power Coating Works v. CCE – (2017) 73 ITPJ (S) 257 (CESTAT-Mumbai)]

E. Classification of Service

15. Business Auxiliary Service : The appellant through facilitation centres, is engaged in issuance of different kinds of licenses, permissions and registration such as marriages, vehicles, driving licences, ration cards, arms licences, birth and death, etc., on behalf of the Government of Punjab. Such activities are in the nature of statutory functions of the Government. Service of facilitation has been rendered to Government Departments which are not engaged in business but in rendering public services. Revenue was of the view that such service rendered to Government would be covered under Business Auxiliary Service. Held, such an interpretation is totally misplaced. Business Auxiliary services would become chargeable to service tax under section 65(19) and Section 65(105)(zzb) of the Finance Act, 1994, only if the services are rendered in relation to business of the recipient.

[Sukhmani Society for Citizen Services – 2017 (47) STR 172 (Tribunal – Chennai)]

F. Refund

16. The respondent assessee had claimed refund of service tax amount deposited excess by them, for which they were entitled for refund. The refund application was rejected by the concerned officer on the ground that refund could not be claimed. On appeal, the CESTAT has allowed the refund with interest as per Section 11BB of the Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of the Finance Act, 1994. On Revenue’s appeal, the Delhi HC following the judgment of Hon’ble SC in the case of Ranbaxy Laboratories Limited v. Union of India reported in 2012 (27) STR 193 (SC) held that there is no need to interfere in the order of CESTAT and dismissed the Revenue’s appeal.

[Principal CST v. I-Process Services India P Ltd. – 2017 (47) STR 7 (Delhi)]

17. The assessee, 100% EOU, was engaged in providing back office operations, product support, technology infrastructure and design services to USA based company and its subsidiaries. Assessee filed a refund claim of the unutilised CENVAT credit in respect of commercial training or coaching centre services, manpower recruitment or supply agency services, courier agency services, etc. Revenue rejected the refund claim on the ground that assessee had not established one-to-one correlation with the exports and input services used in such exports. Held, that as per CBEC’s letter DOF No. 334/1/2012-TRU dated 16-3-2012, no one-to-one correlation between exports and input services used for exports is required and hence, rejection of refund is unjustifiable.

[Harsco (India) Services P Ltd. v. CCE – (2017) 73 ITPJ (S) 286 (CESTAT-Hyderabad)]

Posted in May.
  1. S.4 : Charge of income-tax – Method of accounting – stock in trade – Development of property – Income in respect of transfer of immovable property recognised only when risks, rewards and ownership of property transferred to buyer. Matching principle –Accounting Standard-9 [Ss. 2(47), 5, 145]

    The assessee was engaged in the business of development of property. The Assessing Officer held that the revenue should be recognised at every stage of receipt of sale consideration which was upheld by the CIT(A). On appeal allowing the appeal the Tribunal held that provision relating to deemed transfer as in case of capital assets not applicable to transactions of stock-in-trade. Income in respect of transfer of immovable property recognised only when risks, rewards and ownership of property transferred to buyer. Matching required to be done on accrual basis in respect of income offered to tax. Matter remanded. (AY. 2007-08)

    S. K. Properties v. ITO (2017) 53 ITR 607 (Bang) (Trib.)

  2. S.4 : Charge of income-tax – Accrual – Mercantile system of accounting – Retention money not to be taken into account in computing profits [S. 5, 145]

    Certain percentage of contract price retained by customers to be paid on satisfactory performance of contract. Assessee had no right to claim any part of retention money till verification of satisfactory execution of contract therefore retention money not to be taken into account in computing profits. (AYs. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017) 53 ITR 5 (Kol.) (Trib.)

  3. S.4 : Charge of income-tax – Capital or revenue – Share warrants – Receipt of advance amount was forfeited on account of non-payment was a capital receipt

    Advance received against share warrants were forfeited on account of non-payment was a capital receipt. (AY. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017) 53 ITR 5 (Kol.) (Trib.)

  4. S.4 : Charge of income-tax – Capital or revenue – Sales tax remission scheme is capital receipt – Subsidy cannot be reduced from actual cost for the purpose of depreciation [S. 32]

    Subsidy received as per sales tax remission scheme is capital receipt. The amount is receivable only after commencement of production would not alter character of subsidy. The referable to cost of fixed assets cannot be the ground from reducing subsidy from actual cost for purposes of depreciation. (AY. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017) 53 ITR 5 (Kol.) (Trib.)

  5. S.4 : Charge of income-tax –Accrual – Banking company – Interest on non-performing assets cannot be assessed on accrual basis. [Ss.5, 145]

    Dismissing the appeal of the revenue, the Tribunal held that; Interest on non-performing assets cannot be assessed on accrual basis. (AYs. 2009-10, 2010-11)

    ACIT v. Tambaram Co-op. Urban Bank Ltd. (2017) 53 ITR 1 (Chennai)(Trib.)

  6. S.4 : Charge of income-tax –Amount cannot be taxed in hands of assessee merely because offered to tax [S.119, Constitution of India, Article 265]

    Amount cannot be taxed in hands of assessee merely because offered to tax. Office memorandum to Ministry of Civil Aviation is no authority in law which cannot be basis to hold an amount taxable. (AY. 2008-09)

    Add. CIT v. Mumbai International Airport P. Ltd. (2017) 53 ITR 169 (Mum.) (Trib)

  7. S.4 : Income chargeable to tax – Diversion of income by overriding title – Passenger service fee – security component – Surplus to be mandatorily transferred to account of Airports Authority of India. Amount held in fiduciary capacity which is not taxable [Ss. 2(24), 5]

    Passenger service fee and security component, surplus to be mandatorily transferred to account of Airports Authority of India. Amount held in fiduciary capacity therefore not taxable. (AY. 2008-09)

    Addl. CIT v. Mumbai International Airport P. Ltd. v. (2017) 53 ITR 169 (Mum.) (Trib.)

  8. S.9(1)(i) : Income deemed to accrue or arise in India – Business income – Consideration received for licensing of software programmes on the facts of the case cannot be assessed as “royalty” it is to be assessed as business income – DTAA – India – Netherland [Ss. 9(1)(vi), 90(2), Article 7, 12]

    On appeal by the assessee to the Tribunal HELD allowing the appeal:

    (i) A parallel to practical, every-day examples would be useful. Take, for instance, the example of when one buys a book from Amazon for their Kindle device. In this case, Amazon can transfer the intellectual property of the book to multiple other users simultaneously, but each single transaction would still be a sale. This would also be true of the example of a music CD. The CD is the ‘medium’ by which the intellectual property, viz., the songs, passes to the buyer. The manufacturer can sell it to an end-user or to an intermediate retailer. The same song can be put on countless CDs. This too is a sale. When one buys a car, one buys the technology that is contained in the body of the car; the body is just the medium. On ITunes, when one buys a song, the song is transferred into a format which is accessible to the buyer, a proprietory format that needs a special device or software. Yet it is a sale. Limitless ITunes users can buy the song simultaneously. This is a sale to each of them. In the case of CD containing software, say for example Microsoft Word, the medium would again be the CD holding the intellectual property, which would be the software technology. This would also be a sale, despite the fact that this same software technology could be put on unlimited number of CDs and sold to multiple users simultaneously. Effective control of that particular software on that one CD is passed to the buyer. The buyer could use it, alienate it, destroy it, and do anything at all that he likes with it. If he made illicit copies of it, this would constitute infringement and that in itself would not make the transfer of the software on a CD a service. Even if the buyer transferred this non-transferable software, it would amount to a breach of contract provided in the CD package, just as it would under Monsanto India’s sub-licensing agreement. However, this does not do anything to disqualify the transaction itself from being a sale. These are all sales.

    (ii) A perusal of the provisions of the Copyright Act reveals that the computer software is included in the definition of literary work and is covered under the purview and scope of copyright. The exclusive rights to do or authorise the doing of certain acts as mentioned in clause (a) and clause (b) of section 14 vests in the owner of the work such as to reproduce the work, to issue copies, to make translation or adaptation, to sell or give on commercial rental in respect of a work. The internal use of the work for the purpose it has been purchased does not constitute right to use the copy right in work. Our above also finds support from certain other provisions of the Copyright Act.

    (iii) In absence of transfer of rights to authorise doing of certain acts as mentioned in sections 2, 13 & 14 of the Copyright Act it cannot be said that there was transfer of copyright. Therefore, in view of these judgments payment on sale of software shall not fall within the definition of ‘royalty’, as per DTAA.

    (iv) If we analyse and compare various provisions of the Copyright Act with the relevant clauses of the master agreement, it is noted that the said agreement does not permit HLL to carry out any alteration or conversion of any nature, so as to fall within the definition of ‘adaptation’ as defined in Copyright Act, 1957. The right given to the customer for reproduction was only for the limited purpose so as to make it usable for all the offices of HLL in India and no right was given to HLL for commercial exploitation of the same. It is also noted that the terms of the agreement do not allow or authorise HLL to do any of the acts covered by the definition of ‘copyright’. Under these circumstances, the payment made by HLL cannot be construed as payment made towards ‘use’ of copyright particularly when the provisions of Indian Income-tax Act and DTAA are read together with the provisions of the Copyright Act, 1957.

    (iv) It was also argued by the Revenue that provisions of section 9(1)(vi) should be applied, and if these are so applied, then the sale of software shall be covered under Explanation 4 to section 9(1)(vi), and, therefore, the same should be brought to tax as such. In this regard also, it is noticed by us that no corresponding amendment has been made in the provisions of the DTAA. Under these circumstances, the assessee would be entitled to the provisions, which are more beneficial to the assessee out of the provisions of Indian Income-tax Act and DTAA between India and the Netherlands, in view of provisions contained in section 90(2) of the Act. We have already held that as per the provisions of India-Netherlands DTAA, the amount received by the assessee on account of sale of software would not fall within the definition of ‘royalty’ as provided in Article 12(4) of the DTAA. Under these circumstances, it will not be legally permissible for us to refer to the provisions of the Act to decide the taxability of this amount in the hands of the assessee in India. Thus, in our considered view, based upon the facts and circumstances of the case and legal position as discussed above, the impugned amount received by the assessee is in the nature of business profits assessable under Article 7 of India-Netherlands DTAA and would not be taxable as ‘royalty’ under Article 12 of the DTAA. (I.T.A. Nos. 83 & 84/Mum/2007, dt. 21-12-2016)(AY. 1998-99 & 1999-2000)

    Qad Europe B. V. DDIT (Mum.) (Trib.); www.itatonline.org

  9. S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – No operations of the business of commission agent is carried on in India – Not liable to deduct tax at source [Ss.5(2), 9(1)(vii), 195, 201(1), 201(IA)]

    Dismissing the appeal of revenue the Tribunal held that no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income ‘deemed to accrue or arise in India’ for the purpose of Section 5(2)(b), the assessee is not liable to deduct tax at source. (AY 2010-11)

    DCIT v. Welspun Corporation Limited ( 2017) 147 DTR 113 (Ahd.)(Trib.)

  10. S. 9(1)(i):Income deemed to accrue or arise in India – Business connection – Tribunal held that 2.6% of the total sales for working out the profits attributable to the PE in India as against 3.5% which was applied by the Assessing Officer- Reassessment was upheld – Interest u/s. 234B was deleted-DTAA-India-USA [Articles 5, 7].

    Deciding the Group matters of the assessee, the Tribunal dismissed the grounds of the assessee on reassessment, and held that 2.6% of the total sales for working out the profits attributable to the PE in India as against 3.5% which was applied by the Assessing Officer. Entire law explained on whether the deputation of personnel by a foreign company to assist the Indian subsidiaries in negotiations, marketing etc. leads to a “fixed place PE” or a “Dependant Agent PE” under Article 5 of the DTAA and if so, the manner in which the profits of the foreign company are attributable to operations in India. Interest levied u/s. 234B was directed to be deleted. [ITA No. 671/Del/2011, dt. 27-1-2017)(AY. 2001-02)

    GE Energy Parts Inc v. ADIT (Delhi)(Trib.);
    www.itatonline.org

  11. S.9(1)(i) : Income deemed to accrue or arise in India – Non-resident – Undersea cable for providing dedicated bandwidth to assessee – Installation beyond territory of India and no operations carried out in India, income did not accrue or arise in India

    Dismissing the appeal of the revenue, the Tribunal held that undersea cable for providing dedicated bandwidth to assessee – Installation beyond territory of India and no operations carried out in India, income did not accrue or arise in India. (AYs. 2002-03, 2003-04 )

    CIT v. GEO Connect Ltd. (2017) 54 ITR 481 (Delhi) (Trib.)

  12. S.9(1)(i) : Income deemed to accrue or arise in India – Non-resident – Royalty – Transmission of call data and its effective management, Consideration paid to non-resident parties is not royalty

    Dismissing the appeal of the revenue, the Tribunal held that non-resident rendering services of transmission of call data and its effective management. No agreement for use or right to use any industrial, commercial or scientific equipment between non-resident and assessee, consideration paid to non-resident parties is not royalty. (AY. 2002-03, 2003-04)

    CIT v. GEO Connect Ltd. (2017) 54 ITR 481 (Delhi) (Trib.)

  13. S.9(1)(i) : Income deemed to accrue or arise in India – Permanent establishment – Special skill and knowledge of Managing Director, constituted dependent agent PE in India hence not entitle the benefit of DTAA – DTAA – India – Switzerland [S.90 Art. 5]

    The Tribunal held that the assessee was relying on the special skills and knowledge of S who was also the Managing Director of Indian entity, which was carrying on similar functions. S was acting exclusively and almost exclusively for and on behalf of the assessee during the currency of contracts in question. Therefore, S constituted a dependent agent PE of the assessee in India. Assessee is not entitled to benefit of Article 5 of DTAA. Order of Assessing Officer was up held. (AY. 2008-09)

    Carpi Tech SA v. ADIT (2017) 183 TTJ 264 (Chennai)(Trib.)

  14. S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Force of Attraction principle, taxability of software embedded in hardware as royalty, make available of technical services – Functional Permanent Establishment – Installation PE in India-Cannot be taxed as business income – DTAA – India – Netherlands [S.9(1)(i), 9(1)(vii), Art., 5(3), 12(2)]

    Allowing the appeal of the assessee the Tribunal held that under section 4 of the Act, the charge to tax is on the total income of every person. Section 5 of the Act explains the scope of total income of every person. Section 5(2) lays down the scope of total income of every person who is a non-resident. Any income received or deemed to be received in India and any income which accrues or arises in India or is deemed to have, accrued and arisen in India shall be included in his total income. Section 9 of the Act lays down as to when income shall be deemed to have accrued or arisen in India. Section 90 of the Act provides that Central Government may enter into an agreement with the Government of any country outside India for avoidance of Double Taxation of income under the Act and under the corresponding law in force in that country. Section 90(2) provides that where such agreement exists with any country outside India, then in relation to an assessee to whom such agreement applies, the provisions of the Act, shall apply only to the extent they are more beneficial to that assessee. India and Netherlands have entered into an Agreement for Avoidance of Double Taxation (DTAA) with effect from 21-1-1989 and therefore the taxability of any income that accrues or arises in India to the assessee who is non-resident in India and a tax resident of Netherlands will have to be determined in accordance with the said DTAA. As to when a non-resident would be considered as having a PE in the other country is generally decided on the basis of the facts in each case, the criteria being the extent to which the Non-Resident has set a firm foot in the soil of the other country. If a non-resident is considered as having a Permanent Establishment (PE) in the other country then income attributable to the PE will be taxed in the other country. As to whether the income attributable to the PE alone has to be taxed in the other country or any other income which accrues to the Non-Resident in the other country having no connection with the PE, can also be brought to tax in the other country, is also laid down in the various clauses of the DTAA between countries. Available Model Conventions differ in this regard. Some provide for taxing profits/income only to the extent that they are attributable to the PE, which is referred to as “No Force of Attraction” principle. Some provide for taxing income/profits from direct transactions effected by the non-resident, provided the transactions are of the same or similar kind as that effected through the PE, which is referred to as “Limited Force of Attraction” principle. Some provide for taxing profits/income from all transactions whether they are attributable to PE or not or whether they are of the same kind of transactions carried on by the PE or not, which is referred to as “Full Force of Attraction” principle. As to which principle is applicable in a given case depends on the clauses of the convention between two countries. Article 7(1) of the DTAA between India and Netherlands provides for taxing profits of the enterprise in the other state only to the extent they are attributable to the PE in the other state, adopting “No Force of Attraction” principle. Accordingly the Tribunal held that the sale of equipment and its accessories with software embedded in the equipment cannot be taxed in the hands of the assessee as business income as the assessee does not have a PE in India to which the profits can be said to be attributable. In the circumstances, the revenue cannot bifurcate the consideration towards software and licence embedded in the equipment from the combined sale value of the equipment and accessories and seek to bring to tax the amount bifurcated for software as in the nature of “royalty” as envisaged under section 9(1)(vi) of the Act. (ITA No. 574/Kol/2014, dt. 8-2-2017)
    (AY. 2010-11)

    HITT Holland Institute of Traffic Technology B.V. v. DDIT ( Kol.)(Trib.);
    www.itatonline.org

  15. S.9(1)(vii) : Income deemed to accrue or arise in India – Payment made towards various IT support services received from the holding Company and associated enterprises of the group concerns are not in the nature of Fees for Technical Services, hence not liable to deduct tax at source–DTAA-India-Canada [S.9(1)(vi), 195, Art. 12]

    Dismissing the appeal of revenue ; the Tribunal held that as we have noted earlier, it is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to BT Canada. The tests laid down by Hon’ble Court were clearly not satisfied. The mere fact that there were certain technical inputs or that the assessee immensely benefitted from these services, even resulting in value addition to the employees of the assessee, is wholly irrelevant. The expression ‘make available’ has a specific meaning in the context of the tax treaties and there is, thus, no need to adopt the day-to- day meaning of this expression, as has been done by the Assessing Officer. Accordingly; payment made towards various IT support services received from the holding Company and associated enterprises of the group concerns are not in the nature of Fees for Technical Services, hence not liable to deduct tax at source. (AY. 2013-14)

    DCIT v. Bombardier Transportation India Pvt. Ltd (2017) 146 DTR 45 (Ahd.)(Trib.)

  16. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for Technical Services – Fees paid with respect to a ‘contract of work’ does not constitute “Fees for Technical Services” and consequently the assessee is not liable to deduct TDS. [S. 195, 201]

    Dismissing the appeal of revenue, the Tribunal held that there is a difference between a ‘contract of work’ and a ‘contract of service’. In a ‘contract of work’, the activity is predominantly physical while in a ‘contract of service’, the dominant feature of the activity is intellectual. Fees paid with respect to a ‘contract of work’ does not constitute “fees for technical services” and consequently the assessee is not liable to deduct tax at source. (ITA No. 642/kol/2016,
    dt. 4-1-2017) (AY. 2012-2013)

    ITO v. Emami Paper Mills Ltd. (Kol)(Trib.);
    www.itatonline.org

  17. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for Technical Services – Taxability of “Other income” under DTAA – Only income not covered by specific Articles (e.g. alimony, lottery income, gambling income, damages etc.) can be charged as “Other Income”, Fees for Technical Services cannot be taxed as other income – DTAA–India–Thailand- Mauritius [S.90 , Art., 6 to 21, 22]

    Dismissing the appeal of the revenue, the Tribunal held that income which is not chargeable under specific provisions of Articles 6 to 21 can be taxed under the residuary provision. Only income not covered by specific Articles (e.g., alimony, lottery income, gambling income, damages etc.) can be charged as “Other income”. Fees for Technical Services cannot be taxed as other income. (ITA No. 673,840,748, 749/Chny/2015, dt. 31-1-2017)(AYs. 2011-12, 2012-13)

    DCIT v. Ford India Limited (Chennai)(Trib.)
    www.itatonline.org

  18. S.10(4) : Exemption – Interest earned on non-resident external account is entitled exemption [S.10(4)(ii)]

    Assessee a non-resident on deputation to India. Interest earned on non-resident external account. Assessee entitled to exemption. (AYs. 2008-09, 2010-11)

    Venkatesh Satyaraj v. DCIT (2017) 53 ITR 406 (Mum.) (Trib.)

  19. S.10(38) : Long term capital gains from equities – Penny stocks –Shares – Transactions cannot be held to be bogus. [S. 45, 68]

    Dismissing the appeal of revenue, Tribunal held that the fact that the Stock Exchanges disclaimed the transaction is irrelevant because purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were sham or bogus. (ITA No. 1442/Ahd/2013 & Co. No. 209/Ahd/2013., dt. 6-1-2017)(AY. 2005-06)

    ACIT v. Vineet Sureshchandra Agarwal (Ahd.)(Trib.);
    www.itatonline.org

  20. S.10(38) : Long term capital gains from equities – Penny stocks- Shares – Long-term capital gains claimed cannot be treated as bogus unexplained income if the paper work is in order. The fact that the Company whose shares were sold has violated SEBI norms and is not traceable does not mean that the assessee is at fault [Ss.45, 68]

    Allowing the appeal of assessee the Tribunal held that, capital gains from penny stocks – Long-term capital gains claimed cannot be treated as bogus unexplained income if the paper work is in order. The fact that the Company whose shares were sold has violated SEBI norms and is not traceable does not mean that the assessee is at fault. CIT v. Carbo Industrial Holdings Ltd. (2000) 244 ITR 422 (Cal.)(HC).(ITA No. 1213/Kol/2016, dt. 11-1-2017)(AY. 2005-06)

    Surya Prakash Toshniwal HUF v. ITO ( Kol.)(Trib.);
    www.itatonline.org

  21. S.11 : Property held for charitable purposes – statutes of the assessee in the earlier years, no change in facts and circumstances of the case – Entitled to exemption [S.12A]

    Assessee formed with the main object of town planning having been granted registration under S. 12A and the revenue having accepted in the earlier years that the activities carried out by the assessee were charitable in nature, it is entitled to exemption under S. 11 in the relevant assessment year. (AY. 2009-10)

    ITO v. Moradabad Development Authority (2017) 146 DTR 120 (Delhi)(Trib.)

  22. S.12AA : Procedure for registration – Trust or institution – If the object of the trust is charitable, registration cannot be denied [S.80G]

    Allowing the appeal the Tribunal held that if the object of the trust is charitable registration cannot be denied. Accordingly, the Commissioner was directed to grant registration to the assessee under section 12AA and also grant exemption certificate under section 80G of the Act.

    Abacus Foundation v. CIT (2017) 53 ITR 629 (Kol.) (Trib.)

  23. S.12AA : Procedure for registration – Trust or institution – The activities of Banquet Hall hiring, hospitality (restaurants) and permit room (bar) are prima facie in the nature of carrying on trade, commerce, or business, the DIT is required to conduct detailed enquiry and examination as to the nexus between the activities and trade, commerce or business, matter was set aside to decide de novo [Ss.2(15), 11, 12A]

    The DIT(E) cancelled the registration by invoking newly inserted proviso to Section 2(15) of 1961 Act by holding that the assessee’s main object is not for advancement of any other object of general public utility as the assessee is carrying on the activities which are in the nature of trade, commerce or business for consideration therefore, in view of amended provisions of Section 2(15) of 1961 Act. The assessee is not entitled for exemption u/s. 11 of 1961 Act. On appeal by the assessee to the Tribunal held that the activities of Banquet Hall hiring, hospitality (restaurants) and Permit Room (Bar) are prima facie in the nature of carrying on trade, commerce, or business for consideration and are hit by the proviso to s. 2(15). If the receipts from these activities are in excess of the minimum prescribed threshold limit, the DIT is required to conduct detailed enquiry and examination as to the nexus between the activities and trade, commerce or business, following the Hon’ble Bombay High Court in a recent decision in DIT(E) v. North Indian Association, (2017) 79 taxmann.com 410 (Bom.) dated 14-2-2017, wherein, a significant observations in context of amended provisions of Section 2(15) of 1961 Act in para 9 was made contemplating that if the transactions are in the nature of trade, commerce and business are consistent and continuous/regular basis and exceeds threshold limit, as prescribed by statute u/s. 2(15) of 1961 Act, then it is a matter of probe/investigation to come to conclusion that the activities of the trust/institution is not genuine, in the light of amended provisions of Section 2(15) of 1961 Act. Accordingly the matter was set side to decide de novo determination of the issue on merits in the light of the amended Section 2(15) of the Act read with Section 11 of the Act, considering the decision of Hon’ble Bombay High Court in the case of DIT(E) v. North Indian Association (ITA No.602/Mum/2012 & ITA No.4638/Mum/2013, dt. 18-4-2017)(AY. 2009-10)

    MIG Cricket Club v. DIT (E) (Mum.)(Trib.) :
    www.itatonline.org

  24. S.14A : Disallowance of expenditure – Exempt income – PMS brokerage fee and other incidental expenses for making investment into shares have not been debited in the P & Loss account – No disallowance can be made

    Assessing Officer disallowed the expenses merely following the formula u/s. 14A read with R. 8D. Assessee contended that the expenses relating to investment was debited to personal account which was deducted from capital hence no disallowance can be made. CIT(A) accepted the submission of assessee and deleted the addition. On appeal by revenue; dismissing the appeal of revenue the Tribunal held that PMS brokerage fee and other incidental expenses for making investment into shares have not been debited in the P & L account, hence no disallowance can be made. (ITA No. 3217/Mum/2014 & ITA No. 1411/Mum/2015,
    dt. 25-1-2017) (AY. 2010-11, 2011-12)

    ACIT v. Sachin R. Tendulkar (Mum.)(Trib.);
    www.itatonline.org

  25. S.14A : Disallowance of expenditure – Exempt income – Disallowance under the Rule 8D is automatic, unless the AO examines the accounts and records the finding why the assessee’s claim/computation is not proper [R. 8D]

    Allowing the appeal of the assessee the Tribunal held that Disallowance under the Rule 8D is automatic, unless the AO examines the accounts and records the finding why the assessee’s claim/computation is not proper. (ITA No. 3053/Mum/2015, dt. 3-3-2017)(AY. 2011-12)

    Shapoorji Pallonji & Co. Ltd. v. DCIT (Mum.)(Trib.);
    www.itatonline.org

  26. S.14A : Disallowance of expenditure – Exempt income- Securities held as stock in trade has to be considered for computing disallowance, however, the disallowance has to be computed by taking into consideration only those shares which have yielded dividend income in the year under consideration. [R. 8D]

    Disallowance u/s. 14A & Rule 8D has to be made even in respect of securities that are held as stock-in-trade by the assessee. However, the disallowance has to be computed by taking into consideration only those shares which have yielded dividend income in the year under consideration. (ITA No.681 & 824/Kol/2015,
    dt. 3-3-2017.)(A.Y. 2010-11)

    Kalyani Barter (P) Ltd. v. ITO (Kol.)(Trib.) :
    www.itatonline.org

  27. S.14A : Disallowance of expenditure – Exempt income – Assessing Officer not recording reasoning for his dissatisfaction with regard to claim of assessee. Authorities ignoring mandate of section 14A. Disallowance was held to be not sustainable [R. 8D]

    Assessing Officer not to apply method prescribed by rules straightaway without considering whether claim made by assessee in respect of such expenditure is correct. Satisfaction of Assessing Officer must be arrived at on an objective basis. Assessing Officer not following guidelines of objective satisfaction. Assessing Officer not recording reasoning for his dissatisfaction with regard to claim of assesse. Authorities ignoring mandate of section 14A. Disallowance was held to be not sustainable.
    (AY. 2009-10)

    JCIT v. J.M. Financial Services Ltd. (2017) 54 ITR 120 (Mum.) (Trib.)

  28. S.14A : Disallowance of expenditure – Exempt income-No borrowed funds utilised for investment – No disallowance could be made [R. 8D]

    Source of investment out of grants received from Government of Karnataka or out of profits earned by assessee. Assessing Officer failing to show direct nexus between borrowed funds and tax-free investments, no disallowance could be made. (AY. 2008-09, 2010-11)

    JCIT v. Karnataka State Industrial Infrastructure Development Corporation Ltd. (2017) 54 ITR 425 (Bang.) (Trib.)

  29. S.14A : Disallowance of expenditure – Exempt income – Satisfaction was not recorded, disallowance cannot be made. [R. 8D]

    Assessing Officer has not recording satisfaction as to correctness of claim or otherwise having regard to accounts of assessee. Disallowance was deleted. (AY. 2008-09)

    Addl. CIT v. Mumbai International Airport P. Ltd. (2017) 53 ITR 169 (Mum.) (Trib.)

  30. S.14A : Disallowance of expenditure – Exempt income –Assessing Officer to consider only those investments which yielded dividend income during previous year, exclude investments which were strategic investments, if own funds sufficient to cover investment, presumption that assessee used in its own funds. [R. 8D]

    Assessing Officer not justified in including closing balance of investments in mutual fund while calculating average value of dividend earning investment. Assessing Officer to consider only those investments which yielded dividend income during previous year. Assessing Officer to exclude investments which were strategic investments. If own funds sufficient to cover investment, presumption that assessee used in its own funds. (AY. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017) 53 ITR 5 (Kol.) (Trib.)

  31. S.28(i) : Business loss – The loss on sale of shares of a wholly –owned subsidiary is allowable as a business loss if the investment in the subsidiary was made for commercial purposes. [S.37(1)]

    Allowing the appeal, the Tribunal held that; The loss on sale of shares of a wholly-owned subsidiary is allowable as a business loss if the investment in the subsidiary was made for commercial purposes. (ITA No. 223/Coch/2015 and 189/Coch/2016, dt. 10-1-2017) (AYs. 2010-2011 and 2011-12).

    Apollo Tyres ltd. v. ACIT (Cochin)(Trib.);
    www.itatonline.org

  32. S.28(i) : Business loss – Forward contracts on foreign exchange – Loss not a speculation loss

    Assessee making gains and loss on account of revaluation and claiming net loss is not a speculation loss. (AY. 2005-06, 2006-07, 2008-09)

    ACIT v. Dow Agro sciences India Private Limited (2017) 53 ITR 590 (Mum.)(Trib.)

  33. S.28(i) : Business loss – Expenditure for provision of liability regarding exchange rate fluctuation was held to be revenue loss [S. 28(i)]

    The Tribunal held that the liability was incurred on account of raw material components and hence it was revenue loss. (AY. 2004-05)

    ACIT v. Timex Watches Ltd. (2017) 183 TTJ 27 (Delhi)(Trib.)

  34. S.28(i) : Business loss – Amount fraudulently withdrawn from the account was held to be allowable as business loss

    The Tribunal held that AO had not disputed this fact that there was a loss as a result of unauthorised withdrawals made from the bank account in the course of business of the assessee and once such was the position then such sum was eligible for deduction. (AY. 2004-05, 2005-06, 2006-07 )

    ACIT v. Timex Watches Ltd. (2017) 183 TTJ 27 (Delhi)(Trib.)

  35. S.32: Depreciation – Airport operator – Upfront fee for development and modernise airport and collect charges was held to be intangible asset and entitled depreciation

    Payment for licence to develop and modernise airport and collect charges is intangible asset and is entitled to depreciation.(AY. 2008-09)

    Addl.CIT v. Mumbai International Airport P. Ltd. (2017) 53 ITR 169 (Mum.)(Trib.)

  36. S.32 : Depreciation – Airport operator – Taxiways and aprons – Depreciation is allowable at 15%

    Depreciation on taxiways and aprons is allowable at fifteen per cent. (AY. 2008-09)

    Addl. CIT v. Mumbai International Airport P. Ltd. (2017) 53 ITR 169 (Mum.) (Trib.)

  37. S. 32 : Depreciation – Additional depreciation – Cutting & Polishing of diamond amounts to manufacture and eligible for additional depreciation [S.32(1)(iia)

    The Tribunal held that cutting and polishing of diamonds amounts to manufacture eligible for additional depreciation under section 32(1)(iia). (AY. 2008-09)

    ACIT v. D. A. Jhaveri (2017) 183 TTJ 447 (Mum.)(Trib.)

  38. S.35 : Scientific research expenditure – Donation to Institute of Life Sciences for research project was held to be not deductible as commercial expediency of donation was not established [S.37(1)]

    Donation to Institute of Life Sciences for research project was held to be not deductible as commercial expediency of donation was not established. (AYs. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.) (Trib.)

  39. S.35 : Scientific research expenditure – Weighted deduction – Merger – Post-merger expenditure cannot be reduced.
    [S. 35(2AB)]

    Company merged with assessee incurring expenditure on scientific research. Post-merger all activities of company also activities of assessee. Facility and expenditure approved by prescribed authority. The AO disallowed the claim. Tribunal held that; in-house research and development facility of the assessee was approved by the prescribed authority as provided under section 35(2AB). The expenditure approved by the prescribed authority included a sum of ₹ 1,054.314 lakhs on account of PPL. A copy of Form 3CL was placed on record. By virtue of merger with effect from June 1, 2006, all the activities of the PPL were also the activities of the assessee. As the facility and also the expenditure had already been approved by the relevant authority, post-merger, the expenditure could not be reduced while allowing the deduction under section 35(2AB). Therefore the deduction under section 35(2AB) was allowable even on the expenditure incurred on PPL after January 1, 2006 i.e. the date of its merger. (AY. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.) (Trib.)

  40. S.35 : Scientific research expenditure – Clinical trials – Assessee having research and development centre but not approved by prescribed authority Assessee entitled to deduction under section 35(1) and hundred per cent. Deduction under section 35(1)(iv). (AY. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.) (Trib.)

  41. S.36(1)(iii) : Interest on borrowed capital – Interest free loans funds, presumption is that such funds came from interest free funds, disallowance of interest was not justified

    When the assessee is having sufficient interest free funds and interest-free loans far below interest-free funds, presumption that such investments came out of available interest-free funds and not out of interest bearing funds or overdraft account. Assessee has no onus to prove that advance was not from borrowed funds. Disallowance of interest was not justified. (AY. 2010-11)

    Kushalbagh Marbles P. Ltd. v. JCIT (2017) 53 ITR 134 (Jodh.)(Trib.)

  42. S.36(1)(iii) : Interest on borrowed capital – Investing borrowed funds through its sister concern in shares as stock-in-trade, interest was held to be allowable

    The assessee invested the borrowed funds through its sister concern in the shares of VNL. Therefore, the shares in VNL were acquired in the ordinary course of business and were correctly disclosed as stock-in-trade in the balance-sheet, hence the interest paid on borrowed capital was held to be allowable.

    Divakar Solar Systems Ltd. v. Dy. CIT (2017) 53 ITR 516 (Kol.)(Trib.)

  43. S.37(1) : Business expenditure – Business of giving rigs on hire for drilling oil has been set up in earlier years, mobilisation expenses is to be allowed as revenue expenditure

    Where assessee imported new rigs to give them on hire for oil drilling and incurred mobilization expenses thereupon to make them operational, said expenses were of revenue nature as rigs were acquired as expansion of existing business and no new business had been set up nor any new source of income had come to existence. (AY. 2009-10)

    Dewanchand Ramsaran Industries (P) Ltd. v. ACIT (2017) 146 DTR 25 (Mum.)(Trib.)

  44. S.37(1) : Business expenditure – Pharma Company – Advertisement and sales promotion expenses – Expenses incurred by assessee could not be reckoned as freebies given to doctors, thus expenditure being purely for business purpose had to be allowed as business expenditure

    Expenditure incurred by assessee Pharma Company for customer relationship management, key account management, gift articles, free medicine sample, advertisement and sales promotion was purely for brand recognition and could not be considered as freebies given to doctors. Hence, the same is allowable as business expenditure and were not impaired by Explanation 1 to section 37(1). (AY. 2010-11)

    Dy. CIT v. PHL Pharma (P) Ltd. (2017) 146 DTR 149 (Mum.)(Trib.)

  45. S.37(1) : Business expenditure – Capital or revenue – Stock Options (appreciation rights) are intended to motivate employees and so the expenditure thereon is a deductible revenue expenditure. The discount (difference between market price and vesting price) is allowable upon vesting subject to reversal if the options lapse

    Allowing the appeal of assessee the Tribunal held that Stock Options (appreciation rights) are intended to motivate employees and so the expenditure thereon is a deductible revenue expenditure. The discount (difference between market price and vesting price) is allowable upon vesting subject to reversal if the options lapse. (ITA No. 2283/Del/2013, dt. 4-1-2017)(AY.
    2008-09)

    Religare Commodities Ltd. v. ACIT (Delhi)(Trib); www.itatonline.org

  46. S.37 (1) : Business expenditure – Amount paid to State authority – Not payment for infringement or irregularity of law, payment cannot be disallowed. [S. 37(1), Expln., Maharashtra Housing and Area Development Act, 1976 ]

    The construction expenses incurred for alleged bogus tenants was disallowed on the ground that the payments was in contravention of, Maharashtra Housing and Area Development Act, 1976. On appeal the CIT(A) held that the proportionate cost of construction was to be disallowed in the year when project was completed. On appeal Tribunal held that since the project was not completed by the assessment year 2008-09, no profit could be assessed for that year therefore no disallowance can be made for the relevant year. The Tribunal also held that expenditure incurred was legal and accordance with law and the amount under Maharashtra Housing and Area Development Act, 1976 was also in the nature of cost of construction and admissible as business expenditure. The payment was either in the nature of fine nor in the nature of penalty. It was not attributable to any irregularity or infringement of law. Therefore the claim was admissible for deduction as
    business expenditure. (AYs. 2004-2005 to
    2011-2012)

    ACIT v. Layer Exports P. Ltd.(2017) 53 ITR 416 (Mum.)(Trib.)

  47. S.37(1) : Business expenditure – Capital or revenue – Renovation of road is held to be revenue expenditure

    Treatment as capital in books of account not relevant, refurbishment expenses of terminals of airport is held to be revenue expenditure. (AYs. 2008-09)

    Addl. CIT v. Mumbai International Airport P. Ltd. (2017) 53 ITR 169 (Mum.) (Trib.)

  48. S.37(1) : Business expenditure – Penalty – Demurrage charges are in the form of punitive charges not illegal payment or payment opposed to public policy, payment being under contractual obligation, allowable as deduction

    Dismissing the appeal of the revenue the Tribunal held that demurrage charges are in the form of punitive charges not illegal payment or payment opposed to public policy, payment being under contractual obligation, allowable as deduction. (AY. 2010-11)

    Dy. CIT v. Ripley and Co. Ltd. (2017) 53 ITR 541 (Kol.)(Trib.)

  49. S.37(1) : Business expenditure – Employees stock option scheme – Discount on issues of option allowable – Assessing Officer was directed to work out deduction

    Discount on issue of option on employees stock option scheme, the Assessing Officer was
    directed to work out the deduction. (AY.2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.) (Trib.)

  50. S.37(1) : Business expenditure Capital or revenue – Process of research includes trial run of new drug, experiments on new drug not new line of business, expenses allowable as revenue

    Process of research includes trial run of new drug, experiments on new drug not new line of business, expenses allowable as revenue.
    (AY. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.)(Trib.)

  51. S.37(1) : Business expenditure –Capital or revenue – ERP package for recording of manufacturing and accounting is held to be revenue expenditure

    ERP package for recording of manufacturing and accounting is held to be revenue expenditure. (AYs. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd) (Trib.)

  52. S.37(1) : Business expenditure – Capital or revenue – Laying of roads was held to be revenue expenditure

    Tribunal held that Laying of roads, facilitating assessee to carry on business effectively which is revenue expenditure. (AYs. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.) (Trib.)

  53. S.37(1) : Business expenditure – Capital or revenue – Website development expenses was held to be revenue expenditure

    Website development expenses was held to be revenue expenditure, it does not create an asset but only to provide a means for disseminating information about assessee. (AY. 2002-03 )

    ITO v. All India Technologies Ltd. (2017) 53 ITR 620 (Kol.) (Trib.)

  54. S.37(1) : Business expenditure – Liquor business – Privilege fee or special privilege fee paid to Government is held to be deductible

    Privilege fee or special privilege fee paid to Government is held to be deductible. (AY. 2010-11)

    A.P. Beverages Corporation Ltd. v. DCIT (2017) 54 ITR 228 (Hyd.) (Trib.)

  55. S.37(1) : Business expenditure – Capital or revenue – Setting up of business – Expenses incurred after business set-up and before commencement of business is revenue expenditure

    Dismissing the appeal of the revenue, the Tribunal held that expenses incurred after business set-up and before commencement of business was held to be revenue expenditure. (AY. 2002-03, 2003-04)

    CIT v. GEO Connect Ltd. (2017) 54 ITR 481 (Delhi) (Trib.)

  56. S.37(1) : Business expenditure – Contribution to Chief Ministers Fund deductible

    Contribution to Chief Minister Fund is held to be deductible. (AY. 2008-09, 2010-11)

    JCIT v. Karnataka State Industrial Infrastructure Development Corporation Ltd. (2017) 54 ITR 425 (Bang.) (Trib.)

  57. S.37(1) : Business expenditure – Capital or revenue – Project expenses written off is held to be allowable as revenue expenditure

    The Tribunal held that the expenditure incurred on the project which was abandoned at the stage of work in progress did not result in creation of any new asset or an advantage of enduring nature and therefore, the said expenditure which has been written off in the books of account are allowable as revenue expenditure. (AY. 2011-12)

    Ajmer Food Products (P) Ltd. v. Jt. CIT (2017) 183 TTJ 132 (Jp.)(Trib.)

  58. S.40(a)(i) : Amount not deductible – Deduction at source – payment to non-resident parties for “call transmission services was held to be not liable to deduct tax at source, hence no disallowance can be made. DTAA–India–USA [S. 9(1)(i), 9(1)(vi), 9(1)(vii), 195, Art. 12(2), 12(4)]

    Allowing the appeal of assesee the Tribunal held that no disallowance could have been made under section 40(a)(i) of the Act for non-deduction of tax on the payments to non-resident parties, namely, M/s. Kick Communication and M/s. IGTL Solutions. Since in the call connectivity and transmission from end of the Indian Territory at Mumbai to the termination of call in USA, no technical knowledge has been made available to the assessee, respectfully following the decision of the Tribunal in the case of Bharti Airtel Ltd v. ITO, we hold that payment for the services of call transmission through dedicated bandwidth provided by the non-resident parties to the assessee, cannot be termed as Fee for Technical Services under the treaty also, in the hands of the recipients. (ITA No. 1927/Del/2008 & 127/Del/2011, dt. 17-1-2017) (AYs. 2002-03 & 2009-10)

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

  59. S.40(a)(i) : Amounts not deductible – Deduction at source – Non-resident–DTAA–India & Belgium – Issuing gradation certificate, the payment cannot be characterize as Fees for Technical Services, not liable to deduct tax at source- DTAA-India-Belgium [S. 9(1)(vii], Article 12, 13]

    The Tribunal held that the Belgium company is not ‘making available’ its technical knowledge, expertise skill or know how to the assessee in the course of issuing gradation certificate, the payment cannot be characterise as fees for technical services. Taxability of a sum in the hands of recipient on account of subsequent retrospective amendment would not expose the payer of income to an impossible situation of requiring deduction of tax at source on the anterior date of payment of such income. Thus on this count also assessee cannot be held to be in default for not deducting the tax at source. Disallowance was rightly deleted by CIT(A). (AY. 2008-09)

    ACIT v. D. A. Jhaveri (2017) 183 TTJ 447 (Mum.)(Trib.)

  60. S.40(a)(ia) : Amounts not deductible – Deduction at source – Payment of commission to non-resident agents for carrying out activities outside India – No disallowance can be made [Ss. 9(1)(i), 195]

    Commission paid by the assessee to the non-resident agents for carrying out business activities outside Indian territories is not taxable in the hands of the latter in India under s.9(1)(i) or under s.9(1)(vii). Hence, the provisions of S.195 are not attracted to such payments. Therefore, commission paid by the assessee cannot be disallowed under s.40(a)(ia) of the Act. (AY. 2009-10)

    Dy.CIT v. Troikara Pharmaceuticals Ltd. (2017) 146 DTR 177 (Ahd.)(Trib.)

  61. S.40(a)(ia) : Amounts not deductible – Deduction at source – Non-resident commission agents were not taxable in India in respect of their commission earnings from orders procured abroad, not liable to deduct tax at source [S.195]. Since no part of the operations of the business of the commission agents is carried out in India, the non-resident commission agents were not taxable in India in respect of their commission earnings from abroad. Hence, the assessee was not under any obligation to deduct TDS from the commission payments to the non-residents. Therefore, commission payments could not be disallowance under s. 40(a)(ia). (AY. 2012-13)

    ITO v. Excel Chemicals India Ltd. (2017) 146 DTR 171 (Ahd.)(Trib.)

  62. S.40(a)(ia) : Amounts not deductible – Deduction at source – The amounts paid by the assessee to the clinical research organisations were not taxable in India. There was no need for the assessee to deduct tax at source- DTAA-India – Canada. [S. 195, Article 12, 15]

    Tribunal held that ,tax resident of Canada was only providing final results to its Indian clients by using highly sophisticated bio-analytical know-how, without providing any access whatsoever to the clients to such know-how, fee received by it was business income and not fees for technical or fees for included services or royalty and the assessee having no permanent establishment in India, such income would not be taxable in India by virtue of the relevant provisions of the Double Taxation Avoidance Agreement between India and Canada. The amounts paid by the assessee to the clinical research organisations were not taxable in India. There was no need for the assessee to deduct tax at source. (AYs. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 ( Hyd) (Trib)

  63. S.40(a)(ia) : Amounts not deductible – Deduction at source – Royalty – Payments made by assessee not in nature of royalty either under domestic law or under DTAA – No disallowance for non-deduction of tax at source- DTAA-India – USA [Art. 12]

    Payments made by assessee not in nature of royalty either under domestic law or under DTAA, hence no disallowance for non-deduction of tax at source. (AY. 2002-03, 2003-04 )

    CIT v. GEO Connect Ltd. (2017) 54 ITR 481 (Delhi) (Trib.)

  64. S.40A(2) : Business expenditure – Disallowance – Excessive and unreasonable payments – Excess of fair market value – Onus is on Department – No material comparable brought on record – No disallowance could be made

    The AO held that assessee had paid interest to the customer of the assessee for the unsecured loan advanced. That payments made to the holding company was unreasonable and in excess of the fair market value and therefore he added 2% u/s. 40A(2).

    The Tribunal held that the AO to bring on record to show that in the facts and circumstances of the case, the provisions of section 40A(2) are indeed applicable. Only in such cases, he could disallow to the extent that such payment was found to be excessive or unreasonable in his opinion. In this case, the AO not brought any comparable cases on record to disprove the purchases made from holding company by the assessee.

    Divakar Solar Systems Ltd. v. Dy CIT (2017) 53 ITR 516 (Kol.)(Trib.)

  65. S. 40A(2) : Business expenditure – Disallowance – Excessive and unreasonable payments – Salary and professional fee – furnished full details regarding nature of services provided – No disallowance could be made

    Tribunal held that none of these services purported to be rendered by CP was disputed by the Department except merely harping on the technical educational qualification as a pre-requisite for rendering the services. Business expediency in the subject mentioned transaction was proved by engaging a liaison officer who was a trusted person of the management more especially stakes involved in the telecommunications project. For rendering these services at least, no technical qualification was required as the service could be done by experience. Business acumen is developed by a person not by educational qualification but by his or her native intelligence and presence of mind which does not come from education alone. The assessee had made payments to CP disallowed by the Department, which was not rectified even when specifically brought to its notice. The assessee had provided the complete details of nature of services rendered by CP. In the absence of bringing any other evidence to the contrary, no disallowance could be made in the facts and circumstances of the case. Just because the payment was made to a relative of the director, the principles of business expediency did not get disturbed. Even if no difference whether the expenditure was incurred towards relatives or non-relatives per se was incurred wholly and exclusively for the purpose of business. (S.37).

    Divakar Solar Systems Ltd. v. Dy CIT (2017) 53 ITR 516 (Kol.)(Trib.)

  66. S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits –Identity, genuineness and business expediency was explained hence disallowance was held to be not justified

    The Tribunal held that the identity and existence of the payees and genuineness of transactions are not at all disputed. It was only because of the insistence of the seller, that the assessee had to pay in cash and the assessee has explained the business expediency of making the cash payments to parties. Followed, Anupam Tele Services v. ITO (2014) 268 CTR 121 (Guj.), Smt. Harshila Chordia v. ITO (2008) 298 ITR 349 (Raj.). (AY. 2011-12)

    Ajmer Food Products (P) Ltd. v. Jt. CIT (2017) 183 TTJ 132 (Jp.)(Trib.)

  67. S.41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Waiver of loan taken for acquisition of a capital asset and on capital account cannot be taxed as it is neither on revenue account nor a remission of a trading liability so as to attract tax in the year of remission

    Allowing the appeal of the assessee, the Tribunal held that waiver of loan taken for acquisition of a capital asset and on capital account cannot be taxed u/s. 41(1), as it is neither on revenue account nor a remission of a trading liability so as to attract tax in the year of remission. (ITA Nos. 923 & 930/Bang/2009, dt. 13-1-2017) (AY. 2004-05)

    JSW Steel Ltd. v. ACIT (Mum.)(Trib.) www.itatonline.org

  68. S.43(5) : Speculative business – Cash segment and futures segment and final outcome profit – Profit or loss against both segments be adjusted or set off against each other. [S. 73]

    Dismissing the appeal of the revenue , the Tribunal held that assessee carrying out transactions in cash segment and futures segment and final outcome profit. Both segments part of composite business of assessee. Business of assessee cannot be segregated to arrive at profit and loss in both transactions independently or separately. Profit or loss against both segments be adjusted or set off against each other. (AY. 2009-10)

    JCIT v. J. M. Financial Services Ltd. (2017) 54 ITR 120 ( Mum.) (Trib.)

  69. S.43B : Deduction only on actual payment – Provision for leave encashment – Stay on decision of High Court – Assessing Officer was directed to decide issue in accordance with final decision of Supreme Court. [S.43B(f)]

    Supreme Court ordering stay of decision of High Court holding provision invalid and directing disallowance to be made in terms of provision during pendency of appeal. Assessing Officer to decide issue in accordance with final decision of Supreme Court. (AYs. 2005-06, 2006-07,
    2008-09)

    ACIT v. Dow Agrosciences India Private Limited (2017) 53 ITR 590 ( Mum.) (Trib.)

  70. S. 45 : Capital gains – Penny stock – Failure to provide a copy of the statement and cross examination, the addition is bad in law – Direct evidences relating to sale/purchase, brokers note cannot be disregarded

    Allowing the appeal of the assessee, the Tribunal held that failure to provide a copy of the statement relied upon and of cross-examination renders the assessment order void. The claim of capital gains from penny stocks cannot be denied on presumption and surmises by disregarding direct evidences relating to the sale/purchase transactions of shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. (ITA Nos. 501 & 502/Ahd/2016, dt. 9-3-2017)(AY. 2008-09)

    Sunita Jain (Smt) v. ITO (Ahd.)(Trib.) : www.itatonline.org

  71. S. 45 : Capital gains – Long term capital gains – Purchase of shares in off market – Sale consideration received should be assessable as long term capital gain and not income from undisclosed sources [S.69]

    Assessee having purchased and sold shares through a registered broker which are supported by proper contract notes and demat account and received the sale consideration by account payee cheques, the transactions cannot be treated as bogus and sham, more so as the broker as well as the stock exchange has confirmed the purchase and sale transactions. Thus, the income arising from sale of shares is assessable as long term capital gains. (AY. 2005-06)

    Dolarrai Hemani v. ITO (2017) 146 DTR 93 (Kol.)(Trib.)

  72. S.45 : Capital gains – Business income – Shares transferred from trading to investment account were held for a long time – Surplus arising on sale of shares under investment portfolio was to be brought to tax as capital gains. [S.28(i)]

    Where assessee, a stock broker, holding dual portfolio, i.e., investment portfolio and stock portfolio, earned capital gain from sale of shares kept in investment portfolio, in view of fact that assessee did not use borrowed funds for buying those shares and, moreover, it kept shares in question for sufficiently long period of time, income declared by assessee could not be brought to tax as business income. (AY. 2006-07)

    Dy. CIT v. Lokenath Saraf Securities (P) Ltd. (2017) 146 DTR 125 (Kol.)(Trib.)

  73. S. 45 : Capital gains – Long-term or short-term – Letter of allotment – For considering whether an asset is a “long-term capital asset”, the period of holding must be computed on a de facto basis. The letter of allotment, even though not “ownership”, must be taken as the date of holding the asset. [S. 2(14), 2(29A), 2(42A) 2(47), 54, 54F]

    Allowing the appeal of the assessee the Tribunal held that S.2(42A) uses the term “held”, the other provisions use the terms “acquired”, “purchased” and “owner”. Accordingly, for considering whether an asset is a “long-term capital asset”, the period of holding must be computed on a de facto basis. The letter of allotment, even though not “ownership”, must be taken as the date of holding the asset. (ITA No. 2291/Mum/2015, dt. 13-2-2017)(AY. 2011-12)

    Anita D. Kanjani v. ACIT (Mum.)(Trib.) ; www.itatonline.org

  74. S.45 : Capital gains – Business income – Portfolio Management Scheme (PMS) – Gains assessable as capital gains and not as business income [Ss. 28(i), 48]

    Dismissing the appeal of the revenue , the Tribunal held that share held in Portfolio Management Scheme (PMS) cannot be assessed as business income, it has rightly assessed as capital gains. CBDT Circular No. 4/7 dated 15-6-2007 and Circular No. 6 of 2016 dated
    29-2-2016 considered and entire law on the subject is explained. (ITA No. 3217/Mum/2014 & ITA No. 1411/Mum/2015, dt. 25-1-2017) (AY. 2010-11, 2011-12)

    ACIT v. Sachin R. Tendulkar (Mum.)(Trib.); www.itatonline.org

  75. S.45 : Capital gains – Business income – Investor in shares – Long term capital gain was accepted as an investor, short term capital gains cannot be assessed as business income as an trader. [Ss. 10(38), 28(i)]

    Dismissing the appeal of the revenue, the Tribunal held that if the AO has accepted the claim for exemption for long-term capital gains and conceded that the assessee is an “investor”, he cannot change his stand and treat the assessee as a “trader” in respect of the claim of short-term capital gains alone. (ITA Nos. 2799 & 2799/Kol/2013, dt. 27-1-2017) (AYs. 2006-07 & 2009-10)

    ITO v. Dilip B. Desai HUF (Kol.)(Trib.); www.itatonline.org

  76. S.45 : Capital gains – The capital gains arising on transfer by a foreign company of shares in another foreign company holding assets in India is liable to tax in India–DTAA–India–UK [S. 2(14), 2(47), 9(1)(i), Article 14]

    Dismissing the appeal of the assessee, the Tribunal held that the capital gains arising on transfer by a foreign company of shares in another foreign company holding assets in India is liable to tax in India. The argument that the transfer is a mere re-organisation of assets within the group and that there is no “real income” is not acceptable. The argument that the India-UK DTAA should be given a “static” interpretation and that the retrospective amendment to s. 9 by the Finance Act, 2012 should be ignored is also not acceptable. Where the DTAA provides that the income shall be chargeable to tax in accordance with the provision of the domestic law, the said domestic law has to be the amended law. (ITA No. 1669/Del./2016, dt. 9-3-2017)(AY. 2007-08)

    Cairn UK Holdings Ltd. v. DCIT (Delhi)(Trib); www.itatonline.org

  77. S.45 : Capital gains – Business income – Portfolio management scheme – Principle of consistency – AO was directed to assessee the income as capital gains [S. 28(i)]

    Allowing the appeal the Tribunal held that; department consistently in all subsequent years treating sale proceeds as capital gains. Assessing Officer directed to treat income from portfolio management services as capital gains.
    (AY. 2008-09, 2010-11)

    Venkatesh Satyaraj v. DCIT (2017) 53 ITR 406 (Mum) (Trib)

  78. S.45 : Capital gains – Search –Purchase and sale of shares –Long-term capital gains was to be accepted. [S. 153A]

    Dismissing the appeal of the revenue, the Tribunal held that the Assessing Officer not making any attempt to collect details from return filed by share broker. Assessee selling shares through another broker by dematerialising shares. Dematerialisation of shares would not happen without physical shares, hence long-term capital gains on sale of shares declared by assessee to be accepted. (AY. 2003-04)

    CIT v. Asha V. Mehta (Smt.) (2017) 54 ITR 191 (Mum) (Trib)

  79. S.45 : Capital gains – Sale of shares cannot be assessed as income from undisclosed sources when the broker and stock exchange confirmed the genuineness of transaction [S.69]

    The Tribunal held that the assessee having purchased and sold shares through a registered broker which are supported by proper contract notes and demat account and received the sale consideration by account payee cheque, the transactions cannot be treated as bogus and sham. The broker as well as the stock exchange have confirmed the purchase and sale transactions and therefore, the income arising therefrom is assessable as long term capital gains and not as income from undisclosed sources. (AY. 2005-06)

    Dolarrai Hemani v. ITO (2017) 183 TTJ 433 (Kol.)(Trib.)

  80. S.48 : Capital gains – Family partition – Indexed cost of acquisition to be computed with reference to year in which previous owner acquired asset and not year in which assessee acquired asset [S.45]

    When capital asset is acquired by assessee through family partition, indexed cost of acquisition to be computed with reference to year in which previous owner acquired asset and not year in which assessee acquired asset. (AY. 2010-11)

    ITO v. Saroja Naidu (Mrs.) (2017) 53 ITR 250 (Chennai) (Trib)

  81. S.50C : Capital gains – Full value of consideration – Stamp valuation – Right in land – Section would have no application where assessee has transferred only rights in impugned land which cannot be equated to land or building or both. [S.45]

    Allowing the appeal the Tribunal held that; section 50C is a deeming provision and it extends only to land or building or both. Section 50C can come into play only in a situation where the consideration received or accruing as a result of the transfer by an appellant of a capital asset, being land or building or both is less than the value adopted or assessed or assessable for the purpose of payment of stamp duty in respect of such transfer. It is settled legal proposition that deeming provision can be applied only in respect of the situation specifically given and, hence, cannot go beyond the explicit mandate of the section. Clearly, therefore, it is essential for application of Section 50C that the transfer must be of a capital asset, being land or building or both. If the capital asset under transfer cannot be described as ‘land or building or both’, then Section 50C will cease to apply. (AY. 2006-07]

    Devindraben I. Barot (Smt.) v. ITO (2016) 141 DTR 302 / 159 ITD 162 (Ahd.)(Trib.)

  82. S.50C : Capital gains – Full value of consideration – Stamp valuation – Agreement to sell – Insertion of proviso to section 50C by the Finance Act, 2016 with effect from 1-4-2017, has retrospective effect [S.45]

    Assessee entered into an ‘agreement to sell’ a piece of land on 29-6-2005. Sale deed of land was executed on 24-4-2007. Assessing Officer having invoked provisions of section 50C, adopted stamp duty valuation rate prevailing on date on which sale deed was executed. Accordingly, certain addition was made to capital gain arising from sale of land. It was held that impugned addition was to be set aside and, matter was to be remanded back to Assessing Officer for recomputation of capital gain on basis of stamp duty valuation rate prevailing on date of ‘agreement to sell’ as insertion of proviso to section 50C by the Finance Act, 2016 with effect from 1-4-2017, has retrospective effect. in favour of assessee, matter remanded. (AY. 2008-09)

    Dharamshibhai Sonani v. ACIT (2016) 181 TTJ 721 (Ahd.)(Trib.)

  83. S. 50C: Capital gains – Full value of consideration – Stamp valuation – The stamp duty value on the date of the agreement to sell has to be adopted and not the value on the date of the deed of sale. The proviso to s. 50C, though inserted by the Finance Act 2016 w.e.f. 1-4-2017, has to be given retrospective effect from 1-4-2003 as it is intended to remove an undue hardship and is curative in nature. [S.45]

    Allowing the appeal of the assessee the Tribunal held that the stamp duty value on the date of the agreement to sell has to be adopted and not the value on the date of the deed of sale. The proviso to s. 50C, though inserted by the Finance Act, 2016 w.e.f. 1-4-2017, has to be given retrospective effect from 1-4-2003 as it is intended to remove an undue hardship and is curative in nature. (ITA.No.639/Vizag/2013, dt. 23-12-2016)(AY. 2009-10)

    Chalasani Naga Ratna Kumari (Smt) v. ITO ( Vizag)(Trib); www.itatonline.org

  84. S.54 : Capital gains – Profit on sale of property used for residence – Investment within time – Delay in construction due to default of the builder exemption cannot be denied. [S.45]

    Asseseee invested within time, however, due to default on part of builder causing delay in construction of flat within time limit prescribed under Act which is beyond control of assessee, assessee is entitled to benefit. (AY. 2010-11)

    ITO v. Saroja Naidu (Mrs.) (2017) 53 ITR 250 (Chennai)(Trib.)

  85. S.54 : Capital gains – Profit on sale of property used for residence – Investing gains in house property in United States of America, change in law is only with effect from April 1, 2015 [S.45]

    Assessee investing gains in house property in United States of America in previous year relevant to assessment year 2010-11, is entitled to exemption in previous year relevant to assessment year 2010-11. Change of law with effect from April 1, 2015 that property must be purchased only in India is prospective in nature. (AY. 2010-11)

    ITO v. Saroja Naidu (Mrs.) (2017) 53 ITR 250 (Chennai)(Trib.)

  86. S.54F : Capital gains – Investment in a residential house – Net consideration invested in the construction of new house before the due date of filing return of income – Construction of the house was also completed within the prescribed time limit of three years – Exemption cannot be denied. [S. 139(1)]

    Assessee having sold a property and invested more than the net consideration thereof in a new residential plot even before the due date prescribed under s.139(1) and also completed construction of the house within the time limit of three years under s. 54(1), exemption cannot be denied on the ground that the assessee did not deposit the sale consideration as per the scheme notified by the Government under s. 54F(1) of the Act. (AY. 2010-11)

    Nirmala Yadav (Smt.) v. ITO (2017) 146 DTR 63 (Jodhpur)(Trib.)

  87. S.68 : Cash credits – “On-Money” received by an assessee for sale of agricultural land has to be treated as “agricultural income” and exempted from tax if the facts show that the assessee has no other source for the receipt [S. 2(14), 56]

    Dismissing the appeal of the revenue, the Tribunal held that the assessee is an aged person, who had settled down in his native place. He was engaged in agricultural activities on his retirement and there is nothing on record to suggest that the assessee along with his wife were in a position to generate unaccounted income of ₹ 39 lakhs other than on-money on account of sale of agricultural land. The payment of on-money is an unfortunate practice in most part of our country, and none can deny this factual situation. It is the case of the assessee that the buyers were insisting on reducing the sale consideration to be disclosed in the sale deed for the purpose of reducing stamp duty payment. This contention of the assessee cannot be totally brushed aside. I also place reliance on the order of the Cochin Bench of the Tribunal in the case of ITO v. Dr. Koshy George wherein (2009) 317 ITR (AT) 116 ( Cochin) (Trib.), was held by the Tribunal that any surplus money arising to an assessee on sale of agricultural land would partake the character of agricultural income itself. (ITA No. 30/Coch/2017, dt. 26-4-2017)(AY. 2013-14)

    ITO v. Abraham Varghese Charuvil (Cochin)(Trib) : www.itatonline.org

  88. S.68 : Cash credits – Penny stocks – A transaction evidenced by payment/receipt of share transaction value through banking channels, transfer of shares in and from the D-mat account, etc. cannot be treated as a bogus transaction [S.45]

    Allowing the appeal of the assessee; the Tribunal held that if the AO relies upon the statement of a third party to make the addition, he is duty bound to provide a copy of the statement to the assessee and afford the opportunity of cross-examination. Failure to do so vitiates the assessment proceedings. A transaction evidenced by payment/receipt of share transaction value through banking channels, transfer of shares in and from the D-mat account, etc cannot be treated as a bogus transaction so as to attract s. 68.( ITA No. 6494/Mum/2014, dt. 2-1-2017)(AY. 2005-06)

    Sunil Prakash v. ACIT (Mum)(Trib) : www.itatonline.org

  89. S.68 : Cash credits – Advances received from customers towards supply of products later adjusted against subsequent sales cannot be assessed as cash credits

    Advances received from customers towards supply of products later adjusted against subsequent sales cannot be assessed as cash credits. Assessee cannot force its customers to furnish their permanent account numbers. In case advances not adjusted against subsequent sales assessee should be provided with an opportunity to explain reasons. The Assessing Officer was directed to decide in accordance with law. (AY. 2005-06, 2006-07, 2008-09)

    ACIT v. Dow Agro Sciences India Private Limited (2017) 53 ITR 590 (Mum) (Trib.)

  90. S.68 : Cash credit – Genuineness of gift cannot be disbelieved simply because there was no occasion to make gift

    The Tribunal held that the gift falls within the exception clause under section 56(2)(v) as the assessee has filed his bank statement reflecting the amount gifted to him by his co-brother, joint IT return of the donor and his wife and the affidavit of the donor confirming the gift duly notarised in USA, the genuineness of the gift cannot be disbelieved simply on the ground that there was no occasion to make the gift. The Tribunal deleted the addition. (A.Y. 2005-06)

    Dolarrai Hemani v. ITO (2017) 183 TTJ 433 (Kol.)(Trib.)

  91. S.69 : Unexplained investments – Survey – Merely on the basis of stock found in the premises additions cannot be made as undisclosed stock when proper explanation was furnished with supporting evidence. [S. 133A]

    In the course of survey stock was found in the premises, the explanation was furnished stating that, manufacturer keeping materials in possession of assessee by virtue of agreement between manufacturer, assessee and contractors till dues payable to manufacturer cleared by contractors. Assessee gaining commission which would compensate providing storage facilities to contractors and enhance business prospects of assessee. Assessee and his brother conducting business in same premises. Ownership of such property vested in assessee’s brother therefore addition cannot be made as undisclosed stock of assessee. (AY. 2010-2011)

    Niranjan Kumar Agrawal v. ITO (2017) 53 ITR 643 (Patna)(Trib.)

  92. S.69 : Income from undisclosed sources – Bogus purchases –Burden is on revenue to prove that the transaction is of benami nature, addition was deleted [S.132]

    Allowing the appeal of the assessee the Tribunal held that, the Assessing Officer merely rejecting explanation of assessee without bringing any evidence on record to support case of benami nature of transaction. The concerns assessed separately to income-tax therefore the investment made in concerns not proved to have been made by assessee.( AY. 2004-05 to 2008-09)

    Ashok Nanda v.DCIT (2017) 54 ITR 54 (Indore) (Trib.)

  93. S.69A : Unexplained investment – Recurring deposit in joint names of assessee and his wife – Addition of amount and interest was not justified

    Allowing the appeal of the assessee the Tribunal held that ; the assessee’s wife having taxable income more than investment in deposits and assessee had sufficient source of income for deposits, therefore addition of amount and interest thereon unsustainable. (AY. 2009-2010)

    Anandasayanam P. Pillai v. CIT (2017) 54 ITR 607 (Mum.) (Trib.)

  94. S.69C : Unexplained expenditure – Bogus purchases: Merely non-appearance of the supplier in absence of any other corroborate evidence cannot be a basis to justify the stand of the Revenue that the transaction of purchase is bogus

    Allowing the appeal the Tribunal held that; merely non-appearance of the supplier in absence of any other corroborate evidence cannot be a basis to justify the stand of the Revenue that the transaction of purchase is bogus. In the result the purchases made from M/s. Mahaveer Textiles have not been proved to be bogus by the Revenue and the said additions cannot be sustained in the eye of law in absence of any conclusive evidence brought on record.( ITA No. 508/JP/2016, dt. 10-4-2017)(AY. 2007-08)

    Beauty Tax v. DCIT (Jaipur)(Trib) : www.itatonline.org

  95. S.69C : Unexplained expenditure – Bogus Purchases – Purchases cannot be treated as bogus merely on the basis of the statements and affidavits filed by the alleged vendors before the sales-tax department – Additions cannot be made without giving an opportunity of cross examination [S.133(6)]

    Dismissing the appeal of Revenue, the Court held that ; purchases cannot be treated as bogus merely on the basis of the statements and affidavits filed by the alleged vendors before the sales-tax department. The said statements cannot be relied upon without cross-examination of the parties. The fact that the parties did not respond to the s. 133(6) notices is not relevant if the assessee filed copies of purchase invoices, extracts of stock ledger showing entry/exit of materials, copies of bank statements to evidence that payments for these purchases were made through normal banking channels, etc. to establish genuineness of the aforesaid purchases. Addition cannot be made u/s. 69C of the Act. (ITA No. 5194/Mum/2014, dt. 31-1-2017) (AY. 2010-11)

    ACIT v. Mahesh K. Shah (Mum.)(Trib.); www.itatonline.org

  96. S.69C : Unexplained expenditure – Bogus purchases – If the assessee has not discharged the onus of producing the documentation and the suppliers, the AO is entitled to estimate the gross profit. [S. 133(6)145]

    Tribunal held that if the assessee has not discharged the onus of producing the documentation and the suppliers, the AO is entitled to estimate the gross profit. The GP estimate should be fair, honest and rational and cannot be arbitrarily applied at the discretion of the AO. Industry comparisons or other rational comparability vis-à vis preceding years GP ratio should be brought on record. The books should be rejected. On facts, GP ratio of 12.5% as applied in Simit P Sheth 356 ITR 451(Guj.) is fair, reasonable and rational after giving credit for the GP already declared. (ITA No. 4463/Mum/2016, dt. 4-4-2017)(AY. 2009-10)

    Ratnagiri Stainless Pvt. Ltd. v. ITO ( Mum)(Trib) : www.itatonline.org

  97. S.69C : Unexplained expenditure – Bogus purchases – Additions was restricted to net profit comparable with that of preceding year

    Assessing Officer has made entire purchases u/s. 69C of the Act In appeal CIT(A) restricted the disallowance at 12.5% of the net profits. Department has accepted the order of CIT(A). On appeal by the assessee, the Tribunal restricted the disallowance of net profit rate of 10.43 per cent earned by the assessee in preceding year. (AY. 2010-11)

    Arun Shimpi v. ITO (2017) 53 ITR 151 (Mum) (Trib.)

  98. S.80-IA : Industrial undertaking – Generation of electricity for captive consumption – Market value – Assessing Officer to compute such profits and gains on such reasonable basis as he may deem fit by objective satisfaction and not a subjective satisfaction.
    [S.80-IA(8)]

    For captive consumption, the assessee computed the market value and recorded in its books of account. Assessee taking rate charged by Electricity Board from customers whereas Assessing Officer applying tariffs determined by State Electricity Regulatory Commission. Tribunal held that; Assessing Officer to compute such profits and gains on such reasonable basis as he may deem fit, by objective satisfaction and not a subjective satisfaction. (AYs. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017)53 ITR 5 (Kol) (Trib)

  99. S.80-IB(10) : Housing project –Interest income is not derived from and part of business income hence not eligible deduction – In respect of eligible business the assessee is entitled to pro rata deduction

    Tribunal held that the assessee has not demonstrating receipt of interest income derived from and part of business receipts to claim, hence not eligible deduction. As regards eligible income the assessee is entitled to pro rata deduction on each of projects. (AY. 2010-11)

    Bramha Corporation Ltd. v. ITO (2017) 54 ITR 465 (Pune) (Trib.)

  100. S. 80-IC : Special category States – Production of electric bikes by assembling imported parts amounts to manufacture and entitled to deduction

    The Tribunal held that activity of assembling the parts by the assessee amounted to manufacture and, therefore, the assessee is entitled to deduction under section 80-IC. (AY. 2008-09)

    ACIT v. Accura Bikes (P) Ltd. (2017) 183 TTJ 547 (SMC) (Ahd.)(Trib.)

  101. S.80JJAA : Employment of new workmen – If some workmen were employed for a period less than 300 days in the previous year then no deduction is allowable and such workmen is not a causal work men or workmen employed through contract labour

    The Tribunal held that if some workmen were employed for a period less than 300 days in the previous year then no deduction is allowable in respect of payment of wages to such workmen because the deduction is allowable for three years including the year in which the employment is provided, and such workmen is not a causal work men or workmen employed through contract labour (AYs. 2005-06 & 2006-07)

    Bosch Ltd. v. ACIT (2017) 183 TTJ 215 (Bang.)(Trib.)

  102. S.90 : Double taxation relief – Where assessee-company receives certain amount from AEs after deduction of tax at source, tax credit has to be allowed to it only to extent corresponding income suffers tax in India

    Where assessee-company receives certain amount from AEs after deduction of tax at source, tax credit has to be allowed to it only to extent corresponding income suffers tax in India and it is not correct approach to take into account gross receipts for purpose of computing admissible tax credit. (AY. 2009-10)

    Elitecore Technologies (P) Ltd. v. Dy. CIT (2017) 146 DTR 77 (Ahd.)(Trib.)

  103. S.92A : Transfer Pricing – “Associated enterprise” – The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises “associated enterprises” so as to subject their transactions to the rigours of transfer pricing law. [Ss. 40A(2)(b), 92CA]

    Dismissing the appeal of revenue the Tribunal held that the mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises “associated enterprises” so as to subject their transactions to the rigours of transfer pricing law. Accordingly the Tribunal held that as these enterprises are not associated enterprises, the ALP adjustments in respect of the transactions between these enterprises were wholly unwarranted. For this short reason, and without going any further into the matter, we approve the impugned deletion of ALP adjustment. The plea of the assessee, in cross objection, is upheld and, for that reason, grievance of the Assessing Officer, in appeal, is dismissed as infructuous. (AY. 2008-09)

    ACIT v. Veer Gems (2017) 146 DTR 1 (Ahd.) (Trib.)

  104. S.92A : Transfer Pricing – Associated Enterprises – Even if the conditions of S. 92A(2)(i) are fulfilled, these enterprise cannot be treated as ‘associated enterprise’ if the requirements of s. 92A(1) are not fulfilled. [S.92C]

    Allowing the appeal of assessee the Tribunal held that; the fact that an enterprise can “influence prices and other conditions relating to sale” does not make it an “associated enterprise” of the assessee if it does not participate in the (a) capital, (b) management, or (c) control of the assessee and thus does not fulfil the basic rule u/s 92A(1). S. 92A(2)(i) has to be read with s. 92(A)(1). Even if the conditions of s. 92A(2)(i) are fulfilled, these enterprise cannot be treated as ‘associated enterprise’ if the requirements of s. 92A(1) are not fulfilled. There is an inadvertent omission , with respect to threshold application of Section 92A(2)(i), whether in terms of a percentage of such sales or otherwise , in the statute .It is the apparent omission which is resulting in wholly avoidable litigation on the applicability of section 92(A)(2) (ITA No. 771/CHNY/2016, dt. 30-11-2016)(AY. 2011-12)

    Orchid Pharma Limited v. DCIT (Chennai)(Trib.); www.itatonline.org

  105. S.92A : Transfer pricing –Associated enterprises – Assessee being a partnership concern could not be said to be controlled by an ‘individual’, hence, clause (j) of s.92A(2) has no application in the present case. [S.92C ]

    A partnership concern cannot be said to be controlled by an ‘individual’ and, hence, as per section 92A(2)(j), cannot be an AE of another enterprise run by relative of partners even though it may have a de facto participation in capital, management or control of other enterprise. (AY. 2008-09)

    ACIT v. Veer Gems (2017) 146 DTR 1 (Ahd.)(Trib.)

  106. S.92C : Transfer pricing – Arms length price – Advertisement expenses incurred by the Indian AE towards brand of a foreign company can not be treated as an ” International transaction” and addition can not be made as deemed brand development [S. 2(24) 92B]

    The issue before the Tribunal was against attributing a notional income to the assessee on account of compensation for deemed brand development and as compensation for assesses depriving himself the use of his own logo and brand name in the motor vehicles manufactured by the assessee. Analysing the various provisions , the Tribunal deleted the notional addition made by the TPO on the ground that there was no services are performed , the determination of arm’s length price of a service has two components – first of rendition of service and second of a benefit accruing from such services . When the first condition is not satisfied , as in the present case , the matter rests there and there is no question of benchmarking the benefit in isolation , hence an incidental benefit accruing to an AE therefore , cannot be bench marked unless it results of a specific services by the assessee. The Tribunal also held that the accretions in brand value of the AEs brand name is not on account of costs incurred by the assessee ,or even by its conscious efforts and it does not result in impact on income , expenditure , losses or assets of the assessee company , it is not, therefore covered by the residuary component of definition of international transaction either. (AY. 2009-10 , 2010-11) (ITA No. 853/ Chny/2014, 563/Chny/ 2015 dt 27-4-2017

    Hyundal Motor India Ltd v. Dy.CIT (Mum.) (Trib.), www.itatonline.org.

  107. S.92C : Transfer Pricing – Arm’s length price – International transaction can be clubbed, if such transactions are closely connected with each other, contention that when TNMM is applied at the entity level, there was no necessity of separate bench marking in respect of royalty transactions cannot be accepted

    An international transaction can be clubbed/ aggregated with other international transactions if such transactions are closely connected with each other. The onus is on the assessee to establish the justification for clubbing the transactions. If the TPO has not applied TNMM at the entity level and has bench marked the royalty payment on standalone basis and not subjected the cost of production or other transactions to bench marking, the contention that when TNMM is applied at the entity level, there was no necessity of separate bench marking in respect of royalty transactions cannot be accepted. (IT(TP)A Nos. 159/Bang/2015, 132/Bang/2016 & 86/Bang/2017, dt. 21-4-2017)(AYs. 2010-11 to 2012-13)

    Kaypee Electronics & Associates Pvt. Ltd. v. DCIT (Bang.)(Trib.) : www.itatonline.org

  108. S.92C : Transfer pricing – Arm’s length price – Royalty – Five per cent on domestic sales and eight per cent on export sales to be considered as at arm’s length rate

    Tribunal held that in respect of royalty payable to associated enterprise, five per cent on domestic sales and eight per cent. on export sales to be considered as at arm’s length rate. (AY. 2005-06, 2006-07, 2008-09)

    ACIT v. Dow Agro Sciences India Private Limited (2017) 53 ITR 590 (Mum) (Trib.)

  109. S.92C : Transfer pricing – Arm’s length price – Interest on loans – International interest rate fixed being LIBOR linked interest rate to be applied

    Tribunal held that Comparable uncontrolled price method is most appropriate method. Reserve Bank of India approval cannot be considered as benchmark for arriving at arm’s length price. Transactions to be considered on commercial principles in international market. International interest rate fixed being LIBOR linked interest rate to be applied. (AY. 2007-08, 2008-09)

    Dr. Reddy’s Laboratories Ltd. v. (2017) 53 ITR 285 (Hyd.) (Trib.)

  110. S.92C : Transfer pricing – Arm’s length price – Interest-free loans to associated enterprise – LIBOR rate applicable and not domestic rate

    DRP directed the TPO to compute the upward adjustment applying an arm’s length interest rate of 11 per cent. i.e. 8 per cent plus 3 per cent (Credit spread) .On appeal the Tribunal held that instead of the base rate of 8 per cent. (based on lending rates of banks in India for commercial borrowing), it would be appropriate to apply LIBOR rate and not the domestic lending rate. (AYs. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017) 53 ITR 5 (Kol)(Trib.)

  111. S.92C : Transfer pricing –Arm’s length price – Giving guarantee on a loan availed of by its associated enterprises is an international transaction, arm’s length guarantee commission at 0.5 per cent was directed to be adopted against at 2 per cent adopted by DRP

    Giving guarantee on a loan availed of by its associated enterprises is an international transaction, arm’s length guarantee commission at 0.5 per cent was directed to be adopted against at 2 per cent adopted by DRP. (AYs. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017)53 ITR 5 (Kol) (Trib)

  112. S.92C : Transfer pricing – Arm’s length price – Proportion to international transaction bears to the total turnover

    The Tribunal held that CIT(A) was justified in directing the AO to make transfer pricing adjustment of the expenses in the proposition which the international transactions bear to the total turnover. (AYs. 2004-05, 2005-06 2006-07)

    ACIT v. Timex Watches Ltd. (2017) 183 TTJ 27 (Delhi)(Trib.)

  113. S. 92CA : Reference to Transfer Pricing Officer – jurisdiction of TPO is extendable to other international transactions which come to his notice during the course of proceedings before him.

    Even though original jurisdiction of TPO is confined to international transactions referred to him by AO for determination of ALP, but, such jurisdiction is extendable to other international transactions which comes to his notice during the course of proceedings before him. (AY. 2011-12)

    Nikon India (P) Ltd. v. Dy. CIT (2017) 146 DTR 107 (Delhi)(Trib.)

  114. S.115JB : Book Profits – Waiver of loan cannot be added while computing the book profit [S. 41(1)]

    Allowing the appeal of the assessee the Tribunal held that a capital surplus thus, in respect of waiver of loan amount cannot be regarded as being amount available for distribution through the profit & loss account. This follows from the very definition of expression ‘capital reserve’ that it must be accounted directly to the credit of the capital reserve account instead of being credited to the profit & loss account so as to ensure that it is not left for being distributed through the profit & loss account. Accordingly the waiver of a loan is a capital receipt which is part of the capital reserve and cannot be reckoned as working result of the company and therefore, it does not form part of the net profit as per the profit & loss account. Thus, such a capital receipt cannot be taxed as ‘book profit’ as envisaged in terms of section 115JB. (ITA Nos. 923 & 930/Bang/2009, dt. 13-1-2017) (AY. 2004-05)

    JSW Steel Ltd. v. ACIT (Mum)(Trib) www.itatonline.org

  115. S.143(2) : Assessment – Notice – Proper service of the notice u/s. 143(2) is mandatory and its failure renders the assessment order void. The fact that an unauthorised person appeared on behalf of the assessee before the AO does not mean that the notice was properly served. [S. 143(3)]

    Allowing the appeal the Tribunal held that; proper service of the notice u/s. 143(2) is mandatory and its failure renders the assessment order void. The fact that an unauthorized person appeared on behalf of the assessee before the AO does not mean that the notice was properly served. (ITA Nos. 181 & 426/Kol/2013,
    dt. 30-11-2016)(AY. 2008-09)

    DCIT v. M. K. Enterprise (Kol)(Trib); www.itatonline.org

  116. S.143(3) : Assessment – An addition towards income cannot be made merely on the basis of the statement of a third party that an amount has been paid to the assessee in the absence of conclusive evidence [S. 131]

    The AO made the addition on the basis of the statement of the seller of the land, who in his statement before the DDIT (Inv.) has stated that the sale consideration was at ₹ 2,10,000/- per bigha and he had received total sale consideration of ₹ 35,00,000/-. The Counsel has not refuted the statement. However, he submitted that the statement was not bona fide but Shri Hanuman Yadav was blackmailing the assessee. He submitted that interestingly the Revenue has accepted the sale consideration of the nearby vicinity. The CIT(A) affirmed the view of the AO in this respect. Now the issue which requires our consideration is whether the addition can be sustained solely on the basis of the statement of Shri Hanuman Yadav, when there is no material placed on record that Shri Hanuman Yadav has made any claim against the assessee in any court of law seeking cancellation of sale deed or filing a recovery suit. The Co-ordinate Bench of the Tribunal after following the ratio laid down by Hon’ble Supreme Court under the similar circumstances in Union of India v. T. R. Verma 1957 SC 882 and Kishan Chand Chellaram v. CIT, 125 ITR 713 (SC) has held in the case of Ghanshyam Das Agarwal v. ITO in ITA No. 1161/JP/2010 that in the absence of any conclusive evidence the document could not have been disbelieved. The D/R could not point out any binding precedent wherein it has been held that the oral statement would override the documentary evidence. Therefore, respectfully following the decision of the Co-ordinate Bench in the case of Ghanshyam Das Agarwal v. ITO in ITA No. 1161/JP/2010, we are of the view that the AO was not justified to make addition solely on the basis of the statement of Shri Hanuman Yadav when there was a registered sale deed and more particularly when the maker of statement has not challenged the sale deed before any court of law. It is also not placed on record whether the sale deed was executed under coercion. Therefore, considering the totality of facts of the present case, we hereby direct the AO to delete the addition. (ITA Nos. 467/JP/2011 and 519/JP/2011, dt. 25-11-2016) (AY. 2007-08)

    Sharad U. Mishra v. DCIT ( Jaipur)(Trib) ; www.itatonline.org

  117. S.143(3) : Assessment –Bogus purchases – One to one relationship/nexus between the purchases and sales has not been established by the assessee, the purchases have to be treated as bogus and 12% of the purchase cost is assessable as profits. [S.69C]

    Dismissing the appeal of the assessee the Tribunal held that the assessee has failed to place on record any material evidence to controvert the findings of the CIT(A). In this view of the matter, we uphold the order of the CIT(A) on this issue of bringing to tax in the assessee’s hands the profits embedded in the bogus purchase @ 12% of the purchase cost i.e. ₹ 5,15,377, since the direct one to one relationship/nexus between the said purchases and sales have not been established by the assessee. (ITA No. 2601/Mum/2016, dt. 18-1-2017) (AY. 2009-10)

    Kiran Navin Doshi v. ITO (Mum)(Trib); www.itatonline.org

  118. S.143(3) : Assessment – Dumb documents – On-money – Flats were sold at concessional rates, additional was held to be not justified on mere suspicion. [S.145]

    Allowing the appeal of the assessee, the Tribunal held that loose papers which do not have full details are “dumb documents” and have no evidentiary value. The fact that the assessee sold the flats at a concession does not mean that that the difference between sale value and market value can be assessed as income. The onus is on the AO to make inquiries from the buyers and bring incriminating evidence on record to show that the assessee sold flats at a higher rate. Accordingly the addition made on a pure guess without any material or evidence was held to be not justified. (ITA No. 1502/Ahd/2015, dt. 14-2-2017)(AY. 2011-12)

    Nishant Construction Pvt. Ltd. v. ACIT (Ahd)(Trib.) www.itatonline.org

  119. S.143(3) : Assessment – Validity – Return selected for scrutiny in violation of CBDT guidelines – Assessment order passed is ab-initio – void

    Return filed by the assessee manually selected for scrutiny without obtaining prior approval of Chief Commissioner of Income Tax being in violation of CBDT guidelines in F. No. 225/93/2009/IT.II, scrutiny assessment made by A.O. was without jurisdiction. (AY. 2008-09)

    JCIT v. S. F. Chougale (2017) 146 DTR 213 (Pune)(Trib.)

  120. S.143(3) : Assessment – Addition made on basis of dumb paper was held to be not valid. [S. 132]

    Tribunal held that the addition made on basis of dumb paper was held to be not valid. (AY. 2004-05 to 2008-09)

    Ashok Nanda v. DCIT (2017) 54 ITR 54 (Indore) (Trib)

  121. S.144C : Reference to dispute resolution panel – The lapse committed by the AO in passing the assessment order without first passing a draft order, against which the assessee may file objections with the DRP, seeking its directions to the AO was quashed

    Allowing the appeal of assessee the Tribunal held that the lapse committed by the AO in passing the assessment order without first passing a draft order, against which the assessee may file objections with the DRP, seeking its directions to the AO, is only a procedural irregularity, which does not impinge on the jurisdiction on the AO to pass the assessment order. The assessee has no vested right against procedure. However, as the lapse was held to be fatal in Vijay Television 369 ITR 113 (Mad), the same has to be followed. Respectfully following the decision in Vijay Television (P.) Ltd. (supra), we hold the assessment in the present case as bad in law. In consequence, the assessee is only liable for tax on its’ returned income. CIT v. Shelly Products (2003) 261 ITR 367 (SC). The assessment failing, we do not consider it relevant or necessary to address the issue arising in quantum assessment on merits. (ITA No. 818/Mds/2015, dt. 30-12-2016)(AY. 2010-11)

    Daewon Kang Up Co. Limited v. DDIT (Chennai)(Trib) ; www.itatonline.org

  122. S.144C : Dispute Resolution Panel – DRP has the power to entertain a new claim even in absence of a revised return – Direction is binding on the Assessing Officer.[S.139]

    DRP has the power to entertain a new claim even in absence of a revised return. Direction issued by Panel is binding on Assessing Officer. DRP directed to treat sales tax remission as capital receipt. Assessing Officer reducing value of sales tax remission from block affixed assets which is violation of the provision. (AYs. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017) 53 ITR 5 (Kol) (Trib)

  123. S.147 : Reassessment – On the basis of information from investigation wing in order to verify the genuineness of transaction in modification of clients code, reassessment was held to be bad in law [Ss. 45, 143(3)]

    Allowing the appeal the Tribunal held that reassessment, on the basis of information from investigation wing in order to verify the genuineness of transaction in modification of clients code, reassessment was held to be bad in law. (ITA No. 501 & 502/Ahd/2016, dt. 9-3-2017)(AY. 2008-09)

    Sunita jain (Smt) v. ITO (Ahd.)(Trib.) : www.itatonline.org

  124. S.147 : Reassessment – Share application money – Reopening of assessment to make roving inquiry is impermissible and negative burden that purchasers not relatives cannot be put to assessee – Reasons of reopening recorded by Assessing Officer not sustainable [Ss. 68, 148]

    Allowing the appeal of the assessee the Tribunal held that the assessee introduced own unaccounted capital through share capital and premium nowhere mentioned in assessment order. There is no material to prima facie indicate assessee’s unaccounted income invested in share capital and there is no live nexus between reasons recorded and income sought to be reassessed. Reopening of assessment to make roving inquiry is impermissible. Negative burden that purchasers not relatives cannot be put to assessee hence reasons of reopening recorded by Assessing Officer not sustainable. (AY.2009-10)

    Laxmiraj Distributors Pvt. Ltd. v. ACIT (2017) 53 ITR 376 (Ahd.) (Trib.)

  125. S.147 : Reassessment – Mutuality – Commissioner (Appeals) presuming assessee did not claim mutuality factually incorrect –Receipts other than interest and rental income from members of assessee, would fall within ambit of mutuality. Order enhancing income not sustainable [S. 4, 11, 148]

    Allowing the appeal the Tribunal held that; Commissioner (Appeals) presuming that the assessee did not claim mutuality factually incorrect – Receipts other than interest and rental income from members of assessee, would fall within ambit of mutuality. Order enhancing income not sustainable. (AYs. 2006-07 to
    2012-13)

    Sports and Cultural Club (Regd.) v. JCIT (2017) 53 ITR 160 (Delhi) (Trib.)

  126. S.147 : Reassessment – Information from Investigation Wing – No valid notice served upon assessee either through registered post or through affixture, reassessment was held to be not valid [S.148]

    Allowing the appeal the Tribunal held that no valid notice served upon assessee either through registered post or through affixture, reassessment was held to be not valid. (AY. 1996-97)

    Auram Jewellery Exports P. Ltd. v. ACIT (2017) 54 ITR 1 (Delhi) (Trib.)

  127. S.147 : Reassessment – Undated reasons – Reopening on borrowed satisfaction was held to be impermissible [S. 148]

    Allowing the appeal the Tribunal held that the reasons recorded, it was clear that the reasons were undated, which itself proved that the Assessing Officer had not applied his mind. Nothing appeared in the reasons recorded suggesting that the Assessing Officer had made any positive enquiry before coming to the conclusion that the income chargeable to tax had escaped assessment. The Assessing Officer had reopened the case on the basis of borrowed satisfaction, which was not permissible under the law. The reassessment proceedings were invalid. (AY. 2004-05)

    Charanjiv Lal Aggarwal v. ITO ( 2017) 54 ITR 349 (Amritsar) (Trib)

  128. S.153A : Assessment – Search – No incriminating material found at time of search and when original assessment was completed additions cannot be made in pursuance of search proceedings. [S.143(3)]

    Where the assessment proceedings were completed prior to date of search on basis of original return and no incriminating documents were found for the relevant year, the Assessing Officer could not and ought not to have examined in assessment proceedings under section 153A. Claim to treat as capital receipt sales tax remission brought to tax in original assessment, cannot be subject matter of determination of total income under section 153A. (AY. 2003-04 to 2011-12)

    Electrosteel Castings Ltd. v. DCIT (2017)53 ITR 5 (Kol.) (Trib.)

  129. S.153A : Assessment – Search – On money – Noting in seized papers – Additions cannot be made as undisclosed income – Additions cannot be made on the basis of estimate and extrapolation theory – Accounting Standard 7 is not applicable when sale of flats on ownership basis – Receipt is taxable only in the year when possession of flats or occupation certificate is given where assessee follows projection certificate. [S. 132, 145A]

    Dismissing the appeal of the revenue, the Tribunal held that merely on the basis of noting in seized papers additions cannot be made as undisclosed income, when purchasers have denied making any cash to the assessee. Additions cannot be made on the basis of estimate and extrapolation theory. Affidavits filed by assessee not to be rejected on ground that he produced no documentary evidence. Accounting Standard 7 prescribing method of accounting of construction contracts in books of contractors is not applicable when the assessee carrying on construction activity on ownership basis and not in pursuance of any contract with a contractee. When assessee follows project completion certificate, receipts taxable only in year in which project completed and possession of flat or occupancy certificate given for flat. (AY. 2004-2005 to 2011-2012

    ACIT v. Layer Exports P. Ltd. (2017) 53 ITR 416 (Mum)(Trib.)

  130. S.201 : Deduction at source – Person to whose account credit for such tax deducted at source to be given is not identifiable, provisions of tax deduction at source not applicable – Assessing Officer to verify whether payee identifiable and amount payable to him ascertainable [S.201(1A)]

    Allowing the appeal, the Tribunal held that ; person to whose account credit for such tax deducted at source to be given is not identifiable, provisions of tax deduction at source not applicable – Assessing Officer to verify whether payee identifiable and amount payable to him ascertainable. (AYs. 2010-11, 2011-12)

    Apollo Tyres Ltd. v. Dy. CIT (2017) 163 ITD 177 / 54 ITR 1 (Delhi)(Trib.)

  131. S.206AA : Requirement to furnish Permanent Account Number – AO rightly raised demand on deductor on its failure to apply 20 per cent TDS rate when payee had furnished wrong PAN

    Assessee payer having failed to discharge its obligation to verify the PAN submitted by the payee which has been eventually found to be incorrect by the department at the time of processing of the TDS return, A.O. was justified in raising demand for the differential tax that the assessee should have deducted in terms of S. 206AA on account of submission of incorrect PAN by the payee. (AY. 2011-12)

    Office of Xen, PHED v. ITO (2017) 146 DTR 19 (Jaipur)(Trib.)

  132. S. 206AA : Requirement to furnish Permanent Account Number –Deduction at source – In case where payments have been made to deductees on the strength of the beneficial provisions of S. 115A(1)(b) of the Act or as per DTAA rates r.w.s. 90(2) of the Act, the provisions of s. 206AA cannot be invoked by the AO insisting to deduct tax @ 20% for non-availability of PAN [Ss. 90(2), 115A(1)(b), 195, 200A]

    Allowing the appeal of assesse the Tribunal held that in case where payments have been made to the deductees on the strength of the beneficial provisions of section 115A(1)(b) of the Act or as per DTAA rates r.w.s. 90(2) of the Act, the provisions of section 206AA cannot be invoked by the Assessing Officer insisting to deduct tax @ 20% for non-availability of PAN. [(ITA No. 1204/Ahd/2014, dt. 4-1-2017)(AY. 2011-12)]

    Quick Flight Limited. ITO (Ahd)(Trib) ; www.itatonline.org

  133. S.206AA : Requirement to furnish Permanent Account Number – Section does not have an overriding effect over the other provisions of the Act. Consequently, the payer cannot be held liable to deduct tax at higher of the rates prescribed in s. 206AA in case of payments made to non-resident persons in spite of their failure to furnish the PAN [S.90(2)]

    Special Bench was constituted to decide the following questions involved.

    “Whether on the facts and circumstances of the case, provisions of section 206AA, of the Act will have a overriding effect for all other provisions of the Act, and that being the case, assessee is required to deduct tax at the rate prescribed therein in case of persons having taxable income in India, including non-residents,
    who do not furnish their Permanent Account Number “

    Special Bench held that section does not have an overriding effect over the other provisions of the Act. By virtue of s. 90(2), the provisions of the Treaty override s. 206AA to the extent they are beneficial to the assessee. Consequently, the payer cannot be held liable to deduct tax at higher of the rates prescribed in s. 206AA in case of payments made to non-resident persons in spite of their failure to furnish the PAN. (ITA Nos. 1187 & 1188/H/2014, dt. 13-2-2017)(AY. 2011-12 & 2012-13)

    Nagarijuna Fertilsers and Chemicals limited v. ACIT (Hyd)(Trib)(SB) ; www.itatonline.org

  134. S. 220 : Collection and recovery – Stay – Assessee’s income assessed was ten times more than the returned income, demand is to be stayed till the disposal of appeal

    Where assessee, a non-resident, received management fee from its Indian subsidiary but Assessing Officer made assessment at sum 10 times higher to returned income and raised demand, stay on said demand should be granted to assessee in view of CBDT Instruction No. 96 dated 21-8-1969. (AY. 2011-12)

    Dimension Data Asia Pacific Pte. Ltd. v. Dy. CIT (IT) (2017) 146 DTR 89 (Mum.)(Trib.)

  135. S.234C : Interest – Deferment of advance tax – Interest is not leviable if the income was not predictable and the assessee could not have anticipated its receipt e.g. the receipt of a gift

    Allowing the appeal of assessee the Tribunal held that though levy of interest for deferment of advance-tax is mandatory and cause & justification for the deferment are irrelevant, the same is not leviable if the income was not predictable and the assessee could not have anticipated its receipt e.g. the receipt of a gift was on 17-12-2011. (ITA No. 7661/Mum/2013, dt. 13-7-2016)(AY. 2012-13)

    Kumari Kumar Advani v. ACIT (Mum)(Trib); www.itatonline.org

  136. S.251 : Appeal – Commissioner (Appeals) – Powers – The CIT(A) has no power to enhance by discovering a new source of income which is neither discussed in the assessment order nor mentioned in the return of income filed by the assessee [Ss. 2(22)(e), 250]

    Allowing the appeal of the assessee the Tribunal held that; It is well settled law laid down by the Hon’ble Apex Court in CIT v. Shapoorji Pallonji Mistry, (1962) 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967), 66 ITR 443 (SC) and subsequently followed by the Hon’ble Delhi High Court in CIT v. Sardari Lal & Co. (2001) 251 ITR 864 (Delhi)(FB) that the CIT(A) is not competent to enhance assessment in appeal by discovering new source of income not mentioned in return or consider by the Assessing Officer in assessment. We hold that the Commissioner of Income Tax (Appeals) has exceeded his jurisdiction in making addition u/s. 2(22)(e) of the Act as there is no reference of such income either in the return of income or in the assessment proceedings. (ITA No. 746/PN/2013, dt. 30-12-2016) (AY. 2009-10)

    Ram Infrastructure Ltd. v. JCIT (Pune) (Trib) www.itatonline.org

  137. S.254(1) : Appellate Tribunal –Admission of additional evidence by the CIT(A) was held to be justified. [R. 46A]

    The Tribunal held that the CIT(A) has rightly admitted additional evidences which were necessary for arriving at justice. The learned CIT(A) has passed a reasoned and speaking order and has passed the order after obtaining remand report from the AO. The appeal of the revenue is dismissed. (A.Y. 2009-10)

    ACIT v. Saraswati Builders (2017) 183 TTJ 13 (Asr.)(UO)(Trib.)

  138. S. 263 : Commissioner – Revision of orders prejudicial to revenue – The fact that the AO is silent in the assessment order does not mean that he has not applied his mind so as to justify exercise of revisional powers by the CIT

    Allowing the appeal the Tribunal held that ; there is a distinction between “lack of enquiry” and “inadequate enquiry”. If the AO has called for the necessary details and the assessee has furnished the same, the fact that the AO is silent in the assessment order does not mean that he has not applied his mind so as to justify exercise of revisional powers by the CIT. (ITA No. 2464/Mum/2013, dt. 24-2-2017)(AY. 2009-10)

    Small Wonder industries v. CIT (Mum)(Trib.) : www.itatonline.org

  139. S.263 : Commissioner – Revision of orders prejudicial to revenue – Revision based on special audit report and incorrect presumption hence revision was held to be not valid. [S. 2(22) (e)]

    Commissioner initiated revisionary proceedings based on special audit report obtained in the case of a company as the company converted into public company, deemed dividend provision not applicable hence revision was held to be not valid. (AYs. 2005-06 to 2007-08)

    Gurucharan Dass Arora v. CIT (2017) 53 ITR 364 (Delhi) (Trib.)

  140. S.263 : Commissioner – Revision of orders prejudicial to revenue – Assessing Officer arriving at decision after examination and enquiry, revision on the basis of audit objection was held to be bad in law. [S.154]

    Allowing the appeal the Tribunal held that; the Assessing Officer had made necessary enquiries with respect to matters covered by order of Commissioner and arrived a decision after examination and enquiry. As regards audit objection, the assessing Officer categorically replying to objections raised by internal audit party objections and dismissed audit objections by replying on each and every issue on merits. Rectification proposed by Assessing Officer on matter of interest was also forms part of record before Commissioner. Order by the Assessing Officer was neither erroneous nor prejudicial to interests of Revenue hence revision was not valid. (AY. 2006-07)

    Lotus Energy (India) Ltd. v. CIT (2017) 53 ITR 227(Mum)(Trib.)

  141. S.263 : Commissioner – Revision of orders prejudicial to revenue – Mutuality – CIT(A) allowed the exemption in earlier years , order cannot be regarded as erroneous [[S. 11]

    The Tribunal held that the CIT(A) in the appellate orders for AY. 2008-09 & 2009-10 held that the assessee cannot be denied the benefit of exemption under section 11 as well as on the principle of mutuality. Therefore, the order of AO was based on the order of CIT(A), accepting nil income, it was not erroneous & prejudicial to the interests of revenue and consequently the revision under section 263 is not sustainable. (AY. 2011-12)

    Calcutta Cricket & Football Club v. ITO (2017) 183 TTJ 112 (Kol.)(Trib.)

  142. S.271(1)(c) : Penalty – concealment – Penalty cannot be levied if the omission to offer income, and the wrong claim of deduction, was by oversight and the auditors did not point it out. Also, the failure of the AO to specify the limb under which penalty u/s. 271(1)(c) is imposed is a fatal error

    Allowing the appeal of the assessee the Tribunal held that penalty cannot be levied if the omission to offer income, and the wrong claim of deduction, was by oversight and the auditors did not point it out. Also, the failure of the AO to specify the limb under which penalty u/s. 271(1)(c) is imposed is a fatal error. (ITA No. 2158/Mum/2016, dt. 24-2-2017)(AY. 2011-12)

    Wadhwa Estate & Developers India Pvt. Ltd. v. ACIT (Mum)(Trib) ; www.itatonline.org

  143. S.271(1)(c) : Penalty – Concealment – Bogus purchases – Surrendered in the course of assessment – Levy of penalty was held to be not justified, however merely on the basis of defects in the notice penalty cannot be deleted. [Ss. 69C, 274, 292BB]

    In the course of assessment proceedings the assessee surrendered the alleged bogus purchases to buy peace and not contested the addition in quantum proceedings. The AO levied the penalty which was confirmed in appeal by CIT(A). In appeal deleting the penalty the Tribunal held that, the claim of the assessee was bona fide and same was coupled with documentary evidence hence imposition of penalty was not justified. As regards the legal ground on alleged defects in the notice, the Tribunal held that penalty could not be deleted merely on the basis of defect pointed out in the notice. (AY. 2010-11)(ITA No.6617/Mum/2014 dt. 2-5-2017)

    Earth moving Equipment Service Corporation v . DCIT ( Mum)(Trib) www.itatonline.org.

  144. S.271(1)(c) : Penalty – Concealment – Excess claim of interest under bona fide belief, levy of penalty was held to be not justified

Allowing the appeal of the assessee, the Tribunal held that excess claim of interest under bona fide belief, levy of penalty was held to be not justified. No finding by authorities that assessee either concealed income or filed inaccurate particulars of income. Assessee neither concealing income nor filing inaccurate particulars. Penalty levied was deleted. (AY. 2010-11)

Lata Hospitals Pvt. Ltd. v. DCIT (2017) 53 ITR 625(Visakh)(Trib)

 

Man needs difficulties in life because they are necessary to enjoy the success.

— Dr. A. P. J. Abdul Kalam

Posted in May.
  1. S.10(3) : Casual and non–recurring receipts – Sum received as compensation as a result of the settlement arrived at in pursuance of the order of the Supreme Court annulling the auction is neither in the nature of capital receipt nor is the same assessable under section 56. [Ss. 4, 56]

The High Court held that the sum received as compensation as a result of the settlement arrived at in pursuance of the order of the Supreme Court annulling the auction is neither in the nature of capital receipt nor is the same assessable under section 56 following the decision of the Bombay High Court in the case of Cadell Weaving Mill Co. Ltd. 249 ITR 265. (AY 1993-94, 1994-95)

Girish Bansal, Gynendra Bansal v. UOI(2016) 142 DTR 138 / 289 CTR 514 (Delhi)(HC)

  1. S.14A : Disallowance of expenditure – Exempt income –Stock-in-trade – No disallowance can be made. [R 8D]

Dismissing the appeal of the revenue, the Court held that the securities constituted the assessee’s stock-in-trade and the income that arose on account of the purchase and sale of the securities was its business income and was brought to tax as such. Whether the securities yielded any income arising therefrom, such as, dividend or interest, no expenditure was incurred in relation to it. The Appellate Tribunal’s deletion of the addition made on account of disallowance under section 14A was proper. (AYs. 2008-09)

PCIT v. State Bank of Patiala (2017) 391 ITR 218/ 245 Taxman 273/ 293 CTR 35 (P&H)(HC)

  1. S.14A : Disallowance of expenditure – Exempt income – Assessing Officer cannot blindly apply the Rule 8D, without elucidating and explaining why assessee’s voluntary disallowance was unreasonable and unsatisfactory [R. 8D(2)]

Dismissing the appeal of the Revenue the Court held that the Assessing Officer cannot blindly apply the Rule 8D, without elucidating and explaining why assessee’s voluntary disallowance was unreasonable and unsatisfactory. (AY. 2006-07)

PCIT v. U.K. Paints (India) (P.) Ltd. (2017) 244 Taxman 309 (Delhi)(HC)

  1. S.14A : Disallowance of expenditure – Exempt income – No disallowance with respect to exempt income can be made if the securities are held as stock-in-trade. [R. 8D]

Dismissing the appeal of the Revenue, the Court held that the Tribunal found that the assessee does not have any investment and all the shares are held as stock in trade as is evident from the orders of the lower authorities. On those facts the Tribuanl held: “Once, the assessee has kept the shares as stock-in-trade, the rule 8D of the Rules will not apply.”(AY. 2008-09)(G.A.No 1150 of 2015 ITAT No. 52 of 2015 dt. 10-2-2017)

CIT v. G K K Capital Market (P) Limited (Cal)(HC); www.itatonline.org

  1. S.23 : Income from house property – Annual value – Property remained vacant throughout the year annual value will be determined notionally. [S.22, 23(1)(b), 23(1)(c)]

Dismissing the appeal of the assessee , the Court held that the annual value of the properties which are more than one, owned by the assessee and which remained vacant throughout the previous year would not be assessed under Section 23(1)(c ) but under Section 23(1)(a) .The annual value would, therefore, be determined notionally (AYs. 2001-02 to 2007-08)

Susham Singla v. CIT (2017) 244 Taxman 302 (P&H)(HC)

  1. S.23 : Income from house property – Annual value – Let out building annual value is to be estimated [Ss. 22, 23(1)(b)]

Allowing the appeal of the Revenue the Court held that the annual value of the properties which are let out by owners to firm or companies in which they are interested is to be determined by applying the provision of section 23(1)(b). (AY. 1996-97)

CIT v. Dr. K. M. Mehaboob (2017) 244 Taxman 263 (Ker.)(HC)

  1. S.28(i) : Business income – Interest earned on short-term fixed deposits is assessable as “profits and gains of business” and not as “income from other sources” [S.56]

Dismissing the appeal of revenue the Court held that the Tribunal records the fact that the three fixed deposits were for a period of 1 day, 28 days and 90 days respectively. Considering the nature of business of the assessee, the Tribunal, was of the view that the interest earned would be taxable under the head ‘Business income’. In support reliance was placed by the impugned order upon the decision of this Court in CIT v. Indo Swiss Jewels Ltd. & Another (2006) 284 ITR 389 (Bom.)(HC). In the context of the respondent’s business and the period of fixed deposits, the Tribunal holds the interest earned on them is taxable as business income. In fact this Court in almost similar circumstances in Indo Swiss Jewels Ltd. (supra) has held interest earned on short-term deposits on the money kept apart for the purposes of business had to be treated as income earned from business and could not be treated as income from other sources. Considering the short duration in which the amounts were kept in fixed deposit awaiting use in its business operations would necessarily mean income earned on account of business following the ratio of this Court in Indo Swiss Jewels Ltd. (AY. 2011-12)

CIT v. Green Infra Limited (2017) 292 CTR 233/146 DTR 262 (Bom.)(HC)

  1. S.32 : Depreciation – Carry forward deficit of earlier years –Entitle to claim the depreciation and also allowed to set off carry forward deficit of earlier years [S.11]

Dismissing the appeal of the revenue, the Court held that an education trust could claim depreciation on assets acquired for purpose of carrying out charitable activities and also carry forward deficit of earlier years and set it off against income of current year. (AY. 2007-08)

DIT v. Mumbai Education Trust (2017) 244 Taxman 163 (Bom.)(HC)

  1. S.37(1) : Business expenditure –Capital or revenue – Expenditure incurred on replacement of old fittings with new, expenditure creating advantage of enduring nature expenditure which is capital in nature.

Dismissing the appeal the Court held that the finding of the Tribunal revealed that by making such expenditure, the assessee had renovated and refurnished its hotel which enhanced the standard of the hotel and added an advantage of an enduring nature which would be reflected in terms of the higher rental and higher occupancy in the hotel. Therefore, the expenditure could not be covered under the general provisions of expenditure allowable under section 37 of the Income-tax Act, 1961. (AY. 1995-96)

U.P. Hotels Ltd. v. CIT (2017) 391 ITR 203 (All.)(HC)

  1. S.37(1) : Business expenditure – Loss – “Setting up of business” and “commencement of business”. All expenditure after “setting up” is deductible business expenditure even if the business has not commenced. A business is “set up” when steps are taken to recruit employees and take premises etc. Expenditure incurred was held to be allowable as business loss. [Ss. 28(i), 29]

Dismissing the appeal of revenue, the Court held that; all expenditure after “setting up” is deductible business expenditure even if the business has not commenced. A business is “set up” when steps are taken to recruit employees and take premises etc. Followed Western India Vegetable Products Ltd. v. CIT (1954) 26 ITR 151 (Bom,)(HC). (AY. 2007-08)

CIT v. Axis Pvt. Equity Ltd. (2017) 391 ITR 370 (Bom.)(HC)

  1. S.37(1) : Business expenditure – Accrued liability – Mercantile system of accounting – Liability for payment of 60 per cent arising during assessment year in question is ascertained liability hence be allowed as deduction. [S. 145]

Dismissing the appeal of the revenue the court held that provision for payment of arrears made in two consecutive years in instalments of 40 per cent and 60 per cent – Liability for payment of 60 per cent arising during assessment year in question – hence ascertained liability was to be allowed. (AY. 2010-11)

CIT v. Haryana Agro Industries Corporation Ltd. (2017) 391 ITR 127 (P&H) ( HC)

  1. S.40(a)(ia) : Amounts not deductible – Deduction at source – Royalty – Transfer of software rights – Provision applies to sale of Copyrights and not sale of Copy righted article – Not liable to deduct tax at source. [Ss. 9(1)(vi), 194J]

Dismissing the appeal of Revenue, the Court held that there is a difference between sale of a ‘copyrighted article’ and the ‘copyright’ itself. S.9(1)(vi) applies only to the latter and not the former. Explanation 4 inserted by FA 2012 w.e.f. 1-6-1976 has to be read and understood only in that context and cannot be expanded to bring within its fold transactions beyond the realm of the provision. The assessee was not liable to deduct tax at source.

CIT v. Vinzas Solutions India Private Limited( 2017) 147 DTR 105 (Mad.)(HC)

  1. S.40(a)(ia) : Amounts not deductible – Deduction at source – If income is not taxable in terms of the Income-tax Act, no disallowance can be made. [S.195]

Allowing the appeal the Court held that before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of the Income-tax Act. This aspect had not been considered by the Tribunal while concluding that the assessee had committed a default in not deducting the tax at source. The disallowance under section 40(a)(ia) was not justified.

Sesa Resources Ltd. v. Dy. CIT (2017) 391 ITR 413 (Bom.)(HC)

  1. S.43B: Deductions on actual payment – Amount deposited as custom duty – Held to be allowable deduction

Dismissing the appeal, the Court held that the deposit amounts paid were expenses and within the ambit of section 43B. (AY. 2007-08)

PCIT v. Praveen Saxena (2017) 391 ITR 365 (Delhi)(HC)

  1. S.44 : Insurance company – Profit on sale of investment was held to be not assessable – Circular of CBDT is binding on the revenue [S. 119]

Dismissing the appeal of the Revenue, the Court held that Profit on sale of investment was held to be not assessable. Circular of CBDT is binding on the revenue (AY. 2005-06)

PCIT v. National Insurance Company Ltd. (2007) 393 ITR 52 (Cal) (HC)

  1. S.44BB : Mineral Oils – Computation – Reimbursement of actual expenses was not be excluded while computing the income [S.2(45), 5(2)]

Dismissing the appeal of the assessee, the Court held that Reimbursement of actual expenses was not be excluded while computing the income as section 44BB is a complete code in itself.

Ensco Maritime Ltd. v. ADIT (2017) 244 Taxman 261 ( Uttarakhand)(HC)

  1. S.45 : Capital gains – Full value of consideration is neither market value nor necessarily price stated in document for sale but the price actually arrived at between parties to transaction. [S. 48, 55A]

Dismissing the appeal of the revenue, the Tribunal held that the Assessing Officer is not entitled to determine fair market value merely because parties interrelated. Consideration stated in sale document higher than valuation by stamp authority. Full value of consideration received by or accruing to assessee to be taken into consideration for computing capital gains. Market price of property not relevant for this purpose hence reference to Valuation Officer was without jurisdiction. (AY. 2006-07)

PCIT v. Quark Media House India P. Ltd. (2017) 391 ITR 145/ 245 Taxman 226/ 292 CTR 46 (P&H) (HC)

  1. S.45 : Capital gains – Full value of the consideration – Under value of assets – If the AO does not allege that the assessee received more consideration than is stated in the sale deed, he cannot make an addition to the stated consideration. [Ss.40A(2)(b), 48, 50C, 55A]

Dismissing the appeal of the Revenue the Court held that the AO is not bound to accept the consideration stated in the sale deed. In a case where property is sold between arm’s length parties at a gross undervaluation, the onus is on the assessee to explain and if there is no explanation, the AO is entitled to draw an inference. The presumption against the value being understated (not undervalued) is greater where parties are connected or related. However, if the AO does not allege that the assessee received more consideration than is stated in the sale deed, he cannot make an addition to the stated consideration (AY. 2006-07)

PCIT v. Quark Media House India Pvt. Ltd. (2017) 292CTR 146/ 146 DTR 233 (P & H)(HC)

  1. S.47 : Capital gains – Conversion of partnership into a company – Premature transfer of shares, transferee company is not liable to pay capital gains tax. [S. 45, 47(xiii), 245N]

Application was filed before the AAR on a question as to whether notwithstanding the non-compliance with clause (d) of proviso to section 47(xiii), the assessee was liable to pay capital gain tax. AAR has held that, the assessee was not liable to capital gains tax. On writ by the Revenue, dismissing the petition the Court held that, where there is no gain or profit arises at the time of conversion of partnership firm into a company, in such a situation, notwithstanding non-compliance with clause (d) of proviso to section 47(xiii) by premature transfer of shares, transferee company is not liable to pay capital gains tax.

CIT v. Umicore Finance Luxemborg (2017) 244 Taxman 43 / 291 CTR 174 (Bom.) (HC)

  1. S.54EC : Capital gains – Investment in bonds – The amounts
    received as an advance is eligible for investment in specified bonds. The fact
    that the investment is made prior to the transfer of the asset is irrelevant.
    [S.45]

Dismissing the appeal of revenue the Court held that; an amount received on sale of a capital asset as an advance on the basis of Agreement to Sale and the same being invested in specified bonds before the final sale, would entitle the assessee to the benefit of Section 54EC of the Act.The Tribunal upheld the claim of the assessee by following the decision of its co-ordinate bench in Bhikulal Chandak HUF v. ITO (2009) 126 TTJ 545 (Nag.)(Trib.) wherein it has been held that where an assessee makes investment in bonds as required under Section 54EC of the Act on receipt of advance as per the Agreement to Sale, then the assessee is entitled to claim the benefit of Section 54EC of the Act. The Revenue had preferred an appeal against the order of the Tribunal in Bhikulal Chandak HUF (supra) to this Court (Nagpur Bench) being Income Tax Appeal No. 68 of 2009. This Court by an order dated 22nd August, 2010 refused to entertain the Revenue’s above appeal from the decision of the Tribunal in Bhikulal Chandak HUF (supra). In the above view, the question as proposed for our consideration in the present facts does not give rise to any substantial question of law. (ITA No. 1009 of 2014, dt. 14-12-2016) (AY. 2008-09)

CIT v. Subhash Vinayak Supnekar (Bom.)(HC); www.itatonline.org

  1. S.54F : Capital gains – Investment in a residential house – Failure to deposit the amount of consideration not utilised towards the purchase of new flat in the specified bank account before the due date of filing return of income u/s. 139(1) is fatal to the claim for exemption. [Ss. 45, 139(1)]

The allotment letter issued by the developer does not confer title until the agreement for sale under the provisions of the MOFA is registered. Failure to deposit the amount of consideration not utilised towards the purchase of new flat in the specified bank account before the due date of filing return of income u/s. 139(1) is fatal to the claim for exemption. Humayun Suleman Merchant vs. CCIT is not per incuriam. Assessee is not entitled to exemption. (AY. 2006-07)

Rasiklal M. Parikh v. ACIT (2017) 391 ITR 395/ 80 taxmann.com 22 (Bom)(HC)

  1. S.57 : Income from other sources – Interest on money borrowed for purchase of shares – Interest was held to be deductible [S.56, 57(iii), IT Act, 1922 S.12(2)]

Allowing the appeal the Court held that ; Interest on money borrowed for purchase of shares was held to be deductible. There was no evidence to demonstrate that the shares had been purchased in order to gain control of company. (AY. 1997-98)

Satish Bala Malhotra (Smt.) v. CIT ( 2016) 75 taxmann.com 42 (2017) 391 ITR 256 (P&H)(HC)

  1. S.68 : Cash credit – Share application money – Failure by Assessing Officer to conduct adequate and proper inquiry into materials, no addition can be made [Ss. 147, 148, 151]

Dismissing the appeal of the revenue, the Court held that assessee furnishing documents to evidence genuineness of transactions and identity and creditworthiness of parties. Failure by Assessing Officer to conduct adequate and proper inquiry into materials while invoking section 68, no addition can be made. (AY. 2001-2002)

CIT v. N.C. Cables Ltd. (2017) 391 ITR 11 (Delhi) (HC)

  1. S.68 : Cash credits – Bogus share capital/ premium – The proviso to s. 68 (which creates an obligation on the issuing Co. to explain the source of share capital & premium) has been introduced by the Finance Act, 2012 with effect from 1-4-2013 and does not have retrospective effect. If the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company’s unexplained cash credit

Dismissing the appeal of the Revenue, the Court held that the proviso to s. 68 (which creates an obligation on the issuing Co to explain the source of share capital & premium) has been introduced by the Finance Act, 2012 with effect from 1-4-2013 and does not have retrospective effect. If the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company’s unexplained cash credit. The Court relied on CIT v. Lovely Exports (P) Ltd. 317 ITR 218 (SC). (ITA No. 1613 of 2017, dt. 20-3-2017)(AY.2008-09)

CIT v. Gagandeep Infrastructure Pvt. Ltd. (Bom)(HC) : www.itatonline.org

  1. S.68 : Cash credits – Even if the premium at which the shares are issued defies commercial prudence, the receipt cannot be assessed as “unexplained credit” if the identity of the payer, genuineness of the transaction and capacity of the subscriber are not disputed

Dismissing the appeal of revenue the Court held that, even if the premium at which the shares are issued defies commercial prudence, the receipt cannot be assessed as “unexplained credit” if the identity of the payer, genuineness of the transaction and capacity of the subscriber are not disputed. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. (AY. 2011-12)

CIT v. Green Infra Limited (2017) 292 CTR 233/146 DTR 262 (Bom)(HC)

  1. S.68 : Cash credits – Bogus capital gains – A transaction cannot be treated as fraudulent if the assessee has furnished documentary proof and proved the identity of the purchasers and no discrepancy is found – The AO has to exercise his powers u/s. 131 & 133(6) to verify the genuineness of the claim and cannot proceed on surmises [Ss. 131, 133(6)]

Dismissing the appeal of the revenue, the Court held that the assessee has adduced the documentary evidences in support of the transaction in question. The identity of the purchasers of the shares was established as it was borne on the record of the Income Tax Department. The purchasers have PAN card as well. Turning to the shares which were sold by the appellant as per its version, there is no evidence or material to even suggest, as pointed out as on behalf of the assessee, that the cheques directly or indirectly emanated from the assessee so that it could be said that the assessee’s own money was brought back in the guise of sale proceeds of the shares. Though, the purchasers of the shares could not be examined by the AO, since they were existing on the file of the Income Tax Department and their Income Tax details were made available to the AO, it was equally the duty of the AO to have taken steps to verify their assessment records and if necessary to also have them examined by the respective AOs having jurisdiction over them which has not been done by him. (ITA Nos. 43/2016 & 44/2016, dt. 18-1-2017)(AY. 2003-04)

PCIT v. Jatin Investment Pvt. Ltd. (Delhi)(HC); www.itatonline.org

  1. S.69C : Unexplained expenditure – Bogus purchases – No quantity details maintained – Failure to produce sellers – Addition was held to be justified

Allowing the appeal of the revenue, the Court held that the findings of the Appellate Tribunal were perverse. The purchases were bogus and all paper transactions were for the purpose of taking benefit of export and tax benefits by the assessee. Mere vouchers of the import and export challans of the customs clearance would not prove physical delivery of the material. There was nothing on record to certify that the precious stones were verified by any valuer. The Commissioner (Appeals) had confirmed the finding of the Assessing Officer and the supplier had specifically contended that they were not transfer by them and were absconding. The Appellate Tribunal had given its finding only on the statement of the power of attorney holder of the supplier. The finding which had been arrived at by the Appellate Tribunal was not in consonance with the provisions of law and therefore, was reversed. The order of the Commissioner (Appeals) was upheld

CIT v. Bright Future Gems (2017) 392 ITR 580 (Raj)(HC)

  1. S.80HHC : Export business –Hundred per cent Export Oriented Undertaking – Export turnover – Deduction cannot be denied where assessee has availed of exemption under section 10B. [S.10B]

Allowing the appeal of the assesse the Court held that section 80HHC of the Act did not preclude the assessee from availing of the deduction thereunder in the event of the assessee having availed of the benefit of section 10B. Wherever the Legislature intended to exclude the benefit under a provision on account of an assessee having availed of a benefit under another provision, it so provided. The fact that section 10B(4)(iii) did not refer to section 80HHC indicated strongly that the Legislature did not intend to deny an assessee who had availed of the benefit of section 10B the deduction under section 80HHC. The assessee manufactured the goods exported by it and, therefore, clause (a) of sub-section (3) of section 80HHC applied to the assessee’s case. The proviso to definition of “total turn over” in Explanation (ba) excluded from the expression “total turnover” sums referred to in section 28(iiia), (iiib) and (iiic) but not sections 10B. The definition of the expression total turnover did not warrant the exclusion of any benefit under section 10B. The nature and benefits under section 80HHC and section 10B were also entirely different. Circular dated December 16, 1988 issued by the Central Board of Direct Taxes provided that section 10B was introduced to confer an additional benefit upon the assessee. Section 80HHC defined the terms “export turnover”, “total turnover” and “profits of business”. None of those definitions excluded the export turnover in respect whereof benefit had been derived under section 10B. The Assessing Officer was to compute the assessee’s income accordingly. (AY. 1998-99)

Mahavir Spinning Mills Ltd v. CIT (2017) 391 ITR 290 (P&H)(HC)

  1. S.80-I : Industrial undertaking – Old machinery used in old unit and depreciation claimed on it in earlier assessment year –Entitled to benefit of deduction on machinery

The assessee was entitled to deduction on the machinery which was put to use by the assessee in its old unit and on which it had claimed depreciation in the earlier assessment year.

CIT v. Popular Art Palace P. Ltd. (2017) 391 ITR 352 (Raj.)( HC)

  1. S.80-IB(10) : Industrial undertaking – Eligible deduction cannot be treated as inflated merely because there are common customers –Matter was set aside to Tribunal. [Ss.80-IB(8), 80(IB)(13)]

Allowing the appeal , the Court held that ; The profits of an undertaking eligible for deduction cannot be treated as “inflated” in the absence of material on record to show that there is an arrangement between the eligible unit and the non-eligible unit to generate more than ordinary profits for the eligible unit. The mere fact that there are common customers of both the units does not by itself indicate transfer of profits to the eligible unit. Matter was set aside to Tribunal to decide according to law. (AY. 2009-10)

Malay N. Sanghvi v. ITO( 2017) 391 ITR 382 (Bom.)(HC)

  1. S.80P : Co-operative societies –Interest received from members – Providing credit facilities to only members hence not co-operative Bank eligible deduction [S.80P(2)(a)(i)]

Dismissing the appeal of the Revenue, the Court held that; a co-operative credit society providing credit facilities to its members alone, and not to general public at large, hence the assessee would not be covered by description of term ‘co-operative bank’ and, thus, would be entitled to seek deduction under section 80P(2)(a)(i).

CIT v. Nilgiris Co-operative Marketing Society Ltd. (2017) 244 Taxman 256 (Mad.)(HC)

  1. S.92B : Transfer pricing –International transactions – Advertisement, marketing and promotion expenditure – Whether outbound business constituted international transaction for which arm’s length price to be determined – Matter remitted to Appellate Tribunal. [S.92C]

Court remanded the matter to the Tribunal to decide whether reporting of AMP expenditure in regard to outbound business constituted an international transaction for which ALP determination was necessary. (AYs. 2009-10, 2010-11)

Le Passage to India Tour and Travels (P) Ltd. v. Dy. CIT (2017) 391 ITR 207/245 Taxman 129/292 CTR 241 (Delhi)(HC)

  1. S.92C : Transfer pricing – Arm’s length price – DEPB includible in determining operating profit and depreciation includible in determining total costs as in comparable companies – Loss suffered in a particular year does not exclude a company from comparability analysis

Dismissing the appeal of the revenue, the Court held that while determining the arm’s length price, DEPB includible in determining operating profit and depreciation includible in determining total costs as in comparable companies. Loss suffered in a particular year does not exclude a company from comparability analysis. (AY. 2008-09)

CIT v. Welspun Zucchi Textiles Ltd. (2017) 391 ITR 211/ 245 Taxman 132/292 CTR 1 (Bom.)(HC)

  1. S.142A : Estimate of value of assets by Valuation Officer –Reference to valuation Officer was held to be not valid, unless there is some material before the Assessing Officer [S.69]

Allowing the appeal of the assesse the Court held that No doubt, it is true that section 142A can be resorted to even during the assessment or after assessment but, at the same time, while making said reference, the officer has to satisfy the conditions precedent which are be reflected in relevant statutory provisions, which in the instant case are completely missing and therefore, no such action is permissible in law. Upon considering the materials on records and the contentions raised by respective parties and in view of the aforesaid proposition of law laid down, it is opined that the action of making reference is not sustainable in the eye of law and therefore it is quashed and set aside.) (AY. 2008-09)

Anand Banwarilal Adhukia v. DCIT (2017) 244 Taxman 243 (Guj.)(HC)

  1. S.143(2) : Assessment – Notice –Notice served on the old address – Assessment was held to be void [Ss. 282, 292BB, General Clauses Act, S.27]

Dismissing the appeal of assessee the Court held that the issue of a notice u/s. 143(2) bearing the wrong (old) address of the assessee does not amount to a valid service of the notice u/s. 282 r.w.s. 27 of the General Clauses Act. The non-service of a notice u/s. 143(2) before the expiry of 12 months from the end of the month in which the return was filed renders the assessment void. As the assessee objected to the same before completion of proceedings, the assessment order is not saved by s. 292BB.In the above view, as the position is self evident on a plain reading of Section 143(2) of the Act read with Section 127 of the General Clauses Act, thus no substantial question of law arises for our consideration. (ITA No. 1382 of 2014,

dt. 7-2-2017)(AY. 2006-07)

CIT v. Abacus Distribution Systems(India)Pvt. Ltd. (Bom)(HC); www.itatonline.org

  1. S.143(3) : Assessment – Bogus purchases – Cross examination – A statement by the alleged vendor that the transactions with the assessee are only accommodation entries and that there are no sales or purchases cannot be relied upon by the AO unless the assessee is given the opportunity to cross-examine the vendor. [S.131]

Dismissing the appeal of Revenue the Court held that the question raised in this appeal is, whether the Tribunal was justified in deleting the addition on account of bogus purchases allegedly made by the assessee from M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. According to the revenue, the Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. in his statement had stated that there were no sales / purchases but the transactions were only accommodation bills not involving any transactions. The Tribunal has recorded a finding of fact that the assessee had disputed the correctness of the above statement and admittedly the assessee was not given any opportunity to cross examine the concerned Director of M/s. Thakkar Agro Industrial Chem Supplies P. Ltd. who had made the above statement. The Appellate Authority had sought remand report and even at that stage the genuineness of the statement has not been established by allowing cross examination of the person whose statement was relied upon by the revenue. In these circumstances, the decision of the Tribunal being based on the fact, no substantial question of law can be said to arise from the order of the Tribunal. The appeal is dismissed with no order as to costs. (ITA No. 4299 of 2009, dt. 22-2-2011)

CIT v. Ashish International (Bom)(HC) ; www.itatonline.org

  1. S.145 : Method of accounting –Valuation of closing stock – Revised return – Tribunal finding that method of valuation by Assessing Officer was correct, question of fact. [S. 139(5), 260A]

Dismissing the appeal of the assesse the Court held that there was no error in the approach of the Assessing Officer as well as the Tribunal as no material to support assessee’s plea of wrong valuation of finished goods needing rectification in return. Assessing Officer was based on sales that were quoted by the assessee in his return and not hypothetical and that normally the stock was to be valued either at the market price or at the cost price and that the assessee had adopted an unrealistic method of valuation. (AY. 1998-99)

Pooja Rice and General Mills v. CIT (2017) 391 ITR 140 (P&H)(HC)

  1. S.145 : Method of accounting –Rejection of accounts – Decline in gross profit– Suppression of sales – Deletion of addition was held to be justified

Dismissing the appeal of the revenue, the Court held that Assessing Officer making addition on account of suppressed sales due to decline in gross profit. Tribunal finding that there was justification for decline in gross profit and deletion of addition as in earlier years. No question of law. (AY. 2006-07)

CIT v. Parth Laboratories P. Ltd. (2017) 391 ITR 70 (Guj.) (HC)

  1. S.145 : Method of Accounting – Gross profit rate – Estimate of 32 per cent to be adopted considering average profit of six years shown by assessee

The Court held that; Assessing Officer estimating gross profit rate at 35 per cent. Commissioner (Appeals) and Appellate Tribunal abruptly deducting profit without assigning reasons. Court held estimate of 32 per cent to be adopted considering average profit of six years shown by assessee.

CIT v. Popular Art Palace P. Ltd. (2017) 391 ITR 352 (Raj.)( HC)

  1. S.145 : Method of accounting –Weighted average cost of valuing stock is an accepted method of accounting, which is approved by Accounting Standard issued by the ICAI. AO is not entitled to disregard the method if the assessee has consistently followed the said method

Dismissing the appeal of the Revenue, the Court held that, in the case of manufacture of jewelry, weighted average cost of valuing stock is an accepted method of accounting, which is approved by Accounting Standard issued by the ICAI. AO is not entitled to disregard the method if the assessee has consistently followed the said method. (AY. 2009-10) (ITA No. 297 of 2014

dt. 6-3-2017)

CIT v. Uday M.Ghare (Bom) (HC) www.itatonlne.org.

  1. S.147 : Reassessment – After the expiry of four years – Brokers client code modification – Failure by assessee to substantiate loss by producing evidence – Assessee participating in reassessment proceedings without pressing its earlier objections raised, reassessment was held to be valid [S.148]

Dismissing the petition, that the Assessing Officer had received credible information regarding income escaping assessment for the relevant assessment year. He had applied his mind to it and had informed the assessee of his intention to invoke section 148 of the Income-tax Act, 1961 and had given his reasons for doing so. The assessee had objected to the reasons furnished by the Assessing Officer for invoking section 148. The assessee had neither insisted upon disposal of its objections filed prior to the reassessment nor had pressed its objections but had participated in the reassessment proceedings. The assessee had also furnished the documents required by the Assessing Officer in the proceedings under section 148 after raising the objections. The conduct of the assessee allowed one to infer that it had waived its rights to have the objections disposed of, or alternatively, the assessee had withdrawn its objections to the invocation of section 148. From the reasons supplied by the Assessing Officer it could be inferred that he had applied his mind to the issue. The assessee had not demonstrated any material to substantiate that the loss from brokers by client code modification being booked in its accounts was placed before the Assessing Officer for consideration and that, the Assessing Officer had taken a view after production of the material facts by the assessee

Rampuria Industries and Investments Ltd v. Dy. CIT (2017) 391 ITR 18 (Cal)(HC)

  1. S.147 : Reassessment – After the expiry of four years – On-money – No new tangible material available showing income escaped assessment – Reassessment notice not valid [Ss.69A, 143(3) 148]

Allowing the petition the Court held that the reopening was not permissible, more particularly in the absence of any other tangible material available with the Assessing Officer that in the year 2005-06, the assessee had received any on-money and when the notice was issued beyond the period of four years and more particularly when the original assessment was done under section 143(3) of the Act. (AY. 2005-06)

Sopan Infrastructure P. Ltd v. ITO (2017) 391 ITR 107/ 78 taxmann.com 170 (Guj.)(HC)

  1. S.147 : Reassessment – Merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction on the basis of suspicions and presumptions cannot be sustained. [S.148]

Allowing the petition, the Court held that though Explanation 2 of s. 147 authorizes the AO to reopen an assessment wherever there is an “understatement of income”, the AO is not entitled to assume that there is “understatement of income” merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction u/s. 147 on the basis of suspicions and presumptions cannot be sustained. (WP No. 36483/2016, dt. 13-2-2017) (AY. 2012-13)

Rajendra Goud Chepur v. ITO (AP&T)(HC) : www.itatonline.org

  1. S.147 : Reassessment – A question relating to jurisdiction which goes to the root of the matter can always be raised at any stage – Issue of notice or service of notice in the set aside appeal can be raised – Matter was set aside to Tribunal to decide the jurisdictional issue of reassessment. [S.148]

Allowing the petition the Court held that (i) a question relating to jurisdiction which goes to the root of the matter can always be raised at any stage, be in appeal or revision, (ii) initiation of proceedings under section 147 of the Act and/or service of notice are all questions relating to assumption of jurisdiction to assess escaped income, (iii) if an issue has not been decided in appeal and the matter has simply been remanded, the same can be raised again notwithstanding with the fact that no further appeal has been preferred, (iv) in the reassessment proceedings, relief in respect of item which was not originally claimed can not be claimed again as the reassessment proceedings are for the benefit of the Revenue and (v) relief can only be claimed in respect of the escaped income. The principles laid down by the Apex Court in the case of Sun Engineering Works P. Ltd. would not apply as the appellant is not claiming any deduction or relief on the taxability of any item in the reopened assessment proceedings which had not been claimed in the original assessment. (ITA No. 87 of 2009,

dt. 30-3-2017)(AY. 1997-98)

Teena Gupta v. CIT (All) (HC) : www.itatonline.org

  1. S.147: Reassessment – Unabsorbed depreciation – Reassessment was held to be not permissible [Ss. 32(2), 148]

    Allowing the petition the court held that ; in the absence of any tangible material which alone could be the basis, for reopening of a completed assessment. The Department could not have issued the notice. The benefit of carrying forward the depreciation was limited by the

    pre-existing ruling that, it could be done for eight years. All that the amendment by the Finance Act, 2002 did, with effect from April 1, 2002, was to remove the cap which meant that the previously limited benefit was subjected to such restrictions. The notice was unsustainable and the reassessment was quashed. (AY. 2010-11)

    Motor and General Finance Ltd v. ITO (2017) 393 ITR 60 (Delhi) (HC)

  2. S.151 : Reassessment – Sanction for issue of notice – The mere appending of the word “approved” by the CIT while granting approval to the reopening is not enough – He has to record satisfaction after application of mind. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal. [Ss. 68, 147, 148]

    Dismissing the appeal of revenue the Court held that; the mere appending of the word “approved” by the CIT is not sufficient. While the CIT is not required to record elaborate reasons, however, he has to record satisfaction after application of mind. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal. (AY. 2001-02)

    PCIT v. N. C. Cables Ltd. (2017) 391 ITR 11 (Delhi)(HC)

  3. S. 153A : Assessment – Search or requisition – Though no incriminating material was found in the course of search, notice in pursuance of search and assessment thereafter was held to be valid. [S.132]

    Dismissing the appeal of the assessee, the Court held that though no incriminating material was found in the course of search, notice in pursuance of search and assessment thereafter was held to be valid

    E. N. Gopakumar v. CIT (2017) 390 ITR 131/244 Taxman 21 (Ker.)(HC)

  4. S.153C : Assessment – Income of any other person – Search – The requirement that the documents found during search should “belong” to the assessee is a condition precedent and a jurisdictional issue – The non-satisfaction of the condition renders the entire proceedings null and void. [Ss. 69C, 132]

    Dismissing the appeal of the revenue, the Court held that; the requirement that the documents found during search should “belong” to the assessee is a condition precedent and a jurisdictional issue. The non-satisfaction of the condition renders the entire proceedings null and void. The fact that the searched person and the assessee are alleged to be “hand in glove” is irrelevant. In view of the above reasons and particularly the finding of fact that seized document which forms the basis of the present proceedings, do not belong to the petitioner and the same not being shown to be perverse, the question as raised does not give rise to any substantial question of law and thus not entertained. (ITA No. 83 of 2014, dt. 7-2-2017)(AY. 2007-08)

    CIT v. Arpit Land Pvt. Ltd. (Bom.)(HC);
    www.itatonline.org

  5. S.158BC : Block Assessment – Notice could not be issued when no incriminating materials are found during the course of the search. [Ss. 132, 158BC]

    The High Court held that the notice under section 158BC could not have been issued when the search was conducted under mistaken identity and no incriminating material was found during the course of the search as evident from the appraisal report.

    Dr. Gautam Sen v. CCIT (2016 289 CTR 478 /142 DTR 220/74 taxmann.com 128 (Bom.)(HC)

  6. S.158BC : Block assessment – No incriminating material found during search – Additions made on basis of evidence gathered from extraneous source and on basis of statement or document received subsequent to search – Assessing Officer has no jurisdiction to make additions [Ss. 132, 158BB(1)]

    Dismissing the appeal of the revenue the Court held that if no incriminating material was found in the course of search proceedings, additions cannot be made on basis of evidence gathered from extraneous source and on basis of statement or document received subsequent to search. Assessing Officer has no jurisdiction to make additions.

    CIT v. Pinaki Misra (2017) 392 ITR 347 (Delhi)(HC)

  7. S.158BC : Block assessment – Undisclosed income – Additions to income based on facts – Merely because a protective assessment had been made in the hands of assessee’s wife did not ipso facto mean that the assessment of such items of assets at hands of assessee was unsustainable. [S.158BD]

    Dismissing the appeal the Court held that ; additions to income was confirmed on facts hence the order was justified. Merely because a protective assessment had been made in the hands of assessee’s wife did not ipso facto mean that the assessment of such items of assets at hands of assessee was unsustainable.

    R. Ramachandran Nair v. Dy. CIT (2017) 391 ITR 343/ 292 CTR 72/ 78 taxmann.com 110 (Ker) (HC)

  8. S.158BC : Block assessment – Commissioner (Appeals) upholding assessment relying on Supreme Court decisions on different subjects and holding decision in ACIT v. Hotel Blue Moon [2010] 321 ITR 362 per incuriam – On writ the court held that order of CIT(A) was held to be untenable, order was set aside [S. 143(2), Article 226]

    On a writ petition against an order passed by the Commissioner (Appeals) in an appeal against a block assessment, recording a finding that notice under section 143(2) of the Income-tax Act, 1961 was not issued, but holding that the judgment of the Supreme Court in Asst. CIT v. Hotel Blue Moon [2010] 321 ITR 362, wherein it was held that block assessment could not be framed until notice under section 143(2) had been served upon the assessee, was per incuriam in view of the two Supreme Court judgments in Govt. of A.P. v. J.B. Educational Society [2005] 3 SCC 212 and State of Punjab v. Shamlal Murari [1976] 1 SCC 719:

    Held, allowing the petition, that the finding recorded by the Commissioner (Appeals) was not tenable as neither of the two Supreme Court judgments referred to or dealt with the case of block assessment and of not serving a notice under section 143(2) of the Income-tax Act, 1961 which issue was raised and decided in Asst. CIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC). The Commissioner (Appelas) had committed a grave illegality in holding that such judgment was per incuriam.

    Kiran Prakashan v. Dept. of Income Tax (2017) 391 ITR 31 (Patna)(HC)

  9. S.164: Representative assessees – Charge of tax – Beneficiaries unknown – Where the shares are determinable, the income is to be taxed of that respective sharer or the beneficiaries and not in the hands of the trustees. [S. 161]

    From the order of the ITAT Bengaluru in DCIT vs. India Advantage Fund-VII, the High Court had to consider the following question at the instance of the department:

    “Whether, the Tribunal, on the facts and in the circumstances of the case was right in holding that the assessee trust cannot be assessed as on AOP even though the requirements of section 164(1) were not met, inasmuch as the shares of the beneficiaries were indeterminate/unknown and hence the Assessing Officer was justified in invoking the provisions of section 164(1) of the Act and make the assessee liable to be assessed at the maximum marginal rate in the status of AOP. Hence it is not relevant whether the necessary ingredients for formation of an AOP are fulfilled by the assessee or not?”

    HELD by the High Court dismissing the appeal: the Court held that once shares are found to be determinable the income is to be taxed of that respective sharer or the beneficiaries and not in the hands of the trustees which has already been shown in the present case. (ITA No. 191/2015, dt. 13-2-2015)(AY. 2008-09)

    CIT v. India Advantage Fund-VII (Karn.)(HC);
    www.itatonline.org

  10. S.194-I : Deduction at source – Rent – Payment towards ‘premium’ for the lease (even if paid annually) is a capital payment and is not subject to deduction of tax at source. [Ss. 201, 201 (IA) Transfer of Property Act. S.105]

    In all the cases the petitioners received notice from the income-tax authorities, alleging that they were assessed in default in as much as they had failed to deduct tax at source from the interest component paid to the lessor/authority. The Revenue was prima facie of the opinion that these interest amounts resulted income in the hands of the authority which is facially taxable and that the failure of the assessees, in deducting amounts mandated under section 194I is without legal foundation. The petitioners were served with the notice u/ss. 201, 201(IA) of the Act. Allowing the petitions of the assessees, the Court held that, payment towards ‘premium’ for the lease (even if paid annually) is a capital payment and is not subject to deduction of tax at source. Referred Circular No .35/ 2016 dated 13-10-2016. (WP (C) 8085/2014, C.M. Appl. 18876/2014,

    dt. 16-2-2017)

    Rajesh Project (India) Pvt. Ltd. v. CIT (Delhi)(HC);
    www.itatonline.org

  11. S.199 : Deduction at source – Credit for tax deducted – Since other co-owners had not availed any tax credit out of TDS on rental income, assessee-company would be entitled to enjoy benefit of tax deducted at source in its entirety [S.194-I]

    Dismissing the appeal of the Revenue, the Court held that since other co-owners had not availed any tax credit out of TDS on rental income, assessee-company would be entitled to enjoy benefit of tax deducted at source in its entirety. (AY. 2005-06)

    CIT v. Ganesh Narayan Brijlal Ltd. (2017) 244 Taxman 14 (Cal.)(HC)

  12. S.206C : Collection at source – Cotton wastage – Writ is not maintainable, as the buyers can seek refund by filing returns [Constitution of India, Article 226]

    Petitioner filed a writ petition praying for restraining mill owners from collecting TCS on purchase of cotton waste. Dismissing the petition the Court, held that there was uncertainty regarding applicability of section 206C to cotton waste hence, no direction could be issued to restrain mill owners, to stop collecting TCS on purchase of cotton waste. Further, it was always open to petitioners to seek refund by filing appropriate returns and hence remedy under Act itself was available, thus instant petition would not be maintainable.

    Amarjeet Beeton v. CIT (2017) 391 ITR 124/244 Taxman 240 (P&H)(HC)

  13. S.215 : Advance tax – Interest – Liable to pay interest for short or non-payment of advance tax

    Assessee is Liable to pay interest for short or non-payment of advance tax. (AY. 1976-77)

    E. Merck (India) Ltd v. CIT (2017) 393 ITR 91 (Bom)(HC)

  14. S. 220 : Collection and recovery – Assessee deemed in default –Stay – The AO and CIT cannot straightaway demand payment of 15% of the dues but have to grant complete stay if the assessment is “unreasonably high pitched” or the demand for depositing 15% of the disputed demand leads to “genuine hardship” to the assessee” [S.220(6)]

    Allowing the petition the Court held that CBDT Circular dated 29-2-2016 does not supersede Instruction No. 1914 but modifies it. Both have to be read together. The AO and CIT cannot straightaway demand payment of 15% of the dues but have to grant complete stay if the assessment is “unreasonably high pitched” or the demand for depositing 15% of the disputed demand leads to “genuine hardship” to the assessee”. Commissioner was directed to decide the Review petition filed by the assesse with in a period of two weeks. (WP No. 1339, 1342/2017, dt. 23-2-2017)(AY. 2014-15 )

    Flipkart India Private Limited v. ACIT (Karn.)(HC)
    www.itatonline.org

  15. S.220 : Collection and recovery – Assessee deemed in default – If the AO demands 15% to be paid, the assessee is entitled to approach the Pr. CIT for review of the AO’s decision [S.220(6)]

    Allowing the petition, the Court held that CBDT’s instruction dated 29-2-2016 on stay of demand by the AO does not require the assessee to make a pre-deposit of 15% of the disputed demand. As per the Instruction, if the AO requires the assessee to pay less, or more, than 15% of the demand, the sanction of the Pr. CIT is required. If the AO demands 15% to be paid, the assessee is entitled to approach the Pr CIT for review of the AO’s decision. (Spl. CA No. 5679 of 2017, dt. 28-12-2017)

    Jagdish Gandabhai Shah v. PCIT ( Guj.)(HC) :
    www.itatonline.org

  16. S.222 : Collection and recovery – Certificate to Tax Recovery Officer – Attached property was not sold within three years, attachment order of said property would be deemed to be vacated [Second Schedule, Rule 68B]

    Allowing the petition the Court held that Sub-rule (4) of Rule 68B of II Schedule further clarifies that where the sale of immovable property has not been made within three years as required under Rule 68B to Second Schedule to the Act, the effect would be attachment order of the said property deemed to be vacated. Accordingly the attachment of immovable properties stands vacated.

    K. Venkatesh Dutt v. TRO (2017) 244 Taxman 1 (Karn.)(HC)

  17. S.222 : Collection and recovery – Certificate to Tax Recovery Officer – Since entire tax liability of assessee was wiped off pursuant to order of Tribunal, in such a case, even if revenue’s appeal was entertained by High Court, that by itself would not make assessee as an assessee-in-default – Tax Recovery Officer was directed to lift the attachment of the immoveable property. [S.225]

    Allowing the petition the Court held that since entire tax liability of assessee was wiped off pursuant to order of Tribunal, in such a case, even if revenue’s appeal was entertained by High Court, that by itself would not make assessee as an assessee-in-default. Tax Recovery Officer is directed to pass appropriate orders for lifting the order of attachment of the immovable property of the assessee. (AYs. 2009-10 to 2011-12)

    Coromandel Oils (P.) Ltd. v. TRO (2017) 244 Taxman 165/291 CTR 600 (Mad.)(HC)

  18. S.226 : Collection and recovery – Mortgaged property – Dispute between bank and the Revenue will not affect the purchaser of the property

    The petitioner purchased the mortgaged property. The Tax Recovery Officer issued an order of attachment on property for outstanding tax dues of the directors. On allowing the petition the Court held that mere communication to the bank by the Income-tax Department conveying that Income-tax Department had to recover huge amount of tax from the Director, its HUF and company would not take shape of the attachment of the property which can be so in terms of rule 48 of the procedure for recovery of tax long after the property was sold to ‘A’ who in turn, sold part of it to the petitioner. Even if the bank had disregarded such a communication of the Income-tax department and not shared with the department proceeds of the sale of such property, at best may be a dispute between the income tax department and the bank and in any case, cannot harm the petitioner who was the subsequent purchaser for consideration without notice. On such grounds, petition is allowed. Impugned attachment is lifted qua the properties in question.

    Prajakta M. Shah v. TRO (2017) 244 Taxman 183 (Guj.)(HC)

  19. S.245D : Settlement Commission – Survey – Revised enhanced offer made by the assessee must be considered in the nature of spirit of the Settlement Commission, order of Settlement Commission was upheld. [S. 245C]

    Dismissing the petition of the Revenue against the order of settlement Commission, the Court held that during course of proceedings, if revised enhanced offers are made by assessee, then in nature of spirit of settlement, same is to permitted to be considered by Settlement Commission. (AYs. 2011-12 , 2012-13)

    CIT v. ITSC (2017) 244 Taxman 156 (Guj.)(HC)

  20. S.245D : Settlement Commission – Finding that there had been no full and true disclosure of income and manner in which it was earned, rejection of applications was held to be justified, High Court cannot interfere on finding of fact [Ss. 153A, 245D(2C), 245D (4), Article 226]

    Dismissing the petition the court held that though the applications allowed and order passed under section 245D(2C). Subsequent inquiry under section 245D(3) if it was found that hat there had been no full and true disclosure of income and manner in which it was earned, the rejection of applications under section 245D(4) was justified. High Court under Writ jurisdiction has limited power.

    Bharat Singh v. UOI ( 2016)76 taxmann.com 239/ (2017) 391 ITR 305 (Patna) (HC)

  21. S.245D : Settlement Commission –Commissioner filing report before Settlement Commission does not have any adjudicatory role and is entitled to file writ petition against order of Settlement Commission – Settlement Commission had not properly considered issue of addition or genuineness of claim of advances from others, matter was remanded to Settlement Commission. [Ss. 245C, 245D(4), 245I, Article 226]

    Allowing the Writ petition fled by the Commissioner, the Court held that; Commissioner filing report before Settlement Commission does not have any adjudicatory role and is entitled to file writ petition against order of Settlement Commission – Settlement Commission had not properly considered issue of addition or genuineness of claim of advances from others , matter was remanded to Settlement Commission.

    CIT v. ITSC (2017) 391 ITR 374/ 291CTR 433/ 77 taxmann.com 167 (Ker.)(HC)

  22. S.246 : Appeal – Commissioner (Appeals) – Levy of interest –Where levy of advance tax was disputed only levy of interest was held to be not maintainable
    [S. 215]

    On reference the Court held that where levy of advance tax was disputed only levy of interest was held to be not maintainable. Assessee can seek waiver or reduction before Assessing Officer Authority. (AY. 1976-77)

    E. Merck (India) Ltd. v. CIT (2017) 393 ITR 91 (Bom)(HC)

  23. S.254(1) : Appellate Tribunal –Additional grounds – Assessee must satisfy the Appellate Authority that the ground now raised was bona fide and the same could not have been raised earlier for good reasons [S.80-IA]

    Dismissing the appeal, the Court held that , an additional ground cannot be permitted to be raised if the necessary evidence that the assessee is entitled to the claim is not on record. The fact that claim has been allowed by the AO in a subsequent year and that there is no reason why the claim should not be allowed in the present year is irrelevant. Also, the assessee must satisfy the Appellate Authority that the ground now raised was bona fide and the same could not have been raised earlier for good reasons. (ITA No. 1060 of 2014, dt. 18-4-2017)

    Ultratech Cement v. ACIT (Bom.)(HC) : www.itatonline.org

  24. S.254(1) : Appellate Tribunal – Additional evidence – Ordinarily an application seeking admission of additional evidence under Rules 18 and 29 of ITAT Rules requires an order to be passed. If the ITAT rejects the application, reasons thereof have to be stated. [ITAT R. 18, 29]

    Court held that ordinarily an application seeking admission of additional evidence under Rules 18 and 29 of ITAT Rules requires an order to be passed. If the ITAT rejects the application, reasons thereof have to be stated, however in the present case no injustice is done to the assessee, hence the Tribunal has not committed any error by not passing a separate order on the additional evidence filed before the Tribunal. (AY. 2006-07)

    Rasiklal M. Parikh v. ACIT (2017) 391 ITR 395/ 80 taxmann.com 22 (Bom)(HC)

  25. S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – If the assessee voluntarily withdraws the appeal, he cannot seek restoration on the ground that the withdrawal was an apparent mistake

    Dismissing the petition the Court held that; plea that the appeal was mistakenly withdrawn on the advice of Counsel and that the same should be restored should be backed by evidence. If the assessee voluntarily withdraws the appeal, he cannot seek restoration on the ground that the withdrawal was an apparent mistake. (WP No. 2966 of 2016, dt. 1-2-2017)

    Jayant D. Sanghavi v. ITAT (Bom.)(HC); www.itatonline.org

  26. S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – The mere placing of a case law in the paper book does not mean that it was cited before the ITAT and non-consideration thereof is not a mistake apparent from the record. [S.254(1)]

    Dismissing the petition the Court held that facts recorded by the ITAT have to be accepted as correct and conclusive and cannot be contradicted by affidavit or otherwise. The mere placing of a case law in the paper book does not mean that it was cited before the ITAT and non-consideration thereof is not a mistake apparent from the record. AMA to rectify such alleged mistake of non-consideration of a judgment must be filed as quickly as possible. (WP. 2844 of 2016, dt. 12-1-2017) (AY. 2002-03)

    Ashish Gandhi Builders & Developers P. Ltd. v. ITAT (Bom.)(HC);
    www.itatonline.org

  27. S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – The Tribunal is mandated to pass orders within 90 days of the hearing – Delay is not justified on the ground that ‘administrative clearance’ was obtained. The aggrieved party is entitled to seek recall of such an order [R. 34(5)(c), 34(8)]

    The Tribunal passed an order dated 3rd February, 2016 beyond a period of 90 days after the hearing of the appeal was concluded on 22nd September, 2015. The assessee claimed that this was in breach of Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963 (Tribunal Rules) as also of the binding decision of this Court in Shivsagar Veg. Restaurant v. ACIT 317 ITR 433. It was also claimed that the delay has also resulted in prejudice to the parties as binding decisions of the co-ordinate benches though referred to were ignored in the order dated 3rd February, 2016. Allowing the petition the Court held that the Tribunal is mandated to pass orders within 90 days of the hearing – Delay is not justified on the ground that ‘administrative clearance’ was obtained. The aggrieved party is entitled to seek recall of such an order. (W.P. No. 2889 of 2016, dt. 12-1-2017)(AY. 2009-10)

    Otters Club v. DIT (E) (Bom.)(HC); www.itatonline.org

  28. S.260A : Appeal – High Court – Limitation – Appeal by department – Receipt of the order by any of the Officer of the department including Commissioner (Judicial) is to be considered for computing the period of limitation –Administrative instructions cannot override the statute. [S.260A(2)(a)]

    Assessee contended that for computing the period of limitation the copy of order was available with the Commissioner (Judicial) to be considered and with the Commissioner (Central). The Department contended that limitation would start to run from the date of service of the order of the Tribunal on the concerned Commissioner having jurisdiction over the assessee. On appeal the Court held that the word “received” occurring in section 260A(2)(a) of the Income–tax Act, 1961, would mean received by any of the named officers of the Department, including the Commissioner (Judicial). The provision names four particular officers, i.e., the Principal Commissioner, Commissioner, Principal Chief Commissioner, and the Chief Commissioner of Income Tax. These were the only designated officers who could receive a copy of the order of the Tribunal by any of those officers in the Department including the Commissioner (Judicial) would trigger the period of limitation. The statute was not concerned with the internal arrangements that the Department might make by changing the jurisdiction of its officers. The limitation would begin to run when a certified copy was received first by either the Commissioner (Judicial) or one of the officers of the Department and not only when the Commissioner “concerned” received it. Administrative, instructions are for the administrative convenience of the Department and would not override the statute, in particular, section 260A(2)(a) of the Act.

    CIT v. Odeon Builders P. Ltd. (2017) 393 ITR 27 (FB) (Delhi) (HC)

  29. S.260A : Appeal – High Court – Delay of 448 days in filing of appeal was not condoned and strictures passed regarding the “standard excuses” of the department for delay in filing appeals, namely, budgetary constraints, lack of infrastructure to make soft copies, change of standing counsel etc.

    Dismissing the appeal of the revenue, the Court held that there is an inordinate delay of 448 days in re-filing the appeal. The Court finds that the standard excuse that the Department is putting forth in all such applications for condonation of delay in re-filing the appeal is two-fold. The first is regarding the budgetary constraints of the Department which delayed payment of the differential court fees as a result of the Court Fees Delhi Amendment Act, 2012 which came into force on 1st August 2012. The second is regarding the practice directions issued by the Court pertaining to filing of soft copies of the paperbooks in tax matters. (ITA No. 934 of 2016, dt. 17-4-2017)

    PCIT v. Diana Builders & Contractors Pvt. Ltd. (Delhi)(HC) :
    www.itatonline.org

  30. S.260A : Appeal – High Court – Territorial jurisdiction –Assessment was at Surat and Appeal was decided by Appellate Tribunal at Punjab – Punjab and Haryana High Court lacks territorial jurisdiction to adjudicate appeal from order of Tribunal. [S. 254(1)]

    Assessment proceedings initiated and final assessment framed at Surat. Appeal filed before Appellate Tribunal in Gujarat but transferred to and disposed of by Tribunal in Punjab because assessee’s head office transferred. Dismissing the appeal the Court held that since the initial process of assessment was started at Surat and the final assessment was framed by the Assessing Officer at Surat, the Punjab and Haryana High Court lacked territorial jurisdiction to adjudicate the matter. (AY. 2001-02)

    CIT v. Balak Capital P. Ltd. ((2017) 391 ITR 112 (P&H)(HC)

  31. S.263: Commissioner – Revision of orders prejudicial to revenue – Cash credits – Share capital premium – Bogus share capital – Onus is on the assessee toprove the creditworthiness of the subscribers – Revision was held to be justified [Ss. 56(2) (viib), 68]

    Dismissing the appeal of the assessees, the Court held that mere fact that payment was received by cheque or that the applicants were companies borne on the file of the Registrar of Companies does not prove that the transaction was genuine. Even under the unamended S. 68, the onus is on the assessee to prove the creditworthiness of the subscribers. Argument that the amendment to S.. 68 is not retrospective is not required to be considered. (ITA No. 178 of 2016, dt. 7-3-2017)

    Pragati Financial Management Pvt. Ltd. v. CIT (Cal)(HC) :
    www.itatonline.org

  32. S.264 : Commissioner – Revision of other orders – Salary received by a non-resident for services rendered abroad accrues outside India and is not chargeable to tax in India. The source of the receipt is not relevant. The CIT has wide powers u/s. 264 and has to exercise them in favour of the assessee in terms of CBDT Circular No. 14 (XL-35) dated 11-4-1955 [Ss. 5(2), 15, 143(1)]

    The petitioner was working as a marine engineer and had rendered services as such to a foreign shipping company during the assessment year 2011-12. The petitioner had filed income tax return for such assessment year under the residential status as non-residential Indian. He disclosed a receipt of a remuneration of

    ₹ 5,63,850/- in US Dollars. The petitioner was issued an assessment order cum intimation under Section 143(1). The petitioner did not file any appeal. The petitio-tax Act, 1961 claiming that the income had accrued outside India and was not taxable in India. The CIT rejected the assessee’s claim. On a Writ Petition by the assessee HELD allowing the claim held that salary received by a non-resident for services rendered abroad accrues outside India and is not chargeable to tax in India. The source of the receipt is not relevant. The CIT has wide powers u/s. 264 and has to exercise them in favour of the assessee in terms of CBDT Circular No. 14 (XL-35) dated 11-4-1955. Relied CIT v. Mahalaxmi Sugar Mills Ltd. (1986) 160) ITR 920 (SC) The matter was remanded to the Assessing Officer to do the needful.

    Utanka Roy v. DIT (2017) 146 DTR 27 (Cal.)(HC),

  33. S.269SS : Acceptance of loans and deposits – Bona fide belief that share application money was neither loans nor deposits, deletion of the penalty was held to be justified. [S. 271D]

    Dismissing the appeal of the revenue the Court held that in the instant case also, the assessee was under the bona fide impression that the money received was only towards allotment of shares and it is not a loan or deposit. Hence, no question of law much less any substantial question of law arises for consideration in the instant appeal. (AYs. 2002-03 to 2004-05)

    CIT v. Object Frontier Software (P.) Ltd. (2017) 244 Taxman 292 (Mad.)(HC)

  34. S.271(1)(c) : Penalty – Concealment – Opinion of chartered accountant – Set off under different head – Levy of penalty was held to be not justified

    Dismissing the appeal of the Revenue the Court held that based on the opinion of chartered accountant set off under different head does not amount to furnishing inaccurate particulars or concealment of income, hence penalty was not leviable. (AY. 2004-05)

    PCIT v. Atotech India Ltd. (2017) 391 ITR 117 (P&H) (HC)

  35. S.271(1)(c) : Penalty – Concealment – Search and seizure – Disclosure in return filed under section 153A amounts to extension of disclosure made under section 132(4), hence penalty cannot be levied [Ss. 132(4), 153A, 153C]

    Dismissing the appeal of the revenue, the Court held that disclosure in return filed under section 153A amounts to extension of disclosure made under section 132(4) hence penalty cannot be levied. (AY. 2002-2003 to 2006-2007)

    PCIT v. Gopal Das Kothari (HUF) (2017) 391 ITR 390 (Cal) (HC)

  36. S.271(1)(c) : Penalty – Concealment – Revised return – Amount disclosed in the revised return – Levy of penalty was held to be not valid. [Ss. 139(1), 153A]

    The High Court had to consider the interpretation and application of Section 271(1)(c) of the Act and Explanation 5 thereto. Two broad issues arose for consideration in this regard:

    (i) Whether under Section 271(1)(c) as it stood prior to the insertion of Explanation 5, levy of penalty is automatic if return filed by the assessee under Section 153A of the Act discloses higher income than in the return filed under Section 139(1)?

    (ii) What would be the position of law after insertion of Explanation 5 and whether it is attracted in the facts of this case?

    Dismissing the appeal of the revenue the Court held that “The word ‘concealment’ inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of non-disclosure, cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that

    the assessee has consciously made the concealment or furnished inaccurate particulars of his income.

    In this case, the A.O. in his order noted that the disclosure of higher income in the return filed by the assessee was a consequence of the search conducted and hence, such disclosure cannot be said to be “voluntary”. Hence, in the A.O.’s opinion, the assessee had “concealed” his income. However, the mere fact that the assessee has filed revised returns disclosing higher income than in the original return, in the absence of any other incriminating evidence, does not show that the assessee has “concealed” his income for the relevant assessment years. On this point, several High Courts have also opined that the mere increase in the amount of income shown in the revised return is not sufficient to justify a levy of penalty. (AY. 2005-06, 2006-07)

    PCIT v. Neerj Jindal (2017) 393 ITR 1 (Delhi)(HC)

  37. S.271(1)(c) : Penalty – Concealment – If the quantum appeal is admitted by the High Court, it means that the issue is debatable and penalty cannot be levied. [S. 260A]

    Dismissing the appeal of the revenue, if the quantum appeal is admitted by the High Court, it means that the issue is debatable and penalty cannot be levied. The court also held that the argument of the Dept that CIT v. Nayan Builders and Developers (2014) 368 ITR 722 (Bom.) does not lay down this proposition is not correct. (ITA No. 1498 of 2014, dt. 17-2-2017)(AY. 2006-07)

    CIT v. Advaita Estate Development Pvt. Ltd. (Bom.) (HC);
    www.itatonline.org

  38. S. 271(1)(c) : Penalty –Concealment – Failure by the AO to specify in the
    S. 274 notice whether the penalty is being initiated for ‘furnishing of
    inaccurate particulars of income’ or for ‘concealment of income’ is fatal. It
    reflects non-application of mind and renders the levy of penalty invalid. [S.
    274]

    Dismissing the appeal of revenue, the Court held that failure by the AO to specify in the s. 274 notice whether the penalty is being initiated for ‘furnishing of inaccurate particulars of income’ or for ‘concealment of income’ is fatal. It reflects non-application of mind and renders the levy of penalty invalid. Followed CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar.) (HC). (ITA No. 1154 of 2014, dt. 5-1-2017)

    CIT v. Samson Perinchery (Bom)(HC); www.itatonline.org

  39. S.271(1)(c) : Penalty – Concealment – Disclosure of income after detection, levy of penalty was held to be justified. [S.142(1), 143(2)]

    Dismissing the appeal of the assessee the Court held that; a disclosure of income, or withdrawal of claim for deduction, by the assessee after a specific notice under section, 142(1)/143(2) notice is issued cannot be said to be a “voluntary disclosure” so as to avoid the levy of penalty. The argument that the earlier non-disclosure of income/wrong claim for expenditure was due to “mistake” is not an acceptable. (AY. 2007-08)

    Samson Maritime Ltd. v. CIT (2017) 393 ITR 102 (Bom)(HC)

  40. S.271F : Penalty – Failure to furnish – Reasonable cause for non filing of return will also a reasonable cause for non levy of penalty [S. 153A]

    Allowing the appeal of the assessee, the Court held that ; where a cause is found to be reasonable for non-filing of return immediately in response to notice issued under section 153A, such cause can also be construed as a reasonable cause, while considering as to whether penalty has to be levied under section 271F. Accordingly ;the writ petition is allowed and the impugned orders levying penalty under section 271F is set aside. (AY. 2008-09 to 2014-15)

    S. Jayanthi Shri v. ACIT (2017) 244 Taxman 295 (Mad.)(HC)

  41. S.279 : Offences and prosecution – Compounding of offences – Failure by assessee to deposit amount deducted as tax at source was beyond its control, Order rejecting application for compounding not sustainable – Guidelines issued by CBDT do not bar for consideration of application of offence having regard to facts of the case. [Ss. 276B, 279(2)]

    Allowing the petition the Court held that ; failure by assessee to deposit amount deducted as tax at source was beyond its control, Order rejecting application for compounding not sustainable – Guidelines issued by CBDT do not bar for consideration of application of offence having regard to facts of the case.

    Sports Infratech P. Ltd. v. Dy. CIT (2017) 391 ITR 98/246 Taxman 21 (Delhi)(HC)

  42. S.279 : Offences and prosecutions – Compounding of an offence – No time limit is prescribed – The CBDT has no jurisdiction to demand that the assessee pay a ‘pre-deposit’ as a pre-condition to considering the compounding application

    Allowing the petition the Court held that as, there is no time limit prescribed for filing an application for compounding of an offence, the CBDT is not entitled to reject an application on the ground of ‘inordinate delay’. The CBDT has no jurisdiction to demand that the assessee pay a ‘pre-deposit’ as a pre-condition to considering the compounding application. The larger question as whether in the garb of a Circular the CBDT can prescribe the compounding fee in the absence of such fee being provided for either in the statute or prescribed under the rules is left open. (WP No. 6825/2016, dt. 11-4-2017)

    Vikram Singh v. UOI (Delhi)(HC): www.itatonline.org

  43. S.281 : Certain transfers to be void – Recovery of tax – Order declaring purchase void in breach of principles of natural justice and to be quashed

    Allowing the petition the court held that before passing the order under section 281(1) of the Act, no opportunity of being heard was given to the transferee. Therefore, the order under section 281(1) of the Act was absolutely in breach of the principles of natural justice and deserved to be quashed and set aside.

    Arvindkumar Kuberbhai Patel v. Dy. CIT (2017) 391 ITR 103 (Guj.) (HC)

    Interpretation of taxing statutes

  44. Precedent – Supreme Court decision

It is axiomatic that a decision of the Supreme Court does not make the law but it only declares the law as always existing since its inception.

E. Mark (India) Ltd. v. CIT (2017) 393 ITR 91 (Bom)(HC)

“Those who cannot work with their heart achieve, but a hollow, half-hearted success that breeds bitterness all around.”

— Dr. A. P. J. Abdul Kalam

“All of us do not have equal talent, but all of us have an equal opportunity to develop our talents.”

— Dr. A. P. J. Abdul Kalam

Posted in May.

1. S.2(22)(e) Deemed dividend – HUF is the beneficial shareholder. Even if it is assumed that the Karta is the registered shareholder and not the HUF, as per Explanation 3 to S. 2(22), any payment to a concern (i.e. the HUF) in which the shareholder (i.e. the Karta) has a substantial interest is also covered

The Supreme Court had to consider the following question of law:

“Whether in view of the settled principle that HUF cannot be a registered shareholder in a company and hence could not have been both registered and beneficial shareholder, loan/advances received by HUF could be deemed as dividend within the meaning of Section 2(22)(e) of the Income-tax Act, 1961 especially in view of the term “concern” as defined in the Section itself?”

HELD by the Supreme Court dismissing the appeal that even if we presume that it is not a registered shareholder in the lending company, loan received by HUF is liable to be taxed as deemed dividend if Karta shareholder has substantial interest in HUF. (AY. 2006-07)

Gopal and Sons (HUF) v. CIT (2017) 391 ITR 1/145 DTR 289/245 Taxman 48/ 291 CTR 321 (SC)

2. S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Formula One Grand Prix of India event constitute business income, liable to deduct tax at source – DTAA – India–UK [S.195, Articles, 5, 13]

Formula One World Championship Limited (‘FOWC’) and Jaypee Sports International Limited (‘Jaypee’) filed applications before the Authority for Advance Ruling (AAR). FOWC had entered into a ‘Race Promotion Contract’ (RPC) dated September 13, 2011 with Jaypee, granting Jaypee the right to host, stage and promote the Formula One Grand Prix of India event for a consideration of US$ 40 million. Some other agreements were also entered into between FOWC and Jaypee as well as group companies of FOWC and Jaypee. In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions:

(i) Whether the payment of consideration receivable by FOWC in terms of the said RPC from Jaypee was or was not royalty as defined in Article 13 of the ‘Double Taxation Avoidance Agreement’ (DTAA) entered into between the Government of United Kingdom and the Republic of India; and

(ii) Whether FOWC was having any ‘Permanent Establishment’ (PE) in India in terms of Article 5 of DTAA?

(iii) Whether any part of the consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195 of the Indian Income-tax Act, 1961 (the ‘Act’).

The AAR answered the first question holding that the consideration paid or payable by Jaypee to FOWC amounted to ‘Royalty’ under the DTAA. Second question was answered in favour of FOWC holding that it did not have any PE in India. As far as the question of subjecting the payments to tax at source under Section 195 of the Act is concerned, AAR ruled that since the amount received/receivable by FOWC was income in the nature of Royalty and it was liable to pay tax there on to the Income Tax Department in India, it was incumbent upon Jaypee to deduct the tax at source on the payments made to FOWC. FOWC and Jaypee challenged the ruling on the first issue by filing writ petitions in the High Court contending that the payment would not constitute Royalty under Article 13 of the DTAA. Revenue also filed the writ petition challenging the answer of the AAR on the second issue by taking the stand that FOWC had PE in India in terms of Article 5 of the DTAA and, therefore, tax was payable accordingly.

The High Court reversed the findings of the AAR on both the issues. Whereas it has held that the amount paid/payable under RPC by Jaypee to FOWC would not be treated as Royalty, as per the High Court FOWC had the PE in India and, therefore, taxable in India. While deciding this question, the High Court has not accepted the plea of the Revenue that it was not a dependent PE. The High Court has also held, as the sequitur, that Jaypee is bound to make appropriate deductions from the amount payable to FOWC under Section 195 of the Act.

All three parties filed appeals before the Supreme Court. As per FOWC and Jaypee, no tax is payable in India on the consideration paid under RPC as it was neither Royalty nor FOWC has any PE in India. It is pertinent to mention that the Revenue had not challenged the findings of the High Court that the amount paid under RPC does not constitute Royalty. Therefore, that aspect of the matter had attained finality. The main question in the appeals therefore pertained to PE. After analysing various case laws on the subject, the Court was, the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country. As per Philip Baker 27, a PE must have three characteristics: stability, productivity and dependence. All characteristics were present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal of FOWC through which it conducted business. The Court observed that “Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil.

As regards deduction of tax at source, the Court observed that, Jaypee was bound to make appropriate deductions from the amounts paid under Section 195 of the Act. The appeals preferred by the FOWC and Jaypee were dismissed, subject to observations as made above. (CA. No. 3849 of 2017,

dt. 24-4-2017)

Formula One World Championship Limited v. CIT (SC) : www.itatonline.org

3. S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Common facilities is not technical services – Reimbursement of a common technical computer facility is not “fees for technical services”. Amount received by way of reimbursement of expenses does not have the character of income DTAA-India-Denmark [Art. 12]

Dismissing the appeal of the Revenue the Court held that; In order to constitute “technical services”, services catering to the special needs of the person using them must be rendered. The provision of a common facility is not a “technical services”. Amount paid towards reimbursement of a common technical computer facility is not “fees for technical services”. Amount received by way of reimbursement of expenses does not have the character of income. (CA. No. 8040 of 2015, dt. 17-2-2017)

DIT v. A.P. Moller Maersk AS (SC); www.itatonline.org

4. S.10(37) Capital gains – Exemption – Transfer of agricultural land – The fact that the assessee entered into a settlement with the Collector regarding the compensation amount does not mean that the acquisition was not “compulsory” if the prescribed procedure was followed – Exemption was allowed. [S.148, Land Acquisition Act, 1894, S.6]

The issue before the Court was ” whether, on the facts and in the circumstances of the case, the High Court was justified in denying the claim for exemption under section 10(37) of the Income –tax Act, 1961 to the appellant”

Reversing the judgement of the High Court the Court held that, The fact that the assessee entered into a settlement with the Collector regarding the compensation amount does not mean that the acquisition was not “compulsory” if the prescribed procedure was followed and proceedings under section 148 was quashed. (AY. 2009-10 )

Balakrishnan v. UOI( 2017) 391 ITR 178/80 taxmann.com 84 (SC)

5. S.10A : Free trade zone – Unabsorbed depreciation and business loss brought forward can be set off against current year’s profit Dismissing the SLP of the Revenue, the Court held that; Unabsorbed depreciation and business loss brought forward can be set off against current year’s profit. (AY. 2005-06)

CIT v. J. P. Morgan Services India Pvt. Ltd. (2017) 393 ITR 24 (SC)

6. S.14A : Disallowance of expenditure – Exempt income – Disallowance cannot be made in the absence of proof that expenditure has actually been incurred in earning dividend income – If the AO has accepted/the stand that no expenditure was incurred in earlier years he cannot take a contrary stand if the facts and circumstances have not changed – Argument that the dividend is not tax free in the hands of the payee not accepted. [S.10(33), 115O, 115R, R 8D]

Allowing the petition the Court held that disallowance cannot be made in the absence of proof that expenditure has actually been incurred in earning dividend income. If the AO has accepted the claim that no expenditure was incurred to earn dividend income in earlier years he cannot take a contrary stand if the facts and circumstances have not changed. Argument that the dividend is not tax free in the hands of the payee is not accepted, Section 14A disallowance has to be made also with respect to dividend on shares and units on which tax is payable by the payer u/s. 115-0 and 115R. (A.Y. 2002-03 )

Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (SC)(HC), www.itatonline.org

7. S.31 : Repairs – Current repairs – Textile Mill – Repair or substitution of old machine is not current repairs [S. 37(1)]

Allowing the appeal of the Revenue, the Court held that when each division of old textile mill performed different functions, repair or substitution of an old machine would not come within the definition of the word “current repairs” and the assessee is not entitled to deduction. (AY. 1974-75)

CIT v. Sarangpur Cotton Mfg. Co. Ltd. (2017) 393 ITR 108 (SC)

8. S.32 : Depreciation – Lessee cannot be said to be owner for claiming depreciation, however lessee is entitled to depreciation on the cost of construction incurred by him but not on the cost incurred by the owner and reimbursed by the lessee

Dismissing the appeal of the assessee the Court held that title to immovable property cannot pass when its value is more than

₹ 100/- unless it is executed on a proper stamp paper and is also duly registered with the sub-Registrar. Accordingly, a lessee cannot be said to be the “owner” for purposes of claiming depreciation. Under Explanation 1 to S. 32, the lessee is entitled to depreciation on the cost of construction incurred by him but not on the cost incurred by the owner and reimbursed by the lessee. (CA. No. 3360 of 2006, dt. 8-3-2017)(AY. 1992-93)

Mother Hospital Pvt. Ltd. v. CIT (SC) www.itatonline.org

9. S.35D : Amortisation of preliminary expenses – Premium collected by a company on subscribed issued share capital is not “capital employed in the business of the Company” hence not includible in preliminary expenses for amortization. [S. 37(1)]

Dismissing the appeal of the assessee, the Court held that Premium collected by a company on subscribed share capital is not “capital employed in the business of the Company” within the meaning of S. 35D so as to enable the claim of deduction on the said amount as prescribed u/s. 35D. (AY.1996-97, 1997-98 )

Berger Paints India Ltd. v. CIT ( 2017) 393 ITR 113 (SC)

10. S.40(a)(ia) : Amounts not deductible – Deduction at source – Though there is a difference between “paid” and “payable” section covers not only those cases where the amount is payable but also when it is paid. [S.194C, 200]

Though there is a difference between “paid” and “payable”, S. 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. The contrary interpretation that s. 40(a)(ia) applies only to cases where amounts are “payable” will result in defaulters going scot free. S. 194C read with s. 200 are mandatory provisions. Court held that view taken by the High Courts of Punjab & Haryana, Madras and Calcutta is the correct view and the judgment of the Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd., (2013) 357 ITR 642 did not decide the question of law correctly. Thus, the judgment of the Allahabad High Court was overruled.

Palam Gas Service v. CIT (SC) : www.itatonline.org

11. S.45 : Capital Gains – An amount received from a wholly – owned subsidiary in consideration of transfer of shares of the WOS to a group of shareholders is not taxable as Capital Gains. The Department cannot subject a transaction to tax under the Gift-tax Act and also levy tax under the Income-tax Act.

Dismissing the appeal of the Revenue Court held that an amount received from a wholly-owned subsidiary in consideration of transfer of shares of the WOS to a group of shareholders is not taxable as Capital Gains. The Department cannot subject a transaction to tax under the Gift-tax Act and also levy tax under the Income-tax Act. (CA. No. 1864/2007, dt. 28-3-2017)

CIT v. Annamalaiar Mils (SC): www.itatonline.org

12. S.50B : Capital Gains – Slump sale – Undertaking is sold as a running business with all assets and liabilities for a slump price, no part of the consideration can be attributed to depreciable assets – If the undertaking is held for more than three years, it constitutes a “long-term capital asset” and the gains are assessable as a long-term capital gain [Ss. 45, 50(2)]

On appeal by the Department to the Supreme Court HELD dismissing the appeal. If an undertaking is sold as a running business with all assets and liabilities for a slump price, no part of the consideration can be attributed to depreciable assets and assessed as a short-term capital gain.. If the undertaking is held for more than three years, it constitutes a “long-term capital asset” and the gains are assessable as a long-term capital gain (CA, No. 4399 of 2007, dt. 18-4-2017)

CIT v. Equinox Solution Pvt. Ltd. (SC): www.itatonline.org

13. S.50B : Capital gain – Slump sale – Specific and separate valuation for land, building and machinery was ascertained hence the sale cannot be considered as “slump sale” – Review petition was dismissed [Ss.2(14), 2(42C) 45]

Dismissing the review petition against the order in Vatsala Shenoy v. JCIT [2016] 389 ITR 519 (SC), the Court held that by order of Court business continued by partners with controlling interest pending completion of winding up. Assets of firm ultimately put to sale in winding up and outgoing partners receiving net share of value of assets of firm after deduction of liabilities. Asset sold was capital asset and gains from transfer thereof capital gains. Specific and separate valuation for land, building and machinery was ascertained therefore the sale was not a case of “slump sale”. (AY. 1995-96)

Vatsala Shenoy v. JCIT (2017) 391 ITR 363/80 taxmann.com 351 (SC)

14. S.80HHC : Export business – Assessee was entitled to reduced interest paid by it from interest received by it, while calculating deduction – Delay of 3,381 days in refiling the special leave petition was not condoned [S.80HHC (4A)]

Dismissing the appeal of the revenue, the Court held that assessee was entitled to reduced interest paid by it from interest received by it, while calculating deduction. Delay of 3,381 days in refiling the Special Leave Petition, was not condoned, can’t stated that the concerned authorities need to wake up.

CIT v. Krishna K. Aggarwal (2017) 245 Taxman 75 (SC)

15. S.80HHC : Export business – Amendment Act, 2005 is prospective in operation and would apply to both categories of exporters having turnover below ₹ 10 crores and above ₹ 10 crores

Dismissing the appeal of the Revenue the Court held that; S. 80HHC as amended by Taxation Laws (Second Amendment) Act, 2005 is prospective in operation and the said section would apply to both categories of exporters having turnover below ₹ 10 crores and above ₹ 10 crores. CIT v. Avani Exports (2015) 232 Taxman 357 (SC) followed.

UOI v. Paliwal Overseas (P.) Ltd. (2017) 244 Taxman 195 (SC)

16. S. 132 : Search and seizure – Survey – Assessment – It is but natural that concealed income found at the time of search and survey has to be distributed among all the family members who were carrying on business. It is also a reasonable conclusion that the income had been earned over a period of time and should be spread over various years [Ss.133A, 260A]

Dismissing the appeal of the Revenue, the Court held that the Department has failed to bring on record any material to the contrary except the seized documents which, could not absolve the Department or give any right to negate the view taken by the First Appellate Authority and the Tribunal. So far as the income divided among the family members of the assessee is concerned, the Court held that all of them were carrying on same business from the same premises. Therefore, it is but natural that if any concealed income has been found at the time of search and survey, it has to be distributed among all the family members

who were carrying on business. (AY. 1988-89 to 1990-91)

CIT v. Rekha Bai (2017) 393 ITR 22 (SC)

17. S.142A : Estimate of value of assets by Valuation Officer –Income from undisclosed sources – Reference could have been made since proceedings was pending before the High Court – Finding was not disturbed in view of finding of Tribunal that local PWD rates were to be applied and not CPWD rates [Ss.69, 260A]

Reversing the judgment of High Court the Apex Court held that reference could have been made since proceedings were pending before the High Court. Finding was not disturbed in view of finding of Tribunal that local PWD rates were to be applied and not CPWD rates. BP 1988-89 to 1997-98)

CIT v. Sunita Mansingha (2017) 393 ITR 121 (SC)

18. S.143(1)(a) : Assessment – Even though there was a raging
controversy amongst the High Courts on whether expenditure for raising
capital is capital or revenue in nature, the judgment of the jurisdictional
High Court is binding on the assessee and any view contrary thereto is a
"prima facie" mistake that requires adjustment [S.35D]

On appeal by the Department to the Supreme Court held even though there was a raging controversy amongst the High Courts on whether expenditure for raising capital is capital or revenue in nature, the judgment of the jurisdictional High Court was binding on the assessee and any view contrary thereto is a “prima facie” mistake that requires adjustment .Accordingly, the order passed by the CIT (Appeals), the Income Tax Appellate Tribunal and also the order of the Gujarat High Court impugned herein cannot be sustained and were set aside as they have wrongly held that the issue was debatable and could not be considered in the proceedings under section 143 (1) of the Act.(CA No. 2315/2007, dt. 28-3-2017)

CIT v. Raghuvir Synthetics Ltd. (SC) : www.itatonline.org

19. S.147 : Reassessment – Audit objections – If the AO disagrees with the information/objection of the audit party and is not personally satisfied that income has escaped assessment but still reopens the assessment on the direction issued by the audit party, the reassessment proceedings are without jurisdiction [S.148]

Allowing the appeal of the assessee the Court held that if the AO disagrees with the information/objection of the audit party and is not personally satisfied that income has escaped assessment but still reopens the assessment on the direction issued by the audit party, the reassessment proceedings are without jurisdiction. (AY. 1991-92)

Larsen & Toubro Ltd. v. State of Jharkhand (SC) www.itatonline.org

20. S.158BD : Block assessment –Undisclosed income of any other person – Search and seizure – The fact that the search was invalid because the warrant was in the name of a dead person does not make the proceedings invalid if the assessee participated in them [S. 132, 158BC]

Dismissing the petition of the assessee, the Court held that the fact that the search was invalid because the warrant was in the name of a dead person does not make the proceedings invalid if the assessee participated in them. The issue of invalidity of the search warrant was not raised at any point of time prior to the notice under Section 158BD. In fact, the petitioner had participated in the proceedings initiated under Section 158BC of the Act. The information discovered in the course of the search, if capable of generating satisfaction for issuing a notice under Section 158BD, cannot altogether become irrelevant for further action under Section 158BD of the Act. (SLP No. 30282/2015, dt. 21-3-2017).

Gunjan Girishbhai Mehta v. DIT (SC): www.itatonline.org

21. S.194A : Deduction at source – Interest on compensation – Motor accident claim – Interest so computed in hands of each claimant was below threshold limit of ₹ 50,000 per year, considering the smallness of the amount the appeal was dismissed and the question of law left open

Dismissing the appeal of the Revenue, the Court held that; interest so computed in hands of each claimant was, below threshold limit of ₹ 50,000 per year. Considering the smallness of the amount the appeal was dismissed and the question of law was left open.

CIT v. Hansaguri Prafulchandra Ladhani and ors (2017) 383 ITR 82 (SC)

22. S.245H : Settlement Commission – Payment of tax was made before filing Special Leave Petition – Payment to be taken to have been made within time [S. 245C]

Assessee could not make the payment within time granted by the Settlement Commission. On a writ the High Court refused to extend time. The assessee filed SLP and payment was made before filing of the SLP. Allowing the petition the Court held that, the payments was to be taken to have been made within time. (AY. 2004-05 to 2010-11)

Sandeep Singh v. UOI (2017) 393 ITR 77 (SC)

23. S.254(2) : Appellate Tribunal-Rectification of mistake apparent from the record – Non consideration of paper book filed is a mistake apparent from the record, Tribunal was directed to hear the appeal of the assessee afresh on the basis of documents which have been already found to be filed by the assessee

Allowing the petition the Court held that non consideration of paper book filed was a mistake apparent from the record, Tribunal was directed to hear the appeal of the assessee afresh on the basis of documents which had already been found to have been filed by the assessee. (AY. 1996-97)

Nisha Synthetics Ltd. v. CIT ( 2017) 145 DTR 345 (SC)

24. S.271(1)(c) : Penalty – Concealment – Omission by the AO to explicitly specify in the penalty notice whether penalty proceedings was being initiated for furnishing of inaccurate particulars or for concealment of income makes the penalty order liable for cancellation

The Karnataka High Court had to consider the following question of law.

“Whether, omission of assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?”

The High Court ruled in favour of the assessee with the following observations:

“The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”

The Department filed a Special Leave Petition to challenge the aforesaid judgment of the High Court. HELD by the Supreme Court dismissing the SLP: (CC. No. 11485/2016, dt. 23-11-2015)

“We do not find any merit in this petition. The Special Leave Petition is, accordingly, dismissed.” (AY. 2009-10 )

CIT v. SSA’s Emerald Meadows (SC); www.itatonline.org

25. S.271(1)(c) : Penalty – Concealment – Income disclosed in return and income assessed is nil, penalty is not leviable

Dismissing the appeal of the Revenue, the Court held that penalty is not leviable if the income disclosed in the return and the income assessed is nil.

JCIT v. Classic Industries Ltd (2017) 393 ITR 20 (SC)

Finance Act, 2016 – Pradhan Mantri Garib Kalyan Yojna, 2016

26. S.199A : Pradhan Mantri Garib Kalyan Yojna, 2016 – Court declined to enter into or encroach upon policy making arena and suggest a different policy on ground that it was not within its domain [Constitution of India]

Challenging Section 199A of the Finance Act, 2016, Pradhan Mantri Garib Kalyan Yojna, 2016 the petitioner urged for a different and better scheme which could have got more good money in banks and honest taxpayers would have deposited amount. However Court declined to enter into or encroach upon policy making arena and suggest a different policy on ground that it was not within its domain court, therefore there was no justification to issue notice in instant petition and accordingly it was dismissed.

Siddharth Mehta v. UOI (2017) 244 Taxman 289 (SC)

Posted in May.

Respected Professional Colleagues

Wish you a Very Happy “Akshay Tritiya” and “Buddha Purnima”

As you are aware, Govt. is preparing the stage to roll down the GST Act and we, the professionals are preparing ourselves to accept the same. It is a challenge as well as opportunity both to us. In entire country, there is a wave, rather wind of GST flowing for educating the stakeholders. Everybody is contributing in this “Gyan Yagya”. We the members of the Federation are committed to the Government. Various conferences and seminars are being held by our members in the country to educate the people, be the professionals or the traders or the manufacturers or the industrialists. Our legal luminaries and the experts on the subject are knowledge partners in building the nation.

Friends, Govt. is also bringing out radical changes, may be regulatory or the fresh one. The whole economy is in the transitional phase. Apart from GST, Govt. is also set to bring judicial reforms. Various Tribunals are proposed to be merged. Section 252A is introduced in the Income-tax Act with effect from date yet to be notified, whereby it is proposed to govern the qualification, appointment, term of office, salaries and allowances, resignation, removal and other terms and conditions of services of President, Vice-Presidents and other members of the Tribunal, appointed after commencement of Part-XIV of Chapter-VI of the Finance Act, 2017, by the provisions of Section 184 of the said Finance Act.

As per the proposed amendment, the term of the member shall be 5 years subject to be reappointed for another term of 5 years. If the said provision is made applicable then it will affect the independency and prestige of the Institution. Young talent from profession of law and accountancy will avoid joining the Tribunal. AIFTP has made a detailed representation before the Hon’ble Law Minister and the Hon’ble Finance Minister. Our special thanks to Dr. K. Shivaram and Shri N. M. Ranka Ji who have shown their deep concern for preparing the representation.

Government is also taking steps for speedy trial and in reducing pendency of appeals. The qualification of members of ITAT for deciding Single Member Bench cases is proposed to be reduced from 5 years to 3 years so that Single Member Benches may be enhanced. It will help in quick disposal of single member cases. Further high demand appeals exceeding
₹ 100 crore will be taken-up on priority basis. Even cases, where stay has been granted by ITAT, further stay will not be granted more than once and appeal will be taken-up on priority basis. Further, existing Income Tax (Appellate Tribunal) Rules 1963 are going to be replaced by Income Tax (Appellate Tribunal) Rules, 2017 in view of change circumstances and use of technology in the Tribunal’s functioning. The Core Committee has invited the comments and suggestions from all the stakeholders vide public notice-dated 11-5-2017.

Friends, I may apprise you that our preparation for Sri Lanka Tour-cum-Conference is almost ready. We are trying to invite Hon’ble Finance Minister, Sri Lanka and also the Indian High Commissioner to Sri Lanka. Further the delegates are requested to send the 2nd installment of cost and also the passport size photograph as well as photocopy of their passport.

Friends, I may also apprise you regarding the next Conference-cum-NEC at Kolkata on 2nd and 3rd September, 2017. However before that we are planning for one RR-cum-NEC, the exact date, venue and programme will be communicated in Journal as well as in Times. All are cordially invited to make the event successful.

At the end, I express my best wishes to you and your family.

With Best Regards

Prem Lata Bansal
National President

Forthcoming Programmes
1. 27th May, 2017 One Day seminar on GST & Income Tax Kolhapur
2. 3rd, 10th, 17th & 24th June, 2017 Intensive Study Course on Goods & Services Tax Thane
3. 17th June, 2017 ICDS Mumbai
4. 30th June – 2nd July, 2017 Residential Refresher Course & National Executive Committee Meeting Goa
5. 2nd & 3rd September, 2017 Two Day National Tax Conference & National Executive Committee Meeting Kolkata
Posted in May.

Digitalisation of Supreme Court
– The Supreme Court
will go paperless from 3rd July, 2017

The Supreme Court’s Integrated Case Management Information System (ICMIS) was inaugurated on 10-5-2017 in a function attended by Hon’ble Prime Minster Shri Narendra Modi, Hon’ble Chief Justice of India Mr. J. S. Khehar, Hon’ble Law Minister Shri Ravi Shankar Prasad, the Hon’ble Judges of the Apex Court and other dignitaries. The salient features of the new system are as under:

• Online data retrieval

• End of voluminous paper books

• Integration of all 24 High Courts and lower courts

• Central and State Governments will be informed of litigation

• Court fees calculator and online gateway

The portal is user friendly and will help the Bar and all the stakeholders (refer www.itatonline.org )

This initiative by the Hon’ble Chief justice of India, the digitalisation of Supreme Court will motivate all the Courts and Tribunals to go digital, which will be a revolutionary step forward for the justice delivery system and all citizens will be benefited.

One may recollect that the Federation has sent a detailed representation to the Hon’ble Prime Minister, the Honourable Law Minister and the Chairman of the law Commission, to link all the High Courts and adopt the E-Court model of the ITAT, where the assessee may be allowed to argue the matter sitting at Mumbai or Guwahati from their respective High Court. We are sure in the years to come one may have the option to
argue the matter before the Supreme Court from their respective High Court.

2. ITAT proposes important changes to Tribunal Rules

One must appreciate that this time the proposed changes in the Rules of the ITAT have been put up on the website and comments have been called for from tax professionals and other stakeholders. This bold approach of the ITAT deserves to be complimented. We hope that other department will also follow the method adopted by the ITAT. Most of the amendments proposed are welcome provisions. One can visit www.itatonline org. and express their views on the proposed amendments. The ITAT Bar Association’s Co–ordination Committee of the Federation has requested all the members of the Committee to forward their suggestions, which will help in better administration of justice before the Tribunal.

3. Appointment of Honourable members of the ITAT for a tenure of five years, will affect the independence of the institution

As per Section 252A of the Income-tax Act, 1961 (To be notified), Section 184 of the Finance Act 2017 is made applicable in respect of the Members of the ITAT who will be appointed hereafter. With respect, the members of the AIFTP are of the considered opinion that the proposed provision is not in the interest of the Institution. Few of them are:-

1. Appointment of Members of the ITAT for only a tenure of five years, affects the independency of the Institution.

2. Independent functioning of the Income Tax Appellate Tribunal cannot be compared with other Tribunals.

3. Young talent from profession of law and accountancy will be deferred from joining the Bench.

4. There is no reason to disturb the system which has served well for more than 76 years.

5. Judicial members of the ITAT are a potential source of appointment to the High Court to deal with taxation matters.

6. The President of the ITAT retires at the age of 65, whereas members at the age of 62.

The Federation has sent a detailed representation to the Hon’ble Finance Minister and the Hon’ble Law Minister and also made an appeal to all the professional organisations to take up this issue which is of national importance. Readers may send their views on all the issues referred above.

 

Dr. K. Shivaram
Editor-in-Chief

Posted in May.