REPORT BY THE CHAIRMAN AND CHIEF CONVENOR OF CONFERENCE ON TWO DAY NATIONAL TAX CONFERENCE AT MANGALURU On 4th & 5th November, 2017

As Chairman of the Conference Committee I furnish the following report on the Conference.

After obtaining due permission from the respected National President of AIFTP, the South Zone in joint partnership with Karnataka’s State Tax Practitioners Association and the Institute of Tax Practitioners of India proceeded with all zeal coupled with dedicated interest to organise the Conference for the first time in the port city of Mangaluru in South Kanara in the State of Karnataka. Of course it has been the long awaited, cherished desire of the Federation to organise the Conference at Mangaluru which is ultimately transformed into reality. Mr. Sreedhara Parthasarathi, Tax Practitioner, Bellary and Deputy Chairman of Membership Development Committee of the AIFTP has taken the required initiative in obtaining permission from the respected National President of Federation Smt. Prem Latha Bansal. Thereafter at the request of the organisers, it was at the sincere and honest efforts of the respected National President Smt. Prem Latha Bansal and the Secretary General Mr. Sanjay Sharma, the organisers were able to succeed in obtaining the consent of the Judge of the Hon’ble Supreme Court from the State of Karnataka, His Lordship Hon’ble Mr. Justice S. Abdul Nazeer. The organisers also fixed Dr. D. Veerendra Heggade, Shrikshethra, Dharmasthala, Shri Ritvik R. Pandey, IAS, Secretary to Govt. Finance Department, Karnataka, Shri H. Rajesh Prasad, IAS, Commissioner of GST/VAT, Government of NCT of New Delhi and finally Mrs. Vatika Pai, President, Kanara Chamber of Commerce & Industry, Mangaluru as Guests of Honour.

A hectic schedule for the Two Day Conference was drawn by the organisers. In addition to the Chief Guest for the inaugural session, Hon’ble Mr. Justice S. Abdul Nazeer, Judge, Supreme Court of India, the Guests of Honour, the Chairman of the Conference, National President of the Federation, Secretary General, the President of Karnataka State Tax Practitioners Association and Institute of Tax Practitioners of India, Chairman of South Zone of AIFTP and National Vice-President of AIFTP from South Zone were accommodated on the dais.

Mr. Y. N. Sharma, Co-Chairman of the Conference Committee invited the dignitaries on to the dais and the flowered bouquets were handed out to them. The Conference was inaugurated by lighting of the lamp. There was one more luminary in the inaugural session was Hon’ble Mrs. Justice Nagarathnamma, Judge of the Karnataka High Court who was also requested to sit on dais.

The Chairman of the Conference Committee welcomed the dignitaries on the dais, off the dais and the delegates, office bearers of the Federation, members of the NEC and the Members of the Print Media and explained the object behind organising the Conference. Later the National President of the Federation – Smt. Prem Latha Bansal, Sr. Advocate from New Delhi once again welcomed the participants and explained the role of the Federation in maintaining the high standards in respect of education, excellence and ethics amongst professionals through the continuous education being imparted through various National Conferences, One Day Seminars and RRCs being organised across the country.

The Chief Guest of the Inaugural Session, Hon’ble Mr. Justice S. Abdul Nazeer, Judge, Supreme Court greeted the participants in Kannada. He hails from Mangaluru District and remembered more nostalgies as a law student, advocate and then Judge of the Karnataka High Court before he travelled to Delhi to function as Judge of Supreme Court, His Lordship mainly emphasized the concept of philosophy of tax, collection, responsibilities and accountability rest on the tax administrators, tax professionals and finally taxpayers. Payment of tax is essential for a civilized society in a democratic setup. He stressed that enormous responsibility on the tax professionals to educate the taxpayers of India to pay the tax legitimately due to the exchequer and tax planning to some extent is considered as lawful but evasion is illegal. His Lordship clearly stated that he is not inclined to speak anything on GST. He quoted certain excerpts from the speech of the Hon’ble Prime Minister Shri Narendra Modi on the eve of the introduction of GST from the Central Hall of Parliament on the night 30th June 2017. He has appreciated activities and rules being played by the Federation, the apex body of professional fraternity in creating awareness amongst taxpayers and tax professionals for payment of taxes, needed for a welfare oriented society in our country. His Lordship also wished that it was a very good gesture on the part of the organizers in conducting the Conference in a District Headquarters while mainly such Conferences are seen in cities. The souvenir was released by the Chief Guest. Also the GST Act book compiled by T. P. Parthasarathi and published by the Institute of the Tax Practitioners of India was also released by the Chief Guest.

A very rare situation did arise in the inaugural session of the Conference, when the organisers after seeking permission of the Chief Guest requested the Hon’ble Judge of the Karnataka, Mrs. Justice Nagaratnamma, and thereafter Mrs. Vatika Pai, President of Kanara Chamber of Commerce & Industry, Manguluru to address the participants, of course for a short time. It is really a great and rare gesture on the part of Chief Guest to permit the others to address after completion of the speech of Chief Guest. Finally a member of the Conference Committee proposed vote of thanks to mark end of the inaugural session.

There was a delay in commencement of inaugural session. After inaugural session, the Technical Session started by the Chairman for the First Technical Session Shri Ritvik R. Pandey, IAS, Secretary to Govt. Finance Department, Karnataka explained the developments that have taken place from time-to-time from the day of introduction of GST and how the Government of Karnataka has been confiding in and giving preference to the Tax Professionals and for the benefit of the tax Professionals, training programmes were also conducted and thereafter the speakers spoke on the topics assigned to them. The moderator of the session B. T. Manohar explained the cream of the deliberations of the session. The Second Session has commenced. It was on direct taxes and Past President of the Federation, Sr. Advocate from Mumbai Dr. K. Shivaram presided over the session and the session was ably handled by C.A. A. K. Srivastva from New Delhi.

After lunch break, the Third and Fourth Technical Sessions went on well on the topics assigned. The Third Session was presided by Shri. H. Rajesh Prasad, IAS, Commissioner of GST, New Delhi and the speaker was none other than a popular and seasoned C.A. S. Venkataramani of Bengaluru and the Fourth Technical Session was presided by another famous C.A. Deepa Balidas and speaker was young, bright and upcoming advocate with all expertise in GST, Mr. Ishaan Patkar, S/o. Sr. Member of the Federation, Advocate Vinayak Patkar at Mumbai. The session well managed to the satisfaction of one and all.

In the evening, a cultural programme was also organised by the organisers with Mahila Yakshagana by Sai Kala Prathisthana Artists, Shivamogga, it was really a wonderful feast to the eyes of participants. The said programme was also well attended in a large number of 350 delegates out of which the AIFTP members more than 100 present and graced the occasion. It was followed by AIFTP Foundation month celebrations in which the Sr. Professionals as part of the convention were felicitated. AIFTP celebrated its 40th year Foundation day celebrations on 11-11-2016 at Pune and felicitated all its Past Presidents, Past Secretaries General, Past Vice Presidents, Past Zone Chairman, Past NEC members and those who couldn’t turn up at Pune were felicitated at Mangaluru and the felicitation programme sponsored by Chartered Accountant Shri Kakarala Rajendra Vara Prasada Rao, Eluru, Life Member, AIFTP. Mr. Srikar M.S., IAS, Commissioner of Commercial Taxes, Govt. of Karntaka was the chief guest and Mr. B. T. Manohar and Shri Jeevan Saldana immediate Past President, Kanara Chamber of Commerce & Industry, Manguluru were the Guests of Honour. Madam Smt. Prem Latha Bansal adorned the dais and it was a great and grand event where all the seniors in the Federation were felicitated and the local organisers were also given mementoes in appreciation of their great efforts in transformation of the Conference into a memorable successful event. Shri. D. K. Shivaram, Sr Advocate, Mumbai, Past President of the Federation & Chief Editor AIFTP Journal, news graced the occasion with Life Member AIFTP Dr. Daniel, Sr. Advocate, Mumbai

On the 2nd day of the Conference namely 5th November, 2017, the day started with modern yoga and nature cure whereafter the fixed technical sessions went on well with the respective Chairmen and calibered speakers.

Overall, it was a well organised and successful tax Conference in South Zone going to the credit of the National President before completion of her tenure. The chairman of the Zone and the Vice-President from the Zone are also equally responsible for extending their encouragement and guidance, co-operation in all respects. The Chief Convenor of the National Tax Conference and Past Secretary General of AIFTP Mr. Malladi Srinivasa Rao of Eluru was the centre of attraction in the Foundation month celebrations in the evening of first day and he invited the identified awardees and others for being felicitated suitably.

The Federation once again with all due appreciation places on record for the well organised Two Day National Tax Conference, all the three partners for zeal, dedication and enthusiasm to transform the Conference into great success for being an addition of colourful feather in the cap of glorious organisation.

(M. Srinivasa Rao)  
 (Dr. M. V. K. Moorthy)
NTC-Chief Convenor & Former Secy. General  NTC-Chairman & Imm. Past President

1. No transfer – of any right, title or interest in any immovable property – except by way of a registered document – sections 54 and 55 of the Transfer of Property Act

Immovable property can transferred only by a registered document. There can be no transfer of any right, title or interest in any immovable property except by way of a registered document.

This Court clearly held that an agreement to sell which is not a registered deed of conveyance would not meet the requirements of sections 54 and 55 of the Transfer of Property Act. With respect to section 53A of the Transfer of Property Act, it is well-settled that the same can only be used as a defence in proceedings initiated by the transferor or by any person claiming under him.

Greater Bombay Co-operative Bank Ltd. v. Nagaraj Ganeshmal Jain and Others: AIR 2017 Supreme Court 3548

2. Compensation – Insurer’s liability to pay – Insurer’s liability to compensation continues even if vehicle stood transferred to another

The scheme of the Act shows that an insurance policy can cover three kinds of risk, i.e. owner of the vehicle; property (vehicle) and third party. The liability of the owner to have compulsory insurance is only in regard to the third party and not to the property.

Thus, once the vehicle is insured, the owner as well as any other person can use the vehicle with the consent of the owner. Section 94 does not provide that any person who will use the vehicle shall insure the vehicle in respect of his separate use.

The Court held that whenever a vehicle which is covered by the insurance policy is transferred to a transferee, the liability of insurer does not cease so far as the third party/victim is concerned, even if the owner or purchaser does not give any intimation as required under the provisions of the Act.

Section 157 sub-section (1) contains the deeming provision that “the certificate of insurance and the policy described in the certificate shall be deemed to have been transferred in favour of the person to whom the motor vehicle is transferred with effect from the date of this transfer.”

Firdaus v. Oriental Insurance Co. Ltd. & Ors : AIR 2017 Supreme Court 3572

3. Intermediate order – Can exercise its revision jurisdiction – Since it is not an interlocutory order

There are three categories of orders that a Court can pass – final, intermediate and interlocutory. There is no doubt that in respect of a final order, a Court can exercise its revision jurisdiction – that is in respect of a final order of acquittal or conviction. There is equally no doubt that in respect of an interlocutory order, the Court cannot exercise its revision jurisdiction. As far as an intermediate order is concerned, the Court can exercise its revision jurisdiction since it is not an interlocutory order.

The concept of an intermediate order was further elucidated in Madhu Limaye v. State of Maharashtra by contradistinguishing a final order and an interlocutory order. This decision lays down the principle that an intermediate order is one which is interlocutory in nature but when reversed, it has the effect of terminating the proceedings and thereby resulting in a final order. Two such intermediate orders immediately come to mind – an order taking cognisance of an offence and summoning an accused and an order for framing charges. Prima facie these orders are interlocutory in nature, but when an order taking cognisance and summoning an accused is reversed, it has the effect of terminating the proceedings against that person resulting in a final order in his or her favour. Similarly, an order for framing of charges if reversed has the effect of discharging the accused person and resulting in a final order in his or her favour. Therefore, an intermediate order is one which if passed in a certain way, the proceedings would terminate but if passed in another way, the proceedings would continue.

Girish Kumar Suneja v. C.B.I.: AIR 2017 Supreme Court 3620

4. Transfer of land by way of sale – Suit property was ‘Chakout’ and outside purview of consolidation scheme – permission of settlement officer not required before transferring it

The purpose of a consolidation scheme is to provide consolidation of agricultural holdings. Abadi land, groves etc. are kept outside the scope of consolidation scheme. They cannot be reallocated or reallotted to any other person. Therefore, strictly speaking, they are not subject matter of the consolidation scheme. The intention of introducing section 5(c)(ii) of the Act was that if the land holding is subject to consolidation proceedings then permission of the Settlement Officer (Consolidation) is required before the same is transferred. This is so because if the land, which is subject matter of consolidation proceedings, is sold or permitted to be transferred during consolidation proceedings, it could affect the entire consolidation scheme. However, if the land is not subject matter of the consolidation scheme, though it may be part of the holding of the tenure holder, then no permission is required. Admittedly, the suit property was “Chakout” and outside the purview of the consolidation scheme in as much as its value could not be taken into consideration while framing the scheme and it could not be allocated or allotted to any other person. Hence, no permission of settlement officer was required to sell land in question.

Suraj Pal (D) Thr. Lr. v. Ram Manorath & Ors. : AIR 2017 Supreme Court 3825

5. Misconduct by Advocate – on –record (AOR) – Interference with administration of justice – AOR, contemnor making allegations against Registry for indulging in malpractice of Bench hunting to benefit and serve interest to his client – Allegations against Registry found to be false

It is duty of an advocate to put his best case for the litigant before the Court. This, however, does not absolve him of the responsibility as an officer of the Court. It is a dual responsibility. The right of an Advocate-on-Record in the Supreme Court, is not an automatic right coming from the enrollment at the Bar. Something more has to be done. The rigours of an examination have to be gone through, which tests the advocate, not only on his legal ability of drafting and knowledge of law, but on ethical practices. It is only after going through the rigourous exercise that an advocate is enlisted as an Advocate-on-Record, giving him the right to act and file pleadings before this Court, in accordance with the Supreme Court Rules, 2013.

A perusal of the relevant Rule contained in Order IV, Rule 5 requires, inter alia, even training for one year with an Advocate-on-Record, who has been approved by the Court, prior to the appearance in the test, so that the prospective Advocate-on-Record is well grounded in the various professional aspects. The requirements regarding the Advocate-on-Record examination, held under the general policy of the Committee of Judges appointed by the Chief Justice, requires testing in the practice and procedure of Supreme Court, drafting, advocacy and professional ethics and leading cases.

In Re : Mohit Chaudhary, Advocate : AIR 2017 Supreme Court 3836

6. Mortgage by conditional sale –Essentials

The essentials of an agreement, to qualify as a mortgage by conditional sale, can succinctly be broadly summarised. An ostensible sale with transfer of possession and ownership, but containing a clause for reconveyance in accordance with Section 58(c) of the Act, will clothe the agreement as a mortgage by conditional sale. The execution of a separate agreement for reconveyance, either contemporaneously or subsequently, shall militate against the agreement being mortgage by conditional sale. There must exist a debtor and creditor relationship. The valuation of the property, and the transaction value, along with the duration of time for reconveyance, are important considerations to decide the nature of the agreement. There will have to be a cumulative consideration of these factors, along with the recitals in the agreement, intention of the parties, coupled with other attendant circumstances, considered in a holistic manner.

Vithal Tukaram Kadam and Another v. Vamanrao Sawalaram Bhosale and Others: AIR 2017 Supreme Court 3853

7. Perverse Judgment and perverse finding – what is – Explained

Judgment can be said to be perverse if the conclusions arrived at by the learned Courts below are contrary in evidence on record, or if the Court’s entire approach with respect to dealing with the evidence or the pleadings is found to be patently illegal, leading to the miscarriage of justice, or if its judgment is unreasonable and is based on erroneous understanding of law and of the facts of the case. A perverse finding is one which is based on no evidence or one that no reasonable person would have arrived at. Therefore, unless it is found that some relevant evidence has not been considered or that certain inadmissible material has been taken into consideration, the findings cannot be said to be perverse.

M/s. Gabion Technologies India Pvt. Ltd. v. M/s. Amcon Master Builders Missarwala: AIR 2017 Himachal Pradesh 140

8. Refuse to register document – Result in civil consequences

Refusing to register a document under Section 22-A of the Registration Act, in order to cope with the rule of law, the registering authority should follow the Audi Alteram Partem principle by issuing notice and affording a real opportunity to the parties concerned. We are conscious of the fact that there is no explicit provision in the Act for issuing such notice to the parties by the registering authority and to hold a summary enquiry. But that would not deprive the parties concerned to have sufficient opportunity in tune with the principles of natural justice which is mandatory as held by the Hon’ble Supreme Court in the above decisions as refusing to register a document under Section 22-A of the Act results in civil consequences. Further the impugned orders are one line orders which do not even contain the reasons to refuse. In other words, these are all non-speaking orders which can be classified as arbitrary orders.

Sudha Ravi Kumar and another v. The Special Commissioner and Commissioner, Hindu Religious and Charitable Endowments Department, Chennai and Another: AIR 2017 Madras 203

9. ‘Tenant holding over’ and ‘tenant at sufferance’ – Distinction

The expression of ‘tenants at sufferance’ is merely a fiction to distinguish their unlawful possession from that of trespassers. The possession of a ‘trespasser’ is lawful both in its inception and in its continuance, whereas the possession of a tenant at sufferance is rightful in its inception, but wrongful in its continuance. A distinction is drawn between a tenant continuing in possession after the determination of the lease without the consent of the landlord, and tenant doing so with the landlord’s consent. The former is called a tenant by sufferance and the latter class of tenants is called a tenant holding over or a tenant at will. The act of holding over in any event after expiration of the term does not necessarily create tenancy of any kind; if the lessee remains in possession after determination of the term and for all practical purposes, he becomes a tenant at sufferance.

Mamata Panigrahy @ Panigrahi and Another v. Hemalata Dalai & Another : AIR 2017 Orissa 122

10. Recovery of debt – Financial Institutions taking resort to provisions of SARFAESI Act – They are under obligation to follow the same – Cannot invoke provisions of Transfer of Property Act, 1882, when they are confronted with non-compliances on mandatory provisions of SARFAESI Act

The power of secured creditors to initiate the proceedings in case of defaults and/or non payment of borrowers, obligations, definitely needs to be respected in view of the specific provisions in all respects. The measures, so available under the Act therefore, are to be followed by the financial institutions but strictly in accordance with law and the mandate so provided at every stage of proceedings so initiated for recovery of the secured debts. The enforcement of security interest/debts by invoking the provisions of SARFAESI Act to be in addition to and/or not in derogation of any other law. The other provisions of other Acts are available as mentioned under Section 37. Therefore, they can proceed ahead with taking steps to recover the debts by selling the property and by taking recourse to the other provisions, by following the due procedure and course so available under the other laws. The provisions are in addition, when there is any doubt and/or otherwise. The SARFAESI Act provisions are not in derogation of any other law.

Their actions of taking steps in the present case, are in breach of provisions of SARFAESI Act and therefore, not acceptable and/or permissible. The remedy of TP Act and/or other provisions in view of non-obstante clause as provided under section 13(1) itself make the position clear that there are other remedies for such recovery to the secured creditors. The financial institutions are free to do so. But having once invoked the SARFAESI Act, they have to strictly follow the provisions. The financial institutions, therefore, having acted upon the provisions of SARFAESI Act, they are under obligation to follow the same. The provisions of TP Act, therefore, cannot be invoked when they are confronted with the non-compliances of mandatory provisions of SARFAESI Act.

Blue Coast Hotels Limited v. IFCI Limited & Another: AIR 2017 (NOC) 686 (Bom).

 

Each work has to pass through these stages – ridicule, opposition, and then acceptance. Those who think ahead of their time are sure to be misunderstood.

—Swami Vivekananda

1. Entries in the Schedule – Raw Aluminium Casting (Unfinished)

Aluminium casting sold to automobile industry in its raw, unfinished and primary form which requires further processing such as milling, drilling, tapping etc. by the purchasers before it is put to used in manufacture of motor vehicle/chassis is nothing but aluminium casting and would fall within the entry 29 of Part I of Schedule C of the Bombay Sales Tax Act, 1959 liable to 4% tax and not covered by residual entry 102 of Part II of Schedule C .

[Source: CST v. Jai Hind Industry Ltd., STR No. 58 of 2012, dated 30th October, 2015, (2016) 29 STJ 261 (Bom.)].

2. Interpretation of entry – Uniform pattern adopted by States can apply – Digital still image video camera

The uniform pattern adopted by several States to bring the statutes in line with the nomenclatures as suggested by Empowered Committee indicates that Digital Still Image Video Camera was not to be excluded from the list of items which would be taxable at 4% under Entry 41A of Third Schedule of The Delhi Value Added Tax Act, 2004.

[Source: M/s. Sony India Pvt. Ltd. v. CIT, ST Appeal No. 29 with 31 of 2013, dated 4th August, 2015, (2016) 29 STJ 281 (Del.)].

3. Schedule Entry – Sun Glasses

Merely because a commodity/term used in a notification may include in its widest expansion, certain commodities with variation on account of the dictionary meaning of the commodity/term used in the schedule/notification, the same by itself can not be a reason to include/classify the said commodity in the schedule/notification. The heading of HSN 90.04 is wide enough to include spectacles and sunglasses and the entry is very wide and sweeping. The use of the word ‘the like corrective, protective or other’ in fact indicates that the use of words spectacles and goggles have been used as genus. However, applying common parlance test, the history of the entry, and even the fundamental/basic meaning of the term ‘Spectacles’ as indicated in various decisions of courts and Hindi version of the notification, the entry spectacles in the Schedule is clearly related to and means corrective spectacles and the same in its sweep does not include sunglasses as projected by the appellant.

(Source: M/s. Ray Ban Sun Optics v. Dy. Commissioner, S.B. STR Nos. 543-545 of 2011 and 78-87 of 2012, dated 15th October, 2013 (2016) 29 STJ 311 (Raj.)).

4. Sale price – Fertiliser subsidy

Fertiliser subsidy given by the Central Government with a view to ensure that fertiliser prices do not exceed the price fixed it under Fertiliser (Control) Order does not form part of sale price of fertiliser sold.

[Source: M/s. Indian Potash Ltd. v. State of Kerala and Others, WP (C) Nos. 8444 & 12320 of 2011 and Others, dated 1st December, 2015, (2016) 29 STJ 196 (Ker)].

5. MRP inclusive of all taxes – Collection of tax

When goods are sold at “MRP inclusive of all taxes” it does not mean that there is a collection of tax in each and every case. When a dealer sells the goods manufactured at units both exempted and non-exempted units and adopts uniform retail price throughout India, it cannot be a ground to hold that sales tax is charged on goods manufactured from the exempt units. A market retail price stating that it is inclusive of all taxes could be starting point, but would not prove and establish that the tax has been collected.

[Dy. CCT v. M/s. Hindustan Lever Ltd., Civil Appeal No. 656 of 2008, dated 30th June, 2016, (2016) 29 STJ 172, (SC)].

6. Dealer – Banks and Non-Banking Finance Companies – Sale of vehicles for recovery of loan

The Banks and Non-Banking Finance Companies are dealer and liable to pay tax in respect of sale of vehicles for recovery of loan under section 2(11) of the West Bengal Value Added Tax Act, 2003.

[Source: M/s. Tata Motors Finance and Othrs. v. Asst. CST, WPTT Nos. 6 and 4 of 2011 and 24 of 2010, dated 8th October, 2013 (2016) 29 STJ 271 (Cal.)]

7. Entry Tax – Not applicable when stock transferred to other States

Entry tax is payable for import of goods for use, consumption or sale within the State. It is not payable when the goods imported are stock transferred to other States. It is not necessary that the intention not to use, or sell or consume must be there at the time of import of goods. In the normal course of running of a business carried over a large area in different States or even different local areas, what is relevant is not any intention which would be difficult to fathom but the actual course of conduct of the party. If there has been no consumption or use or sale within the local area in the facts like stock transfer than there can be no levy of entry tax on import of goods.

[Source: M/s. Unitech Wireless v. State of Bihar, WP. Nos. 7436, 7521, 7522 & 7534 of 2015, dated 11th August, 2015, (2016) 29 STJ 106 (Pat.)].

Forthcoming Programmes

Date & Month

Programme

Place

1st December, 2017

Last National Executive Committee Meeting of 2017

Jabalpur

1st December, 2017

Ordinary General Meeting

Jabalpur

2nd & 3rd December, 2017

20th National Tax Convention

Jabalpur

Perfection does not come from belief or faith. Talk does not count for anything. Parrots can do that. Perfection comes through selfless work.

— Swami Vivekananda

A. Appeal / Limitation

1. Adjudication order dated 30-3-2012 was served by Excise Inspector on assessee’s ‘kitchen boy’ on 3-4-2012, who had unauthorisedly affixed assessee’s stamp on acknowledgement. Assessee claimed that it came to know of adjudication order on 26-7-2012 when recovery proceedings were initiated and appeal before the Commissioner (Appeals) was filed on 22-8-2012. Commissioner (Appeals) dismissed the appeal as time-barred counting from 3-4-2012, being beyond his power of condonation. Held : Daily wager ‘kitchen boy’ cannot be said to be an authorised agent of assessee, hence, service of adjudication order on him is not a valid service as per section 37C of Central Excise Act, 1944.

[Saral Wire Caraft P Ltd. v. CCE – 2017 (50) STR 237 (SC)]

2. The assessee through their letter dated 5-9-2005 had submitted month-wise details of all payments received by them against HVAC works for the period from 1-7-2003 to 15-6-2005. A show cause notice was issued to the assessee on 30-10-2007 much beyond a period of one year for availing the benefits of extended period of five years of limitation. The Tribunal held that once the details of the value of taxable services were available to the Department on 5-9-2005, there was no reason to invoke the extended period under the proviso to section 73(1) of the Finance Act, 1994. The appeal of the Department for extension of limitation was dismissed.

[CCE v. Suvidha Engineers India Ltd – 2017 (50) STR 268 (Allahabad HC)]

B. Penalty

3. The show cause notice issued to assessee was adjudicated and all the three demands raised were confirmed in the Order imposing equal penalty in terms of section 11AC of the Central Excise Act, 1944. The Tribunal, in appeal, set aside one demand but maintained the other two demands and reduced the penalty. Held: The Tribunal could not reduce the penalty for an amount lesser than the duty.

[CCE, Surat-I v. Vandana Art Prints P. Ltd. – 2017 (50) STR 91 (SC)]

C. CENVAT Credit

4. The appellant is engaged in providing packing services at clients place and utilised GTA services for transporting packing material to clients place. CENVAT credit was taken on Service Tax paid on GTA services and was utilsed for payment of output services provided. The Adjudicating Authority has denied the credit alleging there is no nexus between input services used and output services. The Tribunal, while allowing the appeal passed strictures against Adjudicating Authority and Commissioner (Appeals) for passing orders without understating the controversy arising out of show cause notice.

[Hitech Laminations Films P. Ltd. v. CST, Chennai-III – 2017 (50) STR 154 (Tri. – Chennai)]

D. Demand/Assessment

5. The assessee, a sole proprietor, had stopped manufacture and production of tread rubber. The department alleged that the assessee had manufactured and cleared tread rubber from the factory premises by suppressing the fact of such production and removal with an intent to evade payment of excise duty. The sole proprietor died and department issued second show-cause notice to his wife and daughters asking them to pay duty. Held : In absence of any machinery provisions to assess and collect tax from a deceased person/dissolved firm, all proceedings against such deceased person/dissolved firm abate and therefore, proceedings cannot be continued against legal representatives.

[Shabina Abraham v. Collector of CE 2017 (50) STR 241 (SC)]

E. Natural Justice

6. Adjudicating Authority after reply to the show cause notice fixed three alternative dates in single hearing notice. Assessee chosen to appear on third date but Adjudicating Authority was not available on the date of hearing. Adjudicating Authority passed the order ex parte without serving further hearing notice though assessee requested for fixing fresh date. Order passed on 8-5-2012 was received by the assessee on 10-8-2013. The Commissioner (Appeals) dismissed the appeal of the assessee on the ground that appeal was filed beyond limitation. Held : Rejection of the appeal on the ground of limitation was not proper. Impugned order was set aside and matter remanded back to the original authority to decide afresh after giving a proper opportunity to the appellant to meet the ends of natural justice.

[Power Lind System P. Ltd. v. CCE, Coimbatore – 2017 (50) STR 150 (Tri. – Chennai)]

  1. S.4 : Income chargeable to tax –Income or capital – Interest earned on fixed deposits – Funds received from Reserve Bank of India to meet the capital expenditure for setting up the project – Funds temporarily placed in fixed deposits with banks – Interest earned on such deposits should be reduced from the capital cost of the project and not chargeable to tax – Interest cannot be assessed as income from other sources. [S.56]

    The Tribunal held that the interest earned on fixed deposits was not an investments made subsequent to the setting up of the project but was unutilised income parked in fixed deposits for a temporary period and there was an inextricable link between the interest earned on the grants and the original grant made by the State Government to set up the project. Relying upon the decisions of the Apex Court in the case of CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 (SC), CIT v. Karnataka Power Corporation [2001] 247 ITR 268 (SC) and CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC), the Tribunal held that the interest earned should only go to reduce the capital cost of the project to be set up by the assessee and was not to be brought to tax, as the interest was earned on capital account. (AY. 2011-12)

    ITO v. Bank Note Paper Mill India P. Ltd. (2017) 56 ITR 266 (Bang.)(Trib.)

  2. S.4 : Income chargeable to tax – Income or capital – Accrual – Arbitration award received on account of escalation damage and delays in completing the project will be a capital receipt. Dispute regarding the contract and amount awarded on arbitration. The issue relating to damages and interest still sub judice and hence cannot be taxed till the proceedings attain finality. [S.5, 145]

    Dismissing the appeal of the revenue, the Tribunal held that; only receipt on which assessment was completed was the receipt of award during the year and there was no other income. The assessee was out of the contract due to dispute with the Delhi Development Authority. Therefore, the damages so received were for loss of business and not merely loss of profit and were capital in nature. The issue relating to the damages and interest being still sub judice these sums could not be brought to tax in the year under consideration. The finding of the AO in this respect that if the assessee failed in appeal by the judgment of the High Court then the sums would be deducted from its income was not justified. (AY. 2007-08).

    ACIT v. Jagat Ram Trehan and Sons (2017) 56 ITR 286 (Delhi) (Trib.)

  3. S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Payment for software acquired by the assessee which falls in the category of ‘copyrighted article’ and not ‘copyright’ will not be qualify as royalty payment – Explanation to section 9(1)(vi) would have no application and therefore assessee not liable to deduct tax at source – DTAA–India – America [S. 195, Article 7]

    Allowing the appeal of the assessee the Tribunal held that; payment for software acquired by the assessee which falls in the category of ‘copyrighted article’ and not ‘copyright’ will not be qualify as royalty payment. Explanation to section 9(1)(vi) would have no application and therefore assessee not liable to deduct tax at source. (AY. 2008-09)

    National Stock Exchange of India Ltd. v. DDIT (2017) 57 ITR 514 (Mum.) (Trib.)

  4. S.10(13A) : House rent allowance – House rent paid to mother was held to be not allowable in absence of any adequate documentary evidence to prove genuineness of transaction

    Dismissing the appeal of the assessee the Court held that; house rent paid to mother was held to be not allowable in absence of any adequate documentary evidence to prove genuineness of transaction, claim of exemption for House Rent Allowance (‘HRA’) could not be allowed where the rent was paid to mother of the assessee in cash. (AYs. 2009-10 to 2011-12)

    Meena Vaswani (Mrs.) v. ACIT (2017) 164 ITD 120 /57 ITR 497 /186 TTJ 689 (Mum.)(Trib.)

  5. S.10(23C) : Educational Institution – Grant of approval could not be denied merely because there were other objects in the original trust deed. [S. 10(23C(vi)]

    Allowing the appeal, the Tribunal held that; when it was proved on record that the assessee was running an educational institution, the application for grant of approval could not be denied merely because there were other objects in the original trust deed. AO should monitor the activities year on year whether such institutions continue to apply their income or invest or deposit their funds in accordance with the law. (AY. 2014-15)

    Roland Educational and Charitable Trust v. PCIT (2017) 57 ITR 655 (Cuttack) (Trib.)

  6. S.10A : Free Trade Zone – Profit & gains derided from export – Interest on margin money will qualify for deduction however interest invest on FDRs will not be entitled to deduction

    Tribunal held that interest earned on margin money or credit facilities from the bank will qualify for deduction u/s. 10A, but the interest on surplus funds parked in FDRs will not be entitled to deduction u/s. 10A. Matter remanded back to AO for adjudicate accordingly. (A.Y. 2010-11)

    TIBCO Software India (P) Ltd. v. Dy. CIT (2017) 187 TTJ 556 /78 taxmann.com 261 (Pune)(Trib.)

  7. S.10B : Export Oriented Undertakings – Assessee is entitled to set off loss of eligible units against the profits of non-eligible units

    Assessee is entitled to set off loss of eligible units against the profits of non-eligible units. (AYs. 2007-08 to 2011-12)

    Brakes India Ltd. v. DCIT (2017) 56 ITR 341 (Chennai (Trib.)

  8. S.11 : Property held for charitable purposes – The assessee’s operation was primarily industrial, professional association of body and hence was not entitled to exemption [S. 2(15)]

    Education is process of training and developing knowledge, skill, mind and character of students by normal schooling. The assessee not showing capacity for educational activity in regular manner and no income and expenditure was with reference to educational activity. The assessee’s operation was primarily industrial, professional association of body and hence was not entitled to exemption. (AY. 2011-12).

    ITO v. FRP Institute (2017) 56 ITR (Trib.) 253 (Chennai) (Trib.)

  9. S.12A : Registration – Trust or institution – Where although the main object of the Trust included carrying on activities outside India, but no such activity were actually carried outside India, grant of registration u/s. 12AA r.w.s 12A could not be denied on this ground. [S. 12AA]

    Before the Tribunal it was contended that though the main object of the trust included to carry activities outside India, no activities have been actually carried outside India and therefore there was no requirement of the approval from the CBDT. The Tribunal, allowing the appeal, held that the approval from the CBDT was not required in case of a Trust whose objects includes carrying out of activities outside India when it is evident that it had not carried out any activity outside India. Therefore, in such circumstances and facts of the case, the DIT(E) was not justified in denying registration u/s.12AA r.w.s. 12A of the Act. (AY. 2013-14)

    National Informatics Centre Service Inc. v. DCIT (E) (2017) 57 ITR 457 (Delhi) (Trib.)

  10. S.14A : Disallowance of expenditure – Exempt income – Suo motu withdrawal of disallowance of claim was held to be valid, matter was set aside to decide the issue afresh [R.8D, Article 265]

    The assessee, a NBFC, made suo motu disallowance of expense u/s. 14A. During the AO proceedings, the assessee found that disallowance had been wrongly offered in the ROI. The AO and the CIT(A) did not accept the assessee’s claim and confirmed the disallowance. On appeal, the Tribunal held that, in view of Article 265 of Constitution of India and CBDT’s Circular in 1955, the objective of income-tax proceedings was to compute the tax liability in accordance with law and not take undue advantage of ignorance of the assessee. Given that the law w.r.t. 14A had evolved very recently and subsequent to passing of the assessment order, the Tribunal set aside the issue back to the file of the AO to decide it in accordance with all legal and factual evidences. (AYs. 2009-10, 2010-11)

    Rupee Finance & Management (P.) Ltd. v. DCIT (2017) 81 taxmann.com 249 / 57 ITR 205 (Mum.) (Trib.)

  11. S.32 : Depreciation – Depreciation is allowable on plant and machinery even if the factory of the assessee is closed due to some reason

    Dismissing the appeal of the revenue the Tribunal held that; depreciation is allowable on plant and machinery even if the factory of the assessee is closed due to any reason. Followed, CIT v. Lakshmiji Sugar Mills Ltd. (2012) 20 taxmann.com 41 (Delhi)( HC). (AY. 2000-01)

    Rajasthan Explosives & Chemicals Ltd. v. JCIT (2017) 57 ITR 143 (Jaipur) (Trib.)

  12. S.32 : Depreciation – Assets used as tool for carrying out charitable object of institution is not entitled to depreciation [Ss. 11, 12AA]

    The assessee, a charitable institution not carrying out any business or profession claimed depreciation in respect of assets used as tool for carrying out charitable object of institution. Tribunal held that the assessee is not entitled to claim depreciation. The commercial principle of computing the total income or the customary practice of computing business cannot override specific provision of the Act. (AY. 2010-11).

    Music Academy Madras v. DDIT (2017) 56 ITR 301 (Chennai) (Trib.)

  13. S.37(1) : Business expenditure – Ad hoc disallowance of 10% – Expenses on fuel and lubricants and incentive to staff – AO disallowed the same for non-production of evidence on expenditure – Not permissible especially when the AO accepted the audited accounts and when the assessee had disclosed a higher net profit as against the net profit in trade [S. 44AB]

    Allowing the appeal of the assessee the Tribunal held that; when the AO has accepted the audited accounts u/s. 44AAB in Form 3CB, the disallowance so made is not permissible on the ground of non-production of the evidence particularly when the assessee has disclosed a net profit of 9.9% as against the net profit of 1% to 4% in the same trade. The assessee having shown the profit at 9.9% and having regularly maintained books of account in the regular course of business duly audited u/s. 44AB, the Assessing Officer as well as the Commissioner of Income Tax (Appeals) had exceeded their powers to disallow the deductions claimed by the assessee in the face of the books of account duly audited u/s. 44AB, having been accepted by the Assessing Officer. (AY. 2009-10).

    Gurudev Singh v. ACIT (2017) 56 ITR 503 (Cuttack) (Trib.)

  14. S.37(1) : Business expenditure – Car gifted to ex-employee though no terms of employment – Personal gift not part of employment or contribution made to assessee’s business hence not allowable

    Tribunal held that; the car was purchased on September 1, 2008 and in the same month it was transferred to ex-employee, Mrs. Shefali Goradia. The terms of employment did not provide for giving any car to employees. The gift of car was purely gratitude. This expenditure was not incurred wholly and exclusively for the purpose of business. The assessee had not given a car to every employee. Therefore it was a personal gift rather than a part of employment or contribution made to the assessee’s business. Every businessman is free to make the expenditure but it must be allowable in the sense that it was wholly and exclusively for the purpose of business. (AYs. 2005-06, 2009-10).

    ACIT v. Nishith Desai (2017) 56 ITR 560(Mum.) (Trib.)

  15. S.37(1) : Business expenditure – Expenses incurred for co-publication of book presented to foreign and Indian clients coming to India for professional work such as business law and international taxation — Payment to international fiscal association relating to international taxation and starting of centre for professional development — Allowable business expenditure

    The assessee had paid to Chatrapati Shivaji Maharaj Vasthu Sangrahalaya publication and American India Foundation. The AO disallowed the payment to publication stating this was not connected to the assessee’s business and the expenditure was not for business purposes. Similarly, disallowed payment to American India Foundation stating that the assessee did not explain how the payment was connected with the assessee’s business. It was held that, the assessee had made the payment to Chatrapati Shivaji Maharaj Vasthu Sangrahalaya towards co-publication of the book named Indian Life and Landscape By Western Artists. The assessee had been provided 100 copies of the book which the assessee had presented to foreign and Indian clients who were coming to India for professional work such as business law and international taxation. The expenditure was a business expenditure. The assessee had paid
    ₹ 12,50,000/- to International Fiscal Association which comprised tax professionals from world over and had initiated a centre for thought leadership in international taxation to look into the emerging issues in international taxation and find new generation solutions for cross border tax issues in a fair and equitable manner. Therefore this was a genuine expenditure for professional development and had to be allowed. (AYs. 2005-06, 2009-10).

    ACIT v. Nishith Desai (2017) 56 ITR 560 (Mum.) (Trib.)

  16. S.37(1) : Business expenditure –Bogus purchases – Addition to the extent of 12.5% of bogus purchases was upheld. [S. 69C]

    The Tribunal held that the assessee was in possession of purchase invoices but these invoices were incomplete with respect to details of transportation and the revenue having failed to establish the purchases as non-genuine beyond doubt, addition on account of bogus purchases is upheld to the extent of 12.5% on the facts of the case. (AY. 2009-10, 2010-11)

    Toscano Infrastructure (P) Ltd. v. DCIT (2017) 187 TTJ 1 (UO) (Mum.) (Trib.)

  17. S.40(a)(i) : Amounts not deductible – Deduction at source – Business connection – Fees for technical services – Payments towards promotional expenses – Not liable to deduct tax at source – DTAA-India–France [Ss.9(1)( 9(1)(vii)]

    Dismissing the appeal of the revenue the Tribunal held that payment to non-residents towards promotional expenses as the services were rendered outside India hence the income not deemed to accrue or arise in India and also not fees for technical services. Consequently, no obligation to deduct at source and hence no disallowance can be made. (AY. 2005-06).

    DCIT v. Incent Tours P. Ltd (2017) 56 ITR 44 (Delhi ) (Trib.)

  18. S.40(a)(i) : Amounts not deductible – Deduction at source – Fees for technical services – Payment of ‘Rights fee’ on account of ICC Cricket World Cup – Not liable to deduct tax at source. [Ss. 9(1)(vi), 9(1)(vii), 195]

    Payment of ‘Rights fee’ on account of ICC Cricket World Cup which was exclusively for use of Marks of ICC for purposes of promotion and advertisement. Payment is not in nature of ‘Royalty’ or ‘Fees for technical services’ covered under Sections 9(1)(vi) or 9(1(vii) hence no obligation to deduct tax at source. (AY. 2011-12).

    Reebok India Company v. DCIT (2017) 56 ITR 211 / 186 TTJ 176/ 79 taxmann.com 271 (Delhi) (Trib.)

  19. S.40(a)(i) : Amounts not deductible – Deduction at source – Fees for technical services – Payment for services rendered in London only by a third party nominated by the assessee to represent itself in London is not liable to tax in India – DTAA – India-UK [S.9(1)(vi), Article 13]

    Management consultancy fees paid by holding Co. in UK. Services rendered in India after deputing their employees in India and hence taxable in India as fees for technical services and subsequently tax ought to be deducted at source on the same. Payment for services rendered in London only by a third party nominated by the assessee to represent itself in London is not liable to tax in India. (AY. 2004-05 to 2006-07)

    ACIT .v. Sterlite Industries (India) Ltd. (2017) 56 ITR 377/ 81 taxmann.com 57 (Chennai) (Trib.)

  20. S.40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Salary paid to son of assessee – Nothing to establish son did not render any services to assessee’s business – Starting salary of firm for fresh graduate more than assessee son’s salary –Salary expenses allowable

    On appeal, it was held that the Commissioner of Income-tax (Appeals) held that the AO could not establish that the son of the assessee had not rendered any services to the assessee’s business. Moreover in this firm the starting salary for a fresh graduate was
    ₹ 60,000/- per month, and in this year the salary paid to the assessee’s son was
    ₹ 40,000/- per month only. Therefore, The Commissioner of Income-tax (Appeals) had rightly allowed the claim. (AYs. 2005-06 2009-10).

    ACIT v. Nishith Desai (2017) 56 ITR 560(Mum) (Trib.)

  21. S.43(1) : Actual cost – Subsidy – A subsidy / grant from a foreign sovereign country does not fall within Explanation 10 because the foreign Country is not a “person” as defined in s. 2(31) [Explanation 10, 2(31)]

    Allowing the appeal of the assessee, the Tribunal held that the law laid down in PJ Chemicals 210 ITR 830 (SC) that only a subsidy or grant given to offset the cost of an asset can be reduced from the “actual cost” of the asset and not a general subsidy continues to hold good even after the insertion of Explanation 10 to s. 43(1). A subsidy/grant from a foreign sovereign Country does not fall within Explanation 10 because the foreign Country is not a “person” as defined in S.2(31) of the Act. (ITA No. 1295/Mum/2012, dt. 3-7-2017)(AY. 2000-01, to 2008-09)

    Spectrum Coal & Power Ltd. v. ACIT (Delhi) (Trib.), www.itatonline.org

  22. S.45 : Capital gains – Penny stocks – If the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income. The fact that the broker was tainted and violated SEBI regulations would not make assessee’s transactions bogus. [S. 68]

    Dismissing the appeal of the revenue the Tribunal held that; If the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income. The fact that the broker was tainted and violated SEBI regulations would not make assessee’s transactions bogus. (ITA No. 4862/Mum/2014, dt. 18-9-2017)(AY. 2005-06)

    ITO v. Arvind Kumar Jain HUF (Mum.)(Trib.), www.itatonline.org

  23. S.45 : Capital gains – Allotment letter – Indexation – Allotment right constitutes a capital asset, hence profit earned on sale of such allotment right would be taxable as capital gains and not as income from other sources [Ss. 2(14), 56v]

    Allowing the appeal of the assessee, the Tribunal relying in the case of CIT v. Sam Global Securities Ltd. (2014) 360 ITR 682 (Delhi)(HC) held that though in the ROI the assessee claimed the profit on sale of allotment right as Income from other sources, the assessee’s claim in the assessment proceedings of treating it as capital gains could not be denied. Further, the Tribunal relying on in the case of CIT v. Tata Services Ltd. (1980) 122 ITR 594 (Bom HC) also held that when more than 90 per cent of the payments have been made for the property, it would tantamount to a right which was transferable and therefore, would be termed as a capital asset and the gains would be offered under the head ‘Capital Gains’. (AY. 2010-11)

    Satnam Overseas Exports v. DCIT (2017) 57 ITR 78 (Delhi) (Trib.)

  24. S.48 : Cost of acquisition – Interest on loan for acquiring capital asset is to be treated as part of cost of acquisition

    The Tribunal held that interest paid to the bank for acquiring capital asset is to be treated as part of cost of acquisition. (AY. 2013-14)

    Gayatri Maheshwari v. ITO (2017) 187 TTJ 33 (UO) (Jd.) (Trib.)

  25. S.49 : Capital gains – Previous owner – Cost of acquisition – Merely mentioning in sale deed that property was free from all encumbrances was not material and thus, was not a correct interpretation of the legal position

    The husband of the assessee inherited the property from his father by virtue of a will, who later transferred the same to the assessee. One of the sisters of the assessee’s husband filed a suit against the will and ended up in a compromise with a share of 30 per cent in the property. While computing capital gains tax liability on sale of property by the assessee, she considered the ‘sale consideration’ excluding the share of the sister-in-law.

    The AO and the CIT(A) observed that, the recital stated in the sale agreement stated that, the property was free from all encumbrances. Accordingly, they considered the sale consideration without excluding sister-in-law’s share because when the property was inherited by assessee’s husband from his father, there was no dispute and he had transferred the property free from all burden/encumbrances.

    On appeal, the Tribunal held that merely deciding the issue on the basis of recital in the sale deed that the property was free from all encumbrances was an incorrect legal interpretation of the legal position. Further, the assessee had stepped into the shoes of her husband for all intents and purposes. Thus, she could not have acquired a better title than her husband and the cost of acquisition of the property was required to be taken accordingly i.e 70 per cent share in the property. (AY. 2012-13)

    Rama Vohra (Smt.) v. ITO (2017) 57 ITR 694 (Delhi)(Trib.)

  26. S.54 : Capital gains – Profit on sale of property used for residence – Substantial amount invested in new house – Deduction cannot be denied for reason that house is not constructed within three years or purchased within two years. [S. 45]

    Long-term capital gain was shown from sale of a residential house and deduction was claimed u/s. 54 on the ground that a substantial part of said gain had been invested in a flat. Deduction u/s. 54 was denied to the assessee because she had not complied with the condition stipulated in the section of purchase/construction of new house within the stipulated period of two or three years respectively. Tribunal held that as per section 54(2), exemption to the extent of amount utilised for construction is to be granted in the year of transfer of asset and the condition of completion of construction is to be looked into only after the window period provided by the Act of three years expires. The Tribunal held that if substantial amount of capital gain has been invested by the assessee for the purpose of purchasing a new house, deduction under section 54 cannot be denied for the reason that construction was not completed within three years or house was not purchased within two years. In the present case the capital gains earned by the assessee is
    ₹ 74,33,137/- and the amount invested in the new house is ₹ 62,10,000/- and thus she is entitled to claim deduction under section 54.  (AY. 2013-14)

    Bhavna Cuccria v. ITO (2017) 165 ITD 124 (Chd.) (Trib.)

  27. S.54 : Capital gains – Profit on sale of property used for residence – Capital gains appropriated in new property within time limit – Exemption to be granted –Completion of construction not mandatory. [S. 45]

    The assessee had appropriated the capital gains for the purpose of construction of residential unit. However, construction was not completed within the stipulated period. It was held that liberal interpretation to be considered while granting exemption under section 54, as it is beneficial provision. Completion of construction within three years was not mandatory and what was necessary was that the construction should be commenced. The assessee over and above satisfied the conditions laid down by section 54 and demonstrated his intention to invest the capital gains in residential house. The assessee ought not to have been denied the claim of deduction under section 54. (AY. 2012-13)

    Kannan Chandrasekar v. ITO (2017) 165 ITD 223 (Chennai) (Trib.)

  28. S.54F : Capital gains – Non-utilisation of deposit made in capital gains account scheme –Addition cannot be made in the year of deposit – It is not the discretion of assessee or AO to against the provisions. [Ss. 45, 54]

    The Tribunal held that the amount of capital gains which was not utilised by the assessee but was deposited in the scheme is chargeable to tax in the previous year 2014-15 i.e. AY. 2015-16. It is not the discretion of assessee or AO to against the provisions of Sections 54/54F. Thus the addition made by the AO in the year 2012-13 is not sustainable. (AY. 2012-13)

    Anupama Nagesh (Smt.) v. ITO (2017) 187 TTJ 27(UO) (Bang.) (Trib.)

  29. S.61 : Revocable transfer of assets – Beneficiaries of trust identifiable and shares determined by contributor’s agreement – Income derived by trust to be taxed in the hands of the beneficiaries. [S. 161]

    The assessee, a trust set up by the Government of Tamil Nadu. The Assessing Officer without accepting the contention of the assessee brought the entire income at the maximum marginal rate in the hands of the assessee. Objects of trust public utility and improvement of infrastructure facilities for betterment of urban area and not business. On appeal, the Tribunal held that after three years the contributors were free to call upon the trustees to cancel any unit held by them and whatever remained uncancelled would be cancelled at the trust period and the money returned to the contributors. The objects of the assessee clearly indicated public utility and improvement of infrastructure facilities for the betterment of the urban area and not for the purpose of business. The assessee was not carrying on any business with commercial motive. The beneficiaries of the assessee were identifiable and the shares were determined by the contributors’ agreement and the contributors were free to call upon the trust to cancel any units held by them and return the value. Therefore, the trust was a revocable trust and squarely covered by S. 61 and hence the income derived by it was to be taxed in the hands of the beneficiaries in terms of sections 61 and 161(1). (AYs. 2008-09, 2009-10)

    Tamilnadu Urban Development Fund v. ITO (2017) 56 ITR 37 (Chennai) (Trib.)

  30. S.68 : Cash credit – Shell companies – Failure to produce lenders – Addition was held to be justified

    The Tribunal held that the assessee has not been able to produce the alleged lenders for verification and could not rebut the allegation of revenue authorities that the said lenders are shell entities, the loans cannot be accepted as genuine transactions and therefore the addition under Section 68 is upheld and consequently, deduction of interest on alleged borrowings is disallowed. (AY. 2007-08)

    Pavankumar M. Sanghvi v. ITO (2017) 165 ITD 260/ 187 TTJ 32 ( SMC)(Ahd.)(Trib.)

  31. S.69 : Income from undisclosed source – Seized documents – Merely on the basis of seized documents in third party premises, additions cannot be made- Addition cannot be made on estimation/extrapolation. Addition on the basis of seized document print out from Blackberry Mobile Digital was held to be not justified. [S. 28(i), 69C 132, 153A]

    Dismissing the appeal of the revenue, the Court held that ; in the absence of any direct evidence demonstrating that the assessee received cash payment, no addition can be made merely on presumption and surmises and on estimate basis. For making the addition on account of cash component, it is the duty of the AO to bring on record corroborative evidence to establish the fact that the entries made in the seized document were correct. Tribunal also held that income cannot be estimated on estimation/ extrapolation. Addition on the basis of seized document print out from Blackberry mobile Digital was held to be not justified. (ITA No. 3092/Mum/2015, dt. 11-10-2017)(AY. 2006-07, to 2010-11)

    ACIT v. Katrina Rosemary Turcotte (Katrina Kaif) (Mum)(Trib), www.itatonline.org

  32. S.69C : Unexplained expenditure – Bogus purchases – If books of account is not rejected, no addition can be made on presumptions [S. 145]

    Allowing the appeal of the assessee the Tribunal held that. If the AO has not rejected the books of account and has only doubted the genuineness of the suppliers but not the genuineness of the purchases and if the payments are made by account payee cheques, s. 69C is not attracted. S. 69C cannot be applied where all purchase and sales transactions are part of regular books of account. The basic precondition for invoking s. 69C is that the expenditure incurred by the assessee should be out of books of account. (ITA No. 1596, 1597/Mum/2016, dt. 20-9-2017)(AY. 2010-11 and 2011-12)

    Fancy Wear v. ITO (Mum.)(Trib.), www.itatonline.org

  33. S.70 : Set off loss – Surrender of undisclosed amount invested in ‘Build – Operate-Transfer’ Project undertaken by the assessee – Income surrendered during search and seizure assessable under the head ‘Income from business and profession’ and can be allowed to be set-off against the unabsorbed and current year business losses and depreciation. [Ss. 32, 71, 72 132]

    Allowing the appeal, the Tribunal held that; undoubtedly the surrender was on account of investment in the business project of the assessee. The assessee had explained the source of the income as being on account of collections from the ”build-operate-transfer” project. Therefore the income surrendered by the assessee of
    ₹ 1.75 crore was assessable under the head “Income from business and profession” and set off of unabsorbed and current business losses and depreciation was allowable against it under the provisions of sections 70 and 71. (AY. 2011-12).

    Prashanti Surya Construction Co. Pvt. Ltd v. DCIT (2017) 56 ITR 202 (Chandigarh) (Trib.)

  34. S.92C : Transfer pricing –Comparable – Exhibition and events could not be selected as comparable to assessee rendering marketing support services

    Tribunal held that a company engaged in leasing /Sale of stall space in exhibition and events could not be selected as comparable to assessee rendering marketing support services.Tribunal held that assessee engaged in providing software services to its AE, a product company being functionally different could not be picked up as comparable. Tribunal held that when the DRP has directed the TPO to verify the RPT filter in respect of C Ltd. and in case it was greater than 25%, then to exclude the same from list of comparables, no interference is called for. (AY. 2010-11)

    TIBCO Software India (P) Ltd. v. Dy. CIT (2017) 187 TTJ 556 / 78 taxmann.com 261 (Pune)(Trib.)

  35. S.92C : Transfer pricing – Adjustment on account of location savings costs was directed to be deleted

    Tribunal held that there neither any provision or any settled judicial principle that location costs are required to be adjusted while allocating the profits of group entities/AES operating in different tax jurisdictions. Location savings arise from the cost saving due to differences in the cost of operations between high cost and low cost tax jurisdictions and further held that TP adjustments cannot be argued on generalities. Accordingly, the adjustment made on account of location saving is directed to be deleted. (AYs. 2009-10, 2011-12)

    Dy. CIT v. Syngenta India Ltd. (2017) 187 TTJ 271/77 taxmann.com 220 (Mum.)(Trib.)

  36. S.92C : Transfer pricing – Working capital adjustment has to be contracted on the basis of year end figures

    The Tribunal held that working capital adjustment has to be contracted on the basis of year end figures, otherwise it will become impossible to arrive at working capital requirement on day-to-day basis. (AY. 2005-06)

    ITO v. Evalueserve.com (P) Ltd. (2017) 187 TTJ 317 (Delhi)(Trib.)

  37. S.92C : Transfer pricing – Adjustment on account of environmental cost savings was directed to be deleted

    The Tribunal held that the TPO has not demonstrated as to how and under what comparability analysis he has found that assessee has got the benefit of environmental / green costs savings and it has materially affected the price under arm’s length conditions. Accordingly, there are no reasons and jurisdictions for such adjustment and
    same is directed to be deleted. (AY 2009-10, 2011-12)

    Dy. CIT v. Syngenta India Ltd. (2017) 187 TTJ 271/ 77 taxmann.com 220 (Mum.)(Trib.)

  38. S.92C : Transfer pricing – Arm’s length price – Corporate guarantee given to AE not involving any cost to the assessee and no bearing on profits, income, loss of assets is outside the ambit of international transaction

    Corporate guarantee given to AE not involving any cost to the assessee and no bearing on profits, income, loss of assets is outside the ambit of international transaction. (AYs. 2007-08 to 2011-12)

    Brakes India Ltd v. DCIT (2017) 56 ITR 341 (Chennai (Trib.)

  39. S.92C : Transfer pricing – Arm’s length price – Loans advanced to AE situated in Singapore – Corporate guarantee – Not charging any interest from AEs and non-AEs for providing mobilisation advances –Adjustment under TP provisions was not attracted. [S. 92B]

    Loans advanced to AE situated in Singapore. Rate of interest to be determined on basis of rate prevailing in Singapore where loan had been consumed and not to be determined on basis of rate prevailing in India . Corporate guarantee provided, covered within scope of term ‘international transaction’ after insertion of Explanation to section 92B by Finance Act, 2012 . Guarantee commission to be charged at 0.27 per cent – guarantee fee is upfront and one time fee paid at the beginning – therefore, the rate is to be applied on the corporate guarantees provided during the year. Not charging any interest from AEs and non-AEs for providing mobilisation advances regarding an EPC contract and also not paying any interest on amounts received by it from main contractor. Adjustment under TP provisions was not attracted. (AY. 2011-12)

    DCIT v. Lanco Infratech Ltd. (2017) 56 ITR 525/ 81 taxmann.com 381 (Hyd.) (Trib.)

  40. S.92C : Transfer pricing –Distribution activity – Trader –Resale method (RPM) is most appropriate

    Allowing the appeal of the asessee , the Tribunal held that; In the case of an assessee engaged in distribution activity there is no value addition to the product in question even if the selling and marketing expenses are borne by the assessee. Accordingly, the Resale Price Method is the most appropriate method for benchmarking the transaction and determining whether it is at arms’ length. The TPO is not entitled to thrust TNMM to evaluate the transaction. (ITA No. 235/Pune/2013, dt. 16-6-2017)(AY. 2008-09)

    Freseniue Kabi India Private Limited v. DCIT (Pune)(Trib.); www.itatonline.org

  41. S.92C : Transfer pricing – Arm’s length price – Accounting period of comparable company should be same as that of the assessee company – Where the functional profile of comparable company and assessee company is same as in earlier years vis-à-vis current year, then, in absence of any contrary evidence, and in order to maintain consistency, the treatment given to the comparable company in the earlier year should be given the current year. [S. 92]

    During the transfer pricing proceedings, the TPO considered Pfizer Ltd. and Celestial Labs Ltd. as comparable to the assessee company to benchmark the international transaction entered with its AE.

    On appeal, the DRP excluded Pfizer Ltd. and Celestial Labs Ltd. as comparable companies.

    On further appeal, the Tribunal held that Pfizer Ltd. is following a different financial year ending and quarterly data for the different period are also not available. Therefore, Pfizer Ltd. is not comparable to the assessee company. As regards Celestial Labs Ltd., it was held that this comparable was excluded in earlier year and there has been no change in the profile of this comparable and the assessee company, in earlier year vis-à-vis current year. Also, no contradictory evidences were presented by the department. Therefore, Celestial Labs Ltd. was held to be not comparable to the assessee company. (AY. 2009-10)

    Tevapharm India Pvt. Ltd. v. DCIT (2017) 57 ITR 301 (Mum.) (Trib.)

  42. S.92C : Transfer pricing – Arm’s length price – Foreign Exchange loss on account of cancellation of forward contracts should be eliminated from the operating cost as it is a material difference and arisen to assessee due to abnormal feature – Comparable company following different financial year may not be generally taken for comparability analysis, however, if financial data for all the quarters is available, it would suffice comparability criteria

    The assessee renders Information Technology Enabled Services (‘ITeS’) to its associated enterprises (‘AE’). To benchmark the international transaction, assessee selected TNMM as most appropriate method. The TPO held assessee’s working of PLI to be erroneous and considered foreign exchange loss on cancellation of forward contracts as operating expense. Learned DRP upheld the action of TPO/AO in treating foreign exchange loss on cancellation of forward contracts as operating expense.

    Tribunal further observed that in practical situations there may be absence of reliable data in the case of uncontrolled transactions i.e. comparable companies for which such material differences are to be examined. Thus, tribunal held that the PLI of the tested party alone can also be accurately adjusted to eliminate the effect of difference between the international transaction and the comparable uncontrolled transaction even if no adjustments are made to the PLI of comparable companies due to absence of data in such cases. Thus, Tribunal held that the forex loss amounting to
    ₹ 2.22 crore being a material difference affecting the cost or profitability of the assessee due to abnormal feature shall be eliminated from the operating cost and resulting into reworking of the PLI of the assessee.

    The next issue before the Tribunal related to inclusion and exclusion of certain comparable companies. One of the comparable companies namely R-systems International Ltd. was selected by the TPO and DRP was contested by the assessee as not comparable because it was following different financial year ending i.e. from January to December. It was held by the Tribunal that though a comparable company following a different financial year may not be taken for comparability analysis but if the financial data is available for all the quarters was available and it is possible to determine the value of transaction as well as the profitability, then the company suffices the comparability criteria and could not be rejected as comparable company. (AY. 2009-10)

    Pangea & Legal Database Systems (P.) Ltd. v. ITO (2017) 57 ITR 242 (Mum) (Trib)

  43. S.133A : Power of survey –Statement was retracted – Statement in survey operations no evidentiary value – Merely on the basis of statement, addition cannot be made. [S. 68]

    Dismissing the appeal of the revenue, the Tribunal held that; statement of partner and consultant disclosing unaccounted income. Duplicate set of books of account made by consultant for the purpose of taking bank loan to assessee’s project. Statement later on retracted. No attempt made by the Department either in the course of the survey or subsequent to survey to call and record statement of consultant to extract truth and no inquiry made against the partner. No other material or evidence against the assessee and hence printouts from duplicate set of accounts does not represent undisclosed income. (AYs. 2007-08, 2008-09)

    ACIT v. Shree Krishna Developers (2017) 56 ITR 154 (Ahd)(Trib)

  44. S.143(2) : Assessment – As the notice was neither issued nor served before limitation period , the order was held to be barred by limitation hence bad in law. [S. 144C]

    Allowing the appeal the Tribunal held that ; though service of the notice is not a condition precedent to conferment of jurisdiction upon the AO to deal with the matter, it is a condition precedent to making of the order of assessment. Accordingly, the s. 143(2) notice has not only to be issued before the expiry of the limitation period but has also to be served upon the assessee before the expiry of the limitation period. Conflict between VRA Cotton Mills Ltd v. UOI (P&H)(HC) 33 taxmann.com 675 and CIT v. Lunar Diamonds (2006) 281 ITR 1 (Delhi) explained in light of CBDT Circular No. 549 dated 31-10-1989. (ITA No. 2/JP/2014, dt. 27-7-2017) (AY. 2010-11)

    Cameron (Singaore) Pte. Ltd. v. ADIT (Jaipur)(Trib.), www.itatonline.org

  45. S.143(3) : Assessment – Bogus purchases – Trader – Stock register is maintained and quantity detailed provided, Tribunal restricted the addition to 2% of the bogus purchases

    Tribunal held that if the AO has not disputed the genuineness of sales and the quantitative details and the day-to-day stock register maintained by the assessee, a trader, he cannot make an addition in respect of peak balance of the bogus purchases. He can only determine the element of profit embedded in the bogus purchases. On facts, the addition is restricted to 2% of the bogus purchases. (ITA No. 880-882/Mum/2016 ITA No.1321-1323/Mum/2016, dt. 29-8-2017)(AYs. 2009-10 to 20011-12)

    ACIT v. Steel Line (India)(Mum.)(Trib); www.itatonline.org

  46. S.143(3) : Assessment – Scrutiny of cases – CIT in granting approval is held to be proper internal instructions cannot be equated with the provisions of the Act, selection for scrutiny was accordance with law and valid [Ss. 119, 151]

    Dismissing the appeal of the assessee the Tribunal held that; CIT granting approval is held to be proper internal instructions cannot be equated with the provisions of the Act, selection for scrutiny was accordance with law and valid. (ITA No. 906/Kol/2015, dt. 8-9-2017) (AY. 2010-11)

    Brother & Sisters Enterprise v. JCIT (Kol.) (Trib); www.itatonline.org

  47. S.145 : Method of accounting –Upfront expenditure – Held to be allowed in full though amortised in its books. [S. 35D, 37(1)]

    Expenditure claimed in return of income on accrual basis could not be denied by the AO on the ground that the assessee, an NBFC, followed amortisation method of accounting in its books in line with the Reserve Bank of India (RBI) guidelines and therefore, expenditure should be claimed as per books of account. (AY. 2013-14)

    Magma Fincorp Ltd. v. DCIT (2017) 165 ITD 375 /57 ITR 321 (Kol.)(Trib.)

  48. S.153A : Assessment – Search and seizure – In order to initiate assessment proceedings u/s. 153A of the Act, the premises of the assessee has to be searched and panchanama has to be specifically drawn in the name of the assessee. Further, availability of incriminating material is also a pre-requisite for framing an assessment [S. 132]

    A joint warrant was issued u/s. 132(1) of the Act in the name of assessee-AOP and its members. A search was conducted at the residential premises of members of the AOP and panchanama was also drawn in the name of the members of the AOP and certain documents were seized. Based on the search warrant, the AO completed the assessment u/s. 143(3) r.w.s. 153A of the Act wherein the claim of deduction u/s. 80-IB(10) of the Act was disallowed. On appeal, the CIT(A) confirmed the findings of the AO. On further appeal, the Tribunal, quashing the assessment framed u/s. 153A of the Act, held that though search warrant was issued on the assessee-AOP, however, no search was conducted on the premises of the AOP whereas the search was conducted on the premises of members of AOP with no incriminating material relating to assessee was found. Further, no panchanama was drawn in the name of assessee. Therefore, the limbs and contents to be satisfied for initiation of assessment proceedings u/s. 153A of the Act were not satisfied. (AY.2008 -09)

    Unique Star Developers v. DCIT (2017) 57 ITR 463 / 187 TTJ 682 (Mum.) (Trib.)

  49. S.153B : Assessment – Search and seizure – Time limit – Assessment order passed beyond the time limit prescribed was barred by limitation and therefore, liable to be quashed. [Ss. 153A, 158BC, 158BE]

    Search and Seizure operation were carried out at the premises of the Kamdhenu group. During the course of search operation, certain documents relating to assessee were found and seized, which were subsequently handed over the AO of the assessee. The AO after recording satisfaction issued a notice u/s. 153C of the Act on the assessee. The AO completed the assessment in accordance with the provision of s. 153C of the Act which was confirmed by CIT(A). On appeal before the Tribunal, the assessee raised additional ground to content that the order passed u/s. 153C of the Act was barred by limitation since they were passed beyond the time limit provided u/s. 153B of the Act. The Tribunal, admitting the additional ground, observed that as per second proviso to s. 153B, the time limit provided for passing order u/s. 153C of the Act was 21 months from the end of the financial year in which the last of the authorisation for search u/s. 132 or the requisition u/s. 132A was executed or 9 months from the end of the financial year in which books or documents were handed over u/s. 153C to the AO of the assessee(s). In the instance case, admittedly the orders u/s. 153C were passed beyond the time limit and therefore, were barred by limitation and liable to be quashed. (AY. 2003-04 to 2008-09)

    Anil Agarwal and Sons (HUF) v. ITO ) 2017) 57 ITR 491 (Jaipur) (Trib.)

    Kamlesh Rani (Smt.) v. ITO (2017) 57 ITR 491 (Jaipur) (Trib.)

    Kulwant Rai v. ITO (2017) 57 ITR 491 (Jaipur) (Trib.)

    Rani Yogita (Smt.) v. ITO (2017) 57 ITR 491 (Jaipur) (Trib.)

    Shakuntala Devi (Smt.) v. ITO (2017) 57 ITR 491 (Jaipur) (Trib.)

    Suman Agarwal (Dr.) v. ITO (2017) 57 ITR 491 (Jaipur) (Trib.)

  50. S.158BE : Block Assessment – Time Limit – Where Assessee had not applied
    for extension of time for submission of the Special Audit Report, then the AO
    did not have the power to suomotu extend the time limit for completion of block
    assessment proceedings. [S.132, 142(2A), 158BC]

    The Departmne undertook search operation on the assessee u/s. 132 of the Act and the proceedings were to be completed u/s. 158BC of the Act. The AO made a reference u/s. 142(2A) of the Act to conduct a special audit and submit a report within 90 days. Further, the AO suo motu extended the period of submission of the special audit report. On appeal before the Tribunal, it observed that the power of the AO to suo motu extend the time for special auditor was conferred w.e.f. 1-4-2008 and so the AO was not empowered to ‘suo-motu’ extend the time limit before that. Further, the Tribunal relied on the Delhi HC decision in the case of CIT v. Bishan Saroop Ram Kishan Agro Pvt. Ltd. (ITA No 1775 of 2010) and held that the AO did not have the power to suo motu extend the time limit for submission of the special audit report without the applying for the same. Therefore, when the Assessee had not applied to the AO for extension of time limit for submission of the special audit report, then the AO was not empowered to suo-motu extend the time limit and accordingly, the Assessment Order passed u/s. 158BC of the Act was barred by limitation and void in the eyes of the law. (AYs. 1997-98 to 2002-03)

    Sita Saraf (Smt.) v. ACIT (2017) 57 ITR 590 (Patna) (Trib.)

  51. S.195 : Deduction at source – Income deemed to accrue or arise in India – Royalty – Payment to google Ireland is taxable as royalty hence liable to deduct tax at source – DTAA – India-Ireland [Ss. 9(1)(vi), 201(1), Article 12

    The Google Adwords advertisement module is not merely an agreement to provide advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer using Google’s patented algorithm, tools and software. Google Adwords uses data regarding the age, gender, region, language, taste habits, food habits, etc. of the customer so as to maximise the impression and conversion to the ads of the advertisers. Consequently, the payments to Google Ireland are taxable as “royalty” and the assessee ought to have deducted TDS thereon u/s. 195. (ITA No. 1511/Bang/2013, dt. 23-10-2017)(AYs. 2007-08 to 2012-13)

    Google India Private Ltd. v. ACIT (Bang.)(Trib.), www.itatonline.org

  52. S.201 : Deduction at source – Failure to deduct or pay – Interest on account of delay in payment of tax deducted at source cannot be levied if such delay is due to system and connectivity issues at the Banker’s end [Ss. 201(1), 201(IA)]

    Allowing the appeal the Tribunal held that; it was shown by the assessee that the amount was debited from its account on October 7 itself and that the delay in deposit of such tax by a day was on account of the system and connectivity issues at the Banker’s end which was beyond the control of the assessee. Tribunal allowing the appeal of the assessee, held that the levy of such interest was not justifiable as the delay in payment of tax was beyond the control of assessee. (AY. 2010-11)

    Nokia Siemens Networks P. Ltd. v. ACIT (2017) 57 ITR 382 (Delhi) (Trib.)

  53. S.221 : Collection and recovery – Penalty – Tax in default – Self- assessment tax – Failure to pay self assessment tax while filing the return though taxes are paid while filing the revised return, the assessee is liable to pay the penalty. [S. 140A]

    The Special Bench had to consider the following important question of law:

    “Whether an assessee is liable to penalty under section 221(1) of the Act in a case in which though the assessee has not paid the self assessment tax under section 140A, while filing the return of income, but revises the income, by filing revised return of income, and pays the tax on the revised return of income at the time of filing the revised return of income?”

    After detailed discussion the Tribunal held that in our considered view, the assessee is, in principle, covered by the scope of the penalty under section 221(1) of the Act in a case in which though the assessee has not paid the admitted tax liability under section 140A, while filing the original return of income, the assessee subsequently pays the tax on the revised return of income, at the time of filing the revised return of income. We, therefore, answer the question referred to the special bench in affirmative and against the assessee. However, whether the penalty under section 221(1) r.w.s. 140A(1) is actually leviable on the facts of a particular case or not will depend on the facts of that case and depending on, inter alia, the factual finding as to whether or not the default of the assessee was for good and sufficient reasons – something with which we are not really concerned at this stage due to inherently limited scope of the question before the special bench. The matter was set aside to the division Bench to decide the issues on merit. (ITA No. 498/Ahd/2011, dt. 26-10-2017)(AY. 2008-09)

    Claris Life Sciences Limited v. DCIT (Ahd)(Trib)(SB), www.itatonline.org 59 ITR (Trib.) (SB)

  54. S.245C : Settlement Commission – Settlement of cases – Conditions – Settlement Commission can admit application for settlement when additional income and additional tax liability is disclosed for some years and there is no additional income/additional tax for remaining years as long as additional tax payable on income disclosed in application exceeds threshold limits specified in proviso to section 245C(1)

    The Special Bench of the Settlement Commission was to consider a question ‘whether in an application for settlement under section 245C(1) covering more than one assessment year, the applicant must mandatorily disclose additional income not disclosed before the Assessing Officer, for each assessment year covered by the application and on such additional income there must be a liability to pay tax for each such year especially in view of amendments brought about in proviso to section 245C(1), read with section 245A(b) by Finance Acts, 2007 and 2010, thereby rendering decision of Special Bench in Airtech (P.) Ltd. v. Income Tax Settlement Commission [1994] 20 ITR (AT) 21 (ITSC), no longer good law?’. The Bench, by a majority view, concluded that Settlement Commission can admit an application for settlement when additional income and additional tax liability is disclosed for some years and there is no additional income/additional tax for remaining years as long as additional tax payable on income disclosed in application exceeds threshold limits specified in proviso to section 245C(1). The Bench held that there is no specific condition laid down in law that there should be additional income disclosed in every assessment year or that there should be additional tax liability on such additional income disclosed in every year, covered by the application and that the amendments made in proviso to section 245C(1), read with section 245A(b) by Finance Act 2007 and 2010, have no direct bearing on the above conclusions.

    Neptune Developers & Construction (P.) Ltd., In re (ITSC-Mum.) (2017) 248 Taxman 500/55 ITR 484 (Trib.) (Mum.) (SB) (ITSC)

  55. S.254(1) : Appellate Tribunal –Power – Interim order – Transfer cases – Tribunal directed the Department to produce records including copy of the order passed, department has to comply with the requisition [Ss. 124, 127)

    The Tribunal directed the Department on several hearings prior to the Order requiring production of the file and especially the order made under section 127 of the Income-tax Act, 1961. The Department also rejected a right to information query that was filed on behalf of the assessee. The Department also objected to the admissibility of the additional ground raised by the assessee challenging the jurisdiction of the AO. The Tribunal held that the admissibility or otherwise of the additional ground could be decided only after examining the record. The orders of the Tribunal on various dates demonstrated that the Department was adopting delay tactics as regards the production of records and was procrastinating which showed that there was no Order passed u/s. 127 giving the jurisdiction to the AO. Any document or record can be requisitioned by the Tribunal, if it is of the opinion that the said document is required for the disposal of the appeal. The assessee also submitted that his application under the Right to Information Act was rejected by the Department. Thus only on being convinced of the necessity of examining the records the records and jurisdictional orders were acalled for. The Department was directed to comply with the interim orders of the Tribunal. (AYs. 2008-09, 2009-10).

    Consulting Engineering Services (India) Pvt. Ltd v. ACIT (2017) 56 ITR (Trib.) 28 (Delhi) (Trib.)

  56. S.254(1) : Appellate Tribunal –An additional ground with respect to additional evidence is admissible – Transfer pricing – If it is discovered that assessee is not liable to tax the revenue cannot have grievances [S. 92C]

    Allowing the appeal the Tribunal held that the approach of the Tribunal in matters where the revenue seeks to fasten liability should be different, The Tribunal is the last fact-finding authority and the assessee has no other avenue to raise its grievances so far as facts are concerned. Ultimately if it is discovered that assessee is not liable to tax the revenue cannot have grievances UltraTech Cement v. ACIT (2017) 81 taxmann.com (Bom.)(HC) distinguished. Thus, considering the material available on record and the factual and legal discussion as referred above, we admit the additional ground of appeal raised by assessee, and are inclined to restore this issue raised in the additional ground to the file of Assessing Officer/Transfer Pricing Officer for examining issue afresh. The AO/TPO shall decide the issue after considering all the material available on record in accordance with the law.(ITA No. 121/M/2013, dt. 21-8-2017)
    (AY. 2007-08)

    Nivea India Private Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org

  57. S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Limitation – The amendment to s. 254(2) to curtail the limitation period for filing Rectification Applications to six months from four years is prospective and applicable to appeal orders passed after 1-6-2016 and not the orders passed prior to 1-6-2016.

    The amendment to s. 254(2) to curtail the limitation period for filing Rectification Applications to six months from four years is prospective and applicable to appeal orders passed after 1-6-2016 and not the orders passed prior to 1-6-2016. The contrary view in Lavanya Land (Mum.) (Trib.) is not good law in view of K. Ravindranathan Nair (SC). (MA No.411/Mum/2016 to 414/Mum/2016 (Arising out of ITA No.7001/Mum/2010), dt. 9-10-2011) (AY. 2003-04)

    Lucent Technologies GRL LLC v. ADIT (Mum)(Trib), www.itatonline.org

  58. S.263 : Commissioner – Revision of orders prejudicial to revenue –Revision – Merely on the basis of in adequate enquiry revision was held to be not valid. [S.44BB]

    The Tribunal held that when the AO has made enquiry to his satisfaction and accepted explanation given by assessee then it is not a case of no enquiry, the director of IT cannot assume jurisdiction under section 263 merely because he does not agree with the opinion of AO and wants that the case should be investigated in a particular manner. Therefore, assumption of jurisdiction by the Director of IT under section 263 was not in accordance with law and therefore the same is quashed. (AY. 2008-09)

    Technip UK Ltd. v. DIT of (IT) (2017) 187 TTJ 617/81 taxmann.com 311 (Delhi)(Trib.)

  59. S.263 : Commissioner – Revision of orders prejudicial to revenue – Assessment order was in line with the order of the Tribunal –Revision was held to be not valid. [S.153A]

    The Assessment Order was revised to bring to tax undisclosed price paid for purchasing shares. On appeal the Tribunal held that similar addition was deleted by the Tribunal in group case which was binding on the revenue authorities. The Assessment Order passed was in line with the order of the Tribunal and the revision proceedings was unjustified and unreasonable. (AY. 2006-07).

    Radha Aggarwal (Smt.) v. PCIT (2017) 56 ITR 509 (Chd.) (Trib.)

  60. S.271(1)(c) : Penalty – Concealment – Proceedings initiated for furnishing inaccurate particulars of income but penalty order alleging that the assessee had concealed its income – Notice issued for initiating the proceedings was defective for failure to state the ground on which penalty was imposed – Order imposing penalty was invalid. [S. 274]

    On appeal, the Tribunal held that at the time of issuing notice u/s. 274 the AO was not certain as to whether it was for furnishing of inaccurate particulars of income or concealment of particulars of income. While commonly for all the four years, in the assessment order under section 153C read with section 153A(1)(b) read with section 144 penalty was initiated for furnishing inaccurate particulars of income, in the penalty order, it was alleged that the assessee had concealed its particulars of income. Therefore for all the four years i.e. 2001-02 to 2004-05, the show cause notice issued under section 274 read with section 271 was defective as it did not speak about the grounds on which the penalty had been imposed. The orders imposing penalty for all the four assessment years were invalid and consequently penalty imposed was cancelled. (AYs. 2001-02 to 2004-05).

    Multivision Infotech P. Ltd v. ACIT (2017) 56 ITR 278 (Ahd.) (Trib.)

  61. S.271(1)(c) : Penalty – Concealment – Estimate of profits by the AO – Tribunal significantly reducing the quantum of addition – Appeal admitted by the High Court on substantial question of law – Hence, the issue is debatable and no penalty is leviable. [S. 260A]

    On appeal by the Department, the Tribunal held as far as addition with respect to the suppressed profit was concerned, it was an estimated addition which was significantly reduced by the Tribunal. This issue was a debatable issue as the addition made by the AO had been deleted by the Commissioner of Income-Tax (Appeals) and while the Tribunal had restored these additions partly and the appeal of the assessee had been admitted by the High Court suggesting a question of law was involved. It could not be said that the explanation submitted by the assessee in support of its addition was false, proving the fact that the assessee had concealed its income. Similarly the assessee’s explanation with regard to the issue of bogus purchases had been accepted by the Commissioner of Income-Tax (Appeals) in the quantum appeal but such conclusions of the Commissioner of Income-Tax (Appeals) did not meet the approval of the Tribunal. The High Court had admitted the question on this aspect also. Therefore it was also a debatable issue. Hence the penalty is not leviable in the instant case. (AY. 1992-93).

    DCIT v. Maradia Copper Extrusion P. Ltd. (2017) 56 ITR 172 (Ahd.) (Trib.)

  62. S.271(1)(c) : Penalty – Concealment – Additional ground was raised before the Tribunal – Failure to specify the charge the levy of penalty was held to be invalid. The argument that the assessee was made aware of the specific charge during the proceedings is of no avail. S. 292BB does not save the penalty proceedings from being declared void. [Ss. 254(1), 274, 292BB]

    Allowing the appeal the Tribunal held that additional ground on jurisdiction issue was admitted. Tribunal held that concealment of particulars of income” and “furnishing of inaccurate particulars of income” referred to in s. 271(1)(c) denote two different connotations. It is imperative for the AO to make the assessee aware in the notice issued u/s 274 r.w.s. 271(1)(c) as to which of the two limbs are being put-up against him. The failure to do so is fatal to the penalty proceedings. The argument that the assessee was made aware of the specific charge during the proceedings is of no avail. S. 292BB does not save the penalty proceedings from being declared void. (ITA Nos. 1596 &1597/Mum/2014, dt. 1-9-2017)(AYs. 2005-06, 2006-07)

    Orbit Enterprises v. ITO (Mum)(Trib), www.itatonline.org

  63. S.271(1)(c) : Penalty – Concealment – Disclosure in the course of survey to buy peace – Levy of penalty was held to be not justified – Notice issued mechanically without application of mind – Levy of penalty was held to be not valid – When there are conflicting judgments, the latter one has to be followed. [S. 133A]

    Allowing the appeal of the assessee the Tribunal held that merely on the basis of disclosure made in the course of survey levy of penalty was held to be not justified ratio in MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 (SC) explained. Penalty also deleted on the ground of non application of mind by the AO while issuing the notice u/s. 271(1)(c) of the Act .Ratio in CIT v. Kaushalya (Smt) 1995) 216 ITR 660 (Bom) (HC) explained Tribunal held that when there are conflicting judgments, the latter decision has to be followed. (Bhika Ram and Ors v. UOI (1999) 238 ITR 113 (Delhi) (HC), Datamatics Financial Services Ltd. v. JCIT (2005) 95 ITD 23 (Mum.) (Trib.) (30), ITO v. Sanatan Textrade Ltd (2010) 4 ITR 593( Mum.) (Trib.) (AY. 2007-08) 2008-09, 2009-10, 2010-11)

    Uttam Value Steels Limited v. ACIT (Mum)(Trib), www.itatonline.org

  64. S.271(1)(c) : Penalty – Concealment – Loss on capital asset – Debiting the loss to P& L account instead reducing from the block of asset was bona fide mistake, levy of penalty was held to be not justified

Allowing the appeal of the assessee the Tribunal held that; there was no a mala fide intention to conceal. Deferral of depreciation allowance does not result in concealment of income or furnishing of furnishing of any inaccurate particulars. No penalty can be levied for a sheer accounting error of debiting loss incurred on sale of a fixed asset to the P&L A/c instead of reducing the sale consideration from the WDV of the block. (ITA No. 100/Del./2015, dt. 21-9-2017)(AY. 2010-11)

Harish Narinder Salve v. ACIT (Delhi)(Trib.),
www.itatonline.org

 

Strength is the sign of vigor, the sign of life, the sign of hope, the sign of health, and the sign of everything that is good. As long as the body lives, there must be strength in the body, strength in the mind, strength in the hand.

— Swami Vivekananda

  1. S.4 : Income chargeable to tax – Capital or revenue – Sales tax subsidy for expansion and diversification of existing unit is held to be capital receipt

    Dismissing the appeal of the revenue the Court held that the character of the subsidy in the hands of the recipient whether revenue or capital will have to be determined having regard to the purpose for which the subsidy is given. The source of funds is quite immaterial. Where a subsidy though computed in terms of sales tax deferment or waiver, in essence was meant for capital outlay expended by the assessee for setting up the unit in the case of a new industrial unit and for expansion and diversification of an existing unit, it would be a capital receipt. (AY.2004–05)

    CIT v. Nirma Ltd. (2017) 397 ITR 49 (Guj.)(HC)

  2. S.5 : Scope of total income – Classification of asset from current to fixed and consequent valuation of such asset at market value does not give rise to income

    Assessee had a plot of land at Lucknow which was being disclosed in the past as current assets. Book value of the plot was quite less than the market value. Assessee recharacterised the asset as fixed asset and showed it at market value and created a revaluation account in the books. Dismissing the appeal of the revenue the Court held that conversion of asset from current to fixed and consequent valuation of the asset at market value does not give rise to any income in the hands of the assessee.

    CIT v. M.I. Builders (P.) Ltd. (2017) 248 Taxman 37 (All.)(HC)

  3. S.10A : Free trade zone – Derived from – The incidental activity of parking surplus funds with banks or advancing of staff loans by assessees is an integral part of their export business activity and a business decision taken in view of the commercial expediency is eligible for deduction, said income cannot be taxed as income from other sources [S.10B, 56]

    The incidental activity of parking surplus funds with banks or advancing of staff loans by assessees covered u/s. 10A or 10B is an integral part of their export business activity and a business decision taken in view of the commercial expediency. Such incidental income cannot be delinked from the profits and gains derived by the undertaking engaged from the export of specified goods and cannot be taxed separately u/s. 56 of the Act. (ITA No. 812/2007, dt. 30-10-2017) (AY. 2001-02)

    CIT v. Hewlett Packed Global Soft Ltd. (Karn.) (FB) (HC) www.itatonline.org

  4. S.10A : Free trade zone – Units were set up with fresh investments – Separate books of account are maintained – Business of each unit is independent, distinct, separate and not related with other, entitled to deduction

    Dismissing the appeal of the revenue the Court held that the AO in his remand report had specifically observed that both units were set up with fresh investments. The assessee purchased plant and machinery for these units and it was not the case that these units were formed by splitting or reconstructing existing business. Separate books of account were maintained. The employees of each of the units were fresh set of employees and were not transferred from the existing business. The nature of activity of both units was totally different. The customers of each unit were completely different and unrelated and both the units had new and independent sources of income. Thus, unit II and unit III were not formed by reconstruction of earlier business nor were they expansions thereof. Though permission was sought by way of an expansion, the facts on record categorically and succinctly established that the business of unit II and unit III was independent, distinct and separate and they were not related with each other or even with unit I. Therefore, the assessee was entitled to benefit under section 10A of the Act
    (AY. 2005-06)

    PCIT v. Hinduja Ventures Ltd. (2017) 397 ITR 139 (Bom.)( HC)

  5. S.12AA : Procedure for registration – Trust or institution – At the time of registration of trust only the genuineness of the objects has to be tested and not the activities [S. 11, 12]

    Dismissing the appeal of the revenue the Court held that at the time of registration of a charitable institution u/s. 12AA, the CIT is not required to look into the activities, where such activities have not or are in the process of its initiation. The registration cannot be refused on the ground that the trust has not yet commenced the charitable or religious activity. At this stage, only the genuineness of the objects has to be tested and not the activities, unless such activities have commenced. (ITA No. 33 of 2017, dt. 7-9-2017)

    CIT v. Shreedhar Sewa Trust (All.)(HC); www.itatonline.org

  6. S.14A : Disallowance of expenditure – Exempt income –Without recording the satisfaction no disallowance can be made [R. 8D]

    Dismissing the appeal of the revenue the Court held that; The AO is not entitled to make any disallowance under Rule 8D if he does not specifically record that he is not satisfied with the correctness of the assessee’s claim. The fact that the CIT(A) and ITAT were not satisfied with the assessee’s disallowance and enhanced it does not mean that Rule 8D becomes applicable and the disallowance should be computed as per the prescribed formula. (ITA No. 487 of 2015. dt. 19-9-2017)(AY. 2008-09)

    PCIT v. Reliance Capital Asset Management Ltd. (Bom)(HC), www.itatonline.org

  7. S.14A : Disallowance of expenditure – Exempt income –Recording of satisfaction is mandatory, disallowance of administrative expenses was held to be not justified – Sufficient interest free fund to demonstrate that borrowed amount was not invested in shares and securities, ITAT was not justified in setting aside the matter to the AO [R. 8D, 254(1)]

    Court held that; since there was a failure by the AO to comply with the mandatory requirement of Section 14A(2) of the Act read with Rule 8D (1)(a) of the Rules and record his satisfaction as required thereunder, the question of applying Rule 8D(2)(iii) of the Rules did not arise hence disallowance of administrative expenses was held to be not justified. As regards disallowance of interest the Court held that, ITAT erred in remanding the matter concerning deletion of disallowance of any interest under clause (ii) of Rule 8D(2) of the Act to the AO for fresh determination in light of the decision in CIT v. Taikisha Engineering India Limited (2015) 370 ITR 338 (Delhi) (HC). The effect is that the assessee’s appeal before the ITAT on the issue of Section 14A read with Rule 8D of the Rules must be treated as allowed and the revenue’s appeal on the said issue must be treated as dismissed. ( ITA No. 548/2015, dt. 23-8-2017)(AY. 2008-09)

    H. T. Media Limited v. PCIT (Delhi)(HC), www.itatonline.org

  8. S.28(i) : Business loss – Foreign cars – not forming part of a block of assets – not granted depreciation – Held, on sale, provision of S. 50 is not applicable – Held, loss on sale is a business loss. [S. 2(11), 50]

    The High Court held that since the foreign cars did not form part of a block of assets and, admittedly, were not granted depreciation as depreciation was not allowable in respect of foreign cars for the relevant period, provisions of section 50 was not applicable and the loss arising from sale of car was to be allowed as business loss as the foreign cars were utilised
    in the business of the assessee. (AY 1999-2000, 2000-01)

    Madan, K. D. v. ITO (2017) 152 DTR 21/248 Taxman 157 / 297 CTR 437 (Mad.)(HC)

  9. S.36(1)(iii) : Interest on borrowed capital – Where money was advanced to the subsidiary out of reserves and not out of interest paid borrowings, interest paid on borrowings was deductible

    Dismissing the appeal of the revenue the Court held that deduction in respect of interest was allowable as it was ascertained that no interest bearing funds were used for advancing the sums to the subsidiary company and that the assessee had sufficient reserves.

    CIT v. Golden Tobacco Ltd. (2017) 248 Taxman 101 (Bom.)(HC)

  10. S.36(1)(vii) : Bad debt – Held, embargo placed in section 36(2) as to whether debts had been offered to tax in earlier years would not apply in case of non-banking financial company [S.36(2)]

    Assessee, a non-banking financial company claimed deduction of bad debts written off in books – Revenue called for proof showing that amounts claimed as bad debts had been offered to tax in earlier years in accordance with provisions of section 36(2). High Court held that embargo placed in section 36(2) would not apply in case of non-banking financial company all that remained was to examine if debt had been written off in accordance with mandate of section 36(1)(vii). (AY 2004-05)

    Operating Lease & Hire Purchase Co. Ltd. v. Dy. CIT (2017) 247 Taxman 423 (Mad.)(HC)

  11. S.37(1) : Business expenditure – Capital or revenue – legal expenditure to protect lease is held to be revenue expenditure

    Dismissing the appeal of revenue the Court held that legal expenditure incurred by the assessee to defend the writ petitions filed to quash the Government notification and lease deed was not a capital expenditure and deduction was allowable (AYs. 2008-09, 2009-10)

    Dy. CIT v. Kumara Gowda (2017) 396 ITR 386 (Karn) (HC)

  12. S.37(1) : Business expenditure –Expenses on voluntary retirement scheme is held to be allowable as business is continued

    Dismissing the appeal of the revenue the Court held that expenses on voluntary retirement scheme is held to be allowable as business is continued. (AY. 2000-01)

    CIT v. Aventis Pharma Ltd. (2017) 396 ITR 688 (Bom.) (HC)

  13. S.68 : Cash credits – NRI gifts – Burden is on assessee – Though books of account is not maintained addition is held to be justified

    Dismissing the appeal of the assesse, the Court held that a argument that the assessee did not maintain “books of account” and so S. 68 will not apply is not acceptable. It is incumbent on every assessee doing business to maintain proper books of account. It may be in any form. If the assessee has not done so, he cannot be allowed to take advantage of his own wrong. Burden lies on the assessee to show from where he has received the amount and what is its nature. When even after giving opportunities, the appellant had failed to produce relevant documents and explain the nature and source of the amount received by him hence the order of the Assessment Officer and the appellate authorities in respect of those amounts is justified. (ITA No. 636 of 2015, dt. 24-8-2017)(AY. 1996-97)

    Arunkumar J. Muchhala v. CIT (Bom.)(HC); www.itatonline.org

  14. S.68 : Cash credits – Mere identity of lender is not sufficient to establish the genuineness of the transaction, addition as unexplained cash credits is held to be justified

    Allowing the appeal of the revenue the Court held that the use of deceptive loan entries to bring unaccounted money into banking channels plagues the legitimate economy of our country. The mere fact that the identity of the lenders is established & payments are made by cheques does not mean they are genuine. If the lenders do not have the financial strength to lend such huge sums and if there is no explanation as to their relationship with the assessee, no collateral security and no agreement, the transactions have to be treated as bogus unexplained credits. (ITA No. 55/2017, dt. 25-8-2017)(AY. 2011-12)

    PCIT v. Bikram Singh (Delhi)(HC); www.itatonline.org

  15. S.68 : Cash credits – Share premium – Capital or revenue – Amendment is effective from 1-4-2013 hence amount received as share premium cannot be assessable for the AY. 2012-13 [S. 2(24)]

    Dismissing the appeal of the revenue the Court held that the amounts received on issue of share capital including premium were on capital account and could not be considered to be income. The definition of income as provided under section 2(24) of the Income-tax Act, 1961 at the relevant time did not define income as any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the assessees in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of a proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and could not be invoked. The share premium could not be taxed.

    PCIT v. Apeak Infotech (2017) 397 ITR 148 (Bom.)(HC)

  16. S.68 : Cash credits – Share application money – Merely because, failure of the parties to appear before the AO, additions cannot be made, when the assessee had produced other documentary evidence to prove the genuineness of the transaction. [S.260A]

    Dismissing the appeal of the revenue the Court held that failure by the parties who had paid the share application money and to whom the share certificates were issued to appear before the Assessing Officer and the fact that the summons could not be served at the addresses given, as they were not traced and that in respect of some of the parties who had appeared before the Assessing Officer it was found that just before the issuance of cheques, the amounts were deposited in their account, did not negate the case of the assessee. The Assessing Officer could not have added the share application money under section 68 only on that ground. The Appellate Tribunal had considered the fact that the assessee had produced on record the documents, such as the permanent account number of all the creditors along with the confirmation, their bank statements showing payment of share application money, to establish the genuineness of the parties. It had also recorded that the assessee had produced the entire records regarding the allotment of shares to those parties, their share application forms, allotment letters and share certificates and the profit and loss accounts of those parties disclosed that they had sufficient funds in their accounts for investing in the shares of the assessee. No question of law arose.

    CIT v. Orchid Industries P. Ltd. (2017) 397 ITR 136 (Bom.)(HC)

  17. S.68 : Cash credits – “Peak Credits” – Unless the assessee is able to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the assessee, the identity of the creditors and that the money paid from the accounts of the assessee has returned to the bank accounts of the creditors. The assessee has to discharge the primary onus of disclosure in this regard. Peak credits theory cannot be applied

    Allowing the appeal of the revenue, the Court held that an accommodation entry provider wanting to avail the benefit of the ‘peak credit’ has to make a clean breast of all the facts within his knowledge concerning the credit entries in the accounts. He has to explain with sufficient detail the source of all the deposits in his accounts as well as the corresponding destination of all payments from the accounts. The assessee should be able to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the assessee, the identity of the creditors and that the money paid from the accounts of the assessee has returned to the bank accounts of the creditors. The assessee has to discharge the primary onus of disclosure in this regard. In cases where the Assessee discharges the initial onus of establishing the identity and creditworthiness of the credit provider and the genuineness of the transaction, be it one of loan or subscribing to share capital, the onus shifts to the revenue to show the contrary. Where, for instance, an Assessee furnishes the complete details of the entity like its certificate of incorporation, PAN number, income tax returns, bank accounts, names and addresses of the directors and so on, the Courts have insisted on the AO to make a proper enquiry to examine the identity and creditworthiness of such companies and the genuineness of the transactions in question. Where the AO fails to make such an enquiry, a Court might delete the additions made by the AO. The present case, however, is of a different nature. Here, we are dealing with an Assessee who does not deny that he is an accommodation entry provider. He, in fact, makes no bones of the fact that he either owned or floated ‘paper companies’ only for that purpose. He also does not dispute the fact that he has not been able to explain the source of all the deposits in his accounts or the ultimate destination of all the outgo from his accounts. The assessee’s plea that he should be taxed only on a composite ‘peak credit’ is based entirely on principles of accountancy. He questions the logic behind allowing peak credits for some of the credit entries by way of cheques and denying it for the other entries in cash. He also questions the practice of working out separate peak credits for cheque and cash transactions. Accordingly the order of ITAT is set aside and the order of the AO is restored to file. (ITA No. 115/2005, dt. 4-8-2017)( AY. 1995-96)

    CIT v. D. K. Garg (Delhi)(HC) www.itatonline.org

  18. S.80IA : Industrial undertakings – Infrastructure development –Initial assessment year – Once the requirements of the section are satisfied in the first year, the deduction cannot be withdrawn in the subsequent years

    Dismissing the appeal of the revenue the Court held that eligibility to claim deduction u/s. 80-IA had to be seen only in the first year. Therefore, once the assessee satisfied the requirements of being a ‘small scale industrial undertaking’ in the first year, the deduction u/s. 80-IA could not be denied in the subsequent years merely because there were fresh investments in those years.

    CIT v. International Tractors Ltd. (2017) 155 DTR 243 (Delhi)(HC)

  19. S.80IA : Industrial undertakings – Infrastructure development – AO should give reasons to reject the books of account, hence estimate of profit by the AO was held to be not justified [Ss.80IA(8), 145]

    Dismissing the appeal of the revenue the court held that the AO should give reasons to reject the books of account, hence estimate of profit by the AO was held to be not justified. (AYs. 2006-07, 2007-08)

    PCIT v. Harpreet Kaur (2017) 397 ITR 125 (Delhi) (HC)

  20. S.92C : Transfer pricing – Recharacterising the function as a merchant banker was held to be not justified – Steps to be undertaken in identification of comparable transactions/entities while fixing the ALP and the margin

    Allowing the appeal of the assessee the Court held that recharacterising the function as a merchant banker was held to be not justified. Court also held that though the TNMM method allows broad flexibility tolerance in the selection of comparables, broad functionality is not sufficient to find the comparable entity. There must be similarity with the controlled transaction. (ITA No. 350/2016, dt. 18-9-2017)(AY. 2009-10)

    Avenues Asia Advisors Pvt. Ltd. v. DCIT (Delhi)(HC) www.itatonline.org

  21. S.92C : Transfer pricing –Comparable – Functional profile may not be relevant for comparison – Exclusion of comparable was held to be justified

    Dismissing the appeal of the revenue the Court held that a giant risk taking company like Infosys Technologies with huge significant intangibles and having huge assets leading to the exorbitant turnover is not comparable with a captive unit which is subject to minimum/ limited risk. The fact that the functional profile of Infosys is similar to that of the assessee is irrelevant. (ITA. No. 767/ 2017, dt. 25-9-2017)(AY. 2007-08)

    CIT v. Ut. Starcom Inc. (India Branch)(Delhi)(HC) www.itatonline.org

  22. S.92 : Transfer pricing – Arm’s length price – Broker’s quote based on price publications including stock exchange and commodity market quotation can be used in the CUP method

    AO rejected the Comparable Uncontrolled Price (CUP) method adopted by the assessee as the price charged or paid was on the basis of a broker quote which was given taking into account the prices prevailing in the market and the same did not reflect the price of an actual transaction. ITAT reversed the order of the lower authority and held that Rule 10D(3)(c) of the Income-tax Rules, 1962 envisages that the TPO should take into consideration price publications including stock exchange and commodity market quotations. Therefore, such published data available from stock or commodity exchanges could form the basis of the prices in both uncontrolled and controlled transactions. HC held that the reasoning of the ITAT cannot be said to be perverse and therefore no substantial question of law arose.

    CIT v. Cargill Foods India Ltd. (2017) 155 DTR 129 / 296 CTR 380 (Delhi)(HC)

  23. S.115JB : Book profit – Insurance companies – Insurance companies are not taxed on commercial profits but on profits as computed under the Insurance Act. Accordingly, income earned on sale/redemption of investments is not chargeable to tax [S.44 ]

    Allowing the appeal of the assessee, the Court held that as Insurance companies are required to prepare accounts as per the Insurance Act and not as per Schedule VI to the Companies Act, S. 115JB does not apply. Insurance companies are not taxed on commercial profits but on profits as computed under the Insurance Act. Accordingly, income earned on sale/redemption of investments is not chargeable to tax. (ITA 372/448/2015, dt. 30-8-2017) (AY. 2005-06)

    Oriental Insurance Co. Ltd. v. DCIT (Delhi)(HC); www.itatonline.org

  24. S.127 : Power to transfer cases – Once order for transfer of case is set aside by the High Court, subsequent notice issued u/s. 158BC is unjustified [S. 158BC]

    Assessee was being assessed at Madhya Pradesh. Search was carried out at the assessee’s place. Thereafter, the assessee’s case was transferred u/s. 127 to Nagpur. High Court quashed the order u/s. 127 and directed the Commissioner to pass a fresh reasoned order. Meanwhile, notice was issued u/s. 158BC by the AO at Nagpur calling upon the assessee to file a return of income. Thereafter, the Commissioner passed a fresh order upholding the transfer of case to Nagpur. High Court held that the notice u/s. 158BC was issued on 22-9-1999 i.e. after the order of transfer dated 6-7-1999 was quashed and set aside. As the notice dated 22-9-1999 issued u/s. 158BC of the Act was issued by the DCIT, who was not the Assessing Officer of the assessee. Consequently, the notice being without jurisdiction, all the proceedings subsequent thereto were without authority of law. High Court further held that transfer of proceedings u/s. 127 cannot be retrospective so as to confer jurisdiction on a person who does not have it.

    CIT v. Lalitkumar Bardia (2017) 155 DTR 1 (Bom.)(HC)

  25. S.132 : Search and seizure – Severe strictures passed to condemn the illegal practice of the Dept. of collecting undated cheques from taxpayers after search/ survey without even quantifying the extent of duty evasion. Attempt of the unscrupulous officers is to ‘negotiate’ the evaded duty by threats and coercion. It is not rule of law but anarchy unleashed by holders of public office. It is an abuse of law which has to be stopped – Central Vigilance Commissioner (CVC) is directed to issue the guide lines. [Central Excise Act, 1944]

    Allowing the petition the Court held that ; practice of the Dept. of collecting undated cheques from taxpayers after search/ survey without even quantifying the extent of duty evasion. Attempt of the unscrupulous officers is to ‘negotiate’ the evaded duty by threats and coercion. It is not rule of law but anarchy unleashed by holders of public office. It is an abuse of law which has to be stopped. Central Vigilance Commissioner (CVC) is directed to issue the guidelines. (W.P.(C) 3070/2017 & CM No. 13393/2017, dt. 15-5-2017)

    Digipro Import & Export Pvt.Ltd. v. UOI ( Delhi)(HC), www.itatonline.org

  26. S.132 : Search and seizure – Additions cannot be made post search on the basis of the books of account which were already submitted at the time of regular assessment [S. 143(3)]

    Assessments were completed u/s. 143(3). Thereafter search took place at the assessee’s premises. AO made certain additions on the ground that the accounts maintained by the assessee and found at the time of search were different from the ones which were submitted by the assessee at the time of regular assessment in as much as the same did not tally with the corresponding accounts of the creditors and debtors. High Court held that if assessment is allowed to be reopened on the basis of search in which no incriminating material had been found, merely on the basis of further investigating the books of account which had been already submitted by the assessee and accepted by the AO at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which was not permissible under the law.

    CIT v. Lancy Constructions (2016) 144 DTR 70/ 295 CTR 454/ 237 Taxman 728 (Karn.) (HC)

  27. S.144 : Best judgment assessment – Rejection of books of account – Estimate of wastage during survey proceedings – Report of ceramic research laboratory stating that quantum of wastage variable –input /output ratio – deletion of additions was held to be justified [Ss. 69C, 133A, 145(3)]

    Dismissing the appeal of the revenue, the Court held that, rejection of books of account merely on the basis of estimate of wastage during the survey was held to be not justified when the assessee has produced the repot of Ceramic Research Laboratory stating that quantum of wastage variable. Addition based on input /output ratio was held to be justified.

    CIT v. Ceramic Industries (2017) 396 ITR 50 (Raj.) (HC)

  28. S.144C : Reference to dispute resolution panel – Limitation –Order rejecting objection on ground that it was barred by limitation is to be considered as confirmation of draft order passed by AO as contemplated u/s. 144C(8) [S.143(3)]

    The High Court held DRP might confirm, reduce or enhance the variation proposed in draft order. The present order was an order rejecting objections. High Court held that the said rejection was nothing but confirmation of draft order passed by AO, as contemplated u/s. 144C(8). Accordingly, it was held that the final order passed by the AO was certainly order passed u/s. 144C(13). (AY. 2012-13 )

    Inno Estates (P) Ltd. v. DRP (2017) 154 DTR 112 (Mad.)(HC)

  29. S.145 : Method of accounting – Income computation and disclosure standards (ICDS) has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. If S.145(2) is not so read down it would be ultra vires the Act and Article 141 read with Articles 144 and 265 of the Constitution. The ICDS which overrule the provisions of the Act, the Rules thereunder and the judicial precedents applicable thereto, are struck down as ultra vires the Act. To that extent, Notification Nos. 87 and 88 dated 29-9-2016 and Circular No. 10 of 2017 issued by the CBDT are also held to be ultra vires the Act and struck down as such. [Ss.44AB, 145(2), Articles, 14, 19, 141, 145, 265]

    The High Court had to consider the following questions:

    (i) Whether the amendments to Section 145 are an instance of delegation by the Parliament of essential legislative powers to the Central Government?

    (ii) Are the ICDS an instance of excessive delegation of legislative powers? Whether the impugned ICDS are contrary to the settled law as explained in various judicial precedents and are, therefore, liable to be struck down?

    (iii) Whether the impugned amendments to Section 145 of the Act and the consequential ICDS and Circular violate Articles 14, 19(1)(g), 141, 144 and 265 of the Constitution?

    HELD by the High Court

    (i) Section 145(2), as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145(2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Articles 144 and 265 of the Constitution.

    (ii) The ICDS is not meant to overrule the provisions of the Act, the Rules thereunder and the judicial precedents applicable thereto as they stand.

    (iii) The decision in J. K. Industries Ltd. v. Union of India (supra) is distinguishable in its application to the case on hand.

    (iv) ICDS I which does away with the concept of ‘prudence’ is contrary to the Act and binding judicial precedents and is therefore unsustainable in law.

    (v) ICDS II pertaining to valuation of inventories and eliminates the distinction between a continuing partnership business after dissolution from one which is discontinued upon dissolution is contrary to the decision of the Supreme Court in Shakti Trading Co. (supra). It fails to acknowledge that the valuation of inventory at market value upon settlement of accounts of the outgoing partner is distinct from valuation of the inventory in the books of the business which is continuing. ICDS II is held to be
    ultra vires the Act and struck down as such.

    (vi) The treatment to retention money under Paragraph 10(a) in ICDS-III will have to be determined on a case-to-case basis by applying settled principles of accrual of income. By deploying ICDS–III in a manner that seeks to bring to tax the retention money, the receipt of which is uncertain/conditional, at the earliest possible stage, irrespective of the facts, the respondents would be acting contrary to the settled position in law as explained in the decisions referred to in para 68 and to that extent para 10 (a) of ICDS III would be rendered ultra vires.

    (vii) Para 12 of ICDS III read with para 5 of ICDS IX, dealing with borrowing costs, makes it clear that no incidental income can be reduced from borrowing cost. This is contrary to the decision of the Supreme Court in CIT v. Bokaro Steel Limited (supra) and is therefore struck down.

    (viii) Para 5 of ICDS-IV requires an Assessee to recognise income from export incentive in the year of making of the claim if there is ‘reasonable certainty’ of its ultimate collection. This is contrary to the decision of the Supreme Court in Excel Industries (supra), and is, therefore, ultra vires the Act and struck down as such.

    (ix) As far as para 6 of ICDS IV is concerned, the proportionate completion method as well as the contract completion method have been recognised as valid method of accounting under the mercantile system of accounting by the Supreme Court in CIT v. Bilhari Investment Pvt. Ltd. (supra) and this Court in CIT v. Manish Buildwell Pvt. Ltd and Paras Buildtech India Pvt. Ltd. v. CIT (supra). Therefore, to the extent that para 6 of ICDS IV permits only one of the methods, i.e., proportionate completion method, it is contrary to the above decisions, held to be ultra vires the Act and struck down as such.

    (x) Para 8(1) of ICDS IV is not been shown to be contrary to any judicial precedent. There is also no challenge to Section 36(1) (vii) of the Act. Accordingly, para 8(1) of ICDS IV is held to be not ultra vires the Act. Its validity is upheld.

    (xi) ICDS VI which states that marked to market loss/gain in case of foreign currency derivatives held for trading or speculation purposes are not to be allowed, is not in consonance with the ratio laid down by the Supreme Court in Sutlej Cotton Mills Limited v. CIT (supra), in so far as it relates to marked-to-market loss arising out of forward exchange contracts held for trading or speculation purposes. It is, therefore, held to be ultra vires the Act and struck down as such.

    (xii) ICDS VII which provides that recognition of Government grants cannot be postponed beyond the date of accrual of receipt, is in conflict with the accrual system of accounting. To that extent it is held to be ultra vires the Act and struck down as such.

    (xiii) ICDS VIII pertains to valuation of securities. For those entities not governed by the RBI to whom Part A of ICDS VIII is applicable, the accounting prescribed by the AS has to be followed which is different from the ICDS. In effect, such entities will be required to maintain separate records for income tax purposes for every year since the closing value of the securities would be valued separately for income tax purposes and for accounting purposes. To this extent Part A of ICDS VIII is held to be ultra vires the Act and is struck down as such.

    (xiv) Conclusion: To the extent the specific ICDS as noted hereinbefore have been struck down as ultra vires the Act, the impugned Notification Nos. 87 and 88 dated 29th September 2016 and Circular No. 10 of 2017 issued by the CBDT are also held to be ultra vires the Act and struck down as such. (W.P.(C) 5595/2017 & CM APL 23467/2017, dt. 8-11-2017)

    The Chamber of Tax Consultants v. UOI ( Delhi)(HC); www.itatonline.org

  30. S.145 : Method of accounting – Cenvat credit – Exclusive method – Amount of unutilised cenvat credit cannot be directly added to closing stock [S. 4]

    Dismissing the appeal of the revenue the Court held that the assessee got credit for the excise duty paid on the raw materials purchased by it and utilised in the manufacture of excisable goods. The assessee was adopting the exclusive method, i.e., valuing the raw materials on the purchase price minus the Modvat credit and it was permissible. Merely because the Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw materials, that would not amount to income which was liable to be taxed under the Act. The amount of the unutilised Cenvat credit could not be directly added to the closing stock. (AY. 2008-09)

    CIT v. Diamond Dye Chem Ltd. (2017) 396 ITR 536 (Bom.) (HC)

  31. S.147 : Reassessment – After the expiry of four years – reassessment based on the assessment order of subsidiary company – In case of subsidiary company, DRP set aside the assessment order – Held, very basis of reopening of assessment has eroded – Held, reassessment bad in law – DTAA – India-USA. [S. 9, 40(a)(i), Article 12]

    Assessee, a US based company, licensed its software products to its Indian subsidiary and received royalty and interest on delayed payment of royalty. A notice u/s. 147 was issued to assessee on ground that assessee had failed to disclose/include to offer for tax an amount either separately or as excess royalty income which had been paid and booked as an expense by subsidiary to assessee on account of ‘purchase of master copy’ in its return of income. High Court held that DRP had deleted said addition u/s. 40(a)(i) in hands of the subsidiary. Accordingly, it was held that the very basis of reopening of assessment having been eroded, reassessment notice and consequent order was to be set aside. (AY. 2007-08)

    Oracle Systems Corporation v. Dy. DIT (2017) 248 Taxman 461 (Delhi)(HC)

  32. S.147 : Reassessment – Notice would be without jurisdiction for absence of reason to believe that income had escaped assessment even in case where assessment has been completed earlier by intimation under section 143(1) [S.143(1), 148]

    Allowing the petition the Court held that even in cases where no assessment order is passed and assessment is completed by Intimation under Section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. Accordingly, High Court held that where notice issued under section 148 of the Act gave no reasons to indicate basis of coming to conclusion that share premium was excessive and could be considered as income of the assessee, reopening of the assessment in this regard was improper. Referred, Rajesh Jhaveri Stock Brokers (291 ITR 500( SC) and Zuari Estate Development and Investment Co. Ltd. (373 ITR 661 (SC)

    Khubchandani Healthparks (P) Ltd. v. ITO (2017) 154 DTR 93 (Bom.)(HC)

  33. S.147 : Reassessment – Share application money – Notice was quashed and guidelines are laid down and the revenue is directed to adhere to them [Ss. 68, 148]

    Allowing the petition the Court held that the assessee has disclosed all relevant facts in the original assessment proceedings. Merely relying on statement that the subscribers are paper companies, without making any independent enquires, the reassessment notice was held to be bad in law. Court also observed that before parting with the case, the Court would like to observe that on a routine basis, a large number of writ petitions are filed challenging the reopening of assessments by the revenue under Sections 147 and 148 of the Act and despite numerous judgments on this issue, the same errors are repeated by the concerned revenue authorities. In this background, the Court would like the Revenue to adhere to the following guidelines in matters of reopening of assessments:

    (i) while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should itself be provided to the assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the assessee is to be avoided;

    (ii) the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment – especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof;

    (iii) where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons;

    (iv) the exercise of considering the assessee’s objections to the reopening of assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed. (WP. No. 1357/2016, dt. 25-9-2017)( AY. 2008-09)

    Sabh Infrastructure Ltd. v. ACIT (Delhi)(HC) www.itatonline.org

  34. S.153A : Assessment – Search –Additions can be made only if incriminating material is found – Additions were rightly deleted by the Tribunal [Ss. 14A, 68,132, 153C]

    Dismissing the appeal of the revenue, the Court held that ; argument of the Dept. that the law laid down in Continental Warehousing/All Cargo Global Logistics Ltd (2015 )374 ITR 645 (Bom.) that assessment u/s. 153A can be made only on the basis of incriminating material found in the search and no other issue can be taken is per incuriam in view of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) is not correct. Bhola Shankar Cold Storage Pvt Ltd v. JCIT (2004) 270 ITR 487 (Cal.) distinguished Referred CIT v. SKS Ispact & Power Ltd .ITA No. 1874 of 2014 dt. 12-7-2017) (ITA No. 1709 of 2014, dt. 11-9-2017) (AY. 2002-03)

    CIT v. Deepak Kumar Agarwal & Ors. (Bom.) (HC); www.itatonline.org

  35. S. 153A : Assessment – Search – Addition can be made only on the basis of material found in the course of search [S. 132]

    Dismissing the appeal of the revenue the Court held that addition can be made only on the basis of material found in the course of search. (AY. 2000-01 to 2004-05]

    PCIT v. Dipak Jashvantlal Panchal (2017) 397 ITR 153 (Guj.)( HC)

  36. S.153C : Assessment – Income of any other person – Search and seizure – No proceedings can be initiated against a person unless the seized material belongs to that person – Satisfaction recorded must also refer the documents seized. [S. 132]

    Dismissing the appeal of the revenue the Court held that proceedings can be initiated against a person only if the seized materials “belongs” to that person. It is not sufficient for the revenue to urge that the seized document “pertains” to the person. Sinhgad Technical Education Society [2017] 84 taxmann.com 290 (SC) followed. Court also observed that as far as ITA No. 499/2011 is concerned, the Court finds that there is an additional ground to reject the appeal of the revenue. The satisfaction note recorded by the AO in that case does not even refer to the seized documents.( ITA No. 499 of 2011, dt. 6-9-2017)(AY. 2002-03)

    CIT v. Renu Constructions Pvt. Ltd. (Delhi)(HC), www.itatonline.org

    CIT v. Ankit Gupta (Delhi)(HC), www.itatonline.org

  37. S.153C : Assessment – Income of any other person – Search – Survey – Merely on the basis of statement in the course of survey addition was held to be not justified, however if the maker of the statement himself reaffirm the statement addition was held to be justified [Ss. 132, 133A]

    On appeal to the High Court the assessee contended that the entire assessments were based on statements of a salesman of the assessee recorded under section 133A and that in absence of any corroborative evidence, the assessments were illegal. Dismissing the appeal the Court held that; the statement under section 133A of the salesman of the assessee was recorded during the survey conducted and it is also true that an assessment made entirely relying on such a statement cannot be sustained. However, there is force in the submission of the revenue that the assessments made is not based only on the statement under section 133A. On the other hand, the assessment order itself reveals that the revenue has placed reliance on the proceedings initiated against the appellant for imposition of penalty under section 67 of the Kerala VAT Act (‘KVAT’) based on an inspection held on 17-8-2006. It is seen that the revenue relied on letter dated 18-9-2007 issued by salesman of the assessee to the Assistant Director of Income Tax (Investigation) clarifying his statement under section 133A. This shows that the maker of the statement himself has re-affirmed the statement and nothing has been produced by the assessee to show that the contents of the statement are incorrect. In such a situation, the contention now raised by the assessee is unacceptable and the assessments cannot be held to be illegal. Therefore, the assessment were confirmed.

    Kottakkal Wood Complex v. DCIT (2017) 154 DTR 259 (Ker.)(HC)

  38. S.158BFA : Block assessment – Interest – Delay in filing the return was due to delay in furnishing the supply of seized documents – Interest cannot be charged for period of delay attributable to department – Duty of the department to supply the copies of seized documents and allow the inspection as expeditiously as possible. S. 132, 158BC]

    Allowing the appeal the Court held that ; a bare reading of section 158BFA(1) did not provide for any discretion to waive or reduce the interest imposable on account of late filing of the return. Section 158BFA(1) provides for grant of copies of the documents seized or inspection of the record as expeditiously as possible, so as to enable the assessee to file his return. That not having been done as was expected under the statute, the assessee could not be made to pay for the negligence of the authorities. The delay between February 26, 2001 and January 3, 2002 attributable to the Department had to be excluded for the purposes of computing the period on which interest could be levied under section 158BFA(1) (BP. 1-4-1990 to 4-8-2000 )

    Mahavir Manakchand Bhansali v. CIT (2017) 396 ITR 226 (Bom.)(HC)

  39. S.194LA : Deduction at source – Compensation on acquisition of certain immovable property – “Agriculture” and “Agricultural purposes” – words to be construed as in common parlance [Ss.2(14)(iiia), 195, 197]

    Allowing the appeal the Court held that ; the Appellate Tribunal was wrong in holding that the question whether a particular land was agricultural land or not was to be determined with reference to the definition in section 2(14) and not with reference to the tenure of the land as shown in the revenue records. The Income-tax Officer while determining whether the land was agricultural land or not, ought to have considered the words “agriculture” and “agricultural purposes” in the manner in which they were normally understood. Matter was set aside to decide after considering the evidence on record. (AY. 2005-06)

    Land Acquisition Collector, Improvement Trust v. Addl. CIT (2017) 396 ITR 410 (P&H) (HC)

  40. S.194LA : Deduction at source – Compensation on acquisition of certain immovable property – No tax should be levied on award except in case of purchase of land by person other than specified person through private negotiations [Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, 46, 96]

    Allowing the petition the Court held that ; Section 194LA of the 2013 Act mandated that no Income-tax should be levied on awards made under that Act except under section 194LA of the 2013 Act. Section 194LA dealt with the purchase of land by a person other than a specified person through private negotiations. The benefit of section 194LA of the 2013 Act was not available when the land was purchased through private negotiations by a person other than a specified person under section 46(1) of the 2013 Act. Therefore, in cases other than those covered by section 194LA of the 2013 Act, the levy of Income-tax was barred by section 194LA of the 2013 Act and as a consequence, the deduction or collection under section 194LA of the Act was impermissible. The Department was directed not to deduct tax at source, whenever any compensation was paid for the acquisition of a land under the 2013 Land Acquisition Act, except those covered by section 194LA of the 2013 Act.

    P.B. Mangathayar v. UOI (2017) 396 ITR 21 (T&AP) (HC)

    C. Nanda Kumar v. UOI (2017) 396 ITR 21 (T&AP) (HC)

  41. S.197 : Deduction at source – Certificate for lower rate – Assessee not having made an application for a certificate under section 197(1) cannot be precluded from contending that it is not bound to deduct tax at source and to pay over same in assessment proceedings – Agricultural land is not defined under Income-tax Act hence has to be considered as they are normally understood [Ss. 2(14) (iii)(a), 194L, 194LA]

    Allowing the appeal the Court held that assessee not having made an application for a certificate under section 197(1) cannot be precluded from contending that it is not bound to deduct tax at source and to pay over same in assessment proceedings . Court also held that the, Tribunal proceeded on the incorrect basis that the words ‘agricultural land’ are to be determined with reference to the definition in section 2(14). The Income-tax Act, 1961 does not define the words ‘agricultural land’. Section 2(1A) defines agricultural income. The section uses the word ‘agricultural’. For instance, sub-section 2(1A)(a) defines agricultural income to mean any rent or revenue derived from the land used for agricultural purposes. Sub-section (1A)(b) defines agricultural income to mean any income from such land by agriculture. However, the words ‘agricultural’ and ‘agriculture’ and the words ‘agricultural purposes’ are not defined. The Income-tax Officer indeed had to determine whether the land is agricultural land or not but in doing so he ought to have considered these words in the manner in which they are normally understood.

    Land Acquisition Collector, Improvement Trust, Jalandhar v. Addl. CIT (2017) 152 DTR 40 (P&H)(HC)

  42. S.199 : Deduction at source –Credit for tax deducted – Hindu undivided family entitled to benefit of tax deducted at source – Erroneous mention of permanent account number of Karta of family – Revenue has discretion to grant benefit to family [Ss. 201, 264]

    Allowing the petition against the order u/s. 264 of the Act there was no dearth of power with the Department to grant credit of tax deducted at source in a genuine case. In the present case, many years had passed since the event. The facts were not seriously in dispute. The assessee had already offered the entire income to tax. The Department had also accepted such declaration and taxed the assessee. In view of such special facts and circumstances, the Department had to give credit of the sum of
    ₹ 5,42,800/- to the assessee deducted by way of tax at source upon filing an affidavit before the Department that the sum invested by the Reserve Bank of India did not belong to him, the income was also not his and that he had not claimed any credit of the tax deducted at source on such income for the said assessment year (AY. 2012-13)

    Naresh Bhavani Shah (HUF) v. CIT (2017) 396 ITR 589 (Guj.)( HC)

  43. S.206AA : Requirement to furnish Permanent Account Number – Limiting correction to four digits of permanent account number of deductee is held to be not justified [S. 200]

    Allowing the petition the Court held that ; the revenue should verify the assessee’s claim of actual deduction of tax at the prescribed rate in the case of Star (India) Pvt. Ltd. verify that the permanent account number sought to be corrected by the assessee belonged to that agency and that the tax was actually deposited in the case of such deductee. If these questions were answered in favour of the assessee, the Department should not insist on raising a higher demand from the assessee for failing to deduct tax at source in terms of sub-section (1)of section 206AA.

    Purnima Advertising Agency P. Ltd. v. Dy. CIT (2017) 396 ITR 526 / 297 CTR 77 / 249 Taxman 426 (Guj.) (HC)

  44. S.220 : Collection and recovery – Stay – When first appeal is pending the AO cannot ask to pay more than 15% of disputed demand

    AO rejected application on ground that at time of submitting stay application, assessee had not deposited 15% of demand as pre-deposit and directed to pay 100% tax in dispute. On writ, allowing the petition the High Court held that the action of the AO was absolutely based on misinterpretation and/or misreading of modified Instructions. High Court observed that Clause-4 provided that the AO may/shall grant stay of demand till disposal of first appeal on payment of 15% of disputed demand. Further, it was held that the impugned decision of rejecting stay application and consequently directing assessee to deposit 100% of disputed demand on ground that assessee had not deposited 15% of disputed demand as a pre-deposit before his application for stay could not be sustained and same deserved to be quashed and setaside.

    Jagdish Gandabhai Shah v. P. CIT (2017) 247 Taxman 414 (Guj.)(HC)

  45. S.220 : Collection and recovery – Assessee deemed in default – waiver of interest – Held, since in comparison to profitability of the assessee over years, amount paid by it towards interest u/s. 220(2) was very low, conclusion arrived at by CIT that no ‘genuine hardship’ had been caused to petitioner could not be said to be erroneous – Held, accordingly, CIT rightly dismissed the application for waiver of interest

    Assessee was a branch office of a US company and was engaged in contract research activities and cultivation of parent seeds. From year 1993-94 it had been claiming exemption by treating its entire income as agricultural income. AO treated entire income of assessee as ‘business income’ and attributed deemed income from research activity holding assessee to be a Permanent Establishment of its US Company. Assessment was finalised and taxes along with interest were paid by assessee u/s. 220. Thereafter, assessee filed an application before CIT u/s. 220(2A) for waiver of interest levied u/s. 220(2). CIT dismissed application on ground that no genuine hardship had been caused to assessee. High Court held that since in comparison to profitability of assessee over years, amount paid by it towards interest u/s. 220(2) was very low, conclusion arrived at by CIT that no ‘genuine hardship’ had been caused to assessee could not be said to be erroneous. (AY. 1997-98)

    Pioneer Overseas Corporation USA (India Branch) v. CIT (IT) (2017) 153 DTR 337 / 248 Taxman 186 (Delhi)(HC)

  46. S.226 : Collection and recovery –Modes of recovery – Requirement of garnishee proceedings is that only a copy of notice should be forwarded to assessee and need not be served on assessee in advance or simultaneously [Ss. 156, 220, 226(3)]

    Dismissing the petition the Court held that requirement under section 226(3)(iii) was only that a copy of the notice should be “forwarded to the assessee” and not that a copy should be served on the assessee in advance or simultaneously. Hence, there was no illegality committed by the Department in not issuing to the assessee a notice under section 226(3)(iii)of the Act simultaneously with or prior to the notice issued to its bank under section 226(3)(i) of the Act for recovery of the tax demand from its account (AY. 2014-15)

    GECAS Services India P. Ltd. v. ITO (2017) 396 ITR 305/ 84 taxmann.com 21 (Delhi)(HC)

  47. S.237 : Refunds – If the assessee is entitled for any other benefits the same must be granted though he has not claimed. Similarly the assessee is entitled to have refund of excess amount as State could not recover tax more than what was due to it

    Allowing the petition the Court held that if assessee is entitled for other benefits which he has not claimed, the same be granted to him i.e., after the proceedings if it found that the assessee is entitled for refund, the same should be refunded as the State cannot recover the tax more than what is due to it.

    Kalindee Rail Nirman (Engineers) Ltd. v. CIT (2017) 150 DTR 239 (Raj.)(HC)

  48. S.253 : Appellate Tribunal – Delay of 1902 days – Non-advice on the part of professional and ignorance of law was held to be a reasonable cause hence the delay was condoned. Matter was remanded to Tribunal [S. 12AA]

    Allowing the appeal the Court held that; it is only the reason of either non-advise on the part of the professional, who has been engaged by the assessee or the ignorance of law by the assessee itself. In view of these reasons, the impugned order of the Tribunal rejecting the appeal of the assessee mainly on the ground of delay, the High Court remitted the matter back to the ITAT for deciding the issue on merits.

    Hosanna Ministries v. ITO (2017) 152 DTR 8 (Mad.)(HC)

  49. S.254(1) : Appellate Tribunal – Delay of 2984 days in filing the appeal due to wrong advice of Chartered Accountant was condoned – Cost was imposed of
    ₹ 5,000. Strictures by ITAT against ICAI deprecated [S.80-O]

    Allowing the petition, the Court condoned the delay of 2984 days in filing appeal before the Tribunal due to wrong advice of the Chartered Accountant. Court also imposed cost of
    ₹ 5,000. Court also observed that it is very unfortunate that the Tribunal out of sheer desperation and frustration and agitated by the fact that the revenue is not opposing the request for condonation of delay blamed the assessee’s chartered accountant and the ICAI on how they should conduct themselves. The Tribunal completely misdirected itself by taking irrelevant factors into account. Delay of 2984 days in filing the appeal caused by wrong advice of a professional is capable of condonation. However, even if the assessee has acted bona fide, he can be held liable for payment of costs to balance rights and equities. Court also observed that ; to render substantial justice and not to enrich the revenue that the costs have been imposed. It is not, therefore, a case where the State has been allowed to retain any benefit or has been benefitted by any directions. It is the Court which in its discretion has imposed this condition. We do not find any basis to alter it. The request in that behalf is refused. (ITA No. 493 of 2015, dt. 19-9-2017)(AY. 1996-97)

    Vijay Vishin Meghani v. DCIT ( Bom)(HC), www.itatonline.org

  50. S.254(1) : Income Tax Appellate Tribunal – ITAT had not correctly appreciated the facts of the assessee’s case, the order of the ITAT was quashed and matter sent back for fresh adjudication [S. 12A]

    Assessee’s application for registration u/s. 12A was dismissed and registration refused by the Commissioner against which an appeal was preferred to the ITAT. At the time of hearing, ITAT clubbed other matters on this issue and ultimately held in favour of the assessee. On appeal by the revenue, allowing the appeal the Court held that the ITAT had wrongly considered the factual aspects and wrongly allowed the appeal. High Court held that there was an application for renewal of the registration was factually incorrect as also the fact that previously the registration was granted under Section 12AA. High Court quashed the ITAT’s order and remanded the matter back for fresh consideration.

    CIT v. Bharadwaj Sewa Trust (2017) 295 CTR 566/ 152 DTR 1 (Jharkhand)(HC)

  51. S.254(1) : Income tax Appellate Tribunal – Reassessment – Jurisdictional issue – Even in ex-parte order the Tribunal ought to have called the records and decided the issue. High court set aside order of ITAT as ITAT failed to decide jurisdictional issue [S. 147, 148]

    Assessee challenged initiation of re-assessment proceedings on account of lack of jurisdiction. CIT(A) decided issue of initiation of re-assessment proceeding against assessee and ITAT proceeded to decide appeals and cross objections ex-parte against assessee. On appeal, the High Court held that ITAT had clearly gone completely wrong in observing that ground as to validity of initiation of reassessment proceedings did not arise from order of CIT(A). As for material and evidence having allegedly not produced by assessee, High Court held that it was for the ITAT to call for such record and examine whether initiation of reassessment proceedings was valid or not. As ITAT completely failed to decide jurisdictional issue that went to root of matter and accordingly, the High Court set aside the ITAT order.

    Javed Akhtar (Dr.) v. CIT (2017) 150 DTR 288 (All.)(HC)

  52. S.254(1) : Appellate Tribunal – Additional evidence – Tribunal was not justified in rejection of the revenue records as additional evidence. [Ss. 2(14)(iii)(a), 197]

    The decision of the Tribunal, therefore, rejecting the application for admission of additional evidence in the form of revenue records is incorrect and based on incorrect findings of law and of fact. Even assuming that the revenue records do not conclusively establish the assessee’s case that the land was agricultural land, it cannot by any stretch of imagination be held that they are irrelevant. Accordingly, the assessee is entitled to establish in the assessment proceedings whether the land is agricultural land or not.

    Land Acquisition Collector, Improvement Trust, Jalandhar v. Addl. CIT (2017) 152 DTR 40 (P&H)(HC)

  53. S.254(1) : Appellate Tribunal – Order was set aside as the Tribunal has not passed a speaking order [Ss. 40(a)(ia), 40(ba), 194C]

    Allowing the appeal of the revenue the Court expressed the displeasure and unhappiness at the manner in which the Tribunal approached the matter in so far as the applicability of s. 40(ba) is concerned. Tribunal cautioned that it should not use abbreviations in the order without indicating what the terms stand for as it causes confusion – Matter was set aside to Tribunal. (ITA No. 1826 of 2014, dt. 4-9-2017) (AY. 2008-09)

    CIT v. ITD CEM India JV(Bom)(HC), www.itatonline.org

  54. S.254(1) : Appellate Tribunal – Non application of mind – Remanding the matter to AO without any discussion is held to be not proper – The Tribunal failed to perform its duty of rendering a complete decision. It is obliged in law to examine the matter and reappraise and reappreciate all the factual materials

    Allowing the appeal of the asseeee the Court stated that it is “most unhappy” with the manner in which the Tribunal has decided the appeal. The Tribunal remanded the matter to the AO without any discussion as to why the order of the CIT(A) is perverse or is contrary to law. It also did not point out infirmities or errors of fact and law in the order of the CIT(A). The Tribunal failed to perform its duty of rendering a complete decision. It is obliged in law to examine the matter and reappraise and reappreciate all the factual materials. (ITA No. 53 of 2016, dt. 11-9-2017)

    Thyrocare Technologies limited v. ITO (TDS) (Bom.)(HC), www.itatonline.org

  55. S.254(2) : Appellate Tribunal –Rectification of mistake apparent from the record – Limitation period: The amendment to S. 254(2) w.e.f. 1-6-2016 to curtail the period available to file rectification applications from four years to six months cannot apply to appellate orders passed prior to that date because that would take away a vested right [S. 254(1)]

    Allowing the petition of the assessee the Court held that the amendment to S. 254(2) w.e.f. 1-6-2016 to curtail the period available to file rectification applications from four years to six months cannot apply to appellate orders passed prior to that date because that would take away a vested right. The amendment has been made effective virtually in case of assessee with retrospective effect though the amendment does not show that it is applicable with retrospective effect, however, the existing right has been extinguished with retrospective effect in case of the assessee. In the considered opinion of this Court, the legislature should have granted some time to the assessees who could have filed an appeal within a period of four years and the same has not been done till the amendment came into force extinguishing the right to file an appeal. In the considered opinion of this Court, application preferred by the assessee should not have been dismissed by the Tribunal on account of the amendment which has reduced the period of limitation of four years to six months. Resultantly, the impugned order passed by the respondent on 23-12-2016 is hereby quashed and the writ petition stands allowed. The Income Tax Appellate Tribunal is directed to decide the application preferred under Section 254(2) on merits within a period of three months from the date of receipt of certified copy of this order. (WP No. 4144/2017, dt. 9-10-2017)(AY. 2010-11)

    District Central Co-op. Bank Ltd. v. UOI (MP)(HC), www.itatonline.org

  56. S.260A : Appeal – High Court –Delay of 1128 daysin filing the appeal was not condoned and severe strictures passed against the department for filing a ‘patently false’ affidavit

    Dismissing the notice of motion of revenue for condoning the dely of 1128 days, the Honourable Court has passed severe strictures against the Department for filing a ‘patently false’ affidavit with regard to the failure to remove office objections. The cause shown is not sufficient and lacks in bona fides. It is a case of gross negligence and utter callousness on the part of the revenue/Department. Tendency of the revenue to either blame its advocate or the procedural rules for the dismissal of their Appeals deprecated. (NM. No.1672 of 2017 in ITA No. 448 of 2014, dt. 28-8-2017.)

    CIT v. Parle Bisleri Ltd. (Bom.)(HC); www.itatonline.org

  57. S.263 : Commissioner – Revision of order prejudicial to the interest of revenue – The failure to issue notice on any particular issue does not vitiate the exercise of power as long as the assessee is heard and given opportunity. The CIT has power to consider all aspects which were the subject matter of the AO’s order, if in his opinion, they are erroneous, despite the assessee’s appeal on that or some other aspect

    Dismissing the appeal the Court held that ; the failure to issue notice on any particular issue does not vitiate the exercise of power u/s. 263, as long as the assessee is heard and given opportunity. The lack of opportunity at the revisional stage does not vitiate the entire order, or the proceedings. It is a curable defect. The CIT has power to consider all aspects which were the subject matter of the AO’s order, if in his opinion, they are erroneous, despite the assessee’s appeal on that or some other aspect. (ITA 387/2017, dt. 8-11-2017) (AY. 2010-11)

    BSEC Rajdhani Power Ltd. v. PCIT( Delhi)(HC), www. itatonline.org

  58. S.263 : Commissioner – Revision of orders prejudicial to revenue – Lack of inquiry v. Inadequate inquiry – Revision on the ground that the AO did not conduct a detailed inquiry on account of paucity of time is unfair to the assessee and invalid [S. 153A]

    Dismissing the appeal of the revenue, the Court held that revision on the ground that the AO did not conduct a detailed inquiry on account of paucity of time is unfair to the assessee and invalid. CIT v. Amitabh Bachhan (2016) 384 ITR 200 (SC) & CIT v. Maithan International (2015) 375 ITR 123 (Cal) distinguished. (ITA No. 637/2017, dt. 21-8-2017) (AYs. 2008-09 to 2011-12 )

    PCIT v. Mera Baba Reality Associates Pvt. Ltd. (Dehi)(HC); www.itatonline.org

  59. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Sending entire matter back to Assessing Officer without making any inquiry is held to be bad in law [S. 32]

    Dismissing the appeal of the revenue, the Court held that for the purposes of exercising jurisdiction u/s. 263, the conclusion of the CIT that the order of the AO is erroneous and prejudicial to the interests of the revenue has to be preceded by some minimal inquiry. If the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. The second option available u/s. 263 (1) of sending the entire matter back to the AO for a fresh assessment can be exercised by the PCIT only after he undertakes an inquiry himself and not
    otherwise. (ITA No. 705/2017. dt. 5-9-2017)(AY. 2011-12)

    PCIT v. Delhi Airport Metro Express Pvt. Ltd. (Delhi)(HC); www.itatonline.org

  60. S.271(1)(c) : Penalty – Concealment – Rectification of declaration was made on the advice of chartered Accountant – Deletion of penalty was held to be justified

    Dismissing the appeal of the revenue the Court held that declaration was made by the assessee under the advice of the chartered accountant and subsequently it was rectified. Therefore, there was no intention on the part of assessee to commit any wilful concealment .

    ITO v. Silk City Petrofiles Co. Ltd. (2017) 396 ITR 191 (Guj.) (HC)

  61. S.271(1)(c) : Penalty – Concealment – Assessee cannot be said to have furnished incorrect particulars in the return filed in search proceedings where a revised computation of income was filed after ITAT’s order in the course of parallel reopened assessments [S.153A]

    Assessee filed return of income for AYs. 2002-03 and 2003-04 declaring a loss. The assessments were reopened and a higher figure was assessed to tax. The assessee had filed appeals against the order passed in the reassessment proceedings. While the assessee’s appeals were pending before the ITAT, search proceedings were initiated. In response to the notice issued u/s. 153A, assessee filed the same return which it filed originally. After the ITAT held that the assessee should estimate 5% of its recoveries as profit, the assessee filed a revised computation of income in the search proceedings and the assessment was completed accepting the same. Thereafter, notices u/s. 271(1)(c) were issued and it was held that the assessee had failed to furnish true and correct particulars of income during the search proceedings. HC held that penalty could not be levied on the assessee as the ITAT had passed its order after the return of income was furnished in the section 153A proceedings.

    CIT v. Juhu Construction Co. (2017) 151 DTR 157/295 CTR 316 (Bom.) (HC)

  62. S.271(1)(c) : Penalty – Concealment – Book profits – Penalty cannot be levied for concealment in normal assessment [S. 115JB]

    Dismissing the appeal of the revenue the Court held that since at the stage when the Assessing Officer sought to assume jurisdiction to levy penalty for concealment of income, the assessment was completed under section 115JB of the Act, and there was no concealment of any material particulars in respect of that part of the return, penalty proceedings could not have been initiated on the basis of normal computation made later. No question of law arose.

    PCIT v. Multiplex Capital Ltd. (2017) 396 ITR 62 (Delhi)( HC)

    Editorial: SLP of revenue is dismissed, PCIT v. Multiplex Capital Ltd. (2017) 394 ITR 5 (St.)

  63. S.271AAA : Penalty – Search initiated on or after 1st June, 2007 – No penalty can be levied in respect of undisclosed income found during a search if the AO did not put a specific query to the assessee by drawing his attention to s. 271AAA and asking him to specify the manner in which the undisclosed income, surrendered during the course of search, had been derived [S. 132]

    Dismissing the appeal of the revenue the Court held that the CIT(A) noted that no specific query had been put to the assessee by drawing his attention to Section 271AAA of the Act asking him to specify the manner in which the undisclosed income, surrendered during the course of search, had been derived. The CIT(A), therefore, relying on the decisions of this Court held that the jurisdictional requirement of Section 271AAA was not met. The above view has been concurred with by the ITAT. In the facts and circumstances of the case, the Court is of the view that the concurrent decision of the CIT(A) and the ITAT represent a plausible view which cannot be said to be perverse (ITA No. 400/2007, dt. 18-7-2017) (AY. 2010-11)

    PCIT v. Emirates Tecnologies Pvt. Ltd. (Delhi) (HC). www.itatonline.org

    Income Declaration Scheme, 2016 Finance Act, 2016

  64. S.183 : Declaration of undisclosed income – Petitioner failed to pay 25 per cent of tax payable on undisclosed income declared under Income Declaration Scheme, 2016 before due date – Assessee filed a petition to direct revenue to accept the said payment after the due date – Held – no provision under IDS which would permit revenue to accept payment after specified date [S. 186]

Assessee filed a declaration under Income Declaration Scheme, 2016 declaring certain undisclosed income. He, however, failed to pay 25 per cent of tax payable on or before due date. Assessee’s grievance was that he failed to deposit tax payable in view of demonetisation of
₹ 500 and ₹ 1,000 currency notes. Therefore, the petition was filed before the Court to direct the Department to accept the payment after the due date. The High Court held that since there was no provision under IDS which would permit revenue to accept payment after specified date, it would not direct revenue to accept tax payable after specified date to make payment. (AY. 2014-15)

Nandu Atmaram Wajekar v. UOI (2017) 247 Taxman 145 / 295 CTR 212 / 151 DTR 121 (Bom.)(HC)

 

All the powers in the universe are already ours. It is we who have put our hands before our eyes & cry that it is dark.

— Swami Vivekananda

  1. S.2(22)(e) : Deemed dividend –Any payment by a closely-held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a “shareholder”

    Dismissing the appeal of the revenue, the Court held that; Any payment by a closely held company by way of advance or loan to a concern in which a substantial shareholder is a member holding a substantial interest is deemed to be “dividend” on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. However, the legal fiction in s. 2(22)(e) does not extend to, or broaden the concept of, a “shareholder”. (CA. No. 3961 of 2013 dt. 5-10-2017)

    CIT v. Madhur Housing and Development Co. (SC); www.itatonline.org

  2. S.9(1)(i) : Income deemed to accrue or arise in India – Permanent Establishment (PE) – “fixed place of business”, “service PE” and “agency PE” – The fact that there is close association and dependence between the US company and the Indian companies is irrelevant. The functions performed, assets used and risk assumed, is not a proper and appropriate test to determine whether there is a location PE – DTAA-India -USA [Article 5]

    Dismissing the appeal of the revenue the Court held that the fact that there is close association and dependence between the US company and the Indian companies is irrelevant. The functions performed, assets used and risk assumed, is not a proper and appropriate test to determine whether there is a location PE. (CA No. 6082 of 2015, dt. 24-10-2017) (AY. 2001-02 to 2007-08)

    ADIT v. E-Funds IT Solution Inc (SC), www.itatonline.org

  3. S.10(37) : Capital Gains –Agricultural land – payment of compensation on agreed terms in respect of the land acquired is entitled for exemption

    The issue in this case was as to whether the payment of compensation on agreed terms in respect of the land acquired would be entitled for exemption u/s. 10(37). SC held in favour of the assessee relying on the decision of the SC in Balakrishnan v. Union of India (2017) 391 ITR 178 where it was held that even if the amount of compensation is paid on agreed terms it would not change the character of the acquisition from that of compulsory acquisition to the voluntary sale and the exemption provided under the Income-tax Act would be available.

    UOI v. Infopark Kerala (2017) 154 DTR 99/ 247 Taxman 219/ 297 CTR 219 (SC)

  4. S.11 : Property held for charitable purposes – Cash credits – Donations as cash credits – Denial of exemption was not justified [S. 12A, 68 ]

    Dismissing the appeal of the revenue the Court held that denial of exemption was not justified on the ground that donations was treated as cash credits. DIT v. Keshav Social and Charitable Foundation (2005) 278 ITR 152 (Delhi) (HC) (AY. 1998-99)

    DIT v. Keshav Social and Charitable Foundation. (2017) 394 ITR 496 (SC)

  5. S.44BB : Mineral oils – Computation – Amounts received as “mobilisation fee” on account of provision of services and facilities in connection with the extraction etc., of mineral oil in India attracts S. 44BB and have to be assessed as business profits [Ss.5, 9(1)(i) ]

    Dismissing the appeal of the assessee the Court held that the amounts received as “mobilisation fee” on account of provision of services and facilities in connection with the extraction etc., of mineral oil in India attracts S. 44BB and have to be assessed as business profits. S. 44BB has to be read in conjunction with ss. 5 and 9 of the Act. Ss. 5 and 9 cannot be read in isolation. The argument that the mobilisation fee is “reimbursement of expenses” and so not assessable as income is not acceptable because it is a fixed amount paid which may be less or more than the expenses incurred. Incurring of expenses, therefore, would be immaterial. Also, the contract was indivisible.

    Therefore, the ultimate conclusion drawn by the AO, which is upheld by all other authorities is correct, though some of the observations of the High Court may not be entirely correct which have been straightened by us in the above discussion. For our aforesaid reasons, we uphold the conclusion. Resultantly, all the appeals of the assessees are dismissed. (CA. No. 4906 of 2010, dt. 30-10-2017).

    Sedco Fores International Inc v. CIT (SC), www.itatonline.org

  6. S.32 : Depreciation – Cost of acquisition – For purpose of allowing depreciation in respect of acquisition of thermal power station, actual purchase price accepted by Central Electricity Regulatory Commission was to be regarded as basis and not value of tariff determined under Electricity Act

    Assessee acquired a Thermal Power Station owned by State Government for a consideration of
    ₹ 1,000 crores. Central Electricity Regulatory Commission accepted transfer price of
    ₹ 607.00 crores but for purpose of depreciation, restricted computation to
    ₹ 431.09 crores which was the value of tariff under Electricity Act. Appellate Tribunal took a view that treatment for depreciation under Act and for determination of tariff under Electricity Act were different. Accordingly, Appellate Tribunal upheld order of Regulatory Commission. Supreme Court held that actual purchase value had to be basis for computing depreciation.

    N.T.P.C. Ltd. v. Central Electricity Regulatory Commission (2017) 247 Taxman 97 (SC)

  7. S.45 : Capital Gains – Joint development agreement – There was no transfer of land where development agreement entered into between developer and housing society for development of certain land owned by society was not registered [S 2(47)(v), 48 Transfer of Property Act, 1882, S. 53A, Indian Registration Act, 1908, Ss. 17, 49]

    Dismissing the appeal of the revenue, the Court held that in the present case, the assessee did not acquire any right to receive income, in as much as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income-tax Act.

    Footnote: The maxim “noscitur a sociis” has been repeatedly applied by this Court. A recent application of the maxim is contained in Coastal Paper Limited v. Commissioner of Central Excise, Visakhapatnam, (2015) 10 SCC 664 at 677, para 25. This maxim is best explained as Birds of a Feather Flocking Together. The maxim only means that a word is to be judged by the company it keeps. (CA No. 15619 of 2017, dt. 4-10-2017)(AY. 2007-08)

    CIT v. Balbir Singh Maini (SC), www.itatonline.org

  8. S.45(5) : Capital gains –Compulsory acquisition – Enhanced compensation and interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter are liable to be assessed for income tax in the year in which it has been received [Ss. 45, 155(16)]

    Allowing the appeal of the revenue; the Court held that; the enhanced compensation and interest thereon under an interim order passed by the High Court in pending appeals relating to land acquisition matter are liable to be assessed for income tax in the year in which it has been received. CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC) followed. (CA.No 13053/2017, dt. 12-9-2017)

    CIT v. Chet Ram (HUF) (SC) www.itatonline.org

  9. S.80IA : Industrial undertakings – Infrastructure development – Bottling of Liquefied Petroleum Gas (LPG) Cylinders amounted to ‘production’ and the same was eligible for the deduction. [Ss.80HH, 80I]

    Assessees were engaged in the process of bottling Liquefied Petroleum Gas (LPG) Cylinders. They claimed benefit of Sections 80HH, 80-I and 80-IA. The issue before the SC was as to whether bottling of LPG amounted to ‘production’ or ‘manufacturing’. SC observed that LPG obtained from the refinery undergoes a complex technical process in the assessees’ plants and is clearly distinguishable from the LPG bottled in cylinders and cleared from these plants for domestic use by customers. SC held that the activity of the assessee amounted to ‘production’.

    CIT v. BPCL (2017) 155 DTR 97 / 297 CTR 3/ 396 ITR 696/250 Taxman 1 (SC)

  10. S.80-IA : Industrial undertakings – Depreciation had to be reduced for computing the profits eligible for deduction, as section 80-IA is a complete code by itself. If the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided u/s. 80-IA of the Act which cannot be permitted [S.32]

    Dismissing the appeal the Court held that ; main thrust of argument was predicated on the judgment of this Court in Mahendra Mills (2000) 243 ITR 56, which according to us, cannot be applied while interpreting Section 80-IA of the Act. It may be stated at the cost of the repetition that judgment in Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted. (CA No. 238/2012, dt. 9-10-2017)(AY. 1997-98 to 2000-01)

    Plastiblends India Limited v. ACIT (SC), www.itatonline.org

  11. S.80P : Co-operative societies – Mutuality – Nominal members – Depositors and borrowers are quite distinct – Activity of finance business cannot be termed as co-operative society – Benefit is not available

    Dismissing the appeal of the assessee the Court held that an assessee cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members if it has carved out a category called ‘nominal members’. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and in fact, they are not members in the real sense. Most of the business of the assessee was with this category of persons who have been giving deposits which are kept in fixed deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc., to the members of the first category. It is found that the depositors and borrowers are quite distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. Therefore the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80-P of the Act. (CA No. 10245 of 2017, dt. 8-8-2017)

    The Citizens Co-operative Society Ltd. v. ACIT (SC), www.itatonline.org

  12. S.115-O : Domestic companies – Tax on distributed profits –Constitutionally valid – Tea companies are liable for the tax on only 40% of the dividend shall be altering the provisions of section 115-O for which there is no warrant [Constitution of India, [Article 246 ]

    Allowing the appeal of revenue and dismissing the appeal of assessee the Court held that the provisions of Section 115-O are well within the competence of Parliament. To put any limitation in the said provision as held by the Calcutta High Court that additional tax can be levied only on the 40% of the dividend income shall be altering the provision of Section 115-O for which there is no warrant. The Calcutta High Court having upheld the vires of Section 115-O no further order was necessary in that writ petition.(CA No. 9178 of 2012, dt. 20-9-2017)

    UOI v. Tata Tea Co. Ltd. (SC), www.itatonline.org

    George Williamson (Assam) Ltd. v. UOI www.itatonline.org

    UOI v. Apeejay Surendra Corporate Service Ltd., www.itatonline.org

  13. S.119 : Central Board of Direct Taxes – Instructions – The CBDT has no jurisdiction to issue a Circular to amend the legislative provisions set out in the Act. Such action is ultra vires and liable to be quashed [R. 68B]

    The Department filed an appeal to challenge the judgment of the Andhra Pradesh High Court in S. V. Gopala Rao v. Commissioner of Income-tax 270 ITR 433 (AP) where it was held that the CBDT had no jurisdiction under section 119 of the Act to issue a Notification [see [1996] 218 ITR (St.) 121] to amend Rule 68B of the Second Schedule to the Act. HELD by the Supreme Court dismissing the appeal:

    The Central Board of Direct Taxes (CBDT) issued a Circular under Section 119 of the Income-tax Act, 1961. In fact, it amended the provisions contained in Rule 68B of the IInd Schedule to the Income-tax Act, 1961, which otherwise has statutory force. Such legislative provisions cannot be amended by CBDT in exercise of its power under Section 119 of the Act. The High Court has, therefore, rightly held the circular ultra vires and quashed the same. (CA No. 4901/2010, dt. 13-7-2017)

    CIT v. S. V. Gopala Rao (SC); www.itatonline.org

  14. S.119 : Central Board of Direct Taxes – Instructions – Appeal –Low tax effect circular – The CBDT cannot issue any circular having retrospective operation – The fact that the CBDT itself vide Circular dated 10-12-2015 directed that the instruction to withdraw low tax effect appeals will apply retrospectively to pending appeals has no bearing [S. 260A, 268A]

    The question raised in this batch of Appeals is as to whether the instructions/circular issued by the Central Board of Direct Taxes on 9-2-2011 will have retrospective operation or not.

    This Court in CIT v. Suman Dhamija(CA.Nos.4919-4920/2015) has held that instructions/circular dated 9-2-2011 is not retrospective in nature and they shall not govern cases which have been filed before 2011, and that the same will govern only such cases which are filed after the issuance of the aforesaid instructions dated 9-2-2011.

    Learned counsel for the respondents relied upon circular dated 10th December, 2015 and specifically relied upon paragraph 10. We are of the considered opinion that the Central Board of Direct Taxes cannot issue any circular having retrospective operation. Respectfully following the above decision, we allow the instant appeals. The impugned order passed by the High Court dated 2-11-2011 in ITA No. 887/2006 is set aside. The matter(s) is/are remitted back to the High Court for readjudication on merits and in accordance with law. (CA No. 6815/2017, dt. 12-10-2017)

    CIT v. Gemini Distilleries (SC); www.itatonline.org

  15. S.132 : Search and seizure – Reason to believe – Not disclosing of the recording of reasons for search and seizure action, cannot be held to be invalid [S. 132A]

    Dismissing the petition the Court held that ; the plea that the search proceedings initiated u/s. 132 are invalid and that the block assessment proceedings are without jurisdiction cannot be entertained because s. 132A provides that the ‘reason to believe’ or ‘reason to suspect’, as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal as recorded by Income Tax Authority u/s. 132 or 132A. (CA No. 5216/2008, dt. 13-9-2017.)

    N. K. Jewellers v. CIT (SC), www.itatonline.org

  16. S.153A : Assessment – Search – stayed the operation of judgment of Delhi High Court in Dayawanti Gupta v. CIT

    Supreme Court stays operation of the judgment of the Delhi High Court in Dayawanti Gupta v. CIT 390 ITR 496 (Delhi)(HC). The High Court dealt with the issue whether an assessment u/s. 153A can be made even if no incriminating material has been found during s. 132 search proceedings. Court held “Issue notice returnable within four weeks. There shall be stay of operation of the impugned order, in the meantime.” (SLP No. 20559/2017, dt. 3-10-2017)

    Dayawanti v. CIT (SC), www.itatonline.org

  17. S.153A : Assessment – Search – Jurisdiction – Seized documents must have corelation, document wise, with assessment year and money bullion or jewellery or other valuable articles or things etc. requisitioned belong to other person – Assessment was held to be bad in law [S.153C]

    Dismissing the appeal of the revenue, the Court held that the seized incriminating material have to pertain to the AY in question and have corelation, documentwise, with the AY. This requirement u/s. 153C is essential and becomes a jurisdictional fact. It is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of account or documents seized or requisitioned should belong to a person other than the person referred to in S. 153A. Kamleshbhai Dharamshibhai Patel 31 taxmann.com 50 (Guj.) approved. SSP Aviation (2012) 346 ITR 177 (Del.) distinguished. (CA. Nos. 11080 of 2017, dt. 29-8-2017)(AY. 2000-01 to 2003-04)

    CIT v. Singad Technical Education Society (SC); www.itatonline.org

  18. S.254(1) : Appellate Tribunal – Powers – Additional grounds – Tribunal was justified in admitting the additional grounds which are raised for the first time before the Tribunal on the issue of jurisdiction [Ss.153A, 153C]

    Dismissing the appeal of the revenue, the Court held that Tribunal was justified in admitting the additional grounds which are raised for the first time before the Tribunal on the issue of jurisdiction. (CA. No. 11080 of 2017, dt. 29-8-2017)

    CIT v. Singad Technical Education Society (SC); www.itatonline.org

  19. S.254(1): Appellate Tribunal –Business expenditure – Matter remanded to Tribunal [S. 37(1)]

    Allowing the appeal of the revenue, the Court held that

    (i) The need to remand the case to the Tribunal, has occasioned because firstly, the question as to whether the fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under the Income-tax Act and, if so, in which year of assessment is a mixed question of law and fact. Secondly, it was neither decided by any of the authorities below and nor by the Tribunal and the High Court. It may be that since the Revenue itself did not raise it before the authorities below and raised it for the first time before this Court by simply placing reliance on the provisions of the Act and the two Rules mentioned above, this Court cannot decide the same in this appeal, for the first time for want of factual material and legal issues attached to it.

    (ii) In our considered opinion, in order to decide the issue of deduction, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over the question. It is also clear that the respondent did not get any chance to meet this submission before the courts/authorities below. It is for these reasons, we are of the view that the matter needs to be remanded to the Tribunal for its proper adjudication.

    (iii) The Tribunal being the last adjudicatory authority in hierarchy on facts would be in a better position to decide the issue after taking into account the documents filed by the parties in support of their respective contentions. Depending upon the decision of the Tribunal, the parties can carry the matter to the higher Courts. (CA No. 2015 of 2007, dt. 17-8-2017)(AY. 1992-93)

    CIT v. Travancore Cochin Udyoga Mandal (SC); www.itatonline.org

  20. S.260A : Appeal – High Court – Right of appeal is not a matter of procedure. It is a substantive right. Court fee payable shall be the one which was payable on the date of such assessment order

    Allowing the appeal the Court held that; in the present case when Section 260A of the IT Act was introduced by way of amendment with effect from October 1, 1998, it contained provision in the form of clause (2) of sub-section (2) thereof relating to payment of court fee as well. As per that provision, fixed court fee of
    ₹ 2,000/- was provided. This provision was, however, omitted with effect from June 1, 1999. The Court fee became payable as per Section 52 of the 1959 Act. The amendment in question in the 1959 Act, i.e. Section 52A, was made effective from March 6, 2003. This provision has not been made retrospective.

    Court accordingly held that wherever assessee is in appeal in the High Court which is filed under Section 260A of the IT Act, if the date of assessment is prior to March 6, 2003, Section 52A of the 1959 Act shall not apply and the Court fee payable shall be the one which was payable on the date of such assessment order. In those cases where the Department files appeal in the High Court under Section 260A of the IT Act, the date on which the Appellate Authority set aside the judgment of the Assessing Officer would be the relevant date for payment of Court fee. If that happens to be before March 6, 2003, then the Court fee shall not be payable as per Section 260A of the IT Act on such appeals. Court held that right of appeal gets vested in the litigants at the commencement of the lis and such a vested right cannot be taken away or cannot be impaired or imperilled or made more stringent or onerous by any subsequent legislation unless the subsequent legislation said so either expressly or by necessary intendment. An intention to interfere with or impair or imperil a vested right cannot be presumed unless such intention be clearly manifested by express words or by necessary implication. (CA. No. 3131 of 2006, dt 10-8-2017)

    K. Raveendranathan Nair v. CIT (SC), www.itatonline.org

    Wealth-tax Act, 1957

  21. S.27A : Appeal – High Court – “Substantial question of law” The High Court cannot proceed to hear a Second Appeal without formulating the substantial question of law involved in the appeal and if it does so it acts illegally and in abnegation or abdication of the duty case on Court [IT Act, S. 260A, Code of Civil Procedure, S. 100 ]

    The Questions raised before the Court is whether the High Court was justified in allowing the appeals filed by the Revenue and thereby setting aside the orders passed by the Tribunal. Allowing the appeals the Court held that, The High Court cannot proceed to hear a Second Appeal without formulating the substantial question of law involved in the appeal and if it does so it acts illegally and in abnegation or abdication of the duty case on Court. The Hon’ble Court analysed the provision of section 100 of the Code of Civil Procedure and section 27A of the Wealth-tax Act, 1957. Referred Santosh Hazari v. Purushottam Tiwari (Deceased) by L.Rs., (2001) 3 SCC 179. Kshitish Chandra Purkait v. Santosh Kumar Purkait, (1997) 5 SCC 438 Panchugopal Barua v. Umesh Chandra Goswami, (1997) 4 SCC 413 and Kondiba Dagadu Kadam v. Savitribai Sopan Gujar, (1999) 3 SCC 722.). (CANo. 1349 of 2007, dt. 5-9-2017.) (AYs. 1981-82, 1982-83, 1983-84)

    Maharaja Amrinder Singh v. CWT (SC); www.itatonline.org

  22. S.7 : Valuation of immovable properties under the ‘rent capitalisation’ method – ‘Land and building’ method – Valuation on the basis of land and building method was held to be justified. Interpretation that, when there are two methods of valuation the method of valuation which is favourable to the assessee may be adopted was accepted. [S.16A]

    Dismissing the appeal of the assessee the Court held that High Court has expressed opinion that Wealth Tax Officer was justified in adopting the land and building method. One of the reasons given by the High Court is that if there is loss in the business or in other words there is negative income, it cannot be possible to say that the property in question has no marketable value. Learned counsel for the appellants has submitted that in the relevant year the income was earned. The proposition which was laid down by this Court was that if two reasonable constructions of taxing statute are possible, that construction which favours the assessee must be adopted. The above proposition cannot be read to mean that under two methods of valuation if the value which is favourable to assessee should be adopted. Here in the present case, the provisions of Section 7 are neither unambiguous nor lead to two constructions. The construction of Section 7 is clear as has already been elaborately considered by this Court in the judgment of this Court in Juggilal Kamlapat Bankers v. WTO (1984) 145 ITR 485 (SC). The Wealth Tax Officer having referred the Departmental Valuer to value the property, in consequent to which reference for valuation report having already been received on 26-7-1977 which has relied in the assessment. Objections to the valuation report were considered by the Appellate Authority and having been rejected, we do not find any fault with the assessment made by the Wealth Tax Officer. We are of the view that the High Court did not commit any error in interfering with the order of ITAT.Interpretation that, when there are two methods of valuation the method of valuation which is favourable to the a. 3836 of 2011, dt. 13-10-2017)(AYs. 1970-71 to 1974-75)

    Bimal Kishor Paliwal v. CWT (SC), www.itatonline.org

  23. Hindu law – HUF – The burden lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property

It is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property. The plaintiffs failed to prove this material fact for want of any evidence.(CA. No. 11220 of 2017, dt. 6-9-2017)

Adveppa v. Bhimappa (SC); www.itatonline.org

Respected Professional Colleagues,

After a long wait and in consideration of various representations all over the country, 23rd meeting of GST Council has decided to ease the return filing process for both (small & larger) businesses. Certain facilitative measures have been recommended for the ease of taxpayers, some of them are :

1. All taxpayers are required to file monthly return in Form GSTR-3B along with payment of tax by 20th of the succeeding month till March, 2018.

2. Taxpayers whose annual aggregate turnover is up to ₹ 1.5 crore are required to file GSTR-1 on quarterly basis.

3. Taxpayers whose aggregate turnover is above ₹ 1.5 crore are required to file GSTR-1 on monthly basis.

4. The time period for filing GSTR-2 & GSTR-3 for the month of July, 2017 to March, 2018 would be worked out by a committee of officers and till then the taxpayers are not required to file GSTR-2 & GSTR-3.

5. Late fee paid by the taxpayer for GSTR-3B for the month of July, August & September, 2017 have been waived and the same will be re-credited to their Electronic Cash Ledger under “Tax” head instead “Fee” head.

6. From October, 2017 onwards, the amount of late fee payable by taxpayer shall be
₹ 20/- per day if tax liability for the month is “Nil” (₹ 10/- per day each under CGST and SGST Acts).

7. A facility of manual filing of application for advance ruling is being introduced for the time being.

8. It has been decided to exempt suppliers providing services through an E-commerce Platform from obtaining compulsory registration, provided their aggregate turnover does not exceed
₹ 20 lakh.

9. The due date of TRAN-1 has been extended to December 31, 2017 and due date for filing of GSTR-4 for the quarter July to September, 2017 has been extended to December 24, 2017.

10. Tax rate on 178 out of current 228 items will be reduced from 28% to 18% w.e.f. November, 15. Only 50 items will remain under 28% tax slab. Certain items with tax rates reduced to “Nil” from 5%.

11. All standalone restaurants irrespective of air-conditioned or otherwise, will attract 5% GST without input tax credit. Restaurants in hotel premises having declared room tariff of less than
₹ 7,500/- per room per day will attract GST of 5% without ITC.

12. It has been decided that maximum “Annual Turnover” eligibility for composition scheme will be increased to
₹ 2 crore from the present limit of ₹ 1 crore in the CGST Act. However, eligibility for composition will be increased from
₹ 1 crore to ₹ 1.5 crore p.a. for the time being.

Hon’ble Prime Minister have brought many structural reforms in ease of doing business. The World Bank has released the 2018 version of its Ease of Doing Business Index. It’s a matter of great pride for us that India has positioned at 100th rank amongst 190 countries jumping by 30th position. World Bank has said “India is one country which has been undertaking structural reforms”.

On income tax side, Hon’ble Supreme Court has recently pronounced one important judgment on 12th October, 2017 in the case of CIT v. M/s Gemini Distilleries that CBDT cannot issue any circular having retrospective operation. This observation has come in view of the fact that various pending cases having low tax effect had been disposed of by the various Courts. Supreme Court held that the circulars issued by CBDT prescribing limit of tax effect cannot apply to pending cases. In view of this judgment, there is an apprehension that CBDT might get the cases reopened in the Court which had been disposed of due to low tax effect.

Delhi High Court in the case of Chamber of Tax Consultant v. Union of India have rendered one important judgment in which, in order to preserve constitutionality of ICDs, reads down section 145(2) of Income-tax Act, restricts power of Central Government to notify ICDs so as to ensure that they do not override binding judicial precedence or provisions of the Act. Hon’ble High Court strikes down ICDs I, II, III, VI, VII, Part-A of ICDs VIII as ultra vires of the Act/contrary to settled position of law as laid down by Supreme Court, also observes that the tax cannot be levied by way of an executive action; tax cannot also be levied by way of administrative instructions. It is ruled that the power u/s. 145(2) cannot permit changing the basic principles of accounting recognised in various provisions of Income-tax Act, unless amendments are carried out in the Act itself. My special thanks to Shri Vipul Joshi, the Treasurer for successfully pleading and assisting in this matter.

Friends, your Federation had filed one PIL before the Hon’ble Delhi High Court challenging the amendments introduced by the Finance Act, 2017 regarding merging reorganising and restructuring the various Tribunals and also the rules framed thereunder on the ground that they violate independence of judiciary and impinge upon the doctrine of separation of powers and the matter is listed for 4th December, 2017. In one such similar PIL before Supreme Court, Government has conceded that it will take appropriate steps to bring selection process to Tribunals in consonance with the Supreme Court judgment in the case of R Gandhi.

Lastly, I congratulate the organisers of Mangaluru Conference for organising a very educative Conference and wish a great success to the Jabalpur Conference.

Friends to conclude, let us recall Swami Vivekananda when he said

“This life is short, the vanities of the world are transient but they alone live who live for others. Great work requires great and persistent effort for a long time. Character has to be established through a thousand stumbles”.

With Best Regards

Prem Lata Bansal
National President

Notification No. 87/ 2016 dated September 29, 2016 notifying
ICDS isultra vires the Act

The writ petition filed by the Chamber of Tax Consultants and Mr. C. S. Mathur sought a declaration of the Constitutional invalidity of:

(i) the Notification No. 87/2016 dated 29th September 2016 issued by the Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, Government of India whereby in exercise of the powers conferred by Section 145(2) of the Income-tax Act, 1961 (Act), the Central Government notified ten ‘Income Computation and Disclosure Standards’ (ICDS), as specified in the Annexure to the said notification to be followed by all assessees following the mercantile system of accounting, for the purpose of computation of income chargeable to income tax under the head “Profits and gains of Business or Profession” or “Income from Other Sources”. [The expression ‘Assessee’ excluded an individual or a Hindu Undivided Family who is not required to get his accounts of the previous year audited in accordance with the provisions of Section 44AB of the Act].

(ii) Circular No. 10 of 2017 dated 23rd March 2017 issued by the CBDT (TPL Division) issuing clarifications to the said ICDS.

(iii) The substituted and amended Section 145 of the Act, by raising the following questions:

(i) Whether the amendments to Section 145 are an instance of delegation by the Parliament of essential legislative powers to the Central Government?

(ii) Are the ICDS an instance of excessive delegation of legislative powers? Whether the impugned ICDS are contrary to the settled law as explained in various judicial precedents and are, therefore, liable to be struck down?

(iii) Whether the impugned amendments to Section 145 of the Act and the consequential ICDS and Circular violate Articles 14, 19(1)(g), 141, 144 and 265 of the Constitution?

The Delhi High Court in W.P. © 5595/2017 & CM APL 23467/2017 dated November 8, 2017 held as under:

(i) Section 145(2) as amended, has to be read down to restrict power of the Central Government to notify ICDS that do not seek to override binding judicial precedents or provisions of the Act. The power to enact a validation law is an essential legislative power that can be exercised, in the context of the Act, only by the Parliament and not by the executive. If Section 145(2) of the Act as amended is not so read down it would be ultra vires the Act and Article 141 read with Article 144 and 265 of the Constitution.

(ii) The ICDS is not meant to overrule the provisions of the Act, the Rules thereunder and the judicial precedents applicable thereto as they stand.

(iii) The decision in J.K. Industries Ltd. v. Union of India [297 ITR 176 (SC) is distinguishable in its application to the case on hand. Because in that decision the question was whether AS 22 is contrary to sections 209 and 211 of the Companies Act 1956 read with Part I and II of Schedule VI of the Act.

The Supreme Court in J. K. Industries (Supra) held that the impugned rules did not seek to modify the essential features of the Companies Act. The relevant portion of the judgment reads as under:

“In our view, paragraph 9 of AS-22 merely represents a gap-filling exercise, therefore, there is no merit in the contention advanced on behalf of the appellants that AS 22 is inconsistent with the provisions of the Companies Act including Schedule VI. It proceeds on the principle that every transaction has a tax effect. The words “true and fair” view in section 211(1) connotes the widest law making powers and, in that context, we hold that the impugned rule adopting AS 22 is intra vires as the said rule is incidental and/or supplementary to the specific powers given to the Central Government to make rules, particularly when such power is given to fill in details. The word “supplementary” means something added to what is there in the Act, to fill in details for which the Act itself does not provide …. In the present case, in our view, the impugned rule constitutes a legitimate aid to construction of the provisions of the Companies ……”

Thus, unlike AS 22, the ICDS-I does not attempt to merely fill the gaps in the Act or the Rules when it comes to the question of recognizing the principle of prudence. As far as the Act is concerned several aspects of the computation of taxable income are governed by specific provisions of the Act and the Rules and, where an issue of interpretation arises, by decisions of the Court. Therefore, unlike the Companies Act 1956, there is no aspect of computation of taxable income that is not governed either by the Act or the Rules or some binding judicial pronouncement. For e.g., even the prudence principle is acknowledged in at least two decisions i.e. in CIT v. Triveni Engineering & Industries Ltd. [49 DTR 253 (Del.)] and in CIT v. Advance Construction Co. Pvt. Ltd. [275 ITR 30 (Guj.)]. Importantly, there was no parallel provision in the Companies Act that was in conflict with the said AS. The AS did not seek to override a binding judicial precedent. Therefore to draw an analogy with the upholding of the validity of AS 22 in the context of Section 211(C) of the Companies Act may not be apposite in considering the validity of the ICDS that seek to alter the principles of computation of taxable income that is governed by the Act or Rules or judicial precedent without first effecting corresponding changes to the Act and Rules.

(iv) ICDS I which does away with the concept of ‘prudence’ is contrary to the Act and binding judicial precedents and is therefore unsustainable in law.

(v) ICDS II pertaining to valuation of inventories and eliminates the distinction between a continuing partnership business after dissolution from one which is discontinued upon dissolution is contrary to the decision of the Supreme Court in Shakti Trading Co. [250 ITR 871 (SC)]. It fails to acknowledge that the valuation of inventory at market value upon settlement of accounts of the outgoing partner is distinct from valuation of the inventory in the books of the business which is continuing. ICDS II is held to be ultra vires the Act and struck down as such.

(vi) The treatment to retention money under Paragraph 10 (a) in ICDS-III will have to be determined on a case-to-case basis by applying settled principles of accrual of income. By deploying ICDS-III in a manner that seeks to bring to tax the retention money, the receipt of which is uncertain/conditional, at the earliest possible stage,
irrespective of the facts, the Respondents would be acting contrary to the settled position in law.

(vii) Para 12 of ICDS III read with para 5 of ICDS IX, dealing with borrowing costs, makes it clear that no incidental income can be reduced from borrowing cost. This is contrary to the decision of the Supreme Court in CIT v. Bokaro Steel Limited [236 ITR 315] and is therefore struck down.

(viii) Para 5 of ICDS-IV requires an assessee to recognise income from export incentive in the year of making of the claim if there is ‘reasonable certainty’ of its ultimate collection. This is contrary to the decision of the Supreme Court in Excel Industries [358 ITR 295] and is, therefore, ultra vires the Act and struck down as such.

(ix) As far as para 6 of ICDS IV is concerned, the proportionate completion method as well as the contract completion method have been recognised as valid methods of accounting under the mercantile system of accounting by the Supreme Court in CIT v. Bilhari Investment Pvt. Ltd. [299 ITR 1] and this Court in CIT v. Manish Buildwell Pvt. Ltd. and Paras Buildtech India Pvt. Ltd. v. CIT [245 CTR 397 (Del.)]. Therefore, to the extent that para 6 of ICDS-IV permits only one of the methods, i.e., proportionate completion method, it is contrary to the above decisions, held to be ultra vires the Act and struck down as such.

(x) Para 8(1) of ICDS IV is not been shown to be contrary to any judicial precedent. There is also no challenge to Section 36(1)(vii) of the Act. Accordingly, para 8 (1) of ICDS-IV is held to be not ultra vires the Act. Its validity is upheld.

(xi) ICDS-VI which states that marked-to-market loss/gain in case of foreign currency derivatives held for trading or speculation purposes are not to be allowed, is not in consonance with the ratio laid down by the Supreme Court in Sutlej Cotton Mills Limited v. CIT [116 ITR 1], in so far as it relates to marked to market loss arising out of forward exchange contracts held for trading or speculation purposes. It is, therefore, held to be ultra vires the Act and struck down as such.

(xii) ICDS VII which provides that recognition of Government grants cannot be postponed beyond the date of accrual receipt, is in conflict with the accrual system of accounting. To that extent it is held to be ultra vires the Act and struck down as such.

(xiii) ICDS VIII pertains to valuation of securities. For those entities not governed by the RBI to whom Part A of ICDS VIII is applicable, the accounting prescribed by the AS has to be followed which is different from the ICDS. In effect, such entities will be required to maintain separate records for income tax purposes for every year since the closing value of the securities would be valued separately for income tax purposes and for accounting purposes. To this extent Part A of ICDS VIII is held to be ultra vires the Act and is struck down as such.

To the extent the specific ICDS as noted hereinbefore have been struck down as ultra vires the Act, the impugned Notification Nos. 87 and 88 dated September 29, 2016 and Circular No 10.

Conclusion

Thus, it is clear that the ICDS are not based on any policy or principle discernible from the Act. They have been notified out of delegated legislation and contrary to provisions of the Act. They are directly in conflict with well-established legal position under the Act about concept of accrual of income, prudence, materiality etc.,

Therefore, the Delhi High Court has struck down the several ICDS being contrary to the Act. Even Notification No. 87 dated September 29, 2016 and Circular No. 10 of 2017 issued by the CBDT are also held to be ultra vires the Act.

Hence, it is necessary to redraft the ICDS making it clear that the computation of income for the purpose of calculating total income would be as per the law and ICDS should remain only as disclosure standards.

H. N. Motiwalla
Joint Editor