311. S. 4 : Income chargeable to tax – Mutuality – Transfer fees – Exempt

Transfer Fees received by Co-op. Housing Society from incoming & outgoing members (even in excess of limits) is exempt on the ground of mutuality.

CIT v. Darbhanga Mansion CHS Ltd. (2015) 113 DTR 217 (Bom.) (HC), www.itatonline.org

312. S. 5 : Scope of total income – Accrual of income – Civil suit pending-Income has not accrued, hence deletion of addition was held to be justified

Assessee a State Warehousing – Corporation was engaged in business of warehousing and incidental activity. Assessee had raised higher warehousing bills to circle stamp depot than that reflected in its books. AO made addition as income. Tribunal has deleted the addition. On appeal, Court held that the said income had not accrued to assessee as circle stamp depot had resisted said demand and filed a civil suit, hence deletion of addition was held to be justified . (A.Y. 2004-05)

CIT v. Gujarat State Warehousing Co. (2014) 225 Taxman 182 / 43 taxmann.com 301 (Guj.)(HC)

313. S. 9(1)( vi) : Income deemed accrue or arise in India – Royalty – Income received was held to be not taxable in India – DTAA – India- Germany. [Articles 7, 12]

Tribunal held that consideration received as fee would be chargeable as royalty and 80 per cent would be taxable. On reference the assessee contended that Tribunal ought to have held that such consideration receivable were industrial or commercial profits within the meaning of DTAA and impugned consideration would not be taxable in India as the assessee company had no PE in India. Following decision of earlier year in assessees own case the question was answered in favour of assessee. (A.Y. 1981-82)

Fag Kugelfischer Georg Schafer KCAA v. CIT (2014) 227 Taxman 256 (Mag.) (Bom.)(HC)

314. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Supply of equipment – Principal to principal – Not assessable as royalty – DTAA – India – Danish. [Article 13]

The assessee claimed that certain receipts constituting fees for technical services were not taxable as per Article III(3) of the Old Indo- Danish Tax Treaty it does not have a permanent establishment in India. However, the revenue had taxed these particular receipts either as royalty or something other than technical fees along with royalty and management charges at the rate of 20 per cent of the gross amount. Tribunal deleted the addition. On appeal the Court held that; Payment was made to Danish Company for supply of equipments. Relevant contract included stipulations for giving all information so as to guide Indian party to install equipment at site and thereafter to use it. Technical information that was provided was related to data and plant specification flow sheet issued for installation of plant hence the impugned payment was not a receipt or income accruing or arising to assessee by virtue of section 9(1)(vi). Since payment was made to Danish company towards supply of equipments on ‘principal to principal’ basis, such payment could not be considered as royalty. Since patent, invention, model, design, secret formula or process of trade mark or similar property was not transferred and only basic information to guide Indian resident with regard to installation and use of equipment at site was provided, the sum paid would not fall within definition of royalty. Appeal of revenue was dismissed.

DIT v. Haldor Topsoe (2014) 369 ITR 453 / 225 Taxman 105 / 48 taxmann.com 67 (Bom.)(HC)

315. S. 10(29) : Exemption – Warehousing corporation – Derived from – Supervision charges, fumigation services etc. are eligible for exemption, however income from house property, interest on loan etc are not eligible

Income from house property, bank receipts, income on loans and advances to staff, interest on bank deposits and dividend, not derived from activities enumerated in section 10(29) hence not eligible for exemption. Supervision charges, fumigation service charges, weighbridge receipts, income from sale of tender forms and interest on belated refund of advances are income from activities incidental to warehousing of produce for storage, processing or facilitating the marketing of commodities which are eligible for exemption. (A.Ys. 1989-90 to 2002-03)

Tamil Nadu Warehousing Corporation v. ITO (OSD) (2014) 363 ITR 1 (Mad.)(HC)

316. S. 10(37) : Capital gains – Agricultural land – Land not cultivated by assessee him self – Within specified urban limits – Additional compensation – Entitled to exemption [S. 45(5)]

Assessee received his share of additional compensation awarded by Court for transfer of agricultural land. AO denied exemption under section 10(37) on such receipt on ground that agricultural land was not cultivated by assessee himself. In case of co-owner of land in question in CIT v. Amrutbhai Patel in Tax Appeal No. 355/2013 Court held that assessee was entitled to exemption even if agricultural land was not cultivated by assessee himself but by hired labour or through his family member, hence the exemption was allowed.

CIT v. Jasubhai Somabhai Patel (2014) 225 Taxman 158 / 47 taxmann.com 406 (Guj.)(HC)

317. S. 11 : Property held for charitable or religious purposes – Exercise of option – Cannot be rejected on the ground that declaration was not made in the prescribed manner

Assessee, a charitable trust, being unable to utilise income from property to extent of 85 per cent, wrote letter conveying to department to exercise option available under clause (2) of Explanation to section 11(1) so as to allow it to spend surplus amount that may remain at end of current previous year during immediately following previous year. Such option was exercised before last date of filing return. Court held that there was no requirement of making declaration in prescribed manner because such requirement was to be followed only for exercising option available under section 11(2), therefore no disallowance was to be made merely on ground that declaration was not made in a prescribed manner. (A.Y. 2009-10)

CIT v. Industrial Extension Bureau (2014) 367 ITR 270 / 225 Taxman 160 / 43 taxmann.com 392 / 112 DTR 257 (Guj.)(HC)

318. S. 11 : Property held for charitable or religious purposes – Voluntary contribution by public with specific direction to building corpus – Exempt from income tax

Voluntary contributions made by public to assessee-trust with a specific direction to use same for building purpose would form part of corpus of trust and assessee was entitled to benefit under section 11. (A.Y. 1996-97 to 2000-01)

CIT v. Bharatiya Samskriti Vidyapith Trust (2014) 225 Taxman 131 / 43 taxmann.com 245 (Karn.)(HC)

319. S. 12AA : Procedure for registration – When activities of society were held to be genuine – Cancellation of registration was not justified

The assessee was an education society. Commissioner cancelled the registration of society on the ground that the activities of the society were not entirely charitable in nature and that the same was not in accordance with aim and objects of society. On appeal, Tribunal, held that the assessee was entitled to registration under section 12AA.

Dismissing the revenue’s appeal the Court held that there is no whisper that the assessee did not fulfil any of the conditions mentioned in section 12AA(3), namely, that the activities of such trust were not genuine or were not being carried out in accordance with the objects of the trust. Order of Tribunal was up held. (A.Ys. 2004-05 to 2010-11)

CIT v. Varanasi Catholic Education Society (2014) 225 Taxman 81 / 47 taxmann. 184 (All.)(HC)

320. S. 14A : Disallowance of expenditure – Exempt income – No exempt income – No disallowance can be made. [R. 8D]

Assessee has not made any claim for exemption of any income from payment of tax, hence no disallowance could be made under section 14A. (A.Y. 2009-10)

CIT v. Corrtech Energy (P) Ltd. (2014) 272 CTR 262 (Guj.)(HC)

321. S. 22 : Income from house property – Business income – Lease for thirty years – Sub-letting of office – Assesable as income from house property [Ss. 23, 27(iii) (b), 28(i) 269UA]

Owner of land entering into agreement for development of land. Assessee allotted office space on lease for thirty-three years with option of five consecutive renewals. Assessee sub-let the premises and showed the income as income from business. AO assessed the said income as income from house property, which was confirmed by Tribunal. On appeal the High Court affirming the view of Tribunal held that the assessee was held to be the owner of office space. Amount earned from sub-letting office space is assessable as income from house property. (A.Y. 2003-04, 2004-05, 2006-07, 2008-09)

Rayala Corporation P. Ltd. v. ACIT (2014) 363 ITR 630 / 264 CTR 282(Mad.)(HC)

322. S. 28(i) : Business income – Mutuality – Chit funds scheme – Principle of mutuality does not apply – Income received was held to be taxable. [S. 4, Chit Funds Act, 1982]

Assessee participating in a scheme offered by third party wherein others also joined. Principle of mutuality does not arise. Dividend received over and above what was contributed by assessee was held to be assessable as income. (A.Y. 1996-97)

V. Rajkumar v. CIT (2014) 363 ITR 21 (Mad.)(HC)

323. S.28(iv) : Business income – Benefit or perquisite – Allotment of shares at concessional rate – Not taxable as income. [S. 2(24) (vd)]

Assessee was allotted shares of another company at a concessional rate of Rs. 90 per share. AO took the view that market value of said shares was about 455 per share and charged the differential amount to tax under section 28(iv). There was a bar for block period of three years prohibiting the sale of shares. Tribunal held that allotment of shares at concessional rate was not taxable as income. On appeal by revenue, affirming the view of Tribunal the Court held that benefit could be said to have arisen only if any person would have got the differential price by selling the shares. Tribunal was correct in holding that as long as the bar operates there is no question of any benefit in the form of differential price accruing to the assessee. Further there exists a distinction between “accrual of income” and “arising of income”, while accrual is almost notional in nature, the other is factual. When the Parliament has consciously chosen to restrict the taxation of benefit only when it has arisen, it is not permissible to tax the benefit by treating them as “accrual”. Even if the assumption made by the AO that sale of shares would have yielded that differential price is taken as permissible in law, at the most it amounts to “accrual” and not “arising” of income, therefore the differential price of shares allotted to the assessee is not taxable under section 28(iv). (A.Y. 1995-96)

CIT v. K. N. B. Investments (P) Ltd. (2014) 272 CTR 201(AP)(HC)

CIT v. K. A. R. Investments (P) Ltd. (2014) 272 CTR 201(AP)(HC)

324. S. 32 : Depreciation – Plant – Toll road – Would not qualify as a ‘Plant” hence not entitled higher rate of depreciation. [S. 43(3)]

Manned toll booths/toll plazas are primarily a facility/convenience for collecting the usage charges of the road and nothing more, that would not change the characteristic of “road”, hence the toll road would not qualify as a ‘Plant’ so as to entitle the assessee a higher rate of depreciation.(A.Y. 2003-04, 2004-05, 2007-08)

Mordadbad Toll Road Co.. Ltd. v. ACIT (2014) 369 ITR 403 / 272 CTR 209 (Delhi)(HC)

325. S. 32 : Depreciation – Computers in factory premises – Eligible 60% depreciation

Assessee installed certain computers in its factory premises and claimed depreciation at rate of 60 per cent. AO held that computers should be treated either as office appliances failing which they would form part of machinery and in either case rate of depreciation would be 20 per cent. CIT(A)as well as Tribunal allowed claim of assessee. On appeal by revenue the Court upheld the order of Tribunal. (A.Y. 2007-08)

CIT v. Gujarat Alkalies and Chemicals Ltd. (2014) 225 Taxman 58 (Mag.) / 43 taxmann.com 296 (Guj.) (HC)

326. S. 32 : Depreciation – Renewal energy devices – Wind mill – Generator sets would alone qualify for hundred per cent, depreciation – Drilling machines – Boring machines – Lathe machines – Entitled to depreciation at twenty-five per cent. [S. 2 (11), R, 1962, Appx. I, r. 5, cl. (10A)(xviii)]

The assessee was engaged in turnkey projects, for which it used drilling machines, boring machines for foundation work and lathe machine. When machinery was not used in the manufacture of wind mill or any specially designed device, which ran wind mills, it would not fall for consideration on the block of assets which is defined in section 2(11). Therefore, the generator sets alone would qualify for the rate as prescribed under “renewal energy devices”, that is, hundred per cent depreciation. The other machinery would qualify for depreciation at twenty-five per cent and not at hundred per cent as claimed by the assessee. The Assessing Officer was directed to rework the depreciation treating the generator set as the block of assets used in the manufacture of wind mills and the other machinery would not fall within that head of block of assets, but would be entitled to depreciation at such rate as had been fixed by him. (A.Y. 1995-96, 1996-70

CIT v. TTG Industries Ltd. (2014) 363 ITR 44 (Mad.)(HC)

327. S. 32 : Depreciation – Higher rate of depreciation – Hotel – Roofing – Temporary Construction for convenience of workers of assessee – Construction subsequently demolished – Entitled to hundred per cent depreciation [S. 37(1)]

Court held that the materials on record showed that the construction was not authorised and was put up only for the convenience of workers who were engaged by the assessee. The record also indicated that the construction was subsequently demolished. Therefore, the depreciation claimed at 100 per cent could not be termed unreasonable. (A.Y. 1989-90)

Comfort Living Hotels P. Ltd. v. CIT (2014) 363 ITR 182 / 227 Taxman 145 (Mag.) (Delhi) (HC)

328. S.40(a)(ia) : Amounts not deductible – Deduction of tax at source – Contractor and subcontractor – Condition of second proviso to section 194C(3) are satisfied –Disallowance was not justified.[S. 194C, Form No 15J, Rule 29D]

High Court held that once conditions of second proviso to section 194C(3) are satisfied, liability of payer to deduct tax at source would cease and consequently disallowance of payment for sub-contractor under section 40(a)(ia) could not be made on ground that assessee had not furnished Form No. 15 J as required under Rule 29D.

CIT v. Valibhai Khanbhai Mankad (2012) 28 taxmann.com 119/ (2013) 216 Taxman 18/ 261 CTR 538 (Guj.)(HC)

Editorial: SLP of revenue admitted. SLP No. 23692 of 2013 dt. 13-10- 2014, CIT v. Valibhai Khanbhai Mankad (2014) 227 Taxman 372 (SC)

329. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Interest – Resident – Paid before due date of filing of return – No disallowance – Amendment by Finance Act, 2010, would apply retrospectively

Interest paid to resident and tax was deposited before due date of filing of return. Amendment in section 40(a)(ia) by Finance Act, 2010 would apply retrospectively. No disallowance can be made. (A.Y.. 2005-06 and 2006-07)

CIT v. Ashok J. Patel (2014) 225 Taxman 79 (Mag.)/ 43 taxmann.com 227 (Guj.)(HC)

330. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub-contractor – Freight charges – Provision is applicable in respect of amount paid as well as payable. [S. 194C]

Provisions of section 40(a)(ia) are applicable not only to amount which are shown as outstanding on closing of relevant previous year, but to entire expenditure which became liable for payment at any point of time during year under consideration and which was also paid before closing of year. (A.Y. 2006-07)

Palam Gas Service v. CIT (2014) 225 Taxman 44 (Mag.)/ 47 taxmann.com 310 (HP)(HC)

331. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Payable – Binding precedent – Despite stay by High Court, Special Bench verdict in Marilyn Shipping is binding on the ITAT due to judicial discipline

The Tribunal had to consider whether in view of the Special Bench verdict in Merilyn Shipping & Transport 146 TTJ 1 (Vizag), a disallowance u/s. 40(a)(ia) could be made in respect of the amounts that have already been paid during the year and are not “payable” as of 31st March. The Tribunal held that as the department’s appeal against the said verdict was pending in the High Court and as the High Court had granted an interim suspension, the AO should decide the issue after the disposal of the appeal in the case of Merilyn Shipping by the High Court. The High Court. held that until and unless the decision of the Special Bench was upset by the Court, it binds smaller Bench and co-ordinate Bench of the Tribunal. Under the circumstances, it is not open to the Tribunal to remand on the ground of pendency on the same issue before the Court, overlooking and overruling, by necessary implication, the decision of the Special Bench. This is not permissible under quasijudicial discipline. Under the circumstances, the impugned judgment and order was set aside, and the matter restored to the file of the Tribunal which will decide the issue in accordance with law and it would be open to the Tribunal either to follow the Special Bench decision or not to follow. If the Special Bench decision is not followed, obviously remedy lies elsewhere. (ITA No. 352 of 2014, dt. 24-6-2014.)

CIT v. Janapriya Engineers Syndicate (2015) 113 DTR 311(AP) (HC) : www.itatonline.org

332. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Concession given by counsel pertaining to question of law is not binding –Matter set aside to the Tribunal for fresh consideration. [S. 28(i), 245(1]

On account of unexpected administrative exigencies, there was delay in deducting and remitting amount deducted at source under various heads payable to Government account within time stipulated. However, assessee deducted tax at source as stipulated under Chapter XVIIB and remitted above amount to Government account with late fee stipulated in Act and Rules. Tribunal disallowed total expenditure simply based on concession given by counsel pertaining to question of law and proceeded to opine that expenditure could be claimed in year of payment of TDS. On appeal the Court held that law involved and process of making interpretation was never discussed. Further, consequences which would result in incurable hardship to assessee was never discussed. Matter remitted back to Tribunal for fresh consideration of relevant provisions. Court relied on the ratio of judgment in Vimaleshwar Nagappa Shet v. Noor Ahmed Sheriff AIR 2011 SC 2057, for the proposition that if consent is given on question of law, it is not binding, if it is on question of fact then binding. (A.Y. 2008-09)

Time Ads & Publicity v. CIT (2014) 225 Taxman 356 / 48 taxmann.com 239 (Ker.)(HC)

333. S. 40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Ad hoc disallowance was held to be not justified

The assessee engaged in the business of development of infrastructure facilities mainly relating to water and sewage treatment on turnkey basis claimed deduction of amount paid to its sister concern for supply of labour for operating and maintenance work. AO disallowed 10 per cent of payment on ground that sister concern was run by wife of director of assessee company, hence, element of excessive payment could not be denied. CIT(A) deleted the disallowance, and Tribunal confirmed same. On appeal by revenue the Court held that there was no finding by AO that transaction/contract with sister concern was not genuine one, there was also no material before AO such as comparable rates etc. to come to conclusion that excessive payment was made to aforesaid firm which warranted disallowance/ad hoc disallowance. In absence of any material before AO, he was not justified in adopting disallowance to extent of 10 per cent payment under section 40A(2) (b), thus, disallowance made by AO was rightly deleted by CIT(A) and Tribunal. (A.Y. 2005-06 to 2007-08)

CIT v. Enviro Control Associated (P.) Ltd. (2014) 225 Taxman 56 (Mag.)/ 43 taxmann.com 291 (Guj.) (HC)

334. S. 40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Burden is on revenue to bring comparable instances – Deletion of disallowance was held to be justified

The assessee made higher payment on motor bus rent to persons specified under Section 40(A)(2)(b). The payment was made by cheque and TDS was also deducted at source. AO made addition by disallowing 5 per cent of total payment on ground that assessee had not produced any comparative market prices and had failed to produce any document regarding reasonableness of payment and further failed to reconcile difference in payment as per tax audit report and that as provided during assessment proceeding. On appeal, CIT(A) and Tribunal held that it was for AO to assess fair market price and give comparative instances. Since AO had not done same, addition made by him was deleted. On appeal by revenue the Court held that since onus was on AO and AO had failed to discharge said onus, disallowance was unsustainable in law. Appeal of revenue was dismissed. (A.Y. 2005 -06 and 2006-07)

CIT v. Ashok J. Patel (2014) 225 Taxman 79 (Mag.)/ 43 taxmann.com 227 (Guj.)(HC)

335. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Purchases from agriculturist

The assessee was a firm dealing and trading in purchase of cotton, cotton seeds, processing of cotton seeds and extracting cotton seeds oil, etc. AO disallowed the payment by applying the provisions of section 40(A)(3). Addition was deleted by CIT(A) and Tribunal. On appeal by revenue the Court held that where both authorities relying on cogent evidences concluded that purchases were made from agriculturists as also through common agents, case was correctly held to be falling under exception provided under clauses (e) and (k) of rule 6DD of Income Tax Rules. (A.Ys. 2006-07 & 2007-08)

CIT v. A. C. Industries (2014) 225 Taxman 55 (Mag)/ 43 taxmann.com 290 (Guj.)(HC)

336. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Dealers – Amendment is substantive – Each bill less than Rs. 20,000, no disallowance can be made. [R. 6DD(k)]

Purchase of agricultural produce by making payment in cash would not be covered by exception provided in rule 6DD(e), if it is purchased from dealers and not from cultivators or growers.

Where purchases by making payment in cash were effected from registered traders/ commission agents who were independent businessmen acting in their own capacity and not as an agent of assessee, purchases were not covered by exception given in rule 6DD(k). Amendment in section 40A(3) by Finance Act, 2008 with effect from 1-4-2009 can only be considered as substantive in nature and shall have prospective operation only. If purchase is effected from a single person by way of several bills/invoices and if value of each bill/invoice is less than Rs. 20,000 then payments made to settle each bill/invoice would not be hit by provisions of section 40A(3), as each bill/invoice has to be considered as a separate contract. (A.Y. 2007-08)

Raja & Co. v. Dy. CIT (2014) 64 SOT 12 (URO) / (2013) 37 taxmann.com 268 (Kochi)(Trib.)

337. S. 41(1) : Remission or cessation of trading liability – Excise duty refunds – Appeal pending before Supreme Court – Refund received by assessee was held be assessable

Assessee firm claimed refund of excise duty. The refund was received pursuant to the order of High Court. The Excise department appealed against the said order which is pending before Supreme Court. AO assessed the said refund as income. Tribunal held that there was no finality to the claim in the light of the pendency of proceedings hence the addition was deleted. On reference the High Court held that the payment in discharge of the statutory liability incurred while earning the income is an expenditure and even if it is possible in some cases that such payment is liable to be excluded from the income as a liability incurred in the course of trade, it does not detract from its character as expenditure. Therefore, the amounts refunded on the levy being held unconstitutional were the amounts received by the assessee in respect of an expenditure and such receipts are liable to be taxed under section 41(1). Question was answered in favour of revenue.

CIT v. Hansraj Vallabhdas and Sons (2014) 227 Taxman 227 (Mag)(Bom.)(HC)

338. S. 43B : Deduction only on actual payment – Business expenditure – Bank guarantee – Not deductible. [S. 37(I)]

Assessee purchasing raw material from importers. Agreement that assessee would discharge liability of importers to customs duty. Levy of additional customs duty challenged by importers. Supreme Court directing stay of major portion of additional customs duty provided importers furnished bank guarantee. Importers giving bank guarantee. Counter guarantee furnished in consequence by assessee. Court held that bank guarantee is not an ascertained statutory liability to pay additional customs duty but only a contractual liability hence not deductible. (A.Y. 1987-88)

Oswal Agro Mills Ltd. v. ITO (2014) 363 ITR 486 / 222 Taxman 10 / 268 CTR 181 (Delhi)(HC)

339. S. 45 : Capital gains – Gains on sale of TDR received as additional FSI as per the D. C. Regulations has no cost of acquisition and is not chargeable to capital gains [S. 48, 55(2)]

Only an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head “Capital gains” as opposed to assets in the acquisition of which no cost at all can be conceived. In the present case as well, the situation was that the FSI/TDR was generated by the plot itself. There was no cost of acquisition, which has been determined and on the basis of which the Assessing Officer could have proceeded to levy and assess the gains derived as capital gains. It may be that sub-section (2) of section 55 clause (a) having been amended, there is a stipulation with regard to the tenancy rights. However, even in the case of tenancy right, the view taken by the Hon’ble Supreme Court, after the provision was substituted w.e.f. 1st April, 1995, is as above. The further argument is that the tenancy rights now can be brought within the tax net and in the present case the asset or the benefit is attached to the property, it is capable of being transferred. All this may be true but as the Hon’ble Supreme Court holds it must be capable of being acquired at a cost or that has to be ascertainable. In the present case, additional FSI/ TDR is generated by change in the D. C. Rules. A specific insertion would therefore be necessary so as to ascertain its cost for computing the capital gains. Therefore, the Tribunal was in no error in concluding that the TDR which was generated by the plot/property/land and came to be transferred under a document in favour of the purchaser would not result in the gains being assessed to tax. (1356 of 2012, dated 11-12-2014) (A.Y. 2007-08)

CIT v. Sambhaji Nagar Co-op. Hsg. Society Ltd. (2015) 370 ITR 325 (Bom.) (HC) www.itatonline.org (2015) 43 DTR 89 (Bom.)

340. S. 45 : Capital gains – Business income – Investment in shares – Assessable as capital gains and not as business income [S. 28(i)]I

Assessee was engaged in marketing and distribution of books. He purchased shares in previous year which was shown as investment and that treatment was accepted by income-taxauthorities. He sold certain shares during earlier year and gains were treated as short-term capital gains. During relevant assessment year left out shares were five-fold increased mainly due to issue of bonus shares which resulted in assessee becoming owner of huge number of shares. AO treated the income derived on sale of these shares as business income instead of capital gain. CIT(A) and Tribunal held that the surplus was assessable as capital gains. On appeal by revenue dismissing the appeal the Court held that surplus realized on sale of shares were to be taxed under head ‘Capital gain’. (A.Y. 2007-08)

CIT v. Om Prakash Arora (2014) 225 Taxman 73 (Mag.)/ 45 taxmann.com 565 (Delhi)(HC)

341. S. 67A : Association of persons – Loss return of Association of persons was not filed within time – Member cannot claim to carry forward and set off of loss. [S. 80]

The assessee, a member of an association of persons, entered into a joint venture to put up a wind energy generator. The assessee, claimed 100 per cent depreciation and his share of depreciation loss. He sought to set off his share of depreciation loss as against the individual income under various heads. He also claimed carried forward loss and loss from the windmill. After set off of the loss against other incomes, he carried forward unabsorbed depreciation. The AO and the CIT(A) disallowed the claim. The Tribunal held that the association of persons had not filed its return within time to claim the loss and, in the absence of any determination of the loss in the hands of the association of persons, the claim of the assessee was not tenable. On appeal.

Held, dismissing the appeal, that the grant of relief under section 67A of the Income-tax Act, 1961, is dependent on the determination of the income in the hands of the association of persons, so that the computation of the share income of the member in the association of persons could be given effect in the manner in which it has been determined in the hands of the association of persons or the body of individuals. When the association of persons was under legal obligation to file its return declaring loss or income, as the case may be, and had defaulted in filing the return within the time prescribed, the assessee could not take advantage of the absence of a reference to section 67A in section 80. (A.Y. 1995-1996)

N. Jagadeesan v. ACIT (2014) 363 ITR 140 / 224 Taxman 33 (Mad.)(HC)

342. S. 69 : Undisclosed income – Seizure of project report – No evidence that work was done as per project – Addition of amount based on project report – Not justified.[S.158BD]

Merely because a project report showed an estimated figure that did not prove that undisclosed investment was really made by the assessee. The Revenue had not discharged the burden of proving unexplained investment in terms of section 69. The addition of the amount was not justified

CIT v. Vinayak Plasto Chem P. Ltd. (2014) 363 ITR 596 / 221 Taxman 439 / 264 CTR 313 (Raj.) (HC)

343. S. 69B : Amounts of investments not fully disclosed in books of account – Purchase of agricultural property – Report of DVO – Addition merely on the basis of DVO’s report was held to be not justified.

During relevant year, assessee purchased agricultural property value of which was disclosed in the books of account. Assessing Officer finding some discrepancies with respect to investment, referred matter to DVO . DVO reported value of investment of agricultural property, at higher value. AO relying upon report of DVO, made addition to assessee’s income on account of unexplained investment. Tribunal deleted said addition. On appeal by revenue the Court held that onus to prove under valuation of property through positive evidence was upon revenue and mere reliance upon report of Valuation Officer expressing his opinion as to true value would be inadequate material for Assessing Officer to constitute evidence in absence of any other positive evidence on record. Therefore, addition was rightly deleted by Tribunal. (A.Y. 2007-08)

CIT v. Agile Properties (P.) Ltd. (2014) 225 Taxman 107(Mag.) / 45 taxmann.com 512 (Delhi)(HC)

344. S. 80HHB : Projects outside India – More than one project – Deduction is available to each project separately

The assessee was having more than 50 projects in India and outside India. The assessee claimed deduction in respect of each overseas project separately. The AO allowed the relief on the basis of netting up of all the overseas projects. Tribunal decided in favour of assessee. On appeal by revenue the Court affirmed the view of Tribunal and held that deduction could be made in respect of each project and the same was not prohibited by section 80HHB(1).

CIT v. Hindustan Construction Co. Ltd. (2014) 368 ITR 733 (Bom.)(HC)

345. S. 80HHC : Export business- Industrial undertakings – Depreciation – Block of assets – Eligible deduction – Despite the introduction of ‘block of assets’ depreciation cannot be thrust on the assessee while computing quantum of eligible deduction [Ss. 2(11), 32, 80-IA]

The High Court had to be consider whether for computing the profits eligible for deduction u/ ss. 80HHC and 80-IA, depreciation (under the concept of ‘block of assets’) had to be deducted even though the assessee had not claimed the same. The department relied on the judgment of the Full Bench of the Bombay High Court in Plastiblends India Limited v. ACIT 318 ITR (Bom.) (FB) where it was held that for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under sections 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation. The Gujarat High Court taking a different view held that: depreciation is optional to the assessee and once he chooses not to claim it, the Assessing Officer cannot allow it while computing the income. Further, once depreciation is optional, it will be optional for block of assets also. It is not necessary that the depreciation is allowable or not allowable as a whole. The assessee can claim it partly also in respect of certain block of assets and not claim in respect of other block of assets. Accordingly, for purposes of sections 80HHC and 80-IA, depreciation not claimed for by the assessee cannot be deducted despite the introduction of the concept of block of assets. (TA No. 93 of 2000, dt. 17-12-2014)

DCIT v. Sun Pharmaceuticals Ltd. (Guj.) (HC) www.itatonline.org

346. S. 80HHD : Earnings in convertible foreign exchange – All units of assessee to be taken together –Computation of benefit cannot be given separately to each hotel [S. 80IB]

The assessee which is in the business of hotel, declared loss in the computation. The AO disallowed the deductions claimed under section 80HHD and section 80-IB of the Act. This was confirmed by the appellate authorities. On appeal : Held, dismissing the appeal, that so far as the principle adopted, the eligibility to deduct under section 80HHD and also the eligibility of deductions under section 80-IB being the same, the Tribunal was justified in negativing the contentions of the assessee. (A.Y..2000-01)

Hotel and Allied Trades P. Ltd. v. Dy. CIT (2014) 363 ITR 328 (Ker.)(HC)

347. S. 80-IA : Industrial undertakings – Infrastructure development – Out- door advertisement – Construction of bus shelter, putting up of footbridge etc. – Advertisement business to recoup expenditure – Not eligible deduction under section 80-IA(4).

The assessee-company was engaged in the business of outdoor advertisement and media advertising. Assessee-company had entered into an agreement with local authority for construction of bus shelters, putting up of footbridge, beautifying road medians and erecting street lights. Assessee was allowed to utilise these bus shelters, lamp posts, road medians and footbridges, for their advertisement business to recoup expenditure incurred for same. Assessee claimed deduction under section 80-IA(4) contending that it was involved in infrastructure development Since assessee eventually was an advertising company, and had developed, existing road median, erected bus shelters and light poles for its advertisement business, activities of the assessee were part of its normal activities of advertising and publicity rather than one of infrastructure development. Since assessee derived income only from advertisement hoardings erected on bus shelters, road medians and street light poles, said income could not be treated as income derived from ‘infrastructure facility’. Assessee was not eligible for deduction under section 80-IA(4).(A.Y. 2006-07 to 2008-09)

CIT v. Skyline Advertising (P.) Ltd. (2014) 269 CTR 289 / 225 Taxman 220 (Mag.) / 45 taxmann.com 532 (Kar.)(HC)

348. S. 80-IB(10) : Housing project – Approval prior to 1-4-2004 – Construction completed prior to 31-3-2008 – Entitled deduction

The assessee, was engaged in the business of builders and developers. It claimed deduction under section 80-IB(10) with respect to ‘housing project’ named ‘Maninagar’ at Rajkot having 119 units. The Assessing Officer disallowed the deduction under section 80-IB(10) by observing that with respect to the entire project there was no approval and/or the entire housing project was not completed and there were multiple approvals with respect to different units of housing project. CIT(A) and Tribunal allowed the claim of assessee. On appeal by revenue the Court held that where housing project was approved prior to 1-4-2004 and some of its units were constructed before 31-3-2008, deduction under section 80-IB(10) was to be allowed with respect to only those units of housing project, which were approved prior to 1-4-2004 and of which construction had been completed prior to 31-3-2008. (A.Y. 2008-09)

CIT v. B. M. & Brothers (2014) 225 Taxman 149 (Mag.) / 42 taxmann.com 24 (Guj.)(HC)

349. S. 80-IB(10) : Housing project – Deduction can be allowed only when return is filed on or before due date specified under section 139(1) [S.139(1)]

The assessee was engaged in the business of construction of housing projects. The assessee filed its return claiming deduction under section 80-IB(10).The Assessing Officer noted that in case of assessee company, due date specified under section 139(1) Explanation 2 to file return of income was 30-9-2009, however, assessee filed its return on 11-2-2010. Since assessee filed its return beyond the due date, the Assessing Officer rejected assessee’s claim for deduction. The Commissioner (Appeals) confirmed the order of Assessing Officer. The Tribunal, however, allowed assessee’s claim. On revenue’s appeal, Court held that the benefit of deduction under section 80-IB(10) can only be availed by the assessee if he has filed his return on time. If he has not filed his return on time, the benefits cannot be claimed. In the result, the revenue’s appeal is allowed. (A.Y. 2009-10)

CIT v. Shelcon Properties (P.) Ltd. (2014) 225 Taxman 165 (Mag.) / 44 taxmann.com 170 / (2015) 273 CTR 106 (Cal.)(HC)

350. S. 80-O : Remuneration from foreign enterprise – Services should be rendered outside India – Advocate – Furnishing of legal opinion to foreign company on matters relating to setting up industry in India – Amount received from foreign enterprise not entitled to deduction of 50%

The assessee, an advocate, entered into a retainer agreement with a foreign company. He gave legal opinions on all matters required by the company, since the company wanted to establish an industry in India. In consideration of the professional services rendered or agreed to be rendered outside India, he received fees in convertible foreign exchange and the income was brought to India. He claimed deduction of 50 per cent of the income so received or brought to India in computing the total income of the assessee. The AO rejected the claim and the Commissioner (Appeals) and the Tribunal confirmed the order of the Assessing Officer. On appeal to the High Court: Held, dismissing the appeal, that the assessee was rendering services in India to a foreign company, and, hence, he was not entitled for any deduction under section 80-O (A.Y.1997-98)

H. Raghavendra Rao v. Dy. CIT (2014) 363 ITR 238 (Karn.)(HC)

351. S. 80P : Co-operative societies –Assessee not being a bank, exclusion provided in Section 80P(4) would not apply – Appeal of revenue was dismissed

Assessee was a co-operative society providing credit facilities. Assessing Officer disallowed claim of assessee made under section 80P. Commissioner (Appeals) as well as Tribunal reversed decision of Assessing Officer on premise that assessee not being a bank, exclusion provided in section 80P(4) would not apply. Revenue contended that section 80P(4) would exclude not only co-operative banks other than those fulfilling description contained therein but also credit societies, which are not co-operative banks. CBDT issued circular No.133 of 2007 dated 9-5-2007 which provides clarification regarding admissibly of deduction under section 80P as per which section 80P will not apply to an assessee which is not a co-operative bank. In instant case assessee was admittedly not a credit co-operative bank but a credit co-operative society, hence, in view of clarification given by CBDT Circular No. 133 of 2007 dated 9-5-2007 exclusion clause of sub-section (4) of section 80P, will not apply to assessee. Appeal of revenue was dismissed. (A.Y. 2009-10)

CIT v. Surat Vankar Sahakari Sangh Ltd. (2014) 225 Taxman 162 (Mag.) / 43 taxmann.com 431 (Guj.) (HC)

352. S. 92C : Transfer pricing – Issue of shares to non-resident – Chapter X would have no application to transaction of issue of equity shares to non-resident AEs for the reason that the transaction of issue of shares is on capital account not giving to any income. [S. 2(24), 56, 92, 92B 92F]

Following the ratio in Vodafone India Services (P) Ltd. v. UOI (2014) 368 ITR 1(Bom.)(HC), the Court held that, Chapter X would have no application to transaction of issue of equity shares to non – resident AEs for the reason that the transaction of issue of shares is on capital account not giving rise to any income. Accordingly the order of TPO as well as draft assessment orders are set aside. (A.Y. 2009-10)

Shell India Markets (P) Ltd. v. ACIT (2014) 369 ITR 516 / 112 DTR 169 / (2015) 273 CTR 161 / 228 Taxman 99 (Bom)(HC)

353. S. 92C : Transfer pricing – Issue of shares at premium to nonresident holding company – Does not give rise to income in an international transaction – Capital receipts arising out of capital account transaction – Transfer pricing provisions held to be not applicable [S. 92CA]

TPO held that the difference between the arm’s length price and issue price (Including premium) was required to be treated as deemed loan given by the assessee to its holding company and deemed interest on such deemed loan was also treated as interest income. The DRP decided the issue in favour of revenue. On writ allowing the petition, the Court held that the order of the Transfer Pricing Officer made under section 92CA(3) was liable to be quashed as the issue of shares at premium does not give rise to income in an international transaction. Transfer pricing provisions are not applicable to capital receipts arising out of capital account transaction. Followed Vodafone India Services P Ltd. v. UOI (2014) 368 ITR 1 (Bom.)(HC)(WP No. 589 of 2014 dt 13-10-2014) (A.Y. 2010-11)

Vodafone India Services P Ltd. v. UOI (2014) 369 ITR 511 (Bom.)(HC)

354. S. 92C : Transfer pricing – Arm’s length price – Higher commission to subsidiaries was held to be justified

During relevant year, assessee paid commission to its subsidiaries located abroad for customisation work. TPO/AO finding that commission had been given to local distribution agents at rate of 10 per cent only, made certain adjustment to assessee’s ALP in respect of payments made to subsidiaries. Tribunal, however, deleted said addition. On appeal by revenue, dismissing the appeal, the Court held that once subsidiaries were found to be performing customisation work which was not being done by independent distributors, justification of payments made to subsidiaries at higher rate was rightly accepted by Tribunal. (A.Y. 2002-03)

CIT v. I-Flex Solutions Ltd. (2014) 225 Taxman 37(Mag.) / 46 taxmann.com 88 (Bom.)(HC)

Editorial: ACIT v. I.Flex Solutions Ltd. (2010) 42 SOT 7(URO)(Mum)(Trib) is affirmed.

355. S. 92C : Transfer pricing – Arms’ length price – Purchase and sale transactions with parent company – Functional and risk profile as well as working capital exposure was considered as comparable – Order of Tribunal was confirmed

Assessee, a subsidiary company entered into transactions of purchase and sale of goods with its parent company. Contention of the assessee that cost of goods sold should not be taken into consideration while computing profit margins and appropriate ratio to be considered for comparing with other entities would be ratio of net revenue to operating costs. Revenue authorities rejected the contention of assessee and made addition to ALP, which was confirmed by Tribunal. On appeal by assessee, the Court held that Tribunal had made it clear that only those entities which were similarly placed as assessee in respect of their functional and risk profile as well as working capital exposure would be chosen as comparables, hence assessee’s appeal had no merit and, thus, it was to be dismissed.

Misubishi Corporation India (P.) Ltd. v. Addl. CIT (2014) 366 ITR 495 / 269 CTR 329 / 225 Taxman 38(Mag.) / 48 taxmann.com 45 (Delhi)(HC)

356. S. 139 : Return – Refund – Delay in filing return – Condonation of delay – Deduction of tax at source – Assessing Officer directed to decide in accordance with law after subjecting return to scrutiny assessment. [S. 119(2)(b), 139(1), 139(4)]

Assessee could not file the return within the time specified under section 139(1) of the Act. Thereafter the assessee filed return of income and claimed a refund of Rs. 6,34,929, there was delay of 22 months. The AO did not act upon the return. The assessee filed an application under section 119(2)(b) before the CBDT for condonation of delay. CBDT rejected the application. The assessee filed writ petition. Allowing the petition the Court held that assesse has not benefited by resorting to delay and the Assessing Officer was directed to decide in accordance with law after subjecting return to scrutiny assessment. (A.Y. 1997-98)

Artist Tree Pvt. Ltd. v. CBDT (2014) 369 ITR 691/113 DTR 370/(2015) 228 Taxman 108 (Bom) (HC)

357. S. 142(2A) : Special audit – Enquiry before assessment – Complexity of accounts – Direction for special audit was held to be justified [S. 80-IAB, 145]

The assessee was a real estate developer engaged in creation, execution and sale of residential and commercial projects. It also earned income from projects in a Special Economic Zone on which it claimed deduction under section 80I-AB. AO directed the assessee to get its audited by a chartered accountant who was nominated as per the provisions relating to conduct of special audit under section 142(2A). The assessee filed writ petition, High Court upheld direction for special audit on ground that accounts of assesse did not contain narration of some entries and assessee had failed to submit comparative details of expenditure in SEZ and non SEZ units and affairs of company were not transparent.(A.Y. 2010-11)

DLF Ltd. and Another v. Addl. CIT (2014) 366 ITR 390 / 225 Taxman 258 / 271 CTR 43 (Delhi)(HC)

Editorial: SLP of assessee is dismissed. SLP No.10481 of 2014 dt 25-4-2014. DLF Ltd. v. Addl.CIT (2014) 365 ITR 210 (St)/227 Taxman 379 (SC)

358. S. 143(2) : Assessment – Notice – Block assessment – Non issue of notice under section 143(2) – Block assessment was held to be invalid. [Ss. 143(3), 158BC]

In order to make an assessment under section 143(3) read with section 158BC of the Income-tax Act, 1961, notice should be issued under section 143(2). Omission to issue such a notice is not a procedural irregularity and is not curable. Held accordingly, allowing the appeal, that having regard to the fact that admittedly no notice was issued under section 143(2) to the assessee for the block assessment period April 1, 1985 to September 15, 1995, the orders passed by the Tribunal as well as the AO were liable to be set aside. [BP. 1-4-1985 to 15-9-1995)

R Romi v. CIT (2014) 363 ITR 311 (Ker.)(HC)

359. S. 144C : Reference to dispute resolution panel – Transfer pricing – Alternative remedy – Writ is not maintainable [S. 92CA, Article 226]

A reference was made by AO to TPO under section 92CA. Following the determination by TPO, AO issued a draft order to which assessee raised objections. DRP issued directions under section 144C(5) – Following said instructions, AO passed assessment order. Assessee filed writ petition challenging assessment order so passed. Since assessee had remedy by way of an appeal to Tribunal against order of assessment in which all issues, inter alia, including addition made by TPO in return could be addressed, instant petition was to be disposed of by relegating assessee to remedy of appeal against order of assessment. Matter remanded.

Lionbridge Technologies (P.) Ltd. v. Dy. CIT (2014) 225 Taxman 130(Mag.) / 46 taxmann.com 184 (Bom.)(HC)

360. S.147 : Reassessment – Survey – Valuation of intangible assets and bogus claim – Higher depreciation – On the basis of statement of managing director and chartered engineer – Reassessment was held to be valid. [S. 32, 143(3)]

The assessment was completed under section 143(3). Survey proceedings took place thereafter. During the survey proceedings statement of managing director and as well as Chartered Engineer who valued the intangible assets were recorded. In the statement managing director stated that he was ready to withdraw 50% of the claim for depreciation, subject to fresh valuation of the intangible assets. Chartered Engineer in his statement stated that he has valued the intangible assets only for internal use of the company and not for claiming depreciation. On the basis of the statement the AO issued reassessment notice. The assessee challenged the said notice by filing writ petition. Dismissing the petition the Court held that reopening on the basis of statements of managing director and Chartered Engineer during survey showing higher valuation of intangible assets and/or bogus claim was sustainable. Petition of assessee was dismissed. (A.Y. 2009-10, 2010-11)

Powerdeal Enery Systems (I) (P) Ltd. v. ACIT (2014) 112 DTR 409 (Bom.)(HC)

361. S. 147 : Reassessment – Housing project – Reassessment on same material was held to be not valid [S. 80-IB(10)]

High Court held that the AO has allowed the claim after making detailed enquiries hence he could not have initiated reassessment proceedings on basis of same material. Accordingly the reassessment proceedings were quashed. (A.Y. 2009-10)

Sarala Rajkumar Varma v. ACIT (2014) 43 taxmann. com 372 (Guj.)(HC)

Editorial: SLP of revenue was dismissed. SCA No. 125 of 2014 dt. 8-10-2014. ACIT v. Sarala Raj Kumar Varma ( 2014) 227 Taxman 377 (SC)

362. S. 147 : Reassessment – Notice after four years – Information from CBI that loans accepted as genuine in original assessment were bogus – Reassessment was held to be valid [Ss. 69, 148]

The assessment was completed under section 143(3). On the basis of information received from CBI that loans accepted as genuine in original assessment were bogus the AO reopened the assessment after four years. The assessee challenged the said notice by filing writ petition. Dismissing the petition the Court held that where the AO forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings. On facts since the assumption of jurisdiction on the part of the AO was based on fresh information, specific and reliable and otherwise sustainable under the law, the reassessment proceedings warranted no interference. Notice for assessment was held to be valid. (A.Y. 2006-07)

Yogendrakumar Gupta v. ITO (2014) 366 ITR 186/ 46 taxmann.com 56 (Guj.)(HC)

Editorial : SLP of assessee is dismissed SLP. Nos. 15381 of 2014 dt. 26-9-2014. Yogendrakumar Gupta v. ITO (2014) 227 Taxman 374 (SC)

363. S. 147 : Reassessment – Notice after four years – Notice on basis of subsequent decision of Appellate Tribunal and High Court – Notice not valid [S. 80HHC, 148]

The assessment was completed under section 143(3) and deduction under section 80HHC was allowed. Reopening of assessment was done due to subsequent decisions of Tribunal and Courts. The assessee challenged the reassessment proceedings. Allowing the petition the Court held that reassessment proceedings on the basis of subsequent decision of Appellate Tribunal and High Courts was not valid. The exercise of jurisdiction has to be examined on the basis of reasons recorded at the time of issuing of notice. It is not open to the revenue to substitute or make addition to the reasons recorded at the time of issuing the notice. Notice of reassessment was held to be not valid. (A.Y. 1998-99)

Allanasons Ltd. v. Dy. CIT (2014) 369 ITR 648 (Bom.)(HC)

364. S. 147 : Reassessment – Eligible business – No power of review – Reassessment was held to be bad in law [Ss.36(1)( viii), 143(3), 148]

AO allowed assessee’s claim for deduction under section 36(1)(viii). Subsequently, AO sought to initiate reassessment proceedings taking a view that excess benefit was granted under section 36(1)(viii). The assessee challenged the said notice in writ petition. Allowing the petition the Court held that AO has no power to review assessment order under shelter of re-opening of assessment under sections 147/148, it was not open for AO to re-look at same material only because he was subsequently of view that conclusion arrived at earlier was erroneous. Reassessment proceedings were quashed. (A.Y. 1999-2000)

Housing Development Finance Corporation Ltd. v. J. P. Janjid (2014) 225 Taxman 81 (Mag.) / 48 taxmann.com 28 (Bom.)(HC)

365. S. 147 : Reassessment Premium notes – Interest – Capital or revenue – Pendency of appeal before Tribunal – Reassessment was held to be bad in law [S. 37(1)]

Assessee issued secured premium notes and claimed interest liability and other related expenditure. AO held impugned expenditure as capital in nature and made addition to income. CIT(A) allowed the said expenditure as revenue. Revenue went in appeal before Tribunal. Pending appeal, AO issued notice for reopening on ground that liability in respect of said expenditure did not accrue during relevant period. On appeal CIT(A) and Tribunal held that reassessment was bad in law. On appeal by the revenue, confirming the order of Tribunal the Court held that such plea could not be taken by revenue pending appeal before Tribunal and thus, intimation of reassessment was bad in law. (A.Y. 1997-98)

CIT v. Nirma Ltd. (2014) 225 Taxman 49 (Mag.) / 47 taxmann.com 415 (Guj.)(HC)

366. S. 147 : Reassessment – Dealers commission – Business expenditure – Attempt to revisit for third time – Nothing but the tax authorities effort to overreach the law and resultantly a sheer harassment of the petitioner – Reassessment was quashed [S. 37(1)]

The assessee, a telecom service provider filed its return and claimed commission expenses. During assessment proceedings and first reassessment proceedings questions regarding dealer’s commission as well as TDS on those amounts were replied to AO. Revenue considering same, disallowed certain portion. Notice was issued once again on the same issue. Allowing the petition the Court held that an attempt of AO to revisit same issue for the third time without any tangible or fresh material could not be held as valid reassessment. Action of AO was noting but the tax authorities’ effort to overreach the law and resultantly a sheer harassment of the petitioner. (A.Y.1997-98)

Vodafone South Ltd. v. Union of India (2014) 363 ITR 388 / 225 Taxman 46 (Mag.) / 44 taxmann.com 471 / 112 DTR 227 (Delhi)(HC)

367. S. 147 : Reassessment – Business of electricity – Separate report of each undertaking was not filed along with the return – Interest earned on late payment of sales – Reassessment was not justified [Ss. 80-IA, 148]

Assessee engaged in business of generation of electricity, claimed deduction under section 80-IA. AO initiated reassessment proceeding on ground that separate report as required to be submitted at time of filing return by each undertaking and enterprise of assessee claiming deduction, had not been furnished and that interest earned on late payment of sale was eligible for deduction. The assesee challenged the notice in writ. Allowing the petition the Court held that, it was found that required report was filed during assessment proceedings and that interest issue is settled by Supreme Court that interest from trade debtor is not required to be excluded from profits for purpose of section 80-IA deduction. Since neither ground was sustainable, permitting notice for reassessment to be pursued would be an exercise in futility. (A.Y. 2004-05)

Gujarat Paguthan Energy Corporation (P.) Ltd. v. Dy. CIT (2014) 225 Taxman 70 (Mag.) / 45 taxmann.com 564 (Guj.)(HC)

368. S. 147 : Reassessment – Industrial undertakings – Merger – Quantum of deduction – Reassessment was held to be not valid [S. 80-IB]

Assessee, engaged in business of contracts for erection, commissioning and pressure die casting, claimed deduction under section 80-IB which was disallowed. CIT(A) granted relief to assessee and said order was subsequently given effect to by AO. Thereafter, department sought to review order passed by Assessing Officer questioning quantum of deduction. Meanwhile, Tribunal had confirmed order passed by CIT(A). Since order passed by AO got merged with order of Tribunal which also had attained finality, Department’s action was not justified. Reassessment was quashed. (A.Y. 2001-02)

CIT v. Flothern Engineers (P.) Ltd. (2014) 225 Taxman 223 (Mag.)/ 45 taxmann.com 546 (Mad.) (HC)

369. S. 147 : Reassessment – Within four years – Change of opinion- Disallowance of claim partly in assessment proceedings – Reassessment was held to be not valid. [S. 80-IB (8A)], 143(3), 148]

During original assessment, assessee’s claim was processed at length and after calling for detailed explanation from it, same was accepted. Merely because a certain element or angle was not in mind of Assessing Officer while accepting such a claim, could not be a ground for issuing notice under section 148 for reassessment. Mere failure of AO to raise such a question would not authorise him to reopen assessment even within period of 4 years from end of relevant assessment year, any such attempt on his part would be based on mere change of opinion, therefore, notice issued under section 148 was liable to be quashed. (A.Y. 2007-08)

Cliantha Research Ltd. v. Dy. CIT (2014) 225 Taxman 102 (Mag.) / 35 taxmann.com 61 (Guj.)(HC)

370. S. 147 : Reassessment – Unutilised CENVAT – Exclusive method of accounting – Change of opinion – Reassessment was held to be not valid. [S. 145, 148]

Where issue of accounting treatment in respect of unutilised CENVAT credit for purpose of valuing closing stock was already examined by Assessing Officer during scrutiny assessment, reopening of assessment on same issue without any tangible material was mere change of opinion and hence not sustainable. (A.Y. 2008-09)

Heavy Metal & Tubes Ltd. v. Dy. CIT (2014) 225 Taxman 86(Mag.) / 35 taxmann.com 288 (Guj.) (HC)

371. S. 147 : Reassessment – Bad debts – Capital account – Change of opinion – Reassessment was held to be bad in law [Ss. 36(1)(vii), 143(3)148]

During scrutiny assessment, Assessing Officer had asked for details regarding bad debts written off, but had not made any disallowance for same. Subsequently assessment was reopened and bad debts written off was disallowed on account of it being on capital account. On writ the Court held that where Assessing Officer had raised a specific query with regard to bad debts written off, it could be concluded that he had examined issue at time of making original assessment and had formed an opinion by not making any addition in respect thereof. Therefore, reopening of assessment on issue of bad debts written off was nothing but a mere change of opinion, and hence, not permissible. (A.Y. 2003-04)

Maruti Suzuki India Ltd. v. Dy. CIT (2014) 225 Taxman 104 (Mag.) / 34 taxmann.com 225 (Delhi) (HC)

372. S. 147 : Reassessment – After expiry of four years – Disallowance of expenditure – Exempt income – Deduction at source – No allegation that failure of assessee to disclose truly and fully all material facts – Reassessment was bad in law. [Ss. 14A, 40(a)(ia)]

On verification of records available during scrutiny assessment, Assessing Officer issued notice for reopening after expiry of four years from end of assessment year on ground that interest on loan and depreciation were not allowable, no disallowance had been made under section 14A and that disallowance was required for non deduction of tax at source. Notice for reopening was issued beyond four years on basis of verification of material available during scrutiny assessment, and Assessing Officer had not alleged failure of assessee to disclose truly and fully all material facts, reopening was not sustainable (A.Y. 2006 -07)

Patel Alloy Steel (P.) Ltd. v. ACIT (2014)225 Taxman 84 (Mag.) / 35 taxmann.com 353 (Guj.)(HC)

373. S. 147 : Reassessment – Subsequent assessment year – Tangible material – Reopening of assessment was held to be valid. [Ss. 37(1), 148, 195(2)]

Assessee-company claimed deduction on account of business support charges, guarantee fees and other service charges paid to its holding company and it was allowed deduction accordingly. However, Assessing Officer noticed that in assessment proceedings for assessment year 2007-08, business support charges and guarantee fees paid to holding company were disallowed being not for business expediency. On basis of said order, Assessing Officer reopened assessment for assessment year 2006- 07 – Records revealed that Assessing Officer for assessment year 2006-07 did not evaluate or consider said issues . Moreover, assessment order for assessment year 2007-08 could be said to be tangible material to form belief that income had escaped assessment. Reopening was justified. (A.Y. 2006-07)

Rabo India Finance Ltd. v. Dy. CIT (2014) 225 Taxman 92 (Mag.) / 34 taxmann.com 228 (Bom.) (HC)

374. S. 147 : Reassessment – Within four years – Infrastructure development Road bridge – Change of opinion – Reassessment was quashed. [S. 80-IA(4)(ia]

Petitioner, a company, entered into agreement with Gujarat State Road Development (GSRD) corporation for construction of four-Lane-Rail over bridge for which it was allowed to collect toll at a specified rate for a certain period. It claimed deduction under section 80-IA with respect to its income of toll collection which was allowed by Assessing Officer in original assessment. Assessing Officer reopened assessment on ground that assessee had not entered into any agreement with Central Government or State Government or local authority or any other statutory body as required in section 80-IA(4)(i)(a). However, it was found that during original assessment several questions were raised by Assessing Officer and only upon being satisfied by replies of petitioner said claim was accepted. Further, said claim was sole claim made by petitioner. Since assessee’s claim was granted after thorough examination and only upon being satisfied that assessee was entitled to such claim, any subsequent attempt on part of Assessing Officer to revisit such a claim would be based on a mere change of opinion, therefore, impugned notice for assessment was required to be quashed. (A.Y. 2008-09)

Ranjit Projects (P.) Ltd. v. Dy. CIT (2014) 225 Taxman 176 (Mag.)/ 46 taxmann.com 110 (Guj.) (HC)

375. S. 147 : Reassessment – Infrastructure development – Within four years – Change of opinion – Contractor and not developer – Reassessment was held to be not valid. [S.80- IA(13)]

Assessee, a contractor claimed deduction under section 80-IA. Assessing Officer issued notice under section 147 on ground that assessee was a contractor and not developer and, thus, it was not entitled to claim deduction under section 80-IA. Only ground which had made Assessing Officer to initiate proceedings of reassessment was amendment by way of insertion of Explanation to sub-section (13) of section 80-IA by Finance Act, 2009 which substituted earlier Explanation giving retrospective effect to said provision from 1-4-2000. Since such provision being always there on record and Assessing Officer having already scrutinised entire issue thread bare, issuance of such notice had to be held as nothing but a change of opinion on part of Assessing Officer. Reassessment was bad in law. (A.Y. 2006-07)

Classic Network Ltd. v. Dy. CIT (2014) 225 Taxman 174 (Mag.) / 45 taxmann.com 234 (Guj.)(HC)

376. S. 147 : Reassessment – After expiry of four years – Biodegradable waste – Collecting and processing – Change of opinion – Reassessment was not valid [S. 80-IB, 80JJA, 148]

The assessee was engaged in business of manufacturing of Enzyme. He filed return of income along with tax audit report. The case was selected for scrutiny and notice under section 143(2) was issued to assessee. The assessee declared income at nil after claiming deduction under sections 80-IB and 80-JJA The Assessing Officer passed assessment order, allowing the deductions claimed by assessee and assessing total income at nil.

After period of four years from the end of assessment year, notice under section 148 was issued to assessee for reassessment of his income with respect to claim made under section 80-JJA. On writ allowing the petition the court held that, it was found that assessee’s case was selected for scrutiny assessment in which specific query was raised vide a notice with respect to claims made by assessee. Assessee replied same and Assessing Officer allowed deductions, after due application of his mind. It could not be said that there was any concealment/or non disclosure of true facts by assessee therefore, original assessment could not be permitted to be reopened/reassessed merely on change of opinion. (A.Y. 2006-07)

MAPS Enzymes Ltd. v. Dy. CIT (2014) 225 Taxman 160 (Mag.) / 43 taxmann.com 422 (Guj.) (HC)

377. S. 147 : Reassessment – Power – Discovery – Production of evidence – Reference to District valuation officer – No assessment was pending – No authority to issue commission – Reassessment notice was held to be bad in law. [Ss. 131(1)(d), 148]

Assessee, had been constructing a commercial complex in which substantial investment was made. Assessing Officer in order to ascertain cost of construction, referred case to District Valuation Officer (DVO) under section 131(1)(d). Subsequently, on basis of report of DVO, notice was issued under section 148 for initiating reassessment proceedings. Assessee filed writ petition raising objection to initiation of reassessment proceedings. Since there was no assessment proceedings pending against assessee, Assessing Officer did not have authority to issue commission to DVO under section 131(1)(d) therefore, impugned proceedings initiated against assessee deserved to be quashed. (A.Ys. 1990-91 to 1998-99)

CIT v. Baldev Plaza (2014) 225 Taxman 276 / 42 taxmann.com 373 (All.)(HC)

378. S. 147 : Reassessment – Income from house property – Intimation – Reassessment was held to be valid. [S. 143(1)]

The Court held that even though return has been accepted under section 143(1), if ingredients of section 147 are satisfied the AO is empowered to initiate proceedings, even though no proceedings were taken under section 143(3) of the Act. Reassessment proceedings were held to be valid. (A.Y. 2002-03)

Rayala Corporation P. Ltd. v. ACIT (2014) 363 ITR 630 / 264 CTR 282 (Mad.)(HC)

379. S. 147 : Reassessment – After four years – Allocation of common expenditure between section 80- IB unit and non-section 80-IB unit disclosed – Deduction allowed after considering material – Notice was held to be not valid [Ss. 80-IB, 148]

Court held that the material which formed the basis of reason to believe that income had escaped assessment was the allocation of expenditure between the two units of the assessee leading to higher deduction under section 80-IB of the Act. During the assessment proceedings, the AO had examined the claim for deduction under section 80-IB of the Act and for that purpose had called upon the assessee to file details of expenses claimed in its profit and loss account. Therefore, there was no tangible material to lead to a reason to believe that income had escaped assessment, it was only a change of opinion on the part of the AO on the material available. There had been disclosure of material facts truly and fully for purposes of assessment. The notice of reassessment was not valid. (AY. 2006-07)

Lalitha Chem Industries P. Ltd. v. Dy. CIT (2014) 364 ITR 213 / 225 Taxman 225 (Mag.) / 265 CTR 348 (Bom.)(HC)

380. S. 147 : Reassessment – Survey- Change of opinion – Reason must be based on new and tangible materials – Assessment after considering documents impounded during income-tax survey – Notice based on same documents – Reassessment was held to be not valid. [Ss. 133A, 148]

Court held that a perusal of the original assessment order made it abundantly clear that the AO had not only referred to the documents and records found in course of the survey under section 133A of the Income-tax Act, 1961, from the business and office premises of the assessee but also those were test checked and evaluated in undertaking that exercise. The endeavour on the part of the Assessing Officer to initiate a reassessment proceeding under sections 147 / 148 of the Act on the purported ground that the same records/documents disclosed that the amount had escaped assessment was unconvincing and untenable as well. The notice of reassessment was not valid as it was based on mere change of opinion of the AO. (A.Y. 2003-04)

CIT v. Vardhman Industries. (2014) 363 ITR 625 / 224 Taxman 68 (Mag.) / 264 CTR 580 (Raj.) (HC)

381. S. 147 : Reassessment – Notice after four years – Scrutiny assessment based on material submitted by assessee – Notice after four years to recompute income – Notice not valid [S.148]

Where a notice of reassessment is issued after four years it would have to be ascertained whether there was any failure on the part of the assessee to disclose truly and fully all necessary facts for the assessment.

Held accordingly, allowing the petition, that in the reasons, the Assessing Officer had recorded that “on verification of computation of income it was noticed that”. Full facts were there before the AO in the form of declarations made in the returns filed as well as through correspondence during the course of scrutiny assessment. The notice of reassessment after four years was not valid. (A.Y. 2006-07)

Ferromatik Milacron India P. Ltd. v. ACIT (2014) 363 ITR 461 / (2013) 217 Taxman 136 (Mag.) (Guj.) (HC)

382. S. 147 : Reassessment – Notice within four years – Assessee declaring its book profits after reducing amount of deduction under section 10AA during original proceedings – Both issues not subject matter of consideration in original assessment proceedings – Reasonable belief that income chargeable to tax has escaped assessment – Reassessment was held to be valid. [Ss.10AA, 143(3), 148]

Court held that the non-receipt of convertible foreign exchange within a period of six months from the end of the assessment year was not the subject matter of consideration nor the fact that the assessee had declared its book profits after reducing the amount of deduction under section 10AA during the original proceedings. Both these issues were not the subject matter of consideration during the original assessment proceedings leading to the assessment order in relation to the assessment. Thus, it was permissible for the AO to have a reasonable belief that income chargeable to tax had escaped assessment and it did not stem from a change of opinion. Only a prima facie view of the Assessing Officer is necessary to issue notices and not a cast iron case of escapement of income. Therefore, no fault could be found with the notice issued under section 148. (A.Y. 2008-09)

Eleganza Jewellery Ltd. v. CIT (2014) 364 ITR 232 (Bom.)(HC)

383. S. 147 : Reassessment – Notice – Reasons recorded before issuance of notice for reopening assessment quashed by High Court – Supplementary reasons recorded after issue of notice have no validity – Notice not valid. [S. 148]

The validity of notice for reopening must be judged on the basis of the reasons recorded. Such reasons in terms of section 148(2) have to be recorded before issuance of the notice.

Held accordingly, allowing the petition that the original assessment was not made after scrutiny. The validity of the Assessing Officer’s belief that income chargeable to tax had escaped assessment on the strength of the reasons recorded before issuance of the notice for reopening had already been set aside in the case of the very assessee by the High Court. The supplementary reasons were recorded well after issuance of the notice. The Assessing Officer, therefore, could not support the notice of reopening on the basis of any reasons recorded subsequent to the notice itself. Therefore, the notice was liable to be quashed. (A.Y. 1999-2000)

India Gelatine and Chemicals Ltd. v. CIT (No.2) (2014) 364 ITR 655 (Guj.)(HC)

384. S. 147 : Reassessment – Notice – After four years – Provision for doubtful debts – Depreciation – Failure to deduct tax at source – Reassessment was held to be in valid [Ss. 11, 148]

Assessee’s income and expenditure account reflecting provision for doubtful accounts there was no suppression of facts. Reduction of amount from income from investments and deposits, queries answered and AO was satisfied with explanation and details given by assessee in original assessment. Reopening on ground of double deduction mere change of opinion. Income of assessee exempted under section 11. Assessee not carrying on any business hence notice on basis of section 40(a)(ia) misconceived. Claim of depreciation on fixed assets in addition to allowance of capital expenditure held in favour of assessee in previous year reassessment notice was held to be invalid.

Bombay Stock Exchange Ltd. v. Dy. DIT(E) (No. 2) (2014) 365 ITR 181 (Bom.)(HC)

385. S. 147 : Reassessment – Notice after four years – Investment in companies subsequently found to be bogus – Sanction of Commissioner was obtained – Reassessment was held to be valid. [Ss. 148, 149(1)(b), 151(2)]

Assessment accepting assessee’s investments shown as funded by three companies. Companies found subsequently to be bogus. Disclosure rendered untrue. Reopening after four years permissible. Requirement that AO should specify that income escaping assessment exceeds Rs. 1 lakh. Met if such statement recorded while placing reasons for approval of Commissioner prior to issuance of notice. Sanction of Commissioner, merely stating “yes”. No inference that Commissioner did not apply mind while granting sanction. (A.Y. 2006-07)

Lalita Ashwin Jain v. ITO (2014) 363 ITR 343 (Guj.) (HC)

386. S. 147 : Reassessment – Search and seizure – Gift – Reassessment proceedings were held to be valid. [Ss.68, 132, 139, 143(2), 148, 158BC]

During post search enquiry, it became known that gift cheques shown in return filed under section 139 were a sham transaction. Court held that material found in post search enquiries could form a ‘reason to believe’ that income had escaped assessment by issuance of a notice under section 148, since period under section 143(2) had expired, AO having genuine reasons to believe that income had escaped assessment, could issue a notice under section 148. Accordingly the AO was justified in forming an opinion, that income had escaped assessment and was, therefore, justified in issuing notice under section 148. (A.Ys. 1999-2000 to 2001-02) Anand Prakash Agrawal v. CIT (2014) 367 ITR 526/ 225 Taxman 40 (Mag.) / 47 taxmann.com 80 (All) (HC)

Usha Agrawal (Smt.) v. CIT (2014) 367 ITR 626 (All.)(HC)

Mohit Agrawal v. CIT (2014) 367 ITR 626 (All.) (HC)

387. S. 147 : Reassessment – After expiry of four years – Deduction at source – Commission – Payment to non-resident – Less than full disclosure – Reassessment was justified. [Ss. 40(a)(i), 143(3), 195]

Assessment was reopened on the ground that assessee had made payment of commission to foreign agent without deducting tax at source and thus, said payment was liable to be disallowed under section 40(a)(ia). Assessee contended that there was no failure to make a full and true disclosure of all material facts necessary for assessment, initiation of reassessment proceedings after expiry of four years from the end of relevant assessment year was not sustainable. The Court held that it was noted from records that commission paid to foreign party was not shown separately but added to cost of purchase while commission paid on local purchases had been shown in profit and loss account and not added to costs. In view of aforesaid facts there had been less than full disclosure of all material facts during assessment proceedings and therefore, reopening of assessment was held to be justified in law. (A.Y. 2005-06)

Rosy Blue (India) Ltd. v. Dy. CIT (2014) 227 Taxman 89 / 47 taxmann.com 332 (Bom.)(HC)

388. S. 148 : Reassessment – Notice – Order passed without recording reasons – Liable to be quashed. [S. 147]

Where AO passed reassessment order without recording reasons for initiating reassessment proceedings despite repeated requests for same, order so passed being invalid, deserved to be quashed. (AY. 2001-02)

Torrent Power SEC Ltd. v. ACIT (2014) 225 Taxman 78 (Mag.) / 45 taxmann.com 561 (Guj.)(HC)

389. S. 148 : Reassessment – Third notice for reassessment – Return filed – Participated in the proceedings – Reassessment notice was held to be valid – Matter was set aside to decide on merit [Ss. 147, 151]

Notice under section 148 was issued to assessee and, consequently, assessee filed return, however, it was found that said notice did not specify period for which assessee was supposed to file return hence the said notice was dropped. Thereafter, another notice was issued but it was also dropped for want of approval under section 151. Then again third notice under section 148 was issued and assessment completed. Assessee challenged assessment as void ab initio on ground that no valid returns were filed. The Court held that since assessee had not only participated in proceedings but accepted his return filed in response to first notice under section 148, as return filed in response to third notice, assessment order could not be said to be void ab initio and matter was set aside to file of Tribunal to decide on merit. (AYs. 1998-99 and 1999-2000)

CIT v. R. Jayavelu (2014) 225 Taxman 83(Mag) / 45 taxmann.com 480 (Kar.)(HC)

390. S. 148 : Reassessment – Notice – Reason for reassessment must be recorded before issuing notice. [S. 147]

Sub-section (1) of section 148 of the Income-tax Act, 1961, pertains to a notice to be issued by the Assessing Officer before making the assessment, reassessment or recomputation of income under section 147 of the Act. Sub-section (2) of section 148 provides that the Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

Held accordingly, that on the date of issue of the notice under section 148, no reasons for doing so had been recorded. The notice was not valid. (AY. 2007-08)

Gujarat Borosil Ltd. v. Dy. CIT (2014) 363 ITR 293 / (2013) 217 Taxman 139 (Mag.) (Guj.) (HC)

391. S. 153 : Assessment – Reassessment – Limitation – Finding or direction – Where no express finding or direction was there, reassessment could be made under section 153(3)(ii). [Ss. 148, 149]

Whenever an income is deleted or excluded from one year a corresponding inclusion in appropriate year by resorting to reopening of assessment for that year is specifically permitted by Explanation 2 to section 153(3) and therefore limitation provided under sections 148 and 149 has to be considered in light of section 150 and sub-section (3) of section 153, read with Explanation 2 thereof. Thus, reassessment of escaped income, without any express ‘finding’ or ‘direction’ could be made under Explanation 2 to section 153(3) and in a case where no express finding or direction was there, reassessment could be made under section 153(3)(ii). Appeal of revenue was allowed. (A.Y. 1996-97)

CIT v. Glass Equipment (India) Ltd. (2014) 366 ITR 59 / 269 CTR 363 / 225 Taxman 65 (Mag.)/ 47 taxmann.com 138 (Cal.)(HC)

392. S. 158BA : Block assessment – Undisclosed income – Return of income – Books of account not maintained – Benefit of exemption was held to be not allowable. [S. 139(1)]

The premises of the assessee was searched. The Assessing Officer found that the assessee carried out manufacturing activity and had not maintained books of account. Therefore, he assessed the income on total undisclosed income without giving any benefit of the exemption allowed to the assessee in terms of section 139. On appeal, the Tribunal upheld the same. On appeal the Court held that, none of provisions of Chapter XIV-B contemplates that an assessee shall be entitled to exemption even if he has not maintained any books of account or produced documents to satisfy Assessing Officer that income generated is not part of undisclosed income – Held, Yes – Whether, therefore, it is entire undisclosed income, which is liable to higher rate of tax and assessee is not entitled to exclude basic exemption granted to assessee under section 139(1) without satisfaction of Assessing Officer regarding genuineness of books of account or other documents in respect of his income. (A.Y. BP. 1986-87 to 1996-97)

Satpal Singh v. ACIT (2014) 225 Taxman 204 (Mag.) / 45 taxmann.com 435 (P&H)(HC)

393. S. 158B : Block assessment – Undisclosed income – Wrong claim of depreciation – Assessable as undisclosed income. [Ss. 32, 132]

In regular assessments, assessee had been claiming depreciation year after year on building owned by it which was shown in balance sheet as business asset. In search, it was found that said building had been rented out to third parties and had not been used for business and, hence, no depreciation could be allowed. There was no explanation from assessee for illegally claiming depreciation, building was let out, in regular assessment claim of depreciation was made without any foundation even when there was absolutely no scope for claiming depreciation. Tribunal had not erred in disallowing depreciation under section 32 in block assessment proceedings under section 158BB by treating said amounts as undisclosed income as defined under section 158B(b) even when said depreciation was claimed by assessee in regular assessment for relevant assessment years treating building as business asset; same would no more be a matter to be considered during course of regular assessment and, thus, there was no need for relegating matter for regular assessment. (A.Y. 1995-96)

Medical Land v. CIT (Appeals) (2014) 363 ITR 81 (Ker.)(HC)

394. S. 158BC : Block assessment – Procedure – Business income – Undisclosed income – Set off of miscellaneous receipts – No evidence was produced hence set off was not allowed [S. 28(i)]

Assessee-company was engaged in business of manufacturing rectified spirit. Search was conducted at premise of assessee during which evidences with regard to unaccounted sale of rectified spirit and other discriminating documents were seized. In pursuance to notice under section 158BC, assessee filed return for block period declaring undisclosed income of Rs. 49,47,000 and also set off of Rs. 31,95,000 toward miscellaneous receipt as recorded in books. During course of assessment proceedings, assessee had admitted that except business of rectified spirit, they are not doing any other business. Since assessee had failed to produce any material or evidence to support claim with regards to miscellaneous receipts and also failed to maintain true and correct account, no set off could be allowed. Appeal of revenue was allowed. (BP. 1-4-1991 to 27-4-2001)

CIT v. Sri Lakshmi Narasimha Distilleries (P.) Ltd. (2014) 225 Taxman 343 / 45 taxmann.com 455 (Kar.) (HC)

395. S. 158BC : Block assessment – No incriminating material found during search – Difference between cost of construction estimated by District Valuation Officer and cost shown in accounts less than 15 per cent – Addition to income in block assessment – Not justified. [Ss. 132, 158BB]

Tribunal deleted the addition made by the AO based on the valuation report of District Valuation Officer. On appeal by the revenue following the ratio in ACIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC), the Court held that there was no material found during the search indicating that there were expenses incurred on construction by the assessee that were not recorded in the books of account. In the absence of any seized material and solely on the basis of the report of the District Valuation Officer, there could not be any finding with regard to the undisclosed income. (BP 1-4-1989 to 28-1-2000)

CIT v. Vasudev Construction (2014) 363 ITR 247 (Karn.)(HC)

396. S. 158BD : Block assessment – Undisclosed income of any other person – Additional ground – Tribunal was directed to decide the additional ground on merits. [S. 254(1)

In course of block assessment proceedings, Assessing Officer made certain additions to assessee’s income. Commissioner (Appeals) sustained a part of said additions. In appellate proceedings, assessee raised an additional ground challenging validity of notice under section 158BD. Tribunal remitted matter back to file of Commissioner (Appeals) to decide said issue. in view of fact that no additional evidence was required to examine issue relating to validity of notice under section 158BD. Tribunal was to be directed to decide said additional ground itself on merits without remitting it back to Commissioner (Appeals). Matter remanded.

J. B. Construction v. ACIT (2014) 225 Taxman 194 (Mag.) / 45 taxmann.com 401 (Guj.)(HC)

397. S. 158BD : Block assessment – Assessment of third person – Incriminating material relating to assessee discovered during search of third person – Information forwarded to Assessing Officer having jurisdiction over assessee – Notice under section 158BD is Valid – On merit addition based on project report was deleted. [Ss. 69, 158BC ]

During the search operation incriminating material relating to the assessee had been discovered. The authorised officer did pass on information to the Assessing Officer, who had the jurisdiction and who proceeded to assess. The proceedings under section 158BD were valid.

However the revenue had not discharged the burden of proving unexplained investment in terms of section 69. The addition based on the project report was held to be not justified. [BP. 1-4-1995 to 20-3-2002]

CIT v. Vinayak Plasto Chem P. Ltd. (2014) 363 ITR 596 / 221 Taxman 439 / 264 CTR 313 (Raj.)(HC)

398. S. 158BC : Block assessment – Undisclosed income – Addition based on admission by assessee – False claim of depreciation – Assessment as undisclosed income was held to be valid. [Ss. 32, 132(4), 158B]

Dismissing the appeal of assessee the Court held that the addition was supported by the voluntary statement given under section 132(4). The statement was not retracted. The addition was valid. As regards claim of depreciation it was held that said claim was made quite without any basis. In view of the amended definition of “undisclosed income” such claim would render it undisclosed income. (A.Y. 1995-96)

Medial Land v. CIT (Appeals) (2014) 363 ITR 81 (Ker.)(HC)

399. S. 158BD : Block assessment – Assessment of third person – Assessee participating in assessment – Assessment not invalid on ground no search conducted against assessee [Ss. 132, 158BC]

Assessment based on materials gathered in course of search conducted in case of two other assessees residing in same premises as assessee. Assessee understanding this and participating in assessment. Assessment not invalid on ground no search conducted against assessee.

Kailash Sarda v. CIT (2014) 363 ITR 36 (Mad.)(HC)

400. S. 194H : Deduction at source – Commission or brokerage – Payments in relation to services relating to securities – Disallowance under section 40(a) (ia) is not warranted. [S. 40(a)(ia)]

Tribunal held that the remuneration paid by the assessee to Tapasya Projects Ltd. (TPL) was for canvassing, inducing or for motivation of investors and was, hence, excluded from the purview of section 194H by the terms of the Explanation. On appeal by revenue :

Held, dismissing the appeal, that once it was an admitted position that TPL had motivated potential investors to invest through the assessee in mutual fund schemes, these services which were rendered in relation to a transaction in “securities” stood excluded from the definition of “brokerage or commission” under section 194H. The services which were rendered by TPL were in relation to “securities”. No other services had been rendered. Consequently, the disallowance under section 40(a)(ia) was not warranted. (A.Y. 2007-08)

CIT v. Tandon and Mahendra (2014) 363 ITR 454 / 224 Taxman 153 (All)(HC)

401. S. 199 : Deduction at source – Credit for tax deducted – Directed to refund the tax deposited on behalf of D credit of such refund was only to be given to D

As per the order of tax authorities the tax was deposited on behalf of D. Against the said order writ petition was filed and the Court held that such income was not taxable in India and tax authorities were directed to pass fresh orders excluding the income received by D. Subsequently the assessee requested the tax authorities that it is entitled for refund of TDS deposited on behalf of D but the department refuted the claim by holding that since TDS was deposited on behalf of D and D had claimed the credit for such TDS deposited in its return of income. Petitioner company was not entitled for such refund. On writ the Court held that since TDS was deposited by petitioner company on behalf of D, credit of such refund was only to be given to D. Court also directed the respondent to deposit the said amount along with interest in accordance with law in the court. (AYs. 1990- 91, 1991-92)

Grasim Industries Ltd. v. ACIT (2014) 227 Taxman 90 (Mag.) / 45 taxmann.com 385 (Bom.)(HC)

402. S. 201 : Deduction at source – Failure to deduct or pay – Alternative remedy is available – Writ is not maintainable [S. 194H, Article 226

Assessee, a company, failed to deduct TDS and, hence, treated as assessee-in-default under section 201(1). Assessee filed writ petition against such order of Dy. CIT. Dismissing the petition the Court held that where assessee had statutory alternative remedies available in form of filing an appeal before Commissioner and further appeal to Tribunal if required. Invoking jurisdiction of High Court was disallowed. (A.Y. 2012-13)

Jagran Prakashan Ltd. v. Dy. CIT (2014) 225 Taxman 39 (Mag.)/ 47 taxmann.com 82 (All) (HC)

403. S.220 : Collection and recovery – Stay – CIT (A) has the power to deal with stay application – Respondents are restrained from taking any coercive measure till the disposal of stay application by CIT (A) [S. 220(6)]

When the appeal was pending before the CIT (A), the tax recovery officer passed an order attaching bank accounts of assessee. The assessee filed the Writ Petition. Allowing the petition the Court held that it would be appropriate for the CIT(A) to dispose the stay application of assessee. Till such time the respondents are restrained from adopting any further coercive measures for recovery of its due. (A.Y. 2010-11)

Haresh Ravji Majithiya v. ACIT (2014) 227 Taxman 211 (Mag)(Bom)(HC)

404. S.220 : Collection and recovery – Stay – CIT(A) – AO must deal with the prima facie merits – On merits if the order is favour of assessee by decision of superior forum, issue of financial hardship may not arise – Assessee was directed to deposit 10% of demand and balance is stayed till the disposal of appeal by CIT(A) [Ss. 2(15), 220(6)]

Court held that in view of introduction of proviso to section 2(15) earlier decision of assessee may not apply; however while rejecting the stay application AO must deal with the prima facie merits of the assessee’s case in appeal and if the same is covered against the revenue in view of a decision of superior forum then the question of considering the issue of financial hardship may not arise. Financial hardship is relevant only when the assessee is unable to make out a case on merits for an unconditional stay of demand. On the facts assessee was directed to deposit 10% of demand and balance is stayed till the disposal of appeal by CIT(A). (A.Y. 2011-12)

Slum Rehabilitation Authority v. DIT (E) (2014) 112 DTR 209 (Bom.)(HC)

405. S. 220 : Collection and recovery tax – Stay – Income not chargeable – 23 per cent of total tax demand was recovered – Demand for balance amount was stayed

Assessee filed stay petition against the Director (Exemption). Authority directed to pay the tax in ten equal installments. Assessee filed the writ petition and contended that it was an agent of State Government and thus income earned in said capacity was not chargeable to tax. It was found that by way of adjustment of refund the revenue had already recovered 23 per cent of total tax demanded. In the interest of justice balance amount was stayed. (A.Y. 2010-11)

Mumbai Metropolitan Region Development Authority v. Dy. DIT (2014) 227 Taxman 104 (Mag.) / 42 taxmann.com 402 / 112 DTR 210 / (2015) 273 CTR 317 (Bom.)(HC)

406. S. 226 : Collection and recovery – Modes of recovery – Commissioner (Appeals) – Inherent power to grant stay – Application for stay was pending recovery proceedings was held to be not valid. [S. 250]

Assessing Officer passed assessment order raising demand – Assessee filed appeal before Commissioner (Appeals). Pending said appeal, Assessing Officer initiated recovery proceedings and passed an order under section 226(3) attaching bank account of assessee calling upon bank to pay assessee’s dues. Assessee filed application for granting stay. Assessing Officer should not be allowed to withdraw any amount from assessee’s bank account, till Commissioner (Appeals) decided assessee’s stay application. However, attachment of bank account would continue till Commissioner (Appeals) would decide stay application.

Nikhil Kelkar v. ITO (2014) 225 Taxman 196 (Mag.)/ 42 taxmann.com 279 (Bom.)(HC)

407. S.226 : Collection and recovery – Modes of recovery – Writ petitioners could not challenge orders and notices without challenging Tribunal’s decision against which remedy of appeal under section 260A is available – Writ is not maintainable [S. 260A, Article 226]

Orders and notices under section 226(3) were issued. Same was challenged before Commissioner (Appeals) and Tribunal respectively who dismissed appeals. Writ petitioners could not challenge orders and notices without challenging Tribunal’s decision against which remedy of appeal under section 260A is available. Writ petition was not maintainable.

State of Himachal Pradesh v. CCIT (2014) 225 Taxman 197 (Mag.)/ 40 taxmann.com 211 (HP)(HC)

408. S. 234B : Interest – Advance tax – Assessment order refers to interest to be charged as per Rules – No error in charging of interest. [S. 234C]

Where in assessment order, it was clearly stated that interest be charged as per rules, interest charged under sections 234B and 234C could not be challenged.

Ramesh Prasad Dhahayat v. CIT (2014) 225 Taxman 191 (Mag.)/ 45 taxmann.com 446 (MP)(HC)

409. S. 234B : Advance tax – Interest – Mandatory – Shortfalls taxable – Levy of interest justified

Section 234B provides that shortfalls have to be taxed under section 43(3). Interest contemplated under sections 234A, 234B and 234C is mandatory in nature. Therefore, interest under section 234B was rightly levied. (A.Y. 2005-06)

South Indian Bank Ltd. v. CIT (2014) 363 ITR 111 / 226 Taxman 130 (Ker)(HC)

410. S. 234B : Advance tax – Interest – Computation of interest – Minimum Alternate Tax – Credit of Minimum Alternate Tax must be given before charging interest. [Ss. 115JAA, 234C]

Credit for minimum alternate tax should be given to the assessee before charging of interest under sections 234B and 234C of the Income-tax Act, 1961. (A.Y. 2002-03)

CIT v. B.P.L. Ltd. (2014) 364 ITR 544 (Karn.)(HC)

411. S. 244 : Refunds – Interest on refund – Can be withdrawn while giving effect to appellate order

Amount paid to assessee as interest under section 244 can be withdrawn, while giving effect to an appellate order which has led to variation of amount being lesser amount chargeable under section 244.

Vipan Kumar Sudesh Kumar, HUF v. ITO (2014) 225 Taxman 200 (Mag.) / 46 taxmann.com 420 (P&H)(HC)

412. S. 245D : Settlement of cases – Case – Effect of CBDT circular dated 12-3-2008 – Application made after time-limit for issue of notice u/s. 143(2) had elapsed but before completion of assessment – Valid. [Ss.143(2), 245A(b)].

The Supreme Court in Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270 (SC) held that circulars issued by the Central Board of Direct Taxes which are beneficial to the assessee must be applied and observed that circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income-tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored.

Circular No. 3 of 2008, dated March 12, 2008, clarifies that it is immaterial for the purpose of filing an application before the Settlement Commission whether the time limit for issuing a notice under section 143(2) of the Incometax Act, 1961, has expired or not. The entire purpose and objective of Chapter IX-A of the Act providing for settlement is to give an opportunity to a tax defaulter to surrender and pay up the taxes in consideration of immunity from prosecution and penalty (either wholly or in part). Thus, a beneficial interpretation to the word “case” in section 245A(b) of the Act given by the Circular dated March 12, 2008, issued by the Board is understandable so as to mitigate/ lessen the rigour of the definition of the word “case”. Hence, an application for settlement of case made after the time for issue notice under section 143(2) had expired but before completion of assessment would be valid. (WP No. 1266 of 2013 dt. 30-8-2013 (A.Y. 2010-11)

CIT v. ITSC (2014) 364 ITR 410 / (2013) 262 CTR 28 (Bom.)(HC)

413. S. 254(1) : Appellate Tribunal – Additional ground – Issue raised before the AO has to be considered by the Tribunal though the CIT(A) did not render any view. [IT(AT)R. 11]

Issue specifically taken before the AO could not be refused to be considered by Tribunal merely because the CIT(A) did not give any view on it. Order of Tribunal was set aside.

Jehangir H. C. Jehangir v. ITO ( 2014) 112 DTR 262 (Bom.)(HC)

414. S. 254(2) : Appellate Tribunal – Duty of Tribunal – Rectification of mistake apparent from the record – If the Tribunal accepts that a mistake has crept in the order, interests of justice is served if the entire order is recalled (suo motu by the ITAT) & appeal re-heard. Appeals should not be disposed of in “light hearted” and “casual manner” [Ss. 254(1), 263]

During the pendency of the Appeal before the High Court, the Tribunal passed an order on the Miscellaneous Application and revived the appeal filed before it for hearing afresh on merits in relation to withdrawal of deduction u/s 36(1) (viia). However, as the assessee had not asked for recall of the ground challenging the exercise of powers u/s 263 by the CIT, the same was not recalled. HELD by the High Court:

(i) We are not happy in the manner in which the Tribunal has decided the Miscellaneous Application. If the Tribunal was required to devote so much time for assigning reasons in more than five paragraphs in a lengthy eight page order on the Miscellaneous Application so as to correct an obvious mistake by exercising powers under section 254(2) of the IT Act, then, interest of justice would have been sub-served and better had the Tribunal revived the entire Appeal and not partially. If there was a mistake with regard to the claim of deduction, we do not think that the Tribunal was justified in directing partial revival of the Appeal…… We do not think that interest of justice and equity is served by non consideration of vital materials by the last fact finding authority, namely the Income Tax Appellate Tribunal. That the Tribunal was required to recall its earlier orders and for the reasons which have been assigned by it would indicate that it failed to apply its mind at the initial stage to the grounds raised in the Appeal and in their entirety. It omitted from consideration crucial documentary material as well. In such circumstances, such partial revival of the Appeal would not meet the ends of justice.

(ii) We modify the order passed on the Miscellaneous Application and direct that the Appeal shall now be heard on its own merits and in accordance with law, permitting the assessee to raise all grounds that are to be found in the Memo of Appeal. … This direction issued by us in the exercise of our further appellate and inherent powers should serve as a reminder to the Tribunal that the matters of vital importance affecting the interest of public should not be disposed of in a light hearted or casual manner. The record must be perused in its entirety and properly and minutely. That is the function and which the judicial body is required to perform and oblige to carry out as well. In these circumstances and the unsatisfactory and unhappy manner in which the Miscellaneous Application has been dealt with and decided that we have directed the revival of the Appeal. (ITA No. 1481 of 2012, dt. 17-12-2014)

State Bank of India v. DCIT (2015) 370 ITR 438(Bom) HC)www.itatonline.org

415. S. 254 (2) : Appellate Tribunal – Rectification of mistake apparent from the record – Tribunal satisfied that assessee’s claim reasonable, but rejecting it relying on decision of court without analysing facts – Tribunal justified in exercising its power under section 254(2)

On a miscellaneous petition under section 254(2), the case of the assessee was that the decision of the Karnataka High Court had absolutely no application to the facts and circumstances of its case and the Tribunal, having held that the table does not use the word “exclusively” and having been satisfied that the assessees claim was reasonable, committed a serious mistake in rejecting the assessees claim. The Tribunal was satisfied that the decision of the Karnataka High Court would not apply and, therefore, recalled the order and restored the appeal to be heard afresh on the point of depreciation alone. On appeal.

Held, dismissing the appeals, (i) that the order of the Tribunal had caused prejudice to the assessee and such prejudice was attributable to the Tribunal’s mistake. This was because the Tribunal was satisfied that the assessee’s claim was reasonable, nevertheless it rejected the claim solely relying on the decision of the Karnataka High Court, without analysing the facts, which were the subject matter of the decision before the High Court. Thus, the order passed by the Tribunal under section 254(2) was wholly within its jurisdiction and was justified.

Honda Siel Power Products Ltd. v. CIT [2007] 295 ITR 466 (SC) applied.

(A.Ys. 1995-96, 1996-97)

CIT v. TTG Industries Ltd. (2014) 363 ITR 44 (Mad.)(HC)

416. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Application for rectification – Limitation – Starting point for limitation – Actual date of receipt of order of Tribunal

Section 254(2) of the Income-tax Act, 1961, is in two parts. Under the first part, the Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it under sub-section (1). Under the second part, the reference is to the amendment of the order passed by the Tribunal under subsection (1) when the mistake is brought to its notice by the assessee or the Assessing Officer. In short, the first part refers to the suo motu exercise of the power of rectification by the Tribunal whereas the second part refers to rectification and amendment on an application being made by the Assessing Officer or the assessee pointing out the mistake apparent from the record. The statute has conferred the right in favour of the assessee or even the Revenue to prefer a rectification application within a period of four years and, therefore, even if the Rectification Application/Miscellaneous Application is submitted on the last day of completion of four years from the date of receipt of the order, which is sought to be rectified, it is required to be decided on the merits and in such a situation the assessee is not required to give any explanation for the period between the actual date of receipt of the judgment and order, which is sought to be rectified and the date on which the Miscellaneous Application is submitted. Held, that the Tribunal passed the order which was sought to be rectified on February 20, 2007, and it had been admittedly received by the assessee on November 19, 2008. The assessee preferred the application on May 9, 2012. The application was not barred by limitation. (A.Y. 1996-97)

Peterplast Synthetics P. Ltd. v. ACIT (2014) 364 ITR 16 (Guj)(HC)

417. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Two views – Rental income – AO accepting the return after calling explanation allowing capitalisation of rental income- Revision was held to be not valid. [S. 22, 56]

The assessee was engaged in developing a film project and while doing so it received rental income which was directly interlinked with the activity. Since the business had not yet started, it filed a nil return for the assessment year 1995-96. After examining the details, the income returned was accepted. CIT held that rental income should not have been capitalised. On appeal Tribunal held that. AO capitalising receipt as connected with main activity. Commissioner has no jurisdiction to revise because one of two possible views was taken by AO. (AY. 1995-96, 1996-97)

CIT v. UshaKiran Movies Ltd. (2014) 363 ITR 165 / (2015) 228 Taxman 62(Mag)(AP)(HC)

418. S. 268A : Appeal – Application –Reference – Instructions– Tax effect less than Rs. 10 lakhs – Appeal was held to be not maintainable. [Ss. 68, 260A]

Revenue filed instant appeal against order passed by Tribunal deleting addition made under section 68. Assessee raised a preliminary objection that since tax effect in revenue’s appeal was less than Rs. 10 lakh, in view of Instruction No. 3, dated 9-2-2011, said appeal was not maintainable. Since revenue could not controvert aforesaid submission raised by assessee, instant appeal was to be dismissed being nonmaintainable. (A.Y. 2008-09)

CIT v. Gulab Wire Products (P.) Ltd. (2014) 225 Taxman 189 (Mag.)/ 42 taxmann.com 226 (Jharkhand)(HC)

419. S. 271(1)(c) : Penalty – Concealment – Lease transactions – Furnishing inaccurate particulars of income –All materials were before revenue – Deletion of penalty by Tribunal was held to be justified.

The assessee entered in to lease transactions. The AO disallowed the claim of depreciation on the ground that the lease transactions were not genuine and levied the penalty. Appellate authorities found that there was no concealment of particulars of income nor furnishing of inaccurate particulars of income, accordingly deleted the penalty. On appeal by revenue dismissing the appeal the Court held that all materials were before the revenue hence deletion of penalty by the Tribunal was held to be justified. (AY. 2001-02)

CIT v. Indusind Bank Ltd. (2014) 369 ITR 682 (Bom)(HC)

420. S. 271(1)(c) : Penalty – Concealment – Appellate Tribunal – Additional ground – Amalgamation of companies – Levy of penalty on transferor company – Additional ground raised before Tribunal with evidence contesting levy of penalty on non-existing entity – Impact and legal effect of a order of amalgamation and winding up of assessee on penalty proceedings pure legal issue – Tribunal ought not to have remitted legal issue to Assessing Officer – Tribunal directed to decide legal issue [S. 254(1)]

Court held that the Tribunal should have answered the legal issue itself. The Tribunal was not prevented in any manner and in law from considering a purely legal issue for the first time, especially, if this legal issue went to the root of the matter. The issue was of the impact and legal effect of an order of amalgamation and winding up of the assessee on the penalty proceedings. If the proceedings were initiated prior to the order of the winding up being passed or the scheme of amalgamation being sanctioned then whether the subsequent act of an order sanctioning the scheme would permit continuation of the proceedings against an entity or a company which was wound up and in terms of the provisions contained in the Act was, thus, a clear legal issue. It should have been answered by the Tribunal, particularly when it had admitted the question or ground and the additional evidence filed by the assessee. The only two documents which required to be looked into were the scheme of amalgamation and the order passed in pursuance thereof by the court. The Tribunal was obliged to answer the legal question. Its omission to answer it, therefore, was vitiated in law. The direction to remit and to remand it to the Assessing Officer was not justified and in the peculiar facts and circumstances. The Tribunal was directed to decide the legal issue. (A.Y. 2004-05)

Kansai Nerolac Paints Ltd. v. Dy. CIT (2014) 364 ITR 632 (Bom.)(HC)

421. S. 271(1)(c) : Penalty – Concealment –Mere admission of appeal by High Court on quantum addition would not give rise to the presumption that issue is debatable and penalty should be deleted [S.260A]

Court held that mere admission by the High Court on quantum addition would not give rise to the presumption that the issue is debatable hence penalty should be deleted. Matter was remanded to the Tribunal for fresh consideration according to law.

CIT v. Prakash S. Vyas (2014) 272 CTR 353 (Guj.) (HC)

Research Team