67.

S.2(24) : Income – Assessee-society, which ran a business enterprise in its own name was duty bound to offer its profits to tax before diverting any funds to Distributable Pool Fund Account for distribution to its members

The assessee was a society of ‘Maliks’ who were owners of land (Agar) on which salt was manufactured. The society was formed inter alia to acquire from the ‘Maliks’ their rights and to manufacture salt and its by-products. Assessee manufactured and sold salt and other by-products in its own name. The sale proceeds were being transferred to an account called ‘Distributable Pool Fund Account’ for distribution among the members of the society. After such transfer to the members, the society would offer remaining income to tax. The AO held that such transfer could not be considered as expenditure, accordingly assessed the amount transferred to Distributable Pool Fund Account during the year.

The High Court held that society earns ‘profits’ which falls within the definition of ‘income’ under Section 2(24) of the Act. Therefore the AO was right in holding that the transfer of fund for subsequent distribution to the members before payment of tax is not a ‘deductible expenditure’ in computation of business income of the assessee, further held that the income declared after disbursement of profits is not logical and has no relevance to determination of taxable profit under the Income-tax Act. Further the High Court held that assessee a co-operative entity which runs a business enterprise is duty bound to offer its profits to tax before diverting any funds to the Distributable Pool Fund Account and allowed the Revenue’s appeal. (AY. 2007-08)

CIT v. Nagarbail Salt-Owners Co-operative Society Ltd. (2016) 238 Taxman 689 (Karn.)(HC)

68.
S.2(42B) : Short term capital gain – Long-term capital asset – Short-term capital asset – An agreement to purchase property merely creates a right to seek specific performance. The asset cannot be considered to be “held” from the date of the agreement so as to constitute long-term capital gains

The appellant entered into an agreement on 18th May, 1980 with M/s. Shubhada Prints Pvt. Ltd. for acquiring leasehold rights of immovable property (said land) situated at Majas Village, Jogeshwari (E), Mumbai, for consideration set out therein. The appellant purchaser was required to file a Suit in this Court being Suit No. 1077 of 1981 against the vendor Shubhada Prints Pvt. Ltd., inter alia, seeking specific performance of the agreement to assign the leasehold rights in the said land. An earnest money of Rs. 25,000/- had been paid at the time of execution of the agreement. During the pendency of the Suit, the parties arrived at Consent Terms on 11th March, 1988 pursuant to which the defendant – vendor agreed to assign the leasehold rights in the said land at a lump sum of Rs. 4,50,000/- instead the lower consideration originally payable under the suit agreement. The appellant thereafter sold the said land to one M/s. Associated Estate and Investment Corporation vide agreement dated 29th November, 1988 for a price of Rs. 37,70,000/- resulting in capital gain to him. According to the appellant, he was holding the said land since 1980 i.e. from the date of the agreement dated 18th May, 1980 and hence the gain was long-term in nature. The Assessing Officer and Tribunal, however, found that the appellant came into possession only pursuant to the Consent Terms and therefore the amount of consideration received on sale by the appellant is to be treated as short term capital gain and he was assessed accordingly. On appeal by the assessee to the High Court HELD dismissing the appeal:

(i) Consequent to the vendor not honouring the agreement dated 18th May, 1980, all that the appellant had was a right to seek specific performance which he sought to enforce by filing the suit. The appellant did not have possession of the said land. It is only on the Consent Terms being filed in Court that the appellant got ownership and possession.

(ii) In our opinion, the assessee-appellant ‘held’ the property only upon the order being passed upon filing of the Consent Terms in Court on 11th March, 1988. The said land was sold on 29th November, 1988. Therefore it falls beyond the scope of long term capital gains and within the province of short term capital gain. Accordingly, we are of the view that the gains resulting from the sale of the said land in November 1988 would be a short term capital gain.( ITA No. 75 of 2001, dt. 29-6-2016)( AY. 1989-90)

Bindiya H. Malkani v. CIT (Bom.)(HC); www.itatonline.org

68.
S.4 : Charge of income-tax – Capital or revenue – Mesne profits (Amount received from a person in wrongful possession of property) is a capital receipt and not chargeable to tax either as income or as “book profits” u/s 115JB. As the department has implicitly accepted Narang Overseas v. ACIT 100 ITD (Mum.) (SB), it cannot file an appeal on the issue in the case of other assessees

The High Court had to consider two questions in an appeal filed by the Department:

(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits are capital receipts in the hands of the assessee and not revenue receipts chargeable to tax?

(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits, cannot be part of book profit u/s. 115JB, as it was held as capital assets?”.

HELD by the High Court dismissing the appeal:

(i) The Tribunal has held that the mesne profits received by the assessee for the unauthorised occupation of its premises from Central Bank of India is a receipt of capital nature and thus not taxable. To reach the above conclusion, the impugned order placed reliance upon the decision of Special Bench of the Tribunal in
Narang Overseas Pvt. Ltd., v. ACIT 100 ITD (Mum.) S.B. The issue before the Special Bench in Narang Overseas Pvt. Ltd. (supra) was whether the mesne profits received by an assessee is revenue or capital in nature. The Special Bench, in its order placed reliance upon the definition of mesne profits in Section 2(12) of the Code of Civil Procedure, 1908 which reads as under:

“Mesne profits of property means those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession.”

On the basis of above, it held that any amount received from a person in wrongful possession of its property, would be mesne profits and it is capital in nature.

(ii) We find that the issue before the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. was to determine the character of mesne profits being either capital or revenue in nature. The Special Bench of the Tribunal in Narang Overseas Pvt. Ltd held that the same is capital in nature. There is no doubt that the issue arising herein is also with regard to the character of mesne profits received by the assessee. In this case also, the amounts are received by the assessee from a person in wrongful possession of its property i.e. after the relationship of landlord and tenant has come to an end. Once the Special Bench order of the Tribunal in Narang Overseas Pvt. Ltd. has taken a view on the character of mesne profits, then unless the Revenue challenges the order of the Special Bench of the Tribunal it would be unfair of the Revenue to pick and choose assessees where it would follow the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. The least that is expected of the State which prides itself on Rule of Law is that it would equally apply the law to all assessees.

(iii) We make it clear that we have not examined the merits of the question raised for our consideration. We are not entertaining the present appeal on the limited ground that the Revenue must adopt an uniform stand in respect of all assessees. This is more so as the issue of law is settled by the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra). The fact that even after the dismissal of its Appeal (L) No.1791 of 2008 for non-removal of office objections on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd. Thus, the question as framed in the present facts does not give rise to any substantial question of law. (ITA No. 2356 of 2013, dt. 6-6-2016) (AY. 2008-09)

CIT v. Goodwill Theatres Pvt. Ltd. (Bom.)(HC); www.itatonline.org

70.
S.4 : Charge of income-tax –Merely because PAN of Karta was mentioned in TDS Certificate could not be a reason to tax the rental income in the hands of Karta especially when, in all the years except the present year the Department has not challenged the taxability of the said income in the hands of HUF

Assessee was an individual and also karta of his HUF. He declared rental income from a property belonging to HUF as income of HUF. AO assessed said income in the hands of the assessee on ground that TDS certificate given by tenant mentioned PAN of the assessee. High Court held that income from the property was declared by the assessee as income of HUF for all the years and has been accepted by the Department except the current year, therefore the stand taken by the AO in current year was not justified. High Court directed the AO to verify the rental agreement and decide the issue as per law. (AY. 2005-06)

M. Sathyanarayana v. ITO (2016)238 Taxman 79 (Karn.)(HC)

71.
S.4 : Charge of income-tax – Capital or revenue – Amount realised by assessee from sale of a property received as alimony from her husband, was to be regarded as capital receipt not liable to tax

Assessee’s marriage was dissolved by a decree of divorce. The assessee filed her return disclosing long term capital gain consequent to sale of 50 per cent of her share in the matrimonial house. She sought to deduct 50 per cent of cost of acquisition contending that matrimonial house was acquired using the sale proceeds of a flat in which she was a co-owner having 50 per cent share therein. AO deputed an inspector to verify the claim and on his report, AO opined that flat was owned exclusively by the former husband of the assessee and the sale proceeds from the said property were utilised to purchase the matrimonial house. He rejected the claim of deduction of cost of acquisition. CIT(A) allowed assessee’s appeal/Tribunal rejected the contention of the assessee as regards computation of capital gains on the basis that 50 per cent of the sale proceeds were received by the assessee on account of alimony from her former husband. Assessee filed an appeal to the High Court raising a new plea that lump sum alimony being a capital receipt, was not liable to tax. High Court held that, it was open to the assessee to contend that the receipt was capital in nature for the first time before High Court. It was also held that Revenue did not file appeal against the finding of the Tribunal and therefore, it was held that the sale consideration received by the assessee from sale of flat was a capital receipt. (AY. 1997-98)

Shrimati Roma Sengupta v. CIT (2016) 238 Taxman 682 (Cal.)(HC)

72.
S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Non-resident – Providing data transmission services were not taxable in India – Amendment inserted by Finance Act, 2012 have no effect unless DTAA is amended jointly by both parties – DTAA – India-Thailand- Netherlands

The assessees derived income from the “lease of transponders” of their respective satellites. This lease was for the object of relaying signals of their customers; both resident and non-resident television channels that wished to broadcast their programmes for a particular audience situated in a particular part of the world. The assessees were chosen because the footprint of their satellites, i.e. the area over which the satellite could transmit its signal, included India. Having held the receipts taxable under section 9(1)(vi) of the Act, the Assessing Officer also held that the assessees would not get the benefit of the Double Taxation Avoidance Agreements between India and Thailand and between India and the Netherlands. The Tribunal held that they were not taxable in India. On appeals to the High Court: Unless DTAA is jointly amended by both parties to incorporate income from data transmission services as partaking of nature of royalty or amended definition in manner so that such income automatically becomes royalty, Finance Act, 2012 which inserted Explanation 4, 5, and 6 to section 9(1)(vi) by itself would not effect meaning of term “royalties” as mentioned in Article 12 of India–Thailand DTAA, hence the receipts of the assessees from providing data transmission services were not taxable in India.(AYs. 2007-08, 2009-10)

DIT v. New Skies Satellite BV (2016) 382 ITR 114/ 238 Taxman 577/ 285 CTR 1(Delhi)(HC)

73.
S.9(1)(vi) : Income deemed to accrue or arise in India – Fees for technical services – Though in Infrasoft (2014) 220 Taxman 273 (Del.) the impact of the amendment to s. 9(1)(vi) on the question whether consideration received for sale of pre-packaged software was “royalty” or “fee for technical services” or “business income” was not examined, it is not required to be examined because u/s. 90(3) provides that the Act prevails only if it is more beneficial compared to the DTAA-India-USA

The Court had to consider whether the consideration received by the assessee on sale of pre-packaged software was “royalty” or “fee for technical services” and was, therefore, not taxable as business income. HELD by the High Court dismissing the Department’s appeal:

(i) It is not in dispute that Article 12(3) of the Double Taxation Avoidance Agreement (“DTAA”) between India and the United States of America (USA) is relevant for deciding the above issue.

(ii) The short question considered by the Court in Director of Income Tax v. Infrasoft Limited (2014) 220 Taxman 273 (Del.) was whether the term “royalty” covered by Article 12(3) of the DTAA would apply in the context of sale of pre-packaged copyrighted software. The Court stated that it has not examined the effect of the subsequent amendment to Section 9(1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the assessee is covered by the DTAA, the provisions of which are more beneficial.

(iii) Section 90(3) of the Act makes it clear in the context of an agreement (‘treaty’) for avoidance of double taxation, that it is only when the provisions of the Act are more beneficial to the assessee the Act will prevail over the treaty. Conversely, where the provision of the treaty is more beneficial to the assessee, the treaty would prevail over the Act. This legal position has been reiterated in Director of Income Tax v. Infrasoft Limited (supra) which was followed in dismissing the Revenue’s appeal in the assessee’s own case for AY 2008-09 i.e. ITA No. 477 of 2014.

(iv) The Court is not persuaded to re-examine the above issue which stands answered against the Revenue by the aforementioned order.( ITA Nos. 363 & 365 of 2016, dt. 11-7-2016)(AY. 2009-10, 2010-11)

CIT v. Halliburton Export Inc (Delhi)(HC); www.itatonline.org

74.
S.10(23G) : Infrastructure Undertaking – Definition of expression interest under section 2(28A) is exhaustive – Liquidated damages/debt syndication fees/debenture trusteeship fees can be included in the definition

The assessee claimed exemption under section 10(23G) in respect of liquidated damages payable by a borrower to the assessee in the event of a borrower committing default in repayment of the loan advanced by the assessee. The AO, held that the liquidated damages were a sort of compensation in nature received from defaulters and hence could not be treated like income arising from the activities of the assessee in respect of infrastructure financing. The Tribunal and CIT(A) affirmed the decision of the AO.

The High Court held that under the terms of a loan agreement, a borrower was imposed with a primary obligation to repay the principal together with interest. An additional obligation was cast upon a borrower to pay interest on interest or penal interest, in the event of borrower committing a default up to a particular level. Irrespective of what the finance company itself may choose to term it, such liquidated damages cannot be excluded from the definition of the expression ‘interest’ under section 2(28A), as the definition is so exhaustive. The definition is so exhaustive as to include even any service fee or other charge that is levied in respect of the monies that remain unutilised. In certain cases, the lenders imposed an obligation on the borrowers to pay the commitment charges, if after the sanction of the loan, the borrower could not make use of the funds up to a particular point of time. The definition of the word ‘interest’ under section 2(28A) includes even such commitment charges. Therefore all the three authorities committed a mistake in understanding the scope of the expression ‘liquidated damages’ and in coming to a conclusion that the same would not come within the purview of the word ‘interest’ under section 2(28A).

The AO held that the debt syndication fee is a fee charged by the assessee from the borrower, when the assessee funded the project not only from out of their own monies, but also by arranging finance from others. Therefore, in his order, the AO held that though what was charged as debt syndication fee may be a service fee, the same would not come within the purview of section 10(23G), on account of the fact that the said fee is not charged for the money that was lent by the assessee themselves. The same was upheld by the CIT(A) and Tribunal. The High Court held that if the second part of the definition in section 2(28A) was carefully looked into, it could be seen that what was included therein is ‘any service fee’. By itself, section 2(28A) does not make a distinction between a service fee charged in respect of the loans advanced by the assessee and those in respect of the loans organised from other financial institutions. In the absence of any indication either in section 2(28A) or in 10(23G), the distinction made out by the revenue could not be approved.

The next issue was whether debenture trusteeship fee would be included in the meaning of the term interest under section 2(28A) of the Act. The AO held that the income derived was not primary business but was derived from ancillary services. The CIT(A) held that this service would come under the definition but from AY. 2002-03 and not prior to it. The Tribunal upheld the findings of AO and CIT(A). High Court held that the findings of CIT(A) that the fees would be included in one assessment year and not for other was not proper and hence was ruled in favour of the assessee. (AYs. 2001-02, 2001-02)

Infrastructure Development Finance Co. Ltd. v. ACIT (2016) 238 Taxman 212 (Mad.)(HC)

75.
S.10B : Export oriented Undertakings – Inclusion of customer claim, freight subsidy and interest on FDRs in the profits of the undertaking

It is held by the High Court that the customer claim, freight subsidy and interest on FDRs are to be included in the profits of the undertaking for the purpose of computation of deduction under section 10B of the Act as they are directly related to the business of the undertaking. Insofar as the interest on FDRs is concerned, it is held that the deposits are under lien with Bank of India for facilitating the letter of credit and bank guarantee facilities and therefore, the interest earned on such FDR ought to qualify for deduction under Section 10B of the Act. (AY. 2008-09)

Rivera Home Furnishing v. ACIT (2016)237 Taxman 520 (Delhi)(HC)

76.
S.12AA : Procedure for registration – Trust or institution – The DIT has no jurisdiction to cancel registration of a charitable institution on the ground that it is carrying on commercial activities which are in breach of the amended definition of “charitable purpose”

Dismissing the appeal of revenue, the Court held that; it is evident from Circular No. 21 of 2016 dated 27th May, 2016 that the amendment to the definition of charitable purpose by adding of the proviso, would not ipso facto give jurisdiction to the Commissioner of Income Tax to cancel the Registration under Section 12AA (3) of the Act. The jurisdiction to cancel the Registration would only arise if there is any change in the nature of activities of the institution. The above Circular clearly directs the authorities not to cancel the Registration of the charitable institution just because the proviso to section 2(15) of the Act comes into play as receipts are in excess of Rs. 25 lakh in a year. It also refers to Section 13(8) of the Act which provides that where the receipts on account of commercial activities is in excess of the limit of Rs. 25 lakh provided in second proviso to section 2(15) of the Act, then the Assessing Officer would deny the benefit of registration as a Trust for the subject Assessment Year while framing the assessment. The Court also held that; the submission made on behalf of the Revenue that the Circular No. 21 of 2016 would have only prospective effect in respect of assessment made subsequent to the amendment under Section 2(15) of the Act w.e.f. 1st April, 2016 is also not sustainable. The amendment in Section 2(15) of the Act brought about by Finance Act, 2016 w.e.f. 1st April, 2016, is essentially that where earlier the receipts in excess of Rs. 25 lakh on commercial activities would exclude it from the definition of ‘charitable purpose’ is now substituted by receipts from commercial activities in excess 20% of the total receipts of the institution. In the above view, Circular No. 21 of 2016 directs the Officer of the Revenue not to cancel Registration only because the receipts on account of business are in excess of the limits in the proviso to Section 2(15) of the Act would also apply in the present case. The impugned order has held that cancellation of a Registration under Section 12AA(3) of the Act, can only take place in case where the activities of trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No. 21 of 2016 is in line of the finding of the Tribunal in the impugned order. The submission on behalf of the Revenue that the Trust is not genuine because it is hit by proviso to Section 2(15) of the Act, is in fact, negatived by Circular No. 21 of 2016. In fact, the above Circular No. 21 of 2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of Registration granted under Section 12AA of the Act unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject Assessment Year. The further submission on behalf of the Revenue that looking at the quantum of receipts on account of commercial activities, it is unlikely/ improbable that in the subsequent Assessment Years, the receipts would fall below Rs. 25 lakh and therefore, the Commissioner is entitled to cancel the Registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on account of commercial activities is in excess of the limits provided in proviso to Section 2(15) of the Act, the Assessing Officer is mandated/required to deny exemption under Section 11 of the Act as provided in Circular No. 21 of 2016 dated 27th May, 2016. Accordingly, the issue stands covered in favour of the Revenue by virtue of Circular No. 21 of 2016.( ITA No. 2349 of 2013, dt. 6-6-2016)(AY. 2009-10)

DIT (E) v. Khar Gymkhana (Bom.)(HC), www.itatonline.org

77.
S.12A : Registration – Charitable purpose – While granting registration to a trust Commissioner is empowered to examine only genuineness of trust

While granting registration to a trust Commissioner is empowered to examine only genuineness of trust. He cannot examine the application of funds or ethical background of settlors called for at that stage. That unethical methods used for collection of funds and no charitable activities carried out cannot be the grounds on which registration can be refused.

Sree Anjaneya Medical Trust v. CIT (2016) 382 ITR 399 / 239 Taxman 399 (Ker.)(HC)

78.
S.14A : Disallowance of expenditure – Exempt income – Provision is applicable to income claimed as deduction u/s. 80P(2)(d)

The assessee, a co-operative society was engaged in marketing of milk products of the member societies. One of the activities of the assessee was to provide funds for working capital to the member societies and it earned interest income. AO while computing the deduction under section 80P(2)(d) in respect of the interest income received from the member co-operative societies, applied provisions of section 14A and disallowed expenses claimed by the assessee. High Court relying upon the judgment in case of Punjab State Co-operative Milk Producers Federation Ltd. v. CIT [2011] 336 ITR 495 (Punj. & Har.)(HC) held that provision of section 14A shall apply to income claimed as deduction u/s. 80P(2)(d). (AY. 2011-12)

Punjab State Co-operative Milk Producers Federation Ltd. v. CIT (2016) 238 Taxman 207 (P&H)(HC)

79.
S.14A : Disallowance of expenditure – Exempt income –Common interest expenses which is attributable to exempt income is to be excluded for the purpose of allocation of interest expenditure under Rule 8D(2)(iii)

The High Court has held that the variable A in Rule 8D(2)(ii) would include only those common interest expenditure which is not directly attributable to any income or receipt and therefore, this would mean that any interest expenditure, which is directly attributable to taxable income has to be excluded and the balance common interest expenditure is what should be a subject matter of allocation under the said rule. (AY. 2008-09)

PCIT v. Bharti Overseas Pvt. Ltd. (2016) 237 Taxman 417 (Delhi) (HC)

80.
S.28(i) : Business loss – Write-off of dues from government authorites – Held to be allowable as business loss

It was held that the write off of deposit with government bodies, refund from excise authorities, advances to various employees etc. were allowable as there was a finding of fact by appellate authorities that the same were incidental to the carrying on of business. (AY. 2002-03)

CIT v. ITC Ltd. (2016) 237 Taxman 533 (Cal.)(HC)

81.
S.32 : Depreciation – Benefit of unabsorbed depreciation and investment allowance is available even if return of income is filed belatedly

Assessee carried on the business of dealing in lint, cotton and cotton seeds. The return of income was filed claiming set off depreciation against the current years income and carrying forward the unabsorbed depreciation and investment allowance. The AO disallowed the set off and carrying forward of depreciation in the assessment. An appeal was filed on several ground including the ground of carry forward of depreciation and investment allowance. The CIT(A) partly allowed the appeal and remanded many issues back to AO. However, the ground of set off and carry forward was untouched by CIT(A). While passing order giving effect to CIT(A)’s order, the AO did not allow the set off and carry forward of depreciation and investment allowance. Assessee filed an application under section 154 against the order which was rejected on the ground that CIT(A) had not given any relief in its order in respect of set off and carry forward of depreciation and investment allowance. Against this order, assessee preferred an appeal which was dismissed on the ground that return of income for earlier year was not filed in accordance with section 139(3) therefore, set off and carry forward of depreciation cannot be allowed. The order of CIT(A) was upheld by the Tribunal. On appeal, the High Court held that the benefit of set off and carry forward of depreciation and investment allowance is available even if return of income is filed after due date. Also held that unabsorbed depreciation and investment allowance stands on a different footing than business loss therefore, benefit of set off and carry forward has to be allowed. (AYs. 1987-88 to 1989-90)

Rajeshwari Cotton Ginning & Pressing Industries v. ACIT (2016) 130 DTR 274 / 284 CTR 300 / 94 CCH 208 (Karn.)(HC)

82.
S.36(1)(iii) : Interest on borrowed capital – Where action of assessee to make advances to group companies at a lower rate of interest – Assessee borrowed funds at higher rate – There cannot be any business expenditure – Disallowance of differential interest was justified

The assessee had borrowed huge amount from various group companies and had, in turn, advanced large amount to certain companies at interest rate much lower than the interest rate at which it had borrowed funds. The AO concluded that the assessee had merely acted as conduit and there was no business expediency on part of the assessee and disallowed the differential portion of interest.

The High Court held that Tribunal committed two errors in reversing the decisions of the revenue authorities – the first was of applying the principles ‘for the purpose of business’ being wider than ‘for the purpose of earning income’ in abstract. Such principles had to be applied in the context of business expediency which was demonstrated in the present case. The second error committed by the Tribunal was to hold that the AO had applied the principles of Section 40A(2) of the Act which, according to the Tribunal, was not permissible. In other words, view of the Tribunal was that the AO could have either allowed or disallowed the entire interest component relatable to a particular borrowing of the assessee. However, once the AO decided to grant deduction of interest on a particular loan, it was not open for the AO to disallow the portion of interest component. In fact the AO applied the deduction to the extent the rate of interest at which the advances were made by the assessee. However, the action of the assessee to make advances at a lower rate of interest than the interest liability discharged by the assessee in borrowing such funds was not shown to be in any manner actuated by business expediency. The Assessing Officer was perfectly justified in disallowing such component of interest. The Tribunal’s decision was reversed and Revenue’s appeal was allowed. (AY. 1995-96)

CIT v. Cornerstone Exports (P.) Ltd. (2016) 238 Taxman 465 (Guj.)(HC)

83.
S.36(1)(viii) : Eligible business – Special reserve – Each clause of section 36 was independent from other in its operation –Deduction under sections 36(1)(viii) and 36(1)(viia) would be granted independently without reducing/restricting the amount of deduction granted in either of two

The AO had held that the deduction claimed by the assessee under section 36(1)(viia)(c) of the Act would be granted after reducing from the total income the deduction claimed under section 36(1)(viii) of the Act. The CIT(A) and Tribunal had upheld the decision of the AO that the deduction under clause (viii) of section 36(1) would have to be computed first before applying the deduction under clause (viia)(c) of section 36(1).

On appeal by assessee, the High Court held that it was clear that sub-section (1) of section 36 lists out the matters in respect of which deductions that can be allowed while computing the income referred to in section 28. Clauses (i) to (xi) of sub-section (1) of section 36 did not make any of those matters dependent upon one another. If an assessee was entitled to the benefit under one clause of sub-section (1) of section 36, the assessee was not deprived of the benefit of the other clause. This is how several clauses in sub-section (1) have been arranged. Thus if each of the clauses under sub-section (1) of section 36 are independent in its operation and if each one of them does not depend upon the other clause for the extension of the benefit, then the interpretation given by the Revenue could not be accepted. Thus the High Court ruled all the above issues in favour of the assessee. (AYs. 2000-01, 2001-02)

Infrastructure Development Finance Co. Ltd. v. ACIT (2016) 238 Taxman 212 (Mad.)(HC)

84.
S.37(1) : Business expenditure – Revenue expenditure incurred in particular year had to be allowed in the year of expenditure – Irrespective whether the same is amortised in the books of account – Revenue could not deny claim of the entire expenditure as deduction

Assessee had amortised the amount of Rs. 14.87 crores incurred for payment to sub-arrangers in the books of accounts for 5 years and thereby debiting only Rs. 99.16 lakh to its profit and loss account. The AO held that the assessee had amortised the amount over five years and hence a deduction only to the extent of Rs. 99.16 lakh was allowable in the subject year of assessment. The CIT(A) upheld the findings of the AO. On appeal the Tribunal relied on decision Apex Court in case of
Madras Industrial Investment Corp. Ltd v. CIT (1997 255 ITR 802 (SC) and India Cements Ltd. v. CIT ( 1966) 60 ITR 52 (SC) and held that the expenditure incurred was deductible in the year of expenditure. Aggrieved Revenue filed an appeal before the High Court.

The High Court after relying on the decision of the Apex Court in case of
Taparia Tools Ltd. v. JCIT ( 2015) 372 ITR 605 (SC) wherein it has been held that once the assessee had filed the return making a particular claim the AO was bound to carry out assessment by applying provisions of the Act and could not go beyond the return. Since the assessee had claimed the entire expenditure of Rs. 14.87 crores in the subject assessment year, the High Court ruled in favour of the assessee. Accordingly appeal of the Revenue was dismissed. (AY. 2009-10)

DIT(IT) v. Credit Lyonnais (2016) 238 Taxman 157 (Bom.)(HC)

85.
S.40(a)(iib) : Amounts not deductible – Royalty/ Privilege fee levied exclusively on State Government – The insertion of sub-clause (iib) of clause (a) of section 40 will not have retrospective effect

On writ, the High Court observed that the Revenue had drawn inspiration from the 2013 amendment, whereby clause (iib) of sub-clause (a) of section 40 was inserted by the Finance Act, 2013, with effect from 1-4-2014. This apparently treated by the AO as being clarificatory in nature and had sought to apply it with retrospective effect. Therefore, the primary reasoning of the AO was that the privilege fee imposed was unreasonable and does not take on the characteristic of a privilege fee and it could not be construed as a fee at all and it is merely a device to evade tax.

The High Court held that the attempt to disallow the privilege fee in respect of the AY prior to 2014-15 was clearly without reference to any legal provision. The High Court held that as pointed out by assessee, a plain reading of the provision would not indicate that it is to be applied with retrospective effect. There were other provisions which were also amended, and wherever the Legislature intended that certain provisions would have retrospective effect, it was expressly indicated therein and therefore, there being no such express indication insofar as the present provision with which one is concerned, it cannot be said to be applicable with retrospective effect. They Court had further relied on the Memorandum explaining the Finance Bill, 2013 and decision of the Supreme Court in case of
CIT v. Vatika Township (P) Ltd. ( 2014)(367 ITR 466 (SC) which stated that from the plain reading of the section, it was clearly prospective in nature.

The High Court held that therefore, it could safely be said that the privilege fee payable by the assessee to the State Government would be taxable with effect from 1-4-2014 and not prior thereto. The unreasonableness of the privilege fee payable is also not a ground to hold that it is a device by which the assessee and the State Government are avoiding payment of tax.

It is settled law that there is no illegality committed by the assessee in paying such privilege fee on the State Government having fixed such privilege fee. There is no legal prohibition in this regard and therefore, it cannot be said that the same could have been disallowed by the AO. Thus the petition filed by the assessee was allowed. (AY. 2010-11)

Karnataka State Beverages Corpn. Ltd. v. CIT (2016) 238 Taxman 299 (Karn.)(HC)

86.
S.43B : Certain deductions on actual payment – Issue of debentures to fund the interest liability does not amount to “actual payment” of the interest so as to qualify for deduction under Explanation 3C to S. 43B

Dismissing the review petition of the assessee the Court held that; the issue of debentures to fund the interest liability does not amount to “actual payment” of the interest so as to qualify for deduction under Explanation 3C to S. 43B.(Rev. Pet. No. 308/2015 in ITA No. 110/2005, dt. 22-7-2016)(AY. 1996-97)

CIT v. M. M. Aqua Technologies Ltd. (Delhi)(HC) www.itatonline.org

87.
S.45 : Capital gains – Business income – Profit from sale of flats is to be assessed as Capital gains and not as business income

The assessee was the owner of a house property. The assessee approached a builder for the purpose of construction of additional flats in the extra space available and the assessee received a flat on the rear side as consideration. The assessee was also entitled to the profit on sale of flats. It was held by the High Court that the profits is to be assessed as capital gains and cannot be said to be adventure in the nature of trade for the profits to be assessed as business income as assessee never had the intention to exploit the flat as commercial venture. (AY. 1990-91)

Raj Dhulari Bhasin v. CIT (2016) 236 Taxman 573 (Delhi)(HC)

88.
S.45(4) : Capital gains –Distribution of capital asset –Dissolution of firm – Partners of assessee firm constituted a private limited company – Company made partner in the firm – Partners gave their interest in the firm to the company in consideration of shares of the company – AO invoked section 45(4) – Held, whatever rights natural partners had in capital assets of firm by way of being its partners, continued to exist in form of equity shares they held in company – Held, not a case of transfer of assets on dissolution

The partners of assessee-firm, constituted a private limited company. The company was admitted as partner in the assessee-firm. Later on, the natural partners executed a release deed giving up all their rights in assessee-firm, in favour of the company. As a consequence, the company became absolute owner of the assessee-firm. The natural partners were allotted shares in the company for relinquishing their rights in the assessee-firm. AO invoked section 45(4) in the hands of the firm and held that there was a transfer of assets by way of distribution of capital assets on dissolution of the assessee-firm. High Court held that every distribution of capital assets may not lead to the attraction of section 45(4) unless it happens on the dissolution of a firm and also every distribution of capital assets on the dissolution of a firm may not attract section 45(4) unless it was a case of transfer of a capital asset. High Court, further, held that whatever rights partners had in the capital assets of the firm by way of being its partners, continued to exist in the form of equity shares that they held in the private limited company and it was a mere change in form of ownership. Accordingly, it was held that section 45(4) was not attracted. (AY. 1991-92)

Pipelines India v. ACIT (2016)238 Taxman 9 (Mad.)(HC)

89.
S.47 : Capital gains – Transaction not regarded as transfer – Gift of shares to sister company – Held, no capital gains implication by virtue of 47(iii) – Held, transaction not covered by proviso to section 47(iii) as it deals with ESOPs – Held, section 48 cannot be applied to ignore exclusions made by section 47 – Reassessment was held to be bad in law

Assessee had transferred shares, having huge market value, without consideration to its sister concern. Intimation u/s. 143(1) was issued accepting the transaction and there was no assessment u/s. 143(3). AO issued notice u/s. 148. High Court held that gift of shares are not regarded as transfer by virtue of section 47(xiii). It was also held that, proviso to section 47(xiii) would not apply to the present case, since it applies to any transfer under gift or irrevocable trust of capital asset in the nature of shares, debentures or warrants allotted by a company to its employees under Employees’ Stock Option Plan or Scheme. High Court also held that section 48 also cannot help the Revenue, since the same only deals with the computation of capital gains and cannot override the exclusions given u/s 47. (AY. 2010-11)

Prakriya Pharmacem v. ITO (2016) 238 Taxman 185 (Guj.)(HC)

90.
S.68 : Cash credits – The assessee is bound to be provided with the material used against him apart from being permitted to cross examine the deponents. The denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment order and renders it vulnerable

(i) On a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the ACIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conclude that the loan was a bogus transaction.

(ii) In the light of the fact that the monies were advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the revenue should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against assessee in arriving before passing the order of reassessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the reassessment and therefore renders the orders passed by the CIT(A) and the Tribunal vulnerable. In our view the assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents. Despite the request dated 15th February, 1996 seeking an opportunity to cross examine the deponent and furnish the assessee with copies of statement and disclose material, these were denied to him. In this view of the matter we are inclined to allow the appeal (ITA No. 58 of 2001, dt. 30-6-2016) (AY. 1983-84)

H. R. Mehta v. ACIT (Bom.)(HC); www.itatonline.org.

91.
S.68 : Cash credits – Share capital – Initial burden which lay upon assessee to establish source of share capital received shall be duly discharged by the assessee – Without any material to contrary – No addition can be made

The High Court held that the Revenue’s allegation that the assessees were themselves being used as conduit for routing the ‘on-money’ or that investment in the Assessee was also for routing such ’on-money’ has not even prima facie been able to established by Revenue. On one hand there was attempt to treat the cash credit found in books of account to be ‘undisclosed income’ by showing investors to be paper companies. On other hand, the attempt was to show that this money in fact belong to certain other entities whose secure was not explained by assessee. Thus there was no clarity in the stand of the Revenue. During the search proceedings the Assessee had produced the books of account and also the source of investments. However the Revenue was unable to produce any further evidence to the dispute. The AO did not appear to have undertaken any particular investigation into the affairs of the Tables I, II and III apart from issuing notice under section 131 of the Act which was duly responded. Detailed findings had been given by the Tribunal after thorough examination of the records. Hence there was no reason to differ from the findings of the Tribunal. The High Court further held that since the order of the Tribunal was examined in the light of the section 68 of the Act, and hence Tribunal was fully justified in coming to the conclusion that there was no evidence to establish that there was any re-routing of the money collected by the assessee companies. Thus the High Court dismissed the appeal of the Revenue. (AY. 2003-04 to 2009-10)

CIT v. SVP Builders (India) Ltd. (2016) 238 Taxman 653 (Delhi)(HC)

92.
S.69 : Unexplained investment-Search and Seizure – It was not open for AO to draw an inference on the basis of projection of document which was ‘dumb’ document – When the assessee offered a plausible explanation for the document – The burden shifted on Revenue and hence the addition made was unjustified

The assessee was engaged in the business of real estate development. A search and seizure operation under section 132 was carried out at the business premises of the assessee as well as residential premises of its Director. The Revenue seized various materials including inter alia the documents stored in the computer of the employee of assessee which showed working of anticipated sales revenue on account of sale of space in commercial complexes developed by assessee. The AO issued notice under section 158BC to Assessee mentioning that as per documents seized, rate of sale of floor space in commercial complex was higher than rate declared by assessee in its return of income. In response to said notice, assessee submitted that documents seized were mere projections and did not represent any completed or materialised transactions. The AO rejected assessee’s explanation and made addition to taxable income on basis of rates of floor space mentioned in seized documents. The CIT(A) sustained the addition made by AO. The Tribunal however deleted the addition made by AO.

The High Court after hearing the contentions of both parties and going through the material on record held that the documents recovered from file of the computer of the employee of the firm formed the basis for the addition made by AO and CIT(A). However the sheets were in the form of printout which were unsigned and undated. The view taken by the Tribunal that mere fact that the printout stated any rates did not necessarily mean that they were sold at the rates indicated therein was a plausible view that could be taken.

The CIT(A) had placed reliance on the rates in the sheet discovered but this could not form basis for determining the actual rate. The High Court relied on
CIT v. S.M. Aggarwal (2007) 293 ITR 43 (DelhI) (HC) and held that such documents were termed as ‘dumb’ and in absence of independent corroboration it could not be relied upon as a substantive piece of evidence to determine the actual rates at which flats were sold. Mere noting of offers on slip of papers did not mean that those transactions actually took place. Further the AO had not justified on how it came to a conclusion that the figure ‘48’ occurring in one of the documents could be read as 48 lakhs. Further High Court held that it was also not open to the AO to draw an inference on the basis of the projection in the document, particularly when the assessee offered a plausible explanation for the document. The burden shifted to the Revenue to show that, on the basis of some reliable and tangible material, it was determined that the rates of flats on the second and third floors were higher than that indicated in the sales register or the sale deeds themselves. Thus the High Court was of the view that Tribunal was justified in deleting the addition made by the AO and thereby dismissed the appeal of the Revenue. (AY. 2002-03)

CIT v. Vatika Landbase Pvt. Ltd. (2016) 383 ITR 320/ 238 Taxman 448 (Delhi)(HC)

93.
S.74 : Losses – Capital Gains – Deemed short term capital gain under section 50 can be set off against brought forward long term capital gains, if character of such gain is on account of sale of long term capital asset

The assessee had set off brought forward long term capital losses against the deemed short term capital gain arose on account of the sale of depreciable asset. The AO disallowed the set off of brought forward long-term losses as the same were not permitted under section 74 of the Act. On appeal the CIT(A) and Tribunal ruled in favour of the assessee by following decision in case of
CIT v. ACE Builders (2006) 281 ITR 210 (Bom.)(HC) and Komac Investments and Finance Pvt. Ltd. (2011) 132 ITD 290 (Mum.)(Trib). Aggrieved by the Tribunal decision the Revenue was in appeal before the High Court.

High Court after placing reliance on the above decisions held that the deeming fiction under section 50 is restricted only to the mode of computation of capital gains contained under section 48 and 49 of the Act. It does not change the character of the capital gain from long-term gain to short-term gain for purpose other than section 50 of the Act. Thus for the purpose of section 74 of the Act, the deemed short term capital gain continues to be long term capital gain. As a result the Revenue’s appeal was dismissed by the High Court. (AY. 2005-06)

CIT v. Parrys (Eastern) (P) Ltd. (2016) 384 ITR 264/ 238 Taxman 14 (Bom.)(HC)

94. S.80-IA : Industrial undertakings –Infrastructure
development – As the words "derived from" are absent there is no
requirement to prove "first degree nexus" of the receipts with
the eligible business. All receipts of the undertaking are
eligible for 100% deduction

Dismissing the appeal of revenue the Court held that As the words “derived from” are absent there is no requirement to prove “first degree nexus” of the receipts with the eligible .business. All receipts of the undertaking are eligible for 100% deduction. (AY. 2005-06)

PCIT v. Bharat Sanchar Nigam Ltd. (Delhi) (HC) www. itatonline.org

95.
S.80P : Co-operative Societies – Assessee fell within the term ‘co-operative bank’ and was not entitled for deduction

The assessee was a State Co-operative Agricultural and Rural Development Bank. The question that arose before the High Court was whether assessee was a ‘co-operative bank’ which was a ‘primary agricultural credit society’ or not. According to Revenue, assessee was a co-operative bank, other than a ‘primary agricultural credit society’/’primary co-operative agricultural and rural development bank’ and, therefore, section 80P of the Act did not apply to it in view of sub-section (4) of section 80P.

The assessee submitted that section 80P(4) of the Act provided that the provisions of this section did not apply in relation to any ‘co-operative bank’ other than ‘primary co-operative agricultural and rural development bank’. In this regard, the High Court firstly decided whether the Assessee would be a co-operative bank which is a ‘primary agricultural credit society’. In this regard, the High Court went through various definitions and provisions of the Banking Regulation Act, 1949 and the National Bank for Agricultural and Rural Development Act, 1981 and Kerala Co-operative Act, 1969 and decided that the assessee would fall within the terms of the term ‘co-operative bank’. Further the High Court decided whether the assessee was a ‘primary agricultural credit society’ or not. In this regard, it observed the provisions explanation (a) to section 80P(4) of the Act and held that it was not a ‘primary agricultural credit society’. Thus the High Court held that the assessee was not a co-operative Bank which was a ‘primary agricultural credit society’ and the assessee did not fall under section 80P(4) of the Act and hence the appeal of the Assessee was dismissed. (AY. 2007-08)

Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. CIT (2016) 383 ITR 610/ 238 Taxman 638 (Ker.)(HC)

96.
S.92C : Transfer pricing – Arm’s Length Price – Selection of comparables – An investment advisor could not be compared to a merchant banker

The assessee provides private equity investment advisory services to its AE at cost plus 12.5%. The TPO selected 8 comparables and on application of Transaction Net Margin Method (TNMM) arrived at an arithmetic mean of 39.85% as against assessee operating profit of 13.12%. Dispute Resolution Panel (DRP) confirmed the TPO’s order.

On appeal, the Tribunal rejected 7 comparables of the TPO following the decision of
Carlyle India Advisors (P.) Ltd v. ACIT (2012) 53 SOT 267)(Mum.) (Trib.), where it was held that merchant bankers are not comparable to the Assessee and used only one comparable in respect of investment advisory functions of the Assessee (i.e. IDC (India) Ltd). Aggrieved by the Tribunal’s order the Revenue was in appeal before the High Court.

The High Court held that on application of Function, Assets and Risk (FAR) analysis the assessee company’s functions are similar to Carlyle India Advisors (P.) Ltd. viz. advising its AE on the possible companies it could invest. As far as assets are concerned both companies have similar expertise available for rendering advice to the AEs, and as far as risk is concerned the consideration received by it, is on cost plus basis similar to that of Carlyle India Advisors (P) Ltd. The High Court also noted that the Revenue was in appeal before the High Court against the Tribunal order in case of
CIT v. Carlyle India Advisors (P) Ltd. which was dismissed by the High Court (2013) 357 ITR 584)(Bom)(HC), following the same order of the co-ordinate Bench, the High Court dismissed the Revenue’s appeal and held that the assessee company, being an investment advisor is not comparable to a merchant banker. (AY. 2006-07)

CIT v. General Atlantic (P.) Ltd. (2016)384 ITR 271/ 238 Taxman 535 (Bom.)(HC)

97.
S.139 : Return of income – Condonation of delay in filing return – Delay of 1 day – Due to technical snags in the Departments website return uploaded only in midnight and hence date of filing reckoned by Department as the next day – Held, reason for delay satisfactorily explained – Delay to be condoned

The assessee company was engaged in the business of execution and commissioning of wind turbine generators. The due date of filing of return was 15-10-2010. Due to technical snag in the Department website, assessee could not upload the return and it could be filed only in midnight of 15-10-2010 and, hence, the date of filing had been reckoned by the Department as 16-10-2010. The assessee approached the CBDT for condonation of delay. CBDT rejected the said application. High Court held that the assessee had satisfactorily explained the delay in filing the return and it cannot be stated that the delay in filing the return had occurred deliberately or on account of culpable negligence or on account of mala fides. High Court directed the CBDT to condone the delay. (AY. 2010-11)

Regen Infrastructure & Services (P.) Ltd. v. CBDT (2016)384 ITR 407 / 238 Taxman 530 (Mad.)(HC)

98.
S. 131 : Power – Discovery –Production of evidence – Assessing Officer has the power to enforce attendance of the assessee by camping at the residence of the assessee

It is held that the single judge of the Karnataka High Court has erred in holding that the Assessing Officer does not have the power to enforce attendance of the assessee by camping at the residence of the assessee and that all that the summons to that extent means is as the Assessing Officer has already entered the premises of the residence, in order to comply with the legal requirement, he has served summons on him calling upon him to depose. To show the place where he should depose, the phrase, “camp at your residence” is mentioned.

Ramesh G. DDIT (Inv) v. Prakash V. Sanghvi (2016) 236 Taxman 176 (Karn.)(HC)

99.
S.143(1D) : Assessment – Refund – Instruction No. 1 of 2015 dated 13-1-2015 which curtails the discretion of the AO by ‘preventing’ him from processing the return and granting refund, where notice has been issued to the assessee u/s. 143(2), is unsustainable in law and quashed

Assessee was entitled huge amount of refund due to deduction of tax at source. The assessee was not granted the refund in view of Instruction No. 1 of 2015 dated 13-1-2015 curtailed the discretion of the AO by preventing him from processing the return and granting refund where notice has been issued to the assessee u/s. 143(2) of the Act. On writ allowing the petition the Court held that instruction being unsustainable in law and liable to be quashed. (W.P. 12304/2015 & CM 32604/2015, dt. 11-5-2016) (AY. 2012-13, 20013-14, 2014-15)

Tata Teleservices Limited v. CBDT (Delhi)(HC); www.itatonline.org

100.
S.143(3) : Assessment – Admission – Admission of undisclosed income by assessee is not conclusive if no evidence is found to support the admission. A retraction, though belated, is valid. Failure to provide cross-examination to assessee of persons whose statements are relied up is fatal to the addition. CBDT Directive F.No.286/98/2013 IT (INV.II] dated 18-12-2014 prohibits additions on the basis of confession

In view of Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3 (SC) and CIT vs. Chandrakumar Jethmal Kochar [2015] taxmann.com 292 (Gujarat) we are of the view that the admission made by the assessee is not a conclusive proof and such admission can be used as an evidence unless it is not retracted. The assessee in this case has already retracted the statement which in our opinion is a valid retraction. Although there had been search in the case of Gokul Corporation and its partner Shri Suresh A. Patel on which the Revenue has relied for making the additions in the case of the assessee but the Revenue could not bring any evidence or material except the statement of the assessee which was recorded on 8-1-1996 and also the statements of Shri Subhash Pandey and Shri Kashyap Thakore and these statements were although recorded at the back of the assessee. When the assessee has asked for their cross-examination, the cross examination of Shri Subhash Pandey was not given to the assessee, although the statement of the assessee was recored in consequence of the statement of Shri Subhash Pandey recorded on 1-1-1996 u/s. 131. The statements of Shri Suresh A. Patel and Shri Kashyap Thakore nowhere state the name of the assessee. Thus the Revenue has not brought any evidence. The onus, in our opinion, is on the Revenue to prove that the assessee has earned the income. It gets shifted on the assessee once the assessee claims the exemption of income. (TA No. 210 of 2008, dt. 20-7-2016)(AY. 1991-92)

CIT v. Ramanbhai B. Patel (Guj.)(HC) www.itatonline.org

101.
S. 143(3) : Assessment – Duty of the Assessing Officer is to allow deduction even if not claimed in return – Unavailed Modvat credit cannot be construed as income and there is no liability to pay tax on such unavailed Modvat credit

Once the return is filed the Assessing Officer commences the assessment proceedings, the assessing authority is not the taxpayer’s opponent, in the strictly procedural sense of the term. The Central Board of Direct Taxes Circular No. 14 (XL. 35 ) dated April 11, 1955 states that it is the duty of the Assessing Officer to make available to the assessee any legitimate and legal tax relief to which the assessee is entitled, but has omitted to claim one reason or another. Merely because the assessee in the return filed under section 139(1) has not put forth a claim for relief, he cannot be estopped from getting the tax relief if he is entitled to it in law. Accordingly following the ratio in CIT v. Indo Nippon Chemicals Co. Ltd. (2003) 261 ITR 275 (SC), that the unavailed Modvat credit cannot be construed as income and there is no liability to pay tax on such unavailed Modvat credit. (AYs. 2001-02 to 2004-05)

Dy. CIT v. Wipro Ltd. (2016) 382 ITR 179/ 236 Taxman 209/ 282 CTR 346 (Karn.)(HC)

102.
S.145 : Method of accounting – Inability of the assessee, an Advocate, to reconcile the professional receipts with the TDS certificates and to give a detailed party-wise breakup of fees receipts does not mean that the difference can be assessed as undisclosed income

The assessee challenged the order of the Commissioner of Income Tax in confirming the addition of Rs. 47,37,000 made by Assessing Officer on account of non-reconciliation of professional receipts with TDS certificates. Insofar as that aspect is concerned, the Tribunal considered this submission of both sides and found that the assessee was engaged as an Advocate to argue the matters by what is popularly known as Advocates on record or instructing Advocates method, meaning thereby the client does not engage the assessee directly but a professional or the Advocate engaged by the client requests the assessee to argue the case. The brief is then taken as the counsel brief. That being the practice, the assessee gave an explanation that the breakup as desired cannot be given and with regard to all payments. It is pointed out that at times, assessee receives fees directly from the clients or from the instructing Advocates or Chartered Accountants if such professionals have collected the amounts from the clients. Under these circumstances, the breakup as desired cannot be placed on record. An explanation which has been given by the assessee and accepted in the past has been now accepted by the Tribunal once again. On appeal by revenue dismissing the appeal the Court held that since it is accepted for the Assessment Year 2006-07, in the peculiar facts, in relation to the present assessee, we are of the view that this Appeal does not deserve to be entertained. It does not give rise to any substantial question of law. (ITA No. 1930 of 2011, dated 18-3-2014) (AY. 2006-07)

CIT v. S. Ganesh (Bom.)(HC) ;www.itatonline.org

103.
S.147 : Reassessment – After the expiry of four years – In original assessment proceedings AO accepted that the income received by the assessee is to be taxed as royalty under Article 12 of the India-USA DTAA – Notice u/s. 148 issued for taxing income under Article 7 as the AO was of the view that royalty payable was linked to its PE in India and by applying the principle of ‘force of attraction’ said royalty would be taxable as business profits under the said Article 7 – Held, reassessment not sustainable as there was no failure on part of assessee to disclose all material facts and that the assessment was reopened merely on the basis of change of opinion – DTAA – India-USA

The assessee, a US based company, was engaged in the manufacture and production of business support software. It had a wholly owned subsidiary in India, namely, OIPL. The assessee entered into a ‘Software Duplication and Distribution Licence Agreement’ with OIPL pursuant to which OIPL sub-licensed software products to various customers in India. The assessee offered the royalty received under the aforesaid agreement to tax in its return of income. During the original assessment proceedings, AO accepted the said contention of the assessee. Subsequently, AO took a view that royalty payable to the assessee by OIPL was linked to its PE in India and by applying the principle of ‘force of attraction’, the said royalty would be taxable as business profits and not as royalty under A

rticle 12 of DTAA and accordingly, issued a notice u/s. 148. High Court held that, there was no failure on the part of the assessee to disclose all material fact. The AO was well aware about the existence of PE of the assessee in India and had himself taxed the income from the aforesaid agreement as royalty income. Further, reasons for reopening of assessment also did not indicate that the AO had discovered that the royalty in question was earned by the assessee through a PE, it only alleged that it was observed that such royalty was ‘linked’ to the assessee’s PE. Thus, it was held that there was no tangible material available with the AO to reopen the assessment and that the reassessment would amount to change of opinion which is not permissible in law. (AY. 2005-06)

Oracle Systems Corpn. v. DIT(IT) (2016) 383 ITR 434/ 238 Taxman 165 (Delhi)(HC)

104.
S.147 : Reassessment – Reopening notice issued to a private trust which received contributions of Rs. 6.58 crore on the ground that it has not obtained a PAN or filed a return of income is not valid. The AO cannot assume all receipts are income and issue the reopening notice

Admitting the petition and granting the interim stay the Court observed that, reopening notice issued to a private trust which received contributions of Rs. 6.58 crore on the ground that it has not obtained a PAN or filed a return of income is not valid. The AO cannot assume all receipts are income and issue the reopening notice. (AY. 2008-09) (WP. No. 1155 of 2016, dt. 20-7-2016)

General Electoral Trust v. ITO (Bom.)(HC) www.itatonline.org

105.
S.147 : Reassessment – Notice issued to, and reassessment order passed on, a non-existing entity is without jurisdiction. A writ petition can be entertained despite the presence of alternate remedy

Normally we would not have entertained a petition as an alternative remedy to file an appeal is available to the petitioners. However, prima facie, the impugned notice has been issued in respect of a non-existing entity as M/s. Addler Security Systems Pvt. Ltd., which stands dissolved, having been struck off the Rolls of the Registrar of Companies much before its issue. Consequently, the assessment has been framed also in respect of the non-existing entity. This defect in issuing a reopening notice to a non-existing company and framing an assessment consequent thereto is a issue which goes to the root of the jurisdiction of the Assessing Officer to assess the non-existing company. Thus, prima facie, both the impugned notice dated 24th March, 2015 and the Assessment Order dated 28th March, 2016, are without jurisdiction. (WP No. 1069 of 2016, dt. 8-6-2016)(AY. 2008-09)

Jitendra Chandralal Navlani v. UOI (Bom.)(HC); www.itatonline.org

106.
S.147 : Reassessment – Gift of shares to sister company – reasons for reopening only contained the transaction and nothing more – Held, no live nexus between the transaction and the fact that income has escaped assessment –Reassessment quashed

Assessee had transferred shares, having huge market value, without consideration to its sister concern. Intimation u/s. 143(1) was issued accepting the transaction and there was no assessment u/s. 143(3). AO issued notice u/s. 148. Reasons supplied by the AO for reopening of assessment merely mentioned the transaction and his opinion that he has reason to believe that income has escaped assessment. High Court held that formation of belief by the AO must be prima facie and at the stage when the Court was testing validity of such a notice; it would not be necessary for the AO to conclusively establish that the income chargeable to tax had escaped assessment. High Court also held that there was no live nexus between the transaction and the fact that income has escaped assessment, since gift of shares to sister concern did not attract capital gain by virtue of section 47(iii). Accordingly, it was held that, reasons recorded by the AO to form belief that the income chargeable to tax had escaped assessment lacked validity. (AY 2010-11)

Prakriya Pharmacem v. ITO (2016) 238 Taxman 185 (Guj.)(HC)

107.
S.147 : Reassessment – A US company, IMA acquired shares of assessee company incorporated in Bermuda – Post merger Indian entity of both the companies merged and was named as IMI– Search and seizure proceedings were carried out at the premises of the IMI – AO opined that assessee transferred all the assets of its Indian company to the US company, IMA – High Court held that, shares of assessee company had been transferred by shareholders of assessee and not by assessee company itself – Held, there could have been no reason to believe that income has escaped assessment – Notice u/s. 148 issued to IMI instead of assessee company though the address was available with the Department – Held, bad service of notice– Held, assessment order to be quashed

Assessee was a company incorporated under the laws in Bermuda and was the holding company of the entire Techpac Group. The shares of the assessee company (equity as well as preferential) were held by certain non-resident as well as resident shareholders. A US company, IMA acquired the shares of the assessee company under a share purchase agreement in which IMA was the purchaser, the shareholders of the assessee company were the sellers. After the aforesaid acquisition, the Indian entity of IM Group called IMI merged into the Indian entity of the Techpac Group and post the merger, the name of company was changed to IMI. A search and seizure proceedings were carried out at the premises of IMI. The AO found the share purchase agreement under which shares of assessee-company had been transferred to IMA. AO contended that by virtue of the said agreement, assessee had transferred all the assets and liabilities of its Indian Group Company (i.e., Tech Pacific India) to IMA. Hence, there was a clear transfer of capital asset in India and the AO issued notices u/ss. 148, 143(2) and 142(1) to IMI. IMI received notices, it opened the postal envelope and after seeing the contents thereof, closed it and sent it back to the revenue authorities. AO passed an order u/s. 144. High Court held that there was no proper service of the notices on the assessee as the notices were served on IMI, in spite of Revenue being aware about the address of the assessee. The address of the assessee was in the share purchase agreement which was within the possession of the AO. In so far as the merits of the case were concerned, High Court held that assessee has not transferred any capital asset in India that would give rise to any capital gains tax in their hands, rather shares of the assessee-company were transferred by its shareholders to IMA. Held, therefore AO could never have reason to believe that income had escaped assessment in the hands of the assessee. (AY. 2005-06)

Techpac Holdings Ltd. v. Dy. CIT (2016) 382 ITR 474 /238 Taxman 542/ 286 CTR 412 (Bom.)(HC)

108.
S.147 : Reassessment – Report of DVO – Could not be made sole basis to reopen assessment without verification of facts to support conclusion of DVO

During the assessment proceedings for subsequent year (i.e. AY 2011-12), the AO noticed that the cost of construction claimed by the assessee for the project appeared to be less in comparison to similar projects run by other assessees. He, therefore, made a reference to the DVO for determining the cost of construction of the project of the assessee. The DVO determined the cost of construction of the entire project of the assessee at higher figure (report was for the period AY 2007-08 to AY. 2012-13). On the basis of the aforesaid report of the DVO, the AO formed the belief that the assessee had under-reported the cost of investment made by it in the ongoing project and artificially inflated the profit from the project as it was getting benefit of deduction under section 80-IB(10). He, therefore, reopened the assessment for the year under consideration.

The High Court held that except for the report of the DVO, there was no tangible material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. Following the ruling of ACIT v. Dhariya Construction Co. ( 2010) 328 ITR 515 (SC) wherein it was held that the opinion of DVO per se is not an information for the purpose of reopening assessment under section 147 of the Act, the High Court the very assumption of jurisdiction under section 147 of the Act on the part of the Assessing Officer by issuing the impugned notice under section 148 of the Act is without authority of law, and hence, the impugned notice cannot be sustained. Further it was held that there was no profit during the year and deduction under section 80-IB(10) has not been claimed by assessee and hence objection of department on this ground in incorrect. Thus writ petition filed by the assessee is allowed. (AY. 2007-08)

Aavkar Infrastructure Company v. Dy. CIT (2016) 238 Taxman 644 (Guj.)(HC)

109.
S.147 : Reassessment – Notice issued after death of assessee returned unserved – Notice sent to legal heir after limitation period was held to be not valid

Held the limitation for issuance of the notice under section 147 read with section 148 of the Act was March 31, 2015. On March 27, 2015, when the notice was issued, the assessee was already dead. If the Department intended to proceed under section 147 of the Act, it could have done so, prior to March 31, 2015 by issuing a notice to the legal heirs of the deceased. Beyond that date, it could not proceed in the matter even by issuing notice to the legal heirs of the assessee. Thus the proceedings under section 147 read with 148 of the Act against the petitioner were wholly misconceived and were to be quashed. (AY. 2008-09)

Vipin Walia v. ITO (2016) 382 ITR 19 / 238 Taxman 1(Delhi)(HC)

110.
S.147 : Reassessment – Cash credits – Assessing Officer cannot reopen the assessment on the basis of information that huge cash deposits were made in the bank account of the assessee without examining whether such deposits were reflected in the return of income

The assessee filed return of income declaring income of Rs. 36,02,307. The return was processed under section 143(1). Subsequently, the AO reopened the assessment based on the information received from Enforcement Directorate (ED) that there have been cash deposits of Rs. 3,23,00,550 and in the investigation carried out by ED, assessee failed to explain such deposits to them. The assessee explained that it acts as an agent of an Airline and cash deposits were from the sale of tickets which were duly disclosed in the books of account. The AO rejected the explanation and assessed the cash deposits as undisclosed income. The CIT(A) confirmed the order of the AO however, the Tribunal reversed the order of CIT(A) and quashed the reassessment for want of Jurisdiction. On appeal to the High Court, it was held that AO failed to examine whether mere information received from ED provided him the vital link to from the ‘reason to believe’. Further, mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facie opinion based on the tangible material which provides the nexus or the link having reason to believe that income has escaped assessment. The AO was also required to examine whether the cash deposits were disclosed in the return of income to form an opinion that income has escaped assessment. (AY. 2002-03)

CIT v. Indo Arab Air Services (2015) 64 taxmann.com 257 / (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC)

111.
S.147 : Reassessment – Reassessment cannot be initiated merely because the assessee suffered loss on shares of the company which was floated by one of the directors of the assessee company

Assessee filed return of income declaring income of Rs. 6,23,880. In the return of income it had claimed loss of Rs. 1,28,80,000 on closing stock of shares namely, PP Ltd. whose cost was more than the market price. The assessment u/s 143 was completed without any dispute on the point of valuation. Later on, during the assessment of A. Y. 1997-98, the AO found out that the director of the assessee had floated PP Ltd. and company does not carry on any business. Therefore, the transaction carried out by assessee were collusive in nature. Accordingly, the AO issued notice u/s. 148 for assessing the loss claimed on closing stock. The order of reassessment was quashed by CIT(A) which was affirmed by the Tribunal. On appeal, the High Court held that the reason to believe was not based on tangible material or information. In fact, it was purely on the basis of surmises that the assessment was reopened. Further, the existence of common director of the companies could not give the AO “reason to believe” to reopen the assessment. Also, the loss claimed by the assessee on closing stock is based on the accounting policy which assessee has been consistently following and has been accepted by the department in the past. Therefore, the reassessment is invalid in law. (AY. 1995-96)

CIT v. Vishishth Chay Vyapar Ltd. (2016) 384ITR 505 /130 DTR 87 (Delhi)(HC)

112.
S.147 : Reassessment – Assessing Officer must pass speaking orders for separate assessment years while disposing of the objections filed for separate assessment years

Assessing Officer reopened the assessment from A.Y. 2007-08 to 2010-11. Assessee filed objections against the notice issued u/s. 148 for each year separately. The AO passed a Non-speaking composite order disposing of the objections for all the assessment years. On Writ Petition, the High Court held that the AO must a speaking order and Non-composite order disposing of the objections of the assessee. Hence, the Composite order passed was set aside. AY. 2007-08 to 2010-11)

JVS Export v. Dy. CIT (2016) 130 DTR 411 (Mad.)(HC)

113.
S.151 : Reassessment – Sanction for issue of notice – Return processed u/s. 143(1)(a) in pursuance of notice u/s. 147 –Held, not an assessment – Held, provision of section 151(1) not attracted

The assessee, an individual, did not file return for the relevant year. A notice was issued u/s. 148 to tax certain interest income. In response to said notice, the assessee filed his return. An intimation under section 143(1)(a) was issued. AO subsequently issued another notice u/s. 148 for the purpose of bringing to tax certain amount received as commission. Assessee challenged such reopening on the ground that pursuant to the first notice issued u/s. 148, intimation was issued by the AO u/s. 143(1)(a) which constituted assessment and therefore, in the light of specific provisions of section 151(1), no notice could be issued u/s. 148 unless the CCIT or CIT was satisfied that it was a fit case for issue of such a notice. High Court held that intimation issued u/s. 143(1)(a) was not an assessment and therefore, provisions of section 151(1) are not attracted. (AY. 1991-92)

Ranjeet Singh v. CIT (2016) 382 ITR 409 / 238 Taxman 522 (P&H)(HC)

114.
S.151 : Reassessment – Sanction for issue of notice – Mechanical grant of approval by affixing signature without recording any satisfaction – Held, mere fact that the Additional Commissioner did not record his satisfaction in so many words would not render invalid the sanction granted u/s. 151(2) when the reasons on the basis of which sanction was sought for was not challenged

The assessee a proprietorship concern was engaged in the business of trading in various goods. AO issued notice u/s. 148 for reopening of assessments in respect of AYs. 1990-91, 1991-92 and 1992-93. AO obtained approval of the Additional Commissioner u/s. 151(2) by order and thereafter issued notice u/s. 148. Assessee challenged the notice on the ground that Additional Commissioner mechanically granted approval by affixing his signature without recording any satisfaction. High Court held that assessee had not contended that the reasons cited by the AO for initiating reassessment proceedings u/s. 147 were irrelevant or that the AO had no reason to believe that income chargeable to tax had escaped assessment, therefore, mere fact that the Additional Commissioner did not record his satisfaction in so many words would not render invalid the sanction granted u/s. 151(2) when the reasons on the basis of which sanction was sought for was not assailed. (AYs. 1990-91 to 1992-93)

Prem Chand Shaw (Jaiswal) v. ACIT (2016)383 ITR 597 / 238 Taxman 423/ 286 CTR 252 (Cal.)(HC)

115.
S.194A : Tax Deduction at source – Interest other than interest on securities – Contingent payments – No liability to deduct tax, if income did not accrue to the supplier

The Assessee Company being an undertaking of the Government of Karnataka purchased power after entering into power purchase agreements. For such purchases when there was a delay in payment, the assessee paid interest to suppliers. During the 3 years under consideration, the assessee had created a provision for the interest amount and treated the same as expenditure to arrive at the profit but while filing the return the assessee did not treat the interest as expenditure. As these were book entries towards contingent interest payable for the first 2 years a corresponding reversal entries were made in the books indicating that the provision towards contingent interest would never be paid. However in the third year the said amount though was treated as expenditure in the profit and loss account was not excluded while arriving at the taxable income in the return of income.

The AO held that the assessee was liable to deduct tax at source on the amount of provision made towards likely interest payable and treated the assessee as in default and invoked the provisions of section 201 and 201(1A) of the Act. The same was upheld by the CIT(A) and the Tribunal. Aggrieved the assessee filed an appeal before the High Court.

The High Court after examining the applicability of section 194A of the Act to the present case held that the section mandates the tax deductor to deduct income tax on ‘any income by way of interest other than income by way of interest on securities’. The phrase ‘any income’ and ‘income tax thereon’ if read harmoniously, it would indicate that the interest which finally partakes the character of income, alone is liable for deduction of the income tax on that income by way of interest. If the said interest is not finally considered to be an income of the deductee, as per reversal entries of the provision in the present case, section 194A(1) of the Act would not be made applicable. In other words, if no income is attributable to the payee, there is no liability to deduct tax at source in the hands of the tax deductor. In view of the admitted fact that interest being not paid to the suppliers being reversed in the books of account, High Court was of the opinion that there would be no liability to deduct tax as no income accrued to the suppliers. (AY. 2005-06 to 2007-08)

Karnataka Power Transmission Corporation Ltd. v. CIT(TDS) (2016) 383 ITR 59 / 238 Taxman 287 (Karn.)(HC)

116.
S. 194J : Tax Deduction at source – Fees for professional or technical services – Supply of ready study data by a foreign company to its subsidiary cannot be constructed as technical services to resident – Not liable to deduct tax at source

The parent company (non-resident) had purchased a technical data from a foreign company which was subsequently supplied to its subsidiary in India, i.e. the assessee. The amount was recovered by the parent company from the assessee company in the subsequent year. The AO treated this amount liable for TDS under section 194J of the Act. The CIT(A) confirmed the AO’s action.

On appeal before the Tribunal, it was held that the assessee was merely supplied with ready study data and no services were rendered by the parent company to the assessee and thus payment made on such services which are reimbursement of expenses did not attract TDS. Aggrieved the revenue was in appeal before the High Court.

The High Court held that no services were rendered by the parent company to the assessee so as to be construed as technical services rendered to a resident under section 194J of the Act. As the sum paid is not chargeable to tax as per Explanation 2 to section 9(1)(vii) of the Act, therefore the assessee is not liable to deduct TDS on such payments. The Revenue’s appeal was dismissed by the High Court. (AY. 2008-09, 2009-10)

CIT v. Heramec Ltd. (2016) 238 Taxman 519 (AP&T)(HC)

117.
S.195 : Tax Deduction of tax – Non-resident – If no income accrues or arises to non-resident in India – No liability to deduct tax

The Assessee was appointed as the arranger by the State Bank of India (SBI) for mobilizing its Indian Millennium Deposits (IMDS). In turn the Assessee was entitled to appoint sub-arrangers within and outside India. The Assessee in turn received arranger fees and commission and it in turn paid sub-arranger the sub-arranger’s commission. The Assessee had failed to deduct tax at source on the sub-arrangers commission paid and hence the AO invoked the provisions of section 40(a)(i) of the Act and thereby disallowed the expenditure. On appeal the CIT(A) held that the amount paid to the non-resident sub-arranger was in the nature of commission/brokerage and not in the nature of fees for technical services in terms of section 9(1)(vii) of the Act.

The Revenue filed an appeal before the Tribunal wherein the Tribunal analysed the nature of services provided by the Assessee. In this regard, the Tribunal examined whether the services provided by the Assessee were managerial, technical or consultancy in nature. The Tribunal held that the services provided by the Assessee were neither of the three and hence upheld the order of the CIT(A). Aggrieved Revenue filed an appeal before the High Court.

The High Court held that the need to deduct tax would arise if the non-resident would earn any income chargeable to tax in India. Further the High Court also held that the services provided by the Assessee did not fall under the category of Explanation 2 to section 9(1)(vii) of the Act and hence the Assessee was not required to deduct tax at source under section 195 of the Act.

DIT(IT) v. Credit Lyonnais (2016) 238 Taxman 157 (Bom.)(HC)

118.
S.201 : Tax Deduction at source – Failure to deduct or pay – Deductees had filed their returns and had paid tax in terms of assessment – Held, in view of proviso to section 201(1) if deductees have paid taxes on the amount on which deductors have failed to deduct tax at source, demand raised consequent to 201(1) proceedings cannot be enforced

The assessee was a department of the State Government. It had made certain payments to two Corporations, namely, BRPNNL and BSRDCL, on which it failed to deduct tax at source. In 201(1) proceedings, the AO treated the assessee as assessee-in-default and raised demand. Assessee filed an appeal before the CIT(A) and simultaneously filed an application for stay of demand before the ACIT (TDS) and CIT(A). ACIT (TDS) rejected the request for stay and attached the accounts of the assessee maintained with the District Treasury Officer, for recovery of the whole amount in dispute. Assessee filed a writ petition challenging the rejection of stay and attachment of its account. High Court, after considering the Circular No.275/201/95-IT(B) dated 29-1-1997, judgment of the Hon’ble Supreme Court in case of Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226 (SC) and the proviso to section 201(1), held that a person, who fails to deduct, whole or part of the tax at source, shall not be deemed to be an assessee in default if in respect of such tax, the deductee has furnished his return of income u/s. 139 of the Act and, while furnishing the return, has taken into account such sum for computing income in such return and has paid the tax due on the income declared by him in such return. In view of the above conclusion, the High Court directed the CIT(A) to take up the appeal at the earliest and if it was found that the taxes have been paid by deductees, then to set aside the demand and to vacate the attachment of account. (AY. 2012-13 to 2014-15)

Nai Rajdhani Path Pramandal v. CIT (TDS) (2016)384 ITR 328 /238 Taxman 281 (Patna)(HC)

119.
S.201 : Tax Deduction at source – Failure to deduct or pay – Time limit for passing order –Amendment by Finance (No. 2) Act, 2014 – Increase in limitation period to 7 years for passing order u/s. 201 – Held, not retrospective – Held, amendment will not apply to those years, in whose case time limit for passing order u/s. 201 as on 1-10-2014 has expired as per the existing law – Held notices issued u/s. 201(1)/(1A) were to be quashed

The assessee was served with notices u/s. 201(1)/(1A) in December, 2014 in connection with TDS proceedings concerning AYs 2008-09 and 2009-10. The assessee contended that section 201(3) inserted vide Finance (No. 2) Act, 2009 with effect from 1-4-2010 provided period of limitation of two years from the end of financial year in which TDS statement is filed since assessee regularly filed TDS statements, period for passing order u/s. 201(3) for relevant assessment years expired on 31-3-2011/2012. Hence, assessee submitted that the notices issued in December, 2014 were time-barred. AO held that the revised time limit of 7 years prescribed by the Finance (No. 2) Act, 2014 shall apply. High Court held that, Finance Act, 2012 amended the provision of section 201(3) on 28-5-2012 and was specifically made applicable retrospectively w.e.f. 11-4-2012, whereby limitation period was substituted from four years to six years for passing orders where TDS Statement had not been filed. However, section 201(3) as amended by Finance Act No. 2 of 2014, as mentioned in the memorandum of the Finance Bill No. 2 of 2014 was stated to have effect from 1-10-2014. Thus, it was held that wherever the Parliament/Legislature wanted to make provisions applicable retrospectively, it had been so provided. High Court held that proceedings for FYs 2007-08 and 2008-09 had become time barred and for the aforesaid financial years, limitation u/s. 201(3)(i) had already expired on 31-3-2011 and 31-3-2012, respectively, much prior to the amendment in section 201 as amended by Finance Act, 2014 and therefore right had accrued in favour of the assessee. It was therefore held that notices issued u/s. 201(1)/(1A) were to be quashed. (AY. 2007-08, 2008-09)

Tata Teleservices v. UOI (2016) 238 Taxman 331/ 284 CTR 337 (Guj.)(HC)

120.
S.201 : Deduction at source – Failure to deduct or pay – Time limit for passing order – Department initiated proceedings u/s. 201 for a period earlier than four years prior to 31-3-2011 relying upon the new proviso inserted vide Finance (No. 2) Act, 2009 and the Circular explaining the said insertion – Held that Circular 5 of 2010 of CBDT clarifies that the proviso to section 201(3) was meant to expand the time limit for completing the proceedings and passing orders in relation to ‘pending cases’ – the said proviso cannot be interpreted to enable the Department to initiate proceedings u/s. 201 for a period earlier than four years prior to 31-3-2011

The department initiated proceedings u/s. 201 against assessee for non-deduction of tax at source for periods earlier than four years prior to 31st March, 2011 relying upon the new proviso inserted vide Finance (No. 2) Act, 2009 and the Circular explaining the said insertion viz. Circular 5 of 2010. The assessee contended that the proviso to section 201(3) has to be read consistent with the law explained by the Court in CIT v. NHK Japan Broadcasting Corpn [2008] 305 ITR 137/172 Taxman 230 (Delhi)(HC) and should be held not to permit the department to initiate proceedings u/s 201 for a period more than four years prior to 31-3-2011. The department rejected the contention of the assessee by relying upon the Circular No. 5 of 2010. High Court held that the Circular 5 of 2010 of CBDT clarifies that the proviso to section 201(3) was meant to expand the time limit for completing the proceedings and passing orders in relation to ‘pending cases’. The said proviso cannot be interpreted to enable the Department to initiate proceedings for declaring an assessee to be an assessee in default u/s. 201 for a period earlier than four years prior to 31-3-2011. (AY. 2003-04 to 2005-06)

Vodafone Essar Mobile Services Ltd. v. UOI (2016) 238 Taxman 625/ 285 CTR 48 (Delhi)(HC)

121.
S.222 : Collection and recovery – Certificate to Tax Recovery Officer – As per rules 60, 61 of the said schedule, petitioner cannot challenge the sale unless an application to set aside the sale has been preferred and amount sought to be recovered is deposited with the Recovery Officer – Held, petitioner did not satisfy the said condition and made an application for deferment of sale – Held, not permissible

The Petitioner Company had defaulted in repayment of its dues to the bank. Suit was filed in this respect. During the pendency of proceedings before the DRT, a settlement was arrived at, on the basis of which the DRT disposed of the suit. However, the petitioner did not honour the settlement so arrived at. Therefore, the bank initiated the recovery proceedings and obtained a Recovery Certificate from DRT. Such amount was not paid by the petitioner. Accordingly, Recovery Officer auctioned off the mortgaged property and the sale proceeds were deposited. Petitioner moved an application for deferment of the said sale on the ground that one time settlement had been arrived at between the petitioner and the bank. Recovery Officer rejected the said application as it was filed after the confirmation of sale. Petitioner contended that Recovery Officer did not follow provision of Rule 15(2) of Second Schedule to the IT Act, that when the sale is adjourned for more than one month, then a fresh application of sale has to be issued. High Court held that petitioner never challenged the sale of the mortgaged property and the only challenge was against the rejection of application of deferment of sale. It was also held that under Rule 60/ 61, a person interested in the property auctioned can make an application for cancellation of the sale within 30 days of the sale subject to amount sought to be recovered is deposited with the Recovery Officer, and since in the present case, neither any such application was made, nor any amount was deposited, the petitioner cannot invoke Rule 15(2.

Usha Offset Printers (P.) Ltd. v. Bank of Maharashtra (2016) 238 Taxman 363 (Bom.)(HC)

122.
S.234B : Interest – Advance Tax – Levy of interest is mandatory and automatic even though the same was not mentioned in the assessment order

The Assessee filed its return declaring certain taxable income. The Assessing Officer completed assessment under section 143(3) determining taxable income at a higher amount. The CIT(A) passed an order that so far as the charging of the interest under section 234B of the Act was concerned, the same was consequential and, therefore, the AO would recalculate the interest while giving effect to order passed by him. The Tribunal, however, held that as in the order of assessment the Assessing Officer had not charged any interest under section 234B of the Act, no such interest was chargeable.

On appeal by Assessee, on the ground of levy of interest under section 234B of the Act, the High Court after considering the totality of the facts and on conjoint reading of the provisions of sections 143, 234B and 156 of the Act held that when levy of interest under section 234B is mandatory and automatic and the same is on the difference between the advance tax paid and assessed tax, AO has no discretion to levy any other interest other than provided under section 234B. Thereafter, levy of interest under section 234 would be consequential and only arithmetically amount of interest is required to be calculated. Thus, even in absence of any direction with regard to section 234B by the Assessing Officer while passing assessment order under section 143(3), there can be demand and levy of interest under section 156 of the Act. It would have been a different fact if the Assessing Officer had any discretion with respect to rate of interest and/or to levy any interest considering the facts and circumstances of the case. The High Court ruled in the favour of the Revenue. (AY. 1990-91)

ACIT v. Nirma Detergent (P) Ltd. (2016) 238 Taxman 259/ 286 CTR 505 (Guj.)(HC)

123.
S.244A : Refund – Interest on refunds – Deductor claimed interest on refund – Held, interest on such refund to be granted as the deductor is an assessee – Held, interest to be granted from date of application for refund and not from the date of agreement waiving third instalment

The deductor-company entered into an agreement with a German company for transfer of technical know-how and was required to make the payment of technical know-how fees in three instalments. The deductor-company deducted tax at source on all the three instalments and deposited same in advance with department. Subsequently, the German company was not able to fulfil its obligations and by agreement dated 1-7-1992 agreed to waive the third instalment. The deductor-company filed an application for refund and same was granted. The deductor also made an application for interest u/s. 244A on the said refund which was rejected by CCIT and CBDT on the ground that deductor-company was not assessee in respect of this transaction and therefore, not eligible for interest u/s. 244A. High Court held that deductor-company was in fact the assessee by virtue of section 2(7)(b) r.w.s. 163. Further, it was held that, deductor-company, on failure to deduct tax would have become assessee-in-default and by that angle also deductor qualified as an assessee u/s. 2(7)(c). It was held that refund granted by the CBDT would fall within the provisions of section 240. Further, the High Court relied upon the judgment in case of Union of India v. Tata Chemicals Ltd. [2014] 6 SCC 335 for stating that even if there is no express statutory provision for payment of interest on the refund of excess amount/tax collected by the revenue, the Government cannot shrug off its apparent obligation to reimburse the deductor’s lawful monies with the accrued interest for the period of undue retention of such monies. Further, if the contention of the Revenue was accepted it would result in causing great hardship to the honest taxpayers. Held, deductor-company eligible for interest u/s. 244A. However, such interest accrued from the date of making application for refund of tax and not from the date of agreement waiving third instalment, since the deductor-company did not make any application for refund till 2 years after the agreement for waiver.

Sunflag Iron & Steel Co. Ltd. v. CBDT (2016) 238 Taxman 243 (Bom.)(HC)

124.
S.245D(1) : Settlement Commission – Adjudication is not required on Commissioner’ s report which is submitted in first instance objecting settlement application on the ground that there was no full and true disclosure as Settlement Commission has to pass final order after obtaining further report of Commissioner and after being satisfied that there was full and true disclosure – Petition of revenue was dismissed

The Assessee filed an application for settlement of its case before the Settlement Commission. The Settlement Commission proceeded with the application and called for report from the Commissioner. The Commissioner, in the report, objected application on ground that there was no full and true disclosure and requisite tax had also not been paid. The Commissioner argued that the Settlement Commission was required to adjudicate on objection filed by him. The Settlement Commission, however, chose to proceed with further enquiry. On writ, the Commissioner contended that the Settlement Commission could not assume jurisdiction to consider the application without adjudicating his objection at admission stage itself.

The High Court held that it was evident that the Settlement Commission was satisfied that there was a full and true disclosure of the income which was not disclosed before the AO in the application and the manner in which such income had been derived and the additional income tax payable on such income.

Further, High Court held that even assuming that the Settlement Commission had glossed over the initial report submitted by the Commissioner, as the procedure contemplated a further report to be submitted by the Commissioner, after examination of the annexure to the application, statements and other documents accompanying such annexure and on the basis of a further enquiry, if any, all of which was not made available to the Commissioner in the first instance, and the Settlement Commission being in a position to still address the question whether a full and true disclosure of the income which was not disclosed before the AO and being required to pass an appropriate order, the Revenue could not be said to be prejudiced in any fashion. Therefore, no procedural violation was caused by the Settlement Commission. It had only taken a prima facie view that the application was not invalid. A final order will necessarily have to be passed under section 245D(4) only after obtaining the report of the Commissioner under rule 9 and after being satisfied that there is full and true disclosure by the applicant.

The High Court after relying on the decision of the Apex Court in case of Ajmera Housing Corpn. (2010) 326 ITR 642 (SC), dismissed the petition of the Revenue. (AY. 2006-07)

CIT v. RNS Infrastructure Ltd. (2016) 238 Taxman 416 (Karn.)(HC)

125.
S.250 : Appeal – Commissioner (Appeals) – Recovery – Stay – Early hearing of appeal – Action of the assessee of filing Writ Petition to seek early hearing of appeal before CIT(A), while simultaneously seeking adjournment before CIT(A) on frivolous grounds is a “delaying tactic” and an “abuse of the legal process”. Petition was dismissed and the assesse was directed to pay the cost of Rs. 20,000

Assessee has filed the petition against the stay of recovery. Assessee also moved petition for an early hearing of appeal .The matter was fixed for hearing before the CIT(A) for deciding the quantum appeal, however the assessee requested for adjournments, which was granted. Before the Court it was argued that the stay may be granted. Dismissing the petition the court held that; action of the assessee of filing Writ Petition to seek early hearing of appeal before CIT(A), while simultaneously seeking adjournment before CIT(A) on frivolous grounds is a “delaying tactic” and an “abuse of the legal process”. Petition was dismissed and the assessee was directed to pay the cost of Rs. 20,000. (WP No. 911 of 2016 dt. 20-7-2016 ).

Tulsidas Trading Pvt. Ltd. v. TRO (Bom.)(HC) www.itatonline.org.

126.
S.251 : Appeal – Commissioner (Appeals) – Powers – Power of enhancement – Show cause notice issued intending to assess the assessee as AOP instead of Firm and for disallowance of expenditure – Assessee filed a writ petition for quashing the notice – Held, assessee can file explanation before the CIT(A) –Writ not maintainable

The assessee was a partnership firm trading in stocks, shares, debentures, manufacturing, buying, selling and transporting of various consumer and industrial commodities. During the assessment proceedings, AO disallowed donations made u/s. 35(1)(ii)to the tune of Rs. 2,62,50,000/-. During the appellate proceedings, CIT(A) required the assessee to show cause as to why the assessment of the assessee firm should not be enhanced on two grounds viz. he required the assessee to show cause as to why the assessee should not be assessed as an AOP and not a firm by pointing out that a partnership firm could not be a partner in a firm as indicated in the case of the assessee and secondly he also called upon the assessee firm to show cause as to why an amount of Rs. 96,60,000/- may not be disallowed as expenditure. Against the said notice, the assessee-firm filed a writ petition. High Court held that assessee can very well submit their explanation and contest the same on merits before the CIT(A), and, therefore writ was not maintainable. (AY. 2012-13)

Megatrends Inc. v. CIT (2016) 382 ITR 13/238 Taxman 192 (Mad.)(HC)

127.
S.253 : Appellate Tribunal – Appeal filed by the assessee firm signed by manager – Tribunal dismissed the appeal on preliminary issue of competence of manager to sign appeal memos – Held, manager has no authority to file appeal – Held, Department had also incorrectly accepted the return signed by the manager – Held, mistake was rectified by filing fresh Form 36, matter remanded to be decided on merits

Tribunal dismissed the appeal filed by the assessee firm on the technical ground that the appeal memorandum had been signed by the manager of the firm and not by the managing director or any of the partners. Assessee filed petition for restoration of the appeal but same was also dismissed. Assessee went to the High Court. Department argued that even at the time of filing of the appeal, the Tribunal had issued a defect memo and that a query was also raised by the Tribunal, however, assessee emphasised that manager is the competent person to sign the appeal memos. High Court held that admittedly, manager was not the correct person to sign the appeal memo. High Court also held that initial mistake is only on the part of the revenue, in accepting the return of income filed by the manager, who is allegedly incompetent and, therefore, it would have led the assessee to form an impression that when he is competent to file the return of income, he would also be competent to sign the memo of appeal. Further, since the assessee had filed revised Form 36, therefore the matter was set aside to the Tribunal to decide on merits. (AY. 2003-04)

Singara Nilgiri Plantation Co. v. Dy. CIT (2016) 238 Taxman 613 (Mad.)(HC)

128.
S.253 : Appellate Tribunal – Cross objection is not prescribed against appeal filed against order under section 263 of the Act – Hence cross objection is not maintainable

The High Court has held that cross objections under section 253(4) can be filed only in an appeal against order of the Deputy Commissioner – Appeals, the Commissioner of Appeals, the Assessing Officer preferring an appeal in pursuance of the directions of the Dispute Resolution Panel. In the instant case, the revenue has filed cross objections under section 253(4) in an appeal preferred by the Assessee against the order of the revisional authority exercising the powers under section 263. It was held that no such cross objections are maintainable in terms of section 253(4) of Act and the High Court dismissed the Revenue’s appeal. (AY. 2007–08)

CIT v. New Mangalore Port Trust (2016) 382 ITR 434/ 238 Taxman 397 / 283 CTR 342 (Karn.)(HC)

129.
S.254(1) : Appellate Tribunal – No jurisdiction to make addition which Assessing Officer or Commissioner (Appeals) did not make and on which no appeal or cross objection filed by Department

Held, allowing the appeal, that it was not open to the Tribunal to confirm the addition because no such addition was made. When the Department had not filed cross objections against the order of the Commissioner (Appeals) in respect of the impugned sum, there was no basis for the Tribunal to confirm the addition. The addition made by the Tribunal for the first time was in excess of its jurisdiction. [BP 1-4-1998 to 21-4-1998)

Sheo Kumar Mishra v. Dy. CIT (2016) 382 ITR 424 (Cal.)(HC)

130.
S.254(1) : Appellate Tribunal-Business expenditure – Non-consideration of material placed on record would itself lead to perversity in findings of facts arrived by Tribunal which would call for interference of the High Court

The Assessee paid commission (a) to taxi drivers, travel agents etc. to procure more business for Assessee and (b) to its staff for sale of tickets. The AO disallowed the said commission. The CIT(A) examined material and other evidence on record and allowed deduction to the extent amounts were verified and disallowed deduction for amounts which could not be verified. On department’s appeal the Tribunal reversed findings of the CIT(A) without considering the details filed before the lower authorities.

On Assessee’s appeal the High Court held that the CIT(A) whilst coming to the conclusion that the Assessee was entitled for deduction in respect of commission paid to taxi drivers, travel agents etc., had minutely scrutinised the material on record, but, however, on perusal of the impugned order, it appeared that the Tribunal had not at all scrutinised the material whilst reversing the findings of the Commissioner. In fact, there were no reasons recorded in the impugned order of the Tribunal to hold that the findings of the CIT(A) cannot be sustained. Non-consideration of such material would itself lead to perversity in the findings of fact, arrived at by the Tribunal which would call for interference of Court in the present appeal. As far as claim of the Assessee towards deduction on account of commission paid to the staff was concerned, the Tribunal can re-examine the matter on its own merits in the light of the judgment of the Supreme Court in the case of ShahzadaNand& Sons v. CIT (AIR 1977 SC 1182) wherein Supreme Court accepted that there can be cases where commission could be paid also to the staff for carrying out extra services. Accordingly, matter was restored to Tribunal to adjudicate the issue as per directions. (AY. 2009-10)

Emerald Cruises v. ITAT (2016) 238 Taxman 143 (Bom.)(HC)

131.
S.254(1) : Appellate Tribunal – It is the inherent power of the Tribunal to consolidate the appeals if the issues are similar and the reasons for consolidating the same is to be recorded in writing

The High Court has held that it is the inherent power of the Tribunal to consolidate the appeals if the issues involved in the appeal are similar and identical to avoid conflicting directions and orders and the same have to be recorded in writing. If they involve common questions, common arguments, they can be conveniently disposed of by a common order. However, it was held that there was no justification for consolidating matters and by keeping the earlier case pending till further appeals accumulated for subsequent years raising the same issues and questions. In that event, it would be wiser to decide the earliest case and if the same applies on facts and there is nothing different or distinguishing factor brought on record in successive assessment years, then the earlier decision can be applied and followed. (AY 2001-02)

DIT v. Societe Generale (2016) 237 Taxman 182 (Bom.)(HC)

132.
S.254(2) : Appellate Tribunal –Rectification of mistake apparent from the record – A Writ Petition filed little after four months of receipt of impugned order suffers from “delay”. If the Writ Petition does not explain the reasons for the “delay”, it is liable to be dismissed – Affidavit if desired should be filed before the Tribunal and not first time before the High Court

Dismissing the petition against the order passed by the Tribunal u/s. 254(2), the Court held that (i) We find that the impugned order of the Tribunal was passed on 4th December, 2015, received by the petitioner on 28th December, 2015. This petition has been filed on 29th April, 2016. The petition states that according to the petitioner, there is no delay in filing the petition. However, if this Court is of the view that there is a delay and delay may be condoned. However, no reasons with particulars are specified in the petition. In view of the fact that the petition itself does not explain the reason for the delay, the petition is liable to be dismissed. Court also observed that the affidavit if desired should be filed before the Tribunal and not first time before the High Court. (WP No. 1227 of 2016, dt. 27-8-2016)(AY. 2006-07)

Shirpur Gold Refiner Ltd. v. ITAT (Bom.)(HC) www.itatonline.org

133.
S.254(2) : Appellate Tribunal –Rectification of mistake apparent from the record – In an order passed in a Miscellaneous Application, the Tribunal cannot deal with the merits of the issue. The Tribunal must recall the original appellate order and refix the matter for hearing and pass an order u/s. 254(1) of the Act

This Court in its order dated 31st July, 2007 has while setting aside the order dated 7th March, 2007 of the Tribunal dismissing the petitioner’s Miscellaneous Application had held that there was an error apparent from the record in the order dated 9th May, 2006. The direction of the Court in its order dated 31st July, 2007 to the Tribunal to dispose of the Miscellaneous Application on merits as there is an error apparent on record in the order dated 9th May, 2006. This disposing of Miscellaneous Application could only be after recalling the conclusion in its order dated 9th May, 2006 allowing the Revenue’s appeal and hearing the petitioner on the issue of penalty being imposable even in the absence of a demand notice being served upon the assessee. This was for the reason that its conclusion was reached without having considered the petitioner’s contention that no penalty can be imposed in the absence of receipt of a demand notice by the petitioner. However, the Tribunal in the impugned order has dealt with the issue of imposition of penalty being imposed under Section 221 of the Act even without service of demand notice under Section 156 of the Act upon an assessee. This the Tribunal could have only done while passing an order in appeal. The consequent order which would have been passed in appeal would enable the parties to challenge the same before this Court in an appeal under Section 260A of the Act. The procedure adopted by the Revenue in this case has deprived the right of statutory appeal to the petitioner. No appeal is entertained by this Court from an order dismissing the Miscellaneous Application for rectification under Section 254(2) of the Act (see Chem Amit v. ACIT ( 2005) 272 ITR 397(Bom.)(HC)). Thus in the process of atoning for a mistake, one should take utmost care to ensure no further prejudice is caused. The rejection on merits of the contentions of the parties by the Tribunal on a substantial question of law is subject to the statutory right of appeal under Section 260A of the Act. This right cannot be bypassed by dealing with the merits in a Miscellaneous Application for rectification. (WP. No. 2102 of 2008, dt. 23-6-2016) (AY.2001-02)

Safari Mercantile Private Limited v. ITAT (Bom.)(HC); www.itatonline.org

134.
S.260A : Appeal – High Court – Strictures passed against department for casual and careless representation despite huge revenue implications. Dept. directed to take remedial measures such as updating the website, appointment of meritorious advocates, proper evaluation of work done by the advocates, ensuring even distribution of work amongst advocates etc. Prevailing practice of evaluating competence of advocates on basis of “cases won or lost” deplored – The Registry is directed to send a copy of this order on the Chairman, Central Board of Direct Taxes (CBDT) and the Principal Commissioner of Income-tax

Strictures passed against department for casual and careless representation despite huge revenue implications. Dept. directed to take remedial measures such as updating the website, appointment of meritorious advocates, proper evaluation of work done by the advocates, ensuring even distribution of work amongst advocates etc. Prevailing practice of evaluating competence of advocates on basis of “cases won or lost” deplored. Therefore, the Principal Chief Commissioner of Income Tax who is the head of all the Commissioners at Mumbai was directed to place on record the steps being taken to ensure that a consistent view is taken by the Department. The Principal Chief Commissioner of Income Tax had filed an affidavit dated 5th May, 2016. Today, the learned Additional Solicitor General tenders an affidavit of one Mr. Purshotam Tripuri, Commissioner of Income Tax (Judicial) dated 11th July, 2016 indicating the steps being taken by the department to ensure that the Revenue is properly represented. In particular, it is pointed out that the Officers of the Revenue are being sensitised to maintain consistency in preferring appeals to this court. Further, it is stated that the ‘Legal Corner’ hyperlink on the www.incometaxmumbai.gov.in home page is functional since 10th June, 2016 and entries have been made therein with regard to the questions of law which had been admitted by this Court and/or which are finally decided. This according to the Revenue would make the Assessing Officer as well as the Revenue’s Counsel aware of the questions of law which have been admitted and / or dismissed, to enable them to assist the Court in subsequent appeals. We are certain that this website could be further improved upon on receiving suggestion from the users of the Legal Corner over a period of time. The suggestion made by Dr. Shivaram in para 3 of the affidavit dated 17th June, 2016 of the respondent – assessee should be considered by the Revenue and if found appropriate, could be incorporated in the website. However, on browsing the site, it is evident that the activity of monitoring and updating the site has been outsourced to a private party. One key area that must be borne in mind is authenticity of the information uploaded and updated. If in future the requirements increase the software must be scalable and in any event must be compatible with system of the department. In the event of the third party service provider being different at any point in time, the data available on the site after the change of service provider cannot be put to risk of loss of content and/or authenticity. This will ensure a stable and dependable resource for research and representation. We trust the above concern would have been taken care of by the Revenue.

The State counsel appears for the State Government or for public bodies who together constitute the single largest litigant in our Court system. Statistics show that nearly 80% of litigation pending in the courts today has State or one of its instrumentalities as a party to it. State Counsel/counsel appointed by public bodies thus represent the largest single litigant or group engaged in litigation. It is also undeniable that for a fair, quick and satisfactory adjudication of a cause, the assistance which the Court gets from the Bar is extremely important. It is at times said that the quality of judgment or justice administered by the courts is directly proportionate to the quality of assistance that the courts get from the Counsel appearing in a case. Our system of administration of justice is so modelled that the ability of the lawyers appearing in the cause to present the cases of their respective clients assumes considerable importance. Poor assistance at the Bar by counsel who are either not sufficiently equipped in scholarship, experience or commitment is bound to adversely affect the task of administration of justice by the Court. Apart from adversely affecting the public interest which State counsel are supposed to protect, poor quality of assistance rendered to the courts by State Counsel can affect the higher value of justice itself. A fair, reasonable or non discriminatory process of appointment of State Counsel is not thus demanded only by the rule of law and its intolerance towards arbitrariness but also by reason of the compelling need for doing complete justice which the Courts are obliged to do in each and every cause. The States cannot in the discharge of their public duty and power to select and appoint State counsel disregard either the guarantee contained in Article 14 against non arbitrariness or the duty to protect public interest by picking up the best among those available and willing to work nor can the States by their action frustrate, delay or negate the judicial process of administration of justice which so heavily banks upon the assistance rendered by the members of the Bar. There are a large number of appeals filed by the Revenue from the orders of the Income Tax Appellate Tribunal. However, we find that the distribution of work amongst the panel lawyers is not equitable and also without any consideration of the issue of law involved vis-a-vis the experience of the Advocate briefed. Moreover, we find that most matters are distributed amongst a few Advocates with the result we have occasions where a single Advocate appears in eight/nine matters a day. This indeed is expecting the moon from the panel Advocate. Resultantly, the preparation suffers, leading to inadequate performance. It would therefore be appropriate to have more number of Advocates on the panel and distribute work amongst them. This would at least give an opportunity to the Advocate to prepare properly for appropriate representation. We hope the Revenue would consider our observations and make attempts to ensure that it is properly represented. This can only happen when meritorious Advocates are appointed. This would ensure that the Officers of the Revenue would value his advise as a learned man of experience and not treat him as an employee, merely because he is appointed at the instance of the Commissioner of Income Tax. The Registry is directed to send a copy of this order on the Chairman, Central Board of Direct Taxes (CBDT) and the Principal Commissioner of Income Tax. (ITA No. 2287 of 2013, dt 12-7-2016)

CIT v. TCL India Holding Pvt. Ltd. (Bom.)(HC) ; www.itatonline.org

135.
S.263 : Commissioner – Revision of orders prejudicial to revenue – Held, AO disallowed interest expenditure in accordance with Rule 8D hence view adopted by AO a plausible view – Order not erroneous

The assessee company had incurred expense on Initial Public Offer and claimed deduction u/s. 35D, which was allowed by the AO during the assessment proceedings. AO also disallowed certain interest expenditure under rule 8D(2)(ii). CIT invoked section 263 on two grounds viz. deduction of expense on Initial Public Offer should not be allowed on ground that the assessee was not an industrial undertaking and secondly entire interest expenditure incurred by assessee was attributable to earning of exempt income and should be disallowed u/s. 14A. High Court relying upon the case of Dy. CIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. [2013] 356 ITR 460/215 Taxman 72/33 taxmann.com 117 (Guj.) held that when a claim u/s. 35D has been granted by the AO in respect of previous years, such claim cannot be disallowed subsequently without disturbing the decision in the initial year. In respect of 14A disallowance, High Court held that AO himself computed disallowance of interest expenditure u/s. 14A read with rule 8D. In both the issues, the view adopted by the AO was a plausible view and therefore, it cannot be said that the assessment order was erroneous so as to warrant exercise of powers u/s. 263. (AY. 2009-10)

PCIT v. Deep Industries Ltd. (2016) 238 Taxman 198 (Guj.)(HC)

136.
S. 263 : Commissioner – Revision of orders prejudicial to revenue – Original order was revised under section 264 – Revision by Commissioner under section 263 on original order which was already revised under section 263 of the Act is void ab initio

The original assessment order of the Assessee under section 143(3) was passed on 27-12-2009. Revision application filed by the Assessee under section 264, was allowed and the matter was remanded to the Assessing Officer. The Assessing Officer vide order dated 27-5-2011 had given effect to the order passed by the Commissioner under section 264. Subsequently, the original order passed under section 143(3) dated 27-12-2009 was revised by the Commissioner under section 263 by order dated 22-3-2012. The said order passed under section 263 was challenged by the Assessee before the Tribunal and the revenue filed cross objections against that order. The Tribunal set aside order passed by the Commissioner under section 263 as well as the cross objections filed by the revenue as the same were against a non-existing order.

On appeal the High Court held that the Commissioner had no jurisdiction to revise the order which was not in existence. Therefore the order passed by the Commissioner, revising the non-existing order is void ab initio is nullity in the eye of law. The High Court dismissing the appeal of the Revenue upheld the order of the Tribunal. (AY. 2007–08)

CIT v. New Mangalore Port Trust (2016) 382 ITR 434/238 Taxman 397/ 283 CTR 342 (Karn.)(HC)

137.
S.264 : Commissioner – Revision of other orders – Intimation u/s. 143(1) is an order for the purposes of section 264 – Non-payment of prescribed fee prior to institution of the revision proceedings, which was paid during the pendency of the proceedings, cannot be a ground for rejection of the application u/s. 264

Assessee in his return of income, offered to tax gains arising from sale of shares as short term capital gain. Subsequently, the assessee filed an application u/s. 154 before the AO contending that the capital gains on transfer of shares were actually long term capital gains exempt from tax u/s. 10(38). AO rejected the application. Assessee filed an application to the CIT u/s. 264, which was rejected by him on the ground that the assessee had not filed prescribed fee along with application u/s. 264 and secondly, the intimation u/s. 143(1) could not be regarded as an order for purpose of section 264. High Court held that, from reading of the provisions of section 264, it cannot be said that the non-payment of the prescribed fee prior to the institution of the application for revision would be fatal. Since, the assessee had paid the fees during the pendency of the proceedings, therefore, the illegality was held to be cured. High Court also held that section 264 uses the expression ‘any order’, which would imply that the section does not limit the power to correct errors committed by the subordinate authorities but could even be exercised where errors are committed by assessees. Further, it was also held that intimation u/s. 143(1) can be regarded as an order for the purpose of section 264. It was also held that CIT failed to appreciate that the assessee was not only impugning the intimation u/s. 143(1) but also the rejection of the application u/s. 154. Accordingly, the order of CIT was set aside and the matter was remanded back to him. (AY. 2008-09)

Vijay Gupta v. CIT (2016) 238 Taxman 505 (Delhi)(HC)

138.
S.271(1)(c) : Penalty – Concealment – Bogus purchases – If the assessment order in the quantum proceedings is altered by an appellate authority in a significant way, the very basis of initiation of the penalty proceedings is rendered non-existent and the AO cannot continue the penalty proceedings on the basis of the same notice

Relying on the decision of the Calcutta High Court in CIT v. Ananda Bazar Patrika Pvt. Ltd. (1979) 116 ITR 416 (Cal.), the ITAT held that “once the basis for initiation of penalty proceedings was altered or modified by the first appellate authority, the Assessing Officer has no jurisdiction thereafter to proceed on the basis of the findings of the first appellate authority.” On further appeal by the department HELD by the High Court dismissing the appeal:

Once the assessment order of the AO in the quantum proceedings was altered by the CIT(A) in a significant way, the very basis of initiation of the penalty proceedings was rendered non-existent. The AO could not have thereafter continued the penalty proceedings on the basis of the same notice. Also, the Court concurs with the CIT(A) and the ITAT that once the finding of the AO on bogus purchases was set aside, it could not be said that there was any concealment of facts or furnishing of inaccurate particulars by the Assessee that warranted the imposition of penalty under Section 271(1)(c) of the Act.( ITA No. 313/2016, dt. 13-5-2016) (AY. 2007-08)

Pr. CIT v. Fortune Technocomps (P) Ltd. (Delhi)(HC); www.itatonline.org

139.
S.271(1)(c) : Penalty – Concealment – Disclosing all particulars of income and claiming deduction based on certificate issued by chartered accountant – Deletion of penalty was held to be justified

The assessee-firm engaged in the business of manufacturing of biscuits, cookies and other bakery products filed a nil return for the AY 2009-10 on September 30, 2009, claiming deduction under section 80-IC of the Act. The Assessing Officer disallowed the deduction amounting. Penalty proceedings under section 271(1)(c) were also initiated for filing inaccurate particulars of income and an order imposing penalty was passed. The Commissioner (Appeals) upheld the order imposing penalty. The Appellate Tribunal deleted the penalty. On appeal: Held, dismissing the appeal, that the judgment of the Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218 (SC) (which held against the assessee) was rendered on August 31, 2009 but was published for the first time only on September 17, 2009. It had been categorically recorded by the Tribunal that there was very little gap between the publication of the decision of the Supreme Court in Liberty India’s case and the filing of the return by the assessee. At the time of filing the return the issue was debatable and penalty could not have been levied. Further the Tribunal had found that the assessee had disclosed all the particulars of the income and had not concealed anything. Once proper disclosure was made penalty was not attracted. The return was filed on the basis of the certificate issued by the chartered accountant though under mistake, and the assessee could take the benefit on the basis of bona fide belief. The view adopted by the Appellate Tribunal was a plausible view based on appreciation of material on record and, therefore the order did not warrant any interference by the court. The Department was unable to show any perversity or illegality in the order. No substantial question of law arose for consideration. (AY. 2009-10 )

PCIT v. S.S. Food Industries (2016) 382 ITR 388 (P &H)(HC)

140.
S.271(1)(c) : Penalty – Concealment – Validity of order – Order passed under section 271(1)(c) is invalid when the show – cause notice was issued for levy of penalty under section 271(1)(b) – Merely stating that penalty proceedings have been initiated would not satisfy the requirement of law

The Assessing Officer levied penalty under section 271(1)(c) after issuing show-cause notice under section 271(1)(b) of the Act. The penalty was levied as a consequence of the disallowance of certain finance expenses claimed as revenue expenditure which was held to be capital in nature. It is held by the High Court that the levy of penalty under section 271(1)(c) is not valid for the reason that the show-cause notice was not issued for levy of penalty under section 271(1)(c) and that in the facts and circumstances of the case, a penalty under section 271(1)(c) is untenable as the disallowance was made based on the return of income filed by the assessee. It is also held that no proper satisfaction as mandated under section 271(1B) of the Act was not recorded by the Assessing Officer and therefore, levy of penalty is unjustified. (AY 2001-02)

Safina Hotels Pvt. Ltd. v. CIT (2016) 237 Taxman 702 (Karn.)(HC)

141.
S.271(1)(c) : Penalty – Concealment – Received interest with refund amount – Did not include in profit and loss account but disclosed same in notes to accounts – Could not be said that Assessee had furnished inaccurate particulars

The Assessee received interest with the amount of income tax refund arising from orders passed by the CIT(A) for the assessment years 1993-94 to 1996-97. The revenue appealed against the order of the CIT(A) before the Tribunal. Since the matter was subjudice, the Assessee did not include the income arising out of the aforesaid amount of interest in his profit and loss account but disclosed the same in the notes to the accounts. The AO rejected the Assessee’s action and subsequently initiated penalty proceedings both for the concealment of income as well as furnishing of inaccurate particulars of income.

The High Court held that the AO himself admitted that the Assessee had disclosed the said interest income. Disclosure and concealment cannot co-exist. When a finding is recorded that disclosure was indeed made then the conclusion as regards concealment is bad. Furthermore it cannot also be said that the Assessee had furnished inaccurate particulars of income. This is so because there was no material on record to indicate that the particulars furnished by the Assessee were factually incorrect. Hence it was held that penalty under section 271(1)(c) cannot be levied on the Assesee. The Revenue’s appeal was dismissed. (AY. 2004-05)

CIT v. Pilani Investments & Industries Corporation Limited (2016) 383 ITR 635/ 238 Taxman 384/ 284 CTR 272 (Cal.)(HC)

Wealth-tax Act, 1957

142.
S.40 : Finance Act, 1983 : Net wealth – Leasehold interest in the land is to be considered while computing the net wealth of the assessee

Assessee had taken a land, situated at Pimpri, on lease from MIDC. Out of the total land admeasuring 9,605 sq.m., part of the land admeasuring 2,175 sq.m. was vacant. Assessee did not include the land in the net wealth computed for the purpose of wealth tax on the ground that definition of asset u/s 40 of Finance Act, 1983 did not include any interest held in the land and secondly, the land did not “belong” to the assessee. Assessing Officer assessed the leasehold interest in the land to wealth tax and completed the assessment. The CIT(A) and Tribunal confirmed the order of the AO. On appeal, the High Court held that the definition includes land other than agriculture land and the proviso to section 40(3)(v) uses the word “held” and not “owned” by the assessee. Therefore, leasehold interest is assessable to wealth tax. The High Court also held that the words “belonging to” have been used to include assests in possession without full ownership but having domain over it to exercise powers which would otherwise vest in the owner. Therefore, leasehold land held by the assessee belongs to the assessee and is exigible to wealth tax. (AY. 1988-89)

Jai Hind Sciaky Ltd. v. Dy. CIT (2016) 130 DTR 177 (Bom.)(HC)