Direct Tax Tribunals

S.2(22)(d) : Deemed dividend – Buy back of shares cannot be assessed as deemed dividend DTAA – India-Mauritius

A buyback cannot be regarded as a “colourable transaction” and cannot be assessed as “deemed dividend” u/s. 2(22)(d). The capital gains on buyback are exempt under the India-Mauritius DTAA. (ITA No. 3726/Mum/2015, dt. 12-2-2015)(AY-2011-12)

Goldman Sachs (India)(Securities Pvt. Ltd. v. ITO (Mum.)(Trib.);
www.itatonline.org
S.2(22)(d) : Deemed dividend –Redemption of preference shares cannot be assessed as deemed dividend

Redemption of preference shares does not constitute “deemed dividend”.

(ITA No. 4669/Mum/2014. dt. 6-4-2016)(AY. 2005-06)

Uday K. Pradhan v. ITO (Mum.)(Trib.);
www.itatonline.org
S.4 : Charge of income-tax – Income does not accrue if the debtor is in a precarious financial position and recovery is doubtful

The Tribunal held that income did not accrue in the hands of the assessee owing to the precarious financial condition of the debtor notwithstanding that:, services were rendered and the income was recorded in the books of account of the assessee during the relevant year and bad debts were claimed in subsequent years when the dispute was settled. (ITA No. 39/07, ITA No. 650/07 & CO No. 122/07, dt. 30-10-2015) (AY. 2002-03)

Bechtel International Inc v. DDIT (Mum.)(Trib.);
www.itatonline.org
S.4 : Charge of income-tax – Subsidy granted to set up a wind mill project is a capital receipt

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

Uni Deritend Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.4 : Charge of income-tax –Mutuality – Co-operative housing Society – TDR premium received from members is not liable to tax

CIT(A) relied on ITAT order for A.Y. 2006-07 (ITA No. 499/M/2011) & A.Y. 2007-08 (ITA No. 500/M/2011) and held that TDR premium received by Society from its members was not covered by principle of mutuality. The Tribunal for A.Y. 2008-09 reversed the order of learned CIT(A) and held that TDR premium will be covered by the principle of mutuality. Tribunal followed the order of High Court in ITA Nos. 427 / 428 / 590 of 2012. (ITA No. 66 & 67 /Mum/2014. dt. 9-3-2015) (AYs. 1995-96,
2008-09)

Hatkesh Co-op. Hsg Society Ltd. v. CIT (Mum.)(Trib.);
www.itatonline.org
S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Consideration paid for use of computer software cannot be considered as royalty – Not liable to deduct tax at source – DTAA-India-Singapore

Allowing the appeal of assessee the Tribunal held that; the assessee cannot be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD-ROM which can be said to be sale of ‘good’ by the owner. The consideration paid by the assessee thus as per the clauses of DTAA cannot be said to be royalty and the same will be outside the scope of the definition of ‘royalty’ as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a licence provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act, 1957. (ITA No. 7779/Mum/2011, dt. 29-2-2016)(AY.2007-08)

Capgemini Business Services (I) Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.10(38) : Long term capital gains from equities – Loss on sale of equity shares – Cannot be allowed as deduction

In view of S. 10(38) any income arising from transfer of a long term capital asset being equity share is exempt from tax and, therefore, loss incurred on sale of long term capital asset being equity shares cannot be allowed as deduction. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.11 : Property held for charitable purposes – Advance of money to managing trustee for purchase of land – No violation – Entitle exemption

Assessee trust advanced money to its managing trustee for purchase of land belonging to the latter and the said trustee returned the entire money along with interest after cancellation of agreement. It cannot be said that the transaction between the assessee trust and the managing trustee was one without adequate security or adequate interest or that the money was diverted for the benefit of the managing trustee and, therefore, there is no violation of S. 13. There was no violation of any other provision of the IT Act on transfer of three institutions and its infrastructure by another trust to the assessee trust by way of donation. Assessee was entitled for exemption u/s. 11. (AY. 2010-11)

Dy. DIT (E) v. Vels Institute of Science, Technology & Advanced Studies (2016) 157 ITD 237 / 130 DTR 331/ 175 TTJ 593 (Chennai)(Trib.)
S.14A : Disallowance of expenditure – Exempt income –No disallowance can be made on shares held as stock-in-trade

Assessee, engaged in the business of share trading earned Rs. 12.04 lakh as exempt dividend income. The AO made a disallowance of
Rs. 46,89,748/- u/s. 14A r.w. Rule 8D. Before the CIT(A), the assessee stated that the Tribunal in assessee’s own case for AY 2010-11 has held that no disallowance u/s. 14A r.w. Rule 8D can be made on dividend income from shares held as stock-in-trade. However, the CIT(A), disregarding the order of Tribunal passed in assessee’s own case, followed the decision of Mumbai Bench of the Tribunal in the case of HDFC Bank Ltd. v. DCIT in ITA No. 374/Mum/2012 decided on 23-9-2015 and rejected the appeal.

Before the Tribunal, submitted that the order of the Tribunal in the case of HDFC Bank Ltd. (supra) on which the CIT had placed reliance had been reversed by the Hon’ble Bombay High Court in Writ Petition No. 1753 of 2016 decided on 25-2-2016. Held, CIT(A) erred in not following the order of Tribunal in assessee’s own case. The Bombay High Court in the case of CIT v. India Advantage Securities Ltd. (supra) has confirmed the order of Tribunal wherein it was held that no disallowance u/s. 14A r.w. Rule 8D can be made on shares held as stock-in-trade. The Tribunal further observed that the CIT(A) should have maintained ‘Judicial Propriety’ in following the order of Appellate Authority. However, it restrained from commenting on the judicial indiscipline committed by the CIT(A) and expected that the CIT(A) concerned shall be more careful in future in honouring the orders of the higher Appellate Authorities. (ITA No. 1715/PN/2015, dt. 18-3-2016)(AY. 2012-13)

Paresh Pritamlal Mehta v. ITO (Pune)(Trib.);
www.itatonline.org
S.14A : Disallowance of expenditure – Exempt income – Share application money cannot be included while working average value of investment

It was held that share application money cannot be included while working out the average value of the investments under rule 8D(2)(iii). (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.23 : Income from house property – Notional income in respect of unsold shops cannot be charged to tax under the head income from house property

Allowing the appeal of assessee the Tribunal held that; notional income in respect of unsold shops cannot be charged to tax under the head Income from house property. (AY. 2009-10) (ITA No. 4277/Mum/2012 dt. 13-5-2015 Bench ‘C’)

C. R. Developments Pvt. Ltd. v. JCIT (2016) BCAJ – February – P. 34 (Mum.)(Trib.)
S.23 : Income from house property – Annual value – Brokerage is held to be not deductible

Brokerage paid to give out premises on rent and to earn lease rent is not deductible in computing the Income from house property. (ITA No. 5494/Mum/2013, dt. 5-6-2015) (AY. 2010-11)

Radiant Premises Pvt. Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.32 : Depreciation – Drilling rigs- Registered as heavy goods vehicle – Eligible depreciation @ 40%

It was held that workover mobile rigs owned by the assessee which are registered under category of heavy goods vehicle by the State Transport Authority are eligible for depreciation @ 40 per cent. (AYs. 2002-03 to 2008-09)

John Energy Ltd. v. Dy. CIT (2016) 130 DTR 348(Ahd.)(Trib.)
S.37(1) : Business expenditure – Sales promotion expenses –Gift to doctors bearing logo of company – Allowable expenditure – CBDT Circular dated 1-8-2012 is prospective

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

DCIT v. Syncom Formulation (I) Ltd. (Mum.)(Trib.);
www.itatonline.org
S.37(1) : Business expenditure –Penalties & fines paid to SEBI, BSE etc. for breach of regulatory/procedural requirements are “compensatory” in nature and not for any purpose which is an ‘offence’ prohibited by the law

(i) The payments have been made on account of routine fines for minor procedural irregularities, in day-to-day working of the assessee company. The assessee company is engaged into stock broking activities and also in financial services which involves substantial compliance requirements with various regulatory authorities e.g. BSE, NSE, CDSL, NSDL, & SEBI etc. In the regular course of the business of the assessee company, certain procedural non-compliances are not unusual, for which assessee is required to pay some fines or penalties. In our considered view, these routine fines or penalties are “compensatory” in nature; these are not punitive. These fines are generally levied to ensure procedural compliances by the concerned persons. Their levy depend upon facts and circumstances of the case, and peculiarities or complexities of the situations involved. Sometimes elements of discretions of levying authorities are also involved therein.

(ii) On the other hand, an ‘offence’ would be the one which will arise as a result to commission of an action which is prohibited by law, and, in all the given situations, no element of any consent of the parties involved can bring any change in its legal consequences. Similarly, any amount paid by the assessee, in the form of compensation, as a consequence of breach of contract between the two parties, cannot be said to be amount paid for any purpose which is an ‘offence’, prohibited by the law. In other words, under the Income Tax Law, one is required to go into the real nature of the transactions and not to the nomenclature that may have been assigned by the parties. Thus, to decide such issues, we are required to see real substance under the Income Tax Law, and not merely its form. Thus, only those payments, which have been made by the assessee for any purpose which is an ‘offence’ or which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37. (ITA No. 8047/Mum/2010, dt. 29-9-2015) (AY. 2006-07)

Mangal Keshav Securities Limited v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.37(1) : Business expenditure – Payment of speed money to dock workers are not bribes or prohibited under the law hence cannot be disallowed

Allowing the appeal of assessee the Tribunal held that Payment of speed money to dock workers are not bribes or prohibited under the law hence cannot be disallowed. (AY. 2009-10) (ITA No. 4524/Mum/2013 dt. 18-3-2016, Bench ‘ D’)

D.H. Patkar & Co v. ITO ( 2016) BCAJ – April – P. 32 (Mum.)(Trib.)
S.37(1) : Business expenditure – There is a distinction between “setting up” and “commencement” of a business. A business is “set up” and expenditure is deductible even if assessee has no customers and no income

The assessee has already purchased residential flat for the purpose of resale/lease, and therefore assessee was apparently ready to do its business. Under these circumstances, it can be said that the business is set up by the assessee during the year under consideration. For the deductibility of expenses incurred after this stage, earning of the business income is not a mandatory condition under the law. The assessee may not have been successful in getting customers or earning the business income, but if the assessee has done requisite preparations and if the assessee can be said to be in a position to cater to its customers, then it can be said that business is set up and it would amount to carrying on the business and accordingly the expenses would stand allowable to the assessee, irrespective of the fact whether actually assessee got any customer and earned any business income during the year or not. (AY 2008-09)

Multi Act Realty Enterprises Pvt. Ltd. v. ACIT (Mum.)(Trib.);
www.itatonline.org
S.37(1) : Business expenditure – Genuineness of commission payments – Ad-hoc disallowance

It was held that AO having not controverted the assessee’s claim and not brought any material on record to show that the commission expenditure was either bogus or was not allowable deduction, disallowance made by him solely on ad hoc basis cannot be sustained. (AY. 2008-09)

Dy. CIT v. Vodafone Mobile Services Ltd. (2016) 130 DTR 195 (Delhi)(Trib.)
S.37(1) : Business expenditure – Commission payments – No disallowance can be made only on the ground that copy of assessee’s account did not indicate in the account of payee, when tax was deducted

It was held that commission by cheques after deducting TDS could not be disallowed on the basis that the copy of the assessee’s account in the payees books of account did not indicate any payment received by him from the assessee. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib).
S.37(1) : Business expenditure – Capital or revenue – Advertisement expenditure on product launches was held to be revenue in nature

It was held that no asset of permanent nature comes into existence on display of granty signs and, therefore, expenditure incurred by the assessee on the installation of granty signs and other advertisement expenditure on product launches was allowable as revenue expenditure. (AY. 2008-09 )

Dy. CIT v. Vodafone Mobile Services Ltd. (2016) 130 DTR 195 (Delhi)(Trib.)
S.37(1) : Business expenditure – Interest for late deposit of service tax – Cannot be termed as penalty – Allowable as deduction

The Tribunal held that interest paid on delayed payment of service tax cannot be termed as penalty for infringement of any law and, therefore the same cannot be disallowed . (AY. 2012-13)

Gillco Developers & Builders (P) Ltd. v. Dy. CIT (2016) 175 TTJ 81 (UO)(Chd.)(Trib.)
S.40(a)(ia) : Amounts not deductible – Deduction at source – No disallowance was made for short deduction of TDS

The Tribunal held that when the assessee has made deduction of tax at source under section 194C instead of section 194J, disallowance cannot be made under section 40(a)(ia) for short deduction of tax at source.

Cross object filed by assessee dismissed. (AY. 2009-10)

Dy. CIT v. Parryware Roca (P) Ltd. (2016) 175 TTJ 450 (Chennai)(Trib.)
S.43(5) : Speculative transaction – Business loss – Hedging – Loss on account of forex forward contracts consequent to cancellation of export orders not speculation loss allowable as business loss

It was held that forward contracts in question being purely hedging transactions entered into by the assessee to safeguard against loss arising out of fluctuation in foreign currency are not speculative transactions falling within the ambit of S. 43(5) and, therefore, loss incurred on account of such forex forward contracts consequent to cancellation of export orders is not speculative loss. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.45 : Capital gains – Premium received on grant of tenancy right was held to be assessable as capital gains and not as income from house property

The assessee trust received the premium from the tenants for grant of tenancy rights. Assessee has shown the said receipt as long term capital gain and invested the said amount and claimed exemption under section 54F of the Act. Assessing Officer assessed the premium as income from house property and denied the exemption under section 54EC of the Act. On appeal the Commissioner (Appeals) allowed the claim of assessee. On appeal by revenue, dismissing the appeal the Tribunal held that the premium received by the assessee from the tenants is a capital asset and not advance rent exigible to tax under the head income from house property. Tribunal has also allowed the cross objection of assessee on the reassessment. (ITA No. 844/Mum/2014 & C.O. 76/Mum/2015 dt. 29-2-2016) (AY. 2005-06)

ITO v. Dr. Vasant J. Rath Trust (Mum.)(Trib.);
www.itatonline.org
S.48 : Capital gains – Computation – Interest on borrowed money utilised for acquiring shares can be capitalised as cost of acquisition

Dismissing the appeal of revenue; the Tribunal held that; the interest paid by the assessee on loans taken for acquiring the shares in the past can be allowed as a deduction u/s. 48 as cost of acquisition while computing capital gain on sale of such shares. Followed Trishul Investments Ltd. (2008) 305 ITR 434 (Mad.) (HC). ITA No. 236/Mum/2010, dt. 8-5-2015) (AY.2005-06)

DCIT v. Fritz D. Silva (Mum.)(Trib.);
www.itatonline.org
S.48 : Capital Gains – Cost of Improvement – Legal expenses were incurred to protect the investments of assessee and should be added to the cost of shares as cost of improvement

The assessee was engaged in the business of manufacturing and processing of Ayurvedic medicines. The assessee engaged lawyers as financial advisors to evaluate the maximum value to get and to prevent other companies to buy the shares at low price. The assessee claimed the expenditure incurred towards legal services as legal expenses. The AO invoked section 14A of the Income-tax Act, 1961, and disallowed the expenses on the ground that the expenses were incurred to safeguard the investment and that investment would yield exempt income in form of dividend. The CIT(A) confirmed the order of the AO.

On appeal, the Tribunal held that there was an improvement in the value of the shares held by the assessee. Hence, the expenses could be added to the cost of shares as cost of improvement. The AO was to recompute the amount of capital gains earned by the assessee. (AY. 2009-10)

Vaipa Pharmaceuticals Pvt. Ltd. v. ACIT (2016) 46 ITR 109 (Mum.)(Trib.)
S.50C : Capital gains – Full value of consideration – Stamp valuation does not apply to transfer of leasehold rights in land

Allowing the appeal of assessee the Tribunal held that; Section 50C of the Act provides that if the consideration received or accruing is less than the value adopted or assessed or assessable by the stamp valuation authority of the State Government for such transfer then the value so adopted or assessed or assessable shall be deemed to be the full value of consideration and the capital gains will be computed accordingly. The phraseology of section 50C of the Act clearly provides that it would apply only to “a capital asset, being land or building or both”. The moot question before us is as to whether such expression would cover the transfer of a capital asset being leasehold rights in land or building. There cannot be a dispute to the proposition that the expression land by itself cannot include within its fold leasehold right in land also. Of course, leasehold right in land is also a capital asset and we find no fault with this stand of the Revenue. So however, every kind of a ‘capital asset’ is not covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of consideration. In fact, the heading of section itself provides that it is “Special provision for full value of consideration in certain cases”. Therefore, there is a significance to the expression “a capital asset, being land or building or both” contained in section 50C of the Act. The significance is that only capital asset being land or building or both are covered within the scope of section 50C of the Act, and not all kinds of capital assets. (ITA No. 5136/Mum/2014, dt. 16-3-2016)(AY. 2010-11)

Farid Gulmohamed v. ITO (Mum.)(Trib.);
www.itatonline.org
S.50C : Capital gains – Full value of consideration – Stamp valuation – Difference being les than 2% addition was held to be not justified

It was held that difference between the valuation for the stamp duty and the actual consideration received by the assessee being less than 2 per cent the addition made by the AO by adopting the valuation of the impugned property as determined for stamp duty purposes as the sale consideration for the purpose of computing the long term capital gain is not sustainable. (AY. 2009-10)

ITO v. LGW Ltd. (2016) 130 DTR 201 (Kol.)(Trib.)
S.54 : Capital gains – Profit on sale of property used for residence – Assessee utilising entire capital gains within period of one year in constructing a house which could not be completed due to circumstances beyond assessee’s control – Assessee was entitled to exemption

The AO disallowed the exemption u/s. 54 of the Act on the ground that the assessee had entered into a development agreement with S for construction of an independent house in a gated community in the land but the construction of the house was not completed within the stipulated period. The CIT(A) allowed the exemption.

On appeal held that the assessee had utilised the capital gains within the period of one year but due to certain circumstances beyond the control of the assessee, the construction of the house could not be completed within the specified period. Therefore, the assessee was entitled to exemption. (AY 2009-10)

ITO v. Narayan Rao (2016) 46 ITR 178 (Hyd.)(Trib.)
S.54EC : Capital gains – Investment in bonds – Payment of cheque dates back to date of presentation and not date of encashment

Allowing the appeal of the assessee the Tribunal held that the period of six months available for making investment means six months and not 180 days. Payment by cheque dates back to date of presentation and not date of encashment. (AY. 2005-06)(ITA No. 7548/Mum/2012
dt. 28-8-2015) Bench ‘B’.

Neela S. Karyakarte v. ITO (2016) BCAJ–March–P. 30 (Mum.)(Trib.)
S. 54F: Capital gains – Investment in a residential house – Demolition of structure does not amount to transfer – Entitle to exemption

The demolition of the structure would not constitute a transfer of the assets in terms of Section 54(3) of the Act in view of the decision of the Apex Court in the matter of Vania Silk Mills P. Ltd. v. CIT, reported in 191 ITR 647. In the above case, the Apex Court has held that when an asset is destroyed, there is no question of transfer taking place under the Act. The Apex Court held that in terms of the Act that the words ‘Extinguishment of any right’ in Section 2(47) of the Act, does not include an extinguishment of right on account of destruction. It has to be an extinguishment of right on account of transfer. Thus, a destruction of assets when not on account of any transfer would not be hit by Section 54F(3) of the Act. Counsel for the revenue seeks to distinguish the decision of the Apex Court in the matter of Vania Silk Mills P. Ltd. (supra) that the destruction in that case took place because of fire and hence it was involuntary. This distinction is of no consequence. In our view of the decision of the Apex Court in Vania Silk Mills (supra) would squarely apply to the facts of the present case;

The CIT(A) had the benefit of afore stated judgment of Bombay High Court in the case of Mrs. Chhaya B. Parekh and the CIT(A) fell into an error by making an attempt to distinguish the judgment of Hon’ble Bombay High Court by holding that judgment of Hon’ble Apex Court in the case of CIT v. Mrs Grace Collis (2001) 248 ITR 323(SC) was not brought to the notice of Hon’ble Bombay High Court while judgment of Vania Silk Mills Limited (supra) was brought to the notice of Hon’ble Bombay High Court, which judgment of Vania Silk Mills stood overruled by Hon’ble Supreme Court by three-member bench of Hon’ble Supreme Court in the case of Grace Collis (supra). The judgment of Hon’ble Supreme Court in Grace Collis has been considered and distinguished by Hon’ble Madras High Court in the case of Neelamalai Agro Industries Ltd. v. CIT (2003) 259 ITR 651 whereby it has held by the Hon’ble Madras High Court that the law laid down in Vania Silk Mills (P.) Ltd.’s case (supra), that extinguishment of rights in a capital asset as a necessary consequence of destruction of the asset does not amount to transfer, has not been overruled by the Apex Court in the case of Mrs. Grace Collis;

Judicial discipline and rule of law demand and requires that lower judicial authorities should and must follow the decisions/judgment of higher judicial authorities on identical facts. Thus, the CIT(A) was bound by law to follow the jurisdictional High Court judgment in the case of Mrs. Chhaya B. Parekh (supra). In our considered view that this instant case is squarely covered by the decision of Hon’ble Bombay High Court in the case of Mrs. Chhaya B. Parekh (supra) and hence the assessee is entitled for his claim of deduction u/s. 54F of the Act as claimed in the return of income filed with the Revenue.(ITA No. 6169/Mum/2013, dt. 15-4-2016) (AY. 2007-08)

Dilip Manhar Parekh v. DCIt (Mum.)(Trib.);
www.itatonline.org
S.68 : Cash credits – Share application – Addition can be made in the hands of alleged bogus shareholders and not in the recipient company

Dismissing the appeal of revenue the Tribunal held that in case of receipt of share application money from the alleged bogus shareholders, addition can be made in the hands of the alleged shareholders and not in the income of the recipient company. (ITA No 3645/ Mum/ 2014 Bench A dt. 30-11-2015 (AY. 2007-08)

ITO v. Superline Construction Pvt. Ltd. (2016) BCAJ–January – P. 18 (Mum.)(Trib.)
S.69 : Unexplained investments – Bogus purchases – An addition on account of bogus purchases cannot be made only on the basis of information received from the MVAT department

Allowing the appeal of assessee the Tribunal held that; we have carefully considered the rival submissions. The entire discussion in the assessment order reveals that purchases from four parties namely Dhruv Sales Corporation –
Rs. 13,67,640/-; Subhlaxmi Sales Corp. –
Rs. 20,20,800/-; Dharshan Sales Corporation –
Rs. 9,64,656/-; and Paras (India) – Rs. 33,98,400, totalling to Rs. 77,51,496/- have been treated to be bogus based on the purported enquiries conducted by the Sales Tax Department of the Government of Maharashtra. Ostensibly, the Assessing Officer ought to have brought on record material which is relevant to the transactions of the assessee with the aforesaid four parties instead of making a general observation about the information received from the Sales Tax Department of the Government of Maharashtra. Quite clearly, the Assessing Officer as well as CIT (Appeals) have taken note of the fact that no sales could have been effected by the assessee without purchases. In the present case, assessee has explained that all its sales are by way of exports. The books of account maintained by the assessee show payment for effecting such purchases by account payee cheques and also the vouchers for sale and purchase of goods, etc. Notably, no independent enquiries have been conducted by the Assessing Officer. Under identical circumstances, our Co-ordinate Benches in the cases of Deepak Popatwala Gal, Shri Rajeev G. Kalathil and Ramesh Kumar and Co. have held that the Assessing Officer was not justified in making additions merely on the basis of information obtained from the Sales Tax Department of the Government of Maharashtra without conducting any independent enquiries. Before the CIT(Appeals), one of the points raised by the assessee was with respect to an opportunity to cross examine the four parties, but we find that no such opportunity have been allowed. Considering the entirety of facts and circumstances of the case and the aforesaid precedents, which have been rendered under identical circumstances, in our view, the CIT (Appeals) erred in sustaining the addition to the extent of
Rs. 4,19,356/- instead of deleting the entire addition of Rs. 9,68,937/- made by the Assessing Officer. We direct accordingly. (ITA No. 5427/Mum/2015, dt. 18-3-2016)(AY2009-10)

Imperial Imp & Exp. v. ITO (Mum.)(Trib.);
www.itatonline.org
S.69 : Unexplained investments – Bogus purchases – Theory that transaction “defies human probabilities” cannot be applied to purchases in isolation but has to be applied to the entire transaction in the light of documentary evidence produced by the assessee – Sales are accepted as genuine – Purchases cannot be disallowed – Addition was deleted

Allowing the appeal of assessee following the ratio of decision in CIT v. Nikunj Eximp Enterprieses Pvt. Ltd. (2015) 372 ITR 619 (Bom.)(HC), the Tribunal held that there cannot be sales without purchases and the fact that the assessee has exported the goods was not controverted. It is a known fact that the claim of export cannot be considered to be not – genuine, since the export cannot take place without clearance from Customs Authorities, another arm of Government of India. Hence, the claim of export has to be necessarily accepted on the basis of relevant documents. In the instant case also, the assessee has furnished the copies of purchase invoices, confirmation letters, copies of ledger accounts, copies of export bills, the details of re-import of the same and details of payment of customs duty on re-import, the details of purchase return. All these chronological events have not been disproved by the tax authorities. Therefore the theory of human probability has been applied to only part of transactions and not to the whole round of transactions. In any case, it cannot be said that the claim of the assessee defies the human probabilities, when one examines the documents furnished by the assessee. Accordingly, we are of the view that the learned CIT(A) was not justified in confirming the addition made by the AO. Accordingly, we set aside the order of learned CIT(A) on this issue and direct the AO to delete the impugned addition. (ITA No. 3823/Mum/2014, dt. 9-3.2016) (AY 2009-10)

Maruti Impex v. JCIT (Mum.)(Trib.);
www.itatonline.org
S.69 : Unexplained investments – Bogus purchases – Sales was accepted as genuine – Purchase cannot be assessed as bogus

Dismissing the appeal of revenue the Tribunal held that; assessee has furnished quantitative reconciliation, gross profit rate is comparable to earlier and subsequent years, suppliers are income tax assessee and their sales have not been treated as bogus by their Assessing Officer, payments are by account payee cheques and other evidence was available, hence the purchases cannot be treated as bogus purchases.(ITA No. 5163/Mum/2013 dt. 24-2-2016 ( AY. 2010-11)

ACIT v. Jaybhart Textiles & Real Estate Ltd. (Mum)(Trib)
S.69C : Unexplained expenditure – Assessment – Bogus sales and purchases- Addition solely on the basis of information received from the Sales Tax department is not sustainable. Suspicion of the highest degree cannot take the place of evidence

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

Hiralal Chunilal Jain v. ITO (Mum.)(Trib.);
www.itatonline.org
S.73 : Losses in speculation business – Where the assessee is a dealer in shares, the entire business of share trading and derivatives should be treated as a composite business and aggregated before applying Explanation to S. 73

Allowing the appeal of assessee the Tribunal held that; The assessee was a member of two recognised Stock Exchanges – BSE & NSE. Both Exchanges had two separate segments i.e. Capital Market Segment and Derivative Segment. In Capital market segment, assessee made trading of equity shares whereas in Derivative segment, future and options. The AO held that the transactions done by the assessee which were not covered u/s. 43(5) shall be hit by explanation to section 73 and shall be treated as speculative in nature and accordingly he disallowed a sum of
Rs. 56,94,166/- as deemed speculative loss, applying Explanation to section 73. CIT(A) held that derivative transactions were covered by sec. 43(5)(d) and therefore, could not be held as speculative transactions. On the other hand, share trading done in the cash market is hit by Explanation to section 73, and therefore, any loss/profit arising therefrom shall be deemed to be speculative, and could only be set off against income of subsequent years.

Held, by the Tribunal, where the assessee is a dealer in shares, the entire business consists in sale purchase of shares, then, it should be treated as composite business. Also, assessee’s stand of treating the whole business as composite business has always been accepted by the revenue in earlier as well as subsequent years. Accordingly, whole of assessee’s business was treated as speculative and loss of current year was allowed to be set off against profits of the current year. (ITA No.4053/Mum/2013,
dt. 16-3-2016)(AY. 2009-10)

J. G. A. Shah Brokers P. Ltd. v. DCIT (Mum.)(Trib.);
www.itatonline.org
S.80-IA : Industrial undertakings – Infrastructure development – Liquidated damages – Excess provision written back – Interest and other refund from universal services – Deduction for telecommunication services is available in respect of profits of eligible business and it is not restricted to profits derived from eligible business as mentioned in section 80-IA(1)

Assessee claimed deduction u/s. 80-IA(2A). AO disallowed deduction on various miscellaneous income on the ground that sub-section (1) of section 80-IA uses the phrase “ derived from”. According to the assessee section 80-IA along with sub-sections (1), (2) and (2A) of the same , the qualification of “derived from” as is available in sub-section (1) of section 80-IA of the Act cannot be read into sub-section (2A) of section 80-IA of the Act. It was held that Sub S. (2A) of S. 80-IA overrides the requirements of sub-ss. (1) and (2) as it starts with non obstante clause, namely,
Rs.notwithstanding” which is further qualified by “anything contained in sub-s. (1) or sub-S. (2)” and uses the words “profits and gains of eligible business” as against “profits and gains derived by an undertaking or an enterprise from” used in sub-ss (1) and (2) and, therefore, the restriction of “derived from” contained in sub-s (1) cannot be read into the provision of sub-s. (2A) of S. 80-IA. (AY. 2004-05)

Bharat Sanchar Nigam Ltd. v. Dy. CIT (2016) 156 ITD 847/ 175 TTJ 369 / 130 DTR 161 (Delhi)(Trib.)
S.80QQB : Royalty – Authors other than text books – Book written on income tax problems in question answer form – entitle to deduction

It was held that book authorised by the assessee on income tax problems in question answer form is a literary work in terms of s. 80QQB and, therefore, assessee is entitled to deduction u/s. 80QQB in respect of the royalty received by him on the same. (AY. 2005-06).

Dilip Loyalka v. ACIT (2016) 130 DTR 73/ 175 TTJ 334 (Kol.)(Trib.)
S.92C : Transfer pricing – Corporate guarantee – Taken at 0.5%

Tribunal held that the Corporate guarantees are not comparable to bank guarantees hence the commission charged by banks is not a bench mark to evaluate the ALP of a corporate guarantee but it has to be taken at 0.5%. The decision of ITAT which was up held the 3% orate cannot be followed as they are contrary to CIT v. Everest Kanto Cylinders Ltd. (2015) 378 ITR 57 (Bom.)(HC). (ITA No. 859/Mum/ 2014
dt. 29-4-2016 ) (AY. 2008-09)

Thomas Cook(India) Limited vs. ACIT (Mum.)(Trib.)
www.itatonline.org.
S.115JA : Book profit – Capital receipts – Such as subsidy & carbon credits which have no income element, have to be excluded from book profits even if credited to the P&L A/c

Tribunal held that; From perusal of the decisions of Rain Commodities Ltd. v. DCIT, 41 DTR 449 and Growth Avenues, we notice that both the decisions dealt with the issue of taxability of capital gains in computing book profit u/s. 115JB of the Act. These capital gains were otherwise income u/s. 2(24) of the Act and exclusion was claimed in computing Book Profit u/s. 115JB on the ground that the said capital gains was exempt either u/s 47(iv) or u/s. 54EC of the Act, which the Tribunal did not agree. In the present case, however, we are dealing not with capital gains but with pure capital receipt, which does not even have any ‘income’, ‘profits or, gains’ embedded therein. The impugned incentive granted to the Assessee is pure and simple capital receipt, in terms of our decision on ground No. 1 at Para 10 hereinabove, which in turn is supported by the principles laid down by the Apex Court, various High Courts & Special Bench of the Tribunal. That being the case, it does not have any income or profit element embedded in it, since the incentive was granted to encourage industrial growth of industrially non-developed area. No one can make profit out of the subsidy or incentive granted to it. Hence, it is not chargeable to tax under the Income-tax Act as held by the Apex Court in the case of Padmaraje and in the light of our fact finding – as above, clearly not includible in P&L account prepared under Part II & Part III of Schedule VI to the Companies Act.

(ii) The genesis of Sec 115J, thereafter section 115JA and now section 115JB was to ensure that the assessee, while making profit from operations, should not enjoy tax free status due to various deductions available under the Income-tax Act. There was never any intention of the legislature to tax what is not income at all. In a recent decision, the Hon’ble Apex Court in the case of Indo Rama Synthetics (I) Ltd. v. CIT (2011) 330 ITR 363 (SC) has held that the object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Inclusion of receipt in the computation of MAT would defeat two fundamental principles, it would levy tax on receipt which is not in the nature of income at all and secondly it would not result in arriving at real working results of the company. The real working result can be arrived at only after excluding this receipt which has been credited to P&L a/c and not otherwise.

(iii) With the above discussions, the only issue left to be considered is whether exclusion of the above capital receipt is in line with the principles as laid down by Hon’ble Apex Court in the case of Apollo Tyres (supra). In the case of Apollo Tyres (supra), the question before the Apex Court was whether an AO can, while assessing a company for income tax u/s. 115J of the IT Act, question the correctness of the P&L A/c prepared in accordance with requirements of Parts II and III of Schedule VI to the Companies Act. From the question as framed before the Apex Court it is clear that the issue before the Hon’ble Court was with regard to power of the AO to recast audited accounts prepared in accordance with Part II and Part III of the Schedule VI to the Companies Act. Therefore, for applicability of the decision of the Apex Court the prerequisite is that the accounts are prepared in accordance with Part II and Part III to Sch. VI of the Companies Act. If however the P&L accounts are not in accordance with Parts II and III of Sch. VI to the Companies Act, the said decision cannot be applied and in that situation it does not prohibit the needful adjustment.

(iv) Our view as above is supported by the decision of the Special Bench in the case of Rain Commodities. On examination of the said order, we find that at Para 17 (last sub-para) & Para 18, after considering the decision of Supreme Court in Apollo Tyres Ltd. (supra), Special Bench have held that if Profit & Loss account is not in accordance with Part II & Part III of Schedule VI to the Companies Act, it is permissible to alter the net profit so as to make it in accordance with Parts II & III of Schedule VI, which is the starting point for computation of ‘Book Profit’ in terms of section 115JB. It implies that needful adjustment to exclude the same is not only permissible, but is mandatory so as to make the Profit & Loss Account compliant, with the basic requirement of Section 115JB.

(v) Accordingly, the receipt on account of transfer of carbon credit which is held to be a capital receipt needs to be excluded from profit as per P&L account for the present year while computing the book profit u/s. 115JB of the Act.(ITA Nos. 417 & 418/LKW/2013, dt. 9-2-2016)(AY. 2008-09, 2009-10)

ACIT v. L. H. Sugar Factory Ltd. (Lucknow)(Trib.);
www.itatonline.org
S.115JB : Book profit – Banking company – Provision is not applicable – Explanation 3 thereto by the Finance Act, 2012 is applicable w.e.f. A.Y. 2013-14 only

Assessee being a nationalised bank and not a company within the meaning of the companies Act, 1956. S. 211(2) and proviso thereto of that Act are not applicable to it and, therefore, the provisions of S. 115JB are also not applicable. Amendment made to S. 115JB r.w. Expl. 3 thereto by the Finance Act, 2012 is applicable w.e.f. A.Y. 2013-14 only. (AY. 2002-03 )

UCO Bank v. Dy. CIT (2016) 130 DTR 113 (Kol.)(Trib.)
S. 143(3) : Assessment – In an AIR scrutiny assessment, the AO is not entitled to widen the scope of scrutiny without approval of the CIT as per CBDT’s Instruction. Such an assessment order is not sustainable

Allowing the appeal of assessee the Tribunal held that; (i) The AIR information was regarding transaction of
Rs. 25 lakh dated 31-3-2011 Para 2 of the CBDT Instruction dated 8-9-2010 states that the scrutiny of cases selected on the basis of information received through AIR returns would be limited only to the aspects of information received through AIR;

(ii) As seen, the AIR information in the present case was regarding cash deposits of
Rs. 25 lakh by the assessee in her savings bank account with OBC. Meaning thereby, that the assessee was required to explain the source of such cash deposits. The assessee explained the same as sale proceeds of her residential house amounting to
Rs. 32.25 lakh received from Smt. Naunihal Kaur, the purchaser. Her this assertion was duly supported by a copy of the concerned sale deed;

(iii) Now, as per the CBDT Instruction, nothing further was to be gone into by the AO, since the information received through AIR was the cash deposits. However, the AO as noted in paras 3.1 & 3.3 of the assessment order itself asked the assessee vide letter dated 13-12-2013 to produce Smt. Balbir Kaur and Smt. Kamaljit Kaur, with whom the assessee had entered into a separate agreement to sell and from whom, the assessee had received a sum of
Rs. 3 lakh at the time of agreement “for their examination in order to ascertain whether the agreement, was finalised or cancelled”. The AO observed that this proceeding was limited to the extent of the AIR information;

(iv) Evidently, the matter of the other agreement to sell does not stand covered in the AIR information, which was regarding the cash deposits of
Rs. 25 lakhs, which the assessee had adequately explained, as above. So, it was obviously not within the purview of the AO to ask the assessee to produce Smt. Balbir Kaur and Smt. Kamaljit Kaur, or to make addition of
Rs. 3 lakhs, as was done;

(v) In fact, what the AO did was to widen the scrutiny. Now, para 2 of CBDT Instruction is specific when it states that where it is felt that apart from the AIR information, there is potential escapement of income more than
Rs. 10 lakhs, the case may be taken up for wider scrutiny with the approval of the administrative Commissioner.

(vi) So, the proper course for the AO before making these additional enquiries would have been to take approval from the administrative Commissioner to widen the scrutiny. This, however, was not done and therefore, the action of the AO is violative of the CBDT Instruction.(ITA No. 87(Asr)/2016, dt. 24-3-2016)(AY. 2011-12)

Gurpreet Kaur v. ITO (Asr.)(Trib.);
www.itatonline.org
S.151 : Reassessment – Sanction for issue of notice – Non-application of mind – Reassessment was held to be bad in law

Addl. CIT and the CIT having simply written “Yes. I am satisfied” on the same day while according sanction under s. 151, it does not in any manner shed any light as to whether there was any application of mind at all by the two senior officers. Therefore, sanction granted by the CIT is invalid and consequently, the notice u/s. 148 issued by the AO is bad in law. (AY. 2004-05).

Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241/ 175 TTJ 663 (Delhi)(Trib.)
S.263 : Commissioner – Revision of orders prejudicial to revenue – Assessment order passed in pursuance of time barred notice is not amenable to revision

Held that the notice u/s. 143(2) of the Act, was issued beyond time. The assessment order passed pursuant to the notice which was beyond time was not justified and all proceedings subsequent to the notice were of no consequence. Hence, the revision order passed u/s. 263 was to be quashed.) (AY. 2007-08)

Krishan Kumar Saraf v. CIT (2016) 46 ITR 387 (Delhi)(Trib.)
S.263 : Commissioner – Revision of orders prejudicial to revenue – Lack of enquiry and inadequate enquiry – Explanation 2 is declaratory and clarificatory in nature

Explanation 2 to s. 263 (which supersedes the law that there is a difference between “lack of inquiry” and “inadequate inquiry”) is “declaratory & clarificatory” in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interests of Revenue. (ITA No. 1994/Mum/2013 &
ITA No. 2836/Mum/2014, dt. 1-2-2016) (AY. 2007-08)

Crompton Greaves Ltd. v. CIT (Mum.)(Trib.);
www.itatonline.org
S.271(1)(c) : Penalty – Concealment – If show cause notice does not specify the concealment particulars – Levy of penalty was held to be bad in law

Allowing the appeal of assessee the Tribunal held that for valid initiation of penalty proceedings it is essential that; prima facie, the case may deserve the imposition of penalty should be discernible from the order passed and notice must specify as to whether the assessee was guilty of having ‘ furnished inaccurate particulars of income’ or having ‘concealed particulars of such income .(AY. 2006-07)( ITA No. 1303/ Kol. /2010 dt 6-11-2015) Bench ‘ B’ )

Suvaprasanna Bhatacharya v. ACIT (2016) BCAJ–January- P. 19 (Kol.)(Trib.)