Tribunals Research Team

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

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

ITO v. Bank Note Paper Mill India P. Ltd. (2017) 56 ITR 266 (Bang.)(Trib.)
S.4 : Income chargeable to tax – Income or capital – Accrual – Arbitration award received on account of escalation damage and delays in completing the project will be a capital receipt. Dispute regarding the contract and amount awarded on arbitration. The issue relating to damages and interest still sub judice and hence cannot be taxed till the proceedings attain finality. [S.5, 145]

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

ACIT v. Jagat Ram Trehan and Sons (2017) 56 ITR 286 (Delhi) (Trib.)
S.9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Payment for software acquired by the assessee which falls in the category of ‘copyrighted article’ and not ‘copyright’ will not be qualify as royalty payment – Explanation to section 9(1)(vi) would have no application and therefore assessee not liable to deduct tax at source – DTAA–India – America [S. 195, Article 7]

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

National Stock Exchange of India Ltd. v. DDIT (2017) 57 ITR 514 (Mum.) (Trib.)
S.10(13A) : House rent allowance – House rent paid to mother was held to be not allowable in absence of any adequate documentary evidence to prove genuineness of transaction

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

Meena Vaswani (Mrs.) v. ACIT (2017) 164 ITD 120 /57 ITR 497 /186 TTJ 689 (Mum.)(Trib.)
S.10(23C) : Educational Institution – Grant of approval could not be denied merely because there were other objects in the original trust deed. [S. 10(23C(vi)]

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

Roland Educational and Charitable Trust v. PCIT (2017) 57 ITR 655 (Cuttack) (Trib.)
S.10A : Free Trade Zone – Profit & gains derided from export – Interest on margin money will qualify for deduction however interest invest on FDRs will not be entitled to deduction

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

TIBCO Software India (P) Ltd. v. Dy. CIT (2017) 187 TTJ 556 /78 taxmann.com 261 (Pune)(Trib.)
S.10B : Export Oriented Undertakings – Assessee is entitled to set off loss of eligible units against the profits of non-eligible units

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

Brakes India Ltd. v. DCIT (2017) 56 ITR 341 (Chennai (Trib.)
S.11 : Property held for charitable purposes – The assessee’s operation was primarily industrial, professional association of body and hence was not entitled to exemption [S. 2(15)]

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

ITO v. FRP Institute (2017) 56 ITR (Trib.) 253 (Chennai) (Trib.)
S.12A : Registration – Trust or institution – Where although the main object of the Trust included carrying on activities outside India, but no such activity were actually carried outside India, grant of registration u/s. 12AA r.w.s 12A could not be denied on this ground. [S. 12AA]

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

National Informatics Centre Service Inc. v. DCIT (E) (2017) 57 ITR 457 (Delhi) (Trib.)
S.14A : Disallowance of expenditure – Exempt income – Suo motu withdrawal of disallowance of claim was held to be valid, matter was set aside to decide the issue afresh [R.8D, Article 265]

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

Rupee Finance & Management (P.) Ltd. v. DCIT (2017) 81 taxmann.com 249 / 57 ITR 205 (Mum.) (Trib.)
S.32 : Depreciation – Depreciation is allowable on plant and machinery even if the factory of the assessee is closed due to some reason

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

Rajasthan Explosives & Chemicals Ltd. v. JCIT (2017) 57 ITR 143 (Jaipur) (Trib.)
S.32 : Depreciation – Assets used as tool for carrying out charitable object of institution is not entitled to depreciation [Ss. 11, 12AA]

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

Music Academy Madras v. DDIT (2017) 56 ITR 301 (Chennai) (Trib.)
S.37(1) : Business expenditure – Ad hoc disallowance of 10% – Expenses on fuel and lubricants and incentive to staff – AO disallowed the same for non-production of evidence on expenditure – Not permissible especially when the AO accepted the audited accounts and when the assessee had disclosed a higher net profit as against the net profit in trade [S. 44AB]

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

Gurudev Singh v. ACIT (2017) 56 ITR 503 (Cuttack) (Trib.)
S.37(1) : Business expenditure – Car gifted to ex-employee though no terms of employment – Personal gift not part of employment or contribution made to assessee’s business hence not allowable

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

ACIT v. Nishith Desai (2017) 56 ITR 560(Mum.) (Trib.)
S.37(1) : Business expenditure – Expenses incurred for co-publication of book presented to foreign and Indian clients coming to India for professional work such as business law and international taxation — Payment to international fiscal association relating to international taxation and starting of centre for professional development — Allowable business expenditure

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

ACIT v. Nishith Desai (2017) 56 ITR 560 (Mum.) (Trib.)
S.37(1) : Business expenditure –Bogus purchases – Addition to the extent of 12.5% of bogus purchases was upheld. [S. 69C]

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

Toscano Infrastructure (P) Ltd. v. DCIT (2017) 187 TTJ 1 (UO) (Mum.) (Trib.)
S.40(a)(i) : Amounts not deductible – Deduction at source – Business connection – Fees for technical services – Payments towards promotional expenses – Not liable to deduct tax at source – DTAA-India–France [Ss.9(1)( 9(1)(vii)]

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

DCIT v. Incent Tours P. Ltd (2017) 56 ITR 44 (Delhi ) (Trib.)
S.40(a)(i) : Amounts not deductible – Deduction at source – Fees for technical services – Payment of ‘Rights fee’ on account of ICC Cricket World Cup – Not liable to deduct tax at source. [Ss. 9(1)(vi), 9(1)(vii), 195]

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

Reebok India Company v. DCIT (2017) 56 ITR 211 / 186 TTJ 176/ 79 taxmann.com 271 (Delhi) (Trib.)
S.40(a)(i) : Amounts not deductible – Deduction at source – Fees for technical services – Payment for services rendered in London only by a third party nominated by the assessee to represent itself in London is not liable to tax in India – DTAA – India-UK [S.9(1)(vi), Article 13]

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

ACIT .v. Sterlite Industries (India) Ltd. (2017) 56 ITR 377/ 81 taxmann.com 57 (Chennai) (Trib.)
S.40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Salary paid to son of assessee – Nothing to establish son did not render any services to assessee’s business – Starting salary of firm for fresh graduate more than assessee son’s salary –Salary expenses allowable

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

ACIT v. Nishith Desai (2017) 56 ITR 560(Mum) (Trib.)
S.43(1) : Actual cost – Subsidy – A subsidy / grant from a foreign sovereign country does not fall within Explanation 10 because the foreign Country is not a “person” as defined in s. 2(31) [Explanation 10, 2(31)]

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

Spectrum Coal & Power Ltd. v. ACIT (Delhi) (Trib.), www.itatonline.org
S.45 : Capital gains – Penny stocks – If the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income. The fact that the broker was tainted and violated SEBI regulations would not make assessee’s transactions bogus. [S. 68]

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

ITO v. Arvind Kumar Jain HUF (Mum.)(Trib.), www.itatonline.org
S.45 : Capital gains – Allotment letter – Indexation – Allotment right constitutes a capital asset, hence profit earned on sale of such allotment right would be taxable as capital gains and not as income from other sources [Ss. 2(14), 56v]

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

Satnam Overseas Exports v. DCIT (2017) 57 ITR 78 (Delhi) (Trib.)
S.48 : Cost of acquisition – Interest on loan for acquiring capital asset is to be treated as part of cost of acquisition

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

Gayatri Maheshwari v. ITO (2017) 187 TTJ 33 (UO) (Jd.) (Trib.)
S.49 : Capital gains – Previous owner – Cost of acquisition – Merely mentioning in sale deed that property was free from all encumbrances was not material and thus, was not a correct interpretation of the legal position

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

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

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

Rama Vohra (Smt.) v. ITO (2017) 57 ITR 694 (Delhi)(Trib.)
S.54 : Capital gains – Profit on sale of property used for residence – Substantial amount invested in new house – Deduction cannot be denied for reason that house is not constructed within three years or purchased within two years. [S. 45]

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

Bhavna Cuccria v. ITO (2017) 165 ITD 124 (Chd.) (Trib.)
S.54 : Capital gains – Profit on sale of property used for residence – Capital gains appropriated in new property within time limit – Exemption to be granted –Completion of construction not mandatory. [S. 45]

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

Kannan Chandrasekar v. ITO (2017) 165 ITD 223 (Chennai) (Trib.)
S.54F : Capital gains – Non-utilisation of deposit made in capital gains account scheme –Addition cannot be made in the year of deposit – It is not the discretion of assessee or AO to against the provisions. [Ss. 45, 54]

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

Anupama Nagesh (Smt.) v. ITO (2017) 187 TTJ 27(UO) (Bang.) (Trib.)
S.61 : Revocable transfer of assets – Beneficiaries of trust identifiable and shares determined by contributor’s agreement – Income derived by trust to be taxed in the hands of the beneficiaries. [S. 161]

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

Tamilnadu Urban Development Fund v. ITO (2017) 56 ITR 37 (Chennai) (Trib.)
S.68 : Cash credit – Shell companies – Failure to produce lenders – Addition was held to be justified

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

Pavankumar M. Sanghvi v. ITO (2017) 165 ITD 260/ 187 TTJ 32 ( SMC)(Ahd.)(Trib.)
S.69 : Income from undisclosed source – Seized documents – Merely on the basis of seized documents in third party premises, additions cannot be made- Addition cannot be made on estimation/extrapolation. Addition on the basis of seized document print out from Blackberry Mobile Digital was held to be not justified. [S. 28(i), 69C 132, 153A]

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

ACIT v. Katrina Rosemary Turcotte (Katrina Kaif) (Mum)(Trib), www.itatonline.org
S.69C : Unexplained expenditure – Bogus purchases – If books of account is not rejected, no addition can be made on presumptions [S. 145]

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

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

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

Prashanti Surya Construction Co. Pvt. Ltd v. DCIT (2017) 56 ITR 202 (Chandigarh) (Trib.)
S.92C : Transfer pricing –Comparable – Exhibition and events could not be selected as comparable to assessee rendering marketing support services

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

TIBCO Software India (P) Ltd. v. Dy. CIT (2017) 187 TTJ 556 / 78 taxmann.com 261 (Pune)(Trib.)
S.92C : Transfer pricing – Adjustment on account of location savings costs was directed to be deleted

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

Dy. CIT v. Syngenta India Ltd. (2017) 187 TTJ 271/77 taxmann.com 220 (Mum.)(Trib.)
S.92C : Transfer pricing – Working capital adjustment has to be contracted on the basis of year end figures

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

ITO v. Evalueserve.com (P) Ltd. (2017) 187 TTJ 317 (Delhi)(Trib.)
S.92C : Transfer pricing – Adjustment on account of environmental cost savings was directed to be deleted

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

Dy. CIT v. Syngenta India Ltd. (2017) 187 TTJ 271/ 77 taxmann.com 220 (Mum.)(Trib.)
S.92C : Transfer pricing – Arm’s length price – Corporate guarantee given to AE not involving any cost to the assessee and no bearing on profits, income, loss of assets is outside the ambit of international transaction

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

Brakes India Ltd v. DCIT (2017) 56 ITR 341 (Chennai (Trib.)
S.92C : Transfer pricing – Arm’s length price – Loans advanced to AE situated in Singapore – Corporate guarantee – Not charging any interest from AEs and non-AEs for providing mobilisation advances –Adjustment under TP provisions was not attracted. [S. 92B]

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

DCIT v. Lanco Infratech Ltd. (2017) 56 ITR 525/ 81 taxmann.com 381 (Hyd.) (Trib.)
S.92C : Transfer pricing –Distribution activity – Trader –Resale method (RPM) is most appropriate

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

Freseniue Kabi India Private Limited v. DCIT (Pune)(Trib.); www.itatonline.org
S.92C : Transfer pricing – Arm’s length price – Accounting period of comparable company should be same as that of the assessee company – Where the functional profile of comparable company and assessee company is same as in earlier years vis-à-vis current year, then, in absence of any contrary evidence, and in order to maintain consistency, the treatment given to the comparable company in the earlier year should be given the current year. [S. 92]

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

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

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

Tevapharm India Pvt. Ltd. v. DCIT (2017) 57 ITR 301 (Mum.) (Trib.)
S.92C : Transfer pricing – Arm’s length price – Foreign Exchange loss on account of cancellation of forward contracts should be eliminated from the operating cost as it is a material difference and arisen to assessee due to abnormal feature – Comparable company following different financial year may not be generally taken for comparability analysis, however, if financial data for all the quarters is available, it would suffice comparability criteria

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

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

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

Pangea & Legal Database Systems (P.) Ltd. v. ITO (2017) 57 ITR 242 (Mum) (Trib)
S.133A : Power of survey –Statement was retracted – Statement in survey operations no evidentiary value – Merely on the basis of statement, addition cannot be made. [S. 68]

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

ACIT v. Shree Krishna Developers (2017) 56 ITR 154 (Ahd)(Trib)
S.143(2) : Assessment – As the notice was neither issued nor served before limitation period , the order was held to be barred by limitation hence bad in law. [S. 144C]

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

Cameron (Singaore) Pte. Ltd. v. ADIT (Jaipur)(Trib.), www.itatonline.org
S.143(3) : Assessment – Bogus purchases – Trader – Stock register is maintained and quantity detailed provided, Tribunal restricted the addition to 2% of the bogus purchases

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

ACIT v. Steel Line (India)(Mum.)(Trib); www.itatonline.org
S.143(3) : Assessment – Scrutiny of cases – CIT in granting approval is held to be proper internal instructions cannot be equated with the provisions of the Act, selection for scrutiny was accordance with law and valid [Ss. 119, 151]

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

Brother & Sisters Enterprise v. JCIT (Kol.) (Trib); www.itatonline.org
S.145 : Method of accounting –Upfront expenditure – Held to be allowed in full though amortised in its books. [S. 35D, 37(1)]

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

Magma Fincorp Ltd. v. DCIT (2017) 165 ITD 375 /57 ITR 321 (Kol.)(Trib.)
S.153A : Assessment – Search and seizure – In order to initiate assessment proceedings u/s. 153A of the Act, the premises of the assessee has to be searched and panchanama has to be specifically drawn in the name of the assessee. Further, availability of incriminating material is also a pre-requisite for framing an assessment [S. 132]

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

Unique Star Developers v. DCIT (2017) 57 ITR 463 / 187 TTJ 682 (Mum.) (Trib.)
S.153B : Assessment – Search and seizure – Time limit – Assessment order passed beyond the time limit prescribed was barred by limitation and therefore, liable to be quashed. [Ss. 153A, 158BC, 158BE]

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

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

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

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

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

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

Suman Agarwal (Dr.) v. ITO (2017) 57 ITR 491 (Jaipur) (Trib.)
S.158BE : Block Assessment – Time Limit – Where Assessee had not applied
for extension of time for submission of the Special Audit Report, then the AO
did not have the power to suomotu extend the time limit for completion of block
assessment proceedings. [S.132, 142(2A), 158BC]

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

Sita Saraf (Smt.) v. ACIT (2017) 57 ITR 590 (Patna) (Trib.)
S.195 : Deduction at source – Income deemed to accrue or arise in India – Royalty – Payment to google Ireland is taxable as royalty hence liable to deduct tax at source – DTAA – India-Ireland [Ss. 9(1)(vi), 201(1), Article 12

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

Google India Private Ltd. v. ACIT (Bang.)(Trib.), www.itatonline.org
S.201 : Deduction at source – Failure to deduct or pay – Interest on account of delay in payment of tax deducted at source cannot be levied if such delay is due to system and connectivity issues at the Banker’s end [Ss. 201(1), 201(IA)]

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

Nokia Siemens Networks P. Ltd. v. ACIT (2017) 57 ITR 382 (Delhi) (Trib.)
S.221 : Collection and recovery – Penalty – Tax in default – Self- assessment tax – Failure to pay self assessment tax while filing the return though taxes are paid while filing the revised return, the assessee is liable to pay the penalty. [S. 140A]

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

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

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

Claris Life Sciences Limited v. DCIT (Ahd)(Trib)(SB), www.itatonline.org 59 ITR (Trib.) (SB)
S.245C : Settlement Commission – Settlement of cases – Conditions – Settlement Commission can admit application for settlement when additional income and additional tax liability is disclosed for some years and there is no additional income/additional tax for remaining years as long as additional tax payable on income disclosed in application exceeds threshold limits specified in proviso to section 245C(1)

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

Neptune Developers & Construction (P.) Ltd., In re (ITSC-Mum.) (2017) 248 Taxman 500/55 ITR 484 (Trib.) (Mum.) (SB) (ITSC)
S.254(1) : Appellate Tribunal –Power – Interim order – Transfer cases – Tribunal directed the Department to produce records including copy of the order passed, department has to comply with the requisition [Ss. 124, 127)

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

Consulting Engineering Services (India) Pvt. Ltd v. ACIT (2017) 56 ITR (Trib.) 28 (Delhi) (Trib.)
S.254(1) : Appellate Tribunal –An additional ground with respect to additional evidence is admissible – Transfer pricing – If it is discovered that assessee is not liable to tax the revenue cannot have grievances [S. 92C]

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

Nivea India Private Ltd. v. DCIT (Mum.)(Trib.); www.itatonline.org
S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Limitation – The amendment to s. 254(2) to curtail the limitation period for filing Rectification Applications to six months from four years is prospective and applicable to appeal orders passed after 1-6-2016 and not the orders passed prior to 1-6-2016.

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

Lucent Technologies GRL LLC v. ADIT (Mum)(Trib), www.itatonline.org
S.263 : Commissioner – Revision of orders prejudicial to revenue –Revision – Merely on the basis of in adequate enquiry revision was held to be not valid. [S.44BB]

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

Technip UK Ltd. v. DIT of (IT) (2017) 187 TTJ 617/81 taxmann.com 311 (Delhi)(Trib.)
S.263 : Commissioner – Revision of orders prejudicial to revenue – Assessment order was in line with the order of the Tribunal –Revision was held to be not valid. [S.153A]

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

Radha Aggarwal (Smt.) v. PCIT (2017) 56 ITR 509 (Chd.) (Trib.)
S.271(1)(c) : Penalty – Concealment – Proceedings initiated for furnishing inaccurate particulars of income but penalty order alleging that the assessee had concealed its income – Notice issued for initiating the proceedings was defective for failure to state the ground on which penalty was imposed – Order imposing penalty was invalid. [S. 274]

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

Multivision Infotech P. Ltd v. ACIT (2017) 56 ITR 278 (Ahd.) (Trib.)
S.271(1)(c) : Penalty – Concealment – Estimate of profits by the AO – Tribunal significantly reducing the quantum of addition – Appeal admitted by the High Court on substantial question of law – Hence, the issue is debatable and no penalty is leviable. [S. 260A]

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

DCIT v. Maradia Copper Extrusion P. Ltd. (2017) 56 ITR 172 (Ahd.) (Trib.)
S.271(1)(c) : Penalty – Concealment – Additional ground was raised before the Tribunal – Failure to specify the charge the levy of penalty was held to be invalid. The argument that the assessee was made aware of the specific charge during the proceedings is of no avail. S. 292BB does not save the penalty proceedings from being declared void. [Ss. 254(1), 274, 292BB]

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

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

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

Uttam Value Steels Limited v. ACIT (Mum)(Trib), www.itatonline.org
S.271(1)(c) : Penalty – Concealment – Loss on capital asset – Debiting the loss to P& L account instead reducing from the block of asset was bona fide mistake, levy of penalty was held to be not justified

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

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