DIRECT TAXES – High Courts

Research Team

  1. S. 2(14)(iii): Capital asset – Agricultural land – land was situated 40 k.m away from municipality – Agricultural activities were carried out in land, there were standing banana crops as well as coconut trees, etc. – Approval from Joint Director, Directorate of Town and Country Planning [‘DTCP’] for conversion of land for non-agricultural purpose prior to execution of sale deed – Not liable to capital gain tax [S. 45]

Assessee sold land to a company and claimed same as exempt under section 2(14) (iii) on ground that same was agricultural land. The AO held that assessees along with their co-owners (sons) had obtained approval from Joint Director, Directorate of Town and Country Planning [‘DTCP’] for conversion of land for non-agricultural purpose prior to execution of sale deed, held that on date of sale, land was no longer agricultural land and not eligible for claiming exemption u/s. 45 of the Act . Commissioner (Appeals) deleted the addition. On appeal Tribunal held that agricultural activities were carried out in land, there were standing banana crops as well as coconut trees, etc, and land was situated 40 k.m away from municipality. Accordingly affirmed the order of CIT(A). On appeal by the revenue, High Court affirmed the order of the Tribunal) (AY. 2009-10)

CIT v. P. Mahalakshmi (2021) 276 Taxman 224 (Mad.)(HC)

  1. S. 9(1)vi): Income deemed to accrue or arise in India – Royalty – Non-resident – receiving consideration – sale of software product – not royalty – DTAA- India-UK [Art. 13]

Assessee is a company incorporated in UK. It sells software products in India. it was held by the AO that the receipt of income from the sale of software products in India is taxable under the head ‘Royalty’ as per the provisions of section 9(1)(vi) of the Act read with Article 13 of the India-UK DTAA. The High Court relying on the case of DIT v. New Skies Satellite B.V. [2016] 382 ITR 114 (Delhi) (HC) and PCIT v. M. Tech India (P.) Ltd. [2016] 381 ITR 31 (Delhi) (HC) held that payment made by the reseller for the purchase of software for sale in Indian market could not be considered as royalty within meaning of Article 13 of India UK DTAA.

Micro Focus Ltd. (2021) 197 DTR 299/ 318 CTR 670/, 431 ITR 136 (Delhi) (HC)

  1. S. 10 (23C): Educational institution – Approval not to be denied in the absence of information regarding charging of profits

Where the assessee’s application for approval under section 10(23C) was rejected by the CIT on the ground that it is not an educational institution, matter had to be remanded back to the CIT to consider the application again in light of the fact whether the assessee was generating any profits by charging fees for conducting the examination.

Bihar Combined Entrance Competitive Examination Board v. CIT (2021) 318 CTR 229 / 125 taxmann. com 228 (Pat) (HC)

  1. S. 10 (23C): Educational institution – Exemption claimed by assessee u cannot be denied on ground that it does not have independent MoA, bye-laws, etc unless it is proved that assessee does not meet parameters of section 10(23C) of the Act. [S.10(23C)(vi)]

Held by the High Court that:

  1. Tribunal has rightly discussed the relevant provisions of the Act and finding that the Appellant Educational Institution is undoubtedly, an “Institution” covered by the provisions of section 10(23C)(vi) of the Act and therefore, as an AOP, it was entitled to exemption irrespective of the fact whether it had separate registration under other law as an Institution or Society or not.

  2. Since the Appellant/Assessee is admittedly filing its Returns of Income as AOP. So long as the Assessee adheres to the parameters required to be satisfied under section 10(23C) of the Act to avail the exemption granted under the provision, it is so entitled (TCA No 467 of 2017 dt. 25-09-2020) (AY. 2014-15)

CIT v. Sengunthar Matriculation Higher Secondary School (2020) 121 taxmann.com 338 / (2021) 277 Taxman 252 (Mad) (HC)

  1. S. 10(10C) : Public sector companies – Voluntary retirement scheme – exemption available under section 10(10C) and section 89(1) of the Act – Alternate remedy not a bar from entertaining the writ petition – Single judge order of the High Court set aside [S. 10(10C)(viii), 17(3), 89(1), 264, Art. 226]

Assessee received certain amount from his employer under VRS scheme which was claimed as exempt under section 10(10C)(viii) as well as section 89(1) r.w.s. 17(3) of the Act. AO rejected the claim of the assessee and an application under section 264 was filed which was rejected by the CIT. Assessee filed a writ petition which was disposed off by a single judge as alternative remedy was available with the assessee by filing an appeal to the CIT(A). However, the division bench set aside the order of the single judge and held that when proceedings are without jurisdiction, existence of alternate remedy is not a bar for granting relied under Article 226 of the Constitution of India. Reliance was placed on Calcutta Discount Company Ltd v .ITO (1961)41 ITR 191(SC). Further, relying on the decision of State Bank of India v. CBDT (2006 KLT 258), the HC held that assessee was entitled to claim deduction under section 10(10C)(viii) and section 89(1) of the Act. (WA No. 1713 of 2020 dt. 5-01-2021) (AY 2001-02)

V. Gopalan v. CCIT (2021) 318 CTR 706 / 197 DTR 433 (Ker.)(HC)

  1. S. 10(23C)(vi) : Exemption for an Educational Institute – Assessee filed an application for claiming exemption under section 10(23C)(vi) – such application was rejected being delayed – application for further AYs not delayed – order for the exemption for further AYs needs to be passed accordingly – petitioner to file condonation application with CBDT for current AY 2019-20 [S. 10(23C) (vi), 119(2)(b). Art. 226]

The CIT(E) rejected the application of the petitioner dated 31-10-2019 for exemption under section 10(23C) (vi) of the Act for the assessment year 2019-20 and AYs thereafter. The application was rejected referring to the 16th proviso to section 10(23C)(vi) which says that an application for exemption or continuance of exemption under section 10(23C)(vi) has to be fled on or before the 30th day of September of the relevant assessment year from which the exemption is sought which date in the instant case would be on or before 30-9- 2019, as the due date to file application was 30-9-2019 and CIT(E) had no power to condone such delay. The assessee filed Writ Petition seeking direction to quash the order of rejection. The Hon’ble High Court held that CIT(E) was not authorized to condone the delay with respect to AY .2019-20 and hence the assessee had to file an application before the CBDT under section 119(2)(b) to authorize CIT(E) to condone the delay in fling its application dated 31-10- 2019. With respect to the contention of dealing with grant of exemption with regards to future AYs, the High Court directed the CIT(E) to consider such application as being filed within time limit and take necessary action. (AY. 2009-10) [W.P. No. 94842 of 2020 dt. 28.01.2021]

Sanjay Ghodawat University, Kolhapur v. CIT(E) (2021) 124 taxmann.com 6 (Bom)(HC)

  1. S. 10A : Free trade zone – Grounds not adjudicated on merits – Matter remanded [S. 254(1), 260A]

Assessee is engaged in business of providing software development services, professional services and had claimed deduction u/s 10A of the Act. AO denied benefit of deduction to some units on ground as these were not set up in accordance with STPI scheme and also held that the income earned by the Assessee in the nature of recruitment fee should be excluded from the eligible profits of the business of the Assessee. On Assessee’s appeal to CIT(A), it allowed partial relief and denied the relief in respect of the recruitment fee on the ground that such activity has no nexus with the activity of export of computer software. On Assessee’s appeal to Tribunal, the Tribunal upheld the CIT(A) order and did not decide the grounds raised by the assessee and held that the same are academic.

Aggrieved by the same, the Assessee preferred an appeal before High Court. The High Court held that Tribunal ought to have adjudicated the grounds raised by the Assessee on merits instead of holding the grounds to be academic and not deciding the same. Thus, the High Court remanded the matter back to Tribunal for adjudication. (ITA No. 526 Of 2017 dt. 19-11-2020) (AY. 2005-06)

Ntt Data Global Delivery Services Ltd. v. ACIT (2021) 123 taxmann.com 226 277 Taxman 143 (Karn) (HC)

  1. S. 10B: Export oriented undertakings – Submission of declaration to be treated as directory – provision of the section did not provide for any consequence on non-filing of declaration within the time limit. [S. 10B(8), 72]

The Assessee was a software company who filed its original return on due date in which exemption under section 10B was claimed. Thereafter, assessee withdrew the said exemption before completion of assessment and filed revised return in which said exemption was not claimed and certain loss was declared. The AO denied assessee’s claim of carrying forward of losses under section 72, however same was allowed by Tribunal. Revenue filed an instant appeal against order of Tribunal with the High Court, contending that Tribunal erred in holding that assessee was entitled to said claim of carrying forward of losses even when assessee had filed declaration, after due date of filing original return of income was over.

Relying on the decision of State of Bihar v. Bihar Rajya Bhoomi Vikas Bank Samiti [2018] 9 SCC 472, the Hon’ble Karnataka High Court held that the requirement of submission of declaration in terms of section 10B(8) of the Act has to be treated as mandatory whereas, the requirement of submission of declaration by a time limit has to be treated as directory as the provision does not provide for any consequence by non-filing of the declaration by the time limit. Accordingly, since assessee had filed the declaration before completion of assessment, appeal filed by Revenue was dismissed. (ITA No.462 of 2017 dt. 30-11-2020) (AY.2001-02)

PCIT. v. Wipro Ltd (2021) 123 Taxmann.com 393 / 277 Taxman.com 309 (Karn)(HC)

  1. S. 10B : Export oriented undertakings – Manufacture – Conversion of crude ore into iron ore concentrate fines amounts to manufacture – Entitle to benefit. [S. 2(29BA)]

Dismissing the appeals of the revenue the Court held that the assessee purchased run-of-mines, which included a lot of impurities ; it was crude ore, practically of no use unless it was processed and made suitable for its intended end-use. Iron ore concentrates were manufactured by the process of magnetic separation. It essentially amounted to manufacture or processing. The assessee was entitled to the benefit under section 10B of the Act. (AY.2008-09, 2009-10)

CIT v. Ramacanta Velingkar Minerals (2021) 430 ITR 161/ 277 Taxman 299 (Bom)(HC)

  1. S. 11 : Property held for charitable purposes – School – Exemption – For delay in filing form Nom 10B denial of exemption is not justified – Petitioner is directed to file an application before the CBDT within a period of three weeks from today, and CBDT shall pass an appropriate order in terms of direction No.1 above within a period of four weeks from the date of receipt of such application with due intimation to the petitioner [S. 2(15), Form No 10B]

The petitioners are charitable trusts providing education to students belonging to middle class families through various schools situated in Mumbai. Both the petitioners are assessed to income tax under the Income Tax Act, 1961(Act).

Challenge made in both the writ petitions is to the orders dated 19.02.2020 passed by the Commissioner of Income Tax (Exemptions), Mumbai declining to condone the delay in filing Form No.10B of the Act for the assessment year 2018-2019.

It is stated that for the assessment year 2018-19, petitioner filed return of income on 25.07.2018 declaring nil income. Form No.10B was obtained on 15.08.2018 from the auditor. It is stated instead of uploading Form No.10B in the income tax portal, petitioner uploaded Form No.10BB because of mistake of the chartered accountant and accountant.

The CPC under section 143(1) of the Act raising a demand of Rs.1,46,01,489.00 as payable by the petitioner for the assessment year 2018-19 by denying exemptions under sections 11 and 12 of the Act.

Petitioner uploaded Form No.10B on the income tax portal on 06.11.2019 and also filed an application for condonation of delay. As a matter of fact, petitioner filed Form No.10B for assessment years 2017-18 and 2018-19.

Respondent No.2 i.e., Central Board of Direct Taxes issued Circular No.2 of 2020 dated 03.01.2020 empowering the Commissioner of Income Tax (Exemptions) to condone the delay in filing Form No.10B for a period upto 365 days from the assessment year 2018-19 onwards.

However, vide the impugned order dated 19.02.2020, Commissioner of Income Tax (Exemptions), Mumbai rejected the application of the petitioner for condonation of delay for the assessment year 2018-19. The said order was passed following Circular No.2 / 2020 of the Central Board of Direct Taxes.

Aggrieved, the related writ petition has been filed for quashing of order dated 19.02.2020 and for a direction to the Commissioner of Income Tax (Exemptions) to condone the delay in filing Form No.10B for the assessment year 2018-19.

Court held that being the position and having regard to the mandate of section 119(2)(b), we feel that even at this stage, petitioner may approach CBDT under the aforesaid provision seeking a special order to the Commissioner of Income Tax (Exemptions), Mumbai to condone the delay in filing Form No.10B for the assessment year 2018-19 which is beyond 365 days and thereafter to deal with the said claim on merit and in accordance with law.

Petitioner shall file an application before the CBDT under section 119(2)(b) of the Act to authorize the Commissioner of Income Tax (Exemptions), Mumbai to condone the delay in filing Form No.10B for the assessment year 2018-19 and to deal with the same on merit in accordance with law;

If such application is filed by the petitioner within a period of three weeks from today, CBDT shall pass an appropriate order in terms of direction No.1 above within a period of four weeks from the date of receipt of such application with due intimation to the petitioner (WP No. 1061 of 2020 March 25, 2021 (Bom)

(HC), dated 25th March 2021)

Little Angels Education Society & Anr v. UOI (Bom) (HC) www.itatonline.org

  1. S. 11 : Property held for charitable purposes – Since lower authorities had not rendered any finding that activity carried out by assessee –trust was a commercial activity, benefit of exemption could not have been denied to assessee Matter remanded to AO to take fresh decision [S.2(15)]

Held by the Court that where the claim for exemption of a assessee-trust which is established with a main object to consider all questions concerning relations between employers and employees in Southern India in order to protect their interests have been denied to assessee merely taking the view that substantial sums of money were received by assessee from conducting conferences and seminars which were not incidental to its main objects without the lower authorities having not rendered any finding as to whether activity carried out by assessee was a commercial activity, denial of the benefit of exemption u/s 11 is not justified. Matter remanded to AO to find out facts on the principles enunciated in few decisions referred by the Court (TCA No. 98 of 2018, CMP No. 1567 of 2018) dt.09-09-2020)

(AY. 2009-10)

Employers Federations of Southern India v. CIT (E) (2020) 122 taxmann.com 87 / (2021) 277 Taxman 266 (Mad) (HC)

  1. S. 11 : Property held for charitable purposes – Statutory body – Functions of assessee were fully controlled by instructions issued by Government – Assessee was engaged in charitable activity through advancement of an object of general public utility. [S. 2(15), Karnataka Industrial Area Development Act, 1987]

On appeal the High Court confirmed that the following observations of the Tribunal and allowed the appeal:

  1. main component of income of the assessee is derived in the form of interest and there is no profit element in earning income as interest;

  2. that the assessee has been established to promote rapid and orderly development of industries in the State and to assist in implementation of the policy of the Government;

  3. to facilitate in establishing infrastructure projects and to function on ‘No Profit-No Loss’ basis;

  4. profit making is not the driving force or objective of the assessee;

  5. AO has not disputed that the assessee fulfills all the conditions for allowing exemption except proviso to Section 2(15) of the Act.

Thus, the Tribunal has correctly held that the proviso to section 2(15) of the Act is not applicable to the case of the assessee. (ITA No. 205 of 2016, dt. 30/09/2020) (AY. 2009-10)

Karnataka Industrial Area Development Board v. Addl DIT (E), (2020) 121 taxmann.com 88 / (2021) 277 Taxman 36 (Karn)(HC)

  1. S. 11: Property held for charitable purposes – Purchase of gold bullion – Tribunal has not dealt with the contention of assessee – Matter remanded to Tribunal[ S.13 (1)(d) (iia) 254 (1)]

Assessee, an educational charitable trust, purchased a gold bullion and contended that as per proviso (iia) to section 13(1)(d) it could hold such gold for a period of one year from end of previous year in which same was acquired, thus, there was no violation of section 11(5). Since Tribunal did not dealt with such contention of assessee and passed an order holding such purchase to be in violation of section 11(5), said order was to be set aside and matter was to be remanded. (T C No 890 of 2019 dt. 24-09-2020)

(AY. 2010-11)

Sri Venkkaliamman Educational and Charitable Trust v. DCIT (2020) 122 taxmann.com 81 / (2021) 277 Taxman 257 (Mad) (HC)

  1. S. 12AA : Procedure for registration – Trust or institution – Assessee deemed to have abandoned or waived off their claim made in first application on filing second fresh application – Commissioner justified in granting registration taking into consideration second application and not retrospective registration on the basis of first application

Held that, where assessee-trust filed application for granting registration in Form 10A under section 12AA on 11-3-2009 and without pursuing same for two years filed another application on 28-6-2011 second application could not be considered as a letter in continuation of earlier application; it was to be considered as a fresh application and registration was rightly granted from 1-4-2011 and not from 1-4-2009. (TCA No 770 of 2019, dt. 05-10-2020) (AY. 2012-13).

Carmel Educational and Charitable Trust v. ITO (2020) 121 taxmann.com 278 / (2021) 277 Taxman

165 (Mad) (HC)

  1. S. 12AA : Procedure for registration – Trust or institution – Amendment in section 12AA applicable with effect from AY 2011-12 – retrospective cancellation of registration of trust with effect from AY 2010-11 is without jurisdiction. [S. 2(15)]

The DIT(E) held that the assessee is not running an educational institution, it is only giving donation to another trust and the word ‘education’ has been defined in various decisions to mean conventional type of education given in class rooms and, since the assessee does not run any schools or colleges, they are not in the field of education and that their activity will fall under the category of ‘advancement of any other object of general public utility’ as used in section 2(15). It was held that Circular No. 1 of 2011 will clearly show that the amendment brought out in Section 12AA is applicable with effect from 1st June, 2010, i.e., from the assessment year 2011-12 and subsequent years. Therefore, the retrospective cancellation of the registration of the assessee is wholly without jurisdiction. The DIT(E) failed to adhere to the instructions issued by the CBDT which is binding on the DIT(E). The recent pandemic has taught very many lessons and one of which is that, mode and method of education cannot be in any manner restricted, but should be given the widest meaning that is possible. (AY. 2011-12)

Thanthi Trust (2020) 196 DTR 57/ (2021) 318 CTR 403 (Mad) (HC)

  1. S. 32: Depreciation – granted in earlier years and latter years – Order set aside for fresh consideration

A scheme of arrangement had been sanctioned by this Court in respect of the Petitioner, viz., Ponni Sugars (Erode) Limited, with a specific provision entitling it to claim depreciation in its tax returns on the basis of fair market value of fixed assets as on 01.04.1999. The AO disallowed depreciation for AY 2003-04. It was held that there is no justification to deny the Petitioner of the same benefit for the assessment year 2003- 2004, which has been granted for the assessment years 2001-2002, 2002-2003, 2004-2005, 2005-2006 and 2006-2007. Matter remanded for fresh consideration, reasonable opportunity for hearing and a reasoned order on merit. (AY. 2003-04)

Ponni Sugars (Erode) Ltd. (2021) 197 DTR 133 / 318 CTR 676 (Mad) (HC)

  1. S. 32 : Depreciation – Asset put to use for less than 180 days – additional depreciation of 10% allowed in the year and balance 10% would be allowed in the subsequent year [S. 32(1)(iia)]

Assessee acquired plant and machinery in the second half of FY 2007-08 and the asset was put to use for less than 180 days in that year. Additional depreciation at 10% was allowed in AY 2008-09 under section 32(1)(iia) of the Act and the balance additional depreciation at 10% was allowed in the subsequent year i.e. AY 2009-10. The HC relied on the decision of DCIT v. Brakes India Ltd (IT Appeal No. 1069 (Mds) of 2010 dt. 6-1-2012) which has been approved by the Supreme Court. (TCNo. 267 of 2020 dt. 07- 09-2020) (AY.2009-10)

  1. S. 37(1) : Business expenditure – Discount on employees Stock Option Plan – Allowable as deduction. [Companies Act, 1956, S.2(15A)]

Dismissing the appeal of the revenue the Court held that the deduction of the discount on the employees stock option plan over the vesting period was in accordance with the accounting in the books of account, which had been prepared in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. For assessment year 2009-10 onwards the Assessing Officer had permitted the deduction of the employees stock option plan expenses. The Revenue could not be permitted to take a different stand with regard to the assessment year 2004-05. The expenses were deductible.(AY.2004-05)

CIT (LTU) v. Biocon Ltd. (2021) 430 ITR 151/ 276

Taxman 1 (Karn)(HC)

  1. S. 37(1) : Business expenditure – Take over business – Scheme for voluntary retirement of employees – Allowable as business expenditure. [S. 10(10C]

Dismissing the appeal of the revenue the Court held that the sum was paid as retirement benefit to employees who availed of the benefit of the scheme. Under the scheme, compensation was paid not only for past services but also for the remaining years of service with the company. The employees had also filed a complaint against the assessee under the labour laws and therefore, the assessee had to offer a scheme to avoid any kind of future problems. The scheme was sanctioned by the Chief Commissioner for the exemption under section 10(10C) of the Act and it was a contractual obligation and was an ascertained liability. The genuineness of the scheme was not doubted by any of the authorities, rather it had been approved by the Chief Commissioner. The expenditure incurred by the assessee under the scheme had been incurred solely and exclusively for the purposes of business and was eligible for deduction under section 37(1).(AY.2000-01)

CIT v. G. E. Medical Systems (I.) (P.) Ltd. (2021)430 ITR 494/ 197 DTR 449/ 277 Taxman 315 (Karn)(HC)

  1. S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – Purchase of intellectual property – Depreciation is not an expenditure – No disallowance can be made for failure to deduct tax at source. [S.32, 37(1), 40(a)(ia)]

Dismissing the appeal of the revenue the Court held that the payment had been made by the assessee for an outright purchase of intellectual property rights and not towards royalty. Depreciation is not an expenditure hence No disallowance can be made for failure to deduct tax at source. (AY.2009-10 to 2011-12)

PCIT v. Tally Solutions Pvt. Ltd. (2021) 430 ITR 527 (Karn)(HC)

  1. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Handling charges paid to persons for in turn paying multiple labourers – TDS provisions not applicable – matter remanded back to CIT(A) for re- examining evidence which he refused to accept.

Assessee was engaged in the business of clearing and forwarding agency for ACC Ltd. Assessee made payment towards handling charges to three people who in turn paid labour charges to multiple labourers. AO disallowed the amount paid due to non deduction of tax. The CIT(A) refused to accept the evidence produced by the assessee. Hight Court upheld Tribunal’s order of remanding the matter back to the CIT(A) for re-examination. (IT A No. 407 of 2010 dt. 31-08-2020) (AY.2006-07)

C.S. Raghoji (Bellary) v. DCIT (2020) 119 taxmann. com 143 /(2021) 277 Taxman 61 (Karn)(HC)

  1. S. 44AD : Presumptive taxation – Individual partner of firm engaged in eligible business – Not entitled to benefit. [S.28(v), 44AD(2)]

Dismissing the appeal the Court held that the assessee who was an individual was not carrying on any business. Therefore, the remuneration and interest received by the assessee from the firm could not be termed turnover of the assessee. The assessee had not done any sales nor rendered any services but had been receiving remuneration and interest from the firms which amount had already been debited in the profit and loss account of the firms. Therefore, the remuneration and interest could not be treated as gross receipts. The assessee was not entitled to the benefit of section 44AD. (AY.2012-13)

Anandkumar v. CIT (2021) 430 ITR 391 (Mad)(HC)

  1. S. 56: Income from other sources – Individual – Natural living individuals – Donation received by discretionary Trust – Assessable as income from other sources.[S. 2(24)(xv), 2(31)(v), 56(2) (vii)]

Court held that no amount had been received from any relative of the individual beneficiary or on account of marriage of the individual beneficiary and the income was received on behalf of the representative assessee. The assessee was a representative assessee as it represented the beneficiaries who were identified individuals and therefore to be assessed as an individual only. Consequently, the contribution of Rs. 25 crores was to be assessed as income under section 56(1) under the head Income from other sources.(AY.2014- 15)

CIT v. Shriram Ownership Trust (2021) 430 ITR 356/ 197 DTR 153/ 318 CTR 233 (Mad)(HC)

  1. S. 56 : Income from other sources – Issue of bonus shares by capitalization of reserves does not result in inflow of any funds or property and is not assessable under section 56(2)(vii)(c).[S.56 (2) (vii)(c)]

Issue of bonus shares by capitalization of reserves is merely reallocation of company’s funds. It does not entail outflow of any funds or change the capital structure of the company. The value of the original share goes down and the intrinsic value of the original and the bonus share remains the same. Therefore, there is no transfer of any property. In any event, there was no allegation of intention to evade taxes, which is the object of the provision. For these reasons, section 56(2)(vii)(c) was not applicable.

PCIT v. Dr. Ranjan Pai (2021) 197 DTR 314/ 318 CTR 603 431 ITR 250 (Karn) (HC)

  1. S. 57 : Income from other sources – Deductions – AO is not justified in disallowing claim for deduction u/s 57(iii) for interest paid when Assessee given names of lenders, loans were availed through banking channels and interest paid was allowed as deduction from year to year – Matter remanded to AO.[S.57(iii)]

Allowing the appeal, the High Court observed that:

  1. Since loans were availed through proper banking channels and interest amounts were paid to lenders who had disclosed same in their respective tax returns and tax was remitted by them on such interest income; and

  2. It may be true that the earlier assessments stood concluded upon intimation being issued under section 143(1) of the Act and in none of the years, there was an assessment u/s 143(3), however, the assessments for the previous years had not been disturbed by the Revenue (either u/s 143(3) or reopening u/s 148). Therefore, the assessments could not have been brushed aside and an attempt ought to have been made to examine the genuineness of the stand. Hence, impugned disallowance was unjustified and matter was to be remanded. [TCA No.744 of 2019, dt. 05-10-2020] (AY. 2011-12)

Rajendra Kumar Jain v. ITO (2020) 120 taxmann.com 293 / (2021) 277 Taxman 236 (Mad) (HC)

  1. S. 68: Cash credits – Opening stock accepted in scrutiny – Sales made from opening stock cannot be treated as bogus. [S. 56, 133]

A survey was conducted in the premises of the assessee. The AO held that it was a case of money laundering and a false impression had been created that the entire cash deposits in the bank account of the Assessee were purported sale proceeds. The AO also held that the entire cash deposits found in the bank account of the Assessee were, in fact unexplained income and not sale proceeds. It was held that the quantum figure and the opening stock which stood accepted in the earlier years had to be taken as actual stock available with the Assessee. In view of these facts, the sales made by the Assessee out of its opening stock cannot not treated as unexplained income, to be taxed as income from other sources.

Akshit Kumar (2021) 197 DTR 121 /318 CTR 26 / 277 Taxman 423 (Delhi) (HC)

  1. S. 80IB : Industrial undertakings – Failure to provide details of number of workmen working in each units in form No. 10CCB – Denial of exemption is held to be not valid. [Form no. 10CCB]

Assessing Officer denied assessee deduction under section 80-IB, because, assessee in Form No. 10CCB failed to provide details of number of workmen working in each of Units of assessee. Tribunal held that omission on part of assessee whilst filling in Form 10CCB, was not such an omission which was not rectifiable and Assessing Officer should have granted assessee an opportunity for rectifying this omission. On appeal by the revenue the Court held that since assessee, prior to assessment, produced material before Assessing Officer which evidenced that each of Units of assessee employed more than 10 workers, there was material before Assessing Officer to conclude that assessee fulfilled conditions required for claiming deduction under section 80IB. (AY. 2006-07, 2007-08)

CIT v. Borkar Packaging (P.) Ltd. (2021) 276 Taxman 131 (Bom.)(HC)

  1. S. 80IC : Special category states – Consumption of electricity – Mismatch of production – Denial of exemption is held to be not justifies.

Assessing Officer, on basis of consumption of electricity in various Units of assessee, concluded that profits of newly established Unit N was unreasonably high and he denied assessee deduction under section 80IC by observing that consumption of electricity was increased only by 1497 per cent, but sales had increased by 7102 per cent. Commissioner (Appeals) as well as Tribunal held that alleged mismatch between production and profits at various Units as determined by consumption of electricity at such units could not be sole ground for denial of exemption. On appeal by the revenue High Court affirmed the order of the Tribunal. (AY. 2006-07, 2007-08)

CIT v. Borkar Packaging (P.) Ltd. (2021) 276 Taxman 131 (Bom.)(HC)

  1. S. 92C : Transfer pricing – Arm’s length price – Rejection of comparables is a finding of fact [S.92B]

Where certain companies were rejected as comparables by the Tribunal on the ground that segmental information was not available and that the comparables were majorly involved in related party transactions, such findings of the Tribunal were findings of fact and no question of law arises from the same. (AY. 2011-12, 2012-13)

Microsoft India (R&D) Pvt. Ltd. v. DCIT (2021) 197 DTR 409 / 318 CTR 654 / 431 ITR 483 (Delhi) (HC)

  1. S. 132B : Application of seized or requisitioned assets – High court could not direct release of gold in favour of the alleged owner when appeal before the CIT(A) was pending. [Art.226]

The Petitioner claimed that it was the owner of certain quantity of gold which was seized from the job worker to whom the gold was given to convert into jewellery and in whose hands the same was added as undisclosed income as he could not explain the source thereof. The order of assessment in the case of the job worker was pending before the CIT(A). The HC held that as the ownership over the gold had not been finalized and the appeal in the case of the job worker was pending before the CIT(A), it could not direct the release of the gold in favour of the Petitioner. (AY. 2017-18)

New Lakshmi Jewellers v. PCIT (2021) 318 CTR 713 / 431 ITR 570 (Bom) (HC)

  1. S. 143(3): Assessment – Cash credits – Unexplained money – Estimation of profit – Estimation of profit at 2 Per cent of total credits held to be justified [S. 68, 69]

Dismissing the appeal of the revenue the Court held that the Tribunal was justified in restricting the addition made by the Assessing Officer under section 68 to 2 per cent of the total credits. The Tribunal had found that the computation of profit at the rate of 8 per cent of the turnover was without any basis or materials on record. The order of the Tribunal is affirmed. (AY.2003-04)

PCIT v. Shitalben Saurabh Vora (2021)430 ITR 253 (Guj)(HC)

  1. S. 144C : Reference to dispute resolution panel – Where the matter was remanded by the ITAT for de novo assessment, the entire procedure under 144C had to be followed. [S.254 (1)]

Where the matter was remanded to the AO for passing an order of assessment de novo, the entire procedure prescribed under section 144C had to be followed by the AO starting from passing a draft assessment order. Since the AO had straightaway passed the final assessment order, the proceedings were null and void. Not following the prescribed procedure is not a technical or a procedural defect, which can be cured. (AY. 2007-08)

PCIT v. Headstrong Services India Pvt. Ltd. (2021) 197 DTR 329 /318 CTR 369 (Delhi) (HC)

  1. S. 147 : Reassessment – After the expiry of four years – No failure to disclose any tangible material – Reassessment is held to be bad in law. [S. 40(b)(ia), 148]

A notice under section 148 was challenged by the assessee. The reasons recorded stated that the assessee was a partner in the firm named M/s Vijya Laxmi Exports where an audit objection was raised as the deed of the partnership firm provided a clause to provide for interest and remuneration as per section 40(b) but no provision was made by the firm. High Court quashed the reopening proceedings which were beyond a period of four years as there was no failure to disclose any tangible material and there was no escapement of income. There was no material on record to show that assessee actually received any interest on capital or remuneration from the firm and where no such income is earned, there was no question of taxing the same. (SCA No. 20607 of 2018 dt. 7-01-2021) (AY.2011-12)

Devebhai Mafatlal Patel v. ACIT (2021) 318 CTR 722 / 110 CCH 53 (Guj.)(HC)

  1. S. 147 : Reassessment – Within four years – HC directed AO to re-look at the matter in light of the declaratory and curative amendment in 40(a)(ia) being retrospective from 1-4-2005 [S. 40(a)(ia), 148, 194C, Art 226]

A notice under section 148 was challenged by the assessee. The reasons recorded stated that the assessee had not disclosed freight receipts from exporters and net freight paid to La Freightlift Pvt Ltd fell within section 194C as payment to sub-contractor and assessee failed to deduct tax in the year under consideration. Disallowance of the entire amount was made under section 40(a)(ia) of the Act. Assessee explained the AO that the freight rates from exporters were actual payment received on behalf of La Freightlift Pvt Ltd who has paid the tax amount but since the AO did not accept the explanation a writ was filed. HC directed the AO to re-look at the matter in light of the amendment to section 40(a)(ia) being declaratory and curative in nature would have retrospective effect from 1-4-2005. (WP Nos. 19565 of 2008 dt. 6-01-2021) (AY.2005-06)

Sima Agencies v. ITO (2021) 318 CTR 516 / 198 DTR 33 / 110 CCH 52 (Mad.)(HC)

  1. S. 147: Reassessment – Principal officer – Director for short period – Assessee cannot be held to be Principal Officer – Notice was set aside. [S. 2(35), Art 226]

Allowing the petition the Court held that here being acting directors of company, department could have proceeded against any one of such acting directors for reassessment proceedings and could have treated any one of them as Principal Officer. Accordingly since effective proceedings would not be possible with petitioner as Principal Officer impugned order treating petitioner as a Principal Officer was to be set aside. (AY. 2011-12)

Suvendra Kumar Panda v. ITO (2021) 276 Taxman 171 (Mad.)(HC)

  1. S. 153A : Assessment – Search – Assessment on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act) is not valid. The Assessee also had no opportunity to cross-examine the said witness [S. 132, 153C]

A statement recorded u/s 132(4) has evidentiary value but cannot justify the additions in the absence of corroborative material. (ii) The statement also cannot, on a standalone basis, constitute ‘incriminating material’ so as to empower the AO to frame a block assessment u/s 153A (iii) If the statement was recorded in the course of search conducted in the case of a third party, and assuming the statement is construed as ‘incriminating material belonging to or pertaining to a person other than person searched’, the only legal recourse available to the department is to proceed in terms of S. 153C of the Act by handing over the same to the AO who has jurisdiction over such person. An assessment framed u/s 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act) is not valid. The Assessee also had no opportunity to cross-examine the said witness (ITA NO. 23/2021 & CM APPL. 5385/2021 DT.. 12.02.2021)

Pcit(C)-3 v. Anand Kumar Jain (Huf) (Delhi)(HC), www.itatonline.org

  1. S. 153A : Assessment – Search or requisition – Objections raised by the Assessee – rejected with reasons – No violation of Principles of Natural Justice. [Art. 226]

The petitioner’s late father, Mr. K. Murugesan, was a partner in various firms. During the life time of K. Murugesan, the respondent- Department, on 10.08.2017, conducted search under section 132 of Income-tax Act, 1961, in all the concerns run by him. According to the petitioner, the statements obtained from the petitioner’s late father could not be retracted, as he had died, due to the harassment of the Department within three months from the date of the search. It is the case of the petitioner inter alia that the statements recorded by the respondent from him was retracted by him on 22.08.2019. According to the petitioner, the statements obtained from the petitioner’s late father under intimidating circumstances cannot be used against the petitioner for passing any orders against him. Further, the opportunity for cross examination was not afforded to the Petitioner and sufficient opportunity for hearing was also not given. It was held that, the respondent-Department has adhered to the principles of natural justice by providing a fair hearing and by giving the petitioner sufficient opportunity to raise all the contentions and the respondent has also given reasons for rejecting the objections raised by the petitioner under the impugned assessment orders.

M. Vivek (2021) 197 DTR 12 / 318 CTR 270 (Mad) (HC)

  1. S. 153C: Assessment – Income of any other person – Search The materials seized did not indicate any inflation of purchase expenses – Assessment is held to be bad in law. [S.12AA, 132]

The Assessee was a medical charitable trust registered under section 12AA, running a multi-specialty hospital. A search action was conducted in case of third party who was a supplier of medical, surgical equipment and other accessories to hospital. On the basis of certain documents seized during search, AO concluded that assessee had siphoned off funds through said third party, allegedly resorting to huge inflation of expenses. Accordingly, a notice under section 153C was issued against assessee. Being aggrieved by the additions made by the AO, the Assessee made an appeal before the CIT(A), who allowed the appeals filed by the Assessee. The Tribunal found that materials seized did not establish any co-relation, document wise, with the four Assessment Years under consideration and therefore did not indicate any inflation of purchase expenses by assessee trust. The Tribunal further noted that the third party had approached the Settlement Commission and submitted an application wherein Commissioner stated that there was no supporting evidence of returning cash withdrawn by the third party to the hospital.

Relying on the decision of Hon’ble Supreme Court in the case of CIT v. Sinhagad Technical Education Society (84 Taxmann.com 240) , the Hon’ble Madras High Court held that ,in absence of any incriminating documents or evidence discovered against assessee, during its search upon the third Party, jurisdiction under provisions of section 153C could not be assumed against assessee. Accordingly, the appeals filed by the Revenue were dismissed. (TCAl No.161 to 167 of 2020, dt.24-11-2020) (AY. 2009-10 to 2015-16)

PCIT v. S.R.Trust (2021) 123 taxmann.com 311 / 277 Taxmann.com 133 (Mad)(HC)

  1. S. 160 : Representative assessee – Association of persons – Corpus donation – Trustees of discretionary trust not assessable as association of persons – Description in returns not relevant. [S. 2(24)(xv), 2(31)(v), 56(2)(vii) 161]

The assessee-trust received donations from six of its group companies amounting to Rs. 25 crores which were credited to the balance-sheet of the assessee under the head addition to corpus and not routed through the profit and loss account. It filed its return in the status of an association of persons. The Assessing Officer treated the sum of Rs. 25 crores credited directly to the balance sheet as income from other sources and taxed the said receipt which was up held by the CIT(A). On appeal the the Tribunal held that a discretionary trust could not be treated as an individual for all purposes of the Act especially when the term individual was not defined under the Act. It held that the amount Rs. 25 crores received by the assessee could not be considered as income from other sources under section 56(2)(vii) read with section 2(24)(xv) of the Act and accordingly, deleted the addition.

On appeal by the Department the Court held that the settlor had created a trust and appointed trustees, to administer the trust for the benefit of certain identified beneficiaries who were top level executives of the S group of companies and who were admittedly individuals. Those individuals had not come together with a common purpose and they did not have any role in the operation or administration of the trust. Therefore, the assessee could not be treated as an association of persons. The Court also held that the trustees were only the representatives of the beneficiaries and the income was required to be taxed in the like manner and to the same extent as it would be in respect of beneficiaries. All the beneficiaries were individuals and therefore, the assessee in the instant case, having received the perquisite on behalf of its beneficiaries, should be treated as a representative of those beneficiaries and therefore, had to be assessed as an individual. Court also held that Consequently, the contribution of Rs. 25 crores was to be assessed as income under section 56(1) under the head Income from other sources the donation was received by discretionary trust and not relative of individual. (AY.2014-15)

CIT v. Shriram Ownership Trust (2021) 430 ITR 356 /197 DTR 153/ 318 CTR 233 (Mad)(HC)

  1. S. 194A : Deduction at source – Interest other than interest on securities – No liability to deduct tax based on the specific exclusion provided to the assessee under section 194A(3)(v) – Provisions would not apply [S. 40(a)(ia), 194A(3)(i)(b), 194A(3)(v)]

AO disallowed interest paid to various members of the society where interest exceeded 10,000 under section 40(a)(ia) and relied on the provisions of section 194A(3)(i)(b). The CIT(A) relied on provisions of section 194A(3)(v) and held that provisions of section 194A(1) did not apply to income credited or paid by a co- operative society to its members. High Court upheld the Tribunal and CIT(A) order relying on the Finance Act 2015, where clause (v) of section 194A(3) was amended to exclude co- operative banks w.e.f 1-6-2015 which indicates that prior to the said date benefit of exemption was available to co-operative banks. (ITA No. 14 of 2017 dt. 7-01-2021) (AY.2013-14 & 2014-15)

PCIT v. The Goa State Co-operative Bank Ltd (2021) 318 CTR 497 / 197 DTR 305 / 110 CCH 54 (Bom.) (HC)

  1. S. 194H : Deduction at source – Commission or brokerage Nationalized Bank – Service charges paid for routing transactions to National Financial Switch and Cash Tree – Not be liable to deduct tax at source. [S. 40(a)(ia)]

The Assessee, a Nationalized bank had filed original return of income which was revised subsequently. The Assessee’s case was selected for scrutiny and AO had made various disallowances including the disallowance under section 40a(ia) of the Act in respect of service charges paid to National Financial Switch and Cash Tree. Aggrieved by the said order, the Assessee preferred an appeal before the CIT(A) who partly allowed the appeal. Aggrieved by the same, the Revenue filed an appeal before the Tribunal. However, the Tribunal dismissed the appeal filed by the Revenue. On appeal to the High court, it held that section 194H would apply if the payment was received or is receivable directly or indirectly by a person acting on behalf of another person for services rendered, not being professional and for any services in the course of buying and selling of goods or in relation to any transaction relating to an asset, valuable article or thing. The relationship between the Assessee and the acquiring bank in case of credit card swiping transaction is not of an agency but that of two independent basis and on principal-principal basis. In the present case, even assuming that the transaction was being routed to National Financial Switch and Cash Tree, then also it is pertinent to mention here that the same is a consortium of banks and no commission or brokerage is paid to it. Thus, it does not act as an agent for collecting charges. Therefore, relying on Hon’ble Delhi High Court decision in case of JDS Apparels (P.) Ltd. (2015) 370 ITR 454 (Delhi)(HC) held that provisions of section 194H of the Act were not attracted in the present case and thus dismissed the Revenue’s appeal. (ITA No. 427 of 2015, dt. 23-11-2020) (AY 2011-12)

CIT.v. Corporation Bank (2021) 123 taxmann.com 204/ 277 Taxmann.com 207 (Kan) (HC)

  1. S. 249: Appeal – Commissioner (Appeals) – Form of appeal and limitation – Appeal could not be dismissed on a technical ground of not filing the same electronically

Right to appeal is a substantive right. An appeal should not be rejected on technical grounds. Where the law had been amended in 2016 requiring the assessees to e-file its appeals before the CIT(A) but the assessee filed a manual appeal, however, in the same year e-filing of the same appeal was done along with an application for condonation of delay, CIT(A) ought to have admitted and decided the appeal on merits and not dismissed the same on a technical ground. (AY. 2008-09, 2009-10 and 2013-14)

CIT v. A.A. Antony (2021) 197 DTR 425 / 318 CTR 691 / 431 ITR 207 / 125 taxmann.com 170 (Mad) (HC)

  1. S. 251 : Appeal – Commissioner (Appeals) – Powers – Doctrine of merger – CIT(A) dismissed appeal as being infructuous basis notice issued u/s 263 by CIT on grounds unrelated to that before CIT(A) – CIT(A) ought to have adjudicated appeal on merits hence matter remanded back to CIT(A).[S.263]

Held by the Court that taking into account the fact that appeal is maintainable in respect of the subject matter, which does not pertain to grounds covered in notice under section 263 of the Act, the CIT(A) ought to have adjudicated the appeal on merits and in respect of the grounds, which were not the subject matter of notice under section 263 of the Act. Matter remanded back to CIT(A). (ITA No. 102 of 2012 dt. 21-09-2020) (AY. 2004-05)

Karnataka State Beverages Corporation Ltd. v. ACIT (2020) 121 taxmann.com 89 / (2021) 277 Taxman 58 (Karn) (HC)

  1. S. 254(1) : Appellate Tribunal – Duties – Document not filed due to mistake of counsel – Dismissal of appeal – Not justified.

Allowing the appeal the Court held that, it is trite law that for the fault committed by counsel, a party should not be penalized. Accordingly, that due to inadvertence, the senior chartered accountant engaged by the assessee could not comply with the directions of the Tribunal to file documents. The Tribunal, in fact, should have adjudicated the matter on the merits instead of summarily dismissing it. The order of dismissal was not valid.(AY.2016-17)

Swetha Realmart LLP v. Dy CIT (2021) 430 ITR 159 (Karn)(HC)

  1. S. 254(1) : Appellate Tribunal – Duties – Adducing additional evidence – assessee filed additional evidence – Tribunal passed order without dealing with application to file additional evidence – order set aside – matter remanded – Tribunal directed to first dispose the application for additional evidence and then pass order on merits for the appeal. [ITAT R. 29]

The appellant had filed an application for admission of additional evidence in terms of rule 29 of the Income-Tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as the ‘ITAT Rules’) on 14th January 2019. On 17th January 2019, the Tribunal concluded its hearing in the said appeal. Thereafter, on 22nd January 2019, the appellant filed its synopsis/written submissions. On 28th February 2019, the Tribunal passed the impugned order without dealing with the application filed by the appellant for admission of additional evidence under Rule 29. After the impugned order had been passed by the Tribunal, the appellant preferred an application for rectification dated 8th May 2019 under section 254(2). However, till date no order has been pronounced by the Tribunal on the application filed. The High Court in the view of the case of Jyotsna Suri [2003] 128 Taxman 33 held that the Tribunal was bound to decide the application under Rule 29 and thereafter to dispose of the appeal on merits. (ITA No. 211 of 2020, CM APPL No.32045-32047 of 2020, dt. 22-12-2020)

HL Malhotra & Co. (P.) Ltd. v. DCIT (2021) 125 taxmann.com 70 / 431 ITR 148 (Delhi)(HC)

  1. S. 254(2): Appellate Tribunal – Rectification of mistake apparent from the record – Ex Parte order – Limitation – Notice was not served though change of address was intimated – Rejection of application for recall of order on ground of bar of limitation – Order quashed and set aside – Matter remanded to Tribunal.[S.253, 254(1), Art. 226]

The assessee filed an application under section 254(2) of the Act, for recall of the ex parte order remanding the matter to the Assessing Officer to decide the matter afresh after examining all the documents, including additional evidence as well as books of account, bills and vouchers, etc. The Tribunal held that it had no power to condone the delay in filing the application under section 254(2) as the assessee had filed the application after six months from the end of the month in which the ex parte order had been passed. On a writ petition contending that the assessee had changed its address and shifted to new premises and this fact was mentioned in the appeal filed by the assessee in form 35 against the order passed by the Dy Commissioner and the assessee was never served in the appeal filed by the Department before the Tribunal. On writ allowing the petition, that the course adopted by the Tribunal at the first instance, by dismissing the appeal for non- prosecution, and then refusing to entertain the application The assessee was never served in the appeal filed by the Department before the Tribunal. The Tribunal had erroneously concluded that the miscellaneous application filed by the assessee was barred by limitation under section 254(2) inasmuch as the assessee had filed the application within six months of actual receipt of the order. If the assessee had no notice and no knowledge of the order passed by the Tribunal, the limitation period would not start from the date the order was pronounced by the Tribunal. The order dismissing the application filed by the assessee under section 254(2) was quashed and on the facts the ex- parte order whereby the matter was remanded to the Assessing Officer was set aside. The Tribunal was directed to hear and dispose of the appeal on the merits.

Pacific Projects Ltd. v. ACIT (2021) 430 ITR 522 (Delhi)(HC)

  1. S. 260A : Appeal – High Court – Substantial question of law – Additional questions cannot be raised by respondent.[S.144A, 260A (4)]

Court held that the power of the High Court to frame a substantial question of law at the time of hearing of the appeal other than the questions on which the appeal has been admitted remains under section 260A(4) and this power is subject however to two conditions, namely, (i) the court must be satisfied that the appeal involves such questions ; and (ii) the court has to record reasons therefor. There is a vast difference in cases where a reference is made to the High Court by the Tribunal on an application and an appeal under section 260A of the Act by an aggrieved person. Unless and until the aggrieved person is before the court by way of an appeal, the question of calling upon the court to frame an additional substantial question of law by invoking its power under sub-section (4) of section 260A of the Act does not arise. Accordingly the Court held that the assessee was precluded from raising any contention with regard to the jurisdiction of the Joint Commissioner to issue direction under section 144A of the Act nor anything about the procedure followed by the Assessing Officer pursuant to such direction. The underlying principle was that the Department could not be worse off in its appeal at the instance of the assessee who had not filed an appeal over such finding of the Tribunal. (AY.2014-15)

CIT v. Shriram Ownership Trust (2021) 430 ITR 356/197 DTR 153/ 318 CTR 233 (Mad)(HC)

  1. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Capital gains not chargeable – Investment in Bonds (2015 Amendment) – Amendment to S 54EC from 1-4-2015 restricting investment in assets from sale consideration on sale of original asset to Rs. 50 lakhs prospective nature – Revision is held to be bad in law. [S.45, 54EC]

Assessee, an individual, derived income from Capital Gains and other sources. Assessees case was selected for scrutiny and notice under S143(2) of the Act was issued. AO concluded the assessment and accepted the income declared. CIT invoking the powers under S 263 of the Act held that the Assessee is eligible for deduction under S 54EC of the Act to the extent of Rs. 50 lakhs whereas he has claimed deduction to the extent of Rs. 1 crore, which is in excess of the limit prescribed under the proviso to section 54EC of the Act and concluded that the Order passed by the AO is erroneous and prejudicial to the interest of the revenue, set aside the order of the AO and remitted back the matter to the AO.

On appeal, Tribunal held that the legislature itself has accepted the ambiguity in language of the proviso and has amended the law with prospective effect. It was further held that for prior Assessment Years on interpretation of the provisions, it was possible for the Assessee to claim deduction of Rs. 1 crore by investing Rs. 50 lakhs in each of the Financial Years but within six months from the date of transfer. Thus, it was held that the view taken by the AO was one of the possible views and therefore, the power under S 263 of the Act in the fact situation could not have been exercised by the CIT. The Tribunal quashed the order of the CIT.

On Departments appeal, High Court held that from close scrutiny of S 263 of the Act, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under S 263 of the Act. Considering SC decision in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), it was held that the order of the AO cannot be treated as prejudicial to the interest of revenue. High Court further held that it is axiomatic that the view taken by the AO was one of the possible views and ruled in favour of the assessee. (ITA No. 343 of 2015 dt. 19-11-2020) (AY. 2009-10)

CIT v. Neena Krishna Menon (2021) 123 taxmann.com 205 / 277 Taxman 211 (Karn) (HC)

  1. S. 271(1)(c) : Penalty – Concealment – Notice must specify whether there has been concealment of income or furnishing of inaccurate particulars of income – Levy of penalty is held to be not valid. [S.274]

Allowing the appeal the Court held that the notice did not specifically mention as to whether the assessee had concealed particulars of his income or furnished inaccurate particulars or both hence levy of penalty is held to be not valid . Followed CIT v. S. I. Paripushpam (2001) 249 ITR 550 (Mad) (HC) ( AY.2013-14)

Babuji Jacob v. ITO (2021) 430 ITR 259 (Mad)(HC)

  1. S. 277 : Offences and prosecutions – False statement – Verification – Only the concerned AO can file a complaint against the accused unless some strong incriminating material is found in the course of search/survey on a third party [S. 276C]

Ordinarily, it is only the concerned AO who completes the assessment/reassessment, who is competent to file a complaint and proceed under section 276C and 277 for willful evasion of tax or filing false verification. The Deputy Director, who had carried out search/survey in the case of a third party and wherein statements were recorded which loosely pertain to the accused, could not initiate the proceedings against the accused only on the basis of such statements, without any further incriminating material being seized which pertains to the accused.

DDIT v. Karti P. Chidambaram & Anr. (2021) 197 DTR 33 / 318 CTR 113 431 ITR 261/ 122 taxmann.com 146 (Mad) (HC)

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