Neelam Jadhav, Advocate

1. S.10(38): Capital gains deduction – Income arising from transfer of long-term securities – provided all details of purchase and sales of shares along with contract notes, demat account, and bank statement. No incriminating materials were found. Could not deny a claim u/s. 10(38).

A survey was conducted at the business premises of the assessee’s group companies, from the report of Investigation Wing, in which the assessee was on the list of beneficiaries who had allegedly taken accommodation entries from Kolkata-based companies. The Assessee filed a revised return wherein exemption claimed u/s.10(38) was withdrawn and the entire income was offered for tax as income from other sources. The assessee claimed that the revised return was filed under pressure during the survey and the claim was made u/s. 10(38) in the original return was valid. The Assessing Officer denied said claim and treated same as bogus on the ground that receipts constituted accommodation entries taken by the assesse. The Tribunal allowed the claim of the assessee by holding that no incriminating material was found during the survey and statements relied upon were recorded much before the date of a survey conducted at the premises of the assessee. The High Court held that all details of purchase and sales were placed before the Assessing Officer along with contract notes for purchase and sale, demat account, and bank statement. Furthermore, no incriminating material was found. AO is not justified in denying the claim. Pr. CIT Dipansu Mohapatra [2023] 293 Taxman 173 (Orissa)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court, that AO could not deny the claim under section 10(38) merely by relying on statements of accommodation entry providers which were recorded much before the date of survey.

Pr. CIT v. Dipansu Mohapatra SLP (CIVIL) Diary No(S). 5854 of 2024 dt.01/03/2024 (SC)

2. S.36 (1)(viii): Computed deduction by considering 62 percent of total interest receipt on housing loan as interest on long-term housing loan, the method of said computation was accepted and upheld in an earlier year, such computation could not be recalculated by AO considering total receipt of business.

Assessee Company during the year claimed deduction u/s. 36(1)(viii) considering 62 percent of total interest on housing loans as interest on long-term housing loans, as the assessee is engaged in the business of retail lending as well as long-term finance for the construction of homes. The Assessing Officer changed the ratio from 62 percent to 55 percent and he considered total receipt of business. However, the Tribunal deleted the disallowance made by the Assessing Officer holding that, the methodology has been adopted by the assessee consistently for the last eight years and the same was accepted by Revenue without any objection.

The department is in appeal before the High Court. The High Court held that the CIT(A) in the assessee’s case for assessment years 1998- 99 to 2009-10 had upheld deduction u/s. 36(1) (viii) claimed and no appeal had been filed by revenue challenging said order. Pr. CIT v. Ms. PNB Housing Finance Ltd., ITA No. 308 of 2022, dt.07/09/2022 (Delhi)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court stating that there was a huge delay of 350 days in filing this SLP, and reasons seeking condonation of delay were not explained to satisfaction of this Court. The delay could not be condoned and the matter could not interfere on merits and, therefore, SLP dismissed.

Pr. CIT v. PNB Housing Finance Ltd. SLP (Civil) Diary No(S). 48358 of 2023, dtd.14/12/2023 (SC)

3. S.37 (1): Business expenditure – Allowability of Foreign exchange fluctuation – on account of fluctuation in the rate of foreign exchange, liability had not been discharged in the year in which fluctuation occurred.

The assessee entered into derivative contracts to hedge its exchange risk in respect of export proceeds receivable by it in foreign exchange. Forward contracts entered into were not by way of trading per se in foreign exchange derivatives. The Assessing Officer disallowed the notional forex loss on forward contracts. The Tribunal deleted the Notional Forex Loss disallowed by the Assessing Officer. The Department filed an Appeal before the High Court. The High Court observed that the “loss” suffered by the assessee, maintaining accounts regularly on the mercantile system and following accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI), on account of fluctuation in the rate of foreign exchange as on the date of balance sheet was an item of expenditure u/s. 37(1) of the Act, notwithstanding that the liability had not been discharged in the year in which the fluctuation in the rate of foreign exchange occurred. Pr. CIT vs. Emmsons International Ltd. [2024] 460 ITR 715 (Delhi)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court that notional forex loss suffered by the assessee maintaining accounts regularly on the mercantile system and following accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI), on account of fluctuation in the rate of foreign exchange as on date of the balance sheet was an item of expenditure u/s. 37(1) notwithstanding that liability had not been discharged in the year in which fluctuation in the rate of foreign exchange occurred. SLP (CIVIL) DIARY NO(S). 49827 of 2023, dt.03/01/2024.

Pr. CIT v. Emmsons International Ltd. [2024] 460 ITR 718 (SC)

4. S. 260A: High Court Appeals – 4 years and 100 days delay – no adequate or sufficient reasons – delay not condoned.

The Appeal has been filed after a delay of 4 years and 100 days, as per the Appellant/ Revenue [i.e., 1560 days] and 1589 days as per the Registry of the Court. The Application which was filed accompanying the Appeal; C.M. APPL. No. 34737 of 2020 for condonation of delay in filing the Appeal is cryptic. The only reason cited in the Application for the delay is that there was a contrary decision of the Bangalore Bench of ITAT which was in favor of the Appellant/Revenue. The High Court Held that, the law requires that an applicant seeking condonation of delay is required to explain the delay in filing the Appeal. The reasons cited in the Application for condonation completely fail to explain the immense delay of over 4 years and 100 days. Revenue has not been able to give any adequate or sufficient reasons, to explain the delay. Hence the appeal is dismissed.

CIT v. Bharti Airtel Ltd. ITA No. 233 of 2020 and CM APPL. NO. 34737 of 2020, dt.22/03/20223 (Delhi)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court, the explanation did not have any merit in explaining the delay in filing an appeal before the High Court, and neither could it be construed to be a sufficient cause for condoning same.

CIT (International Taxation) v. Bharti Airtel Ltd. SLP (C) NO(S). 1700-1701 of 2024 dt. 06/02/2024 (SC)

5. S.275: Bar of limitation for imposition Penalty – delay of ten years for show cause notice (SCN) u/s. 274 for penalty proceedings – no reasonable explanation, penalty proceeding barred by limitation. (r.w.s. 271C and 274)

The assessment u/s. 143(3) concerning AY 2007-08, was framed on 28-10-2011 four years later. The Assessing Officer, through internal communication to Addl. CIT wrote that a penalty should be imposed for failure to deduct tax at source. A show cause notice (SCN) was issued u/s.274 for initiating penalty proceedings under section 271C. The High Court held that although a limitation period is prescribed u/s.275 (1)(c) for the completion of proceedings, nothing was stated as to when proceedings would commence. However, it could not be left to whims and fancies of revenue and it should be hitched to the dicta of ‘reasonable period’ adopted by Courts in such situations. The delay in issuing impugned SCN was inexcusable as there was no explanation, whatsoever, available on record, as to why such SCN u/s.274 was not issued in 2013-14. There was a period of unexplained substantial delay, the SCN issued was woefully delayed, and hence same was quashed. Clix Capital Services (P.) Ltd. v. Jt. CIT [2023] 459 ITR 470 (Delhi)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court, that no reasonable explanation was furnished for such delay, and penalty proceeding barred by limitation as per provision of section 275(1)(c) and liable to be quashed.

Jt. CIT v. Clix Capital Services (P.) Ltd. SLP (CIVIL) Diary No. 3100 of 2024 (SLP)