1. Consolidated Digest of Case Laws Jan 2010 to Apr 2010[1]

Consolidated Digest of Case Laws (January 2010 to April 2010) http://www.itatonline.org 1

Consolidated Digest of Case Laws (January 2010 to April 2010) Compiled by: Ajay R. Singh, Paras S. Savla, Rahul K. Hakani, Sujeet S. Karkal & Rangesh Banka, Advocates Consolidated by: Shri. Hari Raheja, Advocate Journals Referred: DTR, ITR (Trib), ITD, TTJ, ITR, TAXATION, CTR, TAXMAN, TAXWORLD, BCAS, www.itatonline.org, BCAJ, TAXWORLD, ACAJ & SCC

SUBJECT SECTION ISSUE Name of case Citation Accounts – Accounting Method

145 Assessee developer having regularly employed project completion method which is an accepted method of accounting, and the Central Government having not notified AS-7 u/s. 145(2), AO could not reject the accounts u/s. 145(3) on the ground that the assessee had not followed the percentage completion method.

Prestige Estate Projects (P) Ltd.

(2010) 33 DTR 514 (Bang)

Accounts – Closing Stock

145, 154 Closing stock of earlier year has to be treated as opening stock of current year and therefore where the opening stock of current year shows a lower value than the value of closing stock of earlier year as finally determined by the AO, the same is amenable to rectification u/s. 154.

V.K.J. Builders & Contractors (P) Ltd.

(2010) 228 CTR 143 (SC)

Accounts – Rejection 145 When the assessee contractor carried out contract work in three different ways, when the books of account rejected income is estimated, the assessee is entitled to depreciation, remuneration to partners and interest to partners.

Teja Constructions

(2010) 129 TTJ 57 (Hyd)(UO)

Accounts – Valuation – Government Securities

145, (28(i)

Assessee is entitled to change the method of valuation of government securities to market value from cost and claim depreciation on the difference in the diminution of value.

Karur Vysya Bank Ltd.

(2010) 33 DTR 244 (Mad)

Accrual of income 5 Timeshare membership fee is taxable only over the term of contract.

Mahindra Holidays & Resorts

(ITAT Chennai Special Bench) www.itatonline.org

Actual cost – depreciation – exchange rate fluctuation

43A, 32 Assessee is entitled to adjust the actual cost of the imported capital assets acquired in foreign, currency, on account of fluctuation in the rate of exchange at each of

Oil & Natural Gas Corporation Ltd.

(2010) 36 DTR 345 (SC)

http://www.itatonline.org/



relevant balance sheet dates pending actual payment of varied liability for the assessment years prior to the amendment in s. 43A, w.e.f. 1st April 2003.

Advance Rulings – Binding – Precedent

245S Ruling of Authority for Advance Rulings is binding on the assessee and the assessee cannot agitate on those aspects.

Mustaq Ahmed (2010) 2 ITR 315 (Chennai)

Agricultural Income 2(1A), 10(1)

Seeds or crops produced at first level by assessee would constitute agricultural income as per rule 7(I)(a).

Pioneer Overseas Corporation

(2010) 35 SOT 467 (Delhi)

Agricultural Land – Measurement – Capital Gains

2(14)(iii), 45

Distance of the agricultural land belonging to the assessee within the meaning of S. 2(14)(iii)(b) has to be measured in terms of the approach by road and not by a straight line distance on horizontal plane or as per crow’s flight.

Satinder Pal Singh

(2010) 33 DTR 281 (P&H),

188 Taxman 54(P&H),

229 CTR 82((P&H)

Amount not Deductible – Sub Contractor – Deduction of Tax at Source

40(a)(ia), 194C(2)

Assessee taking vehicles on hire for purpose of executing contract, not a case of sub, contract. Tax need not be deducted at source. Payment allowable.

Mythri Transport Corporation

(2010) 1 ITR 290 (Visakha)(Trib)

Appeal – CIT(A) – Power – Additional Evidence

250(4), Rule 46A

AO should be given opportunity to examine documents produced by assessee. Rule embodies provision of natural justice and it is mandatory, when assessee produced additional evidence first time before the CIT(A).

Shree Kangra Steel Pvt. Ltd.

(2010) 320 ITR 691 (HP)

Appeal – Condonation of Delay

260A In absence of specific provision for condonation of delay in filing appeal u/s. 260A of the Act, High Court has no power to condone the delay in filing appeal before it u/s. 260A of the Act.

Editorial Note: The law is amended now as facilitate condonation of delay.

Shergarh Co-op. L & C Society Ltd.

(2010) 34 DTR 193 (P&H)

Appeal – High Court – Power of Review – (Civil Procedure, 1908 – S. 96, 100, 114 &

260A Power of review has not been conferred on the High Court under the Income Tax Act, the review petition is not

West Coast Paper Mills Ltd.

(2010) 229 CTR 239 (Bom)


Order 47) maintainable. Appeal – High Court – Substantial Question of Law

260A Issue not raised before the lower authorities cannot be permitted to be raised for the first time in appeal u/s. 260A.

Chand Ratan Bagri

(2010) 36 DTR 244 (Del)

Appeal – Maintainability

260A Where a substantial question of law is raised by the revenue in the appeal filed by it before the Tribunal, which would arise in several other assesses case repeatedly, the case would fall within the exception of clause 3 of instruction No. 2 of 2005 dated 24.10.2005 and therefore, the appeal filed by the revenue was maintainable even though the tax effect is below the threshold limit prescribed by the C.B.D.T.

CIT vs. Madhukar K. Inamdar (HUF) (2009) 27 DTR (Bom.) 132 – Dissented from.

John L. Chackola

(2010) 36 DTR 239 (Ker)

Appeal – Maintainability – CIT(A)

246A Appeal lies before the Commissioner of Income-tax (Appeals) u/s. 246A of the Act, against the order passed by the AO in pursuant to the order passed / direction given by the Commissioner of Income-tax u/s. 263 of the Act.

Azhimala Beach Resorts (P) Ltd.

(2010) 35 DTR 238 (Ker)

Appeal to High court - question of law

260A A pure question of law can be allowed to be raised by amendment to the appeal memo if the facts on which Tribunal has given its decision are not disputed.

Jindal Equipments and Leasing & Consultancy Services Ltd.

(2010) 37 DTR 172 (Del)

Appeal Tribunal – maintainability – non-payment of admitted tax

253(1)(b), 249(4)

The provisions of s. 249(4)(a) cannot be read in to s. 253(1)(b), and in the absence disenabling provision in s. 253(1)(b) appeal was maintainable despite non-payment of full of admitted tax.

Pawan Kumar Laddha

(2010) 38 DTR 3 (SC)

Appellate Tribunal - Additional ground

254(1) Any party can raise an additional ground before the Tribunal for the first time, provided the necessary material for the adjudication of the additional ground is available on record.

Scientific Atlanta Inc.

(2010) 37 DTR 98 (Mum)(Trib)

Appellate Tribunal – 254(1), Appellant can raise an M.M. Textiles (2010) 122 ITD 435


Additional Grounds Rule 11 additional legal ground for first time before Tribunal by obtaining leave of Tribunal and affected party must be given an opportunity of being heard.

(Mum)

Appellate Tribunal – Additional Grounds

254(1), Rule 11

Assessee’s prayer for admission, of additional ground cannot be rejected on the hypertechnical ground that the specific space provided to mention the actual additional ground on page 2 of the petition was left blank by oversight.

Everwin Export Corporation

(2010) 128 TTJ 19 (Chennai)(TM),

(2010) 34 DTR 256 (Chennai)(TM)(Trib)

Appellate Tribunal – Duty of Tribunal – Reasoned order

254(1) It is obligatory on the part of Tribunal to pass reasoned order and adjudicate the list on merits, by ascribing cogent and germane reasons after dealing with the factual issue in detail.

Rajesh Maheshwari

(2010) 36 DTR 43 (MP)

Appellate Tribunal – Orders

254 As the Tribunal is final fact-finding authority, the Tribunal should deal with the issues both on facts and law, with reference to submissions urged and then write its own reasoning. The Tribunal is not justified in quoting the findings of the CIT(A) and simply upholding the same.

K.D. Wires Pvt. Ltd.

(2010) 187 Taxman 257 (MP)

Appellate Tribunal – Power

254 The Tribunal has no power to put restriction on AO to determine income, either at figure higher than that determined by AO u/s. 144 or at figure lower than that declared by assessee in original return.

H.P. State Forest Corporation Ltd.

(2010) 320 ITR 54 (HP)

Appellate Tribunal – Power – Search and Seizure

254(1), 132(1)

Tribunal has no power to examine validity of search in an appeal against block assessment i.e. validity of search warrant.

Chika Vyankatesh Sidram

(2010) 1 ITR 369 (Pune),

(2010) 122 ITD 293 (Pune)

Appellate Tribunal – Power – Stay

254(2A) Income Tax Appellate Tribunal should dispose off stay granted appeals with in time limit prescribed u/s. 254(2A) i.e., not beyond 365 days from the stay order.

Jethmal Faujimal Soni

(2010)38 DTR (Bom) 174

Appellate Tribunal – 254(2) Tribunal can stay the Pancard Clubs Stay No. 235/2009 dt. 18-


Power – Stay – Proceedings Before AO

proceedings before the AO in exercise of its inherent powers as well as in view of the proviso to s. 254(2A). The Tribunal disposed the stay application by directing the AO to pass the assessment order by 31-12-2009 in accordance with the law but not to serve on the assessee, and thus not to give effect to the same for a period of a six months from the date of passing of its order or till date of passing of the appellate order, whichever is earlier.

Ltd. 12-2009 Bench C (BCAJ March, 2010 14. 642 (2010) 41–BCAJ)

Appellate Tribunal – Powers – Direction to Give Credit of Tax Paid in Subsequent Year

254(1) Capital Gains being assessable in asst year 2002-03 direction is given to the AO to give credit for the tax already paid by the assessee on this very income in the later years as such direction is necessary for disposal of the appeal.

Standard Fire Works (P) Ltd.

(2010) 34 DTR 270 (Chennai)(TM)

Appellate Tribunal – Precedent

254, The appellate Tribunal need not blindly follow earlier decision if it did not reflect the correct position of law.

HI Tech Arai Ltd. (2010) 321 ITR 477 (Mad)

Appellate Tribunal – Precedent – binding nature of order of another bench – Judicial Discipline

254, ART. 226

One bench cannot differ from the view of another co-ordinate Bench. Judicial discipline requires reference to larger bench in case of difference in views between benches on identical facts.

Mercedes Benz India Pvt. Ltd.

(2010) 252 E.L.T. 168 (Bom)

Appellate Tribunal – Precedent - Principle of consistency

254(1) Principle of consistency qua judicial forums is not unexceptionable, if the subsequent Bench finds it difficult to follow the earlier view due to any convincing reasons, the earlier view cannot be thrust upon it, when a matter is referred to larger Bench, the appeal needs to be decided on merits rather than following the earlier view taken by the Tribunal in assessee’s own case.

The Maharashtra State Co-operative Bank Ltd.

(2010) 129 TTJ 521 (Mum)(SB)

(2010) 37 DTR 194 (Mum)(SB)(Trib)

Appellate Tribunal – Rectification

254(2) Where the Tribunal after Earnest Exports Ltd.

(2010) 36 DTR 274 (Bom)


specifically dealing with the decisions cited by the assessee and distinguished the same dismissed the assessee appeal. Thereafter, the Tribunal while dealing with the rectification application was held to be not justified in reapreciating the correctness of the same decisions once again and allowing the assessee appeal. The High Court observed that s. 254(2) is not a carteblanche for the Tribunal to change its own view by substituting a view which has been taken by it earlier.

Appellate Tribunal – Rectification of Mistakes

254(2) When first Miscellaneous Application is rejected, second Miscellaneous Application is not maintainable.

Hexa Securities & Finance Co. Ltd.

(2010) 127 TTJ 510 (Delhi)

Appellate Tribunal – Rectification of Mistakes – Order Pronounced

254, 254(2)

Order pronounced by the Tribunal at the conclusion of hearing though not passed in writing, constituted an order of the Tribunal which could be rectified, however, order is not be recalled for the reasons that the judicial member has kept the matter pending with him after the order was pronounced and expressed his opinion to reopen the case after three months.

V. Meenakshi (Smt.)

(2010) 36 DTR 42 (Chennai)(TM)

Appellate Tribunal – Rectification of Mistakes – Second Miscellaneous Application

254(2) Tribunal having taken a conscious decision in the order passed on the first Miscellaneous Application that its conclusion in the original order was not based on erroneous facts /and or misappreciation of facts on record that no legal contention going to the root of the matter remained to be considered, second Miscellaneous Application is not maintainable

Kailashnath Malhotra

(2010) 36 DTR 1 (Mum)(TM)


on the same set of facts. Appellate Tribunal – Resjudicata – Precedent

254(1) Non applicability of rule of res judicata in to be followed on factual matters repeated from assessment year to assessment year. Chord of consistency can be cut off only if facts are substantially different from earlier asst. years, capable of leading to a different finding. The Tribunal can take different view.

Arvind Fashions Ltd.

(2010) 37 SOT 369 (Ahd)

Appellate Tribunal – Right of Respondent

254(1), 253(4)

Respondent can support the order of CIT(A) by taking any ground, though no cross objection had been filed.

Editorial Note:– See Traice www.itatonline.org.

Cable News Network LP LLLP

(2010) 36 DTR 233 (Del)

(2010) 129 TTJ 177(Del)

Appellate Tribunal Order – Mistake

254(2) A request made at the time of hearing, which has not been dealt with in the order of the Tribunal, constitutes an error in the order. The action of the Tribunal in setting aside the order of CIT(A) and upholding the action of the AO in a case where the CIT(A) has not adjudicated on the specific grounds raised by the assessee and also on the alternate grounds raised, constitutes a mistake apparent on record.

Puja Agencies Pvt. Ltd.

BCAJ P. 17, Vol.41-B, Part 6, March 2010.

Assessment – Accounts – Best Judgment – Estimate of Income – Depreciation

144, 32, 145(3)

Assessee is entitled to depreciation when best judgment assessment is made, and income is estimated.

Shri Ram Jhanwar Lal

(2010) 321 ITR 400 (Raj)

Assessment – Inquiry before Assessment – Time Limit for Audit

142, 153A & 153B

It was held that even though the word ‘Suo moto’ were inserted in the proviso to s. 142(2c) w.e.f. from 1-4-2008 vide CBDT’s Circular No.1 dated 27-3-2008, the AO did not have inherent powers to extend time limit for audit without an application from the assessee.

Bishan Saroop Ram

(2010) 35 SOT 240 (Delhi)

Assessment – Loose Sheets – Unaccounted Loan

143(3) Merely on the basis of document recovered from search bearing no signature of assessee or borrower addition

Anil Kumar Bhatia

(2010) 1 ITR 484 (Delhi)(Trib)


cannot be made. Assessment – Notice 143(2),

292B In the absence of service of notice the AO had no jurisdiction to make assessment.

Cebon India Ltd. (2010) 34 DTR 119 (P&H),

229 CTR 188 (P&H) Assessment - Notice - Jurisdiction

142(1), 143(2), 144

Assessment made by the AO who had no jurisdiction over the assessee, that too without issuing a notice u/s. 143(2) is null and void and is liable to be quashed.

Pravin Balubhai Zala

(2010) 129 TTJ 373 (Mum)

Assessment - Notice - limitation

143(2) Notice u/s. 143(2), though issued within 12 months but served after the expiry of 12 months from the end of the month in which the return was furnished is invalid and the assessment completed on the basis of such notice cannot be sustained.

Servite Sisters Society

(2010) 37 DTR 371 (Ind)(Trib)

Assessment – Notice By Affixture

143(2) Notice served by affixture on last date after office hours is not valid service and assessment framed in pursuance of such notice is not valid, it is immaterial that the assessee appeared in the assessment proceedings.

Vishnu & Co. (P) Ltd.

(2010) 230 CTR 62 (Del)

Assessment – Opportunity of being Heard

143 Where the AO has collected evidence behind the back of assessee and did not disclose the evidence on which he has relied and opportunity to cross examination was not allowed to assessee, the assessment order is against the principles of natural justice and cannot be sustained.

Tourism Finance Corp. of India

(2010)128 TTJ 43 (Del)

Assessment – Partition – HUF

171(1)(9) Assessee having not been assessed as an HUF ever before the assessment year in question, provision of s. 171 could not be invoked to make assessment in the status of HUF.

Tirlochan Singh (2010) 228 CTR 390 (P&H)

Assessment – Power To Issue Directions

144A Directions issued by the Joint Commissioner are binding on the AO. However, before issuing the directions which are prejudicial to the Assessee, an opportunity be allowed to

Viswams (2010) 186 Taxman 25 (Chennai)


Assessee, and also the directions issued cannot be on the lines on which an investigation be conducted.

Assessment – Principle of Consistency – Capital Gains – Business Income – Transaction in shares

143(3) Where a particular position has been accepted by the Department in earlier assessment years, the same should not be deviated from unless there is a change in facts, even though the principle of resjudicata is not applicable.

Gopal Purohit (2010) 188 Taxman 140 (Bom),

228 CTR 582 (Bom)

34 DTR 52 (Bom)

Assessment – Special Audit

142(2A) Directing special audit without affording reasonable opportunity of being heard to assessee is merely an irregularity and not illegality.

Sushila Milk Specialties (P) Ltd.

(2010) 122 ITD 48 (Delhi) (SB)

(2010) 1 ITR 639 (Delhi)(SB)(Trib)

Assessment – Special Audit

142(2A) (i) In view of the judgment of the Supreme Court in case of Sahara India (Firm) vs. CIT [reported in 300 ITR 403] an order passed directing to get accounts audited u/s. 142(2A) without affording any opportunity entails civil consequences and therefore, rule of audi alteram is required to be observed before passing any order u/s. 142(2A).

(ii) In view of the judgment in case of Sahara India (Firm) (supra) it was held that the said rule of audi alteram partem would apply prospectively i.e. from the date of the said judgment of the Supreme Court i.e. 11-4-2004

Rajesh Kumar (2010) 122 ITD 395 (Delhi)

Assessment - valid service of notice

143(2), 282, 292BB

Notice u/s. 143(2), having been served on an employee of the assessee firm and not on any partner of the firm, who was not authorized to accept notices on behalf of the assessee, there was no valid service of notice, the assessment in valid. For the Asst. Year 2003-04, s. 292BB is not applicable though the assessee participated in the assessment proceedings.

Vision Inc. (2010) 37 DTR 263 (Del)(Trib)


Assessment – Validity – Notice by AO having no jurisdiction

142(1) ITO, Pune issued a notice u/s. 142(1) to the assessee calling for a return of income. Assessee explained that he was assessed to tax and return was regularly filed in Wd 3(2), Thane. ITO, Pune however, without considering the assessees reply made an assessment u/s. 144. It was held that order passed by ITO, Pune is null and void as he had no jurisdiction over the assessee. ITO Pune had no jurisdiction even to issue notice u/s. 142(1). Also, assessment completed u/s. 144 without a notice u/s. 143(2) was null and void.

Pravin Balubhai Zala

(2010) 36 DTR 290 (Mum)

Association of Persons – Principle of Consistency

4 Nursing home run by two individuals Authorities accepting for long length of time that it was not an association of persons. No new material or fact found. Held that nursing home cannot be treated as an AOP on same facts.

Narendra Prasad(Dr) & Ors.

(2010) 322 ITR 171 (Patna)

Bad debt - Business expenditure – Bank - Bad and doubtful debts

36(1)(vii) The assessee debiting profit and loss account and creating provision for bad and doubtful debts reducing by corresponding amount from loans and advances debiting the said amount in the profit and loss account and reducing on the asset side of the balance sheet. The assessee was entitled to deduction u/s. 36(1)(vii), and it was not necessary to close the individual account of each debtor in the books.

Vijay Bank (2010) 231 CTR 209 (SC)

37 DTR 401 (SC)

Bad Debt – Deduction

36(1)(viia)

Deduction u/s. 36(1)(viia) has to be allowed before making any deduction u/s. 36(1)(viii).


(2010) 128 TTJ 43 (Del)

Bad Debt – Share Broker

36(1)(vii) Amount paid by assessee (a stock broker) on behalf of sub-broker, which could not be recovered, is eligible for being claimed as bad debt. However the deduction was to be reduced by the amount of shares which

DB (India) Securities Ltd.

(2010) 187 Taxman 161 (Del)


were purchased and with held by the assessee.

Bad Debts 36(1)(vii) Assessee having valid reason for judging that amount was not recoverable though assessee had obtained a decree to recover debt. Assessee entitled to deduction of bad debt.

Punjab Tractors Ltd.

(2010) 320 ITR 153 (P&H)

Bad Debts – Mere Write-Off Sufficient

36(1)(vii) After 1st April, 1989, it is not necessary for the assessee to establish that the debts in fact have became irrecoverable. It is sufficient if they are written off as irrecoverable in the accounts of the assessee.

T.R.F. Limited (2010) 35 DTR 156 (SC)

230 CTR 14 (SC)

Bad Debts – Not Required to Prove that the debt has become bad

36(1)(ii) Assessee is not required to prove that the debt has become bad. Assessee only to write off the debt as bad in its books. Law with effect from Assessment Year 1989-90.

Lawlys Enterprises Pvt. Ltd.

(2010) 214 Taxation 256 (Patna)

Bad Debts – Share Broker

36(1)(vii), (2)

Where share broker purchasing shares for its clients and paying money against purchase and money receivable from client becoming bad and treated as bad bed. Held that brokerage payable by client is part of bad debt to be taken into account.

Bonanza Portfolio Ltd.

(2010) 320 ITR 178 (Delhi)

Balancing Charge – Depreciation

41(2), 32 Assessee-company claimed depreciation at 100% on wind mill project which was allowed. Subsequently the wind mills were destroyed in cyclone against which assessee received certain amount from insurance company. Revenue authorities brought said amount to tax u/s. 41(1) of the Income Tax Act. The Tribunal held that the amount received from insurance company cannot be taxed u/s. 41(1).

Rajhans Metals (P) Ltd.

(2010) 122 ITD 189 (Mum)

Block assessment - computation of undisclosed income – telescoping

158BB In the case of assessee’s brother, the Tribunal having accepted the plea that unaccounted advances made out of undisclosed income are irrecoverable and allowed telescoping of the unrecovered amount against the undisclosed

M.N. Rajendran (2010) 37 DTR 263 (Chennai)(TM)


income assessed on the basis of unencashed cheques which were found in the course of search, similar addition of undisclosed income made in the case of assessee on identical facts cannot be sustained.

Block Assessment – Computation of Undisclosed Income – Unabsorbed Depreciation – LOSS

158BB Loss and unabsorbed depreciation are to be set off against the total income in computing the undisclosed income of the block period.

H.E. Distilleries (P) Ltd.

(2010) 229 CTR 457 (Kar)

Block Assessment – Income Disclosed In Regular Assessment

158BC Any material or evidence unrelated to search could not form the basis of the computation of undisclosed income especially when the income had been disclosed by the assessee in regular assessment and had been assessed by Dept. SLP of the Revenue dismissed.

Krishna Kumar R. Parmar

(2010) 322 ITR (St) 2 (SC)

Block Assessment – Limitation – Last Panchanama

158BE Limitation starts from date of Last Panchanama and not from date till prohibitory order is in operation.

Editorial Note:– Tribunal order reported in 284 ITR (AT) 207 affirmed by Bombay H. C. Order ITA No. 856/2008 dated 5-9-2008

Abolf Patric Pinto

Ranjana Katyal

White & White Minerals (P) Ltd.

SLP (C) No. 26625 of 2009, (2010) 322 ITR (St) 3 (SC)

SLP (Civil) No. 683 of 2010,

(2010) 322 ITR 4 (St) (SC)

SLP (C) No. 4356/2010,

(2010) 322 ITR 4 (St) (SC)

Block Assessment – Limitation – Last Panchnama

158BC, 158BE

Search conducted on 31-10-2000 and assessment completed on 27-12-2002, revocation of prohibitory passed on 23-12-2000. Revocation order does not amount to execution of a search, as no asset seized. Period of limitation starts from 31-10-2000 hence order passed

Deepak Agrawal (2010) 321 ITR (St) 165. (SLP rejected)


beyond limitation period.

CIT vs. Deepak Agrawal (2009)308ITR 116(Delhi)

Block Assessment – Notice

143(2), 158BC

If an assessment is to be completed u/s. 143(3) r.w.s. 158BC, issue of notice u/s. 143(2) is mandatory and that the non issue of the notice is not a procedural irregularity and cannot be cured.

Hotel Blue Moon (2010) 321 ITR 362 (SC)

Block Assessment – Satisfaction – Assessment of Third Person

158BD, 158BC

AO having jurisdiction over the person searched had not recorded any satisfaction, as required u/s. 158BD, and consequently, the proceedings initiated u/s. 158BD were bad in law.

Anupam Sweets (2010) 321 ITR 485 (Delhi)

Block assessment - search and seizure-natural justice right to cross examination

158BC Where oral evidence of any party is sought to be used against an assessee, it is necessary that information relating to such statement or the copy of deposition should be furnished to the assess with opportunity to cross examination the deponent, if required by the assessee if it is not done, it is violation of principle of natural justice, hence order will be bad in law.

Ashwani Gupta (2010) 322 ITR 396 (Delhi)

Block Assessment – Statement of Third Party

158BD, 132(4)

Statements recorded of third parties which have been relied upon by the AO for the purpose of assessment not having been provided to the assessee, order of AO is bad in law to that extent. Impugned order is set aside and the AO is directed to re do the assessment according to law by providing the said statement to the assessee as well as record satisfaction u/s. 158BD.

Hamish Engineering Industries (P) Ltd.

(2010) 34 DTR 490 (Mum)

Block Assessment – Survey – Search

158BC, 132, 132(4), 133A

Where during continuation of survey proceedings u/s. 133A, search proceedings s. 132 are initiated on basis of information obtained in survey, it can be said that survey proceedings has lost to

Mangaram Chaudhray (HUF)

(2010) 123 ITD 359 (Hyd)


be assessed in block assessment proceedings only. Statement taken u/s. 133A, during survey cannot have same value as evidence recorded during search u/s. 132(4).

Block Assessment – Time Limit

158BE, 158BC, 142(2A)

Special Audit Report u/s. 142(2A) was directed to be obtained within 60 days because the financial statements were required to be prepared from two sets of accounts and other material involving huge unaccounted transactions. The Assessee despite of repeated requests of auditors neither produced books of account and vouchers nor afforded necessary facilities to get audit work completed within the extended stipulated time of 120 days. In the circumstances the Special Auditors submitted their report on the basis of limited information primarily on the basis of seized material.

On the facts and circumstances the AO completed the block assessment within the extended period in view of the Clause (ii) of Explanation 1 to s. 158BE read with the proviso to the said Explanation 1.

On the facts & circumstances it was held that the order passed by the AO was not barred by limitation under the provisions of s. 158BE.

Rajesh Kumar (2010) 122 ITD 395 (Delhi)

Block Assessment – Undisclosed Income

158BD Addition made by AO was in respect of valuation of the stock of shares. The valuation had been done on the basis of stock exchange rate and there was no material before the AO to add up the said amount. Therefore it was held that the Tribunal was justified in deleting the additions.

Digvijay Chemicals

(2010) 322 ITR 95 (All)

Block Assessment – Undisclosed Income

158BB Computerised books of account not found at the time of search, but

G.G. Dhir (Dr.) (2010) 35 DTR 81 (Agra)(TM)


– Computerised Accounts – Bank Accounts of Third Party – Gifts

produced at the time of assessment cannot be ignored. Amount credited in the bank accounts of wife and son cannot be treated as undisclosed income of the assessee.

Whisky bottles received by the assessee in appreciation of good work as gifts cannot be assessed as income from undisclosed source.

Block Assessment – Undisclosed Income – Noting on Seized Paper

158BC Noting on the seized paper representing payment schedule of agreement yet to be executed. Assessee establishing that noting on the seized paper was from regular books of account. Deletion was justified.

Tips Industries P. Ltd.

(2010) 321 ITR 154 (Bom)

(2010) 35 DTR 10 (Bom)

Block Assessment – Valuation Report – Estimation

158BC Block assessment can only be made on the basis of evidence found during search. Where no evidence was found of unaccounted investment addition could not be made on the basis of valuation report of DVO.

Pramod Kumar Gupta

(2010) 320 ITR 408 (Delhi)

Book Profit – Adjustment for Advance Against Depreciation

115JB Advance against Depreciation is timing difference, it is not a reserve, it is not carried through Profit & Loss Account, and it is “income received in advance” subject to adjustment in future and therefore clause (b) of Explanation 1 to s. 115JB is not applicable.

National Hydroelectric Power Corpn. Ltd

(2010) 34 DTR 65 (SC)

320 ITR 374 (SC)

Book Profit – Advance Tax

115JA, 234B

Failure to pay advance tax as per Book profit the assessee is liable to interest u/s. 234B.

Brindavan Beverages Ltd.

(2010) 321 ITR 197 (Karn)

Book Profit – Bad Debts

115JA Bad debts written off by the assessee in earlier years now, recovered by the assessee cannot be included as a part of, ‘book profit’ u/s. 115JA as it does not fall within any one of the items enumerated in the explanation to s. 115JA(2) of

Premium Taxcons (P) Ltd.

(2010) 34 DTR 115 (Uttarakhand)


the Act. Book Profit – Capital Gains

115JB, 54EC

Capital gain is part of net profit to be prepared in accordance with the provisions of Part II of Schedule VI to the Companies Act. In the absence of any provision for exclusion of capital gains exempted u/s. 54EC in the computation of book profit under the provisions contained in Explanation to s. 115JB, the assessee is not entitled to the exclusion thereof as claimed.

Growth Avenue Securities (P) Ltd.

(2010) 128 TTJ 426 (Del)

Book Profit – Company – Mutual Concern

115JB, 4 When the income is exempt under the principle of mutuality, said income cannot be brought to tax under the provisions of s. 115JB.

Delhi Gymkhana Club Ltd.

(2010) 35 SOT 335 (Delhi)

Book Profit – Deduction – Export

115JB, 80HHC

Deduction u/s. 80HHC is to be computed by taking into consideration “book profit’ and cannot be restricted to the profits of the business as computed under normal provisions of the Act.

Editorial Note:- ACIT vs. Ajanta Pharma Ltd. (2009) 318 ITR 252 (Bombay), distinguished.

Glenmark Laboratories Ltd.

(2010) 127 TTJ 719 (Mum)

Book Profit – Deduction – Export

115JB, 80HHC, 80IB

Explanation to s. 115JB, does not permit any adjustment with reference to deduction u/s. 80-IB, and therefore deduction u/s. 80-IB, cannot be reduced from the book profit of the assessee while computing the deduction u/s. 80HHC in the context of a MAT assessment.

Cello Pens & Stationery (P) Ltd.

(2010) 127 TTJ 723 (Ahd)

Book Profit – Export 115JB, 80HHC

In a case of MAT assessment, deduction u/s. 80HHC is to be worked out on the basis of the adjusted book profit u/s. 115JB.

Ambika Cotton Mills Ltd. & Ors.

(2010) 33 DTR 183 (Mad)

Book Profit – Export – Deduction

115JB, 80HHC

Deduction u/s. 80HHC of the Act is to be worked out on the basis of the adjusted book

Ambika Cotton Mills Ltd.

(2010) 321 ITR 448 (Mad)


profits u/s. 115JB.

CIT vs. Ajanta Pharma Ltd. (2009) 318 ITR 252 (Bom.), dissented.

Book Profit – Interest – Chargeability

115JB, 234B

Interest u/s. 234B is chargeable though computation of income is made u/s. 115JB, a difficulty or impossibility as pleaded by the assessee cannot be accepted only because it is a liability under the provisions of s. 115JB.

Brindavan Beverages Ltd.

(2010) 228 CTR 1 (Kar)

321 ITR 197 (Kar)

Book Profit – Minimum Alternative Tax – Mineral Oil

115JA, 42 Deduction claimed by assessee u/s. 42 cannot be considered for the purpose of computing its income u/s. 115JA.

Gujarat State Petroleum Corporation Ltd.

(2010) 123 ITD 335 (Ahd)

Book Profit – Reserve – Scheme of Arrangement

115JB Amount credited by the assessee company to its P & L account having been withdrawn from the reserve transferred to it by another company under a scheme of arrangement which was originally created by the latter in the year 1993-94, it is deductible from the net profit for computing book profit as per Cl. (I) of Explanation to s. 115JA.

Kopran Drugs Ltd.

(2010) 35 DTR 380 (Mum)

Book Profits – Export

115JB, 80HHC

While computing profit u/s. 115JB, deduction u/s. 80HHC is to be allowed on basis of book profits u/s. 115JB and not on the basis of eligible profits u/s. 80HHC as per normal computation.

Futura Polyester Ltd.

SPEL Semiconductor Ltd.

(2010) 186 Taxman 51 (Mad)

(2010) 188 Taxman 130 (Mad)

Business – Expenditure – Suspension of Business Activities

37(1) SEBI had barred the assessee from doing business till further orders and thus not doing business activity was on account of forced circumstances and not voluntarily and therefore assessee was entitled to deduction for business expenditure, interest etc.

KNP Securities (P) Ltd.

(2010) 33 DTR 210 (Mum)

Business – Temporarily Suspended – Interest

28(1) Interest paid to partners is allowable deduction when business is temporarily suspended.

M.M. Textiles (2010) 122 ITD 435 (Mum)


to Partners Business Disallowance - Estimate of income

40(a)(ia) Once estimate of income is made, further disallowance u/s. 40(a)(ia) for non deduction of TDS is not warranted.

Teja Constructions

(2010) 129 TTJ 57 (Hyd)(UO)

Business Disallowance – Interest – Debenture

40(a)(ia) Expenditure claimed by the assessee as interest accrued on debentures without deducting the TDS could not be allowed in view of specific provisions of s. 40(a)(ia).

Umang Dairies Ltd.

(2010) 36 SOT 383 (Delhi)

Business Disallowance - no professional expertise

40(a)(ia) Payment made by actor to person for managing call sheets, cannot be called payment for professional services hence cannot be disallowed u/s. 40(a)(ia)(a).

R.S. Suriya (2010) 2 ITR 746 (Chennai)(Trib)

Business Disallowance – Royalty

40(a)(i) During assessment year 2000-01, assessee-company made royalty payment to its holding company in US after deducting TDS, however, paid amount so deducted in the Asst. Year 2001-02. As per proviso to s. 40(a)(i) deduction is allowable to assessee in subsequent year in which TDS has been paid or deducted under Chapter XVIIB, however in the present case TDS had been paid by assessee in present year although deducted in preceding year hence its claim for deduction was allowable.

McDonalds (India) (P) Ltd.

(2010) 36 SOT 240 (Delhi)

Business Disallowance – TDS – Reimbursement of Expenses of Employee

40(a)(iii) Amounts paid by the assessee to its employees toward overseas maintenance allowance. These amount constituted only reimbursement for the expenses incurred by the employees and would not form part of the salary in the hands of recipient. Sub- clause (iii) of clause (a) of s. 40 would not be applicable.

Information Architects

(2010) 322 ITR 1 (Bom)

Business Expenditure – Abandoned Project

37(1) Assessee engaged in the business of exploration and production of oil is entitled to deduction of expenditure pertaining to abandoned project.

ONGC (2010) 33 DTR 22 (Delhi)

Business Expenditure – Advertisement – Sales Promotion –

37(1) By incurring expenditure on advertisement and sales promotion, assessee had not acquired any fixed capital asset, but these

Spice Communications Ltd.

(2010) 35 SOT 78 (Delhi)


Brand Building expenditure were incurred for earning better profits and for facilitating assessee’s operation of providing cellular mobile services hence, allowable as business expenditure.

Business Expenditure – Advisory Services

37(1) Expenditure towards payment of advisory services for regulatory compliance in relation to buy-back of Shares by is allowable revenue expenditure.

Selan Exploration Technology Ltd.

(2010) 188 Taxman 1 (Del)

Business Expenditure – Amalgamation – Discharge of Guarantee Obligation

37 Payment made by the assessee company to discharge the guarantee obligations vis-à-vis certain companies undertaken by two subsidiaries of the assessee company which amalgamated with the latter had no direct proximity or relationship to the business of the assessee and therefore, the same was not allowable as deduction.

United Breweries Ltd.

(2010) 36 DTR 80 (Kar)

Business Expenditure – Bonus Act

37 Set on liability u/s. 15 of the Payment of Bonus Act, is a contingent liability and hence, not an allowable deduction u/s. 37 of the Income Tax Act, 1961.

Ingersoll Rand (I) Ltd.

(2010) 320 ITR 513 (Bom)

Business Expenditure – Capital or Revenue Expenditure – Feasibility Report for Acquiring New Unit

37 Legal expenses incurred on obtaining advice as to feasibility of acquiring a new unit is a revenue expenditure.

United Breweries Ltd.

(2010) 36 DTR 80 (Kar)

Business Expenditure – Capital or Revenue Expenditure – Restructuring and Viability Study

37 Expenditure for restructuring and viability study and preparation of restructuring proposal is a revenue expenditure.

JCT Electronics Ltd.

(2010) 188 Taxman 191 (P&H)

Business Expenditure – Closure Of Business – Retrenchment Compensation – Provident Fund

37(1) Where one of the four units of the assessee was closed down. As per Tribunal findings the units was continuing to carry on business. Expenditure incurred on payment of retrenchment

D.C.M. Ltd. (2010) 320 ITR 307 (Delhi)


compensation, interest on monies borrowed for making such payment and for payment of provident fund was allowable.

Business Expenditure – Contribution to Development of Model Village

37(1) Amount paid by assessee financial corporation for the development of model village in Mysore District under AG’s Mysore Zilla Panchayath was to promote the business of the assessee and therefore deduction was allowable.

Karnataka Financial Corporation

(2010) 33 DTR 145 (Kar)

Business Expenditure – Contribution to Provident Fund – Deduction on Actual Payment

43B Retrospective effect to be given to the deletion of the second proviso to s. 43B brought about by the Finance Act, 2003.

Deletion of the second proviso and consequent amendment in the first proviso to s. 43B by the Finance Act, 2003 w.e.f. 1-4-2004 equating tax, duty, cess and fee with contribution to welfare funds was to overcome implementation problems. Once this uniformity is brought about in first proviso, the Finance Act, 2003 would become curative in nature. Hence, the change brought about by the Finance Act, 2003 would apply retrospectively w.e.f. 1-4-1988 when the first proviso was inserted.

Alom Extrusions Ltd.

(2010) 1 SCC 489

(2009) 319 ITR 306 (SC)

Business Expenditure – Current Repairs – Replacement of Machinery

31 The question whether replacement of machinery is a business expenditure / current repairs was remitted to the High Court for de novo reconsideration of assessee’s claim for deduction.

Hindustan Textiles

(2010) 36 DTR 131 (SC)

Business Expenditure – Deferred Revenue Expenses

37(1) Whether where an assessee writes off certain expenditure in its books of account over a period of say five years, it must be allowed in its entirety in year in which it was incurred, if it is revenue

Core Healthcare Ltd.

(2010) 37 SOT 383 (Ahd)


expenditure, and is wholly exclusively incurred for purpose of business.

Business Expenditure – Disallowance – Charter Hire Payments

40(a)(i), 9 Charter hire charges paid to foreign Ship did not constitute royalty payments. S. 9 is not attracted nor is there any liability for TDS and consequently s. 40(a)(i) cannot be invoked.

Kin Ship Services (India) (P) Ltd.

(2010) 128 TTJ 108 (Coch)

Business Expenditure – Discount on Bonds

37(1) The discount on bonds has to be spread proportionately for the no. of years for which the bonds are issued.

Himachal Finance Corporation

(2010) 186 Taxman 105 (HP)

Business Expenditure – Diversification

37(1) Expenditure incurred by the assessee on diversification and expansion of new product range which included expenditure on acquisition of machinery to aid such expansion is allowable as revenue expenditure.

Escorts Auto Components Ltd.

(2010) 34 DTR 280 (P&H)

Business Expenditure – Donation on Appeal of State Government

37 Payment made on the direction of the State Government to suppliers who supplied fodder to various cattle camps satisfies the test of commercial expediency and therefore it is an allowable deduction u/s. 37(1). Also see Na129

Surat Electricity Co. Ltd.

(2010) 128 TTJ 696 (Ahd)

(2010) 35 DTR 272 (Ahd) (Trib)

Business Expenditure – Dormancy and Lull of Business

37(1) Assessee maintaining office, retaining staff for export business though export sales substantially gone down. It was a case of full in business activities and not closure of business. Hence, the expenditure was allowable.

Anita Jain (2010) 214 Taxation 180 (Delhi)

Business expenditure - exchange rate fluctuation - year of allowability -Mercantile system of accounting

37(1) Assessee having maintained accounts on mercantile system of accounting, loss claimed by the assessee on account of fluctuation in the rate of foreign exchange as on the date of balance sheet in respect of loans taken for revenue purposes is allowable as business expenditure u/s. 37(1), notwithstanding the fact that the liability has not been discharged in the year in which the fluctuation in the rate of foreign exchange has occurred.

Oil & Natural Gas corporation Ltd.

(2010) 36 DTR 345 (SC)

(2010) 322 ITR 180 (SC)


Business Expenditure – Exempted Income – Agricultural Operation

37, 10 The expenses relating to agricultural operations could not be allowed as expenditures in computing the business incomes for the simple reason that agricultural income did not form part of the total income under the Act.

Kancor Flavours & Extracts Ltd.

(2010) 123 ITD 97 (Cochin)

Business Expenditure – Exempted Income – Disallowance

14A, 10(2A), 36(1)(iii)

Share income of assessee company from a firm in which it was partner did constitute income of the assessee u/s. 10(2A) and s. 14A applied and therefore disallowance was justified in respect of interest free loans given to the firm.

Popular Vehicles & Services Ltd.

(2010) 33 DTR 140 (Ker)

228 CTR 346 (Ker)

Business expenditure – Foreign tour expenses

37(1) Disallowance of foreign tour expenses in respect of certain persons cannot be made simply for the reason that such persons are not the employees of the assessee in a case wherein assessee establishes business connection with such persons.

Gems Paradise, ITA No. 700/JP/2009, Bench – A, dt. 18th December, 2009 / Taxworld, Volume – XLIII – Part 3 – March, 2010 – page 80 (86)

Business Expenditure – Gifts

37(1) A commission agent, incurred expenditure towards gifts to officials and customers for sale of various products, free samples, prize distribution for the purpose of sales promotion in army/navy/CSD canteens. Held the amounts are deductible as being incurred for the purpose of business and out of business expediency.

C.B.K.R. Enterprises

(2010) 186 Taxman 14 (Del)

Business Expenditure – Improving Performance

37 Amount paid to foreign Company, for improving performance of its existing utility vehicles, and for purpose of development of concept of clay model for its utility vehicles, since the expenditure was incurred for improving performance of existing product, same was allowable u/s. 37(1).

Mahindra & Mahindra Ltd.

(2010) 36 SOT 348 (Mum)

Business expenditure - keyman insurance policy of partner

37(1) Keyman insurance policy is not confined to a situation where there is a contract on employment. Premium on the keyman insurance policy of a partner of the firm is wholly and exclusively for the

B.N. Exports (2010) 37 DTR 381 (Bom)

(2010) 231 CTR 227 (Bom)


purpose of business and is allowable as business expenditure.

Business Expenditure – Know–How

35AB Expenditure covered u/s. 35AB has to be in nature of capital expenditure as scheme of Act, is that all revenue expenses are allowable while computing income from business or profession u/s. 37.

Mahindra & Mahindra Ltd.

(2010) 36 SOT 348 (Mum)

Business Expenditure – Offence – Penalty – SEBI

37(1) Any payment made for the purpose of compliance with the provisions of law would tantamount incidental to carrying on the business. Payments made by the assessee under the 2002 scheme cannot for the purpose of disallowance under the Explanation be treated as penalty or akin to penalty u/s. 37 of the Income Tax Act, 1961.

Kaira Can Co. Ltd.

(2010) 2 ITR 20 (Mum)(Trib)

Business Expenditure – Payments towards Performance Incentive, Expenses of Carriage and Equipment Charges

37(1) Amounts paid to speed up the operations in ports were allowable as business expenditure.

Kin Ship Services (I) P. Ltd.

(2010) 128 TTJ 108 (Coch)

Business Expenditure – Penalty – Fine – National Stock Exchange

37 Though every member of National Stock Exchange is obliged to abide by its rules and regulations, fine imposed on the assessee a member of NSE for violation of regulations of NSE cannot be disallowed.

Gold Crest Capital Markets Ltd.

(2010) 36 DTR 177 (Mum)

Business expenditure - Penalty - fine - Regulation fee to municipality corporation

37(1) Regulation fee is an amount paid for compounding of the offence in terms of s. 483 of Karnataka, Municipal Corporation Act, 1976, which is an penalty and therefore not allowable u/s. 37(1).

Millennia Developers (P) Ltd.

(2010) 37 DTR 16 (Kar)

Business Expenditure – Provision for NPA in Terms of RBI Directions

36(1)(vii) Provision for NPA made under NBFCs Prudential Norms (Reserve Bank) Directions, 1998 is not an “expense”.

Provision for NPA made under NBFCs Prudential Norms (Reserve Bank) Directions, 1998 has to be added back in computing profits and gains and is not an “expense”. Said provision is not deductible u/s. 36(1)(vii) and is expressly disallowed by s. 36(1)(vii) Expln. (inserted by Act 14 of 2001 w.e.f. 1-4-1989). Having been so

Southern Technologies Ltd.

(2010) 2 SCC 548

(2010) 320 ITR 577 (SC)

(2010) 228 CTR 440 (SC)

(2010) 187 Taxman 346 (SC)

(2010) 34 DTR 11 (SC)


disallowed it cannot be allowed u/s. 37 either.

Scope and applicability of s. 37 – It applies only to item not falling u/ss. 30 to 36. Hence, an item not falling u/ss. 30 to 36 but excluded by s. 36(1)(vii) Expln. Cannot be covered by s. 37. Therefore, the provision for doubtful debt made by NBFC having been kept outside the scope of “written off” by the said Expln. did not attract s. 37.

Exclusion of NBFCs from the benefit of deductions available to banking companies does not violate articles 14 and 19 as it satisfies the test of “intelligible differentia” and the principle of “reasonable restriction”, respectively.

Court’s acceptance of NBFCs’ plea to include NBFCs in s. 36(1)(vii-a) would amount to judicial legislation, which is impermissible.

Business Expenditure – Refundable Deposit with Stock Exchange

37 Refundable deposit with stock exchange is not a deductible expenditure.

Khandwala Finance Ltd.

(2010) 122 ITD 111 (Mum)

Business Expenditure – Remuneration – Excessive or Unreasonable

40A(2)(b) Steep increase in remuneration payable to directors, held disallowance is proper.

Shree Laxmi Marketing

(2010) 40 Tax LR 106 (Pune)

Business Expenditure – Renovation

37(1) Expenditure incurred on construction and renovation for a new shop in the leased premises was held to be allowable as Revenue expenditure.


Business expenditure - sales promotion - gifts – samples

37(1) Expenditure on the business promotion, including gifts, samples prizes, etc. to customers including officials of CSD canteens was allowable when the gifts were below Rs. 340 and not expensive.

C.B.K.R. Enterprises

(2010) 37 DTR 148 (Del)

Business Expenditure – Setting up –

37(1), 2(13)

A finance company having purchased computers and peripherals on 4th Sept 1995,

Whirlpool of India Ltd.

(2010) 229 CTR 435 (Del)


Commencement appointed staff, in September and October 1995, and salaries including allowances, bonus, gratuity and contribution to provident fund and other funds from November 1995, its business can be said to be set up on 1st November, 1995, when it was in a position to commence its business and not when its bank account was opened. Expenditure incurred thereafter is allowable as deduction.

Business expenditure -payment to police personnel and rowdies to ensure security.

37(1) Payment to police personnel and rowdies to ensure security of business premises as the payment being not legal not allowable as deduction.

Neelavathi and others

(2010) 322 ITR 643 (Karn)

Business income - Benefit or perquisite - waiver of loan

28(iv) Waiver or write off of part of principal amount of loan by sister concern is not taxable as Benefits or perquisites u/s. 28(iv) as benefits should be of the nature other than cash.

Jindal Equipments Leasing & Consultancy Services Ltd.

(2010) 37 DTR 172 (Del)

Business income - compensation for infringement of copyright

28 Amount received as compensation for infringement of copy right assessable as business income.

Eastern Book Company

(2010) 322 ITR 605 (All)

Business Income – Computation – Stamp Duty Valuation

50C, 28(1)

Provisions of s. 50C can be applied only to find out the true value of a capital asset and not for computing business income hence the same cannot be applied when sale of stock in trade.

Thiruvengadam Investments (P) Ltd.

(2010) 34 DTR 81 (All)

320 ITR 345 (All)

229 CTR 284 (Mad)

Business Income – Disclosure in the Course of Survey

40(b), 40(b), 133A

If the assets disclosed during the survey are identified with the business of the assessee then the same have to be treated as part of business income while computing total income, and the consequential deduction u/s. 40(b) has to be allowed.

Fashion World ITA No. 1634 Bench B dt. 12-2-2010 (Feb, 2010, 598 Ahmedabad Chartered Accountants Journal)

Business Income – vis-à-vis Capital Gains – Sale of Plots

28 Assessee, his wife and son jointly purchased land on 2nd March, 1997, and soon thereafter applied for converting the same into housing plots though sanction was given by the concerned development authority in 2001.

Cherukuri Ramesh

(2010) 36 DTR 269 (Visakha)


They sold all the eight plots during the financial year 2004-05. Co-owners of the assessee have no record of carrying on of agricultural operations. Two of the three co-owners are engaged in the business of automobile spare parts. Even though the conversion of land materialized in the year 2001 only, in the absence of any evidence to show that the land was used for some other purpose prior to seeking approval of the layout plan, the intention of purchase of land cannot be automatically inferred as an investment. Thus, the attendant circumstances of the case lead to the conclusion that the land was purchased with the intention to sell the same at a profit. Therefore, though an isolated transaction, it was an adventure in the nature of trade and the income therefrom has to be treated as business income.

Business Loss – Advance From Customer – Exchange Fluctuation

28 Assessee received advance amount from overseas customer towards supply of particular commodity. Before the assessee could export the commodity, the Government imposed a ban on the export of that commodity and as a result of which the assessee could not supply and had to refund the advance amount. But due to exchange rate fluctuation, the assessee had to incur a higher amount and claimed the same as business loss. Held the loss is eligible for deduction as a business loss.

Loksons Pvt. Ltd. (2010) 187 Taxman 55 (Bom)

Business Loss – Capital Loss

37(1) Advance payment made for purchase of machinery written off as business loss. Hon’ble Tribunal allowed the Appeal by Relying on the Hon’ble High Court of Rajasthan in the case of CIT vs. Anjani Kumar Co. Ltd. 259 ITR 114 (Raj).

Pik Pen Pvt. Ltd. Source: www.itatonline.org


Business Loss – Non-Realisability of Balance

28 Non-realisability of balance lying with a bank in FD and current accounts held to be allowable as business loss.

Mehul H. Mehta ITA No. 8531/2004 Bench B dt. 15-6-2009. March BCAJ P. 17. 645 (2010) 41-B BCAJ.

Business Loss – Obsolete Items – Diminution in Value

28 The assessee was entitled to write off the obsolete items out of inventories acquired by it in its books of account for the year ending 31st march 1998, even though the process of determination of diminution in the value of inventory was undertaken at a later date.

Kopran Drugs Ltd.

(2010) 35 DTR 380 (Mum)

Business Loss – Sale of Shares

28 The loss incurred by the assessee on the sale of shares held by the assessee should be treated as business loss of the assessee.

Malabar Industrial Co. Ltd.

(2010) 320 ITR 486 (Karn)

Capital Gain – Cost of Acquisition

48 Where the asset / property was purchased by the assessee out of the loans taken from its directors and the interest due thereon for the relevant previous year was not actually paid to the directors. The interest payable on such loans was held by the court to be included in the cost of acquisition of the property for the purpose of computing capital gains even though the interest was not paid by the assessee till the asset / property was sold / disposed off.

Sri Hariram Hotels (P) Ltd.

(2010) 34 DTR 162 (Karn)

Capital Gains – Accrual – Sale of Land Converted in to Stock-in-Trade

45(2), 2(47), 45(1)

Assessee having converted land into stock in trade in an earlier year and sold the same in the relevant year by executing a general power of attorney, showing it as sale of stock-in-trade and crediting the sale proceeds land stood “otherwise transferred” and hence, capital gain is taxable u/s. 45(2) in the relevant assessment year though no conveyance deed was registered.

Wipro Ltd. (2010) 34 DTR 493 (Bang)(Trib)

Capital Gains – Agricultural Land

54B Exemption u/s. 54B on transfer of agricultural land cannot be denied even though Investment in new agricultural land by the Assessee

Jagpal Singh (2010) 186 Taxman 26 (Delhi)


has been made in the name of his family members. It was observed that so long as the consideration had passed from the consideration received, on transfer of asset, deduction has to be granted considering the spirit of the provision.

Capital Gains – Agricultural Land

54B, 2(14)(iii)

Report of the Tehsildar having certified that the assessee’s land was 8 kms, away from the municipal limits the land constituted agricultural land hence, the assessee is entitled to exemption u/s. 54B.

Lal Singh & Ors. (2010) 228 CTR 575 (P & H)

Capital Gains – Business Income – Investment in Shares

45, 28 Assessee engaged in trading of shares as well as investment in shares profit on sale of investment shown as short term capital gains or longs term investments is assessable as capital gains and not as business income.

Paresh D. Shah (2010) 2 ITR 311 (Mum)(Trib)

Capital gains - business income - sale of shares

45, 28(i) In respect of gain on sale of shares held for more than 365 days, when in the past the department has accepted the sale of shares holdings of more than a year as investment and profits thereon has been assessed under the head “capital gains” the gain should be assessed as long term capital gains in respect of other shares with frequent transactions where shares are held for more than a month they should be treated as investment and assessable as short term capital gains. Where the shares are held less than a month the same may be treated as profit from business.

Editorial Note:- Refer, Gopal Purohit (2009) 122 TTJ 87 (Mum.), affirmed (2010) 34 DTR 52 (Bom.) favour of assessee.

Mumbai Tribunal against Jayashree Pradip Shah vs. ACIT. ITA No. 3608/M/07 Asst. year 2004-2005 Bench ‘J’ dt. 24-2-

Sugam Chand C. Shah

(2010) 37 DTR 345 (Ahd)(Trib)


2010. Shailesh L. Shah HUF vs. Dy. CIT ITA Nos. 3991 & 3992/M/2008 Asst. Year 2004-05, 2005-06 Bench ‘E’ dt. 13-1-2010, Rekha Khandelwal (Smt.) vs. ACIT. ITA No. 785/M/2009 Asst. year 2005-06. Bench ‘D’ dt. 17-3-2010.

Capital gains - business income - sale of shares

45, 28(i) Principles to be applied while deciding whether sale of shares is capital gain or business income.

(a) As per the books of account, the assessee has treated the entire investment in shares as an “investment” and not as “stock-in-trade”;

(b) The assessee is not a share broker nor he is having a registration with any Stock Exchange;

(c) Almost 83% of the capital gain is from shares that were held for a long period of time;

(d) There were no derivative transactions by the assessee;

(e) There were no transactions without delivery;

(f) The assessee used his own surplus funds for investing in shares and not borrowed any money;

(g) In the preceding years, the assessee consistently declared the gain/profit on the sale of the shares as ‘Capital Gains’ and the same has been accepted by the AO Though the rule of res judicata is not applicable to income-tax proceedings, in the absence of change in facts, there should be consistency in the approach of the

Management Structure & Systems

(ITAT Mumbai) www.itatonline.org


Revenue;

(h) The assessee received substantial dividend on the investments.

Also see : Smt Sadhana Nabera vs. ACIT (ITAT Mumbai) www.itatonline.org

Capital Gains – Business Income – Solitary Transaction

45, 28(i) Solitary transaction of purchase and sale of land made by the assessee company after retaining it for about ten years without undertaking any steps towards development of property or treating it as stock-in-trade cannot be regarded as business activity and, therefore, the gain arising on the sale of land is assessable as Capital gains.

Baguio Investment (P) Ltd.

(2010) 33 DTR 457 (Pune)

Capital Gains – Capital Asset – Lease from Municipal Corporation

45, 2(14)(47)

Assessee’s right as lessee is capital asset. Receipt of one time fee for foregoing right to use property assessable as capital gains.

United Motors (I) Ltd.

(2010) 1 ITR 578 (Mum)

(2010) 34 DTR 399 (Mum)

Capital Gains – Capital Asset – Membership Card of Stock Exchange – Capital Gains

45, 2(14) A membership card of stock exchange which confers right upon its member to trade at the exchange is ‘an asset’ and falls within the definition of the term ‘capital asset’ as defined in s. 2(14) of the Act. Accordingly, any gain arising on sale of the membership card in auction by the Stock Exchange in pursuant to default committed by the member in terms of the stock exchange rules is chargeable to tax under the head ‘Capital Gain’.

CDR P.J. Mathew (2010) 36 DTR 352 (Ker)

Capital Gains - capital asset - stock exchange card

45, 2(14), 2(47), xiiia)

A membership card of stock exchange which confers right on the member to trade in stock and shares in exchange being a property falls with in the definition of ‘capital asset’, in s. 2(14) and therefore, capital gains are chargeable on the sale of assessee’s membership card in

CD R.P.J. Mathew

(2010) 36 DTR 352 (Ker)

(2010) 188 Taxman 376 (Ker)



auction by the stock exchange pursuant to default committed by assessee in terms of the rules of stock exchange.

Capital Gains – Chargeability – Sale of Copyright, Patent

45, 48, 55(2)(A)

Matter regarding taxability of amount received for transfer of patent, copyright, etc. is remanded for reconsideration as the Tribunal had not examined the facts and circumstances of the case vis-à-vis decision in CIT vs. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) case, bearing in mind that the assessee himself had offered to tax, as an amount capable of being ascertained for capital gain and on his own shown an initial cost of acquisition of asset as nil.

P.R. Seshadri (2010) 228 CTR 334 (Kar)

Capital Gains – Computation – Capital Loss – Partly Convertible Debenture

48 Assessee would be entitled to claim capital loss that had arisen due to transfer of rights issue to partly convertible debentures.

New Ambadi Investments (P) Ltd.

(2010) 188 Taxman 67 (Mad)

Capital Gains – Computation – Cost of Acquisition – Fair Market Value – 1st April, 1981

55A Value adopted by assessee much higher than fair market value, reference to valuation officer permissible. Average of both valuation was taken.

Valuation charges incurred by assessee, not spent in connection with cost of acquisition or cost of improvement of asset hence not deductible.

Editorial Note:– Refer Bombay High Court Judgment Daulat Mota HUF ITA no. 1031 of 2008 dt. 22-9-2008 (Unreported), Smt. Krishnabai Tingre (2006) 101 ITD 317 (Pune)

VijayKumar M. Shah

(2010) 2 ITR 116 (Mum)

(2010) 124 ITD 114 (Mum)

Capital Gains – Computation – Sale of Property In Consideration of Flats

45, 48 Assessee having sold land also while executing lease deed in favour of purchaser / developer who had agreed to give 11 flats to the assessee in the building to be constructed, the AO was

N. Srirama Reddy (Decd)

(2010) 228 CTR 541 (Kar)


justified in taking in to consideration value of land also apart from the value of flats and thus value of Rs. 332.335 per sq. ft. taken by the AO as against Rs. 200 per sq. ft. adopted by the assessee was sustainable.

Capital Gains – Contribution of Personal Asset Towards Capital of Firm – Stock in Trade

45(3), 2(47), 28(1), 45(2)

Where the land held by assessee-company as stock in trade was contributed as capital in a partnership firm after revaluing the same, the surplus was assessable as capital gains by application of s. 45(3). Even otherwise, transaction of such conversion was device or ruse to convert the land in to money substantially for the benefit of the assessee and therefore same was assessable as business income.

DLF Universal Ltd.

(2010) 34 DTR 105, 36 SOT 1,

128 TTJ 121 (Delhi)(SB)

Capital Gains – Conversion of Proprietary Concern into Firm

45(3) Conversion of proprietary concern into firm in 1994. Valuation of assets and credit in same year. Transaction gave rise to capital gains.

Dharamshibhai B. Shah

(2010) 1 ITR 536 (Ahd)

Capital gains - cost of acquisition - indexed cost of inherited property

45, 48, 49(1)(iii)(a)

Assessee having inherited the property purchased by the previous owner, in the year 1974, cost of acquisition for the purpose of computing capital gains on sale of such property had to be computed by applying cost of inflation index of financial year 1981-82 and not financial year 1989-90 i.e. the year of inheritance by the assessee.

M. Siva Parvavathi & Ors.

(2010) 37 DTR 124 (Visakha)(Trib)

Capital gains – Cost of acquisition – Indexed cost of shares vis-à-vis set off of loss

45(1), 48, 70 & 112

Benefit of lower tax rate under Proviso to s. 112 is available to bonus shares despite no indexation

Editorial Note:- Refer Mohanlal N. Shah (HUF) vs. ACIT (2008) 26 SOT 380 (Mum.)

Anuj A. Sheth (HUF)

(2010) 38 DTR 26 (Bom)

Capital Gains – Cost of Acquisition – Liquidation

46(2), 49(1)(iii)(c), 55

For the relevant assessment year, assessee computed his capital gains by taking cost of acquisition of said property on basis of value of shares purchased by him. AO held that since the capital asset became assessee’s property on distribution of same by company in-liquidation, cost of acquisition of

T.R. Srinivasan (2010) 36 SOT 312 (Chennai)


said asset had to be taken as cost to previous owner as per s. 49(1)(iii)(c). The Tribunal confirmed the view of AO.

Capital gains - depreciable asset - short term capital gains

50, 2(11), 2(42A), 50A

Building which was acquired by the assessee in 1974, and in respect of which depreciation was allowed to it as a business asset for 21 years, still continued to be part of depreciable asset even though the assessee discontinued claiming depreciation for two years before its date of sale, and therefore, profit on sale of the building was assessable u/s. 50 as short term capital gains.

C.N. Ramachandran Nair & V. K. Mohanna

(2010) 37 DTR 153 (Ker)

Capital Gains – Depreciable Assets – Stamp Valuation

50C, 50 Stamp duty valuation is not applicable in respect of sale of assets where depreciation has been allowed.

Panchiram Nahata

(2010) 127 TTJ 128 (Kol)(UO)

Capital Gains – Development Agreement – Transfer

45, 2(47)(V), 54, 53A Transfer of Property Act

When possession was handed over and total consideration was also agreed upon by parties and vendee was allowed to enjoy and entertain property for purpose for which it was taken over, then the transaction had fulfilled conditions required u/s. 53A, of Transfer of Property Act, 1982, and therefore, it was covered under definition of ‘Transfer’ u/s. 2(47)(v).

R. Kalanidhi (2010) 122 ITD 388 (Chennai)

Capital Gains – Exemption

47(iv) Transfer of assessee’s shares to its subsidiary companies. Surplus realized on sale of shares. No Capital Gains to be leviable.

Shahibaug Enterprises P. Ltd.

(2010) 320 ITR 695 (Guj)

Capital Gains – Full value of Consideration – Stamp Valuation

50C, 45 When sale consideration is less than the price determined by stamp valuation authority, AO has no option but to adopt the valuation made by the stamp valuation authority.

Mohd. Shoib (2010) 1 ITR 452 (Luck)

(2010) 127 TTJ 459 (Luck)

Capital Gains – Gift – Indexed Cost

48 For the purpose computing long term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the indexed cost of acquisition of such capital asset had to be computed with reference to the year in which the previous owner first held the asset.

Manjula Shah (2010) 35 SOT 105 (Mum)(SB)

Capital Gains – 54F Capital Gains to be charged in the Ranjit Narang (2010) 215 Taxation 674


Investment within three years

previous year after expiry of three years from the date of transfer.

(All)

Capital Gains – Loss – Convertible Warrants

45, (2)(47)

Forfeiture of convertible warrants results in extinguishment of right of the assessee to obtain a share in the company and results in loss under the head “capital gains”.

Chand Ratan Bagri

(2010) 36 DTR 244 (Del)

Capital Gains – Loss – Exemption

70(3), 10(38), 74(1)

Non-exempt capital loss cannot be set off against exempt capital gains.

G.K. Ramamurthy

(2010) 2 ITR 139 (Mum)(Trib),

129TTJ361(Mum),

37 SOT 345( Mum)

36 DTR 257(Mum) Capital Gains – Reconstitution of Firm

45(4), 2(47)

When there were only four partners, first change in June 1994 when two partners retired and two new partners inducted. Second change in 2004 when remaining two partners also retired and two more partners, who have brought the capital. The Court held that the provisions of s. 45(4) is applicable as it amounts to transfer Hence, capital gain is applicable.

Gurunath Talkies (2010) 214 Taxation 729 (Kar)

Capital Gains – Retirement of Partner

45(4) On allocation of properties and goodwill to the account of the retiring partner, and constitution by remaining partners, by a new deed on next day, would not amount to dissolution of existing firm, and constitution of new firm so as to invoke provisions of s. 45(4).

Purayannur Industries

(2010) 188 Taxman 34 (Kochi)

Capital Gains – Sale of Stock-in-Trade – Deeming Provisions

50C, 45 Sale of stock-in-trade. Officer making addition in sale price based on fair market value arrived are rent capitalization method. Addition made not justified.

Editorial Note:- Refer CIT vs. Thiruvengadam Investments (P) Ltd. (2010) 34 DTR 81 (Mad.), 320 ITR 345 (Mad.) / Inderlok Hotels P. Ltd. vs. ITO (2009) 318 ITR 234 (At) (Mum.)

Excellent Land Developers P. Ltd.

(2010) 1 ITR 563 (TRIB))(Delhi)

Capital Gains – Short Term or Long

48(2) Computation of gain / loss resulting from renunciation of

Navin Jindal (2010) 2 SCC 525


Term – Renouncement of Right to Receive Right Shares

option to subscribe to right shares.

For the computation of gain / loss resulting from renunciation of option given to the existing shareholder’s a right to subscribe to offer additional shares / debentures, the crucial dates for determination of nature of capital gains / loss (short term / long term) are the date of coming into existence of such right and date of renunciation thereof. Said right comes into existence when the offer is made and it is distinct and separate capable of being transferred independently of the original shareholding. Hence, where the assessee renounced that right in favour of a third party for money in the AY and consequently suffered loss of a higher amount due to diminution in the value of original shares, the net loss so suffered was a short-term capital loss. Hence, the assessee rightly applied deduction u/s. 48(2) to amount of long-term capital gains earned during the year and then from the remainder deducted the said short-term capital loss. Department erred in deducting the said short-term loss from long-term gains and then applying s. 48(2) to the remainder.

An important principle for computation of capital gains u/s. 48 is that computation is an integral part of chargeability.

(2010) 320 ITR 708 (SC)

(2010) 228 CTR 478 (SC)

34 DTR 1 (SC)

Capital Gains – Speculation Business – Sale of Shares

45, 73 Assessee company earning income from the sale of shares. AO holding that income earned was from speculation and on the fact it was held that income earned was in the nature of capital gains.

Axis Capital Markets (India) Ltd.

ITA No. 4098/Mum./2007 BCAJ January (2010) Vol. 41-B.P.33.

Capital Gains – Stock Option – Short Term or Long Term

45, 2(42A), 2(42B), 17(2), 48, 54EA, 112

It is the date of grant of the stock option in favour of the assessee that is material for determining the period of holding the asset in question and not the date on which the option was exercised and stock

Dhurjati Gupta(Dr)

(2010) 33 DTR 287 (Hyd)(Trib)


options were converted into shares. Capital gains arising out of sale of shares acquired through ESOPs have to be assessed as long term capital gains with consequential benefit of indexation and exemption u/s. 54.

Capital Gains – TDR

45, 48 Amount received by the society from the builder for permitting him to construct additional floors on existing building of the society by utilizing TDR FSI belonging to him is not chargeable to tax since there is no cost of acquisition.

Om Shanti Co-op. Hsg. Society Ltd.

ITA No. 2550/Mum./2008. BCAJ January (2010) Vol. 41-B

Capital Gains – Trade Mark

45, 2(42A), 47(iv), 48, 49(1)(iii)(e)

Transfer of trademarks being transfer of capital asset, gains arising therefrom chargeable to Capital Gains tax. Cost of acquisition being indeterminable long term capital gains is not liable to any tax. Matter remanded to decide the period of holding and to tax gains if held to be short term gains.

Trent Brands Ltd. (2010) 127 TTJ 65 (Delhi)(UO)

Capital gains - Transfer of land to developer – accrual – exemption

45, 54EC Transferring development right to developer in Asst. Year 2000-01 would accrue capital gains and sale of flat in the Asst. Year 2005-06 will be long term capital gain which is eligible for exemption u/s. 54EC.

Vikash Behal (2010) 36 DTR 385 (Kol)(Trib)

Capital Gains –Accrual – Enhanced Compensation

45(5), 155(16)

Enhanced compensation for acquisition of land is taxable in the year of receipt and cannot be taxed in different years in which it accrued.

Roop Singh (2010) 127 TTJ 377 (Del)

(2010) 33 DTR 257 (Delhi)

Capital Loss – Shares held as Investment Written Off

45 Loss arising from write off of shares held as capital asset is capital loss and not revenue loss.


(2010) 128 TTJ 43 (Del)

Capital or revenue - forfeited advance for breach of agreement of sale.

51 The amount received by an owner of property from the agreement holder as advance was forfeited for breach of contract. Such amount was held to be a capital receipt.

S. Zoraster and Co.

(2010) 322 ITR 35 (Raj)

Capital or Revenue – Royalty

37(1), 33AB

Matter is remitted to the High Court to carry out an indepth exercise to understand the actual expenses undertaken by the assessee in “duplication” of software provided by it by the

Mastek Ltd. (2010) 35 DTR 106 (SC)


American company and then answer the question as to whether the royalty paid by the assessee to the American Company is allowable in its entirety u/s. 37 or only one sixth thereof is allowable u/s. 35AB.

Capital or Revenue Expenditure – Consultancy Fees

37(1) Consultancy fee paid by assessee for carrying out detailed operational efficiency and profitability study of the assessee was allowable as revenue expenditure even though the said assignment was terminated before conclusion of the study, though there was no written agreement.

Indo Rama Synthetics (I) Ltd.

(2010) 228 CTR 278 (Del)

Capital or Revenue Expenditure – Membership Card of Stock Exchange

37(1), 2(14)

Membership card of stock exchange is a capital asset and therefore any expenditure incurred to acquire said card is capital in nature.

Khandwala Finance Ltd.

(2010) 122 ITD 111 (Mum)

Capital or Revenue Expenditure – New Project

37(1) The new project set up by the assessee company was held to be a mere expansion of the assessee’s existing business, as there was unity of control, common management and funds as well as interlacing of two businesses. Accordingly, the expenditure incurred on rent, salaries, travelling, etc. in relation to new project is allowable as revenue expenditure.

Honda Siel Power Products Ltd.

(2010) 36 DTR 456 (Del)

Capital or Revenue Expenditure – Repairs – Removal of Defect

37(1) Expenditure incurred for restoring roof to original condition is not a capital expenditure. Expenditure on removal of defect in design of car, relates to stock in trade of assessee is not a capital expenditure.

Honda Siel

Cars India Ltd.


Capital or Revenue Expenditure – Upgrading Computers

37(1) Expenditure on upgrading computers is revenue expenditure.

Sundarm Clayton Ltd.

(2010) 321 ITR 69 (Mad)

Capital or Revenue Receipt – Capital

4 The purpose of the grant or the subsidy being for the construction

Gujarat Water Resources

ITA No. 167/168 Bench A dt. 16-10-2009 (Feb., 2010


Subsidy of the capital assets viz. the tube wells and lift irrigation schemes, which constitute the permanent apparatus from which the assessee derives income by way of water charges, the subsidy has to be held to constitute capital receipt by applying the “purpose test”.

Development Corporation Ltd.

P. 594 Vol. 33 Part 11. Ahmedabad Chartered Accountants Journal)

Capital or Revenue Receipt – Right to Sue – Specific Performance

4 Compensation received for forgoing right to sue for specific performance of contract not a trading liability, the said amount being on account of capital account is a capital receipt.

Govindbhai C. Patel

(2010) 1 ITR 34 (Ahd)

Capital or Revenue Receipts – Non Compete Fee – Income

4 Non–compete fee received by assessee for refraining from manufacturing and selling timepieces for a period of ten years after the sale of one unit while it was continuing with its other business activities constituted revenue receipt.

Tata Coffee Ltd. (2010) 229 CTR 38 (Kar)

Carry Forward and Setoff of Losses – Amalgamation – Demerger – Unabsorbed Capital Expenditure

72A Terms “accumulated loss” and “unabsorbed depreciation” as defined in s. 72A(7), do not include unabsorbed capital expenditure on scientific research, therefore in case of demerger, benefit of s. 72A(4), cannot be extended to resulting company in respect of unabsorbed capital expenditure on scientific research.

Mahyco Vegetable Seeds Ltd.

(2010) 123 ITD 40 (Mum)

Cash Credits – Gift 68 There is no legal basis to assume that to recognize the gift to be genuine, there should be any blood relationship, or any close relation-ship, between the donor and the donee. When assessee produced the affidavit, gift deed in the absence of anything to show that the gift was by way of money laundering addition u/s. 68 as cash credit not justified.

Padama Sungh Chauhan

(2010) 214 Taxation 792 (Raj)

Cash Credits – NRE – Foreign Exchange (Immunities) Scheme, 1991

68 Sum received from NRE account of non– resident Indian is entitled to immunity under Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act,

Amritlal S. Punamiya HUF

(2010) 1 ITR 242 (Mum)(Trib)


1991 addition as cash credit cannot be made.

Cessation – Remission of Liability – Profits Chargeable to Tax – Old Outstanding

41(1) The fact that the liability was old would not make any ground for addition. So long as there was no cessation of liability by writing back same no addition could be made u/s. 41(1).

Sita Devi Juneja (Smt.)

Jaipur Jewellers (Exports)

(2010) 187 Taxman 96 (P&H)

(2010) 187 Taxman 169 (Delhi)

Cessation of Liability – Remission – Waiver of Loan

41(1) Waiver of loan to discharge the liabilities of business to recoup losses over period of time were consequential to contractual agreement, cannot be assessed u/s. 41(1).

Mindteck (India) Ltd.

(2010) 122 ITD 486 (Mum)

Change of Opinion Not Sufficient for Reassessment

147 Under Circular No. 549 dated 31-10-1989, the AO has no power to review but only to reassess. After amendment of 1989, the AO can reopen assessment provided he has “reason to believe” that income has escaped assessment, based on tangible material. Mere “change of opinion” does not empower the AO to review assessment in the garb of reassessment.

Kelvinator of India Ltd.

(2010) 2 SCC 723

(2010) 320 ITR 561 (2010) 228 CTR 488 (SC)

Charge of Income Tax – Capital or Revenue – Concession in Rate of Excise Duty

4 Receipts from the sale of levy free sugar and concession in the excise duty rebate were capital receipts not liable to tax.

Tiruttani Co-op. Sugar Mills Ltd.

(2010) 322 ITR 59 (Mad)

Charitable Trust – Approval of Institution

80G(5B) Single donation of more than 5% for construction of one room in a hostel managed by particular community – Not ground to deny renewal. Matter remanded for fresh consideration.

Shri Sardarmal Sancheti Charitable Trust

(2010) 322 ITR 167 (Raj)

Charitable Trust – Registration

12A, 80G Assessee trust was formed with main object of establishing schools and colleges, which would be open to students of all communities for education – Granted approval u/s. 80G & registration under 12A of the Act - As the assessee trust was not carrying out the activities as mentioned in the main object for over 12 years the grant of approval

Pearl Educational Institute

(2010) 36 SOT 218 (Delhi)


was refused by the commissioner. Refusal upheld by tribunal.

Civil construction - Barge hire charges – DTAA - India – Mauritius – Royalty

44BBB, 9(1)(vi), arts 5,7,12

Barge hire charges amounts to ‘royalty” within the meaning of s. 9(1)(vi) and under art. 12 of DTAA, between India and Mauritius and is liable to tax in India u/s. 44BB.

Valentine Maritime (Mauritius) Ltd.

(2010) 38 DTR (Mumbai)(Trib)117

Civil Construction Business – International Taxation – Non-Resident

44BBB When income of the assessee u/s. 44BBB is to be computed at 10 per cent of gross receipts and the assessee does not claim a lower profit than that to be assessed under sub S. (2) of s. 44BB, AO cannot proceed to determine income of assessee u/ss. 28 to 44AA on the pretext of consistency, assessee is also entitled to set off losses in other business from such income.

DSD Industrieanlagen GmbH

(2010) 36 DTR 121 (Delhi)

Clubbing of Income – Total Income

64(1)(ii), 28(v)

Assessee and his wife partners in a firm. Assessee’s wife getting allowance from firm in terms of partnership deed and shown the income in her return as business or profession. Assessment of assessee’s wife completed assessing the income u/s. 28(v). Income cannot be includible in the hands of assessee.

A.V. Jose (2010) 1 ITR 88 (Cochin)(Trib)

COD Approval Supreme Court doubts law requiring PSUs to obtain COD approval and refers the matter to a larger bench for reconsideration.

Bharat Petroleum Corporation

(Supreme Court) www.itatonline.org

Company – Book Profit – Adjustment for Capital Reserve Representing Surplus on Sale of Rights in Premises

115JB When the accounts are not prepared in accordance with Part II of Schedule VI to the Companies Act, the AO has power to go beyond the book profit as per audited accounts. Therefore, profit on sale of rights in premises having not been routed through P & L A/c the AO was justified in re-working the book profit in the manner provided by Part II of Schedule VI.

Bombay Diamond Co. Ltd.

(2010) 33 DTR 59 (Mum)

Company Law Tribunal

Parliament is competent to constitute Tribunals for special Acts. However, the failure to ensure independence of judiciary

R. Gandhi (Supreme Court – 5 Judges) www.itatonline.org



and separation of judicial and executive power renders the Company Law Tribunal unconstitutional. Suggestions given on how to remedy the defects.

Contractual Payment – Partnership Firm

4, 28 Contractual payment made by the assessee firm to its retiring partners, in terms of partnership deed, is not includible in the total income of the assessee since to that extent income has never reached the hands of the assessee.

RSM & Co. ITA No. 3269/Mum./2007, January (2010) BCAJ Vol. 41-B.P. 31.

(2010) 38DTR (Mumbai) (Trib) 246

Co-operative Societies – Deduction – Interest

80P The words “whole of the amounts of the profits and gains of business” must mean that the deduction would be allowed in respect of the operational income of the society and not other income which accrues to the society. Interest income earned from short-term deposit of the surplus money would not be eligible for deduction in case of co-operative society carrying on the business of providing credit facility to the members u/s. 80P(2)(a)(i) or marketing of agricultural produce of its members u/s. 80P(2)(a)(ii).

Totgar’s Co-operative sale society Ltd.

(2010) 322 ITR 283 (SC)

(2010) 35 DTR 25(SC)

(2010) 229 CTR 209(SC)

(2010)188 Taxman 282 (SC)

Co-operative society - Interest on refund

80P(2)(a)(i), 2(13), 28(i), 56, 244A

Interest on refund constitutes gains of business hence eligible for deduction. Income tax refund constitute income from other sources.

Maharashtra State Co-operative Bank Ltd.

(2010) 2 ITR 543 (Trib)(Mum)(SB),

(2010) 129 TTJ 521 (Mum)(SB),

(2010) 37 DTR 194 (Mum)(SB) (Trib)

Deduction – ‘Ship’ Would Include ‘Barge’

33AC Profits derived from operating and maintaining barges belonging to another person would qualify for deduction u/s. 33AC.

Orion Agencies Ltd.

(2010) 128 TTJ 524 (Mum)

Deduction – Actual Payment – Employees Contribution – PF

43B Delayed payment of employees’ PF contribution allowable u/s. 43B.

Pik Pen Pvt. Ltd. Source: www.itatonline.org

Deduction – Actual payment – Employees Contribution – PF

43B Even employees’ contribution to PF paid before due date of filing ROI is allowable u/s.

Aimil Limited (2010) 321 ITR 508



43B. 229 CTR 418

35 DTR 68

188 Taxman 265 (Delhi) Deduction – Actual Payment – Employees Gratuity Fund

43B Contribution towards employee’s gratuity fund was allowable if paid before filing of the return of income.

Popular Vehicle & Services Ltd.

(2010) 228 CTR 346 (Ker)

Deduction – Actual Payment – Reschedule of Loan

43B Assessee’s outstanding interest against loan from State Finance Corporation for period pertaining to Asst. Years. 1994-95 & 1995-96, was rescheduled by the finance corporation and the same was sourced by means of a fresh loan which had a repayment schedule over three years. Assessee claimed deduction for such interest in it’s return. Held that such rescheduling amounts to deemed payment of interest and is hence deductible u/s. 43B, even if not actually paid.

Vinir Engineering P. Ltd.

(2010) 186 Taxman 72 (Karn)

Deduction – Collecting and Processing of Bio-Degradable Waste – Employment of New Workmen

80JJA Since in proviso, to clause (I) of Explanation to s. 80JAA expression ‘existing number of workmen employed’ has been used and not expression ‘existing number of regular workman employed’ for the purpose of computing deduction u/s. 80JAA, percentage, increase in number of regular workmen has to be determined with reference to existing number of workmen employed in industrial undertaking.

Panacea Biotec Ltd.

(2010) 122 ITD 199 (Delhi)

Deduction – Computation – Set off of loss of Other Unit

80(B)(5), 80-IA

While computing deduction u/s. 80IA, loss of one eligible unit is not to be set off or adjusted against profit of another eligible unit.

Sona Koya Steering Systems Ltd.

(2010) 35 DTR 273 (Delhi) / Source: www.itatonline.org

Deduction – Computer Software

80HHE Receipts incidental to the activities of the assessee “involving the writing of computer software” i.e. set of instructions, were the eligible receipts, so long as the

Orbitech Ltd. (2010) 35 SOT 46 (Mum)



software was exported outside India or technical services were provided outside India, the provisions do not bar the assessee from claiming deduction on the basis of the actual use or utilization of the said exported software in India.

Deduction – Computer Software

80HHE Sending information which was sought by companies situated abroad, said activity amount to export of customized electronic data hence, the assessee is eligible deduction u/s. 80HHE.

Malhar Information Services

(2010) 122 ITD 421 (Mum)

Deduction – Co-operative Society – Interest Income

80P(2)(a)(i)

Where the surplus funds not immediately required for day to day banking were kept voluntarily reserves and invested in KVP / VP, the interest income received from KVP / VP would be income from banking business eligible for deduction u/s. 80P(2)(a)(i).

Solapur Nagari Audyogic Sahakari Bank Ltd.

(2010) 229 CTR 73 (Bom)

Deduction – Derived From – Excise Duty Refund – Interest Subsidy – Undertaking

80IB Excise duty and interest subsidy have no first generation or proximate nexus or source, which is essential for any profit to be treated as ‘derived from’ the industrial undertaking and therefore such receipts are not eligible for deduction u/s. 80IB.

Shree Balaji Alloys

(2010) 33 DTR 67 (Asr)(Trib)

Deduction – Dividend – Gross or Net

80M Assessee company being a development organization having made investment in shares of companies promoted by it and other upcoming companies in its role as development organization and not as an investor to earn dividend income, various activities carried out by the assessee constitute one single indivisible business and therefore no expenditure is to be apportioned to the dividend income of the assessee which is assessable as business income and deduction u/s. 80M is allowable on gross amount of dividend.

Tamil Nadu Industrial Development Corporation Ltd.

(2010) 127 TTJ 625 (Chennai)(TM), (2010) 34 DTR 233 (Chennai)(TM)

Deduction – Donation In Kind

80G Assessee is not entitled to deduction u/s. 80G in respect of donation of grass fodder supplied

Surat Electricity Co. Ltd.

(2010) 128 TTJ 696 (Ahd)


to various cattle camps on the direction of the State Government.

Deduction – Export - sale of scrap - total turnover

80HHC Value of scrap cannot be excluded while computing the deduction u/s. 80HHC.

Motor Industries Co. Ltd.

(2010) 37 DTR 94 (Kar)

Deduction – Export Incentive – Eligible Income

80–IA Entitlement to deduction u/s. 80-IA without reducing amount of export incentive – a substantial question of law.

Question whether the assessee was entitled to deduction u/s. 80-IA on the amount of entire eligible income without reducing the amount of export incentive from the same is an important question of law and interpretation of s. 80-IA arise for determination; High Court directed to decide the same.

Neo Sack (P) Ltd. (2009) 319 ITR 124 (SC)

(2010) 228 CTR 351 (SC)

(2010) 33 DTR 233 (SC)

Deduction - Gross or net

80M, 36(1)(viii)

Deduction u/s. 80M is allowable on gross amount of dividend without deducting the proportionate deduction available u/s. 36(1)(viii).

G.I.I.C. Ltd. (2010) 37 DTR 207 (Guj)

Deduction – Industrial Undertaking – Export Incentives – Duty Draw Back – DEPB License – Exchange Rate Difference

80-IB Deduction u/s. 80-IB is not allowable in respect of duty draw back, export entitlement and DEPB licence.

Exchange rate difference arises out of and is directly related to sale involving export of the industrial undertaking, hence entitled to deduction u/s. 80IB.

Liberty India (2009) 317 ITR 218 (SC), considered.

Rachana Udhyog (2010) 35 DTR 65 (Bom)

Deduction – Industrial Undertaking – Freight Subsidy

80-IA Freight subsidy provided to the industries set up in remote areas where rail facilities are not available is not income derived from the business of the industrial undertaking and cannot be included in the profits eligible for deduction u/s. 80IA.

Kiran Enterprises (2010) 228 CTR 101 (HP)

Deduction – Industrial Undertaking –

80-IA Amount received by the assessee as advance from customers and later forfeited by

Jackson Engineers Ltd.

(2010) 36 DTR 168 (Del)


Interest the assessee would not be eligible for deduction u/s. 80-IA of the Act.

Deduction – Industrial Undertakings – Gross Total Income

80-I Deduction u/s. 80-I of the Act is to be allowed on the gross total income, without reducing from it the deduction allowed u/s. 80HH of the Act.

K.P. Solvex Ltd. (2010) 36 DTR 443 (All)

Deduction – Manufacture – Poultry Farming

80HHA, 80-I

Poultry farming cannot be treated as manufacturing activity for purposes of deduction u/ss. 80HHA, 80-I.

J.D. Farms (2010) 187 Taxman 151 (Delhi)

Deduction – Manufacture or Production – Crushing Stone into Concrete

80IB Process of crushing of stone into stone concrete i.e., grit, in stone crusher is a manufacturing activity within the meaning of s. 80IB.

D.J. Stone Crusher

(2010) 33 DTR 267 (HP)

Deduction – New Industrial Undertakings – Manufacture – Production – Limestone

80-IA Process of converting limestone in to lime powder is a manufacturing activity within the meaning of s. 80IA and 80IB.

Janak Raj Bansal (2010) 33 DTR 30 (HP)

Deduction – other income

80HHC Receipts with no nexus to exports have to be excluded for s. 80HHC deduction.

Dresser Rand India

(2010) 323 ITR 429 (Bom)

Deduction – other income

80HHC EEFC A/c foreign exchange fluctuation and interest not eligible u/s. 80HHC.

Shah Originals (Bombay High Court) www.itatonline.org

Deduction – Professional Income – Foreign Sources – Chartered Accountant

80RR Income earned by the assessee by exercise of his profession as a Chartered Accountant which has nothing to do with the exercise of his profession as an author is not entitled to deduction u/s. 80RR.

Dilip K. Sheth (2010) 33 DTR 561 (Mum)

Deduction - profits and gains from industrial undertakings

80I, 80HH

Deduction u/s. 80I should be allowed on gross total income, without reducing from it the deduction allowed u/s. 80HH.

K.P. Solvex Ltd. (2010) 36 DTR 443 (All)

Deduction – Royalties – Foreign Enterprise – Apportionment of Expenses

80-O Project relocation expenses which could be treated exclusively as domestic expenses and were, therefore, not to be taken into account for apportioning the same between the foreign expenses and domestic expenses while allowing deduction u/s. 80-O.

KSA Technopak (India) (P) Ltd.

(2010) 33 DTR 148 (Delhi)

Deduction – 80IB Milling of wheat into rawa, bran Sri Sai Roller (2010) 35 SOT 345 (Hyd)



Undertaking – Manufacture – Milling of Wheat In to Rawa

atta and maida can be considered as manufacture or production of distinct article, things for the purpose of deduction u/s. 80IB.

Flour Mills (P) Ltd.

Deduction at source - purchase of Air Craft - fees for technical services - DTAA - India and Russia - Art. 12

195, 90, 9, 201(1), 201(IA)

Payment made to foreign company for purchase of air craft engines, could not be regarded as “fees for technical services” hence, provisions of s. 195 cannot be applied.

Hindustan Aeronautics Ltd.

(2010) 123 ITD 575 (Bang)

Deduction of tax at Source – Appeal – Payment to NRI

195, 201, 246, 248

Where the appeal against order u/s. 195(1) and 201 was made, Appellate authorities cannot decide whether payment was assessable or not.

Editorial Note : SLP admitted by supreme courts

Samsung Electronics Co. Ltd.

(2010) 320 ITR 209 (Kar)

Deduction of Tax at source - Certificate not showing the date

194I, 205 Credit for tax deducted at source must be given to the assessee, though the certificate furnished by the deductor has not shown the date of payment to Central Government.

Ahluwallia and Associates

(2010) 2 ITR 582 (Ahd)(Trib)

Deduction of tax at source - commission or discount - Sim card

194H, 201(1), 201(IA)

Margin money earned by the assessee company on supply of prepaid SIM cards and recharge coupons, etc was in the nature of commission and therefore, the assessee service provider is liable to deduct tax at source u/s. 194H.

Vodafone Essar Cellular Ltd.

(2010) 129 TTJ 222 (Coch)

(2010) 35 DTR 393 (Coch)

Deduction of Tax at Source – Commission Payment

194H Discount offered by the assessee a cellular operator to the distributors on payments made by the distributors for the SIM cards / recharge coupons which are ultimately sold to the subscribers at list price is in the nature of commission and is subject to tax deduction at source (TDS) u/s. 194H of the Act.

Idea Cellular Ltd. (2010) 35 DTR 219 (Del)

Deduction of Tax at Source – Contract Manufacturing – Amounting to Sale

194C Tests laid down to determine when contract manufacturing will amount to a contract of sale for s. 194C TDS.

Glenmark Pharmaceuticals Ltd

(2010) 37 DTR (Bom)265

(2010)231CTR (Bom) 105

Deduction of tax at source – failure to deduct or pay – advance tax –

201(1A), 234A, 234B, 234C

Where the deductor had already discharged tax liability payable u/s. 201(1A) of the act and no

Emilio Ruiz Berdejo

(2010) 320 ITR 190 (Bom)

228 CTR 145


interest further interest could be claimed by the revenue from the deductee-employee either u/s. 234A or s. 234B or s. 234C.

Deduction of Tax at Source – Fess for Professional or Technical Services – VSAT

194J Payment made to Stock exchange for providing infrastructure to their members is not in the nature of technical services to attract provisions of s. 194J.

Editorial Note: See Kotak Securities Ltd. vs. Addl. CIT (2009) 24 DTR 214 (Mum).

Angel Broking Ltd.

(2010) 35 SOT 457 (Mum)

Deduction of Tax at Source – Hiring of Truck

194C, 40(a)(ia)

Hiring of trucks belonging to truck owners without man power i.e. drivers and conductors, cannot be said to be carrying on any work as used in s. 194C, and as such no tax was deductible from payments made to truck owners.

Satish Aggarwal & Co.

(2010) 122 ITD 35 (Asr)

Deduction of Tax at Source – Interest other than Interest on Securities – Trust

194A Assessee trust whose beneficiaries and trustees being ex-employees of the company, is not liable to deduct TDS u/s. 194A, in respect of sums credited to members account, as the status being Individual, provisions of s. 194A are not applicable.

NTPC Ltd. Employees Provident Fund Trust

(2010) 186 Taxman 13 (Delhi)

Deduction of Tax at Source – Interest other than Interest on Securities – Decree

194A Once decree is passed, it is a judgment debtor of the Court, which culminates in to final decree being passed which has to be discharged only on payment of amount due under said decree and therefore judgment debtor is not liable to deduct tax at source on interest component of decree.

Madhusudan Shrikrishna vs. Emkay Exports

(2010) 188 Taxman 195 (Bom)

Deduction of Tax at Source – Non Resident – Royalty – DTAA – INDIA – USA – UK

195, 5(2), 9(1)(vi), 40(a)(1), 195, Articles 26(3), 26(4)

Payments to non-resident for hire of transponders is royalty, tax has to be deducted at source.

Asianet Communications Ltd.

(2010) 1 ITR 683 (AT )(Chennai)


Deduction of Tax at Source – Obligation to Pay

195(1) S. 195(1) TDS obligation does not arise if the payment is not chargeable to tax. Samsung Electronics not followed.

M/s. Prasad Production

(2010) 3 ITR (Trib) 58 Chennai (SB)

Deduction of Tax at Source – Payment to Non-Resident

195, Reimbursement of expenses related to fee for technical services, provisions of s. 195 would be applicable, however, in view of fact that all services had been provided by “L”, off shore, assessee would not incur any liability to deduct tax towards payment in respect of services.

Bovis Lend Lease (India) (P) Ltd.

(2010) 36 SOT 166 (Bang)

(2010) 127 TTJ 25 (Bang ) (UO)

Deduction of Tax at Source – Salary – Perquisite

192, 2(24)(iii), (iiia), (iiib), 17(1)(iv), 2(ii)(C), Expln. 201

Employer providing composite free bus pick up and drop facility to employees, not taxable as perquisites. Value of facilities enjoyed by all employees as it is impossible of computation, computation machinery fails hence, the employer cannot be treated as assessee in default for failure to deduct tax at source.

Editorial Note:– See WNS Global Services (P) Ltd. (2009) 33 SOT 445 (Mum).

Transwork Information Services Ltd.

(2010) 1 ITR 58 (Mum)(Trib)

Deduction of Tax at Source – Salary – Technical Services – Consulting Doctors

194J, 192, 201

Where a hospital engaged consulting doctors and provided them with chambers with secretaries assistance and fee collected from outpatients and paid to consultants each day after deducting certain amount towards rent and secretarial assistance, it was not a case of payment of professional fees and neither s. 192, nor s. 194J was attracted and the hospital cannot be treated as assessee in default for not deducting tax from such payments.

Indraprastha Medical Corp. Ltd.

(2010) 128 TTJ 500 (Delhi)

Deduction of Tax at Source – Sub–Contract

194C(2) Assessee, a cooperative society was formed by the truck owners and it entered into contracts

Ambuja Darla Kashlog Mangu Transport Coop.

(2010) 188 Taxman 134 (HP)


with companies for transportation. The company deducted TDS @ 2%. Thereafter the assessee-society paid the amount to the truck owners on the basis of work done after deducting a nominal amount for administrative expenses. The relationship between assessee and its members was NOT that of a contractor and a sub-contractor. The assessee was formed as a matter of convenience. The society was nothing more than a conglomeration of truck operators themselves. The truck owners were virtual owners of the society even though the society was a distinct legal entity. The society was formed only because the companies were not ready to deal with individual truck owners. The society did not even retain profits. There was no sub-contract hence not liable to deduct tax at source.

Society

Deduction of Tax at Source – Sub–Contractor

194C(2), 40(a)(ia)

Assessee taking vehicles on hire for purpose of executing contract, not a case of sub-contract, tax need not be deducted at source.

Mythri Transport Corporation

(2010) 1 ITR 290 (Visakhapatnam) (Trib)

Deduction pf Tax at Source – Fees for Technical Services

194J, 9(1)(vii), 40(a)(1)(iii)

Payment of uplinking charges by assessee to parent company not in the nature of fees for technical services hence not liable to deduction of tax at source.

Reimbursement of expenditure incurred in respect of Global accounts manager cannot be treated as payment of salary. Similarly reimbursement of common expenses incurred of parent company for benefit of group concerns not liable for deduction of tax at source.

Expeditors International (India) P. Ltd.

(2010) 2 ITR 153 (Delhi)


Deemed dividend - Receipts in the ordinary course of business

2(22)(e) Receipts which are in the ordinary course of business cannot be treated as deemed dividend.

Sunil Chopra (2010) 2 ITR 469 (Trib)(Delhi)

Deemed dividend - Misappropriation by share holder - Can be taxed in the hands of share holder and not in the assessment of company.

2(22)(e) Amount received from a company having been misappropriated by shareholder, there was no loan or advance, even assuming to be dividend it would have to be taxed in the hands of shareholder and not in the hands of assessee.

Editorial Note:- Decision of Special Bench in CIT vs. Bhaumik Colour (P) Ltd. (2009) 120 TTJ 865 (Mumbai) (SB), (2009) 118 ITD 1 (SB) approved.

Universal Medicare (P) Ltd.

(2010) 37 DTR 409 (Bom)

Deemed Dividend – Transaction in The Normal Course of Business

2(22)(e) Transactions in the normal course of business cannot be treated as deemed dividend more so as the assessee is not a share holder of the payer company and none of the shareholders of the latter is a share holder in the assessee company having substantial interest.

Timeless Fashions (P) Ltd.

(2010) 128 TTJ 489 (Delhi)

Definitions – Charitable Purpose

2(15) In order to achieve objects of giving relief to poor and in furtherance of education and medical relief, if assessee was running some activity that yielded profit, even then registration cannot be denied.

Prasanna Trust (2010) 36 SOT 135 (Bang)

Depreciation – Actual Cost

43(1) In order to apply Expl. 3 to s. 43(1), AO has to determine the actual cost of the assets to the assessee which can only mean arm’s length value or real value or worth of assets transferred. Burden is on AO to establish that actual cost is not proper.

Chitra Publicity Company (P) Ltd.

(2010) 127 TTJ 1 (Ahd)(TM)

Depreciation – Block of Assets

32, 2(11), 32, 43(6)

Scrap value of the assets which have been written off during the year is to be reduced from the WDV of the block of assets for the purpose of allowing depreciation and not of the individual assets.

Xerox India Ltd. (2010) 127 TTJ 84 (Delhi)

Depreciation – Canteen – Factory Building

32 Canteen for workers inside factory premises, constitutes factory building. Entitled to higher rate of depreciation.

Bajaj Auto Ltd. (2010) 322 ITR 29 (Bom)

Depreciation – Earth 32 Earth moving equipment Gaylord (2010) 40 TAX L.R. 85


Moving Equipment namely JCB is eligible depreciation at 40% which rate is provided for “Motor Buses, Motor Lorries, Motor Taxis” which is used in the business of running them on hire.

Constructions, Kachappilly House, Angamaly

(Ker)

Depreciation – Enhancement Of Cost Due To Variation In Foreign Currency

32 Assessee is entitled to claim depreciation and investment allowance on increased cost of plant and machinery resulting from increase in liability to repay foreign currency loans taken for purchase of such plant and machinery.

Century Enka Ltd.

(2010) 188 Taxman 282 (Cal) (A.Y. 1988-89)

Depreciation – Extra Shift Allowance

32 Where extra shift allowance has to be calculated, it is not in respect of any particular item or machinery. If any portion of the plant has worked extra shift, then benefit would be available in respect of entire plant.

Shivalik Hatcheries

(2010) 186 Taxman 79 (HP)

Depreciation – Intangible Asset – Licence

32(1)(ii) Commercial rights of exploration of mineral oils acquired by assessee by entering in to production sharing agreement with the Russian Government fall under the expression ‘any other business or commercial rights of similar nature’ same being akin to “licence” as stipulated in s. 32(1)(ii) and therefore, they are in the nature of intangible assets eligible for depreciation.

Editorial Note: See Bombay High Court CIT vs. Techno Shares & Stocks Ltd. (2009) 184 Taxman 103 (Bom.)(2010)323 ITR 69(Bom).

F Videsh Ltd. (2010) 33 DTR 22 (Delhi)

Depreciation - investment allowance - stand by spare parts

32, 32A Depreciation and investment allowance are allowable on standby spare parts, even though they were not taken for use during the year.

SPIC Ltd. (2010) 37 DTR 177 (Mad)

Depreciation – Motor Vehicles on Hire

32 ` Assessee is entitled to higher rate of depreciation as per Appendix I, Income Tax Rules, 1961 Entry III(3)(ii) in respect of motor cars

Magma Fincorp Ltd.

(2010) 35 DTR 76 (Kol)


used in the business of running them on hire.

Depreciation – Ownership of Asset

32 Owner is a person who is entitled to receive income from the property in his own right. In order to claim benefit of sec. 32 it is not necessary that the assessee should be a complete owner. The buses on which the assessee had claimed depreciation were not registered in her name, however the assessee producer all the documents relating to loans obtained, insurance etc. relating to the business to establish that she was beneficial owner and received income. It was held she was entitled to depreciation.

A. Sivakami & Anr. (Smt.)

(2010) 322 ITR 64 (Mad)

Depreciation – Plant – Flyover, Roads, Bridges

32 Assessee being engaged in building flyover, roads, bridges, express highways, ROB, etc. and carrying on its activities of developing and maintaining infrastructure facilities by permitting vehicles to ply over these structures, they are tools of the trade and essential adjuncts to the business and therefore, constitute plant entitled to depreciation at 25 per cent.

Maharashtra State Road Development Corporation Ltd.

(2010) 128 TTJ 32 (Mum)

(2010) 34 DTR 389 (Mum)

Depreciation on Account of Enhanced Cost

37 The Supreme Court relying on its earlier decision in the case of CIT vs. Woodward Governor India P. Ltd. 312 ITR 254 (SC) held that the claim for depreciation on account of enhanced cost due to fluctuation in the foreign exchange rate is admissible as a deduction u/s. 37 of the Act.

Maruti Udyog Ltd.

(2010) 320 ITR 729 (SC)

Disallowance – Trade Discount

40A(2) Trade discount allowed by the assessee to its sister concern on the sales made could not be disallowed in part by invoking s. 40A(2).

Grandpix Fab. (P) Ltd.

(2010) 128 TTJ 60 (Del)

Double Taxation Reliefs – International

90, ART. 8

Transportation of mail or cargo, etc. by the assessee in the international traffic by the

Federal Express Corporation

(2010) 35 DTR 425 (Mum)


Taxation – DTAA – India–USA – Transportation of Mail

aircrafts as owner / charter / lessee fell within the scope of Article 8 and therefore, profits attributable to the same cannot be taxed in India. Benefit of Article 8 cannot be denied to the assessee merely on the ground that the assessee was collecting cargo from its customer’s place and transporting the same to airport for the purpose of further transportation in the international traffic and vice versa.

DTAA – India - USA - fees for included services

90, Arts. 7 & 12

Consideration received for factory acceptance test and project management and engineering support services were not liable to tax in India, because such services were rendered overseas and non resident did not make technical services to Indian party.

Scientific Atlanta, INC

(2010) 37 DTR 98 (Mum)(Trib)

Estimate by valuation officer - Reference to determine lower figure

142A A reference to Department valuation officer u/s. 142A, can be made by assessing officer only in cases where assessee has made more investment or is owner of bullion, jewellery or any other valuable article etc. at a higher figure than that recorded in his books of account, it no where contemplates a situation in which assessee has shown a higher value of assets owned by him, where as in opinion of assessing officer, such value should be at a lower figure, hence, reference made was void ab initio.

Saraswati Devi Gehlot (Smt.)

(2010) 123 ITD 605 (Jd)

Exempt Incomes – Deductions – Set off of Losses

10A Deduction has to be made at the stage of computing the income under head “Profits & gains” and not at the stage of computing the gross total income. The deduction u/s. 10A attaches to the undertaking and not to the assessee. The losses of a non-eligible unit cannot be set off against the profits of an eligible unit and are eligible to be set-off against other income or to be carried forward.

Scientific Atlanta (2010) 2 ITR 66 (Chennai)(SB)

Exempted Income – 10A, For the Asst. Year 2003-04, Vidya Tech (2010) 35 SOT 25 (Delhi)


Free Trade Zone – Allocation of Deductions for two Different Periods

80HHE assessee claimed u/s. 80HHE in respect of period 1-4-2002 to 13-1-2003 and further claimed deduction u/s. 10A, in respect of profits from 14-1-2003 to 31-3-2003 as the registration was obtained only from 14-1-2003. The Tribunal held that as the assessee computed profits for two periods on reasonable basis, the claim of assessee is allowed.

Solutions (P.) Ltd.

Exemption – Capital Expenditure – Deduction – Computation of Profit

10(23C)(v)

Section 10(23C)(v) benefit cannot be denied merely because there are profits. In computing the profits, capital expenditure has to be deducted.

Pinegrove International Charitable Trust

Source: www.itatonline.org

Exemption – Export – Interest on Fixed Deposits

10A Interest earned on fixed deposits and miscellaneous income, is not profit derived by an undertaking from export, hence not exempt u/s. 10A.

Global Vantedge P. Ltd.


Exemption – Export Incentive

10A Export incentive which are includible in the profits of the business of the undertaking are entitled to exemption u/s. 10A.

Wipro Ltd. (2010) 34 DTR 493 (Bang)

Exemption – Export of Customized Electronic Data

10A Assessee having provided the services of recruitment and training of software professionals to its parent company in USA by storing the relevant data in an electronic device and transmitting the same to USA for the use of the parent company, it is a customized electronic data with in the meaning of clause (I). The assessee is entitled to deduction in India u/s. 10A in respect of the income earned by it from its parent company for providing the said services.

Accurum India (P) Ltd.

(2010) 34 DTR 301 (Chennai)(TM),

128 TTJ 249 (TM)

Exemption - Export oriented unit - Computer programmes

10B, 10BB

Technical data received from overseas clients on basis of which designs drawings and layouts created by assessee’s engineers using computer software is “management of electronic data” and the assessee is entitled to exemption u/ss. 10B, 10BB.

Tecnimont ICB Pvt. Ltd.

(2010) 2 ITR 480 (Trib) (Mumbai)

Exemption – Free Trade Zone

10A Profits and gains on domestic sales not exceeding twenty five percent of total sales shall also be deemed to be profits and gains derived

T. Two International (P) Ltd.

(2010) 122 ITD 255 (Mum)



from export of articles qualifying deduction u/s. 10A. Where assessee company had made local sales of raw materials as well as of finished goods to its holding company, value of said sales was to be included in total sales for the purpose of calculating benefit of deduction u/s. 10A.

Exemption – Free Trade Zone – Manufacture

10A Blending and repacking of tea is manufacture. Since the purpose of exemption u/s. 10A is to give effect to the EXIM Policy of the Government, the definition of “Manufacture” contained in the EXIM policy is applicable.

Girnar Industries (2010) 187 Taxman 136 Ker)

(2010)36 DTR 402(Ker)

Exemption – Salary – Voluntary Retirement

10(10C), 89

Amount received under voluntary retirement scheme exempt upto 5 lakhs u/s. 10(10C). Amount in excess of 5 lakhs entitled to relief u/s. 89.

T.K. Paliwal

S.N. Sharma

Sunil Kumar Ganguly & Ors.

(2010) 322 ITR 101 (Raj)

(2010) 322 ITR 105 (Raj)

(2010) 322 ITR 297 (Cal)

Exemption – Scheduled Tribe – Migrated Member

10(26) Member migrating from his place of origin in one area specified in s. 10(26), to another area also specified therein, benefit of exemption is available.

Pradip KR Taye and Others

(2010) 320 ITR 29 (Gauhati)(FB)

Exemption – Unit Outside STP

10A There is no requirement in Notification No. 30 (RE) 1992-97 dt. 22-3-1994, that a particular unit must be located inside STP and it is enough if the unit situated at a particular location is notified as STP, in view of the said notification, assessee’s unit located at Gurgaon with the approval of Government of India is entitled to exemption u/s. 10A.

Xerox India Ltd. (2010) 127 TTJ 84 (Delhi)

Export – Deduction Under Chapter VI-A

80HHC, 80-IA & 80-IB

In order to invoke provisions of s. 80-IA(9), it is necessary that deductions u/s. 80HHC & s. 80-IA have to be in respect of the same undertaking.

Grasim Industries Ltd.

(2010) 35 SOT 249 (Mum)

Export – Netting of Interest

80HHC For explanation (baa) to s. 80HHC, netting of income from expenditure is not allowed.

Asian Star Co. (Bom.)

(2010) 37 DTR (Bom) 209

(2010) 231 CTR (Bom) 1


(90% of Gross interest to be considered)

Decision of Special Bench Lalson Enterprise vs. Dy. CIT (2004) 89 ITD 25 (SB), not approved.

CIT vs. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi), dissented.

Export – Oriented Undertakings – Income Derived – Interest Income on FDR

10B Interest income on FDRs and surplus funds could not be held to have been derived from export of information technology services.

Tricom India Ltd. (2010) 36 SOT 302 (Bom)

Export – Relevant Date

80HHC Date of export out of India. Held that the relevant date was the date when the goods were dispatched and cleared by the customs and not the date as per the bill of lading.

Vallabh Metal Inc.

ITA No. 2564/M/09, BCAJ P. 33, Vol. 41 B Part 4, January 2010

Export – Unabsorbed Business Loss and Unabsorbed Depreciation – Carry forward and set off

10A After the amendment with effect from April 1, 2001, onwards the brought forward loss pertaining to the specific undertaking eligible for deduction u/s. 10A are allowed to be carried forward and set off against the income of such undertaking in the future assessment year and setoff within the block period itself.

Global Vantedge P. Ltd.


Export Computer Software – Depreciation

80HHE The assessee had a contract for design, development and testing of software outside India. Under the contract the scope of work involved the provision of analysis, programming and testing skills. The assessee had deputed qualified personnel under the contract. Held that the assessee was engaged in onsite development of computer software outside India. The nature of work involved was technical services in the development of Software. The assessee was eligible for special deduction

Information Architects

(2010) 322 ITR 1 (Bom)


u/s. 80HHE. Export Oriented Undertaking

10B Assessee, an exporter of computer software was using old plant & machinery/infrastructure of another concern to develop its software. The AO rejected the assessee’s claim u/s. 10B on this ground that the assessee was using old plant & machinery/infrastructure of another concern. Held that since the instant case was not a case of manufacture of any article but development & creation of intellectual property namely software programme, and the essential / main inputs for such activity were that of personnel belonging to assessee and their intellect, and hence, use of computers was not significant. Therefore assessee was entitled for deduction u/s. 10B.

Teehdrive (I) P. Ltd.

(2010) 186 Taxman 208 (Del)

Export Oriented Undertaking – Carry Forward Losses of Earlier Years

10B Brought forward losses are is be adjuster against total income of relevant assessment year and, it is out of balance income only that deduction u/s. 10B can be granted.

Sword Global (I) (P) Ltd.

(2010) 122 ITD 103 (Chennai)

Export Oriented Undertakings – Set-off of Brought Forward Loss

10B Brought forward business loss must be set of first against business profits and thereafter any deduction or exemption under the Act has to be given.

Sword Global (I) (P) Ltd.

(2010) 122 ITD 103 (Chennai)

Failure to furnish return - only Karta could be liable for tax offence of the HUF.

276CC Member of HUF can not be held liable for delay in filing of the return of HUF, though he has participated in the assessment proceedings.

Rosahnlal (2010) 322 ITR 353 (All)

Fees for technical services

9(1)(vii) Fees for technical services, even if rendered outside India, are taxable.

Ashapura Minichem


Firm – disallowance - book profit - interest on bank fixed deposit

40(b) For the purpose of computing deduction u/s. 40(b), interest on bank FDRs is not to be excluded from the net profit.

Allen Career Institution

(2010) 37 DTR 379 (JP)(Trib)

Firm – disallowance - salary to working partner - interest from deposit - book profit

40(b) A firm of solicitor is under obligation to keep the money received from its clients as deposit in a separate bank account, therefore, interest from such

Bilawala & Co. (2010) 37 DTR 335 (Mumbai)(Trib)



deposits will be assessable as profits and gains of business or profession hence, such interest has to be considered while computing book profits as per s. 40(b).

Foreign Exchange Fluctuation Loss

37(1) The Supreme Court has held that the loss claimed by the appellant on account of fluctuation in the rate of foreign exchange as on the date of the balance sheet was allowable as expenditure u/s. 37(1). The Supreme Court further held that when the imported asset is acquired in foreign currency then fluctuation in the rate of foreign exchange pending actual payment has to adjusted against the cost u/s. 43A, prior to the amendment by the Finance Act, 2002.

Liberty India (2010) 28 DTR 73 (SC)

Full valuation of consideration

50C S. 50C does not apply to ‘rights’ in land and building like tenancy rights.

Kishori Sharad Gaitonde

www.itatonline.org)

Full Value of Consideration

50C, 69B Provisions of S. 50C do not apply to the purchaser of property. S. 69B requires collection of independent evidence to show that any undisclosed investment was made by the assessee in purchase of property failing which the buyer could not be saddled with the liability on account of undisclosed investment.

Kusum Gilani (Smt)

ITA No. 1576/Del/08, BCAJ P. 16, Vol. 41 - B Part 6, March 2010

Housing Projects – Different Wings

80IB(10) Assessee having constructed Wing “E” after obtaining commencement certificate in 2002 and 2003 though similar certificates had been obtained prior to 1998, in respect of A, B, C, and D wing, Wing E was a separate housing project and same having been completed before 31st March 2005, the assessee was entitled deduction u/s. 80-IB(10) in respect of “E” Wing.

Vandana Properties

(2010) 128 TTJ 89 (Mum)(UO)

Income – Capital or Revenue Receipt – Incentive – Subsidy

4 Incentives in the form of excise duty refund and interest subsidy which has been granted for substantial expansion of unit, only

Shree Balaji Alloys

(2010) 33 DTR 67 (Asr)

(2010) 127 TTJ 129 (Asr)



after commencement of production and not for setting up of new industries or to purchase capital assets, same constitute revenue receipt.

Income – Compensation – Revenue or Capital

4 The assessee firm entered into an agreement for sale of a cinema building alongwith land. The agreement failed and as per terms of agreement the firm became entitled to compensation. It was held that compensation amount received on breach of contract was a capital receipt.

S. Zoraster & Co. (2010) 322 ITR 35 (Raj)

Income – Duty Drawback and Cash Assistance Accrual Basis

4 Addition on account of duty drawback and cash assistance on accrual basis held to be not justified.

Editorial Note: CIT vs. Matchwell Electricals I Ltd. (2003) 263 ITR 277 (Bom).

Bajaj Auto Ltd. (2010) 322 ITR 29 (Bom)

Income – Mutuality 4 Interest income earned by the assessee club from fixed deposits and other investments made by it is not exempt on the principle of mutuality.

As regard the other miscellaneous income viz. hall charges, guest house charges, mike charges, etc. the High Court remanded these issues back to the Tribunal to be decided in light of Apex Court decision in the case of CIT vs. Bankipur Club Ltd. [(1997) 226 ITR 97 (SC)], as the Tribunal had not given any finding on these miscellaneous receipts.

Coimbatore Cosmopolitan Club

(2010) 34 DTR 62 (Mad)

229 CTR 414 (Mad)

Income – Mutuality – Club

4 Assessee was running a recreation club for its members. Its receipts from providing food, room facilities to its members and their guest was not liable to tax.

Delhi Gymkhana Club Ltd.

(2010) 35 SOT 335 (Delhi)

Income – Principle of Mutuality – Co-operative Society

4 Bye-laws themselves provided for non-occupation charges. In

Mittal Court Premises Co-operative Society

(2010) 320 ITR 414 (Bom)


these circumstances, the principle of mutuality would apply. The non-occupancy charges were not taxable.

Editorial Ref.: Sind Co-op. Hsg. Society vs. CIT (2009) 317 ITR 47 / 182 Taxman 346 / 226 CTR 145 (Bom).

Ltd.

Income – Prizes Won in Entertainment Programmes On Television

2(24) Prizes won in entertainment programmes on television included by amendment in s. 2(24) w.e.f. from 1-4-2002, and the said amendment is prospective.

Miss Lopamudra Misra

Smt. Neena Jain

(2010) 40 Tax L.R. 49 (Orissa)

(2010) 36 DTR 49 (P&H)

Income – Remission or Cessation of Liability

41(1) Assessee having shown the amount payable by it to another company as an existing liability in its books and written back the same, it cannot be said that the aforesaid liability has ceased to exist and therefore it cannot be treated as income by invoking the provisions of s. 41(1).

GP International Ltd.

(2010) 33 DTR 163 (P&H)

Income deemed to accrue or arise in India – business connection

9(1)(i) Activities of identification of suppliers, quality control, preproduction meeting online inspection, post manufacturing inspection, handling of logistic and co-ordination carried out by the Indian branch office the foreign company (assessee) under an agreement with another foreign company for providing assistance to its customers in connection with purchase of goods from India fall within the scope of Expl. 1(b) to s. 9(1)(i) and therefore, no part of assessee’s income from such services is taxable in India.

Mondial Orent Ltd.

(2010) 37 DTR 267 (Bang)(Trib)

Income deemed to accrue or arise in India - International taxation – DTAA – India -Australia - Supply of equipment

9(1)(i), 5(2), art. 7

Where a transaction of off shore supply of equipment got completed outside India and the payment was also received by assessee in foreign country, no income accrued or arose in India, hence not taxable.

Xelo PTY Ltd. (2010) 37 DTR 154 (Mumbai)(Trib)


Income from house property - brokerage payment

23, 24 Brokerage paid by assessee to different brokers for introducing parties for renting out premises is not a charge created on property and thus same can neither be deducted from rent u/s. 23 nor is it allowable as deduction u/s. 24.

Tube Rose Estates (P) Ltd.

(2010) 123 ITD 498 (Delhi)

Income From House Property – Business Income

22, 28 The main business of the assessee was of development and sale of property and not renting of property. Hence, the rent received could be taxed under the head income from property instead of income from business.

Haryana Urban Development Authority

(2010) 322 ITR 61 (P&H)


22, 28 Rent from premises with fittings. Apportionment between business income and income from house property held to be justified.

Mysore Inter Continental Hotel P. Ltd.

(2010) 322 ITR 116 (Karn)


22, 28(i) When income has been earned by mere exploitation of ownership of property, the same is assessable as income from house property. If immoveable property has been temporarily let out with primary object to exploit same by way of complex commercial activity, then income is assessable as business income.

Hiranandani Developers (P) Ltd.

(2010) 35 SOT 430 (Mum)

Income from House Property – Lift Services Charges

22 Where lift service charges received, AO taxing the lift charges as income from house property holding the lift as an integral part of the house. Matter remanded to the AO to examine the terms of tenancy agreement & decide the matter.

Mohan Enterprise (2010) 215 Taxation 575 (Ker)

Income from house property – Ownership - Company vis-à-vis shareholders

22, 27(iii) When the structure of the building is construed by the company out of its own funds and not on behalf of the shareholders and even the title to the property also shows the company as owner and in the rental agreement the company has shown as owner and entitled to receive the rent, the rental income is assessable in the hands of the company and not shareholders.

Monarch Citadel (P) Ltd.

(2010) 37 DTR 1 (Kar)

Income From House Property – Rental

22 Assessee company’s main object being investment in properties,

Mangla Homes (P) Ltd.

(2010) 215 Taxation 511 (Bom)


Income flats, shops, warehouses, commercial properties. Due to recession certain flats not sold & let out on licence basis for temporary period. Held, the rental income is taxable as income from property.

Income from other Sources – Business – Interest

56, 4 Interest received by assessee on advances given to contractors for undertaking the expansion project of its refinery, though treated as part of business income is to be adjusted in the work in progress.

Mangalore Refinery & Petrochemicals Ltd.

(2010) 128 TTJ 285 (Mum)

Income from other Sources – Packing Credit

57(iii) The amount was transferred by the bank at the instance of the assessee from the cash / packing credit account of the assessee into fixed deposit account. The interest income earned thereon was offered by the assessee as Income from Other Sources after deducting an estimated amount of interest expenses in terms of s. 57(iii) of the Act from the interest earned by the assessee on such fixed deposits. On these facts the Hon’ble High Court held that as the term deposits made by the assessee were not from borrowed funds but from the export proceeds credited in the cash / packing credit account as such the interest expenses cannot be allowed as deduction from the interest income earned by the assessee on such term deposits.

Dhanalakshmi Weaving Works

(2010) 36 DTR 461 (Ker)

Income from Undisclosed Source

69 Where the assessee was able to show from its books of account maintained by it in the course of its regular business and which was supported by the vouchers, etc., addition u/s. 69 of the Act cannot be made with respect to such inflated statement given to the bank of the stock which was

Arrow EXIM (P) Ltd.

(2010) 35 DTR 280 (Guj)


hypothecated with it merely to obtain higher credit facility.

Income from Undisclosed Sources – Addition – on Money

69 In the absence of any material on record to show that the assessee has in fact paid on money for the purchase of flat, addition could not be made in the hands of the assessee merely on the basis of the statement of a partner of the vendor firm or the notings on a document which was seized from the business premises of the said firm.

Jawaharlalbhai Atmaram Hatthiwala

(2010) 128 TTJ 36 (Ahd)(UO)

Income from Undisclosed Sources – Survey – Addition on The Basis of Statement

69, 69A, 133A

Confession made by the assessee during survey proceedings is not conclusive and it is open to the assessee to establish that the same was not true and correct by filing cogent evidence. Additions deleted by the Tribunal was justified.

Vijay Kumar Kesar

(2010) 36 DTR 13 (Chhattisgarh)

Industrial Undertaking – Manufacture – Masalas

80-IB Assessee engaged in producing different varieties of masalas using different spices as inputs, for which even machineries were used for processes like grinding, pulping, drying, etc. and then packing and selling the end product which are different from the different spices used in the process, would amount to manufacturing, and not merely processing so as to deny deduction u/s. 80-IB.

Empire Spices & Foods Mumbai Ltd.

(2010) 188 Taxman 36 (Mum)

Industrial Undertakings – Enterprises – Computation – Loss in other Unit

80-IA, 80-IA(2), (5)

For the purpose of determining the deduction u/s. 80-IA, the eligible deduction in terms of s. 80-IA(5), has to be reduced from the total income computed under the provisions of the Act, after setting off loss in another unit and if the total income is less than the eligible amount, deduction u/s. 80-IA has to be limited to such amount.

Accel Transmatic Sysyems Ltd.

(2010) 230 CTR 206 (Ker)

Industrial Undertakings – Initial Assessment Year – Trial Production –

80-IA Initial assessment year for the purpose of s. 80-IA is the assessment year relevant to the previous year in which the

Nestor Pharmaceuticals Ltd.

(2010) 36 DTR 200 (Del)


Commercial Production

commercial production is started and not the assessment year in which there was only a trial production.

Industrial Undertakings – Interest from Customer – Computation

80-IA Interest received by the assessee on overdue payments from customers is eligible for deduction u/s. 80IA.

Advance Detergents Ltd.

(2010) 188 Taxman 15 (Del)

Insurance Business – Profits on Sale of Investment

44 The taxability of income of insurance companies under the head ‘Income from business and profession’ as governed by provisions of s. 44, read with First Schedule to the Act, did not extend to taxability of profits on sale of investments – so far as the relevant Assessment Years were concerned.

General Insurance Corporation of India

(2010) 35 SOT 161 (Mum)

Interest – Advance Tax – Tax Deducted at Source

234B, 195 Income subject to tax deduction at source, interest cannot be charged u/s. 234B.

Krup Uhde GmbH

(2010) 1 ITR 614 (Mum)(Trib)

Interest – Advance Tax – Tax Deduction at Source

234B, 209, 234C

There cannot be any interest liability u/s. 234B or 234C, for the non–resident assessee where all payments received from Indian source are subject to TDS.

Cable News Nerwork LP. LLLP

(2010) 36 DTR 233 (Del)

(2010)129 TTJ 177 (Del)

Interest – TDS - Advance tax – Non-resident

234B In case of a non resident assessee when all payments received in terms of an agreement with Indian company for rendering of services were subjected to TDS, interest u/s. 234B cannot levied for non-payment of advance tax.

Scientific Atlanta Inc.

(2010) 37 DTR 98 (Mum)(Trib)

Interest leviable on bonafide mistake

234B Levy of interest u/s. 234B is compensatory and interest is

Insilco Ltd. (Del.) (2010) 231 CTR 247 (Del)

Interest Tax Act – Loans & Advances

2(7) The Supreme Court held that for the purpose of Interest-tax Act, 1974, interest on loans and advances will not cover u/s. 2(7) interest on bonds and debentures bought by the assessee as and by way of investment.

Sahara India Savings and Investment Corporation Ltd.

(2010) 321 ITR 371 (SC)

International Taxation – Agent – Arm’s Length

9(1) Foreign company not liable to tax in India if Indian agent is paid on arm’s length basis.

BBC Worldwide (2010) 35 DTR 257 (Delhi)(Trib)

International Taxation – DTAA – India -Singapore

197, 9(1)(vii), 195, 197,

AO having issued certificate u/s. 197 for no deduction of tax at source, AO could not

Bovis Lend Lease (India) (P) Ltd.

(2010) 127 TTJ 25 (Bang)(UO)


201(1), 201 (1A), Article 12

subsequently treat the assessee as an assessee in default u/s. 201.

(2010)36 SOT 166 (Bang)

International Taxation – DTAA – India-UK

90, Art. 7, 13

Work to be undertaken by assessee included data collection measurement of dynamic properties of machines, providing training to engineers nominated by “T” Ltd., etc, it could be concluded that assessee did “make available” technical knowledge, experience, skill and know-how processes to “T” Ltd. within the meaning of paragraphs (4) of Article 13 of DTAA and therefore assessment passed by the authorities were confirmed. As regards the second project was concerned, since the role assessee was confined to merely providing independent evaluation of motorcycles prior to their launch and there was no provision for making available any technical knowledge, experience and skill, etc. to ‘T’ Ltd., no addition can be made.

TVS Motor Co. Ltd.

(2010) 35 SOT 230 (Chennai)

International Taxation – DTAA – India-United Kingdom

9(1)(vi) Art. 7(13)(6)

Amount received under license agreement for allowing use of software, not royalty but business profits. Receipts on account of maintenance charges and training fees incidental to software receipts is of same character.

Infrasoft Ltd. (2010) 1 ITR 390 (Delhi)

International Taxation – Fee for Included Services – TDS

195, 9(1)(vii), 90, 201(1)

Assessee company having entered into a contract with a US company ACSC only for procuring software personnel for the projects of another foreign company in USA, the primary services rendered by ACSC to the assessee under the contract is akin to recruitment and placement service rather than making available any technology, plan, design, etc. and, therefore, the payments made to ACSC cannot come within the purview of ‘fee for included

IIC Systems (P) Ltd.

(2010) 33 DTR 422 (Hyd)


services’ within the meaning of Article 12(4)(b) of Indo-US DTAA and the same are not chargeable to tax in India and no tax was deductible at source u/s. 195.

International Taxation – India-Australia – DTAA

90, Art. 7 & 12

Where non-resident is taxable under domestic law but there is a provision in treaty between India and country in which non-resident is incorporated to exempt transaction or reduce rigour of taxation to benefit of non–resident, provisions of treaty override provisions of domestic law.

Paradigm Geophysical Pty. Ltd.

(2010) 122 ITD 155 (Delhi)

(2010) 1 ITR 178 (Delhi)

International Taxation – Liaison Office – DTAA – India - South Korea

9(1)(1), 90, Art. 5 & 7

Liaison office of the South Korean company being engaged in procuring purchase orders in India for the latter after negotiating the deal, there exists a business connection in India. Liaison office is also a PE, with in meaning of Article 5 of the DTAA between India and South Korea as it is having freedom to fix the sale price and conclude the contract and therefore, its activities could not be of preparatory or auxiliary nature. Income attributable to the Liaison office is taxable under Article 7 of the DTAA.

Jebon Corporation India Liaison Office

(2010) 127 TTJ 98 (Bang)

International Taxation – Permanent Establishment – DTAA – India -South Korea

90, Art. 5, 7

Income derived from Korean company from overseas operations cannot be subjected to tax in India in view of Article 5 of DTAA between India and South Korea and since the assessee did not have PE in India its project office cannot be treated as PE.

Hyundai Heavy Industries Co. Ltd.

(2010) 128 TTJ 4 (Del)(UO)

International Taxation – Permanent Establishment – India-Malaysia – DTAA

195, 40(a)(ia), 90

Personnel supplied by Malaysian company were supposed to function under direction, control and supervision of assessee, therefore it could be said that there was no PE of Malaysian company in terms of Article 5 of DTAA, therefore payment received by said company was

Stock Engineer & Contractors B.V.

(2010) 122 ITD 49 (Mum)


not taxable in India, consequently provisions of s. 195, and 40(a)(i) could not be invoked.

International Taxation – Reimbursement of Expenses – Permanent Establishment – India - German – DTAA

195, Art. 5(2)(1), 12

Reimbursement of expenses incurred on travel not involving element of income not taxable. Various sites cannot be considered together when contract are not interconnected. Period to be computed separately in respect of each activity. Activity once commenced continues till completion of contract. Intervening period cannot be excluded. Period of six months to be counted irrespective of years involved.

Krupp Uhde GmbH

(2010) 1 ITR 614 (Mum)(Trib)

International Taxation – Transfer Pricing

92B(1) Notional interest on interest-free loans can be assessed under transfer pricing law.

Perot Systems TSI Source: www.itatonline.org

International Taxation – Transfer Pricing – Alternative Dispute Resolution Mechanism

92C, 144C

Competent Authority has been directed to decide the matter, notwithstanding the pendency of the appeal before CIT(A).

HCL Technologies Ltd.

(2010) 188 Taxman 72 (SC)

International Taxation – Transfer Pricing – Arm’s Length Price

92C Price on which a particular product is available in one country may largely vary from price prevailing in other countries due to host of factors such as climatic conditions and demand and supply factors etc. In such a situation a valid comparison could not be made between price charged by assessee from other countries with that from USA, particularly when quantity exported to USA was on wholesale basis, whereas it was on in smaller lots on retail basis to other countries. In such a situation CUP method adopted by the authorities were set as side. AO was directed to get the ALP afresh.

Gharda Chemicals Ltd.

(2010) 35 SOT 406 (Mum)

Investigation – Duty of Officer – Passenger Travelling by Air-Circular of

119 Guidelines issued by CBDT dated November 18, 2009, to be followed by AIR Intelligence Units or Investigation Units dealing with

Rajendran Chingaravelu

(2010) 320 ITR 1 (SC)

(2010) I SCC 457



Board air passengers with valuables at the airport of embarkation or destination, to avoid any harassment and undue inconvenience to them, keeping confidential any premature disclosure to the media and dropping the passenger at the place he wanted to go, etc.

Air passengers should accept with grace, patience and discipline search and seizure by the authorities.

Loss – Set Off of Long Term Capital Loss against Long Term Capital Gains

10(38) Long term capital loss suffered prior to 1st Oct. 2004 cannot be set off against capital gain exempt under S. 10(38) but has to be allowed to be carried forward.

G.K. Ramamurthy

(2010) 36 DTR 257 (Mum)

(2010)2 ITR 139 (Trib)

(2010)129 TTJ 361 (Mum)

Losses under the Head “Capital Gains”

74(1)(b) The amendment to S. 74(1)(b) does not apply to long term capital loss incurred prior to AY 2003-04. Long term capital loss of an assessment year prior to AY 2003-04 can be set off even against short term capital gain of AY 2003-04 or thereafter. The Tribunal after considering the decision of Bombay High Court in the case of Central Bank of India, held that the amendment to S. 74(1)(b) is prospective and not retrospective, and that the assessee is entitled to set-off long term capital loss incurred in AY 2002-03 against any income assessable under the head ‘Capital Gains’ for any subsequent year.

Geetanjali Trading Ltd.

ITA No. 5428/M/2007, BCAJ Pg. 15, Vol. 41 - B Part 6, March 2010

Manufacturing or Processing of Goods – Duplication of Master Media Software

80–IA, 12(b)

“Manufacturing or processing of goods” u/s. 80-IA(12)(b) r.w.s. 33B.

Duplicating process carried out to prepare a recorded CD from the master media changes the basic character of a blank CD, dedicating it to a specific use and, therefore, the process by

Oracle Software India Ltd.

(2010) 320 ITR 546 (SC)

(2010) SCC 677

(2010) 228 CTR 433 (SC)

33 DTR 297 (SC)


which a blank CD is transferred into software loaded disc constitutes “manufacturing or processing of goods” in terms of s. 80-IA(12)(b) r.w.s. 33B.

Chapter VI-A and s. 80-IA is a code by itself providing special deductions for setting up industrial undertakings in backward areas and for earning profits in foreign exchange. Unlimited deductions are not permissible. Hence, “manufacture or processing of goods” must be interpreted in that background. In present case, process undertaken by the assessee was duplication of master media software on to blank CDs. Said process of duplication may be done at home or for commercial duplication. Department, therefore, should study actual process undertaken and ground realities of business when new technology is involved in a process.

Manufacturing or Production – Conversions of Raw Marble Blocks into Polished Marble Slabs

80–IA Conversion of raw marble blocks into polished marble slabs or tiles constitutes “manufacture or production” u/s. 80-IA. The conversion of raw marble blocks into final product of polished marble slabs or tiles in a factory constitutes “manufacture or production” u/s. 80-IA(2)(iii) (prior to 1-4-2000) – AY 2001-02. The activity carried out in the present case is not only manufacture but also an activity beyond manufacture that brings about a new product into existence. If it were held not to be “manufacture”, it would lead to disastrous consequences as the assessee would not be liable to pay other taxes like excise duty etc.

Arihant Tiles and Marbles (P) Ltd.

(2010) 2 SCC 699

(2010) 320 ITR 79 (SC)

(2009) 227 CTR 513 (SC)


“Production” is wider in meaning compared to “manufacture”. Word “production” means manufacture plus something in addition thereto. While every manufacture constitutes production, every production does not amount to manufacture of goods.

Manufacturing Production – Twisting And Texturizing of Poy

80–IA Twisting and texturizing of partially oriented yarn (POY), when constitutes “manufacture”.

Twisting and texturizing of partially oriented yarn (POY), held, applying test in Oracle case (2010) 2 SCC 677, POY simpliciter is not fit for being used in manufacture of fabric. It becomes usable only after undergoing thermo-mechanical process that converts POY into texturized yarn, which is used in manufacture of fabric. Hence, it constitutes “manufacture”. Further clarified, however, texturizing or twisting per se in every matter does not amount to manufacture.

Emptee Poly-Yarn (P) Ltd.

(2010) 2 SCC 720

(2010) 320 ITR 665 (SC)

(2010) 229 CTR 1 (SC)

MAT – Depreciation – Larger Bench

115J Whether for the purposes of computation of minimum alternate tax u/s. 115J, depreciation could be allowed as per income-tax rules has been referred to the larger bench by the Supreme Court doubting the earlier decision of the Supreme Court in the case of Malayala Manorma Co. Ltd. vs. CIT 300 ITR 251 (SC).

Dynamic Orthopedics P. Ltd.

(2010) 321 ITR 300 (SC)

Method of Accounting

145A Valuation of inventory in accordance with the method of accounting regularly followed. Assessee justified in valuing three years old inventory at nil

Central Electronics Ltd.

ITA Nos. 233 and 1821/Del. Of 2009 BCAJ P. 35, Vol. 41 B Part 4, January 2010


value. Method of Accounting – Accounts – Best Judgment – Rejection of Accounts

145 AO rejected the books of account of the assessee on ground that assessee had not maintained indoor patient registers. Assessment completed u/s. 145 making addition under different head. The CIT(A) deleted the addition on ground that no material was brought on record for estimating the income. The Tribunal and High Court upheld the order of CIT(A).

Bahal (AP) (Dr.) (2010) 322 ITR 71 (Raj)

Method of Accounting – Accrual of Income – Interest – Principle of Real Income

145 Even under Mercantile system of accounting followed by assessee not interest on loan had actually not accrued since loan amount had become irrecoverable and therefore, no interest was assessable.

Eicher Ltd. (2010) 320 ITR 410 (Delhi)

Method of Accounting – Accrual of Income – Non Performing Assets

145 The assessee was not obliged to provide for hire charges and lease rental on non-performing assets in view of R.B.I.’s guidelines, accordingly to which income relating to sub standard assets or non-performing assets which was outstanding for more than six months, was not to be considered as income / profits. Hence, appeal of the department is dismissed.

Kailash Auto Finance Ltd.

(2010) 320 ITR 394 (All)

Minimum alternate tax - Refund – Interest

115JAA, 244, 244A

MAT payment is not refundable and it can only be used as a credit. The year in which MAT credit is given and credit for other tax payments i.e. TDS, Advance Tax, etc., is also given, refund becomes due, not because of MAT credit but because of other tax payments hence the assessee is entitled interest u/s. 244 and 244A.

Hyundai Motor India Ltd.

(2010) 123 ITD 445 (Chennai)

Minimum alternative tax - fringe benefit tax

115JB, 2(43)

Payment or provision for “fringe benefit tax’ is not required to be added back for the purpose of computing book profit u/s. 115JB as clause (a) of explanation to s.

Vintage Distillers Ltd.

(2010) 37 DTR 303 (Del)(Trib)


115JB uses the term “income tax” which does not include “fringe benefit tax”

Mobilisation / Demobilization Charges

44BB Mobilisation charges received by the assessee in connection with supply of plant and machinery used in prospecting/extraction or production of mineral oils forms part of gross receipts for computation of income u/s. 44BB.

R & B Falcon Drilling Co.

(2010) 188 Taxman 50 (Uttarakhand)

Notice – Service 282 Service of notice u/s. 148 of the Act to the erstwhile accountant (Munim) of the assessee who is not an agent of the assessee empowered to accept the service of notice on behalf of the assessee, service of notice to such a person was held to be not a valid service. The Court further observed that, even the notice u/s. 142(1) of the Act was also served on the minor son of the assessee without verifying the age of the minor son which was also not a valid service to the assessee.

Bhagirath Rajput (2010) 36 DTR 372 (MP)

Notice – Service – Reassessment

282, 148 Notice sent by registered post to correct address, notice not returned. Fact that notice not sent with “acknowledgement due” not conclusive. Power of attorney issued to Chartered Accountant after date of notice and subsequent notices issued, notice valid.

Avneesh Kumar Singh

(2010) 2 ITR 663 (Agra)(Trib)(TM)

Order revisable 264 The expression “order” for purposes of s. 264 has a wide connotation and includes a determination by the AO on an application u/s. 197.

Larsen & Toubro Ltd.

(Bombay High Court) www.itatonline.org

Payment of professional fees

194J Though a hospital by itself, being an artificial entity, is not a “medical professional”, yet it provides medical services by engaging the services of doctors and qualified medical professionals. These are services rendered in the course of the carrying on of the medical

Dedicated Health Care Services TPA

(Bombay High Court) www.itatonline.org



profession. S. 194J applies to payments made to non-professionals such as hospitals. CBDT Circular on TPA liability is valid except for view on penalty.

Penalty – Concealment

271(1)(c) Assessee having offered an explanation as to why the impugned contract receipts could not be included in the relevant assessment year which is supported by an affidavit of his chartered accountant as well auditor’s report in Form No. 3CD, CIT(A) and the Tribunal were justified in accepting the same and setting aside the penalty u/s. 271(1)(c).

N. Nagaraj Ballal (2010) 33 DTR 156 (Kar)

Penalty – Concealment

271(1)(c) Where the assessment of the assessee was completed on estimated basis penalty u/s. 271(1)(c) of the Act was not imposable with respect to the additions made on such estimate by the AO.

Modi Industrial Corporation

(2010) 34 DTR 158 (P&H)

Penalty – Concealment – Capital Loss Set off Against Profits of Business – Mistake

271(1)(c) Loss suffered on sale of machinery set off against profit of business – Assessee on realizing the mistake committed accepted the decision of AO. Mistake in furnishing of inaccurate particulars due to negligence of counsel was not a deliberate attempt to evade tax.

Sidhartha Enterprises

(2010) 322 ITR 80 (P&H)

Penalty – Concealment – Disallowance of Deduction

271(1)(c), 80HHC

Assessee having admittedly disclosed complete details of its claim for deduction u/s. 80HHC in its return, and the AO having disallowed the claim on the basis of a ruling of the Supreme Court which was pronounced much after the date of the filing of return by the assessee, the claim cannot be said to be false and, therefore, no penalty u/s. 271(1)(c) is leviable.

Maharashtra Seamless Ltd.

(2010) 36 DTR 36 (Del)

Penalty – Concealment - disclosure of income

271(1)(c) An assessee can never be held to be guilty of non disclosure of income which is determined by

Jhavar Properties (P) Ltd.

(2010) 123 ITD 429 (Mum)


- estimate of income applying the provisions of s. 40A(2)(b), because form in which return of income is to be filed by corporate assessee does not contemplate any disclosure of income earned by assessee which could be subject to scrutiny u/s. 40A(2)(b). Provisions of s. 271(1)(c), are not attracted to cases where income of an assessee is assessed on as estimated basis.

Penalty – Concealment – Search and Seizure

158BFA(2)

Merely because the assessee has withdrawn the appeal against addition in quantum, in the absence of any discussion whatsoever in the penalty order to suggest any independent appraisal of additions or documents has been done in the penalty proceedings levy of penalty is liable to be deleted.

Nemchand Jain & Sons

(2010) 33 DTR 178 (Kol)

Penalty – Concealment – Search and Seizure

271(1)(c), 153A

Sales made outside books and not disclosed in original return, no bona fide explanation. Documents related to undisclosed sales found during search, -Explanation I to s. 271(1)(c) is applicable.

For immunity from penalty specific requirement of declaration of additional income in return. Penalty is leviable on difference of income declared in return filed u/s. 153A, and original return.

K. Natarajan (2010) 2 ITR 273 (Bang)(Trib)

(2010) 128 TTJ 558 (Bang)

Penalty – Concealment – Surrender of Income

271(1)(c) AO made addition on the basis surrender made by the assessee and did not issue summons to the lenders to prove that there was concealment of income he was not justified in imposing penalty on the surrendered income.

Raja Rani Mittal (2010) 36 SOT 4 (Delhi)

Penalty – Concealment – Unsustainable Claims

271(1)(c) Mere making of a claim not maintainable in law, will not amount to furnishing of inaccurate particulars.

Reliance Petroproducts (P) Ltd.

(2010) 36 DTR 449 (SC)

(2010) 322 ITR 158 (SC)


Merely because the assessee claimed deduction of interest expenditure which has not been accepted by the Revenue, penalty u/s. 271(1)(c) is not attracted; mere making of the claim, which is not maintainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.

Penalty – Concealment - withdrawal of claim

271(1)(c) When claim for deduction u/s. 80HHD was withdrawn prior to assessment, levy of penalty u/s. 271(1)(c), was not justified.

Banyan Tours & Travels (P) Ltd.

(2010) 129 TTJ 422 (Mum)

Penalty – Concealment – Workable Claim For Deduction – No Concealment

271(1)(c) Making a workable claim for deduction is not at par with concealment or giving inaccurate information – No penalty u/s. 271(1)(c).

Shahabad Co-op. Sugar Mills Ltd.

(2010) 322 ITR 73 (P&H)

Penalty – Failure to Answer Questions, Sign Statements, etc.

272(2)(g) The tax had been deducted and deposited with the Government treasury. The TDS certificates were sent to the concerned persons by speed post on next day. Compliance u/s. 203. Penalty cannot be imposed.

Ashapura Garments P. Ltd.

(2010) 322 ITR 83 (Bom)

Penalty – Failure to get Accounts Books Audited

271A, 271B

The requirement of getting the books of account audited could arise only where the books of account are maintained.

Assessee not maintaining books of account, penalty cannot be levied u/s. 271B.

S.K. Gupta & Co. (2010) 322 ITR 86 (All)

Permanent establishment

9(1) To compute the PE ‘duration test’ under Article 5(2) of the DTAA, different project sites can be aggregated only if the test of interconnection and inter-relationship is satisfied.

Valentine Maritime (Mauritius)

(2010) 38 DTR 117 (Mumbai)(Trib)

Perquisites – Salary 17(2) The reimbursement of amount received for medical treatment, at the hospital not approved by CCIT or CGHS authorities, due to an accident in place of work during course of employment will not amount to perquisite, liable to be taxed.

Gururaj Mahuli (2010) 187 Taxman 34 (Bang)


Plant – Building – Depreciation

43(3), 32 Where building has been designed specifically to further cause of manufacture or production, then the same would be considered as a “plant”, for the purpose of depreciation.

Shivalik Hatcheriers (P) Ltd.

(2010) 188 Taxman 291 (HP)

Power of survey - addition on the basis of statement - Income from undisclosed source

133A, 69, 145(3)

Without any material to correlate, additional income surrendered during survey u/s. 133A, to any discrepancy, addition cannot be made, when surrender is retracted.

Premsons (2010) 37 DTR 150 (Mum)(Trib)

Power to grant stay 254(2A) ITAT should ITAT should dispose off stay granted appeals within s. 254(2A) period.

Jethamal Faujimal Soni

(2010)38 DTR 174 (Bom)

Power to issue notices - pendency of proceedings

133(6) Income tax authorities have power to issue notices u/s. 133(6), on any person including private banks, co-operative societies and even nationalized banks calling for information useful or relevant to any enquiry, if no proceedings are pending, such information can be called with prior approval of Director or CIT.

The Chavassery Service Co-Operative Bank Ltd.

(2010) 37 DTR 102 (Ker)

Profits and Gains Derived from Industrial Undertakings – Income Surrendered by the Assessee

80-IB Additional income surrendered by the assessee firm having been added to the income of the business itself, it is to be considered while working the deduction u/s. 80-IB.

Allied Industries (2010) 229 CTR 462 (HP)

Profits chargeable to tax - write back of loan liability

41(1), 115JB

Loan liability which was written back, which was subjected to tax as per s. 115JB, cannot be taxed u/s. 41(1), as loan liability was not allowed as deduction as allowable expenditure.

Goyal M.G. Gases Ltd.

(2010) 36 DTR 400 (Del)

Reassessment –

Disallowances of expenditure- Exempted Income

148, 14A The AO was not competent to reassess the cases prior to the assessment year beginning on or before 1-4-2001. The proviso absolutely excluded the reassessment jurisdiction of the AO, in respect of the specified assessment years, mentioned therein.

Bombay Dyeing Mfg. Co. Ltd.

(2010) 123 ITD 1 (Mum)(2010) 2 ITR 733 (Trib)(Mum)

Reassessment – After four Years

147 Where the deduction u/s. 80IB of the Act was allowed to the assessee by the AO in the

Purity Techtextile (P) Ltd.

(2010) 35 DTR 257 (Bom)


original assessment order u/s. 143(3) of the Act after considering the audit report in Form 10CCB and the other details filed by the assessee, it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all the facts for the assessment so as to invoke the provisions of s. 147 for re-examining the deduction u/s. 80IB of the Act, after expiry of four years from the end of the assessment year.

Reassessment – After Four Years

147, 148 AO having reopened assessee’s assessment after expiry of four years from the relevant assessment year by placing reliance on a commencement certificate of housing projects undertaken by the assessee which was furnished to the AO in the course of assessment proceedings u/s. 143(3) itself and was already on record, it cannot be said that the assessee had failed to disclose relevant documents or material facts and therefore recourse to the provisions of s. 147 cannot be sustained.

Mistry Lalji Narsi Development Corporation

(2010) 34 DTR 273 (Bom)

229 CTR 359 (Bom)

Reassessment – Application of Mind

147 Where the original assessment of the assessee was completed by the AO after due application of his mind with respect to the issue of allowance of an item of expenditure, notice issued u/s. 148 of the Act stating the said expenses were not allowable by merely relying upon the existing records only was held to be invalid.

Legato Systems (India) (P) Ltd.

(2010) 34 DTR 154 (Del)

Reassessment - beyond four years - disallowance of such expenses in later years

147 Only on the basis that some disallowances were made in later years the reopening of assessment beyond four years is bad in law as there was no failure on the part of

Multiscreen Media (P) Ltd.

(2010) 38 DTR 8 (Bom)


the assessee to disclose fully and truly.

Reassessment - Change of opinion

147 AO having made the assessment, after obtaining elaborate explanation of the assessee regarding, its claim of loss vis-à-vis nil surplus/deficit as reflected in form I, reopening of assessment on the same ground in the absence of any tangible material was based on mere change of opinion and therefore is not sustainable.

ICICI Prudential Life Insurance Co. Ltd.

(2010) 37 DTR 322 (Bom)

Reassessment – Change of Opinion

147 Assessee was allowed deduction u/s. 80IA in the original assessment u/s. 143(3). Held when deduction u/s. 80IA was allowed in scrutiny assessment, then AO cannot resort to proceedings u/s. 147 on the basis of mere change of opinion.

Northern Strips Ltd.

(2010) 186 Taxman 360 (Del)

Reassessment – Change of Opinion

147 The assessee had set apart certain amount under the directive of a statutory authority in each of the assessment years that is A.Y. 1997-98 to 1999–2000. This fact was disclosed by the assessee in the return of income. In all the assessment years during original assessment proceedings the issue with respect to the fund was specifically noticed by the AO. On these facts the Court held that reopening of assessment of all the years on the ground that the amount spent out of the fund was not an allowable deduction amounted to a mere change of opinion which is not permissible. The Court further observed that, the AO has been given power to reassess u/s. 147 upon certain conditions being satisfied, and the AO does not have power to review.

D.T. & T.D.C. Ltd.

(2010) 36 DTR 1 (Del)


If such a change of opinion were to be permitted as a ground of reassessment then it would amount to granting a licence to the AO to review his decision, which he does not have under the provision of s. 147.

Reassessment – Condition Precedent

147, 148 No material to show escapement of income from tax – Notice of reassessment not valid.

Shankarlal Nagji & Co. & Ors.

(2010) 322 ITR 90 (Guj)

Reassessment – Dead Person – Limitation

148, 147 Notice issued on the name of dead person held to be illegal. Notice issued to legal representatives beyond period of limitation hence not valid, being beyond time.

Kesar Devi (Smt.) (2010) 321 ITR 344 (Raj)

Reassessment – Direction of Commissioner

147 The assessment of the assessee was reopened by the AO upon the direction of the Commissioner and there was no independent application of mind on the part of the AO, the reopening of the assessment was held to be bad in law. The Court further, observed that the reassessment proceeding is also to be held invalid for the reason that the sanction for reopening the assessment was obtained from the Commissioner whereas the authorised authority for granting the sanction for reassessment was to be obtained by the Joint Commissioner only.

Aslam Ulla Khan (2010) 34 DTR 58 (Karn)

Reassessment – Export – Reassessment Proceedings

147, 80HHC

Assessee having not claimed deduction u/s. 80HHC, in its return because it had only income from other sources and no business income, claim made in the revised return by filing audit report u/s. 147 due to disallowances u/s. 43B is upheld.

Tamil Nadu Minerals Ltd.

(2010) 128 TTJ 386 (Chennai)(TM)

Reassessment – 147 Where complete details of the Pradeshiya (2010) 35 DTR 267 (All)


Failure on the part bad debts claimed by the assessee u/s. 36(1)(viii) were furnished in the return of income and also during the original assessment proceedings it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all the facts for the assessment so as to invoke the provisions of s. 147.

Industrial & Investment Corporation of U.P. Ltd.

Reassessment – Full And True Disclosure – After Four Years

147, 149(1)

When there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, the reopening of assessment was not valid. Power to reopen an assessment beyond a period of four years but up to six years u/s. 149(1)(b) is also subject to the requirement spelt out in the proviso to s. 147.

Anil Radha Krishna Wani

(2010) 36 DTR 185 (Bom)

(2010) 323 ITR 564 (Bom )

Reassessment - Full and true disclosure - merger of order with the order of CIT(A)

147 The original order of the AO was merged with the order of CIT(A) and the AO has not given any reason that there was failure or omission on the part of the assessee hence the reopening held to be bad in law.

Vodafone Essar Gujarat Ltd.

(2010) 37 DTR 259 (Guj)

Reassessment – Information

147 Reassessment proceedings initiated on the basis of specific information that Assessee had not offered to tax, the enhanced compensation received with Interest was held to be justified. Further it was held that even though quantum of enhanced compensation which was disputed in Appeal, and though pending before Supreme Court, the same would be assessed in the year in which amount has been received.

Jagpal Singh (2010) 186 Taxman 26 (Delhi)

Reassessment - Jurisdiction - Issue of notice

148 In absence of any fresh or new materials AO lacked jurisdiction to issue notice for reassessment.

Berger Paints India Ltd.

(2010) TLR 223 (Cal) Vol. 40 Part 469

Reassessment – 149, 150, Reassessment made to tax the Maina Shetty (2010) 37 DTR 457


Limitation - finding or direction in appeal

153 unexplained investment for earlier year in pursuance of a finding or direction in the order of Tribunal was saved by Expln. 2 to s. 153 and not barred by limitation.

(Mrs.) (Bang)(Trib)

Reassessment – Material Facts

147 Reopening u/s. 147 not valid if there is no finding regarding failure to disclose material facts.

Bhavesh Developers

(2010) 224 CTR 160 (Bom)

34 DTR 125 Reassessment – Notice – Sanction – Approval

148, 151(2)

Notice issued without approval of concerned authority is without jurisdiction.

Editorial Note: SLP rejected on 12-2-2008 SLP No. 6757 of 2009 (2009) 312 ITR (St) 339.

Suman Waman Chaudhary

(2010) 321 ITR 495 (Bom)

Reassessment – Notice – Service – Approval

147, 148, Civil Procedure Code – O V R 20

The notice was served only by affixture without attempting to serve notice on the assessee and there was not any noting in the record by the AO that the assessee had refused to accept the notice through affixture. The AO has not served the notice on the assessee in compliance with the provisions of Order 5 rule 20 of the Code of Civil Procedure, 1908, hence reassessment is bad in law. On the facts the notice was issued in March, 2003 and approval was obtained in October 2003.

K.C. Singhania (2010) 1 ITR 205 (Amritsar)

Reassessment - Protective addition

147 Assessment cannot be reopened for making protective addition and also on mere suspicion.

Bullion Investments & Financial Services (P) Ltd.

(2010) 123 ITD 568 (Bang)

Reassessment – Reason to Believe

147, Expln. 2 to Ss. 147 & 148

On the basis of definite information that a certain bank account in the bank in the name of the assessee was used to provide accommodation entries, the AO had a prime facie belief that assessee’s income had escaped assessment and therefore reopening was sustainable.

Rishi Grover (2010) 33 DTR 309 (Asr)


Reassessment - Reason to believe - change of opinion - depreciation on obsolete assets

147 AO having disallowed the depreciation claimed by the assessee on obsolete assets @ 20 percent in the assessment, the reason recorded for reopening the assessment that depreciation was to be disallowed @ 20 percent constitutes a mere change of opinion as there was no tangible material before the Assessing Officer to hold so and therefore, reopening of assessment on this ground is not sustainable.

Editorial Note:- Reference made to CIT vs. Jagdish C. Sheth (2007) 101 ITD 360 (Mum.) (2007) 106 TTJ 911 (Mum). The Tribunal held that even if an asset is discarded or becomes defunct, it would still form part of block assets and entitled depreciation.

Aventis Pharma Ltd.

(2010) 37 DTR 353 (Bom)

(2010) 323 ITR 570 (Bom )

Reassessment – Reason to Believe – Irrelevant and Non – Existing Reasons

147, 148 AO having arrived at the conclusion that the amount received by the assessee–partner on his retirement from the firm of solicitors has escaped assessment on the basis of wrong interpretation of clause 35 of the deed of partnership which in fact not applicable to the assessee’s case and wrongly opined that the said amount was taxable u/s. 28(iv), there was no tangible material before the AO to form the belief that the income had escaped assessment and therefore, reopening of assessment u/s. 147 was not valid.

Balakrishna Hiralal Wani

(2010) 36 DTR 161 (Bom)

Reassessment – Reasons to Believe

147 Even if there is no assessment u/s. 143(3), reopening u/s. 147 is bad if there are no proper “reasons to believe”. AO cannot go beyond the recorded reasons.

Prashant S. Joshi (2010) 189 Taxman 1 (Bom)

Reassessment – Revenue Audit

148 Revenue Audit providing some opinion. No fresh materials brought in by the AO. Change

Carlton Overseas (P) Ltd.

(2010) 229 CTR 439 (Del)

318 ITR 295 (Del)

http://www.itatonline.org(2010)189/


of opinion cannot form the basis for reopening of assessment. Proceeding becomes invalid.

Editorial Note:

See also : ILFS 298 ITR 32 (Bom)- where the AO had disagreed with the audit objection and it was held that he could not have “reason to believe”.

Reassessment - Subsequent amendment retrospectively - Change of opinion

147, 148,

115JB

Computation of book profit u/s. 115JB, on the basis of the Supreme Court and other High Courts, reopening of the assessment on the grounds that the provisions of doubtful debts, advances etc were not considered in the process of computing book profit can not be justified on the basis of subsequent retrospective inserting cl. (i) in explanation 1 to s. 115JB w.e.f. 1st April, 2001.

Rallies India Ltd. (2010) 37 DTR 33 (Bom)

(2010) 323 ITR 54 (Bom)

Reassessment - Time limit for issue of notice

147, 143(2)

When time limit for issue of notice u/s. 143(2) has not expired, AO cannot initiate proceedings u/s. 147.

Super Spinning Mills Ltd.

(2010) 37 DTR 1 (Chennai)(TM)(Trib)

129 TTJ 305 (Chennai)(TM)

38 SOT 14 Reassessment - valuation report subsequent to the passing of the order

147 Notice u/s. 147/148 could not be issued on the basis of valuation report received subsequent to the passing of the order.

Hotel Regal International

(2010) 37 DTR 360 (Cal)

Recovery – Civil court Jurisdiction

222 The property of the assessee in default was attached by the revenue authorities for recovery of its tax dues. During the pendency of the attachment, a civil suit was instituted by a third party in a Civil Court, claiming the ownership of the attached property. In these facts the Court held that the attachment of the assessee’s property for recovery of tax dues was valid and should be

Maxworth Home Ltd. vs. U. Yamunakumari & Anr.

(2010) 36 DTR 72 (Mad)


continued so that the interest of the revenue is protected however, the court directed the revenue authorities not to take further steps to sell / dispose of the property until the rights of the assessee and third party with respect to the ownership of the property is decided by the Civil Court.

Recovery - Pendency of appeal before Tribunal – stay

220(6), 222

Quantum appeal was pending before the Tribunal. Dy. CIT refused stay further without giving any reason. Department was directed to refrain from coercive proceedings for recovery till the disposal of the application made before Addl. CIT.

ONGC Videsh Ltd.

(2010) 37 DTR 158 (Del)

Recovery - stay - garnishee notices

220(6) Garnishee notice even after stay of demand by CIT was not valid, further CIT was not justified in rejecting stay for one year without giving proper reasons and ignoring the principle laid by the Court.

Paramount Heath Services (TPA) (P) Ltd.

(2010) 37 DTR 377 (Bom)

Recovery of Tax – Penal Interest – Waiver of Interest

220(2A) Discretion to waive interest should be exercised judicially. The order should give reasons and rejection of application for waiver without giving reasons is held to be not valid.

Mani (2010) 320 ITR 472 (Mad)

Rectification of Mistake

154 The issue as to whether the capital losses incurred by the assessee could be set off against the income assessed by the AO under the block assessment u/s. 158 BC of the Act is a debatable issue and accordingly beyond the scope of rectification u/s. 154 of the Act.

Soora Subramanian

(2010) 34 DTR 76 (Mad)

Rectification of Mistake

154 Rectification of mistake –

(i) Subsequent decision of the Supreme Court resolving conflict of opinion does not obliterate decision taken prior to it. S. 154 cannot be invoked to rectify the same.

(ii) It is a change of opinion but not

Mepco Industries Ltd., Madurai

(2010) 1 SCC 434

(2009) 319 ITR 208 (SC)

(2009) 227 CTR 313 (SC)


rectification of mistake.

(iii) “Rectifiable Mistake” is a mistake that is obvious and not something that has to be established by a long drawn process of reasoning or where two opinions are possible.

(iv) Examination of the nature of subsidy is not rectification of mistake. Such exercise cannot be made u/s. 154.

(v) Department erred in invoking s. 154.

(vi) S. 154 provides for the rectification of any mistake apparent from record, while s. 147 deals with reassessment where income charged to tax escaped assessment for any assessment year.

Refund – Interest 244A Interest granted by the department to the assessee u/s. 244A of the Act, had to be taxed in the year of receipt.

Seshasayee Paper and Boards Ltd.

(2010) 2 ITR 417 (Chennai)

Refund - Self Assessment tax

244A, 140A

Assessee is entitled to interest u/s. 244A, on the refund of self assessment tax paid u/s. 140A.

Sutlej Industries Ltd.

(2010) 37 DTR 25 (Del)

Reimbursement of costs - payments not chargeable to tax in India

195 Obligation to deduct tax at source u/s. 195 is attracted only when the payment is chargeable to tax in India. When tax authorities

Van oord Acz India (P) Ltd.

(2010) 36 DTR 425 (Del)

Remuneration Received for Services Rendered outside India – International Taxation – Tax Credit

80RRA, 90, ART. 25

The credit could be allowed only against doubly taxed income. Where person is resident is to grant credit for taxes paid in country where income arise but only to extent to which itself levies tax.

There cannot be the payment of tax outside India and claiming refund in India without actually incurring liability for paying taxes in India.

Manpreet Singh Gambhir

(2010) 123 ITD 16 (Delhi)

Remuneration to working partner

40(b) The presence of a clause in the partnership firm that gave partners power to modify the terms of

Shabro International

ITA No. 6629/Mum/2008, Bench – E, dt. 20th March, 2010 / BCAS


remuneration does not render remuneration unqualified for deduction

Journal, Volume 42-A – Part 1 – April, 2010 – page 25.

Return of Income – Signed by Company Secretary – Curable Defect

140 Signing of return by secretary was curable irregularity and when managing director had signed and filed the return, it relates back to date when the original return was filed under the signature of company secretary.

Haryana Sheet Glass Ltd.

(2010) 188 Taxman 7 (Delhi)

Revenue or Capital Expenditure – Technical know how

37(1) In collaboration agreement assessee obtained only right to use technical knowhow. Payment of lump sum fees and royalty is allowable as revenue expenditure.

Honda Siel Cars India Limited

(2010) 40 TLR (Part 466) 1 (Delhi)(AT)

Revision 263 As per Explanation to s. 263(1), the power of revision extends to the assessment orders passed on basis of directions issued by Joint Commissioner u/s. 144A.


Revision – Assessment Barred by Limitation

263 Assessment barred by limitation, commissioner cannot direct AO to pass fresh assessment order.

V. Narayan (2010) 2 ITR 446 (Chennai)(Trib)

Revision – Erroneous and Prejudicial order

263 AO having accepted the annual value of the property on the basis of the actual rent received by the assessee for the property from a group concern which was admittedly less than the annual value fixed by the Corporation, CIT was justified in setting aside the assessment order on this issue and giving appropriate direction to the AO to examine the issue from all angles.

Sical Logistics Ltd.

(2010) 34 DTR 350 (Chennai)(TM)

Revision – Issue Debatable and AO allows one of the Possible Views

263 The issue whether the expenditure is capital or revenue in nature is always a debatable issue and the AO follows one of the possible views then the CIT has no jurisdiction to revise the assessment u/s. 263.

Flextronic Software System Ltd.

(2010) 128 TTJ 107 (Del)

Revision – Two Views

263 The condition precedent to the exercise of jurisdiction u/s. 263,

Grasim Industries Ltd.

(2010) 321 ITR 92 (Bom)


was that the order sought to be revised must be erroneous in so far as it was prejudicial to the interest of revenue. When two views were possible, the assessment could not be revised.

229 CTR 347 (Bom)

35 DTR 142 (Bom)

Revision – Two Views - Book Profit

263 AO taking plausible view vis-à-vis book profit u/s. 115JB. As by virtue of Explanation to s. 115JB and in view of SC decision in 305 ITR 409 in CIT vs. HCL Comnet Systems & Services Ltd., provision for bad and doubtful debts are not to be considered in terms of cl. (c) to the Explanation, the Order of revision by CIT was not justified.

DLF Power Ltd. (2010) 229 CTR 27 (Del)

Revision of orders 263 AAR rulings are binding despite contrary rulings of AAR. Assessment order following binding precedent is not amenable to s. 263 revision.

The Prudential Assurance Company

(2010)38 DTR (Bom) 337

Roll Over Charges 36(1)(iii) The Supreme Court on the facts of the case held that since the purpose of the loan was to finance the purchase of plant and machinery, the rollover premium charges would not be allowed as a deduction u/s. 36(1)(iii) and that Explanation 3 to s. 43A, as it stood prior to the amendment in 2002, would be applicable.

Elecon Engineering Co. Ltd.

(2010) 322 ITR 20 (SC)

Royalties From Foreign Enterprises – International Taxation TDS – DTAA – India–Thailand

80-O, 90, ART. 23(2)

TDS in the foreign country is not an amount bought in to India and therefore deduction u/s. 80-O is not allowable on that amount.

Credit has to be allowed against the Indian Tax payable to the extent of tax which was deducted in Thailand and such credit should be restricted to the tax payable in India.

Vikram Tannan (2010) 128 TTJ 509 (Mum)

Royalties, etc. from Foreign Enterprises

80-O Assessee having merely converted extensive educational materials in to concise form in

P.C. Thomas (2010) 36 DTR 47 (Ker)


CDs and books for better and easy understanding and exported the same to students abroad for coaching them is not entitled to deduction u/s. 80O as no new invention or design is made by the assessee in respect of educational material.

Salaries – Perquisites

17(2) Allowance for attire and club membership fees would fall under perquisites, if club membership is purchased in name of employee and fee payable to such a club is reimbursed by company for personal use of employee. If membership is standing in name of company and if any guest of company is entertained by employee for business promotion of company, same cannot be treated as perquisites to such an employee.

Wipro Systems (2010) 188 Taxman 280 (Kar)

Salary – Capital Receipt

4, 15, 56 Where amount received by assessee was not in her capacity as employee, but was only compensation for injury caused to her by denying her employment, after having been declared employable by following a discriminatory general practice prohibited by law in USA, it amounted to capital receipt not liable to tax. So far as pre-judgment interest on amount of compensation was concerned, if it was a part of settlement amount, its character would be same as that of principal amount of compensation i.e., Capital receipt, not liable to tax.

Rani Shanker Mishra (Smt.)

(2010) 122 ITD 360 (Delhi)

Salary – Perquisites – Stock Options

17(iia) Conversion of warrants into equity shares under scheme, benefit extended to assessee by virtue of employment hence difference between price of shares at time of exercise of option and predetermined price is liable to tax as perquisite u/s. 17(2)(iiia).

Tripti Sharma (Smt.)

(2010) 1 ITR 471 (Mum)

Search and Seizure – 153A S. 153A does not authorize de Anil Kumar (2010) 1 ITR 484


Assessment novo assessment. Non-pending assessments do not abate. Additions must be confined to search material.

Bhatia (Delhi)(Trib)

Search and Seizure – Assessment – Abate

153A, 153C

Record maintained by a person for his own purpose though referable to the assessee cannot be said to be belonging to the assessee within the meaning of s. 153C. Where none of the assessments are pending on the date of action u/s. 153C, such assessments do not abate.

Meghmani Organics Ltd.

(2010) 36 DTR 187 (Ahd)

Search and Seizure - Assessment Abate

153A, 153C

Where, none of the assessments are pending on the date of action u/s. 153C, such assessments do not abate.

Meghmani Organics Ltd.

(2010) 129 TTJ 255 (Ahd)

Search and Seizure – Block Assessment – Jurisdiction

127, 158BD

Where the notice issued and return filed pursuant thereto, proceedings dropped on ground of lack of jurisdiction and transferred to another officer. Held that transfer not permissible without following procedure.

Subhas Chandra Bhaniramka

(2010) 320 ITR 349 (Cal)

Search and seizure - Cash seized - Interest

158BFA(1)

Assessee’s contention that cash seized during the course of search lying with the department has to be adjusted towards tax payable and levy of interest would arise only after such assessment. Since fact was not considered the matter remanded back to the AO for verification.

N. Leela Kumar (2010) 37 DTR 70 (Kar)

Search and Seizure – Retraction

132(4), 158BC

Assessee voluntarily surrendering certain amount as undisclosed income, retraction after about two years held not permissible.

Hukumchand Jain

(2010) (March) Vol. 40 Tax L.R. 144 (Chhattisgarh)

Service of Notice (Order V, Rule 15, of The Code of Civil Procedure, 1908)

282 Where assessee is absent from his residence at time when service of notice is sought to be effected on him and there is no likelihood of his being found at his residence within reasonable time and he has no agent empowered to accept service of

Gurbax Singh Gill (2010) 123 ITD 226 (Asr)


notice on his behalf, service of a notice can be made on any member of assessee’s family residing with him, whether male or female.

Serv ice o f no t i ce genera l ly

282 Service of notice by affixture without following the procedures laid down under order V of Rule 12 to 20 of CPC is invalid. The AO has to record a reasoning that despite best and reasonable efforts, the notice could not be served in the ordinary course before directing to invoke the substituted mode of service through affixture. Further the assessment completed on the basis of an invalid service of notice shall also be invalid.

Dwarka Construction Pvt. Ltd.

ITA No. 1688/JP/2008, Bench – B, dt. 25th

February, 2010 / Taxworld, Volume – XLIII – Part 3 – March, 2010 – page 98.

Services of notice generally - Minor son - validity - R. 17, Order 5 of CPC

282, 148 There being nothing on record to show that the erstwhile accountant of the assessee to whom notice u/s. 148 was served was an agent empowered to accept the service and service of fresh notice upon minor son of the assessee was not valid service.

Bhagirath Rajput (2010) 36 DTR 372 (MP)

Set off Unabsorbed losses & Depreciation

80A, 80A, 80B(5), 80HH & 80I

Provisions of s. 80A r.w.s. 80B(5) override other provisions in Chapter VI-A and, therefore, deduction u/ss. 80HHC, 80HHD and 80-I cannot be allowed where the gross total income of the assessee is nil after setting off brought forward losses and depreciation and the loses of other units against the profit earned by it from the eligible unit.

Arif Industries Ltd.

(2010) 231 CTR 271 (All)

(2010) 37 DTR 185 (All)

Settlement Commission – Judicial Review

245D The court’s power of judicial review on the decision of the Settlement Commission is very restricted. The court can only consider whether the order of the settlement commission is contrary to the provisions of the Income Tax Act.

Mahavir Rolling Mills Pvt. Ltd.

(2010) 40 TLR 18 (Guj)

Speaking orders Detailed guidelines laid down as to how judgments should be written.

Saheli Leasing & Industries

(Supreme Court) www.itatonline.org

Special audit - limitation

142(2C), 153

Prior to amendment in s. 142(2C), the Assessing Officer had no power to suo motu to extend the period for furnishing the report by

Ramachandra Dashrath Hande & Co.

(2010) 36 DTR 431 (Mum)(Trib)



special auditor and therefore, excluding such period, assessment was barred by limitation, Income tax being a special Act, the General Clauses Act, may not generally apply to limitation period.

Speculation loss - Capital Gain

43(5) Claim of assessee for hedging loss in shares is not allowable, as, said shares were ultimately sold at capital gain.

Bengal & Assam Company Ltd.

(2010) TLR 216 (Cal) Vol. 40 Part 469

Speculation Loss – Set off Against Delivery Based Profit

43(5), 73 Speculation loss can be set off against delivery based profits document to be speculation profits extra Exploration ITR 73.

Lokmat Newspapers (Bom.)

(2010) 322 ITR 43 (Bom)

Speculative Transactions – Derivatives

43(5) Derivatives are speculative transaction if not for bona fide hedging.

Dinesh K. Mehta HUF


Stay Application – CIT(A) – Discharge of Statutory Obligation

251 Where CIT(A) sitting tight on stay application with regard to penalty demand challenged in appeal. Court condemns the inaction on the part of CIT(A) in strongest words and directs to dispose of the stay petition judiciously in accordance with law.

Smita Agarwal(HUF)

(2010) 215 Taxation 657 (All)

(2010) 230 CTR 173 (All)

Succession to Business or Profession – Company

170 The company is a juristic person having its distinct legal entity, separate from that of shareholders. The change in the shareholders or company does not change the legal identity of the company. Therefore, s. 170 had no application to the facts of the case.

Panchratan Hotels (P) Ltd.

(2010) 188 Taxman 299 (HP)

Tax avoidance - Tax planning-loss incurred in purchase and sale of units

94(7), 73 Once the transaction is genuine merely because it has been entered into with a motive to avoid tax, it would not become a colourable devise and consequently earn any disqualification. Loss incurred on purchase.

Porrits and Spencer (Asia) Ltd.

(2010) 231 CTR 294 (P&H)

Tax Deducted at Source – Interest – Delayed Refund

244A Interest, which accrued to the assessee for non-refund of TDS, partook the character of the “amount due” u/s. 244A and became an integral part of the principal amount which was not refunded after it became due

H.E.G. Ltd. (2010) 33 DTR 304 (SC)

(2010) 228 CTR 495 (SC)



and payable and therefore assessee was entitled to interest on delayed refund of TDS.

Technical services - Activity of conducting impact tests by UTAC – India France – DTAA

195, 9(1)(vii), 90, Art. 13(4)

Activity of conducting impact tests by UTAC a French company, on the cars manufactured by the assessee company in the presence of the assessee’s representative and submission of test reports which were utilized for product development in India was in the nature of technical services and therefore, payment made to UTAC for such tests was for technical services with in the meaning of Art. 13(4) of India-France DTAA, as well as s. 9(1)(vii) and fees payable were chargeable to tax in India hence, the assessee is liable to deduct tax at source u/s. 195.

Maruti Udyog Ltd.

(2010) 37 DTR 85 (Del)(Trib)

Time limit for revision of orders

263 Assessment order is not affected in respect of items that are not subject of reassessment. Time limit for s. 263 begins from date of original order for such items.

Ashoka Buildcon (Bombay High Court) www.itatonline.org

Transfer – Stamp Valuation

50C Substitution of sales consideration on transfer of land and building with the value adopted by the stamp valuation authority. Assessee objecting to the substitution of sales price. AO has no discretion and should refer the matter to valuation officer to determine fair value.

Abbas T. Reshamwala

ITA No. 3093/Mum./2009, January (2010) BCAJ Vol. 41-B

Transfer of Case 127(2) Where the assessee vide its detailed reply objected to the show cause notice proposing to transfer his case for a coordinate investigation and the Commissioner passed an order u/s. 127(2) of the Act transferring the petitioners case without considering the reply of the assessee, the impugned order passed by the Commissioner was held to be in breach of principles of natural justice and liable to be quashed.

Dhoot Developers (P) Ltd.

(2010) 35 DTR 175 (Cal)

Transfer of Tenancy Rights

50C Transfer of tenancy right. As in the case of assessee, the capital assets

Kishori Sharad ITA No. 1561/M/09, BCAJ Pg. 28, Vol. 41 B



transferred was tenancy right, held that such transaction not covered under the provisions of sec. 50C.

Gaitonde

Part 5, February 2010

Transfer pricing - Computation of arm’s length price – opportunity of being heard - Alternative remedy

92C, 144, Art. 226

Assessee having afforded proper opportunity and as the alternative remedy of filing objections to the order of the TPO through approaching the Dispute Resolution Panel u/s. 144C is available, the order of TPO could not be challenged by filing writ petition.

Messe Dusseldorf India (P) Ltd.

(2010) 37 DTR 253 (Del)

Transfer pricing - computation of arms length price

92C TNM method requires comparison of net profit margins realized by an enterprise from an international transaction and not comparison of operating margins of enterprises as a whole.

Tej Diam (Mum.) (2010) 37 SOT 341 (Mum)

Transfer Pricing – International Taxation – Advertisement Expenses

92 As per the agreement “MC” would get same amount of royalty whether advertisement expenditure was borne by assessee or by its franchisers, it could not be said that by agreeing to bear a part of advertisement expenses which was to be borne by franchisers, there was any arrangement between assessee and MC, a non–resident, to effect that there was no profit to assessee or lesser profit to assessee, therefore s. 92 was not applicable with regard to advertisement expenditure and as a consequence, thereof additions confirmed by the CIT(A) was deleted.

McDonalds (India) (P) Ltd.

(2010) 36 SOT 240 (Delhi)

Transfer Pricing – International Taxation – Arm’s Length Price

92C There is no provision that the depreciation to be taken into account in all situations.

Schefenacker Motherson Ltd.

(2010) 2 ITR 196 (AT)(Delhi)

Transfer Pricing – International Taxation – Arm’s Length Price

92C On the facts of the assessee as no details about price at which its associate concerns had supplied raw materials to unrelated customers and thus comparison between price charged by associate concerns from unrelated buyers and price charged from assessee was not possible and assessee was not

IL Jin Electronics (I) (P) Ltd.

(2010) 36 SOT 227 (Delhi)


able to point out any irregularity or discrepancy in profit determined by TPO, the adjustment made by TPO in ALP was confirmed.

Unabsorbed depreciation - set off against income from house property

32(2) Unabsorbed depreciation could be set off against income from house property till the provision was amended w.e.f. 1st April, 2002.

Spic Ltd. (2010) 37 DTR 177 (Mad)

Unexplained Expenditure

69C, 142A

Powers u/s. 142A do not extend to estimating amount of unexplained expenditure referred to u/s. 69C.

Aar Pee Apartments P. Ltd.

(2010) 188 Taxman (Del)

Unexplained investment

69, 5(2)(b)

In the case of remittances through banking channel the nature and source of the funds get an such remittances cannot be taxed u/s. 5(2)(b).

Susila Ramasamy (Smt.)

(2010) 36 DTR 418 (Chennai)(Trib)

Unexplained Investment – Sale Value – Stamp Valuation

50C, 69B, 143(3)

Difference between consideration shown in sale deed and valuation taken for stamp purposes cannot be added as unexplained investment in the hands of purchaser.

Fitwell Logic system P. Ltd.


Unexplained Investments

69 AO doubted the sale of shares made by the assessee and hence issued inquiry letters to some of those persons u/s. 133(6). A few of those persons responded while others failed to respond and hence the AO made additions of Rs. 15 Lakhs by treating sources of share capital of those persons as ‘unexplained’. Held merely because some of the persons did not respond to the notice issued by the AO, it could not be said that the transaction was not genuine.

GP International Ltd.

(2010) 186 Taxman 229 (P & H)

Unexplained Money – Statement in the Course of Survey

69A, 133A

In the course of survey excess cash was found, the assessee’s statement was recorded u/s. 131, he offered the same as income. In the return the assessee has not shown the income offered in the course of survey. The Explanation was offered stating that the said amount was withdrawal from the bank. The Tribunal confirmed the addition by applying the test of

Shree Mahalaxmi Rice Mill

(2010) 122 ITD 1 (Nag)(TM)


human probabilities. Unexplained Money – Undisclosed Sales

69A Where purchases are duly recorded in the books, the entire undisclosed sales cannot be assessed as income; only the net profit rate can be treated as income.

Man Mohan Sadani

(2010) 188 Taxman 277 (MP)

Venture capital company

10(23FB) Interest income from FDR’s was exempt for the Asst. Year 2002-03. The words “from investment” having been substituted the words “set up to raise funds for investment”. By the Finance Act, 2007, w.e.f. 1st April 2008, cannot be read in the earlier provisions.

India Value Fund (2010) 37 DTR 169 (Mumbai)(Trib)

Wealth Tax – Asset – Cash in Hand

2(ea)(vi) Cash in hand in excess of Rs. 50000 held by individual assessee forms part of assets u/s. 2(ea)(vi).

K.R. Ushasree & Ors.

(2010) 33 DTR 112 (Ker)

Wealth Tax – Asset – House Property

2(ea)(i) An incomplete building under construction is not an asset and is not liable to wealth tax as it does not fall within the definition of a building nor within the purview of “urban land”.

Neena Jain (Smt.) (2010) 36 DTR 49 (P&H)

Wealth Tax – Asset – Urban Land

2(ea)(v) Land belonging to the assessee on which he has unauthorisedly constructed a farm house stands excluded from the definition of ‘urban land’ as per Expln. 1(b) to s. 2(ea) as no construction was permissible on said land and therefore, it cannot be treated as an asset under the WT Act.

Lt. Gen. (Retd.) R.K. Mehra

(2010) 228 CTR 205 (P&H)

Wealth Tax – Valuation of Assets – Applicable to Subsequent Years

7(1)(4) The valuation of the property having determined for A.Y. 1971-72 and such assessments having been finalized and attained finality as it was not challenged the same would be applicable to the subsequent years.

Rawal Rajeshwari Singh of Samod

(2010) 322 ITR 39 (Raj)

Wealth Tax Act – Asset

2(ea) After notification for acquisition of Assessee’s land, there remains only a right to receive compensation, and

Jarnail Singh (2010) 186 Taxman 14 (Chandigarh)


same is not an asset as contemplated in s. 2(ea) of the Wealth Tax Act.

Written Down Value – Block of Assets

43(6)(C), 2(11)

When an asset is sold, the block of assets stands reduced only by money payable on account of sale of the asset and not by the fair market value of the asset sold.

Cable Corporation of India Ltd.

ITA No. 5592/Mum./2002, January (2010) BCAJ Vol. 41-B

DISCLAIMER:

While due care has been taken while preparing the digest, if there is any mistake or omission, neither the authors nor the association can be held responsible for any personal or professional liability arising out of the same.

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