MONTHLY DIGEST OF IMPORTANT CASE LAWS (JUNE...

Monthly Digest of Case Laws (June 2013) http://www.itatonline.org

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MONTHLY DIGEST OF IMPORTANT CASE LAWS (JUNE 2013) (Journals Referred: ACAJ /AIR /AIFTPJ/ BCAJ / BLR / IT Review//Comp Cas/CTR / DTR/E.L.T./GSTR/ ITD / ITR / ITR (Trib) /JT/ SOT /SCC / TTJ /Tax LR /Taxman / Tax World/ VST/www.itatonline.org) S.2(14): Capital asset–Agricultural land‐Municipality–Local authority Hyderabad Airport Development Authority‐ Sale of land beyond 8 Kms of Municipality limits is not liable to capital gain tax. [S.10 (20), Constitution of India –Art 243 P(e), 243R, General Clauses Act. S.3(21)g] The assessee sold the agricultural land. The assessee claimed that the capital gain tax is not leviable. The Assessing Officer held that the land is within the limits of HADA which is Government notified local authority and was a municipality within the meaning of section 2(14)(iii)(a),therefore ,the land sold by the assessee was non‐agricultural land. The Government of Andhra Pradesh issued a land acquisition notification dated 16‐5‐2007 for the acquisition of the above land of the assessee to develop in to an integrated township. On appeal the Tribunal held that the Hyderabad Airport Development Authority had been constituted under provisions of Andhra Pradesh Urban Areas (Development) Act, 1975 as a Special Area Development Authority by State Government, it cannot be treated as a municipality for purposes of provisions of section 2(14) of the Act. In the revenue records the land is classified as agricultural land and has not been changed from agricultural land to non agricultural land at the time when the land was sold by the assessee. The land in question is brought in special Zone cannot be a determining factor by itself to say that the land was converted in to use for non‐agricultural purposes. As the agricultural land of assessee is outside the municipality and also 8 kms away from the outer limits of the Municipality, assessee’s land does not come within the purview of section 2 (14)(iii) either under clause (a) or (b) , hence cannot be considered as ‘capital asset’ within the meaning section , hence capital gain tax cannot be charged on sale of the said land. (A.Y. 2008‐09) T. Urmila(Smt) v. ITO (2013) 57 SOT 90(URO) (Hyd.)(Trib.) S.2(15): Charitable purpose–Object of general public utility–Control of game of cricket is business activities –Cancellation of registration was justified. [S. 12AA] Since the assessee was carrying on revenue earning exercise by arranging international matches, IPL matches, etc. in such a way that maximum advertisement revenue was derived from any type of match, its activities did not come within conceptual framework of charity vis‐à‐vis activity of general public utility envisaged in s. 2(15).Cancellation of registration was justified. (A.Y.2009‐10) Tamil Nadu Cricket Association v. DIT (2013) 57 SOT 439 (Chennai)(Trib.) S.2(22)(e): Dividend‐Deemed dividend‐Advance to Director for purchase of land on behalf of company‐Provision does not attract. Advance granted to the director to purchase land in the name of the director but in which the company would be having beneficial interest does not attract section 2(22)(e).(A.Y.2006‐07) (ITA no 447 dt.26‐12‐2012) ACIT v. C.V. Reddy (2013) –TIOL‐168 (Bang.)(Trib.)


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S.4: Charge of income‐tax‐Income‐Subsidy‐Deferred sales tax scheme‐Capital receipt.[S.2(24)] To determine the character of subsidy in hands of recipient, whether revenue or capital, the purpose of the subsidy is to be considered and the source of fund and mechanism of giving subsidy are immaterial. Incentive, in form of sales tax waiver/deferment was not meant to give any benefit on day‐to‐day functioning of business or to make it more profitable; but was principally aimed to cover capital outlay of assessee for undertaking modernization of existing industry, it was capital in nature, and thus, not taxable. (A.Y.1992‐93) CIT v. Birla VXL Ltd. (2013) 215 Taxman 117 (Guj.)(HC) S.5: Scope of total income–Retention money–Accrual. In view of decision of Gujarat High Court in case of Anup Engineering Ltd. v. CIT [2001] 247 ITR 457/114 Taxman 584 retention money could not be said to have accrued to assessee and therefore, this amount did not represent assessee's accrued income. (A.Y. 2002‐03) DIT v. Ballast Nedam International (2013) 215 Taxman 254 (Guj) (HC) S.9(1)(i): Income deemed to accrue or arise in India–Set off of branch losses – Taxability‐DTAA‐India‐Sweden .[ Art.7] The assessee set off its loss from Sweden branch against its other business income taxable in India. Revenue's case was that as per Article 7, profits attributable to Sweden branch was taxable in Sweden and, therefore, losses incurred by Sweden branch could not be set off against other income. Following its decision rendered in earlier assessment years with respect to India‐Japan DTAA, the Tribunal allowed the claim of the assessee. Since nothing had been brought on record to show that clauses of DTAA between India‐Sweden were different from that in DTAA between India‐Japan in respect of present issue, the Tribunal's order was justified. (A.Y. 2002‐03) CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.) (HC) Editorial: Arising out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD 398(Pune)(Trib.) S.9(1)(i): Income deemed to accrue or arise in India‐Short term capital gain‐Forward exchange contract/hedging mechanism‐DTAA‐ India‐Spain‐Additional evidence‐Matter set aside. [Art. 14, 23] The assessee‐company was a resident of Spain and registered as FII with SEBI. It claimed the profit on foreign exchange transactions as short‐term capital gain and hence exempt under India‐Spain DTAA. Since the assessee filed additional evidence before the Tribunal, the matter was to be restored to the Assessing Officer for fresh decision. (A.Y. 2005‐06) Merrill Lynch Capital Markets Espana SA v. DCIT (2013) 57 SOT 435 (Mum.)(Trib.) S.9(1)(i): Income deemed to accrue or arise in India–Capital gains–DTAA‐India‐UAE. [Art.4, 13] The assessee is held to be not entitled to the benefit of India‐UAE DTAA and income from capital gains was charged to tax, on the ground that individuals are not taxable in UAE. The Tribunal in assessee's own case in immediately preceding year held that assessee was entitled to benefits of DTAA thereby granting exemption from capital gain. Since the facts of the instant appeal were similar to those of immediately preceding year, the benefit of the DTAA was to be granted.(A.Y. 2008‐09) ITO v. Chandersen Jatwani (2013) 57 SOT 437 (Mum.)(Trib.) S.9(1)(i): Income deemed to accrue or arise in India–Interest– Income‐tax refund‐DTAA‐India‐Denmark [Art.9(4), 12(6)] Interest on income‐tax refund was taxable in India as per Article 12(6) of DTAA between India and Denmark. Interest cannot be considered as business income. (A.Y. 2005‐06)


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A.P. Moller Maersk v. DCIT (2013) 57 SOT 267 (Mum.)(Trib.) S.9(1)(vi): Income deemed to accrue or arise in India–Royalty‐Fees for technical services‐Shipping business‐DTAA‐India‐Denmark. [S.9(1)(vii), Art. 9, 13 ] Amounts received by shipping company on account of shared cost of global tracking system was linked to shipping income as per Article 9(1) of DTAA between India and Denmark and was not taxable in India. (A.Y. 2005‐06) A.P. Moller Maersk v. DCIT (2013) 57 SOT 267 (Mum)( Trib.) S.10(38): Exempt income ‐ Long term capital gains from equities ‐ Scheme of sale of land through sale of shares of shell company is valid. The assessee held 98.73% shares in Bhoruka Financial Services Limited (BFSL). In AY 2005‐06 BFSL purchased a plot of land from a group sick company called Bhoruka Steels Ltd for Rs.3.75 crores which was accepted to be the prevailing market price u/s 50C. BFSL was a shell company with no assets other than the said land. In AY 2006‐07 the assessee sold its shareholding in BFSL to DLF Commercial Developers Ltd for a net consideration of Rs. 20 crore. As the sale of shares was executed through the Magadh Stock Exchange and STT was paid, the assessee claimed that the gain on sale of shares was exempt u/s 10 (38). The AO, CIT(A) and Tribunal rejected the assessee’s claim on the basis that the assessee, BFSL and Bhoruka Steels were all controlled by common shareholders and that the scheme to first sell the land to BFSL and then to sell the shares of BFSL was devised with the sole purpose of avoiding tax on the capital gains which would have arisen if the land had been sold directly. It was held that the formalities of the transaction and the legal nature of the corporate bodies had to be ignored by lifting the corporate veil and the transaction had to be taxed as a sale of the land. On appeal by the assessee to the High Court, HELD allowing the appeal: Though BFSL was a shell company with no asset other than the land and by buying the shares of BFSL, DLF in effect purchased the land, the transaction cannot be said to a sham or an unreal one. In coming to the conclusion that the transaction is a colourable device, the authorities have been carried away by the fact that the assessee was able to avoid payment of income tax. The assessee did resort to tax planning and took advantage of the law/ loopholes in the law. After seeing how the loophole was exploited within the four corners of the law, it is open to Parliament to amend the law plugging the loophole. However it cannot be done by judicial interpretation. S.10(38) of the Act is unambiguous. If the share holder chooses to transfer the lands through a transfer of the shares of the company owning the land, it would be a valid legal transaction in law and cannot be said to be a colourable devise or a sham merely because tax is avoided thereby (McDowell & Co. v. CIT (1985) 154 ITR 148 (SC), UOI & Anr. v Azadi Bachao Andolan & Anr. (2003) 263 ITR 706 (SC) & Vodafone International Holding B.V. v. UOI& Anr. (2012) 341 ITR 1 (SC) referred)( ITA No. 120 of 2011, dt. 09/04/2013) Bhoruka Engineering Inds. Ltd. v. Dy. CIT (Karn.)(HC) www.itatonline.org S.10A: Free trade zone–Software developed transmitted to foreign countries through internet cannot treated as bogus transaction. The assessee started new venture of software development and claimed profit of software division under section 10A. The Assessing Officer was not convinced from contemporaneous record that software was developed by assessee or that same was transmitted to foreign countries through internet and rejected the claim of the assessee treating the said transaction as bogus and sham. The Commissioner (Appeals) and the Tribunal, taking into consideration report of audit, agreement with STPI, certificate in respect of custom, boarding arrangement of assessee and payment received from various parties through channel of banks, concluded that transaction was genuine, allowed the


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assessee's claim. Held, since the order passed by the appellate authorities was based on appreciation of material on record, no substantial question of law arose there from.(A.Y. 2003‐04) CIT v. Nova Petrochemicals Ltd. (2013) 215 Taxman 82(Mag.) (Guj.)(HC) S.10A: Free trade zone‐New unit‐ Approval letter issued by authority of Software Technology Park. The assessee established three units and claimed deduction u/s 10A. The Revenue denied the deduction on basis of approval letter issued by authority of Software Technology Park stating that, these units were to be considered as part of existing units. On other hand, Tribunal found that all three units had fulfilled conditions u/s.10A, and therefore, allowed deduction holding those units as separate and independent production units, and not as mere expansion of existing unit. Since the decision of the Tribunal was based on finding of fact, no interference was required. (A.Y. 2002‐03) CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.)(HC) Editorial: Arising out of order in Patni Computer Systems Ltd v. Dy.CIT (2012) 135 ITD 398(Pune)(Trib.) S.10A: Free trade zone‐Consistency‐Computation‐Export turnover‐Expenditure do not pertain to delivery of goods out of India are not deductible from export turnover. Where the assessee followed head count method of accounting for computing deduction u/s 10A, which had been accepted by revenue in earlier years, it could not be disallowed in relevant assessment year. The expenditure towards insurance, freight and communication incurred in foreign exchange, which do not pertain to delivery of goods out of India and satellite link charges and technical service fee are not deductible from export turnover. (A.Y. 2007‐08) Willis Processing Services (I) (P) Ltd. DY. CIT (2013) 57 SOT 339 (Mum.)(Trib.) S.10A: Free trade zone‐Newly established undertakings‐Deemed export is not eligible for exemption. The assessee software company carried out deemed exports by raising bills on local parties and received sale proceeds in convertible foreign exchange thereby claimed deduction on same under section 10A. On ground that deemed exports are exports as per EXIM policy. On appeal Tribunal held that that deduction under section 10A is to be allowed only when foreign exchange is received on export of software and EXIM policy cannot overrule Income‐tax Act which is a separate code in itself. In view of same claim of assessee could not be allowed. (A.Y. 2005‐06) Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.) S.10A: Free Trade Zone‐Newly established undertakings‐Export turnover‐Total turnover‐Foreign tax (VAT/GST) collected from customers is to be excluded. Assessing Officer excluded foreign tax (VAT/GST) collected from customers from export turnover as well as from total turnover, thereby, granting lower deduction under section 10A to assessee a STP unit, on ground that tax collected was subsequently remitted to government. the Tribunal held that once this sum is not included in export turnover then the same cannot be included in the total turnover. (A.Y.2005 ‐06) Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.) S.10A: Free trade zone‐Computation‐Export turnover‐Total turnover‐ Parity between numerator and denominator. Expenses reduced from export turnover were also to be reduced from total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A. (A.Y. 2007‐08) Bearing Point Business Consulting (P.) Ltd. v. DCIT (2013) 57 SOT 244 (Bang.)(Trib.)


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S.10B: Exempt income‐Export oriented undertaking‐Initial year‐ Assessee has to prove its eligibility in initial year of production only and not in every year of claim. The Assessing Officer rejected the assessee's claim holding that the assessee had employed used machinery value of which exceeded 20% of total value of machinery employed by assessee. It was noted from records that the claim u/s 10B was allowed in the past and the year under consideration was found to be 5th year of claim. There was no evidence on record establishing that assessee had purchased used machinery during relevant assessment year. Held in order to claim exemption u/s 10B, assessee has to prove its eligibility in initial year of production only and not in every year of claim. (A.Y. 2003‐04 to 2004‐05) DCIT v. Tyco Valves & Control India (P.) Ltd. (2013) 57 SOT 138(URO)(Ahd.)(Trib.) S.12AA: Procedure for registration–Period of six months–Directory. There is no automatic or deemed registration if the application filed under section 12AA is not disposed of within the stipulated period of six months as the time frame fixed under the provision is only directory. Matter remitted to the Commissioner for consideration of the matter a fresh. CIT v. Sheela Christian Charitable Trust (2013) 354 ITR 478 (Mad.)(HC) S.12AA: Procedure for registration–Order lodging the application–Not sustainable‐Deemed registration‐Time to be reckoned from the end of month in which the application was filed‐Matter remanded to Commissioner. The assessee filed an application before the Commissioner on 28th January, 2009 for seeking registration under section 12AA and for grant of approval under section 80G. The Commissioner held that the activities of the assessee could not be called charitable. Accordingly he lodged the application of assessee. On appeal Tribunal held that since the application was filed by the assessee on 28th January, 2009 and the Commissioner passed the order on July 31, 2009, by virtue of section 12AA, the six month period has expired and therefore application should be deemed to have been granted recognizing the status of assessee as ‘Charitable Trust’. Tribunal also held that sale of books, hiring of utensils and rental income would not make the activities of the assessee a commercial venture. On appeal the court held that the application was dated January 28, 2009 and calculating the six months' period from the end of the said month, it could not be said that the six months' period would expire by July 31, 2009. Therefore, the order passed by the Commissioner on July 31, 2009, could not be held to have been passed in violation of section 12AA. The conclusion of the Tribunal that the registration was deemed to have been granted, could not be sustained, inasmuch it was found that the order of the Director of Income‐tax was passed within a period of six months stipulated in section 12AA(2). However, it was held that the Commissioner should have either granted or rejected the application and was not expected to merely lodge the application, which would only leave the assessee in a suspended animation. There could not be any order in between like lodging the application. Thus, the matter was remitted to the Commissioner for fresh disposal on the merits. DIT (Exemption) v. Anjuman‐e‐Khyrkhah‐e‐Aam (2013) 354 ITR 474 (Mad.)(HC) S.12AA: Procedure for registration‐Religious purpose‐Denial of exemption was held to be not justified. [S.13(1)(b)] The Commissioner rejected assessee's application on the ground that the object clause of trust deed included an object of religious nature. The only prohibition in this regard was contained in S.13(1)(b), which excludes a trust or institution created or established for benefit of any particular religious community or caste. Since the aforesaid prohibition did not apply to assessee's case, impugned order denying registration to assessee‐trust was to be set aside.


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Radhika Seva Sansthan v. CIT (2013) 57 SOT 121(URO) (Jaipur) (Trib.) S.12AA: Procedure for registration‐Trust or institution‐Promotion of sports‐ Charitable purpose‐Registration is entitled. [S.2(15)] The Assessee‐society is registered under the Society Registration Act, 1860. The founder‐members of the society were professional golfers. The assessee filed an application seeking registration under section 12AA. The Commissioner rejected the application of registration. The Tribunal held that Society’s Object are charitable in nature, all the object and aims of the assessee are contained in clause (3) of its Memorandum of Association, Promotion of sports and games has to be considered as 'charitable purpose' within meaning of section 2(15). Assessee society formed to promote interest in game of golf in general and professional golfers in particular was entitled to registration under section 12AA of the Act. Professional Golf Tour of India v. CIT (2013) 143 ITD 165/155 TTJ 17(UO)(Chandigarh)(Trib.) S.14A: Disallowance of expenditure–Exempt income‐Sufficient interest free funds–Presumption. Where the assessee had sufficient interest free funds to meet its tax free investments yielding exempt income, it could be presumed that such investments were made from interest free funds and not loaned funds and, thus no disallowance u/s.14A being warranted. Ratio in case of CIT v. Reliance Utilities & Power Ltd (2009) 313 ITR 340 (Bom.)(HC) is followed. (A.Y. 2003‐04) CIT v. UTI Bank Ltd. (2013) 215 Taxman 8(Mag.) (Guj.)(HC) S.14A: Disallowance of expenditure–Exempt income‐ Dividend from foreign subsidiaries–Interest free funds. Where investment was made by the assessee in foreign subsidiaries, disallowance of interest expenditure under section 14A was not justified since dividend income from foreign subsidiaries, is taxable in India. Also, where the assessee had own interest free funds many times over the investment made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made under section 14A. CIT v. Suzlon Energy Ltd. (2013) 215 Taxman 272 (Guj.) (HC) S.14A: Disallowance of expenditure‐Exempt income‐Disallowance under section 14A cannot be made if satisfaction not recorded with reference to A/cs. Under Rule 8D(2)(ii) loans for specific business purposes cannot be included. Under Rule 8D(2)(ii) & (iii) investments which have not yielded income cannot be included. [Income–tax Rules, 1962, Rule 8D] In AY 2008‐09, the assessee invested Rs.103 crores in shares on which it earned tax‐free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds like capital and profits. It claimed that no expenditure had been incurred to earn the dividends and no disallowance u/s 14A could be made. The Assessing Officer applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the Commissioner (Appeals) reduced the disallowance to Rs. 26 lakh. On cross appeals, HELD by the Tribunal: (i) When the Assessing Officer does not accept the assessee’s claim regarding the non‐applicability/ quantum of disallowance u/s 14A, he has to record satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It has is to be done with regard to the accounts of the assessee. On facts, as there is no satisfaction by the Assessing Officer, no disallowance u/s 14A can be made [Balarampur Chini Mills Ltd. v. Dy. CIT (2011) 140 TTJ 73(Kol.)(Trib.)] followed;


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(ii) Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by way of interest which is not directly attributable to any particular income or receipt. This clearly means that interest expenditure which is directly relatable to any particular income or receipt is not to be considered under rule 8D(2)(ii). The AO has to show that the interest is not directly attributable to any particular income or receipt. In the assessee’s case, the interest has been paid on loans taken from banks for business purpose. There is no allegation that the loan funds have been diverted for making investment in shares or for non‐business purposes. The loans are for specific business purposes and no bank would permit the loan given for one purpose to be used for making any investment in shares. Also, the assessee has substantial capital & reserves. Accordingly, the interest on the loans cannot be included in Rule 8D(2)(ii); (iii) Further, in Rule 8D(2)(ii), the words used in numerator B are “the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance‐sheet as on the first day and in the last day of the previous year“. The Assessing Officer was wrong in taking taken into consideration the investment of Rs.103 crores made during the year which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term “average of the value of investment” is used to take care of cases where there is the issue of dividend striping; (iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub‐clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in rule 8D(2)(ii). Thus, not all investments become the subject‐matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. (A. Y. 2008‐09) ( ITA No. 1331/Kol/2011, dt. 29/07/2011) REI Agro Ltd v. DCIT (Kol.)(Trib.).www.itatonline.org S.14A: Disallowance of expenditure–Exempt income‐Reasonable basis. For periods prior to AY 2008‐09, disallowance of expenses relating to exempt income, u/s 14A, is to be computed on a reasonable basis and not as per rule 8D.(A.Y. 2004‐05) Forever Diamonds (P.) Ltd. v. DCIT (2013) 57 SOT 113 (URO)(Mum.)(Trib.) S.14A: Disallowance of expenditure‐Exempt income‐Rule 8D does not apply to short‐term investments, gains from which is taxable. [Income‐tax Rules,1962‐Rule 8D] Some of the investments made by the assessee are short term. Since assessee is paying capital gains tax on short term investments, Rule 8D will not apply on them and the Assessing Officer is directed to re compute disallowance u/s 14A read with Rule 8D after excluding short term investments ( A. Y. 2008‐09, ITA No. 1774/Mds/2012, dt.19 July,2013) Sundaram Asset Management Co. Ltd v. DCIT (Chennai)(Trib.) www.itatonline.org


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S.14A: Disallowance of expenditure ‐ Exempt income‐Interest on loans for specified purposes to be excluded [Income‐tax Rules, 1962‐Rule 8D] The assessee contended that in computing the disallowance to be made under section 14A and rule 8D(2)(ii) ,the interest on bank loans taken for specific taxable purposes had to be excluded .The Assessing Officer rejected the claim. On appeal Commissioner (Appeals) accepted the claim of assessee. On appeal by revenue the Tribunal held that rule 8D(2)(ii) refers to expenditure by way of interest which is not attributable to any particular income or receipt. If loans have been sanctioned for specified projects /expansion and have been utilized towards the same ,then obvious they could not have been utilized for making any investments having tax‐free incomes and have to excluded from the calculation to determine the disallowance under Rule 8D(2)(ii).(Champion Commercial Co. Ltd.) (Kol)(Trib.)(ITA no 644 /Kol/2012 dt 21‐09‐2012) is followed.(A.Y.2009‐10)(ITA No.1603/Mds/2012 dt.16‐07‐2012) ACIT v. Best & Crompton Engineering Ltd. (Chennai)(Trib.) www.itatonline.org. S.14A: Disallowance of expenditure‐Exempt income‐Onus on assessee to prove that he had not incurred any expenses relating to income not forming part of total income. [Income‐tax Rules, 1962, Rule 8D] Assessing Officer had disallowed a sum of Rs.3,05,423/‐ by applying provisions of section 14A read with rule 8D. On Appeal the Commissioner (Appeals) reduced the disallowance to Rs 1 lakh on the ground that there is no precise finding given by the Assessing Officer .On appeal Tribunal held that onus lay on assessee to prove that he had not incurred any expenses relating to income not forming part of total income. Since assessee did not file any details of expenditure incurred by him, the order of Commissioner (Appeals) was set aside and that of Assessing Officer restored. (A.Y.2009‐10) ACIT v. Joe Marcelinho Mathias(2013) 143 ITD 132 (Panji)(Trib.) S.22: Income from house property‐Business income‐Un sold flat‐Rental income from unsold flat is assessable as income from house property. [S.28(i)] The Court held that rental income from unsold flats in the hands of builder/developer, which are shown as ‘business assets’ should be assessed under the head Income from house property and not as business income. (ITA Nos. 238, 238 & 240 of 2013 dt.17‐05‐2013) New Delhi Hotels Ltd. v. ACIT (2013) The Chamber’s Journal –July‐P.114 (Delhi)(HC) S.28(i): Business income–Grant in aid for research activities is capital receipt. [S.41, 263] The grant in aid for a specific purpose of conducting research in the field of telecommunications, so that the benefit thereof would benefit the Nation and for carrying on day to day business of the assessee was a capital receipt. Order under section 263 was held to be bad in law. The question referred to High Court was on merit. High Court confirmed the order of Tribunal. (A.Y. 1989‐90) CIT v. India Telephone Industries Ltd. (2013) 215 Taxman 82 (Karn.)(HC) S.28(i): Business loss–In the name of firm‐Foreign currency transactions‐Not allowable in the assessment of partner. [Partnership Act, 1932 S.13] The Appellant entered into foreign currency transactions on behalf of firm from its account. Both the assessee–partner and firm claimed such loss as deduction in their respective income. The Tribunal disallowed the claim on the both. On separate order High Court admitted appeal of the partnership firm. In appeal it was contended that the transactions were entered in to without the knowledge of other partners and therefore should be treated as his personal loss. The Court held that section 13 of the Partnership Act provides, inter alia, that subject to the contract between, partnership firm shall indemnify the partner in respect of the payment made and liabilities incurred by firm in the ordinary


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and proper conduct of business and in doing such act, in an emergency for the purpose of protecting the firm from loss as, would be done by a person of ordinary prudence, in his own case ,under similar circumstances .In the result these transactions resulted in loss and could not be allowed as deduction in individual capacity of assessee‐partner, when the same claim is made by firm under examination.(A.Y. 2007‐08) Pravinbhai Mohanbhai Kheni v. ACIT (2013) 215 Taxman 83(Mag.) (Guj.)(HC) S.28(i): Business income–Share dealings–Capital gains‐Purchase and sale on regular basis assessable as business income. [S.45 ] Board's resolution authorized the assessee‐company to set apart a corpus of Rs.100 crores for trading in shares which represented intention to carry out activities of purchase and sale of shares on business lines. Further, the purchase and sale transactions in shares were entered into on regular and systematic basis with profit motive which only constituted business. The long‐term capital gain was a small amount as against short‐term capital gain which was a strong indicator as to shares being not intended to be held by way of investments. Held, the income had to be taxed as business income. (A.Y. 2007‐08) Mafatlal Fabrics (P.) Ltd. v. Add.CIT (2013) 57 SOT 425 (Mum.)(Trib.) S.28(va): Business income–Non‐compete fees–Taxability‐DTAA‐ India‐France [Art.7] Compensation received from foreign company in lieu of an undertaking by the assessee for not competing with Foreign company in India and for not using trade mark, designs, logo of said foreign collaborator, post settlement would be taxable in India. (A.Y. 2004‐05) Control & Switchgear Contractors Ltd. v. DCIT (2013) 57 SOT 127(URO) (Delhi)(Trib.) S.31: Repairs and insurance of machinery, plant and furniture–Replacement of crucial components of a machine could not be considered as current repairs. [S. 37(1)] Replacement of crucial components of a machine which resulted in a new or fresh advantage or obtaining of enduring benefit could not be considered as current repairs expenditure and would not be allowable as deduction u/s 31(1) or u/s 37(1). (A.Y.1999‐2000) DCIT v. Printers (Mysore) (P.) Ltd. (2013) 57 SOT 117(URO) (Bang.)(Trib.) S.32: Depreciation–Set off –Unabsorbed depreciation‐Carry forward and set off permitted till final set off‐ Reassessment was held to be not valid. [S.147, 148] The provisions of section 32(2), as amended by the Finance Act, 2001, would allow the unabsorbed depreciation allowance available in the assessment years 1997‐98, 1999‐2000, 2000‐01 and 2001‐02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not be set off till the assessment year 2002‐03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years, without any limit what so ever. The order of reassessment was held to be not valid. (A.Y. 2006‐07) General Motors India P. Ltd. v. DCIT (2013) 354 ITR 244 (Guj.) (HC) S.32: Depreciation‐Additional depreciation‐Plant and machinery‐Less than 180 days. Where the plant and machineries were put to use for less than 180 days in the year of installation assessee claimed only 50% of additional depreciation and balance amount was claimed in the next year. Assessing Officer and Commissioner (Appeals) has not allowed the claim. On appeal Tribunal held that additional benefit was intended to give impetus to industrialization, hence the assessee was entitled to the balance 50% of the depreciation in the subsequent year.(A.Y. 2009‐10)(ITA no 2789/Mum/2012 dt 13‐05‐2013) MITC Rolling Mills P. Ltd v. ACIT (2013) BCAJ‐July P.55(Mum.)(Trib.)


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S.32: Depreciation‐Licence to collect toll‐Road on BOT basis ‐Intangible asset –Depreciation is allowable. The assessee is engaged in the business of construction, operation and maintenance of infrastructure facilities. The assessee was awarded an infrastructure work of development, operation and maintenance of infrastructure project of a road on build, operation and transfer basis. It was required to develop construct maintain the road at its own cost for a specified period. On expiry of the specified period the, infrastructural facility was to be transferred to the State Government free of charge. In consideration the assessee was given a right to collect toll from the motorists using the road during specified period .On the amount spent by the assessee it has capitalized the costs incurred on development and construction and claimed depreciation being an intangible asset within the meaning of section 32 (1)(ii). The Assessing Officer held that the right to collect toll was neither a license nor a valuable commercial or business right covered in the expression intangible asset for the purpose of section 32(1)(ii) and accordingly disallowed the depreciation. On appeal Tribunal held that the right to collect toll is emerged as a result of the costs incurred by the assessee on development, construction and maintenance of the infrastructure facility. Such a right has to be in the nature of ‘intangible asset’ falling within the purview of section 32(1)(ii) and is eligible for depreciation under section 32 of the Act. (ITA Nos. 185& 186 /PN/2012 dt. 29‐04‐2013) ACIT v. Ashoka Infraways (P) Ltd (2013) The Chamber’s Journal –July. P. 119 (Pune)(Trib.) S.36(1)(iii): Deductions–Interest on borrowed capital‐Diversion of funds–Nexus. The Assessing Officer disallowed the claim of assessee u/s. 36(1)(iii) on ground that it had diverted interest bearing funds for purpose of investment in shares and loans to sister concern. Held since sufficient interest free funds were available with assessee and there was no nexus between borrowed funds and funds lent, disallowance of interest expenditure was not permissible. (A.Y. 2005‐06) CIT v. R.L. Kalthia Enggineering & Automobiles (P.) Ltd. (2013) 215 Taxman 9(Mag.) (Guj.)(HC) S.36(1)(iii): Deductions – Interest on borrowed capital‐Sufficient own funds –Common fund‐No disallowance can be made. The assessee made investment in mutual funds from out of common fund comprising interest bearing as well as non‐interest bearing funds (i.e. own funds) were sufficient to cover the investment in the mutual fund, a presumption arises in favour of the assessee that investment is made out of own (viz.non –interest bearing )funds and hence no disallowance can be made. Ratio in Reliance Utility and Powers Ltd (2009) 313 ITR 340 (Bom.)(HC) is followed.( ITAXA no 1978 of 2011 dt 10‐06‐2013) CIT v. Mahanagar Gas Ltd (2013) The Chamber’s Journal‐July –P. 114 (Bom.)(HC) S.36(I)(v): Deductions‐Contribution approved gratuity fund ‐ LIC Group Gratuity Scheme‐ Though s. 36(1)(v) requires direct payment to the gratuity trust fund, payment to the LIC Group Gratuity Scheme is also allowable. The assessee set up a gratuity fund which was duly approved by the Commissioner. However, instead of making payment to the fund directly, the assessee paid an amount of Rs. 50 lakhs as initial contribution and an amount of Rs. 5 lakhs as annual premium to the Life Insurance Corporation (“LIC”) pursuant to the group Life Assurance Scheme framed by the LIC for the benefit of the employees of the assessee. The Assessing Officer disallowed the claim for deduction on the ground that payment towards the gratuity fund was not made to an approved gratuity fund and was not allowable u/s 36(1)(v). The Commissioner (Appeals), Tribunal and High Court (CIT v. Taxtool Co. Ltd.


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(2002) 257 ITR 39 (Mad)) upheld the assessee’s claim on the basis that the payment to LIC under the Group Life Assurance Scheme was for the exclusive benefit of the employees of the assessee under the policy issued by it and that the conditions stipulated in s. 36(1)(v) had not been violated. On appeal by the department to the Supreme Court, HELD dismissing the appeal: While it is true that a fiscal statute has to be construed strictly and nothing should be added to or subtracted from it, yet a strict construction of a provision does not rule out the application of the principles of reasonable construction to give effect to the purpose and intention of any particular provision of the Act. From a bare reading of s. 36(1)(v), it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees. On facts, it is evident that the assessee had absolutely no control over the fund created by the LIC for the benefit of the employees of the assessee and further all the contribution made by the assessee in the said fund ultimately came back to the Textool Employees Gratuity Fund, approved by the Commissioner. Thus, the conditions stipulated in s. 36(1)(v) were satisfied. CIT v. Textool Co. Ltd (SC), www.itatonline.org S.36(1)(vii): Deductions‐Bad debts–Demerger‐Relating to earlier years which was acquired from holding company. The assessee‐company, consequent upon a scheme of demerger had acquired all assets and liabilities of two web based portals as a going concern, that were being operated by its holding company. In very first year of operation assessee had written off bad debts, which had been acquired from holding company, in its books. The Assessing Officer held that these bad debts related to earlier years and that assessee could not have written off same, as such act contravened section 36(1)(vii). He therefore, rejected the claim in respect of bad debts written off. Held that the assessee was entitled to write off bad debts in question and was not required to produce evidence to show that debts had in fact become bad. (A.Y. 2007‐08) CIT v. Times Business Solution Ltd. (2013) 215 Taxman 261 (Delhi) (HC) S.36(1)(viii): Deductions‐Eligible business‐Special reserve‐Financial corporation reserve created by Long‐term finance‐Interest income held not eligible‐Lease income matter remanded. Assessee a Non‐Banking Financial Company owned by the Tamil Nadu Government, it claimed deduction under section 36(1)(viii) on its lease income, hire charges as well as interest received on deposits in addition to its claim for similar deduction on interest on long‐term finance given by it to various concerns. Assessing Officer rejected to consider the claim of deduction under section 36(1)(viii) as income derived from long‐term finance. Interest on deposits will never fall within definition of long‐term finance given in Explanation (e) to section 36(1)(viii) and, therefore it is not eligible for deduction under section 36(1)(viii). On Appeal the Tribunal remitted back the issue with regard to the claim of the assessee for deduction under section 36(1)(viii). In fresh Assessment Proceedings, the assessee claimed that it was eligible for claiming deduction those amounts since the funding which gave rise to such income, fell within the definition of long‐term finance given in Explanation (e) to section 36(1)(viii). Assessing Officer again disallowed the deduction claimed holding that unless money was actually lent or advanced with a condition that it would be repaid along with interest. On the Tribunal held that interest on deposits will never fall within definition of long term finance given in Explanation(e) to section 36(1(viii), therefore not eligible for deduction. For deciding whether activities of lease and hire undertaken by assessee came within definition of long term finance given in Explanation (e) to section 36(1(viii), primary requirement is to see agreements based on which the assessee had provided such facilities to its customers . Matter was remanded (A. Y. 2007‐08)


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Tamilnadu Power Finance & Infrastructure Development Corpn. Ltd. v. ACIT (2013) 143 ITD 147 (Chennai)(Trib.) S.37(1): Business expenditure – Sales commission Where the assessee had paid sales commission, only such part was allowable in respect of which there was sufficient evidence; which were paid through cheques and were also reflected in income‐tax return of payees. CIT v. Suzlon Energy Ltd. (2013) 215 Taxman 272 (Guj.) (HC) S.37(1): Business expenditure – Commission – The assessee‐company paid commission to 'M' for procuring orders of medical equipments which was approved by its Board of directors. Also, the commission received by 'M' had been shown as income in return filed by 'M'.Hence, there remained no doubt as to genuineness of payment in question and, thus, assessee's claim in respect of same was to be allowed. CIT v. Medical Technologies Ltd. (2013) 215 Taxman 10(Mag.) (Guj.)(HC) S.37(1): Business expenditure – Commission – Steep rise in the amount‐Disallowance was not justified. When there was no defect in maintenance of books of account on part of assessee, disallowance only on the ground that there was steep rise in said expenses as compared to earlier year, was not justified. CIT v. Shree Rama Multi Tech Ltd. (2013) 215 Taxman 10(Mag.) (Guj.)(HC) S.37(1): Business expenditure –Capital or revenue‐ Loan expenses for restructuring of loan is revenue expenditure. The assessee claimed deduction of a sum expended towards restructuring of a term loan. The Revenue taking a view that restructuring of such loan would earn enduring benefit to assessee, held it as capital expenditure. Held, where the loan was incidental to assessee's business, any expenditure incurred for restructuring of such loan or for securing borrowing on more advantageous conditions, could not be seen as resulting into benefit of enduring nature, so as to be categorized as capital expenditure. DCIT v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 215 Taxman 72 (Guj.)(HC) S.37(1): Business expenditure–Capital or revenue‐ Software development expenditure is revenue expenditure. Software development and up gradation would include data administration services, information and technology support services, software asset management services, etc., which was in nature of maintenance, back up and support service to existing hardware and software and did not give any fresh or new benefit. Hence, the said expenditure was revenue in nature. CIT v. N.J. India Invest (P.) Ltd. (2013) 215 Taxman 78 (Guj.)(HC) S.37(1): Business expenditure‐Provision for non‐performance guarantee is allowable. The assessee claimed deduction of provision for non‐performance guarantee. The Assessing Officer disallowed the said amount as contingent liabilities. It was contended that the provision was nothing but non‐performance guarantee and was in the nature of warranty, which was made on scientific basis after considering earlier experience. The Court held that the provision for non‐performance guarantee is allowable since it was in the nature of warranty. Ratio in CIT v. Rotak Controls India Ltd (2009) 314 ITR 62 (SC) is followed.(TCA no 38 of 2010 dt. 3‐06‐2013)


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FL Smith Minerals Pvt. Ltd. v. DCIT(2013) The Chamber’s Journal –July‐P 114 (Mad.)(HC ) S.37(1): Business expenditure‐Custodian charges‐Custodian charges paid to NSDL is allowable as revenue expenditure. The assessee paid an amount of Rs 44.43 lakhs to National Security Depository Limited (NSDL), which was a ‘one time’ custodian charges for shares to dematerialization of shares. The said amount was claimed as revenue expenditure. The Assessing Officer held that the said amount was paid as good will measures and was capital in nature. The Court held that the test of enduring benefit is not conclusive. Without making payment the assessee could not have made any issue of shares /securities .An obligation was cast on assessee to enter into an agreement with the depository for dematerialization of securities and consequently to such custodian charges. As the expenditure was incurred in the normal course of business the same is allowable as revenue expenditure. Merely fact that share holders have also benefited from the payment will not disentitle the assessee from claiming the expenditure.(ITA No. 1192 of 2006 dt 22‐04 2103 ) CIT v. Infosys Technologies Ltd. (2013) The Chamber’s Journal–July P. 114 ( Karn.)(HC) S.37(1): Business expenditure–Commission–Additional evidence‐ Matter set aside. [S. 195, 40(a)(i)] In course of appellate proceedings, assessee sought to produce certain additional evidence in support of its claim which was undisputedly not available with assessee during course of proceedings before Commissioner (Appeals). Hence, the impugned order was to be set aside and, matter was to be remanded back for disposal afresh in light of additional evidence adduced by assessee.(A.Ys. 2006‐07 & 2007‐08) Fibres & Fabrics International (P) Ltd. v. ACIT (2013) 57 SOT 88(URO) (Bang.)(Trib.) S.37(1): Business expenditure–Termination of agreement–Damages paid is not allowable as business expenditure. When a third party, by its own, terminated an agreement without giving a timely notice to the assessee, then payment made by assessee to that party which violated terms and conditions of the agreement, could not be allowed u/s 37(1). (A.Y. 2006‐07) Dystar India (P.) Ltd. v. DCIT (2013) 57 SOT 304 (Mum.)(Trib.) S.37(1): Business expenditure–Payment for risk analysis is allowable as deduction. Expenditure for due diligence exercise undertaken was disallowed on the ground that it would create a reliable database for use in future, thereby providing enduring benefit to assessee. Held that the expenditure in question was incurred in normal course of assessee's business and every due diligence undertaken in respect of potential target hotels might not result in actual business. Hence, the expenditure was allowed as deduction. (A.Y 2007‐08) ACIT v. Intercontinental Hotels Group India (P.) Ltd. (2013) 57 SOT 120(URO) (Delhi)(Trib.) S.37(1): Business expenditure‐Advertisement expenses is allowable as deduction. Since there was no element of brand building or acquisition of brand by incurring advertisement expenses, the same was to allowed as deduction. (A.Y.2007‐08) ACIT v. Intercontinental Hotels Group India (P.) Ltd. (2013) 57 SOT 120(URO) Delhi (Trib.) S.37(1): Business expenditure–Mercantile system of accounting‐ Prior period expenses is not allowable.


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Where the assessee followed mercantile system of accounting, prior period expenses relating to deductions/provision for previous years was not allowable in relevant assessment year. (A.Y. 2007‐08) Bearing Point Business Consulting (P.) Ltd. v. DCIT (2013) 57 SOT 244 (Bang.)(Trib.) S.40(a)(i): Amounts not deductible–Interest–Addition to total income more than once‐DTAA‐ India‐USA‐ Singapore‐ UAE –Amount could not be added on three different accounts while determining tax liability ‐ Matter remanded. [S. 40A(2), 37(1),41(1),195, Art. 12] The assessee paid fees to foreign group companies without deduction of tax at source u/s 195, which was disallowed u/s 40(a)(i). Also, since the assessee had not provided details of group companies, services provided, nature of transactions and basis of payment, the Assessing Officer disallowed said payment u/s 37(1). Further, assessee had shown its group company as creditor for Rs. 23.73 lakhs towards inspection charges, which were treated by the Assessing Officer as income of assessee u/s 41(1). Held, the same amount could not be added on three different accounts while determining tax liability of the assessee. Matter remanded. (A.Y. 2006‐07) ITO v. ABS Industrial Verification India (P.) Ltd. (2013) 57 SOT 418 (Mum.)(Trib.) S.40(a)(i): Amounts not deductible–Payment by individual‐ Contractor‐ Disallowance was not justified. [S.194C] The assessee is an individual carrying on the business of manufacturing the export of readymade garments. During the Assessment year assessee made payments for weaving, cloth processing and yarn processing to the third parties on job work basis. The Assessing Officer invoking the provisions of section 40(a)(ia) of the Act, disallowed the same on the ground that tax was not deducted at source as per section 194C of the Act. Disallowance was confirmed by Commissioner (Appeals). On appeal to the Tribunal the Tribunal held that provisions of section 194C(2) is not applicable to the facts of the assessee as the same is applicable for a payment made by a contractor to a sub‐contractor. As far as section 194C(1) is concerned, the same is applicable to the individual from the subsequent assessment year. Hence the disallowance was not justified. (A.Y.2006‐07) (ITA No. 1352/Mum/2012 dt. 13‐03‐2013] John Alex Lobo v. ITO (2013) Chamber’s Journal‐April‐P.142 (Mum.)(Trib.) Editorial: Finance Act ,2007 ,with effect from 1‐6‐2007(2007) 291 ITR 1(St)(45) extended the liability for deduction at source on payment to contractors by individuals and Hindu Undivided Families liable for tax audit. It has to be understood that it should apply to such contractors awarded in the course of business. S.40(a)(ia): Deduction at source‐Fees for professional or technical services‐Internet services from VSNL‐Tax to be deducted at source. [S.194J] The assessee is a company engaged in providing back office processing services .During relevant previous year assessee company utilized internet services from VSNL and made payment towards same. Assessee claimed that sophisticated equipments were used and connection of internet was through satellite link and it could not be said that it was a technical services. Since assessee did not deduct tax at source while making said payments. Assessing Officer disallowed same under section 40(a)(ia) that amount paid by the assessee for using internet services amounted for fees for technical services. In view of fact that technical personnel were involved in providing internet connection and incidental services, payment made by assessee to service provider had to be treated as 'fees for technical services' and hence, assessee was under obligation to deduct tax at source from same. On appeal Commissioner (Appeals) held that the Assessing Officer was justified in making impugned disallowance on the ground that for availing such facility from VSNL, there is


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involvement of human skill, efforts of technical personnel involve in availing internet connection. The Tribunal also upheld the order and held that the assessee was liable to deduct tax at source. (A.Y. 2004 ‐05) Brigade Global Services (P.) Ltd. v. ITO (2013) 143 ITD 59 (Hyd.)(Trib.) S.40A(2): Expenses or payments not deductible‐Excess or unreasonable –Sale to sister concerns at lower rate provision is not applicable. [S.143(3)] The assessee had supplied to its sister concerns at a lower rate compared to what was charged to others. The Assessing Officer made an addition of 15% on the basis of sales to others. Court held that no addition can be made merely because lower rates were charged to sister concerns. Further sister concerns were paying tax at a higher rate than the assessee. It was held that section 40A(2) would apply to expenditure and not on sales. (ITA No.27 of 2013 dt. 2‐04‐2013) CIT v. Rajnish Ahuja (2013) The Chamber’s Journal‐May P.92 (P&H)(HC) S.43(5): Speculative transaction–Deduction of loss‐Cancellation of forward contract. The assessee claimed deduction of loss incurred on account of cancellation of forward contract. The Revenue authorities rejected the assessee's claim holding that transaction in question fell within definition of speculative transaction as per section 43(5). The Tribunal, however, allowed the assessee's claim. Held, in view of order passed by Court in case of CIT v. Friends & Friends Shipping (P) Ltd. [Tax Appeal No. 251/2010, dated 23‐8‐2011], impugned order of Tribunal was to be upheld. CIT v. Panchmahal Steel Ltd. (2013) 215 Taxman 140 (Guj.)(HC) S.44C: Non‐residents–Head office expenditure–Effect of amendment DTAA‐ India‐Germany. [Art.7] The assessee, a non‐resident foreign bank, claimed deduction in respect of head office expenses. The DTAA between India and Germany was entered into on 28‐6‐1984 and it, inter alia, provided that deduction in respect of head office expenses would not be less than what was allowable under Indian Income Tax Act as existing on 28‐6‐1984. This position changed only by virtue of amendment to DTAA in assessment year 1998‐99 and since the pre‐amended section 44C allowed more deduction to head office expenses than amended section, during AY 1994‐95 section 44C as applicable would be one existing as on 28‐6‐1984 and not as existing during subject assessment year. Hence, the assessee was allowed the full deduction claimed. (A.Y.1994‐95) DIT v. Deutsche Bank AG (2013) 215 Taxman 143 (Bom.)(HC) S.47: Capital Gains ‐ Transaction not regarded as transfer ‐Transfer of assets and liabilities by proprietary concern to company‐Revaluation of assets Benefit of section 47(xiv) is allowable. [S. 45] Assessee a proprietary concern having business of property development. During the year he had transferred all his assets and liabilities to a private limited company as per deed of succession. In Deed of Succession dated 31‐3‐2009 assessee had re‐valued assets and liabilities at Rs. 963 crores and against entire consideration he was allotted equity shares in said company. Net worth of proprietary concern of assessee was Rs. 1.61 crores. Assessee claimed provisions of section 47(xiv) were applicable to transfer so made. Assessing Officer held that provisions of section 47(xiv) were not applicable in instant case, as assessee had not complied with condition stipulated under clause (c) of proviso to section 47(xiv). He was of view that assessee had received consideration by way of allotment of shares in company and value of those shares was much more than value of assets as was disclosed in books of proprietary concern. Since clause (c) of proviso to section 47(xiv) permitted receiving of consideration or benefit directly or indirectly by way of allotment of shares in a company and it did not prohibit receipt of higher value of shares because of re‐valuation of assets at time of succession, it could not be said that assessee had not complied with condition stipulated


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under clause (c) of proviso to section 47(xiv). In appeal Commissioner (Appeals) held that the assessee is entitled to exemption. On appeal by revenue the Tribunal held that it is not a case where the assessee has received any consideration or benefit other than allotment of shares in company. Clause (c) of proviso to section 47(xiv) does not prohibit receipts of higher value of shares because re‐valuation of the assets at the time of succession. Therefore assessee is entitled to benefit of section 47(xiv) and the order of the Commissioner(Appeals) is confirmed.(A.Y.2009‐10) ACIT v. Joe Marcelinho Mathias (2013) 143 ITD 132 (Panji)(Trib.) S.48: Capital gains‐Report of inspector on verbal enquiry cannot be relied on for determining the consideration. The Inspector had made verbal enquiries from two‐three persons with regard to correct valuation of two plots sold by respondent‐assessee after a gap of three years. The Tribunal was held to be justified in not placing any reliance on Inspector's report and in adopting only other values that were available to it which were circle rates of two localities at time of sales of said plots. (A.Y.2003‐04) CIT v. Delhi Housing & Finance Corporation (2013) 215 Taxman 11(Mag.) (Delhi)(HC) S.50C: Capital gains–Full value of consideration‐Stamp valuation‐Stock in trade provision is not applicable. The assessee sold a plot of land which was held by him as stock in trade. Since the sale of plot gave rise to business income and not to capital gain and, therefore, section 50C would have no application.(A.Y.2008‐09) CIT v. Mukesh & Kishor Barot Co‐owners (2013) 215 Taxman 151 (Guj.)(HC) S.50C: Capital gains – Registration value adopted by the government –Entire amount invested would get the benefit irrespective of fact that funds from other sources are also utilized. [S. 54F] When the registration value was not the disputed question, now, at this stage it was not permissible for the assessee to contend that the registration value was excessive and disproportionate to the market value of the property. In the absence of contra material, the deemed full value of consideration as stated in section 50C would come into effect. However, when the capital gain is assessed on notional basis, whatever amount is invested in new residential house within the prescribed period u/s 54F, entire amount invested, should get the benefit of deduction irrespective of the fact that the funds from other sources are utilized for new residential house. In that context, whatever total amount actually invested by the assessee for construction of house should be deducted irrespective of the fact that part of the funds invested were from different sources and not from the capital gains.(A.Y.2005‐06) Gouli Mahadevappa v. ITO (2013) 215 Taxman 145/88 DTR 59/259 CTR 579 (Karn.)(HC) Editorial: Tribunal order in Shri Gaouli Mahadevappa v. ITO (2011) 128 ITD 503(Bang.)(Trib.) is partly affirmed. S.54EC: Capital gains ‐ Investment in bonds ‐ Investment with in specified time was beyond its control since neither the REC bonds nor any other tax savings bonds were available during the relevant time period‐Exemption is available. Assessee sold a property on 10‐11‐2006 and to claim exemption under section 54EC, he invested the proceeds in REC bonds on 13‐7‐2007. Assessing Officer disallowed the same which was confirmed by the Commissioner (Appeals) on ground that investment was made beyond specified period of six months from date of transfer of property. On Second Appeal assessee contended that the delay in the investment was beyond its control since neither the REC bonds nor any other Tax Savings Bonds were available during the relevant time period and that the new series of bonds were introduced in


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the market only on 1‐7‐2007 and it made investment in said bonds on 13‐7‐2007. Issue of non‐availability of REC bonds during relevant period had not been proved with documentary evidence by assessee, matter was to be remitted to Assessing Officer for verification. (A.Y.2007‐08) Shambhu Lal Sah (Lt. Col) v. ITO (2013) 143 ITD 189 (Delhi)(Trib.) S.54F: Capital gains‐Investment in a residential house‐Capital gains ‐ Exemption of, in case of investment in five residential house was allowed. [S.54 ] Assessee had entered into an agreement with one 'H' Ltd. for development of a piece of land owned by her. As per agreement, Assessee was to receive 43.75 per cent of built up area after development, which was translated to five flats. Assessee filed her return claiming deduction under section 54F on value of five flats. The Assessing Officer restricted the claim of deduction in respect of one flat only and disallowed the claim in respect other flats, which was confirmed by the Commissioner (Appeals). Tribunal held that ‘a residential house’ in the context could not be construed as a singular. Meaning given in section 54 would apply to section 54F also. New asset defined in section 54F as ‘a residential house’ has to be understood in plural. It is not necessary that all residential units should be single door number allotted. Following the ratio in CIT v.K.G.Rukminiamma (2011) 331 ITR 211 (Karn.)(HC) the claim of assessee was allowed. (A.Y.2007‐08) V.R. Karpaam (Smt.) v. ITO (2013) 143 ITD 126 (Chennai)(Trib.) S.56: Income from other sources–Hawala transactions – Dealing in shares‐Commission income can be added and not entire amount of transaction. [S.28(i), 68] Since the assessee was concerned with commission earned on providing accommodation entries, it was only amount of commission that could be added to assessee's taxable income and not entire amount of transaction. (A.Y. 2002‐03) Gold Star Finvest (P.) Ltd v. ITO (2013) 57 SOT 409 (Mum.)(Trib.) S.57: Income from other sources‐Management fee‐Investment advisor‐Interest‐Dividend‐50% was allowed. [S.56] Since the entire management fee paid by the assessee was not for earning income by way of interest and dividend, only fifty per cent of impugned management fee was entitled to be allowed u/s 57(iii) against income by way of interest and dividend. (A.Y.2004‐05, 2005‐06) Anil Kumar Nehru v. ACIT (2013) 57 SOT 296 (Mum.)(Trib.) S.68: Cash credits–Unexplained credit representing value of suppliers made on credit can also be added as cash credits. An unexplained credit representing the value of supplies made by suppliers on credit can be added u/s 68. The scope of the provision is not restricted to cash credits alone. (A.Y.1997‐98) Rekha Krishna Rajv (Smt.) v. ITO (2013) 215 Taxman 159 (Karn.) (HC) S.68: Cash credits–Accommodation entry–Without giving an opportunity of cross‐examination merely on the basis of oral statement additions cannot be made. [S.143(3)] The oral statement of a third party recorded by search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition u/s 68 on account of alleged accommodation entries. CIT v. A. L. Lalpuria Construction (P.) Ltd. (2013) 215 Taxman 12(Mag.) (Raj.)(HC)


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S.68: Cash credits–Gifts‐ Confirmations, PAN card, gift deed, balance sheet, acknowledgement for filing of return were filed‐Addition was held to be not valid. [S. 133(6)] The assessee had shown receipt of gifts from 12 persons received through 11 demand drafts issued on a single day. One of gifts was received from 'M' of USA. The Assessing Officer doubted the genuineness of gift and he issued show‐cause notice to assessee and also letters to all donors under section 133(6). Although confirmations were received, no reply was received and, hence, said amount was added to taxable income of assessee. The Tribunal noted that the Assessing Officer had called for confirmations letters from donees which were received by it. The assessee had also furnished all other requisite documents like copies of demand drafts, gift deed, copy of PAN cards, copy of acknowledgement of returns of donors along with computation and balance sheet. The Tribunal, thus, taking a view that assessee had proved identity of donors so also creditworthiness and genuineness of transactions, set aside addition made by Assessing Officer. Held on facts, no substantial question of law arose from Tribunal's order. CIT v.Heena Sharma (2013) 215 Taxman 85(Mag.)(Guj.) (HC) S.68: Cash credits–Gifts from son‐Subject to tax in USA‐Addition was not justified. The assessee received amount as gift through bank, from his son residing in U.S.A. The Assessing Officer disbelieved gift on basis of return filed by assessee's son in India and made addition under section 68. The Commissioner (Appeals) and the Tribunal, observing that the income declared by assessee's son in India was not his only income and he was subject to tax in U.S.A., deleted the addition. Held, that the amount gifted through the bank established the genuineness of the transaction, and sufficiency of funds of donor was proved, amount could not be added as cash credit. (A.Y.1998‐99) CIT v. Mahendra A. Patel (2013) 215 Taxman 84(Mag.) (Guj.)(HC) S.68: Cash credits–Share application money–Summons not complied with–Matter remanded. [S.131] The assessee had received share application money from various subscribers. The Assessing Officer issued summons to said subscribers u/s 131 which were not complied with. The Assessing Officer further noted that companies who subscribed to assessee's share capital were established entry operators who gave accommodation entries to several persons. However, looking at the evidence adduced by the assessee, the Tribunal deleted the addition. Held, since the Tribunal had merely looked at evidence adduced by assessee and had not adverted to attempts made by Assessing Officer in course of assessment proceedings to examine evidence and discredit the same, the order of the Tribunal was remanded back for fresh adjudication. (A.Y. 2001‐02) CIT v. Titan Securities Ltd. (2013) 215 Taxman 164 / 89 DTR 8 (Delhi)(HC) S.68: Cash credits‐Transactions between creditors and sub‐creditors–Assessee need not prove the genuineness of creditors and credit worthiness of sub‐creditors. Section 68 only sets up a rebuttable presumption against the assessee whenever unexplained credits are found in the books of account of the assessee. The initial burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub‐creditors nor is it the burden of the assessee to prove the creditworthiness of the sub‐creditors. The Court held that revenue to prove that credits were circular route adopted by assessee to plough back its own undisclosed income into accounts. In the absence of any exercise by the Assessing Officer addition on account of unexplained credits was not justified. (A.Y. 2002‐03) MOD Creations Pvt. Ltd. v. ITO (2013) 354 ITR 282 (Delhi)(HC)


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S.68: Cash credits‐Received by cheques‐Tax was deducted at source‐ Initial onus discharged, ad hoc addition cannot be made. When an unexplained credit is found in the books of account of an assessee the initial onus is placed on the assessee. Once that onus is discharged, it is for the Revenue to prove that the credit found in the books of account of the assessee is the undisclosed income of the assessee. While making an addition under section 68, the Assessing Officer has to advert to each and every entry and not pick up a couple of entries, as in the assessee's case, and label the entire set of deposits made during the assessment year as undisclosed income of the assessee. The discrepancy appeared qua four credits, which were answered suitably to the satisfaction of the Commissioner (Appeals; therefore, no ad hoc addition could be made by the Assessing Officer. (A.Y. 1998‐1999) CIT v. Kinetic Capital Finance Ltd. (2013) 354 ITR 296 (Delhi)(HC) S.68: Cash credits–Capital‐Explained the source‐Addition was deleted. The Assessing Officer made addition on account of unexplained cash introduced in capital account. The assessee submitted that said cash was received on return of loans by certain persons. Also, the concerned debtors admitted to have returned amount in question to assessee. Hence, the capital was held to be introduced from explained source and therefore, impugned addition was to be deleted. (A.Y. 2007‐08) ITO v. Pushpa Devi Vadera (Smt.) (2013) 57 SOT 138 (URO) (Jodh.)(Trib.) S.68: Cash credits–Loans and advances–Identity proved‐Addition was deleted. Where the assessee proved the identity of creditors, their creditworthiness and genuineness of transaction, addition on account of cash credit was rightly deleted. (A.Y.2007‐08) ITO v. Pushpa Devi Vadera (Smt.) (2013) 57 SOT 138 (URO) (Jodh.)(Trib.) S.69: Unexplained investments‐Search and seizure‐Fixed deposit in the names of friends and relatives which were found in the premises of assessee‐Matter remanded to Tribunal. During search at business premises of assessee‐company and residence of its managing director, the department found fixed deposit receipts issued by assessee's associate company HHL in names of 100 persons comprising employees of assessee‐company and friends and relatives of managing director. In the block assessment, the Assessing Officer, on basis of statements of so called depositors, concluded that all those persons were only name lenders and FDRs found in possession of assessee actually related to assessee and, therefore, constituted undisclosed income of assessee. The Tribunal deleted substantial part of addition made by the Assessing Officer, holding that credit worthiness of depositors was established and genuineness of deposits could not be doubted. Held since no valid reasons were given by Tribunal for its conclusion and for reversing order of Assessing Officer, its order, to extent of deletion of addition, was to be set aside and matter remanded back to Tribunal to decide accordance with law. (Block period 1‐4‐1986 to 18‐11‐1996) Hastalloy India Ltd v. DCIT (2013) 215 Taxman 13(Mag.) (AP)(HC) S.69: Unexplained investments–Acquisition of flat in lieu of the surrender of a tenancy right‐Addition was not justified. The assessee is an individual who has been allotted a flat in a building in lieu of surrender of his tenancy right. The value of the flat allotted in lieu of surrender of tenancy right was Rs 50‐35 lakhs as per valuation dine by the Stamp duty Authorities, while registering the agreement. Assessing Officer and Commissioner (Appeals) held that the assessee was not able to prove that the assessee had


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received the flat by virtue of the surrender of tenancy rights. Accordingly an addition of Rs 50‐35 lakh was made under section 69 of the Income‐tax Act. On appeal The Tribunal held that it was beyond the purview of the lower authorities to suspect a transaction solely on the ground of adequacy /inadequacy of consideration in the absence of any other corroborating evidence and thereby making any adverse inferences. Mere suspicion without evidence on record could not be the basis for making an addition to income under section 69 of the Act.(A.Y. 2006‐07)[ITA no 8899/Mum/2010 dt 12‐06‐2013.Bench ‘D’ ] Dilip Sambhaji Shirodkar v. ITO (2013) BCAJ – July ‐ P. 56 (Mum.)(Trib.) S.69: Unexplained investments –Value of property‐Huge difference in value in similar property‐Addition was held to be justified on the basis of valuation of property as per wealth tax Rules.[S. 142A, Wealth tax Act 1957,rule 3 Schedule III ] Since there was a huge difference between amount shown as purchase value of property and amount representing value of similar property in area, it would be held to be understatement of investment and since long time had expired and it would not be useful to refer matter to Departmental Valuation Officer, the Assessing Officer could adopt value of property as per rules of Wealth‐tax Act, 1957. (A.Y. 2006‐07) ACIT v. P. Srinivas Reddy (2013) 57 SOT 135(URO) (Hyd.)(Trib.) S.69A: Unexplained money‐On money‐Builder‐Entire on money cannot be taxed only profit element to be taxed at 15% The assessee, a builder, received on money while selling properties constructed by it. The Assessing Officer taxed the entire on‐money received by the assessee. The assessee contended before the Tribunal that not entire on‐money received but only profit element could be taxed in its hands. The Tribunal substantially accepted contention and sustained addition at rate of 15% of on‐money received by assessee. Assessee contended that only 10% could be taxed .Held, when the assessee's sole contention before Tribunal was substantially accepted, appeal of assessee did not survive. Order of Tribunal is up held. Jay Builder v. ACIT (2013) 215 Taxman 50(Mag.) (Guj.)(HC) S.69B: Amounts of investments not fully disclosed in books of account–Jewellery‐CBDT circular‐Interest on cash loans‐Deletion was held to be valid. (S.69A) During search, jewellery was found, which was added as undisclosed investment. The documents showing cash loans given were also found. The Assessing Officer made addition on account of interest on cash loans. The Commissioner (Appeals) and the Tribunal deleted the addition for jewellery belonging to family members as it was covered under CBDT circular permitting owning of jewellery by ladies. The addition on account of interest on cash loans was also deleted as no addition had been made for cash loans itself. Held the deletion of addition on account of jewellery belonging to family members, covered under CBDT circular, was justified the addition on account of interest on cash loans was unwarranted, as no addition had been made for cash loans itself. CIT v. Prafulbhai alias Rohitbhai J. Shah (2013) 215 Taxman 86(Mag.) (Guj.)(HC) S.80G: Donation–Bar on objects–Rejection of approval was held to be justified. In view of fact that there was nothing in object clause to indicate a bar on the assessee‐trust limiting expenditure on religious objects to 5% of its total income for a particular year, the assessee's claim for approval u/s 80G(5)(vi) was to be rejected. Radhika Seva Sansthan v. CIT (2013) 57 SOT 121(URO) (Jaipur)(Trib.)


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S.80HHC: Export business–Amendment–Third and fourth proviso‐Retrospective effect is held to be not valid‐Constitutional validity. [S.28(iiid),28(iiie)] The insertion of conditions in third and fourth proviso to section 80HHC (3) by amendment of Taxation Laws (second amendment) Act, 2005 would be given effect from date of amendment and not in respect of earlier assessment years. Priknit Exports v. ACIT (2013) 215 Taxman 79(Mag.) (P&H)(HC) Texport (India) v. ACIT (2013) 215 Taxman 79(Mag.) (Bom.)(HC) S.80HHC: Export business–Computation‐Sale of DEPB license‐Matter remanded. The Assessing Officer disallowed the claim of deduction on the ground that the assessee had not complied with conditions prescribed under third proviso to section 80HHC(3).Held that the Assessing Officer was to be directed to compute deduction under section 80HHC in light of decision of Supreme Court rendered in case of Topman Exports v.ITO (2012) 342 ITR 49(SC) CIT v. Sara Leather Industries (2013) 215 Taxman 88 (Mag.) (Mad.) (HC) S.80HHC: Export business–Insurance compensation–Technology transfer receipt‐Operational income is eligible for deduction. Insurance receipt and technology transfer receipt relating to development works realized by assessee on loss of stock‐in‐trade would constitute 'operational income' eligible for deduction u/s 80HHC. (A.Y.2004‐05) Cipla Ltd. v. DCIT (2013) 57 SOT 85(URO) (Mum.)(Trib.) S.80HHC: Export business–Computation–Local sales‐Export turnover‐ Total turnover. In view of the provisions of S.80HHC(3)(b), indirect cost incurred for local sale and export sales need not be categorized and it is to be calculated in ratio of export turnover to total turnover. (AY 1998‐99) Aventis Pharma Ltd. v. DCIT (2013) 57 SOT 102(URO) (Mum.)(Trib.) S.80HHE: Export business–Export turn over‐Total turnover‐ Development of software‐Expenditure on marketing‐Matter remanded. The assessee‐company was engaged in business of development and sale of computer software. It was also rendering technical services in connection with development of software, etc. The assessee filed its return claiming deduction u/s 80HHE. The assessee also submitted that from out of its business activities in supplying software products to its customers abroad, it had incurred expenditure on activity other than marketing offices. The Assessing Officer took a view that it was impliedly an expenditure incurred in connection with providing technical service in relation to development of software and, therefore, same was required to be excluded from total turnover and export turnover. The Tribunal, however, taking a view that assessee's case being one of export of software, exclusion of expenditure in question was not contemplated as per definition of 'export turnover' and 'total turnover' under clauses (c) and (e) respectively of Explanation to section 80HHE ‐ It was noted that Tribunal did not rely on available and relevant material for giving its finding on question as to whether assessee's activity related to first part of sub‐section (1) of section 80HHE or second part thereof and in absence of same, directing exclusion of expenses became a hypothetical situation. In view of above, impugned order of Tribunal was to be set aside and matter was to be remanded back for disposal afresh. (A.Ys. 1994‐95 to 1996‐97) CIT v. Infosys Technologies Ltd. (2013) 215 Taxman 46 (Mag.) (Karn.)(HC) S.80HHE: Export business–Computation‐Profits of branch office‐Export turnover‐Total turnover.


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As per the provisions of section 80HHE, profits of any branch, office, warehouse or any other establishment of assessee situated outside India are to be reduced from 'export turnover' of business and not from 'total turnover’. In favour of revenue. (A.Y.2002‐03) CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.)(HC) Editorial: Patni Computer Systems Ltd v. Dy. CIT (2012) 135 ITD 398 (Pune)(Trib.) S.80I: New industrial undertakings–Manufacture or production– Galvanisation of pipes is neither manufacture or production is not entitled benefit of section 80I. Held, by galvanization, the iron and steel are not changed and remained iron and steel. Hence, the industrial undertaking of the assessee which is engaged in the business of galvanizing MS Pipes is not involved in manufacture or production of any article or thing and as such, it is not entitled for the benefits u/s 80‐I.(A.Y. 1991‐92, 1992‐93 and 1995‐96) CIT v. Aggarwal Tubes (P) Ltd. (2013) 215 Taxman 89(Mag.) (All.) (HC) S.80IA: Industrial undertakings – Computation ‐ Insurance compensation is eligible for deduction. The compensation received by industrial undertaking from Insurance company on account of loss of raw materials and finished goods in fire, would be eligible for deduction under section 80‐IA. CIT v. Shree Rama Multi Tech Ltd. (2013) 215 Taxman 90(Mag.) (Guj.) (HC) S.80IA: Industrial undertakings–Infrastructure development‐Partnership–Body of individuals‐Developer‐Firm is not eligible under section 80IA(4). [S.80IA(4)] The assessee firm was an Indian railways contractor, was carrying on construction on behalf of Indian Railways for constructing rail over bridges, foot over bridges and new railway station building etc. It claimed deduction under section 80IA .The Assessing Officer held that the assessee being a ‘contractor’ could not be treated as a ‘developer’ so as to avail deductions under section 80IA (4), accordingly, he disallowed the assessee’s claim. Commissioner(Appeals) confirmed the disallowance. On appeal Tribunal held that if under the provisions of Partnership Act, a firm is not created i.e., it is not a creation of statute, but it is a body of individual regulated by that statute, the assessee firm failed to satisfy applicability clause of provision as envisaged u/s 80IA(4)(i). Accordingly claim was rejected. (A.Y. 2008‐09) Eshwarnath Constructions v. ACIT (2013) 57 SOT 290 (Chennai)(Trib.) S.80IB: Industrial undertakings–Computation‐Interest on late recovery of debtor. Interest earned on late recovery of sale proceeds from debtors could be included in calculation of deduction under section 80‐IB. CIT v. Suzlon Energy Ltd. (2013) 215 Taxman 272 (Guj.)(HC) S.80IB: Industrial undertakings‐Other than Infrastructure development ‐Manufacture or production‐Profit on sale of monitors is not income derived from industrial undertaking hence not eligible for deduction. Assessee sold computers manufactured from its industrial undertakings at Pondichery, monitors are integral part of the computers manufactured therein. Assessee claimed deduction u/s. 80IB on profit on sale of monitors and printers procured from outside which were sold along with computers. Assessees submitted that the monitor is an output device for the computer and value of monitor include the value of computer on which excise duty charged. Assessee has not recovered any separate consideration for monitor. The Assessing Officer held that the assessee carrying some trading activity of monitors and printers in addition to manufacture of computer hardware and held that such devices can be sold separately / independently. Where there is neither any value addition


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nor any change in name, character or use, such an activity would not constitute manufacture or production. Since monitors were sold without making any value addition by industrial undertaking, profits derived from sale of such monitors could not be considered as profit derived from industrial undertaking eligible for deduction under section 80IB. Which was confirmed in appeal by Commissioner of income tax (Appeals). Tribunal followed assessee own case decision and considered the opinion that the profit from sale of monitors and printers are not included in computation of deduction u/s.80IB. (A.Y. 2005‐06) Wipro Ltd. v. Dy.CIT(2013) 143 ITD 1(Bang.)(Trib.) S.80IB: Industrial undertakings‐Other than Infrastructure development‐Rental income–Provisions reversed‐First degree nexus was not established hence not eligible for deduction. Other income of assessee industrial undertaking comprised of rental income and provisions reversed under head "provisions no longer required". Assessing Officer disallowed claim on view that activities which did not have first degree nexus with industrial undertaking were not to be included in profits of such undertaking. Whether, where rental income of assessee did not meet requirement of being a recovery of rent paid by its industrial undertaking and, provisions reversed were not derived from such industrial undertaking, these income were not to be regarded as profits and were not eligible for deduction under section 80IB. (A.Y. 2005‐06) Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.) S.80IB(10): Undertaking‐Developing and building‐ Housing project – Development on behalf of other person. The Assessing Officer disallowed the claim of deduction u/s.80IB(10) on ground that the assessee was not the owner of the land and it had developed housing project for and on behalf of some other person. The Tribunal relying on its own decision rendered in the case of Radhe Developers v. ITO (2008) 23 SOT 420 (Ahd.)(Trib.)allowed the claim of deduction. The challenge to this decision was dismissed by the HC CIT v. Radhe Developers (2012) 341 ITR 403 (Guj)(HC) and the SLP was dismissed in ITO v. Shree Gokul Corporation dt.27‐7‐2012. Hence, the Tribunal was justified in its view. CIT v. Shree Ram Construction (2013) 215 Taxman 17(Mag.) (Guj.)(HC) Editorial: SLP was dismissed in ITO v. Shree Gokul Corporation dt 27‐7‐2012 S.80IB(10): Industrial undertakings–Housing project–Provision of S.80‐IB(10)(d) as inserted by Finance (No. 2) Act with effect from 1‐4‐2005 is not retrospective in operation. Housing project approved by local authority as residential‐cum‐commercial project would qualify for deduction u/s 80‐IB(10). Provision of s. 80‐IB(10)(d) as inserted by Finance (No. 2) Act with effect from 1‐4‐2005 is not retrospective in operation. Definition of 'built‐up area' mentioned in s. 80‐IB(14)(a) which prescribed for inclusion of projections and balconies would not apply to housing project which commenced prior to 1‐4‐2005 as the said s. was inserted by Finance (No. 2) Act, 2004 with effect from 1‐4‐2005. (A.Ys. 2003‐04 to 2006‐07) Raviraj Kothari Punjabi Associates v. DCIT (2013) 57 SOT 71(URO) (Pune)(Trib.) S.80IB(10): Undertaking‐Developing and building‐Housing project –Claim made in the return pursuance to search action cannot be denied.[S. 80AC, 132, 139, 153A] The assessee is engaged in the business of developing and building of housing projects approved by local authority. Search under section 132 was conducted on 6‐08‐09.For the assessment years 2008‐09 to 2010‐2011, the assessee originally filed the returns on 11‐11‐2010,ie after the due date prescribed under section 139(1) and after the search was conducted. There after the assessee in response to the notice issued under section 153A filed the returns for the aforesaid assessment years on 23‐9‐2011. In


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the returns so filed claimed deduction under section 80IB(10). The Assessing officer held that as per the provisions of section 80AC to be eligible for deduction under section 80IB, the return should have been filed within the time stipulated under section 139(1). He disallowed the claim. On appeal the Commissioner (Appeals) held that section 80AC was directory and therefore the Assessing Officer was not justified in denying the assessee claim for deduction under section 80IB(10). According to Commissioner (Appeals) returns filed in pursuance to notices issued under section 153A had to be construed as returns filed under section 139, all provisions of the Act would apply including the provisions of Chapter VIA, which deals with deductions. Accordingly claim under section 80IB(10) was allowed. On appeal by revenue the Tribunal held that in pursuance of a notice issued u/s 153A is as good as a return filed u/s 139 and more particularly u/s 139(1) and deduction u/s.80IB(10) cannot be denied. (A.Ys. 2008‐09 to 2010‐11) ACIT v. V.N. Devadoss (2013) 57 SOT 67(URO) (Chennai)(Trib.) S.80IB(10): Undertaking‐Developing and building‐Housing project–Plot of area earmarked for laying roads should be considered as part of housing project. The assessee had undertaken the project of construction of residential complex on a plot of land admeasuring more than 1 acre and claimed deduction under section 80IB(10) of the Act. The Assessing Officer disallowed the claim of deduction on the ground that as per approved municipal plan of the project after taking out the area earmarked for road , the total area of the plot was less than one acre. On appeal the Tribunal held that as per the provisions of section 80IB(10) of the Act, the housing project should be on the size of a plot of minimum one acre. If the building project was sanctioned by the Municipal Corporation for developing the project in the area of one acre or more, the assessee is entitled for deduction under section 80IB(10). Thereafter, if a portion of plot area is earmarked for roads after the assessee entered in to development agreement and the plan was duly sanctioned by the competent authority, it is not the fault with the assessee as the same is beyond the control of the assessee. Thus in such a case liberal interpretation of section 80IB(10) is to be considered and the assessee should be allowed the deduction under section 80IB(10) of the Act. (A.Y. 2008‐09) (ITA No. 364/Hyd/2012 dt.7‐03‐2013) Sigma Constructions v. ITO (2013) The Chamber’s Journal –July‐P. 118 (Hyd.)(Trib.) S.80M: Inter‐corporate dividends – Mutual agreement procedure – Foreign company‐DTAA‐ India‐ France [Art.26 ] Since an Indian company can avail deduction u/s 80M only after fulfilment of conditions as prescribed u/s 80M, benefit of non‐discriminate clause of DTAA can be available to foreign national under similar circumstances and therefore, conditions which are required to be fulfilled by Indian national are also required to be fulfilled by foreign national. Since the assessee did not fulfill conditions prescribed u/s 80M, its claim for deduction was rightly rejected. (A.Ys. 1991‐92 and 1994‐95) BNP Paribas SA v. DCIT(2013) 57 SOT 82 (URO) (Mum.)(Trib.) S.90: Double taxation relief–Alienation of shares–Capital gain tax‐ Tax avoidance‐DTAA‐ India‐France‐ Capital gain is not chargeable to tax in India‐Not liable to deduct tax at source. [S.2(47) 4,5,9, 195,45, Art. 14, 25] SBL was an Indian company and engaged, inter alia, in the business of research and development of technologies for pharmaceutical products. U, a company set up in Mauritius as a special purpose investment vehicle, became a major shareholder of SBL in 1994. During August/September 2006, MA, a French company engaged in business in pharmaceutical products, negotiated with GIMD, another French company, for a strategic association for investment in SBL through a holding structure and pursuant to a board resolution of MA, resolving to allow SH (subsidiary of MA) to acquire 54% of the


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shares in SBL. The AAR ruled that though the transaction did not involve alienation of shares in an Indian company on a literal interpretation of Article 14(5), on a purposive construction thereof, the capital gains arising out of the transaction were taxable in India since the essence of the transaction involved various rights including a change in the controlling interest of the Indian company, SBL, having assets, business and income in India. Held, Article 14(4) of the India‐France DTAA pertains to gains from alienation of shares of the capital stock of a company, the property of which consists directly or indirectly principally of immovable property situated in a Contracting State. The expression "directly or indirectly" is intended to clarify that gains from alienation of shares in a company, whose property consists principally of immovable property, whether directly or indirectly, is chargeable to tax and the right to tax is allocated to the Contracting State where the immovable property of the company so liable, is situate. Article 14(5) deals with alienation of shares (excluding those comprehended within paragraph (4)) representing a participation of at least 10% in a company which is a resident of a Contracting State and the right to tax is allocated to that Contracting State in which the company is a resident. Article 14(5) of the DTAA does not permit a "see through". Corporate shareholding does not amount to ownership of the corporate assets. A company is a juristic persona distinct from its shareholders and while controlling interest would be an incident of shareholding, it has no independent existence. Also, SH was not a sham entity and the transaction did not involve tax avoidance. Further, it was held that the transaction was not liable to tax in India. Amendments to Act, not containing non obstante clauses, do not override provisions of agreements with other countries. Assessee cannot be held be liable to deduct tax at source. Sanofi Pasteur Holding SA v. Department of Revenue (2013) 354 ITR 316 (AP)(HC) Groupe Industriel Marcel Dassault v. UOI (2013) 354 ITR 316 (AP)(HC) Merieux Alliance v. UOI (2013) 354 ITR 316(AP) (HC) S.92B: Avoidance of tax–Transfer pricing‐ International transaction – Excess credit period‐Matter restored. The Tribunal held that loss suffered by assessee by allowing excess period of credit to Associated enterprise without charging any interest during such credit period would not amount to international transaction. Held, in view of amendment to section 92B(1) by Finance Act, 2012 with retrospective effect from 1‐4‐2002, issue was to be restored to file of Tribunal for fresh decision in light on amendment. (A.Y. 2002‐03) CIT v. Patni Computer Systems Ltd. (2013) 215 Taxman 108 (Bom.) (HC) Editorial: Patni Computer Systems Ltd v. Dy. CIT (2012) 135 ITD 398 (Pune)(Trib.) S.92C: Avoidance of tax–Transfer pricing‐Comparable‐Adjustments‐ TPO can use contemporaneous data available at time of transfer pricing audit, though same may not have been available to assessee at time of preparation of statutory transfer pricing study / documentation. Since the Act has not provided for any cut‐off date up to which only information in public domain has to be taken into consideration by TPO while arriving at ALP or making TP adjustments, the TPO can use contemporaneous data available at time of transfer pricing audit, though same may not have been available to assessee at time of preparation of statutory transfer pricing study/documentation. Use of data of the financial year in which the international transaction was actually entered into is a mandatory requirement of law in comparability analysis to be undertaken as per transfer pricing regulations. When an assessee claims adjustments under rule 10B to account for differences in accounting practices, marketing expenditure, research and development expenditure and risk profile


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between assessee and comparable companies, onus is on assessee to establish need for adjustments on specific issues and how these issues affect comparability. (A.Y. 2006‐07) Yodlee Infotech (P.) Ltd. v. ITO (2013) 57 SOT 457 (Bang.)(Trib.) S.92C: Avoidance of tax –Transfer pricing‐ Comparables and adjustment – Additional evidence‐Matter remanded. The assessee was to be granted permission to file additional evidences as same would go to root of matter and facilitate adjudication of issue raised in appeal. (A.Y. 2007‐08) Global Turbine Services India (P.) Ltd. v. ACIT (2013) 57 SOT 116(URO) (Delhi)(Trib.) S.92C: Avoidance of tax‐Transfer pricing‐CUP method‐Arm’s length price. Since the assessee had earned/paid revenue from/to its AEs in same proportion, transactions had been recorded at arm's length price and there was no justification for making adjustment in ALP worked out by assessee. (A.Y. 2004‐05) ACIT v. DHL Danzas Lemuir (P) Ltd. (2013) 57 SOT 123(URO) (Mum.)(Trib.) S.92C: Avoidance of tax–Transfer pricing‐Number of comparables– Reasons for exclusion. Since no size or number of comparables has been prescribed under provisions of Transfer Pricing Regulation, Transfer Pricing Officer can include any number of comparables. Merger of two otherwise functionally cannot be reason by itself for exclusion from list of comparables. Where good number of comparables are already available, a company cannot be considered as uncontrolled, if related party transactions exceed 15% of total revenue. In the absence of specific reasons and factors provided under Rule 10B, an entity cannot be excluded from list of comparables only on basis of it either being a high profit making unit or a loss making unit. Risk adjustment and working capital adjustment can be made only on the basis of actual risk or proper data and accurate calculation; and not on ad hoc basis. (A.Y.2007‐08) Willis Processing Services (I) (P) Ltd. v. DCIT (2013) 57 SOT 339 (Mum.)(Trib.) S.92C: Avoidance of tax–Transfer pricing‐Comparables and adjustments–Foreign exchange gain/loss should be considered as operating revenue or cost. Foreign exchange gain or loss should be considered as operating revenue or cost while computing operating margins of assessee and comparables. Where the assessee was operating in a risk mitigated environment and assumed lesser risk than comparables, risk adjustment was to be made. (A.Y.2007‐08) Bearing Point Business Consulting (P.) Ltd. v. DCIT (2013) 57 SOT 244 (Bang.)(Trib.) S.92C: Avoidance of tax‐Transfer pricing‐Arms’ length price‐ Transfer pricing rules do not authorize TPO to disallow any expenditure on ground that it was not necessary or prudent for assessee to have incurred same. [S.37(1)] Assessee manufacturing household insecticides and pesticides. It entered into a license agreement with SCCL for commercial production of specified products and paid royalty to SCCL for utilizing know‐how and license. SCCL acquired 90 per cent of equity share capital of Assessee Company. Assessee sold most of its products to SCI a 100 per cent subsidiary of SCCL. TPO held that it was a contract manufacturing agreement and there was no justification for payment of royalty and hence, determined arm's length price at NIL. The Assessing Officer made similar disallowance in the assessment order passed 'having regard to' the TPO's order. Commissioner (Appeals) held that assessee was contract manufacturer so allowed royalty payment on the sales made to outside parties and therefore, partly allowed the claim of the assessee. On appeal to Tribunal held that transfer pricing rules do not authorize TPO to disallow any expenditure on ground that it was not


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necessary or prudent for assessee to have incurred same. Since royalty was paid for allowing assessee in utilizing technical knowhow and license which was independent of fact as to whether assessee was a manufacturer, payment of royalty was wholly and exclusively for purpose of business. The TPO has to examine whether the price paid or amount paid was at arms length or not under the provisions of Transfer Pricing and its rules. The rule does not authorize the TPO to disallow any expenditure on the ground that it was not necessary or prudent for assessee to have incurred the same. On that principle alone the TPO has exceeded the jurisdiction. Ratio in CIT v.EKL Appliances (2012) 206 Taxman 97(Mag.)(Delhi)(HC) followed. (A.Ys. 2003‐04 & 2004‐05) SC Enviro Agro India Ltd. v. Dy.CIT (2013) 143 ITD 195 (Mum.)(Trib.) S.92C : Avoidance of tax ‐ Transfer pricing ‐ Arms’ length price –Foreign exchange gain or loss has to be considered. [Income‐tax Rules , 1962‐Rule 10B] During the relevant year assessee has followed the TNM method for international transaction and for comparability analysis the assessee used data for F.Y. 2001‐04. Assessee failed to reveal any facts pertaining to earlier financial years which had an influence on determination of transfer prices with reference to comparables companies. In view of provisions of rule 10B TPO was justified in using data of only current financial year for determining ALP. TPO arrived average profit margin at 34.82% to operational cost. TPO made addition of Rs. 4.68 crore to ALP determined by the Assessee. Gain or loss on account of foreign exchange fluctuation arose in normal course of business transactions same was to be considered while computing net margin of international transactions entered into by assessee with its AEs. Tribunal directed the Assessing Officer to consider the data of MCS Ltd as comparable while computing the ALP and exclude other two companies from comparables. A.Y. 2004 – 05,2005‐06) Brigade Global Services (P.) Ltd. v.ITO(2013) 143 ITD 59 (Hyd.)(Trib.) S.92C: Avoidance of tax‐Transfer pricing‐Arms’ length price –Interest free loans to its wholly subsidiary‐Adjustment of interest at 9% was held to be justified. Assessee advanced interest free loans to its wholly owned foreign subsidiaries. Assessing Officer made transfer pricing adjustment with respect to arm's length interest taking 12 per cent rate of interest. Commissioner (Appeals) reduced rate of interest to 9 per cent. On appeal Tribunal confirmed finding of Commissioner (Appeals) holding that, transfer pricing adjustment is possible only in cases where comparable uncontrolled transactions between two entities have been established. decision taken by CIT(A) was upheld.(A.Y. 2005‐06) Wipro Ltd. v. Dy.CIT (2013) 143 ITD 1 (Bang.)(Trib.) S.115JB: Company‐Book profit–Doctrine of promissory estoppel‐Dividend distribution tax‐Withdrawal of MAT and DDT exemption to SEZs is not breach of promissory estoppels. [S.1150(6), Constitution of India, Art 14] As a corollary to the Special Economic Zones Act, 2005 (‘SEZ Act’), s. 115JB(6) and s. 115‐O(6) was inserted to exempt SEZs from payment of minimum alternate tax (“MAT”) on book profits and tax on distributed profits [Dividend Distribution Tax ("DDT")]. By the Finance Act, 2011, the exemption granted by S.115JB(6) and 115‐O(6) was made inoperative w.e.f. 1.4.2012 and 1.06.2011 respectively. The Petitioners claimed that they had established SEZs on the basis of the promise made by the Government that SEZs would enjoy an exemption from payment of MAT and DDT and that the amendments by the Finance Act 2011 withdrawing the said exemption was opposed to the Doctrine of Promissory Estoppel and the Doctrine of Legitimate Expectation. HELD by the High Court dismissing the Petition:


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Firstly, it is the settled position of law that every tax exemption should have a sunset clause. As the exemption in s. 115JB(6) & 115‐O(6) did not have a sunset clause, the flaw is removed by the impugned amendment. Secondly, the exemption created an inequality between SEZ companies and other companies which is now removed. Thirdly, the exemptions provided to SEZ companies resulted in erosion of tax base. Fourthly, the impugned amendment relates to fiscal policy of the state and any decision in the economic sphere is ad hoc and experimental in its nature and the Government is well within it sovereign power to regulate the same. Lastly, the impugned amendments do not transgress any of the fundamental rights of the petitioners guaranteed under the Constitution. The legislature can never be precluded from exercising its legislative power by resort to the Doctrine of Promissory Estoppel. Since it is an equitable doctrine, it must yield when equity so requires. The courts would decline to enforce this doctrine if it results in great hardship to government and would be prejudicial to the public interest. Mindtree Limited v. UOI (2013) 89 DTR 297(Karn.)(HC) S.115JB: Company–Book profits‐Provision for bad and doubtful debt‐Subjudice. Provision for doubtful debt in profit and loss account in respect of the amount which was subjudice before Court or arbitration, amount in question was unascertained at relevant time and therefore, was to be added to book profit. (A.Ys. 2005‐06 to 2007‐08) Eastern India Powertech Ltd. v.Add.CIT (2013) 57 SOT 110(URO) (Delhi)(Trib.) S.115JB: Company–Book profits–Companies Act‐Other than adjustments provided in Explanation to S.115JB is not permissible. Where accounts prepared under Companies Act have been certified by authorities under Companies Act, the Assessing Officer while computing book profit, cannot tinker with accounts and make changes other than adjustments provided in Explanation to s. 115JB.(A.Y. 2004‐05) Forever Diamonds (P.) Ltd. v. DCIT (2013) 57 SOT 113 (URO) (Mum.)(Trib.) S.115VP: Shipping business–Tonnage tax scheme–Procedural requirement is directory and not mandatory. The period prescribed under section 115VP(2) is primarily a directory provision and not a mandatory one. As per provisions of section 115VP, the assessee was required to make application u/s.115VP after 31‐9‐2004 but before 1‐1‐2005. The assessee made such application on 4‐1‐2005. Held since application was made only 4 days after last date prescribed, there was substantial compliance with procedural requirements and such application should be considered. CIT v. Blue Ocean Sea Transport Ltd. (2013) 215 Taxman 189 (Guj.) (HC) S.115WB: Fringe benefits – Expenses incurred on non‐employees did not fall in ambit of the provision. [S.115WA] Expenses prescribed in S.115WB(2) are liable to be considered as fringe benefits only to extent same are incurred in consideration for employment. Entertainment expenditure had been incurred for guest of assessee, same was not liable to be subjected to provisions of s.115WB(2). Since auditors were not employees of assessee, any expenditure on their travelling did not fall in ambit of provisions of s. 115WB. Driver salaries could not be subject matter of provisions of s.115WB because salary paid to a driver is taxable in his hands under head 'salary income' and thus tax is paid or payable in respect of same. (A.Y. 2006‐07) Desai Brothers Ltd. v. Add.CIT (2013) 57 SOT 106(URO) (Pune)(Trib.) S.127: Power to transfer cases–Centralisation of cases–Effective investigation.


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Where the Commissioner, pursuant to search proceedings, carried out at different places in case of assessees belonging to same group, transferred their pending assessments to one particular place for centralization of cases and for effective and co‐ordinated investigation after giving a sufficient opportunity of being heard to assessees, the said order of Commissioner was justified and it did not require any interference. Shree Ram Vessel Scrap (P.) Ltd. v. CIT (2013) 215 Taxman 203 (Guj.)(HC) S.127: Power to transfer cases–Co‐ordinated investigation– Recording of reasons is mandatory‐Merely mentioning that it is necessary to transfer the case for co‐ordinated investigation is not sufficient. Held, there cannot be any dispute that the case can be transferred for the purpose of coordinating investigation but why the Commissioner feels that it is necessary to transfer the case for co‐ordinated investigation has to be at least briefly stated in the said order. In the instant case, the Commissioner apart from stating that case has been transferred for co‐ordinating investigation has not given any other reason. Impugned order is therefore quashed and set aside. Global Energy (P) Ltd. v CIT (2013) 215 Taxman 224/89 DTR 194 (Bom.)(HC) S.132(4): Search and seizure‐Statement on oath‐Addition made merely on the basis of statement was held to be not justified. Addition made merely on the basis of statement of assessee recorded u/s 132(4) without establishing factum that assessee was in fact found in possession or control of any books of account, other documents, money, bullion, jewellery or other valuable article or thing etc. could not be sustained.(A.Y. 2002‐03 to 2007‐08) Naresh Kumar Verma v. ACIT (2013) 57 SOT 99 (URO) (Chd.)(Trib.) S.132B: Application of seized or requisitioned assets–Search and seizure‐Calculation of interest. The assessee was entitled to be paid interest at the rate of 12 per cent in respect of the amount seized for the period from the date on which assessment was completed till date it was actually released to him. (A.Y. 2005‐06) S.K. Jain v. CIT (2013) 215 Taxman 237 (Delhi)(HC) S.133A: Survey‐ Admission‐Provisional trading account‐ Addition made only on the basis of admission in the course of survey was deleted.[S. 69, 69A, 145] During the survey operation, the survey party worked out excess stock of Rs. 37.11 lakhs by preparing a provisional trading account. The partners of firm not being able to explain the excess stock, surrendered same and agreed to pay tax on the value of excess stock. Excess cash found during survey was declared by the partners as income of firm other than regular income. The return of income filed by assessee after survey did not disclose the excess stock and excess cash found during survey. The Assessing Officer rejected books of account and made addition for excess stock under section 69 as unexplained investments, and on account of excess cash under section 69A as unexplained moneys. On appeal the Commissioner (Appeals) reduced the addition made by the Assessing Officer. On appeal by revenue the assessee established that admission made during survey by surrendering income on excess stock was not correct, and also that excess cash was actually invested by partner. The Tribunal confirmed the order of Commissioner (Appeals)(A.Y.2008‐09) ACIT v. Maya Trading Co. (2013) 143 ITD 176 (Agra)(Trib.) S.139(5): Return of income–Revised return–Condition precedent‐Return filed after stipulated time under section 139(4) cannot be revised. [S.139(1),139(2),139(4)]


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The due date for filing return was 31‐08‐1993. The assessee filed the return on 30‐9‐1993. The intimation was issued on 21‐09‐1994 and served on assessee on 24‐11‐1994. The assessee filed the revised return for the purpose of correcting the mistake in the claim by declaring the enhanced amount of unabsorbed depreciation. In appeal Commissioner (Appeals) directed the Assessing Officer to consider the revised return. The Tribunal set aside the order of Commissioner (Appeals). Rectification application of the assessee was also dismissed by the Tribunal. On appeal the court held that provision of S.139(5) is applicable in respect of returns filed u/s 139(1)/(2) and the benefit of the said provision would not apply to returns filed after stipulated time as envisaged u/s.139(4).(A.Y. 1993‐94) Menezes Fernandes Enterprises v. ITO (2013) 215 Taxman 241/89 DTR 368 (Bom.)(HC) S.140A: Self assessment–Interest–Date from which payable. [S. 156,220(2)] The assessee, who himself submitted revised return of self assessment of his income u/s 140A, was liable to pay interest from date when his tax liability was finally determined by appellate order and not from date of his filing revised return. Notice under section 156 was given to the assessee after final assessment order dated 24‐03‐1992. Court held that the authorities below were, thus right in holding that the assessee was liable to pay interest from the date of the order 24‐03‐1992. CIT v. Misrilal Jain (2013) 215 Taxman 249 (Jharkhand)(HC) S.143(2): Assessment–Notice–Service of notice to chartered accountant who has audited the accounts is not valid service‐Assessment is bad in law. [S. 144 ] The assessment was made under section 144 of the Act. The Assessee contended that there was valid notice under section 143(2) upon the assessee, therefore assessment was bad in law. Revenue contended that notice under section 143(2) dt.29‐10‐2002 was served on 3‐102002 with the Chartered Accountant who has audited the accounts of the assessee firm. He has also sent second notice through speed post on 15‐12‐2003.Tribunal held that assessment completed without valid service of notice under section 143 (2) with in statutory time limit was held to be null and void. (A.Y.2001‐02)(ITA no 1419/A.2006 dt 1‐02‐2013) Devnath Enterprise v. ITO (2013) ACAJ‐June –P. 152(Ahd.)(Trib.) S.143(3): Assessment‐Opportunity of being heard–Personal hearing‐Order set aside. Where the assessee desired matter in appeal to be decided through personal hearing, there was no need or necessity to submit any written submissions. A notice was issued to the assessee specifying his right to dispense with personal hearing by filing written submissions. Later, an order was passed by revenue without issuing any notice of hearing to assessee, contending that assessee had not filed any written submissions. Held the impugned order passed without giving an effective opportunity of hearing to assessee was to be set aside. O.G. Sunil v. DCIT (2013) 215 Taxman 73(Mag.) (Ker.)(HC) S.143(3): Assessment–Survey‐Unaccounted stock–Addition to income. (S. 148) In respect of unaccounted stock of iron ore, assessee claimed that stock was taken on loan and returned in the same year to sister‐concern. However, no proof regarding actual movement of stock was made available, nor was any bill for loan of cargo was raised by assessee during year. Since the assessee was not in a position to establish or to give satisfactory reason in respect of unaccounted stock of ore, addition to income was justified. (A.Y.2005‐06, 2006‐07) D.B. Bandodkar & Sons (P.) Ltd. v. ACIT (2013) (Mag.)/90 DTR 125 (Bom.)(HC)


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S.143(3): Assessment–Additions to income–suppression of sale price‐Additions cannot be merely on perceived general market conditions or notorious practice in trade circles. The assessee constructed shopping malls and sold them. The Assessing Officer noticed that there were no registered sale documents; there was variation in sale prices of shops in same floor and sale of shops were made to sister concerns. He, therefore, held that the sale price had been suppressed to book losses. He disallowed the loss. The Commissioner (Appeals) and the Tribunal set aside the said order as there was no evidence showing suppression of sale price and the Assessing Officer had relied only on perceived general market conditions to make additions. Held the Assessing Officer could not make additions to sale price or profits, without evidence to show either that sales were sham transactions or that market prices were in fact, paid by purchasers; no addition could be made based merely on perceived general market conditions or notorious practices in trade circles.(A.Ys. 2006‐07, 2007‐08) CIT v. Discovery Estates (P) Ltd. (2013) 215 Taxman 74(Mag.) (Delhi)(HC) S.143(3): Assessment – Valuation by sales tax authorities – Binding nature. (S.132) Unless and until competent authority under Sales Tax Act differs or varies with closing stock of assessee, return accepted by said authority is binding on Income‐tax authorities and Assessing Officer, in such a case, has no power to scrutinize return submitted by assessee. (A.Ys. 1998‐99 to 2002‐03) CIT v. Sakuntala Devi Khetan (Smt.) (2013) 215 Taxman 18 (Mag.) (Mad.)(HC) S.143(3): Assessment‐Remand proceedings–Jurisdiction‐Subject matter‐Commissioner (Appeals) has no power of enhancement in respect of issue which the Assessing officer had no jurisdiction. [S. 80HHC, 251] Where an issue was neither considered in original assessment nor was it subject matter of remand proceedings, the Assessing officer travelled beyond his jurisdiction and scope of enquiry by making addition on such issue in remand proceedings, therefore Commissioner (Appeals) also exceeded jurisdiction by issuing notice of enhancement on issue in which Assessing Officer himself had no jurisdiction. (A.Y. 1998‐99) Aventis Pharma Ltd. v. DCIT (2013) 57 SOT 102(URO) (Mum.)(Trib.) S.144: Best judgment assessment–Defective return–Defects not rectified‐Ex‐parte could not be made without servicing notice. (S. 139, 143(2), 148) Where the assessee filed a defective return and did not rectify defects pointed out to it, the Assessing Officer was bound to treat the return as invalid and take further proceedings on footing that assessee had failed to furnish return. Therefore, in such a situation, the Assessing Officer could not have proceeded to make ex parte assessment u/s 144 without serving notice u/s 139 (2) or as the case may be u/s 148. (A.Y.1986‐87) CIT v. Bake Food Products (P) Ltd. (2013) 215 Taxman 68 (Mag.) / 259 CTR 136 (AP)(HC) S.144: Best judgment assessment–Evaluation of evidence‐Human probability and surrounding circumstances, best judgment held to be justified. [S.142(1)] The Assessing Officer made a best judgment assessment under section 144, as the assessee failed to avail of the various opportunities and did not reply to the notice under section 142(1). The assessee filed additional evidence which was not found genuine. The Commissioner (Appeals) evaluated the evidence on the basis of human probability and surrounding circumstances. Held, that the order of the Commissioner (Appeals) could not be termed incorrect. (A.Y.1994‐1995) Bhairavnath Agrofin Pvt. Ltd. v. CIT (2013) 354 ITR 276 (Raj.) (HC)


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S.144C: Reference to dispute resolution panel–Non‐speaking order– Objections of assessee. Where the Dispute Resolution Panel upheld additions made by the Assessing Officer without discussing any objections of assessee, same was to be set aside for being a non‐speaking order and matter was to be remanded for fresh adjudication. (A.Y. 2006‐07) Glaxo Smithkine Asia (P) Ltd. v. ACIT (2013) 57 SOT 86 (URO) (Delhi)(Trib.) S.145: Method of accounting–Excise duty–Inclusion in closing stock. Where the assessee was liable to pay excise duty on finished goods, the revenue authorities were justified in adding amount of excise duty so payable during relevant year at time of valuation of closing stock. (A.Y. 2001‐02) Krishi Discs (P.) Ltd. v. CIT (2013) 215 Taxman 132 (All) (HC) S.145: Method of accounting–Impairment and defect in goods–Consistent method–Addition cannot be made. The assessee reduced a sum of Rs. 90 lakhs from value of closing stock on account of impairment and defect. Where same method of valuation of stock was consistently followed by assessee, resulting in no distortion of profit, any alleged difference or discrepancy such as diminution in valuation of closing stock on account of impairment and defect could be allowed. (A.Y. 2004‐05) CIT v. Hughes Communication India Ltd. (2013) 215 Taxman 136 (Delhi)(HC) S.145A: Method of accounting–Valuation‐Excise duty payable the Assessing Officer was justified in making addition to value of closing stock. [S.43B] Unlike in the case of section 43B, which mandates inclusion, in computation of income, amounts paid towards certain liabilities including tax, but not actually arising or accruing at time of payment, the provision of section 145A directs inclusion of amounts of tax, duty, etc., actually paid for purpose of valuation alone. The total excise duty to be levied on closing stock was Rs. 2.81 crores, out of which Rs. 70 lakhs remained outstanding. Held since all goods were found to be removed and, in fact, duty of Rs. 70 lakhs was payable, the Assessing Officer was justified in making addition to value of closing stock of amount of Rs. 70 lakhs as per provisions of section 43B, read with section 145A. (A.Y.2005‐06) CIT v. Lakshmi Sugar Mills Co. Ltd. (2013) 215 Taxman 126 (Delhi)(HC) S.147: Reassessment–Notice after four years–Discount to dealers on prepaid sim cards and research vouchers –Deduction of tax at source –There was no failure on part of assessee to disclose true and full facts‐Reassessment notice was held to be not valid. [S.148] During the assessment proceedings, the assessee replied to a query of the Assessing Officer and supplied such details in this regard which were called for. Thus, the contention of the Revenue that by supplying the list of only those dealers who received commission in excess of Rs. 50 lakhs, the assessee failed to provide full facts, could not be accepted. When full facts regarding the charges having been paid having come on record during such proceedings, it could not be stated that there was failure on the part of the assessee to disclose true and full material facts. Hence, the reassessment proceedings could not be sustained. (A.Y. 2005‐06) Vodafone West Ltd. v. ACIT (No.1) (2013) 354 ITR 520 / 215 Taxman 456 (Guj.)(HC) S.147: Reassessment–Maintainability of writ–Disposing off of objections. [S.32,148 ] A writ petition under article 226 of the Constitution of India is maintainable where no order has been passed by the Assessing Officer deciding the objection filed by the assessee under section 148 and


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assessment order had been passed or the order deciding an objection under section 148 has not been communicated to the assessee and assessment order has been passed or the objection filed under section 148 has been decided along with the assessment order. If the objection under section 148 has been rejected without there being any tangible material available with the Assessing Officer to form an opinion that there is escapement of income from assessment and in the absence of reasons having direct link with the formation of the belief, the writ court under article 226 can quash the notice issued under section 148.On merit the court held that the provisions of section 32(2), as amended by the Finance Act, 2001, would allow the unabsorbed depreciation allowance available in the assessment years 1997‐98, 1999‐2000, 2000‐01 and 2001‐02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not be set off till the assessment year 2002‐03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years, without any limit what so ever. The order of reassessment was held to be not valid. (A.Y.2006‐2007) General Motors India P. Ltd. v. DCIT (2013) 354 ITR 244 (Guj.)(HC) S.147: Reassessment–Beyond four years‐Amendment–Works contract‐Amendment, retrospective effects‐Reassessment held to be not valid. [S.80IA(4), 148] The assessee is engaged in the business of undertaking renovation and modernization of existing net work of transmission or distribution lines, was allowed deduction under section 80IA. Subsequently, an explanation was introduced to section 80IA with effect i.e. from 1‐4‐2000 which provides that deduction under section 80IA would not be admissible to an assessee who carries on business which is in the nature of work contract. Assessing Officer issued notice for reassessment, which was challenged by filing writ petition. Allowing the petition the court held that initiation of reassessment was not justified, particularly when there was no failure on part of assessee to make full and true disclosure, where section 80‐IA had been amended to the effect that section 80IA deduction will not be admissible to works contractors. (A.Y.2005‐06) Avadh Transformers (P) Ltd. v. Union of India (2013) 215 Taxman 432 (All)(HC) S.147: Reassessment –Beyond four years‐Retrospective amendment ‐ Works contract‐ Reassessment is not valid. [S. 80IA(4)] Reassessment proceedings initiated on account of retrospective amendment to section 80‐IA(4) beyond period of four years was not justified. (A.Y.) 2003‐04) CIT v. Backbone Parth Joint Venture (2013) 215 Taxman 109(Mag.) (Guj.)(HC) S.147: Reassessment–Notice after four years–Cash credits‐Notice under section 148 was held to be bad in law. [S.68, 148] The reasons to believe that income had escaped assessment were that a special information had been received from Director (Investigation) that assessee‐company had received a sum from certain companies and that the entries were in nature of accommodation entries and in reality it was assessee's own unaccounted money which had been shown in books of account as a receipt from the aforesaid companies. Since there was no mention in the reasons that assessee had not made a full and true disclosure of material facts necessary for assessment; on the contrary purported reasons indicated that amount mentioned therein had been shown in books of account as receipt from companies mentioned therein, the issuance of notice after four years u/s 148 was bad in law. (A.Y.2002‐03) CIT v. Viniyas Finance & Investment (P.) Ltd. (2013) 215 Taxman 20(Mag.) (Delhi)(HC)


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S.147: Reassessment –Beyond four years‐ Valuation of closing stock‐ Specific query was raised in the course of original assessment, hence reassessment was held to be bad in law. [S.143(3), 148] Nowhere in the recorded reasons, did the Assessing Officer state that the assessee failed to disclose fully and truly the facts which were necessary for his assessment. The relevant details were disclosed by the assessee not only in the audited accounts, but also in response to a specific query subsequently raised by the Assessing Officer. When the Assessing Officer issued notice u/s 148, he had no material other than what was considered by him in course of the original assessment. Hence, the notice issued u/s 148 the Assessing Officer is held to be illegal and the same is hereby quashed and set aside. (A.Y. 2004‐05) Asian Silk Mills v. DCIT (2013)215 Taxman 63(Guj.)HC) S.147: Reassessment–Search and seizure–Disclosure‐Retraction‐ Non‐disclosure of primary facts reassessment was held to be valid. [S.132,143(2)] A search was carried out in course of which assessee made disclosure of certain unaccounted income for relevant assessment year which the assessee subsequently retracted. The assessee filed his return of income without disclosing the fact that he had made disclosure of certain unaccounted income in course of search which was retracted later on. After completing the assessment on the basis of return of income filed by assessee, the Assessing Officer initiated reassessment proceedings on ground that the assessee at the time of filing return did not make true and complete disclosure of all material facts necessary for assessment. Held the assumption of jurisdiction by Assessing Officer under section 147 was justified. (A.Y.1995‐96) Bipinkumar P. Khandheria, Advocate v. DCIT (2013) 215 Taxman 510 (Guj.)(HC) S.147: Reassessment‐Infrastructure capital company–Approval– Exemption‐Trustee company. [S.10(23G), R.2E] As per the provisions of section 10(23G), it is the investee company and not investor company, which is required to obtain approval of Central Government. Reassessment notice was quashed. (A.Y. 2004‐05) RPG Cellular Investment & Holdings (P.) Ltd. v. ACIT (2013) 215 Taxman 103 (Delhi)(HC) S.147: Reassessment‐Fringe benefits‐Notice issued under section 148 for reassessment of Fringe benefit is bad in law. [S.115 WG, 148] Since there is a special provision under section 115WG for re‐opening assessment in respect of fringe benefit escaping assessment and notice under section 148 cannot be issued for this purpose. Significantly section 115WH; unlike proviso to section 147 does not recognize any distinction between notice for reopening issued beyond the period of four years from the relevant assessment year, except for requiring that in cases of notice issued beyond four years, there has to be a satisfaction of the Commissioner or Chief Commissioner, arrived at on the reasons recorded by the Assessing Officer that it is a fit case for issuance the notice. This crucial requirement under proviso of section 147 is missing. In view of absence of specific provisions, reassessment was held to be bad in law.(A.Y. 2008‐09) CIT v. P.G. Foils Ltd. (2013) 215 Taxman 104(Mag.) (Guj.) (HC) S.147: Reassessment–Change of opinion–Within four years‐Recharge advance‐Reassessment was held to be in valid. [S. 148 ] The Assessment was completed under section 143(3) on 30‐12‐2010.Notice under section 148 was issued on 17th October 2011. In the course of assessment, the Assessing Officer held that amount received towards recharges was advance, and thus expenditure incurred to earn said income could


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not be allowed in the relevant assessment year. He accordingly issued the notice under section 148. The Assessee filed the writ petition. The Court held that where the Assessing Officer having examined nature of receipts and corresponding expenditure in original assessment in detail, could not be permitted to change his view with respect to nature of treatment such receipts must receive. Therefore, the view that the amount paid to the assessee for prepaid service was for outright purchase of 'recharge' and not an advance to be appropriated against future use of service and thus, income from 'prepaid service' crystallized as soon as customer made payment, was not justified. Reassessment was quashed on the ground of change of opinion. (A.Y 2008‐09) Vodafone West Ltd. v. ACIT (2013) 215 Taxman 412 (Guj) (HC) S.147: Reassessment–Change of opinion–Tax not deducted at source‐Ad‐hoc disallowance was made in the original assessment‐Reassessment held to be not valid. [S.40(a)(ia), 148] The assessee claimed labour expenditure on which tax was not deducted at source. During scrutiny assessment, the Assessing Officer made ad hoc disallowance at 8% of such payments. On appeal, Commissioner (Appeals) deleted the disallowance on the ground that TDS provisions were not applicable. Revenue filed an appeal, which was pending before Tribunal. While matter was still pending before the Tribunal, the Assessing Officer issued notice under section 148 for reopening assessment on ground that failure to disallow labour payments under section 40(a)(ia), for non‐deduction of tax at source, had resulted in under assessment. Held where Assessing Officer had thoroughly and fully scrutinized assessee's claim in scrutiny assessment and partially disallowed the same, power of reopening was not available as it amounted to change of opinion. Reassessment was held to be not valid. Trans wind Infrastructure (P) Ltd. v. ITO (2013) 215 Taxman 111(Mag.) (Guj.)(HC) S.147: Reassessment–Beyond four years‐Netting of income‐Deduction was allowed without deducting interest expenses‐Reassessment was held to be not justified.[S.80AB, 80P, 143(3)] The assessee claimed deduction under section 80P which was allowed in assessment completed under section 143(3). After four years, the assessment was sought to be reopened on ground that assessee had not netted income eligible for deduction with interest expenses. Held, since the assessee had given full details of dividend income, interest income as well as interest expenses for the said year, essential requirement to reopen assessment after four years was not satisfied. (A.Y. 2004‐05) Surat District Co‐op Milk Producers Union Ltd. v. ITO (2013) 215 Taxman 490 (Guj.)(HC) S.147: Reassessment–Excess interest–Working not clear‐Reassessment was held to be valid.[S. 80‐IA] The Assessing Officer noted that the assessee had received interest on overdue bills from it's sister concern 'A' Ltd. at the rate of 24%, which was higher than the prevailing market rate and by adopting such modality, assessee had reduced taxable profit of 'A' Ltd. and at the same time increased profit of unit 'S' of assessee‐company which was eligible for deduction under section 80‐IA. Further, these facts were not clear from working out of deductions under section 80‐IA submitted along with return of income. In these circumstances, the reopening was justified. (A.Y. 1998‐99) Sun Pharmaceutical Industries Ltd. v. DCIT (2013) 215 Taxman 97(Mag.)(Guj.)(HC) S.147: Reassessment–Beyond four years‐No new material‐Reassessment was held to be not valid. [S. 80IA] Where the assessee had disclosed all facts and figures relating to its claim for deduction under section 80IA in the original return which the Assessing Officer scrutinized and disallowed part of, the


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assessment so framed after scrutiny could not be reopened beyond a period of four years without bringing new material to have reason to believe that excess deduction under section 80IA was granted. Reassessment was not valid. (A.Y. 1998‐99) Sun Pharmaceutical Industries Ltd. v. DCIT (2013) 215 Taxman 97(Mag.) (Guj)(HC) S.147: Reassessment –Beyond four years‐ Foreign travel – Reason to believe‐Reassessment was held to be valid. [S.148] As the assessee had not disclosed expenditure on foreign travel, or filed any evidence along with the return of income explaining the expenditure incurred by her on her foreign travels during the relevant assessment year. Reassessment notice was issued by the Assessing Officer. The Assessee challenged the notice by filing the writ petition. The Court held that, the Assessing Officer had reason to form prima facie belief that that there was escapement of income on the ground of assessee's failure to satisfy requirements of Explanation 1 to section 147. Reassessment notice was held to be valid. Accordingly the writ petition was dismissed. (A.Y.2005‐06) Shumana Sen v. CIT (2013) 215 Taxman 501 (Delhi)(HC) S.147: Reassessment‐Under‐valuation‐Information on the basis of search and seizure proceedings in the premises of sister concern‐ Ordinary person of reasonable prudence‐Reassessment was held to be valid. [S.69, 148] The assessee had sold a residential plot to K for certain consideration. During course of search in case of K's sister concern, department found that said concern had purchased a plot in close vicinity of plot sold by assessee and there was exchange of money over and above recorded sale consideration in relation to said property. On basis of the said information, the Assessing Officer believed that sale consideration disclosed by assessee for property sold by it also could not be relied as market value of that property and issued notice under section 148. Held on facts, the reasons recorded by the Assessing Officer for reopening were such which would impel an ordinary person of reasonable prudence to hold that income had escaped assessment. Hence, the notice u/s 148 was justified. (A.Y. 2009‐10) Shree Om Builders and Colonizers v. ACIT (2013) 215 Taxman 399 (HC) S.147: Reassessment–Beyond four years‐There was no failure to disclose material facts reassessment was held to be not valid. [S. 80IC, 148] Notice under section 148 was issued beyond four years to disallow the deduction allowed under section 80IC. The assessee challenged the said notice, the Court held that since there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment, issuance of notice under section 148 for reassessment beyond period of four years was not valid. (A.Y. 2005‐06) Shivalik Bimetal Controls Ltd. v. ITO (2013) 215 Taxman 441 (Del.)(HC) S.147: Reassessment–Intimation–Change of opinion‐Since intimation under section 143(1) did not amount to assessment question of change of opinion did not arise hence reassessment was held to be valid. [S.143(1)] Since intimation under section 143(1) did not amount to assessment, question of change of opinion did not arise, and therefore, reopening of assessment based on sufficient material forming reason to believe that income had escaped assessment, was valid. (A.Y. 2005‐06) Rhythm Chemicals (P) Ltd. v. ACIT (2013) 215 Taxman 107(Mag.) (Guj.)(HC) S.147: Reassessment–Reasons to believe–Reassessment on the basis of investigation report was held to be justified in respect of cash credits. [S.68]


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Reopening of assessment on the basis of investigation report was justified. Also, the addition made was justified even though the same did not form part of 'reason to believe' to reopen assessment. Cash credits and bank deposits which the assessee could not substantiate with supporting documentary evidence could be added to income. (A.Y. 2001‐02) Pratibha Finvest (P.) Ltd. v. ITO (2013) 215 Taxman 470 (Delhi) (HC) S.147: Reassessment–After four years‐Capital gains‐Failure to make true disclosure‐ Reassessment was held to be valid. [S.45] The Assessee claimed the long term capital loss in respect of sale of shares. The assessment was completed under section 143(3). After expiry of four years from the relevant assessment year, Assessing Officer initiated the reassessment proceedings on the ground that as per share certificates, assessee had acquired those shares on 30‐1‐2004 which were sold on 12‐05‐2004. According to the Assessing Officer, transaction of sale of shares resulted in earning of short term capital gain which escaped assessment. The Assessee filed writ petition. The Court held that since there was failure on part of assessee to make a true disclosure that it was only on 30‐1‐2004 payment of final call money had been made for acquisition of shares of 'D' Ltd., the Assessing Officer was justified in initiating reassessment proceedings even beyond period of four years from end of relevant assessment year. Accordingly writ petition was dismissed. (A.Y. 2005‐06) Pranawa Leafin (P.)Ltd. v. DCIT (2013) 215 Taxman 109(Mag.) (Bom.)(HC) S.147: Reassessment–Beyond four years–When there is sufficient disclosure merely because the Assessing Officer has nor scrutinized the claim cannot be the ground for reopening the assessment. [S. 148] Since there was sufficient disclosure in the original return filed by assessee to enable the Assessing Officer if he so desired to scrutinize the claim, the impugned notice was not justified on the ground that during the original assessment proceedings, the Assessing Officer did not examine that claim. Reassessment beyond four years was held to be invalid. (A.Y. 2005‐06) National Dairy Development Board v. DCIT (2013) 215 Taxman 392 (Guj.)(HC) S.147: Reassessment–Beyond four years‐Housing project‐All primary facts were disclosed in the original assessment proceedings‐Reassessment is bad in law. S.80IB(10)] Where all primary facts as to whether built‐up commercial area/area of shops conformed to requirement of section 80‐IB(10), were available with the Assessing Officer while passing assessment order under section 143(3), reopening of assessment on the ground that deduction was wrongly claimed was not justified. (A.Y. 2005‐06) Kalpataru Sthapatya (P) Ltd. v. ITO (2013) 215 Taxman 479 (Guj.) (HC) S.147: Reassessment–Objections of assessee–Non‐application of mind while disposing the application‐Order set aside. Where the Assessing Officer, while rejecting assessee's objections to notice, had not applied his mind, the order of the Assessing Officer was to be set aside. (A.Y. 2007‐08) Jay Bharat Maruti Ltd. v. ACIT (2013) 215 Taxman 113(Mag.) (Delhi)(HC) S.147: Reassessment – Audit objection – Notice issued on the basis of audit objection, without independent application of mind –Notice was liable to be quashed. [148] The reasons recorded by the Assessing Officer for reopening the assessment were almost identically worded as that of audit party and no material on record to show that the Assessing Officer had any


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independent application of mind. Hence, the notice of reopening was invalid for the Assessing Officer having not formed his independent belief. (A.Y. 2007‐08) Jagat Jayantilal Parikh v. DCIT (2013) 215 Taxman 444 (Guj.)(HC) S.147: Reassessment–Raising the query and not making the addition in the original assessment proceedings‐Not discussing in the original assessment proceedings cannot be the ground for reopening of assessment. [S.143(3)] Merely because after raising queries with respect to proposed addition, the Assessing Officer did not give any reason in assessment order for not making any addition, same would not mean that issue was not scrutinized and, thus, subsequent attempt on part of the Assessing Officer to re‐examine such issue would only amount to change of opinion. (A.Y. 2008‐09) CIT v. P.G. Foils Ltd. (2013)215 Taxman 104 (Mag.)(Guj.)(HC) S.147: Reassessment–Beyond four years‐Software expenses‐Capital or revenue‐ Change of opinion‐Reassessment was held to be bad in law. [S.37(1), 148] After expiry of four years from relevant assessment year, the Assessing Officer initiated reassessment proceedings taking a view that software expenses were capital in nature and, thus, deduction in respect of same was wrongly allowed. Held since the assessee had disclosed all material facts at time of assessment, in view of proviso to section 147, Assessing Officer could not initiate reassessment proceedings merely on basis of charge of opinion. CIT v. Maruti Suzuki India Ltd. (2013) 215 Taxman 495 (Delhi) (HC) S.147: Reassessment – Non‐initiation of action u/s 143(2) though time is available‐Reassessment is held to be valid. [S.(143(1), 143(2)] The failure to take steps under section 143(2) would not render the Assessing Officer powerless to initiate reassessment proceedings under section 147 even when intimation under section 143(1) had been issued, even when the time available for issuing notice under section 143(2) had not expired. (A.Y. 2005‐06) CIT v. Jora Singh (2013) 215 Taxman 424 (All.)(HC) S.147: Reassessment‐Within four years‐Apportionment of expenses‐Change of opinion‐Reassessment was held to be bad in law. [S. 10B] After feeling satisfied with the material brought on record, the Assessing Officer allowed the assessee's claim for exemption. Subsequently, the Assessing Officer initiated reassessment proceedings taking a view that apportionment of expenses between two units of the assessee was not proper. Held since the assessee's claim for exemption under section 10B was scrutinized by the Assessing Officer in detail in original assessment, reassessment proceedings even though initiated within a period of four years was not justified. (A.Y.2001‐02) CIT v. Fag Bearing India Ltd. (2013) 215 Taxman 387 (Guj) (HC) S.147: Reassessment‐Beyond four years‐ Letter to Assessing Officer during assessment‐Reassessment was held to be bad in law. [S. 35AB] The basis for reopening assessment after four years was that documents, viz., copies of agreement with regard to shares being allotted to 'D' in consideration of technical know‐how provided by it were not furnished and this resulted in excess benefit of section 35AB. The Tribunal held that all facts with regard to allotment of shares were disclosed to the Assessing Officer by a letter during course of assessment. Therefore, reopening beyond period of four years was not warranted. (A.Y. 1995‐96) CIT v. Daimler Chrysler India (P) Ltd. (2013) 215 Taxman 110(Mag.) (Bom.)(HC)


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S.147: Reassessment–Prima facie belief–Proceedings of subsequent year‐Reopening is justified. [S. 28(va),143(1)] On basis of details of agreement noticed during assessment proceedings of subsequent year, the Assessing Officer came to prima facie belief that amount received by assessee was taxable as revenue receipt. Held on facts, the reopening was justified. (A.Y.2004‐05) Control & Switchgear Contractors Ltd. v. DCIT (2013) 57 SOT 127(URO) (Delhi)(Trib.) S.147: Reassessment–Notice–Best‐judgment assessment‐Notice is mandatory where the assessee has file the return. [S.142(1), 143(2), 144] The requirement of issuing notice u/s.143(2) would apply even where re‐assessment proceedings are initiated. Best judgment assessment cannot be made where assessee had filed its return in time as required u/s 139(1)and no notice was issued u/s 142(1). (A.Y.2002‐03) ACIT v. Indo Swiss Exports Ltd. (2013) 57 SOT 125 (URO) (Chennai)(Trib.) S.147: Reassessment‐Audit objection‐Book profit‐lease equalization reserve‐Reassessment is bad in law. [S.115JB,148] The assessment was completed under section 143(3). The assessed income was less than book profit the assessment was completed by applying the provisions of 115JB of the Act. While computing the assessment as per normal provisions of the Act, the Assessing Officer made addition on account of leasing equalization reserve to the total income of the assessee, however while computing book profit he did not add the same amount. Assessing Officer issued the notice under section 148 and reassessed the income . Commissioner (Appeals) confirmed the reassessment proceedings. On appeal the Tribunal held that the reassessment proceedings were initiated by the Assessing Officer after objections were received from the internal audit party. The Tribunal held that the reassessment on the basis of interpretation of audit party and change of opinion is held to be bad in law. (A.Y.2002‐03) (ITA No.167/and 223/Mum/2010 dt 3‐07‐2013 ) Infrastructure Leasing & Financial Services Ltd. v. DCIT (2013) Chamber’s Journal –July –P.116 (Mum)(Trib.) S.147: Reassessment–Deemed dividend‐Trade advance‐Issue on which the reassessment proceedings was initiated was dropped during assessment proceedings –Other additions on account of transfer Pricing adjustments based on reassessment proceedings was held to be bad in law. [S.2(22)(e), 92C] Assessing Officer reopened the assessment under section 147 on the reason that there were advances received from the associate concern whose 100% shares are also held by the SCCL and has 90% shareholding in assessee company. Even though there is no direct shareholding by the AE company (SCI) in assessee's company, Assessing Officer was of the view that the provisions of section 2(22)(e) are applicable on the loans and advances given by the SCI to assessee. For that reason only assessment was reopened. In the course of the assessment proceedings assessee submitted that the amount received was nothing but trade advance and do not attract deemed dividend provisions under section 2(22)(e). Assessing Officer accepted the submissions and no adverse inference was drawn on this issue. based on the TP report for assessment year 2004‐05, Assessing Officer disallowed the royalty amount even though on record there seems to be no reference to the TPO as prescribed under the provisions. Since the issue of disallowance of royalty was not an issue for reopening the assessment and the issue on which the assessment was reopened was dropped in the course of the assessment proceedings. Assessing Officer has exceeded the


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jurisdiction provided under section 147. Reopening of the assessment itself was bad in law. Ratio in CIT v. Jet Airways (I.) Ltd (2011) 331 ITR 216 (Bom.)(HC) is followed.(A.Y. 2003‐04) SC Enviro Agro India Ltd v. Dy.CIT (2013) 143 ITD 195 (Mum.)(Trib.) S.153A: Assessment–Search and seizure‐Filing of returns for six years is mandatory. [S.132] Once there is a search, the Assessing Officer has no option but to call upon assessee to file returns of income for earlier six assessment years. Therefore, notice issued under section 153A calling upon assessee to file returns for those years, cannot be challenged merely on ground that it would cause certain degree of hardship to assessee. Madugula Venu v. DIT (2013) 215 Taxman 298 (Delhi)(HC) S.154: Rectification of mistake–Prior period expenses–Calculation mistake–Rectification is valid. The Assessing Officer disallowed certain prior period expenses by detailed discussion. However, while computing additions on account of disallowances in final calculation, said disallowance was left from calculation. Held, such mistake could be corrected by the Assessing Officer in exercise of powers conferred u/s.154. (A.Y.1998‐99) CIT v. Punjab Agro Industries Corpn. Ltd. (2013) 215 Taxman 22(Mag.) (P&H)(HC) S.158A: Repetitive appeals–Identical question of law is pending before High Court or Supreme Court –No immunity from payment of full tax dues. When a declaration u/s.158A that identical question of law is pending before the High Court or the Supreme Court, is made by the assessee, it will not provide any immunity to assessee from payment of tax due. Therefore, the contention raised by the assessee that once such an application was accepted, the Assessing Officer was to refrain from demanding tax in terms of assessment order, was to be rejected. Karnataka Chamber of Commerce & Industry v. CIT (2013) 215 Taxman 39(Mag.) (Karn.)(HC) S.158BA: Block assessment–Assessment of undisclosed income– Protective assessment was passed‐Addition as undisclosed income was held to be not justified. In course of block assessment, the Assessing Officer made addition in respect of undisclosed income by way of FDs and KVPs. The Tribunal found that such investment were out of professional receipts recorded in diaries maintained by assessee. According to the Tribunal, since last date for filing return wherein the said professional receipts could be shown had not expired, FDs and KVPs made out of such receipts could not be regarded as undisclosed income. On revenue's appeal, it was noted that assessee still had time to file returns and he had in fact filed returns in respect of which a protective assessment order was passed. In view of the above, Tribunal rightly concluded that FDs and KVPs did not represent undisclosed income of assessee. In course of block assessment, the Assessing Officer noticed that the assessee owned agricultural land along with his brother; they were cultivating said lands and there existed agricultural income. After being satisfied about said factual aspect, assessing authority held that share of assessee was only 50% and therefore he gave benefit to that extent. The Tribunal opined that in absence of any evidence to show that brothers divided income equally and since, assessee was in complete financial management of all assets, entire agricultural income belonged to assessee. Accordingly, the Tribunal set aside addition made by the Assessing Officer. Hence, the impugned order passed by Tribunal did not require any interference. (Block assessment period 1‐4‐1988 to 4‐2‐1999) CIT v. Dr. K.P. Viswanath Prabhu (2013) 215 Taxman 67(Mag.) (Karn.)(HC)


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S.158BB: Block assessment–Search and seizure–Regular assessment‐Issues which are relating to subject matter of regular assessment cannot be added in the block assessment if there no material seized in the course of search. [S.132]. In course of block assessment, the Assessing Officer made addition to assessee's income on three grounds, firstly, investment made in properties in name of assessee's wife and son out of undisclosed income of assessee, secondly, investment made by assessee in wine shop out of agricultural income and, thirdly, investment made in thandal business out of undisclosed income of assessee. The Tribunal, however, set aside addition made by Assessing Officer. As regards first addition, there existed no material on record for revenue to draw inference that assessee's wife and son did not have separate source of income. As regards other two additions, there was no material seized at time of search of assessee's premises so as to make it a subject matter of block assessment. Held on facts, the Tribunal was justified in deleting impugned additions. (Block period 1986‐87 to 1996‐97) CIT v. P.R. Perumal (2013) 215 Taxman 19 (Mad.)(HC) S.158BD: Block assessment‐Assessment of third person–Release of assets. [S.132B(3)] Due to joint search of luggage van resulting in proceedings under section 158BD, Assessing Officer accepted part of jewellary belonging to assessee and trated the remaining gold as undisclosed income of assessee. In appeal Commissioner (Appeals) deleting the addition on account of undisclosed income. Order of Commissioner (Appeals) attaining finality. On writ to release the jewellery, the court held that once the order of the income‐tax authorities achieved finality and the Revenue did not choose to go in appeal, further arguments about whether the gold was lying with the income‐tax authorities or the Enforcement Directorate, were academic. The material on record either in the form of the Assessment order or the Commissioner (Appeals) order nowhere disclosed that seizure by the income‐tax authorities was made from the custody of the Enforcement Directorate. The Assessing Officer’s affidavit was also silent about this. The material on record suggested a joint search of the luggage van which resulted in proceedings under section 158BD. Having regard to the conspectus of these facts, the income‐tax authorities were directed to forthwith take all steps and ensure that the gold jewellery is released to the assessee. M.S. Chain v. Under Secretary, Government of India, Ministry of Finance, CBDT (2013) 354 ITR 310 (Delhi)(HC) S.158BD: Block assessment–Undisclosed income of any other person – Recording of satisfaction is mandatory‐Office note which was not inexistence when the notice was issued cannot be treated as recording of satisfaction. The impugned notice against the petitioner u/s.158BD was issued on 29‐10‐2001 while the assessment was framed in case of the husband pursuant to the search operation on 31‐10‐2001. The affidavit‐in‐reply dated 11‐10‐2002 of the Assessing Officer recorded that the block assessment relating to the searched person was completed on 31‐10‐2001. It was further stated that additions on several points were made. However, a detailed office note made by the Assessing Officer below the assessment order mentioned every point which required action in case of the petitioner. The office note formed part of the assessment order. The assessment order in case of husband of petitioner having been passed on 31‐10‐2001, such note, though undated, came in existence only on 31‐10‐2001. On 29‐10‐2001, when notice u/s 158BD was issued against the petitioner, above mentioned note was not in existence. Such note cannot also be seen as any recording of the satisfaction as envisaged u/s 158BD, such note not being in existence when notice was issued, cannot form the basis for sustaining the notice u/s.158BD. On the date of issuing notice u/s 158BD, there was no satisfaction recorded by


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Assessing Officer of the searched person. Therefore, under circumstances at hand, impugned notices are liable to strike off. (A.Y. 2001‐02) Padmini M Nair v. Union of India (2013) 215 Taxman 49(Mag.) (Guj.)(HC) S.176: Discontinued business–Receipt after discontinuation– Receipt to be taken in to total income and not net profit rate. During the year, the assessee under arbitration award received certain amount after discontinuance of business. The Assessing Officer added the said amount to total income of assessee and after giving statutory deductions levied tax on assessed income. However, the Tribunal applied net profit rate on said receipt at 12.5% and restricted the addition at 12.5% of receipt of money. Held, the receipt which is required to be taken into total income of the assesseeu/s 176(3A) cannot be reduced to 12.5% as net taxable profit of the assessee which is contrary to the provision of section 176(3A). CIT v. R.M. Singh (2013) 215 Taxman 17 (Jharkhand) (HC) S.179: Private company–Liquidation–Liability of director‐Interest and Penalty. Recovery from director of private limited company cannot be made towards interest and penalty arising out of assessment order passed against company. (A.Y. 1995‐96) Nayan M. Shah v. ITO (2013) 215 Taxman 1 (Guj.)(HC) S.179: Private company–Liability of directors–Penalty and interest. [S. 271(1)(c)] A director is jointly and severally liable to pay tax dues pending against company, but he cannot be held liable for interest or penalty due from company.(A.Y. 1988‐89 to 1989‐90) KantilalSakarlal Gandhi v. ITO (2013) 215 Taxman 340 (Guj.)(HC) S.184: Firm–Status as firm–Illegal partnership‐Remuneration to partners‐ Requisite permission was not obtained for A.P. Excise Act‐Remuneration, interest on capital is not allowable. [S.185,Andra Pradesh Excise Act ,1968, S.15, Partnership Act 1932, Indian Contract Act, S.23] The Assessing Officer reopened the assessment of the assessee‐firm on the ground that it had not obtained permission from the Excise Department before entering into partnership, such a partnership was prohibited under A.P. Excise Act and therefore, status of assessee could not be treated as a firm. As a result, remuneration paid to partners and interest on capital was added to total income. Held, in the absence of such prior permission being obtained, partnership firm, which had been formed to carry on business of trading in intoxicating liquor, would be an illegal partnership both under Partnership Act, 1932 and A.P. Excise Act and hence, the action of the Assessing Officer was justified. (A.Y. 1999‐00) CIT v. Swarna Bar Restaurant (2013) 215 Taxman 347 (AP)(HC) S.185: Firm–Registration‐ Rectification deed‐Registration cannot be refused. The assessee‐firm came into existence through partnership deed dated 24‐5‐1974 duly executed and signed by its all four partners. All throughout, the intention was to share profit/loss of business of firm in ratio of their capital investments and they actually used to share profit/loss accordingly, in original partnership deed, due to typing error sharing of profit/loss was not incorporated according to will/agreement of partners and in order to rectify such mistake, deed dated 6‐2‐1980 was duly executed and signed by all partners and profit was shown in proportion of their capital investment. Held since the deed dated 6‐2‐1980 was a rectification deed and had been executed according to real agreement between partners, which was proved from their previous record, such deed would have retrospective effect. Hence, such registration of firm could not be refused on ground that sharing of


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profit and loss by partners in relevant assessment year was not according to terms of deed dated 24‐5‐1974 but according to memorandum dated 6‐2‐1980.(A.Y. 1980‐81) CIT v. Alison Singh & Co. (2013) 215 Taxman 65(Mag.) (All)(HC) S.194A: Deduction at source–Interest–Society registered under Travancore‐Kochi Literary Scientific and Charitable Societies Registration Act, 1955 is not exempt. [S.197, Societies Registration Act ,1860] The assessee was a society registered under Travancore‐Kochi Literary Scientific and Charitable Societies Registration Act, 1955. Since the assessee‐society did not fall within the purview of notification under section 194A(iii)(f),it was not exempted from deduction of tax at source under section 194A on interest income received by it. Kerala State Nirmiti Kendra v. CIT (2013) 215 Taxman 363 (Ker.) (HC) S.194C: Deduction at source–Works contract–Assessee is liable to deduct tax at source. The assessee entered into three contracts viz., for supply of material, for labour‐cum‐erections and for construction of refinery, with its sister concern. Held, this was a works contract and hence, the assessee was liable to deduct tax on the same. (A.Y. 1998‐99) Essar Oil Ltd. v. ITO (2013) 215 Taxman 365 (Guj.)(HC) S.194H: Deduction at source –Commission‐ Mobile telephone service provider ‐ Discount allowed to franchisee for selling SIM cards‐Liable to deduct tax at source. The assessee was engaged in the business of providing cellular mobile telephone services through its franchisees by selling to them starter pack and rechargeable coupons, SIM and pre‐paid cards which were purchased by the franchisees engaged by the assessee at a rate below the market price and sold to retailers by whom they were ultimately sold to customers. Held, that the property in the starter pack and pre‐paid coupons even after transfer and delivery to the franchisees remained with the assessee, (ii) the franchisee really acted as a facilitator or instrumentality of providing services by the assessee to the ultimate subscriber, (iii) the franchisee had no free choice to sell it and everything was being regulated and guided by the assessee, and (iv) the rate at which the franchisee sold to retailers and that at which the assessee sold to the franchisee, was also regulated and fixed by the assessee. Hence, there had been indirect payment by the assessee to the franchisee of the commission and the commission would attract tax deduction at source under section 194H. (A.Y.2003‐2004, 2004‐2005) Bharti Cellular Ltd. v. ACIT (2013) 354 ITR 507(Cal.)(HC) S.194H: Deduction at source–Commission–Brokerage–Agent of post office‐Commission paid in respect of sale of securities provision is not applicable. [Securities Contract Act 1956, S. 2(h)] The assessee is an agent of post office scheme. It claimed expenditure on account of commission paid to sub‐brokers in respect of sale and purchase of mutual funds. The Assessing Officer disallowed the claim as no tax was deducted at source under section 194H of the Act. On appeal the Tribunal held that according to Explanation (i) to section 194H, if the commission o brokerage is paid by a person acting on behalf of another person for services rendered in connection with securities then the said commission or brokerage falls outside the purview of section 194H.On the facts the commission was paid to sub‐broker with respect to purchase and sale of mutual funds and according to clause (h) of section 2 of the Securities Contract Act ,1956 mutual funds are within ambit of the term ‘securities’, therefore the assessee is not liable to deduct tax at source under section 194H of the Act.(A.2008‐09)(ITA No. 1951/Del/2012 dt.27‐02‐2013) ITO v. Mittal Investment & Co. (2013) Chamber’s Journal‐June‐P. 108 (Delhi)(Trib.)


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S.197: Deduction at source–Cancellation of certificate with retrospective effect is not valid. Validity of certificate under section 197(1) would be there till it is cancelled, however, no retrospective effect is to be given to it. (A.Y.1998‐99) Essar Oil Ltd. v. ITO (2013) 215 Taxman 365 (Guj.)(HC) S.234A: Interest–Computation–Period given in notice. [S. 139, 143, 153A] Interest u/s.234A is to be charged from the date of expiry of notice period given in the notice u/s.153A to date of completing assessment u/s 143(3). (A.Ys. 2008‐09 to 2010‐11) ACIT v. V.N. Devadoss (2013) 57 SOT 67(URO) (Chennai)(Trib.) S.254(1): Appellate Tribunal‐Power‐Consequential direction‐Order without giving an opportunity of hearing ‐ Actual cost–Subsidy– Treatment. [S.43(1)] Where nature of subsidy, purpose for which same was made available and all other relevant factors were not examined, treatment of subsidy required fresh consideration and the assessee's contention that Tribunal had no power to give any consequential directions after upholding decision of Commissioner (Appeals) was not justified. However the Court held that tribunal committed error in giving directions (1) without availing opportunity of hearing to the assessee and (2) without discussion of facts on record or law applicable to it. Matter was set aside to decide a fresh according to law . Munjal Auto Industries Ltd. v. DCIT (2013) 215 Taxman 278 (Guj.)(HC) S.254(1): Appellate Tribunal–Remand of order–Examination on merits. The Tribunal, on second appeal filed by assessee, remanded the matter to the Assessing Officer for re‐examination in light of judgments relied on by assessee. The assessee and revenue submitted before the High Court that order of Tribunal should be set aside and matter be remanded to it for examination on merits because the Assessing Officer had no role to play, as this was a case involving transfer pricing and it was scrutinized by the DRP comprising of three Commissioners. In light of this, the order of the Tribunal was set aside and matter was to be remanded to it for examination on merits. (A.Y.2007‐08) GE India Technology Centre (P.) Ltd v. DCIT (2013) 215 Taxman 52(Mag.) (Karn.)(HC) S.254(2): Appellate Tribunal –Rectification of mistake apparent from the record‐Evidence not considered–Application to be allowed. [S. 68] Large credits by way of deposit of gold were found in the assessee's premises and added to its income. The Tribunal deleted the said addition. However, when matter was remanded by the High Court, the Tribunal confirmed said addition. The assessee contended that sales tax records revealing purchase of gold and payment of tax u/s 5A were made available, but they were not considered by Tribunal. In light of this, held, it was a fit case for assessee to move u/s 254(2) for rectification. A. Shihabudeen v. CIT (2013) 215 Taxman 51(Mag.) (Karn.)(HC) S.254(2): Appellate Tribunal–Rectification of mistake apparent from the record–Second miscellaneous application can be considered against the same Tribunal order. Mistakes pointed in the fresh miscellaneous applications are different. Earlier order certain grounds were not disposed by the Tribunal. Accordingly the second miscellaneous application was allowed. (A.Ys.1999‐2000 to 2002‐03) Uday Gas Agency v. ITO (2013) ACJA –June‐ 151(Ahd.) (Trib.)


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S.254(2): Appellate Tribunal –Rectification of mistake apparent from the record‐Period of limitation will be from the date of communication of the order. The Tribunal passed an ex‐parte order on 4‐08‐2006.The Assessee has filed miscellaneous application on 1‐03‐2012.The assessee contended that he came to know the passing of ex‐parte order only on 17‐02‐2012 and accordingly the period of limitation may have to be computed from 17‐02 ‐2012 and not from the passing of the order i.e. 4‐08‐2006. Tribunal held that the phrase ‘from the date of the order’ should be construed and reckoned with the date of knowledge of the order to the assessee that is when the order has been communicated to the assessee. (MA No.140/M/2012 dt.27‐02‐2013) Pawan Kumar Jain v. Dy.CIT (2013) The Chamber’s Journal‐June‐P. 108 (Trib.)(Mum.) S.260A: Appeal–High Court–Power to frame questions. Revenue filed SLP on the ground that two questions of law were framed by the High Court for consideration of appeal, by necessary implication that other questions which were raised in the memo of appeal have been rejected. Apex court held that the High Court's power to frame substantial question(s) of law at time of hearing of appeal other than questions on which appeal has been admitted remains u/s260A(4). However, the same can be exercised subject to two conditions, viz. Court must be satisfied that appeal involves such questions, and the Court has to record reasons therefore. SLP was dismissed. CIT v. Mastek Ltd. (2013) 215 Taxman 86 / 89 DTR 52/259 CTR 577 (SC) S.260A: Appeal–High Court–Monetary limit. [S.244A, 268A] The Tribunal held that the assessee was entitled to interest u/s 244A. Against this order of the Tribunal, the revenue filed an appeal before the High Court. The tax effect involved in appeal was below monetary limit prescribed by Board in Instruction No.3/2011, dated 9‐2‐2011. The Revenue urged before High Court that decision of Tribunal was palpably erroneous. Held the submission of revenue would not enable it to ignore conditions of instruction dated 9‐2‐2011 and file appeal which was otherwise not envisaged in said instruction and therefore, impugned appeal was not maintainable. CIT v. Sherno Ltd. (2013) 215 Taxman 53(Mag.) (Guj.)(HC) S.263: Commissioner‐Revision of order prejudicial to the interest of revenue‐ Rectification of mistakes‐Deduction of tax at source‐ Amendment‐ Provision permitting rectification was not in force at the time of rectification but in force at the time of revision‐Revision was held to be not valid. [S.154, 155(14)] As against the assessee's claim of Rs.1,36,35,634, the Assessing Officer gave credit of Rs.38,14,844 towards tax deducted at source. The assessee sought rectification of the intimation on the ground that credit for the entire tax deducted at source was not given. The assessee also pointed out that at the time of filing the return, credit for the tax deducted at source amounting to Rs.19,44,692/‐ was not claimed since the relevant certificates of tax deduction at source were not available and since the certificates had been received subsequently, credit should be given to the extent of Rs.19,44,692. The Assessing Officer rectified the intimation under section 154 and gave credit to a sum of Rs.1,45,98,652 towards tax deducted at source which included the amount of Rs.19,44,672. On this date, section 155(14) was not in the statute book. The Commissioner exercising his power under section 263 withdrew the credit given to the amount of Rs.19,44,672. Held, that as the provisions of section 155(14) were not in the statute book on the day the Assessing Officer passed the order under section 154. The amendment came into effect only from June 1, 2002. But on the day the Commissioner exercised his power and passed the order, the amendment was in


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the statute book. Therefore, when revisional jurisdiction was exercised, the Commissioner could not have held that the order passed by the assessing authority was erroneous, as on that day the amended law provided for such rectification. (A.Y.1999‐2000) CIT v. Digital Global Soft Ltd. (2013) 354 ITR 489 (Karn.)(HC) S.263: Commissioner‐Revision of orders prejudicial to revenue‐Block assessment‐Block assessment order passed after obtaining approval of commissioner cannot be revised under section 263. [S.132,147,158BC, 158BG] It is no doubt true that the availability of an appeal remedy cannot pronounce on the scope of section 263 vis‐à‐vis section 158BG. A reading of section 263 shows that it is more in the nature of a corrective mechanism in cases where the Revenue may not have a chance to correct the error in the order of assessment, which is prejudicial to the interest of the revenue, which does not fall for consideration u/s 147 proceedings. In case of block assessment order passed u/s 158BC after obtaining approval of Commissioner u/s 158BG, there can be no assumption of jurisdiction u/s 263 to revise said order of block assessment. (Block period 1‐4‐1986 to 13‐2‐1996) R. Srinivasan v. DCIT (2013) 215 Taxman 6/88 DTR 257 (Mad.)(HC) S.263: Commissioner–Revision of orders prejudicial to the interest of revenue‐Capital gains.[S.54 ] The condition precedent for exercising the revisional power under section 263 is that the order under revision should not only be erroneous, but such erroneous order should result in prejudice to the interests of the Revenue. The assessee was exempted from paying tax under section 54 since the fund was utilized fully towards purchase of another property. The Commissioner set aside the order of assessment on the ground that the gain should have been treated as short‐term capital gains and hence, deduction under section 54 was to be denied. The Tribunal set aside the order of the revisional authority and granted relief to the assessee. Held, the assessee had demonstrated that in no event the order passed by the Assessing Officer was prejudicial to the interests of the Revenue. That aspect had not been considered and there was no reference to that aspect in the entire order passed by the revisional authority and by a cryptic order, the matter was remanded to the assessing authority. Though the Tribunal was not expected to go into the merits of the case, in order to demonstrate that the order passed by the assessing authority even if it was erroneous, was not prejudicial to the interests of the Revenue, it set out the computation of capital gains and demonstrated that the order was not prejudicial. Therefore, the order passed by the revisional authority was illegal. CIT v. D. G. Gopala Gowda (2013) 354 ITR 501 (Karn.)(HC) S.263: Commissioner‐Revision of orders prejudicial to revenue‐Representative capacity‐Appointment of an existing partner as representative partner for another party may circumvent the ceiling on number of partners. [S.40b] The assessee, a firm of Chartered Accountants, filed a return offering income of Rs. 17.70 crores which was accepted by the Assessing Officer u/s 143(3). The Commissioner then passed an order u/s 263 stating that the assessee had amended its partnership deed pursuant to which Mr. Mukund Dharmadhikari, who was already a partner of the firm, was added once again as a partner in a representative capacity, to represent Deloitte Haskins & Sells, Mumbai. As Mr. Dharmadhikari had the right to share profit, both in the representative capacity as well as in his individual capacity, the Commissioner held that the number of partners exceeded 20, the maximum allowed under the Partnership Act, 1932, and that the assessee had, therefore, to be treated as an Association of Persons. He held that the assessee was not entitled to claim a deduction u/s 40(b) for the salaries paid to its’ partners.On appeal by the assessee to the Tribunal HELD:


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A study of the partnership deed shows that Deloitte Haskins & Sells, Mumbai, which is the participating firm, is not a stranger to the assessee. The assessee can take policy decisions, which have a policy bearing on such firm, once there is an approval of the majority of the members of the “National Firm”. Mukund Dharmadhikari was representing Deloitte Haskins & Sells, Mumbai, and the endeavour of the assessee was to bring on board the participating firm, on which it had powers to make policy decision, so that they became entitled for a share of profit. In other words, the effort of the assessee was to bring indirectly into the partnership M/s Deloitte Haskins & Sells, Mumbai, which was already a participating firm. The assessee was a renowned partnership firm and was well aware that number of partners cannot exceed 20. It is a well settled principle of law that what is permissible is tax planning, but not evasion. When an attempt is made by a concern to evade tax using subtle camouflages, bounden duty of the authorities is to find out the real intention. It is the duty of the Court in every case, where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smoke screen and discover the true state of affairs. The Court has to go into substance and not to be satisfied with the form. Though in Rashik Lal and co. v. CIT ( 1998) 229 ITR 458 (SC) & CIT v. Bagyalakshmi & Co.(1965) 55 ITR 660 (SC) it was held that a partner may be a trustee or may enter into a sub‐partnership with others, or can be a representative of a group of persons and that qua the partnership, he functions in his personal capacity, these decisions will not apply since the assessee was indirectly trying to bring in M/s Deloitte Haskins & Sells, Mumbai, another firm, which was already a participating firm, as its partner, circumventing the limit of maximum 20 members. The AO did not apply his mind and go into these aspects and so the Commissioner was justified in directing him to look into the issue. (A.Y.2008‐09) (ITA No. 1164/Mds./2012, dt.4.07.2013) Deloitte Haskins & Sells v. DCIT (Chennai)(Trib.) www.itatonline.org S.271(1)(c): Penalty‐Concealment‐Penalty cannot be levied even for unsustainable/ non‐debatable claims if there is disclosure in the return. [S.10(33)] Though the income from the transfer of units of a mutual fund is exempt u/s 10(33), the assessee claimed a deduction for the loss of Rs. 3.08 crores suffered by him on transfer of US 64 units. The Assessing Officer disallowed the loss on the ground that the exemption in s. 10(33) applied to a loss as well and imposed penalty u/s 271(1)(c). The Commissioner (Appeals) confirmed the penalty. On appeal by the assessee, the Tribunal allowed the appeal on the ground that as the assessee had disclosed the details with the return, he had not filed inaccurate particulars of his income and that the making of a wrong claim / incorrect claim did not attract penalty u/s.271(1)(c). On appeal by the department to the High Court, HELD dismissing the appeal: As the assessee had disclosed all details in the return of income, at the highest it can be said that the claim of the assessee was not sustainable in law. But as there was no furnishing of inaccurate particulars or concealment of income on the part of the assessee. penalty u/s 271(1)(c) could not be levied (CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) referred). ( ITA No. 49 of 2013, dt. 5.07.2013) CIT v. Nalin P. Shah (HUF) (Bom.)(HC) www.itatonline.org S.271(1)(c): Penalty–Non‐payment of TDS–Inaccurate particulars‐Technical default deletion of penalty was justified. The Assessing Officer imposed penalty on assessee under section 271(1)(c) for not deducting and depositing TDS on time. The Commissioner (Appeals) and the Tribunal deleted the said penalty. Held, there was no concealment of income or furnishing of inaccurate particulars of income by assessee and non‐payment of TDS being a technical default, deletion of penalty was justified. (A.Y.2006‐07) CIT v. L G Chaudhary (2013) 215 Taxman 95(Mag.) (Guj.)(HC)


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S.271(1)(c): Penalty–Revised return–To buy peace and avoid litigation levy of penalty was not justified. It was not case of revenue that assessee filed revised return, since some inaccurate particulars of income were detected by Assessing Officer during course of assessment. The assessee, to buy peace and to avoid protracted litigation, being disturbed by the death of his brother, who looked after the business filed revised return during assessment proceedings declaring additional income of Rs. 37 lakhs. The reason for filing revised return was shown to be that the business was substantially looked after by the brother, who would have been in a position to comply with the details. In his absence, such details would not be easily available and it was, therefore, that the assessee opted to file the revised return. Hence, the levy of penalty was not justified. (A.Y. 2005‐06) CIT v. Girish Devchand Rajani (2013) 215 Taxman 94(Mag.) (Guj.)(HC) S.271(1)(c): Penalty –Disallowance of claim –Bad debt‐ Difference of opinion‐Levy of penalty was not justified.[S. 36(1)(vii)] The Assessing Officer imposed penalty u/s 271(1)(c) upon assessee on account of disallowance of bad debt. The Tribunal deleted penalty holding that it was a case of difference of opinion on allowability of certain deductions and in absence of any material to indicate any dishonest attempt on part of assessee to conceal income, no penalty could be imposed. Held the Tribunal was justified in deleting penalty. CIT v. Sambhav Media Ltd. (2013) 215 Taxman 54(Mag.)(Guj.)(HC) S.271(1)(c): Penalty‐Concealment‐Depreciation‐Part was let out‐Know how expenditure‐Excess claimed‐Levy of penalty was not valid. The assessee claimed deduction of depreciation on factory building even though the part of it was let out and the rental income was received , which was taxed under the head income from house property. Secondly the addition was made on account of 1/6th of Technical Knowhow expenditure written off, which in the facts of the case was excessively claimed. Revenue relied on Delhi High Court judgment in CIT v. Zoom Communications Pvt. Ltd. (2012) 327 ITR 510 (Delhi)(HC) and contended that the assessee had made wrong claim, hence penalty was rightly levied. Tribunal held that since all the necessary facts with respect of claim of depreciation and expenditure were furnished levy of penalty was not justified. (A.Y.2006‐07) (ITA No. 2380/Ahd/2002 dt.30‐04‐2013) Mamata Machinery Pvt. Ltd. v. ACIT (2013) ACAJ–July‐P.225 (Ahd.)(Trib.) S.271(1)(c): Penalty–Concealment–Cash credits—Voluntary surrender‐Penalty for concealment cannot be levied even if explanation unproved if it is not disproved by the Assessing Officer. The assessee had a cash credit of Rs.7.33 lakhs in his books. He also claimed agricultural income of Rs.1 lakh. He offered an explanation on both issues which was not accepted by the Assessing Officer. He accordingly surrendered both amounts to tax to buy peace. The Assessing officer imposed penalty u/s 271(1)(c) which was confirmed by the Commissioner (Appeals). Before the Tribunal, the assessee claimed that the additions were made on “voluntary surrender” and to avoid further litigation and to buy mental peace and that the same could not be considered as furnishing of inaccurate particulars of income or concealment of income. HELD by the Tribunal allowing the appeal: If the assessee gives an explanation which is unproved but not disproved i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee’s case is false, then the penalty is not imposable. In the present case, the assessee’s explanation remained unproved but it cannot be said as disproved. Further, S.68 is an enabling provision for making an


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addition where the assessee fails to give an explanation regarding the cash credit but such addition does not automatically justify imposition of penalty u/s.271(1)(c) r/w Explanation 1 thereto. In order to justify levy of penalty, there must be some material or circumstances leading to a reasonable conclusion that the amount does represent the assessee’s income and the circumstances must show that there was a conscious concealment or act of furnishing of inaccurate particulars. From a bare reading of s. 271, it is clear that the provisions of Explanation 1 to s. 271 do not make the assessment order conclusive evidence that the amount assessed was, in fact, the income of the assessee and that the assessee did not satisfactorily explain the cash credits by producing evidence and documents. Accordingly, penalty u/s.271(1)(c) is not leviable (CIT v. Upendrav. Mithani (Bom)(HC) (ITA (L.) no of 2009 dt 5‐8‐2009) and National Textile v. CIT (2001) 249 ITR 125 (Guj)(HC) followed)( A.Y. 2008‐09, ITA No. 3194/Del/2012, dt. 20th June 2013 ) Saket Agarwal v. ITO(Delhi)(Trib.)www.itatonline.org. S. 273: Penalty–Initiation–Draft assessment order‐Levy of penalty was valid. [S. 144, 210] Merely because the Assessing Officer in the draft assessment order passed u/s 144B had not proposed levy of penalty u/s 273(2)(a) upon assessee and subsequently while passing regular assessment order initiated proceedings for levy of penalty upon assessee, penalty proceedings could not be quashed on ground that no such proceedings were proposed in draft assessment order.(A.Y. 1979‐80) J.K. Synthetics Ltd. v. CIT (2013) 215 Taxman 54(Mag.) (All.)(HC) S.281: Certain transfers to be void‐Collection and recovery‐ Attachment of mortgaged property‐Priority over secured debt‐Income–tax Act, 1961 does not provide for a priority to statutory charges over all other charges including mortgage under ‘SFC Act’.[S.226, Schedule II, rule 93, State Financial Corporation Act, 1951, S.29] The petitioner a State owned Corporation and a Financial Institution governed by The State Financial Corporation Act 1951. The petitioner has advanced money to borrower who failed to repay the amount with interest. Petitioner took possession of the properties which was mortgaged. The Recovery Officer attached the properties including properties mortgaged of the petitioner. The recovery Officer attached the property and proposed to sell the property as it had a first charge over the property. The petitioner filed the writ petition. Allowing the petition the Court held that under the State Financial Corporation Act, 1951, first charge on property is created clearly giving priority to dues of said statutory authority over all other charges on property over all other charges on property ,on basis of mortgage . Since Income‐tax Act, 1961 does not provide for a priority to statutory charge over all other charges including mortgage under ‘SFC Act’, order of Tax recovery Officer attaching property of assessee, mortgaged to State owned Corporation was not proper. Petition was allowed. Karnataka State Industrial Investment Development Corporation Ltd. v. CIT (2013) 89 DTR 129 / 259 CTR 485 (2013) AIR 104 (Karn.)(HC) Allied laws. Income‐tax‐Appellate Tribunal‐Appointment of officiating President‐Challenge to removal of ITAT President admitted but no interim relief granted. Shri. G. E. Veerabhadrappa, the senior‐most Vice President of the Tribunal, was vide order dated 13.10.2011 appointed President of the Tribunal in an “officiating capacity till the post was filled up on regular basis“. Vide notification dated 5.5.2012 the said order was modified to read “in an officiating capacity up to 31.8.2012 or further orders“. On 31.8.2012, Shri. H. L. Karwa (the junior‐most Vice President) was appointed the President in place of Shri. G. E. Veerabhadrappa. Shri. Veerabhadrappa was thereafter transferred on 7.11.2012 to Calcutta. Shri. Veerabhadrappa filed a Petition before the


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Central Administrative Tribunal (“CAT”) claiming that (i) the curtailment of the period of appointment till 31.8.2012 was unjustified, (ii) his removal from the post of President was actuated by “malice and personal vendetta” of the Law Secretary owing to his refusal to cancel the transfers of Shri. Hari Om Maratha and Smt. Diva Singh and (ii) the appointment of Shri. H. L. Karwa as President was irregular as found by the Appointments Committee of the Cabinet. The Law Ministry opposed the Petition on the ground that there were complaints regarding integrity and that the decision was taken at the highest level after “due consideration”. The CAT dismissed the Petition and Shri. Veerabhadrappa filed an appeal to the High Court. HELD by the High Court admitting the appeal but refusing interim stay: The only interim relief which is prayed for is for stay of the operation of the impugned order of the CAT. As the Petitioner did not challenge the order dated 5.5.2012 and as on 31.8.2012 Shri. H. L. Karwa took over the charge of the post of the President and continues to hold the charge of the post till today and as the appointment of Shri. Veerabhadrappa was purely adhoc, it is not a fit case to grant interim relief. Prayer for interim relief is rejected.( writ Petition No.5126 of 2013, dt. 25/6/2013) G. E. Veerabhadrappa v. UOI (Bom.)(HC) www.itatonline.org Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the authors nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non‐commercial use) without express written permission of itatonline.org

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