DIRECT TAXES

High Courts
Ashok Patil, Mandar Vaidya, Rahul Hakani, Sameer Dalal & Sanjukta Chowdhury

S.2(15) : Charitable purpose – Trade business or commerce – Public utility – Activity of evolving, prescribing, standards Activities cannot be termed as business activity – Exemption was granted. (S.10(23C)

The Bureau of Indian Standards (BIS), a sovereign entity created under the Bureau of Indian Standards Act, 1986, had been granted exemption under section 10(23C).

The Director of Income-tax (Exemption) withdrew the said exemption on the ground that activities of BIS were in the nature of business and hence, covered by the proviso to section 2(15). The assessee challenged the said order by way of Writ to the High Court, wherein it was held that, activities of Bureau of Indian Standards (BIS) in prescribing of standards of goods/articles and enforcing those standards through accreditation and continuing supervision through inspection, etc., cannot be considered as trade, business or commercial activity merely because testing procedures involves charging of fees. Accordingly allowing the Petition the DIG was directed to issue the exemption certificate under section 10(23C) of the Act.

Bureau of Indian Standards v. DGIT (Exemptions) (2013) 212 Taxman 210 (Delhi)(High Court)

S.2(28A) : Interest – TDS – Discount charges – Deduction at source – Business income hence not liable to deduct tax at source. [S. 40(a)(i)]

The Court held that discount charges earned by assessee-financial service provider by way of discounting bill of exchange and promissory notes in favour of Indian companies is to be treated as business income, and not as interest income In favour of assessee. (A.Y. 2005-06 to 2007-08)

DIT (IT) v. Cargil TSF PTE Ltd. (2013) 212 Taxman 16 (Delhi)(High Court)

S.2(47) : Transfer – Shares pledged with group company – A transaction in respect of transfer of share pledged with a bank to a group company can be regarded as "Transfer" for income-tax purpose so far as requirement of s. 2(47) are complied with – Loss suffered is allowable

A transaction in respect of sale of shares pledged with a bank to a group company cannot be said to be a colourable device merely on the grounds that such a transaction resulted into loss to the assessee and that the requirements of section 108 of The Companies Act, 1956 regarding registration of transfer of shares have not been complied with since the share were in possession of a bank owing to which such shares could not have been said to be transferred. So far as the requirements of section 2(47) of the Act are complied with the transaction is to be regarded as "Transfer" for the income-tax purposes. There is no restriction that such a transaction cannot be effected with a group company. Also it is not open for the revenue to doubt the loss suffered by the assessee unless it doubts the sale prices of the shares. (T.A. No. 260 of 2000, dt 7-8-2012)]

Biraj Investment Pvt. Ltd. (2012) ACAJ – November - P. 402 (Guj.)(High Court)

S.4 : Charge of income-tax – Capital or revenue receipt – Sale of trees is held to be capital receipt

Assessee, an agriculturist, cut and sold trees to the forest department. Trees were cut in a manner such that they would not regenerate in near future as the species had no spontaneous growth. The receipts from the transaction were held to be in the nature of capital receipt. (A.Y. 1994-95)

CIT v. Mahendra Karma (2013) 83 DTR 153 (Chhattisgarh)(High Court)

S.4 : Charge of income-tax – Compensation – Capital receipt – Compensation to CA Firm for loss of referral work is a non-taxable capital receipt

The assessee, a firm of Chartered Accountants, was one of the "associate members" of Deloitte Haskins & Sells for 13 years pursuant to which it was entitled to practice in that name. Deloitte desired to merge all the associate members into one firm. As this was not acceptable to the assessee, it withdrew from the membership and received consideration of ` 1.15 crores from Deloitte. The said amount was credited to the partners’ capital accounts & claimed to be a non-taxable capital receipt by the assessee. The AO rejected the claim. The CIT (A) reversed the order of AO. The Tribunal reversed the CIT(A) order. On appeal by the assessee to the High Court, reversing the Tribunal order held that :

  1. There is a distinction between the compensation received for injury to trading operations arising from breach of contract and compensation received as solatium for loss of office. The compensation received for loss of an asset of enduring value would be regarded as capital. If the receipt represents compensation for the loss of a source of income, it would be capital and it matters little that the assessee continues to be in receipt of income from its other similar operations (Kettlewell Bullen and Co. Ltd. v. CIT (1964) 53 ITR 261 (SC) & Oberoi Hotel (P) Ltd. v. CIT (1999) 236 ITR 903 (SC) followed);

  2. On facts, the compensation was for loss of a source of income, namely referred work from Deloitte because it is somewhat difficult to conceive of a professional firm of chartered accountants entering into such arrangements with international firms of CAs, as the assessee in the present case had done, with the same frequency and regularity with which companies carrying on business take agencies, simultaneously running the risk of such agencies being terminated with the strong possibility of fresh agencies being taken. In a firm of chartered accountants there could be separate sources of professional income such as tax work, audit work, certification work, opinion work as also referred work. Under the arrangement with DHS there was a regular inflow of referred work from DHS through the Calcutta firm in respect of clients based in Delhi and nearby areas. There is no evidence that the assessee had entered into similar arrangements with other international firms of chartered accountants. The arrangement with DHS was in vogue for a fairly long period of time – 13 years – and had acquired a kind of permanency as a source of income. When that source was unexpectedly terminated, it amounted to the impairment of the profit-making structure or apparatus of the assessee. It is for that loss of the source of income that the compensation was calculated and paid to the assessee. The compensation was thus a substitute for the source and the Tribunal was wrong in treating the receipt as being revenue in nature (CIT v. Best & Co (1966) 60 ITR 11 (SC) distinguished). (A.Y. 1997-98)

Khanna and Annadhanam v. CIT (2013) 213 Taxman 347 / 258 CTR 72 / 85 DTR 164 (Delhi)(High Court).

S.4 : Charge of income-tax – Hindu undivided family – Individual – Income from agricultural land which was received on partition assessable as HUF income and income from remaining agricultural land assessable as an individual

Assessee filed return in his capacity as karta of HUF. He claimed that he was owning 20.88 acres of agricultural land in status of HUF and entire income earned from agricultural land was income from HUF property. Assessing Officer rejected the claim of assessee and assessed the entire income from the agricultural lands in the status as individual. He also made protective assessment at the hands of the assessee in the capacity of HUF. In appeal Commissioner (Appeals) held that inclusion of the income from the land in the individual assessment of the assessee was not correct. He also held that the assessment made in the hands of HUF as protective assessment should be treated as a substantive assessment. In appeal by revenue the Tribunal reversed the finding of Commissioner (Appeals). On appeal to High Court, it was held that agricultural land to an extent of 4.63 acres was originally joint family property and vide partition deed dated 24-2-1981 executed between assessee, his brother and their father same was allotted to assessee. No material on record to show that balance 16.25 acres of land was in fact HUF property of assesse. Only agricultural income earned from 4.63 acres of land was assessable at hands of assessee in status of HUF and remaining agricultural income earned from balance 16.25 acres of land was assessable at individual hands of assessee. (A.Y. 1984-85, 1985-86)

K.P. Nachimuthu v. CIT (2013) 212 Taxman 584 (Mad.)(High Court)

S.4 : Charge of income-tax – Income or capital – Power subsidy received from State Government – Subsidy given year after year on actual power consumption is revenue receipt

The power subsidy was granted after the commencement of production, and it was to the extent of 10 per cent or 12.5 per cent, as the case may be. This was given on actual power consumption and had nothing to do with the investment subsidy given for establishment of industries or expanding industries in backward areas. The power subsidy given as part of an incentive scheme, after commencement of production, should be treated as subsidy linked to production, and therefore, a revenue receipt (A.Y. 1983-1984 to 1990-1991)

CIT v. Rassi Cements Ltd. (2013) 351 ITR 169(AP)(High Court)

S.4 : Charge of income-tax – Interest on behalf of Government – If an assessee company cannot allot share immediately in favour of State Government against investment made be it in assessee company, then interest earned on deposits made out of such funds shall belong to the State Govt. and shall not be taxed in the hands of assessee

The assessee company received certain funds from Govt. of Gujarat as contribution toward it equity share capital. Till the time the assessee company allotted shares to Govt. of Gujarat, the said funds were parked in short-term deposits with a schedule bank on which it earned certain interest. The assessee company and Govt. of Gujarat had entered into as arrangement according to which the said interest should belong to and be received on behalf of Govt. of Gujarat. It was held by the Hon’ble High Court that during the pendency of allotment of shares, the funds received toward equity share capital were held by the assessee company in trust for and on behalf of Govt. of Gujarat and hence, any interest accrued by investment of such funds must belong to the Govt. of Gujarat and till it remained in the hands of the assessee company, it must be treated to have been held in trust. (T.A. No. 99 of 2000, dt. 26-6-2012]

Gujarat Power Corporation Ltd. (2012) ACAJ -November-P. 402)(Guj.)(High Court)

S.4 : Charge of income-tax – Non-compete fee – Assessable as capital receipt

Payment received by assessee as non-compete fee under a negative covenant is a capital receipt not taxable under Act (A.Y. 2001-02)

CIT v. Real Image (P.) Ltd. (2013) 213 Taxman 169 (Mad.)(High Court)

S.4 : Charge of income-tax – Subsidy – Entertainment tax – Capital receipt – Held to be capital in nature

The question raised before the Court on behalf of the revenue was the benefit of exemption from entertainment tax was available to assessee only once the multiplex was in operation and it is revenue receipt. High Court followed the Judgment of Bombay High Court in CIT v. Chaphalkar Brothers, Pune Tax Appeal No. 1036 of 2010, and held that such exemption of entertainment tax was of capital receipt. Appeal of revenue was dismissed. (A.Y. 2003-04)

DCIT v. Inox Leizure Ltd. (2013) 213 Taxman 160 / 85 DTR 103 (Guj.)(High Court)

S.5 : Scope of total income – Accrual of – Interest – Certificate of deposit – Interest received on maturity is taxable in the year of maturity

Assessee-company purchased three certificates of deposit from three banks on 31-3-1997. Certificates of deposit issued by respective banks showed period of deposit as 92 days. In return filed for assessment year 1997-98, assessee offered a sum of ` 3.37 lakhs as interest relatable to 31-3-1997, i.e., date of purchase of certificates of deposit, and balance interest of ` 3.07 crores was offered in next assessment year 1998-99. Assessing Officer assessed entire interest income, i.e., ` 3.10 crores in assessment year 1997-98 itself. The Court held that since assessee received interest only on maturity date, i.e., on 1-7-1997, Assessing Officer would be entitled to assess a sum of ` 3.37 lakhs alone for assessment year 1997-98 and balance amount of ` 3.07 crores had to be assessed in next assessment year 1998-99. In favour of assessee. (A.Y. 1997-98)

Infrastructure Development Finance Co. Ltd. v. Jt. CIT (2013) 213 Taxman 28(Mag.) (Mad.)(High Court)

S.6(6) : Residence in India – Not-ordinarily resident – Accrual of Income – Assessee has to prove that income had accrued or arisen outside India. (S. 5(1)(c))

The court held that for availing benefits of proviso to section 5(1)(c), mere claim that assessee is a person ‘not ordinarily resident’ in India, is not sufficient. In absence of any proof that income that had accrued or arisen outside India was not on account of any business interest or trade in India, benefits of proviso to section 5(1)(c) could not be taken advantage of by a person ‘not ordinarily resident’ in India. In favour of revenue. (B.P. 1986-87 to 1996-97)

Kumari Kanagam (Mrs) v. CIT (2013) 213 Taxman 154 (Mad.)(High Court)

S.9(1)(i) : Income deemed to accrue or arise in India – Business connection – Offshore supply equipment – Despite retrospective amendment to section 9(1) with effect from 1-6-1976 assessee would not be liable to tax under Explanation to said section. DTAA-India-Japan (Article 7)

As per earlier Supreme Court decision in assessee’s own case in Ishikawajima Harima Heavy Industries Co. Ltd. (2007) 288 ITR 408(SC), amount receivable by assessee in respect of offshore supply of equipments and offshore services was not liable to tax in view of Article 7 of DTAA between India and Japan. Court held that, despite retrospective amendment to section 9(1) with effect from 1-6-1976 assessee would not be liable to tax in respect of such amount under Explanation to said section. In favour of assessee. (A.Y. 2003-04)

DIT(IT) v. Ishikawjima Harima Heavy Inds. Co. Ltd. (2013) 212 Taxman 273 (Bom.)(High Court)

S.9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Royalty – Software licence – Right to use said confidential information in form of computer programme software would itself constitute royalty and attract tax. DTAA-India-Ireland – (Article 12)

Assessee granted a non-exclusive non-transferable software licence without right of sub-licence. Licensee might make a reasonable number of copies of licensed software for backup and /or archival purposes only, even if it was not transfer of exclusive right in copyright, right to use confidential information embedded in software in terms of aforesaid licence which makes it abundantly clear that there was transfer of certain rights which owner of copyright possessed in said computer software/programme in respect of copyright owned. Therefore in terms of DTAA consideration paid for use or right to use said confidential information in form of computer programme software would itself constitute royalty and attract tax. Court held that it is not necessary that there should be a transfer of exclusive right in copyright and where consideration paid was for rights in respect of copyright and for user of confidential information embedded in software/computer programme, it would fall within mischief of Explanation (2) of section 9(1)(vi) and there would be a liability to pay tax. In favour of revenue. (2001-02 to 2003-04)

CIT v. Synopsis International Old Ltd. (2013) 212 Taxman 454 (Karn.)(High Court)

S.10(13A) : Exempt income – House rent allowance – Master and servant – Exemption to be allowed

In return of income, assessee disclosed salary received from ‘S’ - Assessee claimed deduction under section 10(13A) on basis of rent paid by him which had been debited from his salary directly. Assessing Officer rejected assessee’s claim taking a view that income received by assessee was not taxable under head ‘salary’ but under head ‘income from other sources’. Court held that since it was not case of Assessing Officer that relationship between ‘S’ and assessee was not that of a master and servant, impugned order passed by him was to be set aside and, assessee’s claim for deduction was to be allowed. In favour of assessee. (2001-02)

CIT v. UK Bose (2013) 212 Taxman 399 (Delhi)(High Court)

S.10(23C) : Exempt income – Educational institution – Registration – Cancellation – Held to be not valid. (Ss. 12A, 12AA)

Assessee was granted registration under section 12A being a charitable institution. Chief Commissioner disallowed assessee’s claim of exemption under section 10(23C)(vi) on ground that it had not solely been established for educational purposes. Commissioner relying on said order cancelled registration granted to assessee under section 12A. Tribunal restored registration. High Court held that since (i) exemption under section 10(23C)(vi) could be claimed by an assessee without applying for registration under section 12A, and (ii) in order of Commissioner there was no whisper that assessee had not fulfilled any of conditions of section 11, Tribunal had rightly restored registration. In favour of assessee.

CIT v. Jeevan Deep Charitable Trust (2013) 212 Taxman 19 (All.)(High Court)

S.10A : Free Trade Zone – Newly established undertaking – Export turnover – Total turnover – Expenditure incurred by assessee not forming part of export turnover is excludible from total turnover

Court held that when computing the relief under section 10A of the Income-tax Act, 1961, the expenditure incurred by the assessee should be excluded from the total turnover if they are reduced from the export turnover. CIT v. Tata Elxsi Ltd. [2012] 349 ITR 98 (Karn) followed. (A.Y. 2005-06)

CIT v. Samsung Electronics Co. Ltd. (2013) 350 ITR 65 (Karn.)(High Court)

S.10B : Hundred per cent Export Oriented Undertakings – Newly established – Local sales – Not eligible for exemption under section 10B

Assessee is engaged in business of purchase of textile material, stitching and exporting garments. Apart from export receipts, it received certain amount by way of stitching charges. It claimed exemption under section 10B in respect of receipts of stitching charges. It submitted that whenever stitching machines were relatively free, same were utilised for purpose of undertaking job work for outsiders. Assessing Officer disallowed claim of exemption. Tribunal treated receipts of stitching charges as local sales and held that since said receipts were less than 25 per cent of total sales, assessee was entitled to exemption under section 10B. On appeal by revenue the Court held that in view of provisions of second proviso to section 10B(1) and section 10B(4) Tribunal committed error in treating receipts of stitching charges as amounting to local sales for purpose of granting exemption. Assessee was not eligible for exemption under section 10B. In favour of revenue. (A.Y. 2001-02)

CIT v. First Garments Mfg. Co. India (P.) Ltd. (2013) 212 Taxman 142 (Mag.)(Mad.)(High Court)

S.11 : Property held for charitable purposes – Accumulation of income – Form No. 10 can be filed in the course of assessment proceedings. (Income-tax Rules, 1962, Rule 17, Form No. 10)

The Tribunal rejected the assessee’s claim for accumulation of income on the ground that Form No. 10 had not been furnished along with the return but was filed during the course of reassessment proceedings. The Court held that Form No. 10 could be furnished by assessee-trust for purposes of section 11(2), i.e., for accumulation of income, during reassessment proceedings. In favour of assessee. (A.Ys. 1998-99, 2000-01)

Association of Corporation & Apex Societies of Handlooms v. ADTI (2013) 213 Taxman 15 (Delhi)(High Court)

S.11 : Property held for charitable purposes – Business held in trust – Trust entitled to exemption which was created for mainly educational and charitable purposes

Assessee-trust was created mainly for educational and charitable purposes. Founders gifted land and running business with a stipulation that said business shall be run by trustees and income therefrom shall be utilised for charitable objects. Assessee claimed exemption under section 11 in respect of income earned from aforesaid business. Assessing Officer denied exemption on plea that there was no evidence to hold that business carried on by trust was in course of actual carrying on of primary objects. The court held that since Assessing Officer had also recorded a finding of fact in assessment order that primary objects of trust were charitable in nature, he was wrong in denying exemption. In favour of assessee. (A.Y. 1990-91, 1991-92)

CIT v. Janakiammal Ayyanadar Charitable Trust (2013) 212 Taxman 274 (Mad)(High Court)

S.11 : Property held for charitable purposes – Business held in trust – Trust is entitled to exemption. (S.13(1)(bb))

Assessee-trust was formed to aid and assist in establishment, maintenance of hospitals, educational institutions, houses for poor, to conduct poor feeding, etc. Subsequently, a unit dealing in safety matches got settled in favour of assessee through a trust deed. Trust deed enabled assessee to exploit proprietary trademark ‘Camel’ which was a well known brand of safety matches. Subsequently, assessee leased out said business. It claimed exemption under section 11. Assessing Officer viewed that even though trust had as its object relief of poor, education, medical relief and advancement of general public utility, assessee’s activities in exploiting trade constituted business income and hence, claim of assessee was hit by provisions under section 13(1)(bb); consequently, it was not entitled to deduction. Court held that since primary purpose of trust was to afford relief to poor, education and medical relief, means employed by exploiting its assets to earn income to achieve objects, could not in any manner, defeat claim of assessee under section 11. In favour of assessee. (A.Y. 1981-82 to 1983-84, 1989-90, 1992-93, 1995-96).

CIT v. P. Iya Nadar Charitable Trust (2013) 213 Taxman 48 (Mad)(High Court)

S.11 : Property held for charitable purposes – Exemption of income from property treated as business – Income is exempt if there is no profit motive. (Ss. 2(15), 28(iii))

Receipts derived by a Chamber of Commerce and Industry for performing specific services to its members, though treated as business income, would still be entitled to exemption under section 11, provided there is no profit motive. Issue is decided in favour of assessee. (A.Y. 2006-07, 2007-08)

PHD Chamber of Commerce & Industry v. DIT (2013) 212 Taxman 194 (Delhi)(High Court)

S.11 : Property held for charitable purposes – Registration – Maintenance public lavatories is incidental to object which is eligible for exemption (Ss. 2(15), 12, 13)

Object of society is construction of public lavatories. Maintenance of public lavatories being incidental to object of society, amounts spent on such maintenance is entitled to exemption. As there was no evidence of diversion of funds to founder of society, section 13 is not applicable, hence the Society is entitled for registration. (A.Y. 2006-07)

Dy. CIT v. Sulabh International Social Service Organisation (2013) 350 ITR 189 (Patna)(High Court)

S.12A : Registration – Trust or institution – Cancellation of registration is held to be not justified. (S.10(23C), 11, 12AA)

Assessee was granted registration under section 12A being a charitable institution. Chief Commissioner disallowed assessee’s claim of exemption under section 10(23C)(vi) on ground that it had not solely been established for educational purposes. Commissioner relying on said order cancelled registration granted to assessee under section 12A. Tribunal restored registration. On appeal by revenue the Court held that since (i) exemption under section 10(23C)(vi) could be claimed by an assessee without applying for registration under section 12A, and (ii) in order of Commissioner there was no whisper that assessee had not fulfilled any of conditions of section 11, Tribunal had rightly restored registration. Appeal of revenue was dismissed.

CIT v. Jeevan Deep Charitable Trust (2013) 212 Taxman 19 (All.)(High Court)

S.12A : Registration – Trust or institution – While granting the registration objects of Trust is only to be seen. (S. 12AA)

The Trust has made an application u/s. 12A, as it is supposed to do the same within one year from the commencement of its activities. The Hon’ble court held that, under the provisions of s. 12AA, satisfaction regarding the genuineness of the activities of the trust is to be seen at the stage for application of income, that is, when the trust or institution files its return, and not at the stage of commencement stage when the activities have not commenced in full, therefore held that the trust was not entitled to benefit of registration was not sustainable, therefore, where trust was in nascent stage and was yet to work towards its object, Commissioner could not deny registration on ground that it was not utilising its income for charitable purposes; at stage of granting registration, objects of trust only had to be considered by Commissioner. In favour of assessee.

CIT v. B.K.K. Memorial Trust (2013) 213 Taxman 1 / 82 DTR 299 (P&H)(High Court)

S.12AA : Procedure for registration – Trust or institution – Commissioner was not justified in refusing registration when activities of the Trust have not commenced

Assessee made an application for registration under section 12A(1)(a). Commissioner noted from trust deed that objectives of trust were mainly religious. Commissioner called upon assessee to produce evidence regarding expenses incurred towards objects of organisation. On failure of assessee to bring on record any such evidence, Commissioner rejected assessee’s application for registration. Tribunal, however, granted registration to assessee-trust.

On appeal the court held that even though Commissioner has power to call for such documents or information from trust as he thinks necessary, yet it does not mean that if activities of trust have not commenced, Commissioner has authority to reject its application for registration on ground that trust failed to convince him about genuineness of activities. Therefore, Tribunal was justified in setting aside impugned order of Commissioner. In favour of assessee.

CIT v. Kutchi Dasa Oswal Moto Pariwar Ambama Trust (2013) 212 Taxman 435 (Guj.) (High Court)

S.12AA : Procedure for registration – Trust or institution – Condonation of delay – Mistake of chartered accountant delay was condoned. (Ss.12A, 80G)

Assessee, a charitable institution, filed an application seeking registration under section 12A with delay. Assessee attributed delay in filing registration application to its erstwhile treasurer ‘S’, who was a chartered accountant.DIT (Exemption) rejected assessee’s application. Tribunal found that it was because of irregularities, illegalities and misrepresentations of ‘S’ that assessee-society was led to believe that appropriate applications under Act were already filed with revenue authorities for registration. Tribunal further found that as soon as assessee-society came to know about irregularities on a complaint from donor and on further enquiry conducted by governing body, it hastened to take remedial action by filing applications for registration both under sections 12A and 80G. Tribunal thus condoned delay in filing registration application and granted registration to assessee-society. On appeal by revenue the Court held that on facts, impugned order passed by Tribunal granting registration did not require any interference. In favour of assessee.

DIT v. Vishwa Jagriti Mission (2013) 213 Taxman 65 (Delhi)(High Court)

S.22 : Income from house property –Annual value – Unsold flats held as stock-in-trade – Annual value of unsold flats to taxed as income from house property is held to be justified

Assessee is in construction business. Some flats constructed by assessee were lying unsold. Assessing Officer assessed ALV of those flats as income from house property. Assessee contended that said flats were its stock-in-trade and, therefore, ALV of flats could not be brought to tax under head ‘Income from house property’. Assessing Officer did not accept stand of assessee. Commissioner (Appeals) has deleted the addition, which was confirmed by Tribunal. On appeal to High Court by revenue the Court held that levy of income tax in case of one holding house property is premised not on whether assessee carries on business as landlord, but on ownership. Incidence of charge is because of fact of ownership, therefore, Assessing Officer rightly brought ALV of unsold flats to tax as income from house property. In favour of revenue.

CIT v. Ansal Housing Finance & Leasing Co. Ltd.(2013) 213 Taxman 143 (Delhi)(High Court)

S.28(1) : Business loss – Bad debt –Inter-corporate deposit – Main business of the assessee, telecom venture – Deduction of amount non recoverable inter corporate deposit not trade debt or part of any money lending business – Not allowable as bad debts or business loss. (S. 36(1)(vii))

Where the assessee was engaged in telecom business, and not engaged in money lending business, loss of inter corporate deposit due to non-recovery of some amounts, did not fall within parameters of provisions of section 36(1)(vii) therefore not allowed as bad debts nor allowable as business loss.

Bharti Televentures Ltd. v. Addl. CIT (2013) 81 DTR 225 (Delhi)(High Court)

S.28(i) : Business income – Adventure in the nature of trade – Sale of land after plotting and development was rightly assessed as business income. (Ss.2(13), 45(2))

Assessee partly inherited from the father land in urban area for which Zamindari was abolished on 1st July 1961 and the remaining part of the land was purchased by him between 16th December 1958 and 16th May, 1959. He sold the land between 1984 to 1991. Held that the Income Tax authorities rightly concluded that capital asset was converted into stock-in-trade and sale of plots would be treated as business activity; s. 45(2) was rightly invoked. (A.Y. 1989-90, 1990-91 1991-92)

Rajendra Kumar Dwivedi v. CIT (2013) 83 DTR 65 / 257 CTR 263 (All.)(High Court)

S.28(i) : Business income – Construction of software technology park – Company – Rental income –Assessable as business income

When assessee-company had taken land on lease with objects of constructing IT company with all infrastructural facilities and same was according to objects of Memorandum of Association, income received by assessee by way of lease rentals would be assessable as business income. In favour of assessee. (A.Y. 1995-96, 1996, 97, 2001-02)

CIT v. Elnet Technologies Ltd. (2013) 213 Taxman 129 (Mad.)(High Court)

S.32 : Depreciation – Block of assets – Once the assets are put to use in earlier years and form part of block of assets, depreciation can be claimed on the same in subsequent years even if all the items in block are not used simultaneously. (S.2(11))

Once the assets have been put to use in earlier years, such assets form part of block of assets and depreciation thereon has been allowed in the past then depreciation on the assets can’t be restricted or disallowed in subsequent years on the pretext that only a portion thereof has been put to use. Items falling within the block of assets cannot be segregated for the purpose of granting or restricting depreciation. Once the assets are used for business. It is not necessary that all the items falling within the concerned block have to be simultaneously used for being entitled to depreciation. (T.A No. 84 of 200, dt. 19-6-2012)

S. K. Patel Family Trust. (2012) ACAJ - November-P. 401)(Guj.)(High Court)

S.32 : Depreciation – Lease back – Purchase of electric meters from RSEB and leasing back the same to RSEB is genuine transaction and depreciation can be claimed on such electric meters

The assessee bought eclectic meters from Rajasthan State Electricity Board (RSEB) and leased them back to RSEB on hire purchase basis. The Department didn’t allow assessee’s claim of depreciation on the said electric meters as it was of the view that the said transaction was a sham transaction in light of the ratio laid down in McDowell’s case (154 ITR 148). It was held by the Hon’ble High Court that the said transaction was a genuine transaction and the assessee was eligible for depreciation on the said electric meters. (T.A. No. 166 of 2000, dt. 17-7-2012)

Paramount Pollution Control Ltd. (2012) ACAJ -November-P. 399)(Guj.)(High Court)

S.32 : Depreciation – Method of accounting – Substantive right of claiming deduction under the Act – Duty of assessing Officer to allow the claim. (S.145)

Assessee claimed set-off of depreciation on assets used for construction of National Highway against interest income. Assessing Officer found that assessee itself had capitalised all expenditures incurred on construction of Highway and in audited profit and loss account, no expenditure or depreciation had been claimed by assessee; he, thus, disallowed assessee’s claim under section 145(3). It was held that section 145(3) had no manner of application as uniform accounting system was followed by assessee, therefore depreciation was allowable. Court also held that while making assessment of any returns, if any deduction is sought for, it is duty of revenue official to examine not only account but also substantive right of claiming deduction under Act. In favour of assessee (A.Y. 2003-04)

Mapex Infrastructure (P.) Ltd. v. CIT (2013) 212 Taxman 23 (Cal.)(High Court)

S.32 : Depreciation – Succession of business – Written down value – Block of assets – Transfer to subsidiary – Number of days of predecessor and successor was to be taken. (Ss. 43(6), 170)

Assessee-company had two units viz. unit A and unit B. It transferred unit B to its 100 per cent subsidiary company with all assets and liabilities at book value on 1-11-1996. It claimed depreciation on written down value of assets of unit B proportionately for period from 1-4-1996 to 31-10-1996. Tribunal rejected claim of assessee. Court held that the assessee was entitled to depreciation as provided for in fourth proviso to section 32(1), in working out depreciation number of days for which assets were used by predecessor and successor was to be taken into consideration and apportionment was to be worked out based on number of days for which assets were used by predecessor and successor company respectively. Matter remanded (A.Y. 1997-98)

Sree Jayajothi & Co. Ltd. v. CIT (2013) 212 Taxman 238 (Mad)(High Court)

S.32(2) : Depreciation – Unabsorbed depreciation – Set off – Set off against income from other sources – Section 72(2) does not controls operation of section 32(2) to have set off of unabsorbed depreciation against income from other sources. [S.72(2)]

The assessee had unabsorbed depreciation as well as unabsorbed loss. The Assessing Officer adjusted loss brought from earlier years against business income and arrived at the business income as NIL. The assessee sought for adjustment of carried forward of unabsorbed depreciation in the income from other sources. The claim of the assessee was negatived by the Assessing Officer for reason that the assessee should have exhausted first the unabsorbed carried forward loss for earlier years before claiming any set off on unabsorbed depreciation. The Commissioner (Appeals) upheld the order of the Assessing Officer. The Tribunal held that the assessee was entitled to set off unabsorbed depreciation as against the income from other sources. On appeal High Court held that in cases where after having set off of business loss as against current year income from business, there existed no further business income, assessee was entitled to set off unabsorbed depreciation against income from other sources. The court held that section 72(2) does not controls operation of section 32(2) to have set off of unabsorbed depreciation against income from other sources. In favour of assessee. (A.Y. 1998-99)

CIT v. SPEL Semi Conductor Ltd. (2013) 212 Taxman 506 (Mad.)(High Court)

S.35AB : Expenditure – Know-how – Provision of S. 35AB is not applicable to revenue expenditure

Provision of Section 35AB dealing with expenditure on know-how shall be applicable only if any such expenditure incurred is capital in nature. The revenue expenditure on know-how would be continued to be governed by the provision of S.37(1) of the Act. Provision of S. 35AB won’t apply to revenue expenditure even if the same is in respect of know-how, (T.A. No. 326 of 2000, dt. 3-7-2012)

Sayaji Industries Ltd. (2012) ACAJ - November-P. 400)(Guj.)(High Court)

S.37(1) : Business expenditure – Bogus purchases – Estimation of profit – Tribunal applying twelve and half per cent held to be justified

The assessee is in the business of trading in iron and steel. During the reassessment proceedings, it was found that purchases worth ` 61.40 lakhs were not supported by sufficient evidence. Purchase of such goods from various suppliers was verified, but it was found that such parties had not supplied the goods as named by the assessee. The Assessing Officer made an addition of the entire amount of purchase of ` 61.40 lakhs. The Commissioner (Appeals) found that though the purchases were not made from the parties from whom the assessee claimed, there was complete quantitative tally of the materials purchased and sold. He was of the view that such materials were purchased from the open market incurring cash payment and bills were procured from various sources. He added only the profit element and not the entire amount of the purchases, for the limited addition to 30 per cent of the total amount and reduced the amount to ` 18.42 lakhs. The Tribunal allowed further relief to the assessee and retained the addition to the level of twelve and half per cent in pursuance of the various purchases. On appeal, dismissing the appeal, the Court held that the assessee was a trader and the Tribunal having retained twelve and half per cent of the purchase towards its possible profit, there was no reason to interfere in the order of the Tribunal.(A. Y. 2003-04)

CIT v. Sathyanarayan P. Rathi (2013) 351 ITR 150(Guj.)(High Court)

S.37(1) : Business expenditure –Capital or revenue – Corporate membership – Golf club –Expenditure on corporate membership of club is revenue expenditure, it does not bring into existence an asset or an advantages for the enduring benefit of the assessee

The assessee obtained corporate membership of the Golf Club on payment of ` 6 lakhs. The AO disallowed the expenditure on the ground that it was capital expenditure. This was reversed by the CIT(A) and Tribunal which held that the expenditure was revenue in nature. The department filed an appeal to the High Court and relied on decision in case of Majestic Auto Ltd. where the High Court had held that expenditure on corporate membership is in the nature of capital expenditure. As the Bench was of the view that Majestic Auto was not the correct law, the issue was referred to the Full Bench. HELD by the Full Bench:

In order to decide whether the expenditure is a revenue or a capital one has to look at the expenditure from a commercial point of view. Not every advantage of enduring nature constitutes capital expenditure. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. On facts, the corporate membership was for a limited period of 5 years. It was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset (Otis Elevator co. (India) Ltd. v. (1992) 195 ITR 682 (Bom), Cit v. Engineers India Ltd. (1999) 239 ITR 237 (Del), Gujarat State Export Corp. Ltd. v. CIT (1994) 209 ITR 649 (Guj) followed; Framatone Connector OEN Ltd. v. Dy. CIT (2007) 294 ITR 559 (Ker) dissented from; Majestic Auto overruled)

CIT v. Groz Beckert Asia Ltd. (2013) 351 ITR 196 / 257 CTR 1 (FB)(P&H)(High Court)

S.37(1) : Business expenditure – Capital or revenue expenditure – Brand name – Royalty – Assessee allowed to use know-how and information royalty is deductible

For use of the brand name of MMB and for the technical assistance rendered by MMB to the assessee for manufacturing beer, the assessee paid royalty to MMB. The Assessing Officer, held that they were capital expenditure. The Commissioner (Appeals) and the Tribunal held that they were revenue expenditure. On appeal the Court held that in terms of the technical assistance agreement, the assessee was entitled to use the know-how supplied by MMB for the manufacture of the products. The know-how and the information received by the assessee directly or indirectly from MMB was to be kept strictly confidential. The assessee was entitled to use the trade mark Golden Eagle of MMB. The payment of royalty was, therefore, in the nature of expenditure incurred for carrying on business with the available know-how rather than for accretion to the capital base or gaining an advantage in the capital field of the assessee. Moreover, for assessment years 1980-81 to 1982-83, the Assessing Officer himself had come to the conclusion that the payment of royalty made by the assessee was in the nature of revenue expenditure. The payment of royalty was deductible in the assessment years 1983-84 to 1988-89. (A. Y. 1983-1984 to 1988-1989)

CIT v. Artos Breweries Ltd. (2013) 351 ITR 133(AP)(High Court)

S.37(1) : Business expenditure – Capital or revenue – Operating license fee – PSTN charges – Dealers commission- After – Setting up of business – Before Commencement of business – Allowable as revenue expenses – Foreign tour Expenses – Revenue expenditure (S. 35ABB)

The Court held that the operating licence fee for providing cellular mobile service paid by assessee to J.T.Mobiles Ltd. who had received telecom licence from Government is allowable as business expenditure. The fact that the assessee had in its books of account spread over the expenditure over a period of 10 years would not change the nature of expenditure. Provisions of section 35ABB would not apply. Expenses incurred on account of PSTN charges and dealers commission after setting up of a business and before the commencement of business is allowable as revenue expenditure. Expenditure on foreign travel did not give rise to any enduring benefits but only enabled the assessee to run its business to achieve higher profits and therefore the said expenditure is allowable as revenue expenditure. The appeal of revenue was dismissed. (A.Y. 1998-99)

CIT v. Evergrowth Telecom Ltd. (2013) 81 DTR 412 / 256 CTR 84 / 213 Taxman 299 (Bom.) (High Court)

S.37(1) : Business expenditure – Freebies to medical practitioners – CBDT circular – CBDT Circular disallowing expenditure on freebies to medical practitioners is held to be valid

The CBDT issued Circular No. 5/2012 dated 1-8-2012 stating that as the Indian Medical Council had imposed a prohibition on medical practitioners taking any Gift, Travel facility, Hospitality, Cash or monetary grant from pharmaceutical and allied health sector Industries, the expenditure incurred by the assessee in providing such "freebies" had to be regarded as incurred "for a purpose which is either an offence or prohibited by law" and disallowed under the Explanation to s. 37(1) of the Act. The assessees challenged the validity of the Circular on the basis that it went beyond s. 37(1) and was invalid. HELD by the High Court rejecting the contention:

The regulation of the Medical Council prohibiting medical practitioners from availing of freebies is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, s. 37(1) comes into play. The Petitioner’s contention that the circular goes beyond the section is not acceptable. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file an appeal but the circular which is totally in line with s. 37(1) cannot be said to be illegal. If the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the AO that the expense is not in violation of the Medical Council Regulations.

Confederation of Indian Pharmaceutical Industry v. CBDT (H.P.)(High Court) www.itatonline.org

S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Assessee purchasing goods and depositing amount in bank account of seller – No disallowance in hands of assessee. (Income-tax Rules, 1962, R. 6DD)

The Assessing Officer made an addition of ` 60,19,000, on the ground that the assessee had violated the provisions of section 40A(3) of the Income-tax Act, 1961. The Tribunal partly allowed the appeal by the assessee. On appeal by revenue high Court, dismissing the appeal, held that the Tribunal categorically held that the amount in question was directly deposited in the bank account of the seller. The Tribunal had considered the factor that the assessee was only an agent of the seller and held that no disallowance could be made in the hands of the assessee. The findings had not been shown to be perverse. Therefore, the addition was not justified. (A. Y. 2008-09)

CIT v. Shelly Passi (Smt) [2013] 350 ITR 227(P & H)(High Court)

S.40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – Salary – Exceeding prescribed limit – Disallowance was held to be justified. (S.147)

Return of assessee-company was processed under section 143(1) - Subsequently, Assessing Officer having found that assessee had paid salary to its managing director in cash exceeding ` 20,000 and also claimed non-business expenses initiated reassessment proceedings and thereafter disallowed said expenses. Tribunal upheld finding of Assessing Officer. Court held that no substantial question of law arose out of order of Tribunal. In favour of revenue. (A.Y. 2002-03)

Rajasthan Telematics Ltd. v. ACIT (2013) 213 Taxman 44 (Mag.) (Raj)(High Court)

S.40(a)(ia) : Amounts not deductible – Deduction at source – Amount paid during the year – Freight charges – Special Bench verdict in Merilyn Shipping is not good law. (S.194C)

The assessee incurred expenditure of ` 31 lakhs on freight but did not deduct TDS thereon u/s 194C. The AO held that as there was a failure to deduct TDS, the expenditure could not be allowed as a deduction u/s. 40(a)(ia). However, the CIT(A) allowed the claim on the ground that the freight charge was a part of the price of the goods and there was no contract between the assessee and the transporter. On appeal by the department, the Tribunal dismissed the appeal by relying on the Special Bench verdict in Merilyn Shipping & Transports Ltd. (2012) 146 TTJ 1 (Viz) (SB) where it was held (by a majority) that s. 40(a)(ia) had no application to amounts that were already "paid" during the year but it was confined to amounts remaining "payable" as at the end of the year. On further appeal by the department, HELD reversing the Tribunal:

We already have delivered a judgment on 3rd April, 2013 in ITAT No. 20 of 2013, G.A. No. 190 of 2013 (CIT, Kolkata-XI v. Crescent Export Syndicates) holding that the views expressed in the case of Merilyn Shipping & Transports (ITA. 477/Viz./2008 dated 20-3-2012) were not acceptable. That is one reason why the matter should be remanded to the Tribunal. Another reason for remanding the matter to the Tribunal is that the finding of facts recorded by the CIT (Appeals) was not tested by the Tribunal. For the aforesaid reasons, the order under challenge is set aside and the matter is remanded to the Tribunal for a decision de novo.

CIT v. Md. Jakir Hossain Mondal (Cal)(High Court).itatonline.org

S.40(a)(i) : Amounts not deductible – Deduction at source – Outside India – Non-resident – Interest – Discount charges is not interest. (S. 2(28A))

Discount charges earned by assessee-financial service provider by way of discounting bill of exchange and promissory notes in favour of Indian companies is to be treated as business income, and not as interest income, hence provisions of section 40(a)(i) cannot be applied. (A.Y. 2005-06 to 2007-08)

DIT (IT) v. Cargil TSF Pte Ltd. (2013) 212 Taxman 16 (Delhi)(High Court)

S.40(b)(v) : Amounts not deductible – Partner – Remuneration – Salary to partners – Disallowance u/s. 40A(2). (S.40A(2))

The partnership deed provided for payment of remuneration to the working partners. Remuneration paid to the working partners was within the limit specified in s. 40(b)(v). Held that no part of the remuneration could be disallowed u/s. 40A(2) on the ground that it is excessive. (A.Y. 2005-06)

CIT v. Great City Manufacturing Co. (2013) 351 ITR 156 / 83 DTR 13 / 256 CTR 420 (All.)(High Court)

S.41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Since there was no declaration by assessee that it did not intend to honour its liabilities nor was there any discharge of debt, provisions of section 41(1) could not be invoked

Assessing Officer finding that assessee had not paid money to many of creditors for years together added same as income under provisions of section 41(1). Court held that since there was no declaration by assessee that it did not intend to honour its liabilities nor was there any discharge of debt, provisions of section 41(1) could not be invoked. Cessation of liability has to be either by reason of operation of law, i.e., on liability becoming unenforceable at law by creditor and debtor declaring unequivocally his intention not to honour his liability when payment is demanded by creditor, or a contract between parties, or by discharge of debt. In favour of assessee.(A.Y.2006-07)

CIT v. G.K. Patel & Co. (2013) 212 Taxman 384 (Guj.)(High Court)

S.43(1) : Actual cost – Customs duty – Depreciation – Custom duty paid to be considered as part of actual cost for the purpose of allowing depreciation. (S.32)

Asssesee purchased machinery from a company located in USA. It claimed depreciation at rate of 25 per cent on actual cost of machinery worth ` one crore. Assessing Officer pointed out that written down value of machinery in books of account of assessee was ` 75.73 lakhs, which was to be taken as actual cost for purpose of granting depreciation. Tribunal upheld order of Assessing Officer. On appeal, assessee furnished copies of invoices and pointed out that Assessing Officer had omitted to take note of payment of ad valorem custom duty which was to be included in actual cost of machinery for purpose of allowing depreciation. On facts, total cost claimed by assessee as ` one crore stood explained and, therefore, assessee’s claim was to be allowed. In favour of assessee. (A.Y.1996-97)

Dy. CIT v. First Leasing Co. of India Ltd. (2013) 212 Taxman 417 (Mad.)(High Court)

S.43B : Deduction on actual payment – Interest – Schedule bank – Co-operative bank – Interest payable to SMM Co-operative Bank Ltd. could not be disallowed under section 43B

The assessee claimed in respect of interest payable to Shree Mahalaxmi Mercantile Co-operative Bank Ltd. The Assessing Officer disallowed the interest under section 43B on the ground that the interest was not paid up to the date of filing of the return. On appeal the Commissioner (Appeals) confirmed the order of Assessing Officer. On appeal to the Tribunal the Tribunal held that section 43B would not apply in case of payment of interest to a co-operative bank for the reasons that section is applicable only in respect of interest payable to a loan taken from a schedule bank. Under terms of Explanation 4(aa) to section 43B of the Act , a schedule bank would have a meaning assigned to it in the Explanation to cl. (iii) of sub.s.(5) of section 11 of the Act. The Tribunal held that ShreeMahalaxmi Mercantile Co-operative bank is not covered within the definition of scheduled bank under section 43B, therefore the appeal of assessee was allowed. On appeal to High Court the High Court confirmed the view of Tribunal and the appeal of revenue was dismissed. (A.Y. 200-05)

CIT v. Upendra T. Kapadia (2013) 81 DTR 279 / 256 CTR 201 (Bom.)(High Court)

S.43B : Deductions on actual payment – Amount deposited in the Excise Personal Ledger Account is not to be disallowed under section 43B of the Act

Amount deposited in Excise Personal Ledger Account (PLA) cannot be disallowed under section 43 B of the Act. (A.Y. 1994-95 to 1996-97)

CIT v. Maruti Suzuki India Ltd. (2013) 81 DTR 152 (Delhi)(High Court)

S.45 : Capital gains – Adverse possession – No cost of acquisition – Not liable to capital gain tax

The Income Tax Appellate Tribunal held that when an assessee gets the property by adverse possession there is no cost of acquisition. The consideration is not liable to capital gain tax. Revenue challenged the said order before High Court. High Court dismissed the appeal stating that no question of law arises.

ITA NO. 1110 of 2009 and 1153 of 2009 dt. 11-8-2009

CIT v. Star Chemicals (Bom.) Pvt. Ltd. (Bom.)(High Court) (Unreported)

S.45 : Capital gains – Computation – MOU – Sale consideration – Amount actually received

The inherited property was sold for ` 14 crores but as per MOU reached between the assessee and his brother, the assessee received only ` 6 crores as his share. The Court held that Assessing Officer was not justified in taking the sale value at ` 7 crores in the hands of assessee. Appeal of revenue was dismissed. (A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 / 255 CTR 257 (Bom.)(High Court)

S.45 : Capital gains – Shares – Foreign company – Non-resident – Indian assets – DTAA-India-France – Gains arising on sale of shares of foreign company by NR to NR not taxable in India under India-France DTAA even if the foreign co only held Indian assets. (S. 9(1), 2(47), 90, 195, 201, 245R(2)(iii), Art. 14(5))

Two French companies named "Murieux Alliance" (‘MA’) and "Groupe Industrial Marcel Dassault" ("GIMD") held shares in another French company named "ShanH". MA & GIMD acquired shares in an Indian company named "Shantha Biotechnics Ltd." ("Shantha"). The shares in Shantha were transferred to ShanH. MA and GIMD subsequently sold the shares in ShanH to another French company named "Sanofi Pasteur Holding". The assessees filed an application for advance ruling claiming that as the two French companies had sold the shares of another French company to a third French company, the gains were not chargeable to tax in India. The department opposed the application on the ground that ShanH was formed with no purpose other than to hold the shares of the Indian company and that the transaction was taxable in India. The AAR upheld the department’s plea on the ground that the French company’s (ShanH) only asset were the shares in the Indian company & so when its shares were sold, what really passes were the underlying assets and the control of the Indian company and so the French company was a facade and a scheme for avoidance of tax. On appeal by the assessee to the High Court, HELD reversing the AAR:

  1. ShanH was incorporated as part of the policy that all off-shore investments must be made through a subsidiary incorporated in France. It is not the case of the Revenue that in 2006 itself ShanH was conceived as a preordained scheme to avoid tax in India. The Revenue’s case about when ShanH became a tax avoidance scheme is ambivalent and incoherent. ShanH is an entity of commercial substance and business purpose. Though a subsidiary of MA/GIMD, it is not a mere nominee or alter ego of MA/GIMD and there is nothing to show that they exercised overriding control over it. The creation of subsidiaries for investment is a legitimate practice. ShanH is accordingly the true and beneficial owner of the Indian company’s shares. When the shares of ShanH were sold, it was the sale of shares of a French company and it cannot be said that the control, management or underlying assets of the Indian company were sold so as to attract tax on capital gains in India (UOI v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) & Vodafone International Holding B.V. v. UOI (2012) 341 ITR 1 (SC) followed);

  2. Article 14(5) of the India-France DTAA which exempts capital gains from shares representing more than 10% holding from tax in India does not permit a see through on whether the alienation of shares by ShanH is an alienation of the control, management or assets of the Indian company. It cannot be said that an actual alienation of the ShanH shares amounts to a deemed alienation of the Indian company’s shares. The fact that the value of the shares of ShanH was because of the value of the Indian company’s assets is irrelevant;

  3. The retrospective amendment to s. 9(1) so as to supersede the verdict in Vodafone International and to tax offshore transfers does not impact the provisions of the India-France DTAA because the DTAA overrides the Act;

  4. The Revenue’s argument that as the term "alienation" is not defined in the DTAA, it should have the meaning of the term "transfer" in s. 2(47) as retrospectively amended is not acceptable because as per Article 31 of the Vienna Convention, a treaty has to be interpreted as per good faith and in accordance with the ordinary meaning. Though Article 3(2) provides that a term not defined in the treaty may be given the meaning in the Act, this is not applicable because the term "alienation" is not defined in the Act. In some DTAAs, the term "alienation" is defined to include the term "transfer" but not in the India-France DTAA;

  5. Even assuming that the controlling rights or assets in India held by the Indian company were transferred on the alienation of the French company’s shares, the cost of acquiring those rights and assets in the Indian company and their date of acquisition cannot be determined. It is also not possible to determine the exact or rationally approximate consideration (out of the total consideration for the transaction in issue), apportionable to these assets/rights. As the computation provisions fail, the charging provisions also fail (CIT v. BC Srinivasa Shetty (1981) 128 ITR 294 (SC), PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) & Dana Corporation (2009) 32 DTR 1 (AAR) followed);

  6. The AAR has no power to review its own order. Having admitted the application, the AAR cannot at a later stage invoke clause (iii) of the Proviso to s. 245R(2)(iii) & decline to rule on the application.

Sanofi Pasteur Holding SA v. Dept of Revenue, Minstry of Finance (2013) 257 CTR 401 / 84 DTR 185 (AP.)(High Court).

S.45 : Capital gains – Transfer – Family settlement – A family settlement does not result in a "transfer" and compensation received to equalise inequalities in family settlement is not taxable as "income". (S. 2(47), 4)

There was a dispute between two groups of a family. During the pendency of litigation, the parties agreed to divide the assets and businesses of the family into two lots i.e. lot-1 containing the Jalandhar and Ambala units and lot-2 containing the Delhi and Jaipur units. In terms of such settlement, lot-1 fell to the share of Group ‘A’ and lot-2 fell to the share of Group ‘B’ with the condition of payment of ` 24 crores. A dispute regarding the date of split of the said amount was pending. The AO assessed the said sum in the hands of the assessee. This was reversed by the CIT(A) and Tribunal on the ground that the distribution of assets including the sum of ` 24 crores was not complete as the matter was sub-judice and the amount did not accrue to the income of the group ‘A". On appeal by the department to the High Court, the Court had to consider whether the compensation paid to the assessee to settle inequalities in partition, being a provision of "owelty" represents immovable property and is not an income exigible to tax. On appeal by revenue, High Court dismissing the appeal held that, A family partition which results in an adjustment of shares and of the respective rights in the family properties is not a "transfer" in the eyes of law. When there is no transfer of asset, there is no capital gain and consequently there is no liability to pay tax on capital gains. In a family partition, a situation arises where an item of property is not capable of physical partition or is such that, if divided, it will lose its intrinsic worth. In such a case, with a view to ensure an equitable partition, the item is allotted to one party and he is asked to pay compensation in money value to the other party. This amount is called "owelty". As the amount of compensation is only to equalise the inequalities in the partition it is nothing but a share in the immovable property itself (though paid in cash) and cannot be treated as income liable to capital gain. If such amount is to be treated as income liable to tax, inequalities would set in as the share of the recipient will diminish to the extent of tax. On facts, the payment of ` 24 crores to Group A is to equalise the inequalities in partition of assets. The amount so paid is immovable property and is not income liable to tax (T.S. Swaminatha Odayar v. Official Receiver AIR 1957 SC 577, CIT v. A. L. Ramanathan (2000) 245 ITR 494 (Mad), CIT v. Kay Arr Enterprises (2008) 299 ITR 348, CIT v. R. Nagaraja Rao (2012) 207 Taxman 74 (Kar) & Ziauddin Ahmed v. CGT (1976)102 ITR 253 (Gau), Parvathi Amma v. Makki Amma AIR 1962 Kerala 85 reviewed)(A.Y. 2007-08)

CIT v. Ashwani Chopra (2013) 85 DTR 40(P&H) (High Court)

S.47(ii) : Capital gains – Capital asset – Transfer – Association of persons – Distribution of assets on dissolution of Association of persons prior to omission of clause 47(ii) w.e.f. 1-4-1988. [S.2(47), 45)]

The question before the High Court was whether on distribution of capital asset on the dissolution of the firm, body of individuals or association of persons did not constitute "transfer" of a capital asset for the purpose of attracting the provisions of capital gains. The court held that when the status of an assessee is treated as an association of persons, on the dissolution or distribution of assets as a natural corollary, section 47(ii) would ensure to the benefit of the assessee to exclude the operation of section 45. Section 47(ii) was omitted by the Finance Act, 1987, with effect from April 1, 1988 and sub-sections (3) and (4) of section 45 were inserted by the Finance Act, 1987, with effect from April 1, 1988. The Court held that distribution of assets on dissolution of association of persons prior to omission of clause is not transfer. The assessee is entitled to the benefit of section 47(ii) of the Act. (A.Y. 1985-86, 1986-87)

Midland Theatres v. ACIT (2013) 350 ITR 676 (Mad)(High Court)

S.47(ii) : Capital gains – Transfer – Amount received by partner on dissolution of firm is not liable to capital gain tax. (S.2(47), 45(1), 45(4))

Payment to assessee partner on dissolution of firm towards his capital contribution did not constitute "transfer" so as to attract capital gains tax. (A.Y. 1989-90)

Chalasani Venkateswara Rao v. ITO (2013) 83 DTR 200(AP)(High Court)

S.48 : Capital gains – Computation – Cost of acquisition – Will – Relevant year

The property was acquired by mother in the year 1974, assessee acquired the property in accordance with mother’s will dated 11th October, 1987 and sold in 2005, benefit of indexation is to be given from 1st April, 1981 and not from 1987. (A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 / 212 Taxman 411 (Bom.) (High Court)

S.48 : Capital gains – Computation – Inherited property – Memorandum of Understanding (MOU) – Consideration stated in the MOU cannot be ignored as personal arrangement. (S.45)

Assessee and his brother sold an inherited property for ` 14 crores. A memorandum of understanding (MOU) was entered into by them as per which assessee received only ` 6 crores for sale of his rights and he offered same to tax. Sale document also showed that assessee had received ` 6 crores as sale consideration. Court held that the Assessing Officer was not justified in assessing sale consideration at ` 7 crores treating, said MOU as personal arrangement. In favour of assessee. (A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 / 212 Taxman 411 (Bom.)(High Court)

S.51 : Capital gains – Advance money received – If transaction is not genuine section 51 is not applicable

Where transaction is not genuine, provisions of section 51 is not applicable. In favour of revenue. (A.Y. 2002-03)

Ashwani Oberoi v. CIT (2013) 212 Taxman 392 (Punj & Har)(High Court)

S.54 : Capital gains – Exemption – Investment in two flats which is used as one house

Assessee purchased two flats which were joined together before the purchase, exemption under section 54 was rightly allowed in respect of both the flats treating them as one residential house. The Tribunal decided the issue in favour of assessee following the ratio of ITO v. Sushil M. Jhaveri (2007) 292 ITR 1(SB)(Trib.). On appeal by revenue the High Court affirmed the view of Tribunal. (A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 81 DTR 33 / 212 Taxman 411 (Bom.)(High Court)

S.54B : Capital gains – Land used for agricultural purposes – Absence of agricultural operations – Purchase of land with farmhouse – Land appurtenant thereto. (S.54F)

Assessee did not adduce any material to prove that the land in question was used for agricultural purposes during two years prior to sale thereof. Tribunal found that land was not used for agricultural purposes. Therefore, claim for exemption u/s. 54B was not allowable. Assessee did not produce any material to show that the entire plot of 1.92 acres purchased by her along with the farmhouse on reinvestment of capital gains should be considered as land appurtenant thereto. Therefore, entire land cannot be considered in arriving at the value of the residential building for the purpose of allowing exemption u/s. 54F. Tribunal committed not illegality in directing that the value of the plot on which the farmhouse is located and the land appurtenant be fixed at ` 2 lakhs. (A.Y. 2005-06)

Asha George (Smt) v. ITO (2013) 351 ITR 123 / 83 DTR 217 (Ker.)(High Court)

S.54F : Capital gains – Investment in a residential house – Deposit in capital gains account scheme by s. 139(4) due date sufficient. (S.139(1), 139(4))

The assessee sold property on 20-6-2006 (AY 2007-08) for a consideration of ` 2.24 crores. The said amount was not invested in the capital gains account scheme by the due date of filing the return u/s. 139(1) (31-7-2007) and was instead used to purchase a new residential house on 31-3-2008. The assessee claimed exemption u/s. 54F which was denied by the AO & CIT(A) on the basis that u/s. 54F(4) the amount of the consideration which is not appropriated for purchase of the new asset before the date of furnishing the return of income u/s. 139 had to be deposited in the "capital gains account scheme" before the due date for filing the return of income u/s. 139(1). On appeal by the assessee, the Tribunal allowed the claim. On appeal by the department to the High Court, HELD dismissing the appeal:

Though s. 54F(4) provides that the amount not appropriated towards purchase of the new asset has to be deposited in the capital gains account scheme before the due date for filing the return u/s. 139(1), sub-section (4) of s. 139 is in the nature of a proviso to s. 139(1). S. 139(4) provides that a person who has not furnished a return within the time allowed to him under s. 139(1) may furnish the return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. For AY 2007-08, the last date for filing the return u/s. 139(4) is 31-3-2009. This extended time limit is available for making deposit in the capital gains account scheme. As the assessee had invested the consideration in purchase of a new house before that date, the exemption has to be allowed (CIT v. Ms. Jagriti Aggarwal (2011) 339 ITR 610 (P&H), CIT v. Rajesh Kumar Jalan (2006) 286 ITR 274 & Fathima Bai (Kar.) followed)

CIT v. Jagtar Singh Chawla (P&H)(High Court), www.itatonline.org

S.54F : Capital gains – Investment in residential house – Exemption – Assessee purchasing residential house in name of his wife is entitled to exemption. (S.45)

The assessee, an individual, inherited 50 per cent share in a residential house from his father. In computing the capital gains, the assessee claimed exemption under section 54F of the Act on the ground that the sale proceeds were invested in the acquisition of a vacant plot and purchased a residential house in the name of his wife. The Assessing Officer took the view that under section 54F, the investment in the residential house should be made in the assessee’s name and inasmuch as the residential house was purchased by the assessee in the name of his wife, the claim was not allowable. He restricted the exemption and computed the capital gains. The Commissioner (Appeals) allowed the claim. This was confirmed by the Tribunal. On appeal by revenue dismissing the appeal, the court held that for the purposes of section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. Moreover, the assessee had not purchased the new house in the name of a stranger or somebody who was unconnected with him. He had purchased it only in the name of his wife. There was also no dispute that the entire investment had come out of the sale proceeds and that there was no contribution from the assessee’s wife. Therefore, the Tribunal was right in law in allowing the claim of the assessee under section 54F. (A.Y. 2008-09)

CIT v. Kamal Wahal (2013) 351 ITR 4 / 214 Taxman 287(Delhi)(High Court)

S.54F : Capital gains – Investment in residential house – Exemption – Several independent units can constitute "a residential house" (S.54)

The assessee entered into a development agreement pursuant to which the developer demolished the property and constructed a new building comprising three floors. In consideration of granting the development rights, the assessee received ` 4 crores and two floors of the new building. The AO held that in computing capital gains, the cost of construction of ` 3.43 crores incurred by the developer on the development of the property had to be added to the sum of ` 4 crores received by the assessee. The assessee claimed that as the said capital gains was invested in the said two floors, she was eligible for exemption u/s. 54. The AO rejected the claim on the basis that the units on the said floors were independent & self-contained and not "a residential house" and granted exemption for only one unit. The CIT(A) and Tribunal upheld the assessee’s claim by relying on CIT v. D. Ananda Basappa (2009) 309 ITR 329 (Kar.) and CIT v. K. G. Rukminiamma (Smt.) (2011) 331 ITR 211 (Kar). On appeal by the department to the High Court HELD dismissing the appeal:

As held in B. Ananda Bassappa (SLP dismissed) & K. G. Rukminiamma, the Revenue’s contention that the phrase "a" residential house would mean "one" residential house is not correct. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. Also, s. 54/54F uses the expression "a residential house" and not "a residential unit". S. 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans, requirements and compulsions. A person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by necessary implication prohibited. (A.Y. 2007-08)

CIT v. Gita Duggal (2013) 214 Taxman 51 / 84 DTR 346 / 257 CTR 208 (Delhi)(High Court)

S.55 : Capital gains – Cost of improvement – Cost of acquisition – Registered value report – Valuation report will have precedence over Guide house tax

The court held that valuation done by a registered valuer is with regard to specific property and takes into account its various advantages and disadvantages all of which influence valuation of property, where as any Guide to House tax is generalized guide and does not take into account peculiar features of property being valued and therefore, valuation done by an empanelled registered values of Income-tax Department would certainly takes precedence over any Guide to House Tax. In favour of assessee. (A.Y. 2006-07)

CIT v. Raman Kumar Suri (2013) 212 Taxman 411 / 81 DTR 33 (Bom.)(High Court)

S.68 : Cash credits – Firm – Capital – Partner – First year of business – Contribution of capital by partner cannot be added in hands of firm

One of the partners who was a minor introduced ` 2,62,000 as his capital. The Assessing Officer disputed the capital contribution made by the minor. The explanation offered was not found satisfactory and the Assessing Officer added the sum in the hands of the assessee. This was confirmed by the Tribunal. On appeal the Court held that (1) the authorities below had failed to take into account that this was the first year of business of the assessee. The Tribunal was not justified in holding that the unexplained cash credit recorded in the assessee’s books be added in the hands of the assessee. There was no material before the Tribunal to hold that the capital introduced by the minor partner at the time of starting of the business, was income of the assessee-firm. The Tribunal erroneously came to the conclusion that the deposits represented undisclosed income of the assessee-firm. Accordingly the appeal of assessee was allowed. (A. Y. 1991-1992)

Abhyudaya Pharmaceuticals v. CIT (2013) 350 ITR 358 (All) (High Court)

S.68 : Cash credits – Sale proceeds – No addition u/s. 68 can be made in respect of sale proceeds already offered as income

Once the sale proceeds have been offered as income by the assessee and the same has been accepted by AO, no addition in respect of the same can be justified u/s. 68 or else. It shall tantamount to double taxation of the same income. (T.A. No. 2471/ 2475/2475 & 2476 of 2009 dt 3-7-2012.)

Vishal Exports Overseas Ltd. (2012) ACAJ -November-P. 400 (Guj.)(High Court)

S.68 : Cash credits – Share application money – Assessee producing tax returns and also producing confirmation of share holders – Burden of proving source of share application money discharged addition was deleted

Assessee produced the names, addresses and permanent account numbers of the share holders the onus on the assessee to prove the source of share application money stands discharged. If the assessing authority is not satisfied with the creditworthiness of the share holders, it is open to the assessing authority to verify the same in the hands of the share holders concerned. The Tribunal recorded the findings that the assessee had produced the returns filed by the share holders who had paid share application money. The assessee had also produced confirmations from the share holders indicating the details of their addresses, permanent account numbers and particulars of cheques through which the amounts were paid towards the share application money. The Tribunal treated the deposits of share application money as genuine. On appeal high Court also confirmed the order of Tribunal.

CIT v. Jay Dee Securities and Finance Ltd. (2013) 350 ITR 220 / 214 Taxman 62(Mag.)(All.)(High Court)

S.68 : Cash credits – Share application money – Onus – Pvt. company – Burden is on assessee – On facts the addition was confirmed Reassessment was held to be valid. (S.131, 143(1), 147)

The Assessing Officer on the basis of report of investigation Wing of the department the assessment was reopened under section 147, which was completed under section 143(1) of the Act on the ground that the alleged share application money was mere accommodation entries all the notices were come back. It was contended that the registered offices of the company could be found in the website www.mca.gov.in and the Assessing Officer may visit the site for further verification. The Assessing Officer has not accepted the submission and made addition under section 68 and also commission of 2.5% on the said amount. In appeal Commissioner (Appeals) following the ruling of Supreme Court in CIT v. Lovely Exports (P) Ltd. (2008) 216 CTR 195, (2009) 319 ITR (St.) 5 (SC) held that the addition was not justified. Revenue appeal was dismissed by the Tribunal. On appeal to High Court the Court held that there is no onus on the Assessing Officer to visit website for address of share application for verification, onus on assessee to prove genuineness. Mere furnishing of bank statements of share applications is not sufficient to prove the creditworthiness. Failure to furnish report of investigation wing does not affect validity of addition. On facts and on reassessment the appeal of revenue was allowed and the addition made by the Assessing Officer was confirmed. (A.Y. 2004-05)

CIT v. Nipun Builders and Developers Pvt. Ltd. (2013) 350 ITR 407 / 82 DTR 145 (Delhi)(High Court)

S.68 : Cash credits – Share application money – Where most of the share applicants had deposited money a few days before the issue of share and not also not responded to the summons – Addition under section 68 held to be justified (S.131)

Where most of the investors deposited monies in the accounts a few days before the issue of shares and they also did not respond to the summons issued by the Assessing Officer under section 131 of the Act the Assessing Officer was held justified in making the additions under section 68 of the Act. (A.Y. 2006-07)

CIT v. Neelkanth Ispat Udyog (P) Ltd. (2013) 81 DTR 214 (Delhi)(High Court)

S.68 : Cash credits – Shares – Demat account – Shares held in Demat account and consideration received through demand draft, transaction genuine and addition under section 68 is not called for

Where the shares were held by the assessee in a demat account and sale consideration of the same was also received through bank draft transaction held to be genuine and no addition under section 68 held to be justified. (A.Y 2004-05)

CIT v. Udit Narain Agrawal (2013) 81 DTR 63 (All)(High Court)

S.69 : Unexplained investments – Search and seizure – Valuation of property – Reference to District Valuation Officer – Tribunal finding valuation based on incomparable sales hence addition as unexplained investment is held to be not valid. (S.132, 153C)

The Assessing Officer referred the question of valuation of the properties purchased by the assessee to the District Valuation Officer. The difference in the values of the two properties, as between that declared by the assessee and as opined by the District Valuation Officer, was added by the Assessing Officer under section 69. However, the Commissioner (Appeals) and the Tribunal concluded, on facts, that there was no material found during the search to justify the reference to the District Valuation Officer for valuation of the properties. The Tribunal held that there must be some material to show that the investment made by the assessee was outside the books and in any event the District Valuation Officer’s report was based on incomparable sales and, therefore, could not be relied upon. The Tribunal also held that the burden was on the Revenue to show that the real investment in the properties was greater than the apparent investment, as disclosed by the assessee and the burden had not been discharged by the Revenue. On appeal by revenue dismissing the appeal, the Court held that there was no material found in the search and seizure operations, which would justify the Assessing Officer’s action in referring the matter to the District Valuation Officer for his opinion on valuation of the properties. Therefore, the valuation arrived at by the District Valuation Officer would be of no consequence. In any event, the Tribunal had also, on facts, held that the District Valuation Officer’s valuation was based on incomparable sales, which is not permissible in law. Appeal of revenue was dismissed (A.Y. 2006-07)

CIT v. Abhinav Kumar Mittal (2013) 351 ITR 20 (Delhi)(High Court)

S.69 : Unexplained investments – Share application money – Assessee producing relevant evidence and establishing that all share applicants not fictitious persons deletion of addition held to be justified

The assessee is engaged in the business of running a cold storage. For the assessment year 1988-89, the Assessing Officer made additions on account of unexplained share capital, unexplained share application money, unexplained sundry creditors, difference in the cost of construction being unexplained investment, fixed deposit receipts purchased by the assessee and loading and unloading expenses. The Commissioner (Appeals) deleted the addition of ` 15,07,920 made against the unexplained share capital, ` 3,13,500 out of the addition made against the unexplained share application money of `4,68,100, and ` 46,500 out of the addition made against the difference in the cost of construction of ` 2,47,994, and confirmed the other additions made by the Assessing Officer. The Commissioner (Appeals) rectified his order allowing further relief of ` 54,800 and ` 20,848 out of the total addition of ` 3,05,493 made on account of unexplained sundry creditors for goods and expenses. The appeals filed by the Department and the assessee were partly allowed by the Tribunal. On further appeal by the Department the High Court also confirmed the order of Tribunal and held that additions was rightly deleted. (A.Y. 1988-89)

CIT v. Misra Preservers (P.) Ltd (2013) 350 ITR 222 (All) (High Court)

S.69B : Amounts of investments not fully disclosed in books of account – Deposits – Dumb documents – Addition as undisclosed investment was held to be not justified. (S.132)

A document had been seized which showed that some FDRs were made. Assessing Officer found that interest on said FDRs had not been shown in return. Accordingly, he made addition under section 69B. However, figures in seized documents did not correlate with any date or details nor was document signed and, thus, it was a dumb document, therefore, addition under section 69B was not justified. In favour of assessee.

CIT v. Jai Pal Aggarwal (2013) 212 Taxman 1(Delhi)(High Court)

S.73 : Losses – Speculation business – Explanation to section 73 – Major portion of gross total income of assessee did not consist of income from granting of loans and advances, but of purchase and sale of shares of other companies. Share trading loss to be treated as speculative loss

Where the assessee claimed its principal business was of granting loans and advances, as at year end, 62 per cent of its funds were invested in that business However, the Assessing Officer observed that for more than 10 months of whole year, less than 50 per cent of available funds were utilised in business of granting loans and advances He accordingly, treated share trading loss as speculative loss Invoking the provisions of Explanation to section 73. The finding of fact confirmed by Appellate Authorities Therefore, the High Court did not interfere with the consistent finding of fact of the lower authorities and dismissed the Appeal. (A.Y. 2000-01)

Alfa Tie Up (P) Ltd. v. CIT (2013) 81 DTR 336 (Cal.)(High Court)

S.79 : Carry forward and set off losses – Change in share holdings – Companies which public are not substantial interested – Beneficial owner – Loss is allowed to be carried forward.

In the absence of any material to hold that Tribunal accepted the assessee’s contentions and that PM and Mrs. DR were in fact holding the shares on behalf of foreign investors and the foreign investors fell within the description of "beneficial owner" u/s. 79, Tribunal was not justified in allowing carry forward and set off of loss. Matter was remanded for reconsideration. (A.Y. 2002-03, 2003-04.)

CIT v. S Net Freight India (P) Ltd. (2013) 83 DTR 243 (Delhi)(High Court)

S.80HHC : Export business – Filing of audit report – Mandatory – Audit report can be filed before completion of assessment

Requirement of filing of the audit report u/s. 80HHC(4) is mandatory, but the time of filing is directory and the same could be filed at any time before completion of the assessment. (A.Y. 2003-04)

CIT v. Godha Chemicals (P) Ltd. (2013) 83 DTR 190 (Raj.) (High Court)

S.80HHC : Export business – Survey – Surrender of excess stock – Surrender of income during the survey is entitled to deduction under section 80HHC. (S.133A)

On account of surrender of the income by the assessee, the profit of the assessee during the assessment year was increased. This was due to assumptive valuation of the closing stock by the authority concerned during the course of survey as so actual excess closing stock upon physical verification was found. Therefore, it could not be said that the assessee had not fulfilled or satisfied the conditions for grant of deduction u/s. 80HHC. Held that the assessee was entitled to deductions u/s. 80 HHC on excess stock of
` 9,39,170/- found during the course of survey and surrendered as business income. (A.Y. 2002-03)

CIT v. Haswani Arts (2013) 83 DTR 81 (Raj.) (High Court)

S.80HHE : Export business – Computer software – Data entry – Export of customised electronic data is eligible for deduction

The assessee is engaged in the business of information vending. The activities undertaken by the assessee is transmission of customized data through internet to its clients abroad and that of data entry processing. The assessee claimed the deduction under section 80HHE. The Assessing Officer disallowed the claim on the ground that department has not accepted the order of Tribunal which has allowed the claim of assessee for the assessment year 2000-01. On appeal the Commissioner (Appeals) and Tribunal allowed the claim of assessee. On appeal by revenue the Court held that the job data entry has been notified as computer software service, vide notification dt. 26th Sept, 2000 by the CBDT the assessee is eligible to deduction under section 80HHE. Accordingly the appeal of revenue was dismissed. (A.Y. 2003-04)

CIT v. Malhar Information Services (2013) 351 ITR 119 / 83 DTR 44 / 257 CTR 69 / 213 Taxman 45(Mag.) (Bom.)(High Court)

S.80-IA : Industrial undertakings – Infrastructure development – diagnostic centre – Manufacture – Processing – Diagnostic centre is not entitled to deduction under section 80-IA (S.33B)

Assessee is engaged in running a diagnostic centre providing services of X-ray, MRI and CT scan. It claimed deduction under section 80-IA on MRI and CT scan machines. Court held that diagnostic centre was not an industrial undertaking within meaning of section 80-IA, therefore, assessee is not entitled to deduction under section 80-IA. (A.Y. 1995-96, 1998-99, 1999-2000)

CIT v. Dewan Chand Satyapal (2013) 212 Taxman 370 (Delhi)(High Court)

S.80-IA : Industrial undertakings – Infrastructure development – Process of converting semi-finished bags into laminated HDPE bags amounts to manufacture and hence, deduction can be availed u/s. 80-IA.

The process of converting "semi finished bags" into "Laminated HDPE bags" amounts to "Manufacture" since both the product are entirely distinct, have different identity, have different utilities and both fetch different prices in the market. The assessee’s unit being engaged in an activity of manufacture, fall within the ambit of "Industrial Undertaking as defined u/s. 80-IA(12)(b) and is therefore eligible for deduction u/s. 80-IB of the Act (T.A. No.96 of 2000, dt 19-6-2012 / T.A. No. 98 of 2000, dt. 19-6-2012)].

Jhaveri Coaters (P) Ltd. (2012) ACAJ -November-P. 401 (Guj.)(High Court)

S.80-IA : Industrial undertakings – Infrastructure development – Tax component of sales price – Deduction is available

The assessee NLC was engaged in the business of mining and production of lignite and using them in the generation of electricity. Under Bulk Power Supply Agreement entered into between the assessee and State electricity board, the assessee agreed to sell the electricity generated by it. The tariff that was arrived at between the parties consisted of various components including tax liability on the income streams from the core activity of NLC. A reading of the agreement made it clear that in strict sense, there was no reimbursement of the tax liability by the recipient, but was treated as part of the tariff and whatever was done on the receipt of the statement of the tax payable by the assessee was that the tariff price payable on the electricity sold was finally reckoned with reference to the above said tax payment. In the proceedings under section 263, the Commissioner pointed out that the income tax liability of the assessee had been paid by the electricity boards and the amount received by the assessee was shown as receipt of the income and included for claiming deduction under section 80-IA. The Commissioner viewed that the receipt of the income tax by way of reimbursement was not an income from the manufacturing or production activity. Consequently, no deduction under section 80-IA. Tribunal confirmed the view of Commissioner under section 263. On appeal to the High Court, held that Under a bulk power supply agreement between assessee-electricity generating company and State Electricity Board, various components of tariff was to be charged for sale of electricity. Said agreement as well as relevant notification by Ministry of Power clarified that tax liability would be part of the tariff charged for sale of electricity from Thermal Power Generating Stations and it would not stand independent of the tariff charge. Further, there was no reimbursement from State Electricity Board of tax paid by assessee. Tariff could not be dissected to conclude that tax component specified as part of tariff was reimbursement of liability of assessee and, hence, it would not form part of income. Relief to be granted under section 80-IA, would not call for exclusion of tax component in sale price of electricity. In favour of assessee. (A.Y. 2001-02).

Neyveli Lignite Corpn. Ltd. v. ACIT (2013) 212 Taxman 318 (Mad.)(High Court)

S.80-IA : Industrial undertakings – Infrastructure development – Works contract – Explanation that s. 80-IA(4) does not apply to "works contracts" is clarificatory and its retrospective operation is valid

By the Finance Act No. 2 of 2009 an Explanation was added to s. 80-IA(4) with retrospective effect from 1-4-2000 to provide that s. 80-IA(4) would apply to a business which is in the nature of a works contract awarded by any person and executed by an undertaking or enterprise. The said retrospective amendment was challenged on the ground that (i) it was a fresh levy of tax, (ii) no reasons were given to support the retrospective levy, (iii) the period of retrospective operation was long and so it violated Article 19(1)(g) of the Constitution. HELD by the High Court dismissing the challenge:

  1. An enactment can be questioned only on the ground of lack of competence or on the ground that the statute violates the fundamental rights or any other constitutional provisions. An enactment cannot be struck down by just saying that it is arbitrary or unreasonable. Some or other constitutional infirmity has to be found before invalidating an Act. As all taxes are raised for public good, there is considerable latitude to Parliament in framing a taxing statute. There is always a presumption of constitutionality and the burden is on the Petitioner bringing such a challenge;

  2. On merits, the argument that the Explanation below s. 80-IA(13) provides for a levy of tax which was hitherto unknown is not acceptable. It cannot be said that the Legislature in introducing the explanation materially changed the exemption which existed till such explanation was introduced. The explanation was introduced for the "removal of doubts" and is declaratory in nature. By the Explanation, the Legislature has distinguished between cases of developing/operating etc. from a works contract. It cannot be disputed that there is an intrinsic difference between developing an infrastructure facility and executing a works contract. The Explanation merely aims to clarify that deduction u/s. 80-IA(4) is not available in case of execution of works contract. Such an interpretation is possible even on the basis of the existing provisions of s. 80-IA(4).

Katira Construction Ltd v. UOI (Gujarat High Court) www.itatonline.org

S.80-IB(10) : Deduction – Undertaking – Development and construction – Housing project – Open terrace – Certificate of completion – Deduction allowed

Assessee has undertaken the development and construction of housing project hence eligible for deduction. Assessee completed the construction on 6th March, 2006, corporation certified the completion on 28th Dec., 2007, one of the authorities namely CMDA had issued a letter on 13th June, 2008 cannot be ground to reject the claim of assessee. The Court also held that open terrace could not be the subject – matter of inclusion as a built up area to deny the benefit under section 80-IB(10). Appeal of revenue was dismissed. (A.Y. 2005-06, 2006-07)

CIT v. Sanghvi & Doshi Enterprises (2013) 81 DTR 75 / 255 CTR 156 (Mad.) (High Court)

S.80-IB(10) : Undertaking – Developing and building – Housing project – Commercial units – Proportionate deduction to extent of compliance, would be allowed. (S.80HHBA, 133A)

The assessee, engaged in business of developing and constructing housing projects, claimed deduction under section 80-IB(10) in respect of two projects. Survey under section 133A revealed that built up commercial area was 9.31 per cent. Therefore, the Assessing Officer disallowed deduction since provisions under section 80-IB(10) were not satisfied in his opinion. The assessee, on appeal, before Commissioner (Appeals), submitted that disallowance made by Assessing Officer, at best, could be restricted to the area exceeding limit prescribed under section 80-IB(10)(c) and relief on pro rata basis should be granted. The Commissioner (Appeals) rejected the appeal on grounds that section 80-IB did not contemplate any flexibility till 2004-05 for partly residential and partly commercial projects. There could be no liberal construction of deduction provision even on pro rata basis. The Tribunal allowed the assessee’s appeal and allowed deduction on residential units on a pro rata basis. Deduction was disallowed for the commercial area, being 9.31 per cent, as the residential units had been converted into commercial units by the Managing Director and his relatives. On appeal by revenue the Court held that, in the face of the clear provisions and going by the strict construction, one cannot read any limitation into the expression "housing project" to mean residential project alone and that if and when the projects have mixed built-up area of commercial and residential, the question of disallowance will arise only if and when the residential flats are beyond the limit as provided under sub-clause (c) of section 80-IB(10) and not otherwise. Even herein, the disallowance could be only proportionate to the extent of units in violation of the area prescribed under clause (c). In a pure commercial housing project, the question of applicability of sub-clause (c) does not arise at all. Going by the background of the expression ‘housing project’ and various clauses contained in section 80-IB of the Act, read in the context of subsequent insertion of clause (d), inserted prospectively under the Finance Act, 2005, the term ‘housing project’ has to be understood as a building project and need not be restricted to residential project alone, meaning thereby, user of the unit is not of relevance in the matter of grant of relief. The project may be either out and out residential project or commercial project or mix up of both for, a housing project, purely of commercial nature, approved by the Local Authority, is also a housing project, entitled to 100% deduction. So too, in projects containing residential units alone, where there is a partial compliance, proportionate to the compliance, the assessee would be entitled to have the deduction. In the case of mixed projects, the assessee’s claim has to be allowed in full, if all the residential units satisfied clause (c); otherwise, to the extent of compliance, the relief has to be worked out. A housing project of commercial premises is entitled to 100% deduction, there being no necessity of looking at clause (c) for compliance. Thus, the assessee would be entitled to the benefit of deduction on satisfaction of clauses (a), (b) and (c) of section 80-IB(10) and that the requirement as regards clause (c) would arise, wherein, in a given building, where there is a residential unit, the same has to satisfy the maximum built-up area specified under sub- clause (c) of section 80-IB(10). Even though the provisions under sub-clauses (d), (e) and (f) of section 80-IB(10) are prospective in nature, yet, for the purpose of understanding the scope of deduction under the provisions of the Act, there is no hesitation in drawing assistance from these provisions to decide on the scope of section
80-IB, as it stood at the material point of time. In the circumstances, the Revenue’s appeal is to be rejected and the order of the Tribunal is to be confirmed. (A.Y. 2004-05)

CIT v. Arun Excello Foundations (P.) Ltd. (2013) 212 Taxman 342 (Mad)(High Court)

S.80-IB(10) : Undertaking – Developing and building – Housing project – Each block – In respect of each block, the assessee is entitled to have benefit of deduction in respect of units satisfying the requirements of section 80-IB(10) of the Act

Within a composite housing project, where there are eligible and ineligible units, the assessee can claim deduction in respect of eligible units in the project and even within the block, the assessee is entitled to claim proportionate relief in the units satisfying the extent of the built-up area. (A.Y. 2004-05 to
2008-09)

Viswas Promoters (P) Ltd. v. A CIT (2013) 81 DTR 68 (Mad.)(High Court)

S.80-IB(10) : Undertaking – Developing and building – Housing project – Filing of completion of certificate – Amendment came into effect from A.Y. 2005-06. No such requirement to file completion of certificate for earlier assessment years

The assessee was engaged in the building and developing housing society, for A.Y. 2004-05 the department disallowed the claim of the assessee on the ground that the Completion certificate was not filed. The High Court held that, prior to amendment of S.80-IB(10), w.e.f. 1-4-2005, there was no obligation on the part of the assessee to file completion certificate. Appeal of revenue was dismissed. (A.Y. 2004-05)

CIT v. Jain Housing & Construction Ltd. (2013) 82 DTR 135 (Mad.)(High Court)

S.80JJA : Deduction – Bio-degraded waste – Fuel briquettes from bagasse – Derived from – Eligible deduction

The assessee is engaged in the business of fuel briquettes from bagasse. The assessee claimed the deduction under section 8OJJAA. The Assessing Officer disallowed the claim on the ground that (1) bagase is not waste, (2) it is not generated in municipal /urban limits i.e., by local authorities; (3) it is not collected but it is purchased; and (4) the process does not involve any treatment or recycling of a biodegradable waste. In appeal the Commissioner (Appeals) allowed the appeal of assessee. The Tribunal also confirmed the order of Commissioner (Appeals). On appeal by the revenue, the Court held that bagasse is a biodegradable waste of sugar factory and therefore, deduction under section 80J is allowable on the profits derived from the business of manufacturing fuel briquettes from bagasse; requirement of collecting biodegradable waste as provided under section 80JJA is satisfied whether such waste is collected on payment of consideration or without consideration. Accordingly the appeal of revenue was dismissed. (A.Y. 2003-04, 2004-05)

CIT v. Padma S. Bora (Smt) (2013) 81 DTR 99 / 255 CTR 1 (Bom.)(High Court)

S.80P : Co-operative societies – Interest earned on deposits of non-SLR fund – Eligible for deduction under section 80P of the Act.

Interest earned by the co – operative society on the deposits of its non – SLR funds is income from banking business and eligible for deduction under section 80P(2)(a)(i) of the Act.

CIT v. Muzaffarnagar Kshetriya Gramin Bank Ltd. (2013) 81 DTR 145 (All)(High Court)

S.90 : Double taxation relief – Paying trade tax – DTAA-India-Germany (Arts. 2(3), 3(d), 4 & 12(2))

Assessee, a limited liability partnership, was paying trade tax in Germany. Assessee was issued a tax resident certificate by German authorities and considered a taxable unit. Held that DTAA applicable to the assessee and benefit of art. 12(2) cannot be denied. (A.Y. 2002-03)

DIT (IT) v. Chiron Bearing Gmbh Co. (2013) 83 DTR 1 (Bom.) (High Court)

S.91 : Double taxation relief – Where no double taxation agreement exists – Kuwait – Credit for taxes was given.

During previous year 1996-97, assessee paid taxes in Kuwait on income earned there and sought benefit of deduction from tax payable in India under section 91(1). Assessing Officer denied benefit of section 91(1) on ground that payment of taxes in Kuwait was not made in previous year 1996-97. Court held that since payment of taxes on income earned in Kuwait during previous year had been found to be correct by Commissioner (Appeals), assessee was entitled to benefit of section 91(1). Object of section 91(1) is to give relief from taxation in India to extent taxes have been paid abroad for relevant previous year and this relief is not dependent upon payment also being made in previous year. In favour of assessee.
(A.Y. 1997-98)

CIT v. Petroleum India International (2013) 213 Taxman 41 (Bom.)(High Court)

S.92C : Avoidance of tax – Transfer pricing: If more than one price is determined by the most appropriate method, the ALP has to be the arithmetical mean of such prices.

The assessee was engaged in providing "software development support services" by which it developed software upon the instructions of its parent associated enterprise (IKOS Systems Inc). The entire software developed by the assessee was used by the parent AE captively for integrating the same with other software components developed by it. The assessee adopted the TNMM and claimed that its transactions were at ALP. The TPO rejected the assessee’s comparables on general grounds and selected his own comparables and used figures for a subsequent year. He determined the ALP at a much higher figure and made an adjustment. On appeal by the assessee, the Tribunal [ACIT v. Adani Export Ltd. (2007)109 ITD 101] held that the criteria adopted by the TPO for searching comparables was not correct. It held that the TPO was wrong in selecting his own comparables without first rejecting the assessee’s comparables. It also held that where one of the prices determined by the most appropriate method is less than the price as indicated by the assessee, that may be selected and there would be no need to adopt the process of taking the arithmetical mean of all the prices arrived at through the employment of the most appropriate method. On appeal by the department to the High Court, HELD:

The Tribunal was wrong in holding that if one profit level indicator of a comparable, out of a set of comparables, is lower than the profit level indicator of the taxpayer, then the transaction reported by the taxpayer is at an arm’s length price and there is no need to take the arithmetical mean. The proviso to s. 92C(2) is explicit that where more than one price is determined by most appropriate method, the arm’s length price shall be taken to be the arithmetical mean of such prices. The Tribunal was also wrong in the finding that unless and until the comparables drawn by the taxpayer were rejected, a fresh search by the TPO could not be conducted because s. 92C(3) which stipulates four situations where under the AO/TPO may proceed to determine the ALP in relation to an international transaction. If any one of those four conditions is satisfied, it would be open to the AO/TPO to proceed to determine the ALP price. Also, the question of applying OECD guidelines does not arise at all because there are specific provisions of Rule 10B (2) & (3) and the first proviso to s. 92C(2) which apply. The Tribunal was also not right in reducing the list of comparables to merely four. Having held that the comparables given by the assessee were to be accepted and those searched by the TPO were to be rejected, the only option then left to the Tribunal was to derive the arithmetical mean of the profit level indicators of the comparables which were accepted by it. It erred in selecting only one profit level indicator out of a set of profit level indicators. However, on facts this make no difference because even if the arithmetical mean of the comparables as accepted by the Tribunal are taken into account, the profit level indicator would be less than 6.99 % which is the profit level indicator of the assessee.

CIT v. Mentor Graphics (Noida) Pvt. Ltd. (Delhi)(High Court). www.itatonline.org

S.92CA : Avoidance of tax – Transfer pricing – Arm’s length price-Powers – Reference to Transfer Pricing Officer valid – Assessing Officer need not consider objections of assessee – The Transfer Pricing Officer is not called upon to and is not competent to decide the issue which is sole jurisdiction of the Assessing Officer. (S.144C)

The assessee is engaged in the business of purchasing rough diamonds, manufacturing of polished diamonds and sale/export of such polished diamonds. During the assessment proceedings for the assessment year 2008-09, the Assessing Officer issued a notice under section 142 stating that on a perusal of the assessment records for the assessment year 2007-08, it was observed that the assessee had filed an audit report in the prescribed form as required under section 92E of the Act as there were international transactions with an associated concern, BG. The assessment proceedings for the assessment year 2007-08 were in progress. The audit report showed that during the previous year relevant to the assessment year 2008-09, the assessee had international transactions with the associated concern amounting to ` 78.63 crores. However, the record did not show that the assessee had filed the audit report under section 92E of the Act in the prescribed form. There was correspondence between the assessee and the Assessing Officer. The Assessing Officer referred the matter to the Transfer Pricing Officer. On a writ petition challenging the reference to the Transfer Pricing Officer and also the notice from the Transfer Pricing Officer. The Court dismissing the petition, held that, admittedly, between the assessee and the associated enterprise there was an international transaction in the preceding year and the assessee had admittedly filed a report under section 92E of the Act. In the current year also the assessee had entered into transactions worth ` 78.63 crores. In the affidavit-in-reply it was further stated that the assessee had made substantial purchases from the associated enterprise. The partners of the assessee were three brothers and their wives/sons together holding the entire partnership stake. The fourth brother along with his wife and his son controlled the entire shareholding of the associated enterprise, the fourth brother and his son being directors of the assessee. It was clear that both the entities were being controlled by the same family of four brothers and their close relatives. It was clear that the associated concern was closely related with the assessee and fell within the parameters of section 92A(2)(j), (k) and (m). Therefore, it was not necessary or appropriate to judge, in the present petition, whether there was any international transaction between the assessee and the associated enterprise during the previous year relevant to the assessment year 2008-09 and such issue must be left to be judged by the competent authority while framing the final assessment. (A.Y. 2008-2009)

Veer Gems v. ACIT (2013) 351 ITR 35 (Guj.)(High Court)

S.92CA : Avoidance of tax – Transfer Pricing – Powers – No power to determine arm’s length of transaction not referred to him – Provision empowering Transfer Pricing Officer to determine arm’s length price of any international transaction other than that referred to him is prospective in operation.

The activity of the assessee is to provide connectivity to the host system by its computer programmes online. The assessee entered into international transactions with associated enterprises. The Assessing Officer referred only the international transactions mentioned in Form 3CEB but not the issue of advertisement, marketing and promotion expenses to the Transfer Pricing Officer. The Transfer Pricing Officer took upon himself the consideration of the question as to whether the advertisement, marketing and promotion expenditure was in the nature of an international transaction. Having concluded that it was an international transaction, he adjusted an amount of
` 32,92,83,589 attributable to the difference. On a question whether the Transfer Pricing Officer could have determined the arm’s length price in respect of an international transaction which was not specifically referred to him by the Assessing Officer, the Tribunal took the view that the Transfer Pricing Officer could not have done so. On appeal by revenue the Court dismissing the appeal, held that (i) that it was not within the domain of the Transfer Pricing Officer to determine whether a particular transaction, which had come to his notice, but which had not been referred to him, was or was not an international transaction and then to go on and determine the arm’s length price thereof.

(ii) That there is nothing in the statute to indicate that sub-section (2A) was introduced in section 92CA in a manner so as to operate with retrospective effect. Sub-section (2A) expands the jurisdiction of the Transfer Pricing Officer by empowering him to determine the arm’s length price of any international transaction other than an international transaction referred to him by the Assessing Officer under sub-section (1) of section 92CA. This is clearly an expansion of the jurisdiction of the Transfer Pricing Officer and, therefore, sub-section (2A) can only have prospective effect from June 1, 2011, and would have no application to the assessee’s case which was in respect of the assessment year 2006-07. Order of Tribunal is affirmed. (A. Y. 2006-2007)

CIT v. Amadeus India Pvt. Ltd. (2013) 351 ITR 92 (Delhi) (High Court)

S.115JB : Company – Book profit – Bank – Provision – Actuarial valuation – Cannot be added.

The Court held that provision is made on the basis of actuarial valuation it cannot be said that the provision for gratuity is not ascertained liability hence cannot be added back while computing book profit under section 115JB.

DCIT v. Inox Leisure Ltd. (2013) 213 Taxman 260 (Guj.)(High Court)

S.115J : Company – Book profit – Change in method of charging depreciation – Book profit to be computed by allowing depreciation as per the changed method. (S.32)

Where the assessee had changed the method of accounting from Straight Line Method (SLM) to Written Down Value (WDV) method, book profit has to be computed by allowing depreciation as per the changed method.

CIT v. Hindustan Pipe Udyog Ltd. (2013) 81 DTR 175 (All.)(High Court)

S.115J : Company – Book profit –Revalued assets – Assessing officer not justified in disallowing depreciation on revalued figure while computing book profit under section 115 J of the Act.

The assessing officer was held not justified in disallowing depreciation on revalued figure while computing book profit under section 115J of the Act. (A.Y. 1990-91)

CIT v. Rampur Distillery & Chemical Co. Ltd. (2013) 81 DTR 181 (All)(High Court)

S.119 : Instructions – CBDT – Circular – Circular passed by CBDT as per S.119 beyond its authority is not considered to be effective. (S.194A(3)(v))

As per the provision of Section 194A(3)(v) a co-operative society is not supposed to comply with the requirements of TDS as prescribed u/s. 194A at the time of paying interest to its members or to any other co-operative society. The said section makes no distinction between different classes of members. However, CBDT issued a circular date 11-9-2002 making certain distinction between different classes of members and narrowed down the scope of members in respect of whom the said exemption was available on challenging the said validity of the said circular, the Hon’ble high court held that CBDT had crossed its authority under the garb of section 119 of the Act. And hence, the said circular is not effective. SCA 11209 of 2000 / 1465 of 2003 dt. 12-6-2012]

Gujarat Urban Co-operative Bank Federation. (2012) ACAJ - November-P. 401)(Guj.)(High Court)

S.132 : Search and seizure – Warrant of authorization – Reason to believe – Existence of tangible material a pre-requisite – Mere reason to suspect not sufficient, articles seized to be released to assessee

The assessee challenged the search action. Allowing the petition the court held that the so-called information was undisclosed and what exactly that information was, was also not known. At one place in the affidavit of the Deputy Director of Income-tax, it had been mentioned that he got information that there was a "likelihood" of the documents belonging to the DS group being found at the residence of the assessee. That by itself would amount only to a surmise and conjecture and not to solid information and since the search on the premises of the assessee was founded on this so-called information, the search would have to be held to be arbitrary. When the search was conducted on January 21, 2011, no documents belonging to the DS group were, in fact, found at the premises of the assessee. The warrant of authorization was not in the name of the DS group but was in the name of the assessee. In other words, the warrant of authorisation under section 132(1) had been issued in the name of the assessee and, therefore, the information and the reason to believe were to be formed in connection with the assessee and not the DS group. None of clause (a), (b) or (c) mentioned in section 132(1) stood satisfied in the assessee’s case and, therefore, the warrant of authorisation was without any authority of law. Had the warrant of authorisation been issued in the name of the DS group and in the course of the searches conducted by the authorised officer, the premises of the assessee had also been searched, the position might have been different. But that had not happened in the case of the assessee. The warrant of authorisation was in the name of the assessee and, therefore, it was absolutely necessary that the pre-conditions set out in section 132(1) ought to have been fulfilled. Since those pre-conditions had not been satisfied, the warrant of authorisation would have to be quashed. Once that was the position, the consequence would be that all proceedings pursuant to the search conducted at the premises of the assessee would be illegal and, therefore, the prohibitory orders would also be liable to be quashed. The jewellery/other articles/documents were to be unconditionally released to the assessee.

Madhu Gupta v. DIT(Inv) (2013) 350 ITR 598 / 256 CTR 21 / 82 DTR 116 / 214 Taxman 246 (Delhi)(High Court)

S.132(4) : Search and seizure – Statement on oath – Retraction – No evidence to establish that admission was incorrect in any way, hence addition made on basis of statement was held to be justified.

During the course of search the assessee surrendered a sum of ` 1 crore in respect of the financial year 2005-06 for buying peace of mind and to avoid litigation. He also requested the Income-tax Department not to initiate any penalty proceedings against him. After ten days, during the further search conducted by the Income-tax Department, the assessee made another statement on November 21, 2005, wherein he surrendered an additional sum of ` 75 lakhs on behalf of himself and all family members, family firms and the companies. The request for no penal measures was reiterated. In the statement, however, he indicated that after receiving all the seized documents from the Income-tax Department he would provide the break up of the voluntary disclosure of `1.75 crores in various hands. He also promised to pay the due tax as soon as possible. The sum of ` 1.75 crores which was surrendered by the assessee was bifurcated by him in to sums of
` 1.5 crores and ` 25 lakhs. The former sum was, according to him, to be treated as undisclosed business income in his hands whereas the latter sum of ` 25 lakhs was to be considered in the hands of different family members or business concerns of the assessee’s group. The Tribunal reversed the decision of the Commissioner (Appeals) and sustained the decision of the Assessing Officer in making an addition of ` 1.75 crores on the basis of the statements made by the assessee under section 132(4). On appeal by the assessee the Court dismissing the appeal, held that it was incumbent upon him to show that he had made a mistake in making that admission and that the admission was incorrect. He had access to all the documents which had been seized in as much as copies had been supplied to him. However, he did not produce anything to establish that the admission was incorrect in any way. Thus, the assessee could not resile from his statements made on November 10, 11, 2005, and November 21, 2005. The statements recorded under section 132(4) were clearly relevant and admissible and they could be used as evidence. In fact, once there was a clear admission, voluntarily made, on the part of the assessee, that would constitute a good piece of evidence for the Revenue. Appeal of assessee was dismissed. (A.Y. 2006-2007)

Bhagirath Aggarwal v. CIT (2013) 351 ITR 143 (Delhi)(High Court)

S.132(8) : Search and seizure – Retention of seized documents beyond 30 days – Non-communication of CIT’s approval to assessee.

Books of account, seized under s.132(1), were retained by the officer for a period exceeding 30 days from the date of order of assessment passed u/s. 153A without communicating to the assessee reasons recorded for the same and approval obtained from the CCIT, Director General, or Director, as the case may be, for such retention. Held that the requirements of s. 132(8) were not satisfied and therefore, the retention of documents beyond 30 days after completion of assessment was illegal.

Joshi P. Mathew v. Dy. CIT (2013) 83 DTR 5 (Ker.)(High Court)

S.132A : Powers – Requisition of books of account – Cash seized from petitioner recorded in books – Order under section 132 A liable to be quashed.

Where the cash seized from the Petitioner was satisfactorily explained and all transactions were recorded in the books order under section 132 A liable to be quashed.

Prakash Jaichand Shah v. DIT (Inv.) (2013) 350 ITR 336 / 81 DTR 396 / 255 CTR 403 (Guj.)(High Court)

S.132B(4) : Search and seizure – Delayed Refund – Assessee entitled to interest under section 132 B(4). (S.132)

Where the assessment of the assessee was concluded resulting in a refund to the assessee which was not given to the assessee for a long time assessee was entitle to interest on refund under section 132 B (4) of the Act.

Om Prakash Agrawal v. UOI (2013) 81 DTR 341 (MP)(High Court)

S.142 : Enquiry before assessment – Notice – Person – Validity of notice to co-operative bank. (Ss.2(31), 133(6)

S. 142(1) read with s. 2(31) leads to the only conclusion that co-operative societies are also "person" as defined in the IT Act. Therefore, the impugned notice u/s. 142(1) cannot be held issued without jurisdiction.

Mangalam Service Co-operative Bank Ltd. & Anr. v. ITO & Ors. (2013) 83 DTR 198 (Ker.)(High Court)

S.143(3) : Assessment – Scrutiny guide lines – CBDT – Income-tax department must make return scrutiny guidelines public

The Petitioner, an advocate, filed an application with the CBDT under s. 6 of the Right to Information Act, 2005 seeking information pertaining to cases excluded from scrutiny, where the disclosure was made during survey. He also sought information qua the scrutiny guidelines for the financial year 2009-10. The Department opposed the disclosure of the scrutiny guidelines on the ground that it would prejudice the "economic interest" of the Country and enable assessees to "configure" their return to avoid scrutiny. The refusal to supply the information was upheld by the CIC. The Petitioner filed a Writ Petition to challenge the order of the CIC. HELD by the High Court reversing the CIC:

The Income-tax department has issued instructions with regard to procedure for selection of cases for scrutiny from time to time both qua corporate assessees as well as non-corporate assessees. These instructions give detailed procedure on the basis on which the concerned officers are required to make a random selection of assessees whose cases are taken up for scrutiny. These instructions are in public domain even prior to the enactment of the RTI Act. Most of these instructions have been issued in the middle of the financial year and not in the beginning and they are applied to pending returns as well. Therefore, the argument, that assessees would configure their returns in the manner, which would impact the economic interest of the country, cannot be accepted. The expression "economic interest" takes within its sweep matters which operate at a macro level and not at an individual, i.e., micro level. By no stretch of imagination can scrutiny guidelines impact the economic interest of the country. These guidelines are issued to prevent harassment to assessees generally. It is not as if, de hors the scrutiny guidelines, the I.T. Department cannot take up a case for scrutiny, if otherwise, invested with jurisdiction, in that behalf. This is an information which has always been in public realm, and therefore, there is no reason why the department should keep it away from the public at large. The department shall supply the relevant scrutiny guidelines to the petitioner for the financial year 2009-10 and hereafter upload the guidelines with regard to scrutiny on their website.

Joginder Pal Gulati v. OSD – CPIO (Delhi)(High Court), www.itatonline.org

S.144 : Best judgment assessment – Opportunity of being heard – Not raised before lower authorities cannot be raised first time before the Court. (S. 143(2))

Assessee did not contend before the authorities that notices u/s. 143(2) and under proviso to s. 144(1) were not issued before making assessment u/s. 144 and which the authority had no occasion to deal with. Such contention cannot be allowed to be raised for first time before the Court. Further, assessee was informed and required to attend the office of the AO and was also informed about hearing on a certain date. Held that the letters could be deemed to be notices u/s. 143(2) and proviso to s. 144(1). Assessment order could not, therefore, be set aside or quashed. (A.Y. 1995-96)

P.P. Abdul Khader & Co. v. CIT (2013) 83 DTR 41 (Ker.)(High Court)

S.145 : Method of accounting – Hire – purchase – Indexing system followed by assessee there cannot be Mercantile system for purposes of assessment, appeal dismissed.

The assessee which is engaged in the business of leasing, hire-purchase and finance. Finance charges represented the interest component of the hire-purchase monthly instalments paid by hirers to the assessee. The assessee had itself credited ` 12,33,700 under this head in its profit and loss account for the assessment year 1987-88. However, in its return of income the finance charges were reduced to ` 6,71,326 on the ground that the amount of ` 5,62,374 did not accrue as income though credited as such in the profit and loss account during the assessment year. The Assessing Officer did not accept this deduction and took into account the credited amount of ` 12,33,700 while computing the income under this head. The assessee credited ` 12,33,700 towards finance charges in its books of account and this figure was arrived at by adopting the "indexing" or "sum of digits" system of accounting. The Assessing Officer’s order was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that there was no indication of the assessee’s hire-purchase agreements reflecting bifurcation of the equated monthly installments into principal and interest components. In the absence thereof, the common and accepted usage of the indexing system of accounting in the hire-purchase trade must be held to be valid as otherwise the rate of interest under the mercantile system in so far as the later equated monthly installments are concerned would be far higher and contrary to the rate prescribed in the assessee’s agreements. Further, as the assessee had itself employed this system of accounting in its books of account, applying the law laid down in Sanjeev Woolen Mills case [2005] 279 ITR 434,the Department was bound to accept the same for the assessment proceedings. Appeal of assessee was dismissed. (A. Y. 1987-1988)

Chakra Financial Services Ltd. v. CIT (2013) 350 ITR 396 / 214 Taxman 15 (Mag.)(AP) (High Court)

S.147 : Reassessment – Advance Ruling – Binding Precedent – Reassessment based on some other case the decision was overruled can not be the ground for reassessment. (S. 245S)

The assessee, a foreign company having residential status of non-resident, had approached the Authority for Advance Rulings, whereby it was held that profits arising to it from realization of portfolio investments in India will be treated as business profits. The loss on sale of shares claimed by the assessee under the head ‘profits and gains from business or profession’ was accepted by the Assessing Officer under section 143(3).A notice to reopen assessment under section 147 was issued on grounds that the Advance Ruling in assessee’s own case was overruled by a subsequent Advance Ruling in another case, which held that earnings on purchase and sale of shares would be taxable under the head ‘capital gains’ and not ‘profits and gain from business or profession’.Consequently, a reassessment order was passed. The Tribunal set aside the order of the Assessing Officer on grounds that for two other assessment years, the Director of Income-tax had initiated proceedings under section 263 on identical grounds which had been set aside in a writ petition, the Court held that Advance Ruling in assessee’s own case cannot be overruled by a subsequent Advance Ruling in case of another assessee ,accordingly reopening of assessment under section 147 on above ground was not valid, particularly when there was no failure on part of assessee to make full and true disclosure. In favour of assessee. (A.Y. 2003-04)

DIT v. Prudential Assurance Co. Ltd. (2013) 352 ITR 66 / 213 Taxman 111 (Bom.)(High Court)

S.147 : Reassessment – Change of opinion – Reassessment on same set of facts was held to be bad in law. (S.148)

A different view taken on the same set of facts amounts to change of opinion – Reopening on change of opinion is bad-in-law. (A Y. 2006-07)

Praveen P. Bharcuhua (Mrs) v. Dy. CIT (2013) 256 CTR 346 (Bom.) (High Court)

S.147 : Reassessment – Change of opinion-Speculative transaction – Hedging Loss – Commodity exchange – Reopening of assessment on the basis that the Exchange was recognised only with effect from 22-5-2009 the transaction would not be covered under section 43(5)(d) was held to be not valid due to change of opinion. (Ss.43(5), 143(3))

The assessee, engaged in wholesale business of gold and silver, claimed loss on hedging of metals in commodity exchange to insure against price fluctuation. The said loss was allowed in the course of assessment proceedings under section 143 (3).The Assessing Officer proposed to reopen the assessment on the ground that exchange was recognized in a subsequent year. In assessment it was not case of Assessing Officer that impugned hedging transactions did not satisfy condition of section 43(5)(a). Court held that any post-assessment attempt on part of Assessing Officer to fall back on conditions required to be satisfied for application of sub-clause (a) would amount to change of reasons recorded for reopening; and any such inquiry would be wholly a fishing inquiry, therefore, no reopening was to be allowed. In favour of assessee (A.Y. 2007-08, 2008-09)

Jayesh Raichand Shah v. ACIT (2013) 212 Taxman 306 (Guj.)(High Court)

S.147 : Reassessment – Change of opinion – Third proviso – Merger – Order of original assessment merged with order of the Appellate Authority, hence the reassessment held to be invalid. (S.80IA(8)).

The Court held that reopening of assessment was barred in view of the third proviso section 147 since the quantum of deduction under section 80IA was subject matter of appeal before the Commissioner (Appeals) and the Tribunal and consequently, the order of original assessment had merged with the order of the Appellate Authority. Accordingly the appeal of revenue was dismissed. (A.Y. 2003-04)

CIT v. Reliance Energy Ltd. (2013) 81 DTR 138 / 255 CTR 365 / 214 Taxman 64 (Mag.) (Bom.)(High Court)

S.147 : Reassessment – Change of opinion – Within period of four years – If there is no fresh tangible material reassessment is not valid – Reasons cannot be supplemented /improved upon later. (S.148)

When assessee disclosed all relevant facts ,even in case of reopening of assessment within period of four years from the end of the relevant assessment year, the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment on the basis of tangible material, there being no fresh tangible material which would warrant taking a view different from one taken during the regular assessment proceedings , reopening was not sustainable. The reasons recorded at the time of issuing notice cannot be supplemented / improved upon later. Writ petition of assessee was allowed and notice was quashed. (A.Y. 2007-08)

NDT Systems v. ITO (2013) 81 DTR 1 / 255 CTR 113 (Bom.)(High Court)

S. 147 : Reassessment – Deduction at source – 194C is not applicable in the first year of operation Consequently, notice issued u/s 148 to disallow expenditure for non- compliance of s. 194C is liable to be quashed. (Ss.143(3), 194C)

A notice u/s 148 was issued within a period of four years form the end of relevant Asst. Year so as to disallow an amount of ` 3,07,59,872/- in respect of labour charge on the pretext that the assessee failed to deduct tax at source u/s. 194C at the time of making the said payment. Assessment was framed earlier u/s. 143(3) without making disallowance in respect of the same. According to proviso to Section 194C(2) an individual or HUF is supposed to deduct tax at source only if its total sales, gross receipts or turnover from its business or profession exceeds monetary limits specified under clauses (a) or (b) of Section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid. This being the first year of operation, the said condition is not fulfilled and hence the assessee is not supposed to deduct tax u/s. 194C. Hence AO’s reason to believe that income chargeable to tax in case of assessee has escaped assessment is without foundation and lacks validity. Accordingly, the impugned notice issued u/s. 148 is quashed. (SCA 12243 of 2009, dt. 16-7-2012)](2012)

Harshadbhai Naranbhai Bagadia (2012) ACAJ -November-P. 399)(Guj.)(High Court)

S.147 : Reassessment – DTAA-India-USA – Since all facts relating to royalty income had been placed on record in course of assessment, initiation of reassessment proceedings on basis of change of opinion was not sustainable. (Ss.9, 44D, 115A, Art.12).

The assessee, a non-resident company, had entered into a master licensing agreement (MLA) with MIPL. In terms of said arrangement the MIPL was granted non-exclusive right to use the assessee’s system at agreed locations in India. The terms also required MIPL to pay the assessee initial franchise fee upon the opening of each restaurant and royalty on recorded monthly sales of each restaurant during the period. For the relevant assessment years, scrutiny assessments were completed after the relevant documents and materials were considered. Subsequently, a notice was issued under section 148 proposing to reopen the proceedings. The assessee filed its return and assessment was completed. On said occasion, the Assessing Officer accepted the assessee’s submissions that the rate of taxation applicable was 15 per cent as originally held and assessed the royalty receipts in respect of the relevant assessment years. After completion of reassessment proceedings, again in respect of the same assessment years the Assessing Officer sought to initiate proceedings afresh. The reason for reopening the assessment was that article 12(6), read with article 7 of DTAA between India and USA provides that where an assessee was earning income in the nature of Royalty or Fees for Technical Services through a permanent establishment situated in the other State, such income was taxable as business income in accordance with the domestic provisions of the State of source. Therefore, in such case section 44D, read with section 115A should be applied. The assessee filed its return in response to notice issued under section 147. The income was held to be taxable in terms of section 115A, read with section 44D at the rate of 30 per cent. On appeal, the Commissioner (Appeals) accepted the assessee’s contention that since basic facts relevant for royalty income had been disclosed with other material, inference sought to be drawn could hardly be characterized as ‘reasons to believe’. He thus set aside the reassessment proceedings. The Tribunal upheld the decision of the Commissioner (Appeals). On appeal by revenue the Court held that Since all facts relating to royalty income had been placed on record in course of assessment, initiation of reassessment proceedings on basis of change of opinion was not sustainable. (A.Ys. 2000-01, 2001-02)

DIT v. McDonalds Corporation (2013) 213 Taxman 26 (Delhi)(High Court)

S.147 : Reassessment – Exchange of information – DTAA-India-Japan – Reassessment proceedings initiated on basis of information received from Government were held to be valid. (Ss. 90, 148, Art. 26)

For the assessment year 2006-07, the assessee’s return was processed under section 143(1). Subsequently, the Assessing Officer received information from the Government of India that the assessee had received certain amount from a Japanese-company. Since said amount was not shown in books of account by the assessee, a notice was issued under section 148. The assessee challenged the impugned notice in instant writ petition. Revenue contended that the information was received from the foreign tax authorities under the aegis of the OECD on which the respondent had no control and hence, the credibility of the information could not be questioned. Assessee contended that the Japanese authorities had no authority to verify the accounts of the assessee to find out whether the amount in question had been accounted for in its books and, therefore, the Assessing Officer was not right in stating that the information received from the Japanese authorities related only to the amount not disclosed in the books of account of the assessee. The material in the possession of the Assessing Officer could not in any case constitute ‘reason to believe’ so as to clothe him with jurisdiction to reopen the assessment. The court held that the very fact that this information was received from a Government agency under article 26 of DTAA, same would constitute live link or nexus between material and formation of belief that income to that extent had escaped assessment. (A.Y. 2006-07)

Mitsui & Company India (P.) Ltd. v. ITO (2013) 213 Taxman 32 (Delhi)(High Court)

S.147 : Reassessment – Export business – Original reason dropped – Assessing Officer cannot assess other escaped income if original reason dropped. (S.80HHC, 148)

The AO issued a notice u/s. 148 to reopen the assessment for AY 2003-04 on the ground that the assessee had wrongly computed s. 80HHC deduction. However, in the reassessment order, the AO did not make any addition for the s. 80HHC claim and made additions in respect of other unconnected issues. The Tribunal held that as the AO had made no addition in respect of the issue for which the s. 148 notice was issued, he had no jurisdiction to assess any other income. On appeal by the department to the High Court, HELD dismissing the appeal:

S.147 empowers the AO to reopen an assessment if he has reason to believe that income has escaped assessment. If the requirements of giving jurisdiction to the AO to reopen the assessment are satisfied, he may also assess any other escaped income which comes to his notice subsequently in the course of the proceedings. Prior to the insertion of Explanation 3 to s. 147 by the Finance Act 2009 w.e.f. 1.4.1989, it was clear that if the reason for which the assessment is reopened fails, the AO could not proceed to assess other income which had escaped assessment. For assuming jurisdiction to frame an assessment u/s. 147 what is essential is a valid reopening. If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. Explanation 3 to s. 147 does not change this position. Explanation 3 to s. 147 was inserted to counter the view taken by some courts (CIT v. Atlas Cycle Industries (1989) 180 ITR 319 (P&H) & Travancore Cements Ltd. v. ACIT (2008) 305 ITR 170 (Ker.) that even if the jurisdiction was validly exercised, the AO could not assess the other escaped income that was not referred to in the reasons. It merely clarifies the existing law and does not expand the powers of the AO u/s 147. If the AO drops the ground for which the notice for reopening was issued, it means he had no "reason to believe" that income had escaped assessment and so he has no jurisdiction to assess the other escaped income (CIT v. Jet Airways(I) Ltd. (2011) 331 ITR 236 (Bom), Ranbaxy Laboratories Ltd. v. CIT (2011) 336 ITR 136 (Del.) & Major Deepak Mehta 344 ITR 641 (Chhattisgarh) followed; Majinder Singh Kang v. CIT (2012) 344 ITR 358 (P & H) not followed)(A.Y.2003-04)

CIT v. Mohmed Junded Dadani (2013) 214 Taxman 38 / 85 DTR 12(Guj.) (High Court)

S.147 : Reassessment – Export oriented undertaking – Reason to be live – Setting off loss of one eligible unit against profit of another eligible unit – Reassessment was not valid. (S.10B)

In original assessment assessee declared profit in respect of its two units and claimed deduction under section 10A/10B but on account of loss situation it claimed nil deduction in respect of its third unit and had also submitted Forms 56F/56G along with return. Assessing Officer specifically examined said claim in detail and allowed deduction with some modifications. Subsequently on 23-7-2010 i.e. after expiry of four years from end of relevant assessment year, Assessing Officer reopened assessment by invoking proviso to section 147 on ground that assessee acted incorrectly in not setting off losses of one eligible unit against profits of another eligible unit. On challenge to reassessment by way of writ the Court held that since ‘reason to believe’ note was silent as to what tangible materials had persuaded revenue to invoke extraordinary powers under proviso to section 147, reopening was unjustified. (A.Y. 2004-05)

Moser Baer India Ltd. v. Dy. CIT (2013) 212 Taxman 139 (Mag.)(Delhi)(High Court)

S.147 : Reassessment – Full and true disclosure – Notice after expiry of four years – Notice with in four years – Change of opinion – Remuneration to directors – No tangible material hence reopening is bad in law. (S. 36(1)(ii), 148)

Assessee company in the course of orginal assessment proceedings, has expalned the nature of the payment basis of computation and rationale for computing the remuneration paid to the directors partly with reference to fixed amount and partly as a proportion of the net profit, which was accepted under section 143 (3). The Assessing Officer reopened the said assessment on the ground that the payment made to a director who is a share holder is not covered by section 36((1)(ii) to be eligible for deduction. The Assessee challenged the said notice by writ petition, the Court quashing the notice held that the reassessment was based on a pure change of opinion and not on tangible material and hence it is impermissible in law. In respect of notice issued after four years the notice was quashed on the ground that in the absence of any allegation in the notice that there was failure on the part of the assessee to disclosue fully and truly material facts for the assessment, reopening of assessment does not fulfil the requirement set out in the proviso to section 147, therefore the notice was quashed.(A.Y. 2005-06, 2006-07, 2007-08, 2008-09))

OHM Stock Brokers (P) Ltd. v. CIT (2013) 258 CTR 90 / 85 DTR 111 (Bom.)(High Court)

S.147 : Reassessment – Income deemed to accrue or arise in India DTAA- India-USA – Failure to file return of income would invite action to reopen assessment on ground of escapement of income. (S.9(1)(i))

Petitioner-US company outsourced its core business to its Indian subsidiary CISPL. CISPL worked exclusively for petitioner. According to revenue default in filing return would per se attract provision of section 147, read with Explanation 2(a). Court observed that apart from prima facie existence of a business connection there was also material to entertain belief that Indian subsidiary was a permanent establishment of foreign company in India. There was prima facie material in possession of Assessing Officer to form a tentative belief that section 9(1)(i) was attracted and this reason by itself would constituted a relevant ground to reopen petitioner’s assessments, therefore mere failure to file return of income (though assessee is liable to do so) would invite action to reopen assessment on ground of escapement of income and this has been provided in Explanation 2(a) below section 147. (A.Y. 2002-03 to 2004-05)

Convergys Customer Management v. ADIT (2013) 212 Taxman 613 (Delhi)(High Court)

S.147 : Reassessment – Non-disclosure of primary facts-losses – Facts different from recorded reasons was held to be not valid hence reassessment held to be in valid.

While making assessment for assessment year 1996-97, Assessing Officer held that loss in shares had been fraudulently claimed. Accordingly assessment for relevant year was reopened assigning reasons that position mentioned in assessment year 1996-97 also existed in relevant year. As facts of subsequent year was altogether different from facts of relevant year, reasons recorded by Assessing Officer was not valid. Thus accordingly, reassessment proceedings were to be quashed. (A.Y. 1995-96)

CIT v. Kanodia & Sons (2013) 212 Taxman 55 (Mag.)(All.)(High Court)

S.147 : Reassessment – Non-disclosure of primary facts – Tax royalties under section 44D – Where agreements were on record, reassessment were not justified, however where agreements were not available on record the assessments were justified. (S. 44D)

Assessee, a Singapore based company, had a Branch Office (B.O.) in India. It is engaged in providing technical consultancy in area of road construction to NHAI in India. Assessee also entered into a sub-consultancy contract with respect to same NHAI project with one ‘Q’ - Assessee filed its returns wherein gross receipts from NHAI were offered to tax under section 44D. Assessment was completed under section 143(3). Subsequently Assessing Officer initiated reassessment proceedings holding that payments made to ‘Q’ a sub-contractor, were to be included in taxable income of assessee. It was noted from records that as regards assessment years 2004-05 and 2005-06 agreement between assessee and NHAI and agreement between assessee and ‘Q’ were available on records. However, for assessment years 2002-03 and 2003-04, agreement between assessee and ‘Q’ was not in assessment records and, thus, there was concealment of fact on part of assessee. Court held that on facts, reopening of assessment for assessment years 2004-05 and 2005-06 was not sustainable however, said proceedings were validly initiated for assessment years 2002-03 and 2003-04. (A.Y. 2002-03 to 2005-06)

Meinhardt Singapore Pte Ltd. v. ADIT (2013) 212 Taxman 637 (Delhi)(High Court)

S.147 : Reassessment – Notice after four years – Change of opinion – Inspection report indicating two different units – Reopening on basis of report to withdraw deduction under section 80-IA is a change of opinion held to be not valid. (S. 80IA, 148)

The assessment was completed under section 143(3) and deduction under section 80IA was allowed. The assessment was reassessed after four years on the inspection report indicating two different units to withdraw the deduction under section 80IA. The assessee challenged the reassessment proceedings allowing the petition, the Court held that this was not a case where the assessee has failed to disclose fully and truly all material facts and the pre- conditions for triggering the exception in the proviso to section 147 were not satisfied, thus reassessment was set aside. (A. Y. 2000-2001)

NTPC Ltd. v. Dy. CIT (2013) 350 ITR 614 (Delhi)(High Court)

S. 147 : Reassessment – Notice – After four years – Incorrect allowance of deduction – Assessing Officer raising specific queries and considering material before him, reassessment held to be invalid.(S.148)

The assessee is engaged in the business of manufacturing and sale of various types of pharmaceutical products. Notice under section 148 of the Act, was issued to the assessee after the expiry of four years from the end of the assessment year 2003-04 for the reasons that incorrect allowance of deduction had been granted (i) in respect of royalty received from foreign enterprise; (ii) in respect of export profits; (iii) in respect of profits and gains from newly established undertakings ; and (iv) of non-business expenditure. Detailed objections were given by the assessee explaining each of the reasons. However, the Assessing Officer did not accept the objections and rejected them. On a writ petition :

Held, allowing the petition, that in so far as all the reasons other than the reason pertaining to club expenses were concerned, specific queries had been raised and the Assessing Officer had considered the material placed by the assessee before him in the course of the original assessment. As regards the club expenses, it was stated that since no specific query had been raised, Explanation 1 would get attracted. This could not be accepted because the club expenses were specifically mentioned in the tax audit report in Form 3CD which was annexed along with the return. This was a clear statutory disclosure on the part of the assessee with regard to the claim of club expenditure. It was not a piece of evidence which was hidden in some books of account and which the Assessing Officer could have possibly, with due diligence, discovered. On the contrary, this was material which was placed before the Assessing Officer along with the return which the Assessing Officer was duty bound to go through before completing the assessment. Therefore, the case could not fall in the category of material which was referred to in Explanation 1 to section 147. (A. Y. 2003-2004)

Ranbaxy Laboratories Ltd. v. Dy. CIT (2013) 351 ITR 23 (Delhi)(High Court)

S.147 : Reassessment – Notice after four years – Travelling and repair and maintenance – Reassessment held to be invalid. (S.148)

For the assessment year 2004-05, the return declaring loss of the assessee was first processed and accepted under section 143(1) but was later selected for scrutiny and notice was issued under sections 143(2) and 142(1). Questionnaires were also issued calling for details relating to fixed assets, loans and advances, opening and closing inventory, sundry debtors, loss on sale of fixed assets, repairs and maintenance expenses, details of travelling expenses for foreign visits, etc., and these queries were answered by the assessee and the information was submitted. The assessment was completed. The notice under section 148 was issued beyond the period of four years on the ground that the expenditure was debited under the head "repairs and maintenance of building and additions to fixed assets", but the amounts were actually siphoned off by illegal withdrawals. On a writ petition:

Held, allowing the petition, that not only did the assessee furnish all the relevant details relating to the purchase of fixed assets, repairs and maintenance of buildings but also the details relating to the foreign travel expenses. The proceedings relating to the original assessment also showed that the Assessing Officer had raised queries regarding repairs and maintenance of building, plant and furniture which were answered by the assessee. No query would appear to have been raised in relation to the foreign travel expenses in regard to which the assessee had furnished the relevant details. Therefore, it could not be said that there was any failure on the part of the assessee to submit full and true particulars at the time of the original assessment. It was for the Assessing Officer to examine the details and draw the appropriate inferences. The notice under section 148 issued for the assessment year 2004-05 was, therefore, without jurisdiction. (A.Y. 2004-05)

Rambagh Palace Hotels P. Ltd. v. Dy. CIT (2013) 350 ITR 660 (Delhi)(High Court)

S. 147 : Reassessment – Notice – Duty to disclose primary facts – Licence fee for use of goodwill – Claim based on terms and conditions of licence agreement – Failure on part of assessee to furnish primary facts fully and truly at time of original assessment- notice is held to be valid-Notice need not contain list of documents required to be furnished , but not actually furnished, by the assessee. (Ss.143(1), 148)

For the assessment years 2002-03 to 2006-07, amounts paid by the assessee under a licence agreement for use of goodwill were claimed and allowed as deduction. In the course of the assessment proceedings for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 the assessee did not furnish the licence agreement before the Assessing Officer. In the course of the assessment proceedings for the year 2007-08 the licence agreement was examined but the claim for deduction of the licence fee payment was found not allowable. Thereafter, notices were issued on the ground that the assessee had not disclosed all material facts correctly and fully and there was failure on its part to disclose fully and truly all material facts necessary for its assessment in terms of the proviso to section 147 of the Income-tax Act, 1961, by reason of which there was escapement of income chargeable to tax. On a writ petition contending that (i) the reasons recorded for reopening the assessment did not allege that the assessee failed to file the licence agreement nor was there anything in the counter-affidavit to that effect and, therefore, it was not open to the Revenue to take up that point for the first time before the court; and
(ii) the partnership deed which was filed in the course of the original assessment proceedings narrated the history of the firm in the preamble wherein there was a reference to the payment of the licence fee as also to the agreement, which would amount to sufficient disclosure.

Held, dismissing the petitions, (i) that it was not necessary for the Assessing Officer to list the documents that were required to be furnished, but not actually furnished, by the assessee in the course of the original assessment proceedings. The primary condition for reopening assessment is that there should be reason to believe that income chargeable to tax had escaped assessment. The claim for deduction of the licence fee payment undeniably was based on the terms and conditions of the licence agreement. Neither the partnership deed nor the letter in question could be considered to be primary facts on the basis of which an inference as to the allowability of the licence fee payment could be properly drawn by the Assessing Officer. The profit and loss account, the tax audit report and its annexures and the replies to the questionnaire issued by the Assessing Officer in the course of the original assessment proceedings did not contain anything with regard to the licence fee agreement. This disclosure was only for the purpose of section 40A(2)(b) which permits the Assessing Officer to disallow such payments to the extent they were found to be unreasonable having regard to the various factors spelt out in the section. Furnishing of these particulars could in no way be considered as furnishing the primary facts in relation to the allowability of the payment of the licence fees which could be adjudicated upon only if the terms and conditions stipulated in the agreement were made known to the Assessing Officer.

(ii) That it is difficult to attribute any knowledge to the Assessing Officer while he is dealing with a return for a particular year under section 143(1), as to what he had done in the case of the same assessee in the earlier assessment years. Therefore, it would not be correct to say that the Assessing Officer consciously allowed the licence fee payment as a deduction when he accepted the return under section 143(1). There is nothing in section 147 prohibiting the reopening of an assessment completed under section 143(1) on the ground that the assessee failed to furnish the primary facts fully and truly. Therefore, failure to furnish the primary facts would constitute reason to believe authorising the issue of notice under section 148 also in a case where the first assessment was made by a mere processing of the return under section 143(1). (A.Y. 2002-2003 to 2006-2007)

Remfry and Sagar v. CIT (2013) 351 ITR 75 / 84 DTR 65 (Delhi)(High Court)

S 147 : Reassessment – Notice – Share application money – Information from Investigation Wing that assessee one of beneficiaries of accommodation entries – Share applicants confirming factum of application for shares and of funds for such shares in response to notice under section 133(6) at time of original assessment-- Reassessment on ground information neither available with Department nor did assessee disclose information at time of assessment proceedings, notice was held to be not valid. (Ss. 143(3), 148)

In the course of the assessment proceedings under section 143(3) of the Act, the Assessing Officer issued a questionnaire to furnish the details of the share capital introduced and the share application money received but there was no response from the assessee to the questionnaire till December, 2009. On August 24, 2009, the Additional Commissioner circulated a letter to all Assessing Officers including the Assessing Officer of the assessee. The letter was on the subject of a list of beneficiaries of accommodation entries. Thereafter, on November 9, 2009, the assessee furnished a reply to the questionnaire and gave details of the share capital raised by it and furnished confirmations from the parties. The Assessing Officer, in order to further verify and confirm the facts, issued notices under section 133(6) to the share applicant companies directly and all the five companies responded to those notices and reaffirmed their respective confirmations. Thereafter, assessment was framed on December 30, 2012. The assessment was reopened and the main reason for reopening the assessment of the assessee was that there were bogus accommodation entries and the assessee was one of the beneficiaries of the accommodation entries to the extent of ` 1,35,00,000. The reasons also indicated that the information that the entries were accommodation entries and were provided by bogus companies were not available with the Assessing Officer at the time the assessment was done under section 143(3). On a writ petition : Held, allowing the petition, that the plea taken in the reasons that the information was "neither available with the Department nor did the assessee disclose the information at the time of assessment proceedings" was factually not correct. The information was available with the Department and it had been circulated to all the Assessing Officers. There was nothing to show that the Assessing Officer did not receive the information. There was also nothing to show that the Assessing Officer had not applied his mind to the information received by him. On the contrary, it was apparently because he was mindful of the information that he issued notices under section 133(6) directly to the parties to confirm the factum of application of shares and the source of funds of such shares. Therefore, the very foundation of the notice under section 148 was not established even ex facie. Consequently, it could not be said that the Assessing Officer had the requisite belief under section 147 and, as a consequence, the notice and the order rejecting the objections were liable to be quashed. (A. Y. 2007-2008)

Pardesi Developers and Infrastructure Pvt. Ltd v. CIT (2013) 351 ITR 8 (Delhi) (High Court)

S.147 : Reassessment – Notice – Single judge permitting assessee to file objections to notice and directing Assessing Officer to take decision after considering objections-Failure to file objections – Assessee to file objections and order to be passed after considering objections. (Ss.133A, 148)

The assessee was engaged in jewellery business. During the survey conducted under section 133A of the Income-tax Act, 1961, in the assessee’s premises on February 1, 2006, the managing partner of the assessee admitted certain irregularities in the books of account and offered ` 1.5 crores as additional income for investments made by the partners in the business of the assessee for the assessment year 2006-07. The income already projected for advance tax payment in 2006-07 was `1 crore and the amount of ` 1.5 crores was over and above the estimated income for the year 2006-07 so that the total income projected was ` 2.5 crores and the assessment was completed. Notice was issued for reassessment. On a writ petition, the single judge found that the proceedings were only at the notice stage and it was for the assessee to submit objections and it was for the officer to take the proceedings to the logical conclusion by passing appropriate orders in accordance with law, after considering the objections. Since the time for submitting objections was over, the single judge granted a further period of one month. On appeal held dismissing the appeal, that this was a case where the assessee had not cared to file any objection to the notice. It was in the exercise of discretionary jurisdiction that the single judge permitted the assessee to file objections. In fact, the stand of the Revenue was that the objections would certainly be considered. Therefore, the objections which the assessee had filed must necessarily be considered and reasons must be given. In the above circumstances, interference is declined and the writ petition is dismissed. However, since the time for submitting the objections is already over, the petitioner is granted a further period of "one month" to submit the same. The proceedings shall be finalised in accordance with law, as expeditiously as possible, at any rate, within three months thereafter. (A. Y. 2006-2007)

Alappat Jewels v. Asst. CIT (2013) 350 ITR 471 / 257 CTR 358 (Ker)(high Court)

S.147 : Reassessment – Once Department accepts the tax paid under returns of income filed by an assessee without ever questioning that such returns were filed before a wrong officer, it cannot later contend that such officer had no jurisdiction to accept the same.(S.143(1), 143(3)

Assessee had filed its return of income before his normal Assessing Officer which were accepted by such officer u/s.143(1) whereas he was actually supposed to file the same before the special Assessing officer designated as such consequent to search action at the assessee’s premises in the past Hence, the assessment was sought to be reopened on the sole ground that assessee had filed return of income with other wards with mala fide intentions. It was held by the Hon’ble High Court that the assessee had discharged his liabilities by filling returns of income and the same being accepted vide intimation u/s.143(1)Since the Department has accepted the tax paid under such returns without ever questioning filling of such return before a wrong officer, it cannot now be allowed to contend that such returns were filed before wrong officers who had no jurisdiction to accept the same. Since the sole ground for such re-opening of the assessment was not sustainable notice u/s. 148 were quashed. (SCA 6557 to 6560 of 2001. dt. 13-8-2012)]

Bipinkumar P. Khandheria (2012) ACAJ - November-P. 402)(Guj.)(High Court)

S.147 : Reassessment proceedings – Property held for charitable purposes – Accumulation of income – Entire accumulated income shall be deemed to be income of assessee of previous year in which breach of conditions or contingency occurs, reassessment for all assessment years was held to be invalid. (Ss.11, 13, 35, 47)

Assessee is a scientific research society approved by competent authority under section 35(1)(ii). For relevant assessment years, assessee’s income was held as exempt from tax. On 1-4-2000, assessee transferred its properties to its sister concern. Assessing Officer thus taking a view that assessee violated provisions of section 13(2)(g), read with section 13(3)(b), initiated reassessment proceedings. During reassessment proceedings, Assessing Officer having invoked provisions of section 11(3), brought, balance of accumulated income at end of each relevant year, to tax .The assessee challenged the reassessment proceedings by filing the writ petition. Allowing the writ petition the court held that in view of provisions of section 11(3), entire accumulated income shall be deemed to be income of assessee of previous year in which breach of conditions or contingency occurs, therefore, it was impermissible in law for Assessing Officer to entertain a reason to believe that income chargeable to tax for all assessment years in question had escaped assessment, in view of above, impugned addition made in reassessment proceedings was to be deleted .In favour of assessee.(A.Y. 1998-99 to 2000-01)

Escorts Heart Institute & Research Centre v. CIT (2013) 213 Taxman 11 (Delhi)(High Court)

S.147 : Reassessment – Quantum of escaped tax – Reopening invalid if reasons silent on quantum of escaped tax. (Ss.148, 149, 151)

In AY 2000-2001 the assessee sold a plot of land after converting leasehold land into freehold. The capital gains arrived at was offered as LTCG and the same was accepted by the AO. After the expiry of 4 years, the AO issued a notice u/s. 148 for reopening the assessment on the ground that as the property was sold within three years of conversion into freehold, the gains were assessable as STCG. The approval of the Joint/ Addl. CIT was obtained. However, in the recorded reasons, it was not stated whether the amount of income escaping assessment exceeded ` 1 lakh. The assessee challenged the reopening on the ground that as the recorded reasons did not state that the income escaping assessment is ` 1 lakh or more, the reopening was invalid. HELD by the High Court upholding the plea:

S. 149(1)(b) provides that no notice u/s. 148 shall be issued after the expiry of 4 years from the end of the relevant AY unless the income chargeable to tax which has escaped assessment amounts to ` 1 lakh or more. Under the proviso to s. 151 (1), no notice u/s. 148 can be issued after the expiry of four years from the end of the relevant AY unless the CCIT/ CIT is satisfied on the reasons recorded by the AO that it is a fit case for issue of such notice. Accordingly, it is imperative that the AO should state in the recorded reasons that the escaped income is likely to be ` 1 lakh or more so that the sanctioning authority is aware that it has exercised power of extended period of limitation u/s. 149(1)(b) and applies its mind accordingly. A sanction given without being aware of this fact is not valid. On facts, as there is nothing in the recorded reasons to suggest that the income chargeable to tax which has escaped the assessment is ` One lakh or more, the reopening is not valid. (A.Y. 2000-2001)

Mahesh Kumar Gupta v. CIT (All)(High Court), www.itatonline.org

S.147 : Reassessment – Reason to believe – Reopening has to be on the basis of some tangible material available to the AO held to be not valid. (S.80IA(4))

Exercise of reopening has to on the basis of some tangible material becoming available with the AO. There has to be a rational connection and a live link between the material discovered and the formation of belief by the AO. Once the AO had applied his mind and allowed deduction u/s. 80-IA(4) to the assessee on the basis of material before him, it was not permissible for him to reopen the assessment u/s. 147 on the same material on the ground that certain aspects were not considered or that they were overlooked; a change of opinion is no ground for exercise of powers u/s. 147. (A.Y. 2007-08)

Agrawal JV v. ITO (2013) 83 DTR 101 / 257 CTR 112 (Guj.) (High Court)

S.147 : Reassessment – Revenue audit – Reopening of assessment due to revenue audit’s compulsion is void. (S.148)

The AO passed a s. 143(3) assessment order in which he allowed the assessee’s claim for business expenses. The Revenue Audit raised an objection that as the assessee’s business had ceased, the income had to assessed as "other sources" and the expenditure disallowed. The AO replied to the Audit stating that the objection was not correct and that the assessment order was correct. The Revenue Audit thereafter wrote to the CIT that the AO’s stand was not correct. Based on this, the AO issued a s. 148 notice (within 4 years from the end of the AY) to reopen the assessment and disallow the expenditure. The assessee challenged the reopening on the basis that the AO was compelled by the audit party to re-open the assessment though he was of the belief that no income had escaped assessment. HELD by the High Court upholding the plea:

If the audit party brings certain aspects to the notice of the AO, he is entitled to reopen the assessment after forming his own belief. However, if the AO acts under compulsion of the audit party and not independently, the action of re-opening would be vitiated. On facts, it is clearly established that the AO was under compulsion from the audit party to issue notice for reopening because after the audit party brought the controversial issue to the notice of the AO, he did not agree to the proposal for re-examination of the issue and wrote a letter and gave elaborate reasons why the assessment order was correct. The s. 148 notice was issued only after the Revenue Audit wrote to the CIT reiterating its stand that income had escaped assessment. Consequently, the s. 148 notice had to be quashed [Cadila Healthcare Ltd. ACIT (2012) 65 DTR 385(Guj) followed; CIT v. P.V.S Beedies Pvt. Ltd.(1999) 237 ITR 13 (SC) referred].

Vijay Rameshbhai Gupta v. ACIT (Guj.)(High Court).www.itatonline.org

S.147 : Reassessment – Within four years – Tangible material – Change in accounting policy – Non application of mind by the Assessing Officer, reassessment is held to be valid. (Ss. 143(3), 148)

The Assessment was completed under section 143(3). The assessment was reopened on the ground that due to change in accounting policies an amount of ` 20 crores, which however remained to be added to the total income. The assessee challenged the reassessment proceedings. Dismissing the petition the court held that there was no query was raised during the assessment and the assessment would ex facie disclose that the Assessing Officer has not applied his mind to any of the points on the basis of which the assessment was reopened. Therefore, there was tangible material for the assessing officer to reopen the assessment. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. Something which is tangible need not be something which is new. An Assessing Officer who has plainly ignored the relevant material in arriving at an assessment acts contrary to law. If there is an escapement of income in consequence, the jurisdictional requirement of section 147,of the Act will be fulfilled . Accordingly the writ petition was dismissed. (A.Y. 2006-07)

Export Credit Guarantee Corporation of India Ltd. v. Addl. CIT (2013) 350 ITR 651 (Bom.)(High Court)

S.148 : Reassessment – Notice – For failure to issue notice, reassessment held to be not valid, section 292BB does not have retrospective effect. [S.143(2), 292BB]

The A.O. issued a notice u/s. 148 to make a reassessment. However, as a notice u/s. 143(2) was not issued, the Tribunal quashed the reassessment. The Department filed an appeal before the High Court where it relied on s. 292BB (which provides that the failure to issue notice cannot be objected to if the assessee has appeared in the proceeding), inserted by the Finance Act 2008 w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the reassessment was valid. Held by the High Court dismissing the appeal:

The issue of a notice u/s. 143(2) is mandatory. The failure to do so renders the reassessment void (CWT v. HUF of H. H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom.) followed). S.292BB was inserted w.e.f. 1.4.2008 and came into operation prospectively for AY 2008-09 and onwards.

CIT v. Salman Khan (Bom.)(High Court) www.itatonline.org.

S.153C : Assessment – Income of any other person – Search and seizure – Approval – Failure to Obtain JCIT’s Approval Renders s. 153C Assessment Order Void. (Ss.132, 144, 153D)

Pursuant to search & seizure action u/s 132 on the premises of a third party, certain documents belonging to the assessee were found and seized pursuant to which a notice u/s 153C was issued to the assessee and assessment u/s. 153C r.w.s. 144 were framed. In passing the assessment orders, the A.O. (ITO) omitted to obtain the consent of the JCIT as mandated by S.153D. Before the Tribunal, the assessee argued that the failure to obtain the JCIT’s consent rendered the assessment a nullity. The Tribunal {Akil Gulamali Somki v. ITO (2012) 137 ITD 94 (Pune)} upheld the plea on the basis that as the heading to s. 153D refers to a "prior approval" and uses negative wording and the word "shall", compliance of s. 153D is mandatory and cannot be waived by the assessee. Reliance was also placed on Clause 9 of the Manual of Office Procedure which makes it clear that an assessment order under Chapter XIV-B can be passed only with the previous approval of the JCIT and that the approval must be in writing and stated to have been obtained in the body of the assessment order. On appeal by the Department to the High Court, held dismissing the appeal:

Though the question raised proceeds on the basis that approval of the JCIT was given as he had corrected the draft assessment order and the changes were incorporated by the AO in the final assessment order, the finding of fact was recorded by the Tribunal is that no prior approval of the Joint Commissioner was taken before the ITO passed the order. In view of the above, there is no reason to entertain the proposed question and the appeal is dismissed.

CIT v. Akil Gulamali Somji (Bom.)(High Court) www.itatonline.org.

S.158BB : Block assessment – Computation – Undisclosed income – Cash credits – Gifts – Value of property – Gifts held to be genuine – Documents found explained addition was not justified. (S.68, 69)

The assessee has received gifts amounting to ` 22.75 lakhs. In the assessment proceedings the assessee had filed the details of capacity of donors, Income tax details, PAN no, copies of pass book. Commissioner (Appeals) and Tribunal have give the finding that gifts are genuine. On appeal by revenue the High Court also confirmed the view of Tribunal by holding that the order is not perverse. Accordingly the appeal of revenue was dismissed. A document was found at the premises of assessee in the course of search. The assessee explained that the said document was in the hand writing of the assessee’s father which contained the resale value of property for the purpose of distribution of property within family. The Commissioner (Appeals), and Tribunal has accepted the explanation of assessee that no cash consideration in excess of Rs 71.35 lakhs was paid for the purchase of the property. On appeal by revenue the High Court also confirmed the order of Tribunal Hence no addition is called for. (Block period 1ST April, 1997 to 29th Jan., 2003)

CIT v. Sunita Makhija (2013) 256 CTR 197 / 82 DTR 140 / 214 Taxman 50(Mag.)(Bom.)(High Court)

S.158BB : Block assessment – Computation – Undisclosed income – Deduction under Chapter VI-A is available Amount considered in regular assessment can not be assessed as undisclosed. (S.158B)

Assessing Officer disallowed deduction under Chapter VI-A while computing undisclosed income of assessee for relevant block period. The court held that deduction under Chapter VI-A has to be given while computing total income or loss. The court also held that the amount in question had been taken into consideration in regular assessment order under section 143(3), said amount could not be included under sub-clause (b) of section 158B. (B.P. 1-4-1985 to 14-11-1995)

CIT v. Anil Sarin (2013) 212 Taxman 108 (Mag.)(All)(High Court)

S.158BB : Block assessment – Undisclosed income – Absence of any material addition deleted by the Tribunal was held to be justified. (S. 158B(b))

Documents on record having indicated that the assessee has in fact, not received any royalty w.e.f. October 1999, for the user of his trade mark from the company, once the said mark stood assigned to the company by virtue of the shareholders agreement entered into by the assessee with another company which is not shown to be sham and bogus, the finding of the Tribunal that no royalty income was assessable under Chapter XIV-B does not raise a substantial question of law.

In the absence of may material to show that the assessee had actually received the reimbursement of marketing expenses from the company using his trade mark which he was entitled to receive only "on demand" but was not demanded by him, the question of undisclosed income does not arise and no substantial question of law arises. (Block period 1.4.1999 to 1.11.2000)

CIT v. M.P. Ramchandran (2013) 83 DTR 143 (Bom.)(High Court)

S.158BC : Block assessment – Undisclosed income – Donation to political parties – Statement on oath – No addition can be made merely on the basis of sworn statement of third party without given an opportunity of cross examination. [S.132, 132(4)]

The Assessing Officer made addition in respect of advance by assessee as donation to political party. The Tribunal deleted the addition by observing that the assessee established the source of fund collected and given to the Political party. As regards the noting in the diary the assessee stated that the entries were not written by him. The addition was made consequence to sworn statement of one Mr. J.A. Richrds which was taken from the personal assistant of the assesse. The assessee asked for cross examination and opportunity was not given .The Tribunal held that his statement cannot be used as evidence against the assessee. Accordingly deleted the addition. On appeal by revenue the Court also affirmed the order of Tribunal.(Block period 1987-88 to 1997-98)

CIT v. M. Chinnasamy (2013) 350 ITR 694 (Mad.)(High Court)

S.158BC : Block assessment – Undisclosed income – Revenue accepting Commissioner (Appeals) finding in case of assessee’s wife from assessment year 1997-98 that she was owner of business and on that basis filed her return – No addition as undisclosed income in hands of assessee on ground business belonged to him

Pursuant to a search of the assessee’s business and residential premises, the Assessing Officer made an addition for the assessment years 1995-96 to 1997-98 on the basis that the business in question belonged to the assessee rejecting the assessee’s claim that the business had been transferred to his wife after 1994 and, thereafter, was run by her and, that therefore, the entire income from that business should be assessed in her hands. In support of the claim the assessee had filed an affidavit from the assessee’s wife before the Assessing Officer. The affidavit was, however, rejected and it was noted that the statement given by the assessee’s wife on oath earlier before the income-tax authorities should be given more weight. The assessee also claimed before the Assessing Officer that the income from the business was declared in the returns filed in the name of his wife. This claim was also rejected by the Assessing Officer as irrelevant. The Commissioner (Appeals) deleted the addition following his predecessor’s order. His predecessor had deleted the additions on the ground that the income from the business had been disclosed in the returns filed by the assessee’s wife. The Tribunal confirmed the decision of the Commissioner (Appeals). On appeal by revenue dismissing the appeal, the Court held that the finding as to the ownership of a particular business is a finding of fact. The Commissioner (Appeals) found as a fact that from the assessment year 1997-98 it was the assessee’s wife, who was the owner of the concern. It was on that basis that she had filed her return and the finding of the Commissioner (Appeals) was accepted by the Revenue. The finding of fact had not been challenged as perverse. The Revenue, having accepted the finding in the assessee’s wife case, could not take a different view in the assessment of the husband. That would amount to taking contradictory or inconsistent stands without any just cause. Therefore, the additions were rightly deleted by the Tribunal. (A.Y. 1998-1999)

CIT v. Kuldeep Sood (2013) 351 ITR 166 (Delhi)(High Court)

S.158BD : Block assessment –Undisclosed income of any other person – Recording of satisfaction – It is mandatory for the assessing officer of the searched person to record satisfaction for assessee’s officer to assume jurisdiction under section 158 BD of the Act.(S.158BC)

Wherein the communication received from the assessing officer of the searched person to the assessing officer of the assessee, there is no recording of satisfaction that any undisclosed income belongs to the assessee entire proceedings under section 158 BD are held to b without jurisdiction. (Block Period: 1-4-1986 to 02.11.1996)

CIT v. Intercontinental Trading & Investment Co. Ltd. (2013) 350 ITR 316 / 81 DTR 314 (Delhi)(High Court)

S.179 : Private company – Liability of directors – Corporate veil – Pubic company – Ordinarily, provisions of section 179(1) cannot be applied to a public company – Corporate veil can be lifted and tax due of public company can be recovered from its directors

Being a public company, ordinarily, provisions of section 179(1) of the Act cannot be applied. However, if the factors noted by the Assistant Commissioner in his impugned order dated
15-4-2002 are duly established, it would certainly be a fit case where invocation of principle of lifting of corporate veil would be justified.

The Assistant Commissioner proceeded to record such findings without giving sufficient opportunity of hearing to the petitioner and without disclosing the necessary materials for coming to such a conclusion. The impugned orders dated 15-4-2002 and revisional order dated 9-4-2003 are quashed. The proceedings are however, placed back before the Assistant Commissioner for proceeding further in accordance with law after giving a notice to the petitioner indicating his tentative grounds why he desires to invoke the concept of lifting of corporate veil, giving sufficient opportunity to the petitioner to meet with such allegations. After giving opportunity of hearing to the petitioner and following the principles of natural justice it would be open for the Assistant Commissioner to pass fresh orders in accordance with law as may be found appropriate on the basis of material on record.

Pravinbhai M. Kheni v. ACIT (2013) 213 Taxman 81 (Guj.)(High Court)

S.192 : Deduction at source – Salary – Seconded employees – Seconded personnel being not employees hence not liable to deduct tax at source. [S.40(a)(iii)]

Assessee, an association of persons consisting of nine public sector oil companies as its members, was engaged in doing business abroad and for that purpose deployed trained man power to foreign companies at contracted rate. Trained man power deployed abroad was drawn by assessee from employees of its member companies. Such deployed man power continued to be employees of its member companies, but were seconded to projects abroad by assessee. Assessee paid certain amount as foreign allowance to seconded personnel and claimed deduction of same. Assessing Officer disallowed claim of deduction on plea that assessee failed to deduct tax at source under section 192 on such payment and, therefore, payment was hit by section 40(a)(iii). In view of fact that seconded personnel were not employees of assessee, amount paid to seconded personnel was not liable for deduction of tax at source. In favour of assessee. (A.Y.1997-98)

CIT v. Petroleum India International (2013) 213 Taxman 41 (Bom.)(High Court)

S.194C : Deduction at source – Lorry booking business – Not liable to deduct tax at source

Assessee collecting freight charges from clients who intended to transport their goods through separate transporters and paying to transporters entire amount collected from clients after deducting his commission. There is no privity of contract of carriage of goods between assessee and his clients, assessee is not a person responsible but only a facilitator hence not liable to deduct tax at source. Appeal of revenue was dismissed. (A. Y. 2007-2008)

CIT v. Hardarshan Singh (2013) 350 ITR 427(Delhi) (High Court)

S.197 : Deduction at source – Certificate for lower rate – Short deduction of tax – Certificate for deduction at lower rate issued to principal officer of M unit – Assessee is not in default merely on ground certificate not issued in name of B unit. (S.194C)

The assessee had appointed various persons for executing the works, making it liable to deduct tax at the rate prescribed under section 194C of the Act. The assessee’s Mumbai unit had a separate tax deduction account number from its Bahadurgarh unit. The Mumbai unit held a certificate under section 197 permitted deduction of tax at a lower rate. On the ground that the two units were separate entities for the purpose of deduction of tax at source the Assessing Officer recorded a finding of short deduction of tax at source and passed an order under section 194C. The Commissioner (Appeals) held that since the genuineness of the issue of certificates under section 197 had not been doubted by the Assessing Officer, there was no justification to hold that the assessee was in default merely on the ground that the certificate was not issued in the name of the Bahadurgarh unit. This was affirmed by the Tribunal. On appeal by revenue the Court dismissing the appeal, held that the Assessing Officer of the contractors had furnished a certificate under section 197 to the principal officer of the Mumbai unit in terms of clause (iii) of section 204 mandating the persons to whom such certificate was issued to deduct tax at a rate lower than the prescribed rate under section 194C. Merely because the assessee had got separate tax deduction account numbers for the Bahadurgarh unit and for the Mumbai unit, that would not render the certificate issued under section 197(2) redundant. Such certificate was to be issued to the principal officer of the company as the person responsible for deduction of tax and not to any other person or unit of the assessee. Therefore, the order passed by the Commissioner (Appeals) and affirmed by the Tribunal could not be said to suffer from any illegality in any manner.

CIT (TDS) v. Parle Biscuits Pvt. Ltd. (2013) 351 ITR 138 (P & H)(High Court)

S.220 : Collection and recovery – Assessee deemed in default – Appeal before Commissioner (Appeals) pending – Demand stayed pending disposal of appeal

The assessee, a joint venture company, claimed deduction of ` 103.04 crores towards software development and information technology related services to its associated enterprise. It incurred a sum of ` 5.86 crores towards reimbursement of expenses incurred by its associated enterprise. The Assessing Officer made a reference to the Transfer Pricing Officer to investigate into the reasonableness of the international transactions of the assessee with its associated enterprise. The Transfer Pricing Officer came to the conclusion that no services which would benefit the assessee had been rendered by its associated enterprise and that the assessee should not have made the claim for reimbursement. The Transfer Pricing Officer made an addition of ` 5.86 crores under section 92CA(3) of the Act. The Assessing Officer passed an order under section 143(3)(iii) determining a total income of ` 6.41 crores after making an adjustment in terms of the findings of the Transfer Pricing Officer. Notice under section 271(1)(c) was issued to the assessee and thereafter penalty was imposed in a sum of ` 2.05 crores. An appeal was filed before the Commissioner (Appeals) against the order of penalty. On an application made before the Assessing Officer under section 220(6), the application for stay of demand was rejected and the assessee was directed to deposit 50 per cent of the outstanding demand. Thereafter, the assessee moved the Additional Commissioner who similarly rejected the application observing that the quantum addition on the basis of which penalty was imposed, had been confirmed by the Commissioner (Appeals). Upon an application made before the Commissioner the request for stay of demand was rejected. The quantum appeal was in the meantime also dismissed by the Tribunal. Against the order of the Tribunal, the assessee filed an appeal before the court which was pending admission. On a writ petition the Court held that the Assessing Officer as well as the Commissioner had failed to exercise their jurisdiction in accordance with law. The Commissioner adverted to the fact that the quantum appeal had been rejected by the Commissioner (Appeals) and the Tribunal. The order for the deposit of the entire penalty was not justified. The assessee was to deposit an amount of ` 50 lakhs in two instalments each of ` 25 lakhs. Conditional on the payments, recovery of the demand was to be stayed pending disposal of the appeal before the Commissioner (Appeals). If an order adverse to the assessee was passed by the Commissioner (Appeals), no coercive steps for the recovery of the balance demand were to be pursued for a period of two weeks.

By the court : "When the statute confers a discretion on the Assessing Officer, that is a discretion which is wielded in the exercise of a quasi-judicial function. Assessing Officers reject stay applications in a cavalier fashion making a bald statement to the effect that `looking to the facts and circumstances of the case’, no case for stay has been made out. This does not amount to a valid or proper exercise of discretion. What is expected of an Assessing Officer is at least a brief statement in the order of the reasons on the basis of which he formed his decision under section 220(6). Otherwise recourse to section 220(6) is a meaningless formality. Assessing Officers when they dispose of applications under section 220(6) are required to act fairly. Fairness as a concept does not undergo a change in the hands of an Assessing Officer. Fairness requires objectivity. Objectivity that is guided by the need to protect the Revenue while at the same time being fair to the assessee whose case has to be tested in a statutory appeal." (A.Y. 2004-2005)

Deloitte Consulting India Pvt. Ltd. v. ACIT (2013) 351 ITR 160 / 84 DTR 437 (Bom.)(High Court)

S.220 : Collection and recovery – Assessee deemed in default – Garnishee proceedings under 226(3) – AO not passed a speaking order u/s. 220(6), order of attachment was squashed.(S.226(3))

The assessee was denied claim of deduction U/S. 10B, and substantial demand was raised. The assessee had made a application u/s. 220(6) to the AO stating that the demand should be stayed till disposal of appeal by the CIT(A). The AO rejected the stay without citing any reasons, and the bank accounts and rents were attached of the assessee. The assessee filed a writ with the High Court, and while allowing the writ, held that non-speaking order under section 220(6) without assigning any reasons needs to be quashed, and therefore the order attaching the accounts and rent of assessee is also liable to quashed. (A.Y. 2009-10)

Lalit Wadhwa v. CIT (2013) 82 DTR 130 (P&H)(High Court)

S.220 : Collection and recovery – Assessee deemed in default – Stay – Demand should be stayed if strong prima facie case made out. Demand on covered issues cannot be recovered by adjustment of refunds

The AO passed an assessment order u/s. 143(3) and raised a demand of ` 1,719 crores. In response to the assessee’s stay application, the AO accepted that demand of ` 1,370 crores had to be kept in abeyance as they were covered in favour of the assessee by appellate orders for earlier years. However, he still held that the said demand had to be adjusted against refunds of ` 560 crores determined for earlier years. He demanded that the balance demand of ` 377 crores on the other issues be paid by the assessee. The assessee filed a Writ Petition to challenge the adjustment of refunds against the demand on covered issues and the non-grant of stay on the other issues. HELD by the High Court:

The manner in which and the ground on which an adjustment of the refund was made is arbitrary and contrary to law. The stay order states that the assessee would not be treated as an assessee in default in respect of covered issues. Yet the department has proceeded to adjust the refund due and payable to the assessee merely on the ground that the department’s appeal is pending. The adjustment of a refund is a mode of effecting recovery. Once an issue has been covered in favour of the assessee in respect of another assessment year on the same point, it was wholly arbitrary on the part of the department to proceed to make an adjustment of the refund. If the adjustment was not made, there can be no manner of doubt that the assessee would have been entitled to a stay on the recovery of the demand. The demand cannot be adjusted by the department in this manner merely because it is in possession of the funds belonging to the assessee to which the assessee is legitimately entitled to and has been granted a refund. The making of an adjustment in these facts is totally arbitrary and contrary to law. As regards the other issues, the assessee has made out a strong prima facie case for a stay of the recovery of the demand. As the action of the department in adjusting the refunds due to the assessee was contrary to law, the interests of justice would be served if the department is permitted to make an adjustment to an extent of ` 60 crores and refund the balance with interest.

HDFC Bank Limited v. ACIT (Bom)(High Court), www.itatonline.org

S.220 : Collection and recovery – Interest – Rejection of waiver application for interest held to be justified

Assessee partner in two firms and having substantial agricultural income. Assessment was necessitated on account of addition to taxable income of firm of which assessee was a partner. Assessee not satisfying conditions. Payment of interest would not cause genuine hardship Rejection of application for waiver of interest was held to be justified.

K. C. Mohanan v. Chief CIT (2013) 350 ITR 461 / 258 CTR 103 / 85 DTR 125 (Ker.)(High Court)

S.220 : Collection and recovery – Interest – Waiver – Partial waiver can be given

In a writ petition filed in the High Court the Court held that section 220(2A) of the Income-tax Act, 1961, is an incentive to defaulter/Assessees to co-operate with the Department and to remit the tax voluntarily at the earliest and, therefore, compliance should be rewarded by taking a liberal view and approach. The Commissioner or the Chief Commissioner need not always waive the amount of interest in full but can grant waiver or reduction partially. What is indicated by the provision is that relief to be granted under section 220(2A) should be proportionate to the extent of satisfaction of the conditions stated therein. In other words, if the conditions are partially satisfied the assessee should be given partial relief, i.e., partial waiver which should be in proportion to the extent of satisfaction of the conditions and Application for stay of recovery proceedings cannot be construed as non-co-operation as entire arrears paid within six months, partial relief under section 220(2A) granted. The Writ petition was allowed. (A. Y.2006-07)

Arun Sunny v. Chief CIT (2013) 350 ITR 147(Ker.)(High Court)

S.220 : Collection and recovery – Waiver of interest – Hardship – Attachment of entire properties – Entire liabilities subsequently satisfied by appropriation of compensation, authorities to reconsider waiver application.

The application for waiver of interest liability of ` 8,54,476 under section 220(2A) of the IT Act, 1961, was rejected and subsequently the entire interest liability of the assessee was satisfied by appropriating amounts from out of ` 18,06,402 remitted by a corporation which was due to the assessee in a land acquisition proceedings. The reasons for rejecting the application were (i) that the assessee did not produce any proof that he had no other business or source of income, and (ii) there had not been any co-operation extended to the Department during the recovery proceedings. On a writ petition the Court held that the assessee prima facie, proved by the fact that the entire properties of the assessee were under attachment and that the entire liabilities were subsequently cleared by making appropriation of the compensation. Therefore, the order rejecting the application could not be sustained. Commissioner directed to pass the order according to law.

Anto Nitto v. CIT (2013) 350 ITR 305 / 258 CTR 100 / 85 DTR 94 / 214 Taxman 37(Mag.)(Ker.)(High Court)

S.226 : Collection and recovery – Modes of recovery – Stay – Stay Applications are not a "Meaningless Formality". No recovery during pendency of a stay application. S.226(3) notice must ordinarily be pre-served on assessee. (S.226(3))

The assessee, an age-old charitable trust, amended its objects. Because of this change, the AO passed an order u/s. 143(3) denying exemption u/s 11 and raised a demand of ` 11 crores. The assessee filed a stay application and requested a hearing. During the pendency of the stay application, the AO issued a notice u/s. 226(3) and attached the assessee’s bank accounts. The notice specifically stated that the bank should not contact the assessee till payment was made. A copy of the said notice was not served on the assessee. The assessee filed a Writ Petition to challenge the recovery action undertaken by the department. Held by the High Court allowing the Petition:

  1. The action of attaching the assessee’s bank account u/s 226(3) during the pendency of a stay application and without giving it notice was arbitrary and high handed. The whole object of serving a notice on the assessee is to enable the assessee to have some recourse. While in a given case, it may not be feasible to serve a prior notice on the assessee if there is an apprehension that the monies would be spirited away, this was not a case of that type. In a situation such as the present where appeals filed by the assessee are pending before the CIT (A) and the assessee had sought an opportunity of being heard and filed applications for stay, there was no justification whatsoever to proceed hastily with the enforcement of the recovery of the demand without disposing of the application for stay;

  2. Applications for stay cannot be treated by the AOs & appellate authorities as meaningless formalities. Quasi-judicial authorities have to apply their mind in an objective and dispassionate manner to the merits of each application for stay. While the interests of the Revenue has to be protected, it is necessary for AOs to realise that fairness to the assessee is an intrinsic element of the quasi-judicial function conferred upon them by law. Applications for stay must be disposed of at an early date. Such applications cannot be kept pending to obviate compliance with the need to evaluate the contentions of the assessee until after monies are recovered using the coercive arm of the law. Appellate authorities must set down time schedules for disposal of stay applications with reasonable expedition. The manner in which recourse has been made to the coercive process of law, leaves much to be desired and the action which was pursued was completely high handed and arbitrary. There could have been absolutely no apprehension that the assessee in the present case was likely to spirit out the monies which were invested in Fixed Deposits. A part of the money has to be refunded to the assessee to carry out its day-to-day activities.

Society of the Franciscan (Hospitaller) Sisters v. DDIT (Bom.)(High Court) www. itatonline.org

S.226 : Collection and recovery – Modes of recovery – Stay – Stay of demand can be granted even if there is no financial hardship.

The AO raised a demand on the assessee on the same lines as had been done in the preceding AY. Though in the preceding AY, the assessee had obtained a stay from the High Court (see UTI Mutual Fund v. ITO (2012) 345 ITR 71 (Bom), the AO refused to follow that for the present AY. The assessee filed a Writ Petition to challenge the refusal to grant stay. To oppose the grant of stay, the department relied on CIT v. IBM India Pvt. Ltd. where the Karnataka High Court had held that in matters involving large amounts due to the Revenue, an interim order of stay would be granted only in case of genuine financial hardship of the assessee and not otherwise. The Department argued that as the assessee did not have any financial hardship, the stay should be rejected. HELD by the High Court rejecting the department’s plea and granting stay of the demand:

The order of the Karnataka High Court in CIT v. IBM India Pvt. Ltd. cannot be read to mean that consideration of whether an assessee has made out a strong prima facie case for stay of enforcement of a demand is irrelevant. Nor is the law to the effect that absent a case of financial hardship, no stay on the recovery of a demand can be granted even though a strong prima facie case is made out. In considering whether a stay of demand should be granted, the Court is duty bound to consider not merely the issue of financial hardship if any, but also whether a strong prima facie raising a serious triable issue has been raised which would warrant a dispensation of deposit. That is a settled position in the jurisprudence of our revenue legislation. In CEAT Limited v. UOI 2010 (250) ELT 200 (Bom.) it was held that "If the party has made out a strong prima facie case, that by itself would be a strong ground in the matter of exercise of discretion as calling on the party to deposit the amount which prima facie is not liable to deposit or which demand has no legs to stand upon, by itself would result in undue hardship of the party is called upon to deposit the amount." Where a strong prima facie case has been made out, calling upon the assessee to deposit would itself occasion undue hardship. Where the issue has raised a strong prima face case which requires serious consideration as in the present case, a requirement of pre-deposit would itself be a matter of hardship. Also the manner in which the Revenue has sought to brush aside a binding decision of the Court in the case of the assessee on the issue of a stay on enforcement for the previous year has to be serious disapproved. The rule of law has an abiding value in our legal regime. No public authority, including the Revenue, can ignore the principle of precedent. Certainty in tax administration is of cardinal importance and its absence undermines public confidence.

UTI Mutual Fund v. ITO (No. 2) (Bom.)(High Court) www.itatonline.org

S.234A : Interest – Advance tax – No interest can be levied u/s. 234A if entire amount of tax has been paid on or before due date of filing return of income even if return is filed after due date.

If entire amount of tax on taxable incomes has been paid on or before due date of filing return of income then even if return of income is filed after due date of filing return of income, no interest can be levied u/s.234A. If tax on total income has been paid in part on or before due date of filling return of income then interest u/s. 234A can be levied only on differential amount of tax (i.e. on total tax less tax already paid on or before due date) and not on the entire amount of tax or else, it shall render the provisions of section 234A penal in nature which the statute does not provide for. (SCA 9820 of 2002, dt. 18-6-2012)].

Bharatbhai B. Shah (2012) ACAJ - November-P. 400/(2013) 214 Taxman 36(Mag.)(Guj.)(High Court)

S.234A : Interest – Default in furnishing return of income – Waiver or reduction – Delay in filing return attributable to assessee – Chief CIT correct in only partially waiving the interest.

Where there was a delay on the part of the assessee in seeking copies of the impounded documents for filing return the Chief CIT was correct in only partially waving the interest under section 234A of the Act for delay in filing return of income. (A.Y. 2001-02 & 2002-03)

Shebin Jewellery v. Chief CIT (2013) 81 DTR 329 (Ker.)(High Court)

S.234B : Interest – Advance tax – Deduction at source – Entire income is subject to deduction at source.

When entire income is subject to TDS, it was not liable to pay advance tax, therefore no interest could be charged under section 234B. (A.Y. 2002-03)

DIT(IT) v. Chiron Bearing Gmbh & Co. (2013) 351 ITR 115 / 256 CTR 342 / 83 DTR 1 (Bom.)(High Court)

S.234B : Interest – Advance tax – MAT credit – Amendment in section 234B by Finance Act, 2006 – Retrospective in nature – Therefore, MAT credit to be considered before calculation of interest u/s. 234B of the Act.

Amendment in section 234B of the Act w.e.f. 1-4-2007 was held to be clarificatory in nature which is retrospective in nature. Therefore, MAT credit is to be considered before calculating interest under section 234B of the Act. (A.Y. 1999-2000)

Chief CIT v. Gujarat Mitra P. Ltd. (2013) 81 DTR 25 (Guj.)(High Court)

S.234B : Interest – Advance tax – No interest u/s. 234B can be levied unless AO gives specific direction in the assessment order.

No interest can be levied through a notice of demand unless there is any specific direction giving reference to the section charging interest in the Assessment Order. (T.A No. 84 of 200, dt 19-6-2012]

S.K. Patel Family Trust. (2012) ACAJ - November-P. 401)(Guj.)(High Court)

S.234B : Interest – Advance tax – Notice of demand – Specific order – Levy of interest was deleted. (S.156)

Interest under section 234B cannot be charged in notice of demand issued under section 156 in absence of any specific order demanding interest in assessment, reassessment or rectification order.
(A.Y. 1996-97)

CIT v. Ruchira Papers Ltd. (2013) 212 Taxman 9 (HP)(High Court)

S.234B : Interest – Advance tax –Without a specific order cannot be charged. (S.156)

Interest under section 234B cannot be charged in notice of demand issued under section 156 in absence of any specific order demanding interest in assessment, reassessment or rectification order.
(A.Y. 1996-97)

CIT v. Ruchira Papers Ltd. (2013) 212 Taxman 9 (HP)(High Court)

S.234C : Interest – Deferment of advance tax – Mandatory – Waiver of interest – Assessee not filing application for waiver of interest hence no opinion could be expressed whether assessee’s case is covered by circulars.

During the assessment year 2004-05, the assessee contended that its principal informed it by letter dated November 4, 2004, that it was entitled to the additional incentive of ` 6,07,44,583. The incentive was paid in view of the sale of ` 636 crores in the previous year 2003-04 in which the growth of 9.8 per cent over the last year was recorded. Prior thereto, the assessee was not aware that the income towards the growth incentive would become payable and could not have presumed that it would be entitled to the substantial payment towards growth incentive before the letter dated November 4, 2004, was received by it. The assessee had paid the advance tax of ` 1.25 crores on December 14, 2004. The Tribunal upheld the interest charged by the Assessing Officer under section 234C amounting to ` 4,17,074. On appeal Held, dismissing the appeal, that the Central Board of Direct Taxes had issued circulars in this regard and the Chief Commissioners and the Director General have been given power to reduce the interest payable under sections 234A, 234B and 234C in specified and specific cases. Since the assessee had not filed any application no opinion could be expressed whether the assessee’s case was covered under the circulars. If deemed appropriate, the assessee could make an application. (A.Y. 2004-2005)

Bill and Peggy Marketing India Pvt. Ltd. v. ACIT (2013) 350 ITR 465 (Delhi)(High Court)

S.237 : Refund – Deduction at source – Deposited by mistake – Refund entitled with interest. (Ss. 195, 244A)

TDS under mistake and deposited with the government was liable to be refunded without reference to any circular; further, the case of the petitioner was covered under cl. (i)(c) of para (1) of Circular No. 769 dt. 6th August 1998 and not under subsequent Circular No. 790 dt. 20th April 2000; refund directed with interest.

Fab Bearings India Ltd. v. CCIT (2013) 83 DTR 136 (Guj.)(High Court)

S.237 : Refunds – Circular – On the date of application – Refund claim of an assessee must be examined in light of circular in force as of the date of application for such refund.

Petition moved as application for refund arising to it which was appropriate in light of the CBDT circular prevalent at the point of time. Since, the Department did not respond to the said application for a considerable time, another letter reminding about the same was addressed to AO. During the pendency of such application, CBDT came out with another circular superseding the earlier circular and according to provisions of the said circular Petitioner was ineligible for the said refund and the Department denied the said refund on the strength of such subsequent circular. It was held that the Department cannot process application of an assessee after an indefinite period of time and apply a rule that may have changed in the meantime by virtue of change in circular. Hence the refund claim of the Petitioner must be examined in light of the circular in force as of the date of application. (SCA 4141 of 2001, dt. 23-7-12/(SCA 11132 of 2002, dt. 23-7-12)

Mardia Chemicals Led. (2012) ACAJ - November-P. 399) (Guj.)(High Court)

S.237 : Refunds – Non-grant of refunds – Search and seizure – Refund of seized amount – Strictures passed against Dept. for harassing honest taxpayers. (Ss. 132, 245)

A search was conducted at the premises of the assessee during which cash of ` 25 lakhs was seized. The assessee succeeded in the block assessments and the said amount of ` 25 lakhs became refundable to the assessee. However, the said amount was not refunded to the assessee on the ground that there were demands outstanding against a third party who was also named in the search warrant. The assessee claimed that he had no relation with the third party and the fact that there were demands outstanding there did not mean that the assessee’s refund could be blocked. The department refused to pass an order on the assessee’s application for refund. HELD by the High Court allowing the plea:

It is but evident that the department has failed to discharge its legal obligation in not refunding the seized amount. The argument of the department that unless a direction is issued, a speaking order shall not be passed on the application for refund of the amount due to him is not appreciated. It shows that the officers of the Income-tax Department are shirking their responsibilities. Speedy and affordable justice is the requirement of the day. But it cannot be achieved until the executive including tax-man discharge their duties faithfully honestly within the four corners of law. The revenue official failed to take any decision right or wrong on the refund application filed by the assessee and passed on the buck on the Court. Time has come for the heads of the departments to keep a strict vigil on such shirkers and to fix their responsibility. While it is no doubt true that collection of revenue is a serious matter for the State and the bounden duty of the authorities functioning under the Act is to implement the provisions of the Act, there should be safety and assurance to an honest tax-payer. An honest tax-payer should not be subjected to unnecessary harassment and an action not warranted in law, which can be of very serious consequence to the tax-payer if it is allowed to remain without correction, such harassment and brow-beating of an honest tax-payer will otherwise drive even such honest tax-payers to become cynical and lead to a situation where taxpayers will get a feeling that paying taxes honestly is not a worthwhile exercise; that the tax authorities are a menace to the society rather than simply being representatives of the State for enforcing the tax provisions. The department shall pay costs of ` 15,000 to the assessee [Sandik Asia Ltd. v. CIT (2006) 280 ITR 643 (SC), CIT v. Gujrat Flouro Chemicals (2012) 348 ITR 319(SC) & Raghavendra Sherrigar (2005) 142 STC 153) followed].

Vijay Prakash Agrawal v. CIT (All.)(High Court).www.itatonline.org

S.245C : Settlement Commission – Application – Maintainability – When there is no pendency of proceedings, application is not maintainable. (S.245A)

The assessee had filed returns in respect of assessment years 2004-05, 2005-06, 2007-08 and 2008-09. On 5-8-2011 the assessee filed an application before Settlement Commission seeking a settlement of its cases. The revenue opposed application contending that application was not maintainable as no case was pending before any Income-tax Forum. The settlement commission overruled objection of revenue and decided to entertain the settlement application. The revenue filed the writ petition and raised the question.

"Whether proceedings are to be deemed to remain ‘pending’ for the purposes of section 245A(b) when the time-limit for completion of assessment under section 143 or section 144 has expired".

The Court held that since no proceedings under Income-tax Act was pending at time of filing of application, Settlement Commission was not right in admitting assessee’s application. Where by application of section 153, an assessment order can no longer be made, proceeding, for purposes of section 245A, would have to be construed as terminated.(A.Y. 2004-05, 2005-06, 2007-08, 2008-09)

CIT v. Income-tax Settlement Commission (2013) 212 Taxman 511 (Delhi)(High Court)

S.245H : Settlement Commission – Immunity from prosecution/penalty – Remanding the matter to settlement commission for de novo adjudication by a single judge held to be valid. (Ss.245C, 245D)

Assessee approached Settlement Commission under section 245C(1) for settlement of its cases. Settlement Commission granted immunity to assessee from levy of penalty and initiation of prosecution. Single Judge of High Court quashed order of Settlement Commission and remanded matter to it for reconsideration. Whether as per provisions of section 245D prevalent at relevant assessment years Settlement Commission on receipt of application had to call for a report from Commissioner and on basis of such report granting of immunity from prosecution and penalty ought to have been scrutinised, since Settlement Commission had not done so, order of Single Judge remanding matter to Settlement Commissioner for de novo adjudication did not suffer from any material irregularity or illegality. (A.Y. 1994-95 to 1999-2000)

ING Vysya Bank Ltd. v. CIT (2012) 76 DTR 193 / (2013) 213 Taxman 115 / 255 CTR 311 (Karn.)(High Court)

S.245 : Refunds – Set off of refunds against tax remaining payable – TDS credit – Strict guidelines issued to end Dept’s TDS credit & refund adjustment harassment.(Ss.143(1), 154, 200, 244A, 245)

Anand Parkash, FCA, addressed a letter dated 30-4-2012 to the High Court in which he set out the numerous problems being faced by the assessees across the Country owing to the faulty processing of the Income-tax Returns and non-grant of TDS credit & refunds. He claimed that because of the department’s fault, the assessees were being harassed. The High Court took judicial notice of the letter, converted it in to a public interest writ petition and directed the CBDT to answer each of the allegations made in the letter and certain other queries that the Court raised. The Court also appointed eminent senior counsel to assist it. The department accepted that tax-payers are facing difficulties in receiving credit of TDS & refunds on account of adjustment towards arrears. Thereafter, as an interim measure to provide immediate relief to the assessees, the Court passed an order dated 31-8-2012 by which it gave detailed directions. After further hearing, Held by the Court:

  1. Re Uploading of wrong or fictitious demand: The CBDT has accepted that incorrect and wrong demands have been uploaded on the CPC arrears portal. In his letter dated 21-8-2012, the CIT, CPC, has expressed his concern and anguish on account of uploading of incorrect and wrong data in the CPU and the problem faced by them and by the assessees. The CBDT has issued Circular No. 4 of 2012 in which the burden is put on the assessee to approach the AOs to get their records updated and corrected by filing s. 154 applications. While this may be the easiest option available, it should not be a ground for the AO not to suo motu correct his records and upload correct data. Each assessee has a right and can demand that correct and true data relating to the past demands should be uploaded. Asking the assessee to file s. 154 applications entails substantial expenses and defeats the main purpose behind computerisation. Also, the AO’s do not adhere to the time limit prescribed for disposal of the s. 154 applications. To ensure transparency (and accountability), a register must be maintained with details and particulars of each application made u/s 154, the date on which it was made, date of disposal and its fate. The s. 154 application has to be disposed of by a speaking order and communicated to the assessee. There must be full compliance of the said requirements;

  2. Re Adjustment of refund contrary to s. 245: S. 245 postulates two stage action; first a prior intimation to the assessee and then, if warranted, the subsequent adjustments of the refund towards arrears. This is not being followed by the CPC because the computer itself adjusts the refund due against the existing demand. To prevent this breach of the law, the department must follow the procedure prescribed
    u/s. 245 and give the assessee an opportunity to file a reply which should be considered by the AO before giving the direction for adjustment. As regards the cases where such (illegal) adjustment has been made in the past, the cases must be transferred to the AOs for issue of notice to the assessee seeking adjustment of refund. The assessees will be entitled to file a reply to the notice and the AO will then pass an order u/s 245 allowing the refund. The CBDT has to fix a time limit and schedule for completing the said process. Though the process involves expenditure and paper work, the situation has arisen due to the lapses on the part of the AOs and the assessees cannot be made to suffer for the wrong uploading of arrears and wrong adjustment of refund. The question of the assessee’s entitlement to interest on the SA tax is left open though when the delay is due to the fault of the Revenue, interest should be paid u/s 244A. False uploading of past arrears and failure to follow the mandate of s. 245 is a lapse on the part of the AO;

  3. Re non-communication of adjusted s. 143(1) intimations: The non-communication of s. 143(1) intimations, where adjustments on account of rejection of TDS or tax paid has been made, is a matter of grave concern. When there is failure to despatch the intimation within a reasonable time to the assessee, the return shall be deemed to have been accepted and the intimation will be treated as non est or invalid for want of service. The onus to show that the order was served on the assessee is on the Revenue and not upon the assessee. If a TDS or tax credit claim has been rejected on a technicality but there is no communication to the assessee of the order/intimation u/s 143(1), the AO cannot enforce the demand created by the said order/intimation;

  4. Re non-grant of credit for TDS: The problem regarding rejection of TDS credit is in two categories. The first is those where the deductors fail to upload the correct particulars of the TDS which has been deducted and paid and the second is where there is a mismatch between the details uploaded by the deductor and the details furnished by the assessee in the ROI. As regards the first, the CBDT had earlier directed that the AOs to accept the TDS claims without verification where the difference between the TDS claimed and the TDS as per AS26 did not exceed rupees one lakh. This figure has now been reduced to a mere ` 5,000. Ex-facie, there is no justification for the reduction because credit is being given only if the three core fields match. The CBDT must re-examine this aspect and take suitable remedial steps if they feel that unnecessary burden or harassment will be caused to the assessees. As regards cases of mismatch because of different methods of accounting, or offering income in different years, the department must take remedial steps and ensure that in such cases TDS is not rejected on the ground that the amounts do not tally. The department should also fix a time limit within which they shall verify and correct all unmatched challans. An assessee as a deductee should not suffer because of fault made by deductor or inability of the Revenue to ask the deductor to rectify and correct. Once payment has been received by the Revenue, credit should be given to the assessee. The CBDT should issue suitable directions in this regard. The department’s response on the action taken against deductors for non-compliance is unfortunate and unsatisfactory and it purports to express complete helplessness on the part of the Revenue to take steps and seeks to absolve them from any responsibility. Denying benefit of TDS to a taxpayer because of the fault of the deductor causes unwarranted harassment and inconvenience. The deductee feels cheated. The Revenue cannot be a silence spectator, wash their hands and pretend helplessness. S. 234E has now been inserted by the Finance Act, 2012 to levy a fee of ` 200 per day for default of the deductor to file TDS statement within due date. It is unfortunate that the Board did not take immediate steps after even noticing lacuna and waited till FA 2012. The stand of the Revenue that they can only write a letter to the deductor to persuade him to correct the uploaded entries or to upload the details is not acceptable. The AO must use his power and authority to ensure that the deductor complies with the law.

    Court On Its Own Motion (Anand Parkash) v. CIT (2013) 214 Taxman 335 / 85 DTR 301 (Delhi)(High Court)

    All India Federation of Tax Practitioners v. UOI (2013) 85 DTR 301 (Delhi)(High Court)

    Court on its own motion v. CIT (2013) 85 DTR 289 (Delhi)(High Court)

S.253 : Appellate Tribunal – Appeal – Condonation of delay – High Court condoned the delay of more than one year due to negligence of lawyer.

Assessee running a tuition centre, an assessment order was passed. Against said order, assessee filed an appeal before Tribunal with a delay of over one year. Tribunal dismissed appeal being barred by limitation. On appeal, it was noted that on account of negligence of assessee’s lawyer, appeal could not be filed within prescribed time. Further, sickness of mother was also a contributing factor as assessee was engaged in attending to her. The Court held on facts, cause shown by assessee for delay in filing appeal was genuine and bona fide, therefore, impugned order was to be set aside and, matter was to be remanded back for disposal on merits. (A.Y. 1999-2000 to 2001-02)

Mukesh Jesangbhai Patel v. ITO (2013) 213 Taxman 37 (Mag.) (Guj)(High Court)

S.254(1) : Appellate Tribunal – Orders – Powers – Under rule 27 the respondent is permitted to support the order appealed against, though he may not have appealed against the order, on any of the grounds decided against him, however set aside of entire order is not permitted. (Income-tax (Appellate Tribunal) Rules, 1963 Rule 27)

The assessee had made a claim on account of bad debts in the amount of ` 28.69 lakhs under section 36(2). The Assessing Officer disallowed the claim. In appeal, the Commissioner (Appeals) confirmed the disallowance made by the Assessing Officer to the extent of ` 14.96 lakhs. However, the assessee was granted relief to the extent of ` 13.73 lakhs under section 36(2). Both, the revenue and the assessee, filed appeals before the Tribunal. The appeal filed by the assessee was, however, barred by limitation, there being a delay of 551 days. During the course of the hearing before the Tribunal, the assessee withdrew its appeal, but sought to press in aid the provisions of rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 to contend that the Commissioner (Appeals) erred in partly confirming the disallowance. The Tribunal held that in the absence of relevant details being brought on record by the parties and in the interests of justice it was appropriate to remand the entire matter pertaining to the disallowance of ` 28.69 lakhs to the Assessing Officer. Accordingly, the order passed by the Assessing Officer on this account was set aside in its entirety and the Assessing Officer was directed to decide the matter afresh in view of the decision of Mumbai Special Bench in Dy. CIT v. Shreyas S. Morakhia [2010] 40 SOT 432. On appeal to the High Court, the revenue contended that rule 27 of the 1963 Rules would only permit the assessee, as the respondent to the appeal by the revenue, to support the order appealed against on any of the grounds decided in favour of the assessee and, hence, the assessee could have supported the order of the Commissioner (Appeals) to the extent to which the appellate authority had allowed the claim of the assessee in the amount of
` 13.73 lakhs and not disallowance of ` 14.96 lakhs. Allowing the appeal the Court held that Tribunal erred in setting aside order of Commissioner (Appeals) in its entirety and by restoring proceedings to Assessing Officer in regard to entire disallowance; Tribunal could have restored proceedings to Assessing Officer only as regards amount of disallowance deleted by Commissioner (Appeals). Under rule 27 the respondent is permitted to support the order appealed against, though he may not have appealed against the order, on any of the grounds decided against him, however set side of entire order is not permitted. (A.Y. 2004-05)

CIT. v. Jamnadas Virji Shares & Stock Brokers (P.) Ltd. (2013) 212 Taxman 120(Mag.) (Bom.)(High Court)

S.254(1) : Appellate Tribunal – Orders Rectification of mistake – Ex-parte order – Recalling the order and deciding allowing the bad debt was held to be justified. [S.36(1)(vii)].

Assessee had written off an advance of ` 65 lakhs as bad debts on ground that despite filing a suit sum was not recoverable. Issue had reached up to Tribunal. Tribunal by an ex-parte order held against assessee. Subsequently, however, assessee applied for recall of such an order. Tribunal thereupon proceeded to decide appeal afresh. In such exercise Tribunal overruled objections of Assessing Officer and allowed claim of assessee by holding that loan written off had become bad debt which was allowable, since assessee was in business of banking or money lending. Revenue contended that Tribunal having previously ruled against assessee could not have changed decision. Court held that since original order of Tribunal was passed in absence of assessee which had shown sufficient ground justifying its absence, and had satisfied necessary conditions of section 36(2)(i), Tribunal was right in deciding appeal afresh and allowing claim of assessee.

Dy. CIT v. Hindustan MI Swaco Ltd. (2013) 212 Taxman 293 (Guj.)(High Court)

S.254(2) : Appellate Tribunal – Orders – Rectification of mistake apparent from the record – Not considering the decision of Supreme Court can be rectified under section 254(2). [Ss.11, 13(1)(c)(ii)]

Assessee, a charitable trust, claimed exemption under section 11. Assessing Officer having found that during current year assessee had advanced a sum of ` 25 lakh to one P, who was managing trustee of trust, took view that this amounted to violation of section 13(1)(c)(ii). He, therefore, asked assessee to explain as to why exemption claimed under section 11 should not be denied. Assessee explained that in current year no funds were given by trust to P, and that said transaction related to earlier assessment year 2002-03. Assessing Officer did not accept explanation of assessee and denied exemption under section 11. Commissioner (Appeals) having found that during current year no funds were given by trust to P, granted exemption under section 11 to assessee. Tribunal held that assessee had violated provisions of section
13(1)(c)(ii) and accordingly set aside order passed by Commissioner (Appeals). Thereupon assessee filed a petition under section 254(2) stating that Tribunal while deciding appeal did not consider decision of Supreme Court rendered in case of Aditanar Educational Institution v. Addl. CIT [1997] 224 ITR 310 for adjudicating issue regarding violation of section 13(1)(c)(ii).Tribunal (i) after taking into account fact that advance of ` 25 lakh was given to P during period 1-4-2001 to 31-3-2002, and (ii) also taking into account decision of Supreme Court in case of Aditanar Educational Institution (supra), held that there was a mistake apparent on record in earlier order passed by it. It further on basis of above findings held that assessee had not violated provisions of section 13(1)(c)(ii) during relevant assessment year 2003-04 and accordingly rectified order passed by it earlier. On appeal to High Court by revenue the Court held that, on facts and in circumstances of case, Tribunal had rightly exercised powers conferred under section 254(2),therefore the impugned order passed by Tribunal was justified. Section 254(2) has been enacted not only to safeguard interest of revenue but also to enable Tribunal to rectify error apparent on face of record. (A.Y. 2003-04)

CIT v. Park Trust (2013) 212 Taxman 115 (Mag.) (Mad.)(High Court)

S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Defects were notified on noticeboard, that itself could be construed as notice to assessee to rectify office objections – Dismissal of miscellaneous application which was filed after nine years was held to be justified. (Karnataka Agricultural Income-tax Act, 1957 S. 34)

Assessee presented appeal before Tribunal on 3-1-2002. Matter was adjourned for rectification of defects. When matter was listed on 11-4-2002, Tribunal granted time till 30-4-2002 to rectify defects. Matter was re-listed on 30-4-2002. On said date assessee was not present and defects had not been rectified. Notice of defects was duly published and it was affixed on notice board. Tribunal rejected appeal on ground of non-compliance of office objections. Thereafter assessee received a demand notice on 4-1-2011 on ground that appeal filed by assessee was rejected. After that assessee filed a miscellaneous petition before Tribunal seeking to recall order dated 30-4-2002 and restore appeal to file and hear it on merit. Tribunal found that delay of nine years was not at all explained by assessee inasmuch as assessee was not vigilant after filing of appeal. The Court held that petitioner could not be heard to say that Tribunal was obliged to inform petitioner about dismissal of order for non-removal of office objections. Since defects were notified on notice board, that itself could be construed as notice to assessee to rectify office objections. Therefore, order passed by Tribunal rejecting miscellaneous petition on ground of delay was justified and thus, petition of assessee in respect of rejection of miscellaneous petition was to be rejected. (A.Y. 1998-99)

Baganeheddal ‘C’ Estate v. Karnataka Appellate Tribunal (2013) 212 Taxman 99 (Mag.) (Karn.)(High Court)

S.254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Rectification of order based on the subsequent larger bench decision of Supreme Court is proper – Application is made in time order can be passed thereafter

Tribunal following a decision of Supreme Court deleted penalty under section 271(1)(c). Subsequently, Larger Bench of Supreme Court overruled decision relied upon by Tribunal. On basis of latter decision of Supreme Court, revenue sought to recall Tribunal’s decision under section 254(2). Accordingly, Tribunal recalled its earlier decision. On appeal by assessee the Court held that subsequent decision of Supreme Court operated retrospectively and, therefore, it had to be regarded as it existed when order was passed by Tribunal and, thus, there was mistake apparent from record which could not be allowed to remain, further only limitation for correcting mistake, that is imposed by provisions of section 254(2), is only with respect to time and since in instant case application for rectification had been made in time, order of Tribunal recalling its earlier order could not be faulted. (A.Ys. 1993-94, 1996-97, 1997-98)

Lakshmi Sugar Mills Co. Ltd. v. CIT (2013) 212 Taxman 118 (Mag.) (Delhi)(High Court)

S.260A : Appeal – High Court –Constitutional validity – High Court in appeal cannot determine constitutional validity of amendment, it is beyond scope of jurisdiction under section 260A.

Based on retrospective amendment of section 80HHC, assessee’s assessment was reopened to disallow deduction in respect of profit on sale of DEPB .Tribunal upheld reopening of assessment. On appeal to High Court, assessee took ground that retrospective amendment of section 80HHC had been struck down by Gujarat High Court ,by following or dissenting from judgment of High Court of Gujarat, The Court held that Tribunal could not consider validity of a retrospective amendment, such question could not arise from its order, therefore instant case High Court would be determining constitutional validity of amendment; it would then be stepping out of and beyond scope of jurisdiction under section 260A. High Court in appeal cannot determine constitutional validity of amendment, it is beyond scope of jurisdiction under section 260A. (A.Y. 2001-02, 2003-04)

M. Abdul Rehuman Kunju v. ACIT (2013) 213 Taxman 11(Mag.) (Ker.)(High Court)

S.260A : Appeal – High Court – Low Tax Effect Circular – Burden – Dept. to show why appeal should not be dismissed.

The department filed an appeal before the Tribunal. The Tribunal dismissed the appeal on the ground that the tax involved in the appeal was less than the monetary limit of ` 3 lakhs prescribed in CBDT Instruction No. 3/2011 dated 9.2.2011. The Tribunal followed CIT v. Madhukar Inamdar (HUF) (2009) 318 ITR 149 (Bom) where it was held that the CBDT instructions fixing monetary limit for filing an appeal to the Tribunal would apply even to pending cases. The Department then filed a MA before the Tribunal pointing out that in CIT v. Surya Herbal the Supreme Court had held that the CBDT Instruction No. 3/2011 would not apply ipso facto and would not apply where the matter has cascading effect or raises a common principle involving a large number of matters. The Tribunal dismissed the MA. On appeal by the department to the High Court, HELD dismissing the appeal:

The grievance of the Revenue is that the Tribunal ought to have entertained the appeal by following the decision of the Apex Court in the matter of Surya Herbal Ltd. However, the revenue has not been able to point out before us any of circumstance as laid down by the Supreme Court in the matter of Surya Herbal Ltd being applicable to this case which would lead to non application of CBDT instructions No.3/2011. In the above circumstances, we see no reason to entertain the proposed question of law (it was also held following Chem Amit v. ACIT (2005) 272 ITR 397 that an appeal u/s 260A cannot be filed to challenge an order dismissing a MA)

CIT v. Sevak Pharma Pvt. Ltd (Bom.)(High Court)www.itatonline.org

S.260A : Appeal – High Court – Memorandum of appeal – The question not relating to appeal cannot be permitted to agitate.

Against orders of Commissioner (Appeals), revenue preferred two appeals before Tribunal. Assessee also preferred an appeal before Tribunal. Tribunal clubbed together all these appeals and disposed of them by a common order. Against order of Tribunal, revenue preferred an appeal before High Court. During pendency of appeal, revenue also filed an application seeking for suitable amendment in memorandum of appeal so that instant appeal could be agitated insofar as it related to order passed by Tribunal in appeal of assessee in common order passed by it. The Court held that allowing application of this nature and also to permit revenue to agitate such question by further alteration of memorandum of appeal, etc., was not feasible course of action at this point of time. As it was barred by limitation. The question not relating to appeal cannot be permitted to agitate. (A.Y. 1999-2000, 2000-01)

CIT v. Golf View Homes Ltd. (2013) 213 Taxman 8(Mag.) (Karn.) (High Court)

S.260A : Appeal – High Court –Monetary limits – Less than two lakhs appeal was dismissed.

Against common order of Tribunal, revenue filed an appeal under section 260A before High Court, since in instant case tax effect that was involved was not more than ` 2 lakhs, in terms of Board’s Instruction No. 2/2005, dated 24-10-2005 said appeal was liable to be dismissed on question of maintainability. (A.Y. 1999-2000, 2000-01)

CIT v. Golf View Homes Ltd. (2013) 213 Taxman 8 (Mag.) (Karn.)(High Court)

S.260A : Appeal – High Court – Plea which was not raised at any stage, could not be raised for first time before Court. (Ss.263, 292BB)

Notice had been issued under signature of Income-tax (Technical), whereas in view of provisions of powers under section 263 (1), it was only Commissioner to issue notice. In appeal to High Court, revenue raised new plea that in view of provisions of section 292BB, it was not open for assessee to raise an objection with regard to proceedings initiated under section 263 as he had participated in proceedings and tendered his reply. The Court held that pleas can be raised only out of judgment passed by Tribunal or other authorities, but plea which was not raised at any stage, as in instant case, could not be raised for first time before Court, therefore, appeal against order of Tribunal failed. (A.Y. 2007-08)

CIT v. Rajesh Kumar Pandey (2013) 213 Taxman 19(Mag.(All) (High Court)

S.260A : Appeal – High Court – Substantial question of law – Meaning – Principle of consistency in tax matters.

An appeal under section 260A of the Income–tax Act 1961, will lie before the High Court if the appellant is able to satisfy the Court that it involves a substantial question of law. In order to be substantial, a question of law must be debatable, not previously settled under the law of the land or binding precedent, and must have a material bearing on the decision of the case, if answered either way, in so far as the rights of the parties before it are concerned. The High Court in exercise of its second appellate jurisdiction should normally accept all findings of facts recorded by the first appellate court, being form of facts. Adequacy of materials or possibilities of another view on facts, is no ground for High Court to entertain a second appeal. The High Court can on facts interfere only after it reaches the conclusion that, in view of the materials on record, no person duly instructed in law can reach that conclusion.

Dy. CIT v. Sulabh International Social Service Organisation (2013) 350 ITR 189 (Patna) (High Court)

S.260A : Appeal – High Court – Tax effect – Less than 2 lakhs – Appeal is not maintainable. (S. 268A)

Tribunal quashed reassessment proceedings to bring gifted amount to tax for want of material. Appeal against order of Tribunal involved tax effect of less than ` 2 lakh. Court held that the appeal of revenue is not maintainable as tax effect was lower than ` 2 lakh prescribed under CBDT Instruction No. 1979 [F. No. 279/126/98-IT], dated 27-3-2000. Hence case also did not fall in exclusionary clause of said instruction. (A.Y.2005-06)

CIT v. Sanjay Kumar Agrawal (2013) 212 Taxman (Mag.)(All)(High Court)

S.260A : High Court – Appeal – Guidelines for engagement of standing counsels – CBDT gave assurance to do the needful.

Before the Court the CBDT Member stated that, in so far as revamping system and giving better assistance to Court was concerned, all necessary action had been taken; matter of fresh panel was pending before Law Ministry; admitted fee was being paid to standing counsels and arrears of admitted fees would be cleared within next two months and disputed parameters to be sorted by counsels themselves. Member assured court that there would be no laxity in assistance rendered to Court in future.

CIT v. Jackson Engineers Ltd. (2013) 213 Taxman 10(Mag.) (Delhi) (High Court))

S.263 : Commissioner – Revision of order prejudicial to revenue –Business expenditure – Capital or revenue – Revision held to be not justified.

Assessee paid certain amount towards regulatory fee and stamp duty and claimed deduction of same as a revenue expenditure. Assessing Officer allowed claim of deduction. Commissioner issued on assessee a notice under section 263 stating that license fee, loan arrangement charges and stamp duty were capital expenditure. Assessing Officer before passing assessment order made an enquiry and directed his mind on all aspects. View adopted by him was clearly one among two plausible views that could have been taken. Commissioner did not specifically furnish any reasons to say why original assessment order was unsupportable in law .Commissioner could not have validly exercised his revisionary power under section 263 in instant case. (A.Y. 2004-05)

CIT v. Vodafone Essar South Ltd. (2013) 212 Taxman 184 (Delhi)(High Court)

S.263 : Commissioner – Revision of orders prejudicial to revenue – Error of Assessing Officer should be "unsustainable" – Disallowance under section 14A, debatable, hence revision held to be not warranted. (Ss.10(33), 14)

Whether the deduction under section 14A was warranted, was a debatable fact. In any event, even if it were not debatable, the error by the Assessing Officer was not "unsustainable". Possibly he could have taken another view; yet, that he did not do so, would not render his opinion an unsustainable one, warranting exercise of section 263. (A. Y. 2002-2003)

CIT v. DLF Ltd. (2013) 350 ITR 555 (Delhi)(High Court)

S.263: Commissioner – Revision of orders prejudicial to revenue –Investment was made beyond due date – Revision of order was not justified. (Ss.54F, 139(1), 139(4))

Assessee filed her return wherein she raised a claim for deduction under section 54F. Assessing Officer allowed assessee’s claim. Commissioner passed a revisional order holding that assessee’s claim was wrongly allowed because she made investment in new house beyond due date prescribed under section 139(1). Tribunal set aside revisional order holding that investment was made within time specified under section 139(4) relying on the order passed in case of Fatima Bai v. ITO [2009] 32 DTR 243 (Kar.). On appeal by revenue it was contended that order passed in aforesaid case was incorrect and, thus, it could not be accepted. The court held that if order passed in aforesaid case was incorrect, revenue should have filed an appeal against it; however, at any rate that would not be a ground for invoking section 263. The court held that Tribunal was justified in setting aside revisional order. (A.Y. 2006-07)

CIT v. Vrinda P. Issac (Smt.)(2013) 212 Taxman 101 (Mag.)(Karn.)(High Court)

S.263 : Commissioner – Revision of orders prejudicial to revenue – Period of limitation – On facts the limitation to be computed from the date of original order. (Ss.68, 80-I)

In original assessment order dated 28-3-1995, an addition under section 68 was made and deduction under section 80-I was granted on total income, inclusive of income under section 68. Grant of such deduction was not questioned by revenue at relevant time. Tribunal remitted issue pertaining to addition under section 68 to Assessing Officer for reconsideration. In remand proceedings, Assessing Officer once again made addition under section 68 and granted deduction under section 80-I. Invoking section 263, Commissioner vide order dated 30-3-2007, set aside assessment order on ground that deduction under section 80-I was wrongly computed. The Tribunal set aside revision order on ground that the proceedings under section 263 was barred by limitation. On appeal by revenue the High Court held that remand proceeding was limited to addition under section 68 and, therefore, limitation qua issue of deduction under section 80-I would have to be computed from date of original assessment order, i.e., 28-3-1995, therefore, revision order dated 30-3-2007 was time-barred. (A.Y. 1992-93)

ACIT v. Modern Cement Industries Ltd. (2013) 212 Taxman 135 (Mag.)(Guj.)(High Court)

S.263 : Commissioner – Revision of orders prejudicial to revenue –Revision to make further enquiry is held to be not valid.

When, during course of framing of assessment, Assessing Officer had access to all records of assessee, and after perusing said records, he framed assessment, said assessment could not be re-opened in exercise of revision power under section 263 for making further inquiries.

CIT. v. Amit Corpn. (2013) 213 Taxman 19 (Mag.) (Guj.)(High Court)

S.264 : Commissioner – Revision of other orders – Commissioner cannot dismiss revision application merely on ground that quantum issue has not attained finality.

The assessee for the assessment year 2003-04 by filing the return of income declared loss of ` 93,33,000. The Assessing Officer framed a scrutiny assessment under section 143(3) on 18-1-2006 disallowing the reduction of ` 1,08,16,965. He also initiated penalty proceedings under section 271(1)(c). He also passed an order imposing penalty of ` 1,19,25,702. The assessee challenged the said order of penalty before the Commissioner by filing revision application under section 264. After condoning delay caused in filing such revision application, the proceedings were taken up by the Commissioner for hearing. Before the Commissioner the assessee had pointed out the quantum additions on the basis of which the penalty was imposed were deleted. It had also come on record that against such appellate order the department’s appeal was also dismissed by the Tribunal. Turning down such contentions of the assessee the Commissioner rejected the revision petition on two grounds, firstly, that the question of quantum additions had not achieved finality. Against the judgment of the Tribunal confirming deletion of such quantum additions, the revenue had preferred further appeal before High Court and such appeal was pending. Second reason why the Commissioner was not inclined to entertain the revision petition was that according to him revision proceedings were contemplated only to mitigate the situation faced by the assessee who are unable to approach the appellate authority for relief. The Commissioner noted that the assessee had already exercised his right of appeal before the appellate authorities. He could not claim relief under section 264. On petition : The court held that (1) Section 264 nowhere provides than an assessee can resort to such proceedings only when he is unable to approach appellate authority, (2) Fact that assessee has preferred appeal against quantum additions will not therefore, take away his right to file revision application. (3) Commissioner while deciding revision petition must take into consideration prevailing order at that time. Therefore Commissioner cannot dismiss revision application merely on ground that quantum issue has not attained finality. In favour of assessee. (A.Y. 2003-04)

Aryaman Spinners (P.) Ltd. v. CIT (2013) 212 Taxman 102 (Mag.) (Guj.)(High Court)

S.264 : Commissioner – Revision of other orders – Condonation of delay – Commissioner (Appeals) – Doctrine of merger – Order rejecting appeal by Commissioner (Appeals), further revision before Commissioner is not maintainable. (S. 264(4)(c))

The assessee filed an application before the Commissioner (Appeals) to condone the delay. He declined to condone the delay and dismissed the appeal. Subsequently, the assessee filed a revision application under section 264 of the Act, and along with it he also filed an application to condone the delay. The Commissioner rejected the revision application. In the order, he had dealt with the maintainability of the revision, the tenability of the request for condonation of delay and also the merits of the revision itself. On all these grounds, he decided against the assessee. On a writ petition by assessee, dismissing the petition, the Court held that the order dismissing the appeal filed by the assessee was an order in the appeal filed by the assessee. The assessee had not waived his appellate right to maintain an application for revision under section 264. Thus, the finding of the Commissioner that in view of section 264(4), the revision filed by the assessee was not maintainable, had to be upheld. (A.Y. 2000-2001)

K. H. Traders v. CIT (2013) 351 ITR 1 / 85 DTR 287 / 213 Taxman 41 (Mag.) (Ker.)(High Court)

S.264 : Commissioner – Revision of other orders – Reasoned order – Natural justice – Non-speaking order of Commissioner rejecting the application was set aside.

The Commissioner dismissed the petition of the petitioner on the ground that the petitioner has an alternative remedy by filing an appeal. Petitioner filed writ petition against the said order, the court held that it is well settled law that one of the basic principle of natural justice is that the authority concerned must pass a speaking order so as to enable a party to know the reasons so as to why his application is being accepted or rejected. This giving of reasons also ensures due application of mind to the facts by the authority concerned. On facts non-speaking order of Commissioner rejecting assessee’s application under section 264 was set aside. (A.Y. 2007-08)

Universal Packaging & Ors v. CIT (2013) 352 ITR 398 / 84 DTR 101 / 257 CTR 236 (Bom.)(High Court)

S.268A : Appeal – Application – High court – Monetary limits – Matter referred to larger Bench. (S.260A)

The Revenue filed appeal on 13-10-2010 against Tribunal’s judgment when the tax effect involved exceeded ` 4 lakh, i.e. threshold limit as provided in "instructions of 2008". However, as per "instructions of 2011", such limit was revised to "does not exceed ` 10 lakh". The assessee contended that though at the time of filing of the appeal the limits prescribed by ‘instructions of 2008’ were applicable but the revised limits contained in the ‘instructions of 2011’ should be applied when the appeal is taken up for hearing. In view of the conflicting judgments, the High Court was of the view that issue requires consideration by a Larger Bench regarding applicability of ‘instructions of 2011’ prospectively or otherwise to all pending cases filed earlier. Matter referred to larger Bench.

CIT v. Shambhubhai Mahadev Ahir (2013) 213 Taxman 179 (Guj.)(High Court)

S.268A : Appeal – Low tax effect – Assessing the nil income after set off of loss – Dismissal of appeal was not proper the matter remanded to decide the issue on merits. (Ss.253, 260A)

Assessee filed return declaring nil income. Assessing Officer fixed total income of assessee at `1,76,32,251. He further allowed set-off of business loss and unabsorbed depreciation to tune of `1,74,96,566 and eventually determined taxable income of assessee at ` 1,35,685. Commissioner (Appeals) partly allowed appeal of assessee. Revenue challenged order of Commissioner (Appeals) before Tribunal, which dismissed appeal on ground of low tax effect. Revenue contended before High Court that notional tax effect in instant appeal exceeded monetary limit prescribed by Board. The court held that in view of judgment of Gujarat High Court delivered in another appeal on identical question of law, Tribunal was wrong in dismissing appeal of revenue on ground of low tax effect. Therefore matter deserved to be remanded back to Tribunal for reconsideration on merits. Matter remanded. (A.Y. 2004-05)

CIT v. Sambhav Media Ltd. (2013) 212 Taxman 129(Mag.)(Guj.)(High Court)

S.269SS : Deposits – loans – Mode of repayment – Penalty was deleted. (Ss. 269T, 271D, 271E)

Assessing Officer found that assessee-hostel had accepted and repaid amounts of loans/deposits otherwise than by cross - cheques / drafts in contravention of provisions of sections 269SS and 269T. Assessee contended that some expenditure was incurred by hostel or school students and amount was reimbursed to hostel by managing trustee of school, and it did not become a deposit or loan given or taken by way of cash. It therefore contended that there was no contravention of provisions of sections 269SS and 269T and they were not liable to pay penalty under sections 271D and 271E. Assessing Officer did not accept submission of assessee and imposed penalty under sections 271D and 271E, respectively. Since there was nothing on record to show that above transactions were attached with certain conditions or stipulation as to period of repayment, rate of interest, manner of payment, etc., so as to treat transactions as loan or deposits, penalty could not be levied upon assessee. Appeal of revenue was dismissed.

ITO v. V. S. Hostel (2013) 212 Taxman 61 (Mag.)(Guj.)(High Court)

S.271(1)(c) : Penalty – Concealment – As there was no clarity on law levy of penalty was held to be not justified. (Ss.78(2), 170(1))

Assessee succeeded to business of a partnership firm by way of family settlement. He claimed set off of losses of erstwhile firm. Claim of assessee was disallowed by Assessing Officer, Commissioner and Tribunal on ground that section 78(2) did not entitle assessee to set off losses. High Court however, held that such claim was not allowable in view of section 170(1). Meanwhile, penalty was imposed on ground that assessee had made a false claim. High Court, on appeal, noted that there was absolutely no discussion of section 170 in order of Commissioner (Appeals) and Tribunal which was applicable provision as regards succession. Moreover, Assessing Officer as also Commissioner (Appeals) was under misapprehension that assessee was not a successor. There was lack of clarity by income-tax authorities right up to Tribunal itself and, hence, imposition of penalty was not warranted. Appeal of assessee was allowed.

Pramod Mittal v. CIT (2013) 212 Taxman 64 (Mag.)(Delhi)(High Court)

S.271(1)(c) : Penalty – Concealment – Explanation-5 – Search and seizure – In the return pursuant to search action the amount was not included, the computation was revised in the course of assessment proceedings – Levy of penalty was justified. (Ss.132(4), 139(1), 153A)

After filing of return under section 139(1), search was conducted. In statement recorded under section 132(4), assessee admitted benami share investment. On being issued with notice under section 153A, assessee did not file any return and by a letter, requested that its return, filed under section 139(1) prior to search and seizure be treated as its return filed in response to notice under section 153A. It was only when assessment proceedings were taken up for consideration, did assessee seek to revise its computation. The court held that it could be said that assessee did not include amount in return pursuant to notice issued, and instead chose to merely reiterate its return originally filed, therefore, ‘escape route’, provided by clause (2) to Explanation 5 to section 271(1)(c) in this case, was not available to assessee, and it would be liable to penalty for concealment, as a return filed under section 153A can never be assumed to be covered as one under section 139(1). (A.Y. 2006-07)

Shourya Towers (P.) Ltd. v. Dy. CIT (2013) 213 Taxman 20 (Mag.) (Delhi)(High Court)

S.271(1)(c) : Penalty – Concealment – False claims – Levy of penalty was held to be justified.

An amount was ` 10.81 lakhs was paid to PM (P) Ltd which was assessee's sister concern. These payments were made through a debit note raised at the close of the year. Tribunal has given the finding that no such amounts were paid. This finding of Tribunal was accepted by assessee. On appeal by the assessee against the confirmation of penalty the court held that where Tribunal had reached a finding of fact that appellant had filed inaccurate particulars regarding its income by showing false/exaggerated expenses, it would be concluded that there was a concealment of income on part of appellant, leading to imposition of penalty under section 271(1)(c) upon appellant. Appeal of assessee was dismissed. (A.Y. 1989-90)

Sanghvi Swiss Refills (P.) Ltd. v. ACIT (2013) 81 DTR 40 / 255 CTR 251 / 212 Taxman 66 (Mag.) (Bom.) (High Court)

S.271(1)(c) : Penalty – Concealment – High Court admission of quantum appeal – Admission of quantum appeal by High Court shows issue is debatable – levy of penalty is not justified.

The assessee’s appeal against the disallowance made u/s. 14A was admitted by the High Court. The AO levied penalty u/s. 271(1)(c) in respect of the said disallowance. The CIT(A) and the ITAT set aside the penalty levied u/s. 271(1)(c) on the ground that the issue of deduction u/s. 14A was a debatable issue. On appeal by the Department to the High Court HELD:

Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the AO u/s. 271(1)(c) on the ground that the issue of deduction u/s. 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under deduction u/s. 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this Court u/s. 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case.

CIT v. Liquid Investment and Trading Co. (Delhi)(High Court) www.itatonline.org

S.271(1)(c) : Penalty – Concealment – Inadvertent mistake – Wrong heads – Concealment penalty cannot be levied if income not offered to tax due to "inadvertent mistake".

The assessee claimed deduction/ exemption of interest on tax-free bonds of ` 5.60 crores. Assessing Officer asked the assessee to give details of the interest on tax-free bonds, the assessee stated that it had inadvertently treated taxable interest of ` 75 lakhs as being tax-free and offered the said sum to tax. The AO levied penalty u/s 271(1)(c) for concealment of income/ filing inaccurate particulars of income. This was upheld by the CIT(A) though deleted by the Tribunal on the ground that there was an "inadvertent mistake" by which the taxable bonds were classified as tax-free and that there was "no desire" on the part of the assessee to hide or conceal its income so as to avoid payment of tax on interest from the bonds. On appeal by the department, dismissing the appeal the Court held that the decision of the Tribunal is based on finding of fact that there was an inadvertent mistake on the part of the assessee in including the interest received of 6% on the GOI Capital Index Bonds as interest received on tax free bonds. It is not contended by the Revenue that above finding of fact by the Tribunal is perverse. In these circumstances, there is no reason to entertain the proposed question

Note: It was also decided that offering income under the wrong head (capital gains instead of other sources) does not attract s. 271(1)(c) penalty. (A.Y.)

CIT v. Bennett Coleman & Co. Ltd (Bom.) (High Court) www.itatonline.org

S.271(1)(c) : Penalty – Concealment – Loss return – Speculation loss – Wrong claim penalty was confirmed.

Assessee filed its return without disclosing speculative profit earned from sale of shares. In response to Assessing Officer’s notice, assessee contended that there was no need to disclose speculative profit in profit and loss account because speculative loss had been incurred in earlier years. Assessing Officer having rejected assessee’s explanation, added speculation profit to taxable income and also imposed penalty under section 271(1)(c). The Court held that even if speculation profit was eligible for set off against carried forward speculation loss, same would have effect of diminishing such speculation loss which would be carried forward for future years. Since, it is well settled that in case of loss return also, penalty could be imposed if by virtue of wrong claim, due to which the computation of loss is likely to reduce. Accordingly the impugned penalty order was to be confirmed. (A.Y. 2006-07)

Subhash S. Shah. v. ITO (2013) 213 Taxman 43(Mag.) (Guj.) (High Court)

S.271(1)(c) : Penalty – Concealment – Revised return – After detection – Levy of penalty was justified.

Assessee’s case was taken up for scrutiny and concealment of income had been detected by Assessing Officer. Assessee filed revised return. An amount was surrendered on ground of buying peace with department. However, it was a specific concealment for a particular month which was detected by Assessing Officer and not a case where addition was made in income on estimate and surmise. Since it was clear case of concealment of income and furnishing of wrong particulars of income, penalty was correctly imposed. Appeal of assessee was dismissed. (A.Y. 1993-94)

Standard Hind Co. v. CIT (2013) 212 Taxman 74 (Mag.)(All.)(High Court)

S.271(1)(c) : Penalty – Concealment – Revised Return – During the assessment proceedings assessee filed revised return declaring higher profit – AO not recoding satisfaction that the assessee has concealed income Penalty is not leviable.

Where the A.O. had not recorded any satisfaction that the assessee had concealed income or furnished inaccurate particulars of income and the additional income offered in the revised return filed during the assessment proceedings is accepted by the A.O. Penalty under section 271 (1)(c) is not leviable. (A.Y. 1976-77)

CIT v. Ashok Kumar Jain (2013) 81 DTR 94 (Jharkhand)(High Court)

S.271(1)(c) : Penalty – Concealment – Revised return – Search and seizure by Excise Department – Survey by Tax department – Levy of penalty is not justified when the revised return was filed before issue of notice under section 148. (Ss.148, 133A).

In course of a search conducted at assessee’s premises by Excise Department, assessee admitted suppression of turnover. Thereafter, based on said search, income-tax authorities, conducted survey and consequent thereto assessee filed revised returns before issue of notice under section 148 declaring additional income and suppression of sales and paid taxes as well as interest. The Assessing Officer held that there was concealment of income by way of suppression with intention to evade tax and the assessee even failed to revise the income after the date of search conducted by the Central Excise Department. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On further appeal, the Tribunal held that when once the return was filed before the issue of notice under section 148 and tax due with interest was paid, as the income was not suppressed, the imposition of penalty was not proper. Therefore, the order of imposition of penalty was set aside. On appeal by revenue the Court held that merely because it was only after survey that a revised return was filed, it was not a ground to hold that there was suppression of income so as to justify levy of penalty. (A.Y. 2004-05 to 2006-07)

CIT v. Vega Auto Accessories (P.) Ltd. (2013) 212 Taxman 95 (Mag.) (Karn.)(High Court)

S.271(1)(c) : Penalty – Concealment – Short-term capital gains – Business income – Treating income under some other head is not furnishing of inaccurate particulars of income levy of penalty is rightly deleted.

The assessee declared income from short-term capital gains. The Assessing Officer assessed it as income from business. He also levied penalty under section 271(1)(c) of the Act, on the ground that the assessee had furnished inaccurate particulars of his income. The Commissioner (Appeals) cancelled the penalty. This was confirmed by the Tribunal. On appeal by revenue the Court also confirmed the order of Tribunal.

CIT v. Amit Jain (2013) 351 ITR 74 / 258 CTR 88 / 85 DTR 175 (Delhi)(High Court)

S.271(1)(c) : Penalty – Concealment – Survey – Surrender of income without explanation attracts penalty. (S.133A)

A survey u/s.133A was conducted on the assessee’s premises in the course of which certain documents belonged to certain entities who had applied for shares in the assessee company were found. The AO called upon the assessee to prove the nature and source of the monies received as share capital, the creditworthiness of the applicants and the genuineness of the transactions. The assessee offered ` 40.74 lakhs as income from other sources "to avoid litigation and to buy peace". It was made clear that in making the surrender, there was no admission of concealment. The A.O. completed the assessment by adding the said sum and levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income u/s. 271(1)(c). This was upheld by the CIT(A) though reversed by the Tribunal (included in file) on the ground that there was no material to show any concealment and even in the penalty order it was not specified as to the particular credit in respect of which the penalty was being imposed. It was also emphasised by the Tribunal that the assessee had made it clear while surrendering that there was no admission of concealment and that the offer was made in a spirit of settlement. On appeal by the Department to the High Court, HELD reversing the Tribunal:

When the AO called upon the assessee to produce evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions the assessee simply folded up and surrendered the sum of ` 40.74 lakhs by merely stating that it wanted to "buy peace". In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation 1 to s. 271(1)(c) is attracted because the nature and source of the amount surrendered are facts material to the computation of total income. The absence of any explanation regarding the receipt of the money, which is in the exclusive knowledge of the assessee leads to an adverse inference against the assessee and is statutorily considered as amounting to concealment of income under the first part of clause (A) of the Explanation to s. 271(1)(c) and penalty has to be levied.

CIT v. MAK Data Ltd (Delhi)(High Court) www.itatonline.org.

S.271(1)(c) : Penalty – Concealment – Wrong advice of Chartered accountant – Mistakes had occurred due to wrong advice given by the Chartered Accountant and that there was a "bona fide mistake". Levy of penalty is not justified.

The assessee filed a return of income in which it committed two mistakes (i) Depreciation was claimed at `1.70 crores instead of at ` 1.05 crores due to a mistake in calculation, (ii) the assessee sold its garment manufacturing machine and suffered a loss of `21.68 lakhs thereon. Though the loss was on capital account, it was claimed as a revenue deduction. In the course of the assessment proceedings, the assessee realised its mistake and withdrew the claim for excess depreciation and the claim for the loss. The AO levied penalty u/s. 271(1)(c) on both issues which was confirmed by the CIT(A). However, the Tribunal held that both mistakes had occurred due to a mistake/ wrong advice given by the Chartered Accountant and that there was a "bona fide mistake". It was also held that "the bona fide of the assessee is established from the fact that the assessee accepted the mistake and did not prefer any appeal against the order of the AO". On appeal by the department to the High Court, HELD dismissing the appeal:

The grievance of the revenue is that penalty is justified in view of the fact that the assessee had not filed a revised return of income. However, the Tribunal noted that the time to file revised return had expired. In any event, even the revenue does not dispute that it was a bona fide mistake on the part of the assessee. In the above view, imposition of penalty upon the assessee is not warranted.

CIT. v. Somany Evergreen Knits Ltd. (Bom.)(High Court). www.itatonline.org.

S.271D : Penalty – Accepts any loan or deposit – Limitation – Barred by limitation. (S. 269SS, 275)

Show-cause notice for the alleged contravention of s. 269SS was issued on the assessee by the AO on 27th March 2003. Penalty levied by Jt. CIT on 28th May 2004 was beyond the period of limitation, notwithstanding issue of show-cause notice by Jt. CIT after the matter was referred to him on 22nd March 2004. (A.Y. 2001-02)

CIT v. Jitendra Singh Rathore (2013) 83 DTR 227 (Raj.)(High Court)

S.271D : Penalty – Accepts any loan or deposit – Reasonable cause – Finding as to the existence of reasonable cause is a finding of fact which cannot give rise to any substantial question of law. (Ss.269SS, 269T, 273B)

CIT(A) and the Tribunal arrived at concurrent findings that there was reasonable cause within the meaning of s. 273B for the violation of s. 269SS after taking note of the entire facts and circumstances in which the assessee was placed, it cannot be held that the view taken by the Tribunal is either perverse or absolutely irrational, and the findings recorded by the Tribunal being essentially findings of fact, no substantial question of law arises. (A.Y. 1993-94 & 1999-2000 to 2001-02)

CIT v. Sahara India Financial Corporation Ltd. (2013) 83 DTR 162 / 257 CTR 215 (Delhi)(High Court)

S.271D : Penalty – Accepts any loan or deposit – Reasonable cause. (Ss.269T, 271E, 273B)

Tribunal cancelled penalties u/ss. 271D and 271E after appraising several facts and circumstances in accepting the assessee’s explanation that there exited reasonable cause within the meaning of s. 273B for the violation of the provisions of ss. 269SS and 269T. The revenue had not brought on record any material to show that the finding of the Tribunal as to the existence of reasonable cause is perverse. No substantial question of law arose. (A.Y. 1992-93, 1993-94, 1996-97, 1999-2000 & 2000-01)

CIT v. Sahara India Mutual Benefit Co. Ltd. (2013) 83 DTR 171 / 257 CTR 225 (Delhi)(High Court)

S.281B : Provisional attachment – Crown debt – Petitioner as secured creditor had preference over dues of department in Respect of secured assets – Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

A company availed loan from petitioner and mortgaged certain property to secure loan advanced to it. Since said company defaulted in making payments of loan, petitioner initiated proceedings under section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Thereupon, petitioner took possession over property and put it on sale. Impugned property had been provisionally attached under section 281B with prior approval of Commissioner and, it was on said basis, revenue claimed preferential right to realize its dues being crown debt. The petitioner challenged the order by way of writ petition allowing the petition the court held that, there is no provision in statute which gives preferential rights to dues of State under Act, therefore, petitioner as secured creditor had preference over dues of department in respect of secured assets, in view of aforesaid, instant writ petition was to be disposed of with a direction to petitioner to remit any excess amount, after adjusting its dues, to revenue being preferential creditor amongst unsecured creditors.

Axis Bank Ltd. v. CIT (2013) 212 Taxman 19 (Mag.) (P&H)(High Court)

S.281B : Provisional attachment – Validity period – Extinguish after passing of assessment order. (S.144C)

Provisional attachment order passed under section 281B and notices/letters issued to bank and sundry debtors of petitioner for not to make payment to petitioner would cease to operate after passing of assessment order. Validity period of six months of provisional attachment order would be extinguished after passing of assessment order. (A.Y. 2008-09)

Motorola Solutions India (P.)Ltd. v. CIT (2013) 212 Taxman 35 (P & H)(High Court)

S.292BB : Notice deemed to be valid in certain circumstances – Reassessment – Section 292BB does not have retrospective effect. (Ss.143(2), 148)

The AO issued a notice u/s. 148 to make a reassessment. However, as a notice u/s. 143(2) was not issued, the Tribunal quashed the reassessment. The Department filed an appeal before the High Court where it relied on s. 292BB (which provides that the failure to issue notice cannot be objected to if the assessee has appeared in the proceeding), inserted by the Finance Act, 2008 w.e.f. 1.4.2008 and argued that the said provision was retrospective in operation and the reassessment was valid. HELD by the High Court dismissing the appeal:

The issue of a notice u/s. 143(2) is mandatory. The failure to do so renders the reassessment void (CWT v. HUF of H. H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom.) followed). S. 292BB was inserted w.e.f. 1.4.2008 and came into operation prospectively for AY 2008-09 and onwards.

CIT v. Salman Khan (Bom)(High Court) www.itatonline.org.

S.292C : Presumption as to assets, books of account, etc. – Search and Seizure – Addition on the basis of documents is held to be justified

Pursuant to a search at assessee’s premises, certain documents were found and one of such documents contained working of interest at rate of 3 per cent on total sum of ` 3 lakh. Assessee was directed to explain contents of document found during course of search - Assessee explained that contents of said document were rough working and no loan was given out. Assessing Officer rejected assessee’s explanation and brought to tax principal amount of ` 3 lakh and interest thereon. Commissioner (Appeals) and Tribunal confirmed order of Assessing Officer. On basis of material recovered during search, lower authorities had rightly drawn presumption in terms of section 292C. Therefore, impugned addition was to be confirmed. Appeal of assessee was dismissed. (A.Y.1998-99)

Hiren Vasantlal Shah v. ACIT (2013) 212 Taxman 23 (Mag.) (Guj.)(High Court)

Wealth-tax Act, 1957

S.2(ea) : Asset – Commercial properties – Commercial Properties were not considered as assets in terms of S.2(ea)(i) of the Wealth-tax Act, 1957 prior to 1-4-97 and hence, such properties can’t be assessed under the said Act.

Property given on rent, being a productive asset, bears the character of a "Commercial Property" Commercial Properties were not included in the definition of asset as prescribed u/s. 2(ea)(i) of the Wealth-tax Act, 1957 as it stood prior to 1-4-1997. Since the year under consideration was Asst. Year 1996-97, it was held by the Hon’ble High Court that the said property cannot be assessed under the Wealth-tax Act, 1957.
(T.A. No. 540 of 2006. dt 16-6-2012)]

Narayan T. Baddi (Dr.)(2012) ACAJ - November-P. 402)(Guj.)(High Court )

S.2(ea) : Asset – Lease for 99 years – Used for the purpose of business – Land is exempt

Assessee had been allocated land in question on 99 years lease by State Industrial Corporation. WTO denied exemption under section 2(ea)(i)(3) and subjected land to wealth tax on ground that assessee was not doing any business therefrom for last number of years. In fact it was found that assessee had carried on its business utilising aforesaid asset for this purpose, and this position was even accepted by department as well. On facts land in question held by assessee was exempt from wealth-tax under section 2(ea)(i)(3).(A.Y. 2001-02 to 2004-05)

CIT v. Sohna Forge (P.) Ltd. (2013) 212 Taxman 82 (Mag.)(Delhi)(High Court)

S.2(m) : Net wealth – Asset – Surplus of income – Presumption – Exception – No presumption – Addition of income from undisclosed sources in earlier years is not treated as surplus available in assessee's hands to be treated as wealth for purpose of wealth-tax for latter years

The Income-tax Officer, for the assessment years 1985-86 to 1988-89, found that the total surplus available with the assessee by way of income being ` 21,15,164 and the total wealth disclosed by the assessee being ` 97,25,000, the increase in the wealth was to the tune of ` 76,09,836. That income of ` 76,09,836 was taken to be income from undisclosed sources. The total available surplus available with the assessee during the assessment years 1973-74 to 1976-77 was declared to be ` 21,15,164 based on the assessed income of the assessee for the three years. The Tribunal upheld the assessment. On appeals :

Held, dismissing the appeals, that the addition of ` 23,59,461 made from the assessment years 1963-64 to 1970-71 could not be held to be assets in the hands of the assessee after the period of more than eight years and, therefore, no tax could be imposed on the basis of such addition of ` 23,59,461 treating it to be wealth for the purpose of wealth-tax for the years 1985-86 to 1988-89 and onwards.(A. Y. 1985-1986, to 1988-1989)

Gyan Chand Jain v. CWT (2013) 350 ITR 353 / 84 DTR 170 / 257 CTR 273 (Jharkhand)(High Court)

S.4 : Deemed wealth – Asset – 'belonging to' – Allotment of land-Liable to wealth tax

Assessee was allotted certain land by State Government. It constructed sheds thereon and rented out same to industrialists. Assessing Officer observed that though income from those sheds had been reflected in income of assessee, in return of wealth tax aforesaid sheds were not shown as 'assets' of assessee. Assessing Officer, therefore, added value of those sheds towards assets of assessee - On appeal, Tribunal held that property in question could not be treated to be assets of assessee since same had only been allotted to it and was actually transferred in its favour in a later year. Since assessee was deriving rental income from sheds, property should be deemed to be belonging to assessee and was liable to be included in its assets.

CIT v. H. P. Small Industries & Export Corp. (2013) 212 Taxman 84 (Mag.) (HP.) (High Court)

S.5(i) : Exemptions – Property held by charitable and religious trust – Exemption is held to be available

Assessee trust was constituted with object to provide educational facilities in catering. One 'K' transferred movable and immovable properties of hotel 'V' to assessee-trust for providing catering education therein. Said transfer was treated as gift in hands of 'K' but on appeal levy of gift tax was set aside by Tribunal holding that there was no gift and it was only a permission granted for a college to manage same free of rent. In case of assessee, Assessing Officer treated assets of hotel 'V' as assessee's wealth and computed wealth tax liability payable by assessee when assessee was not liable to pay any income-tax on income derived by it from activity carried on by it and 'K' was held not liable to pay gift-tax for transfer of property in assessee's favour, levy of wealth tax on very same property on ground that activity conducted by assessee in respect of property did not constitute a charitable or religious purpose was unjustified. Appeal of revenue was dismissed. (A.Y. 1986-87)

CIT v. Manipal Hotel & Restaurant Management College Trust [2013] 212 Taxman 86 (Mag.)(Karn.)(High Court)

S.7 : Valuation of assets – Immovable property – Let out property – Interest free deposits – Annual rent – Addition was up held

Assessee let out its property on annual rent of ` 4.42 lakhs. It also received interest free deposits of ` 31.50 lakhs from tenant - While computing fair market value of property let out, Assessing Officer added interest at rate of 14 per cent on ` 31.50 lakhs to figure of annual rent. Commissioner (Appeals) as well as Tribunal held that interest amount could not be added to annual rent to compute fair market value of property. It is undisputed that as per Schedule III, rule 5, where an owner has accepted an amount or deposit, not being an advance payment towards rent for a period of 3 months or less, an amount calculated at rate of 15 per cent per annum on amount of deposit outstanding from month to month shall be added to compute annual rent. In view of aforesaid, computation made by Assessing Officer by adding interest on security deposit to figure of annual rent was to be upheld. Appeal of revenue was up held. (A.Y. 1985-86 to 1987-88)

CWT v. M G Builders Co. (2013) 212 Taxman 15 (Mag.) (Delhi) (High Court)

S.7 : Valuation of assets – Immovable property – Slums on property has to be considered for the purpose of valuation of property

Assessee acquired 50 per cent of share in a property. He acquired same under registered sale deed. AAC accepted valuation of assessee whereunder apart from consideration mentioned in sale deed and market value of the property, impediments like ownerships slums on property were also taken into consideration in coming to fair market value. On appeal, Tribunal declined to interfere with finding recorded by AAC. On facts, valuation accepted by Tribunal was just and proper and represented true market value of property. (A.Y. 1996-97 to 2003-04)

CIT v. S.K. Ramprasad (2013) 212 Taxman 15 (Mag.) (Karn.)(High Court)

S.16 : Assessment – Notice – Reassessment – Order passed without issuing mandatory notice held to be invalid. (Ss.16(2), 16(4), 17)

A notice under section 17 was issued to assessee on ground that authority had reason to believe that wealth had escaped assessment - Assessee did not file any return, in response to said notice. Assessing Authority issued a notice under section 16(4) calling upon assessee to produce account books and other documents for verification. Instead of producing books as sought for in said notice, assessee filed returns under section 16(4)(i). Thereafter, Assessing Authority passed assessment order. Assessee challenged said order before Appellate Commissioner on ground that notice under section 16(2) was not issued before passing an order of assessment which was mandatory. Appellate Commissioner taking a view that notice issued under section 16(4) would satisfy requirement of law as well as principles of natural justice, dismissed assessee's appeal. On further appeal, Tribunal held that impugned order of assessment passed without complying with requirement of section 16(2) was invalid. On appeal by revenue the Court held that since Assessing Officer had neither given a notice under section 16(2) nor a notice as contemplated in proviso to section 16(5) and passed impugned order, order so passed was violative of principles of natural justice, therefore, Tribunal was justified in setting aside impugned assessment order. (A.Y. 1999-2000 to 2003-04)

CWT v. Prameela Krishna (Smt.) (2013) 212 Taxman 16 (Mag.) (Karn.)(High Court)

S.18(1(c) : Penalty – Concealment – NO penalty can be levied in respect of addition made on account of adoption different methods of valuation by assessee and Department

No penalty can be levied u/s. 18(1)(c) on addition made in respect of difference in valuation of properties on account of adoption of different methods of valuation by assessee and department further, in case the penalty order does not clearly spell out as to whether the penalty is levied for concealment of wealth or for furnishing inaccurate particular of wealth. (T.A. No. 145 / 147 Of 200, dt. 24-7-12)]

Ramanbhai B. Patel Huf (2012) ACAJ - November-P. 399)(Guj.) (High Court)

S.24 : Appellate Tribunal – Power – Appeal – Rectification of mistake – No power to review.

Assessee is an individual belonging to royal family of Patiala. In course of wealth-tax proceedings, department had bifurcated residential land bounded by four walls of property into different segments and adopted different rates of land. On appeal, Tribunal considered facts of case and proceeded to hold that value of residential house and land appurtenant to residential house might be valued as per provisions of section 7(4). However, in same order, Tribunal proceeded to hold that classification of land into different categories, area of land and valuation of land, was fair and reasonable. In view of apparent contradictions in Tribunal's order, assessee filed a miscellaneous application. Tribunal thus recalled its order for a limited purpose of determining valuation of land appurtenant to residential house in question. Subsequently, Tribunal concluded that there was no contradiction in findings recorded On facts, approach adopted by Tribunal in impugned order smacked review of earlier order. Therefore, impugned order was to be set aside and, matter was to be remanded back with a direction to Tribunal to reconcile the two order instead of writing a perfunctory order. (A.Y. 1972-73 to 1984-85)

Raja Malwinder Singh v. CWT (2013) 212 Taxman 17 (Mag.) (P & H)(High Court)